Share Purchase Agreement among Gary Freitag, Garth R. Keyte, Evan Stephens, and Assure Oil & Gas Corp. regarding Westerra 2000 Inc.
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This agreement, dated May 30, 2002, is between Gary Freitag, Garth R. Keyte, and Evan Stephens (the Vendors) and Assure Oil & Gas Corp. (the Purchaser). The Vendors agree to sell all their shares in Westerra 2000 Inc. to the Purchaser, transferring ownership of the company and its assets. The agreement outlines the terms of the sale, including definitions, obligations, and the effective and closing dates. The transaction is subject to the completion of necessary documents and compliance with specified conditions.
EX-2.1 3 y61540exv2w1.txt SHARE PURCHASE AGREEMENT EXHIBIT 2.1 SHARE PURCHASE AGREEMENT THIS AGREEMENT made the 30th day of May, 2002. AMONG: GARY FREITAG, of Calgary Alberta; OF THE FIRST PART - and - GARTH R. KEYTE, of Calgary Alberta; OF THE SECOND PART - and - EVAN STEPHENS, of Lloydminster, Alberta; OF THE THIRD PART individually called "Vendor" and collectively called "Vendors") AND ASSURE OIL & GAS CORP., a body corporate, incorporated under the laws of the Province of Ontario (hereinafter called "Purchaser") OF THE FOURTH PART WHEREAS WESTERRA 2000 INC. (the "Corporation") is the beneficial owner of the Assets; and WHEREAS the Vendors own all of the issued and outstanding shares of the Corporation; and WHEREAS the Vendors wish to sell all the shares of the Corporation to the Purchaser and the Purchaser wishes to purchase the shares of the Corporation from Vendors; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises hereto, the receipt and sufficiency of which is hereby acknowledged by the Parties, and the mutual covenants, warranties, representations, agreements and payments herein set forth, the Parties mutually covenant and agree as follows: 4 ARTICLE 1 INTERPRETATION 1.1 DEFINITIONS In this Agreement, including the recitals hereto, this Section and the Schedules, unless otherwise defined or the context so requires: (a) "AFE" means an authority for expenditure pursuant to which the Corporation or another Person on its behalf has authorized the undertaking of operations or a project for which the Corporation shall be obligated to pay a portion thereof determined in accordance therewith an applicable agreement; (b) "Accounting Principles" means generally accepted accounting principles, consistently applied, as established from time to time by the Canadian Institute of Chartered Accountants; (c) "Agreement" means the main body of this Agreement together with all Schedules and attachments hereto; (d) "Assets" means, collectively, the Natural Gas Rights, the Tangibles, the Facilities and the Miscellaneous Interests; (e) "AltaGas Loan Agreement" means the Loan Agreement between the Corporation and AltaGas Services Inc. dated June 1, 2001; (f) "AltaGas Loan" means the Bridge Loan and the Working Capital Loan Amount as such terms are defined in the AltaGas Loan Agreement, for which the payout amounts are detailed in Schedule "L"; (g) "Business Day" means a day other than Saturday or Sunday or a statutory holiday in the Province of Alberta; (h) "Close" means to close the Transaction on the basis contemplated hereby; (i) "Closing" means the closing of the Transaction on the Closing Date; (j) "Closing Date" means the date upon which Closing is to occur, which shall be May 30, 2002 or such other date as the Parties agree to in writing; (k) "Corporation" means Westerra 2000 Inc., a body corporate, incorporated under the laws of the Province of Alberta; (l) "Directors" means the directors of the Corporation from time to time; (m) "Dollar" or "$" means dollars of the lawful currency of Canada; (n) "Effective Date" means April 1, 2002; 5 (o) "Employees" means employees or contract personnel employed or retained by the Corporation from time to time on or before the Closing Date, including Officers; (p) "Environment" means the components of the earth and includes: (i) air, land and water; (ii) all layers of the atmosphere; (iii) all organic and inorganic matter and living organisms; and (iv) the interacting natural systems that include components referred to in sub-paragraphs (i) to (iii) above; (q) "Environmental Damage" means any loss, injury, damage or other event of any kind whatsoever, and howsoever or whenever occurring, to the Environment (including but not limited to any loss or damage to real or personal property) in respect of which any liability or obligation has or may in future accrue to the Corporation, to incur any abandonment, remediation, reclamation, clean-up expenses or fines, penalties and other expenses or to compensate any Person, whether by reason of any equitable, common law, statutory or civil liability or obligation, or remedy available, applicable by reason of the ownership of the Assets or responsibility for any operations conducted on or in respect thereof at any time in the past, present or future, and whether or not resulting from negligence, nuisance or otherwise, which loss, injury or damages shall include but not be limited to all damages, awards, expenses and costs (including legal costs on a solicitor and his own client basis) incurred in any way relating to such matters; (r) "Facilities" means all of the facilities used or useful in the production, gathering, storage, processing, transmission or treatment of Petroleum Substances, including, without limiting the generality of the foregoing, all pipelines, flow lines, gathering systems, batteries and plants and including those facilities set forth on Schedule "B"; (s) "Financial Statements" means the audited financial documents of the Corporation appended hereto as Schedule "K"; (t) "I.T.A." means the Income Tax Act, (Canada) and the regulations thereunder, as amended from time to time including any amendments proposed thereto in any public pronouncement by the Department of Finance of the Government of Canada; (u) "Implementation Documents" includes all transfers, agreements, instruments, consents, resignations, waivers, releases and other documents as may be necessary or appropriate in connection with and for purposes of completion of the Transaction; (v) "Lands" means the lands set forth and described in Schedule "B", and includes the Petroleum Substances within, upon or under such lands, together with the right to explore for and recover the same insofar as such rights are granted by the Leases; 6 (w) "Leases" means, collectively, the leases, reservations, permits, licences, contracts or other documents of title under and by virtue of which the holder thereof is entitled to drill for, win, take, own, store and remove the Petroleum Substances underlying all or any part of the Lands or lands pooled or unitized therewith and which are described in Schedule "B" hereto; (x) "Letter of Intent" means the letter of intent among the parties hereto agreed to on March 29, 2002; (y) "Natural Gas Rights" means the entire right, title, estate and interest of the Corporation in and to the Leases and the Lands set forth and described in Schedule "B", as encumbered by the Permitted Encumbrances; (z) "McMath Lands" means an estate in fee simple of and in all mines and minerals within, upon or under the North East Quarter of Section 24, Township 49, Range 28, West of the Third Meridian, Saskatchewan except 4.58 acres for right of way for the Canadian Pacific Railway on Plan AF 3323; (aa) "Miscellaneous Interests" means, collectively, the entire right, title, estate and interest of the Corporation in and to all property, assets and rights (other than the Natural Gas Rights and the Tangibles) pertaining to the Natural Gas Rights or the Tangibles and to which the Corporation is entitled as at the Closing Date, including, but without limiting the generality of the foregoing, the entire interest of the Corporation in and to: (i) all contracts, agreements, documents, production sales contracts, books and records and all seismic, geological, geophysical, production and engineering data, information and reports relating to the Natural Gas Rights or the Tangibles, and any and all rights in relation thereto; (ii) all subsisting rights to enter upon, use and occupy the surface of any of the Lands or any lands with which the same have been pooled or unitized or any lands used or intended for use to gain access to any of the foregoing; (iii) any right, estate or interest in or to any asset which relates to but does not comprise part of the Natural Gas Rights or the Tangibles; (iv) all shut-in, suspended, producing, water-injection or other wells utilized, or that have been utilized, for purposes relating to the production of Petroleum Substances from the Lands or lands with which the same have been pooled or unitized (including all casing in such wells) but specifically excluding wells properly abandoned in accordance with the Regulations; and (v) all royalty interests; (bb) "Officer" means an individual holding a title commonly referred to and recognized at law, as an officer of the Corporation; (cc) "Party" or "Parties" means a party or parties to and bound by this Agreement; 7 (dd) "Permitted Encumbrances" means, in respect of the Assets: (i) all royalties, burdens, encumbrances or other charges of any kind which are set forth in Schedule "B" in relation to the Assets; (ii) pre-emptive rights in favour of third Persons, and requirements to obtain third Person's consents or approvals, applicable to dispositions of the Assets or any of them in the ordinary and usual course which have been disclosed to the Purchaser, other than those which may arise by reason of this Agreement; (iii) the terms and conditions of the Leases and other existing title documents and the Regulations applicable thereto, including, without limitation, the requirement to pay any bonuses, rentals or royalties to the grantor thereof (or any successor thereto) to maintain the same in good standing; (iv) any rights reserved to or vested in any grantor, government or other public authority by the terms of any of the Leases or by the Regulations applicable thereto to terminate or otherwise deal with any of the same; (v) easements, rights of way, servitudes or other similar rights or interests in land, including but not limited to, all rights of way and servitudes for highways, railways, sewers, drains, gas and oil pipelines, gas and water mains, electric light, power, telephone or cable television conduits, poles, wires or cables; (vi) taxes on Petroleum Substances to the extent not due and payable or delinquent, and all Regulations pertaining to production rates from the Wells and operations being conducted thereon or with respect thereto; (vii) the provisions of the Production Sales Contracts; (viii) the Regulations and any rights reserved to or vested in any municipality or governmental, statutory or public agency or authority to control or regulate any of the Assets in any manner or that otherwise pertain thereto; (ix) undetermined or inchoate liens incurred or created as security in favour of any Person with respect to the exploration, development or operation of any of the Assets, to the extent of the Corporation's share of the costs and expenses associated therewith, and to the extent not due and payable or delinquent; (x) the reservations, limitations, provisos and conditions in any grants or transfers from the crown applicable to any of the Lands or any lands pooled or unitized therewith, or any statutory exceptions to title thereto and such reservations, limitations, provisions and conditions are vested in the crown in right of Canada or a province or a successor in interest to the crown; (xi) provisions for independent operations penalties that now exist or that could hereafter apply in relation to the Assets or any of them; 8 (xii) liens granted in the ordinary course of business to any public utility, municipality or other governmental agency or authority with respect to the Assets or operations pertaining thereto; (xiii) mechanics', builders', materialmens' or similar liens applicable in respect of services rendered or goods supplied not delinquent; (xiv) agreements, arrangements, plans or schemes relating to pooling, unitization or other joint production of Petroleum Substances, pertaining to or including any of the Lands or any lands with which the same have been pooled or unitized; (xv) all agreements respecting the production, processing, treating or transmission of Petroleum Substances, or the operation of Wells by contract field operators, applicable to the Lands or any lands with which the same have been pooled or unitized; and (xvi) the operating related provisions of all operating and other agreements pertaining to the title or interest of the Corporation in the Assets, operations applicable thereto or otherwise pertaining to such Assets; (ee) "Person" means an individual, corporation, partnership or other legal entity and includes any government or any governmental department, agency or authority thereof; (ff) "Petroleum Substances" means natural gas and all other substances (other than petroleum), whether hydrocarbon or not, the rights to which are granted by the Leases; (gg) "Pre-Emptive Right" means a right of first refusal or other pre-emptive right applicable to the Shares, or any of them, whereby a third Person has, as a result of the entering into of this Agreement by the Parties, a right to purchase the Shares, or any of them, at a value determined on the basis provided for in the applicable agreement giving rise to such right of first refusal or other pre-emptive right; (hh) "Production Sales Contracts" means all contracts relevant to the production and sale of Petroleum Substances from the Lands or lands pooled or unitized therewith, including but not limited to those set forth in Schedule "G"; (ii) "Purchase Price" has the meaning ascribed to that phrase in Section 2.2; (jj) "Purchaser" means Assure Oil & Gas Corp.; (kk) "Purchaser's Certificate" means a certificate of the Purchaser to be in the form attached as Schedule "D"; (ll) "Purchaser's Counsel" means Burstall Winger LLP; (mm) "Regulations" means all laws, statutes, regulations, ordinances, orders (including court orders), directives, approvals, licenses, permits, authorities or other such instruments issued by any government or any governmental department, agency or authority thereof, or registered stock exchange, having jurisdiction, applicable to any of the Parties, the 9 Shares, the Assets or any of them, or the operations conducted or to be conducted on or in respect thereof, or any other matters relating to such Parties, Shares, Assets or operations; (nn) "Shares" means all of the issued and outstanding shares in the capital of the Corporation, being an aggregate of 125 Class A common shares, 60 Class B common shares and 15 Class C common shares, which shares are owned of record and beneficially by the Vendors as set forth in Schedule "A"; (oo) "Take or Pay Obligations" means any obligations in the nature of take or pay obligations which the Corporation has under or in respect of any of the Production Sales Contracts which have arisen by reason of payments to or to the account or benefit of the Corporation or to other Persons as agent on its behalf, which now or at any time in the future require or may require the Corporation to deliver Petroleum Substances to those purchasers under such Production Sales Contracts without being entitled to payment in full therefor or, in some circumstances, to repay all or any portion of such payments; (pp) "Tangibles" means the entire right, title, estate and interest of the Corporation in and to all tangible depreciable property, assets and facilities (including but not limited to the Facilities) situate in, on or about the Lands or lands pooled or unitized therewith, appurtenant thereto or used or intended for use in connection therewith or with production gathering, processing, storage, transmission or treatment of the Petroleum Substances produced therefrom or other operations thereon or relative thereto and includes the surplus equipment described in Schedule "C"; (qq) "Taxes" means all Canadian and federal, provincial, state, municipal and other taxes payable under or pursuant to a Tax Act, including but not limited to income taxes, sales taxes, excise taxes, petroleum and gas revenue taxes, value added taxes, goods and services taxes, capital taxes, withholding taxes, property taxes and production severance and other similar taxes and assessments based upon or measured by ownership or production of Petroleum Substances (or the receipt of proceeds therefrom) and includes applicable penalties, interest and fines with respect thereto; (rr) "Tax Act" means the I.T.A. or any other applicable tax legislation of governments, or their respective agencies or authorities, having jurisdiction over the Parties or either of them, or the subject matter of this Agreement, in any case as the same may be amended from time to time; (ss) "Tilikum Report" means the independent engineering report of Tilikum Inc. dated effective December 31, 2001 in respect of the natural gas reserves of the Corporation, a copy of which is attached as Schedule "O"; (tt) "Time of Closing" means the time at which Closing occurs; (uu) "Transaction" means the transaction or transaction provided for in and contemplated by this Agreement; (vv) "Vendors" means collectively the Vendors set forth in Schedule "A" hereto and "Vendor" means any one of them; 10 (ww) "Vendors' Certificate" means a certificate from each Vendor, to be substantially in the form attached as Schedule "E", but modified to the extent reasonably necessary to reflect the different obligations of each Vendor hereunder; (xx) "Vendors' Counsel" means Gowling Lafleur Henderson LLP; and (yy) "Wells" means all abandoned, shut-in, suspended, capped, producing, water injection, water source or other wells located on the Lands or lands pooled or unitized therewith, including but not limited to any wells that have been abandoned where the lands upon which the same are located have been remediated and reclaimed, or are in the process of being remediated and reclaimed, in accordance with the Regulations and the applicable surface lease has been properly surrendered to the landowner in compliance with the requirements of the Surface Rights Act (Alberta) or other applicable Regulations, and includes the Wells described in Part II of Schedule "B". 1.2 SCHEDULES The following Schedules are attached to and by this reference incorporated herein:
1.3 HEADINGS The headings of the sections included herein and in the Schedules are inserted for convenience of reference only and shall not affect the construction or interpretation of the provisions of this Agreement. 1.4 INCLUDED WORDS In this Agreement: (a) words importing the singular include the plural and vice versa, words importing one gender include other genders; and 11 (b) where words are defined herein, derivatives of those words shall have a corresponding meaning unless the context otherwise requires. 1.5 REFERENCES Except as otherwise expressly stated in this Agreement: (a) references herein to "this Agreement", "hereto", "herein", "hereof", "hereby", "hereunder" and similar expressions refer to this Agreement in its entirety and not to any particular section, paragraph, sub-paragraph or other portion hereof; (b) references herein to a Schedule refer to a Schedule to this Agreement; (c) references in the main body of this Agreement or a Schedule to a specific section, subsection, paragraph or sub-paragraph refer to a section, subsection, paragraph or sub-paragraph of such main body of this Agreement or the Schedule in which the reference is made; and (d) unless otherwise stated, references herein to monies means to lawful money of Canada, unless the particular context in which any such reference is used otherwise requires. 1.6 CONFLICTS Whenever any term or condition, whether express or implied, of any Schedule attached hereto conflicts with or is at variance with any term or condition of the main body of this Agreement, the latter shall prevail to the extent of the conflict or variance. 1.7 INVALIDITY OF PROVISIONS If any of the provisions of this Agreement are determined to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected, impaired or limited thereby. ARTICLE 2 PURCHASE AND SALE 2.1 PURCHASE AND SALE Subject to and in accordance with the terms and conditions of this Agreement, in consideration of the Purchase Price, the Vendors hereby agree to sell, transfer and deliver the Shares to the Purchaser and the Purchaser hereby agrees to purchase, receive and accept directly from Vendors the Shares on the Closing Date effective on the Effective Date and the Purchaser shall have and hold the same together with all benefits and advantages to be derived therefrom, absolutely. 2.2 PURCHASE PRICE The Purchase Price shall be $3,450,000, subject to adjustment pursuant to paragraph 2.4 below. 12 2.3 PAYMENT OF THE PURCHASE PRICE The Purchase Price shall be payable as follows: (a) $2,677,703.55 payable on the Closing Date by repayment on behalf of the Corporation of the AltaGas Loan; (b) $772,296.45 in cash ("Cash Payment") payable to the Vendors pro rata in proportion to the number of Shares owned by each Vendor as set forth in Schedule "A", and payable on the following dates: (i) $422,296.45 payable on the Closing Date; and (ii) $350,000 payable upon Four West Land Consultants Ltd. obtaining registered title to the McMath Lands. 2.4 ADJUSTMENTS The Cash Payment shall be adjusted as follows: (a) in the event that the aggregate of the amounts payable by the Corporation as at the Effective Date pursuant to the AltaGas Loan exceeds $2,677,703.55 the Cash Payment shall be reduced by the corresponding amount; (b) net revenues and prepaid expenses of the Corporation attributable to periods ending prior to the Effective Date but received by the Corporation after the Effective Date shall be credited to the Vendors; and (c) net revenues and prepaid expenses of the Corporation attributable to periods ending after the Effective Date but received by the Corporation before the Closing Date shall be credited to the Purchaser. 2.5 INCOME TAX RETURNS All income tax returns required by a Tax Act applicable in respect of the Corporation and applying to that period of time ending on or prior to the Closing Date shall be prepared and filed in a timely fashion by the Corporation, subject to review and approval by the Purchaser, acting reasonably. 2.6 ACCOUNTS RECEIVABLE Vendors covenant to pay or cause to be paid at or prior to the Closing Date, all amounts due to the Corporation, from the Vendors, the officers, directors or all prior officers and directors or from related corporations. 13 ARTICLE 3 CLOSING 3.1 CLOSING The Transaction shall be Closed at 10:00 a.m. Calgary time on the Closing Date at the offices of Purchaser's Counsel, or at such other time and location as the Parties agree upon in writing. 3.2 VENDORS' CLOSING OBLIGATIONS Subject to the terms and conditions hereof, at Closing Vendors shall: (a) execute and deliver this Agreement; (b) deliver all of the existing share certificates issued in the name of each Vendor for all of the issued and outstanding Shares, duly endorsed for transfer, necessary to convey the Shares from Vendors to the Purchaser; (c) deliver, or cause to be delivered, the resignations and releases of all of the current and prior Directors, Officers, employees and consultants of the Corporation; (d) cause to be delivered a Vendors' Certificate dated as of the Closing Date from each of the Vendors to the effect that the statements made in Article 4 to the extent applicable to them, are true in all material respects at and as of the Closing Date; (e) deliver a certified copy of a resolution of the board of directors of the Corporation approving the transfer of the Shares to the Purchaser; (f) deliver the minute book and corporate seal of the Corporation, containing, without limitation, all of the minutes of any meetings, resolutions of directors and shareholders duly executed, and annual returns; (g) cause Gary Freitag to enter an employment agreement or consulting contract with the Corporation in form satisfactory to the Purchaser and Gary Freitag with a term of up to six months from Closing; (h) cause Roswell Petroleum Corporation, 970313 Alberta Ltd. and Lloyd Venture I Inc. to enter into a Farmout and Option Agreement in the form contemplated by the Letter of Intent; (i) cause to be prepared documentation in respect of the discharge of the obligations of the Corporation under the AltaGas Loan; and (j) cause to be delivered an opinion of Vendors' Counsel in form and content acceptable to the Purchaser, acting reasonably, addressing certain matters referred to in Article 4. 3.3 PURCHASER'S CLOSING OBLIGATIONS Subject to the terms and conditions hereof, or any contrary written agreement of the parties, at Closing the Purchaser shall: 14 (a) execute and deliver this Agreement; (b) pay the AltaGas Loan; (c) tender to each Vendor such Vendor's proportionate share of the Cash Payment; (d) cause to be delivered a Purchaser's Certificate dated as of the Closing Date to the effect that the statements made in Article 5 are true in all material respects at and as of the date specified therein; and (e) cause the Corporation to enter into the Farmout and Option Agreement in the form contemplated by the Letter of Intent with Roswell Petroleum Corporation, 970313 Alberta Ltd. and Lloyd Venture I Inc. 3.4 VENDORS' CLOSING CONDITIONS The obligation of Vendors to complete the Transaction is subject to and conditional upon the satisfaction by the Purchaser on the Closing Date the following conditions precedent: (a) satisfaction by the Purchaser of the Purchaser's closing obligations as set forth in Section 3.3; and (b) all representations and warranties of the Purchaser set forth in Article 5 shall be true in all material respects and the Purchaser has performed and satisfied all of its obligations to be performed and satisfied by it on or before the Closing Date. 3.5 VENDORS' BENEFIT AND WAIVER The conditions set forth in Section 3.4 are for the sole benefit of Vendors and may, without prejudice to any of the rights of Vendors hereunder, be waived by them in writing, in whole or in part at any time. If any of the conditions set forth in Section 3.4 are not satisfied, or waived by Vendors on or prior to the Closing Date, Vendors shall be entitled to rescind and terminate this Agreement by written notice to the Purchaser whereupon no Party shall, except as otherwise provided herein, have any further rights or obligations whatsoever to any other Party hereunder, nor shall the Purchaser have any claim or right whatsoever to all or any part of the Shares or the Assets. 3.6 PURCHASER'S CLOSING CONDITIONS The obligation of the Purchaser to complete the Transaction is subject to the satisfaction, on or before the Closing Date, or the time specified herein, of the following conditions precedent: (a) satisfaction by the Vendors of the Vendors' closing obligations as set forth in Section 3.2; (b) all representations and warranties of Vendors set forth in Section 4.1 and 4.2 shall be true in all material respects as of the dates specified therein and Vendors shall have performed and satisfied all of their obligations hereunder to be performed and satisfied by them on or before the Closing Date; 15 (c) the Purchaser shall be satisfied by the Closing Date, acting reasonably, of the Corporation's right, title and interest in and to the Assets; (d) the Purchaser shall be satisfied by the Closing Date, as to the amounts owing to AltaGas pursuant to the AltaGas Loan and shall have received discharge or transfer documents satisfactory to it in respect of such loans; (e) the Purchaser shall be satisfied by the Closing Date, acting reasonably, with the Financial Statements of the Corporation; and (f) no suit, action or other proceeding shall at Closing be pending against any of the Vendors or the Corporation, before any court or governmental agency which may mutually adversely affect the Purchaser or the Corporation. 3.7 PURCHASER'S BENEFIT AND WAIVER The conditions set forth in Section 3.6 are for the sole benefit of the Purchaser and may, without prejudice to any of the rights of the Purchaser hereunder, be waived by it in writing, in whole or in part, at any time. If any of the conditions precedent set forth in Section 3.6 are not satisfied, complied with or waived by the Purchaser at or prior to the Closing Date, or any other date specified therein for the satisfaction thereof, either Party shall be entitled to rescind and terminate this Agreement by written notice to the other Party whereupon neither Party shall, except as otherwise provided herein, have any further rights or obligations whatsoever to the other Party hereunder, nor shall the Purchaser have any claim or right whatsoever to all of any part of the Shares. 3.8 SATISFACTION OF CONDITIONS Each of the Parties covenants and agrees with each of the other Parties that they shall use their best efforts to assure that all of the covenants made by them, and all conditions to their obligations to close the Transaction contained herein, are satisfied on or before the time required therefore to enable Closing to occur on the Closing Date on the basis set forth herein. ARTICLE 4 VENDORS' REPRESENTATIONS 4.1 VENDORS' REPRESENTATIONS AND WARRANTIES Each Vendor hereby represents, warrants and covenants to and with the Purchaser as of the Closing Date, or such other date as is specifically referred to in this Section 4.1, acknowledging that the Purchaser is relying upon the same in entering into this Agreement, that: (a) Residency - such Vendor is resident at the address set forth in Schedule "A" and is not a non-resident for purposes of the I.T.A.; (b) Authority - such Vendor has all requisite capacity, power and authority to enter into this Agreement and to perform all of such Vendor's obligations under this Agreement; 16 (c) Title to Shares - immediately prior to Closing such Vendor shall have good and marketable title to such Vendor's Shares free and clear of any mortgages, liens, charges, security interests, adverse claims, pledges, encumbrances, options, Pre-emptive Rights, restrictions, claims or demands, of any kind or nature whatsoever; and (d) Binding Obligation - this Agreement has been, and the Implementation Documents executed by such Vendor will be, upon Closing, duly executed and delivered by such Vendor, and shall constitute legal, valid and binding obligations of such Vendor enforceable against such Vendor in accordance with their respective terms. 4.2 VENDORS' REPRESENTATIONS AND WARRANTIES REGARDING THE CORPORATION Each Vendor hereby represents, warrants and covenants to and with the Purchaser as of the Closing Date, or such other date as is specifically referred to in this Section 4.2, acknowledging that the Purchaser is relying upon the same and entering into this Agreement, that: (a) Organization - The Corporation is duly organized, incorporated and validly existing under the laws of the Province of Alberta and is duly registered under the laws of those jurisdictions in which it is required to be registered by reason of the nature of its operations or the location of the Assets; (b) Capital Structure of the Corporation: (i) The authorized capital of the Corporation consists of an unlimited number of Class A common shares, an unlimited number of Class B common shares, an unlimited number of Class C common shares, an unlimited number of Class D common shares, an unlimited number of Class E common shares, an unlimited number of Class F Preferred Shares and an unlimited number of Class G Preferred Shares of which 125 Class A common shares, 60 Class B common shares and 15 Class C common shares and no other shares are issued and are outstanding; (ii) There are no restrictions in either the constating documents or the by-laws of the Corporation, each as amended, nor are there any collateral agreements, including without limitation any unanimous shareholders agreement, or voting trust agreement or Pre-Emptive Rights which would arise by reason of the execution of this Agreement or the Implementation Documents, completion of the Transaction or otherwise, which would affect the transferability of the Shares of the Corporation from Vendors to the Purchaser other than the consent of the directors of the Corporation; (iii) No Person, other than the Purchaser pursuant hereto has any agreement, or any right or privilege that may become an agreement, including but not limited to convertible securities, option agreements, warrants or convertible obligations of any kind or nature, for the purchase, subscription, allotment or issuance of any shares in the capital of the Corporation or any securities of the Corporation; (iv) At the time of Closing, the minute book and share ledger of the Corporation will be true and correct in all material respects and the minute book shall contain 17 copies of all meetings of the Directors and shareholders of the Corporation and all resolutions by consent (if any) of the said directors and shareholders; and (v) The Corporation is not now nor will it be, at any time prior to Closing, a party to any contract or agreement to merge or consolidate with any other corporation, to acquire any assets or shares of any other person, or to sell all or any part of its interest in the Assets; (c) Execution of Agreements - the execution and delivery of this Agreement and each and every agreement, instrument or document to be executed and delivered hereunder or pursuant hereto and the consummation of the Transaction do not and will not: (i) result in the breach of or violate any term or provision of the Corporation's articles, by-laws or other constating documents; (ii) to such Vendor's knowledge, information or belief, conflict with, result in a breach of, or constitute a default under any agreement, instrument, license, permit or authority to which the Corporation is a party or by which the Corporation is bound, or to which any property of the Corporation is subject, or result in the creation of any lien, charge, or encumbrance upon the Assets or the Shares under any such agreement, instrument, license, permit or authority; or (iii) to such Vendor's knowledge, information or belief, violate any Regulations applicable to the Vendors, the Corporation or the Shares; (d) Brokers' Fees - neither the Corporation nor any of the Vendors have incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees in respect of the Transaction for which the Corporation or the Purchaser shall have any obligation or liability; (e) Title to Assets - The Vendors do not warrant the Corporation's title to the Assets, but each Vendor does represent and warrant to the Purchaser that: (i) except as has been disclosed in writing to the Purchaser, neither it, nor the Corporation, have done any act or thing, nor is it aware of any act or thing having been done, whereby any of the Corporation's interest in and to the Assets may be canceled or terminated; (ii) the Corporation has not encumbered, granted a security interest in or transferred, leased, licensed, farmed out or otherwise disposed of any of its interests in and to the Assets or any interest therein; and (iii) the Assets are free and clear of all liens, encumbrances, adverse claims, demands and royalties created by, through or under the Corporation, except for the Permitted Encumbrances; (f) Quiet Enjoyment - subject to the rents, covenants, conditions and stipulations in the Leases and any agreements pertaining to the Assets and on the lessee's or holder's part thereunder to be paid, performed and observed, the Corporation shall, as at Closing, continue to hold and enjoy its interest in the Assets for the residue of their respective 18 terms and all renewals or extensions thereof, where applicable, for its own use and benefit without any lawful interruption of or by any of the Vendors or any other Person whomsoever claiming by, through or under any of the Vendors or the Corporation; (g) Lawsuits - the Corporation is not a party to any action, suit or other legal, administrative or arbitration proceeding or government investigation, whether actual or threatened, which the Purchaser is not aware of, and which might reasonably be expected to result in a liability or obligation of the Corporation, or the Corporation's interest in the Assets, or any part thereof, except as set forth in Schedule "F", and there is no particular circumstance, matter or thing which could reasonably be anticipated to give rise to any such action, suit or other legal, administrative or arbitration proceeding or government investigation; (h) AFEs - the Corporation has not received nor is the Corporation subject to any outstanding AFEs approved by it pursuant to agreements applicable to the Assets, except as disclosed in Schedule "J"; (i) Production Sales Contracts - the Corporation does not have any Production Sales Contracts except for those described in Schedule "G"; (j) Notices of Default - except for a notice of default received from AltaGas Services Inc., a copy of which is attached as Schedule "M", the Corporation has not received any notices of default, including any relating to the Assets or any of them and all relevant deposits, rentals and royalties have been paid within applicable time limits and all obligations and covenants required to keep the Leases in full force and effect have been performed and observed; (k) Wells - the Wells that have been drilled and, if completed, completed and subsequently operated or abandoned have been done so in accordance with good oilfield and gas industry practice, in compliance with the Regulations and in accordance with the terms and conditions of all agreements applicable thereto; (l) Payment of Liabilities - other than Taxes payable in respect of the sale of Petroleum Substances from the Assets, all liabilities and Taxes have been properly and fully paid and discharged with respect to the Corporation; (m) Reduction of Interests - the working interests set forth in Schedule "B" in respect of the Leases, lands, wells or production are not subject to reduction on any account whatsoever as a result of actions or omissions taken or omitted by the Corporation or on its behalf, and none of the encumbrances described in Schedule "B" are convertible or subject to change to an interest of any other size or nature, except as specifically set forth in Schedule "B"; (n) Defaults - the Corporation has not received any notices of any breach by it of any Regulations or contracts or agreements including without limitation in relation to the Assets or the operation thereof; (o) Directors/Employees - the Corporation is not a party to: 19 (i) any employment, collective bargaining or similar written agreement; or (ii) any pension, retirement, profit sharing, deferred compensation, stock or cash bonus, stock option or purchase, incentive, health, life insurance, disability, severance or other similar plan, policy or arrangement applicable to persons employed in, or in connection with the Corporation; nor shall it have any Employees, Directors, Officers or consultants at Closing, for which the Corporation will have any continuing liability or responsibility after Closing other than the employment or consulting agreement to be entered into with Gary Freitag; (p) Gas Balancing Agreements - the Corporation has not entered into, and the Vendor is not aware of any agreements or arrangements (commonly known as a gas balancing, swaps, over-production or underlift-overlift agreements or arrangements) by other Persons on the Corporation's behalf which are among two or more Persons owning interests in a portion of the Lands or lands pooled or unitized therewith, nor has there been any circumstance or case whereby one of such Persons has taken, or may hereafter take, a share of the production of Petroleum Substances from such lands greater than it would otherwise be entitled to by virtue of its interest in such lands and which excess taking entitles the other Persons to a credit in respect of subsequent production of that the Corporation's Petroleum Substances produced from such lands by which the Corporation is bound; (q) Documents - all corporate and title documents in the Corporation's possession have been or will be made available promptly prior to Closing to the Purchaser or the Purchaser's Counsel; (r) Take or Pay Obligations - the Corporation or the Assets are not affected by any Take or Pay Obligations except as set forth in Schedule "H"; (s) Business - The Corporation has all requisite corporate power and authority to own the Assets and to carry on its business as it will be conducted at the Closing Date; (t) Books - the books of account and other records of the Corporation have been maintained and will be maintained until Closing in accordance with prudent business practices; (u) Financial Disclosure - other than as set forth in this Agreement, the Schedules or the Financial Statements as of March 31, 2002 and those existing commitments related to the Assets (such as but not limited to rentals, royalty payments, operating costs, processing fees, gathering fees and transportation fees), the Corporation has no other liabilities or obligations of any kind or manner, whether direct, accrued or otherwise, other than the AltaGas Loan; (v) Financial Condition - the Financial Statements fairly present the financial condition of the business of the Corporation as of and for the year ended March 31, 2002 in accordance with Accounting Principles and the results of the operations of the business of the Corporation for the period then ending, based on reasonable estimates; (w) Tax Returns - 20 (i) the Corporation has duly filed all Tax returns required to be filed by it (up to and including the fiscal period ended March 31, 2001; (ii) the Corporation has made complete and accurate disclosure of all material facts and amounts in such returns and in all materials accompanying such returns; (iii) the Corporation has paid all Taxes due and payable; (iv) the Corporation has paid all tax assessments and reassessments and any penalties, interest, fines, governmental charges and other amounts which the relevant authority is entitled to collect from the Corporation; (v) there are no actions, audits, assessments, reassessments, suits, proceedings, investigations or claims now pending against the Corporation in respect of Taxes paid or payable affecting the business carried on by the Corporation; (vi) there are no matters under discussion with, or the subject of any agreement with any governmental authority relating to claims for additional Taxes which affect the Corporation; (vii) there are no agreements, waivers or other arrangements providing for an extension of time with respect to the assessment or reassessment of any Tax or the filing of any Tax returns by, or the payment of any Tax by, or levy of any governmental charge against the Corporation; and (viii) the Corporation has withheld from each payment made by it the amount of all Taxes and other deductions required to be withheld therefrom and have paid all such amounts due and payable before the date hereof to the proper taxing or other authority within the time prescribed under the relevant Tax Act; (x) Bank and Investment Accounts - Corporation has no bank accounts, investment accounts, or safety deposit boxes other than those located at National Bank of Canada, 401 - 8 Ave. S.W. Calgary, Alberta T2P 1E4; (y) Allowables - none of the Wells have been produced in excess of applicable production allowables imposed by the Regulations and such Wells are not subject to any production penalty, except as has been disclosed in writing to the Purchaser; (z) Withholdings - all Taxes and other assessments and levies which the Corporation is required by law to withhold or collect have been duly withheld and collected and paid over to the proper authorities or held by the Corporation for such payments; (aa) Equipment Leases - the Corporation has not entered into any leases, buy-sell, lease-backs or similar arrangements with respect to any equipment or the Facilities except a lease for a screw compressor located at 14-15-49-27 W3, a copy of which has been provided to the Purchaser; 21 (bb) Payment of Taxes and Royalties - all royalties and all ad valorem, property, production, severance and similar taxes and assessments, based on or measured by the ownership of the Assets or the production of Petroleum Substances from the Lands or the receipt of proceeds therefrom, payable by the Corporation up to March 31, 2002 have been paid and discharged; (cc) No Offset Obligations - the Corporation has not received notice that any of the Lands are subject to any offset obligations; (dd) No Dividends - since incorporation, the Corporation has not (i) declared and paid or set aside for payment any dividend, whether in cash, shares or otherwise; or (ii) reduced the Corporation's stated capital in any manner or purchased, acquired, canceled or redeemed, or agreed to purchase, acquire, cancel or redeem, any outstanding shares in the Corporation's issued capital; (ee) Area of Mutual Interest - except as has been disclosed in writing to the Purchaser pursuant to Schedule "N", none of the Lands are subject to an area of mutual interest obligation, where the failure to comply would materially adversely affect the value of such property; (ff) Subsidiaries. The Corporation has no "subsidiaries", as such term is defined in the Business Corporations Act (Alberta); (gg) Flow-Through Shares. The Corporation has no obligations to incur and renounce exploration and development expenses pursuant to any flow-through share subscription agreements; (hh) Environmental Claims - the Corporation is not aware of, nor has it received any order or directive which relates to environmental matters and which requires any material work, repairs, construction, or capital expenditures; or any demand or notice with respect to the material breach of any environmental, health or safety law applicable to the Corporation or any of its business undertakings, including, without limitation, any regulations respecting the use, storage, treatment, transportation, or disposition of environmental contaminants; (ii) Material Contracts - There are no agreements material to the conduct of the Corporation's business except as disclosed above. The Purchaser has been provided with true and complete copies of such material agreements or access thereto. Such agreements do not contain any "change of control" provisions which would be triggered or affected by the Transaction; (jj) Private Company - the Corporation: (i) is a "private company", as defined in the Securities Act (Alberta): (ii) has no published market for its securities; and 22 (iii) has never filed a prospectus in the Province of Alberta and has no filing or reporting obligations pursuant to the securities legislation of any the Province of Alberta or any other applicable jurisdiction. 4.3 PURCHASE ON AN AS IS WHERE IS BASIS The Purchaser hereby acknowledges its understanding and agreement that, except as expressly stated in Sections 4.1 and 4.2, Vendors make no representations or warranties whatsoever as to the quality, quantity or recoverability of the Petroleum Substances from the Lands or lands pooled or unitized therewith, the value of the Assets or any future revenues that may be expected to be received therefrom, the quality, condition, merchantability, serviceability, suitability for any purpose of all or any of the Tangibles, any Environmental Damage, reclamation or abandonment obligations that exist or may in future exist in respect of the Wells, the Lands or any wellsites or locations where other surface related or other operations have been or are now conducted, or for the presence or absence of any obligations that now exist or that may in future exist in any way in relation to the Assets pursuant to the Regulations as amended from time to time. ARTICLE 5 PURCHASER'S REPRESENTATIONS 5.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER The Purchaser hereby represents, warrants and covenants to and with Vendors, as of the Closing Date, or such other date specifically referred to in this Section 5.1, acknowledging that Vendors are relying upon the same in entering into this Agreement, that: (a) Organization of the Purchaser - the Purchaser is a corporation duly organized and existing under the laws of its jurisdiction of incorporation, and it, or its duly authorized agent, is or shall be duly organized and existing under the laws of all jurisdictions in which it is required to be so registered; (b) Authority - the Purchaser has all requisite capacity, power and authority to enter into this Agreement, to purchase and pay for and accept title to the Shares on the terms described herein, to perform all of its obligations under this Agreement; (c) Execution of Agreements - the execution and delivery of this Agreement and each and every agreement, instrument or document to be executed and delivered hereunder or pursuant hereto and the consummation of the Transaction do not and will not: (i) result in the breach of or violate any term or provision of the Purchaser's articles, by-laws or other constating documents; (ii) to the Purchaser's knowledge, information or belief, conflict with, result in a breach of, or constitute a default under any agreement, instrument, license, permit or authority to which the Purchaser is a party or by which it is bound, or to which any property of the Purchaser is subject; or (iii) to the Purchaser's knowledge, information or belief, violate any Regulations applicable to it; 23 (d) Binding Obligation - this Agreement has been, and the Implementation Documents executed by the Purchaser will be, upon Closing, and other Agreements executed pursuant hereto after Closing will be, duly executed and delivered by the Purchaser and shall constitute legal, valid and binding obligations of the Purchaser enforceable against it in accordance with their terms; (e) Regulatory Approvals - the Purchaser has complied with, or when permitted shall hereafter comply with, and obtain all approvals required by, all Regulations applicable to its purchase of the Shares and the completion of the Transaction on the basis provided for hereunder, including but not limited to any applicable Canadian securities laws; (f) Financial Resources - the Purchaser has the financial resources in place to enable it to pay the Purchase Price and Close the Transaction on the Closing Date in accordance with and on the basis contemplated by the Agreement; and (g) Brokers' Fees - the Purchaser has not incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees in respect of the Transaction for which Vendors shall have any obligation or liability. ARTICLE 6 NO MERGER AND SURVIVAL 6.1 NON-MERGER The covenants, representations and warranties set forth in Articles 4 and 5 shall be deemed to apply to all assignments, conveyances, transfers and documents conveying, any of the Shares from any Vendors to the Purchaser and there shall not be any merger of any covenant, representation or warranty in such assignments, transfers or documents notwithstanding any rule of law, equity or statute to the contrary and all such rules are hereby waived to the full extent permitted by law. 6.2 SURVIVAL The covenants, representations and warranties set forth in Articles 4 and 5 shall survive Closing for the benefit of the Parties for 15 months following Closing, except in the case of representations and warranties in respect of Taxes and the Tax Act which shall survive until the expiry of any applicable limitation periods in respect of such Taxes. ARTICLE 7 INDEMNITY, DISCLAIMER AND SUBROGATION 7.1 VENDORS' INDEMNITIES Each Vendor shall indemnify and hold the Purchaser harmless from and against any losses, costs or expenses (including legal costs on a solicitor and to his own client basis) directly resulting from any breach by the Vendors of any covenant or agreement given hereunder or from any representation or warranty of the Vendors in this Agreement (or any certificate or document delivered pursuant hereto) being inaccurate or untrue, except that the aggregate amount payable by the Vendors under such 24 indemnity shall not exceed the aggregate of (a) the Cash Payment received by the Vendors; and (b) the value of the Reconveyed Interest at Payout as determined by Tilikum Inc. based upon a 15% discount rate. 7.2 PURCHASER'S INDEMNITY The Purchaser shall indemnify and hold Vendors and each of them harmless from and against any liability and any losses, costs, expenses or damages relating thereto, directly resulting from any breach by the Purchaser of any covenant or of any representation or warranty of the Purchaser, respectively contained in this Agreement (or any certificate or document delivered pursuant hereto) being inaccurate or untrue. ARTICLE 8 DUE DILIGENCE/INTERIM OPERATIONS 8.1 ACCESS At any time prior to the Closing Date, Vendors shall, upon prior reasonable notice, make available, or cause to be made available, at the offices of the Corporation in Calgary, Alberta during usual business hours, or its duly authorized representatives, all documents, contracts and agreements relating to the Corporation and the Assets or any to them which the Purchaser may reasonably request, which are in the possession of Vendors and which Vendors are legally permitted to disclose, and Vendors shall co-operate with the Purchaser and its representatives to cause to be made available any such records that may be in the possession of other Persons. Vendors shall, unless prevented by the Regulations or applicable agreement, allow the Purchaser to take a reasonable number of photostatic copies of such documents. The Purchaser agrees to maintain strict confidentiality in relation to all corporate documents and information supplied to it by Vendors in this regard, and to not disclose the same to any third Persons without Vendors' prior written consent. If the Transaction does not close for any reason whatsoever, the Purchaser shall forthwith return to Vendors all copies of all documents, contracts, agreements or information provided to it, or made available to it by Vendors. ARTICLE 9 RECONVEYANCE OF WORKING INTEREST 9.1 DEFINITIONS In this Article, (a) "Administrative Overhead" means general and administrative expenses relating to the Assets as set out in the Operating Statements, but which amount shall not exceed $1,250 per month; (b) "GAAP" means generally accepted accounting principles; (c) "Operating Statements" means the monthly statements prepared by the Purchaser in accordance with GAAP with respect to the Assets evidencing the revenues and expenditures with respect to the Assets; 25 (d) "Payout" means the date on which the net revenue generated by the Assets for the period following the Effective Date, as set forth in the Operating Statements, is equal to the Purchase Price; and (e) "Reconveyed Interest" has the meaning given in paragraph 9.3(a) below. 9.2 OPERATING STATEMENTS AND PAYOUT ACCOUNT (a) The Purchaser shall establish and maintain at its registered office, accounting records for the calculation of the Operating Statements and Payout in accordance with GAAP. (b) The Purchaser shall supply the Vendors with a written statement evidencing in reasonable detail all debits and credits made in preparing the Operating Statements and calculating Payout (including supporting calculations for those debits and credits) determined on or by the last day of each month. 9.3 ELECTION FOR RECONVEYANCE AT PAYOUT (a) Within 60 days following Payout, the Purchaser shall give notice of Payout and the date thereof to the Vendors. Within 30 days of receipt of such notice by the Vendors and for no additional consideration, each of the Vendors may elect, by notice to the Purchaser, to require the Purchaser to cause the Corporation to convey an aggregate 25% working interest in the Assets to the Vendors, or to each Vendor's nominee, who elect as set forth below (the "Reconveyed Interest"): Gary Freitag: an undivided 15.625% Evan Stephens: an undivided 7.5%; and Garth R. Keyte: an undivided 1.875%. (b) If some of the Vendors do not elect as set forth in clause (a) above, the Vendor(s) who have elected shall be entitled, by further electing within 10 days of notice by the Purchaser, to take up a proportionate share of the Reconveyed Interest of the Vendor(s) who have not elected. 9.4 OPERATING PROCEDURE The operating procedure governing the Assets at the time of Payout shall apply as between the Vendors who elect to convert and the Corporation. 9.5 LATE NOTICE OF PAYOUT If Payout occurs and the Purchaser has not issued notice of Payout to the Vendors or has issued notice to the Vendors at a date later than required by this Article, the Purchaser will be deemed to have issued notice of Payout at the date provided in clause 9.3(a). In such event, the Vendors may require the conveyance of the Reconveyed Interest, and if the Vendors so elect, the accounts of the Parties will be retroactively adjusted to the date Payout actually occurred. ARTICLE 10 AUDIT OF ALTAGAS LOAN 10.1 NOTICE OF AUDIT At any time subsequent to the Closing, the Purchaser shall, upon written demand by any of the Vendors, at the sole cost and expense of the Vendors (which cost shall include a reasonable fee for 26 administrative time spent by the Corporation), cause to be conducted by the Corporation, an audit of the records and accounts of AltaGas Services Inc. and Cedar Energy Inc., relating to the AltaGas Loan (including, without limitation, all matters pertaining to the AltaGas Loan Agreement and the letter of intent which pre-dated the AltaGas Loan Agreement) and of all joint venture accounts between the Corporation, AltaGas Services Inc. and Cedar Energy Inc. for operations conducted on or with respect to the Assets for all periods up to and including the Effective Date. 10.2 ADJUSTMENT RESULTING FROM AUDIT Upon receipt of a notice pursuant to this Article, the Purchaser shall cause the Corporation to commence the conduct of that audit within 60 days by an accredited third party selected by the Vendors and to conduct any such audit within a reasonable time period. If the result of any such audit discloses a credit payable to the Corporation, the Purchaser shall cause the Corporation to take all reasonable steps to ensure that any such credit is received by the Corporation. The Corporation shall cause any such net amount received by the Corporation to be paid to the Vendors as a post-closing adjustment to the Cash Payment in accordance with Paragraph 2.4 of this Agreement. If the result of any such audit discloses that the Corporation is subject to a negative variance, the Vendors shall cause any such amount so disclosed to be paid by the Vendors to the Corporation as a post-closing adjustment to the Cash Payment in accordance with Paragraph 2.4 of this Agreement. ARTICLE 11 ACKNOWLEDGEMENT OF WELLS HELD IN TRUST 11.1 DEFINITIONS In this Article, (a) "Wells" means well 4B-12-49-1-W4M ("Well 4B") and well 9B-12-49-1-W4M ("Well 9B") and any and all associated well licences and registrations; and (b) "Well Owners" means with respect to Well 4B, Lloyd Venture I Inc. as to 49% and Roswell Petroleum Corporation as to 51%, and means with respect to Well 9B, Barcomp Petroleum Ltd. as to 25%, Lloyd Venture I Inc. as to 36.75% and Roswell Petroleum Corporation as to 38.25%. 11.2 WELLS IN TRUST The Purchaser and the Corporation hereby acknowledges its understanding and agreement that (a) the Wells are licensed in the name of the Corporation; and (b) the Wells are beneficially owned by the Well Owners and that the Corporation only holds the license to the Wells as bare trustee for and on behalf of the Well Owners. 11.3 The Purchaser shall, at any time subsequent to the Closing, upon written demand by any of the Well Owners, cause the Corporation to transfer, at the Well Owners expense, the Wells to the Well Owners, or to any other party as the Well Owners may otherwise direct in writing. 27 ARTICLE 12 MISCELLANEOUS 12.1 GOVERNING LAW AND ATTORNMENT This Agreement shall, in all respects, be governed by, subject to and be interpreted, construed and enforced in accordance with the laws in effect within the Province of Alberta. Each Party hereby expressly attorns to the jurisdiction of the courts of the Province of Alberta and all courts of appeal therefrom, and hereby waives any claim or defence of inconvenient forum. 12.2 TIME OF THE ESSENCE Time shall in all respects be of the essence of this Agreement. 12.3 NOTICES Delivery of notices, and service of any suit, action or proceeding arising out of or related to this Agreement, may be effected for each of the Parties at the following addresses: Vendors: to the addresses given in Schedule "A", With a copy to: Gowling Lafleur Henderson LLP Suite 1400 700 -2nd St. S.W. Calgary, Alberta T2P 4V5 Attention: J. Forbes Newman Fax ###-###-#### The Purchaser: Assure Oil & Gas Corp. Suite 1800 The Exchange Tower P.O. Box 427 130 King Street West Toronto, Ontario M5X 1E3 Attention: The President Fax: (416) 364-8244 With a copy to: Burstall Winger LLP 3100, 324 - 8 Ave. S.W. 28 Calgary, Alberta T2P 2Z2 Attention: Roger MacLeod Fax ###-###-#### Each Party may from time to time change its address for service hereunder by giving written notice to the other Party in accordance with this Section 12.3. Any notice required or contemplated hereby may be served by personal service upon an officer or director of a Party, or by facsimile transmission, or mailing the same (except during periods of actual or anticipated postal disruptions) by prepaid registered post in a properly addressed envelope, to the Party at its address for service hereunder, as the same may be amended from time to time in accordance herewith. Any notice given by personal service upon an officer or director of a Party shall be deemed to be given on the date of such service. Any notice given by mail shall be deemed to be given to and received by the addressee on the fifth Business Day after the mailing thereof. Any notice given by facsimile transmission shall be deemed to be given to and received by the addressee on the first Business Day immediately following the day upon which transmission thereof is made and appropriate answer back has been received. 12.4 PRIOR AGREEMENTS This Agreement supersedes and replaces any and all prior agreements, discussions, negotiations, documents, understandings or other verbal or written communications between the Parties relating to the Transaction and may be amended only by written instrument signed by all Parties. 12.5 ENTIRE AGREEMENT This Agreement sets forth the entire agreement between the Parties pertaining to the Shares, the Assets, the Transaction or otherwise relating to the subject matter hereof. 12.6 AMENDMENTS AND WAIVERS No supplements, amendments or other modifications to this Agreement, or any waiver of the application of a provision hereof, shall be binding upon a Party, unless that Party has consented thereto in writing. No waiver by a Party of any provision of this Agreement shall be deemed to or will constitute a waiver of any other provision hereof (whether or not of a like or similar nature) nor will a waiver constitute a continuing waiver, unless expressly provided for in a written waiver executed by that Party. 12.7 ASSIGNMENT Prior to Closing no Party shall assign or be entitled to assign this Agreement or any portion hereof or any right or obligation hereunder, without the prior written consent of the other Parties, which consent may be withheld for any reason. In no circumstances shall the liabilities or obligations of the Parties hereunder be increased or altered in any material way as a result of any assignment that has been consented to pursuant to this Section 10.7 being implemented. Subsequent to Closing, no assignment of a right or benefit under this Agreement shall be binding upon a Party unless it has consented in writing to such assignment, such consent not to be unreasonably withheld. 12.8 CONFIDENTIALITY 29 The Parties confirm their agreement and understanding that the terms and conditions hereof are confidential. Except as required by law, no Party shall disclose or use any information provided to it pursuant hereto for any purpose other than related to the Transaction and the Closing thereof until after Closing has occurred. 12.9 ENUREMENT This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors, receivers, receiver-managers, trustees, heirs, administrators and permitted assigns, as the case may be. 12.10 FURTHER ASSURANCES As and from the Closing Date, as may be necessary or desirable, and without further consideration, the Parties shall execute, acknowledge and deliver such other instruments and documents, and take all such other actions as may be reasonably necessary, to carry out their respective obligations under this Agreement in order to complete the Transaction on the basis and at the time specified or contemplated hereby. 12.11 GENERAL OBLIGATIONS Notwithstanding anything set forth in, or otherwise applicable under, this Agreement or any other agreement to the contrary the obligations and liabilities of Vendors hereunder are several, and not joint or joint and several, it being the stated intention of the Parties that any rights, liabilities or obligations of Vendors hereunder shall be determined in the proportion that the number of Shares held by that Vendor bears to the total Shares of the Corporation sold to the Purchaser hereunder. 12.12 SOLICITATIONS Vendors covenant and agree that they will not, and will not permit the Corporation to, solicit, entertain or negotiate any offer or invitation for the sale of the Shares or the Assets or any rights or interest in respect thereto, unless this Agreement is terminated prior thereto in accordance with the provisions hereof. 12.13 FACSIMILE EXECUTION Delivery of this Agreement may be effected by a Party by facsimile transmission of the execution page hereof to the other Parties. A Party so delivering this Agreement shall thereafter forthwith deliver to the other Parties an original execution page hereof with its original signature located thereon, provided however, that any failure by a Party to so deliver such original execution page shall not effect the validity or enforceability hereof against that Party. 12.14 SEVERABILITY If any of the provisions of this Agreement are determined by a Court of competent jurisdiction to be unenforceable, such provisions shall be deemed to be severed from this Agreement, and of no force or effect whatsoever. All remaining terms and conditions of this Agreement shall remain in full force and effect between the Parties, enforceable in accordance with their respective terms. 30 12.15 COUNTERPART EXECUTION This Agreement may be executed in counterpart and all counterparts shall together constitute one Agreement. IN WITNESS WHEREOF the Parties have executed this Agreement as of the date first above written. ASSURE OIL & GAS CORP. By: /s/ James I. Golla ---------------------------------- (illegible) /s/ Gary Freitag - -------------------------------- --------------------------------------- Witness GARY FREITAG (illegible) /s/Garth Keyte - -------------------------------- --------------------------------------- Witness GARTH KEYTE (illegible) /s/Evan Stephens - -------------------------------- --------------------------------------- Witness EVAN STEPHENS 31 SCHEDULE "A" NAME AND NUMBER AND PERCENTAGE OF ADDRESS OF VENDOR SHARES OWNED Gary Freitag 125 Class A common shares (62.5%) 301 - 12 Avenue N.W. Calgary, Alberta T2M 0C8 Fax No. (403) 262-5200 Evan Stephens 60 Class B common shares (30%) 4201 - 66th Ave. Lloydminster, Alberta T9V 2Y7 Fax No. (780) 875-8909 Garth Keyte 15 Class C common shares (7.5%) 510, 206 - 7 Ave. S.W. Calgary, Alberta T2P 0W7 32 SCHEDULE "B" SCHEDULE "B"LANDS, LEASES, WELLS AND FACILITIES INVENTORY
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36 WESTERRA/CEDAR LLOYDMINSTER FACILITIES INVENTORY LSD 14-15-49-27 W3M - One (1) dual zone gas well completed and producing from both Cummings and Lloydminster formations. - Wellbore includes 7" Casing, and two (2) strings of 1-1/2" coil tubing c/w hangers and dual assembly wellhead. - Three (3) 12" x 5' s.t.s. 300 ANSI (715 psig) sweet separator/meter skid packages c/w separator, junior meter run, Barton 2 pen recorder, skid mounted 500 gallon methanol tank, Texsteam pneumatic methanol pump and hard core building. Year Built 2001. - Wellhead and separators surrounded by chain link security fencing. - One (1) 200 bbl double walled steel internally coated water storage tank c/w gauge board, ladder and thief hatch. Year Built 2001. LSD 15-15-49-27 W3M - One (1) single zone gas well completed and producing from the Sparky formation. - Wellbore includes 7" casing, 2-3/8" master valve, and one (1) string of 1-1/2" coil tubing c/w hanger. - One (1) Methanol sphere and gauge assembly - One (1) 200 gallon Methanol tank c/w overhead stand. - Separator located at the adjacent 14-15 lease. LSD 16-23-49-28 W3M - One (1) single zone gas well completed and producing from the Colony formation. - Wellbore includes 7" Casing, 2-3/8" master valve, and one (1) string of 2-3/8" tubing. - Two (2) 12" x 5' s.t.s. 300 ANSI (715 psig) sweet separator/meter skid packages c/w separator, junior meter run, Barton 2 pen recorder, skid mounted 500 gallon methanol tank, Texsteam pneumatic methanol pump and hard core building. Year Built 2001. 37 - Wellhead and separators surrounded by chain link security fencing. LSD 12-24-49-28 W3M - One (1) single zone gas well completed and producing from the Colony formation. - Wellbore includes 7" Casing, 2-3/8" master valve, one (1) string of 2-3/8" tubing and one (1) string of 1-1/4" coil tubing c/w hanger. - One (1) 12" x 5' s.t.s. 300 ANSI (715 psig) sweet separator/meter skid package c/w separator, junior meter run, Barton 2 pen recorder, skid mounted 500 gallon methanol tank, Texsteam pneumatic methanol pump and hard core building. Year Built 2001. - Wellhead and separator surrounded by chain link security fencing. LSD B13-24-49-28 W3M - One (1) single zone gas well completed in the Colony formation. Well is currently shut-in Wellbore includes 7" Casing, 2-3/8" master valve, one (1) string of 2-3/8" tubing, and one (1) string of 1-1/4" coil tubing c/w hanger. - Wellhead surrounded by chain link security fencing. - Separator located at the adjacent C13-24 lease. LSD C13-24-49-28 W3M - One (1) single zone gas well completed in the Colony formation. Well is currently shut-in. Wellbore includes 7" Casing, 2-3/8" master valve, and one (1) string of 2-3/8" tubing. - One (1) 12" x 5' s.t.s. 300 ANSI (715 psig) sweet separator/meter skid package c/w separator, junior meter run, Barton 2 pen recorder, skid mounted 500 gallon methanol tank, Texsteam pneumatic methanol pump and hard core building. Year Built 2001. - Wellhead and separator surrounded by chain link security fencing. LSD 15-24-49-28 W3M 38 - One (1) single zone gas well completed in the Colony formation. Well is currently shut-in. - Wellbore includes 7" Casing, 2-3/8" master valve, one (1) string of 2-3/8" tubing, and one (1) string of 1-1/4" coil tubing c/w hanger. - One (1) 12" x 5' s.t.s. 300 ANSI (715 psig) sweet separator/meter skid package c/w separator, junior meter run, Barton 2 pen recorder, skid mounted 500 gallon methanol tank, Texsteam pneumatic methanol pump and hard core building. Year Built 2001. - Wellhead and separator surrounded by chain link security fencing. LSD 2-25-49-28 W3M - One (1) single zone gas well completed in the Colony formation. Well is currently shut-in. Wellbore includes 7" Casing, 2-3/8" master valve, and one (1) string of 2-3/8" tubing. - One (1) 12" x 5' s.t.s. 300 ANSI (715 psig) sweet separator/meter skid package c/w separator, junior meter run, Barton 2 pen recorder, skid mounted 500 gallon methanol tank, Texsteam pneumatic methanol pump and hard core building. Year Built 2001. - Wellhead and separator surrounded by chain link security fencing. LSD 6-25-49-28 W3M - One (1) single zone gas well completed and producing from the Colony formation. - Wellbore includes 7" Casing, 2-3/8" master valve, one (1) string of 2-3/8" tubing, and one (1) string of 1-1/4" coil tubing c/w hanger. - One (1) 12" x 5' s.t.s. 300 ANSI (715 psig) sweet separator/meter skid package c/w separator, junior meter run, Barton 2 pen recorder, skid mounted 500 gallon methanol tank, Texsteam pneumatic methanol pump and hard core building. Year Built 2001. - Wellhead and separator surrounded by chain link security fencing. LSD C13-25-49-28 W3M - One (1) single zone gas well completed and producing from the Colony formation. - Wellbore includes 8 5/8" Casing, 2-3/8" master valve, one (1) string of 2-3/8" tubing, 39 and one (1) string of 1-1/4" coil tubing c/w hanger. - One (1) 12" x 5' s.t.s. 300 ANSI (715 psig) sweet separator/meter skid package c/w separator, junior meter run, Barton 2 pen recorder, skid mounted 500 gallon methanol tank, Texsteam pneumatic methanol pump and hard core building. Year Built 2001. - Wellhead and separator surrounded by chain link security fencing. LSD 1-26-49-28 W3M - One (1) single zone gas well completed and producing from the Colony formation. - Wellbore includes 7" Casing, 2-3/8" master valve, one (1) string of 2-3/8" tubing, and one (1) string of 1-1/4" coil tubing c/w hanger. - Wellhead surrounded by chain link security fencing. - Separator located at the adjacent 16-23 lease. LSD 10-14-50-28 W3M * SEE GENERAL NOTES - One (1) single zone gas well completed in the Colony formation. Well is currently suspended. - Wellbore includes 7" Casing, one (1) string of 2-3/8" tubing, one (1) string of rods, and one (1) downhole pump. - One (1) 16" x 19'-6" 6 tray dehydrator skid package. Package is in good condition. - One (1) 400Bbl Single walled steel tank c/w skid, burner, and insulation. - One (1) Pumpjack American 80,000 In-Lbs Approx. 50 inch stroke. - One (1) Arrow C-46 engine. - Wellhead and equipment surrounded by chain link security fencing. LSD 15-24-49-1 W4M - One (1) single zone gas well completed in the Colony formation. Well is currently suspended. 40 - Wellbore includes 7" Casing, one (1) string of 2-3/8" tubing, one (1) string of rods, and one (1) downhole pump. - Equipment on this lease is already itemized on the surplus equipment list. - Wellhead and equipment surrounded by chain link security fencing. LSD 6-9-50-1 W4M - One (1) single zone gas well completed in the Sparky formation. Well is currently suspended. - Wellbore includes 7" Casing, one (1) string of 2-3/8" tubing, and one 2-3/8" master valve.** See General Notes - Equipment on this lease is already itemized on the surplus equipment list. - Wellhead and equipment surrounded by chain link security fencing. This site is also used for the storage of surplus equipment. LSD 8-22-50-2 W4M - One (1) single zone gas well completed in the Colony formation. Well is currently suspended. - Wellbore includes 7" Casing, one (1) string of 2-3/8" tubing, and one 2-3/8" master valve. OTHER GENERAL NOTES: * Equipment on this lease has not been included in the surplus equipment list, and is part of the ongoing land swap with CNRL for Section 9-50-1 W4M. ** Wellbore is leased from ESSO. Westerra and partner Cedar have an obligation to abandon the wellbore after use. *** The information listed for these items may not be completely accurate and is based on memory from previous site visits. **** All producing properties including those shut-in wells are flowlined into an Altagas gathering and compression facility. Those wells indicated as being suspended either have no tie- 41 ins, or are tied-in to an ATCO gathering and distribution system. 42 SCHEDULE "C" SURPLUS EQUIPMENT WESTERRA/CEDAR LLOYDMINSTER SURPLUS INVENTORY 15B-27-49-01 W/4 DEHY $10,000** 1 - ABSORBER SEPARATOR, SERIAL #E742246-V2 CRN #C289.2, D.O.B.=1975, OD 16" X 19'6" MWP=835PSI, CA=0, TEMP= 100, SHELL=SA53B, T.S=60000 HEAD=SA51570, TS=70000, .500 SHELL, HYDRO=12600 J.FFF.=100%, 4" INLET X 3" OUTLET SKIDDED & HOUSED, NEEDS TLC 1 - REBOILER, SERIAL #E74224814, DOB 1975 75000 BTU/HR, 15PSI FUEL GAS 1 - TEXAS CARBINE - GLYCOL PUMP 1" UNIT NEEDS TO BE GONE THROUGH, NEEDS NEW INSTRUMENT LINES & PAINT, PIPING CHECKED. PUMPJACK *$2,500** 1 - PUMPJACK, AMERCAN 80,000 IN-LBS APPROX. 50 IN STROKE. ENGINE * $500** 1 - WHITTEY 10 HP NATURAL GAS SINGLE CYLINDER ENGINE NOTE: THIS EQUIPMENT IS LOCATED AT THE 15B-27-49-01 W4M SITE. 06B-25-49-28 W/3 DEHY $20,000** 1 - NATCO ABSORBER, D.O.B.= 08/1989 CRN#A-1011.3, A ###-###-####, SERIAL #LS-3899, MWP=4964KPA, 720PSI, SHELL = 17MM OR .67", HEAD = 14.5MM OR .572", CORR ALLOW = 1.6MM OR .0625" T.P. = 7447, ORDER #5302-V1, 54O C. OR 129O F., SO-NO-5302-V1 1 - VERTICAL SEPARATOR, MODEL #D-6-720-2P D.O.B.=1989, 720PSI, 100O F., CRN #02212.21 43 1 - NATCO REBOILER 18" X 43", 0-5PSI, D.O.B.=1989, SERIAL #LGR-1843-1436, DWG #FA-5302-04 1 - LARSEN & D'AMICO ORDORANT TANK 8 5/8" X 2' 10", 720PSI, 100O F, A ###-###-####, CR#K200512 1 - TEXAS CARBINE - GLYCOL PUMP 1" UNIT NEEDS TO BE GONE THROUGH, NEEDS NEW INSTRUMENT LINES & PAINT, PIPING CHECKED TANK* $2,000** 1 - 100 BBL EXTERNALLY INSULATED TANK C/W BURNER NOTE: THIS EQUIPMENT HAS BEEN RELOCATED TO THE 6-9-50-1 W4M STORAGE SITE. 13B-24-49-28 W/3 DEHY $18,500** 1 - ABSORBER TOWER, SERIAL #D-5894-02 A#175556, 66O C, 6895KPA, 14.8MM SHELL, 14.3MM HEAD 4" INLET X 3" OUTLET 1 - TEXAS CARBINE 1" GLYCOL PUMP 1 - REBOILER, SERIAL #SA178-001-V4, MODEL #32-C1-6068.LP 90000BTU, D.O.B. = 1981 UNIT NEEDS TO BE GONE THROUGH, NEEDS NEW INSTRUMENT LINES & PAINT, PIPING CHECKED NOTE: THIS EQUIPMENT HAS BEEN RELOCATED TO THE 6-9-50-1 W4M STORAGE SITE. 13C-24-49-28 W/3 DEHY $18,500** 1 - ABSOBER TOWER, SERIAL #80-171-3 6895KPA, 66O C, D.O.B.03/1980, CRN#D5894.2, A#158337 44 SHELL - SA-53-B, HEAD - SA-516-70, SHELL & HEAD - 14.3MM 1 - REBOILER (NO INFORMATION AVAILABLE) 90000BTU 1 - TEXAS CARBINE GLYCOL PUMP, 1" UNIT NEEDS TO BE GONE THROUGH, NEEDS NEW INSTRUMENT LINES & PAINT, PIPING CHECKED NOTE: THIS EQUIPMENT HAS BEEN RELOCATED TO THE 6-9-50-1 W4M STORAGE SITE. 14-15-49-27 W3M PUMPJACK *$2,500** 1 - PUMPJACK, AMERCAN 80,000 IN-LBS APPROX. 50 IN STROKE. ENGINE * $750** 1 - ARROW C-46 APPROX. 10 HP NATURAL GAS SINGLE CYLINDER ENGINE TANK* $2,000** 1 - 100 BBL EXTERNALLY INSULATED TANK C/W BURNER NOTE: THIS EQUIPMENT HAS BEEN RELOCATED TO THE 6-9-50-1 W4M STORAGE SITE. 6-9-50-1 W4M COMPRESSOR PACKAGE * $15,000** 1 - AJAX DPC 80 (80 HP INTEGRAL ENGINE/COMPRESSOR PACKAGE) RECENTLY REBUILT, MISSING X-PROOF WIRING HARNESS, NO PROCESS COOLER. THIS COMPRESSOR WAS USED TO BOOST PRESSURE INTO THE SPARKY STORAG POOL. NOTE: THIS EQUIPMENT IS LOCATED AT THE 6-9-50-1 W4M SITE. OTHER GENERAL NOTES: * THE INFORMATION LISTED FOR THESE ITEMS MAY NOT BE ACCURATE AND IS BASED ON MEMORY FROM PREVIOUS SITE VISITS. ** ALL PRICES ARE APPROXIMATE MARKET VALUES. 45 SCHEDULE "D" PURCHASER'S CERTIFICATE Re: Share Purchase Agreement dated April 1, 2002 (the "Purchase Agreement") James I. Golla, President of Assure Oil & Gas Ltd. (the "Purchaser"), hereby certify that as of the date of this Certificate: 1. Unless otherwise defined herein, all capitalized terms used in this Certificate are as defined in the Purchase Agreement. 2. The covenants, representations and warranties of the Purchaser contained in Section 5.1 of the Purchase Agreement were true and correct in all material respects at and as of the date of such agreement, have continued to be true in all material respects from that date to the date hereof and are true and correct in all materials respects at and as of the Closing Date. 3. This Certificate is made for and on behalf of the Purchaser and is binding upon it and the deponent herein is not and will not incur any personal liability whatsoever with respect to it except in the case of fraud by the deponent. 4. This Certificate is made with full knowledge that Vendors are relying on the same for the Closing of the Transaction contemplated by the Purchase Agreement. IN WITNESS WHEREOF the undersigned has executed this Certificate as of the Closing Date. ASSURE OIL & GAS CORP. Per: ________________________________ James I. Golla, President 46 SCHEDULE "E" VENDOR'S CERTIFICATE Re: Share Sale and Purchase Agreement dated -, 2002 I, [INSERT NAME], hereby certify that as of the date of this Certificate: 1. Unless otherwise defined herein, all capitalized terms used in this Certificate are as defined in the Purchase Agreement. 2. The covenants, representations and warranties of me as a Vendor contained in Section 4.2 of the Purchase Agreement are true and correct in all materials respects at and as of the Closing Date. 3. This Certificate is made for and on behalf of myself as a Vendor and not on behalf of or related in any way to any other Person. 4. This Certificate is made with full knowledge that - is relying on the same for the Closing of the Transaction contemplated by the Purchase Agreement. IN WITNESS WHEREOF the undersigned has executed this Certificate as of the Closing Date. ________________________________ [VENDOR'S NAME] 47 SCHEDULE "F" LAWSUITS AND CLAIMS NIL 48 SCHEDULE "G" PRODUCTION SALES CONTRACTS Natural Gas Purchase Agreement dated January 23, 2002 between AltaGas Services Inc. and the Corporation. 49 SCHEDULE "H" TAKE OR PAY OBLIGATIONS NIL 50 SCHEDULE "I" EMPLOYEE MATTERS 1. Resignations and Releases On or before Closing, Vendors shall cause the Directors, Officers, employees and consultants of Corporation to resign effective as of the Closing Date or earlier and on or before the Closing Date shall obtain releases from each of them. 2. Severance: Nil 51 SCHEDULE "J" OPEN AFEs AFE (attached) for the rebuild of the Fox distribution system. 52 WESTERRA 2000 INC. [INTEGRA FOX DISTRIBUTION SYSTEM ENERGY CONSULTING LOGO] AFE COST BREAKDOWN
53 SCHEDULE "K" FINANCIAL STATEMENTS 54 WESTERRA 2000 INC. FINANCIAL STATEMENTS MARCH 31, 2002 55 WESTERRA 2000 INC. INDEX TO FINANCIAL STATEMENTS MARCH 31, 2002 Page AUDITORS' REPORT 1 FINANCIAL STATEMENTS Balance Sheet 2 Statement of Loss and Deficit 3 Statement of Cash Flows 4 Notes to Financial Statements 5-8 56 AUDITOR'S REPORT To the Shareholders of Westerra 2000 Inc. We have audited the balance sheet of Westerra 2000 Inc. as at March 31, 2002 and the statements of loss and deficit and cash flows for the year then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an option on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at March 31, 2002 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. /s/ Daunheimer & Dow LLP -------------------------- Calgary, Alberta Chartered Accountants May 10, 2002 57 WESTERRA 2000 INC. BALANCE SHEET MARCH 31, 2002
(All amounts are expressed in $Canadian.) SEE ACCOMPANYING NOTES Daunheimer & Dow LLP Chartered Accountants 58 WESTERRA 2000 INC. STATEMENT OF LOSS AND DEFICIT YEAR ENDED MARCH 31, 2002
(All amounts are expressed in $Canadian.) SEE ACCOMPANYING NOTES Daunheimer & Dow LLP Chartered Accountants 59 WESTERRA 2000 INC STATEMENT OF CASH FLOWS YEAR ENDED MARCH 31, 2002
(All amounts are expressed in $Canadian.) SEE ACCOMPANYING NOTES Daunheimer & Dow LLP Chartered Accountants 60 WESTERRA 2000 INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2002 - -------------------------------------------------------------------------------- 1. DESCRIPTION OF OPERATIONS Westerra 2000 Inc. (the "Company") is a private company extra-provincially incorporated under the Alberta and Saskatchewan Business Corporations Acts, and is engaged in production, development and exploration of oil and natural gas in Canada. - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles. The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements have, in management's opinion, been properly prepared using careful judgement with reasonable limits of materiality and within the framework of the significant accounting polices summarized below. Property, Plant and Equipment The Company follows the full cost method of accounting for oil and gas operations whereby all costs of exploring for and developing oil and gas reserves are initially capitalized. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities. Costs capitalized, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated gross proven reserves as determined by independent petroleum engineers. Petroleum products and reserves are converted to a common unit of measure using 6 MCF of natural gas to one barrel of oil. Costs of acquiring and evaluating unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations. Proceeds from a sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would alter the rate of depletion by more than 20%. Alberta Royalty Tax Credits are included in oil and gas sales. In applying the full cost method, the Company performs a ceiling test on properties which restricts the capitalized costs less accumulated depletion from exceeding an amount equal to the estimated undiscounted value of future net revenues from proved oil and gas reserves, as determined by independent engineers, based on sales prices achievable under existing contracts and posted average reference prices in effect at the end of the year, and current costs, and after deducting estimated future general and administrative expenses, production related expenses, financing costs, future site restoration costs and income taxes. Site Restoration Site restoration costs are accrued based on management's best estimate of these future costs calculated on the unit-of-production basis, utilizing proved producing reserves. Daunheimer & Dow LLP Chartered Accountants 61 WESTERRA 2000 INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2002 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Joint Venture Accounting Substantially all of the Company's operations are carried out through joint ventures. These financial statements reflect only the Company's proportionate interest in such activities. Financial Instruments The Company carries a number of financial instruments as detailed on the balance sheet. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values, unless otherwise noted. Measurement Uncertainty The amounts recorded for depletion of petroleum and natural gas properties and equipment and the provision for future site restoration and reclamation are based on estimates. The ceiling test is based on estimates of proved reserves, production rates, oil and gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of changes and estimates in future periods could be significant. The financial statements include accruals based on the terms of existing joint venture agreements. Due to varying interpretations of the definition of terms in these agreements the accruals made by management in this regard may be significantly different from those determined by the Company's joint venture partners. The effect on the financial statements resulting from such adjustments, if any, will be reflected prospectively. Future Income Taxes The liability method of tax allocation is used in accounting for income taxes. Under this method, future tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and measured using the substantially enacted tax rates and laws that will be in effect when the differences are expected to reverse. Future tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and measured at the tax rate in effect in the year the difference originated. Future income tax assets are evaluated and if realization is considered "more likely than not" a valuation is provided. - -------------------------------------------------------------------------------- 3. PROPERTY, PLANT AND EQUIPMENT
Daunheimer & Dow LLP Chartered Accountants 62 WESTERRA 2000 INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2002 4. INTEREST AND ACQUISITION LOAN PAYABLE
The Company entered into a loan agreement with a joint venture operator to finance the Company's purchase of its oil and gas properties. The loan is comprised of two parts: - Bridge loan, bearing interest at the bank prime rate plus 4.0%, compounded daily. Interest only is payable on the first business day following every month. The principal and any accrued interest is due and payable on June 28, 2002. - Working capital loan, including a commitment fee payable of $125,000 and unpaid interest charges, not to exceed $450,000, bearing interest at the bank prime rate plus 4.0%, compounded daily. Interest is payable on the first business day following every month. The principal is repayable in six monthly payments commencing January 31, 2002 and any unpaid amounts are due and payable on June 28, 2002. These loans are secured by a general security agreement. - -------------------------------------------------------------------------------- 5. SHARE CAPITAL
- -------------------------------------------------------------------------------- 6. INCOME TAXES At March 31, 2002, the Company had approximately $124,000 of loss carryover balances which will expire in 2009. In addition, the Company has capital cost pools, resource pools and deferred financing cost pools approximating $2,480,000 to deduct against future taxable income. - -------------------------------------------------------------------------------- 63 WESTERRA 2000 INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2002 - -------------------------------------------------------------------------------- 7. RELATED PARTY TRANSACTIONS During the year, the Company entered into the following transactions with related parties: The Company incurred consulting fees of $22,500 to a company owned by a shareholder. Included in accounts receivable is $26,049 due from a company owned by a shareholder, pertaining to certain joint venture operations. Included in accounts payable is $44,766 due to shareholders or to companies and entities owned by shareholders pertaining to joint venture operations, expenses paid on behalf of the Company and consulting fees incurred. Revenue and expense transactions were conducted at fair market value and in the normal course of business. - -------------------------------------------------------------------------------- 8. SUBSEQUENT EVENT Subsequent to the year end, the Company shareholders entered into a purchase and sale agreement to sell all the outstanding shares at March 31, 2002, to an arms length party for $3,450,000 effective April 1, 2002. - -------------------------------------------------------------------------------- 9. COMPARATIVE FIGURES Some of the comparative figures have been reclassified to conform to the current year's presentation. The prior year's figures were reported on a Notice to Reader basis. - -------------------------------------------------------------------------------- 64 SCHEDULE "L" ALTAGAS PAYOUT AMOUNTS 65 [ALTAGAS LOGO] 1700, 355-4th Avenue SW Calgary, Alberta T2P 0J1 Westerra 2000 Inc. 523 Alexander Cr. NW Calgary, Alberta T2M 4B3 REVISED LOAN STATEMENT AS OF MARCH 31, 2002 Principal:
66 [ALTAGAS LOGO] 1700, 355-4th Avenue SW Calgary, Alberta T2P 0J1 Westerra 2000 Inc. 523 Alexander Cr. NW Calgary, Alberta T2M 4B3 REVISED LOAN STATEMENT AS OF APRIL 30, 2002 Principal:
67 SCHEDULE "M" Notice of Default from AltaGas. 68 [ALTAGAS LOGO] March 22, 2002 VIA COURIER and FAX ###-###-#### Westerra 2000 Inc. 510, 206 - 7th Avenue SW Calgary, AB T2P OW7 Attention: President Dear Sirs: Re: LOAN AGREEMENT DATED JUNE 1, 2001 BETWEEN WESTERRA 2000 INC. AND ALTAGAS SERVICES INC. (THE "LOAN AGREEMENT") GENERAL SECURITY AGREEMENT DATED JUNE 1, 2001 BY THE BORROWER IN FAVOUR OF THE LENDER NOTICE OF DEFAULT Due to Borrower's failure to make the payments required by Section 2.4 of the Loan Agreement on January 31, 2002 and February 28, 2002, Borrower has committed an Event of Default under and pursuant to Section 6.1(a) of the Loan Agreement. Further, due to Borrower's failure to deliver the financial statements required by Section 5.1(a) of the Loan Agreement, Borrower will have committed an Event of Default under and pursuant to Section 6.1(c) of the Loan Agreement if such statements are not delivered to Lender within ten (10) Business Days from the date hereof. Default under and pursuant to Section 6.1(a) of the Loan Agreement constitutes default under and pursuant to the provisions of the Security Agreement in accordance with the provisions of Section 5(a) thereof. Default under and pursuant to the provisions of the Loan Agreement constitutes default under and pursuant to the provisions of the Security Agreement in accordance with the provisions of Section 5(b) thereof. The Lender has currently elected not to declare, pursuant to Section 6.1 of the Loan Agreement, the Loan Amount immediate due and payable together with all accrued interest and fees and other amounts payable under and pursuant to the Loan Agreement, in exchange for Borrower's agreement and acknowledgement as follows: 1. As of February 28, 2002, Borrower was indebted to the Lender in the following amounts:
Additional amounts will accrue on account of interest and costs as calculated under and pursuant to the provisions of the Loan Agreement. Prior to making 69 2 payment of the amounts owing to the Lender, Borrower may contact Lender to ascertain the exact amount owing on the date Borrower elects to make any such payment. 2. Borrower acknowledges the foregoing Event of Default pursuant to Section 6.1(a) of the Loan Agreement, and the pending Event of Default pursuant to Section 6.1(c) of the Loan Agreement. 3. Borrower will deliver to the Lender not later than May 15, 2002 a copy of Borrower's annual consolidated financial statements together with the notes thereto, prepared in accordance with generally accepted accounting principals in Canada, consistently applied. 4. Borrower, on or before the last Business Day of each calendar month, will provide a report to Lender detailing its progress towards being able to repay by June 28, 2002 the Loan Amount, the interest accrued thereon, any outstanding fees and all other amounts payable. 5. Borrower irrevocably requests and directs, effective immediately, that all amounts due and owing to Borrower by: a. Lender pursuant to a Gas Management and Supply Agreement between Borrower and Lender dated June 1, 2001 be paid directly to Cedar Energy Partnership ("Cedar") and be applied to Borrower's obligations pursuant to a Joint Operating Agreement between Borrower and Cedar dated June 1, 2001 (the "JOA"); b. Cedar pursuant to the JOA be paid directly to Lender and be applied to reduce firstly any accrued interest and fees pursuant to the Loan Agreement, secondly the Working Capital Loan Amount, thirdly the Bridge Loan Amount, and lastly all other amounts payable under the Loan Agreement. Borrower ratifies and confirms all actions by Lender and Cedar prior to the date hereof that have caused funds to be directed and applied in the foregoing manner. Borrower agrees that provision of a copy of this direction to Cedar shall be sufficient instruction to Cedar. 6. Lender may declare the Loan Amount, all accrued interest and fees and all other amounts payable under the Loan Agreement immediately due and payable on demand, in which case Lender may take whatever remedies it deems appropriate and as are available to it under and pursuant to the provisions of the Loan Agreement, the Security Agreement, such other security for payment granted by Borrower to Lender and such remedies as are available to Lender at law. 7. This agreement shall in no way be interpreted as a waiver of any provision of the Loan Agreement. Unless otherwise defined herein, capitalized words shall have the meaning given to them in the Loan Agreement. [ALTAGAS LOGO] 70 3 If you are in agreement with the foregoing, please execute and return the enclosed duplicate copy of this letter not later than 12:00 noon on March 26, 2002. If we have not received your executed copy of this letter by this time, this will serve as our declaration pursuant to section 6.1 of the Loan Agreement that the Loan Amount, all accrued interest and fees and all other amounts payable under the Loan Agreement are immediately due and payable, following which our remedies pursuant to the Loan Documents may be exercised. Yours truly, ALTAGAS SERVICES INC. /s/ Scott D. Sarjeant ---------------------------- Scott D. Sarjeant Executive Vice President, Marketing, Extraction and Transmission Agreed and accepted this 8 day of APR, 2002. WESTERRA 2000 INC. Per: /s/ Gary Freitag ---------------------- Print Name: GARY FREITAG Print Title: PRESIDENT [ALTAGAS LOGO] 71 SCHEDULE "N" Additional Disclosures 72 [FOUR WEST LAND CONSULTANTS (1995) LTD. LETTERHEAD] May 7, 2002 Assure Oil & Gas Corp 6 Adelaide Street West Toronto, Ontario M5C 1H6 and c/o Burstall Winger LLP 3100, 324 - 8th Avenue SW Calgary, Alberta T2P 2Z2 Attention: Roger MacLeod RE: Notice of Disclosure for Share Purchase of Westerra 2000 Inc. Further to the completion of the proposed share sale dated April 1, 2002 the following disclosures are made by the shareholders. 1. Ongoing Supplier Obligations: There is a contract with Applied TerraVision to provide production accounting software and support for the WolfePac accounting package. A copy of the contract is attached. 2. Issues with AltaGas: 3. Lease Expires: Husky lease on Section 27-49-01-W4M. The lease was for the Colony Zone only for Lsds 14 & 15. Husky has advised that the lease has expired and is of no further force and effect. There was no value assigned to these lands in the Tilikum Report. There will be an immediate liability for both surface and well bore reclamation for the well in Lsd 15 unless another party takes over the liability. There is associated with the well surface equipment with salvage value as per the surplus equipment list. 4. Over Production Issue: The 15-15 well was put on production November 13, 2001 and was allowed to produce for a clean-up period before it was AOF tested. The AOF test and allowable was submitted the week of Dec. 17, 2001. An application for GPP status (waiver of allowable restriction) was submitted on Jan 8, 2002, and was approved by Feb. 15, 2002. For the period from the date of submission of allowable to the date of approval of GPP this well was produced in excess of the allowable by approximately 40% or 130 mcf/d. No penalty has been issued to date by the SEM. 73 5. Incomplete DSUs: (a) Section 25-49-28-W3M. There is a railroad right of way through this section. It has been excepted from the Certificate of Title. Leases are in place with the current Registered Owners who we feel are the correct beneficial owners. This is a matter for which the working interest partners are responsible. Kanuka Thuringer are working on this matter at their Regina office. (b) NE-24-49-28-W3M. There is a railroad right of way through this Quarter of approximately 5 acres. It has been excepted from the Certificate of Title. The beneficial chain has been established through Kanuka Thuringer at their Regina office. Kanuka Thuringer are working on this matter at their Regina office. This is a matter for which the working interest partners are responsible. FOUR WEST IS NOT ACQUIRING THIS INTEREST AND WILL NOT BE THE LEASING PARTY. 6. There is an AMI with Cedar Energy covering the Vendor's interests. It expires June 1, 2002. A copy is in the Closing book that is in the possession of Mr. Roger MacLeod. 7. The natural gas reserves are dedicated to AltaGas Services Inc. for the life of the reserves. 8. There is a Natural Gas Purchase/Sale Confirmation agreement with ASI which expires November 1, 2002 There may be additional disclosures made in the future. If you have any questions in this regard please contact the writer. FOUR WEST LAND CONSULTANTS (1995) LTD. For Westerra 2000 Inc. /s/ Garth R. Keyte ---------------------------- Garth R. Keyte - President 74 NATURAL GAS PURCHASE/SALE CONFIRMATION Date: January 23, 2002 To: WESTERRA 2000 INC. Phone: (403 ###-###-#### Attn: GARY FREITAG Fax: 519-7563 This Confirmation confirms the verbal agreement reached on or about Wednesday, October 3, 2001 ("Effective Time"), between Westerra 2000 Inc. ("Customer") and AltaGas Services Inc. ("AltaGas") regarding the sale and purchase of gas under the following terms and conditions:
This Confirmation is being provided pursuant to the Master Gas Transaction Agreement (the "Master Agreement") between Westerra 2000 Inc. and AltaGas Services Inc. and constitutes part of and is subject to all of the terms and provisions of the Master Agreement. Please confirm that the terms stated herein accurately reflect the agreement between you and AltaGas by returning an executed copy of this Confirmation by facsimile to AltaGas. We would appreciate it if you would send your fax back to us within one hour after you receive this Confirmation. In accordance with the terms of the Master Agreement, if you do not execute and return this Confirmation to us within 2 Business Days of your receipt, it will be deemed to be correct as sent. In addition, the [ALTAGAS LOGO] 75 terms of this Transaction are subject to the confidentiality restrictions as provided for in the Master Agreement. Thank you for your timely co-operation. Accepted and agreed effective as of the Effective Time. ALTAGAS SERVICES INC. /s/ Marshal Thompson ---------------------------------- Per: MARSHAL THOMPSON Title: Director, Marketing and Extraction Date: Jan 29/02 WESTERRA 2000 INC. /s/ Gary Freitag ---------------------------------- Per: Gary Freitag Title: Date: APR 05/02 76 [APPLIED TERRAVISION LETTERHEAD] October 3, 2001 WESTERRA 2000 INC. Via Fax ###-###-#### ATTENTION: GARTH KEYTE Dear Garth, Thank you for your interest in Applied Terravision's (ATS) Financial Accounting PC based application WOLFPAC. It is my pleasure to provide you with the following proposal with respect to the renta1 of this application. ATS' mission is to provide our customers with the best price performance solutions to their data processing requirements backed up by the best service and support in the Industry. Our software is designed with current technologies to provide users with powerful user-friendly tools to maintain and access necessary information. We are committed to providing our customers with the tools they need to better compete in their business. The advantages of installing WOLFPAC on an IBM compatible personal computer or network in your office would include the following: 1. FUNCTIONALITY - ATS applications have been developed for the oil and gas industry and provide financial, regulatory and management reporting as required by the end users in such firms. 2. WINDOWS COMPATIBLE - All applications run under a Windows environment allowing switching between itself and other Windows applications. 3. COST - ATS' products are competitively priced as outlined below: Pricing Summary
77 PRICING DETAIL
** Applied to clients where Gross Revenues do not exceed $1.5 Million Annually. None of this amount is applicable towards the purchase price of a license ** PRICES ARE SUBJECT TO 7% GST The above prices exclude installation, data conversion and training which will be provided at the hourly rates identified in the current ATS Price Notice. We recommend that you budget 10-15 hours for training to ensure a strong start on the application. Estimates for these activities are identified as follows: WOLFPAC Training $80.00/Hour Installation normally occurs within five (5) business days but is subject to availability of ATS personnel. TERMS AND CONDITIONS 1. Westerra 2000 agrees to provide to ATS with the initial fee of $1,310.75 (GST included) representing Database fees and Carbon Copy upon acceptance of this Agreement. 2. Westerra 2000 agrees that all ATS invoices are due upon receipt. ATS must be notified by Westerra 2000 of any disputes of fees invoiced by ATS within thirty (30) days of the date of the invoice. Invoices that are held for a period greater than thirty (30) days from the date of the invoices are deemed to be approved by Westerra 2000. In the event that payment is not made within ninety (90) days, ATS may terminate this Agreement and subsequently remove the ATS software from all related Westerra 2000 sites. 3. Westerra 2000 agrees that this Agreement will be reviewed on an annual basis within thirty (30) days of the anniversary date of the signing of this Agreement. 4. The fees associated with the software rental and personnel rates are as identified on the ATS Price Notice prevailing at the time. The current ATS Price Notice has been attached to this document. Changes to the ATS Price Notice will be in effect thirty (30) days after written notification of such change by ATS to Westerra 2000. 5. Either party may terminate this Agreement upon thirty (30) days prior written notice for whatever reason. In the event of termination, Westerra 2000 will allow access to their premises to ATS staff for the purpose of removing the ATS application software from all locations. 6. This proposal assumes that Westerra 2000 has existing hardware that meets the following minimum configuration. Both the configuration of the hardware and the system resource requirements of the application running at that point in time will affect performance. [APPLIED TERRAVISION LOGO] 78 Personal Computer: IBM compatible, Pentium 166 with 64 Meg RAM 100 Megabytes of available hard disk space on C: Drive Microsoft Windows 95 Printer: HP LaserJet (series IV recommended as minimum for printing month end reports) Dial Modem & U.S. Robotics Sportster-14.4 Phone Line I hope this information is to your satisfaction. Should Westerra 2000 agree to the above proposal please sign and date both copies of this Agreement in the space provided below and return the duplicate copy along with a cheque in the amount of $1310.75 to Applied Terravision Systems Inc. We will then initiate the implementation upon receipt of this document as agreed to with Westerra 2000 and ATS. This proposal will remain in affect for a period of ten (10) business days from the date of this proposal. I look forward to our continued discussion on this matter and welcome Westerra 2000 on board as a valued client. Should you have any further questions or concerns, kindly contact myself at ###-###-####. Yours truly, APPLIED TERRAVISION SYSTEMS INC. /s/ Shaylene Roon ------------------------ Shaylene Roon Sales Representative The above Rental Option acknowledged and agreed upon the 4th day of October 2001. WESTERRA 2000 INC. Per: /s/ Garth R. Keyte ---------------------------------------------- Garth R. Keyte, Vice President Land & Exploration ---------------------------------------------- Printed Name & Capacity [APPLIED TERRAVISION LOGO] 79 SCHEDULE "O" Tilikum Report 80 Tilikum Inc. P.O. Box 7 Bragg Creek, Alberta T0L 0K0 February 4, 2002 Westerra 2000 Inc. 523 Alexander Crescent N.W. Calgary, Alberta T2M 4B3 Attention: Gary Freitag Re: 2001 RESERVE REPORT Dear Sir: Further to your request, Tilikum is pleased to provide you with the subject report, evaluating Westerra's reserve to December 31, 2001. This report was based solely on information available in the public domain and proprietary information which you supplied as necessary to complete the work. For the information of those to whom you may be supplying copies of this report, I certify that both myself and Tilikum Inc. are registered with APEGGA and are authorized to perform Petroleum Engineering. I am a 1973 graduate of the University of Calgary in Mechanical Engineering, and have been practicing Petroleum Engineering continuously since 1973. I verify that the work presented in this report is my own and meets the standards set by APEGGA. Should you require additional background or information, please call me at ###-###-####. Yours truly, /s/ William R. Freeborn - ----------------------- Tilikum Inc. William R. Freeborn, P. Eng 81 WESTERRA 2000 INC. RESERVE REPORT PERIOD ENDING DECEMBER 31, 2001 82 1.0 SUMMARY Reserves for Westerra 2000 Inc. have been evaluated and are shown in the following Table. The information shown represents Westerra's 60% working interest share of remaining recoverable gas and the discounted present value of that gas. The after tax value is for a fully taxable company and does not consider any tax pools which may be held by Westerra.
Note: Taxes are recalculated for consolidations: after tax column totals will not balance Other column totals may not add due to rounding differences. 83 One of Westerra's assets is a gas storage well which has some injected gas remaining in the reservoir. One would expect that this gas would not be subject to the payment of freehold royalty and mineral tax, and that is the way in which this asset was evaluated. However; the last entry in the table shows the incremental reduction in value if these royalties were to be paid. 84 2.0 LAND SCHEDULE Westerra owns a 60 percent working interest in the 5 sections of land shown in green on the following land plat, and described more completely in the land schedule shown below:
Notes: 1. Freehold interest held by Westerra 2. Interest limited to excess injected volume. At Westerra's request, the economic evaluation for 15-24-49-28W3 has been run with a freehold royalty of 15%, and does not reflect Westerra's ownership of the freehold rights. The gas storage well in 6-9-50-1W4 has been evaluated as though there were neither freehold royalty nor mineral tax. There is a small possibility that royalty will be payable on production from this well, and the difference in value is shown on the reserve Table in Section 1.0 of this report. 85 WESTERRA 2000 INC. - LAND AND WELLS OF INTEREST [WESTERRA 2000 INC. - LAND AND WELLS OF INTEREST MAP GRAPHIC] 86 3.0 PRODUCTION FORECASTS AND RESERVES 3.1 Multi Well Production Model A spreadsheet production forecasting model was constructed to predict the performance from multiple wells producing from the same reservoir. This model was a tank deliverability type governed by the following parameters: - Reservoir pressure was determined from the material balance for each reservoir. - The Cullender and Smith single phase pressure drop formula was used to determine flowing and static pressure drops in the well bore tubulars. The data was calibrated to performance by first calculating the static (no flow) pressure drop. This was added to the casing pressure to determine the reservoir flowing pressure. The flowing pressure drop was then calculated and subtracted from the flowing reservoir pressure to determine the flowing tubing pressure. The tubing diameter was adjusted until the calculated and measured flowing tubing pressures were the same. For all wells the calculated tubing diameter was similar to that installed, except for the need to have reduced tubing diameters for wells producing water. The results of this calibration are shown on tabular reports. - The Forscheimer back pressure equation (AOF) was used to determine the well production rate Q = c (Pr[to the power of 2]- Pf[to the power of 2])[to the power of n] The constant `c' in this equation was calibrated to data measured on December 17, 2001. For 15-15-48-27 there was no data to formulate a calibration, so the parameters were set to deliver approximately 355 mscf/d. On production test, this well delivered 530 mscf/d through large tubing. The `c' value was then degraded at 40% per annum for wells producing water (13-24, 15-24, 2-25, 6-25) to reflect earlier than normal loss of deliverability caused by increased pressure drop in the tubing. The `c' value for the remaining wells was also degraded, but at a lesser rate of 6% per annum to reflect normal loss in deliverability over time and to reduce the calculated ultimate recovery from 90% to 80% as a more realistic value for these reservoirs. - Pressure drop in the surface gathering system was estimated to be 3 psi/mile as the crow flies. 87 - Minimum suction pressure was set to 25 psi for the booster compressor and 30 psi for the sales compressor. The minimum reservoir pressure was set to 50 psi. Wells were produced until the rate fell below a predetermined economic limit of 12 mscf/d inflated at 0.1 percent per month. This well economic limit was intentionally set slightly below the true economic limit so that no reserves would be lost in the transition between reservoir engineering and economic evaluation. - With well 15-15-49-27 flowing through the booster compressor, its deliverability is unaffected by production from the other wells. Accordingly, its production forecast was predicted using the following calculation scheme as a single well with a target rate of 550 mscf/d. Then the process was repeated for the other wells with the target production reduced by the amount of gas produced from 15-15. The solution for the flow rate for all wells involved an iterative calculation described in the following paragraphs. 1. Determine the Reservoir Pressure Sum the cumulative production to date and calculate the reservoir pressure from material balance. 2. Determine the Reservoir Flowing Pressure Estimate the flow rate and calculate the flowing tubing pressure as the minimum compressor suction pressure plus the gathering system pressure drop. Use Cullender & Smith to determine the reservoir flowing pressure. Calculate the flow rate from the AOF equation. Repeat the process until the estimated flow rate is the same as that calculated. 3. Determine the Plant Suction Pressure Sum the individual well production rates and compare to the target production. If the combined well production is less than or equal to the target rate, the estimated plant suction pressure is correct and the month's production for each well is determined. If not, guess a new plant suction pressure and repeat steps 2 and 3 until the calculated and estimated plant suction pressure are the same. 4. Record Data Record rates and pressures, and update cumulative production. Repeat steps 1 through 4 for each month until all wells reach their economic limit or until all reservoirs reach their abandonment pressure. 3.2 Township 49-27W3 There are two wells producing from three horizons in Section 15. The well 14-15 is dually completed for Cummings and Lloydminster production and the well 15-15 produces from the Sparky. Gas from 15-15 is presently compressed in a small leased 88 booster unit located at 14-15-49-27W3. This gas is then commingled with gas from 14-15 and flowed to the main sales compressor located at 2-25-49-28W3. This sales compressor is owned and operated by Alta Gas and is used on a third party processing basis. In the future, the booster compressor may be moved to 2-25-48-28W4 where the main sales gas compressor is located. The original gas in place for the Lloydminster zone was calculated volumetrically using a well bore pay interval of 6.6 feet and an areal extent of 160 acres. While it is felt that the regional extent of this reservoir may be greater than 160 acres, the well has recently begun to produce a large amount of water. The evaluation assumed the well would continue to produce for a few more months before being suspended, making reserve calculations moot. The Cummings formation has produced 500 mmscf of gas to date. The material balance is well defined and shows that the original gas in place is 1.55 bcf. The two wells in the Sparky formation, 16-15-49-27 and 9-22-49-27, produced until 1985 and have remained inactive since that time. Westerra recently completed the well 15-15-49-27W3 to produce from this same reservoir. On completion, the measured reservoir pressure was 130 psi. Using this pressure and an estimate for the original pressure based on regional information, the original gas in place was estimated to be 2.2 bcf. An error in the estimated original pressure will have a small impact on the gas in place calculation because nearly 3/4 of the reservoir has been depleted. The production forecast for the two horizons producing from 14-15 was forecast in conjunction with other wells producing into the sales compressor using the Production Model. Thus the impact of one well on another was properly considered. The well 15-15 was also forecast using the Production Model; but as a single well. The ultimate remaining recovery from 14-15 and 15-15 was 372 mmscf (57% recovery) and 337 mmscf (90% recovery) respectively. The lower recovery from 14-15 is caused by low productivity. 3.3 Township 49-28W3 All wells on this land produce from the Colony formation, and were used by the previous owner to supply gas to the City of Lloydminster. Production rates were low and very erratic, making a forecast from previous production impossible. Fortunately the reservoir ceased production in 1996, and pressures have remained unchanged since 1998. Thus a material balance calculation is accurately able to predict the original gas in place of 17.7 bcf. This reservoir comprises approximately 4 sands which are present but not perforated in all wells. As productivity falls, it may be possible to supplement the rates with additional perforating. This upside has not been considered in the evaluation. Production from eight wells was forecast in the manner described in Section 3.0 above. From this information, it was determined that the production rate through the sales compressor could be maintained at 2.5 mmscf/d for two to three years. However; 89 Westerra wished to take a more conservative approach in estimating the value and longer term deliverability. For this reason, the target rate was set to decline from 2.5 mmscf/d at 10 percent per annum until the minimum plant suction pressure was reached. Ultimate recovery from the Colony gas is forecast to be 13.9 bcf or 78.8% of the original gas in place. Against a cumulative production to date of 8.4 bcf, this leaves 5.5 bcf remaining. Township 49-28 also has potential for additional reserves which will be confirmed with future drilling and testing. Oil in the McLaren, Sparky and General Petroleum can be seen on well logs. A recent well in an adjacent section. 13-19-47-27 shows deep gas in the Lloydminster and Cummings formations. Westerra's land is structurally higher than the 13-19 well; however, Westerra's wells were not drilled deep enough to penetrate these formations. 3.4 Township 50-28W3 Westerra has an interest in a Colony gas well which has watered out and is no longer capable of producing in paying quantities. However; the owner of the well 131/02-14-050-28W3 is in the process of completing its well for Lloydminster production. This transaction will leave Westerra with 60% of a pooled 25% interest in the production. The terms of the pooling have been negotiated. Westerra and its partner will pay $6000 to equalize into the well bore. The well owner will pay for the recompletions, tie-in and compression and will recover its cost through a processing and gathering fee. It is estimated that this fee will be equivalent in value to that being charged by Alta Gas for wells it operates on behalf of Westerra. The Lloydminster has 5 feet of net pay with 31% porosity. It is found in wells 15-11 and 3-11, demonstrating some areal extent. For the purpose of this evaluation, the drainage area has been assumed to be 320 acres with 70% recovery. It is believed that time will prove the reserves to be in excess of the 460 mmscf calculated volumetrically. 3.5 Township 49-01W4 No reserves have been assigned to Section 27. 3.6 Township 50-01W4 Westerra has no interest in the mineral rights in this Township, however, it does have the right to produce gas from the well C0/06-09-050-01W4 providing the cumulative production does not exceed the cumulative injection. This means that some 800 mmscf could be produced from this well if it were to have sufficient deliverability. 90 The original gas in place was determined based on pressure measurements taken in the 1950's prior to use of the well for gas storage. The pressures show a uniform depletion with no sign of an active aquifer or pressure support from other hydrocarbons. At this time the original gas in place appeared to be 1.65 bcf. In more recent years, there appears to be a loss of injected gas, as evidenced by a reduction in the reservoir pressure for a given net gas production. This data has not been shown on the material balance plot because it is confusing, but two data points are shown for 1 year and 6 years following the well's suspension. To predict future recovery from this reservoir, it is assumed that the P/Z plot is entered at today's pressure and the reservoir depleted to 20 psi to yield 480 mmscf of remaining proven reserve. To estimate the proven plus probable recovery, one looks to the difference between the cumulative net injection of 0.81 bcf and the reservoir volume of 1.65 bcf to yield a potential 2.4 bcf of gas in place. This assumption would imply that the lost gas displaced some other product, say oil, and remains in the reservoir or was produced from high GOR oil wells. It is assumed that some of this lost gas remains in the reservoir, but its recharge rate will be low. Thus proven plus probable reserves are estimated to be 600 mmscf, and the decline will switch from exponential used to asses proven reserves to hyperbolic (n=0.5) for the proven plus probable assessment. In 1994, NUL conducted a deliverability study for 6-9 based on performance. It concluded that the well could deliver 6400 mscf/d against a 178 psi flow line pressure. At that time the reservoir pressure was 263 psi. Adjusting this information to the current reservoir pressure, 6-8 has a deliverability of 3800 mscf/d against a flow line pressure of 25 psi. The production forecast assumes the well will be produced at only 1000 mscf/d for 8 or 9 months and then declined to capture the remaining reserve. 3.7 Township 50-02W4 The well C0/08-22-050-28W4/2 is completed for Colony gas production but has not produced since 1986. Pressures for this well have been increasing over time, but the reserves estimate is based on those measured pressures with the longest shut in time. These are shown as purple diamonds on the P/Z plot. The proven remaining reserve estimate of 825 mmscf is based on an average between the pressures. The proved plus probable remaining reserve estimate uses the most recent and highest pressure point to predict remaining reserves of 1.165 bcf. The Colony zone was flow tested in 1994 and produced 2225 mscf/d at a well head flowing pressure of 152 psi. It is anticipated that initially this well will produce at 500 mscf/d. The well also has 4 feet of Waseca gas pay which would result in reserves of 668 mmscf based on 70% recovery from 640 acres. These reserves will commence production in October 2002 when the Waseca will be completed and the well equipped for dual zone production. It is forecast that the Waseca formation in 8-22 will commence production at 400 mscf/d. These reserves are considered probable according to strict application of the rules, the quality of the reserve is high because of 91 good cross over on the well logs and demonstrated production from a well in close proximity. This same zone is present and structurally lower in adjacent wells 16-16, 10-22 and 11-23. The 16-16 well is operated by CNRL and recently commenced production at operating day rates in excess of 400 mscf/d. 92 4.0 ECONOMIC EVALUATION 4.1 General Information The economics were evaluated using Energy Navigator software. This software has been created in co-operation with McDaniel's and Associates and uses McDaniel's economic evaluation model. 4.2 Price The base price forecast is that of the Alberta Treasury Branch, dated October 1, 2001. From this price schedule, the AECO C Hub Spot price less $0.24/mscf transportation was used for wells producing in Alberta. The Saskatchewan Energy Plant Gate price less $0.14/mscf transportation was used for wells producing in Saskatchewan. Beyond 2020 ATB recommends prices be increased by 2 percent per year. Exceptions to the pricing occur in 2002, when the base price forecast was reduced to $3.00/mscf to reflect a fixed price contract to which Westerra has committed. For the gas storage well 6-9-50-1, there is no transportation allowance against the base price. Natural Gas Price, $/mscf
4.3 Operating Cost The ATB price model operates under a capital and operating inflation rate of 3 percent annually. Because the operating cost is inflated at a greater rate than the price, there is a real price erosion. In Alberta, the gas cost allowance for third party processing is equal to the third party processing fee. For wells producing to the Alta Gas main sales compressor, this amounts to $0.62/mscf for compression and gathering. For the 8-22-50-2 well, this is $0.30/mscf for compression and gathering. In Saskatchewan, gas cost allowance is calculated as a flat $0.28/mscf. 93 Operating cost for all wells is shown in the Table below.
4.4 Capital Cost Capital cost for developing reserves is shown in the following Table
94 ECONOMIC EVALUATION REPORTS SUMMARY OF PROVED RESERVES 95 TABLE 2 PAGE 1 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROVED RESERVES WESTERRA 2000
96 SUMMARY Westerra 2000 [BAR CHART] Westerra 2000 Total Proved As Of Date January 1, 2002 Prediction Date Alberta UWI Net No. Wells 6.00 Average WI 60% Average Royalty 13% Price Schedule ATB 2001 Q4 Price File Base Econ. Limit Enabled GCA Applied No BOE Ratio 10:1
ANNUAL CASH FLOW
97 Table B Page 1 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROVED RESERVES WESTERRA 2000
98 PAGE 1 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROVED RESERVES WESTERRA 2000 PRICE FILE: BASE
SINGLE WELL POOLS - ----------------------------------------------------------------------------------------------------------------------------- Jan 2003 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
99 PAGE 2 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROVED RESERVES WESTERRA 2000 PRICE FILE: BASE
100 ECONOMIC EVALUATION REPORTS SUMMARY OF PROBABLE RESERVES 101 TABLE 2 PAGE 1 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROBABLE ADDITIONAL RESERVES WESTERRA 2000
102 SUMMARY Westerra 2000 [BAR GRAPH] Westerra 2000 Total Probable Additional As Of Date January 1, 2002 Prediction Date Alberta UWI Net No. Wells 0.00 Average WI 27% Average Royalty 17% Price Schedule ATB 2001 Q4 Price File Base Econ. Limit Enabled GCA Applied No BOE Ratio 10:1
ANNUAL CASH FLOW
103 Table B Page 1 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROBABLE ADDITIONAL RESERVES WESTERRA 2000
104 PAGE 1 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROBABLE ADDITIONAL RESERVES WESTERRA 2000 PRICE FILE: BASE
105 PAGE 2 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROBABLE ADDITIONAL RESERVES WESTERRA 2000 PRICE FILE: BASE
106 ECONOMIC EVALUATION REPORTS SUMMARY OF PROVED PLUS PROBABLE RESERVES 107 TABLE 2 PAGE 1 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROVED AND PROBABLE RESERVES WESTERRA 2000
108 SUMMARY Westerra 2000 Westerra 2000
[BAR CHART]
CAPITAL COSTS (M$)
CASH FLOW (M$)
ECONOMIC INDICATORS
ANNUAL CASH FLOW
109 Table B Page 1 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROVED AND PROBABLE RESERVES WESTERRA 2000
110 PAGE 1 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROVED AND PROBABLE RESERVES WESTERRA 2000 PRICE FILE: BASE COLONY GAS POOL
SINGLE WELL POOLS
111 Page 2 WESTERRA 2000 ESCALATING PRICES AS OF JANUARY 1, 2002 TOTAL PROVED AND PROBABLE RESERVES WESTERRA 2000 PRICE FILE: BASE WESTERRA 2000 TOTAL
112 INDIVIDUAL WELL PRODUCTION PLOTS & ECONOMICS 113 CEDAR LLOYDMINSTER C16-23-49-28 (131/16-23-049-28W3/0) PROVED PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[LINE GRAPH] [LINE GRAPH] 114 SUMMARY Westerra 2000 131/16-23-049-28W3/0 Cedar Lloydminster C16-23-49-28 Lloydminster Colony
[BAR CHART]
CAPITAL COSTS (M$)
CASH FLOW (M$)
ECONOMIC INDICATORS
ANNUAL CASH FLOW
115 CEDAR LLOYDMINSTER 12-24-49-28 (101/12-24-049-28W3/0) PROVED PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[LINE GRAPH] [LINE GRAPH] 116 SUMMARY Westerra 2000 101/12-24-049-28W3/0 Cedar Lloydminster 12-24-49-28 Lloydminster Colony Proved Producing
[BAR CHART]
CAPITAL COSTS (M$)
CASH FLOW (M$)
ECONOMIC INDICATORS
ANNUAL CASH FLOW
117 CEDAR LLOYDMINSTER B13-24-49-28 (121/13-24-049-28W3/0) PROVED PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[LINE GRAPH] [LINE GRAPH] 118 SUMMARY Westerra 2000 121/13-24-049-28W3/0 Cedar Lloydminster B13-24-49-28 Lloydminster Colony Proved Producing As Of Date January 1, 2002 Prediction Date January 31, 2002 Saskatchewan UWI 121/13-24-049-28W3/0 Net No. Wells 0.60 Average WI 60% Average Royalty 10% Price Schedule ATB 2001 Q4 Price File Saskatchewan Econ. Limit Enabled GCA Applied Yes BOE Ratio 10:1 [BAR CHART]
CAPITAL COSTS (M$)
CASH FLOW (M$)
ECONOMIC INDICATORS
ANNUAL CASH FLOW
119 CEDAR LLOYDMINSTER C15-24-49-28 (131/15-24-049-28W3/0) PROVED PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[LINE GRAPH] [LINE GRAPH] 120 SUMMARY Westerra 2000 131/15-24-049-28W3/0 Cedar Lloydminster C15-24-49-28 Lloydminster Colony
[BAR GRAPH]
CAPITAL COSTS (M$)
CASH FLOW (M$)
ECONOMIC INDICATORS
ANNUAL CASH FLOW
121 CEDAR LLOYDMINSTER B2-25-49-28 (121/02-25-049-28W3/0) PROVED PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[LINE GRAPH] [LINE GRAPH] 122 SUMMARY Westerra 2000 121/02-25-049-28W3/0 Cedar Lloydminster B2-25-49-28 Lloydminster Colony Proved Producing As Of Date January 1, 2002 Prediction Date January 31, 2002 Saskatchewan UWI 121/02-25-049-28W3/0 Net No. Wells 0.60 Average WI 60% Average Royalty 13% Price Schedule ATB 2001 Q4 Price File Saskatchewan Econ. Limit Enabled GCA Applied Yes BOE Ratio 10:1 [BAR CHART]
ANNUAL CASH FLOW
123 CEDAR LLOYDMINSTER B6-25-49-28 (121/06-25-049-28W3/0) PROVED PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[LINE GRAPH] [LINE GRAPH] 124 SUMMARY Westerra 2000 121/06-25-049-28W3/0 Cedar Lloydminster B6-25-49-28 Lloydminster Colony Proved Producing As Of Date January 1, 2002 Prediction Date January 31, 2002 Saskatchewan UWI 121/06-25-049-28W3/0 Net No. Wells 0.60 Average WI 60% Average Royalty 13% Price Schedule ATB 2001 Q4 Price File Saskatchewan Econ. Limit Enabled GCA Applied Yes BOE Ratio 10:1 [BAR GRAPH]
ANNUAL CASH FLOW
125 CEDAR LLOYDMINSTER C13-25-49-28 (131/13-25-049-28W3/0) PROVED PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[BAR GRAPH] [BAR GRAPH] 126 SUMMARY Westerra 2000 131/13-25-049-28W3/0 Cedar Lloydminster C13-25-49-28 N/A Lloydminster Colony N/A Proved Producing
[BAR GRAPH]
127 CEDAR LLOYDMINSTER B1-26-49-28 (121/01-26-049-28W3/0) PROVED PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[BAR/LINE GRAPH] [LINE GRAPH] 128 SUMMARY Westerra 2000 121/01-26-049-28W3/0 Cedar Lloydminster B1-26-49-28 N/A Lloydminster Colony N/A Proved Producing
[BAR CHART]
129 CEDAR ABERFELDY D14-15-49-27 (141/14-15-049-27W3/0) PROVED PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (4 MO. HISTORY / 4 MO. FORECAST)
[LINE GRAPH] [CHART] 130 SUMMARY Westerra 2000 141/14-15-049-27W3/0 Cedar Aberfeldy D14-15-49-27 Lloydminster Proved Producing
[LINE CHART]
131 CEDAR ABERFELDY D14-15-49-27 (141/14-15-049-27W3/2) PROVED PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[LINE GRAPH] [LINE GRAPH] 132 SUMMARY Westerra 2000 141/14-15-049-27W3/2 Cedar Aberfeldy D14-15-49-27 Cummings Proved Producing
[BAR CHART]
133 CEDAR ET AL ABERFELDY RE 15-15-49-27 (141/15-15-049-27W3/3) PROVED PRODUCING-RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (2 MO. HISTORY / 2 MO. FORECAST)
[LINE GRAPH] [CHART] 134 SUMMARY Westerra 2000 141/15-15-049-27W3/3 Cedar et al Aberfeldy RE 15-15-49-27 Sparky Proved Producing
[BAR CHART]
135 CEDAR LLOYDMINSTER 6C-9-50-1 (1C0/06-09-050-01W4/0) PROVED NON PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (0 MO. HISTORY / 0 MO. FORECAST)
[LINE GRAPH] [CHART] 136 SUMMARY Westerra 2000 1C0/06-09-050-01W4/0 Cedar Lloydminster 6c-9-50-1 Lloydminster Sparky & Gen Pete C&d Proved Non Producing
[BAR CHART]
137 CEDAR LLOYDMINSTER 6C-9-50-1 (1C0/06-09-050-01W4/0) PROVED + PROB. NON PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (0 MO. HISTORY / 0 MO. FORECAST)
[LINE GRAPH] [CHART] 138 SUMMARY Westerra 2000 1C0/06-09-050-01W4/0 Cedar Lloydminster 6c-9-50-1 Lloydminster Sparky & Gen Pete C&d Proved + Prob. Non Producing
[BAR CHART]
139 CEDAR LLOYDMINSTER 8C-22-50-2 (1C0/08-22-050-02W4/2) PROVED NON PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[BAR/LINE GRAPH] [CHART] 140 SUMMARY Westerra 2000 1C0/08-22-050-02W4/2 Cedar Lloydminster 8C-22-50-2 Lloydminster Colony Proved Non Producing
[BAR CHART]
141 CEDAR LLOYDMINSTER 8C-22-50-2 (1C0/08-22-050-02W4/2) PROVED + PROB. NON PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (6 MO. HISTORY / 6 MO. FORECAST)
[BAR/LINE CHART] [BAR CHART] 142 SUMMARY Westerra 2000 1C0/08-22-050-02W4/2 Cedar Lloydminster 8C-22-50-2 Lloydminster Colony Proved + Prob. Non Producing As Of Date January 1, 2002 Prediction Date February 28, 2002 Alberta UWI 1C0/08-22-050-02W4/2 Net No. Wells 0.60 Average WI 60% Average Royalty 20% Price Schedule ATB 2001 Q4 Price File Alberta Econ. Limit Enabled GCA Applied Yes BOE Ratio 10:1 [BAR CHART]
143 CEDAR LLOYDMINSTER 8C-22-50-2 (1C0/08-22-050-02W4/W) PROVED + PROB. NON PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (0 MO. HISTORY / 0 MO. FORECAST)
[LINE CHART] [LINE CHART] 144 SUMMARY Westerra 2000 1C0/08-22-050-02W4/W Cedar Lloydminster 8C-22-50-2 Lloydminster Waseca Proved + Prob. Non Producing As Of Date January 1, 2002 Prediction Date October 31, 2002 Alberta UWI 1C0/08-22-050-02W4/w Net No. Wells 0.15 Average WI 15% Average Royalty 18% Price Schedule ATB 2001 Q4 Price File Alberta Econ. Limit Enabled GCA Applied Yes BOE Ratio 10:1 [LINE CHART]
145 KOCH NORTHMINSTER C2-14-50-28 (131/02-14-050-28W3/L) PROVED + PROB. NON PRODUCING - RAW
RESERVES (JAN 1, 2002)
DECLINES
PRODUCTION (0 MO. HISTORY / 0 MO. FORECAST)
[LINE CHART] [LINE CHART] 146 SUMMARY Westerra 2000 131/02-14-050-28W3/L Koch Northminster C2-14-50-28 Lloydminster (Recompletion and Pooling) [BAR GRAPH] Proved + Prob. Non Producing As Of Date January 1, 2002 Prediction Date May 31, 2002 Saskatchewan UWI 131/02-14-050-28W3/L Net No. Wells 0.00 Average WI 15% Average Royalty 23% Price Schedule ATB 2001 Q4 Price File Saskatchewan Econ. Limit Enabled GCA Applied Yes BOE Ratio 10:1
147 GAS STORAGE WELL 6-9-50-1W4 ECONOMICS WITH 15% FREEHOLD ROYALTY 148 SUMMARY Westerra 2000 1C0/06-09-050-01W4/0 Cedar Lloydminster 6C-9-50-1 Lloydminster Sparky & Gen Pete C&d Proved Non Producing As Of Date January 1, 2002 Prediction Date July 31, 2002 Alberta UWI 1C0/06-09-050-01W4/0 Net No. Wells 0.00 Average WI 60% Average Royalty 15% Price Schedule ATB 2001 Q4 Price File Alberta Econ. Limit Enabled GCA Applied Yes BOE Ratio 10:1 [BAR CHART]
149 SUMMARY Westerra 2000 1C0/06-09-050-01W4/0 Cedar Lloydminster 6C-9-50-1 Lloydminster Sparky & Gen Pete C&d Proved + Prob. Non Producing As Of Date January 1, 2002 Prediction Date July 31, 2002 Alberta UWI 1C0/06-09-050-01W4/0 Net No. Wells 0.00 Average WI 60% Average Royalty 15% Price Schedule ATB 2001 Q4 Price File Alberta Econ. Limit Enabled GCA Applied Yes BOE Ratio 10:1 [BAR CHART]
150 MATERIAL BALANCE PLOTS 151 Aberfeldy Cummings Formation 41/14-15-049-27W3/2 [LINE CHART]
152 Aberfeldy Sparky Formation 41/15-15-049-27W3/3, 41/16-15-049-27W3/0, 41/09-22-049-27W3/2 [LINE CHART]
153 Lloydminster Colony Formation Sections 23, 24, 25, 26, 35-49-28W3 [LINE CHART]
154 Sparky Gas Storage Well C0/06-09-050-01W4/0 [LINE CHART]
155 Lloydminster Colony Formation C0/08-22-050-02W4/2 [LINE CHART]
156 PRODUCTION FORECAST WELLS CONNECTED TO MAIN SALES COMPRESSOR 157 ABERFELDY 41/14-15-049-27W3/0 - LLOYDMINSTER FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
158 ABERFELDY 41/14-15-049-27W3/0 - CUMMINGS FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
159 ABERFELDY 41/15-15-049-27W3/0 - SPARKY FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
160 ABERFELDY 31/16-23-049-28W3/0 - COLONY FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
161 ABERFELDY 01/12-24-049-28W3/0 - COLONY FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
162 ABERFELDY 21/13-24-049-28W3/0 - COLONY FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
163 ABERFELDY 31/15-24-049-28W3/0 - COLONY FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
164 ABERFELDY 21/02-25-049-28W3/0 - COLONY FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
165 ABERFELDY 21/06-25-049-28W3/0 - COLONY FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
166 ABERFELDY 31/13-25-049-28W3/0 - COLONY FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
167 ABERFELDY 21/01-26-049-28W3/0 - COLONY FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
168 ABERFELDY NON PRODUCING WELLS - COLONY FORMATION Wellbore Description
Calibration
Reservoir Conditions
Gas Analysis
Calculated Production Information
169
