EXPLORATION AND DEVELOPMENT AGREEMENT
Exhibit
10.2
THIS
EXPLORATION AND DEVELOPMENT AGREEMENT dated June 15th, 2006 (the “Effective
Date”).
BETWEEN:
BIG
SNOWY RESOURCES, LP,
whose
address is Suite 2100, 00 Xxxxx 00xx Xxxxxx, Xxxxxxxx, Xxxxxxx 00000,
X.X.X.
(“BSR”)
AND:
Rancher
Energy Corp. whose
address is 1050-17th
Street,
Suite 1700, Xxxxxx, Xxxxxxxx 00000 XXX
(“Rancher
Energy”)
WHEREAS:
A. BSR
holds
an 80% net revenue interest in certain oil and gas leases totalling
approximately 7,600 acres in Montana and certain xxxxx located on such
leases;
B. BSR
desires Rancher Energy to shoot 3D seismic on the leases;
C. BSR
desires Rancher Energy to drill a test well on the leases;
D. BSR
desires Rancher Energy to construct a pipeline to transport oil and gas produced
from the xxxxx subject to this Agreement to an oil and gas transmission
line;
E. .
NOW,
THEREFORE, in consideration of the premises and of the mutual covenants,
agreements, conditions, and obligations in this Agreement, BSR and Rancher
Energy (collectively referred to as the “Parties”) agree as
follows:
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1.
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DEFINITIONS
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In
this
Agreement:
“AFE”
means
authority or authorization for expenditure regarding drilling costs as set
out
in this Agreement;
“Agreement”
means
this Agreement, including the attached Schedules;
“Lands”
means
the lands described in Schedule “A” of this Agreement;
THIS
CONTRACT IS SUBJECT TO ARBITRATION PURSUANT TO THE
MONTANA
ARBITRATION
ACT,
TITLE 27, CHAPTER 5, MONTANA CODE ANNOTATED
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“Leases”
mean
collectively, or individually, as the context may require, those leases,
reservations, permits, licences or other documents of title described in
Schedule “A” of this Agreement, by which the holder of such leases is entitled
to enter, access, drill for, win, take, own or remove the leased substances
within, on or under the Lands;
“log”
means
any record obtained by Rancher Energy of all formations penetrated by the
Test
Well, or other xxxxx drilled by Rancher Energy on the Leases, their depth,
thickness and sonic, electrical, radiological and other physical properties
of
the formation and water, oil and gas, including, but not limited to mud
logs;
“oil
and gas”
includes
all minerals and petroleum, natural gas and other hydrocarbon substances
regardless of gravity or phase (including coal and coalbed gas) including,
but
not limited to condensate and helium, hydrogen, nitrogen and other gases;
and
“Payout”
means
the occurrence of when Rancher Energy recoups the costs and expenses of
the:
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(a)
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Construction
of the Pipeline;
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(b)
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xxxxx
drilled pursuant to this Agreement;
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(c)
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equipping,
completion and other costs of or in relation to all xxxxx drilled
pursuant
to this Agreement, including tie-in and
compression.
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(d)
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½
of the cost of the 3D seismic program which seismic is owned 50/50
by the
parties.
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“Schedules”
means
Schedule “A”, Schedule “B” and Schedule “C” of this Agreement, as the context so
requires.
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2.
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SHOOTING
OF THE 3D SEISMIC AND TEST
WELL
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(a)
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Rancher
Energy shall shoot a minimum of 4 square miles of 3D seismic (the
“3D”) on
the leases. Rancher Energy shall conduct the Operations as a reasonable
and prudent operator and shall commence setting the parameters
and
retaining a seismic contractor as soon as practical once this agreement
is
executed. Rancher Energy will shoot the 3D ASAP. Further, Rancher
Energy
will be responsible for identifying and hiring the 3D. BSR agrees
to
assist when requested in the process.
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(b)
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All
expenditures relating to the 3D, whether direct or indirect but
excluding
supervision and management costs, shall be to the account of Rancher
Energy and paid entirely by Rancher
Energy.
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(c)
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A
copy of all data contained and derived from the 3D, including all
interpretations shall be forwarded by Rancher Energy to BSR. BSR
shall
also be provided with the final interpretation within 10 working
days of
receipt of the final interpretation by Rancher Energy. (the “3D Completion
Date").
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(d)
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Rancher
Energy shall have 30 days from the 3D Completion Date to give written
notice to BSR of an intention to drill based on the 3D and propose
a
drilling location (the “Test Well”). Failure by Rancher Energy to provide
a notice prior to expiry of the thirty (30) day period shall be
deemed an
election by Rancher Energy to terminate this Agreement. If this
Agreement
is terminated by Rancher Energy, it shall have no further obligations
or
liabilities hereunder.
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(e)
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If
Rancher Energy elects not to terminate this Agreement pursuant
to
paragraph 2(d) above Rancher Energy shall have 120 days to spud
the Test
Well. The Test Well shall be at the sole cost of Rancher Energy.
The well
will be drilled to the deepest horizon indicated as hydrocarbon
bearing by
the 3D seismic.
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Upon
receipt by BSR of the Final Seismic Interpretation and Notice of
Drilling
Location, BSR shall assign to Rancher Energy a 55% working interest
in the
spacing unit of the Test Well
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(g)
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If
the Test Well is commercial then Rancher Energy shall be entitled
to 100%
of net revenue from the Test Well Interest until Payout. After
Payout, the
revenue from the Test Well Interest shall be distributed in proportion
to
the working interest share of each
Party.
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3.
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PIPELINE
AND TRANSPORTATION
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(a)
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Unless
this Agreement has been earlier terminated or has expired Rancher
Energy
shall:
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(i)
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use
commercially reasonable efforts to obtain required government and
administrative regulatory approvals and other necessary consents
for the
construction and operation of a pipeline of approximately twelve
(12) miles in length, with a tie-in at Sec.14 1N 21E in the NENW4,
Stillwater County, Montana (the “Pipeline”), to transport gas from the
Test Well, and other xxxxx producing in commercial quantities on
the
Leases in which Rancher Energy and BSR have joint working interest
(the
"Joint Xxxxx") to a gas transmission line;
and
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(ii)
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if
Rancher Energy is able to secure all required approvals and consents
noted
in paragraph 3(a)(i), Rancher Energy shall thereafter finance,
construct,
operate and maintain (the “Construction”) the Pipeline,
provided
that Rancher Energy shall be entitled to, instead of constructing
the
Pipeline, make mutually acceptable arrangements to transport
all produced
gas from the Joint Xxxxx to
market.
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(b)
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If
the Pipeline is to be constructed pursuant to paragraph 3(a) (including
sufficient compression to produce gas from the Test Well), such
construction shall occur within eighteen (18) months of the Effective
Date.
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(c)
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Upon
Payout, Rancher Energy shall assign 20% of its right, title and
interest
in the Pipeline to BSR. Rancher Energy grants BSR an option to
purchase an
additional 25% of Rancher Energy’s right, title and interest in the
Pipeline (the “Pipeline Option”). The Pipeline Option may be exercised
incrementally by BSR where the minimum percentage of such increments
is
1%. If BSR exercises the Pipeline Option, it shall do so within
eighteen
(18) months of the Completion of Construction of the Pipeline (after
which
the Pipeline Option automatically terminates). BSR shall notify
Rancher
Energy of its exercise of the Pipeline Option and within thirty
(30) days
of such exercise it shall pay to Rancher Energy the equivalent
of 25%, or
the corresponding lesser incremental percentage, of the independently
verifiable costs and expenses (the “Costs”) of the Construction, and
thereupon Rancher Energy shall assign a further 25%, or applicable
lesser
incremental percentage, of Rancher Energy’s right, title and interest in
the Pipeline to BSR on a proportionate incremental basis. If BSR
fails to
make the required payment before the expiry of the thirty (30)
day period
noted above, the exercise of the Pipeline Option shall be void
for all
purposes.
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(d)
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If
BSR's interest in the Pipeline is at any time insufficient to transport
its joint share of production from any of the Lands or any other
lands
within the AMI, Rancher Energy shall be entitled to charge BSR
those
tariffs and fees respecting any required compression and transportation
in
connection with the Pipeline that it would have be entitled to
charge a
third party.
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(e)
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Construction
Costs are deemed not to include supervision or management costs
and
expenses incurred by Rancher
Energy.
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(f)
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Subject
to section 7 of this Agreement, once the terms of (a) and (b) above
are
satisfied then BSR shall transfer to Rancher Energy a 55% working
interest
in all of the Leases and the Lands, all xxxxx thereon, and in all
other
lands and xxxxx that BSR owns an interest in within the AMI, other
than
the Test Well, which shall be governed by the terms of this Agreement.
BSR
shall not encumber or assign any interest in any of the aforementioned
Leases, Lands, xxxxx and other lands whatsoever to any person or
entity
during the period from the date of this Agreement until BSR transfers
the
55% working interest to Rancher Energy as noted
above.
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(g)
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The
rights, title and interests in the Leases to be conveyed by one
Party to
the other Party are without warranty, either express or
implied.
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4.
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OPERATIONS
AND DRILLING
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(a)
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In
the drilling of the Test Well Rancher Energy shall conduct its
operations
as a reasonable and prudent operator and shall test all zones or
formations penetrated in the xxxxx which Rancher Energy believes
to have a
reasonable possibility of producing in paying quantities. Rancher
Energy
shall restore the surface of the land of the Test Well to the condition
required by law, and in absence of law, then as nearly as possible
to its
original condition.
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(b)
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All
well operations on the Leases will be governed by the terms and
provisions
of an operating agreement (the “Operating Agreement”) which will be
circulated by Rancher Energy for signature by the Parties at least
30 days
prior to the commencement of the Test Well.
The Operating Agreement will be on a A.A.P.L. Form 610 - 1982 Model
Form
Operating Agreement which shall be modified to delete portions
of the
printed language and to add certain provisions as are usual and
customary
among independent oil and gas exploration operators. Rancher Energy
shall
be designated the Operator in the Operating
Agreement.
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(c)
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Except
for those costs and expenses which are expressly identified in
this
Agreement as being the sole responsibility of Rancher Energy, all
costs
and expenses relating to all lands governed by this Agreement,
including
all operations thereon, shall be borne and paid for by the Parties
in
accordance with their respective interests in such lands.
BSR’s share of estimated drilling costs shall be proportionate to BSR’s
working interest and will be billed (based on the estimate in the
associated AFE) by Rancher Energy to BSR and will be due and payable
to
Rancher Energy thirty (30) days after notice of the invoice has
been
delivered to BSR. If such drilling costs are more or less than
the AFE,
BSR shall bear its pro-rata share of any actual excess invoiced
costs paid
by Rancher Energy; in the event the AFE is greater than actual
costs, BSR
will be entitled to and will receive from Rancher Energy its pro-rata
refunded share of any excess monies.
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(d)
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All
rights, titles and interest in the Leases are subject to the royalties
provided for in the Leases and additional royalties, the aggregate
of
which shall not exceed 20%.
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5.
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TAKEOVER
OPTION
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If
after
drilling the Test Well to the Contract Depth Interval (the deepest horizon
indicated by the 3D) Rancher Energy is not able to complete the Test Well
as a
well capable of producing in paying quantities, Rancher Energy shall not
plug
and abandon the Test Well without first notifying BSR under Section 9
below of
Rancher Energy’s intention to do so, in which event BSR shall have the right to
take over said Test Well as provided in Section 9.
In the
event BSR elects to take over said Test Well and completes same as a well
capable of producing in paying quantities, all rights of Rancher Energy to
earn
an interest in the spacing unit for the Test Well shall thereupon cease and
terminate. Rancher Energy shall not be relieved of any obligation under this
Agreement previously accrued or which thereafter accrues with respect to
Rancher
Energy’s operations upon the Leases previously conducted excepting the plugging
and abandoning of the Test Well taken over by BSR.
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6.
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AREA
OF MUTUAL INTEREST
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There
shall be deemed to be an area of mutual interest (the “AMI”) surrounding the
Leases. The AMI shall cover and include all Lands, and all lands located
within
five (5) miles of the boundaries of all Leases and be effective for the primary
term of the Lease(s) or the duration of any oil and gas production therefore,
whichever is the greater. In the event a Party (or any affiliate thereof)
acquires or proposes to acquire any interest in the lands within the AMI,
the
acquiring Party shall be required promptly to notify the other Party of the
acquisition or proposed acquisition and the actual costs and expenses related
thereto. The Party receiving the notice shall have forty-five (45) business days
within which to pay a 50% share of the actual cost of the entire interest
acquired or to be acquired. Upon the acquiring Party’s receipt of such payment
and closing of the acquisition, it shall execute and deliver (or cause to
be
executed and delivered in the event of an acquisition by an affiliate) to
the
joining party a recordable assignment of 50% of the entire interest acquired,
determined in accordance with this Section. Unless the Party receiving the
notice of an AMI acquisition shall have made a timely response in accordance
with this Section and has paid in a timely manner its share of the acquisition
costs, it shall be deemed to have elected not to acquire the interest so
offered
by the acquiring Party.
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7.
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COST
INFORMATION
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If
the
Test Well is productive in paying quantities, Rancher Energy shall, as soon
as
possible after completion, furnish to BSR reasonably detailed information
showing the cost of drilling, completing, and equipping the same. Further,
Rancher Energy shall during the Payout period furnish to BSR a monthly statement
showing gross production from such well and showing Rancher Energy’s progress
towards Payout. BSR shall have access at all times at the Notice address
stated
in this Agreement during reasonable business hours to Rancher Energy’s cost,
production and other records relating to such well.
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8.
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WELL
DATA
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With
respect to the Test Well Rancher Energy shall comply with the well information
requirements by BSR set out on Exhibit “C” attached hereto, by furnishing the
reports, documents, samples, data and other information and by giving the
notices indicated thereon. Further, with respect to drilling and completion
operations, Rancher Energy shall (i) furnish BSR daily drilling reports and
make
available portions of all samples, cores and fluids collected; (ii) at Rancher
Energy’s sole discretion conduct such tests, run such logs, make such surveys
and take such cores as would be made by a prudent operator; and (iii) furnish
BSR copies of all logs, surveys and tests. BSR and its representatives and
employees shall at all times have access, at their sole cost, risk and expense,
to the well(s) and well site(s) located on the Lease.
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9.
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ABANDONMENT
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No
well
drilled by Rancher Energy pursuant to this Agreement shall be plugged or
abandoned until Rancher Energy shall have given BSR notice of its intention
to
do so. BSR shall have forty-eight (48) hours from the receipt of said
abandonment notice and a copy of all logs, drillstem and other tests and
all
other material information obtained in connection with such well in the case
of
a well on which a drilling rig is located, and thirty (30) days from receipt
of
said abandonment notice in all other cases, to notify Rancher Energy whether
or
not BSR consents to such plugging or abandonment or whether BSR elects to
take
over the well. If BSR elects to take over the well, Rancher Energy shall
immediately deliver to BSR the well and all material and physical equipment
therein in the same condition as when drilling operations were terminated.
Further, Rancher Energy shall forthwith execute and deliver all necessary
instruments to convey to BSR, Rancher Energy’s entire interest in and to the
well, all such physical equipment therein and, the Lands comprising the spacing
unit in which said well is located. BSR will pay for all expenses and discharge
all obligations and assume all liabilities incurred after it takes possession
of
the well and will assume any and all obligations under any farmout agreements
Rancher Energy may have with other persons owning an interest in the spacing
unit for such well. BSR shall pay Rancher Energy the reasonable salvage value
of
all recoverable in-the-well and surface equipment owned by Rancher Energy
which
is taken over by BSR less than the estimated cost of salvage and less Rancher
Energy’s estimated cost of plugging and abandoning said well.
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10.
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MINIMUM
ROYALTIES/SHUT-IN GAS WELL
PAYMENTS
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Rancher
Energy agrees to pay any minimum royalties or shut-in gas well payments
necessary to maintain the Leases in full force and effect on which the Test
Well
is located. Each Party shall bear its working interest share of all such
royalties and payments. Rancher Energy further agrees to give BSR immediate
notice when any well is shut-in and the date thereof and furnish proof of
proper
payment of minimum or shut-in gas royalties at least one month in advance
of the
payment date.
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11.
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COMPLIANCE
WITH LAW
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During
the course of all operations conducted pursuant to this Agreement, the Parties
shall abide in all material respects by all applicable laws and all lawful
orders, rules and regulations of governmental authorities having jurisdiction.
Rancher Energy shall notify BSR of any application to any governmental body
for
the establishment of units for the spacing of xxxxx with respect to a Lease.
Rancher Energy and BSR shall attempt to agree upon the size and location
of
units; however, in the event they are unable to agree, Rancher Energy may
proceed before the proper governmental authority for the establishment of
such
units, but BSR shall have the right to participate in any proceedings to
protect
its interest.
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12.
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RELATIONSHIP
OF PARTIES
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It
is not
the intent or purpose of the parties to this Agreement to create hereunder
any
partnership, joint venture, or association or the relationship of agency
or
employer-employee, and neither this Agreement nor any of the operations
hereunder shall be construed or considered as creating any such
relationship.
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13.
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INDEMNITY
AND INSURANCE
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(a)
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The
Parties agree to indemnify, defend and hold each other harmless
from any
and all liens, encumbrances, suits, claims, judgements, obligations
and
liabilities of any kind caused or created by or arising out of
the other
Party’s ownership or operations pursuant to this
Agreement.
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(b)
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In
connection with all operations conducted hereunder, Rancher Energy
shall
carry, and whenever practicable, include covenants in its agreements
with
subcontractors requiring those subcontractors to carry the insurance
in
amounts and with a scope of coverage that a prudent operator in
the same
or similar circumstance as Rancher Energy under this Agreement
would, all
as more particularly specified on Exhibit “B”. Further Rancher Energy
agrees to carry all necessary governmental bonds required for operations
on the Leases.
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14.
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DEFAULT
AND REMEDY
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(a)
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If
either Party is determined to be in default under this Agreement
(the
“Defaulting Party”), the Defaulting Party must remedy such default within
thirty (30) days notice (“notice period”) from the other
Party.
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(b)
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The
Defaulting Party shall take all commercially reasonable actions
to cure
default within notice period.
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(c)
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Where
Rancher Energy is the Defaulting Party and the default relates
to a
material breach of its obligations in paragraphs 3(a) or (b) or
paragraph
4(a), then if such default is not remedied within the notice period,
Rancher Energy shall re-assign any and all right, title and interest
in
the Lands initially acquired from BSR under this
Agreement.
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15.
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NOTICES
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All
notices, statements and communications (the “Notices”) required or permitted to
be given or made in this Agreement shall be deemed to be so given or made
when
deposited in the United States Mail, postage prepaid directed to the Parties
at
the following addresses or such other addressees as they may from time to
time
designate in writing:
BSR:
Big Snowy Resources, LP
Suite 2100, 00 Xxxxx 00xx Xxxxxx
Xxxxxxxx, Xxxxxxx 00000, X.X.X.
Fax: 000-000-0000
Attn: Xxxx Xxxxxxxx
Suite 2100, 00 Xxxxx 00xx Xxxxxx
Xxxxxxxx, Xxxxxxx 00000, X.X.X.
Fax: 000-000-0000
Attn: Xxxx Xxxxxxxx
Rancher
Energy: Rancher
Energy Corp.
1050-17th
Street, Suite 1700
Xxxxxx,
Xxxxxxxx 00000 XXX
Fax:
000-000-0000
Attn:
Xxxx
Works
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16.
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FURTHER
ASSURANCE
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Each
of
the Parties shall, from time to time and at all times, do without further
consideration all such other and further acts and deliver and execute such
other
and further instruments and documents (for example, the assignment and the
conditions of working interests transferred in this Agreement) as may be
reasonably required in order to fully perform and carry out the terms and
provisions of this Agreement.
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17.
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TIME
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Time
is
of the essence with respect to all matters contained in this
Agreement.
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18.
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FORCE
MAJEURE
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All
of
Rancher Energy’s obligations and covenants hereunder, whether express or
implied, shall be suspended at the time or from time to time as compliance
with
any thereof is prevented or hindered by or is in conflict with: Federal,
State,
County, or municipal laws, rules, regulations or Executive Orders asserted
as
official by or under public authority claiming jurisdiction; Act of God;
adverse
field, weather, or market conditions; inability to obtain materials in the
open
market or transportation thereof; war; strikes or lockouts; riots; or other
conditions or circumstances not wholly controlled by Rancher Energy, and
this
Agreement shall not be terminated in whole or in part, nor shall Rancher
Energy
be in default under this Agreement or held liable in damages for failure
to
comply with any such obligations or covenants if compliance therewith is
prevented or hindered by or is in conflict with any of the foregoing
eventualities.
The
time
during which Rancher Energy shall be hindered in or prevented from conducting
drilling or reworking operations, under the contingencies above stated, shall
be
added to any applicable deadlines under this Agreement or the Leases (including
the primary term thereof); provided, however, that delay rentals shall not
be
suspended by reason of the suspension of operations and if the Leases are
extended beyond the primary term above stated by reason of such suspension,
Rancher Energy shall pay an annual delay rental on the anniversary dates
hereof
in the manner and in the amount above provided.
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19.
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SCHEDULES
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Schedules
“A”, “B” and “C” referred to and attached to this Agreement are hereby
incorporated by reference and made a part of this Agreement. In the event
any of
the provisions of any exhibit conflict with this Agreement, then the provisions
of the Agreement itself shall prevail.
The
inclusion herein of provisions relating to any particular subject matter
shall
not be deemed an attempt to deal with such subject matter to the exclusion
of
provisions in the Operating Agreement or any Schedules relating to such matter
unless the context clearly otherwise requires.
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20.
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MISCELLANEOUS
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(a)
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Whenever
the plural, masculine or neuter is used in this Agreement, the
same shall
include the singular or feminine or body politic or corporate and
vice-versa as the context so
requires.
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(b)
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The
Parties agree that with respect to the subject matter of this Agreement
together with all Schedules shall constitute the full and complete
understanding and agreement of the Parties, and there are no other
understandings, obligations, relationships or agreements, written
or
oral.
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(c)
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The
terms and definitions used herein shall have the same meaning in
the
Schedules unless the context otherwise
requires.
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(d)
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No
Party shall assign an interest in this Agreement without first
obtaining
the written consent of the other Party, which consent shall not
be
unreasonably withheld.
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21.
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ENUREMENT
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The
terms, covenants, conditions and provisions of this Agreement shall be binding
upon and enure to the benefit of the respective successors and assigns of
the
Parties, and said terms, covenants, conditions and provisions shall be deemed
to
be real covenants burdening and running with the Leases and Lands.
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22.
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LAW
AND JURISDICTION
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The
law
governing this Agreement shall be the law of the State of Montana. The Parties
exclusively and irrevocably attorn to the jurisdiction of the applicable
court
of the State of Montana regarding any matter or dispute arising from this
Agreement.
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23.
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CONFIDENTIALITY
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All
information obtained or received by either Party relating to any well drilled
pursuant to this Agreement shall be maintained in confidence, shall not be
disclosed to any other person, and shall not be used for any purpose other
than
in connection with this Agreement.
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24.
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ARBITRATION
|
Should
there be a disagreement or a dispute between the Parties with respect to
this
Agreement, the same will be referred to a single arbitrator for decision
pursuant to the laws of Montana, and the decision of such arbitrator will
be
final and binding upon the Parties. This Section 24
will be
deemed to be a submission to arbitration in accordance with the laws of
Montana.
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25.
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COUNTERPARTS
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This
Agreement may be executed in counterpart and will have the same
effect as
if all signatories to the Agreement had signed the same document.
All
counterparts together will constitute the same instrument. Signed
counterparts may be transmitted by
facsimile.
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IN
WITNESS WHEREOF, the Parties have executed this Agreement to be effective
for
all purposes as of the day and year first above written.
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BIG
SNOWY RESOURCES, LP
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| By: | /s/ Xxxx XX Xxxxxxxx | |
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Name:
Xxxx XX Xxxxxxxx
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Title:
Director
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