Hemisphere Energy Corporation.: Exhibit 10.6 - Filed by newsfilecorp.com






Exhibit 10.6


Phone: 403-974-5777
Fax: 403-974-5784 

September 19, 2013 

Hemisphere Energy Corporation 
Suite 570, 789 West Pender
St. 
Vancouver, BC V6C 1H2 

Attn:     Dorlyn Evancic, CFO


Dear Sir: 

Alberta Treasury Branches has approved and offers financial
assistance on the terms and conditions in the attached Commitment Letter. 

You may accept our offer by returning the enclosed duplicate of
this letter, signed as indicated below, by 4:00 p.m. on or before October 3,
2013 or our offer will automatically expire. We reserve the right to cancel our
offer at any time prior to acceptance. 

Thank you for your business. 

Yours truly, 

ALBERTA TREASURY BRANCHES 

	By: 	/s/
      Mikael Sears	 
		Mikael Sears, Director 	 
	  	 	 
	By: 	/s/
      Sonia Barr	 
	  	Sonia Barr, Associate Director 	 


Encl. 

Accepted this, 25th day of September, 2013 

Hemisphere Energy Corporation 

	Per: 	/s/ Don Simmons 	 
	 	 	 
	Per: 	/s/ Dorlyn Evancic 	 


 

 

[Letterhead of Alberta Treasury Branches] 




COMMITMENT LETTER 

	LENDER: 	ALBERTA TREASURY BRANCHES 
	 	 
	BORROWER: 	HEMISPHERE ENERGY CORPORATION




	1. 	
      AMOUNTS AND TYPES OF FACILITIES (each referred to as a
      “Facility”)



Facility #1 - Operating Loan
Facility (Revolving) — Cdn. $10,500,000.00 ($9,500,000.00 available upon
satisfaction of Conditions Precedent and $1,000,000.00 available upon
satisfaction of Conditions Precedent - PAB) 

	- 	Facility #1 is available by way of:
    
	 	 	 
	                   	- 	Prime-based loans in Canadian dollars 
		- 	Letters of Credit (to an aggregate maximum of
      $1,000,000.00) in Canadian dollars 
		- 	Corporate MasterCard (to a maximum of
      $100,000.00) 



	- 	
      Facility #1 is to be used to pay out in full all
      indebtedness and liability owing by Borrower to Canadian Western Bank, and
      thereafter, for the general operating purposes of Borrower including the
      purchase of assets from Pengrowth Energy Corporation (the “Pengrowth Atlee
      Buffalo Asset Acquisition” or PAB) as per the Letter of Intent dated May
      31, 2013 (the “PAB LOI”) 




	- 	Notwithstanding the amount of
      Facility #1, advances under Facility #1 will be limited to the amount
      equal to the lesser of: 
	 	 	 
	 	- 	the maximum principal amount of Facility #1;
      and 
	 	- 	the amount of the most recent Borrowing Base
      determined hereunder. 


From time to time, the Borrowing Base
shall be re-calculated by Lender upon receipt of each engineering report
required to be delivered hereunder and if Borrower fails to deliver any such
report then at any other time at Lender’s sole discretion. Lender shall notify
Borrower of each change in the amount of the Borrowing Base. In the event that
Lender re-calculates the Borrowing Base to be an amount that is less than the
Borrowings outstanding under Facility #1, Borrower shall repay the difference
between such Borrowings outstanding and the new Borrowing Base within 30 days of
receiving notice of the new Borrowing Base, and all rates and fees for Facility
#1 listed under the “Interest Rates and Prepayment” section hereof will
immediately upon receipt of that notice increase by 200 basis points until the
difference is fully paid whereupon all rates and fees for Facility #1 will
revert to those listed under the “Interest Rates and Prepayment”.. Lender
confirms that the Borrowing Base on the date hereof is $10,500,000.00. 

Other Facilities – Foreign Exchange, Interest Rate and
Commodity Derivatives 

	- 	
      At Borrower’s request, Lender may enter into foreign
      exchange forward contracts and/or interest rate and commodity derivatives
      with Borrower from time to time. Lender makes no commitment to enter into
      any such contract or derivative and may at any time in its sole discretion
      decline to enter into any such contract or derivative. Any Security
      Documents will also secure Borrower’s liability and obligations pursuant
      to any such contracts or derivatives. 








	Hemisphere Energy Corporation 	September 19, 2013 
	Page 2 	  



	2. 	
      INTEREST RATES AND
PREPAYMENT:




	Facility #1: 	  
	  	  	  
	- 	Pricing applicable to Facility #1 is
      as follows: 
	 	 	 
	  	- 	Prime-based loans: Interest is payable in
      Canadian dollars at Prime plus 1.75% per annum 
		- 	Letters of Credit: Fee is 2.0% per annum with a
      minimum fee of $200.00, payable in the currency in which it is issued.
  
	  	- 	Corporate MasterCard: Fees are detailed in the
      Corporate MasterCard documentation. 
	  	  	  
	- 	Non-refundable facility fee
      calculated at a rate of 0.40% per annum is payable monthly in Canadian
      dollars on the last day of each month, calculated daily on the unused
      portion of the authorized amount of Facility #1. 
	  	  	  
	- 	Facility #1 may be prepaid in whole
      or in part at any time (subject to the notice periods provided hereunder)
      without penalty. 



	3. 	
      REPAYMENT:




	Facility #1: 
	  	  
	- 	Facility #1 is payable in full on demand by
      Lender, and Lender may terminate the availability thereof (including any
      undrawn portion) at any time without notice. 
	  	  
	- 	Facility #1 may revolve in multiples as
      permitted hereunder, and Borrower may borrow, repay, reborrow and convert
      between types of Borrowings, up to the amount and subject to the notice
      periods provided hereunder. 



	4. 	
      FEES:



	
  Non-refundable application fee of $31,500.00 is payable on acceptance of
  this offer. Lender is hereby authorized to debit Borrower’s current account
  for any unpaid portion of the fee. 

  
	
  Any amount in excess of established credit facilities may be subject to a
  fee where Lender in its sole discretion permits excess Borrowings, if any.


  
	
  For reports or statements not received within the stipulated periods (and
  without limiting Lender’s rights by virtue of such default), Borrower will be
  subject to a fee of $50 per month (per monthly or quarterly report or
  statement) and $250 per month (per annual report or statement) for each late
  reporting occurrence, which will be deducted from Borrower’s account.




	5. 	
      SECURITY DOCUMENTS:



All security documents (whether held or
later delivered) (collectively referred to as the “Security Documents”) shall
secure all Facilities and all other obligations of Borrower to Lender (whether
present or future, direct or indirect, contingent or matured). 




	Hemisphere Energy Corporation 	September 19, 2013 
	Page 3	  


The security documents required at this time is a General
Security Agreement from Borrower providing a security interest over all present
and after acquired personal property and a floating charge on all lands. 

The security documents are to be registered in the following
jurisdictions: Alberta and British Columbia. 

	6. 	
      REPRESENTATIONS AND
WARRANTIES:



Borrower represents and warrants to
Lender that: 

	 	(a) 	
      if a Loan Party is a corporation, it is a corporation
      duly incorporated, validly existing and duly registered or qualified to
      carry on business in the Province of Alberta and in each other
      jurisdiction where it carries on any material business; 

	 	  	
      

	 	(b) 	
      if a Loan Party is a partnership, it is a partnership
      duly created, validly existing and duly registered or qualified to carry
      on business in the Province of Alberta and in each other jurisdiction
      where it carries on any material business; 

	 	  	
      

	 	(c) 	
      the execution, delivery and performance by each Loan
      Party of this agreement and each Security Document to which it is a party
      have been duly authorized by all necessary actions and do not violate its
      governing documents or any applicable laws or agreements to which it is
      subject or by which it is bound; 

	 	  	
      

	 	(d) 	
      no event has occurred which constitutes, or which, with
      notice, lapse of time, or both, would constitute, a breach of any
      provision of this agreement or any Security Document given in connection
      herewith; 

	 	  	
      

	 	(e) 	
      the most recent financial statements of Borrower and, if
      applicable, any Guarantor, provided to Lender fairly present its financial
      position as of the date thereof and its results of operations and cash
      flows for the fiscal period covered thereby, and since the date of such
      financial statements, there has occurred no material adverse change in its
      business or financial condition; 

	 	  	
      

	 	(f) 	
      all engineering data, production and cash flow
      projections, and other information and data provided to Lender by or on
      behalf of Borrower (including, without limitation, any engineering reports
      and land schedules) are true and correct in all material respects as at
      the time provided and fairly reflect the interests of the Loan Parties
      therein net of all royalties and other burdens affecting the same;
  

	 	  	
      

	 	(g) 	
      each Loan Party has good and marketable title to all of
      its properties and assets, free and clear of any encumbrances, other than
      Permitted Encumbrances; 

	 	  	
      

	 	(h) 	
      each Loan Party is in compliance in all material respects
      with all applicable laws including, without limitation, all environmental
      laws, and there is no existing material impairment to its properties and
      assets as a result of environmental damage, except to the extent disclosed
      in writing to Lender and acknowledged by Lender; and 

	 	  	
      

	 	(i) 	
      Borrower has no Subsidiaries. 

	 	 	 
	 	All representations and warranties are deemed to
      be repeated by Borrower on each request for an advance hereunder.
  






	Hemisphere Energy Corporation 	September 19, 2013 
	Page 4	  



	7. 	
      POSITIVE COVENANTS:



Borrower covenants with Lender that so
long as it is indebted or otherwise obligated (contingently or otherwise) to
Lender, it will do and perform the following covenants. If any such covenant is
to be done or performed by a Guarantor, Borrower also covenants with Lender to
cause Guarantor to do or perform such covenant. 

	 	(a) 	
      Borrower will pay to Lender when due all amounts (whether
      principal, interest or other sums) owing by it to Lender from time to
      time;

	 	 	 	 
	 	(b) 	
      Borrower will deliver to Lender the Security Documents,
      in all cases in form and substance satisfactory to Lender and Lender’s
      solicitor;

	 	 	 	 
	 	(c) 	
      Borrower will ensure that at least 95% of its
      consolidated assets are held by those Loan Parties which have provided
      security in favour of Lender;

	 	 	 	 
	 	(d) 	
      Borrower will use the proceeds of loans only for the
      purposes approved by Lender;

	 	 	 	 
	 	(e) 	
      each Loan Party will maintain its valid existence as a
      corporation or partnership, as the case may be, and except to the extent
      any failure to do so could not reasonably be expected to have a Material
      Adverse Effect, will maintain all licenses and authorizations required
      from regulatory or governmental authorities or agencies to permit it to
      carry on its business, including, without limitation, any licenses,
      certificates, permits and consents for the protection of the
      environment;

	 	 	 	 
	 	(f) 	
      each Loan Party will maintain appropriate books of
      account and records relative to the operation of its business and
      financial condition;

	 	 	 	 
	 	(g) 	
      each Loan Party will maintain and defend title to all of
      its property and assets, will maintain, repair and keep in good working
      order and condition all of its property and assets and will continuously
      carry on and conduct its business in a proper, efficient and businesslike
      manner and in accordance with good oilfield practice;

	 	 	 	 
	 	(h) 	
      each Loan Party will maintain appropriate types and
      amounts of insurance with Lender shown as first loss payee on any property
      insurance covering any assets on which Lender has security, and promptly
      advise Lender in writing of any significant loss or damage to its
      property;

	 	 	 	 
	 	(i) 	
      each Loan Party will provide evidence of insurance to
      Lender:

	 	 	 	 
	 		i) 	
      in situations where Lender has taken a fixed charge on an
      asset or property whether on real property or personal property;
  and

	 	 	 	 
	 		ii) 	
      in all other situations, on request;

	 	 	 	 
	 	(j) 	
      each Loan Party will permit Lender, by its officers or
      authorized representatives at any reasonable time and on reasonable prior
      notice, to enter its premises and to inspect its plant, machinery,
      equipment and other real and personal property and their operation, and to
      examine and copy all of its relevant books of accounts and records
      (including without limitation, all land records);

	 	 	 	 
	 	(k) 	
      Borrower will ensure that all engineering data,
      production and cash flow projections and other information and data
      provided to Lender by or on behalf of the Loan Parties 








	Hemisphere Energy Corporation 	September 19, 2013 
	Page 5	  



	 	 	
      (including without limitation, any engineering reports
      and land schedules) are true and accurate in all material respects as at
      the time provided and fairly reflect the interests of the Loan Parties
      therein net of all royalties and other burdens affecting the same;

	 	 	
       
	 	(l) 	
      each Loan Party will remit all sums when due to tax and
      other governmental authorities (including, without limitation, any sums in
      respect of employees and GST), and upon request, will provide Lender with
      such information and documentation in respect thereof as Lender may
      reasonably require from time to time;

	 	 	 
	 	(m) 	
      each Loan Party will comply with all applicable laws,
      including without limitation, environmental laws, except to the extent any
      failure to do so could not reasonably be expected to have a Material
      Adverse Effect;

	 	 	 
	 	(n) 	
      Borrower will promptly advise Lender in writing, giving
      reasonable details, of (i) the discovery of any contaminant or any spill,
      discharge or release of a contaminant into the environment from or upon
      any property of a Loan Party which could reasonably be expected to result
      in a Material Adverse Effect, (ii) any event which constitutes, or which
      with notice, lapse of time or both, would constitute a breach of any
      provision hereof or of any Security Documents, and (iii) each event which
      has or is reasonably likely to have a Material Adverse Effect;

	 	 	 
	 	(o) 	
      Borrower undertakes that, upon request from Lender,
      Borrower will grant (or cause Guarantor to grant) a fixed mortgage and
      charge to Lender on any or all property of Borrower or Guarantor so
      designated by Lender. Borrower shall promptly provide to Lender all
      information reasonably requested by Lender to assist it in that regard.
      Borrower acknowledges that this undertaking constitutes present and
      continuing security in favour of Lender, and that Lender may file such
      caveats, security notices or other filings in regard thereto at any time
      and from time to time as Lender may determine.




	8. 	
      NEGATIVE COVENANTS:



Borrower covenants with Lender that
while it is indebted or otherwise obligated (contingently or otherwise) to
Lender, it will not do any of the following, without the prior written consent
of Lender. If a Guarantor is not to do an act, Borrower also covenants with
Lender not to permit Guarantor to do such act. 

	 	(a) 	
      a Loan Party will not create or permit to exist any
      mortgage, charge, lien, encumbrance or other security interest on any of
      its present or future assets, other than Permitted Encumbrances;

	 	 	 	 
	 	(b) 	
      a Loan Party will not create, incur, assume or allow to
      exist any Indebtedness other than:

	 	 	 	 
	 		i) 	
      trade payables incurred in the ordinary course of
      business;

	 	 	 	 
	 		ii) 	
      any Indebtedness owing to another Loan Party (but only if
      that Loan Party has provided security in favour of Lender);

	 	 	 	 
	 		iii) 	
      any Indebtedness secured by a Permitted
    Encumbrance;

	 	 	 	 
	 		iv) 	
      any unsecured advances from affiliates/shareholders which
      are postponed in all respects to the Facilities; and

	 	 	 	 
	 		v) 	
      any Indebtedness owing to
Lender;







	Hemisphere Energy Corporation 	September 19, 2013 
	Page 6	  



	 	(c) 	
      a Loan Party will not sell, lease or otherwise dispose of
      any assets except (i) inventory sold, leased or disposed of in the
      ordinary course of business, (ii) obsolete equipment which is being
      replaced with equipment of an equivalent value, (iii) assets sold, leased
      or disposed of to another Loan Party (but only if that Loan Party has
      provided security in favour of Lender), and (iv) assets sold, leased or
      disposed of during a fiscal year having an aggregate fair market value not
      exceeding 5% of the Borrowing Base for such fiscal year;

	 	 	 
	 	(d) 	
      a Loan Party will not provide financial assistance (by
      means of a loan, guarantee or otherwise) to any person (other than Lender)
      other than loans permitted under clause (b) above;

	 	 	 
	 	(e) 	
      a Loan Party will not pay to or for the benefit of
      shareholders or persons associated with shareholders (within the meaning
      of the Alberta Business Corporations Act) by way of salaries, bonuses,
      dividends, management fees, repayment of loans or otherwise, any amount
      which would cause a breach of a provision hereof;

	 	 	 
	 	(f) 	
      a Loan Party will not reduce its capital or redeem,
      purchase or otherwise acquire, retire or pay off any of its present or
      future share capital other than to another Loan Party;

	 	 	 
	 	(g) 	
      a Loan Party will not amalgamate, consolidate, or merge
      with any person other than a Loan Party and then only if no default or
      event of default is then in existence or would thereafter be in existence,
      and will not enter into any partnership with any other person unless the
      partnership becomes a Loan Party hereunder and provides security in favour
      of Lender;

	 	 	 
	 	(h) 	
      a Loan Party will not acquire any assets in, or move or
      allow any of its assets to be moved to, a jurisdiction where Lender has
      not registered or perfected the Security Documents;

	 	 	 
	 	(i) 	
      a Loan Party will not change the present nature of its
      business;

	 	 	 
	 	(j) 	
      Borrower will not operate accounts with or otherwise
      conduct any banking business with any financial institution other than
      Lender, other than to the extent expressly permitted in the definition of
      Permitted Encumbrances hereunder;

	 	 	 
	 	(k) 	
      a Loan Party will not incur capital expenditures in
      respect of oil or gas properties outside of the Western Canadian
      sedimentary basin;

	 	 	 
	 	(l) 	
      a Loan Party will not enter into any Hedging Agreement
      which is not used for risk management in relation to its business or which
      is not entered into in the ordinary course of its business but is entered
      into for speculative purposes, or which, in the case of commodity swaps or
      similar transactions of either a financial or physical nature, have a term
      exceeding two years or if more than 60% of its forecasted production from
      proved producing resources would be hedged at the time of determination
      for the hedged period;

	 	 	 
	 	(m) 	
      a Loan Party will not allow any pollutant (including any
      pollutant now on, under or about such land) to be placed, handled, stored,
      disposed of or released on, under or about any of its lands unless done in
      the normal course of its business and then only as long as it complies
      with all applicable laws in placing, handling, storing, transporting,
      disposing of or otherwise dealing with such pollutants, except to the
      extent any failure to do so could not reasonably be expected to have a
      Material Adverse Effect;







	Hemisphere Energy Corporation 	September 19, 2013 
	Page 7	  



	 	(n) 	
      Borrower will not utilize Borrowings to finance a hostile
      takeover.




	9. 	
      REPORTING COVENANTS:



Borrower will provide to Lender: 

	 	(a) 	
      within 120 days after the end of each of its fiscal
      years:

	 	 	 	 
	 		i) 	
      financial statements of Borrower on an audited basis
      prepared by a firm of qualified accountants.

	 	 	 	 
	 		ii) 	
      a compliance certificate executed by a senior officer of
      Borrower in the form attached hereto as Schedule ”A”;

	 	 	 	 
	 		iii) 	
      external engineering report of the Loan Parties’ total
      proved properties prepared by an accredited, independent firm of
      consulting petroleum engineers satisfactory to Lender;

	 	 	 	 
	 		iv) 	
      an officer’s certificate as to title, attaching thereto a
      current land schedule of major producing petroleum and natural gas
      reserves held by the Loan Parties described by lease (type, date, term,
      parties), legal description (wells and spacing units), interest (W.I. or
      other APO/BPO interests), overrides (APO/BPO), gross overrides, and other
      liens, encumbrances and overrides;

	 	 	 	 
	 		v) 	
      an environmental questionnaire and disclosure statement
      in the form requested by Lender;

	 	 	 	 
	 		vi) 	
      within 120 days after the end of each of its fiscal year
      ends, annual capital and revenue budget reports from Borrower for the next
      following fiscal year which include gross and/or net oil and gas
      production volumes, gross revenues, royalties and other burdens, operating
      costs, general & administrative costs, commodity price assumptions
      and, if available, a pro forma balance sheet;

	 	 	 	 
	 	(b) 	
      within 60 days following the end of each of its first 3
      fiscal quarters:

	 	 	 	 
	 		i) 	
      internally produced financial statements of Borrower for
      that quarter, and

	 	 	 	 
	 		ii) 	
      a compliance certificate executed by a senior officer of
      Borrower in the form attached hereto as Schedule ”A”;

	 	 	 	 
	 	(c) 	
      within 60 days following the end of each calendar month,
      monthly production and revenue reports (operator statements or internally
      generated area-by-area summaries) for the Loan Parties’ producing
      properties, certified by a senior officer of Borrower, clearly indicating
      gross and/or net oil and gas production volumes, gross revenues, royalties
      and other burdens, operating costs, etc.;

	 	 	 	 
	 	(d) 	
      on request, any further information regarding its assets,
      operations and financial condition that Lender may from time to time
      reasonably require;







	Hemisphere Energy Corporation 	September 19, 2013 
	Page 8	  



	10. 	
      FINANCIAL COVENANTS:



Borrower will not at any time, without
the prior written consent of Lender, breach the following restrictions: 

	 	(a) 	
      permit the Working Capital Ratio to fall below
      1.00:1.00;



The above financial ratio shall be
maintained at all times and shall be detailed in the compliance certificate
required to be delivered hereunder. 

	11. 	
      CONDITIONS PRECEDENT:



It is a condition precedent to each
advance hereunder that, at the time of such advance, all representations and
warranties hereunder must be true and correct in all material respects as if
made on such date, and there must be no default hereunder or under any Security
Document. 

In addition, no Facilities will be
available until the following conditions precedent have been satisfied, unless
waived by Lender: 

	 	(a) 	
      Lender has received all Security Documents and all
      registrations and filings have been completed in Alberta, and British
      Columbia, in all cases in form and substance satisfactory to
  Lender;

	 	 	 
	 	(b) 	
      Borrower and Guarantors (if any) have provided all
      authorizations and all financial statements, appraisals, environmental
      reports and any other information that Lender may require;

	 	 	 
	 	(c) 	
      Lender has received payment of all fees due in respect
      hereof;

	 	 	 
	 	(d) 	
      Lender is satisfied as to the value of Borrower’s and any
      Guarantor’s assets and financial condition, and Borrower’s and any
      Guarantor’s ability to carry on business and repay any amount owed to
      Lender from time to time;

	 	 	 
	 	(e) 	
      Lender has received an officer’s certificate as to title
      satisfactory to Lender including a schedule of major producing petroleum
      and natural gas reserves described by lease (type, date, term, parties),
      legal description (wells and spacing units), interest (W.I. or other
      APO/BPO interests), overrides (APO/BPO), gross overrides, and other liens,
      encumbrances, and overrides;

	 	 	 
	 	(f) 	
      Lender has received a satisfactory No Interest Letter or
      confirmation of discharge of their security from Canadian Western
    Bank.

	 	 	 
	 	(g) 	
      Lender has received legal opinions from Borrower’s and
      Lender’s counsel in a form satisfactory to the
Lender.



CONDITIONS PRECEDENT – PAB: 

Prior to the purchase of assets from
Pengrowth Energy Corporation (PAB) the following conditions have been satisfied:


	 	(a) 	
      Lender has received evidence that the Borrower has
      completed, or is concurrently completing, its Pengrowth Atlee Buffalo
      Asset Acquisition subject to no prior charges liens, encumbrances (e.g.
      receipt of satisfactory no interest letters), or claims against such
      interests which would rank prior to the Security Interest of the Lender
      except for Permitted Encumbrances;







	Hemisphere Energy Corporation 	September 19, 2013 
	Page 9	  



	 	(b) 	
      The Pengrowth Atlee Buffalo Asset Acquisition closes on
      or before November 30, 2013;

	 	 	 
	 	(c) 	
      Immediately after completion of the Pengrowth Atlee
      Buffalo Asset Acquisition, a minimum unused availability under the
      Facility of $1,000,000;

	 	 	 
	 	(d) 	
      The receipt by Lender of a satisfactory and duly executed
      environmental questionnaire for the Pengrowth Atlee Buffalo Asset
      Acquisition;

	 	 	 
	 	(e) 	
      The receipt by Lender of a satisfactory and duly executed
      officer’s certificate for the Pengrowth Atlee Buffalo Asset Acquisition
      with respect to the ownership of its properties and interests evaluated by
      Lender;

	 	 	 
	 	(f) 	
      The Borrower has not materially amended the PAB LOI
      without the Lender’s prior written consent.




	12. 	
      AUTHORIZATIONS AND SUPPORTING
  DOCUMENTS



Borrower has delivered or will deliver
the following authorizations and supporting documents to Lender: 

	 	- 	Corporate Borrower: 



	 	 	a) 	
      Incorporation documents including Certificate of
      Incorporation, Articles of Incorporation (including any amendments) and
      last Notice of Directors;

	 	 	 	 
	 	 	b) 	
      Business Corporation Agreement;

	 	 	 	 
	 	 	c) 	
      Corporate MasterCard documentation;

	 	 	 	 
	 	 	d) 	
      Environmental Questionnaire & Disclosure
      Statement;

	 	 	 	 
	 	 	e) 	
      Credit Information and Alberta Land Titles Office Name
      Search Consent Form;




	 	- 	General: 



	 	 	a) 	
      Solicitor Opinion Letter from counsel to Borrower and any
      Guarantors; and

	 	 	 	 
	 	 	b) 	
      Solicitor Opinion Letter from counsel to
  Lender.




	13. 	
      DRAWDOWNS, PAYMENTS AND EVIDENCE OF
      INDEBTEDNESS




	 	- 	Interest on Prime-based loans is calculated on
      the daily outstanding principal balance, and is payable on the last day of
      each month. 
	 	 	  
	 	- 	If revolvement of loans is permitted hereunder,
      principal advances and repayments on Prime-based loans are to be in the
      minimum sum of Cdn. $25,000.00 or multiples of it. 
	 	 	  
	 	- 	If Letters of Credit are available hereunder, the
    term of each Letter of Credit shall not exceed one (1) year, although
    automatic extensions thereof (unless notified by Lender) are permitted. On
    any demand being made by a beneficiary for payment under a Letter of
  






	Hemisphere Energy Corporation 	September 19, 2013 
	Page 10	  



	 	 	 
	 	 	Credit, the amount so paid shall be automatically
    deemed to be outstanding as a Prime-based loan (if denominated in Canadian
    dollars) under the relevant Facility. 
	 	 	 
	 	- 	Borrower shall monitor its Borrowings
      (including the face amount and maturity date of Letter of Credit) to
      ensure that the Borrowings hereunder do not exceed the maximum amount
      available hereunder. 




	 	- 	Borrower shall provide notice to
      Lender prior to requesting an advance or conversion of Borrowings
      hereunder, as follows: making a repayment or 




	 	- 	For Borrowings: 
	 	  	  	  
	 	  	- 	under Cdn. $5,000,000 – same day notice 
	 	  	- 	Cdn. $5,000,000 and over – one Business Day
      prior written notice 



	 	- 	Borrower may cancel the availability of any
      unused portion of a Facility on five Business Days’ notice. Any such
      cancellation is irrevocable. 



	 	- 	
      The annual rates of interest or fees to which the rates
      calculated in accordance with this agreement are equivalent, are the rates
      so calculated multiplied by the actual number of days in the calendar year
      in which such calculation is made and divided by 365.





	 	- 	
      If the amount of Borrowings outstanding under any
      Facility, when converted to the Equivalent Amount in Canadian dollars,
      exceeds the amount available under such Facility, Borrower shall, unless
      Lender otherwise agrees in its sole discretion, immediately repay such
      excess to Lender. 

	 	 	
       

	 	- 	
      If any amount due hereunder is not paid when due,
      Borrower shall pay interest on such unpaid amount (including without
      limitation, interest on interest) if and to the fullest extent permitted
      by applicable law, at a rate per annum equal to Prime plus 5%. 

	 	 	
       

	 	-  	
      The branch of Lender (the “Branch of Account”) where
      Borrower maintains an account and through which the Borrowings will be
      made available is located at 239-8th Avenue S.W. Calgary, Alberta, T2P
      1B9. Funds under the Credit Facilities will be advanced into and repaid
      from account no. 760- 00213466700 if in Canadian currency) at the Branch
      of Account, or such other branch or account as Borrower and Lender may
      agree upon from time to time. 




	 	-  	
      Lender shall open and maintain at the Branch of Account
      accounts and records evidencing the Borrowings made available to Borrower
      by Lender under this agreement. Lender shall record the principal amount
      of each Borrowing and the payment of principal, interest and fees and all
      other amounts becoming due to Lender under this agreement. Lender’s
      accounts and records (and any confirmations issued hereunder) constitute,
      in the absence of manifest error, conclusive evidence of the indebtedness
      of Borrower to Lender pursuant to this agreement. 

	 	 	
       

	 	- 	
      Borrower authorizes and directs Lender to automatically
      debit, by mechanical, electronic or manual means, any bank account of
      Borrower for all amounts payable by Borrower to Lender pursuant to this
      agreement. Any amount due on a day other than a Business Day shall be
      deemed to be due on the Business Day next following such day, and interest
      shall accrue accordingly. 







	Hemisphere Energy Corporation 	September 19, 2013 
	Page 11	  



	14. 	
      MISCELLANEOUS:




	 	(a) 	
      All legal and other costs and expenses incurred by Lender
      in respect of the Facilities, the Security Documents and other related
      matters will be paid or reimbursed by Borrower on demand by
  Lender.

	 	 	 
	 	(b) 	
      All Security Documents will be prepared by or under the
      supervision of Lender’s solicitors, unless Lender otherwise permits.
      Acceptance of this offer will authorize Lender to instruct Lender’s
      solicitors to prepare all necessary Security Documents and proceed with
      related matters.

	 	 	 
	 	(c) 	
      Lender, without restriction, may waive in writing the
      satisfaction, observance or performance of any of the provisions of this
      Commitment Letter. The obligations of a Guarantor (if any) will not be
      diminished, discharged or otherwise affected by or as a result of any such
      waiver, except to the extent that such waiver relates to an obligation of
      such Guarantor. Any waiver by Lender of the strict performance of any
      provision hereof will not be deemed to be a waiver of any subsequent
      default, and any partial exercise of any right or remedy by Lender shall
      not be deemed to affect any other right or remedy to which Lender may be
      entitled.

	 	 	 
	 	(d) 	
      Borrower shall reimburse Lender for any additional cost
      or reduction in income arising as a result of (i) the imposition of, or
      increase in, taxes on payments due to Lender hereunder (other than taxes
      on the overall net income of Lender), (ii) the imposition of, or increase
      in, any reserve or other similar requirement, (iii) the imposition of, or
      change in, any other condition affecting the Facilities imposed by any
      applicable law or the interpretation thereof.

	 	 	 
	 	(e) 	
      Lender is authorized but not obligated, at any time, to
      apply any credit balance, whether or not then due, to which Borrower or
      Guarantor is entitled on any account in any currency at any branch or
      office of Lender in or towards satisfaction of the obligations of Borrower
      or such Guarantor due to Lender under this agreement or any guarantee
      granted in support hereof, as applicable. Lender is authorized to use any
      such credit balance to buy such other currencies as may be necessary to
      effect such application.

	 	 	 
	 	(f) 	
      Words importing the singular will include the plural and
      vice versa, and words importing gender will include the masculine,
      feminine and neuter, and anything importing or referring to a person will
      include a body corporate and a partnership and any entity, in each case
      all as the context and the nature of the parties requires.

	 	 	 
	 	(g) 	
      Where more than one person is liable as Borrower (or as a
      Guarantor) for any obligation hereunder, then the liability of each such
      person for such obligation is joint and several with each other such
      person.

	 	 	 
	 	(h) 	
      If any portion of this agreement is held invalid or
      unenforceable, the remainder of this agreement will not be affected and
      will be valid and enforceable to the fullest extent permitted by law. In
      the event of a conflict between the provisions hereof and of any Security
      Document, the provisions hereof shall prevail to the extent of the
      conflict.

	 	 	 
	 	(i) 	
      Where the interest rate for a credit is based on Prime,
      the applicable rate on any day will depend on the Prime rate in effect on
      that day, as applicable. The statement by Lender as to Prime and as to the
      rate of interest applicable to a credit on any day will be binding and
      conclusive for all purposes. All interest rates specified are nominal
      annual rates. The







	Hemisphere Energy Corporation 	September 19, 2013 
	Page 12 	  



	 	(j) 	
      effective annual rate in any case will vary with payment
      frequency. All interest payable hereunder bears interest as well after as
      before maturity, default and judgment with interest on overdue interest at
      the applicable rate payable hereunder. To the extent permitted by law,
      Borrower waives the provisions of the Judgment Interest Act (Alberta).

	 	 	 
	 	(k) 	
      Any written communication which a party may wish to serve
      on any other party may be served personally (in the case of a body
      corporate, on any officer or director thereof) or by leaving the same at
      or couriering or mailing the same by registered mail to the Branch of
      Account (for Lender) or to the last known address (for Borrower or any
      Guarantor), and in the case of mailing will be deemed to have been
      received two (2) Business Days after mailing except in the case of postal
      disruption.

	 	 	 
	 	(l) 	
      Unless otherwise specified, references herein to “$” and
      “dollars” mean Canadian dollars.

	 	 	 
	 	(m) 	
      If for the purpose of obtaining judgment in any court in
      any jurisdiction with respect to this Agreement, it is necessary to
      convert into the currency of such jurisdiction (the “Judgment Currency”)
      any amount due hereunder in any currency other than the Judgment Currency,
      then conversion shall be made at the rate of exchange prevailing on the
      Business Day before the day on which judgment is given. For this purpose,
      rate of exchange means the rate at which Lender would, on the relevant
      date, be prepared to sell a similar amount of such currency against the
      Judgment Currency, in accordance with normal banking procedures. In the
      event that there is a change in the rate of exchange prevailing between
      the Business Day before the day on which judgment is given and the date of
      payment of the amount due, Borrower will, on the date of payment, pay such
      additional amounts as may be necessary to ensure that the amount paid on
      such day is the amount in the Judgment Currency which, when converted at
      the rate of exchange prevailing on the date of payment, is the amount then
      due under this Agreement in such other currency. Any additional amount due
      from Borrower under this paragraph will be due as a separate debt and
      shall not be affected by judgment being obtained for any other sums due in
      connection with this Agreement.

	 	 	 
	 	(n) 	
      Lender shall have the right to assign, sell or
      participate its rights and obligations in the Facilities or in any
      Borrowing thereunder, in whole or in part, to one or more persons,
      provided that the consent of Borrower shall be required if no default is
      then in existence, such consent not to be unreasonably withheld or
      delayed.

	 	 	 
	 	(o) 	
      Borrower shall indemnify Lender against all losses,
      liabilities, claims, damages or expenses (including without limitation
      legal expenses on a solicitor and his own client basis) (i) incurred in
      connection with the entry into, performance or enforcement of this
      agreement, the use of the Facility proceeds or any breach by Borrower or
      any Guarantor of the terms hereof or any document related hereto, or (ii)
      rising out of or in respect of: (A) the release of any hazardous or toxic
      waste or other substance into the environment from any property of
      Borrower or any of its Subsidiaries, and (B) the remedial action (if any)
      taken by Lender in respect of any such release, contamination or
      pollution. This indemnity will survive the repayment or cancellation of
      any of the Facilities or any termination of this
  agreement.







	Hemisphere Energy Corporation 	September 19, 2013 
	Page 13	  



	 	(p) 	
      For certainty, the permission to create a Permitted
      Encumbrance shall not be construed as a subordination or postponement,
      express or implied, of Lender’s Security Documents to such Permitted
      Encumbrance.

	 	 	 
	 	(q) 	
      Each accounting term used hereunder, unless otherwise
      defined herein, has the meaning assigned to it under GAAP consistently
      applied. If there occurs a change in generally accepted accounting
      principles (an “Accounting Change”), including as a result of a conversion
      to International Financial Reporting Standards, and such change would
      result in a change (other than an immaterial change) in the calculation of
      any financial covenant, standard or term used hereunder, then at the
      request of Borrower or Lender, Borrower and Lender shall enter into
      negotiations to amend such provisions so as to reflect such Accounting
      Change with the result that the criteria for evaluating the financial
      condition of Borrower or any other party, as applicable, shall be the same
      after such Accounting Change, as if such Accounting Change had not
      occurred. If, however, within 30 days of the foregoing request by Borrower
      or Lender, Borrower and Lender have not reached agreement on such
      amendment, the method of calculation shall not be revised and all amounts
      to be determined thereunder shall be determined without giving effect to
      the Accounting Change.

	 	 	 
	 	(r) 	
      Borrower’s information, corporate or personal, may be
      subject to disclosure without its consent pursuant to provincial, federal,
      national or international laws as they apply to the product or service
      Borrower has with Lender or any third party acting on behalf of or
      contracting with Lender.

	 	 	 
	 	(s) 	
      Borrower acknowledges that the terms of this agreement
      are confidential, and Borrower agrees not to disclose the terms hereof or
      provide a copy hereof to any person without the prior written consent of
      Lender, unless and to the extent required by applicable law.

	 	 	 
	 	(t) 	
      Time shall be of the essence in all provisions of this
      agreement.

	 	 	 
	 	(u) 	
      This agreement may be executed in counterpart.

	 	 	 
	 	(v) 	
      This agreement shall be governed by the laws of
      Alberta.

	 	 	 
	 	(w) 	
      Glen T. Peterson of Carscallen LLP is designated as
      Lender’s solicitor




	15. 	
      NEXT REVIEW DATE:



All demand Facilities are subject to review by Lender at any
time in its sole discretion, and at least annually. The next annual review date
has been set for May 31, 2014 but may be set at an earlier or later date at the
sole discretion of Lender. 

	16. 	
      DEFINITIONS:



“Borrowing Base” means the number determined by Lender
based on a lending value assigned to the net present value of the total proved
oil and gas properties of Borrower and Guarantor, as determined by Lender in its
sole discretion in accordance with its customary practices and standards for oil
and gas loans using such reasonable assumptions as may be determined by Lender
in its sole discretion. 

“Borrowings” means all amounts outstanding under the
Facilities, or if the context so requires, all amounts outstanding under one or
more of the Facilities or under one or more borrowing options of one or more of
the Facilities. 

“Business Day” means a day, excluding Saturday and
Sunday, on which banking institutions are open for business in the province of
Alberta and, when used in connection with a Libor-based loan, means a day on
which dealings in U.S. currency deposits may also be concluded by and between
leading banks in the London inter-bank market. 




	Hemisphere Energy Corporation 	September 19, 2013 
	Page 14	  


“Capitalization” means, in respect of Borrower, the
aggregate of the Equity of Borrower plus the amount of its Funded Debt/Net
Debt/Total Debt. 

“Cash Flow” means, in respect of Borrower for any
period, the net income of Borrower determined on a consolidated basis in
accordance with GAAP; provided that (but without duplication) there shall be (i)
added thereto deferred taxes, amortization, depreciation, depletion and other
non-cash charges expensed during the period, and (ii) subtracted therefrom
dividends declared during the period and reductions in shareholder loans during
the period. 

“Current Assets” means, for a day, the amount of current
assets of Borrower as determined in accordance with GAAP on a consolidated
basis, but in any event excluding any amounts arising as a result of the
mark-to-market position of Borrower due to hedging contracts. 

“Current Liabilities” means, for a day, the amount of
current liabilities of Borrower as determined in accordance with GAAP on a
consolidated basis, but in any event excluding any amounts arising as a result
of the mark-to-market position of Borrower due to hedging contracts. 

“Debt Service Coverage” means, for any period, the ratio
of (i) EBITDA, to (ii) Interest Expense and scheduled principal payments in
respect of Funded Debt. 

“EBITDA” means, for any period, net income (excluding
extraordinary items) from continuing operations plus, to the extent deducted in
determining net income, Interest Expense and income taxes expensed during the
period, and depreciation, depletion and amortization deducted for the period.


“Equity” means, at any time and as determined in
accordance with GAAP on a consolidated basis, an amount equal to the amount of
shareholders’ equity of Borrower, including share capital, retained earnings and
postponed advances from affiliates/shareholders (if postponed on terms and in a
manner acceptable to Lender) but excluding: 

	 	(a) 	
      the redemption amount of any preferred shares of Borrower
      which are redeemable at the option of the holder to the extent they are
      included in Long Term Debt;

	 	 	 
	 	(b) 	
      convertible debentures to the extent they are included in
      Long Term Debt;

	 	 	 
	 	(c) 	
      advances to affiliates/shareholders;

	 	 	 
	 	(d) 	
      goodwill; and

	 	 	 
	 	(e) 	
      intangible assets.



“Fixed Charge Coverage Ratio” means the ratio of (i)
EBITDA minus Unfunded Capital Expenditures and minus all income taxes expensed
during the period (excluding deferred taxes) to (ii) Fixed Charges. 

“Fixed Charges” means for any period, Interest Expense
plus all scheduled principal payments in respect of Funded Debt plus all
dividends declared. 

“Funded Debt” means, in respect of Borrower, all
outstanding non-postponed interest-bearing debt (but only excluding such
postponed debt if it is postponed on terms and in a manner acceptable to
Lender), including capital leases (as defined according to GAAP), debt subject
to scheduled repayment terms and letters of credit/guarantees, plus (to the
extent not included in Equity), 

	 	(a) 	
      the redemption amount of any preferred shares of Borrower
      which are redeemable at the option of the holder;
and







	Hemisphere Energy Corporation 	September 19, 2013 
	Page 15	  



	 	(b) 	
      the amount of any convertible debentures
  issued.



“Generally Accepted Accounting Principles” or
“GAAP” means generally accepted accounting principles as may be described
in the Canadian Institute of Chartered Accountants Handbook and other primary
sources recognized from time to time by the Canadian Institute of Chartered
Accountants. 

“Hedging Agreement” means any swap, hedging, interest
rate, currency, foreign exchange or commodity contract or agreement, or
confirmation thereunder, entered into from time to time in connection with: 

	 	(a) 	
      interest rate swaps, forward rate transactions, interest
      rate options, cap transactions, floor transactions and similar
      rate-related transactions;

	 	 	 
	 	(b) 	
      forward rate agreements, foreign exchange forward
      agreements, cross currency transactions and other similar currency-related
      transactions; or

	 	 	 
	 	(c) 	
      commodity swaps, hedging transactions and other similar
      commodity-related transactions (whether physically or financially
      settled), including without limitation commodity
swaps;



the purpose of which is to hedge (a) interest rate, (b)
currency exchange, and/or (c) commodity price exposure, as the case may be. 

“Indebtedness” means all present and future obligations
and indebtedness of a person, whether direct or indirect, absolute or
contingent, including all indebtedness for borrowed money, all obligations in
respect of swap or hedging arrangements and all other liabilities which in
accordance with GAAP would appear on the liability side of a balance sheet
(other than items of capital, retained earnings and surplus or deferred tax
reserves). 

“Letter of Credit” means a standby or documentary letter
of credit or letter of guarantee issued by the Lender on behalf of the Borrower.


“Loan Parties” means the Borrower and all Guarantors,
other than any Guarantors that are natural persons, and “Loan Party”
means any of them. 

“Long Term Debt” means, for a day and as determined in
accordance with GAAP on a consolidated basis, all indebtedness, obligations and
liabilities of Borrower which would be classified as long term debt upon a
balance sheet of Borrower, plus (to the extent not included in Equity), 

	 	(a) 	
      the redemption amount of any preferred shares of Borrower
      which are redeemable at the option of the holder; and

	 	 	 
	 	(b) 	
      the amount of any convertible debentures
  issued.



“Material Adverse Effect” means a material adverse
effect on: 

	 	(a) 	
      the financial condition of Borrower or of any Guarantor;
      or

	 	 	 
	 	(b) 	
      the ability of Borrower or any Guarantor to repay amounts
      owing hereunder or under its guarantee in respect
hereof.



“Net Debt” means in respect of Borrower, as of the end
of any fiscal quarter and as determined in accordance with GAAP on a
consolidated basis and without duplication, an amount equal to the amount of
Total Debt less Current Assets. 




	Hemisphere Energy Corporation 	September 19, 2013 
	Page 16	  


“Permitted Encumbrances” means, in respect of the
Borrower and any Guarantor, the following: 

	 	(a) 	
      liens for taxes, assessments or governmental charges not
      yet due or delinquent or the validity of which is being contested in good
      faith;

	 	 	 
	 	(b) 	
      liens arising in connection with workers’ compensation,
      unemployment insurance, pension, employment or other social benefits laws
      or regulations which are not yet due or delinquent or the validity of
      which is being contested in good faith;

	 	 	 
	 	(c) 	
      liens under or pursuant to any judgment rendered or claim
      filed which are or will be appealed in good faith provided any execution
      thereof has been stayed;

	 	 	 
	 	(d) 	
      undetermined or inchoate liens and charges incidental to
      construction or current operations which have not at such time been filed
      pursuant to law or which relate to obligations not due or
    delinquent;

	 	 	 
	 	(e) 	
      liens arising by operation of law such as builders’
      liens, carriers’ liens, materialmens’ liens and other liens of a similar
      nature which relate to obligations not due or delinquent;

	 	 	 
	 	(f) 	
      easements, rights-of-way, servitudes or other similar
      rights in land (including, without in any way limiting the generality of
      the foregoing, rights-of-way and servitudes for railways, sewers, drains,
      gas and oil pipelines, gas and water mains, electric light and power and
      telephone or telegraph or cable television conduits, poles, wires and
      cables) granted to or reserved or taken by other persons which singularly
      or in the aggregate do not materially detract from the value of the land
      concerned or materially impair its use in the operation of the business of
      Borrower or such Guarantor;

	 	 	 
	 	(g) 	
      security given to a public utility or any municipality or
      governmental or other public authority when required by such utility or
      municipality or other authority in connection with the operations of
      Borrower or such Guarantor, all in the ordinary course of its business
      which singularly or in the aggregate do not materially impair the
      operation of the business of Borrower or such Guarantor;

	 	 	 
	 	(h) 	
      the reservation in any original grants from the Crown of
      any land or interests therein and statutory exceptions to title;

	 	 	 
	 	(i) 	
      liens created or arising in the ordinary course of the
      oil and gas business in respect of the joint operation of oil and gas
      properties and related production and processing facilities or
      arrangements for the processing, treating, transmission or transportation
      of hydrocarbon substances, provided such liens are not in respect of
      obligations which are due or delinquent and do not materially reduce the
      value of the oil and gas properties affected by such liens;

	 	 	 
	 	(j) 	
      penalties arising in the ordinary course of business
      under non-participation or independent operations provisions of operating
      agreements as a consequence of an election not to participate in drilling
      or other operations;

	 	 	 
	 	(k) 	
      the provisions of operating agreements, pooling
      agreements, unitization agreements and other similar arrangements entered
      into in the ordinary course of the oil and gas business which do not
      materially affect the value of the oil and gas properties which are
      subject thereto;







	Hemisphere Energy Corporation 	September 19, 2013 
	Page 17	  



	 	(l) 	
      royalties, net profits interests and similar encumbrances
      and rights to convert any of them to working interests which are created
      in the ordinary course of the oil and gas business; provided that if any
      of the foregoing relate to oil and gas properties, full disclosure thereof
      is made in any engineering reports required to be delivered to Lender from
      time to time in respect of such oil and gas properties;

	 	 	 	 
	 	(m) 	
      rights of first refusal and similar preferential rights
      created in the ordinary course of the oil and gas business;

	 	 	 	 
	 	(n) 	
      operating leases;

	 	 	 	 
	 	(o) 	
      capital lease transactions (according to GAAP) or
      sale-leaseback transactions where the indebtedness represented by all such
      transactions does not at any time exceed $100,000 in aggregate;

	 	 	 	 
	 	(p) 	
      security interests granted or assumed to finance the
      purchase of any property or asset (a “Purchase Money Security Interest”)
      where:

	 	 	 	 
	 		i) 	
      the security interest is granted at the time of or within
      60 days after the purchase,

	 	 	 	 
	 		ii) 	
      the security interest is limited to the property and
      assets acquired, and

	 	 	 	 
	 		iii) 	
      the indebtedness represented by all Purchase Money
      Security Interests does not at any time exceed $100,000 in
    aggregate;

	 	 	 	 
	 	(q) 	
      security interests or liens (other than those
      hereinbefore listed) of a specific nature (and excluding for greater
      certainty floating charges) on properties and assets having a fair market
      value not in excess of $100,000 in aggregate.



“Prime” means the prime lending rate per annum
established by Lender from time to time for commercial loans denominated in
Canadian dollars made by Lender in Canada. 

“Subsidiaries” means 

	 	(a) 	
      a person of which another person alone or in conjunction
      with its other subsidiaries owns an aggregate number of voting shares
      sufficient to elect a majority of the directors regardless of the manner
      in which other voting shares are voted; and

	 	 	 
	 	(b) 	
      a partnership of which at least a majority of the
      outstanding income interests or capital interests are directly or
      indirectly owned or controlled by such person,



and includes a person in like relation to a Subsidiary. 

“Total Debt” means in respect of Borrower, as of the end
of any fiscal quarter and as determined in accordance with GAAP on a
consolidated basis and without duplication, an amount equal to: 

	 	(a) 	
      the amount of Current Liabilities, plus, if not already
      included therein, the current portion of long-term debt; plus

	 	 	 
	 	(b) 	
      the aggregate of:




	 	i) 	
      the amount of Long Term Debt, including the Borrowings;
      and







	Hemisphere Energy Corporation 	September 19, 2013 
	Page 18	  



	 	ii) 	
      to the extent not included in Long Term Debt:

	 	 	 	 
	 		(I) 	
      any financial assistance by way of a loan, guarantee,
      loan purchase, share purchase, equity contribution or any credit support
      arrangement of any nature whatsoever, the purpose of which is to assure
      payment or performance to the holder of any Indebtedness of any other
      person;

	 	 	 	 
	 		(II) 	
      obligations with respect to prepaid obligations and
      deferred revenues relating to third party obligations;

	 	 	 	 
	 		(III) 	
      the amount of all obligations outstanding under a capital
      lease or any sale-leaseback to the extent it constitutes a capital
      lease;

	 	 	 	 
	 		(IV) 	
      obligations arising under swaps entered into by Borrower
      for speculative purposes (determined, where relevant, by reference to
      GAAP) or other than in the ordinary course of its business to the extent
      of the net amount due or accruing due by Borrower thereunder (determined
      by marking-to-market the same in accordance with their terms);

	 	 	 	 
	 		(V) 	
      the amount of all off-balance sheet financing where there
      is recourse to other assets of Borrower; and

	 	 	 	 
	 		(VI) 	
      asset retirement obligations;



and shall exclude in any event: 

	 	(c) 	
      to the extent permitted by GAAP, any particular
      Indebtedness if, upon or prior to the maturity thereof, there shall have
      been irrevocably deposited with the proper depositary in trust the
      necessary funds (or evidences of indebtedness) for the payment, redemption
      or satisfaction of such Indebtedness, and thereafter such funds and
      evidences of Indebtedness or other security so deposited are not included
      in any computation of the assets of such person;

	 	 	 
	 	(d) 	
      contingent obligations in respect of court actions, suits
      or other proceedings which have not come to a final and conclusive
      judgment before a court of competent jurisdiction or such other person as
      may have jurisdiction in the premises and Borrower reasonably expects to
      be successful in the defence of such action, suit or other
    proceeding;

	 	 	 
	 	(e) 	
      any lease or other arrangement relating to real or
      personal property which would, in accordance with GAAP, be accounted for
      as an operating lease of such Person, provided that, if applicable, the
      costs and expenses associated with such operating lease are included in
      any engineering report required to be delivered hereunder;

	 	 	 
	 	(f) 	
      deferred income taxes; and

	 	 	 
	 	(g) 	
      postponed advances from affiliates/shareholders (if
      postponed on terms and in a manner acceptable to
Lender).



“Working Capital Ratio” means, at any time, the ratio of
(i) Current Assets plus any undrawn availability under the Facilities, to (ii)
Current Liabilities less (to the extent included therein) any amount drawn under
the Facilities. 




SCHEDULE ”A” 

CONTAINING FORM OF COMPLIANCE CERTIFICATE 

	 	To: 	Alberta Treasury Branches 
	 	  	Corporate Financial Services 
	 	  	6th Floor, 444 – 7th Avenue SW 
	 		Calgary, AB T2P 0X8 
	 		Attention: Mikael Sears 


I,
______________________________________hereby certify as of the date of this
certificate as follows: 

	 	(a) 	
      I am the _________________________ [insert title]
      of Hemisphere Energy Corporation (“Borrower”) and I am
      authorized to provide this certificate to you for and on behalf of
      Borrower.

	 	 	 	 
	 	(b) 	
      This certificate applies to the [fiscal quarter/fiscal
      year] ending _______________.

	 	 	 	 
	 	(c) 	
      I am familiar with and have examined the provisions of
      the letter agreement (the ”Agreement”) dated
      _______________________, 20_____between the Borrower and Alberta Treasury
      Branches (“Lender”), as lender, and have made reasonable
      investigations of corporate records and inquiries of other officers and
      senior personnel of Borrower and of any Guarantor. Terms defined in the
      Agreement have the same meanings when used in this certificate.

	 	 	 	 
	 	(d) 	
      No event or circumstance has occurred which constitutes
      or which, with the giving of notice, lapse of time, or both, would
      constitute a breach of any covenant or other term or condition of the
      Agreement and there is no reason to believe that during the next fiscal
      quarter of Borrower, any such event or circumstance will occur.

	 	 	 	 
	 		
      OR

	 	 	 	 
	 		
      We are or anticipate being in default of the following
      terms or conditions, and our proposed action to meet compliance is set out
      below:

	 	 	 	 
	 		
      Description of any breaches and proposed action to
      remedy: ___________________________________________________

	 	 	 	 
	 	(e) 	
      Our financial ratios are as follows:

	 	 	 	 
	 		i) 	
      the Working Capital Ratio is ____:1, being not less than
      the required ratio of 1.00:1.00;

	 	 	 	 
	 	(f) 	
      The detailed calculations of the foregoing ratios and
      covenants are set forth in the addendum annexed hereto and are true and
      correct in all respects.



This certificate is given by the undersigned officer in his/her
capacity as an officer of the Borrower without any personal liability on the
part of such officer. 

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Dated this _____day of _____________, 20____. 

	 	 
	Hemisphere Energy Corporation 	 
	  	 
	  	 
	Per:     
      _____________________________	 
	Name:  _____________________________	 
	Title:   ______________________________	 


 

 

A-2 




APPENDIX 

(i)      the Working Capital
Ratio is _____:1.00, calculated as follows: 

	 	Current Assets: 	$ 	 
	 	 	 	 
	 	but excluding mark-to-market impact of hedging
    	+/-$ 	 
	 	+ undrawn availability under Facilities 	+ $ 	 
	 	  	=$ 	 
	 	divided by: 	  	 
	 	 	 	 
	 	Current Liabilities, excluding any amount drawn
      under Facilities: 	$ 	 
	 	 	 	 
	 	but excluding mark-to-market impact of hedging
    	+/-$ 	 
	 	  	=$ 	 


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