Document:

Exhibit 10.12

 

	
  

  	
  GAS PURCHASE AND
  GAS PROCESSING CONTRACT ETC TEXAS PIPELINE, LTD. “BUYER” AND EVOLUTION
  OPERATING CO., INC. “SELLER” 

  

 

	
  

  	
   INDEX ARTICLE DESCRIPTION PAGE NUMBER I
  Definitions 1 II Preliminary Statement 3 III Dedication 4 IV Reservations of
  Seller 5 V Quantity 6 VI Quality 8 VII Point(s) of Delivery, Construction of
  Facilities, Ownership and Control of Gas 10 VIII Pressure 12 IX Measurement
  13 X Processing of Seller’s Gas 18 XI Price and Billing 20 XII Taxes,
  Assessments and Fees 25 XIII Regulatory Bodies 26 XIV Force Majeure 26 XV
  Warranty of Title to Gas 28 XVI Easements 29 XVII Term 30 XVIII Seller’s
  Leases 30 XIX Miscellaneous 31 EXHIBIT “A” Legal Description EXHIBIT “B”
  Seller’s Representative EXHIBIT “C” Treating Fee EXHIBIT “D” Gas Lift 

  

 

	
  

  	
   GAS PURCHASE AND GAS PROCESSING CONTRACT
  THIS CONTRACT, made and entered into as of the 8th day of October, 2007, by
  and between ETC TEXAS PIPELINE, LTD., an intrastate pipeline company, herein
  referred to as “Buyer”; and EVOLUTION OPERATING CO., INC. (“EVOP”) herein
  referred to as “Seller” (whether one or more). WITNESSETH WHEREAS, Seller is
  the current operator of certain oil and gas leases which are more
  particularly described on Exhibit “A” hereto from which Seller has or will
  have a supply of gas available for sale hereunder and desires to sell same to
  Buyer. WHEREAS, Buyer has or plans to construct and operate a natural gas
  pipeline system in the area of Seller’s oil and gas leases and desires to
  purchase the gas which Seller from time to time has available for sale. NOW,
  THEREFORE, in consideration of the mutual covenants and conditions herein
  contained, the parties hereto mutually covenant and agree as follows: ARTICLE
  I DEFINITIONS For the purpose of this Contract, unless the context of the
  instrument requires otherwise, the following definitions shall be applicable:
  1.1 “Casinghead Gas” shall mean natural gas issuing from a well classified as
  an oil well by the Railroad Commission of Texas, whether produced from the
  same sand or strata 

  

 

	
  

  	
   from which oil is produced or as the result
  of the induction of gas by any method for assisting the production of oil.
  1.2 “Gas Well Gas” shall mean natural gas issuing from a well classified as a
  gas well or statutory gas well by the Railroad Commission of Texas. 1.3 “Gas”
  shall mean the gaseous effluent and all constituents thereof from Seller’s
  conventional gas-oil field separators to which Seller’s wells are connected
  and when used herein without further description, shall mean and include both
  Gas Well Gas type gas and Casinghead Gas type gas. 1.4 “Lease or Leases”
  shall mean the oil and gas leases, land(s) and/or well(s) described in
  Exhibit “A” hereto, together with listed, or unlisted, amendments to said
  Leases in effect on the effective date hereof and shall also include any
  renewals and/or extensions to such leases. Said term shall include by
  reference the land covered by such leases or allocated to such wells. 1.5
  “Day” shall mean the 24-hour period commencing at seven o’clock a.m. local
  time (“7:00 a.m.”) on one calendar day and ending at 7:00 a.m. local time on
  the following calendar day. 1.6 “Month” shall mean the period beginning at
  7:00 a.m. local time on the first day of a calendar month and ending at 7:00
  a.m. local time on the first day of the next succeeding calendar month. 1.7
  “Mcf” shall mean one thousand (1,000) cubic feet. 1.8 “MMcf” shall mean one
  thousand (1,000) Mcf. 1.9 “BTU” shall mean British thermal unit. 1.10 “MMBTU”
  shall mean one million (1,000,000) BTU’s. 2 

  

 

	
  

  	
   1.11 “Psia” shall mean pounds per square
  inch, absolute. 1.12 “Psig” shall mean pounds per square inch, gauge. 1.13
  “Seller’s Delivery Capacity” shall mean the maximum stabilized quantity of
  Gas Well Gas which can be delivered to Buyer under and subject to all valid
  rules and regulations of regulatory authorities less those quantities
  actually excepted and reserved by Seller pursuant to Article IV hereof, at
  the Point of Delivery against Buyer’s existing line pressure during a
  twenty-four (24) hour period following a seventy-two (72) hour period of
  stabilized flow; such determined delivery capacity shall be effective from
  the first day of the next succeeding month after such determination;
  provided, however, Seller’s Delivery Capacity at no time shall exceed the stabilized
  quantity of Gas Well Gas actually available for delivery to Buyer. Seller’s
  Delivery Capacity shall be reduced by the quantity of Gas Seller utilizes
  pursuant to the reservations contained in Article IV of this Contract. 1.14
  “Seller’s Gas Reserves” shall mean the total quantity of gas which Seller has
  the right to market from the Lease(s) described in Exhibit “A” hereto. 1.15
  “Buyer” shall mean Buyer and/or its nominee. 1.16 “Unfavorable Market
  Conditions” shall mean that point in time when the price of Gas is $3.00 or
  less per MMBTU based on the Houston Ship Channel Price Index or, if not
  published, a substitute price index as determined in accordance with
  Paragraph 11.3(1)(a). Notwithstanding the foregoing, in no event shall the
  Buyer be required to pay the above referenced price as a base price for Gas
  under this Contract. 3 

  

 

	
  

  	
   ARTICLE II PRELIMINARY STATEMENT 2.1 Seller
  represents and warrants that the Gas that is the subject of this Contract is
  free of prior dedication (other than to Buyer) and has not heretofore been
  committed or dedicated to interstate commerce and, as such, is not subject to
  the Federal Energy Regulatory Commission’s jurisdiction under Section 1(b) of
  the Natural Gas Act. In the event it should be determined that such Gas is
  subject to prior dedication or was committed or dedicated to interstate
  commerce, Seller agrees to fully indemnify and hold Buyer harmless against
  any claims or losses arising from or out of any such prior commitment or
  dedication. Further, in the event Buyer is required to make restitution of
  volumes previously purchased hereunder due to such prior commitment or
  dedication, then Seller agrees to indemnify and hold Buyer harmless for the
  replacement cost of Gas Buyer is required to return. 2.2 Seller represents
  that, as operator of Leases, it has the right to market the Gas attributable
  to the Leases described in Exhibit “A” hereto, and that it will construct, or
  cause to be constructed, the facilities necessary to enable it to sell and
  deliver to Buyer at the Point(s) of Delivery, as hereinafter set forth, all
  Gas attributable to such interest and/or marketing right in accordance with
  the provisions of this Contract. ARTICLE III DEDICATION 3.1 Subject to the
  terms and conditions of this Contract, Seller hereby commits and dedicates to
  the performance of this Contract all of Seller’s Gas Reserves and, to insure
  the performance of the provisions of this Contract, covenants to sell and
  deliver Seller’s 4 

  

 

	
  

  	
   Gas Reserves to Buyer at the Point(s) of
  Delivery without other disposition during the term of this Contract, except
  as herein otherwise provided. ARTICLE IV RESERVATIONS OF SELLER 4.1 Seller
  hereby expressly reserves the following rights with respect to the Gas
  subject hereto and the Leases described in Exhibit “A” hereto: (1) The right
  to use Gas prior to delivery to Buyer for the following purposes: (a) For
  fuel used above ground in the development and operation of Leases dedicated
  to this Contract; and (b) For delivery to the parties “lessor” from whom the
  Leases were obtained, that Gas which such “lessors” are entitled to receive
  in kind under the terms of the Leases; and (c) For fuel used in the operation
  of the facilities which Seller may install in order to deliver gas hereunder
  in accordance with the terms hereof. (2) The right to pool or unitize the
  Leases (or any portion thereof) with other lands and leases. In the event of
  pooling or unitization, this Contract will cover Seller’s interest in the
  pool or unit and the Gas attributable thereto to the extent, and only to the
  extent, that such interest is attributable to Seller’s Gas Reserves. (3) The
  right to retain all oil and condensate separated from Seller’s Gas by Lease
  Separation Facilities prior to delivery to Buyer. The term “Lease Separation
  Facilities” shall mean conventional mechanical oil-gas field separators which
  may include adiabatic 5 

  

 

	
  

  	
   expansion utilizing natural pressure
  available from a well without recompression but shall exclude facilities
  utilizing adsorption, absorption, expanders, mechanical refrigeration or low
  temperature separation processes with heat exchangers. (4) Seller shall
  furnish Buyer, at reasonable intervals, a written report of the volumes of
  gas utilized pursuant to the foregoing provisions of this Article IV;
  provided, however, if a regulatory body requires submission of monthly
  reports of gas so utilized, Seller agrees to furnish Buyer a copy of each
  such report. Seller’s Delivery Capacity shall be reduced by the quantity of
  Gas Seller utilizes pursuant to the foregoing reservations. ARTICLE V
  QUANTITY 5.1 During the term of this Contract, Buyer shall have the right to
  take and purchase one hundred percent (100%) of Seller’s Delivery Capacity
  subject only to Seller’s control to the extent necessary to prevent damage to
  the well or producing formation or due to poor market conditions. 5.2 Buyer
  agrees to take and Seller agrees to deliver Gas hereunder in accordance with
  all applicable laws, rules, and regulations, including but not limited to the
  rules of the Railroad Commission of Texas governing the determination of Gas
  market demand and procedures for the establishment and allocation of
  allowables and for ratable nominations and takes of Gas; provided, however,
  that if such laws, rules or regulations are at any time and from time to time
  modified, amended, revised, or interpreted after the date of this Contract,
  then Buyer or Seller may terminate this Contract upon thirty (30) days notice
  if Buyer or Seller determine that the laws, rules, or regulations as modified,
  amended, revised or interpreted, impose on Buyer 6 

  

 

	
  

  	
   or Seller greater burdens, restrictions, or
  obligations than existed at the date of this Contract. The parties expressly
  recognize that Buyer’s obligations to take pursuant to the rules or otherwise
  shall be subject to the ability of Buyer’s facilities to handle all Gas
  connected thereto, lessening or fluctuating demand for Gas on Buyer’s or its
  resale purchaser’s pipeline system, the location on Buyer’s or its resale
  purchaser’s system of Gas supplies and demand, or force majeure as
  hereinbefore defined. In the event such rules or regulations are no longer
  applicable to Buyer’s takes of Gas under this Contract, Buyer agrees to
  purchase and take Seller’s Gas on a ratable basis with other Gas Buyer
  purchases and takes from the same Railroad Commission of Texas recognized
  field. 5.3 Commencing on the date Buyer first takes delivery of Casinghead
  Gas, Buyer shall take and purchase and Seller agrees to deliver and sell to
  Buyer from Seller’s Gas Reserves all of the Casinghead Gas produced from
  wells of Seller on or attributable to the Lease(s) and/or wells subject
  hereto and connected to Buyer’s pipeline system. 5.4 It is recognized that in
  order for Buyer to efficiently operate its pipeline system, it is essential
  that Gas received into such pipeline system be made available to Buyer under
  as uniform operating conditions as possible. Commensurate with good
  production and operating practices, Unfavorable Market Conditions and in
  accordance with proper conservation measures, Seller agrees to deliver Gas to
  Buyer at such rates of flow as Buyer may from time to time request, in
  writing. Buyer agrees to give Seller reasonable notice in the event Buyer
  desires at any time to increase or decrease the quantity of Gas requested
  hereunder. 5.5 In the event any of Buyer’s facilities are of insufficient
  capacity to handle all of the Gas connected thereto, Buyer shall be obligated
  only to take gas ratably from all Leases 7 

  

 

	
  

  	
   and/or wells delivering into such facilities;
  provided however, in the event Buyer has not remedied the insufficient
  capacity problem within ninety (90) days after written notice from Seller,
  Buyer shall at Seller’s option and upon Seller’s request, release that part
  of Seller’s gas affected by such insufficient capacity in Buyer’s facilities.
  5.6 Seller shall from time to time, at Buyer’s request, make available to
  Buyer such factual, geological, engineering, and production data possessed by
  or available to Seller, not considered by Seller to be confidential, that may
  be needed for study by Buyer of Seller’s existing or potential gas reserves
  and/or Seller’s Delivery Capacity. Buyer shall have the right from time to
  time to require a determination of Seller’s Delivery Capacity. 5.7 It is understood
  and agreed that nothing in this Contract shall be construed to require Buyer
  to pay for any quantities of gas not taken, or to require Seller to deliver
  or Buyer to purchase and receive from Seller any quantities of gas in excess
  of that which may be produced and taken under the applicable rules,
  regulations and orders of all regulatory bodies having jurisdiction and/or
  under Paragraph 5.2 of this Contract. 5.8 Seller agrees to have field
  personnel available to operate Seller’s wells and lease facilities and to
  receive and timely comply with Buyer’s requests (verbal or written) to
  increase or decrease the delivery of gas to Buyer. ARTICLE VI QUALITY 6.1 The
  Gas as delivered by Seller to Buyer shall be delivered commercially free of
  solids, dust, paraffin and paraffin forming constituents, gum and gum-forming
  8 

  

 

	
  

  	
  constituents,
  free water and other matter which may interfere with the delivery thereof or
  become separated therefrom during transportation. 6.2 The Gas as delivered by
  Seller to Buyer shall be as produced in its natural state and shall be of
  such quality that it shall meet the following specifications: (1) Contain not
  more than one-fourth (1/4) grain of hydrogen sulfide per 100 cubic feet; and
  (2) Contain not more than five (5) grains of total sulfur per one hundred
  (100) cubic feet; and (3) Contain not more than two percent (2%) by volume of
  carbon dioxide; and contain not more than a total of three percent (3%) by
  volume of non-hydrocarbon gases; and (4) Contain not more than one percent (1%)
  by volume of oxygen; and (5) Contain a gross heating value equivalent to at
  least one thousand (1,000) BTU per cubic foot; and (6) Have a temperature of
  not more than one hundred (100°) degrees Fahrenheit, nor less than forty
  (40°) degrees Fahrenheit, when delivered to Buyer. 6.3 Seller shall have the
  right to be represented and to participate in all tests of the Gas delivered
  hereunder, and to inspect any equipment used in determining the nature or
  quality of the Gas. 6.4 Should Gas tendered by Seller fail at any time to
  conform to all of the specifications set forth in this Article VI, Buyer may
  refuse to accept such non-specification Gas. In the event Seller delivers
  non-specification Gas to Buyer, Seller shall hold Buyer harmless with respect
  to any loss caused Buyer thereby. Seller shall have the right to treat
  non-specification gas to conform same with all of the above specifications.
  If Seller does not elect to treat such Gas, 9 

  

 

	
  

  	
   Buyer may at its option, accept the delivery
  of such Gas and Seller shall pay Buyer a fee as specified in Exhibit “C”
  hereto in consideration of Buyer’s acceptance of such non-specification Gas.
  The initial notification that gas from one or more wells is out of
  specification shall constitute continuing notice for all non-specification
  Gas tendered hereunder with no further notice required. The continued
  acceptance of any non-specification Gas by Buyer hereunder shall constitute
  recognition by Seller of Buyer’s ongoing right at any time without further
  notification to (a) reject all of such Gas; or (b) accept all of such Gas; or
  (c) accept any quantity of such Gas and reject the rest and shall satisfy all
  of Buyer’s obligations to purchase Gas hereunder. If neither party elects to
  treat such non-specification Gas and Buyer continues to refuse to accept
  same, Seller shall have the right upon thirty (30) days prior written notice
  to Buyer, to have released from this Contract, all (but only that) Gas that
  Buyer refuses to take. 6.5 Seller shall not introduce corrosion inhibitors,
  chemicals, antifreeze agents or other materials containing constituents
  harmful or injurious to Buyer’s operations into gas delivered hereunder. Gas
  delivered hereunder shall not contain any substance that is a hazardous or
  toxic waste or contaminant under state or federal law. Should Seller deliver
  gas into any of Buyer’s facilities whereon dehydration facilities are
  installed, then Seller agrees to furnish its prorata share of fuel for said
  dehydration at no cost to Buyer. 10 

  

 

	
  

  	
   ARTICLE VII POINT(S) OF DELIVERY,
  CONSTRUCTION OF FACILITIES, OWNERSHIP AND CONTROL OF GAS 7.1 The Point(s) of
  Delivery shall be at a mutually agreeable point on Buyer’s pipeline system.
  Upon delivery, title to the Gas and all components thereof shall pass to and
  vest in Buyer without regard to the purpose for which it may thereafter be
  sold or used by Buyer. 7.2 Seller, at its own expense, shall construct,
  equip, maintain and operate all lines and necessary facilities to deliver Gas
  committed hereunder to Buyer at the Point(s) of Delivery, including but not
  limited to, installation and maintenance of lease separation facilities (as
  defined herein), line heaters, chokes and safety valves. 7.3 Buyer shall
  construct, maintain, own and operate all necessary facilities to accept
  Seller’s Gas from Seller at the Point(s) of Delivery. 7.4 Each party shall
  promptly perform any necessary acts and construct and install the necessary
  facilities that may be required to commence the delivery of Gas in accordance
  with the provisions of this Contract. Buyer’s obligation to accept Gas from
  each well qualifying under Paragraph 7.5 below shall commence thirty (30)
  days following the latter of (i) written notice from Seller of the completion
  thereof, or (ii) receipt by Buyer of the test data, logs and other
  information necessary to evaluate the deliverability and reserves; provided,
  however, that Seller shall have the right to accelerate the Buyer’s
  obligation to accept Gas from each well, that qualifies under Paragraph 7.5,
  as of the date of first material sustained production if the Seller provides
  Buyer with written notice of Seller’s agreement to indemnify Buyer for the
  actual third party costs expended by the Buyer for the construction of the
  necessary facilities to accept Seller’s Gas at the Point(s) of Delivery
  (“Construction Indemnification Notice”). The 11 

  

 

	
  

  	
   Buyer shall, within thirty (30) days of the
  completion of the construction of any necessary facilities pursuant to this
  provision, provide the Seller with a written statement of the total actual
  third party costs expended (“Construction Indemnification Amount”). The
  Construction Indemnification Amount for each applicable well shall be reduced
  based upon the gross amount of Gas delivered to the Point of Delivery from
  the applicable well. The parties agree, solely for the purposes of
  calculating the reduction of the value of the Construction Indemnification
  Amount, that the rate of $0.45 per mmbtu will be utilized. The reduction to
  the Construction Indemnification Amount will be calculated on a monthly basis
  over a three (3) year period beginning the month of the date of first
  material sustained production from the each applicable well. Buyer shall
  provide Seller with a statement of the balance of the Construction Indemnity
  Amount for each applicable well on a quarterly basis. Once an applicable well
  has produced a gross quantity of Gas to reduce the Construction
  Indemnification Amount to zero, Seller shall no longer have any liability to
  Buyer for the third party costs expended by the Buyer for the construction of
  the necessary facilities to accept Seller’s Gas at the Point(s) of Delivery.
  In the event that an applicable well has failed to produce a gross quantity
  of Gas within the three (3) year period sufficient to reduce the Construction
  Indemnification Amount to zero, or the applicable well has been plugged and
  abandoned, whichever is the first to occur, the Seller shall pay to Buyer an
  amount equal to the difference between the Construction Indemnification
  Amount and the calculated reduction amount. By way of example and for the
  purpose of clarification, if Buyer expends $45,000 in actual third party
  costs to connect Seller’s well after receipt of a Construction Indemnity
  Notice, then Seller shall indemnify Buyer in the amount of $45,000 and such
  indemnity shall be reduced monthly by gross production delivered to the Point
  of Delivery until 100,000 MMBTU of gross gas production has been delivered to
  Buyer (100,000 12 

  

 

	
  

  	
   x $0.45 = $45,000). If, however, at the end
  of the three (3) year period the gross gas production that has been delivered
  to Buyer is only 70,000 MMBTU, then the Seller shall pay to Buyer the sum of
  $13,500.00 ($45,000.00 less (70,000 x $0.45 = $31,500.00) =$13,500.00). 7.5
  With respect to all wells completed by Seller upon Leases committed and
  dedicated hereunder, Seller shall promptly give written notice of each such
  completion to Buyer together with logs, Railroad Commission of Texas
  potential test and other test data sufficient to determine the deliverability
  of each such well and the quantity of recoverable gas reserves attributable
  thereto. Provisions of Paragraphs 7.2, 7.3, and 7.4 above shall apply to each
  particular well provided such well has sufficient deliverability and gas
  reserves to enable Buyer, in its sole opinion, to economically justify the
  installation of the pipeline required to connect such well to its nearest
  existing pipeline that has the capability to handle the quality and volume of
  Gas production therefrom. In the event a well does not meet Buyer’s economic
  standards for connection Buyer shall notify Seller of such fact and Seller
  shall then have the option of either connecting same to Buyer’s pipeline
  system at a mutually agreeable point at Seller’s sole cost and expense or
  requesting Buyer to release same herefrom. In the latter instance, Buyer
  shall forthwith furnish to Seller a release for said well. Furthermore,
  nothing in this Contract shall require Buyer, in its sole opinion, to make or
  maintain any connection to any well and/or Point of Delivery if it is or
  becomes uneconomical for Buyer to do so. 7.6 Seller shall be in control and
  possession of the Gas sold and purchased hereunder and responsible for any
  damage or injury caused thereby until same shall have been delivered to Buyer
  at the Point(s) of Delivery. 13 

  

 

	
  

  	
   7.7 Buyer shall be in control and possession
  of the Gas sold and purchased hereunder and responsible for any damage or
  injury caused thereby after same shall have been delivered to Buyer at the
  Point(s) of Delivery. ARTICLE VIII PRESSURE 8.1 Seller agrees to deliver Gas
  to Buyer at the Point(s) of Delivery at a pressure sufficient to overcome the
  operating pressure in Buyer’s pipeline system. Such operating pressure may
  vary from time to time, but will not exceed twelve hundred (1200) pounds per
  square inch gauge (psig). 8.2 Should Seller at any Point of Delivery deliver
  gas into one of Buyer’s pipelines whereon compression facilities are
  installed, or in the event the natural well pressure available from one or
  more of Seller’s wells is insufficient to produce and deliver Gas in economic
  quantities into Buyer’s high pressure pipeline system without compression and
  Buyer reduces the pressure of its pipeline system at the affected Point of
  Delivery, then Buyer shall have the right to deduct each month from the
  proceeds otherwise due and payable to Seller hereunder, a compression fee
  equal to seven cents (7¢) per stage per Mcf of Seller’s Gas so compressed.
  Seller agrees to furnish its prorata share of fuel for said compression at no
  cost to Buyer. 14 

  

 

	
  

  	
   ARTICLE IX MEASUREMENT 9.1 Measurement shall
  be accomplished in accordance with the following principles: (1) The unit of
  volume for measurement of Gas delivered hereunder shall be one (1) cubic foot
  of Gas at a base temperature of sixty (60°) degrees Fahrenheit and at an
  absolute pressure of fourteen and sixty-five hundredths (14.65) psi, and
  otherwise as provided by the Natural Resources Code of the State of Texas
  (Section 91.051 through 91.062 of Vernon’s Texas Civil Statutes). Except as
  provided by that law, all fundamental constants, observations, records and
  procedures involved in determining and/or verifying the quantity and other
  characteristics of Gas delivered hereunder shall, unless otherwise specified
  herein, be in accordance with the standards prescribed in Report No. 3 of the
  Gas Measurement Committee of the American Gas Association (AGA), as now and
  from time to time revised, amended or supplemented. All measurements of Gas
  shall be determined by calculation into terms of such unit. All quantities
  given herein, unless expressly stated, are in terms of such unit. (2)
  Deviation from Boyle’s law shall be determined by use of the table or
  formulae published by the AGA Par Research Project NX-l9 corrected for Nitrogen
  (N2) and Carbon Dioxide (CO2). Determination of the molecular percentage of
  N2 and CO2 in the Gas shall be made within thirty (30) days after
  commencement of deliveries and at least quarterly. The molecular percentage
  of N2 and CO2 thus determined will be used to determine the
  supercompressibility factors during the ensuing period, with corrections for
  specific gravity, temperature and pressure. 15 

  

 

	
  

  	
   (3) The unit of measurement for payment
  purposes shall be one million BTU’s (MMBTU) determined by multiplying the
  measured volume in Mcf by the gross heating value (determined as established
  herein) in BTU’s per Mcf and then dividing by one million (1,000,000). 9.2
  During the term of this Contract, Buyer shall install, maintain, own and
  operate a measuring station located on its pipeline system adjacent to each
  Point(s) of Delivery; provided, however, Seller shall secure the easement, or
  otherwise obtain the right or permission, necessary for Buyer to so install,
  maintain and operate such station at said point(s). Said measuring station
  shall be used for settlement hereunder and shall be so equipped with orifice
  meters, recording gauges, or other types of meter or meters of standard make
  and design commonly acceptable in the industry, as to accomplish the accurate
  measurement of gas delivered hereunder. The changing of the charts and
  calibrating and adjusting of meters shall be done by Buyer. Buyer shall bear
  all of the maintenance and operations costs of said measuring station(s). All
  equipment installed by Seller at any such measuring station shall be and
  remain the property of the Seller. Buyer’s right to use any such easement,
  right of way or other surface use shall terminate upon the termination of
  this contract. 9.3 Seller may, at its option and expense, install check
  meters at any Point(s) of Delivery for checking metering equipment; provided
  same shall be so installed as not to interfere with the operation of Buyer’s
  facilities. Seller agrees to monitor its deliveries of Gas so that any
  differential pressure pulsations at the Point(s) of Delivery shall not exceed
  ten percent (10%). 9.4 The temperature of the Gas flowing through the meter
  or meters shall be determined at Buyer’s option by the continuous use of a
  recording thermometer installed by 16 

  

 

	
  

  	
   Buyer so that it will properly record the
  temperature of the Gas flowing through the meter or meters. The arithmetical
  average of the hourly temperature recorded each day during the time that Gas
  was actually flowing through the meter shall be used in computing
  measurements for that day. In the event Buyer does not install a recording
  thermometer, the temperature of the Gas shall be determined by use of an
  indicating thermometer at the time of chart changes and recorded on the
  chart; the temperature so recorded will be used for that specific chart
  period. 9.5 The specific gravity of the Gas flowing through the meter or
  meters shall be determined at quarterly intervals, or more often, at Buyer’s
  election, by use of an AGA accepted gravitometer or by computation from
  fractional analysis of samples of the gas taken at the point of measurement.
  Specific gravities so determined will be used in calculating Gas deliveries
  for the month in which the test is made, and for all following months until
  the next specific gravity test is made. 9.6 The gross heating value of the
  Gas shall be determined by Buyer at least quarterly by taking of samples at
  Buyer’s meter; said samples may be run on a calorimeter at another location,
  or the gross heating value may be computed from fractional analysis of such
  samples. The result shall be applied to Gas deliveries during the month when
  the sample is taken and for all following months until a new sample is taken.
  Should Seller not be satisfied with the results of such analysis, it shall
  notify Buyer in writing. Promptly thereafter, representatives of the parties
  shall, using mutually satisfactory procedures, obtain simultaneously under
  normal conditions, two (2) individual samples of the Gas at the delivery
  point in question and by appropriate laboratory analysis determine the total
  gross heating value thereof in accordance with the terms of this Contract,
  reporting the results to the other in writing. The average of the total 17 

  

 

	
  

  	
   gross heating value shown by such two (2)
  analyses shall be used for all purposes of this Contract for the period
  covered by the analysis made by Buyer which gave rise to the joint
  determination. 9.7 The “gross heating value” is defined as the number of
  BTU’s produced by combustion, at a constant pressure, of the amount of Gas
  which would occupy a volume of one (1) cubic foot at a temperature of sixty
  (60°) degrees Fahrenheit, if saturated with water vapor and under a pressure
  of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute,
  with air of the same temperature and pressure as the Gas, when the products
  of combustion are cooled to the initial temperature of gas and air, and when
  the water formed by combustion is condensed to the liquid state. 9.8 Buyer
  shall determine or cause to be determined at each Point(s) of Delivery, the
  hydrocarbon content of the Gas at or about such time as the gross heating
  value is determined. Fractional analysis of samples shall be performed by
  Buyer utilizing gas chromatography equipment or such other method as may be
  commonly used in the industry. From such fractional analysis, Buyer shall
  determine the composition in molecular percent of each of the following
  chemical compounds: (1) carbon dioxide, (2) nitrogen, (3) methane, (4)
  ethane, (5) propane, (6) iso-butane, (7) normal butane, (8) iso-pentane, (9)
  normal pentane and (10) hexanes and heavier hydrocarbons. 9.9 Either party
  shall have the right to be present at the time of any installing, reading,
  cleaning, changing, repairing, inspecting, testing, calibrating, or adjusting
  done in connection with the other’s measuring equipment used in measuring
  deliveries hereunder. The records from such measuring equipment shall remain
  the property of their owner, but upon request, each will submit to the other
  its records and charts, together with calculations therefrom 18 

  

 

	
  

  	
   subject to return within thirty (30) days
  after receipt thereof, after which the charts shall be kept on file for a
  period of one (1) year. At least once each three (3) months, Buyer shall
  calibrate the meters and instruments or cause the same to be calibrated.
  Buyer shall give Seller sufficient notice in advance of such tests so that
  Seller may, at its election, be present in person or by its representative to
  observe adjustments, if any, which are made. For the purpose of measurement
  and meter calibration, the atmospheric pressure shall be assumed to be
  fourteen and sixty-five hundredths (14.65) pounds per square inch,
  irrespective of variations in natural atmospheric pressure from time to time.
  Each party shall have the right to challenge the accuracy of the other’s
  measuring equipment and when challenged, the measuring equipment shall be
  tested (special test), and if necessary, repaired by the owner, the cost of
  such special test to be borne by Seller. 9.10 If upon any test the metering
  equipment in the aggregate is found to be inaccurate by one percent (1%) or
  more, registration thereof and any payment based upon such registration shall
  be corrected at the rate of such inaccuracy for any period of inaccuracy
  which is definitely known or agreed upon, or if not known or agreed upon,
  then for a period extending back to the last day of the calibration.
  Following any test, any metering equipment found to be inaccurate to any
  degree shall be adjusted immediately to measure accurately. If for any reason
  any meter is out of service or out of repair so that the quantity of gas
  delivered through such meter cannot be ascertained or computed from the
  reading thereof, the quantity of gas so delivered during such period same is
  out of service or out of repair shall be estimated and agreed upon by the
  parties hereto upon the basis of the best available data, using the first of
  the following methods which is feasible: 19 

  

 

	
  

  	
   (1) By using the registration of any check
  measuring equipment of Seller, if installed and registering accurately and
  the testing of such accuracy was witnessed by Buyer within sixty (60) days
  prior to the period in question; (2) By correcting the error if the
  percentage of error is ascertainable by calibration, test or mathematical
  calculation; (3) By estimating the quantity of deliveries by deliveries
  during preceding periods under similar conditions when the meter was
  registering accurately. 9.11 The measurement hereunder shall be corrected for
  deviation from Boyle’s Law at the pressure and temperatures under which gas
  is delivered hereunder. ARTICLE X PROCESSING OF SELLER’S GAS 10.1 Seller does
  hereby grant, assign and convey to Buyer all of its rights, to process or
  cause to be processed for the removal and recovery of all components other
  than methane, all of the Gas produced and saved from the Leases dedicated
  hereto except that portion of said Gas that may be unavoidably lost or used
  in the normal operation of Seller’s facilities, lost or used for compression
  and treating fuel or in other of Buyer’s pipeline system operations. 10.2 For
  all purposes, unless the context of this instrument requires otherwise, the
  following definitions shall be applicable: (1) “Plant” shall mean the gas
  processing facilities from time to time utilized by Buyer or Buyer’s nominee
  for the purpose of processing Gas delivered from the pipeline system
  receiving gas dedicated hereunder, whether such facilities consist of one or
  more Gas 20 

  

 

	
  

  	
   processing facilities, or portions thereof,
  and recovering a raw unfractionated liquid hydrocarbon mix. (2) “Plant
  Product” or “Plant Products” shall mean the unfractionated liquid hydrocarbon
  mix consisting of (i) ethane, (ii) propane, (iii) iso-butane, (iv) normal
  butane, and (v) pentanes plus, adsorbed, absorbed or condensed in the plant
  from Gas delivered to the plant. Plant products shall also be deemed to
  include marketable hydrocarbon liquids accumulated in Buyer’s pipeline
  facilities and not processed in the plant (such marketable hydrocarbon
  liquids being hereinafter referenced to as “Field Liquids”). (3) “Component
  Plant Products” shall be (i) ethane, (ii) propane, (iii) iso-butane, (iv)
  normal butane, and (v) pentanes plus (including iso-pentane, normal pentane
  and hydrocarbon components of higher molecular weight) for the purposes of
  settlement and allocation hereunder. (4) “Residue Gas” shall mean that
  portion, as determined at the plant outlet, of gas remaining after extraction
  therefrom of plant products, fuel requirements, losses and other usage within
  the plant and Buyer’s pipeline, plus any Gas by-passed around the plant. (5)
  “Processed Volume” shall mean the volume of gas (in Mcf) received by Buyer at
  a particular Point of Delivery less said point’s attributable share of
  compression, treating and dehydration fuel (in Mcf) allocated on the basis of
  beneficial usage to the handling of said Gas after said Point of Delivery by
  Buyer or its nominee but prior to receipt thereof at the plant. (6) “Theoretical
  Test Gallons” of a particular component plant product shall mean the result
  obtained by multiplying the particular component plant product content of a
  particular Gas stream (expressed in gallons per Mcf) by the processed volume
  (in Mcf) of that particular stream delivered for processing (the result being
  expressed in gallons). 21 

  

 

	
  

  	
   ARTICLE XI PRICE AND BILLING 11.1 As full
  consideration for the Gas and all components thereof delivered to Buyer
  hereunder, Buyer shall pay Seller for the processing rights assigned herein
  to Buyer an amount as computed in Paragraph 11.2 of this Article and Buyer
  shall pay Seller for the Residue Gas attributable to such Gas an amount as
  computed in Paragraph 11.3 of this Article. In making such computations, the
  volume of Gas delivered to Buyer at each Point of Delivery shall first be
  reduced by the volume of Gas, if any, redelivered to Seller for Lease use
  without adjustments; i.e., Gas redelivered to Seller shall be deemed to have
  the same composition as Gas delivered to Buyer at the Point of Delivery to
  which same is attributed. 11.2 The amount to be paid for all processing
  rights shall be ninety-five percent (95%) of the sum determined by
  aggregating the results obtained by multiplying the volume of each component
  Plant Product, including Field Liquids, at each Point of Delivery hereunder
  attributable to Seller by the weighted average monthly sales price for each
  such component Plant Product and/or Field Liquids. (1) Each month the
  quantity (in gallons) of a particular component Plant Product recovered and
  saved in the Plant and attributable to a particular Point of Delivery shall
  be determined by multiplying the actual net component Plant Product produced
  by a fraction, the numerator of which is the Theoretical Test Gallons of the
  particular component Plant Product contained in the Processed Volume
  attributable to the particular Point of Delivery and the denominator of which
  is the total quantity of Theoretical Test Gallons of the particular component
  Plant Product contained in the Processed Volume attributable to all delivery
  points on 22 

  

 

	
  

  	
   Buyer’s pipeline system. Actual net plant
  production of a particular component Plant Product shall be the total net
  deliveries of that component Plant Product at the plant to purchasers during
  the month, plus or minus any change in inventory. (2) The “weighted average
  monthly sales price” of a particular component Plant Product shall be
  determined by dividing the total value invoiced and received for deliveries
  of the particular component Plant Product and Field Liquids during the month
  by the total net deliveries of the particular component Plant Product and
  Field Liquids during the month. The total value invoiced and received shall
  be adjusted to the FOB Plant basis and may include without limitation, a
  marketing fee of one and a half percent (11/2%), adjustments for
  contamination claims allowed, reductions for Plant Products not allocated to
  Buyer or for which value is not received by Buyer, transportation costs and
  other costs and expenses incurred in connection with the marketing and/or
  handling of Plant Products and Field Liquids. 11.3 The amount to be paid for
  Residue Gas shall be one hundred percent (100%) of the sum obtained by
  aggregating the results obtained by multiplying the quantity of Residue Gas
  (in MMBTU) at each Point of Delivery hereunder attributable to Seller by the
  appropriate price per MMBTU of Residue Gas. (1) The base price for Residue
  Gas delivered to Buyer hereunder during each month shall be determined as follows:
  (a) Buyer shall pay Seller for all Residue Gas a price per MMBTU (as defined
  in Article IX herein) equal to ninety-five percent (95%) of the price quoted
  in PLATTS (or any successor(s) thereto) “GAS DAILY PRICE GUIDE” under the
  heading “MARKET CENTER SPOT GAS PRICES (per MMBtu)”, the category
  “East-Texas”, for the “Houston Ship 23 

  

 

	
  

  	
   Channel” Index for the applicable month of
  delivery (“Houston Ship Channel Price”), less 12¢ per MMBtu. [Example: (95% x
  “Houston Ship Channel Price), less 12¢ per MMBtu]. In the event the
  aforementioned “Houston Ship Channel Price” is not reported in a given
  month(s), Buyer and Seller shall agree, within thirty (30) days thereafter,
  on a substitute price index from which to determine the price payable for Gas
  dedicated hereunder for such month(s) only. The substitute price index as
  adjusted will reflect the spot market price of Gas in the producing area
  subject to this Contract. (b) As to, and only as to well(s) dedicated
  hereunder and/or re-entries of well(s) dedicated hereunder which make initial
  delivery to Buyer on any day during a month before the third (3rd) business
  day of the immediate forthcoming month, the price for such well(s) during the
  month of initial delivery hereunder shall be ninety-five percent (95%) of the
  “Daily Midpoint” gas prices listed in PLATTS (or any successor(s) thereto)
  “GAS DAILY” for the Houston Ship Channel (“HSC Daily Midpoint Average”) for
  all the applicable days of delivery during such month of initial delivery,
  less 12¢ per MMBtu. In arriving at the price for applicable normal work days
  of delivery, the corresponding date of the “GAS DAILY” issue shall be
  utilized. In arriving at weekend day or holiday prices, the issue of “GAS
  DAILY” published immediately following the applicable weekend or holiday
  shall be used in arriving at the price for such days. Each day’s calculated
  price hereunder shall apply to the corresponding actual 24 

  

 

	
  

  	
   production of the well(s). For well(s)
  subject to the provisions of this Paragraph 11.3(1)(b), the price for all
  months after the month of initial delivery shall be as provided for in
  Paragraph 11.3(1)(a) above. (c) As to, and only as to well(s) dedicated
  hereunder and/or re-entries of well(s) dedicated hereunder which make initial
  delivery to Buyer on the third (3rd ) business day or any day thereafter
  before the first (1st) day of the immediate forthcoming month, the price for
  such well(s) during the month of initial delivery and the month thereafter
  shall be ninety-five percent (95%) of the “HSC Daily Midpoint Average” for
  all the applicable days of delivery during such months, less 12¢ per MMBtu.
  In arriving at the price for applicable normal work days of delivery, the
  corresponding date of the “GAS DAILY” issue shall be utilized. In arriving at
  weekend day or holiday prices, the issue of “GAS DAILY” published immediately
  following the applicable weekend or holiday shall be used in arriving at the
  price for such days. Each day’s calculated price hereunder shall apply to the
  corresponding actual production of the well(s). For well(s) subject to the
  provisions of this Paragraph 10.1(1)(c), the price for all months after the
  month of initial delivery and the month thereafter shall be as provided for
  in Paragraph 10.1(1)(a) above. (2) In the event it is determined by the
  appropriate agency that the maximum lawful price which Seller may collect for
  all or any portion of the Gas sold hereunder is less than the price paid
  hereunder, then Seller shall notify Buyer immediately of such maximum lawful
  price and refund to Buyer the excess collected plus interest thereon, as
  provided for under 25 

  

 

	
  

  	
   applicable regulations. Seller shall make
  any and all filings with the appropriate state and federal agencies which are
  required or necessary under applicable regulations. (3) Residue Gas
  attributable to a particular Point of Delivery shall be determined by
  multiplying the total heating value of the Residue Gas (in MMBTU) available
  at the outlet of the Plant plus the total gross heating value of Gas (in
  MMBTU) available for processing but by-passed around the Plant unprocessed by
  a fraction, the numerator of which shall be the total gross heating value of
  the Processed Volume (in MMBTU) less theoretical plant fuel (in MMBTU) and
  theoretical plant product shrinkage (in MMBTU) attributable to the particular
  Point of Delivery and the denominator of which shall be the aggregate of such
  determination for all delivery points on Buyer’s pipeline system. To
  determine the total gross heating value, the processed volume (in MCF) attributable
  to a particular Point of Delivery shall be multiplied by the gross heating
  value (in BTU per cubic foot) for that particular Point of Delivery as
  determined pursuant to Article IX, Paragraph 9.7, hereof and the result
  divided by one thousand (1,000) yielding the total gross heating value in
  millions of BTU (MMBTU). (4) Theoretical plant fuel attributable to a
  particular Point of Delivery shall be determined by multiplying the total
  gross heating value of plant fuel (in MMBTU) by a fraction, the numerator of
  which shall be the Processed Volume (in MCF) attributable to that particular
  Point of Delivery and the denominator of which shall be the Processed Volume
  (in MCF) attributable to all delivery points on Buyer’s pipeline system. (5)
  Theoretical plant product shrinkage attributable to a particular Point of
  Delivery shall be determined by conversion of the actual volume of each
  Component Plant Product attributed to the particular Point of Delivery to its
  respective heat content equivalent (in MMBTU) by multiplying the gallons
  thereof by the following factor applicable: ethane 26 

  

 

	
  

  	
   (.0663690), propane (.0915990), N-butane
  (.1037240), iso-butane (.0996520), pentanes & heavier (.1152600). 11.4
  After deliveries of Gas have commenced, Buyer shall on or about the 25th of
  each month deliver to the Seller, via electronic mail (Seller to provide
  Buyer with the correct electronic mail address), a written statement of
  account for all Residue Gas and Gas processed during the preceding month.
  After the deliveries of Gas have commenced, Buyer shall on or about the last
  day of each month render to Seller a written statement with full payment for
  the quantity of Residue Gas delivered during the preceding calendar month.
  Buyer shall on or about the last day of each month render to Seller a
  statement of account for Seller’s Gas processed during the preceding calendar
  month. Buyer shall make payment to Seller as to each statement of account for
  Gas processed within ten (10) days after such statement is rendered. Buyer
  may deduct from its payments to Seller hereunder any sums due by Seller to
  Buyer unless Seller has a good faith dispute regarding any such sums. Late
  payments by Buyer will carry simple interest at the lower of eight percent
  (8%) per annum or the maximum lawful interest rate, and shall be applicable
  to all late payment or underpayment amounts to be paid by Buyer to Seller.
  11.5 Each party shall cause to be preserved for the period required by law
  all records pertaining to the purchase and sale of Gas hereunder. Seller
  shall have the right at reasonable times during normal office hours and at
  its expense to examine the books and records which pertain to the basis of
  payment hereunder at the office where same is kept. In the event an error is
  discovered in the amount shown to be due on any statement rendered, such
  error shall be adjusted without penalty or interest as soon as reasonably
  possible after discovery thereof, however all statements, payments and
  invoices shall be deemed correct unless questioned within two (2) years of
  the date such statement or invoice is prepared and/or such payment is
  rendered. 27 

  

 

	
  

  	
   ARTICLE XII TAXES, ASSESSMENTS AND FEES 12.1
  Seller shall bear and pay all excise, severance, sales, transaction,
  occupation, and other taxes and the oil field cleanup fee levied on or in
  respect to the Gas and the handling thereof prior to the delivery to Buyer,
  excepting that associated with the five percent (5%) of the Plant Products
  and Residue Gas accruing to Buyer. 12.2 In the event a tax is hereafter
  imposed upon the act, right or privilege of processing Gas for the recovery
  of Plant Products, or any tax similar in effect is imposed with respect to
  Buyer’s operations hereunder, the tax shall be borne by both Seller and Buyer
  in the same ratio that the parties share the value of Plant Products
  extracted in the Plant. 12.3 Buyer shall be entitled to deduct from the
  amount due Seller all taxes, the oil field clean up fee and the gross
  receipts tax levied upon or in respect to the Gas delivered hereunder which
  may be borne by Seller, but which are required by law or regulation to be
  paid by Buyer. ARTICLE XIII REGULATORY BODIES 13.1 This Contract is subject
  to all present and future valid laws and lawful orders of all regulatory
  bodies now or hereafter having jurisdiction of the parties. If either party
  be ordered or required to do any act inconsistent with the provisions of this
  Contract, then this Contract shall continue nevertheless and shall be deemed
  modified to conform with the requirements of such law or regulation. 28 

  

 

	
  

  	
   ARTICLE XIV FORCE MAJEURE 14.1 In the event
  that either party hereto is rendered unable, wholly or in part, by force
  majeure or other causes herein specified, to carry out its obligation under
  this Contract, it is agreed that on such party’s giving notice, so far as
  they are affected by such force majeure or other causes herein specified, its
  obligation shall be suspended during the continuance of any inability so
  caused, but for no longer period and such cause shall so far as possible be
  remedied with all reasonable dispatch. 14.2 The term “force majeure” as
  employed herein shall mean acts of God, strikes, lockouts or other industrial
  disturbances, acts of the public enemy, wars, blockades, insurrections,
  riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods,
  washouts, arrests, and restraints of the Government, either federal or state,
  civil or military, civil disturbances, explosions, sabotage, malicious
  mischief, breakage or accident to machinery or lines of pipe, necessity of
  making repairs and maintenance to Buyer’s facilities, freezing of wells or
  lines of pipe, refusal or inability of Buyer’s resale purchaser(s),
  gatherer(s) and/or transporter(s) to take deliveries, partial or entire
  failure of gas supply or market, Unfavorable Market Prices for Gas and/or
  Residue Gas, administrative and/or operational issues, occurrences and/or
  problems, inability of any party hereto to obtain right-of-way, necessary
  materials, supplies or permits, any of the foregoing or any action due to
  existing or future rules, regulations, orders, laws or proclamations of
  governmental authorities (both federal and state), including both civil and
  military, and any other cause whether of the kind herein enumerated or otherwise,
  not reasonably within the control of the party claiming suspension. 29 

  

 

	
  

  	
   14.3 It is understood and agreed that the
  settlement of strikes or other labor difficulties shall be entirely within
  the discretion of the party having the difficulty, and that the above
  requirement that any force majeure shall be remedied with all reasonable
  dispatch shall not require the settlement of labor difficulties by acceding
  to the demands of the opposing party when such course is inadvisable in the
  discretion of the party having the difficulty. ARTICLE XV WARRANTY OF TITLE
  TO GAS 15.1 Seller hereby warrants that it has the good and lawful right to
  market all the Gas (including Residue Gas and/or Plant Products) delivered
  hereunder and that Seller warrants it has the right and authority to act on
  behalf of the party owning such Gas (including Residue Gas and/or Plant
  Products) with respect to all matters covered by this Contract, free and
  clear of any and all liens, encumbrances, and claims whatsoever. Seller shall
  at all times have the obligation to make settlements for all royalties due,
  and to make settlements with all other persons having any interest in the
  commodities sold hereunder which are applicable prior to title passing to
  Buyer. Seller agrees to indemnify Buyer and save it harmless from all suits,
  actions, debts, accounts, damages, costs and losses and expenses arising from
  or out of adverse claims of any and all persons, firms or corporations to
  said Gas (including Residue Gas and/or Plant Products) or payments therefor
  or to royalties, overriding royalties, taxes, license fees, or charges
  thereon, which are applicable before the title passes to Buyer. Buyer may, at
  any time thereafter when it reasonably appears to Buyer that the ownership or
  title to all or any portion of the Gas (including Residue Gas and/or Plant
  Products) delivered hereunder may be vested in or claimed by some party other
  than Seller, or upon learning of any other adverse claims retain that portion
  30 

  

 

	
  

  	
   of the purchase price subject to question
  thereof until Buyer has been satisfied reasonably as to the amount of such
  claim or ownership claimed, until such claim has been finally determined and
  satisfied or until Seller shall have furnished security to Buyer for the
  repayment of any such claim satisfactory to Buyer conditioned to hold Buyer
  harmless. Without impairment of Seller’s warranty of title, it is agreed that
  if Seller owns or controls less than full title to the Gas, Residue Gas or
  Plant Products delivered hereunder, the payments provided for herein may be
  made only in the proportion the interest that Seller owns or controls bears
  to the full title. 15.2 Seller shall execute Buyer’s form of a 100%
  Indemnifying Gas Division Order prior to Buyer releasing any payments to
  Seller hereunder. ARTICLE XVI EASEMENTS 16.1 To the extent that it may
  contractually or lawfully do so Seller hereby assigns and transfers to Buyer
  an easement across Leases described in Exhibit “A” hereto, for the purpose of
  installing, using, inspecting, repairing, operating, replacing, and/or
  removing Buyer’s pipe, meters, lines and other equipment used in the
  performance of this Contract. Any property of Buyer placed in or upon any of
  such land shall remain the personal property of Buyer, subject to removal by
  it upon the expiration or termination of this Contract for any reason; after
  which Buyer shall have a reasonable time after the expiration of this
  Contract to remove same, but no longer than the period allowed by the Leases.
  Buyer shall indemnify and hold Seller harmless from all claims and damages
  for all injuries to persons, including death, and to property arising out of
  or incident to Buyer’s use of the easement hereunder transferred. 31 

  

 

	
  

  	
   ARTICLE XVII TERM 17.1 For each well(s),
  Lease(s) and/or land(s) committed and dedicated to Buyer hereunder, this
  Contract shall be effective from the date first above written and shall
  continue and remain in full force and effect for a term of ten (10) years
  from the date of initial deliveries hereunder of each such well(s), Lease(s)
  and/or land(s) and shall continue in force and effect thereafter for
  successive periods of one (1) year for each such well(s), Lease(s) and/or
  land(s) until terminated either by Seller or Buyer upon sixty (60) days’
  prior written notice to the other party hereto specifying a termination date
  at the end of such ten (10) year term, or any yearly period thereafter.
  ARTICLE XVIII SELLER’S LEASES 18.1 Seller represents and warrants that it has
  the right to market the Gas from the Leases described in Exhibit “A” hereto.
  18.2 Seller shall have the right to operate said Leases, free from any
  control by Buyer, and in such manner as Seller or the operator thereof, may
  deem advisable; including without limitation, the right to drill or not drill
  new wells and to repair and rework old wells, and to abandon any well or
  surrender any Lease when no longer deemed by Seller to be capable of
  producing Gas under normal methods of operation or in commercially paying
  quantities; provided, however, that notice of the surrender of any Lease
  shall be given to Buyer as soon as practical. 32 

  

 

	
  

  	
   ARTICLE XIX MISCELLANEOUS 19.1 No waiver by
  either Seller or Buyer of any default of the other under this Contract shall
  operate as a waiver of any future default, whether of like or different
  character or nature, nor shall any failure to exercise any right hereunder be
  considered as a waiver of such right in the future. 19.2 This Contract shall
  be binding upon and inure to the benefit of the successors, assigns, legal representatives,
  administrators, and/or Seller’s Operator(s). Any party hereto may assign its
  right, title, and interest in, to and under this Contract, including, without
  limitation, any and all renewals, extensions, amendments, and/or supplements
  hereto; provided, however, that no such assignment shall in any way operate
  to enlarge, alter, or change any obligation of the other party or parties
  thereto. No assignment shall be effective or binding until a copy of same has
  been furnished to the other party. Nothing in this Contract, express or
  implied, confers any right or remedies on any person or entity not a party
  hereto other than successors and assigns, or heirs, administrators or
  executors of the parties hereto. 19.3 The quantities of Gas specified in Article
  V of this Contract are based on the assumption that all Gas in, under, and
  that may be produced from the Leases described in Exhibit “A” hereto will be
  committed, delivered and sold to Buyer in accordance with the terms and
  provisions of this Contract. In the event all Gas in, under and that may be
  produced from said Leases is not committed to Buyer under this Contract; then
  in such event the volumes of Gas specified in Article V hereof shall be
  reduced to a new volume obtained as follows: The applicable quantity
  specified in Article V hereof shall be multiplied by a fraction, the
  numerator 33 

  

 

	
  

  	
   of which shall be the Gas reserves dedicated
  to this Contract and the denominator of which shall be the total Gas reserves
  underlying the Leases described in Exhibit “A” hereto. 19.4 All notices and
  communications between the parties shall be in writing and shall be directed
  and mailed to the respective parties hereto at the following addresses:
  Seller: Evolution Operating Co., Inc. 2500 CityWest Blvd., #1300 Houston,
  Texas 77042 Buyer: ETC Texas Pipeline, LTD. 800 E. Sonterra Blvd. Suite 400
  San Antonio, Texas 78258-3941 Either party may from time to time change the
  address to which notices to it shall be directed by furnishing the other
  party with written notice of the change. All notices provided and authorized
  to be given hereunder shall be considered as given only if and when received
  by the party to whom addressed; provided, however, any notice sent by
  registered or certified mail with return receipt requested and all postage
  and fees therefor paid shall be deemed to have been given on the date
  deposited in the United States mail addressed to the party being notified, if
  the party being notified has received the registered or certified mail within
  three (3) days of the date of deposit in the United States mail. Telecopier
  transmission shall be deemed to be written delivery if received in legible
  form by the recipient. If there is now or hereafter more than one person or
  entity within the designation of “Seller”, as above named, the Seller shall
  designate a single “Seller’s Representative” to execute amendments and/or
  supplements hereto, to receive and give notice and requests, to witness
  tests, to deliver the quantity of Gas deliverable, to render and receive
  statements for Gas delivered, to receive payments, to inform Buyer as
  required with respect to the status of production from each well, and said
  Seller’s Representative shall be 34 

  

 

	
  

  	
   responsible for making allocation with
  respect to quantities of Gas delivered hereunder or delivery capacities of
  any wells covered hereunder between or among the individual parties Seller
  hereto. Respecting performance of the above mentioned items and matters,
  Buyer need look only to Seller’s Representative and not to any individual
  party “Seller”, and Buyer shall not be liable to any party Seller regarding
  any failure of Seller’s Representative in such performance. The initial
  Seller’s Representative is designated in Exhibit “B” hereto. No change as to
  Seller’s Representative shall be binding on Buyer until Buyer has been
  furnished with a notice in writing, properly executed by each Seller in
  interest under this Contract, giving the name and address of such designated
  representative. 19.5 Any provision of this Contract which reasonably
  contemplates the disconnection of any well or lease, shall constitute
  specific pregranted written approval to disconnect from any well or lease and
  shall satisfy the provisions of any rule or regulation of any regulatory
  agency (or successor thereto) having jurisdiction which requires written
  consent prior to severance. 19.6 Subject to all other terms and conditions of
  this Contract, in the event Seller’s deliveries of Gas to Buyer at the
  Point(s) of Delivery from any well subject to this Contract are less than
  1,000 Mcf of gas per month for any one consecutive calendar month period,
  then for each month thereafter in which Seller’s deliveries from such well
  are less than 1,000 Mcf, Seller shall pay to Buyer a per well fee of one
  hundred and seventy-five dollars ($175) per month as additional consideration
  for Buyer to maintain its existing pipeline system and to continue to take
  delivery of Gas from such well. 19.7 This Contract terminates and supersedes
  any prior Contract(s) between the parties hereto to the extent that such
  Contract(s) cover Seller’s interest in the Lease, Leases and 35 

  

 

	
  

  	
   Gas committed and dedicated to Buyer under
  the terms and conditions of this Contract. In consideration of the covenants
  herein contained, Seller hereby acknowledges payment in full by Buyer of all
  sums owed Seller by Buyer, including interest on said sums for Gas produced
  from the lands subject to the superseded Contract(s) and any other sums owed
  Seller related to any Contract which is hereby terminated or superseded and
  Seller hereby releases and waives any and all causes of action therefor;
  provided, however, this termination and release does not include Buyer’s
  obligation to pay for Gas taken under the superseded Contract(s) during the
  sixty (60) day period preceding the date of Seller’s execution of this
  Contract. Except as hereinabove modified, the superseded Contract(s) shall
  remain in full force and effect. 19.8 This Contract contains the entire
  agreement between the parties and there are no other oral promises,
  agreements, contracts or warranties affecting this Contract or its
  performance. 19.9 Notwithstanding any other provision herein, in no event
  shall either party be liable to the other party for any loss of profits,
  incidental, consequential, special, exemplary, punitive or similar damages
  arising out of any breach of contract, tort or other cause of action related
  to this Contract. 19.10 The parties hereto agree and confirm that in the
  consideration and interpretation of this Contract same shall be construed
  under the laws of the State of Texas and this Contract was prepared by all
  parties hereto and not by any party to the exclusion of the other or others.
  19.11 The headings and subheadings contained in this Contract are used solely
  for convenience and do not constitute a part of the Contract between the
  parties hereto nor should they be used to aid in any manner in interpreting
  or construing this Contract. 36 

  

 

	
  

  	
   19.12 Exhibit “A”, “B”, “C” and “D” are
  incorporated herein by this reference. The singular neuter and masculine
  pronouns as used herein shall include any gender and number as the context
  may require. IN WITNESS WHEREOF, the parties have executed this Contract in
  one or more copies or counterparts, each of which, when executed by Buyer and
  any Seller, shall constitute and be an original effective Contract between
  such Buyer and such Seller (as to such Seller’s interest) executing same as
  of the date first above written, whether or not this copy or any counterpart
  is signed by all the parties named herein. BUYER: ETC TEXAS PIPELINE, LTD. By
  LG PL, LLC Its General Partner /s/ Mackie McCrea Name: Mackie McCrea Title:
  President SELLER: EVOLUTION OPERATING COMPANY, INC. /s/ Robert S. Herlin
  Name: Robert S. Herlin Title: President 37 

  

 

	
  

  	
  EXHIBIT “A” KLING
  ENGINEERING & SURVEYING BRYAN, TEXAS

  

 

	
  

  	
  EXHIBIT “A” KLING
  ENGINEERING & SURVEYING BRYAN, TEXAS

  

 

	
  

  	
  EXHIBIT “A” KLING
  ENGINEERING & SURVEYING BRYAN, TEXAS

  

 

	
  

  	
  EXHIBIT “A” KLING
  ENGINEERING & SURVEYING BRYAN, TEXAS

  

 

	
  

  	
  EXHIBIT “B”
  Seller’s Representative: Evolution Operating Co., Inc. 2500 City West Blvd.,
  #1300 Houston, Texas 77042 

  

 

	
  

  	
   EXHIBIT “C” Non-specification gas to be
  assessed a treating fee is (1) gas containing in excess of 1/4 grain H2S per
  100 scf, (2) gas containing in excess of 2.0% by volume of CO2 and (3) gas
  containing in excess of 3.0% by volume of non-hydrocarbon gases. (1) For gas
  containing in excess of 1/4 grain H2S per 100 scf but not more than permitted
  by prudent corrosion protection parameters, the charge will be 4 .5¢/Mcf. (2)
  For gas containing in excess of 2.0% by volume of CO2, but less than 3.0%,
  the charge will be 4.5¢/Mcf. For gas containing in excess of 3.0% CO2, the
  charge will be computed by multiplying 4.5¢/Mcf by the tested CO2 content in
  volume percent less 2.0. For example, if Seller’s gas contained 3.3% CO2, the
  charge would be 4.5¢/Mcf (3.3 - 2.0) or 5.85¢/Mcf. (3) For gas containing in
  excess of 3.0% by volume of non-hydrocarbon gas, but less than 4.0%, the
  charge will be 4.5¢/Mcf. For gas containing in excess of 4.0%,
  non-hydrocarbon gas, the charge will be computed by multiplying 4.5¢/Mcf by
  the tested content in volume percent of non-hydrocarbon gas less 3.0. For
  example, if Seller’s gas contained 4.3% non-hydrocarbon gases, the charge
  would be 4.5¢/Mcf (4.3 - 3.0) or 5.85¢/Mcf. (4) For gas containing in excess
  of 2% CO2 and 3% non-hydrocarbon gas, the charge will be the higher of the
  charges computed pursuant to No. (2) or No. (3) above. The treating charge
  will be assessed on the wellhead volume of non-specification gas measured at
  the Point(s) of Delivery and will be deducted from the amount Seller is
  otherwise due before payment is made to Seller each month. Buyer shall have
  the option to periodically adjust its treating charges. Seller agrees to
  furnish its prorata share of fuel associated with treating at no cost to
  Buyer. 

  

 

	
  

  	
   EXHIBIT “D” GAS LIFT 1. For the following
  described consideration and as a service to Seller, Buyer will attempt to
  redeliver to Seller at all wells connected under the Contract gas volumes
  (not to exceed 500 Mcf per day per well) for gas lift purposes to the extent
  that in Buyer’s sole judgment volumes of gas are available for such purpose
  from the Buyer’s gathering system under its system configuration as it exists
  from time to time. If in Buyer’s sole judgment modifications to the gathering
  system would be required to meet Seller’s requested volumes for gas lift gas
  in excess of those ordinary and customary modifications accounted for and
  contemplated in the first sentence of Subsection 3 d) below, Buyer shall
  notify Seller of the estimated cost of the modifications needed to make
  additional gas lift volumes available. If Seller agrees to reimburse Buyer
  for all actual costs of making the system changes, upon receipt by Buyer of
  the reimbursement for estimated costs, Buyer will cause commencement of
  construction of any needed mutually agreeable modifications. Buyer shall
  cause to be furnished, installed, and maintained at Buyer’s or its
  Affiliate’s cost separate redelivery and gas measuring equipment and
  instruments conforming to the measurement requirements of this Contract. The
  system modifications and redelivery and measuring equipment shall remain the
  property of Buyer or its affiliated gatherer. 2. Buyer will measure gas lift
  gas furnished to Seller by Buyer. Measurement records shall remain the
  property of Buyer, but shall be available to Seller as provided in this
  Contract. Measurement and heating value determinations shall be performed as
  specified in this Contract. The MMBtus of gas redelivered to Seller by Buyer
  for each of Seller’s wells will be deducted from the MMBtus delivered to
  Buyer at Buyer’s purchase metering equipment for which payment from Buyer to
  Seller would otherwise be due. This deduction will be reflected on Buyer’s
  monthly gas statements to Seller. 3. For gas lift gas service to Seller under
  this Section, Buyer will charge Seller or its designee for each gas lift gas
  redelivery installation a one-time installation fee of $7,500 and a monthly Service
  Fee. The monthly Service Fee will be $250.00 for each month or partial month
  while Buyer’s equipment is in service for redelivery of gas to Seller. Buyer
  may at its option subtract the monthly Service fee from Buyer’s payment to
  Seller for any gas delivered to Buyer. Seller may request termination of gas
  lift gas service for any gas lift location upon written notice to Buyer, and
  Buyer will then cease charging the related fees effective as of the first of
  the month following Buyer’s receipt of Seller’s gas lift gas termination
  request. Buyer may elect to discontinue gas lift gas deliveries to Seller and
  the associated fees as to any or all locations as of the end of any month
  upon 30 days advance written notice to Seller. 4. Buyer and Seller recognize
  that due to the intermittent nature of requirements for gas lift gas, there
  may be months in which the gas redelivered to Seller exceeds the gas
  production delivered by Seller to Buyer. Buyer may deduct the value of these
  excess gas sales from Buyer to Seller from any proceeds due to Seller or
  invoice Seller or Seller’s operator for excess gas lift gas redeliveries that
  are not recouped in kind within the delivery month. If Buyer invoices Seller,
  Seller shall pay or cause its operator to pay these invoices within 15 days
  following the date of the invoice. The price per MMBtu for excess gas lift
  sale gas not balanced out by recoupment during the delivery month will be
  125% of the monthly weighted average sales price on Buyer’s Southeast Texas
  Pipeline System per MMBtu. 2Exhibit 10.13

 

	
  

  	
  GAS PURCHASE
  CONTRACT Between EVOLUTION OPERATING CO., INC., as Seller And DCP MIDSTREAM,
  LP as Buyer Dated December 1, 2007 INDEX SECTION PAGE 1. COMMITMENT 1 2.
  DELIVERY POINTS 1 3. DELIVERY PRESSURE 1 4. QUANTITY 1 5. PRICE 2 6. TERM 5 7.
  ADDRESSES AND NOTICES 5 SIGNATURE PAGE 6 EXHIBIT A GENERAL TERMS AND
  CONDITIONS A. DEFINITIONS A-1 B. DELIVERY DATE; COMPRESSION A- 1 C.
  RESERVATIONS OF SELLER A-2 D. METERING AND MEASUREMENT A-2 E. DETERMINATION
  OF GAS COMPOSITION, GRAVITY, AND HEATING VALUE A-3 F. QUALITY OF GAS A-3 G.
  BILLING AND PAYMENT A-4 H. FORCE MAJEURE A-5 I. WARRANTY OF TITLE A-5 J.
  ROYALTY AND OTHER INTERESTS A-5 K. SEVERANCE AND SIMILAR TAXES A-5 L.
  INDEMNIFICATION AND RESPONSIBILITY FOR INJURY OR DAMAGE A-5 M. RIGHT OF WAY A-6
  N. ASSIGNMENT A-6 O. MISCELLANEOUS PROVISIONS A-6 EXHIBIT B COMMITTED LEASES
  AND WELLS 

  

 

	
  

  	
   GDS0821PUR GAS PURCHASE CONTRACT This
  Contract is entered as of December 1, 2007 between EVOLUTION OPERATING CO.,
  INC. (“Seller”) and DCP MIDSTREAM, LP (“Buyer”). For and in consideration of
  the mutual covenants contained herein, the parties agree as follows: 1.
  COMMITMENT. Seller will sell and deliver and Buyer will purchase and receive
  Seller’s owned and controlled gas produced from the leases and wells now or
  later owned or controlled by Seller on or allocated to the lands listed on
  Exhibit “B.” Definitions and General Terms and Conditions included in this
  Contract are attached as Exhibit A. All Exhibits referenced herein are
  attached and incorporated by reference. Seller may opt to switch any
  particular committed Exhibit “B” units to commitment under the Gas Purchase
  Contract dated December 2, 2007, Buyer’s File No. GDS0821-BPUR (“Contract 2”)
  as of the first day of any month during the term of Contract 2 on at least
  ten (10) days’ prior written notice to Buyer. Any unit so switched will be
  committed under Contract 2 in lieu of this Contract for the remainder of the
  term of Contract 2. Those units for which Seller elects to switch commitment
  to Contract 2 will be released from commitment under this Contract upon the
  effective date of Seller’s switching election. 2. DELIVERY POINTS. The
  Delivery Points for all sources of production committed under this Contract
  will be established under Section B.2 of Exhibit A. Title to the gas and all
  its components shall pass to and vest in Buyer at the Delivery Points without
  regard to the purposes for which Buyer may later use or sell the gas or its
  components. 3. DELIVERY PRESSURE. Seller will deliver the gas at the Delivery
  Points at a pressure sufficient to enable it to enter Buyer’s Facilities
  against the working pressure at reasonably uniform rates of delivery, not to
  exceed the maximum allowable operating pressure established by Buyer or
  pressures that prevent others from producing ratably. Buyer in its discretion
  may require that Seller install and operate a pressure relief or reduction
  device upstream of any Delivery Point set at the pressure designated by Buyer
  to limit the pressure at which Seller delivers gas, where Seller’s deliveries
  might interfere with ratable deliveries from others, or to enhance safety. 4.
  QUANTITY. (a) Seller shall deliver and Buyer shall purchase and take Seller’s
  gas subject to the operating conditions and capacity of Buyer’s Facilities
  and resale markets. Although there is no specific purchase quantity, Buyer
  will use commercially reasonable efforts to market gas for resale and operate
  and expand its facilities in an effort to maintain consistent takes of all
  available quantities. If Buyer takes less than the full quantities available,
  Buyer will use commercially reasonable efforts to 

  

 

	
  

  	
   purchase gas from the lands covered by this
  Contract ratably with its purchases of similar gas in each common gathering
  system or area within its capabilities using existing facilities, in
  compliance with Buyer’s existing contracts and with applicable laws and
  regulations, including ratable purchases from Buyer’s Affiliates. (b) Seller
  may dispose of any gas not taken by Buyer for any reason, including events of
  Force Majeure, subject to Buyer’s right to resume purchases at any subsequent
  time. If Buyer does not take gas for fifteen (15) consecutive Days and Seller
  secures a different temporary market, Buyer may resume purchases only upon
  fifteen (15) Days’ advance written notice prior to the beginning of a month
  unless otherwise agreed. (c) Seller will use commercially reasonable efforts
  to deliver gas meeting the quality requirements and to avoid delivery of
  Inferior Liquids. If the gas at any Delivery Point becomes insufficient in
  volume, quality, or pressure, Buyer may cease gas takes from the Delivery
  Point as long as the condition exists. If Buyer ceases taking gas under this
  Section for thirty (30) consecutive Days for reasons other than quality or Force
  Majeure, Seller may terminate this Contract with respect to the affected
  Delivery Points upon thirty (30) Days’ advance written notice to Buyer;
  provided that during the notice period Buyer may resume consistent takes and
  purchases, and thereby avoid Contract termination under Seller’s notice. 5.
  PRICE. 5.1 Consideration. As full consideration for the gas and all its
  components delivered to Buyer each month, Buyer shall pay Seller (i) 100% of
  the net value determined under Section 5.2 below for residue gas attributable
  to Seller’s gas, and (ii) 100% of the net value determined under Section 5.3
  below for any recovered NGLs attributable to Seller’s gas. No separate
  payment or value calculation is to be made under this Contract for helium,
  sulfur, CO2, other non-hydrocarbons, or for Inferior Liquids. 5.2 Residue Gas
  Value. The net Residue Gas value will be the price per MMBtu published in
  Inside F.E.R.C.‘s Gas Market Report in its first publication of the delivery
  month for “Prices of Spot Gas Delivered to Pipelines” for Houston Ship
  Channel (“Index Price”) less $0.13 per MMBtu. If this price quotation is
  discontinued or materially modified, its successor will be used, or in the
  absence of a successor, Buyer will select another publication that enables
  calculation of an Index Price closely comparable to that previously used. If
  a change in the Index Price becomes necessary, Buyer will so inform Seller by
  written notice, stating the changes and the reason for the changes. 3 

  

 

	
  

  	
   5.3 NGL Value. The net value of any
  recovered NGLs attributable to Seller will be the simple average of the
  midpoint of the daily high/low spot price for (i) ethane in E-P mix, (ii)
  Non-TET propane, (iii) Non-TET isobutane, (iv) Non-TET normal butane, and (v)
  Non-TET natural gasoline (pentanes and heavier) during the delivery month as
  reported for Mont Belvieu, Texas by the Oil Price Information Service (or in
  its absence, a comparable successor publication designated by Buyer) less a
  transportation, fractionation, and storage (“TF&S”) fee of $0.0375 per
  gallon. As of January 1 of each year beginning with 2009, Buyer will adjust
  the TF&S fee upward or downward as follows, but not below the initial
  fee, by an amount equal to the annual percentage of change in the preliminary
  estimate of the implicit price deflator, seasonally adjusted, for the gross
  domestic product (“GDP”) as computed and most recently published by the U.S.
  Department of Commerce, rounded to the nearest 100th cent, or in its absence,
  a similar successor adjustment factor designated by Buyer. 5.4 Low Volume
  Delivery Points. For any metered Delivery Point at which the volume delivered
  is less than 300 Mcf in any month, Seller will pay Buyer a low volume fee of
  $150.00 per low volume month per meter. Buyer will collect amounts due under
  this Section by deductions from proceeds payable under the Contract. If the
  amounts due exceed proceeds payable under the Contract, Buyer may invoice
  Seller for the amount due, and in that event Seller will remit full payment
  to Buyer within thirty (30) days following Buyer’s invoice date. Seller may
  cease application of low volume fees under this Section by giving Buyer
  thirty (30) days advance written notice of Seller’s request to have the
  affected meters disconnected; the low volume fees will no longer apply as of
  the end of the month following the notice period, and Buyer may disconnect
  the affected meters. 5.5 Allocation of Residue Gas and NGLs. Buyer will
  determine the Residue Gas and NGLs attributable to Seller on a proportional
  basis by component using the following definitions and procedures. Additional
  definitions are in Section A of Exhibit A. From time to time Buyer may make
  changes and adjustments in its allocation methods, other than fixed
  percentages below, to improve accuracy or efficiency. (a) NGLs Allocable to
  Seller. The quantity of each NGL component allocable to Seller’s gas will be
  determined by multiplying the total quantity of each NGL component recovered
  at the plant or plants by a fraction. The numerator will be the gallons of
  that NGL component contained in the gas delivered by Seller, determined by
  chromatographic analysis or other accepted method in the industry, and the
  denominator will be the total gallons of that component contained in all gas
  delivered to Buyer from sources connected to Buyer’s Facilities. Sub-area
  breakdowns may be used as stated in (b)(ii) below. (b) Residue Gas Allocable
  to Seller. (i) The MMBtus of “Residue Gas allocable to Seller” will be
  determined by multiplying the MMBtus of “Residue Gas available for sale” from
  Buyer’s Facilities by a 4 

  

 

	
  

  	
   fraction. The numerator will be the
  “theoretical MMBtus of Residue Gas remaining from Seller’s gas” delivered by
  Seller, and the denominator will be the total of the theoretical MMBtus of
  Residue Gas remaining from all gas delivered to Buyer from the common sources
  connected to Buyer’s Facilities. “Residue Gas available for sale” means all
  remaining Residue Gas available from Buyer’s Facilities, net of Residue Gas
  used for the operation of Buyer’s Facilities. “Theoretical MMBtus of Residue
  Gas remaining from Seller’s gas” means the sum of the MMBtus of methane and
  heavier hydrocarbons contained in Seller’s gas, determined by chromatographic
  analysis or other accepted method in the industry, less the MMBtus of
  recovered NGLs attributable to Seller’s gas. (ii) Buyer may apply the
  allocation principles of this Section repeatedly to sub-areas or separately
  measured systems to improve accuracy. For example, Buyer may allocate plant
  NGL and Residue Gas volumes to field gathering system boosters, then use the
  same principles to allocate those results further to sources behind those
  boosters, except that field booster fuel for low pressure gas will be fixed
  at 5.0%, and plant fuel will be fixed at 4.5% of the Delivery Points MMBtus.
  For any gas delivered initially into a high-pressure gathering system,
  Seller’s theoretical MMBtus of Residue Gas remaining will be adjusted upward
  by four percent (4%) to recognize the fuel economies realized by Buyer’s
  avoidance of compression for these high pressure deliveries. 5.6 Gathering,
  Processing, and Compression Fees. For processing, gathering and compression
  services rendered hereunder, Buyer shall deduct each month from the
  consideration due Seller or invoice Seller separately for either or both of
  the following fees, as applicable: (a) A fee equal to the value under Section
  5.3 of 100% of the NGL gallons allocated to Seller under Section 5.5(a),
  multiplied by seven percent (7% or 0.07) or, if the month’s daily average gas
  volume delivered by Seller under this Contract exceeds 2,000 Mcf/Day, the
  applicable fee percentage shall be five percent (5% or 0.05); and (b) A fee
  equal to 100% of the Residue Gas quantity allocable to Seller as determined
  under Section 5.5(b), multiplied by the Index Price, and further multiplied
  by seven percent (7% or 0.07) or, if the month’s daily average gas volume
  delivered by Seller under this Contract exceeds 2,000 Mcf/Day, the applicable
  fee percentage shall be five percent (5% or 0.05). 6. TERM. This Contract
  shall be in force for a primary term through November 30, 2017, and from year
  to year thereafter until canceled by either party as of the end of the
  primary term or any anniversary thereafter by giving the other party at least
  thirty (30) Days’ advance written notice of termination. 7. ADDRESSES AND
  NOTICES. Either party may give notices to the other party by first class mail
  postage prepaid, by overnight delivery service, or by facsimile with receipt
  confirmed at the following addresses or other addresses furnished by a party
  by written notice. Unless Seller objects in writing, Buyer may also use
  Seller’s current address for payments. Any telephone numbers below are solely
  for information and are not for Contract notices. The parties opt out of electronic
  delivery of 5 

  

 

	
  

  	
   notices and amendments under this Contract,
  except that notices and hand-signed amendments may be delivered by facsimile
  with receipt confirmed as stated above. Notices to Seller – Correspondence:
  Evolution Operating Co., Inc. 2500 CityWest Blvd. Suite 1300 Houston, Texas
  77042 Payments to Seller: Evolution Operating Co., Inc. 2500 CityWest Blvd.
  Suite 1300 Houston, Texas 77042 Notices to Buyer – Billings & Statements:
  DCP Midstream, LP Attn: Revenue Accounting 5718 Westheimer Road, Suite 2000
  Houston, Texas 77057 Phone: (713) 735-3600 Fax: (713) 735-3600 Buyer -
  Correspondence DCP Midstream, LP Attn: Contract Administration 5718
  Westheimer Road, Suite 2000 Houston, Texas 77057 Phone: (713) 735-3600 Fax:
  (713) 735-3600 The parties have signed this Contract by their duly authorized
  representatives as of the date first stated above. EVOLUTION OPERATING CO.,
  INC DCP MIDSTREAM, LP By: /s/ Robert S. Herlin By: /s/ George F. Manzelmann
  George F. Manzelmann, Title: President Managing Director – South and Central
  Texas Signed on: 1/28, 2008 Signed on: 1/30, 2008 /s/ David F. Gannett 6 

  

 

	
  

  	
   EXHIBIT A to GAS PURCHASE CONTRACT Between
  EVOLUTION OPERATING CO., INC. as Seller and DCP MIDSTREAM, LP as Buyer Dated
  as of December 1, 2007 GENERAL TERMS & CONDITIONS A. DEFINITIONS Except
  where the context indicates a different meaning or intent, and whether or not
  capitalized, the following terms will have meanings as follows: a. Affiliate
  — a company (i) in which a party owns directly or indirectly 50% or more of
  the issued and outstanding voting stock or other equity interests; (ii) which
  owns directly or indirectly 50% or more of the issued and outstanding voting
  stock or equity interests of the party; and (iii) in which a company
  described in (ii) owns, directly or indirectly, 50% or more of the issued and
  outstanding voting stock or other equity interests. b. Btu — British thermal
  unit. MMBtu — one million Btus. c. Buyer’s Facilities — the gas delivered by
  Seller will be gathered in gathering systems and may be redelivered to a gas
  processing plant or plants for the removal of NGLs together with gas produced
  from other properties. The gathering systems and plant or plants, or
  successor facilities, are “Buyer’s Facilities” whether owned by buyer, an
  Affiliate of Buyer, or an unaffiliated third party. No facilities downstream
  of the processing plant or plants other than short connecting lines to
  transmission lines are included in “Buyer’s Facilities.” d. Day — a period of
  24 consecutive hours beginning and ending at 9:00 AM local time, or other 24
  hour period designated by Buyer and a downstream pipeline. e. Delivery Points
  — whether one or more, see Sections 2, B.1 and B.2. f. Force Majeure — see
  Section H.2 below. g. Gas or gas — all natural gas that arrives at the
  surface in the gaseous phase, including all hydrocarbon and non-hydrocarbon
  components, casinghead gas produced from oil wells, gas well gas, and stock
  tank vapors. h. Inferior Liquids — Mixed crude oil, slop oil, salt water,
  nuisance liquids, and other liquids recovered by Buyer in its gathering
  system or at plant inlet receivers. Revenues from Inferior Liquids, drips,
  and other gathering system liquids will be retained by Buyer to defray costs
  of treating and handling; Buyer will not allocate or pay for those liquids.
  i. Mcf — 1,000 cubic feet of gas at standard base conditions of 60°F and
  14.65 psia. j. MMcf —1,000 Mcf. k. Month or month — a calendar month
  beginning on the first Day of a Month. l. NGL or NGLs — natural gas liquids,
  or ethane and heavier liquefiable hydrocarbons separated from gas and any
  incidental methane in NGL after processing. m. psi — pounds per square inch;
  psia — psi absolute; psig — psi gauge. n. Residue Gas — merchantable
  hydrocarbon gas available for sale from Buyer’s Facilities remaining after
  processing, and hydrocarbon gas resold by Buyer without first being
  processed. o. TET — price quotes for NGL on the Texas Eastern Products
  Pipeline Company, LLC system. p. TF&S — NGL transportation,
  fractionation, and storage, see Section 5.3. B. DELIVERY DATE; COMPRESSION
  B.1 Connection of Sources. As to sources not yet connected, Seller will
  commence and complete with due diligence the construction of the facilities
  necessary to enable Seller to deliver the committed gas at the Delivery
  Points and Buyer will cause prompt commencement and complete with due
  diligence the construction of the facilities necessary and economically
  feasible to enable Buyer or its gas gathering contractor to receive
  deliveries of gas at the Delivery Points. If Buyer determines it is not
  profitable to construct the facilities, Seller will have the option to
  construct facilities necessary to deliver gas into Buyer’s then existing
  facilities. If neither Buyer nor Seller elect to construct the necessary
  facilities, either party may cancel this Contract as to the affected gas upon
  fifteen (15) Days advance written notice to the other. B.2 Delivery Rates.
  Seller will have agents or employees available at all reasonable times to
  receive advice and directions from Buyer for changes in the rates of delivery
  of gas as required from time to time. B.3 Options to Compress. If Seller’s
  wells become incapable of delivering gas into Buyer’s Facilities, neither
  party will be obligated to compress, but either party will have the option to
  do so. If neither party elects to compress within a reasonable time after the
  need for compression appears, Buyer upon written request of Seller will
  either arrange promptly to provide compression or as Seller’s sole 

  

 

	
  

  	
   remedy, release the affected gas sources as
  to the then-producing formations from commitment under this Contract C.
  RESERVATIONS OF SELLER C.1 Reservations. Seller reserves the following rights
  with respect to the oil and gas properties committed by Seller to Buyer under
  this Contract together with sufficient gas to satisfy those rights: a. To
  operate Seller’s oil and gas properties free from control by Buyer as Seller
  in Seller’s sole discretion deems advisable, including without limitation the
  right, but never the obligation, to drill new wells, to repair and rework old
  wells, renew or extend, in whole or in part, any oil and gas lease covering
  any of the oil and gas properties, and to abandon any well or surrender any
  oil and gas lease, in whole or in part, when no longer deemed by Seller to be
  capable of producing gas in paying quantities under normal methods of
  operation. b. To use gas for developing and operating Seller’s oil and gas
  properties committed under this Contract and to fulfill obligations to Seller’s
  lessors for those properties. c. To pool, combine, and unitize any of
  Seller’s oil and gas properties with other properties in the same field, and
  to alter pooling, combinations, or units; this Contract will then cover
  Seller’s allocated interest in unitized production insofar as that interest
  is attributable to the oil and gas properties committed under this Contract,
  and the description of the property committed will be considered to have been
  amended accordingly. C.2 Exception. Notwithstanding Section C.1, Seller will
  not engage in any operation, including without limitation reinjection, or
  recycling that would materially reduce the amount of gas available for sale
  to Buyer except upon one hundred twenty (120) Days advance written notice to
  Buyer. Buyer will own and be entitled to collect and pay Seller for any NGLs
  that condense or are manufactured from gas during any of Seller’s operations,
  excluding crude oil and distillate recovered from gas by conventional type
  mechanical separation equipment and not delivered to Buyer. D. METERING AND
  MEASUREMENT D.1 Buyer to Install Meters. Buyer will own, maintain, and
  operate orifice meters or other measuring devices of standard make at or near
  the Delivery Points. Except as otherwise specifically provided to the
  contrary in this Section D, orifice meters or other measurement devices will
  be installed and volumes computed in accordance with AGA Gas Measurement
  Report No. 3 as in effect from time to time. Buyer may re-use metering
  equipment not meeting current standards but meeting 1985 or later published
  standards for gas sources not expected to deliver in excess of 100 Mcf per
  Day. A party providing compression facilities will also provide sufficient
  pulsation dampening equipment to prevent pulsation from affecting measurement
  at the Delivery Points. Electronic recording devices may be used. Seller will
  have access to Buyer’s metering equipment at reasonable hours, but only Buyer
  will calibrate, adjust, operate, and maintain it. D.2 Unit of Volume. The
  unit of volume will be one cubic foot of gas at a base temperature of 60F and
  at a pressure base of 14.65 psia. Computations of volumes will follow
  industry accepted practice. D.3 Pressure, Temperature. Buyer may measure the
  atmospheric pressure or may assume the atmospheric pressure to be 14.65 psia.
  Buyer may determine the gas temperature by using a recording thermometer;
  otherwise, the temperature will be assumed to be 60F. D.4 Check Meters.
  Seller may install, maintain, and operate in accordance with accepted industry
  practice at its own expense pressure regulators and check measuring equipment
  of standard make using separate taps. Check meters shall not interfere with
  operation of Buyer’s equipment. Buyer will have access to Seller’s check
  measuring equipment at all reasonable hours, but only Seller will calibrate,
  adjust, operate, and maintain it. D.5 Meter Tests. At least semiannually,
  Buyer will verify the accuracy of Buyer’s measuring equipment, and Seller or
  its lease operator will verify the accuracy of any check measuring equipment.
  If Seller, its lease operator, or Buyer notifies the other that it desires a
  special test of any measuring equipment, they will cooperate to secure a
  prompt verification of the accuracy of the equipment. If any party at any
  time observes a variation between the delivery meter and the check meter, it
  will promptly notify the other, and both will then cooperate to secure an
  immediate verification of the accuracy of the equipment. Buyer will give
  Seller and Seller’s lease operator reasonable advance notice of the time of
  all special tests and calibrations of meters and of sampling for
  determinations of gas composition and quality, so that the lease operator may
  have representatives present to witness tests and sampling or make joint tests
  and obtain samples with its own equipment. Seller will give or cause its
  lease operator to give reasonable advance notice to Buyer of the time of
  tests and calibrations of any check meters and of any sampling by Seller for
  determination of gas composition and quality. D.6 Correction of Errors. If at
  any time any of the measuring or testing equipment is found to be out of
  service or registering inaccurately in any percentage, it will be adjusted
  promptly to read accurately within the limits prescribed by the manufacturer.
  If any measuring equipment is found to be inaccurate or out of service by an
  amount exceeding the greater of (i) 2.0 percent at a recording corresponding
  to the average hourly rate of flow for the period since the last test, or
  (ii) 50 Mcf per month, previous readings will be corrected to zero error for
  any known or agreed period. The volume of gas delivered A - 2 

  

 

	
  

  	
   during that period will be estimated by the
  first feasible of the following methods: (i) Using the data recorded by any
  check measuring equipment if registering accurately; (ii) Correcting the
  error if the percentage of error is ascertainable by calibration, test, or
  mathematical calculation; or (iii) Using deliveries under similar conditions
  during a period when the equipment was registering accurately. No adjustment
  will be made for inaccuracies unless they exceed the greater of (i) 2.0
  percent of affected volumes, or (ii) 50 Mef per month. D.7 Meter Records. The
  parties will preserve for a period of at least two (2) years all test data,
  charts and similar measurement records. The parties will raise metering
  questions as soon as practicable after the time of production. No party will
  have any obligation to preserve metering records for more than two (2) years
  except to the extent that a metering question has been raised in writing and
  remains unresolved. E. DETERMINATION OF GAS COMPOSITION, GRAVITY, AND HEATING
  VALUE At least semiannually, Buyer will obtain a representative sample of
  Seller’s gas delivered at each Delivery Point; Buyer may use spot sampling,
  continuous samplers or on-line chromatography. By chromatography or other
  accepted method in the industry, Buyer will determine the composition,
  gravity, and gross heating value of the hydrocarbon components of Seller’s gas
  in Btu per cubic foot on a dry basis at standard conditions, then adjust the
  result for the water vapor content of the gas (by either the volume or Btu
  content method) using an industry accepted practice. No heating value will be
  credited for Btus in H2S or other non-hydrocarbon components. The first
  determination of Btu content for Seller’s deliveries will be made within a
  reasonable time after deliveries of gas begin. If a continuous sampler or
  online chromatography is used, the determinations will apply to the gas
  delivered while the sampler was installed. If not, the determination will
  apply until the first Day of the month following the next determination. F.
  QUALITY OF GAS F.1 Quality Specifications. The gas shall be merchantable
  natural gas, at all times complying with the following quality requirements.
  The gas shall be commercially free of crude oil, water in the liquid phase,
  brine, air, gums, gum-forming constituents, bacteria, and other objectionable
  liquids and solids, and not contain more than: a. 1/4 grain of H2S per 100
  cubic feet. b. Five grains of total sulfur nor more than one grain of
  mercaptan per 100 cubic feet. c. Two mole percent of carbon dioxide. d. Three
  mole percent of nitrogen. e. 10 parts per million by volume of oxygen, and not
  have been subjected to any treatment or process that permits or causes the
  admission of oxygen, that dilutes the gas, or otherwise causes it to fail to
  meet these quality specifications. f. Five mole percent of combined carbon
  dioxide, nitrogen, and oxygen. The gas shall: g. Not exceed 120°F in
  temperature at the Delivery Point. h. Have a total heating value of at least
  1,050 Btus per cubic foot. i. If a third party pipeline receiving the gas
  delivered has more stringent quality specifications than those stated above,
  Seller’s gas shall conform to the more stringent pipeline quality standard.
  F.2 Quality Tests. Buyer will make determinations of conformity of the gas
  with the above specifications using procedures generally accepted in the gas
  industry as often as Buyer reasonably deems necessary. If in the Seller or
  Seller’s lease operator’s judgment the result of any test or determination is
  inaccurate, Buyer upon request will again conduct the questioned test or
  determination. The costs of the additional test or determination will be
  borne by Seller unless it shows the original test or determination to have
  been materially inaccurate. F.3 Separation Equipment. Seller will employ only
  conventional mechanical separation equipment at all production sites covered
  by this Contract. Low temperature, absorption, and similar separation
  facilities are not considered conventional mechanical separation equipment.
  Except for liquids removed through operation of conventional mechanical
  separators and except for removal of substances as required to enable Seller
  to comply with this Section F, Seller will remove no components of the gas
  prior to delivery to Buyer. F.4 Rights as to Off Specification Gas. a. If any
  of the gas delivered by Seller fails to meet the quality specifications
  stated in this Section F, Buyer may at its option accept delivery of and pay
  for the gas or discontinue or curtail taking of gas at any Delivery Point
  whenever its quality does not conform to the quality specifications.
  Notwithstanding, Buyer agrees to accept gas that does not exceed 11/4 grains
  of H2S per 100 cubic feet and six mole percent of carbon dioxide and that
  meets all A - 3 

  

 

	
  

  	
   other quality specifications in Section F.1,
  subject to the applicable treating and handling fees below. b. If Buyer
  accepts delivery of off specification gas from Seller or incurs costs
  relating to inferior gas quality in the gathering system, Buyer may deduct
  from the proceeds otherwise payable a fee of $0.07 per Mcf, escalating each
  January 1 beginning with January 1, 2010, in the manner stated for TF&S
  in Section 5.3, for monitoring the gas quality and treating and handling the
  gas. c. If Buyer is declining to take off quality gas, Seller may by written
  notice to Buyer request a release of the affected gas from commitment under
  this Contract. In response, Buyer will within thirty (30) Days either (i)
  waive its right to refuse to take the affected off quality gas (subject to
  its right to charge treating fees under this Section F) and again take gas
  from the affected sources, or (ii) release the affected gas from commitment
  under this Contract. G. BILLING AND PAYMENT G.1 Statement and Payment Date.
  Buyer will render to Seller on or before the 20th Day of each month a
  statement showing the volume of gas delivered by Seller during the preceding
  month and Buyer’s calculation of the amounts due under this Contract for the
  preceding month’s deliveries. Buyer will make payment to Seller on or before
  the last Day of each month for all gas delivered during the preceding month.
  As between the parties, late payments by Buyer and recoupments/refunds from
  Seller will carry simple interest at the lower of 6% per annum or the maximum
  lawful interest rate; provided that no interest will accrue as to monthly
  principal amounts of less than $1,000 due for less than one year when paid.
  The parties waive any rights to differing interest rates. Except as limited
  in Section G.2 below, Buyer may recover any overpayments or collect any
  amounts due from Seller to Buyer for any reason at any time under this or
  other transactions by deducting them from proceeds payable to Seller. G.2
  Audit Rights: Time Limit to Assert Claims. (a) Each party will have the right
  during reasonable business hours to examine the books, records and charts of
  the other party to the extent necessary to verify performance of this
  Contract and the accuracy of any payment, statement, charge or computation
  upon execution of a reasonable confidentiality agreement. If any audit
  examination or review of the party’s own records reveals an inaccuracy in any
  payment, Buyer will promptly make the appropriate adjustment. (b) No
  adjustment for any billing or payment shall be made, and payments shall be
  final after the lapse of two (2) years from their due date except as to matters
  that either party has noted in a specific written objection to the other
  party in writing during the two (2) year period, unless within the two (2)
  year period Buyer has made the appropriate correction. However, Seller’s
  responsibilities for severance taxes and third party liabilities and related
  interest are not affected by this subsection. (c) No party will have any
  right to recoup or recover prior overpayments or underpayments that result
  from errors that occur in spite of good faith performance if the amounts
  involved do not exceed $10/month/meter. Either party may require prospective
  correction of such errors. H. FORCE MAJEURE H.1 Suspension of Performance. If
  either party is rendered unable, wholly or in part, by Force Majeure to carry
  out its obligations under this Contract, other than to make payments due, the
  obligations of that party, so far as they are affected by Force Majeure, will
  be suspended during the continuance of any inability so caused, but for no
  longer period. H.2 Force Majeure Definition. “Force Majeure” means acts of
  God, strikes, lockouts or other industrial disturbances, acts of the public
  enemy, wars, blockades, insurrections, riots, epidemics, landslides,
  lightning, earthquakes, storms, floods, washouts, arrests and restraints of governments
  and people, civil disturbances, fires, explosions, breakage or accidents to
  machinery or lines of pipe, freezing of wells or lines of pipe, partial or
  entire failure of wells or sources of supply of gas, inability to obtain at
  reasonable cost servitudes, right of way grants, permits, governmental
  approvals or licenses, inability to obtain at reasonable cost materials or
  supplies for constructing or maintaining facilities, and other causes,
  whether of the kind listed above or otherwise, not within the control of the
  party claiming suspension and which by the exercise of reasonable diligence
  the party is unable to prevent or overcome. H.3 Labor Matters Exception. The
  settlement of strikes or lockouts will be entirely within the discretion of
  the party having the difficulty, and settlement of strikes, lockouts, or
  other labor disturbances when that course is considered inadvisable is not
  required. I. WARRANTY OF TITLE Seller warrants it has good title or the right
  and lawful authority to sell the gas delivered, free and clear of any and all
  liens, encumbrances, and claims. Seller owns or controls and grants to Buyer
  the right to process Seller’s gas for extraction of NGLs and other valuable
  components. If Seller’s title or right to receive any payment is questioned
  or involved in litigation, Buyer will have the right within reason to
  withhold the contested payments until title information is received, during
  the litigation, until the title or right to receive the questioned payments
  is freed from question, or until Seller furnishes security for repayment A -
  4 

  

 

	
  

  	
  acceptable to
  Buyer. Without impairment of Seller’s warranty of its right and authority to
  sell the gas and related processing rights, if Seller owns or controls less
  than full title to the gas delivered, payments will be made only in the
  proportion that Seller’s interest bears to the entire title to the gas. J.
  ROYALTY AND OTHER INTERESTS Seller is responsible for all payments to the
  owners of all working interests, mineral interests, royalties, overriding
  royalties, bonus payments, production payments and the like. Buyer assumes no
  liability to Seller’s working or mineral interest, royalty, or other interest
  owners under this Contract. K. SEVERANCE AND SIMILAR TAXES K.1 Included in
  Price. Reimbursement to Seller for Seller’s full liability for severance and
  similar taxes levied upon Seller’s gas production is included in the prices
  payable under this Contract, regardless of whether some included interests
  may be exempt from taxation. K.2 Tax Responsibilities and Disbursements.
  Seller shall bear, and unless otherwise required by law, will pay to taxing
  authorities all severance, production, excise, sales, gross receipts,
  occupation, and other taxes imposed upon Seller with respect to the gas on or
  prior to delivery to Buyer. Buyer will bear and pay all taxes imposed upon
  Buyer with respect to the gas after delivery to Buyer. L. INDEMNIFICATION AND
  RESPONSIBILITY FOR INJURY OR DAMAGE L.1 Title. Royalty, and Severance Taxes.
  SELLER RELEASES AND AGREES TO DEFEND, INDEMNIFY, AND SAVE BUYER, ITS
  AFFILIATES, AND THEIR OFFICERS, EMPLOYEES, AND AGENTS HARMLESS FROM AND
  AGAINST ALL CLAIMS, CAUSES OF ACTION, LIABILITIES, AND COSTS (INCLUDING
  REASONABLE ATTORNEYS’ FEES AND COSTS OF INVESTIGATION AND DEFENSE) RELATING
  TO (a) SELLER’S TITLE OR RIGHT AND AUTHORITY TO SELL GAS AND PROCESSING
  RIGHTS, (b) PAYMENTS FOR WORKING, MINERAL, ROYALTY AND OVERRIDING ROYALTY AND
  OTHER INTERESTS, AND (c) SALES, SEVERANCE, AND SIMILAR TAXES, THAT ARE THE
  RESPONSIBILITY OF SELLER UNDER SECTIONS I, J, AND K ABOVE. L.2 Responsibility
  for Injury or Damage. As between the parties, Seller will be in control and
  possession of the gas deliverable hereunder and responsible for any injury or
  damage relating to handling or delivery of gas until the gas has been
  delivered to Buyer at the Delivery Points; after delivery, Buyer will be
  deemed to be in exclusive control and possession and responsible for any
  injury or damage relating to handling or gathering of gas. THE PARTY HAVING
  RESPONSIBILITY UNDER THE PRECEDING SENTENCE SHALL RELEASE, DEFEND, INDEMNIFY,
  AND HOLD THE OTHER PARTY, ITS AFFILIATES, AND THEIR OFFICERS, EMPLOYEES, AND
  AGENTS HARMLESS FROM AND AGAINST ALL CLAIMS, CAUSES OF ACTION, LIABILITIES,
  AND COSTS (INCLUDING REASONABLE ATTORNEYS’ FEES AND COSTS OF INVESTIGATION
  AND DEFENSE) ARISING FROM ACTUAL AND ALLEGED LOSS OF GAS, PERSONAL INJURY,
  DEATH, AND DAMAGE FOR WHICH THE PARTY IS RESPONSIBLE UNDER THIS SECTION;
  PROVIDED THAT NEITHER PARTY WILL BE INDEMNIFIED FOR ITS OWN NEGLIGENCE OR
  THAT OF ITS AGENTS, SERVANTS, OR EMPLOYEES. M. RIGHT OF WAY Insofar as
  Seller’s lease or leases permit and insofar as Seller or its lease operator
  may have any rights however derived (whether pursuant to oil and gas lease,
  easement, governmental agency order, regulation, statute, or otherwise),
  Seller grants to Buyer and Buyer’s gas gathering contractor, if any, and
  their assignees the right of free entry and the right to lay and maintain
  pipelines, meters, and any equipment on the lands or leases subject to this
  Contract as reasonably necessary in connection with the purchase or handling
  of Seller’s gas. Any rights granted by Seller hereunder shall terminate upon
  the termination of this Contract. All pipelines, meters, and other equipment
  placed by Buyer or Buyer’s contractors on the lands and leases will remain
  the property of the owner and may be removed by the owner at any time. Upon
  termination of this Contract, the Buyer, or its assigns, shall remove all
  property, within a reasonable time, and in accordance with the terms of the
  Leases. Without limitation, Buyer or its gathering contractor may disconnect
  and remove measurement and other facilities from any Delivery Point due to
  low volume, quality, or term expiration. N. ASSIGNMENT N.1 Binding on
  Assignees. Either party may assign this Contract. This Contract is binding
  upon and inures to the benefit of the successors, assigns, and
  representatives in bankruptcy of the parties, and, subject to any prior
  dedications by the assignee, shall be binding upon any purchaser of Buyer’s
  Facilities and upon any purchaser of the properties of Seller subject to this
  Contract. Nothing contained in this Section will prevent either party from
  mortgaging its rights as security for its indebtedness, but 

  

 

	
  

  	
   security is subordinate to the parties’
  rights and obligations under this Contract. N.2 Notice of Assignment. Any
  assignment or sublease by Seller of any oil and gas properties or any gas
  rights contracted to Buyer will be made expressly subject to the provisions
  of this Contract. No transfer of or succession to the interest of Seller,
  however made, will bind Buyer unless and until the original instrument or
  other proper proof that the claimant is legally entitled to an interest has
  been furnished to Buyer at its Division Order address noted in the Notices
  Section or subsequent address. O. MISCELLANEOUS PROVISIONS O.1 Governing Law.
  THIS CONTRACT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
  OF THE STATE OF TEXAS, without reference to those that might refer to the
  laws of another jurisdiction. O.2 Default and Nonwaiver. A waiver by a party
  of any one or more defaults by the other in the performance of any provisions
  of this Contract will not operate as a waiver of any future default or
  defaults, whether of a like or different character. O.3 Counterparts. This
  Contract may be executed in any number of counterparts, all of which will be
  considered together as one instrument, and this Contract will be binding upon
  all parties executing it, whether or not executed by all parties owning an
  interest in the producing sources affected by this Contract. Signed copies of
  this Contract and facsimiles of it shall have the same force and effect as
  originals. O.4 Negotiations; Entire Agreement; Amendment; No Third Party
  Beneficiaries. The language of this Contract shall not be construed in favor
  of or against either Buyer or Seller, but shall be construed as if the
  language were drafted mutually by both parties. This Contract constitutes the
  final and complete agreement between the parties. There are no oral promises,
  prior agreements, understandings, obligations, warranties, or representations
  between the parties relating to this Contract other than those set forth
  herein. All waivers, modifications, amendments, and changes to this Contract
  shall be in writing and signed by the authorized representatives of the
  parties. The relations between the parties are those of independent
  contractors; this Contract creates no joint venture, partnership,
  association, other special relationship, or fiduciary obligations. There are
  no third party beneficiaries of Buyer’s sales contracts or of this Contract. O.5
  Ratification and Third Party Gas. Notwithstanding anything contained herein
  to the contrary, Buyer has no duty under this Contract to purchase or handle
  gas attributable to production from interests of third parties that has been
  purchased by Seller for resale, except that Buyer will purchase Other WI Gas.
  “Other WI Gas” means gas attributable to working and mineral interests owned
  by third parties in wells operated by Seller that are subject to this
  Contract that Seller has the right to market under an operating agreement. If
  Buyer requests in writing that Seller obtain ratification of this Contract
  from owners of Other WI Gas, Seller will use reasonable commercial efforts to
  cause those Other WI Gas owners to execute and deliver to Buyer an instrument
  prepared by Buyer for the purpose of ratifying and adopting this Contract
  with respect to the owner’s Other WI Gas, and the ratifying owner will become
  a party to this Contract with like force and effect as though the Other WI
  owner had executed this Contract as amended as of the time of the
  ratification, and all of the terms and provisions of this Contract as then
  amended will become binding upon Buyer and the ratifying owner. O.6
  Compliance with Laws and Regulations. This Contract is subject to all valid
  statutes and rules and regulations of any duly constituted federal or state
  authority or regulatory body having jurisdiction. Neither party will be in
  default as a result of compliance with laws and regulations. O.7 Fees and
  Costs; Damages. If a breach occurs, the parties are entitled to recover as
  their sole and exclusive damages for breach of the price and quantity
  obligations under this Contract the price for gas taken by Buyer in the case
  of Seller and the lost margin less avoided costs in the case of Buyer. If
  mediation or arbitration is necessary to resolve a dispute other than one
  arising under the indemnification obligations of this Contract, each party
  agrees to bear its own attorneys’ fees and costs of investigation and
  defense, and each party waives any right to recover those fees and costs from
  the other party or parties. O.8 Mutual Waiver of Certain Remedies. Except as
  to the parties’ indemnification obligations, NEITHER PARTY SHALL BE LIABLE OR
  OTHERWISE RESPONSIBLE TO THE OTHER FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES,
  FOR LOST PRODUCTION, OR FOR PUNITIVE DAMAGES AS TO ANY ACTION OR OMISSION,
  WHETHER CHARACTERIZED AS A CONTRACT BREACH OR TORT, THAT ARISES OUT OF OR
  RELATES TO THIS CONTRACT OR ITS PERFORMANCE OR NONPERFORMANCE. O.9
  Arbitration. The parties desire to resolve any disputes that may arise
  informally, if possible. All disputes arising out of or relating to this
  Contract that are not resolved by agreement of the parties must be resolved
  using the provisions of this Section. To that end, if a dispute or disputes
  arise out of or relating to this Contract, a party shall give written notice
  of the disputes to the other involved parties, and each party will appoint an
  employee to negotiate with the other party concerning the disputes. If the
  disputes have not been resolved by negotiation within 30 Days of the initial
  dispute notice, the disputes shall be A - 6

  

 

	
  

  	
   resolved by arbitration in accordance with
  the then current International Institute for Conflict Prevention and
  Resolution Rules for Non-Administered Arbitration and related commentary
  (“Rules”) and this Section. The arbitration shall be governed by the Federal
  Arbitration Act, 9 U.S.C. §§ 1, et seq., and the Rules, to the exclusion of
  any provision of state law inconsistent with them. The arbitration shall be
  initiated by a party seeking arbitration by written notice sent to the other
  party or parties to be involved. The parties shall select one disinterested
  arbitrator with at least ten years’ experience in the natural gas industry or
  ten years’ experience with natural gas law, and not previously employed by
  either party or its Affiliates, and, if possible, shall be selected by
  agreement between the parties. If the parties cannot select an arbitrator by
  agreement within 15 Days of the date of the notice of arbitration, a
  qualified arbitrator will be selected in accordance with the Rules. If the
  disputes involve an amount greater than $150,000, they will be decided by a
  panel of three arbitrators with the above qualifications, one selected by
  each party, and the third selected by the party-appointed arbitrators, or in
  the absence of their agreement, pursuant to the Rules. The arbitrator(s)
  shall resolve the disputes and render a final award in accordance with the
  substantive law of the state referenced in Section O.1 above, “Governing
  Law.” The arbitration award will be limited by the provisions set forth in
  Sections O.7, “Fees and Costs; Damages” and O.8 above, “Mutual Waiver of
  Certain Remedies.” The parties intend case specific dispute resolution;
  either party may opt out of any attempted class action for all claims of any
  party related to this Contract. The arbitrator(s) shall set forth the reasons
  for the award in writing, and judgment on the arbitration award may be
  entered in any court having jurisdiction. END OF EXHIBIT A TO GAS PURCHASE
  CONTRACT 

  

 

	
  

  	
   EXHIBIT B to GAS PURCHASE CONTRACT Between
  EVOLUTION PETROLEUM CORPORATION, as Seller and DCP MIDSTREAM, LP as Buyer
  Dated as of December 1, 2007 EXHIBIT B to GAS PURCHASE CONTRACT Between
  EVOLUTION OPERATING CO., INC., as Seller and DCP MIDSTREAM, LP as Buyer Dated
  as of December 1, 2007 COMMITTED LEASES AND WELLS VARIOUS COUNTIES, TEXAS NO.
  BUYER’S METER NO. WELL/LEASE NAME LOCATION COUNTY, STATE 1. TBD Donella No.
  1-RE D. Barry Survey, A-116 Fayette, Texas 2. TBD Duncan No. 1 RE J. Bird
  Survey, A-5 Burleson, Texas 3. TBD Urbanovsky-Bryant Units 1 RE and 2 RE or
  adjacent wellbores O. Perry Survey, A-45 Burleson, Texas 4. TBD Margaret No.
  1 RE N. Woods Survey, A-116 S. Austin Survey, A-65 Fayette, Texas Burleson,
  Texas 5. TBD John Kacer No. 1-RE or adjacent wellbore Seller will submit Unit
  Plats as available for attachment hereto B - 1 POPI Actuals GPC 10-l0-06

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