EXHIBIT 10.7
EXPLORATION JOINT VENTURE AGREEMENT
THIS AGREEMENT made as of the 19th day of February, 1997,
AMONG
ENCAL ENERGY LTD., a corporation incorporated under
the laws of the Province of Alberta ("Encal")
THE PARTY OF THE FIRST PART
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PINNACLE OIL INTERNATIONAL INC., a corporation
incorporated under the laws of the State of Nevada
("PINNACLE")
THE PARTY OF THE SECOND PART
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THE AFFILIATES, being the individuals or
corporations identified in Schedule "A" hereto,
having an affiliation to Pinnacle or the SFD
Technology (the "AFFILIATES")
THE PARTY OF THE THIRD PART
WHEREAS the parties have agreed to enter into this Exploration Joint
Venture Agreement (the "EJV") for the exploration, development and production of
oil and gas in Western Canada; and
WHEREAS the Parties have agreed that the EJV shall be carried out pursuant
to the provisions of this Agreement;
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NOW THEREFORE THIS AGREEMENT WITNESS THAT, in consideration of the premises
and the mutual covenants of the Parties herein contained, the Parties hereto
agree as follows:
1. Definitions and Schedules
a) In this Agreement, unless the context otherwise requires, the
definitions set forth in Clause 101 of the Operating Procedure, shall
apply and in addition, the following shall have the following
meanings;
i) "Accounting Procedure" means Schedule "D" attached to and made
part of this Agreement;
ii) "Assignment Procedure" means the CAPL 1993 Assignment Procedure
attached as Schedule "E" hereto which supersedes any conflicting
clause in the Operating Procedure;
iii) "Action" means the court proceedings described in an action
filed in the British Columbia Supreme Court, Vancouver Registry,
in File No. C944272, between George Liszicasz, as plaintiff; and
Alexander Shereshevsky, G.D.M Grand Development Corp., Samuel
Higgins, also known as Sam Higgins, and Sam J. Higgins, Manon L.
Walters and Keith Morey, as defendants, and Pinnacle Oil Inc.,
Pinnacle Oil International Inc. and Manon L. Walters Inc., as
defendants by counterclaim;
iv) "Basis Geophysical Data" means any non-interpreted seismic data,
processed record sections, seismic tapes, monitor records and
associated data;
v) "Earning Well" means a well drilled, completed or abandoned
pursuant to Clauses 12(b) or 13(b) as the context requires and
where such well is drilled pursuant to a Farmin Agreement or and
Additional Farmin Agreement and where such well earns from a
third party an interest in Petroleum and Natural Gas Rights;
vi) "Exploration Area" means any contiguous area covering up to nine
(9) township (or NTS survey equivalent) in size, as identified
by Encal pursuant to Clause 6 hereof with the three Initial
Exploration Areas identified in Schedule "B" hereto and as
identified by Encal pursuant to Clauses 7 and 9;
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vii) "Exploratory Prospect" means the geographic area and
appropriate spacing units (including entire spacing
units in the case of partial spacing units) covering an
SFD Anomaly identified utilizing SFD Technology and
qualified in accordance with the provisions of this
Agreement;
viii) "Facility" means:
a) production facility; or
b) any gas processing plant, gas compressor station,
battery, gathering system or production storage
facility used in the production of petroleum
substances which facility in accordance with
industry practice, would be constructed and/or
operated pursuant to a separate agreement:
ix) "Joint Lands" means joint lands and lands where the
Parties have acquired and interest pursuant to the
terms of a Farmin Agreement and/or an Additional Farmin
Agreement as set forth in Clause 12(b) or 13(b);
x) "Losses" means, in respect of any matter, all claims,
demands, proceedings, losses, damages, liabilities,
deficiencies, costs and expenses (including, without
limitation, all legal and other professional fees and
disbursements, interest, penalties and amounts paid in
settlement) arising directly or indirectly as a
consequence of such matter;
xi) "New Lands" means joint lands acquired pursuant to this
Agreement excepting those lands acquired pursuant to
Clauses 12(b) and 13(b);
xii) "Operating Procedure" means the 1990 amended CAPL
Operating Procedure attached hereto as Schedule "C" and
made part of this Agreement;
xiii) "party' or "Parties" means a party to this Agreement;
xiv) "Petroleum and Natural Gas Rights" means any documents,
issued or which may be issued, by virtue of which a
Party is entitled to drill for, win, take or remove
petroleum substances underlying lands and all renewals
or extensions thereof or documents of title issued
thereunder;
xv) "Royalty Procedure" means the royalty procedure
attached as schedule "F" and made part of this
Agreement.
xvi) "Seismic Costs" means, with respect to Basic
Geophysical Data, all moneys expended in respect of an
Exploratory Prospect for the purchase
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of seismic data, the shooting and processing or reprocessing
of seismic data and collection of information and any other
costs associated therewith;
xvii) "SFD Anomaly, means an anomalous geological or geophysical
feature prospective of containing petroleum substances,
initially identified by Pinnacle using SFD Technology and
SFD Data:
xviii) "SFD Data" means primary signal data derived form SFD
Technology;
xix) "SFD Information" means Ground Based SFD Information and
Airborne SFD Information collectively or individually as the
context requires;
xx) "SFD Technology" means stress field detector technology;
xxi) "Territory" means Alberta, British Columbia and
Saskatchewan;
xxii) "Wells" means, collectively, Earning Wells, Test Wells,
Additional Wells and Subsequent Wells as hereinafter
defined.
b) Appended hereto are the following schedules:
A - Affiliates
B - Initial Exploratory Areas
C - Operating Procedure
D - Accounting Procedure
E - Assignment Procedure
F - Royalty Procedure
G - Confidentiality Agreement
2. Term
a) The term of this Agreement ("Term") shall commence as of February 19,
1997, ("Effective Date") and shall extend for a period of three (3)
years therefrom which Term may be subsequently extended by the mutual
agreement of the Parties.
b) Provided that this Agreement has not been previously terminated
pursuant to Clause 19, the Term of this Agreement shall be restarted
and recommence for a three (3) year period following Pinnacle advising
Encal that it has the ability to commence and conduct airborne surveys
utilizing the SFD Technology unless such date is more than four (4)
years from the Effective Date hereof.
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3. No Warranty of Title
In the event any Party, subsequent to the date of this Agreement, encumbers
any interest it now holds or may obtain under this Agreement, the Party
which encumbers its interest shall be solely responsible for that
encumbrance, and agrees to indemnify the other Parties to this Agreement
form any Losses caused by the encumbrance.
4. Warranty Of Technology
a) Pinnacle and each of the Affiliates, jointly and severally, represent,
warrant and covenant to Encal that the beneficial owner of the SFD
Technology is Momentum Resources Ltd. ("Momentum") and Momentum has
granted Pinnacle an exclusive licence for the use of SFD Technology
for the purpose of generating SFD Data for the exploration of
petroleum substances.
b) Pinnacle and each of the Affiliates, jointly and severally, hereby
represent, warrant and covenant to Encal that, as of the Effective
Date and through the Term of this Agreement and any extensions
thereof, that Pinnacle is and will be the beneficial owner of the SFD
Data, free and clear of any and all claims, suits, proceedings,
encumbrances and obligations which may limit or impair its ability to
utilize the SFD Technology in the manner contemplated hereunder.
c) Pinnacle and each of the Affiliates, jointly and severally, hereby
represent, warrant and covenant with Encal that the conduct of any SFD
survey and joint operation contemplated by this Agreement does not
infringe upon the industrial or intellectual property rights, domestic
or foreign, of any other person and except for the Action, neither
Pinnacle nor the Affiliates are aware of any claim of any
infringement or breach of any industrial or intellectual property
rights of any other person nor have Pinnacle or any the Affiliates,
received any notice that the conduct of the SFD survey and joint
operations contemplated in this Agreement, including the use of the
SFD Technology, infringes upon or breaches any industrial or
intellectual property rights of any other person.
d) Except for the Action, Pinnacle and each of the Affiliates, jointly
and severally, represent, warrant and covenant with Encal that there
are no claims, actions, suits or proceedings (whether or not purported
on behalf of Pinnacle or the Affiliates) pending or to the best of the
knowledge of Pinnacle or each of the Affiliates, threatened against or
affecting Pinnacle, the Affiliates or the SFD
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Technology, at law or in equity or before or by any federal,
provincial, municipal or other governmental department, court,
commission, board, bureau, agency or instrumentally, domestic or
foreign, or before or by any arbitrator or arbitration board.
e) Pinnacle and each of the Affiliates, jointly and severally, warrant
and covenant with Encal that the entering into, consummation and
performance by Pinnacle of this Agreement will not constitute a breach
of any agreement, contract or licence by which Pinnacle or any
Affiliate is bound or an infringement upon any intellectual property
or technology right of any person.
5. USE OF TECHNOLOGY
a) Pinnacle shall provide to Encal a first priority to have Pinnacle
generate SFD Data on Encal's behalf during the Term of this Agreement
within the Territory, on the condition that Pinnacle may be entitled
to enter into up to a maximum of two (2) current joint ventures with
other parties within the Territory, to generate SFD Data on their
behalf, which joint ventures may utilize data obtained from the SFD
Technology in the Territory in areas other than the current
Exploration Areas; provided however that, in British Columbia, the SFD
Technology shall be utilized by Pinnacle solely and exclusively for
generating SFD Data for the benefit of Encal during the Term.
b) Encal's first priority to have Pinnacle generate SFD Data on Encal's
behalf as provide in Clause 5(a) shall mean a first dedication by
Pinnacle to Encal hereunder of a minimum of 50% of Pinnacle's world
wide SFD Data generating capacity to be dedicated to the Territory and
of which a minimum of 75% of Pinnacle's SFD Data generating capacity
within the Territory is to be first dedicated to Encal. Such first
dedication shall apply only at the times that Pinnacle has not
generated the Minimum Prospect Inventory, as hereinafter defined.
c) If during the Term of this Agreement, Pinnacle generates SFD Data in
the Territory that pertains to lands that are not within a current
Exploration Area or over an area permitted under another joint
venture, as allowed hereunder, Pinnacle shall present to Encal all SFD
Anomalies identified by Pinnacle from such data within thirty (30)
days and the terms and conditions of Clauses 6 or 7
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shall apply and Exploration Prospects resulting therefrom shall form
part of the Minimum Prospect Inventory referenced in Clause 9 (b).
Provided, however, Pinnacle shall not be required to present such SFD
Anomalies or features on any lands that would qualify as Excluded
Lands pursuant to Clause 8. This Clause 4(b) shall be in effect until
October 31, 1998.
6. SFD SURVEY PROGRAM - GROUND SURVEYS
a) Encal shall initially select three (3) Exploration Areas within the
Territory upon which ground based survey work will be conducted by
Pinnacle, utilizing the SFD Technology ("Ground Based Survey,).
Pinnacle shall perform the Ground Based Survey on each of these
Exploration Areas selected by Encal, in the order determined by Encal,
Pinnacle shall, within thirty (30) days, advise Encal of:
i) any safety concerns; or,
ii) conflicts with an area forming part of another joint venture as
provided in Clause 5(a) hereof; or to the knowledge of Pinnacle,
conflicts with lands held by Pinnacle's partner in such other
current joint venture, or,
iii) any concerns Pinnacle has arising in acquiring SFD Information of
a technical nature as a result of Excluded Lands or any other
bona fide reason,
if any, that pertain to the Exploration Areas that Encal selects for
such Ground Based Surveys. In the event that any of the above
conflicts or concerns arise, Encal and Pinnacle shall either jointly
modify the subject Exploration Area or Encal shall select another
Exploration Area as a substitute.
b) On or before September 25, 1997, Pinnacle shall:
i) present to Encal visual SFD Data and written interpretations
thereof collected while conducting the Ground Based Survey,
provided however, Pinnacle shall not be required to provide to
Encal copies, in any form, of the SFD Data;
ii) provide, at no cost to Encal, copies of all maps, information,
written reports, interpretations and assessments of Pinnacle
identifying, in Pinnacle's opinion, all SFD Anomalies, and
possible Exploratory Prospects; and,
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iii) provide recommendations in respect to all SFD Anomalies
identified, (i, ii, and iii above are collectively referred to as the
"Ground Based SFD Information").
(c) Upon presentation of the Ground Based SFD Information provided by
Pinnacle, Encal shall have ninety (90) days to review the Ground
Based SFD Information and individually accept or reject in writing any
or all SFD Anomalies or features ("Evaluation Period"). Pinnacle
agrees during the Evaluation Period to assist Encal in assessing,
confirming, and the further evaluation of any of the SFD Anomalies.
Any SFD Anomaly accepted by Encal shall be hereinafter called an
Exploratory Prospect.
There is no maximum to the number of SFD Anomalies that Pinnacle may
provide Ground Based SFD information on and which may be accepted by
Encal as Exploratory Prospects.
In the event that such SFD Anomalies are rejected by Encal, or deemed
rejected, such SFD Anomalies shall not be subject to this Agreement
and Pinnacle shall be free to deal with these rejected SFD Anomalies
as it wishes.
Encal and Pinnacle shall attempt to jointly prioritize the Exploratory
Prospects. Encal, as Operator and on behalf of the Parties, shall,
utilizing conventional oil and gas industry methods use it's best
efforts to cause further evaluation work to be done on each
Exploratory Prospect, as prioritized above. Such work shall be for the
purpose of confirming whether or not a Test Well location should be
selected and whether or not the drilling of such Test Well is
warranted (which work may include, but not restricted to further
qualification and analysis using Basic Geophysical Data available to
either Encal or Pinnacle).
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Seismic Costs shall be borne jointly, subject to Clause 10(c)(ii), by
each party, in accordance with the nature of the Test Well being
drilled under Clause 12 of this Agreement.
d) In the event that Encal fails to elect to accept or reject an SFD
Anomaly within the prescribed time, it shall be conclusively be deemed
to be a rejection of such SFD Anomaly and as such shall not become an
Exploratory Prospect.
e) In the event that an Exploratory Prospect is subsequently rejected for
technical reasons by Encal upon its review including any Basic
Geophysical Data, then the lands with respect to such Exploratory
Prospect, excepting any Joint Lands, shall not be subject to the terms
and conditions of this Agreement and Pinnacle shall be free to deal
with such Exploratory Prospects as it wishes and the Operating
Procedure shall continue to apply to any Joint Lands within such
Exploratory Prospect.
f) Should Encal, after reasonable effort, be unable to secure, pursuant
to Clauses 12(b), 12(c), or 21, the Petroleum and Natural Gas Rights
to any portion of an Exploratory Prospect (which portion represents,
in Encal's reasonable opinion, the key tracts to drill a Test Well
such Petroleum and Natural Gas Rights shall be called "the Key
Tracts"), then Encal shall provide written notice to Pinnacle of such
event occurring and for the purposes of Clause 9 such Exploratory
Prospect shall not be considered in calculating the Minimum Prospect
Inventory as defined in Clause 9 hereof.
The Parties may continue to attempt to secure the Key Tracts and the
provisions of Clauses 12(b), 12(c), or 21 shall continue for two (2)
years from the date of the above mentioned written notice. In
addition, the specific term set forth in Clause 21(b) with respect to
the specific Exploratory Prospect shall be deemed to be amended to two
(2) years from the date of the notice pertaining to the Key Tracts. In
the event that a Party is unable to secure the Key Tracts for such
Exploratory Prospect within such two (2) year period, then such
Exploratory Prospect shall be deemed a rejected Exploratory Prospect
except for any Joint Lands acquired thereon. In the event that such
Key Tracts are secured, then
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such Exploratory Prospect shall, for the purposes of Clause 9, be
considered in calculating the Minimum Prospect Inventory.
g) Should Pinnacle advise Encal, in writing, that it does not wish to
pursue an Exploratory Prospect, and provided Encal wishes to drill a
Test Well on such Exploratory Prospect, Encal shall pay Pinnacle an
amount of twenty thousand ($20,000.00) dollars and the lands in
respect to the Exploratory Prospect, excepting any Joint Lands, shall
not be subject to the terms and conditions of this Agreement and Encal
shall be free to pursue the Exploratory Prospect free and clear of any
further obligations to Pinnacle or the Affiliates.
h) In addition to the foregoing, Pinnacle agrees to provide, exclusively
to Encal, all leads and/or SFD Anomalies identified by Pinnacle and
the Affiliates utilizing SFD Technology in the Province of Alberta as
of the date hereof ("Existing Exploratory Prospects"), which Existing
Exploratory Prospects shall not be part of the Exploratory Prospects
required to be provided under Clause 5(c) hereof.
Encal shall have ninety (90) days from the date upon which this Ground
Based SFD Information is presented by Pinnacle to Encal in writing to
determine whether to accept or reject each Existing Exploratory
Prospect. Each Existing Exploratory Prospect shall, subsequent to
Encal's acceptance of same, be governed by the provisions of this
Agreement. In the event that Encal fails to elect to accept or reject
an SFD Anomaly within the prescribed time, it shall be conclusively be
deemed to be a rejection of such SFD Anomaly. Upon rejection, or
deemed rejection, by Encal of an Existing Exploratory Prospect free
and clear of any further obligations to Encal.
i) All information acquired by the Parties as a result of any operations
on the Exploration Areas shall be considered confidential and for
their sole and exclusive use and benefit. The Ground Based SFD
Information shall not be divulged to any party unless the Parties
first agree in writing to the dissemination thereof. Pinnacle shall
not, without the written consent of Encal which consent shall not be
unreasonably withheld, trade, sell or swap the Ground Based SFD
Information acquired under the terms of this Agreement pertaining to
an Exploratory Prospect and or an Existing Prospect unless it pertains
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to an Existing Exploratory Prospect and or an Exploratory Prospect
which has been rejected or deemed to be rejected by Encal.
j) The Parties hereto acknowledge that the SFD Technology and all SFD
Data shall continue to be the sole property of Pinnacle and the
Affiliates, and shall remain confidential and within the possession of
Pinnacle and/or the Affiliates.
k) Encal agrees that Pinnacle may require each employee of Encal and
Encal's professional advisors who come into contact with SFD
Technology to execute a Confidentiality Agreement in the form as
Schedule "G" attached hereto.
l) The Parties hereto acknowledge that any trading rights to Basic
Seismic Data acquired hereunder shall be owned in the same interests
as to participation in the initial acquisition of such Basic Seismic
Data.
7. SFD SURVEY PROGRAM - AIRBORNE SURVEYS
a) Upon Pinnacle advising Encal that Pinnacle is capable of conducting
airborne surveys utilizing SFD Technology, Encal may initially select
two (2) additional Exploration Areas within the Territory upon which
airborne survey work will be conducted by Pinnacle, utilizing SFD
Technology ("Airborne Survey"). Pinnacle shall perform such survey
work on each of these additional Exploration Areas selected by Encal,
in the order determined by Encal. Pinnacle shall, within thirty (30)
days, advise Encal of:
i) any safety concerns; or,
ii) conflicts with an area forming part of another joint venture as
provided in Clause 4(a) hereof; or to the knowledge of Pinnacle,
conflicts with lands held by Pinnacle's partner in such other
current joint venture, or,
iii) any concerns Pinnacle has arising in acquiring SFD Information of
a technical nature as a result of Excluded Lands or any other
bona fide reason,
if any, that pertain to either of the Exploration Areas that Encal
selects for such Airborne Surveys. In the event that any of the above
conflicts or concerns arise, Encal and Pinnacle shall either jointly
modify the subject Exploration Area or Encal shall select another
Exploration Area as a substitute.
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(b) On or before the expiration of one hundred and fifty (150) days from
the date that Encal has selected the Exploratory Areas for the
Airbourne Survey, Pinnacle shall:
i) present to Encal all visual SFD Data and written interpretations
thereof collected while conducting the Airbourne Survey, provided
however, Pinnacle shall not be required to provide to Encal
copies, in any form, of the SFD Data;
ii) provide, at no cost to Encal, copies of all maps, information,
written reports, interpretations and assessments of Pinnacle
identifying, in Pinnacle's opinion, all SFD Anomalies, and
possible Exploratory Prospects; and,
iii) provide recommendations in respect to all SFD Anomalies
identified, (i, ii, and iii above are collectively referred to as the
"Airbourne SFD Information").
c) Upon presentation of the Airbourne SFD Information provided by
Pinnacle, Encal shall have ninety (90) days to review the Airbourne
SFD Information and individually accept or reject in writing any or
all SFD Anomalies ("Airbourne Evaluation Period"). Pinnacle agrees
during the Airbourne Evaluation Period to assist Encal in assessing,
confirming, and the further evaluation of any of the SFD Anomalies.
There is no maximum to the number of SFD Anomalies that Pinnacle is
required to provide Airbourne SFD Information on and which may be
accepted by Encal as Exploratory Prospects.
d) All of the provisions of this Agreement shall apply mutatis mutandis,
to such Exploratory Prospects derived from the Airbourne SFD
Information and the Airbourne Survey as those provisions which apply
to the Exploratory Prospects set forth in Clause 6 of this Agreement.
e) Notwithstanding Clause 7(b) above, Encal and Pinnacle shall share in
the cost, on a 50/50 basis, of the daily rate for the airplane used
for the survey work performed pursuant to this Clause. The current
estimated gross cost of the daily rate is $3,000.00.
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8. Excluded Lands
Upon Encal having selected any Exploratory Area, Encal shall advise
Pinnacle in advance of Pinnacle conducting any survey utilizing SFD
Technology of any lands within the Exploration Area in which Encal holds or
is entitled to hold or is negotiating to acquire an interest in Petroleum
and Natural Gas Rights ("Excluded Lands"). Unless otherwise agreed,
Pinnacle during the Term:
a) shall not be entitled to acquire, farmin, option to farmin, or
purchase from Encal, or any third party an interest in the Excluded
Lands; and
b) shall not conduct any Ground Based Survey or Airborne SFD Survey upon
the Excluded Lands.
9. Additional Exploration Areas
During the Term of this Agreement and as a result of the SFD information
and associated Exploratory Prospects, it is a requirement of this Agreement
that at any time after January 1, 1998, either:
a) each Exploration Area yield no fewer than three (3) Exploratory
Prospects; or
b) all Exploration Area yield a total of twenty-five (25) Exploratory
Prospects (provided Pinnacle is capable of generating Airborne SFD
information, a minimum of ten (10) of the required twenty five (25)
Exploratory Prospects must be as a result of Airborne SFD information)
(such number of Exploratory Prospects, as set forth in Sub-clauses (a) or
(b) above, is hereinafter referred to as "the Minimum Prospect Inventory").
In the event that the sum of the Exploratory Prospects is less than the
Minimum Prospect Inventory, Pinnacle shall commence further Ground Based
Surveys or Airborne Surveys, as designated by Encal, on an additional
Exploration Area(s) under the same terms and conditions outlined in this
Agreement until at least the Minimum Prospect Inventory is achieved, with
such additional Exploration Areas to be provided on such a "rolling basis"
as may be required.
The provisions of Clauses 6 and/or 7, as the context requires, shall apply
to the above mentioned additional Exploration Areas created as a result of
this Clause.
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10. INTERIM TERM PROVISIONS
a) The Parties agree that an interim period (the "Interim Period") shall
apply from the date hereof until the earlier of:
i) such time as either:
a) a minimum of three Test Wells have been drilled, completed
and producing or capable of producing petroleum substances
of at least one hundred (100) barrels of oil (or an
equivalent) per day per each Test Well located on
Exploratory Prospects; or
b) five (5) Test Well have been drilled on Exploratory
Prospectus; or
ii) one (1) year from the Effective Date
b) Subject to any third party Farmin Agreements or Additional Farmin
Agreements, the Parties agree that Pinnacle shall be entitled to
release to the public through press releases the results of the
drilling of Wells on any Exploratory Prospects to comply with
securities laws, confirm and validate the SFD Technology and to
assist Pinnacle in raising financing. Pinnacle may disclose in such
news releases the expected reserves and expected production rates from
the Wells provided confirmation thereof has been given by independent
engineers, but will not (without the approval of Encal) release the
location of such Wells or other matters of a confidential nature which
might reasonability be expected to affect Encal's ability to conduct
operations competitively. Pinnacle will not disclose Encal's name in
any press release without Encal's prior approval.
c) Notwithstanding anything herein contained, during the Interim Period:
i) Encal shall not, in respect of any Exploratory Prospects,
propose the drilling of any Test Wells, make any commitments to
third parties, post any lands for sale at Crown sales, initiate
any freehold mineral leases, or acquire any lands under
agreements for purchase and sale, without the agreement of
Pinnacle;
ii) Pinnacle shall have the right not to participate in the
acquisition of Basic Geophysical Data in respect of an
Exploratory Prospect, in which case, Encal shall be entitled to
acquire such Basic Geophysical Data and recover Pinnacle's share
of Seismic Costs from Pinnacle's share of production from any
Wells; and
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iii) Pinnacle shall be given the opportunity during a period of ninety (90)
days from the end of the Interim Period to initiate and complete a
financing ("Financing Period"). Encal shall endeavour not, without the
approval of Pinnacle, to initiate any new operations, incur new
obligations for capital (including AFE's or issue cash calls), or new
commitments after the end of the Interim Period until the end of the
Financing Period. In the event Encal for any reason does initiate new
operations, incur new obligations for capital (including AFE's or
issue cash calls) during the Financing Period then it is agreed that
Pinnacle may withhold payment for same until the end of the Financing
Period.
iv) Encal shall use its reasonable efforts to negotiate in third party
Farmin Agreements, and Additional Farmin Agreements no more onerous
confidentiality provisions than those provided in Article XVIII of the
Operating Procedure.
11. CONVENTIONAL EVALUATION
Notwithstanding the use of the SFD Information in evaluating the
Exploration Areas, the Parties hereto agree and acknowledge that any
Exploratory Prospect (including Existing Exploratory Prospects) evaluated
under this Agreement shall have been evaluated using such geological,
geophysical, engineering, mapping, seismic and technological data or
information, including without limitation the Basic Geophysical Data,
available to either Encal or Pinnacle in addition to the SFD Information
such that any successes or failures in drilling on an Exploratory Prospect
shall be attributed to all of the information and data utilized evaluating
and determining the Exploratory Prospect.
12. DRILLING OF WELLS
During the Term of this Agreement:
a) Upon Encal having completed the evaluation work as described in Clause
6(c), Encal may select a location for the drilling of a well on an
Exploratory Prospect and if such well is the first well to be drilled
on an Exploratory Prospect pursuant to this Agreement it shall be
referred to as the "Test Well". In the event that Encal wishes to
drill a Test Well, Encal shall serve written notice to Pinnacle ("Test
Well Notice") including a reasonable estimate of Test Well costs and
an
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estimate of the timing of the advance of funds. Pinnacle shall then elect
by written notice to Encal on or before the expiration of fifteen (15) days
from receipt of the Test Well Notice to either:
i) elect to participate in the drilling of the Test Well; or
ii) elect not to participate in the drilling of the Test Well.
Should Pinnacle elect to participate in the drilling of a Test Well, Encal
shall commence, or cause to be commenced, the drilling of such Test Well on
the Exploratory Prospect as provided herein or pursuant to any agreement
entered into with third parties by Encal, on behalf of Encal and Pinnacle.
Should Pinnacle elect not to participate in the drilling of the Test Well
the provisions of Clause 6(g) shall come into effect.
During that period of time prior to Pinnacle's election to participate
Encal shall assist Pinnacle in the review of the proposed Test Well
location.
In the event that Pinnacle fails to elect to participate in the drilling of
a Test Well within the prescribed time, it shall be conclusively be deemed
to be an election not to participate.
b) In the event that Petroleum and Natural Gas Rights within an Exploratory
Prospect are held by third parties to this Agreement ("Third Party Lands")
and Encal is required to commit to conduct certain obligations, including
but not restricted to seismic programs, purchases of seismic, or the
drilling of Earning Wells (such obligations are collectively referred to as
"Obligations") which may be required to earn an interest or the right to
earn an interest in the Third Party Lands, Encal may negotiate and enter
into agreements with third parties ("Farmin Agreements"). In the event that
Encal enters into a Farmin Agreement, Encal shall serve written notice to
Pinnacle of Encal entering into such Farmin Agreement ("Farmin Notice")
including a reasonable estimate of Obligations and an estimate of the
timing of the advance of funds. Such notice shall include such
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information necessary to evaluate such Obligations. Pinnacle shall
then elect by written notice to Encal on or before the expiration of
fifteen (15) days from receipt of the Farmin Notice to either:
i) elect to participate in the Obligations; or
ii) elect not to participate in the Obligations.
Should Pinnacle elect to participate in the Obligations, the cost,
risk and expense of the Obligations and the interest earned in the
Third Party Lands subject to the Farmin Agreements shall be shared by
the Parties in the following proportions:
Encal 75%
Pinnacle 25%
Should Pinnacle elect not to participate in the Obligations, the Third
Party Lands and the relevant Exploratory Prospect with the exception
of any Joint Lands shall not be subject to the terms and conditions of
this Agreement. The cost, risk, expense, any Petroleum and Natural Gas
Rights earned, or benefit derived therefrom shall be for Encal's own
account.
During that period of time prior to Pinnacle's election to participate
Encal shall assist Pinnacle in the review of the Obligations.
In the event that Pinnacle fails to elect to participate in
Obligations within the prescribed time, it shall be conclusively be
deemed to be an election not to participate.
c) Provided Pinnacle elects to participate in a Test Well, the cost risk and
expense associated with each Test Well shall be borne by the Parties in
accordance with their interest in the Test Well Spacing Unit unless
otherwise provided herein. For clarity sake the interests of the Parties
shall be generally shared in the following proportions:
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ii) if lands acquired pursuant to Clause 21 c(ii) then:
Encal 70%
Pinnacle 30%
ii) if lands acquired pursuant to Clauses 12(b) and 13(b) or 21 (c)
(i), then:
Encal 75%
Pinnacle 25%
d) For the purposes of Clause 9 inter alia, upon an Exploratory Prospect
having been evaluated by the drilling of a Test Well such Exploratory
Prospect shall be considered proven ("Proven Prospect") and shall no
longer be considered an Exploratory Prospect.
13. DEVELOPMENT OF PROVEN PROSPECTS
a) During the Term of this Agreement and for one (1) year thereafter,
where further wells are proposed in order to fully develop the
potential of a Proven Prospect which wells are located on Joint Lands
earned as a result of a Farmin Agreement ("Additional Well"). Encal
shall serve written notice to Pinnacle of the Additional Well
("Additional Well Notice"). Such Additional Well Notice shall include
such information necessary to evaluate such Additional Well including
a reasonable estimate of Additional Well costs and an estimate of the
timing of the advance of funds. At Pinnacle's option and exercisable
by written notice to Encal on or before the expiration of fifteen (15)
days from the date such Additional Well is proposed, Pinnacle may
elect to:
i) participate in the drilling of such Additional Well; or
ii) not to participate in such Additional Well.
In the event that Pinnacle elects to participate in the drilling of
such Additional Well, then the operating provisions of the Farmin
Agreement or the Operating Procedure, whichever agreement governs the
relationship of the Parties hereto, shall apply to such Additional
Well.
In the event Pinnacle elects not to participate in such Additional
Well, then for the purposes of such Additional Well and as between the
Parties hereto, the
-18-
provisions of Clauses 1007, 1009, 1013, 1017, and 1020 of the
Operating Procedure shall apply to such Additional Well with the
percentages set forth in Clause 1007 (iv) of the Operating Procedure
to be 150% and with the statement provided in Clause 1013 (a) of the
Operating Procedure to be provided annually.
b) Where further wells may be required to earn Third Party Lands
comprising a portion of a Proven Prospect pursuant to a Farmin
Agreement or should Encal negotiate and enter into new agreements with
third parties ("Additional Farmin Agreement") to drill further wells
to earn Third Party Lands (such well shall be referred to as the
"Additional Earning Well"), Encal shall serve written notice to
Pinnacle of the Additional Earning Well ("Earning Well Notice"). Such
Earning Well Notice shall include such information necessary to
evaluate such Additional Earning Well including a reasonable estimate
of Additional Earning Well costs and an estimate of the timing of the
advance of funds. Pinnacle shall then elect by written notice to Encal
on or before the expiration of fifteen (15) days from receipt of the
Earning Well Notice to either:
i) elect to participate in the Additional Earning Well; or
ii) elect not to participate in the Additional Earning Well.
Should Pinnacle elect to participate in the Additional Earning Well,
the cost, risk and expense of the Additional Earning Well and the
interest earned in the Third Party Lands subject to the Farmin
Agreement or the Additional Farmin Agreement shall be shared by the
Parties in the following proportions:
Encal 75%
Pinnacle 25%
Should Pinnacle elect not to participate in the Additional Earning
Well; such Third Party Lands shall not be subject to the terms and
conditions of this Agreement. The cost, risk, expense, any Petroleum
and Natural Gas Rights earned, or benefit derived therefrom shall be
for Encal's own account.
During that period of time prior to Pinnacle's election to participate
Encal shall assist Pinnacle in the review of the Additional Earning
Well.
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In the event that Pinnacle fails to elect to participate in the
Additional Earning Well within the prescribed time, it shall be
conclusively be deemed to be an election not to participate in such
Additional Earning Well.
c) During the Term of this Agreement and for one (1) year thereafter and
where the drilling of a Test Well leads to the drilling of subsequent
wells ("Subsequent Wells") on previously acquired New Lands within a
Proven Prospect, and Encal wishes to drill a Subsequent Well, Encal
shall serve written notice to Pinnacle ("Subsequent Well Notice")
including a reasonable estimate of Subsequent Well costs and an
estimate of the timing of the advance of funds. Pinnacle shall then
elect by written notice to Encal on or before the expiration of
fifteen (15) days from receipt of the Subsequent Well Notice to
either:
i) elect to participate in the drilling of the Subsequent Well; or
ii) elect not to participate in the drilling of the Subsequent Well.
Should Pinnacle elect to participate in the drilling of a Subsequent
Well, all operations pertaining to such Subsequent Well shall be
governed pursuant to the provisions of the Operating Procedure.
Should Pinnacle elect not to participate in the drilling of a
Subsequent Well, Encal shall pay Pinnacle's share of the drilling
costs, completion costs, equipping costs, lessor royalties,
encumbrances which would normally be borne by the Joint Account, and
operating costs associated with such Subsequent Well.
During that period of time prior to Pinnacle's election to participate
Encal shall assist Pinnacle in the review of the proposed Subsequent
Well.
In the event that Pinnacle fails to elect to participate in the
drilling of a Test Well within the prescribed time, it shall be
conclusively be deemed to be an election not to participate.
d) In the event Pinnacle has elected not to participate in a Subsequent
Well, the Parties acknowledge that Encal is not entitled to, nor is
Pinnacle obligated to
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assign, the interest of Pinnacle in that portion of the New Lands comprising
such Subsequent Well Spacing Unit. The provisions of this Sub-clause are in lieu
of Article X of the Operating Procedure.
Prior to Payout, as hereinafter defined, Encal shall, however, be entitled to
all of Pinnacle's share of production from the Subsequent Well or allocated to
the Subsequent Well Spacing Unit until that point in time where the Subsequent
Well is abandoned or when the gross proceeds of the sale of petroleum substances
produced and sold from the Subsequent Well or allocated to the Subsequent Well
Spacing Unit equals, without duplication, the sum of:
i) drilling costs;
ii) completion costs;
iii) equipping costs;
iv) operating costs;
v) gathering, processing and marketing fees;
vi) lessor's royalties;
vii) encumbrances which would normally be borne by the joint Account; and
viii) the Overriding Royalty
(hereinafter referred to as "Payout).
During the period prior to Payout, Encal agrees to calculate and pay to Pinnacle
the Overriding Royalty in accordance with Schedule "F" which schedule shall be
deemed separately executed by the Parties. The aforementioned Overriding Royalty
shall be calculated and payable on the combined interest of Pinnacle and Encal
in the Subsequent Well Spacing Unit.
Encal shall give written notice as soon as reasonably possible to Pinnacle, for
each subsequent Well drilled and completed, setting forth the costs set out in
items (i) to (viii) inclusive above.
At Payout on a well by well basis, Encal shall serve written notice to Pinnacle
that each such Subsequent Well has reached Payout whereupon the Overriding
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Royalty shall be terminated. Thereafter such Subsequent Well shall be
held for the Joint Account as if Pinnacle participated in such
Subsequent Well..
e) Until Payout, Encal shall supply Pinnacle, annually with a statement
showing the status of Payout of the appropriate Subsequent Well.
f) The termination of the Overriding Royalty shall be deemed effective as
and from the first day of the month following the date of Payout.
g) In the event that Pinnacle elects not to participate in the drilling
of any Subsequent Well, Encal agrees to afford to Pinnacle the same
rights and privileges reserved to a participating party including the
right to take over a Subsequent Well if abandonment is proposed.
14. Operator
a) Encal is hereby appointed Operator of the EJV and agrees that it shall
not delegate or assign any of its duties during the Term of this
Agreement without the prior consent of Pinnacle, which consent shall
not be unreasonably or arbitrarily withheld.
b) Encal, as Operator of the EJV, shall make all decisions relating to
the management and control of the EJV subject to the terms of this
Agreement and the agreement of Pinnacle where expressly required
hereunder with Encal's reasonable discretion, which shall be exercised
in good faith in a workmanlike manner in accordance with good oil and
gas field practice, and which shall be final and binding on the
Parties, except as otherwise provided in this Agreement. Subject to
the foregoing, the Operator shall:
i) explore, develop, manage and operate oil and gas properties;
ii) conduct preparatory exploration on behalf of the Parties, which
shall include (but not be limited to subsurface mapping, prospect
/play purchases, geophysical field surveys, the collection of
Basic Geophysical Data together with the necessary
interpretations as may from time to time be necessary);
iii) select drill sites and arrange for the drilling of the Wells
thereon and produce and sell petroleum substances from the
respective accounts of the Parties; it being understood that
Encal is not warranting that
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petroleum substances will be sold, only that it shall use its
best efforts to market such petroleum substances on the same
terms and conditions as it markets its own share;
iv) enter into agreements on behalf of the Parties to the EJV for
the drilling, participation, development, pooling, farmin,
farmout, unitization, joint venture and production of petroleum
substances and for the gathering, processing, transportation and
sale of same;
v) carry insurance, as specified in Clause 311(B) of the Operating
Procedure on behalf of the Parties as a charge to the joint
account;
vi) vote as one on behalf of both Encal and Pinnacle in all matters
arising from EJV activities;
vii) give receipts, releases and discharges on behalf of the Parties
hereto;
viii) prior to commencing the drilling of any Well, to review the
title of the appropriate holder of the Title Document in
accordance with industry standards; and
ix) charge overhead and such other costs recoveries to the Parties
as are provided in the Accounting Procedure attached to the
Operating Procedure, without duplication.
15. FACILITIES AND MARKETING
a) Provided a Well is capable of production of petroleum substances in
paying quantities, Encal shall use its best efforts to promptly cause
each of the Wells that have been drilled, completed and equipped under
this Agreement, to be connected to Encal's or third party's
Facilities. Encal agrees to produce and market Pinnacle's share of
petroleum substances produced from the Wells and, in addition to the
provisions of this Clause, the provisions of Article VI of the
Operating Procedure shall apply thereto. Encal shall not, except for
lack of market, shut-in the Wells or reduce production rates as will
result in such Wells producing less than their fair and equitable
share of recoverable reserves from any reservoir from which Encal's
other wells are producing, to the disadvantage or detriment of
Pinnacle.
b) With respect to those Facilities in which Encal does not have any
ownership interest, Pinnacle shall be charged the actual cost for
storage gathering,
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processing, transporting, treating, compressing, absorption or other
plant extraction or stabilization of Pinnacle's share of petroleum
substances.
c) With respect to those Facilities in which Encal does have an ownership
interest and subject to any agreements with third parties, Pinnacle
shall be charged a reasonable fee sufficient to cover the costs for
the storage, gathering, processing, transporting, treating,
compression, absorption or other plant extraction or stabilization of
Pinnacle's share of Petroleum substances which fee shall also include
a reasonable rate of return on capital investment.
d) Notwithstanding the provisions of Article VI, Clause 601 of the
Operating Procedure, Pinnacle hereby agrees to dedicate Pinnacle's
share of production of Petroleum Substances from the Lands to Encal
who shall undertake to market Pinnacle's share of production on the
same terms as Encal markets its own share of production, subject to
the provisions of Article VI, Clause 604, election "A".
e) If at any time during the Term of this Agreement a party (in this
Clause called "the Proposing Party") wishes to construct new
Facilities for the treating, processing, or transportation of
petroleum substances from the New Lands and/or any other lands which
lands subject to this Agreement, it shall afford to the other party an
opportunity to participate in such project on an equitable basis. The
Proposing Party shall provide to the other party the background
information the Proposing Party deems reasonably necessary for the
other parties to evaluate the project and make a decision. The Parties
recognize that until a proposal is made it is not possible to
determine the terms of such participation, however, each party agrees
that it will act in good faith in carrying out the terms of this
Clause.
16. Meetings and Reporting
Upon completion of the SFD survey and the acceptance and evaluation of the
Exploratory Prospects, Encal shall provide Pinnacle with an outline of the
Wells to be drilled and new Facilities to be constructed. It is
acknowledged that such outline shall not be binding and may be subject to
revision from time to time. At two (2) month intervals thereafter, Encal
shall provide outlines for the EJV Wells scheduled to be drilled in each
successive calendar quarter during the Term. Beyond the Term, the
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Parties shall consult to determine the most efficient and reasonable method
of scheduling further operations.
17. INCORPORATION OF THE OPERATING AGREEMENT
a) Provided Pinnacle has elected not to participate in the drilling of a
Subsequent Wells pursuant to Clauses 13(a) and 13(c) of this
Agreement, then the following clauses of Schedule "C" ("Operating
Procedure") shall apply, mutatis mutandis, to this Agreement and to
all operations of Encal as between Encal and Pinnacle for such wells
drilled thereunder. Where the terms of this Agreement and the
Operating Procedure conflict, the terms of this Agreement shall
prevail. Where the Operating Procedure makes reference to "Operator"
the word "Encal" is substituted and similarly, "Joint Operator" is
substituted by "Pinnacle" and "this Operating Procedure" is
substituted by "this Agreement".
304 Proper Practices in Operations
305 Books, Records and Accounts
306 Protection from Liens
307 Joint-Operator's Right of Access
308 Surface Rights
309(a)Maintenance of Title Documents
311 Insurance
501 Accounting Procedure
701 Pre-Commencement Information (excluding 701 (a))
702 Drilling Information and Privileges of Joint-Operators
703 Logging and Testing Information to Joint-Operators
704 Completion and Production Information to Joint-Operators
705 Well Information Subsequent to Completion
706 Data Supplied in Accordance with Industry Standards
801 Velocity Surveys and Other Geophysical Tests
ARTICLE 11 Quit Claims
1601 Definition of Force Majeure
1602 Suspension of Obligation Due to Force Majeure
1603 Obligation to Remedy
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1604 Exception for Lack of Finances
1801 Information to be Kept Confidential
b) Subject to the terms of this Agreement, the Operating Procedure shall
apply to operations conducted in respect of the exploration,
development and maintenance of any Joint Lands, between and among the
Parties hereto.
c) In the event that the Parties are parties to an existing agreement
involving third parties ("Third Party Agreement") and where the Third
Party Agreement conflicts with the Operating Procedure, the Third
Party Agreement shall prevail.
18. Indemnification
a) The Parties hereto shall, in proportion to their respective
participating interests in the EJV, hereby indemnify and hold harmless
the Operator from and against any and all actions, suits, claims and
demands made by any person or persons whomsoever, other than the
Parties hereto, in respect of any loss, injury, damage or obligation
to compensate arising out of or in any way connected with the carrying
out by the Operator of its duties and obligations in accordance with
the provisions of this Agreement, except when the Operator is found to
be grossly negligent.
b) Pinnacle indemnifies Encal against any and all Losses which may be
incurred or suffered by Encal or which may be sustained, paid or
incurred by reason of or in any way attributable to the operations
carried on in respect of the SFD survey by Pinnacle, its servants,
agents or employees under this Agreement.
c) Pinnacle and each of the Affiliates jointly and severally indemnifies
Encal against any and all Losses which may be incurred or suffered by
Encal or which may be sustained, paid or incurred by reason of or in
any way attributable to the breach of one or more of the
representations, warranties or covenants made by Pinnacle and each of
the Affiliates under Clause 4 hereof, whether such a breach occurs
prior to or during the Term of this Agreement, such an indemnity to
continue for a period of five (5) years following the termination of
this Agreement.
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19. Default and Termination.
a) If either Party fails to perform any obligation required to be
performed hereunder, the non-defaulting Party may give the defaulting
party notice to remedy the default, and if the defaulting Party does
not commence to remedy the default within thirty (30) days after
receiving the notice and proceed diligently and continuously to remedy
it, the non-defaulting Party may by notice to defaulting Party in
writing terminate this Agreement.
b) If, as a result of the Action or any breach of the representations,
warranties and covenants contained in Clause 4 hereof, whether such a
breach is the result of the actions of Pinnacle or any of the
Affiliates, or if Pinnacle or any of the Affiliates is no longer
entitled to the SFD Technology and the right to utilize the SFD
Technology is granted to any other third party, Encal may terminate
this Agreement by providing written notice of same to Pinnacle.
c) In the event that Encal fails to drill twenty-five (25) Wells within
the Term, which Wells shall (subject to reasonable extensions for
delays due to drill rig availability and surface access or the
failure of Pinnacle to agree to operations or acquisitions proposed by
Encal during the Interim Period) be drilled as follows:
1st Year 5 Wells
2nd Year 8 Wells
3rd Year 12 Wells
Pinnacle may terminate this Agreement by providing written notice of
same to Encal.
d) In the event that this Agreement is terminated as provided in this
Clause, any Joint Lands shall continue to be governed by the Operating
Procedure or applicable third party agreement.
20. Transfer
Each Party shall not transfer this Agreement or any interest, right or
obligation under this Agreement, except in accordance with the provisions
of Clause 2401 (B) of the Operating Procedure, provided that for the
purpose of Clause 2401 (B) of the Operating Procedure, Affiliates may
include a limited partnership where Pinnacle or Pinnacle Oil
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Canada Ltd. is the general partner of such partnership. Any assignment of
interest shall be in accordance with the Assignment Procedure attached as
Schedule "E" hereto.
Notwithstanding any assignment made by Pinnacle to an Affiliate, during the
Term of this Agreement, Encal need only look to Pinnacle for performance of
the duties and obligations of Pinnacle pursuant to this Agreement.
21. AREA OF MUTUAL INTEREST
a) In this Clause the expression "AMI Lands" means any Petroleum And
Natural Gas Rights, or either of them, which are laterally and/or
diagonally within one (1) mile of the lands encompassing any
Exploratory Prospect, other then lands acquired pursuant to Clauses
12(b) and 13(b).
b) On an Exploratory Prospect by Exploratory Prospect basis, the
provisions of this Clause relating to the acquisition of any AMI Lands
shall:
i) for AMI Lands not encompassing the Exploratory Prospect, be
effective for that period commencing on the date of acceptance,
in writing, by Encal of an Exploratory Prospect and terminating
one (1) year thereafter, and;
ii) for AMI Lands encompassing the Exploratory Prospect, be effective
for the Term of the Agreement or the period in b (i) above
whichever is longer.
c) If any AMI Lands become available for acquisition by Crown sale (the
"New Crown Lands") and if one of the Parties desires to acquire an
interest in the New Crown Lands, the Parties shall consult at least
forty-eight (48) hours prior to the final hour at which bids are
accepted for the sale of the New Crown Lands for the purpose of
attempting to reach an agreeable bid price. If, after consultation
between the Parties, agreement is reached, Encal shall submit the bid
on behalf of the Parties and if the New Crown lands are acquired, they
shall be paid for, owned and held by the acquiring Parties in the
following interests ("Participating Interests"):
i) if a Test Well has been drilled or is being drilled pursuant to
Clause 12(b), subject to any third party participation:
-28-
Encal 75%
Pinnacle 25%; or
ii) in all other cases, subject to any third party participation:
Encal 70%
Pinnacle 30%
d) Subject to Sub-clause (e), if agreement is not reached as to a bid
price, then the New Crown Lands so acquired shall be paid for, owned
and held by the party acquiring the New Crown Lands.
e) If, after any consultation at which an agreed bid price is not reached
by all Parties, any party acquires the New Crown Lands at a price
which differs by more than five percent [5%] from the price it was
prepared to agree to for acquisition, or if a party acquires the New
Crown lands without consulting with the other party or without
disclosing the price it was prepared to pay for the acquisition, the
acquiring party shall immediately give notice to the other party
setting forth the consideration paid. Any party receiving the notice
shall have the right for a period expiring ten (10) days from the
receipt of the notice to elect to acquire its Participating Interest
in the New Crown Lands acquired by paying to the acquiring party its
proportionate share of the acquisition costs. If this right is
exercised, the New Crown Lands shall be held and owned by the Parties
acquiring and the parties electing to acquire their proportionate
interest in the proportion that their respective Participating
Interests bear one to the other as set forth in Sub-clause (b)(i) or
(b)(ii), whichever is applicable. The interest acquired shall be held
by the acquiring party on behalf of all Parties until the expiry of
the ten (10) day period.
f) On acquisition of AMI Lands more than one Party, if the AMI Lands are
not already subject to an agreement that provides for their joint
operation, an agreement in the form of the Operating Procedure shall
be deemed immediately to become effective to govern the relationship
among the Parties and to provide for the maintenance and operation of
the AMI Lands. Encal shall be the Operator unless Encal does not
acquire an interest in the AMI Lands, in which event the Parties who
have acquired an interest shall appoint an operator in the
-29-
manner provided for the appointment of a new operator in the Operating
Procedure.
g) Provided that both Encal and Pinnacle acquire their Participating
interests in the AMI Lands, any Wells drilled on the AMI Lands, except
any Test Well, shall be deemed Additional Wells under this Agreement
and, as such, the provisions of Clause 13(a) shall apply mutandis
mutatis to such an Additional Well.
h) A Party submitting a bid under the provisions of this Clause shall
comply with all combines and anti-competition laws and shall make
known to the person calling for or requesting the bids or tenders at
or before their time when any bid or tender is made, the names of all
Parties who have agreed to submit a bid or tender.
i) If any Party acquires an interest (or the right to acquire an
interest) in any lands other than New Crown Lands as provided in Sub-
clause (c) above or Petroleum and Natural Gas Rights as set forth in
Clauses 12(b) or 13(b) and fifty percent (50%) or more (by surface
area and title document) of the lands so acquired are situated within
the Area of Mutual Interest, the acquiring Party shall notify the
other Party thereof within fifteen (15) days of the acquisition,
detailing the consideration paid or payable therefor and the
obligations undertaken by the acquiring party with respect to the said
acquisition. The other Party shall have ten (10) days from receipt of
the notice of acquisition within which to elect to participate in the
said acquisition to the extent of the percentage interest set forth
opposite its name in Sub-clause (c)(i) or (c)(ii) above, which ever is
applicable, by paying to the acquiring party pursuant to the said
acquisition.
22. Exclusions to the EJV
Notwithstanding anything contained herein, the following are specifically
excluded from this Agreement:
a) the acquisition of any interest in corporations, partnerships,
affiliates or other legal entities as such by the purchase of an
equity interest therein or merger therewith and any duties,
obligations or acquisitions resulting therefrom where the AMI Lands
are not the primary purpose of the acquisition;
b) any interests held by Encal and its joint operators as Excluded lands;
or
-30-
c) the purchase of any oil and gas reserves (whether proven or probable
reserves) unless subsequently deemed included by mutual agreement of
the Parties.
23. NOTICES
a) The addresses for service and the fax numbers of the Parties shall be
as follows:
Encal - Encal Energy Ltd.
1800, 421 - 7th Avenue S.W.
Calgary, Alberta
T2P 4K9
Attention: Manager, Land
------------------------
Fax: (403)266-6648
Pinnacle - Pinnacle Oil International Inc.
1090 West Georgia Street
Vancouver, B.C.
V6E 3V7
Attention: President
--------------------
Fax: (604)893-8644
b) All notices, communications and statements required, permitted or
contemplated hereunder shall be in writing, and shall be delivered as
follows:
i) by personal service on a party at the address of such party set
out above, in which case the item so served shall be deemed to
have been received by that party when personally served;
ii) by fascimile transmission to a party to the fax number of such
party set out above, in which case the item so transmitted shall
be deemed to have been received by that party when transmitted
with answer back received; or
iii) except in the event of an actual or threatened postal strike or
other labour disruption that may affect mail service, by mailing
first class registered post, postage prepaid, to a party at the
address of such party set out above, in which case the item so
mailed shall be deemed to have been received by that party on the
fifth (5) business day following the date of mailing.
-31-
c) A Party may from time to time change its address for service or its
fax number or both by giving written notice of such change to the
other Party.
24. Miscellaneous
a) Each Party shall perform the acts and execute and deliver the deeds
and documents and give the assurances as shall be reasonably required
in order fully to perform and carry out and give effect to the terms
of this Agreement.
b) A waiver of any breach of a provision of this Agreement shall not be
binding on any Party unless the waiver is in writing and the waiver
shall not affect the Party's rights with respect to any other or
future breach.
c) All terms and provisions of this Agreement shall run with and be
binding on the lands referred to during the Term of this Agreement.
d) Time is of the essence in this Agreement.
e) This Agreement shall enure to the benefit of and be binding on the
Parties and their respective heirs, executors, administrators,
successors and assigns.
f) The terms of this Agreement express and constitute the entire
agreement between the Parties and no implied covenant or liability of
any kind is created or shall arise by reason of these presents or
anything in this Agreement contained.
g) This Agreement supersedes and replaces all previous agreements,
whether written or oral, memoranda or correspondence between the
Parties with respect to the subject matter of this Agreement.
h) Wherever in this Agreement the singular number or masculine gender
occurs, the same shall be respectively construed as the plural or
neutral, and vice versa, as the context or reference may require.
i) All schedules attached to this Agreement are incorporated by reference
as though contained in the body of it. Wherever any term or
conditions, expressed or implied, of any schedule conflicts or is at a
variance with any term or condition of this Agreement, the term or
condition of this Agreement shall prevail.
j) The headings of all Clauses in this Agreement are inserted for
convenience of reference only and shall not affect the construction of
it.
k) The terms of this Agreement shall be governed exclusively by the law
in force from time to time in the Province of Alberta and the Parties
hereto agree to
-32-
submit to the jurisdiction of the Courts of the Province of Alberta in
respect of any claims, actions or proceedings resulting from this
Agreement.
1) This Agreement may be executed in counterpart and the executed
counterparts shall constitute one agreement.
IN WITNESS WHEREOF the Parties have executed this Agreement as of the day and
year first written above.
ENCAL ENERGY LTD. PINNACLE OIL INTERNATIONAL INC.
Per: /s/ D.D. Johnson Per:_______________________________
----------------------------
D.D JOHNSON, PRESIDENT
Per: /s/ P.A. CARWARDINE Per: [SIGNATURE ILLEGIBLE]
---------------------------- -------------------------------
P.A. CARWARDINE
V.P. LAND & CORPORATE DEVELOPMENT
PINNACLE OIL INC.
Per:_______________________________
Per: [SIGNATURE ILLEGIBLE]
-------------------------------
/s/ George Liszicasz
_________________________________ -----------------------------------
Witness GEORGE LISZICASZ
/s/ Dirk R. Stinson
_________________________________ -----------------------------------
Witness DIRK R. STINSON
MOMENTUM RESOURCES LTD. PINNACLE OIL CANADA LTD.
Per: ____________________________ Per: ______________________________
Per: [SIGNATURE ILLEGIBLE] Per: [SIGNATURE ILLEGIBLE]
----------------------------- -------------------------------
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