Exhibit 10.2


 


AMENDED AND RESTATED NET PROFIT INTERESTS AGREEMENT


 


 


MADE AS OF SEPTEMBER 2, 2003


 


 


BAYTEX ENERGY LTD.


 


AND


 


BAYTEX ENERGY TRUST


 

















 


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

  	
   

  



 

















 


	
   

  	
  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

  	
   

  



 


2

















 


AMENDED AND RESTATED NET PROFIT INTERESTS AGREEMENT


 


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


 


AMONG:


 


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


 


- and -


 


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


 


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


 


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


 


ARTICLE 1

INTERPRETATION


 


1.1                          Definitions


 


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


 


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


 


(b)           “Acquisition Costs” means the costs and expenses
incurred by the Grantor in making an Acquisition including, without limitation,
the purchase price paid, fees and commissions, registration and due diligence
costs and consultant fees and expenses (including legal, land and engineering
costs) and including costs and expenses associated with unsuccessful
Acquisitions;


 


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


 


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


 


(e)           “ARTC” means credits or rebates in
respect of Crown Royalties which are paid or credited by the Crown, including
those paid or credited under the Alberta
Corporate Tax Act which are commonly known as “Alberta Royalty Tax Credits”;


 

















 


(f)            “Asset Value” means, in respect of any
Property Interest, the present worth of all of the estimated pre-tax net cash
flow from the Proved Reserves and 50% of the estimated pre-tax net cash flow
from the Probable Reserves, associated with such Property Interest determined
in 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 a
Saturday, Sunday or statutory holiday in Alberta;


 


(h)           “Canadian Resource
Property”, “Canadian Exploration Expense” and “Canadian Development Expense” each have the meaning
ascribed 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 Acquisition
Costs;


 


(j)            “Capital
Fund” means the cash flow retained by the NPI Holder from cash
otherwise available for distribution which shall be advanced to the Grantor
pursuant to loan agreements between the NPI Holder and the Grantor from time to
time to finance future acquisitions and development of the Properties (as
defined in the Trust Indenture);


 


(k)           “Commodity Price and Currency
Swaps”
means swap, hedging and other arrangements made by the Grantor (including any
assumed by the Grantor by contract, operation of law or otherwise), from time
to time, in respect of commodity prices or rates of exchange of currencies the
purpose of which is to mitigate or eliminate exposure to fluctuations in prices
of commodities or rates of exchange of one currency for another which affect
Production Costs or revenues attributable to the Property Interests and
includes guarantees, either direct or indirect, by the Grantor of any swap,
hedging and other arrangements made by Persons wholly-owned, directly or
indirectly, by the Grantor or the NPI Holder provided such Person has
guaranteed, directly or indirectly, the Grantor’s Commodity Price and Currency
Swaps;


 


(l)            “Credit Facilities” means the credit facilities
made available to the Grantor by the NPI Holder from time to time including any
notes and other evidences of indebtedness relating to borrowings by the Grantor
from the NPI Holder, including, without limitation, any in connection with the
Capital Fund, and any other credit facilities made available to the Grantor
(including any assumed by the Grantor by contract, operation of law or
otherwise) from time to time by other Persons (including banks, other financial
institutions and Persons wholly-owned, directly or indirectly, by the Grantor
or 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 dated
as of July 9, 2003 and the 10 1⁄2% U.S. Dollar Senior Subordinated Notes due
2011 issued under an Indenture dated as of February 12, 2001 for the
Grantor’s general partnership purposes including, without limitation, to fund
the payment of or to refinance the payment of amounts paid or to be paid by the
Grantor on account of Production Costs and includes guarantees, either direct
or indirect, by the Grantor of any credit facilities made available to Persons
wholly-owned, directly or indirectly, by the Grantor or the NPI Holder provided
such Person has either made a credit facility available to the Grantor or
guaranteed, directly or indirectly, the Grantor’s Credit Facilities;


 


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


 


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


 


2

















 


or bonus or an
amount in lieu thereof that may reasonably be regarded as being in relation to
the acquisition, development or ownership of Petroleum and Natural Gas Rights
or 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 Grantor
pays, or is collected, pursuant to the Credit Facilities;


 


(ii)           all amounts paid on account of principal
pursuant to the Credit Facilities including, without limitation, scheduled,
prepaid (voluntary or mandatory) and accelerated principal and amounts required
to be paid on account of banker’s acceptances and letters of credit but not
including any amounts paid as Deferred Purchase Price Obligations; and


 


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


 


to the extent that such is reasonably
allocable to the Property Interests.


 


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


 


(p)           “Deductible Production
Costs”
means, for any period, 99% of the amount, if any, by which all Production Costs
for such period exceeds the aggregate, without duplication, for such period of
(A) withdrawals from the Reserve or Reclamation Fund to fund payment of
Production Costs, (B) advances made pursuant to the Credit Facilities to
fund the payment of Production Costs, (C) any amounts paid by the NPI
Holder by or on behalf of the NPI Holder as part of the Deferred Purchase Price
Obligation 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 Price
Obligation” shall have the meaning ascribed thereto in subclause 2.2(a);


 


(r)            “Excess Residual Revenues” means in respect of a period
the amount, if any, by which the Residual Revenues exceed the portion thereof
that would have been deducted in the calculation of Deductible Production Costs
if 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 in
which Petroleum Substances are compressed, processed, gathered, transported,
treated, measured or stored and which are located near the oil or gas wells
from which such Petroleum Substances are produced;


 


(t)            “Future Acquisition” means an Acquisition made
after the date hereof;


 


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


 


3

















 


(v)           “Future Property
Interests” means Property Interests acquired by the Grantor after the date hereof
and includes Property Interests acquired by any direct or indirect subsidiary
of the Grantor;


 


(w)          “General and
Administrative Costs” means the aggregate amount in representing all
expenditures and costs incurred in the management and administration of the
Grantor or the NPI Holder reasonably allocable by the Grantor to the Property
Interests including, (a) all reasonable costs and expenses relating to the
Grantor and the NPI Holder and paid to third parties by or on behalf of the
Grantor or their affiliates and (b) all reasonable costs and expenses incurred
specifically for the Grantor relating to the Grantor or the NPI Holder
including, auditing, accounting, bookkeeping, rent and other leasehold
expenses, 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 as
determined by the Canadian Institute of Chartered Accountants;


 


(y)           “Grantor’s Share” means the share attributable
to the Property Interests;


 


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


 


(aa)         “Leases” means the Crown and freehold
petroleum and natural gas leases, licenses, permits and similar instruments
pursuant to which the Grantor derives its interests in the Petroleum and
Natural Gas Rights included in the Property Interests;


 


(bb)         “Lender” means, (a) the lender or
lenders (if there is more than one) that make the Credit Facilities available
to the Grantor and (b) the Person or Persons (if there is more than one) with
whom the Grantor makes Swap Arrangements;


 


(cc)         “Miscellaneous Interests” means all properties, assets
and 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 similar
data and information;


 


(v)           injection wells;


 


(vi)          geological, seismic and similar data; and


 


4

















 


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


 


(dd)         “Month” means a period commencing at
8:00 a.m. Calgary time on the first day of a calendar month and ending
immediately prior to 8:00 a.m. Calgary time on the first day of the following
calendar month;


 


(ee)         “Non-Deductible Crown
Royalties” 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) or
any replacement thereof or substitution therefor; or (ii) not permitted to be
deducted in computing taxable income pursuant to Section 18(1)(m) of the Income Tax Act (Canada) or any replacement
thereof or substitution therefor;


 


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


 


(gg)         “NPI Lands” means the lands which relate
to 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 to
clause 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 such
period;


 


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


 


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


 


(kk)         “Permitted Investments” means:  (i) obligations issued or guaranteed by the
government of Canada or any province of Canada or any agency or instrumentality
thereof; (ii) term deposits, guaranteed investment certificates, certificates
of deposit or bankers’ acceptances of or guaranteed by any Canadian chartered
bank or other financial institution the short-term debt or deposits of which
have been rated at least A or the equivalent by Standard & Poor’s
Corporation, Moody’s Investors Service, Inc., Canadian Bond Rating Service Inc.
or Dominion Bond Rating Service Limited; (iii) commercial paper rated at least
A or the equivalent by Canadian Bond Rating Service Inc. or Dominion Bond
Rating Service Limited, in each case maturing within 180 days after the date of
acquisition; and (iv) money market instruments or funds which the Grantor
determines, acting reasonably and prudently, constitute secure investments;


 


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


 


(mm)       “Petroleum and Natural Gas
Rights”
means rights to explore for, drill for, produce, save and market Petroleum
Substances, including fee simple interests in Petroleum Substances and
interests granted pursuant to instruments commonly known as Crown or freehold
petroleum and/or natural gas leases, licenses or permits, but not Royalty
Interests;


 


5

















 


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


 


(oo)         “Probable Reserves” means those reserves which
may be recoverable as a result of the beneficial effects which may be derived
from the future institution of some form of pressure maintenance or other
secondary recovery method, or as a result of a more favourable performance of
the existing recovery mechanism than that which would be deemed proved at the
present time, or those reserves which may reasonably be assumed to exist
because of geophysical or geological indications and drilling done in regions
which contain Proved Reserves;


 


(pp)         “Production” means the produced Petroleum
Substances attributed to the Property Interests;


 


(qq)         “Production Costs” means the aggregate, without
duplication, of the following items which are paid (directly or indirectly) by
Grantor:


 


(i)            Debt Service Charges;


 


(ii)           the Grantor’s Share of all costs and
expenses 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, equipping
costs, re-entry and operating costs of wells (including costs of redrilling,
deepening, plugging-back, side-tracking, fracing and acidizing wells and costs
and expenses of workovers);


 


(C)           costs and expenses of power generation;


 


(D)          costs and expenses of waterflood, miscible
flood and other secondary and tertiary recovery operations as well as
associated 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 acquired
pursuant to Acquisitions, and costs and expenses of maintaining, repairing and
operating Tangibles;


 


(G)           royalties and similar burdens (including
freehold lessors’ royalties and gross overriding royalties) to which the
Property 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 acquiring
Miscellaneous Interests, except when acquired pursuant to Acquisitions;


 


6

















 


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


 


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


 


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


 


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


 


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


 


(O)          costs and expenses of clean-up and
remediation of spills of hazardous substances and other environmental damage
including costs and expenses of investigating and monitoring such spills or
other environmental damages;


 


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


 


(Q)          costs and expenses associated with drilling
contracts, transportation contracts or other contract settlements that are not
assigned to specific properties; and


 


(R)           all other costs and expenses (including
both operating costs and capital costs) which are payable pursuant to the Title
and Operating Documents;


 


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


 


(iv)          amounts contributed to the Reclamation
Fund;


 


(v)           amounts contributed to the Reserve Fund;


 


(vi)          General and Administrative Costs;


 


(vii)         Acquisition Costs;


 


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


 


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


 


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


 


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


 


7

















 


(ss)         “Property Interests” means all interests in
Petroleum and Natural Gas Rights and in related Tangibles and Miscellaneous
Interests beneficially owned by the Grantor from time to time (without taking
into account the NPI);


 


(tt)           “Proved Reserves” means those quantities of
crude oil, natural gas and natural gas by-products, which, upon analysis of
geologic and engineering data, appear with a high degree of certainty to be
recoverable at commercial rates in the future from known oil and gas reservoirs
under, in the case of escalated price assumptions, presently anticipated and,
in the case of constant pricing assumptions, existing economic and operating
conditions;


 


(uu)         “Reclamation Fund” means the fund described in
clause 7.1;


 


(vv)         “Reserve” shall have the meaning
ascribed thereto in clause 7.3;


 


(ww)       “Residual Revenues” means the Grantor’s Share of
all net revenues which are received by Grantor in respect of the Property
Interests (other than NPI Revenues and the net proceeds of a disposition of
Petroleum and Natural Gas Rights allocated to the interests in the NPI sold
pursuant to such disposition) and the Royalty Interests, including:  (A) fees and similar payments made by third
parties for the processing, transportation, gathering or treatment of their
Petroleum Substances in, by or through Tangibles; (B) proceeds from the sale of
Tangibles and Miscellaneous Interests; (C) insurance proceeds, excluding
business interruption insurance and property damage insurance to the extent
such amounts are used to purchase additional Property Interests subject to the
NPI; (D) proceeds from the sale or licensing of seismic and similar data; (E)
incentives, rebates and credits in respect of Production Costs; (F) revenues
from Commodity Price and Currency Swaps; (G) take or pay and similar payments
made to the Grantor in lieu of a buyer purchasing some of the Production or as
compensation for a buyer not purchasing some of the Production; and (H) ARTC
received by the Grantor;


 


(xx)          “Royalty Interests” means royalty interests, net
profits interests and similar interests pursuant to which the owner thereof is
entitled to a share of the production of Petroleum Substances from the lands or
wells to which the interests relate or to a payment calculated by reference to
the 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 in
the Trust Indenture, as amended from time to time;


 


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


 


(aaa)       “Swap Arrangements” means Commodity Price and
Currency 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 NPI
Lands or lands pooled or unitized therewith or for storing, measuring,
compressing, treating,


 


8

















 


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


 


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


 


(ddd)      “Title and Operating
Documents” means:  (i) the contracts and
agreements pursuant to which the Grantor derives its interest in the Property
Interests, including Crown and freehold petroleum and natural gas leases,
agreements of purchase and sale, farm-in agreements, unit agreements and
royalty agreements; and (ii) contracts and agreements entered into in the
normal course of the oil and gas business in connection with the exploitation
of Petroleum and Natural Gas Rights or the operation of Facilities, including joint
operating agreements, unit operating agreements, farmout agreements, pooling
agreements, royalty agreements, common stream agreements, gas processing
agreements, gas gathering agreements, agreements for the sale of Petroleum
Substances, agreements relating to Surface Rights, agreements for the
construction, ownership and operation of Facilities and agreements for the
transportation of Petroleum Substances;


 


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


 


(fff)         “Trust Indenture” means the amended and
restated trust indenture entitled “Amended and Restated Trust Indenture” dated
as of September 2, 2003 between the Grantor and Valiant Trust Company
pursuant to which the Trust is governed, as may be amended and restated from
time to time;


 


(ggg)      “Trust Unit” means a fractional undivided
interest in the Trust; and


 


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


 


1.2                          Number and Gender


 


Words
importing the singular number include the plural and vice versa and words
importing gender include the masculine, feminine and neuter genders.


 


1.3                          References


 


The table of
contents and headings herein are for convenience of reference only and shall
not affect the construction or interpretation of this agreement.  A reference herein to an article, clause or
subclause without further reference shall be a reference to an article, clause
or subclause of this agreement.  The
words “herein” and “hereof” shall refer to this agreement in its
entirety and not to any particular article or clause.


 


1.4                          Choice of Law


 


This agreement
will be governed by the laws of the Province of Alberta and the laws of Canada
applicable therein and shall be construed, interpreted and performed in
accordance therewith.


 


1.5                          Attornment


 


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


 


9

















 


attorns to and
accepts for itself and in respect of its assets, irrevocably and
unconditionally, the jurisdiction of such courts in respect of all matters
arising out of this agreement.


 


1.6                          Monetary Sums


 


All references
herein 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 shall
not be limited in scope by the items listed after such word.


 


1.8                          Legal Fees


 


The word “costs” shall include legal fees on a
solicitor and client basis.


 


1.9                          1990 CAPL Terms


 


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


 


1.10                        Effective Time


 


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


 


ARTICLE 2

NET PROFIT INTEREST


 


2.1                          Grant of NPI


 


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


 


2.2                          Payment for NPI


 


(a)           In addition to all amounts previously paid
by the NPI Holder to the Grantor, the NPI Holder hereby agrees to pay to the
Grantor as consideration for the NPI, an amount (the “Deferred Purchase Price Obligation”) equal to without
duplication:


 


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


 


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


 


(iii)          99% percent of the portion of indebtedness
incurred in respect of the portion of Future Acquisition Costs and Capital
Expenditures otherwise payable by the Holder as


 


3

















 


contemplated
by paragraphs (i) and (ii), which shall be payable at the time of satisfaction
by the Grantor of such indebtedness.


 


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


 


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


 


2.3                          NPI


 


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


 


2.4                          Ownership of Production


 


The NPI Holder
shall not own any Production and shall have no right to take Production in
kind.


 


2.5                          Petroleum Substances
Lost or Used in Operations


 


The NPI shall
not apply to any Production lost or consumed in operations.


 


2.6                          Not an Interest In Land


 


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


 


2.7                          Reimbursement of Non-Deductible
Crown Royalties


 


The NPI Holder
shall reimburse to the Grantor 99% of all Non-Deductible Crown Royalties paid
by the Grantor in respect of the Property Interests or the production of
Petroleum Substances.  The Grantor shall
be entitled to set off amounts reimbursable to it pursuant to this clause 2.7
against NPI Payments.


 


2.8                          Future Acquisitions


 


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


 


11

















 


ARTICLE 3

ACCOUNTING


 


3.1                          Payments


 


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


 


3.2                          Statements


 


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


 


3.3                          Overpayments


 


If the payment
made by the Grantor on account of the NPI for a Month is greater than the
actual amount of the NPI Payment for such Month, the Grantor will be entitled
to recover the overpayment by set off against NPI Payments for subsequent
Months.


 


3.4                          Collection of
Production Revenues and Residual Revenues


 


The Grantor
will use all commercially reasonable efforts to obtain the payment of
Production Revenues and Residual Revenues but shall not have any liability to
the NPI Holder to the extent that it fails to collect them, provided it makes
commercially reasonable efforts to do so.


 


3.5                          Payment of Production Costs


 


The Grantor
covenants and agrees to use the Production Revenues to pay Production Costs, in
the following order of priority:


 


(a)           firstly, Debt Payments; and


 


(b)           secondly, in payment of all other
Production Costs.


 


3.6                          Trust Expenses


 


Where the
Grantor pays expenses of the Trust, including amounts to the trustee of the
Trust 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 Grantor
shall obtain and maintain such property damage and third party liability
insurance to provide protection for the Property Interests which is, at a
minimum, in accordance with industry standards and which, in any event, will
cover property damage, general liability and, where appropriate in the opinion
of the Grantor, business interruption.  Such
insurance will be maintained with


 


12

















 


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


 


ARTICLE 5

BOOKS AND RECORDS


 


5.1                          Examination


 


During the
term hereof and for a period of two years thereafter the Grantor shall maintain
complete 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 payments
on account of the NPI.  The NPI Holder
shall have the right at all reasonable times during business hours to inspect
such books and records to the extent reasonably necessary in order to verify
the amounts paid or payable hereunder in respect of the NPI.


 


5.2                          Audit


 


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


 


5.3                          Confidentiality


 


The NPI Holder
shall keep all information provided to it pursuant to this agreement strictly
confidential (including, without limitation, information made available to it
in connection with the audits, examinations and inspections conducted by it
pursuant to the foregoing provisions of this Article 5) except for
information which is or becomes publicly available through no act or omission
of the NPI Holder or which becomes available to the NPI Holder from a source
other than the Grantor, without confidentiality restrictions.


 


ARTICLE 6

OPERATIONS


 


6.1                          Generally


 


Having regard
to and subject to the provisions of the Title and Operating Documents and the
Grantor’s rights and obligations thereunder, the Grantor covenants to and in
favour of the NPI Holder that the Grantor shall use all reasonable efforts so
that:


 


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


 


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


 


13

















 


time due in
respect of the Property Interests are paid and all other actions as may be
reasonably necessary to maintain the Title and Operating Documents in good
standing at all times are taken, subject to the terms and provisions hereof;
and


 


(c)           all Surface Rights needed for the proper
operation of the Property Interests and the Tangibles are acquired and
maintained in good standing and all taxes, rates, assessments and other amounts
from time to time payable in respect of the Property Interests are promptly
paid.


 


6.2                          No Obligation to Develop


 


Nothing
contained 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 Grantor
shall have exclusive control and authority over development of, and recovery of
Petroleum Substances from, the NPI Lands and lands pooled or unitized
therewith, including, without limitation, making all decisions respecting
whether, when and how to drill, complete, equip, produce, suspend, abandon and
shut-in wells and whether to elect to convert royalties to working
interests.  The NPI Holder acknowledges
that, as owner of the NPI, it shall not be entitled to any interest in the
Property Interests or the Title and Operating Documents and the Grantor
acknowledges that the NPI Holder, as owner of the NPI, shall not be liable for
any of the duties or obligations arising under the Title and Operating
Documents or in connection with the Acquisition or operation of the Property
Interests.


 


6.4                          Marketing


 


Subject to
existing contracts for the sale of production, the Grantor shall arrange for
the sale of Production for the best prices and on the best terms reasonably
available, provided that, so long as the Grantor acts bona fide and in good faith, it shall have
complete discretion as to the terms, conditions and length of all contracts
entered into for the sale of the Production and shall not be responsible for
any loss or any alleged loss which may occur by reason of any change in
economic or political circumstances or otherwise with respect to any such sales
contract, so long as it acts in good faith and is not negligent.


 


6.5                          Additional Title and
Operating Documents


 


The Grantor
shall 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 in
its sole discretion, provided that it acts in accordance with prudent oil and
gas industry practices and in good faith in connection therewith.


 


6.6                          No Other Business


 


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


 


6.7                          Credit Facilities
Subordination


 


The Credit
Facilities and any Swap Arrangements shall be senior to and rank in priority to
the NPI in all respects and the NPI Holder shall have the authority and is
hereby authorized to enter


 


14

















 


into a
subordination agreement in favour of any Lender acknowledging that the NPI is
subordinate to any such Credit Facilities or any such Swap Arrangements and
providing for such other matters as the Lender may request.


 


For greater
certainty, and subject to the express provisions of any subordination agreement
entered into by the NPI Holder, the payment of the NPI shall be and is hereby
made expressly subordinate in right of payment to all amounts from time to time
owing by the Corporation under the Credit Facilities and under any Swap
Arrangements; provided that until a default or event of default occurs under
any such Credit Facilities or any Swap Arrangements, the Grantor shall be
entitled to make all payments to the NPI Holder required hereunder.  Without limiting the foregoing, the
obligations of the Grantor to the NPI Holder hereunder are subject to the terms
and conditions of the Subordination Agreement to be dated September 3,
2003 and entered into between Baytex Energy Ltd., the NPI Holder (by its
manager Baytex Energy Ltd.) and The Toronto-Dominion Bank.


 


6.8                          Borrowing


 


The Grantor
may from time to time and without any requirements to obtain any consent or
approval from the NPI Holder: (i) enter into and perform its obligations under
the Credit Facilities and borrow money thereunder (including by way of bankers’
acceptances and letters of credit) for any working capital or general corporate
purposes; and (ii) enter into and perform its obligations under any Swap
Arrangements.


 


6.9                          Carry Forward of
Deductible Production Costs


 


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


 


ARTICLE 7

RECLAMATION FUND AND RESERVE FUND


 


7.1                          Establishment


 


The Grantor
shall establish a fund (the “Reclamation
Fund”) to fund the payment of environmental and final site
reclamation costs reasonably allocable by the Grantor to Property
Interests.  The Reclamation Fund shall
be owned by the Grantor and the NPI Holder shall have no interest therein.  Interest and other amounts earned by investing
the funds in the Reclamation Fund will form part of the Reclamation Fund.


 


7.2                          Contributions to the
Reclamation Fund


 


The Grantor
will make annual contributions as determined by the Grantor less current year
site reclamation and abandonment costs, out of the Production Revenues and
Residual Revenues, to the Reclamation Fund such that the currently estimated
future environmental and reclamation obligations associated with Property
Interests acquired from time to time will be funded after an appropriate amount
of time to be determined by the Grantor, acting reasonably.  The amount to be paid into the Reclamation
Fund may be adjusted by the Grantor from time to time, based on its assessment
of its share of expected environmental and reclamation costs in respect of
Property Interests.


 


15

















 


7.3                          Reserve Fund


 


The following
amounts shall be paid into the Reserve:


 


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


 


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


 


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


 


7.4                          Use of Reclamation Fund


 


From time to
time 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’s
environmental and reclamation obligations in respect of Property
Interests.  The Grantor shall hold the
Reclamation Fund in one or more separate accounts and shall not commingle such
funds with its other funds and may invest the Reclamation Fund in Permitted
Investments as it considers prudent from time to time.  The Grantor will not use the Reclamation
Fund for any other purposes unless and only to the extent that the Grantor
determines that the Reclamation Fund exceeds its reasonable estimate of
environmental and reclamation obligations from time to time.


 


7.5                          Termination of Reclamation
Fund


 


When there are
no Property Interests subject to the NPI, the Reclamation Fund will be used to
pay all obligations and liabilities of the Grantor (other than payments to the
NPI Holder) and when in the reasonable opinion of the Grantor, all liabilities
of the Grantor (other than payments to the NPI Holder) have been paid, the
Reclamation Fund will be collapsed and the remainder in the Reclamation Fund up
to an amount equal to the NPI Revenues paid into the Reclamation Fund shall be
paid to the NPI Holder and the balance shall be included in Residual Revenues
and paid to the Grantor.


 


7.6                          Reclamation Trust


 


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


 


(a)           the Grantor shall establish such a vehicle;


 


16

















 


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


 


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


 


(d)           thereafter, for purposes of computing
Production Costs and Deductible Production Costs payments to or from such
vehicle 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 Grantor
shall have full right, power and authority to pool or unitize any of the
Petroleum and Natural Gas Rights comprised in the Property Interests, from time
to time, with other Petroleum and Natural Gas Rights provided that, in the
Grantor’s sole discretion, the pooling or unitization is prudent and the terms
thereof are in accordance with normal oil and gas industry practices.


 


8.2                          Surrender


 


Subject to the
Title and Operating Documents, the Grantor may surrender a Lease, in whole or
in part, to the lessor thereunder without the prior consent of the NPI Holder
if, in the sole discretion of the Grantor, none of the wells located on the
lands covered by such Lease are capable of producing Petroleum Substances in
paying quantities and it is prudent that such Lease be surrendered.  From and after any such surrender, this
agreement and the NPI shall cease to apply to the NPI Lands surrendered except
as to matters which occurred prior to the surrender.


 


8.3                          Abandonment


 


The Grantor
shall have full right, power and authority without the prior consent of the NPI
Holder to authorize the abandonment of any well comprised in the Property
Interests if the Grantor determines, in its sole discretion, that such well is
not capable of producing Petroleum Substances in economic quantities.


 


ARTICLE 9

ASSIGNMENT


 


9.1                          Consent to Assign Agreement


 


Except as
provided in clause 9.3, and subject to clause 11.2, neither the Grantor nor the
NPI Holder shall assign, sell, mortgage, pledge, charge, grant a security
interest in or otherwise encumber or dispose of any interest in this agreement
without first notifying the other Party of its intention to do so and obtaining
the written consent of the other Party, which consent will not be unreasonably
withheld or delayed.  In any event no
such assignment, sale, mortgage, pledge, charge, grant of a security interest,
encumbrance or disposition shall be effective as against any other Party until
the Person in whose favour it is made or granted shall have executed and
delivered a written undertaking, in favour of and enforceable by, such other
Party, agreeing to be bound by and perform all of the terms and provisions of
this agreement attributable to the interest acquired by it.


 


17

















 


9.2                          Multiple NPI Holders


 


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


 


9.3                          Grant of Security


 


Notwithstanding
clauses 9.1 and 9.2, the Grantor may mortgage, pledge, charge or grant a
security interest in the Property Interests or this agreement without the
approval of the NPI Holder to secure its obligations and liabilities under the
Credit Facilities or under Swap Arrangements.


 


9.4                          Dispositions Subject
to This Agreement


 


If any
interest in this agreement or the NPI is sold, assigned, transferred, conveyed,
mortgaged, pledged, charged, encumbered or otherwise disposed of by the Grantor
or the NPI Holder, the rights and interests of the Person to whom such
disposition is made shall be subject to the terms and conditions of this
agreement.


 


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 are
Petroleum and Natural Gas Rights to which the NPI applies.  Thereafter, this agreement shall
nevertheless remain in full force and effect: 
(i) in respect of any accrued and unfulfilled obligations of either
Party; and (ii) as to clauses 5.1, 5.3 and 7.4, Article XI and
Article XIV.


 


ARTICLE 11

DISPOSITIONS


 


11.1                        Dispositions of
Tangibles and Miscellaneous Interests


 


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


 


11.2                        Dispositions of
Petroleum and Natural Gas Rights


 


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


 


18

















 


where the
proceeds of the Disposition exceeds $10 million unless the board of
directors of the Grantor has approved the Disposition.


 


(b)           Notwithstanding subclause 11.2(a), the
Grantor shall have no right to sell Property Interests where the Property
Interests included in such sale, represents all or substantially all of the
Property 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 a
Disposition is made, the NPI Holder shall execute and deliver all such
instruments, documents, transfers, conveyances and acknowledgments as the Grantor
may reasonably request in connection with such Disposition in order to sell,
assign and transfer the NPI to the Grantor in respect of the Property Interests
sold.  Upon a Disposition, the NPI in
respect of the Property Interest subject to such Disposition shall be deemed to
have been sold to the Grantor and shall thereupon merge and terminate.


 


11.4                        Proceeds of a Disposition


 


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


 


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


 


(a)           bona fide agreement between the
parties;


 


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


 


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


 


to be other than the fair market value of the
portion of the NPI so surrendered, such amount shall be adjusted by being
increased or decreased so as to equal the fair market value of the portion of
the NPI so surrendered.  Adjustment
pursuant 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 Grantor
shall have the right to farmout Property Interests on a basis whereby a Person
agrees to incur and pay Capital Expenditures for purposes of exploiting the
Property Interests and in consideration thereof earns an interest in such
Property Interests.  Any such farmout
shall also be a farmout of the NPI on the same terms such that the Person to
whom the farmout is made will also earn the


 


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NPI insofar as
it pertains to such interests in the Property Interests whereupon such interest
in the Property Interests and such interest in the NPI shall merge and such
interest in the NPI shall terminate. 
Any Petroleum and Natural Gas Rights, other than Royalty Interests
retained by or acquired by the Grantor pursuant to such farmout shall be
subject to the NPI.


 


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


 


The Grantor
and NPI Holder acknowledge that commercial circumstances may arise whereby it
is 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 the
Property Interests, for the purpose of exploiting those Property Interests
(including their Disposition).  In this
event, the Grantor shall have the right, by written notice given to the NPI
Holder, to request the NPI Holder to tender for redemption, surrender, offer to
terminate, transfer, or sell, as the case may be, the NPI in respect of any of
the Property Interests, whether or not such Property Interests are retained by
the Grantor or are or may be subject to an Agreement with respect to their
Disposition.  Upon receipt of such
notice and payment of the consideration therefor by the Grantor to the NPI
Holder, the NPI in respect of the Property Interests, as specified in the
Notice, shall be deemed to have been sold to the Grantor and shall thereupon
merge and terminate with respect to such Property Interests.  The NPI Holder shall execute and deliver all
such instruments, documents, transfers, conveyances and acknowledgments as the
Grantor may reasonably request in conjunction with the foregoing.


 


ARTICLE 12

NOTICES AND PAYMENTS


 


12.1                        Addresses for Service and
Payments


 


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


 


12.2                        Giving and Deemed Receipt
of Notices


 


Whether or not
so stipulated herein, each notice, communication or statement (herein called a “notice”) required or permitted hereunder
shall be in writing.  A notice may be
served:


 


(a)           by delivering it to the Party to whom it is
being given at that Party’s address for notices hereunder, provided such
delivery shall be during normal business hours of the addressee of a Business
Day.  Such notice shall be deemed to be
received by the addressee when actually delivered as aforesaid; or


 


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


 


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12.3                        Addresses


 


The address
and telecopy number for notices hereunder of the Grantor and the NPI Holder
shall be as follows:


 


Grantor:


 


Baytex Energy Ltd.

2200, 205 – 5th Avenue S.W.

Calgary, Alberta

T2P 2V7

Attention:              President

Fax:                         (403) 205-3845


 


NPI Holder:


 


Baytex Energy Trust


c/o Baytex Energy Ltd.

2200, 205 – 5th Avenue S.W.

Calgary, Alberta

T2P 2V7

Attention:              President

Fax:                         (403) 205-3845


 


12.4                        Change of Address


 


A Party may
change its address or telecopy number for notices hereunder by notice to the
other Parties.


 


ARTICLE 13

MISCELLANEOUS


 


13.1                        Enurement


 


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


 


13.2                        Waivers in Writing


 


No waiver by
any Party of any breach of any of the covenants, conditions and provisions
herein contained shall be effective or be binding on any other Party unless
such waiver is expressed in writing and any waiver so expressed shall not limit
or affect its rights with respect to any other or future breach.


 


13.3                        Time of Essence


 


Time is of the
essence of this agreement.


 


13.4                        No Partnership


 


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


 


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13.5                        Severability


 


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


 


13.6                        Amendments


 


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


 


13.7                        Amendment and Restatement


 


This amended
and restated agreement replaces the Net Profit Interests Agreement made as of
September 2, 2003 between Baytex Energy Ltd., as Grantor and Baytex Energy
Trust, as the NPI Holder.


 


ARTICLE 14

CONCERNING THE TRUST


 


14.1                        Acknowledgment


 


The Parties
hereto acknowledge that the Corporation is entering into this agreement solely
in its capacity as administrator of the Trust and the obligations of the NPI
Holder hereunder shall not be personally binding upon the Corporation or any of
the Unitholders and that any recourse against the Trust, the Corporation as
adminsitrator of the Trust, or any Unitholder in any manner in respect of any
indebtedness, obligation or liability of the NPI Holder arising hereunder or in
connection herewith or from the matters to which this agreement relates, if any,
including without limitation, claims based on negligence, tortious behaviour or
otherwise, shall be limited to, and satisfied only out of, the Trust Fund as
defined in the Trust Indenture.


 


IN WITNESS WHEREOF, the Parties have caused
this 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 the
execution page to the Amended and Restated Net Profit Interests Agreement


made as of the 2nd
day of September, 2003 among Baytex Energy Ltd. and


Baytex Energy Trust)


 


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