Common use of Initial Well Clause in Contracts

Initial Well. On or before May 31st, 2006, or such other mutually agreed date, the Farmee shall participate in the drilling of a minimum of one well (the “Initial Well”) substantially on the terms set out in the Operating Agreement. The Farmee shall have the option but not the obligation to earn up to a 25% Working Interest (WI) in the Initial Well by paying up to 33.33% of all costs and expenses incurred for the joint account under the Operating Agreement respecting the drilling and completion of said Well to its objective depth. Star shall provide notice to the Farmee of the drilling of the Initial Well together with the Authority for Expenditure as described below therefore required at least 15 days prior to the anticipated spud date of the Well, and the Farmee shall have 7 days from receipt of such notice to elect by notice in writing to Star to participate in that Well. Failure to respond within such 7-day period shall be deemed an election by the Farmee not to participate. If the Farmee elects or is deemed to elect not to participate in a Well the Farmee shall maintain their right to participate in any Well proposed thereafter. Once the Initial Well has been drilled to its objective depth the Farmee shall have the right to elect, upon receiving all information available in respect of the Initial Well, to participate in the setting of production casing for and completion of the Initial Well as described in the Authority for Expenditure. If the Farmee elects not to participate in the proposed casing and completion of the Initial Well and such operation is carried out, the Farmee shall be subject to those penalties applicable pursuant to the Operating Agreement. If all parties with an interest in the Initial Well elect to abandon it, the Farmee shall pay its WI share of all costs associated with the plugging and abandoning the Initial Well.

Initial Well. On or before May 31stWithin 120 days of delivery of the final processed/inverted Data from the 3-D Survey, 2006, or such other mutually agreed date, the Farmee Buyer shall elect either: (i) to participate in the drilling of a minimum of one well (the “Initial Well”) substantially on the terms set out in the Operating Agreement. The Farmee shall have the option but not the obligation to earn up to a 25% Working Interest (WI) in the Initial Well by paying up to 33.33% of all costs and expenses incurred for the joint account under the Operating Agreement respecting the drilling and completion of said Well to its objective depth. Star shall provide notice and pay, to the Farmee extent of the drilling Buyer Promoted Interest, the actual costs of the Initial Well together through completion but not equipping for production, the location and drilling objectives thereof which shall be selected at the discretion of Buyer in consultation with Seller; however the Authority disproportionate cost payment shall have a cap of 110% of the agreed AFE costs for Expenditure as described below therefore required the Initial Well (the “Cap”), and Buyer shall only be responsible for the Buyer Working Interest share of any costs in excess of the Cap and Seller shall be responsible for the Seller Working Interest share of any costs in excess of the Cap; or (ii) not to drill the Initial Well in which case Buyer shall retain a Six and Two-Thirds Percent (6 2/3%) Working Interest in the AMI (“Buyer New Interest”), in consideration for paying the Buyer Promoted Interest share of the costs for the 3-D Survey, and reassign a Seven and One-Twelfth Percent (7 1/12%) Working Interest in the AMI to Seller from the Buyer Working Interest. In such event, the Parties shall agree on an initial prospect area, which will include potentially productive acreage in and around the Initial Well location and Buyer will retain 6 2/3% in such initial prospect area. Seller may farm-out or otherwise dispose of the reassigned interest to third parties at its discretion. If Seller farms out at least 15 days prior to a 42.5% working interest in the anticipated spud date of the Initial Well, and the Farmee then Buyer shall have 7 days from receipt of such notice to elect by notice in writing to Star agree either to participate in that Well. Failure to respond within such 7-day period shall be deemed an election by the Farmee not to participate. If the Farmee elects or is deemed to elect not to participate in a Well the Farmee shall maintain their right to participate in any Well proposed thereafter. Once the Initial Well has been drilled to its objective depth the Farmee shall have the right to elect, upon receiving all information available in respect drilling of the Initial Well, to the extent of the Buyer New Interest, or farm out under the same terms that Seller negotiates with a third party or parties. If Buyer participates to the extent of the Buyer New Interest, such participation shall be governed by the terms of the Operating Agreement. If Buyer makes an election pursuant to (i) above to participate in the setting of production casing for drilling and completion of the Initial Well as described in to the Authority extent of the Buyer Promoted Interest share of the costs thereof, then Seller shall provide Buyer an invoice (or cash call) for Expenditure. If Buyer’s share of the Farmee elects not to participate in the proposed casing and completion costs of the Initial Well in the estimated amount of the expense to be incurred during the next succeeding month. Buyer shall fund such invoice (or cash call) within fifteen (15) days upon receipt thereof. During the conduct of operations of the Initial Well, Seller shall timely provide Buyer, via email, copies of all daily drilling reports, logs, tests results, and such operation is carried out, the Farmee shall be subject to those penalties applicable pursuant all other information obtained in drilling and/or completion operations. The term “completing” or “completion” with respect to the Operating AgreementInitial Well shall mean making the well ready for production, i.e., preparing the bottom of the hole to required specifications, running in the production tubing and its associated down hole tools as well as perforating and stimulating as required, but not equipping the Initial Well for production. Buyer, in its sole discretion, shall determine whether the Initial Well is capable of commercial production and therefore whether to attempt a completion. If all parties the Initial Well, in Buyer’s reasonable opinion, is not capable of producing hydrocarbons in commercial quantities, then Buyer shall provide written notice to Seller of its intent to plug and abandon the same, on receipt of which Seller shall each have the right to take over the Initial Well. Seller, within 24 hours of their receipt of Buyer’s written notice to plug and abandon the Initial Well, shall provide written notice to Buyer if it elects to take over the Initial Well. If Seller elects to take over the Initial Well, Buyer agrees to work in good faith with an interest Seller to transfer the ownership of Buyer in the Initial Well elect to abandon itSeller, such transfer to include assignment of appropriate leasehold acreage (per terms of the Farmee shall pay its WI share relevant Lease(s)), wellbore, related equipment, and appropriate access rights to the drill site. The sole consideration to be paid to Buyer for the complete transfer and assignment of all costs associated with the plugging and abandoning the Initial Well., leasehold, wellbore, related equipment, and access rights, is Seller’s full assumption of responsibility and liability for plugging and abandonment of the Initial Well, and proper restoration of the surface relating thereto, and to release and indemnify Buyer from and against any and all claims relating to the Initial Well. Upon finalization of all matters required to properly transfer the Initial Well as contemplated pursuant to the foregoing, the Initial Well and all other interests so transferred in connection therewith, shall no longer be subject to this Agreement or the Operating Agreement