Burke Ranch Unit Purchase and Participation Agreement Between: HOT SPRINGS RESOURCES LTD. (”Seller” or “HSR") and PIN PARTNERS PETROLEUM LTD. (”Buyer" or "PIN") Made as of the 6th day of February, 2006
Exhibit
10.3
▇▇▇▇▇
Ranch Unit Purchase and
Participation
Agreement
Between:
HOT
SPRINGS RESOURCES LTD.
(”Seller”
or “HSR")
and
PIN
PARTNERS PETROLEUM LTD.
(”Buyer"
or "PIN")
Made
as of the 6th
day of February,
2006
1
▇▇▇▇▇
RANCH UNIT PURCHASE AND PARTICIPATION AGREEMENT
THIS
AGREEMENT made as of the 6th
day of
February
2006
between HOT
SPRINGS RESOURCES LTD. ("Seller” or HSR")
and
PIN
PARTNERS PETROLEUM LTD. ("Buyer” or “PIN").
RECITALS:
A. Whereas
HSR owns the interests in lands and oil and gas leasehold interests comprising
the ▇▇▇▇▇ Ranch Unit, a Federal Unit, that is subject to the terms of the ▇▇▇▇▇
Ranch Unit Agreement and Unit Operating Agreements,
and to
the supervision of such unit and the activities and operations thereon by the
Bureau of Land Management (BLM) of the United States Department of the Interior;
such lands and leasehold interests are hereinafter included in the definition
of
Subject Property in Section 1.1, and are subject only to those encumbrances,
if
any, set forth in in Schedule "A";
B. Whereas
PIN is interested in acquiring an interest in the Subject Property and otherwise
participating in development of the Subject Property on the terms and conditions
set forth in this Agreement;
NOW
THEREFORE, in consideration of the mutual promises and covenants contained
herein, the receipt and sufficiency of which are acknowledged by the Parties,
the Parties agree as follows:
ARTICLE
1
INTERPRETATION
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1.1
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DEFINITIONS
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In
this
Agreement, unless the context otherwise requires:
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(a)
|
"Affiliate"
means, with respect to a Party to this Agreement, a company or other
entity which controls that Party, is controlled by that Party or
is under
common control with that Party. "Control" means (i) the direct or
indirect
ownership of sufficient shares or other interests having the right
to vote
to elect the senior management or a majority of the board of directors
or
other governing board or committee, or otherwise control, the company
or
entity, or (ii) actual control of the company or entity by any
means.
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(b)
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"Area
of Mutual Interest" or "AMI" means the area of mutual interest established
in respect of the AMI Lands;
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(c)
|
"AMI
Lands" means the lands within the area described in Schedule
"B";
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(d)
|
"AMI
Term" means the period following the Effective Date and continuing
for a
period of three (3) years thereafter;
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|
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(e)
|
"Business
Day" means a day other than a Saturday, a Sunday or a statutory holiday
in
Wyoming;
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(e)
|
"Engineering
Report" has the meaning ascribed to that term in Clause
3.2(a).
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(f)
|
"Effective
Date" means February
6, 2006.
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2
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(g)
|
"Engineering
Report" has the meaning ascribed to that term in Clause
3.2(a).
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(h)
|
"Subject
Assets" means the Subject Property, the Tangibles, and the Miscellaneous
Interests;
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(i)
|
"Subject
Property" means the lands and leasehold interests set out in Schedule
"A",
and any lands pooled, unitized or otherwise combined therewith under
the
terms of and pursuant to the Unit Agreement and Unit Operating Agreements
or otherwise,
together with the Petroleum Substances within, upon or under those
lands;
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(j)
|
"Miscellaneous
Interests" means, subject to any and all limitations and exclusions
provided for in this definition, all property, assets, interests
and
rights pertaining to the Subject Property and the Tangibles, or either
of
them, but only to the extent that such property, assets, interests
and
rights pertain to the Subject Property and the Tangibles, or either
of
them, including without limitation any and all of the
following:
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(i)
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contracts
and agreements relating to the Subject Property and the Tangibles,
or
either of them, including without limitation the Unit Agreement and
Unit
Operating Agreements,
any communitization agreements still in effect and having application
to
the Subject Property, the Title Documents, processing agreements,
transportation agreements and agreements for the construction, ownership
and operation of facilities;
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(ii)
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rights
to enter upon, use or occupy, the surface of any lands which are
or may be
used to gain access to or otherwise use the Subject Property and
the
Tangibles, or either of them;
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(iii)
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all
records, books, documents, licences, reports and data which relate
to the
Subject Property and the Tangibles, or either of them, including
any of
the foregoing that pertain to seismic, geological or geophysical
matters
not required to be held confidential and which HSR has the legal
right to
disclose to PIN; and
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(iv)
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the
▇▇▇▇▇ (and no other ▇▇▇▇▇), including the wellbores and any and all
casing;
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(k)
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"Operating
Procedure" means the 1982 AAPL Model Form Joint Operating Agreement
attached hereto as Schedule "C
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(l)
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"Party"
means a party to this Agreement;
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(m)(i)
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"Payout"
means that date when PIN recovers out of the gross proceeds of sale
from
it's share of production of Petroleum Substances from the Subject
Property
an amount equal to the aggregate costs incurred by or paid by PIN
pursuant
to Sections 4.1, 4.2, 4.3 and 5.1.
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(m)(ii)
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"Payout
Accounting”"
shall mean monthly statements furnished by Buyer to Seller before
the
fifth day of each and every calendar month prior to the time. Payout
occurs setting forth the amounts of all expenditures made by Buyer
and
claimed by Buyer as costs incurred under Sections 4.1, 4.2, 4.3
and 5.1,
together with supporting invoices together with copies of reports
made by
or on behalf of Buyer to the Wyoming Oil and Gas Conservation Commission
and/or the Minerals Management Service, statements from Third Party
purchasers, processors and transporters of production and all other
documents evidencing the volumes and values of Buyer’s share of
production, if any, of Petroleum Substances from the Subject Property
for
the month prior to the immediately preceding calendar month. Such
monthly
statements shall further include the current accumulative balance
of the
recoupment of the costs incurred by Buyer under Sections 4.1, 4.2,
4.2, ,4.3
and 5.1.
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3
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(n)
|
"Petroleum
Substances" means any of crude oil, crude bitumen and products derived
therefrom, synthetic crude oil, petroleum, natural gas, natural gas
liquids, and any and all other substances related to any of the foregoing,
whether liquid, solid or gaseous, and whether hydrocarbons or not,
including without limitation
sulphur;
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(p)
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"Studies
and Report" has the meaning ascribed to that term in Clause
3.2(a).
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(q)
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"Tangibles"
means, any and all tangible depreciable property and assets which
are
located within, upon or in the vicinity of the Subject Property
and which
are used or are intended to be used to produce, process, gather,
treat,
measure, make marketable or inject Petroleum Substances or any
of them or
in connection with water injection or removal operations that pertain
to
the Subject Property, including without limitation any and all
gas plants,
oil batteries, buildings, production equipment, pipelines, pipeline
connections, meters, generators, motors, compressors, treaters,
dehydrators, scrubbers, separators, pumps, tanks, boilers and
communication equipment;
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(r)
|
"Third
Party" means any individual or entity other than Parties hereto,
including
without limitation any partnership, corporation, trust, unincorporated
organization, union, government and any department and agency thereof
and
any heir, executor, administrator or other legal representative
of an
individual;
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(s)
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"this
Agreement", "herein", "hereto", "hereof" and similar expressions
mean and
refer to this Agreement;
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(t)
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"Title
Defect" means a material defect or significant deficiency in the
title of
Seller to any portion or part of the Subject Property, which on
its own
deprives the Seller of the substantial use, benefit or financial
revenue
from the Subject Property, having regard to laws respecting limitations
of
actions, and is sufficiently adverse such that it would, on a commercially
reasonable assessment thereof, cause a party experienced in acquisitions
of producing oil and gas properties located in the Rocky Mountain
region
of the United States to not purchase the entirety of the Subject
Property,
having regard to the loss of value in and
thereto;
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4
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(u)
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“Term
Assignment” shall mean a current assignment of 50% of Seller’s interest in
the Subject Assets, substantially in the form set forth in Schedule
"F"
hereto
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(v)
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(uv)
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"Final
Assignment”"
shall mean an assignment of 50% of Seller's interest in the Subject
Assets, substantially in the form set forth in Schedule "G
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(vw)
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"Title
Documents" means, collectively, any and all certificates of title,
leases,
reservations, permits, licences, assignments, trust declarations,
operating agreements, royalty agreements, gross overriding royalty
agreements, participation agreements, farm-in agreements, sale
and
purchase agreements, pooling agreements and any other documents
and
agreements granting, reserving or otherwise conferring rights to
(i)
explore for, drill for, produce, take, use or market Petroleum
Substances,
(ii) share in the production of Petroleum Substances, (iii) share
in the
proceeds from, or measured or calculated by reference to the value
or
quantity of, Petroleum Substances which are produced, and (iv)
rights to
acquire any of the rights described in items (i) to (iii) of this
definition; but only if the foregoing pertain in whole or in part
to
Petroleum Substances within, upon or under the Subject
Property;
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(wx)
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"Trust
Agreement" means an agreement substantially in the form set forth
in
Schedule "H";
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(xy)
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"Trustee"
means the party acting as trustee under the Trust
Agreement;
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(yz)
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"Unit
Agreement" means the unit agreement attached hereto as Schedule
"E", as
amended and supplemented;
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(zaa)
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"Unit
Operating Agreements" means the unit operating agreements attached
hereto
as Schedule "D", as amended and
supplemented;
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(aabb)
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"▇▇▇▇▇"
means all ▇▇▇▇▇ which are or may be used in connection with the
Subject
Property, including without limitation Well 9 and Well 9-17 and
all other
producing, shut-in, abandoned, water source, water disposal and
water
injection ▇▇▇▇▇.
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(bbcc)
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"Well
9" means the Well located at NW,
▇▇ ▇▇, ▇▇ ▇, ▇▇ ▇, (▇▇▇ ▇▇▇▇ No. 49 025
06180)
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(ccdd)
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"Well
9-17" means the Well located at
]NE,
▇▇ ▇▇, ▇▇▇, ▇▇▇ (▇▇▇ ▇▇▇▇ No. 49 025
22264);
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5
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1.2
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Headings
|
The
expressions "Article", "section", "subsection", "clause", "subclause",
"paragraph" and "Schedule" followed by a number or letter or combination thereof
mean and refer to the specified article, section, subsection, clause, subclause,
paragraph and schedule of or to this Agreement.
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1.3
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Interpretation
Not Affected by
Headings
|
The
division of this Agreement into Articles, sections, subsections, clauses,
subclauses and paragraphs and the provision of headings for all or any thereof
are for convenience and reference only and shall not affect the construction
or
interpretation of this Agreement.
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1.4
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Interpretation
Not Affected by Headings
|
When
the
context reasonably permits, words suggesting the singular shall be construed
as
suggesting the plural and vice versa, and words suggesting gender or gender
neutrality shall be construed as suggesting the masculine, feminine and neutral
genders.
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1.5
|
Interpretation
Not Affected by Headings
|
There
are
appended to this Agreement the following schedules pertaining to the following
matters:
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Schedule
"A"
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Subject
Property
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Schedule
"B"
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Area
of Mutual Interest
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Schedule
"C"
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Operating
Procedure
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Schedule
“D”
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▇▇▇▇▇
Ranch Unit Operating Agreements
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Schedule
“E”
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▇▇▇▇▇
Ranch Unit Agreement
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Schedule
"F"
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Term
Assignment
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Schedule
"G”
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Final
Assignment
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Schedule
"H"
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Trust
Agreement
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Such
schedules are incorporated in this Agreement and form a part hereof. Excepting
the agreement described above and appended as Schedule E, and subject to Article
3.2(d), wherever any term or condition of such schedules conflicts or is at
variance with any term or condition in the body of this Agreement, such term
or
condition in the body of this Agreement shall prevail.
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1.6
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Damages
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All
losses, costs, claims, damages, expenses and liabilities in respect of which
a
Party has a claim pursuant to this Agreement include without limitation
reasonable legal fees and disbursements on a attorney and client
basis.
ARTICLE
2
TITLE
TO SUBJECT PROPERTY
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2.1
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Title
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Seller
does not represent or warrant title to the Subject Property, but Seller does
represent that:
6
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(a)
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except
for the royalties payable to the lessors under the oil and gas
leases set
forth in Schedule "A" and overriding royalty interests burdening
Seller’s
interest in such oil and gas leases that were created by third
parties
prior to the acquisition by Seller of its interest in the Subject
Property
and of which Seller has no knowledge, it has not granted or otherwise
aware of any interest (or the right to acquire any interest) in
the
Subject Property whereby a Third Party may
owns
or has the right to
acquire
any royalty interest in the Subject Property or
any portion of Seller’s interest in the Subject
Property;
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(b)
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it
is not aware of any Title Defects pertaining to the Subject Property,
nor
is it aware of any act or omission whereby Seller is or would be
in
default under applicable law or the Title Documents and it has not
received any notice of default or otherwise become aware of any notice
of
default respecting the Subject Property that has not been remedied;
and
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(c)
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Seller
is not aware of any environmental defects or deficiencies or environmental
damage affecting or caused by the Subject Assets, nor is Seller aware
of
any proceedings which have been commenced or threatened, or which
could
reasonably be expected to be commenced, in connection with any such
defects, deficiencies or damages, or any operations relating
thereto.
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2.2
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Maintaining
Title
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While
the
Term Assignment is effective and provided Seller has not terminated this
Agreement by virtue of a material default by Buyer under this Agreement, Seller
will not grant, assign or convey any interest in the Subject Property which
may
be acquired by the Buyer hereunder, nor shall Seller do or cause to be done
any
act or omission whereby any interest in the Subject Property becomes encumbered,
terminated or forefeited.
ARTICLE
3
BUYER
PAYMENT AND RIGHTS/INTERESTS EARNED
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3.1
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Buyer
Payment
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Buyer
shall upon payment of $150,000 (the "Buyer Payment") to Seller earn the rights
and interests set forth in Section 3.2.
Seller
acknowledges prior receipt of $35,000 from Buyer, such that the balance
remaining of the Buyer Payment is $115,000 (the "Payment Balance"). Buyer
shall
pay this balance, by wire transfer or other means satisfactory to Seller
in
immediately available funds, to Seller or, if Section 3.3 is applicable,
to the
Trustee on or before the third calendar day following the date of this
Agreement, failing which this Agreement and all rights of Buyer hereunder
shall
terminate.
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3.2
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Rights
Earned
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(a)
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Upon
making the Buyer Payment set forth in Section 3.1, the interests
in the
Subject Assets shall, subject to the terms of the Term Assignment
be:
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7
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HSR
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49.9%
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PIN
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49.9%
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Others
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0.2%
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In
addition, Buyer upon making such payment to Seller or the Trustee shall earn
the
right to participate in and pay the costs of the activities described in Article
4 below. Forthwith after receiving the balance of the Buyer Payment, Seller
shall duly execute and deliver to Buyer the Term Assignment, or if Section
3.3
is applicable shall cause the Trustee to release the Term Assignment to
Buyer.
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(b)
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All
of the several obligations set forth in Sections 4.1, 4.2 and 4.3
below
and the time limit prescribed for the performance of each and all
such
obligations are and shall be deemed material and shall consititute
a
single condition precedent to Seller’s obligation to make the Final
Assignment. If the Buyer Payment described in Section 3.1 above is
timely
made to Seller or, if Section 3.3 is applicable, to the Trustee and
if,
thereafter, Buyer thereafter timely performs in all material respects
each
and all of its obligations described in Sections 4.1, 4.2 and 4.3
below,
then, prior to Payout, Buyer shall thereupon have:
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(i)
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earned
an additional 39.92% beneficial interest in the Subject Assets, such
that
the beneficial interests shall be:
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HSR
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49.9%
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PIN
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49.9%
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Others
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0.2%
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provided
however that HSR shall retain a 49.9% registered legal interest, and shall
hold
the additional 39.92% beneficial interest in trust for PIN; and
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(ii)
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Buyer
shall have the right to receive the Final Assignment and Seller
shall
forthwith thereafter duly execute and deliver to Buyer the Final
Assignment.
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(c)
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In
the event the Final Assignment is earned by Buyer and made by
Seller and
thereafter Payout occurs, Buyer shall be deemed to have thereupon
relinquished to Seller the additional 39.92% beneficial interest
in the
Subject Assets referred to in Section 3.2(b)(i) above, such that
the legal
and beneficial interests in the Subject Assets shall thereupon
be:
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HSR
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49.9%
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PIN
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49.9%
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Others
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0.2%
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(d)
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Upon
Buyer timely making the Buyer Payment described in Section 3.1 above,
thereby earning the rights described therein, the Operating Procedure
shall govern the Subject Assets and all operations on or in
respect of the Subject Assets, such that, as between Buyer and Seller,
the
Operating Procedure shall supercede the Unit Operating Agreements.
Thereafter, each party shall use commercially reasonable efforts
to enter
into agreements with, and obtain approvals from, all relevant third
parties (including those "others" owning working interests in the
Subject
Property and all applicable governmental and regulatory authorities)
such
that the Operating Procedure supercedes the Unit Operating Agreements
for
all purposes.
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8
Subject always to Article 4, all rights and obligations in respect of the Subject Assets shall be borne by the Parties in accordance with their interests set forth in Sections 3.2(a), (b) and (c) which are prevailing at the applicable time.
Seller
shall be the initial operator under the Operating Procedure, provided that upon
the parties agreeing to drill a well pursuant to Section 4.5, or if Seller
does
not agree to drill such well and Buyer elects to drill the well by itself
pursuant to the Operating Procedure, Buyer shall in either event thereupon
replace Seller as the operator under the Operating Procedure and the Unit
Operating Agreements, and Seller shall do all things reasonably necessary to
effect such replacement.
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(e)
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Provided
that Buyer timely makes the Buyer Payment described in Section 3.1
to
Seller or the Trustee, within fifteen (15) days thereafter, Seller
shall
deliver copies of the Title Documents and any other agreements and
documents to which the Subject Assets are subject, and copies of
contracts, agreements, records, books, documents, licences, reports
and
data comprising Miscellaneous Interests.
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(f)
|
In
addition to the Term Assignment and Final Assignment provided for
above,
Seller agrees to deliver to Buyer any other conveyances, assignments,
transfers, novations and other instruments reasonably required to
to
assign to Buyer the corresponding interest it acquires in the Subject
Assets.
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3.3
|
Trust
Arrangements
|
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(a)
|
If
Seller does not deliver to Buyer on the date hereof a title opinion
prepared by Seller's oil and gas legal counsel respecting the Subject
Property which opinion is in form and substance satisfactory to Buyer,
acting reasonably, (the "Title
Opinion"),
then:
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(i)
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Buyer
shall be entitled to deliver to the Trustee the Payment Balance,
to be
held by the Trustee in accordance with the Trust Agreement. Such
payment
shall be deemed to satisfy all of Seller's obligations under this
Agreement to make such payment; and
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(ii)
|
Concurrently
with Buyer making the payment pursuant to Section 3.3(a)(i), Seller
shall
deliver a duly executed copy of the Term Assignment to the Trustee,
to be
held by the Trustee in accordance with the Trust
Agreement.
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9
If
Buyer
elects to pay the Payment Balance to the Trustee pursuant to Section 3.3(a)(i)
and Seller does not deliver the Title Opinion to Buyer within ninety (90) days
from the date of this Agreement, then Buyer shall be entitled to, within ten
(10) days after the expiry of such period, request a return of the entire Buyer
Payment and all monies expended by Buyer pursuant to Sections 4.1, 4.2 and
4.3.
In that event:
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(iii)
|
the
Trustee shall forthwith return the Payment Balance to Buyer and,
provided
that Seller has paid all amounts to Buyer as required pursuant to
Section
3.3(b)(iv), destroy all copies of the Term Assignment in its possession,
with the result that thereupon Buyer shall have no interest in the
Subject
Assets; and
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(iv)
|
the
Seller shall pay to Buyer $35,000, being the prior payment of a portion
of
the Buyer Payment, and reimburse Buyer for all amounts expended by
Buyer
pursuant to Sections 4.1, 4.2 and 4.3; such payment and reimbursement
shall, during the period of 1 year from the date hereof, be made
as soon
as reasonably possible out of the gross proceeds of the sale of production
from the Subject Property. If such amounts are not paid to Buyer
within
such 1 year period, Seller shall immediately thereafter pay all such
amounts to Buyer.
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(b)
|
As
security for the payment obligations in Section 3.3(b)(iv), Buyer
shall
have, and Seller hereby grants, a lien, charge and security interest
in
the Subject Assets.
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|
In
addition, if Seller fails to make the payments to Buyer as required
pursuant to Section 3.3(b)(iv), then notwithstanding any other
provision
herein, and without limiting any other rights Buyer may have
at aw or
otherwise, Buyer shall:
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(i)
|
be
entitled to request the Trustee to deliver the Term Assignment to
Buyer,
in which event Buyer shall be entitled to retain the 49.9% interest
governed thereby for its own account; and
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(iii)
|
be
entitled to the additional 39.92% beneficial interest provided for
in
Section 3.2(b).
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(c)
|
If
there is any title defect, deficiency or other failure in title which
was
in existence at or prior to the date of this Agreement that adversely
affects the Subject Property at any time hereafter, such defects,
deficiencies and title problems shall be deemed to first affect the
interests of Seller, such that Seller's interests shall be reduced
first
before there is any effect on Buyer's interests. Conversely, if Seller
owned more than a 99.8% working interest in the Subject Property
immediately prior to the date of this Agreement, Seller shall be
entitled
to the benefit of any such incremental increased interest.
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10
ARTICLE
4
RIGHTS
EARNED BY BUYER PAYMENT AND BUYER OPERATIONS
|
4.1
|
Seismic
|
Buyer
shall, within one calendar year from the Effective Date, at its sole cost,
risk
and expense conduct or cause to be conducted a 3D seismic survey
over:
|
(a)
|
the
Subject Property ; and
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(b)
|
any
other lands within the AMI which the Parties jointly agree
upon,
and shall further conduct (or cause to be conducted) and
pay for
all processing, analysis, and interpretation of the 3D seismic data
acquired as a result of such seismic survey which is reasonably necessary
to render such data capable of being used by and useful to the Parties
to
determine the viability of future drilling operations on the Subject
Property or AMI lands. Buyer shall provide Seller with access to
the
results of the seismic program, including all analysis and interpretation
thereof, provided that Seller shall maintain in confidence the seismic
information in accordance with the Operating Procedure, and provide
proof
of the same to Seller and share the information as set forth
above.
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4.2
|
Engineering
Study and Development
Plans
|
|
(a)
|
Buyer
shall, after consultation with Seller, select an engineering firm
(the
"Engineering
Firm")
to perform certain engineering studies on the Subject Property and
to
prepare a development plan (collectively, the "Studies and Plan")
in
respect of the Subject Property. The scope and substance of the Studies
and Plan shall be at the direction of Buyer, provided that Buyer
will
confer with Seller prior to providing or revising any instructions
to the
Engineering Firm. Buyer
shall be solely responsible for the costs incurred in the preparation
of
the Studies and Plan. Upon mutual agreement, the Parties may agree
to an
alternate engineering firm.
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(b)
|
The
Parties shall co-own the Studies and Plan and all related data and
information, and shall share access to all data and information.
Each
Party shall maintain in confidence the Studies and Plan and all related
data and information in accordance with the Operating
Procedure.
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(c)
|
Each
Party shall appoint a contact person who shall assist in providing
documentation and information to the Engineering Firm.
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4.3
|
Field
Operations
|
Seller
shall, within sixty (60) days from the Effective Date (but subject always to
Article 8), cause to be conducted by or under the supervision of Seller (or
its
agents, employees or contractors) in accordance with and if required pursuant
to
generally accepted industry practices, operations and purchases of equipment
necessary to install a submersible
11
pump,
cable and if needed a motor in Well 9 and, shall within thirty (30) days from
the Effective Date (but subject always to Article 8), complete any tubing
repairs that may be necessary in respect of Well 9-17. Buyer shall be solely
responsible for all costs and expenses relating to such operations, provided
that if the costs and expenses respecting Well 9 or Well 9-17 exceed $50,000,
then Seller shall be solely responsible for all costs and expenses exceeding
$50,000, provided further however, that if, due to wellbore integrity problems,
equipment failures or sticking of equipment or tools in the wellbore or other
problems beyond the anticipation or control of the Parties, the costs of
operations respecting either or both Well 9 and Well 9-17 are anticipated to
exceed $75,000 in the aggregate, then the Parties shall determine whether they
wish to proceed and if so they shall jointly (each as to a 50% share) pay for
any costs in excess of $75,000. If a party determines not to conduct the
operations yielding such costs in excess of $75,000, then the other party shall
be entitled to conduct the operations by itself in accordance with the Operating
Procedure. Seller shall provide Buyer with information on a daily basis in
respect of the foregoing operations and the status thereof, and shall provide
evidence to Buyer of its timely compliance with the obligations set forth in
this Section 4.3 by providing Buyer with invoices from any Third Party
performing such work and/or providing equipment and materials evidencing the
time and dates of the provision of such services and
materials/equipment.
Subject
to the foregoing, Buyer shall pay any and all such invoices within 30 days
of
receipt of them, and upon such payment shall be deemed to have satisfied all
of
its obligations in this Section 4.3. Buyer shall deliver to Seller signed
acknowledgments by all such Third Parties or other evidence that such invoices
have been paid by Buyer.
If
Seller
fails to complete the operations provided for in this Section 4.3 within 1
year
of the Effective Date, Buyer shall be deemed to have no further obligations
under this Section 4.3.
|
4.4
|
Buyer
as
Operator
|
Buyer
shall conduct the operations set forth in Sections 4.1 and 4.2 as if and as
though it was the operator of the Subject Property, provided that Buyer will
confer with Seller with regard to those operations described in Sections 4.1
and
4.2 in an effort to keep the associated operational costs as low as reasonably
possible (having regard always to good industry practices and health, safety
and
environmental concerns) and make beneficial use of the Seller’s knowledge of the
Subject Property.
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4.5
|
Tensleep
Test
|
If,
after
the acquisition,processing, analysis and interpretation of the seismic data
described in Section 4.1 above, Buyer and Seller mutually agree, in good faith,
based upon such seismic data and analysis thereof, that a well should be drilled
to test the Tensleep Formation (the "Tensleep Well") on the Subject Property
(or
the AMI lands), the Buyer shall at its sole cost drill and log (or cause the
drilling and logging of) such a well of such a depth to test the entire
Tensleeep Formation, and, if, after logging, a completion of such a well for
production is justified, as determined mutually by the Parties hereto, then
Seller shall pay 50% of the costs of such
12
completion.
If such well thereafter produces Petroleum Substances, the Parties shall share
in the production from such well on the basis of the fractions described below,
until the costs of such well and its completion have been recovered out of
the
production of Petroleum Substances from such well.
Prior
to
Cost Recoupment Fractions:
|
HSR
|
Amount
of completion costs paid by HSR
Total of all drilling, logging and competion costs paid by HSR and
PIN
|
|
PIN
|
Amount
of drilling, logging and completion costs paid by PIN
Total of all drilling, logging and completion costs paid by HSR and
PIN.
|
Upon
recoupment of such drilling, logging and completion costs, the Parties shall
share in the production from such well on an equal, 50-50 basis.
If
a
party wishes to drill the Tensleep Well but the other party does not, then
the
foregoing provisions of this Article 4.5 shall be of no further effect. In
such
event, the party wishing to drill the well shall be entitled to drill such
well
by itself without any participation by the other party, all in accordance
with
the Operating Procedure. In such event, the penalty applicable to the
non-participating party shall be as set forth in clause
Article
VI
of the
Operating Procedure.
Prior
to
the time the costs of the drilling, logging and completion from such well have
been recovered out of the production of Petroleum Substances from such well,
the
Party serving as operator shall before the fifth day of each calendar month
provide the non-operating Party with a monthly accounting of the aggregate
of
all costs of drilling, logging and completing of such well and copies of all
reports filed with the Wyoming Oil and Gas Conservation Commission and/or the
Minerals Management Service, statements from Third Party purchasers, processors
and transporters of production and all other documents evidencing the volumes
and values of all production of Petroleum Substances from such well, in each
case as regards those costs and revenues relating to such well that arose in
the
month prior to the immediately preceding month, together with the current
accumulative balance of the recoupment of drilling, logging and completion
costs
of such well out of the production of Petroleum Substances from such
well.
ARTICLE
5
PRODUCTION
PAYMENT
|
5.1
|
Production
Payment
|
If
Buyer
timely makes the Buyer Payment described in Section 3.1 above and performs
the
obligations described in Sections 4.1, 4.2 and 4.3 above, and, thereafter,
whether prior to or after Payout, production of Petroleum Substances from the
Subject Property exceeds 20 barrels of oil per day (and for purposes of this
clause 6mcf of natural gas shall equal 1 barrel of oil) for a continuous period
of no less than 30 days, then provided that Buyer has received a Title Opinion
or Buyer is otherwise satisfied with title to the Subject Property, Buyer shall
each month thereafter for a period of 12 months pay to Seller out of its net
share of the proceeds from the sale of Petroleum Substances produced from the
Subject Property a payment of $5,000 (for an aggregate payment obligation of
$60,000). Each such payment shall be made by no later than the 25th day of
the
following month. The Buyer’s obligation for this production payment,
and
13
Seller’s
reservation thereof, shall be set forth in the Term Assignment and in the Final
Assignment, if made. For greater certainty, if the net revenues from the Subject
Property are not sufficient to permit the $5,000 payment in any one month,
the
payment obligation for that month shall be suspended until the next month in
which net revenues are sufficient to permit such $5,000 payment.
ARTICLE
6
REPRESENTATIONS
AND WARRANTIES
|
6.1
|
Representations
and Warranties
|
Each
Party makes the following representations and warranties to the
other:
|
(a)
|
It
is a corporation, limited partnership, or limited liability company
duly
organized and validly existing under the laws of the jurisdiction
of its
incorporation or formation, is authorized to carry on business in
the
state in which the Subject Property are located, and now has good
right,
full power and absolute authority to perform the obligations provided
for
in the Agreement according to the true intent and meaning of this
Agreement;
|
|
(b)
|
the
execution, delivery and performance of this Agreement has been duly
and
validly authorized by any and all requisite company, member and directors'
actions and will not result in any violation of, be in conflict with
or
constitute a default under any articles, charter, operating agreement
or
other governing document to which it is bound;
|
|
(c)
|
the
execution, delivery and performance of this Agreement will not result
in
any violation of, be in conflict with or constitute a default under
any
term or provision of any agreement or document to which it is party
or by
which it is bound, nor under any judgment, decree, order, statute,
regulation, rule or license applicable to it;
|
|
(d)
|
this
Agreement and any other agreements delivered in connection herewith
constitute valid and binding obligations of it enforceable against
it in
accordance with their terms;
|
|
(e)
|
it
has not incurred any obligation or liability, contingent or otherwise,
for
brokers' or finders' fees in respect of this Agreement or the transaction
to be effected by it for which the other Party shall have any obligation
or liability;
|
ARTICLE
7
AREA
OF MUTUAL INTEREST
|
7.1
|
AMI
Lands
|
If
a
Party or any of its Affiliates acquires an interest in any AMI Lands during
the
AMI Term, such acquisition shall be subject to the provisions of this Agreement.
|
7.2
|
AMI
Procedure for
Acquisition
|
14
If
AMI
Lands are acquired at any time during the AMI Term by a Party or any of its
Affiliates, that Party (the "Acquiring
Party")
shall
forward a notice to the other Party (the "Receiving
Party")
within
seven (7) days of the acquisition of such AMI Lands. The notice (the
"Acquisition
Notice")
shall
set forth the particulars of the acquisition, including but not limited
to:
|
(a)
|
the
date that the interest was
acquired,
|
|
(b)
|
the
interest which was acquired,
|
|
(c)
|
from
whom the interest was acquired,
|
|
(d)
|
the
amount of out of pocket costs incurred by the Acquiring Party and/or
its
Affiliates in acquiring the AMI Lands,
and
|
|
(e)
|
the
amount of maintenance costs, if any, incurred by the Acquiring Party
and/or its Affiliates with respect to the AMI
Lands.
|
The
Receiving Party shall have twenty (20) days from the date of receipt of an
Acquisition Notice (the "Acceptance
Period")
to
elect to acquire 50% of the interest acquired by the Acquiring Party and any
of
its Affiliates in the AMI Lands set out in such Acquisition Notice by paying
50%
of the amounts set forth in the Acquisition Notice. If the Receiving Party
fails
to pay such amount within thirty (30) days of its election, it shall be deemed
to have elected not to acquire such interest, and it shall have no further
rights to such interest.
If
the
consideration paid by the Acquiring Party or any of its Affiliates to acquire
the AMI Lands was other than cash or work commitment, the Acquisition Notice
shall specify the cash equivalent of such consideration. The Receiving Party
may, within five (5) days of its receipt of the Acquisition Notice, require
the
determination of the cash equivalent of the consideration to be submitted to
arbitration, in which event the twenty (20) day period specified
in
this
section shall commence to run on the date the arbitrator's decision is
communicated in writing to the Parties. The cash value so determined by the
arbitrator and communicated in writing to the Parties shall be deemed to be
the
cash equivalent of the consideration.
ARTICLE
8
FORCE
MAJEURE
|
8.1
|
Meaning
of Force Majeure
|
For the purposes of this Article, "force majeure" means an occurrence beyond the reasonable control of the Party claiming suspension of an obligation hereunder, which has not been caused by such Party's negligence and which such Party was unable to prevent or provide against by the exercise of reasonable diligence at a reasonable cost and includes, without limiting the generality of the foregoing, an act of God, war, revolution, insurrection, blockage, riot, strike, a lockout or other industrial disturbance, fire, lightning, unusually severe weather, storms, floods, explosion, accident, shortage of labour or materials (including rig availability), or government restraint, action, delay or inaction.
15
|
8.2
|
Suspension
of Obligations Due to Force
Majeure
|
If
any
Party is prevented by force majeure from fulfilling any obligation hereunder,
the obligations of the Party, insofar only as its obligations are affected
by
the force majeure, shall be suspended while the force majeure continues to
prevent the performance of such obligation and for that time thereafter as
that
Party may reasonably require to commence to fulfill such obligation, and during
the entirety of such period shall not in any event be considered to be in
default as regards the affected obligations. A Party prevented from fulfilling
any obligation by force majeure shall promptly give each other Party notice
of
the force majeure and the affected obligations, including reasonably full
particulars in respect thereof.
|
8.3
|
Obligation
to Remedy
|
The
Party
claiming suspension of an obligation as aforesaid shall promptly use
commercially reasonable efforts to remedy the cause and effect of the applicable
force majeure, insofar as it is reasonably able so to do, and such Party shall
promptly give each other Party notice when the force majeure ceases to prevent
the performance of the applicable obligation. However, the terms of settlement
of any strike, lockout or other industrial disturbance shall be wholly in the
discretion of such Party, notwithstanding Section 8.1, and that Party shall
not
be required to accede to the demands of its opponents in any strike, lockout
or
industrial disturbance solely to remedy promptly the force majeure thereby
constituted.
|
8.4
|
Exception
for Lack of
Finances
|
Notwithstanding
anything contained in this Article, lack of finances shall not be considered
a
force majeure, nor shall any force majeure suspend any obligation for the
payment of money due hereunder.
ARTICLE
9
GENERAL
|
9.1
|
Confidentiality
|
The
Parties covenant that agree to continue to keep all information and
documentation directly or indirectly related to the Subject Property
confidential in accordance with Clause
[·]Article
XV
of the
Operating Procedure. Nothing contained herein or in the Operating Procedure
or
the Unit Operating Agreements shall prevent a Party at any time from furnishing
information to any governmental agency or regulatory authority or to the public
if required by applicable law, provided that the Parties shall advise each
other
in advance of any public statement which they are required to make.
16
|
9.2
|
Further
Assurances
|
Each
Party will, from time to time and at all times, without further consideration,
do such further acts and deliver all such further assurances, deeds and
documents as shall be reasonably required in order to fully perform and carry
out the terms of this Agreement.
|
9.3
|
Further
Assurances
|
All
payments to be made pursuant to Clauses 3.1 and 5.1 shall be made by certified
cheque, bank draft or wire transfer.
|
9.4
|
Entire
Agreement
|
The
provisions contained in any and all documents and agreements collateral hereto
shall at all times be read subject to the provisions of this Agreement and,
in
the event of conflict, the provisions of this Agreement shall prevail. No
amendments shall be made to this Agreement unless in writing, executed by the
Parties. This Agreement supersedes all other agreements, documents, writings
and
verbal understandings among the Parties relating to the subject matter hereof
and expresses the entire agreement of the Parties with respect to the subject
matter hereof.
|
9.5
|
Governing
Law
|
This
Agreement shall, in all respects, be subject to, interpreted, construed and
enforced in accordance with and under the laws of the State of Wyoming. The
Parties irrevocably submit to the exclusive jurisdiction of the courts of the
State of Wyoming in respect of all matters arising out of or in connection
with
this Agreement.
|
9.6
|
Enurement
|
This
Agreement may not be assigned by a Party without the prior written consent
of
the other Party, which consent may be unreasonably and arbitrarily withheld.
This Agreement shall be binding upon and shall enure to the benefit of the
Parties and their respective administrators, trustees, receivers, successors
and
permitted assigns.
|
9.7
|
Time
of
Essence
|
Time
shall be of the essence in this Agreement.
|
9.8
|
Notices
|
The
addresses for service and the fax numbers of the Parties shall be as
follows:
|
HSR
|
With
a copy to:
|
|
Hot
Springs Resources Ltd.
▇▇▇
▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇,
▇▇
▇▇▇▇▇
Facsimile
(▇▇▇) ▇▇▇-▇▇▇▇
Attention:
President
|
|
|
PIN
|
|
|
PIN
Partners Petroleum Ltd.
▇▇▇▇▇
▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇,
▇.▇.
▇▇▇
▇▇▇
Facsimile
(604)·682-5564
Attention:
President
|
All
notices, communications and statements required, permitted or contemplated
hereunder shall be in writing, and shall be delivered as follows:
|
(a)
|
by
personal service on a Party at the address of such Party set out
above, in
which case the item so served shall be deemed to have been received
by
that Party when personally served;
|
|
(b)
|
by
facsimile transmission to a Party to the fax number of such Party
set out
above, in which case the item so transmitted shall be deemed to have
been
received by that Party when transmitted;
or
|
|
(c)
|
except
in the event of an actual or threatened postal strike or other labour
disruption that may affect mail service, by mailing first class registered
post, postage prepaid, to a Party at the address of such Party set
out
above, in which case the item so mailed shall be deemed to have been
received by that Party on the third Business Day following the date
of
mailing.
|
A
Party
may from time to time change its address for service or its fax number or both
by giving written notice of such change to the other Party.
|
9.9
|
Invalidity
of
Provisions
|
In
case
any of the provisions of this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
|
9.10
|
Waiver
|
No
failure on the part of any Party in exercising any right or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
of
any such right or remedy preclude any other or further exercise thereof or
the
exercise of any right or remedy in law or in equity or by statute or otherwise
conferred. No waiver of any provision of this Agreement, including without
limitation, this section, shall be effective otherwise than by an instrument
in
writing dated
17
subsequent
to the date hereof, executed by a duly authorized representative of the Party
making such waiver.
|
9.11
|
Amendment
|
This
Agreement shall not be varied in its terms or amended by oral agreement or
by
representations or otherwise other than by an instrument in writing dated
subsequent to the date hereof, executed by a duly authorized representative
of
each Party.
|
9.12
|
Counterpart
Execution
|
This
Agreement may be executed in counterpart, no one copy of which need be executed
by Seller and Buyer. A valid and binding contract shall arise if and when
counterpart execution pages are executed and delivered by Seller and
Buyer.
IN
WITNESS WHEREOF the Parties have executed this Agreement as of the day and
year
first above written.
|
HOT
SPRINGS RESOURCES LTD.
Per:
_________________________________
|
PIN
PARTNERS PETROLEUM LTD.
Per:
_________________________________
|
18