Premium Petroleum Inc.
1610, 736 - 6th Avenue SW
Calgary, Alberta T2P 3T7
604-836-2292 bruce@thomson.org
February 6, 2006
Micron Enviro Systems Inc.
1205 - 789 West Pender Street
Vancouver BC V6C 1H2
Attention: Mr. Bernie McDougall, President
Dear Sir:
Re: FARMOUT AGREEMENT
Boyne Lake Prospect
Section 15, Township 61, Range 11, West of the 4th Meridian
Alberta, Canada
The following reflects the terms and conditions upon which Premium Petroleum
Inc. ("Premium") is prepared to farmout its interest in the Farmout Lands to
Micron Enviro Systems Inc. ("Micron")
NOW THEREFORE in consideration of the premises and of the covenants and
agreements of the Parties, the Parties do hereby covenant and agree as follows:
1.
DEFINITIONS AND INTERPRETATION
Each capitalized term used in this Agreement, including the recitals, will have
the meaning given to it in the Farmout & Royalty Procedure, and, in addition:
(a)
"Contract Depth" means a depth sufficient to penetrate 15 metres into the Upper
Manville Clearwater Group or approximately 600 metres subsurface, whichever is
shallower;
(b)
"Farmout Lands" means the lands and rights as set out on Schedule "A" attached
hereto;
(c)
"Farmee" means Micron;
(d)
"Farmor" means Premium;
(e)
"Farmout & Royalty Procedure" means the 1997 CAPL Farmout & Royalty Procedure
including the elections and amendments thereof, which is attached hereto as
Schedule "B"; and
(f)
"Operator" means Premium.
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2.
SCHEDULES
The following Schedules are attached hereto and made part of this Agreement:
(a)
Schedule "A"; which describes the Title Documents, Farmout Lands, the Farmout
Working Interest, and Encumbrances;
(b)
Schedule "B", which is the 1997 CAPL Farmout and Royalty Procedure;
(c)
Schedule "C", which is the 1990 CAPL Operating Procedure (hereinafter referred
to as the "Operating Procedure") and the 1996 PASC Accounting Procedure
(hereinafter referred to as the "Accounting Procedure"), which is attached to
and made part of the Operating Procedure as Exhibit I;
(d)
Schedule "D", which is the 1993 CAPL Assignment Procedure (hereinafter referred
to as the "Assignment Procedure");
(e)
Schedule "E," which specifies the type of drilling information required to be
supplied by the Farmor to the Farmee pursuant to the Farmout and Royalty
Procedure.; and
(f)
Schedule "F", which specifies the Area of Mutual Interest (hereinafter referred
to as the "AMI")
3.
TEST WELL
On or before February 10, 2006 and subject to surface access, rig availability
and regulatory approval, Farmor, as Operator, shall commence the drilling of a
well (hereinafter called the "Test Well") at a location of it's choice on the
Farmout Lands. Farmee hereby agrees to be responsible for and pay five (5%)
percent of the cost, risk and expense involved in drilling the Test Well to
Contract Depth. Farmor shall, in its sole discretion test, complete, equip, cap
or abandon the Test Well in accordance with Article 3.00 of the Farmout and
Royalty Procedure. Notwithstanding the foregoing in the event that the well is
not commenced on or before February 10, 2006, it will be commenced as soon
thereafter as is practical.
4.
PROSPECT GENERATION COSTS
Prospect generation costs of $75,000 will form part of the AFE raised for the
drilling of the test well and Farmee will be responsible for its proportionate
share of these costs.
5.
SEISMIC
A seismic program has been acquired at an estimated cost of $150,000 which will
form part of the AFE raised for the drilling of the test well and Farmee will be
responsible for its proportionate share of the actual costs.
Page 2 of 14
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6.
EARNING
a)
Upon completion of the drilling, testing and completing of the Test Well and
further provided the Farmee is not in default with respect to Clause 3, 4 or 5
hereof or the Farmout & Royalty Procedure, the Farmee will have earned an
interest in the Farmout Lands from surface to the depth drilled by the Test Well
such that the interests of the parties will be as follows:
Party Spacing unit for the Test Well Balance of the Farmout Lands
Before Payout After Payout*
Micron 5% 3% 3%
Premium et al 95% 97% 97%
*
Assuming that Payout occurs and Premium elects to convert its royalty to a
working interest.
b)
Farmor herein reserves a Gross Overriding Royalty Interest as provided in
Articles 5.00 and 6.00 of the Farmout and Royalty Procedure. (1/23.8365 - 5% to
15% on Oil and 15% on Natural Gas) based on 5% of production Farmor shall have
the right to elect within 30 days of notification of payout to convert the
Overriding Royalty to the working interest as provided in the table above.
7.
FUNDING REQUIREMENTS
The following table summarizes the estimate costs involved with this project.
Operation Gross Costs Farmee' Percentage Farmee's Share
Prospect Development Costs $75,000 5% $3,750
Seismic $150,000 5% $7,500
Drill and abandon Test Well $302,500 5% $15,125
Complete Test Well Per AFE 5% To be determined
(including casing and
perforation)
Equip and Tie-in Test Well To be determined 5% To be determined
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8.
AREA OF MUTUAL INTEREST
An Area of Mutual Interest is outlined on the plat attached as Schedule "F" and
shall remain in effect until December 31, 2006. The interests of Farmee and
Farmor in the Area of Mutual Interest shall be shared based on the after payout
interest earning basis as in this Farmout Agreement.
9.
LIMITATIONS ACT
The 2 year period for seeking a remedial order under section 3(1)(a) of the
Limitations Act, S.A. 2000 c. L-12, as amended (the "Act"), for any claim (as
defined in the Act) arising in connection with this Agreement is extended to:
(a)
for claims disclosed by an audit, 2 years after the time this Agreement
permitted that audit to be performed; or
(b)
for all other claims, 4 years.
10.
NO ASSIGNMENT PRIOR TO EARNING
The Farmee shall not assign all or any portion of its interest pursuant to this
Agreement until such time as Farmee has completed its earnings by drilling the
Test Well or the Farmee's right to earn those interests has terminated, unless
the Farmor's prior written consent is obtained.
11.
OPERATIONS
From and after the date on which Farmee earns an interest in the Farmout
Lands, the Operating Procedure shall become effective with Premium named
Operator there under.
12.
ADDRESSES FOR NOTICES
The Parties' addresses for notices for this Agreement are:
Micron Enviro Systems Inc.
Premium Petroleum Inc.
1205 - 789 West Pender Street
1610, 736 - 6th Avenue SW
Vancouver, B.C. V6C 1H2
Calgary, Alberta T2P 3T7
Attention: Bernie McDougall
Attention: Bruce A. Thomson, B.A.Sc.
President
President & CEO
13.
ENVIRONMENTAL IMPACT
The Parties agree that, for the purposes of clause 2901 of the 1990 Operating
Procedure, the phrase "all wells on the Joint Lands have been abandoned" shall
be deemed to include the requirements for remediation of any environmental
damage or problems arising due to operations of any nature whatsoever carried
out under this Agreement, with such remediation occurring to the standard
required by the Regulations and by good industry practice. Subject to Article
IV of the 1990 Operating Procedure, where any such environmental damage or
problem arises after termination of this Agreement, the Parties shall remain
liable for remedial costs and expenses so incurred in accordance with their
respective working interests and each Party shall indemnify the
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other Party with respect to the indemnifying Party's share thereof. This clause
shall survive termination of this Agreement.
14.
JURISDICTION
This Agreement shall be subject to and be interpreted, construed and enforced in
accordance with the laws in effect in the Province of Alberta. Each Party
accepts the jurisdiction of the courts of the Province of Alberta and all courts
of appeal therefrom.
15.
TIME IS OF THE ESSENCE
Time shall be of the essence in this Agreement.
If this reflects your understanding of the terms and conditions agreed upon
respecting this Agreement, please sign and return one counterpart execution page
to my attention before the close of business on February 7, 2006.
Yours truly,
PREMIUM PETROLEUM INC.
/s/ Bruce A. Thomson
Bruce A. Thomson, B.A.Sc.
President & CEO
Agreed to this 6th day of February, 2006
MICRON ENVIRO SYSTEMS INC.
/s/ Bernie McDougall
--------------------------------------------------------------------------------
Bernie McDougall
President
Execution page to Farmout Agreement dated the 6th day of February 2006 and made
between Premium Petroleum Inc. and Micron Resources Inc
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SCHEDULE "A"
Attached to and made part of the Farmin Agreement dated February 6, 2006 between
Premium Petroleum Inc. and Micron Enviro Systems Inc..
.
Boyne Lake Prospect:
Description Encumbrances
Section 15, Township 61 Range 11 West of the 4th Meridian, Crown Lessor Royalty
Alberta, Canada plus
GOR of 6% of 100%
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SCHEDULE "B"
Attached to and forming part of an Agreement dated February 6, 2006
between Premium Petroleum Inc. as Farmor and Micron Enviro Systems Inc. as
Farmee
Boyne Lake Prospect
Canadian Association of Petroleum Landmen (1997) - "CAPL"
Farmout & Royalty Procedure Elections and Amendments
1997 CAPL Farmout & Royalty Procedure Elections
1.
Clause 1.01 (f) Effective Date: February 6, 2006
2.
Clause 1.01 (t) Payout (if Article 6.00 applies):
Alternate A [X]
Alternate B [ ]
Alternate B options, if applicable m3 of Equivalent Production
and years.
3.
Clause 1.02 Incorporation Of Provisions From 1990 CAPL Operating Procedure:
(i)
Insurance (311)
Alternate A - [X]
Alternate B - [ ]
(ii)
Addresses For Notices (2202)
See Clause 11 of Head Agreement
4.
Article 4.00 - Option Wells:
will [ ] / [X] will not apply.
5.
Article 5.00 - Overriding Royalty:
will [X] / [ ] will not apply.
6.
Subclause 5.01A, - Quantification of Overriding Royalty:
(a)
Crude Oil, Alternate 2
If Alternate 1 is selected, %
If Alternate 2 is selected, 1/23.8365, min 5% max 15%.
(b)
Other, Alternate 1
If Alternate 1 is selected, 15%
If Alternate 2 is selected, % in (i) and % in (ii).
7.
Clause 5.04B, Permitted Deductions: Alternate 1
8.
Article 6.00 Conversion of Overriding Royalty: will [X] / will not [ ] apply.
Clause 6.04 A. That interest as specified in the Head Agreement
9.
Article 8.00 (Area of Mutual Interest): will [X] / will not [ ] apply.
10.
Clause 11.02 - Reimbursement of Land Maintenance Costs: will [ ] / will not [X]
apply.
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SCHEDULE "C"
Attached to and forming part of an Agreement dated February 6, 2006
between Premium Petroleum Inc. as Farmor and Micron Enviro Systems Inc. as
Farmee
(Summary of rates and electives re: Operating Procedure)
1990 CAPL OPERATING PROCEDURE
PAGE 9, CLAUSE 311
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Alternate A
PAGE 15, CLAUSE 604
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Alternate B
.
(a)
in the case of petroleum: 2.5%
(b)
in the case if natural gas: the greater of 3.0% or $150.00/month
(c)
in the case of natural gas liquids: $3.00/m3
(d)
in the case of sulphur: $5.00/t
PAGE 19, CLAUSE 903
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Alternate A
PAGE 23, CLAUSE 1007(a)(IV)
--------------------------------------------------------------------------------
400% and 500% respectively
PAGE 25, CLAUSE 1010(a)(iv)
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Plains:
180 days
PAGE 36, CLAUSE 2202
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Address for Service:
See Clause 12 of Head Agreement
PAGE 37, CLAUSE 2401
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Alternate A
PAGE 38, CLAUSE 2404
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Deemed To Be Deleted
1996 P. A. S. C. ACCOUNTING PROCEDURE
101.
Accounting Procedure Chosen:
(a)
Alternate
A
immediately below shall apply as a schedule to this Appendix:
ALTERNATE A
The Accounting Procedure is the 1996 Petroleum Accountants Society of Canada's
Accounting Procedure and has been modified only as shown in Clause 102 (b)
hereof. The elections chosen and values inserted are described in Clause 102 (a)
hereof.
ALTERNATE B.
The Accounting Procedure is unique to this Agreement and is attached hereto as
Schedule A.
102.
Rates, Elections and Modifications to the 1996 PASC Accounting Procedure
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(a)
The following clauses of the Accounting Procedure are modified to include the
indicated election, alternate, option or value:
105.
Operating Fund:
10%
110.
Approvals: Clause _________ of the Agreement;
Two (2) or more Owners having interests totalling seventy-five percent (75) or
more
112.
Expenditure Limitations:
(a)
any single undertaking: not in excess of Fifty Thousand dollars ($50,000)
(c)
settlement of each damage claim: not in excess of Ten Thousand dollars
($10,000)
202.
Employee Benefits:
(b)
not to exceed twenty-five percent (25%)
213.
Camp and Housing:
(b)
cost of housing On-Site employees shall _____/shall not X be chargeable
216.
Warehouse Handling:
Warehouse handling fee of five percent (5%) of the Cost of Material
221.
Allocation Options:
The following fixed or percentage allocations shall ______/ shall not X be
used in lieu of actual cost allocations:
CLAUSE COST OPTIONS FOR CHARGING JOINT ACCOUNT
Fixed $/Month
Subject to Not subject to Percentage of Other (Specify)
Adjustment cited adjustment Direct Cost
in Clause 302(e) cited in (well/mcf/bbl)
Clause 302(e)
204 Automotive
207(c) Production
Office
212 Communications
213(a) Camp
214 Measurement &
Controls
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302.
Overhead Rates:
(a)
For Each Exploration Project:
Five percent (5%) of Cost;
(b)
For the Drilling of a Well:
(1)
Three percent (3%) of the first Fifty Thousand dollars ($50,000) of Cost plus;
(2)
Two percent (2%) of the next One Hundred Thousand dollars ($100,000) of Cost,
plus;
(3)
One percent (1%) of the Cost exceeding the sum of (1) and (2).
(c)
For Initial Construction:
(1)
Five percent (5%) of the first Fifty Thousand dollars ($50,000) of Cost plus;
(2)
Three percent (3%) of the next One Hundred Thousand dollars ($100,000) of Cost,
plus;
(3)
One percent (1%) of the Cost exceeding the sum of (1) and (2).
(d)
For each subsequent Construction Project:
(1)
Five percent (5%) of the first Fifty Thousand dollars ($50,000) of Cost plus;
(2)
Three percent (3%) of the next One Hundred Thousand dollars ($100,000) of Cost,
plus;
(3)
One percent (1%) of the Cost exceeding the sum of (1) and (2).
(e)
For Operations and Maintenance:
(1)
____ of Cost; and/or
(2)
______ for Producing Well per month; or
(3)
a flat rate of two Hundred and twenty-five dollars ($225.00) per month.
The rates in Subclauses 302(e)(2) or 302(e)(3) shall ________/shall not X be
adjusted annually.
406.
Dispositions:
Twenty Thousand dollars ($20,000.)
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SCHEDULE "D"
Attached to and forming part of an Agreement dated February 6, 2006
between Premium Petroleum Inc. as Farmor and Micron Enviro Systems Inc. as
Farmee
"Assignment Procedure"
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SCHEDULE "E"
Attached to and forming part of an Agreement dated February 6, 2006
between Premium Petroleum Inc. as Farmor and Micron Enviro Systems Inc. as
Farmee
Well Requirement Sheet
PRIOR TO DRILLING Copies Required
Survey Plat 1
Licence Application & Well Licence 1
Drilling and Geological Program 1
Directional Plan and Plat (if applicable) 1
24 hr Spud Notice Yes
DURING DRILLING & COMPLETION E-mail daily to:
Geological Cuttings Samples and Drill Core Access
Immediate Advice of Oil/Gas Shows Yes
24 hr Notice of Intent to Core/Log/Test Yes
Prelim. Core/Fluid Analysis/Gas 1
Field Prints of Logs 1
24 hr Abandonment or Casing Notice Yes
Daily Drilling/Completion and Geology
Reports (+ mud log if available)
AFTER DRILLING (1 COPY) ON COMPLETION (1 COPY)
Final Log Prints Written Notice to Commence
Digital Log Data on CD Rom from vendor Completion Program
E-mail to:
Final Core/Fluid Analysis/Gas Daily Fax or Phone Report
DST Reports/Charts Cased hole/Prod. Logs
Geol. Report & Mud Log with CD Rom 24 hr Notice to Plug Back
(.exp/.pdf/.slg/.mlg)
Final Directional Survey (digital copy) Government Completion Forms
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SCHEDULE "F"
Attached to and forming part of an Agreement dated February 6, 2006
between Premium Petroleum Inc. as Farmor and Micron Enviro Systems Inc. as
Farmee.
Area of Mutual Interest (AMI)
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