EXHIBIT 10.8
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EXPLORATION JOINT VENTURE AGREEMENT
THIS AGREEMENT made as of the 15th day of September, ▇▇▇▇,
▇▇▇▇▇:
ENCAL ENERGY LTD., a corporation incorporated under the laws of the
Province of Alberta ("Encal")
THE PARTY OF THE FIRST PART
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PINNACLE OIL INTERNATIONAL INC., a corporation incorporated under the
laws of the State of Nevada ("Pinnacle")
THE PARTY OF THE SECOND PART
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PINNACLE OIL INC., ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, PINNACLE OIL
CANADA LTD. and MOMENTUM RESOURCES LTD., being the individuals or
corporations having an affiliation to Pinnacle or the SFD Technology
(the "Affiliates")
THE PARTY OF THE THIRD PART
WHEREAS the Parties have entered into an Exploration Joint Venture
Agreement dated February 19, 1997 for the exploration, development and
production of Petroleum Substances in Western Canada and wish to replace and
supersede the subject Agreement with a new Exploration and Joint Venture
Agreement; and
WHEREAS the Parties have agreed to enter into this Exploration Joint
Venture Agreement (the "EJV" or "Agreement") to supersede the February 19, 1997
Exploration Joint
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Venture Agreement, which EJV will govern the exploration, development and
production of Petroleum Substances worldwide with a focus on Western Canada as
further set out hereunder; and
WHEREAS the Parties have agreed that the EJV shall be carried out
pursuant to the provisions of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT, in consideration of the
premises and the mutual covenants of the Parties herein contained, the Parties
hereto agree as follows:
1. Definitions and Schedules
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(1) In this Agreement including the recitals herein, unless the context
otherwise requires or to the extent defined below, the definitions set
forth in Clause 101 of the Operating Procedure, shall apply and in
addition, the following shall have the following meanings:
(1) "Accounting Procedure" means Schedule "B" attached to and made
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part of this Agreement;
(2) "Assignment Procedure" means the CAPL 1993 Assignment Procedure
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attached as Schedule "C" hereto which supersedes any conflicting
clause in the Operating Procedure;
(3) "Action" means the court proceedings described in an action filed
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in the British Columbia Supreme Court, Vancouver Registry, in
File No. C944272, between ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, as plaintiff; and
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, G.D.M. Grand Development Corp., ▇▇▇▇▇▇
▇▇▇▇▇▇▇, also known as ▇▇▇ ▇▇▇▇▇▇▇, and ▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇, as defendants, and Pinnacle Oil Inc.,
Pinnacle Oil International Inc. and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Inc., as
defendants by counterclaim;
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(4) "Basic Geophysical Data" means any non-interpreted seismic data,
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processed record sections, seismic tapes, monitor records and
associated data;
(5) "Excluded Lands" means those Petroleum and Natural Gas Rights and
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lands in which Encal has an interest or a right to acquire an
interest including any such Petroleum and Natural Gas Rights or
lands which have been posted (or a posting request has been
submitted) at Crown land sales and for which Encal or Encal and
any Third Parties are jointly in the process of evaluating with a
view to making a bid, to the extent that such interest or right
to an interest is in no way acquired by Encal or any Third Party
acting jointly with Encal, as a result of any SFD Survey, SFD
Anomaly, SFD Data or SFD Information hereunder and includes those
Petroleum and Natural Gas Rights and lands defined in clause 22
hereunder;
(6) "Exclusive Area" means all lands and Petroleum and Natural Gas
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Rights located in the Province of British Columbia and any
Petroleum and Natural Gas Rights which are from time to time made
a part of the Exclusive Area by virtue of the terms and
conditions of this Agreement;
(7) "Existing Exploration Areas" means those Exploration Areas which
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have been selected by Encal prior to the Effective Date and upon
which Pinnacle has conducted exploration work using SFD
Technology and which comprise the Carbon, Fort ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
and Edson, areas of Alberta and certain N.E. British Columbia
lands and Exploration Areas which are all further detailed and
outlined on the maps attached to this Agreement as Schedule "F"
and which are dealt with in clause 7 of this Agreement;
(8) "Exploration Area" means any contiguous area of land covering a
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geographic area in size up to a maximum of 2,400 square miles, as
identified by Encal
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pursuant to clause 6 hereof and which area shall initially
include a boundary of additional lands surrounding such area
equal to one township (or NTS equivalent) in width and length
throughout (the "Buffer Zone");
(9) "Exploratory Prospect" means the geographic area and appropriate
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spacing units (including the entire spacing unit in the case the
Exploratory Prospect only partially covers a spacing unit)
covering an SFD Anomaly including any AMI lands as defined in
clause 21 hereunder, identified by Pinnacle utilizing SFD
Technology and accepted by Encal in accordance with the
provisions of this Agreement;
(10) "Losses" means, in respect of any matter, all claims, demands,
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proceedings, losses, damages, liabilities, deficiencies, costs
and expenses (including, without limitation, all legal and other
professional fees and disbursements, interest, penalties and
amounts paid in settlement) arising directly or indirectly as a
consequence of such matter;
(11) "Minimum Prospect Inventory" shall have the meaning set out in
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clause 9 hereunder;
(12) "Operating Procedure" means the 1990 amended CAPL Operating
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Procedure attached hereto as Schedule "A" and made part of this
Agreement;
(13) "Operator" means a Party selected as an operator under the
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Operating Procedure or this Agreement which shall initially be
Encal;
(14) "Party" or "Parties" means a party to this Agreement;
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(15) "Petroleum and Natural Gas Rights" means all rights to and in
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respect of Petroleum Substances arising by virtue of any leases,
title agreements or other
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similar documents, granting, reserving or otherwise conferring
rights to explore for, drill for, produce and take Petroleum
Substances, and share in the production of Petroleum Substances,
and any rights to acquire any of the rights described herein;
(16) "Petroleum Substances" means any of crude oil, crude bitumen and
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products derived therefrom, synthetic crude oil, petroleum,
natural gas, natural gas liquids, and any and all other
substances related to any of the foregoing, whether liquid, solid
or gaseous, and whether hydrocarbons or not, including without
limitation sulphur to the extent such substances are granted by
the title document pertaining thereto;
(17) "Royalty Procedure" means the royalty procedure attached as
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Schedule "D" and made part of this Agreement;
(18) "Seismic Costs" means, with respect to Basic Geophysical Data,
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all moneys expended by Encal in respect of an Exploratory
Prospect for the purchase of seismic data, the shooting and
processing or reprocessing of seismic data and collection of
geophysical information and any other costs associated therewith;
(19) "SFD Anomaly" means an anomalous geological or geophysical
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feature prospective of containing Petroleum Substances,
identified by Pinnacle using SFD Technology and SFD Data in
accordance with Pinnacle's practices and procedures;
(20) "SFD Data" means primary signal data derived from the use of the
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SFD Technology;
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(21) "SFD Information" means that information obtained during the
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conduct of the SFD work as further outlined and defined in clause
6(b);
(22) "SFD Survey" means the conduct of exploratory surveying by
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Pinnacle for the purpose of locating SFD Anomalies and utilizing
SFD technology; the collection of SFD Data; the interpretation
and analysis of SFD Data and the processing, analysis and
interpretation of SFD Data by Pinnacle and the presentation and
evaluation of SFD Anomalies to Encal. The Parties acknowledge
that the collection of SFD Data will be done by Pinnacle using an
aircraft but may include any other means which is either
necessary or desirable under the particular circumstances with
the mutual agreement of Encal and Pinnacle;
(23) "SFD Technology" means the stress field detector technology to be
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used by Pinnacle in conducting the SFD Survey;
(24) "Third Party" means a person, partnership, trust or other entity
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who is not a Party hereunder; and
(25) "Third Party Lands" means lands where the Parties have acquired
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an interest pursuant to the terms of a Farmin Agreement or an
Additional Farmin Agreement as set forth in clause 12 or 13 and
which are owned in part by other Third Parties;
(2) Appended hereto are the following schedules:
A - Operating Procedure
B - Accounting Procedure
C - Assignment Procedure
D - Royalty Procedure
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E - Confidentiality Agreement
F - Existing Exploration Areas
2. Term
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The term of this Agreement ("Term") shall commence as of September 15,
1997, ("Effective Date") and shall extend for a period of three (3) years
therefrom which Term may be subsequently extended by the mutual agreement of
Encal and Pinnacle.
3. No Warranty of Title
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In the event any Party, subsequent to the date of this Agreement, encumbers
any interest it now holds or may obtain under this Agreement, the Party which
encumbers its interest shall be solely responsible for that encumbrance, and
agrees to indemnify the other Parties to this Agreement from any Losses caused
by the encumbrance.
4. Warranty of Technology
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Notwithstanding clause 2, Pinnacle and each of the Affiliates provides the
representations, covenants and warranties in this Agreement and effective from
February 19, 1997 (but only to the extent this Agreement supersedes the February
19, 1997 Exploration Joint Venture Agreement):
(1) Pinnacle and each of the Affiliates, jointly and severally, represent,
warrant and covenant to Encal that the beneficial owner of the SFD
Technology is Momentum Resources Ltd. ("Momentum") and Momentum has
granted Pinnacle an exclusive licence for the use of SFD Technology
for the purpose of generating SFD Data for the exploration of
Petroleum Substances. Momentum Resources Ltd. agrees that it will not
hinder or terminate the exclusive licence for the Term other than as
Momentum Resources Ltd. may be permitted under the express terms of
the exclusive licence.
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(2) Pinnacle and each of the Affiliates, jointly and severally, hereby
represent, warrant and covenant to Encal that, as of February 19, 1997
and to the Effective Date, and through the Term of this Agreement and
any extensions thereof, that Pinnacle was, is and will be the
beneficial owner of the SFD Data, free and clear of any and all
claims, suits, proceedings, encumbrances and obligations which may
limit or impair its ability to utilize the SFD Data and SFD Technology
in the manner contemplated hereunder. Pinnacle agrees to comply with
the express terms of the exclusive licence from Momentum Resources
Ltd., in order to keep the same in good standing.
(3) Pinnacle and each of the Affiliates, jointly and severally, hereby
represent, warrant and covenant with Encal that the conduct of any SFD
Survey and joint operation contemplated by this Agreement or any past
conduct under the February 19, 1997 Exploration Joint Venture
Agreement, does not infringe upon the industrial or intellectual
property rights, domestic or foreign, of any other person and except
for the Action, neither Pinnacle nor the Affiliates are aware of any
claim of any infringement or breach of any industrial or intellectual
property rights of any other person relative to the SFD Technology nor
have Pinnacle or any the Affiliates, received any notice that the
conduct of the SFD Survey and joint operations contemplated in this
Agreement, including the use of the SFD Technology, infringes upon or
breaches any industrial or intellectual property rights of any other
person.
(4) Except for the Action, Pinnacle and each of the Affiliates, jointly
and severally, represent, warrant and covenant with Encal that there
are no claims, actions, suits or proceedings (either against or by
Pinnacle or the Affiliates) pending or to the best of the knowledge of
Pinnacle or each of the Affiliates, threatened against or affecting
Pinnacle, the Affiliates or the SFD Technology, at law or in equity or
before or by any federal, provincial, municipal or other governmental
department, court, commission, board, bureau, agency or
instrumentally, domestic or foreign, or before or by any arbitrator or
arbitration board.
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(5) Pinnacle and each of the Affiliates, jointly and severally, warrant
and covenant with Encal that the entering into, consummation and
performance by Pinnacle of this Agreement will not constitute a breach
of any agreement, contract or licence by which Pinnacle or any
Affiliate is bound or an infringement upon any intellectual property
or technology right of any person relative to the SFD Technology.
(6) Pinnacle agrees to conduct the SFD Survey utilizing SFD Technology in
a professional and diligent manner, as set out hereunder, and agrees
to conduct the SFD Survey using individuals who have the capability
and expertise to conduct the SFD Survey and to provide Encal with the
SFD Anomalies set out hereunder according to the intent and meaning of
this Agreement. Additionally, Pinnacle agrees that any individuals or
persons conducting SFD Survey and presenting SFD Anomalies to Encal
will be bound by the same confidentiality provisions as Pinnacle is
bound to Encal under the terms of this Agreement. Pinnacle agrees to
use its reasonable commercial efforts and act in good faith while in
the performance of this Agreement, in the presentation of the SFD
Anomalies to Encal and in conducting the SFD Survey.
(7) Encal agrees to conduct and perform any of its work and covenants
under this Agreement in a professional and diligent manner, as set out
hereunder, and agrees to use individuals who have the capability and
expertise to perform its obligations under this Agreement. Encal
agrees to use its reasonable commercial efforts and to act in good
faith while in the performance of this Agreement.
5. Use of SFD Technology
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(1) Pinnacle shall provide to Encal a first priority to have Pinnacle
conduct SFD Survey for Encal during the Term and in accordance with
the terms and conditions of this Agreement. The Parties confirm that
Pinnacle is entitled to enter into a maximum of two (2) joint ventures
with two (2) other Third Parties in Canada at any given time (but not
in the Exclusive Area), and an unlimited number of such joint ventures
with
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an unlimited number of Third Parties outside of Canada to generate,
interpret, analyze and present SFD Data, which joint ventures may
utilize data obtained from the SFD Technology world-wide but not in
the Exclusive Area; provided however that, in the Exclusive Area,
Pinnacle shall conduct SFD Survey solely for Encal during the Term.
(2) Encal's first priority to have Pinnacle conduct SFD Survey for Encal
as provided in clause 5(a) shall mean a first dedication by Pinnacle
to Encal hereunder of a minimum of 50% of Pinnacle's world-wide SFD
Survey capacity at any given time. Such first dedication shall apply
only at the times that Pinnacle has not generated, the Minimum
Prospect Inventory.
(3) If during the Term of this Agreement, Pinnacle generates SFD Data that
pertains to lands in Canada that are outside of an Exploration Area
selected by Encal or are not over an area selected by a Third Party
under a Third Party joint venture, as allowed hereunder, Pinnacle
shall present to Encal all SFD Anomalies identified by Pinnacle from
such SFD Data within thirty (30 ) days of identifying such SFD
Anomalies. The terms and conditions of this Agreement shall apply
thereto, and any Exploratory Prospects resulting therefrom shall form
part of the Minimum Prospect Inventory. Provided, however, Pinnacle
shall not be required to present such SFD Anomalies on any lands that
are Excluded Lands. This clause 5(c) shall be in effect until October
31, 1998.
(4) Pinnacle will offer Encal a first opportunity to participate in a
transaction utilizing SFD Data to explore for Petroleum Substances
outside of Canada where in Pinnacle's sole judgment there is an
opportunity for Encal to participate as operator or a participant if
such role is available and Pinnacle believes it is appropriate for
Encal to perform such role.
(5) At the same time that Encal provides notice to Pinnacle of the
location of an Exploration Area pursuant to clause 6(a), it shall also
provide to Pinnacle one
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additional Exploration Area which shall be an option Exploration Area.
Encal will be able to terminate an option Exploration Area prior to
any SFD Survey being conducted thereupon and to select an alternate
option Exploration Area which shall become the new option Exploration
Area. Encal may choose any lands within an Existing Exploration Area
as an Exploration Area hereunder but only to the extent SFD Survey has
not been completed and provided to Encal on those locations within
such an Exploration Area.
(6) Once Pinnacle commences to perform a SFD Survey on an Exploration Area
selected by Encal, Encal shall have the right to select a new option
Exploration Area. Pinnacle shall advise Encal immediately prior to
the time they commence such a SFD Survey.
(7) Pinnacle and the Affiliates covenant and guarantee to Encal that they
will not enter into any agreement with any Third Party which will
purport to affect the Exploration Areas, option Exploration Area or
Existing Exploration Areas or which would allow such Third Party any
better rights then Encal has under this Agreement vis a vis the size
of an Exploration Area, and the number of Exploration Areas (in each
case, in Canada) a Third Party may select at any given time. In
addition, no Third Parties will be allowed to select as an Exploration
Area and Pinnacle will not conduct any work on any such areas for
Third Parties which fall within the Exclusive Area. Nothing in this
clause will affect the time commitment of Pinnacle to Encal set out in
this clause 5.
(8) In addition to clause 5(g), Pinnacle hereby covenants to ensure it
will not make commitments to Third Parties such that, during the Term
Encal will be entitled to and will be guaranteed, for the purposes of
conducting SFD Survey via selection of Exploration Areas, a minimum of
50% of the total land area falling between the 5th and 6th Meridians
(DLS Surveying) in the Province of Alberta, based on the total land
area contained therein. Once Encal has selected an Exploration Area
and Pinnacle has commenced SFD Survey then that area will
automatically be deemed to be an
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Exclusive Area hereunder and hence, Pinnacle and the Affiliates hereby
covenant and guarantee to Encal that no Third Party will be allowed
any rights to the conduct of SFD Survey by Pinnacle or any of them or
any rights to SFD Data derived therefrom.
(9) The Parties hereto agree that the Existing Exploration Areas are
excluded from the minimum number of Exploration Areas that Encal is
entitled to select under the terms of this Agreement and are dealt
with in clause 7 hereunder.
(10) The Parties hereto agree that at all times, Encal shall have selected
at least one (1) Exploration Area in the Province of British Columbia
for each four (4) Exploration Areas selected outside of the Province
of British Columbia.
6. SFD Survey Program - New Lands
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(1) In accordance with the terms of this Agreement, Encal shall from time
to time select Exploration Areas upon which SFD Survey will be
conducted by Pinnacle. At the time of such selection, Encal shall
provide Pinnacle with information pertaining to any Excluded Lands in
the Exploration Area. Subject to the qualifications set out below,
Pinnacle shall perform the SFD Survey on the Exploration Areas
selected by Encal, in the order determined by Encal. Only one
Exploration Area will be the current Exploration Area for the SFD
Survey at any time, unless otherwise agreed to by Pinnacle. Encal
shall reimburse Pinnacle for 50% of all costs of a daily aircraft
rental or lease rate, pilot, accommodation and food for SFD Surveys
conducted hereunder. Pinnacle shall, within fifteen (15) days of such
selection by Encal, advise Encal of:
(1) any safety concerns;
(2) conflicts with an area forming part of a Third Party joint
venture or to the knowledge of Pinnacle, conflicts with lands
held by Pinnacle's Third Party partner in such other current
joint venture;
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(3) any concerns Pinnacle has arising in conducting SFD Survey of a
technical nature or any other bona fide reason; or
(4) location of Excluded Lands contained in the Exploration Area,
pertaining to the Exploration Area that Encal selects for such SFD Survey. In
the event that any of the above conflicts or concerns arise, Encal and Pinnacle
shall meet to discuss such concerns and, inter alia, either jointly modify the
subject Exploration Area or Encal shall select another Exploration Area as a
substitute.
(2) Pinnacle shall have 120 days from being advised of the location of the
Exploration Area by Encal in which to:
(1) present for Encal's review the visual SFD Data together with a
map of flight lines and locations of any anomalous SFD features
whether they comprise SFD Anomalies presented by Pinnacle to
Encal or not, provided that in respect of such SFD features that
are either presented by Pinnacle as SFD Anomalies of a major
nature or Pinnacle is of the good faith opinion that such
features warrant further evaluation as potential SFD Anomalies or
may be dealt with pursuant to clause 8. Pinnacle shall provide
written interpretations and recommendations on those anomalous
SFD features which Pinnacle presents to Encal as the major SDF
Anomalies on an Exploration Area. Pinnacle shall not be required
to provide to Encal copies, in any form, of the SFD Data,
however, such SFD Data shall be available for Encal's further
review at Pinnacle's offices upon reasonable notice to Pinnacle;
(2) provide, at no cost to Encal, copies of all maps, information,
written reports, interpretations and assessments of Pinnacle
identifying, in Pinnacle's opinion,
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all SFD Anomalies of a major nature, obtained during the conduct
of the SFD Survey; and,
(3) provide recommendations in respect to those SFD Anomalies
identified which, after consultation between the representatives
of Encal and Pinnacle are of a major nature,
(i, ii, and iii above are collectively referred to as the "SFD
Information").
The Parties confirm that Encal shall be represented by one designated
representative. Encal shall designate one alternate designate and may from time
to time upon reasonable notice in writing change the designates as necessary.
(3) Upon presentation of the SFD Information provided by Pinnacle
(including the right to review SFD Data at Pinnacle's offices), Encal
shall review the SFD Information and individually accept or reject in
writing any or all SFD Anomalies presented within ninety (90) days of
such SFD Information being presented to Encal ("Evaluation Period").
Pinnacle agrees during the Evaluation Period to assist Encal in
assessing and confirming any of the SFD Anomalies. After the expiry
of the ninety (90) day period set out herein, the Buffer Zone will no
longer form a part of the Exploration Area, except to the extent it
contains SFD Anomalies presented by Pinnacle and accepted by Encal,
and except to that extent it will no longer be an Exclusive Area.
(4) Any SFD Anomaly accepted by Encal shall be hereinafter called an
Exploratory Prospect.
(5) There is no maximum to the number of SFD Anomalies that Pinnacle may
provide SFD Information on and which may be accepted by Encal as
Exploratory Prospects.
(6) Any SFD Information obtained by Pinnacle in relation to an Exploration
Area which does not comprise an SFD Anomaly presented by Pinnacle to
Encal and which Encal
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has reviewed shall not be disclosed by Encal to any Third Party and
Encal agrees to keep it confidential for a period of two (2) years
from the expiry of the Term. Encal shall not disclose such SFD
Information to a Third Party or use the same in furtherance of oil and
gas exploration without the written consent of Pinnacle.
(7) In the event that such SFD Anomalies are rejected by Encal, or deemed
rejected, such SFD Anomalies shall be dealt with in accordance with
clause 8 of this Agreement. Encal may also reject an Exploratory
Prospect for technical and other reasons by written notice to
Pinnacle, and such rejected Exploratory Prospect and associated
Petroleum and Natural Gas Rights shall also be dealt with in
accordance with clause 8 of this Agreement.
(8) Encal and Pinnacle shall attempt to jointly prioritize the Exploratory
Prospects. Encal shall, at its sole discretion, utilizing
conventional oil and gas industry methods use it's best efforts to
cause further evaluation work to be done on each Exploratory Prospect,
as prioritized above. Such work shall be for the purpose of
confirming whether or not a test well location should be selected and
whether or not the drilling of such test well is warranted (which work
may include, but not restricted to further qualification and analysis
using Basic Geophysical Data available to Encal). Seismic Costs for
each Exploratory Prospect shall be borne solely by Encal for the Term.
(9) In the event that Encal fails to elect to accept or reject an SFD
Anomaly within the prescribed time, it shall be conclusively be deemed
to be a rejection of such SFD Anomaly and as such shall not become an
Exploratory Prospect and shall be dealt with in accordance with clause
8 of this Agreement.
(10) Pinnacle, pursuant to clauses 12 or 21, the Petroleum and Natural Gas
Rights to any portion of an Exploratory Prospect (which portion
represents, in Encal's sole reasonable opinion, the key tracts to
drill a test well, such Petroleum and Natural Gas Rights shall be
called "the Key Tracts"), then Encal shall provide written notice to
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Pinnacle of such event occurring and for the purposes of clause 9 such
Exploratory Prospect shall not further be considered as an Exploratory
Prospect, shall not be considered in calculating the Minimum Prospect
Inventory, and shall be dealt with in accordance with clauseE8 of this
Agreement.
The Parties may continue to attempt to secure the Key Tracts and the
provisions of clauses 12 or 21 shall continue for two (2) years from the date of
the above mentioned written notice. In addition, the specific term set forth in
clause 21(b) specific Exploratory Prospect shall be deemed to be amended to two
(2) years from the date of the notice pertaining to the Key Tracts. In the
event that a Party is unable to secure the Key Tracts for such Exploratory
Prospect within such two (2) year period, then such Exploratory Prospect shall
be deemed a rejected Exploratory Prospect except for any joint lands acquired
thereon. In the event that such Key Tracts are secured, then such Exploratory
Prospect shall, for the purposes of clause 9, be considered in calculating the
Minimum Prospect Inventory.
(11) Upon Encal having conducted any conventional oil and gas industry
evaluation and analysis as it sees fit on an Exploratory Prospect,
Pinnacle and Encal shall meet and consult at least forty-eight (48)
hours prior to the final hour at which bids are accepted for the sale
of any new Crown lands or 15 days prior to acquiring new freehold
leases to discuss the acquisition of any such Crown or Freehold
Petroleum and Natural Gas Rights. Prior to the bid date and time
Pinnacle shall elect in writing to Encal whether to acquire a working
interest in the lands comprising the Exploratory Prospect (as defined
in clause 6(q) below), or to elect to receive a gross overriding
royalty with respect to the Exploratory Prospect, calculated and
payable on the terms of the Royalty Procedure based on Encal's working
interest as further set out in the Royalty Procedure. Upon having
elected to receive a gross overriding royalty, Pinnacle and Encal
shall execute a Royalty Agreement in the same form as the Royalty
Procedure attached as Schedule "D" hereto. Should Pinnacle elect to
obtain a working interest as set out hereunder, the Parties agree that
the terms and conditions of the Operating Procedure will govern their
relationship with respect to
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the lands and Petroleum and Natural Gas Rights comprising the
Exploratory Prospect jointly acquired, however, at all times Encal
shall hold any registered and legal interests in trust for Pinnacle
subject to a transfer to Pinnacle of such interest at Pinnacle's
request and to the extent possible. In addition, Pinnacle shall not be
obligated for Seismic Costs or Basic Geophysical Data during such
time. Should Pinnacle elect to remain in a gross overriding royalty
position and execute the Royalty Agreement as set out hereunder, the
Parties hereto agree that the lands and Petroleum and Natural Gas
Rights subject to the Exploratory Prospect, and the Exploratory
Prospect in general shall be excluded from the terms and conditions of
this Agreement and the Exploratory Prospect will solely be governed by
the Royalty Agreement executed by Encal and Pinnacle.
With respect to the acquisition of new Crown or freehold lands as set out
and indicated in this subclause 6(k) above, Pinnacle agrees that until March 15,
1999 Pinnacle will pay its share acquisition costs of such new Crown or freehold
lands until it has expended 45% of a gross $5,000,000.00 land acquisition cost
($2,250,000.00) and in addition, should Encal not have drilled three (3) ▇▇▇▇▇
whether exploratory or development in accordance with the terms of this
Agreement on Exploratory Prospects located on existing Exploration Areas or new
Exploration Areas by March 15, 1999 then Pinnacle will pay 50% of its share of
land costs (i.e. 22.5%) until three (3) such ▇▇▇▇▇ are drilled on Exploratory
Prospects. In addition, the Parties confirm that at the later of March 15, 1999
or the time when Encal shall have drilled the three (3) ▇▇▇▇▇ indicated under
this subclause, Pinnacle shall be responsible and pay forthwith any amounts
equal to the prior reduction in its full share of land acquisition costs under
this subclause 6(k) immediately above.
(12) All information including any test well information, SFD Data, SFD
Information and any conventional oil and gas industry evaluation and
analysis data acquired by the Parties as a result of any operations
within the Exploration Areas shall be considered confidential and for
their sole and exclusive use and benefit. Such test well information,
SFD Information, SFD Data and any conventional oil and gas industry
evaluation and analysis data shall not be divulged by Pinnacle or
Encal to any Third
- 18 -
Party unless the Parties first agree in writing to the dissemination
thereof. The Parties agree that any SFD Data and SFD Information
pertaining to any rejected SFD Anomalies and Exploratory Prospects
shall remain the property of Pinnacle and in the case of test well
information and any conventional oil and gas industry evaluation and
analysis data including any Basic Geophysical Data, the property of
Encal.
(13) The Parties hereto acknowledge that the SFD Technology, SFD
Information and all SFD Data shall, continue to be the sole property
of Pinnacle and the Affiliates, and shall remain confidential and
within the possession of Pinnacle and the Affiliates.
(14) The Parties hereto acknowledge that any conventional oil and gas
industry evaluation and analysis work including Basic Geophysical Data
shall continue to be the sole property of Encal, and shall remain
confidential and within the possession of Encal.
(15) Encal agrees that Pinnacle may require each employee or consultant of
Encal and Encal's professional advisors who come into contact with SFD
Technology to execute a Confidentiality Agreement in the form as
Schedule "E" attached hereto. Pinnacle agrees that Encal may require
each employee or consultant of Pinnacle and Pinnacle's professional
advisors who come into contact with Basic Geophysical Data and
conventional oil and gas industry evaluation and analysis data to
execute a Confidentiality Agreement substantially in the form as
Schedule "E" attached hereto as necessarily modified.
(16) The Parties hereto acknowledge that ownership and any trading rights
to Basic Seismic Data acquired hereunder shall be solely owned by
Encal.
(17) Upon having selected an Exploratory Prospect, Encal shall determine
the optimum location of the first test well to be located and drilled
on the Exploratory Prospect. The Parties confirm that Petroleum and
Natural Gas Rights may have been acquired from the Crown in Right of
Alberta or the province or other territory where the
- 19 -
Exploratory Prospect is located, or that the Parties will have to
arrange a farmin arrangement, lease or a sublease arrangement from the
existing holder of the Petroleum and Natural Gas Rights covering the
Exploratory Prospect or any combination of the above. The optimal
location of the first test well shall determine the earning
entitlement provisions applicable to Pinnacle as set out below and
notwithstanding that the remainder of the Exploratory Prospect may
have to be acquired by Encal and Pinnacle in some other manner, the
percentage participation of Pinnacle in and to the Exploratory
Prospect shall be the same throughout the Exploratory Prospect as
where the first test well is to be drilled, and the Parties will be
governed by the Operating Procedure if Pinnacle elects to remain in a
working interest position.
(18) If the test well is to be drilled on lands previously acquired at a
Crown sale or via freehold lease by both Encal and Pinnacle, Encal
will hold any such registered or legal interest of Pinnacle in trust
for Pinnacle with a right in favour of Pinnacle to a transfer of such
interest at Pinnacle's request and to the extent possible. When Encal
advises Pinnacle that it is ready and prepared to drill a test well on
the Petroleum and Natural Gas Rights, Pinnacle shall have fifteen (15)
days (however, if a drilling rig is located on the test well site,
Pinnacle shall have forty-eight (48) hours) to make an election to
either remain in a working interest position relative to the drilling
of the test well located on the subject lands, and Petroleum and
Natural Gas Rights or to elect to convert to an overriding royalty
interest upon the terms set out in the Royalty Procedure. If Pinnacle
elects to convert to an overriding royalty, Pinnacle shall immediately
convey and transfer its entire beneficial and legal working interest
in and to the lands and subject Petroleum and Natural Gas Rights
within the Exploratory Prospect to Encal prior to the spudding of the
test well for the consideration equal to Pinnacle's share of prior
land acquisition costs. In an instance of conversion, the Parties
shall execute a Royalty Procedure and Pinnacle shall remain in a
royalty position relative to the Exploratory Prospect. If Pinnacle
elects to remain in a working interest, Pinnacle shall immediately pay
any consideration and money for prior land acquisition costs to the
extent Pinnacle has not paid for its full
- 20 -
proportionate working interest share of such land acquisition costs
pursuant to clause 6(k) (if applicable).
7. Existing Exploration Areas
--------------------------
(1) The Parties hereby confirm and agree that Encal has requested Pinnacle
to conduct SFD Surveys on Existing Exploration Areas. The Parties
agree that this clause 7 shall govern the terms and conditions of such
SFD Surveys.
(2) Encal has requested certain SFD Survey to be conducted on Existing
Exploration Areas and the Parties agree that Pinnacle shall conduct
the SFD Survey on the locations of any anomalous SFD features
identified by Pinnacle as potentially indicative of Petroleum
Substances located on the Existing Exploration Areas as time permits
and within the scope of the total time commitment Pinnacle has
covenanted to Encal in light of the conduct by Pinnacle of SFD Survey
on Exploration Areas selected by Encal under the other terms and
provisions of this Agreement. Encal may request Pinnacle to conduct
SFD Surveys on such specific locations within the Existing Exploration
Areas on the basis as set out in this clause herein. The Parties
hereby confirm that Encal is not prohibited from including an Existing
Exploration Area in an Exploration Area under the other terms and
provisions of this Agreement in which case, Pinnacle shall be governed
by the terms and provisions in this Agreement pertaining to
Exploration Areas. The Parties further agree that any such custom SFD
Surveys to be done by Pinnacle in relation to the Existing Exploration
Areas shall be governed by and conducted in accordance with the other
terms and provisions of this Agreement with respect to the generation
and presentation of SFD Anomalies, and the acquisition of lands and
Petroleum and Natural Gas Rights and further the elections by Pinnacle
in relation to a working interest share on any Exploratory Prospects
arising out of such custom Existing Exploration Area or any elections
by Pinnacle to be in an overriding royalty position as set out under
the other terms and conditions of this Agreement. Pinnacle has the
right to reject the conduct
- 21 -
of any SFD Survey on Existing Exploration Areas, on the same basis as
set out with respect to SFD Surveys conducted by Pinnacle in relation
to Exploration Areas.
(3) Any SFD Data conducted by Pinnacle in relation to the Excluded Lands
selected by Encal and accepted by Pinnacle including any SFD
Information, and SFD Anomalies, identified by Pinnacle on Excluded
Lands shall not be disclosed by Pinnacle to any Third Party whether
during the Term or thereafter, and Pinnacle agrees to keep such SFD
Data and SFD Information in confidence for a period of two (2) years
from the expiry of the Term and shall not disclose such SFD Data and
SFD Information to a Third Party or use such SFD Data and SFD
Information in furtherance of oil and gas exploration without the
written consent of Encal. The immediately preceding clause will also
govern any SFD Anomalies rejected by Encal and existing over Excluded
Lands.
8. Rejected SFD Data
-----------------
(1) The Parties agree that with respect to any SFD Anomalies, or any
Exploratory Prospects which were rejected under any other clauses of
this Agreement including applicable SFD Information (the "Rejected SFD
Data"). Such Rejected SFD Data may, at both Parties' mutual election,
be conveyed by each of them into a separate entity (whether a
corporation or partnership to be decided by the Parties at a later
date) and with the intent that the Rejected SFD Data shall be held by
each of Pinnacle and Encal equally (i.e. 50/50) through the newly
established entity.
(2) The Parties further agree that they may at any time, at both Parties'
mutual election, (i.e. convey any further lands and Petroleum and
Natural Gas Rights into the subject partnership or corporation, as the
case may be, whether such lands and Petroleum and Natural Gas Rights
were subject to this Agreement or not. Lastly, the Parties agree that
should any of them convey their entire interest in any such lands and
Petroleum and Natural Gas Rights to the subject new entity as set out
herein, any existing
- 22 -
overriding royalties payable to Pinnacle by Encal or to Encal by
Pinnacle (if any) and any AMI clauses arising out of this Agreement
will be extinguished such that as among the Parties hereto, only Third
Party encumbrances shall remain with respect to those Petroleum and
Natural Gas Rights or lands.
(3) The Parties agree that any rejected SFD Anomalies which are not
included in the terms and provisions of clause 8(a), are the exclusive
property of Pinnacle and may be dealt with by Pinnacle as it decides
subject only to subclause 7(c).
9. Minimum Prospect Inventory
--------------------------
During the Term of this Agreement, Pinnacle shall perform its obligations
to conduct SFD Surveys until all Exploration Areas or SFD Surveys yield a total
of eighteen (18) Exploratory Prospects (such number of Exploratory Prospects is
hereinafter referred to as "the Minimum Prospect Inventory").
In the event that the sum of the Exploratory Prospects is less than fifteen
(15), Pinnacle shall commence further SFD Survey, as designated by Encal, on the
current Exploration Area or, once it has been completed, on the option
Exploration Area until at least the Minimum Prospect Inventory is achieved, with
such additional Exploration Areas or SFD Survey to be provided on such a
"rolling basis" as may be required. Encal shall have the right to request
further SFD Survey even if the Minimum Prospect Inventory has been met and if,
in the reasonable opinion of Encal, it deems that eighteen (18) Exploratory
Prospects are not sufficient, the Parties may agree to increase such number in
order that Encal shall have a sufficient inventory of such Exploratory
Prospects.
Once the first test well is spudded on an Exploratory Prospect or an
Exploratory Prospect is rejected by Encal, such Exploratory Prospects shall no
longer be included in the Minimum Prospect Inventory.
- 23 -
The provisions of clauses 6 and 12, as the context requires, shall apply to
the above mentioned additional Exploration Areas created as a result of this
clause.
10. Interim Term Provisions
-----------------------
(1) Notwithstanding any clauses relative to Pinnacle paying for its share
of any costs to acquire lands and Petroleum and Natural Gas Rights
located either in the Exploratory Prospect or comprising AMI Lands,
Encal agrees to pay and advance on behalf of Pinnacle any share of
Pinnacle's obligations to acquire such Petroleum and Natural Gas
Rights until the end of business on February 28, 1998 or the closing
of Pinnacle's financing, whichever is earlier. The Parties agree to
extend this period for a maximum of 30 days upon written notice by
Pinnacle to Encal. This clause shall also apply to any costs and
expenses relative to earning and drilling of ▇▇▇▇▇ under the terms of
this Agreement where Pinnacle has elected to obtain a working interest
thereunder. Therefore, any such land acquisition, drilling and
associated costs and other operational expenses relative to any ▇▇▇▇▇
drilled under this subject Agreement, shall be advanced and paid for
(with respect to Pinnacle's portion) by Encal until the end of
business on February 28, 1998, or as extended hereunder.
(2) Any monies paid by Encal on behalf of Pinnacle under the terms of this
clause, shall be fully repaid with an annual interest rate equal to
the prime rate (defined as that rate charged by the Royal Bank of
Canada to its best customers as a reference rate for Canadian dollar
loans as listed in the main branch, City of Calgary for that
particular lending institution) by the end of business on February 28,
1998 or the period of time when Pinnacle has received funds from its
financing, whichever is earlier. Any amounts not paid by Pinnacle to
Encal under the terms of this clause shall, in addition to any other
rights available to it, entitle Encal to any of the rights under the
terms of this Agreement including set-off from any existing production
sold by Encal for Pinnacle (and any other Third Parties if applicable)
or any payments by Encal to
- 24 -
Pinnacle pursuant to the Royalty Procedure and whether such set off
rights pertain to this Agreement or any other agreement.
(3) Encal shall have a lien on all production from joint lands pursuant to
the terms of the Operating Procedure against the interest of Pinnacle
in and thereto in respect of any amounts owing by Pinnacle to Encal
pursuant to this clause 10.
11. Conventional Evaluation
-----------------------
Notwithstanding the use of the SFD Information in evaluating the
Exploration Areas, the Parties hereto agree and acknowledge that any Exploratory
Prospect (including Existing Exploratory Prospects) evaluated under this
Agreement shall have been evaluated using such geological, geophysical,
engineering, mapping, seismic and technological data or information, including
without limitation the Basic Geophysical Data, available to either Encal or
Pinnacle in addition to the SFD Information such that any successes or failures
in drilling on an Exploratory Prospect shall be attributed to all of the
information and data utilized evaluating and determining the Exploratory
Prospect.
12. Farmin Agreements
-----------------
In the event that Petroleum and Natural Gas Rights within an Exploratory
Prospect where a first test well is to be drilled are held by Third Parties to
this Agreement ("Third Party Lands") and Encal is required to commit to conduct
certain obligations, including but not restricted to the drilling of earning
▇▇▇▇▇ on the Exploratory Prospect, but excluding any collection of Basic
Geophysical Data, (such obligations are collectively referred to as
"Obligations") which may be required to earn an interest or the right to earn an
interest in the Third Party Lands, Encal may negotiate and enter into agreements
with Third Parties ("Farmin Agreements"). In the event that Encal enters into a
Farmin Agreement, Encal shall serve written notice to Pinnacle of Encal entering
into such Farmin Agreement ("Farmin Notice") including a reasonable estimate of
Obligations and an estimate of the timing of the advance of funds. Such notice
shall include such recommendations and assessments as Encal deems in its
reasonable opinion to be necessary for Pinnacle to evaluate such Obligations.
Pinnacle
- 25 -
acknowledges that Encal provides no representations or warranties relative to
such information, recommendations, assessments, interpretations, or estimates
and that Pinnacle will make its own reasonable decision based on such
information and other factors. Pinnacle shall then elect by written notice to
Encal on or before the expiration of fifteen (15) days from receipt of the
Farmin Notice to either:
(1) elect to participate in the Obligations; or
(2) elect to acquire a gross overriding royalty as set out below.
Should Pinnacle elect to participate in the Obligations, and if the test
well to be drilled upon the Exploratory Prospect is to be drilled on such Third
Party Lands, the cost, risk and expense of the Obligations and the benefit and
interest earned in the Third Party Lands subject to the Farmin Agreements shall
be shared by the Parties in the following proportions:
Encal 60%
Pinnacle 40%
The provisions of clause 19(d) apply mutatis mutandis to the event of non-
payment by Pinnacle of the Obligations.
Should Pinnacle elect to acquire a gross overriding royalty and elect not
to participate in the Obligations, Pinnacle and Encal agree to enter into the
Royalty Procedure. Pinnacle shall convey to Encal any working interest in the
entire Exploratory Prospect and Encal shall re-imburse Pinnacle any land
acquisition costs previously paid by Pinnacle. The subject gross overriding
royalty will be calculated, based and payable on the resultant interest (if no
payout account is established) or the after payout interest (if applicable) of
Encal in the subject Farmin Agreement from time to time and with respect to any
Crown lands outside of the earning well spacing unit on the Third Party Lands,
the royalty as set out in the Royalty Procedure shall apply to such lands and
production from ▇▇▇▇▇ drilled
- 26 -
thereon. For the sake of clarity, a gross overriding royalty will apply to the
entire Exploratory Prospect.
During that period of time prior to Pinnacle's election to participate,
Encal shall assist Pinnacle in the review of the Obligations.
In the event that Pinnacle fails to elect to participate in Obligations
within the prescribed time, it shall be conclusively be deemed to be an election
not to participate and to remain in an overriding royalty position on all lands
and future ▇▇▇▇▇ on the Exploratory Prospect.
13. Development of Proven Prospects
-------------------------------
(1) Where Pinnacle is in a working interest, and during the Term of this
Agreement, where further ▇▇▇▇▇ are proposed in order to fully develop
the potential of a drilled and proven Exploratory Prospect (a "Proven
Prospect") which ▇▇▇▇▇ are located on Joint Lands earned as a result
of a Farmin Agreement ("Additional Well") and in which Pinnacle has
participated for a working interest, Encal shall serve written notice
to Pinnacle in accordance with the terms of the governing operating
procedure.
(2) If Pinnacle participates for a working interest in the first well on
an Exploratory Prospect, where further ▇▇▇▇▇ may be required to earn
Third Party Lands comprising a portion of a Proven Prospect pursuant
to a Farmin Agreement or should Encal negotiate and enter into new
agreements with Third Parties ("Additional Farmin Agreement") to drill
further ▇▇▇▇▇ to earn Third Party Lands (such well shall be referred
to as the "Additional Earning Well"), Encal shall serve written notice
to Pinnacle of the Additional Earning Well ("Earning Well Notice").
Such Earning Well Notice shall include such recommendations and
assessments as Encal deems in its reasonable opinion to be necessary
for Pinnacle to evaluate such Additional Earning Well including a
reasonable estimate of Additional Earning Well costs and an estimate
of the timing of the advance of funds. Pinnacle acknowledges that
Encal provides no
- 27 -
representations or warranties relative to such information,
recommendations, assessments, interpretations, or estimates and that
Pinnacle will make its own reasonable decision based on such
information and other factors. Pinnacle shall then elect by written
notice to Encal on or before the expiration of fifteen (15) days from
receipt of the Earning Well Notice to either:
(1) elect to participate in the Additional Earning Well; or
(2) elect not to participate in the Additional Earning Well.
Should Pinnacle elect to participate in the Additional Earning Well, the
cost, risk and expense of the Additional Earning Well and the interest earned in
the Third Party Lands subject to the Farmin Agreement or the Additional Farmin
Agreement shall be shared by the Parties in the following proportions:
Encal 60%
Pinnacle 40%
Should Pinnacle elect not to participate in the Additional Earning Well,
such Third Party Lands being earned by such Additional Earning Well in which
Pinnacle is not participating shall not be subject to the terms and conditions
of this Agreement and Pinnacle hereby forfeits its entire interest in such Third
Party Lands. The cost, risk, expense, any Petroleum and Natural Gas Rights
earned, information or benefit derived therefrom shall be for Encal's own
account and Pinnacle shall not earn any interest whatsoever whether working
interest or overriding royalty in such lands.
During that period of time prior to Pinnacle's election to participate
Encal shall assist Pinnacle in the review of the Additional Earning Well.
- 28 -
In the event that Pinnacle fails to elect to participate in the Additional
Earning Well within the prescribed time, it shall be conclusively be deemed to
be an election not to participate in such Additional Earning Well.
14. Operator
--------
(1) Encal is hereby appointed Operator of the EJV and the attached
Operating Procedure and agrees that it shall not delegate or assign
any of its duties during the Term of this Agreement without the prior
consent of Pinnacle, which consent shall not be unreasonably or
arbitrarily withheld.
(2) Encal, as Operator of the EJV (but for sake of clarity, excluding any
Excluded Lands), shall make all decisions relating to the management
and control of the EJV subject to the terms of this Agreement and the
agreement of Pinnacle where expressly required hereunder with Encal's
reasonable discretion, which shall be exercised in good faith, in a
workmanlike manner, in accordance with good oil and gas field
practice, and which shall be final and binding on the Parties, except
as otherwise provided in this Agreement. Subject to the foregoing,
the Operator shall:
(1) explore, develop, manage and operate oil and gas properties;
(2) subject to the terms and conditions of this Agreement, conduct
preparatory exploration, which shall include (but not be limited
to subsurface mapping, prospect/play purchases, geophysical field
surveys, the collection of Basic Geophysical Data together with
the necessary interpretations as may from time to time be
necessary);
(3) select drill sites and arrange for the drilling of the ▇▇▇▇▇
thereon and produce and sell Petroleum Substances from the
respective accounts of the Parties; it being understood that
Encal is not warranting that Petroleum Substances will
- 29 -
be sold, only that it shall use its best efforts to market such
Petroleum Substances on the same terms and conditions as it
markets its own share;
(4) enter into agreements on behalf of the Parties to the EJV for the
drilling, participation, development, pooling, farmin, farmout,
unitization, joint venture and production of Petroleum Substances
and for the gathering, processing, treating, transportation and
sale of same;
(5) carry insurance, as specified in Clause 311(B) of the Operating
Procedure on behalf of the Parties as a charge to the joint
account;
(6) vote as one on behalf of both Encal and Pinnacle in all matters
arising from EJV activities;
(7) give receipts, releases and discharges on behalf of the Parties
hereto;
(8) prior to commencing the drilling of any well, to review the title
of the appropriate holder of the Title Document in accordance
with industry standards; and
(9) charge overhead and such other costs recoveries to the Parties as
are provided in the Accounting Procedure attached to the
Operating Procedure, without duplication.
(3) Notwithstanding any other clauses of this Agreement, should Pinnacle
acquire or shoot seismic for its own account, Pinnacle will be solely
responsible for any costs and expenses relative thereto.
15. Facilities and Marketing
------------------------
- 30 -
(1) Provided a well is capable of production of Petroleum Substances in
paying quantities having regard to the costs of facilities and
marketing as set out below, Encal shall use its best efforts to
promptly cause each of the ▇▇▇▇▇ that have been drilled, completed and
equipped under this Agreement, to be connected to Encal's or Third
Party's facilities. Encal agrees to produce and market Pinnacle's
share of Petroleum Substances produced from the ▇▇▇▇▇ and, in addition
to the provisions of this clause, the provisions of Article VI of the
Operating Procedure shall apply thereto. Encal shall not, except for
lack of market, shut-in the ▇▇▇▇▇ or reduce production rates as will
result in such ▇▇▇▇▇ producing less than their fair and equitable
share of recoverable reserves from any reservoir from which Encal's
other ▇▇▇▇▇ are producing, to the disadvantage or detriment of
Pinnacle.
(2) With respect to those facilities in which Encal does not have any
ownership interest, Pinnacle shall be charged the actual cost for
storage, gathering, processing, transporting, treating, compression,
absorption or other plant extraction or stabilization of Pinnacle's
share of Petroleum Substances.
(3) With respect to those facilities in which Encal does have an ownership
interest and subject to any agreements with Third Parties, Pinnacle
shall be charged a reasonable fee sufficient to cover the costs for
the storage, gathering, processing, transporting, treating,
compression, absorption or other plant extraction or stabilization of
Pinnacle's share of Petroleum Substances which fee shall also include
a reasonable rate of return on capital investment.
(4) Notwithstanding the provisions of Article VI, Clause 601 of the
Operating Procedure, Pinnacle hereby agrees to dedicate Pinnacle's
share of production of Petroleum Substances from the joint lands
subject to the Operating Procedure to Encal who shall undertake to
market Pinnacle's share of production of Petroleum Substances on the
same terms as Encal markets its own share of production, subject to
the provisions of Article VI, Clause 604, election "A".
- 31 -
(1) If at any time during the Term of this Agreement a Party (in this
clause called "the Proposing Party") wishes to construct new
facilities for the treating, processing, or transportation of
Petroleum Substances from the joint lands subject to the
Operating Procedure, it shall afford to the other Party an
opportunity to participate in such project on an equitable basis.
The Proposing Party shall provide to the other Party the
background information the Proposing Party deems reasonably
necessary for the other Party to evaluate the project and make a
decision. The Parties recognize that until a proposal is made it
is not possible to determine the terms of such participation,
however, each Party agrees that it will act in good faith in
carrying out the terms of this clause.
16. Meetings and Reporting
----------------------
Upon completion of the SFD Survey set out herein and the acceptance and
evaluation of the Exploratory Prospects, Encal shall provide Pinnacle with an
outline of the ▇▇▇▇▇ to be drilled and new facilities to be constructed. It is
acknowledged that such outline shall not be binding and may be subject to
revision from time to time. At two (2) month intervals thereafter, Encal shall
provide outlines for the ▇▇▇▇▇ scheduled to be drilled in each successive
calendar quarter during the Term. Beyond the Term, the Parties shall consult to
determine the most efficient and reasonable method of scheduling further
operations.
17. Incorporation of the Operating Agreement
----------------------------------------
(1) Provided Pinnacle has elected not to be in an overriding royalty
position, then the following clauses of Schedule "C" ("Operating
Procedure") shall apply, mutatis mutandis, to this Agreement and to
all operations as between Encal and Pinnacle for such ▇▇▇▇▇ drilled
thereunder. Where the terms of this Agreement and the Operating
Procedure conflict, the terms of this Agreement shall prevail. Where
the Operating
- 32 -
Procedure makes reference to "Operator" the word "Encal" is
substituted and similarly, "Joint Operator" is substituted by
"Pinnacle" and "this Operating Procedure" is substituted by "this
Agreement".
304 Proper Practices in Operations
305 Books, Records and Accounts
306 Protection from Liens
307 Joint-Operator's Rights of Access
308 Surface Rights
309(a) Maintenance of Title Documents
311 Insurance
501 Accounting Procedure
701 Pre-Commencement Information (excluding 701(a))
702 Drilling Information and Privileges of Joint-Operators
703 Logging and Testing Information to Joint-Operators
704 Completion and Production Information to Joint-Operators
705 Well Information Subsequent to Completion
706 Data Supplied in Accordance with Industry Standards
801 Velocity Surveys and Other Geophysical Tests
ARTICLE 11 Quit Claim
1601 Definition of Force Majeure
1602 Suspension of Obligation Due to Force Majeure
1603 Obligation to Remedy
1604 Exception for Lack of Finances
1801 Information to be Kept Confidential
(2) Subject to the terms of this Agreement and to subclause (c) below, the
Operating Procedure shall apply to operations conducted in respect of
the exploration, development and maintenance of any lands, between and
among Pinnacle and Encal hereto.
- 33 -
(3) In the event that Encal and Pinnacle are parties to an existing
agreement involving Third Parties ("Third Party Agreement") and to the
extent the Third Party Agreement conflicts with the Operating
Procedure, the Third Party Agreement terms and conditions shall
prevail as between Encal and Pinnacle.
18. Indemnification
---------------
(1) The Parties hereto shall, in proportion to their respective
participating interests in the EJV, hereby indemnify and hold harmless
the Operator from and against any and all actions, suits, claims and
demands made by any person or persons whomsoever, in respect of any
loss, injury, damage or obligation to compensate arising out of or in
any way connected with the carrying out by the Operator of its duties
and obligations in accordance with the provisions of this Agreement,
except when the Operator is found to be grossly negligent, and
excepting the collection of Basic Geophysical Data.
(2) Pinnacle indemnifies Encal against any and all Losses which may be
incurred or suffered by Encal or which may be sustained, paid or
incurred by reason of or in any way attributable to the operations
carried on in respect of the SFD Survey by Pinnacle, its servants,
agents or employees under this Agreement. However, notwithstanding
any other clauses of this Agreement, Pinnacle does not represent and
warrant the accuracy or reliability of the SFD Data and SFD
Information and Encal agrees that it is in part relying on the same
based upon its own evaluation of the same.
(3) Encal indemnifies Pinnacle against any and all Losses which may be
incurred or suffered by Pinnacle or which may be sustained, paid or
incurred by reason of or in any way attributable to the operations
carried on in respect of the Basic Geophysical Data by Encal, its
servants, agents or employees under this Agreement. However,
notwithstanding any other clauses of this Agreement, Encal does not
represent or warrant the accuracy or reliability of the conventional
oil and gas industry evaluation
- 34 -
any analysis date including the Basic Geophysical Data and Pinnacle
agrees that it is in part relying on the same based upon its own
evaluation of the same.
(4) Pinnacle and each of the Affiliates jointly and severally indemnifies
Encal against any and all Losses which may be incurred or suffered by
Encal or which may be sustained, paid or incurred by reason of or in
any way attributable to the breach of one or more of the
representations, warranties or covenants made by Pinnacle and each of
the Affiliates under this Agreement, whether such a breach occurs
prior to or during the Term of this Agreement, or as a result of
Pinnacle or the Affiliates suffering an adverse loss to their rights
in and to the SFD Technology and SFD Data as a result of or arising
out of the Action, such an indemnity to continue for a period of five
(5) years following the Term of this Agreement.
19. Default and Termination
-----------------------
(1) If either Party fails to perform any obligation required to be
performed hereunder, the non-defaulting Party may give the defaulting
Party notice to remedy the default, and if the defaulting Party does
not commence to remedy the default within thirty (30) days after
receiving the notice and proceed diligently and continuously to remedy
it, the non-defaulting Party may by notice to defaulting Party in
writing terminate this Agreement.
(2) If, as a result of the Action or any breach of the representations,
warranties and covenants contained herein, whether such a breach is
the result of the actions of Pinnacle or any of the Affiliates, or if
Pinnacle or any of the Affiliates is no longer entitled to the
ownership of SFD Technology and the right to utilize the SFD
Technology is granted to any other person other than as provided in
clause 5(a), Encal may terminate this Agreement by providing written
notice of same to Pinnacle.
- 35 -
(3) In the event that this Agreement is terminated as provided in this
clause, any lands owned jointly by the Parties hereto shall continue
to be governed by the Operating Procedure or applicable Third Party
Agreement.
(4) Subject to clause 10 hereof, should Pinnacle fail to pay its
proportionate share of any cash calls or authorities for expenditure
issued and delivered by Encal to Pinnacle in relation to a test well,
or any other operations on an Exploratory Prospect, then, at the
option of Encal, Encal may treat the non-payment as a lien on
production in favour of Encal pursuant to the applicable operating
procedure or may elect to treat the non-paid amount and any applicable
interest thereunder as a debt due and owing from Pinnacle to Encal
which may be collected by Encal in accordance with any provisions of
law or equity and, Encal shall have the right to set-off the subject
debt and any interest or penalty amounts owing against any other
amounts payable or paid by Pinnacle to Encal including any production
on any other lands under the terms of this Agreement or any amounts
payable under a Royalty Agreement, or under the terms of the Operating
Procedure applicable to any such lands.
(5) Should Encal fail to pay its proportionate share of any cash calls or
authorities for expenditure in relation to a test well, or any other
operations on any Exploratory Prospect, then, at the option of
Pinnacle, Pinnacle may treat the non-payment as a lien on production
in favour of Pinnacle pursuant to the applicable operating procedure
or may elect to treat the non-paid amount and any applicable interest
thereunder as a debt due and owing from Encal to Pinnacle which may be
collected by Pinnacle in accordance with any provisions of law or
equity and, Pinnacle shall have the right to set-off the subject debt
and any interest or penalty amounts owing against any other amounts
paid by Encal to Pinnacle including any production on any other lands
under the terms of this Agreement or any amounts payable under a
Royalty Agreement, or under the terms of the Operating Procedure
applicable to any such lands.
20. Transfer
--------
- 36 -
Each Party shall not transfer this Agreement or any interest, right or
obligation under this Agreement, or any joint lands operated under the Operating
Procedure except in accordance with the provisions of Clause 2401 (B) of the
Operating Procedure, provided that for the purpose of Clause 2401 (B) of the
Operating Procedure, Affiliates may include a limited partnership where Pinnacle
or Pinnacle Oil Canada Ltd. or an Affiliate is the general partner of such
partnership. Any assignment of interest shall be in accordance with the
Assignment Procedure attached as Schedule "C" hereto.
Notwithstanding any assignment made by Pinnacle to an Affiliate, during the
Term of this Agreement, Encal need only look to Pinnacle for performance of the
duties and obligations of Pinnacle pursuant to this Agreement.
21. Area of Mutual Interest
-----------------------
(1) In this clause the expression "AMI Lands" means any Petroleum And
Natural Gas Rights, or either of them, which are laterally and/or
diagonally within one (1) mile of the lands encompassing any
Exploratory Prospect, other than Excluded Lands and lands acquired by
Encal alone (i.e. not subject to any obligation to provide an interest
to a Third Party) pursuant to clause 13(b).
(2) On an Exploratory Prospect by Exploratory Prospect basis, the
provisions of this clause relating to the acquisition of any AMI Lands
shall:
(1) for AMI Lands not encompassing the Exploratory Prospect, be
effective for that period commencing on the date of acceptance,
in writing, by Encal of an Exploratory Prospect and terminating
one (1) year thereafter, and;
(2) for AMI Lands encompassing the Exploratory Prospect, be effective
for the Term and one (1) year thereafter.
- 37 -
(3) Crown Lands") and if one of the Parties desires to acquire an interest
in the New Crown Lands, the Parties shall consult at least forty-eight
(48) hours prior to the final hour at which bids are accepted for the
sale of the New Crown Lands for the purpose of attempting to reach an
agreeable bid price. If, after consultation between the Parties,
agreement is reached, to bid jointly on the New Crown Lands, Encal
shall submit the bid on behalf of the Parties and if the New Crown
lands are acquired, they shall be paid for, owned and held by the
acquiring Parties in the following interests ("Participating
Interests"):
(1) if an initial test well has been drilled on an Exploratory
Prospect or is being drilled pursuant to clause 12 and Pinnacle
participates, subject to any Third Party participation:
Encal 60%
Pinnacle 40%; or
(2) in all other cases where Pinnacle participates, subject to any
Third Party participation:
Encal 55%
Pinnacle 45%
(4) Subject to Sub-clause (e), if agreement is not reached as to a bid
price, then the New Crown Lands so acquired shall be paid for, owned
and held by the Party acquiring the New Crown Lands.
(5) If, after any consultation at which an agreed bid price is not reached
by all Parties, any Party acquires the New Crown Lands at a price
which differs by more than five percent [5%] from the price it was
prepared to agree to for acquisition, or if a Party acquires the New
Crown Lands without consulting with the other Party or without
- 38 -
disclosing the price it was prepared to pay for the acquisition, the
acquiring Party shall immediately give notice to the other Party
setting forth the consideration paid. Any Party receiving the notice
shall have the right for a period expiring ten (10) days from the
receipt of the notice to elect to acquire its Participating Interest
in the New Crown Lands acquired by paying to the acquiring Party its
proportionate share of the acquisition costs. If this right is
exercised, the New Crown Lands shall be held and owned by the Parties
acquiring and the Parties electing to acquire their proportionate
interest in the proportion that their respective Participating
Interests bear one to the other as set forth in Sub-clause (b)(i) or
(b)(ii), whichever is applicable. The interest acquired shall be held
by the acquiring Party on behalf of all Parties until the expiry of
the ten (10) day period.
(6) On acquisition of AMI Lands by more than one Party, if the AMI Lands
are not already subject to an agreement that provides for their joint
operation, an agreement in the form of the Operating Procedure shall
be deemed immediately to become effective to govern the relationship
among the Parties and to provide for the maintenance and operation of
the AMI Lands. Encal shall be the Operator unless Encal does not
acquire an interest in the AMI Lands, in which event the Parties who
have acquired an interest shall appoint an operator in the manner
provided for the appointment of a new operator in the Operating
Procedure.
(7) Provided that both Encal and Pinnacle acquire their Participating
Interests in the AMI Lands, any ▇▇▇▇▇ drilled on the AMI Lands, except
any test well, shall be deemed Additional ▇▇▇▇▇ under this Agreement
and, as such, the provisions of clause 13(a) shall apply mutandis
mutatis to such Additional Well.
(8) A Party submitting a bid under the provisions of this clause shall
comply with all combines and anti-competition laws and shall make
known to the person calling for or requesting the bids or tenders at
or before their time when any bid or tender is made, the names of all
Parties who have agreed to submit a bid or tender.
- 39 -
(9) If any Party acquires an interest (or the right to acquire an
interest) in any lands other than New Crown Lands as provided in Sub-
clause (c) above or Petroleum and Natural Gas Rights as set forth in
clauses 12 or 13(b) and fifty percent (50%) or more (by surface area
and title document) of the lands so acquired are situated within the
Area of Mutual Interest, the acquiring Party shall notify the other
Party thereof within fifteen (15) days of the acquisition, detailing
the consideration paid or payable therefor and the obligations
undertaken by the acquiring Party with respect to the said
acquisition. The other Party shall have ten (10) days from receipt of
the notice of acquisition within which to elect to participate in the
said acquisition to the extent of the percentage interest set forth
opposite its name in Sub-clause (c)(i) or (c)(ii) above, which ever is
applicable, by paying to the acquiring Party pursuant to the said
acquisition.
22. Exclusions to the EJV
---------------------
Notwithstanding anything contained herein, the following Petroleum and
Natural Gas Rights, lands, tangibles and associated interests of Encal or any of
its Affiliates (as defined in the Business Corporations Act) or any trust or
-------------------------
partnerships where a Encal is a party (such affiliates being determined at the
time of a selection of a new Exploration Area) are specifically excluded from
this Agreement to the extent they are not acquired as a result of SFD Data, SFD
Information and SFD Anomalies reviewed by Encal (the "Excluded Lands"):
(1) the acquisition of any interest in lands, Petroleum Substances,
corporations, partnerships, affiliates or other legal entities as such
by the purchase of an equity interest therein or merger and
amalgamation therewith and any duties, obligations or acquisitions
resulting therefrom where the AMI Lands are not the primary purpose of
the acquisition;
- 40 -
(2) any interests in any lands or Petroleum and Natural Gas Rights
presently held by Encal and its joint operators either having reserves
which have been proven, probable or capable of any production of
Petroleum Substances whatsoever including any lands or possible
Petroleum and Natural Gas Rights;
(3) the purchase of any oil and gas reserves (whether proven or probable
reserves) unless subsequently deemed included by mutual agreement of
the Parties;
(4) any lands and Petroleum and Natural Gas Rights where Encal has
conducted technical or analysis work and is pursuing the acquisition
of such lands and Petroleum and Natural Gas Rights without reliance
upon SFD Data;
(5) any other lands, Petroleum and Natural Gas Rights, tangibles and
associated interests in which Encal has an interest or has a right to
acquire an interest and which are not made a part of this Agreement in
accordance with the terms and conditions hereof.
23. Notices
-------
(1) The addresses for service and the fax numbers of the Parties shall be
as follows:
Encal - Encal Energy Ltd.
▇▇▇▇, ▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: Manager, Land
------------------------
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Pinnacle -
Pinnacle Oil International Inc.
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: President
--------------------
- 41 -
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Affiliates -
Pinnacle Oil Inc.
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: President
--------------------
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: President
--------------------
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Pinnacle Oil Canada Ltd.
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: President
--------------------
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Momentum Resources Ltd.
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: President
--------------------
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: President
--------------------
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(2) All notices, communications and statements required, permitted or
contemplated hereunder shall be in writing, and shall be delivered as
follows:
- 42 -
(1) by personal service on a Party at the address of such Party set
out above, in which case the item so served shall be deemed to
have been received by that Party when personally served;
(2) by facsimile transmission to a Party to the fax number of such
Party set out above, in which case the item so transmitted shall
be deemed to have been received by that Party when transmitted
with answer back received; or
(3) except in the event of an actual or threatened postal strike or
other labour disruption that may affect mail service, by mailing
first class registered post, postage prepaid, to a Party at the
address of such Party set out above, in which case the item so
mailed shall be deemed to have been received by that Party on the
fifth (5) business day following the date of mailing.
(3) A Party may from time to time change its address for service or its
fax number or both by giving written notice of such change to the
other Party.
24. Miscellaneous
-------------
(1) Each Party shall perform the acts and execute and deliver the deeds
and documents and give the assurances as shall be reasonably required
in order fully to perform and carry out and give effect to the terms
of this Agreement.
(2) A waiver of any breach of a provision of this Agreement shall not be
binding on any Party unless the waiver is in writing and the waiver
shall not affect the Party's rights with respect to any other or
future breach.
(3) All terms and provisions of this Agreement shall run with and be
binding on the lands referred to during the Term of this Agreement.
- 43 -
(4) Time is of the essence in this Agreement.
(5) This Agreement shall enure to the benefit of and be binding on the
Parties and their respective heirs, executors, administrators,
successors and assigns.
(6) 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 or
anything in this Agreement contained.
(7) This Agreement supersedes and replaces all previous agreements,
whether written or oral, memoranda or correspondence between the
Parties with respect to the subject matter of this Agreement.
(8) Wherever in this Agreement the singular number or masculine gender
occurs, the same shall be respectively construed as the plural or
neutral, and vice versa, as the context or reference may require.
(9) All schedules attached to this Agreement are incorporated by reference
as though contained in the body of it. Wherever any term or
conditions, expressed or implied, of any schedule conflicts or is at a
variance with any term or condition of this Agreement, the term or
condition of this Agreement shall prevail.
(10) During the Term, Pinnacle and the Affiliates agree not to actively
solicit the employment or consulting contracts of Encal's employees or
consultants.
(11) The headings of all clauses in this Agreement are inserted for
convenience of reference only and shall not affect the construction of
it.
(12) The terms of this Agreement shall be governed exclusively by the law
in force from time to time in the Province of Alberta and the Parties
hereto agree to submit to the
- 44 -
jurisdiction of the Courts of the Province of Alberta in respect of
any claims, actions or proceedings resulting from this Agreement.
(13) Notwithstanding anything elsewhere herein contained, the right of a
Party to acquire any interest in any lands or Petroleum and Natural
Gas Rights from another 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 ▇▇▇▇▇▇▇▇▇ ▇▇.
(14) This Agreement may be executed in counterpart and the executed
counterparts shall constitute one agreement.
(15) Any confidentiality terms and conditions provided by a Party hereunder
shall always be subject to the right of that Party to disclose
confidential information to the extent required by law including
securities laws applicable to such Party
IN WITNESS WHEREOF the Parties have executed this Agreement as of the day
and year first written above.
---------------------------- -------------------------------
ENCAL ENERGY LTD. PINNACLE OIL INTERNATIONAL INC.
Per: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Per: /s/ R. ▇▇▇▇ ▇▇▇▇▇▇▇
------------------- -------------------
Per: Per:
---------------------------- -------------------------------
PINNACLE OIL INC. MOMENTUM RESOURCES LTD.
Per: /s/ R. ▇▇▇▇ ▇▇▇▇▇▇▇ Per: /s/ R. ▇▇▇▇ ▇▇▇▇▇▇▇
------------------- -------------------
Per: Per:
---------------------------- -------------------------------
PINNACLE OIL CANADA LTD. Witness
Per: /s/ R. ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------
Per: Witness
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ R. ▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------