O.C. 136/2011

April 14, 2011


            The Lieutenant Governor in Council authorizes the Minister of Energy, on behalf of the Crown in right of Alberta, to enter into the Cold Lake Air Weapons Range - Acquisition Agreement Clarification Agreement with Cenovus Energy Inc. in the form attached.

For Information only

Recommended by:            Minister of Energy

Authority:                             Mines and Minerals Act
                                                (section 9)


Cold Lake Air Weapons Range - Acquisition Agreement Clarification Agreement

THIS AGREEMENT (“Agreement”) made as of November 1, 2010 (the “Effective Date”)

BETWEEN:

HER MAJESTY THE QUEEN IN RIGHT OF ALBERTA,

as represented by the Minister of Energy,

(“Alberta”)

AND

CENOVUS ENERGY INC., a body corporate, incorporated under

the laws of Canada and having its head office in the City of

Calgary, in the Province of Alberta,

(“Cenovus”)

(collectively, the “Parties”)

BACKGROUND RECITALS:

A.        Alberta entered into the Offer for Primrose Lake Air Weapons Range Petroleum and Natural Gas Rights letter, dated April 20, 1978 (the “Acquisition Agreement”) with Alberta Energy Company Ltd. (“AEC”).  The Acquisition Agreement granted to AEC, among other things, the leasehold rights to all petroleum and natural gas (PNG) on the Primrose Lake Air Weapons Range.

B.         The Government of Canada, as represented by the Minister of National Defence (“Canada”) and The Government of the Province of Alberta, as represented by the Minister of Energy and Natural Resources (now the Minister of Energy), entered into an agreement dated November 13, 1978 (the “1978 Agreement”), pursuant to which Alberta made available to Canada, for defence purposes, certain lands which are referred to in that agreement as the “Air Weapons Range”, and pursuant to which Alberta, or its assignee, was given certain rights of access to further develop resources lying under the Air Weapons Range.

C.        The Government of Canada, as represented by the Minister of National Defence and The Government of the Province of Alberta, as represented by the Minister of Energy and Natural Resources entered into an agreement dated January 17, 1986 (the “Surface Access Agreement”), pursuant to which Canada agreed to provide Alberta, or its assignee, with access to the Air Weapons Range for the purpose of commercially developing oil sands and pursuant to which Alberta agreed to make an additional area available to Canada for defence purposes (the Air Weapons Range and this additional area comprising the Cold Lake Air Weapons Range).

D.        The Surface Access Agreement superseded the 1978 Agreement effective April 1, 1985.

E.         Pursuant to an assignment agreement made effective April 1, 1985, Alberta assigned to AEC those rights and interests of Alberta in the Surface Access Agreement, other than those expressly reserved to Alberta pursuant to the Surface Access Agreement.

F.         Cenovus is the current assignee of Alberta’s rights (with the exception of those rights expressly reserved to Alberta) under the Surface Access Agreement, and has been conducting, and will continue to conduct oil, natural gas and oil sands operations and activities on the CLAWR.

 

G.        In connection with the conduct of such operations and activities, Cenovus has incurred, and will incur, operating costs uniquely associated with operating on the CLAWR, including Range Safety Costs and Abandonment and Reclamation (A&R) Costs that may be accelerated or have other aspects associated with operating on the CLAWR.

 

H.        Pursuant to clause 8 of the Acquisition Agreement, Cenovus may request that Alberta grant to Cenovus the leasehold rights to oil sands on the CLAWR.  Clause 8 of the Acquisition Agreement provides as follows:

“In the normal course of developing the Petroleum and Natural Gas Rights, AEC may encounter crude bitumen.  AEC shall thereupon be accorded the right to acquire, without payment of a cash purchase price, explore for and develop said bitumen under such terms and conditions as the Minister may decide, within 90 days of receiving written notice to that effect from the Minister.”

 

I.          The Parties agree that clarity is required in respect of how oil sands agreements will be issued as of the Effective Date of this Agreement, as a result of such requests.

J.          This Agreement is made pursuant to section 9(a) of the MMA.

K.        Pursuant to Order in Council O.C. _____________ the Minister is authorized, on behalf of Her Majesty, to enter into this Agreement.

 

 

THEREFORE, in consideration of the mutual promises set out in this Agreement, which are acknowledged to be sufficient consideration, the Parties agree as follows:

1.                  In this Agreement, including the recitals hereto:

(a)                2010 Oil Sands Leases” means the five (5) Oil Sands Leases comprised of one hundred eight (108) sections containing twenty seven thousand six hundred forty-eight (27,648) hectares on the CLAWR to be issued to Cenovus with a term commencement date of November 30, 2010, Cenovus acknowledging that as of the Execution Date, such leases have been issued by the Minister;

(b)        “Abandonment  and Reclamation (A&R) Costs” means, subject to sections 1(bb) and 8, those costs incurred by Cenovus or its Affiliates from and after the Effective Date in the decommissioning of infrastructure, facilities and wells situated on the CLAWR and the return of the land upon which the infrastructure, facilities or wells were situated to equivalent capability or to such other standard as may be required by applicable regulatory authorities at the time the costs are incurred, where such infrastructure, facilities or wells are related to oil, natural gas or oil sands development;

(c)        “Administration Handling Fee” means the amount determined in accordance with section 6, deemed to compensate Cenovus, for charges incurred by Cenovus in discharging the obligation to pay Bonus Payments in respect of those Third Party Leases issued pursuant to this Agreement;

(d)        “Affiliate” means, 

                                                (i)                  with respect to Cenovus, any other Person that is affiliated with Cenovus, and for the purposes hereof: 

(A)       two (2) Persons will be considered to be affiliated with one another if one (1) of them controls the other, or if both of them are controlled by a common third Person, and

(B)       one (1) Person will be considered to control another Person if it has the power to direct or cause the direction of the management and policies of the other Person, whether directly or indirectly, through one (1) or more intermediaries or otherwise, and whether by virtue of the ownership of shares or other equity interests, the holding of voting rights or contractual rights, or otherwise, and

(ii)        in respect of the Minister, Alberta government departments and agencies and Alberta crown corporations;  

(e)        “Amendment Letter” means in respect of a provision of this Agreement that provides for the amendment of this Agreement by such a letter, a letter signed:

(i)         on behalf of Alberta, by the Minister or the Deputy Minister of Energy for Alberta, and

                                                 (ii)               on behalf of Cenovus, by the President and Chief Executive Officer

or their respective successors in duties;

 

(f)         “Bonus Payment” means the payment made to Alberta by Cenovus pursuant to section 3(c), for each Oil Sands Lease issued pursuant to this Agreement;  

(g)        “Cenovus Lease” means an oil sands lease pursuant to which leasehold rights in respect of lands forming part of the CLAWR have been issued to Cenovus or its Affiliates, whether before or after the Effective Date, provided that Cenovus or its Affiliate, as the case may be, is registered with Alberta as having some specified undivided interest in that oil sands lease;

(h)        “CLAWR” means that area described in Schedule “A” of this Agreement known by the Parties as the Cold Lake Air Weapons Range, as amended from time to time; 

(i)         “Day” means a period of time commencing at 08:00 Alberta local time on any calendar day and ending at 08:00 on the next calendar day or at such other time as may be agreed upon by the Parties by Amendment Letter;

(j)         “Denial of Access” or derivatives thereof, means, in respect of a Cenovus Lease, where Canada will not permit Cenovus or its Affiliates access on all or a portion of the surface of the lands the leasehold rights to which have been granted in respect of that Cenovus Lease,

(i)                  to complete the delineation work prescribed in the OSTR to reach the minimum level of evaluation for continuation as a non-producing lease; or

(ii)        whether or not such minimum level of evaluation activities have been completed, to have twenty four (24) hour manned surface access on all or a portion of the surface;

(k)        “Discount Rate” means in respect of a Year,

(i)                  for the purposes of section 5 and Schedule C, the “return allowance rate” as determined pursuant to section 2 of the OSAC for the previous Year; and

(ii)        for the purposes of section 6, the rate of return on non-basic pipelines, as determined pursuant to the OSRR09, the OSAC, or the guidelines made thereunder,

            provided that if the Bank of Canada ceases to publish the long term benchmark yield referred to in the definition of “LTBR” in section 2 of the OSAC or if the Bank of Canada ceases to exist, the LTBR for the purposes of this Agreement  shall be the most nearly comparable long term yield rate as may be substituted by the Bank of Canada or successor institution in the future and further provided that if for any given year, the LTBR is equal to zero then for the purposes of this Agreement, the LTBR will be deemed to be equal to .001% (for certainty, nothing herein contained dealing with the LTBR is intended to affect how the LTBR is defined in section 2 of the OSAC for the purposes of either the OSAC or the OSRR09);

(l)         “Eligible Lands” means, subject to section 3(f)

(i)         at any time following the Effective Date and prior to the termination or expiry of the Surface Access Agreement, and subject to clause (ii), those lands comprising the CLAWR at that time,

(A)       less those lands forming part of the CLAWR in respect of which subsisting oil sands leasehold rights have been issued at that time whether before or after the Effective Date, and

(B)       less those lands forming part of Cenovus Leases the rights to which have also been cancelled by the Minister at any time following the Effective Date pursuant to section 45 of the MMA,

(ii)        at any given time following the Effective Date and prior to the termination or expiry of the Surface Access Agreement, where some of the areas included in the Surface Access Agreement are no longer included therein (the “reduced lands”), those lands comprising the CLAWR at that time,

(A)       less those lands forming part of the CLAWR in respect of which subsisting oil sands leasehold rights have been issued at that time whether before or after the Effective Date,

(B)       less those lands forming part of the Cenovus Leases the rights to which have also been cancelled by the Minister at any time following the Effective Date pursuant to section 45 of the MMA,

(C)       less those lands forming part of the Cenovus Leases the rights to which the lessee has allowed to expire following the effective date for when the reduced lands were removed from the Surface Access Agreement, however, only to the extent such lands are located on the reduced lands,

(D)       less those lands forming part of the reduced lands to which oil sands leasehold rights have been issued to one or more Third Parties whether before or after the Effective Date and which such lessees have allowed to expire following the effective date the reduced lands were removed from the Surface Access Agreement, and

(E)       less those lands forming part of the reduced lands to which oil sands leasehold rights have been granted to one or more Third Parties whether before or after the Effective Date and which rights have been cancelled by the Minister pursuant to section 45 of the MMA, at any time following the effective date the reduced lands were removed from the Surface Access Agreement, and

(iii)       at any given time following the termination or expiry of the Surface Access Agreement, those lands comprising the CLAWR at that time,

(A)       less those lands forming part of the CLAWR in respect of which subsisting oil sands leasehold rights have been issued at that time whether before or after the Effective Date,

(B)       less those lands forming part of the Cenovus Leases the rights to which have been cancelled by the Minister at any time following the Effective Date pursuant to section 45 of the MMA,

(C)       less those lands forming part of the Cenovus Leases the rights to which the lessees have allowed to expire following the termination or expiry of the Surface Access Agreement,

(D)       less those lands forming part of the CLAWR to which oil sands leasehold rights have been issued to one or more Third Parties whether before or after the Effective Date and which such lessees have allowed to expire following the termination or expiry of the Surface Access Agreement, and

(E)       less those lands forming part of the CLAWR to which oil sands leasehold rights have been issued to one or more Third Parties and which rights have been cancelled by the Minister pursuant to section 45 of the MMA, at any time following the termination or expiry of the Surface Access Agreement;

(m)       “Execution Date” means the date the last of the Parties executes this Agreement;

(n)        “Legal or Beneficial Interest” means any interest acquired by Cenovus or its Affiliates (also collectively referred to as the “Cenovus Group”) in any Third Party Lease, reflected as a percentage (including, without limitation, a working interest, net profits interest, or overriding royalty interest), regardless of how the interest was acquired.  In the event that the beneficial interest and legal interest that the Cenovus Group has acquired in the Third Party Lease are not identical, the Legal or Beneficial Interest for the purposes of section 6(d) shall be the higher of the two amounts;

(o)        “MMA” means the Mines and Minerals Act, R.S.A. 2000, c. M-17, as amended from time to time;

(p)        “Minister” means the Minister responsible for the MMA as set forth in the Designation and Transfer of Responsibility Regulation (A. R. 38/2008), as amended from time to time;

(q)        “month” means “month” as that term is defined in section 3 of the OSRR09;

(r)        “Oil Sands Lease” means a “lease” as that term is defined in the OSTR, that is to be, or has been, issued by Alberta in accordance with the terms and conditions specified by this Agreement on or after the Effective Date;

(s)        “Oil Sands Lease Request” means a request made in writing by Cenovus to the Minister, on or after the Effective Date, to acquire one or more Oil Sands Leases in respect of all or a portion of Eligible Lands in accordance with the terms and conditions of this Agreement.  For the purposes of this Agreement, the 2010 Oil Sands Leases will be deemed to have been made pursuant to a valid Oil Sands Lease Request;

(t)         “operator” means “operator” as that term is defined in the OSRR09;

(u)        “OSAC” means the Oil Sands Allowed Costs (Ministerial) Regulation (A. R. 231/2008), as amended from time to time;

(v)        “OSRR09” means the Oil Sands Royalty Regulation, 2009 (A. R. 223/2008), as amended from time to time;

(w)       “OSTR” means

(i)         prior to December 1, 2010, the Oil Sands Tenure Regulation (A. R. 50/2000), as amended from time to time, and

(ii)        from December 1, 2010, the Oil Sands Tenure Regulation, 2010 (A. R. 196/2010), as amended from time to time;

(x)        “Party” means a Person who is bound by this Agreement;

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

(z)        “Project” means “Project” as defined in the OSRR09;

(aa)      “Range Safety Costs” means, subject to sections 1(bb), and 8, all costs incurred by Cenovus and its Affiliates from the Effective Date in respect of the following activities in liaising with the Department of National Defence (DND) and Canada in respect of access to and use of the CLAWR: oil and gas development program approval and coordination, safety orientation, pass control administration, CLAWR access control and security monitoring, movement monitoring, safety coordination and monitoring, and CLAWR control policy enforcement along with range control equipment and facility operations and maintenance and military infrastructure support programs for the CLAWR and the Cold Lake Air Force Base;

(bb)      “Range Safety/A&R Cost Pool” means the sum of the Range Safety Costs and the Abandonment and Reclamation (A&R) Costs:

                                          (i)                        less those Range Safety Costs and the Abandonment and Reclamation (A&R) Costs taken into consideration in determining the amount payable by Alberta to Cenovus pursuant to section 5,

                                        (ii)                        subject to section 8, less those costs claimed by Cenovus or its Affiliates as being Range Safety Costs and the Abandonment and Reclamation (A&R) Costs which the Minister has determined do not qualify as Range Safety Costs or Abandonment and Reclamation (A&R) Costs,

                                       (iii)                        less those costs claimed by Cenovus or its Affiliates as an allowed cost used to determine the amount of royalty payable to Alberta pursuant to the OSRR09, or as an allowed cost taken into account in determining “cumulative costs” as defined in the OSRR09,

                                      (iv)                        less those costs claimed by Cenovus or its Affiliates as a cost used to reduce royalty otherwise payable to Alberta outside of the OSRR09 regime,

                                        (v)                        less the salvage value received by Cenovus or its Affiliates from the Effective Date from the decommissioning of that infrastructure, facilities, and wells, the costs of abandoning the same are included in Abandonment and Reclamation (A&R) Costs, provided that such salvage value has not been reported by Cenovus or its Affiliates as “other net proceeds” under the OSRR09;

provided that if any of such costs are eligible as an “allowed cost” under the OSAC, a cost used to reduce royalty payable to Alberta outside of the OSRR09 regime (including those costs that go into the net profits interest determination under the provisions of the Acquisition Agreement), or a cost used to reduce escalating rental under the OSTR, Cenovus or its Affiliates will elect whether to account for that cost under this Agreement, the OSTR, the OSRR09, or under the other royalty regime, such that there will be no “double dipping” of costs, and no “double dipping” of salvage value under this Agreement, any of the royalty regimes administered by the Minister, the OSTR, or any agreement between Cenovus and the Minister the subject matter of which uses costs to reduce royalty, escalating rental, or any amount otherwise payable to the Minister;

(cc)      Termination Date” means the date when no lands form part of the Eligible Lands, unless the Parties, by written agreement, agree to an earlier date;

(dd)      “term year” means the first twelve (12) months following the commencement of the term of an Oil Sands Lease and each consecutive 12-month period thereafter, ending on the expiry date of the Oil Sands Lease;

            (ee)      “Third Party” means an entity other than Cenovus or its Affiliates;

(ff)        “Third Party Lease” means, subject to subsection 6(d), an Oil Sands Lease issued to one or more third parties, pursuant to an Oil Sands Lease Request made by Cenovus on behalf of the third party or third parties, in respect of which

(i)         neither Cenovus nor any of its Affiliates has a legal or beneficial interest, and

(ii)        neither Cenovus nor any of its Affiliates is the operator of any operations on that Oil Sands Lease, which operations are in respect of the recovery of oil sands products, as defined in the MMA; and

(gg)      “Year means a calendar year.

2.         Intent

Except as specifically set out in this Agreement, the Parties agree that this Agreement settles and extinguishes any and all disputes between the Parties regarding matters arising under clause 8 of the Acquisition Agreement prior to the Effective Date.

3.         Oil Sands Lease Requests and Issuance

(a)        At any time after the Effective Date, Cenovus may make an Oil Sands Lease Request, however, without limiting the generality of the foregoing, Cenovus will endeavor to minimize the number of Oil Sands Lease Requests made in a given Year.  Within ninety (90) Days of receiving an Oil Sands Lease Request, the Minister shall issue one or more Oil Sands Leases in respect of the sections of land contained in such request.

(b)        Except as stated to the contrary in this Agreement, all Oil Sands Leases will be issued pursuant to, and in accordance with, the provisions of the MMA, the OSTR, and any guidelines issued by the Minister in respect of the OSTR, including but not limited to those provisions dealing with the size and configuration of the Oil Sands Leases being issued.

(c)        Subject to section 6(b), for each Oil Sands Lease issued by the Minister pursuant to this Agreement, Cenovus will pay a Bonus Payment calculated as four hundred dollars per hectare ($400.00/ha.) multiplied by the number of hectares of lands contained in that Oil Sands Lease.

(d)        Subject to subsection (e), and section 4(c), for each Oil Sands Lease issued by the Minister pursuant to this Agreement, on and after the Execution Date, Cenovus shall pay the Bonus Payment, lease issuance fee, and first term year’s rental in respect of that Oil Sands Lease, as calculated herein, on or before the date prescribed in the MMA, and the regulations made thereunder for making such payment.

(e)        Notwithstanding any provisions of the OSTR to the contrary, within fifteen (15) Days following the Execution Date, Cenovus agrees to pay Alberta a Bonus Payment in respect of each Oil Sands Lease issued by the Minister pursuant to this Agreement on or after December 1, 2010, and prior to the Execution Date.  Lease issuance fees and first term year’s rental will be paid by Cenovus on or before the later of:

(i)                  the date such payments are required to be made pursuant to the MMA, and the regulations made thereunder for making such payments, and

(ii)        the Execution Date.

(f)         Notwithstanding the minimum level of evaluation requirements prescribed in the OSTR, and notwithstanding those provisions of the OSTR that address the continuation of oil sands agreements, and subject to section 7(d), if the minimum level of evaluation requirements have been satisfied with respect to any portion of the lands forming a Cenovus Lease, only the entire Cenovus Lease may be continued pursuant to the OSTR, even though the minimum level of evaluation requirements for the entire Cenovus Lease have not been met.  If the minimum level of evaluation requirements under the OSTR have been satisfied for a portion of the lands under a Cenovus Lease, and the lessees choose not to continue the entire Cenovus Lease, then such Cenovus Lease, in its entirety, will be cancelled by Alberta.  In the event of the cancellation of such an Oil Sands Lease (for the purposes of this subsection (f) referred to as the “Subject Cenovus Lease”, the following rules will apply:

(i)         if the Surface Access Agreement is in effect on the effective date of such cancellation:

(A)       those lands associated with the Subject Cenovus Lease that fall within the definition of “reduced lands” will no longer form part of Eligible Lands,

(B)       those lands associated with the Subject Cenovus Lease that do not fall within the definition of “reduced lands” will again form part of Eligible Lands and be available for re-acquisition pursuant to this Agreement,

(ii)        if the Surface Access Agreement is not in effect on the effective date of such cancellation, those lands associated with the Subject Cenovus Lease will no longer form part of Eligible Lands.

(g)        For the purposes of this Agreement, there are two hundred fifty-six (256) hectares in one section of land.

(h)        For the purposes of this Agreement, an Oil Sands Lease issued by the Minister to Cenovus or any of its Affiliates, and one or more third parties, will be deemed to be an Oil Sands Lease issued to Cenovus or its Affiliates, and will be deemed not to be a “Third Party Lease”.

(i)         Each lessee to whom an Oil Sands Lease is issued pursuant to this Agreement must not be ineligible to be a lessee pursuant to section 23 of the MMA.

4.         2010 Oil Sands Leases

(a)        Notwithstanding section 3, Cenovus acknowledges that the 2010 Oil Sands Leases were issued with a term commencement date of November 30, 2010.  Alberta acknowledges receipt from Cenovus of ninety-nine thousand eight hundred ninety-three dollars ($99,893) through electronic fund transfer (EFT), as payment of the lease issuance fees and the first term year lease rental for the 2010 Oil Sands Leases.

(b)        Cenovus acknowledges that no production of oil sands is to occur from the 2010 Oil Sands Leases, or from any other Oil Sands Leases issued prior to the Execution Date, until after the Execution Date.  Until such time, and subject to the preceding sentence, operations in respect of the 2010 Oil Sands Leases, or any other Oil Sands Leases issued prior to the Execution Date, are to be limited to those necessary to satisfy the minimum level of evaluation requirements under the OSTR.

(c)        Notwithstanding section 3(d) and any provisions of the OSTR to the contrary, within fifteen (15) Days following the Execution Date, Cenovus agrees to pay Alberta a Bonus Payment in the amount of eleven million fifty-nine thousand two hundred dollars ($11,059,200) for the 2010 Oil Sands Leases.

5.         Incentive Deductions

(a)        Subject to section 6(b), as an incentive for making the Bonus Payment for the Oil Sands Leases issued to Cenovus or its Affiliates pursuant to an Oil Sands Lease Request (for the purposes of this section 5 referred to as “Incentive Deduction Leases”), and in recognition of the unique challenges and costs of operating on the CLAWR, Alberta will pay Cenovus the following three instalments, such instalments to be tracked separately as among Incentive Deduction Leases issued pursuant to multiple Oil Sands Lease Requests:

(i)                  The first instalment will be that amount calculated as one hundred (100%) percent of the Range Safety/A&R Cost Pool as at January 1 of the first Year after the first full Year following the date such Bonus Payment is made, to a maximum of fifty (50%) percent of the Bonus Payment made for the  Incentive Deduction Leases, and will be paid to Cenovus by Alberta on or before February 7 of the first Year after the first full Year following the date such Bonus Payment is made;

(ii)                The second instalment will be that amount calculated as one hundred (100%) percent of the Range Safety/A&R Cost Pool as at January 1 of the second Year after the first full Year following the date such Bonus Payment is made, to a maximum of twenty five (25%) percent of the Bonus Payment made for the Incentive Deduction Leases, and will be paid to Cenovus by Alberta on or before February 7 of the second Year after the first full Year following the date such Bonus Payment is made;

(iii)               The third instalment will be that amount calculated as one hundred (100%) percent of the Range Safety/A&R Cost Pool as at January 1 of the third Year after the first full Year following the date such Bonus Payment is made, to a maximum of twenty five (25%) percent of the Bonus Payment made for the Incentive Deduction Leases issued pursuant to that Oil Sands Lease Request, and will be paid to Cenovus by Alberta on or before February 7 of the third Year after the first full Year following the date such Bonus Payment is made.

Once an instalment has been made based on eligible amounts in the Range Safety/A&R Cost Pool, those costs will be removed from the Range Safety/A&R Cost Pool, so as not to be accounted for more than once.

(b)        Notwithstanding that the Bonus Payment in the amount of eleven million fifty-nine thousand two hundred dollars ($11,059,200) for the 2010 Oil Sands Leases is payable within fifteen Days of the Execution Date, if so paid by Cenovus, the timing of the instalments set forth in subsection (a) will be determined as if that Bonus Payment was made on November 30, 2010.

(c)        Subject to section 6(b), Bonus Payments on Oil Sands Leases issued pursuant to a given Oil Sands Lease Request are to be applied evenly over all Oil Sands Leases granted pursuant to that Oil Sands Lease Request, whether or not one or more Third Party Leases is issued pursuant to that Oil Sands Lease Request.

(d)        No later than January 15 of each Year, commencing in January 2012, Cenovus will provide to the Minister an itemized list of the Range Safety Costs and the Abandonment and Reclamation (A&R) Costs incurred in the previous Year, as well as the amount of the Range Safety/A&R Cost Pool as of December 31 of the previous Year.  The Parties agree that for the purposes of determining the timing of when a cost is incurred, the provisions of the OSRR09 will be used.

(e)        To the extent that the full amount of one or more instalments in respect of Oil Sands Leases granted under a given Oil Sands Lease Request cannot be maximized because there are inadequate costs in the Range Safety/A&R Cost Pool, the difference between the maximum amount payable and the amount actually paid will carry forward to the next payment or payments to be made by Alberta to Cenovus, in chronological order, such that all or a portion of the difference will be added to the maximum amount payable under subclauses (a)(ii) and (iii), and each subsequent Year, until the Bonus Payment in respect of the Oil Sands Lease Request has been paid to Cenovus, such payments being made pursuant to the following rules:

(i)         The costs that Cenovus elects to place into the Range Safety/A&R Cost Pool must be used so as to maximize the amount of the instalment to be made by the Minister (no “banking” of costs),

(ii)        When allocating costs within the Range Safety/A&R Cost Pool as between the instalments made in respect of two or more Oil Sands Leases Requests, such costs will first be allocated against the Oil Sands Lease Request that occurred earlier in time,

(iii)       Interest on the difference, or portion thereof if that difference carries forward to more than the next Year, will accrue commencing January 1 of the Year in which that difference should have been paid pursuant to subsection (a), using the methodology set forth in Schedule C,

(iv)       Interest will be calculated on a daily basis, and there will be no compounding of interest,

(v)        Interest from a given year will be added to the amount of the instalment to be made in the next Year in which an instalment is to be made, with the amount of payment being allocated to accrued interest prior to being allocated to the “principal” amount,

(vi)       To the extent that Cenovus wishes to use Range Safety Costs and Abandonment and Reclamation (A&R) Costs incurred in a given Year as part of the Range Safety/A&R Cost Pool under this Agreement, Cenovus must account for that cost as a cost arising in the Year in which it is incurred, for use in determining the instalments payable in the next Year.  If a cost is not used in the proper timeframe, that cost will no longer be eligible for use as a cost within the Range Safety/A&R Cost Pool pursuant to this Agreement.  Notwithstanding the generality of the foregoing, to the extent that cost is still eligible to be claimed pursuant to another agreement between the Parties, the OSTR, the OSRR09, or another royalty regime, that cost may still be claimed for that purpose and reviewed by the Minister for eligibility for that purpose, provided the Minister has such a right, and

(vii)             To the extent a cost was claimed pursuant to another agreement between the Parties, the OSTR, the OSRR09, or pursuant to another royalty regime, and the cost is later disallowed for that purpose, that cost will become eligible for use as part of the Range Safety/A&R Cost Pool under this Agreement, for the Year in which that cost was incurred.  If that cost would be so eligible, Cenovus will repay to the Minister all interest previously paid by the Minister to Cenovus in respect of that portion of the “difference” described above that would not have arisen, but for Cenovus claiming that cost pursuant to the other agreement, the OSTR, the OSRR09, or pursuant to another royalty regime, and no interest will accrue by virtue of the fact that the Minister’s payments under subsection (a)(i) were made later than the dates specified therein, as a result of that cost not being used by Cenovus as part of the Range Safety/A&R Cost Pool from the outset.

(viii)           If there are instalments payable by the Minister as of the effective date of the termination of this Agreement, the obligation to make such payments in accordance with this section will continue, until the payment due February 7 of the sixth Year following the Year in which the effective date of the termination falls.  Thereafter, any instalments remaining payable, and any “differences” that remain payable will no longer be payable.

(ix)       If there are instalments payable by the Minister in respect of an Oil Sands Lease, the obligation to pay that instalment in accordance with this Agreement will continue, even though that Oil Sands Lease may have been cancelled by the Minister, or surrendered by the lessee.

(f)         For the purposes of determining the “cumulative cost” (as defined in section 25 of the OSRR09) of any Project that has yet to reach its “Project payout date” (as defined in section 25 of the OSRR09), the amount paid by Alberta to Cenovus under subsection (a) will not be considered to be a reduction of royalty compensation paid to Alberta when determining the Project Payout Date of that Project.

6.         Third Party Leases

(a)        Subject to subsection (b) and (d), if one or more Third Party Leases are issued in response to an Oil Sands Lease Request, Cenovus will be entitled to an Administration Handling Fee in respect of the Bonus Payment, if any, made by Cenovus in respect of each Third Party Lease issued as a result of that Oil Sands Lease Request, the amount of which will be received by Cenovus in three instalments, calculated as follows:

(i)         The amount of the first instalment will be paid to Cenovus by Alberta on or before February 7 of the second Year following the Year in which the term commencement date for the Third Party Lease falls calculated as

(A)       fifty (50%) percent of the Bonus Payment received by the Minister in respect of that Third Party Lease, plus

(B)       that amount calculated as one hundred (100%) percent of the Bonus Payment paid in respect of that Third Party Lease, multiplied by the sum of the following amounts, with no compounding of amounts calculated from one year to another:

(1)        the Discount Rate for the Year in which the term commencement date of the Third Party Lease falls, divided by 365, multiplied by the number of Days in that Year following such term commencement date;

(2)        the Discount Rate for the first full Year following the Year in which the term commencement date falls; and

(3)        the Discount Rate specified in sub-clause (2), divided by 365, multiplied by the number of Days in the second Year following the Year in which the term commencement date falls prior to the date the Minister requisitions the payment of the first instalment.

(ii)        The amount of the second instalment will be paid to Cenovus by Alberta on or before February 7 of the third Year following the Year in which the term commencement date for the Third Party Lease falls calculated as

(A)       twenty five (25%) percent of the Bonus Payment received by the Minister in respect of that Third Party Lease, plus

(B)       that amount calculated as fifty (50%) percent of the Bonus Payment paid in respect of the Third Party Lease, multiplied by the sum of the following amounts, with no compounding of amounts calculated from one year to another:

(1)        the Discount Rate for the second full Year following the Year in which the term commencement date falls, divided by 365, multiplied by the number of Days following the date the Minister requisitions the payment of the first instalment, to the end of the Year in which that first instalment is requisitioned; and

(2)        the Discount Rate specified in sub-clause (1), divided by 365, multiplied by the number of Days in the third Year following the Year in which the term commencement date falls prior to the date the Minister requisitions the payment of the second instalment.

(iii)       The amount of the third instalment will be paid to Cenovus by Alberta on or before February 7 of the fourth Year following the Year in which the term commencement date for the Third Party Lease falls calculated as

(A)       twenty five (25%) percent of the Bonus Payment received by the Minister in respect of that Third Party Lease, plus

(B)       that amount calculated as twenty five (25%) percent of the Bonus Payment paid in respect of the Third Party Lease, multiplied by the sum of the following amounts, with no compounding of amounts calculated from one year to another:

(1)        the Discount Rate for the third full Year following the Year in which the term commencement date falls, divided by 365, multiplied by the number of Days following the date the Minister requisitions the payment of the second instalment, to the end of the Year in which that second instalment is requisitioned; and

(2)        the Discount Rate specified in sub-clause (1), divided by 365, multiplied by the number of Days in the fourth Year following the Year in which the term commencement date falls prior to the date the Minister requisitions the payment of the third instalment.

(b)        With respect to the Administration Handling Fee that would otherwise be payable by the Minister for a Third Party Lease described in subsection (a), the Minister may:

(i)         waive the requirement for the Bonus Payment to be paid in respect of a Third Party Lease, in which case, amounts payable under sections 3(c) and 5(a) will no longer apply in respect of that Third Party Lease; or

(ii)        pay to Cenovus the balance of the Administration Handling Fee earlier than the dates prescribed in subsection (a) for such payments, in which case, interest will be calculated in accordance with the provisions of subsection (a), mutatis mutandis, based on the date the balance of the Administration Handling Fee is requisitioned for payment.

(c)        The Administration Handling Fee is not to be used as an “other net proceed”, as defined in the OSRR09 or otherwise, in the calculation of royalty payable to Alberta.

(d)        If prior to the date the Minister requisitions payment of the third instalment, Cenovus or any of its Affiliates acquires a Legal or Beneficial Interest in that Third Party Lease, Cenovus shall immediately inform the Minister in writing, and the unpaid portion of the Administration Handling Fee associated with such lease(s) and calculated under any or all of subsections 6(a)(i)(B), 6(a)(ii)(B) and 6(a)(iii)(B), as the case may be, shall be reduced by the amount of such Legal or Beneficial Interest and the unpaid portion of the Administrative Handling Fee calculated under any or all of subsections 6(a)(i)(A), 6(a)(ii)(A) or 6(a)(iii)(A), as the case may be, shall, as it relates to the Legal or Beneficial Interest only, become subject to section 5 and pro-rated for the remaining portions of the instalment period(s).  The remaining portion of the interest in the Third Party Lease owned by the Third Party will remain subject to section 6(a) and (c).

 

(e)        If Cenovus or any of its Affiliates acquires a Legal or Beneficial Interest in that Third Party Lease, and in the event no Bonus Payment was made for such Third Party Lease pursuant to subsection 6(b)(i), Cenovus shall pay to the Minister a Bonus Payment totalling $400/ha multiplied by the amount of the Legal or Beneficial Interest within sixty (60) Days of the effective date of acquisition of such interest, and the incentive deduction related to such Bonus Payment will become subject to section 5, however, for the purposes of determining the timing of the payments thereunder, the effective date of Cenovus’ or its Affiliates’ acquisition of such interest will be considered to be the date the Bonus Payment was made.

 

      For the sake of clarity, an example of how payments are to be made pursuant to each of subsections (d) and (e) is included in Schedule D.

 

(f)         If in respect of a given Third Party Lease, Alberta pre-pays the Administrative Handling Fee in accordance with section 6(b)(ii), and Cenovus or its Affiliates acquires a Legal or Beneficial Interest in that Third Party Lease prior to February 7 of the Year during which the third instalment would normally have been due pursuant to section 6(a)(ii), Cenovus shall pay to the Minister a Bonus Payment totalling $400/ha multiplied by the amount of the Legal or Beneficial Interest within sixty (60) Days of the effective date of acquisition of such interest, and the incentive deduction related to such Bonus Payment will become subject to section 5, however, for the purposes of determining the timing of the payments thereunder, the effective date of Cenovus’ or its Affiliates’ acquisition of such interest will be considered to be the date the Bonus Payment was made.

 

(g)        Cenovus acknowledges that none of the 2010 Oil Sands Leases were Third Party Leases.

7.                  Surface Access and Lease Continuation

(a)        The Parties acknowledge and agree that the granting of Oil Sands Leases by Alberta pursuant to this Agreement does not guarantee surface access on the CLAWR.   Surface access matters in respect of the CLAWR, are dealt with separately from the issuing of Oil Sands Leases pursuant to this Agreement.

(b)        If Canada, pursuant to the Surface Access Agreement, denies Cenovus or its Affiliates access to the surface of all or a portion of the lands associated with a given Cenovus Lease for a finite period of time during the primary term of that lease, which Denial of Access ends prior to the end of the primary term of that lease, then the primary term of that lease will be extended by

(i)         the number of Days equal to the number of Days that access to such lands has been denied, plus

(ii)        the number of Days, if any, required to reach the end of the term year of that Cenovus Lease in which the extension described in sub clause (i) falls.

(c)        If pursuant to the Surface Access Agreement, Canada denies Cenovus or its Affiliates access to the surface of all or a portion of the lands associated with a given Cenovus Lease, and that lease, for the purposes of the OSTR, was designated as “producing” during the term year immediately preceding the term year during which the Denial of Access to all or a portion of the lands associated with that Cenovus Lease first takes effect, then that Cenovus Lease will be deemed to be “producing” from the beginning of the term year of that Cenovus Lease during which the denial takes effect, to the end of the term year of that Cenovus Lease during which the denial ends.

(d)        In accordance with section 3(f), if at the end of the primary term of a given Cenovus Lease, that lease is designated as “non-producing” under the OSTR, and whether or not the minimum level of evaluation requirements have been met for that lease, such lease in its entirety will be deemed to be continued as a ‘non-producing’ lease under the OSTR.  In such event, the first 3-term year period for the payment of escalating rentals will commence.  If at the end of the first 3-term year period that lease is still a non-producing lease under the OSTR, and provided access by Cenovus or any of its Affiliates to any portion of that lease is scheduled to be denied by Canada at the end of the first 3-term year period, Cenovus shall within thirty (30) Days prior to the end of the first 3-term year period, provide to the Minister Cenovus’ written election as follows, which will be considered to be effective on the start of the term year following such first 3-term year period:

 

(i)                  For that portion of the Cenovus Lease that is subject to the Denial of Access, Cenovus may make either or both of the following elections:

 

(A)              elect to keep the leasehold rights to all or a portion of the lands to which such denial relates, at which point the escalation of the rate of escalating rent in respect of those lands so denied, will enter a “stay period”.  Such stay period will commence on the last Day of the first 3-term year period.  Individual 3-term year periods, commencing from the start of the stay period will be notionally tracked.  The Denial of Access will be lifted sometime during a given 3-term year period.  The stay period will continue to the end of the 3-term year period during which the Denial of Access is last in effect.   During this stay period, there will be no escalation of the rate of escalating rent, and the minimum rate of escalating rent will be paid throughout the stay period;

 

(B)       elect to surrender the leasehold rights to all or a portion of the lands to which access has been denied, which surrendered lands, provided they do not comprise reduced lands, will become part of the Eligible Lands subject to section 3.  In such event, the stay described in subsection (d)(i)(A) will apply to those lands to which the Denial of Access applies and which leasehold rights have not been so surrendered, if any;

 

(ii) For that portion of the Cenovus Lease that is not subject to the Denial of Access, Cenovus may make either or both of the following elections:

 

(A)       elect to keep the leasehold rights to all or a portion of the lands not subject to a Denial of Access, at which point the escalating rent will enter the next 3-term year period and Cenovus will pay such escalating rent as prescribed by the OSTR.  The stay described in subsection (i)(A), above, will not apply to the lands to which access has not been denied;

 

(B)              elect to surrender the leasehold rights to all or a portion of the lands to which access has not been denied, which surrendered lands, provided they do not comprise reduced lands, will become part of the Eligible Lands subject to section 3.

 

(iii)               Cenovus acknowledges that should it elect to surrender a portion of a Cenovus Lease pursuant to this subsection (d), Alberta may issue one or more “new” Cenovus Leases, using the same principles described in section 13(3)(c) of the Oil Sands Tenure Regulation, 2010, when issuing continued leases pursuant to section 13 of that regulation.  The Parties agree that each of the new Cenovus Leases will incorporate the same terms and conditions of the Cenovus Lease prior to portions thereof being surrendered, and reflect the status of that Cenovus Lease at the time such lands are surrendered (including the registered holders, effective date of the Cenovus Lease, the balance of the term of the Cenovus Lease).  However, notwithstanding the generality of the foregoing, whether that new Cenovus Lease is non-producing will be determined on its own merits.

 

(iv)       The Parties acknowledge that in respect of a given Cenovus Lease to which a stay period applies, and pursuant to which there were portions of the Cenovus Lease to which the stay period did not apply, for the purposes of the OSTR, Alberta will track the 3-term year periods for the portions to which the stay period applied separately from the 3-term year periods for the portions to which the stay period did not apply, while such lease is considered to be non-producing under the OSTR.

(v)        Cenovus may make the elections described in clauses (i) and (ii), multiple times during the stay period, however, such election will only take effect on the last Day of the 3-term year period during which the election is made.

 

(e)        Subsection (d) is intended to only deal with the limited situation where at the end of the first 3-term year period of escalating rent of a Cenovus Lease, access to all or a portion of that lease has been denied by Canada pursuant to the Surface Access Agreement, and that lease is non-producing for the purposes of the OSTR.  In all circumstances where a lease is not being administered pursuant to subsection (d), if Canada, pursuant to the Surface Access Agreement, denies access to all or a portion of that Cenovus Lease, Alberta will consider whether the Cenovus Lease was producing or non-producing for the purposes of the OSTR, in the term year preceding the year in which the denial commences.  If in the year preceding the year in which the denial commences that Cenovus Lease was considered to be “producing”, then subsection (c) applies.  If in the year preceding the year in which the denial commences that Cenovus Lease was “non- producing”, the escalation of the rate of escalating rental will be stayed for the “stay period”.  The “stay period” for the purposes of this subsection (e), will commence at the beginning of the term year during which the Denial of Access commences, and will end in accordance with subsection (i).  The 3-term year period during which the stay period commences, will be called the “Subsequent Period”.  Cenovus shall within thirty (30) Days prior to the end of the Subsequent Period, provide to the Minister Cenovus’ written election as follows, which will be considered to be effective on the last Day of the 3-term year period of such Subsequent Period:

 

(i)         For that portion of the Cenovus Lease that is subject to the Denial of Access, Cenovus may make either or both of the following elections:

 

(A)       elect to keep the leasehold rights to all or a portion of the lands to which such denial relates.  Following the Subsequent Period, individual 3-term year periods will be notionally tracked.  The stay period will end on the last Day of the notional 3-term year period during which the Denial of Access is last in effect.  There will be no escalation of the rate of escalating rental during the stay period, and the rate of escalating rental that was payable on the effective date of the Denial of Access will remain the same throughout the stay period.   Following the stay period, the rate of escalating rental as it relates to that Cenovus Lease will increase to its next “tier” under the OSTR.  Notwithstanding the generality of the foregoing, the minimum rate of escalating rental payable during the stay period will be the minimum rate for escalating rental pursuant to the OSTR,

 

(B)       elect to surrender the leasehold rights to all or a portion of the lands to which access has been denied, which surrendered lands, provided they do not comprise reduced lands, will become part of the Eligible Lands subject to section 3.  In such event, the stay described in subsection (e)(i)(A) will apply to those lands to which the Denial of Access applies and which leasehold rights have not been so surrendered, if any.

 

(ii)        For that portion of the Cenovus Lease that is not subject to the Denial of Access, Cenovus may make either or both of the following elections:

 

(A)              elect to keep the leasehold rights to all or a portion of the lands not subject to a Denial of Access and continue paying escalating rent as prescribed by the OSTR,

           

(B)       elect to surrender the leasehold rights to all or a portion of the lands to which access has not been denied, which surrendered lands, provided they do not comprise reduced lands, will become part of the Eligible Lands subject to section 3.

 

(iii)       Cenovus acknowledges that should it elect to surrender a portion of a Cenovus Lease pursuant to subsection (d) or (e), Alberta may issue one or more “new” Cenovus Leases, using the same principles described in section 13(3)(c) of the Oil Sands Tenure Regulation, 2010, when issuing continued leases pursuant to section 13 of that regulation.  The Parties agree that each of the new Cenovus Leases will incorporate the same terms and conditions of the Cenovus Lease prior to portions thereof being surrendered, and reflect the status of that Cenovus Lease at the time such lands are surrendered (including the registered holders, effective date of the Cenovus Lease, the balance of the term of the Cenovus Lease).  However, notwithstanding the generality of the foregoing, whether that new Cenovus Lease is non-producing will be determined on its own merits.

 

(iv)              The Parties acknowledge that in respect of a given Cenovus Lease to which a stay period applies, and pursuant to which there were portions of the Cenovus Lease to which the stay period did not apply, for the purposes of the OSTR, Alberta will track the 3-term year periods for the portions to which the stay period applied separately from the 3-term year periods for the portions to which the stay period did not apply, while such lease is considered to be non-producing under the OSTR.

 

(v)        Following the Subsequent Period, Cenovus may make the elections described in clauses (i) and (ii), multiple times during the stay period, however, only at the end of any term year following the Subsequent Period, which term year is within the stay period.  Such elections will take effect on the last Day of the term year in which the election is made.

 

In a timely manner following the Execution Date, the Parties undertake to create and agree upon a guideline clarifying how subsections (b), (c), (d) and (e) are to operate.  This guideline will be in the form of an Amendment Letter.

(f)    On or before December 31st of each Year, Cenovus or its Affiliates shall notify the Minister, in writing, of all the Cenovus Leases where Canada has denied access, which notice will include the legal description of the lands to which access has been so denied, as well as the time period for which the denial is to be in place, if Canada has specified that time period.  For those leases continued as non-producing and in an escalating rent situation, Cenovus or its Affiliates shall inform the Minister thirty (30) Days prior to the term year of such leases which leases or portions of leases qualify for the stay period because Canada has denied access.

 

8.         Audit

(a)        The Minister, upon reasonable notice in writing to Cenovus, shall have the right to audit the books, accounts and records of the Range Safety Costs and Abandonment and Reclamation (A&R) Costs to the extent necessary to verify the accuracy of any statement, charge or computation or demand made under or pursuant to any of the provisions of this Agreement for any Year.  The Parties agree that the timing of audits pursuant to the calculations and recalculations provisions of the MMA, will apply to the Minister’s audit of Range Safety Costs and Abandonment and Reclamation (A&R) Costs, as if those costs were included in the determination of royalty compensation payable in respect of a Project approved under the OSRR09.

(b)        The Parties agree that in determining whether the amount of a Range Safety Cost or an Abandonment and Reclamation (A&R) Cost is reasonable, sections 10(1), (2) and (3) of the OSAC will be applied as if those costs were an allowed cost for the purposes of the OSRR09 and the OSAC for a non-arm’s length transaction.

(c)        In the event of a dispute in respect of the eligibility of a Range Safety Cost or an Abandonment and Reclamation (A&R) Cost, written notice identifying the issue(s) is to be given from one Party to the other.  Upon service of the notice, the Parties will attempt to resolve the dispute through good faith participation for a period of twenty (20) Days.  If those attempts fail, a Party may, by notice to the other, request that the Parties attempt to resolve that dispute through mediation.  The Party requesting mediation shall sufficiently outline the issues when providing notice to the other Party.  The Parties will work together to select a mediator within ten (10) Days of receipt of that notice.

 

(d)        In the event the Parties are unable to select a mediator within the ten (10) Day period specified in subsection (c), any Party may deliver a written request to the ADR Institute of Canada, or its successor, to select, within two (2) business Days of the receipt of that request, a mediator qualified by education and experience to resolve the dispute, and the Parties agree that the person so selected will be the mediator for the dispute.

 

(e)        The Parties will each bear their own costs associated with the mediation, and will equally share the common costs of mediation, including, without limitation, the cost of the mediator.

 

(f)         The mediation is to commence within five (5) Days of the selection of the mediator, unless the Parties agree to extend such period.  The Parties will be required to provide written submissions prior to the commencement of the mediation to each other and the mediator.  The written submissions shall be no more than two (2) pages in length describing the issues to be resolved.

 

(g)                The mediation shall be conducted as quickly and expeditiously as possible, having regard to the rights of the Parties.  The mediator will assess the Parties’ submissions and will provide the Minister with a written recommendation, as agreed to by the Parties, as to the outcome of the dispute.

 

(h)                The Minister will make a decision resolving the Dispute within thirty (30) Days of receiving the mediator’s recommendation.  The Minister’s decision shall be final and binding on the Parties.

 

9.         Dispute Resolution

Other than for the resolution of the eligiblity of Range Safety Costs or Abandonment and Reclamation (A&R) Costs pursuant to section 8, the Parties will attempt to resolve any claim or dispute arising out of this Agreement through consultation and negotiation in good faith within the appropriate time periods as set out in this Agreement.  If those attempts fail, then the Parties may agree to refer the dispute for resolution through mediation, with costs of the mediation being shared equally by both Parties.  If the Parties cannot agree to a mediator, they shall have one appointed by the ADR Institute of Canada or its successor.  However, either Party may terminate the mediation at any time upon giving reasonable notice to the other Party.  If mediation fails or is terminated, then the Parties may agree to refer the matter to non-binding arbitration pursuant to the procedures set forth in the Arbitration Act, R.S.A. 2000 c. A-43 and any subsequent revisions to the Act, or a Party may resort to judicial proceedings to resolve the dispute.

10.       Notice

All notices and other communications to be given in connection with this Agreement shall be in writing and shall be sufficiently given:

(a)                if delivered by hand or by courier to a Party at its address for service, such delivery shall be deemed received by the Party when actually delivered if such delivery is during the Party's normal business hours on any Day other than a Saturday, a Sunday or a statutory holiday.  If such notice or other communication is not delivered during the Party's normal business hours, such notice or other communication shall be deemed to have been received by the Party on the Day next following the date of delivery, other than a Saturday, Sunday or a statutory holiday;

 

(b)               except during any period of actual or impending postal disruption, if sent by first class mail or by airmail if sent from outside Canada or the United States, postage prepaid, to a Party at its address for service, such mailing shall be deemed received by the Party on the fourth Day following the date of mailing (Saturday, Sundays and statutory holidays excepted). However, if postal service is interrupted or operating with unusual or imminent delay, such notice or other communication shall not be sent by such means during such interruption or period of delay; and

 

(c)        to a Party which has provided a direct telecommunication number as part of its address for service, if sent by telecommunication to the Party's designated telecommunication number such transmission shall be deemed received by the Party when actually received if such transmission is during the Party's normal business hours on any Day other than a Saturday, a Sunday or a statutory holiday.  If such notice or other communication is not received during the Party's normal business hours, such notice or other communication shall be deemed to have been received by the Party on the Day next following the date of transmission, other than a Saturday, a Sunday or a statutory holiday.

 

Any notice required to be given under this Agreement may be given by personal delivery, courier or fax to the Parties at the addresses listed below


if to Cenovus:

Cenovus Energy Inc.
421 – 7 Avenue S.W.
P.O. Box 766
Calgary, AB  T2P 0M5
Attention: Vice-President, Regulatory, Local Community & Military Liaison

Fax: (403) 206-0645

 

if to Alberta:

Alberta Department of Energy

Oil Sands Strategy and Operations Division

6th Floor, North Petroleum Plaza

9945-108 Street

Edmonton, AB T5K 2G6

Attention: Chief, Oil Sands Strategy and Operations Division

Fax: (780) 427-7737

 

 

11.       No Fettering of Discretion

The Parties acknowledge that nothing in this Agreement is intended to or is to be construed as, fettering the discretion of the Minister to enact or amend regulations under the MMA, or to amend the MMA, as the Minister, in his or her sole discretion sees fit, provided, however, that to the extent such enactments or amendments affect the rights and remedies of Cenovus under this Agreement, Cenovus shall not be precluded from seeking any remedy or relief that may be available to it in law or equity.

12.       Limitations of Actions

Subject to section 2, the two (2) year period for seeking a remedial order under section 3(1)(a) of the Limitations Act, R.S.A. 2000 c. L-12, including any amendments to or replacements of the Act, for any claim (as defined in that Act) arising in connection with this Agreement or the Acquisition Agreement is extended to:

(a)        for claims disclosed by an audit, two (2) Years after the time this Agreement permitted that audit to be performed; or

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

 

13.       Confidentiality

            The Parties agree that information provided by one Party to the other pursuant to this Agreement shall be held confidential by the Party receiving that information, as if that information was obtained pursuant to the provisions of the MMA.

 

14.       General

(a)        If Cenovus or any of its Affiliates:

(i)      becomes bankrupt or insolvent, or commits or suffers any act of bankruptcy or insolvency;

(ii)     is placed in receivership or a receiver/manager or person filling that role is appointed with respect to its property;

(iii)    makes a compromise with or an assignment for the benefit of creditors;

(iv)    seeks debtor relief protection under applicable legislation including without restricting the generality of the foregoing, the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 and the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36; or

(v)     is otherwise unable or unwilling to pay its debts as they fall due in the usual course of business,

 

(the “insolvent company”), in accordance with section 46(4) of the MMA, the Minister may set off against any amount payable by the Minister to Cenovus, any amount that Cenovus owes to the Crown in right of Alberta or a “Provincial agency” (as defined in the Financial Administration Act, R.S.A. 2000, c. F-12), and in addition  to such set off right, Alberta may deduct from any payment to be made by Alberta to Cenovus pursuant to this Agreement, any amount owed by any of Cenovus’s Affiliates to the Crown in right of Alberta or a Provincial agency.

 

(b)        This Agreement shall commence as of the Effective Date and shall continue until the Termination Date.

(c)        Notwithstanding the termination of this Agreement, the provisions respecting liability and indemnification, the settlement of accounts and either Party’s remedies, shall remain in full force and effect to the extent of any liabilities which may have accrued prior to the termination of this Agreement.

(d)        If any error is discovered in this Agreement after the Execution Date that is not material or substantive in nature and that the Parties wish to correct then such correction may be effected by Amendment Letter.

(e)        Except in respect of those matters pursuant to which this Agreement may be amended by the use of an Amendment Letter, this Agreement may be amended only by written document executed by all Parties.  Any waiver of any provision of this Agreement by any Party may only be given in writing and shall be effective only in the specific instance and for the specific purpose for which it was given.

(f)         The captions or headings used in this Agreement are inserted solely for convenience and shall not be considered or given any effect in interpreting this Agreement or in ascertaining the intent of the Parties.

(g)        In this Agreement words importing the singular include the plural and vice versa; words importing the masculine gender include the feminine and neuter genders.

(h)        Unless otherwise indicated herein to the contrary, this Agreement shall be construed and interpreted in accordance with the laws in force in the Province of Alberta.  Alberta Courts shall have exclusive jurisdiction over all matters arising in relation to this Agreement, and each Party accepts the exclusive jurisdiction of the Alberta Courts.

(i)         Each Party shall notify the other Party, should a claim by a third party be made against that Party or any of its Affiliates, which claim is alleged to arise from acts or omissions arising from this Agreement.

(j)         Cenovus and Alberta shall from time to time and at all times hereafter, do all such further acts and execute and deliver all such further deeds and documents as are reasonably required in order to fully perform and carry out the terms of this Agreement.

(k)        Cenovus and Alberta have expressed their entire understanding concerning the subject matter of this Agreement and no implied covenant, condition, term or reservation shall be read into this Agreement relating to or concerning such subject matter.

(l)         This Agreement shall enure to the benefit of and be binding upon each Party and its successors and permitted assigns.

(m)       Except as clarified by this Agreement, the provisions of the Acquisition Agreement shall continue in full force and effect.

(n)        Neither Party shall assign this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld.

(o)        If any provision of this Agreement is deemed to be or becomes void, illegal, invalid or unenforceable, then, to the extent of such voidability, illegality, invalidity or unenforceability, such provision shall be considered ineffective and separate and severable from the balance of this Agreement and such provision shall not invalidate, affect or impair the remaining provisions of this Agreement and this Agreement shall be construed as if such void, illegal, invalid or unenforceable provision had never been contained herein; so long as the economic and legal substance of the subject matter of this Agreement is not affected thereby in any manner materially adverse to either Party.

(p)        Time is of the essence in this Agreement.

 

 

 

 

(q)        This Agreement may be executed in separate counterparts, in which case, all the executed counterparts together shall constitute one and the same agreement, and communication of execution by fax transmission or by e-mailed PDF shall constitute good delivery, with the original to follow by courier.

 

 

IN WITNESS WHEREOF the Parties have executed this Agreement each as of the Effective Date.

 

 

CENOVUS ENERGY INC.

 

(Seal)

Per:

 

 

 

as authorized representative holding the position of

 

 

Printed Name: ___________________________

 

 


 

 

 

HER MAJESTY THE QUEEN IN RIGHT OF ALBERTA, as represented by the Minister of Energy

 

 

 

Per:

 

                                                                                    Minister of Energy


 

Schedule A to the

Cold Lake Air Weapons Range – Acquisition Agreement Clarification Agreement

Schedule A to this Agreement comprises of a map displaying the area of the Cold Lake Air Weapons Range.

Schedule B to the

Cold Lake Air Weapons Range – Acquisition Agreement Clarification Agreement

Schedule B to this Agreement is a map displaying which areas of the Cold Lake Air Weapons Range comprise “Eligible Lands”, as of November 1, 2010.

 


Schedule C to the

 

Cold Lake Air Weapons Range – Acquisition Agreement Clarification Agreement

Schedule C to this Agreement is an example of how interest is to accrue on instalments payable by Alberta, when there is an amount in the Range Safety/A&R Cost Pool insufficient to maximize the annual instalment payable by Alberta to Cenovus, pursuant to section 5.

 

The first instalment ends up being short by $1000, which amount was due on February 7, 2013, then the $1000 carries forward for payment in 2014. Interest on the $1000 for 2013 would accrue at the Discount Rate for 2013.  If the $1000 carried forward can be fully used up in the February 7, 2014 instalment, then interest for the first five weeks or so of 2014 will be based on the Discount Rate for 2013. Interest on the $1000 would acrrue for all of 2013, and that part of 2014 prior to the date the cheque gets requisitioned.  If on February 7, 2014, when Alberta is ready to make the second instalment and there is only $600 in the pool, then only $600 of the original $1000 shortfall can be paid.  In this case, the Discount Rate for 2014 will be used to calculate the interest on the $400 which gets carried forward to  2015, assuming the $400 can be piggybacked onto the third instalment.  Interest on the $400 would accrue from the date the cheque was requisitioned for the payment made in 2014 to the date the payment is made in 2015, using the Discount Rate for 2014.  This same methodology is used until the original shortfall of $1000 is fully paid.  Parallel to these calculations would be the shortfalls in instalments from other Oil Sands Lease Requests that cannot be paid at all, due to no expenditures being in the cost pool.


 

 

Schedule D to the

Cold Lake Air Weapons Range – Acquisition Agreement Clarification Agreement

Schedule D to this Agreement provides examples of how the Administrative Handling Fee (“AHF”) is to be treated if Cenovus acquires a legal or beneficial interest in a Third Party Lease at various times prior to the date the Minister requisitions payment of the third instalment payable pursuant to section 6 of the main body of this Agreement.

 

Scenario 1:  Cenovus acquires a working interest in a Third Party Lease via farm-in during the bonus recovery phase.

 

Third Party Lease issued by ALBERTA June 1, 2011. (36 sections)

Bonus Paid – June 1, 2011 (36x256x$400) =  $3,686,400.00

 

 

1st Instalment payment of AHF:

 

 


 

Cenovus farms-in on Third Party Lease

Terms:

 

 

 

 

2nd Instalment payment of AHF:

 

3rd Instalment payment of AHF:


 

Scenario 2: Cenovus acquires a 45% NPI in a Third Party Lease that did not have any bonus payment.

 

Third Party Lease issued by ALBERTA June 1, 2011. (36 sections)

 

 

 

Cenovus acquires a 45% NPI in the Third Party Lease

Terms:

 

 

 

 

1st Instalment payment:

o                   Due on Feb 7, 2015

§                     Recovery of Bonus Payment = $829,440.00 (50% of the original Bonus Payment)

§                     AHF = $0.00; there is no AHF as no Bonus Payment was requested when the Third Party Lease was originally issued, and the only Bonus Payment made was when Cenovus acquired an interest in that lease.

 

2nd Instalment payment:

§                     AHF = $0.00; there is no AHF as no Bonus Payment was requested when the Third Party Lease was originally issued, and the only Bonus Payment made was when Cenovus acquired an interest in that lease.

 

3rd Instalment payment: