PARTICIPATION AGREEMENT
Exhibit
10.3
THIS
AGREEMENT made this 13th day of August 2005
BETWEEN:
XXXX
RESOURCES LTD.,
a body
corporate, having an office in the City of Calgary in the Province of Alberta
(herein
called the "Grantor")
OF
THE
FIRST PART
AND
QUEST
CANADA CORP.,
a body
corporate, having an office in the City of Vancouver in the Province of British
Columbia,
(hereinafter
called the "Participant")
OF
THE
SECOND PART
WHEREAS
pursuant to an Agreement (hereinafter referred to as "the Farmout Agreement")
dated the 21st
day of
January, 2005, and made between Xxxxx Oil and Gas Company -Canada, Inc, Firefly
Resources Ltd. and Moraine Resources Ltd. (hereinafter collectively referred
to
as the “Farmor”) and the Grantor (hereinafter sometimes referred to as the
“Farmee”), it is provided that the Farmee, by performing certain obligations
contained in the Farmout Agreement, will become entitled to earn an interest
in
certain title documents and the lands associated therewith, all as more
particularly described in the Farmout Agreement (a true and correct copy of
which is attached hereto as Schedule "A");
AND
WHEREAS the Participant desires to participate with the Grantor as if the
Participant had been the Farmee in the Farmout Agreement, by assuming a share
of
the obligations therein contained and an interest in the lands
thereunder.
NOW
THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises and
of
the covenants and agreements of the parties hereinafter set forth, the parties
do hereby covenant and agree as follows:
1.
INTERPRETATION
(a)
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The
headings of the clauses of this Agreement are inserted for convenience
of
reference only and shall not affect the meaning or construction
thereof.
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(b)
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The
terms and expressions used herein shall have the same meanings as
are
ascribed to such terms and expressions under the Farmout
Agreement.
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(c)
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Wherever
the plural or masculine or neuter is used the same shall be construed
as
meaning singular or feminine or body politic or corporate, or vice
versa
as the context so requires.
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2.
APPOINTMENT
OF OPERATOR
The
Participant is appointed Operator, as between the Grantor and the Participant,
with respect to all operations conducted hereunder; however, the Grantor shall
have the joint authority with the Participant to deal with the Farmor on behalf
of the parties in respect of matters arising out of the Farmout
Agreement.
3.
FARMOUT
AGREEMENT
Except
as
modified by the terms of this Agreement, the Terms and conditions of the Farmout
Agreement together with its operating provisions shall control the operation
of
the parties and shall be deemed to be incorporated herein.
1
Exhibit 10.3
4.
TRUST
CONDITIONS AND TERM
The
Grantor agrees that, to the extent that the present assignment of the Grantor’s
rights and obligations under the Farmout Agreement is not formally recognized
and recorded by the Farmor, the Grantor shall hold the Participant’s interests
in the Farmout Agreement, Farmout Lands and Option Lands, as the case may be,
in
trust for the Participant and shall ensure that all performance by the
Participant under the terms of this Agreement and the Farmout Agreement are
noted and recorded as the due performance of the Farmee under the Farmout
Agreement. If requested by the Participant, the Grantor agrees to record this
trust in writing pursuant to a trust agreement (in the form attached to the
Farmout Agreement as Schedule “E”, amended as applicable to reflect the
interests of the Participant in the Farmout Lands and Option Lands, as they
exist from time to time) until such time as the interests of the Participant
in
the Farmout Agreement, Farmout Lands and Option Lands, as applicable, may be
formally recorded.
5.
PARTICIPATING
INTEREST
The
Participant shall assume all of the obligations of the Grantor under the Farmout
Agreement, excluding the test well, which well has already been drilled, and
the
Participant shall thereby be entitled to 100% of the benefits and interests
earned by the Farmee under the Farmout Agreement other than the lands earned
by
the test well as follows: Sections 9, 15,16 and 21-24-2w4m,
subject
to the payment to the Grantor of a $10 fee for geological consulting and
prospect engineering services (to be paid upon the execution of this Agreement)
and the reservation of a 3% Gross Over-Riding Royalty by the Grantor, as more
particularly set out in Schedule “B” attached hereto..
6.
OPTION
WELL(S)
(a)
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The
Participant shall drill the 12-15-24-2w4m well, which is an Option
Well
under the Farmout Agreement, as if it were an earning well and the
provisions of clause 5 hereto will apply to this well. If the Participant,
in its absolute discretion, wishes to proceed with the drilling of
further
Option Well (s), the provisions of clause 5 hereto will apply to
the
Option Well (s) drilled on the Farmout Lands and/or Option Lands,
as the
case may be. The 12-15-24-2w4m well shall earn the following lands:
Sections 10, 15, 22 and 23-24-2w4m.
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(b)
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If
the Participant does not wish to proceed with the drilling of further
Option Well (s), then the Grantor shall be free to do so independently,
provided there is no resulting liability to the Participant. The
Grantor
shall be solely responsible for all costs, expenses and liabilities
thereby incurred and shall be entitled to all benefits and interests
pursuant to the Farmout Agreement that are earned as a
result.
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7.
SELETION
OF WELL LOCATIONS
The
parties agree to meet from time to time to discuss ongoing operations under
the
Farmout Agreement including selection of further well locations. Notwithstanding
such discussions, should the parties fail to agree on the location of an earning
well then the Participant’s choice shall be binding upon the
parties.
8.
GRANT
AND CREDITS
Any
credits or grants allowable under any acts, rules, regulations or other laws
of
the Province of Alberta and/or Canada shall be shared by the parties in
accordance with the manner in which the parties bear the cost of operations
which give rise to the generation of such credits or grants.
2
Exhibit 10.3
9.
ASSIGNMENT
BY PARTICIPANT
The
Participant shall not assign its rights under this Agreement in whole or in
part
without first obtaining the written consent of Grantor which consent may not
be
unreasonably withheld. Notwithstanding any assignment by the Participant, the
Grantor will always look to the Participant for performance of any duties and
obligations required to be carried out by the Participant under this Agreement
during the Test Well phase of the Farmout Agreement, unless otherwise agreed
to
in writing by Grantor.
10.
OTHER
ENCUMBERANCES
If
the
interest of either party in the Farmout Lands hereafter shall become encumbered
by any royalty, production payment or other charge of a similar nature, other
than the royalties as set forth under the Farmout Agreement, such royalty,
production payment or other charge shall be charged to and paid entirely by
the
party whose interest is or becomes thus encumbered.
11.
WARRANTY
OF TITLE
The
Grantor makes no representation or warranties as to its or Farmor's title to
the
Farmout Lands and Option Lands but covenants that they are encumbered only
to
the extent noted in the Farmout Agreement.
During
the term of this Agreement, no party shall do or cause to be done any act nor
make or cause to be made any omission whereby the Farmout Lands or Option Lands
become encumbered in such a way as to adversely affect the interests of the
other parties, or become subject to termination or forfeiture.
12.
NO
PARTNERSHIP
The
rights, duties, obligations and liabilities of the parties shall be several
and
not joint or collective, it being the parties' express purpose and intention
that nothing herein shall be construed as creating a partnership of any kind
or
imposing upon any party hereto any partnership duty, obligation or liability
to
the other party.
13.
NOTICE
PERIODS
The
parties will endeavor on a bonafide basis to meet at least five (5) days prior
to the date when either any election must be made or any notice must be sent
to
the Farmor, for the purposes of discussing such election or notice in order
to
enable Grantor, on behalf of the parties, to comply with the provisions of
the
Farmout Agreement.
14.
FURTHER
ASSURANCE
Each
of
the parties shall at all times do all such further acts and deliver all such
further deeds and documents as shall be reasonably required in order to fully
perform and carry out the terms of this Agreement.
15.
NOTICE
Notwithstanding
anything to the contrary contained herein, all notices required or permitted
hereunder shall be in writing. Any notice to be given hereunder shall be deemed
to be served properly if served in any of the following modes:
a)
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personally,
by delivering the notice to the Party on which it is to be served
at that
Party's address for service; or
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b)
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by
telecopy or telex (or by any other like method by which a written
message
may be sent) directed to the party on which it is to be served at
that
Party's address for service. A notice so served shall be deemed to
be
received by the addressee when actually received by it, if received
within
normal business hours on any day other than a Saturday, Sunday or
statutory holiday in Alberta or at the commencement of the next ensuing
business day following transmission if such notice is not received
during
such normal business hours; or
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c)
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by
mailing it first class (air mail if to or from a location outside
of
Canada) registered post, postage prepaid, directed to the Party on
which
it is to be served at that Party's address for service. Notices so
served
shall be deemed to be received by the addressee at noon, local time,
on
the earlier of the actual date of receipt or the fourth (4th)
day (excluding Saturdays, Sundays and statutory holidays in Alberta)
following the mailing thereof. However, if postal service is (or
is
reasonably anticipated to be) interrupted or operating with unusual
delay,
notice shall not be served by such means during such interruption
or
period of delay.
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16.
ADDRESS
FOR SERVICE
The
address for service of notices hereunder of each of the Parties shall be as
follows:
Grantor:
Xxxx
Resources Ltd.
0000
Xxxxxxx Xxxxx X.X.
Xxxxxxx,
Xxxxxxx X0X 0X0
Facsimile:
(000) 000-0000
Participant:
Quest
Canada Corp.
1600
- 0000 X. Xxxxxxx
Xxxxxxxxx,
X.X.
Facsimile:
(000) 000-0000
A
Party
may change its address for service by notice to the other Party, and such
changed address for service thereafter shall be effective for all purposes
of
this Agreement.
17.
INSURANCE
The
parties shall individually carry insurance with a reputable insurance company
in
the manner and in the amounts set out in the Operating Procedure. To the extent
of its cost sharing interest, the Participant agrees to be covered by Grantor's
"Control of Well" insurance and Grantor agrees to make suitable arrangements
in
that regard. Participant will bear and pay its proportionate share of such
coverage at cost.
18.
SUCCESSORS
AND ASSIGNS
This
Agreement shall enure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns.
19.
PROPER
LAW
This
Agreement and the relationship between the parties shall be construed and
determined according to the laws of the Province of Alberta, and the courts
having original jurisdiction with respect to any matter or thing arising
directly or indirectly relating to this Agreement shall be the courts of the
Province of Alberta.
20.
SUPERCESSION
This
Agreement supercedes and replaces all other agreements, documents, writings
and
verbal understandings between the parties with respect to the subject matter
of
this Agreement.
3
Exhibit 10.3
21.
COUNTERPARTS
This
Agreement may be executed in counterparts and by facsimile.
IN
WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
as
of the day and year first written above.
XXXX
RESOURCES LTD. QUEST
CANADA CORP.
per:__________________________ per:_____________________________
per:__________________________ per:_____________________________
Signature
page to Participation Agreement dated August 13, 2005 between Xxxx Resources
Ltd. and Quest Canada Corporation. SCHEDULE
A
4
Exhibit 10.3
SCHEDULE
A
to
the
Participation Agreement between Xxxx Resources Ltd. and
Quest
Canada Corp., dated August 13, 2005
Copy
of Farmout Agreement
-attached
hereto -
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5
Exhibit 10.3
SCHEDULE
B
to
the
Participation Agreement between Xxxx Resources Ltd. and
Quest
Canada Corp., dated August 13, 2005
Gross
Over-Riding Royalty
1997
CAPL FARMOUT AND ROYALTY PROCEDURE
ELECTIONS
AND AMENDMENTS
1.
EFFECTIVE
DATE [Subclause
1.01(f)]:
January 21, 2005
2. |
PAYOUT
[Subclause ]
Alternate ______-
Will
not apply
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3.
INCORPORATION
OF CLAUSES FROM 1990 CAPL OPERATING PROCEDURE [Clause
1.02]
Clause
311 (Insurance) - Alternate A.
Add
Subclause 311h:
“In
addition to the policies of insurance required under Clause 311A of the
Operating Procedure, Farmee shall obtain and maintain control of well insurance
to the extent of a minimum of three million dollars ($3,000,000) with respect
to
each well drilled hereunder and each such policy shall also include the waivers
of subrogation required by Clause 311A of the Operating Procedure. All costs
of
insurance maintained by Farmee pursuant to this Clause shall be borne solely
by
Farmee and, upon request of Farmor, Farmee shall promptly provide Farmor with
evidence that such insurance is maintained by Farmee, including a copy of any
particular policy of insurance if so requested by Farmor.”
4.
OPTION
XXXXX [Article
4.00]
This
optional Article 4.00 will X
/ will
not __ apply herein.
5.
OVERRIDING
ROYALTY [Article
5.00]
This
optional Article 5.00 will X
/ will
not __ apply herein.
6.
QUANTIFICATION
OF OVERRIDING ROYALTY [Clause
5.01]
for
crude
oil, Alternate 1
will
apply
Alternate
1: 3%
of gross
monthly production; or
Alternate
2: ___
(divisor); not less than __%
and not
more than __%
for
all
other Petroleum Substances, Alternate 1
will
apply
Alternate
1: 3%
of gross
monthly production; or
Alternate
2: if not taken in kind: ____% of gross monthly production; or
if
taken in
kind ____% of gross monthly production
6
Exhibit 10.3
7.
ROYALTY
PAYOR’S ALLOWED DEDUCTIONS OF OVERRIDING ROYALTY NOT TAKEN IN KIND
[Subclause
5.04B]
DEDUCTIONS (5.04 B) Alternates: | |
1
only
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2 only | |
1 and 2 | X |
neither 1 nor 2 |
Alternate
2 - 20%
Marketing
Fees are not an allowed deduction.
8.
ROYALTY
OWNER’S RIGHTS UPON SURRENDER [Subclause
5.08]
Add
new
paragraph:
“Surrender
in this Clause shall include the Royalty Payor’s intention not to make
application to continue a Title Document beyond its primary term. The Royalty
Owner shall have the right for fifteen (15) days from the date of such surrender
notice to request an assignment from the Royalty Payor of the interest that
it
desires to surrender. From and after the date of such surrender or assignment
the Royalty Payor shall be discharged of, from and against any and all
obligations with respect to the interests so surrendered or assigned to the
extent that such obligations are attributable to the period commencing with
the
date of the surrender or assignment, and the lands and the leases as
hereinbefore defined, shall thereafter be deemed to exclude the interests so
surrendered or assigned. The provisions of this Clause shall be subject to
the
Title Documents covering the lands and in the event of conflict, the provisions
of the Title Documents shall prevail.”
9.
CONVERSION
OF OVERRIDING ROYALTY [Article
6.00]
This
optional Article 6.00 will
/ will
not X
apply
herein
10.
OPERATIONS
AT CONVERSION
N/A
11.
AREA
OF MUTUAL INTEREST [Article
8.00]
This
optional Article 8.00 will X/
will
not ___ apply herein.
12.
LIABILITY
AND INDEMNITY [Article
10.00]
Add:
“10.03
Survives Termination
This
Article shall survive the termination of the Agreement until Farmee has fully
and properly abandoned all well sites, surface and subsurface facilities on
the
Farmout Lands or used in connection with production from the Farmout Lands
in
accordance with the regulations and has fully restored the surface for such
well
sites, surface and subsurface facilities in accordance with the
regulations.”
7
Exhibit 10.3
13.
LAND
MAINTENANCE COSTS [Clause
11.02]
This
optional Clause 11.02 will X
/ will
not __ apply herein.
The
Farmee will pay the Farmor $__________ with 30 days of Effective
Date.
Add:
“Farmee
shall be responsible for all rentals on a per diem basis payable on the Title
Documents from the Effective Date until Farmee has earned an interest in the
Farmout Lands and or the Option Lands or until Farmee’s right to earn any
further interest is terminated or surrendered. Thereafter Farmee and Farmor
shall pay all rentals and taxes on those Farmout Lands and Option Lands that
Farmee has earned an interest in proportionate to the working interests they
hold in such Farmout Lands and Option Lands.”