Christian Coal Holdings, Llc Bpi Energy, Inc. Coal Seam Gas Lease Agreement


Exhibit 10.2
  PRIMARY TERM     2  
  POOLING     10  
  DRAINAGE     12  
  DEFAULT     13  
  ASSIGNMENT     14  
  NOTICES     16  
  FORCE MAJEURE     16  
  TAXES     18  
  RECORDING OF     20  
  HEADINGS     20  
  GENDER     21  



     THIS COAL SEAM GAS (this “Agreement”) is made and entered into as of the 26thday of April 2006, between Christian Coal Holdings, LLC, an Illinois limited liability company(“LESSOR”), and BPI Energy, INC., a Nevada corporation (“LESSEE”).
     WHEREAS, LESSEE requests the right to lease in Christian and Montgomery Counties, Illinois,certain mineral lands owned by LESSOR as described in Exhibit “A”, attached hereto and made a parthereof, (hereinafter referred to as the “Leased Premises”), for the exploration and development ofgas (as defined herein below) located therein, and LESSOR is willing to enter into an agreement toprovide for the same upon the terms and conditions set forth herein.
     NOW THEREFORE, in consideration of the premises herein and intending to be legally bound,LESSOR and LESSEE agree as follows:
  1.1   In consideration of using its best effort to commercially produce alleconomically recoverable Gas (as defined in Paragraph 1.3) and paying LESSOR theroyalties and other consideration for the same as set forth in this Agreement, and inconsideration of the covenants contained in this Agreement to be performed by LESSEE,and for other good and valuable consideration, LESSOR hereby GRANTS, LEASES, and LETSunto LESSEE all of LESSOR’S title and interest, but only to the extent in fact actuallylegally owned or held by LESSOR, in and to the Gas underlying the Leased Premises, forthe limited purpose of investigating, exploring by geophysical and other methods,prospecting, drilling for, developing, producing, treating, storing, and transporting,selling and using Gas.
  1.2   LESSEE acknowledges that LESSOR does not own the surface of the LeasedPremises.
  1.3   The term “Gas” shall mean coal seam gas, including without limitation coalbedmethane gas, Gob Gas (other than VMM (as defined in Paragraph 1.5)) or other naturallyoccurring gases contained in or associated with any coal seam and all communicatingzones, and all associated natural gas and other hydrocarbon gas originating or producedfrom or between coal seam to coal seam. The term “Gob Gas” shall mean gas that isliberated and accumulated within the fractured and collapsed zones resulting from theSecond Mining of coal seams. The term “Second Mining of coal seams” includes all formsof underground mining, including technologies not yet developed which may come to beknown in the future, which result in the collapsing and fracturing of strata overlyingthe

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      coal beds and includes without limitation full or partial pillar, shortwall, andlongwall mining.
  1.4   All coal, limestone, iron ore, VMM and all other minerals and nonmineralsubstances, other than the Gas produced hereunder from said coal seams and all zones incommunication therewith, are excluded from this Agreement, along with the right toextract, mine, remove, use and dispose of same for all purposes.
  1.5   The term “VMM” shall mean Gas that is vented or flared from coal, whether bydrilling or otherwise, in connection with or related to the mining of coal which theparty mining such coal determines is necessary or appropriate to vent or flareincluding without limitation venting which is carried out to ensure mine safety.
  1.6   LESSOR reserves the right of ingress and egress at all times for itself, itscontractors, agents, and licensees on, over and under the Leased Premises.
  1.7   Except for those rights granted to LESSEE herein, LESSOR to the extent of itsinterests, expressly reserves all rights with respect to the surface and subsurface ofthe Leased Premises for any and all purposes, including without limitation the right toexplore for, drill, mine (by any method), produce, treat, store and transport any andall minerals, coal and non-mineral substances (other than Gas), and to conductgeological and other exploration surveys, whether or not said activities involve thedisturbance or destruction of the coal seams from which the right to produce Gas isprovided herein. However, LESSOR agrees to use commercially reasonable efforts to notunreasonably interfere with LESSEE’S Operations, as defined in Paragraph 2.1, on theLeased Premises.
  1.8   LESSOR and LESSEE recognize the importance of environmental protection and thenecessity of proper ecological balance, and to further these objectives, LESSEE agreesto conduct all Operations hereunder with caution and in material compliance in everyrespect with all applicable laws of the State of Illinois and the United States ofAmerica now existing or hereafter enacted, and all rules and regulations promulgatedpursuant to such laws, now existing or hereafter enacted (including without limitationall obligations for reclamation of surface areas LESSEE disturbs in its activities andoperations hereunder), and to preserve conditions as nearly as practicable as theypresently exist by altering the topography and interfering with or impedingwatercourses as little as possible.
  2.1   Unless sooner terminated or extended under other provisions of thisAgreement, this Agreement shall be for a primary term of twenty (20) years fromthe date of this Agreement (“Primary Term”), and so long thereafter as Gas isproduced in Paying Quantities (as defined hereafter) from the Leased Premises or onlands pooled or unitized therewith, as defined hereunder in Paragraph 4, or so longas

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      Operations are being conducted on any Production Unit (as defined in Paragraph2.3). Whenever used in this Agreement, the term “Paying Quantities” shall meanproduction in commercially reasonable quantities sufficient to yield a return inexcess of operating costs, even though drilling and equipment costs may never berecovered, and the undertaking considered as a whole may ultimately result inloss, and the term “Operations” shall be defined as work conducted infurtherance of the following: LESSEE is conducting itself as an operator in aprudent, reasonable manner and in material compliance with all applicable lawsand regulations, using modern equipment and methods that are in accordance withcommercially reasonable practices and technology all related to drilling,testing, completing, de-watering, reworking, workover, recompleting, deepening,plugging back, sidetracking, or repairing wells in order to obtain theproduction of Gas in Paying Quantities and shall include testing and dewateringactivities of LESSEE conducted on a well or wells drilled and completed upon theLeased Premises or lands pooled or unitized therewith to produce sufficientformation water to permit LESSEE a reasonable period of time to ascertain thevolumes of Gas which may be produced from said wells, whether or not such Gas isproducing in Paying Quantities prior thereto.
  2.2   In the event of termination or forfeiture of this Agreement, in wholeor part, for any reason, LESSEE shall immediately execute and record a properinstrument releasing from the terms hereof all of those portions of the LeasedPremises as to which this Agreement terminated or was forfeited and shall deliver acopy of the instrument to LESSOR.
  2.3   If at the expiration of twenty (20) years from the date of thisAgreement, all acreage under this Agreement has not been developed into aProduction Unit on which is located either a well capable of producing Gas inPaying Quantities or a well on which Operations are being conducted and whichresults in production in Paying Quantities, this Agreement shall automaticallyterminate as to any of the Leased Premises which is not included in a ProductionUnit, except that LESSEE shall retain, in addition to all such Production Units,all pipelines, facilities, easements, and rights of ingress and egress to operatethe Production Units on the Leased Premises and in the immediate vicinity thereof.For purposes of this Agreement, a “Production Unit” is (a) an area of no more than160 acres for a typical vertical hydraulically fractured well (based on currenttechnology and fracturing practices at the time of the signing of this Lease)(“Current Vertical Well”), plus 10% tolerance, or an area of no more than 320acres for a vertical, unconventionally stimulated or drilled, well, plus 10%tolerance, 1,920 acres for any horizontal well (currently, as of the time of thesigning of this Lease, planned to include one vertical well and four lateral wells)(“Planned Horizontal”), plus 10% tolerance, the shape and location of said unitsbeing designated by LESSEE upon which a Gas well has been drilled and completed oron which Operations are being conducted, or (b) a pooled unit created pursuant toParagraph 4.1. LESSEE shall promptly notify LESSOR as soon as

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      practical after the designation of each Production Unit. Notwithstandinganything herein to the contrary, if after discovery, and production of Gas froma Production Unit, and following the Primary Term, such production should ceasefor any cause or reason, this Agreement as to the portion of the Leased Premisesincluded within any such Production Unit shall not terminate if LESSEE commencesOperations thereon for drilling or reworking within ninety (90) days after suchcessation and prosecutes such Operations with no cessation thereafter for morethan ninety (90) consecutive days; and if such drilling or reworking operationresults in the restoration of production of Gas from such Production Unit inPaying Quantities, so long thereafter as Gas is produced from or attributable tosuch Production Unit.
  3.1   On Gas produced from the Leased Premises and sold by LESSEE, theproduction royalty to be paid by LESSEE shall be Twelve and One-Half Percent(12.5%) of the Gross Sales Price (as hereinafter defined) of such Gas (“RoyaltyPercentage”).
      LESSOR shall have the right, at any time and from time to time, upon not lessthan thirty (30) days written notice to LESSEE, to take in kind such LESSOR’SRoyalty Percentage of Gas produced from the Leased Premises. LESSOR may electto take LESSOR’S Percentage Royalty of Gas in kind (“In-Kind Royalty”) at thewell, or at the point of delivery where LESSEE delivers LESSEE’S Gas to anythird party. LESSOR shall reimburse LESSEE for all reasonable costs incurred byLESSEE in installing, operating or maintaining additional facilities necessaryfor LESSOR’S In-Kind Royalty to be separately metered, accounted for, anddelivered to a third party. Should LESSOR elect to take an In-Kind Royalty inkind as provided for above, LESSOR’S royalty shall bear its proportionate partof any transportation, treating, conditioning or compression charges incurredoff-lease or after the point nearest to the well that such Gas is ready for saleor use either at the tailgate of a processing, treating or conditioning plant orother delivery point.
      The term “Gross Sales Price” as used herein shall mean the actual sales price atwhich Gas is sold to a Bona Fide Purchaser (as defined in Paragraph 3.4), plus,to the extent applicable, any BTU bonus or minus BTU penalty; provided, however,that there shall be no deduction from said Gross Sales Price for any on-sitehandling, collecting, dehydrating and compression charges, brokerage fees, salescommissions, credit losses, sales tax, income tax, severance tax, license tax,privilege tax, occupational tax, advertising, and any other charges whatsoeveror taxes paid by LESSEE for the privilege of conducting business in Illinois.In the case of Gas produced hereunder and sold at some point other than theDelivery Point, the Gross Sales Price may be reduced by deducting from the finaland actual price at which such Gas is sold all transportation and handlingcharges beyond

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      the Delivery Point as long as LESSEE can verify such deductions from the salesprice to the satisfaction of LESSOR. The term “Delivery Point” as used hereinshall mean the point at which Gas produced hereunder is delivered by LESSEE,whether from the wellhead, compressing station, or point of entry into a FederalEnergy Regulatory Commission (FERC) regulated transmission line or carrier.
      Notwithstanding anything to the contrary in this Agreement, the royalty due byLESSEE under this Agreement shall not be less than the amount required to bepaid by LESSOR or its successors and assigns as an overriding royalty on theproduction of Gas that was reserved by the transferors of the Leased Premises inconnection with the sale of the Leased Premises to LESSOR.
  3.2   On Gas produced from the Leased Premises and used off the LeasedPremises or in the manufacture of gasoline or other products therefrom, the royaltyto be paid by LESSEE to LESSOR shall be as stated in Paragraph 3.1, except thatsaid Royalty Percentage shall be twelve and one-half percent (12.5%) of the marketvalue of such Gas at the Delivery Point. LESSEE shall have the free reasonable useof gas and water produced from the Leased Premises for operations serving theLeased Premises, prior to the Delivery Point.
  3.3   The term “market value” as used in this Agreement shall mean the pricepaid by a purchaser under a written purchase contract, arrived at through goodfaith, arm’s length negotiations, pursuant to which Gas produced hereunder is beingsold by LESSEE to a Bona Fide Purchaser. The price for all gas sold hereunder shallbe paid on a dry MMBtu basis.
  3.4   The term “Bona Fide Purchaser” as used herein shall mean a purchaserwho pays consideration in good faith without intending to take unfair advantage ofLESSEE or LESSOR, and in no instance shall a Bona Fide Purchaser include a person,persons, party, parties, company or corporation affiliated with LESSEE unlessapproved in writing by LESSOR, which approval shall not be unreasonably withheld.It is the parties’ intent that all sales of Gas produced by LESSEE under thisAgreement shall be at the price of the Gas sold on the open market in an arm’slength transaction to a non-related and unaffiliated entity. As used in thisAgreement, the term “affiliate” means any entity that directly or indirectlycontrols or is controlled by or is under common control with LESSEE, the directors,officers or principal shareholders of LESSEE, or such persons’ spouses, parents orchildren. For purposes hereof, “control” is presumed to exist if (a) any director,officer or principal shareholder of LESSEE is an officer of, partner in, or trusteeof, or serves in a similar capacity with respect to, a specified entity; or (b)LESSEE, or any officer, director or principal shareholder of LESSEE, directly orindirectly, is the beneficial owner of more than 5% of any class of voting securityof or interest in a specified entity; or (c) LESSEE, or any officer, director orprincipal

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      shareholder of LESSEE is otherwise connected, allied, affiliated or associatedwith or to a specified entity.
  3.5   LESSEE may vent Gas during repairs to wells, prior to connection of anywells to gathering and/or transmission lines, and during market interruptions, aslong as the same is in compliance with all rules and regulations of the Division ofOil and Gas of the Office of Mines and Minerals of the Department of NaturalResources of the State of Illinois (the “State of Illinois Division of Oil andGas”). No royalty shall be due on vented gas.
  3.6   Royalties for Gas produced hereunder shall be as provided for inParagraph 3.1 and shall be payable on or before the last day of the second monthfollowing the month of such production, sale or use. All reports and determinationscalled for below are to be forwarded to LESSOR at the time royalty payments are dueas provided for in this Paragraph 3.6. In conjunction with royalty payments,LESSEE shall provide to LESSOR a production report which shall include:
  1)   the quantity of Gas produced for each individual welland the cumulative total production on a monthly basis; and
  2)   the quantity of Gas sold; and
  3)   the quantity of Gas used as permitted under thisAgreement; and
  4)   the Gross Sales Price at the point at which Gasproduced hereunder is delivered by LESSEE to a Bona Fide Purchaser,and/or the market value of the Gas delivered at the Delivery Point, as thecase may be.
  3.7   Royalty payments and reports by LESSEE shall be completed and deliveredto LESSOR at the following address:
Christian Coal Holdings, LLC
1000 Urban Center Drive, Suite 360
Birmingham, Alabama 35242
Attention: Bruce Webster

  3.8   LESSOR expressly reserves all rights with respect to the subsurface ofthe Leased Premises for any and all purposes, including without limitation thefollowing: ingress and egress; mining coal, regardless of whether said coal hasbeen developed for the production of Gas; venting or flaring VMM (as defined inParagraph 1.5) in connection with or related to the mining of coal; conductinggeological and other surveys; selling, leasing, or otherwise transferring interestin the Leased Premises; and exploring for, drilling, mining, producing, treating,storing and transporting any and all minerals, coal, oil and natural gas andsurface materials other than those leased hereunder, regardless of whether saidactivities involve the disturbance or destruction of coal seams.

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      LESSOR shall within ninety (90) days of the execution of this Agreementdesignate to LESSEE the area or areas of the Leased Premises that LESSOR plansto mine (“Mine Plan Block”) and the order of priority in which they will bemined. Each Mine Plan Block will be placed in an order of mining priority asfollows: (1) within eight (8) years and (2) greater than eight (8) years. EachMine Plan Block can range in size up to twenty thousand (20,000) acres.
      The Leased Premises under this Agreement may be combined with the leasedpremises from other agreements between LESSEE and LESSOR to form a Mine PlanBlock. In such case, the terms and conditions under each agreement shall applyonly to the specific acreage covered under that agreement including but notlimited to any mine through provisions and reimbursements.
      LESSEE and LESSOR shall meet at least once a year to review mining plans for theLeased Premises and at LESSEE’S and LESSOR’S mutual agreement describe andadjust the order of mining priority of Mine Plan Blocks.
      If LESSEE drills a Gas well within a Mine Plan Block that will be mined with anorder of mining priority within eight (8) years and LESSOR or its lessees orcontractors mine through said well (“Mined Through Well”), then LESSOR or itslessees or contractors shall not be obligated to reimburse LESSEE for any costor loss of profits or loss of reserve associated with said Mined Through Well.
      If LESSOR or its lessees or contractors mines through one of LESSEE’S wells in aMine Plan Block with an order of mining priority greater than eight (8) years,then LESSOR or its lessees or contractors shall be obligated to reimburse LESSEEfor said well (“Reimbursed Well”) as follows:
  (a)   If a Reimbursed Well has been in production for eight(8) years or greater at the time of notice as provided for below, theReimbursed Well will be plugged at LESSEE’S expense and LESSOR shall not beobligated to compensate LESSEE for the loss of the Reimbursed Well.
  (b)   If the Reimbursed Well has not been in production foreight (8) years but has produced sufficient gross income to cover: (i) thecost of drilling, completing and equipping the Reimbursed Well; (ii) theoperating costs incurred by LESSEE during the life of the Reimbursed Well;(iii) an amount equal to 10% per year upon the total cost of drilling,completing and equipping the Reimbursed Well; and (iv) the cost ofplugging, then LESSOR will not be obligated to compensate LESSEE for theloss of the Reimbursed Well.
  (c)   If the Reimbursed Well to be plugged does not meet therequirements of subparagraphs (a) or (b) above, then LESSEE will pay toLESSOR the value of the Gas reserves remaining in the first eight (8) yearsof production in the coal seam or seams

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      to be plugged plus the cost ofplugging the Reimbursed Well. The value of lost economically recoverablereserves reduced to present value shall be determined by a qualifiedpetroleum engineer acceptable to all parties. The fees and expenses of theengineer hired for this purpose shall be paid equally by LESSOR and LESSEE.Any compensation due to LESSEE from LESSOR shall be deducted out of futureroyalties due LESSOR.
  (d)   In determining value, the engineer will take intoaccount only LESSEE’S share of reserves to be recovered from the coal seamor seams then being produced in said Reimbursed Well by LESSEE at thereceipt of the notice to plug minus any production subsequent to receipt ofnotice. The value shall be based on an average of LESSEE’S gas salescontract prices for the six (6) month period prior to plugging of theReimbursed Well to be mined through on the Leased Premises.
  (e)   If LESSEE should produce and sell Gob Gas from theLeased Premises in the vicinity of a Mined Through Well, then LESSOR shallbe credited under subparagraph (b), (c) and (d) above for any net profit ofLESSEE from said produced and sold Gob Gas. If LESSOR has reimbursed LESSEEfor said Mined Through Well prior to LESSEE producing said Gob Gas, thenLESSEE shall refund to LESSOR all amounts paid by LESSOR for said MinedThrough Well.
      Should LESSEE reenter a Mined Through Well that LESSEE has been reimbursed forand begin producing Gas after mining takes place, LESSOR shall only be obligatedto reimburse LESSEE for plugging cost and its actual cost to reenter the MinedThrough Well plus One Hundred and No/100 Dollars ($100.00) per month (“Rental”)that said well was out of production as a result of mining. LESSOR shall givewritten notice to LESSEE when a Mined Through Well is available to reenter forGas production. For purposes of calculating the number of months that a MinedThrough Well has been out of production, said period shall begin when the wellwas plugged and end when the aforementioned notice is given. If LESSOR hasreimbursed LESSEE for said Mined Through Well prior to LESSEE reentering saidwell, then LESSEE shall refund to LESSOR all amounts paid by LESSOR for saidwell less the plugging cost and its actual cost to reenter the well plus the sumof the Rental paid.
      Actual well costs for reimbursement purposes under this Agreement shall notexceed the average cost (calculated based on Lessee’s actual costs over thepreceding six (6) month period prior to the date such Reimbursed Well was minedthrough) to drill and complete a comparable well in the same or similar area;provided, however, that for the first six (6) months of the Primary Term, theaverage costs for a Current Vertical Well and a Planned Horizontal Well (asdescribed in Section 2.3) shall not exceed $200,000 and $2,000,000 respectively.

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      LESSOR will provide written notification to LESSEE at least six (6) months priorto commencement of coal removal that will cause or require mining through anyGas wells drilled by LESSEE on the Leased Premises.
      LESSEE agrees to plug the well or wells to be mined through at least sixty (60)days in advance of active mining of coal but, in all events, before such miningapproaches within three hundred (300) feet of the well bore.
  3.9   Nothing herein shall prevent LESSOR from venting or flaring VMM out ofa coal mine or taking other reasonable safety precautions, and LESSOR shall nothave any liability or obligation to pay royalty or otherwise compensate LESSEE orany other person in any fashion for VMM so liberated in ventilation of coal miningoperations. LESSEE shall have no obligation to recover such coal seam gas that will be vented orflared by any coal mining, and LESSEE shall have no liability or obligation toLESSOR for royalties on such VMM, nor shall any royalties be due on any VMMwhich may be vented or flared by third parties or on such Gas as may be ventedor flared during repairs to wells, prior to connection of any wells to gatheringand/or transmission lines or as may be necessitated by any underground coalmining activities carried on by LESSOR.
      Every six (6) months commencing on the date that is six (6)months after the date of this Agreement, LESSEE shall provide to LESSOR amap or maps of not less than 1”=2,000’ scale that describes the location ofall existing and proposed Gas wells and facilities on the Leased Premises.Likewise, should LESSOR subject the Leased Premises to coal miningoperations, LESSOR shall on the same schedule furnish or caused to befurnished such a map showing the projected coal mining and other surfaceuse activities that might adversely affect the operations of LESSEE on theLeased Premises projected by LESSOR.
  3.10   Measurement of Methane
  (a)   The volume of all Gas for which payment is to be madehereunder shall be measured, before being mixed with gas or coalbed methanefrom other lands not pooled or unitized with the Leased Premises, bystandard meters of approved type adapted to the volume of Gas to bemeasured. Such meters shall be located at convenient points to be selectedby LESSEE and shall be furnished, connected, operated, maintained and readby LESSEE at its own expense.
      For the purpose of this Agreement, a cubic foot of Gas shall consist ofthe quantity or volume of Gas which shall occupy one (1) dimensional cubicfoot at an average absolute atmospheric pressure of 14.73 pounds persquare inch (commonly called

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      pressure base) and at a temperature of 60degrees Fahrenheit (commonly called temperature base). When the Gas ismeasured through an orifice meter or other acceptable methods of measuringGas, the method of computation shall conform with the recommendationscontained in American National Standard Institute (“ANSI”) / AmericanPetroleum Institute (“API”) 14.3.1 & 2, American Gas Association (“AGA”)Report No. 3, Orifice Metering of Natural Gas and Other RelatedHydrocarbon Fluids, latest edition. The specific gravity of the Gas shallbe determined when marketing of Gas is begun, and as often thereafter asconditions may warrant.
      LESSEE shall: (i) have sole charge of said meters; (ii) read said metersas often as necessary to obtain accurate measurements; (iii) test all ofsaid meters in the field in accordance with applicable industry standards or rules and regulations of any applicablelaws and regulations; (iv) upon request furnish LESSOR current availablemeter charts showing results of tests; and (v) repair said meters whennecessary or when tests show inaccuracy.
  (b)   LESSOR shall have access to said meters at allreasonable times in company with a representative of LESSEE, and LESSORshall have the right to inspect the equipment and records of LESSEE for thepurpose, to the extent and in the manner provided in Paragraph 14. IfLESSOR challenges the accuracy of any meter, LESSEE shall upon writtenrequest of LESSOR have the meter tested and adjusted or repaired, andLESSOR shall have the right to have its representative present during suchtests, adjustments or repairs. If the test shows a meter to be threepercent (3%) or more inaccurate, then prior measurements shall be correctedat the rate of such inaccuracy for any period which is definitely known andagreed upon, but, if the period of inaccuracy is not definitely known andagreed upon, then prior measurements for a period extending back one-half(1/2) of the time elapsed since the last previous test or calibration.During such time as a meter is out of repair, the Gas may be deliveredthrough a bypass and the quantity estimated by use of the readings of therepaired meter when replaced. If the test shows inaccuracy of less thanthree percent (3%), the cost of removing, testing, adjusting and returningthe meter to service shall be borne by the LESSOR, but if the test showsinaccuracy of three percent (3%) or more, then such costs shall be borne byLESSEE. In any case, the cost of repairing and replacing any meter shallbe borne by LESSEE.
  (c)   Upon request of LESSOR at any time, LESSEE shall, atthe expense of the LESSEE, install separate meters for the purpose ofmeasuring the Gas from any individual producing well or wells on the LeasedPremises.

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  4.1   LESSEE, at its option, is hereby given the right to pool or combine theLeased Premises, or any portion thereof, as to Gas, with other lands, lease orleases in the immediate vicinity thereof, when, in LESSEE’S judgment, it isnecessary or advisable to do so in order to properly develop and operate the LeasedPremises. Pooling shall be limited to a unit that conforms to any lawful spacingrules which may be prescribed or permitted for the field or unit in which theLeased Premises are situated by any governmental authorities having jurisdictionthereof. LESSEE shall execute an instrument identifying and describing the pooledacreage and shall submit it to LESSOR prior to filing with the appropriategovernmental authority. The entire acreage so pooled into a tract or unit shall betreated for all purposes, except the payment of royalties on production from thepooled unit, as if it were included in this Agreement. LESSOR shall receive onproduction from a unit so pooled only such portion of the production royaltystipulated herein as the amount of LESSOR’S acreage placed in the unit, orLESSOR’S royalty interest therein on an acreage basis, bears to the totalacreage so pooled in the particular unit involved.
  4.2   Prior to filing a petition with the State of Illinois Division of Oiland Gas seeking unitization of any acreage covered by this Agreement or seeking anychanges with respect to Drilling Units including the formation and operationthereof, LESSEE shall submit to LESSOR a copy of its proposed unitization plan orproposed changes, together with copies of any exhibits, including technical data,that are to be submitted to the State of Illinois Division of Oil and Gas insupport thereof.
  4.3   Notwithstanding LESSEE’S right, at its option, to pool or combine theLeased Premises as granted herein, LESSOR reserves the right to appear before theState of Illinois Division of Oil and Gas regarding any petition or applicationmade by LESSEE regarding LESSEE’S operations that are not specifically authorizedherein and oppose any relief that LESSEE may be seeking.
  5.1   If, at any time or times under any term of this Agreement, there is anywell within a Production Unit that is capable of producing Gas in Paying Quantitiesand any such well is shut-in, this Agreement shall, nevertheless, continue in forceas though Operations were being conducted on such Production Unit for so long asany said wells are shut-in, and thereafter, this Agreement may be continued inforce as if no shut-in had occurred. If, any such wells are shut-in for a periodof one hundred twenty (120) consecutive days, and during such time there are noOperations on the Leased Premises, then at or before the expiration of any onehundred twenty (120) day period, LESSEE shall pay, as an advance, annual royalty,an amount equal to $100 for each such well. LESSEE shall make like payments on orbefore the end of

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      each anniversary of the expiration of any ninety (90) day periodif upon such anniversary this Agreement is being continued in force solely byreason of this provision. However, in no event shall shut-in well paymentsmaintain this Agreement in force for a period exceeding five (5) consecutive years.LESSEE shall be entitled to recover any shut-in royalty payments from future salesof Gas. Should such shut-in royalty payments not be made in a timely manner asprovided in this paragraph and for an additional period of thirty (30) daysfollowing LESSEE’S receipt of written notice from LESSOR of the failure to make anysuch timely payment, it will be considered for all purposes that there is noproduction or no excuse for delayed production of Gas from any such well or wells,and unless there is then in effect other preservation provisions of this Agreement,this Agreement shall terminate as to the acreage within the Production Unit forsuch well at midnight on the last day providing for the payment of such shut-inroyalties, and LESSEE shall thereupon furnish to LESSOR a writtenrelease of all its interest in and to the Leased Premises within such ProductionUnit.
  6.1   It is understood and agreed that LESSEE shall conduct its exploration,drilling, production and marketing in a reasonable and prudent manner not only witha view to reasonable development and recovery of the Gas and avoidance of “waste”,as that term is defined in the laws applicable to Gas in the State of Illinois, butwith a view to the conservation of potential production and reserves by theprotection from drainage by adjacent owners, the intrusion of water into an oil ornatural gas stratum, the escape of oil or natural gas out of one stratum intoanother, or the pollution of fresh water by oil, natural gas or salt water. Theobligations of LESSEE pursuant to this Paragraph 6.1 are expressly subject to thefollowing special provision.
      In the event that a well or wells produce Gas in Paying Quantities on landadjacent to the Leased Premises, and such is draining Gas from the LeasedPremises, LESSEE shall immediately take such action as a prudent operator wouldtake to protect the Leased Premises from uncompensated drainage.
  7.1   If at any time during the Primary Term of this Agreement or anycontinuance thereof, LESSEE shall elect to farm-out (as defined below) the drillingof any well on the Leased Premises or any parcel unitized therewith, then LESSEEshall obtain LESSOR’S consent thereto, which LESSOR shall not unreasonablywithhold, by sending advance written notice, at least thirty (30) days prior to anysuch farm-out. If LESSEE does not receive a written response within thirty (30)days of such request, it shall be deemed a consent to the farm-out. The term“farm-out” as used in this Agreement, and distinguished from assignment, mortgage,conveyance, sublease or setting over of

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      LESSOR’S estate interest or rights herein,shall mean that LESSEE may grant certain of its rights under this Agreement to athird party for the purpose of drilling a well or a limited number of wells upon aspecific area of the Leased Premises within a defined time period, the productionfrom which wells such third party is obligated to offer for purchase by LESSEE onthe basis of a right of first refusal.
      This provision is not intended to prevent LESSEE from assigning workinginterests or other interests in wells to be drilled to participants in thosewells. This provision shall not limit or modify LESSEE’S obligations orliability to LESSOR, and LESSEE shall be fully responsible and liable for theperformance of this Agreement in the event of a farm-out, and LESSEE shall be inall respects responsible for the activities and operations of any such thirdparty.
      LESSEE agrees to not stimulate, fracture or inject fluids under high pressureinto any coal seam greater than four (4) feet in thickness orthe overlying and underlying rock or strata in the Leased Premises without theprior written consent of LESSOR, which consent may be granted or withheld inLESSOR’S sole discretion.
  8.1   In the event of default by LESSEE in the payment of any sum of money orthe submission of any report under Paragraph 3.6, LESSOR shall have, without noticeor demand to LESSEE, a lien on all machinery, equipment, structures, and otherproperty of LESSEE of every kind wherever located on the Leased Premises at thetime of the event of default and thereafter. Upon default continuing for thirty(30) days for any payment due or any reports to be submitted to LESSOR, such lienmay be enforced as provided by the laws of the State of Illinois, including withoutlimitation the Illinois Uniform Commercial Code.
      In the event of LESSEE’S failure to pay any royalty or any other sum due toLESSOR under this Agreement when due, LESSOR shall provide LESSEE with writtennotice of said default (the “Default Notice”). Upon the further failure ofLESSEE to pay such royalty or other sum due LESSOR under this Agreement withinthirty (30) days after delivery of the Default Notice by LESSOR, LESSOR shallhave the right without further notice to LESSEE to:
  1)   Exercise any of the remedies set forth herein orallowed under the laws of the State of Illinois to collect from LESSEE anysum of money due LESSOR hereunder; and/or
  2)   Receive payment from LESSEE, as liquidated damages,twice the amount due, plus interest from the date due, within ten (10) daysafter delivery of the Default Notice; provided, however, that in the eventthat any royalty or other sum due LESSOR under this Agreement is thesubject of a bona fide dispute, LESSEE shall notify LESSOR of the disputedportion, and shall promptly pay the portion of the royalty or sum not indispute, and, in which case,

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      LESSOR’S right to receive the above describedliquidated damages shall not apply; or
  3)   Terminate this Agreement at any time following the datethat is ten (10) days after delivery of the Default Notice if LESSEE hasfailed to pay LESSOR in full.
  8.2   Neither LESSOR’S failure to give, nor any delay in giving, a DefaultNotice as herein provided shall be deemed a waiver by LESSOR of its rights pursuantto any default by LESSEE.
  8.3   In the event LESSEE has failed to comply with any obligations underthis Agreement, other than those in Paragraph 8.1, whether express or implied, andLESSEE does not remedy such failure within thirty (30) days after delivery of aDefault Notice, or, if such failure cannot reasonably be remedied within thirty(30) days, and LESSEE does not commence bona fide efforts to remedy such failurewithin such thirty (30) day period, and thereafter, continuously and diligently pursue such effortsto a successful conclusion, LESSOR may terminate this Agreement by providingLESSEE with written notice pursuant thereto and/or exercise any of the remediesset forth in this Agreement or allowed under the laws of the State of Illinois.
  8.4   Notwithstanding Paragraph 8.1, LESSOR shall have the right, uponwritten notice, to assess interest on all past due royalties or other payments atthe rate of one and one-half percent (1.5%) per month from the date of delinquencyuntil paid. The date of delinquency shall be the last day of the month on whichpayment was due. Time periods provided to cure defaults do not effect thedetermination of the date of delinquency or the assessment of interest to beassessed against delinquent payments. An assessment of interest shall in no way bedeemed to be a waiver of LESSEE’S obligation to pay all royalties when due or to bea waiver or bar to the subsequent exercise or enforcement by LESSOR of any and allother rights provided under this Agreement or applicable law.
  9.1   LESSEE may not assign its rights provided under this Agreement, inwhole or in part, without the prior written consent of LESSOR, which consent shallnot be unreasonably withheld, and if LESSEE does obtain LESSOR’S prior consent,then LESSEE shall be discharged from obligations arising under this Agreementsubsequent to such an assignment of all of its interest. If LESSEE does not obtainLESSOR’S prior written consent to an assignment of LESSEE’S rights under thisAgreement, then LESSEE shall remain liable to LESSOR under the terms and conditionsof this Agreement. In determining whether to grant or withhold its consent to anysuch assignment, LESSOR may consider without limitations, the prospectiveassignee’s financial condition, business reputation, and other factors relevant tothe assignee’s ability and willingness to perform LESSEE’s duties hereunder.Notwithstanding the foregoing statement, LESSEE may not

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      assign its interest toanother coal company or an affiliate of another coal company without Lessor’sconsent. This Agreement shall inure to and be binding upon the respectivesuccessors and assigns of the parties hereto, as well as the parties themselves.
9.2   Except as provided herein, no change or division in ownership of the land,however accomplished, shall operate to enlarge the obligations or diminish the rightsof LESSEE, and no change or division in such ownership shall be binding on LESSEEuntil thirty (30) days after LESSEE shall have been furnished by certified mail atthe address provided herein with a certified copy of the recorded instrument orinstruments evidencing same.
  10.1   The parties acknowledge that the Leased Premises are hereby leased toLESSEE, AS IS, IN THEIR PRESENT CONDITION and subject to the rights of others ashereinabove set forth in this Agreement.
      The rights leased pursuant to this Agreement are limited to such only as LESSORpossesses and has the lawful right to lease; and where LESSOR owns the mineralsand appurtenant rights only, specific and/or implied by law, the rights hereinleased are limited to such as LESSOR owns under the deeds conveying or reservingsaid minerals and appurtenant rights, specific and/or implied by law; and beforedrilling LESSEE shall satisfy itself as to the title of LESSOR to the LeasedPremises. LESSOR makes no warranty of title, either express or implied, to theestate leased pursuant to this Agreement.
      It is specifically understood and agreed that LESSOR shall be under no liabilityif any claim be made or established or litigation instituted by any third partyas to the title or ownership of LESSOR in or to any portion of the LeasedPremises. In the event of any such claim or litigation, LESSOR shall have theright, at its option, to defend the same, but LESSOR shall be under no duty todo so. If LESSOR owns an interest in any part or all of the Gas leasedhereunder that is less than full interest therein, royalties and all paymentsdue prospectively pursuant to this Agreement with respect to such Gas shall bereduced proportionately, but LESSOR shall have no obligation to refund anyroyalties or payments received by LESSOR.
  11.1   LESSEE shall comply with all rules and regulations of the State ofIllinois Division of Oil and Gas and other applicable laws of the State of Illinoisin connection with its operations including without limitation the drilling,completion, operation and plugging of Gas wells.

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  12.1   All notice requirements hereunder, unless otherwise provided for inthis Agreement, shall be given in writing and may be delivered (a) by handdelivery, or (b) by certified or registered United States Mail, postage prepaid,return receipt requested or (c) by Federal Express or another nationally recognizedsimilar overnight delivery agency as follows:
  If to LESSOR:   Christian Coal Holdings, LLC
      1000 Urban Center Drive, Suite 360
      Birmingham, Alabama 35242
      Attention: Bruce Webster
      Fax: 205-945-6592
      30775 Bainbridge Road, Suite 280
      Solon, Ohio 44139
      Attention: Jim Azlein
      Fax: 440-248-4240
      or at such other address as either party may designate by providing the otherparty written notice in the manner defined above. Notices shall be effective(i) if delivered in person or by courier, upon actual receipt, (ii) if mailed orsent by Federal Express or other overnight courier, upon the date of delivery asshown by the receipt therefor.
  13.1   This Agreement shall not be terminated or subject to cancellation inwhole or in part, nor shall LESSEE be held liable in damages for failure of LESSEEto carry out its obligations under this Agreement, if such compliance is preventedby, through no fault of LESSEE, the direct result of an act of God, fire, storm,flood, insurrection, rebellion, acts of a public enemy, riot, rule or order of anygovernmental authority having jurisdiction over the Leased Premises, failure oftransportation beyond the reasonable control of LESSEE, or other causes which arebeyond the control of LESSEE. Such occurrences shall be considered to be events offorce majeure under this Agreement. LESSEE shall promptly give LESSOR writtennotice of the event of force majeure, which notice shall set forth the fullparticulars of the case relied upon. While LESSEE is prevented from complying withits obligations under this Agreement as the result of such force majeure event, theobligations affected by such force majeure event shall be suspended, but such causeshall, so far as possible, be remedied by due diligence on the part of LESSEE.However, no event of force majeure shall relieve the obligation of LESSEE to payany and all royalties or payments when due. Notwithstanding any other provision inthis Agreement to the contrary, if the force majeure event, or the effecttherefrom, continues for a continuous period of more than 180 days, then, upon notless than five (5) days notice, LESSOR may terminate this Agreement.

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  14.1   LESSEE shall promptly furnish to LESSOR any information reasonablyrequested by LESSOR with respect to Operations on the Leased Premises. LESSORshall at all times have full and free right of ingress and egress to and from allparts of the Leased Premises for the purpose of inspecting drilling operations orproducing wells or inspecting and gauging tanks, meters and other equipment andstorage facilities. LESSEE shall not be liable for injury of LESSOR’S personnelengaged in such activities unless injury is caused by the negligence, recklessnessor willful misconduct of LESSEE or its agents, servants or employees.
  14.2   LESSEE shall keep adequate books, records, and reports concerning Gasproduced and sold under this Agreement. LESSOR shall have the right to audit, atall reasonable times, the pertinent books and records of LESSEE in order todetermine the correctness of any report required of LESSEE pursuant to thisAgreement. All books and records of LESSEE concerning any facet of this Agreementshall be kept open and available for inspection by LESSOR for eight (8) years,including the eight (8) year period following expiration or termination of thisAgreement.
  14.3   LESSEE shall maintain and preserve accurate drilling reports and logsof each and every well drilled by it under this Agreement, and LESSOR shall havethe right to inspect the same at any and all reasonable times. LESSEE shallprovide LESSOR at LESSOR’S written request with copies of driller logs andgeophysical logs for the total depth of each drilled well. LESSEE shall furnishLESSOR with such additional reasonable information as to the progress and resultsof the drilling and as to its other operations under this Agreement as LESSOR shallrequest. Such logs and drilling reports shall also show the depth of the well, andthe volume and original rock pressure of the coalbed methane, if any. LESSEE shallalso furnish LESSOR with copies of all electrical and radioactivity logs availablefor each well, as LESSOR shall request.
  15.1   LESSEE assumes all liability for and agrees to indemnify, defend, andhold harmless LESSOR and its affiliates and their respective officers, directors,employees, agents and assigns from and against any and all damages, claims, lossand expense (including attorneys’ fees) arising out of or in connection withLESSEE’S use of the Leased Premises or the exercise of any right hereunder byLESSEE; and it is expressly understood and agreed that during the Primary Term andany continuance of this Agreement, the terms hereof shall be binding upon LESSEE,its successors and assigns; and upon expiration or termination of this Agreement,they and each of them, jointly and severally, shall remain liable to LESSOR underthe provisions of this Paragraph in connection with any claim which arose, or whichmay be

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      alleged to have arisen during the Primary Term or any continuance of thisAgreement.
      As further protection to LESSOR, but without in any way limiting the scope ofthe foregoing assumption of risk and indemnity, LESSEE shall at all times duringthe Primary Term and any continuance of this Agreement maintain comprehensivegeneral liability and automobile liability insurance and workers’ compensationand employer’s liability insurance with solvent insurance underwriterssatisfactory to LESSOR. The limits of liability of said liability insuranceshall not be less than $10,000,000 for injury to one person; $10,000,000 forpersonal injuries in one accident; and $10,000,000 for property damage. LESSORshall be added as an additional insured as to policies for general liability andautomobile liability. Additionally, policies for general liability andautomobile liability shall be endorsed to expressly state that they are primaryas to any other valid and collectible insurance available to LESSOR, and saidinsurance shall not be changed or cancelled without at least thirty (30) daysprior written notice to LESSOR.
16.   TAXES
  16.1   LESSEE shall pay its portion of all taxes levied on the production,use, or sale of Gas produced from the Leased Premises, and all taxes on thereceipts therefrom or taxes due by reason of LESSEE’S activities on the LeasedPremises of whatever nature or kind, either federal or state, or any subdivisionthereof. LESSEE shall pay ad valorem taxes levied upon its interests in the LeasedPremises and on all of its improvements, fixtures, and equipment. LESSOR shall payad valorem taxes levied upon its interest in the Leased Premises and its share ofseverance taxes and income taxes.
  17.1   This Agreement shall be governed and interpreted by Title 9 of the U.S.Code and by the laws of the State of Illinois and shall be subject to allapplicable state and federal laws and rules and regulations of public bodies havingjurisdiction over this Agreement.
  18.1   In the first instance, any unresolved dispute between or among any ofthe parties arising under this Agreement shall be attempted to be resolved by thefollowing procedures. Such a dispute resolution procedure shall be initiated byany party giving written notice to the other parties of the matter in dispute.Within twenty (20) days after the delivery of a notice of dispute, the ChiefExecutive Officer or President of each of the parties, or their designees, shallmeet at a mutually acceptable time and place to exchange relevant information andto attempt to resolve the dispute through good faith negotiations. Requests forinformation shall be reasonable and responses shall be prompt and complete. Ifthe matter is not resolved within thirty (30)

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      days after delivery of the notice tocommence, the parties shall be free to pursue arbitration as set forth below toresolve the dispute.
      Such matter or matters shall be referred to a board of arbitrators consisting ofthree (3) disinterested, competent persons, one selected by LESSOR and one byLESSEE, as hereinafter provided, and the two thus selected shall select thethird, who shall have the power of an umpire and be known as umpire-arbitrator.The decision and award of such arbitrators, or any two of them, shall beconclusive and binding upon LESSOR and LESSEE and promptly complied with.
      The party desiring arbitration shall give written notice to the other partydefinitively stating the point or points in dispute and naming the personselected as arbitrator; and it shall be the duty of the other party, withinfifteen (15) days after receiving such notice, to name an arbitrator, and thesetwo arbitrators shall select the umpire-arbitrator; and in the event the partynotified does not name an arbitrator within said period of fifteen (15) days,the party serving such notice may select a second arbitrator and the two thusselected shall select the umpire-arbitrator.
      In the event of failure of the two arbitrators, selected as aforesaid, withinthirty (30) days from receipt by both of them of notice of their selection, toagree upon the umpire-arbitrator, then they shall jointly notify, in writing,the parties of their failure to agree upon such umpire-arbitrator. The partiesshall then, within fifteen (15) days from the date of such notification, jointlyselect the umpire-arbitrator. In the event the parties are unable to so selectthe umpire-arbitrator within said fifteen (15) day period, they shall thenjointly select the names of three (3) potential umpire-arbitrators. None ofthese three (3) potential umpire-arbitrators shall represent, or have anyaffiliation with either party. Once the list of said three (3) potentialumpire-arbitrators has been prepared, each party shall then strike the name ofone (1) potential umpire-arbitrator from said list. The person remaining onsuch list after the parties have stricken a name from said list shall be theumpire-arbitrator. Further, in the event the parties fail to select suchumpire-arbitrator as aforesaid, either of the parties may apply to the AmericanArbitration Association (AAA) for the appointment of an umpire-arbitratorpursuant to the rules and procedures of the AAA for the appointment of neutralarbitrators, as revised. The individual then designated will act as suchumpire-arbitrator hereunder.
      The umpire-arbitrator thus chosen shall give to LESSOR and LESSEE written noticeas to the time and place of hearing, which hearing shall be not less than ten(10) nor more than twenty (20) days after his selection, and, at the time andplace appointed, he shall proceed with the hearing unless, for some good causeof which the arbitrators shall be the judge, it shall be postponed until somelater date within a reasonable time. Both LESSOR and LESSEE shall have fullopportunity to be heard, orally and in writing, on any question thus submitted.In arriving at a decision and award, the arbitrators shall be bound by anyrelevant state and federal law applicable to the substantive issue or issues sosubmitted for arbitration, and they shall

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      make such decision and award inwriting, and deliver a copy to both LESSOR and LESSEE. The arbitration awardshall specify by whom the costs of arbitration shall be borne and paid and theamount of such costs, including reasonable compensation for the arbitrators.Any meetings, hearings or arbitration regarding dispute resolution shall be heldin Nashville, Tennessee.
  19.1   This Agreement constitutes the entire agreement between the partiesand supersedes any and all other written or oral agreements or understandingsbetween the parties concerning the subject matter hereof. No modification oramendment of the terms and provisions of this Agreement shall be effective unlessin writing and signed by authorized persons of the parties.
  20.1   It is specifically understood and agreed that this Agreement shallnot be recorded in full unless required by law and that only a short form of thisAgreement shall be placed of record. LESSEE shall be responsible for recordingthe proper instruments and paying all costs associated therewith.
  21.1   The paragraph headings contained herein are inserted for convenienceonly and shall not control or affect the meaning or construction of any provisionin this Agreement.
  22.1   The parties agree to execute such additional instruments, agreements,or documents including without limitation a Memorandum of Lease, as may benecessary to effectuate the intentions of this Agreement.
  23.1   This Agreement may be executed in multiple counterparts, each of whichshall constitute an original for all purposes, and all of which when taken togethershall constitute a single document.
  24.1   If any provision of this Agreement or the application thereof to LESSORor LESSEE shall, for any reason and to any extent, be held to be invalid orunenforceable, the remainder of this Agreement shall not be affected thereby, butrather be enforced to the greatest extent permitted by law.

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25.   GENDER
  25.1   As used in this Agreement, the neuter gender shall include themasculine and the feminine, the masculine and feminine genders shall beinterchangeable, and the singular number shall include the plural and the pluralthe singular where appropriate to effectuate the intent of the parties.
     IN WITNESS WHEREOF, this Agreement is executed by LESSOR and LESSEE in duplicate originals asof the day and year first above written.
  Its:   Manager
  By:   /s/ Bruce Webster
  Its:   President
  By:   /s/ James G. Azlein
  Its:   President

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I, the undersigned authority, a Notary Public, in and for said County in said State, hereby certifythat BRUCE WEBSTER, whose name is signed as President of IEC (Montgomery), LLC, as manage ofChristian Coal Holdings, LLC to the foregoing conveyance, he, as such officer and with fullauthority, executed the same voluntarily for and as the act of said limited liability company.
Given under my hand and seal this the 20th day of April, 2006.
  /s/ Sandra Everest
I, the undersigned authority, a Notary Public in and for said State and County, hereby certify thatJAMES G. AZLEIN, whose name as President of BPI Energy, Inc., is signed to the foregoingconveyance, and who is known to me, acknowledged before me on this day that, being informed of thecontents of the conveyance, he, with full authority, executed the same voluntarily on the day thesame bears date on behalf of said corporation.
Given under my hand and official seal, this the 25th day of April, 2006.
  /s/ Joyce M. Werner




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