AGREEMENT MADE BETWEEN PANARCTIC OILS LTD.
AND CANADA SOUTHERN PETROLEUM LTD.
TABLE OF CONTENTS
CLAUSE NO. PAGE NO.
1 INTERPRETATION.................................. 1
2 OPERATIONS...................................... 3
3 ASSIGNMENT TO FARMEE............................ 4
4 FARMEE'S UNDERTAKING TO MAINTAIN
PERMITS......................................... 4
5 ASSUMPTION OF SEISMIC COMMITMENTS
BY FARMEE FOR FARMOR............................ 5
6 FARMEE'S DRILLING PROGRAM....................... 6
7 SUPPLYING INFORMATION TO FARMOR................. 7
8 RIGHT OF CONVERSION BY FARMOR TO
NET CARRIED INTEREST............................ 8
9 WELL PROPOSALS.................................. 9
10 HEMBDT OVERRIDE................................. 9
11 FORCE MAJEURE................................... 10
12 FURTHER ASSURANCES.............................. 10
13 WAIVER.......................................... 10
14 ENTIRE AGREEMENT................................ 10
15 MISCELLANEOUS................................... 11
16 CONFORMANCE WITH LAWS........................... 11
17 TITLE........................................... 11
TABLE OF CONTENTS (Cont'd)
CLAUSE NO. PAGE NO.
18 NOTICES......................................... 12
19 INDEMNIFICATION BY FARMEE....................... 12
20 SURFACE RIGHTS.................................. 12
21 PERFORMANCE OF PERMITS BY FARMEE................ 13
22 DEFAULT......................................... 13
23 PERPETUITIES.................................... 14
24 PAYMENT OF ACCOUNTS............................. 14
25 ASSIGNMENT BY THE FARMEE........................ 14
26 AREA OF COMMON INTEREST......................... 16
THIS AGREEMENT dated this 28th day of January, A.D. 1972 BETWEEN:
CANADA SOUTHERN PETROLEUM LTD., a
body corporate, having an office in the City of
Calgary, in the Province of Alberta, (hereinafter
called the "Farmor")
OF THE FIRST PART
AND:
PANARCTIC OILS LTD., a body corporate
incorporated under the laws of Canada and having
its principal place of business in the City of
Calgary, in the Province of Alberta, (hereinafter
called the "Farmee")
OF THE SECOND PART
WHEREAS the Farmor is the holder of the Permits (as hereinafter
defined) subject to the "Hembdt override" (as hereinafter defined); and
WHEREAS the Farmee desires to acquire an interest in the Permits from
the Farmor subject to the terms and provisions of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and of the covenants and agreements of the parties hereto in this
Agreement set forth, the parties hereto do hereby covenant and agree as follows:
1. INTERPRETATION
(a) In this Agreement, including the recitals and this clause, unless
the context otherwise requires:
(i) "the lands" means the lands set forth and described
and from time to time remaining in Schedule "A"
attached to and made part of this Agreement and
includes the right to recover petroleum substances
within such lands;
(ii) "the Permits" means the Oil and Gas Exploratory
Permits more particularly described in said Schedule
"A" hereto (and includes any Leases selected
therefrom) but insofar only as such Permits comprise
the lands; Permits include all leases or other
instruments conferring petroleum substances rights
granted or to be granted pursuant to the laws of
Canada, directly or indirectly, out of or in
relationship to said Permits as set forth in Schedule
"A", or any extension, variation or renewal thereof
or in substitution therefore, or in substitution for
any part thereof as a result of the holding of said
Permits;
(iii) "Block I", "▇▇▇▇▇ ▇▇", "▇▇▇▇▇ ▇▇▇", "▇▇▇▇▇ IV",
"Block V", "Block VI", and "Block VII", respectively,
means those portions of the Permits and lands so
designated under each of such respective Blocks in
said Schedule "A";
(iv) "Petroleum Substances" means the substances which
Farmor has the right to explore for or recover from
the lands by virtue of the Permits, and where the
context so requires, may mean any one or more of such
substances.
(v) "Spacing Unit" means the area prescribed for or
allocated to a well by or under the Regulations for
the purpose of drilling for or producing petroleum
substances or, if no area is so prescribed or
allocated, means one section as defined in the Canada
Oil and Gas Land Regulations;
(vi) "Operating Agreement" means that Operating Procedure
attached to and made part of this Agreement as
Schedule "B", which Operating Agreement becomes
effective in the manner and on the terms provided for
in this Agreement and requires no further execution
to be effective;
(vii) "Hembdt Override" means the 1.5625% gross override
royalty interest and rights held by Misses ▇▇▇▇▇▇▇
and ▇▇▇▇▇ ▇▇▇▇▇▇, as trustees in the Permits;
(viii) "Regulations" means the statutes, ordinances, laws,
governmental orders, regulations, rules and
directions from time to time purporting to be in
force and applicable to the Lands, the Permits and
the petroleum substances or the operations
contemplated by this Agreement.
(b) The headings of the clauses of this Agreement are inserted for
convenience of reference only and shall not affect the meaning or construction
thereof.
(c) Whenever the plural or masculine or neuter is used in this
Agreement, the same shall be construed as meaning singular or feminine or body
politic or corporate and vice versa where the context so requires.
(d) If any term or condition of this Agreement conflicts with the term
or condition of the Permits then such term or condition in the Permits shall
prevail and this Agreement shall be deemed to be modified accordingly.
2. OPERATIONS
(a) All operations by Farmee pursuant to this Agreement shall be at
Farmee's sole risk and expense unless the contrary is specifically stated.
(b) All operations by Farmee pursuant to this Agreement shall be
conducted in a lawful manner and in accordance with good oilfield practice.
3. ASSIGNMENT TO FARMEE
(a) Forthwith upon the execution of this Agreement, Farmor shall
execute and deliver to Farmee, registrable assignment Agreements respecting the
Permits sufficient to register the Permits in the name of the Farmee and will
also deliver the original Permits to Farmee (said registration to be at Farmee's
sole cost and expense);
(b) Upon receipt of the said assignments, Farmee agrees that it shall
hold the Permits subject to the Hembdt override in trust for the parties hereto
subject to the terms of this Agreement and of the Operating Agreement on the
following percentage interests, namely:
Farmor 50%
Farmee 50%
Farmee shall not encumber or dispose of all or any part of the Permits so held
in trust without the written consent of the Farmor or without being entitled or
required to do so under the other provisions of this Agreement.
4. FARMEE'S UNDERTAKING TO MAINTAIN PERMITS
(a) Farmee undertakes to apply sufficient allowable expenditures or
cash to the Permits from time to time as required in order to maintain the
Permits in good standing up to the anniversary date of each respective Permit
falling due in the year 1977 at no cost to Farmor;
(b) In the event Farmee desires to surrender any Permit, lease or
portion of either constituting a part of the properties in 1977 or any time
thereafter, Farmee shall notify Farmor at least sixty (60) days in advance of
the next ensuing anniversary date of such Permit and/or lease. Farmor will
thereupon notify Farmee within thirty (30) days following receipt of such notice
whether or not Farmee elects to join in the release of such lease or Permit. In
the event Farmor does not within said period of time elect to join in the
release of said properties Farmee shall reassign said properties described in
its notice to Farmor. Farmee will likewise insure that there are sufficient
allowable expenditures or cash on any Permit or lease which is to be reassigned
to maintain the property in good standing for a period not less than one year
from the date of reassignment. Said assignment of such Permits or leases shall
be a form satisfactory for registration, free and clear of encumbrances and
exceptions other than those set forth in paragraph 10 and the responsibility,
cost and expense of registering such assignment of Permits and leases shall be
borne solely and exclusively by Farmor.
5. ASSUMPTION OF SEISMIC COMMITMENTS BY FARMEE FOR FARMOR
(a) Farmee agrees to assume the seismic commitments arranged by Farmor
prior to entering into this Agreement, as follows:
(i) 150 miles of marine reflection seismic on Block V to
be shot by Kenting Limited at an agreed price of
$550.00 per mile, with a total expenditure commitment
of $82,500.00;
(ii) 250 miles of reflective seismic and gravity meter
surveys in the area of Cameron and Vanier Islands to
be shot by Polar Quest, survey 727 A, with a total
commitment not exceeding $68,750.00;
(iii) letter from Department of Energy, Mines and Resources
dated November 2, 1971 and Farmee's response dated
November 15, 1971. PROVIDED THAT the total commitment
assumed by Farmee under the three contracts shall not
exceed the sum of $201,250.00.
(b) Farmee shall have the right to make any changes or alterations in
the seismic program referred to in subclause (a) hereof, PROVIDED THAT Farmor is
relieved of its obligations respecting participation in these programs. All
allowable expenditures and the benefits accruing from participation in the
aforesaid survey programs shall accrue to Farmee.
6. FARMEE'S DRILLING PROGRAM
Farmee has agreed with Farmor to cause a drilling program to be
conducted in the vicinity of the Permits, consisting of the following:
(a) If seismic work conducted during the Spring of 1972 establishes a
drill site on Permit No. 484, 200 or more feet structurally higher than the
Hecla J-60 then a well will be commenced not later than the Fall of 1973 and
drilled to a depth of 5,000 feet, to Paleozoic formation or production whichever
occurs first.
(b) A well in the Drake Point area west of Block V at a location of
Farmee's choice to be commenced on or before the first day of April, 1974.
(c) A well on a location of Farmee's choice on the Isachsen Penninsula
on Ellef Ringnes Island east of Block I to be commenced on or before the first
day of October, 1973.
(d) Additional seismic will be conducted on Permit No. 688 during 1972
on the ▇▇▇▇▇▇ Anticline and if 300 feet or more of structural closure is
established at 8,000 feet or a shallower depth then a well at a location of
Panarctic's choice will be commenced by the Spring of 1974 and drilled to test
the stratigraphic equivalent of the gas productive sand found in the Kristoffer
Bay G-06 and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ D-18A ▇▇▇▇▇.
7. SUPPLYING INFORMATION TO FARMOR
(a) Farmee shall supply immediately Farmor with all information
acquired by it from work performed on the Permits or off permit work that is
part of a program conducted on the Permits. Farmor shall not be obligated to
participate in the costs of any exploratory work (excluding drilling) on the
Permits up to the anniversary date of the respective Permits in 1977.
Notwithstanding that Farmor may not be participating in the cost of such
exploratory work other than drilling, as aforesaid, Farmor shall nevertheless be
entitled to receive from Farmee copies of all basic data (exclusive of
interpretation) derived therefrom, provided that the provisions of clause 33 of
the Operating Agreement shall be deemed to be applicable thereto.
(b) The parties acknowledge that by virtue of the provisions of
agreements with other companies in which Farmee is a party, the Farmee may be
unauthorized to provide exploratory information on any lands adjoining the
Permits.
(c) Farmor has the right to request and Farmee shall have the
obligation subject to clause 7(b) to give information on off permit work
conducted by Panarctic or on its behalf that affects the value of Canada
Southern's interest in any of the Permits hereunder or in the Permits covered by
the previous agreement dated June 30, 1966, as amended, wherein Canada Southern
and Panarctic are the parties; the information to be given on the following
basis:
(i) Not more frequently than sixty (60) day periods and
on a three (3) day notice.
(ii) Panarctic can withhold information that is less than
two (2) weeks old.
(iii) Information to be given on a verbal basis and between
appropriate technical staff members of each company.
(d) Farmee shall use its best effort to immediately supply Farmor with
the technical information received under 5(a).
8. RIGHT OF CONVERSION BY FARMOR TO NET CARRIED INTEREST
(a) The right of conversion reserved to the Farmor under the provisions
of this clause may be exercised as to any one or more of the Blocks described in
Schedule "A" hereto.
(b) Subject to clause 9 hereof, the Farmor shall be entitled by notice
in writing to Farmee given at any time prior to the earliest anniversary date in
1977 of any permit in said Block to convert its 50% working interest to a 30%
net carried interest in any Block or Blocks. The provisions of Schedule "C"
hereto (Carried Interest Procedure) shall apply to such Block or Blocks so
converted.
(c) The effective date for conversion of the rights of the Farmor's
interest from a working interest to a carried interest shall be the date on
which notice is given by the Farmor as aforesaid.
(d) Upon the effective date of any such conversion, then the provisions
of Schedule "C" shall apply to the Block or Blocks with respect to which such
conversion is effected whereupon the provisions of Schedule "B" (Operating
Agreement) shall have no application to such Block or Blocks, except as provided
in Schedule "C".
9. WELL PROPOSALS
If Farmee proposes a well on any Block on which Farmor has not elected
to convert its interest to a carried interest, pursuant to Clause 8 hereof, and
prior to the final date for election to so convert Farmor shall, notwithstanding
the provisions of Clause 8 hereof, exercise its right to elect to convert its
interest in the Block on which the well is proposed to be drilled to a thirty
(30%) percent carried interest within thirty (30) days of the date of receipt of
notice proposing the well. If Farmor fails to elect to so convert within the
said thirty (30) day period, it will have no further right to elect on such
Block and such Block shall continue to be subject to the Operating Agreement.
10. HEMBDT OVERRIDE
(a) The parties acknowledge that the Permits are subject to the Hembdt
override, and the Farmor and Farmee shall proportionately assume their
respective share of the Hembdt override on all Permits remaining subject to the
Operating Agreement which is hereby charged to the joint account under the
Operating Agreement. If Farmor elects to convert its working interest to a
carried interest pursuant to the provisions of clause 8 hereof, then with
respect to those Permits in which the interest has been so converted, Farmee
shall pay the Hembdt royalty and all sums so paid shall be expenses chargeable
to the carried interest account.
(b) Farmor shall supply Farmee forthwith upon the execution of this
Agreement with the agreement or other documents setting forth the particulars of
the Hembdt override.
11. FORCE MAJEURE
No party sha1l be deemed to be in default in respect of nonperformance
of its obligations under this Agreement if and so long as its nonperformance is
due to strikes, lockouts, fire, tempest, or acts of God of the Queen's enemies,
or any other cause (whether similar or dissimilar to those enumerated) beyond
its control, but lack of finances shall in no event be deemed to be a cause
beyond a party's control; and in the case of any obligation contained in a
Permit, the rights of the parties hereto with respect to force majeure shall not
exceed those granted to the Permitee named therein.
12. FURTHER ASSURANCES
Each of the parties hereto shall from time to time and at all times do
all such further acts and execute and deliver all such further deeds and
documents as shall be reasonably required in order fully to perform and carry
out the terms of this Agreement.
13. WAIVER
No waiver on behalf of either party hereto of any breach of any of the
covenants and provisions in this Agreement contained, whether negative or
positive in form, shall take effect or be binding upon such party, unless the
same be expressed in writing, and any waiver so expressed shall not limit or
affect such party's rights with respect to any other of future breach.
14. ENTIRE AGREEMENT
The terms of this Agreement express and constitute the entire agreement
between the parties, and no implied covenant or liability of any kind on
Farmor's or Farmee's part is created or shall arise by reason of these presents
or anything in this Agreement contained.
15. MISCELLANEOUS
(a) All terms and provisions of this Agreement shall run with and be
binding upon the lands during the term of this Agreement.
(b) Time is of the essence of this Agreement.
(c) Subject to the terms of this Agreement, this Agreement shall enure
to the benefit of and be binding upon the parties hereto, their successors and
assigns.
16. CONFORMANCE WITH LAWS
This Agreement and the respective rights and obligations of the parties
hereunder shall be subject to all applicable laws, rules, regulations and orders
of governmental authorities, Federal, Territorial and Municipal, and in the
event this Agreement or any provision hereof, or the operations or any matter
contemplated hereby, is found to be inconsistent with or contrary to any such
law, rule, regulation or order, the latter shall be deemed to control, and this
Agreement shall be regarded as modified accordingly, and as so modified shall
continue to full force and effect.
17. TITLE
Farmor represents and warrants that it is the holder of the Permits and
that such Permits are presently in good standing and as of the date hereof
Farmor has not assigned, conveyed, mortgaged or hypothecated its interest in the
Permits and warrants that it holds the Permits free and clear of all
encumbrances, except the Hembdt override.
Except as above provided, the Farmor does not warrant title, nor does
it convey, purport, promise or agree to convey, to Farmee any better or greater
right, title or interest in and to any of the Lands than those which it now has
by virtue of the Permits.
18. NOTICES
The addresses for service of the parties hereto shall be as follows:
PANARCTIC OILS LTD., CANADA SOUTHERN PETROLEUM LTD.,
▇.▇. ▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇ - 6th Avenue S.W., ▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇.▇.,
▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇
Any party from time to time may change its address for service by giving written
notice to the other. Any notice may be served by mailing the same, by registered
post, postage prepaid, in a properly addressed envelope addressed to the party
to whom the notice is to be given at such party's stated address for service and
if mailed in the Province of Alberta, any such notice so served shall be deemed
to be given to and received by the addressee on the second business day after
the mailing thereof.
19. INDEMNIFICATION BY FARMEE
Farmee shall indemnify the Farmor against all actions, suits, claims,
costs and demands which may be brought against or suffered by the Farmor by
reason of any matter or thing arising out of or in any way attributable to any
operations carried on by Farmee, its servants, agents or employees, on the Lands
prior to right of conversion (paragraph 8) by Farmor.
20. SURFACE RIGHTS
Farmee shall acquire all necessary licenses, surface rights and
rights-of-way, including without limitation the exploratory licenses required
under the provisions of the Regulations for the purpose of work at its sole
cost, risk and expense.
21. PERFORMANCE OF PERMITS BY FARMEE
Except as otherwise provided in this Agreement, Farmee shall, as of the
date of this Agreement, assume, carry out, observe and perform all the
obligations of the Permittee contained in the Permits and, in the event of
Farmee's failure so to do, Farmee shall at all times indemnify Farmor against
all actions, proceedings, claims and demands, costs, damages and expenses which
may be brought or made against it or which it may sustain, pay or incur by
reason of such failure, including in such indemnity any and all sums paid by
Farmor pursuant to a bona fide settlement made with any claimant having a claim
arising out of or consequent upon any such failure.
22. DEFAULT
Should Farmee make any default in any term, covenant or condition of
this Agreement or of any Permit and Farmee does not commence to remedy such
default within thirty (30) days after notice thereof in writing has been given
to it by Farmor and does not thereafter continue with reasonable diligence, then
Farmor may, by notice in writing to Farmee, cancel and determine the conveyance
and the entire interest of Farmee under this Agreement, and it shall be lawful
for Farmor, into and upon the lands (or any part thereof in the name of the
whole), to re-enter and the same to have again, repossess and enjoy. The rights
hereby granted to Farmor shall be in addition to and not in substitution for any
other right or remedy which Farmor may have under this Agreement, and
specifically the exercise of such rights shall not serve to deprive Farmor
either wholly or partially of any other right or remedy including damages and
indemnity.
23. PERPETUITIES
Notwithstanding anything in this Agreement elsewhere contained or
implied, any right or any party to acquire any interest from any other party
shall cease, terminate and be at an end not later than the expiration of 21
years after the death of the last surviving lawful descendant now living of His
Late Majesty, King ▇▇▇▇▇▇ VI.
24. PAYMENT OF ACCOUNTS
Farmee shall
(a) pay, when they become due and payable, all claims for wages or
salaries for service rendered or performed and for materials supplied on, to or
in respect of the Lands;
(b) permit no mechanic's or other lien of any nature whatsoever to be
registered or filed against the Lands, the Permits, or any well thereon, unless
there be a bona fide dispute respecting such claim or account;
(c) permit no claims of, or dues to, or on behalf of the Workmen's
Compensation Board to become in arrears.
25. ASSIGNMENT BY THE FARMEE
(a) This Agreement may be assigned or transferred by Farmee as a whole,
but no such assignment or transfer shall be valid until written notice thereof
has been delivered to Farmor, together with a written and enforceable assumption
by Farmee's assignee or transferee of the obligations of Farmee under this
Agreement.
(b) No assignment or transfer of any interest, other than the interest
contemplated by subclause (a) of this clause, or grant of any equitable interest
in this Agreement, the Permits, the lands, or any portion thereof, by Farmee
shall be valid unless Farmee delivers to Farmor a written notice thereof and any
such transaction shall be subject to this Agreement and, in particular, to the
following conditions:
(i) Farmee shall continue to remain solely liable for the
performance of the obligations and liabilities set forth in this Agreement;
(ii) Farmor shall continue to deal exclusively with Farmee
under this Agreement and, without restricting the generality of the
foregoing, all notices to or from Farmee required under this Agreement
shall only be forwarded to and accepted from Farmee and Farmor shall
neither honor notices from nor give notice to Farmee's assignee or
grantee;
(iii) Farmor shall never be obliged to deal with more than
one party under this Agreement and should Farmee at some future date,
assign or otherwise alienate its entire interest in this Agreement, the
Permits and the lands, or any portions thereof, Farmor shall have the
option of choosing the interest holder with which they wish to deal;
(iv) any person acquiring an interest by way of a
mortgage, pledge or hypothecation, including the granting of security
to a chartered bank pursuant to Section 82 of the Bank Act of Canada,
shall, on any reali1zation of the security afforded thereby, deliver to
Farmor a written and enforceable assumption of the obligations of
Farmee under this Agreement as they relate to the interest so acquired.
(c) Any notice from Farmee under this clause shall be accompanied by
original or photostatic copies of all instruments evidencing the transaction
concerned.
26. AREA OF COMMON INTEREST
The provisions of Clause 38 of the Operating Procedure (Schedule B)
shall apply from the date of this Agreement until the Operating Procedure
becomes effective.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement
as of the day and year first above written.
PANARCTIC OILS LTD.
---------------------------------------
Vice-President Land and Administration
---------------------------------------
Treasurer
CANADA SOUTHERN PETROLEUM LTD.
---------------------------------------
President
---------------------------------------
Director
THIS IS SCHEDULE "A" to Agreement made as of the 28th day of January, 1972,
between PANARCTIC OILS LTD. and CANADA SOUTHERN PETROLEUM LTD.
Block Permit Number Date of Issuance Location Acreage
I A-3784 November 27, 1968 78(degree)50',105(degree)30' 50,099
A-3785 November 27, 1968 78(degree)50',106(degree)00' 50,099
A-3786 November 27, 1968 78(degree)50',106(degree)30' 50,099
A-3787 November 27, 1968 78(degree)50',107(degree)00' 50,099
A-3788 November 27, 1968 78(degree)50',107(degree)30' 50,099
A-3789 November 27, 1968 78(degree)50',108(degree)00' 50,099
A-3790 November 27, 1968 78(degree)50',108(degree)30' 50,099
A-3791 November 27, 1968 78(degree)50',109(degree)00' 50,099
A-3796 November 27, 1968 W1/2 79(degree)10',105(degree)30' 24,316
A-3797 November 27, 1968 79(degree)10',106(degree)00' 48,633
A-3798 November 27, 1968 79(degree)10',106(degree)30' 48,633
A-3799 November 27, 1968 79(degree)00',105(degree)30' 49,366
A-3800 November 27, 1968 79(degree)00',106(degree)00' 49,366
A-3801 November 27, 1968 79(degree)00',106(degree)30' 49,366
A-3802 November 27, 1968 79(degree)00',107(degree)00' 49,366
A-3803 November 27; 1968 79(degree)00',107(degree)30' 49,366
A-3804 November 27, 1968 79(degree)00',108(degree)00' 49,366
A-3806 November 27, 1968 79(degree)00',108(degree)30' 49,366
A-3817 November 27, 1968 W1/2 79(degree)20',105(degree)30' 23,950
II A-3780 November 27, 1968 N1/2 78(degree)10',112(degree)00' 26,420
A-3781 November 27, 1968 N1/2 78(degree)10',112(degree)30' 26,420
A-3782 November 27, 1968 N1/2 78(degree)10',113(degree)00' 26,420
A-3783 November 27, 1968 N1/2 78(degree)10',113(degree)30' 26,420
III A-3248 October 8, 1968 77(degree)30',114(degree)00' 55,938
A-3249 October 8, 1968 77(degree)30',113(degree)30' 55,938
A-3250 October 8, 1968 77(degree)30',113(degree)00' 55,938
A-3251 October 8, 1968 77(degree)20',113(degree)30' 56,666
A-3252 October 8, 1968 N1/2 77(degree)20',113(degree)00' 28,242
Block Permit Number Date of Issuance Location Acreage
III A-3253 October 8, 1968 77(degree)20',112(degree)30' 56,666
A-3254 October 8, 1968 S1/2 77(degree)20',112(degree)00' 28,424
A-3255 October 8, 1968 S1/2 77(degree)20',111(degree)30' 28,424
A-3256 October 8, 1968 77(degree)10',112(degree)00' 57,392
A-3257 October 8, 1968 77(degree)10',111(degree)30' 57,392
A-3258 October 8, 1968 S1/2 77(degree)20',111(degree)00' 28,424
A-3259 October 8, 1968 77(degree)20',110(degree)30' 56,666
IV A-2715 August 7, 1968 W1/2 76(degree)20',110(degree)30' 30,510
A-2716 August 7, 1968 76(degree)20',111(degree)00' 61,021
A-2717 August 7, 1968 76(degree)20',111(degree)30' 61,021
A-2718 August 7, 1968 W1/2 76(degree)30',110(degree)30' 30,148
A-2719 August 7, 1968 76(degree)30',111(degree)00' 60,296
A-2720 August 7, 1968 76(degree)30',111(degree)30' 60,296
A-2721 August 7, 1968 76(degree)30',112(degree)00' 60,296
A-2722 August 7, 1968 N1/2 76(degree)30',112(degree)30' 30,057
A-2723 August 7, 1968 76(degree)40',112(degree)00' 59,571
A-2724 August 7, 1968 76(degree)40',112(degree)30' 59,571
A-2725 August 7, 1968 76(degree)40',113(degree)00' 59,571
A-2726 August 7, 1968 E1/2 76(degree)40',113(degree)30' 29,785
A-3130 September 19, 1968 76(degree)40',111(degree)30' 59,571
A-3131 September 19, 1968 76(degree)40',111(degree)00' 59,571
A-3132 September 19, 1968 W1/2 76(degree)40',110(degree)30' 29,785
A-3124 September 19, 1968 77(degree)10',106(degree)30' 57,392
A-3125 September 19, 1968 77(degree)10',106(degree)00' 57,392
A-3126 September 19, 1968 76(degree)40',107(degree)00' 59,571
A-3127 September 19, 1968 76(degree)40',106(degree)30' 59,571
A-3128 September 19, 1968 76(degree)40',106(degree)00' 59,571
A-3129 September 19, 1968 76(degree)40',105(degree)30' 59,571
A-3133 September 19, 1968 76(degree)30',106(degree)30' 60,296
A-3134 September 19, 1968 76(degree)30',106(degree)00' 60,296
Block Permit Number Date of Issuance Location Acreage
IV A-3135 September 19, 1968 76(degree)30',105(degree)30' 60,296
A-3136 September 19, 1968 W1/2 76(degree)30',105(degree)00' 30,148
A-3137 September 19, 1968 76(degree)50',106(degree)30' 58,846
V A-3138 September 19, 1968 76(degree)50',107(degree)00' 58,846
A-3139 September 19, 1968 E1/2 76(degree)50',107(degree)30' 29,423
A-3260 October 8, 1968 77(degree)00',107(degree)00' 58,120
A-3261 October 8, 1968 E1/2 77(degree)00',107(degree)30' 29,060
VI A-3807 November 27, 1968 79(degree)30',96(degree)00' 47,167
A-3808 November 27, 1968 79(degree)40',96(degree)00' 46,434
A-3809 November 27, 1968 79(degree)40',96(degree)30' 46,434
A-3810 November 27, 1968 79(degree)40',97(degree)00' 46,434
A-3811 November 27, 1968 79(degree)40',97(degree)30' 46,434
A-3812 November 27, 1968 79(degree)50',96(degree)30' 45,699
A-3813 November 27, 1968 79(degree)50',97(degree)00' 45,699
A-3814 November 27, 1968 79(degree)50',97(degree)30' 45,699
A-3815 November 27, 1968 W1/2 80(degree)00',100(degree)00' 22,482
A-3816 November 27, 1968 W1/2 80(degree)10',100(degree)00' 22,114
VII A-3792 November 27, 1968 W1/2 78(degree)50',101(degree)30' 25,049
A-3793 November 27, 1968 N1/2 78(degree)50',102(degree)00' 24,958
A-3794 November 27, 1968 N1/2 78(degree)50',102(degree)30' 24,958
A-3795 November 27, 1968 79(degree)20',102(degree)30' 47,901
THIS IS SCHEDULE "B" to Agreement made as of
the 28th day of January A.D. 1972 between
PANARCTIC OILS LTD. (herein called "Panarctic")
and CANADA SOUTHERN PETROLEUM LTD.
(herein called "Canada Southern")
INDEX
-----
CLAUSE TITLE PAGE
------ ----- ----
1 INTERPRETATION 1
2 PARTICIPATING INTERESTS 4
3 OPERATOR 5
4 FORECAST OF OPERATIONS 5
5 AUTHORIZATION FOR EXPENDITURES 5
6 INDEPENDENT DRILLING AND DEEPENING:
I. Voluntary Operations 6
II. Obligation ▇▇▇▇▇ 11
7 MAINTENANCE OF THE PERMITS 13
8 GENERAL ACCOUNTING 14
9 ADVANCES 14
10 OPERATION'S LIEN 15
11 OWNERSHIP OF PRODUCTION 15
12 PRE-COMMENCEMENT INFORMATION TO NON-OPERATOR 17
13 DRILLING INFORMATION TO NON-OPERATOR 17
14 TESTING INFORMATION TO NON-OPERATOR 18
15 LOGGING INFORMATION TO NON-OPERATOR 18
16 VELOCITY SURVEYS 18
17 COMPLETION INFORMATION TO NON-OPERATOR 19
CLAUSE TITLE PAGE
------ ----- ----
18 ADDITIONAL TESTS 20
19 ACCOUNTS 20
20 TESTING AND GAUGING 21
21 OPERATIONAL PRACTICES 21
22 INDEMNITY 22
23 INSURANCE 23
24 ABANDONMENT OF ▇▇▇▇▇ 24
25 SURRENDER 26
26 CHANGE OF OPERATOR 27
27 LEASE SELECTION 29
28 RESTRICTIONS ON INDEPENDENT DRILLING 30
29 TERM OF AGREEMENT ▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
▇▇ RELATIONSHIP OF PARTIES 31
32 CONFORMANCE WITH LAWS 32
33 CONFIDENTIAL INFORMATION 32
34 FURTHER ASSURANCES 33
35 OVERRIDING ROYALTIES 34
▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ TAX PROVISION 35
38 AREA OF COMMON INTEREST 36
39 ALIENATION 37
40 PARTITION 37
41 NOTICES AND ADDRESSES FOR SERVICE 38
OPERATING PROCEDURE
This Operating Procedure is entered into between and agreed upon by the
parties to the Agreement to which this Operating Procedure is annexed as
Schedule "B" and each of the said parties shall be a party to this Operating
Procedure and be bound by all of the terms, covenants and conditions hereof as
fully and effectively as if named herein as a party and if executed by it.
1. INTERPRETATION:
(a) In this Operating Procedure, this clause and the schedules hereto,
unless the context otherwise requires:
(i) "Accounting Procedure" means the rules, provisions
and conditions set forth and contained in Exhibit "A"
attached hereto and made a part hereof;
(ii) "affiliate corporation" means a corporation
fulfilling one of the following requirements:
(1) a corporation the majority of whose voting
stock is owned by a party hereto;
(2) a corporation owning the majority of the
voting stock of a party hereto;
(3) a corporation the majority of whose voting
stock is owned by any other corporation,
which other corporation also owns the
majority of the voting stock of a party
hereto;
(iii) "completion costs" with respect to a well means all
monies actually expended for acquiring and installing
casing left in the hole, (exclusive of surface and
intermediate casing), and the cost of acquiring and
installing tubing, wellhead and pumping equipment,
flowlines, tanks and other related equipment,
material and services necessary for preparing such
well for the taking of production of petroleum
substances therefrom including, but not to restrict
the generality of the foregoing, the applicable
charges more particularly set forth in the Accounting
Procedure;
(iv) "drilling costs" means all monies expended, exclusive
of completion costs, for drilling and equipping a
well for the recovery and taking of production of
petroleum substances including, but not to restrict
the generality of the foregoing, the applicable
charges more particularly set forth in the Accounting
Procedure;
(v) "Farmout Agreement" means the agreement to which this
Operating Procedure is annexed as Schedule "B";
(vi) "joint account" or "joint account of the parties"
means the record of expenditures, receipts and other
financial transactions which is kept by Operator
regarding any operations conducted pursuant to this
Operating Procedure at the joint risk and expense of
the parties;
(vii) "the Lands" means the lands, and lands under water,
including the geological formations thereunder from
time to time made subject to this Operating Procedure
pursuant to the provisions of the Farmout Agreement
and also includes the petroleum substances within
such lands or formations;
(viii) "Non-Operator" means any party to this Operating
Procedure which is not Operator;
(ix) "Operator" means the party to this Operating
Procedure designated as Operator pursuant to the
provisions hereof;
(x) "operating costs" means all monies necessarily
expended, exclusive of drilling and completion costs,
to operate a well for the recovery of petroleum
substances as more particularly set forth in the
Accounting Procedure under the heading of
Exploration, Development and Operating Charges;
(xi) "the Permits" means the petroleum and natural gas
permits and leases, together with any leases issued
out of such permits, made subject to this Operating
Procedure pursuant to the provisions of the Farmout
Agreement, but only insofar as such documents demise
the Lands;
(xii) "petroleum substances" means the substances to be
granted to the holder of the Permits pursuant thereto
and only insofar and to the extent the same are
granted by Permits;
(xiii) "spacing unit" means the area prescribed for or
allocated to a well for the purposes of drilling for
or producing the petroleum substances, or any of
them, by or under any laws, rules, orders or
regulations now or hereafter in effect governing the
spacing of petroleum and natural gas ▇▇▇▇▇, or either
of them.
(xiv) "prevailing market price" means the price prevailing
in a competitive market in the area of production or,
in the absence of such a competitive market, the
price prevailing at Montreal, Quebec less reasonable
costs of transportation computed back to the area of
production.
The headings of the clauses of this Operating Procedures are inserted
for convenience of reference only and shall not affect the meaning or
construction thereof.
(c) Whenever the plural or masculine or neuter is used in this
Operating Procedure the same shall be construed as meaning singular or feminine
or body politic or corporate and vice versa where the context so requires.
(d) If any term or condition of this Operating Procedure conflicts with
a term or condition of the Permits, then such term or condition in the Permits
shall prevail and this Operating Procedure shall be deemed to be modified
accordingly. Wherever any term or condition, expressed or implied, of any
Exhibit conflicts with or is at variance with any term or condition of this
Operating Procedure, the latter shall prevail.
2. PARTICIPATING INTERESTS:
Except as otherwise provided herein, the parties to this Operating
Procedure shall bear all costs and expenses paid or incurred under this
Operating Procedure and shall own the Permits and the Lands, all ▇▇▇▇▇ thereon
and information obtained therefrom, the equipment pertaining thereto and the
petroleum substances produced therefrom in accordance with the following
respective undivided shares or interests:
Panarctic Oils Ltd. - 50%
Canada Southern Petroleum Ltd. - 50%
(hereinafter called "participating interests");
3. OPERATOR:
Panarctic is hereby designated as Operator of the Lands and, subject to
the provisions of this Operating Procedure, shall have the sole and exclusive
control and management of all operations hereunder.
4. FORECAST OF OPERATIONS:
Operator shall, from time to time at the request of Non-Operator,
furnish Non-Operator with a written forecast outlining all operations which it
proposes to carry out on the Lands during the forecast period (which shall be no
less than Three (3) months and no more than Twelve (12) months), together with
the estimated costs thereof. It is specifically understood that such forecasts
are for informational purposes only and shall not bind either of the parties to
this Operating Procedure.
5. AUTHORIZATION FOR EXPENDITURES:
Operator shall not undertake any single project reasonably estimated to
require an expenditure in excess of Fifteen Thousand ($15,000.00) Dollars on
behalf of the parties hereto, and provided further that the aggregate amount of
those expenditures not in excess of Fifteen Thousand ($l5,000.00) Dollars shall
not exceed Thirty Thousand ($30,000.00) Dollars in any sixty (60) day period
unless the same:
(i) is authorized by agreement of the parties, or
(ii) is required to keep the Permits in full force and
effect but not including the drilling of an
obligation well, or
(iii) is required by any law or regulation, or
(iv) is necessary because of an unforeseen contingency
endangering the property of the parties,
and in the event of any expenditure made under items (ii), (iii) or (iv) above,
Operator shall forthwith advise Non-Operator in writing thereof;
PROVIDED THAT the approval of the parties of a detailed estimate of the
cost of the drilling, reworking, deepening or plugging back of any well shall
include approval of all necessary expenditures required therefor and for
completing, testing and equipping the same, including necessary flowlines,
separators and lease tankage.
6. INDEPENDENT DRILLING AND DEEPENING:
I. Voluntary Operations:
(a) Any party (hereinafter called "proposing party") at any time may give
written notice (hereinafter called "the proposal notice") to the other
party of a proposal to drill a well on the Lands, and the proposal
notice shall include the proposed location of the well, the proposed
depth of same and a detailed estimate of the cost thereof. If, prior to
the expiration of sixty (60) days from receipt of the proposal notice,
the other party notifies proposing party in writing of agreement to the
drilling of the well in accordance with the proposal notice, Operator
shall drill same on the terms set out in the proposal notice and the
well shall be deemed to be a well drilled for the joint account of the
parties.
(b) If, upon the expiration of sixty (60) days from receipt of the proposal
notice, the other party does not agree in writing to the drilling of
such well (and failure to advise proposing party shall be deemed
non-agreement), proposing party may, prior to the expiration of one
hundred and twenty (120) days from receipt of the proposal notice,
commence the drilling of such well and thereafter drill same to the
proposed depth. If such well is not commenced within the aforesaid one
hundred and twenty (120) day period, the well proposed shall not be
drilled without a new proposal notice.
(c) Operations pursuant to subclause (b) hereof shall be performed by
proposing party and such well shall be drilled, completed, capped or
abandoned at the sole risk and expense of proposing party and, if
abandoned, the provisions of Clause 24 hereof shall not apply to the
other party.
Agreement of 1-1-75: Exploratory well defined as a well 2 or more miles
from producing well. Penalty for not participating
in exploratory well is 6 N.W.T. sections.
(d) If production of petroleum substances is encountered in such well and
the same is capable of such production and is not abandoned, then such
well shall be operated by proposing party for its sole account, and all
proceeds of production therefrom shall accrue to proposing party until
proposing party receives from the proceeds of production from such well
Three Hundred (300%) percent of all drilling and completion costs of
such well, together with One Hundred (100%) percent of all operating
and any other costs incurred with respect to such well subsequent to
the "on production" date (as set by the applicable governmental agency)
to the date of recoupment by proposing party of such drilling,
completion, and operating and other costs (the total of the foregoing
costs is hereinafter referred to as "penalty expenses"). All such
costs are to be computed and charged in accordance with the Accounting
Procedure.
(e) During the period in which proposing party is recouping the penalty
expenses, it shall supply to the other party a monthly statement
setting forth all costs incurred in the operation of such well, the
revenues received from the sale of production therefrom and a current
statement each month setting forth a comparison of the total of such
revenues to the total of the penalty expenses incurred to such date.
If proposing party receives out of the proceeds of production the
penalty expenses, it shall, within twenty (20) days of such receipt,
give written notice to the other party of its receipt of same, and on
or before the expiration of thirty (30) days from receipt of such
written notice, the other party shall have the right to advise
proposing party in writing of its election to participate in such
well. If the other party so elects to participate it shall be deemed
to have participated as of the date the penalty expenses were recovered
by proposing party. Failure of the other party to advise proposing
party in writing within the time hereinbefore specified of its election
to participate shall be deemed an election not to participate.
(f) If the other party elects to participate in such well as in subclause
(e) hereof provided, Operator shall assume operation thereof and the
well shall be construed as a well being operated for the joint account
of the parties from and after the effective participation date. In
such event each party shall participate in the well to the extent of
its participating interest.
(g) Until such time as any well drilled pursuant to this clause is
abandoned or is operated as a well for the account of both of the
parties, as hereinbefore provided, proposing party shall own the well,
the equipment pertaining thereto and all production of petroleum
substances therefrom excepting production from such well of any
petroleum and/or natural gas that is being produced, or that is capable
of being produced, from any other well or ▇▇▇▇▇ the production from
which is attributable to any horizons or formations of that spacing
unit on which the well drilled by proposing party is located. At the
request of proposing party, the other party shall execute and deliver
to proposing party all documents as proposing party may reasonably
request to further evidence the foregoing.
(h) Proposing party shall initially pay and bear for its own account all
royalties and taxes applicable to the production obtained from a well
drilled by it pursuant to this clause, and the other party shall be
under no liability whatsoever for same, provided that all royalties so
paid shall be first deducted before deducting the penalty expenses.
(i) All ▇▇▇▇▇ drilled on the Lands shall be drilled at a rate substantially
the same as that prevailing in the area in which the proposed well is
to be located.
(j) If proposing party is unable to recover from the proceeds of production
the penalty expenses, it shall own all material, equipment and supplies
placed or installed by it at its sole expense in the well or on the
Lands in connection therewith, but if such material, equipment and
supplies have a salvage value, less the estimated cost of salvaging
(such value to be determined in accordance with the Accounting
Procedure), in excess of the unrecovered amount of the penalty
expenses, such excess shall be owned by both parties in proportion to
their participating interests.
(k) Proposing party shall indemnify and save harmless the other party from
and against all actions, suits, claims and demands whatsoever by any
person or persons whomsoever in respect of any loss, injury or damage
or obligation to compensate arising out of or connected with the
operations carried on by proposing party pursuant to this clause and
prior to the operation of such well by Operator for the joint account
of the parties.
(l) Proposing party shall supply to the other party, on or before the
expiration of ninety (90) days from the rig release date or the on
production date of any well drilled by it, whichever is the later,
all factual data obtained from such well covering the drilling,
testing and completion, capping or abandonment, operations and the
other party shall be entitled to have access, after the period
hereinbefore specified, to all samples and cores taken from such
well.
(m) The foregoing provisions of this clause shall, mutatis mutandis, apply
to any deepening, reworking and plugging-back operations, with the
under-noted explicit restrictions:
(i) Unless otherwise mutually agreed, no well producing, or
capable of producing, petroleum substances in paving
quantities shall be deepened, reworked or plugged-back;
(ii) The period for accepting the proposal notice shall be forty-
eight (48) hours when a rig is present on the location;
(iii) The period for commencing deepening, reworking or plugging-
back operations shall be ninety-six (96) hours from receipt of
the proposal notice when a rig is present on the location.
II. Obligation ▇▇▇▇▇:
For the purposes of this clause, an obligation well is a well which is
required to be commenced and drilled on the Lands under the terms of the Permits
or under the terms of any regulations or statutes applicable thereto and that
failure to commence and drill the same will result in forfeiture of all or a
portion of the Lands.
(a) If a notice of the obligation is given, the party who receives notice
of the obligation shall notify the other party hereto of the accrual of
an obligation to commence the drilling of an obligation well
immediately upon receipt by it of notice or information that such well
is required to be commenced. If the parties hereto, within thirty (30)
days of both parties having such notice, do not elect to drill such
obligation well as a joint account well or either of them do not elect
to drill such obligation well pursuant to the provisions of subclause I
hereof, the Operator shall forthwith:
(i) Attempt to secure release ofthe obligation bythe party to whom
the obligation is owed; or
(ii) Attempt by settlement or compromise to make other reasonable
arrangements in lieu of drilling the obligation well with the
party to whom the obligation is owed; or
(iii) Attempt to have the obligation performed by an outside party
without privity to this Operating Procedure upon terms
agreeable to the parties hereto.
(b) If none of the foregoing alternatives can be agreed upon and put into
effect within thirty (30) days of the expiration of the aforesaid
thirty (30) day period, and one of the parties hereto desires to drill,
the party desiring to drill the said well (hereinafter called the
"drilling party") may proceed to do so at its sole cost, risk and
expense provided it commences the drilling of such well at least
thirty-one (31) days prior to the date upon which the well must be
drilled to satisfy the obligation, and continues with due diligence to
complete the drilling thereof. Any such well shall conform to the then
existing well spacing program. On completion or abandonment of any such
well, the party which did not participate in the drilling thereof,
shall assign or transfer to the drilling party all of its interest in
and to that portion of the Lands which, under the terms of the Permit
in question or the applicable regulations or statutes, as the case may
be, would have been surrendered or forfeited if such obligation well
had not been drilled.
In the event the period of time between the date that both parties have
notice of the requirement to drill the obligation well and the date
within which such well must be drilled is less than the period of time
allowed above to comply with the foregoing procedures, then each of the
thirty (30) day periods referred to above shall be reduced accordingly
with a view to maintaining such procedures but decreasing the time
limits within which they must be effected.
(c) If neither of the parties hereto is desirous of drilling the obligation
well, the parties hereto shall join in taking the steps necessary to
surrender those portions of the Lands which are required to be
surrendered by the terms of the Permit in question or by the applicable
regulations or statutes.
(d) If the obligation may not be avoided by surrender of the Lands in whole
or in part and failure to perform the same would support an action for
specific performance or damages, then if none of the foregoing
provisions apply and if the parties hereto cannot mutually agree upon
the nature, location, extent and cost of a program necessary to satisfy
such obligation, then notwithstanding anything elsewhere in this
Operating Procedure contained, Operator shall have the sole right to
determine such program and shall notify the other party hereto in
writing of the nature, location, extent and anticipated cost of
conducting such program. In such event, and notwithstanding anything
elsewhere in this Operating Procedure contained, both parties hereto
shall participate in and shall bear their proportionate share of the
cost thereof to the same extent as if and to the intent and purpose
that such program were in fact conducted by mutual agreement of both
parties in accordance with the provisions of this Operating Procedure.
7. MAINTENANCE OF THE PERMITS:
Except as otherwise provided in this Operating Procedure, Operator, on
behalf of both parties, shall comply with all the expressed and implied
covenants and conditions contained in the Permits and shall do all things
necessary to maintain the Permits in full force and effect but, subject to the
provisions of Clause 6 hereof, Operator shall not drill any well on the Lands
unless and until the parties have agreed to such drilling.
8. GENERAL ACCOUNTING:
(a) Subject to subclause (b) hereof, Operator shall initially pay and
charge to the account of the parties all costs and expenses of whatsoever nature
made or incurred with respect to any operations whatsoever on, maintenance of,
and production from the Lands, and all such costs and expenses shall be borne by
the parties in accordance with their respective participating interests, and the
method of handling the accounting with respect thereto shall be in accordance
with the provisions of the Accounting Procedure.
(b) Any costs or expenses made or incurred pursuant to the provisions
of Clause 6 hereof shall be borne solely by the party which made or incurred
same pursuant to said provision, and all taxes based on or calculated on
production of petroleum substances from the Lands shall be borne by that party
which was entitled to said petroleum substances in the proportion in which it
was entitled to same.
9. ADVANCES:
Operator may, at its option and from time to time, require both parties
to advance their respective shares of the estimated costs and expenses of all
operations of whatsoever nature carried out by Operator on behalf of the
parties. If Operator elects to so require any advance it shall, during the first
fifteen (15) days of any month, request in writing that Non-Operator advance its
estimated share for the month of any costs and expenses authorized by agreement
of the parties or otherwise permitted under Clause 5 herein, and if so requested
Non-Operator shall pay its share of such estimated monthly costs and expenses
within fifteen (15) days of receipt of the request from Operator.
The accounts between the parties shall be adjusted to actual costs by
Operator in the month's statement following the month in which the actual costs
are ascertained.
10. OPERATOR'S LIEN:
Operator shall have a first and prior lien on all rights and the
interest of Non-Operator in and to the Lands, the Permits and in any production
obtained therefrom and the material and equipment thereon, and shall have a
right of set-off against monies otherwise payable to Non-Operator pursuant to
this Operating Procedure, to secure the payment by Non-Operator of any amounts
owing by it to Operator pursuant to the terms of this Operating Procedure. If
Non-Operator does not pay to Operator its share of such monies within thirty
(30) days after demand, Operator shall have the right to enforce payment
thereof, together with interest thereon at Six (6%) percent per annum, in any
manner in which it is entitled either pursuant to this Operating Procedure, or
at law, or both. The lien and other rights herein granted to Operator shall be
in addition to and not in substitution for any other rights or remedies Operator
may have with respect to the non-payment of any amount owing by Non-Operator to
Operator.
11. OWNERSHIP OF PRODUCTION:
(a) Each party shall own and, at its own expense, may take in kind and
separately dispose of for its own account its proportionate share of all
petroleum substances produced and saved from all ▇▇▇▇▇ operated on the Lands on
behalf of the parties, subject, however, to deduction from each party's share of
production its proportionate share (where applicable) of all lessors' and other
royalties paid in kind and to the terms and provisions of the Permits and the
Accounting Procedure and to the right of Operator to use such of the petroleum
substances as may be required for the development and operation of the Lands on
behalf of the parties and in preparing and treating such petroleum substances
for marketing purposes, and exclusive of production unavoidably lost.
(b) If Non-Operator at any time and from time to time fails to notify
Operator of the arrangements it has made to take in kind or separately dispose
of its proportionate share of production, Operator may purchase the
Non-Operator's share of production at prices not less than the prevailing market
price for products of like kind and quality, or sell the same to others at
prices not less than those which Operator receives for its own share of
production in an arm's length transaction for a monetary consideration to a
purchaser other than an affiliate of the Operator. If Operator is itself
purchasing Non-Operator's share of production, the right is revocable at will by
written notice to Operator. If Operator is selling Non-Operator's proportionate
share of production to others, the right is revocable by Non-Operator by giving
written notice to be effective within a time not less than the period of notice
which Operator must give in order to terminate its sale arrangements. In no
event shall Operator enter into any sales contract with respect to
Non-Operator's share of production which is for a period greater than that
usually entered into in the area or for a period of one (1) year, whichever is
the lesser.
(c) If Operator purchases and/or sells the share of production to which
Non-Operator is entitled as aforesaid, Operator shall deliver to Non-Operator,
on or before the last day of each and every calendar month, a complete statement
or statements properly verified, including Statutory Declarations if requested
by Non-Operator, with respect to the quantity and kind of that portion of the
petroleum substances produced and saved from the Lands during the previous
calendar month attributable to the interest of Non-Operator. Operator shall,
with each such statement, pay to Non-Operator the proceeds from the sale of
Non-Operator's portion of such production subject to all deductions of royalties
applicable thereto.
(d) Any market available to Operator shall be shared by it with
Non-Operator to the intent and purpose that Non-Operator shall not be obligated
to store its participating interest in petroleum substances produced, except to
the proportionate extent that petroleum substances produced are so stored for
lack of market.
12. PRE-COMMENCEMENT INFORMATION TO NON-OPERATOR:
Prior to commencing any well on behalf of the parties, Operator shall
furnish to Non-Operator:
(a) the proposed program of drilling, coring, logging and
drillstem testing;
(b) particulars of the well location;
(c) well co-ordinates and surface elevations.
13. DRILLING INFORMATION TO NON-OPERATOR:
During the drilling of any well on behalf of the parties, Operator
shall furnish to Non-Operator:
(a) immediate written notice of commencement including ▇▇▇▇▇
Bushing elevations;
(b) daily drilling and geological reports;
(c) if requested in writing, a complete set of washed samples of
the cuttings of the formations penetrated;
(d) access to all cores taken;
(e) immediate advice of any porous zones or showings of the
petroleum substances encountered, and Non-Operator may have a
representative present to witness and observe the test of any
such porous zones or showings;
and complete access of Non-Operator's employees or agents, at Non-Operator's
sole cost, risk and expense, to the well including ▇▇▇▇▇▇▇ floor privileges.
14. TESTING INFORMATION TO NON-OPERATOR:
During the drilling of any well on behalf of the parties, Operator
shall:
(a) test it in accordance with the proposed program;
(b) make such further tests in accordance with good oilfield
practice of any porous zones or showings of the petroleum
substances encountered or indicated by any survey;
(c) take representative mud samples and drillstem test fluid
samples in order to obtain accurate resistivity mud filtrate
and formation water readings and supply Non-Operator with all
information relative thereto;
(d) supply Non-Operator with copies of the drillstem test and
service report on each drillstem test run, including copies of
pressure charts.
15. LOGGING INFORMATION TO NON-OPERATOR:
During the drilling of any well on behalf of the parties and upon such
well reaching the proposed depth, Operator shall run all log surveys agreed upon
among the parties hereto, prior to the drilling of such well to provide the
optimum evaluation possible of the horizons penetrated. In addition to the
foregoing, Operator shall run such other logs as may be agreed upon among the
parties subsequent to the drilling of any such well. Operator shall supply Non-
Operator with copies as requested of each log so run.
16. VELOCITY SURVEYS:
(a) Operator, on its own behalf and at its own expense, in accordance
with good oilfield and established modern and scientific practices, may run a
velocity survey in any well drilled on behalf of the parties.
(b) If Operator does not elect to run a velocity survey pursuant to
subclause (a) hereof, Non-Operator, on its own behalf and at its own expense,
including rig time and any other costs relating to such survey which would be in
excess of normal drilling or operating costs, may run such survey with the
written consent of Operator, and in so doing Non-Operator shall proceed in
accordance with good oilfield and established modern and scientific practices.
(c) If a velocity survey is run by Operator pursuant to subclause (a)
or by Non-Operator pursuant to subclause (b) hereof, the party not bearing the
costs of same may obtain a copy thereof, together with all basic
non-interpretative geological and geophysical data (including check shots)
obtained from the well in which such velocity survey is run, by paying to the
other party one-eighth (1/8) of the costs thereof (which costs include rig time
costs). The party running the velocity survey shall, notwithstanding Clause 33
hereof, have the exclusive right to trade and sell the results of the said
velocity survey to any third party or parties. Any party which runs a velocity
survey shall indemnify the other party to this Operating Procedure from and
against all actions, causes of action, claims and demands for all loss, injury
or damages such other party may incur or suffer by reason of the exercise of the
rights herein granted.
17. COMPLETION INFORMATION TO NON-OPERATOR:
Upon the completion of any well drilled on behalf of the parties,
Operator shall supply to Non-Operator:
(a) copies as requested of any directional, temperature, caliper
or other well surveys or oil, gas, water or other analyses
made;
(b) samples as requested of at least one (1) quart of water and/or
petroleum substances other than natural gas recovered from
each test if Operator does not make analyses of such water
and/or petroleum substances other than natural gas;
(c) a complete summary of the drilling and completion;
(d) written notice of the commencement of production of any of the
petroleum substances;
(e) all production information and other data relating to the
completion of the well.
18. ADDITIONAL TESTS:
In addition to its rights in connection with velocity surveys,
Non-Operator shall have the right at its sole cost, risk and expense to make any
other test or survey in any well drilled by the Operator for the joint account,
provided that Non-Operator shall not make any test or survey in any such well in
the event that the hole is in unsatisfactory condition for such purposes as
determined by the Operator and provided further that Non-Operator shall
indemnify and save harmless the other party hereto from and against all loss,
damage, or cost which such other party may incur or suffer by reason of
Non-Operator exercising the rights herein granted.
19. ACCOUNTS AND INFORMATION:
Operator shall:
(a) at all times keep true and correct books, records and accounts
showing all operations carried on and the quantity and
disposition of the petroleum substances taken from each well;
(b) permit Non-Operator the right of access and to make copies at
all reasonable times to any and all non-interpretative
information, and any interpretative information charged to the
joint account, pertaining to ▇▇▇▇▇ drilled, production
secured, petroleum substances marketed [exploratory
operations, seismic operations, development work] and any
other operations conducted hereunder, and the books, records
and vouchers relating to the operation of the Lands;
(c) pay when they become due and payable all claims for wages or
salaries for services rendered or performed and for materials
supplied on, to or in respect of the Lands, or any work, works
or operations thereon;
(d) permit no liens of any nature whatsoever to remain registered
or field against the Lands, the Permits, or any well thereon,
unless there be a bona fide dispute respecting such claim or
account;
(e) permit no claims of, or dues to, or on behalf of the Workmen's
Compensation Board to become in arrears.
20. TESTING AND GAUGING:
All sampling, testing, gauging, measuring and taking of gravities which
may be required to be done in order to determine the gasoline content of gas,
the gravity of oil, the amount of water content and the amount of any other
foreign substances contained in any petroleum substances, or the qualities of
any other substances shall be taken, done and performed by Operator by any
method or process generally recognized in the industry where the work is to be
done and is considered as reliable and in accordance with good oilfield
practice.
21. OPERATIONAL PRACTICES:
Operator shall carry on all operations in a proper manner in accordance
with good oilfield and established modern and scientific practices, with due
skill and vigour, with good and sufficient equipment in accordance with the
terms and provisions of the Permits and this Operating Procedure, and in
compliance with all applicable laws, rules, orders and regulations but with
reasonable allowances having regard to the adverse and unusual conditions
encountered in operations in Arctic areas.
22. INDEMNITY:
(a) Each party who carries on any operations at its own risk and
expense pursuant to this Operating Procedure shall and does hereby indemnify and
save harmless the other party from and against oil actions, causes of action,
suits, claims and demands by any person or persons whomsoever in respect of any
loss, injury, damage or obligation to compensate arising out of or connected
with such operations.
(b) Operator shall be solely responsible for and shall and does hereby
indemnify and save harmless Non-Operator from and against all actions, causes of
action, suits, claims and demands by any person or persons whomsoever in respect
of any loss, injury, damage or obligation to compensate to the extent of the
risks against which Operator is required to cause to be carried insurance as
provided in Clause 23 hereof, and within the limits of such insurance, except
that if an insurer is financially unable to pay all or any portion of a valid
claim, Operator shall be released from the indemnity and responsibility assumed
by it under this subclause.
(c) In addition to the provisions of subclause (b) hereof, Operator
shall be solely liable for any loss or damage of whatsoever nature when such
loss or damage is caused by Operator's gross negligence or willful misconduct,
and in such event Operator shall indemnify and save harmless Non-Operator from
and against all actions, causes of action, suits, claims and demands by any
person or persons whomsoever in respect of any loss, injury, damage or
obligation to compensate.
(d) Except as provided in the foregoing provisions of this clause, all
liabilities incurred by Operator in the carrying out of any operations pursuant
to this Operating Procedure, whether contractual or tortious, shall be charged
to the account of the parties and shall be borne by the parties in accordance
with their respective participating interests.
23. INSURANCE:
(a) As to all operations hereunder, Operator shall, for the joint
account of the parties, carry Workmen's Compensation Insurance meeting the
requirements of law.
(b) In conducting all operations hereunder, Operator shall comply with
all laws respecting labour and all other applicable federal and territorial laws
and applicable rules and regulations of federal and territorial governmental
agencies having jurisdiction.
(c) Operator shall, for the joint account of the parties, at all times
during the term of this Operating Procedure maintain, and make a good faith
attempt to have its contractors maintain, with a reputable insurance company or
companies insurance of at least the kinds specified in subclause (d) hereto and
within limits not less than those therein set forth.
(d) The insurance referred to in this clause is as follows:
(i) Employer's liability insurance covering each employee
engaged in the operations hereunder to the extent of
$100,000.00 where such employee is not covered by
Workmen's Compensation;
(ii) Public liability insurance covering all operations
hereunder within limits of $300,000.00 for any one
person injured or killed and $500,000.00 for two or
more persons injured or killed in any one accident;
(iii) Property damage liability insurance covering all
operations hereunder to the extent of $300,000.00 for
damages to third parties resulting from any one
accident, including damages to third parties
resulting from fire or blowouts but excluding
subsurface damage;
(iv) Automobile public liability insurance covering all
automotive units engaged in the operations hereunder
within limits of $300,000.00 for any one person
killed or injured and $500,000.00 for two or more
persons killed or injured in any one accident;
(v) Automobile property damage liability insurance
covering all automotive units engaged in the
operations hereunder up to the extent of $100,000.00
for damages resulting from any one accident.
(e) Operator shall furnish Non-Operator with appropriate certificates
of insurance, if requested, evidencing full compliance with the requirements
outlined above. The policy and certificates shall include the Non-Operator as
additional named insured. Non-Operator shall be provided with thirty (30) days
advance written notice of cancellation or of any amendment or material change in
the policies.
(f) Each party which carries on any operations pursuant to this
Operating Procedure shall maintain insurance to the limits not less than those
set forth in subclause (d) hereof and shall include the other parties hereto as
additional named insureds.
24. ABANDONMENT OF ▇▇▇▇▇:
(a) If either party desires to abandon any well being drilled,
deepened, reworked or operated pursuant to this Operating Procedure, or one
which is suspended, it shall give to the other party written notice of same
(hereinafter called "the abandonment notice"). The party not wishing to abandon
shall, within forty-eight (48) hours of the receipt of the abandonment notice in
the case of a well on which a drilling rig is located, and within thirty (30)
days of the receipt of the abandonment notice in all other cases, notify the
party wishing the abandon of its intention not to abandon, and shall, as soon as
reasonably possible, tender to the party desiring to abandon a sum of money
equal to the interest of the party desiring to abandon in the fair salvage value
of all salvable materials and equipment attributable to the well, less the
estimated cost of salvaging the same, such value determined in accordance with
the provisions of the Accounting Procedure. Failure to respond to the
abandonment notice shall be deemed an election to participate in the proposed
abandonment.
(b) Upon receipt of notice from the party not wishing to abandon, the
abandoning party shall execute and deliver all necessary documents to convey to
the party tendering such notice its entire interest in and to the said well and
the casing and equipment therein, together with all of its rights in all future
production therefrom which may be produced from the interval from which such
well last produced, provided however it is specifically understood and agreed
that such conveyance shall exclude production from such well of petroleum
substances or any of them that are being produced, or that are capable of being
produced, from any other well or ▇▇▇▇▇, the production from which is
attributable to any horizons or formations of that spacing unit on which the
well subject to the abandonment notice is located.
(c) Upon the execution and delivery of the conveyance by the abandoning
party, the well and spacing unit covered thereby shall cease to be subject to
this Operating Procedure and the abandoning party shall be released and
discharged from all obligations thereafter accruing with respect to such well,
but such conveyance shall not release the abandoning party from its
proportionate share of any obligation or liability which ought to have been
performed or may have accrued prior to such conveyance.
(d) In the event both parties desire to abandon the well which is the
subject of the abandonment notice, then Operator shall abandon such well,
provided however that, where such well was drilled by one of the parties only,
pursuant to provisions of Clause 6 hereof, then that party shall abandon such
well.
25. SURRENDER:
(a) Either party may at any time and from time to time surrender its
entire interest with respect to any portion or portions of the Lands by giving
to the other party, at least sixty (60) days before the date for payment of
rentals attributable to those portions of the Lands proposed to be surrendered
or the accrual of any obligation thereon other than the obligation to pay
royalties, a written notice (hereinafter called the "surrender notice"), which
shall be duly executed and which shall specify the portions of the Lands
proposed to be surrendered (which portions are hereinafter called the
"surrendered rights"). It is specifically understood that the surrendered rights
shall be of a size and dimension which the other party hereto can in turn
surrender should it wish to do so.
(b) If the party to whom the surrender notice is given fails to advise
the party giving the notice, in writing, within twenty (20) days after receipt
of the surrender notice, that it elects to join in the surrender of the
surrendered rights, the party giving the surrender notice shall convey to the
other party its entire interest in and to the surrendered rights, and the ▇▇▇▇▇,
equipment and material located thereon and attributable thereto, and thereupon
the parties hereto shall do all things and complete and deliver all documents
necessary to register the entire interest in the surrendered rights in the name
of the party who did not elect to join in the surrender, and upon such
conveyance "the Lands" shall be deemed to be amended so as to exclude therefrom
the surrendered rights. If Panarctic is the surrendering party as to any Permit
or lease or portion thereof, Panarctic will in addition to its obligations above
insure at its expense that there are sufficient allowable expenditures, cash,
rent or otherwise to maintain the properties in good standing for a period not
less than one year from the date of conveyance. The party receiving such
conveyance shall forthwith pay to Operator for credit to the account of the
parties a sum equal to the fair salvage value of all recoverable material and
equipment located upon and attributable to the surrendered rights less the
estimated cost of salvaging, such value to be determined in accordance with the
Accounting Procedure. Upon the execution and delivery of the conveyance by the
surrendering party, the surrendering party shall be released and discharged from
all obligations thereafter accruing with respect to the surrendered rights, but
such conveyance shall not release the surrendering party from its proportionate
share of any obligation or liability which ought to have been performed or may
have accrued prior to the conveyance of the surrendered rights.
26. CHANGE OF OPERATOR:
(a) An Operator shall be discharged forthwith and its powers, rights
and duties as Operator shall be terminated if, subject to clause 42 hereof:
(i) it dissolves, becomes bankrupt, liquidates or
terminates its corporate existence, or
(ii) it sells or otherwise disposes of a majority of its
interest in the Lands other than to an affiliate
corporation, or
(iii) having defaulted in the performance of any term or
condition of this Operating Procedure, it fails to
commence to remedy such default within fifteen (15)
days after receipt of written notice from a
Non-Operator and thereafter to diligently proceed to
remedy such default.
(b) Subject to subclause (a) hereof, an Operator may resign its duties
as such after giving to Non-Operator six (6) months' written notice of its
intention to resign.
(c) At any time after an Operator has acted in that capacity for two
(2) years, Non-Operator may, if dissatisfied with the manner in which Operator
is performing its obligations hereunder, serve notice in writing on Operator,
advising Operator of such dissatisfaction and set forth the terms and conditions
under which it is prepared to operate the Lands, and which will be more
efficient and beneficial to the parties hereto; or if the dissatisfaction
results from uneconomical operations, then advising of the specific economies
that it will effect as Operator. Unless within sixty (60) days after receipt of
such notice Operator agrees in writing to operate the Lands subject to the same
terms and conditions and to effect the same specific economies and in fact does
so, then Operator shall be discharged and the party serving the notice shall
become Operator. If the party serving the notice becomes Operator pursuant to
this subclause then it shall operate the Lands on the same terms and conditions
mentioned in the notice and with the specific economies described therein; and
it shall not charge nor be entitled to any costs or reimbursement in respect of
amounts spent by it on the subject of the specified economies except as set
forth in the said notice. It is understood and agreed that the provisions of
this subclause shall not be utilized by any party at intervals more frequent
than at least two (2) years from any previous utilization of same.
(d) If an Operator is discharged, the other party shall become
Operator. If an Operator submits its resignation, the other party shall become
Operator.
(e) If at any time neither of the parties is able or willing to act as
Operator pursuant to the foregoing, then the parties, on notice by either of
them, shall meet together for the purpose of appointing an independent third
party to operate the Lands. In the event the parties cannot reach agreement on
an independent third party, then the party holding a majority in interest in the
Permits shall appoint a third party to operate the Lands. Such third party shall
operate the Lands on the terms and subject to the conditions as set forth in
this Operating Procedure and on such further terms and conditions as may, in the
opinion of the parties or the party holding a majority interest, as the case may
be, be necessary for such operation.
(f) Should any Operator for any cause cease to be Operator, its rights
and interests in the Lands shall be unaffected thereby and it shall become
Non-Operator herein and shall be thenceforth bound by the terms and provisions
hereof as Non-Operator. Either party hereto becoming a successor Operator shall
thereupon succeed to all the duties, powers, obligations, rights and authorities
given to Operator herein with respect to all operations of every kind thereafter
conducted on the Lands. In every case of a change of Operator, the proper
adjustments in the accounts of parties shall be made as of the date of such
change in order that no party shall suffer any penalty or loss as a result of
such change. The outgoing Operator shall surrender possession of and deliver to
a party hereto becoming new Operator the exclusive possession of the operating
rights hereunder and all undistributed cash on hand, together with copies of all
pertinent books of account and records of the operations and true copies of all
documents, agreements or other papers relating thereto.
27. LEASE SELECTION:
(a) The parties shall consult at least sixty (60) days prior to the
date upon which Petroleum and Natural Gas Leases may be selected from the lands
and the parties agree that such lands shall remain in the Non-Lease stage for as
long a period as possible. If the parties can agree on a Lease selection then
such Lease selection shall be the Lease selection of the parties. If, however,
the parties cannot agree as to the Leases to be selected to the full extent of
the fifty (50%) percent of the initial area allowed under the Canada Oil and Gas
Land Regulations, then those upon which agreement can be reached shall be
selected and the balance up to the fifty (50%) percent limitation shall be
selected, with each party designating Sections in an order determined by lot for
the account of the parties.
(b) In the event of disagreement as to a Lease selection, then if a
party does not wish to select Leases to the full fifty (50%) percent areal
extent referred to under subclause (a) above, those Leases upon which agreement
can be reached will be selected and the party wishing to select the balance up
to the fifty (50%) percent limitation may do so and such balance shall be held
by such selecting party for its sole account and any lands comprised in such
solely selected Leases shall be held by such party free and clear of any
obligations under this Agreement.
(c) Subclause (a) and (b) shall apply, mutatis mutandis, to the
selection of the remaining fifty (50%) percent of Leases permissible, pursuant
to Section 58 of the Canada Oil and Gas Land Regulations in conjunction with
Canada Oil and Gas Land Order No. 1, as amended, or similar provisions from time
to time in force.
(d) It is understood that any lease acquired under this Clause 37 by
either or both of the parties shall be subject to the Hembdt overriding royalty.
28. RESTRICTIONS ON INDEPENDENT DRILLING:
Notwithstanding anything to the contrary in this Operating Procedure,
and in particular Clause 6 hereof, no party shall be entitled to drill a well on
the Lands pursuant to the provisions of Clause 6 if at that time a well is being
drilled on the Lands either as a joint operation of the parties or pursuant to
the independent drilling provisions of Clause 6 hereof.
29. TERM OF AGREEMENT:
Except as otherwise herein provided, this Operating Procedure shall
continue in full force and effect as long as any portion of the Lands is jointly
owned by the parties hereto or at that later date (joint ownership continuing)
all documents of title (and all renewals and extensions thereof) to the Lands
have terminated and all ▇▇▇▇▇ on jointly owned Lands have been plugged or
abandoned, all equipment thereon and therein salvaged, and final settlement of
accounts had between the parties hereto.
30. FORCE MAJEURE:
The obligations of a party to this Operating Procedure shall be
suspended and it shall not be liable for damages during the time and to the
extent that such party is prevented from complying with its obligations
hereunder in whole or in part by strikes, lockouts, acts of God or the Queen's
enemies, war, laws, orders or regulations of governmental bodies or agencies,
unavoidable accidents, delays in transportation, inclement weather, adverse
terrain, failure of communications, inability to obtain necessary materials in
the open market, or any other cause, except lack of finances, whether similar or
dissimilar to those specifically enumerated, beyond the reasonable control of
the party affected.
31. RELATIONSHIP OF PARTIES:
Except as otherwise in this Operating Procedure provided, where the
parties hereto incur a liability to any other person, such liability shall not
be joint or several but each party shall be separately liable to the other
person for a portion of the total liability calculated in accordance with its
participating interest. It is not the purpose of this Operating Procedure to
create any partnership, mining partnership or joint venture relationship, and
neither this Operating Procedure nor the operations hereunder shall be construed
or considered as creating any such relationship. Any trust or fiduciary
relationship which may be created by this Operating Procedure shall be limited
only to matters directly related to those operations upon the Lands which are
expressly provided for herein.
32. CONFORMANCE WITH LAWS:
This Operating Procedure and the respective rights and obligations of
the parties hereunder shall be subject to all applicable laws, rules,
regulations and orders, and in the event this Operating Procedure or any
provision hereof is, or the operations contemplated hereby are, found to be
inconsistent with or contrary to any such law, rule, regulation or order, the
latter shall be deemed to control and this Operating Procedure shall be regarded
as modified accordingly, and as so modified shall continue in full force and
effect.
33. CONFIDENTIAL INFORMATION:
All data and information of whatsoever nature acquired by the parties
from any operations pursuant to this Operating Procedure or supplied by one
party to the other pursuant hereto shall be for the sole and exclusive use and
benefit of the parties unless the parties agree in writing to the dissemination
of such information or unless a party is required to give such information to
any recognized association within the petroleum industry, of which it is a
member, that engages in the exchange of factual information relating to the type
of operations contemplated by this Operating Procedure.
Notwithstanding the foregoing, any party shall be at liberty, without
the written consent of the other party, to release such data and information to
(a) an affiliate corporation provided such affiliate corporation
undertakes in writing with the other party hereto that the
affiliate corporation shall treat such data and information in
the strictest of confidence and shall not further disclose, or
permit to be disclosed, such data and information to any other
person, firm or corporation, or
(b) to any nationally recognized lending institution or
underwriting organization for the bona fide purpose of a
proposed borrowing or sale of securities PROVIDED ALWAYS that
any subsequent release of data and information or studies
resulting therefrom shall be solely for the purpose of such
lending or sale and shall be limited to the minimum required
for that purpose, or
(c) to any governmental authority when required by law. In no
event shall information relating to ▇▇▇▇▇ drilled on a
confidential basis to the parties, or either of them, be
disclosed, or
(d) to any of the parties (and their assigns) to a certain
agreement between Panarctic Oils Ltd. and Tenneco Oils and
Minerals Ltd., Columbia Gas System, Inc., Northern Natural Gas
Company and Texas Eastern Transmission Corporation dated the
first day of May, 1971 (hereinafter referred to as the
"Tenneco Agreement"), or
(e) to ▇. ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇ (and their assigns)
pursuant to an Agreement between Panarctic and the said ▇. ▇.
▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇, respectively, both dated October
1st, 1967, or
(f) to a prospective purchaser of the interest of either party.
34. FURTHER ASSURANCES:
Each of the parties hereto shall at all times do all such further acts
and execute and deliver all such further deeds and documents as shall be
reasonably required in order fully to perform and carry out the terms of this
Operating Procedure.
35. OVERRIDING ROYALTIES:
In the event the working interest of a party hereto is presently
subject to other than the Hembdt royalty or may hereafter become subject to any
overriding royalty, production payment or other burden and the same is not
charged to the joint account of the parties, such royalty, payment or burden
shall be borne by the party creating the same or against whom the same is
enforced. Provided that if a party hereto shall conduct any operation or make
any election as a result of which it becomes entitled to receive the working
interest production otherwise belonging to the other party hereto, the party
entitled to receive the working interest production of the non-participating
party shall receive such production free and clear of all royalties, payments
and burdens (other than those charged to the joint account as aforesaid) against
such production which may have been created prior to or subsequent to this
Operating Procedure and the party creating such royalties, payments or burdens
shall save the party acquiring such interest harmless with respect to the
receipt of such working interest production. The Hembdt royalty is to be charged
to the joint account.
36. ENCUMBRANCES:
Subject to the terms of this Operating Procedure, each of the parties
hereto covenants that it will not encumber or permit or cause to be encumbered
in any way the Lands or the Permits without the written consent of the other
party hereto being first had and obtained, except by means of instruments
evidencing the bona fide loan of money to the encumbering party, and then only
if such instrument is restricted to the interest of the encumbering party, and
subject to the provisions of this Operating Procedure and all the rights and
interests of the other party hereto.
37. UNITED STATES TAX PROVISION:
Notwithstanding any provisions herein that the rights and liabilities
of the parties hereto are separate and not joint or collective or that this
Operating Procedure and the operations hereunder shall not constitute a
partnership, if for United States Federal Income Tax purposes this Operating
Procedure and the operations hereunder are regarded as a partnership, then each
of the parties hereto which is now or at any time shall become subject to United
States Income Tax provisions hereby elects that it shall be excluded from the
application of all of the provisions of Subchapter K of Chapter 1, Subtitle A,
of the Internal Revenue Code of 1954, as permitted and authorized by Section 761
of the said Code and the Regulations promulgated thereunder. Operator is hereby
authorized and directed to execute such evidence of this election as may be
required by the Secretary of the Treasury of the United States, or the Federal
Internal Revenue Service, including specifically, but not by way of limitation,
all of the returns, statements and data required by the Code and applicable
Regulations. Should there be any requirement that a party hereto provide further
evidence of this election, each party hereto hereby agrees to execute such
documents and furnish such other evidence as may be required by the Federal
Internal Revenue Service or as may be necessary to evidence this election,
PROVIDED ALWAYS that under no circumstances shall a party not subject to United
States Income Tax be required to make its books and accounts available to United
States authorities. Each party hereto further agrees not to give any notice or
take any other action inconsistent with the election made hereby. In making this
election, each of the parties hereto hereby states that the income derived from
the operations under this Operating Procedure can be adequately determined
without the computation of partnership taxable income. Any notices or
information which a party hereto, not subject to United States Income Tax
provisions, is required to provide pursuant to this Clause 37 shall be provided
at the sole cost and expense of the party hereto who is subject to United States
Income Tax provisions and on behalf of which the notices and information are
provided.
38. AREA OF COMMON INTEREST:
Except as hereinafter in this Clause 38 expressly provided, if at any
time prior to December 31st, l984, either party shall acquire directly or
indirectly any interest of any nature or kind, beneficial or otherwise, in any
permits or leases of or pertaining to oil and/or gas, including mineral or other
substances produced in association with oil and/or gas, covering lands, any part
of which is located in the area outlined in blue on the map attached hereto
marked Schedule "D" to the Farmout Agreement (hereinafter called the "Acquiring
Party"), it shall forthwith give notice in writing to the other party hereto of
such acquisition to the extent only that such acquisition relates to the area
located within the blue outline on Schedule "D" (hereinafter called the
"Acquired Interest"), specifying the description of the lands and documents of
title, extent of interest and the consideration paid or payable and the terms
and conditions, if any, attached thereto (if the consideration is other than
cash then a cash equivalent shall be specified) as well as any factual
information which is then being withheld under Clause 6(1). The party receiving
such notice shall have the right and option for a period of twenty (20) days
thereafter within which to elect to acquire that portion of the Acquired
Interest which is equivalent to its participating interest at such time by
paying to the Acquiring Party a like proportion of the consideration (or cash
equivalent) paid for the Acquired Interest and assumption of a similar share of
all obligations attached thereto. In the event that the party receiving such
notice shall elect to acquire an interest in the Acquired Interest, then the
lands covered by the Acquired Interest shall thereafter be included in and form
part of the Lands and be subject to this Operating Procedure and shall be
thereafter owned and operated by the parties hereto in accordance with and
subject to all applicable terms and conditions of this Operating Procedure in
the proportions of their respective interests therein. Each of the parties
covenants and agrees to execute and deliver all such assignments, conveyances
and other documents as may be necessary to vest title to the Acquired Interest
in the parties to this Operating Procedure but if the party receiving such
notice fails to exercise the aforesaid rights within the time stipulated, it
shall thereafter have no right or interest whatsoever in the Acquired Interest
or the lands covered thereby.
The provisions of this Clause shall not apply to
(a) any acreage located in the half grid corridors surrounding the
Permits which is subject to a now existing after acquired
provision between Farmee and third parties, or the Farmor, or
(b) interests acquired by either party in any lands by virtue of
the selection of leases pursuant to the provisions of this
Operating Procedure, or
(c) interests acquired in any lands by virtue of an assignment to
either party pursuant to the provisions of Clause 24 or
subclause II of Clause 6, or which are surrendered or assigned
pursuant to the provisions of Clause 25.
39. ALIENATION:
(a) Either party may dispose of any interest hereunder, provided that
no such disposition hereinabove referred to shall be effective to increase or
multiply the obligations of the other party, whether as Operator or Non-Operator
under this Operating Procedure, and any disposition made as aforesaid shall be
subject to this express provision, and the disposing party and such third party
shall enter into, execute and deliver any documents necessary to give effect to
this provision and assume all the obligations attributable to the interest
affected. The remaining party hereto shall not be bound to take notice of any
such disposition until such documents are executed end delivered to it by the
disposing party.
(b) Subject to the foregoing, this Operating Procedure shall be binding
upon and enure to the benefit of the parties hereto and their respective
successors and assigns.
40. PARTITION:
Each party to this Operating Procedure covenants by its execution
hereof that it will not at any time while this Operating Procedure is in effect
commence an action for partition of the ownership of the Lands or any interest
therein which are or may become subject to this Operating Procedure unless both
parties hereto concur in the partition thereof.
4l. NOTICES AND ADDRESSES FOR SERVICE:
The addresses for service hereunder of the parties hereto shall be as
follows:
Panarctic Oils Ltd.,
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ Southern Petroleum Ltd.,
Fifth Floor, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Any party may from time to time change its address for service hereunder on
written notice to the other party. Any notice may be served by personal
delivery or by mailing the same by registered post, postage prepaid, in a
properly addressed envelope addressed to the party to whom the notice is to be
given at its address for service hereunder, and shall be deemed to be received
seventy-two (72) hours after the mailing thereof in one of Her Majesty's Postal
Stations in Canada, Saturdays, Sundays and statutory holidays excepted. Any
notice may also be served by prepaid telegram addressed to the party to whom
such notice is to be given at such party's stated address for service and any
such notice so served shall be deemed to be given to and received by the
addressee eighteen (18) hours after the time of delivery to the telegraph
office, Saturdays, Sundays and statutory holidays excepted. Any notice may also
be given by telephone to a responsible officer or employee during business
hours, followed immediately by letter or telegram, and any notice so given shall
be deemed to have been received as of the date and time of the telephoned
notice.
42. Notwithstanding the provisions of clause 26 hereof, if Panarctic assigns
interests in the Permits pursuant to the Tenneco Agreement to any of the other
parties to such Agreement or their assigns, such assignment shall not be a sale
of a majority of its interest in the lands as contemplated by clause 26 hereof.
*************
EXHIBIT "A"
THIS IS EXHIBIT "A" to an Operating Procedure entered into between PANARCTIC
OILS LTD. and CANADA SOUTHERN PETROLEUM LTD.
ACCOUNTING PROCEDURE
I. GENERAL PROVISIONS
1. Definitions
"Joint property" shall mean the properties subject to the Operating
Procedure to which this "Accounting Procedure" is attached.
"Material" shall include equipment and supplies.
"Operator" shall mean the Operator as defined in the Operating
Procedure to which this "Accounting Procedure" is attached.
"Non-Operator" shall mean any one or more of the parties to the
Operating Procedure who are not the Operator.
2. Statements and ▇▇▇▇▇▇▇▇
The Operator shall ▇▇▇▇ Non-Operator either on or before the last day
of each month for its share of charges and credits during the preceding
month. Such bills will be accompanied by statements, as follows:
(1) Detailed statement of material ordinarily considered
controllable by operators of oil and gas properties;
(2) Statement of ordinary charges and credits to the joint
account, summarized by appropriate classifications indicative
of the nature thereof; and
(3) Detailed statement of any other charges and credits.
3. Payments by Non-Operator
Each Non-Operator shall pay all such bills within fifteen (15) days
after receipt thereof. If payment is not made within such time, the
unpaid balance may, at the Operator's option, and without further
notice to the Non-Operator, bear interest at the rate of six (6%)
percent per annum until paid.
4. Advances
Unless otherwise provided for in the Operating Procedure, the Operator
may require the Non-Operator to advance its share of estimated cash
outlay for the current month's operation.
5. Adjustments
Payment of any such bills shall not prejudice the right of Non-Operator
to protest or question the correctness thereof. All statements rendered
to Non-Operator by Operator during any calendar year shall conclusively
be presumed to be true and correct after twenty-four (24) months
following the end of any such calendar year, unless within the said
twenty-four (24) month period Non-Operator takes written exception
thereto and makes claim on Operator for adjustment. Failure on the part
of Non-Operator to make claim on Operator for adjustment within such
period shall establish the correctness thereof and preclude the filing
of exceptions thereto or making of claims for adjustment thereon.
The provisions of this paragraph shall not prevent adjustments
resulting from physical inventory of materials as provided for in
Section VI, Inventories, hereof.
6. Audits
A Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right at its sole cost and expense to
audit Operator's accounts and records relating to the accounting
hereunder for any calendar year within the twenty-four (24) month
period following the end of such calendar year, provided, however, that
Non-Operator must take written exception to and make claim upon the
Operator for all discrepancies disclosed by said audit within said
twenty-four (24) month period. Where there are two or more
Non-Operators the Non-Operators shall make every reasonable effort to
conduct joint or simultaneous audits in a manner which will result in a
minimum of inconvenience to the Operator.
II. EXPLORATION, DEVELOPMENT AND
OPERATING CHARGES
Subject to limitations hereinafter prescribed, Operator shall charge
the joint account with the cost of the following items:
1. Rentals and Royalties
All deposits, rentals, renewal and extension fees, payments in lieu of
actual production (where applicable), and royalties, paid by Operator
for the joint account.
2. Labor
A. Salaries and wages of Operator's employees directly engaged on
the joint property in the exploration, development,
maintenance and operation thereof including salaries and wages
paid to technical employees such as geologists, engineers and
other employees who are temporarily assigned to and located at
and directly engaged on the joint property.
B. Holiday, vacation, sickness and disability benefits, and other
customary allowances applicable to the salaries and wages
chargeable under Sub-paragraph 2 A and Paragraph 11 of this
Section II. Costs under this Sub-paragraph 2 B may be charged
on a "when and as paid basis" or by "percentage assessment" on
the amount of such salaries and wages. If percentage
assessment is used, the rate shall be based on the Operator's
cost experience.
C. Expenditures or contributions made pursuant to assessments
imposed by governmental authority which are applicable to
Operator's labor costs as provided under Sub-paragraphs 2 A, 2
B and Paragraph 11 of this Section II.
3. Employee Benefits
Operator's current cost of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase,
thrift, bonus, and other benefit plans of a like nature, applicable to
Operator's labor cost, provided that the total of such charges shall
not exceed fifteen (l5%) percent of Operator's labor costs as provided
under Sub-paragraphs A and B of Paragraph 2 of this Section II and in
Paragraph 11 of this Section II.
4. Material
Material purchased or furnished by Operator, for use of the joint
property. So far as it is reasonably practical and consistent with
efficient and economical operation, only such material shall be
purchased for or transferred to the joint property as required for
immediate use, and the accumulation of surplus stocks shall be avoided.
5. Transportation
Transportation of personnel and material necessary for the exploration,
development, maintenance, and operation of the joint property subject
to the following limitations:
A. When material is moved to the joint property, no charge shall
be made to the joint account for a distance greater than the
distance from the nearest practical supply store or railway or
seaport receiving point where such material is available,
except by agreement with Non-Operator.
B. If surplus material is moved from the joint property to
Operator's warehouse or other storage point, no charge shall
be made to the joint account for a distance greater than the
distance from the nearest practical supply store or railway
receiving point to such warehouse or other storage point
except by agreement with Non-Operator. No charge shall be made
to the joint account for moving material to properties in
which persons other than the parties hereto have an interest
except by agreement with Non-Operator.
6. Service
A. Outside Services:
The cost of contract services (including without limitation,
professional consultants) and utilities procured from outside
sources.
B. Use of Operator's Equipment and Facilities:
Use of and service by Operator's exclusively owned equipment
and facilities as provided in Paragraph 5 of Section III,
"Basis of Charges to Joint Account."
7. Damages and Losses to Joint Property and Equipment
Replacement or repair resulting from damages or losses incurred by
fire, explosion, flood, storm or any other causes not controllable by
Operator through the exercise of reasonable diligence. Operator shall
furnish Non-Operator written notice of damage or loss howsoever caused
as soon as practicable after report of the same has been received by
Operator.
8. Litigation, Judgments and Claims
All costs and expenses of litigation, or legal services necessary or
expedient for the protection of the joint interests, including
attorney's fees and expenses, together with all judgments obtained
against the parties or any of them and agreed settlements insofar as
the same relate to the joint account or the subject matter of the
Operating Procedure; actual expenses incurred by any party or parties
hereto in securing evidence for the purpose of defending or prosecuting
any action or claim or negotiating any settlement relating to the joint
account or the subject matter of the Operating Procedure.
9. Taxes
All taxes, rates, levies and assessments of every kind and nature
levied, assessed or imposed upon or in connection with the joint
property or any part thereof, the production therefrom or the operation
thereof, which shall have been paid by the Operator for the benefit of
the parties hereto.
10. Insurance
Premiums paid for insurance required to be carried for the benefit of
the joint account together with all expenditures incurred and paid in
settlement of any and all losses, claims, damages, judgments, and other
expenses, including legal services, not recovered from the insurer.
11. Camp Expense
The expense of operating and maintaining all necessary camps, housing
facilities for employees and boarding employees, including salaries and
wages relative thereto. When other operations are served by these
facilities the expense, including depreciation or a fair monthly rental
in lieu of depreciation, less any revenue therefrom, shall be prorated
against all operations served on an equitable basis.
12. District Expense and Administrative Overhead
District expense and administrative overhead on the following fixed
rate basis which shall be in lieu of district expense and
administrative overhead as defined hereunder:
District expense, means the salaries and expenses of
Operator's district superintendent and other general district
and field employees serving the joint property, whose time is
not allocated direct to the joint property and the cost of
maintaining and operating a district office and sub-offices
incurred in the development and operations on the joint
property and other properties operated by Operator in the same
locality.
Administrative overhead, means the expenses of all offices of
the Operator, including the salaries or compensation and other
expenses of personnel assigned thereto which are incurred in
the exploration, development and operation of the joint
property, except those expenses chargeable under paragraphs 2,
3 and 11 of this Section II.
The fixed rate basis will be as follows:
(i) [This paragraph was deleted.]
(ii) (a) A Management Fee of $50.00 per day for each
drilling well, charges to commence on the date the
well is spudded and terminate when the drilling or
completion rig is released from the well except that
if the drilling operations are suspended for a period
of fifteen (15) or more consecutive days, no charge
shall be made for any part of such period of
suspension without approval of the Non-Operator.
(b) A Management Fee of $50.00 per day for costs
incurred during the move-in and move-out periods,
charges to commence the day the preparatory work
begins and end when the move-out has been finalized,
provided such charges shall not exceed $4,500.00 for
the move-in and $4,500.00 for the move-out, and
provided further that such charges shall only apply
when a drilling rig, camp equipment, supplies etc.
are being moved into or out of the joint property.
(iii) $50.00 per day Management Fee for seismic work
commencing with the date of entry into the work area
by the seismic party and ending on the date of
departure from the work area by the seismic party.
(iv) For surface work (i.e. geological, surveying, etc.)
and for gravity meter operations the sum of $15.00
per day Management Fee beginning on the date of entry
into the work area by the party concerned and ending
on the date of departure from the work area.
(v) A Management Fee for producing ▇▇▇▇▇ within a field
at the following rate per well per month:
First 5 ▇▇▇▇▇ - $225.00;
Next 5 ▇▇▇▇▇ - $200.00;
All ▇▇▇▇▇ over 10 - $175.00.
(vi) It is specifically understood that the above rates
shall apply only to the above mentioned operations
and are not intended to cover the construction or
operation of additional facilities such as, but not
limited to, gasoline plants, compressor plants, salt
water disposal facilities and similar installations.
If such additional facilities are required a
Management Fee will be negotiated between the
Operator and the Non-Operator.
13. Application of Management Fees for Exploration Drilling, Development
Drilling and Producing ▇▇▇▇▇
A. In connection with the Management Fee for exploration
drilling, development drilling and producing ▇▇▇▇▇, the status
of ▇▇▇▇▇ shall be as follows:
(1) Each well which produces for any period during a
month shall be deemed to have produced for the full
month in determining the Management Fee applicable to
producing ▇▇▇▇▇.
(2) Injection ▇▇▇▇▇ for recovery operations, such as for
repressure or water flood, shall be included in the
Management Fee the same as producing oil ▇▇▇▇▇.
(3) Water supply ▇▇▇▇▇ utilized for water flooding
operations shall be included in the Management Fee
the same as producing oil ▇▇▇▇▇.
(4) ▇▇▇▇▇ permanently shut down but on which plugging
operations are deferred shall be dropped from the
Management Fee at the time the shutdown is effective.
When such ▇▇▇▇▇ are plugged, a Management Fee shall
be charged at the drilling well rate during the time
required for the plugging operation.
(5) ▇▇▇▇▇ being plugged back, drilled deeper, or
converted to a source or input well, shall be
included in the Management Fee the same as drilling
▇▇▇▇▇.
(6) Various ▇▇▇▇▇ may be shut down temporarily and later
replaced on production. If and when a well is shut
down and not produced or worked upon for a period of
a full calendar month, it shall not be included in
the Management Fee for such month; however, ▇▇▇▇▇
shut in by government regulatory body shall be
included in the Management Fee only in the event the
allowable production is transferred to other ▇▇▇▇▇ on
the joint property.
(7) Gas ▇▇▇▇▇ shall be included in the Management Fee if
directly connected to a permanent sales outlet even
though temporarily shut in due to overproduction or
failure of purchaser to take scheduled allowable.
(8) ▇▇▇▇▇ completed in dual or multiple horizons shall be
considered as one well for each such completion in
the Management Fee whenever the production is
segregated.
(9) Salt water disposal ▇▇▇▇▇ shall not be included in
Management Fee as producing ▇▇▇▇▇ unless such ▇▇▇▇▇
are used in a secondary recovery program on the joint
property.
B. The Management Fee for exploration drilling, development
drilling and producing ▇▇▇▇▇ shall be applied to the total
number of ▇▇▇▇▇ operated under the Operating Procedure to
which this accounting procedure is attached, irrespective of
individual leases or permits.
14. Warehouse Handling Charges
All operating and maintenance costs of a jointly owned warehouse shall
be for the joint account.
A charge to cover the cost of handling material into and in the
warehouse shall be assessed on new and used material furnished from the
Operator's warehouse on the following basis:
A. Two and one-half percent (2 1/2%) of the cost of tubular goods
(2" and over) and major items such as tanks, separators,
engines, etc.
B. Five percent (5%) of the cost of all other material.
15. Other Expenditures
Any other expenditures incurred by Operator for the necessary and
proper development, exploration, maintenance, operation and abandonment
of the joint property. Notwithstanding anything herein contained, no
charge shall be made for any interest or financing charges incurred by
the Operator, except where incurred with the consent of Non-Operator.
III. BASIS OF CHARGES
TO JOINT ACCOUNT
1. Purchases
Material purchased and all services procured shall be charged at the
price paid by the Operator, after deduction of all discounts actually
received.
2. Material Furnished by Operator
Material required for operations shall be purchased for direct charge
to joint account whenever practicable, except that Operator may furnish
such material from Operator's stocks under the following conditions:
A. New Material (Condition "A")
(1) New material transferred from Operator's warehouse or
other properties shall be priced f.o.b. the nearest
receiving point, at current replacement cost of the
same kind of material. This will include material
such as tanks, rigs, pumps, sucker rods, boilers, and
engines. Tubular goods (2" and over) shall be charged
on the basis of effective price at date of transfer
and f.o.b. nearest receiving point.
(2) Other material shall be priced on the basis of a
reputable supply company's preferential price list
effective at date of transfer and f.o.b. the
receiving point nearest the joint property where such
material is available.
(3) Cash discount shall not be deducted in determining
prices provided for in this Paragraph 2 of Section
III.
B. Used Material (Condition "B" and "C")
(1) Material which is in sound and serviceable condition
and is suitable for re-use without reconditioning
shall be classed as Condition "B" and priced at 75%
of current new price.
(2) Material which cannot be classified as Condition "B"
but which,
(a) After reconditioning will be further
serviceable for original function as good
secondhand material (Condition "B") or
(b) Is serviceable for original function but
substantially not suitable for
reconditioning, shall be classed as
Condition "C" and priced at 50% of current
new price.
(3) Tanks, derricks, buildings, and other material
involving erection costs shall be charged at
applicable percentage of dismantled current new price
for similar materials.
(4) There may also be cases where some items of material,
due to their unusual condition, should be fairly and
equitably priced by Operator, subject to approval of
Non-Operator.
(5) Current new price, wherever used in this
sub-paragraph 2 B of this Section III shall be
determined in accordance with sub-paragraph 2 A of
this Section III.
3. Premium Prices
Whenever materials are not readily obtainable at the customary supply
point and at prices specified in Paragraphs 1 and 2 of this Section III
because of national emergencies, strikes or other unusual causes over
which the Operator has no control, the Operator may charge the joint
account for the required materials on the basis of the Operator's
direct cost and expense incurred in procuring such materials, in making
it suitable for use, and in moving it to the location, provided,
however, that notice in writing is furnished to Non-Operator of the
proposed charge prior to billing the Non-Operator for the material
acquired pursuant to this provision, whereupon Non-Operator shall have
the right, by so electing and notifying Operator within forty-eight
(48) hours after receiving notice from the Operator, to furnish in
kind, or in tonnage as the parties may agree, at the location, nearest
receiving point, or Operator's storage point within a comparable
distance, all or part of his share of material suitable for use and
acceptable to the Operator and shall furnish such new material within a
reasonable period of time after making such election. Transportation
costs on any such material furnished by Non-Operator, at any point
other than at the location, shall be borne by such Non-Operator. If,
pursuant to the provisions of this paragraph, any Non-Operator
furnishes material in kind, the Operator shall make appropriate credits
therefor to the account of said Non-Operator.
4. Warranty of Material Furnished by Operator
Operator does not warrant the material furnished beyond or back of the
dealer's or manufacturer's guaranty or warranty; and in case of
defective material, credit shall not be passed until adjustment has
been received by Operator from the manufacturers or their agents.
5. Operator's Exclusively Owned Facilities
The following rates shall apply to services rendered by facilities and
equipment owned exclusively by Operator, provided such rates are not in
excess of current prevailing rates of like service and equipment
available in the area where the joint property is located:
A. Water service, gas and power, booster and compressor services,
and other auxiliary services; cost of such services including
operation, maintenance, insurance, taxes and allowance for
depreciation.
B. Automotive and aircraft equipment, at rates commensurate with
cost of ownership and operation and in line with schedule
adopted by Operator for use in his operations. Charges will be
based on use in actual service on, or in connection with, the
development, exploration operation and maintenance of the
joint property.
C. A fair rate shall be charged for the use of drilling,
exploration and other machinery and equipment exclusively
owned by Operator while used hereunder to cover maintenance,
repairs, depreciation, for the service furnished the joint
property; provided that such charges shall not exceed those
currently prevailing in the field where the joint property is
located.
D. A fair rate shall be charged for laboratory services performed
by Operator for the benefit of the joint account, such as gas,
water, core and any other analyses and tests; provided such
charges shall not exceed those currently prevailing if
performed by outside service laboratories.
E. Whenever requested, Operator shall inform Non-Operator in
advance of the rates it proposes to charge.
IV. DISPOSAL OF MATERIAL
The Operator shall be under no obligation to purchase interest of
Non-Operator in surplus new or secondhand material. Tanks, buildings,
and other major items shall not be removed by Operator from the joint
property without the approval of Non-Operator. Operator shall not sell
major items of material to an outside party without giving Non-Operator
an opportunity either to purchase same at the price offered or to take
Non-Operator's share in kind. Operator shall have the right to dispose
of normal accumulations of junk and scrap material from the joint
property.
1. Material Purchased by Operator
Material purchased by Operator shall be credited to the joint account
and included in the monthly statement of operations for the month in
which the material is removed from the joint property.
2. Material Purchased by Non-Operator
Material purchased by Non-Operator shall be invoiced by Operator and
paid for by Non-Operator within fifteen (15) days following receipt of
invoice. The Operator shall pass credit to the joint account and
include the same in the monthly statement of operations.
3. Division in Kind
Division of material in kind, if made between Operator and
Non-Operator, shall be in proportion to their respective interests in
such material. Each party will thereupon be charged individually with
the value of the material received or receivable by each party and
corresponding credits will be made by the Operator to the joint
account, and such credits shall appear in the monthly statement of
operations.
4. Sales to Outsiders
Sales to outsiders of material from the joint property shall be
credited by Operator to the joint account at the net amount collected
by Operator from vendee. Any claims by vendee for defective material
etc. shall be charged back to the joint account, if and when paid by
Operator.
V. BASIS OF PRICING MATERIAL TRANSFERRED
FROM JOINT PROPERTY
Jointly-owned material sold to either Operator or Non-Operator or
divided in kind between them, unless otherwise agreed, shall be valued
on the following basis of condition and price: (new price as used in
the following sub-divisions shall have the same meaning and be computed
on the same basis as the price for new material in Sub-paragraph 2 A of
Section III hereof.)
1. New Material
New material (Condition "A") being new material purchased or procured
for the joint property but never used thereon, at one hundred percent
(100%) of current new price.
2. Good Used Material
Good used material (Condition "B"), being good serviceable material
which is further usable without reconditioning:
A. At 75% of current new price if material was charged to joint
account as new, or
B. At 75% of current new price less depreciation consistent with
its usage on and service to the joint property, if material
was originally charged to the joint property as secondhand at
75% of new price.
3. Other Used Material
Other used material (Condition "C"), being material which:
A. After reconditioning will be further serviceable for original
function as good secondhand material (Condition "B"), or
B. Is serviceable for original function but substantially not
suitable for reconditioning,
at 50% of current new price.
4. Bad Order Material
Bad order material (Condition "D"), being material not further usable
for its original function but for possible other service, at a value
commensurate with its use.
5. Junk
Junk (Condition "E"), being obsolete and unserviceable material, at
prevailing junk prices in the district.
6. There may also be cases where some items of material due to their
unusual condition should be fairly and equitably priced by Operator
subject to approval of Non-Operator.
VI. INVENTORIES
1. Periodic Inventories
Periodic inventories of material which is ordinarily considered
controllable shall be taken by Operator at reasonable intervals but at
least once in every five years.
2. Notice
Notice of intention to take inventory shall be given by Operator at
least thirty days before any inventory is to begin, so that
Non-Operator may be represented when any inventory is taken.
3. Failure to be Represented
Failure of Non-Operator to be represented at the physical inventory
shall bind Non-Operator to accept the inventory taken by Operator, who
shall in that event furnish Non-Operator with a copy thereof.
4. Reconciliation of Inventory
Reconciliation of inventory with charges to the joint account shall be
made by each party at interest, and a list of overages and shortages
shall be jointly determined by said parties.
5. Adjustment of Inventory
Inventory adjustments shall be made by Operator to the joint account
for overages and shortages, but Operator shall be held accountable to
Non-Operator only for shortages due to lack of reasonable diligence.
6. Inventory Expenses
The expense of more than one representative of the Operator, and more
than one representative for all of the Non-Operators jointly, present
at the taking of regular inventory, shall not be charged to the joint
account.
7. Special Inventories
Non-Operator shall have the right at any time to request in writing the
taking of a special inventory. The taking of such special inventory
shall be commenced within thirty (30) days after the receipt of notice
thereof. All expenses incurred by Operator in conducting any special
inventory so requested shall be charged to the separate account of the
requesting party.
VII. REVISIONS TO ACCOUNTING PROCEDURE
The parties to the Operating Procedure acknowledge and agree that the
purpose of this Accounting Procedure is to establish equitable methods
for determining charges and credits applicable to operations under the
Operating Procedure, it being the parties' intention that the Operator
as such, should not profit by or suffer any losses by its operations as
Operator; the parties also recognize that operations north of
70(degree) Latitude differ substantially from operations in more
southerly locations and that at the date of negotiation of the terms
and provisions of this Accounting Procedure there is comparatively
little knowledge or experience in the conduct of operations in the area
in which the joint property is located. Accordingly the parties to the
Operating Procedure agree that notwithstanding the provisions of that
Clause of the Operating Procedure entitled "Change of Operator" (which
Clause shall remain in full force and effect but shall not be or be
deemed to be a limitation or restriction on the provisions of this
Section VII), this Accounting Procedure shall be subject to review and
possible revision from time to time but only in the manner hereinafter
provided for.
If in practice the charges, rates, and/or other terms and provisions
(whether similar or dissimilar) of this Accounting Procedure are found
to be insufficient or excessive then any party hereto may serve upon
the other parties hereto, at any time during the calendar month of
January in any calendar year, a notice setting forth the specific
revisions to the Accounting Procedure requested by it, whereupon the
parties shall meet together, at the instigation of any of them, during
the following calendar month of February and in good faith endeavor to
agree on such revisions as may be necessary to remedy such
insufficiency or excess and to establish the effective date of such
revisions, which effective date may be retroactive.
In the event the parties cannot reach agreement within the said
calendar month of February then Operator shall during the following
calendar month of March serve upon the other parties notice of such
specific revisions to this Accounting Procedure, together with a
suggested effective date of such revisions (which effective date may be
retroactive to a date not earlier than January 1st of the preceding
calendar year) which it is prepared to accept, or in the alternative
that it does not desire any revisions, and, unless one or more of the
other parties serves a notice of objection on all other parties within
fifteen (15) days of receipt of the notice from the Operator, this
Accounting Procedure shall be and be deemed to be revised or not
revised, as the case may be, in accordance with the Operator's notice,
and any revisions shall be effective on that date so specified in the
Operator's notice. In the event a Non-Operator files a notice of
objection as to either the specific revisions or the effective date, or
both, the matter shall be submitted to arbitration in accordance with
the provisions of the Arbitration Act of the Province of Alberta (in
the event the parties cannot reach agreement on a single arbitrator,
each shall appoint an arbitrator and those arbitrators so appointed
shall appoint a third) for the purpose of reaching a decision as to the
most equitable revision, if any, required to this Accounting Procedure
and to establish the most equitable effective date thereof (which
effective date may be retroactive to a date not earlier than January
1st of the preceding calendar year) provided always that only those
items or matters specifically contained in the notices of the parties,
including the Operator, served in accordance with all of the foregoing
provisions of this Section VII, shall be considered in such
arbitration.
Any revisions made to this Accounting Procedure shall continue in full
force and effect and be applicable as, of and from the effective date
thereof as established in accordance with the foregoing and this
Accounting Procedure shall be and be deemed to be amended accordingly.
THIS IS SCHEDULE "C" to Agreement made as of
the 28th day of January 1972 between Panarctic
Oils Ltd. (herein called "Panarctic") and
Canada Southern Petroleum Ltd. (herein called
"Canada Southern")
CARRIED INTEREST PROCEDURE
In the event that the Farmor exercises its right to convert its working
interest in any Block or Blocks to a net carried interest pursuant to the
provisions of the said Farmout Agreement, then this Carried Interest Procedure
shall be and be deemed to be an agreement entered into between Panarctic and the
Farmor and each of them shall be bound by all of the terms, covenants and
conditions hereof as fully and effectively as if named herein as a party and if
executed by it.
1. INTERPRETATION:
(a) In this Carried Interest Procedure, this Clause, the foregoing, and
any Schedules attached hereto or incorporated herein by reference, unless the
context otherwise requires:
(i) "Farmout Agreement" means the Agreement to which this
Carried Interest Procedure is annexed as Schedule
"C".
(ii) "Operating Procedure" means Schedule "B" to the
Farmout Agreement.
(iii) "Block" means those Lands having the same block Roman
numeral designation, described or referred to in
Schedule "A" to the Farmout Agreement, PROVIDED
HOWEVER that where no such block designation is
provided for therein, then all of the Lands contained
in Schedule "A" to the Farmout Agreement shall
constitute a Block.
(iv) "Lands" means the lands, and lands under water,
including the geological formations thereunder, made
subject to this Carried Interest Procedure pursuant
to the provisions of the Farmout Agreement and also
includes the petroleum substances within such lands
or formations.
(v) "Permits" means the petroleum and natural gas permits
and leases, together with any leases issued out of
such permits, made subject to this Carried Interest
Procedure pursuant to the provisions of the Farmout
Agreement, but only insofar as such documents demise
the Lands.
(vi) "petroleum substances" means the substances to be
granted to the holder of the Permits pursuant thereto
but only insofar and to the extent the same are
granted by the Permits.
(vii) "Carried Interest Owner" means the party to this
Carried Interest Procedure other than Panarctic.
(viii) "affiliate corporation", "completion costs",
"drilling costs", "operating costs" and "spacing
unit" shall have the meanings assigned to those words
or phrases respectively in Clause 1 of the Operating
Procedure.
(ix) "gross proceeds of production" shall mean the amount
actually received by Panarctic in an arms-length
transaction for a monetary consideration to a
purchaser other than an affiliate of Panarctic, in
the absence of which it shall mean the gross proceeds
which Panarctic would have received for the
production if sold at the prevailing market price as
defined in the Operating Procedure.
(b) The headings of the Clauses of this Carried Interest Procedure are
inserted for convenience of reference only and shall not affect the meaning or
construction thereof.
(c) Wherever the plural or masculine or neuter is used in this Carried
Interest Procedure, the same shall be construed as meaning the singular or
feminine or body politic or corporate and vice versa where the context so
requires.
(d) If any term or condition of this Carried Interest Procedure
conflicts with a term or condition of the Permits, then such term or condition
in the Permits shall prevail and this Carried Interest Procedure shall be deemed
to be modified accordingly.
2. EXTENT OF NET CARRIED INTEREST:
The percentage of net carried interest of the Carried Interest Owner in
a Block or Blocks held by it pursuant to this Carried Interest Procedure shall
be THIRTY (30%) percent, subject to the terms and conditions of this Carried
Interest Procedure and, to the extent that the same are incorporated herein or
applicable hereto, the terms and conditions of the Operating Procedure.
3. EFFECT ON WORKING INTEREST OF PANARCTIC OF CONVERSION:
Upon the exercise by the Carried Interest Owner of its right to convert
its interest in a Block or Blocks from a working interest to a net carried
interest, the working interest of Panarctic in such Block or Blocks, which it
would otherwise have earned pursuant to the Farmout Agreement, shall be
increased to One Hundred (100%) percent and thereupon the entire working
interest held by Panarctic in such Block or Blocks shall be subject to the net
carried interest herein provided for.
4. PAYMENTS TO CARRIED INTEREST OWNER:
After Panarctic shall have recovered out of the gross proceeds of
production of petroleum substances produced, saved or deemed to be produced and
saved and marketed from any Block, together with the salvage of all recoverable
material and equipment from such Block (hereinafter collectively referred to as
"gross proceeds of production") an amount equal to the total of all costs and
expenses incurred by it on or with respect to such Block after the effective
date of this Carried Interest Procedure, including without limitation drilling
costs, completion costs, operating costs, and all other expenditures set forth
in the Accounting Procedure (but excluding any amounts which form any portion of
the total expenditures required to be made by Panarctic to earn its interest in
any of the Lands described in Schedule "A" to the Farmout Agreement) it shall
pay to the Carried Interest Owner in each calendar month thereafter a share of
the net proceeds of production of petroleum substances produced, saved and
marketed from such Block for such month equal to the percentage of its net
carried interest in such Block, as determined in accordance with Clause 3
hereof. In calculating such net proceeds of production in any month, there shall
be deducted from the gross proceeds of production the operating costs relating
to such Block and all ▇▇▇▇▇ located thereon, in accordance with the Accounting
Procedure. If at any time after the commencement of payments to the Carried
Interest Owner on any Block as aforesaid,
(a) Panarctic makes additional expenditures on such Block for
drilling costs, completion costs, operating costs and/or other
amounts set forth in the Accounting Procedure, or
(b) the monthly operating costs exceed the monthly gross proceeds
of production,
it shall be entitled to recover the amount thereof out of the gross proceeds of
production from such Block before commencing to make payments again to the
Carried Interest Owner as aforesaid, and so on from time to time.
5. APPLICATION OF OPERATING PROCEDURE:
Subject to the specific provisions of this Carried Interest Procedure,
all of the provisions of the Operating Procedure shall apply mutatis mutandis
between the parties hereto and be deemed to be incorporated herein except to the
extent that any such terms and conditions are inconsistent with the specific
provisions and intent of this Carried Interest Procedure and generally accepted
understandings in the industry of a net carried interest, and the Carried
Interest Owner shall have the same rights as a Non-Operator and Panarctic shall
have the same rights as the Operator under such applicable provisions of the
Operating Procedure. In particular, but not so as to restrict the generality or
the foregoing, the Carried Interest Owner shall be entitled to the same
information and statements furnished by the Operator to a Non-Operator under the
Operating Procedure and all operations shall be carried on by Panarctic in the
same manner as operations are to be carried on under the provisions of the
Operating Procedure.
Notwithstanding anything to the contrary, expressed or implied above or
in the Operating Procedure,
(a) Panarctic shall have the sole and exclusive control and
management of the development and operation of the said Lands
and shall not require the consent of the Carried Interest
Owner to any such development or operation, drilling or
otherwise, or to the expenditure of monies thereon;
(b) Panarctic agrees to advance or obtain the advancement of all
monies for the conduct of operations on the said Lands such
that no monies need be advanced by the Carried Interest Owner;
(c) the Carried Interest Owner's entire interest in the operations
conducted on the said Lands, while subject to this Carried
Interest Procedure, the equipment pertaining thereto, and the
petroleum substances produced therefrom shall be the
percentage of the net carried interest in net proceeds of
production of petroleum substances produced, saved and
marketed as provided for above;
(d) under the provisions of the Clause in the Operating Procedure
entitled "Area of Common Interest", the interest entitled to
be acquired by any party shall be the participating interest
of that party as set out in the Operating Procedure and, if
acquired, the provisions of the Operating Procedure shall
apply thereto;
(e) the Carried Interest Owner shall have no rights under the
provisions of the Clause of the Operating Procedure entitled
"Independent Drilling and Deepening".
6. EFFECTIVE DATE:
The effective date of this Carried Interest Procedure shall be the
effective date of the exercise of conversion rights, as provided for in the
Farmout Agreement.
7. INTEREST IN PERMITS:
The Carried Interest Owner shall have an interest in the Permits and
Lands subjected to this Carried Interest Procedure of the kind described in, and
subject to the terms and conditions of, this Carried Interest Procedure.
8. TERM OF AGREEMENT:
This Carried Interest Procedure shall continue in full force and effect
so long as any portion of the Lands is subject to this Carried Interest
Procedure.
9. ENUREMENT:
This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
Agreement 1-1-75
Canada Southern and/or its assigns shall have the right from time to
time Block by Block to revert from a 30% net C.I. position to a 30%
W.I. position in two stages with no interest so converted to be less
than 1/6th of the 30% C.I. The following procedure shall apply to such
conversion mutatis mutandis.
10. CONVERSION TO WORKING INTEREST:
(a) At any time when Panarctic has recovered from the gross
proceeds of production from any Block all costs and expenses
made by it on such Block, as hereinbefore provided in clause 4
(or at any date prior thereto if the Carried Interest Owner
pays to Panarctic an amount equal to thirty 30% percent of all
such costs and expenses incurred to that date by Panarctic on
such Block and which have not been recovered by Panarctic as
above provided for) the Carried Interest Owner may elect to
convert its net carried interest in such Block to an undivided
Thirty (30%) percent working interest. Such election may be
made by notice in writing served upon Panarctic in the manner
provided in the Operating Procedure.
Thereafter all the provisions of the Operating Procedure shall
apply and the participating interests of the parties shall be
adjusted accordingly and the provisions of this Carried
Interest Procedure shall no longer apply with respect to such
Block. After converting its net carried interest to a working
interest, as in this clause 10 provided, the Carried Interest
Owner shall have no further right of conversion and its
interest shall remain as a working interest.
(b) [Replaced by new clause giving C.S. right to sell & commit
products except for 42 sections in Permit #2719.]