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EXHIBIT 10.6
ASHLAND OIL (NIG) COMPANY UNLIMITED
PRODUCTION SHARING CONTRACT
BETWEEN
NIGERIAN NATIONAL PETROLEUM CORPORATION
(THE CORPORATION)
AND
ASHLAND OIL (NIGERIA) COMPANY UNLIMITED
(THE CONTRACTOR)
March 17, 1994 - Original
ASHLAND
2
C O N T E N T S
Page
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Recital/Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CLAUSES
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1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2 SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4 EXCLUSION OF AREAS . . . . . . . . . . . . . . . . . . . . . . . . . 7
5 WORK PROGRAMME AND EXPENDITURE . . . . . . . . . . . . . . . . . . . 8
6 MANAGEMENT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . 9
7 RIGHTS AND OBLIGATIONS OF THE PARTIES . . . . . . . . . . . . . . . . 14
8 RECOVERY OF OPERATING COSTS AND CRUDE OIL ALLOCATION . . . . . . . . 17
9 VALUATION OF AVAILABLE CRUDE OIL . . . . . . . . . . . . . . . . . . 19
10 PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11 TITLE TO EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . 22
12 EMPLOYMENT AND TRAINING OF NIGERIAN PERSONNEL . . . . . . . . . . . . 23
13 BOOKS AND ACCOUNTS, AUDIT AND OVERHEAD CHARGES . . . . . . . . . . . 24
14 BONUSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
15 ROYALTY AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 26
16 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17 CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . . 28
18 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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19 LAWS AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . 31
20 UTILIZATION OF NATURAL GAS . . . . . . . . . . . . . . . . . . . . . 32
21 CONSULTATION AND ARBITRATION . . . . . . . . . . . . . . . . . . . . 33
22 EFFECTIVENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
23 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ANNEXES
Annex A - Contract Area
Annex B - Accounting Procedure
Annex C - Allocation Procedure
Annex D - Nomination, Ship Scheduling, and Lifting Procedure
Annex E - Procurement and Project Implementation Procedures
Annex F - Revised Memorandum of Understanding
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THIS CONTRACT is made and entered into this 24th day of May, 1994 BETWEEN the
NIGERIAN NATIONAL PETROLEUM CORPORATION, a corporation established under the
Laws of the Federal Republic of Nigeria, with its Head Office at ▇▇. ▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ (hereinafter referred to as "the
CORPORATION" which expression shall, where the context so admits, include its
successors and assigns) of the one part, AND ASHLAND OIL (NIGERIA) COMPANY
UNLIMITED, a company incorporated under the laws of Nigeria and having its
registered office at, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
(hereinafter called "the CONTRACTOR" which expression shall, where the context
so admits, include its successors and assigns) of the other part.
WHEREAS, by virtue of Section 1 of the ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ Cap 350 Laws of the
Federation of Nigeria 1990 as amended, the Federal Republic of Nigeria
(Nigeria) is vested with the entire ownership and control of all petroleum in,
under or upon any land which is in Nigeria or under the territorial waters of
Nigeria or forms part of the continental shelf of Nigeria or within the
Exclusive Economic Zone of Nigeria; and
WHEREAS, the CORPORATION is the holder or is entitled to hold the Oil
Prospecting Licences (OPLs) Nos 98 and 118 and any subsequent Oil Mining
Lease(s) (OML(S)) derived therefrom; and
WHEREAS, the said area of the OPLs 98 and 118 and any subsequent OML(s) shall
constitute the Contract Area; and
WHEREAS, Contractor is conducting Petroleum Operations on OPLs 98 and 118 under
a Production Sharing Contract dated 12 June, 1973, as amended by agreements
dated 1 April, 1977 and 13 November, 1986, (hereinafter collectively referred
to as "the 1973 PSC"); and
WHEREAS, a five year extension in principle effective June 13, 1993 of the said
1973 PSC was by a letter dated the 5th day of November, 1992 granted to the
Contractor; and
WHEREAS, in order to provide an economic incentive for Contractor to undertake
further exploration obligations in the Contract Area, CORPORATION and
CONTRACTOR agree that the 1973 PSC should be further amended by replacing it
with a new Production Sharing Contract; and
WHEREAS, by virtue of the Nigerian National Petroleum Corporation Act 1977 Cap
320 Laws of the Federation of Nigeria 1990, CORPORATION has the right, power
and authority to enter into this contract; and
WHEREAS, the CONTRACTOR represents that it has technical competence and
professional skills necessary to conduct petroleum operations and has the funds
both local and foreign for carrying on the said operations and has agreed to
conduct the said operations;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein reserved and contained, it is hereby agreed as follows:
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CLAUSE 1
DEFINITIONS
As used in this Contract, unless otherwise specified, the following terms shall
have the respective meaning herein ascribed to them:
(a) "Accounting Procedure" means the rules and procedures as set forth in
Annex B and attached to and forming part of this Contract;
(b) "Affiliate" means a company or other entity that controls or is
controlled by a party to this Contract, or a company or other entity
which controls a party to this Contract, it being understood that
control shall mean ownership by one company or entity of at least 50%
of:
(i) the voting stock, if the other company is a corporation issuing
stock or;
(ii) the controlling rights or interests, if the other entity is not a
corporation.
(c) "Available Crude Oil" means the Crude Oil won and saved from the
Contract Area after deducting amounts used in Petroleum Operations.
(d) "Barrel" means a quantity or unit of Crude Oil, equal to forty-two (42)
United States gallons at the temperature of sixty degrees (60degrees)
Fahrenheit at normal atmospheric pressure.
(e) "Budget" means the cost estimate of items included in a Work Programme.
(f) "Calendar Year" means a period of twelve (12) months commencing from
January 1 and ending the following December 31, according to the
Gregorian Calendar.
(g) "Commercial Quantity" shall have the same meaning as defined in the
▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ as amended.
(h) "Concession Rentals" means the rents payable on the OPLs or OMLs under
the ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ and the Petroleum (Drilling and Production)
Regulations 1969 Cap 350 Laws of the Federation of Nigeria, as amended.
(i) "Contract Area" means the area of the OPLs 98 and 118 and any OML(s)
derived therefrom.
(j) "Contract Year" means a period of twelve (12) consecutive months
according to the Gregorian Calendar, from the Effective Date of this
Contract or from the anniversary of the Effective Date.
(k) "Cost Oil" means the quantum of Available Crude Oil allocated to
CONTRACTOR to enable it to generate the Proceeds to recover all
Operating Costs as specified in the Accounting Procedure.
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(l) "Crude Oil" means liquid petroleum which has been treated but not
refined and includes condensates but excludes water and sediments.
(m) "Effective Date" means 13 June, 1993.
(n) "Foreign Currency" means currency other than that of Nigeria agreed upon
by the parties and acceptable to the Federal Government of Nigeria.
(o) "Government" means the government of the Federal Republic of Nigeria.
(p) "Lifting Procedure" means the rules and procedures set forth in Annex D
and attached to and forming part of this Contract.
(q) "Minister" means Minister or Secretary charged with the responsibility
for Petroleum Resources.
(r) "Ministry" means the ministry charged with the responsibility for
Petroleum Resources.
(s) "Natural Gas" means all gaseous hydrocarbons produced in association
with Crude Oil or from reservoirs which produce mainly gaseous
hydrocarbons.
(t) "Oil Mining Lease" ("OML") means a lease granted by the Minister under
the Petroleum Act Cap 350, Laws of the Federation of Nigeria 1990 as
amended, to a lessee to search for, win, work, carry away and dispose of
Petroleum.
(u) "Oil Prospecting Licence" ("OPL") means a licence granted by the
Minister under the ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ Cap 350, Laws of the Federation of
Nigeria as amended, to a licensee to prospect for Petroleum; "OPLs", as
used herein, means Oil Prospecting Licenses 98 and 118.
(v) "Operating Costs" means expenditures made and obligations incurred in
carrying out Petroleum Operations as determined in accordance with the
Accounting Procedure.
(w) "Parties" means the CORPORATION and the CONTRACTOR.
(x) "Petroleum Operations" means the same as defined in the Petroleum
Profits Tax (PPT) ▇▇▇ ▇▇▇▇ Cap 354 Laws of the Federation of Nigeria
1990 as amended.
(y) "Petroleum Profits Tax" or "PPT" means the tax pursuant to the Petroleum
Profits Tax Act Cap 354 Laws of the Federation of Nigeria 1990 as
amended.
(z) "Proceeds" means the amount in U.S. Dollars determined by multiplying
the Realizable Price by the number of Barrels of Available Crude Oil
lifted by either Party.
(aa) "Profit Oil" means the balance of Available Crude Oil after the
allocation of Royalty Oil, Tax Oil, and Cost Oil.
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(ab) "Realizable Price" means the price in U.S. Dollars per Barrel determined
pursuant to Clause 9.
(ac) "Royalty" means the amount payable pursuant to the ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇
and Petroleum (Drilling and Production) Regulations 1969 Cap 350 Laws of
the Federation of Nigeria 1990, as amended.
(ad) "Royalty Oil" means the quantum of Available Crude Oil allocated to the
CORPORATION which will generate an amount of Proceeds equal to the
actual payment of Royalty and Concession Rentals.
(ae) "Tax Oil" means the quantum of Available Crude Oil allocated to the
CORPORATION will generate an amount of Proceeds equal to the actual
payment of PPT.
(af) "Work Programme" means for the applicable period a statement itemizing
the Petroleum Operations to be carried out in the Contract Area as
defined in Clause 5.
(ag) "Year" means a period of twelve (12) consecutive months according to
the Gregorian Calendar.
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CLAUSE 2
SCOPE
2.1 This Contract is a Production Sharing Contract governed in accordance
with the terms and provisions hereof. Petroleum Operations and
provision of financial and technical requirements by the CONTRACTOR in
accordance with the terms of this Contract shall be in consultation with
the CORPORATION. The CORPORATION, as holder of all rights in and to the
Contract Area, hereby appoints and constitutes the CONTRACTOR the
exclusive company to conduct Petroleum Operations in the Contract Area.
As of the Effective Date, for all purposes this Contract will supersede
and replace the 1973 PSC.
2.2 During the term of this Contract the total Available Crude Oil shall be
allocated to the Parties in accordance with the provisions of Clause 8,
the Accounting Procedure (Annex B) and the Allocation Procedure (Annex
C).
2.3 The CONTRACTOR shall provide funds and bear the risk of Operating Costs
required to carry out Petroleum Operations and shall therefore have an
economic interest in development of Crude Oil deposits in the Contract
Area.
2.4 The CONTRACTOR is engaged in Petroleum Operations pursuant to the
Petroleum Profits Tax ▇▇▇ ▇▇▇▇ Cap 354 Laws of the Federation of Nigeria
1990 ("PPT Act") as amended and accordingly the Companies Income Tax ▇▇▇
▇▇▇▇ Cap 60 Laws of the Federation of Nigeria 1990, as amended, shall
have no application.
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CLAUSE 3
TERM
3.1 The term of this Contract, subject to paragraphs 3.2 and 3.3 shall be
twenty (20) years from the Effective Date.
3.2 This Contract may be terminated at any time by:
(a) The CORPORATION giving to the CONTRACTOR not less than ninety
(90) days prior written notice of termination if the CONTRACTOR
has committed a material breach of its obligations hereunder
including the Work Programme approved for any given period under
the Contract and the CONTRACTOR fails to remedy such breach
within six (6) months of the original notification of such
breach; provided such breach is not a subject of Arbitration
pursuant to clause 21,
(b) The CORPORATION giving to the CONTRACTOR not less than ninety
(90) days written notice of termination if the CONTRACTOR is
declared bankrupt and is forced to make restitution to its
creditors, or becomes insolvent, or is found by a court having
competent and final jurisdiction to have willfully violated any
Nigerian laws and regulations governing Petroleum Operations,
financial transactions and/or commercial operations during the
term of the Contract; and such violations adversely affect the
CORPORATION's interest under this Contract in a substantial
manner and the CONTRACTOR has failed to remedy same within a
reasonable period following the court finding; or
(c) The CONTRACTOR giving to the CORPORATION not less than ninety
(90) days prior written notice to that effect.
3.3 If at the end of the fifth year from the Effective Date the agreed
Exploration Work Programme in Clause 5 up till that time has not been
substantially executed, this Contract shall terminate forthwith.
3.4 This Contract shall terminate if no new Crude Oil production is found in
the Contract Area as a result of the agreed Exploration Work Programme
in Clause 5 after five (5) years from the Effective Date.
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CLAUSE 4
EXCLUSION OF AREAS
4.1 Not later than five (5) years from the Effective Date fifty per cent
(50%) of the Contract Area shall be excluded.
4.2 Any excluded area shall revert to the Government.
4.3 The fifty per cent (50%) of the Contract Area to be excluded shall be
agreed by both Parties and shall not include any part of the Contract
Area corresponding to surface areas of any field in which Petroleum has
been discovered in Commercial Quantity.
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CLAUSE 5
WORK PROGRAMME AND EXPENDITURE
5.1 Within two (2) months after the Effective Date and thereafter at least
three (3) months prior to the beginning of each Year, the CONTRACTOR
shall prepare and submit for review and approval by the Management
Committee, pursuant to Clause 6, a Work Programme and Budget for the
Contract Area setting forth the Petroleum Operations which CONTRACTOR
proposes to carry out during the ensuing Year, or in case of first Work
Programme and Budget, during the remainder of the current Year. The
Management Committee shall review and approve such Work Programme and
Budget in accordance with Clause 6.3(e) prior to submission of the Work
Programme and Budget to the Ministry.
5.2 The minimum Exploration Work Programme during the exploration period
shall consist of the drilling of two (2) ▇▇▇▇▇; provided, however, that
Contractor shall have no obligation to expend more than twelve million
U.S. Dollars ($12,000,000) in the drilling of said ▇▇▇▇▇ even if the
minimum Exploration Work Programme has not been accomplished. Within
eighteen (18) months of the Effective Date, Contractor shall commence
drilling of the first of such ▇▇▇▇▇.
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CLAUSE 6
MANAGEMENT COMMITTEE
6.1 A Management Committee shall be established within thirty (30) days from
the date of execution of this Contract for the purpose of providing
orderly direction of all matters pertaining to the Petroleum Operations
and Work Programme. The powers and duties of the Management Committee
shall include but not be limited to the following:
(a) the review, revision, and approval of all proposed Work
Programmes and Budgets in accordance with Clauses 5 and 6.3(e);
(b) the review, revision, and approval of any proposed
recommendations made by either Party or by any subcommittee,
pursuant to Clause 6.6 with respect to Petroleum Operations;
(c) ensuring that the CONTRACTOR carries out the decisions of the
Management Committee and conducts Petroleum Operations pursuant
to this Contract;
(d) the consideration and decision on matters relating to the
exclusion of areas in the Contract Area pursuant to Clause 4; and
in accordance with the Petroleum laws;
(e) settlement of claims and litigation in excess of five hundred
thousand Naira (N500,000) or the equivalent thereof in Foreign
Currency, or such other amount as may be approved by the
Management Committee insofar as such claims are not covered by
policies of insurance maintained under this Contract;
(f) consideration and approval of the sale or disposal of any items
or movable property relating to Petroleum Operations in
accordance with the provisions of this Contract except for
items/properties of historic costs less than one million Naira
(N1,000,000); and any sale or disposal of fixed asset shall be
referred to the CORPORATION;
(g) settlement of unresolved audit exceptions arising from audits as
provided for in Clause 13.2 of this Contract;
(h) ensuring that the CONTRACTOR implements the provisions of the
Accounting Procedure (Annex B), the Lifting Procedure (Annex D),
and the Procurement and Project Implementation Procedures (Annex
E) and all amendments and revisions thereto as agreed by the
Parties;
(i) any other matters relating to Petroleum Operations except:
(i) those matters under the sole discretion and control of the
CONTRACTOR in carrying out its duties and functions,
(ii) those matters elsewhere provided for in this Contract, or
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(iii) those matters reserved to the Parties in their respective
rights pursuant to Clause 7;
(j) consideration and approval of the sale or disposal and exchange
of information to third parties other than routine exchange of
seismic data and other such data commonly exchanged within the
industry; and
(k) consideration and determination of any other matter relating to
the Petroleum Operations which may be referred to it by any Party
(other than any proposal to amend this Contract) or which is
otherwise designated under this Contract for reference to it.
6.2 (a) The Management Committee shall consist of ten (10) persons
appointed by the Parties as follows:
The CORPORATION - 5
The CONTRACTOR - 5
(b) Each Party shall designate by notice in writing to the other
Party, the names of its representatives to serve as members of
the Management Committee as provided in Clause 6.2(a) hereof and
their respective alternates, which members or alternates shall be
authorized to represent that Party with respect to the decisions
of the Management Committee. Such notice shall give the names,
titles and addresses of the designated members and alternates.
Each member may nominate any other member or alternate to
represent such member at meetings of the Management Committee.
(c) At least fourteen (14) business days prior to each scheduled
Management Committee meeting, the Secretary shall provide an
agenda of matters, with briefs, to be considered during such
meeting. Any Party desiring to have other matters placed on the
agenda shall give notice to the other Party not less than seven
(7) business days prior to the scheduled meeting. No other
matter may be introduced into the agenda thereafter for
deliberation at the meeting unless mutually agreed by the
Parties. No agenda shall be required in the event of an
emergency meeting called pursuant to Clause 6.3(b).
(d) Either Party may change any of its respective members or
alternates as described in Clause 6.2(b) from time to time by
notifying the other Party in writing not less than ten (10) days
in advance of the effective date of such change.
(e) The CORPORATION shall appoint the Chairman of the Management
Committee and the CONTRACTOR shall appoint the Secretary. The
Secretary shall not be a member of the Management Committee but
shall keep minutes of all meetings and records of all decisions
of the Management Committee. Within fourteen (14) days after
each meeting, the Secretary shall forward drafts of the minutes
to the Parties. Within fourteen (14) days thereafter each Party
shall return the minutes with its
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comments to the Secretary who shall within fourteen (14) days
thereafter forward the final draft to the other Party. The
minutes of each meeting shall be approved by the Management
Committee at the next meeting and copies thereof shall be
supplied to the Parties. In addition, the Secretary shall at
each meeting, prepare a written summary of any decision made by
the Management Committee for approval and signature by the
Parties to adjournment.
6.3 (a) Not later than the twenty-eighth (28th) day of February of each
Year, the Chairman shall prepare and forward to the Parties, a
calendar of meetings as agreed by the Management Committee for
that Year.
(b) Unless otherwise agreed by the Parties, the Management Committee
shall meet at the head office of the CONTRACTOR once every four
(4) calendar months, or at such other intervals or venue as may
be agreed by the Management Committee and, in addition, whenever
requested by either Party by giving at least twenty-one (21) days
notice in writing to the other Party which notice shall specify
the matter or matters to be considered at the meeting; or, when
summoned by the Chairman or by the CONTRACTOR as an emergency
meeting for which no specified notice period shall be required.
(c) The quorum for any meeting of the Management Committee shall
consist of a minimum of three (3) representatives of the
CORPORATION and three (3) representatives of the CONTRACTOR. The
Chairman or his alternate and the CONTRACTOR's Managing Director
or his alternate must be present at every Management Committee
meeting for a quorum to be formed. If no such quorum is present,
the Chairman shall call another meeting of the Management
Committee giving at least fourteen (14) days written notice of
such meeting.
(d) The Secretary shall in consultation with the Chairman convene all
meetings of the Management Committee other than the emergency
meetings.
(e) Within eight (8) weeks after the submission of a Work Programme
and Budget by the CONTRACTOR the Management Committee shall meet
to consider and approve such submission. Should the CORPORATION
wish to propose a revision as to certain specific features of the
said Work Programme and Budget, it shall within six (6) weeks
after receipt thereof so notify the CONTRACTOR in writing
specifying in reasonable detail the changes requested and its
reasons therefor. The Management Committee will endeavor to
resolve the request for revisions proposed by the CORPORATION.
If the CORPORATION has not proposed any revisions in writing
within six (6) weeks, then the said Work Programme and Budget as
submitted shall be approved by resolution of the Management
Committee. Any portion of a Work Programme about which the
CORPORATION has not proposed a revision shall insofar as possible
be carried out as prescribed therein.
6.4 (a) Except as may be expressly provided for in this Contract, the
Management Committee shall determine and adopt rules to govern
its procedures.
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(b) Members attending a meeting of the Management Committee may be
accompanied by advisers and experts to the extent reasonably
necessary to assist with the conduct of such meeting. Such
advisers and experts shall not vote or in any way participate in
decisions, but may contribute in a non-binding way to discussions
or debates of the Management Committee.
(c) At any Management Committee meeting where there is a quorum, the
Chairman or his alternate shall exercise the voting rights of the
CORPORATION and the Managing Director of the CONTRACTOR or his
alternate shall exercise the voting rights of the CONTRACTOR.
(d) Except as otherwise expressly provided in this Contract all
decisions of the Management Committee shall be made by the
unanimous vote of the Parties. If unanimity is not obtained on
any matter (including any matter pertaining to a Work Programme
or Budget proposed by the CONTRACTOR) proposed to the Management
Committee, then the Management Committee shall meet again to
attempt to resolve such matter not later than fourteen (14) days
after the meeting in which the proposed matter was rejected by a
negative vote. Any portion of such proposal that is not rejected
shall insofar as possible be carried out. At least seven (7)
days prior to such second meeting, the Party casting the
dissenting vote shall provide to the other Party in writing in
reasonable detail the reasons for such dissenting vote. If such
written reasons are not provided at least seven (7) days prior to
such second meeting, then the proposal shall be deemed approved.
In such second meeting the agenda shall be comprised of such
written reasons as provided by the dissenting Party. If
unanimity is not obtained in the second meeting, then the
Management Committee shall meet a third time within fourteen (14)
days after the second meeting. If unanimity is not obtained in
the third meeting then the CORPORATION and the CONTRACTOR may
agree to appoint an independent qualified expert to advise on the
matter, which advice shall be binding on the Parties. In the
event of failure of the Parties to agree to the appointment of
the said expert the provisions of Clause 21 shall apply.
(e) The Parties shall be bound by, and abide by, each decision of the
Management Committee duly made in accordance with the provisions
of this Contract.
6.5 Any matter which is within the powers and duties of the Management
Committee may be determined by the Management Committee without a
Management Committee meeting if such matter is submitted by either Party
to the other Party with due notice and with sufficient information
regarding the matter to be determined so as to enable the Parties to
make an informed decision with respect to such matter.
(a) Except for urgent matters referred to in Clause 6.5(b), each
party shall cast its vote with respect to such matter within
twenty-one (21) days of receipt of such notice and such manner of
determination shall be followed unless a Party objects, within
fourteen (14) days of receipt of such notice, to having the
matter determined in such manner. If any Party fails to vote by
the expiry of the twenty-one (21) days period
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for voting, it shall be deemed to have voted in the affirmative.
The Secretary shall promptly advise the Parties of the results of
such vote and the Secretary shall draft a resolution to be signed
as soon as possible by the Parties.
(b) Each Party shall nominate one of its officers as its
representative from whom the other Party may seek binding
decisions on urgent matters, including, but not limited to
ongoing drilling operations, by telephone, letter, facsimile
transmission, telex or in person and they shall advise each other
in writing of the persons so nominated and any changes thereof.
(c) In the event of an emergency requiring immediate operational
action, either Party may take all actions it deems proper or
advisable to protect its interests and those of its respective
employees and any costs so incurred shall be included in the
Operating Costs. Prompt notification of any such action taken by
a Party and the estimated cost shall be given to the other Party
within forty-eight (48) hours of the commencement of the event.
(d) The decisions made pursuant to this Clause 6.5 shall be recorded
in the minutes of the next scheduled meeting of the Management
Committee, and shall be binding upon the Parties to the same
extent as if the matter had been determined at a meeting of the
Management Committee.
6.6 The Management Committee shall establish exploration and technical
sub-committees and any other advisory sub-committees as it considers
necessary from time to time such as finance and budget, and
legal/services sub-committees:
(a) Each sub-committee established pursuant to this Clause 6.6 shall
be given terms of reference and shall be subject to such
direction and procedures as the Management Committee may give or
determine.
(b) The Management Committee shall appoint the members of the
sub-committees which shall be comprised of equal representation
from the Parties. The chairmen and the secretaries of the
sub-committees shall be appointed by the Management Committee.
(c) The deliberations and recommendations of any sub-committee shall
be advisory only and shall become binding and effective upon
acceptance by the Management Committee.
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CLAUSE 7
RIGHTS AND OBLIGATIONS OF THE PARTIES
7.1 In accordance with this Contract, the CONTRACTOR shall:
(a) Provide all necessary funds for payment of Operating Costs
including, but not limited to, funds required to provide all
materials, equipment, supplies, and technical requirements
(including personnel) purchased, paid for or leased in Foreign
Currency;
(b) Furnish such other funds for the performance of Work Programmes
that require payment in Foreign Currency, including payments to
third parties who perform services as subcontractors;
(c) Prepare Work Programmes and Budgets and carry out approved Work
Programmes in a good and workmanlike manner and in accordance
with internationally acceptable petroleum industry practices and
standards with the object of avoiding waste and obtaining maximum
ultimate recovery of Crude Oil at minimum costs;
(d) Ensure that all lease equipment paid for in Foreign Currency and
brought into Nigeria for Petroleum Operations is treated in
accordance with the terms of the applicable leases;
(e) Have the right to dispose of, assign, transfer, convey or
otherwise dispose of any part of its rights and interests under
this Contract to other parties including Affiliates with the
prior written consent of the CORPORATION which consent shall not
be unreasonably withheld;
(f) Have the right of ingress to and egress from the Contract Area
and to and from facilities therein located at all times during
the term of this Contract;
(g) Submit to the CORPORATION for permanent custody copies of all
geological, geophysical, drilling, well production, operating and
other data and reports as it may compile during the term hereof
and at the end of the Contract surrender all original data and
reports to the CORPORATION;
(h) Prepare estimated and final PPT returns and submit same to the
CORPORATION on a timely basis in accordance with the PPT Act;
(i) Have the right to lift in accordance with Annex D and freely
export and to retain abroad the receipts from the sale of
Available Crude Oil allocated to it hereunder;
(j) Prepare and carry out plans and programmes for industrial
training and education of Nigerians for all job classifications
with respect to Petroleum Operations in
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accordance with the Petroleum Act Cap 350 Laws of the Federation
of Nigeria 1990, as amended;
(k) Employ only such personnel as are reasonably necessary to conduct
the Petroleum Operations in a prudent and cost effective manner;
(l) Give preference to such goods which are available in Nigeria or
services rendered by Nigerian nationals, provided they meet the
specifications and the standards of the goods and services;
(m) In respect of payment of customs duties and other like charges,
the CONTRACTOR and its subcontractors shall not be treated
differently from any other companies and their subcontractors
engaged directly in similar Petroleum Operations in Nigeria;
(n) Indemnify and hold harmless the CORPORATION from and against
losses (including legal fees and expenses) of whatever kind and
nature resulting from the CONTRACTOR's negligence or wilful
misconduct in carrying out Petroleum Operations and as a
consequence of any final decision given by a Nigerian Court,
except where such losses are shown to result from any action or
failure to act on the part of the CORPORATION, provided however,
that under no circumstances shall the CONTRACTOR be liable to the
CORPORATION for reservoir damage or pollution or any
consequential losses or damages occurring including, but not
limited to, lost production or lost profits;
(o) Have the right to finance Petroleum Operations from external
sources under terms and conditions approved by the CORPORATION;
and
(p) Not exercise all or any rights or authority over the Contract
Area in derogation of the rights of the CORPORATION.
7.2 In accordance with this Contract, the CORPORATION shall:
(a) Pay to the Government in a timely manner, all Bonuses, Royalties,
Concession Rentals and PPT accruing out of Petroleum Operations;
(b) With its professional staff attached pursuant to Clause 12.4,
work jointly with the CONTRACTOR's professional staff in the
CONTRACTOR'S Exploration, Petroleum Engineering,
Facilities/Materials and Finance Departments;
(c) Otherwise assist and expedite the CONTRACTOR's execution of
Petroleum Operations and Work Programmes including, but not
limited to, assistance in supplying or otherwise making available
all necessary visas, work permits, rights of way and easements as
may be requested by the CONTRACTOR (Expenses incurred by the
CORPORATION at the CONTRACTOR's request in providing such
assistance shall be reimbursed to the CORPORATION by the
CONTRACTOR in accordance with Clause 11.1. The CONTRACTOR shall
include such
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reimbursements in the Operating Costs. Such reimbursements will
be made against the CORPORATION's invoice and shall be in U.S.
Dollars computed at the ruling rate of exchange published by the
Central Bank of Nigeria on the date the expense was incurred);
(d) Have title to all original data resulting from the Petroleum
Operations including but not limited to geological, geophysical,
engineering, well logs, completion, production, operations,
status reports and any other data as the CONTRACTOR may compile
during the term hereof, provided however, that the CONTRACTOR
shall keep and use such original data during the term of this
Contract and the CORPORATION shall have access to such original
data during the Term of this Contract;
(e) Not exercise all or any of its right or authority over the
Contract Area in derogation of the rights of the CONTRACTOR; and
(f) The CORPORATION shall apply for conversion of the OPL to OML and
shall exercise all the rights and comply with all the obligations
of a Licensee or Lessee under the ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ and its
amendments.
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CLAUSE 8
RECOVERY OF OPERATING COSTS AND CRUDE OIL ALLOCATION
8.1 The allocation of Available Crude Oil shall be in accordance with the
Accounting Procedure (Annex B), the Allocation Procedure (Annex C) and
this Clause 8 as follows:
(a) Royalty Oil shall be allocated to the CORPORATION in such quantum
as will generate an amount of Proceeds equal to the actual
Royalty payable during each month and the Concession Rental
payable annually;
(b) Cost Oil shall be allocated to the CONTRACTOR in such quantum as
will generate an amount of Proceeds sufficient for recovery of
Operating Costs in OPLs 98 and 118 and any OMLs derived
therefrom. All Operating Costs expended in U.S. Dollars will be
recovered in U.S. Dollars through Cost Oil allocations;
(c) Tax Oil shall be allocated to the CORPORATION in such quantum as
will generate an amount of Proceeds equal to actual PPT liability
payable during each month;
(d) All Operating Costs incurred on OPLs 98 and 118 prior to the
Effective Date which remain unrecovered on the Effective Date
shall be recoverable as Operating Cost by CONTRACTOR from Cost
Oil under this Contract;
(e) The CONTRACTOR shall for PPT purposes be entitled to consolidate
OPLs 98 and 118 and any OMLs derived therefrom.
(f) Profit Oil, being the balance of Available Crude Oil after
deducting Royalty Oil, Tax Oil, and Cost Oil, shall be allocated
to each Party pursuant to Schedule B-2 of the Accounting
Procedure (Annex B) as follows:
PROFIT OIL
MONTHLY AVERAGE MBOPD PERCENTAGES
FROM CONTRACT AREA CORPORATION CONTRACTOR
----------------------------------- ------------- ------------
0 to 40 20 80
Greater than 40 but less than 75 35 65
Greater than 75 but less than 100 45 55
100 and above 50 50
8.2 The quantum of Available Crude Oil to be allocated to each Party under
this Contract shall be determined at the fiscalisation point.
8.3 Each Party shall take in kind, lift and dispose of its allocation of
Available Crude Oil in accordance with the Lifting Procedure (Annex D).
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8.4 Allocation of Royalty Oil and Tax Oil to the CORPORATION shall be
applied towards the liabilities of the CONTRACTOR and the CORPORATION
for Royalty, Concession Rentals, and PPT and the Proceeds therefrom
shall be paid to the Government by the CORPORATION on behalf of both
Parties.
8.5 Either Party may at the request of the other, lift the other Party's
Available Crude Oil pursuant to Clause 9.1 and the lifting Party shall
within sixty (60) days transfer to the account of the non-lifting Party
the proceeds of the sale to which the non-lifting Party is entitled.
Overdue payments shall bear interest at the rate of one (1) month LIBOR
plus two percent (2%).
8.6 The CONTRACTOR may purchase any portion of the CORPORATION's allocation
of Available Crude Oil from the Contract Area under the CORPORATION's
terms and conditions including valuation and pricing of the Crude Oil as
applicable to other third party buyers of the CORPORATION's Crude Oil.
8.7 Both Parties shall meet on a monthly or quarterly basis as may be agreed
to reconcile all Crude Oil allocated and lifted during the period as per
Article III 7 of Annex D.
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CLAUSE 9
VALUATION OF AVAILABLE CRUDE OIL
9.1 Available Crude Oil allocated to each Party shall be valued in
accordance with the following procedures:
(a) On the attainment of commercial production, each Party shall
engage the services of an independent laboratory of good repute
to determine the assay of the new Crude Oil.
(b) When a new Crude Oil stream is produced, a trial marketing period
shall be designated which shall extend for the first six (6)
month period during which such new stream is lifted or for the
period of time required for the first ten (10) liftings,
whichever is longer. During the trial marketing period the
Parties shall:
(i) Collect samples of the new Crude Oil upon which the assays
shall be performed as provided in Clause 9.1 (a) above;
(ii) Determine the approximate quality of the new Crude Oil by
estimating the yield values from refinery modeling;
(iii) Share in the marketing such that each Party markets
approximately an equal amount of the new Crude Oil and to
the extent that one Party lifts the other Party's
allocation of Available Crude Oil, payments therefor shall
be made in accordance with Clause 8.5;
(iv) Exchange information regarding the marketing of the new
Crude Oil including documents which verify the sales price
and terms of each lifting;
(v) Apply the actual f.o.b. sales price to determine the value
for each lifting which f.o.b. sales pricing for each
lifting shall continue after the trial marketing period
until the Parties agree to a valuation of the new Crude
Oil but in no event longer than ninety (90) days after
conclusion of the trial marketing period.
(c) As soon as practicable but in any event not later than sixty (60)
days after the end of the trial marketing period, the Parties
shall meet to review the assay, yield, and actual sales data.
Each Party may present a proposal for the valuation of the new
Crude Oil. A valuation method shall be established for
determining the price for each lifting of Available Crude Oil.
Such valuation method shall be in accordance with the Realizable
Price provisions set forth in the Revised Memorandum of
Understanding attached to this Contract as Annex F. It is the
intent of the Parties that such prices shall reflect the true
market value of the new Crude Oil. The valuation method
determined hereunder (including the product yield values) shall
be mutually agreed within thirty (30) days from the
aforementioned meeting failing which, determination of such
valuation shall be referred to the Ministry.
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(d) Upon the conclusion of the trial marketing period, the Parties
shall be entitled to lift their allocation of Available Crude Oil
pursuant to Clause 8 and the Lifting Procedure.
(e) When a new Crude Oil stream is produced from the Contract Area
and is commingled with an existing Crude Oil produced in Nigeria
which has an established Realizable Price basis then such basis
shall be applied to the extent practicable for determining the
Realizable Price of the new Crude Oil. The Parties shall meet
and mutually agree on any appropriate modifications to such
established valuation basis which may be required to reflect any
change in the market value of the Crude Oils as a result of
commingling.
(f) The valuation method for determining the price for each lifting
of Available Crude Oil from fields other than those discovered
after the Effective Date, shall continue to be in accordance with
the Realizable Price provisions set forth in the Revised
Memorandum of Understanding.
9.2 If in the opinion of either Party an agreed price valuation method fails
to reflect the market value of a Crude Oil produced in the Contract
Area, then such Party may propose to the other Party modifications to
such valuation method once in every six (6) months but in no event more
than twice in any year. The Parties shall then meet within thirty (30)
days of such proposal and mutually agree on any modifications to such
valuation within thirty (30) days from such meeting failing which,
determination of such valuation shall be referred to the Ministry.
9.3 Segregation of Crude Oils of different quality and/or grade shall be by
agreement of the Parties taking into consideration, among other things,
the operational practicality of segregation and the cost benefit
analysis thereof. If the Parties agree on such segregation the
following provisions shall apply:
(a) Any and all provisions of the Contract concerning valuation of
Crude Oil shall separately apply to each segregated Crude Oil
produced;
(b) Each grade or quality of Crude Oil produced and segregated in a
given Year shall contribute its proportionate share to the total
quantity designated in such Year as Royalty Oil, Tax Oil, Cost
Oil and Profit Oil.
CLAUSE 10
PAYMENT
10.1 The method of payment of any sum due from the CONTRACTOR to the
CORPORATION and vice versa shall be in accordance with the prevailing
guidelines of the Federal Ministry of Finance of Nigeria, the Central
Bank of Nigeria and in accordance with the Accounting Procedure, Annex
B.
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10.2 Unless otherwise provided herein, any payments which the CORPORATION is
required to make to the CONTRACTOR or which the CONTRACTOR is required
to make to the CORPORATION pursuant to this Contract shall be made
within (30) days following the end of the month in which the obligation
to make such payments occurs. Overdue payments shall bear interest at
the annual rate of one (1) month LIBOR plus 2%.
10.3 Each Party shall have the right of set off against the other Party for
sums due and payable to the other Party under this Contract agreed sums
past due under this Clause.
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CLAUSE 11
TITLE TO EQUIPMENT
11.1 The CONTRACTOR shall finance the cost of purchasing all equipment to be
used in Petroleum Operations in the Contract Area pursuant to the Work
Programmes and such equipment shall become the property of the
CORPORATION on arrival in Nigeria. The CONTRACTOR and the CORPORATION
shall have the right to use such equipment exclusively for Petroleum
Operations in the Contract Area during the Term of this Contract.
Should the CORPORATION desire to use such equipment outside the Contract
Area, such use shall be subject to terms and conditions agreed by the
parties provided that it is understood Petroleum Operations hereunder
shall take precedence over such use by the CORPORATION.
11.2 The CONTRACTOR's right to use such purchased equipment shall cease with
the termination or expiration (whichever is earlier) of this Contract.
11.3 The provisions of Clause 11.1 with respect to the title of property
passing to the CORPORATION shall not apply to leased equipment belonging
to local or foreign third parties, and such equipment may be freely
exported from Nigeria in accordance with the terms of the applicable
lease.
11.4 Title to all lands purchased or otherwise acquired by the CONTRACTOR for
the purposes of Petroleum Operations and all movable property utilized
in the Contract Area and incorporated permanently in any premises,
locations and structures for the purposes of Petroleum Operations
hereunder shall be in the name of the CORPORATION and the CONTRACTOR.
Upon termination of this Contract pursuant to Clause 3, the CORPORATION
shall take possession of such lands and property and the CONTRACTOR
shall hand over such lands and property within thirty (30) days.
11.5 Subject to Clause 11.2 hereof, all fixed assets purchased or otherwise
acquired by the CONTRACTOR for the purposes of Petroleum Operations
hereunder shall become the property of the CORPORATION. Upon
termination of this Contract pursuant to Clause 3, the CONTRACTOR shall
hand over possession of such fixed assets to the CORPORATION.
11.6 During the term of this Contract, any agreed sale of equipment, lands
fixed assets, materials and machinery acquired for the purpose of the
Petroleum Operations hereunder shall be conducted by the CONTRACTOR on
the basis of the highest price obtainable and the proceeds of such sale
shall be credited to the Petroleum Operations.
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CLAUSE 12
EMPLOYMENT AND TRAINING OF NIGERIAN PERSONNEL
12.1 Each Year, the CONTRACTOR shall submit a detailed programme for
recruitment and training for the following Year in respect of its
Nigerian personnel in accordance with the ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ and its
amendments.
12.2 Qualified Nigerians shall be employed in all nonspecialized positions.
12.3 Qualified Nigerians shall also be employed in specialized positions such
as those in exploration, drilling, engineering, production, and finance.
The CONTRACTOR shall have the right, subject to applicable laws, rules
and regulations, to employ non-Nigerians in such specialized positions
where qualified Nigerians are not available provided that the CONTRACTOR
shall recruit and train Nigerians for such specialized positions such
that the number of non-Nigerian staff shall be kept to a minimum.
12.4 Competent professionals of the CORPORATION shall be attached to work
with the CONTRACTOR from time to time and such officials and the
CONTRACTOR's officials shall not be treated differently with regard to
salaries and other benefits.
12.5 Costs and expenses incurred in the recruitment and training of Nigerian
personnel shall be included in Operating Costs.
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CLAUSE 13
BOOKS AND ACCOUNTS, AUDIT
AND OVERHEAD CHARGES
13.1 Books and Accounts
The CONTRACTOR shall be responsible for keeping complete books of
accounts consistent with modern petroleum industry and accounting
practices and procedures. The statutory books and accounts of this PSC
shall be kept in Naira and U.S. dollars. All other books of accounts as
the operator may consider necessary shall be kept in columnar form in
both Naira and U.S. Dollars. Officials of the CORPORATION and the
CONTRACTOR shall have access to such books and accounts and officials of
the CORPORATION attached to the CONTRACTOR pursuant to Clause 12.4 shall
participate in the preparation of same.
13.2 Audits
The CORPORATION and its external auditors shall have the right to
inspect and audit the books and accounts relating to this Contract for
any year by giving thirty (30) days written notice to the CONTRACTOR and
the CONTRACTOR shall facilitate the work of such inspection and
auditing; provided however, that the costs of such inspection and
auditing shall be met by the CORPORATION, and provided also that if such
inspection and auditing have not been so carried out within two (2)
Years following the end of the Year in question, the books and accounts
relating to such Year shall be deemed to be accepted by the parties as
satisfactory. Any exception must be made in writing ninety (90) days
following the end of such audit and failure to give such written notice
within such time shall establish the correctness of the books and
accounts.
13.3 Home Office Overhead Charges
The CONTRACTOR shall include the following percentages on total annual
capital expenditure as overhead charges in calculating total Operating
Costs:
- First $200 million 1.00% of Capex
- Next $200 million 0.75% of Capex
- Next $100 million 0.50% of Capex
- Above $500 million 0%
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CLAUSE 14
BONUSES
Production Bonus
14.1 The CONTRACTOR shall pay the CORPORATION the following Bonuses:
(a) a sum in US Dollars equivalent to zero point two percent (0.2%)
of cumulative production of 50 million barrels of Crude Oil
attained in the Contract Area from fields discovered after the
Effective Date at the price on the due date.
(b) a sum in US Dollars equivalent to zero point one percent (0.1%)
of cumulative production of 100 million barrels of Crude Oil
attained in the Contract Area from fields discovered after the
Effective Date at the price on the due date.
14.2 The Production Bonuses provided for in this Clause 14 shall not be
recoverable as Cost Oil and shall be payable within 30 days of such
production level being first attained.
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CLAUSE 15
ROYALTY AND TAXES
15.1 Royalty
Royalty rates will be as provided in the ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, as amended,
and the prevailing fiscal laws and regulations.
15.2 Petroleum Profit Tax (PPT)
(a) The PPT shall be in accordance with the PPT ▇▇▇ ▇▇▇▇ as amended.
(b) The PPT rate applicable to the Contract Area shall be 65.75% for
the first five (5) years of production from each field developed
in the Contract Area commencing from the first day of the month
of the first sale therefrom and 85% thereafter.
15.3 The CORPORATION shall pay all Royalty, Concession Rentals and PPT on
behalf of itself and the CONTRACTOR out of Available Crude Oil allocated
to it under Clause 8.1 of this Contract.
15.4 The Realizable Price established under the terms of the Revised
Memorandum of Understanding in accordance with Clause 9 of this Contract
shall be used in determining the amount payable on Royalty and PPT in
respect of Crude Oil produced and lifted pursuant to this Contract. The
parameters for new Crude Oil streams produced from the Contract Area
shall also be determined in accordance with provisions of Clause 9 of
this Contract.
15.5 The CORPORATION shall make available to the CONTRACTOR copies of
receipts issued by the Federal Board of Inland Revenue for the payment
made for PPT.
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CLAUSE 16
INSURANCE
16.1 All property acquired under the provisions of this Contract shall be
adequately insured in an insurance company of good repute by the
CONTRACTOR in consultation with the CORPORATION, in its name and that of
the CORPORATION with limits of liability not less than those required by
Nigerian laws and regulations. The premia for such policies shall be
included in Operating Costs. All policies shall name the CORPORATION as
a co-insured with a waiver of subrogation rights in favor of the
CORPORATION.
16.2 In case of loss of or damage to property, indemnifications paid by the
insurance companies shall be entirely received by the CONTRACTOR for
Petroleum Operations. The CONTRACTOR shall determine whether the lost
or damaged property should be repaired, replaced or abandoned. If the
decision is to repair or replace, the CONTRACTOR shall immediately
replace or repair such lost or damaged property. Any excess cost of
repair or replacement above the amount reimbursed by the insurance
companies shall be regarded as Operating Costs. If the decision is to
neither repair nor replace then the proceeds of any coverage shall be
credited to Operating Costs. In the event that the loss or damage is
attributable to the CONTRACTOR's wilful misconduct the excess cost of
replacement or repair shall not be reimbursed as Operating Cost.
16.3 The CONTRACTOR shall take out and maintain an insurance policy covering
any and all damages caused to third parties as a direct or indirect
result of the CONTRACTOR's Petroleum Operations. The CONTRACTOR shall
defend and hold the CORPORATION harmless from damages and losses caused
to third parties in consequence of the CONTRACTOR's wilful misconduct in
the performance of this Contract.
16.4 All insurance policies under this Clause 16 shall be based on good
international petroleum industry practice, and shall be taken out in the
Nigerian market except for those concerning risks for which the
CONTRACTOR cannot obtain coverage in Nigeria which shall be taken out
abroad, to the extent allowed by law.
16.5 In entering into contracts with any sub-contractor for the performance
of Petroleum Operations, the CONTRACTOR shall require such
sub-contractor to take adequate insurance in accordance with Clauses
16.1 and 16.3 above and to properly indemnify the CORPORATION and the
CONTRACTOR for any damage done and to properly indemnify and hold the
CORPORATION and the CONTRACTOR harmless against claims from third
parties.
16.6 The CONTRACTOR shall maintain other insurance policies required under
Nigerian law.
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CLAUSE 17
CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
17.1 The CONTRACTOR shall keep information furnished to it by the CORPORATION
and all plans, maps, drawings, designs, data, scientific, technical and
financial reports and other data and information of any kind or nature
relating to Petroleum Operations including any discovery of Petroleum as
strictly confidential, for all times, and shall ensure that their entire
or partial contents shall under no circumstances be disclosed by the
CONTRACTOR in any announcement to the public or to any third party
without the prior written consent of the CORPORATION.
The provisions of this Clause 17 shall not apply to disclosure to:
(a) Subcontractors, affiliates, assignees, auditors, legal advisers,
provided that such disclosures are required for the effective
performance of the aforementioned recipients' duties related to
Petroleum Operations;
(b) Comply with statutory obligation or the requirements of any
governmental agency in which case the CONTRACTOR will notify the
CORPORATION of any information so disclosed.
(c) Financial institutions involved in the provision of finance for
the operations hereunder provided, in all such cases, that the
recipients of such data and information agree in writing to keep
such data and information strictly confidential.
(d) A third party for the purpose of negotiating an assignment of
interest hereunder provided such third party executes an
undertaking to keep the information disclosed confidential.
17.2 The CONTRACTOR shall take necessary measures in order to make its
employees, agents, representatives, proxies and subcontractors comply
with the same obligation of confidentiality provided for in this Clause
17.
17.3 The provisions of this Clause 17 shall not be voided by the expiry or
termination of this Contract on any grounds whatsoever and these
provisions constitute a continuing obligation, and accordingly the
restrictions arising therefrom shall be in force at all times.
17.4 The CONTRACTOR shall use its best endeavors to ensure that the
CONTRACTOR's servants, employees, agents and subcontractors shall not
make any reference in public or publish any notes in newspapers,
periodicals or books nor divulge, by any other means whatsoever, any
information on the activities under the CONTRACTOR's responsibility, or
any reports, data or any facts and documents that may come to their
knowledge by virtue of this Contract, without the prior written consent
of the CORPORATION.
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17.5 The CONTRACTOR shall submit to the CORPORATION all statutory reports and
information for submission to Government and other statutory bodies.
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CLAUSE 18
FORCE MAJEURE
18.1 Any failure or delay on the part of either Party in the performance of
its obligations or duties under this Contract shall be excused to the
extent attributable to force majeure. A force majeure situation
includes delays, defaults or inability to perform under this Contract
due to any event beyond the reasonable control of either Party. Such
event may be, but is not limited to, any act, event, happening, or
occurrence due to natural causes; and acts or perils of navigation,
fire, hostilities, war (declared or undeclared), blockade, labor
disturbances, strikes, riots, insurrection, civil commotion, quarantine
restrictions, epidemics, storms, floods, earthquakes, accidents,
blowouts, lightning, and acts of or orders of Government.
18.2 If operations are delayed, curtailed or prevented by force majeure, then
the time for carrying out the obligation and duties thereby affected,
and rights and obligations hereunder, shall be extended for a period
equal to the period thus involved.
18.3 The Party whose ability to perform its obligations is so affected shall
promptly notify the other Party thereof not later than forty-eight (48)
hours after the establishment of the start of force majeure stating the
cause, and both Parties shall do all that is reasonably within their
powers to remove such cause.
18.4 The CONTRACTOR's failure or inability to find Crude Oil in Commercial
Quantity for reasons other than as specified in Clause 18.1 hereof shall
not be deemed force majeure.
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CLAUSE 19
LAWS AND REGULATIONS
19.1 This Contract shall be governed by and construed in accordance with the
Laws of the Federation of Nigeria, and any dispute arising therefrom
shall be determined in accordance with such laws.
19.2 In the event that any enactment of or change in the laws or regulations
of Nigeria or any rules, procedures, guidelines, instructions,
directives, or policies, pertaining to the Contract introduced by any
Government department or Government parastatals or agencies occurs
subsequent to the Effective Date of this Contract which materially and
adversely affects the rights and obligations or the economic benefits of
the CONTRACTOR, the Parties shall use their best efforts to agree to
such modifications to this Contract as will compensate for the effect of
such changes. If the Parties fail to agree on such modifications within
a period of ninety (90) days following the date on which the change in
question took effect, the matter shall thereafter be referred at the
option of either Party to arbitration under Article 21 hereof.
Following arbitrator's determination, this Contract shall be deemed
forthwith modified in accordance with that determination.
19.3 All affairs related to this Contract shall be conducted in the language
in which this Contract was drawn up.
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CLAUSE 20
UTILIZATION OF NATURAL GAS
20.1 If the CONTRACTOR discovers a commercially viable quantity of Natural
Gas, the CORPORATION shall require the CONTRACTOR to investigate and
submit proposals for the commercial development of the Natural Gas for
the CORPORATION's consideration provided that any cost in respect of
such proposals or investigation shall be included in Operating Cost.
For the commercial development of natural gas field, the funding
arrangements and participation by the CONTRACTOR in the project shall be
the subject of another agreement and the CONTRACTOR shall have the right
to participate in such development project.
20.2 Notwithstanding the provisions of Clause 20 hereof, the CONTRACTOR may
utilize, at no cost the associated Natural Gas produced with Crude Oil
as fuel for production operations; gas recycling, secondary recovery by
gas injection, gas lift, or any other economical secondary recovery
schemes, stimulation of ▇▇▇▇▇ or artificial lifts necessary in the
commercial field discovered and developed by the CONTRACTOR but only
with the prior written consent of the CORPORATION, which consent shall
not be unreasonably withheld. The objective of maximum technical and
economic recovery of Crude Oil shall always be paramount. However, not
later than two (2) years after the commencement of production of Crude
Oil from the Contract Area, the CONTRACTOR shall submit to the Minister,
a programme for the utilization of any Natural Gas whether associated
with Crude Oil or not which has been discovered from the Contract Area.
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CLAUSE 21
CONSULTATION AND ARBITRATION
If a difference or dispute arises between the CORPORATION and the CONTRACTOR,
concerning the interpretation or performance of this Contract, and if the
parties fail to settle such difference or dispute by amicable agreement, then
either party may serve on the other a demand for arbitration. Within thirty
(30) days of such demand being served, each party shall appoint an arbitrator
and the two arbitrators thus appointed shall with a further thirty (30) days
appoint a third arbitrator and if the arbitrators do not agree on the
appointment of such third arbitrator, or if either Party fails to appoint the
arbitrator to be appointed by it, such an arbitrator or third arbitrator shall
be appointed by the President of the Court of Arbitration of the International
Chamber of Commerce (ICC) in Paris on the application of the other Party
(notice of the intention to apply having duly given in writing by the applicant
party to the other party) and when appointed the third arbitrator shall convene
meeting and act as chairman thereat. If an arbitrator fails or is unable to
act, a successor shall be appointed by the respective party or by the
arbitrators in the event the chairman must be succeeded. The arbitration award
shall be binding upon the parties and the expenses shall be borne by the
parties in such proportion and manner as may be provided in the award. The
Nigerian Arbitration and Conciliation Act Cap 19, Laws of the Federation of
Nigeria, 1990 shall apply to this contract. The venue of the arbitration shall
be any where in Nigeria as agreed by the parties.
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CLAUSE 22
EFFECTIVENESS
22.1 This Contract shall come into force and effect on the Effective Date.
22.2 This Contract shall not be amended or modified in any respect except by
mutual consent, in writing of the Parties hereto.
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CLAUSE 23
NOTICES
23.1 Any notices required to be given by either Party to the other shall be
in writing and shall be deemed to have been duly given and received if
sent by fax, telegram or cable (confirmed by mail) or registered post
to, or hand delivered at the following registered offices:
THE CORPORATION:
THE GROUP MANAGING DIRECTOR
NIGERIAN NATIONAL PETROLEUM CORPORATION
▇, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇.
CABLE: NAPETCOR
TELEX: 21126 NG
FAX
THE CONTRACTOR:
THE MANAGING DIRECTOR
Ashland Oil (Nigeria) Company Unlimited
▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇
CABLE:
TELEX: 961-211023 ASHOIL NG
FAX: ▇▇▇-▇▇▇▇▇▇▇
23.2 Either Party shall notify the other promptly of any change in the above
address.
SIGNED AND DELIVERED for and on behalf of
NIGERIAN NATIONAL PETROLEUM CORPORATION
By: /s/ C. O. Oyibo
----------------------------------------
Name: C. O. Oyibo
Designation: Group Managing Director
-35-
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IN THE PRESENCE OF:
Name: M. A. Olorunfemi
Signature: /s/ M. A. Olorunfemi
----------------------------------------------
Designation:
Address:
SIGNED AND DELIVERED for and on behalf of
ASHLAND OIL (NIGERIA) COMPANY UNLIMITED
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
-----------------------------------------------------
Name: ▇. ▇. ▇▇▇▇▇▇▇▇
Designation: GENERAL MANAGER AND MANAGING DIRECTOR
IN THE PRESENCE OF:
Name: J. I. Obi
Signature: /s/ J. I. Obi
----------------------------------------------
Designation: COMPANY SECRETARY
APPROVED BY THE HON. MINISTER
This 25th day of May, 1994
Signature: /s/ Don Etiebet
----------------------------------------------
Name: Don Etiebet
DESIGNATION: HON. MINISTER OF PETROLEUM AND MINERAL RESOURCES.
IN THE PRESENCE OF
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Signature: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------------
Designation: Director - General (Petroleum)
-36-
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ANNEX A
[Map of Field]
-37-
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ANNEX B
TO THE PRODUCTION SHARING CONTRACT BETWEEN
CORPORATION and CONTRACTOR dated this day 199
ACCOUNTING PROCEDURE
Article I
General Provisions
1. Definitions
This Accounting Procedure attached to and forming a part of the Contract
is to be followed and observed in the performance of either Party's
obligations thereunder. The defined terms appearing herein shall have
the same meaning as is ascribed to them in the Contract.
2. Accounts and Statements
CONTRACTOR's accounting records and books shall be kept as provided
under Clause 13.1 of the Contract in accordance with generally accepted
and recognized accounting standards, consistent with modern petroleum
industry practices and procedures. All original books of accounts
together with original supporting documentation shall be kept and
maintained in Nigeria in compliance with all Nigerian laws and
regulations.
3. Other
In the event of a conflict of the terms of this Procedure and the
Contract the terms of the Contract shall apply.
-38-
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Article II
Operating Costs
Operating Costs shall be defined as all costs, expenses paid and obligations
incurred by the CONTRACTOR in carrying out Petroleum Operations and shall
consist of (1) Non-Capital Costs, and (2) Capital Costs.
1. Non-capital Costs
Non-capital Costs mean those Operating Costs incurred that are
chargeable to the current year's operations. Non-capital Costs include,
but are not limited to the following:
(a) General office expenses - office, services and general
administration services pertaining to Petroleum Operations
including but not limited to, services of legal, financial,
purchasing, insurance, accounting, computer, and personnel
department; communications, transportation, rental of specialized
equipment, scholarships, charitable contributions and educational
awards.
(b) Labour and related costs - salaries and wages, including bonuses,
of employees of the CONTRACTOR who are directly engaged in the
conduct of Petroleum Operations, whether temporarily or
permanently assigned, irrespective of the location of such
employee including but not limited to, the costs of employee
benefits, customary allowances and personal expenses incurred
under the CONTRACTOR's practice and policy, and amounts imposed
by applicable Governmental authorities which are applicable to
such employees. These costs and expenses shall include:
(i) Cost of established plans for employee group life
insurance, hospitalization, pension, retirement, savings
and other benefit plan;
(ii) Cost of holidays, vacations, sickness and disability
benefits;
(iii) Cost of living, housing and other customary allowances;
(iv) Reasonable personal expenses which are reimbursable under
the CONTRACTOR's standard personnel policies;
(v) Obligations imposed by Governmental authorities;
(vi) Cost of transportation of employees, other than as
provided in paragraph (c) below, as required in the
conduct of Petroleum Operations; and
(vii) Charges in respect of employees temporarily engaged in
Petroleum Operations which shall be calculated to reflect
the actual costs thereto during the period or periods of
such engagement.
-39-
43
(c) Employee relocation costs - costs for relocation, transportation
and transfer of employees of CONTRACTOR engaged in Petroleum
Operations pursuant to Clause 7.1(k) of this Contract including,
but not limited to the cost of freight and passenger service of
such employees' families and their personal and household effects
together with meals, hotel and other expenditures related to such
transfer incurred with respect to:
(i) employees of the CONTRACTOR within Nigeria, including
expatriate employees, engaged in Petroleum Operation;
(ii) transfer to Nigeria for engagement in Petroleum
Operations;
(iii) relocation costs and other expenses incurred in the final
repatriation or transfer of the CONTRACTOR's expatriate
employees and families in the case of such employees'
retirement, or separation from the CONTRACTOR, or in case
of such employees' relocation to the CONTRACTOR's Head
Office.
Provided that relocation costs incurred in moving an
expatriate employee and his family beyond his point of
origin, established at the time of his transfer to
Nigeria, will not be recoverable as Operating Cost and
provided that no charge shall be made to the Petroleum
Operation with respect to the expenses incurred in the
final repatriation or transfer of the expatriate employees
and families to other areas outside of the Contract Area.
(iv) Nigerian employees on training assignments outside the
Contract Area.
(d) Services provided by third parties - cost of professional,
technical, consultation, utilities and other services procured
from third party sources pursuant to any contract or other
arrangements between such third parties and the CONTRACTOR for
the purpose of Petroleum Operations.
(e) Legal expenses - All costs or expenses of handling,
investigating, asserting, defending, and settling litigation or
claims arising out of or relating to Petroleum Operations or
necessary to protect or recover property used in Petroleum
Operations including, but not limited to, legal fees, court
costs, arbitration costs, cost of investigation or procuring
evidence and amounts paid in settlement or satisfaction of any
such litigation, arbitration or claims in accordance with the
provisions of this Contract.
(f) Services provided by Affiliates of the CONTRACTOR, professional,
administrative, scientific and technical services for the direct
benefit of Petroleum Operations including, but not limited to,
services provided by the exploration, production, legal,
financial, purchasing, insurance, accounting and computer
services departments of such Affiliates. Charges for providing
these services shall reflect the actual cost only
-40-
44
and must be consistent with international market prices and shall
not include any element of profit.
(g) Head Office overhead charge - parent company overhead in the
amount specified in Clause 13.3 of the Contract.
(h) Interest - interest on loans used to finance Petroleum Operations
provided the terms of such loans were with the prior approval of
CORPORATION, and not higher than the prevailing commercial rates.
(i) Insurance premiums and settlements - premiums paid for insurance
normally required to be carried for the Petroleum Operations
together with all expenditures incurred and paid in settlement of
any and all losses, claims, damages, judgements, and other
expenses, including fees and deductibles relating to the
CONTRACTOR's performance under the Contract.
(j) Duties and taxes - all duties and taxes, fees and any Government
assessments, including but not limited to, gas flare charges,
license fees, customs duties, and any other payments to the
Government other than Royalties, PPT and Concession Rental.
(k) Intangible drilling costs - expenditures for labor, fuel,
repairs, maintenance, hauling, and supplies and materials (not
including, casing and other well fixtures) which are for or
incidental to drilling, cleaning, deepening or completing ▇▇▇▇▇
or the preparation thereof incurred in respect of:
(i) determination of well locations, geological, geophysical,
topographical and geographical surveys for site evaluation
preparatory to drilling including the determination of
near surface and near sea bed hazards,
(ii) cleaning, draining and leveling land, road-building and
the laying of foundations,
(iii) drilling, shooting, testing and cleaning ▇▇▇▇▇,
(iv) erection of rigs and tankage assembly and installation of
pipelines and other plan and equipment required in the
preparation or drilling of ▇▇▇▇▇ producing Crude Oil.
(l) Geological and geophysical surveys - labor, materials and
services used in aerial, geological, topographical, geophysical
and seismic surveys incurred in connection with exploration
excluding however the purchase of data from CORPORATION.
(m) Operating expenses - labor, materials and services used in day to
day oil well operations, oil field production facilities
operations, secondary recovery operations; storage,
transportation, delivery and marketing operations; and other
operating
-41-
45
activities, including repairs, well workovers, maintenance and
related leasing or rental of all materials, equipment and
supplies.
(n) Exploration and appraisal drilling - all expenditures incurred in
connection with exploration drilling, and the drilling of the
first two appraisal ▇▇▇▇▇ in a particular field, and drilling of
development ▇▇▇▇▇ which are dry, including costs incurred in
respect of casing, well cement and well fixtures.
(o) Abandonment - a provision for all expenditures incurred in
connection with the plugging of ▇▇▇▇▇; the removal and disposal
of equipment and facilities including well heads, processing and
storage facilities, platforms, pipelines, transport and export
facilities, roads, buildings, wharves, plants, machinery,
fixtures, the restoration of sites and structures including the
payment of damages to property lessors.
2. Capital Costs
Capital Costs means, without limitations, expenditures which are subject
to a Capital Allowance under the PPT Act. Such expenditures normally
have a useful life beyond the year incurred and include but are not
limited to the following:
(a) Plant expenditures - expenditures in connection with the design,
construction, and installation of plant facilities (including
machinery, fixtures, and appurtenances) associated with the
production, treating, and processing of Crude Oil (except such
costs properly allocable to intangible drilling costs) including
offshore platforms, secondary or enhanced recovery systems, gas
injection, water disposal, expenditures for equipment, machinery
and fixtures purchased to conduct Petroleum Operations such as
office furniture and fixtures, office equipment, barges, floating
crafts, automotive equipment, Petroleum Operational aircraft,
construction equipment, miscellaneous equipment.
(b) Pipeline and storage expenditures - expenditures in connection
with the design, installation, construction of pipeline,
transportation, storage, and terminal facilities associated with
Petroleum Operations including tanks, metering, and export lines.
(c) Building expenditure - expenditures incurred in connection with
the construction of building, structures or works of a permanent
nature including workshops, warehouses, offices, roads, wharves,
furniture and fixtures related to employee housing and
recreational facilities and other tangible property incidental to
construction.
(d) Drilling expenditures - expenditures for tangible goods in
connection with drilling ▇▇▇▇▇ such as casing, tubing, surface
and sub-surface production equipment, flow lines, instruments;
costs incurred in connection with the acquisition of rights over
the Contract Area pursuant to paragraph l(d)i of the Second
Schedule of the PPT Act except any bonuses paid under Clause 14
of this Contract.
-42-
46
(e) Pre-Production expenditures - all costs (including those
otherwise falling within Non-Capital Costs described in paragraph
1 of this Article II) incurred before the first PPT accounting
period.
(f) Material inventory - cost of materials purchased and maintained
as inventory items solely for Petroleum Operations subject to the
following provisions:
(i) The CONTRACTOR shall supply or purchase any materials
required for the Petroleum Operations, including those
required in the foreseeable future. Inventory stock
levels shall take account of the time necessary to provide
the replacement, emergency needs and similar
considerations.
(ii) Materials purchased by the CONTRACTOR for use in the
Petroleum Operations shall be valued so as to include
invoice price (less prepayment discounts, cash discounts,
and other discounts if any) plus freight and forwarding
charges between point of supply and point of destination
but not included in the invoice price, inspection costs,
insurance, customs fees and taxes, on imported materials
required for this Contract.
(iii) Materials not available in Nigeria supplied by the
CONTRACTOR or from its Affiliates' stocks shall be valued
at the current competitive cost in the international
market.
(iv) The CONTRACTOR shall maintain physical and accounting
controls of materials in stock in accordance with general
practice in the international petroleum industry. The
CONTRACTOR shall make a total inventory at least once a
year to be observed by the CORPORATION and its external
auditors. The CORPORATION may however carry out partial
or total inventories at its own expenses, whenever it
considers necessary, provided such exercise does not
unreasonably disrupt Petroleum Operations.
Article III
Computation of Royalty, Concession Rentals and PPT
1. The CONTRACTOR shall compute the amount of Royalty and Concession
Rentals payable by the CORPORATION pursuant to Clause 8.1 of this
Contract. Such amounts shall be computed as provided under the
▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ as amended and the PPTA 1959 as amended and the
provisions of this Contract. For purposes of Article IV hereof, the
CONTRACTOR shall compute the Royalty payment for remittance to
Government in a given month based on the prevailing fiscal value of the
Crude Oil produced during the second preceding month. Annual Concession
Rental payments shall be taken into account when such payments are
remitted. The CORPORATION shall remit all required payments of Royalty
and Concession Rentals to the Government. The Royalty shall be computed
as follows:
-43-
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ROYALTY
Royalty rates will be as provided in the ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, as amended,
and the prevailing fiscal laws and regulations.
2.(a) The CONTRACTOR shall compute the PPT payable by CORPORATION pursuant to
Clause 8.1 of this Contract in accordance with the provisions of the PPT
Act and the Revised Memorandum of Understanding, as well as any
prevailing Government fiscal incentives including, but not limited to,
any credit which offsets PPT liability.
(b) The PPT shall be in accordance with the PPT ▇▇▇ ▇▇▇▇, as amended.
(c) The PPT rate applicable to the Contract Area shall be in accordance with
the PPT Act and shall be 65.75% for the first five years of production
from each field developed in the Contract Area commencing for each field
from the first day of the month of first sale therefrom and 85%
thereafter.
(d) The CORPORATION shall make all required PPT payments to Federal Board of
Inland Revenue. The CONTRACTOR shall prepare all returns required under
the PPT Act and timely submit them to the CORPORATION for onward filing
with the Federal Board of Inland Revenue. The monthly PPT payable shall
be determined from such PPT returns.
3. The Revised Memorandum of Understanding shall be applied when
calculating the PPT. This shall include the application of the
Guaranteed Notional Margin, Revised Government Take, Reserve Addition
Bonus, and the tax offset for Capital Investment Costs.
4. In the event that there is more than one field producing in the Contract
Area and different PPT rates (i.e., either 65.75% or 85%) apply to such
fields, the Chargeable Profit (as defined under the PPT Act) shall be
allocated to each field in the proportion that the fiscal values from
each field during the accounting Year bear to the total fiscal values
from the Contract Area during the accounting Year. The applicable PPT
rate will then be applied to the appropriate Chargeable Profit allocated
to each field.
Article IV
Accounting Analyses
1. A monthly accounting analysis in the form of Schedule B-1 attached to
this Accounting Procedure shall be prepared by the CONTRACTOR and
furnished to CORPORATION within sixty (60) days of the end of the period
covered by such analysis, for consideration and approval.
2. The Realizable Price and the quantities actually lifted by the Parties
shall be used to compute the Proceeds as reflected in Section A of each
Schedule B-1 and the allocation of such
-44-
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Proceeds in the categories described under Clause 8.1 of the Contract
shall be reflected in Section B thereof.
3. The allocation of the quantity of Available Crude Oil to each Party
pursuant to Clause 8 of the Contract shall be according to and governed
by provisions of the Allocation Procedure.
4. The priority of allocation of the total proceeds for each Period shall
be as follows:
(a) Royalty Oil,
(b) Cost Oil,
(c) Tax Oil,
(d) Profit Oil.
5. The amount chargeable to and recoverable from Royalty Oil, Tax Oil and
Cost Oil to be entered in Section B of Schedule B-1 shall be determined
as follows:
(a) Royalty Oil - The sum of royalties payable during such month,
and, where applicable, the annual amount of Concession Rentals as
provided under Article III 1 for purposes of Royalty Oil.
(b) Cost Oil - The Operating Costs applicable to such month for
purposes of Cost Oil as follows:
(i) Non-Capital Costs shall be the amount recorded in the
books and accounts of the CONTRACTOR for such month in
accordance with this Accounting Procedure.
(ii) Capital Costs recorded in the books and accounts of the
CONTRACTOR shall be recoverable in full and chargeable in
equal installments over a five (5) year period or the
remaining life of the Contract, whichever is less.
Amortization of such costs shall be in accordance with the
method prescribed under the Second Schedule of the PPT
Act, or over the remaining life of the contract, whichever
is less.
(iii) Qualifying Pre-Production Costs for the Contract Area
shall be in accordance with the PPT ▇▇▇ ▇▇▇▇ as amended.
(c) Tax Oil - The sum of the PPT payable for such month as provided
under Article III 2, 3 and 4, for purposes of Tax Oil.
(d) Any carryover from previous months as provided under paragraph 6
of this Article.
6. Any amounts chargeable and recoverable in excess of the allocation of
Proceeds for the month to Royalty Oil, Tax Oil and Cost Oil shall be
carried forward to subsequent months. Carryovers shall be determined as
follows:
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(a) A Royalty Oil value carryover results when the Proceeds for such
month are insufficient for recovery of the Royalty Oil due for
the month.
(b) A Cost Oil value carryover results when the Proceeds remaining
after allocating a portion of the Proceeds to Royalty Oil is
insufficient for recovery of Cost Oil due for the month,
including the costs described in Clause 8.1(d) of the Contract.
(c) A Tax Oil value carryover results when the proceeds remaining
after allocating a portion of the Proceeds to Royalty Oil and
Cost Oil are insufficient for recovery of the Tax Oil due for the
month.
7. Profit Oil results where proceeds remain after allocations to Royalty
Oil, and Cost Oil, and Tax Oil pursuant to paragraph 5 of this Article
IV. Profit Oil shall be allocated to the Parties according to the
following percentages:
Profit Oil
Monthly Average MBOPD Percentages
from Contract Area CORPORATION CONTRACTOR
---------------------------- ----------- ----------
0 to 40 20 30
Greater than 40 but less than 75 35 65
Greater than 75 but less than 100 45 55
100 and above 50 50
A computation of Profit Oil shares in the form of Schedule B-2 attached
to this Account Procedure shall be submitted monthly in conjunction with
Schedule ▇-▇.
Article V
Other Provisions
1. The CONTRACTOR shall open and keep bank accounts in Nigeria in Naira and
U.S. Dollars where all funds remitted from abroad shall be deposited for
the purpose of meeting local expenditures. For purposes of keeping the
books of accounts, any Foreign Currency remitted by the CONTRACTOR into
Nigeria shall be converted into Naira at the monthly exchange rates
advised by the Central Bank of Nigeria.
2. The CONTRACTOR shall prepare financial accounting and budget statements
in accordance with the CORPORATION's prescribed reporting format.
3. With respect to any agreed sum arising out of this Contract owing
between the Parties that is past due, any set-off pursuant to Clause
10.3 shall be exercised by giving the other Party written notice thereof
accompanied by sufficient description of the offsetting sums to allow
the Parties to properly account therefor.
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The CONTRACTOR shall report on the cumulative production in the
Production Area in the Form on Schedule ▇-▇ ▇▇▇▇▇▇▇▇.
-▇▇-
▇▇
▇▇▇▇▇▇▇▇ ▇-▇
MONTHLY ACCOUNTING ANALYSIS
MONTH OF ___________, ___________
SECTION A - LIFTING SUMMARY
==============================================================================================================
RP Proceeds Received By:
Lifting Crude US$/ Volume Proceeds
Date Type Bbl Bbls US$ CORPORATION CONTRACTOR
==============================================================================================================
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Totals
==============================================================================================================
SECTION B - ALLOCATION OF PROCEEDS - EXPRESSED IN U.S. DOLLARS
==============================================================================================================
PRIOR CURRENT RECOVERABLE ALLOCATION
MONTH MONTH THIS OF CARRYOVER
CATEGORY CARRYOVER CHARGES MONTH PROCEEDS:
--------------------------------------------------------------------------------------------------------------
CORP CONTR
--------------------------------------------------------------------------------------------------------------
Royalty Oil
--------------------------------------------------------------------------------------------------------------
Cost Oil
--------------------------------------------------------------------------------------------------------------
Tax Oil
--------------------------------------------------------------------------------------------------------------
Corp Profit Oil
--------------------------------------------------------------------------------------------------------------
Contr Profit Oil
--------------------------------------------------------------------------------------------------------------
Totals
==============================================================================================================
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Schedule B-2
Profit Oil Shares
Month of ____________, _____
Section A - Total Production Section B - Total Profit Oil
For the Month For the Month
=========================================== ==========================================
Field Total Net Barrels Category US$
------------------------------------------- ------------------------------------------
Proceeds
------------------------------------------- ------------------------------------------
Royalty Oil
------------------------------------------- ------------------------------------------
Cost Oil
------------------------------------------- ------------------------------------------
Tax Oil
=========================================== ==========================================
Profit Oil
=========================================== ==========================================
Section C - Cumulative Production To Date (Schedule B-3, Section B)
-------------------------
Section D - Calculation of Profit Oil Shares
-----------------------------------------------------------------------------------------------------------------
Monthly
Barrels/Day Monthly Profit Corp/Contr
Produced Production % of Total By Profit Corp's Contr's
For the Month By Tranch, Monthly Tranch, Share by Profit, Profit,
Barrels Production US$ Tranch US$ US$
-----------------------------------------------------------------------------------------------------------------
First 40,000 0.20/0.80
Bbls/Day
-----------------------------------------------------------------------------------------------------------------
Next 35,000 0.35/0.65
Bbls/Day
-----------------------------------------------------------------------------------------------------------------
Next 25,000 0.45/0.55
Bbls/Day
-----------------------------------------------------------------------------------------------------------------
Over 100,000 0.50/0.50
Bbls/Day
-----------------------------------------------------------------------------------------------------------------
Total
Monthly
Production
-----------------------------------------------------------------------------------------------------------------
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Schedule B-3
Cumulative Production Analysis
SECTION A - MONTHLY PRODUCTION
================================================================================================================
Planned Planned Actual Actual
Crude Production Cumulative Production Cumulative
Type for Month for Quarter for Month for Quarter
Bbls Bbls Bbls Bbls
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Totals
================================================================================================================
SECTION B - CUMULATIVE PRODUCTION
=================================================================================================================
Cumulative Previous Quarter Cumulative
Production Cumulative Production
Crude Type for Quarter Production B/F To Date
Bbls Bbls Bbls
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Totals
=================================================================================================================
SECTION C - CUMULATIVE PRODUCTION/LIFTINGS/STORAGES
==============================================================================================================
Crude Cumulative Cumulative In
Type Production Liftings Storage
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Totals
==============================================================================================================
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54
ANNEX C
To The Production Sharing Contract
Between the CORPORATION and the CONTRACTOR Dated................
ALLOCATION PROCEDURE
Article I
Application
1. This Allocation Procedure ("this Procedure") sets out the methods for
the allocation of Available Crude Oil from the Contract Area and the
Parties shall allocate all liftings of Available Crude Oil in accordance
with this Procedure and the Contract.
2. In the event that the production of Available Crude Oil is segregated
into two or more types or grades, the provisions of this Procedure shall
apply separately to each such type or grade. To the extent that
distribution on such a basis is impracticable, a separate method for the
allocation of such Available Crude Oil shall be agreed upon by the
Parties.
3. In the event of a conflict between the terms of this Procedure and the
Contract, the terms of the Contract shall prevail.
4. The procedures set forth herein may be amended from time to time by
mutual agreement of the Parties.
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Article II
Definitions
1. The words and expressions defined in the Contract when used herein,
shall have the meaning ascribed to them in the Contract. In addition,
the following words shall have the meanings set forth below:
(a) "Current Quarter" means the calendar quarter within which the
relevant Schedules are prepared and submitted;
(b) "Forecast Quarter" means the first calendar quarter succeeding
the Current Quarter;
(c) "Lifting Allocation" means the quantity of Available Crude Oil
which each Party has the right to take in kind, lift and dispose
of in accordance with Clause 9 of the Contract;
(d) "Primary Nomination" means written statement issued by each Party
to the other at least twenty-five (25) days prior to the
commencement cf each quarter declaring the volume by grade of its
estimated Lifting Allocation which the Party desires to lift
during the Forecast Quarter;
(e) "Proceeds" means the amount in U.S. Dollars determined by
multiplying the Realizable Price by the number of barrels of
Available Crude Oil lifted by either Party; and
(f) "Proceeds Imbalance" means the difference between each Party's
Proceeds to which it is entitled and the Proceeds which each
Party has actually received, as reflected in each quarter's
Schedule C-2 of this Procedure.
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56
Article III
Lifting Allocation
1. On or before September 30 of every year, the CONTRACTOR shall advise the
Parties of its forecast of the Available Crude Oil to be produced by
grades during each month of the first six (6) months of the next ensuing
Year.
2. On or before March 31 of every year, the CONTRACTOR shall advise the
CORPORATION of its forecast of Available Crude Oil to be produced by
grades during each month of the six (6) months commencing July 1, of the
Year.
3. Thirty-five (35) days before commencement of production from the
Contract Area and thereafter thirty-five (35) days prior to the
beginning of the Forecast Quarter, the CONTRACTOR shall notify the
CORPORATION of the estimated Lifting Allocation which can be produced
and made available for disposal during the Forecast Quarter. Such
estimated Lifting Allocation shall take into account any Proceeds
Imbalance for the quarter first preceding the Current Quarter and any
estimated Proceeds Imbalance for the Current Quarter computed in
accordance with paragraph 3 of Article IV. Such notice shall be in the
form of Schedule C-l attached hereto indicating the estimated quantities
of Royalty Oil, Tax Oil, Cost Oil and Profit Oil, each Party's estimated
Lifting Allocation and the estimated Realizable Price used to prepare
such estimated Lifting Allocations.
4. Twenty-five (25) days before the commencement of production from the
Contract Area and thereafter not later than twenty-five (25) days before
the beginning of Forecast Quarter, each Party shall notify the other of
its Primary Nomination of Available Crude Oil which it intends to lift
during the Forecast Quarter which shall not exceed its estimated Lifting
Allocation. Such notice shall include the information described in
Article V, paragraph 1 of Annex D - Nomination, Ship Scheduling and
Lifting Procedure.
5. The estimated Realizable Price to be used by the CONTRACTOR to prepare
Schedule C-l (Estimated Quarterly Lifting Allocation) shall be the
Realizable Price of the first month of the Current Quarter.
6. Each Party shall be obligated to lift its own Lifting Allocation in
accordance with the Nomination, Ship Scheduling and Lifting Procedure
(Annex D). In the event that one Party lifts the other Party's Lifting
Allocation, pursuant to Clause 9.1 of the Contract the lifting Party
shall pay to the non-lifting Party the applicable Proceeds pursuant to
Clause 8.5 of the Contract. In such case, the non-lifting Party shall
be treated for all other purposes under this Contract as though it had
made such lifting itself.
-53-
57
Article IV
Adjustments of Lifting Allocations
1. On or before thirty-five (35) days prior to the last day of the Current
Quarter, the Lifting Allocation for the first preceding quarter thereto
shall be computed and the Proceeds Imbalance determined and agreed to by
the CORPORATION in the form of Schedule C-2 attached hereto. Section A
of such Schedule C-2 shall be based on the actual liftings made by the
Parties and the Proceeds therefrom. Section B of such Schedule C-2
shall be prepared from the Schedule ▇-▇ (of the Accounting Procedure)
for the months in the quarter.
2. On or before thirty-five (35) days prior to the last day of the Current
Quarter, the Proceeds Imbalance for the Current Quarter shall be
estimated, taking into account the actual Proceeds Imbalance computed
for the first preceding quarter under paragraph 1 of this Article IV.
3. The Proceeds Imbalance for the first preceding quarter computed under
paragraph 1 above and the estimated Proceeds Imbalance for the Current
Quarter computed under paragraph 2 above shall be taken into account by
the Parties by debiting or crediting such Proceeds Imbalances to each
Party's share of the estimated Lifting Allocation reflected in Schedule
C-l for the Forecast Quarter filed by dividing the respective Proceeds
Imbalance by the Realizable Price applicable for the period in question.
4. Notwithstanding the reports required to be kept by the CONTRACTOR
pursuant to Article IV in Annex D, the CONTRACTOR shall keep complete
records of all liftings. At the end of each quarter, the Parties will
meet to reconcile the Lifting Allocations and the actual lifting with a
view to making adjustments as appropriate. If any disagreement arises
with respect to such reconciliation, the area of disagreement shall be
mutually resolved by the Parties, in accordance with the official
records of the Ministry.
5. All Lifting Allocations and actual liftings shall be audited at the end
of each calendar year by a mutually acceptable independent auditor.
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SCHEDULE C-1
ESTIMATED QUARTERLY LIFTING ALLOCATION
_____QUARTER (_____-_____), _______
SECTION A - ESTIMATED TOTAL PROCEEDS
================================================================================================
Estimated Estimated Estimated
Crude Lifting RP Proceeds
Type Volume Bbls US$/Bbl US$
------------------------------------------------------------------------------------------------
================================================================================================
Totals
================================================================================================
SECTION B - ALLOCATION OF ESTIMATED PROCEEDS - EXPRESSED IN U.S. DOLLARS
=================================================================================================================
Allocation of Estimated
Prior Estimated Recoverable Proceeds To:
Category Month Quarter This --------------------------
Carryover Charges Quarter CORP CONTR
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Royalty Oil
-----------------------------------------------------------------------------------------------------------------
Cost Oil
-----------------------------------------------------------------------------------------------------------------
Tax Oil
-----------------------------------------------------------------------------------------------------------------
CORP Profit Oil
-----------------------------------------------------------------------------------------------------------------
CONTR Profit Oil
=================================================================================================================
Totals
=================================================================================================================
Prior Quarter's Proceeds Imbalance
(Over)/Under
=======================================================================================
Current Quarter's Estimated Proceeds
Imbalance (Over)/Under
=======================================================================================
Estimated Proceeds Allocation For Quarter
=======================================================================================
SECTION C - ESTIMATED LIFTING ALLOCATION
==============================================================================================================
Crude CORP Allocation CONTR Allocation
Type Proceeds Bbls Proceeds Bbls
==============================================================================================================
==============================================================================================================
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SCHEDULE C-2
ACTUAL QUARTERLY LIFTING ALLOCATION
_______ QUARTER (______-______), ________
SECTION A - LIFTING SUMMARY
==============================================================================================================
Crude Volume Proceeds RP Proceeds Received By
Type Bbls US$ US$/Bbl -----------------------------------
CORPORATION CONTRACTOR
==============================================================================================================
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
==============================================================================================================
Totals
==============================================================================================================
SECTION B - ALLOCATION OF PROCEEDS - EXPRESSED IN U.S. DOLLARS
============================================================================
CORPORATION CONTRACTOR
----------------------------------------------------------------------------
Category Sum of Allocation Lifting Allocation Lifting
Monthly of Proceeds of Proceeds
Allocation Proceeds Received Proceeds Received
--------------------------------------------------------------------------------------------------------------------
Royalty Oil
--------------------------------------------------------------------------------------------------------------------
Cost Oil
--------------------------------------------------------------------------------------------------------------------
Tax Oil
--------------------------------------------------------------------------------------------------------------------
CORPORATION Profit Oil
--------------------------------------------------------------------------------------------------------------------
CONTRACTOR Profit Oil
====================================================================================================================
Totals
====================================================================================================================
====================================================================================================================
Quarter (Over)/Under
---------------------------------------------------------------------------------------------
Prior Quarter (Over)/Under
Proceeds ---------------------------------------------------------------------------------------------
Imbalance Total (Over)/Underr)/Under
====================================================================================================================
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ANNEX D
To The Production Sharing Contract
Between CORPORATION and the CONTRACTOR Dated ..............
UNIFORM NOMINATION, SHIP SCHEDULING AND LIFTING PROCEDURE
Article I
Application
1. This Annex D sets out the procedure for the nomination, ship scheduling
and lifting of Available Crude Oil from the Contract Area.
2. Pursuant to Clause 8.3 of the Contract the CORPORATION and the
CONTRACTOR have the right to nominate, lift and separately dispose of
their agreed allocation of Available Crude Oil produced and saved from
the Contract Area.
3. The procedures set herein may be amended from time to time by the mutual
agreement of the Parties.
4. In the event of a conflict between the terms of this Annex D and the
Contract, the terms of the Contract shall apply.
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ARTICLE II
Definition and Terminology
1. Words and expressions - this Annex shall have the meanings ascribed to
them in the Contract. In addition, the following words shall have the
following meanings:
(a) "Available Production" means the quantity of Petroleum which can
be efficiently and economically produced and saved from the
producing ▇▇▇▇▇ subject to any limitations imposed by government
authority or other technical limitations resulting from
Operations.
(b) "Technical Allowable Production" means the quantity of Petroleum
from time to time determined by the Ministry as being the
quantity that may be produced from the Contract Area on a well by
well basis for a particular period.
(c) "Commercial Production Quota" means the quantity of Petroleum
from time to time fixed or advised by the Ministry as the
permissible quantity that may be produced from the Contract Area
on a crude stream basis for a particular month/quarter.
(d) "Actual Production" means the quantity of Petroleum which is
produced from the Contract Area on a monthly/quarterly basis.
(e) "Available Monthly Scheduling Quantity" means each Party's
allocation of the Available Production for the calendar month
plus Opening Stock.
(f) "Combined Lifting Schedule" means the lifting programmes of the
Parties for a given calendar month/quarter as prepared by the
CONTRACTOR and agreed to by the Parties.
(g) "Opening Stock" means the quantity of Crude Oil that each Party
may carry forward to the succeeding month, recognizing the
difficulty - lifting precisely the Available
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Monthly Scheduling Quantity which excludes unpumpable dead stock,
should not be such as to cause a production shut-in through
reaching maximum stock levels where of course the provisions of
Article V will apply. The Quantity also includes credits/debits
accruing after reconciliation with Available Crude Oil.
(h) "Primary Nomination" means a written statement issued by one
Party to the other at least twenty-five (25) days prior to the
commencement of each calendar month of its production nominations
based on its allocation of the Commercial Production Quota Crude
Oil by grade, which it desires to take during the particular
calendar month plus Opening Stock.
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Article III
Production/Notice of Availability
1. The CONTRACTOR shall endeavour to produce the aggregate volume of oil
nominated by the Parties as provided in this Contract.
2. In the event that Available Crude Oil is segregated into two or more
grades the provisions of this Annex D shall apply separately to each
such grade. To the extent that distribution on such a basis is
impracticable, separate arrangement for sharing of such Available Crude
Oil shall be agreed upon by the Parties.
3. On or before September 30 of every year, the CONTRACTOR shall advise the
Parties of its forecast of the Available Production to be produced by
grades during each month of the first six (6) months of the next ensuing
year.
4. On or before March 31 of every year, the CONTRACTOR shall advise
CORPORATION of its forecast of the Available Production to be produced
by grades during each month of six months commencing July 1, of the
year.
5. Where for operational reasons the CONTRACTOR cannot exactly produce at
the anticipated Commercial Production Quota, the CONTRACTOR shall notify
the CORPORATION promptly of any required changes exceeding 2% of the
quantities originally notified. In any event, when actual production
for the month/quarter is known each Party's allocation will be
recalculated and the differences between Actual Production and
Commercial Production Quota will be credited/debited to each Party, and
shall form the Party's entitlement for the following month or quarter
except in the case of production shut-ins where the provisions of
Section 6 will apply.
6. Twenty-Five (25) days before the commencement of production from the
Contract Area and thereafter not later than twenty-five (25) days before
the beginning of each month, each Party shall notify the other of its
Primary Nomination of Available Crude Oil which it intend(s) to
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lift during the ensuing month, which shall not exceed its monthly
allocation of Commercial Production Quota plus Opening Stock.
7. At the end of each month or quarter, as may be agreed, Parties will meet
to reconcile Available Monthly Scheduling Quantities with actual
Available Crude lifted and adjustments made where necessary. All
entitlements shall be audited at the end of each calendar year by a
mutually acceptable independent auditor.
8. The CONTRACTOR shall keep complete records of all lifting and provide
same to the CORPORATION in accordance with Articles III & IV of this
Annex D.
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Article IV
The CONTRACTOR's Reports
1. The CONTRACTOR shall, not more than fifteen (15) working days after the
end of each calendar month, and quarter, prepare and furnish to the
CORPORATION a written statement showing in respect of the month and
quarter respectively:
(a) Production Quota: each Party's allocation of Commercial
Production Quota;
(b) Lifting against Available Crude Oil;
(c) Each Party's allocation of Available Crude Oil;
(d) Quantity of Crude Oil in Stock for each Party at the end of the
said calendar month or quarter; and
(e) Any production losses attributable to Crude Oil used in Petroleum
Operations.
(f) Cumulative production.
2. In the event the CORPORATION disagrees with any of the CONTRACTOR's
reports, the area of disagreement shall be mutually resolved by the
CONTRACTOR and the CORPORATION to the satisfaction of the Ministry. The
CONTRACTOR shall thereafter prepare a revised report to reflect the
changes agreed.
3. The CONTRACTOR must also endeavour to send consistent statistical data
to the different reporting bodies and should adhere to agreed formats of
reporting.
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Article V
Scheduling Details
1. Scheduling Notification - At least twenty-five (25) days prior to the
beginning of a calendar month, the CORPORATION shall notify the
CONTRACTOR of its proposed tanker schedule for that calendar month
specifying the following:
(a) A loading date range of ten (10) days for each tanker lifting;
(b) The desired parcel size for each lifting in Barrels, subject
always to change within a range of plus or minus rive percent
(5%) by the Party so nominating;
(c) The tanker's name or To Be Named (TBN) for each tanker lifting.
Tanker nominations made as TBN shall be replaced at least five
(5) working days prior to the accepted date range, unless a
shorter time is acceptable to the CONTRACTOR; and
(d) Documentation instructions shall be given for each lifting not
later than four (4) days prior to the first day of the accepted
date range for the tanker in question.
2. Tanker Substitution - Either Party may substitute another tanker to lift
its nominated volume of Crude Oil, provided such substituted tanker has
the same arrival date range as the originally scheduled tanker and all
other provisions of this Annex D are complied with.
3. Overlapping Date Ranges - In the event the Combined Lifting Schedule
contains overlapping accepted date ranges, the tanker which gives its
Notice of Readiness (NOR) and has provided all documentation and
obtained clearances first within such accepted date ranges shall be
loaded first, unless urgent operational requirements dictate otherwise
in which case, demurrage shall be borne by Petroleum Operations and
charged to Operating Costs.
4. Confirmation of Lifting Schedules - At least fifteen (15) days prior to
the beginning of a calendar month, the CONTRACTOR shall either confirm
the feasibility of the proposed
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monthly lifting schedules or, alternatively, advise necessary
modifications to such schedules. Such confirmation which shall be in
the form of combined lifting schedule, should include a loading date
range of three (3) days for each lifting, the first day being the
earliest date of arrival and the third day being the latest date of
arrival.
5. Operation Delays - The Parties recognize that occasionally environmental
and technical problems in the Contract Area may cause delays and/or
disruptions in the combined lifting schedule. The CONTRACTOR shall
promptly notify the CORPORATION of such delays and/or disruptions, and
the projected termination of each of such delays and/or disruptions and
advise the CORPORATION of the revised combined lifting schedule. In the
event such notification does not allow for a revised combined lifting
schedule on the part of the CORPORATION, then any resultant costs will
be charged to Operating Costs.
6. Estimated Delayed Arrival of a Tanker - Whenever it becomes apparent
that a tanker will not be available as scheduled or will be delayed, the
Party utilizing such tanker shall notify the other Party of the
circumstances and expected duration of the delays. Upon assessing the
impact that the delay will have upon the Combined Lifting Schedule and
Production during the current and/or next month, the CONTRACTOR shall
make appropriate revision(s) to the Combined Lifting Schedule to avoid
disruption in production. In the event that any Party fails to lift its
Nominated Share of Production in any month/quarter due to circumstances
beyond the Party's control or difficulties in maintaining the lifting
schedule, that Party shall have the right during the following
quarter/month to lift the unlifted quantities.
7. Tanker Standards - All tankers nominated for lifting by any Party
pursuant to this Annex D shall conform to the International regulations
and standards concerning size, equipment, safety, maintenance and the
like adopted by the CONTRACTOR for the Terminal in question and by the
appropriate government authority. Failure of a tanker to meet such
standards shall not excuse the nominating Party from the applicable
consequences provided in the Contract. The CONTRACTOR shall keep the
CORPORATION advised as to the current Regulations and standards in use
at the terminals operated by the CONTRACTOR.
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8. Destination of Crude Oil - The CONTRACTOR shall at all times disclose
the destination of the Crude Oil lifted under this Contract.
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Article VI
Production Decreases/Increases Subsequent to Nomination
1. Production decreases occurring after lifting nominations have been
scheduled and not resulting from the fault of either Party shall be
shared by the Parties in proportion to their respective nominations.
2. Production increases occurring after lifting nominations have been
confirmed by the CONTRACTOR shall be shared by the Parties, in
proportion to their respective agreed allocation.
3. To the extent that field operations permit, a Party shall have the right
to adjust its nomination during a monthly following confirmation of
lifting schedule provided that the nominations, entitlements and lifting
of the other Party are not affected thereby without their express
written consent. Adjusted nomination shall always be within the limits
of the Party's allocated portion of the Commercial Production Quota,
plus Opening Stock.
4. Any production decrease caused by or resulting directly from the actions
of one Party shall not affect the availability or entitlement of the
other Party. The CONTRACTOR will, to the greatest extent possible,
endeavour not to affect the lifting of the other Party.
5. For the avoidance of doubt each Party's agreed allocations shall be
based on Actual Production.
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Article VII
Delivery Terms and Conditions
1. Tanker Notification - The Parties shall report, or cause the tankers
nominated for lifting pursuant to this Annex D to report, by radio/telex
to the CONTRACTOR of each tanker's Schedule arrival date and hour as
follows:
(a) Seven (7) days before estimated arrival, or upon clearing at last
port if there is less than seven (7) days steaming time before
estimated arrival;
(b) Seventy-Two (72) hours before estimated arrival;
(c) Forty-eight (48) hours before estimated arrival;
(d) Twenty-four (24) hours before estimated arrival; and
(e) At any other time(s) between the seventy-two (72) hours notice,
forty-eight (48) hours notice and twenty-four (24) hours notice
when estimated arrival is to be revised by more than twelve (12)
hours from that most recently notified or after that revised by
more than one-half hour.
Parties shall also cause such tanker so nominated, or their agent, to
report by radio/telex to the Nigerian Government Port Head Official at
the port at least seventy-two (72) hours before each tanker's scheduled
arrival date giving the tanker's name, call sign, ETA at the port(s),
cargo tonnage to be loaded, number of crew, health status, whether or
not a doctor is on board and a request for "Free Pratique".
2. Notice of Readiness - Upon arrival at the designated safe anchorage at
the Port or upon the time of boarding of the Mooring master, whichever
is earlier, the Master of the tanker shall give the CONTRACTOR a Notice
of Readiness (NOR) by radio or by letter, as appropriate, confirming
that the tanker is ready to load cargo, berth or no berth. Laytime, as
herein
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provided, shall commence upon the expiration of six (6) running hours
after receipt by the Loading Terminal of such notice, or upon the
tanker's completion of mooring at the sea loading terminal, whichever
first occurs. However, where delay is caused to the tanker getting into
berth after giving NOR for any reason over which neither the CONTRACTOR
nor the loading Terminal has control, such delay shall not count as used
laytime. In addition time used by tanker while proceeding to berth or
awaiting entry and Free Pratique by customs after the expiration of six
(6) running hours free time, shall not count as used laytime.
3. Early Tanker Arrival - Notwithstanding the provisions of Article VII2
above, if the tanker arrives and tender NOR to load prior to its agreed
date range, the CONTRACTOR shall endeavor to load tanker on arrival or
as soon thereafter as possible and laytime shall only commence when
loading commences. If, however, the CONTRACTOR is unable to accept
tanker for loading prior to the agreed date range, laytime shall
commence at 0600 hours, local time on the first day of the agreed date
range or when loading commences, whichever occurs first.
4. Late Tanker Arrival - if tanker arrives and tender NOR to load after its
accepted date range and other tankers (having arrived during their
accepted date-range), are either loading or waiting to load the loading
tanker shall be governed by the earliest availability of crude and
loading slot, and laytime shall commence only when loading commences.
5. Laytime - The CONTRACTOR shall be allowed laytime in running hours equal
to one-half of the voyage laytime permitted under Worldscale, or such
other freight scale that is issued in replacement thereof, for loading a
full cargo and pro rata thereof for a part cargo, with a minimum of
eighteen (18) hours. Sundays and Holidays included, any delay due to
the fault of the tanker or its facilities to load cargo within the time
allowed shall not count as used laytime. If rules of the Owner of the
vessel or Regulations of Government or appropriate Government Agencies
prohibit loading of the cargo at any time, the time so lost shall not
count as used lay time. Time consumed loading or discharging ballast or
discharging slops shall not count as used laytime. Laytime shall
continue until hoses have disconnected.
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Laytime allowed for loading a full cargo is "36 Running Hours" with a
provision for pro-rating the laytime in the case of vessels loading part
cargo. When a vessel is loading one parcel only and operations commence
ahead of the acceptance date there is no demurrage involved unless the
vessel completes cargo after the permissible laytime, commencing 0001
hours more than one parcel and more than one acceptance date is awarded,
then demurrage will not count unless the total loading is completed
after the expiry of the permissible laytime for the last parcel,
counting 0001 hours on the last acceptance date.
6. Demurrage - If the CONTRACTOR is unable to load within the time allowed,
the CONTRACTOR shall apply demurrage per running hour (pro rata for a
part thereof) for laytime exceeding the allowed laytime as specified
herein. The rate of demurrage will be calculated by multiplying the
time by the Average Freight Rate Assessment (AFRA) as determined by the
London Tanker Brokers Panel. In the event such determination is no
longer available, a freight rate assessment shall be mutually agreed by
the Parties; which rate shall be appropriate in relation to the size of
the tanker and in demurrage rate according to tanker size as specified
in the Worldwide Tanker Nominal Freight Scale or such other foreign
scale that is issued in replacement thereof. If however, demurrage
shall be incurred by reason of fire, storm, explosion, or by strike,
picketing, lockout, stoppage or restraint or labor difficulties, or
disturbances or by breakdown of machinery or equipment in or about the
Loading Terminal, the rate of demurrage as calculated in accordance with
the above shall be governed by Force Majeure and shall not attract any
demurrage. Demurrage claims must be notified with ninety (90) days from
▇▇▇▇ of Lading date.
7. Changes of Berth - The CONTRACTOR shall have the right to shift any
vessel from one berth to another. Charges of running lines on arrival
at and leaving and berth; wharfage and dockage charges at that berth,
and any other extra port charges or port expenses incurred by reason of
such shifting at the CONTRACTOR's request shall be borne by the
CONTRACTOR and shall count as used laytime. If, however, it is
necessary to shift the vessel from the berth because of breakdown
machinery or other deficiency of the vessel or its crew, the resulting
expenses shall be borne by the Party whose Crude Oil is being lifted.
The time consumed in such circumstances, shall not count as used lay
time. However, the
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vessel shall lose its regular turn in berth. When the vessel is ready
to recommence loading, it shall so advise the CONTRACTOR and await its
turn for reberthing and such time after notice is given shall not count
as used laytime.
8. Tanker Departure - Tanker shall vacate the berth as soon as loading is
complete. The Party that schedule such tanker shall indemnify the
CONTRACTOR for any direct loss or damage incurred as a result of
tanker's failure to vacate the berth promptly including such loss or
damage as may be incurred due to resulting delay in the docking of the
tanker awaiting the next turn to load at such berth.
9. Loading Hoses - Hoses for loading shall be furnished by the CONTRACTOR
and shall be connected and disconnected by the tanker's crew under the
supervision of a suitable qualified Ship's Officer acting on the advise
of the Operator's Mooring Master.
10. Partial Cargo - Should the CONTRACTOR supply less than full cargo, for
any reasons the tanker shall not be required to proceed to sea until all
of her tanks are filled with a combination of cargo and ballast as will
place her in a seaworthy condition.
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Article VIII
Crude Oil Quantity And Measurement
1. Certification - The quantity and origin of each shipment of Crude Oil
shall be determined by the appropriate Government authority at the
loading Terminal and set forth in standard Certificates of Quantity,
Quality and Origin. Each Party shall have the right to designate a
representative at its own expenses, who shall have the right to witness
the determination of Quantity, Quality and Origin. All reasonable
facilities shall be supplied by the CONTRACTOR as necessary, to such
Party's representatives at the Port to enable such representatives to
witness the measurements taken at the Loading Terminal and the taking of
the sample to be used supplied to the Representative of the Party.
2. Acceptance of Certificate - If the Party in question does not appoint a
representative, or if such representative appointed as aforesaid agrees
with the Certificate of Quantity, Quality and Origin of a shipment of
Crude Oil (in which event he shall so indicate by signing the
Certificate of Quantity, Quality and Origin), such determinations shall
be final and binding on the Parties.
3. Refusal of Certificate - If the determination of Quantity, Quality and
Origin by the appropriate Government authority has not been approved by
such a representative in accordance with Article VIII 2 above and
dispute arises concerning the Quantity, Quality and Origin of Crude Oil,
recourse shall be had to a mutually agreed independent expert to resolve
the dispute on the basis of his expertise. Claims about Quantity and
Quality of Crude Oil delivered shall be notified within forty-five (45)
days from ▇▇▇▇ of Lading date. The expert shall be selected on the
basis of his special knowledge of the subject matter in this regard and
shall be appointed by mutual agreement of the Parties. Such expert
shall file his conclusions within thirty (30) days after his date of
appointment. Any conclusions of such expert shall be binding upon
Parties. Pending the determination of the dispute, the tanker may sail,
unless the Parties agree otherwise.
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4. Quantity Determination - The quantity of Crude Oil lifted shall be
determined at the time of loading on the basis of gauging the terminal
tanks before and after the lifting of such Crude Oil, or otherwise by
meter reading installed on the loading line from the tanks, as approved
by appropriate Government Authority. The quantity in Barrels of Crude
Oil determined pursuant to the foregoing procedure shall be corrected to
a temperature of sixty degree Fahrenheit (60'F) in accordance with the
most currently published ASTM-IP Petroleum Measurement Tables. A copy
of the concession calculation, if any, shall be submitted to the Lifting
Party through it's representative. In addition, the Basic Sediment and
Water ("BS&W") content, determined in accordance with Article VII 5
hereof, shall be deducted from the quantity loaded, for purposes of
preparing the ▇▇▇▇ or Lading for such shipment and for purposes of
substantiating claims about Quantity and Quality. Any substantiated
loss of Crude Oil occurring in transit between the point of such
determination and delivery shall be borne by the Party lifting provided
such losses do not result due to differences in method of determining
BS&W between the loading and discharge terminals. For differences
occurring where same method of determination at both points are used,
provisions of Article VIII 3 above shall apply. The retained sample
shall be used in determining such loss claims.
5. Quality Determination - The determination of API Gravity and BS&W
content shall be made of each shipment of Crude Oil. BS&W content and
API Gravity shall be determined according to standard international
practices acceptable to the relevant Government authorities.
6. Samples - A sample of each shipment of Crude Oil shall be taken. The
sample shall be sealed and retained by the CONTRACTOR for a maximum of
ninety (90) days. The lifting party or its representative shall have
the right to receive one (1) gallon sealed sample of the Crude Oil
loaded which shall be placed on board the tanker, if so requested.
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ANNEX E
To The Production Sharing Contract
Between CORPORATION and the CONTRACTOR Dated . . . . .
PROCUREMENT AND PROJECT IMPLEMENTATION PROCEDURES
Article I
Application
1.1 These Procurement and Project Implementation Procedures ("Procedures")
shall be followed and observed in the performance of either Party's
obligations under the Contract. Words and expressions defined under the
Contract, when used herein; shall have the meanings ascribed to them in
the Contract. In the event of a conflict between the terms of these
Procedures and the Contract, the terms of the Contract shall prevail.
1.2 These Procedures shall be applicable to all contracts and purchase
orders whose values exceed the respective limits set forth in Article
1.3 and which, pursuant thereto, require the prior concurrence of the
CORPORATION. These Procedures may be amended from time to time by the
Parties.
1.3 The CONTRACTOR shall have the authority, subject to any limitations or
restrictions established by the Management Committee, to enter into any
contract or place any purchase order in its own name for the performance
of services or the procurement of facilities, equipment, materials or
supplies, provided that:
(a) Prior approval of the CORPORATION shall be obtained for all
foreign contracts and foreign purchase orders awarded to third
parties where the cost exceeds two hundred and fifty thousand
U.S. Dollars ($250,000);
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(b) Prior approval of the CORPORATION shall be obtained for all local
contracts and purchase orders where the cost exceeds one million
Naira (Nl,000,000);
(c) The amounts set forth in Article 1.3(a), (b) and (h) will be
reviewed by the Management Committee whenever it becomes apparent
to either Party that such limits create unreasonable constraints
on the Petroleum Operations. In the event of a significant
change in the exchange rate of Naira to U.S. Dollar compared to
that which existed on the Effective Date, the Management
Committee shall review the limits set forth in Article 1.3(a),
(b) and (h);
(d) Such contracts shall be entered into, and such purchase orders
shall be placed with third parties, which in the CONTRACTOR's
opinion are technically and financially able to properly perform
their obligations;
(e) Procedures customary in the oil industry for securing competitive
prices shall prevail.
(f) The CONTRACTOR shall give preference to contractors that are
companies organized under the laws of Nigeria to the maximum
extent possible provided they meet the required standards.
(g) The CONTRACTOR shall give preference to such goods which are
manufactured or produced in Nigeria or services rendered by
Nigerians provided they meet specifications and standards.
(h) The above limits and these procedures shall not apply to
purchases made for warehouse replenishment stock not exceeding
two hundred and fifty thousand U.S. Dollars ($250,000) or one
million Naira (Nl,000,000) nor shall they apply to the purchase
of tubulars of less than five hundred thousand U.S. Dollars
($500,000) or two million Naira (N2,000,000) made in furtherance
of planned drilling programmes. Where there are Naira and U.S.
Dollar components of such purchases, the total shall not exceed
five hundred thousand U.S. Dollars ($500,000) or two million
Naira (N2,000,000).
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Article II
Project Implementation Procedure
2.1 The CONTRACTOR realizing the need for a project or contract to which
these Procedures apply pursuant to Article 1.3 above, shall introduce it
as part of the proposed Work Programme and Budgets to be developed and
submitted by the CONTRACTOR to the Management Committee pursuant to
Clause 6 of this Contract.
(a) The CONTRACTOR shall provide adequate information with respect to
the project including, without limitation, the following:
(i) A clear definition of the necessity and objectives of the
project;
(ii) Scope of the project; and
(iii) Cost estimate thereof.
(b) The CONTRACTOR shall transmit the project proposal along with all
related documentation to the CORPORATION for consideration.
(c) The CORPORATION may make recommendations in writing to the
CONTRACTOR regarding the selection, scope and timing of the
project. The Management Committee shall consider the proposal
and the recommendations of the CORPORATION and shall determine
the matter in accordance with Clause 6 of the Contract. Any
disputed issues shall be resolved by the Management Committee
pursuant to Clause 6.4(d) of the Contract. If the CORPORATION
does not submit any recommendations in writing to the CONTRACTOR
within thirty (30) working days of the submittal of the project,
the project as proposed by the CONTRACTOR shall be deemed
approved by the Management Committee and shall be so noted in the
minutes of the next meeting.
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2.2 The project as approved pursuant to Article 2.1 above shall form part of
the Work Programme and Budget of the Petroleum Operations. Such
approval shall also constitute authorizations by the Management
Committee to the CONTRACTOR to initiate contracts and purchases relevant
to the project proposal, subject to the provisions of Article 1.3.
2.3 The resources for the project design, supervision, and management shall
first be drawn from the CONTRACTOR's available in-house expertise. If
the Management Committee approves, such may be performed by the
CONTRACTOR's Affiliate under the approved budget for the project.
Competent Nigerian Engineering/Design companies shall be given priority
over others by the Management Committee for such projects. The
CORPORATION staff who shall be seconded pursuant to Clause 12.4 of this
Contract shall be fully involved in the project design, supervision and
management.
2.4 After approval of the project/budget, the CONTRACTOR shall prepare and
transmit to the CORPORATION complete details of the project including,
without limitation, the following:
(a) Project definition;
(b) Project specification;
(c) Flow diagrams;
(d) Projects implementation schedule showing all phases of the
project including, without limitation, engineering design,
material/equipment procurement, inspection, transportation,
fabrication/construction, installation, testing and
commissioning;
(e) Major equipment specifications;
(f) Cost estimate of the project;
(g) An activity status report; and
(h) Copies of all approved CONTRACTOR's Authority for Expenditure
(AFEs).
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Article III
Contract Tender Procedure
3.1 The following tender procedure shall apply to work/services/supply not
directly undertaken by the CONTRACTOR or by the CONTRACTOR's Affiliate:
(a) The CONTRACTOR shall maintain a list of approved contractors for
the purposes of contracts for the Petroleum Operations, (the
"Approved Contractors' List"). The CORPORATION shall have the
right to nominate contractors to be included/deleted in the list.
The CORPORATION and the CONTRACTOR shall be responsible for
pre-qualifying any contractor to be included in the Approved
Contractors' List.
(b) Contractors included in the Approved Contractors' List shall be
both local and/or overseas contractors or entities. Where
regulations require, they shall be registered with the Petroleum
Resources Department of the Ministry of Petroleum and Mineral
Resources.
(c) When a contract is to be bid, the CONTRACTOR shall present a list
of proposed bidders to the CORPORATION for concurrence not less
than fifteen (15) working days before the issuance of invitations
to bid to prospective contractors. The CORPORATION may propose
additional names to be included in the list of proposed bidders
or the deletion of any one thereof. Contract specifications
shall be in English and in a recognized format used in the
international petroleum industry.
(d) If the CORPORATION has not responded within fifteen (15) working
days from the date of the official receipt following the
presentation of the list of proposed bidders as aforesaid, the
list shall be deemed to have been approved.
3.2 The CONTRACTOR shall within its limits in Article 1.3(a), (b) and (h)
establish a Tender Committee who shall be responsible for pre-qualifying
bidders, sending out bid invitations,
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receiving and evaluating bids and determining successful bidders to whom
contracts shall be awarded.
3.3 Analyses and recommendations of bids received and opened by the Tender
Committee shall be sent by the CONTRACTOR to the CORPORATION for
approval before a contract is signed with the selected contractor. The
CORPORATION shall respond within fifteen (15) working days from the date
of official receipt. Approval of the CONTRACTOR's recommendations shall
be deemed to have been given if the CORPORATION has not responded within
the said period.
3.4 Prospective vendors/contractors for work estimated in excess of two
hundred and fifty thousand U.S. Dollars ($250,800) shall submit the
commercial summary of their bids to the CONTRACTOR in two properly
sealed envelope, one addressed to the CONTRACTOR and one addressed to
the CORPORATION. The CONTRACTOR shall retain one and send one to the
CORPORATION, properly enveloped, sealed and addressed to CORPORATION.
3.5 In all cases in which an offshore contractor or its Nigerian Affiliate
is invited to bid, the CONTRACTOR shall make full disclosure to the
CORPORATION of its relationship, if any, with such contractors.
3.6 These Procedures may be waived and the CONTRACTOR may negotiate directly
with the contractor and promptly inform the CORPORATION of the outcome
of such negotiations in the following cases:
(a) emergency situations; and
(b) in work requiring specialized skills, or when special
circumstances warrant, upon the approval of the CORPORATION.
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Article IV
General Conditions of Contracts
4.1 The payment terms shall provide, without limitation, that:
(a) A minimum of 10% of contract price shall be held as a retention
fee until after the end of a guarantee period agreed with the
contractor which shall vary between six months and twelve months,
depending on the project, with the exception of drilling and
seismic data acquisition, well surveys and other such services;
provided that, a contractor may be given the option to provide
other guarantee equivalent to the 10% retention such as Letter of
Credit or Performance Bond; and
(b) Provisions shall be made for appropriate withholding tax as may
be applicable.
4.2 The language of all contracts shall be English.
4.3 (a) The governing law of all agreements signed with contractors shall
be Nigerian law for work to be conducted in Nigeria and to the
extent feasible, for work outside Nigeria.
(b) Nigerian law shall apply to contractors performing in Nigeria
and, as far as practicable, they shall use Nigerian resources
both human and material.
(c) All contracts shall include a provision whereby the contractor
shall hold the CONTRACTOR harmless and indemnify the CONTRACTOR
from and against all liabilities, losses, damages and claims
resulting from claims and suits by third parties.
4.4 Each contract shall provide for early termination upon notice and the
CONTRACTOR shall use all reasonable endeavours to obtain a termination
provision with minimal penalty.
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4.5 Contractors shall provide, in the case of a foreign contractor, that the
local part of the work, in all cases, shall be performed by contractor's
local subsidiary.
Article V
Materials and Equipment Procurement
5.1 The CONTRACTOR may, through own in-house or parent company procure
materials and equipment subject to conditions set forth in this Article
5.
5.2 The provisions of this Article 5 shall not apply to lump sum or turnkey
contracts/projects.
5.3 In ordering the equipment/materials, the CONTRACTOR shall obtain from
vendors/manufacturers such rebates/discounts and such
warranties/guarantees that such vendors/manufacturers normally offer,
and all rebates, discounts, guarantees and all other grants and
responsibilities shall be for the benefit of the Petroleum Operations.
5.4 The CONTRACTOR shall:
(a) By means of established policies and procedures ensure that its
procurement efforts provide the best total value, with proper
consideration of quality, service, price, delivery and Operating
Costs to the benefit of the Petroleum Operations;
(b) Maintain appropriate records, which shall be kept up to date,
clearly documenting procurement activities;
(c) Provide quarterly and annual inventory of materials in stock;
(d) Provide a quarterly listing of excess materials in its stock list
to the CORPORATION; and
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(e) Check the excess materials listings from other companies, to
identify materials available in the country prior to initiating
any foreign purchase order.
5.5 The CONTRACTOR shall initiate and maintain policies and practices which
provide a competitive environment/climate amongst local and/or overseas
suppliers. Competitive quotation processes shall be employed for all
local procurement where the estimated value exceeds the equivalent of
one hundred thousand U.S. Dollars ($100,000).
(a) Fabrication, wherever practicable shall be done locally. To this
effect, the Petroleum Operations recognize and shall accommodate
local offers at a premium not exceeding 10%
(b) Subject to Article 3.1(a), the CONTRACTOR shall give preference
to Nigerian indigenous contractors in the award of contracts.
Contracts within the agreed financial limit of the CONTRACTOR
shall be awarded to only competent Nigerian indigenous
contractors. Where there are no Nigerian indigenous contractors
possessing the required skill/capability for the execution of
such contracts, the CONTRACTOR shall notify the CORPORATION
accordingly.
5.6 Analyses and recommendations of competitive quotations of a value
exceeding the limits established in Article 1.3 shall be transmitted to
the CORPORATION for approval before a purchase order is issued to the
selected vendor/manufacturer. Approval shall be deemed to have been
given if a response has not been received from the CORPORATION within
fifteen (15) working days of receipt by the CORPORATION of the said
analyses and recommendations.
5.7 Pre-inspection of rig, equipment/stock materials of reasonable value
shall be jointly carried out at factory site and quay before shipment at
the request of either Party.
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Article VI
Project Monitoring
6.1 The CONTRACTOR shall provide a project report monthly to the
CORPORATION.
6.2 For major projects exceeding two hundred and fifty thousand U.S. Dollars
($250,000) or equivalent, the CONTRACTOR shall provide to the
CORPORATION a detailed quarterly report which shall include:
(a) Approved budget total for each project;
(b) Expenditure on each project;
(c) Variances and explanations;
(d) Number and value of construction change orders;
(e) Bar chart of schedule showing work in progress and work already
completed and schedule of mile-stones and significant events; and
(f) Summary of progress during the reporting period, summary of
existing problems, if any, and proposed remedial action,
anticipated problems, and percentage of completion.
Provided that the CORPORATION shall have the right to send its own
representatives to assess the project based on the report.
6.3 In the case of an increase in cost in excess of 10% on the project, the
CONTRACTOR shall promptly notify the CORPORATION and obtain necessary
budget approval.
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6.4 Not later than six (6) months following the physical completion of any
major project whose cost exceeds two hundred and fifty thousand U.S.
Dollars ($250,000) or equivalent, the CONTRACTOR shall prepare and
deliver to the CORPORATION a project completion report which shall
include the following:
(a) Cost performance of the project in accordance with the work
breakdown at the commencement of the project;
(b) Significant variations in any item or sub-items;
(c) Summary of problems and unexpected events encountered during the
project; and
(d) List of excess project materials.
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▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇ OPLS 98 AND 118
BETWEEN
THE FEDERAL MILITARY GOVERNMENT OF THE FEDERAL
REPUBLIC OF NIGERIA
AND
ASHLAND OIL (NIGERIA) COMPANY
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MEMORANDUM OF UNDERSTANDING
ON INCENTIVES FOR ENCOURAGING INVESTMENTS INI EXPLORATION AND
DEVELOPMENT ACTIVITIES AND ENHANCING CRUDE OIL EXPORTS
THIS MEMORANDUM OF UNDERSTANDING is made the ___ day of ______, 1991, BETWEEN
THE FEDERAL MILITARY GOVERNMENT OF THE FEDERAL REPUBLIC OF NIGERIA,
("Government"), represented by the Honorable Secretary of Petroleum Resources
and Ashland Oil (Nigeria) Company, a company incorporated under the laws of
Nigeria whose registered office is at ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇▇▇▇▇▇
Island, Lagos ("Ashland").
WHEREAS:
(i) Government and Ashland entered into a MEMORANDUM OF UNDERSTANDING
ON INCENTIVES FOR ENHANCING CRUDE OIL EXPORTS AND ENCOURAGING
INVESTMENTS IN EXPLORATION AND DEVELOPMENT ACTIVITIES (the
"Memorandum of Understanding") effective 1st January, 1986.
(ii) Some matters in the Memorandum of Understanding were more
particularly detailed in the Side Letter dated 17th of January,
1986, which also formed part of the Memorandum of Understanding.
(iii) Government and Ashland reviewed the Memorandum of Understanding
and the Side Letter and agreed to a "First Amendment" effective
1st October, 1986.
(iv) Government and Ashland further reviewed the Memorandum of
Understanding and the Side Letter and agreed to a "Second
Amendment" effective 1st July, 1987.
(v) Some ▇▇▇▇▇'▇ product price quotations used in determining Price
were updated in letters (dated l9th October 1988 and 27th July
1990) from the Nigerian National Petroleum Corporation ("NNPC").
(vi) Government and Ashland have further reviewed the Memorandum of
Understanding and the aforementioned Side Letters and amendments
and have mutually agreed to consolidate them into this
Memorandum.
(vii) Ashland is conducting Petroleum Operations under the Production
Sharing Contract between NNPC and Ashland dated 12th June 1973,
as amended to date ("PSC").
(viii) Ashland has thoroughly explored all of the acreage within the
area (OPLs 98 and 118) covered by the PSC and has fully developed
all commercial oil fields discovered as a result thereof.
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NOW THEREFORE, the parties hereby agree as follows:
1.1 The said Memorandum of Understanding dated 17th January, 1986
together with the Side Letter and the amendments referred to in
the above recitals hereto are hereby terminated and are replace
and superseded in their entirety by this Memorandum of
Understanding ("this Memorandum").
1.2 The fiscal regime currently applicable to the oil industry is
modified to ensure that the industry realizes not less than the
profit margin established pursuant to Clauses 2.4, 2.5 and 2.6
herein.
l.3 The terms and conditions set forth in Clauses 2 to 5 of this
Memorandum shall form part of the new fiscal regime.
2. Incentives
2.1 Prior to the instruction of the incentives described in this
Memorandum, the fiscal regime existing at 31st December 1985,
provided for computations of Royalty on Posted Price and
Petroleum Profit Tax ("PPT") on the higher of actual proceeds
(Section 9) or Posted Prices (Section 17A), of the Petroleum
Profits Tax ▇▇▇ ▇▇▇▇ and its amendments ("PPT Act").
2.2 Except as otherwise specified in Clause 2.6, it is intended by
the incentives described in this Memorandum to accord a minimum
Guaranteed Notional Margin of $2.30/bbl, aL.ter payment of the
PPT and Royalty as provided under the PSC. However, this minimum
Guaranteed Notional Margin shall be premised on the fact that the
technical cost of operations does not exceed the Notional Fiscal
Technical Cost which, at present, is $2.50/bbl.
2.3 It is further intended that when in any one calendar year
Ashland's actual expenditure on Capital Investment Costs defined
as T2 in Appendix l is equal to or exceeds $1.50/bbl on average
then the minimum Guaranteed Notional Margin specified in Clause
2.2 shall be increased to $2.50/bbl. Furthermore in this
circumstance, the Notional Fiscal Technical Cost shall be
increased to $3.50/bbl.
2.4 For the purpose oL. this Memorandum, Government Take (Royalty and
PPT) relating to the PSC for any fiscal accounting year shall be
the lower oL. Government Take according to the 31/12/1985 Royalty
and PPT regulations calculated by substitution of Official
Selling Price ("OSP") for Posted Price and the Revised Government
'Take ("RGT") calculated per the of offset pricing formula below:
RGT = OP-(TR x TC) -OT
Where:
RGT = Revised Government Take
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OP = Offset Price = B x RP
RP = Realizable Price Calculated in accordance with
Clauses 2.12, 2.13, and 2.14 hereof to
determine/mirror the crude oil market values of
Nigerian export grades.
B = K [(1-▇▇▇) x TR +▇▇▇)
K = Factor of 1.0042 when the minimum Guaranteed
Notional Margin is $2.30/bbl.
Factor of O.9869 when the minimum Guaranteed
Notional Margin is $2.50/bbl.
▇▇▇ = Royalty Rate
TR = Applicable Tax Rate
TC = Deductions under Sections 10, 14 and 15 (excluding
royalty) of the PPT Act.
TO = Offsets under Section 17 of the PPT Act.
2.5 For Realisable Prices below $23/bbl, the K-Factors specified
under Clause 2.4 shall be substituted by the undernoted
self-adjusting mechanism for the determination of the K-Factor
which shall be applied to restore the desired Guaranteed Notional
Margin:
K = 1.1364 (1 - M + 0.15 FC )
-----------
RP
Where:
M = Guaranteed Notional Margin
FC = Notional Fiscal Technical Cost
Therefore when M is $2.30/bbl:
K = 1.1364 (1 - $2.30 + 0.15 [$2.50] )
--------------------
RP
and, when M is $2.50/bbl
K = 1.1364 (1 - $2.50 + 0.15 [$3.50] )
--------------------
RP
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2.6 The following mechanism shall be applied for establishing the
Guaranteed Notional Margin for Realisable Prices less than
$12.50/bbl:
M = (1 - FC ) (RP(1) a(1) + RP(2) a(2) + RP(3) a(3))
--
RP
Where:
M = Guaranteed Notional margin (presently $2.30/bbl
subject to Clause 2.3)
RP = Realisable Price
FC = Notional Fiscal Technical Cost (presently $2.50/bbl
subject to Clause 2.3)
a = Ashland's Percentage share of field profit.
For:
Realisable Price Ashland Share Applicable
in the Range to Price Range
---------------- -------------------------
0 less than RP(1) less than a(1) = 0.30 = 0.365
or equal to $5/bbl
$5/bbl less than RP(2) less a(2) = 0.22 = 0.263
than or equal to $10/bbl
$10/bbl less than RP(3) less a(3) = 0.11 = 0.131
than or equal to $12.50/bbl
For worked examples refer to Appendix 2.
2.7 The K-Factors specified under Clauses 2.4 and 2.5 shall remain in
force until amended by the Minister of Petroleum Resources. It
is intended that such amendment shall only be necessary when
Realisable Price exceeds $30/bbl for at least 45 days
continuously. If the Realisable Price returns below $30/bbl, the
K-Factors will return automatically to the levels specified in
Clauses 2.4 and 2.5 as appropriate.
2.8 The Parties agree that, since Ashland has thoroughly explored all
of the said areas covered by the PSC and has fully developed all
oil fields which are commercial under the terms of the PSC,
further investment in such areas for exploration and/or
development is not viable for Ashland and, therefore, the
incentives known as the Capital Investment Cost Tax Offset and
the Reserves Addition Bonus, which were provided to the oil
industry under the Memorandum of Understanding agreements signed
in 1991 shall not be applicable to Ashland under this Memorandum;
provided however, that if circumstances change (such as the PSC
is extended beyond 12 June 1993) and Ashland undertakes further
investment, as approved by NNPC, under the PSC, then this
Memorandum shall be amended to provide that the aforementioned
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incentives stated in this Clause 2.8 shall be extended to
Ashland, and in addition, the values of M = $2.50/bbl and FC =
$3.50/bbl shall apply to Ashland when T2 is equal to or greater
than $1.50/bbl.
2.9 To the extent that in any one calendar year the actual technical
cost of operations exceeds $3.50/bbl on average and such excess
arises due to Capital Investment Costs (T2 as defined below)
equaling or exceeding $1.50/bbl, Ashland shall be entitled to a
tax offset against its PPT liability for that year. This offset
shall be:
10% x (LIBOR + 1%) x (0.80 x T(2))
Where
LIBOR = The average Financial Times London Inter
Bank Fixing Offer Rate for 3 month US
Dollars as quoted in the London Financial
Times on 1 January, 1 April, 1 July and 1
October or the next succeeding quotation
day.
T(2) = Deductions under Sections 10, 14 and 15
(excluding Royalty and Production Operating
Expenses) of the PPT Act.
2.10 To the extent that in any one year that additions to oil and
condensate Ultimate Recovery ("UR") exceed the production for
that year, then Ashland shall be entitled to a "Reserves Addition
Bonus" in the form of an offset against its PPT liability for the
year. For the purpose of estimating the "Reserves Addition
Bonus", UR shall be the sum of proven and probable crude oil and
condensate Ultimate Recovery. UR shall be determined in a manner
acceptable to the Department of Petroleum Resources and such UR
shall be as confirmed by Honourable Minister of Petroleum
Resources. The "Reserves Addition Bonus" shall be calculated for
each year in tranches determined by reference to the
addition/production ratio ("R");
R = ([UR at end year] - [UR at start of year])
----------------------------------------
Annual Production
For:
Incremental Addition/ Bonus Rate Per
R in the Range Production Ratio Incremental Barrel
------------------------------------------- ------------------------------- --------------------
1.0 less than R less than or equal to 1.25 Ra(1) = R - 1.00 X(1) = $.10/bbl
1.25 less than R less than or equal to 1.50 Ra(1) = 0.25 and X(2) = $0.25/bbl
Ra(2) = R - 1.25
1.50 less than R less than or equal to 1.75 Ra(1) = Ra(2) = 0.25 X(3) = $0.40/bbl
and Ra(3) = R - 1.50
R greater than 1.75 Ra(1) = Ra(2) = Ra3 = 0.25 X(4) = $0.50/bbl
and Ra(4) = R - 1.75
For purposes of calculating Reserves Addition Bonus
herein, the formula below shall apply:
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Bonus = [Ra(1) X(1) + Ra(2) X(2) Ra(3) X(3) + Ra(4) X(4)]P
Where:
P = Annual Production
X = Bonus rates for various values of R
UR = Ultimate Recovery which is defined as the total
volume of crude oil and condensate recovered and to
be recovered over the life time of the field
For worked examples see Appendix 2.
In the event that in any one calendar year there is a downward
revision to the total oil and condensate Ultimate Recovery, to
the extent that the downward revision represents an adjustment to
Ultimate Recovery on which Ashland had received "Reserves
Additions Bonus" in previous years, Government shall have the
right to require Ashland to recalculate the "Reserves Additions
Bonus" in respect of those years. Ashland shall immediately pay
to Government any additional PPT liability arising from the
recomputation of the "Reserves Additions Bonus" and the related
tax offsets.
2.11 RGT will be calculated in Naira each month (under the terms
outlined in this Memorandum) and compared for the same volume of
exports with Government Take for the same month under the terms
of the present (31/12/85) Royalty and PPR regulations. Identical
rates of exchange will be used to convert U.S. Dollar prices to
Naira in both Government Take and RGT calculations. The amount
by which RGT is less than Government Take each month will be
accumulated and at the end of the fiscal accounting year will be
applied as the annual tax credit to be offset against PPT due for
that fiscal accounting period.
2.12 For the purpose of the RGT formula, the terms and conditions of
Appendix A (attached to and forming part of this Memorandum)
including yield percentages of the three crude streams (Bonny
Light, Forcados, Bonny Medium), weighted for each of the primary
market areas as defined in Clause 2.13, shall be mutually agreed
for a 6 month period determined 3 months in advance. Thus the
terms and conditions of Appendix A applicable to the respective
market for the period 1st October through 31st March, will be
determined on or before the preceding 1st July, and for the
period 1st April through 30th September, on or before the
preceding 1st January. If there is no mutual agreement, the
terms and conditions of Appendix A applicable to the preceding
year and for the same 6 month period will prevail.
2.13 Appendix A shows the basis for determining the Realizable Price
f.o.b. Nigeria ("RP"). The c.i.f. value for each of the crude
streams shall be calculated monthly by utilizing the agreed
product yield and the average of mid-range product prices quoted
each quotation day for the period 1st to 20th day of the month of
lifting in ▇▇▇▇▇'▇
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Oilgram Price Report published by ▇▇▇▇▇▇-▇▇▇▇ Inc. ("▇▇▇▇▇'▇")
for each of the following markets viz: cargoes c.i.f. North-West
Europe basis ARA, cargoes c.i.f. Mediterranean basis Genoa/▇▇▇▇▇▇
(or if not quoted cargoes f.o.b. basis Italy) and US Gulf Coast
waterborne. In the USGC, L.P.G. will be priced at ▇▇▇▇▇'▇
quotation for Mont Belvieu Gas Liquids. Specific adjustments for
freight, ocean loss, insurance, and processing cost applicable to
each primary market shall be deducted in the calculation of the
Net Back Value ("NBV") Portion of the RP. The final NBV Portion
of the RP shall be determined by comparing the NBV so calculated
with the average of the appropriate crude oil quotations as
published in ▇▇▇▇▇'▇ effective for each quotation day for the
period 1st to 20th (inclusive) of the same month. The NBV shall
be limited to a range of plus or minus 40 (forty) US cents per US
barrel around the prices of BBQ, Forcado Blend and Bonny Medium
through the following mechanism, where:
A: Initial NBV
B: Average Crude Oil Price (Bonny Light = ▇▇▇▇▇'▇ BBQ;
Forcados = ▇▇▇▇▇'▇ Forcados; and Bonny Medium = ▇▇▇▇▇'▇
BBQ - $1.20/bbl)
The Final NBV is equal to F2 as follows:
F1: The greater of (B-40c./bbl) and A
F2: The lesser of (B+40c./bbl) and F1
2.14 The Final NBV resulting from Clause 2.13 will be averaged with
crude oil price quotations to determine RP for each crude stream
as follow. Such RP for any month shall be deemed as the RP for
that month's lifting.
Bonny Light: The Final NBV for any month, calculated on the
basis of Appendix A, plus the average of mid range quotations for
BBQ crude oil in ▇▇▇▇▇'▇ for each quotation day for the period
1st to 20th of the same month less $0.25/bbl, the whole divided
by two.
Bonny Medium: The Final NBV for any month, calculated on the
basis of Appendix A, plus the average of mid-range quotations for
BBQ crude oil in ▇▇▇▇▇'▇ for each quotation day for the period
1st to 20th of the same month less $1.45/bbl the whole divided by
two.
Forcados: The Final NBV for any month, calculated on the basis
of Appendix A, plus the average of mid-range quotations for
Forcados crude oil in ▇▇▇▇▇'▇ for each quotation day for the
period 1st to 20th of the same month less $0.25/bbl, the whole
divided by two.
3. Conditions
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In consideration of the incentives granted herein by the Government,
Ashland undertakes to market all NNPC's Lifting Allocations (as defined
in the PSC) subject to NNPC's right to revoke such authority as provided
under Clause 5 of the PSC.
4. Non-Performance
4.1 Where, however, Ashland is unable to lift all or part of NNPC's
Lifting Allocation as defined and provided under the PSC, Ashland
agrees to pay to NNPC 2% of the average RP (for the quarter of
default) for each barrel not lifted. This payment will be made
in U.S. dollars or as may be directed by the Government and shall
not be considered as Operating Cost or be taken into account in
respect of year-end adjustment of cost or treated as a cost
allowance for the calculation of PPT.
4.2 In the event of force majeure, as defined in Clause 6, the
provision of Clause 4.1 shall not apply. If any restriction is
placed on the importation of crude oil including tariff barriers
or other relevant restrictions on trade which to the knowledge of
both parties affect Ashland's ability to dispose of Nigerian
Crude Oil, the parties agree to meet to discuss an equitable
solution.
5. Agreement of Government Agencies
Government confirms that the terms of this Memorandum have been agreed
by the appropriate Government Ministries in Nigeria including the
Ministry of Finance, the Federal Inland Revenue Department, and the
Central Bank of Nigeria. In consequence, Government guarantees to
Ashland that no penalties, fines or other imposts including costs of
litigation and/or defense of the fiscal and foreign exchange
arrangements included in this Memorandum shall be imposed upon Ashland
by reason of compliance with this Memorandum.
6. Force Majeure
No failure or omission to carry out or to observe any of the terms,
provisions or conditions of this Memorandum shall, except as is herein
expressly provided to the contrary, give rise to any claim by one party
hereto against the other or be deemed to be a breach of this Memorandum,
if such failure or omission arises from any cause reasonably beyond the
control of either party. Such cause may be but is not limited to, any
act, event, happening, or occurrence due to natural causes, breakdown of
vessels or machinery and equipment, civil unrest, strikes, lock-outs or
labor disputes, war, battle and commotion, or action of any relevant de
facto government. The rights of both parties shall be adjusted and to
the extent of their performance up to the time of the relevant event as
is reasonable in normal commercial practice and practicable in the
particular circumstances. As soon as practicable after the supervening
circumstances, the obligations under this Memorandum shall be resumed by
both parties as if there had been no interruption. Either party
claiming to be affected by such event shall give immediate notice in
writing of such claims to the other party giving full particulars
thereof and furthermore shall give immediate notice in writing of the
cessation of any such event.
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7. Effective Date
This Memorandum shall become effective from the 1st day of January 1991.
Ashland may terminate this Memorandum having given one year's prior
notice to NNPC to withdraw.
8. Appendices
Appendices 1, 2(a & b), 3 and A (including Attachment 1) attached hereto
form part of this Memorandum.
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AS WITNESS the hands of the duly authorized representatives of the Parties the
day and year first above written.
THE FEDERAL MILITARY GOVERNMENT
OF THE FEDERAL REPUBLIC OF NIGERIA
By: /s/ CHIEF P. C. ASIODU
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Name: CHIEF P. C. ASIODU
Designation: Honorable Secretary of Petroleum & Mineral Resources
IN the presence of:
Name:
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Signature:
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Designation:
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Address:
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SIGNED for an on behalf of
ASHLAND OIL (NIGERIA) COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Designation: Managing Director
IN the presence of
Name: ▇▇▇. ▇▇▇▇▇▇▇ ▇. Atake
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Signature: /s/ ▇▇▇▇▇▇▇ ▇. Atake
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Designation: Senior Liaison Officer
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Address: Ashland Oil (Nigeria) Company Unlimited
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▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
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APPENDIX 1
PROCEDURE ON THE CALCULATION OF TECHNICAL COST PER BARREL
WITH REFERENCE TO THE MEMORANDUM OF UNDERSTANDING ON
INCENTIVES BETWEEN THE FEDERAL MILITARY GOVERNMENT
OF THE FEDERAL REPUBLIC OF NIGERIA
AND COMPANY - CLAUSE 2.3
The following expenses and costs reported by Company for the purposes of cost
recovery pursuant to the PSC during the period January/December of the year of
lifting shall be included in calculating the actual production cost per barrel
for the purpose of this Memorandum of Understanding.
(a) Production Operating Expenses: T(1)
(i) Direct Reproduction Expenses as per items 400 and 401 of Report
No. 002 of Account Reporting Manual.
(ii) Portion of Administrative and General Expenses allocated to
Production - refer item 402 of Report No. 002 of Accounts
Reporting Manual.
(iii) Custom Duties and Gross Rentals allocated to Production - refer
items 4043 and 4045 of Report No. 002 of the Accounts Reporting
Manual.
(iv) Extra Ordinary/Prior Year Expenses/Incomes - refer item 405 of
Report No. 002 Accounts Reporting Manual.
(b) Capital Investment Costs which qualify for expensing for PPT calculation
and chargeable to Production Costs: T(2)
(i) Exploration Drilling Costs.
(ii) Appraisal Drilling Cost (1st and 2nd ▇▇▇▇▇).
(iii) Intangible Drilling and Development Costs.
(iv) Capital Allowances - shall be restricted to the capital
allowances applicable direct to production and a share of the
capital allowances on overhead assets allocated to production.
Such Capital Allowance should be reconciled with the Allowances
claimed for the year under Section 15 of the PPTA.
(c) It is expected that the Production Operating Expenses and Capital
Investment Costs above will be reconciled by Company with Report Nos.
002 and 001 of the Accounts Reporting Manual respectively.
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99
(d) The recommended basis for allocation of Expenses and Costs in a(ii),
a(iii) and a(iv) above to production shall be:
P
---------
E + P + X
Where:
P = The additions to the Capital costs during the year and the
Operating expenses for the year reported by Ashland for
the purposes of cost recovery pursuant to the PSC which
are directly related to the production function.
E = The additions to the Capital costs during the year and the
Operating expenses for the year reported by Ashland for
the purposes of cost recovery pursuant to the PSC which
are directly related to the exploration function.
X = Any other expenditures other than Production and
Exploration functions which are reported by Ashland for
the purposes of cost recovery pursuant to the PSC.
(a) (i) to (iv) + (b) (i) to (iv)
(e) Production Cost Per Barrel = ----------------------------------
Annual Production (Barrels)
(f) The advice on cost per barrel forwarded to NNPC should be supported with
a working paper.
-96-
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APPENDIX 2 (a)
WORKED EXAMPLES FOR ESTABLISHING THE GUARANTEED NOTIONAL
MARGIN FOR R.P. LESS THAN $12.5/bbl - CLAUSE 2.6
WHERE FC = $2.50/BBL
1.) If RP = $4
RP(1) = $4
a(1) = 0.30
and FC = $2.5
Margin M = (1 - 2.5) x (4 x 0.30)
---
4
= 0.375 x 1.2
M = $0.45
===================
2.) If RP = $9
RP(1) = $5
a(1) = 0.30
RP(2) = $4
a(2) = 0.22
M = (1 - 2.5) x (5 x 0.30 + 4 x 0.22)
---
9
= 0.722 x 2.38
M = $1.719
====================
3.) If RP = $11
RP(1) = $5
a(1) = 0.30
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101
RP(2) = $5
a(2) = 0.22
RP(3) = $1
a(3) = 0.11
and M = (1 - 2.5) x (5 x 0.30 + 5 x 0.22 + 1 x 0.11)
---
11
= 0.7727 x 2.71
M = $2.094
====================
4.) If RP = $12.50
RP(1) = $5
a(1) = 0.30
RP(2) = $5
a(2) = 0.22
RP(3) = $2.50
a(3) = 0.11
and M = (1 - 2.5) x (5 x 0.30 + 5 x 0.22 + 2.5 x 0.11)
-----
12.50
= 0.80 x 2.875
M = $2.30
===================
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APPENDIX 2(b)
WORKED EXAMPLES FOR ESTABLISHING THE GUARANTEED
NOTIONAL MARGIN R.P. LESS THAN $12.5/bbl - CLAUSE 2.6
WHERE FC = $3.50/BBL
1.) If RP = $4
RP(1) = $4
a(1) = 0.365
and FC = $3.5
Margin M = (1 - 3.50) x (4 x 0.365)
----
4
= 0.125 x 1.46
M = $0.1825
2.) If RP = $9
RP(1) = $5
a(1) = 0.365
RP(2) = $4
a(2) = 0.263
M = (1 - 3.50) x (5 x 0.365 + 4 x 0.263)
----
9
= 0.611 x 2.877
M = $1.758
3.) If RP = $11
RP(1) = $5
a(1) = 0.365
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103
RP(2) = $5
a(2) = 0.263
RP(3) = $1
a(3) = 0.131
and M = (1 - 3.50) x (5 x 0.365 + 5 x 0.263 + 1 x 0.131)
----
11
= 0.6818 x 3.271
M = $2.23
====================
4.) If RP = $12.50
RP(1) = $5
a(1) = 0.365
RP(2) = $5
a(2) = 0.263
RP(3) = $2.50
a(3) = 0.131
and M = (1 - 3.50) x (5 x 0.365 + 5 x 0.263 + 2.5 x 0.131)
-----
12.50
= 0.72 x 3.4675
M = $2.50
===================
-100-
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APPENDIX 3
WORKED EXAMPLES ON COMPUTATION OF RESERVES
ADDITION BONUS
1.) Take UR End Year = 640 million barrels
UR Begin Year = 400 million barrels
Annual Production = 200 million barrels
R = 640 - 400
-----------------
200
= 1.2
Ra(1) = 0.2
X(1) = $0.10/bbl
.'. Bonus = [Ra(1) X(1)] P
= [(0.2) (0.10)] x 200
= US$4.0 million
==============
2.) Take UR End Year = 700 million barrels
UR Begin Year = 400 million barrels
Annual Production = 200 million barrels
R = 700 - 400
-----------------
200
= 1.5
Ra(1) = 0.25
Ra(2) = 0.25
X(1) = $0.10/bbl
X(2) = $0.25/bbl
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.'. Bonus = [(Ra(1) X(1)) + (Ra(2) X(2))] P
= [(0.25) (0.10) + (0.25) (0.25)] x 200
= US$17.5 million
===============
3.) Take UR End Year = 740 million barrels
UR Begin Year = 400 million barrels
Annual Production = 200 million barrels
R = 740 - 400
-----------------
200
= 1.7
Ra(1) = 0.25
Ra(2) = 0.25
Ra(3) = 0.20
X(1) = $0.10/bbl
X(2) = $0.25/bbl
X(3) = $0.40/bbl
.'. Bonus = [Ra(1) X1(1) + Ra(2) X(2) + Ra(3) X(3) ] P
= [(.25) (.10) + (.25) (.25) + (.20) (.40)] x 200
= US$33.5 million
===============
4.) Take UR End Year = 900 million barrels
UR Begin Year = 400 million barrels
Annual Production = 200 million barrels
R = 900 - 400
-----------------
200
-102-
106
= 2.5
Ra(1) = 0.25
Ra(2) = 0.25
Ra(3) = 0.25
Ra(4) = 0.75
X(1) = $0.10/bbl
X(2) = $0.25/bbl
X(3) = $0.40/bbl
X(4) = $0.50/bbl
.'. Bonus = [Ra(1) X(1) + Ra(2) X(2) + Ra(3) X(3) + Ra(4) X(4)]P
= [(.25) (.10) + (.25) (.25) +
(.25) (.40) + (.75) (.50)] x 200
= US$112.5 million
================
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107
APPENDIX A
CALCULATION OF REALIZABLE PRICE
The market weighted FOB Nigeria Net Back Value ("NBV") for the purpose
of calculating Realizable Price under this Memorandum shall be calculated from
the data given below and in accordance with the worked example shown in
Attachment 1 to this Appendix A.
1. Delivery Each export grade of crude oil will be deemed delivered to:
U.S. Gulf Coast (USGC) 60 per cent
North West Europe (NWE) 20 per cent
Mediterranean (MED) 20 per cent
2. Grades The export grades of crude oil are:
Bonny Light of standard export gravity 37 degrees API
Forcados Blend of standard export gravity 31 degrees "
Bonny Medium of standard export gravity 26 degrees "
Qua Iboe Light of standard export gravity 37 degrees "
Escravos Light of standard export gravity 36 degrees "
Brass Blend of standard export gravity 43 degrees "
▇▇▇▇▇▇▇▇▇▇ Light of standard export gravity 36 degrees "
Commingled Antan of standard export gravity 32 degrees "
3. Conversion Factors
Bonny Light 7.5060 barrels per metric tonne
Forcados Blend 7.2390 " " " "
Bonny Medium 7.0160 " " " "
Qua Iboe Light 7.5060 " " " "
Escravos Light 7.4625 " " " "
Brass Blend 7.7741 " " " "
▇▇▇▇▇▇▇▇▇▇ Light 7.2396 " " " "
Commingled Antan 7.2844 " " " "
4. Yields The following refinery yields will be applied to each
geographical area unless amended under the terms of Clause 2.12
of this Memorandum
U.S. Gulf Coast (expressed as Volume %)
(Same yields apply Summer and Winter)
-104-
108
BONNY LIGHT FORCADOS BLEND BONNY MEDIUM
----------- -------------- ------------
% Vol. % Vol. % Vol.
LPG Propane 2.30 2.40 2.50
LPG Normal Butane 2.30 2.40 2.50
Gasoline Regular 17.80 16.42 14.25
Gasoline Unleaded 17.80 16.43 14.25
Naptha 12.30 8.30 5.20
Jet Kero 12.80 10.50 8.50
No. 2 Oil 22.40 29.55 36.70
Max 1% S Fuel Oil 12.30 14.00 16.10
Refy Fuel Loss - - -
TOTAL 100.00 100.00 100.00
NORTH WEST EUROPE (NWE) AND MEDITERRANEAN (MED)
(Expressed as Weight %)
Summer Winter
% wt. % wt.
---------- -------------
BONNY LIGHT
-----------
Gasoline
Premium 24.50 20.00
Regular 8.60 8.50
Jet Kerosene 10.00 8.50
Gasoil 23.10 34.50
Fuel Oil 1% 28.80 23.50
Refy Fuel/Loss 5.00 5.00
TOTAL 100.00 100.00
FORCADOS BLEND
--------------
Gasoline
Premium 19.00 15.40
Regular 7.50 5.80
Jet Kerosene 8.80 8.80
Gasoil 29.00 36.30
Fuel Oil 1% 30.70 28.70
Refy Fuel/Loss 5.00 5.00
TOTAL 100.00 100.00
BONNY MEDIUM
------------
Gasoline
Premium 8.70 7.00
Regular 3.60 3.00
Jet Kerosene 8.00 6.00
Gasoil 27.60 30.50
Fuel Oil 1% 47.50 48.90
Refy Fuel/Loss 4.60 4.60
TOTAL 100.00 100.00
-105-
109
Summer yields are to be used for the calculation of all prices for the
months of April, May, June, July, August and September.
The Winter yields will apply for the months of October, November,
December, January, February and March.
5. Processing Fees
U.S. Gulf - $1.90 per barrel
NWE - $1.40 " "
MED - $1.30 " "
6. Valuation of Refined Products:
Reference to ▇▇▇▇▇'▇ quotations outlined in Attachment 1a to Appendix A
will be made to value the refinery yields in accordance with Clause 2.12
of this Memorandum. In each case the average of the mid-range product
prices for each quotation day for the period 1st to 20th (inclusive) of
the month in question will be used.
7. Freight
US Gulf Coast - LR 2 for Bonny Light and Forcados, one port
loading and one port discharge.
- LR 1 for Bonny Medium one port loading and
one port discharge.
NEW and MED - 25% VLCC plus 75% LR 2 for Bonny Light and
Forcados, one port loading and one port
discharge.
- LR 1 for Bonny Medium, one port loading and
one port discharge.
Freight rates for the various ship sizes will be based on monthly
assessments obtained from the London Tanker Brokers Panel.
8. Insurance and Outturn Loss
The following will be allowable deductions in the calculation of the
realizable price.
Insurance $0.03 per barrel
Outturn Loss $0.05 per barrel
9. Method used in Calculating NBV
See Attachment 1 to this Appendix.
-106-
110
10. Price Differentials Between Bonny Light Final Realizable Price and Other
Nigerian Light Crude Oil Grades Bonny Light will be used as the
reference crude for all other Nigerian crude oils except Forcados and
Bonny Medium. Forcados crude is separately quoted in ▇▇▇▇▇'▇ while
Bonny Medium will be taken as BBQ less $1.20 per barrel. The
differential between Bonny Light and other Nigerian Light grades shall
be as follows:
0 less than RP less $20/bbl/ less than RP
Price Range than or equal to $20/bbl less than or equal to $25/bbl $25/bbl less than RP
-------------- ------------------------ ------------------------------ ----------------------
Brass - - -
Qua Iboe 5 cents 7.5 cents 10 cents
Escravos 10 cents 12.5 cents 15 cents
▇▇▇▇▇▇▇▇▇▇ 5 cents 7.5 cents 10 cents
11. Formula for Realizable Price
Bonny Light (BL) = BBQ - $0.25/bbl + NBV
-------------------------
2
Forcados Blend (FB) = FB - $0.25/bbl + NBV
------------------------
2
Bonny Medium (BM) = BBQ - $1.45/bbl + NBV
-------------------------
2
with NBV limited to a $0.40 per barrel tunnel around BBQ, Forcados and
Bonny Medium.
-107-
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Appendix A - Attachment 1a
QUOTATIONS USED IN REALIZABLE PRICE CALCULATIONS
Market Product Quotation Source
------ ------- --------- ------
USGC LPG Propane Propane Gas Liquids - Mont Belvieu
LPG Normal Butane Normal Buttane Gas Liquids - Mont Belvieu
Gasoline Regular Unl. 87 US Gulf Coast - Waterborne
Gasoline Unleaded Unl. 87 US Gulf Coast - Waterborne
Naphtha Naphtha US Gulf Coast - Waterborne
Jet Kero. Jet Kerosene US Gulf Coast - Waterborne
No. 2 Oil ▇▇. ▇ ▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇▇▇▇▇▇
Max. 1.0%S Fuel Oil ▇▇. ▇ ▇.▇%▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇ - ▇▇▇▇▇▇▇▇▇▇
▇▇▇ Gasoline Premium Prem. 0.15% Cargoes CIF NWE Basis ARA
Gasoline Regular Reg Unlx0.925 Cargoes CIF NWE Basis ARA
Jet Kerosene Jet Kerosene Cargoes CIF NWE Basis ARA
Gasoil Gasoil 0.2 x 0.85 / Gasoil 0.3 x 0.15 Cargoes CIF NWE Basis ARA
Fuel Oil 1.0% 1% Fuel Oil Cargoes CIF NWE Basis ARA
MED Gasoline Premium Prem 0.25% until 31/5/91 Cargoes CIF Med Basis
Genoa/▇▇▇▇▇▇
Prem 0.15% x 0.98 after 31/5/91 Cargoes CIF Med Basis
Genoa/▇▇▇▇▇▇
Gasoline Regular Prem 0.25% x 0.921 until 31/5/91 Cargoes CIF Med Basis
Genoa/▇▇▇▇▇▇
Prem 0.15% x 0.903 after 31/5/91 Cargoes CIF Med Basis
Genoa/▇▇▇▇▇▇
Jet Kerosene Jet Kerosene Cargoes CIF Med Basis
Genoa/▇▇▇▇▇▇
Gasoil Gasoil Cargoes CIF Med Basis
Genoa/▇▇▇▇▇▇
Fuel Oil 1.0% 1% Fuel Oil Cargoes CIF Med Basis
Genoa/▇▇▇▇▇▇
For Mediterranean, when cargoes CIF are not quoted, use FOB quotation.
-108-
112
APPENDIX A - ATTACHMENT 1
WORKED EXAMPLE OF NETBACK CALCULATION TO DETERMINE
REALIZABLE PRICE FOR BONNY LIGHT CRUDE
Note:
All figures calculated are rounded to 4 decimal places, that is rounding down
if the 5th decimal place is 4 or less, otherwise rounding up.
Realizable Prices are based on the standard export gravities as per Paragraph 2
of this Appendix. The final calculated Realizable Prices will be adjusted to
take account of API variations as follows:
For each 0.1 deg. API difference above or below the reference gravity,
an adjustment of $0.003 per barrel will be added to or subtracted from
the calculated Realizable Price.
Section 1 - Calculation of NBV per Market
(A) U.S. Gulf Coast (USGC)
Yields
Cents/Gallon $/bbl % Vol. $/bbl
------------ ----- ------ -----
<
LPG Propane 29.8846 x .42 = 12.5515 x 2.30 = 0.2887
LPG Normal Butane 43.0962 x .42 = 18.1004 x 2.30 = 0.4163
Gasoline Regular 60.1827 x .42 = 25.2767 x 17.80 = 4.4993
Gasoline Unleaded 60.1827 x .42 = 25.8876 x 17.80 = 4.4993
Naphtha 60.8173 x .42 = 25.5433 x 12.30 = 3.1418
Jet Kerosene 66.7019 x .42 = 28.0148 x 12.80 = 3.5859
N. 2 H.O. 66.4135 x .42 = 27.8937 x 22.40 = 6.2482
Max 1.0% S F.O. ($/bbl) = 11.5962 x 12.30 = 1.4263
------
Gross Product Worth (GPW) 24.1058
Conversion Factor 7.506
From the above, following deductions to apply:
Processing Fee 1.9000
Freight Flat Rate LR2 Conversion
($/MT) x (WS Points) Factor
----------- ----------- -----------
10.62 125.8% / 7.506 = 1.7999
Outturn Loss 0.0500
Insurance 0.0300
---------
(a) Netback - USGC ($/bbl) 20.3459
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(B) North West Europe (NWE)
Yields
$/MT % wt. $/MT
---------- ------------ -----------
Gasoline Premium = 242.6923 x 20.00 = 48.5385
Gasoline Regular = 210.3664 x 8.50 = 17.8811
Jet Kerosene = 308.6538 x 8.50 = 26.2356
Gasoil = 287.6346 x 34.50 = 99.2339
Fuel Oil 1% = 93.0000 x 23.50 = 21.8550
Refinery Fuel and Loss = 5.00 = -
Gross Product Worth (GPW) - ($/MT) = 213.7441
Conversion Factor 7.506
Gross Product Worth (GPW) - ($/bbl) = 28.4764
From the above, following deductions to apply:
Processing Fee 1.4000
Freight Flat Rate Vessel Class Conversion
($/MT) (WS Points) Factor
--------- ------------ -----------
LR2 - 75% 8.79 x 130.4%/ 7.506 = 1.1453
VLCC - 25% 8.79 x 90.0%/ 7.506 = 0.2635
Outturn Loss 0.0500
Insurance 0.0300
--------
(b) Netback - NWE ($/bbl) 25.5876
(C) Mediterranean (MED)
-------------------
Yields
$/MT % wt. $/MT
--------- ----------- -----------
Gasoline Premium = 238.0000 x 20.00 = 47.6000
Gasoline Regular = 219.1980 x 8.50 = 18.6318
Jet Kerosene = 307.5385 x 8.50 = 26.1408
Gasoil = 294.3846 x 34.50 = 101.5627
Fuel Oil 1 = 98.3077 x 23.50 = 23.1023
Refinery Fuel and Loss = 5.00 = -
---------
Gross Product Worth (GPW) - ($/MT) = 217.0376
Conversion Factor 7.506
Gross Product Worth (GPW) - ($/bbl) = 28.9152
-110-
114
From the above, following deductions to apply:
Processing Fee 1.3000
Freight Flat Rate Vessel Class Conversion
($/MT) (WS Points) Factor
---------- -------------- -------------
LR2 - 75% 8.16 x 131.0%/ 7.506 = 1.0681
VLCC - 25% 8.16 x 85.0%/ 7.506 = 0.2310
Outturn Loss 0.0500
Insurance 0.0300
--------
(c) Netback - MED ($/bbl) 26.2361
Section 2 - Calculation of NBV
------------------------------
Market Weighting Netback Contribution
------ --------- ------- ------------
(a) USGC 60% x 20.3459 = 12.2075
(b) NWE 20% x 25.5876 = 5.1175
(c) MED 20% x 26.2361 = 5.2472
------
(d) Initial NBV ($/bbl) = 22.5722
Section 3 - Calculation of Final NBV
------------------------------------
A. Initial NBV 22.5722
B. BBQ Average 20.8712
F1. Greater of (B-40c.) and A 22.5722
F2. Lesser of (B+40c.) and F1 21.2712
(e) Final NBV ($/bbl) 21.2712
NOTE:
-----
NBV shall be adjusted only if its value is greater/lower than BBQ by
more than 40 cents per barrel.
Section 4 - Calculation of Realizable Price
-------------------------------------------
Crude Element BBQ 20.8712
Less 25c./bbl differential 0.2500
--------
(i) 20.6212
Produce Element Final NBV (ii) 21.2712
Average of (i) and (ii) 20.9462
Reliable Price for Bonny Light ($/bbl) = 20.9462
-111-