Exhibit 10.01
Production Lease
PL 09-04-15-01

This Production Lease entered into on the 15th day of April, 2009.

BETWEEN: HER MAJESTY THE QUEEN IN THE RIGHT OF THE PROVINCE OF NOVA SCOTIA, as
represented by the Minister of Energy,

(hereinafter referred to as the “Minister”)

- and-
 
ELMWORTH ENERGY CORPORATION, a body corporate registered to carry on business in
the Province of Nova Scotia,

(hereinafter referred to as the “Lessee”)

WHEREAS:

A.
Exploration Agreement No. 99-09-15-02 was issued to Northstar Energy Corporation
on September 15, 1999;

B.
The Lessee is a successor in title to Northstar Energy Corporation and the
current holder of Exploration Agreement No. 99-09-15-02;

C.
The Lessee filed a Development Plan with the Minister under section 52 of the
Petroleum Resources Regulations (the “Regulations”) on June 24, 2008;

D.
The Minister is of the opinion that:

 
(i)
petroleum can be commercially produced from the Lands; and

 
(ii)
none of the conditions referred to in section 54 of the Regulations exist;

NOW THEREFORE, in consideration of the rentals, royalties and the covenants and
agreements herein contained, the Minister, on behalf of the Province, and the
Lessee agree as follows:

INTERPRETATION

1.
(1)
(a)
In this Lease, a reference to the Petroleum Resources Act (the “Act”) or to any
Act of the Legislature of Nova Scotia shall be construed as a reference to

 
(i)
that Act, as amended from time to time,

 
(ii)
any replacement of all or part of that Act from time to time enacted by the
Legislature, as amended from time to time, and

 
 

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(iii)
any regulations, orders, directives, by-laws or other subordinate legislation
from time to time made under any enactment referred to in clause (i) or (ii), as
amended from time to time.

 
(b)
A reference to the Minister includes the Deputy Minister of the Department of
Energy and any other person duly authorized by the Minister to act in the
Minister’s behalf.

(2)
Except as provided in this Article and unless the context otherwise requires,
words used in this Lease have the same meaning as in the Act and Regulations,
and

 
(a)
“Administrator” means the person appointed by the Minister under the Onshore
Petroleum Drilling Regulations;

 
(b)
“Anniversary Date” means the anniversary date of the Effective Date of each year
of the term of this Lease;

 
(c)
“Commencement Date” means the day on which commercial production begins;

 
(d)
“Department” means the Nova Scotia Department of Energy;

 
(e)
“Development Program” means the program described in Schedule II;

 
(f)
“Designation of Representative” means the designation of a representative made
by the Lessee pursuant to Section 3 of the Regulations and filed with the
Registrar in accordance with this Lease;

 
(g)
“Effective Date” means April 15, 2009;

 
(h)
“Lands” means the lands described in Schedule I or such portion of those lands
as may from time to time be subject to this Lease;

 
(i)
“Lease” means this Production Lease entered into in accordance with and subject
to the Act and Regulations;

 
(j)
“1999 Agreement” means the Exploration Agreement (No. 99-09-15-02) issued on
September 15, 1999;

(k)           “Petroleum” means petroleum as defined in the Act, excluding coal
gas;

(l)           “Province” means the Government of the Province of Nova Scotia;

 
(m)
“Regulations” mean the Petroleum Resources Regulations, N.S. Reg.  178/85 as
amended from time to time;

 
(n)
“Waste”, in addition to its ordinary meaning, means waste as understood in the
petroleum industry; and

 
(o)
“Year” means the 12-month period beginning at 12:01 a.m. on the Effective Date
or Anniversary Date, as the case may be.

GRANT

2.
Subject to the terms and conditions of this Lease, the Act and Regulations, the
Minister hereby grants to the Lessee the right to undertake the activities
described in the Development Program and to produce Petroleum from or within
those rock units found within the Lands, described as being from the top of the
Windsor group to the basement formation, together with the right to market the
Petroleum so produced and, provided always that title to Petroleum subject at
any time to any royalty right of the Minister remains vested in the Minister,
title to Petroleum so produced.

 
 

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SURFACE RIGHTS

3.
The Lessee shall satisfy the Minister that it has the permission of the owner of
the surface rights or that it has been granted and has complied with the terms
of an order pursuant to subsection 24(3) of the Act, before entering any lands
pursuant to this Lease.

ROYALTIES

4.
(1)
All Petroleum produced under the authority of this Lease is subject to such
royalties payable to the Province in the nature and amount as prescribed by the
Regulations.

 
(2)
The Province reserves the right at any time to review and amend any regulations
or enact new regulations respecting royalties under the Act and Regulations.

TERM/RENEWAL

5.
(1)
This Lease commences on the Effective Date and shall continue for a term of ten
(10) years from the Commencement Date unless it is renewed, surrendered or
cancelled.

 
(2)
Subject to Article 5(4), on the expiration of the initial term of this Lease,
provided the Lessee has complied with all of the terms and conditions of this
Lease, the Act and Regulations, and provided that commercial production of
Petroleum has actually commenced and has not just been deemed to have commenced
under Article 7, the Lessee shall have the option to renew the Lease, on the
same terms and conditions, for a further term of ten (10) years. The option to
renew shall be exercised by the Lessee providing to the Minister written notice
within three (3) months from the end of the initial term.

 
(3)
Subject to Article 5(4), further renewals of this Lease may be granted by the
Minister upon such terms and conditions as the Minister may determine.

 
(4)
The renewal of this Lease for any term beyond the initial term shall be subject
to the surrender by the Lessee of those portions of the Lands which the Minister
determines are not producing Petroleum, or are not capable of producing
Petroleum, at the time of renewal.

DEVELOPMENT PROGRAM

6.
(1)
The Lessee shall diligently carry out the Development Program attached hereto as
Schedule II during the term of the Lease.

 
(2)
With the written approval of the Minister, the Development Program may be
amended.

 
(3)
The Development Program shall be stratigraphically defined to cover rock units
from the top of the Windsor group to the basement formation included in the
Lands.

 
(4)
The Lessee acknowledges and agrees that, notwithstanding anything else in this
Lease, repeated or serious failure to comply with any material provision of the
Development Program shall constitute grounds for cancellation of this Lease
pursuant to Section 36 of the Regulations.

COMMERCIAL PRODUCTION AND COMMENCEMENT DATE

7.
(1)
The Minister shall determine the time at which commercial production of
Petroleum has commenced under this Lease.

 
 

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(2)
If the Minister has not made a determination that commercial production
commenced under Article 7(1) on or before the second Anniversary Date, the
parties agree that commercial production, for the purposes of determining the
date this Lease is to  commence under subsection 15(3) of the Act and section 64
of the Regulations, shall be deemed to be have commenced on the first
Anniversary Date.

CONDITIONS

8.
The Lessee agrees to comply with the conditions set forth in Schedule IV within
the times set out in the Schedule and acknowledges that failure to comply with
any condition shall constitute a breach of this Lease entitling the Minister to
cancel the Lease.

DATA/INFORMATION

9.
(1)
Except as provided herein, the Lessee shall, in a timely manner, submit data and
information to the Minister as provided in Section 71 of the Regulations.

 
(2)
Annual progress reports shall include a summary of operations, activities and
findings related to this Lease and a prognosis for the subsequent reporting
period.

 
(3)
The Lessee shall keep accurate books and records in accordance with generally
accepted accounting principles and applicable industry standards showing the
quantities and values of the Petroleum produced and expenditures from the Lands.

 
(4)
Whenever required to do so the Lessee shall, at reasonable times and upon
reasonable notice, submit such books and records for inspection or audits by any
officer or person authorized by the Minister.

 
(5)
All data and information shall be submitted by the Lessee in hard copy paper
format and electronically in a format deemed acceptable to the Minister.

CONFIDENTIALITY

10.
(1)
This Lease and all information provided to the Minister pursuant to the terms of
the Lease, the Act or Regulations is subject to the Freedom of Information and
Protection of Privacy Act and the head of the appropriate public body shall make
any decisions respecting release of any information.

 
(2)
Subject to Article 10(1) the Minister shall not knowingly disclose information
contained in the books and records of the Lessee unless authorized to do so by
the Act, Regulations, this Lease or as required by law, or unless necessary for
the purpose of the administration or enforcement of the Act or Regulations or
for the purpose of legal proceedings relating to such administration or
enforcement.

OPERATIONS

11.
(1)
General:  All operations under this Lease shall be performed

 
(a)
in accordance with all enactments, including the Act, the Regulations and this
Lease,

 
(b)
in a manner to promote safety, the protection of the environment, the
conservation of the petroleum resource and the protection of correlative rights,
and

 
(b)
in such manner as is usual and customary in similar petroleum operations.

 
(2)
Reasonable Measures:  The Lessee shall take all reasonable measures deemed
necessary by the Administrator to accomplish the intent of this Article which
measures may include, but are not limited to, modification to siting or design
of facilities, timing of operations, and specifications of interim and final
reclamation measures.

 
 

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(3)
Seismic/Drilling Programs:  Approvals for seismic and drilling programs and
production operations shall be as provided in the Act and the Onshore Petroleum
Geophysical Regulations and the Onshore Petroleum Drilling Regulations.

 
(4)
Well Sites/Pads Sizes: Each well site/pad requires the prior written approval of
the Administrator.

 
(5)
Well Density: Well spacing and siting requires the prior written approval of the
Administrator.

 
(6)
Flaring: Flaring shall only be permitted with the prior written approval of the
Administrator and will only be permitted during well testing, and for a brief
time during the startup of the well.

 
(7)
Compression: Compression operations must comply with any noise levels/standards
imposed from time to time by the Nova Scotia Department of Environment.

SITE MAINTENANCE/LAND RECLAMATION/FACILITIES DECOMMISSIONING

12.
(1)
The Lessee shall maintain work sites established on the Lands in a clean and
orderly manner at all times, and shall not cause or permit any nuisance or
damage to Lands or adjacent lands.

 
(2)
The Lessee shall prepare and submit, a detailed program (the “Abandonment and
Reclamation Program”) acceptable to the Minister on or before the fifth
Anniversary Date.

 
(3)
Site restoration in accordance with the Abandonment and Reclamation Program
shall be completed within 12 months of the end of the term of this Lease or any
renewal, or such additional time as may be agreed by the Minister.

 
(4)
Unless the Minister otherwise agrees in writing, well termination and facilities
shall be suspended or abandoned in the manner provided in Schedule V.

 
(5)
Cessation of operations or termination of this Lease for any reason shall not
relieve the Lessee from the obligations of this section.

CONSERVATION OF RESOURCES

13.
The Lessee shall take all reasonable measures to conserve the resources of the
Province and, except in an emergency situation, shall not, by any act or
omission, cause or allow any Waste of petroleum or mineral resources or cause or
allow any unreasonable damage to formations or deposits containing the same
beyond that which is usual, customary and acceptable in skillful and proper
operations of a similar nature.

COMPLIANCE WITH LAWS/REGULATIONS

14.
(1)
General:  In carrying out the Development Program, the Lessee, its employees,
administrators, agents, successors, contractors and sub-contractors shall comply
with all laws, including the provisions of the Environment Act, Occupational
Health and Safety Act and regulations thereunder, all of which may from time to
time be amended, and shall perform such site restoration as is required by the
Province and by law.

 
(2)
Groundwater Protection/Produced Waste: The Lessee shall comply with all laws,
regulations, policies, standards and guidelines in effect now or implemented in
the future by the Nova Scotia Department of Environment respecting groundwater
protection and discharge water from its operations.

 
(3)
Environmental Assessments: The Lessee shall comply with all laws and regulations
respecting the environmental assessment of petroleum operations.

 
 

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CONTINUING OBLIGATIONS

15.
The provisions of this Lease which, by their terms, are intended to survive or
which must survive in order to give effect to the continuing obligations of the
Minister and the Lessee shall survive the suspension or termination of this
Lease.

MINERAL, PETROLEUM AND UNDERGROUND HYDROCARBONS STORAGE RIGHTS

16.
The Lessee agrees to conduct its operations upon the Lands in such a manner as
not to interfere with or disrupt the reasonably necessary activities of the
holder of any mineral rights, petroleum rights or underground gas storage rights
that are now or may hereafter be issued or entered into pursuant to the Mineral
Resources Act, the Petroleum Resources Act or the Underground Hydrocarbons
Storage Act, whichever may be the case, respecting all or any portion of the
Lands.

POWERS OF MINISTER

17.
Any questions of interpretation on anything contained in this Lease or to any
matter or thing to which it pertains shall be decided by the Minister or as
specified in this Lease, by the Administrator and the decision of the Minister
or the Administrator shall be final and binding.

WAIVER

18.
No waiver by the Minister or the Administrator of any breach of any of the terms
or conditions contained in this Lease shall take effect or be binding upon the
Minister unless the waiver is expressed in writing by the Minister or the
Administrator, and any waiver so expressed shall not limit or affect the
Minister’s rights with respect to any other or future breach.

INDEMNITY

19.
(1)
For purposes of this Article, "Interest Holder" shall not include any person
whose only interest in this Lease or in any right granted hereunder is a
mortgage or other security interest, but shall include any person who acquires
or holds any interest in this Lease or any right granted hereunder as a result
of any realization or enforcement process.

 
(2)
Any Interest Holder in this Lease shall, in respect of that portion of the Lands
to which each such Interest Holder’s interest relates, at all times, jointly and
severally, indemnify and save harmless the Minister from and against all claims,
demands, losses, costs, damages, actions, suits or other proceedings by whomever
made, sustained, brought or prosecuted, in any manner based upon, occasioned by,
or attributable to, anything done or omitted to be done by the Lessee, its
contractors, employees, servants or agents, in the fulfilment of agreements made
herein or in the exercise of the rights or obligations contained herein.

 
(3)
For greater certainty, an Interest Holder in this Lease who does not hold an
interest with respect to that portion of the Lands in relation to which claim,
demand, loss, cost, damage, action, suit or other proceedings arises is not
liable to indemnify the  Minister under sub-article (2).

 
(4)
Notwithstanding sub-article (2), the Interest Holders shall not be liable to
indemnify the Minister in respect of any claims, demands, loss, costs, damages,
actions, suits or other proceedings arising through any wilful or negligent act
of the Province or any of its agents or employees.

 
 

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TERMINATION

20.
(1)
Where it is alleged that the Lessee breached or defaulted under the Act, the
Regulations, or this Lease or renewals thereof, or failed to perform the work
required under this Lease or renewals thereof, the Minister shall give the
Lessee at least thirty (30) calendar days to remedy the breach or default.

 
(2)
The Minister shall advise the Lessee by notice, in writing, of the alleged
breach or default and shall also advise the Lessee of the above noted period of
time which the Lessee may remedy the breach or default or show, to the
satisfaction of the Minister, that the Lessee has not breached or defaulted.

 
(3)
If the Lessee is not able to remedy the breach or default alleged in the notice
or show, to the satisfaction of the Minister, that the Lessee has not breached
or defaulted, the Minister may declare this Lease suspended or cancelled.

 
(4)
Suspension or cancellation of this Lease shall in no way relieve the Lessee of
obligations contained herein, including site reclamation and observance of all
obligations in law.

GOODS AND SERVICES

21.
Every twelve (12) months during the term of this Lease, the Lease shall report
to the Minister, in such form as the Minister may determine, as to

 
(a)
utilization of services provided from within Nova Scotia and utilization of
goods manufactured in Nova Scotia or, where not so manufactured, provided from
within Nova Scotia;

 
(b)
the number of qualified employees and independent contractors normally resident
in Nova Scotia providing services to the Lessee; and

 
(c)
evidence that the Lessee’s contractors and main sub-contractors are acquiring
goods and services in accordance with Section 20 of the Regulations.

SECURITY

22.
(1)
The Lessee shall provide security to the Minister, in a form satisfactory to the
Minister, acting reasonably, in a fixed amount representing 10 percent of the
value of the Development Program undertaken in each year that this Lease is in
effect, which shall secure performance of the obligation of the Lessee under the
Act, the Regulations, and this Lease for the term of the Lease and any extension
or renewal.

 
(2)
At the end of each year, the Minister reserves the right to adjust the amount of
the financial security provided under (1).

 
(3)
The security shall,

 
(a)
for the first year of the Development Program, be provided within thirty (30)
days of the execution of the Lease and prior to commencement of the Development
Program; and,

 
(b)
in respect of the second and subsequent years of the Lease, be provided on the
earlier of

 
(i)
the Anniversary Date, or

 
(ii)
ten (10) days prior to the commencement of a subsequent phase of the Development
Program.

 
(4)
The Province shall return the security securing performance of the Lessee’s
obligations in any previous year or for a previous phase of the Development
Program upon receipt of any subsequent security required in accordance with this
Article.

 
 

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(5)
Security or the uncalled balance thereof shall be cancelled and the original
document returned by the Minister to the Lessee within a reasonable period of
time, where,

 
(a)
in the opinion of the Minister, a failure to fulfill the obligations under this
Lease is the result of technical difficulties beyond the control of the Lessee
despite adherence to good oilfield practices;

 
(b)
further performance under this Lease would not be reasonable in the Minister’s
opinion; or

 
(c)
the obligations for which the security was issued have been performed to the
satisfaction of the Minister.

 
(6)
Where the Lessee proposes a modification to the Development Program which
increases its value, the Minister may require an additional sum to secure the
performance of the Lessee’s obligation pursuant to the Development Program,
which modification may require provision of an additional security or, in the
alternative, an increase in the amount of the security referenced in Article
22(1).

 
(7)
In addition to security required in relation to the Development Program, the
Minister may require the Lessee to furnish bonds in a form satisfactory to the
Minister in such amounts as the Minister considers appropriate to ensure
performance of obligations with respect to royalty.

INSURANCE

23.
(1)
The Lessee shall procure the insurance coverage as described in Schedule III  or
shall cause the insurance coverage to be procured and such insurance shall be
maintained in full force during the term of this Lease to protect all insureds
for the purposes and risks outlined therein.

 
(2)
Insurance under subsection (1) shall provide coverage for  the Lessee, its
subcontractors, consultants, their successors and assigns, and their respective
directors, officers, and employees, and protect all insureds from all claims
arising out of liability for property damage, bodily injury including death and
personal injury.

 
(3)
All policies shall be insured by financially sound insurers licensed to carry on
business in Canada.  The policies described in Schedule III shall be written on
an occurrence basis.

 
(4)
Certified copies of all insurance policies required, or certificates of
insurance with endorsements acceptable in form and substance to the Province,
shall be delivered to the Province on execution of this Lease.

 
(5)
The Lessee, the Province, all subcontractors, consultants, subconsultants, and
other parties listed in subsection (2) shall be added as additional insureds on
the policy.

 
(6)
If any policy can only be written on a "claims made" basis, the policy must
provide the Province and the Lessee with the right, upon cancellation or
termination by refusal to renew the policy, to purchase an extended reporting
period of not less than two (2) years.

 
(7)
Each of the policies of insurance maintained pursuant to this Lease shall
contain a waiver of the insurer's right of subrogation against any insured under
this Lease.

 
 

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NOTICE

24.
(1)
Where in this Lease or under the Regulations it is required that a notice,
communication or statement (hereinafter called “Notices”) be given, such Notices
may be served on the parties at the following address:

To the Lessee at:
Elmworth Energy Corporation
 
Suite 1250, 521 -3rd Avenue, S.W.
 
Calgary, Alberta T2P 3T3
     
Attention:     Howard Anderson, President & Chief Operating Officer
 
Telephone:   (403) 781-7722
 
Fax:                         (403) 262-4472
   
To the Minister at:
Department of Energy
 
Bank of Montreal Building
 
5151 George Street, Suite 400
 
PO Box 2664
 
Halifax, NS  B3J 3P7
     
Attention:     Manager, Petroleum Resources
 
Telephone:   (902) 424-4575
 
Fax:                         (902) 424-8125
   
To the Registrar at:
Department of Natural Resources
 
1701 Hollis Street
 
P. O. Box 698
 
Halifax, NS B3J 2T9
     
Attention:     Registrar of Mineral and Petroleum Titles
 
Telephone:   (902) 424-8155
 
Fax:              (902) 424-7735

and on the Representative at the address specified in the Designation of
Representative filed with the Registrar.

 
(2)
Upon giving the other party thirty (30) days notice in writing, the Minister or
the Lessee may amend the address for service from time to time.

(3)           Notices may be served:

 
(a)
personally, and personally served Notices shall be deemed received by the
addressee when actually delivered; or

 
(b)
by fax directed to the party on whom they are to be served at that party’s
address for service.  Notices so served shall be deemed received by the
respective addressee thereof

 
(i)
when actually received by them if received within the normal working hours of a
business day, or

 
(ii)
at the commencement of the next ensuing business day following transmission
thereof, whichever is earlier.

GENERAL

25.
(1)
The Lessee acknowledges that the laws of Nova Scotia govern all matters relating
to this Lease, and the Lessee acknowledges and submits to the jurisdiction of
the courts of the Province of Nova Scotia.

 
 

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(2)
The Lessee shall comply with the provisions of

 
(a)
the Petroleum Resources Act, the Energy Resources Conservation Act,  the
Pipeline Act and the Gas Distribution Act, as amended, and

 
(b)
any other Acts of the Legislature of Nova Scotia that prescribe, apply to or
affect the rights and obligations of the Lessee’s petroleum rights, or that
relate to or affect the Lessee in the conduct of operations or activities under
this Lease.

 
(3)
In the event of conflict or inconsistency between a provision of this Lease and
a provision in the Act or Regulations, the latter provision prevails.

 
(4)
The Lessee agrees to waive and hereby waives all rights, prerogatives,
privileges and immunities that would otherwise exempt the Lessee from compliance
with any of the provisions of the Petroleum Resources Act or of any Acts of the
Legislature.

26.
All schedules, maps and attachments affixed hereto constitute and form part of
this Lease.

27.
The headings used in this Lease are inserted for convenience of reference only
and shall not affect the meaning of construction of any provision.

28.
This Lease represents the entire agreement between the parties respecting the
Lands and may be amended only in writing executed by both parties.

29.
Time shall be of the essence of this Lease.

30.
This Lease may be executed in several counterparts, each of which when so
executed shall be deemed to be an original, and such counterparts together shall
constitute one and the same instrument, and it shall not be necessary in proving
the same to produce more than one set of such counterparts.

CONSULTATION

31.
(1)
The Lessee agrees to participate in a consultation program with respect to the
Development Program proposed under this Lease, including any community based
committee established by the Minister.

 
(2)
The Lessee agrees to use reasonable efforts to identify aboriginal groups who
may have an interest in this proposed Petroleum project and establish contact
with them.

 
 

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IN WITNESS WHEREOF, these presents are duly executed on the part of the Province
in the name of the Minister and by the Lessee under its corporate seal by its
officers duly authorized in that regard.

DATED AT Halifax this 15th day of April, 2009.

   
HER MAJESTY THE QUEEN IN THE
RIGHT OF THE PROVINCE OF NOVA
SCOTIA
     
/s/ ALISON SCOTT
 
/s/ BARRY BARNET
Witness
 
Minister of Energy

DATED AT Halifax this 15th day of April, 2009.

   
ELMWORTH ENERGY CORPORATION
     
/s/ VAN PENNICK
 
/s/ J. HOWARD ANDERSON
Witness
 
Per
           
Witness
 
Per

 
 
 

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SCHEDULE I

Production Lease No.  PL #09-04-15-01
Kings, Hants, and Colchester Counties

Reference Map
 
Reservation
     
11 D 13 C
 
W
11 E 4 B
 
R S T U V W
11 E 4 C
 
R S T U V W
11 E 4 D
 
T U V W
11 E 5 A
 
R S T U V
11 E 5 B
 
R S U
21 A 16 C
 
U V*
21 A 16 D
 
T* U* V W*
21 H 1 A
 
R S* T U V W
21 H 1 B
 
R U* V
21 H 1 C
 
R
21 H 1 D
 
R S T U V

Total hectares (less excluded and submarine areas)
192,074 ha (more or less)

* Areas contain Water Supply Areas.  Notice of any work within the Water Supply
Area is to be provided to the Registrar prior to commencement.  Ground
disturbance activity within a Water Supply Area is to be conducted only with the
prior consent from the Department of Environment.

The following Sections are excluded from forming a part of the Agreement Lands
contained with this Schedule I

Reference Map
 
Reservation
 
Tract
 
Section
             
11 D 13 C
 
W
 
831
 
M+
11 D 13 C
 
W
 
841
 
F+G+H+J KL+O+P+ Q+
11 D 13 C
 
W
 
851
 
A+B+
11 D 13 C
 
W
 
1062
 
EFLM NO
11 D 13 C
 
W
 
1072
 
HJKP Q
11 E 4 B
 
S
 
102
 
CDEF
11 E 4 B
 
S
 
112
 
ABGH
11 E 4 B
 
S
 
113
 
L+M+N+O+ P+Q+
11 E 4 B
 
S
 
143
 
A+B+C+
11 E 5 A
 
T
 
604
 
N+
11 E 5 A
 
T
 
614
 
A+B+C+D EFGH JKLM NOPQ
11 E 5 A
 
T
 
624
 
E+F+G+J+ K+LMN OPQ
11 E 5 A
 
T
 
634
 
H+JK+L+ M+NOP Q
11 E 5 A
 
T
 
644
 
A+E+F+G+ HJKL MNOP Q
11 E 5 A
 
T
 
654
 
A+BC+D+ EFGH JKLM NOPQ
11 E 5 A
 
T
 
664
 
A+B+C+D+ EFGH JKLM NOPQ
11 E 5 A
 
U
 
535
 
M+
11 E 5 A
 
U
 
544
 
J+Q+
11 E 5 A
 
U
 
724
 
H+JK+L N+O+PQ
11 E 5 A
 
U
 
704
 
L+M+NO+ P+
11 E 5 A
 
U
 
694
 
J+K+L+M+ NOPQ
11 E 5 A
 
U
 
684
 
J+M+NO+ P+Q
11 E 5 A
 
U
 
674
 
D+E+F+G+ J+KLM NOPQ
11 E 5 A
 
V
 
734
 
ABCD+ EFGH JKLM NOPQ

 
 
 

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Reference Map
 
Reservation
 
Tract
 
Section
             
11 E 5 A
 
V
 
744
 
E+F+G+H+ J+KLM NOPQ
11 E 5 A
 
V
 
754
 
A+B+CD EFGH+ JKLM NOPQ
11 E 5 A
 
V
 
764
 
All Sections
11 E 5 A
 
V
 
774
 
All Sections
11 E 5 A
 
V
 
784
 
All Sections
11 E 5 A
 
V
 
91-96 incl4
 
All Sections
11 E 5 A
 
V
 
974
 
ABCD EFGH JKL+M+NO+P+Q+
11 E 5 A
 
V
 
984
 
ABCD EFGH J+KLM NO+P+Q+
11 E 5 A
 
V
 
99-1024
 
All Sections
11 E 5 B
 
R
 
294
 
M+N+O+P+
11 E 5 B
 
R
 
304
 
C+D+EF+ G+H+J+K LMNO PQ
11 E 5 B
 
S
 
104
 
N+
11 E 5 B
 
S
 
114
 
E+K+L+M+ NOP+Q+
11 E 5 B
 
S
 
124
 
C+D+EF+ G+H+JK LMNO PQ
11 E 5 B
 
S
 
13-14incl4
 
All Sections
11 E 5 B
 
S
 
154
 
A+B+C+D EFGH+ JKLM NOPQ
11 E 5 B
 
S
 
164
 
E+K+L+M+ NOPQ+
11 E 5 B
 
S
 
174
 
N+
11 E 5 B
 
S
 
314
 
A+B+C+E+F+GHJKL+M+NOPQ
11 E 5 B
 
S
 
324
 
C+D+EF+ G+H+J+K LMNO PQ
11 E 5 B
 
S
 
33-36incl4
 
All Sections
11 E 5 B
 
U
 
454
 
D+E+F+K+ L+MNO P+
11 E 5 B
 
U
 
444
 
A+B+CD EFGH JKLM NOPQ
11 E 5 B
 
U
 
434
 
All Sections
11 E 5 B
 
U
 
494
 
P+Q+
11 E 5 B
 
U
 
514
 
L+M+NO+ P+Q
11 E 5 B
 
U
 
524
 
A+B+CD EFGH+ J+KLM NOPQ
11 E 5 B
 
U
 
53-54incl4
 
All Sections
11 E 5 B
 
U
 
67-70incl4
 
All Sections
11 E 5 B
 
U
 
714
 
A+B+C+D+ EFGH JKLM NOPQ
11 E 5 B
 
U
 
724
 
D+
21 A 16 C
 
U
 
466
 
All Sections
21 A 16 C
 
U
 
476
 
All Sections
21 A 16 D
 
V
 
767
 
JKLM NOPQ
21 A 16 D
 
V
 
777
 
JKOP Q
21 A 16 D
 
V
 
927
 
ABCF GHJK LMNO PQ
21 A 16 D
 
V
 
937
 
BCDE FGHJ KLMN OPQ
21 A 16 D
 
V
 
947
 
EMNO
21 A 16 D
 
V
 
997
 
CDEF GM
21 A 16 D
 
V
 
1007
 
ABCD EFGH JMN
21 A 16 D
 
V
 
1017
 
ABCD FGHJ K
21 H 1 A
 
R
 
28
 
MNO
21 H 1 A
 
R
 
38
 
GHJK LNOP Q
21 H 1 A
 
R
 
198
 
AFGH JKLO PQ
21 H 1 A
 
R
 
20-21incl8
 
All Sections
21 H 1 A
 
R
 
228
 
ABCD EFGH JKLM NOP
21 H 1 A
 
R
 
278
 
CD
21 H 1 A
 
R
 
288
 
ABCD EFGH KLMN O
21 H 1 A
 
R
 
298
 
All Sections
21 H 1 A
 
R
 
308
 
ABHJ Q
21 H 1 A
 
S
 
359
 
N+
21 H 1 A
 
S
 
369
 
J+K+L+M+ N+O+P+Q+
21 H 1 A
 
T
 
379
 
A+BCD+ F+GHK
21 H 1 A
 
T
 
389
 
D+
21 H 1 B
 
R
 
259
 
J+Q+

 
 
 

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Reference Map
 
Reservation
 
Tract
 
Section
             
21 H 1 B
 
V
 
9310
 
J+K+P+Q+
21 H 1 B
 
V
 
9410
 
N+
21 H 1 C
 
R
 
14
 
E+F+G+H+ JKLM+ NOPQ
21 H 1 C
 
R
 
24
 
J+K+L+O+ P+
21 H 1 C
 
R
 
204
 
H+J+P+Q
21 H 1 C
 
R
 
214
 
D+E+FK+ L+MNO P+Q+
21 H 1 C
 
R
 
224
 
Q+
21 H 1 C
 
R
 
234
 
A+B+C+F+ GH+J+K L+N+OP Q
21 H 1 C
 
R
 
244
 
ABC+F+ G+HJK L+M+NO PQ
21 H 1 C
 
R
 
25-26incl4
 
All Sections
21 H 1 C
 
R
 
274
 
A+E+G+H+ JK+L+M+ NOPQ
21 H 1 C
 
R
 
284
 
A+BCD EFGH JKLM NOPQ
21 H 1 C
 
R
 
294
 
AB+F+G HJKL+ M+N+OP Q
21 H 1 D
 
S
 
104
 
M+N+
21 H 1 D
 
S
 
114
 
A+BCD EFGH+ J+KLM NOPQ
21 H 1 D
 
S
 
12-14incl4
 
All Sections
21 H 1 D
 
S
 
154
 
D+E+M+N+
21 H 1 D
 
S
 
3212
 
N+
21 H 1 D
 
S
 
3312
 
C+D+F+G+ H+J+Q+
21 H 1 D
 
S
 
3412
 
A+
21 H 1 D
 
S
 
344
 
D+EF+L+ MNO+
21 H 1 D
 
S
 
35-36incl4
 
All Sections
21 H 1 D
 
T
 
37-38incl4
 
All Sections
21 H 1 D
 
T
 
394
 
C+DEF+ L+MNO+ P+
21 H 1 D
 
T
 
4012
 
A+H+
21 H 1 D
 
T
 
4112
 
D+E+M+N+
21 H 1 D
 
T
 
5612
 
L+M+N+O+ P+
21 H 1 D
 
T
 
59-62incl4
 
All Sections
21 H 1 D
 
T
 
634
 
B+CDE FG+H+J+ KLMN OPQ
21 H 1 D
 
T
 
6512
 
A+B+H+
21 H 1 D
 
T
 
6612
 
E+F+G+
21 H 1 D
 
T
 
7011
 
JKPQ
21 H 1 D
 
T
 
7111
 
LMNO
21 H 1 D
 
U
 
7411
 
CDEF
21 H 1 D
 
U
 
7511
 
ABGH
21 H 1 D
 
V
 
914
 
C+D+EF+ G+H+J+K LMNO PQ
21 H 1 D
 
V
 
924
 
M+N+O+P Q
21 H 1 D
 
V
 
974
 
K+L+O+P+ Q+
21 H 1 D
 
V
 
98
 
B+C+D+G+ M+N+
21 H 1 D
 
V
 
99
 
A+B+E+F+G+H+J+K+LMNOPQ+
21 H 1 D
 
V
 
100
 
D+EF+G+ H+JKL MNOP Q
21 H 1 D
 
V
 
101
 
A+B+CD EFGH JKLM NOPQ
21 H 1 D
 
V
 
102
 
All Sections

+ portions of Section only
1 Department of National Defence Lands
2 Non-Mineral Registration No. 007
3 Smiley’s Provincial Park
4 Submarine lands
5 Anthony Provincial Park
6 Uranium Closure
7 Non-Mineral Registration No. 001
8 Non-Mineral Registration No. 002
9 Indian Reservation No. 35 - Horton
10 Grand Pré Historic Park
11 Mineral Lease No. 00-1
12 Cheverie Protected Beach

 
 

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SCHEDULE II

Development Program
Production Lease No.  PL#09-04-15-01

This schedule provides the details of the Development Program, revised from that
which was submitted as part of Elmworth’s Development Plan dated June 24
2008.  The first table is an updated Table 1-1 which outlines the minimum work
required prior to specific deadlines.  This table has been revised for
prevailing economic and operational conditions.  The second is a schedule of
estimated annual capital expenditures.
 
The total well count of ten has not changed from the Development Plan as
originally submitted.  Three of those wells had already been drilled prior to
the effective date, during the period in which the Development Plan was being
approved by the Department of Energy, leaving seven wells to be drilled within
the first five years of the lease.  The change from Elmworth’s original
submission is the need for an additional year to drill the remaining Kennetcook
wells, and two additional years for the remaining outlying wells.
 
Two more wells will be drilled in the Kennetcook area before the second
anniversary of the lease or the end of Phase I, approximately March 2011, and
the remaining 5 wells will be drilled in the outlying areas before the 5th
anniversary, or end of Phase II, approximately March 2014.
 
If wells are drilled sooner than outlined in the schedule, they will count
towards the final tally of wells required under this program.

 Revised Table 1-1
 Delineation Program Minimum Drilling Commitment
 
Area
 
Anniversary of
Effective Date
 
Minimum
Well
Commitment
per original
Table 1-1
   
Drilled
during
approval
process
   
Wells
remaining
 
Kennetcook
 
2nd
   
4
     
2
     
2
 
Stanley
 
5th
   
2
     
1
     
1
 
Avon
 
5th
   
2
     
0
     
2
 
Wolfville
 
5th
   
2
     
0
   
 
2
 
Total
       
10
     
3
     
7*
 

* These wells are to be drilled by the end of the 5th year of this lease
agreement

 
The second table shows estimated capital expenditures by calendar
year.   Although future costs may change, estimated year 1 capital of $2 million
is the value on which the initial 10% performance bond should be based. Note
that completion costs beyond year 1 are not included due to geologic uncertainty
of whether wells will be completed if successful versus abandoned if dry

 
 

--------------------------------------------------------------------------------

 
 
Estimated Annual Activity and Capital Expenditure to Satisfy Minimum Work
Commitment based
on Table 1-1

Prior to
Anniversary
 
Wells Drilled
   
Drilling
Capital
($million)
   
Wells
Completed
   
Completion
Capital
($million)
 
Seismic
Work
 
Seismic
Capital
($million)
   
Total
Capital
($million)
 
approval
period
(activity)
   
3
    $ 12.0       0.5     $ 4.0  
Processing
  $ 0.1     $ 16.1  
1st – 2010
   
0
    $ 0.0       2.5     $ 1.5  
110 km 2D
  $ 0.5     $ 2.0  
2nd – 2011
   
2
    $ 3.0       0 *   $ 0.0  
Processing
  $ 0.2     $ 3.2  
3rd - 2012
   
2
    $ 3.0       0 *   $ 0.0               $ 3.0  
4th – 2013
   
2
    $ 3.0       0 *   $ 0.0               $ 3.0  
5th – 2014
   
1
    $ 1.5       0 *   $ 0.0               $ 1.5  
Total
 Phase I & II
   
7
    $ 10.5       2.5     $ 1.5       $ 0.7     $ 12.7                          
                           
Grand total
   
10
    $ 22.5       3     $ 5.5       $ 0.8     $ 28.8  

Note:  Anticipated schedule of work may change based on geological results,
operational restrictions and annual access to capital funding.
 
Production Lease – Years Six through Ten
 
Within 60 days of the 5th anniversary of the Effective Date in 2014, the Lessee
shall submit to the Minister a revised Development Plan to describe its planned
activities for the five remaining years of the Lease.  This revised Development
Plan will review the results of the work program undertaken during the first
five years of the lease, and will provide an estimate of work expected to be
undertaken in the next five years.

 
 

--------------------------------------------------------------------------------

 

SCHEDULE III
Insurance
Production Lease  No.  PL#09-04-15-01

1. Commercial General Liability Insurance
    

This insurance will include the following provisions:

(a) policy limit of liability of at least Five Million Dollars ($5,000,000.00)
per occurrence (can be structured as primary plus supplemental layers, or
primary plus umbrella and/or excess);

(b) products hazards and completed operations coverage subject to separate
annual aggregate limits equal to the policy limit of liability;

(c) personal injury liability;

(d) blanket written and oral contractual liability;

(e) contingent employer’s liability;

(f) broad form occurrence property damage;

(g) non-owned automobile liability;

(h) tenants legal liability (broad form);

(i) cross-liability and separation of interest with respect to each insured;

(j) insurer must give ninety (90) days prior written notice of cancellation of
or material change to the policy to the Province and the Lessee;

(k) primary insurance without right of contribution of any other insurance
carried by the Province.

(l) Environmental Impairment Liability (may be on a separate policy and may be
issued on “claims made” basis).

2. Automobile Liability Insurance

Automobile Liability Insurance shall insure all licensed vehicles owned, or
operated by the Lessee.  This insurance will include the following provisions:

(a) policy limit of liability of at least Two Million Dollars ($2,000,000.00)
per occurrence (can be structured as primary plus supplemental layers, or
primary plus umbrella and/or excess);

(b) insurer must give ninety (90) days prior written notice of cancellation of
or material change to the policy to the Lessee and the Province;

(c) the Lessee shall ensure that all subcontractors have Automobile Liability
Insurance in the amount of Two Million Dollars ($2,000,000.00) per occurrence
with a maximum deductible of Fifty Thousand ($50,000.00) per occurrence.

3.  Workers’ Compensation Insurance

(a) Workers’ Compensation Insurance shall be maintained for the Lessee’s
employees in accordance with the requirements of the laws of the Province of
Nova Scotia.  The Lessee must ensure that evidence of coverage required by law
is provided by all subcontractors.

 
 

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SCHEDULE IV
Additional Terms and Conditions
Production Lease  No.  PL#09-04-15-01

The Approval in Principle, of the Production Lease will be in a phased approach
for the 10-year term of the Production Lease; with the following structural
breakdown:

Phase One – Two (2) Years from the Effective Date
Phase Two – Up to the fifth (5th) Anniversary Date
Phase Three – To the end of the initial term

The additional conditions identified are:

Condition 1
 
A Water Disposal Plan will be developed on or before the second Anniversary Date
of the Lease, the Lessee must file a water disposal plan, acceptable to the
Minister of Energy that will address large scale water disposal.
     
Condition 2
 
On each Anniversary Date of the Lease the Lessee must present, in a form
acceptable to the Minister, a detailed technical report and presentation that
addresses reservoir characteristics, well productivity, recovery factors,
completions and any reservoir updates of the project as prescribed by the
Minister.
     
Condition 3
 
On each Anniversary Date of the Lease the Lessee will provide, in a form
acceptable to the Minister, a report on the economic benefits of the project in
terms of local goods and services used and procurement opportunities for Nova
Scotians.
     
Condition 4
 
The Lessee must adhere to the requirements of the Environment Act for all work
proposed under the approved Development Program.
     
Condition 5
 
Following the completion of each of Phases One and Two of the Development
Program, the Minister and the Lessee will complete a technical evaluation of the
focused lands (as described in the Development Program), and if, in the opinion
of the Minister the technical information does not establish possible reserves
in the focused area  then at the request of the Minister, the Lessee shall
surrender to the Minister such portions of the focused area lands as determined
by the Minister.
     
Condition 6
 
Following the completion of each of the first two milestones of the Development
Program, the Minister will assess, based upon the Lessee's reporting of its
activities to prove reserves, whether on the basis of those activities, any
Lands other than the focused area lands should be surrendered. At the request of
the Minister, the Lessee shall surrender to the Minister such portions of the
Lands as determined by the Minister on this basis.
     
Condition 7
 
The Lessee must file an abandonment and reclamation program, acceptable to the
Minister of Energy on or before the fifth Anniversary Date of the Lease.
     
Condition 8
 
The Lessee agrees to participate in a consultation program with respect to the
Development Program proposed under this Lease, including any community based
committee established by the Department. The Lessee agrees to use reasonable
efforts to identify aboriginal groups who may have an interest in this proposed
natural gas project and establish initial contact with them. As the Department
is consulting with the aboriginal community respecting this Lease, the Lessee
will work with the Department to discharge this duty.

 
 

--------------------------------------------------------------------------------

 

SCHEDULE V
Well Termination Guidance
Production Lease  No.  PL#09-04-15-01

PART 6
WELL TERMINATION
Suspension or Abandonment
57. The licensee shall ensure every well and facility is abandoned in accordance
with an abandonment plan that has been submitted to and approved by the Chief
Operations Officer and the Chief Environmental Officer.

58. The licensee shall ensure every well that is abandoned or suspended
(a) can be readily located,
(b) is left in a condition that prevents any formation fluid from flowing
through or
escaping from the well bore and that provides for isolation of all
(i) petroleum bearing zones,
(ii) discrete pressure zones, and
(iii) potable water zones, and
(c) is monitored and inspected to maintain its continued integrity and to
prevent pollution.

Responsibility to Abandon
59. (1) If the licensee fails to abandon a well or facility in compliance with
section 58, the Chief Operations Officer may by order direct that the well be
abandoned in accordance with the regulations by the owners of the working
interests in the well or by any one or more of those owners and shall specify in
the order the deadline for compliance.
(2) The Chief Operations Officer may order that a well or facility be abandoned
at Government expense if the licensee fails to abandon the well or facility
pursuant to section 58 and the owners of the working interests in the well or
facility fail to comply with an order to abandon the well or facility issued
under subsection (1).
(3) Where the Government incurs abandonment costs in respect of a well or
facility as a result of an order under subsection (2), the Government may
recover those abandonment costs from the security deposit held for that well or
facility.
(4) If the security deposit is insufficient to cover the abandonment costs
(a) subject to paragraph (b), the owners of the working interests in the well or
facility are primarily liable to the Government for the abandonment costs in
proportion to the respective percentage shares of those working interests;
(b) where the owner or any one or more of the owners of a working interest is a
corporation,
(i) the owner or owners of the working interest, and
(ii) the person or persons who control that corporation, are jointly and
severally liable to the Government for the portion of the abandonment costs that
is proportionate to the percentage share of that working interest.
(5) If the Government is unable to recover that portion of abandonment costs of
a well from the owners of the working interest and any other persons referred to
in subsection (2), the Government may recover any remaining unpaid amount from
the holder of the petroleum lease where the well was drilled.

Drilling Rig Removal
60. No person shall remove or have removed a drilling rig from a well drilled
under these Regulations, unless the well has been terminated in accordance with
these Regulations.

 
 

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