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					     ROYALTY AGREEMENT



          BETWEEN



   XYZ COMPANY OF CANADA

           - AND -

        ABC COMPANY
BLACKACRE LIMITED PARTNERSHIP
   BARNBURNER OIL COMPANY
                                                  TABLE OF CONTENTS



ARTICLE 1 DEFINITIONS .......................................................................................................... 1
     1.1    Definitions ............................................................................................................ 1


ARTICLE 2 OVERRIDING ROYALTY ......................................................................................... 3
     2.1    Quantification Of Overriding Royalty .................................................................... 3
     2.2    Petroleum Substances Used For Operations ....................................................... 3
     2.3    Separate Quantification For Crude Oil ................................................................. 4


ARTICLE 3 OVERRIDING ROYALTY NOT TAKEN IN KIND ..................................................... 4
     3.1    Payments Made to Grantee Monthly .................................................................... 4
     3.2    Monthly Statements Provided to Grantee............................................................. 4
     3.3    Permitted Deductions........................................................................................... 4
     3.4    Petroleum Substances Sold at Less Than Current Market Value ......................... 5


ARTICLE 4 OVERRIDING ROYALTY TAKEN IN KIND .............................................................. 5
     4.1    Notice to Grantor ................................................................................................. 5
     4.2    Grantor’s Responsibilities .................................................................................... 5


ARTICLE 5 RIGHT TO AUDIT .................................................................................................... 6
     5.1    Examination of Records ....................................................................................... 6
     5.2    Discrepancies ...................................................................................................... 6
     5.3    Right To View Operations .................................................................................... 6
     5.4    Rights Suspended ............................................................................................... 7


ARTICLE 6 RATEABLE PRODUCTION ..................................................................................... 7
     6.1    Grantor to Market Rateably .................................................................................. 7


ARTICLE 7 RIGHT TO COMMINGLE ......................................................................................... 7
     7.1    Grantor May Commingle Petroleum Substances ................................................. 7


ARTICLE 8 POOLING ................................................................................................................ 7
     8.1    Poolings Authorized By Grantee .......................................................................... 7


ARTICLE 9 UNITIZATION .......................................................................................................... 8
     9.1    Grantor’s Right to Unitize ..................................................................................... 8


ARTICLE 10 ASSIGNMENT ....................................................................................................... 8
     10.1 Assignment by Grantee ....................................................................................... 8
                                                                   ii


          10.2      Assignment by Grantor ........................................................................................ 8


ARTICLE 11 CONDUCT OF OPERATIONS ............................................................................... 8
     11.1 Election Not To Participate .................................................................................. 8
     11.2 Title Documents ................................................................................................... 9
     11.3 Prevailing Prices .................................................................................................. 9
     11.4 Non-Arm's Length Transactions ........................................................................... 9
     11.5 Third Party Agreements ....................................................................................... 9
     11.6 Good Faith ........................................................................................................... 9
     11.7 Trust .................................................................................................................... 9


ARTICLE 12 LIABILITY AND INDEMNITY ................................................................................ 10
     12.1 Grantor’s Responsibility ..................................................................................... 10


ARTICLE 13 CONFIDENTIAL INFORMATION ......................................................................... 10
     13.1 Confidentiality Requirement ............................................................................... 10
     13.2 Disclosure To Affiliates ...................................................................................... 10


ARTICLE 14 LIEN ..................................................................................................................... 10
     14.1 Grantee’s Lien ................................................................................................... 10
     14.2 Service of Agreement to Constitute Authority .................................................... 11
     14.3 Proof of Default .................................................................................................. 11


ARTICLE 15 NOTICES ............................................................................................................. 11
     15.1 Service of Notices .............................................................................................. 11
     15.2 Addresses For Notices....................................................................................... 12
     15.3 Right To Change Address.................................................................................. 12


ARTICLE 16 MISCELLANEOUS ............................................................................................... 12
     16.1 Development of Lands ....................................................................................... 12
     16.2 Perpetuities ........................................................................................................ 12
     16.3 Parties To Do All Further Acts............................................................................ 13
     16.4 No Waiver Except in Writing .............................................................................. 13
     16.5 Disputes and Governing Law ............................................................................. 13
     16.6 Counterpart Execution ....................................................................................... 13
     16.7 Time of Essence ................................................................................................ 13
     16.8 Overriding Royalty is an Interest in Land and Runs With Lands......................... 13
     16.9 Renewals and Extensions .................................................................................. 13
     16.10 Headings ........................................................................................................... 13
     16.11 Conflicts ............................................................................................................. 14
     16.12 Choice of Law .................................................................................................... 14
                                   ROYALTY AGREEMENT

Revised 3/22/01



              Dated this ______ day of _______________, 2001 but effective as of
              May 1, 2003 (the "Effective Date")

BETWEEN:

              XYZ COMPANY OF CANADA, a body corporate [and extra-provincially
              registered to do business as XYZ Company of Canada in
              Saskatchewan] ("Grantor")

                                        - AND -

              ABC COMPANY, a Nova Scotia body corporate; BLACKACRES LTD, a
              Texas Limited Partnership; and, BARNERBURNER OIL COMPANY, a
              Colorado body corporate (collectively, "Grantee")



              WHEREAS the Grantor holds certain working interests in the Royalty Lands;

              AND WHEREAS the Grantor has agreed to grant the Grantee the Overriding
Royalty;

               NOW THEREFORE THIS ROYALTY AGREEMENT WITNESSETH that in
consideration of the premises and the mutual covenants and agreements herein contained, and
subject to the terms and conditions hereinafter set forth, the parties covenant and agree as
follows:

                                         ARTICLE 1
                                        DEFINITIONS

1.1           Definitions

              The following terms shall have the meanings hereinafter assigned to them,
namely:

a.     "Affiliate" means, with respect to the relationship between corporations, that one of
       them is controlled by the other or both of them are controlled by the same person,
       corporation or body politic; and for this purpose a corporation shall be deemed
       controlled by those persons, corporations or bodies politic who own or effectively
       control, other than by way of security only, sufficient voting shares of the corporation
       (whether directly through the ownership of shares of the corporation or indirectly through
       the ownership of shares of another corporation which owns shares of the corporation) to
       elect the majority of its board of directors.
                                             2


b.   "Condensate" means a mixture mainly of pentanes and heavier hydrocarbons (whether
     or not contaminated with sulphur compounds) that is recovered or recoverable at a well
     from an underground reservoir and that may be gaseous in its virgin reservoir state but
     is liquid at the conditions under which its volume is measured or estimated.

c.   "Crude Oil" means a mixture mainly of pentanes and heavier hydrocarbons (whether or
     not contaminated with sulphur compounds) that is recovered or recoverable at a well
     from an underground reservoir and that is liquid at the conditions under which its volume
     is measured or estimated and includes all other hydrocarbon mixtures so recovered
     except Natural Gas and Condensate.

d.   "Current Market Value" means the price received by the Grantor at the Point of
     Measurement for its share of Petroleum Substances produced and marketed from, or
     pursuant to a scheme of pooling or unitization allocated to, the Royalty Lands which
     price shall not be less than that which the Grantor would have received at the wellhead
     in an arm’s length transaction if acting as a reasonably prudent operator having regard
     to the current market prices, availability to market, type of transportation service
     available and economic conditions of the petroleum industry generally.

e.   "Natural Gas" means Raw Gas or marketable gas as the context so requires, and as
     those terms are defined in the Oil and Gas Conservation Act, R.S.A. 1980, C.0-5, as
     amended.

f.   "Overriding Royalty" means the percentage gross overriding royalty as reserved in this
     Royalty Agreement in favour of the Grantee, more particularly described in Clause 2.1
     hereof

g.   "Petroleum Substances" means all Crude Oil, Condensate, Natural Gas, related
     hydrocarbons, sulphur and every other substance an interest in which is granted under
     the Leases.

h.   "Point of Measurement" means the production tankage in the case of Crude Oil and
     Condensate and shall mean the point of delivery in the case of Natural Gas and all other
     Petroleum Substances.

i.   "Raw Gas" has the meaning prescribed by the Regulations.

j.   "Regulations" means all statutes, laws, rules, orders and regulations in effect from time
     to time and made by governments or governmental boards or agencies having
     jurisdiction over the Royalty Lands and over the operations to be conducted thereon.

k.   "Royalty Lands" means the lands set forth in Schedule "A" hereto;

l.   "Leases" means the documents described in Schedule "A" attached to this Royalty
     Agreement and any extensions, renewals, variations or replacements of the title
     documents insofar as they relate to the Royalty Lands.
                                                  3


                                         ARTICLE 2
                                     OVERRIDING ROYALTY

2.1            Quantification Of Overriding Royalty

              The Grantor hereby grants to the Grantee, pursuant to that certain Exploration
Agreement dated May 1, 1998 between Zavanna, LLC and MCNIC Canadian Holdings, Ltd., an
Overriding Royalty, which shall comprise an interest in the Petroleum Substances within, upon
and under the Royalty Lands and the parties intend to create an interest in land hereby. The
gross volume of Petroleum Substances comprising the Overriding Royalty shall be quantified as
follows:

a.     for Crude Oil: 3.0 percent of the Current Market Value of the gross monthly production
       of Crude Oil produced from each well on the Royalty Lands;

b.     for Natural Gas: 3.0 percent of the Current Market Value of the gross monthly
       production of Natural Gas produced from each well on the Royalty Lands, provided that
       in no event shall the Overriding Royalty payable under this paragraph be less than $1.00
       per thousand cubic feet (mcf) of Natural Gas sold; and

c.     for all other Petroleum Substances: 3.0 percent of the Current Market Value of the gross
       monthly production of all other Petroleum Substances produced from each well on the
       Royalty Lands.

Grantees shall own the Overriding Royalty in the following percentages:

         ABC OIL COMPANY                                        1.125%
         BLACKACRE LIMITED PARTNERSHIP                          1.125%
         BARNBURNER OIL COMPANY                                  .25%
         Total                                                  2.50%


For the purpose of determining the Overriding Royalty payable to the Grantee, the percentages
in paragraphs (i), (ii), (iii) and (iv) of this Clause, as the case may be, shall be multiplied by the
percentage working interest in the Petroleum Substances held by the Grantor at the Effective
Date.

2.2            Petroleum Substances Used For Operations

               Petroleum Substances that the Grantor reasonably considers to be necessary
for the Grantor’s operations on the Royalty Lands for the production, treating, processing and
storing of Petroleum Substances shall be exempt from the payment of the Overriding Royalty.
Any Overriding Royalty exemption as aforesaid shall be restricted to that portion of production
used as fuel for heaters, treaters, compressors, separators, instruments and similar equipment
required to produce Petroleum Substances which is customary in the area. The Petroleum
Substances so used may be deducted from gross monthly production by the Grantor in
quantifying the Overriding Royalty payable to the Grantee under the preceding subclause. The
Grantor shall not be granted any Overriding Royalty exemption from the production of
Petroleum Substances used for reservoir injection or pressure maintenance, secondary and
                                               4


heavy oil recovery or upgrading schemes, or fuel and/or feedstock for any gas plant, refinery,
satellite or multi-well battery.

2.3           Separate Quantification For Crude Oil

               If the Grantor completes any well on the Royalty Lands in more than one zone
producing Crude Oil and production therefrom is segregated and accounted for separately in
accordance with the appropriate regulations, the Overriding Royalty shall be quantified
separately for each producing zone rather than for the total production from such well, less only
those charges permitted herein.

                                     ARTICLE 3
                        OVERRIDING ROYALTY NOT TAKEN IN KIND

3.1           Payments Made to Grantee Monthly

               When and to the extent that the Grantee is not taking its share of Petroleum
Substances in kind, every sale of Petroleum Substances produced from the Royalty Lands by
the Grantor shall include the Grantee’s Overriding Royalty share thereof. The Grantor shall
remit to the Grantee all monies accruing to the Grantee on account of the Overriding Royalty on
or before the twenty-fifth (25th) working day following the calendar month next following the
calendar month in which such Petroleum Substances were sold.

3.2           Monthly Statements Provided to Grantee

               The Grantor shall enclose with each monthly payment to the Grantee the
following information:

a.     a statement showing the quantity and kind of the Petroleum Substances produced,
       saved and sold from the Royalty Lands in the immediately preceding calendar month
       and the Current Market Value thereof, together with a calculation of the Overriding
       Royalty for such immediately preceding calendar month; and

b.     if requested, a copy of the Grantor’s governmental production statement for the month
       for which the Overriding Royalty is calculated and, with respect to Crown leases, a copy
       of the Crown royalty statement. Any information contained in such governmental
       production statement or Crown royalty statement need not be repeated in the Grantor’s
       statement to the Grantee.

3.3           Permitted Deductions

             To the extent that the Grantee does not take its Overriding Royalty share of
Petroleum Substances in kind, as hereinafter provided, the Overriding Royalty shall be paid on
the Current Market Value of the Petroleum Substances without any deductions except the
following:

a.     with respect to Crude Oil and Condensate, the Overriding Royalty will bear a
       proportionate share of the actual costs of treating the crude oil (other than for basic
       sediment) and of transportation to market connection, where sales are not made f.o.b.
       the tanks serving the Royalty Lands;
                                               5


b.     with respect to Natural Gas, the cost of gathering, compressing, treating, processing,
       marketing and transporting the Overriding Royalty share of the Natural Gas may be
       deducted from the Current Market Value of the Natural Gas, provided that:

       i.     the deduction of gathering, compressing, treating, processing and transporting
              costs shall not reduce the Overriding Royalty below any minimum amount as
              may be provided for in paragraph (ii) of subclause 2.1 hereof;

       ii.    the deduction of gathering, compressing, treating, processing and transporting
              costs shall not exceed those which would be permitted by the Regulations for the
              calculation of royalties if the lessor of the relevant title documents were the
              Crown in the right of the Province in which the Royalty Lands are located; and

       iii.   such costs may only be deducted to the extent that they are actually incurred
              and are reasonable.

3.4           Petroleum Substances Sold at Less Than Current Market Value

               If any Petroleum Substances are sold at less than Current Market Value in any
transactions (including those transactions which are not at arm’s length or any transactions
involving any arrangement from which the Grantor obtains a collateral advantage in
consideration of the reduced price), the gross proceeds of the sale of such Petroleum
Substances shall, for the purposes of calculating the Overriding Royalty, not be less than the
Current Market Value of those Petroleum Substances when produced from the Royalty Lands.

                                     ARTICLE 4
                          OVERRIDING ROYALTY TAKEN IN KIND

4.1           Notice to Grantor

               The Grantee shall have the right to take in kind the Grantee’s share of Petroleum
Substances. Such right may be exercised separately with respect to Crude Oil, Raw Gas,
individual Natural Gas liquids, Condensate, marketable gas or any other individual Petroleum
Substance. In the case of Crude Oil and Condensate, such right shall only be exercised on a
minimum of forty-five (45) days notice to the Grantor. In the case of all other Petroleum
Substances such right shall only be exercised on six (6) months notice to the Grantor. If the
Grantee, however, signifies in writing its consent to the sale of any of the Grantee’s share of
Petroleum Substances under a contract made by the Grantor providing for a minimum term in
excess of the said respective notice periods, the Grantee’s right to take in kind any Petroleum
Substances subject to such contract shall be suspended during the term of such contract. The
Grantee may cease to take in kind any Petroleum Substances upon giving the Grantor the
same minimum notice as required in order to permit the Grantee to take such Petroleum
Substances in kind as aforesaid. The right to take in kind or to cease to take in kind may be
exercised from time to time subject only to the foregoing provisions of this subclause.

4.2           Grantor’s Responsibilities

             When the Grantee is taking in kind any of the Grantee’s share of Petroleum
Substances other than Raw Gas, the Grantor shall in respect to Crude Oil and at no cost to the
Grantee, remove basic sediment and water therefrom in accordance with good oilfield practice
                                               6


so that pipeline specifications in that regard will be met, and the Grantee shall also have the
right to use free of charge a proportionate share of the Grantor’s lease tankage and storage
facilities to store a maximum of ten (10) days accumulation of the Grantee’s share of such
Petroleum Substances. In respect to Crude Oil and Condensate the Grantor shall deliver the
same to the Grantee, or its nominee, at the tank outlets in accordance with usual and
customary pipeline and shipping practice, free and dear of all charges whatsoever. Grantor
shall deliver Grantee’s share of Raw Gas to the Grantee or its nominee at the wellhead of the
relevant well, provided that to the extent the Grantee so requests on reasonable notice to the
Grantor and the Grantor can reasonably comply with such request, the Grantor shall gather,
compress, transport, treat and process such share of Raw Gas with the Grantor’s share of Raw
Gas from the applicable wells and deliver to the Grantee at the relevant plant outlet, the
Grantee’s Overriding Royalty share of marketable gas and other Petroleum Substances
obtained from such share of Raw Gas. In such event, the Grantee shall be responsible for:

a.     its proportionate share of the costs of gathering, compressing, transporting, treating and
       processing such Raw Gas where the Grantor or an Affiliate thereof does not own such
       facilities; or

b.     where the Grantor or an Affiliate thereof owns such facilities, such fee as may be agreed
       upon by the Grantor and the Grantee for the use of such facilities and the making of the
       Grantee’s Overriding Royalty share of Raw Gas marketable.

                                          ARTICLE 5
                                       RIGHT TO AUDIT

5.1           Examination of Records

               The Grantee shall have the right to audit the records of the Grantor insofar as
they relate to any matter or items required to determine the accuracy of any statements or
payments with respect to the Overriding Royalty. The books, records, vouchers, government
reports and accounts maintained by the Grantor shall be open to inspection at all reasonable
times during business hours by an officer, agent, employee or other person appointed or
authorized by the Grantee, in writing, to examine the same. Upon request, Grantor shall provide
Grantee with copies of said records by mail or fax, and Grantee shall pay for any reproduction
expenses.

5.2           Discrepancies

               Any payment made or statement rendered by the Grantor hereunder which is not
disputed by the Grantee on or before the last day of the twenty-sixth (26th) month following the
end of the calendar year of the month for which such statement or payment was rendered shall
be deemed to have been correct.

5.3           Right To View Operations

               The Grantee shall also have the right (which may be exercised through servants
or agents) upon giving reasonable notice (which shall not be less than 24 hours) to enter at its
sole cost, risk and expense upon the Royalty Lands at all reasonable times to gauge tanks,
check the quantities of Petroleum Substances in storage, witness tests and otherwise view
operations on the Royalty Lands. The Grantee will save the Grantor harmless from all actions
                                               7


and be responsible for all damages and/or claims resulting from entering into the Royalty
Lands.

5.4           Rights Suspended

                The provisions of subclauses 5.1 and 5.3 shall be suspended where the Grantor
is drilling a well to obtain information to assist it in bidding for lands posted for sale by any
governmental authority, until such sale is completed.

                                       ARTICLE 6
                                  RATEABLE PRODUCTION

6.1           Grantor to Market Rateably

              The Grantor shall, subject to the Clause entitled "Overriding Royalty Taken In
Kind", make every reasonable endeavour within its legal authority to market any of the
Petroleum Substances produced or capable of being produced from the Royalty Lands rateably
with any other similar substances produced from any lands within the same pool in which the
Grantor or any Affiliate has an interest and further the Grantor covenants that it will not
discriminate against the Petroleum Substances produced or capable of being produced from
the Royalty Lands in the production and marketing of the same.

                                        ARTICLE 7
                                   RIGHT TO COMMINGLE

7.1           Grantor May Commingle Petroleum Substances

               The Grantor shall have the right to commingle Petroleum Substances produced
from the Royalty Lands with Petroleum Substances produced from other lands, provided
methods acceptable to the Grantee are used to determine the proper measurement of
individual well production. Where governmental regulations or orders require segregated
production tests of individual wells at intervals not greater than two months, such tests will be
deemed acceptable to the Grantee under this Clause and no further tests will be required.

                                          ARTICLE 8
                                          POOLING

8.1           Poolings Authorized By Grantee

               The Grantor shall have the right to pool any portion of the Royalty Lands forming
less than a spacing unit for the production of Petroleum Substances with lands other than the
Royalty Lands in order to form a complete spacing unit for the production of Petroleum
Substances. Unless otherwise agreed to in writing by the Grantee or ordered by governmental
authority, such pooling will be on a surface acreage basis; that is, the production of Petroleum
Substances from the well on the pooled lands comprising the spacing unit shall be divided
between the Royalty Lands and the other lands in such spacing unit in the proportion that the
number of acres of the Royalty Lands in such spacing unit is to the number of acres of the
other lands in such spacing unit. Where, however, the Overriding Royalty is a sliding scale
royalty based upon the amount of production from the spacing unit, the rate of such sliding
scale royalty shall be calculated upon the total production from the spacing unit, but such rate
                                                8


shall be applied only upon the production deemed produced from the Royalty Lands in the
spacing unit in order to determine the Overriding Royalty. If such pooling is effected, the
Overriding Royalty shall thereafter be calculated and paid in accordance with the foregoing
provisions of this Clause.

                                           ARTICLE 9
                                          UNITIZATION

9.1            Grantor’s Right to Unitize

                 The Grantor shall be entitled to include the Royalty Lands or any part thereof in
any voluntary plan of unitization comprising more than one spacing unit without the written
consent of the Grantee, subject thereto that the Grantor shall, at all relevant times, act in good
faith in the allocation of production with respect to the formation of the units or the expansion
thereof. Such right, notwithstanding the execution by the Grantee of the applicable unit
agreement, shall be deemed to be consent to such unitization under this Clause.

                                          ARTICLE 10
                                         ASSIGNMENT

10.1           Assignment by Grantee

                If the Grantee transfers, assigns or otherwise disposes of any part of its interest
hereunder to more than one party, it shall ensure that one of the parties to whom such
disposition is made shall be nominated to receive the payment of the Overriding Royalty on
behalf of all such parties and until written notice of such nomination is received by the Grantor,
the Grantor shall be entitled to continue to make payments of the Overriding Royalty to the
Grantee.

10.2           Assignment by Grantor

                The Grantor may, with the consent of the Grantee which shall not unreasonably
be withheld, assign any legal or equitable interest in this Agreement, the Royalty Lands, the
Leases, or any portion or portions thereof and in the event of such an assignment, the Grantor
shall continue to be bound by all the conditions and provisions of this Agreement as if there had
been no assignment until such time as the Grantee shall have been served with a document
reflecting the assignment. Such assignment document shall be accompanied by a written
undertaking by the assignee, directly enforceable by the Grantee, to perform and be bound
thereafter by all of the provisions of this Royalty Agreement to the same extent and degree,
with respect to the interest which has been assigned to it, as it would have been had it been a
party to this Royalty Agreement in the place of the Grantor.

                                      ARTICLE 11
                                 CONDUCT OF OPERATIONS

11.1           Election Not To Participate

             Nothing contained in this clause shall be deemed to prevent or restrict the
Grantor from electing not to participate in any operation which is to be conducted under the
Title Documents (or any portion thereof) and allowing consenting parties to conduct non-
                                                  9


consent operations thereon, if such election is made by the Grantor in good faith and in
conformity with sound oil and gas field practices.

11.2           Title Documents

               The Grantor shall comply with all the covenants and conditions contained in the
Title Documents insofar as they relate to the Lands and shall do all things necessary to
maintain the Title Documents in full force and effect during the term of this Agreement
including, provided that the foregoing covenant shall be limited to those covenants and
conditions for which the Grantor is obligated to perform under the Title Documents.

11.3           Prevailing Prices

              The Grantor agrees to conduct the business under this Agreement such that
where materials or services are supplied to the Grantor and the Grantee by any person not at
arm’s length with the Grantor, the price and terms under which such materials or services are
supplied shall be no less favourable to the Grantee than those than would prevail in
agreements for the supply of such materials or services at arm’s length.

11.4           Non-Arm's Length Transactions

               No cost will be increased or "stepped up" by reason of transactions between
persons not at arm’s length to the Grantor or transactions between the Grantor and such
persons and all costs charged to the Royalty Account hereunder shall be the lowest similar
costs incurred by the Grantor or any person not at arm’s length with the Grantor in respect of
the transaction in question.

11.5           Third Party Agreements

               Where any portion of the Assets is subject to another agreement under which a
third party (other than the Grantor) is the operator, it is hereby agreed that the Grantor’s
obligation to manage those interests shall be subject to the operating rights of such third party
operator, but, subject thereto, the Grantor shall, as between the parties hereto, manage such
interests.

11.6           Good Faith

               In the performance of all duties and obligations of the Grantor hereunder, the
Grantor shall act in good faith, taking into consideration the best interests of all parties hereto in
each situation where a conflict or possible conflict of interest exists between the Grantor’s
interests and the Grantor’s duties hereunder provided always that the Grantor shall not be
required to act in a manner contrary to its own best interests in a situation where a conflict or
possible conflict exists and the Grantor will suffer or incur a material loss or damage and the
Grantee will receive an immaterial benefit or advantage.

11.7           Trust

              Any sums received by the Grantor from the operation, production or disposition
of the Royalty or any interest therein or pursuant thereto shall be received by the Grantor, in
                                                10


trust for, as the case may be, the owner thereof as their interests may appear. The Grantor may
commingle any such sums received by it with its own funds.

                                           ARTICLE 12
                                    LIABILITY AND INDEMNITY

12.1           Grantor’s Responsibility

               The Grantor shall:

a.     be liable to the Grantee for all losses, costs, damages and expenses whatsoever
       (whether contractual or tortious) which the Grantee may suffer, sustain, pay or incur;
       and

b.     in addition, indemnify and hold harmless the Grantee and its directors, officers, agents
       and employees against all actions, causes of action, proceedings, claims, demands,
       losses, costs, damages and expenses whatsoever which may be brought against or
       suffered by the Grantee, its directors, officers, agents and employees or which they may
       sustain, pay or incur;

insofar as they are either a direct result of or directly attributable to any act or omission
(whether negligent or otherwise) of the Grantor with respect to operations or activities
conducted by it or on behalf of it.

                                       ARTICLE 13
                                CONFIDENTIAL INFORMATION

13.1           Confidentiality Requirement

                Except as provided herein, all data and information of any nature acquired by the
parties from any operations pursuant to this Royalty Agreement, or supplied by one party to the
other pursuant hereto, shall be for the sole and exclusive use and benefit of the parties hereto
unless the parties agree to the dissemination of such information or unless a party hereto is
required to give such information to any governmental department, body or agency, or any
recognized association within the petroleum industry, of which it is a member, that engages in
the exchange of factual information relating to the type of operations contemplated by this
Royalty Agreement. In no event shall information of any type or character relating to wells
drilled on a confidential basis to the parties be disclosed.

13.2           Disclosure To Affiliates

                The provisions of this Clause shall not apply to disclosures to Affiliates provided
that such Affiliates agree to be bound by the terms of this Clause.

                                          ARTICLE 14
                                            LIEN

14.1           Grantee’s Lien

               The Grantee shall be entitled to and shall have a first and paramount lien upon
the Grantor’s share of all Petroleum Substances from time to time produced from the Royalty
                                               11


Lands to secure the payment of the Overriding Royalty. Such lien shall not operate to release
the Grantor from personal liability for monies due to the Grantee. Such lien shall not attach to
the Grantor’s share of Petroleum Substances sold or otherwise disposed of from the Royalty
Lands, but immediately upon default occurring in payment by the Grantor of monies payable to
the Grantee such lien shall operate as an assignment to the Grantee of the consideration
thereafter payable to the Grantee for the Petroleum Substances sold, up to the amount owed to
the Grantee and not so paid by the Grantor.

14.2          Service of Agreement to Constitute Authority

                Service of a copy of this agreement upon any purchaser of Petroleum
Substances together with written notice from the Grantee shall constitute written authorization
on the part of the Grantor for such purchaser to pay the Grantee the proceeds from any sale or
sales of the Grantor’s share of Petroleum Substances, up to the amount owed to the Grantee
by the Grantor, and such purchaser is authorized to rely solely upon the statement of the
Grantee as to the amount owed to the Grantee by the Grantor.

14.3          Proof of Default

              The books and records kept by the Grantee shall constitute written proof of the
existence of such default, although no purchaser shall be obliged to examine the same before
acting upon such notice of default.

                                          ARTICLE 15
                                           NOTICES

15.1          Service of Notices

               Whether or not so stipulated herein all notices, communications and statements
(herein called "notices") required or permitted hereunder shall be in writing. Any notice to be
given hereunder shall be deemed to be served properly if served in any of the following modes:

a.     personally, by delivering the notice to the party on whom it is to be served at that party’s
       address for service, which notice shall be deemed received by the addressee when
       actually delivered as aforesaid, if such delivery is during normal business hours;
       provided that if a notice is not delivered during the addressee’s normal business hours,
       such notice shall be deemed to have been received by such party at the
       commencement of the next ensuing business day following the date of delivery;

b.     by telefascimile (or by any other like method by which a written and recorded message
       may be sent) directed to the party on whom it is to be served at that party’s address for
       service, which notice shall be deemed received by the respective addressees thereof: (i)
       when actually received by them, if received within normal business hours; or (ii) at the
       commencement of the next ensuing business day following transmission thereof, if such
       notice is not received during such normal business hours; or

c.     by mailing it first class (air mail if to or from a location outside Canada) double
       registered post, postage prepaid, directed to the party on whom it is to be served at that
       party’s address for service, which notice shall be deemed to be received by the
       addressee at noon, local time, on the earlier of the actual date of receipt or the fourth
                                              12


       (4th) day (excluding Saturdays, Sundays and statutory holidays) following the mailing
       thereof; provided that, if postal service is interrupted or operating with unusual or
       imminent delay, notice shall not be served by such means during such interruption or
       period of delay.

For notice periods of forty-eight (48) hours or less, the applicable notice shall be given in
accordance with paragraph (a) or (b) of this subclause.

15.2          Addresses For Notices

              The address for service of notices hereunder of each of the parties shall be as
follows:

a.     The Grantor:

              XYZ COMPANY OF CANADA
              Some address in
              Calgary, Alberta

b.     The Grantee:

              ABC COMPANY
              Some address in
              Halifax, Nova Scotia

              BLACKACRE LIMITED PARTNERSHIP
              Some address in
              Dallas, Texas

              BARNBURNER OIL COMPANY
              Some address in
              Denver, Colorado

15.3          Right To Change Address

              Any party may change its address for service by notice to the other parties.

                                         ARTICLE 16
                                      MISCELLANEOUS

16.1          Development of Lands

              Nothing in this Royalty Agreement is to be construed as an express or implied
covenant by the Grantor to develop the Royalty Lands.

16.2          Perpetuities

               Notwithstanding anything contained in this Royalty Agreement, any right under
this Royalty Agreement of a party to acquire any interest from another party shall terminate not
                                                 13


later than the expiration of twenty-one (21) years after the death of the last surviving
descendant now living of Her Majesty Queen Elizabeth II.

16.3           Parties To Do All Further Acts

                 The parties hereto shall from time to time and at all times do all such further acts
and execute and deliver all such further deeds and documents as shall be reasonably required
in order fully to perform and carry out the terms of this Royalty Agreement.

16.4           No Waiver Except in Writing

               No waiver by any party hereto of any breach of any of the covenants, conditions
or provisos herein contained shall be effective or be binding upon another party unless the
same be expressed in writing, and any waiver so expressed shall not limit or affect its right with
respect to any other or future breach.

16.5           Disputes and Governing Law

                 This Agreement shall be interpreted and enforced in accordance with the laws of
the Province of Alberta and may be enforced by the Courts of Alberta. If any Party to this
Agreement shall institute proceedings to enforce its rights under this Agreement, the prevailing
Party in such proceedings (as determined by the tribunal) shall be entitled to recover its costs
and expenses (including attorney’s fees and costs) incurred by it in addition to any other award
or relief to which such Party may be determined to be entitled.

16.6           Counterpart Execution

              This Agreement may be executed in counterpart and, when each party has
executed a counterpart, all counterparts taken together shall constitute one Agreement.

16.7           Time of Essence

               Time is of the essence of this Royalty Agreement.

16.8           Overriding Royalty is an Interest in Land and Runs With Lands

                The Overriding Royalty is an interest in land and the obligation of the Grantor to
pay the Overriding Royalty shall be a covenant running with the Royalty Lands during the term
of this Royalty Agreement.

16.9           Renewals and Extensions

               The Overriding Royalty conveyed herein shall burden any extensions, renewals,
substitutions or new Lease taken by Grantor or its successors within one (1) year after
expiration of Royalty Lands described on Schedule A.

16.10          Headings

             The headings of the Clauses of this Royalty Agreement are inserted for
convenience of reference only and shall not affect the construction or interpretation of this
Royalty Agreement.
                                             14


16.11        Conflicts

              Wherever any term or condition of this Royalty Agreement conflicts or is at
variance with any term or condition of that certain Exploration Agreement dated May 1, 1998
between Zavanna, LLC and MCNIC Canadian Holdings, Ltd., the provisions of the Exploration
Agreement shall prevail.

16.12        Choice of Law

             Any dispute arising from this agreement will be governed by the laws of Alberta.



             Executed at _______________________, this ____ day of ___________, 2001.



XYZ COMPANY OF CANADA                             ABC COMPANY

Per:                                              Per:


Per:                                              Per:


BLACKACRES LTD                                    BARNERBURNER OIL COMPANY

Per:                                              Per:


Per:                                              Per:

				
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