DEVELOPMENT AGREEMENT

 

                                   EXHIBIT "D"

 

ATTACHED TO AND MADE A PART OF THAT CERTAIN TERM ROYALTY AGREEMENT DATED MAY 17,

2005 BY AND BETWEEN ENERGY CORPORATION OF AMERICA ET AL., AS SELLERS, AND BLACK

          STONE MINERALS COMPANY, L.P., [AND/OR ITS DESIGNEES] AS BUYER

 

                              DEVELOPMENT AGREEMENT

 

                                  INTRODUCTION

 

     THIS  DEVELOPMENT  AGREEMENT  (this  "Development  Agreement")  from ENERGY

CORPORATION  OF AMERICA, a West Virginia corporation, with offices at 4643 South

Ulster  Street,  Suite  100,  Denver,  Colorado  80237-2867  ("ECA") and EASTERN

AMERICAN  ENERGY  CORPORATION,  a West Virginia corporation, with offices at 501

56th  Street,  Charleston,  West Virginia 25304 ("Eastern") (ECA and Eastern are

sometimes  hereinafter  collectively  referred to as "Operator"), to Black Stone

Minerals  Company,  L.P.,  a Delaware limited or its permitted designees ("Black

Stone"),  is  delivered  to be effective as of 7:00 a.m., Eastern Time, April 1,

2005  (the  "Effective  Time").

 

     Operator  and Black Stone contemporaneously herewith have entered into each

of  the  following  conveyances  dated  effective as of January 1, 2005 (i) Term

Royalty  Conveyance  (West  Virginia)  ("West  Virginia  Conveyance"), (ii) Term

Royalty  Conveyance  (Pennsylvania)  ("Pennsylvania  Conveyance"),  (iii)  Term

Royalty  Conveyance (Kentucky) ("Kentucky Conveyance" and together with the West

Virginia  Conveyance  and  the  Pennsylvania  Conveyance  collectively the "Term

Royalty  Conveyance"), and the Term Royalty Agreement dated May 17, 2005 between

Operator and Black Stone (the "Term Royalty Agreement").  In connection with the

Term  Royalty  Conveyance,  Operator has agreed to undertake certain obligations

during  the  term  of  the  Term  Royalty Conveyance with respect to the Subject

Interests and the Development Wells to be drilled on AMI Areas designated in the

Term  Royalty  Conveyance.

 

 

                                    ARTICLE I

 

                                   DEFINITIONS

 

     All  capitalized  words,  terms,  and  the phrases used in this Development

Agreement and not defined herein shall have the meanings ascribed thereto in the

Term  Royalty  Agreement and Term Royalty Conveyance.  Certain other capitalized

words,  terms,  and  phrases  used  in  this  Development  Agreement are defined

elsewhere  in  this  Development  Agreement.

 

     "Adjusted  Completed  Well  Development  Well Value" means, with respect to

each  Completed  Development  Well,  the  value obtained by multiplying for each

Completed  Development  Well  drilled or caused to be drilled by Operator during

any  Annual  Period  one  (1)  times  the  Working Interest (stated as a decimal

fraction  or  1.00, where Operator holds a 100% Working Interest), that Operator

is  required  to  bear  in  such  Completed  Development  Well.  For

 

 

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example,  if  Operator  holds an eighty-five percent (85%) Working Interest in a

Completed  Development  Well,  the  computation  would  be:

 

                                  1 x .85 = .85

 

therefore,  such  Completed Development Well would have a .85 Adjusted Completed

Development  Well  Value.

 

     "Annual  Drilling  Target" means that number of Completed Development Wells

where  (a)  the  cumulative total of all the Adjusted Completed Development Well

Values for all Completed Development Wells drilled by or caused to be drilled by

Operator during the first Annual Period equals not less than sixty (60), (b) the

cumulative  total  of all the Adjusted Completed Development Well Values for all

Completed  Development  Wells drilled during the first two Annual Periods equals

not  less than One Hundred Twenty (120), and (c) the cumulative total of all the

Adjusted  Completed  Development Well Values for all Completed Development Wells

drilled  during  the  first  three Annual Periods equals not less than the Total

Drilling  Commitment.

 

     "AMI  Areas"  mean  the areas depicted on the map set forth on Exhibit B as

                                                                    ---------

the  Yawkey  Freeman  AMI  and  the  PK  AMI.

 

     "Annual Period" means the annual period commencing on April 1 each year and

ending  on  March  31  of  the  succeeding  year.

 

     "Assignor's Net Share of Gas" means the share of Subject Gas from each Well

that  is  attributable  to  Operator's  Net  Revenue  Interest  in  that  Well.

 

     "Completed  Development  Well"  means  the Wellbore of any Development Well

that  is  completed pursuant to Section 2.02 herein in the Big Lime formation or

deeper  formation(s).

 

     "Deed  of  Trust" means the Credit Line Deed of Trust from Eastern to Black

Stone  referenced  in  Section  2.18.

 

     "Development  Well"  means  any  Gas  well  drilled,  within the meaning of

Section  2.01(b)  of the Development Agreement, after the Effective Time of this

Agreement  on  the  Subject  Development  Lands.

 

     "Drilling Obligation Completion Date" means March 31, 2008.

 

     "Effective Time" means April 1, 2005.

 

     "Gas"  means  natural  gas  and  all  other  gaseous  hydrocarbons, and all

non-combustible  gas  that  are  contained  in  the  full  wellstream.

 

     "Producing  Well"  means  the  Wellbore  of each Gas well more particularly

described  in  Exhibit  A-1  to  the  Term  Royalty  Conveyance,  subject to the

exceptions,  exclusions  and  reservations  set forth on such Exhibit A-1 to the

Term  Royalty  Conveyance.

 

 

                                        2

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     "Reasonably  Prudent  Operator Standard" means the standard of conduct of a

reasonably  prudent oil and gas operator in the Appalachian Basin under the same

or  similar  circumstances,  acting  with  respect  to  its  own  property  and

disregarding  the  existence  of  the  Term Royalty Interest as a burden on such

property.

 

     "Subject  Development  Lands"  means the lands subject to or covered by the

oil  and  gas  leases  described  in  Exhibit  A-2,  subject  to the exceptions,

exclusions  and  reservations set forth on such Exhibit A-2, as such Exhibit may

be  modified  pursuant  to  the  Term  Royalty  Conveyance.

 

     "Subject  Gas"  means with respect to each Well, Gas in and under, and that

may  be  produced, saved, and sold from all producing horizons from the Wellbore

of  such  Well,  subject  to  the  following:

 

          (a)  "Subject Gas" excludes Gas that is:

 

                    (i)  lost in accordance with the Reasonably Prudent Operator

               Standard  in  the  production, gathering, or marketing of Gas, or

               that  is  liquefied and removed from the gas stream in the normal

               course  of  Operator's operation, consistent with prior practice,

               via  any method other than processing as contemplated in the Term

               Royalty  Conveyance;

 

                    (ii)  subject  to  the Reasonably Prudent Operator Standard,

               used  in  operations on the Subject Lands, including drilling and

               production  operations  on  the  Subject  Development  Lands); or

 

                    (iii)  retained  by a Third Person, or Operator (pursuant to

               Section  3.02(c))  of the Term Royalty Conveyance, for gathering,

               transportation,  processing, or marketing services related to the

               Subject  Gas  in  lieu of or in addition to cash payment for such

               services;  or

 

                    (iv)  in excess of the percentage attributable to Assignor's

               Net  Share  of  Gas  taken  by Operator to recover costs, or some

               multiple  of  costs,  paid  or  incurred  by  Operator  under any

               operating  agreement,  unit  agreement,  or  other  agreement  in

               connection  with nonconsent operations conducted (or participated

               in)  by  Operator.

 

     (b)     "Subject  Gas"  includes Gas, not otherwise excluded above, that is

sold  or  otherwise  disposed  of  for  valuable  consideration.

 

     "Subject  Interests"  means  Operator's  undivided interests in the Subject

Lands as lessee under Gas leases covering and affecting the Subject Lands, as an

owner  of  the  Subject Gas (or the right to extract such Gas), or otherwise, by

virtue  of  which  undivided  interests  Operator  has  the  right  to  conduct

exploration, drilling, development, and Gas production operations on the Subject

Lands,  or  to  cause such operations to be conducted, or to participate in such

operations  by  paying  and  bearing  all  or  any part of the costs, risks, and

liabilities  of  such  operations, to drill, test, complete, equip, operate, and

produce  Wells  to  exploit  the  Gas.  Any  oil  and  gas  lease  or

 

 

                                        3

<PAGE>

other  similar  instrument that covers Gas produced from the Subject Lands shall

be  considered a "Gas lease" hereunder, even if it also covers other substances.

"Subject  Interests" includes all extensions and renewals of Gas leases covering

and  affecting  the  Subject  Lands  acquired  within  six  (6) months after the

expiration or termination of any such lease, and all new Gas leases covering the

Subject  Lands  (or  any portion thereof) obtained by Operator, or any Affiliate

thereof  prior  to  the  termination  of  the  Development  Agreement.  "Subject

Interests"  do  not  include (a) Operator's rights to substances other than Gas;

(b)  Operator's  rights  under contracts for the purchase, sale, transportation,

storage,  processing,  or  other  handling or disposition of Gas; (c) Operator's

interests  in,  or rights with respect to, pipelines, gathering systems, storage

facilities,  processing facilities, or other equipment or facilities, other than

the Wells; or (d) subject to Section 1.04(c) of the Term Royalty Conveyance, any

after-acquired, additional, or enlarged interests in the Wells, Subject Lands or

Subject  Gas,  except  those  reflected  in  Exhibit  A-1  to  the  Term Royalty

                                             -----------------------------------

Conveyance  or  Exhibit  A-2  or any Additional Lease as provided for in Section

----------      ------------

12.01  of the Term Royalty Conveyance, or extensions and renewals covered by the

preceding  sentence.  "Subject  Interests" may be owned by Operator by virtue of

grants  or reservations in deeds, Gas leases, or other instruments, or by virtue

of  operating  agreements, pooling or unitization agreements or orders, or other

kinds  of instruments, agreements, or documents, legal or equitable, recorded or

unrecorded.  The  Subject  Interests  are subject to the Permitted Encumbrances.

 

     "Subject  Lands"  means  collectively,  the Subject Producing Lands and the

Subject  Development  Lands.

 

     "Subject  Producing Lands" means the lands subject to or covered by the oil

and gas leases described in Exhibit A-1 to the Term Royalty Conveyance for lands

                            -----------

related  to  the  Producing  Wells,  subject  to  the exceptions, exclusions and

reservations  set  forth  on  such  Exhibit  A-1 to the Term Royalty Conveyance.

                                    -------------------------------------------

 

     "Term  Royalty Agreement" is defined in the Introduction to this Agreement.

 

     "Term Royalty Conveyance" is defined in the Introduction to this Agreement.

 

     "Term  Royalty  Gas"  means, for any month, that percentage of Gas to which

Black  Stone  is  entitled,  calculated  in  accordance  with  the  Term Royalty

Conveyance.

 

     "Term Royalty Interest" means the variable undivided interest in and to the

Subject  Interests,  to the extent that the Subject Interests pertain to Gas in,

under  and  that  may be produced from the Wellbores of the Wells, sufficient to

cause  Black  Stoneto  receive  a  volume  of  Term Royalty Gas and the revenues

attributable  thereto  calculated  and  paid in money in accordance with Section

3.01  of  the  Term  Royalty  Conveyance.

 

     "Term Royalty Proceeds" means, for any month, proceeds received by Assignor

for  the  account  of  Assignee, as Black Stone'smarketing and payment agent and

representative,  from  the  sale  of Term Royalty Gas under this Conveyance less

Chargeable  Costs calculated in accordance with Section 3.03 of the Term Royalty

Conveyance.

 

 

                                        4

<PAGE>

     "Total  Drilling  Commitment"  means  that  number of Completed Development

Wells where the cumulative total of all such Adjusted Completed Development Well

Value  for all Completed Development Wells drilled by or caused to be drilled by

Operator  equals  180.

 

     "Termination  Date"  is  defined  in  Section  1.02.

 

     "Transfer"  including its syntactical variants, means any assignment, sale,

transfer, conveyance, or disposition of any property; provided, Transfer as used

herein  does  not  include  the  granting  of  a security interest in Operator's

interest  in  any  property  including the Subject Interests or Subject Lands so

long  as  any  such  security  interest  shall  not affect and is made expressly

subject  to  the  Term  Royalty  Interest.

 

     "Wells"  means,  collectively, the Wellbores of the Producing Wells and the

Completed  Development  Wells.

 

                                   ARTICLE II

                  DEVELOPMENT OF THE SUBJECT DEVELOPMENT LANDS

 

     SECTION  2.01     DRILLING  PROGRAM.

 

     (a)     OBLIGATION  TO  DRILL.  In  each  of the first three Annual Periods

during  the  Development Agreement Term, Operator shall, subject to the terms of

this  Article  II,  drill,  or cause to be drilled, at Operator's sole cost, (i)

such  number  of  Completed  Development  Wells that is necessary to achieve the

Annual Drilling Target and (ii) such number of Completed Development Wells as to

achieve  the  Total  Drilling  Commitment  prior