Exhibit 10.3
Agreement with Canyon Oil
JOINT VENTURE AGREEMENT
DATED DECEMBER 1, 1999
BETWEEN:
SAN ▇▇▇▇▇▇▇ OIL & GAS LTD., a corporation incorporated under the laws
of the State of Nevada and having an office in the City of Calgary,
in the Province of Alberta ("San ▇▇▇▇▇▇▇")
- and -
CANYON OIL & GAS , a Limited Liability Company incorporated under the
laws of the State of California and having an office in the City of
Sacramento, in the State of California ("Canyon")
WHEREAS:
A. San ▇▇▇▇▇▇▇ is engaged in the exploration and development of oil and
gas prospects in the San ▇▇▇▇▇▇▇ and Sacramento basin of California;
B. Canyon has agreed to provide San ▇▇▇▇▇▇▇ with technical information for
oil and gas Prospects that may be acquired by San ▇▇▇▇▇▇▇ in the San
▇▇▇▇▇▇▇ and Sacramento basin of California;
C. San ▇▇▇▇▇▇▇ has agreed to pay certain overhead costs incurred by Canyon
in exchange for provision of such technical information; and
D. The Parties have further agreed that San ▇▇▇▇▇▇▇ will ▇▇▇▇▇ Canyon a
Carried Interest on all Acquired Prospects, which Carried Interest
shall be a 14% working interest in the Acquired Prospects, all in
accordance with the terms of this Agreement.
THE PARTIES AGREE AS FOLLOWS:
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS
In this Agreement, unless the context otherwise requires, the following terms
shall have the following meanings:
"ACCOUNTING PROCEDURE" means the ▇▇▇▇▇ - 1984 - Onshore Accounting
Procedure attached as Exhibit C to Schedule "A" hereto;
"ACQUIRED PROSPECTS" means Prospects in which an interest is acquired
by San ▇▇▇▇▇▇▇ pursuant to this Agreement;
"BROCHURE" means written material describing a Prospect, containing the
information set forth in Section 2.2;
"CARRIED INTEREST" means the right to acquire a working (participating)
interest without incurring any of the costs specified in Section 4.2;
"CONFIDENTIAL INFORMATION" means all technical information and data,
evaluations, reports, proprietary information and trade secrets
contained in a Brochure or otherwise provided by Canyon with respect to
a Prospect;
"EFFECTIVE DATE" means December 1, 1999;
"EXCLUSION AREA" means all lands included in a Prospect presented to
San ▇▇▇▇▇▇▇ by Canyon pursuant to Section 2.3;
"FARMOUT AND JOINT OPERATING AGREEMENT" means an agreement in the form
attached hereto as Schedule "A", including the Exhibits attached
thereto;
"INITIAL PERIOD" means the period from the Effective Date until March
31, 2000, inclusive;
"NON-ACQUIRED PROSPECTS" means all Prospects other than Acquired
Prospects;
"NOTICES" is defined in Section 7.1;
"OPERATING PROCEDURE" means the A.A.P.L. Form 610 - 1989 Model Form
Operating Agreement attached as Exhibit 2 to Schedule "A" hereto ;
"PARTICIPANTS" means Persons who may participate with San ▇▇▇▇▇▇▇ in
acquiring and developing a Prospect;
"PARTIES" means San ▇▇▇▇▇▇▇ and Canyon, and "PARTY" means either of
them;
"PERIOD" means the Initial Period or one of the Renewal Periods;
"PERSON" includes a corporation or limited liability company, an
individual, a partnership, a firm, an association and a syndicate;
"PROSPECTS" means all prospects relating to interests in lands or the
hydrocarbon rights thereto acquired or generated by Canyon and
presented to San ▇▇▇▇▇▇▇ pursuant to the terms of this Agreement, and
"PROSPECT" means one of such Prospects;
"RENEWAL PERIODS" is defined in Section 5.1;
"REPRESENTATIVES" means employees, consultants, agents, officers,
directors, subsidiaries or affiliates of a Party;
"STUDY AREAS" means lands and geological formations within the San
▇▇▇▇▇▇▇ and Sacramento Basin area of California;
"TERM" means the period commencing on the Effective Date and ending on
the Termination Date;
"TERMINATION DATE" is defined in Section 5.1.
1.2 INTERPRETATION
a) The headings of the articles and sections of this Agreement are
inserted for convenience of reference only and shall not be used in
construing or interpreting any provisions hereof.
b) Whenever the singular or masculine or neuter is used in this Agreement,
the same shall be construed as meaning the plural or feminine or body
politic or corporate and vice versa as the context or reference to the
Parties may require.
1.3 SCHEDULES
All Schedules attached hereto are incorporated herein by reference as fully as
though contained in the body hereof. The Schedules are as follows:
a) Schedule "A" which is the form of Farmout and Joint Operating
Agreement to be entered into with respect to Acquired
Prospects, including Exhibit 2 which is the Operating
Procedure and other Exhibits attached thereto; and
b) Schedule "B" which lists for the Initial Period, the Acquired
Prospects, along with the interests to be acquired by San
▇▇▇▇▇▇▇ therein. Should there be a conflict between the
provisions of the body of this Agreement and an agreement
entered into in the form of Schedule "A", the latter shall
prevail.
ARTICLE 2 - PROSPECTS
2.1 EXCLUSIVE RIGHTS OF SAN ▇▇▇▇▇▇▇
San ▇▇▇▇▇▇▇ shall have exclusive access to all Prospects located in the Study
Areas. San ▇▇▇▇▇▇▇ acknowledges, however, that the following prospects and
activities are specifically excluded from this Agreement:
▇▇▇▇▇▇▇ Ranch Gas Field
▇▇▇▇▇▇▇ Ranch Extension
Crossroads Gas Field
Crossroads Extension
North San ▇▇▇▇▇▇▇ Project (▇▇▇▇▇▇▇ Capital)
Raisin City Oil Field
Vemalis Gas Field
Vemonia Gas Field (Oregon)
▇▇▇▇▇▇▇ Gas Field
Equinax/E&B Natural Resources Acquisition Broker
Personal Working Interest Investments with Capitol Oil Corporation and
others
Prospect Review for several investors/oil companies
2.2 PRESENTATION OF PROSPECT BROCHURES
The Parties acknowledge that a Brochure has been provided with respect to
Prospects for the Initial Period, as outlined in Schedule "B" hereto. Six (6)
weeks prior to the commencement of each Renewal Period, Canyon shall provide San
▇▇▇▇▇▇▇ with a Brochure for all Prospects to be initiated during each such
Renewal Period. Each Brochure shall contain the following information:
a) a map outlining the area covered by each Prospect;
b) description of and vintage of seismic data available for the
Prospect;
c) proposed budget for the Prospect including details of the
following costs:
(i) lease acquisition costs;
(ii) seismic data costs;
(iii) geological data costs; and
(iv) well costs; and
d) terms of the Canyon Carried Interest where the number of
Carried Interest ▇▇▇▇▇ in a Prospect is to be greater than one
(1).
2.3 PRESENTATION OF PROSPECTS
a) Within one week of receiving a Brochure, San ▇▇▇▇▇▇▇ shall elect, by
written notice to Canyon, to receive additional information with regard
to any or all of the Prospects contained within the Brochure. Should a
Prospect included in a Brochure conflict with or cover the same area as
prior activities of San ▇▇▇▇▇▇▇, San ▇▇▇▇▇▇▇ shall elect not to acquire
any additional information with respect to such Prospect from Canyon.
Any Prospects for which San ▇▇▇▇▇▇▇ does not elect to receive
additional information shall not be subject to the provisions of
Article 6.
b) One week after San ▇▇▇▇▇▇▇ receives a Brochure for a Prospect, or on
such date as mutually agreed by the Parties, Canyon shall provide San
▇▇▇▇▇▇▇ with additional information, including geological, geophysical
and engineering description, and ownership of petroleum and natural gas
leases with respect to all Prospects for which San ▇▇▇▇▇▇▇ has elected
to receive such information. The additional information shall be
provided in Sacramento, California by way of a presentation, commonly
called a "show and tell", regarding each such Prospect.
c) Canyon shall provide San ▇▇▇▇▇▇▇ with access to all geological,
geophysical, engineering and land data provided in the presentations so
as to enable San ▇▇▇▇▇▇▇ to provide all such data to its Participants.
In any cases where Canyon is not permitted under its arrangements with
other Persons to allow such data to be provided for review outside
Canyon's offices, Canyon shall provide the Participants with access to
such data at Canyon's offices.
2.4 ACCEPTANCE OF PROSPECTS
Within twenty-five (25) days of receiving a presentation with respect to a
Prospect, San ▇▇▇▇▇▇▇ shall indicate in writing if it intends to accept a
Prospect, and the interest that it shall acquire therein, in which case the
Parties shall forthwith enter into a Farmout and Joint Operating Agreement in
the form attached hereto as Schedule "A" with respect to the lands included in
such Acquired Prospect.
2.5 PARTICIPATION LEVEL
San ▇▇▇▇▇▇▇ may elect to acquire an interest in a Prospect in any amount up to
100% of the interest in such Prospect. The participation level may vary from
Prospect to Prospect. If San ▇▇▇▇▇▇▇ elects to acquire less than 100% of the
interest in a Prospect, San ▇▇▇▇▇▇▇ may attempt to locate other Participants to
acquire the remaining interest, which Participants would enter into the same
Farmout and Joint Operating Agreement to be entered into by the Parties for that
Prospect and be subject to the same terms and conditions.
2.6 OPERATORSHIP OF PROSPECTS
a) San ▇▇▇▇▇▇▇ shall be operator of all Acquired Prospects for purposes of
drilling, and thereafter operating, each well.
b) Canyon shall be operator for acquisition of all seismic data.
2.7 REJECTION OF PROSPECTS BY SAN ▇▇▇▇▇▇▇
Subject to Article 6, San ▇▇▇▇▇▇▇ may reject any or all Prospects after
receiving a presentation with respect thereto. If San ▇▇▇▇▇▇▇ rejects a
Prospect, Canyon may find another Person or Persons to acquire such Non-Acquired
Prospect without any further obligation to San ▇▇▇▇▇▇▇.
ARTICLE 3 - COMPENSATION
3.1 OVERHEAD COSTS
In consideration for the provision by Canyon of the Prospects hereunder, San
▇▇▇▇▇▇▇ shall pay for Canyon's overhead costs in the amount of $70,000.00 for
the Initial Period and for each Renewal Period, payable in advance at the
beginning of the Initial Period and of each Renewal Period. It is intended that
such payments will cover costs for salaries of Canyon's Representatives, office
costs, and geological and geophysical data in Canyon's possession, provided
however that all ownership rights to such geological and geophysical data shall
remain with Canyon. It is understood and agreed that:
a) Canyon shall be solely responsible for any additional salaries and
wages, cost of holidays, vacation, sickness and disability benefits,
insurance coverage and other customary allowances which may be payable
to any of Canyon's Representatives; and that
b) the above-referenced fees cover all office overhead costs and include
all engineering, geological and geophysical data relating to the
Prospects currently in the possession of Canyon.
3.2 NO OTHER INTEREST
Except as provided in Section 3.1 and Article 4, Canyon shall not be entitled to
any other fees nor any share of the interest of San ▇▇▇▇▇▇▇ in any Acquired
Prospect and that San ▇▇▇▇▇▇▇ shall be solely entitled to the rights and
benefits in respect to the Acquired Prospects. Without limiting the generality
of the foregoing, Canyon shall not be entitled to an overriding royalty interest
on any Acquired Prospect and any costs passed on from Canyon to San ▇▇▇▇▇▇▇ and
any of San Joaquin's Participants shall be at Canyon's cost without any markup.
ARTICLE 4 - CANYON INTERESTS IN ACQUIRED PROSPECTS
4.1 STANDARD TERMS AND CONDITIONS
The provisions of this Article 4 contain the standard terms and conditions that
shall be included in the Farmout and Joint Operating Agreement to be entered
into by the Parties for each Acquired Prospect.
4.2 CANYON CARRIED INTEREST
San ▇▇▇▇▇▇▇ and any Participants in an Acquired Prospect shall pay 100% of the
following costs: a) costs of acquiring seismic data to evaluate such Acquired
Prospect for purposes of drilling a test well
thereon;
b) lease acquisition costs for such Acquired Prospect;
c) first year rental and bonus costs for leases acquired for such Acquired
Prospect; d) acquisition of geological data for the Acquired Prospect; e) all
costs associated with the test well, including drilling to contract depth,
testing, logging and
abandoning, or, if San ▇▇▇▇▇▇▇ and its Participants elect to
complete and equip the test well, costs to complete and equip
the test well; and
f) in those exceptional cases where the Parties have agreed that
the Carried Interest shall apply to more than the initial well
on a Prospect, costs for a second well, only if negotiated and
agreed by the Parties in writing at the time that San ▇▇▇▇▇▇▇
agrees to acquire an interest in such Acquired Prospect.
4.3 CANYON WORKING INTEREST
Canyon shall be entitled to a 14% working interest in the leases and test well
in all Acquired Prospects and shall thereupon be responsible for its working
interest share of all future costs incurred on the Acquired Prospect, including
any future well costs relating to the test well.
4.3 PARTICIPANTS WITH SAN ▇▇▇▇▇▇▇
It is acknowledged that San ▇▇▇▇▇▇▇ may have Participants acting with it in
acquiring an interest in any Prospect. The Participants will pay 100% of the
costs listed in Section 4.2 to earn a 75% working (participating) interest.
However, Canyon need only deal with San ▇▇▇▇▇▇▇ for purposes of this Agreement.
ARTICLE 5 - TERM OF AGREEMENT
5.1 RENEWAL PERIODS
This Agreement may be continued beyond the Initial Period by written agreement
of the Parties. If so continued beyond the Initial Period, this Agreement shall
continue in effect for successive four month periods (the "Renewal Periods")
until terminated by either Party by written notice given at least two (2)
calendar months prior to the end of any Period. The Agreement shall thereupon
terminate on the last day of the Period in which such notice has been given (the
"Termination Date").
5.2 TERM
The Term of this Agreement shall be from the Effective Date until the
Termination Date.
ARTICLE 6 - CONFIDENTIALITY AND EXCLUSION
6.1 CONFIDENTIALITY
In consideration of the disclosure of Confidential Information by Canyon to San
▇▇▇▇▇▇▇, San ▇▇▇▇▇▇▇ hereby agrees, for a period of one year from the date it
receives a Brochure for a Prospect to keep confidential any and all of the
Confidential Information relating to such Prospect and that it shall only use or
permit the use of the Confidential Information for the purpose of evaluating and
acquiring the Prospects in accordance with this Agreement. San ▇▇▇▇▇▇▇ shall not
under any circumstances disclose the Confidential Information, either directly
or indirectly, to any third party or parties or to any of its Representatives
not having a need to know for the purpose of appraising the Prospects. The
Confidential Information shall only be disclosed to San Joaquin's Participants
and Representatives on a "need to know" basis. San ▇▇▇▇▇▇▇ shall ensure that all
such Persons having access to the Confidential Information comply with the
provisions of this Agreement.
6.2 EXCEPTIONS
San Joaquin's confidentiality obligations hereunder shall not apply to any of
the Confidential Information that San ▇▇▇▇▇▇▇ can demonstrate:
a) to have been known to San ▇▇▇▇▇▇▇ prior to the disclosure to
San ▇▇▇▇▇▇▇ by Canyon;
b) to be in the public domain through no fault of San ▇▇▇▇▇▇▇ or
any of its Representatives; or
c) to have been lawfully obtained from a source independent of
Canyon where San ▇▇▇▇▇▇▇ has made reasonable efforts to ensure
that such source is not a party to or bound by any
confidentiality agreement with Canyon.
d) is required to be disclosed to a court of competent
jurisdiction or to any regulatory body having jurisdiction,
provided that:
(i) San ▇▇▇▇▇▇▇ shall take reasonable steps to maintain
the confidentiality of the Confidential Information
by the court or regulatory body; and
(ii) San ▇▇▇▇▇▇▇ shall provide Canyon with immediate
written notice of any request for disclosure.
6.3 EXCLUSION AREA
a) San ▇▇▇▇▇▇▇ shall not obtain any interest in petroleum and natural gas
rights within the Exclusion Area for a period of one year after the
date that it receives the Brochure applicable to such Exclusion Area.
San ▇▇▇▇▇▇▇ agrees that if it acquires any right or interest within the
Exclusion Area within one year after the date that it receives the
Brochure applicable to such Exclusion Area, 100% of such right or
interest shall immediately be offered to Canyon for a like amount of
the consideration expended by San ▇▇▇▇▇▇▇ for the said right or
interest, whether such consideration be monetary, incurred obligations,
or otherwise. The foregoing provisions shall not apply to any interest
acquired by San ▇▇▇▇▇▇▇ from Canyon in accordance with the provisions
of this Agreement.
b) The Parties acknowledge and agree that San ▇▇▇▇▇▇▇ shall be permitted
to acquire prospects and resulting leases in prospects outside areas
covered by the Prospects and that San ▇▇▇▇▇▇▇ has no obligation to
offer Canyon the right to participate in any such other prospects.
6.4 LIABILITY AND INDEMNITY
San ▇▇▇▇▇▇▇ shall:
a) be liable to Canyon for all loss and damages whatsoever which
Canyon may sustain or incur; and, in addition
b) indemnify and hold harmless Canyon from and against all loss
and damages whatsoever which may be suffered by Canyon or
which it may sustain or incur by reason of the failure of San
▇▇▇▇▇▇▇ or its Representatives or Participants to comply with
the obligations contained in Sections 6.1, 6.2 and 6.3 of this
Agreement.
ARTICLE 7 - GENERAL CONTRACT PROVISIONS
7.1 NOTICES
All notices, requests, demands or other communications (collectively, "Notices")
by the terms hereof required or permitted to be given by one Party to the other,
or to any other person, shall be given in writing by personal delivery or by
facsimile transmission to such other Party at the following address:
To San ▇▇▇▇▇▇▇ at: ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
To Canyon at: SUITE 1, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address as may be given by a Party to the other Party hereto in
writing from time to time.
All such Notices shall be deemed to have been received when delivered or
transmitted, provided that any Notice received after normal business hours or on
a holiday or weekend shall be deemed to be received on the next day business
day.
7.2 FURTHER ASSURANCES
The Parties shall sign such further and other documents, cause such meetings to
be held, resolutions passed and by-laws enacted, exercise their vote and
influence, do and perform and cause to be done and performed such further and
other acts and things as may be necessary or desirable in order to give full
effect to this Agreement and every part hereof.
7.3 COUNTERPARTS
This Agreement may be executed in several counterparts, each of which so
executed shall be deemed to be an original and such counterparts together shall
be one and the same instrument.
7.4 TIME OF THE ESSENCE
Time shall be of the essence of this Agreement and of every part hereof and no
extension or variation of this Agreement shall operate as a waiver of this
provision.
7.5 ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the Parties with respect
to all the matters herein and its execution has not been induced by, nor do
either of the Parties rely upon or regard as material, any representations or
writings whatever not incorporated herein and made a part hereof. This Agreement
may not be amended or modified in any respect except by written instrument
signed by the Parties. Any schedules referred to herein are incorporated herein
by reference and form part of this Agreement.
7.6 ENUREMENT
This Agreement shall enure to the benefit of and be binding upon the Parties and
their respective legal personal representatives, heirs, executors,
administrators or successors.
7.7 ASSIGNMENT
Neither Party may assign its rights and obligations under this Agreement. The
Parties acknowledge that San ▇▇▇▇▇▇▇ may bring in Participants who will become
parties to Farmout and Joint Operating Agreements entered into in the form of
Schedule "A". Such Participants shall not, however, become parties to this
Agreement.
7.8 CURRENCY
Unless otherwise specifically provided for herein, all monetary amounts
specified herein shall refer to the lawful money of the United States of
America.
7.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of California and each Party irrevocably attorns to the non-exclusive
jurisdiction of the Courts of such State.
7.10 CALCULATION OF TIME
When calculating a period of time within which or following which any act is to
be done or step taken pursuant to this Agreement, the date which is the
reference date shall, unless otherwise specifically included, be excluded. If
the last day of a period is not a business day, then the time period in question
shall end on the first business day following such non-business day.
7.11 SEVERABILITY
If any portion of this Agreement is determined to be invalid or unenforceable
for any reason whatsoever, that invalidity or unenforceablity shall not affect
the validity or enforceability of remaining portions of this Agreement and such
invalid or unenforceable portion shall be severed from the remainder of this
Agreement.
IN WITNESS WHEREOF the Parties have executed this Agreement as of the day and
year first above written.
SAN ▇▇▇▇▇▇▇ OIL & GAS LTD. CANYON OIL & GAS
PER: /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇ PER: /s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------- ---------------------------
J. ▇▇▇▇▇▇▇ ▇▇▇▇▇,
PRESIDENT
PER: ______________________