SEC Company Response from Epsilon Energy Ltd. (EPSN) (CIK 0001726126) (EPSN) — Apr 12, 2018
Epsilon Energy Ltd. (EPSN) (CIK 0001726126)
Date: April 12, 2018 · CIK: 0001726126 · Accession: 0001104659-18-023788
AI Filing Summary & Sentiment
Reasoning
Letter
DLA Piper LLP (US)
1000 Louisiana Street, Suite 2800
Houston, Texas 77002-5005
www.dlapiper.com
Gislar Donnenberg
gislar.donnenberg@dlapiper.com
T 713.425.8451
F 713.300.6003
April 12, 2018
Via Edgar
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Attention: H. Roger Schwall, Assistant Director
Diane Fritz, Staff Accountant
Ethan Horowitz, Accounting Branch Chief
John Hodgin, Petroleum Engineer
Karina Dorin, Staff Attorney
Timothy S. Levenberg, Special Counsel
Re: Epsilon Energy Ltd.
Confidential Draft Registration Statement on Form S-4
Submitted February 12, 2018
CIK No. 0001726126
Ladies and Gentlemen:
We are writing on behalf of Epsilon Energy Ltd. (the “Company” or “Epsilon”) in response to the March 12, 2018 comment letter of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s draft Registration Statement on Form S-4 which was submitted to the Commission confidentially on February 12, 2018 (the “Confidential Submission”).
The Company is concurrently filing, via EDGAR, this letter and a complete copy of the Registration Statement on Form S-4 (the “Registration Statement”).
A marked copy of the Registration Statement indicating changes from the Confidential Submission is enclosed. This letter restates the numbered comments of the Staff, and the discussion set out below each comment is the Company’s response. Page references in this letter are to page numbers in the Registration Statement.
General
1. Please supplementally provide us with copies of all written communications, as defined in Rule 405 under the Securities Act, that you, or anyone authorized to do so on your behalf, present to potential investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications.
Response: The Company respectfully advises the Staff that no such communications have taken place to date and that the Company will supplementally provide any such communications should any occur.
2. In your discussion of shareholder rights, you qualify disclosure by reference to the exhibits you provide and to other items. As another example, see the generic reference to “Delaware law” at page 107. However, you provide ABCA Section 191 as Exhibit E. It is not appropriate to incorporate by reference to information that is not included in the prospectus or filed as an exhibit to the registration statement. Please indicate where the pertinent, specified provisions of the DGCL and the ABCA are included in the materials.
Response: In response to the Staff’s comment, the Company has revised its disclosure on pages 80 and 103 of the Registration Statement to remove the incorporation by reference of information not included or filed as an exhibit to the Registration Statement.
The Incentive Plan Proposal, page 12
3. If there are any current plans or proposals to grant awards of benefits under the plan to be adopted, briefly disclose the particulars.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 12 of the Registration Statement to clarify that it has no current plans or proposals to grant any equity awards under the plan.
Risk Factors, page 22
Extensive government legislation and regulatory initiatives, page 28
4. The last sentence reflects speculative disclosure and mitigates the risk you present. Unless you provide us with independent supplemental support for the assertions regarding the likelihood of regulatory action, please revise your risk factor to eliminate such assertions.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 27 of the Registration Statement to remove the last sentence of the risk factor.
Description of the Business — Summary, page 37
5. Please discuss the material terms of your joint venture with Chesapeake Energy Corp. and the Anchor Shippers dedication.
Response: In response to the Staff’s comment, the Company has revised its disclosure to remove all references to the joint venture with Chesapeake Energy Corporation and the Anchor Shippers dedication, and has revised its disclosure on pages 1 and 36 of the Registration Statement to clarify that all of the production from its Pennsylvania acreage is dedicated to the Auburn gas gathering system. The Company respectfully advises the Staff that Chesapeake Energy
Corporation is, pursuant to a standard joint operating agreement, the operator of wells in Pennsylvania in which the company has an interest.
Properties, page 38
6. Please expand or revise the disclosure relating to the 258 gross (55.0 net) wells to separately provide the total gross and net productive oil wells and gas wells as of a reasonably current date or as of the end of the current fiscal year. Refer to disclosure requirements of Item 1208(a) and the definition of a productive well under Item 1208(c)(3) of Regulation S-K.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 37 of the Registration Statement to provide the total gross and net productive oil wells and gas wells as of the date of the Circular.
Acreage, page 38
7. Expand the disclosure of your leasehold acreage to separately disclose the total gross and net developed and undeveloped acreage amounts and the expiration dates of material amounts of your undeveloped acreage. Refer to the disclosure requirements of Items 1208(a) and 1208(b) of Regulation S-K.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 38 of the Registration Statement to clarify that all acreage is held by production such that none of it is subject to expiration.
Proved Reserves, page 40
8. We note disclosure indicating that the estimated proved reserves as of December 31, 2016 presented on page 40 and elsewhere in your filing were derived from a reserve report prepared by the independent petroleum consultants, DeGolyer and MacNaughton. Please obtain and file the referenced report as required by Item 1202(a)(8) of Regulation S-K. Additionally, obtain and file the consent of the third party engineer regarding the disclosure of the reserves report in a filing under the Securities Act of 1933.
Response: In response to the Staff’s comment, the Company has filed the third-party reserve report of DeGolyer and MacNaughton and the related consent as exhibits 99.1 and 23.2, respectively.
9. Expand your disclosure to describe the internal controls used in your reserves estimation effort, including the qualifications of the technical persons of Epsilon Energy Ltd. and DeGolyer and MacNaughton primarily responsible for overseeing the preparation of the reserves estimates presented in the Registration Statement. Refer to the disclosure requirements of Item 1202(a)(7) of Regulation S-K.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 40 of the Registration Statement to expand its disclosure regarding the internal controls used in its reserve estimation efforts.
Management’s Discussion and Analysis of Financial Condition and Results of Operation, page 47
10. Please revise to clarify what steps you took to “high-grade” your organization.
Response: In response to the Staff’s comment, the Company has removed such term from its disclosure. Please see page 46 of the Registration Statement.
Operating Costs, page 51
11. Please expand or revise the disclosure of the lease operating costs to provide the average operating cost per unit of production excluding ad valorem, severance and production taxes. Refer to the disclosure requirements of Item 1204(b)(2) of Regulation S-K.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 49 of the Registration Statement to provide a total cost per unit of production and to clarify that the average cost per unit excludes ad valorem, severance and production costs.
Directors, Executive Officers and Corporate Governance, page 64
Biographies of Corporate Directors and Executive Officers, page 64
12. Please disclose the name of the private E&P start-up co-founded by Mr. Clanton and for which he served as a Managing Partner prior to joining the company. See Item 401(e) of Regulation S-K. Also, please revise or explain the disclosure at page 83, which does not include him as one of your officers.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 62 of the Registration Statement to include the name of the E&P startup co-founded by Mr. Clanton, and revised the disclosure on page 81 of the Registration Statement to include Mr. Clanton as one of its officers.
Executive Compensation, page 71
13. Please describe the material terms of Mr. Raleigh’s stock award in 2017. In addition, please tell us how you measured the fair value of the shares issued to Mr. Raleigh as compensation in 2017 and the nature of the material assumptions involved.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 68 of the Registration Statement to describe the material terms of Mr. Raleigh’s share award in 2017, including the measurement of the fair value.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, page 74
14. Please identify the natural person or persons who directly or indirectly exercise sole or shared voting and/or dispositive power with respect to the common stock held by Advisory Research, Inc., Oakview Capital Management, L.P. and Azvalor Asset Management SGIIC SA.
Response: In response to the Staff’s comment, the Company has revised its disclosure on pages 73 and 74 of the Registration Statement to identify the natural persons who exercise voting and dispositive power with respect to the common stock held by Advisory Research, Inc., Oakview Capital Management, L.P. and azValor Asset Management SGIIC SA.
Certain Relationships and Related Transactions, page 77
15. Please provide the disclosures required by Item 404 of Regulation S-K for the period set forth in Instruction 1 to Item 404.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 75 of the Registration Statement to provide disclosure since January 1, 2015.
Forward Looking Statements, page 77
16. Please remove references to Securities Act Section 27A and Exchange Act Section 21E, because Securities Act Section 27A(b)(2)(D) and Exchange Act Section 21E(b)(2)(D) expressly state that the safe harbor for forward looking statements does not apply to statements made in connection with an initial public offering.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 75 of the Registration Statement to remove references to Securities Act Section 27A and Exchange Act Section 21E.
The Domestication, page 82
Proposal No. 1 on The Notice of Special Meeting and The Accompanying Proxy, page 82
Effects of the Domestication, page 83
17. As it relates to your accounting for income taxes, expand your disclosure regarding the effects of your proposed domestication to the United States to more clearly address the reasonably likely impact to your net operating loss carryforwards and uncertain tax positions.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 81 of the Registration Statement to provide that it will not incur any tax liability upon its exit from Canada.
Description of Capital Stock, page 107
18. You state that you will have unlimited shares of common stock, no par value per share, authorized following the domestication. However, you disclose at page 85 that you will have authority to issue 150,000,000 shares of common stock, $0.001 par value per share, following the domestication. Please advise or revise. See also your discussion of Delaware law limitations in the last paragraph at page 11.
Response: In response to the Staff’s comment, the Company has revised its disclosure on page 105 of the Registration Statement to clarify that it will have the authority to issue 150,000,000 shares of common stock, $0.001 par value per share, following the domestication.
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 3 — Significant Accounting Policies, page F-27
Gas Gathering System Properties, page F-29
19. Explain how you determined that it is appropriate to account for your interest in the Auburn Gas Gathering System using the proportionate consolidation method of accounting by providing us with a discussion of its operations and your analysis of FASB ASC 810-10-45-14 and 932-810-45-1. Your response should explain how you concluded that the nature of the operations of this gathering system meets the definition of “oil- and gas-producing activities” per FASB ASC 932-10-15-2A.
Response: FASB ASC 810-10-45-14 and 932-810-45-1 address when it is appropriate to use the proportionate consolidation method to account for an investment in a legal entity that would otherwise be accounted for using the equity method. The Auburn Gas Gathering System is not a legal entity. The Company owns a 35% undivided interest in this asset and is liable for a proportionate share of the liabilities.
The Company’s use of the proportionate consolidation method for its interest in this asset is consistent with the principle reflected in FASB ASC 810-10-45-14 and 932-810-45-1, which state that proportionate gross financial statement presentation is appropriate if an investor-venturer owns an undivided interest in an asset and is proportionately liable for its share of each liability and the investee is in an “extractive industry”. It states further that an “extractive industry” includes oil and gas exploration and production but excludes downstream activities such as refining, marketing and transporting. Epsilon is involved only in upstream activities. It is not involved in any downstream activities such as refining, marketing or transporting activities.
FASB ASC 932-10-15-2A c. states that the “acquisition, construction, installation and maintenance of field gathering and storage systems such as . . . gathering, treating and field processing” are “production activities necessary to retrieve oil and gas from their natural
reservoirs” and are considered “oil- and gas-producing activities”. As set forth below, the activities of the Auburn Gas Gathering System meet the above definition.
The Auburn Gas Gathering System is the network of flow lines from the individual well pads that collect the produced gas from the wells and move the accumulated gas to the central processing facility that treats the gas and readies it for injection into the off-site, third-party transportation pipelines to take it to market. This gathering system was built by the original major partners in the development of the Auburn field so that the produced gas could be collected and treated to make it marketable before onward transport. It is an essential part of the process of gas production to be able to collect and eventually sell the gas. The primary reason that the Company chose to participate in the ownership of the in-field gas gathering system was to ensure that the gas that the Company produced would have priority within the system and be guaranteed to be treated and injected into the off-site, third party transportation pipeline system. Consequently, and secondarily the gathering system operator has been able to mark
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CORRESP 1 filename1.htm DLA Piper LLP (US) 1000 Louisiana Street, Suite 2800 Houston, Texas 77002-5005 www.dlapiper.com Gislar Donnenberg gislar.donnenberg@dlapiper.com T 713.425.8451 F 713.300.6003 April 12, 2018 Via Edgar Division of Corporation Finance United States Securities and Exchange Commission 100 F Street, NE Washington, D.C. 20549 Attention: H. Roger Schwall, Assistant Director Diane Fritz, Staff Accountant Ethan Horowitz, Accounting Branch Chief John Hodgin, Petroleum Engineer Karina Dorin, Staff Attorney Timothy S. Levenberg, Special Counsel Re: Epsilon Energy Ltd. Confidential Draft Registration Statement on Form S-4 Submitted February 12, 2018 CIK No. 0001726126 Ladies and Gentlemen: We are writing on behalf of Epsilon Energy Ltd. (the “Company” or “Epsilon”) in response to the March 12, 2018 comment letter of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s draft Registration Statement on Form S-4 which was submitted to the Commission confidentially on February 12, 2018 (the “Confidential Submission”). The Company is concurrently filing, via EDGAR, this letter and a complete copy of the Registration Statement on Form S-4 (the “Registration Statement”). A marked copy of the Registration Statement indicating changes from the Confidential Submission is enclosed. This letter restates the numbered comments of the Staff, and the discussion set out below each comment is the Company’s response. Page references in this letter are to page numbers in the Registration Statement. General 1. Please supplementally provide us with copies of all written communications, as defined in Rule 405 under the Securities Act, that you, or anyone authorized to do so on your behalf, present to potential investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications. Response: The Company respectfully advises the Staff that no such communications have taken place to date and that the Company will supplementally provide any such communications should any occur. 2. In your discussion of shareholder rights, you qualify disclosure by reference to the exhibits you provide and to other items. As another example, see the generic reference to “Delaware law” at page 107. However, you provide ABCA Section 191 as Exhibit E. It is not appropriate to incorporate by reference to information that is not included in the prospectus or filed as an exhibit to the registration statement. Please indicate where the pertinent, specified provisions of the DGCL and the ABCA are included in the materials. Response: In response to the Staff’s comment, the Company has revised its disclosure on pages 80 and 103 of the Registration Statement to remove the incorporation by reference of information not included or filed as an exhibit to the Registration Statement. The Incentive Plan Proposal, page 12 3. If there are any current plans or proposals to grant awards of benefits under the plan to be adopted, briefly disclose the particulars. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 12 of the Registration Statement to clarify that it has no current plans or proposals to grant any equity awards under the plan. Risk Factors, page 22 Extensive government legislation and regulatory initiatives, page 28 4. The last sentence reflects speculative disclosure and mitigates the risk you present. Unless you provide us with independent supplemental support for the assertions regarding the likelihood of regulatory action, please revise your risk factor to eliminate such assertions. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 27 of the Registration Statement to remove the last sentence of the risk factor. Description of the Business — Summary, page 37 5. Please discuss the material terms of your joint venture with Chesapeake Energy Corp. and the Anchor Shippers dedication. Response: In response to the Staff’s comment, the Company has revised its disclosure to remove all references to the joint venture with Chesapeake Energy Corporation and the Anchor Shippers dedication, and has revised its disclosure on pages 1 and 36 of the Registration Statement to clarify that all of the production from its Pennsylvania acreage is dedicated to the Auburn gas gathering system. The Company respectfully advises the Staff that Chesapeake Energy 2 Corporation is, pursuant to a standard joint operating agreement, the operator of wells in Pennsylvania in which the company has an interest. Properties, page 38 6. Please expand or revise the disclosure relating to the 258 gross (55.0 net) wells to separately provide the total gross and net productive oil wells and gas wells as of a reasonably current date or as of the end of the current fiscal year. Refer to disclosure requirements of Item 1208(a) and the definition of a productive well under Item 1208(c)(3) of Regulation S-K. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 37 of the Registration Statement to provide the total gross and net productive oil wells and gas wells as of the date of the Circular. Acreage, page 38 7. Expand the disclosure of your leasehold acreage to separately disclose the total gross and net developed and undeveloped acreage amounts and the expiration dates of material amounts of your undeveloped acreage. Refer to the disclosure requirements of Items 1208(a) and 1208(b) of Regulation S-K. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 38 of the Registration Statement to clarify that all acreage is held by production such that none of it is subject to expiration. Proved Reserves, page 40 8. We note disclosure indicating that the estimated proved reserves as of December 31, 2016 presented on page 40 and elsewhere in your filing were derived from a reserve report prepared by the independent petroleum consultants, DeGolyer and MacNaughton. Please obtain and file the referenced report as required by Item 1202(a)(8) of Regulation S-K. Additionally, obtain and file the consent of the third party engineer regarding the disclosure of the reserves report in a filing under the Securities Act of 1933. Response: In response to the Staff’s comment, the Company has filed the third-party reserve report of DeGolyer and MacNaughton and the related consent as exhibits 99.1 and 23.2, respectively. 9. Expand your disclosure to describe the internal controls used in your reserves estimation effort, including the qualifications of the technical persons of Epsilon Energy Ltd. and DeGolyer and MacNaughton primarily responsible for overseeing the preparation of the reserves estimates presented in the Registration Statement. Refer to the disclosure requirements of Item 1202(a)(7) of Regulation S-K. 3 Response: In response to the Staff’s comment, the Company has revised its disclosure on page 40 of the Registration Statement to expand its disclosure regarding the internal controls used in its reserve estimation efforts. Management’s Discussion and Analysis of Financial Condition and Results of Operation, page 47 10. Please revise to clarify what steps you took to “high-grade” your organization. Response: In response to the Staff’s comment, the Company has removed such term from its disclosure. Please see page 46 of the Registration Statement. Operating Costs, page 51 11. Please expand or revise the disclosure of the lease operating costs to provide the average operating cost per unit of production excluding ad valorem, severance and production taxes. Refer to the disclosure requirements of Item 1204(b)(2) of Regulation S-K. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 49 of the Registration Statement to provide a total cost per unit of production and to clarify that the average cost per unit excludes ad valorem, severance and production costs. Directors, Executive Officers and Corporate Governance, page 64 Biographies of Corporate Directors and Executive Officers, page 64 12. Please disclose the name of the private E&P start-up co-founded by Mr. Clanton and for which he served as a Managing Partner prior to joining the company. See Item 401(e) of Regulation S-K. Also, please revise or explain the disclosure at page 83, which does not include him as one of your officers. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 62 of the Registration Statement to include the name of the E&P startup co-founded by Mr. Clanton, and revised the disclosure on page 81 of the Registration Statement to include Mr. Clanton as one of its officers. Executive Compensation, page 71 13. Please describe the material terms of Mr. Raleigh’s stock award in 2017. In addition, please tell us how you measured the fair value of the shares issued to Mr. Raleigh as compensation in 2017 and the nature of the material assumptions involved. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 68 of the Registration Statement to describe the material terms of Mr. Raleigh’s share award in 2017, including the measurement of the fair value. 4 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, page 74 14. Please identify the natural person or persons who directly or indirectly exercise sole or shared voting and/or dispositive power with respect to the common stock held by Advisory Research, Inc., Oakview Capital Management, L.P. and Azvalor Asset Management SGIIC SA. Response: In response to the Staff’s comment, the Company has revised its disclosure on pages 73 and 74 of the Registration Statement to identify the natural persons who exercise voting and dispositive power with respect to the common stock held by Advisory Research, Inc., Oakview Capital Management, L.P. and azValor Asset Management SGIIC SA. Certain Relationships and Related Transactions, page 77 15. Please provide the disclosures required by Item 404 of Regulation S-K for the period set forth in Instruction 1 to Item 404. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 75 of the Registration Statement to provide disclosure since January 1, 2015. Forward Looking Statements, page 77 16. Please remove references to Securities Act Section 27A and Exchange Act Section 21E, because Securities Act Section 27A(b)(2)(D) and Exchange Act Section 21E(b)(2)(D) expressly state that the safe harbor for forward looking statements does not apply to statements made in connection with an initial public offering. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 75 of the Registration Statement to remove references to Securities Act Section 27A and Exchange Act Section 21E. The Domestication, page 82 Proposal No. 1 on The Notice of Special Meeting and The Accompanying Proxy, page 82 Effects of the Domestication, page 83 17. As it relates to your accounting for income taxes, expand your disclosure regarding the effects of your proposed domestication to the United States to more clearly address the reasonably likely impact to your net operating loss carryforwards and uncertain tax positions. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 81 of the Registration Statement to provide that it will not incur any tax liability upon its exit from Canada. 5 Description of Capital Stock, page 107 18. You state that you will have unlimited shares of common stock, no par value per share, authorized following the domestication. However, you disclose at page 85 that you will have authority to issue 150,000,000 shares of common stock, $0.001 par value per share, following the domestication. Please advise or revise. See also your discussion of Delaware law limitations in the last paragraph at page 11. Response: In response to the Staff’s comment, the Company has revised its disclosure on page 105 of the Registration Statement to clarify that it will have the authority to issue 150,000,000 shares of common stock, $0.001 par value per share, following the domestication. Consolidated Financial Statements Notes to Consolidated Financial Statements Note 3 — Significant Accounting Policies, page F-27 Gas Gathering System Properties, page F-29 19. Explain how you determined that it is appropriate to account for your interest in the Auburn Gas Gathering System using the proportionate consolidation method of accounting by providing us with a discussion of its operations and your analysis of FASB ASC 810-10-45-14 and 932-810-45-1. Your response should explain how you concluded that the nature of the operations of this gathering system meets the definition of “oil- and gas-producing activities” per FASB ASC 932-10-15-2A. Response: FASB ASC 810-10-45-14 and 932-810-45-1 address when it is appropriate to use the proportionate consolidation method to account for an investment in a legal entity that would otherwise be accounted for using the equity method. The Auburn Gas Gathering System is not a legal entity. The Company owns a 35% undivided interest in this asset and is liable for a proportionate share of the liabilities. The Company’s use of the proportionate consolidation method for its interest in this asset is consistent with the principle reflected in FASB ASC 810-10-45-14 and 932-810-45-1, which state that proportionate gross financial statement presentation is appropriate if an investor-venturer owns an undivided interest in an asset and is proportionately liable for its share of each liability and the investee is in an “extractive industry”. It states further that an “extractive industry” includes oil and gas exploration and production but excludes downstream activities such as refining, marketing and transporting. Epsilon is involved only in upstream activities. It is not involved in any downstream activities such as refining, marketing or transporting activities. FASB ASC 932-10-15-2A c. states that the “acquisition, construction, installation and maintenance of field gathering and storage systems such as . . . gathering, treating and field processing” are “production activities necessary to retrieve oil and gas from their natural 6 reservoirs” and are considered “oil- and gas-producing activities”. As set forth below, the activities of the Auburn Gas Gathering System meet the above definition. The Auburn Gas Gathering System is the network of flow lines from the individual well pads that collect the produced gas from the wells and move the accumulated gas to the central processing facility that treats the gas and readies it for injection into the off-site, third-party transportation pipelines to take it to market. This gathering system was built by the original major partners in the development of the Auburn field so that the produced gas could be collected and treated to make it marketable before onward transport. It is an essential part of the process of gas production to be able to collect and eventually sell the gas. The primary reason that the Company chose to participate in the ownership of the in-field gas gathering system was to ensure that the gas that the Company produced would have priority within the system and be guaranteed to be treated and injected into the off-site, third party transportation pipeline system. Consequently, and secondarily the gathering system operator has been able to mark