EXHIBIT 10.4
FARMOUT AGREEMENT DATED DECEMBER 12, 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
December 12, 2006
1286664 ALBERTA LTD.
00 Xxxxxxx Xxxx X.X.,
Xxxxxxx, Xxxxxxx X0X 0X0
ATTENTION: XXXXXXX XXXXXXX
RE: FARMOUT AGREEMENT
SECTIONS 25-36 XXX 00 XXX 0 X0X
XXXXXXXX 0-0 XXX 00 XXX 0 X0X
OIL SANDS BELOW THE TOP OF THE VIKING FM TO BASE WOODBEND GRP
(COLLECTIVELY "THE FARMOUT LANDS")
FIREBAG, ALBERTA
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BOUNTY FILES: AM- 227-001 & AM-227-002
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 1286664
Alberta Ltd. ("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 10 metres into the
Devonian, whichever first occurs;
(c) "Farmee" means 1286664 Alberta Ltd. 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 6 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 $1,000,000 to be paid on or before
December 18, 2006; and
(ii) payment in the amount of $1,000,000 to be made on or before 12:00
noon on December 22, 2006.
(b) The Farmee shall make a further payment of $3,100,000 to the Farmor on or
before January 15, 2007.
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(c) Further, Farmee shall forthwith reimburse the Farmor for all expenditures
made or liabilities incurred to date or in the future in obtaining permits,
approvals, and equipment commitments, engaging in consultations with affective
first nation and metis groups, and in obtaining land, engineering, geological,
geophysical and other services reasonably required to allow the Year 1
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 payments referred to in paragraphs 3(a) and
(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. EVALUATION XXXXX
On or before March 31, 2007 Farmee shall spud a minimum of 8 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 shall, thereupon, grant an extension to the commencement date
which shall be reasonable under the circumstances.
5. YEAR 1 SEISMIC PROGRAM
(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 $1,200,000 but not to
exceed $1,500,000, over the Farmout Lands ("the Year 1 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 Year 1 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.
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c) The trading rights and ownership of the Year 1 Seismic Program shall be
shared as follows:
Farmor-25%
Farmee-75%.
6. OPTION-CASH, YEAR 2 EXPLORATION XXXXX AND YEAR 2 SEISMIC PROGRAM
The Farmee has the option to earn an additional undivided Working Interest, as
specified in sub-paragraph 7(c) below, in the Farmout Lands, to be exercised by
notice on or before April 1, 2007, and to be performed by:
a) paying to Farmor the additional sum of $2,500,000 on or before April 1,
2007;
b) on or before April 1, 2008 spudding a minimum of 4 more Evaluation Xxxxx
(collectively "the Year 2 Evaluation Xxxxx" and individually an "Evaluation
Well") at mutually agreeable locations on the Farmout Lands and then diligently
and continuously drilling the Evaluation Xxxxx to Contract Depth and coring 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
shall, thereupon, grant an extension to the commencement date which shall be
reasonable under the circumstances.
c) (i) on or before March 31, 2008 at its sole cost, shooting and completing
a
2D seismic program, at a minimum of cost of $550,000 but not to
exceed $650,000, over the Farmout Lands ("the Year 2 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.
(ii) Upon completion of the Year 2 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.
(iii) The trading rights and ownership of the Year 2 Seismic Program shall
be shared as follows:
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Farmor-25%
Farmee-75%.
7. EARNING
a) Upon making all of the cash payments, as described in paragraphs 3 hereof,
the Farmee shall earn a 25% UNDIVIDED WORKING INTEREST in the Farmout Lands.
b) Upon previously earning the said 25% 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 Year 1
Seismic Program, the Farmee shall earn a further 25% UNDIVIDED WORKING INTEREST
(50% undivided Working Interest aggregate) in the Farmout Lands.
c) Upon making the cash payment described in sub-paragraph 6(a) hereof and
upon completion of its obligations regarding the Year 2 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 Year 2 Seismic
Program, all as provided in paragraph 6 hereof, the Farmee shall earn a further
25% UNDIVIDED WORKING INTEREST (75% undivided Working Interest aggregate after
Farmee has earned under sub-clauses 8(a), (b) and (c) hereof) in the Farmout
Lands.
d) 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. AREA OF MUTUAL INTEREST
(a) It is agreed that Farmor shall bid on and purchase in its own name all
Mutual Interest Lands which are acquired within 6 months of the completion of
the Year 1 Drilling Program. Farmee can earn a 75% Working Interest in these
Mutual Interest Lands by reimbursing Bounty in full for land acquisition costs
and expenses incurred on relation to these lands.
(b) For all Mutual Interest Lands acquired by the Parties following 6 months
after completion of the Year 1 Drilling Program, subject to Article 8.00 of the
Farmout and Royalty Procedure, 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
5
Interest Lands, in the proportion to which they will own working interests in
the Farmout Lands after the Farmee has fulfilled its obligations hereunder.
(c) 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.
9. 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.
10. 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.
11. 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 Year 1 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 the Year 1 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 Year 1 Exploration Xxxxx or the Year 1 Seismic
Program as a result of the failure of the Farmee to acquire full operatorship
and related responsibilities or as a result of the failure of the Farmee to hire
suitable staff to carry out these responsibilities.
12. OPERATING PROCEDURE
Farmor shall be appointed initial operator under the Operating Procedure on an
interim basis but, as soon as the Farmee has capacity and regulatory and other
conditions make it appropriate in the opinion of the Farmor but no later than
July 1, 2007, operatorship shall be transferred to Farmee. Notwithstanding the
appointment of Farmor as operator on an interim basis, the Farmout and Royalty
Procedure, as amended by this Agreement and in particular paragraphs 3(c) and
6
11 hereof, shall apply to the Farmout Lands until the Farmee has finished
earning therein. The Operating Procedure and Accounting Procedure shall govern
joint operations on the Farmout Lands earned under this Agreement, subject to
Clause 1007 (a) of the Operating Procedure being 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."
13. PUBLIC DISCLOSURE OF FARMOR
Farmee agrees that it shall not issue statements or documents for public
dissemination including but not restricted to press releases, public
announcements, statements to or filings with regulatory bodies, statements to
the media or the like describing the Farmor and its role in the Farmout Lands or
the activities contemplated in or naturally arising from this Agreement without
the advance permission of Farmor.
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 Year 1
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:
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
7
Attention: Xxxx X. Xxxxx
1286664 ALBERTA LTD.
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
2804 LAWS OF JURISDICTION TO APPLY
(e) Time shall be of the essence herein.
(f) All monetary amounts shall be in Canadian dollars unless specified
otherwise.
18. COUNTERPART EXECUTION
This Agreement may be executed in counterpart. All of those executed counterpart
pages when taken together will constitute the Agreement.
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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.
XXXX X. XXXXX
Land Manager
Agreed to this________day of_______________, 2006
1286664 ALBERTA LTD.
Per:
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SCHEDULE "A"
ATTACHED TO AN AGREEMENT DATED EFFECTIVE THE 12TH DAY OF DECEMBER, 2006
BETWEEN BOUNTY DEVELOPMENTS LTD. AND 1286664 ALBERTA LTD.
FARMOUT LANDS TITLE DOCUMENTS ENCUMBRANCES
Sections 00-00 XXX 00 XXX 0 X0X Xxxxxxx Crown Oil Sands Permit No. Crown Lessor Royalty
Oil Sands below the top of the 7006080097
Viking fm to Base Woodbend Grp as 1% N/C XXXX - Xxxxxxx
more specifically set forth in Head Investments Ltd.
Appendix to Lease
Crown Lessor Royalty
Xxxxxxxx 0-0 XXX 00 XXX 0 X0X Xxxxxxx Crown Oil Sands Permit No. 1% N/C XXXX - Xxxxxxx
Oil Xxxxx below the top of the 7006080099 Head Investments Ltd.
Viking fm to Base Woodbend Grp as
more specifically set forth in
Appendix to Lease
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SCHEDULE "B"
ATTACHED TO AN AGREEMENT DATED EFFECTIVE THE 12TH DAY OF DECEMBER, 2006
BETWEEN BOUNTY DEVELOPMENTS LTD. AND 1286664 ALBERTA LTD.
1997 CAPL FARMOUT & ROYALTY PROCEDURE ELECTIONS AND AMENDMENTS
SUBCLAUSE 1.01 (F) - Effective Date- December 12, 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 12TH DAY OF DECEMBER, 2006
BETWEEN BOUNTY DEVELOPMENTS LTD. AND 1286664 ALBERTA LTD.
BOUNTY DEVELOPMENTS LTD.
0000, 000 - 00 Xxx. X.X.
Xxxxxxx, XX
X0X 0X0
--------------------------------------------------------------------------------
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 12TH DAY OF DECEMBER, 2006
BETWEEN BOUNTY DEVELOPMENTS LTD. AND 1286664 ALBERTA LTD.
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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SCHEDULE "E"
ATTACHED TO AN AGREEMENT DATED EFFECTIVE THE 12TH DAY OF DECEMBER, 2006
BETWEEN BOUNTY DEVELOPMENTS LTD. AND 1286664 ALBERTA LTD.
[note: the remainder of this page is intentionally left blank and a copy
of the referenced XXXX is attached immediately hereafter]
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