Document:

eflo_ex104.htm

Exhibit 10.4

 

THIS AGREEMENT made as of this Twenty-eighth day of May, A.D. 1959.

 

BETWEEN:

 

CANADA SOUTHERN PETROLEUM LTD.

 

- and –

 

MAGELLAN PETROLEUM CORPORATION

 

- and –

 

OIL INVESTMENTS, INC.

 

- and –

 

HOME OIL COMPANY LIMITED

 

- and –

 

KERN COUNTY LAND COMPANY

 

- and –

 

ALMINEX LIMITED

 

- and –

 

UNITED OILS, LIMITED

 

- and –

 

SIGNAL OIL AND GAS COMPANY

 

  

1

  

 

Table of Contents

 

Agreement dated as of May 28, 1959.

 

	  	 	
Article

	  	
Page

	
Definitions

	 	
I

	  	
2

	  	 	  	  	  
	
Assignment

	 	
II

	  	
3

	  	 	  	  	  
	
Payment and Exploratory Program

	 	
III

	  	
4

	  	 	  	  	  
	
Option

	 	
IV

	  	
5

	  	 	  	  	  
	
Division of Lands

	 	
V

	  	
7

	  	 	  	  	  
	
Information to be Delivered to Home

	 	
VI

	  	
8

	  	 	  	  	  
	
Incorporation of Operating Procedure

	 	
VII

	  	
8

	  	 	  	  	  
	
SCHEDULE “A”

	 	  	  	  
	  	 	  	  	  
	
     Description of Lands

	 	  	  	  
	  	 	  	  	  
	
SCHEDULE “B” – Operating Procedure

	 	  	  	  
	  	 	
Clause

	  	
Page

	
Definitions

	 	
A

	  	
1

	  	 	  	  	  
	
Status of Manager Operator

	 	
B

	  	
2

	  	 	  	  	  
	
Change of Manager Operator

	 	
C

	  	
3

	  	 	  	  	  
	
Meetings

	 	
D

	  	
4

	  	 	  	  	  
	
Budet

	 	
E

	  	
4

	  	 	  	  	  
	
Duties of the Manager Operator

	 	
F

	  	
5

	  	 	  	  	  
	
Rights of Joint Operators

	 	
G

	  	
5

	  	 	  	  	  
	
Competitive Operating Basis

	 	
H

	  	
6

	  	 	  	  	  
	
Insurance

	 	
I

	  	
7

 

  

2

  

 

	  	 	  	  	  
	
Advances

	 	
J

	  	
8

	  	 	  	  	  
	
Lien

	 	
K

	  	
8

	  	 	  	  	  
	
Division of Production

	 	
L

	  	
9

	  	 	  	  	  
	
Obligatory Operations

	 	
M

	  	
9

	  	 	  	  	  
	
Independent Operations

	 	
N

	  	
10

	  	 	  	  	  
	
Selection of Leases

	 	
O

	  	
12

	  	 	  	  	  
	
Surrender

	 	
P

	  	
12

	  	 	  	  	  
	
Assignment

	 	
Q

	  	
13

	  	 	  	  	  
	
Assignments Among Parties

	 	
R

	  	
13

	  	 	  	  	  
	
Relationship of Parties

	 	
S

	  	
13

	  	 	  	  	  
	
Liability of Manager Operator

	 	
T

	  	
14

	  	 	  	  	  
	
Force Majeure

	 	
U

	  	
14

	  	 	  	  	  
	
Waiver

	 	
V

	  	
14

	  	 	  	  	  
	
Conflict with Laws

	 	
W

	  	
15

	  	 	  	  	  
	
Notices

	 	
X

	  	
15

	  	 	  	  	  
	
Further Assurances

	 	
Y

	  	
16

	  	 	  	  	  
	
Entire Agreement

	 	
Z

	  	
16

	  	 	  	  	  
	
Division of Expenses

	 	
AA

	  	
16

	  	 	  	  	  
	
Term

	 	
BB

	  	
17

	  	 	  	  	  
	
Interpretation

	 	
CC

	  	
17

	  	 	  	  	  
	
SCHEDULE “C” – Accounting Procedure

	 	  	  	
19

 

  

3

  

 

THIS AGREEMENT made as of this Twenty-eighth day of

 

May, A.D. 1959.

 

BETWEEN:

 

CANADA SOUTHERN PETROLEUM LTD.,

A corporation incorporated under the laws

of Canada (hereinafter referred to as

“Canada Southern”)

- and –

MAGELLAN PETROLEUM CORPORATION

a Panama Corporation (hereinafter referred

to as “Magellan”)

- and –

OIL INVESTMENTS, INC., a Panama corporation

(hereinafter referred to as “Oil Investments”)

(which aforesaid three corporations are hereinafter

collectively referred to as “C-M-O” and individually

as a member of the C-M-O group)

- and –

HOME OIL COMPANY LIMITED, a corporation

incorporated under the laws of Canada,

(hereinafter referred to as “Home”)

- and –

KERN COUNTY LAND COMPANY, a company

incorporated under the laws of California

(hereinafter referred to as “Kern”)

- and –

ALMINEX LIMITED, a company incorporated

under the laws of Canada (hereinafter referred

to as “Alminex”)

- and –

UNITED OILS, LIMITED, a corporation

incorporated under the laws of Canada

(hereinafter referred to as “United”)

  

4

  

 

- and –

SIGNAL OIL AND CAS COMPANY, a company

incorporated under the laws of Delaware (hereinafter referred

to as “Signal”)

(the said Home, Kern County, Alminex, United and Signal

being hereinafter collectively referred to as “H-S” and

individually as a member of the H-S group)

 

WHEREAS C-M-O own jointly certain oil and gas permits in the Northwest Territories and the Yukon Territory, Canada, described in Schedule “A” hereto; and

 

WHEREAS H-S and C-M-O are desirous that H-S acquire one-half of C-M-O’s ownership in certain areas covered by those permits.

 

NOW THEREFORE IN CONSIDERATION of the mutual covenants and agreements hereinafter set forth, the parties agree as follows:

 

ARTICLE I

 

Definitions

 

As used in this Agreement, the following terms shall have the following meanings, unless the context otherwise requires:

 

	
1.1  

	
“Properties” shall mean the lands described in Schedule “A” hereto other than the optioned lands.

 

	
1.2  

	
“Execution of this Agreement” shall mean the date when it has been signed by all the parties thereto.

 

	
1.3  

	
“First Drilling Season” shall mean the winter season of 1959-1960.

 

	
1.4  

	
“Known producing horizons” shall mean all known producing horizons down to and including the Devonian.

 

	
1.5  

	
“North Petitot” shall mean the known seismic structure which has been heretofore mapped by Canada Southern and submitted to H-S under all or portions of Permits Numbers 1136, 1137, 2301, 2713, 2302, 1134, 1154, 1153 and 1152.

 

	
1.6  

	
“Discovery well” shall mean a well which establishes production in a new reservoir.

 

	
1.7  

	
“Exploratory well” shall mean an exploratory well as defined in the Operating Procedure.

 

  

5

  

 

	
1.8  

	
“Delineation or development wells” shall mean any and all wells (whether dry or not) which are not discovery wells.

 

	
1.9  

	
“Net acre acquirable” shall mean one-half the amount of acreage which may be securable in gas license or oil and/or gas lease form from the Dominion Government, recognizing that the Owners of the North halves of Permits Numbers 137 and 2301 are entitled to one-half of the total acreage acquirable under the said Permits in the absence of agreement to the contrary.

 

	
1.10  

	
“Dollars” shall mean Canadian Dollars.

 

ARTICLE II

 

2.1           C-M-O hereby transfers, assigns and vests in the members of the H-S group the undivided interests set out hereunder in and to the oil and gas permits described in Schedule “A” except for the South one-half of Permits Numbers 1137 and 2301 comprising 31,966 acres, and subject to the payment of Fifty (50%) percent of the royalties described in Schedule “A”

 

	
To Home

	  	
12-1/2%

	  	  	  
	
To Kern

	  	
5%

	  	  	  
	
To Alminex

	  	
5%

	  	  	  
	
To United

	  	
2-1/2%

	  	  	  
	
To Signal

	  	
25%

 

2.2           Home shall thereafter become the Manager Operator of the properties in accordance with the terms of the Operating Procedure hereto attached and marked as Schedule “B” except as hereinafter otherwise provided.

 

2.3           C-M-O agree they will deliver to Messrs. Gowling, MacTavish, Osborne & Henderson registrable transfers of the said Permits in form sufficient to enable Messrs. Gowling, MacTavish, Osborne & Henderson to have such Permits registered with the Chief of the Mining and Lands Division of the Northern Administration and Lands Branch of the Department of Northern Affairs and Natural Resources, Ottawa, Canada, in the following undivided interests:

 

	
Canada Southern

	  	
50%

	  	  	  
	
Signal

	  	
25%

	  	  	  
	
Home

	  	
20%

	  	  	  
	
Kern County

	  	
5%

  

6

  

 

it being understood that Canada Southern shall hold the interests of Magellan and Oil Investments in trust and that Home shall hold the interests of Alminex and United in trust.

 

2.4           The parties hereto agree that the monies to be paid pursuant to Article 3.1(A)(a) shall be paid by certified cheques delivered to Messrs. Gowling, MacTavish, Osborne & Henderson, 88 Metcalfe Street, Ottawa, Canada, to be held by Messrs. Gowling, MacTavish, Osborne & Henderson until such time as the said Permits with the assignments thereof had been delivered to the said Chief and registered in the said Department and thereupon the said cheques shall be delivered to C-M-O.

 

2.5           C-M-O hereby agree that the said Permits are in good standing, that they have good title to the said Permits and good right, full power and absolute authority (except for the consent of the said Chief) to transfer the said Permits as herein provided, and that the properties are free and clear of any claims, liens or encumbrances except the royalties described in Schedule “A”.

 

ARTICLE III

 

3.1           H-S shall pay C-M-O for the interests acquired hereunder the following considerations:

 

	
  

	
(A)

	
In cash not chargeable to or recoupable from C-M-O:

 

	
  

	
(a)

	
Upon the execution of this Agreement, $1,500,000 in accordance with the provisions of Article 2.4 above.

 

	
  

	
(b)

	
One year after the execution of this Agreement $666,666.

 

	
  

	
(c)

	
Two years after the execution of this Agreement $666,667.

 

	
  

	
(d)

	
Three years after the execution of this Agreement $666,667.

 

	
  

	
(B)

	
In work not chargeable or recoupable from C-M-O:

 

	
  

	
(a)

	
H-S shall commence in 1959 a program of exploration on the properties or on the optioned acreage which shall include the drilling of a minimum of five exploratory wells, irrespective of cost, to at least a depth to test the known producing horizons, or igneous or other impenetrable formations, or a depth of 12,000 feet, whichever is the least, of which at least one such well shall be drilled into the Pre Cambrian and one such well shall be located on the Western block of the properties, consisting of Permits Nos. 1006, 1007, 1132, 1133 and 135.  The first such exploratory well shall be located on the North Petito structure and shall be drilled during the first drilling season and one well may be on the optioned acreage but such well shall not be in lieu of the well required to be drilled on the North Petito structure.

 

	
  

	
(b)

	
In the event the total cost of the exploratory program described in (a) above should be less than $3,000,000, then H-S are obligated to spend the difference between such total cost and $3,000,000 in exploration and development work on the properties and costs incidental or ancillary thereto.

 

  

7

  

 

	
  

	
(c)

	
The work and expenditures described in (a) and (b) above shall be completed within five years from the date of the execution of this Agreement.

 

	
  

	
(d)

	
H-S will be obligated to reconvey the properties to C-M-O in the event they should fail to meet the obligations described in this paragraph (B).  Such reconveyance shall not serve in any way to constitute partial or liquidated damages or to cancel any obligation undertaken by H-S under the terms of this Agreement.

 

	
  

	
(C)

	
Subsequent to the completion of both (A) and (B) above, H-S shall permit C-M-O to enjoy the following preferential position with respect to further work done on the properties so long as the work is performed prior to the time when any particular or potential oil or gas field is producing into a trunk pipe line or in the case of oil, prior to the time oil moves to market in quantities that permit C-M-O to finance its share of further reasonable development pursuant to normal commercial banking arrangements.

 

	
  

	
(1)

	
Should H-S drill, deepen or complete a discovery well in accordance with the provisions of Clause N of the Operating Procedure, in the cast of which C-M-O does not participate, the rights of H-S to recoup therefrom under the terms of Clause N of the Operating Procedure shall be limited to 300%;  that is, H-S may recoup from C-M-O’s interest in such discovery well three times what would have been C-M-O’s cost of participating in the said well.

 

	
  

	
(2)

	
Should H-S drill, deepen or complete a delineation or development well in accordance with the provisions of Clause N of the Operating Procedure, in the cost of which C-M-O does not participate, the rights of H-S to recoup therefrom under the terms of Clause N of the Operating Procedure shall be limited to 105%; that is, H-S may recoup from C-M-O’s interest in such delineation or development well 100% of what would have been C-M-O’s cost of participating in the said well plus 5%.

 

	
  

	
(D)

	
H-S will assure the earliest feasible development and marketing of oil and/or gas found on the properties.

 

ARTICLE IV

 

4.1           H-S shall have an exclusive option to buy from C-M-O, for the price and during the period hereinafter stated, an undivided one-half interest in and to the South one-half of Permits Numbers 1137 and 2301 comprising approximately 31,966 acres, subject to the payment of 50% of the royalty described in Schedule “A”.  If, as and when the option is exercised, the optioned acreage will thereafter become subject to this Agreement as a part of the properties as defined.  No amounts paid, in connection with the option as hereinafter provided, shall be chargeable to or recoupable from C-M-O.

 

  

8

  

 

4.2           The prices at which and periods within which the option may be exercised are as follows:

 

Before August 1, 1960, $400 per net acre acquirable;

 

Before August 1, 1961, $600 per net acre acquirable;

 

Before August 1, 1962, $800 per net acre acquirable;

 

Before August 1, 1963, $1,000 per net acre acquirable.

 

4.3           Payment shall be made upon exercise of the option in accordance with the then existing law or regulations governing oil and gas permits in the Northwest Territories.  In the event that modification of the law or regulations subsequent to the exercise of the option permits greater acreage acquirement by the permittees within the boundary of the optioned acreage then H-S may elect to purchase a 50% interest in such additional acquirable acreage and additional payment shall promptly be made accordingly determined by the price pertaining when the original option was exercised.

 

4.4           Once payment has been made for acquirable oil and/or gas rights under any surface acre and if other oil or gas rights are acquirable under the same surface acre, no additional payment shall be required to be made to C-M-O for such other rights under such surface acre.

 

4.5           Prior to the exercise of the option or its expiration C-M-O will give H-S thirty (30) days’ prior written notice of any well to be drilled on the optioned acreage.  H-S may participate 50% with C-M-O in the cost of drilling any such well or wells on the optioned acreage.  Failure to participate, however, will serve to terminate the option unless within thirty (30) days H-S agrees to drill and does thereafter diligently commence and drill a well thereon to the known producing horizons or to igneous or other impenetrable formations or to a depth of 12,000 feet, whichever is the least.

 

4.6           Prior to the exercise of the option or its expiration, H-S may have access to the area under option and any information in C-M-O’s possession pertaining thereto.  H-S may, upon prior written notice, commence and drill and exploratory test well on the option area at the sole cost and expense of H-S, none of which shall be chargeable to or recoupable from C-M-O.

 

4.7           Any well drilled under the provisions of Clauses 4.5 or 4.6 above shall, after its completion, be operated by the then operator of the optioned acreage.

 

4.8           Prior to the expiration of the option described in Article IV, neither C-M-O nor H-S shall make application for oil and/or gas leases and/or licenses under any permit which includes any part of the optioned acreage except by mutual agreement, provided that, if during this period, any rules or regulations governing oil and gas in the Northwest Territories shall require or render it advantageous to apply for oil and/or gas leases and/or licenses on any of the optioned acreage, then C-M-O and H-S shall meet promptly for the purpose of agreeing upon such application.  Consent by H-S to the areas to be covered by such application with respect to any permit which includes any part of the optioned acreage shall not be unreasonably withheld.

 

4.9           Any exploratory well drilled by H-S under this Article IV shall be considered one of the wells required to be drilled under Article III and the cost of any well drilled by H-S whether exploratory ro not, and the cost of any well in which H-S participates on the optioned lands shall be considered part of the expenditures required to be made under Article 3.1(B)(b).

 

  

9

  

4.10           Participation in a well or any work done on the optioned lands shall not be deemed an exercise of the option by H-S.

 

ARTICLE V

 

5.1           At any time after a period of five (5) years following the execution of this Agreement, C-M-O shall have the right to call for a division of all or any of the areas which have gone to lease or license and which are jointly owned by H-S and C-M-O and the termination of this Agreement to the extent that it affects the areas to be subdivided.  The subdivision shall in no case affect the obligation of H-S to assure the earliest feasible marketing of oil or gas found on the areas jointly owned by H-S and C-M-O, including those which may become subdivided.  The procedure for such division of said area or areas and the termination of such agreement shall be as follows:

 

C-M-O shall advise H-S in writing of its desire.

 

Upon receipt of this notice there shall ensue a period of thirty (30) days within which the parties shall endeavor by agreement to work out a division of the area or areas.

 

If by the expiration of the said thirty (30) days no agreement has been reached, C-M-O may within fifteen (15) days thereafter prepare and present to H-S a division into two parts of all areas to be divided and other assets jointly owned in connection therewith under this Agreement.  Such plan of division shall be in a checkerboard pattern in which the unites shall be a maximum size calculated to avoid forcible unitization if possible and a minimum of one section except in the case of lands producing oil the maximum shall be a maximum size calculated to avoid forcible unitization if possible and a minimum of one-quarter section.  H-S shall have a period of thirty (30) days from receipt of the proposed division to elect which of the two parts it desires to receive.  If H-S does not make its election within the said thirty (30) days by notice in writing to C-M-O, the latter shall, within ten (10) days thereafter, elect which of the two parts it desires and so notify H-S.

 

5.2           At all times mentioned in this Article existing contracts between the parties shall remain in full force and effect and normal operations thereunder shall continue.  Thirty (30) days after the final election is made by either party in accordance with the above established procedure, all existing contracts shall terminate with respect to the divided properties except as provided in this Article.  All joint operations in respect of the divided properties shall then cease and all obligations except the liquidation of current accounts of either party to the other and obligations to third parties shall be at an end except as provided in this Article but during such final thirty (30) days and thereafter the parties will individually and together take whatever action is necessary to conserve the area or areas and assets jointly owned by H-S and C-M-O and to expedite final transfer of titles and liquidation of any accounts and other matters pending as of the date of the termination.

 

  

10

  

ARTICLE VI

 

6.1           C-M-O shall promptly deliver to Home, C-M-O’s files or copies thereof relating to the areas covered by this Agreement, retaining copies thereof for C-M-O’s own use.  C-M-O shall give to Home original or duplicate copies of all data obtained by C-M-O or available to C-M-O with respect to the geology of the areas covered by this Agreement and all other information which C-M-O may have on hand or is presently entitled to acquire with respect to exploration and development of the areas covered by this Agreement.

 

ARTICLE VII

 

Incorporation of Operating Procedure

 

7.1           The parties agree that the provisions contained in the Operating Procedure attached hereto as Schedule “B” shall apply to the same extent and in the same manner as though such provisions were contained in this Agreement.  Where there is any conflict between the provisions of this Agreement and the Operating Procedure or the Accounting Procedure the provisions of this Agreement shall prevail and in the case of any conflict between the Operating Procedure and the Accounting Procedure the provisions of the Operating Procedure shall prevail.

 

IN WITNESS WHEREOF the parties hereto have executed this Agreement this Twenty-fourth day of June, 1959.

 

	 	

CANADA SOUTHERN PETROLEUM LTD.

	 
	 	 	 	 
	
 

	
Per:

	“John W. Buckley”	 
	 	 	
President

	 
	 	 	 	 
	 	

Per:

	"M.A. Reasoner”  	 
	 	 	
Vice-President

	 
	 	 	 	 
	 	

MAGELLAN PETROLEUM CORPORATION

	 
	 	 	 	 
	 	

Per:

	“John W. Buckley”	 
	 	 	
Vice-President

	 
	 	 	 	 
	 	

Per:

	“C. Dean Reasoner”  	 
	 	 	
Assistant Secretary

	 
	 	 	 	 
	 	

OIL INVESTMENTS, INC.

	 
	 	 	 	 
	 	

Per:

	“John W. Buckley”	 
	 	 	

Vice-President

	 
	 	 	 	 
	 	

Per:

	 “C. Dean Reasoner”	 
	 	 	

Assistant Secretary

	 
	 	 	 	 

 

  

11

  

 

	 	

HOME OIL COMPANY LIMITED

	 
	 	 	 	 
	 	

Per:

	“Alex Clark”	 
	 	 	

Vice-President

	 
	 	 	 	 
	 	

Per:

	“J.W. Hamilton”    	 
	 	 	

Assistant Secretary

	 
	 	 	 	 
	 	

KERN COUNTY LAND COMPANY

	 
	 	 	 	 
	 	

Per:

	“John H. Matkin”	 
	 	 	

Vice-President

	 
	 	 	 	 
	 	

Per:

	“James A. Walker”	 
	 	 	

Assistant Secretary

	 
	 	 	 	 
	 	

ALIMINEX LIMITED

	 
	 	 	 	 
	 	

Per:

	“J. B. Webb”	 
	 	 	

V. Pres.

	 
	 	 	 	 
	 	

Per:

	“P. H. Powers”	 
	 	 	

A/Sec. Treas.

	 
	 	 	 	 
	 	

UNITED OILS, LIMITED

	 
	 	 	 	 
	 	

Per:

	“Robert W. Campbell"	 
	 	 	

Director

	 
	 	 	 	 
	 	

Per:

	 “J. W. Hamilton”  	 
	 	 	

Assistant Secretary

	 
	 	 	 	 
	 	

SIGNAL OIL AND GAS COMPANY

	 
	 	 	 	 
	 	

Per:

	“J. Howard Marshall”	 
	 	 	

Vice-President

	 
	 	 	 	 
	 	

Per:

	“J. K. Wootan”	 
	 	 	

Director

	 

 

  

12

  

THIS IS SCHEDULE “A” TO AN AGREEMENT MADE AS OF MAY 28, 1959,

BETWEEN CANADA SOUTHERN PETROLEUM LTD., MAGELLAN PETROLEUM

CORPORATION, OIL INVESTMENTS, INC., HOME OIL COMPANY LIMITED,

KERN COUNTY LAND COMPANY, ALIMINEX LIMITED, UNITED OILS LIMITED,

SIGNAL OIL AND GAS COMPANY.

	
PERMIT NO.

	  	
AREAS DESCRIBED IN PERMIT

	  	
DATE OF PERMIT

	
1132

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing sixty-three thousand two hundred and twelve acres, more or less, said tract being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-three degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees thirty minutes no seconds and longitude

one hundred and twenty-three degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-three degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-three degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
April 29, 1957

	  	  	  	  	  
	
1133

	  	
The whole of that parcel in the Mackenzie Mining District, in the Northwest Territories said parcel being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-three degrees thirty minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-three degrees forty-five minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-three degrees forty-five minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-three degrees thirty minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

 

Saving and excepting thereout and therefrom said parcel all that part lying within the limits of Petroleum and Natural Gas Permit numbered four hundred and seventy-nine, the remainder containing fifty-eight thousand and sixty-eight acres, more or less; also excepting any part thereof which may be affected by the rights of other persons acquired through prior staking.

	  	
April 29, 1957

	  	  	  	  	  
	
1134

	  	
The south half of that parcel in the Mackenzie Mining District, in the Northwest Territories, said parcel being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-two degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-two degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

 

Saving and excepting thereout and therefrom said parcel all that part lying within the limits of Petroleum and Natural Gas Permit numbered two hundred and ninety-nine, the remainder containing twenty-five thousand two hundred and seventy-nine acres, more or less; also excepting any part thereof which may be affected by the rights of other persons acquired through prior staking.

	  	
April 29, 1957

 

  

13

  

 

	
1135

	  	
The whole of that parcel in the Mackenzie Mining District, in the Northwest Territories, said parcel being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-three degrees thirty minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-three degrees forty-five minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees no minutes no seconds and longitude one hundred and twenty-three degrees forty-five minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees no minutes no seconds and longitude one hundred and twenty-three degrees thirty minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

 

Saving and excepting thereout and therefrom said parcel all that part lying within the limits of Petroleum and Natural Gas Permit numbered four hundred and seventy-nine, the remainder containing thirty thousand six hundred and seventy acres, more or less; also excepting any part thereof which may be affected by the rights of other persons acquired through prior staking.

	  	
April 29, 1957

	  	  	  	  	  
	
1136

 

“J.W.B.”

           “J.W.”

“J.B.W.”

“P.H.P.”

“C.D.R.”

“M.A.R.”

“R.W.C.”

“J.A.W.”

“J.W.H.”

 

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing sixty-three thousand eight hundred and fifty-four acres, more or less, said tract being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees thirty minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees forty-five minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees no minutes no seconds and longitude one hundred and twenty-two degrees forty-five minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees no minutes no seconds and longitude one hundred and twenty-two degrees thirty minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
April 29, 1957

	  	  	  	  	  
	
1137

	  	
The whole of that parcel in the Mackenzie Mining District, in the Northwest Territories, said parcel being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees no minutes no seconds and longitude one hundred and twenty-two degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees no minutes no seconds and longitude one hundred and twenty-two degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

 

Saving and excepting thereout and therefrom said parcel all that part lying within the limits of Petroleum and Natural Gas Permit numbered two hundred and ninety-nine, the remainder containing forty-one thousand seven hundred and seventy-four acres, more or less; also excepting any part thereof which may be affected by the rights of other persons acquired through prior staking.

	  	
April 29, 1957

	  	  	  	  	  
	
2301

	  	
All that portion of the grid area designated 60o10’, 122o15’, said portion lying within the limits of surrendered Petroleum and Natural Gas Permit numbered two hundred and ninety-nine, in the Mackenzie Mining District, in the Northwest Territories, said portion containing twenty-two thousand and eighty acres, more or less, saving and excepting thereout and therefrom any part of said permit which may be affected by the rights of other persons acquired through prior staking

	  	
September 18, 1958

	  	  	  	  	  
	
2302

	  	
All that portion of the south half of the grid area designated 60o20’, 122o15’, said portion lying within the limits of surrendered Petroleum and Natural Gas Permit numbered two hundred and ninety-nine, in the Mackenzie Mining District, in the Northwest Territories, said portion containing six thousand five hundred and twenty-eight acres, more or less, saving and excepting thereout and therefrom any part of said permit which may be affected by the rights of other persons acquired through prior staking

	  	
September 18, 1958

 

  

14

  

 

	
2713

	  	
A rectilinear quadrilateral in the Mackenzie Mining District, in the Northwest Territories, the whole of the grid area designated 60o10’, 122o00’, containing approximately 63,854 acres for a period of three years from the date hereof, subject ot the Territorial Oil and Gas Regulations.

	  	
March 9, 1959

	  	  	  	  	  
	
1006

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty one thousand eight hundred and seven acres, more or less, lying to the south of a right line joining the mid points of the easterly and westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-three degrees forty-five minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-four degrees no minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-four degrees no minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-three degrees forty-five minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
June 14, 1956

	  	  	  	  	  
	
1007

	  	
All that certain tract of land in the Whitehorse Mining District, in the Yukon Territory, and in the Mackenzie Mining District in the Northwest Territories containing thirty one thousand eight hundred and eighty-eight acres, more or less, lying to the north of a right line joining the mid points of the easterly and westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-four degrees no minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-four degrees fifteen minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees no minutes no seconds and longitude one hundred and twenty-four degrees fifteen minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees no minutes no seconds and longitude one hundred and twenty-four degrees no minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
June 14, 1956

	  	  	  	  	  
	
1173

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty-one thousand five hundred and sixty-six acres, more or less, lying to the north of a right line joining the mid points of the easterly and westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23, 1957

	  	  	  	  	  
	
1174

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty-one thousand five hundred and sixty-six acres, more or less, lying to the north of a right line joining the mid points of the easterly and westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-one degrees no minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees no minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23, 1957

 

  

15

  

 

	
1175

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing sixty-two thousand eight hundred and ninety acres, more or less, said tract being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees forty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees forty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23, 1957

	  	  	  	  	  
	
1176

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing sixty-two thousand five hundred and sixty-eight acres, more or less, said tract being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees forty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees forty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23, 1957

	  	  	  	  	  
	
1177

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing sixty-two thousand five hundred and sixty-eight acres, more or less, said tract being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-one degrees forty-five minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees forty minutes no seconds and longitude one hundred and twenty-one degrees forty-five minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees forty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23, 1957

	  	  	  	  	  
	
1178

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing sixty-two thousand five hundred and sixty-eight acres, more or less, said tract being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-one degrees forty-five minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-two degrees no minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees forty minutes no seconds and longitude one hundred and twenty-two degrees no minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees forty minutes no seconds and longitude one hundred and twenty-two degrees forty-five minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23, 1957

	  	  	  	  	  
	
1179

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing sixty-two thousand two hundred and forty-four acres, more or less, said tract being more particularly described as follows:

 

Commencing at a point at latitude sixty-one degrees no minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty-one degrees no minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23, 1957

 

  

16

  

 

	
1180

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing sixty-two thousand two hundred and forty-four acres, more or less, said tract being more particularly described as follows:

 

Commencing at a point at latitude sixty-one degrees no minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence westerly on a right line to a point at latitude sixty-one degrees no minutes no seconds and longitude one hundred and twenty-one degrees forty-five minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-one degrees forty-five minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-one degrees no minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23, 1957

	  	  	  	  	  
	
1181

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing sixty-two thousand two hundred and forty-four acres, more or less, said tract being more particularly described as follows:

 

Commencing at a point at latitude sixty-one degrees no minutes no seconds and longitude one hundred and twenty-one degrees forty-five minutes no seconds;  thence westerly on a right line to a point at latitude sixty-one degrees no minutes no seconds and longitude one hundred and twenty-two degrees no minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-two degrees no minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees fifty minutes no seconds and longitude one hundred and twenty-two degrees forty-five minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23, 1957

	  	  	  	  	  
	
1149

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty-one thousand seven hundred and twenty-seven acres, more or less, lying to the North of a right line joining the midpoints of the Easterly and Westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees no minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-one degrees no minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23rd, 1957

	  	  	  	  	  
	
1150

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty-one thousand seven hundred and twenty-seven acres, more or less, lying to the North of a right line joining the midpoints of the Easterly and Westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23rd, 1957

 

  

17

  

 

	
1151

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty-one thousand seven hundred and twenty-seven acres, more or less, lying to the North of a right line joining the midpoints of the Easterly and Westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees forty-five minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-one degrees forty-five minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23rd, 1957

	  	  	  	  	  
	
1152

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty-one thousand seven hundred and twenty-seven acres, more or less, lying to the North of a right line joining the midpoints of the Easterly and Westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees forty-five minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-two degrees no minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees no minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-one degrees forty-five minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23rd, 1957

	  	  	  	  	  
	
1153

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty-one thousand seven hundred and twenty-seven acres, more or less, lying to the North of a right line joining the midpoints of the Easterly and Westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-two degrees no minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-two degrees fifteen minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees fifteen minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees no minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23rd, 1957

	  	  	  	  	  
	
1154

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty-one thousand seven hundred and twenty-seven acres, more or less, lying to the North of a right line joining the midpoints of the Easterly and Westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-two degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-two degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees ten minutes no seconds and longitude one hundred and twenty-two degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23rd, 1957

	  	  	  	  	  
	
1155

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty-one thousand six hundred and forty-six acres, more or less, lying to the South of a right line joining the midpoints of the Easterly and Westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23rd, 1957

 

  

18

  

 

	
1156

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing thirty-one thousand six hundred and forty-six acres, more or less, lying to the South of a right line joining the midpoints of the Easterly and Westerly limits of the area particularly described as follows:

 

Commencing at a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-one degrees no minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees fifteen minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees twenty minutes no seconds and longitude one hundred and twenty-one degrees no minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23rd, 1957

	  	  	  	  	  
	
1157

	  	
All that certain tract of land in the Mackenzie Mining District, in the Northwest Territories, containing sixty-two thousand eight hundred and ninety acres, more or less, said tract being more particularly described as follows:

 

Commencing at a point at latitude sixty degrees forty minutes no seconds and longitude one hundred and twenty-two degrees fifteen minutes no seconds;  thence westerly on a right line to a point at latitude sixty degrees forty minutes no seconds and longitude one hundred and twenty-two degrees thirty minutes no seconds;  thence southerly on a right line to a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-two degrees thirty minutes no seconds;  thence easterly on a right line to a point at latitude sixty degrees thirty minutes no seconds and longitude one hundred and twenty-two degrees fifteen minutes no seconds;  thence northerly on a right line to the point of commencement;  said latitudes and longitudes being as determined by astronomic means, in situ.

	  	
May 23rd, 1957

 

The Permits herein described as number 1006 and number 1007 are subject to a gross overriding royalty of 1.5625% to The Catawba Corporation and a gross overriding royalty of 2.1/2% to Neil W. Tracy.  All other Permits herein described are subject to a gross overriding royalty of 1.5625% to THE CATAWBA CORPORATION.

 

  

19

  

 

SCHEDULE “B”

 

OPERATING PROCEDURE attached to the Agreement dated as of May 28th, 1959, between Canada Southern Petroleum ltd., Magellan Petroleum Corporation, Oil Investments, Inc., Home Oil Company Limited, Kern County Land Company, Alminex Limited, United Oils Limited and Signal Oil and Gas Company.

 

CLAUSE A

 

Definitions

 

A.1           In this schedule, including this Clause, unless the context otherwise requires, the expressions following shall have the following meanings, namely:

 

(a)           “accounting procedure” shall mean the procedure set out in Schedule “C” hereto;

 

	
  

	
(b)

	
“Agreement” or “the Agreement” shall mean the Agreement dated as of May 28, 1959, and the schedules thereto;

 

	
  

	
(c)

	
“commercial production” or “production in commercial quantities” or similar wording, shall mean the output from a well of petroleum substances in such quantities as, considering the cost of drilling, completing and producing operations, the probable life of the well, the available (or potentially available) market and the price, kind and quality of such production would, after a reasonable production test, or where the well has been completed, after a reasonable period of production, warrant the drilling of a like well in the vicinity thereof;

 

	
  

	
(d)

	
“complete”, “completing”, or “completion” with respect to a well shall mean proper abandonment of the well if production in paying quantities be not encountered or, if production in paying quantities is encountered, completing the well for the purpose of taking production including the supplying and setting of production casing and the supplying and installing of tubing, wellhead and pumping equipment, if initially required to produce the well, storage tanks and such other equipment, material and services necessary for preparing a well for the taking of production of petroleum substances therefrom;

 

	
  

	
(e)

	
“development well” shall mean any well other than an exploratory well;

 

	
  

	
(f)

	
“dollars” shall mean Canadian dollars;

 

	
  

	
(g)

	
“document of title” shall mean any permit, license, lease, sublease or similar document concerning petroleum substances which is subject to the Agreement at any given time;

 

	
  

	
(h)

	
“exploratory well” shall mean a well which at the time of spudding in is located at least two (2) miles from the nearest well capable of production in commercial quantities’

 

  

20

  

 

	
  

	
(i)

	
“Manager Operator” shall mean any person appointed to act as Manager Operator for the Joint Operators under the Agreement;

 

	
  

	
(j)

	
“paying production” or “production in paying quantities” or similar wording shall mean an output from a well or petroleum substances that

 

	
  

	
(i)

	
in the case of a well not yet completed, considering the cost of completing and producing operations, the probable life of the well, the available (or potentially available) market and the price, kind and quality of such production, would, after a reasonable production test, warrant the taking of such production, and

 

	
  

	
(ii)

	
in the case of a completed well, considering the cost of producing operations, the probable life of the well, the available or potentially available market and the price, kind and quality of such production, would, after a reasonable period of production (or after a reasonable production test where the well has not been placed on regular production) warrant the taking of such production;

 

	
  

	
(k)

	
“Joint Operator” shall mean any party to the Agreement;

 

	
  

	
(l)

	
“petroleum substances” shall mean petroleum and/or any other substance which the parties have the right to recover from any part of the said lands;

 

	
  

	
(m)

	
“participating equity” shall mean the undivided share from time to time of a Joint Operator in that part of the said lands referred to and the production of petroleum substances therefrom and any jointly owned property relating thereto;

 

	
  

	
(n)

	
“re-work” or “re-working” shall mean any operation other than drilling or pumping necessary to obtain production and without restricting the generality of the foregoing may include one or more of the running of production casing, perforating, acidizing, sand fracing, squeeze cementing or swabbing into production;

 

	
  

	
(o)

	
“said lands” shall mean the rights to petroleum substances in the lands described in Schedule “A”, which at any given time are subject to the Agreement;

 

	
  

	
(p)

	
“spacing unit” shall mean the area allocated to a well for the purpose of drilling for or producing petroleum substances and, except as herein otherwise expressly provided, the subsurface regions vertically beneath such area comprising the spacing unti for such well prescribed by and under the laws of Canada now or hereafter in effect governing the spacing of oil or gas wells, whichever the well may be and if no area be so allocated shall be one-quarter Northwest Territory section for oil and one Northwest Territory section for a gas well.

 

  

21

  

 

CLAUSE B

 

Status of Manager Operator

 

B.1           Subject to the provisions of the Agreement, the Manager Operator shall have the sole and exclusive management and control of the exploration, development and operation of the said lands.

 

B.2           The Manager Operator may perform any act or do anything which it is required to do by having it performed or done by an independent contractor but the Manager Operator shall not make a general delegation of its powers of management and control.

 

B.3           If and when a Joint Operator is Manager Operator, such Joint Operator shall not thereby be deprived of any of the rights or relieved of any of the duties or liabilities of a Joint Operator but shall have all such rights, duties and liabilities in addition to those of Manager Operator, including the right to vote on his removal or appointment as Manager Operator.

 

CLAUSE C

 

Change of Manager Operator

 

C.1           The Manager Operator shall be entitled to retire from its position as Manager Operator at any time upon giving written notice to the Joint Operators at least six (6) months in advance of the effective date of its retirement whereupon the Joint Operators shall appoint a successor Manager Operator.

 

C.2           The Manager Operator from time to time shall forthwith cease to be the Manager Operator:

 

	
  

	
(i)

	
if the Manager Operator purports to make a general delegation of its powers of management and control,

 

	
  

	
(ii)

	
in respect of any lands in which it and its parent and subsidiaries ceases to hold at least a Ten (10%) percent participating equity,

 

	
  

	
(iii)

	
if the Manager Operator shall become bankrupt or insolvent, or shall make any general assignment for the benefit of creditors or should any execution or attachment issue against it whereby all or part of its participating equity shall be taken by any custodian, receiver, trustee or other legal authority or an effective resolution shall have been passed for the winding up or liquidation of the business and affairs of the Manager Operator,

 

whereupon the Joint Operators shall appoint a successor Manager Operator to take office immediately.

 

C.3           A meting may remove a Manager Operator and appoint a successor, but if such Manager Operator be a person who is not a Joint Operator or a person owning less than a Ten (10%) percent equity in the lands concerned it shall require the unanimous consent of the Joint Operators.

 

C.4           When the Manager Operator resigns or otherwise ceases to act in that capacity it shall deliver to its successor Manager Operator exclusive possession of all jointly owned property including all pertinent books of account and records of the joint operations and all documents, agreements and other papers relating thereto.

 

C.5           A Manager Operator who is removed shall not be released from its obligations hereunder for a period of three (3) months after its discharge unless a successor Manager Operator shall have taken over the options hereunder.

 

  

22

  

 

CLAUSE D

 

Meetings

 

D.1           Any Joint Operator may call a meeting of the Joint Operators at any time upon not less than seven (7) days written notice (or three (3) days notice if given by telegram) to each other Joint Operator of the time and place of such meeting.  Meetings shall be held in the City of Calgar, Alberta, unless all of the Joint Operators agree to holding a meeting at some other place.  Any decision of any meeting shall require the affirmative vote of the Joint Operators owning in the aggregate more than Sixty-six and two-thirds (66-2/3%) percent of the participating equities in that part of the said lands being the subject of such decision and any decision so made shall, except as herein otherwise provided, be binding upon all of the Joint Operators and shall be carried out by the Manager Operator.

 

D.2           No decision of a meeting shall be binding on the parties insofar as it concerns the drilling of a new well, the deepening or reworking of a well, or any action which would increase or decrease the interest of any or all of the Joint Operators in the said lands other than as expressly provided herein and PROVIDED FURTHER Canada Southern, Magellan and Oil Investments shall not have any vote concerning the program referred to in Article III.

 

CLAUSE E

 

Budget

 

E.1           The Manager Operator shall at intervals of six (6) months furnish each Joint Operator with a budget outlining its program respecting the operations for the period of six (6) months next ensuing and estimating all expenditures in connection therewith for such period.  Unless any Joint Operator shall disapprove such budget within ten (10) days after it is submitted, it shall be deemed to have been approved and it shall not be necessary to hold a meeting, but if disapproved by the Joint Operators, a new budget shall be submitted to a meeting.

 

E.2           Any budget may be revised at any time or from time to time by the Joint Operators.

 

E.3           Upon any such budget or revised budget being approved, the Manager Operator shall thereby be authorized to carry on the operations outlined therein for the period covered by such budget and to expend the amounts estimated therefor.

 

E.4           The Manager Operator shall make no expenditures in excess of those authorized by any budget or unless such expenditure is required by any emergency or to keep any part of the said lands in good standing or to comply with any law, rule, order or regulation and in any such event the Manger Operator may make such expenditure and shall forthwith advise the other Joint Operators in writing thereof.

 

E.5           Any budget approved at a meeting by Joint Operators owing in the aggregate more than Sixty-six and two-thirds (66-2/3%) percent of the participating equities in the said lands to which such budget relates shall be binding on all Joint Operators;  PROVIDED that any budget relating to the program referred to in Article III shall require the unanimous approval of the H-S group and shall not require any approval of the C-M-O group.

 

The items in any budget which provides for the drilling, deepening or reworking of any wells shall not be binding unless unanimously approved.

 

  

23

  

 

CLAUSE F

 

Duties of the Manager Operator

 

F.1           The Manager Operator shall, in the conduct of the operations hereunder:

 

	
  

	
(a)

	
conduct the same in a good and workmanlike manner and in accordance with prevailing field practice, conforming to all applicable laws, rules, orders and regulations,

 

	
  

	
(b)

	
furnish all material, labour and services.  Upon the written request of the Manager Operator each Joint Operator shall secure and furnish its proportionate part of any such material in kind or by satisfactory assignment of priorities or allocations (governmental or voluntary),

 

	
  

	
(c)

	
pay and discharge promptly all costs and expenses actually incurred in connection with the joint operations,

 

	
  

	
(d)

	
keep the accounts of the joint operations in accordance with the accounting procedure,

 

	
  

	
(e)

	
arrange and negotiate for and acquire all surface rights and rights-of-way required for the joint operations,

 

	
  

	
(f)

	
make a good faith effort to keep the said lands and any jointly owned facilities free and clear of any liens or encumbrances and to maintain in force an defect and protect any title affecting the said lands,

 

	
  

	
(g)

	
keep an accurate and itemized record of all production secured and of the disposition thereof,

 

	
  

	
(h)

	
regulate the production of petroleum and natural gas in accordance with market demands and rates allowed by governmental regulations or the respective maximum efficient rates of flow of the wells.

 

  

24

  

 

CLAUSE G

 

G.1           Each Joint Operator shall have the following specific rights in respect to any lands in which it owns a participating equity, which shall not be in limitation of any other rights under this Agreement:

 

	
  

	
(a)

	
The right to receive all information pertaining to exploratory operations, development work and wells drilled on the said lands.  This information shall include, but not be limited to, copies of all types of logs, reports, geological maps, geophysical maps and basic data relating to the exploratory and development work on the lands; the same to be furnished promptly upon completion of each such log, report, map and other data.  Final reports shall be furnished upon the completion of each job

 

	
  

	
(b)

	
The right to receive progress reports and maps from time to time or immediately upon request.  Such reports shall include, but not be limited to, all facts and data obtained on a drilling well on a daily basis and the progress, location and data obtained by any other exploratory operation, including seismic parties, surface geological parties and core hole programs on a weekly basis.

 

	
  

	
(c)

	
Access to the said lands and the wells thereon and the right at all times to inspect and observe the operations being conducted thereon and therein.

 

	
  

	
(d)

	
The right to examine the books and records of the Manager Operator relating to all wells drilled on the said lands and of sales of production.

 

	
  

	
(e)

	
Upon request made to the Manager Operator therefor, to be furnished with copies of driller’s reports of wells drilled upon the said lands, samples of cores and cuttings taken therefrom and copies of all seismograms obtained upon the properties.

 

G.2           Each Joint Operator hereto shall treat geological and other exploratory data obtained in connection with the said lands as confidential information and will reveal no part of it to any third person, except with prior written approval of the other Joint Operators;  provided that this clause shall not prevent disclosure to the Government of information required by the Government in order to establish credit for work requirements, or prevent disclosure of information relating to the geology and reserves data of known producing structures to the extent such disclosures may be required in connection with financing by any Joint Operator, or prevent disclosure of any information to any experts in order that such Joint Operator may obtain the opinions of such experts, or disclosure of information relating to its reserves relating to known producing structures in a report to its shareholders;  and provided further that information obtained from the wells themselves may be disclosed at the discretion of any Joint Operator, and that purchasers or prospective purchasers of gas produced from the said lands may, at the discretion of any Joint Operator, for use in connection with purchases or prospective purchases, be given all information, whether obtained from wells or otherwise, of a kind that is reasonably or customarily given to purchasers of prospective purchasers of gas in like circumstances.  Appropriate precautions will be taken by each Joint Operator to prevent inadvertent disclosures of confidential information.

 

  

25

  

 

CLAUSE H

 

Competitive Operating Basis

 

H.1           All operations hereunder shall be performed on a competitive basis at the usual rates prevailing in the area.  The Manager Operator, if it so desires, may employ its own tools and equipment in any such operation but in such event the charge therefor shall not exceed the prevailing rate in the area and such work shall be performed by the Manager Operator under the same terms and conditions as shall be customary and usual in the contracts of independent contractors who are doing work of a similar nature.

 

CLAUSE I

 

Insurance

 

I.1           Any Joint Operator from time to time conducting any operation hereunder shall comply with the requirements of all Unemployment Insurance and Workmen’s Compensation legislation and shall, if it not already has, prior to the commencement of such operation, take out, initially pay, and thereafter maintain and continue to pay for during the period of such operation, at least the following insurance in a reputable insurance company or companies at the expense of and on behalf of all the Joint Operators:

 

	
  

	
(i)

	
employer’s liability insurance covering each employee engaged in the operations hereunder to the extent of $100,000. where such employee is not covered by Workmen’s Compensation;

 

	
  

	
(ii)

	
comprehensive public liability insurance covering all operations hereunder, except motor vehicles, to the extent of $150,000. for any one person injured or killed and $300,000. for two or more persons injured or killed in any one accident;

 

	
  

	
(iii)

	
comprehensive property damage insurance covering all operations hereunder to the extent of $100,000, for damages resulting from any one accident;  including damages resulting from fire or blowouts but excluding underground damages;

 

	
  

	
(iv)

	
blanket all risk insurance covering all above ground physical property engaged in the operations hereunder except motor vehicles, to the extent of the value of all such property;

 

	
  

	
(v)

	
automobile public liability insurance covering all automotive units engaged in the operations hereunder to the extent of $150,000. for any one person injured or killed and $300,000. for two or more persons injured or killed in any one accident;

 

	
  

	
(vi)

	
automobile property damage insurance covering all automotive units engaged in the operations hereunder to the extent of $100,000. for damages resulting from any one accident;

 

which insurance may not be terminated without prior notice to each other Joint Operator.

 

I.2           If so requested by any other Joint Operator, the Joint Operator conducting the operation hereunder shall deliver to such other Joint Operator evidence of full compliance with the insurance provisions contained herein, to be retained in the custody of such other Joint Operator during the continuance of such operation.

 

  

26

  

 

CLAUSE J

 

Advances

 

J.1           The Manager Operator at its election from time to time may require any Joint Operator to advance its proportionate share of authorized expenditures by furnishing such Joint Operator with an estimate of such expenditures required to cover operations for a period not in excess of sixty (60) days.  Within fifteen (15) days after receipt of such estimate or within ten (10) days before commencement of the period covered by the estimate, whichever is the later, such Joint Operator shall pay its proportionate part thereof.

 

The accounts between the Joint Operators in respect of any such advance shall be adjusted at the end of each calendar month in accordance with actual expenditures.  Any amount not paid within the time hereinbefore limited shall bear interest at the rate of Six (6%) percent per annum.

 

J.2           In the event that any Joint Operator fails to advance such money as required or make any other payment required under this Agreement, the other Joint Operators participating in the operation concerned shall, upon request by the Manager operator, pay the share of such defaulting Joint Operator in the proportions of their respective participating equities, and upon the payment by the defaulting Joint Operator to the Manager Operator of all or any part of such sum, or upon the Manager Operator otherwise recovering all or any part of such sum, the Manager operator shall immediately pay the amount received or recovered to the Joint Operators making the advancement in like proportions and such amount shall be applied first in reduction of interest and second in reduction of capital.  Provided, however, that the members of C-M-O shall not be obligated in respect of any expenditures to be incurred in respect of the program referred to in Article III or the payments referred to in Article IV.

 

 

CLAUSE K

 

Lien

 

K.1           The Manager Operator shall have a lien on the participating equity of each other Joint Operator to secure payment of such Joint Operator’s share of all costs and expenses hereunder, but such lien shall not attach to any portion of such Joint Operator’s share of production at any time prior to the enforcement of the same by the Manager Operator as hereinafter provided,

 

K.2           In the event that any Joint Operator shall fail to pay its share of any costs or expenses hereunder (and such default shall continue for thirty (30) days after the Manager Operator shall have served written notice upon such Joint Operator specifying such default and requiring the same to be remedied) the Manager Operator may enforce such lien by taking possession of all or any part of the participating equity of such Joint Operator and the Manager Operator may sell and dispose of all or any part of such participating equity either in whole or in separate parcels at public auction or by private tender at such time an don such terms as it shall appoint, having first given notice to such Joint Operator of the time and place of such sale, and the Manager Operator is hereby constituted irrevocably the attorney of such Joint Operator for the purpose of making any such sale and executing such deeds and agreements in the name of such Joint Operator as may be necessary to carry out the same.  The proceeds of any such sale shall be first applied by the Manager Operator in payment of any costs or expenses to be paid by such Joint Operator and not paid by it, and any balance remaining shall be paid to such Joint Operator after deducting the reasonable costs of such sale.  Any such sale shall be a perpetual bar in law and equity against such Joint Operator and any person claiming all or any part of the property sold, by, from, through or under such Joint Operator.

 

K.3           If any Joint Operator advances any money under the preceding clause in respect of the default of another Joint Operator it shall have the same lien rights in respect thereto as has the Manager Operator under this clause.

 

  

27

  

 

CLAUSE L

 

Division of Production

 

L.1           Each Joint Operator shall own its participating equity in the petroleum substances produced hereunder exclusive of any quantity thereof that may be delivered in kind as royalty or production which may be used by the Manager Operator in developing and producing operations hereunder and in preparing and treating production for marketing purposes and production unavoidably lost.  Each Joint Operator shall, upon payment of or securing the payment of any royalty with respect thereto, be entitled to take delivery of its share of production at the point of production.  Each Joint Operator electing to take delivery of its participating equity in the petroleum substances shall provide at its own risk and expense adequate facilities for receiving its production and shall bear any additional expense to which the Manager Operator may be subject in delivering such production separately.  In the event any Joint Operator fails to make arrangements to take delivery of its participating equity in the petroleum substances the Manager Operator may sell the same upon the same terms and conditions that it is selling its share of production and such Joint Operator shall be entitled to receive from the manager Operator not later than the last day of the month following such sale, the net proceeds received from the sale of its participating equity in the petroleum substances so sold.  Any market available to a Joint Operator shall be shared by it with the other Joint Operators to the intent and purpose that no Joint Operator shall be obligated to store its participating equity in production except to the proportionate extent that the producton owned by the other Joint Operators is so stored for lack of market.

 

CLAUSE M

 

Obligatory Operations

 

M.1           Upon the completion of the program provided for in Article III of this Agreement, each Joint Operator shall be obligated, provided that the Manager Operator has made a bona fide but unsuccessful attempt to obtain a waiver of such obligations, to join in the renewal of any document of title and to pay a share equivalent to its participating equity in that part of the said lands concerned of any rental and of the cost of any operation, including the drilling of any well, necessary to maintain all or any part of the said lands in good standing except the drilling obligations contained in any document of title when the person entitled to enforce the performance thereof is not enforcing the same, unless such Joint Operator has surrendered or disposed of all of its participating equity in that part of the said lands to which such obligation applies at least thirty (30) days prior to the date on which such rental becomes payable or on which such operation must be commenced in order to maintain such part of the said lands in good standing.  Provided that C-M-O shall not be obligated to participate in any obligatory well while it enjoys the preferential rights granted to it by Article 3.1(C) but if it does not so participate the applicable penalty under the said Article shall apply.

 

  

28

  

 

CLAUSE N

 

Independent Operations

 

N.1           Except as hereinbefore provided in Clause M hereof and Article III, no Joint Operator shall be required to participate in the cost of drilling, deepening, or reworking any well hereunder.

 

N.2           Upon completion of the program provided for in Article III, and provided no well is then being drilled or deepened on the said lands for the joint account, and provided no drilling or deepening operation on the said lands has then been approved in any budget, the following provisions shall apply:

 

	
  

	
(a)

	
Should any Joint Operator desire to deepen or re-work any well which is incapable of producing petroleum substances in paying quantities or to drill any new well, such Joint Operator shall notify the other Joint Operators in writing of its intention to perform the proposed operation at its own cost and risk.  Such notice (hereinafter called “the first notice”) shall contain information as to the location, depth and estimated cost of the operation.  In such event each Joint Operator shall be deemed to be a participant in such operation unless it has given written notice to the other Joint Operators within thirty (30) days after receipt by it of the first notice, of its intention not to participate;  PROVIDED that if the operation is the deepening of a well on which the drilling rig to be utilized in such operation is then located, the time hereinbefore limited for giving written notice of intention not to participate shall be reduced to three (3) days exclusive of Sundays and statutory holidays, and any rig time for such three (3) day period shall be paid for by the Joint Operators participating in the operation.

 

	
  

	
(b)

	
The Joint Operator giving first notice shall, together with the Joint Operators participating, be entitled to have the Manager Operator commence such operation within six (60) days from the receipt by the other Joint Operators of the first notice and thereafter prosecute the operation to completion at the sole cost and risk of the participating Joint Operators in the proportions that their respective participating equities in the spacing unit concerned are of the sum of such participating equities.

 

	
  

	
(c)

	
If the Joint Operators participating in such operation commence the same within the said period of sixty (60) days and carry it on diligently and continuously to the depth proposed in the first notice

 

	
  

	
(i)

	
if the operation is the drilling of an exploratory well, each non-participating Joint Operator shall forthwith assign to the participating Joint Operators in the proportions that their respective participating equities are of the sum of such participating equities, all of its participating equity in all formations in:

 

	
  

	
A.

	
six (6) Northwest Territory sections of the said lands if such well is drilled to a depth of more than six thousand (6,000’) feet and provided commercial production has not been obtained above the depth of six thousand (6,000’) feet, and

 

	
  

	
B.

	
four (4) Northwest Territory sections of the said lands in the case of any other well,

 

such sections to include the section on which such well is located and the other sections to be selected by the participating Joint Operators from those sections laterally or diagonally adjoining the section on which such well is located.

 

	
  

	
(ii)

	
if the operation is a deepening or reworking operation or the drilling of a development well, each non-participating Joint Operator shall have the right, until the elapse of a period of thirty (30) days after the participating Joint Operators have served on each of the non-participating Joint Operators written notice of the results of all tests carried out on the well concerned (or in the case of a dry hole, written notice to that effect) and have made available to such non-participating Joint Operators all information concerning such well which is in the possession of the participating Joint Operators, to pay to the participating Joint Operators in the proportions that their respective participating equities, a sum equal to three (3) times the amount it would have been called upon to pay had all Joint Operators being entitled to participate originally participated in the operation, and upon such payment being made, such Joint Operator shall participate in such well and the production therefrom ab initio to the extent that it would have been entitled to participate had all Joint Operators entitled to participate so participated, and in the event that it does not pay such sum within the time hereinbefore limited, such Joint Operator shall assign its participating equity in such well, in the spacing unit on which the same is located and in the surface location, to the participating Joint Operators in the proportions that their respective participating equities are of the sum of such participating equities, in which case the Joint Operators receiving the assignment shall have the right to produce the well concerned and to market the production of petroleum substances therefrom and the Joint Operators making the assignment shall not be entitled to any share of such production.

 

N.3           Notwithstanding anything hereinbefore contained, if the lands to be assigned under this clause contain any other well then capable of production of petroleum substances, such well and any zone or formation, whichever the case may be underlying the spacing unit of such other well and from which it is then capable of obtaining production shall be excluded from the lands to be assigned.

 

  

29

  

 

CLAUSE O

 

Selection of Leases

 

O.1           The Joint Operators shall meet to determine the lands to be contained in an application for petroleum and natural gas leases.  The meeting may be called by any Joint Operator on the same notice as is provided in Clause D.  All decision relating to any such application and the selection of lands to be included therein shall be made by mutual agreement and failing such agreement shall be made by the Joint Operators owning in the aggregate more than Sixty-six and two-thirds (66-2/3%) percent of the participating equities in such permit provided that in making such selection leases of sections must be chosen so that any Joint Operator who is entitled to any section or sections by virtue an independent operation may obtain such section or sections.

 

CLAUSE P

 

Surrender

 

Upon completion of the program provided for in Article III the following provision shall apply:

 

P.1           Any Joint Operator may from time to time and at any time, provided that the Crown must or will accept the same, surrender all of its interest in all or any part of the said lands except that no such surrender shall be made:

 

	
  

	
(a)

	
within thirty (30) days before the accrual of the rental or any other obligation, excepting any drilling obligation contained in any document of title when the person entitled to enforce the performance thereof is not enforcing the same, in respect to that part of the said lands to be surrendered,

 

	
  

	
(b)

	
respecting an area of less than a spacing unit,

 

	
  

	
(c)

	
until the Joint Operator desiring to surrender (hereinafter called “the offeror”) shall notify in writing the other Joint Operators (hereinafter called “the recipients”) of the interest it desires to surrender.  The recipients shall have the right for a period of fifteen (15) days after the receipt of such notice to advise the offeror by notice in writing that it will accept an assignment of such interest.  In the event any recipient does not notify within the time herein limited the offeror that it will accept an assignment of such interest, such recipient shall join in the surrender of such part of the said lands.  If any recipient agrees to accept such assignment, such interest shall be assigned to such recipient.  If more than one recipient agrees to accept such assignment such interest shall be assigned to such recipients in the proportions that their respective participating interests bear to the sum of such participating interests.

 

  

30

  

 

CLAUSE Q

 

Q.1           No Joint Operator shall dispose of any interest hereunder unless the person receiving the same agrees with the other Joint Operators to be bound by all of the terms and provisions of this Agreement.  If such disposition imposes greater obligations or expenses on the Manager Operator or other Joint Operators then such person shall agree to pay all costs and expenses in connection therewith.

 

CLAUSE R

 

Assignments Among Parties

 

R.1           Upon the assignment of any interest hereunder by one Joint Operator to any other or others:

 

	
  

	
(a)

	
the Joint Operator agreeing to receive such assignment shall pay all costs and taxes incurred or levied in connection with such assignment;

 

	
  

	
(b)

	
the Joint Operator agreeing to receive such assignment shall indemnify and hold harmless the Joint Operator agreeing to make such assignment from and against all liabilities in connection with such interest to be assigned except liabilities which arose prior to the agreement to make such assignment;

 

	
  

	
(c)

	
the Joint Operator agreeing to make such assignment shall not be released from any obligation which arose prior to the date of the agreement to accept such assignment;

 

	
  

	
(d)

	
Such assignment shall be without warranty of title of the interest of the assigning party;

 

	
  

	
(e)

	
all the terms of this Agreement shall continue to apply to such interest as among the Joint Operators who have not assigned their interest;

 

	
  

	
(f)

	
where it is necessary to obtain the consent of any person other than a Joint Operator to such assignment and such consent cannot be obtained, such interest shall be held in trust by the Joint Operator required to make the assignment for the Joint Operators entitled to receive the same.

 

CLAUSE S

 

Relationship of Parties

 

S.1           This Agreement shall not be construed to create a partnership

 

S.2           Except as otherwise provided in Clause T hereof, where the parties hereto or any of them incur a liability in connection with any operation hereunder either to a party hereto or to any third party, such liability shall not be joint or several but each party shall be separately liable only for a portion of the total liability calculated in accordance with its participating equity in that part of the lands to which the liability can be reasonably allocated.

 

S.3           Each Joint Operator agrees to indemnify each other Joint Operator against any claim of or liability to any third party incurred in connection with any operation hereunder to the extent but only to the extent that the claim or liability is asserted against the other Joint Operator in an amount in excess of the other Joint Operator’s share of the liability calculated in accordance with this clause;  PROVIDED that a Joint Operator shall not be required to indemnify any other Joint Operator for any amount in excess of its own share of the liability calculated in accordance with this clause.

 

S.4           The Joint Operators hereby elect that the operations conducted under this Agreement, and the Joint Operators themselves with respect to such operations, be excluded from the application of all of the provisions of Subchapter K of Chapter 1 of Subtitle A of the United States internal Revenue Code of 1954, or any amendments thereof, or of such portion or portions thereof as may be permitted by the Secretary of the Treasury or his delegate, insofar as such Subchapter or any portion or portions thereof may otherwise be applicable to such operations or to the Joint Operators with respect to such operations.

 

  

31

  

 

CLAUSE T

 

Liability of Manager Operator

 

T.1           Except as hereinbefore provided the Manager Operator shall not be liable to any Joint Operator in damages or otherwise howsoever for anything done by the Manager Operator hereunder or for the Manager Operator’s failure to do anything hereunder, except for:

 

	
  

	
(i)

	
acts of fraud, dishonesty or gross neglect on the part of any officer of the Manager Operator in carrying out the duties of the Manager Operator under this Agreement,

 

	
  

	
(ii)

	
the failure of the Manager Operator to remedy any default hereunder as soon as reasonably possible after the receipt by it from any Joint Operator of written notice of such default.

 

CLAUSE U

 

Force Majeure

 

U.1           Any Joint Operator shall be excused from the performance of any of its obligations hereunder from time to time and at any time, but only so long as it is prevented from performance by act of God, the Queen’s enemies, inclement weather, accident, breakdown, fire, strike, lock-out, labour shortage, inability to obtain equipment, materials or supplies in the open market at reasonable prices, compliance with any law, rule, order or regulation which has not been declared by a court of competent jurisdiction to be invalid, or any other cause beyond the reasonable control of such Joint Operator whether similar or dissimilar, provided that lack of funds shall not be considered a cause beyond the control of a party.

 

  

32

  

 

CLAUSE V

 

Waiver

 

V.1           No waiver on behalf of any party of any breach of any of the covenants, conditions and provisos herein contained shall be effective or be binding upon such party unless the same be expressed in writing and any waiver so expressed shall not limit or affect such party’s rights with respect to any other or future breach.

 

CLAUSE W

 

Conflict with Laws

 

W.1           If any provision herein contained is in conflict with any law, rule, order or regulation heretofore or hereafter made by any competent governmental authority or any document of title by virtue of which the parties hereto hold any interest, this Agreement shall be deemed to be amended so as to conform to such law, rule, order or regulation or document of title for so long as the same remains in force.

 

 

CLAUSE X

 

Notices

 

X.1           All notices required to be given under this Agreement shall either be personally delivered or mailed by prepaid registered mail addressed as hereinafter set forth or to such other address as may be designated from time to time by such Joint Operator in writing, and any notice mailed as aforesaid shall be deemed to have been received by the addressee on the next normal business day following the day of mailing:

 

	
Canada Southern

	  	
505 – 8th Avenue West,

Calgary, Alberta

 

	
Magellan

	  	
505 – 8th Avenue West,

Calgary, Alberta

 

	
Oil Investments

	  	
505 – 8th Avenue West,

Calgary, Alberta

 

	
Alminex

	  	
609 Hudson’s Bay Oil &

Gas Building,

320 – 7th Avenue West,

Calgary, Alberta

 

	
Signal

	  	
P.O. Box 17126,

Foy Station,

Los Angeles 17,

California, U.S.A.

 

	
with a copy to

	  	
4th Floor, North

Canadian Oil Bldg.,

Calgary, Alberta

 

	
Kern

	  	
640 – 7th Avenue West,

Calgary, Alberta

 

	
with a copy to

	  	
600 California Street,

San Francisco 8,

California, U.S.A.

 

	
United

	  	
304 – 6th Avenue West,

Calgary, Alberta

 

	
Home

	  	
304 – 6th Avenue West,

Calgary, Alberta

  

33

  

CLAUSE Y

 

Further Assurances

 

Y.1           Each of the Joint Operators shall from time to time and at all times do all such further acts and execute and deliver all such further documents and assurances as shall be reasonably required in order fully to perform and carry out the terms of this Agreement.

 

 

CLAUSE Z

 

Entire Agreement

 

Z.1           The Joint Operators agree that they have expressed herein their entire understanding and agreement concerning the subject matter of this Agreement and it is expressly agreed that no implied covenant, condition, term or reservation shall be read into this Agreement relating to or concerning such subject matter.

 

 

CLAUSE AA

 

Division of Expenses

 

AA.1           The costs and expenses of the program referred to in Article III shall be borne as to Fifty (50%) percent by Signal, Twenty-five (25%) percent by Home, Ten (10%) percent by Alminex, Ten (10%) percent by Kern and Five (5%) percent by United and C-M-O shall not bear any of the said costs or expenses nor shall the same be recoupable from C-M-O.

 

AA.2           Except as herein otherwise provided all costs and expenses shall be allocated equitably by the Manager Operator to the parts of the said lands to which they apply and each Joint Operator shall bear and pay in accordance with the accounting procedure a share of the same equivalent to its participating equity in that part of the said lands to which the same are allocated.

 

  

34

  

AA.3           The participating equities of the Joint Operators in the said lands at the date hereof are as follows:

 

	
Canada Southern

	  	
37-1/2%

	  	  	  
	
Magellan

	  	
6-1/4%

	  	  	  
	
Oil Investments

	  	
6-1/4%

	  	  	  
	
Home

	  	
12-1/2%

	  	  	  
	
Alminex

	  	
5%

	  	  	  
	
Kern

	  	
5%

	  	  	  
	
United

	  	
2-1/2%

	  	  	  
	
Signal

	  	
25%

 

AA.4           H-S agrees that during the term of the option it will allocate such part of any excess credits in any year not required by them in connection with the said lands to the optioned lands in order to keep the option in good standing for such year.

 

CLAUSE BB

 

Term

 

BB.1           Subject to the other provisions hereof including Article V, this Agreement shall remain in full force and effect and the said lands shall not be subject to partition so long as any jointly owned document of title to any part of the said lands, or any renewal or extension thereof pursuant to the provisions of such document of title, remains in force and effect and thereafter until all joint facilities have been salvaged and disposed of and final settlement and accounting had among the Joint Operators.

 

CLAUSE CC

 

Interpretation

 

CC.1           Wherever in this Agreement the singular number or masculine gender occurs, the same shall be respectively construed as the plural or neuter, and vice versa, as the context or reference may require.

 

CC.2           Notwithstanding anything herein elsewhere to the contrary contained, any right of any party to acquire any interest from any other party hereunder shall cease, determine and be at an end not later than the expiration of twenty-one (21) years after the death of the last surviving lawful descendant now living of His Late Majesty King George VI.

 

CC.3           The headings of all clauses in this Agreement are inserted for convenience of reference only and shall not affect the construction hereof.

 

CC.4           Time shall be of the essence hereof.

 

CC.5           This Agreement shall, subject to the provisions of Clause Q hereof, be binding upon and enure to the benefit of the Joint Operators and their respective successors and assigns.

 

CC.6           All terms, covenants, provisions and conditions of this Agreement shall run with and be binding upon the said lands during the term hereof.

 

  

35

  

SCHEDULE “A”

 

Attached to and made a part of an agreement made as of May 28, 2959 between Canada Southern Petroleum Ltd., Magellan Petroleum Corporation, Oil Investments, United Oils Limited, Signal Oil and Gas Company.

 

ACCOUNTING PROCEDURE

(UNIT AND JOINT LEASE OPERATIONS)

I. GENERAL PROVISIONS

1.  Definitions

 

The term "joint property" as herein used shall be construed to mean the subject area covered by the agreement to which this "Accounting Procedure" is attached.

 

The term "Operator" as herein used shall be construed to mean the party designated to conduct the development and operation of the subject area for the joint account.

 

The term "Non-Operator". as herein used shall be construed to mean any one or more of the non-operating parties.

 

The term "rentals" shall, in addition to its ordinary meaning, be construed to include delay rentals, renewal fees and generally all periodical payments of monies required to be made in order to maintain the rights of the parties in and to the joint property in force and effect.

 

2.           Statements and Billings

 

The Operator shall bill Non-Operator on or before the last day of each month for its proportionate share of costs and expenditures during the preceding month. Such bills will be accompanied by statements, reflecting the total cost and charges as set forth under sub-paragraph   A  below:

 

A.           statement in detail of all charges and credits to the joint account.

 

	
  

	
B.

	
Statement of all charges and credits to the joint account, summarized by appropriate classifications indicative of the nature thereof.

 

C.           Statements, as follows:

 

	
  

	
(1)

	
Detailed statement of material ordinarily considered controllable by operators of oil and gas properties;

 

	
  

	
(2)

	
Statement of all other charges and credits to the joint account summarized by appropriate classifications indicative of the nature thereof; and

 

	
  

	
(3)

	
Statement of any other receipts and credits.

 

3.           Payments by Non-Operator

Each party shall pay all such bills within fifteen (15) days after receipt thereof.  If payment is not made within such time, the unpaid balance may bear interest at the rate of six per cent (6%) per annum until paid.  Operator shall have and be entitled to a prior lien on all the rights and interests of Non-Operator in said joint properties, the production therefrom, and the material and equipment thereon, to secure the payment by Non-Operator of Non-Operator’s portion of cost, purchases and expenses of developing and operating the joint property as herein provided. Upon request Operator may require non-Operator to advance his share of estimated cash outlay for the current month’s operations.

 

  

36

  

4.           Audits

 

Payment of any such bills shall not prejudice the right of Non-Operator to protest or question the correctness thereof.  All statements rendered to Non-Operator by Operator during any calendar year shall be conclusively presumed to be true and correct after eighteen months following the close of any such calendar year, unless within said eighteen months Non-Operator takes written exception thereto and makes claim on Operator for adjustment or commences an audit of Operator’s accounts and records relating to the accounting hereunder.  Failure on the part of Non-Operator to make claim on Operator for adjustment, or to commence an audit within such period shall establish the correctness thereof and preclude the filing of exceptions thereto or the making of claims for adjustment thereon.  A Non-Operator, upon notice in writing to Operator and all other Non-Operators, shall have the right to audit Operator’s accounts and records relating to the accounting hereunder, within eighteen months next following the close of any calendar year.  Non-Operator shall have six months next following the examination of the Operator’s records within which to take written exception to and make any and all claims on Operator.  The provisions of this paragraph shall not prevent adjustments resulting from the physical inventory of property as provided for in Section VI, Inventories, hereof.

 

II.           DEVELOPMENT AND OPERATING CHARGES

Subject to limitations hereinafter prescribed, Operator shall charge the joint account with the cost of the following items:

1.           Rentals and Royalties

 

Rentals, when such rentals are paid by Operator for the joint account;  royalties, when not paid direct to royalty owners by the purchaser of the oil, gas, casing-head gas, or other products.

 

2.           Labour, Transportation and Services

 

Labour, transportation, and other services necessary for the development, maintenance, and operation of the joint property.  Labour shall include salaries and wages of Operator’s employees, other than employees compensated for under paragraphs (11), (12) and (13) of this Section II, directly engaged in operations fo the joint property and (A) Operator’s cost of vacation, sickness and disability benefits of employees, and expenditures or contributions imposed or assessed by Governmental authority applicable to such salaries and wages, and (B) Operator’s current cost of established plans for employees’ group life insurance, hospitalization, pension, retirement, purchase, thrift, bonus, and other benefit plans of like nature, applicable to Operator’s payroll;  provided the charges under part (B) of this paragraph shall not exceed twelve per cent (12%) of the total such salaries and wages charged to the joint account.

 

3.           Material

 

Material, equipment, and supplies purchased or furnished by Operator, for use of the joint property.  So far all reasonably practical and consistent with efficient and economical operation, only such material shall be purchased for or transferred to the joint property as required for immediate use, and the accumulation of surplus shall be avoided wherever possible.

 

  

37

  

4.           Moving Material to Joint Property

 

Moving material to the joint property from vendors or from Operator’s warehouse in district or from the properties of Operator, but in either of the last two events no charge shall be made to the joint account for distance greater than the distance from the nearest reliable supply store or railway receiving point where material is available, except by special agreement with Non-Operator.

 

5.           Moving Surplus Material from Joint Property

 

Moving surplus material from the joint property to outside vendees, if sold f.o.b. destination, or minor return to Operator’s warehouse or other storage point.  No charge shall be made to the joint account for moving surplus material to Operator’s warehouse or other storage point for a distance greater than the distance to the nearest reliable supply store or railway receiving point, except by special agreement with Non-Operator; and no charge shall be made to the joint account for moving material to other properties belonging to Operator, except by special agreement with Non-Operator.

 

6.           Use of Operator’s Equipment and Facilities

 

Use of and service by Operator’s exclusively owned equipment and facilities as provided in paragraph 4 of Section III, “Basis of Charges to Joint Account”.

 

7.           Damages and Losses

 

Damages or losses incurred by fire, flood, storm or any other causes not controllable by Operator through exercise of reasonable diligence.  Operator shall furnish Non-Operator written notice of damage or losses incurred by fire, storm, flood or other natural or accidental causes as soon as practicable after report of the same has been received by Operator.

 

8.           Litigation, Judgments, and Claims

 

All costs and expenses of litigation, or legal services otherwise necessary or expedient for the protection of the joint interest, including attorneys fees and expenses as hereinafter provided, together with all judgments obtained against the parties or any of them insofar as the same relate to the joint account or the subject matter of the agreement;  actual expenses incurred by any party or parties hereto in securing evidence for the purpose of defending against any action or claim prosecuted or urged against the joint account or the subject matter of this agreement.

 

	
  

	
A.

	
If a majority of the interests hereunder shall so agree, actions or claims affecting the joint interests hereunder may be handled by the legal staff of one or more of the parties hereto, and a charge commensurate with services rendered may be made against the joint account, but no such charge shall be made until approved by the legal department of or attorneys for the respective parties hereto.

	
  

	
B.

	
Fees and expenses of outside attorneys shall not be charged to the joint account unless authorized the majority of the interests hereunder.

9.           Taxes

 

All taxes, rates, levies and assessments of every kind and nature levied, assessed or imposed upon or in conjunction with the joint property or any part thereof, the production therefrom or the operation thereof, which have been paid by the Operator for the benefit of the parties hereto.

 

  

38

  

10.           Insurance

 

	
  

	
A.

	
Premiums paid for insurance carried for the benefit of the joint account together with all expenditures incurred and paid in settlement of any and all losses, claims, damages, judgments, and other expenses, including legal services, not recovered from insurance carrier.

 

	
  

	
B.

	
If no insurance is required to be carried, all actual expenditures incurred and paid by Operator in settlement of any and all losses, claims, damages, judgments and other expenses, including legal services, shall be charged to the joint account.

11.           District and Camp Expense

 

A proportionate share of the salaries and expenses of Operator’s district superintendent and other general district or field employees serving the joint property, whose time is not allocated direct to the joint property and a proportionate share of the cost of maintaining and operating a district office and all necessary camps, including housing facilities for employees if necessary, incurred in conducting the operations on the joint property and other lease owned and operated by Operator in the same locality.  The expense of, less any revenue from, these facilities shall include depreciation or a fair monthly rental in lieu of depreciation on the investment.  Such charges shall be proportioned to all leases served on some equitable basis consistent with Operator’s accounting practice.

 

12.           Overhead

 

Overhead charges, which shall be in lieu of any charges for any part of the expenses, including salaries or compensation paid to managing officers and employees, of the division office and/or principal office of the Operator which are not in lieu of district or field office expenses incurred in developing and operating any joint property or any other expenses of Operator, including but not limited to expenses chargeable under paragraph (2) of Section II, incurred in the development and operation of joint property and Operator shall have the right to assess against the joint property on one of the following over bases:

 

A.           Per Well Basis:

 

	
(1)  

	
$15 per day for each drilling well, beginning on the date the well is spudded and terminating when it is on production or is plugged, as the case may be, except that no charge shall be made during the suspension of drilling operations for fifteen (15) or more consecutive days.

	
(2)  

	
$100 per well per month for the first five (5) producing wells.

 

	
(3)  

	
$ 75 per well per month for the second five(5) producing wells.

 

	
(4)  

	
$ 50 per well per month for all producing wells over ten (10).

B.           $40.00 per day for each shallow core hole party

 

	
  

	
$30.00 per day for each seismograph reflection party.

	
  

	
$20.00 per day for each seismograph refraction party.

	
  

	
$15.00 per day for each gravity meter test party.

	
  

	
$15.00 per day for each magnetometer test party beginning as the date the party enters the said areas and terminating when the party leaves the said areas.  A charge shall also be made for non-working shifts for the reason of repairs or other causes beyond the control of operation.

  

39

  

In connection with overhead charges, the status of wells shall be as follows:

 

	
  

	
(1)

	
In-put or key wells shall be included in overhead schedule the same as producing oil wells.

	
  

	
(2)

	
Producing gas wells shall be included in overhead schedule the same as producing oil wells.

	
  

	
(3)

	
Wells permanently shut down but on which plugging operations are deferred, shall be dropped from overhead schedule at the time shut down is effective.  When such wells are plugged, overhead shall be charged at the producing well rate during the time required for the plugging operations.

	
  

	
(4)

	
Wells being plugged back or drilled deeper shall be included in overhead schedule the same as drilling wells.

	
  

	
(5)

	
Various wells may be shut down temporarily and later replaced on production.  If and when a well is shut down (other than for proration) and not produced or worked upon for a period of a full calendar month, it shall not be included in the overhead schedule for such month.

	
  

	
(6)

	
Salt water disposal wells shall not be included in overhead schedule as producing wells.

The above specific overhead rates may be amended from time to time by agreement between Operator and Non-Operator if, in practice, they are found to be insufficient or excessive.

 

It is specifically understood that the above Overhead rates apply only to Drilling and Producing Operations and are not intended to cover the construction or operations of additional facilities such as, but not limited to, gasoline plants, compressor plants, repressuring projects, salt water disposal facilities, major road construction projects, and similar installations,  If at any time any or all of these become necessary to the operation a separate agreement will be reached relative to an overhead charge and allocation to District Expense.

 

A.           Per Well Basis:

 

	
(1)  

	
$               per day for each drilling well, beginning on the date the well is spudded and terminating when it is on production or is plugged, as the case may be, except that no charge shall be made during the suspension of drilling operations for fifteen (15) or more consecutive days.

	
(2)  

	
$               per well per month for the first five (5) producing wells.

	
(3)  

	
$               per well per month for the second five(5) producing wells.

	
(4)  

	
$               per well per month for all producing wells over ten (10).

 

	 	(1)	 	Development:                                    per cent (            %) of the cost of development, exclusive of costs provided for under subdivision (8) of this Section II.
	 	 	 	 
	 	(2)	 	Operating:                                   percent (            %) of the cost of operating the joint property, exclusive of cost provided for under subdivisions (1) and (8) of this Section II. For the purpose of determining charges under this Basis B, “development” shall include all costs in connection with drilling, redrilling, and deepening of wells, the original cost of construction or installation of fixed assets, expansion of fixed assets, and any other project clearly discernible as a fixed asset.  All other costs shall be considered as “operating”.

 

In connection with overhead charges, the status of wells shall be as follows:

 

	
  

	
(1)

	
In-put or key wells shall be included in overhead schedule the same as producing oil wells.

	
  

	
(2)

	
Producing gas wells shall be included in overhead schedule the same as producing oil wells.

	
  

	
(3)

	
Wells permanently shut down but on which plugging operations are deferred, shall be dropped from overhead schedule at the time shut down is effective.  When such wells are plugged, overhead shall be charged at the producing well rate during the time required for the plugging operations.

	
  

	
(4)

	
Wells being plugged back or drilled deeper shall be included in overhead schedule the same as drilling wells.

	
  

	
(5)

	
Various wells may be shut down temporarily and later replaced on production.  If and when a well is shut down (other than for proration) and not produced or worked upon for a period of a full calendar month, it shall not be included in the overhead schedule for such month.

	
  

	
(6)

	
Salt water disposal wells shall not be included in overhead schedule as producing wells.

The above overhead schedule on producing wells shall be applied to individual leases; provided that, whenever leases covered by this agreement are operated as a unitized project in the interest of economic development, the schedule shall be applied to the total number of wells, irrespective of individual leases.

 

The above specific overhead rates may be amended from time to time by agreement between Operator and Non-Operator if, in practice, they are found to be insufficient or excessive.

 

  

40

  

Warehouse Handling Charges

 

A handling charge to cover the cost of handling material into and in the warehouse shall be assessed on new and used material and equipment furnished from the Operator’s warehouse on the following basis:

 

(A)            Five            per cent (5 %) of the cost of tubular goods (2” and over) and major equipment such as tanks, separators, engines, etc.

 

(B)            Ten            per cent (10 %) of the cost of all other material.

 

Other Expenditures

 

Any other expenditures incurred by Operator for the necessary and proper development, maintenance, operation and abandonment of the joint property.  Notwithstanding anything herein contained, no charge shall be made for any interest or financing charges incurred by the Operator, except where incurred with the consent of Non-Operator.

 

III.           BASIS OF CHARGES TO JOINT ACCOUNT

1.           Purchases

 

Material and equipment purchased and all services procured shall be charged at their invoiced cost to Operator, after deduction of all discounts actually received.

 

2.           Material Furnished by Operator

 

Material required for operations shall be purchased for direct charge to joint account whenever practicable, except that Operator may furnish such material from Operator’s stocks under the following conditions:

 

A.           New Material (Condition “A”)

 

	
  

	
(1)

	
New material transferred from Operator’s warehouse or other properties shall be priced f.o.b. the nearest reputable supply store or railway receiving point, where such material is available, at current replacement cost of the same kind of material.  This will include material such as tanks, rigs, pumps, sucker rods, boilers, and engines.  Tubular goods (2” and over) shall be charged on the basis of carload price effective at date of transfer and f.o.b. railway receiving point nearest the joint property, regardless of quantity transferred.

 

	
  

	
(2)

	
Other material shall be priced on basis of a reputable supply company’s preferential price list effective at date of transfer and f.o.b. the store or railway receiving point nearest the joint property where such material is available.

 

B.           Used Material (Condition “B” and “C”)

 

	
  

	
(1)

	
Material which is in sound and serviceable condition and is suitable for re-use without reconditioning shall be classed as Condition “B” and priced at 75% of current new price.

 

	
  

	
(2)

	
Material which cannot be classified as Condition “B” but which,

 

(a)           After reconditioning will be further serviceable for original function as good secondhand material (Condition “B”), or

 

(b)           Is serviceable for original function but substantially not suitable for reconditioning, shall be classed as Condition “C” and priced at 50% of current new price.

 

	
  

	
(3)

	
Tanks, derricks, buildings, and other equipment involving erection costs shall be charged at applicable percentage of dismantled current new price for similar materials.

 

	
  

	
(4)

	
There may also be cases where some items of equipment, due to their unusual condition, should be fairly and equitably priced by Operator, subject to approval of Non-Operator.

 

	
  

	
(5)

	
Current new price, wherever used in this sub-paragraph 2B of this Section III shall have the same meaning and be determined in accordance with sub-paragraph 2A of this Section III.

 

  

41

  

3.           Warranty of Material Furnished by Operator

Operator does not warrant the material furnished beyond or back of the dealer’s or manufacturer’s guaranty;  and, in case of defective material, credit shall not be passed until adjustment has been received by Operator from the manufacturers or their agents.

 

4.           Operator’s Exclusively Owned Facilities

The following rates shall apply to services rendered by facilities and equipment owned exclusively by Operator, provided such rates are not in excess of current prevailing rates of like service and equipment available in the area:

 

(A)           Water service, gas and power, booster and compressor services, etc., cost of such services including operation, maintenance, insurance, taxes and allowance for depreciation.

 

	
  

	
(B)

	
Automotive equipment, at rates commensurate with cost of ownership and operation and in line with schedule adopted by Operator for use in his operations.  Charges will be based on use in actual service on, or in connection with the development and operation of the joint property.

 

	
  

	
(C)

	
Aircraft equipment, at rates commensurate with cost of ownership and operation.  Charges will be made on a flight hour basis, based on use and actual service in connection with the development and operation of the joint property.

 

	
  

	
(D)

	
A fair rate shall be charged for the use of drilling and other machinery and equipment exclusively owned by Operator while used hereunder to cover maintenance, repairs, depreciation, for the service furnished the joint property.  Drilling equipment lost in the hole or damaged beyond repair shall be charged to the joint account at a fair depreciated value.

 

	
  

	
Whenever requested Operator shall inform Non-Operator in advance of the rates it proposes to charge.

 

	
  

	
Rates shall be revised from time to time when found to be either excessive or insufficient.

 

  

42

  

 

IV.           DISPOSAL OF LEASE EQUIPMENT AND MATERIAL

The Operator shall be under no obligation to purchase interest of Non-Operator in surplus new or secondhand material.  Derricks, tanks, buildings, and other major items shall not be removed by Operator from the joint property without the approval of Non-Operator.  Operator shall not sell major items of material to an outside party without giving Non-Operator an opportunity either to purchase same at the price offered or to take Non-Operator’s share in kind

 

1.           Material Purchased by Operator

Material purchased by Operator shall be credited to the joint account and included in the monthly statement of operations for the month in which the material is removed from the joint property.

 

2.           Material Purchased by Non-Operators

Material purchased by Non-Operator shall be invoiced by Operator and paid for by Non-Operator to Operator immediately following receipt of invoice.  The Operator shall pass credit to the joint account and include the same in the monthly statement of operations.

 

3.           Division in Kind

Division of material in kind, if made between Operator and Non-Operator, shall be in proportion to their respective interests in such material.  Each party will thereupon be charged individually with the value of the material received or receivable by each party and corresponding credits will be made by the Operator to the joint account, and such credits shall appear in the monthly statement of operations.

 

4.           Sales to Outsiders

Sales to outsiders of material from the joint property shall be credited by Operator to the joint account at the net amount collected by Operator from vendee.  Any claims by vendee for defective material etc., shall be charged back to the joint account, if and when paid by Operator.

 

V.           BASIS OF PRICING MATERIAL TRANSFERRED FROM PROPERTY

Jointly-owned material and equipment sold to either Operator or Non-Operator or divided in kind between them, unless otherwise agreed shall be valued on the following basis of condition and price: (new price as used in the following sub-divisions shall have the same meaning and be computed on the same basis as the price for new material in sub-paragraph 2A of Section III hereof).

 

1.           New Material

New material (Condition “A”), being new equipment or supplies purchased or procured for the property but never used thereon, at one hundred per cent (100%) of current new price.

 

2.           Good Used Material

Good used material (Condition “B”), being good serviceable material which is further usable without reconditioning:

 

	
  

	
(a)

	
At 75% of current new price if material was charged to joint account as new, or

 

	
  

	
(b)

	
At 75% of current new price less depreciation consistent with its usage on and service to the joint property if material was originally charged to the joint property as secondhand at 75% of new price.

 

  

43

  

3.           Other Used Material

Other used material (Condition “C”), being material which:

 

	
  

	
(a)

	
After reconditioning will be further serviceable for original function as good secondhand material (Condition “B”), or

 

	
  

	
(b)

	
Is serviceable for original function but substantially not suitable for reconditioning at 50% of current new price.

 

4.           Bad Order Material

Bad order material (Condition “D”), being material not further usable for its original function but for possible other service, at a value commensurate with its use.

 

5.           Junk

Junk (Condition “E”), being obsolete and unserviceable material, at prevailing junk prices in the district.

 

6.           There may also be cases where some items of equipment due to their unusual condition should be fairly and equitable priced by Operator subject to approval of Non-Operator

 

VI.           INVENTORIES

1.           Periodic Inventories

Periodic inventories shall be taken by Operator of the joint account material at reasonable intervals but at least once in every five years which shall include all such material as is ordinarily considered controllable by operators of oil and gas properties.

 

2.           Notice

Notice of intention to take inventory shall be given by Operator at least ten (10) days before any inventory is to begin, so that Non-Operator may be represented when any inventory is taken.

 

3.           Failure to be Represented

Failure of Non-Operator to be represented at the physical inventory shall bind Non-Operator to accept the inventory taken by Operator, who shall in that event furnish Non-Operator with a copy thereof.

 

4.           Reconciliation of Inventory

Reconciliation of inventory with charges to the joint account shall be made by each party at interest, and a list of overages and shortages shall be jointly determined by said parties.

 

5.           Adjustment of Inventory

Inventory adjustments shall be made by Operator with the joint account for overages and shortages, but Operator shall only be held accountable to Non-Operator for shortages due to lack of reasonable diligence.

 

  

44

  

6.           Inventory Expenses

The expense of Operator’s and Non-Operator’s representatives present at the taking of regular inventory shall not be charged to the joint account.

 

7.           Special Inventories

Any party shall have the right at any time to request in writing the taking of a special inventory.  The taking of such special inventory shall be commenced within fifteen (15) days after the receipt of notice therof.  The expense of Operator’s representative in conducting any special inventory so requested shall be charged to the separate account of the requesting party.

 

  

45

  

 

 

THIS AGREEMENT is made this 1st day of April, 1966.

 

A M O N G:

 

CANADA SOUTHERN PETROLEUM LTD.,

a corporation incorporated under the laws of Canada,

(hereinafter referred to as “Canada Southern”)

 

- and -

 

MAGELLAN PETROLEUM CORPORATION,

a Panama corporation,

(hereinafter referred to as “Magellan”)

 

- and -

 

OIL INVESTMENTS, INC.,

a Panama corporation,

(hereinafter referred to as “Oil Investments”)

 

(which said corporations are hereinafter

collectively referred to as “C-M-O” and

individually as a member of the C-M-O group)

 

- and -

 

ALMINEX LIMITED,

a company incorporated under the laws of Canada,

(hereinafter referred to as “Alminex”)

 

- and -

 

PAN AMERICAN PETROLEUM CORPORATION,

a company having an office at the City of Calgary,

in the Province of Alberta,

(hereinafter referred to as “Pan American”)

 

- and -

 

DOME PETROLEUM LIMITED,

a company incorporated under the laws of Canada,

(hereinafter referred to as “Dome”)

 

  

  

  

 

- and -

 

PROVO GAS PRODUCERS LIMITED, a

company incorporated under the laws of Alberta,

(hereinafter referred to as “Provo”)

 

(Alminex, Pan American, Dome and Provo being hereinafter collectively

referred to as “A-D-P” and individually as a member of the A-D-P group)

 

WHEREAS C-M-O and A-D-P are each parties or assignees of parties to an agreement in writing dated May 28, 1959 (herein called “the Main Agreement”) among C-M-O of the one part and Home Oil Company Limited, Kern County Land Company, Alminex, United Oils Limited and Signal Oil and Gas Company (all therein collectively called “H-S”) of the other part (as amended by “Modification of Agreement dated January 3l, 1961, among the parties to the Main Agreement), A-D-P being in the instance of Alminex a party and the others assignee successors in interest to the said parties of the other part with respect to the said permits and the Main Agreement and the properties described in Schedule “A” thereof (hereinafter sometimes referred to as Permits);

 

AND WHEREAS C-M-O and A-D-P desire to amend certain provisions of the Main Agreement with effect from the date hereof as it shall apply to them or their successors and to make further provision for the conduct of operations on the properties;

 

AND WHEREAS A-D-P claim to be assignees of the rights of H-S; andWHEREAS it is not intended by this Agreement to affect any rights C-M-O now has or may hereafter have for failures to comply with the Main Agreement; and WHEREAS it is not intended to affect any rights that any of the parties to the assignments may have as between each other;

 

  

2

  

 

NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, and for other good and valuable consideration, it is agreed as follows:

 

ARTICLE I

 

Deletion of Clause 3.1 (C) of Main Agreement in respect of A-D-P

 

1.1    With respect to operations carried on by A-D-P on the said permits after the date of this Agreement, the Main Agreement shall be read as if Clause 3.1 (C) of Article III of the Main Agreement were deleted from the Main Agreement. Correspondingly, the proviso to Clause M of the Operating Procedure attached as Schedule “B” to the Main Agreement shall be deleted from the said Clause M with effect from the date hereof.

 

ARTICLE II

 

Addition of Article VIII to Main Agreement

 

2.1    Effective from the date hereof the Main Agreement shall be amended by the addition thereto of a new Article VIII thereof, reading as follows:

 

“ARTICLE VIII

 

8.1    Notwithstanding anything hereinbefore contained, with

 

  

3

  

 

respect to A-D-P the interest of C-M-O in the said permits and in the properties described therein shall be and become a fifty percent (50%) carried interest (as defined in Schedule “D” hereto), with C-M-O to have the right, however, to convert the same as hereinafter provided.

 

8.2    Forthwith upon the interest of C-M-O becoming a carried interest as aforesaid, the provisions of Schedule “D” hereto shall come into effect and shall govern the relationship of the parties hereto with respect to the said permits and the properties described therein.”

 

ARTICLE III

 

Addition of Schedule “D” to the Main Agreement

 

3.1    Effective from the date hereof the Main Agreement shall be amended by adding thereto Schedule “D”, which shall be in the form attached hereto entitled:

 

“Schedule “D”

 

attached to and forming part of an agreement made as of May 28, 1959, between Canada Southern Petroleum Limited, Magellan Petroleum Corporation, Oil Investments, Home Oil Company Limited, Kern County Land Company, Alminex Limited, United Oils, Limited and Signal Oil and Gas Company.”

 

ARTICLE IV

 

Exception for Existing Wells

 

4.1    Notwithstanding anything contained in this amending agreement or in

 

  

4

  

 

Schedule “D” to the Main Agreement as added by Article III hereof, the interests of the parties in the spacing units of the Pan Am Home Signal CSP A-l Kotaneelee well and the Canada Southern et al North Beaver River YT 1-27 well and in any lands which were not on March 31, 1966, held for the joint account under the said Operating Procedure by reason of the forfeiture or penalty provisions of the said Operating Procedure shall not be affected by this amending agreement; and, notwithstanding any provisions of the Main Agreement or of Schedule “D” thereto as added by this amending agreement, the said spacing units and lands not held for the joint account shall, unless the beneficial owners thereof agree otherwise in writing, be included in leases selected from the said permits when and if such lease selection is made.

 

ARTICLE V

 

Amendment to Article V of the Main Agreement

 

5.1    Article V of the Main Agreement is hereby amended by inserting after the word “Agreement” in the second line of Clause 5.1 thereof the words “and except in respect of any lands in which C-M-O’s interest is held as a carried interest pursuant to Article II of Schedule “D” above referred to.”

 

ARTICLE VI

 

No Waiver of Rights

 

6.1    Nothing herein or in the said Schedule “D” contained affects or

 

  

5

  

 

waives any rights that C-M-O now has or may hereafter have to enforce the Main Agreement, or any agreements amendatory, collateral or ancillary thereto, as against the original parties in accordance with the tenor thereof.

 

6.2    Nothing herein or in the said Schedule “D” contained affects or waives any right that A-D-P now has or may hereafter have as against their respective assignors.

 

ARTICLE VII

 

General

 

7.1    This Agreement shall enure to the benefit of, and shall bind, the parties hereto and their respective successors and assigns.

 

7.2    This Agreement shall remain in effect for the term of the Main Agreement.

 

7.3    This Agreement may be executed in several counterparts each of which so executed shall be deemed to be an original and shall be binding upon the party executing the same upon its execution and delivery thereof, as soon as each party hereto has executed and delivered a counterpart thereof.

 

IN WITNESS WHEREOF the parties hereto have executed this Agreement with effect on April 1, 1966.

 

	  	  	
CANADA SOUTHERN PETROLEUM LTD.

	  	  	

 

  

6

  

 

	  	  	
MAGELLAN PETROLEUM CORPORATION

	  	  	  
	  	  	
	  	  	  
	  	  	
OIL INVESTMENTS, INC.

	  	  	  
	  	  	
	  	  	  
	  	  	
ALMINEX LIMITED

	  	  	  
	  	  	
	  	  	  
	  	  	
PAN AMERICAN PETROLEUM CORPORATION

	  	  
	  	
	  	  
	  	
DOME PETROLEUM LIMITED

	  	  
	  	
	  	  
	  	
PROVO GAS PRODUCERS LIMITED

	  	  	
	  	  	  

 

  

7

  

 

	  	  	
MAGELLAN PETROLEUM CORPORATION

	  	  	
	  	  	  
	  	  	  
	  	  	
OIL INVESTMENTS, INC.

	  	  	
	  	  	  
	  	  	  
	  	  	
 ALMINEX LIMITED

	  	  	  
	  	  	  
	  	  	  
	  	  	
PAN AMERICAN PETROLEUM CORPORATION

	  	  	  
	  	  	  
	  	  	  
	  	 	
DOME PETROLEUM LIMITED

	  	  	  
	  	  	
	  	  	  
	  	  	
PROVO GAS PRODUCERS LIMITED

	  	  	  
	  	  	

 

  

7

  

 

SCHEDULE “D”

 

attached to and forming part of an agreement made as of May 28, 1959, between Canada Southern Petroleum Limited, Magellan Petroleum Corporation, Oil Investments, Inc., Home Oil Company Limited, United Oils, Limited and Signal Oil and Gas Company.

 

(as added by amending agreement dated April 1, 1966)

 

CARRIED INTEREST PROVISIONS

 

ARTICLE I

 

Definitions

 

In this Schedule “D” the following words and phrases shall have the following respective meanings, namely:

 

1.1    “Accounting Procedure” means Schedule “C” to the Main Agreement.

 

1.2    “Block” means one of the three areas each comprising a number of the said permits. Block “A” shall comprise Permits 1006, 1007, 1132, 1133 and 1135. Block “B” shall comprise Permits 1134, 1136, 1157, 1152, 1153, 1154, 2302, 2713 and the North half of each of Permits 2301 and 1137. Block “C” shall comprise Permits 1149, 1150, 1151, 1155, 1156 and Permits 1173 to 1181 inclusive.

 

1.3    “Carried interest” means the interest described in this Schedule “D”.

 

1.4    “The carried interest lands” means the lands which are from time to time subject to the carried interest of C-M-O under this Schedule “D”.

 

1.5    “The Department” means the Department of Northern Affairs and National Resources of Canada or its successor or successors in authority.

 

  

  

  

 

1.6    “The Main Agreement” means the Agreement dated May 28, 1959 of which this Schedule “D” forms part, as amended by agreement dated April 1, 1966 among the parties to the Main Agreement and/or their assignee successors in interest.

 

1.7    “The Operating Procedure” means Schedule “B” to the Main Agreement.

 

1.8    “The Permits” means the said Permits comprised in Blocks A, B and C as listed in Clause 1.2 hereof; and, except where the context otherwise requires, includes the lands covered by the said Permits.

 

1.9    “Petroleum substances” means petroleum, natural gas, sulphur or any other substances an interest in which is derived under the Permits or under leases or other documents of title selected therefrom or otherwise made subject hereto.

 

ARTICLE II

 

C-M-O Carried Interest

 

2.1    When this Schedule “D” has become effective pursuant to Clause 8.2 of the Main Agreement as amended, C-M-O’s interest in the Permits shall thereafter be in the nature of a fifty percent (50%) carried interest and the Permits shall become carried interest lands. C-M-O’s said interest in the Permits is hereinafter referred to as “the C-M-O carried interest” or “C-M-O’s carried interest”.

 

2.2    The parties hereto hereby transfer and set over among them all

 

  

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such right, title and interest as shall required to vest in C-M-O the C-M-O carried interest. No formal transfer need, however, be made of the registered interest of the parties in the said Permits for this purpose.

 

2.3    C-M-O’s carried interest shall be and constitute the right of C-M-O (in addition to the further rights hereinafter set forth) to receive, and the obligation of A-D-P to pay to C-M-O fifty percent (50%) of the amount by which the operational receipts from each Block on and after April 1, 1966 exceed the operational costs from each respective Block on and after April 1, 1966. A-D-P covenants and agrees to pay to C-M-O in cash the amounts (if any) due to C-M-O from time to time under this Clause 2.3 with respect to each Block.

 

2.4    Subject to the provisions of the Operating Procedure relating to a party’s right to decline to participate in an operation and the right to surrender pursuant to the Operating Procedure, A-D-P shall from April 1, 1966 maintain the Permits and the leases or other documents of title derived therefrom in good standing, shall pay all lease rentals, make all required deposits or guarantees with the Department, perform all exploratory work and development work on the Permits, and pay any costs or expenses whatever with respect to the further holding, managing, exploration and development of the Permits (whether held in permit or lease stage or howsoever). This Clause shall not apply to any expenditure by C-M-O with respect to any operation instituted by it as hereinafter provided, nor shall it prevent a full settlement of accounts among the parties hereto as at

 

  

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March 31, 1966, with respect to matters accruing up to and including March 31, 1966.

 

2.5    The “operational receipts” from a Block for the purposes of Clause 2.3 hereof and wherever used herein shall mean the cumulative total of all receipts (other than refunds of deposits with the Department) by A-D-P on and after April 1, 1966 from the Block, including the proceeds of sale of petroleum substances from the Block and any refund of or cash contribution toward any operational costs charged to that Block and any proceeds realized upon the disposal of any machinery or equipment charged to the operational costs for that Block, and including, without limiting the generality of the foregoing, any receipts which the Operator would be required to credit to the joint account under the Accounting Procedure.

 

2.6    The “operational costs” with respect to a Block for the purpose of Clause 2.3 hereof and wherever used herein shall mean the cumulative total of all expenditures made by A-D-P on and after April 1, 1966 on or with respect to that Block, including, without limiting the generality of the foregoing, all permit renewal fees, lease rentals, exploratory costs, development costs, production costs and marketing costs with respect to that Block, and including all lessor’s royalties and the overriding royalties to which the permits in that Block are subject as described in Schedule “A” to the Main Agreement; provided that no cost shall be charged as an operational cost unless it can be charged to the joint account under the Accounting Procedure (or, with respect to the cost of an

 

  

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independent operation, could be so charged if the operation were for the joint account).

 

2.7    When the operational receipts with respect to a Block exceed the operational costs with respect to that Block, C-M-O shall become entitled to its share of such excess, notwithstanding that with respect to the other Block or Blocks the operational costs may still exceed the operational receipts.

 

2.8    If any operational costs are incurred which cover more than one Block in such a manner that a division of such costs on an acreage basis would not be a fair division thereof or if it is difficult or impossible to determine to which Block the operational costs should be attributed, A-D-P shall allocate such costs according to its best bona fide estimate of the value or relationship to each Block of the costs thus incurred.

 

ARTICLE III

 

Accounting for the C-M-O Carried Interest

 

3.1    On and from April 1, 1966, C-M-O’s rights to receive statements and to make audits with respect to the C-M-O carried interest shall be the same as though C-M-O were a joint operator (non-operator) under the Accounting Procedure.

 

3.2    A-D-P agrees to maintain accounts and render statements for each Block so that the operational receipts and the operational costs may be

 

  

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separately determined for each Block and so reported to C-M-O. Paragraph 2 of Schedule “C” shall be followed in rendering statements.

 

3.3    Where a statement of the C-M-O carried interest account for any month shows an amount due C-M-O, payment of the amount due C-M-O shall be forwarded either with such statement or not more than 15 days thereafter.

 

3.4    C-M-O shall not be obligated to repay to A-D-P any moneys paid on account of the C-M-O carried interest with respect to a Block if the operational costs for that Block again exceed the operational receipts for a Block after a period when the reverse was the case.

 

ARTICLE IV

 

Right to Access and Information, Etc.

 

4.1    Except as may be expressly hereinafter provided, C-M-O’s rights to information and data with respect to all operations on the Permits (including that received in trade which is related to the Permits) shall be the same as though such operations were being carried on for the joint account of C-M-O and A-D-P under the Operating Procedure; and, with the said exception, C-M-O’s right of access to the Permits while operations are being conducted thereon shall be the same as if C-M-O were participating therein as operations for the said joint account.

 

4.2    With the consent of all parties hereto, A-D-P or any member or members of the A-D-P group shall have the right to trade seismic data

 

  

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obtained from or with respect to the Permits. Such data shall otherwise be kept confidential by the parties.

 

4.3    Canada Southern alone or its assigns shall represent C-M-O in exercising the rights of C-M-O under Clause 4.1 hereof while the C-M-O carried interest is in effect.

 

ARTICLE V

 

Independent Operations While Carried Interest in Effect

 

5.1    For the purposes of the C-M-O carried interest it shall be immaterial whether operational costs and operational receipts are incurred or received by one or more members of the A-D-P group, should independent operations be carried out by less than all the members of the A-D-P group pursuant to Clause N of the Operating Procedure (or howsoever).

 

5.2    C-M-O shall have the right to propose the drilling, deepening or re-working of a well (hereinafter called “the operation”), on any lands subject to the C-M-O carried interest which have been selected under lease from the Permits, in the same manner and under the same conditions as provided in Clause N.2 of the Operating Procedure; provided that the approval of a drilling or deepening operation in a budget of the A-D-P group shall not prevent C-M-O from proposing an operation under the said Clause N.2 unless A-D-P undertakes to C-M-O to carry out the operation approved in the said budget within the time proposed in such budget (or,

 

  

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if earlier, within six months). No such operation may be proposed by C-M-O unless upon the basis that either all members of the C-M-O group will participate therein or that the participating members of the C-M-O group shall bear at least fifty percent (50%) of the cost of the operation. While C-M-O’s interest in a Block is a carried interest and the operation proposed by C-M-O is with respect to that Block, A-D-P agrees that A-D-P shall act as one party in electing whether to participate in the operation so proposed by C-M-O. If A-D-P does elect so to participate, the operation shall be carried out for the joint account of A-D-P and C-M-O, and C-M-O shall pay in cash its share of the cost of the operation in the same manner as a Joint Operator. The share of the costs of the operation paid by C-M-O shall not be operational costs. Otherwise, however, the well and the lands upon which the operation is carried out shall remain subject to the C-M-O carried interest.

 

5.3    If A-D-P elects not to participate in an operation proposed by C-M-O under Clause 5.2 hereof, and if C-M-O carries out the operation, C-M-O shall upon completion of the operation be entitled to the same penalty under Clause N of the Operating Procedure as if C-M-O had proposed the operation as a Joint Operator. Any cash paid by A-D-P to participate in the operation with respect to a development well under Subclause N.2(c) (ii) of the Operating Procedure shall not be operational costs except to the extent of the amount which A-D-P would have borne had A-D-P initially participated with C-M-O in the operation. If A-D-P or one or more members of the A-D-P group elects by payment of cash

 

  

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under Subclause N.2(c) (ii) of the Operating Procedure to participate in the operation with respect to a development well after the operation has been carried out by C-M-O, the spacing unit of that well (subject to Clause N.3 of the Operating Procedure) shall cease to be subject to the C-M-O carried interest and shall be held by the parties participating therein as joint lands for their own account pursuant to the Operating Procedure.

 

5.4    Any acreage which is forfeited to C-M-O by reason of the provisions of Clause N of the Operating Procedure, where A-D-P does not participate in an operation proposed by C-M-O, shall cease to be subject to this Schedule “D” or to the Main Agreement (except as to lease selection under Clause O of the Operating Procedure).

 

5.5    Except as provided in Clauses 5.3 and 5.4 hereof, all lands in a Block upon which C-M-O has conducted the operation, whether or not A-D-P participated therein, shall continue to be subject to the C-M-O carried interest.

 

5.6    If at the time C-M-O gives notice of election to convert the C-M-O carried interest to a working interest as hereinafter provided any operations are in progress pursuant to Clause E of Schedule “B” on the Permits, C-M-O shall be deemed to have elected to participate in those operations. If, however, notice of a proposed operation has been given under Clause N.2 of the Operating Procedure and the period for replying to such notice has not expired, the party proposing the operation shall give C-M-O a new notice thereof under the said Clause N.2 when notice

 

  

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of C-M-O’s conversion of the C-M-O carried interest to a working interest has been received; provided that the proposing party may proceed with the operation, if it so wishes, without awaiting C-M-O’s election with respect to participation in the operation, in which event the election of C-M-O shall be treated as retroactive for determining costs and participating interests.

 

ARTICLE VI

 

Work Credits

 

6.1    For the purposes of the C-M-O carried interest the operational costs shall be calculated as if no grouping of permits or leases (for the purpose of permitting the allocation of work credits as provided by statute or regulation) had occurred, whether work credits earned elsewhere are applied to lands subject to the C-M-O carried interest or whether work credits earned on lands subject to the C-M-O carried interest are applied to other lands.

 

6.2    While the C-M-O carried interest is in effect with respect to one or more Blocks, A-D-P shall by April 30 of each year after 1966 submit to C-M-O its proposed allocation of work credits among the Blocks. Unless C-M-O gives notice to A-D-P within 30 days that it is dissatisfied with such allocation, the allocation shall be deemed acceptable. If C-M-O gives such notice the parties will attempt to arrive at a mutually-agreeable allocation. If either party is dissatisfied with the progress of the negotiations in this respect it may elect to have the available

 

  

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work credits allocated among the Blocks on an acreage basis. Allocations of work credits under this Article shall be binding upon C-M-O if and when it elects to convert the C-M-O carried interest to a working interest.

 

6.3    Work credits earned by operations by C-M-O under Article V hereof shall, except to the extent that they may be applied to reduce costs with respect to lands forfeited to C-M-O under Article V hereof or lands held jointly as working interests by C-M-O and A-D-P under the said Article V, be treated as work credits earned by A-D-P and shall be allocated under Clause 6.2 hereof.

 

6.4    Upon the surrender of any lands out of a Block to another party or parties to this Agreement the then existing unused work credits applicable to that Block shall be deemed to have been allocated equally among each acre in that Block.

 

  

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ARTICLE VII

 

Conversion of Permits to lease

 

7.1    A-D-P shall maintain all the said Permits in permit form until at least their respective anniversary dates in 1967.

 

7.2    A-D-P shall maintain in permit form until the earliest permit anniversary date falling in the year 1969 all the Permits except the total of

 

(a) the Permits or parts thereof which may meanwhile be required to be converted to lease by the Department; and

 

(b) the Permits or parts thereof which A-D-P may meanwhile surrender to C-M-O; and

 

(c) Permit areas totaling not more than 400,000 acres in area.

 

7.3    A-D-P shall maintain in permit form until at least the earliest permit anniversary date falling in the year 1970 all the Permits except the total of

 

(a) the Permits or parts thereof which may meanwhile be required to be converted to lease by the Department; and

 

(b) the Permits or parts thereof which A-D-P may meanwhile surrender to C-M-O; and

 

(c) Permit areas totaling not more than 550,000 acres in area, inclusive of 7.2 (c) areas above.

 

7.4    A-D-P shall maintain in permit form until at least the earliest permit anniversary date falling in 1971 all the Permits except the total of

 

  

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(a) the Permits or parts thereof which may meanwhile be required to be converted to lease by the Department; and

 

(b) the Permits or parts thereof which A-D-P may meanwhile surrender to C-M-O; and

 

(c) Permit areas totaling not more than 650,000 acres in area, inclusive of 7.2 (c) and 7.3 (c) areas above.

 

7.5    Subject to the foregoing Clauses of this Article VII, A-D-P may convert the remaining Permits to lease as A-D-P sees fit and C-M-O shall Join in such conversion and shall accept the selection of leases proposed by A-D-P; provided that if C-M-O has prior to the time of any such lease selection converted the C-M-O carried interest to a working interest, Clause O of the Operating Procedure shall apply to the lease selection.

 

7.6    If, while the C-M-O carried interest is in effect, A-D-P does not propose to take leases of the maximum area which may by law be leased from any permit, A-D-P shall so advise C-M-O not less than 30 days before the lease selection is to be forwarded to the Department. C-M-O shall then have the right to select further leases for C-M-O’s account from that permit up to the maximum area permitted by law, provided that any such selection by C-M-O shall not cause any change in the lease selection already made by A-D-P. C-M-O shall promptly furnish to A-D-P the funds required to take such C-M-O leases.

 

For the purpose of this Clause 7.6 A-D-P shall be deemed to have taken the “maximum area” if it selects leases with the intention of converting the entire permit to lease, notwithstanding that its manner of lease selection

 

  

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may not result in the maximum acreage which it might be possible to select from the permit if the selection were made in some other manner.

 

7.7    If any selection of leases must be made in the names of all parties hereto or if such leases must be issued in the names of all parties hereto or to parties not owning the beneficial interest therein in the same manner as provided herein or in the Main Agreement, the parties shall execute such assignments and documents as may be necessary to transfer the leases to their beneficial owners.

 

7.8    All such leases selected by A-D-P from the permits (except for C-M-O’s account under Clause 7.6 hereof) shall continue to be subject to the C-M-O carried interest with respect to the Block in which the respective permit is contained, unless C-M-O has converted the C-M-O carried interest to a working interest in that Block prior to the said lease selection.

 

7.9    All acreage of the permits which is not selected under lease by A-D-P for A-D-P’s account under the foregoing provisions of this Article shall cease to be subject hereto or to the Main Agreement, except as provided in Article VIII hereof.

 

7.10    In selected leases from Permits 1137 and 2301, it is recognized that, unless otherwise agreed with the owners of the south half of each of Permits 1137 and 2301, the said owners shall be entitled to select one-half the total acreage which may be acquired under lease out of Permits 1137 and 2301 respectively, such selection to be made from acreage in the south half

 

  

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of each of the said two permits. By mutual agreement with such owners, lease selection may be made across the boundaries of the north and south half of each or either of the said two permits, in which case the portion of such leases falling within each respective half-permit shall be assigned to the owners of that half-permit.

 

7.11    A-D-P is hereby given the right to arrange with the Department for a common renewal date for all or some of the Permits, as a matter of convenience of administration and programming of work requirements. With respect to each of those Permits for which such common renewal date is approved by the Department, the “anniversary date” shall thereafter for all purposes hereof be such common renewal date.

 

7.12    To the extent that A-D-P is required under this Article VII to keep the said Permits in permit form and therefore to make deposits with the Department as a guarantee for the performance of exploratory work, A-D-P agrees that it will in fact expend on exploratory work on the Permits an amount sufficient to cause to be refunded all such deposits made and to be made in the calendar year 1966. A-D-P agrees to commence on or before February 1, 1967 the exploratory work necessary to ensure refund of the said deposits made and to be made in the calendar year 1966.

 

ARTICLE VIII

 

After-Acquired Lands

 

8.1    If any Permit is surrendered to the Department by both C-M-O and

 

  

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A-D-P (other than for the mere purpose of selecting oil and gas leases therefrom), the area of the surrendered Permit shall cease to be subject in any way hereto.

 

8.2    If any lease selected from a Permit is surrendered to the Department by both C-M-O and A-D-P (except for replacement or amendment) the area of that lease shall cease to be subject in any way hereto.

 

8.3    If any lease is acquired by A-D-P or C-M-O in such circumstances that the acquiror is expressly required hereunder to offer an interest therein to the other party and such other party declines such offer, the lease shall cease to be in any way subject hereto.

 

8.4    If, prior to March 31, 1973, any lands (hereinafter called “the acquired lands”) all or not less than twenty-five (25%) percent of which fall within the original area of a Permit or Permits and any part of which lie within one mile of the lands then subject to the C-M-O carried interest (excluding lands which become subject to the C-M-O carried interest by reason of this Clause 8.4) should be for sale, and provided the acquired lands are not lands which have ceased to be subject hereto by reason of Clauses 8.1, 8.2 or 8.3 hereof, the parties shall take the following action:

 

(a) If no well is then being drilled by A-D-P on lands subject to the C-M-O carried interest, and if A-D-P acquires any of the acquired lands, A-D-P shall advise C-M-O what parcels of the acquired lands A-D-P has acquired. C-M-O shall then have the right for a period of ten (10) days after receipt of such advice to elect to have all the acquired lands which have been

 

  

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acquired by A-D-P included in the lands subject to the C-M-O carried interest.

 

(b) If A-D-P is then drilling a well on lands subject to the C-M-O carried interest, and if A-D-P advises that the well is being timed for a Crown sale (and such is the case) A-D-P shall have the right to withhold from C-M-O all information and derrick floor privileges with respect to the well until after the Crown sale, and the offer to C-M-O to have any acquisition by A-D-P at the Crown sale included in the lands subject to the C-M-O carried interest shall be made to C-M-O not later than ten (10) days after the Crown sale, accompanied by all the information which A-D-P had with respect to the said well at the time it submitted its bid for the posted lands. Subclause (a) shall then apply to such offer. If, however, A-D-P does not propose to bid at the Crown sale where a well is timed for the sale as aforesaid, A-D-P shall so advise C-M-O not later than forty-eight (48) hours before the Crown sale and give C-M-O all the information (including derrick floor privileges) available to A-D-P from the said well at that time. If C-M-O then bids at the Crown sale and acquires any of the posted lands, such acquisition shall cease to be subject in any way hereto.

 

(c) C-M-O agrees that, except as provided in Subclause (b), C-M-O will not bid independently on any posted lands in which it must be offered a carried interest under Subclause (b) of this Clause 8.4.

 

  

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8.5    If prior to March 31, 1973, and while it holds the C-M-O carried interest position in a Block, C-M-O should acquire from other than A-D-P any lands in that Block (or which lie at least twenty-five (25%) percent in that Block) and provided such lands have not then ceased to be subject hereto by reason of the provisions of Clauses 8.1 to and including 8.4 hereof, C-M-O shall promptly offer such lands to A-D-P at C-M-O’s cost thereof; and if A-D-P promptly pays for such lands, they shall become subject to the C-M-O carried interest hereunder in that Block. Such offer shall be accompanied by all the information which C-M-O has with respect to the acquisition and shall be open for acceptance by payment for ten (10) days (only) after the receipt thereof.

 

This Clause 8.5 shall not apply to leases selected for C-M-O’s own account from the Permits under Clause 7.6 hereof.

 

If C-M-O elects to have any acquired lands made subject to the C-M-O carried interest pursuant to Clause 8.4 hereof, or should any acquisition of lands be taken over by A-D-P from C-M-O pursuant to this Clause 8.5 the acquisition thus made subject to the C-M-O carried interest shall be added to the Block in which are situated or partly situated the lands which are the subject of such acquisition. Should such acquisition include lands in two Blocks, both of which are subject to the C-M-O carried interest, the acquisition (and the cost thereof) shall be divided between the respective Blocks in which they lie. If such division causes a parcel to be divided between two Blocks, the acquisition cost of that parcel shall be divided on an acreage basis.

 

Any such acquisition thus added to a Block shall thereupon become

 

  

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subject to all the provisions hereof (including the right of conversion) relating to the C-M-O carried interest lands in that Block.

 

The operational costs for the Block to which is added any acquisition made subject to the C-M-O carried interest under Clause 8.4 or this Clause 8.5 hereof shall be increased by the bonus consideration and other costs to A-D-P of the acquisition thereof, and in the case of a bonus consideration there shall be added to the operational costs for the Block six (6%) percent per annum of the said bonus consideration until such time as either (i) the operational receipts for that Block have exceeded the operational costs (including such bonus consideration and interest) for that Block or (ii) the operational receipts from the acquired parcel have exceeded the said bonus consideration plus interest with respect to that parcel, whichever time is earlier.

 

8.6    No party hereto shall, by use of a parent company, subsidiary, affiliate or associate company or any company nominee or person employed by or controlled by such party, evade any of its obligations under this Article VIII.

 

8.7    Should C-M-O convert the C-M-O carried interest to a working interest, the provisions of this Clause 8.7 shall apply thereafter in lieu of the foregoing provisions of this Article VIII, (except Clauses 8.1, 8.2 and 8.3 hereof, which shall remain in full force and effect):

 

(a) If prior to March 31, 1973, any lands, all or not less than 25% of which lie within an area bounded by lines drawn (1) outside of a Permit area (2) parallel to the respective boundaries of that Permit area and (3) one mile from the

 

  

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respective boundaries of that Permit, should be posted for Crown sale (as to the petroleum and/or natural gas rights thereunder), the parties hereto shall meet to attempt to arrive at a joint bid for such posted lands or for one or more parcels thereof. If the parties do not agree upon a joint bid, each of the parties shall disclose to the other parties the bid it proposes to make at such Crown sale for the respective parcels upon which it intends to bid. If a joint bid is agreed upon, it shall be submitted by the Manager-Operator for the account of the parties, each of whom shall be required to provide its pro rata share of the moneys required to be tendered with such bid. If a joint bid is not agreed upon and any party is successful in acquiring at such Crown sale a parcel or parcels at a price which varies more than 5% from the amount the acquiror revealed as its proposed bid for such parcel or parcels, the acquirer shall be required to offer a pro rata share of the acquisition at cost to the other parties hereto. The said offer shall remain open for a period of ten days only (or for 48 hours only if a well is then being drilled within one mile of the parcel or parcels subject to the offer).

 

(b) If any party hereto should acquire any interest in lands to which Subclause (a) of this Clause 8.7 would apply if such lands were the subject of a Crown sale, but such acquisition is made by way of other than Crown sale, the acquiror shall offer participation at cost in such acquisition to the other parties

 

  

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hereto. Subclause (a) shall apply as to acceptance of such offer.

 

(c) For the purposes of this Clause 8.7, references to parties hereto shall refer to the individual parties to this agreement rather than to the A-D-P group and the C-M-O group as such; and a “pro rata share” shall mean pro rata to the following percentages:

 

	  	
Canada Southern

	
-

	
 45.00%

	  
	  	  	  	  	  
	  	
Magellan

	
-

	
4.00%

	  
	  	  	  	  	  
	  	
Oil Investments

	
-

	
 1.00%

	  
	  	  	  	  	  
	  	
Alminex

	
-

	
2.50%

	  
	  	  	  	  	  
	  	
Pan American

	
-

	
25.00%

	  
	  	  	  	  	  
	  	
Dome

	
-

	
15.00%

	  
	  	  	  	  	  
	  	
Provo

	
-

	
7.50%

	  

 

(d) Any party hereto who (in default of its obligation so to do) does not comply with the foregoing provisions of this Clause as to bidding at the Crown sale shall in any event be obliged to offer to the other parties hereto an interest in every acquisition at such Crown sale in the same manner and extent as above provided for a party hereto who is required to offer an interest in its acquisition to the other parties hereto.

 

8.8    The provisions of this Article shall not apply to any lands within the south half of Permit 1137 and the south half of Permit 2301.

 

  

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ARTICLE IX

 

Gas Plants and Gathering Systems

 

9.1    If A-D-P during the period in which C-M-O holds the C-M-O carried interest in the Blocks or any of them as aforesaid, proposes to construct gas gathering systems and a gas processing plant for the purpose of putting natural gas from that Block or those Blocks in a marketable state or otherwise to process it for the removal of liquids and/or sulphur, A-D-P shall advise C-M-O of such proposal, giving C-M-O the cost estimates and proposed specifications of such gathering systems and plant. C-M-O shall have thirty (30) days after receipt of such information to advise A-D-P whether C-M-O elects to participate in the said gathering systems and plant as a fifty (50%) percent working interest owner. If C-M-O elects so to participate it shall be required to bear and pay in cash its fifty (50%) percent share of the cost of construction of the said gathering systems and plant.

 

9.2    If C-M-O does not elect so to participate, A-D-P may proceed to construct the gathering systems and the plant for A-D-P’s account and risk. Whether the said plant and gas gathering systems are constructed by C-M-O and A-D-P or solely by A-D-P, the cost of construction, operation and maintenance thereof, and the receipts and revenues therefrom, shall not be added to the operational costs or the operational receipts respectively for the purposes of the C-M-O carried interest, but the following provisions of this Article shall apply thereto:

 

(a) The said gathering systems and plant shall be owned and operated by the parties hereto who bear the cost thereof as provided in this Clause 9.2 and as a project separate and apart from

 

  

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the ownership and operation of the lands subject hereto.

 

(b) The owners of the said gathering systems and plant shall have and are hereby exclusively granted the right to gather and process the gas produced from the lands subject hereto and to the Main Agreement which are (or are to be) served by the said gathering systems and plant, and to charge for such gathering and processing a fee or charge which will limit cumulative net revenue to the said owners of the said gathering systems and plant in accordance with the principles expounded in the Alberta Public Utilities Board’s Shell-Jumping Pound decision of December, 1961, assuming the following in applying such principles:

 

	  	
(a)

	
a rate of return of 8 1/2% on rate base;

 

	  	
(b)

	
a 50/50 debt - equity ratio;

 

	  	
(c)

	
a 6% interest rate on debt;

 

	  	
(d)

	
a 11% return on equity capital;

 

	  	
(e)

	
an income tax allowance to be computed as 50% of the taxable income consisting of the allowed return on equity and debt capital plus income tax allowance, less interest on debt capital;

 

	  	
(f)

	
depreciation on a unit of throughput basis (that is, the factor to be used in determining the amount of depreciation to be allowed in any year is arrived at by dividing the throughput of the gathering systems and plant by the remaining recoverable gas reserves at the beginning of the period under review);

 

	  	
(g)

	
and provisions for working capital equal to 25% of annual operating costs.

 

(c) The operational costs for a Block shall include the fee or charge which is made under Subclause (b) for gathering and processing gas produced from that Block while C-M-O holds the C-M-O carried interest therein.

 

(d) If any plant to which this Clause 9.2 applies is also used

 

  

23

  

 

in any calendar year to process gas from sources other than the lands subject hereto (and the right to process such other gas is expressly hereby given) then all costs (including depreciation) of processing gas at the plant in that year, and the rate base for that year, shall for the purposes of determining the charge or fee to be made under Subclause (c) of this Clause 9.2 be divided among such other gas and gas from the lands subject hereto in proportion to the respective volumes of gas processed from such other lands and from the lands subject hereto.

 

(e) If the said gathering systems or any part thereof are used to transport such other gas, an allocation of the costs of the gathering systems or parts thereof so used shall be made in the same manner mutatis mutandis in proportion to the respective volumes of gas transported in the calendar year.

 

ARTICLE X

 

Proposed Surrender of Carried Interest Lands

 

10.1    If A-D-P proposes to surrender to the Department any lands which are subject to the C-M-O carried interest, and if the lands proposed to be surrendered are then held in permit form, A-D-P shall give notice of such proposed surrender not less than 90 days before the next ensuing anniversary date of the permit (or respective permits, if more than one) which it is proposed to surrender. Unless within 60 days after receipt of such notice C-M-O requests in writing an assignment to C-M-O of the lands which A-D-P has proposed to surrender, C-M-O shall be deemed to have elected to join in such surr-

 

  

24

  

 

ender and shall in fact join therein.

 

If C-M-O requests such assignment, A-D-P shall assign to C-M-O the interest which A-D-P had proposed to surrender, and such interest shall cease to be subject hereto or to the Main Agreement.

 

10.2    If A-D-P proposes to surrender to the Department any lands which are subject to the C-M-O carried interest but which are not then in permit form, the provisions of Clause P of the Operating Procedure shall apply to such surrender, for which purpose A-D-P and C-M-O shall each act as one party. If the interest proposed to be surrendered is assigned to C-M-O pursuant to the said Clause P, that interest shall cease to be subject in any way hereto.

 

ARTICLE XI

 

Operations Generally

 

11.1    With respect to lands subject to the C-M-O carried interest C-M-O shall not be “Joint Operators” under the Operating Procedure, except as otherwise expressly provided herein. C-M-O shall be entitled to vote, however, for the appointment of a Manager Operator under the Operating Procedure as if the C-M-O carried interest were a working interest; provided that the Manager Operator while the C-M-O carried interest is in effect shall be a member of the A-D-P group unless A-D-P otherwise unanimously agrees or unless no member of the A-D-P group fills the position of Manager Operator for a period of thirty (30) consecutive days.

 

11.2    If C-M-O fails to exercise its vote to join in the appointment of a

 

  

25

  

 

Manager Operator as aforesaid, the Manager Operator shall be appointed by A-D-P, and each member of the A-D-P group shall have a percentage vote for this purpose pro rata to its working interest as if the working interests of the A-D-P group totaled 100%.

 

ARTICLE XII

 

Conversion of C-M-O Carried Interest

 

12.1    With respect to each Block, C-M-O shall have the right at any time during the term hereof to convert the C-M-O carried interest in that Block to a fifty (50%) percent undivided working interest therein by paying to A-D-P one-half of the amount by which the operational costs for that Block exceed the operational receipts for that Block; provided that if at the effective date of such conversion the operational receipts exceed the operational costs with respect to that Block, such conversion may be made without any payment to A-D-P.

 

12.2    Upon converting the C-M-O carried interest in a Block to a working interest as provided in Clause 12.1 and making the payment, if any, due thereunder, C-M-O shall, without further formality or assignment, have and hold an undivided one-half working interest in all wells, batteries, dehydrators, treaters, compressors, tanks, flow lines, and equipment and material of all kinds in that Block, the cost of which had been paid as operational costs or incurred prior to the date hereof (subject to Article IV of the said amending agreement of April 1, 1966).

 

  

26

  

 

12.3    Upon converting the C-M-O carried interest to a working interest in a Block, C-M-O shall then become and be subject to all the rights and liabilities of a Joint Operator under the Operating Procedure with respect to that Block.

 

12.4    C-M-O shall give A-D-P written notice of its intention to convert the C-M-O carried interest to a working interest in any Block or Blocks, and such conversion shall become effective on the first day of the calendar month which falls next after the notice, provided the payment, if any, due A-D-P under Clause 12.1 hereof is made. Such payment will be adjusted as of the effective date as soon as a statement to that date is prepared and submitted to C-M-O by A-D-P.

 

12.5    Where any lands cease to be subject to the C-M-O carried interest, that fact shall not affect the operational receipts and the operational costs theretofore credited or charged to the account of the C-M-O carried interest.

 

ARTICLE XIII

 

Conversion By Less Than All C-M-O

 

13.1    Each member of the C-M-O group shall have the right separately to convert that member’s share of the C-M-O carried interest to a working interest in a Block or Blocks. The working interest obtained upon such conversion by such member (hereinafter called “a converting member”) shall be that shown opposite the converting member’s name below, namely:

 

  

27

  

 

	  	
Canada Southern

	
-

	
 45.00%

	  
	  	  	  	  	  
	  	
Magellan

	
-

	
4.00%

	  
	  	  	  	  	  
	  	
Oil Investments

	
-

	
1.00%

	  

 

13.2    In making such separate conversion the converting member

 

(1) Shall for the purposes of Clause 12.1 hereof pay A-D-P a fraction of one-half the amount by which the operational costs exceed the operational receipts, which fraction shall be

 

	
(i)

	
in the case of Canada Southern

	
-

	
45/50ths

	  
	  	  	  	  	  
	
(ii)

	
in the case of Magellan

	
-

	
4/50ths

	  
	  	  	  	  	  
	
(iii)

	
in the case of Oil Investments

	
-

	
1/50th

	  
	  	  	  	  	  

 

(2) Shall for the purposes of Clause 12.2 hereof obtain a working interest in wells and other items listed in Clause 12.2 hereof equal to the same fraction as in Subclause 13.2(1) hereof of one-half the entire working interest therein.

 

13.3    After any such conversion is made by less than all the members of the C-M-O group, the percentage carried interest held by each non-converting member of the C-M-O group shall be that shown opposite its name where first listed in Clause 13.1 hereof. A converting member shall bear no share of the burden of the C-M-O carried interest held by the non-converting members of the C-M-O group.

 

13.4    The payment (if any) made under Clause 12.1 hereof by a converting member of the C-M-O group shall not be considered as operational receipts, nor shall any receipts accruing to or expenditures made by a

 

  

28

  

 

converting member be considered as operational receipts or operational costs for the purposes of this agreement.

 

13.5    Unless and until such time as Canada Southern is a converting member with respect to a Block, a converting member who proposes an operation under Clause N of the Operating Procedure shall not be entitled to proceed with the operation unless all members of the C-M-O group participate therein. If less than all the members of the A-D-P group participate in any such proposed operation, the participating members of the A-D-P group shall bear pro rata the same share of the cost of the operation as if all members of the A-D-P group had elected to participate in the operation and shall be entitled to the entire penalty accruing from the non-participating member or members of the A-D-P group, subject to the C-M-O carried interest still held by the non-converting members of the C-M-O group.

 

13.6    A converting member of the C-M-O group shall not thereby become a member of the A-D-P group.

 

13.7    For the purposes of Article VIII hereof with respect to after-acquired lands, a converting member of the C-M-O group (provided all members of the C-M-O group are not then converting members) shall, as between A-D-P and such converting member, be considered a member of the C-M-O group except that any interest acquired by A-D-P which is to be offered to C-M-O shall, with respect to the converting member only, be offered at cost as a working interest rather than as a carried interest.

 

  

29

  

 

13.8    For the purposes of Clause 8.5 hereof, if a converting member acquires any lands which if acquired by C-M-O would be offered to A-D-P under that clause, the converting member shall offer A-D-P such acquisition except for a percentage thereof equal to the converting member’s percentage working interest in the Permits. If A-D-P accepts the offer, A-D-P shall then, as provided in Clause 8.4 hereof, offer to include the acquisition by A-D-P in the lands subject to the C-M-O carried interest.

 

ARTICLE XIV

 

C-M-O Rights Re Sale of Production

 

14.1    Subject to Article IX of this Schedule “D”, while C-M-O holds the C-M-O net carried interest in a Block C-M-O shall have the right to dispose of 50% of the petroleum substances produced and saved from that Block (except the portion thereof required for use in operations on that Block), and to make such contracts for the sale of the said 50% of such petroleum substances as C-M-O may wish, provided such contracts shall be at arm’s length (or on terms no less favourable to C-M-O than if made at arm’s length) and provided such contracts are not at terms less favourable than those which A-D-P offers C-M-O in writing before such contracts are made for the same. The rights of C-M-O under this clause may be exercised separately with respect to oil and natural gas.

 

l4.2    The rights of C-M-O under Clause 14.1 may be exercised only

 

  

30

  

 

upon the condition that the proceeds of all such sales shall be assigned to A-D-P and made payable directly to A-D-P to be applied towards the operational receipts for the respective Block from which the petroleum substances so sold were produced, unless and until A-D-P agrees in writing to the contrary after the operational receipts exceed the operational costs for that Block.

 

ARTICLE XV

 

Notice

 

15.1    For the purposes of Clause X of the Operating Procedure (which shall apply hereto) and for the purposes of this Schedule D, the addresses of the parties hereto shall be as follows:

 

	  	
(a)

	
C-M-O and Alminex

	
 -

	
as provided in Clause X of the Operating Procedure

	  
	  	  	  	  	  	  
	  	
(b)

	
 Pan American

	
-

	
 444 Seventh Avenue S. W., Calgary, Alberta

	  
	  	  	  	  	  	  
	  	
(c)

	
Dome and Provo

	
 -

	
706 Seventh Avenue S. W., Calgary, Alberta

	  

 

Provided that with respect to the C-M-O carried interest, C-M-O agrees that all notices and communications to be given to or by the members of the C-M-O group may be given to or by Canada Southern on behalf of the C-M-O group.

 

  

31

  

 

Columbia Gas Development of Canada Ltd.

 

	  	  	  
	

	  	
1420 STANDARD LIFE BUILDING

639 - 5TH AVENUE S.W.

CALGARY, ALBERTA, CANADA T2P OM9

(403) 261-8680

 

	  	
February 1, 1977

	  	  
	
Canada Southern Petroleum Ltd.

	
Dome Petroleum Limited

	
505 - 8th Avenue S.W.

	
P. O. Box 200

	
Calgary, Alberta

	
Calgary, Alberta

	
T2P 1G2

	
T2P 2H8

	  	  
	
Attention: Mr. M. A. Reasoner

	
Attention: Mr. D. Alan Espy

	  	  
	
Amoco Canada Petroleum Company Ltd.

	
Alminex Limited

	
444 - 7th Avenue S.W.

	
#300, 407 - 8th Avenue S.W.

	
Calgary, Alberta

	
Calgary, Alberta

	
T2P 0Y2

	
T2P 1E5

	  	  
	
Attention: Mr. Jack Lee

	
Attention: Mr. Jim McDonald

 

Gentlemen:

 

Re: North Beaver River Prospect

 

The following is a summary of the basic terms and conditions under which Columbia Gas Development of Canada Ltd. (Columbia) will acquire an Interest in the Block A lands (as hereinafter defined) from Canada Southern Petroleum Ltd. (Canada Southern), Dome Petroleum Limited (Cone), Amoco Canada Petroleum Company Ltd. (Amoco), and Alminex Limited (Alminex), collectively referred to as the Farmors.

 

	  	
I.

	
DEFINITIONS

 

	  	  	
In this agreement:

 

	  	
a)

	
Block A lands shall mean the Block I lands and the Block II lands.

 

	  	
b)

	
Block I lands shall mean the lands so described in Schedule A attached hereto.

 

	  	
c)

	
Block II lands shall mean the lands so described in Schedule A attached hereto.

 

	  
	  

	
Columbia Gas Development of Canada Ltd.

	  

  

  

  

	  	
d)

	
Leases shall mean the documents of title under which the Block A lands are held which Leases are more particularly described in Schedule A attached hereto.

 

	  	
e)

	
HS-CMO Agreement shall mean that agreement dated May 28, 1959 and entered into by Canada Southern Petroleum Ltd, Magellan Petroleum Corporation, Oil Investments, Inc., Home Oil Company Limited, Kern County Land Company, Alminex Limited and Signal Oil and Gas Company.

 

	  	
f)

	
ADP-CMO Agreement shall mean that agreement dated April 1, 1966 and entered into by Canada Southern Petroleum Ltd., Magellan Petroleum Corporation, Oil Investments, Inc., Alminex Limited, Pan American Petroleum Corporation, Done Petroleum Limited, and Provo Gas Producers Limited.

 

	  	
g)

	
Existing Agreements shall mean the HS-CMO and the ADP-CMO Agreements.

 

	  	
h)

	
Carried Interest Provisions shall mean those provisions contained within Schedule D attached to and forming part of the HS-CMO Agreement as added by the ADP-CMO Agreement.

 

	  	
i)

	
Carried Interest Account shall mean the amount by which the operational costs relating to the Block A lands exceed the operational receipts relating to the Block A lands as those costs and receipts are defined in the Carried Interest Provisions.

 

	  	
j)

	
“spacing unit” shall have the meaning given to it, in the HS-CMO Agreement.

 

	  	
II.

	
BLOCK A LANDS

 

It is Columbia’s understanding and the Farmors represent that:

 

	  	
a)

	
The Block A lands are held by the parties hereto in the percentages of working interest (WI) and carried interest (CI) as shown in Schedule A attached hereto.

 

	  	
b)

	
The Block A lends are in good standing and are unencumbered with the exception of:

 

	  	
(1)

	
applicable lessor’s royalties.

 

	  	
(2)

	
a 1.5625% Gross Overriding Royalty payable to the Catawba Corporation.

 

	  	
(3)

	
a 2.5% Gross Overriding Royalty payable to Neil Tracy by virtue of an agreement dated May 28, 1957 between Canada Southern Petroleum Ltd. and Neil Tracy.

 

	  
	  

	
Columbia Gas Development of Canada Ltd.

	  

 

  

2

  

 

	  	
(c)

	
The Carried Interest Account presently stands at approximately $360,000.00.

 

	  	
(d)

	
Operations on the Block A lands are governed by the Existing Agreements.

 

	  	
III.

	
RENTALS

 

Columbia will reimburse the Farmors on a per diem basis for all rentals attributable to the Block I lands from the date hereof until Columbia has earned its interest in the Block I lands as herein provided. Columbia will also reimburse the Farmors for its proportionate share of the rentals attributable to the Block II lands on a per diem basis from and after the date hereof. After Columbia has earned its interest hereunder rentals shall be shared by the parties it accordance with the Existing Agreements.

 

	  	
IV.

	
TEST WELL

 

Columbia undertakes, during the 1976-77 winter drilling season to make its best efforts to commence a well (Test Well) at a location of its choice, but in proximity to the North Beaver River YT I-27 well, and will thereafter, at its sole cost, risk and expense, drill the same to a depth sufficient to test the Nahanni Formation or to a depth of 10,000 feet sub-sea, whichever occurs first (hereinafter called Contract Depth), and upon reaching Contract Depth will test and complete or abandon the same In accordance with generally accepted oilfield practice and applicable government regulations. If due to circumstances beyond its control Columbia is unable to commence the Test Well during the 1976-77 winter drilling season, Columbia undertakes to drill the Test Well in the 1977-78 winter drilling season.

 

	  	
V.

	
SUBSTITUTIONAL WELL

 

If in the drilling and/or completing of the Test Well Columbia encounters severe operating difficulties of a mechanical nature or impenetrable formations which render further drilling or completion impractical or impossible Columbia shall give notice thereof to the Farmors and may then abandon the well . Upon abandonment Columbia shall have the right, but not the obligation, to commence within 60 days the drilling of a like well in close proximity to the Test Well and in this event the substitute well shall be deemed to be the Test Well,

 

	  
	  

	
Columbia Gas Development of Canada Ltd.

	  

  

3

  

 

	  	
VI.

	
ABANDONMENT

 

If Columbia wishes at any time to abandon the Test Well Columbia shall give notice thereof to the Farmors. The Farmors shall have the right, jointly or severally, within 48 hours of receipt of the notice to elect to take over and attempt to complete the Test Well. If the Farmor(s) successfully completes the well for the production of petroleum substances, Columbia shall assign to the Famors(s) all of its right, title and interest in the Test Well and the spacing unit on which the same is located. Concurrently, the Farmor(s) shall reimburse Columbia for the estimated salvage value of the salvagable material and equipment assigned to the Farmor(s) and Columbia shall not be responsible for any subsequent abandonment or completion costs.

 

	  	
VII.

	
DATA

 

In the drilling of the Test Well Columbia shall furnish to the Farmors on a current basis all pertinent data relating to the, drilling and/or completion of the Test Well. All information acquired by the parties hereto relating to the Test Well shall be hold confidential by the parties and shall not be divulged to any third party unless agreed to in writing by each of the Farmors and Columbia.

 

	  	
VIII.

	
COMPLETION

 

In the event the Test Well is capable of producing natural gas in paying quantities, Columbia undertakes at its sole cost, risk and expense, to provide and install the necessary facilities to place the Test Well on production.

 

	  	
IX

	
INTERFST EARNRO FROM DOME, AMOCO AND ATMINER

 

Upon drilling the Test Well to Contract Depth and completing or abandoning same as herein provided, Columbia will have earned and Dome, Amoco and Alminex will assign to Calumbia, an undivided one-half of each of such parties beneficial interest (working interest) in and to the Block I lands.

 

	  	
X

	
INTEREST EARNED FROM CANADA SOUTHERN

 

Upon drilling the Test Well to Contract Depth and completing or abandoning the same as herein provided, Canada Southern will reduce its 60% carried interest in and to the Block A lands (excepting there from Sections 27 and 50 contained within Lease No. 411-68) to a 33.33% carried interest and convert the remaining 16.66% carried interest to a 16.66% working interest which will thereupon

 

	  
	  

	
Columbia Gas Development of Canada Ltd.

	  

  

4

  

 

be assigned to Columbia. In addition, Canada Southern will assign to Columbia an undivided 16.66% working Interest in and to Sections 27 and 50 contained within Lease No. 411-68.

 

	  	
XI.

	
CARRIED INTEREST

 

Upon Columbia earning its interest as herein provided, Sections 27 and 50 contained within Lease No. 411-60 shall thereupon also be subject to the Carried Interest Provisions so that Canada Southern’s resultant interest in all of the Block A lands will be in the nature of a 33.33% carried interest and be subject to the Carried Interest Provisions.

 

For greater certainty, each of the working interest owners, including Columbia, will thereafter bear its proportionate share of the obligation to advance the operational costs on Canada Southern’s behalf so that the obligations and beneficial interest of each party would be as follows:

 

	  	
(a)

	
Section 27 contained within Lease No. 411-66:

 

	
Company

	
Obligation

	
Beneficial Interest

	  	  	  
	
Dome

	
34.69%

	
23.13% working interest

	
Columbia

	
65.31%

	
43.54% working interest

	
Canada Southern

	
0.00%

	
33.33% carried interest

 

	  	
(b)

	
Balance of the Block I lands:

 

	
Company

	
Obligation

	
Beneficial Interest

	  	  	  
	
Dome

	
15.61%

	
10.41% working interest

	
Columbia

	
63.77%

	
42,61% working interest

	
Amoco

	
18.75%

	
12.50% working interest

	
Alminex

	
1.87%

	
1.25% working interest

	
Canada Southern

	
0.00%

	
33.33% carried interest

 

	  	
(c)

	
Block II Tands:

 

	
Company

	
Obligation

	
Beneficial Interest

	  	  	  
	
Dome

	
33.75%

	
22.50% working interest

	
Columbia

	
25.00%

	
16.67% working interest

	
Amoco

	
37.50%

	
25.00% working interest

	
Alminex

	
3.75%

	
2.50% working interest

	
Canada Southern

	
0.00%

	
33.33% carried interest

 

	  
	  

	
Columbia Gas Development of Canada Ltd.

	  

  

5

  

 

	  	
XII.

	
ALLOCATION OF REVENUE.

 

Notwithstanding anything herein contained to the contrary, the parties agree that all revenue generated from the Block I lands (after deducting all royalties and operating costs) shall accrue concurrently and proportionately to,

 

	  	
(1)

	
Columbia until Columbia has recovered the total cost incurred by Columbia related to the drilling, completing and placing on production of the Test Well and,

 

	  	
(2)

	
the Farmors (excluding Canada Southern) until such time as they have recovered an amount equal to that portion of the Carried Interest Account which is attributable to the Block I lands. Columbia shall be entitled to conduct an audit of those amounts which have been included in the Carried Interest Account.

 

For greater certainty it is intended that the Carried Interest Account (as the Sane relates to the Block I lands) shall be recovered by the parties advancing the same concurrently and proportionately with Columbia recovering Its costs as herein stated. Thereafter, all revenue generated from the. Block I lands (after deducting all royalties and operating costs), shall accrue to Columbia in an amount equal to Columbia’s beneficial interest in the spacing unit from which the revenue is obtained and the balance shall accrue to the Farmors (excepting Canada Southern) until such time as the Farmors have recovered the balance of the Carried Interest Account. Thereafter, revenue shall be shared by the parties in accordance with their working or carried interest, whichever the case may be, in the spacing unit from which such revenue is obtained.

 

	  	
XIII.

	
OPERATIONS

 

After Columbia has earned its interest hereunder, operations on the Block I lands shall be conducted in accordance with the Existing Agreements as hereby amended, and Columbia shall act as Operator. It is proposed that the overhead rates in the existing accounting procedure be revised to more accurately reflect current rates. Notwithstanding the above, the parties undertake to enter into a more formal agreement which would incorporate the terms hereof and incorporate also those provisions of the Existing Agreements which remain in effect.

 

With respect to the Block II land the Existing Agreements as hereby amended shall continue in full .force and effect.

 

	  
	  

	
Columbia Gas Development of Canada Ltd.

	  

  

6

  

 

	  	
XIV.

	
PRIOR AGREEMENTS TERMINATED

 

That Agreement entered into by Canada Southern Petroleum Ltd., Dome Petroleum Limited and Provo Gas Producers Ltd. dated January 10, 1963 is hereby terminated. Furthermore, that Letter Agreement dated June 24, 1959 entered into by Canada Southern, Home Oil Company Limited and Signal Oil and Gas Company is hereby also terminated.

 

	  	
XV.

	
ALLOCATION OF CREDITS

 

Any grouping or work credits generated by the drilling of the Test Well shall be shared equally between Columbia and the Farmors.

 

	  	
XVI.

	
INDEMNITY

 

Columbia undertakes to indemnify and hold harmless the Farmors from and against any or all claims, demands, suits or actions arising out of Columbia’s operations hereunder.

 

	  	
XVII.

	
INSURANCE

 

Columbia will comply with the requirements contained in Clause I of the HS-CMO Agreement relating to insurance and workman’s compensation. The limits of insurance required therein will be increased to reflect current costs.

 

	  	
XVIII.

	
ALLOCATION OF COSTS

 

The parties agree that all items of cost under, this agreement (including without limitation intangible drilling and development expenses, depletion, lease rentals, dry hole costs and depreciation) shall be allocated to the party which contributed the funds therefore.

 

If the above sets out your understanding of the terms of our agreement please so indicate by signing and returning the attached copy hereof to the writer at your earliest convenience.

 

When accepted by all parties this letter will form a binding agreement and continue in effect until replaced by more formal documentation.

 

	  
	  

	
Columbia Gas Development of Canada Ltd.

	  

  

7

  

 

It is our understanding that in executing this Letter Agreement Canada Southern is acting on its own behalf and is authorized also to act on behalf of its partners, Magellan Petroleum Corporation and Oil Investments, Inc.

 

	  	  	  	
Yours very truly,

	  	  	  	  
	  	  	  	
COLUMBIA GAS DEVELOPMENT OF CANADA LTD.

	  	  	  	
	  	  	  	  
	  	  	
R. W. Prather

	  	  	  	  
	
CANADA SOUTHERN PETROLEUM LTD.

	  	
DOME PETROLEUM LIMITED

	
Per:

	

	  	
Per:

	  
	  	  	  	  
	
AMDCO CANADA PETROLEUM COMPANY

LIMITED

	  	
ALMINEX LIMITED

	
Per:

	  	  	
Per:

	  

 

GI/der

Enc.

 

 

	
Columbia Gas Development of Canada Ltd.

	  

  

8

  

 

It is our understanding that in executing this Letter Agreement Canada Southern is acting on its own behalf and is authorized also to act on behalf of its partners, Magellan Petroleum Corporation and Oil Investments, Inc.

 

	  	  	  	
Yours very truly,

	  	  	  	  
	  	  	  	
COLUMBIA GAS DEVELOPMENT OF CANADA LTD.

	  	  	  	

	  	  	  	  
	  	  	
R. W. Prather

	  	  	  	  
	
CANADA SOUTHERN PETROLEUM LTD.

	  	
DOME PETROLEUM LIMITED

	
Per:

	  	  	
Per:

	

	  	  	  	  
	
AMDCO CANADA PETROLEUM COMPANY

LIMITED

	  	
ALMINEX LIMITED

	
Per:

	  	  	
Per:

	  

 

SI/der

Enc.

 

	  
	  

	
Columbia Gas Development of Canada Ltd.

	  

  

8

  

 

If is our understanding that in executing this Letter Agreement Canada Southern is acting on its own behalf and is authorized also to act on behalf of its partners, Magellan Petroleum Corporation and Oil Investments, Inc.

 

	  	  	  	
Yours very truly,

	  	  	  	  
	  	  	  	
COLUMBIA GAS DEVELOPMENT OF CANADA LTD.

	  	  	  	

	  	  	  	  
	  	  	
R. W. Prather

	  	  	  	  
	
CANADA SOUTHERN PETROLEUM LTD.

	  	
DOME PETROLEUM LIMITED

	
Per:

	  	  	
Per:

	  
	  	  	  	  
	
AMDCO CANADA PETROLEUM COMPANY

LIMITED

	  	
ALMINEX LIMITED

	
Per:

	

	  	
Per:

	  

GI/der

Enc.

 

	  
	  

	
Columbia Gas Development of Canada Ltd.

	  

  

8

  

 

It is our understanding that in executing this Letter Agreement Canada Southern is acting on its own behalf and is authorized also to act on behalf of its partners, Magellan Petroleum Corporation and Oil Investments, Inc.

 

	  	  	  	
Yours very truly,

	  	  	  	  
	  	  	  	
COLUMBIA GAS DEVELOPMENT OF CANADA LTD.

	  	  	  	

	  	  	  	  
	  	  	
R. W. Prather

	  	  	  	  
	
CANADA SOUTHERN PETROLEUM LTD.

	  	
DOME PETROLEUM LIMITED

	
Per:

	  	  	
Per:

	  
	  	  	  	  
	
AMDCO CANADA PETROLEUM COMPANY

LIMITED

	  	
ALMINEX LIMITED

	
Per:

	  	  	
Per:

	

 

GI/der

Enc.

 

  

8

  

 

	
Columbia Gas Development of Canada Ltd.

	  
	  	
Page 1 of 2

 

SCHEDULE A attached to and forming part of Letter Agreement Dated January 27, 1977 Between Canada Southern Petroleum Ltd., Dome Petroleum Limited, Amoco Canada Petroleum Company Ltd. and Alminex Limited and Columbia Gas Development of Canada Ltd.

 

In the attached Letter Agreement “Block A lands” shall mean Block I lands and Block II lands as hereinafter described, and “leases” shall mean the leases hereinafter stated.

 

BLOCK I LANDS

 

	
Lease

	
Date

	
Description

	
Ownership

	  	  	  	  
	
DIAND Oil & Gas

Lease #442-R-68

	
Jan. 7/69

	
60° 10’ N – 124° 00’ W:

Sec’s 6-10 & 16-20

	
Dome

Columbia

Amoco

Alminex

Can Southern

	
20.81% WI

1.69% WI

25.00% WI

2.50% WI

50.00% CI

	  	  	  	  	  
	
DIAND Oil & Gas

Lease #411-68

	
Jan. 7/69

	
60° 10’ N – 124° 00’ W:

Sec’s 26-30, 36-40 and

46-50.

	
Section 50

Dome

Columbia

Amoco

Alminex

Can Southern

	
 

20.81% WI

1.69% WI

25.00% WI

2.50% WI

50.00% CI

	  	  	  	  	  
	  	
Section 27

Dome

Columbia

Can Southern

	
 

46.25% WI

3.75% WI

50.00% WI

	
Sections 26, 28-30, 35-40

and 46-49

	
Dome

Columbia

Amoco

Alminex

Can Southern

	
20.81% WI

1.69% WI

25.00% WI

2.50% WI

50.00% CI

	  	  	  	  	  
	
DIAND Oil & Gas

Lease #443-R-68

	
Jan. 7/69

	
60° 10’ N – 124° 00’ W:

Sec’s 56-60

	
Dome

Columbia

Amoco

Alminex

Can Southern

	
20.81% WI

1.69% WI

25.00% WI

2.50% WI

50.00% CI

	  	  	  	  	  
	
DIAND Oil & Gas

Lease #412-68

	
Jan. 7/69

	
60° 10’ N – 124° 00’ W:

Sec’s 66-70

	
Dome

Columbia

Amoco

Alminex

Can Southern

	
20.81% WI

1.69% WI

25.00% WI

2.50% WI

50.00% CI

	  	  	  	  	  
	
DIAND Oil & Gas

Lease #444-R-68

	
Jan. 7/69

	
60° 10’ N – 124° 00’ W:

Sec’s 76-80

	
Dome

Columbia

Amoco

Alminex

Can Southern

	
20.81% WI

1.69% WI

25.00% WI

2.50% WI

50.00% CI

 

	  
	  

  

  

  

 

	
Columbia Gas Development of Canada Ltd.

	  
	  	
Page 2 of 2

 

BLOCK II LANDS

 

	
Lease

	
Date

	
Description

	
Ownership

	  	  	  	  
	
DIAND Oil & Gas

Lease #210-67

	
Apr. 18/68

	
60° 20’ N – 123° 30’ W:

Sec’s 5-10, 15-20,

25-30.

	
Dome

Amoco

Alminex

Can Southern

	
22.50% WI

25.00% WI

2.50% WI

50.00% CI

	  	  	  	  	  
	
DIAND Oil & Gas

Lease #414-68

	
Jan. 7/69

	
60° 30’ N – 123° 15’ W:

Sec’s 6-10, 16-20,

16-30.

	
Dome

Amoco

Alminex

Can Southern

	
22.50% WI

25.00% WI

2.50% WI

50.00% CI

	  	  	  	  	  
	
DIAND Oil & Gas

Lease #413-68

	
Jan. 7/69

	
60° 30’ N – 123° 15’ W:

Sec’s 13, 14, 23 & 24.

	
Dome

Amoco

Alminex

Can Southern

	
22.50% WI

25.00% WI

2.50% WI

50.00% CI

	  	  	  	  	  
	
DIAND Oil & Gas

Lease #208-67

	
Apr. 18/68

	
60° 30’ N – 123° 15’ W:

Sec’s 41-45, 51-55,

61-65.

	
Dome

Amoco

Alminex

Can Southern

	
22.50% WI

25.00% WI

2.50% WI

50.00% CI

 

 

  

  

  

 

Lease pattern in Former Permit #1007 - Attached for clarification

but is not part of letter Agreement dated February 1, 1977 between Columbia & others.eflo_ex105.htm

Exhibit 10.5

 

 

KOTANEELEE PRODUCTION FACILITIES

 

CONSTRUCTION, OWNERSHIP AND

 

OPERATING AGREEMENT

 

  

  

  

 

Table of Contents

 

	 	 	Page
	 	 	 
	ARTICLE I	 	 
	
DEFINITIONS

	 	 
	
1.01

	
Definitions

	 	8
	  	  	 	 
	
ARTICLE II

	 	 
	
EXHIBITS

	 	 
	 	 	 	 
	
2.01

	
Exhibits Attached

	 	11
	 	 	 	 
	
2.02

	
Revisions

	 	12
	 	 	 	 
	
2.03

	
Corrections

	 	12
	 	 	 	 
	
2.04

	
Form of Revised or Corrected Schedules

	 	12
	 	 	 	 
	
2.05

	
Form of Revised or Corrected Schedules

	 	12
	 	 	 	 
	
2.06

	
Prior Agreements

	 	12
	  	  	 	 
	
ARTICLE III

	 	 
	
PURPOSE OF THE AGREEMENT

	 	 
	 	 	 	 
	
3.01

	
Construction, Ownership and Operation of the Production Facilities

	 	12
	  	  	 	 
	
ARTICLE IV

	 	 
	
SUPERVISION AND CONTROL OF OPERATIONS

	 	 
	 	 	 	 
	
4.01  

	
Supervision by Owners

	 	12
	 	 	 	 
	
4.02

	
Meetings

	 	13
	 	 	 	 
	
4.03

	
Chairman

	 	13
	 	 	 	 
	
4.04

	
Voting Procedure

	 	13
	 	 	 	 
	
4.05

	
Minutes

	 	14
	 	 	 	 
	
4.06

	
Owners Bound by Voting

	 	14

 

 

2

 

 

	  	  	 	 
	
ARTICLE V

	 	 
	
POWERS OF THE OPERATING COMMITTEE

	 	 
	 	 	 	 
	
5.01

	
Powers

	 	14
	  	  	 	 
	
ARTICLE VI

	 	 
	
THE OPERATOR

	 	 
	 	 	 	 
	
6.01

	
Initial Operator

	 	15
	 	 	 	 
	
6.02

	
Resignation or Removal

	 	15
	 	 	 	 
	
6.03

	
Designation of Successor

	 	15
	 	 	 	 
	
6.04

	
Takeover of Successor

	 	16
	 	 	 	 
	
6.05

	
Accounts Audited When the Operator Changes

	 	16
	 	 	 	 
	
6.06

	
No Assignment

	 	16
	 	 	 	 
	
6.01

	
Initial Operator

	 	16
	 	 	 	 
	
6.02

	
Resignation or Removal

	 	16
	 	 	 	 
	
6.03

	
Designation of Successor

	 	16
	 	 	 	 
	
6.04

	
Takeover of Successor

	 	16
	 	 	 	 
	
6.05

	
Accounts Audited When the Operator Changes

	 	17
	 	 	 	 
	
6.06

	
No Assignment

	 	17
	  	  	 	 
	
ARTICLE VII

	 	 
	
PERFORMANCE BY THE OPERATOR

	 	 
	 	 	 	 
	
7.01

	
Status

	 	17
	 	 	 	 
	
7.02

	
Prior Arrangements and Agreements made by AO&G

	 	17
	 	 	 	 
	
7.03

	
Rights, Powers, Duties and Obligations during Construction

	 	17
	 	 	 	 
	
7.01

	
Status

	 	17

 

 

3

 

 

	 	 	 	 
	
7.02

	
Prior Arrangements and Agreements made by Columbia

	 	17
	 	 	 	 
	
7.03

	
Rights, Powers, Duties and Obligations during Construction

	 	18
	 	 	 	 
	
7.04

	
Rights, Powers, Duties and Obligations Generally

	 	18
	 	 	 	 
	
7.05

	
Employees

	 	19
	 	 	 	 
	
7.06

	
Expenditures

	 	19
	 	 	 	 
	
7.07

	
Liability of the Operator

	 	19
	  	  	 	 
	
ARTICLE VIII

	 	 
	
COSTS OF CONSTRUCTION AND OPERATIONS

	 	 
	 	 	 	 
	
8.01

	
Production Facilities Account

	 	19
	 	 	 	 
	
8.02

	
Division of the Production Facilities Account

	 	19
	 	 	 	 
	
8.03

	
Pre-Plant Costs

	 	20
	 	 	 	 
	
8.04

	
Basis of Charges to Owners

	 	20
	 	 	 	 
	
8.05

	
Forecasts

	 	20
	 	 	 	 
	
8.06 

	
Advance Billings for Capital Costs, Operating Expenses and Royalties

	 	20
	 	 	 	 
	
8.07

	
Regular Billing

	 	21
	 	 	 	 
	
8.08

	
Commingling of Funds

	 	21
	 	 	 	 
	
8.09

	
Interest on Overdue Accounts

	 	21
	 	 	 	 
	
8.10

	
Operator’s Lien and Remedies

	 	21
	 	 	 	 
	
8.11

	
Contributions by Owners

	 	21
	  	  	 	 
	
ARTICLE IX

	 	 
	
OWNERSHIP OF THE PRODUCTION FACILITIES

	 	 
	 	 	 	 
	
9.01

	
Ownership and Participation

	 	22
	 	 	 	 
	
9.02

	
Capacity and Utilization

	 	22

 

 

4

 

 

	 	 	 	 
	
9.03

	
Adjustment of Ownership

	 	22
	 	 	 	 
	
9.04

	
Adjustment of Investment

	 	22
	 	 	 	 
	
9.05

	
Expansion or Alteration of the Plant or Laterals

	 	23
	  	  	 	 
	
ARTICLE X

	 	 
	
TRANSFER, SALES AND ASSIGNMENTS

	 	 
	 	 	 	 
	
10.01

	
Admission of New Owners

	 	23
	 	 	 	 
	
10.02

	
Permitted Dispositions of Interests in the Production Facilities

	 	23
	 	 	 	 
	
10.03

	
Sale of an Interest in the Production Facilities

	 	23
	 	 	 	 
	
10.04

	
Conditions Imposed on Dispositions

	 	24
	 	 	 	 
	
10.05

	
Change of Name

	 	24
	  	  	 	 
	
ARTICLE XI

	 	 
	
MEASUREMENT

	 	 
	 	 	 	 
	
11.01     

	
Equipment

	 	24
	 	 	 	 
	11.02	
Unit of Volume and Weight

	 	24
	 	 	 	 
	
11.04

	
Determination of Volume

	 	25
	 	 	 	 
	
11.05

	
Assumed Atmospheric Pressure

	 	25
	 	 	 	 
	
11.06 

	
Analysis of Natural Gas and Outside Gas

	 	25
	  	  	 	 
	
ARTICLE XII

	 	 
	
DELIVERY OF NATURAL GAS AND OWNERSHIP OF PROCESSED GAS

	 	 
	 	 	 	 
	
12.01

	
Commitment to Deliver to the Production Facilities

	 	25
	 	 	 	 
	
12.02

	
Owner’s Share of Processed Gas and Plant Products

	 	25
	 	 	 	 
	
12.03

	
Allocation of Outside Gas Plant Products

	 	26

 

 

5

 

 

	 	 	 	 
	
12.04

	
Losses in handling or Flaring

	 	26
	 	 	 	 
	
12.05

	
Warranty of Owners

	 	26
	 	 	 	 
	
12.06

	
Payment of Royalties and Indemnification

	 	26
	  	  	 	 
	
ARTICLE XIII

	 	 
	
EFFECTIVE DATE AND TERM OF AGREEMENT

	 	 
	 	 	 	 
	
13.01

	
Effective Date

	 	26
	 	 	 	 
	
13.02

	
Term of Agreement

	 	26
	  	  	 	 
	
ARTICLE XIV

	 	 
	
TERMINATION

	 	 
	 	 	 	 
	
14.01

	
Obligations on Termination

	 	27
	 	 	 	 
	
14.02

	
Allocation of Benefits and Costs

	 	27
	 	 	 	 
	
14.03 

	
Advance of Costs for Reclamation

	 	27
	  	  	 	 
	
ARTICLE XV

	 	 
	
FORCE MAJEURE

	 	 
	 	 	 	 
	
15.01

	
Force Majeure

	 	27
	  	  	 	 
	
ARTICLE XVI

	 	 
	
UNITED STATES TAXES

	 	 
	 	 	 	 
	
16.01

	
United States Tax Provision

	 	28
	  	  	 	 
	
ARTICLE XVII

	 	 
	
MISCELLANEOUS PROVISIONS

	 	 
	 	 	 	 
	
17.01

	
Relationship of the Owners

	 	28
	 	 	 	 
	
17.02

	
Interpretation

	 	28
	 	 	 	 
	
17.03 

	
Number and Gender

	 	28
	 	 	 	 
	
17.04

	
Execution in Counterpart

	 	28

 

 

6

 

 

	 	 	 	 
	
17.05

	
No Partitioning

	 	28
	 	 	 	 
	
17.06

	
Laws and Regulations

	 	29
	 	 	 	 
	
17.07 

	
Time

	 	29
	 	 	 	 
	
17.08

	
Applicable Laws

	 	29
	 	 	 	 
	
17.09

	
Waivers

	 	29
	 	 	 	 
	
17.10

	
Suits

	 	29
	 	 	 	 
	
17.11

	
Further Assurances

	 	29
	 	 	 	 
	
17.12

	
No Implied Covenants

	 	29
	 	 	 	 
	
17.13

	
Notices and Communications

	 	29
	 	 	 	 
	
17.14

	
ENUREMENT

	 	31
	 	 	 	 
	
17.15.

	
Time of the Essence

	 	31

 

  

7

  

 

KOTANEELEE PRODUCTION FACILITIES

CONSTRUCTION, OWNERSHIP AND OPERATING AGREEMENT

 

THIS AGREEMENT made and entered into as of the Effective Date by and among the Parties who duly execute and deliver counterparts of this Agreement.

WHEREAS the Parties have a right to produce petroleum substances from lands in the Yukon Territory, Canada, within the Kotaneelee Area and have the right to produce Natural Gas therefrom;

 

AND WHEREAS the Parties have constructed the Production Facilities to transport Natural Gas to the Plant for processing to obtain Processed Gas and Plant Products, and wish to make and confirm all arrangements among them in respect of the Production Facilities and continued ownership, operation and maintenance thereof;

 

NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of these premises and the mutual covenants herein contained, the Parties hereto agree as follows:

ARTICLE I

DEFINITIONS

	
1.01  

	
Definitions

In this Agreement, including this Article, the recitals and Exhibits hereto:

	
(a)  

	
“Accounting Procedure" means the accounting procedure set forth and contained in Exhibit "C";

	
(b)  

	
“Affiliate” means a Person fulfilling one of the following requirements.

 

	
(i)  

	
a Person controlling an Owner or Owners;

	
(ii)  

	
a Person controlled by an Owner or Owners;

 

	
(iii)  

	
a Person controlling a Person that also controls or is controlled by an Owner or Owners; and

 

	
(iv)  

	
a Person controlled by a Person that also controls or is controlled by an Owner or Owners,

 

and in this regard, control means control in any manner that results in control in fact, whether direct or indirect, and whether by the ownership of shares, legal or equitable voting interests of trusts, through representation on the board of directors or other governing body or otherwise, and whether arising by contract or otherwise;

	
(c)  

	
“Agreement” means this agreement and all Exhibits and attachments hereto;

	
(d)  

	
"Capacity" means in respect of the Plant and Gathering System or any Laterals as the case may be, the capacity of the same established from time to time by the Operating Committee;

 

	
(e)  

	
"Capital Costs" means capital costs as described in Article VIII:

 

	
(f)  

	
"AO&G" means Anderson Oil & Gas Inc.;

 

	
(i)  

	
a Person controlling an Owner or Owners;

	
(ii)  

	
a Person controlled by an Owner or Owners;

  

8

  

	
(iii)  

	
a Person controlling a Person that also controls or is controlled by an Owner or Owners; and

	
(iv)  

	
a Person controlled by a Person that also controls or is controlled by an Owner or Owners,

and in this regard, control means control in any manner that results in control in fact, whether direct or indirect, and whether by the ownership of shares, legal or equitable voting interests of trusts, through representation on the board of directors or other governing body or otherwise, and whether arising by contract or otherwise;

	
(c)  

	
“Agreement” means this agreement and all Exhibits and attachments hereto;

	
(d)  

	
"Capacity" means in respect of the Plant and Gathering System or any Laterals as the case may be, the capacity of the same established from time to time by the Operating Committee;

	
(e)  

	
"Capital Costs" means capital costs as described in Article VIII:

	
(f)  

	
"Columbia" means Columbia Gas Development of Canada Ltd.

	
(g)  

	
“Common Facilities" means all support facilities, other than the Plant and Gathering System, utilized for the Operations, including those. facilities described in Exhibit "B-3" and any other facilities approved from time to time by the Operating Committee;

 

	
(h)  

	
“Delivery Point for Processed Gas" means the point of delivery of Processed Gas at or near the Plant at which the facilities of the relevant purchaser or carrier are connected to the Plant;

 

	
(i)  

	
“Effective Date” means the time and date referred to in Article XIII;

 

	
(j)  

	
“Execution Date" means the date when the last of the Owners of record as of June 1, 1990 executes and delivers this Agreement;

 

	
(k)  

	
“Excess Capacity” means, in respect of the Plan, Gathering System or any Laterals, as the case may be, the capacity thereof determined by subtracting the Utilization from the Capacity and, in respect of a particular Owner, means the capacity thereof determined by subtracting such Owner’s Utilization from that Owner’s Production Facilities Participation share of the Capacity;

 

	
(l)  

	
“Exhibits" means the Exhibits described in Clause 2.01;

 

	
(m)  

	
“Expenditure Limit” means the expenditure limit as defined in paragraph 1.01(d) of the Accounting Procedure;

 

	
(n)  

	
“Expenditures” means Capital Costs, Variable Operating Costs and Fixed Operating Costs as the same are described in Article VIII;

 

	
(o)  

	
“Fixed Operative Costs" means fixed operating costs as described in Article VIII;

 

	
(p)  

	
“Functional Unit" means a functional unit of the Common Facilities as described in Exhibit "B-3";

 

	
(q)  

	
“Gathering System" means the facilities utilized for gathering and transporting Natural Gas or Outside Gas from the downstream flange of the wing valve of each Well to the upstream flange of the inlet facilities of the Plant for processing, including but not limited to the Laterals and the facilities described in Exhibit "B-3";

 

	
(r)  

	
“Initial Production Facilities Construction" means construction of the Production Facilities completed on or before the execution of this Agreement;

 

	
(s)  

	
“Kotaneelee Area" means the lands located in the Yukon Territory of Canada outlined in red on Exhibit "B-1";

 

  

9

  

	
(t)  

	
“Lateral" means a portion of the Gathering System which is utilized in whole or in part to gather and deliver Natural Gas or Outside Gas in a common stream from a Well or Wells to the Plant Inlet for Natural Gas, and which is identified on Exhibit "B-4" by roman numeral designation;

 

	
(u)  

	
“Leases" means the Federal Crown petroleum and natural gas leases, or any other documents of title, and any amendments or substitutions thereto or therefore, pursuant to which an Owner's Natural Gas or  Outside Gas is produced from the Kotaneelee Area, including without limitation leases numbered 411, 412, 442-R, 443-R and 444-R;

 

	
(v)  

	
“Natural Gas" means any unprocessed natural gas produced from within the Kotaneelee Area which is owned by any of the Owners and which meets the specifications set forth in Exhibit "E";

 

	
(w)  

	
“Non-Owner” means a Person whom is not an Owner;

 

	
(x)  

	
“Non-Saleable Gas” means any gas or other substances used as fuel for the Operations, or that is unavoidably lost;

 

	
(y)  

	
“Operating Committee” means the committee of the authorized representatives of the Owners appointed pursuant to Article V;

 

	
(z)  

	
“Operating Costs" means collectively, Variable Operating Costs and Fixed Operating Costs;

 

	
(aa)  

	
“Operations" means all operations conducted or otherwise associated with operation of the Production Facilities or any of them by or on behalf of the Operator;

 

	
(bb)  

	
“Operator" means the Owner who is so designated from time to time in accordance with Article VI;

 

	
(cc)  

	
“Outside Gas" means any unprocessed natural gas other than Natural Gas and which meets the specifications set forth in Exhibit “E”;

 

	
(dd)  

	
“Owner" means a Party to this Agreement having a Production Facilities Participation in all or any portion of the Production Facilities;

 

	
(ee)  

	
“Party” means any party who executes and delivers a counterpart of this Agreement to the Operator;

 

	
(ff)  

	
“Person" means an individual, firm, corporation, partnership or other legal entity;

 

	
(gg)  

	
“Plant” means the gas plant and all related facilities, utilized to process Natural Gas and Outside Gas, including but not limited to the facilities described in Exhibit "B-3";

 

	
(hh)  

	
“Plant Inlet for Natural Gas" means the inlet header of the Plant at which point the gas gathering facilities are connected thereto;

 

	
(ii)  

	
“Plant Outlet for Processed Gas" means the outlet header of the Plant where Processed Gas passes into the transmission line leading to the Delivery Point for Processed Gas;

 

	
(jj)  

	
“Plant Products" means all substances which are recovered from Natural Gas and Outside Gas and are made available for delivery from the Plant, including but not limited to ethane, propane, butanes and pentanes plus, or any mixture thereof, but excluding Processed Gas and Non-Saleable Gas;

 

	
(kk)  

	
“Processed Gas" means that portion of the Natural Gas or Outside Gas after it has been processed through the Plant which meets the specifications for Processed Gas set forth in Exhibit “E”, and that is available for delivery at the Delivery Point for Processed Gas;

 

	
(ll)  

	
“Production Facilities" means the Plant, Gathering System and Common Facilities, constructed or to be constructedfrom time to time in accordance with the terms and conditions of this Agreement for the benefit and at the risk of the Owners;

 

  

10

  

	
(mm)  

	
“Production Facilities Account" means the account established by the Operator in accordance with Article VIII;

 

	
(nn)  

	
“Production Facilities Participation" means the percentage ownership interest in the Production Facilities of the Owners set forth in Exhibit "A", as the same may be amended from time to time in accordance with the terms and conditions of this Agreement;

 

	
(oo)  

	
“Regulations" means all statutes, laws, rules, orders, directives and regulations in effect from time to time and made by any governmental agency or authority having jurisdiction over the Kotaneelee Area, the Leases, the Production Facilities or the Operations;

 

	
(pp)  

	
“Royalties" means any royalties payable to the Crown in right of Canada, or any authorized agent thereof, pursuant to the terms and conditions of the Leases or the Regulations;

 

	
(qq)  

	
“Settlement Limit" means the settlement limit as defined in paragraph l.0l(m) of the Accounting Procedure;

 

	
(rr)  

	
“Subsequent Production Facilities Construction" means any construction of any modifications or alterations of the Production Facilities, whether by enlargement or otherwise, commencing after execution of this Agreement;

 

	
(ss)  

	
“Supplies" means all chemical or other substances for use or consumption in the Operations (including, but not limited to, glycol, methanol, water treatment chemicals and all lubricants), spare parts and equipment used to replace or repair items of equipment and other materials;

 

	
(tt)  

	
“Utilization" means the capacity of the Plant, Gathering System or a Lateral, as the case may be, actually utilized by the Owners from time to time, and in respect of a particular Owner, means the capac!ty thereof actually utilized by that Owner from time to time;

 

	
(uu)  

	
“Variable Operating Costs” means variable operating costs as dscribed in Article VIII;

 

	
(vv)  

	
“Weights and Measures Act" means the Weights and Measures Act, S.C. 1970-71-72, c.36, as amended, and

 

	
(ww)  

	
“Wells" means the wells as identified and set forth in Exhibit "A-2" and any other wells tied into the Gathering System.

 

ARTICLE II

EXHIBITS

 

2.01                   Exhibits Attached

 

The following Exhibits are attached to and by this reference incorporated in this Agreement:

	
(a)

	
Exhibit “A-1”    -

	
Identification of Owners and the Owners’ Production Facilities Participations;

 

	
(b)

	
Exhibit “A-2”    -

	
List of Wells and Well Ownership;

 

	
(c)

	
Exhibit “B-1”    -

	
Map of the Kotaneelee Area;

 

	
(d)

	
Exhibit “B-2”    -

	
Map identifying the location of the Production Facilities;

 

	
(e)

	
Exhibit “B-3”    -

	
Description of the Production Facilities and identification of the initial Wells;

 

	
(f)

	
Exhibit “B-4”    -

	
Detailed map of the location of the Plant, Gathering System and certain of the Common Facilities;

 

	
(g)

	
Exhibit “C”    -

	
Accounting Procedure – Production Facilities Operations

 

	
(h)

	
Exhibit “D”    -

	
Insurance; and

 

	
(i)

	
Exhibit “E”    -

	
Gas specifications

 

 

  

11

  

2.02                   Revisions

 

	
(a)  

	
The Exhibits hereto shall be revised from time to time by the Operator at the direction of the Operating Committee pursuant to Clause 4.04 which direction shall specify the effective date of any such revision. Exhibit "A" shall be revised from time to time to reflect changes made in accordance with Articles IX or X.

	
(b)  

	
Operator shall, forthwith upon revision of any Exhibit, supply each Owner with copies thereof.

 

2.03                   Corrections

 

If any mistake or mechanical error occurs in an Exhibit, the Operator may, or at the direction of the Operating Committee shall, prepare a corrected Exhibit and supply each Owner with copies thereof. Any correction made hereunder shall be retroactive to the Effective Date of this Agreement if made within ninety (90) days after the execution of this Agreement, and thereafter such corrections shall be effective on the date specified by the Operating Committee.

 

2.04                   Form of Revised or Corrected Schedules

 

Exhibits that are revised or corrected shall show the effective date of the revision or correction and shall be numbered consecutively.

 

2.05                   Form of Revised or Corrected Schedules

 

If there are any conflicts between the provisions of this Agreement and any of the Exhibits (or anything contained in an Exhibit or attachments thereto) the provisions of this Agreement shall prevail.

 

2.06                   Prior Agreements

 

The rights and obligations of the Owners hereunder in respect of the ownership and utilization of the Production Facilities shall be subject to any prior binding agreements between Canada Southern Petroleum Ltd., Magellan Petroleum Corporation and Pantapec International, Inc. and the Owners and their respective predecessors, successors and assigns, insofar as such agreements pertain to the subject matter hereof.

 

ARTICLE III

PURPOSE OF THE AGREEMENT

 

3.01                   Construction, Ownership and Operation of the Production Facilities

 

The Owners have constructed or caused to be constructed the Production Facilities for the purpose of transporting Natural Gas from the Wells to the Plant and for the processing of Natural Gas to obtain Processed Gas and Plant Products.  The purpose of this Agreement is to confirm existing arrangements made among the Owners, without prejudice to the respective rights and obligations of the Owners otherwise provided for herein, and to provide for the ownership, operation and maintenance of the Production Facilities.

 

ARTICLE IV

SUPERVISION AND CONTROL OF OPERATIONS

 

4.01                   Supervision by Owners

 

The Owners have formed or shall form an Operating Committee to supervise and control the Operations. Each Owner shall notify the Operator in writing of the names and addresses of its representative, and one (1) or more alternates, all of whom shall be authorized to represent and bind the Owner at meetings of the Operating Committee. An Owner may change any of its appointed representatives at any time and from time to time by written notice to the Operator.  Two (2) or more Owners may appoint the same person as their representative who shall, except in respect of Affiliates, cast a separate vote for each such Owner.

 

  

12

  

4.02                   Meetings

 

All meetings for the purpose of considering and acting upon any matter pertaining to the Operations may be called by the Operator on its own motion, or shall be called at the request of one (1) or more Owners having Production Facilities Participations totaling five (5%) percent or more, and the date for meetings requested by such Owner or Owners shall be set and the Owners notified by the Operator within thirty (30) days of the request.  At least ten (10) clear days advance written notice of each meeting with agenda attached shall be given to the Owners unless the representatives of all Owners waive in writing their right to notice in the manner required.  The agenda shall provide a reasonable level of detail for the matters to be discussed at the meeting.  Matters not on the agenda shall not be voted upon at a meeting unless the representatives of all Owners having Production Facilities Participations equal to one hundred (100%) percent, whether or not they are present at the meeting, unanimously agree to add such matters to the agenda for consideration at the meeting.

 

4.03                   Chairman

 

The representative of the Operator shall be chairman of each meeting.

 

4.04                   Voting Procedure

 

The Owners, through their representatives, shall act upon and determine all matters coming before them as follows:

	
(a)  

	
Voting Interest

 

Except as otherwise provided in this Agreement, in voting on any matter, each Owner shall have a voting interest equal to its Production Facilities Participation.  Owners that are Affiliates shall be entitled to one (1) vote only which shall be a vote of their combined voting interest.

	
(b)  

	
Vote Required – Generally

 

Except as otherwise provided in this Agreement, the Operating Committee shall act upon and determine all matters coming before it with respect to this Agreement by the affirmative vote of two or more of the Owners having voting interests totaling sixty (60%) percent or more; but if an Owner having a voting interest of not less than forty (40%) percent and not more than fifty (50%) percent is the only one voting negatively, the matter shall nonetheless be deemed to be carried, even though the voting interests of the Owners voting affirmatively total less than sixty (60%) percent.

	
(c)  

	
Vote Required – Special Matters

 

	
(i)  

	
Removal of the Operator – The Operator may only be removed by the affirmative vote of the Owners having voting interests totalling ninety-five (95%) percent or more of the voting interests determined by excluding the voting interest of the Operator and its Affiliates, but for the purposes hereof, paragraph (e) of this Clause shall not. apply.

 

	
(ii)  

	
Alteration of Plant, Gathering System or Lateral Capacity – Matters in respect of alteration of Plant, Gathering System or Lateral Capacity shall be determined by the affirmative vote of three (3) or more Owners having voting interests totaling eighty (80%) percent or more; but if an Owner having a voting interest of not less than twenty (20%) percent and not more than fifty (50%) percent is the only one voting negatively, the matter shall nonetheless be deemed to be carried, even though the voting interests of the Owners voting affirmatively total less than eighty (80%) percent.

 

	
(iii)  

	
Addition of Non-Owners as Owners – The Operating Committee may approve the terms and conditions whereby a Non-Owner may become an Owner fy the affirmative vote of three (3) or more Owners having voting interests totaling eight (80%) percent or more, but if an Owner having a voting interest or not less than twenty (20%) percent and not more than fifty (50%) percent is the only one voting negatively, the matter shall nonetheless be deemed to be carried, even though the voting interests of the Owners voting affirmatively total less than eighty (80%) percent.

 

	
(iv)  

	
Termination – This Agreement may be terminated in accordance with Article XIV by the affirmative vote of three (3) or more Owners, having voting interests totaling ninety-five (95%) percent or more, but if an Owner having a voting interest of not less than five (5%) percent and not more than fifty (50%) percent is the only one voting negatively, the matter shall nonetheless be deemed to be carried, even though the voting interests of the Owners voting affirmatively total less than ninety-five (95%) percent.

 

  

13

  

	
(v)  

	
Amendment of Exhibits – The Exhibits or each of them may be amended by the affirmative vote of three (3) or more Owners having voting interests totaling eighty (80%) percent or more, but if an Owner having a voting interest of not less than twenty (20%) percent and not more than fifty (50%) percent is the only one voting negatively, the matter shall nonetheless be deemed to be carried, even though the voting interest of the Owners voting affirmatively total less than eighty (80%) percent.

 

	
(d)  

	
Vote by Absentee

 

	
(i)  

	
An Owner not represented at a meeting may vote on any matter included in the agenda by prior written notice to the Operator.

 

	
(ii)  

	
The Operator may, without calling for a meeting, call for a vote on any matter by submitting same with reasonable details to each Owner by notice in the form of a mail ballot.  Unless, within twelve (12) days after receipt of the notice, an Owner requests that a meeting be called to consider the matter and the Operator calls such a a meeting, each Owner shall submit its vote by notice to be received by the Operator within twenty (20) days from the date of receipt by the Owner of the Operator’s notice, receipt thereof being determined in accordance with Clause 17.13.  The Operator shall promptly notify each Owner of the results of the vote taken.

 

	
(e)  

	
Failure to Vote

 

Any Owner who does not vote or abstains from voting on any matter shall be deemed conclusively to have voted affirmatively, but in recording the vote, the Owner shall be shown as having been present and abstained or been absent or failed to vote pursuant to subparagraph 4.04(d)(ii), as the case may be.

4.05                   Minutes

 

The Operator shall keep minutes of the proceedings of each meeting of the Operating Committee, and a copy thereof shall be forwarded to each Owner.  The minutes shall include the names of the representatives present, the Owners they represent and any formal action taken by the Operating Committee.  Minutes shall be deemed to be correct as distributed unless notice of any errors or omissions is received by the Operator within twenty (20) days of the date on which the minute are mailed to the Owners.

4.06                   Owners Bound by Voting

 

The determination of a matter by the vote of the Operating Committee in accordance with the provisions of this Agreement shall be binding upon all of the Owners, except in the circumstances outlined in paragraph 9.05(b).

ARTICLE V

POWERS OF THE OPERATING COMMITTEE

 

5.01                   Powers

 

The Operating Committee shall exercise overall supervision and control of and shall determine all matters arising under or which are left to it by this Agreement.  The matters to be passed and decided upon by the Operating Committee include, but are not limited to, the following:

 

	
(a)  

	
the approval of the design of the Production Facilities;

 

	
(b)  

	
the approval of modifications and alterations of the Production Facilities;

 

	
(c)  

	
the establishment, except in the circumstances where Clauses 10.02 or 10.03 apply, of the terms and conditions whereby a Non-Owner may become an Owner;

 

	
(d)  

	
the approval of enlargements or other designations of the Kotaneelee Area;

 

	
(e)  

	
the approval of expenditures in excess of the Expenditure Limit;

 

	
(f)  

	
the selling or otherwise disposing of any item of surplus material or equipment having in either case a current new price in excess of the Expenditure Limit;

 

  

14

  

	
(g)  

	
the designation of any representatives that are to appear before any court or regulatory body considering matters pertaining to the Production Facilities or the Operations, but such designation shall not prevent any Owner from having its own representative appear on its own behalf;

 

	
(h)  

	
the appointment of auditors and the settlement of any questions, or the approval or disapproval of any recommendations, based upon or arising out of any audit of the Operator’s books and records, and the approval or the auditors’ fees

 

	
(i)  

	
the taking of periodic inventories pursuant to the Accounting Procedure;

 

	
(j)  

	
the appointment or designation of committees or subcommittees to study any problem in connection with the Production Facilities or the Operations;

 

	
(k)  

	
the approval of such tests as are necessary to allocate Processed Gas and Plant Products;

 

	
(l)  

	
the removal of the Operator and the designation of a successor;

 

	
(m)  

	
the approval of terms and conditions pursuant to which Outside Gas may be accepted into the Production Facilities for transportation to and processing through the Plant;

 

	
(n)  

	
the determination of Capacity from time to time;

 

	
(o)  

	
the approval of the Operator’s forecasts required by Clause 805;

 

	
(p)  

	
the terms and conditions upon which an Owner may access another Owner’s excess capacity;

 

	
(q)  

	
any fees to be charged for utilization of the Production Facilities; and

 

	
(r)  

	
generally all matters of policy which may arise from time to time in respect to the Production Facilities and Operations.

ARTICLE VI

THE OPERATOR

 

6.01                   Initial Operator

 

The Owners hereby designate AO&G as initial Operator and AO&G hereby agrees to act as such in accordance with the terms and conditions of the Agreement.

 

6.02                   Resignation or Removal

 

The Operator may resign at any time by giving ninety (90) days written notice to the Owners.  The Operator may be removed by a vote of the Operating Committee pursuant to subparagraph 4.04(c)(i).  An Operator who resigns or is removed shall continue to have all its rights, powers, duties and obligations as the Operator hereunder until 8:00 a.m. on the 1st day of the month immediately following the month in which the said ninety (90) days expires, or until a successor Operator has taken over the Operations hereunder, whichever is the earlier.  If the Operator becomes bankrupt or insolvent or ceases to be an Owner, it shall thereupon cease to be the Operator.

 

6.03                   Designation of Successor

 

If, in accordance with Clause 6.02, the Operator resigns or is removed or ceases to be the Operator, an Owner shall forthwith be designated by the Operating Committee as the successor Operator,  In voting on the successor, an Operator may not vote to succeed itself.

 

  

15

  

6.04                   Takeover of Successor

 

Upon the effective time of a resignation, removal or cessation, the departing Operator shall turn over to its successor, or if not successor has been designated, to the Owners or to any one of them on behalf of all, control and possession of the Production Facilities, all Supllies on hand, all documents, books, records and accounts (or copies thereof) pertaining to the performance of its functions as the Operators, together with all monies held by it on behalf of the other Owners in its capacity as the Operator.  Upon the transfer and delivery thereof, the departing Operator shall be released and discharged from, and the successor Operator, Owner or Owners shall assume, all duties and obligations of the Operator except the unsatisfied duties and obligations of the departing Operator accrued prior to the effective date of the change of the Operator and for which the departing Operator shall, notwithstanding any such release or discharge, continue to remain liable.  If the title to any real property included in the Plant is held in the name of the departing Operator, it shall transfer such property to the successor Operator in trust for the Owners unless otherwise directed by the Operating Committee.

 

6.05                   Accounts Audited When the Operator Changes

 

Within sixty (60) days of the effective date of an Operator’s resignation, removal or cessation as the Operator, the Operating Committee shall cause an audit to be made of the records of the Production Facilities Account maintained by the departing Operator.  The cost of such audit shall be for the Production Facilities Account.

 

6.06                   No Assignment

 

The Operator shall not assign or otherwise dispose of its operating rights or obligations under this Agreement except as provided for herein or as may be authorized by the Operating Committee from time to time.

 

ARTICLE VI

THE OPERATOR

 

6.01                   Initial Operator

 

The Owners hereby designate Columbia as initial Operator and Columbia hereby agrees to act as such in accordance with the terms and conditions of the Agreement.

 

6.02                   Resignation or Removal

 

The Operator may resign at any time by giving ninety (90) days written notice to the Owners.  The Operator may be removed by a vote of the Operating Committee pursuant to subparagraph 4.04(c)(i).  An Operator who resigns or is removed shall continue to have all its rights, powers, duties and obligations as the Operator hereunder until 8:00 a.m. on the 1st day of the month immediately following the month in which the said ninety (90) days expires, or until a successor Operator has taken over the Operations hereunder, whichever is the earlier.  If the Operator becomes bankrupt or insolvent or ceases to be an Owner, it shall thereupon cease to be the Operator.

 

6.03                   Designation of Successor

 

If, in accordance with Clause 6.02, the Operator resigns or is removed or ceases to be the Operator, an Owner shall forthwith be designated by the Operating Committee as the successor Operator,  In voting on the successor, an Operator may not vote to succeed itself.

 

6.04                   Takeover of Successor

 

Upon the effective time of a resignation, removal or cessation, the departing Operator shall turn over to its successor, or if not successor has been designated, to the Owners or to any one of them on behalf of all, control and possession of the Production Facilities, all Supllies on hand, all documents, books, records and accounts (or copies thereof) pertaining to the performance of its functions as the Operators, together with all monies held by it on behalf of the other Owners in its capacity as the Operator.  Upon the transfer and delivery thereof, the departing Operator shall be released and discharged from, and the successor Operator, Owner or Owners shall assume, all duties and obligations of the Operator except the unsatisfied duties and obligations of the departing Operator accrued prior to the effective date of the change of the Operator and for which the departing Operator shall, notwithstanding any such release or discharge, continue to remain liable.  If the title to any real property included in the Plant is held in the name of the departing Operator, it shall transfer such property to the successor Operator in trust for the Owners unless otherwise directed by the Operating Committee.

 

  

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6.05                   Accounts Audited When the Operator Changes

 

Within sixty (60) days of the effective date of an Operator’s resignation, removal or cessation as the Operator, the Operating Committee shall cause an audit to be made of the records of the Production Facilities Account maintained by the departing Operator.  The cost of such audit shall be for the Production Facilities Account.

 

6.06                   No Assignment

 

The Operator shall not assign or otherwise dispose of its operating rights or obligations under this Agreement except as provided for herein or as may be authorized by the Operating Committee from time to time.

 

ARTICLE VII

PERFORMANCE BY THE OPERATOR

 

7.01                   Status

 

The Operator shall, in addition to its rights, powers, duties and obligations as the Operator have all the rights, powers, duties and obligations of an Owner.

 

7.02                   Prior Arrangements and Agreements made by AO&G

 

	
(a)  

	
The Owners hereby acknowledge that prior to the execution of this Agreement, AO&G has contracted with various third parties for Initial Production Facilities Construction (including design) and the Operations on behalf of the Owners.  The Owners hereby acknowledge and agree that the commitments, covenants, obligations, duties, responsibilities, rights and agreements made by or on behalf of AO&G pursuant to such contractual arrangements were made and assumed by AO&G as the Operator on behalf of itself and all of the other Owners.

 

	
(b)  

	
Notwithstanding the provisions of paragraph 7.02(a), the Owners shall have all rights provided them by this Agreement between the Effective Date and the Execution Date, and nothing contained in this Clause 7.02 shall release AO&G from any acts or omissions which would constitute gross negligence or wilful or wanton misconduct on its part.

 

7.03                   Rights, Powers, Duties and Obligations during Construction

 

	
(a)  

	
During Initial Production Facilities Construction or Subsequent Production Facilities Construction, the Operator shall:

 

ARTICLE VII

PERFORMANCE BY THE OPERATOR

 

7.01                   Status

 

The Operator shall, in addition to its rights, powers, duties and obligations as the Operator have all the rights, powers, duties and obligations of an Owner.

 

7.02                   Prior Arrangements and Agreements made by Columbia

 

	
(a)  

	
The Owners hereby acknowledge that prior to the execution of this Agreement, Columbia has contracted with various third parties for Initial Production Facilities Construction (including design) and the Operations on behalf of the Owners.  The Owners hereby acknowledge and agree that the commitments, covenants, obligations, duties, responsibilities, rights and agreements made by or on behalf of Columbia pursuant to such contractual arrangements were made and assumed by Columbia as the Operator on behalf of itself and all of the other Owners.

 

	
(b)  

	
Notwithstanding the provisions of paragraph 7.02(a), the Owners shall have all rights provided them by this Agreement between the Effective Date and the Execution Date, and nothing contained in this Clause 7.02 shall release Columbia from any acts or omissions which would constitute gross negligence or wilful or wanton misconduct on its part.

 

  

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7.03                   Rights, Powers, Duties and Obligations during Construction

 

	
(a)  

	
During Initial Production Facilities Construction or Subsequent Production Facilities Construction, the Operator shall:

 

	
(i)  

	
commence or cause to be commenced the construction by contract with a third party or parties for the performance of all or any part of such work or undertaking;

 

	
(ii)  

	
supervise the construction and assure that the same is conducted with due diligence in accordance with the plans and specifications approved by the Operating Committee;

 

	
(iii)  

	
complete the construction in accordance with the aforementioned plans and specifications;

 

	
(iv)  

	
employ operating personnel for on-site training and familiarization prior to the commencement of start-up operations, provided however, that such training period shall not exceed ninety (90) days;

 

	
(v)  

	
have direct charge and supervision of all matters arising under relevant construction contracts and during the actual construction work and, in the absence of specific instructions from the Operating committee, shall deal with such matters as would a prudent plant operator under the same or similar circumstances; and

 

	
(vi)  

	
furnish to each Owner, within thirty (30) days after the end of each month, reports showing the progress of the construction work, costs incurred, and budgeted expenditures for the month.

 

	
(b)  

	
Each Owner shall have the right, at all reasonable times and at its sole risk, cost and expense, to inspect and observe the construction work.

7.04                   Rights, Powers, Duties and Obligations Generally

Subject to the provisions of this Agreement and any orders, directions and limitations given or imposed from time to time by the Operating Committee, the Operator shall conduct or cause to be conducted all the Operations.  In the absence of any specific instructions from the Operating Committee, the Operator shall conduct or cause to be conducted such Operations that a prudent plant operator would conduct or cause to be conducted under the same or similar circumstances.  Without limiting the generality of the foregoing, the Operators shall:

 

	
(a)  

	
prepare and submit all necessary reports relating to the Operations to the appropriate governmental agencies;

	
(b)  

	
keep within Alberta true and correct books, accounts and records of the Operations and extend to the Owners at all reasonable times the right to examine and inspect the same and to make extracts and copies thereof;

	
(c)  

	
furnish to each Owner on or before the 25th day of each calendar month, a statement for the preceding calendar month of the amount and ownership of Natural Gas and Outside Gas received at the Plant Inlet for Natural Gas, the amount of such Natural Gas and Outside Gas handled in the Plant, the amount and ownership of Processed Gas and Plant Products, the amount of Processed Gas shipped or delivered from the Plant for the account of each Owner or any third party and such other data and information as may be necessary for the proper accounting and settlement among the Parties concerned;

	
(d)  

	
consult with the Owners and keep them advised of all matters arising in connection with the Operations which the Operator considers important, or which the Operating Committee reasonably considers important and so advises the Operator;

	
(e)  

	
furnish to each Owner such reports as the Operating Committee may reasonably require and so direct from time to time;

	
(f)  

	
make, for and on behalf of all Owners, application for any and all approvals or orders of governmental bodies, agencies or other duly constituted authorities having jurisdiction, which are necessary or convenient for the purposes of this Agreement and the Operations;

	
(g)  

	
conduct all Operations in a good and workmanlike manner in accordance with good operating and environmental practices and in accordance with all applicable laws, orders, rules and regulations;

	
(h)  

	
take all reasonable steps as may be necessary to keep the Production Facilities free and clear from all liens and encumbrances occasioned by the Operations, except the Operator’s lien provided for in Clause 8.10, and except liens being contested by the Operator in good faith;

	
(i)  

	
comply with, and require its contractors and their subcontractors to comply with, applicable Worker’s Compensation legislation, and further require its contractors and their subcontractors to carry such insurance for the benefit of the Owners in such amounts as the Operator shall deem necessary. The Operator shall carry the insurance set forth in Exhibit "D" for the Production Facilities Account;

	
(j)  

	
prepare and submit to the Owners for approval the forecasts required by Clause 8.05;

	
(k)  

	
subject to the terms and conditions of this Agreement, pay and discharge promptly for and on behalf of the Owners all costs, expenses and taxes, other than income or similar taxes, incurred or required to be paid in connection with the Operations;

	
(l)  

	
let contracts for the conduct of portions of the Operations on a competitive basis, or use its own facilities and equipment for such Operations and charge for the use of same in accordance with the Accounting Procedure; and

	
(m)  

	
extend to each Owner, at its sole cost, risk and expense, the right to examine and inspect the Production Facilities at all reasonable times.

  

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7.05                   Employees

 

The number, selection, hours of labour and remuneration of persons employed and used by the Operator in conducting the Operations shall be determined by the Operator, and such persons shall be the employees solely of the Operator.

 

7.06                   Expenditures

 

The Operator shall not make or incur any expenditure for the Production Facilities Account without the prior approval of the Owners, except:

 

	
(a)  

	
expenditures for single undertakings, the totalestimated cost of which are not in excess of the Expenditure Limit;

	
(b)  

	
expenditures which it deems necessary in emergencies to protect 1 i ves or property, but if it makes any such expenditure, it shall promptly advise the Owners; and

	
(c)  

	
expenditures not in excess of the Settlement Limit for the full settlement of each separate damage claim arising out of or in any way associated with the Operations.

7.07                   Liability of the Operator

 

The Operator, its servants, agents and employees shall not be liable to the Owners for any loss or damage suffered by the Owners resulting or arising from the Operations, except when and to the extent that such loss or damage results from the gross negligence or wilful or wanton misconduct of the Operator, its servants, agents or employees. Each Owner, in proportion to its Production Facilities Participation, agrees to indemnify and hold harmless the other Owners, the Operator and its servants, agents and employees, against any claim of, or liability to, any third Person resulting from acts or omissions of the Operator, its servants, agents or employees in respect of the Operations, provided that the losses, damages, claims and liabilities so indemnified by each Owner shall be reduced to the extent of any insurance proceeds paid to or on behalf of the Operator, and provided further that the Operator shall not be indemnified or held harmless by the Owners for any loss, damage, claim or liability resulting from the gross negligence or wilful or wanton misconduct of the Operator, its servants, agents or employees. For purposes of this Clause, an act or omission of the Operator, its servants, agents or employees shall be deemed not to constitute gross negligence or wilful or wanton misconduct if such act or omission is done or omitted pursuant to the instructions of, or with the concurrence of, the Operating Committee or the Owners. Notwithstanding anything herein contained to the contrary, in no circumstances shall the Operator or any Owner be liable for any indirect or consequential damages or losses, including but not limited to any loss of profits, lost production, reservoir loss or damage or business interruption or losses the Operator or any such Owner may suffer or incur, arising out of or in any way relating to Operations; and the obligation of the Owners to indemnify the Operator pursuant to this Clause 7. 07 shall include but not be limited to any liability the Operator may have to any third Person for indirect or consequential losses or damages arising out of or in any way relating to Operations.

ARTICLE VIII

COSTS OF CONSTRUCTION AND OPERATIONS

 

8.01                   Production Facilities Account

 

The Operator shall set up the Production Facilities Account and, except as otherwise provided herein, all proper costs and expenses incurred by the Operator in connection with the Operations, Initial Production Facilities Construction and Subsequent Production Facilities Construction in accordance with this Agreement and the Accounting Procedure shall be for the Production Facilities Account.

8.02                   Division of the Production Facilities Account

 

The Production Facilities Account, and all statements forwarded by the Operator to the Owners with respect thereto, shall be divided into the following categories:

 

	
(a)  

	
"Capital Costs" which includes all capital expenditures including costs incurred for construction;

	
(b)  

	
"Fixed Operating Costs" which includes all fixed operating costs including costs incurred in respect of property taxes, surface rentals, fire and public liability or other insurance; and

	
(c)  

	
"Variable Operating Costs" which includes all variable operating costs including costs incurred in respect of testing, operating, repair and maintenance.

  

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8.03                   Pre-Plant Costs

 

Any and all expenses which would have been for the Production Facilities Account under this Agreement incurred prior to the Execution Date, including but not limited to Production Facilities site acquisition costs, soil analysis, water supply development costs and Plant engineering costs shall be for the Production Facilities Account. All billings, charges, credits and accounting for such expenses and Expenditures shall be made, determined and paid in accordance with this Agreement and the Accounting Procedure.

8.04                   Basis of Charges to Owners

 

	
(a)  

	
Except as otherwise provided in Operator shall initially pay this Agreement, and discharge the all Expenditures incurred for the Production Facilities Account. Each Owner shall reimburse the Operator for Capital Costs and_Fixed Operating Costs in proportion to that Owner's Production Facilities Participation and for Variable Operating Costs in the proportion that the Owner's share of Natural Gas and Outside Gas processed through the Plant each month bears to the total Natural Gas and Outside Gas processed through the Plant in such month. All billings, charges, credits and accounting for costs and expenses shall be in accordance with the Accounting Procedure and issued or made on a monthly basis in accordance with Clauses 8. 06 and 8. 07. Any dispute as to the proper allocation of costs hereunder shall be referred to the Operating Committee for their decision which shall be absolute and final for all purposes.

	
(b)  

	
Prior to the commencement of production, and prior to the commencement of each successive twelve (12) month period thereafter, the Operator shall consult with all Owners to the extent necessary to establish a forecast of Natural Gas and Outside Gas anticipated to be transported through the Gathering System and processed at the Plant for each Owner during the next ensuing twelve (12) month period, which forecast shall form the basis of the allocation of Variable Operating Costs to the Owners. Except with respect to the initial twelve (12) month period of production, the forecast for each Owner shall be based on actual Natural Gas and Outside Gas delivered by such Owner to the Plant during the immediately preceding twelve (12) month period, unless such Owner indicates its anticipated deliveries are expected to vary by more than five ( 5%) percent over the forecast period, and if so, the Operator will adjust the forecast for such Owner accordingly.

	
(c)  

	
During each month of production, each Owner shall reimburse the Operator for Variable Operating Costs incurred during the month in the proportion that the forecast of production of Natural Gas and Outside Gas for such Owner bears to the total forecast of production of Natural Gas and Outside Gas for all Owners.

	
(d)  

	
Within ninety (90) days after the end of each calendar year, the Variable Operating Costs incurred during such year shall be redistributed and allocated to the Owners in the proportion .that the actual volumes of Natural Gas and Outside Gas delivered to the Plant by each Owner during the period bears to the total volume of Natural Gas and Outside Gas delivered to the Plant by all Owners during the period.

8.05                   Forecasts

 

The Operator shall prepare an initial forecast covering estimated Expenditures for the first year or portion thereof of the term of this Agreement and, on or before the 1st day of November for each subsequent year, annual forecasts of Expenditures for the next twelve (12) month period ending on the 31st day of December. The annual forecast shall set forth separate estimates for Capital Costs and Operating Costs for quarterly periods beginning on the 1st day of January, the 1st day of April, the 1st day of July and the 1st day of October. If the Operating Committee does not approve a forecast or any portion thereof, such forecast or the portion thereof not approved shall be revised by the Operator within thirty (30) days in accordance with the instructions of the Operating Committee. A copy of each forecast and revised forecast shall be promptly furnished to each Owner. Approval of any forecast or revised forecast shall constitute approval of the Expenditures set forth therein, provided however, that notwithstanding such approval, the Operator shall not make any expenditure for any single undertaking estimated to cost more than the Expenditure Limit without the prior approval of the Operating Committee.

8.06                   Advance Billings for Capital Costs, Operating Expenses and Royalties

 

Notwithstanding any provisions in this Agreement to the contrary, the Operator may, at its election and in lieu of itself initially advancing Expenditures, or paying any Royal ties on behalf of the other Owners, require the Owners to advance their respective estimated share of such Expenditures or Royalties, as the case may be, in accordance with the applicable procedure outlined as follows:

 

	
(a)  

	
Capital Costs - on or before the 15th day of the relevant calendar month, the Operator may submit an estimate of Capital Costs for the succeeding calendar month to each of the Owners with a request for payment of the Owner's share determined in accordance with this Agreement, and each Owner shall pay such amount within thirty (30) days after receipt of a request therefor. Should any Owner fail or refuse to pay such amount within the said thirty ( 30) day period, the Operator may, in its discretion, exercise any remedies available to it, including but not limited to those set forth in Clause 8.10; and

	
(b)  

	
Operating Costs - the Operator may, at its election, establish a cash operating fund (herein called "the Operating Fund") and issue invoices with respect thereto to the Owners on a monthly basis in accordance with the Accounting Procedure, in an amount equal to ten (10%) percent of the Operating Costs proposed for a calendar year for the Operations as set forth and approved in the forecast referred to in Clause 8. 05. Upon the establishment of the Operating Fund, the Operator shall submit to each Owner an invoice on a monthly basis for such Owner's share determined in accordance with this Agreement and each Owner shall pay the invoiced amount within thirty (30) days after receipt thereof, thus maintaining the fund intact. Should any Owner fail or refuse to pay such amount within the said thirty (30) day period, the Operator may, in its discretion, exercise any remedies available to it including those set forth in Clause 8.10. If during any year the Operating Fund is determined by the Operator to be excessive or insufficient to cover the purpose for which it was intended, it may, with the approval of the Operating Committee, be increased or decreased from time to time by the Operator, and in this regard, the Operating Committee shall review and consider this matter whenever so requested by the Operator; and

	
(c)  

	
Royalties - In any circumstances where, in the opinion of the Operator acting reasonably, it is, by virtue of the provisions of either or both of the Regulations or the terms and conditions of the Leases, required to collect and remit Royal ties or other payments to any governmental agencies or authorities, the Operator may, on or before the 15th day of each calendar month, submit an estimate of such Royalties or other payments payable for the succeeding calendar month to each of the Owners with a request for payment, and each Owner shall pay such amount within thirty (30) days after receipt of the request therefor. Should any Owner fail or refuse to pay such amount within the said thirty (30) day period, the Operator may, in its sole and absolute discretion, exercise any remedies available to it, including but not limited to those set forth in Clause 8.10.

  

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Within ninety (90) days after the end of each calendar year, the amounts advanced by the Owners in respect of Capital Costs, Operating Expenses and Royal ties pursuant to this Clause 8. 06 shall be adjusted to reflect the actual amounts expended by the Operator on behalf of the Owners.

8.07                   Regular Billing

 

The Operator shall bill each Owner for its share of Expenditures or Royalties incurred or paid by the Operator, or to be advanced by the Owners to the Operator in accordance with this Agreement for the Production Facilities Account, in each calendar month in accordance with the Accounting Procedure. Except as otherwise provided herein, each Owner shall pay all such bills within thirty (30) days after receipt thereof. The Operator's monthly billing to the Owners shall reflect credit for any amount advanced pursuant to paragraph 8. 06 (a) and any differences between actual costs and expenses incurred and amounts as advanced shall be adjusted as required.

8.08                   Commingling of Funds

 

The Operator may commingle funds received by it under this Agreement with its own funds and with any other funds in its possession, provided however, that notwithstanding any such commingling, such funds shall, subject to the terms and conditions hereof and the rights of the Operator provided for hereunder, be deemed to have been received by the Operator in the capacity of agent for and on behalf of the Owners, and such funds shall only be applied to their intended use, retained by the Operator, paid over to the appropriate Owner or paid to any relevant governmental agency or authority entitled thereto, as the case may be, in accordance herewith.

8.09                   Interest on Overdue Accounts

 

If an Owner fails to pay any invoice rendered by the Operator when due and payable, the unpaid amount shall, in the sole discretion of the Operator, bear interest at a rate equivalent to the average monthly prime rate of interest quoted by the principal chartered bank in Canada used by the Operator plus a rate of two (2%) percent per annum from the due date until the accrued interest is paid, all such interest to be for the sole account of the Operator. A letter from such principal banker to the Operator stating the bank's rate of interest for the relevant period shall be conclusive and final proof as to the applicable rate of interest to be applied for the purposes of this Agreement.

8.10                   Operator’s Lien and Remedies

 

	
(a)  

	
The Operator shall have a lien on the Production Facilities Participation of each Owner in the Production Facilities, and on the proceeds of any sale of Processed Gas and Plant Products, to secure payment by each Owner of its proportionate share of Expenditures for the Production Facilities Account, or any Royal ties or other payments, incurred by the Operator, to be advanced by the Owners to the Operator or to be paid by the Operator on behalf of the Owners in accordance with this Agreement.

	
(b)  

	
Without limiting any other remedies or rights the Operator may have arising in law or equity, the Operator may, provided notice of default has been provided to the defaulting Owner, exercise any or all of the following remedies to secure payment of unpaid amounts due and payable by an Owner:

 

	
(i)  

	
withhold from such Owner any further information and privileges with respect to the Operations; or

 

	
(ii)  

	
treat the default or failure to pay as an immediate and automatic assignment to the Operator of the proceeds of the sale of such Owner's share of the Processed Gas and Plant Products, and the Operator may, by notice to the relevant purchaser accompanied by a copy of this Agreement, require such purchaser to pay the Operator all of the proceeds of such sale, and the Operator is hereby irrevocably constituted the attorney of such Owner for the purpose of executing all instruments and documents necessary to give effect to the foregoing;

	
(c)  

	
The books and records kept by the Operator with respect to this Agreement and its obligations hereunder shall be deemed to constitute conclusive proof of the existence or non-existence of any default, subject however, to rights of inspection, verification and audit as provided for in this Agreement or the Accounting Procedure.

8.11                   Contributions by Owners

 

If the Operator has not received or otherwise recovered full payment of a defaulting Owner's share of Expenditures within three (3) months following the date when the same were due and payable, each of the other Owners shall, upon being invoiced therefor by the Operator, contribute a portion of such unpaid amount, excluding accrued interest, determined by multiplying the total amount remaining unpaid by a fraction having as its numerator each such Owner's Production Facilities Participation and as its denominator the aggregate of the Production Facilities Participations of all the Owners exclusive of the Production Facilities Participation of the defaulting Owner, and after payment of the amount so determined by the Owners the Owners shall, to the extent of the contribution each has made, be subrogated to the Operator's rights of recovery from the defaulting Owner, except with respect to interest accrued on the amount contributed in favour of the Operator prior to payment of such amount by the Owner.

  

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ARTICLE IX

OWNERSHIP OF THE PRODUCTION FACILITIES

9.01                   Ownership and Participation

 

Each Owner shall own an undivided percentage interest in the Production Facilities equal to its Production Facilities Participation as set forth in Exhibit "A" as the same is amended from time to time. The Operator shall hold the Production Facilities in trust for the Owners to the extent of their rights thereto subject to and in accordance with the provisions of this Agreement.

9.02                   Capacity and Utilization

 

	
(a)  

	
As soon as reasonably possible after the Effective Date, the Operating Committee shall determine the Capacity of the Plant and Gathering System and all Laterals. Thereafter from time to time the Operating Committee may in its discretion revise its determination of the Plant and Gathering System or Lateral Capacity.

	
(b)  

	
Each Owner shall have the exclusive right to utilize that percentage of Capacity equal to its Production Facilities Participation as determined from time to time for the transportation and processing of Natural Gas and, with the approval of the Operating Committee, Outside Gas. Should an Owner desire to utilize the Excess Capacity of other Owners for transportation or processing of its Natural Gas or Outside Gas, it shall do so only with the approval and consent of, and upon such terms and conditions as may be determined by, the Operating Committee. If there is competition among Owners for the Excess Capacity it shall be prorated among the Owners based on the percentage that each competing Owner's Production Facilities Participation bears to the total Production Facilities Participation of all such competing Owners.

	
(c)  

	
Excess Capacity can be used for processing Outside Gas belonging to Non-Owners only with the prior approval of and on such terms and conditions as may be determined and imposed by the Operating Committee.

	
(d)  

	
If the Production Facilities cannot, in the opinion of the Operator acting reasonably, handle all Natural Gas and Outside Gas that the Owners and any approved Non-Owners wish to transport through the Gathering System for processing through the Plant on any day or portion thereof, the priority for transportation and processing shall be as follows:

 

	
(i)  

	
Owners' Natural Gas;

 

	
(ii)  

	
Owners' Outside Gas; and

 

	
(iii)  

	
Non-Owners' Outside Gas,

and all gas of a higher priority shall be transported and processed prior to the transportation and processing of any lower priority gas.

 

	
(e)  

	
In determining the terms and conditions upon which Excess Capacity may be utilized, the Operating Committee shall be required to, provide that the capital recovery portion of any processing fees or other revenue received shall be credited to the account of the Owners making the Excess Capacity available on a pro-rata basis in accordance with the Production Facilities Participations of such Owners.

9.03                   Adjustment of Ownership

 

Upon any disposal by an Owner of an interest in the Production Facilities, or upon an adjustment to Capacity that affects ownership and therefore Production Facilities Participation, or upon any other change in Production Facilities Participation made in accordance with this Agreement or any other applicable agreement or agreements, the Operator shall revise the Production Facilities Participations set forth in Exhibit "A" accordingly.

9.04                   Adjustment of Investment

 

Upon the effective date of any revision of Production Facilities Participation required pursuant to Clause 9. 03, the Operator shall, at the direction of the Operating Committee, adjust the respective investments of the Owners by such charges or credits to each Owner in the Production Facilities Account as the Operating Committee considers appropriate in the circumstances.

  

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9.05                   Expansion or Alteration of the Plant or Laterals

 

	
(a)  

	
The Owners, or any of them, may expand or otherwise alter Capacity on terms and conditions approved by a vote of the Operating Committee in accordance with subparagraph 4.04(c)(ii).

	
(b)  

	
An Owner shall not be required, without its written consent, to participate in any expansion of Capacity requiring expenditure of Capital Costs, but shall not be entitled to prohibit or restrict such expansion by any other Owners for their own account. Only participating Owners shall be entitled to a Production Facilities Participation in the expanded Capacity. Failing the agreement of all of the Owners to what the Production Facilities Participation of each Owner shall be following completion of the expansion, the Owners participating in the expansion shall, at their sole cost, risk and expense, undertake a performance test to determine such expanded Capacity. The expanded Capacity as so determined shall be allocated to the participating Owners in proportion to their agreed upon participations in the expansion, and Exhibit "A" shall thereupon be revised in accordance with Clause 2.02.

	
(c)  

	
The Production Facilities Participation in the Production Facilities shall be adjusted effective as of the date any Production Facilities expansion or alteration is completed, to reflect each Owner's revised share of Capacity, and the Operator shall adjust the Production Facilities Account pursuant to Clause 9. 04, provided however, that with respect to expansion, any non-participating Owner shall be entitled to the same volume of Capacity completion of the expansion as it had before participating Owners shall not be liable in any after Non-participating Owners shall not be liable in any way for any increase in Expenditures attributable to any expansion, and the Owners participating in the expansion shall indemnify and hold harmless the non-participating Owners from any losses, costs or damages that result therefrom.

 

ARTICLE X

TRANSFER, SALES AND ASSIGNMENTS

 

10.01                   Admission of New Owners

 

Except as otherwise provided for in Article X, a Non-Owner shall not become an Owner after the Effective Date except with the approval of and upon such terms and conditions as are prescribed by the Operating Committee.

10.02                   Permitted Dispositions of Interests in the Production Facilities

 

Notwithstanding the provisions of Clauses 10.03 and 10.04, an Owner may, without restriction, dispose of all or any portion of its interest in the Production Facilities in any of the following circumstances:

 

	
(a)  

	
a disposition by an Owner of an interest in the Production Facilities if it is in conjunction with the disposal of the Owner's corresponding working interest in its lands located in the Kotaneelee Area;

	
(b)  

	
a disposition by an Owner that is:

 

	
(i)  

	
in respect of its entire interest in the Production amalgamation, sale of all Facilities through merger, reorganization, consolidation or of its oil and gas producing properties in the Yukon Territories; or

 

	
(ii)  

	
in respect of the sale of all or any part of its interest in the Production Facilities to an Affiliate,

provided however, that it shall be a condition precedent to any unrestricted disposal to an Affiliate and acknowledgement thereof by the Operator that the disposing Owner shall have executed and delivered to the Operator a continuing guarantee of the obligations to be assumed by the Affiliate under this Agreement, to be in form and substance acceptable to the Operator, which guarantee shall provide, inter alia, that the guarantor waives notice of any extensions, modifications or amendments to this Agreement or to any Exhibit hereto, that no such extensions, modifications or amendments will release the guarantor from its obligations and that the guarantor will not be released by any waiver of any obligation of the Affiliate or by any indulgence or concession granted to it; or

 

	
(c)  

	
a disposition by an Owner by way of mortgage, pledge or hypothecation provided that any such mortgage, pledge or hypothecation shall provide that the mortgagee, pledgee or hypothecator shall hold the interest in the Production Facilities subject to all the terms and provisions of this Agreement and shall be required to assume all future and continuing obligations of the mortgagor, pledger or hypothecator under this Agreement

10.03                   Sale of an Interest in the Production Facilities

 

	
(a)  

	
If an Owner (hereinafter called the "Selling Owner") has received a bona fide offer for the purchase of any portion of its interest in the Production Facilities (hereinafter called the "Sale Interest") from any Person, whether or not an Owner, ready, willing and able to purchase the Sale Interest (hereinafter called the "Purchaser"), the Selling Owner shall promptly give to each other Owner, including the Purchaser if the Purchaser is an Owner, notice in writing of the offer received by it including full and complete details of the price and terms and conditions· of the offer, together with the name and address of the Purchaser and, if any portion of the consideration therein mentioned is not in cash, the Selling Owner shall stipulate the fair market value in cash of such consideration (hereinafter called the "Sale Notice"), and each of the  Owners receiving the Sale Notice shall have the right to purchase a share of the Sale Interest, or a portion thereof, rateably in accordance with their respective Production Facilities Participations in the following manner:

	
(i)  

	
within thirty (30) days of receipt of the Sale Notice those Owners (hereinafter called the "Purchasing Owners") who wish to purchase a rateable share of the Sale Interest, or a portion thereof, shall notify the Selling Owner of their election to purchase (hereinafter called the "first election") and if less than all of the Owners who received the Sale Notice so elect, each of the Purchasing Owners shall have a further period of fifteen (15) days after the expiry of the said thirty (30) day period to notify the Selling Owner of their election to purchase (hereinafter called the "second election") a rateable share, in accordance with the respective Production Facilities Participations of all Purchasing Owners of that portion of the Sale Interest not purchased in the first election, and if less than all of the Sale Interest is thereby purchased, each of the Purchasing Owners shall have a further period of five (5) days beyond the expiry of the said fifteen (15) day period to notify the Selling Owner of their election to purchase the remaining part of the Sale Interest or a portion thereof rateably in proportion to their Production Facilities Participations; and

	
(ii)  

	
notwithstanding anything contained elsewhere herein, if the Purchasing Owners do not elect to purchase all of the Sale Interest, none of the elections made in accordance with paragraph 10.03(a)(i) shall be effective, and the Selling Owner shall be at liberty, for a period of sixty (60) days after the expiry of the total time required for the operation of paragraph 10.03(a), to sell the entire Sale Interest to the Purchaser on the same terms and conditions specified in the Sale Notice. Thereafter, the provisions of paragraph 10.03(a) shall again apply.

	
(b)  

	
If a Selling Owner has not received a bona fide offer to purchase from any Person, but wishes to sell all or any portion of its interest in the Production Facilities, it may by notice in writing to each of the other Owners, offer to sell such interest at a stipulated price to each of the other Owners rateably according to their Production Facilities Participations, and the provisions of paragraph 10.03(a) shall apply, mutatis mutandis, to such offer of sale as if an offer had been made by a third party.

  

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10.04                   Conditions Imposed on Dispositions

 

No disposition by an Owner of all or any portion of an interest in the Plant shall be effective and binding upon the other Owners unless and until:

 

	
(a)  

	
the conditions set forth in Article X applicable to such disposition have been satisfied;

	
(b)  

	
the Person acquiring the interest (if not already an Owner) has executed and delivered to the Operator one (1) counterpart of this Agreement; and

	
(c)  

	
a true copy of the instrument evidencing such change in ownership has been delivered to the Operator.

10.05                   Change of Name

 

An Owner whose name is changed by due legal process shall notify the Operator of the change as soon as possible and supply such evidence of the change as the Operator may reasonably require.

ARTICLE XI

MEASUREMENT

11.01                   Equipment

 

	
(a)  

	
All Natural Gas and Outside Gas, when delivered to the Plant from a pipeline connected thereto, and all Processed Gas, when produced by the Plant and when delivered from the Plant, shall be measured by suitable meters of standard make furnished, installed, operated and maintained by the Operator for the Production Facilities Account or gauged by such means as approved by the Operating Committee. Positive displacement meters used for measuring hereunder shall be calibrated in a manner consistent with normal industry practice.

	
(b)  

	
Each Owner delivering Natural Gas or Outside Gas shall, at its sole cost, risk and expense, install metering facilities and sampling facilities of a standard make downstream of the fuel takeoff at each of its wells producing Natural Gas or Outside Gas for the purpose of measuring and analyzing Natural Gas and Outside Gas delivered to the Plant. The Operator, accompanied by an Owner so desiring, shall at all reasonable times have access to the said metering facilities and sampling facilities for the purpose of reading, calibrating and checking the same and shall use the results of such sampling and measuring and of any analyses performed as shall be reasonably required to allocate Processed Gas pursuant to Article XII hereof.

	
(c)  

	
Where, during any month, the volumes of Natural Gas and Outside Gas delivered to the Plant as indicated by any Plant meters installed pursuant to paragraph 11.01(a) are different from the total volumes of Natural Gas and Outside Gas as indicated by meters at a well or wells upstream of the Plant meters, the volumes as measured by the Plant meters shall be deemed conclusively to be correct. Any differences will be prorated by the Operator and allocated to each well upstream of the Plant meters in the proportion that the volume of Natural Gas or Outside Gas as indicated by the relevant well meter is of the total volume of Natural Gas and Outside Gas as indicated by all well meters, taking into account in a manner approved by the Operating Committee, usage or loss of Natural Gas and Outside Gas downstream of any well meter and upstream of the Plant meters. Any dispute as to the proration by the Operator of Natural Gas and Outside Gas hereunder shall be referred to the Operating Committee whose decision with respect thereto shall be absolute and final for all purposes.

11.02                   Accuracy

 

	
(a)  

	
The accuracy of the measuring equipment shall be verified at annual intervals commencing after the Execution Date and all meters shall be open to inspection at reasonable times by any Owner in the presence of a member of the Operator's staff. In case any question arises as to the accuracy of measurement, any meter shall be tested upon demand of an Owner and, if found to be correct or to be in error by not more than two (2) percent with respect to gas measurement or not more than one half of one (1/2%) percent with respect to liquid measurement, the expense of such testing shall be borne by the Owner demanding it, but the expense shall be for the Production Facilities Account if found to be incorrect by more than two (2%) percent with respect to gas measurement or more than one half of one (1/2%) percent with respect to liquid measurement.

	
(b)  

	
If, upon any test, measuring equipment is found to be in error by not more than two (2%) percent with respect to gas measurement or not more than one half of one (1/2%) percent with respect to liquid measurement, previous readings of such equipment shall be considered correct in computing the volumes being metered, but such equipment shall be adjusted properly at once to record accurately. If, upon any test, any measuring equipment shall be found to be inaccurate by any amount more than two (2%) percent with respect to gas measurement or more than one half of one (1/2%) percent with respect to liquid measurement, then any previous readings of such equipment shall be corrected to zero (0) error for any period which is known definitely or agreed upon, but in case the period is not known definitely or agreed upon, such correction shall be for a period covering the last half of the time elapsed since the date of the last test.

	
(c)  

	
In the event the measuring equipment is out of service or out of repair so that the volume being measured is not correctly indicated by the reading thereof, the volumes attributable to the period shall be estimated and agreed upon on the basis of the best data available, using the first of the following methods which is feasible:

	
(i)  

	
by using the registration of any check measuring equipment, if installed and accurately registering; or

	
(ii)  

	
by correcting the error if the percentage of error is ascertained by calibrations, test or mathematical calculations; or

	
(iii)  

	
by estimating on the basis of actual volumes measured during the preceding periods under similar conditions when the meter was registering accurately.

	
(d)  

	
The Operator shall preserve all original test data, charts and other similar records for a period of at least six (6) years.

  

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11.03                   Unit of Volume and Weight

 

	
(a)  

	
The unit of volume of gas for all purposes hereunder shall be one thousand (1,000) cubic metres (E3m3) at an absolute pressure of 101.325 kilopascals (kPa) at a temperature of fifteen (15) degrees Celsius.

	
(b)  

	
The unit of volume of liquids for all purposes hereunder shall be one (1) cubic metre (m3) as defined in the Weights and Measures Act.

11.04                   Determination of Volume

 

	
(a)  

	
Volumes of gas shall be computed in accordance with the methods prescribed in the publication entitled "Gas Measurement Committee Report No. 3, Natural Gas Department, American Gas Association", appendix thereto as published in April, including the 1955, and as may be subsequently revised, provided such revisions are approved by the Operating Committee. The volumes of gas shall be corrected for deviation from Boyle's Law and the factor for correction for such deviation shall be computed in accor'-.1nce with the methods set forth in "Supercompressibility Factors for Natural Gas", Volumes 1 through 6, inclusive, or in "Tables for the Determination of Supercompressibility Factors for Natural Gas Containing Nitrogen and/or Carbon Dioxide", Volume 7 as published by the American Gas Association in 1955 or any subsequent revisions thereto.

	
(b)  

	
Volumes of liquids shall be computed taking into consideration the compressibility and specific gravity, if applicable, and volumes so measured shall be corrected to fifteen (15) degrees Celsius employing the volume correction tables approved by the Operating Committee.

11.05                   Assumed Atmospheric Pressure

 

The average absolute pressure shall be assumed to be 94.5 kPa (13.7 pounds per square inch).

11.06                   Analysis of Natural Gas and Outside Gas

 

	
(a)  

	
The Natural Gas and Outside Gas shall be sampled and measured at such times and such locations as the Operator, in its discretion, determines are required, and the sample so taken shall be analyzed for any or all of the following:

	
(i)  

	
the mol percent of each hydrocarbon constituent present from methane to hexanes plus, and the mol percent of carbon dioxide, hydrogen sulphide and nitrogen;

	
(ii)  

	
the quantities of hydrocarbons heavier than butane;

	
(iii)  

	
the quantities of sulphur and sulphur compounds; and

	
(iv)  

	
the quantities of water.

	
(b)  

	
The cost of all measuring and sampling shall be for the Production Facilities Account.

ARTICLE XII

DELIVERY OF NATURAL GAS AND OWNERSHIP OF PROCESSED GAS

 

12.01                   Commitment to Deliver to the Production Facilities

 

Subject to the provisions of this Agreement, each Owner hereby irrevocably commits and dedicates all of its Natural Gas for transportation and processing through the Production Facilities, and each Owner shall deliver or cause to be delivered to the Operator, all of the Owner's Natural Gas, subject to the availability of Capacity in the Production Facilities.

12.02                   Owner’s Share of Processed Gas and Plant Products

 

	
(a)  

	
The Operator shall be entitled to commingle all Processed Gas and Plant Products regardless of the source of the same prior to delivery to the Delivery Point for Processed Gas.

	
(b)  

	
Subject to paragraph 12.02(c), each Owner's share of the Processed Gas in a month shall be that fraction of the total quantity of Processed Gas produced in the month, having as its numerator the total volume of Natural Gas and Outside Gas delivered by or on behalf of the Owner to the Plant in the month (after correction for water and heating value) and as its denominator the total volume of Natural Gas and Outside Gas delivered by or on behalf of all Owners to the Plant in the month (after correction for water and heating value).

	
(c)  

	
Where, from time to time in the sole and absolute judgment of the Operating Committee, there is a significant difference in the analyses of various gas streams being delivered to the Plant and where, from time to time in the sole and absolute judgment of the Operating Committee, said variations in gas analyses should result in the Owner's respective share of Processed Gas being allocated on a basis differing from that set forth in paragraph 12.02 (b) of this Clause 12.02, then the said basis upon which Processed Gas is to be allocated shall be varied as absolutely determined by the Operating Committee to take into account, and only to take into account, the said variation in gas analyses.

  

25

  

12.03                   Allocation of Outside Gas Plant Products

 

The Operating Committee shall determine the basis upon which Plant Products recovered from Outside Gas are allocated among the Owners and Non-Owners.

12.04                   Losses in handling or Flaring

 

Each Owner shall bear any losses incurred or realize any benefits obtained from the Operations during the month, whether due to evaporation, flaring, testing or other handling or measurement of Natural Gas, Outside Gas, Processed Gas or Plant Products, if any, in the proportion that the Owners' Natural Gas and Outside Gas transported and processed through the Production Facilities bears to the total Natural Gas and Outside Gas of all Owners that is transported and processed through the Production Facilities during the relevant month, provided however, that to the extent that the Operator can identify the Owner or Owners of all or any portion of any losses, or determines that a certain Owner or Owners has caused all or any portion of any losses, the Operator may, in its solE discretion, assign such losses to the relevant Owner or Owners.

12.05                   Warranty of Owners

 

Each Owner warrants and represents to all other Owners that it has the right to produce and deliver its share of the Natural Gas and any Outside Gas to the Plant, to have the same processed through the Plant, and to dispose of the Processed Gas and Plant Products in accordance with the terms and conditions of this Agreement and any relevant sales contract, and each such Owner hereby agrees to indemnify and hold harmless the Operator and the other Owners from all costs and expenses that may be incurred by the Operator and such Owners arising out of any actions, causes of action, claims or demands that have been or may be made against that Owner by any Non-Owner or governmental authority that has or claims to have an interest in the Natural Gas, Outside Gas, Processed Gas or Plant Products, as the case may be.

12.06                   Payment of Royalties and Indemnification

 

	
(a)  

	
The Owners shall, upon the request of the Operator, forthwith provide to the Operator all information the Operator may reasonably require in order to meet any reporting or other obligations the Operator may have in respect of Royalties or other information or payments pursuant to the Regulations.

	
(b)  

	
Except as otherwise provided by in paragraph 8. 06 (c), each Owner shall pay or be responsible for the calculation and payment of its share of all Royalties, overriding royalties, production payments, taxes (other than property taxes payable by the Operator for the joint account of the Owners established pursuant hereto) or any other charges or payments that are or may be payable in respect of the production of such Owner's Natural Gas or Outside Gas or the sale of such Owners' Processed Gas or Plant Products, and each Owner hereby agrees to indemnify and hold harmless the Operator and the other Owners from and against any and all costs, expenses or liabilities they may suffer or incur by reason of any failure of such Owner to satisfy any of its obligations as aforesaid.

ARTICLE XIII

EFFECTIVE DATE OF TERM OF AGREEMENT

 

13.01                   Effective Date

 

The Effective Date of this Agreement shall be 8:00 a.m. on the 1st day of December, 1980.

13.02                   Term of Agreement

 

Notwithstanding anything herein contained to the contrary, this Agreement shall remain in full force and effect until all of the provisions of Article XIV have been complied with.

  

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ARTICLE XIV

TERMINATION

14.01                   Obligations on Termination

 

Upon a decision by the Operating Committee to cease Operations and to terminate this Agreement, the Operator shall comply with the reasonable directions of the Operating Committee with respect thereto and shall, as soon as is practical in the circumstances:

 

	
(a)  

	
apply for any permits or approvals as may be required from any governmental authority having jurisdiction that may in any way be required to terminate the Operations and salvage or dispose of the Product-ion Facilities;

	
(b)  

	
to the extent it is economically and reasonably justified in the circumstances, salvage or otherwise dispose of the Production Facilities; and

	
(c)  

	
conduct all reclamation and other clean-up operations as may be required by governmental authorities having jurisdiction.

14.02                   Allocation of Benefits and Costs

 

All costs of salvage, liquidation or other distribution of the Production Facilities and any benefits realized therefrom, shall be for the Production Facilities Account, and if the costs exceed the proceeds of disposition received by the Operator, the Operator shall be entitled to set-off such costs against any funds in its possession due and payable to the Owners, and to invoice such Owners to the extent that such funds are not available or sufficient to reimburse the Operator for the remainder.

14.03                   Advance of Costs for Reclamation

 

Notwithstanding anything herein contained to the contrary, the Operator may, with the concurrence of the Operating Committee, at any time within the last three (3) years projected for continuance of Operations, estimate the total cost of reclamation of the Production Facilities in accordance with the Regulations and good oilfield practice. The Operator may, upon completion of such estimate, cash call each of the Owners for their proportionate share of the costs so estimated, which funds when received by the Operator shall be placed in a separate interest bearing trust account, to be utilized solely for the purpose of such reclamation operations and with the excess, if any, available after final completion thereof to be refunded to the Owners in the proportion of their respective Production Facilities Participations. If at any time the Operator is of the view, acting reasonably, that the funds held by it in trust in this regard will be insufficient for the purpose intended, it may issue further cash calls. In lieu of payment of the aforementioned cash calls, any Owner may provide security to the Operator to ensure payment of such Owner's share of the reclamation costs as estimated by the Operator, provided such security is in a form acceptable to the Operator acting reasonably.

ARTICLE XV

FORCE MAJEURE

15.01                   Force Majeure

 

	
(a)  

	
Performance under this Agreement by the Operator and the Owners, except for the payment of money, is excluded to the extent that such performance is prevented or materially affected by strikes, lockouts, civil disturbances, riots, fires, floods, tornadoes, lightning, "landslides, earthquakes, storms, breakage of or accident to machinery or lines of pipe, explosions, acts of God or the Queen's enemies, applicable Provincial, Territorial or Federal Government Laws, orders, rules and regulations, injunctions or other legal proceedings based upon any claim or infringement of any letters patent, inability or delay in obtaining rights-of-way, permits, easements, materials or supplies, failure of purchasers to take Processed Gas from Owners, and other happenings (except financial), whether similar or dissimilar to the foregoing, that  are beyond the reasonable control of the Operator or of the Owners claiming to be excused, not resulting from the fault or negligence of the Operator or the Owner claiming an event of force majeure, but the Operator or the Owner claiming same shall use reasonable diligence to put itself again in a position to continue to carry out its  obligations hereunder.

	
(b)  

	
Nothing herein contained shall be construed to require the Operator or any Owner to settle a strike or lockout by acceding against its judgment to the demands of opposing persons in any labour dispute.

	
(c)  

	
Where the performance of the Operator or of an Owner is prevented or materially affected as aforesaid, the Operator or the affected Owner shall give notice and full particulars to the other Owners within a reasonable time after the occurrence of the cause relied upon.

  

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ARTICLE XVI

UNITED STATES TAXES

 

16.01                   United States Tax Provision

 

The Parties hereto agree that if, for purpose of the United States Internal Revenue Code of 1954 or 1986, as the case may be, (the “Code” this Agreement or the relationship established hereby constitutes a partnership as defined in Section 76l(a) of the Code, each of the Parties hereto who are entitled under Section 76l(a) of the Code to elect, hereby elect to have the partnership excluded from the application of Subchapter K of Chapter 1 of Subtitle A of the Code, or such portion thereof as the Secretary of the Treasury of the United States or his delegate shall permit by election to be excluded therefrom. The Operator is authorized to execute such election on behalf of the Parties who are entitled to make such an election and to file such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal Revenue Service, including specifically, but not by way of limitation, all of the returns, statements and data required by the Code and applicable Regulations. Should there by any requirement that each of the Parties who dre entitled to elect file further evidence of this election, each Party who is entitled to make such election agrees to execute or join in the execution thereof. Nothing in this Agreement, including the execution hereof, shall render any Party liable for United States taxes if such Party was not otherwise liable for such taxes.

ARTICLE XVII

MISCELLANEOUS PROVISIONS

 

17.01                   Relationship of the Owners

 

The Owners shall hold their interests in and to the Plant as tenants in common and it is not the intention of the Owners to create a partnership. The duties, obligations and liabilities of the Owners are intended to be separate and not joint or collective, and nothing contained in this Agreement or in any agreement made pursuant hereto shall ever be construed to create a partnership, or to impose upon any one or more of the Owners a partnership duty, obligation or liability. Each Owner shall be individually responsible only for its own obligations as set forth in this Agreement and, except as otherwise provided for herein, shall be liable only for its proportionate share, based on its Production Facilities Participation, of the costs, expenses and liabilities incurred in respect of the Plant or arising out of the Operations.

17.02                   Interpretation

 

	
(a)  

	
The captions or headings used in this Agreement are inserted solely for convenience and shall not be considered or given any effect in interpreting this Agreement or in ascertaining the intent of the Owners.

	
(b)  

	
References to Articles, Clauses, paragraphs or subparagraphs shall be references to Articles, Clauses, paragraphs or subparagraphs of this Agreement unless the context otherwise requires.

	
(c)  

	
References to days or months in this Agreement shall, unless specified or the context requires otherwise, mean calendar days or months.

	
(d)  

	
Where, in this Agreement, the date specified or determined for the giving or receiving of a notice, occurrence of an event or performance of an obligation falls on a Saturday, Sunday, statutory holiday or day when the offices of a Party affected thereby and required to give or receive the notice or performed the obligation are closed for a non-statutory holiday, such date shall be extended to the next business day after any such Saturday, Sunday, statutory holiday or non-statutory holiday.

17.03                   Number and Gender

 

In this Agreement, words importing the singular include the plural and vice versa; words importing the masculine gender include the feminine and vice versa; and words importing persons include firms or corporations and vice versa.

17.04                   Execution in Counterpart

 

This Agreement may be executed in as many counterparts as are necessary and all counterparts together shall constitute one (1) Agreement.

17.05                   No Partitioning

 

An Owner shall not resort to any action at law or in equity for partition or sale in lieu of partition of the Production Facilities or any portion thereof. Each Owner hereby waives the benefit of all laws relating to partitioning or sale in lieu of partitioning insofar as the Production Facilities are concerned.

  

28

  

17.06                   Laws and Regulations

 

This Agreement and the rights and obligations of the Operator and the Owners are subject to all present and future laws, rules, regulations and orders of any legislative body or duly constituted authority now or hereafter having jurisdiction.

17.07                   Time

 

In this Agreement all times are Mountain Standard Time as the same are adjusted by any Alberta legislation pertaining to daylight savings time.

17.08                   Applicable Laws

 

This Agreement and the rights and obligations of the Parties shall be governed by and construed in accordance with the laws of Canada and of the Province of Alberta and the Courts having initial exclusive jurisdiction with respect to all matters pertaining hereto shall be the Courts of original jurisdiction for the Province of Alberta.

17.09                   Waivers

 

No waiver by or on behalf of an Owner of any breach of a provision of this Agreement shall be binding upon the Owner unless it is expressed in writing and duly executed by the Owner or signed by its fully authorized representatives and such a waiver shall not operate as a waiver of any future breach whether of a like or different character.

17.10                   Suits

 

An Owner who is sued or otherwise becomes aware of an alleged cause of action arising out of the Operations conducted hereunder shall forthwith notify every other Owner.

17.11                   Further Assurances

 

Each of the Owners shall, from time to time and at all times, do all such further acts and execute and deliver all such deeds and documents as shall be reasonable required in order to fully perform and carry out the terms of this Agreement.

17.12                   No Implied Covenants

 

The Owners have expressed herein their entire understanding and agreement concerning the subject matter of this Agreement and no implied covenant, condition, term or reservation shall be read into this Agreement relating to or concerning such subject matter nor shall any oral or written understanding heretofore entered into modify or compromise any of the terms and conditions herein.

17.13                   Notices and Communications

 

All notices or communications hereunder shall be in writing and, in lieu of personal service, may be given or made by prepaid telecommunication device or by mailing same (except during periods of actual or anticipated postal disruption or other labour disturbances that may effect the mail delivery) in a sealed and properly addressed envelope with postage prepaid. Notices or communication shall be deemed to have been received twelve (12) hours after the sending thereof in the case of a telecommunication device and seventy-two (72) hours after the date of mailing in the case of mailing, in either case excluding Saturdays, Sundays, statutory holidays and the addressee's non-statutory holidays. The addresses of the Parties for purposes of this Clause shall be as follows:

Amoco Canada Petroleum Company Ltd.

P. O. Box 200, Station “M”

Calgary, Alberta

T2P 2H8

Telefax No. 231-6750

Attention: General Manager, Joint Interests

  

29

  

Mobil Oil Canada

Box 800

Calgary, Alberta

T2P 2J7

Telefax No. 260-4302

Attention: Joint Venture Department

Anderson Oil & Gas Inc.

#2300, 700-9th Ave. s.w.

Calgary, Alberta

T2P 3V4

Telefax No. (403) 266-4555

Attention: Vice-President Operations

Amoco Canada Resources Ltd.

P.O. Box 200, Station "M"

Calgary, Alberta

T2P 2H8

Telefax No. 231-6750

Attention: General Manager, Joint Interests

Esso Resources Canada Limited

P.O. Box 2480, Station "M"

237-4th Avenue S.W.

Calgary, Alberta

T2P 3M9

Telefax No. 237-2197

Attention: Associate Operations

Any Party may from time to time change its address for service hereunder by written notice to the other Parties

.

Mobil Oil Canada

Box 800

Calgary, Alberta

T2P 2J7

Telefax No. 260-4302

Attention: Joint Venture Department

Columbia Gas Development of Canada Ltd.

1000, 639 - 5 Avenue S.W.

Calgary, Alberta

T2P OM9

Telefax No. (403) 290-1719

Attention: Drilling and Production Department

  

30

  

Amoco Canada Resources Ltd.

P. 0. Box 200, Station "M"

Calgary, Alberta

T2P 2H8

Telefax No. 231-6750

Attention: General Manager, Joint Interests

Esso Resources Canada Limited

P. 0. Box 2480, Station "M"

237 - 4 Avenue S.W.

Calgary, Alberta

T2P 3M9

Telefax No. 237-2197

Attention: Associate Operations

Any Party may from time to time change its address.for service hereunder by written notice to the other Parties.

 

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

 

	 	DEVON CANADA CORPORATION	 
	 	 	 	 
	
Date: November 27th 2001

	
Per:

	/s/ K.L. Stashin, P. Eng.	 
	 	 	

K.L. Stashin, P. Eng.

	 
	 	 	

Vice President, Operations

	 
	 	 	 	 

 

Address for Service:

Devon Canada Corporation

1600, 324- 8th Avenue S.W.

Calgary, Alberta, T2P 2Z5

 

This is the execution page of the Agreement for the Construction, Ownership and Operation of the Kotaneelee Production Facilities.

 

  

31

  

17.14                   ENUREMENT

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

	 	DEVON AOG CORPORATION	 
	 	 	 	 
	
Date: November 27th 2001

	
Per:

	/s/ K.L. Stashin, P. Eng.	 
	 	 	

K.L. Stashin, P. Eng.

	 
	 	 	

Vice President, Operations

	 
	 	 	 	 

 

Address for Service:

Devon AOG Corporation

1600, 324- 8th Avenue S.W.

Calgary, Alberta, T2P 2Z5

 

This is the execution page of the Agreement for the Construction, Ownership and Operation of the Kotaneelee Production Facilities.

 

 

  

32

  

 

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

 

	 	ESSO RESOURCES CANADA	 
	 	 	 	 
	
Date: March 28, 1991

	 		 
	 	 	 	 
	 	 	 	 
	 	 	 	 

 

This is the execution page of the Agreement for the Construction, Ownership and Operation of the Kotaneelee Production Facilities.

 

  

33

  

 

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

 

	 	

AMOCO CANADA PETROLEUM COMPANY LTD.

	 
	 	 	 	 
	
 

	
Per:

	 	 
	 	 	 	 
	 	

Per:

	 	 
	 	 	 	 
	 	 	 	 
	 	

CANADIAN SUPERIOR OIL LTD.

	 
	 	 	 	 
	 	

Per:

	 	 
	 	 	 	 
	 	

Per:

	 	 
	 	 	 	 
	 	 	 	 
	 	

COLUMBIA GAS DEVELOPMENT OF CANADA LTD.

	 
	 	 	 	 
	 	 		 
	 	 	 	 
	 	 	 	 
	 	

AMOCO CANADA RESOURCES LTD.

	 
	 	 	 	 
	 	

Per:

	 	 
	 	 	 	 
	 	

Per:

	 	 
	 	 	 	 
	 	 	 	 
	 	

ESSO RESOURCES CANADA LIMITED

	 
	 	 	 	 
	 	 		 

  

34

  

 

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

 

	 	

AMOCO CANADA PETROLEUM COMPANY LTD.

	 
	 	 	 	 
	
 

	Per:	 	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	 	 	 
	 	

CANADIAN SUPERIOR OIL LTD.

	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	 	 	 
	 	

ANDERSON OIL & GAS INC.

	 
	 	 	 	 
	 	Per:		 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	 	 	 
	 	

AMOCO CANADA RESOURCES LTD.

	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	 	 	 
	 	

ESSO RESOURCES CANADA LIMITED

	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	Per:	 	 

 

  

35

  

.

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

 

	 	

AMOCO CANADA PETROLEUM COMPANY LTD.

	 
	 	 	 	 
	
 

	Per:		 
	 	 	 	 
	 	 	 	 
	 	

CANADIAN SUPERIOR OIL LTD.

	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	 	 	 
	 	

COLUMBIA GAS DEVELOPMENT OF CANADA LTD.

	 
	 	 	 	 
	 	Per:		 
	 	 	 	 
	 	 	 	 
	 	

AMOCO CANADA RESOURCES LTD.

	 
	 	 	 	 
	 	Per:		 
	 	 	 	 
	 	 	 	 
	 	

ESSO RESOURCES CANADA LIMITED

	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	Per:	 	 

 

  

36

  

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

 

	 	

AMOCO CANADA PETROLEUM COMPANY LTD.

	 
	 	 	 	 
	
 

	
Per:

	 	 
	 	 	 	 
	 	

Per:

	 	 
	 	 	 	 
	 	 	 	 
	 	

CANADIAN SUPERIOR OIL LTD.

	 
	 	 	 	 
	 	

Per:

		 
	 	 	 	 
	 	 	 	 
	 	

COLUMBIA GAS DEVELOPMENT OF CANADA LTD.

	 
	 	 	 	 
	 	

Per:

	 	 
	 	 	 	 
	 	 	 	 
	 	

AMOCO CANADA RESOURCES LTD.

	 
	 	 	 	 
	 	

Per:

	 	 
	 	 	 	 
	 	

Per:

	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	

ESSO RESOURCES CANADA LIMITED

	 
	 	 	 	 
	 	

Per:

	 	 
	 	 	 	 
	 	

Per:

	 	 

 

  

37

  

 

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

 

 

	 	

AMOCO CANADA PETROLEUM COMPANY LTD.

	 
	 	 	 	 
	
 

	Per:	 	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	 	 	 
	 	

CANADIAN SUPERIOR OIL LTD.

	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	 	 	 
	 	

COLUMBIA GAS DEVELOPMENT OF CANADA LTD.

	 
	 	 	 	 
	 	Per:		 
	 	 	 	 
	 	 	 	 
	 	

AMOCO CANADA RESOURCES LTD.

	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	 	 	 
	 	

ESSO RESOURCES CANADA LIMITED

	 
	 	 	 	 
	 	Per:	 	 
	 	 	 	 
	 	Per:	 	 

  

38

  

 

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

	Date: November 27th 2001	DEVON AOG CORPORATION	 
	 	 	 	 
	
 

	
Per:

	/s/ K.L. Stashin, P. Eng.	 
	 	 	
K.L. Stashin, P. Eng.

	 
	 	 	
Vice President, Operations

	 
	 	 	 	 

 

Address for Service:

Devon AOG Corporation

1600, 324- 8th Avenue S.W.

Calgary, Alberta, T2P 2Z5

 

This is the execution page of the Agreement for the Construction, Ownership and Operation of the Kotaneelee Production Facilities.

 

  

39

  

 

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

	Date: November 27th 2001	DEVON CANADA CORPORATION	 
	 	 	 	 
	
Date

	
By: 

	/s/ K.L. Stashin, P. Eng.	 
	 	 	

K.L. Stashin, P. Eng.

	 
	 	 	

Vice President, Operations

	 
	 	 	 	 

 

Address for Service:

Devon Canada Corporation

1600, 324- 8th Avenue S.W.

Calgary, Alberta, T2P 2Z5

 

This is the execution page of the Agreement for the Construction, Ownership and Operation of the Kotaneelee Production Facilities.

  

40

  

 

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

	Date: October 1, 2003	DEVON CANADA	 
	 	 	 	 
	
 

	
By: 

	/s/ K.L. Stashin, P. Eng.	 
	 	 	

K.L. Stashin, P. Eng.

	 
	 	 	

Vice President, Operations

	 
	 	 	 	 

 

ADDRESS FOR SERVICE:

DEVON CANADA

2000, 300 Fourth Avenue SW

Calgary, Alberta, T2P 4H2

Fax No.: 403-232-7102

 

EXECUTION PAGE OF THE AGREEMENT FOR THE

CONSTRUCTION,OWNERSHIP AND OPERATION OF THE

KOTANEELEE PRODUCTION FACILITIES

  

41

  

 

17.14                   ENUREMENT

 

This Agreement shall enure to the benefit of and be binding upon the Parties, their heirs, successors and permitted assigns.

17.15.1                   Time of the Essence

 

Time is of the essence of this Agreement.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the Effective Date

 

	 	EFLO ENERGY YUKON LTD.	 
	 	 	 	 
	
Date: July 18, 2012

	
By: 

	/s/ Keith Macdonald	 
	 	 	

Keith Macdonald, CEO

	 
	 	 	 	 
	 	 	 	 

This is the execution page of the Agreement for the Construction, Ownership and Operation of the Kotaneelee Production Facilities.

  

42

  

EXHIBIT “A-1”

TO THE KOTANEELEE PRODUCTION FACILITIES

CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT

 

	
OWNERS

	 	
PRODUCTION

FACILITIES

PARTICIPATION

	 
	  	 	
%

	 
	  	 	 	 
	
EFLO Energy Yukon Ltd.

	 	 	22.9893495	 
	
Canada Southern Petroleum #1 L.P.

	 	 	30.6636000	 
	
Apache Canada Ltd.

	 	 	34.6465330	 
	
ExxonMobil Canada Energy

	 	 	1.3000575	 
	
Imperial Oil Resources Limited

	 	 	10.4004600	 
	  	 	 	 	 
	  	 	 	100.000000	 
	  	 	 	 	 
	  	 	 	 	 
	
Magellan (carried)

	 	 	2.66640000	 

  

43

  

EXHIBIT “A-2”

TO THE KOTANEELEE PRODUCTION FACILITIES

CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT

 

LIST OF WELLS

	
WELL NAME

	 	
LOCATION

	  	 	  
	
Columbia et al

	 	
Lat     60o06’45”N

	
Kotaneelee YT M-17

	 	
Long  124o03’30”W

	  	 	
Sec     17

	  	 	  
	
Canada Southern et al

	 	
Lat     60o06’41.57”N

	
N Beaver R YT I-27

	 	
Long  124o03’52.66”W

	  	 	
Sec     27

	  	 	  
	
Columbia et al

	 	
Lat     60o06’27”N

	
Kotaneelee YT E-37

	 	
Long  124o06’07’16”W

	  	 	
Sec     37

	  	 	  
	
Columbia et al

	 	
Lat     60o07’16”N

	
Kotaneelee YT B-38

	 	
Long  124o06’03”W

	  	 	
Sec     38

	  	 	  
	
Columbia et al

	 	
Lat     60o07’35.917”N

	
Kotaneelee YT I-48

	 	
Long  124o07’36.45”W

	  	 	
Sec     48

	  	 	  
	
Devon et al

	 	
Lat     60o07’32.4”N

	
Kotaneelee L-38

	 	
Long  124o07’22.5”W

	  	 	
Sec     38

	  	 	  

  

44

  

 

EXHIBIT “B-1”

TO THE KOTANEELEE PRODUCTION FACILITIES

CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT

MAP OF THE KOTANEELEE AREA

 

 

  

45

  

EXHIBIT “B-2”

TO THE KOTANEELEE PRODUCTION FACILITIES

CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT

MAP IDENTIFYING THE LOCATION OF

THE PRODUCTION FACILITIES

 

 

  

46

  

EXHIBIT “B-2”

TO THE KOTANEELEE PRODUCTION FACILITIES

CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT

DESCRIPTION OF THE PRODUCTION FACILITIES

	
1.  

	
PLANT:

 

	
(a)  

	
Location:                                      60o 07’ 0.05” N latitude

 

125o 3’ 17.758” W longitude

 

At Monument PBH

 

Kotaneelee Area, Yukon Territories

 

	
(b)  

	
Inlet Design Capacity:                                      2,000 x 103m3/day

 

	
(c)  

	
Description:

 

The Plant includes the Gas Plant Property, all associated processing facilities and all real and personal property of every kind associated therewith, commencing at the Plant Inlet and Natural Gas and ending at the Delivery Point for Processed Gas, including but not limited to:

	
(i)  

	
processing facilities including separation, gas dehydration, utility heating, electric power generation, fuel gas sweetening and produced water storage and disposal;

	
(ii)  

	
plant office, warehouse and heavy duty equipment shop; and

	
(iii)  

	
the gas transmission line between the Plant Outlet for Processed Gas the the meter station adjacent to Westcoast Transmission Company Limited's pipeline right-of-way.

	
2.  

	
GATHERING SYSTEM:

	
(a)  

	
The Gathering System includes:

	
(i)  

	
wellsite facilities for each well including, facilities for separation, gas cooling, chemical injection, flare system and pneumatic and electric power systems;

	
(ii)  

	
six (6”) inch Gas Gathering Pipeline System identified as Laterals I, II and III on Exhibit “B-4”;

	
(iii)  

	
two (2”) inch water gathering system as shown in blue on Exhibit, “B-4”; and

	
(iv)  

	
road system from the airstrip to Well sites as shown on Exhibit “B-4”.

  

47

  

	
3.  

	
COMMON FACILITIES:

 

	
(a)  

	
General – See Exhibit “B-2”

 

	
(i)  

	
Functional Unit No. 1 - Road, Bridge and Barge Landing - 19.94 kilometers of road from the airstrip located in the Yukon Territory to the 152 metre x 152 metre barge landing located at Monument C-33, 60° 01” 31.696” N latitude and 123° 15’ 22.309” W longitude, on the Liard River in the Northwest Territories, including a 94.4 metre long by 5 metre wide three span Bailey Bridge which crosses the La Biche River.

	
(ii)  

	
Functional Unit No. 2- Permanent Camp: 22 man camp (91 metres long and 91 metres wide) consisting of sleeping, recreation, dining and kitchen facilities with incinerator and 300 kilowatt emergency generator.

	
(iii)  

	
Functional Unit No. 3 - Airstrip and aircraft terminal: dirt and gravel runway 1,235 metres long and 15 metres wide with temporary runway lighting, parking ramp, 96 metres long and 3 metres wide Atco office/warehouse skid-mounted unit and radio beacon.

	
(iv)  

	
Functional Unit No. 4 - Fuel storage which includes: 12 diesel storage tanks (400 Bbl), one methanol storage tank (400 Bbl), four gasoline storage tanks (400 Bbl) and four service storage tanks (400 Bbl).

	
(v)  

	
Functional Unit No. 5- Powerlines: three phase 4,160 volt overhead powerline from gas plant situated at Monument PBH located at 60° 07’ 0.059” N latitude and 123° 15’ 22.309” W longitude, to airstrip parking ramp, permanent camp and to each producing gas well and an underground powerline to a water disposal well.

	
(vi)  

	
Functional Unit No. 6 - Water disposal well and system: consisting of the Columbia et al, Kotaneelee YT M-17 salt water disposal well situated on Lot 1002, Quad 95 C/1 consisting of 1.286 hectares 60° 06’ 45” N- 124° 3’ 30” W, disposal line from gas plant to disposal well and wellsite disposal facilities.

  

48

  

 

EXHIBIT “B-4”

TO THE KOTANEELEE PRODUCTION FACILITIES

CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT

DETAILED MAP OF THE LOCATION OF PLANT, GATHERING

SYSTEM AND CERTAIN OF THE COMMON FACILITIES

WITHIN GRID AREA 60o 08’ N, 124o 00’ W

 

  

49

  

EXHIBIT “C”

TO THE KOTANEELEE PRODUCTION FACILITIES

CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT

ACCOUNTING PROCEDURE

PRODUCTION FACILITIES OPERATIONS

 

ARTICLE I

GENERAL

 

	
  

	
1.01

	
Definitions:

 

In this Accounting Procedure the definitions set forth in the Agreement shall apply in addition to the following:

	
(a)  

	
"Agreement" means the Agreement to which this Accounting Procedure is attached as Exhibit "C";

	
(b)  

	
"Construction Project" means any construction or installation undertaken for the Production Facilities Account, including subsequent additions to or alterations of the Production Facilities. Multiple projects of a similar nature being constructed under a single program will be consolidated as a single construction project;

	
(c)  

	
"Controllable Material" means the Material which at the time is so classified in the Controllable Material Price Catalogue as most recently recommended by the Petroleum Accountants Society of Canada;

	
(d)  

	
"Expenditure Limit" means fifty thousand ($50,000) dollars;

	
(e)  

	
"First Level Supervisor" shall mean an employee whose primary function is the direct supervision of other employees and any contract labour directly employed in operation and maintenance of the Production Facilities Property;

	
(f)  

	
"Material" means equipment or supplies acquired for use in the conduct of the Operations, and the categorization for this Procedure is as follows:

	
(i)  

	
"Condition "A" means that which is new;

	
(ii)  

	
"Condition "B" means that which has been used but is sui table for its original function without reconditioning;

	
(iii)  

	
"Condition "C" means that which has been used and would be sui table for its original function after reconditioning, or that which cannot be reconditioned for, but has a limited service in, its original function;

	
(iv)  

	
"Condition "D" means that which is not suitable for its original function but is usable for another function; and

	
(v)  

	
"Condition "E" means that which is junk.

	
(g)  

	
"New Price" means the current price of Condition "A" Material at the nearest reputable supply store where such Material is available or the nearest receiving point to which such Material could be delivered, whichever is closer to the Production Facilities Property. Tubular goods 50.8 millimetres (two (2") inches) in diameter and over shall be priced on a carload basis. Any cash discount that may be allowed by a dealer shall not be deducted in determining the New Price;

	
(h)  

	
"Non-Operator" means an Owner other than the Operator;

	
(i)  

	
"Operation” and Maintenance" means all operations other than construction projects conducted under the terms of the Agreement;

	
(j)  

	
"Parties" means the Owners;

	
(k)  

	
"Procedure" means this accounting procedure;

	
(l)  

	
"Production Facilities Property" means all property subject to the Agreement;

	
(m)  

	
"Settlement Limit" means twenty-five thousand ($25,000.00) Dollars;

	
(n)  

	
"Second Level Supervisors" shall mean an employee whose primary function is the supervision of First Level Supervisors; and

	
(o)  

	
"Technical Employee" means any employee having special and specific engineering, geological or other professional skills such as, but not limited to engineers, geologists, geophysicists, technologists and landmen whose primary function is the handling of specific operating conditions and problems for the benefit of Operations."

	
  

	
1.02

	
Statements and Billings

 

The Operator shall bill each Non-Operator on or before the last day of each month for its proportionate share of the Production Facilities Account for the preceding month. Such bills will be accompanied by statements which identify the authority for expenditure or lease or facility and all charges and credits summarized by appropriate classifications of investment and expense. Items of Controllable Material and unusual charges and credits shall be identified and described in detail.

  

50

  

	
  

	
1.03

	
Payment by Non-Operators

 

Each Non-Operator shall pay all such bills within thirty (30) days after receipt thereof.

	
  

	
1.04

	
Right to Protest or Question Bills

 

	
(a)  

	
Payment of any bill by a Non-Operator shall not prejudice the right of the Non-Operator to protest or question the correctness thereof. Subject to the exception noted in Clause 1.05 of this Procedure, all statements rendered to the Non-Operator by the Operator during any calendar year shall conclusively be presumed to be true and correct after twenty-six ( 26) months following the end of any such calendar year unless, within the said twenty-six (26) month period the NonOperator takes written exception thereto and makes a claim to the Operator for adjustment. The provisions of this Clause shall not prevent adjustments resulting from physical inventory of Controllable Material as provided for in Article V of this Procedure .

	
(b)  

	
If within the period referred to in paragraph 1.04(a) hereof, the Non-Operator or Operator establishes that an error in the Production Facilities Account existing in said period also existed previous to the period, the Operator shall adjust the Production Facilities Account retroactively to the inception of the error or to such point in time as agreed upon. Any adjustments made shall be subject to the Non-Operator's right to audit.

	
  

	
1.05

	
Audit

 

	
(a)  

	
Any of the Non-Operators, upon notice in writing to Operator and all other Non-Operators, shall have the right to audit Operator's accounts and records related to the Production Facilities Account for any calendar year within the twenty-four (24) month period next following the end of such calendar year. Where two or more Non-Operators desire to conduct audits, they shall make every reasonable effort to conduct joint or simultaneous audits in a manner which will result in a minimum of inconvenience to the Operator. Provided that approvals are obtained from a Majority Interest of the Non-Operators, the cost of audits shall be shared by all Non-Operators. For purposes of this clause a "Majority Interest" means two or more Non-Operators having interests totalling more than fifty (50%) percent of the remaining interest in the Production Facilities Property after the exclusion of the Operator's interest. Nothing, however, shall prevent a Non-Operator from conducting an audit at its sole cost.

	
(b)  

	
Operator shall respond in writing to any claims of discrepancies within six (6) months of receipt of such claims. Upon expiration of said six (6) month period, the Operator shall forthwith credit the Production Facilities Account for the full amount of any unanswered claims unless the Operator has obtained the approval of the Operating Committee for a time extension. Unless otherwise provided in the Agreement, claims remaining unresolved after twelve (12) months of the date of initial filing shall be dealt with by the Owners. Claims which are resolved in favour of a Non-Operator shall be credited or paid to such Non-Operator within thirty (30) days from the date of resolution.

	
(c)  

	
With approval of the Operating Committee, the cost of audits of contract services shall be for the Production Facilities Account. To the extent that the Operator performs and charges the Production Facilities Account for such audits, it is agreed that Operator's auditors' working papers and findings will be available for inspection and inquiry by Non-Operators.

	
  

	
1.06

	
Records

 

The Operator shall maintain detailed records of Controllable Material in such a manner as to enable an effective reconciliation of any physical inventory with the Production Facilities Account.

  

51

  

ARTICLE II

CHARGES

 

2.01                 The Operator shall charge the Production Facilities Account with the cost of the following items:

 

	
(a)  

	
Rentals and Other Payments

Rentals and other similar payments required to maintain the interests of the Parties in the Production Facilities Property.

	
(b)  

	
Labour

	
(i)  

	
Salaries and wages of the Operator’s field employees directly employed on the site of the Production Facilities Property in the conduct of Operations.

	
(ii)  

	
Salaries of First Level Supervisors.

	
(iii)  

	
Salaries and wages of Technical Employees and Second Level Supervisors directly employed on the site of the Production Facilities Property.

	
(iv)  

	
Salaries and wages of Technical Employees who are either temporarily or permanently assigned to and directly employed off the site of the Production Facilities Property may be charged. Charges for such Technical Employees shall be limited to that portion of the salaries and wages attributable to and actually devoted to the Operations.

	
(v)  

	
Compensation earned for time off relating to the above wage or salary categories.

	
(vi)  

	
The Operator’s representatives and engineers working in contractors’ offices and personnel travelling to a supplier’s plant for inspection and expediting of the Material during Initial Production Facilities Construction and Subsequent Production Facilities Construction.

	
(vii)  

	
With the prior accordance with approval of the Owners in paragraph 2.01(f) of this Procedure, per diem rates for consultants, outside services and the Operator's employees associated with the design, procurement and construction of all Construction Projects including:

	
A.  

	
the direct Construction comprised of technical personnel;

	
B.  

	
drafting personnel; and Project staff and purchasing

	
C.  

	
project specialists engaged on: the site of the Production Facilities Property working in contractors' or suppliers' offices for inspection and expediting Material, equipment, supplies and the like.

	
(viii)  

	
The Operator's employees receiving familiarization training on site for a period of three (3) months prior to the start-up of the Production Facilities.

	
(c)  

	
Employee Benefits

Costs under this paragraph shall be charged by a percentage assessment on the amount of salaries and wages chargeable to the Production Facilities Account. The rate shall be based on the Operator's cost. experience.

	
(i)  

	
Compulsory: Payments made pursuant to assessments imposed by government authority such as Unemployment Insurance, Workers' Compensation, Canada Pension or other payments of a like nature that are applicable to Operator's salaries and wages for the Production Facilities Account.

	
(ii)  

	
Non-Compulsory: Established plans for employee's group life insurance, hospitalization, company pension, retirement, stock purchase, thrift, bonus and other benefit plans of a like nature, applicable to the Operator's labour chargeable to the Production Facilities Account under paragraph 2.01(b) hereof, shall be at Operator's actual cost not to exceed twenty (20%) percent of such labour cost.

	
(d)  

	
Travel and Moving

	
(i)  

	
Costs of personnel transfers and personal expenses for the required staffing of the Production Facilities and subsequent replacements when such replacements are not for the primary benefit of the Operator. Such costs shall include transportation of the employee, spouse and dependents, and their personal and household effects and all other relocation costs in accordance with Operator's normal reimbursement policy.

	
(ii)  

	
Cost of travelling and personal expenses to and from and within the Production Facilities Property for those employees whose salaries and wages are chargeable to the Production Facilities Account.

	
(iii)  

	
Cost of travelling and personal expenses to and from locations other than the Production Facilities Property on behalf of Operations for employees whose salaries and wages are chargeable to the Production Facilities Account.

	
(e)  

	
Automotive

Operating and ownership costs for Operator's owned or leased automotive equipment in Operations, including depreciation and interest on the depreciated investment as provided for in paragraph 2.01(h)(v) of this Procedure. Costs shall be charged on a kilometre, hourly or other equitable basis, based on the Operator's actual cost experience.

	
(f)  

	
Engineering and Design

For each Construction Project which is approved by the Operating Committee and has engineering and design costs clearly identified separate from other costs, engineering and design work, whether provided by the Operator's employees, consultants or outside services, may be charged either;

	
(i)  

	
at cost, provided that for the Operator's employees, "costs" shall mean salaries, benefits and travel expenses only; or

	
(ii)  

	
on a basis other than at cost, provided that such, basis is clearly identified and explained on the cost estimate submitted for approval.

	
(g)  

	
Materials

Materials purchased or furnished by Operator for use in the Operations as provided under Article IV including transportation costs associated therewith. So far as it is reasonably practicable and consistent with efficient and economical operation, only such Material shall be purchased for or transferred to the Production Facilities Property as may be required for the conduct of approved Operations.

 

  

52

  

	
(h)  

	
Services

	
(i)  

	
The cost of services, equipment and utili ties relative to the Operations, incurred under contracts entered into by the Operator with contractors.

	
(ii)  

	
The costs of contracted consultants and technical services engaged in the field on the Production Facilities Property.

	
(iii)  

	
The cost of contracted consultants and technical services not engaged in the field on the Production Facilities Property shall not be charged to the Production Facilities Account unless previously agreed to by the Owners.

	
(iv)  

	
Chart integration services, whether contracted or performed by the Operator. Operator's charges shall not exceed commercial rates.

	
(v)  

	
The cost of Operator's owned or leased facilities and equipment at rates, not exceeding those available in the immediate area for available like facilities and equipment, commensurate with the costs of ownership and operation thereof, including depreciation and interest on the depreciated investment. The annual interest rate on investment shall not exceed the prime bank rate of the principal bank in Canada used by the Operator plus a rate of one (1%) percent, determined at the beginning of each calendar year.

Alternatively, Operator may charge for use of its owned or leased facilities and equipment at commercial rates available in the immediate area, less twenty (20%) percent. For automotive equipment refer to paragraph 2.01(e) of this Procedure. When requested to do so, Operator shall inform Non-Operators in advance of the rates to be charged.

	
(i)  

	
Damages and Losses to Production Facilities

Property Repair or replacement of Production Facilities Property made necessary because of damages or losses incurred by fire, flood, storm, theft, accident or other causes. Operator shall furnish Non-Operators with written notice of damages or losses incurred as soon as practicable after the damage or loss has been discovered.

	
(j)  

	
Surface Rights and Legal

Services Acquisition or renewal of surface rights and periodic rentals and related legal services for title work. Fees and related expenses associated with other legal services may be charged only with the approval of the Owners.

	
(k)  

	
Taxes

Taxes paid for the Production Facilities Account.

	
(l)  

	
Insurance

	
(a)  

	
Premiums paid for i:nsurance as required by the Agreement to be carried for Operations.

	
(b)  

	
Any deductible or uninsured loss under any policy of insurance required to be carried by Operator.

	
(c)  

	
That portion of any claim in excess of limits of insurance coverage required to be carried by Operator.

	
(d)  

	
"Self-Insurance" premium equivalents for coverages as detailed in the insurance schedule are chargeable to the Production Facilities Account. All "self-insurance" must comply with Federal and Provincial regulations.

	
(m)  

	
Communications

Communication equipment directly serving the Production Facilities, and outgoing communications incurred by Operator directly from the Production Facilities Property. Rental or ownership and any other related costs of operating transmitter/receiver equipment in vehicles, or production offices directly serving the Production Facilities, either as a direct charge, or when operations in addition to the Production Facilities are served by this equipment, apportioned among all such operations on an equitable basis. Other communication services, and date transmission services not included in paragraph 2.01(o) of this Account Procedure, as agreed upon by the Parties.

	
(n)  

	
Camp and Housing

Operation and maintenance of all necessary camp and housing facilities for, and boarding of, employees whose salaries and wages are for the Production Facilities Account provided that the charges for Operator's owned or leased facilities shall be commensurate with the costs of ownership, leasing, and operation thereof, including depreciation and interest on depreciated investment, less any revenue therefrom. The annual interest rate on investment shall not exceed the prime bank rate of the principal bank in Canada used by Operator plus one percent (1%) determined at the beginning of each year. When operations in addition to Joint Operations are served by these facilities, the charge for such facilities shall be apportioned among all such operations on an equitable basis.

	
(o)  

	
Central Production Control

Automated field and central production measurement and/or control facilities owned or leased by Operator, including employee costs for maintenance and operation of the central production control system and related computer facilities serving the Operations, shall be allocated to each operation served on an equitable basis.

	
(p)  

	
Ecological and Environmental

The cost of environmental and technical studies undertaken whether pursuant to a statutory obligation or otherwise, pertaining to Operations or the Production Facilities Property. Costs of related studies exceeding the single Expenditure Limit not required by law shall be subject to the prior approval of the Owners.

	
(q)  

	
Warehouse Handling

	
(i)  

	
If a warehouse is not maintained as part of the Production Facilities, Operator may charge as follows for Material delivered from the Operator's warehouse or rented storage location:

	
A.  

	
Two and one-half (2.5%) percent of the cost of tubular goods 50. 8 mm in diameter and over, and each other item of Material having a New Price in excess of $5,000, and

	
B.  

	
Five (5%) percent of the cost of all other Material. For purposes of this Clause, the cost of tubular goods and Material shall be determined pursuant to Clause 4.02 of this Procedure.

	
(ii)  

	
Five ( 5%) percent of the cost of all other Material.

	
(r)  

	
Recruitment, Training and Safety

 

 

  

53

  

	
(i)  

	
Cost of recruitment, induction and training for initial staffing or expansion of the Production Facilities may be charged with the approval of the Owners.

	
(ii)  

	
Direct costs for training employees, on site or in a convenient central location, that are chargeable under sub-paragraphs 2.01(b)(i), (ii) or (iii) hereof, with respect to operational training and safety training, for the primary benefit of the Production Facilities are chargeable to the Production Facilities Account.

	
(iii)  

	
Charges for safety articles such as, but not limited to, safety clothing, safety boots, safety glasses and safety kits, as required by Government regulations or Operator's corporate policy for Opera tor's employees chargeable under subparagraphs 2.01(b)(i), ( ii) and (iii) of this Procedure.

	
(iv)  

	
The cost of preparing and implementing emergency procedures and safety manuals required for the direct support of Operations.

	
(v)  

	
All other training and safety costs, with the approval of the Owners.

	
(s)  

	
Other Costs

Costs for which provision is not otherwise made within the Agreement or this Procedure, as agreed upon by the Owners.

ARTICLE III

OVERHEAD

 

3.01                 In this Article III the following additional definitions shall apply:

 

	
(a)  

	
"Cost" means the total direct expenditures including startup and acceptance costs and costs of transportation incidental to initial staffing and personnel familiarization on site prior to Production Facilities startup, normal replacements of material, exclusive of expenses of litigation, judgments, settlements of claims, royal ties on production and credits on abnormal retirement or abandonment; and

	
(b)  

	
"Overhead" means the cost to the Operator of salaries, wages, employee benefits and all other expenses of employees other than those covered by paragraph 2.0l(b) of this Procedure, and the cost of maintaining and operating offices, camps, housing and other facilities that are not Production Facilities Property other than those costs covered by Article II of this Procedure.

3.02                 Notwithstanding that actual Overhead is greater or less, the Operator shall be entitled to charge the Production Facilities Account for Overhead as follows:

 

	
(a)  

	
for each Construction Project:

	
(i)  

	
five (5%) percent of the first $50,000;

	
(ii)  

	
three (3%) percent of the next $100,000; and

	
(iii)  

	
one (1%) percent of the remainder; and

	
(b)  

	
eleven (11%) percent of all expenses relating to the Operation and Maintenance Cost of the Production Facilities Property.

	
(c)  

	
Notwithstanding Subclause 3.02(b) of this Clause 3.02, Operator shall not charge eleven percent (11%) Overhead on the portion of any third party administrative service charges, related to Operation and Maintenance Cost, that are normally considered to be covered by Operators Overhead. The administrative service charges may include, but not be limited to, cost of third party office staff payroll, third party office supervision and overhead, third party human resource services including hiring, third party purchasing of goods and services as well as third party bank or carrying charges."

Revision 1,

Dated January 1, 2000

Approved under Mail Ballot 00-03

 

  

54

  

3.03                 Inventory Handling Charges

 

If a warehouse inventory is not maintained as a part of the Production Facilities Property, the Operator may charge:

	
(a)  

	
two and one-half (2 1/2%) percent of the cost of tubular goods 50.8 mm and over and each other item of Material having a New Price in excess of five thousand ($5,000.00) dollars; and

	
(b)  

	
five (5%) percent of the cost of all other Material.

If a warehouse inventory is maintained as a part of the Production Facilities, the Operator may charge the costs of maintaining such warehouses.

3.04                 Other Expenditures

The Operator may, with the approval of the Operating Committee, charge any Cost that is reasonably necessary for the Operations and for which provision is not made. elsewhere in this Procedure.

ARTICLE IV

PRICING OF JOINT MATERIAL PURCHASES,

TRANSFERS AND DISPOSITIONS

 

	
  

	
4.01

	
Material Transfers

The Operator shall make proper and timely charges and credits for all material movements affecting the Production Facilities Property. The Operator shall provide all Material for use on the Production Facilities Property, however, at the Operator's option, such Material may be supplied by a Non-Operator. The Operator shall make timely disposition of idle and surplus Material either through sale to the Operator or a Non-Operator, division in kind or sale to outsiders. The Operator may purchase, but shall be under no obligation to purchase, the interest of the Non-Operators in surplus Material. All sales of Condition "A", Condition "B" or Condition "C" Material, the new Price of which is greater than fifteen thousand ($15,000.00) dollars, shall be subject to approval by the Non-Operators. All other disposals of Material shall be at the discretion of the Operator provided that any sales to the Parties or any of them shall be priced in accordance with Clause 4.03.

	
  

	
4.02

	
Purchases

Material purchased shall be charged at the price paid by the Operator after deduction of all discounts received. Credit for Material returned to the Vendor of same shall be for the Production Facilities Account when adjustment has been received by the Operator.

	
  

	
4.03

	
Transfers and Dispositions

Material furnished to the Production Facilities Property and Material transferred from the Production Facilities Property or disposed of by the Operator, unless otherwise agreed to by the Operating Committee, shall be priced on the following basis exclusive of cash discounts:

	
(a)  

	
New Material (Condition "A"):

New Material including tubular goods, shall be priced at the New Price in effect on date of movement;

	
(b)  

	
Good Used Material (Condition "B"):

	
(i)  

	
Condition "B" Material moved to the Production Facilities Property at seventy-five (75%) percent of New Price;

	
(ii)  

	
Condition "B" Material moved from the Production Facilities Property;

	
(A)  

	
At seventy-five percent (75%) of New Price if Material was originally for the Production Facilities Account as New Material; or

	
(B)  

	
At sixty-five ( 65%) percent of New Price if Material was originally for the Production Facilities Account as good used Material at seventy-five (75%) percent of New Price; and

	
(c)  

	
Other Used Material (Conditions "C", "D" and "E"):

	
(i)  

	
Condition "C" Material shall be priced at fifty (50%) percent of New Price;

	
(ii)  

	
Condition "D" Material shall be priced at a value commensurate with its use or at prevailing prices; and

	
(iii)  

	
Condition "E" Material shall be priced at salvage value.

  

55

  

	
  

	
4.04

	
Premium Prices

Whenever, in the Operator's opinion, Material is not available at reasonable prices, the Operator shall notify the Non-Operators in writing of that fact. Within two (2) days after receipt of such notice, each Non-Operator may notify the Operator in writing that it wishes to deliver the Material to the Operator and the notice shall set forth the price and delivery date. The Operator shall decide if the price and date for delivery of the Material is reasonable in the circumstances and, if so, shall purchase the Material from the Non-Operator. If more than one (1) Non-Operator wishes to supply the Material, the Operator shall decide the quantity of the Material that each Non-Operator may deliver. If the Operator decides the Material is not available from the Non-Operators on reasonable terms, the Operator may acquire the Material and charge the Production Facilities Account with the actual costs and expenses incurred in purchasing, transporting and preparing the Material for use in the Operations.

ARTICLE V

INVENTORIES

 

	
  

	
5.01

	
Periodic Inventory

Inventories of the Production Facilities Account Controllable Material shall be taken by the Operator every five (5) years commencing in 1991.

	
  

	
5.02

	
Notice

Written notice of the Operator's intention to conduct an inventory shall be given to each Non-Operator at least ninety (90) days prior to commencing such inventory, during which time each Non-Operator may elect to be represented.

	
  

	
5.03

	
Reconciliation of Inventory

A reconciliation of the physical inventory with the Production Facilities Account records shall be made by representatives of the Owners authorized to conduct the physical inventory. The Operator shall submit a list of overages and shortages to all Non-Operators and shall make adjustments to the Production Facilities Account records to reflect the physical inventory.

	
  

	
5.04

	
Inventory Expense

The expense of conducting inventories shall not be for the Production Facilities Account unless approved by the Operating Committee.

	
  

	
5.05

	
Special Inventories

The costs of conducting periodic inventories of Controllable Material shall be charged to the Production Facilities Account. Each Non-Operator shall have the right at any time to request in writing the taking of a special inventory of Controllable Material which shall be commenced within ninety (90) days of receipt of the written notice, and each Non-Operator shall be entitled to be represented at the taking of the special inventory. All expenses incurred by the Operator in conducting the special inventory shall be borne by the Non-Operators requesting the special inventory.

 

  

56

  

EXHIBIT “D”

TO THE KOTANEELEE PRODUCTION FACILITIES

CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT

INSURANCE

 

ARTICLE I

INSURANCE

 

1.01                 In respect of the Operations for the Production Facilities Account, the Operator shall comply with the requirements of all Unemployment Insurance and Workers' Compensation legislation and shall, prior to the commencement of the Operations, take out with a reputable insurance company or companies, and thereafter maintain for the Production Facilities Account and benefit of the Owners hereto, the insurance hereinafter set forth, and all of the costs thereof shall be charged to the Production Facilities Account. The required insurance shall be as follows:

 

	
(a)  

	
Workers' Compensation Insurance covering all employees engaged in the work in accordance with the statutory requirements of the Province or Terri tory having jurisdiction over such employees;

	
(b)  

	
Employers' Liability Insurance covering each employee engaged in the Operations to the extent of two hundred thousand ($200,000.00) dollars where such employee is not covered by Workers' Compensation. Alternatively, if Workers' Compensation exits, then in such event, the aforementioned Employer's Liability Insurance shall not be required, but the Comprehensive General Liability policy referred to in paragraph hereof shall contain an endorsement providing for contingent Employer's Liability Insurance;

	
(c)  

	
Automobile, Watercraft and Barging, Snowcraft and Aircraft Liability Insurance covering all motor vehicles, watercraft, snowcraft and aircraft, owned or non-owned, operated and/or licensed by the Operator, with a bodily and property damage limit of one million ($1,000,000.00) dollars, inclusive; and

	
(d)  

	
Comprehensive General Liability Insurance with a bodily injury, death and property damage limit of one million ($1,000,000.00) dollars, inclusive (ten thousand ($10,000.00) dollars deductible) and, without restricting the generality of the foregoing provisions of this paragraph, such coverage shall include 'Contractual Liability', 'Tortious Liability', 'Contractor's Protective Liability', 'Products and Completed Operations Liability'

1.02                 The Operator shall use its best efforts to require its contractors and subcontractors to comply with applicable Unemployment Insurance and Workers' Compensation legislation and to carry such insurance in such amounts as the Operator deems necessary.

ARTICLE II

OWNERS AND CONTRACTORS COURSE OF CONSTRUCTION INSURANCE

 

2.01                 The Operator shall carry and place in force, prior to the commencement of any construction, "All Risk" Course of Construction Insurance covering loss or damage to the Plant in the course of construction, including all machinery, materials and supplies on the premises of the Production Facilities or in transit thereto and intended to become part of the finished Production Facilities and while there awaiting erection and during erection, testing and until:

	
(a)  

	
the Production Facilities are mechanically complete as a whole;

	
(b)  

	
the Production Facilities are being operated by the Operator; and

	
(c)  

	
the Plant has processed Natural Gas for a period of not less than thirty (30) days.

2.02                 Such insurance shall include the Owners, contractors, and subcontractors as named insureds in proportion to their Production Facilities Participations.

ARTICLE III

SEPARATE PHYSICAL DAMAGE INSURANCE

 

3.01                 Each Owner shall be responsible for insuring its own interest in the Production Facilities with respect to physical damage to property, loss of income and any other insurance other than a specifically provided for in this Exhibit. Any insurance policy insuring an Owner's interest in the Production Facilities shall contain a waiver on the part of the insured of all rights, by subrogation or otherwise, against the other Owners. Certificates of insurance and renewals thereof shall be kept on deposit with the Operator at all times during the term thereof.

 

  

57

  

EXHIBIT “E”

TO THE KOTANEELEE PRODUCTION FACILITIES

CONSTRUCTION, OWNERSHIP AND OPERATION AGREEMENT

GAS SPECIFICATIONS

 

ARTICLE I

NATURAL GAS AND OUTSIDE GAS

 

1.01                 The Natural Gas and Outside Gas shall be free from solid matter, dust, gums and gum-forming constituents which might interfere with its merchantability or cause injury to or interference with proper operation of the lines, regulators, meters or other appliances through which it flows.

1.02                 Liquid hydrocarbons separated by the well site dehydration facilities may be injected into the Natural Gas or Outside Gas prior to delivery at the Plant Inlet for Natural Gas provided such liquids do not contain glycol, asphalt or asphaltines.

1.03                 If any Natural Gas or Outside Gas is delivered under the Agreement that does not meet the specifications set out in Clause 1. 01 of this Article, or contains substances prohibited under clause 1. 02, then the Operator may, at its option discontinue the taking of all or any part of Natural Gas or Outside Gas for the duration that such condition continues.

1.04                 If an Owner disputes the Operator's finding with respect to the quality of Natural Gas or Outside Gas pursuant to this Article, then the matter shall be referred to the Operating Committee whose determination shall be conclusive and final.

ARTICLE II

PROCESSED GAS

 

2.01                 All Processed Gas shall conform to the following specifications at the Delivery Point for Processed Gas:

 

	
(a)  

	
shall be at the gauge pressures required by Westcoast Transmission Company Limited up to 8, 070 kilopascals and in no event at a pressure greater than 9, 310 kilopascals;

	
(b)  

	
shall be commercially free from objectionable odours, solid matter, dust, gums and gum-forming constituents which might interfere with its merchantability or cause injury to or interference with proper operations of the lines, regulators, meters or other appliances through which it flows;

	
(c)  

	
shall not at any time have an oxygen content in excess of one (1%) percent by volume, and the Operator shall make reasonable efforts to keep the gas free of oxygen;

	
(d)  

	
shall be free of water and hydrocarbons in liquid form. The gas shall not contain water vapor in excess of sixty-five (65) milligrams per cubic metre, but in no case shall the Operator be required to dehydrate gas to a dewpoint less than minus eighteen degrees (-18oc) Celsius at the delivery pressure. The gas shall be free of hydrocarbons liquefiable at temperatures in excess of minus ten degrees (-l0°C) Celsius at five thousand five hundred and sixteen (5,516) kilopascals gauge; and

	
(e)  

	
the temperature of the gas delivered hereunder shall not exceed fifty-four degrees (54°C) Celsius.

 

58

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