Re: Farmout Offer - UKCS Quad 14 Amending Agreement January 30, 2006
January
30, 2006
Attention:
Xx. Xxxx Xxxxx
Via:
Email
Dear
Xxxx,
| Re: |
Farmout
Offer - UKCS Quad 14
Amending
Agreement January 30, 2006
|
Further
to our recent discussions this letter agreement will set forth the basic terms
and conditions of International Frontier Resources Corporation (“IFR”) offer to
Eternal Energy Corp. (“EEC”) to farmin on UKCS Quad 14, blocks 14/23 (SE/4)
14/28a and 14/29b (255 sq km) herein after referred to as “Quad 14
acreage”.
Quad
14 - Background
The
Quad
14 acreage has been, or is in the process of, being converted to a traditional
license from a promote license. In our discussion you indicated that EEC is
interested in participating in the drilling of a commitment well on the Quad
14
acreage. In this regard IFR advises as follows;
| · |
The
license is currently held Palace Exploration UK - 90% and Challenger
Minerals - 10%. The Quad 14 acreage is subject to a 3% royalty payable
to
Xxxxxx Oil & Gas UK.
|
| · |
IFR
and Palace have entered into an agreement under the terms of which
IFR has
the right to acquire up to a 40% interest in the Quad 14
acreage.
|
| · |
Palace
shall seek DTI approval to register the IFR interest in the Quad 14
acreage on title.
|
| · |
Palace
and Challenger own a 3-D seismic survey over the Quad 14 acreage. The
3-D
survey is owned Palace/Challenger -50% and Encana, now Nexen, 50%.
The
cost for IFR to purchase a copy of the 3-D seismic is US$9,000 per
point.
|
| · |
Xxxxxxxxxx
has been appointed operator and Challenger will contract ADTI to drill
the
first well on the Quad 14 acreage on a turn key basis at an estimated
D&A cost of USD$10 million. For clarity ADTI will act as drilling
operator and will drill the test well to contract depth and acquire
logs
for an estimated turn key cost of US$10 million.
|
| · |
Palace
is prepared to participate for up to a 50% interest and Challenger
will
participate for 10% of the cost to drill the commitment well on the
Quad
14 acreage.
|
| · |
Should
the DTI accept Palace’s request for a traditional license Palace will be
required to drill one firm well on the Quad 14 acreage within two years
from the date a traditional license is issued.
|
IFR
is
prepared to farmout 15% of the Quad 14 commitment well under the following
terms
and conditions;
| 1. |
On
or before January 5, 2006 EEC shall place US$90,000.00 in an escrow
account at Xxxxxx Jonsson & Yeadon offices in Vancouver BC. In the
event EEC completes the farmin transaction contemplated in clause 2
hereof
the escrow funds shall be paid to Palace Exploration UK as payment
for 10%
of the 3-D seismic costs (US$9,000 X 10).
|
| 2. |
On
or before March 3, 2006 EEC shall provide an irrevocable letter of
credit
for US$1,500,000.00 in favor of Palace Exploration (UK) Limited in
trust
with Xxxxxx Xxxxxxx & Xxxxxx. This amount represents 15% of the
estimated turn key dry hole costs of US$10,000,000.00. In the event
EEC
does not provide a letter of credit in the amount of US$1,500,000.00
on or
before March 3, 2006 the escrow funds of $US90,000.00 referred to in
clause 1 hereof shall be released from escrow and paid to IFR as a
non
performance penalty and EEC shall have no further rights under this
agreement.
|
| 3. |
EEC
agrees to pay 15% of the commitment well D&A turn key costs, estimated
at US$10 million, 15% of the production testing costs estimated at
US$1
million per drill stem test and 15% of all completion and all other
costs
incurred to the flow line outlet valve to earn a 10% interest in the
Quad
14 acreage.
|
| 4. |
EEC
agrees to pay its 10% share of a 3% XXXX payable to Xxxxxx Oil & Gas
UK.
|
| 5. |
EEC
agrees to be bound by the terms and conditions of the IFR - Palace
farmin
agreement and Joint Operating Agreement.
|
| 6. |
EEC
agrees to pay its 10% share of the annual traditional license fees
from
March 3, 2006 onward.
|
| 7. |
EEC
agrees to keep the terms of this letter agreement confidential unless
required to disclose pursuant to regulatory authorities rules and
regulations.
|
| 8. |
EEC
will provide IFR and Palace with a copy of any public announcement
prior
to issuance.
|
| 9. |
The
parties hereto agree to execute any future documentation required,
including a formal Farmin and Joint Operating Agreement to effect the
terms and conditions contained herein.
|
| 10. |
IFR
shall use its best efforts to have EEC novated into the Joint Operating
Agreement.
|
| 11. |
IFR
shall use its best efforts to have EEC recognized on title by the DTI,
in
the event EEC is not recognized by the DTI then IFR and EEC shall enter
into a mutually acceptable title Trust Agreement.
|
This
offer is open for your acceptance until January 31, 2006 by signing and
returning a copy of this letter by fax to 000-000-0000. Upon execution of this
letter agreement the parties hereto agree to enter into a mutually acceptable
formal agreement incorporating the basic terms and conditions contained herein.
Yours
truly,
/s/
Xxx
Xxxxxxx
Xxx
Xxxxxxx
President
Agreed
to
and accepted this 30th day of January 2006
Per:
/s/
Xxxxxxx X. Xxxxx______________________
Xxxx
Xxxxx, President
