----

**BAYTEX**

**ENERGY      LTD.**

| **Re:** | **Overriding Royalty              Agreement****Townships                91 & 92 Ranges 12 & 13 W5M (the “Lands”)****Sawn                Lake Area, Alberta** |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**1.**
**Definitions**
**:**

|   | a) | “Royalty                Owner” means Baytex Energy                Partnership; |
|--------|----|--------------------------------------------------------------------------------------------|

|   | b) | “Royalty                Payor” means 979708 Alberta Ltd.; |
|--------|----|-----------------------------------------------------------------------|

|   | c) | “Royalty                Lands” means the lands set forth and described in Schedule                “A”. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------|

**2.**
**Schedules**
**:**

|   | a) | Schedule                “A” which describes the Royalty Lands, Title Documents, and Encumbrances;                and |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------|

*Suite      2200, 205 - 5TH Ave. S.W., Calgary Alta. T2P 2V7*

*Tel.      (403) 269-4282*

*Fax      (403) 267-0777*

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|   | b) | Schedule                “B” which is the Overriding Royalty                Procedure. |
|--------|----|---------------------------------------------------------------------------------------------------|

**3.**
**Royalty:**

|   | a) | a                5% non-convertible overriding royalty on 100% production as provided                for                in Article 2.00 of the Overriding Royalty                Procedure. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**4.**
**Address      for Service**
**:**

|   | a) | The                Addresses for Service hereunder of each of the respective Parties                shall be                as follows: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | Any                Party may change its respective Address for Service by serving written                notice to the other Party. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------|

**5.**
**Miscellaneous**
**:**

----

**6.**
**Limitations      Act**
**:**

*Limitations      Act*
*Act*

|   | a) | for                claims disclosed by an audit, two years after the time this Agreement                permitted that audit to be performed;                or |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | for                all other claims, four years. |
|--------|----|--------------------------------------------------|

**7.**
**Counterpart      Execution**
**:**

**BAYTEX      ENERGY PARTNERSHIP**

**By      its managing partner,**

| **BAYTEX                ENERGY LTD.**            |   | **979708                ALBERTA LTD.**           |
|--------------------------------------------------|--------|--------------------------------------------------|
| (the                “Royalty Owner”) |   | (the                “Royalty Payor”) |
|                                             |   |                                             |
| /s/                Dan Horner                    |   | /s/                Michael B. Holley             |
| Dan                Horner, LL.B.                 |   | Michael                B. Holley                 |
| Vice                President, Land              |   | Director                                         |

----

**This      is Schedule “A” attached to and forming part of an Overriding Royalty      Agreement**

**dated      December 19, 2002 between Baytex Energy Partnership and      979708**

**Alberta      Ltd.**

| **Title****Documents**                        | **Lands**                                                                                                                                                      | **Interest** | **Encumbrances**                                                                                                                                                              |
|-----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          |                                                                                                                                                           |         |                                                                                                                                                                          |
| Crown                  PNG Licence 5495030101 | 91-13                  W5M: Sections N28; 32; 33; 3492-13                  W5M: Sections 3; 4; 5All                  PNGExpiry:                  March 2, 2003 | 100%         | Crown                  LOR5%                  Non-convertible ORRpayable                  to Baytex EnergyPartnership                  by 979708Alberta                  Ltd. |
| Crown                  PNG Licence 5495040066 | 91-12                  W5M: Sections 9; 10; 15; 16;17;                  SE 20; 21; 22All                  PNGExpiry:                  April 13, 2004           | 100%         | Crown                  LOR5%                  Non-convertible ORRpayable                  to Baytex EnergyPartnership                  by 979708Alberta                  Ltd. |

----

**Schedule      B**

**OVERRIDING      ROYALTY PROCEDURE**

**CAPL**

**CANADIAN      ASSOCIATION OF PETROLEUM LANDMEN**

**1997**

----

**TABLE      OF CONTENTS**

| 1.00   | DEFINITIONS                    AND INTERPRETATION    |                                                                                                                  |
|--------|------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
|   | 1.01                                                 | Definitions                                                                                                           | 1 |
|   | 1.02                                                 | Incorporation                    of Provisions From 1990 CAPL Operating Procedure                                     | 2 |
|   | 1.03                                                 | Multiple                    Royalty Owner Parties                                                                     | 3 |
|   | 1.04                                                 | Multiple                    Royalty Payor Parties                                                                     | 3 |
|   | 1.05                                                 | Modifications                    to CAPL Document Form                                                                | 3 |
|   |                                                 |                                                                                                                  |   |
| 2.00   | OVERRIDING                    ROYALTY                |                                                                                                                  |
|   | 2.01                                                 | Quantification                    of Overriding Royalty                                                               | 3 |
|   | 2.02                                                 | Effect                    of Pooling Or Unitization On Calculation                                                    | 4 |
|   | 2.03                                                 | Royalty                    Owner’s Right To Take Overriding Royalty In Kind                                     | 4 |
|   | 2.04                                                 | Royalty                    Payor’s Allowed Deduction If Overriding Royalty Not Taken In                    Kind | 5 |
|   | 2.05                                                 | Royalty                    Payor To Account To Royalty Owner Monthly                                                  | 6 |
|   | 2.06                                                 | Royalty                    Owner’s Lien                                                                         | 6 |
|   | 2.07                                                 | Royalty                    Wells To Be Produced Equitably                                                             | 6 |
|   | 2.08                                                 | Royalty                    Owner’s Rights Upon Surrender                                                        | 6 |
|   | 2.09                                                 | Audits                    of Overriding Royalty                                                                       | 6 |
|   |                                                 |                                                                                                                  |   |
| 3.00   | WELL                    INFORMATION TO ROYALTY OWNER |                                                                                                                  |
|   | 3.01                                                 | Royalty                    Owner’s Notification                                                                 | 7 |
|   |                                                 |                                                                                                                  |   |
| 4.00   | LIABILITY                    AND INDEMNITY           |                                                                                                                  |
|   | 4.01                                                 | Royalty                    Payor’s Responsibility                                                               | 7 |
|   | 4.02                                                 | Royalty                    Owner’s Responsibility                                                               | 7 |
|   |                                                 |                                                                                                                  |   |
| 5.00   | ASSIGNMENT                                           |                                                                                                                  |
|   | 5.01                                                 | Incorporation                    Of Assignment Procedure                                                              | 7 |
|   |                                                 |                                                                                                                  |   |
| 6.00   | DEFAULT                                              |
|   | 6.01                                                 | Royalty                    Owner’s Default Remedies                                                             | 7 |
|   |                                                 |                                                                                                                  |   |
| 7.00   | RESERVED                    FORMATIONS               |                                                                                                                  |
|   | 7.01                                                 | Royalty                    Owner’s Access To Reserved Formations                                                | 8 |
|   |                                                 |                                                                                                                  |   |
| 8.00   | DISPUTE                    RESOLUTION                |                                                                                                                  |
|   | 8.01                                                 | Disputes                    Initially Referred to Mediation                                                           | 8 |

----

**OVERRIDING      ROYALTY PROCEDURE**

| **1.00** | **DEFINITIONS AND              INTERPRETATION** |
|----------|-------------------------------------------------|

| **1.01** | **Definitions** |
|----------|-----------------|

|   | (a)  | “**Agreement**”                means the Head Agreement and the Schedules attached to                it. |
|--------|-----------|----------------------------------------------------------------------------------------------------------------------|

|   | (b) | “**Effective** **Date**”** **means                **December                1, 2002** |
|--------|-----|-------------------------------------------------------------------------------------------------------------|

|   | (c) | “**Facility                Fees**”** **means,                as applicable: |
|--------|-----|----------------------------------------------------------------------------------------------|

|   | (i) | for                Facility Usage of facility capacity owned by third parties (other                than                Affiliates of the Royalty Payor), all costs and expenses paid by                the                Royalty Payor for that Facility Usage;                and |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | for              Facility Usage of facility capacity owned by the Royalty Payor (or              an              Affiliate of the Royalty Payor), an expense equal to a fee (comprised              of              both operating and return on capital components) in accordance with              (1) or              (2) below: |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (1) | the              fee ordinarily chargeable for the same use as the Facility Usage, if              that              facility is made available for use by third parties;              or |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | in                all other circumstances, a fee sufficient to cover that use of facilities,                where the capital recovery component of that fee uses as a guideline                the                PJVA Jumping Pound-95 methodology and where the operating cost component                is calculated and assessed on the basis of facility throughput                costs; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | “**Facility                Usage**”                means the Royalty Payor’s use of facilities beyond those included in                Equipping Costs to make merchantable and to deliver to market Petroleum                Substances produced from a Royalty Well, including, as applicable,                the                gathering, compression, treatment, processing and transportation                of those                Petroleum Substances, but excluding any basis adjustments made in                the                determination of the Market Price of natural                gas. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | “**Head                Agreement**”                means the Agreement, other than the                Schedules. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------|

|   | (f) | “**Overriding                Royalty**”                means that interest in a portion of the Petroleum Substances within,                upon,                under or attributed to the Royalty Lands that is reserved by or granted                to                the Royalty Owner pursuant to the Head Agreement, as more particularly                outlined in Article 2.00. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (g) | “**Overriding** **Royalty                Procedure**”                means this Schedule. |
|--------|-----|------------------------------------------------------------------------------------------------------------|

|   | (h) | “**Royalty                Determination Point**”                means the first point at which Petroleum Substances are or can be                metered,                measured or allocated downstream of the wellhead after, as applicable:                (i)                any treatment of crude oil for the separation, removal and disposal                of                basic sediment and water; (ii) any extraction of liquid hydrocarbons                from                natural gas at the wellhead and any wellsite separation, removal                and                disposal of basic sediment and water from those liquid hydrocarbons;                and                (iii) any wellsite dehydration of natural                gas. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (i) | “**Royalty                Lands**”                means the areal, stratigraphic and substance rights described as“Royalty                Lands” in Schedule “A” of the Agreement or made subject to the Overriding                Royalty in the manner outlined in the Head Agreement, as the case                may be,                and so much of those rights as remain subject to the Agreement and                the                Title Documents, excluding any Reserved                Formations. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (j) | “**Royalty                Owner**”                has the meaning set forth in the Head                Agreement. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------|

|   | (k) | “**Royalty                Payor**”                has the meaning set forth in the Head                Agreement. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------|

|   | (l) | “**Reserved                Formations**”                means any rights not included in the Royalty Lands that are held                under the                Title Documents. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (m) | “**Royalty                Well**”                means any well from which production is obtained from the Royalty                Lands or                may be allocated to the Royalty Lands pursuant to a pooling, unit                or other                arrangement. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (n) | “**Title                Documents**” means the documents of title described as “Title                Documents” in Schedule “A” to the Agreement, insofar as they relate to the                Royalty Lands, and all renewals, extensions, continuations or documents                of                title issued in substitution or by                selection. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **1.02** | **Incorporation Of Provisions From 1990 CAPL              Operating Procedure** |
|----------|---------------------------------------------------------------------------------|

|   | 101    | (c)                                                                                                                                            | “Affiliate”;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | (m)                                                                                                                                            | “equipping costs”, which are referred to as              “Equipping Costs”;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | (s)                                                                                                                                            | “market                price”, which is referred to as “Market Price”, in which the phrase                “Article VI” is replaced with “Subclause 2.03D” and at the end of which is                added: However, for natural gas, this price will be the weighted                1 month                spot index price for the specific month in which that natural gas                was                produced, as reported in the publication titled “Canadian Gas Price                Reporter” in the table “Monthly Canadian and U.S. natural gas price                summary” under the column for that specific delivery month and the row                “Alberta Spot Price-AECO C/NIT C$/GJ”, subject to reasonable basis                adjustments between the point of delivery to the applicable pipeline                transportation system and the point at which the index price applies,                provided that if that publication or that index cease to exist, the                price                will be determined in accordance with the previous sentence, unless                otherwise agreed by the Parties.; |
|   |   | (v)                                                                                                                                            | “party”, which is referred to as              “Party”;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | (y)                                                                                                                                            | “petroleum              substances”, which are referred to as “Petroleum              Substances”;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   | (bb)                                                                                                                                           | “Regulations”;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   | (cc)                                                                                                                                      | “spacing unit”, which is referred to as              “Spacing Unit”;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | (dd)                                                                                                                                           | “spud”,                which is referred to as “Spud” and in which the phrase “in the AFE” is                deleted; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | (ff)                                                                                                                                           | “working              interest”, which is referred to as “Working Interest” and in which the              phrase “a production facility or” is deleted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | 102    | HEADINGS                                                                                                                                       |
|   | 103    | REFERENCES                                                                                                                                     |
|   | 105    | DERIVATIVES                                                                                                                                    |
|   | 106    | USE              OF CANADIAN FUNDS                                                                                                             |
|   | 107    | CONFLICTS,              with “Article 4.00” replacing the phrase “Article IV hereof” in the              seventh line. |
|   | 304    | PROPER                PRACTICES IN OPERATIONS                                                                                                  |
|   | 305    | BOOKS,              RECORDS AND ACCOUNTS                                                                                                       |
|   | 306    |  PROTECTION              FROM LIENS                                                                                                       |

----

|   | 308   | SURFACE RIGHTS                                                                                                                                                                                                                                                                          |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 309   | MAINTENANCE                OF TITLE DOCUMENTS, with the addition at the end of the first sentence                of                Subclause 309(b) of: “, provided that the Royalty Payor is not obligated                to consult in this manner with a Royalty Owner”. |
|   | 2001  | WAIVER              MUST BE IN WRITING                                                                                                                                                                                                                                                  |
|   | 2101  | PARTIES              TO SUPPLY                                                                                                                                                                                                                                                          |
|   | 2201  | SERVICE              OF NOTICE                                                                                                                                                                                                                                                          |
|   | 2202  | ADDRESSES              FOR NOTICES - The Parties’ Addresses for Service will be as set forth in              the Head Agreement.                                                                                                                                                  |
|   | 2203  | RIGHT              TO CHANGE ADDRESS                                                                                                                                                                                                                                                    |
|   | 2403  | MULTIPLE              ASSIGNMENT NOT TO INCREASE COSTS, with “Overriding Royalty” replacing              “working interest” in the first and third lines.                                                                                                       |
|   | 2601  | LIMITATION              ON RIGHT OF ACQUISITION                                                                                                                                                                                                                                         |
|   | 2801  | SUPERSEDES              PREVIOUS AGREEMENTS                                                                                                                                                                                                                                             |
|   | 2802  | TIME              OF ESSENCE                                                                                                                                                                                                                                                            |
|   | 2803  | NO              AMENDMENT EXCEPT IN WRITING                                                                                                                                                                                                                                             |
|   | 2804  | BINDS              SUCCESSORS AND ASSIGNS, with “5.00”* *replacing “XXIV” in the              first line.                                                                                                                                                  |
|   | 2805  | LAWS              OF JURISDICTION TO APPLY                                                                                                                                                                                                                                              |
|   | 2806  | USE              OF NAME                                                                                                                                                                                                                                                                |
|   | 2807  | WAIVER              OF RELIEF                                                                                                                                                                                                                                                           |

| **1.03** | **Multiple Royalty Owner              Parties** |
|----------|-------------------------------------------------|

| **1.04** | **Multiple                Royalty Payor Parties** |
|----------|---------------------------------------------------|

|  | (a) | the                Royalty Payor’ s obligations and liabilities to the Royalty Owner will be                joint and several; |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | the                  Royalty Owner may deal solely with the Royalty Payor Party designated                  as                  the Royalty Payor’s representative in the Head Agreement respecting the                  Head Agreement or this Royalty Procedure, provided that: (i) the                  Royalty                  Owner will provide each Royalty Payor Party with notices the Royalty                  Owner                  serves to the Royalty Payor; (ii) the Royalty Payor is bound by                  the acts                  and elections of that representative acting in that capacity; and                  (iii)                  the Royalty Payor may designate another representative by notice                  to the                  Royalty Owner; and |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c)  | the Royalty Payor’s rights and obligations will accrue              proportionately to the Royalty Payor Parties in the percentages set              forth              in the Head Agreement. |
|--------|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **1.05** | **Modifications                To CAPL Document Form** |
|----------|--------------------------------------------------------|

| **2.00** | **OVERRIDING                ROYALTY** |
|----------|---------------------------------------|

| **2.01** | **Quantification                Of Overriding Royalty** |
|----------|---------------------------------------------------------|

|   | A. | The                Overriding Royalty is created effective as of the date and in the                manner                provided in the Head Agreement and this Overriding Royalty Procedure.                Subject to the other provisions of this Article, including the modified                calculation under Subclause 2.02C for production of Petroleum Substances                allocated to the Royalty Lands, the Overriding Royalty (based on                a 100%                Working Interest) will be determined on a well by well basis at the                Royalty Determination Point, and will be as                follows: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | for                crude oil, **5.00%**                of                the gross monthly production thereof produced from each Royalty Well;                and |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | for                all other Petroleum Substances, **Alternate                1**                will apply (Specify 1 or 2). |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------|

**Alternate      1:**

***5.00%***
*of      the gross monthly production thereof produced from each Royalty      Well.*

**Alternate      2:**

|   | *(i)* | *if                not taken in kind by the Royalty Owner pursuant to Clause 2.03, the                gross                proceeds from the Royalty Payor‘s sale of % of the gross monthly                production thereof produced from each Royalty Well, free and clear,                subject to Subclause 2.04C, of all Facility Fees otherwise chargeable                pursuant to Clause 2.04; and* |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | *(ii)* | *if                taken in kind by the Royalty Owner, % of the gross monthly production                thereof produced from each Royalty                Well.* |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Notwithstanding                the calculation at the Royalty Determination Point under Subclause                2.01A,                the Overriding Royalty will not include Petroleum Substances that                the                Royalty Payor reasonably uses or unavoidably loses in the Royalty                Payor’s                drilling and production operations for the Royalty Lands. Those drilling                and production operations include the proportionate use of those                Petroleum                Substances in batteries, treaters, compressors, separators, satellites                and                similar equipment serving Royalty Wells, but do not include the use                of                Petroleum Substances for any enhanced recovery                operations. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **2.02** | **Effect                Of Pooling Or Unitization On                Calculation** |
|----------|-----------------------------------------------------------------------------------|

|   | A. | The                  Royalty Payor may pool the Petroleum Substances in a zone underlying                  all                  or a portion of the Royalty Lands to the extent required to form                  a Spacing                  Unit in that zone, provided that the pooling allocates production                  therefrom to the applicable Royalty Lands in the proportion that                  the                  surface area of the Royalty Lands placed in the Spacing Unit bears                  to the                  total surface area of the Spacing Unit. The Royalty Payor will                  promptly                  give notice to the Royalty Owner describing the extent to which                  the                  Royalty Lands have been pooled and describing the pooled Spacing                  Unit. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | If                the Royalty Payor proposes to pool, unitize or otherwise combine                any                portion of the Royalty Lands with any other lands, other than as                provided                in the previous Subclause, the Royalty Payor must promptly send notice                of                that intention to the Royalty Owner. That notice must include the                technical justification for that pooling, unitization or combination                and                the proposed terms thereof, provided that the Royalty Payor will                not be                required to provide interpretative data to the Royalty Owner. Unless                otherwise required by the Regulations to form a Spacing Unit, the                Royalty                Payor will not enter into that pooling, unitization or combination                without                the prior written consent of the Royalty Owner, which consent will                not be                unreasonably delayed or withheld. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | If                any portion of the Royalty Lands is pooled, unitized or combined                with any                other lands pursuant to this Clause, Clause 2.01 will be deemed to                be                amended to calculate the volume of the Overriding Royalty by applying                the                percentages set forth in that Clause to the quantity of Petroleum                Substances thereby allocated to the affected Royalty                Lands. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **2.03** | **Royalty                Owner’s Rights To Take Overriding Royalty In                Kind** |
|----------|---------------------------------------------------------------------------------------------------|

|   | A. | Subject                to the provisions of this Clause, the Royalty Payor is appointed                as the                agent of the Royalty Owner for the handling and disposition of the                Overriding Royalty share of Petroleum Substances. All acts of the                Royalty                Payor under this Clause in the handling and disposition of those                Petroleum                Substances and the receipt of proceeds of sale therefrom will be                as                trustee for the Royalty Owner. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | The                Royalty Owner may, on a minimum of 60 days’ notice to the Royalty Payor,                revoke the agency established in Subclause 2.03A and elect to take                delivery and separately dispose of the Petroleum Substances comprising                the                Overriding Royalty at the Royalty Determination Point. This right                may be                exercised separately for each type of Petroleum Substance, effective                at                the 1st day of the calendar month next following that minimum 60                day                period. The Royalty Owner will supply the Royalty Payor with such                information regarding the Royalty Owners arrangements for disposition                of                those Petroleum Substances as the Royalty Payor may reasonably require                to                coordinate custody transfer and shipping arrangements for those Petroleum                Substances. Failure to provide the Royalty Payor with that information                will be deemed to be a failure by the Royalty Owner to take those                Petroleum Substances in kind. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | If                the Royalty Owner takes in kind its Overriding Royalty share of crude                oil                or liquid products extracted from natural gas at the wellhead, the                Royalty                Payor will, at the Royalty Payor’s cost, remove basic sediment and water                from those Petroleum Substances in accordance with good oilfield                practice,                so that relevant pipeline specifications can be met. The Royalty                Payor                will provide the Royalty Owner, at the Royalty Payor’s cost, production                tankage capacity for an accumulation of the Overriding Royalty share                of                those Petroleum Substances consistent with the Royalty Payor’s shipping                schedule for its own share of those Petroleum Substances. Subject                to                Subclause 2.04C, the Royalty Payor will deliver the Overriding Royalty                share of those Petroleum Substances to the Royalty Owner, or the                Royalty                Owner’s nominee, at the Royalty Determination Point, in accordance with                usual and customary pipeline and shipping practice, free and clear                of all                charges. If the Royalty Owner takes its Overriding Royalty share                of                natural gas in kind, the Royalty Payor will deliver that gas to the                Royalty Owner, or the Royalty Owner’s nominee, at the Royalty                Determination Point for the relevant well at the Royalty Payor s                cost. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | D. | Except                to the extent otherwise agreed by the Royalty Payor and the Royalty                Owner,                insofar as the Royalty Payor takes possession of Petroleum Substances                comprising the Overriding Royalty as agent of the Royalty Owner,                the                Royalty Payor will dispose of those Petroleum Substances                by: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | purchasing                those Petroleum Substances for the Royalty Payors own account (or                the                account of an Affiliate) at a Market Price and accounting to the                Royalty                Owner therefor. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | selling              those Petroleum Substances at a Market Price and accounting to the              Royalty              Owner for the proceeds of the sale; or |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | E. | Insofar                as the Royalty Owner has elected to revoke the agency established                by                Subclause 2.03A, the Royalty Owner may re-establish that agency on                a                minimum of 60 days’ notice to the Royalty Payor, effective as of the 1st                day of the calendar month next following that minimum 60 day period.                This                right may be exercised separately for each type of Petroleum                Substance. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **2.04** | **Royalty                Payor’s Allowed Deductions If Overriding Royalty Not Taken In                Kind** |
|----------|--------------------------------------------------------------------------------------------------------------------|

|   | A. | To                the extent that the Royalty Payor disposes of Petroleum Substances                comprising the Overriding Royalty on behalf of the Royalty Owner,                the                Royalty Owner’s share of those Petroleum Substances will be free of any                deductions for costs and expenses incurred by the Royalty Payor to                and                including the Royalty Determination Point. Subject to Subclause 2.04C,                the                Royalty Owner will be responsible, on a well by well basis, for the                following costs and expenses incurred after the Royalty Determination                Point with respect to the Royalty Owner’s share of those Petroleum                Substances: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | for                crude oil and liquid products extracted from natural gas at the wellhead,                any associated Facility Fees and any transportation costs to transport                those Petroleum Substances from the Royalty Determination Point to                the                point of sale; and |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | for                Petroleum Substances other than those described in the preceding                Paragraph, the associated Facility Fees if Alternate 2.01A(b)(1)                applies. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | The                deductions applicable pursuant to the preceding Subclause will be                subject                to **Alternate                2** |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Alternate      1:**

*The      deductions must not exceed those permitted by the Regulations for the      calculation of royalties if the lessor under the relevant Title Documents were      the Crown in right of the Province in which the Royalty Lands are      located.*

**Alternate      2:**

*The      deductions must not be greater than *
***40.00      %***
*      of      the Market Price received by the Royalty Payor from the sale of the Royalty      Owner’s Overriding Royalty share of those Petroleum Substances, provided that      the Market Price will first be adjusted for any deductions under Subclause      2.04C.*

|   | C. | Notwithstanding                any other provision of this Article, if the Royalty Payor is required                to                incur costs to enrich the Overriding Royalty share of Petroleum Substances                to increase the heating value or to facilitate transportation or                marketing                of those Petroleum Substances, those costs will be deductible by                the                Royalty Payor against the gross proceeds of sale applicable to those                enriched Petroleum Substances, with the intention that neither the                Royalty                Payor nor the Royalty Owner suffer a loss as a result of that enrichment.                Enrichment operations, include, without limitation, condensate blending                in                the case of heavy oil and enrichment by propane or butane in the                case of                gas with a low heating value. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | The                Royalty Payor’s right to make the deductions set forth in this Clause                pertains to the costs and expenses that would otherwise be incurred                by the                Royalty Owner to bring those Petroleum Substances to the point of                sale if                the Royalty Owner were taking those Petroleum Substances in kind.                The                allowable deductions from the proceeds of sale of the Royalty Owner’s                Overriding Royalty share of Petroleum Substances are expressed as                cash                obligations for convenience of record keeping and audit, and are                not to be                construed as altering the nature of the Overriding Royalty as an                interest                in land. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **2.05** | **Royalty                Payor To Account To Royalty Owner                Monthly** |
|----------|-------------------------------------------------------------------------------------|

* *

| **2.06** | **Royalty                Owner’s Lien** |
|----------|-----------------------------------------------|

| **2.07** | **Royalty                Wells To Be Produced                Equitably** |
|----------|--------------------------------------------------------------------------|

| **2.08** | **Royalty                Owner’s Rights Upon                Surrender** |
|----------|-------------------------------------------------------------------------------|

**will      not apply**

----

| **2.09** | **Audits                Of Overriding Royalty** |
|----------|-------------------------------------------------|

|   | A. | The                Royalty Owner may, upon reasonable notice to the Royalty Payor and                at the                Royalty Owner’s own expense, audit the books, records and accounts of the                Royalty Payor with respect to the production, disposition or sale                of the                Overriding Royalty within 24 months next following the end of the                applicable calendar year. The Royalty Owner will conduct any such                audit in                accordance with PASC Joint Venture Audit Protocol Bulletin No. 6                (or any                replacement therefor). |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Any                statement issued by the Royalty Payor to the Royalty Owner respecting                the                calculation of the Overriding Royalty will be presumed to be true                and                correct 26 months following the end of the calendar year in which                that                statement was issued, unless the Royalty Owner takes written exception                thereto and requests an adjustment pursuant to this Clause within                that 26                month period. If a Party discovers during that period that there                was an                error in the calculation of the Overriding Royalty and can demonstrate                that the error applied both to that period and a prior period, the                Royalty                Payor will make the required adjustment retroactively to either the                inception of that error or such other time as the Parties may agree,                provided that any dispute respecting the proposed retroactive adjustment                will be resolved pursuant to Clause 8.01. Except to the extent required                to                confirm the adjustment proposed by the Royalty Payor, the retroactive                adjustment contemplated by the previous sentence will not extend                the                Royalty Owners audit rights beyond the 24 month limitation provided                for in                Subclause 2.09A. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.00** | **WELL                INFORMATION TO ROYALTY                OWNER** |
|----------|---------------------------------------------------------------------|

| **3.01** | **Royalty                Owner’s Notification** |
|----------|-------------------------------------------------------|

| **4.00** | **LIABILITY                AND INDEMNITY** |
|----------|--------------------------------------------|

| **4.01** | **Royalty                Payor’s Responsibility** |
|----------|---------------------------------------------------------|

|   | (a) | be                liable to the Royalty Owner for all losses, costs, damages and expenses                whatsoever (whether contractual or otherwise) that the Royalty Owner                may                suffer, sustain, pay or incur; and, in                addition |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | indemnify                and hold harmless the Royalty Owner and its directors, officers,                agents                and employees against all actions, causes of action, proceedings,                claims,                demands, losses, costs, damages and expenses whatsoever that may                be                brought against or suffered by the Royalty Owner, its directors,                officers,                agents and employees or that they may sustain, pay or                incur; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **4.02** | **Royalty                Owner’s Responsibility** |
|----------|---------------------------------------------------------|

----

| **5.00** | **ASSIGNMENT** |
|----------|----------------|

| **5.01** | **Incorporation                Of Assignment Procedure** |
|----------|----------------------------------------------------------|

** **

| **6.00** | **DEFAULT** |
|----------|-------------|

| **6.01**  | **Royalty                Owner’s Default Remedies** |
|----------------|-----------------------------------------------------------|

| **7.00** | **RESERVED                FORMATIONS** |
|----------|----------------------------------------|

| **7.01** | **Royalty                Owner’s Access To Reserved                Formations** |
|----------|---------------------------------------------------------------------------------------|

| **8.00** | **DISPUTE                RESOLUTION** |
|----------|---------------------------------------|

| **8.01** | **Disputes                Initially Referred To                Mediation** |
|----------|----------------------------------------------------------------------------|