**Exhibit 10.2**

 

**AMENDED AND RESTATED NET PROFIT INTERESTS AGREEMENT**

** **

 

**MADE AS OF SEPTEMBER 2, 2003**

** **

 

**BAYTEX ENERGY LTD.**

 

**AND**

 

**BAYTEX ENERGY TRUST**

 

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**TABLE OF CONTENTS**

 
| Article 1 INTERPRETATION                     |   |
|---------------------------------------------------|--------|
|                                              | 1.1    | Definitions |   |
|                                              | 1.2    | Number and Gender |   |
|                                              | 1.3    | References |   |
|                                              | 1.4    | Choice of Law |   |
|                                              | 1.5    | Attornment |   |
|                                              | 1.6    | Monetary Sums |   |
|                                              | 1.7    | Meaning of “including” |   |
|                                              | 1.8    | Legal  Fees |   |
|                                              | 1.9    | 1990  CAPL Terms |   |
|                                              | 1.10   | Effective Time |   |
| Article 2  NET PROFIT INTEREST               |   |
|                                              | 2.1    | Grant  of NPI |   |
|                                              | 2.2    | Payment for NPI |   |
|                                              | 2.3    | NPI |   |
|                                              | 2.4    | Ownership of Production |   |
|                                              | 2.5    | Petroleum  Substances Lost or Used in Operations |   |
|                                              | 2.6    | Not an Interest In Land |   |
|                                              | 2.7    | Reimbursement  of Non-Deductible Crown Royalties |   |
|                                              | 2.8    | Future Acquisitions |   |
| Article 3  ACCOUNTING                        |   |
|                                              | 3.1    | Payments |   |
|                                              | 3.2    | Statements |   |
|                                              | 3.3    | Overpayments |   |
|                                              | 3.4    | Collection  of Production Revenues and Residual Revenues |   |
|                                              | 3.5    | Payment of Production Costs |   |
|                                              | 3.6    | Trust Expenses |   |
| Article 4  INSURANCE                         |   |
|                                              | 4.1    | Maintenance |   |
| Article 5  BOOKS AND RECORDS                 |   |
|                                              | 5.1    | Examination |   |
|                                              | 5.2    | Audit |   |
|                                              | 5.3    | Confidentiality |   |
| Article 6  OPERATIONS                        |   |
|                                              | 6.1    | Generally |   |
|                                              | 6.2    | No Obligation to Develop |   |
|                                              | 6.3    | Rights and Obligations |   |
|                                              | 6.4    | Marketing |   |
|                                              | 6.5    | Additional  Title and Operating Documents |   |
|                                              | 6.6    | No Other Business |   |
|                                              | 6.7    | Credit Facilities  Subordination |   |
|                                              | 6.8    | Borrowing |   |
|                                              | 6.9    | Carry  Forward of Deductible Production Costs |   |
| Article 7  RECLAMATION FUND AND RESERVE fund |   |
|                                              | 7.1    | Establishment |   |
|                                              | 7.2    | Contributions to  the Reclamation Fund |   |
|                                              | 7.3    | Reserve  Fund |   |

 

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|                                                            | 7.4    | Use of Reclamation Fund                                                         |   |
|-----------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|
|                                                            | 7.5    | Termination of  Reclamation Fund                                                |   |
|                                                            | 7.6    | Reclamation Trust                                                               |   |
| Article 8 POOLING, UNITIZATION,  SURRENDER AND ABANDONMENT |   |
|                                                            | 8.1    | Pooling and Unitization                                                         |   |
|                                                            | 8.2    | Surrender                                                                       |   |
|                                                            | 8.3    | Abandonment                                                                     |   |
| Article 9 ASSIGNMENT                                       |   |
|                                                            | 9.1    | Consent to Assign Agreement                                                     |   |
|                                                            | 9.2    | Multiple NPI Holders                                                            |   |
|                                                            | 9.3    | Grant of Security                                                               |   |
|                                                            | 9.4    | Dispositions  Subject to This Agreement                                         |   |
| Article 10 TERM OF AGREEMENT                               |   |
|                                                            | 10.1   | Term                                                                            |   |
| Article 11 DISPOSITIONS                                    |   |
|                                                            | 11.1   | Dispositions  of Tangibles and Miscellaneous Interests                          |   |
|                                                            | 11.2   | Dispositions  of Petroleum and Natural Gas Rights                               |   |
|                                                            | 11.3   | Disposition of NPI                                                              |   |
|                                                            | 11.4   | Proceeds of a Disposition                                                       |   |
|                                                            | 11.5   | Farmouts                                                                        |   |
|                                                            | 11.6   | Redemption,  Surrender, Merger, Transfer or Sale of the NPI Only by the Grantor |   |
| Article 12 NOTICES AND PAYMENTS                            |   |
|                                                            | 12.1   | Addresses for  Service and Payments                                             |   |
|                                                            | 12.2   | Giving and Deemed  Receipt of Notices                                           |   |
|                                                            | 12.3   | Addresses                                                                       |   |
|                                                            | 12.4   | Change of Address                                                               |   |
| Article 13 MISCELLANEOUS                                   |   |
|                                                            | 13.1   | Enurement                                                                       |   |
|                                                            | 13.2   | Waivers in Writing                                                              |   |
|                                                            | 13.3   | Time of Essence                                                                 |   |
|                                                            | 13.4   | No Partnership                                                                  |   |
|                                                            | 13.5   | Severability                                                                    |   |
|                                                            | 13.6   | Amendments                                                                      |   |
|                                                            | 13.7   | Amendment and Restatement                                                       |   |
| Article 14 CONCERNING THE TRUST                            |   |
|                                                            | 14.1   | Acknowledgment                                                                  |   |

 

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**AMENDED AND RESTATED NET PROFIT INTERESTS AGREEMENT**

** **

This Agreement dated as of the 2nd day ofSeptember, 2003

 

AMONG:

 

**BAYTEX ENERGY LTD.**, a body corporate amalgamated pursuant to the laws of the Provinceof Alberta (the **“Grantor”**)

 

- and -

 

**BAYTEX ENERGY TRUST**, a trust formed pursuant to the laws of the Province of Albertapursuant to a Trust Indenture dated as of July 24, 2003, as amendedand restated as of September 2, 2003 (the**“NPI Holder”**)

 

WHEREAS the Grantor desires to grant the NPIto the NPI Holder;

 

NOW THEREFORE, in consideration of thecovenants hereinafter set forth, the Parties hereby agree as follows:

 

**ARTICLE 1**INTERPRETATION

** **

**1.1**                          Definitions

** **

In this agreement, the following words andphrases shall have the meanings ascribed thereto:

 

(a)           **“Acquisition”** means an acquisition by theGrantor of Petroleum and Natural Gas Rights and related Tangibles andMiscellaneous Interests, or any interest in all or a portion thereof;

 

(b)           **“Acquisition Costs”** means the costs and expensesincurred by the Grantor in making an Acquisition including, without limitation,the purchase price paid, fees and commissions, registration and due diligencecosts and consultant fees and expenses (including legal, land and engineeringcosts) and including costs and expenses associated with unsuccessfulAcquisitions;

 

(c)           **“Affiliate”** means, with respect to therelationship between corporations, that one of them is controlled by the otheror that both of them are controlled by the same Person and for this purpose acorporation shall be deemed to be controlled by the Person who owns oreffectively controls, other than by way of security only, sufficient votingshares of the corporation (whether directly through the ownership of shares ofthe corporation or indirectly through the ownership of shares of anothercorporation or otherwise) to elect the majority of its board of directors;

 

(d)           **“Annual Net Cash Flow”** means the aggregate of theNPI Payments made in a given calendar year;

 

(e)           **“ARTC”** means credits or rebates inrespect of Crown Royalties which are paid or credited by the Crown, includingthose paid or credited under the *AlbertaCorporate Tax Act* which are commonly known as **“Alberta Royalty Tax Credits”**;

 

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(f)            **“Asset Value”** means, in respect of anyProperty Interest, the present worth of all of the estimated pre-tax net cashflow from the Proved Reserves and 50% of the estimated pre-tax net cash flowfrom the Probable Reserves, associated with such Property Interest determinedin the most recent engineering report dealing with such Property Interest,discounted at 15% per annum and using escalating price and cost assumptions;

 

(g)           **“Business Day”** means a day other than aSaturday, Sunday or statutory holiday in Alberta;

 

(h)           **“Canadian ResourceProperty”, “Canadian Exploration Expense” and “Canadian Development Expense”** each have the meaningascribed thereto in the *Income Tax Act*(Canada);

 

(i)            **“Capital Expenditures”** means drilling costs,completion costs, equipping costs and other costs which would be classified as“capital costs” in accordance with GAAP, but does not include AcquisitionCosts;

 

(j)            “**CapitalFund**” means the cash flow retained by the NPI Holder from cashotherwise available for distribution which shall be advanced to the Grantorpursuant to loan agreements between the NPI Holder and the Grantor from time totime to finance future acquisitions and development of the Properties (asdefined in the Trust Indenture);

 

(k)           **“Commodity Price and CurrencySwaps”**means swap, hedging and other arrangements made by the Grantor (including anyassumed by the Grantor by contract, operation of law or otherwise), from timeto time, in respect of commodity prices or rates of exchange of currencies thepurpose of which is to mitigate or eliminate exposure to fluctuations in pricesof commodities or rates of exchange of one currency for another which affectProduction Costs or revenues attributable to the Property Interests andincludes guarantees, either direct or indirect, by the Grantor of any swap,hedging and other arrangements made by Persons wholly-owned, directly orindirectly, by the Grantor or the NPI Holder provided such Person hasguaranteed, directly or indirectly, the Grantor’s Commodity Price and CurrencySwaps;

 

(l)            **“Credit Facilities”** means the credit facilitiesmade available to the Grantor by the NPI Holder from time to time including anynotes and other evidences of indebtedness relating to borrowings by the Grantorfrom the NPI Holder, including, without limitation, any in connection with theCapital Fund, and any other credit facilities made available to the Grantor(including any assumed by the Grantor by contract, operation of law orotherwise) from time to time by other Persons (including banks, other financialinstitutions and Persons wholly-owned, directly or indirectly, by the Grantoror the NPI Holder and including the Grantor’s indebtedness under its 9 5/8%U.S. Dollar Senior Subordinated Notes due 2010 issued under an Indenture datedas of July 9, 2003 and the 10 1⁄2% U.S. Dollar Senior Subordinated Notes due2011 issued under an Indenture dated as of February 12, 2001 for theGrantor’s general partnership purposes including, without limitation, to fundthe payment of or to refinance the payment of amounts paid or to be paid by theGrantor on account of Production Costs and includes guarantees, either director indirect, by the Grantor of any credit facilities made available to Personswholly-owned, directly or indirectly, by the Grantor or the NPI Holder providedsuch Person has either made a credit facility available to the Grantor orguaranteed, directly or indirectly, the Grantor’s Credit Facilities;

 

(m)          **“Crown”** means Her Majesty the Queenin Right of Canada or a Province thereof;

 

(n)           **“Crown Royalties”** means any amount paid orpayable to or received or receivable by the Crown by virtue of an obligationimposed by statute or a contractual obligation substituted for an obligationimposed by statute as a royalty, tax (other than a municipal or school tax),lease rental

 

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or bonus or anamount in lieu thereof that may reasonably be regarded as being in relation tothe acquisition, development or ownership of Petroleum and Natural Gas Rightsor the production of Petroleum Substances;

 

(o)           **“Debt Service Charges”** means, without duplication,the aggregate of:

 

(i)            all interest, penalties, fees, indemnities,legal costs, and other costs, expenses and disbursements which the Grantorpays, or is collected, pursuant to the Credit Facilities;

 

(ii)           all amounts paid on account of principalpursuant to the Credit Facilities including, without limitation, scheduled,prepaid (voluntary or mandatory) and accelerated principal and amounts requiredto be paid on account of banker’s acceptances and letters of credit but notincluding any amounts paid as Deferred Purchase Price Obligations; and

 

(iii)          the net loss from Interest Rate Swaps (anet profit being deducted from the foregoing amounts),

 

to the extent that such is reasonablyallocable to the Property Interests.

 

The difference between the face amount of abanker’s acceptance which is issued and accepted pursuant to the CreditFacilities and its discount proceeds (such difference being the “imputed interest”)shall be treated as being paid when the face amount of the banker’s acceptanceis paid by the Grantor and when the Grantor pays the face amount of a banker’sacceptance, the face amount less the amount of imputed interest for suchbanker’s acceptance shall be treated as a repayment of principal;

 

(p)           **“Deductible ProductionCosts”**means, for any period, 99% of the amount, if any, by which all Production Costsfor such period exceeds the aggregate, without duplication, for such period of(A) withdrawals from the Reserve or Reclamation Fund to fund payment ofProduction Costs, (B) advances made pursuant to the Credit Facilities tofund the payment of Production Costs, (C) any amounts paid by the NPIHolder by or on behalf of the NPI Holder as part of the Deferred Purchase PriceObligation pursuant to subclause 2.2(a), (D) Residual Revenues, and (E)amounts funded from funds on hand at, or accruing due, from a period prior to,the date of the grant of the NPI;

 

(q)           **“Deferred Purchase PriceObligation”** shall have the meaning ascribed thereto in subclause 2.2(a);

 

(r)            **“Excess Residual Revenues”** means in respect of a periodthe amount, if any, by which the Residual Revenues exceed the portion thereofthat would have been deducted in the calculation of Deductible Production Costsif as a result Deductible Production Costs would be nil;

 

(s)           **“Facilities”** means gas processing plants,gas compression facilities, gas gathering facilities, crude oil batteries,crude oil pipelines, power generation facilities and similar facilities inwhich Petroleum Substances are compressed, processed, gathered, transported,treated, measured or stored and which are located near the oil or gas wellsfrom which such Petroleum Substances are produced;

 

(t)            **“Future Acquisition”** means an Acquisition madeafter the date hereof;

 

(u)           **“Future Acquisition Costs”** means Acquisition Costs ofFuture Property Interests;

 

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(v)           **“Future PropertyInterests”** means Property Interests acquired by the Grantor after the date hereofand includes Property Interests acquired by any direct or indirect subsidiaryof the Grantor;

 

(w)          **“General andAdministrative Costs”** means the aggregate amount in representing allexpenditures and costs incurred in the management and administration of theGrantor or the NPI Holder reasonably allocable by the Grantor to the PropertyInterests including, (a) all reasonable costs and expenses relating to theGrantor and the NPI Holder and paid to third parties by or on behalf of theGrantor or their affiliates and (b) all reasonable costs and expenses incurredspecifically for the Grantor relating to the Grantor or the NPI Holderincluding, auditing, accounting, bookkeeping, rent and other leaseholdexpenses, legal, land administration, engineering, consulting, travel,telephone, data processing, reporting, executive and management time, salaries,bonuses (including under all executive bonus plans of the Grantor, if any);

 

(x)            **“GAAP”** means, as at any time,generally accepted accounting principles in Canada as at such time asdetermined by the Canadian Institute of Chartered Accountants;

 

(y)           **“Grantor’s Share”** means the share attributableto the Property Interests;

 

(z)            **“Interest Rate Swaps”** means interest rate swap,hedging and other arrangements made by the Grantor (including any assumed bythe Grantor by contract, operation of law or otherwise), from time to time, thepurpose of which is to mitigate or eliminate exposure to fluctuations ininterest rates applicable to the Credit Facilities or other interest rateswhich affect Production Costs and includes guarantees, either direct orindirect, by the Grantor of any interest rate swap, hedging and otherarrangements made by Persons wholly-owned, directly or indirectly, by the Grantoror the NPI Holder provided such Person has also guaranteed, directly orindirectly, the Grantor’s Interest Rate Swaps;

 

(aa)         **“Leases”** means the Crown and freeholdpetroleum and natural gas leases, licenses, permits and similar instrumentspursuant to which the Grantor derives its interests in the Petroleum andNatural Gas Rights included in the Property Interests;

 

(bb)         **“Lender”** means, (a) the lender orlenders (if there is more than one) that make the Credit Facilities availableto the Grantor and (b) the Person or Persons (if there is more than one) withwhom the Grantor makes Swap Arrangements;

 

(cc)         **“Miscellaneous Interests”** means all properties, assetsand rights which are related to Petroleum and Natural Gas Rights or Tangibles(other than Petroleum and Natural Gas Rights and Tangibles), including:

 

(i)            Title and Operating Documents;

 

(ii)           Surface Rights;

 

(iii)          books and records;

 

(iv)          well files, production records and similardata and information;

 

(v)           injection wells;

 

(vi)          geological, seismic and similar data; and

 

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(vii)         permits, licences and authorizationsrequired to own or operate wells and Tangibles;

 

(dd)         **“Month”** means a period commencing at8:00 a.m. Calgary time on the first day of a calendar month and endingimmediately prior to 8:00 a.m. Calgary time on the first day of the followingcalendar month;

 

(ee)         **“Non-Deductible CrownRoyalties”** means Crown Royalties which are either:  (i) required to be included in taxable income pursuant to Section 12(1)(o)of the *Income Tax Act* (Canada) orany replacement thereof or substitution therefor; or (ii) not permitted to bededucted in computing taxable income pursuant to Section 18(1)(m) of the *Income Tax Act* (Canada) or any replacementthereof or substitution therefor;

 

(ff)           **“NPI”** means the right to receivethe payment set forth in clause 2.3 on the terms and conditions set forthherein;

 

(gg)         **“NPI Lands”** means the lands which relateto the Petroleum and Natural Gas Rights included in the Property Interests;

 

(hh)         **“NPI Payment”** means, in respect of a Month,the payment for such Month to which the NPI Holder is entitled pursuant toclause 2.3;

 

(ii)           **“NPI Revenues”** means, for any period, 99%of:

 

(i)            the Production Revenues for such period;and

 

(ii)           the Excess Residual Revenues for suchperiod;

 

provided that the portion of Excess ResidualRevenues for a period equal to 10% or more of the Production Revenues for suchperiod will not be included in NPI Revenues for such period;

 

(jj)           **“Party”** means the NPI Holder or theGrantor;

 

(kk)         **“Permitted Investments”** means:  (i) obligations issued or guaranteed by thegovernment of Canada or any province of Canada or any agency or instrumentalitythereof; (ii) term deposits, guaranteed investment certificates, certificatesof deposit or bankers’ acceptances of or guaranteed by any Canadian charteredbank or other financial institution the short-term debt or deposits of whichhave been rated at least A or the equivalent by Standard & Poor’sCorporation, Moody’s Investors Service, Inc., Canadian Bond Rating Service Inc.or Dominion Bond Rating Service Limited; (iii) commercial paper rated at leastA or the equivalent by Canadian Bond Rating Service Inc. or Dominion BondRating Service Limited, in each case maturing within 180 days after the date ofacquisition; and (iv) money market instruments or funds which the Grantordetermines, acting reasonably and prudently, constitute secure investments;

 

(ll)           **“Person”** includes an individual, abody corporate, a trust, a union, a pension fund, a government and agovernmental agency;

 

(mm)       **“Petroleum and Natural GasRights”**means rights to explore for, drill for, produce, save and market PetroleumSubstances, including fee simple interests in Petroleum Substances andinterests granted pursuant to instruments commonly known as Crown or freeholdpetroleum and/or natural gas leases, licenses or permits, but not RoyaltyInterests;

 

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(nn)         **“Petroleum Substances”** means petroleum, natural gasand related hydrocarbons, (including condensate and natural gas liquids) andall other substances (including sulphur and its compounds), whether liquid,solid or gaseous and whether hydrocarbons or not, produced in associationtherewith;

 

(oo)         **“Probable Reserves”** means those reserves whichmay be recoverable as a result of the beneficial effects which may be derivedfrom the future institution of some form of pressure maintenance or othersecondary recovery method, or as a result of a more favourable performance ofthe existing recovery mechanism than that which would be deemed proved at thepresent time, or those reserves which may reasonably be assumed to existbecause of geophysical or geological indications and drilling done in regionswhich contain Proved Reserves;

 

(pp)         **“Production”** means the produced PetroleumSubstances attributed to the Property Interests;

 

(qq)         **“Production Costs”** means the aggregate, withoutduplication, of the following items which are paid (directly or indirectly) byGrantor:

 

(i)            Debt Service Charges;

 

(ii)           the Grantor’s Share of all costs andexpenses in respect of the Property Interests including, without limitation:

 

(A)          costs and expenses of obtaining,processing, reprocessing and interpreting seismic, geological and other data;

 

(B)           drilling costs, completion costs, equippingcosts, re-entry and operating costs of wells (including costs of redrilling,deepening, plugging-back, side-tracking, fracing and acidizing wells and costsand expenses of workovers);

 

(C)           costs and expenses of power generation;

 

(D)          costs and expenses of waterflood, miscibleflood and other secondary and tertiary recovery operations as well asassociated studies and simulations;

 

(E)           costs and expenses of compressing,dehydrating, gathering, treating and processing Production;

 

(F)           costs and expenses of acquiring Tangibles(including costs and expenses of constructing Facilities), except when acquiredpursuant to Acquisitions, and costs and expenses of maintaining, repairing andoperating Tangibles;

 

(G)           royalties and similar burdens (includingfreehold lessors’ royalties and gross overriding royalties) to which theProperty Interests are subject, other than Non-Deductible Crown Royalties;

 

(H)          amounts paid in respect of Surface Rights,including bonuses and rentals;

 

(I)            costs and expenses of acquiringMiscellaneous Interests, except when acquired pursuant to Acquisitions;

 

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(J)            costs and expenses of transporting (whetherby pipelines, trucking or otherwise) Production;

 

(K)          costs and expenses of delivery and sale ofProduction including marketing fees;

 

(L)           insurance premiums and similar items andproperty, municipal, production, ad valorem, mineral and other taxes andassessments in respect of the Property Interests or the operation thereof orProduction;

 

(M)         costs and expenses (including settlementpayments and payments of judgments) payable in respect of third party claimsarising in connection with the Property Interests;

 

(N)          costs and expenses of abandonment of wellsand decommissioning of Facilities and other Tangibles and of reclaiming andrestoring the surface sites thereof including costs and expenses ofinvestigating and monitoring such wells, Facilities and sites;

 

(O)          costs and expenses of clean-up andremediation of spills of hazardous substances and other environmental damageincluding costs and expenses of investigating and monitoring such spills orother environmental damages;

 

(P)           costs and expenses of drilling, equippingand operating injection wells;

 

(Q)          costs and expenses associated with drillingcontracts, transportation contracts or other contract settlements that are notassigned to specific properties; and

 

(R)           all other costs and expenses (includingboth operating costs and capital costs) which are payable pursuant to the Titleand Operating Documents;

 

(iii)          income taxes, capital taxes and other taxesof the Grantor or installments paid or refunds in connection therewithreasonably allocable by the Grantor to Property Interests;

 

(iv)          amounts contributed to the ReclamationFund;

 

(v)           amounts contributed to the Reserve Fund;

 

(vi)          General and Administrative Costs;

 

(vii)         Acquisition Costs;

 

(viii)        costs and expenses of generating ResidualRevenues including costs in respect of Commodity Price and Currency Swaps; and

 

(ix)           all costs and expenses not listed aboverelated to the Property Interests;

 

but excluding Non-Deductible Crown Royalties,depreciation, and deferred taxes;

 

(rr)           **“Production Revenues”** means, in respect of anyperiod, the gross proceeds from the sale of Production which are receivedduring such period, but do not include ARTC or income from Royalty Interests;

 

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(ss)         **“Property Interests”** means all interests inPetroleum and Natural Gas Rights and in related Tangibles and MiscellaneousInterests beneficially owned by the Grantor from time to time (without takinginto account the NPI);

 

(tt)           **“Proved Reserves”** means those quantities ofcrude oil, natural gas and natural gas by-products, which, upon analysis ofgeologic and engineering data, appear with a high degree of certainty to berecoverable at commercial rates in the future from known oil and gas reservoirsunder, in the case of escalated price assumptions, presently anticipated and,in the case of constant pricing assumptions, existing economic and operatingconditions;

 

(uu)         **“Reclamation Fund”** means the fund described inclause 7.1;

 

(vv)         **“Reserve”** shall have the meaningascribed thereto in clause 7.3;

 

(ww)       **“Residual Revenues”** means the Grantor’s Share ofall net revenues which are received by Grantor in respect of the PropertyInterests (other than NPI Revenues and the net proceeds of a disposition ofPetroleum and Natural Gas Rights allocated to the interests in the NPI soldpursuant to such disposition) and the Royalty Interests, including:  (A) fees and similar payments made by thirdparties for the processing, transportation, gathering or treatment of theirPetroleum Substances in, by or through Tangibles; (B) proceeds from the sale ofTangibles and Miscellaneous Interests; (C) insurance proceeds, excludingbusiness interruption insurance and property damage insurance to the extentsuch amounts are used to purchase additional Property Interests subject to theNPI; (D) proceeds from the sale or licensing of seismic and similar data; (E)incentives, rebates and credits in respect of Production Costs; (F) revenuesfrom Commodity Price and Currency Swaps; (G) take or pay and similar paymentsmade to the Grantor in lieu of a buyer purchasing some of the Production or ascompensation for a buyer not purchasing some of the Production; and (H) ARTCreceived by the Grantor;

 

(xx)          **“Royalty Interests”** means royalty interests, netprofits interests and similar interests pursuant to which the owner thereof isentitled to a share of the production of Petroleum Substances from the lands orwells to which the interests relate or to a payment calculated by reference tothe quantity of such production or to a payment calculated by the proceeds,(whether gross or net) received from the sale of such production;

 

(yy)         **“Special Resolution”** has the meaning set forth inthe Trust Indenture, as amended from time to time;

 

(zz)          **“Surface Rights”** means interests in thesurface of lands which are used or held for use in connection with Petroleumand Natural Gas Rights or Tangibles, including (i) rights to use the surface oflands for purposes of drilling and operating oil and gas wells or injectionwells, (ii) rights to use the surface of lands for the location of Tangibles orin connection with the operation thereof and (iii) rights to use the surface oflands to gain access to such wells or such Tangibles, and including surfaceleases, licenses of occupation, roads, road use agreements, pipeline easementsand similar rights;

 

(aaa)       **“Swap Arrangements”** means Commodity Price andCurrency Swaps and Interest Rate Swaps;

 

(bbb)      **“Tangibles”** means all tangible property,apparatus, plant, equipment, machinery and facilities used or held for use,from time to time, for purposes of producing Petroleum Substances from the NPILands or lands pooled or unitized therewith or for storing, measuring,compressing, treating,

 

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processing orcollecting such Petroleum Substances, including wellheads, wellhead equipment,tanks, pumps, pump jacks, separators, dehydrators, flow lines and Facilities;

 

(ccc)       **“Third Party”** means any Person other thanthe Grantor, the NPI Holder or an Affiliate of the Grantor;

 

(ddd)      **“Title and OperatingDocuments”** means:  (i) the contracts andagreements pursuant to which the Grantor derives its interest in the PropertyInterests, including Crown and freehold petroleum and natural gas leases,agreements of purchase and sale, farm-in agreements, unit agreements androyalty agreements; and (ii) contracts and agreements entered into in thenormal course of the oil and gas business in connection with the exploitationof Petroleum and Natural Gas Rights or the operation of Facilities, including jointoperating agreements, unit operating agreements, farmout agreements, poolingagreements, royalty agreements, common stream agreements, gas processingagreements, gas gathering agreements, agreements for the sale of PetroleumSubstances, agreements relating to Surface Rights, agreements for theconstruction, ownership and operation of Facilities and agreements for thetransportation of Petroleum Substances;

 

(eee)       **“Trust”** means Baytex Energy Trust, atrust formed pursuant to the laws of Alberta pursuant to the Trust Indenture;

 

(fff)         **“Trust Indenture”** means the amended andrestated trust indenture entitled “Amended and Restated Trust Indenture” datedas of September 2, 2003 between the Grantor and Valiant Trust Companypursuant to which the Trust is governed, as may be amended and restated fromtime to time;

 

(ggg)      **“Trust Unit”** means a fractional undividedinterest in the Trust; and

 

(hhh)      **“Unitholders”** means holders, from time totime, of Trust Units.

 

**1.2**                          Number and Gender

** **

Wordsimporting the singular number include the plural and vice versa and wordsimporting gender include the masculine, feminine and neuter genders.

 

**1.3**                          References

** **

The table ofcontents and headings herein are for convenience of reference only and shallnot affect the construction or interpretation of this agreement.  A reference herein to an article, clause orsubclause without further reference shall be a reference to an article, clauseor subclause of this agreement.  Thewords **“herein”** and **“hereof”** shall refer to this agreement in itsentirety and not to any particular article or clause.

 

**1.4**                          Choice of Law

** **

This agreementwill be governed by the laws of the Province of Alberta and the laws of Canadaapplicable therein and shall be construed, interpreted and performed inaccordance therewith.

 

**1.5**                          Attornment

** **

Any legalaction or proceedings with respect to this agreement shall be brought in thecourts of the Province of Alberta and the courts of appeal therefrom.  Each Party hereby submits and

 

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attorns to andaccepts for itself and in respect of its assets, irrevocably andunconditionally, the jurisdiction of such courts in respect of all mattersarising out of this agreement.

 

**1.6**                          Monetary Sums

** **

All referencesherein to dollar amounts or sums of money are to lawful funds of Canada.

 

**1.7**                          Meaning of “including”

** **

The word **“including”** shall mean **“including, without limitation,”** and shallnot be limited in scope by the items listed after such word.

 

**1.8**                          Legal Fees

** **

The word**“costs”**shall include legal fees on asolicitor and client basis.

 

**1.9**                          1990 CAPL Terms

** **

Terms whichare defined in clause 101 of a 1990 Canadian Association of PetroleumLandmen Operating Procedure to which a 1996 Petroleum Accountants Society ofCanada Accounting Procedure is attached and which are not otherwise definedherein have the same meanings herein as are given to them therein.

 

**1.10**                        Effective Time

** **

This NetProfit Interests Agreement will be effective on September 2, 2003.

 

**ARTICLE 2**NET PROFIT INTEREST

** **

**2.1**                          Grant of NPI

** **

The Grantorhereby grants and sets over to the NPI Holder the NPI on the Petroleum andNatural Gas Rights owned by the Grantor from time to time.

 

**2.2**                          Payment for NPI

** **

(a)           In addition to all amounts previously paidby the NPI Holder to the Grantor, the NPI Holder hereby agrees to pay to theGrantor as consideration for the NPI, an amount (the **“Deferred Purchase Price Obligation”**) equal to withoutduplication:

 

(i)            99% percent of the portion of FutureAcquisition Costs, which are attributable to Canadian Resource Property payableat the time of incurring such Future Acquisition Costs;

 

(ii)           99% percent of the Capital Expenditureswhich are attributable to Canadian Exploration Expense or Canadian DevelopmentExpense in respect of Property Interests payable at the time of incurring suchCapital Expenditures; and

 

(iii)          99% percent of the portion of indebtednessincurred in respect of the portion of Future Acquisition Costs and CapitalExpenditures otherwise payable by the Holder as

 

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contemplatedby paragraphs (i) and (ii), which shall be payable at the time of satisfactionby the Grantor of such indebtedness.

 

(b)           The NPI Holder will pay over to theGrantor, to satisfy the Deferred Purchase Price Obligation, the net proceeds ofany issue of Trust Units or, except as provided in clause 11.4, the proceedsfrom the disposition of the NPI on Property Interests disposed of by theGrantor pursuant to clause 11.2.

 

(c)           Except as provided in clause 11.4, the NPIHolder shall not be obligated to pay an amount as a Deferred Purchase PriceObligation except to the extent the NPI Holder has available the proceedsreferred to in subclause 2.2(b) above.

 

**2.3**                          NPI

** **

Subject to theterms and conditions hereof, the NPI Holder, by virtue of being the owner ofthe NPI, shall be entitled to a payment from the Grantor for each Month equalto the amount by which (i) the NPI Revenues for such Month exceed (ii) theDeductible Production Costs for such Month to a maximum limit equal to theProduction Revenues.

 

**2.4**                          Ownership of Production

** **

The NPI Holdershall not own any Production and shall have no right to take Production inkind.

 

**2.5**                          Petroleum SubstancesLost or Used in Operations

** **

The NPI shallnot apply to any Production lost or consumed in operations.

 

**2.6**                          Not an Interest In Land

** **

The NPI is nota covenant attached to or running with the NPI Lands and does not attach to orform part of the Leases or constitute an interest in land or real property.

 

**2.7**                          Reimbursement of Non-DeductibleCrown Royalties

** **

The NPI Holdershall reimburse to the Grantor 99% of all Non-Deductible Crown Royalties paidby the Grantor in respect of the Property Interests or the production ofPetroleum Substances.  The Grantor shallbe entitled to set off amounts reimbursable to it pursuant to this clause 2.7against NPI Payments.

 

**2.8**                          Future Acquisitions

** **

The Grantormay acquire additional Property Interests and shall fund such acquisitions fromthe Deferred Purchase Price Obligation or borrowings of the Grantor, in respectthereof to the extent contemplated by subclause 2.2(a)(iii).

 

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**ARTICLE 3**ACCOUNTING

** **

**3.1**                          Payments

** **

Prior to thefifteenth day of the Month following the end of a Month, the Grantor shall paythe NPI Payment for such prior Month to the NPI Holder.

 

**3.2**                          Statements

** **

Each NPIPayment shall be accompanied by a statement setting forth:  (i) the amount of the NPI Payment for suchMonth; (ii) all calculations used in determining the NPI Payment; (iii) theProduction (itemized by product) sold during the Month; (iv) the ProductionRevenues and Residual Revenues for such Month; and (v) an itemized list of theProduction Costs and Deductible Production Costs for the Month.

** **

**3.3**                          Overpayments

** **

If the paymentmade by the Grantor on account of the NPI for a Month is greater than theactual amount of the NPI Payment for such Month, the Grantor will be entitledto recover the overpayment by set off against NPI Payments for subsequentMonths.

 

**3.4**                          Collection ofProduction Revenues and Residual Revenues

** **

The Grantorwill use all commercially reasonable efforts to obtain the payment ofProduction Revenues and Residual Revenues but shall not have any liability tothe NPI Holder to the extent that it fails to collect them, provided it makescommercially reasonable efforts to do so.

 

**3.5**                          Payment of Production Costs

** **

The Grantorcovenants and agrees to use the Production Revenues to pay Production Costs, inthe following order of priority:

 

(a)           firstly, Debt Payments; and

 

(b)           secondly, in payment of all otherProduction Costs.

 

**3.6**                          Trust Expenses

** **

Where theGrantor pays expenses of the Trust, including amounts to the trustee of theTrust or pursuant to indemnification provisions contained in the Trust Indenture,it shall be entitled to set off such amounts against the NPI Payments.

 

**ARTICLE 4**INSURANCE

** **

**4.1**                          Maintenance

** **

The Grantorshall obtain and maintain such property damage and third party liabilityinsurance to provide protection for the Property Interests which is, at aminimum, in accordance with industry standards and which, in any event, willcover property damage, general liability and, where appropriate in the opinionof the Grantor, business interruption.  Suchinsurance will be maintained with

 

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reputableinsurers and in such amounts as the Grantor determines to be appropriate,having regard to insurance maintained pursuant to the Title and OperatingDocuments and normal oil and gas industry standards in Canada.

 

**ARTICLE 5**BOOKS AND RECORDS

** **

**5.1**                          Examination

** **

During theterm hereof and for a period of two years thereafter the Grantor shall maintaincomplete books and records pertaining to: (i) the NPI; (ii) Production used, lost or sold by the Grantor; and(iii) all calculations made by the Grantor to determine the amount of paymentson account of the NPI.  The NPI Holdershall have the right at all reasonable times during business hours to inspectsuch books and records to the extent reasonably necessary in order to verifythe amounts paid or payable hereunder in respect of the NPI.

 

**5.2**                          Audit

** **

Upon notice tothe Grantor, the NPI Holder shall have the right to audit the books and recordsreferred to in clause 5.1 within the 26 month period next following the end ofthe calendar year to which they relate. The costs of any such audit shall be borne by the NPI Holder.  Any claims of discrepancies disclosed bysuch audit shall be made in writing to the Grantor within two months of thecompletion of such audit.  The Grantorshall respond to any claims within six months of receipt of such claims.  If the Grantor is unable to respond to theclaims during the six month period, one extension of three months shall beallowed if requested in writing by the Grantor within such six month period.

 

**5.3**                          Confidentiality

** **

The NPI Holdershall keep all information provided to it pursuant to this agreement strictlyconfidential (including, without limitation, information made available to itin connection with the audits, examinations and inspections conducted by itpursuant to the foregoing provisions of this Article 5) except forinformation which is or becomes publicly available through no act or omissionof the NPI Holder or which becomes available to the NPI Holder from a sourceother than the Grantor, without confidentiality restrictions.

 

**ARTICLE 6**OPERATIONS

** **

**6.1**                          Generally

** **

Having regardto and subject to the provisions of the Title and Operating Documents and theGrantor’s rights and obligations thereunder, the Grantor covenants to and infavour of the NPI Holder that the Grantor shall use all reasonable efforts sothat:

 

(a)           operations on the NPI Lands and landspooled or unitized therewith for the recovery of Petroleum Substances and theoperation of the Tangibles are conducted in a good and workmanlike manner, inaccordance with good oilfield and engineering practice and in compliance withall applicable statutes, regulations, permits and governmental approvals;

 

(b)           all of its duties and obligations under theTitle and Operating Documents are diligently and promptly performed and allamounts payable as rental, royalty or similar charges from time to

 

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time due inrespect of the Property Interests are paid and all other actions as may bereasonably necessary to maintain the Title and Operating Documents in goodstanding at all times are taken, subject to the terms and provisions hereof;and

 

(c)           all Surface Rights needed for the properoperation of the Property Interests and the Tangibles are acquired andmaintained in good standing and all taxes, rates, assessments and other amountsfrom time to time payable in respect of the Property Interests are promptlypaid.

 

**6.2**                          No Obligation to Develop

** **

Nothingcontained in this agreement shall impose any obligation, expressed or implied,on the Grantor to explore or develop the NPI Lands.

 

**6.3**                          Rights and Obligations

** **

The Grantorshall have exclusive control and authority over development of, and recovery ofPetroleum Substances from, the NPI Lands and lands pooled or unitizedtherewith, including, without limitation, making all decisions respectingwhether, when and how to drill, complete, equip, produce, suspend, abandon andshut-in wells and whether to elect to convert royalties to workinginterests.  The NPI Holder acknowledgesthat, as owner of the NPI, it shall not be entitled to any interest in theProperty Interests or the Title and Operating Documents and the Grantoracknowledges that the NPI Holder, as owner of the NPI, shall not be liable forany of the duties or obligations arising under the Title and OperatingDocuments or in connection with the Acquisition or operation of the PropertyInterests.

 

**6.4**                          Marketing

** **

Subject toexisting contracts for the sale of production, the Grantor shall arrange forthe sale of Production for the best prices and on the best terms reasonablyavailable, provided that, so long as the Grantor acts *bona fide* and in good faith, it shall havecomplete discretion as to the terms, conditions and length of all contractsentered into for the sale of the Production and shall not be responsible forany loss or any alleged loss which may occur by reason of any change ineconomic or political circumstances or otherwise with respect to any such salescontract, so long as it acts in good faith and is not negligent.

 

**6.5**                          Additional Title andOperating Documents

** **

The Grantorshall have the right to enter into and amend Title and Operating Documents,from time to time, on such terms and conditions as it considers appropriate inits sole discretion, provided that it acts in accordance with prudent oil andgas industry practices and in good faith in connection therewith.

 

**6.6**                          No Other Business

** **

The Grantorcovenants in favour of the NPI Holder that the Grantor will not engage in anybusinesses or make any investments, either directly or through a subsidiary, apartnership or other vehicle other than ownership and exploitation of theProperty Interests and the other activities contemplated by this agreement orthe Trust Indenture.

 

**6.7**                          Credit FacilitiesSubordination

 

The CreditFacilities and any Swap Arrangements shall be senior to and rank in priority tothe NPI in all respects and the NPI Holder shall have the authority and ishereby authorized to enter

 

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into asubordination agreement in favour of any Lender acknowledging that the NPI issubordinate to any such Credit Facilities or any such Swap Arrangements andproviding for such other matters as the Lender may request.

 

For greatercertainty, and subject to the express provisions of any subordination agreemententered into by the NPI Holder, the payment of the NPI shall be and is herebymade expressly subordinate in right of payment to all amounts from time to timeowing by the Corporation under the Credit Facilities and under any SwapArrangements; provided that until a default or event of default occurs underany such Credit Facilities or any Swap Arrangements, the Grantor shall beentitled to make all payments to the NPI Holder required hereunder.  Without limiting the foregoing, theobligations of the Grantor to the NPI Holder hereunder are subject to the termsand conditions of the Subordination Agreement to be dated September 3,2003 and entered into between Baytex Energy Ltd., the NPI Holder (by itsmanager Baytex Energy Ltd.) and The Toronto-Dominion Bank.

 

**6.8**                          Borrowing

** **

The Grantormay from time to time and without any requirements to obtain any consent orapproval from the NPI Holder: (i) enter into and perform its obligations underthe Credit Facilities and borrow money thereunder (including by way of bankers’acceptances and letters of credit) for any working capital or general corporatepurposes; and (ii) enter into and perform its obligations under any SwapArrangements.

 

**6.9**                          Carry Forward ofDeductible Production Costs

** **

If DeductibleProduction Costs for a month (less Excess Residual Revenues) for that monthexceed the NPI Revenues for such month, there shall be no monthly NPI paymentand the amount of the excess shall be carried forward and treated as DeductibleProduction Costs for the following month.

 

**ARTICLE 7**RECLAMATION FUND AND RESERVE FUND

** **

**7.1**                          Establishment

** **

The Grantorshall establish a fund (the **“ReclamationFund”**) to fund the payment of environmental and final sitereclamation costs reasonably allocable by the Grantor to PropertyInterests.  The Reclamation Fund shallbe owned by the Grantor and the NPI Holder shall have no interest therein.  Interest and other amounts earned by investingthe funds in the Reclamation Fund will form part of the Reclamation Fund.

 

**7.2**                          Contributions to theReclamation Fund

** **

The Grantorwill make annual contributions as determined by the Grantor less current yearsite reclamation and abandonment costs, out of the Production Revenues andResidual Revenues, to the Reclamation Fund such that the currently estimatedfuture environmental and reclamation obligations associated with PropertyInterests acquired from time to time will be funded after an appropriate amountof time to be determined by the Grantor, acting reasonably.  The amount to be paid into the ReclamationFund may be adjusted by the Grantor from time to time, based on its assessmentof its share of expected environmental and reclamation costs in respect ofProperty Interests.

 

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**7.3**                          Reserve Fund

** **

The followingamounts shall be paid into the Reserve:

 

(a)           Any Excess Revenues for a month which arein excess of 10% of the Production Revenues for that month shall be paid intothe Reserve prior to the 15th day of the second month following theend of the month; and

 

(b)           any Production Revenues or other revenuesin excess of those described in paragraph (a) above which, pursuant to theprovisions of any Credit Facilities, the Grantor is required to keep on depositin its bank account or bank accounts or invest investments which secure theCredit Facilities.

 

Additionally, the Grantor may pay such otheradditional amounts of Production Revenues and Residual Revenues into a reserve(the **“Reserve Fund”**) if, as andwhen the Grantor determines, in its reasonable discretion, that it is prudentto do so in accordance with prudent business practices to provide for paymentof Production Costs which the Grantor estimates will or may become payable inthe following six Months for which there may not be sufficient ProductionRevenues to satisfy such Production Costs in a timely manner.  Funds paid into the Reserve Fund shall be usedby the Grantor to fund payment of Production Costs.

 

**7.4**                          Use of Reclamation Fund

** **

From time totime when, in the reasonable opinion of the Grantor, it is prudent to do so,the Grantor may use the Reclamation Fund for purposes of funding the Grantor’senvironmental and reclamation obligations in respect of PropertyInterests.  The Grantor shall hold theReclamation Fund in one or more separate accounts and shall not commingle suchfunds with its other funds and may invest the Reclamation Fund in PermittedInvestments as it considers prudent from time to time.  The Grantor will not use the ReclamationFund for any other purposes unless and only to the extent that the Grantordetermines that the Reclamation Fund exceeds its reasonable estimate ofenvironmental and reclamation obligations from time to time.

 

**7.5**                          Termination of ReclamationFund

** **

When there areno Property Interests subject to the NPI, the Reclamation Fund will be used topay all obligations and liabilities of the Grantor (other than payments to theNPI Holder) and when in the reasonable opinion of the Grantor, all liabilitiesof the Grantor (other than payments to the NPI Holder) have been paid, theReclamation Fund will be collapsed and the remainder in the Reclamation Fund upto an amount equal to the NPI Revenues paid into the Reclamation Fund shall bepaid to the NPI Holder and the balance shall be included in Residual Revenuesand paid to the Grantor.

 

**7.6**                          Reclamation Trust

** **

The Grantorand the NPI Holder agree that if changes are made to the *Income Tax Act* (Canada) so as to permitthe formation of a vehicle such as a trust which is similar to a **“mining reclamation trust”** (as defined inthe *Income Tax Act* (Canada) ineffect on the date hereof) to secure or otherwise provide funding forenvironmental and/or reclamation obligations relating to the Property Interestswhich would have beneficial income tax consequences for the Grantor in thereasonable opinion of the Grantor:

 

(a)           the Grantor shall establish such a vehicle;

 

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(b)           the amount then contained in theReclamation Fund shall be paid to such vehicle;

 

(c)           thereafter, amounts which would otherwisehave been paid into the Reclamation Fund pursuant to clause 7.2 will,instead, be paid to such vehicle; and

 

(d)           thereafter, for purposes of computingProduction Costs and Deductible Production Costs payments to or from suchvehicle shall be deemed to be payments to or from the Reclamation Fund.

 

**ARTICLE 8**POOLING, UNITIZATION, SURRENDER AND ABANDONMENT

** **

**8.1**                          Pooling and Unitization

** **

The Grantorshall have full right, power and authority to pool or unitize any of thePetroleum and Natural Gas Rights comprised in the Property Interests, from timeto time, with other Petroleum and Natural Gas Rights provided that, in theGrantor’s sole discretion, the pooling or unitization is prudent and the termsthereof are in accordance with normal oil and gas industry practices.

 

**8.2**                          Surrender

** **

Subject to theTitle and Operating Documents, the Grantor may surrender a Lease, in whole orin part, to the lessor thereunder without the prior consent of the NPI Holderif, in the sole discretion of the Grantor, none of the wells located on thelands covered by such Lease are capable of producing Petroleum Substances inpaying quantities and it is prudent that such Lease be surrendered.  From and after any such surrender, thisagreement and the NPI shall cease to apply to the NPI Lands surrendered exceptas to matters which occurred prior to the surrender.

 

**8.3**                          Abandonment

** **

The Grantorshall have full right, power and authority without the prior consent of the NPIHolder to authorize the abandonment of any well comprised in the PropertyInterests if the Grantor determines, in its sole discretion, that such well isnot capable of producing Petroleum Substances in economic quantities.

 

**ARTICLE 9**ASSIGNMENT

** **

**9.1**                          Consent to Assign Agreement

 

Except asprovided in clause 9.3, and subject to clause 11.2, neither the Grantor nor theNPI Holder shall assign, sell, mortgage, pledge, charge, grant a securityinterest in or otherwise encumber or dispose of any interest in this agreementwithout first notifying the other Party of its intention to do so and obtainingthe written consent of the other Party, which consent will not be unreasonablywithheld or delayed.  In any event nosuch assignment, sale, mortgage, pledge, charge, grant of a security interest,encumbrance or disposition shall be effective as against any other Party untilthe Person in whose favour it is made or granted shall have executed anddelivered a written undertaking, in favour of and enforceable by, such otherParty, agreeing to be bound by and perform all of the terms and provisions ofthis agreement attributable to the interest acquired by it.

 

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**9.2**                          Multiple NPI Holders

** **

If the NPIshall be owned by more than one Person, such owners shall designate one Personto receive all payments, statements and communications in respect of the NPI ontheir behalf by written notice to the Grantor executed by all of them and,until the Grantor receives such written notice, the Grantor shall be entitledto make all payments on account of the NPI, deliver all, statements andcommunications hereunder and otherwise deal in all matters pertaining heretowith the last Person who was the sole owner of the NPI.

 

**9.3**                          Grant of Security

** **

Notwithstandingclauses 9.1 and 9.2, the Grantor may mortgage, pledge, charge or grant asecurity interest in the Property Interests or this agreement without theapproval of the NPI Holder to secure its obligations and liabilities under theCredit Facilities or under Swap Arrangements.

 

**9.4**                          Dispositions Subjectto This Agreement

** **

If anyinterest in this agreement or the NPI is sold, assigned, transferred, conveyed,mortgaged, pledged, charged, encumbered or otherwise disposed of by the Grantoror the NPI Holder, the rights and interests of the Person to whom suchdisposition is made shall be subject to the terms and conditions of thisagreement.

 

**ARTICLE 10**TERM OF AGREEMENT

** **

**10.1**                        Term

** **

Subject to Article 11,this agreement shall continue in full force and effect for so long as there arePetroleum and Natural Gas Rights to which the NPI applies.  Thereafter, this agreement shallnevertheless remain in full force and effect: (i) in respect of any accrued and unfulfilled obligations of eitherParty; and (ii) as to clauses 5.1, 5.3 and 7.4, Article XI andArticle XIV.

 

**ARTICLE 11**DISPOSITIONS

** **

**11.1**                        Dispositions ofTangibles and Miscellaneous Interests

** **

The Grantorshall have the right to:  (a) dispose ofTangibles and Miscellaneous Interests which, in the reasonable opinion of theGrantor are not required to exploit the Petroleum and Natural Gas Rightscomprised in the Property Interests in accordance with good oilfield practices;and (b) sell or license seismic and other data comprised in the PropertyInterests on such terms and conditions as it considers appropriate, in its solediscretion. Proceeds from any such disposition or licensing shall be includedin Residual Revenues or used to satisfy indebtedness pursuant to the CreditFacilities.

 

**11.2**                        Dispositions ofPetroleum and Natural Gas Rights

** **

(a)           The Grantor shall have the right to sell,assign, transfer or surrender interests in Petroleum and Natural Gas Rightscomprised in the Property Interests without complying with clause 9.1 if, inthe opinion of the Grantor, such disposition is in the best interests of theNPI Holder (any sale, assignment, transfer, foreclosure, other disposition orsurrender of interests in Petroleum and Natural Gas Rights, herein called a **“Disposition”)**.  The Grantor shall not make a Disposition

 

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where theproceeds of the Disposition exceeds $10 million unless the board ofdirectors of the Grantor has approved the Disposition.

 

(b)           Notwithstanding subclause 11.2(a), theGrantor shall have no right to sell Property Interests where the PropertyInterests included in such sale, represents all or substantially all of theProperty Interests except to an Affiliate of the Grantor or the NPI Holder,unless such sale has been approved by a Special Resolution.

 

**11.3**                        Disposition of NPI

 

If aDisposition is made, the NPI Holder shall execute and deliver all suchinstruments, documents, transfers, conveyances and acknowledgments as the Grantormay reasonably request in connection with such Disposition in order to sell,assign and transfer the NPI to the Grantor in respect of the Property Interestssold.  Upon a Disposition, the NPI inrespect of the Property Interest subject to such Disposition shall be deemed tohave been sold to the Grantor and shall thereupon merge and terminate.

 

**11.4**                        Proceeds of a Disposition

** **

99% of the netproceeds of a Disposition (which, for the purposes of this clause, shallinclude any disposition of a Property Interest as a result of a realization ofsecurity securing amounts owing under the Credit Facilities)  attributable to Canadian Resource Propertyshall be allocated to the interests in the NPI sold pursuant to such Dispositionand, after retiring any amount pursuant to any Credit Facility attributable tothe Property Interests as the Grantor shall determine, shall be either paid tothe NPI Holder or reinvested and paid on behalf of the NPI Holder as part ofthe Deferred Purchase Price Obligation for the purchase of additional PropertyInterests, each within the ensuing 12 month period (and during the interimperiod may be used to temporarily pay down the Credit Facility) as the Grantorshall determine.

 

It is the intention of the parties that theportion of the proceeds of a Disposition which shall be paid by the Grantor tothe NPI Holder pursuant to the preceding paragraph hereof shall be equal to thefair market value of the portion of the NPI disposed of by the NPI Holder inaccordance with Section 11.3 provided that if it should subsequently bedetermined by:

 

(a)           *bona fide* agreement between theparties;

 

(b)           agreement between the parties and theCanada Customs and Revenue Agency; or

 

(c)           a final decision of a court of competentjurisdiction in respect of which no further appeal may be taken or in respectof which the applicable appeal periods have elapsed,

 

to be other than the fair market value of theportion of the NPI so surrendered, such amount shall be adjusted by beingincreased or decreased so as to equal the fair market value of the portion ofthe NPI so surrendered.  Adjustmentpursuant to clause (b) hereof shall preclude adjustment pursuant to clause (a)hereof and adjustment pursuant to clause (c) hereof shall be final and binding.

 

**11.5**                        Farmouts

** **

The Grantorshall have the right to farmout Property Interests on a basis whereby a Personagrees to incur and pay Capital Expenditures for purposes of exploiting theProperty Interests and in consideration thereof earns an interest in suchProperty Interests.  Any such farmoutshall also be a farmout of the NPI on the same terms such that the Person towhom the farmout is made will also earn the

 

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NPI insofar asit pertains to such interests in the Property Interests whereupon such interestin the Property Interests and such interest in the NPI shall merge and suchinterest in the NPI shall terminate. Any Petroleum and Natural Gas Rights, other than Royalty Interestsretained by or acquired by the Grantor pursuant to such farmout shall besubject to the NPI.

 

**11.6**                        Redemption, Surrender, Merger, Transfer or Sale of the NPI Only by the Grantor

** **

The Grantorand NPI Holder acknowledge that commercial circumstances may arise whereby itis in the best interests of the NPI Holder to tender for redemption, surrender,terminate, merge, transfer or sell the NPI in respect of some or all of theProperty Interests, for the purpose of exploiting those Property Interests(including their Disposition).  In thisevent, the Grantor shall have the right, by written notice given to the NPIHolder, to request the NPI Holder to tender for redemption, surrender, offer toterminate, transfer, or sell, as the case may be, the NPI in respect of any ofthe Property Interests, whether or not such Property Interests are retained bythe Grantor or are or may be subject to an Agreement with respect to theirDisposition.  Upon receipt of suchnotice and payment of the consideration therefor by the Grantor to the NPIHolder, the NPI in respect of the Property Interests, as specified in theNotice, shall be deemed to have been sold to the Grantor and shall thereuponmerge and terminate with respect to such Property Interests.  The NPI Holder shall execute and deliver allsuch instruments, documents, transfers, conveyances and acknowledgments as theGrantor may reasonably request in conjunction with the foregoing.

 

**ARTICLE 12**NOTICES AND PAYMENTS

** **

**12.1**                        Addresses for Service andPayments

** **

All paymentshereunder in respect of the NPI shall be paid or tendered to the NPI Holder atits address for notices hereunder or such other place or depository as the NPIHolder may request by written notice to the Grantor, provided that no change inthe place at which payments on account of the NPI are to be paid or tenderedshall be effective until 30 days after written notice thereof has been providedto the Grantor by the NPI Holder.

 

**12.2**                        Giving and Deemed Receiptof Notices

** **

Whether or notso stipulated herein, each notice, communication or statement (herein called a **“notice”**) required or permitted hereundershall be in writing.  A notice may beserved:

 

(a)           by delivering it to the Party to whom it isbeing given at that Party’s address for notices hereunder, provided suchdelivery shall be during normal business hours of the addressee of a BusinessDay.  Such notice shall be deemed to bereceived by the addressee when actually delivered as aforesaid; or

 

(b)           by telecopier (or by any other like methodby which a written and recorded message may be sent) directed to the Party towhom it is being given at that Party’s telecopy number for noticeshereunder.  Such notices shall be deemedreceived by the addressee thereof (i) when actually received by it if sentwithin the normal working hours of a Business Day, or (ii) otherwise at thecommencement of the next ensuing Business Day following transmission thereof.

 

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**12.3**                        Addresses

** **

The addressand telecopy number for notices hereunder of the Grantor and the NPI Holdershall be as follows:

 

Grantor:

 

Baytex Energy Ltd.2200, 205 – 5th Avenue S.W.Calgary, AlbertaT2P 2V7Attention:              PresidentFax:                         (403) 205-3845

 

NPI Holder:

 

Baytex Energy Trust

c/o Baytex Energy Ltd.2200, 205 – 5th Avenue S.W.Calgary, AlbertaT2P 2V7Attention:              PresidentFax:                         (403) 205-3845

 

**12.4**                        Change of Address

** **

A Party maychange its address or telecopy number for notices hereunder by notice to theother Parties.

 

**ARTICLE 13**MISCELLANEOUS

** **

**13.1**                        Enurement

** **

Subject toclause 9.1 this agreement shall enure to the benefit of and be binding upon theParties and their respective successors and permitted assigns.

 

**13.2**                        Waivers in Writing

** **

No waiver byany Party of any breach of any of the covenants, conditions and provisionsherein contained shall be effective or be binding on any other Party unlesssuch waiver is expressed in writing and any waiver so expressed shall not limitor affect its rights with respect to any other or future breach.

 

**13.3**                        Time of Essence

** **

Time is of theessence of this agreement.

 

**13.4**                        No Partnership

 

Nothing hereinshall be construed as creating a partnership and no Party shall have anypartnership rights or liabilities hereunder or in connection herewith.

 

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**13.5**                        Severability

** **

The terms andprovisions of this agreement are severable. In the event of the unenforceability or invalidity of any one or more ofthe terms or provisions of this agreement under applicable law, suchunenforceability or invalidity shall not render any of other terms orprovisions hereof unenforceable or invalid and the Parties agree that thisagreement shall be construed as if such unenforceable or invalid term orprovision was never contained herein.

 

**13.6**                        Amendments

** **

No amendment,alteration or variation of this agreement or any of its terms or provisionshall be binding upon the Parties unless made in writing and signed by the dulyauthorized representatives of each of the Parties.

 

**13.7**                        Amendment and Restatement

** **

This amendedand restated agreement replaces the Net Profit Interests Agreement made as ofSeptember 2, 2003 between Baytex Energy Ltd., as Grantor and Baytex EnergyTrust, as the NPI Holder.

 

**ARTICLE 14**CONCERNING THE TRUST

** **

**14.1**                        Acknowledgment

** **

The Partieshereto acknowledge that the Corporation is entering into this agreement solelyin its capacity as administrator of the Trust and the obligations of the NPIHolder hereunder shall not be personally binding upon the Corporation or any ofthe Unitholders and that any recourse against the Trust, the Corporation asadminsitrator of the Trust, or any Unitholder in any manner in respect of anyindebtedness, obligation or liability of the NPI Holder arising hereunder or inconnection herewith or from the matters to which this agreement relates, if any,including without limitation, claims based on negligence, tortious behaviour orotherwise, shall be limited to, and satisfied only out of, the Trust Fund asdefined in the Trust Indenture.

 

IN WITNESS WHEREOF, the Parties have causedthis agreement to be executed on the 2nd day of September, 2003.

 
| **BAYTEX ENERGY LTD.** | **BAYTEX ENERGY TRUST by its  Administrator Baytex Energy Ltd.** |
|------------------------|------------------------------------------------------------------|
| Per:                   | *(signed) “Raymond T. Chan”*                           |   |   |
|                   | Per:                                                             | *(signed) “Raymond T. Chan”* |   |
| Per:                   | *(signed) “Daniel G. Belot”*                           |   |   |
|                   | Per:                                                             | *(signed) “Daniel G. Belot”* |   |
|                        |                                                                  |  |  |  |  |  |  |

 

**(This is theexecution page to the Amended and Restated Net Profit Interests Agreement**

**made as of the 2ndday of September, 2003 among Baytex Energy Ltd. and**

**Baytex Energy Trust)**

 

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