Dear fellow shareholder,
My second letter to you arrives a short nine months after my first letter as the CEO of Gateway Energy Corporation (“Gateway” or the “Company”). Our strategic plan to increase the value of our stock remains the same as the one I have been articulating over the past nine months:

• Reduce our general and administrative (G&A) expenses.
• Acquire and construct pipelines to serve end users of natural gas.
• Evaluate financing alternatives, including the creation of a master limited partnership (“MLP”).

In order to assist you in assessing our ongoing success in implementing our strategic plan, I will review the past nine months, frame the current issues facing Gateway, and then set out the Company’s goals for the next 12 months.

A review of recent history

We accomplished our goal of reducing G&A expense by approximately $750,000, from $2.353 million in 2009 to $1.603 million in 2010. The Company’s annual G&A expense is now at its lowest level since 2003 – a significant accomplishment considering the consumer price index increased by over 18% in the past seven years.

Unfortunately, our legacy assets which gather natural gas did not fare so well in 2010 due to production declines in the fields connected to these gathering systems. In July 2010, I predicted that annual operating margin in 2010 would decrease from the $2.738 million that we generated in 2009. Even as late as July 2010 I underestimated the severity of the decline. As a result of these production declines, operating margin decreased by $750,000 to $1.989 million in 2010, completely offsetting our reductions in G&A expense.

We also closed a small acquisition of pipeline assets from Laser Midstream for approximately $1.1 million in October 2010. These pipelines deliver natural gas to poultry processing plants owned by Tyson Foods, Inc. (“Tyson”) pursuant to long-term contracts with Tyson. We are pleased with this acquisition as we believe that we were able to acquire assets with an expected life of 20 years at approximately 5x 2010 pro forma EBITDA. In the future, we will pursue acquisition opportunities with similar profiles and on similar terms.

Finally, we completed an approximately $1.0 million private placement of common stock
in November 2010. While the offering price of $0.25 per share was not as high as I hoped for, the combination of the Laser acquisition and subsequent stock offering was accretive to earnings per share and cash flow per share due to the attractive purchase price economics. In addition, the private placement proceeds enabled us to refinance the bank debt incurred to initially fund the Laser acquisition.

Current issues facing Gateway

In my 2010 annual shareholder letter, I identified access to reasonably priced equity
capital as the single largest issue facing Gateway. The midstream pipeline business is capital intensive and we currently don’t have enough cash flow or borrowing capacity to fund large capital projects.

As a public company, Gateway needs to be valued on a going concern basis before we
can make larger investments by issuing equity or equity-related securities. Consequently, the public market must see positive earnings per share and increased cash flow per share.

I also believe that a stable and growing dividend/distribution yield is an important value
driver for publicly traded, midstream pipeline companies. Access to attractively priced equity capital on a tax efficient, distribution yield basis is the reason that most publicly traded companies in our business are structured as MLPs.

Goals for the next 12 months

We will continue to seek ways to reduce G&A expenses. Our new goal is to reduce
annual G&A expense by another $100,000 to $1.5 million in 2011.

We will also strive to increase free cash flow from existing operations in 2011 from the
$240,000 we generated in 2010. I am hopeful that a full year’s contributions from the Laser
acquisition and ongoing G&A reductions will slightly offset continuing declines in contribution from our legacy Hickory Creek and offshore Gulf of Mexico gathering systems.
We will also pursue more acquisitions of pipelines which deliver natural gas to end users.
One goal over the next 12 months is to acquire assets which yield another $250,000 to $500,000 in annual EBITDA on a basis which is accretive to earnings per share and cash flow per share.

We are also pursuing construction projects, but nothing requiring over $1 million in capital
within the next 12 months.

As we exit 2011, our goal should be to look forward to a Company which can generate positive earnings in and finally reward Gateway’s shareholders with a regular dividend in 2012.

Sincerely,

Frederick M. Pevow
President & CEO

FORWARD LOOKING STATEMENTS

Certain of the statements included in this letter, which express a belief, expectation or intention, as well as those regarding future financial performance or results, or which are not historical facts, are "forward-looking" statements as that term is defined in the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The words "expect", "plan", "believe", "anticipate", "project", "estimate", and similar expressions are intended to identify forward-looking statements. These forward-looking statements include statements regarding future operating margins, future reductions in G&A expenses, future acquisitions, future financing activities and strategies, future cash flows, future earnings and future dividends or distributions. These forward-looking statements are not guarantees of future performance or events and such statements involve a number of risks, uncertainties and assumptions, including but not limited to industry conditions, prices of crude oil and natural gas, regulatory changes, general economic conditions, interest rates, competition, changes in the financial markets and other factors. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results and outcomes may differ materially from those indicated in the forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

EBITDA
EBITDA is a significant performance metric used by Company management, and by external users of the Company's financial statements, such as investors, commercial banks, research analysts and others, including our principal lender.

EBITDA should not be considered an alternative to, or more meaningful than, net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance, liquidity or ability to service debt obligations. EBITDA does not include interest expense, income taxes, depreciation, depletion and amortization expense, non-recurring gain (loss) on sale of assets, minority interest, accretion expense or non-cash compensation expense. Because the Company has borrowed, and intends to borrow, money to finance their operations, interest expense is a necessary element of the Company's overall costs. Because the Company uses capital assets, depreciation and amortization are also necessary elements of the Company's overall costs. Because the Company has used, and intends to use, non-cash equity awards as part of their overall compensation package for executive officers and employees, non-cash compensation expense is a necessary element of the Company's overall costs. Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, Company management believes that it is important to consider net income determined under GAAP, as well as EBITDA, to evaluate the Company's financial performance.