EXPLORATION AND DEVELOPMENT AGREEMENTDevelopment Agreement |
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RANCHER ENERGY CORP. | BIG SNOWY RESOURCES, LP,. RealDealDocs™ contains millions of easily searchable legal documents and clauses from top law firms. Search for free - click here. |
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Search Development Agreement by:
Exhibit 10.2
EXPLORATION AND DEVELOPMENT AGREEMENT
THIS EXPLORATION AND DEVELOPMENT AGREEMENT dated June 15th, 2006 (the “Effective Date”).
BETWEEN:
BIG SNOWY RESOURCES, LP, whose address is Suite 2100, 27 North 27th Street, Billings, Montana 59101, U.S.A.
(“BSR”)
AND:
Rancher Energy Corp. whose address is 1050-17th Street, Suite 1700, Denver, Colorado 80265 USA
(“Rancher Energy”)
WHEREAS:
A. BSR holds an 80% net revenue interest in certain oil and gas leases totalling approximately 7,600 acres in Montana and certain wells located on such leases;
B. BSR desires Rancher Energy to shoot 3D seismic on the leases;
C. BSR desires Rancher Energy to drill a test well on the leases;
D. BSR desires Rancher Energy to construct a pipeline to transport oil and gas produced from the wells subject to this Agreement to an oil and gas transmission line;
E. .
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements, conditions, and obligations in this Agreement, BSR and Rancher Energy (collectively referred to as the “Parties”) agree as follows:
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1. |
DEFINITIONS |
In this Agreement:
“AFE” means authority or authorization for expenditure regarding drilling costs as set out in this Agreement;
“Agreement” means this Agreement, including the attached Schedules;
“Lands” means the lands described in Schedule “A” of this Agreement;
THIS CONTRACT IS SUBJECT TO ARBITRATION PURSUANT TO THE
MONTANA ARBITRATION ACT, TITLE 27, CHAPTER 5, MONTANA CODE ANNOTATED
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“Leases” mean collectively, or individually, as the context may require, those leases, reservations, permits, licences or other documents of title described in Schedule “A” of this Agreement, by which the holder of such leases is entitled to enter, access, drill for, win, take, own or remove the leased substances within, on or under the Lands;
“log” means any record obtained by Rancher Energy of all formations penetrated by the Test Well, or other wells drilled by Rancher Energy on the Leases, their depth, thickness and sonic, electrical, radiological and other physical properties of the formation and water, oil and gas, including, but not limited to mud logs;
“oil and gas” includes all minerals and petroleum, natural gas and other hydrocarbon substances regardless of gravity or phase (including coal and coalbed gas) including, but not limited to condensate and helium, hydrogen, nitrogen and other gases; and
“Payout” means the occurrence of when Rancher Energy recoups the costs and expenses of the:
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(a) |
Construction of the Pipeline; |
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(b) |
wells drilled pursuant to this Agreement; |
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(c) |
equipping, completion and other costs of or in relation to all wells drilled pursuant to this Agreement, including tie-in and compression. |
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(d) |
½ of the cost of the 3D seismic program which seismic is owned 50/50 by the parties. |
“Schedules” means Schedule “A”, Schedule “B” and Schedule “C” of this Agreement, as the context so requires.
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2. |
SHOOTING OF THE 3D SEISMIC AND TEST WELL |
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(a) |
Rancher Energy shall shoot a minimum of 4 square miles of 3D seismic (the “3D”) on the leases. Rancher Energy shall conduct the Operations as a reasonable and prudent operator and shall commence setting the parameters and retaining a seismic contractor as soon as practical once this agreement is executed. Rancher Energy will shoot the 3D ASAP. Further, Rancher Energy will be responsible for identifying and hiring the 3D. BSR agrees to assist when requested in the process. |
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(b) |
All expenditures relating to the 3D, whether direct or indirect but excluding supervision and management costs, shall be to the account of Rancher Energy and paid entirely by Rancher Energy. |
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(c) |
A copy of all data contained and derived from the 3D, including all interpretations shall be forwarded by Rancher Energy to BSR. BSR shall also be provided with the final interpretation within 10 working days of receipt of the final interpretation by Rancher Energy. (the “3D Completion Date"). |
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(d) |
Rancher Energy shall have 30 days from the 3D Completion Date to give written notice to BSR of an intention to drill based on the 3D and propose a drilling location (the “Test Well”). Failure by Rancher Energy to provide a notice prior to expiry of the thirty (30) day period shall be deemed an election by Rancher Energy to terminate this Agreement. If this Agreement is terminated by Rancher Energy, it shall have no further obligations or liabilities hereunder. |
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(e) |
If Rancher Energy elects not to terminate this Agreement pursuant to paragraph 2(d) above Rancher Energy shall have 120 days to spud the Test Well. The Test Well shall be at the sole cost of Rancher Energy. The well will be drilled to the deepest horizon indicated as hydrocarbon bearing by the 3D seismic. |
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Upon receipt by BSR of the
Final Seismic Interpretation and Notice of Drilling Location, BSR shall
assign to Rancher Energy a 55% working interest in the spacing unit of the
Test Well |
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(g) |
If the Test Well is commercial then Rancher Energy shall be entitled to 100% of net revenue from the Test Well Interest until Payout. After Payout, the revenue from the Test Well Interest shall be distributed in proportion to the working interest share of each Party. |
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3. |
PIPELINE AND TRANSPORTATION |
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(a) |
Unless this Agreement has been earlier terminated or has expired Rancher Energy shall: |
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(i) |
use commercially reasonable efforts to obtain required government and administrative regulatory approvals and other necessary consents for the construction and operation of a pipeline of approximately twelve (12) miles in length, with a tie-in at Sec.14 1N 21E in the NENW4, Stillwater County, Montana (the “Pipeline”), to transport gas from the Test Well, and other wells producing in commercial quantities on the Leases in which Rancher Energy and BSR have joint working interest (the "Joint Wells") to a gas transmission line; and |
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(ii) |
if Rancher Energy is able to secure all required approvals and consents noted in paragraph 3(a)(i), Rancher Energy shall thereafter finance, construct, operate and maintain (the “Construction”) the Pipeline, provided that Rancher Energy shall be entitled to, instead of constructing the Pipeline, make mutually acceptable arrangements to transport all produced gas from the Joint Wells to market. |
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(b) |
If the Pipeline is to be constructed pursuant to paragraph 3(a) (including sufficient compression to produce gas from the Test Well), such construction shall occur within eighteen (18) months of the Effective Date. |
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(c) |
Upon Payout, Rancher Energy shall assign 20% of its right, title and interest in the Pipeline to BSR. Rancher Energy grants BSR an option to purchase an additional 25% of Rancher Energy’s right, title and interest in the Pipeline (the “Pipeline Option”). The Pipeline Option may be exercised incrementally by BSR where the minimum percentage of such increments is 1%. If BSR exercises the Pipeline Option, it shall do so within eighteen (18) months of the Completion of Construction of the Pipeline (after which the Pipeline Option automatically terminates). BSR shall notify Rancher Energy of its exercise of the Pipeline Option and within thirty (30) days of such exercise it shall pay to Rancher Energy the equivalent of 25%, or the corresponding lesser incremental percentage, of the independently verifiable costs and expenses (the “Costs”) of the Construction, and thereupon Rancher Energy shall assign a further 25%, or applicable lesser incremental percentage, of Rancher Energy’s right, title and interest in the Pipeline to BSR on a proportionate incremental basis. If BSR fails to make the required payment before the expiry of the thirty (30) day period noted above, the exercise of the Pipeline Option shall be void for all purposes. |
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(d) |
If BSR's interest in the Pipeline is at any time insufficient to transport its joint share of production from any of the Lands or any other lands within the AMI, Rancher Energy shall be entitled to charge BSR those tariffs and fees respecting any required compression and transportation in connection with the Pipeline that it would have be entitled to charge a third party. |
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(e) |
Construction Costs are deemed not to include supervision or management costs and expenses incurred by Rancher Energy. |
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(f) |
Subject to section 7 of this Agreement, once the terms of (a) and (b) above are satisfied then BSR shall transfer to Rancher Energy a 55% working interest in all of the Leases and the Lands, all wells thereon, and in all other lands and wells that BSR owns an interest in within the AMI, other than the Test Well, which shall be governed by the terms of this Agreement. BSR shall not encumber or assign any interest in any of the aforementioned Leases, Lands, wells and other lands whatsoever to any person or entity during the period from the date of this Agreement until BSR transfers the 55% working interest to Rancher Energy as noted above. |
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(g) |
The rights, title and interests in the Leases to be conveyed by one Party to the other Party are without warranty, either express or implied. 
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