Document:

exv10w15

 

EXHIBIT 10.15

GUARANTY DATED JANUARY 1, 2005 BETWEEN UGI

CORPORATION AND VIKING RESOURCES CORP.

 

 

GUARANTY

This Guaranty (the “Guaranty”) is made by UGI Corporation (“Guarantor”), a Pennsylvania
corporation, effective as of June 1, 2004 (the “Effective Date”), in favor of Viking Resources
Corp. (“Creditor”), a Pennsylvania corporation.

WHEREAS, UGl Energy Services, Inc. d/b/a GASMARK (“Debtor”), a Pennsylvania corporation and
Creditor are parties to various agreements for the purchase, sale and/or transportation of natural
gas (whether one or more, the “Agreement”); and

WHEREAS, the execution and delivery of this Guaranty is a condition to Creditor’s further
performance of its obligations under the terns of the Agreement and Guarantor has agreed to provide
assurance for the performance of Debtor’s obligations in connection with the Agreement

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the
adequacy, receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as
follows:

1. GUARANTY. Guarantor hereby unconditionally and absolutely guarantees the punctual payment when
due of Debtor’s payment obligations arising under the Agreement, as may be amended or modified from
time to time, together with any interest thereon (collectively, the “Guaranteed Obligations”);
provided, however, that the total liability of Guarantor hereunder, regardless of any amendment or
modification to the Agreement, is limited to the lesser of (a) all amounts owed by Debtor to
Creditor under the Agreement or Seven Million Dollars or ($7,000,000.00). Guarantor’s obligations
and liability under this Guaranty shall be limited to payment obligations of Debtor and Guarantor
shall have no obligation to sell, deliver, supply or transport gas and/or electricity.

2. WAIVER. This is a guaranty of payment and not of collection. Guarantor hereby waives:

(a) notice of acceptance of this Guaranty, of the creation or existence of any of the Guaranteed
Obligations and of any action by Creditor in reliance hereon or in connection herewith; and

(b) any requirement that suit be brought against, or any other action by Creditor be taken against,
or any notice of default or other notice be given to, or any demand be made on, Debtor or any other
person, or that any other action be taken or not taken as a condition to Guarantor’s liability for
the Guaranteed Obligations or as a condition to the enforcement of this Guaranty against Guarantor,
except as expressly defined herein.

 

 

3. TERM: TERMINATION. This Guaranty shall continue in full force and effect for a term commencing
on the Effective Date and continuing until April 30, 2006. Notwithstanding the foregoing, this
Guaranty may be terminated at any time by the Guarantor by providing at least forty-five (45) days
prior written notice to Creditor; provided, however, upon termination hereof, Guarantor agrees that
the obligations and liabilities hereunder shall continue in full force and effect with respect to
any obligations incurred prior to the termination date, plus any interest thereon, and any fees and
costs of enforcement in connection herewith.

This Guaranty shall continue to be effective or be restated, as the case may be, if at any time any
payment of any of the Guaranteed Obligations are annulled, set aside, invalidated, declared to be
fraudulent or preferential, rescinded or must otherwise be returned, refunded or repaid by Creditor
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Debtor or any other
guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, a
trustee or similar officer for, Debtor or any other guarantor or any substantial part of its
property or otherwise, all as though such payment or payments had not been made.

4. DEMAND. Prior to commencing any legal proceeding to enforce this Guaranty, the Creditor shall
provide the Guarantor with written demand (“Demand”) setting forth Debtors obligation and providing
the Guarantor or the Debtor three (3) business days in which to satisfy the obligation and thereby
avoid enforcement of the Guaranty. Any Demand by Creditor hereunder shall be in writing, signed by
a duly authorized officer of Creditor and delivered to the Guarantor pursuant to Section 4 hereof,
and shall (a) reference this Guaranty, (b) specifically identify the Debtor, the Guaranteed
Obligations to be paid and the amount of such Guaranteed Obligations and (c) set forth payment
instructions. Guarantor shall pay, or cause to be paid, such Guaranteed Obligations within three
(3) business days of receipt of such Demand.

There are no other conditions precedent to the enforcement of this Guaranty except as set forth
above. It shall not be necessary for Creditor, in order to enforce payment by Guarantor under this
Guaranty, to show any proof of Debtor’s default, to exhaust its remedies against Debtor, any other
guarantor, or any other person liable for the payment or performance of the Guaranteed Obligations.
Creditor shall not be required to mitigate damages or take any other action to reduce, collect, or
enforce the Guaranteed Obligations.

5. SUBROGATION. Guarantor shall be subrogated to all rights of Creditor against Debtor in respect
of any amounts paid by Guarantor pursuant to the Guaranty, provided that Guarantor waives any
rights it may acquire by way of subrogation under this Guaranty, by any payment made hereunder or
otherwise, until all of the Guaranteed Obligations shall have been irrevocably paid to Creditor in
full. If any amount shall be paid to the Guarantor on account of such subrogation rights at any
time when all the Guaranteed Obligations shall not have been paid in full, such amount shall be
held

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in trust for the benefit of Creditor and shall forthwith be paid to Creditor to be applied to the
Guaranteed Obligations.

6. NOTICES. All demands, notices and other communications provided for hereunder shall. unless
otherwise specifically provided herein, (a) be in writing addressed to the party receiving the
notice at the address set forth below or at such other address as may be designated by written
notice from effective upon delivery, when mailed by U.S. mail, registered or certified, return
receipt requested, postage prepaid, or personally delivered Notices shall be sent to the following
addresses:

IF TO CREDITOR:

Atlas America, Inc.

Attention : Michael Brecko

311 Rouser Road

P.O. Box 611

Moon Township, PA 15108

IF TO GUARANTOR:

UGI Corporation

Attention: Robert Krick, Treasurer P.O. Box 858

Valley Forge, PA 19482

7. NO WAIVER; REMEDIES. Except as to applicable statutes of limitation, no failure on the part of
Creditor to exercise, and no delay in exercising, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

8. ASSIGNMENT; SUCCESSORS AND ASSIGNS. Creditor may, upon notice to Guarantor, assign its rights
hereunder without the consent of Guarantor. Guarantor may assign its rights hereunder with the
prior written consent of Creditor, which consent shall not be unreasonably withheld. Subject to the
foregoing, this Guaranty shall be binding upon and inure to the benefit of the parties hereto and
their respective successors, permitted assigns, and legal representatives.

9. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA AND APPLICABLE FEDERAL LAW.

3

 

10. ENTIRE AGREEMENT. This Guarantee sets forth the entire understanding and agreement between the
parties as to matters covered herein and expressly supersedes all prior guarantees, agreements and
understandings between the parties with respect to the subject matter hereof. Any change,
modification, amendment, or alteration of this Guaranty shall be in writing and no course of
dealing between the parties prior or subsequent to the date of this Guaranty shall be construed to
change, modify, amend, alter or waive the terms thereof

IN WITNESS WHEREOF, UGI Corporation has caused this Guaranty to be duly executed and delivered by
its duly authorized officer effective as of the Effective Date first written above.

	 	 	 	 	 	 	 
	UGI CORPORATION
	 	 	 	 	 	 
	 

	 	By:
	 	/s/Robert W.Krick
 

	 	 
	 

	 	Name:
	 	Robert W.Krick	 	 
	 

	 	Title:
	 	Treasurer	 	 

4exv10w16

 

EXHIBIT 10.16

DRILLING AND OPERATING AGREEMENT

DATED SEPTEMBER 15, 2004

BY AND BETWEEN

ATLAS AMERICA, INC.

AND

KNOX ENERGY, LLC

 

 

TABLE OF CONTENTS

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	PAGE	 	 
	 

	 	 	 	 	 	 	 	 
	1.

	 	Definitions
	 	 	1	 	 	 
	2.

	 	Minimum Well Drilling Schedule; Initial and Subsequent Drilling; Election to Participate; Gathering
	 	 	3	 	 	 
	3.

	 	Title; Lease Status; Assignment by Non-Operator; AMI Election
	 	 	8	 	 	 
	4.

	 	Drilling and Certain Related Procedures; Abandonment
	 	 	11	 	 	 
	5.

	 	Other Operating Responsibilities of the Operator
	 	 	13	 	 	 
	6.

	 	Marketing of Natural Gas and Oil
	 	 	14	 	 	 
	7.

	 	Superintendence and Maintenance of the Wells; Operator’s Fee and Other Charges
	 	 	16	 	 	 
	8.

	 	Costs and Expenses; Plugging Reserve Account
	 	 	17	 	 	 
	9.

	 	Additional Operations
	 	 	19	 	 	 
	10.

	 	Non-Operator’s Access; Audit
	 	 	20	 	 	 
	11.

	 	Term and Termination
	 	 	20	 	 	 
	12.

	 	Contract Not Assignable
	 	 	22	 	 	 
	13.

	 	Relationship; Internal Revenue Code Election
	 	 	22	 	 	 
	14.

	 	Force Majeure
	 	 	22	 	 	 
	15.

	 	Notices
	 	 	23	 	 	 
	16.

	 	Governing Law
	 	 	24	 	 	 
	17.

	 	Successors in Interest
	 	 	24	 	 	 
	18.

	 	Integration; Amendment; Interpretation
	 	 	24	 	 	 
	19.

	 	Severability
	 	 	24	 	 	 
	20.

	 	Waivers
	 	 	24	 	 	 
	21.

	 	Further Assurances
	 	 	25	 	 	 
	22.

	 	Attorneys’ Fees
	 	 	25	 	 	 
	23.

	 	Public Statements
	 	 	25	 	 	 
	24.

	 	Counterpart; Fax
	 	 	25	 	 	 

- i -

 

 

DEFINITIONS

	 	 	 
	TERM	 	DEFINED AT:
	Additional Potential Lease(s)

	 	ss. 3.4
	AFE

	 	ss. 2.5
	Affiliate

	 	ss. 4.3
	Agreement

	 	Page 1
	AMI

	 	Second Whereas clause, page 1
	Assignment

	 	ss. 1.1(a)
	Casing Point

	 	ss. 1.1(b)
	Completion

	 	ss. 1.1(c)
	COPAS

	 	ss. 7.3
	Drilling Acreage

	 	ss. 1.1(d)
	Drilling Costs

	 	ss. 2.5
	Dry Hole

	 	ss. 1.1(e)
	force majuere

	 	ss. 14.1
	Gas Purchaser

	 	ss. 1.1(f)
	Initial Period

	 	ss. 2.8
	Leases/Lease

	 	Second Whereas clause, page 1
	Net Revenue

	 	ss. 1.1(h)
	Net Well

	 	ss. 2.8
	Non-Operator

	 	Page 1
	Operating Expenses

	 	ss. 1.1(i)
	Operating Reserve Account

	 	ss. 8.1
	Operator

	 	Page 1
	Operator’s Fee

	 	ss. 7.3

- ii -

 

 

	 	 	 
	Option Period

	 	ss. 2.8
	Plugging Funds

	 	ss. 8.4
	Plugging Reserve Account

	 	ss. 8.4
	Proportionate Share

	 	ss. 1.1(j)
	Well Acreage

	 	ss. 1.1(l)
	Wells/Well

	 	ss. 1.1(k)

- iii -

 

 

LIST OF EXHIBITS

 

	 	 	 
	 	 	PRINCIPAL REFERENCE:
	Exhibit A — AMI Map

	 	Second Whereas clause, page 1
	 
	 	 
	Exhibit B — Leases and Additional Potential Leases,
Minimum Wells and Excluded Acreage

	 	First Whereas clause, page 1
	 
	 	 
	Exhibit C — AFE’s

	 	ss. 2.3
	 
	 	 
	Exhibit D — Assignment

	 	ss. 1.1(a)
	 
	 	 
	Exhibit E — Gas Balancing Agreement

	 	ss. 6.4

- iv -

 

 

DRILLING AND OPERATING AGREEMENT

This Drilling and Operating Agreement (this “Agreement”) is made and entered into, effective as of
the 15th day of September, 2004, by and between ATLAS AMERICA, INC., a Pennsylvania corporation
(and not any other entity having the name Atlas America, Inc. or any derivative thereof), whose
address is 311 Rouser Road, Moon Township, Coraopolis, PA 15108 (hereinafter referred to as
“Operator”) and KNOX ENERGY, LLC, a Tennessee limited liability company, whose address is 132
Mitchell Road, Oak Ridge, TN 37830 (hereinafter referred to as “Non-Operator”).

WHEREAS, by the agreements described in Exhibit B which is attached hereto and made a part hereof,
Non-Operator is vested with the right to drill one or more wells for the purpose of exploring for
and producing natural gas and/or oil from the tracts or parcels covered thereby situate in
Anderson, Campbell, Morgan, Roane and Scott Counties, Tennessee; and

WHEREAS, Operator and Non-Operator desire to drill wells on the property covered by the agreements
described in Exhibit B (as well as any other agreements granting Non-Operator, either of the
members of Non-Operator and/or any affiliate of any of them the right to drill one or more wells on
the property within the area of mutual interest (the “AMI”) outlined on the map attached hereto as
Exhibit A and made a part hereof) for the production of natural gas and/or oil therefrom, and the
processing, transportation and marketing of such natural gas and/or oil, on the terms and
conditions hereinafter set forth; the agreements described in Exhibit B, as well as any other
agreements described in this WHEREAS clause which are deemed Leases as set forth in Section 3.4
hereof, are referred to herein collectively as the “Leases” and individually as a “Lease”.

NOW, THEREFORE, WITNESSETH, that for and in consideration of the foregoing premises, and the mutual
covenants herein contained, the parties hereto mutually covenant and agree as follows:

1. Definitions

1.1 The following terms used in this Agreement shall have the meanings set forth below:

(a) The term “Assignment” shall mean, with respect to Wells (as defined below), the separate
agreement in the form attached hereto and made a part hereof as Exhibit D, whereby Non-Operator
will grant, assign and convey, as set forth herein, unto the Operator and/or its successor and
assigns, their Proportionate Share (as defined below) of the right, title and interest of
Non-Operator in and to a part or portion of the property described in and covered by the Leases.

(b) The term “Casing Point” means the time when a Well has been drilled to the depth or the
formation or formations hereinafter designated and such tests have been conducted so that a
determination can be made as to whether the Well can be further developed to completion.

(c) The term “Completion” means in the case of a natural gas Well or an oil Well the time when all
Well equipment has been installed and the

 

 

Well is capable of producing natural gas and/or oil without regard to whether all facilities
necessary to permit the delivery of natural gas or oil production from the Well to a purchaser have
been installed.

(d) The term “Drilling Acreage” shall mean those tracts or parcels of land, or the parts or
portions thereof other than the 1.628 acre, more or less, parcel referred to in Section 2.8 hereof,
covered by the Leases.

(e) The term “Dry Hole” means a Well that has been drilled to the Casing Point but which is not
completed pursuant to the provisions of this Agreement.

(f) The term “Gas Purchaser” shall mean that party, whether one or more, designated by the Operator
and/or the Non-Operator to purchase gas produced from one or more Wells.

(g) The term “Net Revenue” shall mean the gross receipts of the Wells less all royalties,
overriding royalties, the Operator’s Fee (as defined in Section 7.3 hereof) and Operating Expenses
(as defined below) and any other item of expense not expressly chargeable to the Operator.

(h) The term “Operating Expenses” shall mean the customary expense of operation and maintenance of
a Well, if it is producing, the production and marketing of natural gas and/or oil therefrom, and
of plugging and abandoning a Well, if unproductive. Such term includes business and occupation,
gross receipts, ad valorem and severance taxes and all other taxes payable with respect to the
production from the Wells, and all legal fees, all transportation charges (including compression
charges), all materials utilized in production, such as, but not limited to, alcohol, soap,
solvents, cleaners, electric drops, electricity and other similar items and any other item commonly
or ordinarily used in connection with producing a natural gas and/or oil well or designated as an
Operating Expense in this Agreement, but shall not include any cost or expense incurred by the
Operator in discharging its obligation to superintend and maintain a Well, if producing (for which
the Operator is to receive monthly payments as set forth in Section 7.3 hereof) or any other such
costs and expenses which the Operator is required by the terms of this Agreement to bear itself.
Such term shall also include any amounts payable as damages subsequent to reclamation of all well
roads and drill sites in accordance with applicable law to any owner of the surface estate where a
Well is drilled or any right of way or easement appurtenant thereto and costs of defending or
arbitrating any action or claims asserted with respect thereto.

(i) The term “Proportionate Share” shall mean the percentage share of Operator or its successors or
assigns and of Non-Operator in the drilling and completion costs, Operating Expenses, Operator’s
Fee, working interest, production revenues and ownership of each Well to be drilled pursuant to
this Agreement.

(j) The term “Well” shall mean a well, and the term “Wells” shall mean all wells, drilled in
accordance with the terms of this Agreement.

(k) The term “Well Acreage” shall mean that part or portion of the Drilling Acreage covered by one
or more Leases included in a square area of forty (40) acres having as its center the borehole of a
Well to the extent such part or portion shall fall within the boundaries of such square area,
provided, however, that if a Lease, or any governmental or other regulatory

- 2 - 

 

authority or agency, provides or requires for a larger area or a different configuration, the Well
Acreage shall mean such larger area and/or different configuration.

2. Minimum Well Drilling Schedule; Initial and Subsequent Drilling; Election to Participate;
Gathering

2.1 The Leases identified in Exhibit B provide that a minimum number of wells are to be drilled
before certain dates as set forth on Exhibit B as a condition to the drilling of additional wells
on the property subject to such Leases.

2.2 It is understood and agreed by the parties that Operator is presently unable to perform the
duties and obligations of Operator hereunder with respect to (i) permitting and titling of Wells,
(ii) drilling and completing Wells, (iii) accounting for the costs of drilling and completing
Wells, (iv) tending Wells, (v) marketing production from the Wells or (vi) accounting for, and
distributing, Net Revenues and royalties and overriding royalties relating to production from the
Wells. The parties agree that Non-Operator will initially perform such duties and obligations and
shall be entitled to receive payment from Operator of Operator’s Proportionate Share of the
Drilling Costs, Operating Expenses and Operator’s Fee relating thereto. The parties will fully
cooperate with each other and use all reasonable efforts to have Operator perform such duties and
obligations relating to each of the foregoing numbered activities as soon as reasonably practicable
(giving due consideration to effecting a smooth transition as to each of the foregoing numbered
activities when Operator has adequate personnel in place to perform such duties and obligations
with respect to such activities), provided, however, that Operator shall perform all such duties
and obligations no later than when fifty (50) Wells have been drilled hereunder.

For example and without limiting the foregoing, until such time as Operator obtains any and all
required governmental and other approvals and permissions to drill, complete and operate Wells on
the property subject to a Lease identified in Exhibit B and has adequate personnel in place to
conduct such activities, Non-Operator shall perform such activities, and shall have all of the
rights, of Operator hereunder with respect to such activities. Operator shall promptly and
diligently pursue all reasonable actions to obtain such approvals and permissions and have such
adequate personnel in place. Upon obtaining such approvals and permissions and having such
personnel in place, Operator shall thereafter perform all such activities, and shall have all of
the rights, of Operator hereunder with respect to such activities and Non-Operator shall promptly
transfer to Operator all permits and other authorizations to drill, complete and operate Wells on
the property subject to the Leases identified in Exhibit B.

2.3 Non-Operator has obtained all governmental and other approvals and permits to drill, complete
and operate wells on the property subject to the Leases identified in Exhibit B as set forth on
Exhibit B under the heading Presently Permitted Minimum Wells. Until Operator obtains any and all
required governmental and other approvals and permissions to drill, complete and operate Wells on
the property subject to a Lease identified in Exhibit B, Non-Operator shall promptly and diligently
pursue all reasonable action to obtain such approvals and permissions to drill, complete and
operate, and shall drill, the minimum number of Wells set forth on Exhibit B with respect to such
Lease. After obtaining any and all required approvals and permissions to drill, complete and
operate Wells on the property subject to a Lease identified in Exhibit B, Operator shall promptly
and diligently drill the minimum number of wells set forth on Exhibit B with respect to such Lease
(less the number previously drilled) during the periods Operator has the right to drill wells under
this Agreement.

- 3 - 

 

With respect to each of the first ten (10) Wells identified in Exhibit B under the heading
Presently Permitted Minimum Wells, Operator shall pay to Non-Operator, upon execution of this
Agreement, Operator’s Proportionate Share of the Drilling Costs (as defined in Section 2.5 hereof)
as estimated in the AFE (as defined in Section 2.5 hereof) for such Well attached hereto as Exhibit
C and made a part hereof, and after Non-Operator determines the final third-party costs of drilling
and completing such Well, Operator shall pay to Non-Operator, as set forth in Section 2.5 hereof,
Operator’s Proportionate Share of such final costs in excess of the amounts set forth in the AFE
for such Well, subject to the refund or credit set forth in such Section. With respect to any other
Well which is drilled and completed by Non-Operator, not later than five
(5) days prior to such drilling, Operator shall pay to Non-Operator the Operator’s Proportionate
Share of the Drilling Costs as estimated in the AFE for such Well, and after Non-Operator
determines the final third-party costs of drilling and completing such Well, Operator shall pay to
Non-Operator, as set forth in Section 2.5 hereof, Operator’s Proportionate Share of such final
costs in excess of the amounts set forth in the AFE for such Well, subject to the refund or credit
set forth in such Section.

Operator and Non-Operator agree that no other well will be drilled on the property subject to the
Leases closer than one thousand three hundred twenty (1,320) feet to any Well drilled pursuant
hereto unless Operator and Non-Operator otherwise agree in writing; provided, however, that after
the expiration of the Initial Period or, if applicable, the Option Period, or the termination of
this Agreement if such termination occurs prior to the expiration of the Initial Period or the
Option Period, Non-Operator shall have the right to drill wells on the property subject to the
Leases which are closer than one thousand three hundred twenty (1,320) feet to any Well drilled
pursuant hereto so long as no such well produces natural gas or oil from any formation (other than
methane gas from coal beds or coal mines) from the surface to one hundred

(100) feet below the deepest formation from which natural gas and/or oil is produced from any such
Well and so long as the drilling, completion and operation (including the production, compression
and transportation of natural gas and/or oil) of all such wells do not unduly interfere with the
operation (including the production, compression and transportation of natural gas and/or oil) of
any Well and provided, further, that if a Well is plugged and abandoned, the limitations as to
formations and interference in the foregoing proviso as to such Well shall not apply. If
Non-Operator drills a well which is closer than one thousand three hundred twenty (1,320) feet to
any Well which has not been plugged and abandoned, it shall promptly furnish to Operator copies of
all drilling reports, logs, completion reports and other data reasonably requested by Operator for
the purpose of verifying that such well is not producing, and will not produce, any natural gas or
oil from any formation (other than methane gas from coal beds or coal mines) from the surface to
one hundred (100) feet below the deepest formation from which natural gas and/or oil is produced
from such Well. The agreements set forth above in this paragraph shall be covenants running with
the land and shall be set forth by reference to this Agreement in the Assignment in the form
attached hereto as Exhibit D and made a part hereof.

2.4 Non-Operator shall have the right to participate, on a well-by-well basis, for up to fifty
percent (50%) of the working interests in each Well drilled hereunder.

Except as set forth in Exhibit B under the heading Wells To Be Drilled On Or Before March 31, 2005,
Operator shall propose the number and location of the Wells to be drilled pursuant hereto and shall
give written notice thereof to Non-Operator. Non-Operator may elect to participate by giving
written notice to Operator of such election within thirty (30) days after receipt of Operator’s
proposal. Failure of Non-Operator to give notice to

- 4 - 

 

Operator of its election to participate within the period set forth above shall be deemed, and
shall constitute, an election by Non-Operator not to participate.

Non-Operator has elected not to participate in the first ten (10) proposed Wells identified in
Exhibit B under the heading Presently Permitted Minimum Wells for any working interest and Operator
shall own one hundred percent (100%) of the working interests in such Wells.

2.5 Operator and Non-Operator shall each pay its Proportionate Share of the actual third-party
costs of drilling and completing each Well plus an amount to cover general and administrative, and
technical supervision, expenses allocated to the drilling and completion of each Well (the
“Drilling Costs”). For each Well for which the drilling is commenced prior to March 31, 2005, the
amount allocated for general and administrative, and technical supervision, expenses for the
drilling and completion of each such Well shall be Fourteen Thousand Dollars ($14,000). Thereafter,
for each annual period beginning April 1 and ending March 31 of the following year, Operator shall
determine the amount to be allocated for general and administrative, and technical supervision,
expenses allocated to the drilling and completion of a Well for which the drilling is commenced
during such period, such amount to be equal to the amount Operator allocates to Wells drilled for
any limited partnership or other entity from which Operator receives funds to drill such Wells.

Operator shall give Non-Operator thirty (30) days’ prior written notice of the anticipated drilling
date for a Well in which Non-Operator has elected to participate. No later than five (5) days prior
to the drilling by Operator of a Well in which Non-Operator has elected to participate,
Non-Operator shall pay to Operator its Proportionate Share of the Drilling Costs of the Well as
estimated in an Authority for Expenditure (“AFE”) to be furnished to Non-Operator by Operator along
with the written notice to be provided by Operator to Non-Operator pursuant to Section 2.4 hereof.
Within thirty (30) days after Operator determines the final third-party costs of drilling and
completing a Well, Operator shall either (i) invoice Non-Operator for its Proportionate Share of
the final costs in excess of the amount prepaid by Non-Operator and Non-Operator shall pay such
invoice within thirty (30) days after receipt or (ii) at the election of Non-Operator, Operator shall refund to Non-Operator, or credit against
Non-Operator’s Proportionate Share of the Drilling Costs for one or more other Wells in which it
has elected to participate, the amount prepaid by Non-Operator in excess of the final Drilling
Costs for the Well. It is expressly understood and agreed that if the final Drilling Costs for a
Well exceed one hundred ten percent (110%) of the Drilling Costs as estimated in the AFE for the
Well, Non-Operator shall have no obligation to pay more than its Proportionate Share (based upon
its election to participate in the Well pursuant to Section 2.4 hereof) of such excess, provided,
however, that if Non-Operator does not pay such Proportionate Share of the excess, its
Proportionate Share of the Well shall be reduced to a share equal to the share of the final
Drilling Costs of the Well paid by it.

2.6 If Non-Operator elects to participate in a Well for a fifty-percent (50%) working interest, the
Well will be burdened with an overriding royalty payable to Non-Operator equal to 1/64th (1.5625%);
if Non-Operator does not elect to participate in a Well for any working interest, the Well will be
burdened with an overriding royalty payable to Non-Operator equal to 1/32nd (3.125%). To the extent
that Non-Operator participates in a Well for less than a fifty-percent (50%) working interest, the
overriding royalty to Non-Operator shall be determined by subtracting from an overriding royalty of
1/32nd (3.125%) an amount determined by multiplying 1/64th (1. 5625%) by a fraction, the numerator
of which is the Non-Operator’s working interest and the denominator of which is fifty percent
(50%). For example, if Non-Operator elects

- 5 - 

 

to participate for a thirty-percent (30%) working interest in a Well, the overriding royalty to
Non-Operator shall be:

3.125% less (1.5625% x (30% / 50%)) = 3.125% less .9375% = 2.1875%

2.7 With respect to each of the first ten (10) Wells identified in Exhibit B under the heading
Presently Permitted Minimum Wells, Operator shall pay to Non-Operator, upon execution of this
Agreement, Operator’s Proportionate Share of a site fee of Four Thousand Dollars ($4,000) and a
completion fee of Two Thousand Dollars ($2,000) for each such Well. With respect to each other Well
drilled and completed during the Initial Period (as defined in Section 2.8 hereof), Operator shall
pay to Non-Operator, not later than five (5) days prior to drilling such Well, Operator’s
Proportionate Share of a site fee of Four Thousand Dollars ($4,000) and Operator shall pay to
Non-Operator, not later than thirty (30) days after completion of such Well, Operator’s
Proportionate Share of a completion fee of Two Thousand Dollars ($2,000). During the Option Period
(as defined in Section 2.8 hereof), if applicable, the site fee shall be Five Thousand Dollars
($5,000) and the completion fee shall be Two Thousand Five Hundred Dollars ($2,500).

2.8 During the period ending June 30, 2007 (the “Initial Period”), Operator shall have the
exclusive right to propose and drill three hundred (300) Net Wells (as defined in this Section 2.8)
under this Agreement inclusive of Wells identified in Exhibit B under the heading Presently
Permitted Minimum Wells and other Wells drilled by Non-Operator under Section 2.3 hereof. If agreed
to by Non-Operator in writing no later than December 31, 2006, Operator shall have the exclusive
right to propose and drill two hundred (200) additional Net Wells under this Agreement during the
period commencing July 1, 2007 and ending June 30, 2009 (the “Option Period”). For purposes of this
Agreement, a Net Well shall mean one or more Wells in which Operator’s (and its successors’ and
assigns’) total initial participation equals one hundred percent (100%) of the working interests;
for example, if Operator has a working interest of one hundred percent (100%) in each of four (4)
Wells, seventy-five percent (75%) in each of four (4) Wells and fifty percent (50%) in each of four
(4) Wells, the number of Net Wells shall be four (4), three (3) and two (2), respectively, or a
total of nine (9) Net Wells.

Subject to the performance by Non-Operator of its obligations, and the accuracy of its
representations and warranties, herein contained (including but not limited to those set forth in
Section 2.3 hereof, this Section 2.8 and Section 3.2 hereof) and subject to the provisions of Section 14 hereof, Operator shall drill the
minimum number of Wells set forth in the Leases to keep each such Lease in full force and effect
during the Initial Period and, if applicable, during the Option Period and, except with respect to
the minimum number of Wells to be drilled prior to March 31, 2005 and one (1) Well to be drilled
under the Brimstone Lease on or before June 1, 2005 as set forth in Exhibit B, Operator shall
commence the drilling of such minimum number of Wells no later than ninety (90) days prior to the
dates set forth in each of the Leases to keep each of the Leases in full force and effect during
the Initial Period and, if applicable, during the Option Period. Notwithstanding the provisions of
the foregoing sentence, (i) if Non-Operator substitutes a new Operator under Section 11.2 hereof,
Operator shall have no obligation, nor right, to drill any additional Wells and (ii) if the
expiration of the Initial Period or, if applicable, the Option Period, occurs during a period when
a Lease provides a minimum number of Wells is to be drilled to keep such Lease in full force and
effect, the obligation of Operator to drill the minimum number of Wells to keep such Lease in full
force and effect shall be prorated based upon the time of such period prior to, and after, the
expiration of the Initial Period and, if applicable, the Option Period; for example, if the period
in the

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Lease during which a minimum number of Wells to be drilled is from January 1 of a year to December
31 of such year and the minimum number of Wells to be drilled in such period is ten (10), then in
the calendar year 2007, Operator shall have an obligation to drill only five (5) Wells if the
Option Period is not applicable.

Failure of the Operator to drill the minimum number of Wells as set forth above in the preceding
paragraph shall result in the immediate termination of Operator’s right to thereafter drill any
Well and, except as set forth below, Operator’s right or obligation to participate in any Well
thereafter drilled, provided, however, that if after such termination, Non-Operator drills, or
causes to be drilled, any Wells during the Initial Period or if applicable, the Option Period, to
satisfy the minimum number of Wells as set forth in the preceding paragraph to be drilled in such
period, Operator shall participate in each such Well drilled no deeper than one hundred (100) feet
below the Chattanooga Shale formation (or such deeper formation to which such Well is required to
be drilled by a Lease) for such working interests, if any, as Non-Operator shall notify Operator in
writing prior to the drilling of such Well and Operator shall be responsible for, and shall pay,
its Proportionate Share of the Drilling Costs, Operating Expenses and Operator’s Fee for such Well;
the termination of the rights of Operator set forth above and the right of Non-Operator to require
Operator to participate in the minimum number of Wells drilled no deeper than one hundred (100)
feet below the Chattanooga Shale formation (or such deeper formation to which such Well is required
to be drilled by a Lease) shall be the sole and exclusive remedy of Non-Operator with respect to
Operator’s failure to drill the minimum number of Wells as set forth above in the preceding
paragraph.

Non-Operator represents and warrants, to the best of its knowledge, to and for the benefit of
Operator and its successors and assigns that no person, corporation or other entity, other than
Non-Operator, has the right to explore for or produce natural gas or oil (including the right to
drill, complete and operate Wells for the production, compression, transportation, marketing and
sale of natural gas and oil produced therefrom) from the property subject to the Leases identified
in Exhibit B other than the 1.628 acre, more or less, portion of the tract covered by the Coal
Creek Lease described in Exhibit B under the heading Excluded Acreage. Non-Operator agrees that
during the Initial Period, and if applicable, during the Option Period, Non-Operator shall not
grant, assign or otherwise transfer to any person, corporation or other entity, except to Operator
as set forth herein, the right to explore for and produce natural gas or oil from the property
subject to the Leases not including methane gas from coal beds and coal mines.

Notwithstanding anything to the contrary contained in this Agreement, upon the expiration of the
Initial Period and, if applicable, the Option Period, Operator shall have no obligation or right to
drill any well, and shall have no right to participate in any well drilled thereafter, on the
property subject to any Lease.

2.9 Notwithstanding anything to the contrary contained in this Agreement, without the written
consent of Non-Operator, no Well drilled under this Agreement shall be drilled or completed to
produce any methane gas from coal beds or coal mines, and after the initial drilling and completion
of a Well, such Well shall not be deepened without the consent of both Operator and Non-Operator.
It is expressly understood and agreed that Operator has no rights of ownership or otherwise in, nor
liabilities with respect to, any well (whether producing, plugged or abandoned) drilled on the
property subject to any Lease identified in Exhibit B by Non-Operator or any other person,
corporation or other entity prior to the date of this Agreement or, unless otherwise agreed to in
writing by Non-Operator and Operator, in any well (whether producing, plugged or abandoned) drilled
on the property subject to any other Lease prior to the

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time it is deemed a Lease pursuant to Section 3.4 hereof; and to the extent it has the right to do
so, Non-Operator may produce, rework, deepen and perform other operations on such wells for its
sole account.

2.10 Operator and Non-Operator shall each have the right to transfer or otherwise assign working
interests in any Well to any affiliate and to any limited partnership or other entity from which
Operator or Non-Operator receives funds to drill the Well, provided, however, that each party must
retain at least twenty percent (20%) of the working interests for which it participated hereunder
in each Well (such retention may be by the direct ownership of such minimum working interest or
indirectly by such party’s ownership of an affiliate or such limited partnership or other entity
which owns working interests in the Well) unless otherwise consented to by the other party, such
consent not to be unreasonably withheld.

3. Title; Lease Status; Assignment by Non-Operator; AMI Election

3.1 Promptly after the execution of this Agreement, Non-Operator shall provide to Operator all
information in its possession or subject to its control as to the title to the natural gas and oil
underlying the property subject to the Leases identified in Exhibit B and the rights to explore
for, develop, operate, produce and market such natural gas and oil including but not limited to the
names and addresses of all owners of royalties and overriding royalties and the amounts of such
royalties and overriding royalties. Additionally, at the time a copy of an agreement described in
Section 3.4 hereof is sent to Operator, and thereafter, promptly after being requested to do so,
Non-Operator shall provide to Operator all information in its possession or subject to its control
as to the title to the natural gas and oil underlying the property subject to such agreement and
the rights to explore for, develop, operate, produce and market such natural gas and oil. As to the
title to the natural gas and oil underlying the property subject to the Leases and the right to
explore for, develop, operate, produce and market such natural gas and oil, Non-Operator represents
and warrants to and for the benefit of Operator and its successors and assigns that it will defend
such title against every person, corporation or other entity claiming or to claim an interest
therein by, through or under Non-Operator, or any member of Non-Operator, or any affiliate of any
of them, but not otherwise.

Prior to the drilling of a Well, the Operator shall obtain a report, prepared by an attorney or
title insurance company licensed to practice or do business in Tennessee, as to whether the
lessor(s) of the Lease, and each assignee of such lessor(s) including Non-Operator, are vested with
good and marketable title to the rights to explore for, develop, operate, produce and market
natural gas and oil on Well Acreage covered by the Lease on which the Well is to be drilled.
Without limiting the foregoing, the report will cover, with respect to the Well Acreage covered by
the Lease on which the Well is to be drilled, the ownership of the (i) oil and natural gas, (ii)
working interests, (iii) royalties, (iv) overriding royalties and (v) other production payments, if any. Promptly
after receipt of a report, Operator shall furnish a copy thereof to Non-Operator. If a report
reveals defects in title, Operator may, in the exercise of its reasonable judgment, caused to be
performed such curative work as Operator deems prudent (including obtaining pooling amendments or
agreements) or may decide not to drill a Well on the Well Acreage subject to the report. Operator
and Non-Operator shall each be responsible for, and pay, its Proportionate Share of the costs
incurred to obtain such reports, and to perform curative work, including costs of abstracts,
attorney’s fees, title company charges, land broker charges and other related direct charges,
provided, however, that Non-Operator shall not be responsible for, and shall not pay, any amount
for services rendered by in-house counsel or other personnel of Operator with respect to title to
any Well Acreage or any curative work relating thereto.

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Except as to the warranty of title set forth in the preceding paragraph, neither Operator nor
Non-Operator shall have any liability to the other for failure of title or any matter relating
thereto.

3.2 Non-Operator hereby represents and warrants, as of the date hereof and continuing until March
31, 2005, to and for the benefit of Operator and its successors and assigns, that the Leases
identified in Exhibit B are in full force and effect in accordance with their terms and that there
are no defaults by lessee thereunder and that the lessee has no obligation under any such Lease to
drill any well for the production of any methane or other gas from coal beds or coal mines and that
all amendments to each such Lease are identified in Exhibit B and that all consents required under
such Leases to permit Operator to perform its obligations, and exercise its rights, contemplated
hereby have been obtained including consents to the assignment of such Leases and interests in the
Wells and Well Acreage to Operator and to any affiliate of Operator or Non-Operator and to any
limited partnerships and other entities from which Operator or Non-Operator receives funds to drill
Wells, true and correct copies of such consents having been furnished by Non-Operator to Operator
on or prior to the execution of this Agreement. Non-Operator shall not agree to any amendment or
other modification of any Lease identified in Exhibit B without the prior written consent of
Operator. Non-Operator shall be solely responsible for the payment of, and shall pay, all delay
rentals, minimum royalties and other amounts required to be paid under the Leases to keep the
Leases in full force and effect and upon request of Operator, Non-Operator shall provide evidence
of such payment in such detail as Operator may reasonably request; Non-Operator shall be entitled
to recoup such delay rentals, minimum royalties and/or other amounts as may be provided in the
Lease and to the extent Operator receives funds from the sale or other disposition of natural gas
and oil produced from the Wells which may be applied to such recoupment, it will pay such funds to
Non-Operator. Operator and Non-Operator shall each pay its Proportionate Share of any shut-in
royalties required to be paid under the Leases with respect to a Well. Additionally, Non-Operator
shall comply with all other provisions of the Leases (except, subject to Section 2.3 hereof, the
provisions to drill a minimum number of wells), and take all other actions to otherwise keep the
Leases in full force and effect, with respect to the property subject thereto exclusive of Well
Acreage. Promptly after receipt of any notice, or any document or other writing, from any lessor of
a Lease, any governmental or regulatory authority or agency or any other person, corporation or
authority relating to any Lease or Well or any activities conducted on the property subject to the
Leases or relating to any other matter concerning the drilling, completion or operation of one or
more Wells, or the transportation, compression, processing, marketing or sale of natural gas and/or
oil produced therefrom, Non-Operator and Operator, as the case may be, shall provide the other with
such notice, or document or other writing.

3.3 Upon payment by Operator of its Proportionate Share of the site fee for a Well pursuant to
Section 2.7 hereof, the Non-Operator shall promptly execute and deliver to the Operator or its
successors and assigns an Assignment in substantially the form attached hereto and made a part
hereof as Exhibit D with respect to the Well Acreage on which the Well is to be drilled and the
non-exclusive right to construct, maintain, repair and operate one or more lines, compressors,
processing facilities and meters on the property subject to the Leases to transport, compress,
process, measure, market and sell natural gas and oil produced from the Wells, which natural gas
and oil shall be transported through the Coalfield Pipeline pursuant to a Gas Gathering Agreement
between Operator and Coalfield Pipeline Company being executed contemporaneously with this
Agreement. Unless otherwise agreed to by the Non-Operator, the Assignment shall except and reserve
to the Non-Operator all interests and estates with respect to methane gas in coal beds and coal
mines, together with the right to conduct operations on and drill through Well Acreage for the
development,

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extraction and processing of such methane gas so long as such operations and drilling do not
adversely affect the operation of, or production from, any Well. In the Assignment and subject to
the non-exclusive right described in the first sentence of this Section 3.3, Non-Operator shall
further except and reserve unto itself all interests and estates in the Lease on which the Well is
drilled, except as to the Well Acreage and as to all oil and gas formations from the surface to one
hundred (100) feet below the deepest producing formation in the Well.

3.4 If the Non-Operator, either member of the Non-Operator or any affiliate of any of them acquires
the right to drill one or more wells on the AMI pursuant to an agreement not identified in Exhibit
B, the Non-Operator shall provide a copy of the agreement to the Operator promptly after the
execution of such agreement. The Operator shall have the right, within thirty (30) days after
receipt of the executed agreement, to notify the Non-Operator in writing that such agreement shall
be deemed a Lease, subject to such conditions as may be set forth in the notice (including consents
to assignment), for all purposes of this Agreement and Non-Operator shall not agree to any
amendment or other modification of such Lease without the prior written consent of Operator. If
such written notice is not given by the Operator within the thirty (30) day period, such agreement
shall not be deemed a Lease and the Operator shall have no rights, or obligations, in regard to
such agreement. Notwithstanding the foregoing, Operator shall have no right to have any acreage
described in Exhibit B under the heading Excluded Acreage deemed subject to a Lease.

With respect to the leases and other agreements (“Additional Potential Leases”) described in
Exhibit B under the heading Additional Potential Leases, on or before March 1, 2005, Non-Operator
shall provide to Operator a copy of each such Additional Potential Lease. If Non-Operator desires
to drill a natural gas and/or oil well on the property subject to an Additional Potential Lease, at
least ninety (90) days prior to drilling such well, Non-Operator shall give written notice to
Operator of such desire along with the proposed location, target formation and anticipated drilling
date of the well (as well as copies of any amendment or other modification of such lease and of any
consent to assignment required by such lease) and the Operator shall have the right to participate
in such well for up to fifty percent (50%) of the working interests, if Operator elects, as
provided below, to have the Additional Potential Lease and well deemed a Lease and Well hereunder.
If Operator notifies Non-Operator in writing within thirty (30) days after receipt of the written
notice from Non-Operator that Operator desires to participate in the well and sets forth, in such
notice, its working interest participation, such well and Additional Potential Lease shall be
deemed a Lease and a Well hereunder and Operator shall commence the drilling of the Well before the
drilling date set forth in the notice from Non-Operator, it being understood and agreed that after
Non-Operator gives the written notice to Operator set forth above, Non Operator shall not agree to
any amendment or other modification of such Lease without the prior written consent of Operator.

3.5 The Operator agrees that for a period of seven (7) years after the execution of this Agreement,
it will not acquire, other than as provided in this Agreement, the right to drill any wells or to
mine any coal, or any interests in oil and gas or coal, on the AMI without the written consent of
the Non-Operator. The provisions of this Section 3.5 shall survive the termination of this
Agreement prior to the end of such seven (7) year period.

3.6 Notwithstanding anything to the contrary herein contained, all rights and obligations of
Operator and Non-Operator hereunder relating to the Leases are subject to the terms and provisions
of the Leases including, but not limited to, any rights of lessor or others to take over any Well
to be plugged and abandoned.

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4. Drilling and Certain Related Procedures; Abandonment

4.1 Other than the minimum number of Wells to test the Knox Formation, the Monteagle formation or
any other formation set forth in the Leases, the Operator shall drill each Well to such formation
as it shall designate, unless natural gas or oil is discovered in commercial quantities at a lesser
depth which, in the opinion of the Operator, in its reasonable discretion, makes further drilling
inadvisable to such target formations. If the Well is found to be commercially productive in the
reasonable discretion and judgment of the Operator, the Operator shall complete the Well and if the
Well produces natural gas, connect it to the Coalfield Pipeline, and if the Well produces oil, make
appropriate arrangements for the prompt removal and sale of the oil produced from the Well.

4.2 The Operator shall provide or cause to be provided all materials, supplies, tools, labor and
services required to drill and complete the Wells to be drilled pursuant to this Agreement through
the wellhead, including, but not limited to, drilling rigs, casings, bits, drill pipe, and all
water, power, fuel and lubricants required at the Well sites. In connection with the foregoing
obligations, the Operator shall perform, or cause to be performed, with respect to the Wells, the
following procedures, in accordance with industry custom and standard in the locality:

(a) Grade and prepare the well location, including furnishing a suitable roadway thereto, if
required, and following completion, backfill, grade and reseed the well location, all in accordance
with the requirements of applicable law;

(b) Install and cement the well casing in accordance with the specifications of the Operator and as
required by state and federal law;

(c) Electronically log and test the well in accordance with the specifications of the Operator to
determine its productive capacity;

(d) Perforate such casing opposite such formations as Operator may select in accordance with the
specifications of the Operator;

(e) Unless the Operator reasonably determines it is not necessary, stimulate one or more of the
productive formations by means of nitrogen fracturing, hydrofracturing, acidizing, shooting, or
other means in accordance with the specifications of the Operator, such stimulation and the extent
and scope thereof to be designed by the Operator in accordance with generally accepted industry
practices in the locality;

(f) If necessary, install an oil and gas separator to separate any recoverable liquids from the
natural gas, if such liquids are contained by the natural gas in commercial amounts, before such
natural gas is delivered to the designated pipeline or compressing equipment, together with a tank
to store any liquids so separated from the natural gas as required;

(g) Use commercially reasonable efforts to obtain all rights of way and related surface rights and
easements required, provide pipe for, and construct and place in operation, an appropriate
gathering or other pipeline system to connect the Wells to the Coalfield Pipeline, provided,
however, that to the extent Non-Operator or any of its members or any affiliate of any of them has
such rights-of-way and related surface rights and easements, it shall grant Operator the
non-exclusive right to use the same for such purpose;

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(h) Install all drips and other devices in the gathering or other lines as shall be needed to
ensure that all natural gas entering the lines shall have a moisture content no greater than the
maximum allowable under current industry standards; and (i) In the event that Operator shall at any time determine that a Well is capable of producing oil
in paying quantities, as either a Drilling Cost or an Operating Expense (i) install well pumping
equipment following its completion in order to produce oil from the Well in an amount equal to its
allowable or capacity production and (ii) provide pipe for, and construct and place in operation,
an appropriate, if necessary, line to connect the Well to an oil transmission line (or, in the
event that any oil produced is to be removed by tanker, construct a pipeline to an adequate tank
battery at the designated pickup point).

4.3 Notwithstanding anything to the contrary contained in this Agreement, the Operator shall have
the right to subcontract any part of the drilling, completion and operation of a Well, and any
other work to be performed by Operator hereunder, to an affiliate of the Operator or any other
party without the prior consent of the Non-Operator, provided, however, that no such subcontracting
shall relieve the Operator of its obligations and responsibilities hereunder and any such
subcontract must be made on commercially reasonable terms. The term “affiliate” as used in this
Agreement shall mean any business entity which directly or indirectly through one or more
intermediaries controls or is under the common control of the Operator or Non-Operator.

4.4 The Operator shall conduct all operations hereunder in a good and workmanlike manner. All
materials and supplies to be provided shall be of good quality and suitable to the use to which
they may be put and all equipment, appliances and tools shall be in operating order. Operator shall
not be responsible for loss resulting from any latent defect in any material supplied by any third
party or the negligence of any third party of any service.

4.5 In the event a Well is determined by the Operator, in its reasonable discretion, to be
commercially unproductive following drilling to total depth and electronic logging thereof, and is
thereby deemed a “Dry Hole,” the Operator may notify the Non-Operator of such fact and of
Operator’s intention to plug and abandon, and the reasons for plugging and abandoning, the Well in
accordance with the laws and regulations of the State of Tennessee. After sixty (60) days have
expired from the date of mailing such notice, Operator may plug and abandon the Well and Operator
and Non-Operator shall each pay its Proportionate Share of the costs of plugging and abandoning the
Well. Notwithstanding the foregoing, in the event the Non-Operator desires that the Well not be
plugged and abandoned, it shall, within said sixty (60) day period, serve upon Operator a written
notice requesting the resignation of the Operator as to the Well. Such notice shall designate a new
operator for the Well, and shall be accompanied by evidence of an operator’s bond with respect to
the Well. Such notice shall also be accompanied by a written agreement, signed by the Non-Operator,
agreeing to assume the operation of the Well through the newly designated operator and relieving
and discharging Operator of all further responsibility in connection with the operation or plugging
and abandonment of the Well except for acts or activities occurring prior to the effective date of
such notice. After the Well is placed under the bond of the new operator, Operator shall promptly
transfer to Non-Operator, free or charge, all rights, titles and interests of Operator in and to
the Well and the Well Acreage on which the Well is drilled.

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5. Other Operating Responsibilities of the Operator

5.1 In connection with the performance of its duties and responsibilities pursuant to the terms of
this Agreement, Operator shall:

(a) Keep the Leases free and clear of all labor, materials and other liens or encumbrances arising
out of its operations;

(b) Obtain and maintain at its own expense all worker’s compensation coverage required by law with
respect to its employees and employee liability insurance with a limit of $1,000,000 per
occurrence, and require all of its subcontractors to obtain and maintain such coverage with respect
to their employees;

(c) Maintain in force at its own expense, with an insurance company or companies licensed to do
business in Tennessee and rated A-, VII or better by A.M. Best, the following basic liability
coverages (including independent contractor and completed operations and premises operations): comprehensive (including written contractual liability) general liability insurance and bodily
injury insurance — $1,000,000 each occurrence and $1,000,000 aggregate; property damage liability
(with deletion of underground property damage exclusion provisions ) — $1,000,000 each occurrence
and $1,000,000 aggregate; and comprehensive auto liability and property damage in the same limits.
The Operator shall also maintain an “umbrella” policy increasing the liability coverage
hereinbefore set forth by the additional amount of $10,000,000. Upon receipt of a request of
Non-Operator for a certificate of insurance, Operator shall request such a certificate and shall,
upon receipt of the certificate, furnish the same to the Non-Operator. Non-Operator and its
members, CNX Gas Company, LLC (and its members) and New River Energy, LLC (and its members), and
CONSOL Energy, Inc., and their directors, officers and employees, shall be named as additional
insureds under the policies and the policies shall provide that they may not be cancelled as to any
coverage with respect to any of them, except after thirty (30) days’ written notice to Non-Operator
and CONSOL Energy, Inc. and the policies shall also provide a waiver of subrogation rights in favor
of Non-Operator and its members, CNX Gas Company, LLC (and its members) and New River Energy, LLC
(and its members) and CONSOL Energy, Inc., and their directors, officers and employees.

In the event Operator is unable, or fails, to obtain or maintain any of the insurance coverage
described above, Operator shall give Non-Operator notice thereof as soon as reasonably possible and
in such event, Operator shall immediately cease conducting any activities on the property subject
to the Leases until such time as Operator obtains such coverage unless such inability, or failure,
results from insurance companies licensed to do business in Tennessee not generally offering such
coverage. If Operator is unable, or fails, to obtain or maintain any of the insurance coverage
described above for a period of thirty (30) days, Non-Operator shall have the right to immediately
terminate the right of Operator to thereafter drill any Well and, except as set forth in the third
paragraph of Section 2.8 hereof, the right or obligation of Operator to participate in any Well
drilled thereafter, upon sending written notice to Operator unless such inability, or failure,
results from insurance companies licensed to do business in Tennessee not generally offering such
coverage or unless one or more subcontractors of Operator who have such coverage conduct, to the
exclusion of Operator, all activities on the property subject to the Leases to fulfill all
obligations of Operator hereunder to be performed on such property and Operator provides to
Non-Operator within such thirty (30) day period a certificate of such insurance coverage of such
subcontractor(s);

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(d) Comply with all requirements of applicable federal, state and local laws, and all regulations
pursuant thereto, including, but not limited to, (i) obtaining all permits and approvals required
from any governmental or regulatory authority or agency for the drilling and other activities which
are the subject hereof, (ii) duly complying with all environmental and other similar laws and
regulations relating to well drilling operations and associated earthmoving activities and with the
terms of any orders issued by any governmental or regulatory authority or agency having
jurisdiction with respect thereto, and (iii) filing all reports required to be filed with any
governmental or regulatory authority or agency in connection with the drilling and other activities
which are the subject hereof. If Operator and/or any of its subcontractors repeatedly violate the
material provisions of applicable federal, state or local law, or of regulations pursuant thereto,
and fail to cure such violations in a timely manner, Non-Operator shall have the right to
immediately terminate the right of Operator to thereafter drill any Well and, except as set forth
in the third paragraph of Section 2.8 hereof, the right or obligation of Operator to participate in
any Well drilled thereafter, upon sending to Operator written notice setting forth such violations.
Fines imposed as a result of Operator and/or its subcontractors violating applicable federal, state
or local law, or of regulations pursuant thereto, shall be payable solely by Operator unless such
violations do not result from a breach by Operator of its obligations under paragraph (f) below, in
which event Operator and Non-Operator shall each pay its Proportionate Share of such fines;

(e) Comply with all of the provisions of the Leases, and take all actions required to keep the
Leases in full force and effect, with respect to its operations hereunder; and (f) Perform its duties under this Agreement as a reasonable prudent operator, in a good and
workmanlike manner, with due diligence and dispatch, in accordance with good oil field practice.
Operator agrees to indemnify and hold Non-Operator, its employees, directors and affiliates
harmless from any third-party suits, claims, damages or actions related to the performance of its
duties hereunder except to the extent that such suits, claims, damages or actions arise from the
negligence of Non-Operator. Except for the indemnification provided in this paragraph (f), no party
shall be responsible to the other party for any special, indirect, consequential, lost profit or
punitive damages regardless of the type of breach (financially related or non-financially related).

6. Marketing of Natural Gas and Oil

6.1 The Operator shall use commercially reasonable efforts to sell, upon such terms and conditions
as it shall in its reasonable discretion deem advisable, all natural gas and oil produced from the
Wells, exclusive of any production which may be used in development and producing operations and
any production lost due to loss or shrinkage or used in compression of natural gas or in preparing
and treating oil for marketing. At least ten (10) days prior to entering into any agreement with
respect to the sale of natural gas and/or oil produced from the Wells, Operator shall furnish a
copy of such agreement to Non-Operator. Unless Non-Operator notifies Operator in writing, within
ten (10) days after receipt by Non-Operator of such agreement, that Non-Operator elects, pursuant
to Section 6.2 hereof, to receive in kind its Proportionate Share of the production from the Wells,
as well as the overriding royalty of Non-Operator set forth in Section 2.6 hereof, Operator shall
be authorized to sell Non-Operator’s Proportionate Share of the production from the Wells, as well
as such overriding royalty, pursuant to the terms and provisions of such agreement. Any such
agreement shall be executed by Operator as agent for the Non-Operator, and the Non-Operator hereby
appoints Operator as its agent and attorney-in-fact for such purpose and shall designate Operator
as the payee of the gross proceeds

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from the sale of natural gas and oil under such agreement so long as the Operator shall act as
Operator hereunder. Notwithstanding anything to the contrary contained in this Agreement, unless
agreed to otherwise by Non-Operator in writing, Operator shall have no authority to sell, and shall
not sell, Non-Operator’s Proportionate Share of the natural gas produced from the Wells except for
a floating price determined daily or monthly based upon the commodity price of natural gas as
reflected in the future prices on the New York Mercantile Exchange or a nationally recognized
commodities index; Operator will use reasonable efforts to notify Non-Operator if it intends to
sell Operator’s Proportionate Share of the natural gas produced from the Wells at a price other
than set forth above, the parties recognizing, however, that such notice may be given immediately
before such sale because of market and other factors. Any authority delegated to the Operator to
sell Non-Operator’s Proportionate Share of the production from the Wells shall be limited to a
period of time not in excess of the minimum needs of the industry and in no event for more than one
year unless agreed to in writing by Non-Operator.

Operator shall be solely responsible for the payment of any and all charges imposed by a pipeline
or other transporter of natural gas which is to receive natural gas produced from the Wells at its
connection with the Coalfield Pipeline and which arise from an imbalance between (i) quantities of
natural gas produced from the Wells and nominated by Operator for delivery to such pipeline or
other transporter and (ii) quantities of such natural gas actually delivered; provided, however,
that Operator shall have no such responsibility, and Non-Operator shall bear its Proportionate
Share of any and all such charges, if the imbalance results from “force majeure” (as such term is
defined in Section 14.1 hereof) or any other cause except the negligence of Operator.

6.2 Notwithstanding anything to the contrary contained in this Agreement, the Non-Operator shall
own its Proportionate Share of the Wells and the natural gas and oil which is produced therefrom,
and shall have, and may exercise, at any time and from time to time, its right and privilege to
receive in kind its Proportionate Share of the production from the Wells, as well as the overriding
royalty of Non-Operator set forth in Section 2.6 hereof, and make a sale thereof for its own
account, provided, however, that if Non-Operator exercises its right and privilege to take in kind,
such exercise shall be for one hundred percent (100%) of its Proportionate Share of the natural gas
production from the Wells, as well as the natural gas overriding royalty of Non-Operator set forth
in Section 2.6 hereof and Non-Operator shall use its best efforts to actually take in kind one
hundred percent (100%) of such natural gas production and overriding royalty and provided further,
that Non-Operator shall be responsible for the payment of all costs and expenses incurred by
Non-Operator, Operator or otherwise in connection with Non-Operator’s receipt in kind and failure,
if any, to take in kind one hundred percent (100%) of such natural gas production and overriding
royalty. Additionally, if Non-Operator exercises its right and privilege to receive in kind its
Proportionate Share of the natural gas production from the Wells, as well as the natural gas
overriding royalty of Non-Operator set forth in Section 2.6 hereof, to the extent Operator has the
right, whether exclusive or otherwise, to have natural gas produced from the Wells compressed and
transported through the Coalfield Pipeline, such natural gas production and overriding royalty of
Non-Operator shall be delivered by Operator into the Coalfield Pipeline on the same basis as all
other natural gas production from the Wells.

6.3 Operator shall distribute to Non-Operator on a monthly basis Non-Operator’s Proportionate Share
of the Net Revenues from the Wells received by Operator and the overriding royalties payable to
Non-Operator pursuant to Section 2.6 hereof unless Non-Operator receives in kind, as set forth in Section 6.2 hereof, its
Proportionate Share of the production from the Wells and/or the overriding royalty of Non-Operator
set forth in Section 2.6 hereof.

6.4 The balancing of the Proportionate Shares of Operator and Non-Operator of natural gas produced
from the Wells, as well as the Overriding Royalty of Non-Operator taken in kind, shall be governed
by the terms and provisions of the Gas Balancing Agreement attached hereto as Exhibit E and made a
part hereof.

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7. Superintendence and Maintenance of the Wells; Operator’s Fee and Other Charges

7.1 In addition to its other obligations hereunder, the Operator, shall be responsible for
superintendence and maintenance of the Wells, if productive. In particular, and without limiting
the generality of the foregoing, the Operator shall take the following actions with respect to each
Well:

(a) The Well shall remain connected to its transmission, gathering or other pipeline system, as
appropriate, at all times, except to the extent disconnection is required:

(i) For repairs to the Well or associated facilities;

(ii) To accommodate surface or other coal mining operations where the surface or other coal mining
rights have priority over the oil and gas exploration and production rights; and

(iii) To accommodate timbering operations where the timber rights have priority over the oil and
gas exploration and production rights.

(b) In the event the Well is disconnected for repairs, reconnection shall be made promptly
following the completion of such repairs (after authorization from the Gas Purchaser, if required);

(c) Appropriate shut-in pressure tests are conducted with respect to the Well;

(d) All metering, valves and other wellhead equipment are checked regularly and maintained in good
condition; and

(e) The Well is kept in good condition for the production of natural gas and oil.

7.2 The number of employees required for the discharge of the Operator’s superintendence and
maintenance responsibilities hereunder and their selection and hours of labor shall be determined
by the Operator, in its sole and absolute discretion.

7.3 In lieu of any direct charges by the Operator for the services of the Operator or any of its
employees or subcontractors required for superintendence and maintenance of the Wells under this
Agreement, if productive, and in lieu of any accounting, bookkeeping and distribution expenses, the
Operator shall be entitled to receive payment from Non-Operator of its Proportionate Share of the
rate of Two Hundred Twenty-Five Dollars ($225)

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per month per Well (the “Operator’s Fee”), commencing with the first month or part thereof that the
Well is in production and continuing for each month thereafter whether or not the Well shall be in
production, provided, however, that no Operator’s Fee shall be charged for any month during which
the Well is shut-in for the entire month for reasons other than repair or maintenance. Such amount
is intended to compensate the Operator for the services supplied by Operator, its personnel and the
personnel of any subcontractors engaged by Operator but excluding any allowance for materials,
supplies, or the use of Operator’s equipment. Notwithstanding the foregoing, in the event that it
shall be necessary for Operator to incur unusual or extraordinary expenses in the operation of the
Wells, such as in the case of a Well whose productivity of oil is such as to require intensive
supervision, such additional expenses shall be deemed to be an Operating Expense.

The Operator’s Fee at the rate of Two Hundred Twenty-Five Dollars ($225) per month per Well shall
be fixed at such amount until December 31, 2007. The Operator’s Fee may be adjusted as of January
1, 2008 for the period beginning on such date and ending on December 31, 2008 and thereafter may be
adjusted annually for the periods beginning January 1 of a year and ending December 31 of the same
year. The adjustment shall be computed by multiplying the Operator’s Fee currently in effect by the
percentage increase or decrease, if any, recommended by the Council of Petroleum Accountants
Societies (“COPAS”) each year and the adjusted Operator’s Fee shall be the Operator’s Fee currently
in use plus or minus the adjustment, provided, however, that the adjusted Operator’s Fee shall
never be less than Two Hundred Twenty-Five Dollars ($225) per month per Well.

8. Costs and Expenses; Plugging Reserve Account

8.1 The Operator shall cause all Operating Expenses to be promptly paid and discharged and
Non-Operator shall be responsible for payment of its Proportionate Share of all Operating Expenses.
In the event the Operator shall have paid any Operating Expenses with respect to the Wells out of
its own funds, Non-Operator’s Proportionate Share of the amounts thereof shall be reimbursed by the
Non-Operator to the Operator within thirty (30) days after receipt of a statement therefor to the
extent Non-Operator’s Proportionate Share of such Operating Expenses exceeds its Proportionate
Share of the Net Revenues from the Wells received by Operator. Additionally, Non-Operator’s
Proportionate Share of the Operating Fee for the Wells shall be paid by the Non-Operator to the
Operator within thirty (30) days after receipt of a statement therefore to the extent
Non-Operator’s Proportionate Share of the Operator’s Fee for the Wells exceeds its Proportionate
Share of the Net Revenues from the Wells received by Operator. Operator is authorized hereby to
establish a reasonable reserve from the revenues of the Wells in order to defray the Operator’s Fee
and reasonably anticipated Operating Expenses associated with the Wells and to deposit the funds
reserved in a separate and segregated interest-bearing reserve account (the “Operating Reserve
Account”), provided, that the funds in the Operating Reserve Account (including accrued interest)
shall not exceed Two Thousand Dollars ($2,000) for any Well or Fifty Thousand Dollars ($50,000) in
the aggregate for all Wells. Non-Operator hereby grants unto Operator a security interest or lien
and right to off-set in the revenues of the Wells to secure Operator in the payment of Operating
Expenses and the Operator’s Fee.

8.2 The Operator shall further pay promptly all charges for labor and materials which it incurs in
performing its duties under this Agreement, whether or not the same are chargeable to the
Non-Operator, and shall not, providing that all amounts due to Operator hereunder shall have been
timely paid and shall not be in default in any respect, permit any liens for such labor

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and/or materials to be filed by any person against the Non-Operator’s interests in the Wells or, if
filed, shall take prompt action to have the same removed.

8.3 Notwithstanding anything to the contrary contained in this Agreement, if after a Well has been
placed into production for natural gas and/or oil, the Operator shall reasonably determine that the
Well has become incapable of producing natural gas and/or oil in commercial quantities, the
Operator may notify the Non-Operator of the fact of such non-productivity and of Operator’s
intention to plug and abandon, and the reasons for plugging and abandoning, the Well in accordance
with the laws and regulations of the State of Tennessee. After sixty (60) days have expired from
the date of mailing such notice, Operator may plug and abandon the Well. Operator shall first
utilize the funds in the Plugging Reserve Account (as defined in Section 8.4 hereof) to pay the
costs of plugging and abandoning the Well. In the event the amounts in the Plugging Reserve Account
are insufficient to pay all of the costs of plugging and abandoning the Well, then Operator shall
invoice the Non-Operator for Non-Operator’s Proportionate Share of the additional amounts (which
shall be an Operating Expense) needed to pay such costs in full and the Non-Operator shall remit to
Operator the Non-Operator’s Proportionate Share of such additional amounts within thirty (30) days
after receipt of an invoice from Operator therefor, it being understood and agreed that in no event
will Non-Operator be responsible or liable for any costs to plug and abandon a Well beyond its
Proportionate Share of such Well. Notwithstanding the foregoing, in the event the Non-Operator
desires that the Well not be plugged and abandoned, it shall, within said sixty (60) day period,
serve upon Operator a written notice requesting the resignation of the Operator as to the Well.
Such notice shall designate a new operator for the Well, and shall be accompanied by evidence of an
operator’s bond with respect to the Well. Such notice shall also be accompanied by (i) a written
agreement, signed by the Non-Operator, agreeing to assume the operation of the Well through the
newly designated operator and relieving and discharging Operator of all further responsibility in
connection with the operation or plugging and abandonment of the Well except for acts or activities
occurring prior to the effective date of such notice and (ii) payment to Operator and other working
interest owners of their Proportionate Share of the then fair market value of the salvageable
casing, tubing and fixtures of the Well. After the Well is placed under the bond of the new
operator, Operator and the other working interest owners shall promptly transfer to Non-Operator
all of their rights, titles and interests in and to the Well and the Well Acreage on which the Well
is drilled and shall promptly transfer to the new operator the Non-Operator’s Proportionate Share
of the funds in the Plugging Reserve Account attributable to the Well.

8.4 (a) Operator shall have the right to retain as an Operating Expense, on a monthly basis, a
portion of the Net Revenues (the “Plugging Funds”) for the payment of the anticipated future costs
of plugging and abandoning Wells when the plugging and abandonment of one or more Wells becomes
necessary in the opinion of the Operator, in its reasonable discretion. The Plugging Funds shall be
placed in a separate and segregated interest-bearing reserve account for the Wells (the “Plugging
Reserve Account”). The Operator shall maintain an accounting system that will allow identification
of the Plugging Funds which have been paid in for each Well, provided, however, that Non-Operator’s
Proportionate Share of the Plugging Funds for any Well may be used to pay Non-Operator’s
Proportionate Share of the costs of plugging and abandoning any other Well. The amount of the
Plugging Funds to be retained.monthly shall be determined by the Operator, acting in good faith,
taking into account the following factors:

(i) The anticipated life of the Well;

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(ii) The anticipated costs of plugging and abandoning the Well in accordance with all applicable
statutes, codes and regulations at the end of the useful life of the Well;

(iii) The effect of compounded interest upon amounts deposited into the Plugging Reserve Account
for the Well; and

(iv) Any other factors which Operator reasonably deems relevant.

(b) As of the date of this Agreement:

(i) Operator has determined that after the first year of production from a Well four percent (4%)
of the monthly Net Revenues from such Well, not to exceed Two Hundred Dollars ($200) for any month,
will be placed in the Plugging Reserve Account; and

(ii) Operator has determined that such amount will be placed into the Plugging Reserve Account
until the principal sum (including accrued interest) is equal to Ten Thousand Dollars ($10,000) for
each Well.

The Operator reserves the right to revise the monthly withholding amounts and/or the total amounts
set forth above when, acting in good faith, the Operator determines, taking into account the
factors set forth in Section 8.4(a) above, that such amounts must be adjusted upward or downward in
order to provide for the payment in full of the future plugging and abandonment costs of the Wells.

(c) Should the Operator determine, in its reasonable discretion, that at the time it becomes
necessary to plug and abandon Wells, insufficient funds for such abandonment and plugging are on
deposit in the Plugging Reserve Account, the Operator shall invoice the Non-Operator for its
Proportionate Share of the additional sums needed to plug and abandon the Wells, and such
additional sums shall be considered Operating Expenses under the terms of this Agreement, and
Non-Operator shall pay such invoice within thirty (30) days after receipt.

Should the Operator determine, in its reasonable discretion, that funds, including accrued
interest, in the Plugging Reserve Account exceed the amount necessary to plug and abandon the
Wells, the Operator shall, upon such determination, refund to the Non-Operator and other working
interest owners their Proportionate Shares of such excess funds, provided, however, that no refund
will be made to the extent it would reduce the funds, including accrued interest, in the Plugging
Reserve Account below Ten Thousand Dollars ($10,000) for any Well.

(d) Non-Operator’s Proportionate Share of the interest accrued on the Plugging Reserve Account
shall be allocated as income to the Non-Operator.

9. Additional Operations

9.1 Without the prior consent of the Non-Operator, no expenditure in excess of Ten Thousand Dollars
($10,000) shall be made relating to any Well in which Non-Operator has a working interest except
the initial drilling and completion of such Well.

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9.2 Notwithstanding the foregoing, the Operator shall be authorized, without being required to
obtain the consent of the Non-Operator, in the case of explosion, fire, flood, or discharge or
release of any hydrocarbon or other hazardous substance which requires immediate remediation, or
other sudden emergency whether of the same or different nature, to take such steps and incur such
expenses as in its opinion are required to deal with the emergency and to safeguard life and
property. In such event, the Operator shall promptly notify the Non-Operator of the matter which
gave rise to the expenditures made by the Operator and account to the Non-Operator for all such
expenditures and such expenditures, once accounted for, shall be deemed to be an Operating Expense
unless the matter which gave rise to the expenditure resulted from the negligence of the Operator.

9.3 Notwithstanding the foregoing, in the event that Operator shall propose to make an expenditure
with respect to a Well in excess of the amount specified in Section 9.1 hereof and in the event
that Non-Operator owns less than a fifty percent (50%) working interest in the Well, such proposed
expenditure may nevertheless be made and any party advancing any funds attributable to the interest
of Non-Operator may recoup an amount equal to two hundred percent (200%) of such funds from the Net
Revenues of the Well attributable to the interest of Non-Operator before any further distributions
shall be made from the Net Revenues of the Well to Non-Operator.

10. Non-Operator’s Access; Audit

10.1 The Non-Operator shall have access to the Wells and to any information in the possession of
the Operator pertaining to the Wells, and shall be entitled to inspect and observe operations of
every kind and character upon the property covered by the Lease.

10.2 Upon reasonable notice to the Operator and at times mutually convenient to the parties hereto,
the Non-Operator shall also have access to, and is entitled to receive copies of, the records and
other documents on file at the Operator’s office relating to the drilling, completion and operation
of the Wells, including all Well logs and production records. In addition, during the drilling and
completion of a Well, such number (as the Non-Operator or its designated agent may reasonably
request) of copies of drilling reports, logs, completion reports and other data produced in
connection with such activities shall be made available and provided to the Non-Operator or such
agent, as they are produced or promptly thereafter.

10.3 The Non-Operator shall have the right, at its own cost and expense and not more frequently
than once in each calendar year, to have an independent audit made of the books and records of
Operator to verify, for the preceding two (2) calendar years, all Drilling Costs and Operating
Expenses charged to Non-Operator, the production of natural gas and oil from the Wells and the
proceeds of the sale or other disposition of such natural gas and oil production, the royalties and
overriding royalties paid with respect to such production and the recoupment of delay rentals,
minimum royalties and other amounts as set forth in Section 3.2 hereof and the funds (including
accrued interest) in the Operating Reserve Account and the Plugging Reserve Account.

11. Term and Termination

11.1 This Agreement shall commence upon the effective date hereof and shall remain in full force
and effect with respect to each Well until such time as such Well is abandoned and plugged in
accordance with the laws and regulations of the State of Tennessee.

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11.2 In the event that the Non-Operator shall, in good faith, determine that Operator is in
substantial or material breach of the duties and obligations imposed upon Operator by this
Agreement, then the Non-Operator shall give Operator written notice thereof specifying the event or
events of default to be cured by Operator. In the event that Operator has substantially or
materially breached the duties and obligations imposed upon the Operator by this Agreement,
Operator shall then have a period of ninety (90) days after receipt of said written notice of
default to cure such breach or default, or in which to implement a plan of action which, if taken
to its natural conclusion and continuously prosecuted, would cure such breach or default. In the
event that Operator cures such breach or default or implements a plan of action which, if taken to
its natural conclusion and continuously prosecuted, would cure such breach or default, the
Non-Operator shall not have the right to substitute a new operator. In the event that Operator upon
the expiration of the aforesaid ninety (90) day cure period has not cured such breach or default, and/or has not implemented a plan of
action which, if taken to its natural conclusion and continuously prosecuted, would cure such
breach or default or if Operator has failed to continuously prosecute such plan of action, the
Non-Operator may substitute a new operator.

11.3 After the Initial Period and, if applicable, after the Option Period, Operator shall have the
right to resign as Operator hereunder on ninety (90) days’ written notice to the Non-Operator, in which event the Non-Operator shall appoint a new
operator, provided, however, that if Non-Operator is unable, after having made reasonable efforts,
to appoint a new operator within such ninety (90) day period, such period shall be extended for
such additional time as Non-Operator continuously and diligently seeks the appointment of a new
operator. Upon the effective date of such resignation, Operator shall have no further
responsibility hereunder and shall, except for acts or activities occurring prior to such effective
date, have no liability for any loss to the Non-Operator as a result of Operator’s resignation.

11.4 In the event that Operator shall, for any reason, cease to be the Operator hereunder, the
Non-Operator shall promptly furnish a bond in form and substance satisfactory for the operation of
natural gas and oil wells and shall cause the Wells to be transferred and placed under
Non-Operator’s bond, or the Non-Operator may designate a properly bonded new operator. Promptly
after all Wells are placed under the bond of Non-Operator or the new operator, Operator shall
transfer to the Non-Operator or the new operator, as the case may be, all funds in the Operating
Reserve Account and the Plugging Reserve Account. Thereafter, Operator shall be deemed a
non-operator hereunder with respect to the interests in the Wells owned by it, or by any affiliate
or by any limited partnership or other entity from which Operator received funds to drill Wells,
with all the rights and liabilities of a non-operator hereunder relating to such interests,
provided, however, that neither Operator nor any such affiliate, limited partnership or other
entity shall have any right to participate in any Wells drilled thereafter, although Operator may
have the obligation under Section 2.8 hereof to participate in one or more such Wells.

Additionally, if Operator is no longer the operator hereunder, Non-Operator or the new operator, as
the case may be, shall have no obligation or other liability to account for any matter relating to
the Wells to any affiliate of Operator or to any limited partnership or other entity from which
Operator received funds to drill Wells, or to distribute to any such affiliate, limited partnership
or other entity, any Net Revenues from such Wells attributable to the interests in such Wells of
any such affiliate, limited partnership or other entity. Non-Operator or the new operator, as the
case may be, shall account for matters relating to the Wells only to Operator and shall

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make distributions of such Net Revenues only to Operator, who in turn shall account, and make
distributions of such Net Revenues, to such affiliates, limited partnerships and other entities.

12. Contract Not Assignable

12.1 Except as set forth in Section 2.10 hereof, neither the Operator nor the Non-Operator shall
assign its obligations or rights hereunder but Operator shall have the right to subcontract for the
performance of all or any portion of the work to be performed by Operator hereunder.

13. Relationship; Internal Revenue Code Election

13.1 None of the rights, duties, or obligations of the parties hereto or terms hereof shall be
construed as creating a joint venture, a partnership, nor any other legal entity whereby one party
is responsible individually for all debts, liabilities or charges incurred in connection with the
drilling, completion, operation or abandonment of the Wells or any other activities contemplated
hereby; each of the parties hereto shall be responsible only for its Proportionate Share of such
debts, liabilities or charges.

13.2 The parties by their execution of this Agreement hereby assert that this Agreement and the
activities contemplated hereby shall not constitute a partnership under the Internal Revenue Code
of 1986, as amended (the “Code”); nevertheless, the parties elect, under the authority of Section
761 of the Code, to be excluded from the application of all of the provisions of Subchapter K of
Chapter I of Subtitle A of the Code (“Subchapter K”). If future income tax laws of the United
States, or the present or future income tax laws of Tennessee, contain provisions similar to those
contained in Subchapter K under which a similar election is permitted, the parties agree that such
election shall be exercised. The Non-Operator authorizes and directs the Operator to execute on
behalf of Non-Operator such evidence of this election as may be required by the United States
Treasury Department or the Internal Revenue Service, including specifically, but not by way of
limitation, all of the returns, statements and data required by Treasury Regulations Section 1.761.
Should there be any requirement that any party affected hereby give further evidence of this
election, such party shall execute such documents and furnish such other evidence as may be
required by the Internal Revenue Service as may be necessary to evidence this election. No party
shall give any notices or take any other action inconsistent with the election made hereby. Should
a gas imbalance arise where a party does not take its Proportionate Share of production from a Well
and another person, corporation or other entity takes more than its Proportionate Share of such
production, then the party which does not take its Proportionate Share shall use the “cumulative
gas balancing method” as described in Treasury Regulation Section 1.761-2(d) for purposes of
accounting for such imbalance. The parties agree to report their shares of the items of income,
deductions and credits associated with the Wells in a manner consistent with exclusion from the
application of the provisions of Subchapter K.

14. Force Majeure

14.1 If any party is rendered unable, wholly or in part, by force majeure to carry out its
obligations under this Agreement, other than the obligation to make money payments or furnish
security, that party shall give to the other party prompt written notice of the force majeure with
reasonably full particulars concerning it; thereupon, the obligations of the party giving the
notice, so far as they are affected by the force majeure, shall be suspended during, but no longer
than, the continuance of the force majeure. The term “force majeure”, as here employed, shall mean
an act of God, strike, lockout, or

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other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire,
storm, flood or other act of nature, explosion, governmental action, governmental delay, restraint
or inaction, unavailability of equipment, and any other cause, whether of the kind specifically
enumerated above or otherwise, which is not reasonably within the control of the party claiming
suspension; provided, however, that unavailability of equipment shall not constitute “force
majeure” for purposes of this Agreement with respect to the drilling, as set forth in Section 2.8
hereof, of the minimum number of Wells set forth in the Leases to keep such Leases in full force
and effect during the Initial Period and, if applicable, during the Option Period.

The affected party shall use all reasonable diligence to remove the force majeure situation as
quickly as practicable. The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor
difficulty by the party involved, contrary to its wishes; how all such difficulties shall be
handled shall be entirely within the discretion of the party concerned.

15. Notices

15.1 All notices or other correspondence required or made necessary by the terms of this Agreement
shall be in writing and shall be considered as having been given to a party (i) if given by
telecopy, at the time the telecopy is transmitted to the following telecopier numbers and the
appropriate answer back is received or receipt is otherwise confirmed, (ii) if given by mail, two

(2) business days after being mailed by registered or certified mail, postage prepaid, to the
following addresses, or (iii) if given by any other means (including but not limited to overnight
delivery), when delivered at the following addresses:

(a) Operator:

Atlas America, Inc. 311 Rouser Road Moon Township Coraopolis, PA 15108 Attention: Frank Carolas
Telecopier No.: (412) 262-3927

(b) Non-Operator:

Knox Energy, LLC P.O. Box 947 Bluefield, VA 24605 Attention: Claude Morgan Telecopier: (276)
988-1076

with a copy to:

Knox Energy, LLC 132 Mitchell Road Oak Ridge, TN 37830 Telecopier No.: (865) 481-3896

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Each party shall have the right to change its address at any time, and from time to time, by giving
written notice thereof to the other party.

16. Governing Law

16.1 This Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania, without giving effect to the principles of conflicts of laws of the
Commonwealth of Pennsylvania, provided, however, that as to real property issues, this Agreement
shall be governed by and construed in accordance with the laws of the State of Tennessee, without
giving effect to the principles of conflicts of laws of the State of Tennessee.

17. Successors in Interest

17.1 Each and all of the covenants, agreements, terms and provisions of this Agreement shall be
binding on and inure to the benefit of the parties hereto and their successors and assigns.

18. Integration; Amendment; Interpretation

18.1 This Agreement constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supercedes all prior and contemporaneous agreements and understandings of the
parties in connection herewith. Any amendment or supplement made hereto shall be in writing and
signed by all parties. The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement. Terms such as
“herein”, “hereby”, “hereto”, “hereunder”, and “hereof” refer to this Agreement as a whole.

19. Severability

19.1 If any term or other provision of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other terms and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to any party. Upon any
binding determination that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable and legally enforceable
manner, to the end that the transactions contemplated hereby may be completed to the fullest extent
possible.

20. Waivers

20.1 No waiver by any party of any default hereunder by any other party shall operate as a waiver
of any other default or of the same default on a subsequent occasion. No failure to exercise, and
no delay in exercising, by any party of any power, remedy or right shall operate as a waiver
thereof, nor shall any single or partial exercise of any power, remedy or right preclude other or
further exercise thereof or the exercise of any other power, remedy or right. All powers, rights
and remedies may be asserted concurrently, cumulatively, successively or independently from time to
time.

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21. Further Assurances

21.1 The parties agree to promptly execute and deliver, or cause to be executed and delivered, at
such times as shall be reasonably requested, any additional instrument or take any further action
as may be reasonably necessary or appropriate that any party may reasonably request for the purpose
of carrying out the transactions contemplated by, and the purposes and intents of, this Agreement.

22. Attorneys’ Fees

22.1 In any dispute among the parties hereto arising under this Agreement, the prevailing party
shall be entitled to recover from the other party its reasonable attorney fees and other reasonable
costs of litigation in addition to all other remedies.

23. Public Statements

23.1 Neither party shall make any statements or releases to the general public relating to this
Agreement or the activities conducted pursuant hereto without the permission of the other party,
not to be unreasonably withheld, except (i) in filings required of either Operator or its parent,
Resource America, Inc., or any affiliate of either of them, under federal securities laws, rules
and regulations, or under the laws, rules, regulations or ordinances of the United States or any
other jurisdiction, or by any federal, state or local governmental or regulatory authority or
agency, (ii) disclosure required by the rules, regulations or policies of any stock exchange or
automated interdealer quotation system on which any securities of Operator or the parent of
Operator, or any affiliate of either of them, may be listed, or (iii) if compelled to do so in any legal proceeding or otherwise.

24. Counterpart; Fax

24.1 This Agreement may be executed in any number of counterparts, each of which shall be deemed an
original and all of which together shall constitute but one and the same agreement. It is agreed by
the parties that facsimile signature pages signed by the parties shall be binding to the same
extent as original signature pages.

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- 25 - 

 

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their proper
officers duly authorized all as of the day and year first hereinabove written.

OPERATOR:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	WITNESS:	 	 	 	ATLAS AMERICA, INC., a Pennsylvania

corporation	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Susan Gubba	 	 	 	By:	 	/s/ Frank P. Carolas	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	   
	 

	 	 
	 	Name:	 	Frank P. Carolas	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	Executive Vice President	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	NON-OPERATOR:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	KNOX ENERGY, LLC	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By its members:
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	WITNESS:	 	 	 	 	 	CNX Gas Company, LLC, a Virginia

limited liability company
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ David A. Miller	 	 	 	By:	 	/s/ Claude D. Morgan	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 
	 

	 	 	 	Name:	 	Claude D. Morgan	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	Vice President	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	WITNESS:	 	 	 	New River Energy, LLC, a Tennessee

limited liability company	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	/s/ Rebecca H. Bond	 	 	 	By:	 	/s/ James C. Brunet	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 
	 

	 	 	 	Name:	 	James C. Brunet	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	Chief Manager	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

- 26 -

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