Document:

EXHIBIT 10.4

 

EXPLORATION
PERMIT 408, DATED JULY 2, 1997

 

STATE
OF WESTERN AUSTRALIA

DEPARTMENT
OF MINERALS AND ENERGY

Petroleum
Act, 1967

EXPLORATION
PERMIT FOR PETROLEUM NO. EP408

 

I, NORMAN
MOORE,
Minister for Mines, in the State of Western Australia in response to
the acceptance of offer numbered 15/19-5 grant to

 

GEOPETRO COMPANY

of Suite 700, 1 Maritime Plaza, San Francisco, California, USA
94111;

 

SEVEN SEAS PETROLEUM AUSTRALIA INC.

of Suite 305, Reunion Centre Building, Nine East Fourth, Tulsa,
Oaklahoma, USA 74103;

 

AMITY OIL NL

 

of Level 2. 18 Richardson Street, WEST PERTH WA 6005

 

an exploration permit for petroleum—

 

(a)           in respect of each of
the blocks described in Schedule 1 that at the date of this permit is
constituted by a graticular section, or by part of a graticular section,
described hereunder and where, at any time during the term of this permit, a
graticular section or a part of a graticular section, so described
constitutes a block—in respect of each block so constituted; and

 

(b)           subject to the
conditions set out in Schedule 2.

 

This permit has effect for a period of six (6) years from and
including the date hereof

 

Dated at Perth this 2nd day of July 1997.

 

Made under the Petroleum Act, 1967 of the State of Western Australia.

 

MINISTER FOR MINES

 

1

 

INTERPRETATION

 

In this permit “the Act” means the Act under
which this permit is granted and includes any Act with which that Act is
incorporated and words used in this permit have the same respective meanings as
in the Act.

 

SCHEDULE 1

 

DESCRIPTIONS

 

	
  A.

  	
  BLOCKS

  	
  (The references hereunder are to the names
  of map sheets of the 1:1 000 000 series published by the Minister for Mines
  and to the numbers of graticular sections shown thereon)

  

 

ALBANY MAP SHEET

 

	
  Block No.

  	
   

  	
  Block No.

  	
   

  	
  Block No.

  	
   

  	
  Block No.

  	
   

  
	
  6314

  	
   

  	
  6315

  	
   

  	
  6316

  	
   

  	
  6383

  	
   

  
	
  6384

  	
   

  	
  6385

  	
   

  	
  6386

  	
   

  	
  6387

  	
   

  
	
  6388

  	
   

  	
  6455

  	
   

  	
  6456

  	
   

  	
  6457

  	
   

  
	
  6458

  	
   

  	
  6459

  	
   

  	
  6460

  	
   

  	
  6527

  	
   

  
	
  6528

  	
   

  	
  6529

  	
   

  	
  6530

  	
   

  	
  6531

  	
   

  
	
  6532

  	
   

  	
  6599

  	
   

  	
  6600

  	
   

  	
  6601

  	
   

  
	
  6602

  	
   

  	
  6603

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Assessed to contain 26 blocks

 

2

 

SCHEDULE 2

 

SUMMARY OF CONDITIONS

 

	
  1. 

  	
  (1)

  	
  Subject to sub-clause 2, during a year
  of the term of the permit set out in the first column of the following table,
  the permittee:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)

  	
  shall carry out in or in relation to the
  permit area, to a standard acceptable to the Minister for Mines, the work
  specified in the minimum work requirements set out opposite that year in the
  second column of the table;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)

  	
  may carry out in or in relation to the
  permit area, to a standard acceptable to the Minister for Mines, all or part
  of the work specified in the minimum work requirements of a subsequent year
  or years of that term set out opposite that year or those years in the second
  column of the table; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)

  	
  may carry out in or in relation to the
  permit area, to a standard acceptable to the Minister for Mines, work in
  addition to the work specified in the minimum work requirements set out
  opposite that year and in the subsequent year or years, if any, of that term
  in the second column of the table.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (2)

  	
  The permittee shall not commence any works
  or petroleum exploration operations in the permit area except with, and in
  accordance with the approval in writing of the Minister for Mines or of a
  person authorised by the Minister for Mines to give that approval.

  
	
   

  	
   

  	
   

  
	
   

  	
  (3)

  	
  For the purposes of this clause, any work
  carried out in accordance with paragraph (l)(b) shall, if the
  Minister for Mines in his discretion by instrument in writing so approves, be
  treated as if it had been carried out in the subsequent year or years of the
  term of the permit specified by the Minister for Mines in that instrument.

  

 

STATE
OF WESTERN AUSTRALIA

PETROLEUM
ACT, 1967

SECTION 97

VARIATION
No. 8/98-9

 

I, WILLIAM LEE TINAPPLE, Director Petroleum Operations Division in the
Department of Minerals and Energy for the State of Western Australia, being the
officer for the time being, holding certain powers and functions of the
Minister by virtue of an instrument of delegation dated 4 June 1998 and
published in the Government Gazette of Western Australia on 16 June 1998
HEREBY VARY pursuant to the provision of Section 97 of the Petroleum Act,
1967, Condition I of the Exploration Permit EP 408 as follows:

 

	
  Year of Term

  Of Permit

  	
   

  	
  Minimum Work

  Requirements

  	
   

  	
  Estimated Expenditure

  in Constant Dollars

  (indicative only)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  First

  	
   

  	
  One
  (1 Well)

  	
   

  	
  1,800,000

  	
   

  
	
  Second

  	
   

  	
  Data Review

  	
   

  	
  50,000

  	
   

  
	
  Third

  	
   

  	
  80km Seismic
  Survey

  	
   

  	
  400,000

  	
   

  

 

Dated this 12th day of November 1998.

 

MADE UNDER THE PETROLEUM ACT, 1967.

 

DIRECTOR PETROLEUM OPERATIONS DIVISION

 

3

 

	
  Year of Term

  of Permit

  	
   

  	
  Minimum Work

  Requirements

  	
   

  	
  Estimated Expenditure

  in Constant Dollars

  (indicative only)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  First

  	
   

  	
  Data Review

  	
   

  	
  50,000

  	
   

  
	
  Second

  	
   

  	
  80km Seismic
  Survey

  	
   

  	
  400,000

  	
   

  
	
  Third

  	
   

  	
  One
  (1 Well)

  	
   

  	
  1,800,000

  	
   

  
	
  Fourth

  	
   

  	
  Data Review

  	
   

  	
  50,000

  	
   

  
	
  Fifth

  	
   

  	
  One
  (1 Well)

  	
   

  	
  1.800,000

  	
   

  
	
  Sixth

  	
   

  	
  Data Review

  	
   

  	
  50,000

  	
   

  

 

(See Variation 8/98-9 above)

 

2.             The permittee shall
not recover any petroleum from the permit area except as a result of production
testing of a well.

 

3.             The permittee shall—

 

(a)           pay to the Minister for
Mines, in respect of petroleum recovered by the permittee in the permit area,
royalty at the rate that is for the time being the prescribed rate in respect
of that petroleum;

 

(b)           in respect of each
royalty period, furnish to the Minister for Mines, in such form as the Minister
for Mines may from time to time require, full particulars of the quantity of
petroleum recovered by the permittee and full particulars of matters relevant
to ascertaining the value at the well-head of that petroleum; and

 

(c)           permit a person
authorised in writing for the purpose, by the Minister for Mines, or an
inspector, to test or examine any measuring device installed that has been, is
being or is to be used by the permittee to measure the quantity of any
petroleum recovered in the permit area.

 

4.             The permittee shall
not construct any installation or install any equipment in the permit area
except with and in accordance with the approval in writing of the Minister for
Mines or a person authorised in writing by the Minister for Mines to give that
approval.

 

5.             The permittee shall
not abandon, suspend or complete any well except with and in accordance with
the approval of the Minister for Mines or of a person authorised by the
Minister for Mines to give that approval.

 

6.             The permittee shall
at all times comply with

 

(a)           the provisions of the
Act and of any regulations for the time being in force under the Act; and

 

(b)           all directions given to
him under the Act or the regulations for the time being in force under the Act.

 

7.             In carrying out its
operations in the permit area the permittee shall take adequate measures for
the protection of the environment and shall comply with all Directions of the
Minister for Mines in relation thereto.

 

4

 

ENDORSEMENTS

 

1.             In addition to any
specific conditions that are endorsed on this instrument, the holder in
exercising the rights granted herein must first ensure that all necessary
consents and permissions have been obtained and applicable compensation has
been agreed to or determined and that consultation has occurred where the
lawful rights of other land users and occupiers are not interfered with to a
greater extent than is necessary for the reasonable exercise of the rights and
performance of the duties of the holder of this exploration permit.

 

2.             The permittee’s
attention is drawn to the provisions of the Aboriginal Heritage Act, 1972.

 

5Exhibit 10.5

 

MADISONVILLE
FIELD DEVELOPMENT AGREEMENT

 

This Madisonville Field
Development Agreement (this “Agreement”) is made and entered into to be
effective as of the 1st day of August, 2005, by and among Redwood
Energy Production, L.P., a Texas limited partnership (“Redwood”), and
Madisonville Gas Processing, LP, a Colorado limited partnership (“MGP”).
Redwood and MGP are sometimes hereinafter individually referred to as a “Party”
and collectively referred to as the “Parties.”

 

RECITALS

 

WHEREAS, Redwood acquired
an undivided ninety-five and three thousand one hundred twenty-five ten
thousandths percent (95.3125%) working interest by virtue of that Purchase and
Sale Agreement dated December 29, 2000 between Redwood and Panther
Rodessa, L.P., et al. in and to the oil and gas leases described therein
insofar and only insofar as said oil and gas leases cover and include the right
to produce gas from the Rodessa/Sligo Interval (hereafter defined), and has
since acquired one hundred percent (100%) working interest in and to certain
other oil and gas leases in the Madisonville Rodessa Field in Madison County,
Texas (the “MRF”); and

 

WHEREAS, Redwood is
producing gas from the Ruby Magness Well No. 1 and has drilled and
completed the Angela Farris Fannin Well No. 1 in the MRF; and

 

WHEREAS, Redwood has
rights to formations below the Rodessa/Sligo Interval including, without
limitation, the base of the Smackover Formation within the AMI; and

 

WHEREAS, Redwood’s gas
from the Rodessa/Sligo Interval is treated at the Treatment Plant in the MRF
which was installed and operated by Hanover Compression Limited Partnership (“Hanover”);
and

 

WHEREAS, MGP has acquired
the Treatment Plant from Hanover; and

 

WHEREAS, MGP has acquired
from Gateway Energy Corporation (or its Affiliates) (collectively, “Gateway”)
certain gas gathering assets and equipment located upstream of the Treatment
Plant (collectively, the “Gathering Assets”), and the Acid Gas Disposal Line
which runs from the Treatment Plant to the outlet flange of the line at the
Injection Well (the “Acid Gas Disposal Line”); and

 

WHEREAS, the Parties
desire to enter into this Agreement and the Ancillary Agreements attached
hereto as exhibits in order to set forth the rights and obligations of the
Parties hereto;

 

NOW, THEREFORE, the
Parties agree as follows:

 

ARTICLE I.

Definitions

 

For purposes of this
Agreement, the following terms and phrases shall have the following meanings
(other defined terms may be found elsewhere in this Agreement):

 

1

 

“Acid Gas” means carbon
dioxide and hydrogen sulfide removed by the amine treater at the Treatment
Plant and disposed of in the Injection Well (hereafter defined).

 

“Acid Gas Disposal Line”
has the meaning set forth in the Recitals above.

 

“Affiliate” means any
Person that, directly or indirectly, through one or more other Persons,
controls, is controlled by or is under common control with the Person
specified. With respect to any Person (i) the securities of which are not
publicly traded and (ii) that has no ultimate parent the securities of
which are publicly traded, the term “Affiliate” shall also include (a) any
executive officer, partner, member, manager, or director of the Person
specified, (b) any Person controlled by one or more executive officers,
partners, members, managers, or directors of the Person specified, or (c) any
Person related (by blood or marriage) to any executive officer, partner,
member, manager, or director. For the purpose of this definition of Affiliate,
the term “control” means the power to direct or cause the direction of the
management of such Person, whether through the ownership of voting securities,
by contract or agency or otherwise.

 

“Agreement” has the
meaning set forth in the introductory paragraph.

 

“Ancillary Agreements”
means the Gas Purchase Contract, the Termination and Release Agreement, the
Escrow Agreement, and any other agreements executed in connection herewith.

 

“Area of Mutual Interest”
or “AMI” means the area outlined on Exhibit A including, without
limitation, the lands covered by the leases described in Exhibit A-1 and
such other lands covered by leases or other interests that Redwood or its
Affiliates may obtain while this Agreement is in force and effect within
the AMI. If any lease or other interest acquired by Redwood lies partially
within and partially outside of the AMI, the entire interest shall be
considered as being situated within the AMI, and the AMI shall be revised to
accord with any such change.

 

“Business Day” means any
day other than a Saturday, Sunday, or legal holiday in the State of Texas, and
on which banks are open for business in Houston, Texas.

 

“Claims” means any and
all claims, demands, suits, causes of action, losses, damages, liabilities,
fines, penalties and costs (including, without limitation, attorneys’ fees and
costs of litigation), whether known or unknown, including environmental and
non-environmental claims.

 

“Code” means the Internal
Revenue Code of 1986, as amended.

 

“Closing” has the meaning
set forth in Section 2.1.

 

“Drilling Program” has
the meaning set forth in Section 3.1.

 

“Escrow Agreement” means
that form of escrow agreement attached hereto as Exhibit E.

 

“Exhibits” mean the
following exhibits which are attached to this Agreement and, as amended hereby,
herein incorporated by reference for all purposes:

 

Exhibit A—Area of Mutual Interest

 

2

 

Exhibit A-1—Oil and Gas Leases

Exhibit A-2—Land Map with Interpreted Field Outline of the MRF

Exhibit B—Ruby Magness Well No. 1, the Angela Farris Fannin
Well No. 1, and the Injection Well   Locations

Exhibit C—Gas Purchase Contract

Exhibit D—Termination and Release Agreement

Exhibit E—Form of Escrow Agreement

 

“Expansion” has the meaning set forth in Section 3.3 below.

 

“Force Majeure” has the
meaning set forth in Section 7.1 below.

 

“Gas Purchase Contract”
means the Gas Purchase Contract between MGP and Redwood in the form attached
hereto as Exhibit C.

 

“Gathering Assets” has
the meaning set forth in the Recitals above.

 

“Governmental Authority”
means any federal, state, local, municipal or other government; any
governmental, regulatory or administrative agency, commission, body or other
authority exercising or entitled to exercise any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or power; and any court or
governmental tribunal.

 

“Injection Well” means
Redwood’s injection well which disposes of Acid Gas from the Treatment Plant,
which Injection Well is more particularly identified on Exhibit B attached
hereto.

 

“Laws” means any and all
laws, statutes, ordinances, permits, decrees, writs, injunctions, orders,
codes, judgments, principles of common law, rules or regulations
(including, without limitation, environmental laws) which are promulgated,
issued or enacted by a Governmental Authority having jurisdiction.

 

“MAOP” means the maximum
allowable operating pressure of the Gathering Assets, which pressure shall not
exceed eight hundred pounds per square inch gauge (800 psig) pressure.

 

“Mcf” means one thousand
cubic feet of gas.

 

“MMcf” means one million
cubic feet of gas. MMCF/d means one million cubic feet of gas per day. “MRF”
has the meaning set forth in the Recitals above.

 

“Party”
and “Parties” has the meaning set forth in the introductory paragraph.

 

“Person” means an
individual, group, partnership, limited liability company, corporation, trust
or other entity.

 

“Rodessa/Sligo Interval”
means the stratigraphic equivalent of those sands, zones, and horizons
occurring below the surface of the earth encountered between the depths of
11,427 feet and 12,378 feet (electric log measurements) in the Ruby Magness
Well No. 1 located in the Amy Boatwright Survey, A-7, Madison County,
Texas.

 

3

 

“Security Documents” has
the meaning set forth in Sections 3.2 and 3.4 below.

 

“Term” has the meaning
set forth in Section 4.1 below.

 

“Third Party” means any
Person other than the Parties, including any Governmental Authority.

 

“Treatment Plant” means
the gas treatment plant acquired by MGP from Hanover Compression Limited
Partnership, and any expansion thereof.

 

ARTICLE II.

Closing and Execution of Instruments

 

2.1                               Closing. The closing of the
transactions contemplated by this Agreement (the “Closing”) shall take place at
the offices of Andrews Kurth LLP, counsel to Redwood, located at 600 Travis, Suite 4200,
Houston, Texas 77002, on Monday, July 25, 2005 contemporaneously with MGP’s
acquisition of the Treatment Plant from Hanover and the Gathering Assets from
Gateway. At the Closing the Parties shall execute and deliver all of the
instruments to be executed in connection herewith including, without
limitation, the Ancillary Agreements. The Closing may occur by facsimile,
PDF files bearing electronic signatures, overnight courier, or such other means
as agreed by the Parties. Promptly following the Closing, each of the Parties
shall provide the other with fully-executed originals of this Agreement and the
Ancillary Agreements.

 

2.2                               Further
Assurances. From time to
time after the Closing, upon reasonable request by the other Party, each Party
agrees to execute and deliver such additional documents as the requesting Party
may reasonably require to accomplish the purposes of this Agreement.

 

ARTICLE III.

Madisonville Field Development Program

 

3.1                               Additional Well(s); Drilling Program. Subject
to events of Force Majeure, and the availability of suitable rigs, well
services, and equipment, Redwood shall undertake a minimum three (3) well
drilling program in the MRF (the “Drilling Program”) as follows:

 

(a)                                  On
or before March 1, 2006 Redwood will have (i) drilled the first well
in the Drilling Program to a depth sufficient to test the Rodessa/Sligo
Interval, and (ii) completed the well if, in the sole opinion of Redwood
as a reasonable and prudent oil and gas operator, such well is capable of
producing in paying quantities.

 

(b)                                 On
or before August 1, 2006 Redwood will have (i) drilled the second
well in the Drilling Program to a depth sufficient to test the Rodessa/Sligo
Interval, and (ii) completed the well if, in the sole opinion of Redwood
as a reasonable and prudent oil and gas operator, such well is capable of
producing in paying quantities.

 

(c)                                  On
or before September 30, 2008 Redwood will have (i) drilled the third
well in the Drilling Program to a depth sufficient to test the Smackover
Formation (estimated to be encountered at an approximate depth of 18,000 feet),
and (ii) completed

 

4

 

the well if, in the sole opinion of Redwood as a reasonable and prudent
oil and gas operator, such well is capable of producing in paying quantities.

 

3.2                               Redwood
Mortgage. In order to secure Redwood’s performance under the Drilling
Program, within thirty (30) days after the Closing hereunder, Redwood shall
execute and deliver to MGP a mortgage, deed of trust, security agreement, and
financing statement, and related security instruments (collectively, the “Security
Documents”), in recordable form, encumbering all of Redwood’s fee, oil and gas
leasehold, oil and gas production, fixtures, and equipment situated within the
AMI. At Redwood’s request, MGP shall subordinate its lien and security interest
to any unaffiliated lender to Redwood. Upon the occurrence of any Redwood default
under the Drilling Program, MGP may, in addition to any other remedies
available at law or in equity and subject to the rights of any prior or
superior lien or encumbrance, in its sole discretion elect to foreclose or
exercise its other rights under the Security Documents. The Security Documents
shall be released by MGP upon Redwood’s completion of the Drilling Program.

 

3.3                               Expansion of Treating Facilities. Subject
to events of Force Majeure and the availability of fabricated components, on or
before March 1, 2006 MGP shall install and make operational additional
treating capacity of fifty (50) MMcf/d at the inlet of the Treatment Plant (the
“Expansion”). Following the Expansion, the Treatment Plant shall have a total
capacity of approximately sixty-eight million cubic feet of untreated gas per
day (68 MMcf/d). MGP shall act as a reasonable and prudent gas treatment plant
operator to operate and maintain the Treatment Plant to attempt to obtain
maximum efficiency in terms of (i) the volume of treated gas redelivered
at the “Point of Redelivery,” as such term is defined in the Gas Purchase
Contract, and (ii) minimizing Treatment Plant downtime in accordance with
prevailing gas treating plant industry standards, the quality specifications
and requirements of the receiving transportation pipeline, and applicable Laws.
MGP’s obligation to maintain the capacity of the Treatment Plant shall remain
in effect only for so long as such capacity is necessary to treat Redwood’s
owned or controlled gas produced from the AMI.

 

3.4                               MGP Mortgage. In order to secure
MGP’s Treatment Plant Expansion obligations under Sections 3.3 above, within
thirty (30) days after the Closing hereunder, MGP shall execute and deliver to
Redwood a mortgage, deed of trust, security agreement, and financing statement,
and related security instruments (collectively, the “Security Documents”), in
recordable form, encumbering all of MGP’s fee, leasehold, Treatment Plant,
Gathering Assets, fixtures, and equipment situated within the AMI. At MGP’s request,
Redwood shall subordinate its lien and security interest to any unaffiliated
lender to MGP, or to any commercial bank even if affiliated with MGP. Upon the
occurrence of any MGP default of its Treatment Plant expansion obligation,
Redwood may, in addition to any other remedies available at law or in equity
and subject to the rights of any prior or superior lien or encumbrance, in its
sole discretion elect to foreclose or exercise its other rights under the
Security Documents. The Security Documents shall be released by Redwood upon
MGP’s completion of the Expansion.

 

3.5                               All-Electric. Subject to the
provisions hereof, MGP shall not use any gas owned or controlled by Redwood for
fuel to the extent of the Expansion of its Treatment Plant facilities. MGP
shall configure the Expansion component of its Treatment Plant to be powered
entirely by purchased electricity rather than onsite gas-generated electricity.
Promptly after Closing, MGP

 

5

 

shall investigate the
estimated costs and timing related to converting gas-powered compression and
other equipment at the current existing in-service Treatment Plant from gas to
purchased electricity. MGP shall provide the results of the investigation to
Redwood. If Redwood determines that such a conversion should occur, MGP and
Redwood shall agree upon the mechanism for cost reimbursement, and MGP shall
undertake the conversion of the Plant at Redwood’s sole cost and expense.
Moreover, any additional continuing operating expenses shall be added to the
Treating Fee set forth in the Gas Purchase Contract. If MGP decommissions a
portion of the Treatment Plant, it shall first decommission the current
existing in-service Treatment Plant gas-powered facilities.

 

3.6                               The Injection Well / The Acid Gas Disposal
Line.

 

(a)                                  The
Injection Well. The Injection Well, which is owned and operated by Redwood
and connected to the Treatment Plant by the Acid Gas Disposal Line, shall have
sufficient capacity to dispose of all volumes of Acid Gas removed at the
Treatment Plant from gas reserves owned or controlled by Redwood, produced from
the AMI, and sold to MGP pursuant to the Gas Purchase Contract. Under Redwood’s
disposal permit issued by the Railroad Commission of Texas for the Injection Well,
Redwood may dispose only of Acid Gas removed at the Treatment Plant
from gas reserves owned or controlled by Redwood. MGP shall not utilize the
Acid Gas Disposal Line in any manner which would violate, or result in a
violation of, Redwood’s disposal permit. Redwood shall operate and maintain the
Injection Well as a reasonable and prudent disposal well operator and in
accordance with applicable Law.

 

(b)                                 The
Acid Gas Disposal Line. MGP owns and operates the Acid Gas Disposal Line.
MGP shall operate and maintain the disposal line as a reasonable and prudent
pipeline operator and in accordance with applicable Law. The Acid Gas Disposal
Line shall have sufficient capacity to transport Acid Gas removed from a
minimum inlet volume of sixty-eight million cubic feet of gas per day (68
MMcf/d) from the Treatment Plant to the Injection Well. Title to and custody of
the Acid Gas shall be transferred from MGP to Redwood at the outlet flange of
the Acid Gas Disposal Line at the Injection Well.

 

3.7                               Gathering System for Additional Wells / Gas
Specifications / Gas Sales

 

(a)                                  The
Gathering System. Promptly after Closing, MGP shall commence and diligently
perform at the earliest possible time, or cause to be commenced and
diligently performed at the earliest possible time, the construction of a
gathering line from the Angela Fannin Farris Well No. 1 to the Ruby
Magness Well No. 1 or the Treatment Plant, as applicable, the actual
location and route of the gathering line to be determined at MGP’s sole
discretion, after reasonable consultation with Redwood. Upon notification by
Redwood of its successful completion of any Drilling Program or other
additional well or wells in the AMI, MGP shall commence and diligently perform at
the earliest possible time, or cause to be commenced and diligently performed
at the earliest possible time, the construction of a gathering line(s) from the
additional well(s) to the Ruby Magness Well No. 1 (or any other additional
well) or the Treatment Plant, as applicable, the actual location and route of
the gathering line(s) to be determined at MGP’s sole discretion,

 

6

 

after reasonable consultation with Redwood. Any such additional
gathering line(s) shall be constructed and operated by MGP as a prudent gas
gatherer in accordance with applicable Laws. MGP will build any additional
gathering line(s) to additional wells at its sole cost, risk, and expense. To
the extent that Redwood has the right to lay pipelines across any of the lands
or leases in the AMI and such right may be assigned, then, if requested by
MGP, Redwood shall assign nonexclusive rights-of-way and easements to MGP to
assist in the installation of the gathering and transportation pipelines,
provided that MGP shall reimburse Redwood for all costs and expenses, if any,
incurred in any assignment of pipeline right-of-way or similar instrument.

 

(b)                                 Wellhead
Gas Specifications. Prior to the introduction of gas owned or controlled by
Redwood into MGP’s gathering system Redwood shall, at its sole cost, risk, and
expense, promptly install, operate, and maintain all necessary equipment and
facilities at the well location(s) in order to deliver such gas at an adequate
pressure to enter MGP’s gathering system not to exceed the MAOP and at a
temperature not to exceed one hundred twenty (120) degrees Fahrenheit. MGP
shall accept such gas and shall, at its sole cost, risk, and expense, promptly
install, operate, and maintain all necessary equipment, instrumentation,
metering, safety equipment, and facilities at the well location (or such other
convenient location), and perform such other services, as are necessary to
make such gas conform to the specifications of MGP’s gathering system so
that such gas may be safely and efficiently delivered to the Treatment
Plant.

 

(c)                                  Gas
Sales. Redwood shall sell to MGP and MGP shall purchase from Redwood all of
Redwood’s owned or controlled gas produced from any depth from within the AMI
to the extent of the Treating Plant Expansion capacity for the Term of the Gas
Purchase Contract. If the volume of Redwood’s owned or controlled gas produced
from any depth from within the AMI exceeds the Treating Plant Expansion
capacity, then MGP and Redwood shall attempt to negotiate mutually agreeable
terms for MGP to undertake additional Treatment Plant expansion; provided,
however, if the Parties fail to reach agreement with respect to additional
Treatment Plant expansion, MGP shall release the excess volumes of Redwood’s
owned or controlled gas from the terms hereof and the Gas Purchase Contract.

 

ARTICLE IV.

Term / Third Party Treating

 

4.1                               Term. The term of this Agreement shall be from
the effective date hereof and for so long thereafter as Redwood, its successors
and assigns, owns any oil and gas leasehold or mineral interest in the AMI;
provided, however, this Agreement shall terminate thirty (30) years from
effective date hereof unless extended by the mutual agreement of the Parties.
The Term shall be extended by the duration of any event of Force Majeure under Article 7.1
below.

 

4.2                               Third Party Gas Treating; Additional
Expansion. While this Agreement is in force and effect, all
deliveries by MGP of Redwood’s owned or controlled gas to the Treatment Plant
will have priority over any gas deliveries made by any other Person up to the
total Treatment Plant capacity. The Parties acknowledge that MGP may transport
and treat certain volumes of Third Party gas on an interruptible basis subject
to available excess Treatment Plant

 

7

 

capacity. If the total
volumes of any Third Party gas delivered to the Treatment Plant plus Redwood’s
owned or controlled gas delivered to the Treatment Plant exceed the capacity of
the Treatment Plant, MGP shall utilize one hundred percent (100%) of the
Treatment Plant capacity for Redwood’s owned or controlled gas from the AMI.
If, under an order of any Governmental Authority or in compliance with
applicable Law, MGP must provide firm Treatment Plant capacity for Third Party
gas, and the result is a reduction of Treatment Plant capacity so that MGP
cannot handle or treat all of Redwood’s available gas, then MGP promptly shall
install and make operational additional treating capacity at the Treatment
Plant to accommodate all of Redwood’s owned or controlled gas to the extent of
the Treatment Plant Expansion capacity (i.e. available Treatment Plant capacity
to Redwood of sixty-eight million cubic feet of untreated gas per day (68
MMcf/d)) at no additional cost to Redwood other than the “Treating Fee” set
forth as a “Permitted Deduction” in the Gas Purchase Contract.

 

4.3                               Binding Covenant. This Agreement
and the dedication of gas owned or controlled by Redwood from the AMI and
purchased by MGP under the Gas Purchase Contract shall be a real covenant
running with the land. Any assignment by Redwood or MGP shall be made expressly
subject to the terms and conditions of this Agreement and the Gas Purchase
Contract.

 

ARTICLE V.

Representations and Warranties

 

Each Party represents and
warrants to the other Party that as of the date hereof:

 

5.1                               Organization
and Good Standing. Such
Party is duly organized, validly existing and in good standing under the Laws
of the state of its formation and has all requisite partnership power and
authority to own and develop its interests and assets in or related to the MRF.
Such Party is duly qualified to do business in Texas and is in good standing in
the State of Texas and, if applicable, in the other jurisdictions in which it
transacts business.

 

5.2                               Company
Authority; Authorization of Agreement.
Such Party has all requisite partnership power and authority to execute and
deliver this Agreement and the Ancillary Agreements, to consummate the
transactions contemplated by this Agreement and the Ancillary Agreements, and
to perform all of its obligations under this Agreement and the Ancillary
Agreements. This Agreement and the Ancillary Agreements constitute the valid
and binding obligations of such Party, enforceable against it in accordance
with their terms, except as such enforceability may be limited by
bankruptcy, insolvency or other Laws relating to or affecting the enforcement
of creditors’ rights and general principles of equity (regardless of whether
such enforceability is considered in a proceeding at law or in equity).

 

5.3                               No
Violations. Such Party’s execution and delivery of this Agreement and the
Ancillary Agreements to which it is a party, and the consummation of the
transactions contemplated hereby and thereby, will not:

 

(a)                                  conflict
with or require the consent of any Person under any of the terms, conditions or
provisions of the partnership agreement, certificate of formation or other
organizational document of such Party;

 

8

 

(b)                                 conflict
with, result in a breach of, constitute a default under or constitute an event
that with notice or lapse of time, or both, would constitute a default under,
accelerate or permit the acceleration of the performance required by, or
require any consent, authorization or approval under: (i) any mortgage,
indenture, loan, credit agreement or other agreement evidencing indebtedness
for borrowed money to which such Party is a party or by which such Party is
bound except, where such conflict, breach or default would not materially
affect such Party’s ability to consummate the transactions contemplated hereby
and thereby; or (ii) any order, judgment or decree of any Governmental
Authority; or

 

(c)                                  result
in the creation or imposition of any lien or encumbrance on any assets of such
Party in the MRF.

 

5.4                               Third
Party Claims, Disputes and Litigation.
Except as set forth on Schedule 5.4, there are no Third Party Claims,
disputes, or litigation pending or, to such Party’s knowledge, threatened
against such Party that would prevent the consummation of the transactions
contemplated by this Agreement or the Ancillary Agreements.

 

5.5                               Agreements.
The Ancillary Agreements, the Contingency Plan Agreement entered into and
effective May, 2003, and that Escrow Agreement by and among The Chase Manhattan
Bank (now JPMORGAN CHASE BANK),
Hanover, and Redwood dated June 15, 2001 are the only agreements in
existence to which Redwood is a signatory party which are applicable to or
binding upon MGP or its operations within the AMI. There are no other Redwood
agreements which affect the rights, duties, or obligations of MGP.

 

5.6                               Bankruptcy. There are no bankruptcy,
reorganization or receivership proceedings pending, being contemplated by or,
to such Party’s knowledge, threatened against such Party.

 

5.7                               Foreign
Person. Such Party is not a “foreign
person” within the meaning of Section 1445 of the Code.

 

5.8                               Brokers,
Agents, and Finders. No
Person claiming by, through, or under such Party is entitled to any broker’s,
finder’s or similar fee by reason of the transactions contemplated by this
Agreement or the Ancillary Agreements.

 

5.9                               Investments. Prior to entering into this
Agreement, such Party was advised by and has relied solely on its own legal,
tax, and other professional counsel concerning this Agreement, the Ancillary
Agreements, the interests and assets to which it may become entitled
hereunder, and the value thereof. Such Party is and will be acquiring such
interests and assets for its own account and not for distribution or resale in
any manner that would violate any state or federal securities Laws.

 

9

 

ARTICLE VI.

Choice of Law and Dispute Resolution

 

6.1                               Choice of Law. This Agreement
shall be governed by and construed in accordance with the Laws of the State of
Texas, without giving effect to conflicts of laws principles that would apply
the laws of another jurisdiction.

 

6.2                               Dispute
Resolution.

 

(a)                                  Good
Faith Efforts. The Parties wish to avoid disputes relating to or arising
out of this Agreement. In the event of any dispute or perceived problem, each
Party shall notify the other Party and seek an amicable resolution without
regard to mediation. Except as otherwise provided in this Agreement, the Party
receiving a notice hereunder shall be given fifteen (15) Business Days from the
date of receipt of such notice to remedy the breach or otherwise correct its
performance under this Agreement.

 

(b)                                 Mediation.
In the event the Parties cannot reach an amicable resolution to a dispute or
perceived problem, the Parties shall within fifteen (15) Business Days after
the end of the fifteen (15) Business Day period set forth in Section 6.2(a) agree
upon a mediator and shall promptly attempt to mediate a solution.

 

(c)                                  Litigation; Mandatory Venue. If
the Parties cannot reach an amicable resolution to a dispute or perceived
problem through mediation, each Party hereto consents and submits to the
exclusive personal jurisdiction and venue of the federal or state courts in
Houston, Harris County, Texas.

 

ARTICLE VII.

Miscellaneous

 

7.1                               Force
Majeure.

 

(a)                                  If
either Party hereto is unable, wholly or in part, by an event of Force Majeure
to carry out its obligations under this Agreement, other than to make payments
due hereunder, it is agreed that upon such Party giving notice and full
particulars of such Force Majeure event in writing or by facsimile to the other
Party as soon as possible after the occurrence of the cause relied on, then the
obligations of the Party giving such notice, as far as they are affected by
such event of Force Majeure, shall be suspended from the commencement of and
during the continuance of any inability so caused but for no longer period, and
such cause shall as far as possible be remedied with all reasonable dispatch.

 

(b)                                 The
term “Force Majeure,” as used herein, shall mean an act of God, act of the
public enemy, war, blockade, public riot, lightning, fire, storm, flood,
explosion and any other causes whether of the kind enumerated or otherwise not
reasonably within the control of the Party claiming the suspension and which by
the exercise of reasonable diligence such Party is unable to prevent or
overcome. “Force Majeure” regarding Redwood shall also include subsurface
conditions or formations encountered during the Drilling Program, whether
natural or mechanical, including but not limited to blowout, heaving shale,
igneous rock, salt, saltwater flow, loss of circulation, loss of hole,

 

10

 

abnormal pressures, or any other impenetrable substance or adverse
condition, which renders further drilling of any Drilling Program well, in
Redwood’s sole opinion, either impossible or impractical. “Force Majeure”
regarding MGP shall also include the inability to secure raw materials or
equipment (after expending reasonable commercial efforts to obtain same),
transportation accidents, labor disputes, and equipment failures which
materially interfere with the operation of the Treatment Plant.

 

7.2                               Notices.
All notices and other communications required or desired to be given
hereunder must be in writing and sent (properly addressed as set forth below)
by: (a) U.S. mail with all postage and other charges fully prepaid, (b) hand
delivery, or (c) e-mail or electronic facsimile transmission. A notice
will be deemed effective on the date on which such notice is received by the
addressee, if by mail or hand delivery, or on the date sent, if by e-mail or
facsimile (as evidenced by telephonic or fax machine confirmation of receipt or
return confirming e-mail from the recipient); provided, however, if such date
is not a Business Day, the date of receipt will be on the next date that is a
Business Day. Either Party may change its address by notifying the other
Party in writing of such address change.

 

If to Redwood:                                                                                       Redwood
Energy Production, L.P.

One Maritime
Plaza, Suite 700

San Francisco,
CA  94111

Attn:  Mr. Stuart J. Doshi

Telephone  (415) 
398-8186

Facsimile:  (415) 
398-9227

E-mail:
sdoshi@geopetro.com

 

If to MGP:                                                                                                               Madisonville
Gas Processing, LP

1625 Broadway, Suite 2400

Denver, CO 80202

Attn:  Mr. Robert J. Clark

Telephone  (303) 
626-8288

Facsimile:  (303) 
626-8259

E-mail:  rjclark@bearcubenergy.com

 

7.3                               Amendments
and Severability. No amendments or other modifications to this Agreement
will be effective or binding on either of the Parties unless the same are in
writing, are designated as an amendment or modification, expressly reference
this Agreement, and are signed by each Party. The invalidity of any one or more
provisions of this Agreement will not affect the validity of this Agreement as
a whole, and in case of any such invalidity, this Agreement will be construed
as if the invalid provision had not been included herein.

 

7.4                               Successors
and Assigns. The terms,
covenants and conditions contained in this Agreement are binding upon and inure
to the benefit of the Parties and their respective successors and assigns.

 

7.5                               No
Partnership Created. It is
not the purpose or intention of this Agreement to create (and it should not be
construed as creating) a joint venture, partnership or any type of association,
and the Parties are not authorized to act as an agent or principal for each
other with

 

11

 

respect to any matter
related hereto. If, for federal income tax purposes, this Agreement and the
operations hereunder are regarded as a partnership, and if the Parties have not
otherwise agreed to form a tax partnership, each Party thereby affected
elects to be excluded from the application of all of the provisions of
Subchapter “K,” Chapter 1, Subtitle “A,” of the Code, as permitted and
authorized by Section 761 of the Code and the regulations promulgated
thereunder. Either Party is authorized and directed to execute on behalf of the
other Party such evidence of this election as may be required by the
Secretary of the Treasury of the United States or the Federal Internal Revenue
Service, including specifically, but not by way of limitation, all of the
returns, statements, and the data required by Treasury Regulations §1.761.
Should there be any requirement that each Party give further evidence of this
election, each Party shall execute such documents and furnish such other
evidence as may be required by the Federal Internal Revenue Service or 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. If any present or
future income tax laws of the state in which the MRF is located or any future
income tax laws of the United States contain provisions similar to those in
Subchapter “K,” Chapter 1, Subtitle “A,” of the Code, under which an election
similar to that provided by Section 761 of the Code is permitted, each
Party shall make such election as may be permitted or required by such
laws. In making the foregoing election, each Party states that the income
derived by such Party from operations hereunder can be adequately determined
without the computation of partnership taxable income.

 

7.6                               Waiver
of Certain Remedies.
Notwithstanding anything to the contrary in this Agreement, in no event shall
either Party be entitled to receive or be liable to the other Party for (and
each Party hereby waives) any consequential, special, indirect, or punitive
damages arising out of this Agreement or the transactions contemplated hereby,
irrespective of whether alleged to be by way of indemnity (other than indemnity
for Third Party claims), as a result of breach of any provision of this
Agreement, tort (including negligence and strict liability), or otherwise,
including, without limitation, any loss of profits, loss of income, loss of
use, loss of revenue, loss of contracts, or loss of fuel, REGARDLESS OF WHETHER
ANY SUCH DAMAGES ARE CAUSED BY, CONTRIBUTED TO BY, OR ARISE OUT OF, THE SOLE,
JOINT OR CONCURRENT NEGLIGENCE (IN ANY DEGREE) OR STRICT LIABILITY OF THE OTHER
PARTIES.

 

7.7                               No
Third Party Beneficiaries.
Nothing contained in this Agreement will entitle anyone other than the Parties
or their successors and permitted assigns to any Claim, cause of action,
remedy, or right of any kind whatsoever.

 

7.8                               Construction. THE PARTIES ACKNOWLEDGE THAT
THEY HAVE HAD AN ADEQUATE OPPORTUNITY TO REVIEW EACH AND EVERY PROVISION
CONTAINED IN THIS AGREEMENT AND TO SUBMIT THE SAME TO LEGAL COUNSEL FOR REVIEW
AND COMMENT. BASED ON THE FOREGOING, THE PARTIES AGREE THAT THE RULE OF
CONSTRUCTION THAT A CONTRACT BE CONSTRUED AGAINST THE DRAFTER, IF ANY, NOT BE
APPLIED IN THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT.

 

7.9                               Conflict
in Agreements. If any conflict exists between this Agreement and any
Ancillary Agreement, then (as between the Parties) the provisions of this
Agreement shall control.

 

12

 

7.10                        Execution in Counterparts. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, all which when taken together shall
constitute one and the same agreement.

 

7.11                        Entire
Agreement. This Agreement
and the Exhibits attached hereto, which are incorporated herein by reference, (i) supersede
all prior and contemporaneous negotiations, understandings, memoranda of
understanding and agreements (whether oral or written) between the Parties with
respect to the subject matter hereof, and (ii) constitute the entire
understanding and agreement between the Parties with respect thereto.

 

7.12                        Headings. The headings contained herein
are for reference only and shall not in any way affect the meaning or
interpretation of this Agreement.

 

7.13                        DTPA Waiver. After consultation
with their respective attorneys, and to the extent permitted by applicable law,
each Party waives its respective rights under the Deceptive Trade Practices—Consumer
Protection Act, Section 17.41 et seq., Texas Business and Commerce Code.

 

7.14                        Audit. Within twenty-four (24)
months from the date of any payment from either Party to the other in
accordance with the terms of this Agreement or any of the Ancillary Agreements,
the paying Party (or its designated representatives) may conduct an audit
of the books and records with respect to the matters related to said payments.
Redwood may also audit MGP’s adjustment calculations under Section 4.3
of the Gas Purchase Contract. The audit(s) shall be conducted at the offices of
the Party being audited during usual business hours. The Party being audited
shall cooperate with the auditing Party and its representatives during any
audit, including, if requested by the auditing Party, providing access to
necessary personnel. Within twenty (20) Business Days of the completion of the
audit, the auditing Party shall furnish the audited Party with any audit
exceptions. The Parties shall thereafter attempt to resolve any audit
exceptions in a prompt and amicable manner; provided, however, if the Parties
cannot reach agreement, either Party may initiate the Dispute Resolution
procedures of Section 6.2.

 

7.15                        No Reliance. Each Party
acknowledges that it has relied only upon its own independent investigation and
analysis of the MRF and, except as expressly set forth in this Agreement, is
not acting in reliance upon the representations or warranties of any other
Party with respect to any of the matters covered hereby.

 

7.16                        Acid Gas
Indemnification.

 

(a)                                  MGP
shall DEFEND, INDEMNIFY, PROTECT, and HOLD HARMLESS Redwood and its officers,
directors, partners, employees, agents, and representatives, from and against
all Claims, including, without limitation, any Claims with respect to damage to
property, or injury or death of any person, arising out of, with respect to, or
in connection with Acid Gas prior to its delivery to the outlet flange of the
Acid Gas Disposal Line at the Injection Well, including, without limitation,
any Claims arising out of, with respect to, or in connection with the sole,
joint, or concurrent negligence or strict liability of Redwood, or its
officers, directors, partners, employees, agents, and representatives.

 

13

 

(b)                                  Redwood
shall DEFEND, INDEMNIFY, PROTECT, and HOLD HARMLESS MGP and its officers,
directors, partners, employees, agents, and representatives, from and against
all Claims, including, without limitation, any Claims with respect to damage to
property, or injury or death of any person, arising out of, with respect to, or
in connection with Acid Gas delivered hereunder from and after the outlet
flange of the Acid Gas Disposal Line at the Injection Well, including, without
limitation, any Claims arising out of, with respect to, or in connection with
the sole, joint, or concurrent negligence or strict liability of MGP, or its
officers, directors, partners, employees, agents, and representatives.

 

7.17                        Noncompete in the AMI.

 

(a)                                  Without
the prior written consent of Redwood, throughout the Term of this Agreement,
neither MGP nor any of its Affiliates shall own or acquire, directly or
indirectly, any legal or beneficial title to any oil and gas lease or mineral
or royalty interest within the AMI, nor shall MGP or any of its Affiliates own,
directly or indirectly, either individually or in the aggregate, more than five
percent (5%) of the voting equity or right to receive dividends or
distributions of any Person that owns or controls any legal or beneficial title
to any oil and gas lease or mineral or royalty interest within the AMI. If MGP
or any Affiliate owns or acquires any such interest, it shall promptly convey
same to Redwood by instrument containing special warranty of title by, through,
and under MGP (or its Affiliate), but not otherwise.

 

(b)                                 Without
the prior written consent of MGP, throughout the Term of this Agreement,
neither Redwood nor any of its Affiliates shall own or acquire, directly or
indirectly, any legal or beneficial title to any gas processing or treating
facilities within the AMI which relate in any way to the MRF, nor shall Redwood
or any of its Affiliates own, directly or indirectly, either individually or in
the aggregate, more than five percent (5%) of the voting equity or right to
receive dividends or distributions of any Person that owns or controls any
legal or beneficial title to any gas processing or treating facilities within
the AMI which relate in any way to the MRF. If Redwood or any Affiliate owns or
acquires any such interest, it shall promptly convey same to MGP by instrument
containing special warranty of title by, through, and under Redwood (or its
Affiliate), but not otherwise.

 

IN
WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed and delivered by its respective officers, thereunto duly authorized,
in multiple originals, all to be effective as of the effective date first above
written.

 

14

 

	
   

  	
  REDWOOD ENERGY PRODUCTION, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Redwood Energy Company,

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
                          /s/
  Stuart. J. Doshi

  
	
   

  	
  S. J. Doshi

  
	
   

  	
  President and
  CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MADISONVILLE GAS PROCESSING, LP

  
	
   

  	
   

  
	
   

  	
  By: Madisonville GP, LLC,

  
	
   

  	
  its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
                            /s/
  Robert J. Clark

  
	
   

  	
  Robert J. Clark

  
	
   

  	
  Manager

  

 

Exhibits

 

Exhibit A—Area of Mutual Interest

Exhibit A-1—Oil and Gas Leases

Exhibit A-2—Land Map with Interpreted Field
Outline of the MRF

Exhibit B—Ruby Magness Well No. 1, the
Angela Farris Fannin Well No. 1, and the Injection Well   Locations

Exhibit C—Gas Purchase Contract

Exhibit D—Termination and Release Agreement

Exhibit E—Form of Escrow Agreement

 

15

 

EXHIBIT A

 

 

	
  MADISIONVILLE PROJECT

  	
   

  	
  MADISON COUNTY, TEXAS

  

 

AREA OF MUTUAL INTEREST & CONTRACT AREA

 

 

The boundaries of the Area of Mutual Interest
outlined on this plat are in all cases parallel to and are located out from the
outer boundaries of the Amy Boatwright Survey, A-7, the distances shown on this
plat.

 

 

Schedule 5.4

 

Madisonville
Field Development Agreement

 

Pending or threatened litigation /
administrative actions:

 

1.             The Miller Action

 

Greg R. Miller,
Robert L. Hixon, and Madisonville Field, L.L.C. v. Newstar Energy of Texas,
LLC, Newstar Energy USA, Inc., Panther Resources Corporation, Panther
Rodessa, L.P. and Redwood Energy Production, L.P., Cause No. 2002-65545, 113th
Judicial District Court, Harris County, Texas (the “Miller Action”). The Miller
Action arises out of several agreements between the parties (and their
predecessors in interest), including a February 12, 1997 Participation
Agreement between Newstar Energy of Texas, LLC’s predecessor, Nova Corporation,
and the Miller Action Plaintiffs.

 

2.             The Redwood Action

 

Redwood
Energy Production v. Panther Resources Corporation and Panther Rodessa L.P., Cause No. 2003-55210, In the 164th
Judicial District Court of Harris County, Texas. (the “Redwood Action”).
Redwood filed a declaratory judgment action following the receipt of a letter
from counsel for Panther Resources Corporation and Panther Rodessa, L.P.
requesting indemnification for the claims asserted by Greg R. Miller, Robert L.
Hixon, and Madisonville Field, L.L.C. in the Miller Action. Redwood and the
Panther Defendants entered into a tolling agreement in which the parties agreed
to dismiss the lawsuit without prejudice subject to the lawsuit being refiled
by Redwood. The lawsuit was dismissed pursuant to the tolling agreement on June 10,
2004.

 

3.             The Farris Action

 

George
Mejlaender d/b/a Texas Land Company and Madison Field, L.L.C. v. Jeff A. Farris, Jr.,
Cause No. 10,384,
12th Judicial District Court, Madison County, Texas (the “Farris Action”).
Redwood filed a Petition in Intervention in the Farris Action for declaratory
judgment, slander of title, and to remove cloud on title to its oil and gas
lease.

 

4.             The Crimson Complaint

 

On July 20, 2005
Crimson Exploration Inc. filed a complaint with the Railroad Commission of
Texas against Hanover Compression Limited Partnership, Gateway Processing
Company, and Redwood Energy Production LP (sic) alleging a violation of the
Texas Common Purchaser Act.

 

 

Exhibit A-1

 

 

Exhibit A-1

Oil &
Gas Leases

 

	
  Lease ID

  	
   

  	
  Lessor

  	
   

  	
  Lessee

  	
   

  	
  Lease Date

  	
   

  	
  Book & Page

  
	
  X-001-T

  	
   

  	
  MAGNESS, RUBY

  	
   

  	
  MITCHELL ENERGY
  CORP.

  	
   

  	
  10/03/80

  	
   

  	
  238-110

  
	
  X-002-DEEP

  	
   

  	
  PROVIDENCE
  MINERALS

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  03/04/04

  	
   

  	
  703-023

  
	
  X-002-T

  	
   

  	
  PROVIDENCE
  MINERALS

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  10/03/01

  	
   

  	
  592-44

  
	
  X-003-T

  	
   

  	
  TEXAS OSAGE

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  05/01/03

  	
   

  	
  713-067

  
	
  X-004-DEEP

  	
   

  	
  HOUSE, RL, ETAL

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  07/26/05

  	
   

  	
   

  
	
  X-004-T

  	
   

  	
  HOUSE, R. L., ET
  AL

  	
   

  	
  NEWSTAR ENERGY

  	
   

  	
  07/26/99

  	
   

  	
  511-164, ext.
  630-157

  
	
  X-054-T

  	
   

  	
  FARRIS, JEFF A., JR.

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  02/27/04

  	
   

  	
  699-016

  
	
  X-055-T

  	
   

  	
  ADF-BLF
  DEVELOPMENT LP

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  08/09/02

  	
   

  	
  514-168, 637-64,
  EXT 715-121

  
	
  X-056-T

  	
   

  	
  HOUSE, R. L, ETAL

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  12/17/03

  	
   

  	
  692-182

  
	
  X-058-T

  	
   

  	
  PROVIDENCE
  MINERALS

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  10/07/02

  	
   

  	
  637-59

  
	
  X-060-T

  	
   

  	
  JASTER, GEORGE
  E., ET UX

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  07/07/04

  	
   

  	
  717-085

  
	
  X-075-T

  	
   

  	
  THORNTON, WILLIAM
  S., ET UX

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  07/12/04

  	
   

  	
  717-078

  
	
  X-082-T

  	
   

  	
  MCWHORTER,
  SAMUELS N & JUANITA

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  09/10/03

  	
   

  	
  674-200

  
	
  X-083-T

  	
   

  	
  ANGELA K. RUFINO

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  09/08/03

  	
   

  	
  674-190

  
	
  X-084-T

  	
   

  	
  MCWHORTER, EUGENE &
  BOBBIE REVOCABLI

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  09/09/03

  	
   

  	
  674-196

  
	
  X-085-T

  	
   

  	
  MCWHORTER, EARL &
  GLENDA

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  09/08/03

  	
   

  	
  674-202

  
	
  X-086-T

  	
   

  	
  PORTER, HELEN J. &
  BILLY J.

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  09/08/03

  	
   

  	
  674-198

  
	
  X-088-T

  	
   

  	
  MCWHORTER, GARY
  LEE

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  09/09/03

  	
   

  	
  674-194

  
	
  X-089-T

  	
   

  	
  FOSTER, CELIA
  MCWHORTER

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  09/08/03

  	
   

  	
  674-192

  
	
  X-090-T

  	
   

  	
  HOUSE, R. L., ET
  AL

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  10/15/03

  	
   

  	
  685-125, ext.
  727-159

  
	
  X-091-T

  	
   

  	
  PROVIDENCE
  MINERALS

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  03/04/04

  	
   

  	
  703-026

  
	
  X-092-T

  	
   

  	
  TEXAS OSAGE
  ROYALTY POOL

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  06/01/04

  	
   

  	
  713-69

  
	
  X-094a-T

  	
   

  	
  FANNIN, KENNETH

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  11/15/03

  	
   

  	
  685-121

  
	
  X-094b-T

  	
   

  	
  FANNIN, JAMES

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  10/27/03

  	
   

  	
  685-123

  
	
  X-102-T

  	
   

  	
  TEXAS OSAGE
  ROYALTY POOL

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  06/01/04

  	
   

  	
  713-71

  
	
  X-103-T

  	
   

  	
  HICKS, JAMES E.,
  ETUX

  	
   

  	
  L.C. OLDHAM, JR.

  	
   

  	
  11/12/53

  	
   

  	
  108-107

  
	
  X-106-T

  	
   

  	
  HOUSE BB., LTD.,
  ETAL

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  07/26/04

  	
   

  	
  717-090

  
	
  X-130-T

  	
   

  	
  WALTERS, DWAYNE
  P.

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  07/27/88

  	
   

  	
  348-878

  
	
  X-131-T

  	
   

  	
  TARPLEY, OUIDA

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  07/27/88

  	
   

  	
  348-861

  
	
  X-132-T

  	
   

  	
  STRAWTHER, ADA
  MAE

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  07/27/88

  	
   

  	
  348-865

  
	
  X-133-T

  	
   

  	
  STRAWTHER,
  CHARLES, ETUX

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  07/27/88

  	
   

  	
  348-869

  
	
  X-134-T

  	
   

  	
  TRIPLE N. INC.,
  ETAL

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  06/01/88

  	
   

  	
  346-806

  
	
  X-135-T

  	
   

  	
  PORTER, HELEN J.
  ETVIR

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  10/05/88

  	
   

  	
  352-243

  
	
  X-136-T

  	
   

  	
  FANNIN, KENNETH
  R., ETAL

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  02/20/89

  	
   

  	
  357-200

  
	
  X-137-T

  	
   

  	
  MCWHORTER, SAMUEL
  N., EYUX

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  11/14/88

  	
   

  	
  352-246

  
	
  X-139-T

  	
   

  	
  MCWHORTER, EUGENE
  A., ETUX

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  10/06/88

  	
   

  	
  352-256

  
	
  X-140-T

  	
   

  	
  MCWHORTER, GARY
  LEE

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  10/14/88

  	
   

  	
  352-249

  
	
  X-141-T

  	
   

  	
  MCWHORTER, EARL
  E., JR., ETUX

  	
   

  	
  PEARSALL EXPLORATION
  CO.

  	
   

  	
  09/27/88

  	
   

  	
  352-240

  
	
  X-142-T

  	
   

  	
  FOSTER, CELIA
  MCWHORTER

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  10/05/88

  	
   

  	
  356-819

  
	
  X-143-T

  	
   

  	
  FLOYD, EARLENE
  M., ETVIR

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  10/05/88

  	
   

  	
  352-237

  
	
  X-145-T

  	
   

  	
  GAFFORD, BERTIE
  L., ETAL

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  07/01/88

  	
   

  	
  348-886

  
	
  X-146-T

  	
   

  	
  HINES, MIDGET M.,
  ETVIR

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  07/12/88

  	
   

  	
  348-882

  
	
  X-147-T

  	
   

  	
  MCMAHAN, TRUMAN

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  07/12/88

  	
   

  	
  348-873

  
	
  X-148-T

  	
   

  	
  MCWHORTER,
  BUFORD, ETAL

  	
   

  	
  PEARSALL
  EXPLORATION CO.

  	
   

  	
  08/12/88

  	
   

  	
  352-252

  
	
  X-149-T

  	
   

  	
  JOHNSTON, JAMES
  J.

  	
   

  	
  EDWARDS PETROLEUM
  CO.

  	
   

  	
  12/08/92

  	
   

  	
  399-137

  
	
  X-151-T

  	
   

  	
  MARSHALL, GARLAND
  R., ETUX

  	
   

  	
  KYLE F. FULLICK

  	
   

  	
  02/11/93

  	
   

  	
  402-417

  
	
  X-152-T

  	
   

  	
  VAUGHN, LUCILLE
  GAY

  	
   

  	
  KYLE F. FULLICK

  	
   

  	
  02/11/93

  	
   

  	
  402-414

  
	
  X-153-T

  	
   

  	
  WINSTEAD, MAURICE
  GRAY

  	
   

  	
  KYLE F. FULLICK

  	
   

  	
  02/11/93

  	
   

  	
  402-420

  
	
  X-156-T

  	
   

  	
  WELLS, LEE ANN

  	
   

  	
  KYLE F. FULLICK

  	
   

  	
  04/19/93

  	
   

  	
  403-857

  
	
  X-166-T

  	
   

  	
  PONDER, JAMES R.,
  ET UX

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  06/15/03

  	
   

  	
  666-098

  
	
  X-256-T

  	
   

  	
  SIKES, FRANCES

  	
   

  	
  NEWSTAR ENERGY

  	
   

  	
  07/17/98

  	
   

  	
  484-187

  
	
  X-257-T

  	
   

  	
  THIERHELMER, JEAN
  M.

  	
   

  	
  NEWSTAR ENERGY

  	
   

  	
  08/12/98

  	
   

  	
  483-207

  
	
  X-276-T

  	
   

  	
  TOBIAS, PAT

  	
   

  	
  NEWSTAR ENERGY

  	
   

  	
  09/17/98

  	
   

  	
  483-203

  
	
  X-309-T

  	
   

  	
  HOUSE BB., LTD.,
  ETAL

  	
   

  	
  NEWSTAR ENERGY

  	
   

  	
  10/04/04

  	
   

  	
  727-155

  
	
  X-316-T

  	
   

  	
  WOLF, RUBY MAE
  FRYE

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  06/01/02

  	
   

  	
  620-155

  
	
  X-317-T

  	
   

  	
  O’CONNELL,
  DOROTHY FRYE

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  07/19/02

  	
   

  	
  623-287

  
	
  X-318-T

  	
   

  	
  PROVIDENCE
  MINERALS

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  12/25/04

  	
   

  	
  743-155

  
	
  X-319-T

  	
   

  	
  RIOMAX, LTD

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  11/01/04

  	
   

  	
   

  
	
  X-320-T

  	
   

  	
  BLAKEMORE, BRUCE
  ALLEN, ET AL

  	
   

  	
  REDWOOD ENERGY PRODUCTION
  LP

  	
   

  	
  03/01/00

  	
   

  	
   

  
	
  X-321-T

  	
   

  	
  FARRIS, JEFF A., JR.

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  02/27/04

  	
   

  	
  699-028

  
	
  Z-001-T

  	
   

  	
  HALL, DARRELL R. &
  SUE HICKS

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  06/01/05

  	
   

  	
   

  
	
  Z-002-T

  	
   

  	
  LANG, JAMES TRUST
  c/o Ann Carter Lang

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  06/01/05

  	
   

  	
   

  

 

 

	
  009-T

  	
   

  	
  FRANKLIN, JEAN
  LOUISE MORRIS

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  0/815/04

  	
   

  	
  721-170

  
	
  010-T

  	
   

  	
  MORRIS, ROBERT E.

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  0/815/04

  	
   

  	
  721-268

  
	
  015-T

  	
   

  	
  SOLIZ, DIONISIO &
  AMELIA

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  06/01/02

  	
   

  	
  620-175

  
	
  016-T

  	
   

  	
  LEONARD, BILL

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  06/01/02

  	
   

  	
  620-170

  
	
  029-T

  	
   

  	
  MURPHY, ALVA RAY

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  08/15/04

  	
   

  	
  721-266

  
	
  030-T

  	
   

  	
  WINFIELD, LEONARD
  D.

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  06/01/02

  	
   

  	
  623-273

  
	
  032-T

  	
   

  	
  HARRINGTON, LEE
  B.

  	
   

  	
  REDWOOD ENERGY
  PRODUCTION LP

  	
   

  	
  06/01/02

  	
   

  	
  620-180

  

 

 

 

 

Exhibit B

 

 

 

 

 

 

INJECTION WELL LOCATION

 

Field notes of a 5.80 acre
tract or parcel of land, lying and being situated in the Amy Boatwright Survey,
Abstract No. 7, Madison County, Texas, and being part of the called
444.030 acre tract described in the deed from Angela Farris Fannin to Jeff A.
Farris, Jr., as recorded in Volume 389, Page 699, of the Official
Records of Madison County, Texas, and said 5.80 acre tract being more particularly
described as follows:

 

BEGINNING at the concrete monument found at a crosstie
fence corner marking the most southerly and westerly northwest corner of the
beforementioned 444.030 acre tract, same being an interior ell corner of the
Angela Farris Fannin - called 444.030 acre tract, Volume 384, Page 772, of
the Official Records of Madison County, Texas;

 

THENCE N 78° 31’ 02” E along the common line between
the beforementioned 444.030 acre tracts, adjacent to a fence, for a
distance of 155.67 feet to a 1/2” iron rod set;

 

THENCE S 42° 49’ 43” E for a distance of 644.96 feet
to a 1/2” iron rod set;

 

THENCE S 10° 12’ 21” W for a distance of 150.00 feet
to a 1/2” iron rod set in the common line between the beforementioned 444.030
acre tract and the 752.36 acre tract described in the deed to Curtis A.
McCauley, recorded in Volume 532, Page 181, of the Official Records of
Madison County, Texas;

 

THENCE N 80° 15’ 42” W along the common line between
the beforementioned 444.030 acre tract and the 752.36 acre tract, adjacent to a
fence, for a distance of 660.00 feet to a 1/2” iron rod found at a 3” iron post
fence corner marking the common corner between the said 444.030 acre tract and
the 752.36 acre tract;

 

THENCE N 10° 12’ 21” E along the common line between
the beforementioned Farris -444.030 acre tract and the Fannin - 444.030 acre
tract, adjacent to a fence, for a distance of 485.69 feet to the PLACE OF
BEGINNING, containing 5.80 acres of land, more or less.

 

 

 

	
  

  	
   

  	
  Surveyed
  February 2002

  
	
   

  	
   

  
	
  By:

  	
  /s/ S. M. Kling

  	
   

  
	
  S. M. Kling

  R.P.L.S. No. 2003

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Prepared
  02/28/01

  	
   

  	
   

  

 

 

EXHIBIT C

 

Gas
Purchase Contract

 

 

GAS
PURCHASE CONTRACT

 

between

 

REDWOOD
ENERGY PRODUCTION, L.P.

 

as
Seller

 

and

 

MADISONVILLE
GAS PROCESSING, LP

 

as
Buyer

 

August 1,
2005

 

 

INDEX

 

GAS
PURCHASE CONTRACT

 

	
  ARTICLE I – Definitions

  	
  1

  
	
   

  	
   

  
	
  ARTICLE II – Dedication and
  Commitment

  	
  4

  
	
   

  	
   

  
	
  ARTICLE III – Quantity

  	
  6

  
	
   

  	
   

  
	
  ARTICLE IV – Quality

  	
  6

  
	
   

  	
   

  
	
  ARTICLE V - Delivery
  Conditions

  	
  7

  
	
   

  	
   

  
	
  ARTICLE VI – Measurement

  	
  8

  
	
   

  	
   

  
	
  ARTICLE VII – Price

  	
  9

  
	
   

  	
   

  
	
  ARTICLE VIII – Liquids and
  Liquefiables

  	
  10

  
	
   

  	
   

  
	
  ARTICLE IX – Taxes

  	
  10

  
	
   

  	
   

  
	
  ARTICLE X – Regulation

  	
  10

  
	
   

  	
   

  
	
  ARTICLE XI - Force Majeure

  	
  10

  
	
   

  	
   

  
	
  ARTICLE XII – Title

  	
  10

  
	
   

  	
   

  
	
  ARTICLE XIII – Term

  	
  11

  
	
   

  	
   

  
	
  ARTICLE XIV - Billing and
  Payment

  	
  11

  
	
   

  	
   

  
	
  ARTICLE XV – Miscellaneous

  	
  12

  
	
   

  	
   

  
	
  ARTICLE XVI - Notices

  	
  13

  
	
   

  	
   

  
	
  ARTICLE XVII - Dispute
  Resolution

  	
  13

  

 

i

 

GAS
PURCHASE CONTRACT

 

This Gas Purchase
Contract (this “Agreement”) is made and entered into effective this 1st
day of August, 2005 the “Effective Date”) by and between Redwood Energy
Production, L.P., a Texas limited partnership (“Seller”), and Madisonville Gas
Processing, LP, a Colorado limited partnership (“Buyer”). Seller and Buyer are
sometimes hereinafter referred to individually as a “Party,” and collectively
as the “Parties.” This Agreement is made subject to that Madisonville Field
Development Agreement of even date herewith between Buyer and Seller (the “Development
Agreement”), and capitalized terms used and not otherwise defined in this
Agreement shall have the meanings given to them in the Development Agreement.

 

W I
T N E S S E T H:

 

WHEREAS, Seller and Buyer
have contemporaneously herewith entered into the Development Agreement; and

 

WHEREAS, Seller has
available Seller’s Gas Reserves (hereinafter defined), and intends to continue
its oil and gas exploration and development efforts within the AMI (hereafter
defined); and

 

WHEREAS, under the
Development Agreement, Buyer has the obligation to expand its Treatment Plant and
the gathering system within the AMI to connect with future Seller’s Wells
within the AMI and move Seller’s Gas Reserves to the Treatment Plant;

 

WHEREAS, the Parties
hereto desire to enter into this Agreement for the sale by Seller and the
purchase by Buyer of all of Seller’s Gas Reserves;

 

NOW THEREFORE, in
consideration of the premises and the mutual covenants herein contained, Seller
agrees to sell and deliver to Buyer and Buyer agrees to purchase and receive
from Seller, pursuant to the terms and conditions hereinafter set forth, Seller’s
Gas Reserves.

 

ARTICLE VIII.–
Definitions

 

As used herein, the
following terms shall have the meanings ascribed to them below:

 

1.1                               “Area
of Mutual Interest” or “AMI” means the area outlined on Exhibit A
including, without limitation, the lands covered by the leases described in Exhibit A-1
and such other lands covered by leases or other interests that Seller may obtain
while this Agreement is in force and effect within the AMI. If any lease or
other interest acquired by Seller lies partially within and partially outside
of the AMI, the entire interest shall be considered as being situated within
the AMI, and the AMI shall be revised to accord with any such change.

 

1.2                               “Btu”
shall mean British Thermal Unit, and “MMBtu” shall mean one million (1,000,000)
Btus.

 

1.3                               “Claims”
means any and all liens, claims, suits, expenses, liabilities, encumbrances,
costs, and losses, including attorneys’ fees and court costs.

 

 

1.4                               “Contract
Year” means the twelve (12) calendar month period commencing August 1,
2005 through July 31, 2006, and each subsequent twelve (12) month period
thereafter.

 

1.5                               “Day”
or “day” shall mean the 24-hour period commencing at 9:00 a.m., local
time, on one calendar day and ending at 9:00 a.m., local time, on the
following calendar day.

 

1.6                               “Gas”
or “gas” shall mean natural gas produced from gas wells (gas well gas) and gas
produced in association with oil from oil wells (oil well gas), and the residue
gas from treating gas well gas or oil well gas or both.

 

1.7                               “Gross
heating value” shall mean the number of Btu’s evolved by the complete
combustion, at constant pressure, of the amount of gas which would occupy a
volume of one (1) cubic foot at a temperature of sixty degrees (60o)
Fahrenheit, if saturated with water vapor and under a pressure equivalent to
that of thirty (30) inches of mercury at thirty-two degrees (32o) Fahrenheit,
and under standard gravitational force (acceleration 980.665 cm per second per
second) with air of the same temperature and pressure as the gas when the
products of combustion are cooled to the initial temperature of the gas and air
and when the water formed by combustion is condensed to the liquid state. The
gross heating value of the gas thus obtained shall be expressed on the measurement
basis set forth in Section 6.1 of this Agreement.

 

1.8                               “Jurisdictional
Agency” shall mean the Texas Railroad Commission and other regulatory agencies
having jurisdiction.

 

1.9                               “Lone
Star” shall mean TXU Lone Star Pipeline Company.

 

1.10                        “Mcf”
shall mean one thousand (1,000) cubic feet of gas. “MMcf” shall mean one
million (1,000,000) cubic feet of gas. “Bcf” shall mean one billion
(1,000,000,000) cubic feet of gas. Mcf/d shall mean one thousand (1,000) cubic
feet of gas per day, and MMcf/d shall mean one million (1,000,000) cubic feet
of gas per day.

 

1.11                        “MMBtus
Delivered” shall mean the amount of gas attributable to Seller’s Wells as
determined by Buyer or its designee at the Point of Redelivery.

 

1.12                        “Month”
or “month” shall mean the period beginning at 9:00 a.m., local time, on
the first day of a calendar month and ending at 9:00 a.m., local time on
the first day of the succeeding calendar month.

 

1.13                        “Permitted
Deductions” shall mean those post-production charges deducted from the Resale
Price per MMBtus Delivered at the Point of Redelivery for the gathering,
treating, marketing, and transporting of gas attributable to Seller’s Wells.
Permitted Deductions under this Agreement, as follows:

 

(a)                                  Gathering
Fee. Buyer shall receive a gathering fee of seven cents ($.07) per Mcf of
Seller’s Delivery Capacity measured at each Well Meter and delivered into the
gathering system (including any future gathering lines constructed by Buyer to
Seller’s Wells). One-half (1/2) of this gathering fee will be adjusted using
the Consumer Price Index (“CPI”) every January 1st during the Term hereof
commencing on January 1, 2006.

 

2

 

(b)                                 Treating
Fee.

 

i.                                          Buyer
and Seller agree that for the first 18,000 Mcf/d of Seller’s Delivery Capacity
delivered at the Point(s) of Delivery, Buyer shall receive a treating fee of
$1.50 per Mcf. This fee will remain in effect from the effective date hereof
through September 30, 2010. One-quarter (1/4) of this treating fee will be
adjusted using the Producer Price Index for Industrial Commodities (“PPI”)
every January 1st during the Term hereof commencing on January 1,
2006, and one-quarter (1/4) of this treating fee will be adjusted using the CPI
every January 1st during the Term hereof commencing on January 1,
2006.

 

ii.                                       Buyer
and Seller agree that for any gas volumes in excess of 18,000 Mcf/d of Seller’s
Delivery Capacity delivered at the Point(s) of Delivery, Buyer shall receive a
treating fee of $1.10 per Mcf. Beginning October 1, 2010, the fee of $1.10
per Mcf shall be charged for all of Seller’s Delivery Capacity delivered
at the Point(s) of Delivery. One-quarter (1/4) of this treating fee will be
adjusted using the PPI every January 1st during the Term hereof commencing
on January 1, 2006, and one-quarter (1/4) of this treating fee will be
adjusted using the CPI every January 1st during the Term hereof commencing
on January 1, 2006.

 

(c)                                  Marketing
Fee. So long as Buyer purchases and markets Seller’s Delivery Capacity,
Buyer shall receive for its gas marketing efforts one cent ($0.01) per Mcf of
Seller’s Delivery Capacity delivered at the Point(s) of Delivery. One-half
(1/2) of this marketing fee will be adjusted using the CPI every January 1st
during the Term hereof commencing on January 1, 2006.

 

(d)                                 Transportation
Fee. Those transportation fees set forth in the Transportation Agreement,
which Transportation Agreement may not be terminated, altered, or amended
without the prior written approval of Seller. Prior to tendering the transportation
fees to Transporter each month, Buyer shall provide to Seller a written
statement showing in reasonable detail the monthly transportation fee
calculation. Seller shall promptly review the statement and approve same or
provide any objections thereto.

 

1.14                        “Point(s)
of Delivery” shall mean the outlet of the wellhead equipment of any of Seller’s
Wells into Buyer’s gathering system.

 

1.15                        “Point(s)
of Redelivery” shall be the sales meter at the point of interconnection of
Gateway Pipeline Company’s pipeline extending from the tailgate of the
Treatment Plant to the Atmos Pipeline – Texas’ (formerly Lone Star’s) 30-inch
pipeline in the W. M. Durhan A-89 Survey, Madison County, Texas, or such other
receiving pipeline in the vicinity.

 

1.16                        “Resale
Price” means the price per MMBtu that Buyer receives in any Third Party,
non-Affiliated sale(s).

 

1.17                        “Seller’s
Delivery Capacity” shall mean the daily quantity of actual gas production owned
or controlled by Seller and attributable to the well(s) within the AMI up to
sixty-eight million cubic feet of untreated gas per day (68 MMcf/d) (unless
otherwise agreed by

 

3

 

Buyer and Seller) and which, in the course of prudent
operations as determined by Seller exercised in good faith and consistent with
the lawful rules and regulations of the Jurisdictional Agency, is
delivered to Buyer at the Points of Delivery.

 

1.18                        “Seller’s
Gas Reserves” shall mean all gas now or hereafter owned or controlled by Seller
and attributable to Seller’s interest in and/or which Seller has the right to
market from the AMI.

 

1.19                        “Seller’s
Well(s)” means any well(s) within the AMI in which Seller owns any interest.

 

1.20                        “Taxes”
shall mean any tax (other than ad valorem or income taxes), license, gross
receipts tax, fee or charge now or hereafter levied, assessed or made by any
governmental authority on the act, right, or privilege of producing,
transporting, handling, treating, delivering or marketing gas and/or related
liquids and liquefiables which are measured by the volume, value or sales price
of the gas or other hydrocarbons in question.

 

1.21                        “Term”
is defined in Article XIII below.

 

1.22                        “Transportation
Agreement” means that Transportation Agreement of even date herewith between
Buyer and Gateway Pipeline Company, a Texas corporation, which provides for the
delivery of treated gas from the tailgate of the Treatment Plant to the Point
of Redelivery, and is attached hereto as Exhibit B.

 

1.23                        “Well
Meter” means a measuring station located at the gas outlet of the field
separator installed for a well. Each measuring station shall be so equipped
with orifice meters, recording gauges, or other types of meter or meters of
standard make and design commonly acceptable in the industry, as to accomplish
the accurate measurement of gas delivered into Buyer’s gathering system
hereunder. The changing of the charts and calibrating and adjusting of meters
shall be done by Buyer or Buyer’s designee.

 

1.24                        “Wellhead
Revenue” is defined in Section 7.1 below.

 

ARTICLE IX.–
Dedication and Commitment

 

2.1                               Dedication
and Commitment. Seller hereby commits and dedicates to the performance of
this Agreement all of Seller’s Gas Reserves produced from the AMI and Seller’s
Gas Reserves produced from any well’s unit acreage on the AMI or any other
acreage pooled or unitized therewith, reserving, however, to Seller the
following:

 

(a)                                  All
gas which Seller may require for fuel for operation and development within
the AMI;

 

(b)                                 All
gas which Seller may require for delivery to lessors under the terms of
leases constituting any part of the AMI; and

 

(c)                                  The
right to pool or unitize the leases (or any portion thereof) committed hereto
with other lands and leases so long as such action does not reduce Seller’s Gas

 

4

 

Reserves. In the event of any such pooling or unitization, this
Agreement will cover Seller’s interest in the pool or unit formed and the gas
attributable thereto to the extent that such interest is derived from Seller’s
Gas Reserves.

 

2.2                               Seller’s
Facilities. Seller has successfully drilled and completed the Angela Farris
Fannin Well No. 1 in the AMI, and Seller shall drill additional wells in
accordance with its obligations under the Drilling Program as set forth in the
Development Agreement. Seller shall, at its sole cost, risk, and expense,
promptly install, operate, and maintain all necessary equipment and facilities
at the well location(s) in order to deliver such gas at an adequate pressure to
enter Buyer’s gathering system at a temperature not to exceed one hundred
twenty (120) degrees Fahrenheit, and the obligation to continue its
anti-corrosion well chemical treatment program. Except as indicated herein or
in the Development Agreement, Seller has no obligation to install or maintain
any facilities downstream of the Points of Delivery except for the Injection
Well.

 

2.3                               Buyer’s
Facilities. Buyer agrees to act with due diligence at the earliest possible
time to obtain, install, and operate all equipment and gathering systems in
order to gather and treat all of Seller’s Delivery Capacity from all of Seller’s
Wells, including, without limitation, the Angela Farris Fannin Well No. 1
pursuant to this Agreement. Subject to Section 2.2 above, Buyer shall take
all of Seller’s Delivery Capacity and shall, at its sole cost, risk, and
expense, promptly install, operate, and maintain all necessary equipment,
instrumentation, custody metering, safety equipment, and facilities at the well
location (or such other convenient location), and perform such other
services, as are necessary to make such gas conform to the specifications
of Buyer’s gathering system so that such gas may be safely and efficiently
delivered to the Treatment Plant.

 

2.4                               Easements.
To the extent that it may be contractually or lawfully empowered to do so
under its leasehold without impairing its own similar rights, Seller hereby
grants, assigns and transfers to Buyer, or its designee, a nonexclusive
easement across Seller’s lease(s), and across any adjoining lands in which
Seller may have an interest, together with the right of ingress and
egress, for the purpose of installing, using, inspecting, repairing, operating,
replacing, and/or removing Buyer’s pipe, meters, lines, and other equipment and
facilities used or useful in the performance of this Agreement. It is intended
that any property of Buyer or its designee placed in or upon any of such land
shall remain the personal property of Buyer or its designee, subject to removal
by it upon the expiration or termination of this Agreement for any reason.
Buyer or its designee shall have a reasonable time after the expiration of this
Agreement to remove same.

 

2.5                               Management
and Operation. Subject to the terms of this Agreement and the Development
Agreement, the control, management, and operation of the leases and Seller’s
Wells located on the AMI, and the regulation of the flow of gas at the Point of
Delivery shall be and remain the exclusive right of Seller including, but not
limited to, the drilling of any additional wells and repair and reworking of
old wells. Nothing herein shall require Seller to deliver any volume of gas in
excess of Seller’s allowable as established by the Jurisdictional Agency.

 

2.6                               Acreage,
Engineering and Geological Data. Upon written request from Buyer, Seller
will furnish Buyer, as available, all information concerning engineering, tests
and basic geological data on all wells now or hereafter drilled upon the AMI,
subject to third party use or

 

5

 

confidentiality restrictions. Such data shall include,
but is not limited to all core analyses, sample logs, well logs, drilling and
completion reports, pressure data, production data and flow potential data now
or hereafter in existence. Buyer shall utilize all reasonable efforts to insure
that the confidentiality of all such information and data is maintained by its
employees, agents, and representatives. Buyer agrees that, at a minimum, it
will utilize the same procedures and safeguards with respect to Seller’s
information that it uses to protect its own sensitive, confidential, or
proprietary data.

 

2.7                               Marketing
of Seller’s Delivery Capacity. Throughout the Term hereof, Buyer shall use
its reasonable best efforts to market Seller’s Delivery Capacity and maximize
the price it receives therefore in sales to non-Affiliated Third Parties. So
long as Buyer is marketing Seller’s Delivery Capacity, it shall be entitled to
receive the one cent ($0.01) per Mcf marketing fee described under the
definition of “Permitted Deductions” set forth above. Upon sixty (60) days
prior written notice from Seller to Buyer, Seller may terminate Buyer’s
gas marketing of Seller’s Delivery Capacity, and Seller shall market, or cause
to market, all of Seller’s Delivery Capacity. If Seller revokes Buyer’s
marketing role, Seller and Buyer shall cooperate to provide an orderly
transition with respect to the marketing of Seller’s Delivery Capacity, and
Buyer’s right to receive the one cent ($0.01) marketing fee plus any CPI
adjustment shall terminate on the 1st day of the calendar month in
which Seller assumes the marketing duty.

 

ARTICLE X.–
Quantity

 

3.1                               During
the Term of this Agreement, Seller shall sell and deliver to Buyer, and Buyer
shall take and purchase, Seller’s Delivery Capacity. Notwithstanding the
foregoing, Seller may interrupt deliveries of gas to Buyer due to adverse
market conditions (either lack of market or substantial decline in Resale
Price) provided that Seller makes such “market out” determination in good faith
and promptly notifies Buyer thereof.

 

ARTICLE XI.–
Quality

 

4.1                               The
Parties recognize that all gas owned or controlled by Seller and delivered into
Buyer’s gathering system from any of Seller’s Wells within the AMI shall be
delivered by Seller at the wellhead(s), and Buyer shall accept the raw gas “AS-IS”
at the wellhead gas composition, subject to the temperature and pressure
specifications imposed upon Seller under Section 2.2. Prior to the
introduction of such gas into Buyer’s gathering system, and as part of
Buyer’s gas gathering and treating services, Buyer shall, at its sole cost,
risk, and expense, promptly install, operate, and maintain all necessary
meters, safety equipment, instrumentation, and other equipment and facilities
at the well location (or other convenient location), and perform such
other services, as are necessary to make such gas conform to the
specifications of Buyer’s gathering system so that such gas may be safely
and efficiently delivered to the Treatment Plant. Notwithstanding anything in
this Agreement to the contrary, Seller shall maintain an anti-corrosion well
chemical treatment program on Seller’s Wells.

 

4.2                               The
Parties agree that the amount set forth in the definition of “Permitted
Deductions,” as used in Article VII to determine the price received by
Seller at the Point(s) of Delivery, shall include all costs and expenses
incurred by Buyer to gather, meter, separate, treat,

 

6

 

dehydrate, market, and transport Seller’s Gas Reserves
delivered by Seller to Buyer at the Points of Delivery.

 

4.3                               The
Parties recognize that, in addition to Seller’s Gas Reserves, Buyer may treat
Third Party gas which may differ in terms of its composition and level of
impurities from Seller’s Gas Reserves. Accordingly, Buyer shall adjust the
MMBtus Delivered at the Point of Redelivery to take into account (i) differences
in volumes of Seller’s Gas Reserves and Third Party gas treated at the
Treatment Plant and (ii) differences in the composition and levels of
impurities between Seller’s Gas Reserves and Third Party gas. Buyer shall
provide Seller with at least five (5) day’s notice prior to conducting any
meter or gas composition test so that Seller or it representative may be
present to observe such test(s). Each month Buyer shall provide Seller with a schedule showing
its adjustment methodology and all relevant information used in preparing its
adjustment calculations hereunder along with billing and payment statement
provided under Section 14.1, and the Parties shall review all such
materials in order to reach agreement on the necessary adjustments.

 

ARTICLE XII.-
Delivery Conditions

 

5.1                               The
Points of Delivery for all gas to be purchased hereunder shall be at the inlet
flange of Buyer’s or its designee’s gathering pipeline at the outlet of Seller’s
wellhead equipment with respect to any of Seller’s Wells within the AMI.

 

5.2                               The
Point of Redelivery for all of Seller’s Delivery Capacity shall be at the Point
of Redelivery as set forth in Section 1.15 in the Definitions above. Buyer
will pay Seller for the gas delivered at the Point of Delivery based on the
volume measured and the Btu’s determined at the Point of Redelivery.

 

5.3                               Ownership,
title, and custody of the gas shall pass from Seller to Buyer at the Points of
Delivery. Seller shall be deemed in control, custody, and possession of the gas
sold and purchased hereunder until the same shall have been delivered to Buyer
at the Points of Delivery. Buyer shall be deemed in control, custody, and
possession of the gas sold and purchased hereunder after the same shall have
been delivered to Buyer at the Points of Delivery.

 

(a)                                  Seller
does hereby DEFEND, INDEMNIFY, PROTECT, and HOLD HARMLESS Buyer, its officers,
directors, employees, agents, and representatives, from and against all claims,
suits, expenses, liabilities, costs, and losses, including attorneys’ fees and
court costs (collectively, “Claims”), including, without limitation, any Claims
with respect to damage to property, or injury or death of any person, arising
out of, with respect to, or in connection with gas delivered hereunder up to
the Points of Delivery including, without limitation, any Claims arising out
of, with respect to, or in connection with the sole, joint, or concurrent
negligence or strict liability of Buyer, its officers, directors, employees,
agents, and representatives.

 

(b)                                  Buyer
does hereby DEFEND, INDEMNIFY, PROTECT, and HOLD HARMLESS Seller, its officers,
directors, partners, employees, agents, and representatives, from and against
all Claims, including, without limitation, any

 

7

 

Claims with respect to damage to
property, or injury or death of any person, arising out of, with respect to, or
in connection with gas delivered hereunder from and after the Point of Delivery
including, without limitation, any Claims arising out of, with respect to, or
in connection with the sole, joint, or concurrent negligence or strict
liability of Seller, its officers, directors, partners, employees, agents, and
representatives.

 

ARTICLE XIII.–
Measurement

 

The measurement
conditions and procedures set forth in this Article VI shall be applicable
to this Agreement except to the extent that they are inconsistent with the
receiving pipeline’s then current measurement conditions and procedures at the
Point of Redelivery in which case the receiving pipeline’s then current
measurement conditions and procedures shall apply at the Point of Redelivery.

 

6.1                               The
unit of volume for measurement of gas delivered hereunder shall be the quantity
of gas contained in one (1) cubic foot of space at a base temperature of
sixty degrees (60o) Fahrenheit and at a pressure of fourteen and sixty-five
hundredths (14.65) psia, and otherwise provided by the Standard Gas Measurement
Law of the Jurisdictional Agency. Except as provided by that law, all
fundamental constants, observations, records, and procedures involved in
determining and/or verifying the quantity and other characteristics of gas
delivered hereunder shall, unless otherwise specified herein, be in accordance
with the standards prescribed in Report No. 3 of the American Gas
Association (“AGA”) as from time to time amended or supplemented. All
measurements of gas shall be determined by calculation into terms of such unit.
All quantities given herein, unless otherwise expressly stated, are in terms of
such unit.

 

6.2                               Seller
may, at its option and expense, install check meters and gas samplers for
checking Buyer’s metering equipment; and they shall be so installed so as not
to interfere with the operation of Buyer’s facilities. Measurements of gas
shall be by the Buyer’s or its designee’s measurement equipment only, except as
otherwise herein provided.

 

6.3                               Each
Party shall have the right to be present at the time of any installing,
reading, cleaning, changing, repairing, inspection, testing, calibrating, or
adjusting done in connection with the other’s measuring equipment used in
measuring deliveries hereunder. The records from such measuring equipment shall
remain the property of their owner, but upon request, each will submit to the
other its records and charts, together with calculations therefrom subject to
return within fifteen (15) days after receipt thereof. Buyer shall provide
Seller with sufficient notice in advance of any tests or calibrations to be
performed by either Shipper or Transporter at the Points of Delivery or
Redelivery (as such terms are used in the Transportation Agreement) so that
Seller or its representatives may be present at the time of any installing,
reading, cleaning, changing, repairing, inspection, testing, calibrating, or
adjusting done in connection with Shipper’s or Transporter’s measuring
equipment or instruments used in measuring deliveries at the Points of Delivery
and Redelivery under the Transportation Agreement.

 

At least once each
quarter, Buyer shall calibrate the meters and instruments or cause the same to
be calibrated. Buyer shall give Seller sufficient notice in advance of such
tests so that

 

8

 

Seller may, at its
election, be present in person or by its representative, to observe
adjustments, if any, which are made. For the purpose of measurement and meter
calibration, the atmospheric pressure shall be assumed to be fourteen and seven-tenths
(14.7) psia, irrespective of variations in natural atmospheric pressure from
time to time.

 

6.4                               If,
upon any tests, the metering equipment in the aggregate is found to be
inaccurate by more than two percent (2%), registration thereof and any payment
based upon such registration, shall be corrected at the rate of such inaccuracy
for any period of inaccuracy which is definitely known or agreed upon, or if
not known or agreed upon, then for a period extending back one-half (1/2) of
the time elapsed since the last date of calibration. Following any tests, any
metering equipment found to be inaccurate to any degree shall be adjusted
immediately to measure accurately. If for any reason any meter is out of
service or out of repair so that the quantity of gas delivered through such
meter cannot be ascertained or computed from the readings thereof, the quantity
of gas delivered during such period shall be estimated and agreed upon by the
Parties hereto upon the basis of the best available data, using the first of
the following methods which is feasible:

 

(a)                                  By
using the registration of any check measuring equipment of Seller, if installed
and registering accurately;

 

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

 

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

 

6.5                               The
measurement hereunder shall be corrected for deviation from Boyle’s Law at the
pressure and temperatures under which gas is delivered hereunder.

 

ARTICLE XIV.–
Price

 

7.1                               It
is recognized that gas sold and purchased at the Point of Delivery is not of
marketable pipeline quality, but the reduction or removal of hydrocarbon
liquids, water vapor, hydrogen sulfide, carbon dioxide and nitrogen, will allow
the gas to become marketable, subject to shrinkage of the gas stream by reason
of removal of impurities and fuel consumed as a result of the treating process.
For each month, the price Buyer pays to Seller for each Mcf of untreated gas
purchased from Seller at the Point(s) of Delivery (“Wellhead Revenue”) will be
determined as follows:

 

(a)                                  For
each month Wellhead Revenue will be determined by multiplying the Resale Price
per MMBtu by the MMBtus Delivered and deducting from this amount the Permitted
Deductions.

 

(b)                                 Wellhead
Revenue so determined will be divided by the monthly production in Mcfs
delivered at the Point(s) of Delivery, with said Mcfs to be determined by the
Well Meter(s) referred to in Section 1.23 of the Definitions set forth
above.

 

9

 

The result of the
calculation in (a) and (b) will be the price paid by Buyer at the
Point(s) of Delivery for each Mcf of untreated gas purchased for any month.

 

7.2                               Buyer
will be responsible for all transportation, marketing, and pipeline imbalances,
provided that Seller will use it reasonable commercial efforts to advise Buyer
of material changes in wellhead production.

 

7.3                               Notwithstanding
anything to the contrary herein contained, at no time shall Permitted
Deductions ever exceed the Resale Price, and Seller shall have no liability to
Buyer for any amount in excess of the Resale Price. Furthermore, in any such
case, Seller may interrupt deliveries of gas to Buyer due to adverse
market conditions (either lack of market or substantial decline in Resale
Price) provided that Seller makes such “market out” determination in good faith
and promptly notifies Buyer thereof.

 

ARTICLE XV.–
Liquids and Liquefiables

 

8.1                               The
Parties agree that all condensate recovered by Buyer in the field separator and
delivered to Seller’s storage tank will be sold by Buyer and Seller will
receive all (100%) of the sales proceeds determined at the Treatment Plant. All
natural gas liquids (e.g. ethane, propane, butane and heavier hydrocarbons)
recovered at the Treatment Plant will be sold by Buyer and Seller will receive
ninety percent (90%) and Buyer will receive ten percent (10%) of the sales
proceeds determined at the Treatment Plant. All drip liquids recovered by
scrubbers at the Treatment Plant will be retained by Seller.

 

ARTICLE XVI.–
Taxes

 

9.1                               Seller
shall pay, or cause to be paid, all existing, new or increased Taxes imposed
upon Seller with respect to the gas prior to its delivery to Buyer at the Point
of Delivery. Buyer shall pay, or cause to be paid, all existing, new or
increased Taxes imposed upon Buyer with respect to the gas after its delivery
to Buyer at the Point of Delivery.

 

ARTICLE XVII.–
Regulation

 

10.1                        This
Agreement shall be subject to all present and future valid and applicable Laws,
orders, rules and regulations of any regulatory body, governmental entity
or agency having jurisdiction, so long as such Laws, orders, rules and
regulations shall be in force and effect, but nothing in this Agreement shall
prevent either party from contesting the validity of any such Law, order, rule or
regulation, nor shall anything in this Agreement be construed to require either
party to waive its right to assert the lack of jurisdiction of such regulatory
body, governmental entity or agency over this Agreement or any party thereto.

 

ARTICLE XVIII.-
Force Majeure

 

11.1                        In the
event of either party hereto being rendered unable, wholly or in part, by Force
Majeure to carry out its obligations under this Agreement, other than to make
payments due hereunder, it is agreed that on such party giving notice and full
particulars of such Force Majeure in writing or by facsimile to the other party
as soon as possible after the occurrence of the cause relied on, then the
obligations of the party giving such notice, as far as they are affected

 

10

 

by such Force Majeure, shall be suspended from the
commencement of and during the continuance of any inability so caused but for
no longer period, and such cause shall as far as possible be remedied with all
reasonable dispatch.

 

The term “Force Majeure,”
as used herein, shall mean an act of God, act of the public enemy, war, blockade,
public riot, lightning, fire, storm, flood, explosion and any other causes
whether of the kind enumerated or otherwise not reasonably within the control
of the party claiming the suspension and which by the exercise of reasonable
diligence such party is unable to prevent or overcome.

 

ARTICLE XIX.–
Title

 

12.1                        Seller
warrants for itself, its successors, legal representatives, and assigns title
to all gas delivered to Buyer hereunder, and warrants that it has the right and
lawful authority to sell the same and that such gas is free from Claims of
every kind. Seller shall indemnify and save Buyer harmless from all Claims of
whatsoever nature arising from and out of Claims of any or all persons to said
gas or title thereto, or to royalties, Taxes, license fees, payments or other
charges thereon applicable before the title to the gas passes to Buyer at the
Points of Delivery. Buyer shall indemnify and save Seller harmless from all
Claims of whatsoever nature arising from and out of Claims of any or all persons
to said gas or title thereto, or to Taxes, license fees, payments or other
charges thereon applicable after the title to the gas passes to Buyer at the
Point of Delivery.

 

12.2                        If at
any time Seller’s title is questioned or involved in any action, Buyer may interplead
funds in the amount of the claim into the registry of any court having
jurisdiction over the matter. Any funds which are withheld by Buyer shall be
maintained in an interest-bearing account, and the interest accruing thereon
shall be tendered to the party who ultimately receives the payment, less
reasonable costs associated with interpleading funds with a court as described
herein.

 

ARTICLE XX.–
Term

 

13.1                        The
term of this Agreement covers the
period of time from the effective date hereof and for so long thereafter as
Seller, its successors and assigns, owns any oil and gas leasehold or mineral
interest in the AMI; provided, however, this Agreement shall terminate thirty
(30) years from effective date hereof unless extended by the mutual agreement
of the Parties. The Term shall be extended by the duration of any event
of Force Majeure under Article XI above.

 

ARTICLE XXI.-
Billing and Payment

 

14.1                        Buyer
shall render to Seller on or before the twentieth (20th) day after
the month of delivery a statement showing the total MMBtus Delivered at Point
of Redelivery hereunder during the month of delivery. The statement will also
reflect the portion of MMBtus Delivered by Buyer to each of Buyer’s resale
customers and the respective resale prices applicable to said month of
delivery.

 

11

 

14.2                        Buyer
will require each customer to whom Buyer sells any of the MMBtus Delivered to
remit the amount due Buyer directly to the Escrow Agent pursuant to the Escrow
Agreement referenced in the Development Agreement. Distribution of the proceeds
to Seller and Buyer shall be in accordance with the Escrow Agreement.

 

14.3                        Each
Party shall have the right at all reasonable times to examine the books,
records and charts of the other Party to the extent necessary to verify the
accuracy of any statement, charge, computation or demand made under or pursuant
to any of the provisions of this Agreement. All books of accounts, records and
charts of either Party relating to deliveries of gas hereunder, and the amount
due hereunder shall be preserved for a period of two (2) years.

 

14.4                        In the
event an error is discovered in the amount shown due in any statement rendered
by Buyer, such error shall be adjusted within thirty (30) days after the amount
thereof is determined. Claims for errors shall be made promptly upon discovery,
but in any event, within six (6) months of the date of such statement.

 

14.5                        Seller
assumes full responsibility and liability for and agrees to pay all royalties,
overriding royalties and other payments due to the owners of the mineral
interest and will make settlement with all persons having interest in the gas
(including liquids and liquefiables) sold by Seller hereunder to Buyer.

 

ARTICLE XXII.–
Miscellaneous

 

15.1                        No
waiver by either Seller or Buyer of any default of the other under this
Agreement shall operate as a waiver of any future default, whether of like or
different character or nature, nor shall any failure to exercise any right
hereunder be considered as a waiver of such right in the future.

 

15.2                        Seller
expressly does not by the terms of this Agreement, sell, transfer, or assign
unto Buyer any title or interest whatsoever in Seller’s leases, wells, or any
equipment of any nature owned or used by Seller in the operation of its leases.

 

15.3                        This
Agreement may be executed in any number of counterparts, none of which
need be executed by both Parties, or may be ratified, adopted, or
consented to by separate instrument, in writing specifically referring hereto,
and it shall be binding upon the Party who executes a counterpart,
ratification, adoption, or consent with the same force and effect, and to the
same extent as if all such Party had executed and signed the same document,
with each separate counterpart, ratification, adoption or consent deemed to be
an original.

 

15.4                        The
terms and provisions of this Agreement shall extend to and be binding upon the
Parties hereto, their respective heirs, successors, assigns, and legal
representatives.

 

15.5                        Notwithstanding
anything to the contrary in this Agreement, in no event shall either Buyer or
Seller be entitled to receive or be liable to the other for (and each Party
hereby waives) any consequential, special, indirect, or punitive damages
arising out of this Agreement or the transactions contemplated hereby,
irrespective of whether alleged to be by way of indemnity (other than indemnity
for Third Party claims) as a result of breach of any provision of this
Agreement, tort (including negligence and strict liability), or otherwise,
including, without

 

12

 

limitation, any loss of profits, loss of income, loss
of use, loss of revenue, loss of contracts, loss of fuel, REGARDLESS OF WHETHER
ANY SUCH DAMAGES ARE CAUSED BY, CONTRIBUTED TO BY, OR ARISE OUT OF, THE SOLE,
JOINT OR CONCURRENT NEGLIGENCE (IN ANY DEGREE) OR STRICT LIABILITY OF THE OTHER
PARTY.

 

15.6                        The
Parties hereto agree that this Agreement shall be construed under the laws of
the State of Texas, without giving effect to principles that would apply the
laws of another jurisdiction.

 

15.7                        This
Agreement supersedes and replaces in its entirety that Gas Purchase Agreement
between Redwood and Gateway Processing Company hereto dated as of June 15,
2001, as amended.

 

ARTICLE XXIII.-
Notices

 

16.1                        Any
notice provided for in the Agreement shall be in writing and shall be
considered as having been given: (i) if delivered personally; or (ii) if
mailed by registered or certified United States mail, postage prepaid, to the following
addresses; or (iii) if delivered by confirmed e-mail or facsimile
transmission.

 

Any statement or payment
provided for in the Agreement shall be considered as having been delivered if
delivered personally or if mailed by United States mail, postage prepaid, to
the following addresses:

 

SELLER:

 

Redwood Energy
Production, L.P.

One Maritime Plaza, Suite 700

San Francisco, CA 94111

Attn.: Mr. Stuart J.
Doshi

Telephone: 415-398-8186

Facsimile: 415-398-9227

E-Mail:
sdoshi@geopetro.com

 

BUYER:

 

1625 Broadway, Suite 2400

Denver, CO 80202

Attn:  Mr. Robert J. Clark

Telephone  (303) 
626-8288

Facsimile:  (303) 
626-8259

E-mail:  rjclark@bearcubenergy.com

 

13

 

ARTICLE XXIV.-
Dispute Resolution

 

17.1                        Good
Faith Efforts. The Parties wish to avoid disputes relating to or arising
out of this Agreement. In the event of any dispute or perceived problem, each
Party shall notify the other Party and seek an amicable resolution without
regard to mediation. Except as otherwise provided in this Agreement, the Party
receiving a notice hereunder shall be given fifteen (15) days from the date of
receipt of such notice to remedy the breach or otherwise correct its
performance under this Agreement.

 

17.2                        Mediation.
In the event the Parties cannot reach an amicable resolution to a dispute or
perceived problem, the Parties shall within fifteen (15) days after the end of
the fifteen (15) day period set forth in Section 17.1 agree upon a
mediator and shall promptly attempt to mediate a solution.

 

17.3                        Litigation; Mandatory Venue. If
the Parties cannot reach an amicable resolution to a dispute or perceived
problem through mediation, each Party hereto consents and submits to the
exclusive personal jurisdiction and venue of the federal or state courts in
Houston, Harris County, Texas.

 

IN WITNESS WHEREOF, the
Parties have executed this Agreement in one or more copies or counterparts,
each of which, when executed by Buyer and Seller, will constitute and be an
original effective Agreement between Buyer and Seller, executing same on the
dates shown below, but shall be effective as of the Effective Date.

 

	
   

  	
  BUYER:

  
	
   

  	
   

  
	
   

  	
  MADISONVILLE GAS PROCESSING, LP

  
	
   

  	
   

  
	
   

  	
  By: Madisonville GP, LLC,

  
	
   

  	
  its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Robert J. Clark

  
	
   

  	
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

  	
  REDWOOD ENERGY PRODUCTION, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Redwood Energy Company,

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  S. J. Doshi

  
	
   

  	
  President and
  CEO

  
					

 

14

 

	
  STATE
  OF TEXAS

  	
   

  	
  §

  
	
   

  	
   

  	
  §

  
	
   

  	
   

  	
   

  
	
  COUNTY OF HARRIS

  	
   

  	
  §

  

 

This instrument was
acknowledged before me on this 25th day of July, 2005 by                                 ,
the                                 
of Madisonville GP, LLC, the general partner of 
Madisonville Gas Processing, LP, a Colorado limited partnership, on
behalf of said limited partnership.

 

My Commission
Expires:        

 

 

	
   

  	
   

  	
   

  
	
   

  	
  Notary Public in and for Harris

  
	
   

  	
  County, Texas

  

 

 

	
  STATE
  OF TEXAS

  	
   

  	
  §

  
	
   

  	
   

  	
  §

  
	
   

  	
   

  	
   

  
	
  COUNTY OF HARRIS

  	
   

  	
  §

  

 

This instrument was
acknowledged before me on this 25th day of July, 2005 by                              ,
the                                 
of Redwood Energy Company, the General Partner of Redwood Energy Production,
L.P., a Texas limited partnership, on behalf of said limited partnership.

 

My Commission Expires:        

 

	
   

  	
   

  	
   

  
	
   

  	
  Notary Public in and for Harris

  
	
   

  	
  County, Texas

  

 

15

 

EXHIBIT D

 

Termination
and Release Agreement

 

 

TERMINATION
AND RELEASE AGREEMENT

 

This Termination and
Release Agreement (this “Agreement”) is executed to be effective as of August 1,
2005 (the “Effective Date”) by and among Redwood Energy Production, L.P., a
Texas limited partnership (“Redwood”), Madisonville Gas Processing, LP, a
Colorado limited partnership (“MGP”), Gateway Processing Company, a Texas
corporation (“Processing”), and Gateway Pipeline Company, a Texas corporation (“Pipeline”).
Redwood, MGP, Processing, and Pipeline are sometimes hereinafter individually
referred to as a “Party” and collectively referred to as the “Parties.”

 

Recitals

 

Redwood, Processing,
Pipeline, and Hanover Compression Limited Partnership, a Delaware limited
partnership (“Hanover”) entered into that Master Agreement and the Ancillary
Agreements (as defined therein) dated as of June 15, 2001 in connection
with oil and gas drilling, production, gathering, treating, transportation, and
marketing operations relative to the Madisonville Rodessa Field in Madison
County, Texas; and

 

WHEREAS, Redwood,
Processing, and Hanover entered into that First Amended and Restated Master
Agreement on September 12, 2002 which superseded the Master Agreement; and

 

WHEREAS, the First
Amended and Restated Master Agreement and the Ancillary Agreements have been
further amended from time to time; and

 

WHEREAS, immediately
prior to executing this Agreement, MGP and Hanover have consummated the
transaction under that Purchase and Sale Agreement whereby MGP has acquired the
Treatment Plant (as defined in the Master Agreement), and MGP and Pipeline have
consummated the transaction under that Purchase Agreement dated of even date
herewith whereby MGP has acquired Pipeline’s gathering assets and equipment
located upstream of the Treatment Plant; and

 

WHEREAS, as part of
the Hanover and Gateway acquisitions, Hanover assigned to MGP the First Amended
and Restated Master Agreement and the Ancillary Agreements , as same have been
amended from time to time, and MGP, Processing, and Pipeline entered into that
Transportation Agreement dated as of August 1, 2005; and

 

WHEREAS, as a result of
the aforementioned transactions, all of the obligations of the Parties under
the First Amended and Restated Master Agreement and the Ancillary Agreements
have been subsumed in other agreements; and

 

WHEREAS, subject to the
Unwind Option (as defined in the Purchase Agreement) the Parties therefore
desire to terminate the First Amended and Restated Master Agreement, the
Ancillary Agreements, and all amendments and modifications thereof in their
entirety, and execute the mutual releases herein contained;

 

 

NOW, THEREFORE, for and
in consideration of the termination and release set forth herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:

 

ARTICLE XXV.

Termination of Instruments

 

Effective as of the
Effective Date, the Parties hereby EXTINGUISH and TERMINATE in their entirety
the First Amended and Restated Master Agreement, the Ancillary Agreements, and
all amendments and modifications thereof. Notwithstanding the foregoing, (i) Redwood
and MGP RATIFY, ADOPT, and CONFIRM that Contingency Plan Agreement entered into
and effective May, 2003 by and among Redwood, Processing, and Hanover, and MGP
agrees to assume the obligations and responsibilities of Processing and Hanover
under such Contingency Plan Agreement; and (ii) the Parties agree that the
Escrow Agreement with The Chase Manhattan Bank (now JPMORGAN CHASE BANK) dated June 15, 2001 shall remain in
force and effect by and among the parties thereto until the Parties make
appropriate distributions of any funds contained in the escrow account among
themselves as of the Effective Date. Once all funds held in the escrow account
have been paid to the appropriate Parties and Hanover, the Escrow Agreement
shall terminate.

 

ARTICLE XXVI.

Unwind Option

 

If Pipeline exercises the
Unwind Option set forth in the Purchase Agreement, this Agreement shall be null
and void as of the Effective Date, and Redwood and Processing agree to be bound
by the provisions of Article I, Section 3 of the Purchase Agreement.

 

ARTICLE XXVII.

Mutual Releases

 

1.                                      Redwood Release. Effective as of the Effective Date, Redwood does
hereby FULLY and FOREVER RELEASE, ACQUIT, and DISCHARGE MGP, Processing, and
Pipeline, and their affiliates, successors, subsidiaries, and assigns, and any
and all of their officers, directors, partners, members, employees, attorneys,
and agents (collectively, the “Redwood Released Parties”), jointly and
severally, each and all of them, of and from all claims, actions, causes of
action, liabilities, demands, losses, expenses, and controversies
(collectively, “Released Redwood Claims”), including interest thereon, of every
kind and character whatsoever that Redwood had, has, or may now have
against any of the Redwood Released Parties, whether known or unknown, whether
accrued or unaccrued, whether in contract or in tort, including without
limitation, any Released Redwood Claim that may arise, has arisen, or
could have arisen out of or in connection with the First Amended and Restated
Master Agreement, the Ancillary Agreements, and all amendments and
modifications thereof, including, without limitation, any Released Redwood
Claim arising out of, with respect to, or in connection with the sole, joint,
or concurrent negligence or strict liability of any of the Redwood Released
Parties. Notwithstanding the foregoing, no Redwood Released Party is released
from any claim or liability arising from, related to, or in connection with a
breach of any representation or warranty, or the failure

 

2

 

to perform any covenant in this
Agreement, or from such Redwood Released Party’s gross negligence or willful
misconduct in connection with any Released Redwood Claim.

 

2.                                      MGP Release. Effective as of the Effective Date, MGP does hereby
FULLY and FOREVER RELEASE, ACQUIT, and DISCHARGE Redwood, Processing, and
Pipeline and their affiliates, successors, subsidiaries, and assigns, and any
and all of their officers, directors, partners, members, employees, attorneys,
and agents (collectively, the “MGP Released Parties”), jointly and severally,
each and all of them, of and from all claims, actions, causes of action,
liabilities, demands, losses, expenses, and controversies (collectively, “Released
MGP Claims”), including interest thereon, of every kind and character
whatsoever that MGP had, has, or may now have against any of the MGP
Released Parties, whether known or unknown, whether accrued or unaccrued,
whether in contract or in tort, including without limitation, any Released MGP
Claim that may arise, has arisen, or could have arisen out of or in
connection with the First Amended and Restated Master Agreement, the Ancillary
Agreements, and all amendments and modifications thereof, including, without
limitation, any Released MGP Claim arising out of, with respect to, or in
connection with the sole, joint, or concurrent negligence or strict liability
of any of the MGP Released Parties. Notwithstanding the foregoing, no MGP
Released Party is released from any claim or liability arising from, related
to, or in connection with a breach of any representation or warranty, or the
failure to perform any covenant in this Agreement, or from such MGP
Released Party’s gross negligence or willful misconduct in connection with any
Released MGP Claim.

 

3.                                      Processing/Pipeline Release. Effective as of the Effective Date, each of Processing
and Pipeline does hereby FULLY and FOREVER RELEASE, ACQUIT, and DISCHARGE
Redwood and MGP, and their affiliates, successors, subsidiaries, and assigns,
and any and all of their officers, directors, partners, members, employees,
attorneys, and agents (collectively, the “Processing/Pipeline Released Parties”),
jointly and severally, each and all of them, of and from all claims, actions,
causes of action, liabilities, demands, losses, expenses, and controversies
(collectively, “Released Processing/Pipeline Claims”), including interest
thereon, of every kind and character whatsoever that Processing or Pipeline
had, has, or may now have against any of the Processing/Pipeline Released
Parties, whether known or unknown, whether accrued or unaccrued, whether in
contract or in tort, including without limitation, any Released
Processing/Pipeline Claim that may arise, has arisen, or could have arisen
out of or in connection with the First Amended and Restated Master Agreement,
the Ancillary Agreements, and all amendments and modifications thereof,
including, without limitation, any Released Processing/Pipeline Claim arising
out of, with respect to, or in connection with the sole, joint, or concurrent
negligence or strict liability of any of the Processing/Pipeline Released
Parties. Notwithstanding the foregoing, no Processing/Pipeline Released Party
is released from any claim or liability arising from, related to, or in
connection with a breach of any representation or warranty, or the failure to
perform any covenant in this Agreement, or from such Processing/Pipeline
Released Party’s gross negligence or willful misconduct in connection with any
Released Processing/Pipeline Claim.

 

3

 

Article III

Representations and Warranties

 

1.                                      Redwood
Representations. Redwood hereby represents and warrants to MGP, Processing,
and Pipeline that Redwood has all requisite partnership power and authority (i) to
execute and deliver this Agreement, (ii) to consummate the transactions
contemplated hereby, and (iii) to perform all the obligations to be
performed by it hereunder. The execution and delivery of this Agreement, the
performance of all the terms and conditions hereof to be performed by Redwood
in its partnership capacity, and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary partnership
action on the part of Redwood. This Agreement has been duly executed and
delivered by Redwood, and constitutes the valid and binding obligation of
Redwood, enforceable against Redwood in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency or other laws
relating to or affecting the enforcement of creditors’ rights generally and
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

 

2.                                      MGP
Representations. MGP hereby represents and warrants to Redwood, Processing,
and Pipeline that MGP has all requisite partnership power and authority (i) to
execute and deliver this Agreement, (ii) to consummate the transactions
contemplated hereby, and (iii) to perform all the obligations to be
performed by it hereunder. The execution and delivery of this Agreement, the
performance of all the terms and conditions hereof to be performed by MGP in
its partnership capacity, and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary partnership action on the part of
MGP. This Agreement has been duly executed and delivered by MGP, and
constitutes the valid and binding obligation of MGP, enforceable against MGP in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency or other laws relating to or affecting the enforcement
of creditors’ rights generally and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

 

3.                                      Processing/Pipeline
Representations. Each of Processing and Pipeline hereby represents and
warrants to Redwood and MGP that each of Processing and Pipeline has all
requisite corporate power and authority (i) to execute and deliver this
Agreement, (ii) to consummate the transactions contemplated hereby, and (iii) to
perform all the obligations to be performed by it hereunder. The execution
and delivery of this Agreement, the performance of all the terms and conditions
hereof to be performed by Processing and Pipeline, each in its corporate
capacity, and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Processing and Pipeline. This Agreement has been duly executed and delivered by
each of Processing and Pipeline, and constitutes the valid and binding
obligation of each of Processing and Pipeline, enforceable against each of
Processing and Pipeline in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other laws
relating to or affecting the enforcement of creditors’ rights generally and
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

 

4

 

Article IV

Miscellaneous

 

1.                                      Expenses.
Except as otherwise provided herein, each Party will pay all fees and expenses
incurred by it in connection with this Agreement and the consummation of the
transactions contemplated hereby.

 

2.                                      Further Assurances.
Each Party will from time to time after the Closing and without further
consideration, upon the request of the other Party, execute and deliver such
documents and take such actions as the other Party may reasonably request
in order to consummate more effectively the transactions contemplated hereby.

 

3.                                      Assignment;
Parties in Interest. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Parties and their respective successors.
No Party may transfer or assign any of its rights or obligations hereunder
or any interest herein without the prior written consent of the other Parties,
which consent may be withheld at any Party’s sole discretion.

 

4.                                      Entire
Agreement. This Agreement contains the entire understanding of the Parties
with respect to the matters addressed herein. There are no restrictions,
agreements, promises, representations, warranties, covenants, or undertakings
other than those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and undertakings between the Parties with
respect to the subject matter hereof. This Agreement may be amended or
modified only by a written instrument duly executed by all of the Parties. In
the event of any conflict between the terms of this Agreement and the terms of
the Agreements terminated hereby, the terms of this Agreement shall control.

 

5.                                      Severability.
In case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other
provision of this Agreement, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provision or provisions had never been
contained herein.

 

6.                                      Interpretation.
The article and section headings are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.

 

7.                                      Notices.
All notices and other communications required or desired to be given hereunder
must be in writing and sent (properly addressed as set forth below) by: (a) U.S.
mail with all postage and other charges fully prepaid, (b) hand delivery,
or (c) e-mail or electronic facsimile transmission. A notice will be
deemed effective on the date on which such notice is received by the addressee,
if by mail or hand delivery, or on the date sent, if by e-mail or facsimile.
Each Party may change its address by notifying the other Parties in
writing of such address change.

 

If to Redwood:                                                                                         Redwood
Energy Production, L.P.

 

One Maritime Plaza, Suite 700

 

San Francisco, CA 94111

 

Attn:  Mr. Stuart
J. Doshi

 

5

 

Telephone 
(415)  398-8186

 

Facsimile: 
(415)  398-9227

 

If to MGP:                                                                                                                 Madisonville
Gas Processing, LP

 

1625 Broadway, Suite 2400

 

Denver, CO 80202

 

Attn:  Mr. Robert
J. Clark

 

Telephone 
(303)  626-8288

 

Facsimile: 
(303)  626-8259

 

If to
Processing/Pipeline:                                   c/o
Gateway Processing Company

500 Dallas Street, Suite 2615

Houston, TX 77002

Attn:  Mr. Robert
Panico

Telephone 
(713)  336-0844

Facsimile: 
(713)  336-0855

 

27.10                 Governing
Law. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas, without regard to any conflict
of law rules.

 

27.11                 Counterparts.
This Agreement may be executed in several counterparts, each of which will
be deemed to be an original, but all of which together will constitute one and
the same instrument.

 

EXECUTED to be effective
as of the Effective Date.

 

6

 

	
   

  	
  REDWOOD ENERGY PRODUCTION, L.P.

  
	
   

  	
   

  
	
   

  	
  By:  Redwood Energy Company,

  
	
   

  	
  its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  S. J. Doshi

  
	
   

  	
  President and
  CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MADISONVILLE GAS PROCESSING, LP

  
	
   

  	
   

  
	
   

  	
  By:  Madisonville GP, LLC,

  
	
   

  	
  its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
  Robert J. Clark

  
	
   

  	
  Manager

  
	
   

  	
  GATEWAY PROCESSING COMPANY

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
  Robert Panico

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  GATEWAY PIPELINE COMPANY

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
  Robert Panico

  
	
   

  	
  President

  

 

7

 

EXHIBIT E

 

Form of Escrow Agreement 

 

 

ESCROW
AGREEMENT

 

(JPMORGAN
CHASE-REDWOOD-MGP)

 

THIS ESCROW AGREEMENT
(as the same may be amended or modified from time to time and including
any and all written instructions given to “Escrow Agent” (hereinafter defined)
pursuant hereto, this “Escrow Agreement”) is made and entered into as of August 1,
2005 by and among Redwood Energy Production,
L.P., a Texas limited partnership (“Party A”) and Madisonville Gas Processing, LP, a Colorado
limited partnership (“Party B”). (Party A and Party B sometimes referred to
collectively as the “Other Parties”) and JPMORGAN CHASE BANK,
a New York State bank with an office in Houston, Harris County, Texas (the “Bank”).
All capitalized terms not defined herein shall have the meanings set forth in
the Development Agreement (hereafter defined).

 

W I T N E
S S E T H :

 

WHEREAS, Party A and
Party B have entered into that Madisonville Field Development Agreement dated
effective as of August 1, 2005 (the “Development Agreement”) and the
related Gas Purchase Contract dated as of August 1, 2005 (the “GPC”). The
Escrow Agent (i) has not received a copy of, (ii) has not reviewed, (iii) is
not a party to, and (iv) will not be held responsible under the terms of
the GPC, or the Development Agreement; and

 

WHEREAS, Party A and
Party B desire to request Bank to act in the capacity of escrow agent under
this Escrow Agreement; and

 

WHEREAS, Bank,
subject to the terms and conditions hereof, has agreed so to do.

 

NOW, THEREFORE, in
consideration of the premises and mutual covenants and agreements contained
herein, the parties hereto hereby agree as follows:

 

1.                                       Appointment of Escrow Agent.
Each of Party A and Party B hereby appoints the Bank as the escrow agent under
this Escrow Agreement (the Bank in such capacity, the “Escrow Agent”), and
Escrow Agent hereby accepts such appointment.

 

2.                                       Deposit.
Each month Party B shall cause the purchaser of MMBtus Delivered (as such term
is used in the GPC, which are owned or controlled by Party A from the AMI and
sold to Party B, to deliver to the Escrow Agent by wire transfer all sums
attributable to such MMBtus Delivered,( the “Deposit”)
to be held by Escrow Agent in accordance with the terms hereof. Subject to and
in accordance with the terms and conditions hereof, Escrow Agent agrees that it
shall receive, hold in escrow, invest and reinvest and release or distribute
the Deposit (as said amount may increase or decrease as a result of the
investment and reinvestment thereof, distributions in accordance hereof, and as
said amount may be reduced by charges thereto and payments and setoffs
therefrom to compensate or reimburse Escrow Agent for amounts owing to it
pursuant hereto). Unless otherwise instructed in writing by the Other
Parties, the Deposit shall not be invested. Such written instructions,
if any, referred to in the foregoing sentence shall specify the type and
identity of the investments to be purchased and/or sold and shall also include
the name of the broker-dealer, if any, which the Other Parties direct the Escrow
Agent to use in respect of such investment, any particular settlement
procedures required, if any (which settlement procedures shall

 

 

be consistent with industry standards and practices), and such other
information as Escrow Agent may require. Escrow Agent shall not be liable
for failure to invest or reinvest funds absent sufficient written direction.
Unless Escrow Agent is otherwise directed in such written instructions, Escrow
Agent may use a broker-dealer of its own selection, including a
broker-dealer owned by or affiliated with Escrow Agent or any of its
affiliates. The Escrow Agent or any of its affiliates may receive
compensation with respect to any investment directed hereunder. It is expressly
agreed and understood by the parties hereto that Escrow Agent shall not in any
way whatsoever be liable for losses on any investments, including, but not
limited to, losses from market risks due to premature liquidation or resulting
from other actions taken pursuant to this Escrow Agreement. It is hereby
expressly stipulated and agreed that all interest and other earnings on the
Deposit shall become a part of the Deposit for all purposes, and that all
losses resulting from the investment or reinvestment thereof from time to time
and all amounts charged thereto to compensate or reimburse the Escrow Agent
from time to time for amounts owing to it hereunder shall from the time of such
loss or charge no longer constitute part of the Deposit.

 

3.                                       Notification of the Deposit.
Upon receipt of any Deposit, the Escrow Agent shall acknowledge and confirm
such receipt to the Other Parties via email at the addresses set forth in Section 13
hereof. In addition, all receipts, investments and reinvestments of the Deposit
shall be confirmed by Escrow Agent as soon as practicable by account statement,
and any discrepancies in any such account statement shall be noted by the Other Parties to
Escrow Agent within 30 calendar days after receipt thereof. Failure to inform Escrow
Agent in writing of any discrepancies in any such account statement within said
30-day period shall conclusively be deemed confirmation of such account
statement in its entirety. For purposes of this paragraph, (a) each
account statement shall be deemed to have been received by the party to whom
directed on the earlier to occur of (i) actual receipt thereof and (ii) three
“Business Days” (hereinafter defined) after the deposit thereof in the United
States Mail, postage prepaid and (b) the term “Business Day” shall mean
any day of the year, excluding Saturday, Sunday and any other day on which
national banks are required or authorized to close in Houston, Texas.

 

4.                                       Disbursement of Deposit.
Escrow Agent is hereby authorized and shall make disbursements of the Deposit
within one (1) Business Day of its receipt of written instructions in
substantially the form set forth as Exhibit A attached hereto and
signed by each of Party A and Party B, or into the registry of the court in
accordance with Sections 8 or 16 hereof. Notwithstanding anything contained
herein or elsewhere to the contrary, the Other Parties hereby expressly agree
that the Escrow Agent shall be entitled to charge the Deposit for, and pay and
set-off from the Deposit, any and all amounts, if any, then owing to it
pursuant to this Escrow Agreement prior to the disbursement of the Deposit in
accordance with this Section 4.

 

5.                                       Tax Matters. Each of the Other Parties shall provide
Escrow Agent with its taxpayer identification number documented by an
appropriate Form W 8 or Form W 9 upon execution of this Escrow
Agreement, or as soon as reasonably practical thereafter. Failure so to provide
such forms may prevent or delay disbursements from the Deposit and may also
result in the assessment of a penalty and Escrow Agent’s being required to
withhold tax on any interest or other income earned on the Deposit. Any
payments of income shall be subject to applicable withholding regulations then
in force in the United States or any other jurisdiction, as applicable.

 

6.                                       Scope of Undertaking.
Escrow Agent’s duties and responsibilities in connection with this Escrow
Agreement shall be purely ministerial and shall be limited to those expressly
set forth in this Escrow Agreement. Escrow Agent is not a principal,
participant or

 

2

 

beneficiary in any transaction underlying this Escrow Agreement and
shall have no duty to inquire beyond the terms and provisions hereof. Escrow
Agent shall have no responsibility or obligation of any kind in connection with
this Escrow Agreement or the Deposit and shall not be required to deliver the
Deposit or any part thereof or take any action with respect to any matters
that might arise in connection therewith, other than to receive, hold, invest,
reinvest and deliver the Deposit as herein provided. Without limiting the
generality of the foregoing, it is hereby expressly agreed and stipulated by
the parties hereto that Escrow Agent shall not be required to exercise any
discretion hereunder and shall have no investment or management responsibility
and, accordingly, shall have no duty to, or liability for its failure to,
provide investment recommendations or investment advice to the Other Parties,
or any of them. Escrow Agent shall not be liable for any error in judgment, any
act or omission, any mistake of law or fact, or for anything it may do or
refrain from doing in connection herewith, except for, subject to Section 7
hereinbelow, its own willful misconduct or gross negligence. It is the
intention of the parties hereto that Escrow Agent shall never be required to use,
advance or risk its own funds or otherwise incur financial liability in the
performance of any of its duties or the exercise of any of its rights and
powers hereunder.

 

7.                                       Reliance; Liability.
Escrow Agent may rely on, and shall not be liable for acting or refraining
from acting in accordance with, any written notice, instruction or request or
other paper furnished to it hereunder or pursuant hereto and believed by it to
have been signed or presented by the proper party or parties. Escrow Agent
shall be responsible for holding, investing, reinvesting and disbursing the
Deposit pursuant to this Escrow Agreement; provided, however,
that in no event shall Escrow Agent be liable for any lost profits, lost
savings or other special, exemplary, consequential or incidental damages in
excess of Escrow Agent’s fee hereunder and provided, further,
that Escrow Agent shall have no liability for any loss arising from any cause
beyond its control, including, but not limited to, the following: (a) acts
of God, force majeure, including, without limitation, war (whether or not
declared or existing), revolution, insurrection, riot, civil commotion,
accident, fire, explosion, stoppage of labor, strikes and other
differences with employees; (b) the act, failure or neglect of any Other
Party or any agent or correspondent or any other person selected by Escrow
Agent; (c) any delay, error, omission or default of any mail, courier,
telegraph, cable or wireless agency or operator; or (d) the acts or edicts
of any government or governmental agency or other group or entity exercising
governmental powers. Escrow Agent is not responsible or liable in any manner
whatsoever for the sufficiency, correctness, genuineness or validity of the
subject matter of this Escrow Agreement or any part hereof or for the
transaction or transactions requiring or underlying the execution of this
Escrow Agreement, the form or execution hereof or for the identity or
authority of any person executing this Escrow Agreement or any part hereof
or depositing the Deposit.

 

8.             Right of Interpleader. Should any
controversy arise involving the parties hereto or any of them or any other
person, firm or entity with respect to this Escrow Agreement or the Deposit, or
should a substitute escrow agent fail to be designated as provided in Section
16 hereof, or if Escrow Agent should be in doubt as to what action to take,
Escrow Agent shall have the right, but not the obligation, either to (a)
withhold delivery of the Deposit until the controversy is resolved, the
conflicting demands are withdrawn or its doubt is resolved or (b) institute a
petition for interpleader in any court of competent jurisdiction to determine
the rights of the parties hereto. In the event Escrow Agent is a party to any
dispute, Escrow Agent shall have the additional right to refer such controversy
to binding arbitration. Should a petition for interpleader be instituted, or
should Escrow Agent be threatened with litigation or become involved in
litigation or binding arbitration in any manner whatsoever in connection with
this Escrow Agreement or the Deposit, the Other Parties hereby jointly and
severally agree to reimburse Escrow Agent for its attorneys’ fees and any and
all other expenses, losses, costs and damages incurred by Escrow Agent in
connection

 

3

 

with or resulting from such threatened or actual litigation or
arbitration prior to any disbursement hereunder.

 

9.                                       Indemnification. The Other Parties
hereby jointly and severally agree to indemnify and defend the Escrow Agent,
its officers, directors, partners, employees and agents (each herein called an “Indemnified
Party”) against, and hold each Indemnified Party harmless from, any and all
losses, liabilities and expenses, including, but not limited to, fees and
expenses of in house or outside counsel, court costs, costs, damages and
claims, costs of investigation, litigation and arbitration, tax liability
(other than for income taxes on fees earned hereunder) and loss on investments
suffered or incurred by any Indemnified Party in connection with or arising
from or out of (i) the execution, delivery or performance of this Escrow
Agreement or (ii) the compliance or attempted compliance by any
Indemnified Party with any instruction or direction upon which the Escrow Agent
is authorized to rely under this Escrow Agreement, except to the extent that
any such loss, liability or expense may result from the willful misconduct
or gross negligence of such Indemnified Party. IT IS THE
EXPRESS INTENT OF EACH OF PARTY A AND PARTY B TO INDEMNIFY EACH OF THE
INDEMNIFIED PARTIES FOR, AND HOLD THEM HARMLESS AGAINST, THEIR OWN NEGLIGENT
ACTS OR OMISSIONS.

 

10.                                 Compensation and Reimbursement of Expenses.
Party A and Party B shall bear in equal proportions and pay Escrow Agent for its
services hereunder in accordance with Escrow Agent’s fee schedule as
attached as Schedule I hereto as in effect from time to time. Party A and
Party B shall bear in equal proportions and pay all expenses incurred by Escrow
Agent in connection with the enforcement of its rights hereunder and otherwise
in connection with the enforcement of this Escrow Agreement, including, without
limitation, attorneys’ fees, brokerage costs and related expenses incurred by
Escrow Agent in connection with such enforcement. Party A and Party B shall be
jointly and severally liable to Escrow Agent for the payment of all such fees
and expenses. In the event the Other Parties for any reason fail to pay any
such fees and expenses as and when the same are due, such unpaid fees and
expenses shall be charged to and set-off and paid from the Deposit by Escrow
Agent without any further notice.

 

11.                                 Lien. Each
of the Other Parties hereby grants to Escrow Agent a lien upon, and security
interest in, all its right, title and interest in and to all of the Deposit as
security for the payment and performance of its obligations owing to Escrow
Agent hereunder, including, without limitation, its obligations of payment,
indemnity and reimbursement provided for hereunder, which lien and security
interest may be enforced by Escrow Agent without notice by charging and
setting-off and paying from, the Deposit any and all amounts then owing to it
pursuant to this Escrow Agreement or by appropriate foreclosure proceedings.

 

12.                                 Funds Transfer. In the event funds transfer instructions are given,
whether in writing, by telefax, or otherwise, the Escrow Agent is authorized to
seek confirmation of such instructions by telephone call-back to the person or
person designated on Schedule II hereto, and the Escrow Agent may rely
upon the confirmations of anyone purporting to be the person or persons so
designated. If the Escrow Agent is unable to contact any of the authorized
representatives identified in Schedule II, the Escrow Agent is hereby
authorized to seek confirmation of such instructions by telephone call-back to
any one or more of the executive officers of the Other Parties (the “Executive
Officers”), which shall include the titles of President or any Vice President,
as the Escrow Agent may select. Such Executive Officer shall deliver to
the Escrow Agent a fully executed Incumbency Certificate, and the Escrow Agent may rely
upon the confirmation of anyone purporting to be any such officer. The persons and telephone numbers for
call-backs may be changed only in writing

 

4

 

actually received and acknowledged by the Escrow Agent. The parties to
this Escrow Agreement acknowledge that such security procedure is commercially
reasonable.

 

It is
understood that the Escrow Agent and the beneficiary’s bank in any funds
transfer may rely solely upon any account numbers or similar identifying
number provided by the Other Parties hereto to identify (i) the
beneficiary, (ii) the beneficiary’s bank, or (iii) an intermediary
bank. The Escrow Agent may apply any of the escrowed funds for any payment
order it executes using any such identifying number, even where its use may result
in a person other than the beneficiary being paid, or the transfer of funds to
a bank other than the beneficiary’s bank or an intermediary bank, designated.

 

13.                                 Notices.
Except for the provision in Section 3 hereinabove, any notice or other
communication required or permitted to be given under this Escrow Agreement by
any party hereto to any other party hereto shall be considered as properly
given if in writing and (a) delivered against receipt therefor, (b) mailed
by registered or certified mail, return receipt requested and postage prepaid,
or (c) sent by telefax machine, in each case to the address or telefax
number, as the case may be, set forth below:

 

If to Escrow Agent:

 

JPMorgan Chase Bank

600 Travis Street, Suite 1150

Houston, TX 77002

Attn: 
Colette L. Potier

ITS/Escrow Section

Telefax No.: 
(713)  216-6927

Telephone
No.:  (713) 216-5793

E-Mail:
colette.l.potier@jpmchase.com

 

Party A

 

If to Redwood:

 

Redwood Energy Production, L.P.

One Maritime Plaza, Suite 700

San Francisco, CA  94111

Attn:  Mr. Stuart
J. Doshi

Telephone 
(415)  398-8186

Facsimile: 
(415)  398-9227

E-Mail: sdoshi@geopetro.com

 

5

 

Party B

 

If to Madisonville Gas Processing, LP:

 

1625 Broadway, Suite 2400

Denver, CO 80202

Attn:  Mr. Robert
J. Clark

Telephone 
(303)  626-8288

Facsimile: 
(303)  626-8259

E-mail: 
rjclark@bearcubenergy.com

     naretakis@
bearcubenergy.com

 

Except to the extent otherwise provided in Section 3 hereinabove,
delivery of any communication given in accordance herewith shall be effective
only upon actual receipt thereof by the party or parties to whom such
communication is directed. Any party to this Escrow Agreement may change
the address to which communications hereunder are to be directed by giving
written notice to the other party or parties hereto in the manner provided in
this section. All signatures of the parties to this agreement may be transmitted
by facsimile, and such facsimile will, for all purposes, be deemed to be the
original signature of such party whose signature it reproduces, and will be
binding upon such party.

 

14.                                 Consultation with Legal
Counsel. Escrow
Agent may consult with its counsel or other counsel satisfactory to it
concerning any question relating to its duties or responsibilities hereunder or
otherwise in connection herewith and shall not be liable for any action taken,
suffered or omitted by it in good faith upon the advice of such counsel.

 

15.                                 Choice of Laws; Cumulative
Rights. This Escrow Agreement shall
be construed under, and governed by, the laws of the State of Texas, excluding,
however, (a) its choice of law rules and (b) the portions of the
Texas Trust Code Sec. 111.001, et seq. of the
Texas Property Code concerning fiduciary duties and liabilities of trustees.
All of Escrow Agent’s rights hereunder are cumulative of any other rights it may have
at law, in equity or otherwise. The parties hereto agree that the forum for
resolution of any dispute arising under this Escrow Agreement shall be Harris
County, Texas, and each of the Other Parties hereby consents, and submits
itself, to the jurisdiction of any state or federal court sitting in Harris
County, Texas.

 

16.                                 Resignation.
Escrow Agent may resign hereunder upon thirty (30) days’ prior notice to
the Other Parties. Upon the effective date of such resignation, Escrow Agent
shall deliver the Deposit to any substitute escrow agent designated by the
Other Parties in writing. If the Other Parties
fail to designate a substitute escrow agent within thirty (30) days after the
giving of such notice, Escrow Agent may institute a petition for
interpleader. Escrow Agent’s sole responsibility after such 30-day notice
period expires shall be to hold the Deposit (without any obligation to reinvest
the same) and to deliver the same to a designated substitute escrow agent, if
any, or in accordance with the directions of a final order or judgment of a
court of competent jurisdiction, at which time of delivery Escrow Agent’s
obligations hereunder shall cease and terminate.

 

17.                                 Assignment. This Escrow Agreement shall not be assigned by any of the
Other Parties without the prior written consent of Escrow Agent, which consent
shall not be unreasonably withheld (such assigns of the Other Parties to which
Escrow Agent consents, if any, and Escrow Agent’s assigns being hereinafter
referred to collectively as “Permitted Assigns”).

 

6

 

18.                                 Severability.
If one or more of the provisions hereof shall for any reason be held to be
invalid, illegal or unenforceable in any respect under applicable law, such
invalidity, illegality or unenforceability shall not affect any other
provisions hereof, and this Escrow Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein,
and the remaining provisions hereof shall be given full force and effect.

 

19.                                 Term / Termination.
This Escrow Agreement shall be effective as of the date first set forth above
and shall continue from month-to-month until terminated in writing by any party
hereto upon sixty (60) day’s prior written notice to all other parties hereto.
In the event of termination of this Escrow Agreement, if all fee, expenses,
costs and other amounts required to be paid to Escrow Agent hereunder are not
fully and finally paid prior to termination, the provisions of Section 10
hereof shall survive the termination hereof and, provided
further, that the last two sentences of Section 8 hereof and
the provisions of Section 9 hereof shall, in any event, survive the
termination hereof. Upon receipt of a notice of termination hereof, and so long
as Party B is selling MMBtus Delivered (as such term is used in the GPC)
previously owned or controlled by Party A from the AMI and sold to Party B, the
Other Parties shall review the need for continuing an escrow account. If the
Other Parties agree to continue using a escrow account for the purposes
contemplated herein, they shall use their reasonable best efforts to execute
and have in full force and effect prior to such termination a substitute escrow
agreement with a national bank or major financial institution reasonably
acceptable to each of the Other Parties.

 

20.                                 General. The
section headings contained in this Escrow Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Escrow Agreement. This Escrow Agreement and any affidavit, certificate,
instrument, agreement or other document required to be provided hereunder may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute but one and the same
instrument. Unless the context shall otherwise require, the singular shall
include the plural and vice-versa, and each pronoun in any gender shall include
all other genders. The terms and provisions of this Escrow Agreement constitute
the entire agreement among the parties hereto in
respect of the subject matter hereof, and neither the Other Parties, nor Escrow
Agent has relied on any representations or agreements of the other, except as
specifically set forth in this Escrow Agreement. This Escrow Agreement or any
provision hereof may be amended, modified, waived or terminated only by
written instrument duly signed by the parties hereto. This Escrow Agreement
shall inure to the benefit of, and be binding upon, the parties hereto and
their respective heirs, devisees, executors, administrators, personal
representatives, successors, trustees, receivers and Permitted Assigns. This
Escrow Agreement is for the sole and exclusive benefit of the Other Parties and
the Escrow Agent, and nothing in this Escrow Agreement, express or implied, is
intended to confer or shall be construed as conferring upon any other person
any rights, remedies or any other type or types of benefits.

 

IN WITNESS WHEREOF,
the parties hereto have executed this Escrow Agreement to be effective as of
the date first above written.

 

 

Tax Certification: Taxpayer
ID#: 94-3390029

 

NOTE: The following certification shall be
used by and for a U.S. resident only. Non-residents must use and provide Form W8-BEN

 

Customer is a (check one):

 

	
  o Corporation

  	
   

  	
  o Municipality

  	
   

  	
  ý Partnership

  	
   

  	
  o Non-profit or Charitable Org

  
	
  o Individual

  	
   

  	
  o REMIC

  	
   

  	
   

  	
  o Trust

  	
   

  	
   

  	
  o Other
                   

  
									

 

7

 

Under the penalties of perjury, the
undersigned certifies that:

 

(1)       the entity is organized
under the laws of the United States

 

(2)       the number shown above is
its correct Taxpayer Identification Number (or it is waiting for a number to be
issued to it); and

 

(3)       it is not subject to backup
withholding because: (a) it is exempt from backup withholding or (b) it
has not been notified by the Internal Revenue Service (IRS) that it is subject
to backup withholding as a result of failure to report all interest or
dividends, or (c) the IRS has notified it that it is no longer subject to
backup withholding.

 

 (If
the entity is subject to backup withholding, cross out the words after the (3) above.)

 

Investors who do not supply a tax
identification number will be subject to backup withholding in accordance with
IRS regulations.

 

 

Note: The IRS does
not require your consent to any provision of this document other than the
certifications required to avoid backup withholding.

 

	
   

  	
  Redwood Energy Production, L.P.

  
	
   

  	
   

  
	
   

  	
  By: Redwood Energy Company, its

  
	
   

  	
  General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  S. J. Doshi

  
	
   

  	
  President
  and CEO

  

 

“PARTY A”

 

8

 

Tax Certification: Taxpayer
ID#: 

 

NOTE: The following certification shall be
used by and for a U.S. resident only. Non-residents must use and provide Form W8-BEN

 

Customer is a (check one):

 

	
  o Corporation

  	
   

  	
  o Municipality

  	
   

  	
  x Partnership

  	
   

  	
  o Non-profit or Charitable Org

  
	
  o Individual

  	
   

  	
  o REMIC

  	
   

  	
  o Trust

  	
   

  	
  o Other
                   

  

 

Under the penalties of perjury, the
undersigned certifies that:

 

(4)                               the
entity is organized under the laws of the United States

 

(5)                               the
number shown above is its correct Taxpayer Identification Number (or it is
waiting for a number to be issued to it); and

 

(6)                               it
is not subject to backup withholding because: (a) it is exempt from backup
withholding or (b) it has not been notified by the Internal Revenue
Service (IRS) that it is subject to backup withholding as a result of failure
to report all interest or dividends, or (c) the IRS has notified it that
it is no longer subject to backup withholding.

 

 (If
the entity is subject to backup withholding, cross out the words after the (3) above.)

 

Investors who do not supply a tax
identification number will be subject to backup withholding in accordance with
IRS regulations.

 

 

Note: The IRS does
not require your consent to any provision of this document other than the
certifications required to avoid backup withholding.

 

	
   

  	
  Madisonville Gas Processing, LP

  
	
   

  	
   

  
	
   

  	
  By: Madisonville GP, LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Robert
  J.Clark

  Manager

  

 

“PARTY B”

 

9

 

	
   

  	
  JPMORGAN CHASE BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					

 

“ESCROW
AGENT”

 

10

 

ARTICLE XXVIII.Exhibit A

 

ARTICLE XXIX.Disbursement
Instructions

 

 

To:                              Colette
L. Potier, JPMorgan Chase Bank

 

From:               Redwood Energy
Production, L.P.

 Madisonville
Gas Processing, LP

 

 

Date:                                
  , 200 

 

In accordance with
Section 4 of our Escrow Agreement made and entered into as of July      ,
2005, please disburse the Deposit as follows:

 

 

	
   

  	
  Redwood Energy
  Production, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  [wire
  transfer instructions]

  
	
   

  	
   

  	
   

  
	
   

  	
  $              

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Madisonville Gas Processing, LP

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [wire
  transfer instructions]

  
	
   

  	
   

  	
   

  
	
   

  	
  $              

  
				

 

These
disbursement instructions may be executed in one or more counterparts and
shall be effective upon receipt by the Escrow Agent of a counterpart executed
by each of Redwood Energy Production, L.P. and Madisonville Gas Processing, LP.

 

	
   

  	
   

  	
  Redwood
  Energy Production, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By: Redwood Energy Company, its

  
	
   

  	
   

  
	
   

  	
   

  	
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Madisonville Gas Processing, LP

  
	
   

  	
   

  
	
   

  	
  By: Madisonville GP, LLC, its General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
						

 

Exhibit A Page -1-

 

 

Schedule I

Fees

for

Escrow
Agent Services

 

	
  New Account Acceptance Fee

  	
  $           

  
	
  Payable upon
  Account Opening

  	
   

  
	
   

  	
   

  
	
  Minimum Administrative Fee

  	
  $            

  
	
  Payable Upon
  Account Opening and in Advance

  	
   

  
	
  each year in
  which we act as Escrow Agent

  	
   

  

 

ACTIVITY FEES:

 

Disbursements

 

	
  Per Check

  	
   

  	
  $

  
	
  Per Wire
  U.S.

  	
   

  	
  $

  
	
  International

  	
   

  	
  $

  

 

Receipts

 

	
  Per Deposit

  	
   

  	
  $

  

 

Activity
fees will not be assessed for any month in which fewer than three transactions
occur.

 

Investments

	
  Per directed buy/sell

  	
   

  	
  $

  

The Investments fee will be waived if
JPMorgan’s Cash Escrow sweep product or another JPMorgan Chase money market
fund is the selected investment.

 

	
  LEGAL EXPENSES:

  	
   

  	
  At Cost

  

There will be no legal expense for JPMorgan Chase if our standard form escrow
agreement is employed without substantive amendments.

 

Schedule I Page -1-

 

A New Account Acceptance Fee will be charged for the Bank’s review of
the Escrow Agreement along with any related account documentation. A one (1) year
Minimum Administrative Fee will be assessed for any account which is funded. The
account will be invoiced in the month in which the account is opened and
annually thereafter. Payment of the invoice is due 30 days following receipt.

 

The Administrative Fee will cover a maximum of ten (10) annual
administrative hours for the Bank’s standard Escrow services including account
setup, safekeeping of assets, investment of funds, collection of income and
other receipts, preparation of statements comprising account activity and asset
listing, and distribution of assets in accordance with the specific terms of
the Escrow Agreement.

 

Extraordinary Services and Out-of Pocket
Expenses:

 

Any additional services beyond our standard services as specified
above, such as annual administrative activities in excess of ten (10) hours
and all reasonable out-of-pocket expenses including attorney’s fees will be
considered extraordinary services for which related costs, transaction charges,
and additional fees will be billed at the Bank’s standard rate.

 

Modification of Fees:

 

Circumstances may arise necessitating a change in the foregoing
fee schedule. The Bank will attempt at all times, however, to maintain the fees
at a level which is fair and reasonable in relation to the responsibilities
assumed and the duties performed.

 

Disclosure & Assumptions:

 

•                  The escrow deposit shall be continuously invested in one of
the following:  JPMorgan’s Cash Escrow
product, which will pay a return at the daily 30-Day LIBOR rate less 50 basis
points; or another JPMorgan Chase money market fund. The Minimum Administrative
Fee would include a supplemental charge of 50 basis points on the escrow
deposit amount if another investment option were chosen.

•                  The
account will be invoiced in the month in which the account is opened and
annually thereafter.

•                  Payment
of the invoice is due 30 days following receipt.

•                  To
help the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions to obtain, verify,
and record information that identifies each person who opens an account. When
you open an account, we will ask for information that will allow us to identify
you.

 

Schedule I Page -2-

 

WIRE
INSTRUCTIONS

 

 

	
  Send wire to:

  	
   

  	
  ABA #113000609

  
	
   

  	
  JPMorgan Chase Bank

  
	
   

  	
  600
  Travis Street, Suite 1150

  
	
   

  	
  Houston, Texas 77002

  
	
   

  	
   

  
	
  Credit A/C#:

  	
   

  	
                   

  
	
   

  	
   

  
	
  Credit Name:

  	
   

  	
  Conventional Trust Clearing

  
	
   

  	
   

  
	
  For
  Further Credit Name:

  	
  Redwood/Madisonville
  Escrow GP
  #            

  
	
   

  	
   

  
	
  OBI (Details):

  	
  Attention:

  	
  Colette L. Potier x65793

  
					

 

Schedule I Page -3-

 

ARTICLE XXX.Schedule II

 

Telephone
Number(s) for Call-backs and Person(s)

Designated
to Confirm Funds Transfer Instructions

 

 

If to Party A:

Redwood Energy Production, L.P.

 

	
  Name

  	
   

  	
  Telephone Number

  
	
  1. Stuart J. Doshi

  	
   

  	
  (415) 398-8186

  
	
  2. Chris Steinhauser

  	
   

  	
  (415) 398-8186

  
	
   

  	
   

  	
   

  
	
  If to Party B:

  	
   

  	
   

  
	
  Madisonville Gas Processing, LP

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name

  	
   

  	
  Telephone Number

  
	
  1. Nick Aretakis

  	
   

  	
  (303) 626-8285

  
	
  2. Robert J. Clark

  	
   

  	
  (303) 626-8288

  
	
  3. M.D. (Mick) Rafter

  	
   

  	
  (303) 626-8339

  

 

Telephone call-backs shall be made to each of Party A and Party B if
joint instructions are required pursuant to the Escrow Agreement.

 

Schedule II Page -1-

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