Document:

Exhibit 10.13

 

WELL
SERVICES AGREEMENT

(TENNESSEE OPERATIONS)

THIS WELL SERVICES AGREEMENT (the “Agreement”),
effective as of January 5, 2007, by and between VINLAND ENERGY OPERATIONS, LLC, a Delaware limited liability
company with an address of 104 Nami Plaza, Suite 1, London, Kentucky 40741 (“Operator”)
and VANGUARD NATURAL GAS, LLC, a
Kentucky limited liability company with an address of 7700 San Felipe, Suite
485, Houston, Texas 77063, and its subsidiary ARIANA ENERGY, LLC (collectively, the “Owner”).

WITNESSETH:

WHEREAS,
Owner owns and has the right to operate certain oil and gas wells, and the
reserves and equipment associated therewith, located in Tennessee, which are
identified on Exhibit A
attached hereto (the “Wells”);

WHEREAS,
The parties hereto have entered into a Management Services Agreement of even
date herewith (the “Management Services Agreement”) pursuant to which Operator
will perform certain services for Owner, and this Agreement is executed
pursuant to that Management Services Agreement;

WHEREAS,
Operator is in the business of, among other things, operating, maintaining and
developing wells and providing other oil field services on a contract basis for
owners of wells;

WHEREAS,
Owner desires to contract for the services of Operator for the purposes of
operating, maintaining and developing the Wells for the production of oil
and/or gas and for the other services set out herein; and

WHEREAS,
Operator is willing to operate, maintain and develop the Wells and to provide
the other services, all as set out herein, as an independent contractor, and
upon the terms and conditions hereinafter set forth.

NOW,
THEREFORE, in consideration of the mutual covenants and
representations hereinafter set forth, the receipt and sufficiency of which is
hereby acknowledge, the parties hereto agree as follows:

1.                                      OPERATOR’S
RESPONSIBILITIES:  Vinland Energy
Operations, LLC is hereby designated as the Operator of the Wells, and shall
conduct and direct and have full control of all operations with regard to the
Wells as permitted and required by, and within the limits of this
Agreement.  In its performance of
services hereunder for the Owner, Operator shall be an independent contractor
not subject to the control or direction of the Owner except as to the type of
operation to be undertaken in accordance with the terms of this Agreement.  It is expressly understood and agreed that
Operator may contract with third parties to conduct or provide any of the
services described herein, provided any such third parties are approved by
Owner, such approval not to be unreasonably withheld. Operator shall not be
deemed, or hold itself out as, the agent of the Owner, with authority to bind
Owner to any obligation or liability assumed or incurred by Operator as to any
third party.  Operator shall conduct its
activities (including the procurement of third party goods and services) under
this Agreement as a reasonable prudent operator, in a good and workmanlike
manner, with due diligence and dispatch, in accordance with good oilfield practice,
and in compliance with applicable 

law and regulation.  The Owner
hereby engages the Operator as an independent contractor to operate and
maintain the Wells, which shall include the following responsibilities:

a.                                       Register
as the operator of the Wells with all relevant governmental agencies;

b.                                      Flow
or pump the Wells as required;

c.                                       Operate
and maintain wellhead compressors, tank batteries, meters, pump jacks or other
facilities associated with production of oil and/or gas from the Wells;

d.                                      Operate
and maintain all pipelines and flow lines associated with production of oil
and/or gas from the Wells;

e.                                       Change
all meter charts on a monthly basis and arrange for the integration of same;

f.                                         Perform
all general maintenance and repairs on the Wells;

g.                                      Visually
inspect every Well and associated pipeline and tank battery on a regular
schedule agreed to by Owner, but in any event no less than  ninety (90) days;

h.                                      Promptly
report and repair equipment failures and malfunctions;

i.                                          Maintain
complete records and files on the Wells and all work performed under the terms
of this Agreement;

j.                                          Collect
all production and pressure data requested by Owner and submit reports of such
data to Owner monthly or at such other intervals as Owner may request;

k.                                       Perform
any and all other duties, customarily performed in the usual course of
producing oil and/or gas from the Wells which are necessary for proper
operation of the Wells, and related pipelines and facilities covered hereunder;

l.                                          Provide
Owner services regarding recompletion, reworking or other operations on the
Wells;

m.                                    Provide
Owner with analyses of the production and pressure data collected and provide
consulting services to Owner regarding the improvement of safety, environmental
compliance and production efficiency; and

n.                                      Provide
roustabout labor, equipment and engineering services as needed for the
operation and maintenance of the Wells and related facilities.

o.                                      Promptly
prepare and report any accident reports and supply Owner with a copy thereof.

2.                                      PROTECTION
FROM LIENS:  Operator shall pay,
or cause to be paid, as and when they become due and payable all accounts of
contractors and suppliers and wages and salaries for services rendered or
performed, and for materials supplied on, to or in respect of the Wells or any
operations relating to the Wells, and shall keep the Wells free from liens and
encumbrances resulting therefrom, except for those resulting from a bona fide
dispute pursuant to appropriate proceedings as to 

 2
 

services rendered or materials supplied.

3.                                      ACCESS
TO CONTRACT AREA AND RECORDS: 
Operator shall, except as otherwise provided herein, permit the Owner or
its duly authorized representative, at the Owner’s sole risk and cost, full and
free access at all reasonable times to all operations of every kind and
character being conducted with regard to the Wells and to the records of
operations conducted with regard thereto or production therefrom, including
Operator’s books and records relating thereto. 
Such access rights shall not be exercised in a manner which would
interfere with Operator’s conduct of an operation hereunder.  Operator will furnish to Owner copies of any
and all reports and information obtained by Operator in connection with the
production of oil and/or gas from Owner’s Wells and any related items,
including, without limitation, meter and chart reports, production purchaser
statements, run tickets and monthly gauge reports.  Any audit of Operator’s records relating to
amounts expended and the appropriateness of such expenditures shall be
conducted in accordance with the audit protocol specified in the Management
Services Agreement.

4.                                      FILING
AND FURNISHING GOVERNMENTAL REPORTS:  Operator will file, and promptly furnish
copies to Owner all operational notices, reports or applications required to be
filed by local, state or federal agencies or authorities having jurisdiction
over operations hereunder.  Upon request
by Operator, the Owner shall provide Operator all information necessary to
Operator to make such filings.

5.                                      INSURANCE:  At all times while operations are conducted
hereunder, Operator shall comply with the workers compensation law of the state
where the operations are being conducted; provided, however, that Operator may
be a self-insurer for liability under said compensation laws, in which event
the only charge that shall be made to Owner shall be as provided in Exhibit B.  Operator shall also carry or provide
insurance for the benefit of Owner as outlined in Exhibit C attached hereto and made a part hereof.  Operator shall require all contractors
engaged in work on the Wells or related facilities to comply with the workers
compensation laws of the state where the operations are being conducted and to
maintain such other insurance as Operator may require.  In the event automobile liability insurance
is specified in said Exhibit C,
or subsequently receives the approval of the parties, no direct charge shall be
made by Operator for premiums paid for such insurance for Operator’s automotive
equipment.

6.                                      COMPENSATION:
Owner will pay Operator for the services performed hereunder on the following
basis:

a.                                       Payment.

[1]                                  On or before the 30th day following each month during the term of
this Agreement, Operator shall provide Owner with an invoice for the aggregate
expenses incurred by Operator as provided in the Accounting Procedures attached
hereto as Exhibit D,
including all direct well expenses, relating to the previous calendar month (“Owner
Expenses”). Operator’s invoice shall provide reasonably detailed documentation
supporting the Owner Expenses.  Any such
invoices will detail the Services provided by the Operator hereunder during the
subject calendar month, all costs associated with providing such Services, as
well as any costs of Services or goods purchased from Third Parties in
performance of their Services.  If
Operator has not received payment from the Owner of the monthly invoice for the
Owner Expenses within fifteen (15) days following the receipt of the invoice by
the Owner, any unpaid  

 3
 

amounts shall bear interest at a rate equal to the prime rate
designated as such from time to time by Citibank, NA, plus five percent (5%),
on the unpaid balance.

[2]                                  Should this Agreement
remain in effect after the termination for any reason of the Management
Services Agreement of even date herewith, the Owner shall pay to the Operator
the per-well payment provided for in Section 4 (i) of the Management Services
Agreement (the “Overhead Payment”), in the manner and with the adjustments and
interest provided in Section 4 of the Management Services Agreement.  The payment provided for in this section
shall not duplicate or be in addition to any payment made pursuant to the
Management Services Agreement.

The Owner
shall pay the Owner Expenses and the Overhead Payment (if applicable) in the
manner provided in Section 6.b. below.

b.                                      Manner of
Payment. All payments required under this Section 6 shall be made by wire
of immediately available funds or check as follows:

If by Wire:
Account information to be provided by Operator.

If by Check:  Payee information to be provided by Operator.

c.                                       Taxes.
The Owner shall be responsible for all applicable taxes levied on items, goods
or services that are sold, purchased or obtained pursuant to this Agreement.

d.                                      Disputed
Charges. The Owner may, within thirty (30) days after receipt of a charge
from Operator, take written exception to such charge on the ground that such
charge was not in accordance with the terms of this Agreement.  In such event, the Owner shall nonetheless
pay such amount to Operator as to which such written exception is taken, or any
part thereof, and if such change is ultimately determined not to be in
accordance with the terms of this Agreement, such amount or portion thereof (as
the case may be) shall be repaid by the Operator together with any interest
thereon at a rate equal to the prime rate per annum established by Citibank,
N.A. as in effect on the date of this Agreement.  It is expressly understood that the Parties
will use their best efforts to resolve any and all Disputed Charges between the
Owner and the Operator within twelve (12) months after the initial written
exception to the charge has been made.

7.                                      LIABILITIES
AND INDEMNIFICATION:  Operator
shall be liable for and to indemnify the Owner for all claims relating  to injury to Operator’s employees and/or
contractors except to the extent such injuries are caused by the gross
negligence or willful misconduct  of
Owner.  Operator shall be liable for and
agrees to promptly pay for all labor performed or furnished for the Operator in
performance of the work provided for herein. Operator further agrees to
indemnify, hold harmless and defend Owner from and against any and all claims
or causes of action arising from or related to Operator’s operations hereunder
except to the extent such claim, injury, death, damage or loss are caused by
the gross negligence or willful misconduct of the Owner.  The insurance coverages required pursuant to
Section 5 above are in addition to, and not in lieu of, the indemnity
obligations of Operator pursuant to this Section.

8.                                      INDEPENDENT
CONTRACTOR:  Operator shall
perform its duties and all work hereunder without supervision by the Owner and
shall in all things act as an independent contractor.  All work by the Operator shall be performed
in accordance with good oilfield practice and in a good 

 4
 

and workmanlike manner.

It is specifically
recognized that Operator may act as a contract operator for any affiliates of
Operator and Operator shall have the freedom to continue such activities or to
initiate such other activities as it chooses.

9.                                      TAXES:
 The Operator agrees to pay and be
responsible for all federal, state and local taxes of whatsoever kind and
description covering the work to be performed by Operator pursuant to this
Agreement. This responsibility shall include all payroll taxes (including
Social Security taxes) for all employees of the Operator.

10.                               WELL
RECORDS AND PRODUCTION DATA:   Operator shall maintain complete records for
each Well, and shall make any copies of such records available to Owner in the
offices of Operator and any other person designated by the Owner from time to
time.  It is further understood that any
and all lease maps, well logs, well production records and all other records
relating to the Wells are the sole property of the Owner, and Owner shall be
entitled to the return of the originals of such items upon request.

11.                               TERM:  Except as otherwise provided herein, the term
of this Agreement shall be for the productive life of the Wells, provided that
the Gathering and Compression Agreement, as it pertains to any of the
Wells,  is still in force and effect
between the Owner and the Operator’s affiliate, Vinland Energy Gathering,
LLC.  Notwithstanding anything herein to
the contrary, Operator may resign and thereby terminate this Agreement upon
twelve (12) months advance written notice.

12.                               DEFAULT
AND REMEDIES.  The following
shall be Events of Default under the terms of this Agreement and the terms “Events
of Default” or “Default” shall mean, whenever they are used in this Agreement,
any one or more of the following events:

a.                                       If
Owner shall fail to pay or cause to be paid any sums due to the Operator for a
period of five (5) business days after Operator has given Owner written notice
thereof;

b.                                      If
either party shall file a voluntary petition for bankruptcy or shall be
adjudicated bankrupt or insolvent, or shall file any petition or any answer
seeking or acquiescing in any reorganization, arrangement, composition,
adjustment, liquidation, dissolution, or similar relief for itself under any
then current federal, state or other statute, law, or regulation, or shall
seek, consent to, or acquiesce in the appointment of any trustee, receiver, or
liquidator of such party, or shall make any general assignment for the benefit
of creditors, or shall admit in writing its inability to pay its debts
generally as they become due;

c.                                       If
either party shall materially fail to perform or observe any covenant,
provision, term, restriction, or condition required to be performed or observed
by such party under the terms of this Agreement (other than the obligation to
pay money referenced in subsection (a) above) which continues for more than
ninety (90) days after such party has received written notice thereof; provided
that if such failure cannot be cured within such ninety (90) day period, no
default shall occur if the relevant party has begun good faith efforts to cure
the failure within such ninety days.  In
the event of a dispute between the parties whether a material failure to
perform has occurred, no termination of this 

 5
 

Agreement
shall occur until the defaulting party has the opportunity to cure provided by
this section, after the existence of such failure has been determined in
accordance with this Agreement.

If
any of the Events of Default enumerated in this Section 12 occurs, then in such
event and as often as the same occurs without cure, the non-defaulting party
may, at its option terminate this Agreement by providing ninety (90) days
written notice.

Exercise of the
foregoing remedies shall not preclude the parties from exercising every other
remedy provided herein or at law, it being the intention of the parties that
parties’ remedies shall be cumulative and shall survive termination of this
Agreement.

13.                               ASSIGNMENT:  The Operator shall not assign its rights or
obligations pursuant to this Agreement without first receiving the written
consent of the Owner to such assignment.

14.                               NOTICES:  Any notice required to be given hereunder
shall be in writing and shall be deemed to be delivered when properly addressed
and posted by certified mail, postage prepaid, return receipt requested, to any
party hereto at the address shown on the first page hereof, or at such other
address as either party shall designate to the other by do notice.

15.                               GOVERNING
LAW:  This Agreement shall be
constructed in accordance with, and governed in all respects by, the laws of
the State of Tennessee, without regard to its conflicts of laws principles.

16.                               BINDING
AGREEMENT:   This Agreement shall
be binding upon the  successors and
permitted assigns of the parties hereto.

17.                               FORCE
MAJEURE:   In the event
performance of services hereunder is prevented by labor disputes; by law,
regulations, or statues enforced by any governmental agency; or by other
extraordinary causes beyond the reasonable control of Operator, the obligations
of Operator under this Agreement shall be suspended, and during such suspension
Owner shall be relieved of the obligation to make any payments to Operator as
provided for herein.  Operator shall give
Owner prompt notice of any claimed force majeure
event and shall use its best efforts to eliminate or mitigate any such event.

18.                               ARBITRATION.  If any
controversy, claim or dispute arising out of or relating to this Agreement or
the breach or performance thereof occurs, the parties shall meet and exert
reasonable efforts to reach an amicable settlement for a period not to exceed
twenty (20) days from the date written notice of the controversy, claim or
dispute is served by the complaining party to the other party under this
Agreement.  If for any reason
such settlement fails to occur within such twenty-day period (or such other
period as the parties may agree in writing), the parties will then enlist the
services of a mutually agreed upon industry representative to facilitate
negotiations for an additional twenty (20) day period in an attempt to resolve
the controversy. If a favorable resolution is not attained within the
additional twenty (20) day period,  (or such other period as the parties may agree
in writing), the controversy, claim or dispute shall be finally and
conclusively resolved by a binding arbitration administered by the American
Arbitration Association in accordance with its Commercial Arbitration Rules (“AAA
Rules”) and subject to the Federal Arbitration Act, 9 U.S.C. Sections 1 et
seq., and judgment on any award thereby rendered may be entered in any
court having jurisdiction thereof.

(a)                                  Any such arbitration shall proceed as promptly
and as expeditiously as possible (and the 

 6
 

parties shall cooperate to this end) before three arbitrators,
consisting of one arbitrator appointed by the claimant, one arbitrator
appointed by the respondent, and the third arbitrator appointed by the two
party-appointed arbitrators.  Arbitration
shall be initiated by written notice of intention to arbitrate made pursuant
the AAA Rules.  The claimant shall
identify its appointed arbitrator in the notice of intention to arbitrate, and
the respondent shall identify its appointed arbitrator within ten (10) days of
its receipt of the notice of intention to arbitrate.  The two party-appointed arbitrators shall
agree upon and appoint the third arbitrator within the ten (10) day period
following the appointment of the second party-appointed arbitrator.  If either the claimant or the respondent fail
to appoint an arbitrator pursuant to the foregoing, or if the two
party-appointed arbitrators fail to agree upon and appoint the third arbitrator
within the above-referenced ten (10) day period, then such arbitrator or
arbitrators shall be appointed by the AAA pursuant to the AAA Rules.  The arbitrators chosen or appointed shall
have expertise and/or experience in the oil and gas industry.

(b)                                 Nothing in this Section shall be deemed to
preclude any party from applying to any court of competent jurisdiction at any
time prior to the formation of the arbitration panel (including before or
during the twenty (20) day negotiation period referenced in the first sentence
of this Section) for injunctive, provisional or other emergency relief pertaining
to the subject matter of a controversy, claim or dispute that is arbitrable
hereunder, or applying for such relief in aid of arbitration after formation of
the arbitration panel, where (i) the arbitration award to which the party may
be entitled may be rendered ineffectual without such relief, (ii) the party
seeking such relief is not in breach of this Section, and (iii) the relief
sought will not materially delay or frustrate the arbitration.  The grant or denial of any court-ordered
relief pursuant to this paragraph shall not constitute or be deemed to be a
ruling on the merits of the matter to be arbitrated, nor shall any application
for such relief be deemed to be a waiver of any right to arbitration hereunder.

(c)                                  The parties hereby agree that the costs and
expenses, including attorneys’ fees, incurred in connection with any
arbitration or court proceeding hereunder shall be awarded in favor of the
prevailing party and against the losing party as determined by the arbitration
panel or court, as the case may be.

19.                               COMPLETE
AGREEMENT:  This Agreement and
the exhibits hereto embody the complete understanding between the parties with
respect to the subject-matter hereof, and no oral agreement amending, revising,
or supplementing this Agreement shall be binding on either party unless reduced
to writing and executed by both parties.

[End of Text. 
Signatures On Following Page]

 7
 

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed by their duly
authorized officers and representatives as of the date first above written.

	
  

  	
  VINLAND ENERGY OPERATIONS, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Majeed S.
  Nami

  	
   

  
	
   

  	
   

  
	
   

  	
  Its: Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VANGUARD
  NATURAL GAS, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott W.
  Smith

  	
   

  
	
   

  	
   

  
	
   

  	
  Its: Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ARIANA
  ENERGY, LLC

  
	
   

  	
   

  
	
   

  	
  By: Vanguard
  Natural Gas, LLC

  
	
   

  	
  Its: Sole Member

  
	
   

  	
  By:

  	
  /s/ Scott W.
  Smith

  	
   

  
	
   

  	
   

  
	
   

  	
  Its: Manager

  
					

 

 8

EXHIBIT A

to the Well Services Agreement (Tennessee)

WELL LIST (TENNESSEE)

Intentionally
Omittted

EXHIBIT B

to the Well Services Agreement (Tennessee)

SELF INSURANCE EXPENSE

 

Self-Insurance Expense - None

EXHIBIT C

to the Well Services Agreement (Tennessee)

INSURANCE LIST

Insurance Coverages

Operator, at all times while conducting operations under the Operating
Agreement to which this Exhibit is attached, shall carry the following
insurance:

A.                                   Workmen’s
Compensation Insurance to cover full liability under the Workmen’s Compensation
Law of the State where the operations are being conducted:

	
  Employer’s Liability

  	
   

  	
  $

  	
  1,000,000

  	
   

  

 

B.                                     Comprehensive
General Liability Insurance including:

	
  General Aggregate Limit
  (Other than Prod-Comp Operations)

  	
   

  	
  $

  	
  2,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Products-Completed
  Operations Aggregate Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Personal &
  Advertising Injury Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Each Occurrence Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Fire Damage Limit (Any
  One Fire)

  	
   

  	
  $

  	
  100,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Medical Expense Limit (Any One Person)

  	
   

  	
  $

  	
  5,000

  	
   

  

 

C.                                     Comprehensive
Automobile Liability Insurance having a Combined Single Limit of $1,000,000 per
occurrence for Bodily Injury and Property Damage.  Coverage is to include owned, non-owned and
hired vehicles.

D.                                    Commercial
Property Policy covers Real and Personal Property and Contractor’s Equipment up
to a Limit of $3,400,000 per Occurrence all Coverages combined.

E.                                      Commercial
Umbrella Liability Policy including:

	
  Each Occurrence Limit

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  General Aggregate

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Products-Completed
  Operations Aggregate

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Crisis Response
  Sublimit of Insurance

  	
   

  	
  $

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Excess Casualty Crisis Fund Limit of Insurance

  	
   

  	
  $

  	
  50,000

  	
   

  

 

F.                                      Additional
Insureds:

Amendments may be made to
this Exhibit to reflect any future changes in insurance coverages as needed.

EXHIBIT D

ACCOUNTING PROCEDURE

WELL SERVICES AGREEMENT

(Tennessee Operations)

Attached to and made part of that certain Well
Services Agreement, effective January 5, 2007 by and between VINLAND ENERGY
OPERATIONS, LLC (“Operator”) and VANGUARD NATURAL GAS, LLC and ARIANA ENERGY,
LLC (collectively the “Owner”)

I.                                         GENERAL
PROVISIONS

1.                                      DEFINITIONS

All terms used in this Accounting Procedure shall have
the following meaning, unless otherwise expressly defined in the Agreement:

“Affiliate” means for a person, another person that
controls, is controlled by, or is under common control with that person.  In this definition, (a) control means the
ownership by one person, directly or indirectly, of more than fifty percent
(50%) of the voting securities of a corporation or, for other persons, the
equivalent ownership interest (such as partnership interests), and (b) “person”
means an individual, corporation, partnership, trust, estate, unincorporated
organization, association, or other legal entity.

“Agreement” means the Well Services Agreement between
the Owner and Operator.

“Controllable Material” means Material that, at the
time of acquisition or disposition by the Well Account, as applicable, is so
classified in the Material Classification Manual most recently recommended by
the Council of Petroleum Accountants Societies (COPAS).

“Equalized Freight” means the procedure of charging
transportation cost to the Well Account based upon the distance from the
nearest Railway Receiving Point to the property.

“Excluded Amount” means a specified excluded trucking
amount most recently recommended by COPAS.

“Field Office” means a structure, or portion of a
structure, whether a temporary or permanent installation, the primary function
of which is to directly serve daily operation and maintenance activities of the
Wells and which serves as a staging area for directly chargeable field
personnel.

“First Level Supervision” means those employees whose
primary function in Well Operations is the direct oversight of the Operator’s
field employees and/or contract labor directly employed On-site in a field
operating capacity.  First Level
Supervision functions may include, but are not limited to:

·                                          Responsibility
for field employees and contract labor engaged in activities that can include
field operations, maintenance, construction, well remedial work, equipment
movement and drilling

·                                          Responsibility
for day-to-day direct oversight of rig operations

·                                          Responsibility
for day-to-day direct oversight of construction operations

·                                          Coordination
of job priorities and approval of work procedures

·                                          Responsibility
for optimal resource utilization (equipment, Materials, personnel)

·                                          Responsibility
for meeting production and field operating expense targets

·                                          Representation
of the Parties in local matters involving community, vendors, regulatory agents
and landowners, as an incidental part of the supervisor’s operating
responsibilities

·                                          Responsibility
for all emergency responses with field staff

·                                          Responsibility
for implementing safety and environmental practices

·                                          Responsibility for field adherence to company policy

·                                          Responsibility
for employment decisions and performance appraisals for field personnel

·                                          Oversight of
sub-groups for field functions such as electrical, safety, environmental,
telecommunications, which may have group or team leaders.

“Laws” means any laws, rules, regulations, decrees,
and orders of the United States of America or any state thereof and all other
governmental bodies, agencies, and other authorities having jurisdiction over
or affecting the provisions contained in or the transactions contemplated by
the Agreement or the Parties and their operations, whether such laws now exist
or are hereafter amended, enacted, promulgated or issued.

“Management Services Agreement” shall mean the certain
Management Services Agreement dated April        ,
2007, by and among the parties hereto.

“Material” means personal property, equipment,
supplies, or consumables acquired or held for use for the Wells.

“Off-site” means any location that is not considered
On-site as defined in this Accounting Procedure.

 2
 

“On-site” means on the property associated with the
Wells when in direct conduct of Well Operations.  The term “On-site” shall also include
facilities that directly control equipment on the Well Property, regardless of
whether such facilities are owned by the Owner.

“Operator” means Vinland Energy Operations, LLC.

“Parties” means the Operator and the Owner or their
successors and assigns.  Parties shall be
referred to individually as “Party.”

“Personal Expenses” means reimbursed costs for travel
and temporary living expenses.

“Railway Receiving Point” means the railhead nearest
the Well Property for which freight rates are published, even though an actual
railhead may not exist.

“Supply Store” 
means a recognized source or common stock point for a given Material
item.

“Technical Services” means services providing specific
engineering, geoscience, or other professional skills, such as those performed
by engineers, geologists, geophysicists, and technicians, required to handle
specific operating conditions and problems for the benefit of Well Operations;
provided, however, Technical Services shall not include those functions
specifically identified as overhead under the second paragraph of the
introduction of Section III (Overhead). 
Technical Services may be provided by the Operator, Operator’s Affiliate
and/or third parties.

“Well Account” means the account showing the charges
paid and credits received in the conduct of the Well Operations that are to be paid
by the Owner, but does not include proceeds attributable to hydrocarbons and
by-products produced from the Wells.

“Well Operations” means all operations necessary or
proper for the development, production, protection, maintenance, repair,
abandonment, and restoration of the Wells.

“Well Property” means the property at the wellhead of,
and otherwise associated with, the Wells, or any of them.

“Wells” means the wells listed on Exhibit A to the
Agreement.

2.                                      STATEMENTS
AND BILLINGS

The Operator shall bill Owner for the applicable
charges hereunder as provided in the Agreement and the Management Services
Agreement.  Such bills shall be
accompanied by statements that identify the AFE (authority for expenditure),
lease or facility, and all charges and credits summarized by appropriate
categories of investment and expense. 
Controllable Material shall be separately identified and fully described
in detail, or at the Operator’s option, Controllable Material may be summarized
by major Material classifications.  Intangible
costs, audit adjustments, and unusual charges and credits shall be separately
and clearly identified.

 3
 

3.                                      ADJUSTMENTS

Adjustments of the bills submitted hereunder shall be
in accordance with the Agreement and the Management Services Agreement.

4.                                      EXPENDITURE
AUDITS

The Owner shall have the audit rights provided in the
Agreement and the Management Services Agreement.

5.                                      APPROVAL
BY PARTIES

A.                                   GENERAL
MATTERS

Where an approval or other agreement of the Owner is
expressly required under other Sections of this Accounting Procedure and if the
Agreement and the Management Services Agreement contain no contrary provisions
in regard thereto, the Operator shall notify Owner of the Operator’s proposal
and the agreement or approval of Owner shall be the definitive.

B.                                     AMENDMENTS

This Accounting Procedure may only be amended in the
manner provided in the Agreement and the Management Services Agreement.

II. DIRECT CHARGES

The Operator shall charge
the Well Account with the following items:

1.                                      RENTALS
AND ROYALTIES

Lease rentals and royalties paid by the Operator, on
behalf of Owner, for the Well Operations.

2.                                      LABOR

A.                                   Salaries
and wages for:

(1)                                  Operator’s
field employees directly employed On-site in the conduct of Well Operations;

(2)                                  Operator’s
employees providing First Level Supervision;

(3)                                  Operator’s
employees providing On-site Technical Services for the Well Operations;

(4)                                  Operator’s
employees providing Off-site Technical Services for the Well Operations;

 4
 

Charges for the Operator’s
employees identified in Section II.2.A may be made based on the employee’s
actual salaries and wages, or in lieu thereof, a day rate representing the
Operator’s average salaries and wages of the employee’s specific job category.

B.                                     Operator’s
cost of holiday, vacation, sickness, and disability benefits, and other
customary allowances paid to employees whose salaries and wages are chargeable
to the Well Account under Section II.2.A, excluding severance payments or other
termination allowances.  Such costs under
this Section II.2.B may be charged on a “when and as-paid basis” or by “percentage
assessment” on the amount of salaries and wages chargeable to the Well Account
under Section II.2.A.  If percentage
assessment is used, the rate shall be based on the Operator’s cost experience.

C.                                     Expenditures
or contributions made pursuant to assessments imposed by governmental authority
that are applicable to costs chargeable to the Well Account under Sections
II.2.A and B.

D.                                    Personal
Expenses of personnel whose salaries and wages are chargeable to the Well
Account under Section II.2.A when the expenses are incurred in connection with
directly chargeable activities.

E.                                      Operator’s
current cost of established plans for employee benefits, as described in COPAS
MFI-27 (“Employee Benefits Chargeable to Well Operations and Subject to
Percentage Limitation”), applicable to the Operator’s labor costs chargeable to
the Well Account under Sections II.2.A and B based on the Operator’s actual
costs not to exceed the employee benefits limitation percentage most recently
recommended by COPAS.

F.                                      Award
payments to employees, in accordance with COPAS MFI-49 (“Awards to Employees
and Contractors”) for personnel whose salaries and wages are chargeable under
Section II.2.A.

3.                                      MATERIAL

Material purchased or furnished by the Operator for
use in the Well Operation as provided under Section IV (Material Purchases,
Transfers, and Dispositions).  Only such
Material shall be purchased for or transferred to the Well Property as may be
required for immediate use or is reasonably practical and consistent with
efficient and economical operations.  The
accumulation of surplus stocks shall be avoided.

4.                                      TRANSPORTATION

A.                                   Transportation
of the Operator’s, Operator’s Affiliate’s, or contractor’s personnel necessary
for Well Operations.

B.                                     Transportation
of Material between the Wells and another property, or from the Operator’s
warehouse or other storage point to the Wells, shall be charged to the
receiving property using one of the methods listed below.  Transportation of 

 5
 

Material from
the Wells to the Operator’s warehouse or other storage point shall be paid for
by the Well Account using one of the methods listed below:

(1)                                  If
the actual trucking charge is less than or equal to the Excluded Amount the
Operator may charge actual trucking cost or a theoretical charge from the
Railway Receiving Point to the Wells. 
The basis for the theoretical charge is the per hundred weight charge
plus fuel surcharges from the Railway Receiving Point to the Wells.  The Operator shall consistently apply the
selected alternative.

(2)                                  Accessorial
charges such as loading and unloading costs, split pick-up costs, detention,
call out charges, and permit fees shall be charged directly to the Wells and
shall not be included when calculating the Equalized Freight.

5.                                      SERVICES

The cost of contract services (including well chart
integration costs), equipment, and utilities used in the conduct of Well
Operations, except for contract services, equipment, and utilities covered by
Section III (Overhead), or Section II.7 (Affiliates), or excluded under Section
II.9 (Legal Expenses).  Awards paid to
contractors shall be chargeable pursuant to COPAS MFI-49 (“Awards to Employees
and Contractors”).

The costs of third party Technical Services are
chargeable.

6.                                      EQUIPMENT
AND FACILITIES FURNISHED BY OPERATOR

In the absence of a separately-negotiated agreement,
equipment and facilities furnished by the Operator will be charged as follows:

A.                                   The
Operator shall charge the Well Account for use of Operator-owned equipment and
facilities at rates commensurate with the costs of ownership and operation.

B.                                     In
lieu of charges in Section II.6.A above, the Operator may elect to use average
commercial rates prevailing in the immediate area of the Wells, less five
percent (5%).  If equipment and
facilities are charged under this Section II.6.B, the operator shall adequately
document and support commercial rates and shall periodically review and update
the rate and the supporting documentation. 
For automotive equipment, the Operator may elect to use rates published
by the Petroleum Motor Transport Association (PMTA) or such other organization
recognized by COPAS as the official source of rates.

7.                                      AFFILIATES

A.                                   Charges
for an Affiliate’s goods and/or services used in operations requiring an AFE or
other authorization from the Owner may be made without the approval of the
Owner provided (i) the Affiliate is identified and the Affiliate goods and 

 6
 

services are
specifically detailed in the approved AFE or other authorization, and (ii) the
total cost for such Affiliate’s goods and services billed to such individual
project do not exceed $10,000.  If the
total costs for such Affiliate’s goods and services charged to such individual
project are not specifically detailed in the approved AFE or authorization or
exceed such amount, charges for such Affiliate shall require approval of the
Parties, pursuant to Section I.5A (General Matters).

B.                                     For
an Affiliate’s goods and/or services used in operations not requiring an AFE or
other authorization from the Owner, charges for such Affiliate’s goods and
services shall require approval of the Parties, pursuant to Section I.5A
(General Matters), if the charges exceed $50,000 in a given calendar year.

C.                                     The
cost of the Affiliate’s goods or services shall not exceed average commercial
rates prevailing in the area of the Wells. 
Notwithstanding the foregoing, direct charges for Affiliate-owned
communication facilities or systems shall be made pursuant to Section II.12
(Communications).

8.                                      DAMAGES
AND LOSSES TO THE WELLS

All costs or expenses necessary for the repair or
replacement of Wells and related property resulting from damages or losses
incurred, except to the extent such damages or losses result from Operator’s
gross negligence or willful misconduct, in which case Operator shall be solely
liable.

The Operator shall furnish the Owner written notice of
damages or losses incurred as soon as practicable after a report has been
received by the Operator.

9.                                      LEGAL
EXPENSE

Recording fees and costs of handling, settling, or
otherwise discharging litigation, claims, and liens incurred in or resulting
from operations under the Agreement, or necessary to protect or recover the
Wells, to the extent permitted under the Agreement.  Costs of the Operator’s or Affiliate’s legal
staff or outside attorneys, including reasonable fees and expenses, are not
chargeable unless approved by the Owner pursuant to Section I.5.A (General
Matters) or otherwise provided for in the Agreement.

Notwithstanding the foregoing paragraph, costs for
procuring abstracts, fees paid to outside attorneys for title examinations
(including preliminary, supplemental, shut-in royalty opinions, division order
title opinions), and curative work shall be chargeable as a direct charge.

10.                               TAXES
AND PERMITS

All taxes and permitting fees of every kind and
nature, assessed or levied upon or in connection with the Wells, or the
production therefrom, and which have been paid by the Operator for the benefit
of the Owner, including penalties and interest, except to the extent the
penalties and interest result from the Operator’s gross negligence or willful
misconduct.

 7
 

Costs of tax consultants or advisors, the Operator’s
employees, or Operator’s Affiliate employees in matters regarding ad valorem or
other tax matters, are not permitted as direct charges unless approved by the
Owner pursuant to Section I.5.A (General Matters).

Charges to the Well Account resulting from sales/use
tax audits, including extrapolated amounts and penalties and interest, are
permitted, provided the Operator shall be allowed to review the invoices and
other underlying source documents which served as the basis for tax charges and
to determine that the correct amount of taxes were charged to the Well Account.  If the Owner is not permitted to review such
documentation, the sales/use tax amount shall not be directly charged unless
the Operator can conclusively document the amount owed by the Well Account.

11.                               INSURANCE

Insurance shall be provided as required by the
Agreement and the Management Services Agreement.

12.                               COMMUNICATIONS

Costs of acquiring, leasing, installing, operating,
repairing, and maintaining communication facilities or systems, between the
Wells and the Operator’s office(s) directly responsible for field operations in
accordance with the provisions of COPAS MFI-44 (“Field Computer and
Communication Systems”).  If the
communication facilities or systems serving the Wells are Operator-owned,
charges to the Well Account shall be made as provided in Section II.5
(Equipment and Facilities Furnished by Operator).  If the communication facilities or systems
serving the Wells are owned by the Operator’s Affiliate, charges to the Well
Account shall not exceed average commercial rates prevailing in the area of the
Wells.  The Operator shall adequately
document and support commercial rates and shall periodically review and update
the rate and the supporting documentation.

13.                               ECOLOGICAL,
ENVIRONMENTAL, AND SAFETY.

Costs incurred for Technical Services and drafting to
comply with ecological, environmental and safety Laws or standards recommended
by Occupational Safety and Health Administration (OSHA) or other regulatory
authorities.  All other labor and
functions incurred for ecological, environmental and safety matters, including
management, administration, and permitting, shall be covered by Sections II.2
(Labor), II.5 (Services), or Section III (Overhead), as applicable.

Costs to provide or have available pollution
containment and removal equipment plus actual costs of control and cleanup and
resulting responsibilities of oil and other spills as well as discharges from
permitted outfalls as required by applicable Laws, or other pollution
containment and removal equipment deemed appropriate by the Operator for
prudent operations, are directly chargeable.

 8

14.                               ABANDONMENT
AND RECLAMATION

Costs incurred for abandonment and reclamation of the
Wells, including costs required by lease agreements or by Laws.

15.                               OTHER
EXPENDITURES

Any other expenditure not covered or dealt with in the
foregoing provisions of this Section II (Direct Charges), or in Section III
(Overhead) and which is of direct benefit to the Wells and is incurred by the
Operator in the necessary and proper conduct of the Well Operations.  Charges made under this Section II.15 shall
require approval of the Parties, pursuant to Section I.5.A (General Matters).

III. OVERHEAD

As compensation for costs not specifically identified as chargeable to
the Well Account pursuant to Section II (Direct Charges), the Operator shall
charge the Well Account in accordance with this Section III.

Functions included in the overhead rates regardless of whether
performance by the Operator, Operator’s Affiliates or third parties and
regardless of location, shall include, but not be limited to, costs and
expenses of:

·                                          warehousing,
other than for warehouses that are jointly owned under this Agreement

·                                          design and
drafting (except when allowed as a direct charge under Sections II.13,
III.1.A(ii), and III.2, Option B)

·                                          inventory
costs not chargeable under Section V (Inventories of Controllable Material)

·                                          procurement

·                                          administration

·                                          accounting
and auditing

·                                          gas
dispatching

·                                          human
resources

·                                          management

·                                          supervision
not directly charged under Section II.2 (Labor)

·                                          legal
services not directly chargeable under Section II.9 (Legal Expense)

·                                          taxation,
other than those costs identified as directly chargeable under Section II.10
(Taxes and Permits)

 9
 

·                                          preparation
and monitoring of permits and certifications; preparing regulatory reports;
appearances before or meetings with governmental agencies or other authorities
having jurisdiction over the Wells, other than On-site inspections; reviewing,
interpreting, or submitting comments on or lobbying with respect to Laws or
proposed Laws.

Overhead charges shall include the salaries or wages plus applicable
payroll burdens, benefits, and Personal Expenses of personnel performing
overhead functions, as well as office and other related expenses of overhead
function.

1.                                      OVERHEAD
- PRODUCING OPERATIONS

As compensation for costs incurred but not chargeable
under Section II (Direct Charges) and not covered by other provisions of this
Section III, the Operator shall charge on either:

x
(Alternative 1) Fixed Rate Basis, Section III.1.B.

o
(Alternative 2) Percentage Basis, Section III.1.C.

A.                                   TECHNICAL
SERVICES

(i)                                     Except
as otherwise provided in Section II.13 (Ecological Environmental, and Safety)
and Section III.2 (Overhead - Major Construction and Catastrophe), or by
approval of the Owner pursuant to Section I.5.A (General Matters), the salaries,
wages, related payroll burdens and benefits, and Personal Expenses for On-site
Technical Services, including third party Technical Services:

x
(Alternative 1 - Direct) shall be charged direct to the Well Account.

o
(Alternative 2 - Overhead) shall be covered by the overhead rates

(ii)                                  Except
as otherwise provided in Section II.13 (Ecological, Environmental, and Safety)
and Section III.2 (Overhead - Major Construction and Catastrophe), or by
approval of the Owner pursuant to Section I.5.A (General Matters), the
salaries, wages, related payroll burdens and benefits, and Personal Expenses
for Off-site Technical Services, including third party Technical Services:

o
(Alternative 1 - All Overhead) shall be covered by the overhead rates.

x
(Alternative 2 - All Direct)  shall be
charged direct to the Well Account.

o (Alternative 3
- Drilling Direct) shall be charged direct to the Well
Account, only to the extent such Technical Services are directly attributable
to drilling, redrilling, deepening, or sidetracking operations, through
completion, temporary abandonment, or abandonment if a dry hole.  Off-site Technical Services for all other
operations, including workover, recompletion, abandonment of producing wells,
and the construction or expansion of fixed assets not covered by Section III.2 

 10
 

(Overhead
- Major Construction and Catastrophe) shall be covered by the overhead rates.

Notwithstanding anything to the contrary in this
Section III, Technical Services provided by Operator’s Affiliates are subject
to limitations set forth in Section II.7 (Affiliates).  Charges for Technical personnel performing
non-technical work shall not be governed by this Section III.1.A., but instead
governed by other provisions of this Accounting Procedure relating to the type
of work being performed.

B.                                     OVERHEAD
- FIXED RATE BASIS

(1)                                  All
fixed-rate overhead expenses shall be payable from the per-well charge provided
for in the Management Services Agreement:

2.                                      OVERHEAD
- MAJOR CONSTRUCTION AND CATASTROPHE

To compensate the Operator for overhead costs incurred
in connection with a Major Construction project or Catastrophe, the Operator
shall either negotiate a rate prior to the beginning of the project, or shall
charge the Well Account for overhead based on the following rates for any Major
Construction project in excess of the Operator’s expenditure limit under the
Agreement, or for any Catastrophe regardless of the amount.  If the Agreement to which this Accounting
Procedure is attached does not contain an expenditure limit, Major Construction
Overhead shall be assessed for any single Major Construction project costing in
excess of $100,000 gross.

Major Construction shall mean the construction and
installation of fixed assets, the expansion of fixed assets, and any other
project clearly discernible as a fixed asset required for the development and
operation of the Wells, or in the dismantlement, abandonment, removal, and
restoration of platforms, production equipment, and other operating facilities.

Catastrophe is defined as a sudden calamitous event
bringing damage, loss, or destruction to property or the environment, such as
an oil spill, blowout, explosion, fire, storm, hurricane, or other
disaster.  The overhead rate shall be
applied to those costs necessary to restore the Wells to the equivalent
condition that existed prior to the event.

A.                                   If
the Operator absorbs the engineering, design and drafting costs related to the
project:

10% of total costs if such costs are less than
$100,000; plus

4% of total costs in excess of $100,000 but less than
$1,000,000; plus

2% of total costs in excess of $1,000,000.

B.                                     If
the Operator charges engineering, design and drafting costs related to the
project directly to the Well Account:

(1)                                  5%
of total costs if such costs are less than $100,000; plus

 11
 

(2)                                  2%
of total costs in excess of $100,000 but less than $1,000,000; plus

(3)                                  1%
of total costs in excess of $1,000,000.

Total cost shall mean the gross cost of any one
project.  For the purpose of this
paragraph, the component parts of a single Major Construction project shall not
be treated separately, and the cost of drilling and workover wells and
purchasing and installing pumping units and downhole artificial lift equipment
shall be excluded. For Catastrophes, the rates shall be applied to all costs
associated with each single occurrence or event.

On each project, the Operator shall advise the Owner
in advance which of the above options shall apply.

For the purposes of calculating Catastrophe Overhead,
the cost of drilling relief wells, substitute wells, or conducting other well
operations directly resulting from the catastrophic even shall be
included.  Expenditures to which these
rates apply shall not be reduced by salvage or insurance recoveries.  Expenditures that qualify for Major
Construction or Catastrophe Overhead shall not qualify for overhead under any
other overhead provisions.

In the event of any conflict between the provisions of
this Section III.2 and the provisions of Sections II.2 (Labor), II.5
(Services), or II.7 (Affiliates), the provisions of this Section III.2 shall
govern.

3.                                      AMENDMENT
OF OVERHEAD RATES

The overheard rates provided for in this Section III
may be amended from time to time, if in practice, the rates are found to be
insufficient or excessive, in accordance with the provisions of Section I.5.B
(Amendments).

IV. MATERIAL PURCHASES, TRANSFERS, AND
DISPOSITIONS

The Operator is responsible for Well Account Material and shall make
proper and timely charges and credits for direct purchases, transfers, and
dispositions.  The Operator shall provide
all Material for use in the conduct of Well Operations; however, Material may
be supplied by the Owner, at the Operator’s option.  Material furnished by any Party shall be
furnished without any express or implied warranties as to quality, fitness for
use, or any other matter.

1.                                      DIRECT
PURCHASES

Direct purchases shall be charged to the Well Account
at the price paid by the Operator after deduction of all discounts
received.  The Operator shall make good
faith efforts to take discounts offered by suppliers, but shall not be liable
for failure to take discounts except to the extent such failure was the result
of the Operator’s gross negligence or willful misconduct.  A direct purchase shall be deemed to occur
when an agreement is made between an Operator and a third party for the
acquisition of Material for a specific well site or location.  Material provided by the Operator under “vendor
stocking 

 12
 

programs,” where the initial use is for a Well and
title of the Material does not pass from the manufacturer, distributor, or
agent until usage, is considered a direct purchase.  If Material is found to be defective or is
returned to the manufacturer, distributor, or agent for any other reason,
credit shall be passed to the Well Account within sixty (60) days after the
Operator has received adjustment from the manufacturer, distributor, or agent.

2.                                      TRANSFERS

A transfer is determined to occur when the Operator
(i) furnishes Material from a storage facility or form another operated
property, (ii) has assumed liability for the storage costs and changes in
value, and (iii) has previously secured and held title to the transferred
Material.  Similarly, the removal of
Material from the Wells to a storage facility or to another operated property
is also considered a transfer; provided, however, Material that is moved from
the Wells to a storage location for safe-keeping pending disposition may remain
charged to the Well Account and is not considered a transfer.  Material shall be disposed of in accordance
with Section IV.3 (Disposition of Surplus) and the Agreement to which this
Accounting Procedure is attached.

A.                                   PRICING

The value of Material transferred to/from the Wells
should generally reflect the market value on the date of physical
transfer.  Regardless of the pricing
method used, the Operator shall make available to the Owner sufficient
documentation to verify the Material valuation. 
When higher than specification grade or size tubulars are used in the
conduct of Well Operations, the Operator shall charge the Well Account at the
equivalent price for well design specification tubulars, unless such higher
specification grade or sized tubulars are approved by the Parties pursuant to
Section I.5.A (General Matters).  Transfers
of new Material will be priced using one of the following pricing methods, and
not alternate between methods for the purpose of choosing the method most
favorable to the Operator for a specific transfer:

(1)                                  Using
published prices in effect on date of movement as adjusted by the appropriate
COPAS Historical Price Multiplier (HPM) or prices provided by the COPAS
Computerized Equipment Pricing System (CEPS).

[a]                                  For
oil country tubulars and line pipe, the published price shall be based upon
eastern mill carload base prices (Houston, Texas, for special end) adjusted as
of date of movement, plus transportation cost as defined in Section IV.2.B
(Freight).

[b]                                 For
other Material, the published price shall be the published list price in effect
at date of movement, as listed by a Supply Store nearest the Wells where like
Material is normally available, or point of manufacture plus transportation
costs as defined in Section IV.2.B (Freight).

 13
 

(2)                                  Based
on a price quotation from a vendor that reflects a current realistic
acquisition cost.

(3)                                  Based
on the amount paid by the Operator for like Material in the vicinity of the
Wells within the previous twelve (12) months from the date of physical
transfer.

(4)                                  As
agreed to by the Participating Parties for Material being transferred to the
Wells, and by the Parties owning the Material for Material being transferred
from the Wells.

B.                                     FREIGHT

Transportation costs
shall be added to the Material transfer price using the method prescribed by
the COPAS Computerized Equipment Pricing System (CEPS).  If not using CEPS, transportation costs shall
be calculated as follows:

(1)                                  Transportation
costs for oil country tubulars and line pipe shall be calculated using the
distance from eastern mill to the Railway Receiving Point based on the carload
weight basis as recommended by the COPAS MFI-38 (“Material Pricing Manual”) and
other COPAS MFIs in effect at the time of the transfer.

(2)                                  Transportation
costs for special mill items shall be calculated from that mill’s shipping
point to the Railway Receiving Point. 
For transportation costs from other than eastern mills, the 30,000-pound
interstate truck rate shall be used. 
Transportation costs for macaroni tubing shall be calculated based on
the interstate truck rate per weight of tubing transferred to the Railway
Receiving Point.

(3)                                  Transportation
costs for special end tubular goods shall be calculated using the interstate
truck rate from Houston, Texas, to the Railway Receiving Point.

(4)                                  Transportation
costs for Material other than that described in Sections IV.2.B.(1) through
(3), shall be calculated from the Supply Store or point of manufacture,
whichever is appropriate, to the Railway Receiving Point.

Regardless of whether using CEPS or manually
calculating transportation costs, transportation costs from the Railway Receiving
Point to the Wells are in addition to the foregoing, and may be charged to the
Well Account based on actual costs incurred. 
All transportation costs are subject to Equalized Freight as provided in
Section II.4 (Transportation) of this Accounting Procedure.

C.                                     TAXES

Sales and use taxes shall be added to the Material
transfer price using either the method contained in the COPAS Computerized
Equipment Pricing System 

 14
 

(CEPS) or the applicable tax rate in effect for the
Wells at the time and place of transfer. 
In either case, the Well Account shall be charged or credited at the
rate that would have governed had the Material been a direct purchase.

D.                                    CONDITION

(1)                                  Condition
“A” - New and unused Material in sound and serviceable condition shall be
charged at one hundred percent (100%) of the price as determined in Sections
IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes).  Material transferred from the Wells that was
not placed in service shall be credited as charged without gain or loss;
provided, however, any unusual Material that was charged to the Well Account
through a direct purchase will be credited to the Well Account at the original
cost paid less restocking fees charged by the vendor.  New and unused Material transferred from the
Wells may be credited at a price other than the price originally charged to the
Well Account provided such price is approved by the Parties owning such
Material, pursuant to Section I.5.A (General Matters).  All refurbishing costs required or necessary
to return the Material to original condition or to correct handling,
transportation, or other damages will be borne by the divesting property.  The Well Account is responsible for Material
preparation, handling, and transportation costs for new and unused Material
charged to the Wells either through a direct purchase or transfer.  Any preparation costs incurred, including any
internal or external coating and wrapping, will be credited on new Material
provided these services were not repeated for such Material for the receiving
property.

(2)                                  Condition
“B” - Used Material in sound and serviceable condition and suitable for reuse
without reconditioning shall be priced by multiplying the price determined in
Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) by seventy-five
percent (75%).

Except as provided in Section IV.2.D(3), all
reconditioning costs required to return the Material to Condition “B” or to
correct handling, transportation or other damages will be borne by the
divesting property.

If the Material was originally charged to the Well
Account as used Material and placed in service for the Wells, the Material will
be credited at the price determined in Sections IV.2.A (Pricing), IV.2.B
(Freight), and IV.2.C (Taxes) multiplied by sixty-five percent (65%).

Unless otherwise agreed to by the Parties that paid
for such Material, used Material transferred from the Wells that was not placed
in service on the property shall be credited as charged without gain or loss.

(3)                                  Condition
“C” - Material that is not in sound and serviceable condition and not suitable
for its original function until after reconditioning shall be 

 15
 

priced by
multiplying the price determined in Sections IV.2.A (Pricing), IV.2.B
(Freight), and IV.2.C (Taxes) by fifty percent (50%).

The cost of reconditioning may be charged to the
receiving property to the extent Condition “C” value, plus cost of
reconditioning, does not exceed Condition “B” value.

(4)                                  Condition
“D” - Material that (i) is no longer suitable for its original purpose but
useable for some other purpose, (ii) is obsolete, or (iii) does not meet
original specifications but still has value and can be used in other
applications as a substitute for items with different specifications, is
considered Condition “D” Material. 
Casing, tubing, or drill pipe used as line pipe shall be priced as Grade
A and B seamless line pipe of comparable size and weight.  Used casing, tubing, or drill pipe utilized
as ling pipe shall be priced at used line pipe prices.  Casing, tubing, or drill pipe used as higher
pressure service lines than standard line pipe, e.g., power oil lines, shall be
priced under normal pricing procedures for acsing, tubing, or drill pipe.  Upset tubular goods shall be priced on a
non-upset basis.  For other items, the
price used should result in the Well Account being charged or credited with the
value of the service rendered or use of the Material, or as agreed to by the
Owner pursuant to Section I.5.A (General Matters).

(5)                                  Condition
“E” - Junk shall be priced at prevailing scrap value prices.

E.                                      OTHER
PRICING PROVISIONS

(1)                                  Preparation
Costs

Subject to Section II (Direct Charges) and Section III
(Overhead) of this Accounting Procedure, costs incurred by the Operator in
making Material serviceable including inspection, third party surveillance
services, and other similar services will be charged to the Well Account at
prices which reflect the Operator’s actual costs of the services.  Documentation must be provided to the Owners
upon request to support the cost of service. 
New coating and/or wrapping shall be considered a component of the
Materials and priced in accordance with Sections IV.1 (Direct Purchases) or
IV.2.A (Pricing), as applicable.  No
charges or credits shall be made for used coating or wrapping.  Charges and credits for inspections shall be
made in accordance with COPAS MFI-38 (“Material Pricing Manual”).

(2)                                  Loading
and Unloading Costs

Loading and unloading costs related to the movement of
the Material to the Wells shall be charged in accordance with the methods
specified in COPAS MF1-38 (Material Pricing Manual”).

 16
 

3.                                      DISPOSITION
OF SURPLUS

Surplus Material is that Material, whether new or
used, that is no longer required for Well Operations.  The Operator may purchase, but shall be under
no obligation to purchase, the interest of the Owner in surplus Material.

Dispositions for the purpose of this procedure are
considered to be the relinquishment of title of the Material from the Wells to
either a third party, an Owner, or to the Operator.  To avoid the accumulation of surplus
Material, the Operator should make good faith efforts to dispose of surplus
within twenty (12) months through buy/sale agreements, trade, sale to a third
party, division in kind, or other dispositions as agreed to by the Owner.

Disposal of surplus Materials shall be made in
accordance with the terms of the Agreement to which this Accounting Procedure
is attached.  If the Agreement contains
no provisions governing disposal of surplus Material, the following terms shall
apply:

·                                          The
Operator may, through a sale to an unrelated third party or entity, dispose of
surplus Material having a gross sale value that is less than or equal to the
Operator’s expenditure limit as set forth in the Agreement to which this
Accounting Procedure attached without the prior approval of the Parties owning
such Material.

·                                          If
the gross sale value exceeds the Agreement expenditure limit, the disposal must
be agreed to by the Parties owning such Material.

·                                          Operator
may purchase surplus Condition “A” or “B” Material without approval of the
Parties owning such Material, based on the pricing methods set forth in Section
Iv.2 (Transfers).

·                                          Operator
may purchase Condition “C” Material without prior approval of the Parties
owning such Material if the value of the Materials, based on the pricing
methods set forth in Section IV.2 (Transfers), is less than or equal to the
Operator’s expenditure limitation set forth in the Agreement.  The Operator shall provide documentation
supporting the classification of the Material as Condition C.

·                                          Operator
may dispose of Condition “D” or “E” Material under procedures normally utilized
by Operator without prior approval of the Parties owning such Material.

4.                                      SPECIAL
PRICING PROVISIONS

A.                                   PREMIUM
PRICING

Whenever Material is available only at inflated prices
due to national emergencies, strikes, government imposed foreign trade
restrictions, or other 

 17
 

unusual causes over which the Operator has no control,
for direct purchase the Operator may charge the Well Account for the required
Material at the Operator’s actual cost incurred in providing such Material,
making it suitable for use, and moving it to the Wells.  Material transferred or disposed of during
premium pricing situations shall be valued in accordance with Section IV.2
(Transfers) or Section IV.3 (Disposition of Surplus), as applicable.

B.                                     SHOP-MADE
ITEMS

Items fabricated by the Operator’s employees, or by
contract laborers under the direction of the Operator, shall b priced using the
value of the Material used to construct the item plus the cost of labor to
fabricate the item.  If the Material is
from the Operator’s scrap or junk account, the Material shall be priced at
either twenty-five percent (25%) of the current price as determined in Section
IV.2.A (Pricing) or scrap value, whichever is higher.  In no event shall the amount charged exceed
the value of the item commensurate with its use.

C.                                     MILL
REJECTS

Mill rejects purchased as “limited service” casing or
tubing shall be priced at eighty percent (80%) of K-55/J-55 price as determined
in Section IV.2 (Transfers).  Line pipe
converted to casing or tubing with casing or tubing couplings attached shall be
priced as K-55/J-55 casing or tubing at the nearest size and weight.

V. 
INVENTORIES OF CONTROLLABLE MATERIAL

The Operator shall maintain records of Controllable Material charged to
the Well Account, with sufficient detail to perform physical inventories.

Adjustments to the Well Account by the Operator resulting from a
physical inventory of Controllable Material shall be made within twelve (12)
months following the taking of the inventory or Owner’s receipt of the
inventory report.  Charges and credits
for overages or shortages will be valued for the Well Account in accordance
with Section IV.2 (Transfers) and shall be based on the Condition “B” prices in
effect on the date of physical inventory unless the inventorying Parties can
provide sufficient evidence another Material condition applies.

1.                                      DIRECTED
INVENTORIES

Physical inventories shall be performed by the
Operator upon written request of the Owner (hereinafter, “directed inventory”);
provided, however, the Operator shall not be required to perform directed
inventories more frequently than once every       
years.  Directed inventories shall be
commenced within one hundred eighty (180) days after the Operator receives
written notice that the Owner has requested the inventory.  All parties shall be governed by the results
of any directed inventory.

Expenses of directed inventories will be borne by the
Well Account; provided, however, costs associated with any post-report
follow-up work in settling the inventory will be 

 18
 

absorbed by the Party incurring such costs.  The Operator is expected to exercise judgment
in keeping expenses within reasonable limits. 
Any anticipated disproportionate or extraordinary costs should be
discussed and agreed upon prior to commencement of he inventory.  Expenses of directed inventories may include
the following:

A.                                   A
per diem rate for each inventory person, representative of actual salaries,
wages, and payroll burdens and benefits of the personnel performing the
inventory or a rate agreed to by the Parties pursuant to Section I.5.A (General
Matters).  The per diem rate shall also
be applied to a reasonable number of days for pre-inventory work and report
preparation.

B.                                     Actual
transportation costs and Personal Expenses for the inventory team.

C.                                     Reasonable
charges for report preparation and distribution to the Owner.

2.                                      NON-DIRECTED
INVENTORIES

A.                                   OPERATOR
INVENTORIES

Physical inventories that are not requested by the
Owner may be performed by the Operator, at the Operator’s discretion.  The expenses of conducting such
Operator-initiated inventories shall not be charged to the Well Account.

B.                                     OWNER
INVENTORIES

Subject to the terms of the Agreement to which this Accounting
Procedure is attached, the Owner may conduct a physical inventory at reasonable
times at its sole cost and risk after giving the Operator at least ninety (90)
days prior written notice.  The Owner
inventory report shall be furnished to the Operator in writing within ninety
(90) days of completing the inventory fieldwork.

C.                                     SPECIAL
INVENTORIES

The expense of conducting inventories other than those described in
Sections V.1 (Directed Inventories), V.2.A (Operator Inventories), or V.2.B (Non-Operator
Inventories), shall be charged to the Party requesting such
inventory; provided, however, inventories required due to a change of Operator
shall be charged to the Well Account in the same manner as described in Section
V.1 (Directed Inventories).

 19Exhibit
10.14

WELL
SERVICES AGREEMENT

(KENTUCKY
OPERATIONS)

THIS WELL SERVICES AGREEMENT (the “Agreement”),
effective as of January 5, 2007, by and between VINLAND ENERGY OPERATIONS, LLC, a Delaware limited liability
company with an address of 104 Nami Plaza, Suite 1, London, Kentucky 40741 (“Operator”)
and VANGUARD NATURAL GAS, LLC, a
Kentucky limited liability company with an address of 7700 San Felipe, Suite
485, Houston, Texas 77063, and its subsidiary TRUST
ENERGY COMPANY, LLC (collectively, the “Owner”).

WITNESSETH:

WHEREAS,
Owner owns and has the right to operate certain oil and gas wells, and the
reserves and equipment associated therewith, located in Kentucky and Tennessee,
which are identified on Exhibit
A attached hereto (the “Wells”);

WHEREAS,
The parties hereto have entered into a Management Services Agreement of even
date herewith (the “Management Services Agreement”) pursuant to which Operator
will perform certain services for Owner, and this Agreement is executed
pursuant to that Management Services Agreement;

WHEREAS,
Operator is in the business of, among other things, operating, maintaining and
developing wells and providing other oil field services on a contract basis for
owners of wells;

WHEREAS,
Owner desires to contract for the services of Operator for the purposes of
operating, maintaining and developing the Wells for the production of oil
and/or gas and for the other services set out herein; and

WHEREAS,
Operator is willing to operate, maintain and develop the Wells and to provide
the other services, all as set out herein, as an independent contractor, and
upon the terms and conditions hereinafter set forth.

NOW,
THEREFORE, in consideration of the mutual covenants and
representations hereinafter set forth, the receipt and sufficiency of which is
hereby acknowledge, the parties hereto agree as follows:

1.                                      OPERATOR’S
RESPONSIBILITIES:  Vinland Energy
Operations, LLC is hereby designated as the Operator of the Wells, and shall
conduct and direct and have full control of all operations with regard to the
Wells as permitted and required by, and within the limits of this
Agreement.  In its performance of
services hereunder for the Owner, Operator shall be an independent contractor
not subject to the control or direction of the Owner except as to the type of
operation to be undertaken in accordance with the terms of this Agreement.  It is expressly understood and agreed that
Operator may contract with third parties to conduct or provide any of the
services described herein, provided any such third parties are approved by
Owner, such approval not to be unreasonably withheld.  Operator shall not be deemed, or hold itself
out as, the agent of the Owner, with authority to bind Owner to any obligation
or liability assumed or incurred by Operator as to any third party.  Operator shall conduct its activities
(including the procurement of third party goods and services) under this
Agreement as a reasonable prudent operator, in a good and workmanlike manner,
with due diligence and dispatch, in accordance with good oilfield practice, and
in compliance with applicable 

law and regulation.  The Owner
hereby engages the Operator as an independent contractor to operate and
maintain the Wells, which shall include the following responsibilities:

a.                                       Register
as the operator of the Wells with all relevant governmental agencies;

b.                                      Flow
or pump the Wells as required;

c.                                       Operate
and maintain wellhead compressors, tank batteries, meters, pump jacks or other
facilities associated with production of oil and/or gas from the Wells;

d.                                      Operate
and maintain all pipelines and flow lines associated with production of oil
and/or gas from the Wells;

e.                                       Change
all meter charts on a monthly basis and arrange for the integration of same;

f.                                         Perform
all general maintenance and repairs on the Wells;

g.                                      Visually
inspect every Well and associated pipeline and tank battery on a regular
schedule agreed to by Owner, but in any event no less than every 90 days;

h.                                      Promptly
report and repair equipment failures and malfunctions;

i.                                          Maintain
complete records and files on the Wells and all work performed under the terms
of this Agreement;

j.                                          Collect
all production and pressure data requested by Owner and submit reports of such
data to Owner monthly or at such other intervals as Owner may request;

k.                                       Perform
any and all other duties, customarily performed in the usual course of
producing oil and/or gas from the Wells which are necessary for proper
operation of the Wells, and related pipelines and facilities covered hereunder;

l.                                          Provide
Owner services regarding recompletion, reworking or other operations on the
Wells;

m.                                    Provide
Owner with analyses of the production and pressure data collected and provide
consulting services to Owner regarding the improvement of safety, environmental
compliance and production efficiency; and

n.                                      Provide
roustabout labor, equipment and engineering services as needed for the
operation and maintenance of the Wells and related facilities.

o.                                      Promptly
prepare and report any accident reports and supply Owner with a copy thereof.

2.                                      PROTECTION
FROM LIENS:  Operator shall pay,
or cause to be paid, as and when they become due and payable all accounts of
contractors and suppliers and wages and salaries for services rendered or
performed, and for materials supplied on, to or in respect of the Wells or any
operations relating to the Wells, and shall keep the Wells free from liens and
encumbrances resulting therefrom, except for those resulting from a bona fide
dispute pursuant to appropriate proceedings as to 

 2
 

services rendered or materials supplied.

3.                                      ACCESS
TO CONTRACT AREA AND RECORDS: 
Operator shall, except as otherwise provided herein, permit the Owner or
its duly authorized representative, at the Owner’s sole risk and cost, full and
free access at all reasonable times to all operations of every kind and
character being conducted with regard to the Wells and to the records of
operations conducted with regard thereto or production therefrom, including
Operator’s books and records relating thereto. 
Such access rights shall not be exercised in a manner which would
interfere with Operator’s conduct of an operation hereunder.  Operator will furnish to Owner copies of any
and all reports and information obtained by Operator in connection with the
production of oil and/or gas from Owner’s Wells and any related items,
including, without limitation, meter and chart reports, production purchaser
statements, run tickets and monthly gauge reports.  Any audit of Operator’s records relating to
amounts expended and the appropriateness of such expenditures shall be
conducted in accordance with the audit protocol specified in the Management
Services Agreement.

4.                                      FILING
AND FURNISHING GOVERNMENTAL REPORTS:  Operator will file, and promptly furnish
copies to Owner all operational notices, reports or applications required to be
filed by local, state or federal agencies or authorities having jurisdiction
over operations hereunder.  Upon request
by Operator, the Owner shall provide Operator all information necessary to
Operator to make such filings.

5.                                      INSURANCE:  At all times while operations are conducted
hereunder, Operator shall comply with the workers compensation law of the state
where the operations are being conducted; provided, however, that Operator may
be a self-insurer for liability under said compensation laws, in which event
the only charge that shall be made to Owner shall be as provided in Exhibit B.  Operator shall also carry or provide
insurance for the benefit of Owner as outlined in Exhibit C attached hereto and made a part hereof.  Operator shall require all contractors
engaged in work on the Wells or related facilities to comply with the workers
compensation laws of the state where the operations are being conducted and to
maintain such other insurance as Operator may require.  In the event automobile liability insurance
is specified in said Exhibit C,
or subsequently receives the approval of the parties, no direct charge shall be
made by Operator for premiums paid for such insurance for Operator’s automotive
equipment.

6.                                      COMPENSATION:
Owner will pay Operator for the services performed hereunder on the following
basis:

a.                                       Payment.

[1]                                  On or before the 30th day following each month during the term of
this Agreement, Operator shall provide Owner with an invoice for the aggregate
expenses incurred by Operator as provided in the Accounting Procedures attached
hereto as Exhibit D,
including all direct well expenses, relating to the previous calendar month (“Owner
Expenses”).  Operator’s invoice shall
provide reasonably detailed documentation supporting the Owner Expenses.  Any such invoices will detail the Services
provided by the Operator hereunder during the subject calendar month, all costs
associated with providing such Services, as well as any costs of Services or
goods purchased from Third Parties in performance of their Services.  If Operator has not received payment from the
Owner of the monthly invoice for the Owner Expenses within fifteen (15) days
following the receipt of the invoice by the Owner, any unpaid  

 3
 

amounts shall bear interest at a rate equal to the prime rate
designated as such from time to time by Citibank, NA, plus five percent (5%),
on the unpaid balance.

[2]                                  Should this Agreement
remain in effect after the termination for any reason of the Management
Services Agreement of even date herewith, the Owner shall pay to the Operator
the per-well payment provided for in Section 4(i) of the Management Services
Agreement (the “Overhead Payment”), in the manner and with the adjustments and
interest provided in Section 4 of the Management Services Agreement.  The payment provided for in this section
shall not duplicate or be in addition to any payment made pursuant to the
Management Services Agreement.

The Owner
shall pay the Owner Expenses and the Overhead Payment (if applicable) in the
manner provided in Section 6.b., below.

b.                                      Manner of
Payment.  All payments required under
this Section 6 shall be made by wire of immediately available funds or check as
follows:

If by Wire:
Account information to be provided by Operator.

If by Check:  Payee information to be provided by Operator.

c.                                       Taxes.  The Owner shall be responsible for all
applicable taxes levied on items, goods or services that are sold, purchased or
obtained pursuant to this Agreement.

d.                                      Disputed
Charges.  The Owner may, within
thirty (30) days after receipt of a charge from Operator, take written
exception to such charge on the ground that such charge was not in accordance
with the terms of this Agreement.  In
such event, the Owner shall nonetheless pay such amount to Operator as to which
such written exception is taken, or any part thereof, and if such change is
ultimately determined not to be in accordance with the terms of this Agreement,
such amount or portion thereof (as the case may be) shall be repaid by the Operator
together with any interest thereon at a rate equal to the prime rate per annum
established by Citibank, N.A. as in effect on the date of this Agreement.  It is expressly understood that the Parties
will use their best efforts to resolve any and all Disputed Charges between the
Owner and the Operator within twelve (12) months after the initial written
exception to the charge has been made.

7.                                      LIABILITIES
AND INDEMNIFICATION:  Operator
shall be liable for and to indemnify the Owner for all claims relating  to injury to Operator’s employees and/or
contractors except to the extent such injuries are caused by the gross
negligence or willful misconduct  of
Owner.  Operator shall be liable for and
agrees to promptly pay for all labor performed or furnished for the Operator in
performance of the work provided for herein. 
Operator further agrees to indemnify, hold harmless and defend Owner
from and against any and all claims or causes of action arising from or related
to Operator’s operations hereunder except to the extent such claim, injury,
death, damage or loss are caused by the gross negligence or willful misconduct
of the Owner.  The insurance coverages
required pursuant to Section 5 above are in addition to, and not in lieu of,
the indemnity obligations of Operator pursuant to this Section.

8.                                      INDEPENDENT
CONTRACTOR:  Operator shall
perform its duties and all work hereunder without supervision by the Owner and
shall in all things act as an independent contractor.  All work by the Operator shall be performed in
accordance with good oilfield practice and in a good 

 4
 

and workmanlike manner.

It is specifically
recognized that Operator may act as a contract operator for any affiliates of
Operator and Operator shall have the freedom to continue such activities or to
initiate such other activities as it chooses.

9.                                      TAXES:
 The Operator agrees to pay and be
responsible for all federal, state and local taxes of whatsoever kind and
description covering the work to be performed by Operator pursuant to this
Agreement.  This responsibility shall
include all payroll taxes (including Social Security taxes) for all employees
of the Operator.

10.                               WELL
RECORDS AND PRODUCTION DATA:   Operator shall maintain complete records for
each Well, and shall make any copies of such records available to Owner in the
offices of Operator and any other person designated by the Owner from time to
time.  It is further understood that any
and all lease maps, well logs, well production records and all other records
relating to the Wells are the sole property of the Owner, and Owner shall be
entitled to the return of the originals of such items upon request.

11.                               TERM:  Except as otherwise provided herein, the term
of this Agreement shall be for the productive life of the Wells, provided that
the Gathering and Compression Agreement, as it pertains to any of the
Wells,  is still in force and effect
between the Owner and the Operator’s affiliate, Vinland Energy Gathering,
LLC.  Notwithstanding anything herein to
the contrary, Operator may resign and thereby terminate this Agreement upon
twelve (12) months advance written notice.

12.                               DEFAULT
AND REMEDIES.  The following
shall be Events of Default under the terms of this Agreement and the terms “Events
of Default” or “Default” shall mean, whenever they are used in this Agreement,
any one or more of the following events:

a.                                       If Owner shall
fail to pay or cause to be paid any sums due to the Operator for a period of
five (5) business days after Operator has given Owner written notice thereof;

b.                                      If either party shall
file a voluntary petition for bankruptcy or shall be adjudicated bankrupt or
insolvent, or shall file any petition or any answer seeking or acquiescing in
any reorganization, arrangement, composition, adjustment, liquidation,
dissolution, or similar relief for itself under any then current federal, state
or other statute, law, or regulation, or shall seek, consent to, or acquiesce
in the appointment of any trustee, receiver, or liquidator of such party, or
shall make any general assignment for the benefit of creditors, or shall admit
in writing its inability to pay its debts generally as they become due;

c.                                       If either party
shall materially fail to perform or observe any covenant, provision, term,
restriction, or condition required to be performed or observed by such party
under the terms of this Agreement (other than the obligation to pay money
referenced in subsection (a) above) which continues for more than ninety (90)
days after such party has received written notice thereof; provided that if
such failure cannot be cured within such ninety (90) day period, no default
shall occur if the relevant party has begun good faith efforts to cure the
failure within such ninety days.  In the
event of a dispute between the parties whether a material failure to perform
has occurred, no termination of this 

 5
 

Agreement shall occur until the defaulting party has the opportunity to
cure provided by this section, after the existence of such failure has been
determined in accordance with this Agreement.

If any of the Events
of Default enumerated in this Section 12 occurs, then in such event and as
often as the same occurs without cure, the non-defaulting party may, at its
option terminate this Agreement by providing ninety (90) days written notice.

Exercise of the
foregoing remedies shall not preclude the parties from exercising every other
remedy provided herein or at law, it being the intention of the parties that
parties’ remedies shall be cumulative and shall survive termination of this
Agreement.

13.                               ASSIGNMENT:  The Operator shall not assign its rights or
obligations pursuant to this Agreement without first receiving the written
consent of the Owner to such assignment.

14.                               NOTICES:  Any notice required to be given hereunder
shall be in writing and shall be deemed to be delivered when properly addressed
and posted by certified mail, postage prepaid, return receipt requested, to any
party hereto at the address shown on the first page hereof, or at such other
address as either party shall designate to the other by do notice.

15.                               GOVERNING
LAW:  This Agreement shall be
constructed in accordance with, and governed in all respects by, the laws of
the Commonwealth of Kentucky, without regard to its conflicts of laws
principles.

16.                               BINDING
AGREEMENT:   This Agreement shall
be binding upon the successors and permitted assigns of the parties hereto.

17.                               FORCE
MAJEURE:   In the event
performance of services hereunder is prevented by labor disputes; by law,
regulations, or statues enforced by any governmental agency; or by other extraordinary
causes beyond the reasonable control of Operator, the obligations of Operator
under this Agreement shall be suspended, and during such suspension Owner shall
be relieved of the obligation to make any payments to Operator as provided for
herein.  Operator shall give Owner prompt
notice of any claimed force majeure
event and shall use its best efforts to eliminate or mitigate any such event.

18.                               ARBITRATION.                                                 If any controversy, claim or dispute arising
out of or relating to this Agreement or the breach or performance thereof
occurs, the parties shall meet and exert reasonable efforts to reach an
amicable settlement for a period not to exceed twenty (20) days from the date
written notice of the controversy, claim or dispute is served by the complaining
party to the other party under this Agreement. 
If for any reason such settlement fails to occur within such
twenty-day period (or such other period as the parties may agree in writing),
the parties
will then enlist the services of a mutually agreed upon industry representative
to facilitate negotiations for an additional twenty (20) day period in an
attempt to resolve the controversy.  If a
favorable resolution is not attained within the additional twenty (20) day
period,  (or such
other period as the parties may agree in writing), the controversy, claim or
dispute shall be finally and conclusively resolved by a binding arbitration
administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules (“AAA Rules”) and subject to the Federal
Arbitration Act, 9 U.S.C. Sections 1 et  seq., and judgment on any
award thereby rendered may be entered in any court having jurisdiction thereof.

(a)                                  Any such arbitration shall proceed as promptly
and as expeditiously as possible (and the 

 6
 

parties shall cooperate to this end) before three arbitrators,
consisting of one arbitrator appointed by the claimant, one arbitrator
appointed by the respondent, and the third arbitrator appointed by the two
party-appointed arbitrators.  Arbitration
shall be initiated by written notice of intention to arbitrate made pursuant
the AAA Rules.  The claimant shall
identify its appointed arbitrator in the notice of intention to arbitrate, and
the respondent shall identify its appointed arbitrator within ten (10) days of
its receipt of the notice of intention to arbitrate.  The two party-appointed arbitrators shall
agree upon and appoint the third arbitrator within the ten (10) day period
following the appointment of the second party-appointed arbitrator.  If either the claimant or the respondent fail
to appoint an arbitrator pursuant to the foregoing, or if the two
party-appointed arbitrators fail to agree upon and appoint the third arbitrator
within the above-referenced ten (10) day period, then such arbitrator or
arbitrators shall be appointed by the AAA pursuant to the AAA Rules.  The arbitrators chosen or appointed shall
have expertise and/or experience in the oil and gas industry.

(b)                                 Nothing in this Section shall be deemed to
preclude any party from applying to any court of competent jurisdiction at any
time prior to the formation of the arbitration panel (including before or
during the twenty (20) day negotiation period referenced in the first sentence
of this Section) for injunctive, provisional or other emergency relief
pertaining to the subject matter of a controversy, claim or dispute that is
arbitrable hereunder, or applying for such relief in aid of arbitration after
formation of the arbitration panel, where (i) the arbitration award to which the
party may be entitled may be rendered ineffectual without such relief, (ii) the
party seeking such relief is not in breach of this Section, and (iii) the
relief sought will not materially delay or frustrate the arbitration.  The grant or denial of any court-ordered
relief pursuant to this paragraph shall not constitute or be deemed to be a
ruling on the merits of the matter to be arbitrated, nor shall any application
for such relief be deemed to be a waiver of any right to arbitration hereunder.

(c)                                  The parties hereby agree that the costs and
expenses, including attorneys’ fees, incurred in connection with any
arbitration or court proceeding hereunder shall be awarded in favor of the
prevailing party and against the losing party as determined by the arbitration
panel or court, as the case may be.

19.                               COMPLETE
AGREEMENT:  This Agreement and
the exhibits hereto embody the complete understanding between the parties with
respect to the subject-matter hereof, and no oral agreement amending, revising,
or supplementing this Agreement shall be binding on either party unless reduced
to writing and executed by both parties.

[End of Text.  Signatures on Following Page]

 7
 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized officers and
representatives as of the date first above written.

	
   

  	
  VINLAND ENERGY OPERATIONS, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Majeed S.
  Nami

  	
   

  
	
   

  	
   

  
	
   

  	
  Its: Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VANGUARD
  NATURAL GAS, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Majeed S.
  Nami

  	
   

  
	
   

  	
   

  
	
   

  	
  Its: Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TRUST
  ENERGY COMPANY, LLC

  
	
   

  	
  By: Vanguard
  Natural Gas, LLC

  
	
   

  	
  Its: Manager

  
	
   

  	
  By:

  	
  /s/ Majeed S.
  Nami

  	
   

  
	
   

  	
   

  
	
   

  	
  Its: Manager

  

 

 8

EXHIBIT A

to the Well Services Agreement (Kentucky)

WELL LIST (KENTUCKY)

Intentionally
Omitted

EXHIBIT B

to the Well Services Agreement (Kentucky)

SELF INSURANCE EXPENSE

Self-Insurance
Expense - None

EXHIBIT C

to the Well Services Agreement (Kentucky)

INSURANCE LIST

Insurance Coverages

Operator, at all times while conducting operations under the Operating
Agreement to which this Exhibit is attached, shall carry the following
insurance:

A.                                   Workmen’s
Compensation Insurance to cover full liability under the Workmen’s Compensation
Law of the State where the operations are being conducted:

	
  Employer’s Liability

  	
   

  	
  $

  	
  1,000,000

  	
   

  

 

B.                                     Comprehensive
General Liability Insurance including:

	
  General Aggregate Limit
  (Other than Prod-Comp Operations)

  	
   

  	
  $

  	
  2,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Products-Completed
  Operations Aggregate Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Personal &
  Advertising Injury Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Each Occurrence Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Fire Damage Limit (Any
  One Fire)

  	
   

  	
  $

  	
  100,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Medical Expense Limit (Any One Person)

  	
   

  	
  $

  	
  5,000

  	
   

  

 

C.                                     Comprehensive
Automobile Liability Insurance having a Combined Single Limit of $1,000,000 per
occurrence for Bodily Injury and Property Damage.  Coverage is to include owned, non-owned and
hired vehicles.

D.                                    Commercial
Property Policy covers Real and Personal Property and Contractor’s Equipment up
to a Limit of $3,400,000 per Occurrence all Coverages combined.

E.                                      Commercial
Umbrella Liability Policy including:

	
  Each Occurrence Limit

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  General Aggregate

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Products-Completed
  Operations Aggregate

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Crisis Response
  Sublimit of Insurance

  	
   

  	
  $

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Excess Casualty Crisis Fund Limit of Insurance

  	
   

  	
  $

  	
  50,000

  	
   

  

 

F.                                      Additional
Insureds:

Amendments may be made to
this Exhibit to reflect any future changes in insurance coverages as needed.

EXHIBIT D

ACCOUNTING
PROCEDURE

WELL SERVICES AGREEMENT

(Kentucky Operations)

Attached to and made part of that certain Well
Services Agreement, effective January 5, 2007 by and between VINLAND ENERGY
OPERATIONS, LLC (“Operator”) and VANGUARD NATURAL GAS, LLC and its subsidiary
TRUST ENERGY COMPANY, LLC (collectively the “Owner”)

I. GENERAL PROVISIONS

1.                                      DEFINITIONS

All terms used in this Accounting Procedure shall have
the following meaning, unless otherwise expressly defined in the Agreement:

“Affiliate” means for a person, another person that
controls, is controlled by, or is under common control with that person.  In this definition, (a) control means the
ownership by one person, directly or indirectly, of more than fifty percent
(50%) of the voting securities of a corporation or, for other persons, the
equivalent ownership interest (such as partnership interests), and (b) “person”
means an individual, corporation, partnership, trust, estate, unincorporated
organization, association, or other legal entity.

“Agreement” means the Well Services Agreement between
the Owner and Operator.

“Controllable Material” means Material that, at the
time of acquisition or disposition by the Well Account, as applicable, is so
classified in the Material Classification Manual most recently recommended by
the Council of Petroleum Accountants Societies (COPAS).

“Equalized Freight” means the procedure of charging
transportation cost to the Well Account based upon the distance from the
nearest Railway Receiving Point to the property.

“Excluded Amount” means a specified excluded trucking
amount most recently recommended by COPAS.

“Field Office” means a structure, or portion of a
structure, whether a temporary or permanent installation, the primary function
of which is to directly serve daily operation and maintenance activities of the
Wells and which serves as a staging area for directly chargeable field
personnel.

“First Level Supervision” means those employees whose
primary function in Well Operations is the direct oversight of the Operator’s
field employees and/or contract labor directly employed On-site in a field
operating capacity.  First Level
Supervision functions may include, but are not limited to:

·                                          Responsibility
for field employees and contract labor engaged in activities that can include
field operations, maintenance, construction, well remedial work, equipment
movement and drilling

·                                          Responsibility
for day-to-day direct oversight of rig operations

·                                          Responsibility
for day-to-day direct oversight of construction operations

·                                          Coordination
of job priorities and approval of work procedures

·                                          Responsibility
for optimal resource utilization (equipment, Materials, personnel)

·                                          Responsibility
for meeting production and field operating expense targets

·                                          Representation
of the Parties in local matters involving community, vendors, regulatory agents
and landowners, as an incidental part of the supervisor’s operating
responsibilities

·                                          Responsibility
for all emergency responses with field staff

·                                          Responsibility
for implementing safety and environmental practices

·                                          Responsibility
for field adherence to company policy

·                                          Responsibility
for employment decisions and performance appraisals for field personnel

·                                          Oversight
of sub-groups for field functions such as electrical, safety, environmental,
telecommunications, which may have group or team leaders.

“Laws” means any laws, rules, regulations, decrees,
and orders of the United States of America or any state thereof and all other
governmental bodies, agencies, and other authorities having jurisdiction over
or affecting the provisions contained in or the transactions contemplated by
the Agreement or the Parties and their operations, whether such laws now exist
or are hereafter amended, enacted, promulgated or issued.

“Management Services Agreement” shall mean the certain
Management Services Agreement dated April       ,
2007, by and among the parties hereto.

“Material” means personal property, equipment,
supplies, or consumables acquired or held for use for the Wells.

“Off-site” means any location that is not considered
On-site as defined in this Accounting Procedure.

 2
 

“On-site” means on the property associated with the
Wells when in direct conduct of Well Operations.  The term “On-site” shall also include
facilities that directly control equipment on the Well Property, regardless of
whether such facilities are owned by the Owner.

“Operator” means Vinland Energy Operations, LLC.

“Parties” means the Operator and the Owner or their
successors and assigns.  Parties shall be
referred to individually as “Party.”

“Personal Expenses” means reimbursed costs for travel
and temporary living expenses.

“Railway Receiving Point” means the railhead nearest
the Well Property for which freight rates are published, even though an actual
railhead may not exist.

“Supply Store” 
means a recognized source or common stock point for a given Material
item.

“Technical Services” means services providing specific
engineering, geoscience, or other professional skills, such as those performed
by engineers, geologists, geophysicists, and technicians, required to handle
specific operating conditions and problems for the benefit of Well Operations;
provided, however, Technical Services shall not include those functions
specifically identified as overhead under the second paragraph of the
introduction of Section III (Overhead). 
Technical Services may be provided by the Operator, Operator’s Affiliate
and/or third parties.

“Well Account” means the account showing the charges
paid and credits received in the conduct of the Well Operations that are to be
paid by the Owner, but does not include proceeds attributable to hydrocarbons
and by-products produced from the Wells.

“Well Operations” means all operations necessary or
proper for the development, production, protection, maintenance, repair,
abandonment, and restoration of the Wells.

“Well Property” means the property at the wellhead of,
and otherwise associated with, the Wells, or any of them.

“Wells” means the wells listed on Exhibit A to the
Agreement.

2.                                      STATEMENTS AND BILLINGS

The Operator shall bill Owner for the applicable
charges hereunder as provided in the Agreement and the Management Services
Agreement.  Such bills shall be
accompanied by statements that identify the AFE (authority for expenditure),
lease or facility, and all charges and credits summarized by appropriate
categories of investment and expense. 
Controllable Material shall be separately identified and fully described
in detail, or at the Operator’s option, Controllable Material may be summarized
by major Material classifications. 
Intangible costs, audit adjustments, and unusual charges and credits
shall be separately and clearly identified.

 3
 

3.                                      ADJUSTMENTS

Adjustments of the bills submitted hereunder
shall be in accordance with the Agreement and the Management Services
Agreement.

4.                                      EXPENDITURE AUDITS

The Owner shall have the audit rights provided in the
Agreement and the Management Services Agreement.

5.                                      APPROVAL BY PARTIES

A.                                   GENERAL
MATTERS

Where an approval or other agreement of the Owner is
expressly required under other Sections of this Accounting Procedure and if the
Agreement and the Management Services Agreement contain no contrary provisions
in regard thereto, the Operator shall notify Owner of the Operator’s proposal
and the agreement or approval of Owner shall be the definitive.

B.                                     AMENDMENTS

This Accounting Procedure may only be amended in the
manner provided in the Agreement and the Management Services Agreement.

II. DIRECT CHARGES

The Operator shall charge
the Well Account with the following items:

1.                                      RENTALS AND ROYALTIES

Lease rentals and royalties paid by the Operator, on
behalf of Owner, for the Well Operations.

2.                                      LABOR

A.                                   Salaries
and wages for:

(1)                                  Operator’s
field employees directly employed On-site in the conduct of Well Operations;

(2)                                  Operator’s
employees providing First Level Supervision;

(3)                                  Operator’s
employees providing On-site Technical Services for the Well Operations;

(4)                                  Operator’s
employees providing Off-site Technical Services for the Well Operations;

 4
 

Charges for the Operator’s employees identified in
Section II.2.A may be made based on the employee’s actual salaries and wages,
or in lieu thereof, a day rate representing the Operator’s average salaries and
wages of the employee’s specific job category.

B.                                     Operator’s
cost of holiday, vacation, sickness, and disability benefits, and other
customary allowances paid to employees whose salaries and wages are chargeable
to the Well Account under Section II.2.A, excluding severance payments or other
termination allowances.  Such costs under
this Section II.2.B may be charged on a “when and as-paid basis” or by “percentage
assessment” on the amount of salaries and wages chargeable to the Well Account
under Section II.2.A.  If percentage
assessment is used, the rate shall be based on the Operator’s cost experience.

C.                                     Expenditures
or contributions made pursuant to assessments imposed by governmental authority
that are applicable to costs chargeable to the Well Account under Sections
II.2.A and B.

D.                                    Personal
Expenses of personnel whose salaries and wages are chargeable to the Well Account
under Section II.2.A when the expenses are incurred in connection with directly
chargeable activities.

E.                                      Operator’s
current cost of established plans for employee benefits, as described in COPAS
MFI-27 (“Employee Benefits Chargeable to Well Operations and Subject to
Percentage Limitation”), applicable to the Operator’s labor costs chargeable to
the Well Account under Sections II.2.A and B based on the Operator’s actual
costs not to exceed the employee benefits limitation percentage most recently
recommended by COPAS.

F.                                      Award
payments to employees, in accordance with COPAS MFI-49 (“Awards to Employees
and Contractors”) for personnel whose salaries and wages are chargeable under
Section II.2.A.

3.                                      MATERIAL

Material purchased or furnished by the Operator for
use in the Well Operation as provided under Section IV (Material
Purchases, Transfers, and Dispositions).  Only such Material shall be purchased for or
transferred to the Well Property as may be required for immediate use or is
reasonably practical and consistent with efficient and economical
operations.  The accumulation of surplus
stocks shall be avoided.

4.                                      TRANSPORTATION

A.                                   Transportation
of the Operator’s, Operator’s Affiliate’s, or contractor’s personnel necessary
for Well Operations.

B.                                     Transportation
of Material between the Wells and another property, or from the Operator’s
warehouse or other storage point to the Wells, shall be charged to the
receiving property using one of the methods listed below.  Transportation of 

 5
 

Material from
the Wells to the Operator’s warehouse or other storage point shall be paid for
by the Well Account using one of the methods listed below:

(1)                                  If
the actual trucking charge is less than or equal to the Excluded Amount the
Operator may charge actual trucking cost or a theoretical charge from the
Railway Receiving Point to the Wells. 
The basis for the theoretical charge is the per hundred weight charge
plus fuel surcharges from the Railway Receiving Point to the Wells.  The Operator shall consistently apply the
selected alternative.

(2)                                  Accessorial
charges such as loading and unloading costs, split pick-up costs, detention,
call out charges, and permit fees shall be charged directly to the Wells and
shall not be included when calculating the Equalized Freight.

5.                                      SERVICES

The cost of contract services (including Well meter
chart integration costs), equipment, and utilities used in the conduct of Well
Operations, except for contract services, equipment, and utilities covered by
Section III (Overhead), or Section II.7 (Affiliates), or excluded under Section II.9 (Legal Expenses). 
Awards paid to contractors shall be chargeable pursuant to COPAS MFI-49
(“Awards to Employees and Contractors”).

The costs of third party Technical Services are
chargeable.

6.                                      EQUIPMENT AND FACILITIES
FURNISHED BY OPERATOR

In the absence of a separately-negotiated agreement,
equipment and facilities furnished by the Operator will be charged as follows:

A.                                   The
Operator shall charge the Well Account for use of Operator-owned equipment and
facilities at rates commensurate with the costs of ownership and operation.

B.                                     In
lieu of charges in Section II.6.A above, the Operator may elect to use average
commercial rates prevailing in the immediate area of the Wells, less five
percent (5%).  If equipment and
facilities are charged under this Section II.6.B, the operator shall adequately
document and support commercial rates and shall periodically review and update
the rate and the supporting documentation. 
For automotive equipment, the Operator may elect to use rates published
by the Petroleum Motor Transport Association (PMTA) or such other organization
recognized by COPAS as the official source of rates.

7.                                      AFFILIATES

A.                                   Charges
for an Affiliate’s goods and/or services used in operations requiring an AFE or
other authorization from the Owner may be made without the approval of the Owner
provided (i) the Affiliate is identified and the Affiliate goods and 

 6
 

services are
specifically detailed in the approved AFE or other authorization, and (ii) the
total cost for such Affiliate’s goods and services billed to such individual
project do not exceed $10,000.  If the
total costs for such Affiliate’s goods and services charged to such individual
project are not specifically detailed in the approved AFE or authorization or
exceed such amount, charges for such Affiliate shall require approval of the
Parties, pursuant to Section I.5A (General Matters).

B.                                     For
an Affiliate’s goods and/or services used in operations not requiring an AFE or
other authorization from the Owner, charges for such Affiliate’s goods and
services shall require approval of the Parties, pursuant to Section I.5A (General Matters), if the charges exceed $50,000 in a given
calendar year.

C.                                     The
cost of the Affiliate’s goods or services shall not exceed average commercial
rates prevailing in the area of the Wells. 
Notwithstanding the foregoing, direct charges for Affiliate-owned
communication facilities or systems shall be made pursuant to Section II.12 (Communications).

8.                                      DAMAGES AND LOSSES TO THE WELLS

All costs or expenses necessary for the repair or
replacement of Wells and related property resulting from damages or losses
incurred, except to the extent such damages or losses result from Operator’s
gross negligence or willful misconduct, in which case Operator shall be solely
liable.

The Operator shall furnish the Owner written notice of
damages or losses incurred as soon as practicable after a report has been
received by the Operator.

9.                                      LEGAL EXPENSE

Recording fees and costs of handling, settling, or
otherwise discharging litigation, claims, and liens incurred in or resulting
from operations under the Agreement, or necessary to protect or recover the Wells,
to the extent permitted under the Agreement. 
Costs of the Operator’s or Affiliate’s legal staff or outside attorneys,
including reasonable fees and expenses, are not chargeable unless approved by
the Owner pursuant to Section I.5.A (General Matters)
or otherwise provided for in the Agreement.

Notwithstanding the foregoing paragraph, costs for
procuring abstracts, fees paid to outside attorneys for title examinations
(including preliminary, supplemental, shut-in royalty opinions, division order
title opinions), and curative work shall be chargeable as a direct charge.

10.                               TAXES AND PERMITS

All taxes and permitting fees of every kind and
nature, assessed or levied upon or in connection with the Wells, or the
production therefrom, and which have been paid by the Operator for the benefit
of the Owner, including penalties and interest, except to the extent the
penalties and interest result from the Operator’s gross negligence or willful
misconduct.

 7
 

Costs of tax consultants or advisors, the Operator’s
employees, or Operator’s Affiliate employees in matters regarding ad valorem or
other tax matters, are not permitted as direct charges unless approved by the Owner
pursuant to Section I.5.A (General Matters).

Charges to the Well Account resulting from sales/use
tax audits, including extrapolated amounts and penalties and interest, are
permitted, provided the Operator shall be allowed to review the invoices and
other underlying source documents which served as the basis for tax charges and
to determine that the correct amount of taxes were charged to the Well Account.  If the Owner is not permitted to review such
documentation, the sales/use tax amount shall not be directly charged unless
the Operator can conclusively document the amount owed by the Well Account.

11.                               INSURANCE

Insurance shall be provided as required by the
Agreement and the Management Services Agreement.

12.                               COMMUNICATIONS

Costs of acquiring, leasing, installing, operating,
repairing, and maintaining communication facilities or systems, between the Wells
and the Operator’s office(s) directly responsible for field operations in
accordance with the provisions of COPAS MFI-44 (“Field Computer and
Communication Systems”).  If the
communication facilities or systems serving the Wells are Operator-owned,
charges to the Well Account shall be made as provided in Section II.5 (Equipment and Facilities Furnished by Operator).  If the communication facilities or systems
serving the Wells are owned by the Operator’s Affiliate, charges to the Well Account
shall not exceed average commercial rates prevailing in the area of the Wells.  The Operator shall adequately document and
support commercial rates and shall periodically review and update the rate and
the supporting documentation.

13.                               ECOLOGICAL, ENVIRONMENTAL,
AND SAFETY.

Costs incurred for Technical Services and drafting to
comply with ecological, environmental and safety Laws or standards recommended
by Occupational Safety and Health Administration (OSHA) or other regulatory
authorities.  All other labor and
functions incurred for ecological, environmental and safety matters, including
management, administration, and permitting, shall be covered by Sections II.2
(Labor), II.5 (Services), or Section III (Overhead), as applicable.

Costs to provide or have available pollution
containment and removal equipment plus actual costs of control and cleanup and
resulting responsibilities of oil and other spills as well as discharges from
permitted outfalls as required by applicable Laws, or other pollution
containment and removal equipment deemed appropriate by the Operator for prudent
operations, are directly chargeable.

 8
 

14.                               ABANDONMENT AND RECLAMATION

Costs incurred for abandonment and reclamation of the Wells,
including costs required by lease agreements or by Laws.

15.                               OTHER EXPENDITURES

Any other expenditure not covered or dealt with in the
foregoing provisions of this Section II (Direct Charges),
or in Section III (Overhead) and
which is of direct benefit to the Wells and is incurred by the Operator in the
necessary and proper conduct of the Well Operations.  Charges made under this Section II.15 shall
require approval of the Parties, pursuant to Section I.5.A (General Matters).

III.OVERHEAD

As compensation for costs not specifically identified as chargeable to
the Well Account pursuant to Section II (Direct Charges),
the Operator shall charge the Well Account in accordance with this Section III.

Functions included in the overhead rates regardless of whether
performance by the Operator, Operator’s Affiliates or third parties and
regardless of location, shall include, but not be limited to, costs and
expenses of:

·                                          warehousing,
other than for warehouses that are jointly owned under this Agreement

·                                          design
and drafting (except when allowed as a direct charge under Sections II.13,
III.1.A(ii), and III.2, Option B)

·                                          inventory
costs not chargeable under Section V (Inventories of Controllable Material)

·                                          procurement

·                                          administration

·                                          accounting
and auditing

·                                          gas
dispatching

·                                          human
resources

·                                          management

·                                          supervision
not directly charged under Section II.2 (Labor)

·                                          legal
services not directly chargeable under Section II.9 (Legal Expense)

·                                          taxation,
other than those costs identified as directly chargeable under Section II.10 (Taxes and Permits)

 9

·                                          preparation
and monitoring of permits and certifications; preparing regulatory reports;
appearances before or meetings with governmental agencies or other authorities
having jurisdiction over the Wells, other than On-site inspections; reviewing,
interpreting, or submitting comments on or lobbying with respect to Laws or
proposed Laws.

Overhead charges shall include the salaries or wages plus applicable
payroll burdens, benefits, and Personal Expenses of personnel performing
overhead functions, as well as office and other related expenses of overhead
function.

1.                                       OVERHEAD - PRODUCING OPERATIONS

As compensation for costs incurred but not chargeable
under Section II (Direct Charges) and not covered
by other provisions of this Section III, the Operator shall charge on either:

x
(Alternative 1) Fixed Rate Basis, Section III.1.B.

o
(Alternative 2) Percentage Basis, Section III.1.C.

A.                                   TECHNICAL
SERVICES

(i)                                     Except
as otherwise provided in Section II.13 (Ecological Environmental,
and Safety) and Section III.2 (Overhead - Major
Construction and Catastrophe), or by approval of the Owner pursuant
to Section I.5.A (General Matters), the salaries,
wages, related payroll burdens and benefits, and Personal Expenses for On-site
Technical Services, including third party Technical Services:

x (Alternative 1 - Direct) shall be charged direct
to the Well Account.

o (Alternative 2 - Overhead) shall be covered
by the overhead rates

(ii)                                  Except
as otherwise provided in Section II.13 (Ecological, Environmental,
and Safety) and Section III.2 (Overhead - Major
Construction and Catastrophe), or by approval of the Owner pursuant
to Section I.5.A (General Matters), the salaries,
wages, related payroll burdens and benefits, and Personal Expenses for Off-site
Technical Services, including third party Technical Services:

o
(Alternative 1 - All Overhead) shall be covered by the overhead rates.

x
(Alternative 2 - All Direct)  shall be
charged direct to the Well Account.

o
(Alternative 3 - Drilling Direct) shall be charged direct to the Well Account,
only to the extent such Technical Services are directly attributable to
drilling, redrilling, deepening, or sidetracking operations, through
completion, temporary abandonment, or abandonment if a dry hole.  Off-site Technical Services for all other operations,
including workover, recompletion, abandonment of producing wells, and the
construction or expansion of fixed assets not covered by Section III.2 

 10
 

(Overhead -
Major Construction and Catastrophe) shall be covered by the overhead
rates.

Notwithstanding anything to the contrary in this
Section III, Technical Services provided by Operator’s Affiliates are subject
to limitations set forth in Section II.7 (Affiliates).  Charges for Technical personnel performing
non-technical work shall not be governed by this Section III.1.A., but instead
governed by other provisions of this Accounting Procedure relating to the type
of work being performed.

B.                                     OVERHEAD
- FIXED RATE BASIS

(1)                                  All
fixed-rate overhead expenses shall be payable from the per-well charge provided
for in the Management Services Agreement.

2.                                      OVERHEAD - MAJOR
CONSTRUCTION AND CATASTROPHE

To compensate the Operator for overhead costs incurred
in connection with a Major Construction project or Catastrophe, the Operator
shall either negotiate a rate prior to the beginning of the project, or shall
charge the Well Account for overhead based on the following rates for any Major
Construction project in excess of the Operator’s expenditure limit under the
Agreement, or for any Catastrophe regardless of the amount.  If the Agreement to which this Accounting
Procedure is attached does not contain an expenditure limit, Major Construction
Overhead shall be assessed for any single Major Construction project costing in
excess of $100,000 gross.

Major Construction shall mean the construction and
installation of fixed assets, the expansion of fixed assets, and any other
project clearly discernible as a fixed asset required for the development and
operation of the Wells, or in the dismantlement, abandonment, removal, and
restoration of platforms, production equipment, and other operating facilities.

Catastrophe is defined as a sudden calamitous event
bringing damage, loss, or destruction to property or the environment, such as
an oil spill, blowout, explosion, fire, storm, hurricane, or other
disaster.  The overhead rate shall be
applied to those costs necessary to restore the Wells to the equivalent
condition that existed prior to the event.

A.                                   If
the Operator absorbs the engineering, design and drafting costs related to the
project:

(1)                                  10%
of total costs if such costs are less than $100,000; plus

(2)                                  4%
of total costs in excess of $100,000 but less than $1,000,000; plus

(3)                                  2%
of total costs in excess of $1,000,000.

B.                                     If
the Operator charges engineering, design and drafting costs related to the
project directly to the Well Account:

 11
 

(1)                                  5%
of total costs if such costs are less than $100,000; plus

(2)                                  2%
of total costs in excess of $100,000 but less than $1,000,000; plus

(3)                                  1%
of total costs in excess of $1,000,000.

Total cost shall mean the gross cost of any one
project.  For the purpose of this
paragraph, the component parts of a single Major Construction project shall not
be treated separately, and the cost of drilling and workover wells and
purchasing and installing pumping units and downhole artificial lift equipment
shall be excluded. For Catastrophes, the rates shall be applied to all costs
associated with each single occurrence or event.

On each project, the Operator shall advise the Owner
in advance which of the above options shall apply.

For the purposes of calculating Catastrophe Overhead,
the cost of drilling relief wells, substitute wells, or conducting other well
operations directly resulting from the catastrophic even shall be
included.  Expenditures to which these
rates apply shall not be reduced by salvage or insurance recoveries.  Expenditures that qualify for Major
Construction or Catastrophe Overhead shall not qualify for overhead under any
other overhead provisions.

In the event of any conflict between the provisions of
this Section III.2 and the provisions of Sections II.2 (Labor),
II.5 (Services), or II.7 (Affiliates),
the provisions of this Section III.2 shall govern.

3.                                      AMENDMENT OF OVERHEAD RATES

The overheard rates provided for in this Section III
may be amended from time to time, if in practice, the rates are found to be
insufficient or excessive, in accordance with the provisions of Section I.5.B (Amendments).

IV.MATERIAL PURCHASES, TRANSFERS, AND DISPOSITIONS

The Operator is responsible for Well Account Material and shall make
proper and timely charges and credits for direct purchases, transfers, and
dispositions.  The Operator shall provide
all Material for use in the conduct of Well Operations; however, Material may
be supplied by the Owner, at the Operator’s option.  Material furnished by any Party shall be
furnished without any express or implied warranties as to quality, fitness for
use, or any other matter.

1.                                      DIRECT PURCHASES

Direct purchases shall be charged to the Well Account
at the price paid by the Operator after deduction of all discounts
received.  The Operator shall make good
faith efforts to take discounts offered by suppliers, but shall not be liable
for failure to take discounts except to the extent such failure was the result
of the Operator’s gross negligence or willful misconduct.  A direct purchase shall be deemed to occur
when an agreement is made between an Operator and a third party for the
acquisition of Material for a specific 

 12
 

well site or location. 
Material provided by the Operator under “vendor stocking programs,”
where the initial use is for a Well and title of the Material does not pass
from the manufacturer, distributor, or agent until usage, is considered a
direct purchase.  If Material is found to
be defective or is returned to the manufacturer, distributor, or agent for any
other reason, credit shall be passed to the Well Account within sixty (60) days
after the Operator has received adjustment from the manufacturer, distributor,
or agent.

2.                                      TRANSFERS

A transfer is determined to occur when the Operator
(i) furnishes Material from a storage facility or form another operated
property, (ii) has assumed liability for the storage costs and changes in
value, and (iii) has previously secured and held title to the transferred
Material.  Similarly, the removal of
Material from the Wells to a storage facility or to another operated property
is also considered a transfer; provided, however, Material that is moved from
the Wells to a storage location for safe-keeping pending disposition may remain
charged to the Well Account and is not considered a transfer.  Material shall be disposed of in accordance
with Section IV.3 (Disposition of Surplus)
and the Agreement to which this Accounting Procedure is attached.

A.                                   PRICING

The value of Material transferred to/from the Wells
should generally reflect the market value on the date of physical
transfer.  Regardless of the pricing
method used, the Operator shall make available to the Owner sufficient
documentation to verify the Material valuation. 
When higher than specification grade or size tubulars are used in the
conduct of Well Operations, the Operator shall charge the Well Account at the
equivalent price for well design specification tubulars, unless such higher
specification grade or sized tubulars are approved by the Parties pursuant to
Section I.5.A (General Matters).  Transfers of new Material will be priced
using one of the following pricing methods, and not alternate between methods
for the purpose of choosing the method most favorable to the Operator for a
specific transfer:

(1)                                  Using
published prices in effect on date of movement as adjusted by the appropriate
COPAS Historical Price Multiplier (HPM) or prices provided by the COPAS
Computerized Equipment Pricing System (CEPS).

(a)                                  For
oil country tubulars and line pipe, the published price shall be based upon
eastern mill carload base prices (Houston, Texas, for special end) adjusted as
of date of movement, plus transportation cost as defined in Section IV.2.B (Freight).

(b)                                 For
other Material, the published price shall be the published list price in effect
at date of movement, as listed by a Supply Store nearest the Wells where like
Material is normally available, or point of manufacture plus transportation
costs as defined in Section IV.2.B (Freight).

 13
 

(2)                                  Based
on a price quotation from a vendor that reflects a current realistic
acquisition cost.

(3)                                  Based
on the amount paid by the Operator for like Material in the vicinity of the Wells
within the previous twelve (12) months from the date of physical transfer.

(4)                                  As
agreed to by the Participating Parties for Material being transferred to the Wells,
and by the Parties owning the Material for Material being transferred from the Wells.

B.                                     FREIGHT

Transportation costs
shall be added to the Material transfer price using the method prescribed by
the COPAS Computerized Equipment Pricing System (CEPS).  If not using CEPS, transportation costs shall
be calculated as follows:

(1)                                  Transportation
costs for oil country tubulars and line pipe shall be calculated using the
distance from eastern mill to the Railway Receiving Point based on the carload
weight basis as recommended by the COPAS MFI-38 (“Material Pricing Manual”) and
other COPAS MFIs in effect at the time of the transfer.

(2)                                  Transportation
costs for special mill items shall be calculated from that mill’s shipping
point to the Railway Receiving Point. 
For transportation costs from other than eastern mills, the 30,000-pound
interstate truck rate shall be used. 
Transportation costs for macaroni tubing shall be calculated based on
the interstate truck rate per weight of tubing transferred to the Railway
Receiving Point.

(3)                                  Transportation
costs for special end tubular goods shall be calculated using the interstate
truck rate from Houston, Texas, to the Railway Receiving Point.

(4)                                  Transportation
costs for Material other than that described in Sections IV.2.B.(1) through
(3), shall be calculated from the Supply Store or point of manufacture,
whichever is appropriate, to the Railway Receiving Point.

Regardless of whether using CEPS or manually
calculating transportation costs, transportation costs from the Railway
Receiving Point to the Wells are in addition to the foregoing, and may be
charged to the Well Account based on actual costs incurred.  All transportation costs are subject to
Equalized Freight as provided in Section II.4 (Transportation)
of this Accounting Procedure.

C.                                     TAXES

Sales and use taxes shall be added to the Material
transfer price using either the method contained in the COPAS Computerized
Equipment Pricing System 

 14
 

(CEPS) or the applicable tax rate in effect for the Wells
at the time and place of transfer.  In
either case, the Well Account shall be charged or credited at the rate that
would have governed had the Material been a direct purchase.

D.                                    CONDITION

(1)                                  Condition
“A” - New and unused Material in sound and serviceable condition shall be
charged at one hundred percent (100%) of the price as determined in Sections
IV.2.A (Pricing), IV.2.B (Freight),
and IV.2.C (Taxes). 
Material transferred from the Wells that was not placed in service shall
be credited as charged without gain or loss; provided, however, any unusual
Material that was charged to the Well Account through a direct purchase will be
credited to the Well Account at the original cost paid less restocking fees
charged by the vendor.  New and unused
Material transferred from the Wells may be credited at a price other than the
price originally charged to the Well Account provided such price is approved by
the Parties owning such Material, pursuant to Section I.5.A (General Matters).  All
refurbishing costs required or necessary to return the Material to original
condition or to correct handling, transportation, or other damages will be
borne by the divesting property.  The Well
Account is responsible for Material preparation, handling, and transportation
costs for new and unused Material charged to the Wells either through a direct
purchase or transfer.  Any preparation
costs incurred, including any internal or external coating and wrapping, will
be credited on new Material provided these services were not repeated for such
Material for the receiving property.

(2)                                  Condition
“B” - Used Material in sound and serviceable condition and suitable for reuse
without reconditioning shall be priced by multiplying the price determined in
Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) by
seventy-five percent (75%).

Except
as provided in Section IV.2.D(3), all reconditioning costs required to return
the Material to Condition “B” or to correct handling, transportation or other
damages will be borne by the divesting property.

If
the Material was originally charged to the Well Account as used Material and
placed in service for the Wells, the Material will be credited at the price
determined in Sections IV.2.A (Pricing),
IV.2.B (Freight), and IV.2.C (Taxes) multiplied by sixty-five percent (65%).

Unless
otherwise agreed to by the Parties that paid for such Material, used Material
transferred from the Wells that was not placed in service on the property shall
be credited as charged without gain or loss.

(3)                                  Condition
“C” - Material that is not in sound and serviceable condition and not suitable
for its original function until after reconditioning shall be 

 15
 

priced by
multiplying the price determined in Sections IV.2.A (Pricing),
IV.2.B (Freight), and IV.2.C (Taxes) by fifty percent (50%).

The
cost of reconditioning may be charged to the receiving property to the extent
Condition “C” value, plus cost of reconditioning, does not exceed Condition “B”
value.

(4)                                  Condition
“D” - Material that (i) is no longer suitable for its original purpose but
useable for some other purpose, (ii) is obsolete, or (iii) does not meet
original specifications but still has value and can be used in other
applications as a substitute for items with different specifications, is
considered Condition “D” Material. 
Casing, tubing, or drill pipe used as line pipe shall be priced as Grade
A and B seamless line pipe of comparable size and weight.  Used casing, tubing, or drill pipe utilized as
ling pipe shall be priced at used line pipe prices.  Casing, tubing, or drill pipe used as higher
pressure service lines than standard line pipe, e.g., power oil lines, shall be
priced under normal pricing procedures for acsing, tubing, or drill pipe.  Upset tubular goods shall be priced on a
non-upset basis.  For other items, the
price used should result in the Well Account being charged or credited with the
value of the service rendered or use of the Material, or as agreed to by the Owner
pursuant to Section I.5.A (General Matters).

(5)                                  Condition
“E” - Junk shall be priced at prevailing scrap value prices.

E.                                      OTHER
PRICING PROVISIONS

(1)                                  Preparation
Costs

Subject
to Section II (Direct Charges) and Section III (Overhead) of this Accounting Procedure, costs incurred by
the Operator in making Material serviceable including inspection, third party
surveillance services, and other similar services will be charged to the Well
Account at prices which reflect the Operator’s actual costs of the
services.  Documentation must be provided
to the Owners upon request to support the cost of service.  New coating and/or wrapping shall be
considered a component of the Materials and priced in accordance with Sections
IV.1 (Direct Purchases) or IV.2.A (Pricing), as applicable. 
No charges or credits shall be made for used coating or wrapping.  Charges and credits for inspections shall be
made in accordance with COPAS MFI-38 (“Material Pricing Manual”).

(2)                                  Loading
and Unloading Costs

Loading
and unloading costs related to the movement of the Material to the Wells shall
be charged in accordance with the methods specified in COPAS MF1-38 (Material
Pricing Manual”).

 16
 

3.                                      DISPOSITION OF SURPLUS

Surplus Material is that Material, whether new or
used, that is no longer required for Well Operations.  The Operator may purchase, but shall be under
no obligation to purchase, the interest of the Owner in surplus Material.

Dispositions for the purpose of this procedure are
considered to be the relinquishment of title of the Material from the Wells to
either a third party, an Owner, or to the Operator.  To avoid the accumulation of surplus
Material, the Operator should make good faith efforts to dispose of surplus
within twenty (12) months through buy/sale agreements, trade, sale to a third
party, division in kind, or other dispositions as agreed to by the Owner.

Disposal of surplus Materials shall be made in
accordance with the terms of the Agreement to which this Accounting Procedure
is attached.  If the Agreement contains
no provisions governing disposal of surplus Material, the following terms shall
apply:

·                                          The
Operator may, through a sale to an unrelated third party or entity, dispose of
surplus Material having a gross sale value that is less than or equal to the
Operator’s expenditure limit as set forth in the Agreement to which this
Accounting Procedure attached without the prior approval of the Parties owning
such Material.

·                                          If
the gross sale value exceeds the Agreement expenditure limit, the disposal must
be agreed to by the Parties owning such Material.

·                                          Operator
may purchase surplus Condition “A” or “B” Material without approval of the
Parties owning such Material, based on the pricing methods set forth in Section
Iv.2 (Transfers).

·                                          Operator
may purchase Condition “C” Material without prior approval of the Parties
owning such Material if the value of the Materials, based on the pricing
methods set forth in Section IV.2 (Transfers), is
less than or equal to the Operator’s expenditure limitation set forth in the
Agreement.  The Operator shall provide
documentation supporting the classification of the Material as Condition C.

·                                          Operator
may dispose of Condition “D” or “E” Material under procedures normally utilized
by Operator without prior approval of the Parties owning such Material.

4.                                      SPECIAL PRICING PROVISIONS

A.                                   PREMIUM
PRICING

Whenever Material is available only at inflated prices
due to national emergencies, strikes, government imposed foreign trade
restrictions, or other 

 17
 

unusual causes over which the Operator has no control,
for direct purchase the Operator may charge the Well Account for the required
Material at the Operator’s actual cost incurred in providing such Material,
making it suitable for use, and moving it to the Wells.  Material transferred or disposed of during
premium pricing situations shall be valued in accordance with Section IV.2 (Transfers) or Section IV.3 (Disposition
of Surplus), as applicable.

B.                                     SHOP-MADE
ITEMS

Items fabricated by the Operator’s employees, or by
contract laborers under the direction of the Operator, shall b priced using the
value of the Material used to construct the item plus the cost of labor to
fabricate the item.  If the Material is
from the Operator’s scrap or junk account, the Material shall be priced at
either twenty-five percent (25%) of the current price as determined in Section
IV.2.A (Pricing) or scrap value, whichever is
higher.  In no event shall the amount
charged exceed the value of the item commensurate with its use.

C.                                     MILL
REJECTS

Mill rejects purchased as “limited service” casing or
tubing shall be priced at eighty percent (80%) of K-55/J-55 price as determined
in Section IV.2 (Transfers).  Line pipe converted to casing or tubing with
casing or tubing couplings attached shall be priced as K-55/J-55 casing or
tubing at the nearest size and weight.

V.  INVENTORIES OF CONTROLLABLE
MATERIAL

The Operator shall maintain records of Controllable Material charged to
the Well Account, with sufficient detail to perform physical inventories.

Adjustments to the Well Account by the Operator resulting from a
physical inventory of Controllable Material shall be made within twelve (12)
months following the taking of the inventory or Owner’s receipt of the
inventory report.  Charges and credits
for overages or shortages will be valued for the Well Account in accordance
with Section IV.2 (Transfers) and
shall be based on the Condition “B” prices in effect on the date of physical
inventory unless the inventorying Parties can provide sufficient evidence
another Material condition applies.

1.                                      DIRECTED INVENTORIES

Physical inventories shall be performed by the
Operator upon written request of the Owner (hereinafter, “directed inventory”);
provided, however, the Operator shall not be required to perform directed
inventories more frequently than once every        
years.  Directed inventories shall be
commenced within one hundred eighty (180) days after the Operator receives
written notice that the Owner has requested the inventory.  All parties shall be governed by the results
of any directed inventory.

Expenses of directed inventories will be borne by the Well
Account; provided, however, costs associated with any post-report follow-up
work in settling the inventory will be 

 18
 

absorbed by the Party incurring such costs.  The Operator is expected to exercise judgment
in keeping expenses within reasonable limits. 
Any anticipated disproportionate or extraordinary costs should be discussed
and agreed upon prior to commencement of he inventory.  Expenses of directed inventories may include
the following:

A.                                   A
per diem rate for each inventory person, representative of actual salaries,
wages, and payroll burdens and benefits of the personnel performing the
inventory or a rate agreed to by the Parties pursuant to Section I.5.A (General Matters).  The
per diem rate shall also be applied to a reasonable number of days for
pre-inventory work and report preparation.

B.                                     Actual
transportation costs and Personal Expenses for the inventory team.

C.                                     Reasonable
charges for report preparation and distribution to the Owner.

2.                                      NON-DIRECTED INVENTORIES

A.                                   OPERATOR
INVENTORIES

Physical inventories that are not requested by the Owner
may be performed by the Operator, at the Operator’s discretion.  The expenses of conducting such Operator-initiated
inventories shall not be charged to the Well Account.

B.                                     OWNER
INVENTORIES

Subject to the terms of the Agreement to which this
Accounting Procedure is attached, the Owner may conduct a physical inventory at
reasonable times at its sole cost and risk after giving the Operator at least
ninety (90) days prior written notice. 
The Owner inventory report shall be furnished to the Operator in writing
within ninety (90) days of completing the inventory fieldwork.

C.                                     SPECIAL
INVENTORIES

The expense of conducting
inventories other than those described in Sections V.1 (Directed
Inventories), V.2.A (Operator Inventories),
or V.2.B (Non-Operator Inventories), shall be
charged to the Party requesting such inventory; provided, however, inventories
required due to a change of Operator shall be charged to the Well Account in
the same manner as described in Section V.1 (Directed
Inventories).

 19

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00122-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00122-of-00352.parquet"}]]