Document:

Module and Segment Reference

    Exhibit
      10.6

     

     

     

    
      
        
        

      

      
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      OPTION
        TO ACQUIRE INTERESTS

       

      IN
        OIL AND GAS PROPERTIES

       

      This
        agreement
        dated
        for reference May 1, 2004, is between Brek Petroleum, Inc., a Nevada corporation
        (“Brek”), and Griffin Asset Management, LLC, a Delaware limited liability
        company (“Griffin”). Brek and Griffin are collectively referred to as the
        Parties and individually as a Party.

       

      RECITALS

       

      A. On
        July
        16, 2002, Brek and others entered into a purchase agreement with Gasco Energy,
        Inc. Pannonian Energy Inc. and San Joachin Oil & Gas Ltd. (together, “
Gasco”) under which Brek acquired interests in certain oil and gas leases,
        wells, related equipment, and other lands and participatory rights in Wyoming,
        Utah and California identified in the agreement (the “Gasco Agreement”). Brek
        has 25% of whatever interest Gasco had on July 16, 2002. Gasco is usually
        but
        not always the operator. Gasco and Brek are entitled to a share of production
        net of various royalties, overriding royalties and other burdens (the “Burdens”)
        that must be paid before any production is distributed to Brek and Gasco
        (the
“Net Interest”).

       

      B. Griffin
        wishes to acquire an interest in production from wells that Brek is entitled
        to
        drill under the Gasco Agreement on leases in Wyoming and Utah by contributing
        to
        the drilling costs as described by Gasco or another operator in its written
        notices and authorizations for expenditure (“AFEs”) or by Brek in an AFE if Brek
        initiates a drilling program.

       

      Now
        therefore,
        in
        consideration of the foregoing recitals and the following respective
        representations, warranties, covenants and agreements, and other good and
        valuable consideration, the receipt and sufficiency of which the Parties
        acknowledge, the Parties agree as follows:

       

      AGREEMENT

       

      ARTICLE I  

      Offer
        to Acquire

       

      Section 1.1   The
        Interest.
        Brek
        grants Griffin the right to acquire an interest in production by contributing
        cash for the drilling of wells on the Wyoming and Utah properties that it
        owns
        together with Gasco or has a right to acquire as described in the Gasco
        Agreement (the “Properties”). This right applies to drilling programs for a
        total of one hundred wells to be drilled on the Properties for which Brek
        receives a notice and AFE from Gasco or another joint owner, or for which
        Brek
        initiates a drilling program, after the day on which both Parties have signed
        this agreement (the “Effective Date”). The right is subject to the following
        terms and conditions:

       

      a.  Griffin
        may contribute 50% of the amount of Brek’s portion of the AFE in return for 50%
        of Brek’s working interest in each well and 50% of Brek’s Net Interest minus a
        7% royalty (the “Royalty”) payable to Brek (“Griffin’s Net Interest”). Griffin’s
        Net Interest cannot be less than 75% of 50% of Brek’s Net Interest. If Griffin’s
        Net Interest is less than 75% of 50% of Brek’s Net Interest, then the Royalty
        must be adjusted: i.e, if the sum of the Burdens is more than 18%, then the
        Royalty is reduced so that the sum of the two is equal to 25% and Griffin’s Net
        Interest is equal to 75% of 50% of Brek’s Net Interest; if the sum of the
        burdens and the Royalty is less than 25%, then Brek is entitled to the entire
        Royalty, and Griffin’s net interest is more than 75%.1

       

      

        1.For
          example: if Brek’s share of production equals $100,000 and the Burdens equal
          12.5%, then Brek’s Royalty is equal to 7% and Griffin’s Net Interest is equal to
          80.5% of $50,000; if the Burdens equal 20%, then Brek’s Royalty is equal to 5%
          and Griffin’s Net Interest is equal to 75% of $50,000.

         

      

      
        
          
          

        

        
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      b.  
        Gasco,
        or another party with the right to initiate drilling, delivers to Brek notices
        that it intends to drill in accordance with the terms of the joint operating
        agreement that governs the drill site (“JOA”). These notices are written or, if
        a drill rig is on the site, telephoned. Brek has 30 days from its receipt
        of a
        written notice and 48 hours (excluding Saturday, Sunday and legal holidays)
        from
        a telephoned notice in which to notify Gasco that it consents to the drilling.
        Brek will deliver the notice to Griffin on the next business day following
        the
        day that it receives the notice. Griffin will inform Brek within twenty-one
        days
        if it elects to contribute, or within 36 hours of the telephoned notice.
        Griffin
        is liable for its portion of all costs of the drilling program in accordance
        with the terms of the governing JOA as of the date on which it notifies Brek
        that it intends to contribute to the drilling program. 

       

      c.  The
        operator delivers to Brek invoices for drilling in accordance with the terms
        of
        the governing JOA. Brek will deliver each invoice to Griffin on the next
        business day following its receipt with an invoice for its contribution.
        Griffin
        will pay its contribution directly to the operator within the time required
        by
        the JOA and deliver confirmation to Brek that it has paid its contribution.
        If
        Griffin fails to pay the invoiced contribution as required, then it is deemed
        to
        have elected to decline to participate and loses its right to contribute
        and
        share in the production of the well.

       

      d.  If
        Brek
        initiates a drilling program then the notice provisions and response times
        of
        the governing JOA apply to AFEs and invoices.

       

      e.  If
        Griffin elects to contribute, Griffin will pay Brek a fee equal to 7.5% of
        the
        amount of Griffin’s contribution to the drilling and completion costs (the
“Fee”) as consideration for the right to contribute and acquire the working
        interests and net share of production. Griffin will pay the Fee when it delivers
        its written consent to Brek.
        The
        amount of the Fee must be adjusted when the well is completed to reflect
        the
        actual costs: if the costs are more than the AFE, then Griffin will pay Brek
        7.5% of the difference; if the costs are less, then Brek will refund 7.5%
        of the
        difference to Griffin.

       

      f.  When
        Griffin has paid its contributions for drilling and completion and the Fee
        to
        Brek, it has earned its working interest and share of production and is subject
        to the terms of the governing JOA. Brek then will inform Gasco (or whoever
        is
        the operator if Gasco is not) of Griffin’s interest with instructions to record
        Griffin’s interest and send Griffin’s net share of production on Griffin’s
        instructions. Nothing in this agreement grants Griffin a right to acquire
        an
        interest in the Properties or a right under the Gasco Agreement.

       

      g.  If
        Griffin fails to contribute its portion of the costs that accrue to its working
        interest in wells, then its entire interest reverts to Brek and Griffin is
        not
        entitled to any further share of production or the return of any costs that
        it
        has contributed.

       

      h.  If
        Griffin elects to contribute to an AFE for drilling a well but does not elect
        to
        contribute to the completion of a well following the drilling, then its entire
        interest reverts to Brek and Brek is entitled to 100% of the working interest
        and the share of production to which Griffin would otherwise be
        entitled.

       

      i.  Griffin’s
        right is not exclusive. If Griffin declines to contribute to a well, then
        Brek
        may invite others to contribute to the drilling of the well that Griffin
        declined. 

       

      Section 1.2   Invited
        Participants.
        Griffin
        may invite others to participate in its contribution and share of production.
        If
        it does, then it must deliver to Brek a notice with the name, address, and
        payment instructions of the invited participant. When Griffin has earned
        its
        interest, Brek will instruct Gasco to make a division order in the favor
        of the
        invited participants. Nothing in this arrangement, however, requires that
        Brek
        or Gasco deal directly with the invited participants or relieves Griffin
        of any
        obligations under this agreement; all dealings are between Griffin and the
        invited participants and Brek is entitled to rely on Griffin’s instructions and
        representations in connection with the invited participants and their
        participation until they have earned their interests, at which point they
        will
        deal directly with the operator under the JOA.

       

      
        
          
          

        

        
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      Section 1.3   Non-consent.
        If Brek
        elects not to participate in a drilling program, then Griffin may contribute
        Brek’s portion to earn Brek’s entire interest and the well is counted as one
        well for the purpose of counting the 100 wells in which Griffin can acquire
        an
        interest under this agreement. If Brek does not participate at Griffin’s
        request, then the well is counted as two wells. In either case, if Griffin
        contributes Brek’s portion of a drilling program, Brek remains entitled to the
        Royalty and the Fee calculated on the whole of Griffin’s participation and
        interest. 

       

      Section 1.4   Conflict
        of Terms.
        Where
        the terms of this agreement and a governing JOA conflict, the terms of this
        agreement prevail unless they cause a Party to breach the JOA, in which case
        the
        terms of the JOA prevail.

       

      Section 1.5   Programs
        Underway.
        The
        Parties acknowledge that Brek received two AFEs from Gasco during the month
        of
        April before the terms of this agreement were finalized for which drilling
        programs are underway. Griffin may contribute to the AFEs. The Parties will
        work
        out the terms of payment for these two wells if Griffin elects to
        contribute.

       

      Section 1.6   Notice
        to Others.
        Brek
        will notify the other parties to a JOA of the terms of this agreement as
        required by the governing JOA. 

       

      Section 1.7  Term.
        This
        agreement and Griffin’s right to acquire the interests described above end when
        Griffin has acquired its interests in 100 wells under this agreement or at
        the
        end of eight years from the date of this agreement, whichever is the
        earlier.

       

      Section 1.8  Force
        Majeure.
        If
        Gasco or Brek is unable to drill on the Properties during the term of this
        agreement because of force majeure (as defined in Article XI of the AAPL
        Form
        610-Model Form Operating Agreement-1982 attached to the Gasco Agreement as
        Exhibit D, a copy of which Griffin acknowledges having received) then Brek
        will
        inform Griffin and Article XI in the exhibited model form operating agreement
        applies.

       

      ARTICLE II  

      Representations
        and Warranties of Brek

       

      Brek
        represents to Griffin as follows:

       

      Section 2.1  Organization
        and Qualification.
        Brek is
        a corporation duly organized, validly existing and in good standing under
        the
        laws of Nevada, and has the requisite corporate power and authority to own
        or
        lease all material property that it purports to own or lease and to carry
        on its
        business as now being conducted. It is duly qualified as a foreign corporation,
        and is in good standing in each jurisdiction where the character of its
        properties owned or held under lease or the nature of its activities makes
        such
        qualification necessary, unless the failure to so qualify would not have
        a
        material adverse effect on its business or financial condition. It is qualified,
        to its Knowledge and where qualification is required, with all applicable
        governmental authorities to own and operate the properties and interests
        which
        are the subject matter of this agreement.

       

      Section 2.2  Authorization
        of Agreement.
        It has
        full right, power and authority to enter into this agreement and to deliver
        the
        interests to Griffin. The execution and delivery of this agreement and the
        performance of the transactions contemplated by it have been duly authorized
        by
        its board of directors. The consummation of the transactions contemplated
        herein
        do not and will not, whether with or without the giving of notice or passage
        of
        time or both, conflict with or constitute a breach of, or default under,
        or
        result in the creation or imposition of any tax, lien, charge or encumbrance
        upon the properties or interests which are the subject matter of this agreement
        pursuant to any contract, indenture, mortgage, deed of trust, loan or credit
        agreement, note, license, lease or other agreement or instrument to which
        it is
        a party or by which it may be bound, or to which any of its property or assets
        is subject, nor will such action result in any violation of the provisions
        of
        its articles of incorporation or bylaws or any applicable treaty, law, statute,
        rule, regulation, judgment, order, writ or decree of any government,
        governmental instrumentality or court, domestic or foreign, having jurisdiction
        over it or any of its properties.

       

      
        
          
          

        

        
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      Section 2.3  Title
        to the Properties.
        Brek
        makes the following representations and warranties regarding the interests
        which
        are the subject matter of this agreement.

       

      a.  No
        Liens.
        To its
        Knowledge it will convey the interests to the Purchasers as required from
        time
        to time free and clear of all liens, restrictions and encumbrances created
        by,
        through or under it or any Affiliate which would have a material adverse
        affect
        upon the value, operation or use of the interests unless they were created
        as a
        result of a drilling program to which Griffin contributed under this agreement.
        As used in this agreement, “Affiliate” means, with respect to a specific person
        or entity, another person or entity that directly, or indirectly through
        one or
        more intermediaries, Controls or is Controlled by or is under common Control
        with the specified person or entity; and “Control,”
and
        its
        correlative forms, means the possession, directly or indirectly, of the power
        to
        direct or cause the direction of the management or policies of a person or
        entity, whether through the ability to exercise voting power, by contract
        or
        otherwise. 

       

      Section 2.4  Absence
        of Further Requirements.
        Except
        for applicable reporting requirements under the Securities Act of 1933, the
        Securities Exchange Act of 1934, or any other applicable legislation, no
        filing
        with, or consent, approval, authorization, order, registration, notification
        or
        decree of any court or governmental authority or agency, domestic or foreign,
        is
        necessary or required for the performance of its obligations hereunder or
        in
        connection with the sale and delivery of the interests hereunder or the
        consummation of the transactions contemplated by this agreement.

       

      Section 2.5  No
        Bankruptcy.
        No
        bankruptcy proceedings are pending, being contemplated by or, to its Knowledge,
        threatened against it.

       

      Section 2.6  No
        Broker Fees.
        It has
        not engaged any broker, finder or investment banker for which Griffin could
        be
        liable for any fees or commissions in connection with the transactions
        contemplated hereby.

       

      Section 2.7  Compliance
        with Law.
        To its
        Knowledge, all of the properties owned or operated by it are so operated
        in
        compliance with applicable laws and regulations (including, without limitation,
        Environmental Laws) in all material respects. With respect to Environmental
        Laws, compliance therewith is deemed to include, without limitation that,
        to its
        Knowledge:

       

      a.  With
        respect to the properties operated by it, it has acquired all material permits,
        licenses and authorization required under any Environmental Laws in order
        to
        conduct its business as it has been historically conducted and such is in
        compliance with all such permits, licenses and authorizations;

       

      b.  With
        respect to the properties operated by it, there has been no material Release
        by
        it or by any other person of any Hazardous Substances, Oils, Pollutants or
        Contaminants or any other wastes produced by, or resulting from, any business,
        commercial, or industrial activities operations, or processes, on, beneath,
        or
        adjacent to any of the properties for which it may be held liable under any
        Environmental Laws; and

       

      c.  There
        exists no written or tangible report, synopsis or summary of any asbestos,
        toxic
        waste or Hazardous Substances, Oils, Pollutants or Contaminants investigation
        made with respect to all or any portion of the properties operated by
        it.

       

      
        
          
          

        

        
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      The
        following
        definitions apply to the foregoing provisions regarding Environmental
        Laws:

       

      i.  “Environmental
        Laws” means all federal, state and local laws, regulations, rules and ordinances
        relating to pollution or protection of the environment, including, without
        limitation, laws relating to Releases or threatened Releases of Hazardous
        Substances, Oils, Pollutants or Contaminants into the indoor or outdoor
        environment (including, without limitation, ambient air, surface water,
        groundwater, land, surface and subsurface strata) or otherwise relating to
        the
        manufacture, processing, distribution, use, treatment, storage, Release,
        transport or handling of Hazardous Substances, Oils, Pollutants or
        Contaminants.

       

      ii.  “Hazardous
        Substances, Oils, Pollutants or Contaminants” means all substances defined as
        such in the National Oil and Hazardous Substances Pollutant Contingency Plan,
        40
        C.F.R. §300.6, or defined as such under any Environmental Laws.

       

      iii.  “Release”
        means any release, spill, emission, discharge, leaking, pumping, injection,
        deposit, disposal, discharge, dispersal, leaching or migration into the indoor
        or outdoor environmental (including, without limitation, ambient air, surface
        water, groundwater and surface or subsurface strata) or into or out of any
        property, including the movement of Hazardous Substances, Oils, Pollutants
        or
        Contaminants through or in the air, soil, surface water, groundwater or arty
        property.

       

      d.  Litigation.
        No
        action, suit, proceeding, claim or investigation by any person, entity,
        administrative agency or governmental body is pending before or, to its
        Knowledge, threatened against it by any governmental authority that impedes
        or
        is likely to impede its ability to consummate the transactions contemplated
        by
        this agreement.

       

      ARTICLE III  

      REPRESENTATIONS
        AND WARRANTIES OF Griffin

       

      Griffin
        hereby represents and warrants to
        the
        Brek as follows:

       

      Section 3.1  Organization
        and Qualification.
        Griffin
        is a limited liability company formed and in good standing under the laws
        of
        Delaware 
        and has
        the power and authority to carry on its business as it applies to this
        agreement. 

       

      Section 3.2  Authorization
        of Agreement.
        It has
        full right, power and authority to enter into this agreement. The execution
        and
        delivery of this agreement and the performance of the transactions contemplated
        hereby have been duly authorized by all necessary corporate or other action.
        The
        consummation of the transactions contemplated herein do not and will not,
        whether with or without the giving of notice or passage of time or both,
        conflict with or constitute a breach of, or default under, or result in the
        creation or imposition of any tax, lien, charge or encumbrance upon pursuant
        to
        any contract, indenture, mortgage, deed of trust, loan or credit agreement,
        note, license, lease or other agreement or instrument to which it is a party
        or
        by which it may be bound, or to which any of its property or assets of it
        is
        subject, nor will such action result in any violation of the provisions of
        its
        articles of incorporation or bylaws or other organizational document, if
        any, or
        any applicable treaty, law, statute, rule, regulation, judgment, order, writ
        or
        decree of any government, governmental instrumentality or court, domestic
        or
        foreign, having jurisdiction over it or any of its properties. This agreement
        has been duly authorized, executed and delivered by it and constitutes a
        legal,
        valid and binding obligation of it, enforceable against it in accordance
        with
        its terms (except as may be limited by bankruptcy, insolvency, moratorium,
        reorganization or similar laws affecting the rights of creditors generally
        and
        the availability of equitable remedies).

       

      Section 3.3  Absence
        of Further Requirements.
        No
        filing with, or consent, approval, authorization, order, registration,
        notification or decree of, any court or governmental authority or agency,
        domestic or foreign, is necessary or required for the performance of its
        obligations hereunder or the consummation of the transactions contemplated
        by
        this agreement.

       

      
        
          
          

        

        
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      Section 3.4  No
        Bankruptcy. No
        bankruptcy proceedings are pending, being contemplated by or, to its Knowledge,
        threatened against it.

       

      Section 3.5  No
        Broker Fees.
        It has
        not engaged any broker, finder or investment banker for which it could be
        liable
        for any fees or commissions in connection with the transactions contemplated
        hereby.

       

      Section 3.6  Litigation.
        No
        action, suit, proceeding, claim or investigation by any person, entity,
        administrative agency or governmental body is pending before or, to its
        Knowledge, threatened against it by any governmental authority that impedes
        or
        is likely to impede its ability to consummate the transactions contemplated
        by
        this agreement.

       

      ARTICLE IV 

      Survival
        of Representations and Warranties and Indemnification

       

      Section 4.1  Survival
        of Representations and Warranties.
        The
        representations and warranties contained in Articles II and III of this
        agreement as well as those contained in this Article shall survive the Effective
        Date and shall not be deemed to merge into any conveying documents executed
        as
        of the Effective Date or subsequently as provided for in this
        agreement.

       

      Section 4.2  Indemnification.
        With
        respect to those warranties and representations of Brek contained in Article
        II
        of this agreement, Brek will hold harmless, indemnify and defend Griffin
        from
        and against all suits, causes of action, proceedings, liabilities, damages,
        penalties, assessments, injuries, fees and costs, including reasonable attorneys
        fees (whether suit is instituted or not) arising from or related to their
        breach
        of such warranties and representations.

       

      ARTICLE V 

      Miscellaneous

       

      Section 5.1  Notices.
        Any
        notice or communication required or permitted hereunder shall be sufficiently
        given if in writing and (i) delivered in person or by overnight delivery
        or
        courier service or (ii) sent by facsimile or electronic transmission (provided
        that any notice given pursuant to clause (ii) is also confirmed by the means
        described in clause (1), as follows:

       

      To
        Brek:

      

      Brek
        Petroleum, Inc.

      Attention:
        Rick Jeffs

      42
        Brook
        Street

      London
        W1K 5DB 

      E-mail: rick@brekenergy.com

      

      R.H.
        Daignault Law Corporation

      1100
        Melville Street, Suite 600

      Vancouver,
        BC, V6E 4A6

      Attention:
        Rene Daignault

      E-mail:
        Rene@rhdlawcorp.com

       

      
        
          
          

        

        
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      To
        Griffin:

       

      Griffin
        Asset Management, LLC

      Attention:
        Shawne Malone

      1529
        S.
        State St. Suite 4L

      Chicago,
        Il 60605

      347-733-2565

      E-mail:
        Shawnepmalone@yahoo.com

      

      Such
        notice or other communication shall be deemed given when so delivered
        personally, or sent by facsimile or electronic transmission (or, if it is
        transmitted during non-business hours at the recipient’s location, at the
        opening of business on the next business day), or, if sent by overnight delivery
        or courier service, when delivered. Griffin will notify Brek concurrently
        by
        email of any notice that it is sending by another means under this
        agreement.

       

      Section 5.2  Knowledge.
        As used
        herein, the term “Knowledge” means (i) with respect to Brek, the actual
        knowledge of officers and employees of them involved in the transactions
        contemplated by this agreement or in the ownership or operation of the
        properties or interests which are the subject matter of this agreement, and
        (ii)
        with respect to a Griffin, the actual knowledge of officers and employees
        of it
        involved in the transactions contemplated by this agreement. “Known” shall have
        a correlative meaning.

       

      Section 5.3  Governing
        Law.
        Except
        as otherwise provided for herein or any exhibit hereto, this agreement and
        the
        legal relations between the Parties shall be governed by and construed in
        accordance with the internal laws of the State of Colorado without taking
        into
        account provisions regarding choice of law.

       

      Section 5.4  Entire
        Agreement.
        This
        agreement constitutes the entire agreement between the Parties with respect
        to
        the matters herein and supersedes all prior agreements and understandings
        between the Parties with respect thereto.

       

      Section 5.5  Amendments
        and Waivers.
        This
        agreement may not be amended except upon a written consent authorized and
        approved by each Party. By an instrument in writing, Griffin may waive
        compliance by the Brek with any term or provisions of this agreement that
        Brek
        was or is obligated to comply with or perform; provided, however, that such
        waiver shall not operate as a waiver of; or estoppel with respect to, any
        other
        or subsequent failure. No failure to exercise and no delay in exercising
        any
        right, remedy or power hereunder shall operate as a waiver thereof, nor shall
        any single or partial exercise of any right, remedy or power hereunder preclude
        any other or further exercise thereof or the exercise of any right, remedy
        or
        power hereunder shall operate as a waiver thereof, nor shall any single or
        partial exercise of any right, remedy or power hereunder preclude any other
        or
        further exercise thereof or the exercise of any other right, remedy or power
        provided herein or by law or in equity. The waiver by any Party of the time
        for
        performance of any act or condition hereunder shall not constitute a waiver
        of
        the act or condition itself.

       

      Section 5.6  Time.
        Time is
        of the essence of this agreement and any amendment to it.

       

      Section 5.7  Severability.
        If any
        provision of this agreement, or the application thereof to any Party, place
        or
        circumstance, shall be held by a court of competent jurisdiction to be invalid,
        unenforceable or void, the remainder of this agreement and such provisions
        as
        applied to other parties, places and circumstances shall remain in full force
        and effect only if, after excluding the portion deemed to be unenforceable,
        the
        remaining terms shall provide for the consummation of the transactions
        contemplated hereby is substantially the same manner as originally set forth
        at
        the later of the date this agreement was executed or last amended.

       

      Section 5.8  Counterparts.
        This
        agreement may be executed in multiple counterparts, each of which shall
        constitute one and the same instrument.

       

      
        
          
          

        

        
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      Section 5.9  Interpretation
        of Agreement.
        The
        article, section and other headings used in this agreement are for reference
        purposes only and shall not constitute a part hereof or affect the meaning
        or
        interpretation of this agreement.

       

      Section 5.10  Expenses.
        Whether
        or not the transactions contemplated by this agreement are consummated, all
        costs and expenses incurred in connection with this agreement and the
        transactions contemplated hereby, will be paid by the Party incurring such
        costs
        and expenses, including but not limited to the cost of legal counsel,
        accountants and any other professionals.

       

      Section 5.11  Specific
        Performance.
        The
        Parties agree that irreparable damage would occur in the event that any of
        the
        provisions of this agreement were not performed in accordance with their
        specific terms or were otherwise breached. It is accordingly agreed that
        the
        Parties shall be entitled to an injunction or injunctions to prevent breaches
        of
        this agreement and to enforce specifically the terms and provisions hereof
        in
        any court of the United States or any state having jurisdiction, this being
        in
        addition to any other remedy to which they are entitled at law or in
        equity.

       

      Section 5.12  No
        Circumvention.
        Griffin
        will not circumvent Brek and deal directly with Gasco in any manner in
        connection with any of Brek’s properties that are subject to the Gasco
        Agreement, whether those properties are the subject of this agreement or
        excluded from it.

       

      Section 5.13  Attorneys’
        Fees.
        If any
        legal action is brought for the enforcement of this agreement or because
        of an
        alleged dispute, breach or default in connection with this agreement, the
        prevailing Party shall be entitled to recover reasonable attorneys’ fees and
        other costs incurred in such action or proceeding, in addition to any other
        relief to which it may he entitled.

       

      Section 5.14  Binding
        Effect.
        This
        agreement is binding upon and inures to the benefit of the Parties and their
        respective successors and permitted assigns.

       

      Section 5.15  Third
        Parties.
        Except
        as otherwise provided herein, this agreement does not benefit or create any
        right or cause of action or remedy of any nature whatsoever in any person
        or
        entity other than the Parties.

       

      Section 5.16  No
        Presumption of Drafting.
        Each
        Party participated in the drafting of this agreement and therefore no
        presumption that either Party or any other drafted it applies in any
        interpretation, construction, or enforcement of this agreement.

       

      In
        witness whereof,
        each
        Party has executed this agreement as of the date written below.

       

      Griffin
        Asset Management, LLC

      a
        Delaware limited liability company

      

      

      By:
        /s/
        Shawne Malone

      Its:
        President

      On:
        June
        1, 2004

      

      ________________________________

      

      Brek
        Petroleum, Inc.,
        a
        Nevada corporation

      

      By:
        /s/
        Richard N. Jeffs

      Its:
        President

      On:
        May
        28, 2004EX 10.7

    Exhibit
      10.7

     

     

     

    
      
        
        

      

      
        Page
          - 76

        
          

        

      

      
        
        

      

    

     

    

      NATURAL
        GAS PURCHASE
        AGREEMENT

      Date:
        December 23, 2004

      

      

      
        	Seller:
                

                BREK
                  PETROLEUM, INC.

                

                1100
                  Melville Street, Suite 600

                Vancouver
                  BC V6E 4A

                Telephone:

                Facsimile:
                  604 664 0672

                E-mail:
                  rick@jeffsco.com

                anne@dacostacorp.com

                Contact:
                  Rick
                  Jeffs

                Anne
                  McFadden

                Tax
                  ID No.: 98-0355707

              	Buyer:
                

                RIVERBEND
                  GAS GATHERING,
                  L.L.C.

                

                14
                  Inverness Drive East, Suite H-236

                Englewood,
                  Colorado 80112

                Telephone:
                  Telephone: (303) 483-0044 

                Facsimile:
                  (303) 483-0011

                E-Mail:
                   mchoury@gascoenergy.com

                Contact:
                  Marl J. Choury

                Tax
                  ID No.: 43-2049794

              

      

      
         

      

      Seller
        owns or controls quantities of natural gas which it desires to sell to Buyer,
        and Buyer desires to purchase quantities of natural gas from Seller, all
        on the
        terms and provisions set forth below. Seller and Buyer therefore agree as
        follows:

      

      1. Seller’s
        Commitment of Natural Gas. Subject
        to the terms of this Agreement and the terms and conditions set forth in
        the
        form of Confirmation Letter attached as Exhibit “A” hereto and as may be
        executed by the parties from time to time, Seller hereby commits to this
        Agreement all of Seller’s natural gas (hereinafter “Gas”) produced and saved
        from the leases and leasehold interests now owned and as described on Exhibit
        “B” and any leases and leasehold interests hereinafter acquired within the Area
        of Mutual Interests depicted on Exhibit “B-1” (hereinafter collectively “the
        Leases”) for a period of fifteen (15) years from the effective date. Thereafter,
        this Agreement and Seller’s commitment of Gas hereunder shall continue
        automatically for consecutive renewal terms of one (1) year until terminated
        by
        either party providing written notice to the other party at least ninety.
        (90)
        days prior to the expiration of the primary term, or any subsequent renewal
        term. Seller covenants and agrees to sell and deliver the same to Buyer at
        the
        points of delivery set forth in the Confirmation Letters to be executed by
        the
        parties without other disposition except as herein otherwise provided. The
        foregoing shall be covenants running with the land and any conveyance,
        assignment, sale or other transfer, including any contribution to the drilling
        and/or exploration effort of another producer, of all or a portion of the
        Leases
        covered by these covenants shall include and be subject thereto. Seller shall
        require any purchaser, assignee or transferee of any portion of Seller’s
        interest in the Leases to ratify this Agreement and to expressly assume and
        agree to the terms hereto to the extent of the portion of the Leases received
        from Seller by that party. Seller agrees to notify Buyer promptly of any
        such
        conveyance, assignment, transfer or contribution.

       

       

      2. Nomination
        Confirmation. Approximately
        ten (10) business days prior to the first day of each production month or
        at a
        time mutually agreed upon by the parties, Seller and Buyer will reach agreement
        on the quantities of natural gas to be purchased and sold during that period
        at
        the points of delivery set forth in the Confirmation Letter. Seller shall
        transmit this “nomination confirmation” via fax and e-mail to
        Buyer.

       

      3. Purchase
        Price. The
        purchase price for sold volumes shall be set forth in the Confirmation Letter(s)
        as executed by and between the parties from time to time. The purchase price,
        however, shall at all times be equal to the amount per MMBtu paid to and
        received by Gasco Energy, Inc. or any of its subsidiaries or affiliates
        (“GASCO”), on all gas sold during same timeframe from said points of delivery
        under such purchase agreements, either with Seller or with third parties
        as may
        be entered into by GASCO from time to time. Said amount shall equal the gross
        sales price of the gas sold minus: (a) a gathering and transportation fee
        of not
        more than $0.23 per MMBtu adjusted as provided herein; (b) fuel, line loss,
        shrinkage and unaccounted for gas not to exceed 6% under normal operating
        conditions; and (c) compression charges in an amount not to exceed $0.07
        per
        MMBtu per stage of compression from the points of delivery to the receipt
        point(s) on the Questar mainline, adjusted as provided herein. The parties
        acknowledge and agree that the deductions authorized under 3.(b) above may
        temporarily exceed 6% due to unavoidable losses resulting from construction,
        maintenance and other necessary and appropriate operations on the gathering
        system. In no event shall the deductions provided for in 3.(b) above exceed
        6%
        for more than 15 consecutive days or 30 days in the aggregate during any
        12
        month period or a maximum of 8%. The gathering fee and compression fee will
        be
        adjusted on an annual basis in proportion to the percentage change in the
        Consumer Price Index for All Urban Consumers (CPI-U) as published by the
        United
        States Department of Labor. The adjustment shall be made effective January
        1 of
        each year beginning January 1, 2006, and shall reflect the percentage change
        in
        the aforesaid Consumer Price Index for All Urban Consumers (CPI-U) as it
        existed
        for January of the immediately preceding year. In no event will the adjustment
        in any year be less than a 2% nor more than a 4% increase over the previous
        year’s fees.

       

      
        
          
          

        

        
          Page
            - 77

          
            

          

        

        
          
          

        

      

       

      4. Additional
        Fees.
        In
        addition, Seller shall pay its proportionate share on a leasehold basis of
        meter
        fees in the amount of $250.00 per month per well for each well up to the
        first
        50 wells connected to Seller’s gas gathering system. For each well over 50
        wells, Seller shall pay its proportionate share of a meter fee of $150.00
        per
        month per well. The metering fee will be adjusted on an annual basis in
        proportion to the percentage change in the Consumer Price Index for All Urban
        Consumers (CPI-U) as it existed for January of the immediately preceding
        year.
        In no event will the adjustment in any year be less than a 2% or more than
        a 4%
        increase over the previous year’s fees. Seller shall pay Buyer $0.03 per MMBtu
        as a marketing fee for the marketing of Seller’s gas and shall reimburse Buyer
        for Seller’s proportionate share of any third party marketing fees incurred by
        Buyer up to $0.05 per MMBtu. The combined total of such marketing fees shall
        not
        exceed $0.08 per MMBtu.

       

      5. Payment.
        Buyer
        shall pay Seller by check, using its best efforts to courier the check to
        Seller
        by the end of fourteen days following the Buyer’s receipt of payment for the
        sale of Seller’s gas. The parties will review this payment provision after six
        months. Any change to this payment provision requires the written consent
        of
        both parties. In the event of any inaccuracy in or dispute as to any billing
        or
        payment, the parties shall cooperate in good faith to resolve such matter
        expeditiously. Buyer shall send a statement to Seller with the check detailing
        the following: (a) total volume (MMBtu) and gallons per Mcf of Seller’s gas
        measured at the points of delivery and total field volume; (b) total fuel
        gas
        quantity and lost and unaccounted for gas quantity attributable to Seller’s sold
        volumes; (c) gas plant products, if any, and the volume of residue gas
        attributable to Seller’s sold volumes. At the request of Seller, or if required
        by law, rule or regulation, Buyer shall withhold from sums otherwise due
        Seller
        hereunder and shall pay all production, severance or similar taxes and all
        royalties, overriding royalties and similar burden payments levied, assessed,
        charged against, or attributable to the natural gas sold hereunder prior
        to
        delivery to Buyer hereunder. Seller shall furnish such assessments, statements,
        invoices, division orders, or other documents as Buyer may reasonably require
        for the purpose of identifying each such payment and the persons entitled
        thereto.

       

      Each
        party shall have the right, at its own expense, and upon reasonable notice
        and
        at reasonable times, to inspect and audit the books and records of the other
        party to the extent necessary to verify the accuracy of any charge, adjustment,
        payment or computation hereunder. In addition, Buyer shall make available
        upon
        request and Seller shall have the right, at its own expense and upon reasonable
        notice and at reasonable times, to inspect and audit the books, records and
        natural gas purchase and sales agreements of GASCO to the extent necessary
        to
        verify the gross sales price and net sales amounts received by GASCO, together
        with all gathering, transportation, compression, and other charges paid by
        Gasco
        for gas transported from the points of delivery common to GASCO and Seller.
        All
        charges and payments shall be conclusively deemed final unless objected to
        in
        writing within twelve months following the month of delivery of the natural
        gas
        which is the subject of such charge or payment.

       

      6. Measurement
        and Title. The
        measurement of natural gas delivered hereunder shall be performed by Buyer
        at
        the inlet of Buyer’s metering facilities located at Seller’s lease line or
        separation point or at such other points of delivery as may be mutually agreed
        upon in writing by the parties from time to time and as set forth in
        Confirmation Letter(s). Title shall pass to Buyer at said points of delivery.
        Seller shall have responsibility for and assume any liability with respect
        to
        natural gas prior to delivery to Buyer at the points of delivery, and Buyer
        shall have responsibility for and assume any liability with respect to natural
        gas after delivery to Buyer at the points of delivery. Seller warrants that
        it
        will have and deliver good and merchantable title to all natural gas sold
        hereunder, tree of all liens, claims, and encumbrances. Buyer, at its expense,
        shall furnish, install, operate, and maintain a suitable orifice meter at
        all
        points of delivery of the gas covered hereby. Each meter installed by Buyer
        shall be a meter acceptable in the industry and each meter shall be installed
        and operated in accordance with the requirements of applicable provisions
        in
        ANSI/API 2530, “Orifice Metering of Natural Gas” (American Gas Association Gas
        Measurement Committee Report No.3) of the Natural Gas Department of the American
        Gas Association as amended from time to time, or by any other method commonly
        used in the industry and mutually acceptable to the parties. In the event
        of any
        question arising as to the accuracy of any meters, the meter or meters shall
        be
        tested upon demand of either party. The expense of any such test shall be
        borne
        by the party demanding same if the meter registration is found to be correct,
        and by Buyer if found to be incorrect Seller may, at its option and sole
        expense, install, maintain, and operate check meters and other equipment
        to
        check Buyer’s meters provided, however, that such check meters and other
        equipment shall not interfere with the operation of any of Buyer’s facilities.
        At least semi--annually, Buyer shall calibrate all meters installed at Seller’s
        points of delivery in accordance with industry standards and make adjustments
        as
        necessary.

       

      7. Indemnification.
        Seller
        shall indemnify Buyer and save it harmless from all losses, costs, and
        liabilities of whatsoever nature (including, without limitation, attorneys
        fees
        and costs) arising out of claims of title, personal injury or death, and
        property damage from natural gas delivered hereunder or charges thereon which
        attach prior to the passage of title to Buyer. Buyer shall indemnify Seller
        and
        save it harmless from all losses, costs, and liabilities of whatsoever nature
        (including, without limitation, attorneys fees and costs) arising out of
        claims
        of title, personal injury or death, and property damage from natural gas
        delivered hereunder or charges thereon which attach after the passage of
        title
        to Buyer. In the event of any claim adverse to Seller’s title, Buyer may, but
        shall not be required to, withhold payment for the natural gas at issue pending
        the resolution of such claim or the posting of security in form and amount
        acceptable to Buyer.

       

      
        
          
          

        

        
          Page
            - 78

          
            

          

        

        
          
          

        

      

       

      8. Force
        Maieure. The
        term
“force majeure” as used in this Agreement shall mean any cause or causes not
        reasonably within the control of the party claiming suspension and which,
        by the
        exercise of reasonable diligence, such party is unable to prevent or overcome.
        Such term shall likewise include, but not be limited to: Acts of God; acts,
        omissions to act and or delays in action of an Indian Tribe or federal, state
        or
        local government or any agency thereof; compliance with rules, regulations
        or
        orders of any governmental authority or any office, department, agency or
        instrumentality thereof; strikes, lockouts or other industrial disturbances;
        acts of the public enemy; wars; blockades; insurrections; riots; epidemics;
        landslides; lightning; earthquake; fires; storms; floods; washouts; winter
        weather, spring thaw or other inclement weather; civil disturbances;
        interruptions by governmental or court orders; present and future valid orders
        of any regulatory body having jurisdiction; explosions; the interruption
        or
        suspension of the receipt or delivery of Gas hereunder due to the inability,
        failure or refusal of any party not a party to this Agreement to receive
        or
        deliver such gas; breakage or accident to, or routine maintenance and repair
        of,
        machinery or lines or pipes, compressors or plants; well blowouts; freezing
        of
        Wells, or lines of pipe, sudden partial or sudden entire failure of gas wells;
        failure to obtain materials and supplies due to governmental regulations;
        or the
        inability of either party to acquire, or the delays on the part of such party
        in
        acquiring at reasonable cost and after the exercise of reasonable diligence,
        materials and supplies; permits and consents, and easements and/or
        rights-of-way.

       

      In
        the
        event either party hereto is rendered, wholly or in part, by force majeure,
        unable to carry out its obligations under this Agreement other than to indemnify
        or to make payments of any amount due hereunder, it is agreed that, upon
        such
        party giving notice and full particulars of such force majeure, in writing
        (which can be effected by facsimile, an e-mail, or other electronic media)
        to
        the other party as soon as possible after the occurrence of the causes relied
        on, then the obligation of the party giving such notice, so far as they are
        affected by such force majeure, shall be suspended during the continuance
        of any
        inability so
        caused,
        but for no longer period, and such cause shall, so far as possible, be remedied
        with all reasonable dispatch; provided, however, that this provision shall
        not
        require the settlement of strikes, lockouts or litigation by acceding to
        the
        demands of the opposing parties when such course is inadvisable in the
        discretion of the party hereto having the difficulty. Notwithstanding the
        foregoing, Buyer’s inability to make payments to Seller for gas that is lost due
        to explosion, breakage or accident of Buyer’s pipelines, compressors or plants
        not reasonably within the control of Buyer or which, by the exercise of
        reasonable diligence, Buyer was unable to prevent or control, shall constitute
        an event of force majeure hereunder.

      

      9. Quality.
        All
        natural gas delivered to Buyer shall meet the quality and pressure
        specifications and requirements of the receiving pipeline. Seller shall be
        solely responsible for, and shall indemnify and save Buyer harmless against,
        all
        fees, charges, penalties, losses, costs, and liabilities of whatsoever nature
        (including without limitation, attorneys fees and costs) arising out of Seller’s
        failure to deliver natural gas meeting the applicable specifications and
        requirements. Buyer shall, concurrent with the execution of this Agreement,
        deliver to Seller, in writing, the applicable specifications and requirements
        for the gas to be delivered hereunder.

       

      Buyer
        may
        test Seller’s gas delivered hereunder for adherence to such specifications, such
        testing to be in accordance with generally accepted industry standards and
        procedures. If the gas delivered by Seller does not meet the specifications
        set
        forth above, Buyer may, at its option, refuse to accept delivery of said
        gas
        into its gathering facilities. If Seller shall deliver gas to Buyer which
        exceeds the maximum pressure specifications, or fails to meet the quality
        specifications above referenced, Seller shall be responsible for any damages
        caused to Buyer’s gathering facilities and any other damages resulting from
        Seller’s delivery of such non-conforming gas. If Seller fails to conform its gas
        to the specifications and requirements, Buyer may, at its option, elect to
        accept such non-conforming gas, condition the same to conform to the above
        specifications and charge Seller a mutually acceptable condition fee. If
        neither
        party elects to condition the gas to conform to the above specifications,
        then
        Seller, at its option and upon sixty (60) days prior written notice to Buyer,
        shall have the right to obtain the release of such non-conforming gas from
        the
        Agreement.

       

      Should
        Buyer elect to accept and pay for non-conforming gas, Buyer shall not be
        deemed
        to have waived any of its rights hereunder and shall nevertheless be entitled,
        at any time and from time to time, to enforce the quality provisions hereof
        and
        refuse to accept delivery of any volumes of non-conforming gas from
        Seller.

       

      At
        least
        semi-annually, Buyer shall take samples from each of Seller’s wells at the
        points of delivery and have such samples analyzed by chromatograph analysis
        or
        other mutually agreeable and generally accepted industry methodology to
        determine the liquids content by component and the heating value of such
        gas.
        Buyer shall have the right to take and analyze a spot gas sample prior to
        the
        regularly scheduled sampling. Additionally, upon Seller’s written request to
        Buyer and at Seller’s sole cost and expense, Buyer shall take and analyze gas
        samples more frequently. All gas samples taken hereunder shall be taken at
        such
        times as are reasonably mutually agreeable so to produce a representative
        sample
        of the gas produced and Seller shall be pennitted to be present at such sampling
        and permitted to take its own split sample. The gross heating value calculation
        of such samples will use the BTU values assigned to the various hydrocarbon
        components as adjusted and updated from time to time by using as a base those
        values set forth in the most current GPA publication 2145 in effect at the
        time
        the gross heating value calculation is derived under the provisions of this
        agreement.

       

      
        
          
          

        

        
          Page
            - 79

          
            

          

        

        
          
          

        

      

       

      10. Miscellaneous.

      a. Imbalances.
        Each
        party shall use commercially reasonable efforts to avoid the imposition of
        imbalance charges and shall be responsible for the payment of any imbalance
        charges resulting from its actions or inactions.

       

      b. Notice.
        Any notice hereunder shall be in writing any may be personally delivered,
        sent
        by recognized overnight express courier, e-mail, or by facsimile, to the
        address
        or facsimile number set forth above (or to such other address or facsimile
        number as a party may direct by written notice to the other) and shall be
        effective upon receipt.

      c. Governing
        Law.
        This
        agreement shall be construed in accordance with the laws of the State of
        Colorado, excluding any conflict of law rule, which would result in the
        application of the law of another jurisdiction.

       

      d. Waiver.
        No
        waiver of any breach of this agreement shall constitute a waiver of any other
        or
        any subsequent breach.

       

      e. Successors
        and Assigns.
        This
        agreement shall be binding upon and inure to the benefit of the respective
        successors and assigns of the parties. However, no party may assign this
        agreement, or any rights hereunder, without the prior written consent of
        the
        other party, not to be unreasonably withheld.

       

      f. Partial
        Invalidity. If any provision of this agreement is determined to be invalid
        or unenforceable, such determination shall not affect the validity or
        enforceability of any other provision of this agreement.

       

      g. Integration.
        This
        agreement together with future Exhibit “A” confirmation letter(s) sets forth the
        entire agreement of the parties as to the subject matter hereof and 10
        supersedes all prior understandings and agreements, whether oral or written.
        Any
        amendment of supplement hereto shall be in writing.

       

      Paragraph
        headings used herein are for convenience only and. shall not be used in
        construing this Agreement.

       

      h. Authority.
        Each party represents that it has full authority to enter into this agreement
        and to perform its obligations hereunder.

       

      
        
          
          

        

        
          Page
            - 80

          
            

          

        

        
          
          

        

      

       

      i. Arbitration.
        In the
        event of any dispute hereunder, an authorized representative of each of the
        parties shall endeavor in good faith to resolve the matter in a timely manner.
        Any dispute not so resolved shall be submitted to a qualified arbitrator,
        acceptable to both parties, having expertise in the subject matter of the
        dispute, in arbitration proceedings conducted in Denver, Colorado, in accordance
        with the commercial Arbitration Rules of the American Arbitration Association.
        The arbitrator may, but shall not be required to, award fees and costs
        (including attorneys’ fees and costs) to the prevailing party.

       

      j.
         Rules
        and Regulations.
        This
        agreement is subject to all laws, rules, regulations, and orders of governmental
        agencies having jurisdiction over the subject matter hereof.

       

      k. Confidentiality.
        The
        terms and provisions of this Agreement are confidential and proprietary to
        the
        parties and shall not be disclosed by either party to third persons without
        the
        prior written consent of the other party, except as may be required by
        law.

       

      l. Conflict
        with Confinnation Letter.
        In the
        event of a conflict between any term or provision of this Agreement and any
        term
        or provision of a Confirmation letter issued hereunder, the term or provision
        of
        the Confirmation Letter shall control.

      

      Executed
        as of the date written above.

      

      

      
        	 Seller:
                

                BREK
                  PETROLEUM, INC.

                

                

                By:
                  /s/ Richard N. Jeffs      

                Title:
                   President    

                

                Date:
                  December 17, 2004

              	Buyer:
                

                RIVERBEND
                  GAS GATHERING, L.L.C.

                

                

                By:
                  /s/ Michael K. Decker      

                Title:
                   Executive
                  V.P. and COO  

                

                Date:
                  December 23, 2004

              

      

      

      
         

      

      
        
          
          

        

        
          Page
            - 81

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
“A”

      CONFIRMATION
        LETTER ISSUED UNDER

      NATURAL
        GAS PURCHASE AGREEMENT

      

      Date:

      

      Seller:                       Buyer:

      

      
        	
                 

                BREK
                  PETROLEUM, INC.   

                1100
                  Melville Street, Suite 600

                Vancouver
                  BC V6E 4A6 Telephone:

                Facsimile:
                  (604) 664-0672 

                 

                E-mail:________________________________    

                 

                Contact:________________________________    

                 

                Tax
                  ID No:________________________________ 

              	
                 

                RIVERBEND
                  GAS GATHERING, L.L.C.

                14
                  Inverness Drive East, Suite H-236

                Englewood,
                  Colorado 80112

                Telephone:
                  (303) 483-0044

                Facsimile:
                  (303) 483-0011

                 

                E-mail:________________________________    

                 

                Contact:________________________________   

                 

                Tax
                  ID No:________________________________ 

                 

                 

              

      

      

      

      

      Buyer
        and
        Seller confirm the following transaction between Buyer and Seller pursuant
        to
        the Natural Gas Purchase Agreement identified above:

      

      Confirmation
        Date:________________________________     

      

      Period
        of
        Delivery:________________________________     

      

      Purchase
        Price:[insert contract price or prices, i.e. final sale price, incremental
        volumes based on index, shortfalls, etc.]

      

      Quantity:
        100% of Seller’s production from the points of delivery.

      

      Points
        of
        Delivery: Well or Lease meter facilities located at:

      

      In
        the
        event of a conflict between any terms or provision of the Natural Gas Purchase
        Agreement identified above and any term or provision of this Confirmation
        Letter, the term or provision of this Confirmation Letter shall
        control.

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