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EXHIBIT 10.11.1
LETTER AGREEMENT
AREA: ROSTIN BLOCK - CZECH REPUBLIC
THIS AGREEMENT made as of the 7th day of June 2000
AMONGST:
UNIGEO A.S., a body corporate, with an office in the city of
Ostrava-Hrabova, in the Czech Republic (Unigeo)
-and-
CESKA NAFTARSKA SPOLECNOST, a body corporate, with an office in the
city of Hodonin in the Czech Republic (COC)
-and-
GEOCAN ENERGY INC., a body corporate, with an office in the city of
Calgary, in the Dominion of Canada (GEOCAN)
WHEREAS the Rostin Block was acquired by Unigeo a.s. on April 30, 2000
("Effective Date") and the Title Documents and the Rostin Block are now owned by
Unigeo and GEOCAN in the participating interests set out in this Agreement;
AND WHEREAS COC has a certain knowledge of the Rostin Block, will provide
geological and geophysical services to the said Block, and retain a convertible
gross overriding royalty, on the terms and conditions contained in this
Agreement;
AND WHEREAS the Parties wish to provide for the maintenance, exploration,
operations and the development of the Rostin Block and Title Documents on the
terms and conditions contained in this Agreement;
NOW THEREFORE, this Agreement witnesseth that, in consideration of the premises
and of the mutual covenants herein contained and the benefits to be derived
hereform, the Parties agree as follows:
1. DEFINITIONS
In this agreement, including the recitals and the attached Schedules,
unless the context otherwise requires, the definitions set out in the
Operating Procedure apply and the following expressions mean:
a) "Abandonment" (or any derivative of Abandon) means proper plugging
of a well in compliance with the applicable Regulations including
the restoration of the wellsite to the satisfaction of any
governmental body having jurisdiction with respect thereto;
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b) "Agreement" means this document and all amendments made hereto;
c) "Cap" means to set in the well production casing and to place in
the well all equipment necessary for the taking of production and
to cap by placement of suitable wellhead control equipment;
d) "Completion" (or any derivative of Complete) means the
installation in, on, or with respect to a well drilled hereunder
of all such production casing, tubing and wellhead equipment and
all such other equipment and material necessary for the permanent
preparation of such well for the taking of Petroleum Substances
therefrom up to and including the outlet valve on the wellhead,
including a pump and pumpjack if initially required to produce the
well, and includes, as necessary, the perforating, stimulating,
treating, fracing and swabbing of such well and the conduct of
such production tests with respect to such well as are reasonably
required to establish the initial producibility of the well;
e) "Equipping" (or any derivative of Equip) means the acquisition and
installation of such equipment as is required to produce Petroleum
Substances from a Completed well drilled hereunder, including,
without restricting the generality of the foregoing, a pump (or
other artificial lift equipment), the acquisition and installation
of the flow lines and production tankage serving such well and, if
necessary, a heater, dehydrator or the wellsite facility for the
initial treatment of Petroleum Substances produced from such well
to prepare such production for transport to market, but
specifically excluding costs incurred beyond the point of entry
into a gathering system, plant or other common facility, which
will be constructed and operated pursuant to a separate agreement;
f) "Operating Procedure" means the 1990 CAPL Operating Procedure
attached to and forming part of this Agreement as Schedule "B" and
includes the Accounting Procedure attached as Exhibit "1" thereto;
g) "Party" or "Parties" means a person, firm or corporation which is
bound to this Agreement;
h) "Paying Quantities" means the anticipated output from a well of
that quantity of Petroleum Substances which, considering the costs
of Completing the well, Equipping costs, operating costs, kind and
quality of production, the anticipated cost of treating,
processing and transporting such production, the availability of
markets, the price to be received thereof, would warrant incurring
the cost of Completion and Equipping costs of the well;
i) "Payout" means when the aggregate of the proceeds received by
Unigeo and GEOCAN from the sale of Petroleum Substances allocated
to the Test Well spacing unit equals the costs of the Study Phase,
the Seismic Phase, as described in clauses 9 and 10, and the costs
of drilling, Completing, Equipping and operating the Test Well,
including the royalty payable to the Czech Republic, COC'S gross
overriding royalty, taxes (excluding income taxes) and any costs
for
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reworking or repairs incurred with respect to the Test Well or
when the Test Well is Abandoned, whichever first occurs;
j) "Petroleum Substances" means all substances and matters in which
rights are held by COC under the Title Documents;
k) "Rostin Block" means the Rostin Oil and Gas Exploration permit
dated April 30, 2000, the block outline of which is more fully
described on the plat in Schedule "A".
l) "Royalty Agreement" means the form of royalty agreement as
completed, a copy of which is attached hereto as Schedule "C" and
does not require any further execution in order to be effective in
the manner provided in this Agreement;
m) "Test Well" means the well to be drilled pursuant to Test Well
clause;
n) "Test Well spacing unit" means two hundred & fifty-six (256)
hectares for gas and sixty-four (64) hectares for oil.
o) "Title Documents" means the documents set forth and described as
such under the heading "Title Documents" in Schedule "A" and
includes all renewals, extensions, amendments or continuations
thereof or further documents of title issued pursuant thereto
insofar as they relate to the Rostin Block.
2. SCHEDULES
The following schedules are attached to and incorporated into this
agreement:
a) Schedule "A" which sets out the Rostin Block and Title Documents;
b) Schedule "B" which is the Operating Procedure;
c) Schedule "C" which is the Royalty Agreement;
3. WARRANTY
a) Unigeo does not convey to GEOCAN or COC any greater right on title
to the Rostin Block than that which it may hold by virtue of the
Title Documents and makes no warranty as to such right or title
except that as of the Effective Date Unigeo warrants that:
i) it is a registered interest holder of the Title Documents as
specified in Schedule "A",
ii) it has paid all rentals and other payments required under the
terms of the Title Documents and has complied with all the
necessary terms and
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conditions to the extent necessary to keep same in full force
and effect and has not received any notice of default;
iii) it has not assigned, transferred, conveyed or in any other
way encumbered its interest under the Title Documents.
The costs for the rentals and other payments required under the
terms of the Title Documents will be shared according to the
participating interests in clauses 5 and 15, as the case maybe.
b) Except as otherwise provided in this Agreement, if the interest of
any Party in the Rostin Block is now or in the future becomes
encumbered by any royalty, overriding royalty, production payment
or other burden payable out of production attributable to its
participating interest hereunder, other than the royalty payable
to the Czech Republic, and the gross overriding royalty reserved
to pursuant to this Agreement, such Party will become solely
responsible for the additional burden and will hold the other
Parties harmless from and against all claims, demands and causes
of action relating thereto.
4. OPERATIONS
a) All operations conducted by the Parties pursuant to this Agreement
will be at the Parties' individual sole risk and expense unless
the contrary is specifically stated and always in accordance with
clauses 5 and 15.
b) All operations conducted by the parties pursuant to this agreement
will be in a lawful manner and in accordance with good oilfield
practice.
5. PARTICIPATING INTERESTS FOR STUDY PHASE, SEISMIC PHASE AND TEST WELL
The participating interest of the Parties in the Rostin Block, the
Title Documents, the Petroleum Substances, and the operations to be
carried out pursuant to the Study Phase, Seismic Phase and Test Well
are as follows:
Unigeo - 17.6471% working interest
GEOCAN - 82.3529% working interest
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100%
6. CONFLICT OF PROVISIONS
Wherever there is a conflict between this Agreement and the Operating
Procedure, the terms and provisions of this Agreement will prevail and
wherever there is a conflict between this Agreement and the Title
Documents, the terms and provisions of the Title Documents will
prevail.
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7. APPOINTMENT OF OPERATOR
Unigeo, subject to clause 16, is hereby appointed the initial Operator
to conduct operations on the Rostin Block. GEOCAN, however, will be
responsible for the supervision of all drilling, completion, equipping,
and abandonment operations conducted on the Rostin Block.
8. APPLICATION OF OPERATING PROCEDURE
The Operating Procedure will apply to all operations conducted in
respect of the maintenance, exploration and development of the Rostin
Block for the production of petroleum substances pursuant to the Title
Documents and the applicable regulations.
9. STUDY PHASE
Subject to clause 16, on or before October 31, 2000, GEOCAN will review
and finalize with the Parties a detailed budget that outlines the work
program and associated costs for the Study Phase on the Rostin Block.
During the Study Phase Unigeo and GEOCAN will review all of the
geological and geophysical data that is available including geological
and geophysical information held by COC, over the Rostin Block, in
order to assess the potential for drilling a Test Well, as described in
clause 11. The costs incurred during the Study Phase will be shared in
the participating interests described in clause 5.
At the end of the Study Phase Unigeo and GEOCAN will elect to proceed
to the Seismic Phase, as described in clause 10, elect to drill a Test
Well or discontinue to do any further work on the Rostin Block.
10. SEISMIC PHASE
If during the Study Phase Unigeo and GEOCAN are not able to determine
that a Test Well should be drilled and Unigeo and GEOCAN elect to
proceed to the Seismic Phase, GEOCAN subject to clause 16, will prepare
for approval by the Parties hereto a budget for the shooting of a
seismic program on the Rostin Block, that will include the timing for
shooting seismic, the size of the seismic program and the costs
associated to shooting, processing, and interpreting the data. The
costs incurred during the Seismic Phase will be shared in the
participating interests described in clause 5. If only one Party elects
to shoot the seismic program it will do so at its sole cost risk,
expense and own the seismic data and trading rights 100%. The Party
that elects not to participate will not receive a copy of the data or
share in the interpretation of said data.
At the end of the Seismic Phase Unigeo and GEOCAN will elect to drill a
Test Well or discontinue to do any further work on the Rostin Block.
11. TEST WELL
a) If Unigeo and GEOCAN elect to drill a Test Well they will spud the
Test Well at a location of their choice on the Rostin Block and
will then diligently and
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continuously, at their sole cost, risk and expense drill a well,
log, test, and Complete or Abandon the same in accordance with the
terms and conditions of this Agreement and the Czech Republic
regulations.
b) If the Test Well is found to be capable of production in Paying
Quantities, Unigeo and GEOCAN will Equip such well for production
by paying all Completion costs and Equipping costs. If, however,
the Test Well is capable of production, which is primarily natural
gas, and there is not an adequate market immediately available
therefor, Unigeo and GEOCAN may Cap such well until an economic
market for the gas becomes available, at which time Unigeo and
GEOCAN will Complete and Equip the Test Well at its sole cost,
risk and expense.
c) If the Test Well is not capable of production in Paying
Quantities, Unigeo and GEOCAN will, subject to the Abandonment
Clause, Abandon the Test Well at is sole cost, risk and expense,
in a manner satisfactory to the Minister of Environment, and will
clean up the wellsite and access road.
d) Unigeo and GEOCAN will share the costs of the Test Well as to
their participating interests described in clause 5.
12. ABANDONMENT
If, at anytime after drilling the Test Well, but prior to completing
the Test Well, Unigeo and GEOCAN wish to Abandon the Test Well, the
Parties will comply with the following provisions:
a) Unigeo and GEOCAN will give COC written notice that it wishes to
Abandon the Test Well. Provided COC is in receipt of all related
log, and test data, COC must respond to Unigeo and GEOCAN
abandonment notice within forty-eight (48) hours of receipt of the
notice in the case where there is a drilling rig on location, or
in all other cases, within thirty (30) days.
b) If COC fails to respond or COC advises Unigeo and GEOCAN by
written notice that COC consents to the Abandonment of the Test
Well, Unigeo and GEOCAN will, at their sole cost, risk and
expense, Abandon the Test Well in accordance with good oilfield
practice and the Czech Republic regulations.
c) If COC advises Unigeo and GEOCAN that it does not consent to the
Abandonment of the Test Well, Unigeo and GEOCAN will, for the
purposes of this Agreement, be deemed to have Completed or
Abandoned the Test Well. COC will take over the Test Well and
conduct all further operations relating thereto at its sole cost,
risk and expense. The estimated costs of Abandonment and the
estimated net salvageable value of material and equipment will be
calculated. In the event the estimated Abandonment costs exceed
the estimated net salvageable value, the difference will be paid
by Unigeo and GEOCAN to COC. In the event the estimated net
salvageable value exceeds the estimated Abandonment costs, the
difference will be paid by COC to Unigeo and
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GEOCAN. COC will then receive from Unigeo and GEOCAN a surrender
in a form satisfactory to COC of all Unigeo and GEOCAN'S interest
in and to the Test Well, and all material and equipment in and on
the surface rights, and all other contracts relating to the Test
Well and necessary for COC'S further operations. If COC Completes
the Test Well, Unigeo and GEOCAN will also surrender to COC their
interest in the Test Well spacing unit insofar as it relates to
the Completed formation(s). Unigeo and GEOCAN will save COC
harmless from all costs, debts, claims, charges and damages
relating to the documents so assigned up to the time of take over
of the Test Well.
d) COC will be liable to Unigeo and GEOCAN for all loss, costs,
damages and expenses whatsoever which it may suffer, sustain, pay
or incur and in addition will indemnify and save harmless Unigeo
and GEOCAN against all actions, suits, costs, and demands which
may be brought against or suffered by Unigeo and GEOCAN arising
out or in any way attributable to the operations carried on by COC
on the Test Well and the Test Well Spacing Unit after take over
pursuant to this Clause.
13. GROSS OVERRIDING ROYALTY
Upon Unigeo and GEOCAN drilling the Test Well pursuant to this
Agreement, the Royalty Agreement will be deemed to have been executed
and delivered with respect to the Test Well spacing unit. COC will
receive a gross overriding royalty, as described in the Royalty
Agreement, subject to the right of conversion of the gross overriding
royalty described in clause 14.
14. CONVERSION OF GROSS OVERRIDING ROYALTY
a) Unigeo and GEOCAN will, in addition to the other required Test
Well information, furnish to COC every three (3) months following
Completion of the Test Well an accurate and itemized record of all
production secured from the Test Well and any other information
with respect to the operation of and production from the Test Well
as may be requested by COC.
b) Upon Payout, Unigeo and GEOCAN will send written notice of Payout
to COC. COC will have a period of thirty (30) days from receipt of
such notice to elect to convert its gross overriding royalty
interest to a 15% working interest in the Test Well spacing unit.
Failure to make an election will be deemed an election not to
convert. If COC elects to convert its gross overriding royalty
interest to a working interest, then after the effective date of
election as provided in sub clause (c) COC will own said working
interest in the Test Well spacing unit, the Test Well, all
equipment therein and thereon and all production therefrom. The
provisions of Schedule "B" will then apply to govern the
relationship of Unigeo and GEOCAN and COC with respect to all
operations on the Test Well spacing unit.
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c) The effective date of an election to convert under sub clause (b)
by the COC will be the first day of the calendar month following
the calendar month in which Payout occurs.
d) In the event the Test Well is Abandoned prior to Payout, COC'S
gross overriding royalty interest as set out in the Royalty
Agreement will automatically convert to a 15% working interest in
the Test Well spacing unit. The effective date of such conversion
will be the date of Abandonment of the Test Well.
15. PARTICIPATING INTERESTS AFTER STUDY PHASE, SEISMIC PHASE AND TEST WELL.
The participating interests of the Parties in the Rostin Block, the
Title Documents, the Petroleum Substances and the operations to be
carried out after the Study Phase, Seismic Phase and Test Well,
excluding the Test Well spacing unit, are as follows:
Unigeo - 15%
COC - 15%
GEOCAN - 70%
---
100%
16. OPERATING COMMITTEE
a) To provide for the orderly supervision and direction of all
operations under this Agreement, there shall be an Operating
Committee set up which is comprised of representatives of each
Party to this Agreement; each Party is to appoint one
representative and one alternate to serve thereon. Operator's
representative shall be chairman of the Operating Committee. The
alternate appointed by a Party shall only act in the event the
representative appointed by such Party is not available. Each
Party shall have the right to change its representative and
alternate at any time by notifying the other Parties to that
effect. Each Party shall be entitled to vote through its
representative or alternate in proportion to its participating
interest from time to time. Other personnel including consultants
(to a maximum of two) of a Party may attend Operating Committee
meetings as observers. Except as otherwise provided elsewhere in
this Agreement and subject to Article X of the Operating
Procedure, the decisions of the Operating Committee on all matters
coming before it shall be made by a vote of a total participating
interest, as provided for in Clauses 5 and 15, of at least eighty
- five percent (85.0%).
b) In matters relating to operations pursuant to Article X of the
Operating Procedure only participating Parties shall be entitled
to vote.
c) The Operating Committee shall meet whenever requested by the
giving of at least thirty (30) days prior written notice by
Operator (who shall give such notice when requested by any Party)
and shall meet at least once in each six months commencing with
January 1, or July 1, of each calendar year (calendar semester),
to consider a work program and budget. At the time of providing
notice, Operator
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shall also supply a reasonably detailed agenda for the meeting and
a matter not appearing on said agenda may not be proposed for a
vote at the meeting unless all the Parties otherwise agree or
unless any Party wishing to propose a matter for a vote notifies
all other Parties in writing at least five (5) days prior to the
date of such meeting of a matter or matters it intends to propose
for a vote at the meeting. However, by the unanimous agreement of
all Parties any such calendar semester meeting may be cancelled in
the event it is unnecessary. Except as herein otherwise provided,
the decisions of the Operating Committee shall be binding on all
Parties. Meetings of the Operating Committee shall be held in
Ostrava-Hrabova, Czech Republic at the offices of Operator or at
such place as the Parties may unanimously agree. Parties not in
attendance at a meeting of the Operating Committee may, if
entitled to vote at that meeting, nonetheless cast a written vote
or vote by proxy concerning any matter referred for such meeting,
provided that written notice of such vote or proxy is received by
the Operator prior to the vote taken by the Operating Committee on
such matter at the meeting. At the commencement of the meeting,
Operator shall supply to all the Parties present, for their
approval, a written summary record of all proposals formally
tabled for vote. This record shall include the identity of the
proposing Party or Parties. Minutes of each meeting shall be
prepared by Operator and copies thereof shall be provided promptly
to the Parties. Such minutes shall be deemed approved thirty (30)
days after receipt by all Parties unless prior thereto a Party has
given notice of objection.
d) Subject to the terms of this Agreement the Operating Committee
shall have the sole and exclusive right to exercise overall
supervision of and to determine, and control the maintenance,
exploration operations and development of the Rostin Block and the
production, storage and transport of Petroleum Substances produced
and saved therefrom.
e) Not withstanding anything to the contrary in this clause, each of
the Parties shall be entitled to have direct representation on the
Operating Committee and be entitled to vote in proportion to its
participating interest, as provided for in clauses 5 and 15, at
the time of voting on any proposal or matters which may be
submitted to the Operating Committee in accordance with this
Agreement if and for so long as such Party holds a participating
interest of not less than ten percent (10%). Any Party whose
participating interest is less than ten percent (10%) shall not be
entitled to direct representation on the Operating Committee,
provided, however, any two or more Parties holding a participating
interest of ten (10%) or more in the aggregate may designate a
representative to serve on the Operating Committee and represent
them jointly and vote uniformly in respect of their combined
participating interests. No Party holding a participating interest
of less than ten percent (10%) shall contact the Operator or the
Operating Committee except through its designated representative.
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17. RENTALS
Unigeo will continue to pay all rentals falling due on behalf of the
working interest owners in respect of the Rostin Block and do all
things necessary to maintain the Title Documents in good standing and
in full force and effect.
The costs for the rentals and other payments required under the terms
of the Title Documents will be shared according to the participating
interests in clauses 5 and 15, as the case maybe.
18. CONFIDENTIAL INFORMATION
The Parties will, in accordance with Article XVlll of the Operating
Procedure, keep confidential from third Parties, all information
obtained in the course of or as a result of operations on the Rostin
Block and will take such measures in connection with operations and
internal securities as will be advisable under the circumstances.
19. RIGHTS OF ASSIGNMENT
The Parties will, in accordance with Article XXlV of the Operating
Procedure, have the right to assign, provided each Party abides by the
terms of clause 2401B of the Operating Procedure.
20. NOTICES
All notices and communication hereunder shall be in writing and shall
be deemed to have been properly received when delivered by courier and
in lieu of courier service may be given or made by facsimile or e-mail
to the parties at the following addresses or facsimile numbers:
Jiri Mukarovsky
Unigeo a.s.
Mistecka 000,
000 00 Xxxxxxx-Xxxxxxx
Xxxxx Xxxxxxxx
Facsimile 011-420-696-721-197
e-mail: xxxxxxxxxx.xxxx@xxxxxx.xx
Xxxxxx Xxxxxxx
Ceska Naftarska Spolecnost
Xxxxxxxxx 00,
000 00 Xxxxxxx
Xxxxx Xxxxxxxx
Facsimile 011-420-628-340-792
e-mail: xxx_xxxxxxx@xxx.xx
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Xxxxx Xxxxxx
GEOCAN Energy Inc.
Xxxxx 000, 000 - 0xx Xxx. XX
Xxxxxxx, XX
Xxxxxx X0X 0X0
Facsimile 000-000-000-0000
e-mail: xxxxxx@xxxx.xxx
Notices and communications shall be deemed to have been received
one (1) day after the date of sending in the case of facsimile, or
e-mail and three (3) days after the date of sending by courier,
excluding in either case Saturdays, Sundays and statutory
holidays. Any Party may change its address facsimile number or
e-mail by notice to the other Parties of that change
This notice clause supersedes Article XXII of the Operating
Procedure.
21. MISCELLANEOUS
a) This Agreement will be to the benefit of and be binding on the
Parties hereto and their respective successors and permitted
assigns and upon the heirs, executors, administrators and assigns
of natural persons who are or become Parties hereto.
b) The Parties agree that this Agreement will be construed and
interpreted according to the laws of the Czech Republic and that
the courts having jurisdiction with respect to matters relating to
this Agreement will be courts of The Czech Republic, to the
jurisdiction of which courts the Parties by their execution of
this Agreement do hereby submit.
c) The terms of this Agreement express and constitute the entire
agreement between the Parties insofar as the specific subject
matter contained in this Agreement. No implied covenant or implied
liability of any kind on the part of the Parties is created or
will arise by reason of these presents or anything contained in
this Agreement.
d) The headings of the clauses of this Agreement are inserted for
convenience of reference and will not affect the meaning or
construction thereof.
e) Whenever the plural or masculine or neuter is used in this
Agreement, the same will be construed as meaning singular of
feminine or body politic or corporate and vice versa where the
context so requires.
f) Time is of the essence of this Agreement.
g) This Agreement may be executed in counterpart and when each Party
has executed a counterpart, all counterparts taken together will
constitute one agreement.
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IN WITNESS WHEREOF the Parties have executed and delivered this
Agreement as of the day and year first above written.
UNIGEO A.S.
Per: Jiri Mukarovsky
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Per:
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CESKA NAFTARSKA SPOLECNOST
Per: Znenek Xxxxxxx
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Per:
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GEOCAN ENERGY INC.
Per: Xxxxx Xxxxxx
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Per: Xxxxx Xxxxxx
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This is a Counterpart Execution page to Letter Agreement dated June 7, 2000
