AGREEMENT

THIS AGREEMENT, made this 6th day of March, 2003, by and between Gateway Energy Corporation, a Delaware corporation, and its wholly owned subsidiaries, Gateway Processing Company, a Texas corporation, and Gateway Pipeline Company, a Texas corporation, hereinafter collectively called Gateway and Allen Drilling Acquisition Company, a Nebraska corporation, hereinafter called ADAC.

W I T N E S S E T H:

WHEREAS, Gateway Processing Company is a party to a certain First Amended and Restated Master Agreement dated September 12, 2002, by and between Redwood Energy Production, L.P., Gateway Processing Company and Hanover Compression Limited Partnership, and the ancillary agreements contained therein, as same have been or may be amended from time to time, hereinafter referred to as the Restated Master Agreement; and

WHEREAS, pursuant to the terms of the Restated Master Agreement Gateway is required to construct approximately 48,500 feet of ten-inch pipeline, 500 feet of four-inch pipeline, 3,000 feet of three-inch pipeline and related facilities located in Madison County, Texas, which, together with all related assets, easements, rights of way and contract rights whatsoever, are hereinafter collectively referred to as the Pipeline Facilities; and

WHEREAS, Gateway has a Term Loan with Southwest Bank of Texas (Southwest Bank) in the original principal amount of One Million Five Hundred Thousand Dollars ($1,500,000) (Southwest Bank Term Loan) which provides a portion of the funds required to construct the Pipeline Facilities; and

WHEREAS, in order for Gateway to complete construction of the Pipeline Facilities, and for other corporate purposes, it is necessary for Gateway to obtain additional financing from Southwest Bank in the amount of Nine Hundred Thousand Dollars ($900,000); and

WHEREAS, in order to obtain such financing it is necessary for Gateway to provide credit enhancements to Southwest Bank, in the form of a letter of credit or other secured guarantee; and

WHEREAS, ADAC has agreed to provide such credit enhancement; and

WHEREAS, as consideration for providing such credit enhancement ADAC is to be paid certain compensation as described herein, and further ADAC is to have the option to elect to receive an equity position in the Pipeline Facilities; and

WHEREAS, the parties hereto now desire to enter into an Agreement providing for the provision of the credit enhancement, and the compensation to be paid by Gateway to ADAC for the credit enhancement, and the option of ADAC to acquire an ownership interest in the Pipeline Facilities.

NOW, THEREFORE, in consideration of the foregoing, and in consideration of the mutual covenants herein contained, the parties hereto agree as follows:

1.                                       Incorporation of Recitals.  The foregoing recitals are specifically incorporated in this Agreement by this reference.

2.                                       Definitions.  ADAC acknowledges receipt of a complete copy of the Restated Master Agreement.  Capitalized terms used in this Agreement, and not defined in this Agreement, shall have the same meaning as set forth in the Restated Master Agreement. Gateway shall give written

notice to ADAC of any change or modification that is made to the Restated Master Agreement or any agreement or document related thereto within ten (10) calendar days after such change or modification is made, provided, however, that neither the Restated Master Agreement nor any agreement or document related thereto shall be modified in any way that may be reasonably expected to have a material adverse impact on ADAC unless fifteen (15) days prior written notice has been given to ADAC of the proposed modification.

3.                                       Terms of the Term Note.  Gateway shall arrange to borrow from Southwest Bank an amount not to exceed Nine Hundred Thousand Dollars ($900,000) (the Loan).  The Loan shall be represented by a Term Note which shall be due and payable three (3) years after the date of the Term Note (the Maturity Date).  Interest only shall be payable at least annually at a rate not to exceed eight percent (8%) per annum.  Interest shall be payable more frequently if Gateway and Southwest Bank so agree.  The entire outstanding principal balance of the Loan shall be due and payable on the Maturity Date.  The terms of the Loan shall incorporate such other provisions not inconsistent with the foregoing as shall be agreeable to Southwest Bank and to Gateway, in their discretion, provided, however, that the loan documents comprising and surrounding the Term Note proposed to be made to Gateway by Southwest Bank shall be also subject to the approval of ADAC in its discretion; provided, however, that in the exercise of its discretion ADAC shall not refuse to consent to any loan document or any term or terms in the loan documents comprising or surrounding the Term Note for the sole reason that the Term Note will contain cross-collateralization and cross-default provisions with regard to the Southwest Bank Term Loan.  Gateway agrees to promptly furnish to ADAC copies of all documents comprising or surrounding the Term Note and to inform ADAC promptly, at all times during the term of the Term Note, of any activity on the Term Note that may have a material adverse impact on ADAC.  Further, Gateway agrees to promptly, upon execution hereof, furnish to ADAC copies of all documents comprising or surrounding the Southwest Bank Term Loan and the Legacy Bank Loan (hereinafter defined), including all documents relating to the original execution of such loans, the current status of such loans, and to matters regarding Gateways performance of its obligations under the loans and to inform ADAC promptly, at all times during the term of the Term Note, of any activity on the Southwest Bank Term Loan and the Legacy Bank Loan that may have a material adverse impact on ADAC

Title to the assets, properties and securities in which ADAC is to be given a security interest shall be marketable title, subject only to the prior lien of Southwest Bank on the Pipeline Facilities and on the Waxahachie Pipeline System (referred to in Paragraph 7(a) hereof) and to the prior lien of Legacy Bank on the FCFA assets (referred to in Paragraph 7(b) hereof).

4.                                       Credit Enhancement by ADAC.  ADAC will provide one or more letters of credit in the aggregate amount of Nine Hundred Thousand Dollars ($900,000) from a bank or banks which are acceptable to Southwest Bank in its sole discretion, and on terms acceptable to Southwest Bank, which letter(s) of credit shall secure and guarantee payment of the principal amount of Nine Hundred Thousand Dollars ($900,000) pursuant to the Term Note.  At ADACs option, and subject to the agreement of Southwest Bank, ADAC may provide a form of secured guarantee other than a letter of credit.  Southwest Bank shall be under no obligation to accept another form of security other than a commercial letter of credit from a bank or banks acceptable to Southwest Bank.  The provision of the credit enhancement by ADAC will be represented by a promissory note executed by Gateway in favor of ADAC (the ADAC Loan) in the form of Exhibit 1 attached hereto, and secured as provided for herein.

5.                                       Payments to ADAC.  On condition that Southwest Bank loans to Gateway the sum of Nine Hundred Thousand Dollars ($900,000) in accordance with the terms and conditions set forth in paragraph 3 above, which includes the credit enhancement by ADAC as set forth in paragraph 4 above, then in that event and only in that event Gateway agrees to compensate ADAC as follows:

MASTER AGREEMENT

This Master Agreement (this Agreement) is made and entered into as of the       day of June, 2001, by and among Redwood Energy Production, L.P., a Texas limited partnership (Redwood), Gateway Processing Company, a Texas corporation (Gateway), and Hanover Compression Limited Partnership, a Delaware limited partnership (Hanover).  Redwood, Gateway, and Hanover are sometimes hereinafter individually referred to as a Party and collectively referred to as the Parties.

RECITALS

WHEREAS, Redwood has acquired an undivided ninety-five and three-tenths percent (95.3%) working interest (pending the release from escrow of the record title Assignment as set forth in that Purchase and Sale Agreement dated December 29, 2000 between Redwood and Panther Rodessa, L.P., et al.) in and to the oil and gas leases described on Exhibit A-1 attached hereto in the Madisonville Rodessa Field in Madison County, Texas (the MRF) within the AMI (hereinafter defined), insofar and only insofar as said oil and gas leases cover and include the right to produce gas from the Rodessa/Sligo Interval (hereafter defined); and

WHEREAS, as of the date of this Agreement, Redwoods oil and gas leases in the MRF encompass the land map with the interpreted field outline as shown on Exhibit A-2 attached hereto; and

WHEREAS, Redwood is the operator of the oil and gas leases in the MRF; and

WHEREAS, Gateway desires to purchase the gas owned or controlled by Redwood and produced from the Rodessa/Sligo Interval in the AMI; and

WHEREAS, Gateway desires to have Hanover treat the gas to remove Acid Gas and other impurities to make the gas marketable, deliver the Acid Gas to Redwood, and deliver the pipeline quality gas to Gateway.

NOW, THEREFORE, the Parties agree as follows:

ARTICLE I.
Definitions

For purposes of this Agreement, the following terms and phrases shall have the following meanings (other defined terms may be found elsewhere in this Agreement):

Acid Gas means carbon dioxide and hydrogen sulfide removed by the amine treater at the Treatment Plant from gas produced from wells in the AMI in accordance with the Treating Agreement and disposed of in the Injection Well.

Affiliate means (a) any Person that, directly or indirectly, through one or more other Persons, controls, is controlled by or is under common control with the Person specified and

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(b) with respect to any Person (i) the securities of which are not publicly traded and (ii) that has no ultimate parent the securities of which are publicly traded, any executive officer of the Person specified and any Person controlled by one or more executive officers of the Person specified.  For the purpose of this definition of Affiliate, the term control means the power to direct or cause the direction of the management of such Person, whether through the ownership of voting securities, by contract or agency or otherwise.

Agreement has the meaning set forth in the introductory paragraph.

Ancillary Agreements means the Gas Purchase Agreement, the Transportation Agreement, the Treating Agreement, and the Escrow Agreement.

Area of Mutual Interest or AMI means the area outlined on Exhibit A, including, without limitation, the lands covered by the leases described in Exhibit A-1 and such other lands covered by leases or other interests that Redwood may obtain during the term of this Agreement within the AMI.  If any lease or other interest acquired by Redwood lies partially within and partially outside of the AMI, the entire interest shall be considered as being situated within the AMI, and the AMI shall be revised to accord with any such change.

Business Day means any day other than a Saturday, Sunday, or legal holiday in the State of Texas, and on which banks are open for business in Houston, Texas.

Claims means any and all claims, demands, suits, causes of action, losses, damages, liabilities, fines, penalties and costs (including, without limitation, attorneys fees and costs of litigation), whether known or unknown, including environmental and non-environmental claims.

Code means the Internal Revenue Code of 1986, as amended.

Closing has the meaning set forth in Section 2.1.

Contract Year means the twelve (12) month period beginning the first day of the month following the date of initial deliveries of gas under this Agreement, and each subsequent twelve (12) month period thereafter; provided that the first Contract Year shall include the period from the date of initial deliveries of gas until the first day of the following month.

Escrow Agreement means the Escrow Agreement in the form attached hereto as Exhibit F, as the same may be amended from time to time in accordance with Section 8.3.

Excess Gas means those proved reserves of gas owned or controlled by Redwood from the Rodessa/Sligo Interval in the MRF which are in excess of those proved reserves of gas required to support production of eighteen million cubic feet of gas per day (18,000 Mcf/d) during each of the Contract Years remaining under the Initial Term of this Agreement.

Exhibits mean the following exhibits which are attached hereto and made a part hereof for all purposes:

Exhibit AArea of Mutual Interest

Exhibit A-1Oil and Gas Leases

FIRST AMENDED AND RESTATED MASTER AGREEMENT

This First Amended and Restated Master Agreement (this Agreement) is made and entered into as of the 12th day of September, 2002, by and among Redwood Energy Production, L.P., a Texas limited partnership (Redwood), Gateway Processing Company, a Texas corporation (Gateway), and Hanover Compression Limited Partnership, a Delaware limited partnership (Hanover).  Redwood, Gateway, and Hanover are sometimes hereinafter individually referred to as a Party and collectively referred to as the Parties.

RECITALS