1132559 Alberta Ltd.
1132559 Alberta Ltd.
| 000 Xxxxxxx Xxx XX Xxxxxxx, Xxxxxxx X0X 0X0 | TEL: 000-000-0000 |
February 15, 2005
Paradigm Oil And Gas Inc.
Xxxxxx X. Xxx, President
35 – 00000 Xxxxxxx Xxxxxx,
Xxxxxxxx, X.X.
V7E 6G4
Attention: Land Manager
Dear Sir:
| Re: | Farmout and Option Agreement |
| SE 00-000-00 W5M , NW 29-091-12W5M | |
| Sawn Lake Area, Alberta | |
This letter will outline the terms pursuant to which 1132559 Alberta Ltd. would be prepared to enter into a farmout agreement with Paradigm on the subject lands.
| 1. | Definitions | |
| a. | Each capitalized term used in this Agreement will
have the meaning given to it in the Farmout and Royalty Procedure, and
in addition, the following terms will have the following meanings: |
|
| b. | “Farmor” means 1132559 Alberta Ltd.
as to an undivided ten percent (10%) working interest in the Farmout Lands
|
|
| c. | “Farmee” means Paradigm Oil And Gas,
Inc. (“Paradigm”) |
|
| d. | “Farmout & Royalty Procedure” means
the 1997 CAPL Farmout & Royalty Procedure attached hereto as Schedule
“A”. |
|
| e. | “Operator” means Northern Alberta Oil
Ltd. |
|
| 2. | Farmout Lands | |
| Township 91, Range 13 W5M: SE Section 36 | Oil Sands from top Peace River | |
| formation to base Pekisko formation | ||
| Encumbrances: Crown royalty | ||
| 3. | Option Lands |
| Township 91, Range 12 W5M: NW Section 29 | Oil Sands from top Peace River | |
| formation to base Pekisko formation | ||
| Encumbrances: Crown royalty | ||
| 4. | Test Well |
| POGI - 1132559 Alta Farmout & Option - Sawn Lake | Page 1 of 4 |
| Operator on behalf of Farmor
shall prior to April 30, 2005, subject to surface access, rig availability
and regulatory approval, commence the drilling of a well (“Test
Well”) at LSD 01 SE Section 36 on the Farmout Lands. Farmor will
thereafter diligently and continuously drill such well vertically to a
depth of 2 meters above the Bluesky Formation. Upon reaching the agreed
upon vertical depth Farmor will core the entire Bluesky and fully analyze
the recovered core; and on completion of coring operations drill ahead
to 10 meters into the Wabamun formation and log the Test Well, plug the
Test Well back to an appropriate depth, and drill a horizontal leg of
at least five hundred meters within the Bluesky Formation (“contract
depth”). Upon completion of drilling operations, Farmor will case
and complete the Test Well. Upon a successful completion of the Test Well,
the Farmor will adequately equip the Test Well for production and commence
a ninety-day production test. During the period of production testing,
collection of such information as may be required to characterize the
producing Bluesky reservoir, may include but not be limited to: flow rate,
oil sampling and analysis, formation pressures, static gradient pressures,
annular fluid levels, oil to water ratios, gas to oil ratios, gas sampling
and analysis, water sampling and analysis all of which may be performed
and/or recorded throughout the testing period. |
||
| 5. | Interest Earned |
|
| Subject to Clause 3.00 of the
Farmout & Royalty Procedure, Farmee will earn 100% of Farmor's interest
(an undivided 10% interest in the Drilling Spacing Unit) Before Payout
(BPO), reverting to 50% of Farmor's interest (an undivided 5% interest)
After Payout (APO). The farmee will have earned a 5% interest in the remaining
xxxxx to be drilled in that Drilling Spacing Unit, subject to the Overriding
Royalty as set forth in Article 5.00 of the Farmout & Royalty Procedure
|
||
| 6. | Drilling Option(s) |
|
| If the Farmee has funded the
drilling of the Test Well to contract depth and has cored, logged, and
production tested the Test Well, as set out above, is not otherwise in
default, the Farmee will have the option, by written notice to Farmor,
within forty-five (45) days following completion of the production test,
as set out in clause 3., to elect to: |
||
| a) |
Fund the drilling of a further well
(“Option Well”), as more particularly set forth in clause
6 herein, on an undrilled section of Farmout Lands (“Option Land”), |
|
or – |
||
| b) |
Terminate its option to drill an Option
Well and thereby relinquish its right to earn an interest in the
Option Lands. |
|
| 7. | Option Well |
|
| Should Farmee elect, pursuant
to clause 5 a) herein, to drill an Option Well; Operator (on behalf of
Farmee) shall within sixty (60) days of such election, subject to surface
access, rig availability and regulatory approval, commence the drilling
of the Option Well at a location of its choice on the Option Lands. Farmor
will thereafter diligently and continuously drill such well to the similar
depth and a similar horizontal length as the test well. |
||
| a) |
Rolling Option xxxxx |
|
| Farmee will have a Right of
First Refusal (Rofer) to participate in each Drilling Spacing Unit on
the lands held by NORAB in the Sawn Lake project that the Farmor has an
interest in. The terms of this participation will be agreed to by both
parties. |
||
| POGI - 1132559 Alta Farmout & Option - Sawn Lake | Page 2 of 4 |
| 8. | Interest Earned – Option Well (s) and Rolling Option Well (s) | |
Subject to Clause
3.00 of the Farmout & Royalty Procedure, Farmee will earn 100% of
Farmor's interest (an undivided 10% interest in the Drilling Spacing Unit)
Before Payout (BPO), reverting to 50% of Farmor's interest (an undivided
5% interest) After Payout (APO). The farmee will have earned a 5% interest
in the remaining xxxxx to be drilled in that DSU (a net undivided five
percent (5%) interest in the quarter section(s) of Option Lands drilled
upon) subject to the Overriding Royalty as set forth in Article 5.00 of
the Farmout & Royalty Procedure. |
||
| 9. | Drilling Costs and Signing Fees
|
|
| Total Farmor
costs, estimated to be $216,489 of the Test Well costs up to the point
of commercial oil sales are to be borne one hundred percent (100%) by
Farmee to earn their undivided interest. Total Farmor costs, estimated
to be $216,489 of the Option Well costs up to the point of commercial
oil sales are to be borne one hundred percent (100%) by Farmee to earn
their undivided interest. Payment of the full AFE amount is due upon invoicing
of Farmee by Operator for each of the Test and Option xxxxx. |
||
Please indicate your acceptance of the above proposal by signing both copies of this letter and returning one copy to the undersigned.
Yours very truly,
1132559 ALBERTA LTD.
/s/ “Xxxxxxx Xxxxx”
President
ACCEPTED AND AGREED TO THIS 15th DAY OF FEBRUARY,
2005.
PARADIGM OIL AND GAS, INC.
/s/ “Xxxxxx X. Xxx”
President
| POGI - 1132559 Alta Farmout & Option - Sawn Lake | Page 3 of 4 |
Schedule “A”
This is Schedule “A” attached to and forming part of that certain Farmout and Option Agreement dated the 15th day of February, A.D., 2005, made between 1132559 Alberta Ltd. and Paradigm Oil And Gas, Inc..
1997 C.A.P.L. FARMOUT & ROYALTY PROCEDURE
| 1. | Effective Date (Sub-clause 1.01(f) – February 15, 2005 | |
| 2. | Payout (Sub-clause 1.01(t), if Article 6.00 applies) - Alternate A– N/A | |
| - Alternate B – N/A | ||
| Alternate B options, if applicable- N/A m3 of Equivalent Production and N/A years. | ||
| 3. | Incorporation of Clauses from 1990 CAPL Operation Procedure (Clause 1.02) | |
| (i) | Insurance (311) Alternate A – X Alternate B - | |
| (ii) | Address for Notices (2202) | |
| 1132559 Alberta Ltd. | Paradigm Oil And Gas, Inc. | |
| 000 Xxxxxxx Xxx, N. W. | 00000 Xxxxxxx Xxxxxx | |
| Calgary, Alberta | Unit 35 | |
| T3G 4W8 | Richmond, BC V7E 6G4 | |
| Phone 000-000-0000 | Phone: 000-000-0000 | |
| Attention: Land Manager | Attention: Land Manager |
| 4. | Article 4.00 (Option Xxxxx) will X / will not ____ apply. |
| 5. | Article 5.00 (Overriding Royalty) will ____ / will not X apply. |
| 6. | Quantification of Overriding Royalty (Sub-clause 5.01A, if applicable) |
| (i) | Crude Oil (a) - Alternate - 1 |
| - If Alternate 1 applies, 3.5% | |
| - If Alternate 2 applies, N/A min N/A, max N/A | |
| (ii) | Other(b) - Alternate - 1 |
| - If Alternate 1 applies, 3.5 % | |
| - If Alternate 2 applies, ____ , in (i) and ______ (ii) |
| 7. | Permitted Deductions (Sub-clause 5.04B, if applicable) – Alternate - 1 and 2 |
| ______________________________ | |
| 8. | Article 6.00 (Conversion of Overriding Royalty) – will ____ / will not X apply. |
| - If Article 6.00 applies, conversion to N/A % of Working Interest in Sub-clause 6.04 A. | |
| 9. | Article 8.00 (Area of mutual Interest) – will ____ / will not X apply. |
| 10. | Reimbursement of Land Maintenance Costs (Clause 11.02) ____ / will not X apply. |
| - If applies, reimbursement of $ N/A |
| POGI - 1132559 Alta Farmout & Option - Sawn Lake | Page 4 of 4 |
