Contract
EXHIBIT
10.2
 March
28, 2007
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BP
America Production Company
Onshore
Business Unit
Onshore
Gulf Coast Asset Area
000
Xxxxxxxx Xxxx Xxxxxxxxx
Xxxxxxx,
Xxxxx 00000
Xxxxx
X. Xxxxxx
Senior
Land Negotiator
Phone: 000.000.0000
Fax: 000.000.0000
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FAX
AT (000) 000-0000
Xx.
Xxxx
X. Folnovic
0000
Xxxxx Xxxxxx, 00xx
Xxxxx
Xxxxxxx,
Xxxxx 00000
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RE:
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Development
Agreement, dated effective January 1, 2007,
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By
and between BP America Production Company and
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True
North Energy Corp. (the “Agreement”)
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Badger
Prospect, Pointe Coupee Parish,
Louisiana
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Dear
Xxxx:
BP
America Production Company (“BP”) has drilled the BP America Production Company;
A. Major Heirs #1 well (the “Well”) to the Objective Zone (as defined in the
Agreement and further modified in that certain letter agreement, dated March
20,
2007, amending the Agreement). BP has run all logs and tests covering this
additional drilling since the initial logging runs in the Well and provided
same
to True North Energy Corp. (“True North”).
As
per
Section 2.2(B) of the Agreement, Casing Point has been reached. In BP’s opinion,
the Well is a dry hole with no commercial hydrocarbon accumulations, and BP
hereby elects to plug and abandon the Well, as currently drilled, pursuant
to
Section 2.6 of the Agreement.
BP
is
planning to sidetrack the Well from a measured depth in the current wellbore
of
17,420’ and attempt to drill the Well to a new bottom hole approximately 200’ to
300’ west of the current bottom hole location of the Well to a depth sufficient
to test the stratigraphic equivalent of the Tuscaloosa B-1 through C-1 sands,
as
seen between 18,070’ and 18,485’ (electrical log measurement) in the Amarex -
Major Heirs No. 1 well, located in Section 00, Xxxxxxxx 0 Xxxxx, Xxxxx 10 East,
Pointe Coupee Parish, Louisiana, or to a measured depth of approximately
18,600’, whichever is shallower. At that point, if BP should determine those
sands are commercially productive, in BP’s sole opinion, then BP will set a
liner in the sidetrack hole of the Well and drill out to test the Tuscaloosa
C-2
sand, which is expected to be seen in the next 200’ to 400’ of the
sidetrack.
Although
the Well was drilled to the Objective Zone, True North has not earned an
interest in the prospect. True North has no right under the Agreement to
participate in a Substitute Well, because the Well was successfully drilled
to
the Objective Zone. Further, the sidetrack proposal set forth herein is not
a
Substitute Well, as defined in Section 1.34 of the Agreement, because the rig
drilling the Well has not been released. Nonetheless,
BP would like to offer True North the same opportunity to earn an interest
in
the prospect as if the sidetrack operations were part of the original drilling
operations for the Initial Well (including, but not limited to, True North’s
obligation to pay its promoted share of the drilling
costs).
When
and
if this letter (the “Letter Agreement”) is executed by an authorized
representative of both BP and True North having the express authority to enter
into an agreement of the size and nature contemplated herein, BP and True North
hereby agree to amend the Agreement as follows:
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1.
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Section
1.21 of the Agreement is hereby deleted in its entirety and replaced
with
the following:
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1.21 “Initial
Well”
has
the
meaning given to it in the recitals, including any sidetracks to the original
wellbore.
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2.
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Section
1.24 of the Agreement is hereby deleted in its entirety and replaced
with
the following:
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1.24 “Objective
Zone”,
with
respect to the Initial Well and except as provided in Section 2.2(C), means
the
base of the Tuscaloosa C-1 sand, being the stratigraphic equivalent of the
base
of the Tuscaloosa C-1 sand as seen at 18,485 feet (electrical log measurement)
for the Amarex - Major Heirs No. 1 well, located in Section 00, Xxxxxxxx 0
Xxxxx, Xxxxx 10 East, Pointe Coupee Parish, Louisiana, or eighteen thousand,
six
hundred feet measured depth (18,600’ MD), whichever occurs first in the
sidetrack of the original wellbore in the Initial Well. The term “Objective
Zone”,
with
respect to any Substitute Well or Additional Well, means the deepest Zone to
which the Substitute Well or Additional Well is proposed to be drilled as
provided in the relevant AFE for such well.
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3.
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A
new Section 1.39 is added to the Agreement as
follows:
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1.39 “Deep
Objective Zone”
means
the base of the Tuscaloosa C-2 sand, being the base of the next Zone to be
encountered directly below the Objective Zone, or four hundred feet measured
depth (400’ MD) below the Objective Zone, whichever occurs first in the
sidetrack of the original wellbore in the Initial Well.
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4.
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Section
2.2 of the Agreement is hereby deleted in its entirety and replaced
with
the following:
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2.2 When
and if Casing Point is reached in the Initial Well, BP shall give written notice
to Company of such occurrence, and such notice shall state whether BP proposes
to attempt to Complete the Initial Well as a producer, whether in the Objective
Zone or in a shallower Zone, to deepen the Initial Well to the Deep Objective
Zone, or to abandon the Initial Well as a dry hole. The notice shall be
accompanied by all well information and data set forth in Exhibit “D” (the “Well
Information”), unless such information has been previously furnished to
Company.
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(A)
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If
BP reaches Casing Point and proposes to Complete the Initial Well
as a
producer, whether in the Objective Zone or in a shallower Zone, such
notice shall also include a completion AFE. The completion AFE shall
include, at a minimum, an estimate of Completion Costs for the Initial
Well. Company shall have forty-eight (48) hours (exclusive of Saturday,
Sunday and holidays) from receipt of the notice to elect, by written
notice, whether it will participate in accordance with Section 2.3.
BP
shall not Complete the Initial Well until Company has notified BP
in
writing whether or not it will participate or until forty-eight (48)
hours
(exclusive of Saturday, Sunday and holidays) have elapsed since Company’s
receipt of BP’s notice. Failure to respond within the time period allowed
shall be deemed to be an election not to participate in the Completion
of
the Initial Well.
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(B)
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If
BP reaches Casing Point and proposes to abandon the Initial Well
as a dry
hole, (i) BP shall plug and abandon the Initial Well in accordance
with
Section 2.6, and (ii) Company shall have no right or option to takeover
the Initial Well.
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(C)
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If
BP reaches Casing Point and elects (at BP’s sole option) to deepen the
Initial Well to the Deep Objective Zone, (i) the Objective Zone for
the
Initial Well shall be the Deep Objective Zone, and (ii) there will
be a
new Casing Point when and if BP reaches the Objective Zone (as redefined
in this Section 2.2(C)).
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5.
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Capitalized
terms set forth in this Letter Agreement have the meanings given
to them
in this Letter Agreement or in the Agreement.
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6.
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Except
as set forth in this Letter Agreement, the Agreement remains in full
force
and effect as originally set forth
therein.
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Enclosed
herewith is an Authority for Expenditure for this sidetracking operation. The
full cost of the first part of the sidetrack (Tuscaloosa B-1 through C-1 sands)
will be approximately $4,500,000 with a cost of an additional $3,100,000 to
complete through the Tuscaloosa C-1 sand. If BP elects to set the liner to
drill
to the Tuscaloosa C-2 sand, the additional cost would be approximately
$1,500,000. The current estimated costs for the Well, including the estimated
costs to plug the open hole portion of the original part of the Well (currently
underway), is approximately $11,500,000 (vs. $14,862,000 in Estimated Drilling
Costs). If True North elects to participate in accordance with this Letter
Agreement, BP would apply the unused portion of True North’s original share of
Estimated Drilling Costs to True North’s share of the sidetracking operations
until that money has been used. Thereafter, BP would charge True North its
proportionate share in accordance with Article II and Section 5.4 (i.e., BP
will
not cash call True North for the cost of additional operations).
As
you
know, BP has the drilling rig on location and is proceeding forward with the
sidetracking operations set forth in this Letter Agreement. Therefore, time
is
of the essence, and in accordance with standard industry practice for operations
in which a rig is on location, this offer will remain open for a period of
forty
eight (48) hours from True North’s receipt of this proposal by fax. If you wish
to participate in the sidetrack of the Well as proposed herein and amend the
Agreement in accordance with this Letter Agreement, have an authorized
representative of True North sign this Letter Agreement in the space provided
below and fax to Xxxx Xxxxxx at 000-000-0000 within the time provided.
If
BP does not receive a signed copy of this Letter Agreement by fax within 48
hours of True North’s receipt of this Letter Agreement, this offer shall be
automatically withdrawn and shall be of no further force and
effect.
If
True
North does not timely elect to participate in the sidetrack operations, True
North will remain liable for its proportionate share of costs to plug and
abandon the original wellbore in the Well. Thereafter, BP will return any unused
portion of True North’s share of Estimated Drilling Costs, and True North will
have no further opportunity to earn an interest in the Badger
Prospect.
Thank
you
for your participation in the Well to this point.
Respectfully,
/s/
Xxxxx
X. Xxxxxx
Xxxxx
X.
Xxxxxx
BP
America Production Company
ACCEPTED
AND AGREED TO ON MARCH 28, 2007, BY:
BP
AMERICA PRODUCTION COMPANY
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By:
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/s/
Xxxxxx X. Xxxxxx
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Xxxxxx
X. Xxxxxx
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Attorney-in-Fact
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ACCEPTED
AND AGREED TO ON MARCH 29, 2007, BY:
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By:
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/s/
Xxxx Folnovic
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Xxxx
Folnovic
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President
& CEO
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