Quest Oil Corporation
Quest
Oil Corporation
1650
- 0000 Xxxx Xxxxxxx Xxxxxx, Xxxxxxxxx XX X0X 0X0
November
22, 0000
XXXXXX
XXXXXXXXX
Xxxxx
Xxxx Xxxxxxxx
Section
15, Township 61, Range 00, Xxxx xx xxx 0xx
Xxxxxxxx
Xxxxxxx,
Xxxxxx
Premium
Petroleum Inc.
0000
Xxxxxx Xxxxxx Xxxxxx
Xxxxxxxxx
XX X0X 0X0
Attention:
Xxxxx
X. Xxxxxxx, X.X.Xx., President & CEO
Dear Xx.
Xxxxxxx:
This
letter is to set out the terms and conditions under which Quest Oil Corporation
(“Farmee”) is prepared to Farmin to the Farmout Lands held by Premium
Petroleum Inc.
(“Farmor”):
1. Definitions
|
Each
capitalized term used in this Agreement shall have the meaning given to it
in the Farm-out and Royalty Procedure and, in addition, the following
terms shall have the following meanings: |
|
a) |
“Contract
Depth” means a depth sufficient to penetrate 15 metres into the Upper
Manville Clearwater Group or approximately 600 metres subsurface,
whichever is shallower. |
|
b) |
“Farmout
Lands” mean the lands set out and described in Schedule “A” hereto insofar
as the right thereto is granted by the Title
Documents. |
|
c) |
“Test
Well” mean the well drilled by the Farmee to earn an interest in the
Farmout Lands as more particularly described in Clause 3
herein. |
2. Schedules
The
following Schedules are attached hereto and made part of this
Agreement:
a) Schedule
“A” which describes the Title Documents and Farmout Lands.
b) Schedule
“B” which is the Farmout and Royalty Procedure.
3. Test
Well
|
a) |
On
or before January 31, 2005, or such later date as mutuaaly agreed by the
parties, the Farmor shall spud and shall release the rig from one (1) Test
Well on a location of its choice within the section of Farmout Lands
(Section 6, Twp, 10, Rge. 13W4) in accordance with Article 3.00 of the
Farmout and Royalty Procedure. |
|
b) |
Subject
to Article 3.00 of the Farmout and Royalty Procedure the Farmee shall earn
the following in the Farmout Lands: 50% of the Farmor’s 100% Working
Interest in the Test Well and the spacing unit in which the test well is
drilled, from surface to the depth drilled subject to the Overriding
Royalty Interest in Item 5 and in Articles 5.00 and 6.00 of the Farmout
and Royalty Procedure. |
4. Area
of Mutual Interest
|
An
area of mutual interest (“AMI”) shall be designated to be a 5 mile radius
around the Farmout Lands. If after drilling the test well, the Farmor
purchases additional land in the AMI, the Farmee shall have the right to
participate in additional xxxxx up to a 30% working interest on a heads up
basis. |
|
5. |
Farmor’s
Earned Interest |
|
Upon
drilling the Test Well to contract depth the Farmor will earn a
convertible
Gross Overriding Royalty of
1/150 (5%-15%) on Oil and 10% on Natural Gas, as defined in the Canadian
Association of Petroleum Landmen Operating Procedure (1997) [“CAPL”], a
copy of the section relating to this definition is hereby attached. This
Gross Overriding Royalty Interest applies only to the Test Well and its
spacing unit. After pay-out of all costs associated with the drilling and
completion of the Test Well, the Farmor may elect to convert its
overriding royalty interest to 40% of the Farmee’s 50% working interest
which is equal to a 20% working interest in the test well, resulting in
the Farmee having an ongoing 30% working
interest. |
|
6. |
Operating
Procedure |
|
The
Farmee will designate the initial Operator and set the terms of the
operating procedure according to the 1990 Canadian Association of
Petroleum Landmen “CAPL” operating procedure. Operations at all times
shall be in accordance with the “CAPL”. |
|
7. |
Assignment |
|
The
Farmee reserves the right to assign this Farmin Agreement to a third party
without the consent of the Farmor. |
8. Counterpart
Execution
|
This
Agreement may be executed in counterpart and all counterpart execution
pages together will constitute the
Agreement. |
|
9. |
Funding
Requirements |
|
The
Drill and Abandon (D&A) cost is estimated to be $210,000, which
includes a prospect fee for land, geological, and engineering work to
date. The completion costs including casing and fracture stimulation is
estimated to be $160,000. The equipping and tie-in costs have yet to be
determined. The Farmee’s share of these costs will be 50% through
completion and heads up or 30% of the costs of tie-in and equipping. The
Farmee will approve the final Authorization for Expenditures (AFE) for
each phase of the drilling, i.e. D&A, completion, and equipping and
tie-in. The Farmee will pay non a refundable deposit of $25,000 upon
signing this agreement to the Farmor’s lawyer, the Calgary firm of Xxxxxxx
Xxxxx - in trust, c/o Xxxx Xxxxx. These funds will be applied to the
Farmee’s working interest share to be utilized in the D&A drilling
phase. The Farmee’s balance of funds for D&A (i.e.: $210,000 x 50% -
$25,000 = $80,000) will be placed in trust on or before December 15, 2004;
and the balance of funding as called for by the AFE’s; on or before
January 15, 2005, or as mutually agreed by both parties.
|
If this
is your understanding of the terms and conditions agreed upon, please sign and
return three (3) counterpart execution pages for distribution to the
Parties.
Yours
truly,
Quest
Oil Corporation
Xxxxxxxx
Xxxxxxxx
President
& CEO
AGREED TO
AND ACKNOWLEDGED this ______ day of ______________________, 2004.
_____________________________
Xxxxx
X. Xxxxxxx, X.X.Xx.
President
& CEO
Premium
Petroleum Inc.
SCHEDULE
“A”
Attached
to and made part of the Farmin Agreement dated November 18, 2004 between Premium
Petroleum Inc. and Quest Oil
Corporation.
.
Boyne
Lake Prospect:
|
Description
|
Working
Interest
|
Encumbrances
|
|
Section
15, Township 61, Range 00, Xxxx xx xxx 0xx
Xxxxxxxx,
Xxxxxxx,
Xxxxxx |
80% |
Crown
plus
GOR
= 6% |
created
on 03/21/05 8:38
AM page
of
5
SCHEDULE
“B”
Attached
to and forming part of an Agreement dated November 18, 2004
between
Premium Petroleum Inc. as Farmor and Quest Oil Corporation as
Farmee
Boyne
Lake Prospect
Canadian
Association of Petroleum Landmen (1990) - “CAPL”
Farmout
& Royalty Procedure Elections and Amendments
1. Effective
date (Subclause 1.01 (f)) - November 18, 2004
2. Payout
(Subclause 1.01(t), if Article 6.00 applies) Alternate
A __x___ n/a
Alternate
B _____ n/a
Alternate
B options, if applicable - n/a
m3 of
Equivalent Production and n/a
years
3. Article
4.00 (Option Well) will x
/will not
_____ apply
4. Article
5.00 (Overriding Royalty) will x
/will not
_____ apply
5.01 A
(a) Alternate 1: 10% Natural Gas (b) Alternate 1: 1/150 (5%-15%)
Oil
5. Article
6.00 (Conversion of Overriding Royalty) will x
/will not
_____ apply
6. Article
7.00 (A.M.I.) will /will not
__x
apply
7. Articles
11.02 (Reimbursement of Land Maintenance Costs) will /will
not x
apply
