farm in terms, page-3

Hi Blurrt

There is some confusion regarding the Farmout agreement. I suppose content of an ASX releases is limited.

The wording in the ASX release of the farmin included 'in the event of success'.

Now we have a duster at A#1 the success is non-existent but MEO covered this scenario in the Farmout Agreement.

Rather than a summary I think it is better to look at the actual agreement. This is the agreement as lodged with the Department of Mines and Petroleum (DMP). Of course the Farmor is MEO and the Farmee is PBR:

4 Farmin Interest

4.2 Interests in the permit:

CUE - 15%

Rankin (MOG) - 15% (now 10%)

Farmor (MEO)- 20% (now 25%)

Farmee (PBR)- 50%

Effective Date

Notwithstanding the date of this Agreement or the date on which the Transfer is executed, the effective date of this Agreement as between the parties (the Effective Date) shall be deemed to be the date of the execution of this Agreement. The consideration payable by Farmee reflects this date.

5 - Work Obligations

(5.1 Consideration for Farmin Interest

(a) In consideration of the assignment of the Farminee Interest under clause 4.1, the Farmee will pay to the Farmor pursuant to clause 10:

(1) Cash Consideration: - A cash payment of sixty three million United States Dollars (USD 63,000,000) representing a cash bonus for the transfer of the Participating Interest contemplated hereunder.

(2) Re-imbursement of past costs: - A cash payment up to a maximum amount of US$9m in respect of 100% of the Past Costs ........ (which amounted to, and was paid, $7.5m

(3) Interim period costs: - In respect to the Interim Period the Farmee shall pay its Participating interest share of all reasonable and documented costs incurred by the farmor in the activities pursuant to the JOA in accordance with the provisions of clause 10.1.

(4) Carry of First Well: In addition to Farmees participatin Interest share of costs under JOA, Farmee shall bear and pay fifty (50%) of the Well Costs of the first well up to the amount set forth under this item. This carry of the First Well consists of (i)Farmors Participating Interest share of costs; and (ii) CUE, Gascorp and Ranklin. The carry of the First Well shall apply to costs incurred after the First Well are fulfilled ..... to a total of the gross costs or US$41m, whichever comes first. The Farmee will pay its Participating Interest percentage once this total is reached.

(5) Carry of Second Well and/or and Third Well (actual text:

If a proposal to drill the Second Well and (if relevant) the Third Well is approved by the Operating Committee under the JOA or proceeds as a Sole Risk Well in which both the Farmee and the Farmor participate, then, in addition to the Farmee's Participating Interest share of costs under the JOA, Farmee shall bear and pay twenty percent (20%) of the Well Costs of the Second Well and Third Well (if any ands as the case may be). This carry of the Second Well and (if relevant) the Third Well consists of Farmor's Participating Interest share of applicable costs. This carry of the Second Well and Third Well (if any) shall apply to the costs incurred after the Effective Date and shall terminate in respect of the relevant and shall terminate in respect to the relevant Well when all the activities related to that well are fulfilled or when the the gross costs of the activities related to that well reach an amount of sixty-two million United States Dollars (USD 62,000,000), whichever occurs first. After this amount is reached, the Farmee will pay the Farmee's Participating Interest percentage of the Well Costs in respect of the Second Well and (if relevant) the Third Well.

(b) Payment by the Farmee under clause 5.1(a) shall be made in accordance with clause 10.

5.2 Location of the Wells

(a) The Operator from time to time shall propose to the operating Committee, in accordance with Article % of the JOA, the location, Depth and characteristics of the relevant well.

(b) Before submitting such a proposal, the Operator must notify the non-operator of the proposed location, depth and characteristics of the relevant Well. The proposal must be based on a reasonable technical assessment of the optimal location.

(c) The Farmor and Farmee shall meet to consider the proposal to be submitted by the Operator under clause 5.2(a), and the parties will in good faith discuss and consider the views of each Party regarding such details.

(d) Where the Farmor is the Operator and the Farmee does not agree with the Operator's proposal, the Farmee's opinion will prevail, provided that the Farmee has notified the operator the details of their preferred location, depth and Well characteristics within thirty (30) days of notice under clause 5.2(b) (or any other date agreed between them). In such a case the Operator shall submit to the Operating Committee the Farmee's proposal.

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IAM # note - I wonder who did pick the site of the first well. According to DM at the AGM the location of A#1 was left, as a courtesy, to PBR?
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5.3 Subsequent Wells

(a) The Farmor must, as soon as it is possible to do so, deliver to Farmee a report containing the results of the First Well.

(b) If the First Well results in an Event of Success the Farmee must, within one month after the Event of Success but no earlier than 2 Jan 2011:

(1) pay the remaining cash consideration in accordance with clauses 5.1(a)(1) and 10.1(a)(3)(ii); and

(2) subject to clause 5.1(a)(5), pay the Farmor's share of the Well Costs of the Second Well and Third Well in accordance with clauses 5.1(a)(5) and 10.1(a)(2).

(c) If the First Well does not result in an Event of Success, the Farmee may retain its Participating Interest until the end of year 6 of the Permit and may:

(1) complete further studies to assess the prospectivity of the Permit; and/or

(2) notify the Farmor at any time prior to the end of year 6 of the Permit that it wishes to drill a Second Well, however if it does so it must:

(i) pay the remaining cash consideration in accordance with clauses 5.1(a)(1) and 10.1(a)(3)(ii); and

(ii) pay the Farmor's share of the Well Costs of the Second Well and any Third Well in accordance with clauses 5.1(a)(5) and 10.1(a)(2).

(d) If the First Well does not result in an Event of Success, the Farmee may retain its Participating Interest beyond the end of year 6 of the Permit of the Permit, however it must:

(1) notify the Farmor of its election to remain in the Permit after renewal of the Permit; and

(2) if the work program for the renewal of the Permit includes a Well in the primary term:

(i) pay the remaining cash consideration in accordance with clauses 5.1(a)(1) and 10.1(a)(3)(ii); and

(ii) pay the Farmor's share of the Well Costs of any Second Well and any Third Well in accordance with clauses 5.1(a)(5) and 10.1(a)(2).

(3) if the work program for the renewal of the Permit includes a Well in the secondary term and drilling that Well is approved by the Operating Committee under the JOA:

(i) pay the remaining cash consideration in accordance with clauses 5.1(a)(1) and 10.1(a)(3)(ii); and

(ii) pay the Farmor's share of the Well Costs of any Second Well and any Third Well in accordance with clauses 5.1(a)(5) and 10.1(a)(2).

5.4 Other well operations.

If any well operations are carried out in excess of or in addition to those referred to in clause 5.1, then the costs in respect of such additional operations will not be Well Costs and will be paid by the Parties in proportion to their Participating Intersest or as detemined in accordance with the JOA.

5.5 Participating Interest share of JOA costs.

Except as provided under this clause 5.5, the Farmor and the Farmee shall pay all costs and expenses under the JOA in proportion to their respective Participating Interests from time to time.

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IAM # note - From this section it is clear that In the event of failure at A#1 PBR still have to pay the bonus and MEO's 61m for their 20% participation in subsequent wells, should they choose to continue.
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5.6 Farmee assignment or withdrawal.

(a) The Farmee may:

(1) withdraw from the Permit at any time after the completion of the Farmin Obligations, at its sole discretion.

(2) withdraw from the Permit or sell the Farmee's Participating Interest to a third party at any time prior to completion of the Farmin Obligations provided that, subject to clause 5.6(b), if the Farmee proposes to sell the Farmee's Participating Interest to a third party:

(i) the Farmee must first offer to sell its Participating Interest to the Farmor at fair market value by notice in writing. The Parties must use reasonable endeavours to negotiate and agreement on the applicable fair market value;

(ii) if the parties cannot agree on the fair market value of the Participating Interest within seven (7) days of notice under clause 5.6(a)(2)(i), the Farmee may sell its Participating Interest to any third party provided that once the final terms and conditions of a transfer have been fully negotiated, the Farmee shall disclose all such final terms and conditions as are relevant to the acquisition of the Participating Interest in a notice to the Farmor. The Farmor shall have the right to acquire the Participating Interest from the Farmee on the terms and conditions notified if, within seven (7) days of the Farmees notice, the Farmor notifies the Farmee that it accepts such terms and conditions. If the Farmor does not provide such counter-notification, the transfer to the proposed third party may be made, subject to the other provisions of this clause 5.6, under terms and conditions no more favourable to the third party than those set forth in the notice to the Farmor, provided that the transfer shall be concluded within one hundred eighty (180) days from the date of the notice plus such additional period as may be required to secure approval by the Relevant Authority; and

(iii) the transfer to the third party shall not become effective until the third party executes a deed of assignment to this Agreement, under which the third party undertakes in favor of the other Parties to observe and perform. and to be bound by the Farmees obligations under this Agreement in every way as if the thied party were an original party to this agreement.

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IAM # note - From this clause I read that if PBR sells its 50% share in the Permit to a third party the bonus payment to MEO plus up to $62m each for MEO's 20% costs of two subsequent costs will be included with sale. Of course if MEO decides to matche the transfer deal then MEO will then regain the 50% share and end up with 75%.
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9 Operator and personnel secondment

(a) If the Farmee can demonstrate the establishment of an Australian based operating team, and subject to relevant consent being obtained under the JOA, the Farmee or its nominee shall have the option to become Operator following First Well Completion.

(b) If the Farmee wishes to become Operator, the Farmee must give notice of its election to the Farmor any time after First Well Completion but no later than thirty (30) days following the completion of the Third Well

(c) Subject to clause 9(a) and an election by Farmee to become Operator in accordance clause 9(b), MEO will resign as Operator and MEO and the Farmor shall exercise their voting rights under the JOA in favour of the apppointment of the Farmee or its nominee as Operator.

(d) The Farmee shall have the right to second personnel to MEO (in its capacity as Operator), subject to approval by MEO of the terms of the secondment, such approval not to be unreasonably withheld, from the Assignment Date until the later of:

(1) First Well completion;

(2) In the event that the Farmee agrees to participate in the Second Well and/or the Third Well, thirty (30) days following the completion of the Third Well; and

(3) the date on which the Farmee is appointed Operator in accordance with the JOA.

10 Costs, payment and audit rights

10.1 Costs and payments

(a) Provided that the Farmee has received the corresponding invoice or cash calls (as applicable):
(1)Farmee shall pay the Farmor, within thirty (30) days after the Assignment Date, the amount specified in clauses 5.1(a)(2) and 5.1(a)(3);

(2) the Well Costs payable by the Farmee under clauses 5.1(a)(4) and 5.1(a)(5) shall be paid by the Farmee to the Operator in accordance with the JOA or thorty (30) days afte the Assignment Date, whichever occurs last;

(3) the Cash Consideration payable by the Farmor under clauses 5.1(a)(1) shall be paid by the Farmee to the Farmor in accordance with the following schedule;

(i) US$31.5 million thirty (30) days after the Assignment Date; and

(ii) US$31.5 million on the earlier of:

(a) and event of success pursuant to clause 5.3(b)(1); or

(b) notification by the Farmee of a committment to drill the Second Well to either clause 5.3(c)(2) or clause 5.3(d)(1); or

(c) notification by the Farmee of an election to remain in the Permit after renewal pursuant to clause 5.3(d)(2) where the work program for the renewal of the Permit includes a Well in the Primary term.

(b) The Parties shall comply with the terms and conditions of the JOA in respect of the payment of any monies for Joint Operations.

(c) Expenditure which is incurred under the JOA shall be paid by the Parties in accordance with Participating interest under the JOA.

(d) The parties shall ensure that any Work Programme and Budget and AFE approved under the JOA clearly identifies those budgeted costs that are Well Costs and those that are not Well Costs.

(e) Any costs or expenses incurred by a Party which is not expenditure incurred in accordance with the JOA shall be for that Party's own account, unless otherwise agreed.

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So there it is. This document is freely available on the DMP website and can be viewed in full by registering:

On their website here.

The reason I have taken the trouble to type it out (cut and paste was not an option) in this forum is to clear up any misunderstanding and allow discussion with all the available facts available for that discussion. The facts are necessary for LT holders to understand as the continuing Farmin progress (or not).

There are those that say a percentage of nothing is nothing, a duster is a duster and other tiresome comments about the obvious. However, the farmin terms are still relevant and the permit partners still share a portion of some valuable real estate.

What each party decides to do from here is up to them. This includes the Permit Participats and SHs alike.

CUE (15%) and MOG (10%) will have to pay for their share of the risks in all future wells, should they decide to do so.

If PBR decides to drill further wells at any time they will have to pay the remaining $31.5m bonus to MEO and up to $62m for MEO's 20% share of costs..

MEO will have to contribute 5% (the interest purchased from MOG) to the drilling of the first two wells and 25% after that.

If PBR sell their participating interest on, then the commitments to MEO (cash bonus and two further wells), as agreed, will carry on to the purchaser. MEO have negotiated this in the agreement.

The future of WA-360-P is up in the air and is likely to continue to be so until PBR gets the results of the drill, do their analysis and decide whether or not they want to continue with the farmin.

Until then MEO will put the disappointment of A#1 behind them, continue with the farmout of Heron and look towards other ways of gaining value for shareholders.

IMO.

#:>))