Exhibit 4.0
WILLEX ENERGY LTD.
December 3, 2001
Watch Resources Ltd.
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Dear Sir:
Farmout Agreement Covering Prospects in
Greencourt, ▇▇▇▇ North, Virginia Hills, and ▇▇▇▇▇
Whereas, American Leduc Petroleums Limited (American Leduc) purchased PNG
Crown Leases at Greencourt, ▇▇▇▇ North and Virginia Hills (as more fully
described in Clause 3) and;
Whereas, American Leduc entered into a Farmin Agreement on November 8,
2001 between American Leduc and ▇▇▇▇▇▇ Oil Company for PNG Lease 0597010466
(▇▇▇▇▇ ▇▇▇▇▇▇ as attached as Exhibit A) and;
Whereas, American Leduc entered into a Farmin Agreement on November 13,
2001 between American Leduc and Vintage Petroleum Canada, Inc. for PNG Lease
0597010465 (▇▇▇▇▇ Vintage as attached as Exhibit B) and;
The following sets out the specific terms and provisions for this Farmout
Agreement between Willex Energy Ltd. (Willex) and Watch Resources Ltd. covering
all five-prospect areas, controlled by American Leduc, with earning terms and
conditions for each prospect area.
1. Farmee: Watch Resources Ltd.
2. Farmor: Willex Energy Ltd.
3. Farmout Lands: The Farmout Lands shall comprise the following lands with
the right to explore for, work, win and recover petroleum and natural gas
in all P&NG rights which are granted by Alberta Crown Leases as outlined
below:
Farmout Lands Farmor's Available WI
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Greencourt PNG Lease # 0501010386 67%
Rights: All PNG below base of Viking
Formation
January 10th,2001 Crown Sale $81,698.08
Seismic Costs: $10,000
▇▇▇ ▇▇ ▇▇▇ Section 7
80
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇ North PNG Lease # 0401060174 67%
Rights: All PNG
Encumbrances: 2% ▇▇▇
▇▇▇▇ 13th,2001 Crown Sale $132,918.56
▇▇▇ ▇▇ ▇▇▇ Section 10
PNG Lease # 0401080204 67%
Rights: All PNG
Encumbrances: 2% ▇▇▇
August 8th, 2001 Crown Sale $ 61,394.72
Seismic Costs: $50,000
▇▇▇ ▇▇ ▇▇▇ Section 17
Virginia Hills PNG Lease # 0501030812 67%
Rights: All PNG
Encumbrances: 2% ▇▇▇
March 21st, 2001 Crown Sale $81,406.00
Seismic Costs: ▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇ Section 8
Farmout Lands - Vintage & ▇▇▇▇▇▇ Interest to be Earned
-------------------------------- ---------------------
▇▇▇▇▇ Vintage PNG Lease # 0597010465 30%
▇▇▇ ▇▇ ▇▇▇ Section 14; S & NW23
Rights: ▇▇ ▇▇ ▇▇ ▇▇ ▇▇▇▇
▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇ ALL PNG
Encumbrances: 7.5% non-convertible ▇▇▇
with no deductions
▇▇▇▇▇ ▇▇▇▇▇▇ PNG Lease # 0597010466 67%
Rights: BB CH LK TO BSMT
Encumbrances: 7.5% non-convertible ▇▇▇
With deductions
▇▇▇ ▇▇ ▇▇▇ Sections 15 and 22
Farmor does not warrant title to the Farmout Lands. These lands are
encumbered by the Alberta Government Crown royalty and a Gross overriding
royalty as described above.
4. Greencourt
This earning well will be drilled in the first quarter of 2002 subject to
surface access, rig availability and government approval. The Farmor will choose
the location for this well. Farmee agrees to pay 50% of Farmor's 67% in
drilling, completing, equipping and tie-in costs. Until payout is reached in
this well, the Farmee will have a 33.33% working interest in the drilling
spacing unit subject to the overriding and crown royalties. The payout account
will be reduced by 33.33% of the land costs and 25% of the seismic costs as
described in the Greencourt reference of clause 3. At the time of payout in this
Greencourt well, Farmee will convert to a 16.67% working interest in the
drilling spacing unit subject to the overriding and crown royalties.
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5. ▇▇▇▇ North
This earning well will be drilled in the first quarter of 2002 subject to
surface access, rig availability and government approval. The Farmor will
choose the location for this well. Farmee agrees to pay 50% of Farmor's
67% in drilling, completing, equipping and tie-in costs. Until payout is
reached in this well, the Farmee will have a 33.33% working interest in
the drilling spacing unit subject to the overriding and crown royalties.
The payout account will be reduced by 33.33% of the land costs and 25% of
the seismic costs as described in the ▇▇▇▇ North reference of clause 3. At
the time of payout in this ▇▇▇▇ North well, Farmee will convert to a
16.67% working interest in the drilling spacing unit subject to the
overriding and crown royalties. In addition, this land is encumbered by a
2% Gross Overriding Royalty on 100% of production, payable to Rolling
Thunder Resources Inc. (attached as Exhibit C).
6. Virginia Hills
This earning well will be drilled in the first quarter of 2002 subject to
surface access, rig availability and government approval. The Farmor will
choose the location for this well. Farmee agrees to pay 50% of Farmor's
67% in drilling, completing, equipping and tie-in costs. Until payout is
reached in this well, the Farmee will have a 33.33% working interest in
the drilling spacing unit subject to the overriding and crown royalties.
The payout account will be reduced by 33.33% of the land costs and 25% of
the seismic costs as described in the Virginia Hills reference of clause
3. At the time of payout in this Virginia Hills well, Farmee will convert
to a 16.67% working interest in the drilling spacing unit subject to the
overriding and crown royalties.
7. ▇▇▇▇▇ ▇▇▇▇▇▇
This earning well will be drilled in the 4th quarter of 2001.The location
is 02/8-15-84-8 W6M. This well carries an encumbrance of a 7.5%
non-convertible overriding royalty payable to ▇▇▇▇▇▇ Oil Company on 100%
of the production. Farmee agrees to pay 50% of Farmor's 67% in drilling
and casing costs. There is no payout in this well. Farmee will earn 16.67%
in the drilling spacing unit subject to the overriding and crown
royalties. Farmee will pay 16.67% of the completing, equipping and tie-in
costs of this well.
8. ▇▇▇▇▇ Vintage
This earning well will be drilled in the 4th quarter of 2001.The location
is 02/14-84-8 W6M. This well carries an encumbrance of a 7.5%
non-convertible overriding royalty payable to Vintage Petroleum Canada,
Inc. on 45% of the production, net 3.375% without deductions. Farmee
agrees to pay 50% of the Farmor's 30% in drilling and casing costs. There
is no payout in this well. Farmee will earn 7.5% in the drilling spacing
unit subject to the overriding and crown royalties. Farmee will pay 7.5%
of the completing, equipping and tie-in costs of this well.
9. Insurance
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Unless notified by Farmee, Farmee will be covered under Farmor's Well
Control and Blow Out Insurance.
10. Appointment of Operator
Willex, or its assigns, is hereby appointed the initial Operator and
agrees to act as Operator to conduct operations on the Farmout Lands for
the Parties in accordance with their working interests.
11. Limitations Act Extension
The two year period for seeking a remedial order under section 3(1)(a) of
the Limitations Act, S.A. 1996 c. L 15.1, 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, two years after the time this
agreement permitted that audit to be performed; or,
(b) for all other claims, four years.
12. Formal Agreement
This letter sets out the basic terms and conditions of our proposal. If
you are in agreement with the foregoing, kindly indicate your acceptance by
signing in the space provided below and return one copy of this letter to the
attention of the undersigned. Upon agreement of this letter both parties will
agree to comply with the 1997 CAPL Farmout and Royalty Procedure, 1990 CAPL
Operating Procedure and the 1996 PASC Accounting Procedure (both completed using
the electives as set forth in Exhibit D attached to this letter) and the 1993
CAPL Assignment Procedure.
Sincerely,
Willex Energy Ltd.
/s/ ▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇ ▇▇▇▇▇▇▇
President
ACCEPTED AND AGREED TO THIS 3rd DAY OF DECEMBER 2001.
Watch Resources Ltd.
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
Chairman
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Exhibit "D"
Attached to and forming part of a Farmin Agreement dated the 3rd day of
December, 2001 between Willex Energy Ltd. and Watch Resources Ltd.
1997 CAPL FARMOUT & ROYALTY PROCEDURE ELECTIONS AND AMENDMENTS
I. Effective Date (Subclause 1.01(f) - December 3, 2001
II. Farmout Lands (Subclause 1.01(n): described as "Farmout Lands" in the
Agreement
III. Incorporation of Clauses from 1990 CAPL Operating Procedure (Clause 1.02)
A. Insurance (311) - Alternate A: |X| Alternate B:_______
V. Article 4.00 (Option ▇▇▇▇▇) will______/will not |X| apply.
VI. Article 5.00 (Overriding Royalty) will_______ /will |X| not apply.
VII. Article 6.00 (Conversion of Overriding Royalty) - will_____ /will not |X|
VIII. Article 8.00 (Area of Mutual Interest) - will |X| /will not______
IX. Reimbursement of Land Maintenance Costs (Clause 11.02) - will_____ /will
not|X|
CAPL OPERATING PROCEDURE - 1990
Clause 311 - Insurance: Alternate A |X| B ____
Clause 604 - Marketing Fee: Alternate A |X| B ____
Clause 903 - Less than All Parties Participate: Alternate A |X| B ____
Clause 1007 - Penalty Where Independent Well Results in Production:
1007 (a) (iv) - Development ▇▇▇▇▇ 300%
1007 (b) (iv) - Exploratory ▇▇▇▇▇ 500%
Clause 1010(a)(iv) - Exception to Clause 1007 Where Well Preserves Title: 180
days
Clause 2202 - Address for Service:
Willex Energy Ltd. Watch Resources Ltd.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇, 925 West Georgia
Calgary, Alberta ▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇ Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Clause 2401 - Right to Assign, Sell or Dispose: Alternate A |X| B ____
Clause 2404 - Recognition Upon Assignment: Replaced by Assignment Procedure
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EXHIBIT "D" Continued
Attached to and forming part of a Farmin Agreement dated the 3rd day of
December, 2001 Willex Energy Ltd. and Watch Resources Ltd.
RATES, ELECTIONS AND MODIFICATIONS TO THE
1996 PETROLEUM ACCOUNTANTS SOCIETY OF CANADA
(PASC) ACCOUNTING PROCEDURE
101. Rates and Elections
105. Operating Fund: 10%
110. Approvals n/a, from 2; Seventy -five percent (75%)
112. Expenditure Limitations:
(a) excess of twenty five thousand dollars ($25,000)
(c) excess of twenty five thousand dollars ($25,000)
202. Employee Benefits:
(d) exceed twenty -two percent (22%)
213. Camp and Housing:
(b) shall____ /shall not|X|
216. Warehouse Handling: 2.5%, $5000.00; five percent (5%)
302. Overhead Rates:
A) Exploration
(1) five percent (5%); fifty thousand dollars ($50,000)
(2) three percent (3%); one hundred thousand dollars ($100,000)
(3) one percent (1%)
B) Drilling
(1) three percent (3%); fifty thousand dollars ($50,000)
(2) two percent (2%); one hundred thousand dollars ($100,000)
(3) one percent (1%)
C) Construction
(1) five percent (5%); fifty thousand dollars ($50,000)
(2) three percent (3%); one hundred thousand dollars ($100,000)
(3) one percent (1%)
D) Operation and Maintenance
2) $250.00 per producing well per month
Rates for D (2) and D (3) will not be adjusted
406. Dispositions: twenty five thousand dollars ($25,000)
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