Strachan Participation and Farmout Agreement

made as of September 23, 2005
 
Between:
 
   ODIN CAPITAL Inc., a body corporate having an office at Calgary, Alberta
("Farmor")
 
 - and -
 
    Delta Oil and Gas Inc., a body corporate having an office at Vancouver ,
B.C. ("Farmee")
 

 
Whereas Farmor has the right to participate in a Leduc formation test well
located in Section 9, Township 38, Range 9, West of the 5th Meridian ("Section
9"); and
 
Whereas Farmee wishes to participate for four percent (4.000%) share of the
costs of drilling a test well into the Leduc formation under Section 9; and
 
Now Therefore In Consideration of the premises hereto and the mutual covenants
and agreements herein set forth, This Agreement Witnesseth:
 
 
Definitions
 
1.1  In this Agreement the words and phrases which are defined terms in the
Farmout Procedure shall, provided that they are not inconsistent with the
definitions set forth in this Agreement, have the meanings ascribed to them in
the Farmout Procedure and, in addition thereto, the following words and phrases
shall have the meanings hereinafter ascribed to them:
 
"Area of Mutual Interest" means section 8-38-9-W5M.
 
"Contract Depth" means a depth sufficient to penetrate thirty (30) meters into
the Leduc formation or a depth of Four Thousand and fifty (4,050) meters
subsurface, whichever shall be the lesser.
 
"Earning Well" means the well to be drilled at 14 of 9-38-9-W5M.
 
"Farmin Interest" means four percent (4.000%) farmin cost interest Farmee has
agreed to pay with respect to the drilling of the Earning Well.
 
"Farmout Lands" means the lands and leases more particularly described in
Schedule "A" attached hereto.
 

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"Farmout Procedure" means those portions of the 1997 CAPL Farmout and Royalty
Procedure which are adopted by this Agreement, the elections for which are more
particularly set forth in Schedule "B" attached hereto.
 
"Operating Procedure" means a standard 1990 CAPL operating procedure and 1988
PASWC Accounting Procedure encompassing the rates and elections set forth in the
attached Schedule “D”.
 
"Strachan AFE" means the authority for expenditure generated by Farmor with
respect to the drilling of the Earning Well, a copy of which is attached as
Schedule "C".
 
1.2  The following Schedules are attached to and incorporated as part of this
Agreement:
 
Schedule "A" - Farmout Lands
 
Schedule "B" - Elections for Farmout Procedure
 
Schedule "C" - Strachan AFE
 
Schedule “D” - Elections for Operating Procedure
 
1.3  In the event of a conflict between a provision or term of the Agreement and
a provision or term of the Operating Procedure or a provision or term of a
Schedule, the provision or term of this Agreement shall prevail.
 
ARTICLE 2
 
Application of Farmout Procedure
 
2.1 The following provisions of the Farmout Procedure shall apply:
 
Clauses 1.01 Definitions and 1.02 Incorporation of Provisions from 1990 CAPL
Operating Procedure;
 
Article 2.00 - Title and Encumbrances;
 
Article 5.00 - Overriding Royalty;
 
Article 6.00 - Conversion of Overriding Royalty;
 
Article 8.00 - Area of Mutual Interest;
 
Article 11.00 - Land Maintenance Costs;
 
Article 12.00 - Assignment;
 
Article 15.00 - Dispute Resolution; and
 
Article 16.00 - Goods and Services Taxes.

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ARTICLE 3
 
Farmout Provisions
 
3.1 The Farmor anticipates that the Earning Well will be Spudded on or before
October 15, 2005 The parties hereto acknowledge that the operator of the Earning
Well is Rosetta Exploration Inc. (hereinafter referred to as the “Operator”).
 
3.2 The Farmee acknowledges receipt of a copy of the Strachan AFE and approves
the drilling and casing or Abandonment of the Earning Well based upon the
Strachan AFE. The Farmee agrees to participate and pay for its Farmin Interest
share of the costs of drilling the Earning Well to Contract Depth and, subject
to the provisions herein set forth, its Farmin Interest share of the costs of
the Completion, Capping or Abandonment of the Earning Well. The Farmee shall,
provided that it elects to participate in the Completion and Equipping of the
Earning Well, be responsible to pay its Farmin Interest share of all subsequent
authorities for expenditure and costs which relate to the Completion and
Equipping of the Earning Well. The Operator has arranged blow out insurance with
respect to the Earning Well and has included the Farmor and Farmee in the
coverage. The cost of the blow out insurance is in addition to the costs shown
on the Strachan AFE and the Farmee agrees to pay its Farmin Interest share of
such costs. Farmee will pay a cash call advance to Farmor of one hundred and ten
percent (110%) of its Farmin Interest share of the costs shown on the Strachan
AFE as well as the estimated costs of the blowout insurance, both of which are
to be received by Farmor six (6) days before the drilling rig begins to move.
The anticipated commencement date for the drilling rig to move is October 1,
2005. The Farmor will immediately advise the Farmee of any change in the date.
If payment of the cash call is not received by the Farmor within the time set
forth above then, at the Farmor’s option, this Agreement will be terminated and
of no force and effect.
 
3.3 The Farmor shall provide notice to the Farmee with respect to the Spudding
of the Earning Well.
 
3.4 If the Earning Well has been drilled to Contract Depth and if Petroleum
Substances are not reasonably anticipated to be present in Paying Quantities
from any zone in the Earning Well, the Farmor shall promptly comply with the
provisions of Article 4.
 
3.5 If the Earning Well has been drilled to Contract Depth and if Petroleum
Substances from any zone in the Earning Well are reasonably anticipated to be
present in Paying Quantities, the Farmor will advise the Operator of the Farmor
and Farmee’s desire to set production casing and participate in Production
Tests. However, if those Petroleum Substances are composed predominantly of
natural gas and the Operator intends to Cap the well and to delay those
Production Tests, the Farmor must give notice to the Farmee of that intention
and the reasons for that proposed delay upon receipt of same from the Operator.
Unless the Farmee reasonably objects to that proposed delay within three (3)
days of the receipt of that notice, the Farmor may advise the Operator that it
may Cap the Earning Well, in which case the Operator will conduct those tests on
or before the later of the second (2nd) anniversary date of the Earning Well
drilling rig release or as soon as practicable after an economic market for the
affected Petroleum Substances becomes available, provided that any dispute
respecting the reasonableness of the
 
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 Farmee's objection to that proposed delay or the availability of an economic
market will be resolved pursuant to Article 15 of the Farmout Procedure. If the
Operator has not conducted those Production Tests within two (2) years of the
drilling rig release of the Earning Well, the Operator will, at the end of that
year and every two (2) years thereafter until the Operator has conducted those
tests, give notice to the Farmee of an intention to delay further the conduct of
the Production Tests and the reasons for that proposed delay, in which case the
preceding sentence will apply mutatis mutandis to each such notice. When the
Operator has conducted those Production Tests, the Operator will Complete or
Abandon the Earning Well as soon as practicable.
 
3.6 If the Operator encounters mechanical difficulties or impenetrable
formations that, in the Operator's reasonable opinion, make further drilling of
the Earning Well impractical prior to attaining the Contract Depth, the Operator
will immediately give notice to the Farmor of those circumstances and the
Operator's intention to Abandon the Earning Well. The Farmor shall immediately
provide such notice to the Farmee. The Operator will Abandon that well subject
to Article 4, provided that the first sentence of Clause 4.1 will not apply if
the Farmor and Farmee earn an interest in the Farmout Lands by virtue of a
substitute well. If the Operator elects to Spud a substitute Earning Well on the
Farmout Lands it shall provide notice of its intention, which notice shall
include a description of the proposed location, the proposed date of Spudding,
and an updated authority for expenditure with respect to the costs of drilling
and setting of casing or abandonment of the Earning Well. This notice will be
immediately provided to the Farmee by the Farmor. The Farmee shall have fifteen
(15) days from receipt of the Operator's notice to drill the substitute well to
elect whether or not it wishes to participate in the substitute well as to its
Farmin Interest. If it does not advise the Farmor that it elects to participate
within fifteen (15) days of the receipt of the notice of drilling the substitute
well then it will be deemed to have elected not to participate in the substitute
well and no earning shall have occurred and this Agreement shall be terminated
and of no force and effect. If it elects to participate all rights and
obligations applicable to the Earning Well will apply in the same manner to the
substitute well.
 
3.7 If the Earning Well has been drilled to Contract Depth and Completed, Capped
or Abandoned and the Farmee is not in default of any of its obligations with
respect to the Earning Well, it will have earned:
 
(a )  in the Spacing Unit for the Earning Well:
 
i)  a 2.000% interest in the petroleum and natural gas below the base of the
Mannville excluding natural gas in the Leduc formation; and
 
ii)  a 4.000% interest in the natural gas in the Leduc formation before payout
subject to payment of the Overriding Royalty which is convertible upon payout at
royalty owners option to 50% of the Farmee’s Interest; and
 
(b)  a 1.600% interest in the rights below the base of the Shunda formation in
Section 10, Township 38, Range 9W5M.
 
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(c)  a 1.289% interest in the rights below the base of the Shunda formation in
Sections 15 and 16, Township 38, Range 9W5M. down to the base of the deepest
formation penetrated.
 
The Operator shall pay all royalties with respect to the Farmin Interest which
attach to the interest earned by the Farmee on the Spacing Unit for the Earning
Well as shown in Schedule "A" hereto.
 
3.8 If the Earning Well is Capped and the Farmee participates in the Capping
then the Farmee shall pay its Farmin Interest share of all costs and expenses
required to finish Completing or Abandoning the well.
 
3.9 If the Farmee participates in the completion of the Earning Well then the
Farmee shall also pay its Farmin Interest share of the costs and expenses to
Equip the Earning Well to place the well on production.
 
3.10 If transportation, compression, processing or other facilities are required
to produce Petroleum Substances from the Earning Well, then, after consultation
with the Farmee, the Farmor shall provide to the Farmee an authority for
expenditure and a cash call with respect to its Farmin Interest. If the Farmee
does not pay a cash call in full at least ten (10) days prior to the start of
construction operations relating to the operation set forth in the applicable
authority for expenditure, Farmee will be deemed to have elected to not
participate in the operation described in the authority for expenditure. If the
Farmee elects or is deemed to have elected not to participate in the
construction of a facility, then the owner of the facility will charge the
Farmee a fee for the use of the facility.
 
3.11 Prior to December 31, 2006 no party shall be entitled to propose any
independent operation pursuant to Article X of under the Operating Procedure
which applies between the parties with respect to any of the Farmout Lands in
which the Farmee has earned an interest ("Joint Lands"). Provided however that
if, after consultation with the other party, one but not both parties wishes to
drill a well ("Drilling Party") on the Joint Lands, then it shall provide a
written notice ("Drilling Notice") to the other party ("Receiving Party") which
shall set forth:
 
the location and target depth of the well,
 
the estimated costs to drill and case or Abandon the well,
 
the anticipated Spud date for the well, and
 
a copy of the proposed drilling and completion program for the well.
 
The Receiving Party shall have twenty (20) days after receipt of the Drilling
Notice to advise the Drilling Party whether or not it wishes to participate in
the drilling of the well. Failure to advise the Drilling Party of its election
within the twenty (20) day period will be deemed to be an election not to
participate in the well. If the Receiving Party elects or is deemed to have
elected not to participate, then the Receiving Party will be deemed to have
farmed out its interest to the Drilling Party and the Drilling Party will upon
the drilling of the well at the location and to the depth set forth in the
Drilling Notice have earned one hundred percent (100%) of the Receiving
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Party's interest in the drilling Spacing Unit for the well subject to the
reservation of the Overriding Royalty. If the well is not spudded within ninety
(90) days of the receipt of the Drilling Notice by the Receiving Party, then the
well shall not be spudded unless another Drilling Notice is delivered to the
Receiving Party.
 
3.12 The parties acknowledge that the Farmor has also executed a Farmout and
Participation Agreement with the Operator relating to the Farmout Lands. The
parties further acknowledge that the Operator has entered into a joint venture
and farmout agreements with third party entities ("Third Party Entities")
whereby Third Party Entities have agreed to participate in the drilling of the
Earning Well and accordingly the Farmor and the Operator are obligated to
provide notice to Third Party Entities if it wishes to set casing in the well
and conduct Production Tests or if it wishes to Abandon the Earning Well. If the
Operator wants to Abandon the Earning Well but any or all of Farmor, Farmee, and
Third Party Entities wish to take over the Earning Well then each of the Farmor,
Farmee, and the Third Party Entities shall be entitled to acquire the interest
owned by the Operator in the Earning Well which shall be shared proportionally
between or among the Third Party Entities who elect to take over the well, on
the basis that their participating interests relate to one another.
 
3.13 If the Operator decides to Abandon the Earning Well and none of the Farmor,
Farmee or Third Party Entities elect to take over the Earning Well, then the
well will be Abandoned and the Farmee shall pay its Farmin Interest share of the
Abandonment costs.
 
3.14 The Area of Mutual Interest will apply until December 31, 2007, the
provisions of Article 8 in the Farmout Procedure shall apply and the Farmee
shall be entitled to participate in the Area of Mutual Interest as to an
undivided 2.464% interest. If the Farmee does not earn an interest in the
Farmout Lands then the Area of Mutual Interest will terminate as of the date
that the Farmee's right to earn an interest terminates.
 
3.15 In the event that the Operator serves a supplemental Authorization for
Expenditure covering cost overruns on the Earning Well, the supplemental AFE
shall be immediately forwarded to the Farmee with a cash call. If payment of the
cash call is not received in full by the Farmor on or within twenty (20) days
from receipt by Farmee, the Farmee shall be deemed to have elected to not
participate in the operation and any interest to be earned or rights granted
hereunder shall be forfeited and this Agreement shall be terminated and of no
force and effect.
 
ARTICLE 4
Abandonment of Wells
 
4.1 If the Earning Well has been drilled to Contract Depth, but the Earning Well
is not Completed and no Operating Agreement applies between the Farmor and the
Farmee with respect to the Earning Well, the Farmor shall give notice to the
Farmee if the Farmor intends to Abandon that Earning Well. If, within twelve
(12) hours following the Farmee's receipt of that notice and information from
the Farmor when a rig is located on the wellsite, or within ten (10) days of the
Farmee's receipt of that notice and information in any other case:
 
(a)  the Farmee fails to reply to the Farmor or gives notice to the Farmor that
it consents to the Abandonment of that well, the Farmor will promptly advise the
 
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  Operator to abandon the wellbore of that well and conduct its reclamation work
in a timely manner;
 
(b) the Farmee gives notice to the Farmor that it wishes to take over that well,
the Farmor will, effective as of the date of the Farmee's election to take over
that well and subject to the provisions of Clause 3.12 of this Agreement, assign
that well (including the material equipment and surface access rights relating
solely thereto that the Farmee wishes to use) to the Farmee, without warranty.
The Farmor will be released from all obligations and liabilities accruing for
the property assigned to the Farmee pursuant to this Clause following that
assignment. However, that assignment will not release the Farmor from any
liability that may have accrued to it prior to that assignment.
 
4.2 If the Farmee takes over a well pursuant to this Article, the Farmee will
Complete or Abandon the well at its own cost and expense and it will save
harmless the Farmor from all costs and expenses relating to the Abandonment of
the Well.
 
4.3 If the Farmee successfully Completes the well in a zone originally contained
in the Farmout Lands, the Farmor will assign to the Farmee, without warranty,
the Farmor's Working Interest in the Spacing Unit for that well in only the
zone(s) Completed by the Farmee and the Petroleum Substances therein, effective
as of the date of the Farmee's election to take over that well. That assignment
will not release the Farmor from any obligation that should have been performed
by it or any liability that may have accrued to it prior to that assignment. If
the Farmee does not Complete the well in a zone originally contained in the
Farmout Lands, the Farmor will not be required to make an assignment to the
Farmee pursuant to this Clause.
 
4.4 From and after the effective date referred to in Clause 4.3, the Operating
Procedure will apply mutatis mutandis to the Farmee Parties respecting a well
taken over pursuant to Clause 4.4 and the applicable zone(s) of the Spacing
Unit, provided that the Overriding Royalty will not be payable for that well
until such time as the production penalty prescribed by the Operating Procedure
for that operation is recovered or ceases to apply. At that time, each Farmee
Party that elected not to participate in the takeover of that well may elect to
convert to a Working Interest in that well on the same basis as is provided in
Article 6.00 of the Farmout Procedure. The Farmee Parties will appoint one of
them to be the initial Operator under the Operating Procedure. If no Operating
Procedure is included in the Agreement, the term "Operating Procedure" in this
Clause means the standard form 1990 CAPL Operating Procedure and as an
attachment thereto the standard form 1988 PASC Accounting Procedure, with those
rates and elections as the Farmee Parties taking over that well may negotiate at
the required time.
 
4.5 The provisions of this Article will apply in the same manner to any Royalty
Well on the Royalty Lands that is not an Earning Well, subject to the following
conditions:
 
(a) the Royalty Owner only has the right to take over that Royalty Well if it
then retains a right to convert its Overriding Royalty to a Working Interest in
an Earning Well under Article 6.00; and
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(b) the Royalty Owner does not have the right to elect to take over that Royalty
Well until the Parties holding Working Interests in that well have all elected
to Abandon that well.
 
ARTICLE 5
Miscellaneous
 
5.1 This Agreement shall, in all respects, be subject to and be interpreted,
construed and enforced in accordance with the laws in effect in the Province of
Alberta. Each party hereto irrevocably accepts and submits to the exclusive
jurisdiction of the courts of the Province of Alberta and all courts of appeal
therefrom.
 
5.2 Time shall be of the essence of this Agreement.
 
5.3 The address for notices of each of the parties hereto shall be as follows:.
 
Farmor: Odin Capital Inc.
P.O Box 36007
Lakeview RPO - 6449 Crowchild Trail S.W.
Calgary, Alberta T3E 7C6
Attention: Matthew Philipchuk

Fax: (403) 246-7935
 
Farmee: Delta Oil and Gas Inc.
Suite 300 - 1055 West Hastings Street
Vancouver , B.C. V6E 2E9
Attention: Douglas Bolan

Fax: 
 
Any of the parties hereto may from time to time change its address for service
herein by giving written notice to the other parties hereto. Any notice may be
served by personal service upon a party hereto or by mailing the same by prepaid
post in a property addressed envelope addressed to the party hereto at its
address for service hereunder. Any notice given by service upon a party hereto
shall be deemed to be given on the date of such service and any notice given by
mail shall be received by the addressee when actually received. Any notice may
be served by instantaneous electronic means to the number for notice herein set
forth. Any notice given by service upon a party and any notice given by
instantaneous electronic means shall be deemed to be given to and received by
the addressee on the day (except Saturdays, Sundays, statutory holidays and days
which the offices of the addressee are closed for business) of service or after
the sending thereof with appropriate answerback acknowledgment, provided it was
sent before 2:00 p.m.; otherwise it shall be deemed to be received the next
following business day.
 
5.4 This Agreement may be amended only by written instrument signed by all
parties hereto.
 
5.5 The Farmor shall be entitled to transfer and assign a portion of its
interest to a third party provided however that:
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(a) prior to earning the Farmor will only look to the Farmee for performance;
and
 
(b) after earning the Farmee may assign its interest with the consent of the
Farmor which consent will not be unreasonably withheld.
 
5.6 This Agreement shall be binding upon and shall enure to the benefit of the
parties hereto and their respective successors.
 
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
date first above written.
 
ODIN CAPITAL INC.
 
Per: /s/ Matthew Philipchuk

 
Delta Oil and Gas Inc.
 
Per: /s/ Douglas Bolen 

Per:  

 
This is the signature page attached to and forming part of a Farmin
Particiaption Agreement dated September 23, 2005 between Odin Capital Inc. and
Delta Oil and Gas Inc. (Strachan Area, Alberta)

 

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- -

Schedule "A"
attached to and forming part of the Strachan Participation and Farmout Agreement
made as of September 23, 2005 between Odin Capital Inc. and Delta Oil and Gas
Inc.

Farmout Lands

(This Schedule consists of 2 pages, including this page)

 
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FARMOUT LANDS
 

 
Title Documents
 
Lands
Farmee’s
Earned WI*
and Owned
WI
 
Encumbrances
 
Crown P&NG Licence
No. 5596020176
 
 
Twp. 38 Rge. 9 W5M Sec 9
Natural Gas in the Leduc
 
 
4.000%BPO
2.000%APO
 
 
1) Crown S/S
2) 3.5% NCGORR to Calgary International Energy
3) *5.0% NCGORR to Northrock and TKE (APO only)
4) 12% ORR to Rosetta convertible at payout
 
Crown P&NG Lease
No. 0604120298
 
 
Twp. 38 Rge. 9 W5M Sec 9
P&NG below the base of the Mannville excluding natural gas in the Leduc
 
 
2.000%
 
 
1) Crown S/S
2) 3.5% NCGORR to Calgary International Energy
3) *5.0% NCGORR to Northrock and TKE (APO only)
 
Crown P&NG Licence
No. 5596020176
 
 
Twp. 38 Rge. 9 W5M Sec 10
P&NG below base Shunda
 
 
 
 
1.600%
 
 
1) Crown S/S
2) 3.5% NCGORR to Calgary International Energy
3) *5.0% NCGORR to Northrock and TKE (APO only)
 
 
Crown P&NG Licence
No. 5596020176
 
 
Twp. 38 Rge. 9 W5M Sec 15 & 16
P&NG below base Shunda
 
 
 
 
 
1.289%
 
 
1) Crown S/S
2) 3.5% NCGORR to Calgary International Energy
3) *5.0% NCGORR to Northrock and TKE (APO only)

 
* Contingent on Farmor earning under the Northrock Farmout Agreement.

 
198033\680387.v3 

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- -

Schedule “B”
attached to and forming part of the Strachan Participation and Farmout Agreement
made as of September 23, 2005 between Odin Capital Inc. and Delta Oil and Gas
Inc.

 

Elections for Farmout Procedure

 

(This Schedule consists of 2 pages, including this page)

198033\680387.v3 

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- -
 
 
1997 CAPL FARMOUT & ROYALTY PROCEDURE
ELECTION SHEET

1. Effective Date (Subclause 1.01(f)) - September 23, 2005
2. Payout (Subclause 1.01(t), if Article 6.00 applies) -  Alternate - A

3. Incorporation of Clauses from 1990 CAPL Operating Procedure (Clause 1.02)*
(i) Insurance (311) Alternate - A

4. Article 4.00 (Option Wells) will apply

5. Article 5.00 (Overriding Royalty) will apply

6. Quantification of Overriding Royalty (Subclause 5.01A, if applicable)

(i) Crude Oil  (a) - Alternate  1 - 12%

(ii) Other        (b) - Alternate  1 - 12%

7. Permitted Deductions (Subclause 5.04B, if applicable) - Alternate 1

8.  Article 6.00 (Conversion of Overriding Royalty) will apply
If Article 6.00 applies, conversion will be to:

 
(a)
50% of original interest

9. Article 8.00 (Area of Mutual Interest) will apply

10. Reimbursement of Land Maintenance Costs (Clause 11.02) will not apply

 

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- -

Schedule “C”
attached to and forming part of the Strachan Participation and Farmout Agreement
made as of September 23, 2005 between Odin Capital Inc. and Delta Oil and Gas
Inc.

 

 
Strachan AFE

 

(This Schedule consists of 2 pages, including this page)
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chartfinal [chartfinal.jpg]

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Schedule “D”
attached to and forming part of the Strachan Participation and Farmout Agreement
made as of September 23, 2005 between Odin Capital Inc. and Delta Oil and Gas
Inc.

 

Operating Procedure and Accounting Procedure Elections

(This Schedule consists of 2 pages, including this page)

 
 
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1990 C.A.P.L. OPERATING PROCEDURE
 

Clause 311: INSURANCE: Alternate A

Clause 604:  MARKETING FEE: Alternate A  

Clause 903:  CASING POINT ELECTION: Alternate A  
 
Clause 1007:  PENALTY WHERE INDEPENDENT WELL RESULTS IN PRODUCTION:
Development Wells  300%
Exploratory Wells     500% 

Clause 1010(a)(iv): TITLE PRESERVING PERIOD:  180 days

Clause 2401: DISPOSITION OF INTERESTS: Alternate A

1988 P.A.S.C. ACCOUNTING PROCEDURE

Clause 105: OPERATING FUND: 10%

Clause 110: APPROVALS: 2 or more totalling 65%

Clause 202(b): Not Chargeable

Clause 203(b): Employee Benefits: 25%

Clause 205(b): ENGINEERING AND/OR DESIGN: Delete in its entirety.

Clause 217 2.5% for tubular goods 50.8 mm and over and other items with new
price over $5,000
5% of the cost of all other material

Clause 302: OVERHEAD RATES:
 
(A) Exploration Project      (D) OPERATIONS AND MAINTENANCE

 
(1) 5% of first $50,000                           (1) 10% of Cost; and

(2) 3% of next $100,000      (2)  $125 for Producing Well per month
(3) 1% of excess  
 (B) Drilling Well 
(1) 3% of first $50,000 
(2) 2% of next $100,000; 
(3) 1% Excess 
(C) Construction 

 
(1) 5% of first $50,000

(2) 3% of next $100,000 
(3) 1% Excess   
Subclauses 302(e)(2) or 302(e)(3): shall not. be adjusted

Pricing of Joint Material Purchases, Transfers and Dispositions: $25,000 for
requiring approval

Inventories by Operator at 5 year intervals or upon the request of a Non
Operator.