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Unit Operating Agreement – [Name of Unit]

PETROLEUM JOINT VENTURE ASSOCIATION

UNIT OPERATING AGREEMENT

[NAME OF UNIT]

[CONFORMING UNIT OPERATING AGREEMENT TO BE USED IN CONJUNCTION WITH MODEL UNIT AGREEMENT]

OCTOBER, 2003


UNIT OPERATING AGREEMENT [UNIT NAME]

Elections and Modifications to the 2003 Unit Operating Agreement

(a) The following clauses of the Unit Operating Agreement include the following elections, alternates, options or values:

101 Definitions

(m) Unit No.

404 Voting Procedure: (c) Negative Vote: ________ percent (_____%); _______ percent (______%)

(f) General Vote: ______ (____) or more Owners; _____ percent (______%) (g) Removal of Unit Operator: ___ (__) or more Owners; ____ percent (__%) (g)(i) Removal of Unit Operator: _______________ percent (______%)

(h) Replacement of Unit Operator: __ (__) or more Owners; __percent (_%) (i) Qualification of Tracts: ___ (__) or more Owners; ____ percent (_____%) (j) Enlargement of Unit Area and Revision of Exhibit “K”: ___ (__) or more Owners; ____percent

(______%) (k)(i) Amendment of Exhibits “G” to “J”: Exhibits ____; ____ (_) or more Owners; __ percent (__%) (k)(ii) Amendment of Exhibits “G” to “J”: Exhibits ____; ____ (_) or more Owners; __ percent (__%) (l) Termination: ____ (____) or more Owners; ______ percent (______%) 601(a) Initial Unit Operator:_________________________________________________ 903 Testing of Unit Wells: _____________________ (____) Days 904 Adequacy of Access, Wellsite and Operating Equipment:__________ (____) Days 1105(b)(iii) Set-off: ALTERNATE _____ 1108 Existing Conditions: ALTERNATE ____ 1601 Commencement Date: __________________ percent (____%)

(b) The Unit Operating Agreement is modified as follows:

(c) If any provision contained in the Unit Operating Agreement conflicts with a provision contained in this Elections

and Modifications Form, the provision in the Elections and Modifications Form shall prevail.


PETROLEUM JOINT VENTURE ASSOCIATION

UNIT OPERATING AGREEMENT

[NAME OF UNIT]

TABLE OF CONTENTS

PAGE

ARTICLE I INTERPRETATION 101. Definitions ..................................................................................................................................................... 1 102. References……………………………………………………….. ...................................................................... 2 103. Derivatives. ................................................................................................................................................... 2 ARTICLE II CONFIRMATION OF UNIT AGREEMENT 201. Confirmation of Unit Agreement .................................................................................................................... 3 ARTICLE III EXHIBITS 301. Exhibits Incorporated .................................................................................................................................... 3 302. Exhibits Attached .......................................................................................................................................... 3 303. Revision of Exhibits ....................................................................................................................................... 3 304. Corrections .................................................................................................................................................... 3 305. Conflicts ........................................................................................................................................................ 3 306. Effective Time of Exhibits .............................................................................................................................. 4

307. Revised Exhibits Deemed Correct ................................................................................................................ 4 308. Identification of Revised Exhibits .................................................................................................................. 4 309. Preparation and Distribution of Revised Exhibits.......................................................................................... 4

ARTICLE IV SUPERVISION AND CONTROL OF UNIT OPERATIONS 401. Operating Committee .................................................................................................................................... 4 402. Chairman ....................................................................................................................................................... 4 403. Powers .......................................................................................................................................................... 4 404. Voting Procedure ......................................................................................................................................... 5 405. Meetings ........................................................................................................................................................ 8 406. Minutes .......................................................................................................................................................... 8 407. Reduction in Owners .................................................................................................................................... 8 408. Unanimous Approval .................................................................................................................................... 8 409. Subcommittees ............................................................................................................................................. 8 ARTICLE V INDIVIDUAL RIGHTS AND PRIVILEGES OF THE OWNERS 501. Reservation of Rights .................................................................................................................................... 8 502. Specific Rights .............................................................................................................................................. 8

Unit Operating Agreement – [Name of Unit] ii

ARTICLE VI APPOINTMENT AND REPLACEMENT OF UNIT OPERATOR 601. Assumption of Duties of Unit Operator ......................................................................................................... 9 602. Resignation of Unit Operator ........................................................................................................................ 9 603. Replacement of Unit Operator ...................................................................................................................... 9 604. Appointment of Successor Unit Operator .................................................................................................... 9 605. Transfer of Property on Change of Unit Operator ...................................................................................... 10 606. Inventory and Audit of Accounts on Change of Unit Operator .................................................................... 10 607. Assignment of Unit Operatorship ................................................................................................................ 10 ARTICLE VII FUNCTIONS AND DUTIES OF UNIT OPERATOR 701. Control and Management of Unit Operations ............................................................................................. 11 702. Subcontracting ............................................................................................................................................ 12 703. Unit Operator as an Owner ......................................................................................................................... 12 704. Independent Status of Unit Operator .......................................................................................................... 12 705. Title .............................................................................................................................................................. 12 ARTICLE VIII LIABILITY AND INDEMNITY 801. Limit of Liability ............................................................................................................................................ 13 802. Indemnification of Unit Operator ................................................................................................................. 13 803. Burden of Responsibility ............................................................................................................................. 13 804. Continuation of Legal Responsibilities ........................................................................................................ 13 805. Environmental Responsibilities ................................................................................................................... 13 806. Taxes, Rentals and Royalties ..................................................................................................................... 14 ARTICLE IX UNIT FACILITIES 901. Delivery of Wells and Other Facilities ......................................................................................................... 14 902. Delivery of Records ..................................................................................................................................... 14 903. Testing of Unit Wells ................................................................................................................................... 14 904. Adequacy of Access, Wellsite and Operating Equipment .......................................................................... 14 905. Representation and Indemnity .................................................................................................................... 14 906. Agreements for Use of Unit Facilities ......................................................................................................... 14 907. Application to an Enlargement .................................................................................................................... 15 ARTICLE X ADJUSTMENT OF INVESTMENT 1001. Value of Unit Wells and Facilities ................................................................................................................ 15 1002. Inventory and Evaluation ............................................................................................................................ 15 1003. Equalization of Investment and Pre-Unit Expenses ................................................................................... 15 1004. Ownership of Unit Facilities ........................................................................................................................ 15 1005. Adjustment on Failure of Title ..................................................................................................................... 15 1006. Application to an Enlargement .................................................................................................................... 15 ARTICLE XI ACCOUNTING MEASURES 1101. Joint Account ............................................................................................................................................... 16 1102. Basis of Charges to Owners ....................................................................................................................... 16 1103. Forecasts .................................................................................................................................................... 16 1104 Commingling of Funds ................................................................................................................................ 16 1105. Unit Operator’s Lien and Remedies ............................................................................................................ 16 1106. Reimbursement of Unit Operator ................................................................................................................ 17 1107. Prior Commitments ..................................................................................................................................... 18 1108. Existing Conditions...................................................................................................................................... 18

Unit Operating Agreement – [Name of Unit] iii

ARTICLE XII [IF APPLICABLE] OIL IN LEASE TANKAGE AND OVERPRODUCTION AS OF THE EFFECTIVE DATE 1201. Gauge of Merchantable Oil ......................................................................................................................... 18 1202. Overproduction ............................................................................................................................................ 18 1203. No Allowance for Underproduction ............................................................................................................. 18 ARTICLE XIII SURFACE RIGHTS 1301. Submission of List to Unit Operator ............................................................................................................ 19 1302. Surface Rights Required For Unit Operations ............................................................................................ 19 1303. Surface Rights Jointly Used ........................................................................................................................ 19 1304. Assignment of Surface Rights ..................................................................................................................... 19 1305. Surface Rights No Longer Required ........................................................................................................... 19 1306. Surface Rights Held in Fee Simple ............................................................................................................. 19 1307. Acquisition of Additional Surface Rights ..................................................................................................... 19 1308. Sharing of Surface Rights ........................................................................................................................... 20 ARTICLE XIV ABANDONMENT OF WELLS 1401. Rights of Former Owners ............................................................................................................................ 20 1402. Abandonment .............................................................................................................................................. 20 1403. Surface Clean-up ........................................................................................................................................ 20 ARTICLE XV TERM AND TERMINATION 1501. Term ............................................................................................................................................................ 20 1502. Termination ................................................................................................................................................. 21 ARTICLE XVI COMMENCEMENT DATE 1601. Commencement Date ................................................................................................................................. 21 ARTICLE XVII ABANDONMENT OF OPERATIONS 1701. Right to Operate .......................................................................................................................................... 21 1702. Salvaging Wells ........................................................................................................................................... 21 1703. Proceeds and Costs .................................................................................................................................... 21 ARTICLE XVIII MISCELLANEOUS 1801. Affects Working Interest Only ..................................................................................................................... 21 1802. Execution Without Prejudice ....................................................................................................................... 22 1803. Lien on or Assignment of Production .......................................................................................................... 22 1804. Partitioning .................................................................................................................................................. 22 1805. No Surrender without Consent.................................................................................................................... 22 1806. Waiver ......................................................................................................................................................... 22 1807. Statute of Limitations ................................................................................................................................... 22 1808. Suits ............................................................................................................................................................ 22 1809. Further Assurances ..................................................................................................................................... 22 1810. Restriction on Dispositions .......................................................................................................................... 22 1811. United States Taxes .................................................................................................................................... 22 1812. Confidentiality .............................................................................................................................................. 23 1813. General Business Conduct ......................................................................................................................... 23 1814. Notices ........................................................................................................................................................ 23 1815. Financing ..................................................................................................................................................... 23 1816. Execution in Counterpart ............................................................................................................................ 24 1817. Governing Law ............................................................................................................................................ 24 1818. No Partnership ............................................................................................................................................ 24

Unit Operating Agreement – [Name of Unit] iv

1819. Enurement ................................................................................................................................................... 24 1820. Unit Operating Agreement .......................................................................................................................... 24 1821. Accounting Procedure ................................................................................................................................. 24 1822. Prevailing Provisions ................................................................................................................................... 25

Unit Operating Agreement – [Name of Unit] v

EXHIBITS Exhibit “E” List of Working Interest Owners and Their Respective Unit Participations Exhibit “F” List of Unit Wells and Other Tangible Unit Facilities Exhibit “G” Accounting Procedure Exhibit “H” Insurance Provisions Exhibit “I” Environmental Matters Exhibit “J” Dispute Resolution Provisions Exhibit “K” Equalization Schedule


PETROLEUM JOINT VENTURE ASSOCIATION UNIT OPERATING AGREEMENT

[NAME OF UNIT]

WHEREAS the Owners own Working Interests in the Unitized Zone and desire to conduct Unit Operations; NOW THEREFORE in consideration of the covenants herein contained the Owners agree as follows: ARTICLE I INTERPRETATION 101. Definitions All capitalized terms used herein shall have the meaning assigned in the Unit Agreement and the Accounting Procedure, and, in addition, the following words and phrases shall have the following respective meanings, namely:

(a) “Accounting Procedure” means Exhibit “G” hereto; (b) “Capital Costs” means all expenditures incurred in connection with the construction of the Unit Facilities

(including commissioning and testing immediately after construction) and any other expenditures so designated by the Operating Committee;

(c) “Commencement Date” means the time and date referred to in Article XVI;

(d) “Forecast” means a written statement, initiated by Unit Operator, of the Unit Operations which are

anticipated to be conducted during the Forecast Period, together with a written statement of the estimated expenditures to be made in connection with such Unit Operations;

(e) “Forecast Period” means a period of one (1) Year, provided that if this Agreement does not come into

effect as of the beginning of a Year, the first such period for the Year in which this Agreement comes into effect shall comprise the portion of such Year remaining after this Agreement comes into effect;

(f) “Gross Negligence” means:

(i) a marked and flagrant departure from the standard of conduct of a reasonable Person acting in

the circumstances at the time of the alleged misconduct, or

(ii) such wanton and reckless conduct or omissions as constitutes in effect an utter disregard for harmful, foreseeable and avoidable consequences,

provided that Gross Negligence shall not include any act or omission, insofar as it was done or omitted to be done in accordance with the instructions or express concurrence of the Operating Committee;

(g) “Joint Account” means the account set up pursuant to clause 1101 showing the charges paid and credits

received as a result of Unit Operations and which are to be shared by the Owners in accordance with their Unit Participations and “for the Joint Account” means for the benefit and risk and at the expense of the Owners in accordance with their Unit Participations;

(h) “Operating Committee” means the committee composed of the duly authorized representatives of each of

the Owners, established pursuant to Article IV of this Agreement;

(i) “Operating Costs” means all cost and expenses, except Capital Costs, incurred in connection with the testing, operation, repair and maintenance of the Unit Facilities;

(j) “Owner” means a party to this Agreement;

Unit Operating Agreement – [Name of Unit] 2

(k) “Person” means an individual, firm, body corporate, partnership or other legal entity, as the case may be;

(l) “Regulations” means all statutes, laws, rules, orders and regulations in effect from time to time (including

any amendments thereto or replacements thereof) and made by governments or governmental boards or agencies having jurisdiction over the Unit Facilities or Unit Operations;

(m) “Unit Agreement” means the agreement entitled “Unit Agreement -_______________________ Unit

No.__”;

(n) “Unit Facilities” means, collectively, the Unit Wells, all other equipment, facilities and structures used or intended to be used in connection with Unit Operations and listed in Exhibit “F” or acquired, constructed or installed for the Joint Account, and all other real and personal property of every kind, nature and description (including, without limitation, surface rights, licences and permits, books, records and data, and contracts and agreements, but excluding Working Interests, Royalty Interests and Unitized Substances) contributed pursuant to Article IX or Article XIII or otherwise acquired for the Joint Account; and

(o) “Unit Well” means a well listed in Exhibit “F” or drilled or acquired for the Joint Account.

102. References Unless otherwise expressly stated:

(a) the words “hereinbefore”, “hereinafter”, “hereunder”, “herein”, and “hereof” in this Agreement refer to the provisions of this Agreement, and references to Articles, clauses, subclauses or paragraphs in this Agreement refer to Articles, clauses, subclauses or paragraphs of this Agreement;

(b) whenever the singular, masculine or neuter is used in this Agreement, the same shall be construed as

meaning plural or feminine or body politic or corporate or vice versa, as the context so requires;

(c) all times referred to in this Agreement are in respect of time for the applicable time zone or legislated method of determining time for the area in which the Unit Facilities are located;

(d) all references to “dollars” or “$” in this Agreement shall mean the lawful currency of Canada, and all

payments and receipts shall be made and recorded in lawful currency of Canada;

(e) whenever the phrase “within” or “at least” is used with reference to a specific number of Days herein, the Day of receipt of the relevant notice or the Day of the relevant event shall be excluded in determining the applicable time period. However, if the time for doing any act expires on a Saturday, Sunday or statutory holiday in either the Province of Alberta or Canada, the time for doing that act shall be extended to the next normal Business Day, except as prescribed in the Accounting Procedure with respect to the payment of billings; and

(f) all conversions between Imperial units and Systems International (metric) units required to be made

pursuant to this Agreement shall be conducted utilizing the conversion factors prescribed in the publication entitled “Metric Practice Guide for the Petroleum and Natural Gas Industry and Services, Fifth Edition, 1989”, as may be amended or supplemented from time to time.

103. Derivatives If a term is defined, a derivative of that term shall have a corresponding meaning unless the context otherwise requires.


ARTICLE II CONFIRMATION OF UNIT AGREEMENT 201. Confirmation of Unit Agreement

The Unit Agreement is ratified and confirmed. In the event of any conflict between the Unit Agreement and this Agreement, the Unit Agreement shall prevail. Without limitation, in the event of any conflict between Exhibit “E” and Part II of Exhibit “A”, the latter shall prevail. With respect to all matters not specifically provided for in this Agreement, the relevant provisions of the Unit Agreement shall apply, mutatis mutandis. ARTICLE III EXHIBITS 301. Exhibits Incorporated

Exhibits “A”, “B”, “C” and “D” of the Unit Agreement are incorporated in this Agreement by this reference. 302. Exhibits Attached

The following exhibits are attached to and incorporated in this Agreement:

(a) Exhibit “E”, which is a list of the Owners and their respective Unit Participations;

(b) Exhibit “F”, which is a list of Unit Wells and other tangible Unit Facilities;

(c) Exhibit “G”, which is the Accounting Procedure;

(d) Exhibit “H”, which sets forth the Insurance Provisions; (e) Exhibit “I” which sets forth the Environmental Matters;

(f) Exhibit “J” which sets forth the Dispute Resolution Provisions; and

(g) Exhibit “K” which is the Equalization Schedule.

303. Revision of Exhibits

(a) Whenever Exhibit “A” is revised or corrected, corresponding revisions or corrections of Exhibit “E” shall be made with concurrent effect. Whenever new Unit Wells or other new tangible Unit Facilities are drilled, constructed or acquired, or whenever existing Unit Wells or other tangible Unit Facilities are disposed of, Exhibit “F” shall be revised accordingly.

(b) The Operating Committee may revise Exhibit “G”, Exhibit “H”, Exhibit “I” or Exhibit “J” by a vote in

accordance with subclause 404(k). The Operating Committee may revise Exhibit “K” by a vote in accordance with subclause 404(j). In all cases such a revision shall be effective on the first Day of the Month following agreement by the Operating Committee or as of such date as is specified by the Operating Committee.

304. Corrections

If Unit Operator becomes aware of a mistake or mechanical error in an exhibit, Unit Operator shall prepare a corrected exhibit and supply each Owner with a copy thereof.


305. Conflicts

If a provision of an exhibit conflicts with a provision in the body hereof, the latter shall prevail.

306. Effective Time of Exhibits

Except as otherwise expressly provided in this Agreement: (a) subject to subclause 306(b), any revised exhibit shall be effective in its revised or amended form as of the

time specified by the provision of this Agreement allowing such revision or amendment, or if no such time is specified, such revised or amended exhibit shall be effective as of the first Day of the Month next following the date that all required documentation was received by Unit Operator or on such other date or time as directed by the Operating Committee; and

(b) any exhibit which is corrected pursuant to clause 304 to rectify an error therein, shall, unless otherwise

directed by the Operating Committee, be effective in its corrected form as of the date on which the incorrect version of the exhibit would have been effective, and the incorrect version of the exhibit shall be deemed conclusively never to have been effective.

307. Revised Exhibits Deemed Correct Subject to the provision set forth in subclause 306(b), each exhibit and each revised or corrected version thereof, shall for purposes of this Agreement be deemed conclusively to be correct and binding on the Owners from the time at which it becomes effective until the time at which a revised or corrected version thereof becomes effective. 308. Identification of Revised Exhibits Revised and corrected versions of exhibits shall be numbered consecutively, shall indicate the date on which they become effective, shall reference the ballot issued to the Operating Committee for approval, if applicable, and shall indicate whether they are revised or corrected versions of an exhibit, or both. 309. Preparation and Distribution of Revised Exhibits Each time that an exhibit is to be revised or corrected pursuant to this Agreement, Unit Operator shall effect the required revisions or corrections in a timely and diligent manner and shall provide each Owner with one (1) copy of the revised or corrected version of the exhibit. ARTICLE IV SUPERVISION AND CONTROL OF UNIT OPERATIONS 401. Operating Committee The Owners shall form an Operating Committee composed of their duly appointed representatives to supervise and control all Unit Operations. As soon as possible after the Effective Date, each Owner shall notify Unit Operator in writing of the names and addresses of its primary representative and one (1) or more alternate representatives. The representative of an Owner shall be deemed to have full power and authority to represent and bind such Owner with respect to all matters within the power of the Operating Committee, and all acts done by such representative in such capacity shall be deemed to be acts of the Owner appointing such representative. An alternate representative shall have full power to act for an Owner in the absence of the primary representative. An Owner may change any of its representatives from time to time by written notice to Unit Operator. Two (2) or more Owners may appoint the same Person as their representative, who shall in such cases, cast a separate vote for each Owner being represented. 402. Chairman The representative of the Unit Operator shall be the chairman of the Operating Committee.


403. Powers The Operating Committee shall, in accordance with the terms of this Agreement, exercise overall supervision and control of, and shall determine all matters of importance relating to, Unit Operations, except for those matters:

(a) specifically designated in this Agreement to be within the exclusive jurisdiction and control of Unit

Operator; or

(b) specifically excluded in this Agreement from the jurisdiction and control of the Operating Committee. 404. Voting Procedure Subject to clause 408, the Operating Committee shall determine all matters properly coming before it by vote, in accordance with the following voting procedure:

(a) Voting Interest For the purpose of determining the number of Owners having voted or deemed to have voted on any matter pursuant to this Article IV, Owners who are Affiliates of each other and who vote the same in respect of a matter hereunder shall be deemed to be one (1) Owner only. Except as may otherwise be provided in this Agreement, each Owner shall have a voting interest equal to its Unit Participation. Notwithstanding subclause 404(d), if an Owner is precluded from voting pursuant to paragraph 1105(b)(ii), the voting interest of each non-defaulting Owner shall be revised so as to bear the same ratio to each other as do their Unit Participations, so that the voting interests of all non-defaulting Owners equals one hundred percent (100%).

(b) Initial Voting Interest

Each Owner shall, during the period from the Commencement Date [until ninety (90) Days after the Effective Date], be deemed conclusively to have a voting interest equal to the proportion, expressed as a percentage, that its Unit Participation bears to the combined Unit Participations of the Owners, as set forth in Exhibit “E”.

(c) Negative Vote Notwithstanding subclauses 404(f), (i), (j) and subparagraphs (k)(i) and (k)(ii), but subject to subclauses

404(g), (h) and (l) and subparagraph (k)(iii), no single Owner shall be able to defeat a vote on a matter, unless such Owner’s voting interest is greater than _____ percent (___%), and if a single Owner with a voting interest of _______ percent (__%) or less is the only Owner voting negatively on a matter, such Owner shall be shown to have voted negatively in recording the results of such vote, but such matter shall be conclusively deemed carried in the affirmative.

(d) Deemed Vote

Subject to subclauses 404(g), (h) and (l) and subparagraph (k)(iii), an Owner who does not vote or abstains from voting on any matter shall be conclusively deemed to have voted in the affirmative on the matter. In recording the result of such vote, such Owner shall be shown as having abstained from voting, been absent from the meeting in which such vote was taken, if applicable, or otherwise having failed to vote on such matter, as the case may be.

(e) Effect of Vote

A determination of a matter by the vote of the Owners in accordance with the provisions of this Agreement shall be binding upon all of the Owners, except as otherwise provided in this Agreement.


(f) General Vote

Except as otherwise provided herein, a matter being voted on by the Operating Committee shall be decided by the affirmative vote of ___ (_) or more Owners having a combined Unit Participation of _______ percent (__%) or more.

(g) Vote for Removal of Unit Operator Unit Operator may be removed by the affirmative vote of ___ (_) or more Owners having a combined Unit

Participation of _______ percent (__%) or more of the remaining Unit Participation, after excluding the Unit Participations of Unit Operator and its Affiliates, provided that:

(i) subject to subclauses 603(a), (b) and (d) and subclause 1105(e), Unit Operator may not be

removed by a vote of the Operating Committee if Unit Operator and its Affiliates collectively hold Unit Participations totalling _________ percent (__%) or more; and

(ii) the provisions of subclauses 404(c) and (d) shall not apply to a vote taken under this subclause

404(g).

(h) Vote for Replacement Unit Operator A successor Unit Operator that consents to assume all the duties and obligations of Unit Operator shall be appointed by an affirmative vote of ______ (__) or more Owners having a combined Unit Participation of ________ percent (__%) or more. In voting on the appointment of a successor Unit Operator, the departing Unit Operator and its Affiliates shall not be entitled to vote to have the departing Unit Operator or any of its Affiliates succeed the departing Unit Operator. In addition: (i) should more than one (1) potential successor Unit Operator be voted on, the potential successor

Unit Operator that receives the greatest combined Unit Participation vote shall be the successor Unit Operator, and the requirement for the specified number of Owners voting in the affirmative and the provisions of subclauses 404(c) and (d) shall not apply; and

(ii) should two (2) or more potential successor Unit Operators receive an equal Unit Participation

voting percentage, the potential successor Unit Operator holding the largest Unit Participation shall be the successor Unit Operator.

(i) Qualification of Tracts

Matters in respect of the qualification of Tracts for inclusion in the Unit Area shall be determined by the affirmative vote of ( ) or more Owners having voting interests totalling ___ percent (__%) or more.

(j) Enlargement of Unit Area and Revision of Exhibit “K”

Matters in respect of the enlargement of the Unit Area and revision of Exhibit “K” shall be determined by the affirmative vote of (_) or more Owners having voting interests totalling _______ percent (__%) or more.

(k) Amendment of Exhibits “G” to “J”

The exhibits may be revised, amended or replaced from time to time in the following manner: (i) Exhibits _________ at the direction of the Operating Committee by an affirmative vote of ___ (_)

or more Owners having a combined Unit Participation of _______ percent (__%) or more;

(ii) Exhibits _________ at the direction of the Operating Committee by an affirmative vote of ___ (_) or more Owners having a combined Unit Participation of _______ percent (__%) or more; and


(iii) Exhibit “J” at the direction of the Operating Committee by an affirmative vote of Owners having a combined Unit Participation of one hundred percent (100%) provided that the provisions of subclauses 404(c) and (d) shall not apply to a vote taken under this subclause..

(l) Vote for Termination of Agreement

Subject to the provisions of Article XV, this Agreement may be terminated by the affirmative vote of ___ (_) or more Owners having a combined Unit Participation of ______ percent (__%) or more; provided that the provisions of subclauses 404(c) and (d) shall not apply to a vote taken under this subclause.

(m) Vote by Proxy

An Owner may appoint a proxy to attend any meeting on its behalf. Such proxy appointment shall be by written instrument signed by the Owner, setting forth the extent of the authority granted to the proxy holder. A proxy appointment shall not be effective unless such instrument is deposited with the chairman of the Operating Committee prior to or during the first meeting in respect of which such proxy has been appointed to attend. An Owner who has submitted an instrument appointing a proxy may revoke such instrument at any time prior to the commencement of or during any meeting to which the proxy appointed thereby is to attend, provided that the revocation of an appointment of proxy during a meeting shall not apply to any vote conducted during that meeting prior to the revocation of that appointment. In addition to revocation in any other manner permitted by law, an instrument appointing a proxy shall be deemed to be automatically revoked for a meeting to which the proxy appointment relates, insofar as the Operating Committee representative of the Owner who appointed the proxy attends that meeting.

(n) Vote by Notice

(i) An Owner not represented at a meeting may vote on any matter on the agenda by prior written

notice to Unit Operator, indicating the position of such Owner regarding such matter.

(ii) Unit Operator may, without calling a meeting, call for a vote on any matter by submitting such matter, together with reasonable details regarding the same, to each Owner by mail ballot notice. Each Owner shall, by notice to Unit Operator, cast its vote within fifteen (15) Days from the date of deemed receipt of such mail ballot notice by the Owners. Such vote shall be binding, unless, within seven (7) Days after deemed receipt of such mail ballot notice, Unit Operator calls a meeting or is requested to call a meeting to consider the matter in accordance with clause 405. Unit Operator shall promptly notify the Owners of the result of such vote after the expiry of such fifteen (15) Day period.

(iii) All mail ballots shall be numbered consecutively. Such numbering shall include the Year in which

such mail ballot is issued. 405. Meetings

The following procedures shall apply to meetings of the Operating Committee: (a) The Operating Committee shall hold meetings whenever called by Unit Operator. Unit Operator may call

a meeting at any time and from time to time on its own motion. One (1) or more Owners having Unit Participations totalling five percent (5%) or more shall have the right to request the Unit Operator to call a meeting to deal with specific stated items. Unit Operator shall issue the notice of such meeting within ten (10) Days of receipt of a written request by an Owner, and the meeting shall be held within thirty (30) Days of receipt by Unit Operator of such request.

(b) At least ten (10) Days’ notice of each meeting shall be given to each Owner, unless all of the Owners

agree in writing or by vote at a meeting to waive or shorten such notice period. Notice of any meeting shall be accompanied by an agenda together with reasonable details of the matters on the agenda and any motions to be voted on at the meeting. Any Owner shall have the right to require Unit Operator to place an item on the agenda for such meeting, provided such item and reasonable details sufficient to enable the Owners to consider beforehand the nature of such item shall be furnished to the other Owners by such Owner within five (5) Days of the date of deemed receipt of the notice of such meeting. A motion


not contained in the agenda or an amendment to be made to a motion which is contained in the agenda shall not be voted on at a meeting unless all of the Owners, whether or not present at such meeting, agree to add or amend such motion.

(c) Motions voted on at a meeting shall be numbered in accordance with paragraph 404(n)(iii).

(d) A representative of any Owner attending a meeting of the Operating Committee may be accompanied by

a reasonable number of advisors, and the chairman may be accompanied by such additional attendees as are required to record the minutes of the meeting or otherwise assist in the conduct thereof.

(e) All meetings of the Operating Committee shall be held at the office of the Unit Operator or at such other

place as the Operating Committee may decide. 406. Minutes Unit Operator shall keep minutes of the proceedings of each meeting of the Operating Committee and a copy thereof shall be forwarded to each Owner within thirty (30) Days of the date of such meeting. The minutes shall contain the names of all Owners’ representatives present at the meeting, indicating their capacity and the Owners that they represent, a description of the matters reviewed, the result of any vote and any dissenting Owner opinion. The minutes for any Operating Committee meeting shall be deemed to be correct as written and distributed, unless an Owner receiving the minutes gives Unit Operator notice of an error or omission regarding such minutes within thirty (30) Days of the date upon which such minutes were sent to the Owners. Upon receiving such a notice:

(a) Unit Operator shall promptly correct and re-issue the minutes if Unit Operator agrees with the claim of an

error or omission; or (b) Unit Operator shall promptly submit the matter to the Operating Committee for resolution by a vote in

accordance with subclause 404(f) if Unit Operator does not agree with the claim of an error or omission.

Any revised version of the minutes shall be deemed to replace all prior versions of the same and shall be deemed correct as written and distributed, subject to the terms of this clause, which shall apply to such revised version of the minutes as if they were the original version of the same.

407. Reduction in Owners

Subject to clause 408, if the number of Owners having a Unit Participation decreases after the Effective Date to a level equal to or less than the minimum number of Owners required to determine a matter under subclauses 404(f), (g), (h), (i), (j), (k) or (l), the minimum number of Owners required to determine a matter shall always be one less than the number of Owners entitled to vote.

408. Unanimous Approval If and for so long as there are only two (2) Owners for voting purposes, subclauses 404(c), (f), (g), (h), (i), (j), (k) and (l) shall not have any effect, and all matters coming before the Operating Committee shall be determined by the unanimous approval of the representatives of the Owners. At any time where unanimous approval cannot be reached in respect of any matter, either Owner may invoke the provisions of Exhibit “J” to resolve such matter. 409. Subcommittees The Operating Committee may from time to time establish subcommittees to deal with defined mandates as provided by the Operating Committee. Any such subcommittee shall not have any powers of supervision or control, but shall only be entitled to report and make recommendations to the Operating Committee.


ARTICLE V INDIVIDUAL RIGHTS AND PRIVILEGES OF THE OWNERS 501. Reservation of Rights Except as otherwise provided in this Agreement or the Unit Agreement, each Owner reserves to itself all of its rights, powers, authorities and privileges. 502. Specific Rights Each Owner shall have the right to conduct operations on its Tracts for the discovery and production of Petroleum Substances other than Unitized Substances on condition that the Owner shall protect the Unitized Zone and prevent interference with Unit Operations. Each Owner that exercises this right agrees to indemnify all other Owners against all actions, suits, claims, costs, loss, liability, damages and expenses that may be brought against or suffered by them as a result of anything done pursuant or relative to the exercising of such right.

ARTICLE VI APPOINTMENT AND REPLACEMENT OF UNIT OPERATOR 601. Assumption of Duties of Unit Operator

(a) The Owners hereby designate _________________________________ as the initial Unit Operator and _________________________ accepts such designation.

(b) Unit Operator, and any succeeding Unit Operator appointed hereunder, shall assume the duties and

obligations of Unit Operator hereunder and shall have all the rights of Unit Operator hereunder.

602. Resignation of Unit Operator Unit Operator may resign as Unit Operator on giving each of the Owners a minimum of ninety (90) Days’ notice of its intention to do so, provided that such resignation shall be effective at the end of a Month.

603. Replacement of Unit Operator

Unit Operator shall immediately cease to be Unit Operator in the circumstances described in subclauses (a) and (b) below and in all circumstances described in this clause a replacement Unit Operator shall be appointed pursuant to clause 604, if:

(a) Unit Operator becomes bankrupt or insolvent, commits or suffers any act of bankruptcy or insolvency, is

placed in receivership or a receiver/manager or Person filling that role is appointed with respect to its property, seeks debtor relief protection under applicable legislation (including, without restricting the generality of the foregoing, the Bankruptcy and Insolvency Act of Canada and the Companies’ Creditors Arrangement Act of Canada) or permits any judgement to be registered against its interest in the Unit Area and Unit Facilities or any portion thereof, and without restricting the generality of the foregoing, a Unit Operator shall be deemed insolvent for the purposes of this clause if it is unable to pay its debts as they fall due in the usual course of business;

(b) subject to clauses 607 and 702, Unit Operator assigns or attempts to assign its general powers and

responsibilities of supervision and management as Unit Operator hereunder, unless such assignment is to an Affiliate of Unit Operator who is also an Owner;

(c) the Operating Committee votes pursuant to subclause 404(g) to remove Unit Operator and such motion is

carried; (d) Unit Operator ceases to be an Owner; or


(e) Unit Operator resigns pursuant to this Article.

604. Appointment of Successor Unit Operator

(a) Interim Unit Operator

Upon Unit Operator resigning or otherwise ceasing to be Unit Operator and until a replacement Unit Operator is appointed, the Owner with the largest Unit Participation, excluding the Unit Participation of the departing Unit Operator and any Affiliate of the departing Unit Operator, shall automatically become the interim Unit Operator. The interim Unit Operator shall immediately cease to be interim Unit Operator upon the appointment of a replacement Unit Operator.

(b) Appointment

If a Unit Operator resigns or otherwise ceases to be Unit Operator, a successor Unit Operator shall be appointed by the Operating Committee. An interim Unit Operator is not disqualified from being elected as the successor Unit Operator.

(c) Two Party Agreement

Notwithstanding subclauses 404(h), 604(a) and (b), if there are only two (2) Owners and Unit Operator resigns or otherwise ceases to be Unit Operator, the Owner who was not Unit Operator previously shall automatically become Unit Operator effective the date that the previous Unit Operator ceases to be Unit Operator unless, in the case of an assignment by Unit Operator of its Working Interest pursuant to Article XII of the Unit Agreement, that Owner agrees in writing to allow Unit Operator’s assignee to become Unit Operator.

(d) Consent

Subject to subclauses 604(a) and (c), no Owner shall be appointed as Unit Operator unless it has given its written consent to the appointment.

(e) Re-appointment

No provision of this Article shall be construed to re-appoint as next-succeeding Unit Operator a Unit Operator who has ceased to be Unit Operator or any Affiliate of that former Unit Operator, except with the unanimous consent of the Owners.

(f) Effective Time

Except as otherwise determined by the Operating Committee, the appointment of a successor Unit Operator (including an automatic appointment as Unit Operator pursuant to the terms of this Article), shall be effective immediately upon the previous Unit Operator ceasing to be Unit Operator.

605. Transfer of Property on Change of Unit Operator At the effective date of the resignation or replacement of a Unit Operator as provided in this Article, Unit Operator being replaced shall immediately deliver to the successor Unit Operator possession and control of:

(a) the Unit Facilities; (b) any and all funds held for the Joint Account;

(c) any and all Unitized Substances, if any, which have not been delivered in kind;

(d) all Material held for the Joint Account;

(e) copies of books of account and records kept for the Joint Account; and


(f) all documents, agreements and other papers relating to property transferred hereunder.

Upon compliance with such obligation, the departing Unit Operator shall be released and discharged from, and the successor Unit Operator shall assume, all duties and obligations of Unit Operator, except those unsatisfied duties and obligations of the departing Unit Operator which had accrued prior to the effective date of the change of Unit Operator, for which the departing Unit Operator shall continue to remain liable. If the departing Unit Operator holds any real or personal property on behalf of the Owners, such property shall continue to be held by the departing Unit Operator in trust for the Owners until title and possession of such property has been transferred to the successor Unit Operator in trust for the Owners. 606. Inventory and Audit of Accounts on Change of Unit Operator Within ninety (90) Days after the successor Unit Operator commences to act as Unit Operator, the Operating Committee may cause an audit to be made of the books of account and records kept for the Joint Account and may cause an inventory of Controllable Material to be taken. The cost of the audit and inventory shall be for the Joint Account. 607. Assignment of Unit Operatorship If Unit Operator wishes its assignee to replace it as Unit Operator after having disposed of all or a portion of its Unit Participation to such assignee pursuant to Article XII of the Unit Agreement, such assignee shall have the right to become Unit Operator if it is an Affiliate of Unit Operator or, if it is not an Affiliate of Unit Operator, if the Operating Committee approves that it shall become Unit Operator. ARTICLE VII FUNCTIONS AND DUTIES OF UNIT OPERATOR 701. Control and Management of Unit Operations Unit Operator shall consult with the Operating Committee from time to time with respect to decisions to be made for the conduct of Unit Operations, and Unit Operator shall keep the Owners informed in a timely manner with respect to important or significant Unit Operations. Unit Operator is hereby delegated the management of the Unit Facilities on behalf of the Owners and shall, subject to the direction of the Operating Committee, conduct or cause to be conducted all Unit Operations diligently, in a good and workmanlike manner, in accordance with good oilfield and environmental practice, the Regulations and the terms of this Agreement. In the absence of specific instructions from the Operating Committee, Unit Operator shall conduct or cause to be conducted, all Unit Operations, as would a prudent unit operator under the same or similar circumstances. Without limiting the generality of any of the foregoing provisions of this clause, Unit Operator shall conduct and oversee all Unit Operations, and in particular shall:

(a) make and file all reports as required by governmental authorities relating to Unit Operations; (b) maintain in the Province of Alberta complete and accurate accounts, books, records and documents in

relation to the Unit Facilities and Unit Operations and provide each Owner with reasonable access thereto;

(c) provide Owners with reports as required and on a frequency and containing the information about Unit

Operations as directed by the Operating Committee; (d) on behalf of the Owners, complete all applications and obtain all licences and approvals required by

Regulations to conduct Unit Operations;

(e) promptly pay and discharge all expenses and taxes (other than income taxes) incurred in connection with Unit Operations and keep the Leases, Unit Area and Unit Facilities free and clear from all adverse claims and liens occasioned by Unit Operations, except claims or liens created under or pursuant to this Agreement or being contested in good faith;


(f) acquire and maintain all necessary Material and services required to conduct Unit Operations and where Unit Operator deems appropriate, use its own equipment and facilities to serve such operations, subject to the Accounting Procedure;

(g) procure and maintain for the Joint Account the insurance set forth in Exhibit “H” and use reasonable

efforts to require contractors and subcontractors to procure and maintain such insurance as Unit Operator deems necessary;

(h) comply with, and, where applicable, require its agents, contractors and their subcontractors to comply

with Regulations governing Unit Operations;

(i) subject to clause 702, subcontract such portion of Unit Operations as Unit Operator deems appropriate;

(j) furnish each Owner as soon as practicable with written notice of:

(i) physical damage to the Unit Facilities in excess of Unit Operator’s expenditure limit as provided in the Accounting Procedure; and

(ii) any environmental, health, safety or other occurrence which is required to be reported under any

Regulation and which either requires remediation costs exceeding the single expenditure limit set forth in the Accounting Procedure or could result in a punishable offence under the Regulations;

(k) extend to each Owner, at that Owner’s sole risk and expense, the right of access to the Unit Area to

examine and inspect Unit Operations and the Unit Facilities at all reasonable times in the presence of a representative of Unit Operator and after giving Unit Operator reasonable notice, except for portions of the Unit Facilities which are proprietary to a licensor to the extent that such licensor expressly prohibits examinations and inspection by such Owner; and

(l) prepare and submit to the Operating Committee for approval, the Forecasts provided for in clause 1103;

provided further that, during construction of Unit Facilities subsequent to the Effective Date, including Drilling, Completing and Equipping Unit Wells, Unit Operator shall also:

(m) carry out or cause the construction of the Unit Facilities, including Drilling, Completing and Equipping Unit Wells;

(n) contract with such Persons as Unit Operator may deem appropriate for the performance of such work or

undertaking or any portion thereof;

(o) supervise all work related to such construction, Drilling, Completing or Equipping;

(p) acquire all Material required for such construction, Drilling, Completing or Equipping and the commencement and continuation of Unit Operations;

(q) supervise and have direct charge of all matters regarding design, construction and installation of the Unit

Facilities; and

(r) provide Owners with reports as required and on a frequency, and containing the information about construction, Drilling, Completing and Equipping as directed by the Operating Committee.

702. Subcontracting

Provided that Unit Operator is not in default or in the process of being replaced pursuant to clause 603, Unit Operator may subcontract all or substantially all of its duties and responsibilities to a reliable and competent third party subcontractor or an Affiliate of Unit Operator, with the approval of and on terms approved by the Operating Committee, provided that Unit Operator retains full control and supervision of such subcontractor or Affiliate and that any third party subcontractor is retained on a genuine arm’s length basis. It shall be a condition of such subcontracting that the Owners have the right to audit the books and records of the third party subcontractor or Affiliate with respect to its subcontracting


activities hereunder on the same terms and conditions as provided under the Accounting Procedure to audit Unit Operator. 703. Unit Operator as an Owner

Unit Operator shall have all of the rights and obligations of an Owner with respect to its Unit Participation.

704. Independent Status of Unit Operator Unit Operator is an independent contractor in conducting Unit Operations. Unit Operator shall determine the number of employees and contractors respecting its operations, their selection, their hours of labour and their compensation hereunder. All employees and contractors used in its operations hereunder shall be the employees and contractors of Unit Operator. 705. Title

Unit Operator shall hold and maintain title to the Unit Facilities and all associated licences and approvals required

under the Regulations on behalf of the Owners. Unit Operator shall perform all duties to maintain such licences and approvals in good standing. However, nothing in this clause shall be construed to require or permit Unit Operator to conduct any Unit Operations without the approval of the Operating Committee, if such approval is required pursuant to the terms of this Agreement.

ARTICLE VIII LIABILITY AND INDEMNITY 801. Limit of Liability

(a) Notwithstanding clause 704 and the obligation in clause 701 to conduct Unit Operations diligently, in a good and workmanlike manner in accordance with good oilfield and environmental practice, Unit Operator, its Affiliates, directors, officers, consultants, agents and employees shall not be liable to the other Owners, or any of them, for any loss, expense, injury, death or damage to Owners, whether contractual or tortious, suffered or incurred by the Owners resulting from or in any way attributable to or arising out of any act or omission, whether negligent or otherwise, of Unit Operator or its Affiliates, directors, officers, consultants, agents, contractors or employees in conducting or carrying out Unit Operations, except when and to the extent that such loss, expense, injury, death or damage is a direct result of, or is directly attributable to the Gross Negligence of Unit Operator or its Affiliates, directors, officers, consultants, agents, contractors or employees.

(b) To the extent that the Gross Negligence condition in subclause (a) of this clause applies, Unit Operator

shall be solely liable for such loss, expense, injury, death or damage and, in addition, shall indemnify and save harmless each other Owner, its Affiliates, directors, officers, consultants, agents and employees from and against the same and also from and against all actions, causes of action, suits, claims and demands by any Person in respect of such loss, expense, injury, death or damage, and any costs and expenses relating thereto. However, in no event shall the responsibility of Unit Operator prescribed by this clause 801 extend to losses suffered by the Owners respecting the loss of profits or other consequential or indirect losses, including, without restricting the generality of the foregoing, loss or delay of production.

802. Indemnification of Unit Operator Except as otherwise provided in clause 801, the Owners indemnify and save harmless Unit Operator, its Affiliates, directors, officers, consultants, agents and employees from and against any and all actions, causes of action, suits, claims, demands, costs, losses and expenses resulting from loss, expense, injury, death or damage respecting any Person (including the Owners), which may be brought against or incurred or suffered by Unit Operator, its Affiliates, directors, officers, consultants, agents or employees or which Unit Operator, its Affiliates, directors, officers, consultants, agents or employees may sustain, pay or incur by reason of, or which may be attributable to or arise out of, any act or


omission of Unit Operator or its Affiliates, directors, officers, consultants, agents, contractors or employees in conducting Unit Operations. 803. Burden of Responsibility Except where Unit Operator is to be held solely liable pursuant to the terms of clause 801, all liabilities and indemnities arising from Unit Operations shall be for the Joint Account and shall be borne by the Owners in the proportions of their respective Unit Participations. 804. Continuation of Legal Responsibilities Notwithstanding the assignment by an Owner of all or a portion of its Unit Participation, such Owner shall, as regards the other Owners and notwithstanding the terms of such assignment, remain liable for its proportionate share of any liabilities and indemnities which arose in respect of the Leases, the Unit Area, Unit Facilities or under this Agreement prior to the date that such Owner’s assignee becomes an Owner with respect to the assigned interest pursuant to Article XII of the Unit Agreement. 805. Environmental Responsibilities Any Person who becomes an Owner shall, as regards the other Owners, be responsible for its proportionate share of environmental liabilities arising in relation to Unit Operations (and the associated indemnities, if any) whether they accrued before or after such Person became an Owner, provided that the Operating Committee may, in its discretion, apply clause 804 to the accrued environmental liabilities applicable to the Unit Participation assigned by an Owner. 806. Taxes, Rentals and Royalties Each Owner shall pay or be responsible for the payment of all taxes (other than taxes on Unit Facilities and those taxes described in the Accounting Procedure which shall be paid by Unit Operator for the Joint Account), rentals and royalties applicable to the Owner’s Working Interest in the respective Tracts and shall indemnify and save harmless all other Owners from all claims, suits, losses, costs, expenses and damages paid or incurred by them as a result of its failure to do so.

ARTICLE IX UNIT FACILITIES 901. Delivery of Unit Wells and Other Facilities Upon the Effective Date each Owner shall deliver to Unit Operator the exclusive use and possession of such Owner’s interest in the Unit Wells (including all casing, tubing, wellhead equipment, valves, pumps, separators, dehydrators and other wellsite equipment) and other tangible Unit Facilities. 902. Delivery of Records

Upon the Effective Date each Owner shall deliver to Unit Operator copies of all records and information pertaining to Unit Facilities, and any other pertinent information and records requested by Unit Operator.

903. Testing of Unit Wells If by a test conducted by Unit Operator within __________ (__) Days after the Effective Date, any Unit Well is found by Unit Operator not to be in sound working condition, the Owner delivering it shall bear the entire cost and risk of putting it in sound working condition; provided that if an Owner disagrees with Unit Operator’s finding, the matter shall be finally decided by the Operating Committee. Either the Owner shall authorize Unit Operator to carry out the remedial work on its behalf, or the Operating Committee shall determine how and by whom the work shall be carried out or the amount that, in lieu of the work being carried out, shall be paid by the Owner to Unit Operator for the Joint Account. All costs incurred by Unit Operator hereunder, or the amount to be paid by the Owner in lieu thereof, shall be deemed conclusively to be amounts owing by the Owner within the meaning of Article XI.


904. Adequacy of Access, Wellsite and Operating Equipment If within __________ (__) Days after the Effective Date, Unit Operator determines that a Unit Well does not have adequate access roads, wellsite and operating equipment, the Owner delivering it shall bear the entire cost and risk of providing and putting in place the requisite access roads, wellsite or operating equipment; provided that if an Owner disagrees with Unit Operator’s decision, the matter shall be finally decided by the Operating Committee. Either the Owner shall authorize Unit Operator to provide and put in place the requisite access roads, wellsite and operating equipment on its behalf or the Operating Committee shall determine who shall provide and put in place the same or the amount that, in lieu of the same being provided and put in place, shall be paid by the Owner to Unit Operator for the Joint Account. All costs incurred by Unit Operator hereunder or the amount to be paid by the Owner in lieu thereof, shall be deemed conclusively to be amounts owing by the Owner within the meaning of Article XI. 905. Representation and Indemnity

Each Owner represents that the Unit Facilities which it delivers pursuant to clause 901 are free and clear of any liens, charges, encumbrances, suits or actions of whatsoever kind or nature, and each Owner indemnifies and agrees to hold harmless the other Owners from any and all liability, loss, cost or damage sustained by them and resulting from failure of or deficiencies in its title to the Unit Facilities which it so delivers. 906. Agreements for Use of Unit Facilities With the approval of the Operating Committee, Unit Operator may enter into agreements with any Person for the use or joint use by any Person of any Unit Facilities, or for the use or joint use by Unit Operator of any facilities owned by any Person, and all costs and expenses recovered or incurred pursuant to said agreements shall be for the Joint Account. 907. Application to an Enlargement

The provisions of this Article IX shall apply, mutatis mutandis, upon an enlargement of the Unit Area. ARTICLE X ADJUSTMENT OF INVESTMENT 1001. Value of Unit Wells and Facilities

For the purpose of clause 1003 the value of the Unit Wells and other Unit Facilities delivered pursuant to clause 901 shall be as outlined in Exhibit “K” or as otherwise determined by the Operating Committee.

1002. Inventory and Evaluation The Operating Committee shall appoint an inventory committee which shall make an inventory and evaluation of such of the Unit Facilities delivered to Unit Operator (other than those described in clause 1001) as the Operating Committee considers to be controllable equipment. Each Owner shall, upon request by the inventory committee, submit to it promptly a complete statement of such controllable equipment delivered by the Owner to Unit Operator. The inventory committee shall report its inventory and evaluation to the Operating Committee. 1003. Equalization of Investment and Pre-Unit Expenses Upon approval by the Operating Committee of the report of the inventory committee, each Owner shall be credited with the value of its interests in the Unit Facilities contemplated by clauses 1001 and 1002, and charged with an amount equal to that obtained by multiplying the total value of all such Unit Facilities by the Owner’s Unit Participation. If the charge against any Owner is greater than the amount credited to it, the resulting net charge shall be payable by and in all other respects treated as an expense chargeable against the Owner. If the credit to any Owner is greater than the amount charged against it, the resulting net credit shall be paid to the Owner by Unit Operator out of funds received from other Owners in settlement of net charges against them.


Costs either charged to Owners at the interim pre-unit working interest or incurred prior to the Effective Date and not charged to Owners that are directly related to effecting unitization pursuant to the Unit Agreement and this Agreement shall be for the Joint Account. With respect to costs billed to Owners at the interim pre-unit working interests, each Owner will be credited with an amount equal to the amount it has paid at the interim pre-unit working interest; each Owner will then be charged with an amount equal to that obtained by multiplying the total amount of pre-unit costs by the Owner’s Unit Participation. 1004. Ownership of Unit Facilities Each Owner shall own an undivided interest in the Unit Facilities equal to its Unit Participation. Unit Operator shall hold such interests in trust for the Owners, subject to the provisions of this Agreement. 1005. Adjustment on Failure of Title The Operating Committee shall determine whether any compensation shall be payable and the amount of such compensation by the other Owners to an Owner whose title to a Tract fails for such Owner’s undivided interest so lost in the Unit Facilities. 1006. Application to an Enlargement The provisions of this Article X shall apply, mutatis mutandis, upon an enlargement of the Unit Area. ARTICLE XI ACCOUNTING MEASURES 1101. Joint Account Unit Operator shall set up a Joint Account and administer it as set forth in the Accounting Procedure. All proper costs and expenses incurred by Unit Operator in connection with Unit Operations shall be in accordance with the Accounting Procedure, or as otherwise permitted hereunder. 1102. Basis of Charges to Owners Except as otherwise provided in this Agreement, Unit Operator initially shall advance and pay all costs and expenses incurred for the Joint Account. The Unit Operator shall charge to each other Owner costs and expenses in proportion to its respective Unit Participation. 1103. Forecasts

(a) As soon as practicable after the Effective Date, Unit Operator shall submit to the Operating Committee for approval a Forecast for the Forecast Period. In each subsequent Year, Unit Operator shall submit a Forecast for the Forecast Period to the Operating Committee for approval, on or before the end of the current Year. If the Operating Committee does not approve a Forecast, or any portion thereof, such Forecast or the portion thereof not approved, shall be revised by Unit Operator in accordance with the instructions of the Operating Committee. A copy of each revised Forecast shall be promptly furnished to each Owner.

(b) Each Forecast shall include a detailed and specific description of expenditures therein, identifying Operating

Costs and Capital Costs separately, and providing an estimate of Unitized Substances to be produced during the Forecast Period. Any single Operating Cost in excess of the single expenditure limit set forth in the Accounting Procedure for which the Unit Operator requests approval through approval of the Forecast should be clearly and separately identified. Each Forecast shall also provide for comparison, a summary of the Forecast and a projection of expected final expenditures for the current Year.

(c) Approval of a Forecast shall constitute approval of all expenditures in accordance with this Agreement,

except single Capital Cost expenditures in excess of the single expenditure limit set forth in the Accounting Procedure. If directed by the Operating Committee, separate approval for projects, categorized as


Operating Costs, that have an estimated cost in excess of Unit Operator’s single expenditure limit set forth in the Accounting Procedure, shall be required.

1104. Commingling of Funds Unit Operator may commingle with its own funds the moneys which it receives from or for the Joint Account pursuant to this Agreement. Notwithstanding that moneys of another Owner have been commingled with Unit Operator’s funds, the moneys of another Owner advanced or paid to Unit Operator, whether for the conduct of Unit Operations or as proceeds from the sale of Unitized Substances, shall be deemed to be trust moneys and, subject to clause 1105, shall be applied only to their intended use and shall in no way be deemed to be funds belonging to Unit Operator, other than in its capacity as the other Owner’s trustee. 1105. Unit Operator’s Lien and Remedies (a) Effective from the Effective Date, Unit Operator shall have a lien and charge, which is first and prior to any

other lien, charge, mortgage or other security interest, with respect to the Unit Participation of each Owner in the Unit Facilities and such Owner’s share of Unitized Substances, to secure payment of such Owner’s proportionate share of the costs and expenses incurred by Unit Operator for the Joint Account.

(b) If an Owner fails to pay or advance any of the costs or expenses incurred for the Joint Account which are

to be paid or advanced by it within the time period prescribed by the Accounting Procedure, Unit Operator may, without limiting Unit Operator’s other rights as contained in this Agreement or otherwise held at law or in equity:

(i) charge such Owner compound interest, as computed Monthly, with respect to such unpaid amount

from the Day such payment is due until the Day it is paid, at the rate of two percent (2%) per annum higher than the rate designated as the prevailing prime rate for Canadian commercial loans by the principal Canadian chartered bank used by Unit Operator, regardless of whether Unit Operator has notified such Owner in advance of its intention to charge interest with respect to such unpaid amount;

(ii) withhold from such Owner any further information and privileges with respect to Unit Operations,

including the right to vote pursuant to the provisions of Article IV, which information and privileges shall be conveyed or restored, as the case may be, to such Owner upon such default being fully rectified;

(iii) set off against the amount unpaid by such defaulting Owner, any sums due or accruing to such

Owner from Unit Operator, other than lessor royalty payments due to such defaulting Owner who is also an owner of freehold mineral rights, in accordance with ALTERNATE _____ immediately below:

ALTERNATE A. pursuant to this Agreement or the Unit Agreement;

ALTERNATE B. pursuant to this Agreement or the Unit Agreement and from any other agreement between Unit Operator and such Owner, whether executed before or after the Effective Date;

(iv) maintain an action or actions for such unpaid amounts and interest thereon on a continuing basis

as such amounts are payable, but not paid by such defaulting Owner, as if the obligation to pay such amounts and the interest thereon were liquidated demands due and payable on the relevant date such amounts were due to be paid, without any right or resort of such Owner to set-off or counter-claim; and

(v) treat the default as an immediate and automatic assignment to Unit Operator of the proceeds of

the sale of such Owner’s share of Unitized Substances. Service of a copy of this Agreement upon a purchaser of such Owner’s share of Unitized Substances, together with written notice from Unit Operator, shall constitute a written irrevocable direction by such defaulting Owner to any such purchaser to pay to Unit Operator the proceeds from any such sale up to the amount owed to Unit Operator by such defaulting Owner hereunder (including any accrued interest with respect


thereto), and such purchaser is authorized by such defaulting Owner to rely upon the statement of Unit Operator as to the amount so owed to it by such Owner.

However, Unit Operator may not exercise the rights granted in paragraphs (iii) - (v) of this subclause with

respect to such default until at least thirty (30) Days following the issuance of a notice to such Owner specifying such default and requiring the same to be remedied.

(c) The obligation to pay interest at the rate specified in subclause (b) of this clause with respect to a default is

to apply until such default is rectified and shall not merge into a judgement for principal and interest, or either of them. The Owners waive the application of any Regulations to the contrary, insofar as such waiver is permitted or not prohibited by the Regulations.

(d) Books and records kept by Unit Operator for the Joint Account shall constitute proof of the existence of any

financial default hereunder, subject, however, to the rights of inspection and audit provided for elsewhere in this Agreement.

(e) If Unit Operator is the Owner which defaults in paying its share of any cost or expense incurred for the Joint

Account, the other Owners may, subject to subclause 604(c), appoint an Owner, pending the appointment of a successor Unit Operator pursuant to subclause 404(h), to exercise any of the rights and remedies otherwise available to Unit Operator pursuant to this Agreement in order to rectify such default.

1106. Reimbursement of Unit Operator If Unit Operator has not received full payment of an Owner’s share of the costs and expenses of Unit Operations within three (3) Months following the date the payment was due, each other Owner, upon being billed therefor by Unit Operator, shall contribute a fraction of the unpaid amount, excluding interest thereon, which fraction shall have:

(i) as its numerator, the applicable Unit Participation of such Owner; and (ii) as its denominator, the aggregate applicable Unit Participations of all Owners except the defaulting

Owner. Thereupon, each such contributor shall be proportionately subrogated to Unit Operator’s rights pursuant to clause 1105 and to the interest thereafter payable thereunder on the unrecovered portion of its contribution. 1107. Prior Commitments

The Owners hereby acknowledge that prior to the execution of this Agreement, Unit Operator may have contracted with various parties for the design and construction of the Unit Facilities. Subject to clause 1108, the Owners hereby acknowledge that any commitments, expenditures, covenants, obligations, duties, responsibilities, rights and agreements of Unit Operator made, arising or incurred as a result thereof have been made, incurred or performed by Unit Operator on behalf of the Owners and the Owners hereby ratify and confirm the same and agree to be responsible for them in accordance with each Owner’s Unit Participation, to the extent the Owners have been made aware of such arrangements, except to the extent that they arise from the Gross Negligence of the Unit Operator. 1108. Existing Conditions Alternate(s) ________________ immediately below shall apply: ALTERNATE A. Conditions existing prior to and excluded from the operation of clause 1107 which are not the

responsibility of the Owners are specifically described herein as follows: ALTERNATE B. Specific conditions existing prior to and included in the operation of clause 1107 which shall be

the responsibility of the Owners are specifically described herein as follows: ALTERNATE C. The Owners are responsible for all conditions existing prior to the operation of clause 1107. ALTERNATE D [Other}


ARTICLE XII [IF APPLICABLE] OIL IN LEASE TANKAGE AND OVERPRODUCTION AS OF THE EFFECTIVE DATE 1201. Gauge of Merchantable Oil Unit Operator shall gauge all lease and other tanks delivered to it to ascertain the amount of merchantable oil in them as of the Effective Date. If any well producing into them has made more than its cumulative allowable production of oil from the proposed Unitized Zone as set by the Board, the amount of such overproduction then in the tanks shall be deemed to be Unitized Substances produced after the Effective Date. Except as aforesaid, the oil in the tanks shall remain at the risk of and be the property of the Persons owning it prior to the Effective Date, and upon request shall be delivered in kind to them, or in the absence of their request, shall be sold by Unit Operator for their accounts. 1202. Overproduction If any overproduction of oil from the proposed Unitized Zone has been sold by an Owner prior to the Effective Date and if on such date there is still a balance of overproduction, such Owner shall pay to Unit Operator for the Joint Account, the gross proceeds thereof less any royalty paid or payable thereon. 1203. No Allowance for Underproduction

No allowance shall be made to an Owner for any underproduction of oil prior to the Effective Date. ARTICLE XIII SURFACE RIGHTS 1301. Submission of List to Unit Operator As soon as reasonably possible after executing this Agreement, each Owner shall submit to Unit Operator a list of all easements, rights-of-way, surface leases, rights of entry and other surface rights which it holds in connection with its operations in the proposed Unit Area, together with particulars thereof including rentals payable, if any. 1302. Surface Rights Required For Unit Operations Unit Operator shall, as soon as practicable after the receipt of each of the aforesaid lists, advise in writing the Owner submitting the list which, if any, of its listed surface rights will be required for Unit Operations. Subject to the other provisions of this Article XIII, each Owner shall continue to hold the surface rights so required and pay the applicable rentals and bill Unit Operator for the amount of rentals applicable to periods subsequent to the Effective Date. Unit Operator shall reimburse each Owner for rentals so paid and the amounts thereof shall be for the Joint Account. Notwithstanding the foregoing, each Owner holding surface rights required for Unit Operations may, at any time at its election, assign such surface rights to Unit Operator in accordance with clause 1304, provided that the Owner so assigning shall, at Unit Operator’s request, warrant title to the surface rights so assigned. 1303. Surface Rights Jointly Used Where there is a well or wells on a Tract in addition to a Unit Well, and surface rights are being used for production jointly from one (1) or more of such other wells and the Unit Well, the rentals applicable to the surface rights shall be divided equally between the wells with respect to which the surface rights are being jointly used, and Unit Operator shall be billed only for the portion of such rentals which is applicable to the production of Unitized Substances from the Unit Well. For the purpose of this clause, a well producing from more than one (1) formation shall be considered as two (2) or more wells.


1304. Assignment of Surface Rights Unit Operator may require that any surface rights which are being used solely for Unit Operations be assigned to it. Any such assignment shall, however, contain an express reservation to the assignor of the right at any time upon request to use the assigned surface rights jointly with Unit Operator on the basis provided in clause 1303. When the assigned surface rights are no longer required, Unit Operator shall so notify the assignor who may require Unit Operator to re-assign the surface rights to the assignor. The provisions of clause 1305 shall apply, mutatis mutandis, in respect of any surface rights which are the subject of a notice given under this clause 1304. 1305. Surface Rights No Longer Required Unit Operator may notify an Owner that its surface rights or any of them are no longer required for Unit Operations; but any such notice shall be given at least sixty (60) Days prior to the date on which notice of surrender must be given to the surface owner or the accrual of a rental obligation, whichever is sooner. Unit Operator shall clean up the surface to the satisfaction of any governmental body having jurisdiction and to the reasonable satisfaction of the owner and occupier thereof. After giving such notice Unit Operator shall be relieved of its responsibility and liability with respect to the surface rights except any obligations already accrued, and shall be denied all benefit with respect to the surface rights, and shall thereafter be held harmless by the Owner holding them from responsibility and liability as to the surface rights, which shall not thereafter be subject to this Agreement. 1306. Surface Rights Held in Fee Simple Subject to any prior grant thereof, Unit Operator may use for Unit Operations any surface rights held in fee simple by an Owner upon payment to the Owner of consideration commensurate with rentals paid for other surface rights in the Unit Area. 1307. Acquisition of Additional Surface Rights Unit Operator may acquire such additional surface rights as it deems necessary or desirable for Unit Operations. 1308. Sharing of Surface Rights Notwithstanding the provisions of clause 906, Unit Operator may enter into agreements with any Person for the sharing of any surface rights and all costs and expenses recovered or incurred by Unit Operator pursuant to such agreements shall be for the Joint Account. ARTICLE XIV ABANDONMENT OF WELLS 1401. Rights of Former Owners If the Operating Committee decides to plug and permanently abandon any Unit Well, Unit Operator shall give notice of such decision to the Owner(s) owning the Working Interest(s) in the Tract upon which such well is located. Such Owner(s) may each individually elect by notice given to Unit Operator within sixty (60) Days, or forty-eight (48) hours if a drilling rig is in place, of receipt of notice, to take over and own such well and deepen or plug it back to a formation other than the Unitized Zone. If more than one such Owner elects to take over such well as aforementioned, the benefits, rights, responsibilities and liabilities relating thereto, shall be shared by all such Owners so electing in proportion to the ratios that their individual Working Interests in the Tract upon which such well is located bear to their total combined Working Interests in the same. Within ten (10) Days after any such Owner(s) has (have) so elected it (they) shall pay to Unit Operator for the Joint Account the fair net salvage value of the production casing and equipment in and on the well, as estimated and fixed by the Operating Committee. Unit Operator shall seal off the Unitized Zone in the well before handing it over to such Owner(s) and thereupon Unit Operator shall be relieved of its responsibility and liability with respect to such well, except any obligations already accrued, and shall be denied all benefit with respect to such well, and shall thereafter be indemnified and held harmless by the Owner(s) so electing from responsibility and liability regarding such well. Except as provided in this clause, upon any Owner(s) entitled to take over such well electing to take over the same, such well shall cease to be subject to this Agreement, and the Owner(s) electing to take over such well shall be fully responsible for such well including the responsibility to abandon such well and to decommission the associated facilities that are solely used by the well being abandoned and


reclaim the surface therefor at its (their) sole cost, risk and expense in accordance with applicable Regulations and to the satisfaction of any governmental body having jurisdiction with respect thereto. 1402. Abandonment If, upon receiving a notice pursuant to clause 1401 the Owner(s) does (do) not elect to take over the Unit Well proposed for abandonment as hereinbefore provided, Unit Operator shall abandon such well in accordance with applicable Regulations and the cost of such abandonment and reclamation associated therewith shall be for the Joint Account. 1403. Surface Clean-up Upon the abandonment of any Unit Well, Unit Operator shall decommission the associated Unit Facilities that are solely used by the Unit Well being abandoned and clean up and restore the surface in accordance with applicable Regulations to the satisfaction of any governmental body having jurisdiction, and to the reasonable satisfaction of the owner or occupier thereof. ARTICLE XV TERM AND TERMINATION 1501. Term This Agreement is binding upon a Person who executes and delivers a counterpart thereof to Unit Operator, and that Person is bound by this Agreement as of the time of such delivery. Subject to Article XVI, this Agreement shall remain in full force and effect while Unitized Substances are being produced or are capable of being produced from the Unitized Zone in paying quantities and so long thereafter until all Unit Wells have been plugged and abandoned, or taken over pursuant to clause 1701, and the other Unit Facilities have been salvaged, reclamation completed and the final settlement of accounts has been made among the Owners; provided that those provisions related to audit, liability, indemnity, disposal and salvage of Material and enforcement of default shall survive for four (4) years thereafter or such later time as may be prescribed by the Regulations. 1502. Termination

Subject to the provisions of clause 1501, this Agreement shall terminate upon a vote of the Operating Committee in accordance with subclause 404(l). ARTICLE XVI COMMENCEMENT DATE 1601. Commencement Date Although this Agreement is binding upon a Person from the time that Person executes and delivers one (1) counterpart thereof to Unit Operator, the Commencement Date for actions to be taken by the Owners to carry out the purposes of this Agreement in accordance with its provisions shall be 08:00 on the Day next following the Day when Unit Operator is satisfied that Working Interest Owners having initial Unit Participations totalling ______ percent (__%) [or more] as set forth in the original Exhibit “E” have become Owners. Unit Operator shall notify the Owners thereof. If the unitization provided for in the Unit Agreement has not become effective within the time limited therein, this Agreement shall thereupon terminate. If this Agreement so terminates, all expenditures made in anticipation of the unitization becoming effective shall be borne by the Owners in the proportion that the Unit Participation of each bears to the combined Unit Participations of all the Owners immediately prior to termination.


ARTICLE XVII ABANDONMENT OF OPERATIONS 1701. Right to Operate The owner(s) of the Working Interest(s) in a Tract desiring to take over and continue to operate a well located thereon may, upon the termination of this Agreement, do so by paying Unit Operator for the Joint Account, the fair net salvage value of the casing and equipment in and on the well as estimated and fixed by the Operating Committee, and by agreeing to plug the well, decommission the associated facilities that are solely used by the well being abandoned and restore the surface when it is finally abandoned. 1702. Salvaging Wells With respect to all wells not taken over for continued operations pursuant to clause 1701, Unit Operator shall, for the Joint Account, salvage as much of the casing and equipment in or on such wells as can economically and reasonably be salvaged, and cause the wells to be properly plugged and abandoned, the facilities to be decommissioned and the surface to be restored. 1703. Proceeds and Costs The proceeds and costs of salvaging, liquidation or other distribution of assets and properties used in Unit Operations shall be for the Joint Account. ARTICLE XVIII MISCELLANEOUS 1801. Affects Working Interest Only This Agreement affects only the Working Interests of the Owners. Royalty Interests are governed solely by the Unit Agreement. 1802. Execution Without Prejudice The execution of this Agreement by Owners who claim title to any interest in the Unit Area shall not constitute a waiver of any such claim, but any Owner who succeeds to the title to a Working Interest in a Tract shall be bound by this Agreement with respect to such Working Interest. 1803. Lien on or Assignment of Production If any interest of an Owner in a Tract or Unitized Substances or the proceeds or value thereof is subject to a lien, assignment of production or other encumbrance, the owner or holder of such lien, assignment or encumbrance, by consenting to this Agreement in writing, agrees that such lien, assignment or encumbrance shall, from the Effective Date continue in effect, but shall apply only to such interest as the same is amended, modified and affected by this Agreement and the Unit Agreement, and shall be subject to such agreements as to such Owner and such interest. 1804. Partitioning No Owner shall resort to any action for partition, or sale in lieu of partition, of the Unit Facilities or of the lands affected by this Agreement, or any portion thereof. 1805. No Surrender without Consent An Owner shall not surrender its Working Interest in a Tract without the prior consent of the Operating Committee.


1806. Waiver No waiver by any Owner of any breach (whether actual or anticipated) of any of the covenants, provisions or conditions herein contained shall take effect or be binding upon that Owner unless the same is expressed in writing under the authority of that Owner. Any waiver so given shall extend only to the particular breach so waived and shall not limit or affect any rights with respect to any other or future breach. 1807. Statute of Limitations The two (2) year period for seeking a remedial order under section 3(1)(a) of the Limitations Act, RSA. 2000 c.L-12, including any amendments thereto or replacements thereof, for any claim (as defined in that Act) arising in connection with this Agreement is extended to:

(a) for claims disclosed by an audit, two (2) years after the time this agreement permited that audit to be performed; or

(b) for all other claims, four (4) years.

1808. Suits An Owner who is sued on an alleged cause of action arising out of Unit Operations shall forthwith notify every other Owner. 1809. Further Assurances Each Owner shall from time to time and at all times do all such further acts and execute and deliver all further documents as may be reasonably required in order to perform and carry out the terms of this Agreement. 1810. Restriction on Dispositions An Owner shall not make any disposition of a Working Interest which does not include a corresponding interest in the Unit Facilities. No Working Interest shall be owned apart from a corresponding interest in the Unit Facilities and vice versa. 1811. United States Taxes If for the purposes of the United States Internal Revenue Code of 1986, as amended, (“the Code”) this Agreement or the relationship established thereby constitutes a partnership as defined in Section 761(a) of the Code, each Owner who is entitled under such Section to elect, hereby elects to have such partnership excluded from the application of Subchapter K of Chapter 1 of Subtitle A of the Code, or such portion thereof as the Secretary of the Treasury of the United States, or his delegate, permits to be so excluded. Unit Operator is authorized to execute such election on behalf of the applicable Owners and to file the election with the proper United States government office or agency. Unit Operator is further authorized and directed to execute and file such additional and further evidence of such election as may be required, all at the expense solely of those Owners subject to the Code. However, if Unit Operator is not subject to the Code with respect to the Unit Area and Unit Facilities, the obligations of Unit Operator under this clause shall be fulfilled by the Owner who is subject to the Code with respect to the Unit Area and the Unit Facilities and who, among those Owners subject to the Code, holds the greatest Unit Participation. 1812. Confidentiality

Each Owner entitled to information obtained hereunder or pursuant to this Agreement may use such information for its sole benefit. However, the Owners shall take such measures with respect to Unit Operations and internal security as are appropriate in the circumstances to keep confidential from third Persons all such information, except information which the Owners have expressly agreed among themselves to release and information disclosed by an Owner:

(a) when and to the extent required by the Regulations and securities laws applicable to such Owner, provided

that such Owner shall invoke any confidentiality protection permitted by such Regulations and securities laws;


(b) to an Affiliate, provided that such Owner shall be deemed to have required such Affiliate to maintain the confidential status of the disclosed information in accordance with this clause 1812, that such Affiliate shall be deemed to have accepted such obligation and that such Owner shall be liable for any loss suffered by the other Owners, or any of them, because of the failure of such Affiliate to maintain such information confidential;

(c) to a third Person to which such Owner is seeking to assign all or a portion of its interest hereunder, provided

that a binding covenant is obtained from such third Person prior to disclosure which provides, inter alia, that none of such information shall be disclosed by it to any other third Person; and

(d) to the technical, financial or other professional consultants of such Owner which require such information to

provide their services to such Owner or to a bank or other financial institution from which such Owner is attempting to obtain financing, provided that a binding covenant is obtained from such consultant or financier, as the case may be, prior to such disclosure, which provides, inter alia, that none of such information shall be disclosed by it to any other third Person or used for any purposes other than advising such Owner or providing financing to such Owner, as the case may be.

However, the confidentiality obligations in this clause shall not extend to information to the extent it is in the public domain, provided that specific items of information shall not be considered to be in the public domain merely because more general information is in the public domain. Notwithstanding the foregoing provisions of this clause, any Owner which otherwise ceases to be bound by the provisions of this Agreement shall nevertheless remain bound by the provisions of this clause with respect to information obtained hereunder or pursuant to this Agreement until and to the extent that such information is in the public domain. 1813. General Business Conduct Except as otherwise provided herein, none of the Owners nor any of their Affiliates, directors, officers, consultants, agents or employees shall give or receive any commission, fee, rebate, gift or entertainment of significant cost or value in connection with this Agreement. 1814. Notices All notices, bills, statements and other communications to be given in connection with this Agreement shall be in writing and shall be given in accordance with the provisions of clause 1510 of the Unit Agreement. 1815. Financing

(a) An Owner may mortgage its interest in the Unit Facilities; provided that any such mortgage shall expressly provide that the mortgagee shall hold the interest subject to all the terms and provisions of this Agreement, and shall also provide that upon any realization of the security, the party acquiring the interest in the Unit Facilities shall be required to assume all obligations of the mortgagor under this Agreement; and

(b) An Owner may assign its interest in the Unit Facilities in connection with an arrangement for financing of its

interest in the Unit Facilities provided that:

(i) any such assignment shall expressly provide that the assignee shall hold the interest subject to all the terms and provisions of this Agreement;

(ii) until the assignee gives notice to Unit Operator of a default by the assignor under the arrangement

for financing and complies with the provisions of Article XII of the Unit Agreement, the assignor shall not be released from its obligations under this Agreement, shall remain an Owner for the purposes of Exhibit “E” and the Owners shall be entitled to deal exclusively with the assignor in all matters under this Agreement;

(iii) until the assignee gives notice to Unit Operator of a default by the assignor under the arrangement

for financing and complies with the provisions of Article XII of the Unit Agreement, the assignor shall have full power and authority to act on behalf of and bind the assignee for all matters respecting this Agreement, and any information, notices or billings served on or by payment to the assignor shall be


deemed to have been served on or by payment made to the assignee and the other Owners shall neither honour notices from nor give notices to the assignee; and

(iv) any such assignment shall expressly provide that immediately upon receipt by the Unit Operator of

notice from the assignee that the assignor is in default under the arrangement for financing, realization of the security or otherwise, the assignee shall be required to assume all obligations of the assignor under this Agreement.

1816. Execution in Counterpart This Agreement may be executed in as many counterparts as are necessary and all executed counterparts shall constitute one (1) Agreement. The Unit Operator shall promptly supply each Owner with copies of a full set of counterpart execution pages. 1817. Governing Law This Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and the laws of Canada applicable therein, and each of the Owners submits to the jurisdiction of the courts of the Province of Alberta for the interpretation and enforcement hereof. 1818. No Partnership Nothing herein contained shall be read or construed as creating a partnership, or as imposing upon any Owner any partnership duty, obligation or liability of any kind, it being the express intention of the Owners that the respective rights, obligations and liabilities of each of the Owners under this Agreement and in respect of the subject matter hereof generally, shall be several, and not joint or joint and several. 1819. Enurement Subject to clause 1201 of the Unit Agreement, this Agreement shall enure to the benefit of, and be binding upon, the respective heirs, executors, administrators, successors and permitted assigns of the Owners. 1820. Unit Operating Agreement This Unit Operating Agreement is the Unit Operating Agreement contained in the 2003 PJVA Model Unit Operating Agreement and has not been modified except as specifically noted in the sheet entitled “Elections and Modifications to the 2003 Unit Operating Agreement” attached to this Unit Operating Agreement. 1821. Accounting Procedure

The Accounting Procedure is the 1996 PASC Accounting Procedure and has not been modified except as specifically noted in Exhibit “G”. 1822. Prevailing Provisions

In the event that modifications are made to either this Unit Operating Agreement or the Accounting Procedure and such modifications are not appropriately noted pursuant to clauses 1820 and 1821 then the applicable provisions in the standard Unit Operating Agreement and Accounting Procedure named in clauses 1820 and 1821 are deemed to prevail.


IN WITNESS WHEREOF the Owners have executed this Agreement each on the date shown above its execution hereof. DATE: OWNER: (Company Name) PER: NAME: TITLE: PER: NAME: TITLE: ADDRESS FOR SERVICE: Fax No.: E-mail: This is the Execution Page of the Agreement entitled “Unit Operating Agreement - (Name of Unit)”.

Unit Operating Agreement – [Name of Unit] Effective as of the Effective Date

EXHIBIT “E”

ATTACHED TO AND MADE PART OF THE AGREEMENT ENTITLED “UNIT OPERATING AGREEMENT -

________________________ UNIT NO. __”

LIST OF OWNERS AND THEIR RESPECTIVE UNIT PARTICIPATIONS


EXHIBIT “F”

ATTACHED TO AND MADE PART OF THE AGREEMENT ENTITLED

“UNIT OPERATING AGREEMENT - ________________________ UNIT NO. __”

LIST OF UNIT WELLS AND OTHER TANGIBLE UNIT FACILITIES

PART I - UNIT WELLS

Well Name Unique Identifier PART II - OTHER TANGIBLE UNIT FACILITIES


EXHIBIT “G”


________________________ UNIT NO. __”

ACCOUNTING PROCEDURE

101. Accounting Procedure Chosen

Alternate ______ immediately below shall apply as a schedule to this exhibit:

ALTERNATE A. The Accounting Procedure is the 1996 Petroleum Accountants Society of Canada’s Accounting Procedure and has been modified only as shown in clause 102(b) hereof. The elections chosen and values inserted are described in clause 102(a) hereof.

ALTERNATE B. The Accounting Procedure is unique to this Agreement and is attached hereto as

Schedule A. 102. Rates, Elections and Modifications to the 1996 PASC Accounting Procedure

(a) The following clauses of the Accounting Procedure are modified to include the indicated election,

alternate, option or value:

105. Operating Fund: ___________ % 110. Approvals: Clause ________; from ______; _________ percent (______%) 112. Expenditure Limitations:

(a) excess of _______________ dollars ($__________) (c) excess of _______________ dollars ($__________)

202. Employee Benefits:

(a) exceed ________ percent (______%)

213. Camp and Housing: (b) shall ______ /shall not ______

216. Warehouse Handling: _____________ percent (______%)

221. Allocation Options:

204.______________________________________ 207.(c) ____________________________________ 212. ____________________________________ _ 213.(a) ____________________________________ 214.______________________________________

302. Overhead Rates:

(a) __________ percent (______%) OR (1) __________ percent (______%); ________ dollars ($_________) (2) __________ percent (______%); ________ dollars ($_________) (3) __________ percent (______%) (b) __________ percent (______%)


OR (1) __________ percent (______%);________ dollars ($_________) (2) __________ percent (______%); ________ dollars ($_________)

(3) __________ percent (______%)

(c) _________ percent (______%) OR (1) __________ percent (______%); ________ dollars $_________) (2) __________ percent (______%); _________dollars ($________)

(3) __________ percent (______%)

(d) __________ percent (______%) OR (1) __________ percent (______%); ________dollars ($_________) (2) __________ percent (______%); ________dollars ($_________) (3) __________ percent (______%) (e) (1) ________ percent (______%) (2) ________ dollars ($______)

(3) ________ dollars ($______)

shall ______ shall not ______

406. Dispositions: __________________ dollars ($_______) (b) The Accounting Procedure is modified as follows:

The following clause contained in the Accounting Procedure is deleted and replaced as follows:

Clause 201(a)(6) – Salaries and wages of the Operator’s employees engaged in Production Engineering who are either temporarily or permanently assigned to and directly employed off-site in direct support of Joint Operations.

The following clauses are amended as follows:

Clause 207(d) – replace “warehouse” with “Warehouse”.

Clause 406 – replace “affiliates” with “Affiliates”.

Clause 501(b) – replace “warehouse” with “Warehouse”. The clauses contained in the Accounting Procedure are amended as follows:

(Optional) SCHEDULE A – Accounting Procedure (Attach the appropriate Accounting Procedure.)


EXHIBIT “H”


_______________________ UNIT NO. __”

INSURANCE PROVISIONS 101. Insurance

(a) Without in any way limiting the obligations or liabilities of Unit Operator, Unit Operator shall also comply with the provisions of ALTERNATE ______ immediately below:

ALTERNATE A. (b) Unit Operator shall, prior to the commencement of Unit Operations, hold or cause to be held with a reputable

insurance company or companies, and thereafter maintain or cause to be maintained for the Joint Account and benefit of the Owners and their respective Affiliates, directors, officers, consultants, agents and employees, the insurance hereinafter set forth and any other insurance which is specifically required to comply with the Regulations. The insurance required pursuant to this subclause shall, subject to subclause 101(d), be as follows:.

(i) Automobile Liability Insurance covering all motor vehicles or snowcraft and all terrain vehicles,

owned and/or leased, operated or licensed by Unit Operator and used in Unit Operations, with an inclusive bodily injury, death and property damage limit of _____ dollars ($______) per accident;

(iii) Commercial General Liability Insurance with an inclusive bodily injury, death and property damage

limit of _____ dollars ($______) per occurrence, and, without restricting the generality of the provisions of this paragraph, such coverage shall include, but not be limited to, Employer’s Liability, Employer’s Contingent Liability, Contractual Liability, Contractor’s Protective Liability, Products and Completed Operations Liability and such policy shall _____ / shall not _____ include Pollution Liability;

(iv) If aircraft are used, Aircraft Liability Insurance covering all aircraft, owned, leased, operated or

licensed by Unit Operator and used in Unit Operations, with an inclusive bodily injury, death and property damage limit of ____ dollars ($_______) per occurrence;

(iv) If required, Builder’s Risk Course of Construction Insurance in an amount not less than the full value

of any work being performed in respect of the Unit Facilities, which shall cover all risks of physical loss or damage to the Unit Facilities or the work being performed in respect thereto, including all machinery, materials and supplies at the site of such work, in transit thereto and intended to become a part of the finished work, or on site awaiting erection or installation, testing or final acceptance by Unit Operator; and

(v) If required, Wrap-up General Liability Insurance for a combined single limit of ________ dollars

($_________) for each occurrence or accident, including property damage, bodily injury (including death at any time resulting therefrom) and personal injuries sustained by any Person because of bodily injury or destruction of property (including loss of use or occupancy); and contractual liability and employer’s liability. Such coverage shall extend to include contractors and subcontractors as additional insureds, in connection with the work. The policy should provide for coverage during construction of Unit Facilities, including twelve (12) Months completed operations liability.


ALTERNATE B.

(b) Unit Operator shall, prior to the commencement of Unit Operations, hold or cause to be held with a reputable insurance company or companies, and thereafter maintain or cause to be maintained for the Joint Account and benefit of the Owners and their respective Affiliates, directors, officers, consultants, agents and employees:

(i) Insurance that is specifically required to comply with the Regulations. (ii) Shall _____ / shall not _____ provide Builder’s Risk Course of Construction Insurance in an amount

not less than the full value of any work being performed in respect of the Unit Facilities, which shall cover all risks of physical loss or damage to the Unit Facilities or the work being performed in respect thereto, including all machinery, materials and supplies at the site of such work, in transit thereto and intended to become a part of the finished work, or on site awaiting erection or installation, testing or final acceptance by Unit Operator; and

(iii) Shall ____ / shall not ____ provide Wrap-up General Liability Insurance for a combined single limit

of ________ dollars ($_________) for each occurrence or accident, including property damage, bodily injury (including death at any time resulting therefrom) and personal injuries sustained by any Person because of bodily injury or destruction of property (including loss of use or occupancy); and contractual liability and employer’s liability. Such coverage shall extend to include contractors and subcontractors as additional insureds, in connection with the work. The policy should provide for coverage during construction of Unit Facilities, including twelve (12) Months completed operations liability.

The following conditions shall be applicable to the ALTERNATE which is specified:

(c) It is the intention of the Owners that, except as provided in subclause 101(b) of this exhibit and in Article VIII of the Unit Operating Agreement, the cost of any accident, loss or any claim of or liability to third parties or to each other for bodily injury, death or property damage arising out of any Unit Operations shall be borne individually by the Owners in proportion to their respective Unit Participations.

(d) Unit Operator shall provide information regarding deductibles specified for each accident or occurrence in

any insurance policy maintained for the Joint Account to any Owner who requests in writing such information. Unit Operator shall maintain deductibles in accordance with its internal policy unless otherwise directed by the Operating Committee.

(e) (i) If the policies which Unit Operator is required to obtain or maintain for the Joint Account are, in Unit

Operator’s reasonable opinion, unavailable or available only at an unreasonable cost, then Unit Operator shall promptly notify the Owners, in order that the Operating Committee may redetermine the policies which shall be held for the Joint Account. Subject to the provisions of this clause, policies obtained for the Joint Account pursuant to this clause may contain terms, conditions or exclusions affecting or limiting the risks covered thereby or the circumstances under which the insurer may be required to indemnify or compensate the Owners thereunder, provided that such terms, conditions or exclusions are, in Unit Operator’s reasonable opinion, the best available from the marketplace on reasonable terms and ordinary or appropriate. However, Unit Operator shall obtain the prior approval of the Operating Committee with respect to any such change which is made after the relevant policy or policy renewal has been acquired for the Joint Account.

(ii) Except as provided in subparagraph (i), failure by the Unit Operator to maintain the insurance

required to be maintained for the Joint Account shall be deemed to be Gross Negligence. (f) If Unit Operator makes any payments with respect to any losses, damages, claims or liabilities arising out of

Unit Operations which are covered by insurance policies maintained for the Joint Account hereunder with the approval of the insurers thereof or if Unit Operator makes any payments authorized hereunder with respect to any other losses, damages, claims or liabilities arising out of such operations, such payments shall be a charge for the Joint Account. However, Unit Operator shall diligently attempt to process its claims under such policies with respect to such losses, damages, claims or liabilities, and shall promptly credit the Joint Account the amount it ultimately recovers under such policies. Insofar as such charge is one which is not to


be borne for the Joint Account pursuant to Article VIII of the Unit Operating Agreement, Unit Operator shall adjust the Joint Account accordingly at such time as it is determined that the charge is not to be borne for the Joint Account.

(g) Unit Operator shall use reasonable efforts to ensure that each insurance policy maintained for the Joint

Account pursuant to this clause includes:

(i) a provision that coverage is primary to any other coverage carried by the Owners (other than coverage maintained by an Owner to reduce its exposure to a deductible);

(ii) a provision that such policy shall survive the default or bankruptcy of the insured for claims arising

out of an event before such default or bankruptcy; and (iii) a provision that the insurer shall provide Unit Operator with sixty (60) Days’ written notice of

cancellation of such policy.

(h) Each Owner shall be responsible for insuring its own interest in the Unit Area and Unit Facilities with respect to physical damage to property, loss of income, Operator’s Extra Expense, Seepage, Pollution, Contamination and Clean-up costs relating to the well(s) and any insurance other than that referred to in the ALTERNATE specified in subclause 101(a) of this exhibit. Each Owner shall ensure that each policy maintained by it for its own account hereunder shall contain a waiver of all rights, by subrogation or otherwise, against the other Owners and their respective Affiliates, directors, officers, consultants, agents, contractors and employees.

(i) Unit Operator shall provide each Owner with notice of damages or losses incurred hereunder as soon as

practicable after the damage or loss has been discovered. Unit Operator shall provide the Owners with such assistance and materials as are required to substantiate such damages or losses for the purposes of the Owners’ insurance coverage.

(j) Unit Operator shall, with respect to Unit Operations, use every reasonable effort to have its contractors and

subcontractors:

(i) comply with all Regulations applicable to workers employed by them; and

(ii) carry such insurance in such amounts as Unit Operator deems necessary, provided that such insurance policies shall either include waivers of all rights, by subrogation or otherwise, against the Owners and their respective Affiliates, directors, officers, consultants, agents, contractors and employees, or include the Owners as insureds under such policies.


EXHIBIT “I”


_______________________ UNIT NO. __”

ENVIRONMENTAL MATTERS

Any decisions to be made by the Operating Committee pursuant to this Exhibit “I” shall be made in accordance with subclause 404(f) of the Unit Operating Agreement. Audit Provisions 101. The initial environmental audit may be conducted at any time following the effective date of this exhibit, but no later

than ______ years following the effective date of this exhibit, in accordance with clause 103 hereof. 102. Subsequent environmental audits shall be conducted at maximum _________ (______) year intervals in accordance

with clause 103 herein unless otherwise determined by the Operating Committee. 103. An environmental audit relating to the Unit Operations hereunder shall be conducted by:

(i) a competent internal or third party environmental auditor chosen by the Unit Operator and approved by the Operating Committee. Prior to execution of the audit the Operating Committee shall approve the “Terms of Reference” that define the type of environmental audit to be done and the standards to be included in the assessment and that include, but are not necessarily limited to, the scope of work, the name(s) of the firm or representative who will conduct the work, the schedule and the estimated cost, including rates of remuneration and expenses. The costs of such audit shall be borne by all Owners at their Unit Participations. Deficiencies disclosed by such audit shall be dealt with by the Unit Operator in accordance with clause 104 hereof;

(ii) a competent internal or third party environmental auditor chosen by an Owner or Owners, who shall give

reasonable written notice to Unit Operator and the other Owners of the intention to conduct an environmental audit, which Owner or Owners shall bear the total cost and risk thereof. Deficiencies identified by such audit and disclosed to the Unit Operator and other Owners shall be dealt with by the Unit Operator in accordance with clause 104 hereof; or

(iii) both.

104. The Unit Operator shall expedite consideration of the findings of the environmental audit referred to in clause 103

hereof and within ____________ (____) weeks of receipt of the environmental audit report, shall present for approval of the Operating Committee a plan for resolution or remediation of any identified deficiencies. A deficiency that is a violation of the Regulations shall be remedied as quickly as possible. Within __________ (____) Months of the completion date of deficiency remediation specified in the Unit Operator’s plan, Unit Operator will provide the Owners with a detailed report on such remediation. If the deficiencies have not been corrected adequately or in a timely manner, the Operating Committee may authorize any other Owner or Owners to complete such deficiency remediation at the expense of the Joint Account and such Owner or Owners shall be subrogated to the Unit Operator’s rights pursuant to Article XI of the Unit Operating Agreement.

105. Environmental audit reports and communications relative to environmental issues as referenced in clause 103 shall

not be disclosed to any party who is not an Owner without the express consent of all the Owners, unless required by the Regulations or court order.

106. Each environmental audit shall be conducted so as to cause a minimum of inconvenience to Unit Operator. If two (2)

or more Owners desire to conduct audits, such Owners shall make every reasonable effort to conduct joint or simultaneous audits.


EXHIBIT “J”


_______________________ UNIT NO. __”

DISPUTE RESOLUTION PROVISIONS

101. Definitions

In this exhibit, in addition to all terms hereinbefore defined, the following words and phrases shall have the following meaning namely:

“Dispute” means any dispute or controversy amongst any of the Owners and/or any of the Owner(s) and Unit Operator concerning any matter arising out of this Agreement; except that any matter which is within the powers of the Operating Committee and which has been voted on by the Owners pursuant to Article IV of the Unit Operating Agreement shall be deemed to be a matter not in dispute.

102. Disputes Initially Referred to Mediation

The Owners will attempt to resolve any Dispute through consultation and negotiation in good faith. If those attempts fail, an Owner may, by notice to the other Owners at any time during those negotiations, request the other Owners to attempt to resolve that Dispute through mediation, including with that notice sufficient detail to enable the other Owners to understand the issues that remain in dispute. The Owners will attempt to agree on the selection of a mediator within ten (10) Days of receipt of that notice, unless an Owner gives notice to the other Owners within that period that it is not prepared to proceed with mediation respecting that Dispute. If the Owners are proceeding with a mediation and are unable to select a mediator within that period, any Owner may deliver a written request to the Canadian Foundation for Dispute Resolution to select, within two (2) Business Days of receipt of that request, a mediator qualified by education and experience to resolve that Dispute, and the Owners agree that the Person so selected will be the mediator for the Dispute. Unless otherwise unanimously agreed, the Owners will commence a mediation within twenty (20) Days of the selection of the mediator. The mediation will continue until the Dispute is resolved, or an Owner serves notice to the other Owners that it wishes to terminate the mediation, or the mediator makes a written determination that the Dispute cannot be resolved through mediation, or sixty (60) Days pass after the receipt of the original notice, whichever occurs first. All Owners which participate in or are affected by the mediation will each bear their own costs associated with a mediation, but will share the common costs of a mediation based on their Unit Participations, including, without limitation, the cost of the mediator. 103. Arbitration Proceedings

Unless a Dispute has otherwise been resolved, any Dispute described in Alternate _____ below shall be submitted to binding ____/ non-binding ____ arbitration in accordance with the provisions of this section:

ALTERNATE A. Any Dispute which the Unit Operating Agreement specifically provides to be resolved by

arbitration; or

ALTERNATE B. Any Dispute. Any such arbitration and any other arbitration the Owners agree to conduct hereunder will be conducted under the

Commercial Arbitration Rules of the Canadian Foundation for Dispute Resolution. 104. Location of and Representation at Mediation and Arbitration

The place for mediation and arbitration shall be Calgary, Alberta. Any Owner may have another Owner, provided that other Owner agrees to same in writing, represent its interests in the Dispute resolution. 105. Interim Relief


All limitation periods respecting the commencement of an action will be stayed during the period that the Owners are attempting to resolve a Dispute under clauses 102 and 103 of this exhibit. An Owner may, at any time it believes is necessary to protect its interest, seek interim or provisional relief, in the form of a temporary restraining order, preliminary injunction or other interim equitable relief concerning a Dispute under this Agreement, notwithstanding anything to the contrary in this exhibit.


EXHIBIT “K” ATTACHED TO AND MADE PART OF THE AGREEMENT ENTITLED

“UNIT OPERATING AGREEMENT -

_______________________ UNIT NO. __”

EQUALIZATION SCHEDULE

101. Value of Unit Wells and Facilities

For the purposes of clause 1003 of this Unit Operating Agreement: (a) each Unit Well, complete with tubing and downhole pump, delivered pursuant to clause 901 of this Unit

Operating Agreement shall be deemed conclusively to have a value of _________ thousand dollars ($____,000.00);

(b) all tangible Unit Facilities delivered pursuant to clause 901 of this Unit Operating Agreement shall be

deemed conclusively to have the following values:

(i) per _________ pump jack: ___________ hundred dollars ($______.00); (ii) per _________ pump jack: ___________ thousand dollars ($____,000.00); (iii) per _________ barrel tank: ___________ thousand dollars ($____,000.00); (iv) per _________ barrel tank: ___________ thousand dollars ($____,000.00); (v) per test separator: ___________ thousand dollars ($____,000.00);

(c) all flowlines delivered pursuant to clause 901 of this Unit Operating Agreement shall be deemed conclusively to have a value of ____________ dollars ($_______.00) per diameter inch mile; and

(d) the _______________ battery delivered pursuant to clause 901 of this Unit Operating Agreement shall be

deemed conclusively to have a value of ________________ dollars ($_________.00). 102. Pre-Unit Costs

The following costs and expenses shall be equalized in accordance with clause 1003 of this Unit Operating Agreement:

(a) reservoir studies for design of waterflood; (b) Technical Services supplied by Unit Operator’s employees or consultant engineer for preparation of

waterflood application;

(c) Technical Services supplied by Unit Operator’s employees or petrophysical consultants for normalizing well logs;

(d) services of Unit Operator’s employees or joint venture consultant for preparation of unit agreements;

(e) Unit Operator’s cost of representing the Owners to the Crown;

(f) Unit Operator’s cost of representing the Owners to the Board to obtain approval of the waterflood

application;

(g) Unit Operator’s costs for conducting a physical inventory of Unit Wells and Unit Facilities; and


(h) legal cost of mineral titles search.

103. Equalization of Unit Wells, Unit Facilities and Pre-Unit Costs The Unit Wells, Unit Facilities and pre-unit costs pursuant to clauses 101 and 102 hereof shall be equalized as of the Effective Date in accordance with clause 1003 of the Unit Operating Agreement. Payments and credits of the equalization shall be in accordance with Table 1 attached hereto.


EXHIBIT “K” ATTACHED TO AND MADE PART OF THE AGREEMENT ENTITLED

“UNIT OPERATING AGREEMENT -_______________________ UNIT NO. __” Table 1 – Initial Adjustment of Investment

Unit Facilities, Deemed Owner Wells & Pre-Unit Costs Value Company A Company B Company C

WI % Value WI % Value WI % Value

1-2 well 50% 30% 20% Well $ 100,000 90 Pumpjack $ 75,000 100 bbl tank $ 30,000 Test Separator $ 16,000 3 in. line- 3 km. $ 225,000 Total $ 446,000 $ 223,000 $ 133,800 $ 89,200

2-3 well 50% 50% 0% Well $ 100,000 90 Pumpjack $ 75,000 100 bbl tank $ 30,000 Test Separator $ 16,000 3 in. line- 1.5 km. $ 112,500 Total $ 333,500 $ 166,750 $ 166,750 $ -

3-4 well 60% 20% 20% Well $ 100,000 120 Pumpjack $ 120,000 200 bbl tank $ 50,000 Test Separator $ 16,000 Total $ 286,000 $ 171,600 $ 57,200 $ 57,200

3-4 Battery 50% 25% 25% Battery $ 350,000 Water Disposal $ 100,000 Total $ 450,000 $ 225,000 $ 112,500 $ 112,500

Pre-Unit Costs Reservoir Study $ 35,000 55% $ 19,250 20% $ 7,000 15% $ 5,250 Application $ 10,000 55% $ 5,500 20% $ 2,000 15% $ 1,500 Title Review $ 20,000 55% $ 11,000 20% $ 4,000 15% $ 3,000 Unit Agreements $ 7,000 100% $ 7,000 0% $ - 0% $ - Visit Crown $ 3,000 100% $ 3,000 0% $ - 0% $ - Total $ 75,000

Deemed Investment $ 1,515,500 $ 786,350 $ 470,250 $ 258,900

Unit Participation 56.10% 26.90% 17.00% Unit Investment $ 1,515,500 $ 850,196 $ 407,670 $ 257,635

Equalization $ - $ 63,846 -$ 62,581 -$ 1,265 + pay; - receive

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