BAYTEX ENERGY LTD.
BAYTEX
ENERGY
LTD.
December
19, 2002
979708
Alberta Ltd.
000,
000
- 0xx Xxxxxx X.X.
Xxxxxxx,
Xxxxxxx
X0X
0X0
Attention:
Vice President, Land
Dear
Sir
or Madam:
| Re: | Overriding Royalty
Agreement
Townships
91 & 92 Ranges 12 & 13 W5M (the “Lands”)
Sawn
Lake Area, Alberta
|
Baytex
Energy Partnership (hereinafter referred to as “Baytex”) reserved an Overriding
Royalty Interest in the Lands, in consideration of entering into that certain
Petroleum, Natural Gas and Related Rights Conveyance dated December 19,
2002:
1. Definitions:
Each
capitalized term used in this Head Agreement will have the meaning given to
it
in the amended C.A.P.L. 1997 Overriding Royalty Procedure (hereinafter referred
to as the “Overriding Royalty Procedure”, and, in addition:
|
a)
|
“Royalty
Owner” means Baytex Energy
Partnership;
|
|
b)
|
“Royalty
Payor” means 979708 Alberta Ltd.;
|
|
c)
|
“Royalty
Lands” means the lands set forth and described in Schedule
“A”.
|
2. Schedules:
The
following schedules are attached hereto and made a part of this
Agreement:
|
a)
|
Schedule
“A” which describes the Royalty Lands, Title Documents, and Encumbrances;
and
|
Xxxxx
0000, 000 - 0XX Xxx. X.X., Xxxxxxx Xxxx. X0X 0X0
Tel.
(000) 000-0000
Fax
(000) 000-0000
Dated
December 19, 2002
Page
2
|
b)
|
Schedule
“B” which is the Overriding Royalty
Procedure.
|
3. Royalty:
Effective
December 1, 2002, Royalty Payor grants to Royalty Owner the following royalty
payable on the Royalty Lands:
|
a)
|
a
5% non-convertible overriding royalty on 100% production as provided
for
in Article 2.00 of the Overriding Royalty
Procedure.
|
4. Address
for Service:
|
a)
|
The
Addresses for Service hereunder of each of the respective Parties
shall be
as follows:
|
Baytex
Energy Partnership
0000,
000
- 0xx
Xxxxxx
X.X.
Xxxxxxx,
Xxxxxxx X0X 0X0
Attention: Vice
President Land
Phone:
(000) 000-0000
Fax:
(000) 000-0000; and
000000
Xxxxxxx Ltd.
000,
000
- 0xx
Xxxxxx
X.X.
Xxxxxxx,
Xxxxxxx X0X 0X0
Attention: Vice
President. Land
Phone:
(000) 000-0000
Fax:
(000) 000-0000.
|
b)
|
Any
Party may change its respective Address for Service by serving written
notice to the other Party.
|
5. Miscellaneous:
Nothing
in this Agreement is to be construed as an express or implied covenant by the
Royalty Payor to develop the Royalty Lands:
Dated
December 19, 2002
Page
3
6. 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:
|
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.
|
7. Counterpart
Execution:
This
Agreement may be executed in counterpart. All of those executed counterpart
pages when taken together will constitute the Agreement.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
first above written.
BAYTEX
ENERGY PARTNERSHIP
By
its managing partner,
|
BAYTEX
ENERGY LTD.
|
000000
XXXXXXX LTD.
|
|
|
(the
“Royalty Owner”)
|
(the
“Royalty Payor”)
|
|
|
/s/
Xxx Xxxxxx
|
/s/
Xxxxxxx X. Xxxxxx
|
|
|
Xxx
Xxxxxx, LL.B.
|
Xxxxxxx
X. Xxxxxx
|
|
|
Vice
President, Land
|
Director
|
This
is Schedule “A” attached to and forming part of an Overriding Royalty
Agreement
dated
December 19, 2002 between Baytex Energy Partnership and
979708
Alberta
Ltd.
|
Title
Documents
|
Lands
|
Interest
|
Encumbrances
|
|
Crown
PNG Licence 5495030101
|
91-13
W5M: Sections N28; 32; 33; 34
92-13
W5M: Sections 3; 4; 5
All
PNG
Expiry:
March 2, 2003
|
100%
|
Crown
LOR
5%
Non-convertible XXX
payable
to Baytex Energy
Partnership
by 979708
Alberta
Ltd.
|
|
Crown
PNG Licence 5495040066
|
91-12
W5M: Sections 9; 10; 15; 16;
17;
SE 20; 21; 22
All
PNG
Expiry:
April 13, 2004
|
100%
|
Crown
LOR
5%
Non-convertible XXX
payable
to Baytex Energy
Partnership
by 979708
Alberta
Ltd.
|
Schedule
B
OVERRIDING
ROYALTY PROCEDURE
CAPL
CANADIAN
ASSOCIATION OF PETROLEUM LANDMEN
1997
TABLE
OF CONTENTS
|
1.00
|
DEFINITIONS
AND INTERPRETATION
|
||
|
1.01
|
Definitions
|
1
|
|
|
1.02
|
Incorporation
of Provisions From 1990 CAPL Operating Procedure
|
2
|
|
|
1.03
|
Multiple
Royalty Owner Parties
|
3
|
|
|
1.04
|
Multiple
Royalty Payor Parties
|
3
|
|
|
1.05
|
Modifications
to CAPL Document Form
|
3
|
|
|
2.00
|
OVERRIDING
ROYALTY
|
||
|
2.01
|
Quantification
of Overriding Royalty
|
3
|
|
|
2.02
|
Effect
of Pooling Or Unitization On Calculation
|
4
|
|
|
2.03
|
Royalty
Owner’s Right To Take Overriding Royalty In Kind
|
4
|
|
|
2.04
|
Royalty
Payor’s Allowed Deduction If Overriding Royalty Not Taken In
Kind
|
5
|
|
|
2.05
|
Royalty
Payor To Account To Royalty Owner Monthly
|
6
|
|
|
2.06
|
Royalty
Owner’s Lien
|
6
|
|
|
2.07
|
Royalty
Xxxxx To Be Produced Equitably
|
6
|
|
|
2.08
|
Royalty
Owner’s Rights Upon Surrender
|
6
|
|
|
2.09
|
Audits
of Overriding Royalty
|
6
|
|
|
3.00
|
WELL
INFORMATION TO ROYALTY OWNER
|
||
|
3.01
|
Royalty
Owner’s Notification
|
7
|
|
|
4.00
|
LIABILITY
AND INDEMNITY
|
||
|
4.01
|
Royalty
Payor’s Responsibility
|
7
|
|
|
4.02
|
Royalty
Owner’s Responsibility
|
7
|
|
|
5.00
|
ASSIGNMENT
|
||
|
5.01
|
Incorporation
Of Assignment Procedure
|
7
|
|
|
6.00
|
DEFAULT
|
||
|
6.01
|
Royalty
Owner’s Default Remedies
|
7
|
|
|
7.00
|
RESERVED
FORMATIONS
|
||
|
7.01
|
Royalty
Owner’s Access To Reserved Formations
|
8
|
|
|
8.00
|
DISPUTE
RESOLUTION
|
||
|
8.01
|
Disputes
Initially Referred to Mediation
|
8
|
|
OVERRIDING
ROYALTY PROCEDURE
Schedule
B attached to and forming part of the PNG & Related Rights Conveyance
Agreement dated the 19th
day of
December A.D. 2002, between/among Baytex Energy Partnership, Baytex Energy
Ltd.
and 979708 Alberta Ltd.
|
1.00
|
DEFINITIONS AND INTERPRETATION |
|
1.01
|
Definitions |
In
this
Overriding Royalty Procedure:
|
(a)
|
“Agreement”
means the Head Agreement and the Schedules attached to
it.
|
|
(b)
|
“Effective Date” means
December
1, 2002
|
|
(c)
|
“Facility
Fees” means,
as applicable:
|
|
(i)
|
for
Facility Usage of facility capacity owned by third parties (other
than
Affiliates of the Royalty Payor), all costs and expenses paid by
the
Royalty Payor for that Facility Usage;
and
|
| (ii) | for Facility Usage of facility capacity owned by the Royalty Payor (or an Affiliate of the Royalty Payor), an expense equal to a fee (comprised of both operating and return on capital components) in accordance with (1) or (2) below: |
| (1) | the fee ordinarily chargeable for the same use as the Facility Usage, if that facility is made available for use by third parties; or |
| (2) |
in
all other circumstances, a fee sufficient to cover that use of facilities,
where the capital recovery component of that fee uses as a guideline
the
PJVA Jumping Pound-95 methodology and where the operating cost component
is calculated and assessed on the basis of facility throughput
costs;
|
provided
that any dispute respecting the Facility Usage fee will be resolved under Clause
8.01.
|
(d)
|
“Facility
Usage”
means the Royalty Payor’s use of facilities beyond those included in
Equipping Costs to make merchantable and to deliver to market Petroleum
Substances produced from a Royalty Well, including, as applicable,
the
gathering, compression, treatment, processing and transportation
of those
Petroleum Substances, but excluding any basis adjustments made in
the
determination of the Market Price of natural
gas.
|
|
(e)
|
“Head
Agreement”
means the Agreement, other than the
Schedules.
|
|
(f)
|
“Overriding
Royalty”
means that interest in a portion of the Petroleum Substances within,
upon,
under or attributed to the Royalty Lands that is reserved by or granted
to
the Royalty Owner pursuant to the Head Agreement, as more particularly
outlined in Article 2.00.
|
|
(g)
|
“Overriding Royalty
Procedure”
means this Schedule.
|
|
(h)
|
“Royalty
Determination Point”
means the first point at which Petroleum Substances are or can be
metered,
measured or allocated downstream of the wellhead after, as applicable:
(i)
any treatment of crude oil for the separation, removal and disposal
of
basic sediment and water; (ii) any extraction of liquid hydrocarbons
from
natural gas at the wellhead and any wellsite separation, removal
and
disposal of basic sediment and water from those liquid hydrocarbons;
and
(iii) any wellsite dehydration of natural
gas.
|
|
(i)
|
“Royalty
Lands”
means the areal, stratigraphic and substance rights described as
“Royalty
Lands” in Schedule “A” of the Agreement or made subject to the Overriding
Royalty in the manner outlined in the Head Agreement, as the case
may be,
and so much of those rights as remain subject to the Agreement and
the
Title Documents, excluding any Reserved
Formations.
|
|
(j)
|
“Royalty
Owner”
has the meaning set forth in the Head
Agreement.
|
|
(k)
|
“Royalty
Payor”
has the meaning set forth in the Head
Agreement.
|
|
(l)
|
“Reserved
Formations”
means any rights not included in the Royalty Lands that are held
under the
Title Documents.
|
|
(m)
|
“Royalty
Well”
means any well from which production is obtained from the Royalty
Lands or
may be allocated to the Royalty Lands pursuant to a pooling, unit
or other
arrangement.
|
|
(n)
|
“Title
Documents” means the documents of title described as “Title
Documents” in Schedule “A” to the Agreement, insofar as they relate to the
Royalty Lands, and all renewals, extensions, continuations or documents
of
title issued in substitution or by
selection.
|
|
1.02
|
Incorporation Of Provisions From 1990 CAPL Operating Procedure |
The
following provisions of the standard form 1990 CAPL Operating Procedure are
incorporated herein by reference, as may be modified below:
|
101
|
(c) | “Affiliate”; | |
| (m) | “equipping costs”, which are referred to as “Equipping Costs”; | ||
| (s) |
“market
price”, which is referred to as “Market Price”, in which the phrase
“Article VI” is replaced with “Subclause 2.03D” and at the end of which is
added: However, for natural gas, this price will be the weighted
1 month
spot index price for the specific month in which that natural gas
was
produced, as reported in the publication titled “Canadian Gas Price
Reporter” in the table “Monthly Canadian and U.S. natural gas price
summary” under the column for that specific delivery month and the row
“Alberta Spot Price-AECO C/NIT C$/GJ”, subject to reasonable basis
adjustments between the point of delivery to the applicable pipeline
transportation system and the point at which the index price applies,
provided that if that publication or that index cease to exist, the
price
will be determined in accordance with the previous sentence, unless
otherwise agreed by the Parties.;
|
||
| (v) | “party”, which is referred to as “Party”; | ||
| (y) | “petroleum substances”, which are referred to as “Petroleum Substances”; | ||
| (bb) | “Regulations”; | ||
| (cc) | “spacing unit”, which is referred to as “Spacing Unit”; | ||
|
(dd)
|
“spud”,
which is referred to as “Spud” and in which the phrase “in the AFE” is
deleted; and
|
||
|
(ff)
|
“working interest”, which is referred to as “Working Interest” and in which the phrase “a production facility or” is deleted. | ||
|
102
|
HEADINGS | ||
|
103
|
REFERENCES | ||
|
105
|
DERIVATIVES | ||
|
106
|
USE OF CANADIAN FUNDS | ||
|
107
|
CONFLICTS, with “Article 4.00” replacing the phrase “Article IV hereof” in the seventh line. | ||
|
304
|
PROPER
PRACTICES IN OPERATIONS
|
||
|
305
|
BOOKS, RECORDS AND ACCOUNTS | ||
|
306
|
PROTECTION FROM LIENS | ||
|
308
|
SURFACE RIGHTS | ||
|
309
|
MAINTENANCE
OF TITLE DOCUMENTS, with the addition at the end of the first sentence
of
Subclause 309(b) of: “, provided that the Royalty Payor is not obligated
to consult in this manner with a Royalty Owner”.
|
||
|
2001
|
WAIVER MUST BE IN WRITING | ||
|
2101
|
PARTIES TO SUPPLY | ||
|
2201
|
SERVICE OF NOTICE | ||
|
2202
|
ADDRESSES FOR NOTICES - The Parties’ Addresses for Service will be as set forth in the Head Agreement. | ||
|
2203
|
RIGHT TO CHANGE ADDRESS | ||
|
2403
|
MULTIPLE ASSIGNMENT NOT TO INCREASE COSTS, with “Overriding Royalty” replacing “working interest” in the first and third lines. | ||
|
2601
|
LIMITATION ON RIGHT OF ACQUISITION | ||
|
2801
|
SUPERSEDES PREVIOUS AGREEMENTS | ||
|
2802
|
TIME OF ESSENCE | ||
|
2803
|
NO AMENDMENT EXCEPT IN WRITING | ||
|
2804
|
BINDS SUCCESSORS AND ASSIGNS, with “5.00” replacing “XXIV” in the first line. | ||
|
2805
|
LAWS OF JURISDICTION TO APPLY | ||
|
2806
|
USE OF NAME | ||
|
2807
|
WAIVER OF RELIEF | ||
In
those
incorporated provisions, “Operating Procedure” will be read as “Overriding
Royalty Procedure”, “joint lands” will be read as “Royalty Lands”, “joint
operations” will be read as “operations”, “Joint-Operator” will be read as
“Party”, “Operator” will be read as “Royalty Payor” or “Royalty Payor Party
designated as the representative of the Royalty Payor”, as the case may be, and
“title documents” will be read as “Title Documents”, and references to
“Authority for Expenditure”, “for the joint account” and “production facility”
will be deleted. Nothing in any of those incorporated provisions will require
the Royalty Owner to assume any cost, risk or expense associated with an
operation conducted hereunder unless otherwise provided herein or in the Head
Agreement.
|
1.03
|
Multiple Royalty Owner Parties |
If
the
Royalty Owner comprises more than one Party: (i) information and notices to
be
provided to the Royalty Owner will be provided individually to each Royalty
Owner Party; and (ii) the rights and obligations of the Royalty Owner Parties
will accrue proportionately to the Royalty Owner Parties in the percentages
set
forth in the Head Agreement.
|
1.04
|
Multiple
Royalty Payor Parties
|
If
the
Royalty Payor comprises more than one Party:
| (a) |
the
Royalty Payor’ s obligations and liabilities to the Royalty Owner will be
joint and several;
|
|
(b)
|
the
Royalty Owner may deal solely with the Royalty Payor Party designated
as
the Royalty Payor’s representative in the Head Agreement respecting the
Head Agreement or this Royalty Procedure, provided that: (i) the
Royalty
Owner will provide each Royalty Payor Party with notices the Royalty
Owner
serves to the Royalty Payor; (ii) the Royalty Payor is bound by
the acts
and elections of that representative acting in that capacity; and
(iii)
the Royalty Payor may designate another representative by notice
to the
Royalty Owner; and
|
| (c) | the Royalty Payor’s rights and obligations will accrue proportionately to the Royalty Payor Parties in the percentages set forth in the Head Agreement. |
If
the
Royalty Payor initially comprises one Party and subsequently disposes of a
portion of its interest hereunder, those Royalty Payor Parties will designate
one of them as their representative under this Clause.
|
1.05
|
Modifications
To CAPL Document Form
|
This
Overriding Royalty Procedure is the 1997 CAPL Overriding Royalty Procedure.
It
has been modified only by the completion of the blanks and elections required
herein and by those additional changes specifically identified as such in the
body of this document or in the Head Agreement. Insofar as there are differences
between this Overriding Royalty Procedure and the 1997 CAPL Overriding Royalty
Procedure that are not specifically identified, this Overriding Royalty
Procedure will be deemed to be modified to apply the applicable provisions
of
the 1997 CAPL Overriding Royalty Procedure as if they had been included
herein.
|
2.00
|
OVERRIDING
ROYALTY
|
|
2.01
|
Quantification
Of Overriding Royalty
|
| A. |
The
Overriding Royalty is created effective as of the date and in the
manner
provided in the Head Agreement and this Overriding Royalty Procedure.
Subject to the other provisions of this Article, including the modified
calculation under Subclause 2.02C for production of Petroleum Substances
allocated to the Royalty Lands, the Overriding Royalty (based on
a 100%
Working Interest) will be determined on a well by well basis at the
Royalty Determination Point, and will be as
follows:
|
| (a) |
for
crude oil, 5.00%
of
the gross monthly production thereof produced from each Royalty Well;
and
|
|
(b)
|
for
all other Petroleum Substances, Alternate
1
will apply (Specify 1 or 2).
|
Alternate
1:
5.00% of
the gross monthly production thereof produced from each Royalty
Well.
Alternate
2:
|
(i)
|
if
not taken in kind by the Royalty Owner pursuant to Clause 2.03, the
gross
proceeds from the Royalty Payor‘s sale of % of the gross monthly
production thereof produced from each Royalty Well, free and clear,
subject to Subclause 2.04C, of all Facility Fees otherwise chargeable
pursuant to Clause 2.04; and
|
|
(ii)
|
if
taken in kind by the Royalty Owner, % of the gross monthly production
thereof produced from each Royalty
Well.
|
To
the
extent that the Overriding Royalty is reserved by the Royalty Owner from a
Working Interest assigned by the Royalty Owner to the Royalty Payor, the
Overriding Royalty will be multiplied by the percentage Working Interest held
by
the Royalty Owner immediately before this Article came into effect.
|
B.
|
Notwithstanding
the calculation at the Royalty Determination Point under Subclause
2.01A,
the Overriding Royalty will not include Petroleum Substances that
the
Royalty Payor reasonably uses or unavoidably loses in the Royalty
Payor’s
drilling and production operations for the Royalty Lands. Those drilling
and production operations include the proportionate use of those
Petroleum
Substances in batteries, treaters, compressors, separators, satellites
and
similar equipment serving Royalty Xxxxx, but do not include the use
of
Petroleum Substances for any enhanced recovery
operations.
|
|
2.02
|
Effect
Of Pooling Or Unitization On
Calculation
|
|
A.
|
The
Royalty Payor may 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 that zone, provided that the pooling allocates production
therefrom to the applicable Royalty Lands in the proportion that
the
surface area of the Royalty Lands placed in the Spacing Unit bears
to the
total surface area of the Spacing Unit. The Royalty Payor will
promptly
give notice to the Royalty Owner describing the extent to which
the
Royalty Lands have been pooled and describing the pooled Spacing
Unit.
|
|
B.
|
If
the Royalty Payor proposes to pool, unitize or otherwise combine
any
portion of the Royalty Lands with any other lands, other than as
provided
in the previous Subclause, the Royalty Payor must promptly send notice
of
that intention to the Royalty Owner. That notice must include the
technical justification for that pooling, unitization or combination
and
the proposed terms thereof, provided that the Royalty Payor will
not be
required to provide interpretative data to the Royalty Owner. Unless
otherwise required by the Regulations to form a Spacing Unit, the
Royalty
Payor will not enter into that pooling, unitization or combination
without
the prior written consent of the Royalty Owner, which consent will
not be
unreasonably delayed or withheld.
|
|
C.
|
If
any portion of the Royalty Lands is pooled, unitized or combined
with any
other lands pursuant to this Clause, Clause 2.01 will be deemed to
be
amended to calculate the volume of the Overriding Royalty by applying
the
percentages set forth in that Clause to the quantity of Petroleum
Substances thereby allocated to the affected Royalty
Lands.
|
|
2.03
|
Royalty
Owner’s Rights To Take Overriding Royalty In
Kind
|
|
A.
|
Subject
to the provisions of this Clause, the Royalty Payor is appointed
as the
agent of the Royalty Owner for the handling and disposition of the
Overriding Royalty share of Petroleum Substances. All acts of the
Royalty
Payor under this Clause in the handling and disposition of those
Petroleum
Substances and the receipt of proceeds of sale therefrom will be
as
trustee for the Royalty Owner.
|
|
B.
|
The
Royalty Owner may, on a minimum of 60 days’ notice to the Royalty Payor,
revoke the agency established in Subclause 2.03A and elect to take
delivery and separately dispose of the Petroleum Substances comprising
the
Overriding Royalty at the Royalty Determination Point. This right
may be
exercised separately for each type of Petroleum Substance, effective
at
the 1st day of the calendar month next following that minimum 60
day
period. The Royalty Owner will supply the Royalty Payor with such
information regarding the Royalty Owners arrangements for disposition
of
those Petroleum Substances as the Royalty Payor may reasonably require
to
coordinate custody transfer and shipping arrangements for those Petroleum
Substances. Failure to provide the Royalty Payor with that information
will be deemed to be a failure by the Royalty Owner to take those
Petroleum Substances in kind.
|
|
C.
|
If
the Royalty Owner takes in kind its Overriding Royalty share of crude
oil
or liquid products extracted from natural gas at the wellhead, the
Royalty
Payor will, at the Royalty Payor’s cost, remove basic sediment and water
from those Petroleum Substances in accordance with good oilfield
practice,
so that relevant pipeline specifications can be met. The Royalty
Payor
will provide the Royalty Owner, at the Royalty Payor’s cost, production
tankage capacity for an accumulation of the Overriding Royalty share
of
those Petroleum Substances consistent with the Royalty Payor’s shipping
schedule for its own share of those Petroleum Substances. Subject
to
Subclause 2.04C, the Royalty Payor will deliver the Overriding Royalty
share of those Petroleum Substances to the Royalty Owner, or the
Royalty
Owner’s nominee, at the Royalty Determination Point, in accordance with
usual and customary pipeline and shipping practice, free and clear
of all
charges. If the Royalty Owner takes its Overriding Royalty share
of
natural gas in kind, the Royalty Payor will deliver that gas to the
Royalty Owner, or the Royalty Owner’s nominee, at the Royalty
Determination Point for the relevant well at the Royalty Payor s
cost.
|
|
D.
|
Except
to the extent otherwise agreed by the Royalty Payor and the Royalty
Owner,
insofar as the Royalty Payor takes possession of Petroleum Substances
comprising the Overriding Royalty as agent of the Royalty Owner,
the
Royalty Payor will dispose of those Petroleum Substances
by:
|
|
(b)
|
purchasing
those Petroleum Substances for the Royalty Payors own account (or
the
account of an Affiliate) at a Market Price and accounting to the
Royalty
Owner therefor.
|
| (a) | selling those Petroleum Substances at a Market Price and accounting to the Royalty Owner for the proceeds of the sale; or |
|
E.
|
Insofar
as the Royalty Owner has elected to revoke the agency established
by
Subclause 2.03A, the Royalty Owner may re-establish that agency on
a
minimum of 60 days’ notice to the Royalty Payor, effective as of the 1st
day of the calendar month next following that minimum 60 day period.
This
right may be exercised separately for each type of Petroleum
Substance.
|
|
2.04
|
Royalty
Payor’s Allowed Deductions If Overriding Royalty Not Taken In
Kind
|
|
A.
|
To
the extent that the Royalty Payor disposes of Petroleum Substances
comprising the Overriding Royalty on behalf of the Royalty Owner,
the
Royalty Owner’s share of those Petroleum Substances will be free of any
deductions for costs and expenses incurred by the Royalty Payor to
and
including the Royalty Determination Point. Subject to Subclause 2.04C,
the
Royalty Owner will be responsible, on a well by well basis, for the
following costs and expenses incurred after the Royalty Determination
Point with respect to the Royalty Owner’s share of those Petroleum
Substances:
|
|
(a)
|
for
crude oil and liquid products extracted from natural gas at the wellhead,
any associated Facility Fees and any transportation costs to transport
those Petroleum Substances from the Royalty Determination Point to
the
point of sale; and
|
|
(b)
|
for
Petroleum Substances other than those described in the preceding
Paragraph, the associated Facility Fees if Alternate 2.01A(b)(1)
applies.
|
A
cost or
expense attributable to more than one Petroleum Substance being sold by the
Royalty Payor may only be deducted once.
|
B.
|
The
deductions applicable pursuant to the preceding Subclause will be
subject
to Alternate
2
|
Alternate
1:
The
deductions must not exceed those permitted by the Regulations for the
calculation of royalties if the lessor under the relevant Title Documents were
the Crown in right of the Province in which the Royalty Lands are
located.
Alternate
2:
The
deductions must not be greater than 40.00
%
of
the Market Price received by the Royalty Payor from the sale of the Royalty
Owner’s Overriding Royalty share of those Petroleum Substances, provided that
the Market Price will first be adjusted for any deductions under Subclause
2.04C.
|
C.
|
Notwithstanding
any other provision of this Article, if the Royalty Payor is required
to
incur costs to enrich the Overriding Royalty share of Petroleum Substances
to increase the heating value or to facilitate transportation or
marketing
of those Petroleum Substances, those costs will be deductible by
the
Royalty Payor against the gross proceeds of sale applicable to those
enriched Petroleum Substances, with the intention that neither the
Royalty
Payor nor the Royalty Owner suffer a loss as a result of that enrichment.
Enrichment operations, include, without limitation, condensate blending
in
the case of heavy oil and enrichment by propane or butane in the
case of
gas with a low heating value.
|
|
D.
|
The
Royalty Payor’s right to make the deductions set forth in this Clause
pertains to the costs and expenses that would otherwise be incurred
by the
Royalty Owner to bring those Petroleum Substances to the point of
sale if
the Royalty Owner were taking those Petroleum Substances in kind.
The
allowable deductions from the proceeds of sale of the Royalty Owner’s
Overriding Royalty share of Petroleum Substances are expressed as
cash
obligations for convenience of record keeping and audit, and are
not to be
construed as altering the nature of the Overriding Royalty as an
interest
in land.
|
|
2.05
|
Royalty
Payor To Account To Royalty Owner
Monthly
|
If
the
Royalty Payor receives funds on account of or as the proceeds of sale of the
production of Petroleum Substances comprising the Overriding Royalty, the
Royalty Payor will receive the Royalty Owner’s share of those funds as trustee
for the Royalty Owner. The Royalty Payor must remit to the Royalty Owner all
funds accruing to the Royalty Owner on account of the Overriding Royalty on
or
before the 25th day
of
the calendar month next following the calendar month in which those funds were
received by the Royalty Payor, provided that for the purpose of the timing
of
receipt of proceeds in this Clause “received” will be read as “normally
received” if the purchaser of those Petroleum Substances fails to pay the
Royalty Payor for that production. The Royalty Payor must provide the Royalty
Owner with a statement in written or electronic format showing in reasonable
detail the manner in which the Royalty Payor calculated that payment, including
the unit sale price for those Petroleum Substances, and, if requested by the
Royalty Owner, a copy of all reports the Royalty Payor is required to submit
under the Regulations for the production of those Petroleum
Substances.
|
2.06
|
Royalty
Owner’s Lien
|
As
of the
effective date that the Overriding Royalty is created, the Royalty Owner
will
have a first and prior lien on the Royalty Payor’ s Working Interest in the
Royalty Lands, the Petroleum Substances within, upon or under the Royalty
Lands,
or produced therefrom, and the xxxxx and other equipment thereon to secure
the
Overriding Royalty. The Overriding Royalty and that lien are interests in
land
that attach to the Title Documents.
|
2.07
|
Royalty
Xxxxx To Be Produced
Equitably
|
The
Royalty Payor will not discriminate against the Petroleum Substances produced
or
producible from the Royalty Lands in the production and marketing of those
Petroleum Substances because those Petroleum Substances are subject to the
Overriding Royalty. The Royalty Payor will use reasonable efforts to produce
Petroleum Substances from a Royalty Well equitably with production from any
diagonally or laterally offsetting well producing from the same pool as a
Royalty Well, insofar as the Royalty Payor, or its Affiliate, has an interest
in
that offsetting well.
|
2.08
|
Royalty
Owner’s Rights Upon
Surrender
|
This
optional Clause 2.08 will
not apply
herein.
If
there
are multiple Royalty Payor Parties and a Royalty Payor Party proposes to
surrender all or a portion of the Royalty Lands to the grantor of the Title
Documents, that Royalty Payor Party will comply with the applicable provisions
of any agreement otherwise governing the Royalty Payors. To the extent those
Royalty Lands are thereafter proposed for surrender or there is only one Royalty
Payor, Article XI of the standard form 1990 CAPL Operating Procedure will apply
mutatis mutandis between the Royalty Payor and the Royalty Owner, except that
the notice and reply periods in Clause 1101 therein are reduced from 60 and
30
days to 20 and 10 days respectively.
|
2.09
|
Audits
Of Overriding Royalty
|
|
A.
|
The
Royalty Owner may, upon reasonable notice to the Royalty Payor and
at the
Royalty Owner’s own expense, audit the books, records and accounts of the
Royalty Payor with respect to the production, disposition or sale
of the
Overriding Royalty within 24 months next following the end of the
applicable calendar year. The Royalty Owner will conduct any such
audit in
accordance with PASC Joint Venture Audit Protocol Bulletin No. 6
(or any
replacement therefor).
|
|
B.
|
Any
statement issued by the Royalty Payor to the Royalty Owner respecting
the
calculation of the Overriding Royalty will be presumed to be true
and
correct 26 months following the end of the calendar year in which
that
statement was issued, unless the Royalty Owner takes written exception
thereto and requests an adjustment pursuant to this Clause within
that 26
month period. If a Party discovers during that period that there
was an
error in the calculation of the Overriding Royalty and can demonstrate
that the error applied both to that period and a prior period, the
Royalty
Payor will make the required adjustment retroactively to either the
inception of that error or such other time as the Parties may agree,
provided that any dispute respecting the proposed retroactive adjustment
will be resolved pursuant to Clause 8.01. Except to the extent required
to
confirm the adjustment proposed by the Royalty Payor, the retroactive
adjustment contemplated by the previous sentence will not extend
the
Royalty Owners audit rights beyond the 24 month limitation provided
for in
Subclause 2.09A.
|
|
3.00
|
WELL
INFORMATION TO ROYALTY
OWNER
|
|
3.01
|
Royalty
Owner’s Notification
|
The
Royalty Payor will supply to the Royalty Owner notice of its intention to drill
a Royalty Well on the Royalty Lands prior to the Spudding of that
well.
|
4.00
|
LIABILITY
AND INDEMNITY
|
|
4.01
|
Royalty
Payor’s Responsibility
|
The
Royalty Payor will:
|
(a)
|
be
liable to the Royalty Owner for all losses, costs, damages and expenses
whatsoever (whether contractual or otherwise) that the Royalty Owner
may
suffer, sustain, pay or incur; and, in
addition
|
|
(b)
|
indemnify
and hold harmless the Royalty Owner and its directors, officers,
agents
and employees against all actions, causes of action, proceedings,
claims,
demands, losses, costs, damages and expenses whatsoever that may
be
brought against or suffered by the Royalty Owner, its directors,
officers,
agents and employees or that they may sustain, pay or
incur;
|
insofar
as they are a direct result of: (i) any act or omission (whether negligent
or
otherwise) of the Royalty Payor with respect to operations or activities
conducted by it or on behalf of it hereunder; (ii) a breach of a provision
herein by the Royalty Payor; or (iii) the wilful or wanton misconduct of the
Royalty Payor, its employees, agents or contractors. However, this obligation
will not apply to the extent that the particular act or omission was done or
omitted to be done in accordance with the Royalty Owner s written instructions
or written concurrence. Costs described in this Clause will include reasonable
legal costs on a solicitor-client basis.
|
4.02
|
Royalty
Owner’s Responsibility
|
The
provisions of the preceding Clause will apply mutatis mutandis to the Royalty
Owners operations, activities and obligations with respect to the Royalty Lands
or the Reserved Formations.
|
5.00
|
ASSIGNMENT
|
|
5.01
|
Incorporation
Of Assignment Procedure
|
The
1993
CAPL Assignment
Procedure is incorporated by reference into the Agreement, and will be deemed
to
apply as if it had been included as a Schedule to the Agreement. Article XXIV
(election 2401A) of the standard form 1990 CAPL Operating Procedure will apply
mutatis mutandis to any disposition of Royalty Lands by either the Royalty
Owner
or the Royalty Payor.
|
6.00
|
DEFAULT |
|
6.01
|
Royalty
Owner’s Default Remedies
|
If
the
Royalty Payor fails to pay the Overriding Royalty or any other amount required
to be paid to the Royalty Owner by the Royalty Payor hereunder, Subclauses
505(b), (c) and (d) of the standard form 1990 CAPL Operating Procedure will
apply mutatis mutandis to that default as if the Royalty Owner is the Operator
and the Royalty Payor the defaulting Party thereunder, except that the reference
in Paragraph 505(b)(vi) of that document to “Subclause (a) of this Clause” will
be amended to read “Clause 2.06”. The rights granted to the Royalty Owner in
this Clause will be in addition to and not in substitution for any other right
or remedy that the Royalty Owner may have under this Agreement.
|
7.00
|
RESERVED
FORMATIONS
|
|
7.01
|
Royalty
Owner’s Access To Reserved
Formations
|
The
Royalty Owner may enter upon the Royalty Lands at any time to drill a well
to
penetrate any Reserved Formations and to produce Petroleum Substances therefrom.
The Royalty Owner will conduct its drilling and any resultant producing
operations with respect to the Reserved Formations in a manner that will
interfere as little as is reasonably possible with drilling or production
operations conducted on the Royalty Lands pursuant to this Agreement. Nothing
in
this Clause, however, permits the Royalty Owner to use a well drilled to the
Reserved Formations for the production or testing of Petroleum Substances from
any zone contained in the Royalty Lands, unless otherwise agreed by the Parties
or permitted under the Agreement.
|
8.00
|
DISPUTE
RESOLUTION
|
|
8.01
|
Disputes
Initially Referred To
Mediation
|
The
Parties will attempt to resolve any dispute arising under this Agreement through
consultation and negotiation in good faith. If those attempts fail, the
applicable Parties will then attempt to resolve that dispute through mediation,
with costs of the mediation being shared equally by those Parties. However,
any
Party to that dispute may terminate the mediation at any time upon reasonable
notice to the other Parties. If a dispute arises under a provision of this
Overriding Royalty Procedure that makes specific reference to this Clause,
a
Party must refer that dispute to arbitration for resolution pursuant to the
provisions of the Arbitration Act of the Province of Alberta, as amended, after
the terminated mediation. Otherwise, a Party may, if it so chooses, resort
to
judicial proceedings to resolve the dispute after the terminated
mediation.
