ROYALTY AGREEMENT
THIS AGREEMENT made as of the 14th day of June,
2006.
BETWEEN:
GIANT OIL & GAS INC., a body corporate, of the City of
Calgary, in the Province of Alberta,
(hereinafter called "Payor")
OF THE FIRST PART
- and -
STONE PETROLEUMS LTD., SUPERNOVA RESOURCES LTD., 349385
ALBERTA LTD. and TORLAND LTD., bodies corporate, of the City
of Calgary, in the Province of Alberta,
(hereinafter collectively called "Royalty Owner")
OF THE SECOND PART
WHEREAS Royalty Owner is the holder of the whole of the lessee's
interest in and to the Lease as hereinafter defined;
AND WHEREAS for good and valuable consideration Royalty Owner reserves
unto itself an overriding royalty in and to the Petroleum Substances within,
upon or under the Lands and to the extent that Royalty Owner does not take in
kind, Payor agrees to pay Royalty Owner the Royalty upon the terms and
conditions hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSETH that the parties hereto agree
as follows:
1. DEFINITIONS
In this Agreement including the recitals hereto, this Clause
and the Schedules hereto, unless the context otherwise requires:
(a) "Petroleum Substances" means petroleum, natural gas and
related hydrocarbons and all other substances, whether liquid
or solid and whether hydrocarbons or not, within, upon or
under the Lands, the rights to which are granted by the Lease;
(b) "Lands" means Township Fifty-One (51), Range Twenty-one
(21), West of the Fourth (4th) Meridian, Section Twenty-Six
(26) Northeast Quarter (NE/4), insofar as any rights thereto
are granted by the Lease, as further described and set out in
Schedule "A" attached to and forming part of this Agreement;
(c) "Lease" means Alberta Crown Petroleum and Natural Gas
Lease No. 0405030802, by virtue of which the holder thereof is
entitled to drill for, win, take or remove the Petroleum
Substances underlying all or any part of the Lands, including
any extension, renewal or continuation thereof as further
described and set out in Schedule "A" attached to and forming
part of this Agreement;
(d) "Royalty" means an undivided Five (5%) percent
non-convertible royalty granted in and to the Petroleum
Substances in situ within, upon or under the Lands and based
on one hundred (100%) percent of the Petroleum Substances, the
rights to which are granted by the Lease.
2. RESERVATION OF ROYALTY
(a) The Royalty Owner hereby reserves unto itself, the
Royalty, and if Royalty Owner fails to take in kind, Payor
agrees to bear and pay to Royalty Owner the value of the
Royalty share based on an undivided one hundred (100%) percent
of the Petroleum Substances produced from or deemed to be
produced from or allocated to the Lands.
(b) It is further expressly agreed that the Royalty reserved
by the Royalty Owner and payable by Payor as aforesaid:
(i) is attached to and forms a part of the Lands;
(ii) is free and clear of all expenses,
royalties, taxes, marketing fees and deductions of
any kind or nature whatsoever except as herein
otherwise set forth.
3. CALCULATION OF ROYALTIES
(a) The word "value" in Clause 2 of this Agreement means the
price paid from time to time by a bona fide purchaser for
value dealing at arms length with Payor, at the point of sale,
for the Petroleum Substances produced, saved or allocated to
the Lands, free and clear of all expenses, royalties, taxes,
marketing fees and deductions of any kind or nature
whatsoever, excepting:
(i) with respect to natural gas, a
reasonable charge for gathering, transportation,
processing, treating, compression, absorption or
other plant extraction or stabilization costs to the
extent they are actually incurred, but such costs in
any event shall not exceed those calculated in the
same manner and on the same basis as from time to
time the Crown in the right of the Province of
Alberta accepts in respect of its royalty share of
production from the relevant well or ▇▇▇▇▇.
(ii) with respect to crude oil, condensate
and other Petroleum Substances, its proportionate
share of the actual costs of transportation by truck
where sales are not made FOB the lease tankage for
the Lease.
(b) Subject to Clause 3(c), the Royalty which is produced from
or deemed to be produced from or allocated to the Lands shall
be calculated prior to the deduction of Alberta Crown lessor
royalties and prior to the deduction of all other royalties,
costs and encumbrances, which may be payable with respect to
the Lands and the Lease;
(c) Payor may use a proportionate share of the Royalty share
of Petroleum Substances produced from or deemed to be produced
from or allocated to the Lands, which are reasonably required
for its normal production operations located on the Lands,
excepting however, secondary recovery operations, injection
operations, or use as fuel gas in the operation of a plant or
other facility. Such permitted uses of the Petroleum
Substances shall be excluded in determining the Royalty;
(d) In the event Payor uses any of the Royalty share for
secondary recovery operations, injection operations or as fuel
gas in the operation of a plant or other facility except as it
relates to production from the Lands, such Petroleum
Substances shall be deemed to have been produced, saved and
marketed;
(e) Notwithstanding any of the foregoing in this Clause 3, the
calculation of the value of the Royalty with respect to
natural gas (excluding liquids and sulphur) otherwise payable
after deducting any or all costs, charges, royalties, taxes,
deductions or expenses of whatsoever nature shall never be
less than $0.10 mcf, and Payor shall pay such amount to
Royalty Owner.
(f) Payor shall not have the authority to sell the Royalty
pursuant to any forward selling type contract, without the
expressed written consent of the Royalty Owner. In the event
such consent is not obtained, the Royalty Owner shall have the
right to elect to have their royalty calculated on the basis
of the price used by the Crown in right of the Province of
Alberta for its lessor share of Petroleum Substances and Payor
shall pay the Royalty Owner on that basis.
4. PAYMENT OF ROYALTY SHARE
(a) Subject to Royalty Owner's right to take in kind set out
in Clause 5 herein, any sale by or on behalf of Payor of any
Petroleum Substances produced from or allocated to the Lands
shall include the Royalty share of such Petroleum Substances.
Any contract for the disposition of the Royalty share of
Petroleum Substances produced from or allocated to the Lands
shall be a price not less than that received by Payor for its
share of Petroleum Substances. Not later than the last day of
the month following the calendar month in which any such sale
occurred or deemed sale occurred, Payor shall pay to Royalty
Owner an amount equal to the value of the Royalty which has
been produced from or deemed to be produced from or allocated
to the Lands. Payment shall be made to Royalty Owner at its
address for notice provided herein.
(b) Payor acknowledges and agrees to pay all amounts payable
pursuant to this Agreement as follows:
Stone Petroleums Ltd. 3.10 %
Supernova Resources Ltd. .90 %
349385 Alberta Ltd. .50 %
Torland Ltd. .50 %
(c) In the event that Payor fails to pay the said Royalty
share of Petroleum Substances produced from or deemed to be
produced from or allocated to the Lands, on or before the
sixtieth (60th) day next following the end of the calendar
month in which production of Petroleum Substances has
occurred, or which have been allocated to the Lands, Payor
shall pay Royalty Owner interest at the prevailing prime rate
of interest per annum charged for Canadian dollar loans, by
the Royal Bank of Canada plus two (2%) percent per annum,
commencing on the thirtieth (30th) day following the end of
the said calendar month for which production of Petroleum
Substances occurred or which were allocated to the Lands, to
and including the date all amounts plus accrued interest have
been paid to the Royalty Owner.
(d) The Royalty Owner shall be entitled to and shall have a
first and paramount lien upon all of the Petroleum Substances
from time to time, produced from or allocated to the Lands, to
secure the payment of the amounts due and payable to the
Royalty Owner pursuant to this Agreement. The Royalty Owner
shall have the right to sell such quantity or quantities of
Payor's share of Petroleum Substances and receive the proceeds
of such sale as shall be sufficient to pay such outstanding
amounts including interest thereon; provided however, that
such sale of the Petroleum Substances shall be subject to the
terms of any existing applicable gas purchase agreements,
crude oil or liquid sales contracts. In addition, the Royalty
Owner shall have the right to receive directly from any
purchaser, the proceeds from the sale thereof up to the amount
plus accrued interest owing by Payor to the Royalty Owner and
any purchaser shall be entitled to rely on the Royalty Owner's
written statements concerning the existence and the amount of
such default. For the sole purpose of effecting such sales,
the Royalty Owner is hereby irrevocably appointed attorney for
Payor with irrevocable authority to enter into any such sale
or receive the proceeds on behalf of the Payor of any sale
pursuant to this clause. The exercise of any rights granted
herein to the Royalty Owner shall not prejudice any other
rights the Royalty Owner may have to enforce its claim.
(e) In addition, without limiting the generality of the
foregoing, if Payor's failure to pay the Royalty Owner the
amounts aforesaid and accrued interest thereon, continues for
ten (10) days after written notice thereof to Payor, the
Royalty Owner shall have a right to set off against the
outstanding amount plus accrued interest, all amounts due or
accruing to Payor from the Royalty Owner from any source or
agreement whatsoever.
(f) Each payment of the Royalty to the Royalty Owner shall be
accompanied by a copy of the monthly production report which
is filed with the Province of Alberta giving a full and
complete statement of all Petroleum Substances produced and
marketed or used during the month for which such payment is
made.
(g) Any amount received by Payor with respect to proceeds of
production or deemed production of the Royalty share of
Petroleum Substances produced from or deemed to be produced
from or allocated to the Lands, shall be deemed to be held in
trust by Payor for and on behalf of the Royalty Owner.
(h) Payor covenants and agrees that the Royalty shall be shown or
listed as a permitted encumberance in any sale or any
financing by Payor, where the Royalty Lands are mortgaged or
assigned.
5. RIGHT TO TAKE IN KIND
(a) The Royalty Owner shall own and may take in kind or
separately dispose of the Royalty share of Petroleum
Substances. Subject to the expiry of the term of any existing
contracts for the sale of Petroleum Substances, the Royalty
Owner may, by giving 30 days written notice to Payor, elect to
take its Royalty share of Petroleum Substances, in kind and on
a similar notice, the Royalty Owner may revoke its election
but this election shall not be exercised by the Royalty Owner
at intervals less than six (6) months from the previous
election.
(b) If the Royalty Owner exercises its rights to take the
Royalty in kind, the Royalty Owner shall have the right to use
all of Payor's facilities or enter into its own agreements
with third parties, with respect to the storage, gathering,
transporting, treating or processing by compression,
absorption or other plant extraction or stabilization PROVIDED
HOWEVER, if the Royalty Owner elects to use Payor's
facilities, the Royalty Owner shall be charged and agrees to
pay Payor its proportionate share of a cost of service for
such storage, gathering, transporting, treating or processing
the Royalty share, in the same manner and on the same basis as
from time to time the Crown in right of the Province of
Alberta accepts with respect to its royalty share of
production from the relevant well or ▇▇▇▇▇. In any event, the
Royalty Owner shall not be charged with the cost of removal of
basic sediment and water.
6. BOOKS AND RECORDS
Payor shall keep and maintain in the City of Calgary in the
Province of Alberta, at all times and from time to time, true and correct books,
records and accounts showing the quantity of Petroleum Substances produced from
or allocated to each well on the Lands and the disposition thereof and permit
the Royalty Owner or its agent to audit the same and to make extracts and copies
therefrom and thereof and at all times during regular business hours permit
Royalty Owner or its agent to enter upon the Lands for the purpose of
ascertaining the quantity and nature of the Petroleum Substances produced or
taken from the Lands.
7. PAYOR NOT OBLIGATED TO DEVELOP
Notwithstanding any provision herein contained, Payor shall be
under no obligation to the Royalty Owner to develop the Lands or any part
thereof.
8. COMMINGLING PRODUCTION
Payor shall have the right to commingle Petroleum Substances
produced from the Lands with Petroleum Substances produced from other lands
provided methods acceptable to the Royalty Owner are used to determine the
proper measurement of individual well production. Where governmental regulations
or orders require segregated production tests of individual ▇▇▇▇▇ at intervals
not greater than two months, such tests will be deemed acceptable to the Royalty
Owner under this Clause 8 and no further tests will be required.
9. POOLING & UNITIZATION
(a) Payor is hereby given the right at any time and from time
to time to pool that portion of the Lands required to form a
spacing unit for the production of Petroleum Substances from a
well. The basis and manner of such pooling, shall be on an
acreage basis.
(b) Payor shall not include the Lands or any part thereof in
any voluntary plan of unitization without the Royalty Owner's
written consent. The execution by the Royalty Owner of the
applicable unit agreement shall be deemed to be proper
consent.
(c) Upon any such pooling or unitization the Royalty shall be
paid on the basis of production deemed to be produced from or
allocated to Lands under the plan of unitization or pooling
and not upon the basis of actual production from the Lands.
(d) If Payor intends to pool or unitize any portion or
portions of Lands or to incorporate any portions thereof in a
pooling agreement or a unit agreement, it shall furnish the
Royalty Owner with a copy of the executed pooling agreement or
unitization agreement.
10. SURRENDER
(a) No interest in the Lands or Lease subject to this
Agreement shall be surrendered, by Payor in whole or in part
without giving notice of such proposed surrender in writing
(hereinafter called "the surrender notice") to the Royalty
Owner at least sixty (60) days before the next ensuing
anniversary of the date of the Lease covering the lands or
interest which it proposes to surrender. Within fifteen (15)
days after receipt of such notice, the Royalty Owner may elect
in writing to acquire such interest for One ($1.00) Dollar. If
the Royalty Owner does so, Payor shall, without warranty,
forthwith transfer or assign such interest to the Royalty
Owner. The said Royalty shall thereafter cease to be payable
with respect to the interest so assigned to the Royalty Owner.
(b) Upon the Royalty Owner electing to acquire an interest to
be surrendered as set forth herein, the Royalty Owner shall
assume all rights and obligations of Payor with respect to the
interest assigned which accrue after the effective date of
such assignment as aforesaid.
(c) In the event the Royalty Owner fails to make the election
as provided for in this clause, Payor may surrender the
interest specified in the surrender notice.
11. RIGHT TO INFORMATION
Payor shall provide to Stone Petroleums Ltd., on behalf of the
Royalty Owner, information with respect to the drilling, testing and operation
of any well on the Lands or on lands pooled with the Lands including, without
limiting, the generality of the foregoing, daily drilling reports, field prints
of log runs, drill-stem test results, well survey results, production or
back-pressure test results and oil, gas, water or other analyses made on
recoveries from production testing and/or back-pressure testings.
12. INTEREST IN LAND
It is the intention of the parties that both the Royalty and
the lien referred to in clause 4(d) are hereby deemed to be interests in land
and run with the Lands. Payor covenants and agrees to ensure that any security
interest granted with respect to the Lease or the Lands includes a provision
that such security interest is subject to the prior rights and interest of the
Royalty Owner.
13. FURTHER ASSURANCES
Each of the parties hereto shall, from time to time and at all
times, do such further acts and deliver all such further assurances, deeds and
documents as shall be reasonably required in order to fully perform and carry
out the terms of this Agreement.
14. RATABLE PRODUCTION
Subject to a unitization and any governmental regulations and
insofar as the same are capable thereof, any well located on the Said Lands or
pooled therewith shall be produced ratably with all other ▇▇▇▇▇ operated or
under the control of Payor in the field in which the Lands form a part. The
intent of the parties being that there shall be no curtailment of production
from the Lands unless production is curtailed in like fashion from other ▇▇▇▇▇
in the same field which are operated or controlled by Payor.
15. ASSIGNMENT BY PAYOR
Payor may assign any legal or equitable interest in this
Agreement, the Lands, the Leases or any portion or portions thereof; PROVIDED
THAT, in the event that Payor assigns all or any portion of its interest as
aforesaid, Payor will cause its assignees to assume and be bound by all of the
terms and provisions of this Agreement insofar as the same relate to the
interest so assigned AND PROVIDED FURTHER HOWEVER, Payor shall remain liable
therefor until, the assignee assumes such obligations, Payor provides the
Royalty Owner a notice of assignment executed by Payor and its assignee, with
respect to such obligations and Payor pays the Royalty Owner all outstanding
amounts plus accrued interest (if any) due and owing as at the date of receipt
of the notice of the assignment.
16. ALBERTA LAW TO GOVERN
The parties hereto agree that this Agreement in all respects,
be subject to, interpreted, construed and enforced in accordance with and under
the laws of the Province of Alberta, in the English language.
17. TIME OF ESSENCE
Time is of the essence in this Agreement.
18. NOTICES
The addresses for service of the parties hereto shall be as
follows:
Payor: GIANT OIL & GAS INC.
▇▇▇▇ - ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Royalty Owner: STONE PETROLEUMS LTD.
#▇▇▇▇, ▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ OZ3
SUPERNOVA RESOURCES LTD.
1400, ▇▇▇ - ▇▇▇ ▇▇▇. ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LTD.
▇▇▇ - ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
TORLAND LTD.
▇/▇ #▇▇▇▇, ▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Any party hereto may from time to time change its address for
service herein by giving written notice to the other parties hereto. Any notice
may be served by personal hand delivery, delivery by courier, telecopy, telefax
or by mailing the same by prepaid post in a properly addressed envelope
addressed to the party to whom the notice is to be given at such party's address
for service hereunder. Any notice served other than by mail shall be deemed to
be given and received by the addressee on that day or if by mail, it shall be
deemed to be given and received by the addressee on the fifth (5th) day after
the mailing thereof, Saturdays, Sundays and statutory holidays excepted.
19. MAINTENANCE OF LANDS
Payor shall:
(a) pay all rentals, royalties, taxes and charges payable
under the provisions of the Lease;
(b) in carrying out all operations on the Lands, comply with
all laws, rules and regulations applicable thereto and in
accordance with good oilfield practices.
20. LIABILITY AND INDEMNIFICATION
(a) Payor shall be liable for all actions, suits, claims,
costs, expenses and demands whatsoever by any person, firm,
corporation or government arising out of or attributable to
the Lease and the Lands or any act or omission of Payor, its
employees, servants, agents or independent contractors, and
for any loss, damage, cost or expense incurred by the Royalty
Owner with respect thereto other than the Royalty Owner's
liability for income taxes.
(b) Payor shall indemnify and save harmless the Royalty Owner
from and against all actions, suits, claims, costs, expenses
and demands whatsoever by any person, firm, corporation or
government arising out of or attributable to the Lease and the
Lands or any act or omission of Payor, its employees,
servants, agents or independent contractors, and for any loss,
damage, cost or expense incurred by the Royalty Owner with
respect thereto, other than the Royalty Owner's liability for
taxes.
21. WAIVER
No waiver by any party of any breach of any of the covenants,
conditions and provisions herein contained shall be effective or be binding upon
any of the parties unless the same be expressed in writing. Any waiver so
expressed shall not limit or affect its rights with respect to any other future
breach.
22. PERPETUITIES
Notwithstanding anything in this Agreement contained, any
right under this Agreement of a party to acquire any interest in the Lands from
any other party shall not extend beyond twenty-one (21) years after the lifetime
of the last survivor of the lawful descendants now living of Her Majesty Queen
▇▇▇▇▇▇▇▇▇ ▇▇.
23. ENURING CLAUSE
This Agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective receivers, trustees, successors and
assigns.
24. ASSIGNMENT PROCEDURE
The parties agree to adopt the 1993 CAPL Assignment Procedure
which is hereby made a part of this agreement.
IN WITNESS WHEREOF the parties hereto have executed and
delivered this Agreement as of the day and year first above written.
GIANT OIL & GAS LTD. STONE PETROLEUMS LTD.
Per: Per:
SUPERNOVA RESOURCES LTD. TORLAND LTD.
Per: Per:
349385 ALBERTA LTD.
Per:
Signature page attached to and forming part of Royalty Agreement between Giant
Oil & Gas Inc. and Stone Petroleums Ltd., Supernova Resources Ltd., 349385
Alberta Ltd. and Torland Ltd., dated June 14th, 2006.
SCHEDULE "A" ATTACHED TO AND FORMING PART OF A ROYALTY AGREEMENT BETWEEN GIANT
OIL & GAS INC., AS PAYOR, AND STONE PETROLEUMS LTD., SUPERNOVA RESOURCES LTD.,
349385 ALBERTA LTD., AND TORLAND LTD., AS ROYALTY OWNER, DATED JUNE 14TH, 2006.
Lands: Township Fifty-One (51), Range Twenty-one (21), West of the Fourth
(4th) Meridian, Section Twenty-six (26) Northeast Quarter (NE/4).
Lease: Crown Petroleum and Natural Gas Lease No. 0405030802 issued to Stone
Petroleums Ltd., as to an undivided 80%, Supernova Resources Ltd., as
to an undivided 20%.