Re: Farmout Offer - UKCS Quad 41 & 42 Amending Agreement January 30, 2006
January
30, 2006
Attention:
Xx. Xxxx Xxxxx
Via:
Email
Dear
Xxxx,
| Re: |
Farmout
Offer - UKCS Quad 41 & 42
Amending
Agreement January 30, 2006
|
Further
to our discussions this letter will set forth the basic terms and conditions
of
International Frontier Resources Corporation (“IFR”) offer to Eternal Energy
Corp. (“EEC”) to farmin on UKCS Quads 41 & 42 blocks 41/5, 41/10a, 42/1,
42/2a and 42/7 herein after referred to as “earned acreage”.
Quad
41 & 42
In
our
discussion you indicated that EEC is interested in participating in drilling
a
test well on the earned acreage. In this regard IFR advises as follows;
| · |
The
license is currently held Palace Exploration Company - 90% and Challenger
Minerals - 10%. The acreage is subject to a 3% royalty payable to
Xxxxxx
Oil & Gas UK.
|
| · |
IFR
and Palace have entered into a letter agreement under which IFR has
the
right to acquire up to a 35% interest in the earned
acreage.
|
| · |
Palace
shall seek DTI approval to register IFR interest in the earned acreage.
|
| · |
Palace
and Challenger own a 3-D seismic survey over the earned acreage.
|
| · |
Xxxxxxxxxx
has been appointed operator and will contract ADTI to drill a test
well on
the earned acreage. ADTI will drill the test well to contract depth
and
acquire logs under a turnkey contract at an estimated cost of US$10
million.
|
IFR
is
prepared to farmout 15% of the test well under the following terms and
conditions;
|
1.
|
On
or before January 30th, 2006 EEC shall place US$75,000 in an
escrow
account at Xxxxxx Jonsson & Yeadon offices in Vancouver,
B.C.
|
|
2.
|
In
the event EEC completes the farmin transaction contemplated in
clause 3
hereof the escrow funds shall be paid to IFR as payment for 10%
of the 3-D
seismic costs.
|
|
3.
|
On
or before March 3, 2006 EEC shall provide IFR with an irrevocable
letter
of credit for US$1,500,000 in favor of Palace Exploration Company
(UK)
Limited, the letter of credit will be used for payment of the
first US$1.5
million in cash calls. The US$1.5 million represents 15% of the
estimated
turnkey dry hole costs of US$10 million. In the event EEC does
not provide
IFR with a letter of credit for US$1.5 million on or March 3,
2006 the
escrow funds of $US75,000 referred to in clause 1 hereof shall
be paid to
IFR and EEC shall have no further rights under this
agreement.
|
|
4.
|
EEC
agrees to pay 15% of the test well costs, 15% of the production
testing
costs, estimated at US$1 million per drill stem test, and 15%
of all
completion costs incurred to the flow line outlet valve to earn
a 10%
interest in the earned acreage.
|
|
5.
|
EEC
agrees to pay its prorata share of a 3% XXXX to Xxxxxx Oil & Gas UK.
|
|
6.
|
EEC
agrees to be bound by the terms and conditions of the IFR - Palace
Farmin
Agreement and Joint Operating
Agreement.
|
|
7.
|
EEC
agrees to pay its 10% share of the annual license fees from March
3, 2006.
|
|
8.
|
EEC
agrees to keep the terms of this letter agreement confidential
unless
required to disclose pursuant to regulatory authorities regulations.
|
|
9.
|
EEC
will provide IFR and Palace with a copy of any public announcement
prior
to issuance.
|
|
10.
|
The
parties hereto agree to execute a Farmin Agreement that will
incorporate
the basic terms and conditions contained herein.
|
|
11.
|
IFR
shall request Palace to novated EEC in the Joint Operating
Agreement.
|
|
12.
|
IFR
shall use its best efforts to have EEC recognized on title by
the DTI. In
the event EEC is not recognized by the DTI, or does not qualify
under DTI
regulations, then IFR and EEC shall enter into a mutually acceptable
Trust
Agreement whereby IFR shall hold EEC interest in trust.
|
This
offer is open for your acceptance until January 31, 2006 by signing and
returning a copy of this letter by fax to 000-000-0000. Upon execution of
this
letter agreement the parties hereto agree to enter into a Farmin Agreement
incorporating the terms and conditions contained in this letter agreement.
Yours
truly,
/s/
Xxx
Xxxxxxx
Xxx
Xxxxxxx
President
Xxxxxx
and accepted this 30th
of
January 2006.
_/s/
Xxxxxxx X. Xxxxx___________________
By:
Xxxx
Xxxxx, President
