Agreement
Between
CANADA SOUTHERN PETROLEUM LTD.
and
MAGELLAN PETROLEUM CORPORATION
and
OIL INVESTMENTS, INC.
and
HOME OIL COMPANY LIMITED
and
▇▇▇▇ COUNTY LAND COMPANY
and
ALMINEX LIMITED
and
UNITED OILS, LIMITED
and
SIGNAL OIL AND GAS COMPANY
Dated as of May 28, 1959
TABLE OF CONTENTS
Agreement dated as of May 28, 1959.
Article Page
Definitions............................................. I 2
Assignment.............................................. II 2
Payment and Exploratory Program......................... III 3
Option.................................................. IV 5
Division of Lands....................................... V 6
Information to be Delivered to Home..................... VI 7
Incorporation of Operating Procedure.................... VII 7
SCHEDULE "A"-Description of Lands....................... 9
Clause Page
SCHEDULE "B"-Operating Procedure:
Definitions.................................... A 21
Status of Manager Operator..................... B 23
Change of Manager Operator..................... C 23
Meetings....................................... D 24
Budget......................................... E 24
Duties of the Manager Operator................. F 25
Rights of Joint Operators...................... G 26
Competitive Operating Basis.................... H 27
Insurance...................................... I 27
Advances....................................... J 28
Lien........................................... K 28
Division of Production......................... L 29
Obligatory Operations.......................... M 30
Independent Operations......................... N 30
Selection of Leases............................ O 32
Surrender...................................... P 32
Clause Page
Assignment..................................... Q 33
Assignments Among Parties...................... R 33
Relationship of Parties........................ S 33
Liability of Manager Operator.................. T 34
Force Majeure.................................. U 34
Waiver......................................... V 35
Conflict with Laws............................. W 35
Notices........................................ X 35
Further Assurances............................. Y 36
Entire Agreement............................... Z 36
Division of Expenses........................... AA 36
Term........................................... BB 37
Interpretation................................. CC 37
SCHEDULE "C"-Accounting Procedure....................... 38
THIS AGREEMENT made as of this Twenty-eighth day of May, A. D. 1959.
Between:
CANADA SOUTHERN PETROLEUM LTD., a corporation incorporated under the laws
of Canada (hereinafter referred to as "Canada Southern")
and
MAGELLAN PETROLEUM CORPORATION, a Panama Corporation (hereinafter referred
to as "Magellan")
and
OIL INVESTMENTS, INC., a Panama corporation (hereinafter referred to as
"Oil Investments")
(which aforesaid three corporations are hereinafter collectively
referred to as "C-M-O" and individually as a member of the C-M-O group)
and
HOME OIL COMPANY LIMITED, a corporation incorporated under the laws of
Canada, (hereinafter referred to as "Home")
and
▇▇▇▇ COUNTY LAND COMPANY, a company incorporated under the laws of
California (hereinafter referred to as "▇▇▇▇")
and
ALMINEX LIMITED, a company incorporated under the laws of Canada
(hereinafter referred to as "Alminex")
and
UNITED OILS, LIMITED, a corporation incorporated under the laws of Canada
(hereinafter referred to as "United")
and
SIGNAL OIL AND GAS COMPANY, a company incorporated under the laws of
Delaware (hereinafter referred to as "Signal")
(the said Home, ▇▇▇▇ County, Alminex, United and Signal being
hereinafter collectively referred to as "H-S" and individually as a
member of the H-S group)
WHEREAS C-M-O own jointly certain oil and gas permits in the Northwest
Territories and the Yukon Territory, Canada, described in Schedule "A" hereto;
and
WHEREAS H-S and C-M-O are desirous that H-S acquire one-half of C-M-O`s
ownership in certain areas covered by those permits.
Now THEREFORE IN CONSIDERATION of the mutual covenants and agreements
hereinafter set forth, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings, unless the context otherwise requires:
1.1 "Properties" shall mean the lands described in Schedule "A" hereto
other than the optioned lands.
1.2 "Execution of this Agreement" shall mean the date when it has been
signed by all the parties thereto.
1.3 "First Drilling Season" shall mean the winter season of 1959-1960.
1.4 "Known producing horizons" shall mean all known producing horizons
down to and including the Devonian.
1.5 "North Petitot" shall mean the known seismic structure which has
been heretofore mapped by Canada Southern and submitted to H-S under
all or portions of Permits Numbers 1136, 1137, 2301, 2713, 2302,
1134, 1154, 1153 and 1152.
1.6 "Discovery well" shall mean a well which establishes production in a
new reservoir.
1.7 "Exploratory well" shall mean an exploratory well as defined in the
Operating Procedure.
1.8 "Delineation or development ▇▇▇▇▇" shall mean any and all ▇▇▇▇▇
(whether dry or not) which are not discovery ▇▇▇▇▇.
1.9 "Net acre acquirable" shall mean one-half the amount of acreage
which may be securable in gas license or oil and/or gas lease form
from the Dominion Government, recognizing that the Owners of the
North halves of Permits Numbers 1137 and 2301 are entitled to
one-half of the total acreage acquirable under the said Permits in
the absence of agreement to the contrary.
1.10 "Dollars" shall mean Canadian Dollars.
ARTICLE II
2.1 C-M-O hereby transfers, assigns and vests in the members of the H-S
group the undivided interests set out hereunder in and to the oil and gas
permits described in Schedule "A" except for the South one-half of Permits
Numbers 1137 and 2301 comprising 31,966 acres, and subject to the payment of
Fifty (50%) percent of the royalties described in Schedule "A".
To Home........................................ 12 1/2%
To ▇▇▇▇........................................ 5%
To Alminex..................................... 5%
To United...................................... 2 1/2%
To Signal...................................... 25%
2.2 Home shall thereafter become the Manager Operator of the properties in
accordance with the terms of the Operating Procedure hereto attached and marked
as Schedule "B" except as hereinafter otherwise provided.
2.3 C-M-O agree they will deliver to Messrs. Gowling, MacTavish, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇ registrable transfers of the said Permits in form sufficient to enable
Messrs. Gowling, MacTavish, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ to have such Permits registered
with the Chief of the Mining and Lands Division of the Northern Administration
and Lands Branch of the Department of Northern Affairs and Natural Resources,
Ottawa, Canada, in the following undivided interests:
Canada Southern................................. 50%
Signal.......................................... 25%
Home............................................ 20%
▇▇▇▇ County..................................... 5%
it being understood that Canada Southern shall hold the interests of Magellan
and Oil Investments in trust and that Home shall hold the interests of Alminex
and United in trust.
2.4 The parties hereto agree that the monies to be paid pursuant to
Article 3.1(A) (a) shall be paid by certified cheques delivered to Messrs.
Gowling, MacTavish, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇, to
be held by Messrs. Gowling, MacTavish, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ until such time as
the said Permits with the assignments thereof had been delivered to the said
Chief and registered in the said Department and thereupon the said cheques shall
be delivered to C-M-O.
2.5 C-M-O hereby agree that the said Permits are in good standing, that
they have good title to the said Permits and good right, full power and absolute
authority (except for the consent of the said Chief) to transfer the said
Permits as herein provided, and that the properties are free and clear of any
claims, liens or encumbrances except the royalties described in Schedule "A".
ARTICLE III
3.1 H-S shall pay C-M-O for the interests acquired hereunder the following
considerations:
(A) In cash not chargeable to or recoupable from C-M-O:
(a) Upon the execution of this Agreement, $1,500,000, in
accordance with the provisions of Article 2.4 above.
(b) One year after the execution of this Agreement $666,666.
(c) Two years after the execution of this Agreement $666,667.
(d) Three years after the execution of this Agreement $666,667.
(B) In work not chargeable or recoupable from C-M-O:
(a) H-S shall commence in 1959 a program of exploration on the
properties or on the optioned acreage which shall include the
drilling of a minimum of five exploratory ▇▇▇▇▇, irrespective of
cost, to at least a depth to test the known producing horizons, or
igneous or other impenetrable formations, or a depth of 12,000 feet,
whichever is the least, of which at least one such well shall be
drilled into the Pre Cambrian and one such well shall be located on
the Western block of the properties, consisting of Permits Nos.
1006, 1007, 1132, 1133 and 1135. The first such exploratory well
shall be located on the North Petitot structure and shall be drilled
during the first drilling season and one well may be on the optioned
acreage but such well shall not be in lieu of the well required to
be drilled on the North Petitot structure.
(b) In the event the total cost of the exploratory program
described in (a) above should be less than $3,000,000, then H-S are
obligated to spend the difference between such total cost and
$3,000,000, in exploration and development work on the properties
and costs incidental or ancillary thereto.
(c) The work and expenditures described in (a) and (b) above
shall be completed within five years from the date of the execution
of this Agreement.
(d) H-S will be obligated to reconvey the properties to C-M-O in
the event they should fail to meet the obligations described in this
paragraph (B). Such reconveyance shall not serve in any way to
constitute partial or liquidated damages or to cancel any obligation
undertaken by H-S under the terms of this Agreement.
(C) Subsequent to the completion of both (A) and (B) above, H-S
shall permit C-M-O to enjoy the following preferential position with
respect to further work done on the properties so long as the work is
performed prior to the time when any particular or potential oil or gas
field is producing into a trunk pipe line, or, in the case of oil, prior
to the time oil moves to market in quantities that permit C-M-O to
finance its share of further reasonable development pursuant to normal
commercial banking arrangements.
(1) Should H-S drill, deepen or complete a discovery well in
accordance with the provisions of Clause N of the Operating
Procedure, in the cost of which C-M-O does not participate, the
rights of H-S to recoup therefrom under the terms of Clause N of the
Operating Procedure shall be limited to 300%; that is, H-S may
recoup from C-M-O's interest in such discovery well three times what
would have been C-M-O's cost of participating in the said well.
(2) Should H-S drill, deepen or complete a delineation or
development well in accordance with the provisions of Clause N of
the Operating Procedure, in the cost of which C-M-O does not
participate, the rights of H-S to recoup therefrom under the terms
of Clause N of the Operating Procedure shall be limited to 105%;
that is, H-S may recoup from C-M-O's interest in such delineation or
development well 100% of what would have been C-M-O's cost of
participating in the said well plus 5%.
(D) H-S will assure the earliest feasible development and marketing
of oil and/or gas found on the properties.
ARTICLE IV
4.1 H-S shall have an exclusive option to buy from C-M-O, for the price
and during the period hereinafter stated, an undivided one-half interest in and
to the South one-half of Permits Numbers 1137 and 2301 comprising approximately
31,966 acres, subject to the payment of 50% of the royalty described in Schedule
"A". If, as and when the option is exercised, the optioned acreage will
thereafter become subject to this Agreement as a part of the properties as
defined. No amounts paid, in connection with the option as hereinafter provided,
shall be chargeable to or recoupable from C-M-O.
4.2 The prices at which and periods within which the option may be
exercised are as follows:
Before August 1, 1960, $400. per net acre acquirable;
Before August 1, 1961, $600. per net acre acquirable;
Before August 1, 1962, $800. per net acre acquirable;
Before August 1, 1963, $1,000. per net acre acquirable.
4.3 Payment shall be made upon exercise of the option in accordance with
the then existing law or regulations governing oil and gas permits in the
Northwest Territories. In the event that modification of the law or regulations
subsequent to the exercise of the option permits greater acreage acquirement by
the permittees within the boundary of the optioned acreage then H-S may elect to
purchase a 50% interest in such additional acquirable acreage and additional
payment shall promptly be made accordingly determined by the price pertaining
when the original option was exercised.
4.4 Once payment has been made for acquirable oil and/or gas rights under
any surface acre and if other oil or gas rights are acquirable under the same
surface acre, no additional payment shall be required to be made to C-M-O for
such other rights under such surface acre.
4.5 Prior to the exercise of the option or its expiration C-M-O will give
H-S thirty (30) days' prior written notice of any well to be drilled on the
optioned acreage. H-S may participate 50% with C-M-O in the cost of drilling any
such well or ▇▇▇▇▇ on the optioned acreage. Failure to participate, however,
will serve to terminate the option unless within thirty (30) days H-S agrees to
drill and does thereafter diligently commence and drill a well thereon to the
known producing horizons or to igneous or other impenetrable formations or to a
depth of 12,000 feet, whichever is the least.
4.6 Prior to the exercise of the option or its expiration, H-S may have
access to the area under option and any information in C-M-O's possession
pertaining thereto. H-S may, upon prior written notice, commence and drill an
exploratory test well on the option area at the sole cost and expense of H-S,
none of which shall be chargeable to or recoupable from C-M-O.
4.7 Any well drilled under the provisions of Clauses 4.5 or 4.6 above
shall, after its completion, be operated by the then operator of the optioned
acreage.
4.8 Prior to the expiration of the option described in Article IV, neither
C-M-O nor H-S shall make application for oil and/or gas leases and/or licenses
under any permit which includes any part of the optioned acreage except by
mutual agreement, provided that, if during this period, any rules or regulations
governing oil and gas in the Northwest Territories shall require or render it
advantageous to apply for oil and/or gas leases and/or licenses on any of the
optioned acreage, then C-M-O and H-S shall meet promptly for the purpose of
agreeing upon such application. Consent by H-S to the areas to be covered by
such application with respect to any permit which includes any part of the
optioned acreage shall not be unreasonably withheld.
4.9 Any exploratory well drilled by H-S under this Article IV shall be
considered one of the ▇▇▇▇▇ required to be drilled under Article III and the
cost of any well drilled by H-S whether exploratory or not, and the cost of any
well in which H-S participates on the optioned lands shall be considered part of
the expenditures required to be made under Article 3.1(B) (b).
4.10 Participation in a well or any work done on the optioned lands shall
not be deemed an exercise of the option by H-S.
ARTICLE V
5.1 At any time after a period of five (5) years following the execution
of this Agreement, C-M-O shall have the right to call for a division of all or
any of the areas which have gone to lease or license and which are jointly owned
by H-S and C-M-O and the termination of this Agreement to the extent that it
affects the areas to be subdivided. The subdivision shall in no case affect the
obligation of H-S to assure the earliest feasible marketing of oil or gas found
on the areas jointly owned by H-S and C-M-O, including those which may become
subdivided. The procedure for such division of said area or areas and the
termination of such agreement shall be as follows:
C-M-O shall advise H-S in writing of its desire.
Upon receipt of this notice there shall ensue a period of thirty
(30) days within which the parties shall endeavour by agreement to work
out a division of the area or areas.
If by the expiration of the said thirty (30) days no agreement has
been reached, C-M-O may within fifteen (15) days thereafter prepare and
present to H-S a division into two parts of all areas to be divided and
other assets jointly owned in connection therewith under this Agreement.
Such plan of division shall be in a checkerboard pattern in which the
units shall be a maximum size calculated to avoid forcible unitization if
possible and a minimum of one section except in the case of lands
producing oil the maximum shall be a maximum size calculated to avoid
forcible unitization if possible and a minimum of one-quarter section. H-S
shall have a period of thirty (30) days from receipt of the proposed
division to elect which of the two parts it desires to receive. If H-S
does not make its election within the said thirty (30) days by notice in
writing to C-M-O, the latter shall, within ten (10) days thereafter, elect
which of the two parts it desires and so notify H-S.
5.2 At all times mentioned in this Article existing contracts between the
parties shall remain in full force and effect and normal operations thereunder
shall continue. Thirty (30) days after the final election is made by either
party in accordance with the above established procedure, all existing contracts
shall terminate with respect to the divided properties except as provided in
this Article. All joint operations in respect of the divided properties shall
then cease and all obligations except the liquidation of current accounts of
either party to the other and obligations to third parties shall be at an end
except as provided in this Article but during such final thirty (80) days and
thereafter the parties will individually and together take whatever action is
necessary to conserve the area or areas and assets jointly owned by H-S and
C-M-O and to expedite final transfer of titles and liquidation of any accounts
and other matters pending as of the date of the termination.
ARTICLE VI
6.1 C-M-O shall promptly deliver to Home, C-M-O's files or copies thereof
relating to the areas covered by this Agreement, retaining copies thereof for
C-M-O's own use. C-M-O shall give to Home original or duplicate copies of all
data obtained by C-M-O or available to C-M-O with respect to the geology of the
areas covered by this Agreement and all other information which C-M-O may have
on hand or is presently entitled to acquire with respect to exploration and
development of the areas covered by this Agreement.
ARTICLE VII
INCORPORATION OF OPERATING PROCEDURE
7.1 The parties agree that the provisions contained in the Operating
Procedure attached hereto as Schedule "B" shall apply to the same extent and in
the same manner as though such provisions were contained in this Agreement.
Where there is any conflict between the provisions of this Agreement and the
Operating Procedure or the Accounting Procedure the provisions of this Agreement
shall prevail and in the case of any conflict between the Operating Procedure
and the Accounting Procedure the provisions of the Operating Procedure shall
prevail.
IN WITNESS WHEREOF the parties hereto have executed this Agreement this
Twenty-fourth day of June, 1959.
(SEAL) CANADA SOUTHERN PETROLEUM LTD.
per: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
per: M. A. ▇▇▇▇▇▇▇▇
Vice-President
(SEAL) MAGELLAN PETROLEUM CORPORATION
per: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice-President
per: C. ▇▇▇▇ ▇▇▇▇▇▇▇▇
Assistant Secretary
(SEAL) OIL INVESTMENTS, INC.
per: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice-President
per: C. ▇▇▇▇ ▇▇▇▇▇▇▇▇
Assistant Secretary
(SEAL) HOME OIL COMPANY LTD.
per: ▇▇▇▇ ▇▇▇▇▇
Vice-President
per: ▇. ▇. ▇▇▇▇▇▇▇▇
Assistant Secretary
(SEAL) ▇▇▇▇ COUNTY LAND COMPANY
per: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice-President
per: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Assistant Secretary
(SEAL) ALMINEX LIMITED
per: ▇. ▇. ▇▇▇▇
Vice-President
per: P. H. POWERS
A./Sec. Treas.
(SEAL) UNITED OILS, LIMITED
per: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Director
per: ▇. ▇. ▇▇▇▇▇▇▇▇
Assistant Secretary
(SEAL) SIGNAL OIL AND GAS COMPANY
per: J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Vice-President
per: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Director
SCHEDULE "A"
To an Agreement made as of May 28, 1959, between Canada Southern Petroleum
Ltd., Magellan Petroleum Corporation, Oil Investments, Inc., Home Oil
Company Limited, ▇▇▇▇ County Land Company, Alminex Limited,
United Oils Limited, Signal Oil and Gas Company.
Permit No. Areas Described in Permit Date of Permit
1132 All that certain tract of land in the April 29th, 1957
Mackenzie Mining District, in the Northwest
Territories, containing sixty-three thousand
two hundred and twelve acres, more or less,
said tract being more particularly described
as follows:
Commencing at a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-three
degrees fifteen minutes no seconds; thence
westerly on a right line to a point at
latitude sixty degrees thirty minutes no
seconds and longitude one hundred and
twenty-three degrees thirty minutes no
seconds; thence southerly on a right line to
a point at latitude sixty degrees twenty
minutes no seconds and longitude one hundred
and twenty-three degrees thirty minutes no
seconds; thence easterly on a right line to
a point at latitude sixty degrees twenty
minutes no seconds and longitude one hundred
and twenty-three degrees fifteen minutes no
seconds; thence northerly on a right line to
the point of commencement; said latitudes
and longitudes being as determined by
astronomic means, in situ.
1133 The whole of that parcel in the Mackenzie April 29th, 1957
Mining District, in the Northwest
Territories, said parcel being more
particularly described as follows:
Commencing at a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-three
degrees thirty minutes no seconds; thence
westerly on a right line to a point at
latitude sixty degrees twenty minutes no
seconds and longitude one hundred and
twenty- three degrees forty-five minutes no
seconds; thence southerly on a right line to
a point at latitude sixty degrees ten
minutes no seconds and longitude one hundred
and twenty-three degrees forty-five minutes
no seconds; thence easterly on a right line
to a point at latitude sixty degrees ten
minutes no seconds and longitude one hundred
and twenty-three degrees thirty minutes no
seconds; thence northerly on a right line to
the point of commencement; said latitudes
and longitudes being as determined by
astronomic means, in situ.
Saving and excepting thereout and therefrom
said parcel all that part lying within the
limits of Petroleum and Natural Gas Permit
numbered four hundred and seventy-nine, the
remainder containing fifty-eight thousand
and sixty-eight acres, more or less; also
excepting any part thereof which may be
affected by the rights of other persons
acquired through prior staking.
1134 The south half of that parcel in the Mackenzie April 29th, 1957
Mining District, in the Northwest
Territories, said parcel being more
particularly described as follows:
Commencing at a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-two degrees
fifteen minutes no seconds; thence westerly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-two degrees
thirty minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-two degrees thirty
minutes no seconds; thence easterly on a
right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-two degrees fifteen
minutes no seconds; thence northerly on a
right line to the point of commencement;
said latitudes and longitudes being as
determined by astronomic means, in situ.
Saving and excepting thereout and therefrom
said parcel all that part lying within the
limits of Petroleum and Natural Gas Permit
numbered two hundred and ninety-nine, the
remainder containing twenty-five thousand
two hundred and seventy-nine acres, more or
less; also excepting any part thereof which
may be affected by the rights of other
persons acquired through prior staking.
1135 The whole of that parcel in the Mackenzie April 29th, 1957
Mining District, in the Northwest
Territories said parcel being more
particularly described as follows:
Commencing at a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-three degrees thirty
minutes no seconds; thence westerly on a
right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-three degrees forty-
five minutes no seconds; thence southerly on
a right line to a point at latitude sixty
degrees no minutes no seconds and longitude
one hundred and twenty-three degrees forty-
five minutes no seconds; thence easterly on
a right line to a point at latitude sixty
degrees no minutes no seconds and longitude
one hundred and twenty-three degrees thirty
minutes no seconds; thence northerly on a
right line to the point of commencement;
said latitudes and longitudes being as
determined by astronomic means, in situ.
Saving and excepting thereout and therefrom
said parcel all that part lying within the
limits of Petroleum and Natural Gas Permit
numbered four hundred and seventy-nine, the
remainder containing thirty thousand six
hundred and seventy acres, more or less,
also excepting any part thereof which may be
affected by the rights of other persons
acquired through prior staking.
1136 All that certain tract of land in the April 29th, 1957
Mackenzie Mining District, in the Northwest
Territories containing sixty-three thousand
eight hundred and fifty-four acres, more or
less, said tract being more particularly
described as follows:
Commencing at a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-two degrees thirty
minutes no seconds; thence westerly on a
right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-two degrees forty-
five minutes no seconds; then southerly on a
right line to a point at latitude sixty
degrees no minutes no seconds and longitude
one hundred and twenty-two degrees forty-
five minutes no seconds; thence easterly on
a right line to a point at latitude sixty
degrees no minutes no seconds and longitude
one hundred and twenty-two degrees thirty
minutes no seconds; thence northerly on a
right line to the point of commencement;
said latitudes and longitudes being as
determined by astronomic means, in situ.
1137 The whole of that parcel in the Mackenzie April 29th, 1957
Mining District, in the Northwest
Territories, said parcel being more
particularly described as follows:
Commencing at a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-two degrees fifteen
minutes no seconds; thence westerly on a
right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-two degrees thirty
minutes no seconds; thence southerly on a
right line to a point at latitude sixty
degrees no minutes no seconds and longitude
one hundred and twenty-two degrees thirty
minutes no seconds; thence easterly on a
right line to a point at latitude sixty
degrees no minutes no seconds and longitude
one hundred and twenty-two degrees fifteen
minutes no seconds; thence northerly on a
right line to the point of commencement;
said latitudes and longitudes being as
determined by astronomic means, in situ.
Saving and excepting thereout and therefrom
said parcel all that part lying within the
limits of Petroleum and Natural Gas Permit
numbered two hundred and ninety-nine, the
remainder containing forty-one thousand
seven hundred and seventy-four acres, more
or less; also excepting any part thereof
which may be affected by the rights of other
persons acquired through prior staking.
2301 All that portion of the grid area designated September 18th, 1958
60 degrees 10 minutes, 122 degrees 15
minutes, said portion lying within the
limits of surrendered Petroleum and Natural
Gas Permit numbered two hundred and ninety-
nine, in the Mackenzie Mining District, in
the Northwest Territories, said portion
containing twenty-two thousand and eighty
acres, more or less; saving and excepting
thereout and therefrom any part of said
permit which may be affected by the rights
of other persons acquired through prior
staking.
2302 All that portion of the south half of the grid September 18th, 1958
area designated 60 degrees 20 minutes, 122
degrees 15 minutes, said portion lying
within the limits of surrendered Petroleum
and Natural Gas Permi numbered two hundred
and ninety-nine, in the Mackenzie Mining
District, in the Northwest Territories, said
portion containing six thousand five hundred
and twenty-eight acres, more or less; saving
and excepting thereout and therefrom any
part of said Permit which may be affected by
the rights of other persons acquired through
prior staking.
2713 A rectilinear quadrilateral in the Mackenzie March 9th, 1959
Mining District, in the Northwest
Territories, the whole of the grid area
designated 60 degrees 10 minutes, 122
degrees 00 minutes, containing approximately
63,854 acres for a period of three years
from the date hereof, subject to the
Territorial Oil and Gas Regulations.
1006 All that certain tract of land in the June 14th, 1956
Mackenzie Mining District, in the Northwest
Territories, containing thirty one thousand
eight hundred and seven acres, more or less,
lying to the south of a right line joining
the mid points of the easterly and westerly
limits of the area particularly described as
follows:
Commencing at a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-three
degrees forty-five minutes no seconds thence
westerly on a right line to a point at
latitude sixty degrees twenty minutes no
seconds and longitude one hundred and
twenty-four degrees no minutes no seconds;
thence southerly on a right line to a point
at latitude sixty degrees ten minutes no
seconds and longitude one hundred and
twenty-four degrees no minutes no seconds;
thence easterly on a right line to a point
at latitude sixty degrees ten minutes no
seconds and longitude one hundred and
twenty-three degrees forty-five minutes no
seconds; thence northerly on a right line to
the point of commencement; said latitudes
and longitudes being as determined by
astronomic means, in situ.
1007 All that certain tract of land in the
Whitehorse Mining District, in the June
14th, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and in the
Mackenzie Mining District in the Northwest
Territories containing thirty-one thousand
eight hundred and eighty-eight acres, more
or less, lying to the north of a right line
joining the mid points of the easterly and
westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-four degrees no
minutes no seconds; thence westerly on a
right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-four degrees fifteen
minutes no seconds; thence southerly on a
right line to a point at latitude sixty
degrees no minutes no seconds and longitude
one hundred and twenty-four degrees fifteen
minutes no seconds; thence easterly on a
right line to a point at latitude sixty
degrees no minutes no seconds and longitude
one hundred and twenty-four degrees no
minutes no seconds; thence northerly on a
right line to the point of commencement;
said latitudes and longitudes being as
determined by astronomic means, in situ.
1173 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing thirty-one thousand
five hundred and sixty-six acres, more or
less, lying to the north of a right line
joining the mid points of the easterly and
westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence westerly
on a right line to a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-one degrees
thirty minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
thirty minutes no seconds; thence easterly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence northerly
on a right line to the point of
commencement; said latitudes and longitudes
being as determined by astronomic means, in
situ.
1174 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing thirty-one thousand
five hundred and sixty-six acres, more or
less, lying to the north of a right line
joining the mid points of the easterly and
westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-one degrees
no minutes no seconds; thence westerly on a
right line to a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence easterly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
no minutes no seconds; thence northerly on a
right line to the point of commencement;
said latitudes and longitudes being
determined by astronomic means, in situ.
1175 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing sixty two thousand
eight hundred and ninety acres, more or
less, said tract being more particularly
described as follows:
Commencing at a point at latitude sixty
degrees forty minutes no seconds and
longitude one hundred and twenty-one
degrees fifteen minutes no seconds; thence
westerly on a right line to a point at
latitude sixty degrees forty minutes no
seconds and longitude one hundred and
twenty-one degrees thirty minutes no
seconds; thence southerly on a right line to
a point at latitude sixty degrees thirty
minutes no seconds and longitude one hundred
and twenty-one degrees thirty minutes no
seconds; thence easterly on a right line to
a point at latitude sixty degrees thirty
minutes no seconds and longitude one hundred
and twenty-one degrees fifteen minutes no
seconds; thence northerly on a right line to
the point of commencement; said latitudes
and longitudes being as determined by
astronomic means, in situ.
1176 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing sixty-two thousand
five hundred and sixty-eight acres, more or
less, said tract being more particularly
described as follows:
Commencing at a point at latitude sixty
degrees fifty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence westerly
on a right line to a point at latitude sixty
degrees fifty minutes no seconds and
longitude one hundred and twenty-one degrees
thirty minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees forty minutes no seconds and
longitude one hundred and twenty-one degrees
thirty minutes no seconds; thence easterly
on a right line to a point at latitude sixty
degrees forty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence northerly
on a right line to the point of
commencement; said latitudes and longitudes
being as determined by astronomic means, in
situ.
1177 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing sixty-two thousand
five hundred and sixty-eight acres, more or
less, said tract being more particularly
described as follows:
Commencing at a point at latitude sixty
degrees fifty minutes no seconds and
longitude one hundred and twenty-one degrees
thirty minutes no seconds; thence westerly
on a right line to a point at latitude sixty
degrees fifty minutes no seconds and
longitude one hundred and twenty-one degrees
forty-five minutes no seconds; thence
southerly on a right line to a point at
latitude sixty degrees forty minutes no
seconds and longitude one hundred and
twenty-one degrees forty-five minutes no
seconds; thence easterly on a right line to
a point at latitude sixty degrees forty
minutes no seconds and longitude one hundred
and twenty-one degrees thirty minutes no
seconds; thence northerly on a right line to
the point of commencement; said latitudes
and longitudes being as determined by
astronomic means, in situ.
1178 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing sixty-two thousand
five hundred and sixty-eight acres, more or
less, said tract being more particularly
described as follows:
Commencing at a point at latitude sixty
degrees fifty minutes no seconds and
longitude one hundred and twenty-one degrees
forty-five minutes no seconds; thence
westerly on a right line to a point at
latitude sixty degrees fifty minutes no
seconds and longitude one hundred and
twenty-two degrees no minutes no seconds;
thence southerly on a right line to a point
at latitude sixty degrees forty minutes no
seconds and longitude one hundred and
twenty-two degrees no minutes no seconds;
thence easterly on a right line to a point
at latitude sixty degrees forty-minutes no
seconds and longitude one hundred and
twenty-one degrees forty-five minutes no
seconds; thence northerly on a right line to
the point of commencement; said latitudes
and longitudes being as determined by
astronomic means, in situ.
1179 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing sixty-two thousand
two hundred and forty-four acres, more or
less, said tract being more particularly
described as follows:
Commencing at a point at latitude sixty-one
degrees no minutes no seconds and longitude
one hundred and twenty-one degrees fifteen
minutes no seconds; thence westerly on a
right line to a point at latitude sixty-one
degrees no minutes no seconds and longitude
one hundred and twenty-one degrees thirty
minutes no seconds; thence southerly on a
right line to a point at latitude sixty
degrees fifty minutes no seconds and
longitude one hundred and twenty-one degrees
thirty minutes no seconds; thence easterly
on a right line to a point at latitude sixty
degrees fifty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence northerly
on a right line to the point of
commencement; said latitudes and longitudes
being as determined by astronomic means, in
situ.
1180 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing sixty-two thousand
two hundred and forty-four acres, more or
less, said tract being more particularly
described as follows:
Commencing at a point at latitude sixty-one
degrees no minutes no seconds and longitude
one hundred and twenty-one degrees thirty
minutes no seconds; thence westerly on a
right line to a point at latitude sixty-one
degrees no minutes no seconds and longitude
one hundred and twenty-one degrees forty-
five minutes no seconds; thence southerly on
a right line to a point at latitude sixty
degrees fifty minutes no seconds and
longitude one hundred and twenty-one
degrees forty-five minutes no seconds;
thence easterly on a right line to a point
at latitude sixty degrees fifty minutes no
seconds and longitude one hundred and
twenty-one degrees thirty minutes no
seconds; thence northerly on a right line
to the point of commencement; said
latitudes and longitudes being as determined
by astronomic means, in situ.
1181 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing sixty-two thousand
two hundred and forty-four acres, more or
less, said tract being more particularly
described as follows:
Commencing at a point at latitude sixty-one
degrees no minutes no seconds and longitude
one hundred and twenty-one degrees forty-
five minutes no seconds; thence westerly
on a right line to a point at latitude
sixty-one degrees no minutes no seconds and
longitude one hundred and twenty-two degrees
no minutes no seconds; thence southerly on a
right line to a point at latitude sixty
degrees fifty minutes no seconds and
longitude one hundred and twenty-two degrees
no minutes no seconds; thence easterly on a
right line to a point at latitude sixty
degrees fifty minutes no seconds and
longitude one hundred and twenty-one degrees
forty-five minutes no seconds; thence
northerly on a right line to the point of
commencement; said latitudes and longitudes
being as determined by astronomic means, in
situ.
1149 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing thirty-one thousand
seven hundred and twenty-seven acres, more
or less, lying to the North of a right line
joining the mid points of the Easterly and
Westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
no minutes no seconds; thence westerly on a
right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-one degrees fifteen
minutes no seconds; thence easterly on a
right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-one degrees no
minutes no seconds; thence northerly on a
right line to the point of commencement;
said latitudes and longitudes being as
determined by astronomic means, in situ.
1150 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing thirty-one thousand
seven hundred and twenty-seven acres, more
or less, lying to the North of a right line
joining the mid points of the Easterly and
Westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence westerly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
thirty minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-one degrees thirty
minutes no seconds; thence easterly on a
right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-one degrees fifteen
minutes no seconds; thence northerly on a
right line to the point of commencement;
said latitudes and longitudes being as
determined by astronomic means, in situ.
1151 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing thirty-one thousand
seven hundred and twenty-seven acres, more
or less, lying to the North of a right line
joining the mid points of the Easterly and
Westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
thirty minutes no seconds; thence westerly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
forty-five minutes no seconds; thence
southerly on a right line to a point at
latitude sixty degrees ten minutes no
seconds and longitude one hundred and
twenty-one degrees forty-five minutes no
seconds; thence easterly on a right line to
a point at latitude sixty degrees ten
minutes no seconds and longitude one hundred
and twenty-one degrees thirty minutes no
seconds; thence northerly on a right line
to the point of commencement; said latitudes
and longitudes being as determined by
astronomic means, in situ.
1152 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing thirty-one thousand
seven hundred and twenty-seven acres, more
or less, lying to the North of a right line
joining the mid points of the Easterly and
Westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
forty-five minutes no seconds; thence
westerly on a right line to a point at
latitude sixty degrees twenty minutes no
seconds and longitude one hundred and
twenty-two degrees no minutes no seconds;
thence southerly on a right line to a point
at latitude sixty degrees ten minutes no
seconds and longitude one hundred and
twenty-two degrees no minutes no seconds;
thence easterly on a right line to a point
at latitude sixty degrees ten minutes no
seconds and longitude one hundred and
twenty-one degrees forty-five minutes no
seconds; thence northerly on a right line to
the point of commencement; said latitudes
and longitudes being as determined by
astronomic means, in situ.
1153 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing thirty-one thousand
seven hundred and twenty-seven acres, more
or less, lying to the North of a right line
joining the mid points of the Easterly and
Westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-two degrees
no minutes no seconds; thence westerly on a
right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-two degrees
fifteen minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-two degrees fifteen
minutes no seconds; thence easterly on a
right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-two degrees no
minutes no seconds; thence northerly on a
right line to the point of commencement;
said latitudes and longitudes being as
determined by astronomic means, in situ.
1154 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing thirty-one thousand
seven hundred and twenty-seven acres, more
or less, lying to the North of a right line
joining the mid points of the Easterly and
Westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-two degrees
fifteen minutes no seconds; thence westerly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-two degrees
thirty minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees ten minutes no seconds; and
longitude one hundred and twenty-two degrees
thirty minutes no seconds; thence easterly
on a right line to a point at latitude sixty
degrees ten minutes no seconds and longitude
one hundred and twenty-two degrees fifteen
minutes no seconds; thence northerly on a
right line to the point of commencement;
said latitudes and longitudes being as
determined by astronomic means, in situ.
1155 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing thirty-one thousand
six hundred and forty-six acres, more or
less, lying to the South of a right line
joining the mid points of the Easterly and
Westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence westerly
on a right line to a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-one degrees
thirty minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
thirty minutes no seconds; thence easterly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence northerly
on a right line to the point of
commencement; said latitudes and longitudes
being as determined by astronomic means, in
situ.
1156 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing thirty-one thousand
six hundred and forty-six acres, more or
less, lying to the South of a right line
joining the mid points of the Easterly and
Westerly limits of the area particularly
described as follows:
Commencing at a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-one degrees
no minutes no seconds; thence westerly on a
right line to a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one degrees
fifteen minutes no seconds; thence easterly
on a right line to a point at latitude sixty
degrees twenty minutes no seconds and
longitude one hundred and twenty-one
degrees no minutes no seconds; thence
northerly on a right line to the point of
commencement; said latitudes and longitudes
being as determined by astronomic means, in
situ.
1157 All that certain tract of land in the May 23rd, 1957
Mackenzie Mining District, in the Northwest
Territories, containing sixty-two thousand
eight hundred and ninety acres, more or
less, said tract being more particularly
described as follows:
Commencing at a point at latitude sixty
degrees forty minutes no seconds and
longitude one hundred and twenty-two degrees
fifteen minutes no seconds; thence westerly
on a right line to a point at latitude sixty
degrees forty minutes no seconds and
longitude one hundred and twenty-two degrees
thirty minutes no seconds; thence southerly
on a right line to a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-two degrees
thirty minutes no seconds; thence easterly
on a right line to a point at latitude sixty
degrees thirty minutes no seconds and
longitude one hundred and twenty-two degrees
fifteen minutes no seconds; thence northerly
on a right line to the point of
commencement; said latitudes and longitudes
being as determined by astronomic means, in
situ.
The Permits herein described as number 1006 and number 1007 are subject to
a gross overriding royalty of 1.5625% to The Catawba Corporation and a gross
overriding royalty of 2.1/2% to ▇▇▇▇ ▇. ▇▇▇▇▇. All other Permits herein
described are subject to a gross overriding royalty of 1.5625% to The Catawba
Corporation.
SCHEDULE "B"
OPERATING PROCEDURE attached to the Agreement dated as of May 28th, 1959,
between Canada Southern Petroleum Ltd., Magellan Petroleum Corporation, Oil
Investments, Inc., Home Oil Company Limited, ▇▇▇▇ County Land Company, Alminex
Limited, United Oils, Limited and Signal Oil and Gas Company.
CLAUSE A
DEFINITIONS
A.1 In this Schedule, including this Clause, unless the context otherwise
requires, the expressions following shall have the following meanings, namely:
(a) "accounting procedure" shall mean the procedure set out in Schedule
"C" hereto;
(b) "Agreement" or "the Agreement" shall mean the Agreement dated as of
May 28, 1959, and the schedules thereto;
(c) "commercial production" or "production in commercial quantities" or
similar wording, shall mean the output from a well of petroleum
substances in such quantities as, considering the cost of drilling,
completing and producing operations, the probable life of the well,
the available (or potentially available) market and the price, kind
and quality of such production would, after a reasonable production
test, or, where the well has been completed, after a reasonable
period of production, warrant the drilling of a like well in the
vicinity thereof;
(d) "complete", "completing" or "completion" with respect to a well
shall mean proper abandonment of the well if production in paying
quantities be not encountered or, if production in paying quantities
is encountered, completing the well for the purpose of taking
production, including the supplying and setting of production casing
and the supplying and installing of tubing, wellhead and pumping
equipment, if initially required to produce the well, storage tanks
and such other equipment, material and services necessary for
preparing a well for the taking of production of petroleum
substances therefrom;
(e) "development well" shall mean any well other than an exploratory
well;
(f) "dollars" shall mean Canadian dollars;
(g) "document of title" shall mean any permit, license, lease, sublease
or similar document concerning petroleum substances which is subject
to the Agreement at any given time;
(h) "exploratory well" shall mean a well which at the time of spudding
in is located at least two (2) miles from the nearest well capable
of production in commercial quantities;
(i) "Manager Operator" shall mean any person appointed to act as Manager
Operator for the Joint Operators under the Agreement;
(j) "paying production" or "production in paying quantities" or similar
wording shall mean an output from a well of petroleum substances
that
(i) in the case of a well not yet completed, considering the
cost of completing and producing operations, the probable life
of the well, the available (or potentially available) market
and the price, kind and quality of such production, would,
after a reasonable production test, warrant the taking of such
production, and
(ii) in the case of a completed well, considering the cost of
producing operations, the probable life of the well, the
available or potentially available market and the price, kind
and quality of such production, would, after a reasonable
period of production (or after a reasonable production test
where the well has not been placed on regular production)
warrant the taking of such production;
(k) "Joint Operator" shall mean any party to the Agreement;
(l) "petroleum substances" shall mean petroleum and/or any other
substance which the parties have the right to recover from any part
of the said lands;
(m) "participating equity" shall mean the undivided share from time to
time of a Joint Operator in that part of the said lands referred to
and the production of petroleum substances therefrom and any jointly
owned property relating thereto;
(n) "re-work" or "re-working" shall mean any operation other than
drilling or pumping necessary to obtain production and without
restricting the generality of the foregoing may include one or more
of the running of production casing, perforating, acidizing, sand
fracing, squeeze cementing or swabbing into production;
(o) "said lands" shall mean the rights to petroleum substances in the
lands described in Schedule "A", which at any given time, are
subject to the Agreement;
(p) "spacing unit" shall mean the area allocated to a well for the
purpose of drilling for or producing petroleum substances and,
except as herein otherwise expressly provided, the subsurface
regions vertically beneath such area comprising the spacing unit for
such well prescribed by and under the laws of Canada now or
hereafter in effect governing the spacing of oil or gas ▇▇▇▇▇,
whichever the well may be and if no area be so allocated shall be
one-quarter Northwest Territory section for oil and one Northwest
Territory section for a gas well.
CLAUSE B
STATUS OF MANAGER OPERATOR
B.1 Subject to the provisions of the Agreement, the Manager Operator shall
have the sole and exclusive management and control of the exploration,
development and operation of the said lands.
B.2 The Manager Operator may perform any act or do anything which it is
required to do by having it performed or done by an independent contractor but
the Manager Operator shall not make a general delegation of its powers of
management and control.
B.3 If and when a Joint Operator is Manager Operator, such Joint Operator
shall not thereby be deprived of any of the rights or relieved of any of the
duties or liabilities of a Joint Operator but shall have all such rights, duties
and liabilities in addition to those of Manager Operator, including the right to
vote on his removal or appointment as Manager Operator.
CLAUSE C
CHANGE OF MANAGER OPERATOR
C.1 The Manager Operator shall be entitled to retire from its position as
Manager Operator at any time upon giving written notice to the Joint Operators
at least six (6) months in advance of the effective date of its retirement
whereupon the Joint Operators shall appoint a successor Manager Operator.
C.2 The Manager Operator from time to time shall forthwith cease to be the
Manager Operator:
(i) if the Manager Operator purports to make a general delegation
of its powers of management and control,
(ii) in respect of any lands in which it and its parent and
subsidiaries ceases to hold at least a Ten (10%) percent participating
equity,
(iii) if the Manager Operator shall become bankrupt or insolvent, or
shall make any general assignment for the benefit of creditors, or should
any execution or attachment issue against it whereby all or part of its
participating equity shall be taken by any custodian, receiver, trustee or
other legal authority or an effective resolution shall have been passed
for the winding up or liquidation of the business and affairs of the
Manager Operator, whereupon the Joint Operators shall appoint a successor
Manager Operator to take office immediately.
C.3 A meeting may remove a Manager Operator and appoint a successor, but
if such Manager Operator be a person who is not a Joint Operator or a person
owning less than a Ten (10%) percent equity in the lands concerned it shall
require the unanimous consent of the Joint Operators.
C.4 When the Manager Operator resigns or otherwise ceases to act in that
capacity it shall deliver to its successor Manager Operator exclusive possession
of all jointly owned property including all pertinent books of account and
records of the joint operations and all documents, agreements and other papers
relating thereto.
C.5 A Manager Operator who is removed shall not be released from its
obligations hereunder for a period of three (3) months after its discharge
unless a successor Manager Operator shall have taken over the options hereunder.
CLAUSE D
MEETINGS
D.1 Any Joint Operator may call a meeting of the Joint Operators at any
time upon not less than seven (7) days' written notice (or three (3) days'
notice) if given by telegram) to each other Joint Operator of the time and place
of such meeting. Meetings shall be held in the City of Calgary, Alberta, unless
all of the Joint Operators agree to holding a meeting at some other place. Any
decision of any meeting shall require the affirmative vote of the Joint
Operators owning in the aggregate more than Sixty-six and two-thirds (66 2/3%)
percent of the participating equities in that part of the said lands being the
subject of such decision and any decision so made shall, except as herein
otherwise provided, be binding upon all of the Joint Operators and shall be
carried out by the Manager Operator.
D.2 No decision of a meeting shall be binding on the parties insofar as it
concerns the drilling of a new well, the deepening or reworking of a well, or
any action which would increase or decrease the interest of any or all of the
Joint Operators in the said lands other than as expressly provided herein and
PROVIDED FURTHER Canada Southern, Magellan and Oil Investments shall not have
any vote concerning the program referred to in Article III.
CLAUSE E
BUDGET
E.1 The Manager Operator shall at intervals of six (6) months furnish each
Joint Operator with a budget outlining its program respecting the operations for
the period of six (6) months next ensuing and estimating all expenditures in
connection therewith for such period. Unless any Joint Operator shall disapprove
such budget within ten (10) days after it is submitted, it shall be deemed to
have been approved and it shall not be necessary to hold a meeting, but if
disapproved by the Joint Operators, a new budget shall be submitted to a
meeting.
E.2 Any budget may be revised at any time or from time to time by the
Joint Operators.
E.3 Upon any such budget or revised budget being approved, the Manager
Operator shall thereby be authorized to carry on the operations outlined therein
for the period covered by such budget and to expend the amounts estimated
therefor.
E.4 The Manager Operator shall make no expenditures in excess of those
authorized by any budget or unless such expenditure is required by any emergency
or to keep any part of the said lands in good standing or to comply with any
law, rule, order or regulation and in any such event the Manager Operator may
make such expenditure and shall forthwith advise the other Joint Operators in
writing thereof.
E.5 Any budget approved at a meeting by Joint Operators owning in the
aggregate more than Sixty-six and two-thirds (66 2/3%) percent of the
participating equities in the said lands to which such budget relates shall be
binding on all Joint Operators; PROVIDED that any budget relating to the program
referred to in Article III shall require the unanimous approval of the H-S group
and shall not require any approval of the C-M-O group.
The items in any budget which provides for the drilling, deepening or
reworking of any ▇▇▇▇▇ shall not be binding unless unanimously approved.
CLAUSE F
DUTIES OF THE MANAGER OPERATOR
F.1 The Manager Operator shall, in the conduct of the operations
hereunder:
(a) conduct the same in a good and workmanlike manner and in
accordance with prevailing field practice, conforming to all applicable
laws, rules, orders and regulations,
(b) furnish all material, labour and services. Upon the written
request of the Manager Operator each Joint Operator shall secure and
furnish its proportionate part of any such material in kind or by
satisfactory assignment of priorities or allocations (governmental or
voluntary),
(c) pay and discharge promptly all costs and expenses actually
incurred in connection with the joint operations,
(d) keep the accounts of the joint operations in accordance with
the accounting procedure,
(e) arrange and negotiate for and acquire all surface rights and
rights-of-way required for the joint operations,
(f) make a good faith effort to keep the said lands and any jointly
owned facilities free and clear of any liens or encumbrances and to
maintain in force and effect and protect any title affecting the said
lands,
(g) keep an accurate and itemized record of all production secured
and of the disposition thereof,
(h) regulate the production of petroleum and natural gas in
accordance with market demands and rates allowed by governmental
regulations or the respective maximum efficient rates of flow of the
▇▇▇▇▇.
CLAUSE G
G.1 Each Joint Operator shall have the following specific rights in
respect to any lands in which it owns a participating equity, which shall not be
in limitation of any other rights under this Agreement:
(a) The right to receive all information pertaining to exploratory
operations, development work and ▇▇▇▇▇ drilled on the said lands. This
information shall include, but not be limited to, copies of all types of
logs, reports, geological maps, geophysical maps and basic data relating
to the exploratory and development work on the lands; the same to be
furnished promptly upon completion of each such log, report, map and other
data. Final reports shall be furnished upon the completion of each job.
(b) The right to receive progress reports and maps from time to time
or immediately upon request. Such reports shall include, but not be
limited to, all facts and data obtained on a drilling well on a daily
basis and the progress, location and data obtained by any other
exploratory operation, including seismic parties, surface geological
parties and core hole programs on a weekly basis.
(c) Access to the said lands and the ▇▇▇▇▇ thereon and the right at
all times to inspect and observe the operations being conducted thereon
and therein.
(d) The right to examine the books and records of the Manager
Operator relating to all ▇▇▇▇▇ drilled on the said lands and of sales of
production.
(e) Upon request made to the Manager Operator therefor, to be
furnished with copies of driller's reports of ▇▇▇▇▇ drilled upon the said
lands, samples of cores and cuttings taken therefrom and copies of all
seismograms obtained upon the properties.
G.2 Each Joint Operator hereto shall treat geological and other
exploratory data obtained in connection with the said lands as confidential
information and will reveal no part of it to any third person, except with prior
written approval of the other Joint Operators; provided that this clause shall
not prevent disclosure to the Government of information required by the
Government in order to establish credit for work requirements, or prevent
disclosure of information relating to the geology and reserves data of known
producing structures to the extent such disclosures may be required in
connection with financing by any Joint Operator, or prevent disclosure of any
information to any experts in order that such Joint Operator may obtain the
opinions of such experts, or disclosure of information relating to its reserves
relating to known producing structures in a report to its shareholders; and
provided further that information obtained from the ▇▇▇▇▇ themselves may be
disclosed at the discretion of any Joint Operator, and that purchasers or
prospective purchasers of gas produced from the said lands may, at the
discretion of any Joint Operator, for use in connection with purchases or
prospective purchases, be given all information, whether obtained from ▇▇▇▇▇ or
otherwise, of a kind that is reasonably or customarily given to purchasers or
prospective purchasers of gas in like circumstances. Appropriate precautions
will be taken by each Joint Operator to prevent inadvertent disclosures of
confidential information.
CLAUSE H
COMPETITIVE OPERATING BASIS
H.1 All operations hereunder shall be performed on a competitive basis at
the usual rates prevailing in the area. The Manager Operator, if it so desires,
may employ its own tools and equipment in any such operation but in such event
the charge therefor shall not exceed the prevailing rate in the area and such
work shall be performed by the Manager Operator under the same terms and
conditions as shall be customary and usual in the area in the contracts of
independent contractors who are doing work of a similar nature.
CLAUSE I
INSURANCE
I.1 Any Joint Operator from time to time conducting any operation
hereunder shall comply with the requirements of all Unemployment Insurance and
Workmen's Compensation legislation and shall, if it not already has, prior to
the commencement of such operation, take out, initially pay, and thereafter
maintain and continue to pay for during the period of such operation, at least
the following insurance in a reputable insurance company or companies at the
expense of and on behalf of all the Joint Operators:
(i) employer's liability insurance covering each employee engaged
in the operations hereunder to the extent of $100,000. where such employee
is not covered by Workmen's Compensation;
(ii) comprehensive public liability insurance covering all
operations hereunder, except motor vehicles, to the extent of $150,000.
for any one person injured or killed and $300,000. for two or more persons
injured or killed in any one accident;
(iii) comprehensive property damage insurance covering all
operations hereunder to the extent of $100,000. for damages resulting from
any one accident; including damages resulting from fire or blowouts but
excluding underground damages;
(iv) blanket all risk insurance covering all above ground physical
property engaged in the operations hereunder except motor vehicles, to the
extent of the value of all such property;
(v) automobile public liability insurance covering all automotive
units engaged in the operations hereunder to the extent of $150,000. for
any one person injured or killed and $300,000. for two or more persons
injured or killed in any one accident;
(vi) automobile property damage insurance covering all automotive
units engaged in the operations hereunder to the extent of $100,000. for
damages resulting from any one accident;
which insurance may not be terminated without prior notice to each other Joint
Operator.
I.2 If so requested by any other Joint Operator, the Joint Operator
conducting the operation hereunder shall deliver to such other Joint Operator
evidence of full compliance with the insurance provisions contained herein, to
be retained in the custody of such other Joint Operator during the continuance
of such operation.
CLAUSE J
ADVANCES
J.1 The Manager Operator at its election from time to time may require any
Joint Operator to advance its proportionate share of authorized expenditures by
furnishing such Joint Operator with an estimate of such expenditures required to
cover operations for a period not in excess of sixty (60) days. Within fifteen
(15) days after receipt of such estimate or within ten (10) days before
commencement of the period covered by the estimate, whichever is the later, such
Joint Operator shall pay its proportionate part thereof.
The accounts between the Joint Operators in respect of any such advance
shall be adjusted at the end of each calendar month in accordance with actual
expenditures. Any amount not paid within the time hereinbefore limited shall
bear interest at the rate of Six (6%) percent per annum.
J.2 In the event that any Joint Operator fails to advance such money as
required or make any other payment required under this Agreement, the other
Joint Operators participating in the operation concerned shall, upon request by
the Manager Operator, pay the share of such defaulting Joint Operator in the
proportions of their respective participating equities, and upon the payment by
the defaulting Joint Operator to the Manager Operator of all or any part of such
sum, or upon the Manager Operator otherwise recovering all or any part of such
sum, the Manager Operator shall immediately pay the amount received or recovered
to the Joint Operators making the advancement in like proportions and such
amount shall be applied first in reduction of interest and second in reduction
of capital. Provided, however, that the members of C-M-O shall not be obligated
in respect of any expenditures to be incurred in respect of the program referred
to in Article III or the payments referred to in Article IV.
CLAUSE K
LIEN
K.1 The Manager Operator shall have a lien on the participating equity of
each other Joint Operator to secure payment of such Joint Operator's share of
all costs and expenses hereunder, but such lien shall not attach to any portion
of such Joint Operator's share of production at any time prior to the
enforcement of the same by the Manager Operator as hereinafter provided.
K.2 In the event that any Joint Operator shall fail to pay its share of
any costs or expenses hereunder (and such default shall continue for thirty (30)
days after the Manager Operator shall have served written notice upon such Joint
Operator specifying such default and requiring the same to be remedied) the
Manager Operator may enforce such lien by taking possession of all or any part
of the participating equity of such Joint Operator and the Manager Operator may
sell and dispose of all or any part of such participating equity either in whole
or in separate parcels at public auction or by private tender at such time and
on such terms as it shall appoint, having first given notice to such Joint
Operator of the time and place of such sale, and the Manager Operator is hereby
constituted irrevocably the attorney of such Joint Operator for the purpose of
making any such sale and executing such deeds and agreements in the name of such
Joint Operator as may be necessary to carry out the same. The proceeds of any
such sale shall be first applied by the Manager Operator in payment of any costs
or expenses to be paid by such Joint Operator and not paid by it, and any
balance remaining shall be paid to such Joint Operator after deducting the
reasonable costs of such sale. Any such sale shall be a perpetual bar in law and
equity against such Joint Operator and any person claiming all or any part of
the property sold, by, from, through or under such Joint Operator.
K.3 If any Joint Operator advances any money under the preceding clause in
respect of the default of another Joint Operator it shall have the same lien
rights in respect thereto as has the Manager Operator under this clause.
CLAUSE L
DIVISION OF PRODUCTION
L.1 Each Joint Operator shall own its participating equity in the
petroleum substances produced hereunder exclusive of any quantity thereof that
may be delivered in kind as royalty or production which may be used by the
Manager Operator in developing and producing operations hereunder and in
preparing and treating production for marketing purposes and production
unavoidably lost. Each Joint Operator shall, upon payment of or securing the
payment of any royalty with respect thereto, be entitled to take delivery of its
share of production at the point of production. Each Joint Operator electing to
take delivery of its participating equity in the petroleum substances shall
provide at its own risk and expense adequate facilities for receiving its
production and shall bear any additional expense to which the Manager Operator
may be subject in delivering such production separately. In the event any Joint
Operator fails to make arrangements to take delivery of its participating equity
in the petroleum substances the Manager Operator may sell the same upon the same
terms and conditions that it is selling its share of production and such Joint
Operator shall be entitled to receive from the Manager Operator not later than
the last day of the month following such sale, the net proceeds received from
the sale of its participating equity in the petroleum substances so sold. Any
market available to a Joint Operator shall be shared by it with the other Joint
Operators to the intent and purpose that no Joint Operator shall be obligated to
store its participating equity in production except to the proportionate extent
that the production owned by the other Joint Operators is so stored for lack of
market.
CLAUSE M
OBLIGATORY OPERATIONS
M.1 Upon the completion of the program provided for in Article III of this
Agreement, each Joint Operator shall be obligated, provided that the Manager
Operator has made a bona fide but unsuccessful attempt to obtain a waiver of
such obligations, to join in the renewal of any document of title and to pay a
share equivalent to its participating equity in that part of the said lands
concerned of any rental and of the cost of any operation, including the drilling
of any well, necessary to maintain all or any part of the said lands in good
standing except the drilling obligations contained in any document of title when
the person entitled to enforce the performance thereof is not enforcing the
same, unless such Joint Operator has surrendered or disposed of all of its
participating equity in that part of the said lands to which such obligation
applies at least thirty (30) days prior to the date on which such rental becomes
payable or on which such operation must be commenced in order to maintain such
part of the said lands in good standing. Provided that C-M-O shall not be
obligated to participate in any obligatory well while it enjoys the preferential
rights granted to it by Article 3.1 (C) but if it does not so participate the
applicable penalty under the said Article shall apply.
CLAUSE N
INDEPENDENT OPERATIONS
N.1 Except as hereinbefore provided in Clause M hereof and Article III, no
Joint Operator shall be required to participate in the cost of drilling,
deepening, or reworking any well hereunder.
N.2 Upon completion of the program provided for in Article III, and
provided no well is then being drilled or deepened on the said lands for the
joint account, and provided no drilling or deepening operation on the said lands
has then been approved in any budget, the following provisions shall apply:
(a) Should any Joint Operator desire to deepen or re-work any well
which is incapable of producing petroleum substances in paying quantities
or to drill any new well, such Joint Operator shall notify the other Joint
Operators in writing of its intention to perform the proposed operation at
its own cost and risk. Such notice (hereinafter called "the first notice")
shall contain information as to the location, depth and estimated cost of
the operation. In such event each Joint Operator shall be deemed to be a
participant in such operation unless it has given written notice to the
other Joint Operators within thirty (30) days after receipt by it of the
first notice, of its intention not to participate; PROVIDED that if the
operation is the deepening of a well on which the drilling rig to be
utilized in such operation is then located, the time herein-before limited
for giving written notice of intention not to participate shall be reduced
to three (3) days exclusive of Sundays and statutory holidays, and any rig
time for such three (3) day period shall be paid for by the Joint
Operators participating in the operation.
(b) The Joint Operator giving first notice shall, together with the
Joint Operators participating, be entitled to have the Manager Operator
commence such operation within sixty (60) days from the receipt by the
other Joint Operators of the first notice and thereafter prosecute the
operation to completion at the sole cost and risk of the participating
Joint Operators in the proportions that their respective participating
equities in the spacing unit concerned are of the sum of such
participating equities.
(c) If the Joint Operators participating in such operation commence
the same within the said period of sixty (60) days and carry it on
diligently and continuously to the depth proposed in the first notice
(i) if the operation is the drilling of an exploratory well,
each non-participating Joint Operator shall forthwith assign to the
participating Joint Operators in the proportions that their
respective participating equities are of the sum of such
participating equities, all of its participating equity in all
formations in:
A. six (6) Northwest Territory sections of the said lands if
such well is drilled to a depth of more than six thousand (6,000)
feet and provided commercial production has not been obtained
above the depth of six thousand (6,000) feet, and
B. four (4) Northwest Territory sections of the said lands
in the case of any other well, such sections to include the
section on which such well is located and the other sections to
be selected by the participating Joint Operators from those
sections laterally or diagonally adjoining the section on which
such well is located.
(ii) if the operation is a deepening or reworking operation or
the drilling of a development well, each non-participating Joint
Operator shall have the right, until the elapse of a period of
thirty (30) days after the participating Joint Operators have served
on each of the non-participating Joint Operators written notice of
the results of all tests carried out on the well concerned (or in
the case of a dry hole, written notice to that effect) and have made
available to such nonparticipating Joint Operators all information
concerning such well which is in the possession of the participating
Joint Operators, to pay to the participating Joint Operators in the
proportions that their respective participating equities are of the
sum of such participating equities, a sum equal to three (3) times
the amount it would have been called upon to pay had all Joint
Operators being entitled to participate originally participated in
the operation, and upon such payment being made, such Joint Operator
shall participate in such well and the production therefrom ab
initio to the extent that it would have been entitled to participate
had all Joint Operators entitled to participate so participated, and
in the event that it does not pay such sum within the time
hereinbefore limited, such Joint Operator shall assign its
participating equity in such well, in the spacing unit on which the
same is located and in the surface location, to the participating
Joint Operators in the proportions that their respective
participating equities are of the sum of such participating
equities, in which case the Joint Operators receiving the assignment
shall have the right to produce the well concerned and to market the
production of petroleum substances therefrom and the Joint Operators
making the assignment shall not be entitled to any share of such
production.
N.3 Notwithstanding anything hereinbefore contained, if the lands to be
assigned under this clause contain any other well then capable of production of
petroleum substances, such well and any zone or formation, whichever the case
may be, underlying the spacing unit of such other well and from which it is then
capable of obtaining production shall be excluded from the lands to be assigned.
CLAUSE O
SELECTION OF LEASES
O.1 The Joint Operators shall meet to determine the lands to be contained
in an application for petroleum and natural gas leases. The meeting may be
called by any Joint Operator on the same notice as is provided in Clause D. All
decisions relating to any such application and the selection of lands to be
included therein shall be made by mutual agreement and failing such agreement
shall be made by the Joint Operators owning in the aggregate more than Sixty-six
and two-thirds (66 2/3%) percent of the participating equities in such permit
provided that in making such selection leases of sections must be chosen so that
any Joint Operator who is entitled to any section or sections by virtue of an
independent operation may obtain such section or sections.
CLAUSE P
SURRENDER
Upon completion of the program provided for in Article III the following
provisions shall apply:
P.1 Any Joint Operator may, from time to time and at any time, provided
that the Crown must or will accept the same, surrender all of its interest in
all or any part of the said lands except that no such surrender shall be made:
(a) within thirty (30) days before the accrual of the rental or any
other obligation, excepting any drilling obligation contained in any
document of title when the person entitled to enforce the performance
thereof is not enforcing the same, in respect to that part of the said
lands to be surrendered,
(b) respecting an area of less than a spacing unit,
(c) until the Joint Operator desiring to surrender (hereinafter
called "the offeror") shall notify in writing the other Joint Operators
(hereinafter called "the recipients") of the interest it desires to
surrender. The recipients shall have the right for a period of fifteen
(15) days after the receipt of such notice to advise the offeror by notice
in writing that it will accept an assignment of such interest. In the
event any recipient does not notify within the time herein limited the
offeror that it will accept an assignment of such interest, such recipient
shall join in the surrender of such part of the said lands. If any
recipient agrees to accept such assignment, such interest shall be
assigned to such recipient. If more than one recipient agrees to accept
such assignment such interest shall be assigned to such recipients in the
proportions that their respective participating interests bear to the sum
of such participating interests.
CLAUSE Q
Q.1 No Joint Operator shall dispose of any interest hereunder unless the
person receiving the same agrees with the other Joint Operators to be bound by
all of the terms and provisions of this Agreement. If such disposition imposes
greater obligations or expenses on the Manager Operator or other Joint Operators
then such person shall agree to pay all costs and expenses in connection
therewith.
CLAUSE R
ASSIGNMENTS AMONG PARTIES
R.1 Upon the assignment of any interest hereunder by one Joint Operator to
any other or others:
(a) the Joint Operator agreeing to receive such assignment shall pay all
costs and taxes incurred or levied in connection with such assignment;
(b) the Joint Operator agreeing to receive such assignment shall indemnify
and hold harmless the Joint Operator agreeing to make such assignment from
and against all liabilities in connection with such interest to be
assigned except liabilities which arose prior to the agreement to make
such assignment;
(c) the Joint Operator agreeing to make such assignment shall not be
released from any obligation which arose prior to the date of the
agreement to accept such assignment;
(d) such assignment shall be without warranty of title of the interest of
the assigning party;
(e) all the terms of this Agreement shall continue to apply to such
interest as among the Joint Operators who have not assigned their
interest;
(f) where it is necessary to obtain the consent of any person other than a
Joint Operator to such assignment and such consent cannot be obtained,
such interest shall be held in trust by the Joint Operator required to
make the assignment for the Joint Operators entitled to receive the same.
CLAUSE S
RELATIONSHIP OF PARTIES
S.1 This Agreement shall not be construed to create a partnership.
S.2 Except as otherwise provided in Clause T hereof, where the parties
hereto or any of them incur a liability in connection with any operation
hereunder either to a party hereto or to any third party, such liability shall
not be joint or several but each party shall be separately liable only for a
portion of the total liability calculated in accordance with its participating
equity in that part of the lands to which the liability can be reasonably
allocated.
S.3 Each Joint Operator agrees to indemnify each other Joint Operator
against any claim of or liability to any third party incurred in connection with
any operation hereunder to the extent but only to the extent that the claim or
liability is asserted against the other Joint Operator in an amount in excess of
the other Joint Operator's share of the liability calculated in accordance with
this clause; PROVIDED that a Joint Operator shall not be required to indemnify
any other Joint Operator for any amount in excess of its own share of the
liability calculated in accordance with this clause.
S.4 The Joint Operators hereby elect that the operations conducted under
this Agreement, and the Joint Operators themselves with respect to such
operations, be excluded from the application of all of the provisions of
Subchapter K of Chapter 1 of Subtitle A of the United States Internal Revenue
Code of 1954, or any amendments thereof, or of such portion or portions thereof
as may be permitted by the Secretary of the Treasury or his delegate, insofar as
such Subchapter or any portion or portions thereof may otherwise be applicable
to such operations or to the Joint Operators with respect to such operations.
CLAUSE T
LIABILITY OF MANAGER OPERATOR
T.1 Except as hereinbefore provided the Manager Operator shall not be
liable to any Joint Operator in damages or otherwise howsoever for anything done
by the Manager Operator hereunder or for the Manager Operator's failure to do
anything hereunder, except for:
(i) acts of fraud, dishonesty or gross neglect on the part of any
officer of the Manager Operator in carrying out the duties of the Manager
Operator under this Agreement,
(ii) the failure of the Manager Operator to remedy any default
hereunder as soon as reasonably possible after the receipt by it from any
Joint Operator of written notice of such default.
CLAUSE U
FORCE MAJEURE
U.1 Any Joint Operator shall be excused from the performance of any of its
obligations hereunder from time to time and at any time, but only so long as it
is prevented from performance by act of God, the Queen's enemies, inclement
weather, accident, breakdown, fire, strike, lock-out, labour shortage, inability
to obtain equipment, materials or supplies in the open market at reasonable
prices, compliance with any law, rule, order or regulation which has not been
declared by a court of competent jurisdiction to be invalid, or any other cause
beyond the reasonable control of such Joint Operator whether similar or
dissimilar, provided that lack of funds shall not be considered a cause beyond
the control of a party.
CLAUSE V
WAIVER
V.1 No waiver on behalf of any party of any breach of any of the
covenants, conditions and provisos herein contained shall be effective or be
binding upon such party unless the same be expressed in writing and any waiver
so expressed shall not limit or affect such party's rights with respect to any
other or future breach.
CLAUSE W
CONFLICT WITH LAWS
W.1 If any provision herein contained is in conflict with any law, rule,
order or regulation heretofore or hereafter made by any competent governmental
authority or any document of title by virtue of which the parties hereto hold
any interest, this Agreement shall be deemed to be amended so as to conform to
such law, rule, order or regulation or document of title for so long as the same
remains in force.
CLAUSE X
NOTICES
X.1 All notices required to be given under this Agreement shall either be
personally delivered or mailed by prepaid registered mail addressed as
hereinafter set forth or to such other address as may be designated from time to
time by such Joint Operator in writing, and any notice mailed as aforesaid shall
be deemed to have been received by the addressee on the next normal business day
following the day of mailing:
Canada Southern ▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Magellan ▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Oil Investments ▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Alminex 609 ▇▇▇▇▇▇'▇ Bay Oil & Gas Building,
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Signal ▇.▇. ▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇ 17, California, U.S. A.
with a copy to ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇.,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
with a copy to ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇.▇.
United ▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Home ▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
CLAUSE Y
FURTHER ASSURANCES
Y.1 Each of the Joint Operators shall from time to time and at all times
do all such further acts and execute and deliver all such further documents and
assurances as shall be reasonably required in order fully to perform and carry
out the terms of this Agreement.
CLAUSE Z
ENTIRE AGREEMENT
Z.1 The Joint Operators agree that they have expressed herein their entire
understanding and agreement concerning the subject matter of this Agreement and
it is expressly agreed that no implied covenant, condition, term or reservation
shall be read into this Agreement relating to or concerning such subject matter.
CLAUSE AA
DIVISION OF EXPENSES
AA.1 The costs and expenses of the program referred to in Article III
shall be borne as to Fifty (50%) percent by Signal, Twenty-five (25%) percent by
Home, Ten (10%) percent by Alminex, Ten (10%) percent by ▇▇▇▇ and Five (5%)
percent by United and C-M-O shall not bear any of the said costs or expenses nor
shall the same be recoupable from C-M-O.
AA.2 Except as herein otherwise provided all costs and expenses shall be
allocated equitably by the Manager Operator to the parts of the said lands to
which they apply and each Joint Operator shall bear and pay in accordance with
the accounting procedure a share of the same equivalent to its participating
equity in that part of the said lands to which the same are allocated.
AA.3 The participating equities of the Joint Operators in the said lands
at the date hereof are as follows:
Canada Southern....................... 37 1/2%
Magellan.............................. 6 1/4%
Oil Investments....................... 6 1/4%
Home.................................. 12 1/2%
Alminex............................... 5%
▇▇▇▇.................................. 5%
United................................ 2 1/2%
Signal................................ 25%
AA.4 H-S agrees that during the term of the option it will allocate such
part of any excess credits in any year not required by them in connection with
the said lands to the optioned lands in order to keep the option in good
standing for such year.
CLAUSE BB
TERM
BB.1 Subject to the other provisions hereof, including Article V, this
Agreement shall remain in full force and effect and the said lands shall not be
subject to partition so long as any jointly owned document of title to any part
of the said lands, or any renewal or extension thereof pursuant to the
provisions of such document of title, remains in force and effect and thereafter
until all joint facilities have been salvaged and disposed of and final
settlement and accounting had among the Joint Operators.
CLAUSE CC
INTERPRETATION
CC.1 Wherever in this Agreement the singular number or masculine gender
occurs, the same shall be respectively construed as the plural or neuter, and
vice versa, as the context or reference may require.
CC.2 Notwithstanding anything herein elsewhere to the contrary contained,
any right of any party to acquire any interest from any other party hereunder
shall cease, determine and be at an end not later than the expiration of
twenty-one (21) years after the death of the last surviving lawful descendant
now living of His Late Majesty King ▇▇▇▇▇▇ VI.
CC.3 The headings of all clauses in this Agreement are inserted for
convenience of reference only and shall not affect the construction hereof.
CC.4 Time shall be of the essence hereof.
CC.5 This Agreement shall, subject to the provisions of Clause Q hereof,
be binding upon and enure to the benefit of the Joint Operators and their
respective successors and assigns.
CC.6 All terms, covenants, provisions and conditions of this Agreement
shall run with and be binding upon the said lands during the term hereof.
SCHEDULE "C"
Attached to and made a part of an agreement made as of May 28, 1959
between Canada Southern Petroleum Ltd., Magellan Petroleum
Corporation, Oil Investments, Inc.9 Home Oil Company
Limited, ▇▇▇▇ County Land Company, Alminex
Limited, United Oils Limited, Signal Oil
and Gas Company.
ACCOUNTING PROCEDURE
(Unit and Joint Lease Operations)
I. GENERAL PROVISIONS
1. DEFINITIONS
The term "joint property" as herein used shall be construed to mean the
subject area covered by the agreement to which this "Accounting Procedure"
is attached.
The term "Operator" as herein used shall be construed to mean the party
designated to conduct the development and operation of the subject area
for the joint account.
The term "Non-Operator" as herein used shall be construed to mean any one
or more of the non-operating parties.
The term "rentals" shall, in addition to its ordinary meaning, be
construed to include delay rentals, renewal fees and generally all
periodical payments of monies required to be made in order to maintain the
rights of the parties in and to the joint property in force and effect.
2. STATEMENTS AND ▇▇▇▇▇▇▇▇
The Operator shall ▇▇▇▇ Non-Operator on or before the last day of each
month for its proportionate share of costs and expenditures during the
preceding month. Such bills will be accompanied by statements, reflecting
the total cost and charges as set forth under sub-paragraph A below:
A. Statement in detail of all charges and credits to the joint account.
B. Statement of all charges and credits to the joint account,
summarized by appropriate classifications indicative of the nature
thereof.
C. Statements, as follows:
(1) Detailed statement of material ordinarily considered
controllable by operators of oil and gas properties;
(2) Statement of all other charges and credits to the joint account
summarized by appropriate classifications indicative of the
nature thereof; and
(3) Statement of any other receipts and credits.
3. PAYMENTS BY NON-OPERATOR
Each party shall pay all such bills within fifteen (15) days after receipt
thereof. If payment is not made within such time, the unpaid balance may
bear interest at the rate of six per cent (6%) per annum until paid.
Operator shall have and be entitled to a prior lien on all the rights and
interests of Non-Operator in said joint properties, the production
therefrom, and the material and equipment thereon, to secure the payment
by Non-Operator of Non-Operator's portion of cost, purchases, and expenses
of developing and operating the joint property as herein provided. Upon
request Operator may require Non-Operator to advance his share of
estimated cash outlay for the current month's operations.
4. AUDITS
Payment of any such bills shall not prejudice the right of Non-Operator to
protest or question the correctness thereof. All statements rendered to
Non-Operator by Operator during any calendar year shall be conclusively
presumed to be true and correct after eighteen months following the close
of any such calendar year, unless within said eighteen months Non-Operator
takes written exception thereto and makes claim on Operator for adjustment
or commences an audit of Operator's accounts and records relating to the
accounting hereunder. Failure on the part of Non-Operator to make claim on
Operator for adjustment, or to commence an audit within such period shall
establish the correctness thereof and preclude the filing of exceptions
thereto or the making of claims for adjustment thereon. A Non-Operator,
upon notice in writing to Operator and all other Non-Operators, shall have
the right to audit Operator's accounts and records relating to the
accounting hereunder, within eighteen months next following the close of
any calendar year. Non-Operator shall have six months next following the
examination of the Operator's records within which to take written
exception to and make any and all claims on Operator. The provisions of
this paragraph shall not prevent adjustments resulting from the physical
inventory of property as provided for in Section VI, Inventories, hereof.
II. DEVELOPMENT AND OPERATING CHARGES
Subject to limitations hereinafter prescribed, Operator shall charge the
joint account with the cost of the following items:
1. RENTALS AND ROYALTIES
Rentals, when such rentals are paid by Operator for the joint account;
royalties, when not paid direct to royalty owners by the purchaser of the
oil, gas, casing-head gas, or other products.
2. LABOUR, TRANSPORTATION AND SERVICES
Labour, transportation, and other services necessary for the development,
maintenance, and operation of the joint property. Labour shall include
salaries and wages of Operator's employees, other than employees
compensated for under paragraphs (11), (12) and (13) of this Section II,
directly engaged in operations of the joint property and (A) Operator's
cost of vacation, sickness and disability benefits of employees, and
expenditures or contributions imposed or assessed by Governmental
authority applicable to such salaries and wages, and (B) Operator's
current cost of established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift, bonus, and
other benefit plans of like nature, applicable to Operator's payroll;
provided that the charges under part (B) of this paragraph shall not
exceed twelve percent (12%) of the total of such salaries and wages
charged to the joint account.
3. MATERIAL
Material, equipment, and supplies purchased or furnished by Operator, for
use of the joint property. So far as it is reasonably practical and
consistent with efficient and economical operation, only such material
shall be purchased for or transferred to the joint property as required
for immediate use, and the accumulation of surplus stocks shall be avoided
wherever possible.
4. MOVING MATERIAL TO JOINT PROPERTY
Moving material to the joint property from vendors or from Operator's
warehouse in district or from the other properties of Operator, but in
either of the last two events no charge shall be made to the joint account
for a distance greater than the distance from the nearest reliable supply
store or railway receiving point where such material is available, except
by special agreement with Non-Operator.
5. MOVING SURPLUS MATERIAL FROM JOINT PROPERTY
Moving surplus material from the joint property to outside venders, if
sold f.o.b. destination, or minor returns to Operator's warehouse or other
storage point. No charge shall be made to the joint account for moving
major surplus material to Operator's warehouse or other storage point for
a distance greater than the distance to the nearest reliable supply store
or railway receiving point, except by special agreement with Non-Operator;
and no charge shall be made to the joint account for moving material to
other properties belonging to Operator, except by special agreement with
Non-Operator.
6. USE OF OPERATOR'S EQUIPMENT AND FACILITIES
Use of and service by Operator's exclusively owned equipment and
facilities as provided in paragraph 4, of Section III, "Basis of Charges
to Joint Account".
7. DAMAGES AND LOSSES
Damages or losses incurred by fire, flood, storm or any other causes not
controllable by Operator through the exercise of reasonable diligence.
Operator shall furnish Non-Operator written notice of damage or losses
incurred by fire, storm, flood or other natural or accidental causes as
soon as practicable after report of the same has been received by
Operator.
8. LITIGATION, JUDGMENTS, AND CLAIMS
All costs and expenses of litigation, or legal services otherwise
necessary or expedient for the protection of the joint interest, including
attorneys fees and expenses as hereinafter provided, together with all
judgments obtained against the parties or any of them insofar as the same
relate to the joint account or the subject matter of this agreement;
actual expenses incurred by any party or parties hereto in securing
evidence for the purpose of defending against any action or claim
prosecuted or urged against the joint account or the subject matter of
this agreement.
A. If a majority of the interests hereunder shall so agree, actions or
claims affecting the joint interests hereunder may be handled by the
legal staff of one or more of the parties hereto, and a charge
commensurate with the services rendered may be made against the
joint account, but no such charge shall be made until approved by
the legal department of or attorneys for the respective parties
hereto.
B. Fees and expenses of outside attorneys shall not be charged to the
joint account unless authorized by the majority of the interests
hereunder.
9. TAXES
All taxes, rates, levies and assessments of every kind and nature levied,
assessed or imposed upon or in connection with the joint property or any
part thereof, the production therefrom or the operation thereof, which
shall have been paid by the Operator for the benefit of the parties
hereto.
10. INSURANCE
A. Premiums paid for insurance carried for the benefit of the joint
account together with all expenditures incurred and paid in
settlement of any and all losses, claims, damages, judgments, and
other expenses, including legal services, not recovered from
insurance carrier.
B. If no insurance is required to be carried, all actual expenditures
incurred and paid by Operator in settlement of any and all losses,
claims, damages, judgments, and any other expenses, including legal
services, shall be charged to the joint account.
11. DISTRICT AND CAMP EXPENSE
A proportionate share of the salaries and expenses of Operator's district
superintendent and other general district or field employees serving the
joint property, whose time is not allocated direct to the joint property
and a proportionate share of the cost of maintaining and operating a
district office and all necessary camps, including housing facilities for
employees if necessary, incurred in conducting the operations on the joint
property and other leases owned and operated by Operator in the same
locality. The expense of, less any revenue from, these facilities shall
include depreciation or a fair monthly rental in lieu of depreciation on
the investment. Such charges shall be apportioned to all leases served on
some equitable basis consistent with Operator's accounting practice.
12. OVERHEAD
Overhead charges, which shall be in lieu of any charges for any part of
the expenses, including salaries or compensation paid to managing officers
and employees, of the division office and/or principal office of the
Operator, but which are not in lieu of district or field office expenses
incurred in developing and operating any joint property; or any other
expenses of Operator, including but not limited to expenses chargeable
under paragraph (2) of this Section II, incurred in the development and
operation of joint property and Operator shall have the right to assess
against the joint property on one of the following overhead bases:
Per Well Basis:
A. (1) $15 per day for each drilling well, beginning on the date the well
is spudded and terminating when it is on production or is plugged,
as the case may be, except that no charge shall be made during the
suspension of drilling operations for fifteen (15) or more
consecutive days.
(2) $100 per well per month for the first five (5) producing ▇▇▇▇▇.
(3) $75 per well per month for the second five (5) producing ▇▇▇▇▇.
(4) $50 per well per month for all producing ▇▇▇▇▇ over ten (10).
B. $60.00 per day for each shallow core hole party.
$30.00 per day for each seismograph reflection party.
$30.00 per day for each seismograph refraction party.
$15.00 per day for each gravity meter test party.
$15.00 per day for each magnetometer test party beginning on the date the
party enters the said areas and terminating when the party leaves
the said areas. A charge shall also be made for non-working shifts
for the reason of repairs or other causes beyond the control of
operation.
In connection with overhead charges, the status of ▇▇▇▇▇ shall be as
follows:
(1) In-put or key ▇▇▇▇▇ shall be included in overhead schedule the same
as producing oil ▇▇▇▇▇.
(2) Producing gas ▇▇▇▇▇ shall be included in overhead schedule the same
as producing oil ▇▇▇▇▇.
(3) ▇▇▇▇▇ permanently shut down but on which plugging-operations are
deferred, shall be dropped from overhead schedule at the time
shutdown is effective. When such ▇▇▇▇▇ are plugged, overhead shall
be charged at the producing well rate during the time required for
the plugging operations.
(4) ▇▇▇▇▇ being plugged back or drilled deeper shall be included in
overhead schedule the same as drilling ▇▇▇▇▇.
(5) Various ▇▇▇▇▇ may be shut down temporarily and later replaced on
production. If and when a well is shut down (other than for
proration) and not produced or worked upon for a period of a full
calendar month, it shall not be included in the overhead schedule
for such month.
(6) Salt water disposal ▇▇▇▇▇ shall not be included in overhead schedule
as producing ▇▇▇▇▇.
The above specific overhead rates may be amended from time to time by
agreement between Operator and Non-Operator if, in practice, they are
found to be insufficient or excessive.
It is specifically understood that the above Overhead rates apply only to
Drilling and Producing Operations and are not intended to cover the
construction or operations of additional facilities such as, but not
limited to, gasoline plants, compressor plants, repressuring projects,
salt water disposal facilities, major road construction projects, and
similar installations. If at any time any or all of these become necessary
to the operation a separate agreement will be reached relative to an
overhead charge and allocation of District Expense.
13. WAREHOUSE HANDLING CHARGES
A handling charge to cover the cost of handling material into and in the
warehouse shall be assessed on new and used material and equipment
furnished from the Operator's warehouse on the following basis:
(A) Five percent (5%) of the cost of tubular goods (2" and over) and
major equipment such as tanks, separators, engines, etc.
(B) Ten percent (10%) of the cost of all other material.
14. OTHER EXPENDITURES
Any other expenditures incurred by Operator for the necessary and proper
development, maintenance, operation and abandonment of the joint property.
Notwithstanding anything herein contained, no charge shall be made for any
interest or financing charges incurred by the Operator, except where
incurred with the consent of Non-Operator.
III. BASIS OF CHARGES TO JOINT ACCOUNT
1. PURCHASES
Material and equipment purchased and all services procured shall be
charged at their invoiced cost to Operator, after deduction of all
discounts actually received.
2. MATERIAL FURNISHED BY OPERATOR
Material required for operations shall be purchased for direct charge to
joint account whenever practicable, except that Operator may furnish such
material from Operator's stocks under the following conditions:
A. New Material (Condition "A")
(1) New material transferred from Operator's warehouse or other
properties shall be priced f.o.b. the nearest reputable supply
store or railway receiving point, where such material is
available, at current replacement cost of the same kind of
material. This will include material such as tanks, rigs,
pumps, sucker rods, boilers, and engines. Tubular goods (2" and
over) shall be charged on the basis of carload price effective
at date of transfer and f.o.b. railway receiving point nearest
the joint property, regardless of quantity transferred.
(2) Other material shall be priced on basis of a reputable supply
company's preferential price list effective at date of transfer
and f.o.b. the store or railway receiving point nearest the
joint property where such material is available.
B. Used Material (Condition "B" and "C")
(1) Material which is in sound and serviceable condition and is
suitable for re-use without reconditioning shall be classed as
Condition "B" and priced at 75% of current new price.
(2) Material which cannot be classified as Condition "B" but which,
(a) After reconditioning will be further serviceable for
original function as good secondhand material (Condition
"B"), or
(b) Is serviceable for original function but substantially not
suitable for reconditioning, shall be classed as Condition
"C" and priced at 50% of current new price.
(3) Tanks, derricks, buildings, and other equipment involving
erection costs shall be charged at applicable percentage of
dismantled current new price for similar materials.
(4) There may also be cases where some items of equipment, due to
their unusual condition, should be fairly and equitably priced
by Operator, subject to approval of Non-Operator.
(5) Current new price, wherever used in this sub-paragraph 2B of
this Section III shall have the same meaning and be determined
in accordance with sub-paragraph 2A of this Section III.
3. WARRANTY OF MATERIAL FURNISHED BY OPERATOR
Operator does not warrant the material furnished beyond or back of the
dealer's or manufacturer's guaranty; and, in case of defective material,
credit shall not be passed until adjustment has been received by Operator
from the manufacturers or their agents.
4. OPERATOR'S EXCLUSIVELY OWNED FACILITIES
The following rates shall apply to services rendered by facilities and
equipment owned exclusively by Operator, provided such rates are not in
excess of current prevailing rates of like service and equipment available
in the area:
A. Water service, gas and power, booster and compressor services, etc.,
cost of such services including operation, maintenance, insurance,
taxes and allowance for depreciation.
B. Automotive equipment, at rates commensurate with cost of ownership
and operation and in line with schedule adopted by Operator for use
in his operations. Charges will be based on use in actual service
on, or in connection with the development and operation of the joint
property.
C. Aircraft equipment, at rates commensurate with cost of ownership and
operation. Charges will be made on a flight hour basis, based on use
and actual service in connection with the development and operation
of the joint property.
D. A fair rate shall be charged for the use of drilling and other
machinery and equipment exclusively owned by Operator while used
hereunder to cover maintenance, repairs, depreciation, for the
service furnished the joint property. Drilling equipment lost in the
hole or damaged beyond repair shall be charged to the joint account
at a fair depreciated value.
Whenever requested Operator shall inform Non-Operator in advance of
the rates it proposes to charge.
Rates shall be revised from time to time when found to be either
excessive or insufficient.
IV. DISPOSAL OF LEASE EQUIPMENT AND MATERIAL
The Operator shall be under no obligation to purchase interest of
Non-Operator in surplus new or secondhand material. Derricks, tanks,
buildings, and other major items shall not be removed by Operator from the
joint property without the approval of Non-Operator. Operator shall not
sell major items of material to an outside party without giving
Non-Operator an opportunity either to purchase same at the price offered
or to take Non-Operator's share in kind.
1. MATERIAL PURCHASED BY OPERATOR
Material purchased by Operator shall be credited to the joint account and
included in the monthly statement of operations for the month in which the
material is removed from the joint property.
2. MATERIAL PURCHASED BY NON-OPERATOR
Material purchased by Non-Operator shall be invoiced by Operator and paid
for by Non-Operator to Operator immediately following receipt of invoice.
The Operator shall pass credit to the joint account and include the same
in the monthly statement of operations.
3. DIVISION IN KIND
Division of material in kind, if made between Operator and Non-Operator,
shall be in proportion to their respective interests in such material.
Each party will thereupon be charged individually with the value of the
material received or receivable by each party and corresponding credits
will be made by the Operator to the joint account, and such credits shall
appear in the monthly statement of operations.
4. SALES TO OUTSIDERS
Sales to outsiders of material from the joint property shall be credited
by Operator to the joint account at the net amount collected by Operator
from vendee. Any claims by vendee for defective material etc., shall be
charged back to the joint account, if and when paid by Operator.
V. BASIS OF PRICING MATERIAL TRANSFERRED FROM PROPERTY
Jointly-owned material and equipment sold to either Operator or
Non-Operator or divided in kind between them, unless otherwise agreed
shall be valued on the following basis of condition and price: (new price
as used in the following sub-divisions shall have the same meaning and be
computed on the same basis as the price for new material in sub-paragraph
2A of Section III hereof).
1. NEW MATERIAL
New material (Condition "A"), being new equipment or supplies purchased or
procured for the property but never used thereon, at one hundred percent
(100%) of current new price.
2. GOOD USED MATERIAL
Good used material (Condition "B"), being good serviceable material which
is further usable without reconditioning:
(a) At 75% of current new price if material was charged to joint account
as new, or
(b) At 75% of current new price less depreciation consistent with its
usage on and service to the joint property if material was
originally charged to the joint property as secondhand at 75% of new
price.
3. OTHER USED MATERIAL
Other used material (Condition "C"), being material which:
(a) After reconditioning will be further serviceable for original
function as good secondhand material (Condition "B"), or
(b) Is serviceable for original function but substantially not suitable
for reconditioning at 50% of current new price.
4. BAD ORDER MATERIAL
Bad order material (Condition "D"), being material not further usable for
its original function but for possible other service, at a value
commensurate with its use.
5. JUNK
Junk (Condition "E"), being obsolete and unserviceable material, at
prevailing junk prices in the district.
6. There may also be cases where some items of equipment due to their unusual
condition should be fairly and equitably priced by Operator subject to
approval of Non-Operator.
VI. INVENTORIES
1. PERIODIC INVENTORIES
Periodic inventories shall be taken by Operator of the joint account
material at reasonable intervals but at least once in every five years
which shall include all such material as is ordinarily considered
controllable by operators of oil and gas properties.
2. NOTICE
Notice of intention to take inventory shall be given by Operator at least
ten (10) days before any inventory is to begin, so that Non-Operator may
be represented when any inventory is taken.
3. FAILURE TO BE REPRESENTED
Failure of Non-Operator to be represented at the physical inventory shall
bind Non-Operator to accept the inventory taken by Operator, who shall in
that event furnish Non-Operator with a copy thereof.
4. RECONCILIATION OF INVENTORY
Reconciliation of inventory with charges to the joint account shall be
made by each party at interest, and a list of overages and shortages shall
be jointly determined by said parties.
5. ADJUSTMENT OF INVENTORY
Inventory adjustments shall be made by Operator with the joint account for
overages and shortages, but Operator shall only be held accountable to
Non-Operator for shortages due to lack of reasonable diligence.
6. INVENTORY EXPENSES
The expense of Operator's and Non-Operator's representatives present at
the taking of regular inventory shall not be charged to the joint account.
7. SPECIAL INVENTORIES
Any party shall have the right at any time to request in writing the
taking of a special inventory. The taking of such special inventory shall
be commenced within fifteen (15) days after the receipt of notice thereof.
The expense of Operator's representative in conducting any special
inventory so requested shall be charged to the separate account of the
requesting party.