1048136 ALBERTA LTD.
302 - 1505 West 2nd Avenue
Vancouver, British Columbia
Canada V6H 3Y1
Tel: (604) 739-6727 o Fax: (604) 739-6729
November 5, 2003
Eagle Star Energy Group
76 Seneca Creek Road
West Seneca, New York
14224, USA
Attention: Mr. Robert McIntosh
Dear Sir:
Re: Farmout Proposal - Rock Island Prospect, Province of Alberta
- ----------------------------------------------------------------------------
This Agreement outlines the terms upon which 1048136 Alberta Ltd.
("1048136") will grant to Eagle Star Energy Group a farmin opportunity (the
"Farmin") on certain lands known as the "Rock Island Prospect", located in the
Province of Alberta.
1. Definitions and Schedules
In this Agreement, the definitions provided by the 1997 CAPL Farmout
and Royalty Procedure (the "Farmout and Royalty Procedure"), Article 1.01, shall
apply; however, unless inconsistent therewith or unless the context otherwise
requires, specific terms shall have the meanings set forth below:
i) "AFE" means an authorization for expenditure issued by the
Operator;
ii) "CAPL" means the Canadian Association of Petroleum Landmen;
iii) "Farmee" means Eagle Star Energy Group; iv) "Farmor" means
1048136;
v) "Farmin Lands" means those lands described on Schedule "A"
hereto;
vi) "Well" means a well drilled on the Farmin Lands.
The following schedules are attached to and deemed to form parts of
this Agreement:
a) Schedule "A" Description of Farmin Lands
b) Schedule "B" Development Budget;
c) Schedule "C" 1997 CAPL Farmout and Royalty Procedure
(Elections and Amendments);
d) Schedule "D" Summary of 1990 CAPL Operating Procedure
(Elections and Amendments); and
e) Schedule "E" Summary of 1998 Revised PASC Accounting Procedure
(Elections and Amendments).
2. Drilling/Funding Obligations
By no later than February 1, 2004, the Farmee shall advance to the
Farmor the sum of USD$200,000 (the "Development Funds"), or shall provide
equivalent credit facilities against which the Farmor may draw. The Farmee shall
advance to the Farmor an additional USD$200,000 on or before April 1, 2004.
Subject to anything to the contrary contained in this paragraph, the
Farmor shall use the Development Funds exclusively for the development of the
Farmin Lands including, without limitation, to drill, fully test, complete, cap
or abandon one gas well (the "Well") targeting the Lower Cretaceous (Albian)
Wabiskaw Member (Clearwater Formation). The proposed budget for the Well shall
be as set forth in Schedule "B" hereto and the spud date shall be on or before
April 1, 2004. The Farmor shall in its absolute discretion determine the
drilling location for the Well on the Farmin Lands. The Farmor shall receive and
approve all AFE's issued by the Operator and shall provide a copy of such AFE(s)
to Farmee, together with a corresponding cash-call notice.
The Farmor shall cause the Well to be drilled, fully tested, completed, capped
or abandoned on the Farmin Lands using the Development Funds, acting on a
commercially reasonable basis, and any balance of the Development Funds
remaining after the completion of such drilling program shall become the
property of the Farmor.
3. Interest Earned
Provided the Farmee has advanced the Development Funds and otherwise
completed its obligations under paragraph 2 hereof, the Farmee shall, subject to
Article 3.00 of the Farmout and Royalty Procedure, have earned 66.67% (the
"Earned Interest") of the Farmor's working interest in the Farmin Lands.
4. Reasonable Extension
If, in the Farmor's reasonably held opinion, ground conditions or other
industry-related conditions render the drilling of the Well impossible or
impracticable, an extension of the time required to spud the Well shall be
allowed until such time as the adverse condition(s) ceases to exist, with
sufficient time then allowed to reasonably permit the drilling of the Well.
5. Assignment
The Farmee shall have the right to contract with an industry partner to
share its obligations hereunder; however, unless a written amendment to this
Agreement is executed by all involved parties, no such arrangements shall reduce
or otherwise affect the Farmee's obligations hereunder. Upon earning an interest
in the Farmin Lands, the 1993 CAPL Assignment Procedure (the "Assignment
Procedure") shall apply.
6. Operator
The Farmor shall in its absolute discretion appoint the operator (the
"Operator") of all drilling programs conducted pursuant to this Agreement, and
Well operations shall be performed in accordance with the 1990 CAPL Operating
Procedure. Notwithstanding the Farmee has met its obligations to acquire the
Earned Interest, it is agreed that the Farmor will be entitled to appoint the
operator of the first five (5) wells, including the Well drilled pursuant to
paragraph 2, as and when drilled on the Farmin Lands, as the case may be, and
the Farmee agrees that any subsequent farmout or assignment will only be
acceptable subject to this condition.
7. No Interest
In the event that the Development Funds required by paragraph 2 are not
provided on or before the due date, the Farmee shall have earned no interest in
the Farmin Lands.
8. Incorporation of CAPL Procedures
The 1997 CAPL Farmout and Royalty Procedure, 1990 CAPL Operating
Procedure, and 1988 PASC Accounting Procedure (the "Accounting Procedure") are
incorporated in and are deemed to form a part of this Agreement, and shall be
read with the elections and modifications thereto made by Schedules "C", "D" and
"E", respectively.
9. Confidentiality
The Farmor and Farmee agree that all information shared between the
parties concerning the Farmin Lands and the development thereof shall be held in
confidence and shall not used for any purposes other than completing this
transaction and matters directly related thereto.
10. General
10.1 The Farmor and Farmee shall each bear its own out-of-pocket costs,
including legal, accounting, engineering and consulting expenses,
incurred in connection with the subject matter hereof.
10.2 The rights and obligations of the parties hereunder will be binding on
and enure to the benefit of and be enforceable by each of the parties
hereto, and their respective successors and permitted assigns, and the
heirs, executors, administrators and assigns of natural persons who are
or become parties hereto. Except as provided herein, the rights or
obligations of the parties may not be assigned by any party hereto
without the consent of the other party hereto.
10.3 This Agreement will be governed by and construed in accordance with the
laws of the Province of British Columbia and the laws of Canada
applicable therein. The parties hereto irrevocably attorn to the
jurisdiction of the courts of the Province of British Columbia.
10.4 Any notices required hereunder will be given by delivery to the
addressee, whether by hand, by facsimile or by registered mail, to the
address below: in the case of the Farmor:
1048136 ALBERTA LTD.
302 - 1505 West 2nd Avenue
Vancouver, British Columbia
Canada V6H 3Y1
Fax: (604) 739-6729
Attention: Scott Marshall
in the case of the Farmee:
Eagle Star Energy Group
76 Seneca Creek Road
West Seneca, New York
14224, USA
Attention: Robert McIntosh
10.5 This Agreement constitutes the entire agreement between the parties
hereto and no variation of the terms hereof shall be binding unless the
same is contained in written document which is signed by all parties.
10.6 Wherever any term or condition of any schedule conflicts or is at
variance with any term or condition in the body hereof, the latter
shall prevail.
10.7 The headings of some of the paragraphs contained herein are inserted
for convenience of reference only and shall not affect the meaning or
construction thereof.
10.8 Wherever the plural, masculine or neuter is used in this Agreement, the
same shall be construed as meaning plural or feminine or body politic
or corporation, as the context so requires.
10.9 Each party shall from time to time perform all such further acts and
execute and deliver all further documents as may be reasonably required
in order to fully perform its obligations under this Agreement.
In the event this Agreement sets forth your understanding and agreement to the
matters detailed herein, please execute the enclosed letter and return the same
to the undersigned by no later than 4:00 p.m. (PST) on November 5, 2003, failing
which the subject matter hereofshall be null and void.
Yours very truly,
1048136 ALBERTA LTD.
Per:
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Authorized Signatory - Scott Marshall
Acknowledged and accepted this 5th November, 2003.
EAGLE STAR ENERGY GROUP
Per:
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Authorized Signatory
Schedule A
Attached to and forming part of an Agreement dated November 5, 2003
between 1048136 Alberta Ltd. and Eagle Star Energy Group
Description of Farmin Lands
Section 26-74-23 W4M
Schedule B
Attached to and forming part of an Agreement dated November 5, 2003
between 1048136 Alberta Ltd. and Eagle Star Energy Group
Development Budget - attached hereto
Schedule C
Attached to and forming part of an Agreement dated November 5, 2003
between 1048136 Alberta Ltd. and Eagle Star Energy Group
Farmout & Royalty Procedure Elections and Amendments
1. Effective Date (subclause 1.01(f)) - November 5, 2003
2. Payout (subclause 1.01(t), if Article 6.00 applies) Alternate A - N/A
Alternate B - N/A
Alternate B options, if applicable N/A m3 of Equivalent Production and
N/A years.
3. Incorporation of Clauses from 1990 CAPL Operating Procedure (Clause
1.02)
(i) Insurance (311) Alternate A: ___ Alternate B: X
4. Article 4.00 (Option Wells) will X/ will not __ apply. -
5. Article 5.00 (Overriding Royalty) will X/ will not __ apply. -
5.01 A (a) Alternate 1: 12.50% Natural Gas (b) Alternate 1: 12.50% Oil
6. Article 6.00 (Conversion of Overriding Royalty) will ___/will not X
apply.
7. Article 8.00 (area of Mutual) - will __/ will not X apply.
8. Article 11.02 (Reimbursement of Land Maintenance Costs) will __ / will
not X apply. -
Schedule D
Attached to and forming part of an Agreement dated November 5, 2003
between 1048136 Alberta Ltd. and Eagle Star Energy Group
Summary of 1990 CAPL Operating Procedure
I. Insurance (Clause 311): Alternate "A" ____ Alternate "B" X -
II. Marketing Fee (Clause 604): Will not Apply
III. Casing Point Election (Clause 903): Alternate "A" X Alternate "B" ___
IV. Penalty for Independent Operations (Clause 1007):
1.(Clause 1007(a) Development Wells 300% ----
2.(Clause 1007(b) Exploratory Wells 500% ----
V. Title Preserving Well (Clause 1010): 120 days
VI. Disposition for Interests (Clause 2401): Alternate "A" X Alternate "B"
VII. Recognition Upon Assignment (Clause 2404): Alternate "A" X Alternate
"B" ___ *(2404 is amended to incorporate the Assignment Procedure)
Schedule E
Attached to and forming part of an Agreement dated November 5, 2003
between 1048136 Alberta Ltd. and Eagle Star Energy Group
Summary of 1998 Revised PASC Accounting Procedure
I. Operating Advances (Clause 105 (a)): 10
II. Approvals (Clause 110): 2 or more parties totaling 65%.
III. Labour (Clause 202(b)):
(1) Second Level Supervisors located in a Production Office and
directly employed in the conduct of Joint Operations shall X/ shall not
___ be chargeable
(2) Technical Employees located in a Production Office and directly
employed in the conduct of Joint Operations shall X/ shall not ___ be
chargeable
IV. Employee Benefits (Clause 203(b)): 25%
V. Warehouse Handling (Clause 217: 2.5% for tubular goods 2" and over and
other items with new price over $5,000; 5% of the cost of all other
material.
VI. Overhead (Clause 302):
(a) For Each Exploration Project:
(1) 5% of first $50,000
-- -------
(2) 3% of next $100,000
-- --------
(3) 1% of cost exceeding (1) and (2)
--
(b) For Each Drilling Well:
(1) 3% of first $50,000
-- -------
(2) 2% of next $100,000
-- --------
(3) 1% of cost exceeding (1) and (2)
--
(c) For Each Construction Project: (1) 5% of first $50,000 (2) 3%
of next $100,000 (3) 1% of cost exceeding (1) and (2)
(d) For each Operation and Maintenance:
(1) ____ % of the cost; or
(2) For producing, injection and water source operations
a flat rate of $______ per month; or
(3) $250.00 per producing well per month
The rate is subclause (d)(2) and/or (d)(3) herein will ___ /will X not escalate
VII. Pricing of Joint Material Purchases, Transfers and Dispositions:
Approval of Non-Operator(s) required if new price greater than $20,000.
VIII. Periodic Inventories (Clause 501): at 5 year intervals