For each earning well, WellStar shall earn 100% of the optionor's interest in the section to depth drilled plus two additional adjoining or contiguous sections. Optionor shall receive a 15% gross overriding royalty convertible to a 40% interest upon payout.
The Prophet River Natural Gas Project will target the shallow formations above the base of the Mississippian formation that produce in the prolific Tommy Lakes natural gas field, approximately 8 km east of the project, including the Debolt and Halfway Formations.
Two historical wells of note have been drilled on the farmin lands dating back to the 1960's. Well c-97-D/94-G-15 tested 3.0 mmcf/d in the Halfway formation and 5.7 mmcf/d in the Debolt formation, and well c-97-D/94-G-15 had recorded flow rates of approximately 1.5 mmcf/d before the operator lost control of the well. The project wasn't likely developed at that time due to the lack of infrastructure in northeastern British Columbia. Infrastructure is now available including highway access and proximity to sales pipelines.
WellStar has paid $50,000 for the exclusive option to farmin to the project on or before May 31, 2007. Upon execution of the farmin agreement, WellStar will deposit $1.5 million in trust with Optionor's legal firm that will be refunded with interest after the drilling, completion or abandonment of the first earning well on or before April 1, 2008. WellStar shall commit to drill each option well within 30 days of the completion or abandonment of each previous option well and spud within 90 days of the election to drill.
The option agreement is subject to regulatory approval where required.
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