Convertible Debentures

Re:

Convertible Debenture Financing

1.1

In this agreement:

(a)

“Agent’s Counsel” means Macleod Dixon LLP.

(b)

“Applicable Securities Laws” includes, without limitation, all applicable securities laws, rules, regulations, notices, policies and rulings of the Selling Jurisdictions;

(c)

“Broker’s Warrants” means the Agent compensation warrants to be issued to the Agent as provided for in subparagraph 9.l(b), each Agent compensation warrant entitling the holder thereof to be issued one common share of the Corporation upon payment of the purchase price therefor pursuant to the terms and conditions of the Broker’s Warrant Certificate;

(d)

“Broker’s Warrant Certificate” means the certificate representing the Broker’s Warrants substantially in the form attached as Schedule “C” hereto;

(e)

“business day” means a day, other than Saturdays, Sundays and statutory holidays, when the banks conducting business in the City of Calgary are generally open for the transaction of banking business;

(f)

“Closing Date” means the date or dates on which the Offering is completed and which is expected to take place on or about November 12, 2004 or such later date as the Agent and the Corporation may agree upon in writing;

(g)

“Closing Time” means 9:00 a.m. (Calgary time) or such other time on the Closing Date, as the Agent and the Corporation may agree upon;

(h)

“Common Shares” means the common shares in the capital of the Corporation;

(i)

“Convertible Debentures” means the 9.75% convertible senior unsecured debentures of the Corporation due five years and one day following the Closing Date;

(j)

“Corporation’s Counsel” means Burnet, Duckworth & Palmer LLP, Warner Norcross & Judd LLP and Vinson & Elkins L.L.P.;

(k)

“Documents” means, collectively:

(i)

the Annual Report of the Corporation for the year ended December 31, 2003 including the consolidated audited financial statements of the Corporation for the year ended December 31, 2003 contained therein;

(ii)

the Annual Information Form of the Corporation dated May 12, 2004 for the year ended December 31, 2003;

(iii)

the Management Proxy and Information Circular of the Corporation for the annual and special meeting of shareholders of the Corporation held on June 28, 2004;

(iv)

the consolidated interim unaudited financial statements of the Corporation for the six month period ended June 30, 2004;

(v)

all material change reports of the Corporation filed with applicable Securities Commissions subsequent to December 31, 2003; and

(vi)

all press releases of the Corporation issued subsequent to December 31, 2003;

(l)

“Exchange” means the Toronto Stock Exchange;

(m)

“Financial Statements” means, collectively, the audited consolidated financial statements of the Corporation for the year ended December 31, 2003 and the unaudited consolidated financial statements of the Corporation for the six month period ended June 30, 2004;

(n)

“Indenture” means the trust indenture to be dated as of the Closing Date between the Corporation and the Trustee, as trustee, governing the terms and conditions of the Convertible Debentures;

(o)

“Material Subsidiaries” means each subsidiary of the Corporation (within the meaning of the Business Corporations Act (Alberta)), in each case, the total assets of which constitute 5% or more of the consolidated assets of the Corporation as at June 30, 2004, or the total revenues of which constitute more than 5% of the consolidated revenues of the Corporation for the year ended December 31, 2003;

(p)

“Netherland, Sewell” means Netherland, Sewell & Associates, Inc., independent geological and petroleum engineering consultants of Dallas, Texas;

(q)

“Netherland, Sewell Report” means the Report on Reserves Data as at January 1, 2004 prepared by Netherland, Sewell & Associates, Inc. and dated April 14, 2004;

(r)

“Offering” means the private placement offering of the Convertible Debentures described herein;

(s)

“Offering Memorandum” means the confidential power point presentation and confidential term sheet of the Corporation;

(t)

“Public Record” means any information filed by and on behalf of the Corporation with applicable Securities Commissions since December 31, 2003, including, without limitation, the Documents and any other information filed with any applicable Securities Commission in compliance, or intended compliance, with any Applicable Securities Laws;

(u)

“Securities Commissions” means the securities commissions or similar regulatory authorities in the Selling Jurisdictions;

(v)

“Selling Jurisdictions” means the provinces of Alberta and Ontario, the United States, the United Kingdom and continental Europe and such other jurisdictions outside of Canada with respect to which the Agent and the Corporation shall have agreed not less than three days prior to the Closing Date;

(w)

“Subscriber” means any person who executes a Subscription Agreement which is accepted by the Corporation;

(x)

“Subscription Agreements” means the agreements to be entered into between the Subscribers and the Corporation providing for the purchase by Subscribers of Convertible Debentures;

(y)

“subsidiary” has the meaning ascribed thereto in the Business Corporations Act (Alberta);

(z)

“Trustee” means CIBC Mellon Trust Company; and

(aa)

“Transfer Agent” means CIBC Mellon Trust Company in its capacity as registrar and transfer agent for the Common Shares.

(a)

the Corporation and each of the Material Subsidiaries has been duly incorporated and organized and is validly subsisting under the laws of the jurisdiction of its incorporation and has all requisite corporate authority and power to carry on its business, as now conducted and as presently proposed to be conducted by it, and to own its properties and assets;

(b)

the Corporation and each of the Material Subsidiaries is qualified to carry on business and is validly existing under the laws of each jurisdiction in which it carries on a material portion of its business except in each case where it would not have a material adverse effect on the business of the Corporation and its subsidiaries, taken as a whole (“Material Adverse Effect”);

(c)

the Corporation has no Material Subsidiaries other than as set forth in Schedule “A” hereto;

(d)

the Corporation legally and beneficially owns all of the outstanding shares of each of the Material Subsidiaries and no person, firm, corporation or other entity has any agreement, warrant, option, right or privilege (whether pre-emptive or contractual) being, or capable of becoming an agreement, for the purchase or acquisition of any of the shares (whether issued or unissued) of any of the Material Subsidiaries;

(e)

the Corporation and each of the Material Subsidiaries has conducted and is conducting its business in compliance in all material respects with all applicable laws, rules and regulations and, in particular, all applicable licensing and environmental legislation or regulations or other lawful requirements of any governmental or regulatory bodies applicable to it of each jurisdiction in which it carries on its business, and the Corporation and each of the Material Subsidiaries holds all licences, registrations and qualifications (collectively “Licenses”) in all jurisdictions in which it carries on its business which are necessary or desirable to carry on its business as now conducted and as presently proposed to be conducted except in each case where it would not have a Material Adverse Effect, and all such Licenses are valid and existing and in good standing, except where the lack of such valid or existing License would not have a Material Adverse Effect;

(f)

the Corporation has full corporate power and authority to issue the Convertible Debentures and the Broker’s Warrants and to issue the Common Shares issuable upon the conversion of the Convertible Debentures and upon exercise of the Broker’s Warrants, as applicable; at the Closing Date, the Convertible Debentures will be duly and validly created, authorized and issued in accordance with the terms and conditions of the Indenture and the Common Shares issuable upon the conversion of the Convertible Debentures and upon the exercise of the Broker’s Warrants, as applicable, will be duly and validly authorized, allotted and reserved for issuance and will, when issued in accordance with the provisions of the Indenture or the Broker’s Warrants Certificate, as the case may be, be issued as fully paid and non-assessable Common Shares;

(g)

the Corporation is not in default or breach of, and the execution and delivery of, and the performance of and compliance with the terms of, this agreement, the Indenture, the Subscription Agreements and the Broker’s Warrant Certificate and

(h)

the Corporation has full corporate power and authority to enter into this agreement, the Indenture, the Subscription Agreements and the Broker’s Warrant Certificate and to perform its obligations set out herein and therein, and this agreement has been, and the Indenture, each of the Subscription Agreements and the Broker’s Warrant Certificate will be, on the Closing Date, duly authorized, executed and delivered by the Corporation, and this agreement is and, the Indenture, the Subscription Agreements and the Broker’s Warrant Certificate will be, on the Closing Date, legal, valid and binding obligations of the Corporation enforceable against the Corporation in accordance with their respective terms, except that the validity, binding effect and enforceability of the terms of agreements and documents are subject to the qualification that such validity, binding effect and enforceability may be limited by (i) applicable bankruptcy, insolvency, moratorium, reorganization or other laws affecting creditors’ rights generally; (ii) equitable remedies, including the remedies of specific performance and injunctive relief, being available only in the discretion of the applicable court; (iii) the statutory and inherent powers of a court to grant relief from forfeiture, to stay execution of proceedings before it and to stay executions on judgments; (iv) the applicable laws regarding limitations of actions; (v) enforceability of provisions which purport to sever any provision which is prohibited or unenforceable under applicable law without affecting the enforceability or validity of the remainder of such document would be determined only in the discretion of the court; (vi) enforceability of the provisions exculpating a party from liability or duty otherwise owed by it may be limited under applicable law; and (vii) that rights to indemnity, contribution and waiver under the documents may be limited or unavailable under applicable law;

(i)

there has not been any material adverse change in the assets, liabilities or obligations of the Corporation and its subsidiaries (taken as a whole) from the position set forth in the Financial Statements or as otherwise disclosed in the Documents or as disclosed to the Agent and there has not been any material adverse change in the business, operations, capital or financial condition or results of the operations of the Corporation and its subsidiaries (taken as a whole) since December 31, 2003;

(j)

the Financial Statements fairly present, in accordance with generally accepted accounting principles in Canada, consistently applied, the financial position and condition of the Corporation (on a consolidated basis), as applicable, as at the dates thereof and the results of the operations of the Corporation (on a consolidated basis), as applicable, for the periods then ended;

(k)

to the knowledge of the Corporation, there have not occurred any material spills, emissions or pollution on any property of the Corporation or of its subsidiaries for which the Corporation or any of its subsidiaries is responsible, nor is the Corporation or its subsidiaries the subject of any outstanding stop orders, control orders, clean-up orders or reclamation orders under applicable environmental laws and regulations which would have a Material Adverse Effect;

(l)

except as disclosed in the Public Record or to the Agent there are no actions, suits, proceedings or inquiries, to the Corporation’s knowledge, pending or threatened against or affecting the Corporation or its subsidiaries at law or in equity or before or by any federal, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality which would have a Material Adverse Effect or which would adversely affect the distribution of the Convertible Debentures or the Common Shares issuable on conversion of the Convertible Debentures;

(m)

the information and statements set forth in the Public Record as they relate to the Corporation, were true, correct and complete in all material respects and did not contain any material misrepresentation, as of the respective dates of such information or statements, and no material change (as defined in Applicable Securities Laws) has occurred in relation to the Corporation which is not disclosed in the Public Record, and the Corporation has not filed any confidential material change reports which continue to be confidential;

(n)

the authorized capital of the Corporation consists of an unlimited number of Common Shares of which, as at November 12, 2004, 113,390,186 Common Shares are issued and outstanding as fully paid and non-assessable shares;

(o)

other than pursuant to the provisions of this agreement and other than options to acquire 24,368,000 Common Shares held by officers, directors and employees of the Corporation and 4,737,548 warrants to purchase 4,737,548 Common Shares, no person, firm, corporation or other entity holds any securities convertible or exchangeable into securities of the Corporation or now has any agreement, warrant, option, right or privilege (whether pre-emptive or contractual) being or capable of becoming an agreement for the purchase, subscription or issuance of any unissued shares, securities (including convertible securities) or warrants of the Corporation;

(p)

with such exceptions as are not material to the Corporation and its Material Subsidiaries (taken as a whole), the Corporation and each of the Material Subsidiaries has duly and on a timely basis filed all tax returns required to be filed

(q)

the issued and outstanding Common Shares are listed and posted for trading on the Exchange and the Corporation is in compliance in all material respects with the by-laws, rules and regulations of the Exchange;

(r)

the minute books of the Corporation and each of its Material Subsidiaries are true and correct in all material respects and contain all material minutes of all meetings and all the resolutions of directors and shareholders thereof;

(s)

the Corporation is a “reporting issuer” or has equivalent status in each of the provinces of British Columbia, Alberta, Manitoba and Ontario within the meaning of the applicable securities laws in such provinces;

(t)

CIBC Mellon Trust Company at its principal offices in the City of Calgary and the City of Toronto, is the duly appointed registrar and transfer agent of the Corporation with respect to the Common Shares and the Convertible Debentures;

(u)

other than as provided for in this agreement, the Corporation has not incurred any obligation or liability, contingent or otherwise, for brokerage fees, finder’s fees, agent’s commission or other similar forms of compensation with respect to the Offering;

(v)

no Securities Commission or any other securities commission or similar regulatory authority has issued any order which is currently outstanding preventing or suspending trading of any securities of the Corporation; and, the Corporation is entitled to avail itself of the applicable prospectus exemptions available under such Applicable Securities Laws in respect of the trades in its securities to Subscribers of Convertible Debentures resident in the Selling Jurisdictions as contemplated by this agreement;

(w)

the Corporation is not in default of any material requirement of Applicable Securities Laws;

(x)

as at the date of this agreement, no executive officer, director or shareholder owning in excess of 10% of the outstanding Common Shares of the Corporation has advised the Corporation of their intention to sell any securities of the Corporation;

(y)

the books of account and other records of the Corporation and its subsidiaries, whether of a financial or accounting nature or otherwise, have been maintained in accordance with prudent business practices;

(z)

the Corporation made available to Netherland, Sewell, prior to the issuance of the Netherland, Sewell Report, for the purpose of preparing such report, all information requested by Netherland, Sewell, which information did not contain any material misrepresentation at the time such information was so provided; and the Corporation believes that the Netherland, Sewell Report reasonably presents in all material respects the aggregate quantity and pre-tax present worth value of estimated future net revenue values of oil and natural gas reserves of the Corporation as at the effective date thereof in respect of the reserves information therein based upon information available in respect of such reserves at the time such report was prepared and the pricing and cost assumptions contained therein;

(aa)

the Corporation is eligible to issue securities that will be subject to a four month hold period pursuant to Multilateral Instrument 45-102 Resale of Securities, subject to the other conditions imposed thereby;

(bb)

as of December 31, 2003, to the best of its knowledge, after due inquiry, the Corporation does not have more than 500 shareholders, and not more than 300 shareholders resident in the United States and the Corporation is not in breach of any reporting obligations under the United States Securities and Exchange Act of 1934;

(cc)

no reorganization, amalgamation, merger, acquisition or disposition of assets, except those in the ordinary course of business, by the Corporation or other change in the business, operations or capital of the Corporation (other than the transactions contemplated herein) is pending which could reasonably be expected to have a material adverse effect on the market price or value of the Convertible Debentures or the Common Shares; and

(dd)

although it does not warrant title, the Corporation does not have reason to believe that it and its Material Subsidiaries do not have title to or the right to produce and sell its petroleum, natural gas and related hydrocarbons (for the purposes of this clause, the foregoing are referred to as the “Interests”) subject always to the terms of applicable agreements, laws, regulations, order and directives; and the Corporation does represent and warrant that the Interests are free and clear of adverse claims created by, through or under the Corporation or its Material Subsidiaries, except as disclosed in the Public Record or those arising in the ordinary course of business, which are not material in the aggregate, and, to the knowledge of the Corporation, the Corporation and its Material Subsidiaries holds its Interests under valid and subsisting leases, licenses, permits, concessions, concession agreements, contracts, subleases, reservations or other agreements;

6.1

The Corporation further agrees that:

(a)

the Corporation will timely perform all of the obligations to be performed by it under this agreement, the Indenture and the Subscription Agreements;

(b)

prior to the filing of the Registration Statement, the Corporation will distribute to the Agent and the Agent’s counsel a draft of the Registration Statement and allow the Agent to comment on the Registration Statement and conduct all due diligence which the Agent may reasonably require in connection with the filing of the Registration Statement;

(c)

the Registration Statement, if filed with the SEC, will, upon its date of effectiveness, fully comply, in all material respects, with the requirements of Applicable Securities Laws and all information and statements contained therein will be true and correct in all material respects;

(d)

during the period commencing with the date hereof and ending one year from the date hereof, the Corporation will promptly inform the Agent in writing of the full particulars of:

(i)

The occurrence of a material fact or event which, in any such case, is, or may be, of such a nature as to render any part of the Public Record, as it exists as of the date hereof, untrue, false or misleading in a material respect, result in a misrepresentation in any part of the Public Record or result in any part of the Public Record not complying with Applicable Securities Laws; or

(ii)

the discovery by the Corporation of any material misrepresentation in any part of the Public Record, as it exists as of the date hereof;

(e)

during the period commencing on the date hereof and ending on the day which is 30 days after the Closing Date, the Corporation will not, without the prior written consent of the Agent, (such consent not to be unreasonably withheld), issue, or announce the issue or intended issue of, any Common Shares or securities convertible or exchangeable into Common Shares other than pursuant to the Corporation’s stock option plan or to satisfy existing instruments issued and outstanding as at the date hereof;

(f)

during the period commencing with the date hereof and ending at the time upon which the Registration Statement has been declared effective, the Corporation will promptly inform the Agent of:

(i)

any request of any Securities Commission or of the SEC for any amendment to the Public Record or the Registration Statement or for any additional information which may be material to the distribution of the Convertible Debentures or the Common Shares issuable upon conversion of the Convertible Debentures, or

(ii)

the issuance by any Securities Commission, the SEC, the Exchange or by any other competent authority of any order to cease or suspend trading of any securities of the Corporation, or of the institution or threat of institution of any proceedings for that purpose;

(g)

the Corporation shall, if applicable, send written notice to each holder of record of the Convertible Debentures advising of the date the Registration Statement has become effective, together with a copy of the prospectus included as part of the Registration Statement. Such notice shall be sent by prepaid registered mail to each holder of the Convertible Debentures at the address of each such holder appearing in the register of Convertible Debentures maintained pursuant to the Indenture within three business days after the date of the Registration Statement has become effective;

(h)

the Corporation shall make all necessary arrangements with the Exchange so that the Common Shares issuable upon conversion of the Convertible Debentures and upon exercise of the Broker’s Warrants shall be listed and posted for trading on the Exchange as soon as practicable after the Closing Time;

(i)

the Corporation shall cause the Transfer Agent to make all necessary arrangements for the exchange (at the cost of the Corporation, other than any applicable transfer taxes) of the definitive certificates representing the Convertible Debentures delivered under subparagraph 8.l(d) for certificates representing, in the aggregate, the same aggregate principal amount of Convertible Debentures in such denominations, registered in such names and to be released at such of the principal offices of the Transfer Agent, as the Agent may direct at any time and from time to time within 45 days of the Closing Date, provided such exchanges are pursuant to exempt trades under Applicable Securities Laws; and

(j)

the Corporation shall use its commercially reasonable efforts to maintain its status as a reporting issuer not in default of any Applicable Securities Laws until the first anniversary of the Closing Date in the Selling Jurisdictions in which it is or in which it becomes a reporting issuer.

(a)

to the Corporation, all completed Subscription Agreements (including any applicable documents specifically referred to in the Subscription Agreements);

(b)

to the Corporation, a private placement questionnaire and undertaking as required by the Exchange and in the form attached to the Subscription Agreements executed by each of the Subscribers and such other documents referred to in paragraph 2.3 hereof; and

(c)

to the Corporation, a certified cheque, bank draft or wire transfer payable to the Corporation at par in an amount equal to the aggregate of all subscriptions for Convertible Debentures delivered to and accepted by the Corporation;

(a)

a legal opinion of the Corporation’s Counsel and of the Agents’ Counsel, in form and substance reasonably satisfactory to the Agent, with respect to such matters as the Agent may reasonably request relating to the Offering, including, without limitation: the due incorporation and valid existence of the Corporation and its Material Subsidiaries; the due registration or qualification to carry on business under the laws of each jurisdiction in which the Corporation and its Material Subsidiaries carries on a material portion of its business as now conducted by it; the corporate power and capacity of the Corporation; the authorized, issued and outstanding capital of the Corporation; the Convertible Debentures and the Broker’s Warrants having been duly authorized for issuance and the Common Shares issuable upon conversion of the Convertible Debentures and upon exercise of the Broker’s Warrants having been duly authorized for issuance and when issued, issued as fully paid and non-assessable; the due and proper appointment of the Trustee and the Transfer Agent; the due authorization, execution, delivery and

(b)

a certificate of the Corporation dated the Closing Date, addressed to the Agent and signed on the Corporation’s behalf by the Chief Executive Officer of the Corporation, or other senior officers of the Corporation acceptable to the Agent, acting reasonably, certifying that:

(i)

the Corporation has complied with and satisfied all covenants, terms and conditions of this agreement on its part to be complied with and satisfied at or prior to the Closing Time;

(ii)

the representations and warranties of the Corporation set forth in this agreement and, where applicable, in the Subscription Agreements are true and correct in all material respects at the Closing Time, as if made at such time;

(iii)

no event of the nature referred to in subparagraphs 10.2(a) or (e) has occurred or to the knowledge of such officers is pending, contemplated or threatened; and

(iv)

such other matters as may be reasonably requested by the Agent or Agent’s Counsel;

(c)

evidence satisfactory to the Agent that the Corporation has obtained all necessary approvals of the Exchange for the listing of the Common Shares issuable upon conversion of the Convertible Debentures and upon exercise of the Broker’s Warrants, subject only to the filing of any documents and payment of any fees which may be required by the Exchange;

(d)

definitive certificates representing, in the aggregate, all of the Convertible Debentures subscribed for registered in such name or names as the Agent shall notify the Corporation in writing not less than 24 hours prior to the Closing Time provided such certificates registered in such names may, subject to receipt by the Corporation and the Transfer Agent of a satisfactory indemnity, be delivered in advance of the Closing Date to the Agent or such other parties in such locations as the Agent may direct and the Agent and the Corporation may agree upon;

(e)

duly completed and executed copies of the Subscription Agreements, each in form and substance reasonably satisfactory to the Agent and the Agent’s Counsel;

(f)

a duly executed copy of the Indenture in form and substance reasonably satisfactory to the Agent and the Agent’s Counsel;

(g)

the fee provided for in paragraph 9.1(a); and

(h)

the Broker’s Warrant Certificate representing the Broker’s Warrants provided for in subparagraph 9.1(b).

9.1

In consideration for their services hereunder, the Corpor