Exhibit 4.1
PARTICIPATION AGREEMENT
EASTARM AREA, BRITISH COLUMBIA
THIS AGREEMENT dated the 1st day of March 2002.
BETWEEN:
WATCH RESOURCES LTD., a body corporate, having an office at the City
of Vancouver, in the Province of British Columbia (herein referred to as
"Watch")
- and -
LIGHTNING ENERGY LTD., a body corporate, having an office at the
City of Calgary, in the Province of Alberta (herein referred to as
"Lightning")
WHEREAS Lightning has acquired the right to earn an interest in
certain lands and documents of title pursuant to the terms and conditions
of the Farmout Agreement; and
WHEREAS Watch wishes to participate with Lightning in the
performance of its obligations under the Farmout Agreement in order to
earn an interest in the Farmout Lands in accordance with the terms and
conditions hereinafter set forth; and
WHEREAS Lightning wishes to have Watch participate with it in the
performance of its obligations under the Farmout Agreement; and
WHEREAS Lightning has agreed to hold any interest earned by it
pursuant to the Farmout Agreement in trust on behalf of the Parties in
accordance with this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and the mutual covenants contained herein, the Parties covenant
and agree with each other as follows:
1. INTERPRETATION
(a) Unless the context otherwise requires, the definitions contained in
the Famout Agreement and in Clause 101 of the Operating Procedure
shall apply, mutatis mutandis, to this Agreement (including the
recitals and this Clause) and the following terms shall have the
respective meanings hereby assigned to them, namely:
(i) "Agreement" means this Participation Agreement together with
the Schedules attached thereto;
(ii) "Effective Date" means the effective date of the Farmout
Agreement, which is December 20, 2001;
(iii) "Farmout Agreement" means that certain agreement dated
December 20, 2001 (including the
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schedules attached thereto) between Chevron Canada Resources
and Lightning Energy Ltd., a copy of which agreement is
attached hereto as Schedule "A";
(iv) "Farmout Lands" means the lands set forth and described in
the Farmout Agreement;
(v) "Main Agreement" means that portion of this Agreement other
than the Schedules;
(vi) "Operating Procedure" means the 1990 CAPL Operating Procedure
and the 1988 (1991 revised) PASC Accounting Procedure
attached as Schedule "B" to the Farmout Agreement.
(vii) or" means Chevron Canada Resources for operations pertaining
to the Slave Point formation in the Farmout Lands and Mutual
Interest Lands. Lightning may elect to operate formations
above the Slave Point as set forth in the Farmout Agreement;
(viii) "Party" means a person, partnership or corporation, which is
bound by this Agreement;
(b) The headings of the Clauses of this Agreement are inserted for
convenience of reference only and shall not in any way be used in
the interpretation of construction thereof.
(c) Whenever the singular or masculine or neuter is used in this
Agreement, the same shall be construed as meaning plural or feminine
or body politic or corporate and vice versa as the context requires.
(d) The references "hereunder", "herein", and "hereof' refer to the
provisions of this Agreement and references to Articles, Clauses,
Subclauses, Paragraphs or Subparagraphs refer to Articles, Clauses,
Subclauses, Paragraphs or Subparagraphs of this Agreement. Any
reference to time shall refer to Mountain Standard Time or Daylight
Savings Time during the respective period in which each is in force.
(e) All references to "dollars" or "$" herein shall refer to lawful
currency of Canada.
(f) Where a term is defined herein, a capitalized derivative of such
term shall have the corresponding meaning unless the context
otherwise requires.
2. SCHEDULE
Schedule "A", which is the Farmout Agreement and all Schedules attached
thereto and, is attached to and incorporated into this Agreement.
3. PARTICIPATION AND EARNING
(a) If Lightning drills the Test Well pursuant to Clause 7 of the
Farmout Agreement, Watch shall pay 25% of Lightning's share of the
drilling costs, completion costs, capping costs, or abandonment
costs associated with the Test Well to earn a 25% share of the net
Working Interests earned by Lightning in the Farmout Lands;
(b) Clause 9 of the Farmout Agreement shall not apply to Watch, which
shall have no right to participate in the Area of Mutual Interest.
(c) Watch shall pay 25% of the land maintenance charges payable by
Lightning pursuant to Clause 8 of the Farmout Agreement.
4. OPERATING PROCEDURE
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Except as otherwise provided in this Main Agreement, as of the Effective
Date, the Operating Procedure shall govern the relationship of the Parties
in respect of all operations conducted on or in relation to the Farmout
Lands.
5. APPOINTMENT OF OPERATOR
Chevron Canada Resources is hereby appointed initial Operator for all
operations pertaining to the Slave Point formation in the Farmout and
Mutual Interest Lands. Lightning may elect to operate formations above the
Slave Point as set forth in the Farmout Agreement.
6. INFORMATION TO JOINT-OPERATOR
In addition to the information and data required to be provided to the
Joint-Operator by the Operator pursuant to the Operating Procedure, the
Operator shall supply Watch, if so requested, with the same information,
data and reports that the Operator supplies to the Farmor under the
Farmout Agreement with respect to the Test Well.
7. INTEREST OF WATCH HELD IN TRUST
Any Working Interest earned by Watch in the Farmout Lands and Title
Documents shall be held in trust for Watch.
As Watch's interest in the Farmout Agreement will be held in trust by
Lightning, Lightning will, if requested by Watch, deliver any Notice of
Independent Operations under Article X of the referenced CAPL 1990
Operating Procedure on behalf of Watch.
8. GOODS AND SERVICES TAX
Lightning shall account for the Goods and Services Tax (Canada), pursuant
to subsection 273 (1) of the Excise Tax Act, on all purchases and sales
occurring on the Farmout Lands.
9. FURTHER ASSURANCES
Each Party shall from time to time and at all times do and perform all
such further acts and execute and deliver all such further deeds,
documents and writings, as may be reasonably required in order to fully
perform and carry out the terms and intent of this agreement.
10. ENTIRE AGREEMENT
The terms of this Agreement express and constitute the entire agreement
among the Parties and the Parties understand and agree that no implied
covenant, condition, term, reservation or liability is created or shall
arise by reason of this Agreement or anything herein contained.
11. COVENANTS RUN WITH THE LAND
All terms and provisions of this Agreement shall run with and be binding
upon the Farmout Lands during the time hereof.
12. ENUREMENT
This Agreement shall be binding upon and enure to the benefit of the
Parties hereto and their respective successors and assigns.
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13. COUNTERPART EXECUTION
This Agreement may be executed in separate counterparts, and when a
counterpart has been executed by each party, all such executed
counterparts when taken together shall constitute one Agreement.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of
the day and year first above written.
LIGHTNING ENERGY LTD.
Per: /s/ Xxx Xxxxxxx
----------------------------
Per: /s/ Xxxx Xxxxxx
----------------------------
WATCH RESOURCES LTD.
Per: /s/ Xxxxx Xxxxxx
----------------------------
Per: /s/ Xxxxx Xxxxxx
----------------------------
THIS IS THE EXECUTION PAGE ATTACHED TO AND FORMING PART OF A PARTICIPATION
AGREEMENT DATED MARCH 1, 2002, BETWEEN LIGHTNING ENERGY LTD. AND WATCH RESOURCES
LTD.
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Lightning Energy Ltd. 1
Farmout Agreement
dated December 20, 2001.
Chevron Canada Resources ChevronTexaco
000 -Xxxxx Xxxxxx X.X.
Xxxxxxx, Xxxxxxx X0X OL7
Phone (000) 000-0000
Fax (000) 000-0000
Western Canada Business Unit
December 20, 2001
Lightning Energy Ltd.
Attention: Xx. Xxx X. Xxxxxxx
CEO & Chairman
0000 Xxxxxxxx Xxxxx X.X.
Xxxxxxx, Xxxxxxx, X0X 0X0
RE: Eastarm Area, British Columbia
Farmout Agreement
NTS 94-H-09, Blks C & D
Our Contract # 108496
Dear Xxx,
Further to our recent discussions, this letter will set forth the terms and
conditions of the agreement reached between Chevron Canada Resources
("Chevron"), and Lightning Energy Ltd. ("Lightning") with respect to certain
lands in the captioned area:
1. Definitions
Each capitalized term used in this Head Agreement will have the meaning given to
it in the Farmout & Royalty Procedure, and, in addition:
(a) "Area of Mutual Interest" means the area included within the red outline
on the plat attached hereto as Schedule "D".
(b) "Contract Depth" means a depth down to and including the lesser of 15 into
the Slave Point formation or 2530 meters subsurface.
(c) "Farmee" means Lightning.
(d) "Farmor" means Chevron.
(e) " Farmout & Royalty Procedure" means the 1997 CAPL Farmout & Royalty
Procedure.
(f) "Mutual Interest Lands" means any interest in any single parcel of
petroleum and natural gas rights, where 50% or more of that parcel, by
surface area, is within the area defined in Schedule "D".
(g) "Operating Procedure" means the 1990 CAPL Operating Procedure and the 1988
(1991 revised) PASC Accounting Procedure.
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(h) "Seismic Review Database" means the Farmor's existing seismic database,
insofar as:
(i) that seismic coverage pertains to the Farmout Lands and each unit of
land on or within 1.6 kilometres thereof as measured laterally or
diagonally; and
(ii) the Farmor is the proprietary owner of that seismic data or
otherwise has the right to provide access to that seismic data to
the Farmee on the basis set forth in this Agreement;
provided that the Seismic Review Database does not include the Farmor's
interpretations of the data in the Seismic Review Database and any seismic data
for which the Farmor is subject to a prior obligation to a third person to
maintain the confidential status of that seismic coverage.
2. Schedules
The following Schedules are attached hereto and made a part of this Agreement:
(a) Schedule "A", which describes the Title Documents and the Farmout Lands;
(b) Schedule "B", which describes the elections and revisions to the Operating
Procedure;
(c) Schedule "C", which describes the elections and revisions to the Farmout &
Royalty Procedure;
(d) Schedule "D", which is the Area of Mutual Interest for the Farmout Lands;
(e) Schedule "E", which specifies the types of drilling information supplied
by Farmee to Farmor pursuant to the Farmout & Royalty Procedure; and
(f) Schedule "F", which specifies the types of drilling information supplied
by Chevron to Farmor.
The 1997 CAPL Farmout & Royalty Procedure, the 1990 CAPL Operating Procedure and
the 1988 (1991 revised) PASC Accounting Procedure are incorporated into this
Agreement by reference.
3. Seismic Review
The Farmee will have access to the Seismic Review Databasq on a work station in
the offices of the Farmor during regular office hours for a period of 6 months
from the date of execution of this Agreement, provided that the Farmee will not
have any right to obtain a copy of the data, or any portion thereof, included in
the Seismic Review Database, except to the extent agreed separately by the
Parties. As part of that review, the Farmee may temporarily merge its own
proprietary seismic data with the seismic data included in the Seismic Review
Database, provided that the Farmee is not obligated to share with the Farmor any
of its interpretations of any seismic data reviewed under this Clause. The
Farmor will provide work station access to the Farmee at no charge to the
Farmee.
4. Planninct And Implementation Of Earninq Phase Operations
A. The Parties agree to comply with the following provisions as regards the
manner in which their representatives will work together under this
Agreement:
(a) the Parties' applicable geologists and geophysicists will work
together on an ongoing basis as appropriate to identify prospects
that may be drilled hereunder and other geologic features respecting
the Farmout Lands that might be classified as prospects following
further evaluation or the acquisition of additional data, and the
review of drilling and testing results from the Test Well;
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(b) the surface landmen and other applicable representatives of the
Parties will ensure that there is an appropriate stakeholder
consultation plan in place to expedite surface access for
operations;
(c) the applicable representatives of the Parties will consult on a
current basis with respect to the drilling, logging and testing
results from the Test Well;
(d) the applicable land representatives of the Parties will consult as
and when appropriate with respect to land opportunities associated
with operations being conducted under this Article, including,
without limitation: (i) strategies for the posting of open Crown
rights within the Area of Mutual Interest; (ii) strategies for the
negotiation of agreements with third parties holding lands of
interest to the Parties within the Area of Mutual Interest; (iii)
strategies under existing agreements with third parties as regards
any applicable independent operations notices and rights of first
refusal; and (iv) strategies to enable the Parties to optimize the
Farmout Lands that they may retain under the Title Documents;
(e) the applicable operations and facilities engineering representatives
of the Parties will consult as appropriate to plan well tie-ins and
equipment purchases in order to obtain production of Petroleum
Substances at the earliest appropriate date from the Test Well if it
is capable of production in commercial quantities; and
(f) the applicable representatives of the Parties will consult about
Equipping and a development plan respecting the Test Well providing
that has discovered Petroleum Substances.
Notwithstanding the expectations noted in this Subclause, it is not the
expectation of either Party that personnel working on operations being conducted
under this Agreement will be dedicated exclusively to those operations.
B. Notwithstanding the sharing of information on the basis set forth in this
Agreement, each Party acknowledges that the sharing of information
hereunder is intended to facilitate operations, and is not intended to
replace or limit a the Farmee's independent review and evaluation of those
operations. Lightning acknowledges that it retains the primary
responsibility for the evaluation of all investment opportunities
identified hereunder. Each Party releases the other Party and each of its
directors, officers, agents and employees from any losses and liabilities
it incurs or suffers as a result of the use or reliance on advice,
information and materials pertaining to the Farmout Lands and operations
or activities conducted hereunder that were provided to it by (or on
behalf of) the other Party prior to or under this Agreement, including,
without limitation, any evaluations, projections, reports and interpretive
or non-factual materials prepared by the other Party or otherwise in its
possession. The foregoing release shall not apply if the other Party has
acted fraudulently.
5. Operator During Earning Phase
A. Chevron will operate the operations pertaining to the Slave Point
formation in the Farmout and Mutual Interest Lands. Lightning may elect to
operate formations above the Slave Point formation by written notice to
Chevron at least 30 days prior to the construction of the surface access
for that well.
B. Chevron will conduct any operation described in the preceding Subclause as
Lightning's agent and any such operation will be deemed to be conducted by
Lightning for the purposes of the Farmout & Royalty Procedure. Chevron
will conduct any such operation on behalf of Lightning on the following
basis:
(a) the Parties will consult fully with respect to such operation, on
the basis provided in Clause 4;
(b) all charges will be handled on the same basis as is provided under
the Accounting Procedure, as if the operation otherwise were a joint
operation operated by Chevron, including, without limitation, the
restrictions on direct charges respecting project personnel and
overhead;
(c) Chevron will not be entitled to any additional fee as remuneration
for the conduct of any such operation,
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even though the overhead recovery under the preceding Paragraph is
unlikely to enable it to attain full cost recovery;
(d) Lightning will advance 100% of the costs to be paid by Chevron in a
particular calendar month for an operation conducted on Lightning's
behalf hereunder on or before the later of 20 days following receipt
of Chevron's itemized written estimate of those costs or the 15'"
day of that month, provided that Subclause 503(c) of the Operating
Procedure (Advance Of Costs) will apply, mutatis mutandis, to
adjustments to this estimate and that Paragraphs 505(b)(i)-(iii) of
the Operating Procedure (Operator's Lien) will apply, mutatis
mutandis, to any such amount that is not paid when due;
(e) daily drilling reports for an Earning Well will include estimates of
daily and cumulative costs incurred for that well, provided that
Chevron will provide notice to Lightning if Chevron incurs or
expects to incur expenditures for that well that exceed the total
amount estimated in the applicable AFE by more than 10% including in
that notice Chevron's estimate of the forecast costs of that well
and the reasons for the forecast overexpenditure, and Chevron will
thereafter provide estimates of forecast costs of that Earning Well
on a weekly basis;
(f) weekly estimates of cumulative costs will be provided to Lightning
for any seismic program conducted by Chevron under this. Clause,
provided that Chevron will provide notice to Lightning if Chevron
incurs or expects to incur expenditures for that program that exceed
the total amount estimated in the applicable AFE by more than 10%
including in that notice Chevron's estimate of the forecast costs of
that program and the reasons for the forecast overexpenditure, and
Chevron will thereafter provide estimates of forecast costs of that
program on a weekly basis;
(g) supporting billing information will be on such basis as the
accounting representatives of the Parties may agree;
(h) Lightning will have audit rights on the same basis as is provided
under the Accounting Procedure, as if that operation otherwise were
conducted for the joint account thereunder;
(i) data to be provided to Lightning with respect to each such operation
will be on such basis as the Parties agree, provided that
information for an Earning Well will, as a minimum, include the
drilling information provided on Lightning's well information
requirement sheet attached as Schedule "F"; and
C. Insofar as the Farmor is acting as agent for the Farmee, Article 10.00 of
the Farmout & Royalty Procedure will be deleted and replaced by the
following:
"Except to the extent that the Operating Procedure becomes effective
between the Farmor and the Farmee hereunder, the Farmee will:
(a) be liable to the Farmor for all losses, costs, damages and expenses
whatsoever (whether contractual or otherwise) that the Farmor may
suffer, sustain, pay or incur; and in addition
(b) indemnify and hold harmless the Farmor and its directors, officers,
agents and employees against all actions, causes of action,
proceedings, claims, demands, losses, costs, damages and expenses
whatsoever that may be brought against or suffered by the Farmor,
its directors, officers, agents and employees or that they may
sustain, pay or incur;
insofar as they are a direct result of: (i) any act or omission (whether
negligent or otherwise) of the Farmee with respect to operations or
activities conducted by it or on behalf of it hereunder; (ii) a breach of
a provision herein by the Farmee; or (iii) the wilful or wanton misconduct
of the Farmee, its employees, agents or contractors. Costs described in
this Clause will include reasonable legal costs on a solicitor-client
basis. Notwithstanding the
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foregoing, the Farmee's liability and indemnity to the Farmor otherwise
arising pursuant to this Paragraph will not apply insofar as the loss is
the direct result of the gross negligence or wilful or wanton misconduct
of the Farmor acting as agent for the Farmee, except insofar as the loss
was the direct result of an act or omission of the Farmor done in
accordance with the specific written instructions of the Farmee."
For clarity, insofar as the Farmee is acting on its own behalf and except to the
extent that the Operating Procedure becomes effective between the Farmor and the
Farmee, the provisions of Article 10.00 of the Farmout and Royalty Procedure
shall continue to apply.
6. Test Well
Chevron, on behalf of theFarmee, shall Spud the Test Well or before March 1,
2002 at a-31-D/94-H-9 on the Farmout Lands subject to ground conditions, surface
access, regulatory approval and availability of suitable equipment. Chevron will
drill the Test Well to Contract Depth and Complete, cap or Abandon the Test Well
at the sole cost, risk and expense of the Farmee.
7. Test Well Earning
A. Subject to Article 3.00 of the Farmout & Royalty Procedure, the Farmee
shall earn to the base of the deepest formation logged and penetrated by
the Test Well:
(a) 100% of the Farmor's Working Interst in the Test Well Spacing Unit,
subject to the Overriding Royalty, the right of conversion in
Article 6.00 of the Farmout & Royalty Procedure and Subclause B of
this Clause; and
(b) 50% of the Farmor's Working Interest in the balance of the Farmout
Lands.
Notwithstanding the previous portion of this Clause, if a loss of circulation
occurs while drilling in circumstances in which the Test Well is not drilled
deeper, Farmee shall earn to the deepest formation penetrated by the Test Well.
B. The provisions of the Operating Procedure pertaining to any "production
facility' (as defined in the Operating Procedure) will apply to the
acquisition, construction or installation of any such production facility
during the period in which the Farmor retains the right to convert its
Overriding Royalty to a Working Interest under Paragraph A (a) of this
Clause, as if the Farmor had elected to convert to its Working Interest in
the Test Well Spacing Unit under Article 6.00 of the Farmout & Royalty
Procedure. Nothing in this Clause will restrict the ability of the Farmor
to propose operations with respect to a production facility under the
Operating Procedure.
8. Land Maintenance Charges
A. The Farmee will, on a quarter section by quarter section basis with
respect to the Farmout Lands, reimburse the Farmor for:
(a) 100% of the Farmor's Working Interest share of the rentals,
applicable thereto, as calculated on a per diem basis; and
(b) 100% of the Farmor's Working Interest share of the security and
penalties applicable thereto (if any);
during the period between the Effective Date and the date upon which the
Farmee earns a Working Interest in those lands or its right to earn a
Working Interest therein is terminated. The Farmor may invoice the Farmee
for the full amount of the rentals applicable to that portion of the
Farmout Lands in which the Farmee has the right to earn a Working Interest
as those rentals become payable to the lessor of the relevant Title
Document, in which event the per diem calculation described above will be
made after the Farmee has earned a Working
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Interest in that portion of the Farmout Lands, or its right to earn a
Working Interest has been terminated. The Farmee will pay amounts invoiced
to it by the Farmor under this Clause within thirty (30) days of receiving
that invoice, subject always to the Lightning Energy Ltd. Farmout
Agreement dated December 20, 2001.
Farmee's right to question the accuracy of that billing. The Farmor will
pay amounts payable to the Farmee by the Farmor as a result of that
calculation within thirty (30) days of the date of that earning or
termination. The Parties will share rentals applicable to Farmout Lands
earned by the Farmee hereunder in proportion to their Working Interests
therein, notwithstanding any stratigraphic earning restrictions herein.
B. Those of the Title Documents held as British Columbia drilling licence(s)
may be extended for a further 1 year period following the expiry of the
primary term upon payment of a higher rental for that extension year. The
Parties will exercise their rights under the Regulations to obtain this
extension for the applicable portions of the Farmout Lands, except insofar
as: (i) the Parties otherwise agree; (ii) a Party surrenders its rights in
those Farmout Lands; or (iii) a portion of those Farmout Lands must be
included in a lease selection in order to commence production from a well
drilled hereunder. For the purposes of Paragraph 1010(a)(iv) of the
Operating Procedure (Exception To Clause 1007 Where Well Preserves Title),
the date a forfeiture would occur under such a Title Document will be the
last day of that 1 year extension.
9. Area Of Mutual Interest
A. Article 8.00 of the Farmout & Royalty Procedure will be in effect for the
Area of Mutual Interest from the Effective Date until the end of the
twelfth month following the drilling rig release date of the Test Well.
Subject to that Article, the Parties will have the right to participate in
an acquisition of Mutual Interest Lands in the following percentages:
Chevron 50.00% Lightning 50.00%.
B. Prior to Spudding an Earning Well, Chevron will, following consultation
with Lightning, request applicable governmental authorities to offer at a
Crown sale undisposed petroleum and natural gas rights within the Area of
Mutual Interest that are being evaluated by that well to the extent that
the Parties agree is appropriate in the circumstances. Chevron will
request that those rights be offered for sale on a date as near as
feasible following the anticipated drilling rig release date of that
Earning Well.
10. Operating Procedure
A. The Operating Procedure will apply to those Farmout Lands earned by Farmee
hereunder, subject to Clause 17.01 of the Farmout & Royalty Procedure
(Application Of Farmout & Royalty Procedure) and the provisions of this
Clause. Chevron shall be the initial Operator under the Operating
Procedure for the Test Well and all other xxxxx drilled for the Joint
Account to evaluate the Slave Point or deeper formations, provided Chevron
will be responsible for the maintenance and administration of the Title
Documents, and, insofar as is required for the performance of those
duties, that Party will have the same rights and obligations as the
Operator under the Operating Procedure. Subject to the rights of
conversion in Article 6.00 of the Farmout & Royalty Procedure for
Subclause 7A(a), the Parties' initial Working Interests in the Farmout
Lands earned by Farmee hereunder shall be split Lightning 50.00%, and
Chevron 50.00%.
B. If the Farmee proposes the drilling of a joint well on any earned Farmout
Lands through an operation notice issued under Article X of the Operating
Procedure then the Farmor shall have a one time election within the same
response period as provided for under the Operating Procedure for that
operation notice, to convert its Working Interest in the balance of the
earned Farmout Lands, excluding the Test Well Spacing Unit that has not
yet been Abandoned, to the Overriding Royalty on the same basis as
provided in Article 5.00 of the Farmout & Royalty Procedure, regardless of
whether Clause 1007 of 1010 of the Operating Procedure would otherwise
apply to an election by the Farmor not to participate in that well. The
Overriding Royalty shall be non-convertible and will be calculated on the
Working Interest then held by the Farmor in the Farmout Lands. This
election is in addition to the elections provided for in Article X of the
Operating Procedure. The Farmor's election under this Clause
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will be effective as of the date of the Farmor's receipt of the Farmee's
operation notice. If the Farmee fails to spud the additional well on or
before the 90th day after the date the Farmee issued that operation
notice, the Farmee will be deemed not to have issued that operation
notice, and the Farmor's election hereunder will be void for that
particular operation notice.
11. Restriction On Additional Drilling
During the period that the Farmee has the right to earn a Working interest in
the Farmout Lands, no Party may propose to drill an additional well pursuant to
the Operating Procedure upon the Farmout Lands or any Mutual Interest Lands
acquired jointly until such time as the Farmee has earned pursuant to Clause 7,
and Chevron has provided all relevant well information including complete
production tests and well pressure build-ups for the Test Well to the Farmee.
Notwithstanding this Clause, additional xxxxx may be drilled hereunder prior to
the Farmee earning pursuant to Clause 7 if the Parties mutually consent and
agree to amend this Clause.
12. Farmee Obligated to Carry Insurance
The provisions of Clause 1.02 of the Farmout & Royalty Procedure are
incorporated by reference and shall apply mutafis mutandis to operations
conducted by the Farmee or by Chevron as agent of the Farmee with respect to the
Farmout Lands. In addition to the policies of insurance contained in subclause
311A of the Operating Procedure that are required under Clause 1.02 of the
Farmout & Royalty Procedure, the Farmee shall obtain and maintain for its sole
account and expense wild well or blow out insurance covering costs to redrill,
costs to drill any required relief xxxxx, costs to make xxxxx safe, seepage and
pollution, contamination, containment and clean-up and joint venture contingent
liability of not less than $5,000,000.00 per occurrence.
13. Production Volumes Delivered to Chinchaga Gas Plant
The Parties will give due consideration to the use of the Chinchaga Gas Plant
for the processing of natural gas from the Farmout Lands. Depending on the
specifications of the natura' gas proposed to be delivered to the Chinchaga Gas
Plant, Enerpro, as a subsidiary to the Farmor, will make all reasonable efforts
on an economic basis to facilitate the production of natural gas through its
facility. Tne terms of this arrangement for the use of those facilities will be
addressed in more detail in a separate agreement to be entered into between
Enerpro and Farmee in due course
14. Construction of New Facilities
A. The obligations in this Clause will apply to any new facility intended to
handle Petroleum Substances if that new facility is beyond Equipping and
is not a production facility (as defined in the Operating Procedure). If a
Party intends to construct, acquire or install a new facility for the
storage, treating, gathering, transportation or processing of Petroleum
Substances, that Party will allow the other Party to participate in that
facility opportunity in accordance with such agreement as the Parties may
negotiate at the time. If a Party chooses not to participate in that
opportunity and its share of Petroleum Substances uses that facility, that
use is subject to the negotiation of a separate fee arrangement at the
time.
B. If the Farmee makes arrangements to have its share of Petroleum Substances
transported, processed or stored at a third party owned Facility, it will
advise the Farmor of the terms of that arrangement, and, at the Farmor's
request, will include the Farmor's Working Interest share of the Petroleum
Substances in its arrangement with the third party. The Farmor will not be
considered as failing to take in kind under the Operating Procedure to the
extent that the Farmor's Petroleum Substances are handled under any such
arrangement
15. Public Announcements
The Parties will cooperate with each other when releasing to third parties
information concerning this Agreement and operations conducted hereunder. A
Party will provide the other Party with a draft of all press releases and other
releases
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of information for dissemination to the public a sufficient time prior to its
release to enable the other Party to review that draft and provide any comments
it may have. That release is subject to the prior written consent of the other
Party, which consent may not be unreasonably withheld or delayed. However,
nothing in this Clause will prevent a Party from providing any information to
any governmental agency, any regulatory authority or to the public, insofar only
as is required by the Regulations or securities laws or stock exchange
requirements applicable to that Party.
16. Limitation of Actions Clause
The Parties agree that the 2 year period for seeking a remedial order under
section 3(1)(a) of the Limitations Act (Alberta), as amended, for any claim (as
defined in that Act) arising in connection with this Agreement is extended to:
(a) for claims disclosed by an audit, 2 years after the time this
Agreement permitted that audit to be performed; or
(b) for all other claims, 4 years.
This Clause will continue to apply following earning under the Farmout & Royalty
Procedure and any application of the Operating Procedure.
If Lightning agrees that the above terms and conditions accurately reflect our
agreement, kindly sign and return one copy of this Agreement to the undersigned.
Yours truly,
CHEVRON CANADA ~URCES
/s/ Xxxxx Xxxxxx
-----------------------------
Xxxxx Xxxxxx
Senior Xxxxxxx
Western Canada Business Unit
UNDERSTOOD, ACCEPTED AND AGREED TO this 7th day of February, 2002
LIGHTNING ENERGY LTD.
Name: /s/ Xxx Xxxxxxx
--------------------------
Title: President and C.E.O.
97
Lightning Energy Ltd.
Farmout Agreement
dated December 20, 2001.
SCHEDULE "A"
to an Agreement dated December 20, 2001 between Chevron Canada Resources, and
Lightning Energy Ltd.
See attached Eastarm Area, British Columbia
00
Xxxxxxx Xxxx, Xxxxxxx Xxxxxxxx
--------------------------------------------------------------------------------------------------------------------------
Land Description Party Document Type & File Document Document Disposition Miscellaneous
Number Number Effective Date Expiry Date Mechanism
--------------------------------------------------------------------------------------------------------------------------
094-H-09 BILK C Units Chevron Provincial 107268 Nov/19/1997 Nov/18/2002 n/a LOR - Crown
40, 50, 60, 70 100% Drilling
PNG from Base of Licence No.
Bluesky-Gething- 48331
Xxxxxxx to Basement
094-H-09 BLK D Units
31, 41, 51, 61
PNG from Base of
Bluesky-Xxxxxxx-
Xxxxxxx to Basement
094-H-09 BLK D Units
32, 33, 42, 43, 52,
53, 62, 63
PNG from Surface to Basement
excluding
NG in Blues and Gethin zones
---------------------------------------------------------------------------------------------------------------------
99
Lightning Energy Ltd.
Farmout Agreement
dated December 20, 2001.
SCHEDULE"B"
to an Agreement dated December 20,2001 between Chevron Canada Resources, and
Lightning Energy Ltd.
1990 CAPL OPERATING PROCEDURE
I. Insurance (Clause 311): A subject to Clause 12 of the Head Agreement
II. Marketing Fee (Clause 604): A
III. Casing Point Election (Clause 903): A
IV. Penalty for Independent Operations (Clause 1007): (a)(iv) Development
Xxxxx 300% (b)(iv) Exploratory Xxxxx 500%
V. Title Preserving Well (Clause 1010(a)(iv)): 365 days subject to Subclause
8B of the Head Agreement
VI. Addresses for Notices (Clause 2202):
Chevron Canada Resources Lightning Energy Ltd.
000 - 0xx Xxxxxx X.X. 3311 Palliser Drive S.W.
Calgary, Alberta Xxxxxxx, Xxxxxxx
X0X 00-0 X0X 0X0
Attention: Land Manager Attention: Chairman and CEO
VII. Dispositions of Interests (Clause 2401): B
VIII. Recognition Upon Assignment (Clause 2404): N/A (Replaced with 1993 CAPL
Assignment Procedure)
1988 PASC Accounting Procedure (Feb. 1991 Revised)
I. Operating Advances (Clause 105): proportionate share of 10%
II. Approvals (Clause 110): 2 or more parties totalling 50
III. Labour (Clause 202b):
(1) shall_____ shall not |X|
(2) shall_____ shall not |X|
IV. Employee Benefits (Clause 203(B)): 25%
V. Warehouse Handling (Clause 217(a)(1)):
25% for tubular goods 50.8 mm (2") and over and other items with new price over
$5.000.00; 5% of the cost of all other material.
VI. Overhead:
1. Clause 302
(a) For each Exploration Project:
(1) 5% of first $50.000.00
(2) 3% of next $100.000.00
(3) 1% of cost exceeding (1) and (2)
(b) For each Drilling Well:
(1) 3% of first $50.000.00
(2) 2% of next $100.000.00
(3) 1% of cost exceeding (1) and (2)
100
Lightning Energy Ltd.
Farmout Agreement
dated December 20, 2001.
(c) For each Construction Project:
(1) 5% of first $50.000.00
(2) 3% of next $100.000.00
(3) 1% of cost exceeding (1) and (2)
(d) For Operation and Maintenance:
(1) 10% of the cost; and
(2) $150.00 per producing well per month
(3) $ flat rate per month for producing, injection and water
source operations.
Will________will not |X|
VII. Pricing of Joint Material Purchases. Transfers and Dispositions:
$25.000.00 for requiring approval
VIII. Periodic Inventory (Clause 501):
At 5 year intervals.
101
Lightning Energy Ltd. 12
Farmout Agreement
dated December 20, 2001.
SCHEDULE"C"
to an Agreement dated December 20,2001 between Chevron Canada Resources and
Lightning Energy Ltd.
1997 CAPL Farmout & Royalty Procedure Elections and Amendments
1. Effective Date (Subclause 1.01(f)) - December 20, 2001
2. Payout (Subclause 1.01(t), if Article 6.00 applies) - Alternate A - |X|*
Alternate B -
* Include at the end of Alternate 1.01(t)A the following: for the purposes
of calculating the proceeds of sale from or allocated to the Farmee's
share of production of natural gas from an Earning Well, that production
will be deemed to be sold by the Farmee at a price of not less than the
greater of its "corporate average price" or 75% of the Market Price.
Alternate B options, if applicable - ______m^3 of Equivalent Production
and _____years.
3. Incorporation Of Clauses From 1990 CAPL Operating Procedure (Clause 1.02)
(i) Insurance (311) Alternate A - |X| Subject to Clause 12 of the Head Agreement
Alternate B - ______
4. Article 4.00 (Option Xxxxx) will _____/will not |X| apply.
5 Article 5.00 (Overriding Royalty) will |X| /will not _____apply.
6. Quantification Of Overriding Royalty (Subclause 5.01 A, if applicable)
(i) Crude oil (a) - Alternate - 2
- If Alternate - 1 applies, ____%
- If Alternate 2 applies, 23.8365, min. 5% max.
15%
(ii) Other (b) - Alternate - 1
- If Alternate 1 applies, 15%
- If Alternate 2 applies, - in (i) and - in (ii)
7. Permitted Deductions (Subclause 5.048, if applicable) - Alternate - 2
If Alternate 2 applies, "...not be greater than 40% of the Market
Price..."
8. Article 6.00 (Conversion Of Overriding Royalty) - will |X| / will not -
apply.
If Article 6.00 applies, conversion to 50% of Working Interest in
Subclause 6.04A.
9. Article 8.00 (Area Of Mutual Interest) - will |X| /will not - apply.
10. Reimbursement Of Land Maintenance Costs (Clause 11.02) - will /will not *
apply.
*Subject to Clause 8 of the Head Agreement
102
Lightning Energy Ltd. 13
Farmout Agreement
dated December 20, 2001.
SCHEDULE "D"
to an Agreement dated December 20, 2001 between Chevron Canada Resources, and
Lightning Energy Ltd.
See Attached Plat for Area Of Mutual Interest
103
[GRAPHIC OMITTED]
104
Lightning Energy Ltd. 14
Farmout Agreement
dated December 20, 2001.
SCHEDULE "E"
to an agreement dated December 20, 2001 between Chevron Canada Resources, and
Lightning Energy Ltd.
CHEVRON WELL DATA REQUIREMENT SHEET - FARMOUT XXXXX
1. INFORMATION REQUIRED PRIOR TO DRILLING
-SURVEY PLAT 2
-WELL LICENSE 2
-DRILLING PROGRAM (including drilling days and cost curves) 2
-GEOLOGICAL PROGRAM 2
2. NOTICES REQUIRED
-24 HOURS' NOTICE OF INTENT TO SPUD
-24 HOURS' NOTICE OF INTENT TO LOG, CORE, TEST, OR CONDUCT ANY
NON-ROUTINE OPERATIONS
-IMMEDIATE NOTICE OF ANY OIL OR GAS SHOW
-48 HOURS' NOTICE OF INTENT TO ABANDON. APPROVAL TO ABANDON WILL BE
GRANTED ONLY AFTER CHEVRON HAS EVALUATED ONE RESISTIVITY LOG AND ONE
POROSITY LOG REPRESENTING THE ENTIRE OPEN HOLE INTERVAL.
3. INFORMATION REQUIRED DURING DRILLING
-DAILY 8:30 A.M. TELEPHONE/FAX DRILLING REPORTS YES
-DAILY/WEEKLY DRILLING TOUR REPORTS 2
-DAILY/WEEKLY LITHOLOGY (CORE AND SAMPLE DESCRIPTIONS) 2
-DRILL STEM TEST REPORTS 2
4. INFORMATION REQUIRED REGARDING GEOLOGY
-ACCESS TO CORE YES
-ACCESS TO OPERATOR'S SAMPLES YES
-LITHOLOGY LOG & WELL SUMMARY REPORT 2
-CORE AND SAMPLE DESCRIPTIONS, AND DISK 2
-OIL, WATER, GAS AND CORE ANALYSES 2
-FINAL DST REPORTS AND CHARTS (paper and digital) 2
-LOGS (FIELD AND FINAL PRINTS), AND LAS DISK 2
-DIRECTIONAL SURVEY AND LAS DISK 2
-FINAL MUD LOG AND DIGITS IN ASCII FORMAT, OR 2
TOTAL GAS DETECTOR DATA AND DIGITS
-POWERLOG DISK, IF APPLICABLE 1
5. INFORMATION REQUIRED DURING COMPLETION
-COMPLETION PROGRAM 2
-COMPLETION REPORTS (DAILY) 2
-BOTTOM HOLE PRESSURE REPORTS 2
-AOFP AND IP REPORTS 2
-ALL REGULATORY GOVERNMENT REPORTS 2
-FINAL COMPLETION OR ABANDONMENT REPORTS 2
6. CONTACTS
DAILY DRILLING REPORTS TO: Xxxxx Xxxxxxx - Fax 000-0000
Phone 000-0000
ON CALL:
Primary Contact: Xxxxx Xxxxxxx - Cellular 000-0000
Home 225-1431
Office 000-0000
Secondary Contact: Xxxx Xxxxxxxxx - Cellular 000-0000
Home 272-6457
Office 234-5776
MAIL THE ABOVE DATA TO THE ATTENTION OF: XXXXX XXXXXXX, 000 0xx Xxxxxx X.X.,
Xxxxxxx, X0X OL7
105
Lightning Energy Ltd.
Farmout Agreement
dated December 20, 2001.
SCHEDULE "F" .
to an agreement dated December 20,2001 between Chevron Canada Resources, and
Lightning Energy Ltd.
Lighning's Well Requirement Sheet attached hereto.
106
