10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2009

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-00643

CORNING NATURAL GAS CORPORATION

(Exact name of Registrant as specified in its charter)

New York	16-0397420
(State of incorporation)	(I.R.S. Employer Identification No.)

330 West William Street, Corning, New York 14830

(Address of principal executive offices) (Zip Code)

(607) 936-3755

(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer", "non-accelerated filer" and "smaller reporting company" in rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer [ ] Accelerated Filer [ ] Non-accelerated Filer [ ] Smaller Reporting Company [X]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Indicate the number of Shares outstanding of the issuer's common stock as of the latest practicable date.

Common Stock, $5.00 par value	1,013,393
Class	Shares outstanding as of February 3, 2010

As used in this Form 10-Q, the terms "Company," "Corning," "Registrant," "we," "us," and "our" mean Corning Natural Gas Corporation and its subsidiary, taken as a whole, unless the context indicates otherwise. Except as otherwise stated, the information contained in this Form 10-Q is as of December 31, 2009.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

Notes to Consolidated Financial Statements

Note A - Basis of Presentation

The information furnished herewith reflects all adjustments, which are in the opinion of management necessary to a fair statement of the results for the period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to SEC rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading.

The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report on Form 10-K. These unaudited interim consolidated financial statements have not been audited by a firm of certified public accountants.

It is the Company's policy to reclassify amounts in the prior year financial statements to conform to the current year presentation.

Subsequent events were evaluated through February 3, 2010, the date these financial statements were issued.

Note B - New Accounting Standards

In December 2007, the Financial Accounting Standards Board (FASB) issued FASB ACS 805 (prior authoritative literature: SFAS No. 141(R), "Business Combinations"). FASB ACS 805 establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FASB ACS 805 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended September 30, 2010. The Company does not expect FASB ACS 805 to have a material effect on its consolidated financial sta tements.

In December 2007, FASB issued FASB ACS 810-10-65 (prior authoritative literature: SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51"). FASB ACS 810-10-65 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FASB ACS 810-10-65 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended September 30, 2010. The Company does not expect FASB ACS 810-10-65 to have a material effect on its consolidated financial statements.

In March 2008, FASB issued FASB ASC 815-10 (prior authoritative literature: SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133"). FASB ASC 815-10 requires enhanced disclosures about an entity's derivative and hedging activities. FASB ASC 815-10 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 with early application encouraged. The Company is required to adopt these provisions at the beginning of the fiscal year ended September 30, 2010. The Company does not expect FASB ACS 815-10 to have a material effect on its consolidated financial statements.

In May 2008, FASB issued FASB ASC 944 (prior authoritative literature: SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60"). FASB ASC 944 interprets Statement 60 and amends existing accounting pronouncements to clarify their application to the financial guarantee insurance contracts included within the scope of that Statement. FASB ASC 944 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. The Company is required to adopt these provisions at the beginning of the fiscal year ended September 30, 2010. The Company does not expect FASB ACS 944 to have a material effect on its consolidated financial statements.

In June 2009, FASB issued FASB ASC 860-10-05 (prior authoritative literature: SFAS No. 166 "Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140"). FASB ASC 860-10-05 is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets. FASB ASC 860-10-05 is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is required to adopt this standard in October 2010. The Company is evaluating the impact the adoption of FASB ASC 860-10- ;05 will have on its consolidated financial statements.

Note C - Statement of Other Comprehensive Income (Loss)

Note D - Pension and Other Post-retirement Benefit Plans

Components of Net Periodic Benefit Cost:

Contributions

The Company expects to contribute $525,000 to its Pension Plan and $81,000 to its other Post Retirement Benefit Plan in fiscal year 2010. A total of $127,199 has been paid to the Pension Plan for the first three months of this fiscal year.

Note E - Rate Case

In August 2009, in Case 08-G-1137, the NYSPC approved a rate increase of $1.5 million effective September 1, 2009 that was included in a gas rate joint proposal dated March 27, 2009. The order also contained a revenue decoupling mechanism (RDM) and a year two "capital tracker". This will allow the Company to file for rate relief in 2010 for new capital projects without a full blown rate proceeding. In addition, the percentage of revenues from gas producers retained by the Company as an incentive was increased from 10% to 20%.

Note F - Financing Activities

In October 2008, we obtained $1.0 million of financing in a form of Demand Note from M&T Bank to help with the cost of our new construction. Interest on this loan is payable on the monthly basis at the rate equal to 1% above the prime rate. The initial interest rate on this loan was 5.5% and was 4.25% at the end of December of 2009. The Company repaid $500,000 in December 2009 and is scheduled to repay the balance in 2010.

Note G - Director Compensation

On December 15, 2009, the board of directors approved an increase in compensation from 150 shares of our restricted common stock for each quarter of service to 250 shares of our restricted common stock effective as of January 1, 2010. The shares awarded will become unrestricted upon a director leaving the board.  Directors who also serve as officers of Corning are not compensated for their service as directors.  On December 10, 2009, directors were issued compensatory shares for service from April 2009 through September 30, 2009. Information regarding shares of restricted stock awarded to directors in fiscal 2010 is summarized below.

Note H - Fair Value Measurements

The Company has determined the fair value of certain assets through application of SFAS No. 157, "Fair Value Measurements."

Fair value of assets and liabilities measured on a recurring basis at December 31, 2009 and 2008 are as follows:

Gains and losses included in earnings for the periods reported in investment income as follows:

Financial assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices within active markets.

Note I - Stock Options

On November 5, 2007, the Board of Directors granted stock options to the Company's President and Chief Executive Officer totaling 75,000 shares at an exercise price of $15.00 per share. 25,000 of the stock options were vested immediately and 25,000 additional options vest on each of the 1^st and 2^nd anniversary of the grant date. The Company is recognizing $26,442 quarterly, a total of $105,768 expense for the fiscal year 2010, using the Black-Scholes option pricing model for the 25,000 shares that vested on November 5, 2009 with the following weighted average assumptions:

Risk free interest rate 4.00%

Expected Term 1.20 years

Volatility 32.82%

Quarterly dividends $.12

Note J - 311 Transportation Agreement

On January 11, 2010, the Company entered into a contract (311 Transportation Agreement) with a local gas producer that provides for the building of a compressor station as well as the transfer of 6" pipeline owned by the gas producer to the Company for nominal consideration. The contract also sets forth the terms, rates and condition of the transport of the local producer gas to the interstate pipeline system.

Note K - Dividends

Dividends are accrued when declared by the Board of Directors. At its regular meeting on December 15, 2009, the Board of Directors approved an increase from $.12 a share to $.13 a share for shareholders of record on December 31, 2009, payable on January 15, 2010.

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Our primary business is natural gas distribution. We serve approximately 14,500 customers through 400 miles of pipeline in the Corning, Hammondsport and Virgil, New York areas. The market for natural gas in our traditional service territory is relatively saturated with limited growth potential. However, growth opportunities do exist in extending our mains to areas adjacent or reasonably proximate to areas we currently serve. In addition, the Company continues to see expansion opportunities into the commercial and industrial markets. For example, our largest customer, Corning Incorporated, has added additional manufacturing capacity in our service area that is increasing our revenue and margins. We believe that our most promising growth opportunity for both revenues and margins is increasing connection with local gas production sources. For example, we completed a new pipeline to Marcellus Shale gas in Pennsylvania in 2009 and that pipeline, in conjunction with planned projects for 2010 could, depe nding on the volume of gas extracted and directed through the pipeline by the producer, double throughput on our system and have a significant impact on margins. We continue to focus on improving the efficiency of our operations and making capital investments to improve our infrastructure. By the end of 2010, we anticipate that our operations and infrastructure will have reached superior levels in comparison to utilities located on the northeast.

Our infrastructure improvement program has focused on the replacement of older distribution mains and customer service lines. The Company has designated seven miles of bare steel pipe and 400 bare steel services for replacement during calendar year 2010 in addition to replacing and/or upgrading portions of two major supply pipelines. Additionally the Company will continue toward its goal to end the calendar year with 10 or fewer reportable leaks remaining on our books.

Our key performance indicators are net income, stockholders' equity and the safety of our system. For the three months ended December 31, 2009, net income was increased by $398,926 compared to the same period in 2008 because of the rate case (see Note E), favorable Gas Adjustment Clause ("GAC") adjustments, the addition of large new customers and increased volumes used by existing major customers. As a regulated utility company, stockholders' equity is an important performance indicator. The New York Public Service Commission ("NYPSC") allows us to earn a just and reasonable return on stockholders' equity. Stockholders' equity is, therefore, a precursor of future earnings potential. For the 2010 fiscal year to date, stockholders' equity increased from $9.76 a share to $9.78 a share. We currently plan to continue our focus on building stockholders' equity. Safety and efficiency indicators include leak repair, main and service replacements and customer service metrics. With regards t o the safety indicators that are tracked in 2010, the Company continued its effort to improve the gas system. For the first fiscal quarter of 2010 we repaired 42 leaks, replaced 55 bare steel services and replaced 6,504 feet of bare steel main.

Revenue and Margin

Utility operating revenue decreased $817,153 in the three months ended December 31, 2009 compared to the same period last year primarily due to lower gas costs. The price of commodity gas has averaged $4.80 per mcf for the first quarter this year compared to an average of $9.42 for the same period last year. This was partially offset by a lost and unaccounted for (LAUF) incentive benefit of $385,845.

Margin percentage increased 22.14% for the three months ended December 31, 2009 compared to the same period last year primarily because of the September 2009 rate increase, lower gas costs, a favorable GAC adjustment and local production revenues.

Operating Expenses

Gas supply is our largest expense. We entered into a gas management agreement with Atmos Energy Marketing, LLC starting July 1, 2008 that continues until March 31, 2011. Purchased gas expense decreased $1,868,037 to $2,487,030 in the three months ended December 31, 2009 compared to $4,355,067 in the same period last year due primarily to lower gas cost and favorable GAC adjustments for the period. Other operating and maintenance expense increased in the first quarter of fiscal 2010 to $1,641,053 compared to $1,496,152 in the same quarter of 2009 due primarily to expense recognized this quarter for stock options and directors' fees. Depreciation expense decreased to $170,360 in this quarter of 2010 from $183,988 in 2009 due to a monthly amortization adjustment to offset prior period over-depreciation as determined by the depreciation study ordered by the NYPSC. This study also resulted in lower depreciation rates. Interest expense increased to $249,239 from $247,400 for the quarter primaril y because of higher interest rates on the line of credit.

Net Income

Net income increased to $663,192 for the three months ended December 31, 2009 compared to $264,266 for the same period last year because of higher rates due to the rate case, the addition of large new customers, increased volume usage by existing major customers and the favorable LAUF incentive revenue.

Liquidity and Capital Resources

Internally generated cash from operating activities consists of net income, adjusted for non-cash expenses and changes in operating assets and liabilities. Non-cash items include depreciation and amortization; gain on sale of securities and deferred income taxes. Over or under recovered gas costs significantly impact cash flow. In addition, there are significant year-to-year changes in regulatory assets that impact cash flow.

Capital expenditures are the principal use of internally generated cash flow. Capital expenditures have historically exceeded $1.0 million annually and have increased significantly due to an infrastructure investment mandate in our recent rate orders. In the first three months of fiscal year 2010, we have invested $1.1 million in our infrastructure, including upgrading our distribution system through replacing mains and customer service lines as well as two major expansion projects.

Cash flows from financing activities consist of repayment of long-term debt and borrowings and repayments under our lines-of-credit. For our consolidated operations, we have an $8 million line of credit with an interest rate of the greater of 4.0% or 2.25 basis points above LIBOR. The amount outstanding under this line on December 31, 2009 was $7.2 million. Collateral assignments have been executed which assign to the lender various rights in the investment trustaccount. In addition, our lender has a purchase money interest to all natural gas purchases by us utilizing funds advanced by the bank under the line-of-credit agreement and all proceeds of sale and accounts receivable from the sale of that gas. We rely heavily on our credit lines to finance gas purchases that we place in storage.

We have $9.5 million in long term debt outstanding. We repaid $153,678 in the first three months of 2010 consistent with the requirements of our debt instruments and refinancing activities. On May 7, 2008, we entered into a credit agreement with M&T Bank to provide for a $6.0 million loan for the purpose of retiring a $3.1 million first mortgage and an unsecured senior note in the amount of $1.5 million. The remaining proceeds were used to fund construction projects related to furnishing natural gas within the Company's service area. This loan was converted to a long term loan on October 16, 2008, with an interest rate of 5.96%. Great West Life & Annuity Insurance Company, the holder of the Company's $4.7 million 7.9% Senior Notes dated as of September 1, 1997, expressed its belief that the refinancing with M&T Bank breached the negative covenants contained in the 1997 note agreement. An Intercreditor and Collateral Agency Agreement went into effect on December 1, 2009 between Great We st and M&T Bank, as well as amendments to September 1997 Notes, resolving this issue and providing the Company more flexibility relative to future borrowings. The Company is now in compliance with all of our loan covenants.

During this quarter we are mainly withdrawing gas from storage and as of December 31, 2009, had a balance of $1,519,402 worth of gas in storage. We anticipate that we will have sufficient gas to supply our customers for the current winter season.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

Contractual Obligations

In September 2008, we refinanced a line of credit and a term loan with banks in order to increase our credit limit and decrease interest expense. The limit on the line of credit was increased from $7.0 million to $8.0 million. The line of credit was renewed on June 5, 2009 at the rate of the greater of 4.0% or 30 days LIBOR plus 2.25%. The interest rate on this loan will be adjusted monthly and was 4.0% at December 31, 2009. We believe we are in compliance with the financial covenants in these debt instruments as of December 31, 2009.

In October 2008, we obtained $1.0 million of financing in a form of demand note from M&T Bank to help with the cost of our new construction. Interest on this loan is payable on the monthly basis at the rate equal to 1% above the prime rate. The initial interest rate on this loan was 5.5% and was 4.25% as of December 31, 2009. The Company repaid $500,000 in December 2009 and is scheduled to repay the balance in 2010.

Regulatory Matters

The Company's business is regulated by the New York Public Service Commission (NYPSC) among other agencies.

On August 22, 2008 in Case 06-G-0064 the Commission denied the Company's request filed on January 12, 2007 for deferral of interest cost in excess of the amount allowed in rates for the fiscal year ended September 30, 2006. The deferral request was $573,183. The Company on September 14, 2008 petitioned for re-hearing of the Commission decision in Case 06-G-0064 on the grounds that the Commission erred in its conclusion and the interest expense was neither incremental nor extraordinary and therefore did not qualify for deferral and recovery under current Commission guidelines. Action by the Commission on the Company's re-hearing request is unknown at this time.

In August 2009, in Case 08-G-1137, the NYSPC approved a rate increase of $1.5 million effective September 1, 2009 that was included in a gas rate joint proposal dated March 27, 2009. The order also contained a revenue decoupling mechanism (RDM) and a year two "capital tracker". This will allow the Company to file for rate relief in 2010 for new capital projects without a full blown rate proceeding. In addition, the percentage of producer revenue retained by the Company as an incentive was increased from 10% to 20%.

On September 18, 2009, in Case 09-G-0488, the NYPSC approved Corning's petition to issue long term indebtedness in the principal amount of $7,000,000 for the purpose of refunding existing obligations and financing new construction.

The Company on July 30, 2009 filed a petition to retain the transportation revenues from the Root Well operations that commenced in December 2008. The transportation revenues beginning with the rate year will be accounted for in accordance with the rate agreement that became effective on September 1, 2009. The treatment of transportation revenues for the period January-August 2009, amounting to $84,976, is in dispute. The NYPSC Staff is currently reviewing the Company's request.

On November 25, 2008 the Federal Energy Regulatory Commission (FERC) approved the Company's Service Area Determination Pursuant to Section 7(f) of the Natural Gas Act under Docket CP08-472-000. This granted the Company the authority to cross into the State of Pennsylvania to connect to Marcellus Shale gas. As a result, the Company may transport gas from Pennsylvania via a new pipeline constructed to interconnect with the Company's New York distribution system. On October 23, 2009 the FERC approved the Company's application under section 7(c) of the Natural Gas Act and section 284.224 of the FERC's regulations for a limited jurisdiction blanket certificate to sell and transport natural gas in interstate commerce. Under Section 284.224 of Part 284, subpart G, the Company, a local distribution company (LDC), and Hinshaw pipeline (exempt from FERC jurisdiction), is authorized to perform the same types of transactions which intrastate pipelines are authorized to perform under section 31 1 of the Natural Gas Policy Act. This will allow us to transport under our market area determination from Pennsylvania to New York State and then inject gas not needed locally into interstate pipelines.

On October 26, 2009, the Company filed a petition in Case 09-G-0791 seeking a determination by the NYPSC as to the appropriate accounting for costs and revenues associated with facilities that will be used to transport substantial additional quantities of natural gas from gas producers in the vicinity of Corning, New York. Although the particular circumstances presented in the petition were not known at the time Corning, the Staff of the Department of Public Service and other parties entered into the March 27, 2009 Gas Rates Joint Proposal approved by the Commission in Case 08-G-1137, the Joint Proposal acknowledged that the Company might have such opportunities "to construct facilities to provide transportation to producers or others needing to transport natural gas" and that timely decision-making by the NYPSC, as well as by Corning, might be necessary to take advantage of those opportunities. On January 11, 2010, the Company entered into a contract with a local gas producer that pro vides for the building of a compressor station as well as the transfer of 6" pipeline owned by the gas producer to the Company. The contract that was filed with the NYPSC, also sets forth the terms, rates and condition of the transport of the local producer gas to the interstate pipeline system. The Company filed a updated economic analysis for the project based on the contract terms in support of the Company petition for determination of the appropriate accounting for costs and revenues associated with the facilities. Action is expected in 2010.

On November 2, 2009, the Company filed a petition in Case 09-G-0790 for authority to transfer its pipelines 2, 3 and 6 from utility operations to a non-utility entity. The Company owns these pipeline facilities that are not currently needed for the rendition of natural gas distribution service. Those facilities, however, may, in the future, be useful for the purpose of transporting locally produced natural gas, a business distinct from the Company's provision of distribution service. Because transportation needs of local producers can arise quickly and require an equally rapid response, Corning seeks to position itself to be able to accommodate such transportation.

Critical Accounting Policies

Our significant accounting policies are described in the notes to the Consolidated Financial Statements in the Company's Form 10-K for the year ended September 30, 2009, filed on December 18, 2009. It is increasingly important to understand that the application of generally accepted accounting principles involve certain assumptions, judgments and estimates that affect reported amounts of assets, liabilities, revenues and expenses. Thus, the application of these principles can result in varying results from company to company. The most significant principles that impact us are discussed below.

Accounting for Utility Revenue and Cost of Gas Recognition

We record revenues from residential and commercial customers based on meters read on a cycle basis throughout each month, while certain large industrial and utility customers' meters are read at the end of each month. We do not accrue revenue for gas delivered but not yet billed. We do not currently anticipate adopting unbilled revenue recognition and we do not believe it would have a material impact on our financial results. Our tariffs contain mechanisms that provide for the recovery of the cost of gas applicable to firm customers, which includes estimates. Under these mechanisms, we periodically adjust our rates to reflect increases and decreases in the cost of gas. Annually, we reconcile the difference between the total gas costs collected from customers and the cost of gas. We defer any excess or deficiency and subsequently either recover it from, or refund it to, customers over the following twelve-month period. To the extent estimates are inaccurate; a regulatory asset on the balanc e sheet is increased or decreased.

Accounting for Regulated Operations - Regulatory Assets and Liabilities

All of our business is subject to regulation by NYPSC. We record the results of our regulated activities in accordance with FASB ASC 980 (prior authoritative literature: Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation"), which results in differences in the application of generally, accepted accounting principles between regulated and non-regulated businesses. FASB ASC 980 requires the recording of regulatory assets and liabilities for certain transactions that would have been treated as revenue and expense in non-regulated businesses. In certain circumstances, FASB ASC 980 allows entities whose rates are determined by third-party regulators to defer costs as "regulatory" assets in the balance sheet to the extent that the entity expects to recover these costs in future rates. Management believes that currently available facts support the continued application of FASB ASC 980 and that all regulatory assets and liabilit ies are recoverable or refundable through the regulatory environment.

Pension and Post-Retirement Benefits

The amounts reported in our financial statements related to pension and other post-retirement benefits are determined on an actuarial basis, therefore certain assumptions are required to calculate those amounts. These assumptions include the discount rate, the expected return on plan assets, the rate of compensation increase and, for other post-retirement benefits, the expected annual rate of increase in per capita cost of covered medical and prescription benefits. Changes in actuarial assumptions and actuarial experience could have a material impact on the amount of pension and post-retirement benefit costs and funding requirements. However, we expect to recover our entire net periodic pension and other post-retirement benefit costs attributed to employees in our utility segment in accordance with the applicable NYPSC authorization. For financial reporting purposes, the difference between the amounts of such costs as determined under applicable accounting principles is recorded as either a regulatory asset or liability.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements which, to the extent they are not recitations of historical facts, constitute "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995 (Reform Act). In this respect, the words "estimate", "project", "anticipate", "expect", "intend", "believe", "could" and similar expressions are intended to identify forward-looking statements. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. As forward looking statements, these statements involve risks, uncertainties and other factors that could cause actual results to differ materially from the expected results. Accordingly, actual results may differ materially from those expressed in any forward looking statements. Factors that could cause results to differ materially from our management's expectations include, but are not limited to, those listed under Item 1A - "Risk Factors" of our Form 10-K, in addition to:

*	the effect of any interruption in our supply of natural gas or a substantial increase in the price of natural gas,
*	our ability to successfully negotiate new supply agreements for natural gas as they expire, on terms favorable to us, or at all,
*	the effect on our operations of weather conditions and conservation efforts by our customers,
*	the effect on our operations of any action by the New York Public Service Commission,
*	the effect on our operations of unexpected changes in any other applicable legal or regulatory requirements,
*	our ability to obtain additional equity or debt financing,
*	our ability to retain the services of our senior executives and other key employees, and
*	our vulnerability to adverse general economic and industry conditions and competition.

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events.

Item 4T - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of December 31,2009, the Company's management, with the participation of the Company's chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon the Company's evaluation, the Company's chief executive officer and chief financial officer each concluded that the Company's disclosure controls and procedures are effective as of December 31, 2009.

This Quarterly Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Quarterly Report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The Company's management, including our chief executive officer and chief financial officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II.

OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

Please refer to the Company's Form 10-K for the year ended September 30, 2009 for disclosure relating to certain risk factors applicable to the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5. Other Information.

None

Item 6. Exhibits.

10.1 Compensatory Arrangements of Directors (incorporated by reference to the Company's Current Report on Form 8-K dated December 15, 2009)

10.2 Modified Agreement between the Company and Great West Life & Annuity Insurance Company (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated January 6, 2010)

10.3 Intercreditor and Collateral Agency Agreement among Manufacturers and Traders Trust Company and Great West Life & Annuity Insurance Company (incorporated by reference to Exhibit 10.2 if the Company's Current Report on Form 8-K dated January 6, 2010)

10.4* Negotiated 311 Gas Transportation Agreement between the Company and Fortuna Energy Inc., dated January 10,2010. The Company has requested the Securities and Exchange Commission to grant confidential treatment for this agreement. Confidential information omitted and filed separately with the SEC.

31.1* Certification of the Chief Executive Officer and President pursuant to 17 CFR Section 240.13a-14

31.2* Certification of the Chief Financial Officer and Treasurer pursuant to 17 CFR Section 240.13a-14

32.1* Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished)

____________

* Filed or furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CORNING NATURAL GAS CORPORATION

Date: February 3, 2010 ________________________________________

By Michael I. German, Chief Executive Officer and President

(Principal Executive Officer) 

 Date: February 3, 2010 ________________________________________

By Firouzeh Sarhangi, Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

EX-31

EX-31

>

Exhibit 31.2 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

17 CFR SECTION 240.13a-14(a)

I, Firouzeh Sarhangi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Corning Natural Gas Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 3, 2010

 

 

/s/ Firouzeh Sarhangi

Firouzeh Sarhangi, Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

EX-32

Exhibit 32.1 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report of Corning Natural Gas Corporation (the "Company") on Form 10-Q for the period ending December 31, 2009 (the "Report") with the Securities and Exchange Commission, I, Michael I. German, Chief Executive Officer and President of the Company and I, Firouzeh Sarhangi, Chief Financial Officer and Treasurer of the Company, certify pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company for such period.

Dated: February 3, 2010

/s/ MICHAEL I. GERMAN

Michael I. German, Chief Executive Officer and President

(Principal Executive Officer)

/s/ FIROUZEH SARHANGI

Firouzeh Sarhangi, Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

EX-10

NEGOTIATED 311 TRANSPORTATION SERVICE AGREEMENT

BY AND BETWEEN

CORNING NATURAL GAS CORPORATION

AND

FORTUNA ENERGY INC.

THIS AGREEMENT, dated January 11, 2010 between Corning Natural Gas Corporation ("CNGC" and a "Party" hereto), a New York Corporation, and Fortuna Energy Inc. ("Fortuna" and a "Party" hereto), a Delaware Corporation, sets forth the agreement of the Parties with respect to the transportation of natural gas in order to provide 311 transportation service for Fortuna's deliveries across the CNGC system for redelivery into the Interstate Transmission System(s).

WHEREAS, the Parties desire to enter into a transportation agreement. In order to accomplish this goal, the Parties contemplate that Fortuna will deliver natural gas to be transported hereunder and that CNGC will provide transportation service for such natural gas supplies from the Receipt Point to the Delivery Point (as said terms hereafter are defined); and

WHEREAS, Fortuna or its agent/supplier has made or will have made arrangements for transportation of said supply of natural gas to said facilities of CNGC:

NOW, THEREFORE, in consideration of the mutual promises made herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

1. DEFINITIONS

The following capitalized terms are used in this Agreement as defined below.

"Access Agreement" refers to a contract between CNGC and Fortuna dated April 1, 2006, that specifies the obligation of both parties with respect to Fortuna having access to the CNGC transmission and distribution system.

"Commencement Date" shall mean the date that CNGC notifies Fortuna that CNGC stands ready to transport gas from the Receipt Point to the Delivery Point(s) pursuant to this Agreement.

"Compressor Station" shall mean the compressor station that Fortuna will construct for CNGC on CNGC's property at the location specified on the attached facilities map, which station is also referred to as the Maxwell Compressor Station.

"Delivery Point(s)" shall mean the interconnection of CNGC's pipelines and the Dominion Transmission System (or other systems that qualify under the 311 Transportation Agreement) downstream of the Maxwell Compressor Station.

"Gas" shall mean natural gas that is received by CNGC at the Receipt Points and delivered by CNGC to the Delivery Point(s) for Fortuna.

"Incremental Revenue" refers to a combination of 1) monthly revenue received in the Root Agreement over and above volumetric revenue generated by the first * mmbtu/day and 2) monthly revenue received in this 311 Transportation Agreement.

"Interruption" shall mean the total or partial cessation for Transportation Service, whether due to capacity constraints, force majeure or any other cause whatsoever.

"Interstate Transmission System" shall mean the Dominion Transmission Inc. (DTI) or any other piping network that CNGC would connect to requiring it to utilize its FERC approved article 311 Certificate.

"Maximum Daily Transportation Quantity" or "MDTQ" shall mean the maximum daily quantity of Gas which CNGC agrees to transport from the Receipt Point. The MDTQ shall be [*] MMBtu per day. This volume shall be subject to annual review and may be revised in the form of a contract addendum. The MDTQ shall be a higher volume if it is determined by both parties that incremental volume can be transported from the Receipt Point to the Delivery Point through the existing or pipeline infrastructure and the interconnection points on the Interstate Transmission Systems,

"Receipt Point" shall mean the interconnection of CNGC's Root pipeline and CNGC's Line 4.

"Root Agreement" refers to a particular previously executed agreement between CNGC and Fortuna that specifies the construction, operational, financial and transport obligations of each party associated with the creation and operation of the so-called "Root Well Interconnect." This agreement was executed November 1, 2008.

"Tap Agreement(s)" refers to one or more contracts between CNGC and Fortuna that is specific to an interconnect point within the Gas transportation system. A Tap Agreement articulates the construction and operational responsibilities of each interconnecting party.

"Transportation Quantity" refers to the quantity of Gas that may be delivered each day during the term of this Agreement to CNGC which CNGC agrees to transport and deliver.

"Transportation Service" shall mean transportation of gas over the CNGC system from the receipt point for re-delivery into the Dominion Interstate Transmission system or other pipeline systems that qualify under the FERC approved article 311 Certificate.

2. CHARACTER OF SERVICE
1. On each day that this Agreement is in effect after the Commencement Date, Fortuna may make available and deliver to CNGC any quantity of Gas up to the MDTQ. CNGC shall, on such day, receive such Gas at the Receipt Point and shall transport and deliver the actual volume received at the Receipt Point. Transportation Service will be provided from the Receipt Point to the Delivery Point(s) at a pressure between 124 and 250psig, with the exception that if Fortuna delivers gas at the Receipt Point at less than 250psig, CNGC's obligation to redeliver will be reduced to the maximum capacity of CNGC' s Root pipeline.
2. Transportation Service under this Agreement shall be provided by CNGC pursuant to the terms hereof. CNGC shall have no obligation to provide Transportation Service under this Agreement on terms other than the terms as described herein.
3. CNGC will, within operational constraints, move Fortuna gas to on-system sales as designated by Fortuna before gas is transported to the Interstate Transmission System(s).
4. In order to efficiently complete the facilities for the transportation of Gas as contemplated by this Agreement, Fortuna will sell and transfer to CNGC for a total consideration of * all rights and title to that particular 6" diameter pipeline, having an MAOP of 1,440psig, that runs from the Fortuna Maxwell interconnect property to the Dominion Transmission Ryers Creek interconnect property.
3. REGULATORY APPROVALS AND PERMITS

CNGC will be responsible for securing and will obtain all necessary regulatory approvals and permits required for its full performance under this Agreement.

4. GAS QUALITY
1. Gas quality considerations shall be governed by the "Tap Agreement" between CNGC and Fortuna. CNGC will not be obligated to deliver gas supplies into the Interstate Transmission System(s) that do not comply with that company's minimum gas quality standards.
2. CNGC will deliver into the Interstate Transmission System Gas of comparable quality to the Gas delivered by Fortuna at the Receipt Point. If the Gas delivered into the Interstate Transmission System is contaminated and the contamination is deemed to be caused by CNGC or its transportation system, CNGC will pay for resulting transmission charges from the Interstate Transmission System caused by such incident. If the Gas delivered into the CNGC system or the Interstate Transmission System is contaminated and such contamination is caused by Fortuna or its system, Fortuna will to pay for CNGC and Interstate Transmission System charges caused by such incident.
5. RESPONSIBILITY FOR GAS DURING TRANSPORTATION SERVICES

Gas shall remain the property of Fortuna, its agent or designee while being transported and delivered by CNGC. Gas shall be deemed to be in the control and possession of CNGC after such Gas shall have been received at the Receipt Point by CNGC and until Gas is delivered to the Delivery Point by CNGC. Fortuna agrees that CNGC shall not be responsible for Gas when Gas in not in CNGC's control or possession. CNGC shall be responsible for Gas when the Gas is in CNGC's control and possession.

6. RATES FOR TRANSPORTATION SERVICES
1. CNGC will charge to Fortuna a transportation fee for all Gas it flows from the Receipt Point to the Delivery Point. The transportation fee shall be calculated and billed at the rate of [*] . As further inducement, Fortuna will guarantee CNGC a minimum Incremental Revenue for a period of [*] from the Commencement Date to reserve capacity matching the Maximum Daily Transportation Quantity from the Root interconnect on line 4 into the Interstate Transmission System. Accordingly, for the [*] from the Commencement Date, Fortuna will pay to CNGC a minimum [*] per month regardless of the amount of Gas transported by CNGC under this Agreement.
2. All deliveries into Compressor Station will be charged for actual compressor fuel used plus or minus CNGC's the then applicable pipeline loss factor. (This factor is currently .5%.)
3. All Bradley Station and CNGC system deliveries will be charged under the pre-existing Access and Transportation agreements.
4. Other Gas producers may flow Gas through this infrastructure if Fortuna is not utilizing the MDTQ on a daily basis. CNGC will not charge a transportation rate for a third party use that is less than the rate negotiated with Fortuna under this agreement and the Root Agreement. Any revenues received from any 3rd party will reduce the amount of Incremental Revenue required to be paid by Fortuna for that particular month.
7. ADDITIONAL CHARGES DUE CNGC
1. In the event that transportation of Gas under this Agreement requires CNGC to incur additional costs including so-called overrun penalties or parking fees, [*] .
2. [*]
8. BILLING AND PAYMENT
1. CNGC shall render a monthly statement of charges for Transportation Services hereunder. Such charges shall be due and payable in [*] days.
2. Bills rendered to Fortuna or its agent for which payment has not been received within [*] days from the date of the bill shall be considered past due and bear interest at a rate of [*] per month and any unpaid balance not in dispute from the date of receipt thereof until the date of payment.
9. COMPRESSOR STATION CONSTRUCTION
1. A requirement of the transportation of Gas from the Receipt Point to the Delivery Point is an increase in pressure from the 124 - 250 psig at the Receipt Point to a pressure of approximately 1100 psig at the Delivery Point. The Compressor Station is required to accomplish this increase in pressure of the Gas. Fortuna, as a general contractor, will construct for CNGC the Compressor Station on CNGC's property at the location specified on the attached facilities map.
2. [*]
10. OPERATION OF COMPRESSOR STATION
1. It is the intention of the Parties that CNGC will operate the Compressor Station during the term of this Agreement. During the first six months of operation of the Compressor Station, Fortuna will provide to CNGC at no cost technical support and complete training in the proper operation of the Compressor Station.
2. [*]
3. At its option Fortuna may take over the operation of the Compressor Station during the term of this Agreement for a monthly fee to be agreed upon by the Parties.
11. OWNERSHIP OF FACILTIES

To facilitate performance of 311 transportation under this Agreement CNGC will own and maintain the Compressor Station and the 6" diameter pipeline that runs from the Fortuna Maxwell interconnect property to the Dominion Transmission Ryers Creek interconnect property (referred to in Section 2(d) above).

12. TERM OF THE AGREEMENT

The term of the Agreement shall be Fifteen (15) years from the Commencement Date. Thereafter, this Agreement will be deemed to run month to month, unless either Party provides six months notice to terminate this agreement. Notwithstanding the above, Fortuna in its sole discretion has the right after ten (10) years from the Commencement Date to terminate this Agreement by providing to CNGC at that time six (6) months notice in writing. CNGC will be reimbursed for all costs not recovered resulting from such early termination of the Agreement

13. COMMERCIAL MEDIATION

In the event that one or both Parties may claim an event of default or breach of this Agreement by the other Party, the injured Party is required to provide to the other Party Notice of the event of default of breach pursuant to Section 20 herein below. Within twenty five (25) days of the receipt of such Notice, both Parties shall meet to review the circumstances of the claimed event of default or breach. In the event that the Parties are not able to resolve the issue(s) giving rise to the claim of default or breach, upon agreement by both Parties, they may pursue an alternate dispute resolution process through Commercial Mediation with an independent mediator in lieu of the right to seek relief through litigation in the Court system.

14. FORCE MAJEURE

The Parties hereto shall be excused from performing hereunder and shall not be liable for damages or otherwise if and to the extent they shall be unable to do so or are prevented from doing so by statute or regulation or by action or inaction (including the failure of issue necessary permits) of any court or public authority having or purporting to have jurisdiction over the substance of this Agreement, provided that such government action has been resisted and/or attempted to have been prevented in good faith by all reasonable means; or by reason of storm, flood, fire, earthquake, explosion, civil disturbance, labor dispute, act of God or the public enemy, restraint by court or regulatory agency, or any other cause, whether or not similar thereto, beyond the reasonable control of the affected party; provided however, that the occurrence of any of the foregoing shall not relieve either Party of the obligation to make payments, the obligation with respect to which was incurred prior to the onset of the force majeure event, provided, however, that if Fortuna is unable to have Gas delivered at the Receipt Point and CNGC is otherwise able to provide service hereunder, there shall be no reduction in the payments. Fortuna shall be excused from making payments or performing hereunder to the extent that CNGC is unable to perform hereunder as a result of a force majeure event. If an occurrence of force majeure renders either party of this Agreement unable to observe or perform, in whole or in part, any of its covenants or obligations, then the party subject to the force majeure occurrence will give the other Party notice and full particulars of the occurrence in writing or by telecopies as soon as reasonably possible but not later than two (2) business days following the date of the occurrence. Each party shall have the obligation to act in good faith and use diligent efforts to overcome and remedy the circumstances giving rise to the force majeure.

15. INDEMNIFICATION

Each of the Parties will indemnify and hold harmless the other from and against any and all loss, cost, damage, liability, penalty, claim and expense of every kind and nature whatsoever (including, without limitation, court cost, expenses and reasonable attorney's fees) arising out of and in any manner caused by its gross negligence or intentional misconduct, including acts of its employees, agents, or subcontractors pursuant to or in connection with this Agreement, other than any loss, cost, damage, liability, penalty, claim or expense which arises in part out of the contributory negligence of the other Party (in which event, the indemnifying Party will indemnify and hold the other Party harmless only to the extent of the indemnifying Part's contribution to such a loss, cost, damage, liability, penalty, claim or expense) and other than any amounts paid in settlement by Party of any claim or litigation effected without the consent or approval of the other Party (which consent shall not be unre asonably withheld or delayed). In no event shall either Party hereto be liable to the other Party for indirect, special or consequential damages (including any damages incurred by entities or persons that are not Parties) resulting from a failure to perform hereunder.

16. TAXES

Any additional taxes, including without limitation, taxes on Transportation of Gas by CNGC, but excluding CNGC's income and property taxes, (except as relating to the compressor station) that are incurred by CNGC as a result of this Agreement shall be the obligation of and paid by Fortuna as and when due, except to the extent such .taxes exist at the time of execution hereof.

17. OTHER AGREEMENTS

This Agreement is intended to work in conjunction with the existing Tap Agreement(s) between CNGC and Fortuna and existing Access Agreement(s) between CNGC and Fortuna.

18. MODIFICATIONS

This Agreement may not be modified or amended except in writing signed by or on behalf of both Parties by their duly authorized officers.

19. NOTICES

All notices required or permitted under this Agreement to be given in writing shall be deemed to have been given when delivered personally or deposited in the mails, by certified mail, addressed to the party to whom notice is being given at its address set forth below. Either Party may change its address by written notice similarly given.

If to CNGC:	If to Fortuna:
Russ Miller	Tom Cassetta
Corning Natural Gas Corporation	Fortuna Energy Inc.
330 West William Street	337 Daniel Zenker Drive
Corning, NY 13430	Horseheads, NY 14845
Phone: 607-936-3755	Phone: (607) 562-4017

1. CONTINUING JURISDICTION OF GOVERNMENTAL AUTHORITY

This Agreement, and all rights, obligations, and performances of the Parties hereunder, are subject to all present and future applicable federal, state, and local laws and to all present and future duty issued and promulgated orders, regulations, requirements and other duly authorized actions of any governmental authority having jurisdiction over the subject matter hereof, Compliance by CNGC with any order of NYSDPS or any federal, state, or local government authority acting under claim of jurisdiction issued before or after the effective date of this Agreement shall not be deemed to be breach hereof.

1. SUCCESSORS; ASSIGNMENT

Any Party that shall succeed by purchase, merger or consolidation to the properties, substantially as an entirety, of CNGC or Fortuna, as the case may be, shall be entitled to the rights and shall be subject to the obligations of its predecessor in title under this Agreement.

2. RIGHT OF FIRST REFUSAL TO PURCHASE ASSETS
1. Effective at the end of the term hereof Fortuna shall have the option to purchase and remove the equipment and facilities at the Compressor Station owned by CNGC for a price of [*] . Fortuna shall also have the option to purchase from CNGC for a price of [*] the 6" diameter pipeline that runs from the .Fortuna Maxwell interconnect property to the Dominion Transmission Ryers Creek interconnect property (referred to in Section 2(d) above).
2. Such option(s) shall be exercised by Fortuna providing written notice to its desire to exercise such option(s), no later than three (3) months after the termination of this agreement at which time Fortuna will make arrangements with CNGC at Fortuna's sole cost for removal of such equipment. CNGC shall execute and deliver any and all documents required to effect the transfer of ownership within one (1) month from the date when such notice is received, and CNGC shall execute and deliver any and all documents required to effect the transfer of ownership; provided however that Fortuna shall pay for any external cost (such as registration) required and related to such documentation and also pay costs associated with necessary supervision by CNGC on the physical removal of such equipment.
3. GOVERNING LAW and INTERPRETATION

The interpretation and performance of this Agreement shall be in accordance with and controlled exclusively by the laws of the State of New York, without regard to rules governing a conflict of laws between two or more States or between the Country of Canada and the United States.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective representative, thereunto duly authorized, as of the day and date first above-written.

CORNING NATURAL GAS CORPORATION

By: ______________________________

Russell S. Miller

Vice President Gas Supply & Marketing

FORTUNA ENERGY INC.

By: ______________________________

Jeff Bowers, Operations Lead, for

Russell Erlandson

Production Superintendant

Corning Gathering & Transport Fees for Fortuna Energy Inc.

[*]

MAXWELL COMPRESSOR SITE

South of County Route 120 & Thurber Road, Town of Caton