Document:

Exhibit
10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”),
is made and entered into on July 20, 2007 but effective as of January 1, 2007
(the “Effective Date”), by and between PINNACLE GAS RESOURCES, INC., a
Delaware corporation (the “Company”), and RONALD T. BARNES (“Executive”),
an individual and a resident of the State of Wyoming.  The Company and Executive may sometimes
hereafter be referred to singularly as a “Party” or collectively as the “Parties.”

W I T N E S S E T H:

WHEREAS, the Company desires to continue to secure the
employment services of Executive subject to the terms and conditions hereafter
set forth; and

WHEREAS, Executive is willing to enter into this
Agreement upon the terms and conditions hereafter set forth;

NOW, THEREFORE, in consideration of Executive’s
employment with the Company, and the premises and mutual covenants contained
herein, the Parties hereto agree as follows.

1.             Employment.  During
the Employment Period (as defined in Section 4), the Company shall employ
Executive, and Executive shall serve, as Chief Financial Officer, Senior Vice
President and Secretary of the Company, and Executive shall have the duties and
responsibilities customarily associated with such offices.  Executive’s principal place of employment
shall be at the main corporate offices of the Company in Sheridan, Wyoming.

2.             Compensation.

(a)           Salary.  The Company shall pay to Executive during the
Employment Period a base salary of $200,000 per year, as adjusted pursuant to
the subsequent provisions of this paragraph (the “Base Salary”).  The Base Salary shall be payable in
accordance with the Company’s normal payroll schedule and procedures for its
executives.  The Base Salary shall be
subject to annual review and may be increased (but not decreased without
Executive’s express consent) by the Compensation Committee (the “Compensation
Committee”) of the Board of Directors of the Company (the “Board”)
or the Board at any time.  Nothing
contained herein shall preclude the payment of any other compensation to
Executive at any time.

(b)           Bonus.  In addition to the Base Salary described in Section
2(a), for each annual period commencing on the Effective Date until the
last day of the Employment Period (each such annual period, a “Bonus Period”),
Executive shall be entitled to a bonus of up to 0.75 times Executive’s Base
Salary paid during each such Bonus Period (the “Bonus”); provided, however, that the amount of any such Bonus shall
be in the sole discretion of the Compensation Committee or the Board taking
into account the performance of Executive and the Company, and that any such
Bonus may be paid in cash or through grants of stock options or restricted
stock or any combination of cash and grants of stock options or restricted
stock as determined by the Compensation Committee

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or the Board in its discretion.  In the event that the Employment Period ends
before the end of a Bonus Period, pursuant to the provisions of Section 6,
Executive shall be entitled to a pro rata portion of the Bonus for such Bonus
Period (based on the number of days in which he was employed during the year
divided by 365) as determined by the Compensation Committee or the Board in its
sole discretion, unless Executive was terminated for Cause (as defined in Section
6(g)) or terminated his employment through a Voluntary Termination (as
defined in Section 6(g)), in which event he shall not be entitled to any
Bonus for such Bonus Period.  Executive
acknowledges that the criteria for Executive’s Bonus to be earned for each
Bonus Period shall be set by the Compensation Committee or the Board, and
Executive shall have the opportunity to meet with and discuss such criteria
with the Compensation Committee or Board prior to the finalization of such
criteria.  The Company shall pay Executive
any Bonus amount within 30 days after the Compensation Committee or Board’s
final determination regarding whether to pay, and the amount of, any Bonus; provided that in the event of a termination, any pro rata
Bonus amount shall be paid in accordance with Section 6.  Notwithstanding any other provision of this Section
2(b), any final determination by the Compensation Committee or Board with
respect to a Bonus Period shall be made, and any Bonus payable with respect to
a Bonus Period shall be paid in a lump sum as specified above, not later than
21⁄2 months after the end of the Bonus Period for which the Bonus is paid.  In all matters related to the determination
of the Bonus earned by Executive (including the determination of a pro rata
amount), the good faith determination of the Compensation Committee or Board
shall be deemed conclusive.

(c)           Equity
Compensation.  Executive
shall be eligible from time to time to receive grants of stock options,
restricted stock and other long-term equity incentive compensation, as
commensurate with his executive position, under the terms of the Company’s
equity compensation plan.  As an
inducement to Executive to enter into this Agreement, Executive will be granted
20,000 shares of restricted common stock of the Company pursuant to and under
the Amended and Restated Stock Incentive Plan of the Company, dated February
16, 2006, as soon as practicable following the execution hereof, such shares of
restricted common stock to vest in thirds on the third, fourth and fifth
anniversaries of the date of grant.

3.             Duties and
Responsibilities of Executive. 
During the Employment Period, Executive shall devote his services
full-time to the business of the Company and perform the duties and
responsibilities assigned to him under the Company’s Bylaws or by the Board to
the best of his ability and with reasonable diligence.  In determining Executive’s duties and
responsibilities, the Board shall not assign duties and responsibilities to
Executive that are inappropriate for or inconsistent with his position as Chief
Financial Officer, Senior Vice President and Secretary.  This Section 3 shall not be construed
as preventing Executive from (a) engaging in reasonable volunteer services
for charitable, educational or civic organizations or (b) investing his
assets in the operation of businesses in such a manner that will not require a
material amount of his time or services; provided, however,
that no such other activity shall conflict with Executive’s loyalties and
duties to the Company.  Executive shall
at all times use his best efforts to comply in good faith with federal and
state laws applicable to Executive’s actions on behalf of the Company and its
Affiliates (as defined in Section 6(g)). 
Executive 

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understands and agrees
that he may be required to travel from time to time for purposes of the Company’s
business.

4.             Term of
Employment.  Executive’s
initial term of employment with the Company under this Agreement shall be for
the period from the Effective Date through December 31, 2007 (the “Initial
Term of Employment”).  The employment
term hereunder shall be automatically extended for an additional one-year
period on January 1, 2008, and on each January 1 thereafter, unless Notice of
Termination (pursuant to Section 7) is given by either the Company or
Executive to the other Party at least 60 days prior to the end of the Initial
Term of Employment, or any one-year extension thereof, as applicable, that this
Agreement will not be renewed for an additional one-year period after the end
of the then-current period.  The Company
and Executive shall each have the right to give Notice of Termination at will,
with or without cause, at any time, subject, however, to the terms and
conditions of this Agreement regarding the rights and duties of the Parties
upon termination of Executive’s employment. 
The Initial Term of Employment, and any one-year extension of Executive’s
employment hereunder, shall each be referred to herein as a “Term of
Employment.”  The period from the
Effective Date through the date of Executive’s termination of employment for
whatever reason shall be referred to herein as the “Employment Period.”

5.             Benefits.  Subject to the terms and conditions of this
Agreement, during the Employment Period, Executive shall be entitled to all of
the following:

(a)           Reimbursement
of Business Expenses.  The
Company shall pay or reimburse Executive for all reasonable travel,
entertainment and other expenses paid or incurred by Executive in the
performance of his duties hereunder in accordance with the Company’s policies
in effect from time to time, including, without limitation, expenses incurred
in connection with membership in industry and civic organizations approved by
the Compensation Committee or the Board. 
The Company shall also provide Executive with suitable office space,
including staff support.  Without
limiting the foregoing, in the event that Executive is required to relocate his
primary residence at the request of the Board, then the Company shall pay for
the reasonable moving expenses incurred to move Executive and his immediate
family to such new location. In no event shall reimbursement of an eligible
expense hereunder be made later than the last day of Executive’s taxable year
following the taxable year in which the expense was incurred.  In addition, the right to reimbursement
hereunder may not be exchanged for any other benefit.

(b)           Other
Employee Benefits. 
Executive shall be entitled to participate in, and shall participate in
coverage under, any employee benefit plans or programs of the Company to the
same extent as available to any other employees of the Company under the terms
of such plans or programs.

(c)           Paid
Vacation and Holidays. 
Executive shall be entitled to accrue paid vacation days in each
calendar year determined in accordance with the Company’s PTO policy or plans
for employees of the Company as in effect from time to time.  Executive shall also be entitled to all paid
holidays and personal days given by the Company to any of its other employees.

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6.             Rights and Payments upon Termination.  The Executive’s right to compensation and
benefits for periods after the date on which his employment with the Company
terminates for whatever reason (the “Termination Date”) shall be
determined in accordance with this Section 6 as follows:

(a)           Minimum
Payments.  Executive (or
in the event of Executive’s death, the Designated Beneficiary (as defined in Section
6(g)) shall be entitled to the following minimum payments under this Section
6(a) in addition to any other payments or benefits to which he is entitled
under the terms of any employee benefit plan or program or Sections 6(b),
6(c), or 6(d):

(1)           payment of his accrued
but unpaid Base Salary through the Termination Date;

(2)           payment for his unused
paid vacation days which have accrued through the Termination Date; and

(3)           reimbursement of his
reasonable business expenses that were incurred but not reimbursed as of the
Termination Date.

The Company shall make payments pursuant to clauses
(1) and (2) above within 15 days following the Termination Date in a cash lump
sum, less any applicable withholding. 
Business expenses shall be reimbursed in accordance with the Company’s
normal procedures; provided, however,
in no event shall reimbursement of an eligible expense hereunder be made later
than the last day of Executive’s taxable year following the taxable year in
which the expense was incurred.  In
addition, the right to reimbursement hereunder may not be exchanged for any
other benefit.

(b)           Termination
without Cause or for Good Reason.  In the event that during the Term of
Employment (i) Executive’s employment is terminated by the Company for any
reason (including by reason of his Disability (as defined in Section 6(g))
except due to his death or due to an event or circumstance constituting Cause
(as defined in Section 6(g)) or (ii) Executive terminates his employment
hereunder for Good Reason (as defined in Section 6(g)), the following
severance benefits shall be provided to Executive or, in the event of his death
before receiving all such benefits, to his Designated Beneficiary following his
death:

(1)           payment of an amount
equal to the sum of (x) 1.0 times his then-current Base Salary and (y) 18.0
times the monthly health savings account contribution last made by the Company
for the benefit of Executive (and his dependents, if applicable) prior to the
Termination Date;

(2)           payment of an amount
equal to the product of (x) any Bonus that would have been paid to Executive
with respect to the year in which such termination occurred had such termination
not occurred and (y) a fraction, the numerator of which is the number of days
in the year through the Termination Date and the denominator of which is 365;

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(3)           following the
Termination Date, the Company shall provide continued group health coverage (by
payment of premiums and any applicable federal and state withholding taxes
based on the premiums paid) to Executive and his covered spouse and dependents
under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”),
provided that Executive makes timely
election of such coverage.  The Company
shall continue to provide such COBRA coverage at no cost to Executive until (i)
Executive becomes eligible for group health coverage under another employer’s
plan with comparable benefits, (ii) the date COBRA coverage terminates or (iii)
for 18 months, whichever period of time is less.  Upon his acceptance of employment with
another employer, Executive shall be obligated to notify the Company of such
acceptance of employment and to provide to the Company a copy of the summary
plan description of the new employer’s group health plan and a schedule showing
the required employee contributions for participation in the plan.  In the event of any change to the provisions
of the Company’s group health plan following the Termination Date, Executive
and his spouse and dependents, as applicable, shall be treated consistently
with the then-current officers of the Company (or its successor) with respect
to the terms and conditions of coverage and other substantive provisions of the
plan.  Executive and his spouse hereby
agree to acquire and maintain any and all coverage to which either or both of
them are entitled at any time during their lives under the Medicare program or any
similar program of the United States or any agency thereof (“Medicare”).  The coverage described in the immediately
preceding sentence includes, without limitation, Parts A and B of Medicare and
any additional parts of Medicare available to them at any time.  Executive and his spouse further agree to pay
any required premiums for Medicare coverage from their personal funds;

(4)           notwithstanding
anything to the contrary in any option agreement, restricted stock grant
agreement or other equity compensation grant agreement to which Executive is party,
the immediate vesting and/or exercisability of each and every stock option,
share of restricted stock and other equity compensation award held by Executive
immediately prior to the Termination Date; and

(5)           notwithstanding
anything to the contrary in any option agreement to which Executive is party,
each stock option held by Executive immediately prior to the Termination Date
that is accelerated pursuant to clause (4) above shall be exercisable within 90
days following the Termination Date, but not later than the earliest date upon
which the stock option expires by its original terms or the 10th anniversary of
the original date of grant of the stock option; provided,
however, that in the case of a termination due to Executive’s
Disability, each such stock option shall be exercisable within one year of the
Termination Date, but not later than the earliest date upon which the stock
option expires by its original terms or the 10th anniversary of the original
date of grant of the stock option; provided, further, that any such period shall be extended by the
number of days during which Executive is unable to exercise such stock options
pursuant to the terms of any “lock-up” or similar agreement to which Executive
is a party, but not later than the earliest date upon which the stock option
expires by its original 

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terms or the 10th
anniversary of the original date of grant of the stock option; and provided, further, that
notwithstanding anything to the contrary in any option agreement to which
Executive is a party, in any such case, the exercise price may be paid through
(A) surrender of shares of common stock of the Company held by Executive for at
least six months prior to exercise (or such longer or shorter period as may be
required to avoid a charge to earnings for financial accounting purposes),
where such shares of common stock have a fair market value at the time of
exercise at least equal to the aggregate exercise price of such stock options,
(B) retention of shares of common stock of the Company which would otherwise be
delivered upon exercise of such stock options having a fair market value at the
time of exercise at least equal to the aggregate exercise price of such stock
options or (C) any other method of exercise approved by the Compensation Committee.

The Company shall make payment pursuant to clause (1)
above within 60 days following the Termination Date in a cash lump sum, less
any applicable withholding.  The Company
shall make payment pursuant to clause (2) above as soon as practicable
following the end of the fiscal year during which such termination occurred,
but in no event later than 21⁄2 months after the end of such fiscal year, in a
cash lump sum, less any applicable withholding. 
The Company shall make payment of premiums described in clause (3) above
not later than the due date of the premiums and shall make payment of
withholding taxes based on the payment of premiums not later than the
applicable due date for payment of the applicable withholding taxes.  Without limiting the scope of the preceding
provisions of this Section 6(b), to the extent that at any time
prescribed under Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”), and regulations or other regulatory guidance issued
thereunder, Executive is a key employee, as defined in Code Section 416(i)
without regard to paragraph 5 thereof, except to the extent permitted under
Code Section 409A and regulations or other regulatory guidance issued
thereunder, no distribution or payment that is subject to Code Section 409A
shall be made under this Agreement on account of Executive’s separation from
service, as defined in Code Section 409A and the regulations or other
regulatory guidance issued thereunder, with the Company (at any time when
Executive is deemed under Code Section 409A and regulations or other regulatory
guidance issued thereunder to be a specified employee, as defined in Code
Section 409A and regulations or other regulatory guidance issued thereunder,
and any stock of the Company is publicly traded on an established securities
market or otherwise) before the date that is the first day of the month that
occurs six months after the date of Executive’s separation from service (or, if
earlier, the date of death of Executive or any other date permitted under Code Section
409A and  regulations or other regulatory
guidance issued thereunder).

(c)           Termination
Following a Change of Control. 
In the event that during the Term of Employment (i) Executive’s
employment is terminated by the Company for any reason (including by reason of
his Disability) except due to his death or due to an event or circumstance
constituting Cause or (ii) Executive terminates his employment hereunder for
Good Reason or due to his Retirement (as defined in Section 6(g)), in
each case within one year following a Change of Control (as defined in Section
6(g)), the

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following severance
benefits shall be provided to Executive or, in the event of his death before
receiving all such benefits, to his Designated Beneficiary following his death:

(1)           payment of an amount
equal to 1.5 times his then-current Base Salary; and

(2)           the payments and
benefits described in Sections 6(b)(2) through (b)(5) above.

Such payments shall be made within the time periods
and subject to the conditions and limitations described in the last paragraph
of Section 6(b).

(d)           Termination
Due to Death.  In the
event that during the Term of Employment, Executive’s employment is terminated
by reason of his death, the following benefits shall be provided to his
Designated Beneficiary:

(1)           payment of an amount
equal to 50% of Executive’s Base Salary at the time of his death;

(2)           payment of an amount
equal to the product of (x) any Bonus that would have been paid to Executive
with respect to the year in which such death occurred had Executive’s
employment not been terminated due to his death and (y) a fraction, the
numerator of which is the number of days in the year through the Termination
Date and the denominator of which is 365;

(3)           following the
Termination Date, the Company shall provide continued group health coverage (by
payment of premiums and any applicable federal and state withholding taxes
based on the premiums paid) to Executive’s covered spouse and dependents under
COBRA at no cost to Executive’s spouse and dependents for a period of 18 months
from the Termination Date;

(4)           notwithstanding
anything to the contrary in any option agreement, restricted stock grant
agreement or other equity compensation grant agreement to which Executive was
party, the immediate vesting and/or exercisability of each and every stock
option, share of restricted stock and other equity compensation award held by
Executive immediately prior to his death; and

(5)           notwithstanding
anything to the contrary in any option agreement to which Executive was party,
each stock option held by Executive immediately prior to his death that is
accelerated pursuant to clause (4) above shall be exercisable within one year
of the Termination Date, but not later than the earliest date upon which the
stock option expires by its original terms or the 10th anniversary of the
original date of grant of the stock option.

The Company shall make
payment pursuant to clause (1) above within 60 days following the Termination
Date in a cash lump sum, less any applicable withholding.  The Company shall make payment pursuant to
clause (2) above as soon as practicable

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following the end of the
fiscal year during which such termination occurred, but in no event later than
21⁄2 months after the end of such fiscal year, in a cash lump sum, less any
applicable withholding.  The Company
shall make payment of premiums described in clause (3) above not later than the
due date of the premiums and shall make payment of withholding taxes based on
the payment of premiums not later than the applicable due date for payment of
the applicable withholding taxes.

(e)           Termination
for Cause or without Good Reason.  In the event that (i) Executive
voluntarily resigns or otherwise voluntarily terminates his own employment
without Good Reason (excluding a voluntary termination due to Retirement
following a Change of Control as described in Section 6(c)) or (ii)
Executive’s employment is terminated by the Company for Cause, then in either
such event, the Company shall have no obligations except to make the minimum
payments described under Section 6(a) and offer COBRA coverage (as
required by applicable law).

(f)            Notwithstanding any
provision of this Agreement to the contrary, in order to receive any payments
and benefits pursuant to this Section 6 (other than payments and
benefits described in Sections 6(a) and 6(e)), Executive must
first execute an appropriate release agreement (on a form provided by the
Company) whereby Executive agrees to release and waive, in return for such
payments and benefits, any claims that he may have against the Company
including, without limitation, for unlawful discrimination (such as under Title
VII of the Civil Rights Act); provided, however,
that such release agreement shall not release any claim by Executive for any
payment or benefit that is due under this Agreement, any indemnification
agreement between the Company and Executive, or any employee benefit plan until
such claim, payment or benefit has been fully paid.  Should the Company fail to receive an
executed release described in the immediately preceding sentence prior to the
latest date on which a payment under Sections 6(b) through 6(d)
must be made under the terms of this Agreement, such payment shall be forfeited
in full.  The payments and benefits
provided under this Agreement shall supersede and replace any severance
payments under any severance pay plan that the Company or any Affiliate
maintains for employees generally.

(g)           Definitions.

(1)           “Affiliate”
means any entity in which the Company has a 50% or greater capital, profits or
voting interest.

(2)           “Cause”
means any of the following:

(A)          Executive’s conviction
of, plea of nolo contendere to, or receipt of
deferred adjudication with respect to a felony crime;

(B)           a violation by
Executive of federal or state securities laws;

(C)           Executive’s commission,
in the good faith judgment of the Board, of an act of sexual or other unlawful
harassment or moral turpitude;

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(D)          a breach by Executive of
a fiduciary duty owed to the Company;

(E)           a breach by Executive
of any of the provisions of Sections 10 through 16 of this
Agreement;

(F)           the commission by
Executive of a material act of fraud upon the Company or any Affiliate;

(G)           the material
misappropriation by Executive of funds or property of the Company or any
Affiliate;

(H)          the knowing engagement by
Executive, without the written approval of the Board or the Compensation
Committee, in any material activity which directly competes with the business
of the Company or any Affiliate, or which the Board or the Compensation
Committee determines in good faith would directly result in a material injury
to the business or reputation of the Company or any Affiliate; or

(I)            (i) a material breach
by Executive of any material provision of this Agreement (other than the
provisions of Sections 10 through 16 hereof) or (ii) the willful,
material and repeated nonperformance of Executive’s duties to the Company or
any Affiliate (other than by reason of Executive’s illness or incapacity), but
in each case only after written notice from the Board or the Compensation
Committee of such material breach or nonperformance (which notice specifically
identifies the manner in which, and sets forth specific facts, circumstances
and examples which the Board or Compensation Committee believes demonstrate
that, Executive has breached the Agreement or not substantially performed his
duties) and Executive’s continued, willful failure to cure such breach or
nonperformance within the time period set by the Board or the Compensation
Committee, but in no event less than 30 business days after his receipt of such
notice; provided that for purposes of this
clause (H), no act or failure to act on Executive’s part shall be deemed “willful”
unless it is done or omitted by Executive in the absence of a reasonable belief
that such action or omission was in the best interest of the Company.  Assuming disclosure of the pertinent facts,
any action or omission by Executive after consultation with, and in accordance
with the advice of, legal counsel reasonably acceptable to the Company shall be
deemed to have been taken in good faith and not to be “willful” under this
Agreement.

(4)           “Change of
Control” of the Company means the occurrence of any one of the
following events:

(A)          the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange

 9
 

Act of 1934, as amended
(the “Exchange Act”)) of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of 50% or more of either (i) the then
outstanding shares of common stock of the Company (the “Outstanding Company
Stock”) or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not
constitute a Change of Control: (w) any acquisition directly from the Company
or any subsidiary thereof (a “Subsidiary”), (x) any acquisition by the
Company or any Subsidiary, or by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary, (y) any acquisition
by any corporation pursuant to a reorganization, merger, consolidation or
similar business combination involving the Company (a “Merger”), which for
purposes of this definition of Change of Control shall be subject to paragraph
(B) (below) or (z) the current ownership or any subsequent acquisitions of
Outstanding Company Stock or Outstanding Company Voting Securities by Credit
Suisse First Boston and/or any of its affiliates, including without limitation
any of the “CSFB Parties” (as defined in the Amended and Restated
Securityholders Agreement dated as of February 16, 2006, by and among the
Company and the stockholders of the Company party thereto) and their
affiliates;

(B)           approval by the
stockholders of the Company of a Merger, unless immediately following such
Merger, substantially all of the holders of the Outstanding Company Voting
Securities immediately prior to Merger beneficially own, directly or
indirectly, more than 50% of the common stock of the corporation resulting from
such Merger (or its parent corporation) in substantially the same proportions
as their ownership of Outstanding Company Voting Securities immediately prior
to such Merger; or

(C)           the sale or other
disposition of all or substantially all of the assets of the Company, unless
immediately following such sale or other disposition, substantially all of the
holders of the Outstanding Company Voting Securities immediately prior to the
consummation of such sale or other disposition beneficially own, directly or
indirectly, more than 50% of the common stock of the corporation acquiring such
assets in substantially the same proportions as their ownership of Outstanding
Company Voting Securities immediately prior to the consummation of such sale or
disposition.

(5)           “Disability”
means that Executive is entitled to receive long-term disability (“LTD”)
income benefits under the LTD plan or policy maintained by the Company that
covers Executive.  If, for any reason,
Executive is not covered under such LTD plan or policy, then “Disability” shall
mean a “permanent and total disability” as defined in Section 22(e)(3) of the
Code and the Treasury

 10
 

regulations
thereunder.  Evidence of such Disability
shall be certified by a physician acceptable to both the Company and
Executive.  In the event that the Parties
are not able to agree on the choice of a physician, each shall select one
physician who, in turn, shall select a third physician to render such
certification.  All costs relating to the
determination of whether Executive has incurred a Disability shall be paid by
the Company.  Executive agrees to submit
to any examinations that are reasonably required by the attending physician or
other healthcare service providers to determine whether he has a Disability.

(7)           “Designated
Beneficiary” means the Executive’s surviving spouse, if any.  If there is no such surviving spouse at the
time of Executive’s death, then the Designated Beneficiary hereunder shall be
Executive’s estate.

(8)           “Good Reason”
means the occurrence of any of the following events, except in connection with
termination of the Executive’s employment for Cause or Disability, without
Executive’s express written consent:

(A)          A substantial change in
Executive’s duties that constitutes a material breach by the Company of the
terms of this Agreement, or the assignment to Executive of duties or
responsibilities which are materially inconsistent with the duties or
responsibilities previously exercised by Executive and, as a result, constitute
a material breach by the Company of the terms of this Agreement, or a material
diminution or reduction in the duties and responsibilities previously exercised
by Executive, excluding in each case an isolated, insubstantial and inadvertent
action, not taken in bad faith, which is remedied by the Company promptly upon
receipt of notice thereof given by Executive;

(B)           Any material breach of
this Agreement (not already covered in Section 6(g)(8)(A), (C) or (D) by
the Company or any successor;

(C)           Any purported
termination by the Company of Executive’s employment otherwise than as
expressly permitted by this Agreement resulting in a material breach by the
Company of the terms of this Agreement; or

(D)          Any failure by the
Company to obtain an assumption of this Agreement by its successor in interest
pursuant to the terms hereof.

Notwithstanding
the foregoing definition of Good Reason, Executive cannot terminate his
employment for Good Reason unless he (x) first notifies the Board or the
Compensation Committee in writing of the occurrence of an event which Executive
believes constitutes a Good Reason event under clauses (A), (B) or (C)
above within 90 days from the date of such event, and (y) provides the
Company with at least 30 days to cure, correct or mitigate such Good
Reason event such that either (1) such event does not constitute a Good
Reason event

 11

hereunder or
(2) Employee agrees in writing that after or in light of any such cure,
correction, mitigation or other accommodation made by the Company, such event
does not constitute a Good Reason event hereunder.

(9)           “Retirement”
means the termination of Executive’s employment for normal retirement at or
after attaining age 65 provided that,
on the date of his retirement, Executive has accrued at least five years of
active service with the Company.

(10)         “Voluntary
Termination” means the termination of Executive’s employment by
Executive other than for Good Reason, death or Disability or due to his
Retirement following a Change of Control.

7.             Notice of Termination. 
Any termination of employment under this Agreement by the Company or the
Executive shall be communicated by Notice of Termination to the other Party
hereto.  For purposes of this Agreement,
the term “Notice of Termination” means a written notice which indicates
the specific termination provision of this Agreement relied upon and sets forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive’s employment under the provision so indicated.

8.             Non-Renewal in Connection with a Change of Control.  In the event that Executive’s employment is
terminated, within six months preceding or following a Change of Control, due
to a non-renewal of this Agreement by the Company (pursuant to Section 4)
for any reason other than for Cause, Executive shall be entitled to the
severance benefits described in Section 6(c).

9.             No Mitigation. 
Subject to Section 6(b)(3),
Executive shall not be required to mitigate the amount of any payment provided
for under this Agreement by seeking other employment or in any other manner.

10.           Confidential Information.

(a)           Access
to Confidential Information. 
Prior to the Effective Date the Company has given to Executive, and
after the Effective Date and on an ongoing basis the Company will give to
Executive, access to secret and confidential information, knowledge and data
relating to the Company, its Affiliates and its and their business, including,
without limitation, technical and business information, whether patentable or
not, which is of a confidential, trade secret or proprietary character, and
which was or is either developed by Executive alone, with others or by others;
lists or identities of customers or prospective customers; contract terms;
bidding information and strategies; acquisition prospects; pricing methods or
information; computer software; computer software methods and documentation;
hardware; the methods of operation of the Company and its Affiliates, including
the procedures, forms and techniques used by the Company and its Affiliates in
its and their business; oil and gas reserve data regarding the Company’s properties
or prospects; and other information or documents that the Company requires to
be maintained in confidence for the Company’s continued business success
(collectively, “Confidential Information”), which the Executive did not
have

 12
 

access to or knowledge of before such access or
knowledge was given by, or acquired in connection with work on behalf of, the
Company.

(b)           Agreement
Not to Use or Disclose Confidential Information.  In exchange for the Company’s promises to
provide Executive with Confidential Information, Executive shall not during the
period of Executive’s employment with the Company, or at any time thereafter,
disclose to anyone, including, without limitation, any person, firm,
corporation, or other entity, publish or use for any purpose, any Confidential
Information, except as properly required in the ordinary course of the Company’s
business or as directed and authorized by the Company.

(c)           Agreement
to Refrain from Defamatory Statements.  Executive shall not, during the period of
Executive’s employment with the Company, or at any time thereafter, make or
publish any oral or written statements about the Company, any of its Affiliates
or any of their respective directors, officers, employees, agents, investors or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or confidential information about the Company, its Affiliates or any of
their respective business affairs, directors, officers, employees, agents
investors or representatives; or that constitute an intrusion into the
seclusion or private lives of the directors, officers, employees, agents,
investors or representatives of the Company or its Affiliates; or that give
rise to unreasonable publicity about the private lives of such directors,
officers, employees, agents, investors or representatives; or that place such
directors, officers, employees, agents, investors or representatives in a false
light before the public; or that constitute a misappropriation of the name or
likeness of such directors, officers, employees, agents, investors or
representatives.  A violation or
threatened violation of this Section 10(d) may be enjoined.

11.           Duty to Return Company Documents and Property.  Upon the termination of Executive’s
employment with the Company for any reason, Executive shall immediately return
and deliver to the Company any and all papers, books, records, documents,
memoranda, manuals, e-mail, electronic or magnetic recordings or data,
including all copies thereof, belonging to the Company or relating to its
business, in Executive’s possession, whether prepared by Executive or
others.  If at any time following the
termination of Executive’s employment, Executive determines that he has any
Confidential Information in his possession or control, Executive shall
immediately return to the Company all such Confidential Information, including
all copies and portions thereof.

12.           Best Efforts and Disclosure. 
Executive agrees that, while he is employed with the Company, he shall
devote his full business time and attention to the Company’s business and shall
use his best efforts to promote its success. 
Further, Executive shall promptly disclose to the Company all ideas,
inventions, computer programs, and discoveries, whether or not patentable or
copyrightable, that he may conceive, produce, develop or make, alone or with
others, during the Employment Period, whether or not during working hours, and
that directly or indirectly:

(a)           relate to matters
within the scope, field, duties or responsibility of Executive’s employment
with the Company;

 13
 

(b)           are based on any
knowledge of the actual or anticipated business or interests of the Company; or

(c)           are aided by the use of
time, materials, facilities or information of the Company.

Executive assigns to the Company, without further
compensation, any and all rights, titles and interest in all such ideas,
inventions, computer programs and discoveries in all countries of the
world.  Executive recognizes that all
ideas, inventions, computer programs and discoveries of the type described
above, conceived, produced, developed or made by Executive alone or with others
within six months after termination of his employment with the Company
(voluntary or otherwise) are likely to have been conceived, produced, developed
or made in significant part either while employed by the Company or as a direct
result of knowledge Executive had of proprietary information of the
Company.  Accordingly, Executive agrees
that such ideas, inventions, computer programs or discoveries shall be presumed
to have been conceived, produced, developed or made during his employment with
the Company, unless and until the contrary is clearly established by the
Executive.

13.           Inventions and Other Works. 
Any and all writings, computer software, inventions, improvements,
processes, procedures or techniques which Executive may conceive, produce,
develop, discover or make, alone or with others, at any time during the
Employment Period, whether at the request or upon the suggestion of the Company
or otherwise, which relate to or are useful in connection with any business now
or hereafter carried on or contemplated by the Company, including developments
or expansions of its present fields of operations, shall be the sole and
exclusive property of the Company. 
Executive agrees to take any and all actions necessary or appropriate so
that the Company can prepare and present applications for copyrights or patents
therefor, and can secure such copyrights or patents wherever possible, as well
as reissue renewals, and extensions thereof, and can obtain the record title to
such copyrights or patents.  Executive
shall not be entitled to any additional or special compensation or
reimbursement regarding any such writings, computer software, inventions,
improvements, processes, procedures or techniques.  Executive acknowledges that the Company from
time to time may have agreements with other persons or entities which impose
obligations or restrictions on the Company regarding inventions made during the
course of work thereunder or regarding the confidential nature of such
work.  Executive agrees to be bound by
all such obligations and restrictions and to take all action necessary to
comply with or fulfill such obligations of or restrictions on the Company.

14.           Non-Solicitation Restriction.  Executive hereby agrees that in order to
protect the Company’s Confidential Information, and in consideration of the
receipt of 20,000 shares of restricted common stock of the Company pursuant to
Section 2(c), the adequacy and sufficiency of which are hereby acknowledged, in
the event of the termination of Executive’s employment for whatever reason,
whether by Executive or the Company, it is necessary to enter into the
following restrictive covenant, which is ancillary to the enforceable promises
between the Company and Executive in Sections 10 through 13, 15
and 16 of this Agreement. 
Executive hereby covenants and agrees that he will not, directly or
indirectly, either individually or as a principal, partner, agent, consultant,
contractor, employee, director or officer of any entity, or in any other manner
or capacity whatsoever, except on behalf on behalf of the Company, solicit

 14
 

business, or attempt to
solicit business, in products or services competitive with any products or
services sold (or offered for sale) by the Company or any Affiliate, from the
Company’s or such Affiliate’s customers or prospective customers, or those
individuals or entities with whom the Company or any Affiliate did any business
during the two-year period ending on the Termination Date.  Subject to Section 17, the
prohibitions set forth in this Section 14 shall remain in effect for a
period of two years following the Termination Date.

15.           Non-Competition Restrictions.

(a)           Executive hereby agrees
that in order to protect the Company’s Confidential Information, and in
consideration of the receipt of 20,000 shares of restricted common stock of the
Company pursuant to Section 2(c), the adequacy and sufficiency of which are
hereby acknowledged, in the event of the termination of Executive’s employment
for whatever reason, whether by Executive or the Company, it is necessary to
enter into the following restrictive covenant, which is ancillary to the
enforceable promises between the Company and Executive in Sections 10
through 14 and 16 of this Agreement.  Executive hereby covenants and agrees that he
will not, during the Employment Period and for a period of one year following
the Termination Date, directly or indirectly, either individually or as a principal,
partner, agent, consultant, contractor, employee, director or officer of any
entity, or in any other manner or capacity whatsoever, in any county in the
United States or any province in Canada in which, or otherwise within 150 miles
of where, the Company or any of its Affiliates are conducting any business as
of the Termination Date or have conducted any business during the one-year
period ending on the Termination Date (the “Territory”), including, but
not limited to, the business of acquiring, exploring for and developing natural
gas reserves, owning and operating natural gas gathering pipelines or systems,
and treating and disposing of water produced during coal bed methane production
operations:

(1)           engage in any business competitive with
the business conducted by the Company or its Affiliates;

(2)           render advice or services to, or
otherwise assist, any other person, association, or entity who is engaged,
directly or indirectly, in any business competitive with the business conducted
by the Company or its Affiliates;

(3)           solicit business, or attempt to solicit
business, within the Territory, in products or services competitive with any
products or services sold (or offered for sale) by the Company or any
Affiliate, from the Company’s or such Affiliate’s customers or prospective
customers, or those individuals or entities with whom the Company or any
Affiliate did any business during the two-year period ending on the Termination
Date; or

(4)           testify as an expert witness in matters
related to the Company’s business for an adverse party to the Company in
litigation; provided that nothing contained herein
shall interfere with Executive’s duty to testify as a witness if required by
law;

 15
 

provided,
however, that this Section 15 shall not prohibit or be
construed to prohibit Executive from owning less than 2% of any class of stock
or other security of an entity which is publicly traded on a national
securities exchange or in a recognized over-the-counter market, even if such
entity or its affiliates are engaged in competition with the Company or any of
its Affiliates; and provided, further,
that this Section 15 shall not prohibit or be construed to prohibit
Executive from owning an interest in properties outside of Wyoming, Montana,
Colorado, North Dakota and Utah (x) listed in Schedule I attached hereto
or (y) if acquired after the date on which this Agreement was executed, with
respect to which Executive first informed the Board of the opportunity to
acquire such interest and the Board expressly declined to cause the Company to
acquire such interest.

(b)           Executive understands
that the foregoing restrictions may limit Executive’s ability to engage in
certain businesses during the period provided for above, but acknowledges that
he will receive sufficiently high remuneration and other benefits under this
Agreement to justify such restriction. 
Executive acknowledges that money damages may not be a sufficient remedy
for any breach of this Section 15 by Executive, and that the Company
shall be entitled to enforce the provisions of this Section 15 by terminating
any payments then owing to Executive under this Agreement and/or to seek
specific performance and injunctive relief as remedies for such breach.  Such remedies shall not be deemed the
exclusive remedies for a breach of this Section 15, but shall be in
addition to all other remedies available at law or in equity to the Company,
including, without limitation, the recovery of damages from Executive and
Executive’s agents involved in such breach. 
Executive further agrees to waive any requirement for the Company to
secure or post any bond in connection with such remedies.

(c)           It is expressly
understood and agreed that the Company and Executive consider the restrictions
contained in this Section 15 to be reasonable and necessary to protect
the Confidential Information and other proprietary information of the
Company.  Nevertheless, if any of the
aforesaid restrictions are found by any court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the Parties intend for such restriction to be modified by such
court so as to be reasonable and enforceable and, as so modified by such court,
to be fully enforced.

(d)           The covenants in this Section
15 are severable and separate, and the unenforceability of any specific
covenant shall not affect the provisions of any other covenant.  Moreover, in the event that any court having
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in this Section 15 are unreasonable, then it is the intention
of the Parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and this Agreement shall thereby be reformed.

(e)           Each covenant in this Section
15 shall be construed as an agreement independent of any other provision in
this Agreement, and the existence of any claim or cause of action of Executive
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of each such covenant.  It is specifically agreed that the period
following the Termination Date

 16
 

during which the
agreements and covenants of Executive made in this Section 15 shall be
effective shall be calculated by excluding from such calculation any time
during which Executive is in material violation of any provision of this Section
15.

16.           No-Recruitment Restriction. 
In consideration of the receipt of 20,000 shares of restricted common
stock of the Company pursuant to Section 2(c), the adequacy and sufficiency of which
are hereby acknowledged, Executive agrees that during the Employment Period,
and for a period of two years following the Termination Date, directly or
indirectly, either individually or as a principal, partner, agent, consultant,
contractor, employee, director or officer of any entity, or in any other manner
or capacity whatsoever, solicit, influence or seek to solicit or influence any
employee of the Company or any Affiliate to terminate, reduce or otherwise
adversely affect his or her employment with the Company or such Affiliate.

17.           Tolling.  If Executive
violates any of the restrictions contained in Sections 10 through 16
of this Agreement, the restrictive period will be suspended and will not run in
favor of Executive from the time of the commencement of any violation until the
time when the Executive cures the violation to the Company’s reasonable
satisfaction.

18.           Reformation.  If a
court or arbitrator concludes that any time period or the geographic area
specified in any restrictive covenant in Sections 10 through 16
of this Agreement is unenforceable, then the time period will be reduced by the
number of months, or the geographic area will be reduced by the elimination of
such unenforceable portion, or both, so that the restrictions may be enforced
in the geographic area and for the time period to the fullest extent permitted
by law.

19.           No Previous Restrictive Agreements.  Executive represents that, except as
disclosed in writing to the Company, he is not bound by the terms of any
agreement with any previous employer or other party to (a) refrain from using
or disclosing any trade secret or confidential or proprietary information in
the course of Executive’s employment by the Company or (b) refrain from
competing, directly or indirectly, with the business of such previous employer
or any other party.  Executive further
represents that his performance of all the terms of this Agreement and his work
duties for the Company does not, and will not, breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by Executive in
confidence or in trust prior to Executive’s employment with the Company, and
that Executive will not disclose to the Company or induce the Company to use
any confidential or proprietary information or material belonging to any
previous employer or others.

20.           Conflicts of Interest. 
In keeping with his fiduciary duties to the Company, Executive hereby
agrees that he shall not become involved in any conflict of interest, or upon
discovery any such conflict of interest allow it to continue, at any time
during the Employment Period.

21.           Remedies.  Executive
acknowledges that the restrictions contained Sections 10 through 20
of this Agreement, in view of the nature of the Company’s business, are
reasonable and necessary to protect the Company’s legitimate business
interests, and that any violation of this Agreement would result in irreparable
injury to the Company.  In the event of a
breach or a threatened breach by Executive of any provision of Sections 10
through 20 of this Agreement,

 17
 

the Company shall be
entitled to a temporary restraining order and injunctive relief restraining
Executive from the commission of any breach, and to recover the Company’s
attorneys’ fees, costs and expenses related to such breach or threatened
breach.  Nothing contained in this
Agreement shall be construed as prohibiting the Company from pursuing any other
remedies available to it for any such breach or threatened breach, including,
without limitation, the recovery of money damages, attorneys’ fees, and
costs.  The covenants and agreements in Sections
10 through 20 shall each be construed as independent of any other
provisions in this Agreement, and the existence of any claim or cause of action
by Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
such covenants and agreements.

22.           Withholding; Right of Offset.  The Company may withhold and deduct from any
benefits and payments made or to be made pursuant to this Agreement (a) all
federal, state, local and other taxes that may be required to be withheld
pursuant to any law or governmental regulation or ruling, (b) all other normal
employee deductions made with respect to Company’s employees generally, and (c)
any advances made to Executive and owed to Company; provided,
however, that any amounts described in clause (b) or (c) above shall
not be offset against any payments due under this Agreement that constitute
nonqualified deferred compensation that is subject to Code Section 409A, except
as expressly permitted under regulations or other regulatory authority issued
under Code Section 409A.

23.           Nonalienation.  The
right to receive payments under this Agreement shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge or
encumbrances by Executive or his dependents or beneficiaries, or to any other
person who is or may become entitled to receive such payments hereunder.  The right to receive payments hereunder shall
not be subject to or liable for the debts, contracts, liabilities, engagements
or torts of any person who is or may become entitled to receive such payments,
nor may such payments be subject to attachment or seizure by any creditor of
such person under any circumstances, and any such attempted attachment or
seizure shall be void and of no force and effect.

24.           Incompetent or Minor Payees. 
Should the Board or the Compensation Committee determine, in its
discretion, that any person to whom any payment is payable under this Agreement
has been determined to be legally incompetent or is a minor, any payment due
hereunder, notwithstanding any other provision of this Agreement to the
contrary, may be made in any one or more of the following ways:  (a) directly to such minor or person; (b) to
the legal guardian or other duly appointed personal representative of such
minor or person; (c) to a trust for the benefit of such minor or person; or (d)
to such adult or adults as have, in the good faith knowledge of the Board or
the Compensation Committee, assumed custody and support of such minor or
person; and any payment so made shall constitute full and complete discharge of
any liability under this Agreement in respect to the amount paid.

25.           Indemnification.  The
Company has entered into an Indemnification Agreement, effective as if May 5,
2006, with the Executive.  Such agreement
shall remain in full force and effect and not be superseded by this Agreement.

26.           Severability.  It is
the desire of the Parties that this Agreement be enforced to the maximum extent
permitted by law, and should any provision contained herein be held

 18
 

unenforceable by a court
of competent jurisdiction or arbitrator (pursuant to Section 29), the
Parties hereby agree and consent that such provision shall be reformed to
create a valid and enforceable provision to the maximum extent permitted by
law; provided, however, that if such
provision cannot be reformed, it shall be deemed ineffective and deleted
herefrom without affecting any other provision of this Agreement.  This Agreement should be construed by
limiting and reducing it only to the minimum extent necessary to be enforceable
under then applicable law.

27.           Title and Headings; Construction.  Titles and headings to Sections hereof are
for the purpose of reference only and shall in no way limit, define or
otherwise affect the provisions hereof. 
The words “herein,” “hereof,” “hereunder” and other compounds of the
word “here” shall refer to the entire Agreement and not to any particular
provision hereof.

28.           Choice of Law.  THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF WYOMING, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.

29.           Arbitration.

(a)           Subject to Section
21, any dispute or other controversy (a “Dispute”) arising under or
in connection with this Agreement, whether in contract, in tort, statutory or
otherwise, shall be finally and solely resolved by binding arbitration in the
City of Sheridan, Wyoming, administered by the American Arbitration Association
(the “AAA”) in accordance with the Employment Dispute Resolution Rules
of the AAA as effective on the Effective Date, this Section 29 and, to
the maximum extent applicable, the Federal Arbitration Act.  Such arbitration shall be conducted by a
single arbitrator (the “Arbitrator”). 
If the Parties cannot agree on the choice of an Arbitrator within 30
days after the Dispute has been filed with the AAA, then the Arbitrator shall
be selected pursuant to the Employment Dispute Resolution Rules of the
AAA.  The Arbitrator may proceed to an
award notwithstanding the failure of any Party to participate in such
proceedings.  The prevailing Party in the
arbitration proceeding may be entitled to an award of reasonable attorneys’
fees incurred in connection with the arbitration in such amount, if any, as
determined by the Arbitrator in his discretion. 
The costs of the arbitration shall be borne equally by the Parties
unless otherwise determined by the Arbitrator in the award.

(b)           To the maximum extent
practicable, an arbitration proceeding hereunder shall be concluded within 180
days of the filing of the Dispute with the AAA. 
The Arbitrator shall be empowered to impose sanctions and to take such
other actions as the Arbitrator deems necessary to the same extent a judge
could impose sanctions or take such other actions pursuant to the Federal Rules
of Civil Procedure and applicable law. 
Each Party agrees to keep all Disputes and arbitration proceedings
strictly confidential except for disclosure of information required by
applicable law which cannot be waived.

(c)           Subject to Section
21, the award of the Arbitrator shall be (i) the sole and exclusive remedy
of the Parties and (ii) final and binding on the Parties except for any appeals
provided for by the Federal Arbitration Act. 
Only the district courts of Wyoming

 19
 

shall have jurisdiction
to enter a judgment upon any award rendered by the Arbitrator, and the Parties
hereby consent to the personal jurisdiction of such courts and waive any
objection that such forum is inconvenient. 
This Section 29 shall not preclude (x) the Parties from agreeing
at any time to pursue non-binding mediation of the Dispute prior to arbitration
hereunder or (y) the Company from pursuing the remedies available under Section
21 in any court of competent jurisdiction.

30.           Binding Effect; Third Party Beneficiaries.  This Agreement shall be binding upon and
inure to the benefit of the Parties hereto, and to their respective heirs,
executors, beneficiaries, personal representatives, successors and permitted
assigns hereunder, but otherwise this Agreement shall not be for the benefit of
any third parties.

31.           Entire Agreement; Amendment and Termination.  This Agreement contains the entire agreement
of the Parties hereto with respect to the matters covered herein; moreover,
this Agreement supersedes all prior and contemporaneous agreements and
understandings, oral or written, between the Parties concerning the subject
matter hereof.  This Agreement may be
amended, waived or terminated only by a written instrument that is identified
as an amendment or termination hereof and that is executed on behalf of both
Parties.

32.           Survival of Certain Provisions.  Wherever appropriate to the intention of the
Parties, the respective rights and obligations of the Parties hereunder shall
survive any termination or expiration of this Agreement.

33.           Waiver of Breach.  No
waiver by either Party hereto of a breach of any provision of this Agreement by
the other Party, or of compliance with any condition or provision of this
Agreement to be performed by such other Party, will operate or be construed as
a waiver of any subsequent breach by such other Party of any similar or
dissimilar provision or condition at the same or any subsequent time.  The failure of either Party hereto to take
any action by reason of any breach will not deprive such Party of the right to
take action at any time while such breach continues.

34.           Successors and Assigns. 
This Agreement shall be binding upon and inure to the benefit of the
Company and its Affiliates (and its and their successors), as well as upon any
person or entity acquiring, whether by merger, consolidation, purchase of
assets, dissolution or otherwise, all or substantially all of the capital stock,
business and/or assets of the Company (or its successor) regardless of whether
the Company is the surviving or resulting corporation.  The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation, dissolution or
otherwise) to all or substantially all of the capital stock, business and/or
assets of the Company to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession had occurred; provided,
however, that no such assumption shall relieve the Company of its
duties or obligations hereunder unless otherwise agreed, in writing, by
Executive.

This Agreement shall inure to the benefit of and be
enforceable by Executive’s personal or legal representatives, executors,
administrators, successors, and heirs. 
In the event of the death of Executive while any amount is payable
hereunder including, without limitation, pursuant to Sections 2, 5
or 6, all such amounts shall be paid to the Designated Beneficiary.

 20
 

35.           Notices.  Any notice
provided for in this Agreement shall be in writing and shall be deemed to have
been duly received (a) when delivered in person, (b) on the first business day
after it is sent by air express overnight courier services, or (c) on the third
business day following deposit in the United States mail, registered or
certified mail, return receipt requested, postage prepaid and addressed, to the
following address, as applicable:

(1)           If
to the Company, addressed to:

Pinnacle Gas Resources, Inc.

Attn:  Chairman of the Board

1 E. Alger Street

Sheridan, WY 82801

(2)           If to Executive,
addressed to the address set forth below his name on the execution page hereof;

or to such other address as either Party may have
furnished to the other Party in writing in accordance with this Section 35.

36.           Executive
Acknowledgment.  Executive
acknowledges that (a) he is knowledgeable and sophisticated as to business
matters, including the subject matter of this Agreement, (b) he has read this
Agreement and understands its terms and conditions, (c) he has had ample
opportunity to discuss this Agreement with his legal counsel prior to
execution, and (d) no strict rules of construction shall apply for or against
the drafter or any other Party. 
Executive represents that he is free to enter into this Agreement
including, without limitation, that he is not subject to any covenant not to
compete that would conflict with his duties under this Agreement.

37.           Other
Agreements.  Subject to Section
31, all other agreements or arrangements between Executive and the Company
as in effect on the Effective Date hereof shall remain in full force and effect
to the extent not in conflict with the terms and provisions of this Agreement.

38.           Counterparts.  This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.  Each counterpart may consist
of a copy hereof containing multiple signature pages, each signed by one Party
hereto, but together signed by both Parties.

[Signature page follows.]

 21
 

IN WITNESS WHEREOF, Executive has executed this
Agreement, and the Company has caused this Agreement to be executed in its name
and on its behalf by its duly authorized officer, to be effective as of the
Effective Date. 

	
  

  	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature:

  	
    /s/ Ronald T. Barnes

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Ronald
  T. Barnes

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
  07-20-2007

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Peter G.
  Schoonmaker

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
  CEO and President

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Peter G. Schoonmaker

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
  07-20-2007

  	
   

  

 

 22Exhibit
10.3

Pinnacle
Gas Resources, Inc.

MANAGEMENT
INCENTIVE PLAN

I.              BACKGROUND AND
OBJECTIVES

The
overall executive compensation strategy of Pinnacle Gas Resources, Inc. (“Pinnacle”
or “the Company”) is to compensate all executives in a manner that rewards them
based on the Company’s strategic, operating and financial success and to create
value for the Company’s stockholders. 
Pinnacle provides key executives with targeted total compensation
opportunities that generally are competitive with median total compensation
opportunities at energy companies of similar size.  The two primary elements of the Pinnacle
compensation program are base salary and the Management Incentive Plan (the “MIP”).  Pinnacle base salaries generally are
competitive with industry standards and are used to reward an executive’s
sustained job performance over time.  All
awards under the MIP are paid at the sole discretion of the Pinnacle Board of
Directors and may consist of cash or awards under the Company’s Amended and
Restated Stock Incentive Plan (the “Stock Plan”). Pinnacle believes that stock
awards align the interests of Pinnacle’s executives with those of Pinnacle’s
stockholders.

The MIP
provides an annual incentive compensation opportunity for key executives tied
to the achievement of critical strategic, operating and financial goals of
Pinnacle.  The following document
describes MIP eligibility, the size of the potential award opportunities,
performance measurement, the form and timing of award payments, and the
administrative guidelines and definitions for ongoing MIP management.

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II.            ELIGIBILITY

MIP
award eligibility will be proposed by the Chief Executive Officer (the “CEO”)
and approved by the Compensation Committee of the Pinnacle Board of Directors
(the “Compensation Committee”) at the beginning of each performance/award
period.  Generally, MIP participants will
be selected from the key executives who 
are primarily responsible for the annual growth and success of Pinnacle,
i.e., the senior officers and managers of the Company.  The number of eligible MIP participants may
expand or contract in future years, as key executive employment agreements are
amended and as the Company’s executive compensation strategy and programs are
further refined.

III.           AWARD OPPORTUNITIES

At the
beginning of each fiscal year, each MIP participant will be assigned goals and
objectives that can increase or decrease the amounts awarded under the MIP,
based on the actual achievement (or lack thereof) of such goals and objectives.    MIP goals and objectives may be re-defined
from time to time, as modifications are made in Pinnacle’s executive
compensation strategy.  For purposes of
illustration, MIP goals and objectives may be tied to the following:

·              Annual
net production volume;

·              Daily
net production volume;

·              Proved
reserve additions;

·              Lease
operating expenses;

·              General
and administrative expenses;

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·              Adjusted
EBITDA;

·              Lost
time due to injuries;

·              Investor
relations;

·              Capital
financing;

·              Timely
reporting;

·              Cash
management; and/or

·              Business
development and acquisitions.

Within  2 1⁄2 months after the end of each fiscal year,
each participant’s Base Salary Rate at the end of the fiscal year (just ended)
will be multiplied by the actual MIP award percentage earned to determine the
dollar value of the award for the prior performance cycle.

The
MIP performance goals and objectives will be proposed by the CEO and approved
by the Compensation Committee as soon as possible (but not later than 90 days)
after the beginning of each fiscal year.

Subject
to Section VI(d), MIP awards may include a discretionary component, which will
be based on the Compensation Committee’s subjective evaluation of the degree to
which the executive has mastered the primary duties and responsibilities of
his/her present job.  Any such component
will not qualify as performance based compensation described in Section 162(m)
of the Internal Revenue Code of 1986, as amended (the “Code”), and, as a
result, will be separate from any other component hereunder that is intended to
qualify as performance

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based
compensation described in Section 162(m) of the Code and shall not be a
substitute for any such other component or otherwise increase or decrease any
such other component hereunder.

The
determination of whether an executive has achieved his or her MIP performance
goals and objectives shall exclude extraordinary items, which will be defined
at the sole discretion of the Compensation Committee.  Performance goals and objectives for MIP
awards may be equal to or exceed the goals or targets in the Pinnacle business
plan.  Such goals and objectives may be
adjusted during the year if a major change occurs in the Company’s capital
structure, e.g., an acquisition or merger.

In
addition to the target level of achievement for each goal and objective, the
Compensation Committee and the CEO will jointly establish a range of levels of
achievement for each  goal and objective
as follows:

·              Minimum
Threshold  — The level at or
below which no incentive will be paid;

·              Fair  — The level  at which the MIP adjustment factor will be
0.5X, with “X” equal to the target incentive payment;

·              Target — The level at which the MIP adjustment factor will
be 1X, with “X” equal to the target incentive payment;

·              Good  — The level  at which the MIP adjustment factor will be
1.5X, with “X” equal to the target incentive payment; and

·              Outstanding — The level at or above which the MIP adjustment
factor will be 2X, with “X” equal to the target incentive payment.

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IV.           FORM AND TIMING OF
AWARDS

MIP
award calculations will be finalized within 2 1⁄2 months after fiscal
year-end.  All MIP awards will be paid
annually within 2 1⁄2 months after the end of the fiscal year to which the MIP
award relates, with cash awards to be paid in a lump sum; provided, however,
that the Company will deduct from all MIP awards payable under the MIP any
taxes required to be withheld by the federal or any state or local government.

V.            ADMINISTRATIVE
GUIDELINES AND DEFINITIONS

Once
the Compensation Committee approves MIP participants, award targets and performance
goals and objectives, the CEO and Chief Financial Officer jointly shall
administer the MIP. All administrative decisions made by the CEO shall be final
and binding.

·              Employee
Termination—To receive an award, a participant must be an employee of the
Company on the day the MIP award is paid, unless waived by the Compensation
Committee.

·              New
Hires—Employees must have a minimum of six months of service to be eligible for
an award, unless waived by the CEO.  MIP
awards for new hires are earned on a pro-rata basis, based on their date of
employment.

·              Base
Salary Rate—Base salary for MIP award calculations shall be the annualized base
rate in effect at the end of the applicable performance cycle.

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·              Support
Documentation—The Chief Financial Officer shall be responsible for maintaining
all necessary support documentation regarding performance and award
calculations under the MIP.

VI.           MISCELLANEOUS

(a)           Rights of
Participants.  Nothing in the MIP shall
be construed to:

(i)            Give the participant
any rights whatsoever with respect to any MIP award until such award becomes
vested, nonforfeitable and distributable in accordance with the terms of the
MIP;

(ii)           Limit in any way the
right of the Company to terminate the participant’s employment by the Company
at any time;

(iii)          Give the participant or
any other person any interest in any fund or in any specific asset or assets of
the Company;

(iv)          Give the participant or
any other person any interest or right other than those of any unsecured
general creditor of the Company; or

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(v)           Be evidence of any
agreement or understanding, express or implied, that the Company will employ
the participant in any particular position or at any particular rate of
remuneration.

(b)           Nonalienation of
Benefits.  No right or benefit under the
MIP shall be subject to anticipation, alienation, sale, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same will be void.  No right to interest hereunder shall in any
manner be liable for or subject to any debts, contracts, liabilities, or torts
of the person entitled to such right or interest.

(c)           Prerequisites to
Benefits.  Neither the participant, nor
any person claiming through the participant, shall have any right or interest
in the MIP, or any MIP award hereunder, unless and until all the terms,
conditions, and provisions of the MIP which affect the participant or such
other person shall have been complied with as specified herein.

(d)           Section 162m
Compliance.  Should any participant in
the MIP be or become a “covered employee” as such term is defined in section
1.162-27(c)(2) of the Treasury Regulations or other regulatory guidance issued
under section 162(m) of the Code, then notwithstanding anything herein to the
contrary, with respect to any action taken under the MIP by the Compensation
Committee in respect of any such covered employee whose annual incentive
compensation under the MIP is intended to qualify as performance based
compensation described in section 162(m) of the Code and the regulations

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promulgated pursuant
thereto, the Compensation Committee shall be comprised solely of two or more “outside
directors” of the Company as such term is defined in section 1.162-27(e)(3) of
the Treasury Regulations, the material terms of the MIP shall be disclosed to
and approved by the stockholders of the Company prior to the payment of any MIP
awards and the MIP shall, in all other respects, meet the requirements of
section 162(m) of the Code and the regulations promulgated pursuant thereto,
prior to any payments hereunder.  In
furtherance of the above provisions of this Section VII(d), the Compensation
Committee shall bifurcate the MIP so as to restrict, limit or condition the use
or application of any provision of the MIP to participants who are covered
employees without so restricting, limiting or conditioning the MIP with respect
to other participants, unless the Compensation Committee, in its sole
discretion, determines to apply such restrictions, limitations or conditions to
participants who are not covered employees.

(e)           Bonus Arrangement.  The MIP is intended to be a bonus program
that is designed to provide an on-going, pecuniary incentive for the
participant to produce the participant’s best efforts to increase the value of
the Company.  The MIP is not intended to
provide retirement income or to defer the receipt of payments hereunder to the
termination of the participant’s covered employment or beyond.  The MIP is strictly an incentive bonus
program (as described in U.S. Department of Labor Regulation Section
2510.3-2(c) or any successor thereto), and not a pension or welfare benefit
plan that is subject to the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”).  All interpretations
and

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                determinations
hereunder shall be made on a basis consistent with the status of the MIP as a
bonus program.

(f)            Amendment.  The MIP may be modified or terminated by the
Company at any time; provided, however, that no such modification or
termination shall affect any right to any MIP awards that are vested at the
time of such modification or termination except with the written consent of the
affected participant.

(g)           Powers of the
Company.  The existence of outstanding
and unpaid contingent interests under the MIP shall not affect in any way the
right or power of the Company to make or authorize any adjustments,
recapitalization, reorganization or other changes in the Company’s capital
structure or in its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, common or preferred stock, if applicable, or
the dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other act or proceeding, whether
of a similar character or otherwise.

(h)           Waiver.  A waiver by the Company, or the participant,
of any of the terms or conditions contained in the MIP shall not be construed
as a general waiver by such party of any other terms or conditions contained in
the MIP.

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(i)            Separability.  If any provision or provisions of the MIP
shall be found to be invalid, illegal, or unenforceable in any respect, such
invalid, illegal, or unenforceable provision shall be severed from the MIP and
shall not affect the validity, legality and enforceability of the remainder of
the MIP.

(j)            Gender, Tense and
Headings.  Whenever the context requires,
words of the masculine gender used herein shall include the feminine and
neuter, and words used in singular shall include plural.  Headings of Articles and Sections, as used
herein, are inserted solely for convenience and reference and constitute no
part of the MIP.

(k)           Governing Law.  The MIP shall be subject to and governed by
the laws of the State of Wyoming and, to the extent applicable, the laws of the
United States.

(l)            Notice.  Any notice required or permitted to be given
under the MIP shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to the Compensation Committee, the Company,
participant or beneficiary, as applicable, at the address last furnished by
such person.  Such notice shall be deemed
given as of the date of delivery or, if delivery is made by mail, as of the
dates shown on the postmark on the receipts for registration or certification.

(m)          Effective Date.  The MIP is effective as of January 1, 2007
and any amendment of the MIP shall be effective as of the date provided
therein.

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