EXHIBIT 10.9
FARMOUT AGREEMENT BETWEEN DAMASCUS ENERGY INC. AND
BOUNTY DEVELOPMENTS LTD. DATED NOVEMBER 30, 2006
BOUNTY DEVELOPMENTS LTD. 0000, 000 - 00 Xxx. X.X.
Xxxxxxx, XX
X0X 0X0
--------------------------------------------------------------------------------
Tel (000) 000-0000
Fax (000) 000-0000
XXXXXX@XXXXXXXXX.XXX
November 30, 2006
DAMASCUS ENERGY INC.
00 Xxxxxxx Xxxx X.X.,
Xxxxxxx, Xxxxxxx X0X 0X0
ATTENTION: XXXXXXX XXXXXXX
RE: FARMOUT AGREEMENT
SECTIONS 0-0, 0-00 XXX 00-00, XXX 00-00 X0X
SECTIONS 25-27, 35, 36 XXX 00 XXX 00 X0X;
XXXXXXXX 0-0, XXX 00 XXX 00 X0X;
SECTIONS 19-21, 28-33, 94-14 W4M
OIL SANDS BELOW THE TOP OF THE VIKING FM TO BASE WOODBEND GRP
(COLLECTIVELY "THE FARMOUT LANDS")
DOVER (XXXX), ALBERTA
BOUNTY FILES: AM-226-001 & AM-226-002
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Bounty Developments Ltd. ("Farmor") is the holder of an undivided 100% Working
Interest in the Title Documents covering the Farmout Lands described in Schedule
"A" and has agreed to farmout its interests in the Farmout Lands to Damascus
Energy Inc. ("Farmee") on the following terms and conditions.
1. DEFINITIONS
Each capitalized term used in this Head Agreement, except as otherwise
specifically defined herein, will have the meaning given to it in the Farmout &
Royalty Procedure, and, in addition:
(a) "Agreement" means this agreement contained herein, together with all
Schedules hereto and all documents incorporated by reference;
(b) "Contract Depth" means a depth of + 240 metres subsea or 15 metres into the
Devonian, whichever first occurs;
(c) "Farmee" means Damascus Energy Inc. as to a 100% interest;
(d) "Farmor" means Bounty Developments Ltd.;
(e) "Mutual Interest Lands" means any interest in any parcel of oilsands or
petroleum and natural gas rights falling within 3 miles of the
Farmout Lands or any portion thereof; and
() "Title Documents" mean the title documents described as "Title Documents"
in Schedule "A" and all renewals, extensions, continuations or documents of
titles issued in substitution thereo.;
2. SCHEDULES
The following Schedules are attached hereto and made part of this Agreement:
(a) Schedule "A", which describes the Title Documents, the Farmout Lands and
the Encumbrances;
(b) Schedule "B", which is the election sheet for the 1997 CAPL Farmout &
Royalty Procedure (the "Farmout and Royalty Procedure") which, along with the
elections, is incorporated by reference as fully as if it were attached hereto;
(c) Schedule "C", which specifies the types of drilling information to be
supplied by the Farmee to the Farmor pursuant to the Farmout & Royalty
Procedure;
(d) Schedule "D", which is the election sheet for the 1990 CAPL Operating
Procedure (the "Operating Procedure") and the 1996 PASC Accounting Procedure
(the "Accounting Procedure") which, along with the elections, are incorporated
by reference as fully as if they were attached hereto;
(e) Schedule "E" which is a copy of the Gross Overriding Royalty Agreement with
Diamond Head Investments Ltd.
3. FARMEE'S CASH PAYMENTS
(a) In consideration of the Farmee being granted the opportunity to earn an
interest in the Farmout Lands under the terms of this Agreement, the Farmee
shall make the following unconditional, non-refundable payments to the Farmor:
(i) payment in the amount of $111,500 to be paid immediately (Farmor
acknowledges that this payment has already been made); and
(ii) payment in the amount of $500,000 to be made on the execution of
this Agreement;
(b) The Farmee shall make a further payment of $7,581,500 to the Farmor on or
before December 15, 2006.
(c) Further, Farmee shall reimburse the Farmor for all expenditures made or
liabilities incurred to date or in the future in obtaining permits, approvals,
and equipment commitments, and in obtaining land, engineering, geological,
geophysical and other services, reasonably required to allow the Year 1
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Evaluation Xxxxx to be drilled and the Seismic Program to be completed. Farmor
shall consult from this date forward with the Farmee prior to incurring such
liabilities and Farmee shall reimburse Farmor within a reasonable period of time
for same after being presented with invoices or other backup.
(d) If the Farmee fails to make the payment referred to in paragraph 3(b) above
by the due date, then the Farmee's right to earn an interest in the Farmout
Lands shall terminate, it shall forfeit all rights to deposits paid hereunder as
liquidated damages and it shall have no further rights under this Agreement.
4. SHARES IN PATCH AND DAMASCUS
(a) On or before December 1, 2006, or on such other date as is necessary to
enable the other transactions referred to herein to occur, Farmee shall issue to
Farmor at least 4,215,266 voting common shares in Farmee.
(b) On or before the execution of this Agreement, Farmee shall enter into an
agreement with Patch International Inc. ("Patch") ("the Patch Agreement") under
which Patch shall agree to acquire all of the issued and outstanding shares of
Farmee. Farmor shall forthwith be provided with a copy of the Patch Agreement
and this Agreement shall not be effective until and unless the Patch Agreement
is approved by Farmor. Further, any amendments to the Patch Agreement shall be
approved by the Farmor.
(c) As a consequence of the Patch Agreement, Farmor shall be issued at least
4,215,266 common shares, or a like number of exchangeable shares convertible
into common shares, of Patch which shares shall be known hereinafter as the
"Patch Shares" and shall constitute, as of the Closing Date as defined under the
Patch Agreement, at least 15% of the issued and outstanding shares of Patch
inclusive of any stock options or any other right, privilege or contingent right
or privilege to acquire any of the unissued shares in the capital of Patch.
5. EVALUATION XXXXX
a) All operations with respect to the Farmout Lands shall be subject to the
provisions of the Operating Procedure as amended by this Agreement. As soon as
the Farmee has capacity, unless the parties agree otherwise on an interim basis,
Farmee shall be appointed initial operator.
b) On or before March 31, 2007 Farmee it shall spud a minimum of 16 Evaluation
Xxxxx (collectively "the Year 1 Evaluation Xxxxx" and individually an
"Evaluation Well") at mutually agreeable locations on the Farmout Lands and
shall then diligently and continuously drill the Evaluation Xxxxx to Contract
Depth and core same throughout that geological formation known as "the XxXxxxxx
formation" at its sole cost. In the event surface access to the drill sites
cannot be reasonably obtained by the required date because of surface
conditions, weather conditions, rig availability or regulatory approval, Farmee
shall, before the required date, advise Farmor in writing, of the reasons why
access cannot be obtained. Farmor
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shall, thereupon, grant an extension to the commencement date which shall be
reasonable under the circumstances.
6. SEISMIC
(a) Farmee shall on or before March 31, 2007 at its sole cost, shoot and
complete a 2D seismic program, at a minimum of cost of $1,500,000, over the
Farmout Lands ("the Seismic Program"). In the event surface access cannot be
reasonably obtained by the required date because of surface conditions, weather
conditions, seismic crew availability or regulatory approval, Farmee shall,
before the required date, advise Farmor in writing, of the reasons why access
cannot be obtained. Farmor shall, thereupon, grant an extension to the
commencement date which shall be reasonable under the circumstances.
b) Upon completion of the Seismic Program, Farmee shall provide Farmor, at no
cost and as soon as available, with a copy of: all field data including survey
information; processed data, including stacked data; interpreted data; and a
copy of shot point base maps and bin overlay maps. Farmor shall hold such data
confidential and for its sole use and benefit.
c) The trading rights and ownership of the Seismic Program shall be shared as
follows:
Farmor-20%
Farmee-80%.
7. EARNING
a) Upon payment and transfer of all of the cash and share consideration, as
described in paragraphs 3 and 4 hereof, the Farmee shall earn a 30% UNDIVIDED
WORKING INTEREST in the Farmout Lands. Farmor agrees, however, after the cash
consideration described in paragraph 3 has been paid but prior to receipt of the
Patch Shares, to transfer to Farmee a 30% Working Interest in the Farmout Lands
and Title Documents upon acceptance or provision of satisfactory trust or or
escrow arrangements by Farmee. Such trust or escrow arrangements shall continue
until such time as the Patch Shares have been issued and transferred to the
Farmor.
b) Upon previously earning the said 30% undivided Working Interest in the
Farmout Lands and completion of its obligations regarding the Year 1 Evaluation
Xxxxx, subject in each of the Evaluation Xxxxx to Article 3.00 of the Farmout &
Royalty Procedure, and completion of its obligations regarding the Seismic
Program, the Farmee shall earn a further 50% UNDIVIDED WORKING INTEREST (80%
undivided Working Interest aggregate) in the Farmout Lands.
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c) Upon Farmee earning each of the Working Interests provided for in the
foregoing sub-clauses of this Article, Farmor shall, at request of Farmee,
transfer to it the interests earned hereunder. Until such time as the Farmee has
received a registrable transfer of its interests earned hereunder, Farmor agrees
to hold the interests earned hereunder in trust for the benefit of the Farmee.
8. FARMEE FINANCING OF EIGHT FURTHER XXXXX
Following the drilling of the Year 1 Evaluation Xxxxx, the parties contemplate,
but are not committed to, the drilling of further exploration, evaluation or
test xxxxx. Farmee, in addition to being responsible for its 80% share, shall
finance Farmor's 20% share of the costs of drilling, coring, evaluating and
equipping or abandoning, as the case may be, the next 8 exploration, evaluation
or test xxxxx ("Option Xxxxx"). Interest shall shall accrue on the Farmor's said
20% share of the costs of the Option Xxxxx at the Bank of Canada's prime
interest rate plus 1% until Farmor repays such costs and interest to Farmee.
Farmor shall reimburse Farmee for such costs and the stated interest upon the
earlier of the sale of the Farmee's interest in the Farmout Lands or 10 years
from the date of abandonment of the Option Xxxxx.
9. OPERATING PROCEDURE
The Operating Procedure and Accounting Procedure shall govern joint operations
on the Farmout Lands earned under this Agreement, subject to the clause 1007 (a)
be replaced with the following wording:
"Participating parties in any independent operations shall be entitled to
recover 200% of the cost of all such operations from the sale of production or,
in the event of a sale of both parties' interests in the joint lands, from the
sale proceeds therefrom, pro-rated between the parties as per their
proportionate working interests."
10. AREA OF MUTUAL INTEREST
Except as amended hereby, Article 8.00 of the Farmout and Royalty Procedure will
be in effect from the Effective Date until December 31, 2008. Subject to Article
8.00, the Parties will have the right to participate in an acquisition of Mutual
Interest Lands, as of the date of the purchase of any Mutual Interest Lands, in
the proportion to which they will own working interests in the Farmout Lands
after the Farmee has fulfilled its obligations hereunder.
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11. ENCUMBRANCES
The Encumbrances will apply to the Farmout Lands and the Mutual interest Lands
and shall be paid by each of the Parties in proportion to its working interest.
12. SALE PROVISIONS
Farmee agrees not to assign, transfer, sell or otherwise dispose of all or any
part of its interest under this Agreement, or in the Assets or in the Mutual
Interest Lands, without, within a reasonable period of time prior to any
proposed sale, offering the right to Farmor to assign, transfer, sell or
otherwise dispose of all or part of its interest on the same terms. Farmee
agrees to make the provisions of this clause binding on any third parties
acquiring all or part of Farmee's interest hereunder.
13. INTERIM EXPLORATION OPERATIONS
After the date hereof, the Farmor and Farmee will work together to take all
steps that are required to ensure that the Year 1 Evaluation Xxxxx are drilled
and the Seismic Program is completed as required. Any costs that are incurred in
this regard will be funded by Farmee. To the extent that the Farmor has incurred
or incurs such costs prior to Farmee assuming full operatorship and related
responsibilities, Farmee shall pay any cash calls in this regard to Farmor
within 15 days of receiving same. If Farmee fails to pay any cash calls as
required, Farmor reserves the right at its sole discretion to halt work on all
or part of Year 1 Evaluation Xxxxx or Seismic Program. The Parties shall enter
into a separate services agreement to compensate Farmor's staff for services
that they, rather than the Farmee or third party contractors, perform in
relation to the Exploration Xxxxx or the Seismic Program as a result of the
failure of the Farmee to acquire full operatorship and related responsibilities
after December 15, 2006 or as a result of the failure of the Farmee to hire
suitable staff to carry out these responsibilities.
14. RESTRICTION ON FURTHER JOINT OPERATIONS
No party may propose the drilling of an additional well or other operation on
the Farmout Lands until such times as the Year 1 Evaluation Xxxxx and the
Seismic Program are complete.
15. AMENDMENT TO THE LIMITATIONS ACT
The two year period for seeking a remedial order under section 3(1)(a) of the
LIMITATIONS ACT, s.a. 1996 c. L-15.1, as amended, for any claim (as defined in
that ACT) arising in connection with this Agreement is extended to:
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a) for claims disclosed by an audit, two years after the time this
Agreement permitted that audit to be performed ; or
b) for all other claims, four years.
16. ADDRESSES FOR NOTICES
The parties' Addresses for notices are:
BOUNTY DEVELOPMENTS LTD.
0000, 000 - 00xx Xxxxxx X.X.
Xxxxxxx, XX X0X 0X0
Attention: Xxxx X. Xxxxx
DAMASCUS ENERGY INC.
00 Xxxxxxx Xxxx X.X.,
Xxxxxxx, Xxxxxxx X0X 0X0
Attention: Xxxxxxx Xxxxxxx
17. MISCELLANEOUS
a) Each of the parties represents and warrants that it now has or is
entitled to have good right, full power and absolute authority to
enter into this Agreement.
b) In the event of a conflict between any term or condition of this
Head Agreement and any Schedule attached hereto, the term or
condition of this Head Agreement shall prevail.
c) Any reference in this Head Agreement to "hereunder", "herein" and
"hereof" refer to the provision of this Head Agreement and unless
otherwise stated, any reference to a clause, subclause, or
Schedule refers to the clauses, subclauses or Schedule of this
Head Agreement.
d) The following clauses of the 1990 CAPL Operating Procedure are
incorporated into and apply mutatis mutandis to this Head
Agreement:
102 HEADINGS
103(b) REFERENCES
2101 PARTIES TO SUPPLY
2301 WAIVER OF PARTITION OF SALE
2601 LIMITATION ON RIGHT OF ACQUISITION
2801 SUPERSEDES PREVIOUS AGREEMENTS
2802 TIME OF ESSENCE
2803 BINDS SUCCESSORS AND ASSIGNS
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2804 LAWS OF JURISDICTION TO APPLY
18. COUNTERPART EXECUTION
This Agreement may be executed in counterpart. All of those executed counterpart
pages when taken together will constitute the Agreement.
If this reflects your understanding of the terms and conditions agreed upon
respecting this Agreement, please sign and return one counterpart execution page
to complete our copy of this Agreement.
Yours very truly,
BOUNTY DEVELOPMENTS LTD.
/s/ Xxxx X. Xxxxx
XXXX X. XXXXX
Land Manager
Agreed to this________day of_______________, 2006
DAMASCUS ENERGY INC.
Per: /S/ XXXXXXX XXXXXXX
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SCHEDULE "A"
ATTACHED TO AN AGREEMENT DATED EFFECTIVE THE 30TH DAY OF NOVEMBER, 2006
BETWEEN BOUNTY DEVELOPMENTS LTD. AND DAMASCUS ENERGY INC.
FARMOUT LANDS TITLE DOCUMENTS ENCUMBRANCES
Sections 25-27; 35; 36 Alberta Crown Oil Sands Crown Lessor Xxxxxxx
Xxx 00 Xxx 00 X0X Lease No. 7406070412
Oil Sands below the top of 1% N/C XXXX - Xxxxxxx Head
the Viking fm to Base Investments Ltd.
Woodbend Grp as more
specifically set forth in
Appendix to Lease
Sections 4-9 Alberta Crown Oil Sands Crown Lessor Xxxxxxx
Xxx 00 Xxx 00 X0X Lease No. 7406070422
Oil Sands belowe the top of 1% N/C XXXX -
the Viking fm to Base Diamond Head
Woodbend Grp as more Investments Ltd.
specifically set forth in
Appendix to Lease
Sections 19-21, 28-33, 94- Alberta Crown Oil Sands Crown Lessory Royalty
14W4M Lease No. 7406090452
Oil Sands below the top of the 1% N/C XXXX -
Viking fm to Base Diamond Head
Woodbend Grp as more Investments Ltd.
specifically set forth in
Appendix to Lease
Sections 0-0, 0-00 xxx 00-
00, Xxx 00-00 X0X Xxxxxxx Crown Oil Sands Crown Lessor Royalty
Oil Sands below the top of Lease No. 7406090456
the Viking fm to Base 1% N/C XXXX -
Woodbend Grp as more Diamond Head
specifically set forth in Investments Ltd.
Appendix to Lease
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SCHEDULE "B"
ATTACHED TO AN AGREEMENT DATED EFFECTIVE THE 30TH DAY OF NOVEMBER, 2006
BETWEEN BOUNTY DEVELOPMENTS LTD. AND DAMASCUS ENERGY INC.
1997 CAPL FARMOUT & ROYALTY PROCEDURE ELECTIONS AND AMENDMENTS
SUBCLAUSE 1.01 (F) - Effective Date- November 1, 2006
SUBCLAUSE 1.01 (T) - Payout - Alternate n/a
(if Article 6.00 applies)
SUBCLAUSE 1.01 (BB) - Delete the following from the definition:
"which area will be determined as of the
drilling rig release date of that
Earning Well"
CLAUSE 1.02 - Incorporation of Provisions from 1990 CAPL
Operating Procedure
(i) Insurance (311) Alternate B
ARTICLE 4.00 (Option Xxxxx) will /will not X apply.
---- ---
ARTICLE 5.00 (Overriding Royalty) will /will not XX apply.
---
SUBCLAUSE 5.01A, Quantification of Overriding Royalty (if applicable). N/A
(i) Crude oil (a) - Alternate n/a
If Alternate 1 applies, N/A %
If Alternate 2 applies, n/a
(ii) Other (b) - Alternate N/A
If Alternate 1 applies,
If Alternate 2 applies, N/A % in
(i) and N/A % in (ii)
SUBCLAUSE 5.04B, Permitted Deductions (if applicable). n/a
ARTICLE 6.00 (Conversion of Overriding Royalty) will /will not apply.
ARTICLE 8.00 (Area of Mutual Interest) will X apply.
ARTICLE 11.02 (Reimbursement of Land Maintenance Costs)
will /will not X apply. If applies, reimbursement of $ N/A
---- ----- --------
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SCHEDULE "C"
ATTACHED TO AN AGREEMENT DATED EFFECTIVE THE 30TH DAY OF NOVEMBER, 2006
BETWEEN BOUNTY DEVELOPMENTS LTD. AND DAMASCUS ENERGY INC.
BOUNTY DEVELOPMENTS LTD.
0000, 000 - 00 Xxx. X.X.
Xxxxxxx, XX
X0X 0X0
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Tel (000) 000-0000
Fax (000) 000-0000
XXXXXX@XXXXXXXXX.XXX
WELL REQUIREMENT SHEET LOCATION:_________________
PRIOR TO SPUDDING: AFTER DRILLING:
24 hr. Notice of Spud Digital Logs (sonic log -
Survey Plat LAS format)
Application for License Initial & Final Prints of Logs
Well License Final Fluid Analyses
AFE or Well Cost Est. DST Summary & Analysis
Geological Prognosis End of Well Report incl.
Drilling Program Drilling WR Forms
Directional Program
DURING DRILLING: DURING COMPLETION:
Daily Drilling Reports 24 hr. Notice of Intention
Preliminary Fluid Analyses to Complete
Field Prints of Logs Completion Program
Daily Geologic Report Daily Completion Reports
Directional Surveys Production Tests
24 hr. Notice of Intention to End of Well Report, incl.
Case /Abandon Completion WR Forms
Samples: access to Operator's Set
Mail to Bounty at address above, unless time-sensitive, then courier or email to
XXXXXX@XXXXXXXXX.XXX and XXXXXXXX@XXXXXXXXX.XXX
DAILY DRILLING, GEOLOGICAL AND COMPLETION REPORTS:
Emailed daily (incl. week-ends) to: xxxxxx@xxxxxxxxx.xxx
Weekend or night reports to Xxxxx Xxxxxx at 243-8415 (h), 807-9330 (c)
OR Xxx Xxxxx 243-5214 (h), 616-6124 (c)
NOTICE OF INTENTION TO ABANDON MAY BE DIRECTED TO:
Xxx Xxxxx or Xxxxx Xxxxx, telephone: 000-0000
ALL WELL DATA MAY BE FORWARDED TO: Xxxx Xxxxxxxx
AFTER HOURS CONTACTS:
Xxx Xxxxx (Geology) (000) 000-0000 (h) or 000-0000 (cell)
Xxxxx Xxxxxx (Geology (000) 000-0000 (h) or 000-0000 (cell)
Xxxxx Xxxxx (Engineering) (000) 000-0000 (cell)
Xxxx Xxxxx (Land) (000) 000-0000 (cell)
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SCHEDULE "D"
ATTACHED TO AN AGREEMENT DATED EFFECTIVE THE 30TH DAY OF NOVEMBER, 2006
BETWEEN BOUNTY DEVELOPMENTS LTD. AND DAMASCUS ENERGY INC.
CAPL OPERATING PROCEDURE - 1990
Clause 311 Insurance Election: A
Clause 604 Marketing Fee: deleted
Clause 000 Xxxxxx Xxxxx Election: A
Clause 1007 Penalty for Independent Operations:
200% on all
Independent operations
Clause 1010 Exceptions to Clause 1007: (iv) 180
days
Clause 2401 Disposition of Interests: A
Clause 2404 Recognition Upon Assignment:
CAPL Assignment Procedure to take
precedence
1996 PASC ACCOUNTING PROCEDURE
Clause 105. Operating Fund 10%
Clause 110. Approvals Clause N/A; 2 ; 75%
Clause 112. Expenditure Limitations (a) excess of $25,000.00
(c) excess of $25,000.00
Clause 202. Employee Benefits (b) exceed 25%
Clause 213. Camp & Housing (b) shall _____/shall not X
Clause 216. Warehouse Handling 10%
Clause 221. Allocation Options N/A
Clause 302. Overhead Rates: (a) Exploration Project: N/A
percent OR
1. 5% ; $50,000.
2. 3% ; $100,000.
3. 1%
(b) Drilling of a Well: N/A
percent OR
1. 3%; $ 50,000.
2. 2%; $l00,000.
3. 1%
(c) Initial Construction
Project: N/A percent OR
1. 3%; $ 50,000.
2. 2%; $100,000.
3. 1%
(d) Construction Project: N/A
percent OR
1. 5% of the first $50,000.
2. 3% of the next $100,000.
3. 1%
(e) Operation and Maintenance:
1. n/a ;
2. $250. per Producing well
per month; or
3. n/a
Subclause 302(e)(2) and 302(e)(3)
hereof SHALL NOT
Clause 406. Dispositions $10,000.00
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SCHECULE "E"
ATTACHED TO AN AGREEMENT DATED EFFECTIVE THE 30TH DAY OF NOVEMBER, 2006
BETWEEN BOUNTY DEVELOPMENTS LTD. AND DAMASCUS ENERGY INC.
OVERRIDING ROYALTY AGREEMENT
THIS AGREEMENT made as of the 3rd day of November, 2006
BETWEEN:
DIAMOND HEAD INVESTMENTS LTD. a body corporate, having an office at
the City of Calgary, in the Province of Alberta
(hereinafter referred to as the "Royalty Owner")
OF THE FIRST PART
- and -
BOUNTY DEVELOPMENTS LTD., a body corporate, having an office at the
City of Calgary, in the Province of Alberta
(hereinafter referred to as the "Grantor")
OF THE SECOND PART
WHEREAS the Grantor holds an interest in the Royalty Lands and Leases
as hereinafter defined; and
WHEREAS, in consideration of good and valuable consideration received,
the Grantor has agreed to grant and to pay to the Royalty Owner an Overriding
Royalty effective as of the date hereof, the terms and conditions of which are
provided for in this agreement.
NOW THEREFORE this Agreement witnesseth that in consideration of the
mutual covenants and agreements set forth and contained herein, the parties
agree as follows:
1. DEFINITIONS
In this Agreement, including this clause, unless the context otherwise requires:
(a) "Condensate" means a mixture of mainly pentanes and heavier
hydrocarbons that may be contaminated with sulphur compounds, that is
recovered or is recoverable at a Well from an underground reservoir and
that may be gaseous in its virgin reservoir state but is liquid at the
condition under which its volume is measured or estimated;
(b) "Crude Oil" means a mixture mainly of pentanes and heavier hydrocarbons
that may be contaminated with sulphur compounds, that is recovered or
is recoverable at a Well from an underground reservoir and that is
liquid at the conditions under which its volume is measured or
estimated, and includes bitumen and all other hydrocarbon mixtures so
recovered or recoverable except natural gas or Condensate;
(c) "Current Market Value" means the price at which Petroleum Substances
are sold by the Grantor calculated at the Royalty Determination Point,
which price is not unreasonable having regard to market conditions
applicable to similar production in arm's length transactions at the
time of such disposition including, without restricting the generality
of the foregoing, such factors as the volumes available, the kind and
quality of Petroleum Substances to be sold, the effective date of the
sale, the term of the sale agreement, the point of sale of the
Petroleum Substances and the type of transportation service available
for the delivery of the Petroleum Substances to be sold;
(d) "Leases" means the respective documents of title and any extension or
renewal of such documents pursuant to which the Grantor holds an
interest in the Royalty Lands;
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(e) "Overriding Royalty" means the overriding royalty granted pursuant to
Clause 2 hereof;
(f) "Petroleum Substances" means Crude Oil, Condensate, natural gas and
related hydrocarbons and all other substances produced in association
therewith, but only to the extent that the same are granted by the
Leases;
(g) "Raw Gas" has the meaning prescribed by the Regulations;
(h) "Regulations" means all statutes, laws, rules, orders, regulations or
directives in effect from time to time and made by any governmental
authority having jurisdiction over the Royalty Lands and the operations
to be conducted thereon;
(i) "Royalty Determination Point" means the first point of measurement
downstream from the wellhead after the initial treatment of the
produced substances for the separation and removal of basic sediment
and water from the Petroleum Substances;
(j) "Royalty Lands" means the specified undivided working interest(s) in
the lands set forth in Schedule "A";
(k) "Spacing Unit" means the area allocated to a Well (or the area which
would be allocated to a well, but for a plan of unitization) pursuant
to the Regulations for the purpose of producing Petroleum Substances;
(l) "Title Documents" means the documents more particularly described in
Schedule "A" insofar as same relate to the Royalty Lands and all
renewals, extensions, continuations or amendments thereto or further
Title Documents issued pursuant thereto.
(m) "Well" means any well on the Royalty Lands or on lands pooled with the
Royalty Lands.
2. GRANT OF OVERRIDING ROYALTY
Grantor hereby grants to the Royalty Owner an interest in respect of the
Petroleum Substances within, upon or under the Royalty Lands equal to one (1%)
percent of the gross monthly production produced from the Royalty Lands.
3. QUANTIFICATION OF OVERRIDING ROYALTY
If Royalty Owner does not take possession of and separately dispose of its share
of Petroleum Substances, the Overriding Royalty shall be quantified and paid on
the gross proceeds of the sale of such Petroleum Substances without any
deductions, except the following, namely:
(a) with respect to Crude Oil and Condensate, a proportionate share of the
actual costs of transportation from the Royalty Determination Point to
market connection;
(b) with respect to Petroleum Substances other than Crude Oil and
Condensate, a proportionate share of the cost of transportation,
gathering and processing, providing that such costs are no greater than
those allowed from time to time by the Crown in the right of the
Province of Alberta in calculating its royalty.
4. OVERRIDING ROYALTY TAKEN IN KIND
(a) The Royalty Owner shall have the right to take in kind the Royalty
Owner's share of Petroleum Substances. Such right may be exercised
separately with respect to Condensate, Crude Oil, Raw Gas, and any
other individual Petroleum Substance. In the case of Crude Oil and
Condensate, such right when exercised shall be done on a minimum of
thirty (30) days notice to the Grantor. In
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the case of all other Petroleum Substances such right when exercised
shall be done on a minimum of six (6) months notice to the Grantor. If
the Royalty Owner, however, signifies in writing its consent to the
sale of any of the Royalty Owner's share of Petroleum Substances under
a contract made by the Grantor providing for a minimum term in excess
of the said respective notice periods, the Royalty Owner's right to
take in kind any Petroleum Substances subject to such contract shall be
suspended during the term of such contract. The Royalty Owner may cease
to take in kind any Petroleum Substances upon giving the Grantor the
same minimum notice as provided above for the Royalty Owner to take
such Petroleum Substances in kind as aforesaid. The right to take in
kind or to cease to take in kind may be exercised from time to time
subject only to the foregoing provisions of this Subclause.
(b) When the Royalty Owner is taking in kind the Royalty Owner's share of
any Petroleum Substances, the Grantor shall at no cost to the Royalty
Owner remove basic sediment and water therefrom in accordance with good
oilfield practice, and:
(i) in respect to Crude Oil and Condensate: the Grantor shall
deliver the Royalty Owner's share to the Royalty Owner, or its
nominee, at the tank outlets, or comparable delivery point, in
accordance with usual and customary pipeline and shipping
practice, free and clear of all charges whatsoever except to
the extent that the Royalty Determination Point is an earlier
point in which case the costs of moving product from the
Royalty Determination Point to the delivery point will be
deductible by the Grantor from the Overriding Royalty. The
Royalty Owner shall have the right to use free of charge a
share of the Grantor's lease tankage and storage facilities to
store a maximum of ten (10) days accumulation of the Royalty
Owner's share of Crude Oil and Condensate; and
(ii) in respect to Raw Gas: the Grantor shall deliver the
Royalty Owner's share to the Royalty Owner, or its nominee, at
the Royalty Determination Point of the relevant well, provided
that to the extent the Royalty Owner so requests on reasonable
notice to the Grantor and the Grantor can reasonably comply
with such request, the Grantor shall gather, compress,
transport, treat and process such share of Raw Gas along with
the Grantor's share of Raw Gas from the applicable well or
xxxxx and deliver to the Royalty Owner at their relevant plant
outlet, the Royalty Owner's Overriding Royalty share of
marketable gas and other Petroleum Substances obtained from
such share of Raw Gas, in which event, the Royalty Owner shall
be responsible for:
A. its proportionate share of the costs of gathering,
compressing, transporting, treating and processing
such Raw Gas where the Grantor or an Affiliate
thereof does not own such facilities; or
B. where the Grantor or an Affiliate thereof owns such
facilities, such fee as may be agreed upon by the
Grantor and the Royalty Owner for the use of such
facilities to make marketable the Royalty Owner's
Overriding Royalty share of Raw Gas.
5. CONDUCT OF OPERATIONS
(a) Grantor shall be entitled to use a proportionate share of the Royalty
Owner's share of Petroleum Substances as may be reasonably necessary
for its drilling and production operations with respect to the Royalty
Lands, excluding Petroleum Substances used for tertiary recovery
operations. Grantor shall not be liable to Royalty Owner for Petroleum
Substances which are unavoidably lost. Petroleum Substances so used or
lost shall be excluded when quantifying the Overriding Royalty.
(b) The Grantor shall have the right to commingle Petroleum Substances
produced from the Royalty Lands with Petroleum Substances produced from
other lands, provided reasonable methods are used to determine the
proper measurement of production of Petroleum Substances from the
Royalty Lands.
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(c) Nothing contained in this Agreement shall be a deemed or implied
covenant by the Grantor to develop the Royalty Lands.
(d) The Grantor shall carry on (or cause to be carried on) all operations
on the Royalty Lands diligently and in a good and workmanlike manner
consistent with good oilfield practice.
6. MAINTENANCE OF LEASES
Grantor shall comply with all the covenants and conditions contained in the
Leases insofar as they relate to the Royalty Lands and shall do all things
necessary to maintain the Leases in full force and effect during the term of
this Agreement including, without limitation, timely payment of all rentals, all
renewal and extension fees, all taxes, all payments in lieu of actual production
and royalties due or becoming due in respect of the Royalty Lands and the
Leases.
7. POOLING
The Grantor shall have the authority to pool the Petroleum Substances in a zone
underlying all or a portion of the Royalty Lands to the extent required to form
a Spacing Unit in such zone, but only if such pooling allocates to that portion
of the Royalty Lands included in the Spacing Unit that proportion of the total
production of Petroleum Substances from the Spacing Unit which the surface area
of that portion of the Royalty Lands placed in the Spacing Unit bears to the
total surface area of the Spacing Unit. The Grantor shall thereafter give
written notice to the Royalty Owner describing the extent to which the Royalty
Lands are being pooled and describing the Spacing Unit with respect to which
they are so pooled.
8. UNITIZATION
The Grantor shall not include the Royalty Lands or any part or parts thereof in
a Unit Agreement or a Unit Operating Agreement for the unitized development
and/or operation thereof with other lands without the consent of the Royalty
Owner, which shall not be unreasonably withheld. Upon any such unitization, the
Overriding Royalty shall be quantified on the basis of the production allocated
to each Spacing Unit on the Royalty Lands under the plan of unitization and not
upon the basis of actual production from the Royalty Lands. Further, each
Spacing Unit for which production is allocated shall be deemed to have on Well
thereon, regardless of the actual number of Xxxxx.
9. BOOKS AND RECORDS
(a) The Grantor shall keep true and current books, records and accounts
showing the quantity of Petroleum Substances produced from or allocated
to the Royalty Lands and the sales and disposition made thereof from
time to time. The books, records, vouchers and accounts maintained by
the Grantor shall be open to inspection at all reasonable times during
business hours by any officer, agent or employee appointed or
authorized by the Royalty Owner, in writing, to examine the same. All
information obtained by the Royalty Owner pursuant to this clause shall
be treated as confidential and shall not be disclosed to third persons
without the prior written consent of the Grantor.
(b) By the last day of each month, beginning with the first month following
the month in which production of Petroleum Substances from the Royalty
Lands is obtained after the date hereof, Grantor shall submit to
Royalty Owner a statement showing the quantity and kind of Petroleum
Substances produced, deemed to be produced or allocated to, saved and
sold from or used off the Royalty Lands in the immediately preceding
calendar month, together with a quantification of Royalty Owner's share
of Petroleum Substances for such immediately preceding calendar month.
When Royalty Owner does not take and separately dispose of its share of
Petroleum Substances, the said statement shall also include the sale
price for such Petroleum Substances and the gross proceeds received
therefrom, accompanied by a cheque payable to Royalty Owner for its
share of such proceeds. A copy of Grantor's governmental production
statement for the
5
month for which the Overriding Royalty is quantified as aforesaid and
also, with respect to Crown Leases, a copy of the government royalty
statement with respect to the Leases, shall accompany each royalty
statement to Royalty Owner. Any information contained in such
governmental production statement or royalty statement need not be
repeated in the statement to Royalty Owner.
(c) Royalty Owner, upon notice to Grantor, shall have the right to audit
Grantor's accounts and records for any given calendar year, insofar as
they relate to any matter or item relating to this Agreement bearing on
the Overriding Royalty, within the twenty-four (24) month period
following the end of that calendar year. any payment made or statement
rendered by Grantor hereunder which is not disputed by Royalty Owner on
or before the last day of the twenty-sixth (26th) month following the
end of the calendar year shall be deemed to be correct.
10. ASSIGNMENT BY GRANTOR
The Grantor may assign any legal or equitable interest in this Agreement, the
Royalty Lands, the Leases or any portion or portions thereof and in the event of
such assignment, the Grantor shall continue to be bound by all of the conditions
and provisions of this Agreement as if there had been no assignment until such
time as the Royalty Owner shall have been served with a written undertaking by
the assignee (or assignees) directly enforceable by the Royalty Owner, to
perform and be bound thereafter by all of the terms and provisions of this
Agreement to the same extent and degree with respect to the interest which has
been assigned to it, as it would have been if such assignee (or assignees) had
been a party to this Agreement instead of the Grantor.
11. ASSIGNMENT BY ROYALTY OWNER
The Royalty Owner may at any time assign its interest in the Overriding Royalty
upon notice thereof to the Grantor, provided that if at any time the Overriding
Royalty should become owned by more than one party, the Grantor shall have the
right to require the assignees of the Overriding Royalty to appoint in writing
an agent to represent all of the assignees of the Overriding Royalty and to
receive all statements and payments (if any) of the Overriding Royalty. If the
assignees of the Overriding Royalty fail to appoint an agent hereunder within
thirty (30) days of any request to do so by Grantor, Grantor may withhold the
Overriding Royalty until such time as an agent is appointed.
12. ASSIGNMENT PROCEDURE
The 1993 CAPL Assignment Procedure is incorporated by reference into the
Agreement, and will be deemed to apply as if it has been included as a schedule
to the Agreement.
13. ROYALTY OWNER'S LIEN
(a) The Royalty Owner shall be entitled to and shall have a first and
paramount lien upon the Grantor's share of all Petroleum Substances
from time to time produced from the Royalty Lands to secure the payment
of the Overriding Royalty. Such lien shall not operate to release the
Grantor from personal liability for monies due to the Royalty Owner.
Such lien shall not attach to the Grantor's share of Petroleum
Substances sold or otherwise disposed of from the Royalty Lands, but
immediately upon default occurring in payment by the Grantor of monies
payable to the Royalty Owner such lien shall operate as an assignment
to the Royalty Owner of the consideration thereafter payable to the
Royalty Owner for the Petroleum Substances sold, up to the amount owed
to the Royalty Owner and not so paid by the Grantor.
(b) Service of a copy of this agreement upon any purchaser of Petroleum
Substances together with written notice from the Royalty Owner shall
constitute written authorization on the part of the Grantor for such
purchaser to pay the Royalty Owner the proceeds from any sale or sales
of the Grantor's share of Petroleum Substances up to the amount owed to
the Royalty Owner by the
6
Grantor, and such purchaser is authorized to rely solely upon the
statement of the Royalty Owner as to the amount owed to the Royalty
Owner by the Grantor.
14. NOTICES
(a) Whether or not so stipulated herein, delivery of all notices and
communications (hereinafter called "notices") required or permitted
hereunder shall be in writing. Notices may be given:
(i) personally, by delivering the notice to the party on
whom it is to be served at that Party's address for
service, which notice shall be deemed received by the
addressee when actually delivered as aforesaid if
such delivery is during normal business hours
provided that if a notice is not delivered during the
addressee's normal business hours, such notice shall
be deemed to have been received by such party at the
commencement of the next ensuing business day
following the date of delivery; or
(ii) by facsimile (or by any other like method by which a
written or recorded message may be sent) directed to
the party on whom it is to be served at that party's
address for service, which notice shall be deemed
received by the respective addressees thereof: (i)
when actually received by it, if received within
normal business hours; or (ii) at the commencement of
the next ensuing business day following transmission
thereof, if such notice is not received during such
normal business hours; or
(iii) by mailing them first class mail (air mail if to or
from a location outside Canada) double registered
post, postage prepaid, directed to the party on whom
it is to be served, at that party's address for
service, which notice 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)
following the mailing thereof; provided that, if
postal service is interrupted or operating with
unusual or imminent delay, notice shall not be served
by such means during such interruption or period of
delay.
(b) Where, in this Agreement, a time period is established within which a
party must respond, elect or otherwise communicate with respect to a
notice so received the time shall commence to run when the notice is
deemed to be received as hereinbefore provided. Any time period which
expires on a Saturday, Sunday or statutory holiday shall be extended to
expire on the next normal business day.
(c) The address of each of the respective parties hereto shall be as
follows:
DIAMOND HEAD INVESTMENTS LTD.
0000, 000 - 00xx Xxxxxx X.X.
Xxxxxxx, Xxxxxxx
X0X 0X0
BOUNTY DEVELOPMENTS LTD.
0000, 000 - 00 Xxxxxx X.X.
Xxxxxxx, Xxxxxxx
X0X 0X0
(d) Any party may change its address for service by notice to the other
parties.
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15. TERM
This Agreement shall remain in force and effect so long as the Grantor or any
successor in interest retains an interest in the Royalty Lands.
16. GENERAL
(a) The parties will from time to time and at all times hereafter, without
further consideration, do such further acts and deliver all such
further assurances, deeds and documents as shall reasonably be required
in order to fully perform and carry out the terms of this Agreement.
(b) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter of this Agreement and supersedes all
prior contracts, agreements and understandings between the parties in
this regard. No modification or alteration of this Agreement shall be
binding unless executed in writing by these parties. There are no
representations, warranties, collateral agreements or conditions
affecting this transaction other than as are expressed or referred to
herein in writing.
(c) The terms and conditions of this Agreement shall be binding upon and
shall enure to the benefit of the parties hereto and their respective
successors and assigns.
(d) Time is of the essence of this Agreement.
(e) The headings contained in this Agreement are intended for convenience
of reference only and shall form no part of this Agreement.
(f) The words herein contained which impart the singular number or the
masculine gender shall be read and construed as applying to the plural
and each and every corporate, male or female party thereto and to its
and their heirs, executors, administrators, successors and assigns, as
the case or context requires.
(g) This Agreement shall be governed by and interpreted in accordance with
the laws of the Province of Alberta. The parties hereby irrevocably
attorn to the jurisdiction of the Courts of the Province of Alberta for
the determination of all matters arising hereunder.
(h) The Schedules attached to this Agreement are incorporated by reference
as fully as though contained in the body hereof. Wherever any term or
condition, expressed or implied, of such Schedules conflicts or is at
variance with any terms or conditions of this Agreement, such term or
condition of this Agreement shall prevail.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date first
above written.
DIAMOND HEAD INVESTMENTS LTD. BOUNTY DEVELOPMENTS LTD.
/s/ XXXX X. XXXXX /s/ XXXX X. XXXXX
-------------------------------- ---------------------------------
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SCHEDULE "A"
ATTACHED TO AND FORMING PART OF GROSS OVERRIDING
ROYALTY AGREEMENT DATED NOVEMBER 3, 2006
BETWEEN DIAMOND HEAD INVESTMENTS LTD. AND BOUNTY DEVELOPMENTS LTD.
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FILE NO TITLE DOCUMENTS LANDS/ RIGHTS INTEREST
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XX-000-000 XX CROWN OIL SANDS LEASE NO. 7406070412 XXX 00 XXX 00 X0X 100.00%
SECTIONS: 25-27; 35; 36
OIL SANDS FROM TOP VIKING TO
BASE WOODBEND GROUP
------------------------------------------------------------------------------------------------------------------------------------
XX-000-000 XX CROWN OIL SANDS LEASE NO. 7406070422 XXX 00 XXX 00 X0X 100.00%
SECTIONS: 4-9
OIL SANDS FROM TOP VIKING TO
BASE WOODBEND GROUP
------------------------------------------------------------------------------------------------------------------------------------
XX-000-000 XX CROWN OIL SANDS LEASE NO. 7406090452 XXX 00 XXX 00 X0X 100.00%
SECTIONS: 19-21; 28-33
OIL SANDS FROM TOP VIKING TO
BASE WOODBEND GROUP
------------------------------------------------------------------------------------------------------------------------------------
XX-000-000 XX CROWN OIL SANDS LEASE NO. 7406070456 XXX 00 XXX 00 X0X 100.00%
SECTIONS: 2-5; 8-11; 14-17
OIL SANDS FROM TOP VIKING TO
BASE WOODBEND GROUP
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