Re: FARMOUT AGREEMENT

“Contract Depth” means a measured subsea depth of 450 metres or 15 metres below the base of the Medicine Hat formation, whichever occurs first;

“Farmee” means Park Place Energy Inc.;

“Farmor” means Bounty Developments Ltd. (as to an undivided 100% working interest in the Farmout Lands);

d)

“Mutual Interest Lands” means any interest in any parcel of petroleum and natural gas rights falling within one mile around NE Section 26, Twp. 22, Rge. 7, W4M.

Schedule “A” which describes the Title Documents, the Farmout Lands, and the Encumbrances and all renewals, extensions, continuations or documents of titles issued in substitution for same;

Schedule “B”, which is the election sheet for the 1997 CAPL Farmout & Royalty Procedure (the “Farmout and Royalty Procedure”) which procedure, along with the elections, is incorporated by reference into this agreement as fully as if it were attached hereto;

Schedule”C”, which is the election sheet for the 1990 CAPL Operating Procedure (the “Operating Procedure”) and the 1996 PASC Accounting Procedure (the “Accounting Procedure”) which procedures, along with the elections, are incorporated by reference into this agreement as fully as if they were attached hereto;

Schedule “D” which specifies the types of drilling information required to be supplied pursuant to the Farmout & Royalty Procedure; and

Schedule “E” which is a copy of the Gross Overriding Royalty Agreement with Bright Spark Enterprises Inc.

100% of Farmor’s 100% Working Interest in the Farmout Lands, subject to the Farmor’s Overriding Royalty reserved in Article 5.00 of the Farmout and Royalty Procedure which Overriding Royalty would be convertible to a 50% Working Interest after Payout.

Each of the parties represents and warrants that it now has or is entitled to have good right, full power and absolute authority to enter

into this Agreement.

In the event of a conflict between any term or condition of this Head Agreement and any Schedule attached hereto, the term or condition of this Head Agreement shall prevail.

Any reference in this Head Agreement to “hereunder”, “herein” and “hereof” refer to the provision of this Head Agreement and unless otherwise stated, any reference to a clause, subclause, or Schedule refers to the clauses, subclauses or Schedule of this Head Agreement.

This Agreement supersedes all other agreements, documents, writings and verbal understandings among the parties, or any of them, relating to the Farmout Lands.

This agreement enures to the benefit of the Parties and their respective successors and assigns.

"Condensate" means a mixture of mainly pentanes and heavier hydrocarbons that may be contaminated with sulphur compounds, that is

recovered or is recoverable at a Well from an underground reservoir and that may be gaseous in its virgin reservoir state but is liquid at the condition under which its volume is measured or estimated;

"Crude Oil" means a mixture mainly of pentanes and heavier hydrocarbons that may be contaminated with sulphur compounds, that is recovered or is recoverable at a Well from an underground reservoir and that is liquid at the conditions under which its volume is measured or estimated, and includes all other hydrocarbon mixtures so recovered or recoverable except natural gas or Condensate;

"Current Market Value" means the price at which Petroleum Substances are sold by the Grantor calculated at the Royalty Determination Point, which price is not unreasonable having regard to market conditions applicable to similar production in arm's length transactions at the time of such disposition including, without restricting the generality of the foregoing, such factors as the volumes available, the kind and quality of Petroleum Substances to be sold, the effective date of the sale, the term of the sale agreement, the point of sale of the Petroleum Substances and the type of transportation service available for the delivery of the Petroleum Substances to be sold;

"Leases" means the respective documents of title and any extension or renewal of such documents pursuant to which the Grantor holds an interest in the Royalty Lands;

"Overriding Royalty" means the overriding royalty granted pursuant to Clause 2 hereof;

"Petroleum Substances" means Crude Oil, Condensate, natural gas and related hydrocarbons and all other substances produced in association therewith but only to the extent that the same are granted by the Leases;

"Raw Gas" has the meaning prescribed by the Regulations;

"Regulations" means all statutes, laws, rules, orders, regulations or directives in effect from time to time and made by any governmental authority having jurisdiction over the Royalty Lands and the operations to be conducted thereon;

"Royalty Determination Point" means the first point of measurement downstream from the wellhead after the initial treatment of the produced substances for the separation and removal of basic sediment and water from the Petroleum Substances;

"Royalty Lands" means the specified undivided working interest(s) in the lands set forth in Schedule "A";

"Spacing Unit" means the area allocated to a Well (or the area which would be allocated to a well, but for a plan of unitization) pursuant to the Regulations for the purpose of producing Petroleum Substances; and

"Well" means any well on the Royalty Lands or on lands pooled with the Royalty Lands.

with respect to Crude Oil and Condensate, a proportionate share of the actual costs of transportation from the Royalty Determination Point to market connection;

with respect to Petroleum Substances other than Crude Oil and Condensate, a proportionate share of the cost of transportation, gathering and processing, providing that such costs are no greater than those allowed from time to time by the Crown in the right of the Province of Alberta in calculating its royalty.

The Royalty Owner shall have the right to take in kind the Royalty Owner's share of Petroleum Substances. Such right may be exercised separately with respect to Condensate, Crude Oil, Raw Gas, and any other individual Petroleum Substance. In the case of Crude Oil and Condensate, such right when exercised shall be done on a minimum of thirty (30) days notice to the Grantor. In the case of all other Petroleum Substances such right when exercised shall be done on a minimum of six (6) months notice to the Grantor. If the Royalty Owner, however, signifies in writing its consent to the sale of any of the Royalty Owner's share of Petroleum Substances under a contract made by the Grantor providing for a minimum term in excess of the said respective notice periods, the Royalty Owner's right to

take in kind any Petroleum Substances subject to such contract shall be suspended during the term of such contract. The Royalty Owner may cease to take in kind any Petroleum Substances upon giving the Grantor the same minimum notice as provided above for the Royalty Owner to take such Petroleum Substances in kind as aforesaid. The right to take in kind or to cease to take in kind may be exercised from time to time subject only to the foregoing provisions of this Subclause.

When the Royalty Owner is taking in kind the Royalty Owner's share of any Petroleum Substances, the Grantor shall at no cost to the Royalty Owner remove basic sediment and water therefrom in accordance with good oilfield practice, and:

in respect to Crude Oil and Condensate: the Grantor shall deliver the Royalty Owner's share to the Royalty Owner, or its nominee, at the tank outlets, or comparable delivery point, in accordance with usual and customary pipeline and shipping practice, free and clear of all charges whatsoever except to the extent that the Royalty Determination Point is an earlier point in which case the costs of moving product from the Royalty Determination Point to the delivery point will be deductible by the Grantor from the Overriding Royalty. The Royalty Owner shall have the right to use free of charge a share of the Grantor's lease tankage and storage facilities to store a maximum of ten (10) days accumulation of the Royalty Owner's share of Crude Oil and Condensate; and

in respect to Raw Gas: the Grantor shall deliver the Royalty Owner's share to the Royalty Owner, or its nominee, at the Royalty Determination Point of the relevant well, provided that to the extent the Royalty Owner so requests on reasonable notice to the Grantor and the Grantor can reasonably comply with such request, the Grantor shall gather, compress, transport, treat and process such share of Raw Gas along with the Grantor's share of Raw Gas from the applicable well or ▇▇▇▇▇ and deliver to the Royalty Owner at their relevant plant outlet, the Royalty Owner's Overriding Royalty share of marketable gas and other Petroleum Substances obtained from such share of Raw Gas, in which event, the Royalty Owner shall be responsible for:

its proportionate share of the costs of gathering, compressing, transporting, treating and processing such Raw Gas where the Grantor or an Affiliate thereof does not own such facilities; or

where the Grantor or an Affiliate thereof owns such facilities, such fee as may be agreed upon by the Grantor and the Royalty Owner for the use of such facilities to make marketable the Royalty Owner's Overriding Royalty share of Raw Gas.

Grantor shall be entitled to use a proportionate share of the Royalty Owner's share of Petroleum Substances as may be reasonably necessary for its drilling and production operations with respect to the Royalty Lands, excluding Petroleum Substances used for tertiary recovery operations. Grantor shall not be liable to Royalty Owner for Petroleum Substances which are unavoidably lost. Petroleum Substances so used or lost shall be excluded when quantifying the Overriding Royalty.

The Grantor shall have the right to commingle Petroleum Substances produced from the Royalty Lands with Petroleum Substances produced from other lands, provided reasonable methods are used to determine the proper measurement of production of Petroleum Substances from the Royalty Lands.

Nothing contained in this Agreement shall be a deemed or implied covenant by the Grantor to develop the Royalty Lands.

The Grantor shall carry on (or cause to be carried on) all operations on the Royalty Lands diligently and in a good and workmanlike manner consistent with good oilfield practice.

The Grantor shall keep true and current books, records and accounts showing the quantity of Petroleum Substances produced from or allocated to the Royalty Lands and the sales and disposition made thereof from time to time. The books, records, vouchers and accounts maintained by the Grantor shall be open to inspection at all reasonable times during business hours by any officer, agent or employee appointed or authorized by the Royalty Owner, in writing, to examine the same. All information obtained by the Royalty Owner pursuant to this clause shall be treated as confidential and shall not be disclosed to third persons without the prior written consent of the Grantor.

By the last day of each month, beginning with the first month following the month in which production of Petroleum Substances from the Royalty Lands is obtained after the date hereof, Grantor shall submit to Royalty Owner a statement showing the quantity and kind of Petroleum Substances produced, deemed to be produced or allocated to, saved and sold from or used off the Royalty Lands in the immediately preceding calendar month, together with a quantification of Royalty Owner's share of Petroleum Substances for such immediately preceding calendar month. When Royalty Owner does not take and separately dispose of its share of Petroleum Substances, the said statement shall also include the sale price for such Petroleum Substances and the gross proceeds received therefrom, accompanied by a cheque payable to Royalty Owner for its share of such proceeds. A copy of Grantor's governmental production statement for the month for which the Overriding Royalty is quantified as aforesaid and also, with respect to Crown Leases, a copy of the government royalty statement with respect to the Leases, shall

accompany each royalty statement to Royalty Owner. Any information contained in such governmental production statement or royalty statement need not be repeated in the statement to Royalty Owner.

Royalty Owner, upon notice to Grantor, shall have the right to audit Grantor's accounts and records for any given calendar year, insofar as they relate to any matter or item relating to this Agreement bearing on the Overriding Royalty, within the twenty-four (24) month period following the end of that calendar year. any payment made or statement rendered by Grantor hereunder which is not disputed by Royalty Owner on or before the last day of the twenty-sixth (26th) month following the end of the calendar year shall be deemed to be correct.

The Royalty Owner shall be entitled to and shall have a first and paramount lien upon the Grantor's share of all Petroleum Substances from time to time produced from the Royalty Lands to secure the payment of the Overriding Royalty. Such lien shall not operate to release the Grantor from personal liability for monies due to the Royalty Owner. Such lien shall not attach to the Grantor's share of Petroleum Substances sold or

otherwise disposed of from the Royalty Lands, but immediately upon default occurring in payment by the Grantor of monies payable to the Royalty Owner such lien shall operate as an assignment to the Royalty Owner of the consideration thereafter payable to the Royalty Owner for the Petroleum Substances sold, up to the amount owed to the Royalty Owner and not so paid by the Grantor.

Service of a copy of this agreement upon any purchaser of Petroleum Substances together with written notice from the Royalty Owner shall constitute written authorization on the part of the Grantor for such purchaser to pay the Royalty Owner the proceeds from any sale or sales of the Grantor's share of Petroleum Substances up to the amount owed to the Royalty Owner by the Grantor, and such purchaser is authorized to rely solely upon the statement of the Royalty Owner as to the amount owed to the Royalty Owner by the Grantor.

Whether or not so stipulated herein, delivery of all notices and communications (hereinafter called "notices") required or permitted hereunder shall be in writing. Notices may be given:

personally, by delivering the notice to the party on whom it is to be served at that Party's address for service, which notice shall be deemed received by the addressee when actually delivered as aforesaid if such delivery is during normal business hours provided that if a notice is not delivered during the addressee's normal business hours, such notice shall be deemed to have been received by such party at the commencement of the next ensuing business day following the date of delivery; or

by facsimile (or by any other like method by which a written or recorded message may be sent) directed to the party on whom it is to be served at that party's address for service, which notice shall be deemed received by the respective addressees thereof: (i) when actually received by it, if received within normal business hours; or (ii) at the commencement of the next ensuing business day following transmission thereof, if such notice is not received during such normal business hours; or

by mailing them first class mail (air mail if to or from a location outside Canada) double registered post, postage prepaid, directed to the party on whom it is to be served, at that party's address for service, which notice shall be

Where, in this Agreement, a time period is established within which a party must respond, elect or otherwise communicate with respect to a notice so received the time shall commence to run when the notice is deemed to be received as hereinbefore provided. Any time period which expires on a Saturday, Sunday or statutory holiday shall be extended to expire on the next normal business day.

The address of each of the respective parties hereto shall be as follows:

Any party may change its address for service by notice to the other parties.

The parties will from time to time and at all times hereafter, without further consideration, do such further acts and deliver all such further assurances, deeds and documents as shall reasonably be required in order to fully perform and carry out the terms of this Agreement.

This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and

supersedes all prior contracts, agreements and understandings between the parties in this regard. No modification or alteration of this Agreement shall be binding unless executed in writing by these parties. There are no representations, warranties, collateral agreements or conditions affecting this transaction other than as are expressed or referred to herein in writing.

The terms and conditions of this Agreement shall be binding upon and shall enure to the benefit of the parties hereto and their respective successors and assigns.

Time is of the essence of this Agreement.

The headings contained in this Agreement are intended for convenience of reference only and shall form no part of this Agreement.

The words herein contained which impart the singular number or the masculine gender shall be read and construed as applying to the plural and each and every corporate, male or female party thereto and to its and their heirs, executors, administrators, successors and assigns, as the case or context requires.

This Agreement shall be governed by and interpreted in accordance with the laws of the Province of Alberta. The parties hereby irrevocably attorn to the jurisdiction of the Courts of the Province of Alberta for the determination of all matters arising hereunder.

The Schedules attached to this Agreement are incorporated by reference as fully as though contained in the body hereof. Wherever any term or condition, expressed or implied, of such Schedules conflicts or is at variance with any terms or conditions of this Agreement, such term or condition of this Agreement shall prevail.