EQUALIZATION AND JOINT OPERATING AGREEMENT MORGAN COUNTY, TENNESSEE
▇▇▇▇▇▇
COUNTY, TENNESSEE
THIS
AGREEMENT
made
this 7th
day of
July, 2008.
AMONG:
Montello
Resources (USA) Ltd.,
a body
corporate, having an office in the City of Calgary in the Province of Alberta,
(hereinafter called "Montello")
PARTY
OF THE FIRST PART
-
and
-
Park
Place Energy Corp.,
a body
corporate, having an office in the City of Calgary in the Province of Alberta,
(hereinafter called "Park Place")
PARTY
OF THE SECOND PART
-
and
-
Nexgen
Petroleum Corp. (formerly Blackrock Petroleum Corp.),
a body
corporate, having an office in the City of Las Vegas in the State of Nevada,
(hereinafter called "Nexgen")
PARTY
OF THE THIRD PART
-
and
-
Austin
Developments Corp.,
a body
corporate, having an office in the City of Vancouver in the Province of B.C.,
(hereinafter called "Austin")
PARTY
OF THE FOURTH PART
WHEREAS
the
parties are or entitled to become the beneficial holders of the lessee's
interest in the joint lands and ▇▇▇▇▇ more particularly set out and described
in
Schedule "A"; and,
WHEREAS
the
parties desire to provide for the manner in which operations will be conducted
on the title documents and the joint lands as and from the effective
date.
NOW
THEREFORE THIS AGREEMENT WITNESSETH
that in
consideration of the mutual covenants and agreements herein contained and
subject to the terms and conditions hereinafter set out the parties agree as
follows:
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1.
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DEFINITIONS
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In
this
Agreement, including the recitals, unless the context otherwise requires, the
definitions contained in Clause 101 of the Operating Procedure save as amended
hereby shall apply hereto. In addition to such definitions in the Operating
Procedure the following expressions shall have the respective meanings herein
assigned to them, namely:
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(a)
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"joint
lands" means the lands more particularly set out and described and
from
time to time remaining in Schedule
"A";
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-2-
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(b)
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"Operating
Procedure" means the 1990 CAPL Operating Procedure, including the
PASC
1996 Accounting Procedure, attached hereto as Schedule "B";
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(c)
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"the
title documents" means the documents more particularly described
in
Schedule "A" insofar as they relate to the joint lands and by virtue
of
which the parties are entitled to drill for, win, take or remove
petroleum
substances underlying the joint lands and all renewals or extensions
thereof or title documents issued hereunder;
and
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(d)
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"party"
means a person, firm or corporation which is bound by this Agreement
and
the Operating Procedure.
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2.
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CONFLICT
OF PROVISIONS
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Wherever
there is a conflict between this Agreement and the Operating Procedure, the
terms and provisions of this Agreement shall prevail and wherever there is
a
conflict between this Agreement and the title documents, the terms and
provisions of the title documents shall prevail.
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3.
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INTERPRETATION
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Whenever
the singular or masculine or neuter is used herein, the same shall be construed
as meaning plural or feminine or body politic or corporate and vice versa as
the
context requires.
| 4. |
RIGHT
FOR NEXGEN TO EARN AN INTEREST
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As
between only Montello and Nexgen the under noted terms and conditions shall
apply to the obligation of Nexgen to assume and be responsible for Montello’s
share of costs and expenses to be incurred on the joint lands after the
effective date as follows:
(a)
the
cumulative sum of monies which Nexgen will bear on Montello’s behalf will be
$1,250,000.00 ("Carried Amount") with respect to Montello’s working interest
share (as per clause 6 hereof) of any joint expense incurred after the effective
date on the joint lands including, but not limited to, drilling, completions,
equipping, tie-ins, re-completions and re-works.
(b)
Montello as Operator shall have the right to cash call invoice Nexgen for all
anticipated expenditures comprising a portion of the Carried Amount and Nexgen
agrees to pay such cash call invoices within 15 working days of receipt
thereof.
(c)
when
Nexgen has borne and paid for the Carried Amount it shall have earned from
Montello an undivided 15% working interest in leases C. through G. inclusive
noted on Schedule "A" including all ▇▇▇▇▇ and equipment in, on or related
thereto.("the ▇▇▇▇▇ Block") The parties agree to notify the balance of the
parties to this Agreement when such earning has taken place and the effective
date thereof.
(d)
when
the Carried Amount has been expended, with respect to any operation then being
conducted but not finished it shall be deemed that both Montello and Nexgen
had
elected to participate in the balance of such operation pursuant to the terms
of
the Operating Procedure.
| 5. |
OPTION
FOR NEXGEN TO ACQUIRE AN
INTEREST
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As
among
only Montello, Austin and Nexgen the under noted terms and conditions shall
apply to the possible acquisition by Nexgen from Montello and Austin of
additional working interests in the ▇▇▇▇▇ Block as follows:
-3-
(a)
anticipated operations to be carried out on the joint lands are the attempted
completion of the ▇▇▇▇▇ #1 and ▇▇▇▇▇ #2 ▇▇▇▇▇ in firstly, a potentially natural
gas bearing zone at an approximate depth of 8275 feet subsurface in such ▇▇▇▇▇
and, secondly, certain shallower zones at an approximate depth of 2600 feet
subsurface in such ▇▇▇▇▇.
(b)
after
the completion attempts as aforesaid are made and the ▇▇▇▇▇ tested, if warranted
in accordance with good oilfield practice, for a period of time (minimum of
30
cumulative days) then Nexgen shall at its sole cost, risk and expense commission
an engineering report from a mutually agreeable reputable, oil and gas
evaluation engineering firm an evaluation of a 100% working interest in the
proven and probable oil and gas assets in the ▇▇▇▇▇ Block and provide each
of
Montello and Austin with a final copy thereof("the Evaluation") immediately
upon
receipt by Nexgen. The Evaluation must be prepared using assumptions and
methodology guidelines outlined in the Canadian Oil and Gas Evaluation Handbook
and in accordance with National Instrument 51-101, Standards for Disclosure
for
Oil and Gas Activity utilizing a discount rate of 12.5% on future cash
flows.
(c)
within 30 days of receipt by Montello and Austin of the Evaluation, Nexgen
may,
but is not obligated, elect in writing to acquire firstly, from Montello an
undivided 5% working in the ▇▇▇▇▇ Block and, secondly, from Austin an undivided
10% working interest in the ▇▇▇▇▇ Block for a total consideration consisting
of
two portions as follows:
(i)
prorata % dollar amount as calculated from the Evaluation, plus
(ii)
prorata % of the sum of $325,000.00 US which is the deemed value of a 100%
ownership of the surface on the ▇▇▇▇▇ Block and a house located
thereupon.
If
Nexgen
fails in a timely fashion to advise Montello and Austin of its intent to acquire
the working interests as aforesaid then its right to do so shall irrevocably
be
terminated. The right to acquire granted to Nexgen by Montello and Austin by
virtue of this clause 5. is not assignable by Nexgen to any third party without
the express written consent of both Montello and Austin.
(d)
if
Nexgen does elect to acquire additional working interests from each of Montello
and Austin as set out in sub-clause 5.(c) hereof, then the parties will
endeavour on a good faith basis to close the related Purchase and Sale of
working interests in the ▇▇▇▇▇ Block within 30 days of the date of Nexgen’s
election to acquire. The parties agree to utilize the 2000 CAPL Transfer
Procedure in any final documentation in that regard including any other mutually
agreeable amendments or additional provisions that are normally found in
documents of this nature within the oil and gas industry. Upon closing of these
purchases the parties shall jointly advise Park Place of the new interests
in
the ▇▇▇▇▇ Block.
(e)
if
Nexgen either fails to or elects not to commission the Evaluation contemplated
by Subclause 5.(b) hereof within 30 days after the final completion attempts
and
subsequent production testing, if any, then Nexgen shall have no further right
to acquire an interest pursuant to the provisions of this clause.
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6.
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WORKING
INTERESTS
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Prior
to
the possible earning of or acquisition of an additional working interest by
Nexgen pursuant to the provisions of either or both of clauses 4. and 5. hereof,
the initial working interests of the parties in the title documents, the joint
lands, listed ▇▇▇▇▇, the petroleum substances and in the operations to be
carried out pursuant to this Agreement are as follows:
-4-
(a)
with
respect to leases C. through G. inclusive so noted on Schedule "A"
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Park
Place
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5
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%
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Montello
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55
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%
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Austin
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40
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%
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(b)
with
respect to the balance of the leases on Schedule "A"
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Park
Place
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5
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%
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Montello
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35
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%
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Austin
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30
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%
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Nexgen
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30
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%
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(hereinafter
called "the working interests")
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7.
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WARRANTY
OF TITLE
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No
party
warrants title to its working interest in the joint lands and the title
documents but each does covenant that it has complied with the terms of the
title documents to the extent necessary to keep them in full force and effect,
has good right, full power and authority to enter into this Agreement and each
represents that it has not as of the effective date hereof received any notice
of default in respect thereof.
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8.
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ENCUMBRANCES
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If
the
working interest of any party in the joint lands hereafter shall become
encumbered by any royalty, production payment or other charge of a similar
nature, other than the present encumbrances as set out in Schedule "A", such
royalty, production payment or other charge shall be charged to and paid
entirely by the party whose interest is or becomes thus encumbered and such
party shall
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(a)
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ensure
that royalty, production payment or other charge of a similar nature
shall
either be terminated upon that party ceasing to have an interest
in the
joint lands so encumbered or be assumed by the transferee to which
such
party transfers its interest, as the case may be;
and,
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(b)
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indemnify
the other parties from and against all suits, demands, claims, damages,
expenses or any other proceeding whatsoever which the other parties
may
pay, sustain or incur by virtue of such party's failure to carry
out its
obligations under this clause.
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In
the
event that any party is required to surrender, relinquish, quit claim or forfeit
its interest by virtue of the operation of any term or condition of this
Agreement or the Operating Procedure, such party shall not create any further
encumbrance, nor implement any means by which a further encumbrance may be
created against its interest in the joint lands, ▇▇▇▇▇ or production taken
therefrom, subsequent to the initial date upon which the term or condition
requiring such surrender, relinquishment, quit claim or forfeiture became
operative. During the term of this Agreement, no party shall do or cause to
be
done any act nor make or cause to be made any omission whereby the joint lands
become encumbered in such a way as to adversely affect the interest of the
other
parties, or become subject to termination or forfeiture.
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9.
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EFFECTIVE
DATE
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The
effective date for this Agreement shall be deemed to be as of the 7th
day of
July A.D., 2008.
-5-
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10.
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OPERATING
PROCEDURE
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As
of the
effective date the Operating Procedure shall be deemed to have come into full
force and effect with respect to the title documents and the joint lands,
without any further execution by the parties, and thenceforth shall govern
the
relationship of the parties in accordance with their respective working
interests with respect to all operations conducted in connection with the
exploration, development and maintenance of the joint lands for the production
of petroleum substances.
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11.
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OPERATOR
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Montello
is hereby appointed the initial Operator under the Operating Procedure to
conduct operations on the joint lands for the parties and Montello hereby
accepts such appointment.
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12.
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ALLOCATION
OF INCENTIVES, GRANTS AND
CREDITS
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All
incentives, grants and credits allowable under the applicable regulations which
incentives or grants or credits are generated by operations conducted on the
joint lands pursuant to this Agreement shall be allocated among the parties
in
accordance with their respective percentage of participation in such
operation.
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13.
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PLANT
PARTICIPATION
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Other
than a production facility proposed pursuant to Clause 1021 of the Operating
Procedure, if at any time during the term of this Agreement a party (hereinafter
referred to as the "proposing party") wishes to construct or participate in
the
construction of any plant, battery or other facility, including pipelines,
for
the treating, processing or transportation of petroleum substances produced
pursuant hereto; it shall so notify the other parties in writing giving
sufficient particulars thereof to enable the other parties to evaluate such
project and affording to the other parties the opportunity to participate in
such construction and the ownership in such plant, battery or other facility
to
the extent of their shares of production to be treated, processed or transported
in such facility.
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14.
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AREA
OF MUTUAL INTEREST
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All
of
the terms and provisions of that certain letter of agreement among the parties
hereto dated as of April 11, 2008 which established an Area of Mutual Interest
amongst them shall remain in full force and effect save and except that any
joint acquisitions made pursuant to the terms thereof shall be made subject
to
the Operating Procedure attached hereto rather than the Operating Procedure
attached to a certain Farmout and Participation Agreement dated March 10,
2008.
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15.
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SUPERSESSION
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The
terms
of this Agreement express and constitute the entire agreement between the
parties and no implied covenant or liability of any kind is created or shall
arise by reason of these presents of anything in this Agreement contained.
This
Agreement supersedes and replaces all previous agreements whether written or
oral, memoranda or correspondence between the parties with respect only to
the
subject matter of this Agreement ,in particular, the under noted
(a)
Farmout and Participation Agreement dated March 10, 2008 among all the parties
respecting the drilling of the Southeast #1 and Southeast #2 ▇▇▇▇▇.
(b)
Farmout and Participation Agreement dated April 11, 2008 among all the parties
respecting the drilling of the Lavender #1 well.
-6-
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(c)
Farmout Agreement dated March 6, 2006 between Montello and Austin
respecting the drilling of the ▇▇▇▇▇ #2
well.
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(d)
Participation Agreement dated August 8, 2007 between Montello and
Park
Place (originally Great Northern Oilsands Inc.) respecting the drilling
of
the ▇▇▇▇▇ #2 well.
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Notwithstanding
such superseding and replacement as detailed above, nothing shall
be
construed so as to release, diminish or discharge any party from
any debt
and/or obligation to any other party that arose or accrued under
some or
all of those agreements prior to the effective date
hereof.
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16.
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FURTHER
ASSURANCES
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Each
of
the parties hereto shall and will from time to time and at all times hereinafter
at the request of any party, execute such further assurances of this Agreement
as are reasonably required to give effect hereto.
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17.
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PROPER
LAW
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This
Agreement and the Operating Procedure attached hereto and the relationship
between the parties shall be construed and determined according to the laws
of
the Province of Alberta and the courts having exclusive original jurisdiction
with respect to any matter or thing arising directly or indirectly relating
to
this Agreement or the Operating Procedure shall be the courts of the Province
of
Alberta.
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18.
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SUCCESSORS
AND ASSIGNS
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This
Agreement shall enure to the benefit of and be binding on the parties hereto
and
their respective successors and permitted assigns.
| 19. |
LIMITATIONS
ACT
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The
two-year period for seeking a remedial order under section 3(1)(a) of the
Limitations
Act,
S.A.
2000 C. L-12, as amended, for any claim ( as defined in that Act ) arising
in
connection with this Agreement is extended :
(a)
for
claims disclosed by an audit, two (2) years after the time this Agreement
permitted that audit to be performed; or
(b)
for
all other claims, four (4) years.
| 20. |
CONTROL
OF WELL INSURANCE
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To
the
extent of the respective cost sharing interests the parties agree to be covered
by Operator’s Control of Well Insurance and Operator agrees to make suitable
arrangements in that regard. The parties agree to bear and pay for their
respective shares of such insurance coverage at cost.
| 21. |
MISCELLANEOUS
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(a)
Time
shall be of the essence in this Agreement.
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(b)
No amendment or variation of the provisions of this Agreement shall
be
binding upon any party unless and until it is evidenced in writing
executed by the parties.
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-7-
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(c)
The parties shall from time to time and at all times do all such
further
acts and execute and deliver all such further deeds and documents
as shall
be reasonably required in order to fully perform and carry out the
terms
of this Agreement.
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(d)
This Agreement shall enure to the benefit of and be binding upon
the
respective administrators, trustees, receivers, successors and assigns
of
the parties. An assignment of interest made by any Party hereto shall
be
made pursuant to all of the terms and conditions of the 1993 CAPL
Assignment Procedure which shall be deemed to be incorporated herein
in
its entirety.
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(e)
The terms and conditions of this Agreement express and constitute
the
entire agreement among the Parties with respect to the joint lands
and the
Title Documents.
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(f)
This Agreement may be executed in counterpart and all executed
counterparts taken together shall constitute one
agreement.
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IN
WITNESS WHEREOF THE PARTIES
have
duly executed this Agreement as of the day and year first above
written.
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MONTELLO
RESOURCES (USA) LTD.
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PARK
PLACE ENERGY CORP.
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Per:____________________________
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Per:__________________________
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AUSTIN
DEVELOPMENTS CORP.
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Per:____________________________
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Per:________________________
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Counterpart
execution page to an Equalization and Joint Operating Agreement dated July
7,
2008 among Montello Resources (USA) Ltd., Nexgen Petroleum Corp., Austin
Developments Corp. and Park Place Energy Corp.
SCHEDULE
"A"
Attached
to and made a part of
Equalization
and Joint Operating Agreement dated July 7, 2008
among
Montello Resources (USA) Ltd., Park Place Energy Corp.,
Austin
Developments Corp. and Nexgen Petroleum Corp.
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title
documents
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joint
lands
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encumbrances
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well(s)
on joint lands
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A.
Oil and Gas Lease dated Dec-22-2007 between Southeast Ventures, Inc.,
as
lessor and Montello Resources (USA) Ltd., as lessee located in ▇▇▇▇▇▇
County, Tennessee
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All
PNG within, upon or under the title documents containing 164 acres
more or
less
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Lessor
Royalty of 16%
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▇▇▇▇▇▇
Southpoint #3 (aka Southeast #1) and ▇▇▇▇▇▇ Southpoint #4 (aka Southeast
#2)
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B.
Oil and Gas Lease dated Mar-25-2008 between ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
as
lessors and Montello Resources (USA) Ltd., as lessee located in ▇▇▇▇▇▇
County, Tennessee
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All
PNG within, upon or under the title documents containing 120 acres
more or
less
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Lessor
Royalty of 16%
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▇▇▇▇▇▇
Southpoint #5 (aka Lavender #1)
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C.
Ownership in fee title of lands formerly held by ▇▇▇▇
▇▇▇▇▇
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All
PNG, minerals and all surface rights containing 100 acres more or
less
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nil
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▇▇▇▇▇
#1 and ▇▇▇▇▇ #2
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D.
Mortgage held against the ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ lands which may
be
convertible into an interest in a PNG lease
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All
PNG in 50 acres more or less
|
n/a
as of the date hereof
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Nil
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|||
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E.
Oil and Gas Lease dated _______ between ▇▇▇▇ ▇▇▇▇▇▇▇, as lessor and
Montello Resources (USA) Ltd., as lessee located in ▇▇▇▇▇▇ County,
Tennessee
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All
PNG within, upon or under the title documents containing 158 acres
more or
less
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Lessor
Royalty of 12.5%
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Nil
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F.
Oil and Gas Lease dated _______ between ▇▇▇ ▇▇▇▇▇, as lessor and
Montello
Resources (USA) Ltd., as lessee located in ▇▇▇▇▇▇ County,
Tennessee
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All
PNG within, upon or under the title documents containing 253 acres
more or
less
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Lessor
Royalty of 16%
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Nil
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G.
Oil and Gas Lease dated _______ between ▇▇▇▇▇ ▇▇▇▇▇▇, as lessor and
Montello Resources (USA) Ltd., as lessee located in ▇▇▇▇▇▇ County,
Tennessee
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All
PNG within, upon or under the title documents containing 459 acres
more or
less
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Lessor
Royalty of 12.5%
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Nil
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