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EXHIBIT 10.11.03
LETTER AGREEMENT
AREA: BUCOVICE BLOCK - CZECH REPUBLIC
THIS AGREEMENT made as of the 7th day of March 2001
AMONGST:
UNIGEO A.S., a body corporate, with an office in the city of
Ostrava-Hrabova, in the Czech Republic (Unigeo)
-and-
CESKA NAFTARSKA SPOLECNOST, a body corporate, with an office
in the city of Hodonin in the Czech Republic (COC)
-and-
GEOCAN ENERGY INC., a body corporate, with an office in the
city of Calgary, in the Dominion of Canada (GEOCAN)
WHEREAS the Bucovice Block was acquired by Unigeo a.s. on October 9, 2000
("Effective Date") and the Title Documents and the Bucovice Block are now owned
by Unigeo and GEOCAN in the participating interests set out in this Agreement;
AND WHEREAS COC has a certain knowledge of the Bucovice Block, will provide
geological and geophysical services to the said Block, and retain a convertible
gross overriding royalty, on the terms and conditions contained in this
Agreement;
AND WHEREAS the Parties wish to provide for the maintenance, exploration,
operations and the development of the Bucovice Block and Title Documents on the
terms and conditions contained in this Agreement;
NOW THEREFORE, this Agreement witnesseth that, in consideration of the premises
and of the mutual covenants herein contained and the benefits to be derived
hereform, the Parties agree as follows:
1. DEFINITIONS
In this agreement, including the recitals and the attached Schedules,
unless the context otherwise requires, the definitions set out in the
Operating Procedure apply and the following expressions mean:
a) "Abandonment" (or any derivative of Abandon) means proper
plugging of a well in compliance with the applicable
Regulations including the restoration of the wellsite to the
satisfaction of any governmental body having jurisdiction with
respect thereto;
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b) "Agreement" means this document and all amendments made
hereto;
c) "Cap" means to set in the well production casing and to place
in the well all equipment necessary for the taking of
production and to cap by placement of suitable wellhead
control equipment;
d) "Completion" (or any derivative of Complete) means the
installation in, on, or with respect to a well drilled
hereunder of all such production casing, tubing and wellhead
equipment and all such other equipment and material necessary
for the permanent preparation of such well for the taking of
Petroleum Substances therefrom up to and including the outlet
valve on the wellhead, including a pump and pumpjack if
initially required to produce the well, and includes, as
necessary, the perforating, stimulating, treating, fracing and
swabbing of such well and the conduct of such production tests
with respect to such well as are reasonably required to
establish the initial producibility of the well;
e) "Equipping" (or any derivative of Equip) means the acquisition
and installation of such equipment as is required to produce
Petroleum Substances from a Completed well drilled hereunder,
including, without restricting the generality of the
foregoing, a pump (or other artificial lift equipment), the
acquisition and installation of the flow lines and production
tankage serving such well and, if necessary, a heater,
dehydrator or the wellsite facility for the initial treatment
of Petroleum Substances produced from such well to prepare
such production for transport to market, but specifically
excluding costs incurred beyond the point of entry into a
gathering system, plant or other common facility, which will
be constructed and operated pursuant to a separate agreement;
f) "Operating Procedure" means the 1990 CAPL Operating Procedure
attached to and forming part of this Agreement as Schedule "B"
and includes the Accounting Procedure attached as Exhibit "1"
thereto;
g) "Party" or "Parties" means a person, firm or corporation which
is bound to this Agreement;
h) "Paying Quantities" means the anticipated output from a well
of that quantity of Petroleum Substances which, considering
the costs of Completing the well, Equipping costs, operating
costs, kind and quality of production, the anticipated cost of
treating, processing and transporting such production, the
availability of markets, the price to be received thereof,
would warrant incurring the cost of Completion and Equipping
costs of the well;
i) "Payout" means when the aggregate of the proceeds received by
Unigeo and GEOCAN from the sale of Petroleum Substances
allocated to the Test Well spacing unit equals the costs of
the Study Phase, the Seismic Phase, as described in clauses 9
and 10, and the costs of drilling, Completing, Equipping and
operating the Test Well, including the royalty payable to the
Czech Republic, COC'S gross overriding royalty, taxes
(excluding income taxes) and any costs for
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reworking or repairs incurred with respect to the Test Well or
when the Test Well is Abandoned, whichever first occurs;
j) "Petroleum Substances" means all substances and matters in
which rights are held by COC under the Title Documents;
k) "Bucovice Block" means the Bucovice Oil and Gas Exploration
permit dated October 9, 2000, the block outline of which is
more fully described on the plat in Schedule "A".
l) "Royalty Agreement" means the form of royalty agreement as
completed, a copy of which is attached hereto as Schedule "C"
and does not require any further execution in order to be
effective in the manner provided in this Agreement;
m) "Test Well" means the well to be drilled pursuant to Test Well
clause;
n) "Test Well spacing unit" means two hundred & fifty-six (256)
hectares for gas and sixty-four (64) hectares for oil.
o) "Title Documents" means the documents set forth and described
as such under the heading "Title Documents" in Schedule "A"
and includes all renewals, extensions, amendments or
continuations thereof or further documents of title issued
pursuant thereto insofar as they relate to the Bucovice Block.
2. SCHEDULES
The following schedules are attached to and incorporated into this
agreement:
a) Schedule "A" which sets out the Bucovice Block and Title
Documents;
b) Schedule "B" which is the Operating Procedure;
c) Schedule "C" which is the Royalty Agreement;
3. WARRANTY
a) Unigeo does not convey to GEOCAN or COC any greater right on
title to the Bucovice Block than that which it may hold by
virtue of the Title Documents and makes no warranty as to such
right or title except that as of the Effective Date Unigeo
warrants that:
i) it is a registered interest holder of the Title
Documents as specified in Schedule "A",
ii) it has paid all rentals and other payments required
under the terms of the Title Documents and has
complied with all the necessary terms and
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conditions to the extent necessary to keep same in
full force and effect and has not received any notice
of default;
iii) it has not assigned, transferred, conveyed or in any
other way encumbered its interest under the Title
Documents.
The costs for the rentals and other payments required under
the terms of the Title Documents will be shared according to
the participating interests in clauses 5 and 15, as the case
maybe.
b) Except as otherwise provided in this Agreement, if the
interest of any Party in the Bucovice Block is now or in the
future becomes encumbered by any royalty, overriding royalty,
production payment or other burden payable out of production
attributable to its participating interest hereunder, other
than the royalty payable to the Czech Republic, and the gross
overriding royalty reserved to pursuant to this Agreement,
such Party will become solely responsible for the additional
burden and will hold the other Parties harmless from and
against all claims, demands and causes of action relating
thereto.
4. OPERATIONS
a) All operations conducted by the Parties pursuant to this
Agreement will be at the Parties' individual sole risk and
expense unless the contrary is specifically stated and always
in accordance with clauses 5 and 15.
b) All operations conducted by the parties pursuant to this
agreement will be in a lawful manner and in accordance with
good oilfield practice.
5. PARTICIPATING INTERESTS FOR STUDY PHASE, SEISMIC PHASE AND TEST WELL
The participating interest of the Parties in the Bucovice Block, the
Title Documents, the Petroleum Substances, and the operations to be
carried out pursuant to the Study Phase, Seismic Phase and Test Well
are as follows:
Unigeo - 17.6471% working interest
GEOCAN - 82.3529% working interest
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100%
6. CONFLICT OF PROVISIONS
Wherever there is a conflict between this Agreement and the Operating
Procedure, the terms and provisions of this Agreement will prevail and
wherever there is a conflict between this Agreement and the Title
Documents, the terms and provisions of the Title Documents will
prevail.
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7. APPOINTMENT OF OPERATOR
Unigeo, subject to clause 16, is hereby appointed the initial Operator
to conduct operations on the Bucovice Block. GEOCAN, however, will be
responsible for the supervision of all drilling, completion, equipping,
and abandonment operations conducted on the Bucovice Block.
8. APPLICATION OF OPERATING PROCEDURE
The Operating Procedure will apply to all operations conducted in
respect of the maintenance, exploration and development of the Bucovice
Block for the production of petroleum substances pursuant to the Title
Documents and the applicable regulations.
9. STUDY PHASE
Subject to clause 16, on or before October 31, 2001, GEOCAN will review
and finalize with the Parties a detailed budget that outlines the work
program and associated costs for the Study Phase on the Bucovice Block.
During the Study Phase Unigeo and GEOCAN will review all of the
geological and geophysical data that is available including geological
and geophysical information held by COC, over the Bucovice Block, in
order to assess the potential for drilling a Test Well, as described in
clause 11. The costs incurred during the Study Phase will be shared in
the participating interests described in clause 5.
At the end of the Study Phase Unigeo and GEOCAN will elect to proceed
to the Seismic Phase, as described in clause 10, elect to drill a Test
Well or discontinue to do any further work on the Bucovice Block.
10. SEISMIC PHASE
If during the Study Phase Unigeo and GEOCAN are not able to determine
that a Test Well should be drilled and Unigeo and GEOCAN elect to
proceed to the Seismic Phase, GEOCAN subject to clause 16, will prepare
for approval by the Parties hereto a budget for the shooting of a
seismic program on the Bucovice Block, that will include the timing for
shooting seismic, the size of the seismic program and the costs
associated to shooting, processing, and interpreting the data. The
costs incurred during the Seismic Phase will be shared in the
participating interests described in clause 5. If only one Party elects
to shoot the seismic program it will do so at its sole cost risk,
expense and own the seismic data and trading rights 100%. The Party
that elects not to participate will not receive a copy of the data or
share in the interpretation of said data.
At the end of the Seismic Phase Unigeo and GEOCAN will elect to drill a
Test Well or discontinue to do any further work on the Bucovice Block.
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11. TEST WELL
a) If Unigeo and GEOCAN elect to drill a Test Well they will spud
the Test Well at a location of their choice on the Bucovice
Block and will then diligently and continuously, at their sole
cost, risk and expense drill a well, log, test, and Complete
or Abandon the same in accordance with the terms and
conditions of this Agreement and the Czech Republic
regulations.
b) If the Test Well is found to be capable of production in
Paying Quantities, Unigeo and GEOCAN will Equip such well for
production by paying all Completion costs and Equipping costs.
If, however, the Test Well is capable of production, which is
primarily natural gas, and there is not an adequate market
immediately available therefor, Unigeo and GEOCAN may Cap such
well until an economic market for the gas becomes available,
at which time Unigeo and GEOCAN will Complete and Equip the
Test Well at its sole cost, risk and expense.
c) If the Test Well is not capable of production in Paying
Quantities, Unigeo and GEOCAN will, subject to the Abandonment
Clause, Abandon the Test Well at is sole cost, risk and
expense, in a manner satisfactory to the Minister of
Environment, and will clean up the wellsite and access road.
d) Unigeo and GEOCAN will share the costs of the Test Well as to
their participating interests described in clause 5.
12. ABANDONMENT
If, at anytime after drilling the Test Well, but prior to completing
the Test Well, Unigeo and GEOCAN wish to Abandon the Test Well, the
Parties will comply with the following provisions:
a) Unigeo and GEOCAN will give COC written notice that it wishes
to Abandon the Test Well. Provided COC is in receipt of all
related log, and test data, COC must respond to Unigeo and
GEOCAN abandonment notice within forty-eight (48) hours of
receipt of the notice in the case where there is a drilling
rig on location, or in all other cases, within thirty (30)
days.
b) If COC fails to respond or COC advises Unigeo and GEOCAN by
written notice that COC consents to the Abandonment of the
Test Well, Unigeo and GEOCAN will, at their sole cost, risk
and expense, Abandon the Test Well in accordance with good
oilfield practice and the Czech Republic regulations.
c) If COC advises Unigeo and GEOCAN that it does not consent to
the Abandonment of the Test Well, Unigeo and GEOCAN will, for
the purposes of this Agreement, be deemed to have Completed or
Abandoned the Test Well. COC will take over the Test Well and
conduct all further operations relating thereto at its sole
cost, risk and expense. The estimated costs of Abandonment and
the estimated net salvageable value of material and equipment
will be calculated. In the event the estimated Abandonment
costs exceed the estimated net salvageable value, the
difference will be paid by Unigeo and GEOCAN to
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COC. In the event the estimated net salvageable value exceeds
the estimated Abandonment costs, the difference will be paid
by COC to Unigeo and GEOCAN. COC will then receive from Unigeo
and GEOCAN a surrender in a form satisfactory to COC of all
Unigeo and GEOCAN'S interest in and to the Test Well, and all
material and equipment in and on the surface rights, and all
other contracts relating to the Test Well and necessary for
COC'S further operations. If COC Completes the Test Well,
Unigeo and GEOCAN will also surrender to COC their interest in
the Test Well spacing unit insofar as it relates to the
Completed formation(s). Unigeo and GEOCAN will save COC
harmless from all costs, debts, claims, charges and damages
relating to the documents so assigned up to the time of take
over of the Test Well.
d) COC will be liable to Unigeo and GEOCAN for all loss, costs,
damages and expenses whatsoever which it may suffer, sustain,
pay or incur and in addition will indemnify and save harmless
Unigeo and GEOCAN against all actions, suits, costs, and
demands which may be brought against or suffered by Unigeo and
GEOCAN arising out or in any way attributable to the
operations carried on by COC on the Test Well and the Test
Well Spacing Unit after take over pursuant to this Clause.
13. GROSS OVERRIDING ROYALTY
Upon Unigeo and GEOCAN drilling the Test Well pursuant to this
Agreement, the Royalty Agreement will be deemed to have been executed
and delivered with respect to the Test Well spacing unit. COC will
receive a gross overriding royalty, as described in the Royalty
Agreement, subject to the right of conversion of the gross overriding
royalty described in clause 14.
14. CONVERSION OF GROSS OVERRIDING ROYALTY
a) Unigeo and GEOCAN will, in addition to the other required Test
Well information, furnish to COC every three (3) months
following Completion of the Test Well an accurate and itemized
record of all production secured from the Test Well and any
other information with respect to the operation of and
production from the Test Well as may be requested by COC.
b) Upon Payout, Unigeo and GEOCAN will send written notice of
Payout to COC. COC will have a period of thirty (30) days from
receipt of such notice to elect to convert its gross
overriding royalty interest to a 15% working interest in the
Test Well spacing unit. Failure to make an election will be
deemed an election not to convert. If COC elects to convert
its gross overriding royalty interest to a working interest,
then after the effective date of election as provided in sub
clause (c) COC will own said working interest in the Test Well
spacing unit, the Test Well, all equipment therein and thereon
and all production therefrom. The provisions of Schedule "B"
will then apply to govern the relationship of Unigeo and
GEOCAN and COC with respect to all operations on the Test Well
spacing unit.
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c) The effective date of an election to convert under sub clause
(b) by the COC will be the first day of the calendar month
following the calendar month in which Payout occurs.
d) In the event the Test Well is Abandoned prior to Payout, COC'S
gross overriding royalty interest as set out in the Royalty
Agreement will automatically convert to a 15% working interest
in the Test Well spacing unit. The effective date of such
conversion will be the date of Abandonment of the Test Well.
15. PARTICIPATING INTERESTS AFTER STUDY PHASE, SEISMIC PHASE AND TEST WELL.
The participating interests of the Parties in the Bucovice Block, the
Title Documents, the Petroleum Substances and the operations to be
carried out after the Study Phase, Seismic Phase and Test Well,
excluding the Test Well spacing unit, are as follows:
Unigeo - 15%
COC - 15%
GEOCAN - 70%
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100%
16. OPERATING COMMITTEE
a) To provide for the orderly supervision and direction of all
operations under this Agreement, there shall be an Operating
Committee set up which is comprised of representatives of each
Party to this Agreement; each Party is to appoint one
representative and one alternate to serve thereon. Operator's
representative shall be chairman of the Operating Committee.
The alternate appointed by a Party shall only act in the event
the representative appointed by such Party is not available.
Each Party shall have the right to change its representative
and alternate at any time by notifying the other Parties to
that effect. Each Party shall be entitled to vote through its
representative or alternate in proportion to its participating
interest from time to time. Other personnel including
consultants (to a maximum of two) of a Party may attend
Operating Committee meetings as observers. Except as otherwise
provided elsewhere in this Agreement and subject to Article X
of the Operating Procedure, the decisions of the Operating
Committee on all matters coming before it shall be made by a
vote of a total participating interest, as provided for in
Clauses 5 and 15, of at least eighty - five percent (85.0%).
b. In matters relating to operations pursuant to Article X of the
Operating Procedure only participating Parties shall be
entitled to vote.
c. The Operating Committee shall meet whenever requested by the
giving of at least thirty (30) days prior written notice by
Operator (who shall give such notice when requested by any
Party) and shall meet at least once in each six months
commencing with January 1, or July 1, of each calendar year
(calendar semester), to consider a work program and budget. At
the time of providing notice, Operator
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shall also supply a reasonably detailed agenda for the meeting
and a matter not appearing on said agenda may not be proposed
for a vote at the meeting unless all the Parties otherwise
agree or unless any Party wishing to propose a matter for a
vote notifies all other Parties in writing at least five (5)
days prior to the date of such meeting of a matter or matters
it intends to propose for a vote at the meeting. However, by
the unanimous agreement of all Parties any such calendar
semester meeting may be cancelled in the event it is
unnecessary. Except as herein otherwise provided, the
decisions of the Operating Committee shall be binding on all
Parties. Meetings of the Operating Committee shall be held in
Ostrava-Hrabova, Czech Republic at the offices of Operator or
at such place as the Parties may unanimously agree. Parties
not in attendance at a meeting of the Operating Committee may,
if entitled to vote at that meeting, nonetheless cast a
written vote or vote by proxy concerning any matter referred
for such meeting, provided that written notice of such vote or
proxy is received by the Operator prior to the vote taken by
the Operating Committee on such matter at the meeting. At the
commencement of the meeting, Operator shall supply to all the
Parties present, for their approval, a written summary record
of all proposals formally tabled for vote. This record shall
include the identity of the proposing Party or Parties.
Minutes of each meeting shall be prepared by Operator and
copies thereof shall be provided promptly to the Parties. Such
minutes shall be deemed approved thirty (30) days after
receipt by all Parties unless prior thereto a Party has given
notice of objection.
d. Subject to the terms of this Agreement the Operating Committee
shall have the sole and exclusive right to exercise overall
supervision of and to determine, and control the maintenance,
exploration operations and development of the Bucovice Block
and the production, storage and transport of Petroleum
Substances produced and saved therefrom.
e. Not withstanding anything to the contrary in this clause, each
of the Parties shall be entitled to have direct representation
on the Operating Committee and be entitled to vote in
proportion to its participating interest, as provided for in
clauses 5 and 15, at the time of voting on any proposal or
matters which may be submitted to the Operating Committee in
accordance with this Agreement if and for so long as such
Party holds a participating interest of not less than ten
percent (10%). Any Party whose participating interest is less
than ten percent (10%) shall not be entitled to direct
representation on the Operating Committee, provided, however,
any two or more Parties holding a participating interest of
ten (10%) or more in the aggregate may designate a
representative to serve on the Operating Committee and
represent them jointly and vote uniformly in respect of their
combined participating interests. No Party holding a
participating interest of less than ten percent (10%) shall
contact the Operator or the Operating Committee except through
its designated representative.
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17. RENTALS
Unigeo will continue to pay all rentals falling due on behalf of the
working interest owners in respect of the Bucovice Block and do all
things necessary to maintain the Title Documents in good standing and
in full force and effect.
The costs for the rentals and other payments required under the terms
of the Title Documents will be shared according to the participating
interests in clauses 5 and 15, as the case maybe.
18. CONFIDENTIAL INFORMATION
The Parties will, in accordance with Article XVlll of the Operating
Procedure, keep confidential from third Parties, all information
obtained in the course of or as a result of operations on the Bucovice
Block and will take such measures in connection with operations and
internal securities as will be advisable under the circumstances.
19. RIGHTS OF ASSIGNMENT
The Parties will, in accordance with Article XXlV of the Operating
Procedure, have the right to assign, provided each Party abides by the
terms of clause 2401B of the Operating Procedure.
20. NOTICES
All notices and communication hereunder shall be in writing and shall
be deemed to have been properly received when delivered by courier and
in lieu of courier service may be given or made by facsimile or e-mail
to the parties at the following addresses or facsimile numbers:
Jiri Mukarovsky
Unigeo a.s.
Mistecka 258,
720 02 Ostrava-Hrabova
Czech Republic
Facsimile 011-420-696-721-197
e-mail: mukarovsky.jiri@unigeo.cz
Zdenek Svoboda
Ceska Naftarska Spolecnost
Palackeho 54,
695 01 Hodonin
Czech Republic
Facsimile 011-420-628-340-792
e-mail: coc_hodonin@iol.cz
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Garry Lohuis
GEOCAN Energy Inc.
Suite 800, 717 - 7th Ave. SW
Calgary, AB
Canada T2P 0Z3
Facsimile 001-403-261-3834
e-mail: geocan@home.com
Notices and communications shall be deemed to have been
received one (1) day after the date of sending in the case of
facsimile, or e-mail and three (3) days after the date of
sending by courier, excluding in either case Saturdays,
Sundays and statutory holidays. Any Party may change its
address facsimile number or e-mail by notice to the other
Parties of that change
This notice clause supersedes Article XXII of the Operating
Procedure.
21. MISCELLANEOUS
a) This Agreement will be to the benefit of and be binding on the
Parties hereto and their respective successors and permitted
assigns and upon the heirs, executors, administrators and
assigns of natural persons who are or become Parties hereto.
b) The Parties agree that this Agreement will be construed and
interpreted according to the laws of the Czech Republic and
that the courts having jurisdiction with respect to matters
relating to this Agreement will be courts of The Czech
Republic, to the jurisdiction of which courts the Parties by
their execution of this Agreement do hereby submit.
c) The terms of this Agreement express and constitute the entire
agreement between the Parties insofar as the specific subject
matter contained in this Agreement. No implied covenant or
implied liability of any kind on the part of the Parties is
created or will arise by reason of these presents or anything
contained in this Agreement.
d) The headings of the clauses of this Agreement are inserted for
convenience of reference and will not affect the meaning or
construction thereof.
e) Whenever the plural or masculine or neuter is used in this
Agreement, the same will be construed as meaning singular of
feminine or body politic or corporate and vice versa where the
context so requires.
f) Time is of the essence of this Agreement.
g) This Agreement may be executed in counterpart and when each
Party has executed a counterpart, all counterparts taken
together will constitute one agreement.
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IN WITNESS WHEREOF the Parties have executed and delivered this
Agreement as of the day and year first above written.
UNIGEO A.S.
Per:
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Per:
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CESKA NAFTARSKA SPOLECNOST
Per:
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Per:
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GEOCAN ENERGY INC.
Per:
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Per:
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This is a Counterpart Execution page to Letter Agreement dated March 7,
2001