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19 October 2000
Dr David Bennett
Chief Executive Officer
AMG Oil (NZ) Limited
284 Karori Road, Karori
WELLINGTON, New Zealand
Dear Dr Bennett
PEP 38256 - Ealing-1 & Arcadia-1 Well
Further to the various discussions during recent weeks regarding
the drilling of the Ealing-1 and the Arcadia-1 wells in PEP 38256
in the onshore Canterbury Basin of New Zealand, Magellan
Petroleum Australia Limited advises that, subject to Board
approval, it is prepared to farmin to PEP 38256, through a wholly
owned New Zealand subsidiary ("Magellan"), on the following
terms:
1. AMG Oil (NZ) Limited ("AMG") shall grant Magellan a twenty
percent (20%) beneficial interest in the South Area of PEP
38256 (as shown on the attached map) with effect from the
date on which the Ealing-1 well spuds ("Effective Date");
2. In consideration of the grant of the beneficial interest
referred to in paragraph 1, Magellan shall contribute:
(1) thirty-four percent (34%) of the costs incurred under
the PEP 38256 Joint Venture Operating Agreement, dated
5 October 2000 ("JVOA"), on the drilling and the
plugging and abandoning or the setting of casing to
total depth ("Drilling and Casing") of the Ealing-1
well, capped at a total cost to Magellan of NZ$777,580,
and
(2) thereafter, contribute twenty percent (20%) of the cost
of joint operations on the Ealing-1 well, if any;
3. Magellan may elect, no later than 48 hours after
notification in writing from AMG that the Arcadia-1 well has
spudded in the North Area of PEP 38256, to acquire a twenty
percent (20%) interest in the whole of PEP 38256 and a
twenty percent (20%) Participating Interest in the JVOA, by
funding:
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(1) an additional six percent (6%) of the total cost of Drilling
and Casing the Ealing-1 well up to a total Drilling and
Casing cost of NZ$2,287,000 and twenty percent (20%) of any
Drilling and Casing costs above NZ$2,287,000, capped at a
total cost to Magellan of NZ$162,280;
(2) forty percent (40%) of the total cost of the Drilling and
Casing of the Arcadia-1 well, capped at a total cost to
Magellan of NZ$1,100,880;
(3) forty percent (40%) of future joint operations on PEP 38256,
capped at a total cost to Magellan of NZ$1,020,000; and
thereafter, its twenty percent (20%) Participating Interest
share of future joint operations under the JVOA.
4. If Magellan does not elect under paragraph 3 to participate
in the drilling of the Arcadia-1 well, no later than one
month after receipt by it of the Ealing-1 fully
interpretative well completion report, Magellan shall elect
either to:
(1) hold its beneficial interest in the South Area at
twenty percent (20%) by funding:
(1) an additional six percent (6%) of the total cost
of Drilling and Casing the Ealing-1 well up to a
total Drilling and Casing cost of NZ$2,287,000 and
twenty percent (20%) of any Drilling and Casing
costs above NZ$2,287,000, capped at a total cost
to Magellan of NZ$162,280; and
(2) forty percent (40%) of future joint operations on
the South Area of PEP38256, capped at a cost to
Magellan of NZ$700,000; or
(2) reduce its beneficial interest in the South Area to a
twelve percent (12%) interest by increasing its
contribution to the Drilling and Casing costs of the
Ealing-1 well under paragraph 2(i) above to an amount
of NZ$788,952, and receiving a reimbursement equal to
eight percent (8%) of any over-expenditures to which it
may have contributed at the twenty percent (20%) level
under paragraph 2(ii) above; or
(3) withdraw from the venture.
In addition to the above, the farmin shall be subject to the
following further conditions:
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5. Approval of the farmin on the terms and conditions set out
in this letter agreement by both AMG's and Magellan's Board
of Directors within 2 days of the date of this letter
agreement;
6. Waiver of any pre-emptive rights under the JVOA to the grant
of the beneficial interest referred to in paragraph 1 and
the Participating Interest referred to in paragraph 3 above
by the other parties to the JVOA within 2 days of the date
of this letter agreement;
7. Entry into a mutually acceptable Farmout Agreement more
fully detailing these terms and conditions, if considered
appropriate by both parties;
8. From the Effective Date, Magellan shall be entitled to a
twenty percent (20%) vote on all decisions relating to joint
operations under the JVOA in which it is participating;
9. If Magellan does not elect to acquire an interest in the
whole of PEP 38256 under paragraph 3 above, the parties to
the JVOA will enter into a Joint Venture Operating Agreement
with Magellan, which is substantially in the form of the
JVOA, in respect of the South Area ("SAJVOA"), in which
Magellan shall hold a twenty percent (20%) Participating
Interest;
10. Magellan shall be responsible for all stamp duty and
registration fees relating to the assignment of its
interest;
11. The SAJVOA shall contain provisions to the effect that any
statutory relinquishments of areas within the South Area
shall be in no greater proportion than the area of the South
Area bears to the area of PEP 38256;
12. Magellan shall be responsible only for obligations and
liabilities attaching to the interest under the JVOA or the
SAJVOA, which accrue as and from the Effective Date; and
13. Consent of the Minister under the Crown Minerals Act 1991
(New Zealand) to the assignment of the interest in PEP
38256 and the dealing evidenced by this letter agreement,
the Farmout Agreement, any assumption agreement under the
JVOA or the SAJVOA.
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Please confirm your acceptance of the above farmin terms and
conditions by signing, dating and returning the duplicate copy of
this letter.
Yours sincerely Signed for and on behalf of
AMG Oil (NZ) Limited
________________________ _____________________________
Hedley Howard David Bennett
General Manager Chief Executive Officer
Dated: ______________________
