Exhibit
10.3
Burke Ranch Unit Purchase
and
Participation
Agreement
Between:
HOT SPRINGS RESOURCES LTD.
(”Seller” or “HSR")
and
PIN PARTNERS PETROLEUM LTD.
(”Buyer" or "PIN")
Made as of the 6th day of February, 2006
BURKE RANCH UNIT PURCHASE
AND PARTICIPATION AGREEMENT
THIS AGREEMENT
made as of the 6th day of
February 2006 between HOT SPRINGS
RESOURCES LTD. ("Seller” or HSR") and PIN
PARTNERS PETROLEUM LTD. ("Buyer” or “PIN")
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A.
Whereas HSR owns the interests in
lands and oil and gas leasehold interests comprising the Burke
Ranch Unit, a Federal Unit, that is subject to the terms of the
Burke Ranch Unit Agreement and Unit Operating Agreements
, and to the supervision of such unit and the
activities and operations thereon by the Bureau of Land Management
(BLM) of the United States Department of the Interior; such lands
and leasehold interests are hereinafter included in the definition
of Subject Property in Section 1.1, and are subject only to those
encumbrances, if any, set forth in in Schedule "A";
B.
Whereas PIN is interested in
acquiring an interest in the Subject Property and otherwise
participating in development of the Subject Property on the terms
and conditions set forth in this Agreement;
NOW THEREFORE,
in consideration of the mutual promises and covenants contained
herein, the receipt and sufficiency of which are acknowledged by
the Parties, the Parties agree as follows:
ARTICLE
1
INTERPRETATION
In this
Agreement, unless the context otherwise requires:
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"Affiliate"
means, with respect to a Party to this Agreement, a company or
other entity which controls that Party, is controlled by that Party
or is under common control with that Party. "Control" means (i) the
direct or indirect ownership of sufficient shares or other
interests having the right to vote to elect the senior management
or a majority of the board of directors or other governing board or
committee, or otherwise control, the company or entity, or (ii)
actual control of the company or entity by any means.
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"Area of Mutual
Interest" or "AMI" means the area of mutual interest established in
respect of the AMI Lands;
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"AMI Lands"
means the lands within the area described in Schedule
"B";
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"AMI Term"
means the period following the Effective Date and continuing for a
period of three (3) years thereafter;
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"Business Day"
means a day other than a Saturday, a Sunday or a statutory holiday
in Wyoming;
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"Engineering
Report" has the meaning ascribed to that term in Clause
3.2(a).
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"Effective
Date" means February 6, 2006.
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"Engineering
Report" has the meaning ascribed to that term in Clause
3.2(a).
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"Subject
Assets" means the Subject Property, the Tangibles, and the
Miscellaneous Interests;
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"Subject
Property" means the lands and leasehold interests set out in
Schedule "A", and any lands pooled, unitized or otherwise combined
therewith under the terms of and pursuant to the Unit Agreement and
Unit Operating Agreements or otherwise , together
with the Petroleum Substances within, upon or under those
lands;
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"Miscellaneous
Interests" means, subject to any and all limitations and exclusions
provided for in this definition, all property, assets, interests
and rights pertaining to the Subject Property and the Tangibles, or
either of them, but only to the extent that such property, assets,
interests and rights pertain to the Subject Property and the
Tangibles, or either of them, including without limitation any and
all of the following:
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contracts and
agreements relating to the Subject Property and the Tangibles, or
either of them, including without limitation the Unit Agreement and
Unit Operating Agreements , any communitization
agreements still in effect and having application to the Subject
Property, the Title Documents, processing agreements,
transportation agreements and agreements for the construction,
ownership and operation of facilities;
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rights to enter
upon, use or occupy, the surface of any lands which are or may be
used to gain access to or otherwise use the Subject Property and
the Tangibles, or either of them;
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all records,
books, documents, licences, reports and data which relate to the
Subject Property and the Tangibles, or either of them, including
any of the foregoing that pertain to seismic, geological or
geophysical matters not required to be held confidential and which
HSR has the legal right to disclose to PIN; and
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the Wells (and
no other wells), including the wellbores and any and all
casing;
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"Operating
Procedure" means the 1982 AAPL Model Form Joint Operating Agreement
attached hereto as Schedule "C
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"Party" means a
party to this Agreement;
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"Payout" means
that date when PIN recovers out of the gross proceeds of sale from
it's share of production of Petroleum Substances from the Subject
Property an amount equal to the aggregate costs incurred by or paid
by PIN pursuant to Sections 4.1, 4.2, 4.3 and 5.1
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" Payout Accounting” "
shall mean monthly statements furnished by Buyer to Seller before
the fifth day of each and every calendar month prior to the time.
Payout occurs setting forth the amounts of all expenditures made by
Buyer and claimed by Buyer as costs incurred under Sections 4.1,
4.2, 4.3 and 5.1, together with supporting invoices together with
copies of reports made by or on behalf of Buyer to the Wyoming Oil
and Gas Conservation Commission and/or the Minerals Management
Service, statements from Third Party purchasers, processors and
transporters of production and all other documents evidencing the
volumes and values of Buyer’s share of production, if any, of
Petroleum Substances from the Subject Property for the month prior
to the immediately preceding calendar month. Such monthly
statements shall further include the current accumulative balance
of the recoupment of the costs incurred by Buyer under Sections
4.1, 4.2, 4.2 , ,4.3 and 5.1.
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"Petroleum
Substances" means any of crude oil, crude bitumen and products
derived therefrom, synthetic crude oil, petroleum, natural gas,
natural gas liquids, and any and all other substances related to
any of the foregoing, whether liquid, solid or gaseous, and whether
hydrocarbons or not, including without limitation
sulphur;
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"Studies and
Report" has the meaning ascribed to that term in Clause
3.2(a).
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"Tangibles"
means, any and all tangible depreciable property and assets which
are located within, upon or in the vicinity of the Subject Property
and which are used or are intended to be used to produce, process,
gather, treat, measure, make marketable or inject Petroleum
Substances or any of them or in connection with water injection or
removal operations that pertain to the Subject Property, including
without limitation any and all gas plants, oil batteries,
buildings, production equipment, pipelines, pipeline connections,
meters, generators, motors, compressors, treaters, dehydrators,
scrubbers, separators, pumps, tanks, boilers and communication
equipment;
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"Third Party"
means any individual or entity other than Parties hereto, including
without limitation any partnership, corporation, trust,
unincorporated organization, union, government and any department
and agency thereof and any heir, executor, administrator or other
legal representative of an individual;
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"this
Agreement", "herein", "hereto", "hereof" and similar expressions
mean and refer to this Agreement;
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"Title Defect"
means a material defect or significant deficiency in the title of
Seller to any portion or part of the Subject Property, which on its
own deprives the Seller of the substantial use, benefit or
financial revenue from the Subject Property, having regard to laws
respecting limitations of actions, and is sufficiently adverse such
that it would, on a commercially reasonable assessment thereof,
cause a party experienced in acquisitions of producing oil and gas
properties located in the Rocky Mountain region of the United
States to not purchase the entirety of the Subject Property, having
regard to the loss of value in and thereto;
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“Term Assignment” shall
mean a current assignment of 50% of Seller’s interest in the
Subject Assets, substantially in the form set forth in Schedule "F"
hereto
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" Final Assignment” " shall
mean an assignment of 50% of Seller's interest in the Subject
Assets, substantially in the form set forth in Schedule
"G
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"Title
Documents" means, collectively, any and all certificates of title,
leases, reservations, permits, licences, assignments, trust
declarations, operating agreements, royalty agreements, gross
overriding royalty agreements, participation agreements, farm-in
agreements, sale and purchase agreements, pooling agreements and
any other documents and agreements granting, reserving or otherwise
conferring rights to (i) explore for, drill for, produce, take, use
or market Petroleum Substances, (ii) share in the production of
Petroleum Substances, (iii) share in the proceeds from, or measured
or calculated by reference to the value or quantity of, Petroleum
Substances which are produced, and (iv) rights to acquire any of
the rights described in items (i) to (iii) of this definition; but
only if the foregoing pertain in whole or in part to Petroleum
Substances within, upon or under the Subject Property;
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"Trust
Agreement" means an agreement substantially in the form set forth
in Schedule "H";
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"Trustee" means
the party acting as trustee under the Trust Agreement;
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"Unit
Agreement" means the unit agreement attached hereto as Schedule
"E", as amended and supplemented;
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"Unit Operating
Agreements" means the unit operating agreements attached hereto as
Schedule "D", as amended and supplemented;
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"Wells" means
all wells which are or may be used in connection with the Subject
Property, including without limitation Well 9 and Well 9-17 and all
other producing, shut-in, abandoned, water source, water disposal
and water injection wells.
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"Well 9" means
the Well located at NW, NW 17, 37 N, 78 W, (API Well
No. 49
025
06180)
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"Well 9-17"
means the Well located at ]NE, SE 17, 37N, 78W (API Well
No. 49
025
22264);
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The expressions
"Article", "section", "subsection", "clause", "subclause",
"paragraph" and "Schedule" followed by a number or letter or
combination thereof mean and refer to the specified article,
section, subsection, clause, subclause, paragraph and schedule of
or to this Agreement.
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1.3
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Interpretation Not Affected by
Headings
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The division of
this Agreement into Articles, sections, subsections, clauses,
subclauses and paragraphs and the provision of headings for all or
any thereof are for convenience and reference only and shall not
affect the construction or interpretation of this
Agreement.
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1.4
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Interpretation Not Affected by
Headings
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When the
context reasonably permits, words suggesting the singular shall be
construed as suggesting the plural and vice versa, and words
suggesting gender or gender neutrality shall be construed as
suggesting the masculine, feminine and neutral genders.
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1.5
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Interpretation Not Affected by
Headings
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There are
appended to this Agreement the following schedules pertaining to
the following matters:
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Burke Ranch
Unit Operating Agreements
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Burke Ranch
Unit Agreement
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Such schedules
are incorporated in this Agreement and form a part hereof.
Excepting the agreement described above and appended as Schedule E,
and subject to Article 3.2(d), wherever any term or condition of
such schedules conflicts or is at variance with any term or
condition in the body of this Agreement, such term or condition in
the body of this Agreement shall prevail.
All losses,
costs, claims, damages, expenses and liabilities in respect of
which a Party has a claim pursuant to this Agreement include
without limitation reasonable legal fees and disbursements on a
attorney and client basis.
ARTICLE
2
TITLE TO SUBJECT
PROPERTY
Seller does not
represent or warrant title to the Subject Property, but Seller does
represent that:
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except for the
royalties payable to the lessors under the oil and gas leases set
forth in Schedule "A" and overriding royalty interests burdening
Seller’s interest in such oil and gas leases that were
created by third parties prior to the acquisition by Seller of its
interest in the Subject Property and of which Seller has no
knowledge, it has not granted or otherwise aware of any interest
(or the right to acquire any interest) in the Subject Property
whereby a Third Party may owns or has the right to acquire any
royalty interest in the Subject Property or any portion of
Seller’s interest in the Subject Property;
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it is not aware
of any Title Defects pertaining to the Subject Property, nor is it
aware of any act or omission whereby Seller is or would be in
default under applicable law or the Title Documents and it has not
received any notice of default or otherwise become aware of any
notice of default respecting the Subject Property that has not been
remedied; and
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Seller is not
aware of any environmental defects or deficiencies or environmental
damage affecting or caused by the Subject Assets, nor is Seller
aware of any proceedings which have been commenced or threatened,
or which could reasonably be expected to be commenced, in
connection with any such defects, deficiencies or damages, or any
operations relating thereto.
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While the Term
Assignment is effective and provided Seller has not terminated this
Agreement by virtue of a material default by Buyer under this
Agreement, Seller will not grant, assign or convey any interest in
the Subject Property which may be acquired by the Buyer hereunder,
nor shall Seller do or cause to be done any act or omission whereby
any interest in the Subject Property becomes encumbered, terminated
or forefeited.
ARTICLE
3
BUYER PAYMENT AND
RIGHTS/INTERESTS EARNED
Buyer shall
upon payment of $150,000 (the "Buyer Payment") to Seller earn the
rights and interests set forth in Section 3.2. Seller
acknowledges prior receipt of $35,000 from Buyer, such that the
balance remaining of the Buyer Payment is $115,000 (the "Payment
Balance"). Buyer shall pay this balance, by wire transfer or other
means satisfactory to Seller in immediately available funds, to
Seller or, if Section 3.3 is applicable, to the Trustee on or
before the third calendar day following the date of this Agreement,
failing which this Agreement and all rights of Buyer hereunder
shall terminate.
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Upon making the
Buyer Payment set forth in Section 3.1, the interests in the
Subject Assets shall, subject to the terms of the Term Assignment
be:
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HSR
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49.9%
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PIN
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49.9%
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Others
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0.2%
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In addition,
Buyer upon making such payment to Seller or the Trustee shall earn
the right to participate in and pay the costs of the activities
described in Article 4 below. Forthwith after receiving the balance
of the Buyer Payment, Seller shall duly execute and deliver to
Buyer the Term Assignment, or if Section 3.3 is applicable shall
cause the Trustee to release the Term Assignment to
Buyer.
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All of the
several obligations set forth in Sections 4.1, 4.2 and 4.3 below
and the time limit prescribed for the performance of each and all
such obligations are and shall be deemed material and shall
consititute a single condition precedent to Seller’s
obligation to make the Final Assignment. If the Buyer Payment
described in Section 3.1 above is timely made to Seller or, if
Section 3.3 is applicable, to the Trustee and if, thereafter, Buyer
thereafter timely performs in all material respects each and all of
its obligations described in Sections 4.1, 4.2 and 4.3 below, then,
prior to Payout, Buyer shall thereupon have:
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earned an
additional 39.92% beneficial interest in the Subject Assets, such
that the beneficial interests shall be:
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HSR
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49.9%
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PIN
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49.9%
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Others
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0.2%
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provided
however that HSR shall retain a 49.9% registered legal interest,
and shall hold the additional 39.92% beneficial interest in trust
for PIN; and
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Buyer shall
have the right to receive the Final Assignment and Seller shall
forthwith thereafter duly execute and deliver to Buyer the Final
Assignment.
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In the event
the Final Assignment is earned by Buyer and made by Seller and
thereafter Payout occurs, Buyer shall be deemed to have thereupon
relinquished to Seller the additional 39.92% beneficial interest in
the Subject Assets referred to in Section 3.2(b)(i) above, such
that the legal and beneficial interests in the Subject Assets shall
thereupon be:
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HSR
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49.9%
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PIN
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49.9%
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Others
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0.2%
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Upon Buyer
timely making the Buyer Payment described in Section 3.1 above,
thereby earning the rights described therein, the Operating
Procedure shall govern the Subject Assets and all
operations on or in respect of the Subject Assets, such that, as
between Buyer and Seller, the Operating Procedure shall supercede
the Unit Operating Agreements. Thereafter, each party shall use
commercially reasonable efforts to enter into agreements with, and
obtain approvals from, all relevant third parties (including those
"others" owning working interests in the Subject Property and all
applicable governmental and regulatory authorities) such that the
Operating Procedure supercede
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