EXHIBIT 10-4
[AIPN LOGO GOES HERE]
MODEL FORM INTERNATIONAL OPERATING AGREEMENT
1995
DISCLAIMER
THIS MODEL FORM HAS BEEN PREPARED ONLY AS A SUGGESTED GUIDE AND MAY NOT CONTAIN
ALL OF THE PROVISIONS THAT MAY BE REQUIRED BY THE PARTIES TO AN ACTUAL
AGREEMENT. THIS MODEL FORM HAS NOT BEEN ENDORSED BY THE ASSOCIATION OF
INTERNATIONAL PETROLEUM NEGOTIATORS (AIPN) OR BY ANY MEMBERS OF THE AIPN. USE OF
THIS MODEL FORM OR ANY PORTION OR VARIATION THEREOF SHALL BE AT THE SOLE
DISCRETION AND RISK OF THE USER PARTIES. USERS OF THE MODEL FORM OR ANY
VARIATION THEREOF ARE ENCOURAGED TO SEEK THE ADVICE OF LEGAL COUNSEL TO ENSURE
THAT THE FINAL DOCUMENT REFLECTS THE ACTUAL AGREEMENT OF THE PARTIES. THE AIPN
DISCLAIMS ANY AND ALL INTERESTS OR LIABILITY WHATSOEVER FOR LOSS OR DAMAGES THAT
MAY RESULT FROM USE OF THIS MODEL FORM OR PORTIONS OR VARIATIONS THEREOF. ALL
LOGOS AND REFERENCES TO THE AIPN MUST BE REMOVED FROM THIS MODEL FORM WHEN USED
AS AN ACTUAL AGREEMENT.
(C) Association of International Petroleum NegotiatorS
1995 MODEL FORM
INTERNATIONAL OPERATING AGREEMENT
COMPANIA CONSULTORA DE PETROLEO ("CCP") (1)
▇▇▇▇▇▇▇-PERU, INC. ("ZPI") (2)
RADIAL ENERGY, INC. ("RADIAL") (3)
OPERATING AGREEMENT COVERING: HUAYA ANTICLINE PROJECT ("PROJECT")
LOCATED IN ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇
-2-
-3-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
TABLE OF CONTENTS
PAGE
ARTICLE I - DEFINITIONS ..................................................... 1
ARTICLE II - EFFECTIVE DATE AND TERM ........................................ 3
ARTICLE III - SCOPE ......................................................... 4
3.1 Scope ......................................................... 4
3.2 Participating Interest ........................................ 4
3.3 Ownership, Obligations and Liabilities ........................ 4
3.4 Government Participation ...................................... 4
ARTICLE IV - OPERATOR .................................................... 5
4.1 Designation of Operator ....................................... 5
4.2 Rights and Duties of Operator ................................. 5
4.3 Employees of Operator ......................................... 5
4.4 Contractors ................................................... 6
4.5 Information Supplied by Operator .............................. 6
4.6 Settlement of Claims and Lawsuits ............................. 6
4.7 Limitation on Liability of Operator ........................... 6
4.8 Insurance Obtained by Operator ................................ 7
4.9 Commingling of Funds .......................................... 8
4.10 Resignation of Operator ....................................... 8
4.11 Removal of Operator ........................................... 8
4.12 Appointment of Successor ...................................... 8
ARTICLE V - OPERATING COMMITTEE ............................................. 9
5.1 Establishment of Operating Committee .......................... 9
5.2 Powers and Duties of Operating Committee ...................... 9
5.3 Authority to Vote ............................................. 9
5.4 Subcommittees ................................................. 9
5.5 Notice of Meeting ............................................. 9
5.6 Contents of Meeting Notice..................................... 9
5.7 Location of Meetings .......................................... 9
5.8 Operator's Duties for Meetings ................................ 9
5.9 Voting Procedure ............................................. 10
5.10 Record of Votes .............................................. 10
5.11 Minutes ...................................................... 10
5.12 Voting by Notice ............................................. 10
5.13 Effect of Vote ............................................... 10
ARTICLE VI - WORK PROGRAMS AND BUDGETS ..................................... 11
6.1 Drilling of Obligation Well One .............................. 11
6.2 Drilling of Obligation ▇▇▇▇▇ Two and Three ................... 11
6.3 Development Program and Drilling ............................. 12
6.4 Production ................................................... 12
6.5 Itemization of Expenditures .................................. 12
6.6 Contract Awards .............................................. 13
6.7 Authorization for Expenditure ("AFE") Procedure .............. 13
6.8 Overexpenditures of Work Programs and Budgets ................ 13
ARTICLE VII - OPERATIONS BY LESS THAN ALL PARTIES .......................... 13
7.1 Limitation on Applicability .................................. 13
-i-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
ARTICLE VIII - DEFAULT ..................................................... 14
8.1 Default and Notice ........................................... 14
8.2 Operating Committee Meetings and Data ........................ 14
8.3 Allocation of Defaulted Accounts ............................. 14
8.4 Remedies ..................................................... 15
8.5 Survival ..................................................... 16
8.6 No Right of Set Off .......................................... 16
ARTICLE IX - DISPOSITION OF PRODUCTION .................................... 16
9.1 Right and Obligation to Take in Kind ......................... 16
9.2 Agreement for Crude Oil Sales ................................ 16
9.3 Separate Agreement for Natural Gas ........................... 17
ARTICLE X - ABANDONMENT .................................................. 17
10.1 Abandonment of ▇▇▇▇▇ Drilled as Joint Operations ............. 17
ARTICLE XI - SURRENDER, EXTENSIONS AND RENEWALS ........................... 17
11.1 Surrender .................................................... 17
11.2 Extension of the Term ........................................ 18
ARTICLE XII - TRANSFER OF INTEREST OR RIGHTS ............................... 18
12.1 Obligations .................................................. 18
12.2 Rights ....................................................... 19
ARTICLE XIII - WITHDRAWAL FROM AGREEMENT ................................... 19
13.1 Right of Withdrawal .......................................... 19
13.2 Partial or Complete Withdrawal ............................... 19
13.3 Rights of a Withdrawing Party ................................ 20
13.4 Obligations and Liabilities of a Withdrawing Party ........... 20
13.5 Emergency .................................................... 20
13.6 Assignment ................................................... 20
13.7 Approvals .................................................... 21
13.8 Security ..................................................... 21
13.9 Withdrawal or Abandonment by all Parties ..................... 21
ARTICLE XIV - RELATIONSHIP OF PARTIES AND TAX .............................. 21
14.1 Relationship of Parties ...................................... 21
14.2 Tax ........................................................ 21
14.3 United States Tax Election ................................... 21
ARTICLE XV - CONFIDENTIAL INFORMATION - PROPRIETARY TECHNOLOGY ............ 22
15.1 Confidential Information ..................................... 22
15.2 Continuing Obligations ....................................... 22
15.3 Proprietary Technology ....................................... 22
15.4 Trades of Information ........................................ 23
ARTICLE XVI - FORCE MAJEURE ................................................ 23
16.1 Obligations .................................................. 23
16.2 Definition of Force Majeure .................................. 23
ARTICLE XVII - NOTICES ..................................................... 23
ARTICLE XVIII - APPLICABLE LAW AND DISPUTE RESOLUTION ...................... 24
18.1 Applicable Law ............................................... 24
18.2 Dispute Resolution ........................................... 24
ARTICLE XIX - ALLOCATION OF COST RECOVERY RIGHTS ........................... 25
-ii-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
19.1 Allocation of Production ..................................... 25
ARTICLE XX - GENERAL PROVISIONS ............................................ 25
20.1 Warranties as to no Payments, Gifts and Loans ................ 25
20.2 Conflicts of Interest ........................................ 25
20.3 Public Announcements ......................................... 26
20.4 Successors and Assigns ....................................... 26
20.5 Waiver ....................................................... 26
20.6 Severance of Invalid Provisions .............................. 26
20.7 Modifications ................................................ 26
20.8 Headings ..................................................... 26
20.9 Singular and Plural .......................................... 26
20.10 Gender ....................................................... 26
20.11 Counterpart Execution ........................................ 26
20.12 Entirety ..................................................... 26
Signature Page ........................................................ 27
Exhibit "A" - Contract Area for Huaya Anticline Project - Map
Exhibit "B" - License Contract for Block 100 Exhibit "C" -
Accounting Procedure
-iii-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
[ This Page Intentionally Left Blank ]
-iv-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
OPERATING AGREEMENT ("JOA")
THIS AGREEMENT (hereinafter "Agreement") is made as of the Effective Date
among Compania Consultora de Petroleo, S.A. (hereinafter "CCP"), a company
incorporated in the Republic of Peru; Radial Energy, Inc., a company
incorporated in Nevada, United States of America (hereinafter referred to as
"Radial"); and ▇▇▇▇▇▇▇-Peru, Inc., a company incorporated in Texas, United
States of America (hereinafter referred to as "ZPI"). The companies named above
may sometimes individually be referred to as "Party" and collectively as the
"Parties".
WITNESSETH:
WHEREAS, the Parties have entered into contracts and agreements for oil and
gas exploration, exploitation, development, and production as regards a License
Contract (hereinafter the "License Contract" or "Contract") with the Republic of
Peru, Ministry of Mines, and/or PeruPetro covering certain areas located in the
Loreto Department, Peru - Ucayali Basin called Block 100, with the "Contract
Area" being the Huaya Anticline Project. Exhibit A to this Agreement is a map
showing the Huaya Anticline Project (hereinafter "Project"), and Exhibit B is a
copy of the License Contract for Block 100; and
WHEREAS, the Parties desire to define their respective rights and
obligations with respect to their operations under the Contract Area;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements and obligations set out below and to be performed, the Parties
agree as follows:
ARTICLE I - DEFINITIONS
As used in this Agreement, the following words and terms shall have the
meaning ascribed to them below:
I.1 ACCOUNTING PROCEDURE means the rules, provisions and conditions set forth
and contained in Exhibit C to this Agreement.
I.2 AFE means an authorization for expenditure pursuant to Article 6.6.
I.3 AFFILIATE means a company, partnership or other legal entity which
controls, or is controlled by, or which is controlled by an entity which
controls, a Party. Control means the ownership directly or indirectly of
fifty (50) percent or more of the voting rights in a company, partnership
or legal entity.
I.1 AGREED INTEREST RATE means interest compounded on a monthly basis, at the
rate per annum equal to the one (1) month term, London Interbank Offered
Rate (LIBOR rate) for U.S. dollar deposits, as published by THE WALL STREET
JOURNAL or if not published there, then by the FINANCIAL TIMES OF LONDON,
plus N/A ( ) percentage points, applicable on the first Business Day prior
to the due date of payment and thereafter on the first Business Day of each
succeeding calendar month. If the aforesaid rate is contrary to any
applicable usury law, the rate of interest to be charged shall be the
maximum rate permitted by such applicable law.
I.2 AGREEMENT means this agreement, together with the Exhibits attached to this
agreement, and any extension, renewal or amendment hereof agreed to in
writing by the Parties.
I.3 APPRAISAL WELL means any well (other than an Exploration Well or a
Development Well) whose purpose at the time of commencement of drilling
such well is to appraise the extent or the volume of Hydrocarbon reserves
contained in an existing Discovery.
I.4 BARREL means a quantity consisting of forty-two (42) United States
gallons, corrected to a temperature of sixty (60) degrees Fahrenheit under
one (1) atmosphere of pressure.
I.5 BUSINESS DAY means a day on which the banks in LIMA, PERU are customarily
open for business.
I.6 CALENDAR QUARTER means a period of three (3) months commencing with January
1 and ending on the following March 31, a period of three (3) months
commencing with April 1 and ending on the following June 30, a period of
three (3) months commencing with July 1 and ending on the following
September 30, or a period of three (3) months commencing with October 1 and
ending on the following December 31 according to the Gregorian Calendar.
I.7 CALENDAR YEAR means a period of twelve (12) months commencing with January
1 and ending on the following December 31.
I.8 CASH PREMIUM means the payment made pursuant to Article 7.5(B) by a
Non-Consenting Party to reinstate its rights to participate in an Exclusive
Operation.
I.9 COMMERCIAL DISCOVERY means any Discovery which is sufficient to entitle the
Parties to apply for authorization from the Government to commence
exploitation.
-1-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
I.10 COMPLETION means an operation intended to complete a well through the
Christmas tree as a producer of Hydrocarbons in one or more Zones,
including, but not limited to, the setting of production casing,
perforating, stimulating the well and production Testing conducted in such
operation. COMPLETE and other derivatives shall be construed accordingly.
I.11 CONSENTING PARTY means a Party who agrees to participate in and pay its
share of the cost of a Joint Operation.
I.12 CONTRACT means the License Contract awarded for Block 100 as concluded
between the Republic of Peru, Ministry of Mines, and/or PeruPetro and CCP
as identified in the second paragraph of this Agreement, and any extension,
renewal or amendment thereof agreed to in writing by or for the Parties,
and those laws, statutes, rules and regulations with respect to the
exploration, exploitation, development, and production of Hydrocarbons that
govern such instrument or are incorporated by the terms of such instrument.
I.13 CONTRACT AREA means as of the Effective Date the surface area of the Huaya
Anticline Project which is described in Exhibit A to this Agreement, and
formations to all depths below that surface area on which Joint Operations
will be conducted.
I.14 DAY means a calendar day unless otherwise specifically provided.
I.15 DEFAULT NOTICE shall have the meaning ascribed in Article 8.1.
I.16 DEFAULTING PARTY shall have the meaning ascribed in Article 8.1.
I.17 DEEPENING means an operation whereby a well is drilled to an objective Zone
below the deepest Zone in which the well was previously drilled, or below
the deepest Zone proposed in the associated AFE, whichever is the deeper.
DEEPEN and other derivatives shall be construed accordingly.
I.18 DEVELOPMENT PLAN means a plan for the development of Hydrocarbons from the
Contract Area.
I.19 DEVELOPMENT WELL means any well drilled for the production of Hydrocarbons
pursuant to a Development Plan.
I.20 DISCOVERY means the discovery of an accumulation of Hydrocarbons whose
existence until that moment was unproven by drilling.
I.21 EFFECTIVE DATE means the date this Agreement comes into effect as stated in
Article II.
I.22 ENTITLEMENT means a quantity of Hydrocarbons of which a Party has the right
and obligation to take delivery pursuant to the Contract or, if applicable,
an offtake agreement, and the terms of this Agreement, after adjustment for
overlifts and underlifts.
I.23 EXCLUSIVE OPERATION means those operations and activities carried out
pursuant to this Agreement, the costs of which are chargeable to the
account of less than all the Parties.
I.24 EXCLUSIVE WELL means a well drilled pursuant to an Exclusive Operation.
I.25 EXPLOITATION AREA means that part of the Contract Area which is established
for development of a Commercial Discovery pursuant to the Contract or if
the Contract does not establish an exploitation area, then that part of the
Contract Area which is delineated as the exploitation area in a Development
Plan approved as a Joint Operation or as an Exclusive Operation.
I.26 EXPLOITATION PERIOD means any and all periods of exploitation during which
the production and removal of Hydrocarbons is permitted under the Contract.
I.27 EXPLORATION PERIOD means any and all periods of exploration set out in the
Contract.
I.28 EXPLORATION WELL means any well whose purpose at the time of the
commencement of drilling is to explore for an accumulation of Hydrocarbons
whose existence was at that time unproven by drilling.
I.29 G & G DATA means only geological, geophysical and geochemical data and
other similar information that is not obtained through a well bore.
I.30 GOVERNMENT means the government the Republic of Peru and any political
subdivision or agency or instrumentality thereof, including without
limitation the Government Oil Company.
I.31 GOVERNMENT OIL COMPANY means PeruPetro.
I.32 GROSS NEGLIGENCE means any act or failure to act (whether sole, joint or
concurrent) by any person or entity which was intended to cause, or which
was in reckless disregard of or wanton indifference to, harmful
consequences such person or entity knew, or should have known, such act or
failure would have on the safety or property of another person or entity.
I.33 HYDROCARBONS means all substances including liquid and gaseous hydrocarbons
which are subject to and covered by the Contract.
I.34 IN KIND PREMIUM means the grant of an interest in production made pursuant
to Article 7.5(C) by a Non-Consenting Party to reinstate its rights under
an Exclusive Operation.
I.35 JOINT ACCOUNT means the accounts maintained by Operator in accordance with
the provisions of this Agreement and of the Accounting Procedure for
Joint Operations.
-2-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
I.36 JOINT OPERATIONS means those operations and activities carried out by
Operator pursuant to this Agreement, the costs of which are chargeable to
all Parties unless otherwise defined in this Agreement or agreed to by the
Parties.
I.37 JOINT PROPERTY means, at any point in time, all ▇▇▇▇▇, facilities,
equipment, materials, information, funds and the property held for use in
Joint Operations.
I.38 MINIMUM WORK OBLIGATIONS means those work and/or expenditure obligations
specified in the Contract which must be performed during the then current
Contract phase or period in order to satisfy the obligations of the
Contract, and may become part of or become the MINIMUM DEVELOPMENT PROGRAM
as the Project moves to the development phase.
I.39 MINIMUM DEVELOPMENT PROGRAM means the program that is applied for by CCP
and approved by the Government as the development plan for proceeding to
that phase of the Project and is the minimum that the Parties agree to
participate in going forward beyond Obligation Well Three.
1.39A NON-CONSENTING PARTY OR NON-PARTICIPATING PARTY means a Party who elects
not to participate in a Joint Operation.
1.39B NON-OPERATOR(S) means the Party or Parties to this Agreement other than
Operator.
I.40 OPERATING COMMITTEE means the committee constituted in accordance with
Article V.
I.41 OPERATOR means a Party to this Agreement designated as such in accordance
with this Agreement.
I.42 PARTICIPATING INTEREST means the undivided percentage interest of each
Party in the rights and obligations derived from the Contract and this
Agreement.
I.43 PARTY means any of the entities named in the first paragraph to this
Agreement and any respective permitted successors or assigns.
I.44 PETROLEUM COSTS means costs and expenses incurred by the Parties and
allowed to be recovered pursuant to the Contract.
I.45 PLUGGING BACK means a single operation whereby a deeper Zone is abandoned
in order to attempt a Completion in a shallower Zone. Plug Back and other
derivatives shall be construed accordingly.
I.46 PRODUCTION BONUS includes any funds payable by the Parties under any
provision of the Contract.
I.47 PROFIT OIL means that portion of the total production of Hydrocarbons, in
excess of Cost Oil, which is allocated to the Parties under the terms of
the Contract, if applicable.
I.48 REALLOCATION COST OIL shall have the meaning ascribed in Article 19.2.
I.49 RECOMPLETION means an operation whereby a Completion in one Zone is
abandoned in order to attempt a Completion in a different Zone within the
existing wellbore. RECOMPLETE and other derivatives shall be construed
accordingly.
I.50 REWORKING means an operation conducted in the wellbore of a well after it
is Completed to secure, restore, or improve production in a Zone which is
currently open to production in the wellbore. Such operations include, but
are not limited to, well stimulation operations, but exclude any routine
repair or maintenance work, or drilling, Sidetracking, Deepening,
Completing, Recompleting, or Plugging Back of a well. REWORK and other
derivatives shall be construed accordingly.
I.51 SENIOR SUPERVISORY PERSONNEL means with respect to a Party, any individual
who functions as such Party's designated manager or supervisor who is
responsible for, or in charge of onsite drilling, construction or
production and related operations, or any other field operations; and any
individual who functions for such Party or one of its Affiliates at a
management level equivalent to or superior to the tier selected, or any
officer or director of such Party or one of its Affiliates.
1.51 SIDETRACKING means the directional control and intentional deviation of a
well from vertical so as to change the bottom hole location unless done to
straighten the hole or to drill around junk in the hole or to overcome
other mechanical difficulties. SIDETRACK and other derivatives shall be
construed accordingly.
1.52 TESTING means an operation intended to evaluate the capacity of a Zone to
produce Hydrocarbons. TEST and other derivatives shall be construed
accordingly.
1.53 WORK PROGRAM AND BUDGET means a work program for Joint Operations and
budget therefore as described and approved in accordance with Article VI.
1.54 ZONE means a stratum of earth containing or thought to contain an
accumulation of Hydrocarbons separately producible from any other
accumulation of Hydrocarbons.
ARTICLE II - EFFECTIVE DATE AND TERM
-3-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
This Agreement shall have effect from May, 10 2006, and shall continue in
effect until the Contract terminates or all Joint Operations are concluded, and
all materials, equipment and personal property used in connection with the Joint
Operations have been removed and disposed of, and final settlement has been made
among the Parties.
Notwithstanding the preceding sentence:
(A) Article X shall remain in effect until all ▇▇▇▇▇ have been properly
abandoned; and
(B) Article 4.5 and Article XVIII shall remain in effect until all
obligations, claims, arbitrations and lawsuits have been settled or otherwise
resolved.
ARTICLE III - SCOPE
3.1 SCOPE
(A) The purpose of this Agreement is to establish the respective rights and
obligations of the Parties with regard to operations under the Contract and in
the Contract Area, including without limitation the joint exploration,
appraisal, development and production of Hydrocarbon reserves from the Contract
Area.
(B) Without limiting the generality of Article 3.1(A), the following
activities are outside of the scope of this Agreement and are not addressed
herein:
(1) Construction, operation, maintenance, repair and removal of
facilities downstream from the point of delivery of the Parties'
shares of Hydrocarbons under the offtake agreement provided for in
Article 9.2;
(2) Transportation of Hydrocarbons beyond the point of delivery of the
Parties' shares of Hydrocarbons under the offtake agreement provided
for in Article 9.2;
(3) Marketing and sales of Hydrocarbons, except as expressly provided
in Articles 7.5, 7.11(E) and 8.4 and in Article IX;
(4) Acquisition of rights to explore for, appraise, develop or produce
Hydrocarbons outside of the Contract Area (other than as a consequence
of unitization with an adjoining contract area under the terms of the
Contract); and
(5) Exploration, appraisal, development or production of minerals
other than Hydrocarbons, whether inside or outside of the Contract
Area.
3.2 PARTICIPATING INTEREST
(A) The Participating Interests of the Parties as of the Effective Date
are:
CCP 70 %
--- --
RADIAL 20 %
------ --
ZPI 10 %
--- --
(B) If a Party transfers all or part of its Participating Interest pursuant
to the provisions of this Agreement and the Contract, the Participating
Interests of the Parties shall be revised accordingly.
3.3 OWNERSHIP,OBLIGATIONS AND LIABILITIES
(3) Unless otherwise provided in this Agreement, all the rights and
interests in and under the Contract, all Joint Property and any Hydrocarbons
produced from the Contract Area shall, subject to the terms of the Contract, be
owned by the Parties in accordance with their respective Participating
Interests.
(3) Unless otherwise provided in this Agreement, the obligations of the
Parties under the Contract and all liabilities and expenses incurred by Operator
in connection with Joint Operations shall be charged to the Joint Account and
all credits to the Joint Account shall be shared by the Parties, as among
themselves, in accordance with their respective Participating Interests.
(3) Each Party shall pay when due, in accordance with the Accounting
Procedure, its Participating Interest share of Joint Account expenses, including
cash advances and interest, accrued pursuant to this Agreement. The Parties
agree that time is of the essence for payments owing under this Agreement. A
Party's payment of any charge under this Agreement shall be without prejudice to
its right to later contest the charge.
3.4 GOVERNMENT PARTICIPATION
If Government Oil Company elects to participate in the rights and
obligations of Parties pursuant to provisions of or requirements of the
Contract, the Parties shall contribute, in proportion to their respective
Participating Interests, to the interest to be acquired by Government Oil
Company and shall execute such documents as may be necessary to effect such
transfer of interests and the joinder of the Government Oil Company as a party
to this Agreement. All payments received for the transfer of such interests
shall be credited to the Parties in proportion to their Participating Interests.
57
-4-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
ARTICLE IV - OPERATOR
4.1 DESIGNATION OF OPERATOR
CCP is designated as Operator, and agrees to act as such.
4.2 RIGHTS AND DUTIES OF OPERATOR
(A) Subject to the terms and conditions of this Agreement, Operator shall
have all of the rights, functions and duties of Operator under the Contract
and shall have exclusive charge of and shall conduct all Joint Operations.
Operator may employ independent contractors and/or agents (which may
include Affiliates of Operator) in such Joint Operations.
(B) In the conduct of Joint Operations, Operator shall:
(1) Perform Joint Operations in accordance with the provisions of the
Contract, this Agreement and the instructions of the Operating
Committee not in conflict with this Agreement;
(2) Conduct all Joint Operations in a diligent, safe and efficient
manner in accordance with good and prudent oil field practices and
conservation principles generally followed by the international
petroleum industry under similar circumstances;
(3) Subject to Article 4.6 and the Accounting Procedure, neither gain
a profit nor suffer a loss as a result of being the Operator in its
conduct of Joint Operations, provided that Operator may rely upon
Operating Committee approval of specific accounting practices not in
conflict with the Accounting Procedure;
(4) Perform the duties for the Operating Committee set out in Article
V, and prepare and submit to the Operating Committee the proposed Work
Programs, Budgets and AFEs as provided in Article VI;
(5) Acquire all permits, consents, approvals, surface or other rights
that may be required for or in connection with the conduct of Joint
Operations;
(6) Upon receipt of reasonable advance notice, permit the
representatives of any of the Parties to have at all reasonable times
and at their own risk and expense reasonable access to the Joint
Operations with the right to observe all such Joint Operations and to
inspect all Joint Property and to conduct financial audits as provided
in the Accounting Procedure;
(7) Maintain the Contract in full force and effect. Operator shall
promptly pay and discharge all liabilities and expenses incurred in
connection with Joint Operations and use its reasonable efforts to
keep and maintain the Joint Property free from all liens, charges and
encumbrances arising out of Joint Operations;
(8) Pay to the Government for the Joint Account, within the periods
and in the manner prescribed by the Contract and all applicable laws
and regulations, all periodic payments, royalties, taxes, fees and
other payments pertaining to Joint Operations, but excluding any taxes
measured by the incomes of the Parties;
(9) Carry out the obligations of Operator pursuant to the Contract,
including, but not limited to, preparing and furnishing such reports,
records and information as may be required pursuant to the Contract;
(10) Have in accordance with the decisions of the Operating Committee,
the exclusive right and obligation to represent the Parties in all
dealings with the Government with respect to matters arising under the
Contract and Joint Operations. Operator shall notify the other Parties
as soon as possible of such meetings. Non-Operators shall have the
right to attend such meetings but only in the capacity of observers.
Nothing contained in this Agreement shall restrict any Party from
holding discussions with the Government with respect to any issue
peculiar to its particular business interests arising under the
Contract or this Agreement, but in such event such Party shall
promptly advise the Parties, if possible, before and in any event
promptly after such discussions, provided that such Party shall not be
required to divulge to the Parties any matters discussed to the extent
the same involve proprietary information on matters not affecting the
Parties; and
(11) Take all necessary and proper measures for the protection of
life, health, the environment and property in the case of an
emergency; provided, however, that Operator shall immediately notify
the Parties of the details of such emergency and measures.
4.3 EMPLOYEES OF OPERATOR
Subject to the Contract and this Agreement, Operator shall determine
the number of employees, the selection of such employees, the hours of work
and the compensation to be paid all such employees in connection with Joint
Operations. Operator shall employ only such employees, agents and
contractors as are reasonably necessary to conduct Joint Operations.
-5-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
4.4 CONTRACTORS
Operator shall employ only such agents and contractors as are reasonably
necessary to conduct Joint Operations.
4.5 INFORMATION SUPPLIED BY OPERATOR
(A) Operator shall provide Non-Operators the following data and reports as
they are currently produced or compiled from the Joint Operations:
(1) Copies of all logs or surveys;
(2) Daily drilling progress reports;
(3) Copies of all Tests and core analysis reports;
(4) Copies of the plugging reports;
(5) Copies of the final geological and geophysical maps and reports;
(6) Engineering studies, development schedules and annual progress
reports on development projects;
(7) Field and well performance reports, including reservoir studies
and reserve estimates;
(8) Copies of all reports relating to Joint Operations furnished by
Operator to the Government, except magnetic tapes or computer
generated or other electronic data which shall be stored by Operator
and made available for inspection and/or copying at the sole expense
of the Non-Operator requesting same;
(9) Other reports as frequently as is justified by the activities or
as instructed by the Operating Committee; and
(10) Subject to Article 15.3, such additional information for
Non-Operators as they or any of them may request, provided that the
requesting Party or Parties pay the costs of preparation of such
information and that the preparation of such information will not
unduly burden Operator's administrative and technical personnel. Only
Non-Operators who pay such costs shall receive such additional
information.
(B) Operator shall give Non-Operators access at all reasonable times to all
other data acquired in the conduct of Joint Operations. Any Non-Operator
may make copies of such other data at its sole expense.
4.6 SETTLEMENT OF CLAIMS AND LAWSUITS
(A) Operator shall promptly notify the Parties of any and all material
claims or suits and such other claims and suits as the Operating Committee
may direct which arise out of Joint Operations or relate in any way to
Joint Operations. Operator shall represent the Parties and defend or oppose
the claim or suit. Operator may in its sole discretion compromise or settle
any such claim or suit or any related series of claims or suits for an
amount not to exceed the equivalent of U.S. dollars ten thousand (U.S. $
10,000) exclusive of legal fees. Operator shall obtain the approval and
direction of the Operating Committee on amounts in excess of the above
stated amount. Each Non-Operator shall have the right to be represented by
its own counsel at its own expense in the settlement, compromise or defense
of such claims or suits.
(B) Any Non-Operator shall promptly notify the other Parties of any claim
made against such Non- Operator by a third party which arises out of or may
affect the Joint Operations, and such Non-Operator shall defend or settle
the same in accordance with any directions given by the Operating
Committee. Those costs, expenses and damages incurred pursuant to such
defense or settlement which are attributable to Joint Operations shall be
for the Joint Account.
(C) Notwithstanding Article 4.5(A) and Article 4.5(B), each Party shall
have the right to participate in any such suit, prosecution, defense or
settlement conducted in accordance with Article 4.5(A) and Article 4.5(B)
at its sole cost and expense; provided always that no Party may settle its
Participating Interest share of any claim without first satisfying the
Operating Committee that it can do so without prejudicing the interests of
the Joint Operations.
4.7 LIMITATION ON LIABILITY OF OPERATOR
(A) Except as set out in this Article 4.6, NEITHER THE PARTY DESIGNATED AS
OPERATOR NOR ANY OTHER INDEMNITEE (AS DEFINED BELOW) SHALL BEAR (EXCEPT AS
A PARTY TO THE EXTENT OF ITS PARTICIPATING INTEREST SHARE) ANY DAMAGE,
LOSS, COST, EXPENSE OR LIABILITY RESULTING FROM PERFORMING (OR FAILING TO
PERFORM) THE DUTIES AND FUNCTIONS OF THE OPERATOR, AND THE INDEMNITEES ARE
HEREBY RELEASED FROM LIABILITY TO NON-OPERATORS FOR ANY AND ALL DAMAGES,
LOSSES, COSTS, EXPENSES AND LIABILITIES ARISING OUT OF, INCIDENT TO OR
RESULTING FROM SUCH PERFORMANCE OR FAILURE TO PERFORM, EVEN THOUGH CAUSED
IN WHOLE OR IN PART BY A PRE-EXISTING DEFECT, THE NEGLIGENCE (WHETHER SOLE,
JOINT OR
-6-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
CONCURRENT), GROSS NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL FAULT OF
OPERATOR (OR ANY SUCH INDEMNITEE). (B) Except as set out in this Article
4.6, THE PARTIES SHALL IN PROPORTION TO THEIR PARTICIPATING INTERESTS
DEFEND AND INDEMNIFY OPERATOR AND ITS AFFILIATES, AND THE OFFICERS AND
DIRECTORS OF BOTH (COLLECTIVELY, THE "INDEMNITEES"), FROM ANY AND ALL
DAMAGES, LOSSES, COSTS, EXPENSES (INCLUDING REASONABLE LEGAL COSTS,
EXPENSES AND ATTORNEYS' FEES) AND LIABILITIES INCIDENT TO CLAIMS, DEMANDS
OR CAUSES OF ACTION BROUGHT BY OR ON BEHALF OF ANY PERSON OR ENTITY, WHICH
CLAIMS, DEMANDS OR CAUSES OF ACTION ARISE OUT OF, ARE INCIDENT TO OR RESULT
FROM JOINT OPERATIONS, EVEN THOUGH CAUSED IN WHOLE OR IN PART BY A
PRE-EXISTING DEFECT, THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT),
GROSS NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL FAULT OF OPERATOR (OR ANY
SUCH INDEMNITEE).
(C) Nothing in this Article 4.6 shall be deemed to relieve the Party
designated as Operator from its Participating Interest share of any damage,
loss, cost, expense or liability arising out of, incident to or resulting
from Joint Operations.
(D) Notwithstanding Articles 4.6(A) and 4.6(B), if any Senior Supervisory
Personnel of Operator or its Affiliates engage in Gross Negligence that
proximately causes the Parties to incur damage, loss, cost, expense or
liability for claims, demands or causes of action referred to in Articles
4.6(A) or 4.6(B), then, in addition to its Participating Interest share,
Operator shall bear only the actual damage, loss, cost, expense and
liability to repair, replace and/or remove Joint Property so damaged or
lost, if any.
4.8 INSURANCE OBTAINED BY OPERATOR
(A) Operator shall procure and maintain or cause to be procured and
maintained for the Joint Account all insurance in the types and amounts
required by the Contract and applicable laws, rules and regulations.
(B) Operator shall obtain such further insurance, at competitive rates, as
the Operating Committee may from time to time require.
(C) Any Party may elect not to participate in the insurance to be procured
under Article 4.7(B) provided such Party:
(1) gives prompt notice to that effect to Operator;
(2) does nothing which may interfere with Operator's negotiations for
such insurance for the other Parties; and
(3) obtains and maintains such insurance (in respect of which an
annual certificate of adequate coverage from a reputable insurance
broker shall be sufficient evidence) or other evidence of financial
responsibility which fully covers its Participating Interest share of
the risks that would be covered by the insurance procured under
Article 4.7 (B), and which the Operating Committee may determine to be
acceptable. No such determination of acceptability shall in any way
absolve a non-participating Party from its obligation to meet each
cash call including any cash call in respect of damages and losses
and/or the costs of remedying the same in accordance with the terms of
this Agreement. If such Party obtains other insurance, such insurance
shall contain a waiver of subrogation in favor of all the other
Parties, the Operator and their insurers but only in respect of their
interests under this Agreement.
(D) The cost of insurance in which all the Parties are participating shall
be for the Joint Account and the cost of insurance in which less than all
the Parties are participating shall be charged to the Parties participating
in proportion to their respective Participating Interests.
(E) Operator shall, in respect of all insurance obtained pursuant to this
Article 4.7:
(1) promptly inform the participating Parties when such insurance is
obtained and supply them with certificates of insurance or copies of
the relevant policies when the same are issued;
(2) arrange for the participating Parties, according to their
respective Participating Interests, to be named as co-insureds on the
relevant policies with waivers of subrogation in favor of all the
Parties; and
(3) duly file all claims and take all necessary and proper steps to
collect any proceeds and credit any proceeds to the participating
Parties in proportion to their respective Participating Interests.
(F) Operator shall use its reasonable efforts to require all contractors
performing work in respect of Joint Operations to obtain and maintain any
and all insurance in the types and amounts required by any applicable laws,
rules and regulations or any decision of the Operating Committee and shall
use its reasonable efforts to require all such contractors to name the
Parties as additional insureds on such contractors' insurance policies
-7-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
or to obtain from their insurers waivers of all rights of recourse against
Operator, Non-Operators and their insurers.
4.9 COMMINGLING OF FUNDS
Operator may not commingle with Operator's own funds the monies which
Operator receives from or for the Joint Account pursuant to this Agreement.
Operator will establish a separate bank account or accounts for the Joint
Operation.
4.10 RESIGNATION OF OPERATOR
Subject to Article 4.11, Operator may resign as Operator at any time by so
notifying the other Parties at least one hundred and twenty (120) Days
prior to the effective date of such resignation.
4.11 REMOVAL OF OPERATOR
(A) Subject to Article 4.11, Operator shall be removed upon receipt of
notice from any Non-Operator if:
(1) An order is made by a court or an effective resolution is passed
for the reorganization under any bankruptcy law, dissolution,
liquidation, or winding up of Operator;
(2) Operator dissolves, liquidates, is wound up, or otherwise
terminates its existence;
(3) Operator becomes insolvent, bankrupt or makes an assignment for
the benefit of creditors; or
(4) A receiver is appointed for a substantial part of Operator's
assets.
(B) Subject to Article 4.11, Operator may be removed by the decision of the
Non-Operators if Operator has committed a material breach of this Agreement
and has either failed to commence to cure that breach within thirty (30)
Days of receipt of a notice from Non-Operators detailing the alleged breach
or failed to diligently pursue the cure to completion. Any decision of
Non-Operators to give notice of breach to Operator or to remove Operator
under this Article 4.10(B) shall be made by an affirmative vote of all of
the non-Operator interest in the Joint Operations.
CHECK IF DESIRED.
[X] OPTIONAL PROVISION
(C) If Operator together with any Affiliate of Operator is or becomes
the holder of a Participating Interest of less than TEN percent
(___10__%), then Operator shall be required to promptly notify the
other Parties. The Operating Committee shall then vote within THIRTY
(_30___) Days of such notification on whether or not a successor
Operator should be named pursuant to Article 4.11.
CHECK IF DESIRED.
[X] OPTIONAL PROVISION
(D) If there is a direct or indirect change in control of Operator
(other than a transfer of control to an Affiliate of Operator),
Operator shall be required to promptly notify the other Parties. The
Operating Committee shall vote within THIRTY (__30__) Days of such
notification on whether or not a successor Operator should be named
pursuant to Article 4.11. For purposes of this Article 4.10(D),
control means the ownership directly or indirectly of: fifty percent
(50%) or more of the voting rights in Operator.
4.12 APPOINTMENT OF SUCCESSOR
When a change of Operator occurs pursuant to Article 4.9 or Article 4.10:
(A) The Operating Committee shall meet as soon as possible to appoint a
successor Operator pursuant to the voting procedure of Article 5.9.
However, no Party may be appointed successor Operator against its will. (B)
If the Operator disputes commission of or failure to rectify a material
breach alleged pursuant to Article 4.10(B) and proceedings are initiated
pursuant to Article XVIII, no successor Operator may be appointed pending
the conclusion or abandonment of such proceedings, subject to the terms of
Article 8.3 with respect to Operator's breach of its payment obligations.
(C) If an Operator is removed, other than in the case of Article 4.10(C) or
Article 4.10(D), neither Operator nor any Affiliate of Operator shall have
the right to vote for itself on the appointment of a successor Operator,
nor be considered as a candidate for the successor Operator.
(D) A resigning or removed Operator shall be compensated out of the Joint
Account for its reasonable expenses directly related to its resignation or
removal, except in the case of Article 4.10(B).
(E) The resigning or removed Operator and the successor Operator shall
arrange for the taking of an inventory of all Joint Property and
Hydrocarbons, and an audit of the books and records of the removed
Operator. Such inventory and audit shall be completed, if possible, no
later than the effective date of the change of Operator and shall be
subject to the approval of the Operating Committee. The liabilities and
expenses of such inventory and audit shall be charged to the Joint Account.
-8-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
(F) The resignation or removal of Operator and its replacement by the
successor Operator shall not become effective prior to receipt of any
necessary Government approvals. (G) Upon the effective date of the
resignation or removal, the successor Operator shall succeed to all duties,
rights and authority prescribed for Operator. The former Operator shall
transfer to the successor Operator custody of all Joint Property, books of
account, records and other documents maintained by Operator pertaining to
the Contract Area and to Joint Operations. Upon delivery of the
above-described property and data, the former Operator shall be released
and discharged from all obligations and liabilities as Operator accruing
after such date. 9
ARTICLE V - OPERATING COMMITTEE
5.1 ESTABLISHMENT OF OPERATING COMMITTEE
To provide for the overall supervision and direction of Joint
Operations, there is established an Operating Committee composed of
representatives of each Party holding a Participating Interest in the
Project. Each Party shall appoint one (1) representative and one (1)
alternate representative to serve on the Operating Committee. Each Party
shall as soon as possible after the date of this Agreement give notice in
writing to the other Parties of the name and address of its representative
and alternate representative to serve on the Operating Committee. Each
Party shall have the right to change its representative and alternate at
any time by giving notice to such effect to the other Parties in writing.
Based on the voting procedure in Section 5.9 below, fractional subsequent
interests of the original Party interests may have only a fractional vote
on the Operating Committee.
5.2 POWERS AND DUTIES OF OPERATING COMMITTEE
The Operating Committee shall have power and duty to authorize and
supervise Joint Operations that are necessary or desirable to fulfill the
Contract License and properly exploit the Project in accordance with this
Agreement and in a manner appropriate in the circumstances.
5.3 AUTHORITY TO VOTE
The representative of a Party, or in his absence his alternate
representative, shall be authorized to represent and bind such Party with
respect to any matter which is within the powers of the Operating Committee
and that is properly brought before the Operating Committee. Each such
representative shall have a vote equal to the voting rights of the
Participating Interest of the Party such person represents as shown in the
section covering the Voting Procedure in Section 5.9 below. Each alternate
representative shall be entitled to attend all Operating Committee meetings
but shall have no vote at such meetings except in the absence of the
representative for whom he is the alternate. In addition to the
representative and alternate representative, each Party may also bring to
any Operating Committee meetings such technical and other advisors as it
may deem appropriate.
5.4 SUBCOMMITTEES
The Operating Committee may establish such subcommittees, including
technical subcommittees, as the Operating Committee may deem appropriate.
The functions of such subcommittees shall be in an advisory capacity or as
otherwise determined unanimously by the Parties.
5.5 NOTICE OF MEETING
(A) Operator may call a meeting of the Operating Committee by giving notice
to the Parties at least fifteen (15) Days in advance of such meeting.
(B) Any Non-Operator may request a meeting of the Operating Committee by
giving notice to all the other Parties. Upon receiving such request by an
Party or Participating Interest, Operator shall call such meeting for a
date not less than fifteen (15) Days nor more than twenty (20) Days after
receipt of the request.
(C) The notice periods above or any meeting dates or schedule may only be
waived or modified with the unanimous written consent of all the Parties.
5.6 CONTENTS OF MEETING NOTICE
(A) Each notice of a meeting of the Operating Committee as provided by
Operator shall contain:
(1) The date, time and location of the meeting; and
(2) An agenda of the matters and proposals to be considered and/or
voted upon.
(B) A Party, by notice to the other Parties given not less than seven (7)
Days prior to a meeting, may add additional matters to the agenda for a
meeting.
(C) On the request of a Party, and with the unanimous consent of all
Parties, the Operating Committee may consider at a meeting a proposal not
contained in such meeting agenda.
5.7 LOCATION OF MEETINGS
-9-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
All meetings of the Operating Committee shall be held in Lima, Peru,
or elsewhere as decided by the Operating Committee.
5.8 OPERATOR'S DUTIES FOR MEETINGS
(A) With respect to meetings of the Operating Committee and any
subcommittee, Operator's duties shall include, but not be limited to:
(1) Timely preparation and distribution of the agenda;
(2) Organization and conduct of the meeting; and
(3) Preparation of a written record or minutes of each meeting.
(B) Operator shall have the right to appoint the chairman of the Operating
Committee and all subcommittees.
5.9 VOTING PROCEDURE
At the time this agreement is signed, there are three (3) Parties with
Participating Interests. The number of votes of the Operating Committee
will not be increased by any sale or division of interests in the Project,
but will stay at three (3) total, with any interests created after the
effective date of this Agreement having a fractional share of the original
interest from which the new or acquired interest is derived, and the total
of those fractional interests so subdivided from one vote will still or
only count as one total vote. All affirmative or approving votes of the
Operating Committee will be either unanimous or by a two vote to one vote
margin. However, the CCP vote, or its successor or the total of any created
fractional interests of that one vote, shall have a veto vote that may be
exercised over any affirmative vote of the other two voting interests with
which it does not agree. Once the CCP interest votes in the affirmative on
any vote, the veto vote may not be later exercised to negate that decision.
CCP thus has three voting options, one is to agree, one is to veto, and the
third is to vote to not participate but to allow the operation to proceed
without its participation as is set forth in Article 7.1 (D) and (E) below.
If any Party or Parties withdraw from the Project, the same successor
interest will be created for voting as for any sale or division of
interests as set forth above.
5.10 RECORD OF VOTES
The chairman of the Operating Committee shall appoint a secretary who
shall make a record of each proposal voted on and the results of such
voting at each Operating Committee meeting. Each representative shall sign
and be provided a copy of such record at the end of such meeting and it
shall be considered the final record of the decisions of the Operating
Committee.
5.11 MINUTES
The secretary shall provide each Party with a copy of the minutes of
the Operating Committee meeting within fifteen (15) Days after the end of
the meeting. Each Party shall have fifteen (15) Days after receipt of such
minutes to give notice of its objections to the minutes to the secretary. A
failure to give notice specifying objection to such minutes within said
fifteen (15) Day period shall be deemed to be approval of such minutes. In
any event, the votes recorded under Article 5.10 shall take precedence over
the minutes described above.
5.12 VOTING BY NOTICE
(A) In lieu of a meeting, any Party may submit any proposal to the
Operating Committee for a vote by notice. The proposing Party or Parties
shall notify Operator who shall give each representative notice describing
the proposal so submitted. Each Party shall communicate its vote by notice
to Operator and the other Parties within five (5) Days after receipt of
Operator's notice.
(B) Except in the case of Article 5.12(A)(1), any Non-Operator may by
notice delivered to all Parties within three (3) Days of receipt of
Operator's notice request that the proposal be decided at a meeting rather
than by notice. In such an event, that proposal shall be decided at a
meeting duly called for that purpose.
(C) Except as provided in Article X, any Party failing to communicate its
vote in a timely manner shall be deemed to have voted against such
proposal.
(D) If a meeting is not requested, then at the expiration of the
appropriate time period, Operator shall give each Party a confirmation
notice stating the tabulation and results of the vote.
5.13 EFFECT OF VOTE
All decisions taken by the Operating Committee pursuant to this
Article V, shall be conclusive and - binding on all the Parties, except
that:
(A) If pursuant to this Article V, a Joint Operation, other than an
operation to fulfill the Minimum Work Obligations, has been properly
proposed to the Operating Committee and the Operating Committee has not
approved such proposal in a timely manner, then any Party may conduct
procedures to implement operations essentially the same as those proposed
for such Joint Operation within the time frame as follows:
-10-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
(1) For proposals involving the use of a contractor's drilling rig
that is standing by in the Contract Area, such right shall be
exercisable for twenty-four (24) hours after the time specified in
Article 5.12(A)(1) has expired or after receipt of Operator's notice
given pursuant to Article 5.13(D), as applicable.
(2) For all other proposals, such right shall be exercisable for ten
(10) Days after the date the Operating Committee was required to
consider such proposal pursuant to Article 5.6 or Article 5.12.
(B) If a Party voted against any proposal which was approved by the
Operating Committee and which could be conducted as an Exclusive Operation
pursuant to Article VII, other than any proposal relating to Minimum Work
Obligations, then such Party shall have the right not to participate in the
operation contemplated by such approval. The Parties that were not entitled
to give or did not give notice of non- consent shall be Consenting Parties
as to the operation contemplated by the Operating Committee approval, and
shall conduct such operation as an Exclusive Operation under Article VII.
Any Party that gave notice of non-consent shall be a Non-Consenting Party
as to such Exclusive Operation.
(C) The Operating Committee may, at any time, pursuant to this Article V,
reconsider and approve, decide or take action on any proposal that the
Operating Committee declined to approve earlier, or modify or revoke an
earlier approval, decision or action.
(D) Once a Joint Operation for the drilling, Deepening, Testing,
Sidetracking, Plugging Back, Completing, Recompleting, Reworking or
plugging of a well, has been approved and commenced, such operation shall
not be discontinued without the consent of the Operating Committee;
provided, however, that such operation may be discontinued, if
circumstances occur which in the reasonable judgment of Operator cause the
continuation of such operation to be unwarranted and after notice the
Operating Committee within the period required under Article 5.12(A)(1)
approves discontinuing such operation. On the occurrence of either of the
above, Operator shall promptly notify the Parties that such operation is
being discontinued pursuant to the foregoing.
(E) For any operation for which a Party can go non-consent or decide to not
participate, any such Party wishing to exercise its right of non-consent
must give notice of non-consent to all other Parties within five (5) Days
(or within twenty-four (24) hours if the drilling rig or well service rig
to be used in such operation is standing by in the Contract Area) following
Operating Committee approval of such proposal.
ARTICLE VI - WORK PROGRAMS AND BUDGETS
6.1 DRILLING OF OBLIGATION WELL ONE
(A) Within thirty (30) days after the effective date of this Agreement,
Operator shall deliver to the Parties a proposed initial schedule detailing
the Joint Operations to be performed for the mobilization of a rig and
equipment and for the drilling, testing, and evaluation of Obligation Well
One. It is the goal of the Project/Joint Operation to begin the drilling of
Obligation Well One by September 1, 2006.
(B) After obtaining the results of Obligation Well One including after any
part of the test period allowed by the Contract, Operator shall as soon as
possible submit to the Operating Committee and to the Parties a report
containing available details concerning the results of and data from
Obligation Well One and Operator's recommendation as to whether the result
merits the drilling of Obligation ▇▇▇▇▇ Two and Three.
(C) Parties agree that participating in Obligation Well One includes
approval for the drilling, testing, logging, setting casing on, and a test
or completion attempt for the well, with no Casing Point Election.
(D) By unanimous agreement of the Parties, Obligation Well One may be
abandoned at any point without finishing the drilling of, testing,
evaluation, or completion of the well.
(E) If the attempt to drill and evaluate Obligation Well One is abandoned
for any reason, the Parties or remaining Party or Parties (if any Party or
Parties withdraw from the Project as provided in this Agreement), may
propose a replacement or alternate Obligation Well One and proceed then as
set forth in this Agreement during and after that well as though it was the
originally proposed Obligation Well One.
(F) Parties agreeing to do so within thirty (30) Days of being presented
with the Operator's recommendation as in Section 6.1(B) above will continue
the Project and proceed to the drilling of Obligation ▇▇▇▇▇ Two and Three.
6.2 DRILLING OF OBLIGATION ▇▇▇▇▇ TWO AND THREE
(A) Once a vote is taken as set forth in Article V as to whether to proceed
with the drilling of Obligation ▇▇▇▇▇ Two and Three, and if the result is
positive, the drilling, testing, and evaluation of those ▇▇▇▇▇ shall
proceed under the direction of the Operator, with the Operator reporting on
the operations and results of those ▇▇▇▇▇ as provided elsewhere in this
Agreement.
-11-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
(B) Parties agree that approval to drill Obligation ▇▇▇▇▇ Two and Three
includes approval for the drilling, testing, logging, setting casing on,
and a test or completion attempt for the well(s), with no Casing Point
Election.
(C) Any Party may decide after Obligation Well Two to not continue with
Obligation Well Three, and then may withdraw from the Project.
(D) By unanimous vote of the Operating Committee as is set forth in Article
V, any operation on Obligation Well Two or Obligation Well Three may be
stopped, modified, or abandoned.
6.3 DEVELOPMENT PROGRAM AND DRILLING
(A) If after the drilling, testing, and evaluation of Obligation ▇▇▇▇▇ Two
and Three the Operating Committee determines that the Project merits
development, the Parties agree to vote within thirty (30) Days whether to
continue the Project, and those Parties voting to continue the Project
agree to move to the development phase of the project and agree to
participate in at least the Minimum Development Plan as approved by the
Government or Government Oil Company. The Operator shall as soon as
practical propose and seek approval of a Minimum Development Plan as is
required by the Contract License. Within thirty (30) Days after obtaining
approval of the mandated Contract License Minimum Development Plan,
Operator shall deliver to the Parties a proposed Work Program and Budget
for the development of and for producing from the Project during the first
calendar year or part thereof. Within thirty (30) Days of such delivery, or
earlier if necessary to meet any applicable deadline under the Contract
License, the Operating Committee shall meet to consider, modify and then
either approve or reject the initial development Work Program and Budget.
Once the initial year's development Work Program and Budget is approved by
the Operating Committee, Operator shall take such steps as may be required
under the Contract License to secure approval of the development Work
Program and Budget by the Government, if required. In the event the
Government requires changes in the development Work Program and Budget, the
matter shall be resubmitted to the Operating Committee for further
consideration.
(B) The Work Program and Budget agreed pursuant to this Article 6.3 shall
include all of the Minimum Work Obligations, or at least that part of such
Minimum Work Obligations required to be carried out during the Calendar
Year in question under the terms of the Contract License or approved
Minimum Development Program. If within the time periods prescribed in this
Article 6.3 the Operating Committee is unable to agree on such a Work
Program and Budget, then the proposal capable of satisfying the Minimum
Work Obligations for the Calendar Year in question that receives the
largest Participating Interest vote (even if less than the applicable
percentage under Article 5.9) shall be deemed adopted as part of the annual
Work Program and Budget. If competing proposals receive equal votes, then
Operator shall choose between those competing proposals. Any portion of a
Work Program and Budget adopted pursuant to this Article 6.3(B) instead of
Article 5.9 shall include only such operations for the Joint Account as are
necessary to maintain the Contract License in full force and effect,
including such operations as are necessary to fulfill the Minimum Work
Obligations, if any, required for the given Calendar Year.
(C) The Operator will submit to the Parties a proposed Work Program and
Budget by October 31 of each Calendar Year for the following year, and the
Operating Committee will vote on and approve the presented Work Program and
Budget or an agreed or compromise program for drilling, production and
other operations of the Project/Joint Operations within thirty (30) Days of
the presentation.
(D) Any approved Work Program and Budget may be revised by the Operating
Committee from time to time. To the extent such revisions are approved by
the Operating Committee, the Work Program and Budget shall be amended
accordingly. The Operator shall prepare and submit a corresponding work
program and budget amendment to the Government if required by the terms of
the Contract.
(E) During the development Work Program, any Party or Participating
Interest may determine to not participate in an operation and the Party
will be a non-participating Party or interest as defined in Article VII.
6.4 PRODUCTION
On or before the 31stt day of October of each Calendar Year, Operator
shall deliver to the Parties a proposed Work Program and Budget as set
forth in Article 6.3, which will include production operations to be
performed for the Project and the projected production schedule for the
following Calendar Year. Within thirty (30) days of such delivery, the
Operating Committee shall agree upon a production Work Program and Budget.
The production Work Program and Budget, during any year in which
development may occur, may be part of the development Work Program and
Budget.
6.5 ITEMIZATION OF EXPENDITURES
(A) During the preparation of the proposed Work Programs and Budgets and
Development Plans contemplated in this Article VI, Operator shall consult
with the Operating Committee or the appropriate subcommittees regarding the
contents of such Work Programs and Budgets and Development Plans.
-12-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
(B) Each Work Program and Budget submitted by Operator shall contain an
itemized estimate of the costs of Joint Operations and all other
expenditures to be made for the Joint Account during the Calendar Year in
question and shall:
(1) Identify each work category in sufficient detail to afford the
ready identification of the nature, scope and duration of the activity
in question;
(2) Include such reasonable information regarding Operator's
allocation procedures and estimated manpower costs as the Operating
Committee may determine; and
(3) Comply with the current and minimum requirements of the Contract.
(C) The Work Program and Budget shall designate the portion or portions of
the Contract Area (i.e., drilling locations) in which Joint Operations
itemized in such Work Program and Budget are to be conducted and shall
specify the kind and extent of such operations in such detail as the
Operating Committee may deem suitable. Any well location set forth in any
development plan may be modified or relocated by the Operating Committee.
6.6 CONTRACT AWARDS
Operator shall award each contract for approved Joint Operations to the
best qualified contractor as determined by cost and ability to perform the
contract without the obligation to tender and without informing or seeking
the approval of the Operating Committee, except that before entering into
contracts with Affiliates of the Operator exceeding U.S. dollars ten
thousand (U.S. $ 10,000), Operator shall obtain the approval of the
Operating Committee. Upon the request of a Party, Operator shall within ten
(10) Days provide such Party with a copy of the final version any contract.
6.7 AUTHORIZATION FOR EXPENDITURE ("AFE") PROCEDURE
(A) Prior to incurring any commitment or expenditure for the Joint Account,
which is estimated to be:
(1) In excess of U.S. dollars ten thousand (US$ 10,000) in a
development Work Program and Budget; and
(2) In excess of U.S. dollars ten thousand (US$ 10,000) in a
production Work Program and Budget. Operator shall send to each
Non-Operator an AFE as described in Article 6.7(C). Notwithstanding
the above, Operator shall not be obliged to furnish for approval an
AFE to the Parties with respect to any Minimum Work Obligations,
workovers of ▇▇▇▇▇ and general and administrative costs that are
listed as separate line items in an approved Work Program and Budget.
(B) All AFEs shall be for informational purposes only where approval of an
operation in the current Work Program and Budget authorizes Operator to
conduct the operation (subject to Article 6.7) without further
authorization from the Operating Committee.
(C) Each AFE required to be proposed and prepared by the Operator shall and
any other AFE for Joint Operations shall:
(1) Identify the operation by specific reference to the applicable
line items in the Work Program and Budget; or
(2) Describe the work in detail;
(3) Contain proposer's best estimate of the total funds required to
carry out such work;
(4) Outline the proposed work schedule;
(5) Provide a timetable of expenditures, if known; and
(6) Be accompanied by such other supporting information as is
necessary for an informed decision.
6.8 OVEREXPENDITURES OF WORK PROGRAMS AND BUDGETS
(A) For expenditures on any line item of an approved Work Program and
Budget, Operator shall be entitled to incur without further approval of the
Operating Committee an overexpenditure for such line item up to ten percent
(10%) of the authorized amount for such line item; provided that the
cumulative total of all overexpenditures for a Calendar Year shall not
exceed five percent (5%) of the total Work Program and Budget in question.
(B) At such time that Operator is certain that the limits of Article 6.7(A)
will be exceeded, Operator shall furnish a supplemental AFE for the
estimated overexpenditures to the Operating Committee for its approval and
shall provide the Parties with full details of such overexpenditures.
Operator shall promptly give notice of the amounts of overexpenditures when
actually incurred.
(C) The restrictions contained in this Article VI shall be without
prejudice to Operator's rights to make expenditures as set out in Article
4.2(B)(11) and Article 13.5.
-13-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
ARTICLE VII - OPERATIONS BY LESS THAN ALL PARTIES
7.1 LIMITATION ON APPLICABILITY - NON-PARTICIPATING SITUATIONS BUT NO EXCLUSIVE
OPERATIONS
(A) No operations may be conducted in furtherance of the License Contract
except as Joint Operations under Article V or Article VI which are:
(1) Operations, including the drilling of ▇▇▇▇▇, included in the
required and approved Government/Contract License minimum development
plan, including any modifications of that plan, or
(2) Operations, including the drilling of ▇▇▇▇▇ and production
operations, included in an annual Work Program and Budget, or
(3) Operations which are proposed by and approved by the Operating
Committee as modifications of the annual Work Program and Plan, or
(4) Operations to which the CCP vote has not been exercised as a veto.
(B) Operations which are required to fulfill the Minimum Work Obligations
or minimum development plan must be proposed and conducted as Joint
Operations under Article V, including those proposed or approved by the
Operating Committee, and may not be proposed or conducted as Exclusive
Operations.
(C) As is set forth in Article V, any Joint Operation which is proposed by
the Operating Committee or a Party, must be approved within five (5) days
of the proposal, or within twenty-four (24) hours if a drilling rig or well
service rig is on the well, or any Party not approving the operation will
be in a non-participating status.
(D) Any Party voting to not participate in any well or operation on a well,
including a recorded no vote by default as is set forth in Section 7.1 (C)
above, will have no interest from that point in time forward in the subject
well and for any future work, operation, or production from that well.
Consenting Party(ies) will provide metering means to segregate the measured
production volumes (but not necessarily the physical production) for the
subject well from other Project production.
(E) If CCP determines to not participate in a well or other operation and
determines not to veto that proposal, the Operator shall operate the well
or ▇▇▇▇▇ in which CCP is non-participating unless the Operating Committee
sets forth another procedure.
ARTICLE VIII - DEFAULT
8.1 DEFAULT AND NOTICE
Any Party that fails to pay when due its Participating Interest share
of Joint Account expenses, including cash advances and interest, shall be
in default under this Agreement (a "Defaulting Party"). Operator, or any
non-defaulting Party in the case Operator is the Defaulting Party, shall
promptly give notice of such default to the Defaulting Party and each of
the non-defaulting Parties (the "Default Notice"). The amount not paid by
the Defaulting Party shall bear interest from the date due until paid in
full at the Agreed Interest Rate.
8.2 OPERATING COMMITTEE MEETINGS AND DATA.
Beginning five (5) Business Days from the date of the Default Notice,
and thereafter while the Defaulting Party remains in default, the
Defaulting Party shall not be entitled to attend Operating Committee or
subcommittee meetings or to vote on any matter coming before the Operating
Committee or any subcommittee until all of its defaults have been remedied
(including payment of accrued interest). Unless agreed otherwise by the
non-defaulting Parties, the voting interest of each non- defaulting Party
during this period shall be its percentage of the total Participating
Interests of the non- defaulting Parties. Any matters requiring a unanimous
vote of the Parties shall not require the vote of the Defaulting Party. In
addition, beginning five (5) Business Days from the date of the Default
Notice, and thereafter while the Defaulting Party remains in default, the
Defaulting Party shall not have access to any data or information relating
to Joint Operations. During this period, the non-defaulting Parties shall
be entitled to trade data without such Defaulting Party's consent, and the
Defaulting Party shall have no right to any data received in such a trade
unless and until its default is remedied in full. The Defaulting Party
shall be deemed to have elected not to participate in any Joint Operations
or Exclusive Operations that are voted upon at least five (5) Business Days
after the date of the Default Notice but before all of its defaults have
been remedied to the extent such an election would be permitted by Article
5.13(B) of this Agreement. The Defaulting Party shall be deemed to have
approved, and shall join with the non-defaulting Parties in taking, any
other actions voted on during that period.
8.3 ALLOCATION OF DEFAULTED ACCOUNTS
-14-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
(A) The Party providing the Default Notice pursuant to Article 8.1 shall
include in the Default Notice to each non-defaulting Party a statement of
the sum of money that the non-defaulting Party is to pay as its portion
(such portion being in the ratio that each non-defaulting Party's
Participating Interest bears to the Participating Interests of all
non-defaulting Parties) of the amount in default (excluding interest),
subject to the terms of this Article 8.3. If the Defaulting Party remedies
its default in full within five (5) Business Days from the date of the
Default Notice, the notifying Party shall promptly notify each
non-defaulting Party by telephone and facsimile, and the non-defaulting
Parties shall be relieved of their obligation to pay a share of the amounts
in default. Otherwise, each non-defaulting Party shall pay Operator, within
five (5) Business Days after receipt of the Default Notice, its share of
the amount which the Defaulting Party failed to pay. If any non-defaulting
Party fails to pay its share of the amount in default as aforesaid, such
Party shall thereupon be a Defaulting Party subject to the provisions of
this Article VIII. The non-defaulting Parties which pay the amount owed by
any Defaulting Party shall be entitled to receive their respective shares
of the principal and interest payable by such Defaulting Party pursuant to
this Article VIII.
(B) If Operator is a Defaulting Party, then all payments otherwise payable
to Operator for Joint Account costs pursuant to this Agreement shall be
made to the notifying Party instead until the default is cured or a
successor Operator appointed. The notifying Party shall maintain such funds
in a segregated account separate from its own funds and shall apply such
funds to third party claims due and payable from the Joint Account of which
it has notice, to the extent Operator would be authorized to make such
payments under the terms of this Agreement. The notifying Party shall be
entitled to ▇▇▇▇ or cash call the other Parties in accordance with the
Accounting Procedure for proper third party charges that become due and
payable during such period to the extent sufficient funds are not
available. When Operator has cured its default or a successor Operator is
appointed, the notifying Party shall turn over all remaining funds in the
account to Operator and shall provide Operator and the other Parties with a
detailed accounting of the funds received and expended during this period.
The notifying Party shall not be liable for damages, losses, costs,
expenses or liabilities arising as a result of its actions under this
Article 8.3(B) except to the extent Operator would be liable under Article
4.6.
8.4 REMEDIES
(A) During the continuance of a default, the Defaulting Party shall not
have a right to its Entitlement, which shall vest in and be the property of
the non-defaulting Parties. Operator (or the notifying Party if Operator is
a Defaulting Party) shall be authorized to sell such Entitlement in an
arm's-length sale on terms that are commercially reasonable under the
circumstances and, after deducting all costs, charges and expenses incurred
in connection with such sale, pay the net proceeds to the non-defaulting
Parties in proportion to the amounts they are owed by the Defaulting Party
hereunder (and apply such net proceeds toward the establishment of a
reserve fund under Article 8.4(C), if applicable) until all such amounts
are recovered and such reserve fund is established. Any surplus remaining
shall be paid to the Defaulting Party,and any deficiency shall remain a
debt due from the Defaulting Party to the non-defaulting Parties. When
making sales under this Article 8.4(A), the non-defaulting Parties shall
have no obligation to share any existing market or obtain a price equal to
the price at which their own production is sold.
(B) If Operator disposes of any Joint Property or any other credit or
adjustment is made to the Joint Account while a Party is in default,
Operator (or the notifying Party if Operator is a Defaulting Party) shall
be entitled to apply the Defaulting Party's Participating Interest share of
the proceeds of such disposal, credit or adjustment against all amounts
owing by the Defaulting Party to the non-defaulting Parties hereunder (and
toward the establishment of a reserve fund under Article 8.4(C), if
applicable). Any surplus remaining shall be paid to the Defaulting Party,
and any deficiency shall remain a debt due from the Defaulting Party to the
non-defaulting Parties.
(C) The non-defaulting Parties shall be entitled to apply proceeds received
under Articles 8.4(A) and 8.4(B) toward the creation of a reserve fund in
an amount equal to the Defaulting Party's Participating Interest share of
(i) the estimated cost to abandon any ▇▇▇▇▇ and other property in which the
Defaulting Party participated, (ii) the estimated cost of severance
benefits for local employees upon cessation of operations and (iii) any
other identifiable costs that the non-defaulting Parties anticipate will be
incurred in connection with the cessation of operations.
(D) If a Defaulting Party fails to remedy its default by the sixtieth
(60th) Day following the date of the Default Notice, then, without
prejudice to any other rights available to the non-defaulting Parties to
recover amounts owing to them under this Agreement, each non-defaulting
Party shall have the option, exercisable at anytime thereafter until the
Defaulting Party has completely cured its defaults, to require that the
Defaulting Party completely withdraw from this Agreement and the Contract.
Such option shall be exercised by notice to the Defaulting Party and each
non-defaulting Party. If such option is exercised, the Defaulting Party
shall
-15-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
be deemed to have transferred, pursuant to Article 13.6, effective on the
date of the non-defaulting Party's notice, all of its right, title and
beneficial interest in and under this Agreement and the Contract Area to
the non-defaulting Parties. The Defaulting Party shall, without delay
following any request from the non- defaulting Parties, do any and all acts
required to be done by applicable law or regulation in order to render such
transfer legally valid, including, without limitation, obtaining all
governmental consents and approvals, and shall execute any and all
documents and take such other actions as may be necessary in order to
effect a prompt and valid transfer of the interests described above. The
Defaulting Party shall be obligated to promptly remove any liens and
encumbrances which may exist on such transferred interests. For purposes of
this Article 8.4(D), each Party constitutes and appoints each other Party
its true and lawful attorney to execute such instruments and make such
filings and applications as may be necessary to make such transfer legally
effective and to obtain any necessary consents of the Government. Actions
under this power of attorney may be taken by any Party individually without
the joinder of the others. This power of attorney is irrevocable for the
term of this Agreement and is coupled with an interest. If requested, each
Party shall execute a form prescribed by the Operating Committee setting
forth this power of attorney in more detail. In the event all Government
approvals are not timely obtained, the Defaulting Party shall hold its
Participating Interest in trust for the non-defaulting Parties who are
entitled to receive the Defaulting Party's Participating Interest.
Notwithstanding the terms of Article XIII, in the absence of an agreement
among the non- defaulting Parties to the contrary, any transfer to the
non-defaulting Parties following a withdrawal pursuant to this Article
8.4(D) shall be in proportion to the Participating Interests of the
non-defaulting Parties. The acceptance by a non-defaulting Party of any
portion of a Defaulting Party's Participating Interest shall not limit any
rights or remedies that the non-defaulting Party has to recover all amounts
(including
(E) The non-defaulting Parties shall be entitled to recover from the
Defaulting Party all reasonable attorneys' fees and all other reasonable
costs sustained in the collection of amounts owing by the Defaulting Party.
(F) The rights and remedies granted to the non-defaulting Parties in this
Agreement shall be cumulative, not exclusive, and shall be in addition to
any other rights and remedies that may be available to the non- defaulting
Parties, whether at law, in equity or otherwise. Each right and remedy
available to the non- defaulting Parties may be exercised from time to time
and so often and in such order as may be considered expedient by the
non-defaulting Parties in their sole discretion.
8.5 SURVIVAL
The obligations of the Defaulting Party and the rights of the
non-defaulting Parties shall survive the surrender of the Contract Area,
abandonment of Joint Operations and termination of this Agreement.
8.6 NO RIGHT OF SET OFF
Each Party acknowledges and accepts that a fundamental principle of
this Agreement is that each Party pays its Participating Interest share of
all amounts due under this Agreement as and when required. Accordingly, any
Party which becomes a Defaulting Party undertakes that, in respect of
either any exercise by the non-defaulting Parties of any rights under or
the application of any of the provisions of this Article VIII, such Party
hereby waives any right to raise by way of set off or invoke as a defense,
whether in law or equity, any failure by any other Party to pay amounts due
and owing under this Agreement or any alleged claim that such Party may
have against Operator or any Non-Operator, whether such claim arises under
this Agreement or otherwise. Each Party further agrees that the nature and
the amount of the remedies granted to the non-defaulting Parties hereunder
are reasonable and appropriate in the circumstances.
ARTICLE IX - DISPOSITION OF PRODUCTION
9.1 RIGHT AND OBLIGATION TO TAKE IN KIND
Except as otherwise provided in this Article IX or in Article VIII,
each Party shall have the right and obligation to own, take in kind and
separately dispose of the share of total production available to it from
the Project pursuant to the Contract and this Agreement in such quantities
and in accordance with such procedures as may be set forth in the offtake
agreement referred to in Article 9.2. If Government Oil Company is party to
the offtake agreement, then the Parties shall endeavor to obtain its
agreement to the principles set forth in this Article IX.
9.2 AGREEMENT FOR CRUDE OIL SALES
If crude oil is produced from the Project, the Operator shall in good
faith, and not less than thirty (30) -16- Days prior to first delivery of
crude oil, negotiate and conclude the terms of an agreement to cover the
sale of crude oil produced under the Contract and for the Contract Area.
The Government may, if necessary and
-16-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
practicable, also be party to the sales agreement. This sales or "offtake"
agreement shall, to the extent consistent with the Contract, make provision
for:
(A) The delivery point, at which title and risk of loss of Participating
Interest shares of crude oil shall pass to the Parties interested (or as
the Parties may otherwise agree);
(B) Operator's regular periodic advice to the Parties of estimates of total
available production for suc- 6 ceeding periods, quantities of each grade
of crude oil and each Party's share for as far ahead as is necessary for
Operator and the Parties to plan offtake arrangements. Such advice shall
also cover for each grade of crude oil total available production and
deliveries for the preceding period, inventory and overlifts and
underlifts;
(C) Nomination by the Parties to Operator of acceptance of their shares of
total available production for the succeeding period. Such nominations
shall in any one period be for each Party's entire share of available
production during that period subject to operational tolerances and agreed
minimum economic cargo sizes or as the Parties may otherwise agree;
(D) Elimination of overlifts and underlifts;
(E) If a river terminal for vessel loading is involved, risks regarding
acceptability of barges, tankers, demurrage and (if applicable)
availability of berths;
(F) Distribution to the Parties of available grades, gravities and
qualities of Hydrocarbons to ensure, to the extent Parties take delivery of
their Entitlements as they accrue, that each Party shall receive in each
period Entitlements of grades, gravities and qualities of Hydrocarbons from
the Project similar to the grades, gravities and qualities of Hydrocarbons
received by each other Party from the Project in that period.
(G) To the extent that distribution of Entitlements on such basis is
impracticable due to availability of facilities and minimum cargo sizes, a
method of making periodic adjustments; and
(H) The option and the right of the other Parties to sell an Entitlement
which a Party fails to nominate for acceptance pursuant to (C) above or of
which a Party fails to take delivery, in accordance with applicable agreed
procedures, provided that such failure either constitutes a breach of
Operator's or Parties' obligations under the terms of the Contract, or is
likely to result in the curtailment or shut-in of production. Such sales
shall be made only to the limited extent necessary to avoid disruption in
Joint Operations. Operator shall give all Parties as much notice as is
practicable of such situation and that a sale option has arisen. Any sale
shall be of the un-nominated or undelivered Entitlement as the case may be
and for reasonable periods of time as are consistent with the minimum needs
of the industry and in no event to exceed twelve (12) months. The right of
sale shall be revocable at will subject to any prior contractual
commitments. Payment terms for production sold under this option shall be
established in the offtake agreement. If a sales agreement has not been
entered into by the date of first delivery of crude oil, the Parties shall
be bound by the principles set forth in this Article 9.2 until a sales
agreement has been entered into.
9.3 SEPARATE AGREEMENT FOR NATURAL GAS
The Parties recognize that if natural gas is discovered it may be
necessary for the Parties to enter into special arrangements for the
disposal of the natural gas, which are consistent with this Agreement and
subject to the terms of the Contract.
ARTICLE X - ABANDONMENT
10.1 ABANDONMENT OF ▇▇▇▇▇ DRILLED AS JOINT OPERATIONS
(A) A decision to plug and abandon any well which has been drilled as a
Joint Operation shall require the approval of the Operating Committee.
(B) Should any Party fail to reply within the period prescribed in Article
5.12(A)(1) or Article 5.12(A)(2), whichever is applicable, after delivery
of notice of the Operator's proposal to plug and abandon such well, such
Party shall be deemed to have consented to the proposed abandonment.
(C) Any well plugged and abandoned under this Agreement shall be plugged
and abandoned in accordance with applicable regulations and at the cost,
risk and expense of the Parties who participated in the cost of drilling
such well.
ARTICLE XI - SURRENDER, EXTENSIONS AND RENEWALS
11.1 SURRENDER
(A) If the Contract requires the Parties to surrender any portion of the
Contract Area, Operator shall advise the Operating Committee of such
requirement at least one hundred and twenty (120) Days in advance of the
earlier of the date for filing irrevocable notice of such surrender or the
date of such surrender. Prior to
-17-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
the end of such period, the Operating Committee shall determine pursuant to
Article V the size and shape of the surrendered area, consistent with the
requirements of the Contract. If a sufficient vote of the Operating
Committee cannot be attained, then the proposal supported by a simple
majority of the Participating Interests shall be adopted. If no proposal
attains the support of a simple majority of the Participating Interests,
then the proposal receiving the largest aggregate Participating Interest
vote shall be adopted. In the event of a tie, the Operator shall choose
among the proposals receiving the largest aggregate Participating Interest
vote. The Parties shall execute any and all documents and take such other
actions as may be necessary to effect the surrender. Each Party renounces
all claims and causes of action against Operator and any other Parties on
account of any area surrendered in accordance with the foregoing but
against its recommendation if Hydrocarbons are subsequently discovered
under the surrendered area.
(B) A surrender of all or any part of the Contract Area which is not
required by the Contract shall require the unanimous consent of the
Parties.
11.2 EXTENSION OF THE TERM
(A) A proposal by any Party to enter into or extend the term of any
requirement, period, or any phase of the Contract, or a proposal to extend
the term of the Contract, shall be brought before the Operating Committee
pursuant to Article V.
(B) Any Party shall have the right to enter into an agreement to extend the
term of the Contract, regardless of the level of support in the Operating
Committee. If any Party or Parties take such action, any Party not wishing
to extend shall have a right to withdraw from the Project, subject to the
requirements of Article XIII.
ARTICLE XII - TRANSFER OF INTEREST OR RIGHTS
12.1 OBLIGATIONS
(A) Subject always to the requirements of the Contract, the transfer of all
or part of a Party's Participating Interest, excepting transfers pursuant
to Article VIII or Article XIII, shall be effective only if it satisfies
the terms and conditions of this Article XII.
(B) Except in the case of a Party transferring all of its Participating
Interest, no transfer shall be made by any Party which results in the
transferor or the transferee holding a Participating Interest of less than
one percent (1%) or holding any interest other than a Participating
Interest the same as other Parties in the Contract, the Project, and this
Agreement.
(C) The transferring Party shall, notwithstanding the transfer, be liable
to the other Parties for any obligations, financial or otherwise, which
have vested, matured or accrued under the provision of the Contract or this
Agreement prior to such transfer. Such obligations shall include, without
limitation, any proposed expenditure approved by the Operating Committee
prior to the transferring Party notifying the other Parties of its proposed
transfer.
(D) The transferee shall have no rights in and under the Contract, the
Contract Area or this Agreement unless and until it obtains any necessary
Government approval and expressly undertakes in an instrument satisfactory
to the other Parties to perform the obligations of the transferor under the
Contract and this Agreement in respect of the Participating Interest being
transferred and furnishes any guarantees required by the Government or the
Contract.
(E) A transferee other than an Affiliate shall have no rights in and under
the Contract, the Contract Area or this Agreement unless each Party has
consented in writing to such transfer, which consent shall be denied only
if such transferee fails to establish to the reasonable satisfaction of
each Party its capability to perform its obligations under the Contract and
this Agreement.
(F) Nothing contained in this Article XII shall prevent a Party from
mortgaging, pledging, charging or otherwise encumbering all or part of its
interest in the Contract Area and in and under this Agreement for the
purpose of security relating to finance provided that:
(1) Such Party shall remain liable for all obligations relating to
such interest;
(2) The encumbrance shall be subject to any necessary approval of the
Government and be expressly subordinated to the rights of the other
Parties under this Agreement; and
(3) Such Party shall ensure that any such mortgage, pledge, charge or
encumbrance shall be expressed to be without prejudice to the
provisions of this Agreement.
(4) No interest in the Contract Area larger in any extent than that
owned by Such Party shall be encumbered in any way.
-18-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
(G) Any transfer of all or a portion of a Party's Participating Interest
whether directly or indirectly by assignment, merger, consolidation, sale
of stock, or other conveyance, other than with or to an Affiliate shall be
subject to the following procedure:
(1) In the event that a Party wishes to transfer any part or all of
its Participating Interest, it shall send all other Parties notice of
its intention and invite them to submit offers therefore. The other
Parties shall have thirty (30) Days from the date of such notification
to deliver a counter-notification with a binding offer in accordance
with Article 12.1(G) (3). If the prospective transferor Party accepts
the offer, the prospective transferor and the offering Party shall
have the next sixty (60) Days in which to negotiate in good faith and
execute the terms and conditions of a mutually acceptable transfer
agreement. If the prospective transferor does not find any Party's
offer acceptable, or if sixty (60) Days elapse and it is evident to
the prospective transferor that a fully negotiated agreement with an
offering Party is not imminent, the prospective transferor shall be
entitled for a period of one hundred eighty (180) Days, plus such
reasonable additional period as may be necessary to secure
governmental approvals, to transfer its Participating Interest to a
third party subject to the obligations set forth in this Article XII,
so long as terms and conditions of the transfer to a third party are
more favorable to the prospective transferor than the best terms and
conditions offered by any Party;
(2) If more than one Party counter-notifies the prospective transferor
that it intends to acquire the Participating Interest which is the
subject of the proposed transfer, then each such Party shall acquire a
proportion of the Participating Interest to be transferred equal to
the ratio of its own Participating Interest to the total Participating
Interests of all the counter-notifying Parties, unless they otherwise
agree;
(3) All Parties giving such counter-notice shall meet to formulate a
joint offer. Each such Party shall make known to the other Parties the
highest price or value in which it is willing to offer to the
prospective transferor. The proposal with the highest price or value
shall be offered to the prospective transferor as the joint proposal
of the Parties still willing to participate in such offer under the
provisions of (1) and (2) above;
(4) In the event that a Party's proposed transfer of part or all of
its Participating Interest involves consideration other than cash or
involves other properties included in a wider transaction (package
deal), then the Participating Interest (or part thereof) shall be
allocated a reasonable and justifiable cash value by the prospective
transferor in any notification to the other Parties. Such other
Parties may satisfy the requirements of this Article 12.1(G) by
agreeing to pay such cash value in lieu of the consideration payable
in the third-party offer.
12.2 RIGHTS
(A) Each Party shall have the right, subject to the provisions of Article
12.1, to freely transfer its Participating Interest.
ARTICLE XIII - WITHDRAWAL FROM AGREEMENT
13.1 RIGHT OF WITHDRAWAL
(A) Subject to the provisions of this Article XIII, other than for the
various agreements and proposals between or among the parties by which
their original participation in the Project occurred, any Party may
withdraw from this Agreement and the Contract Area by giving notice to all
other Parties stating its decision to withdraw. Such notice shall be
unconditional and irrevocable when given, except as may be provided in
Article 13.7.
(B) The effective date of withdrawal for a withdrawing Party shall be the
end of the calendar month following the calendar month in which the notice
of withdrawal is given, provided that if all Parties elect to withdraw, the
effective date of withdrawal for each Party shall be the date determined by
Article 13.9.
13.2 PARTIAL OR COMPLETE WITHDRAWAL
(A) Within thirty (30) Days of receipt of each withdrawing Party's
notification, each of the other Parties may also give notice that it
desires to withdraw from this Agreement, the Project, and the Contract.
Should all Parties give notice of withdrawal, the Parties shall proceed to
abandon the Contract Area and terminate the Contract and this Agreement. If
less than all of the Parties give such notice of withdrawal, then the
withdrawing Parties shall take all steps to withdraw from the Contract and
this Agreement on the earliest possible date and execute and deliver all
necessary instruments and documents to assign their Participating Interest
to the Parties which are not withdrawing, without any compensation
whatsoever, in accordance with the provisions of Article 13.6.
-19-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
(B) Any Party withdrawing under Article 11.2 or under this Article XIII
shall withdraw from the entirety of the Contract Area and Project, and thus
abandon to the other Parties not joining in its withdrawal all its rights
to Cost Oil and Profit Oil generated by operations after the effective date
of such withdrawal and all rights in associated Joint Property.
13.3 RIGHTS OF A WITHDRAWING PARTY
A withdrawing Party shall have the right to receive its Entitlement of
Hydrocarbons produced through the effective date of its withdrawal. The
withdrawing Party shall be entitled to receive all information to which
such Party is otherwise entitled under this Agreement until the effective
date of its withdrawal. After giving its notification of withdrawal, a
Party shall not be entitled to vote on any matters coming before the
Operating Committee, other than matters for which such Party has financial
responsibility. Any withdrawal may be subject to prior agreements between
or among the Parties, and include, where applicable, the provisions of
Article 20.12.
13.4 OBLIGATIONS AND LIABILITIES OF A WITHDRAWING PARTY
(A) A withdrawing Party shall, following its notification of withdrawal,
remain liable only for its share of the following:
(1) Costs of Joint Operations, and Exclusive Operations in which it
has agreed to participate, that were approved by the Operating
Committee or Consenting Parties as part of a Work Program and Budget
or AFE prior to such Party's notification of withdrawal, regardless of
when they are actually incurred;
(2) Any Minimum Work Obligations for the current period or phase of
the Contract, and for any subsequent period or phase which has been
approved pursuant to Article 11.2 and with respect to which such Party
has failed to timely withdraw under Article 13.4(B);
(3) Emergency expenditures as described in Articles 4.2(B)(11) and
13.5;
(4) All other obligations and liabilities of the Parties or Consenting
Parties, as applicable, with respect to acts or omissions under this
Agreement prior to the effective date of such Party's withdrawal for
which such Party would have been liable, had it not withdrawn from
this Agreement.
The obligations and liabilities for which a withdrawing Party remains
liable shall specifically include its share of any costs of plugging and
abandoning ▇▇▇▇▇ or portions of ▇▇▇▇▇ in which it participated (or was
required to bear a share of the costs pursuant to Article 13.4(A)(1)), to
the extent such costs of plugging and abandoning are payable by the Parties
under the Contract. Any liens, charges and other encumbrances which the
withdrawing Party placed on such Party's Participating Interest prior to
its withdrawal shall be fully satisfied or released, at the withdrawing
Party's expense, prior to its withdrawal. A Party's withdrawal shall not
relieve it from liability to the non-withdrawing Parties with respect to
any obligations or liabilities attributable to the withdrawing Party under
this Article XIII merely because they are not identified or identifiable at
the time of withdrawal.
(B) Notwithstanding the foregoing, a Party shall not be liable for any
operations or expenditures it voted against (other than operations and
expenditures described in Article 13.4(A)(2) or 13.4(A)(3)) if it sends
notification of its withdrawal within five (5) Days (or within twenty-four
(24) hours if the drilling rig to be used in such operation is standing by
on the Contract Area) of the Operating Committee vote approving such
operation or expenditure. Likewise, a Party voting against voluntarily
entering into or extending any phase of the Contract or voluntarily
extending the Contract shall not be liable for the Minimum Work Obligations
associated therewith provided that it sends notification of its withdrawal
within thirty (30) Days of such vote pursuant to Article 11.2.
13.5 EMERGENCY
If a well goes out of control or a fire, blow out, sabotage or other
emergency occurs prior to the effective date of a Party's withdrawal, the
withdrawing Party shall remain liable for its Participating Interest share
of the costs of such emergency, regardless of when they are actually
incurred.
13.6 ASSIGNMENT
A withdrawing Party shall assign its Participating Interest free of
cost to each of the non-withdrawing Parties in the proportion which each of
their Participating Interests (prior to the withdrawal) bears to the total
Participating Interests of all the non-withdrawing Parties (prior to the
withdrawal), unless the non- withdrawing Parties agree otherwise. The
expenses associated with the withdrawal and assignments shall be borne by
the withdrawing Party. If any withdrawing Party acquired its interests
through either CCP or ▇▇▇▇▇▇▇-Peru, then those entities may reacquire
through the withdrawal those interests in their entirety, unless CCP or
▇▇▇▇▇▇▇-Peru wish to offer part or all of the interest to the other under
the terms of withdrawal stated in other parts of this section. No
obligations of the interest thus transferred will increase the
responsibility of CCP or ▇▇▇▇▇▇▇-Peru by the pass through or interest.
-20-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
13.7 APPROVALS
As this is a private contract, no Government approvals are required of
a withdrawing party.
13.8 SECURITY
(A) A Party withdrawing from this Agreement and the Contract pursuant to
this Article XIII shall provide Security satisfactory to the other Parties
to satisfy any obligations or liabilities which were approved or accrued
prior to notice of withdrawal, but which become due after its withdrawal,
including, without limitation, Security to cover the costs of an
abandonment, if applicable.
(B) Failure to provide Security shall constitute default under this
Agreement.
(C) "Security" means a standby letter of credit issued by a bank or an on
demand bond issued by a surety corporation, such bank or corporation having
a credit rating indicating it has sufficient worth to pay its obligations
in all reasonably foreseeable circumstances, or, failing the provision of
either of those, cash contributed to an account approved by the Operating
Committee.
13.9 WITHDRAWAL OR ABANDONMENT BY ALL PARTIES
In the event all Parties decide to withdraw, the Parties agree that
they shall be bound by the terms and conditions of this Agreement for so
long as may be necessary to wind up the affairs of the Parties with the
Government, to satisfy any requirements of applicable law and to facilitate
the sale, disposition or abandonment of property or interests held by the
Joint Account. ARTICLE XIV - RELATIONSHIP OF PARTIES AND TAX 14.1
RELATIONSHIP OF PARTIES The rights, duties, obligations and liabilities of
the Parties under this Agreement shall be individual, not joint or
collective. It is not the intention of the Parties to create, nor shall
this Agreement be deemed or construed to create a mining or other
partnership, joint venture or association or (except as explicitly provided
in this Agreement) a trust. This Agreement shall not be deemed or construed
to authorize any Party to act as an agent, servant or employee for any
other Party for any purpose whatsoever except as explicitly set forth in
this Agreement. In their relations with each other under this Agreement,
the Parties shall not be considered fiduciaries except as expressly
provided in this Agreement.
14.2 TAX
Each Party shall be responsible for reporting and discharging its own
tax measured by the profit or income of the Party and the satisfaction of
such Party's share of all contract obligations under the Contract and under
this Agreement. Each Party shall protect, defend and indemnify each other
Party from any and all loss, cost or liability arising from the
indemnifying Party's failure to report and discharge such taxes or satisfy
such obligations. The Parties intend that all income and all tax benefits
(including, but not limited to, deductions, depreciation, credits and
capitalization) with respect to the expenditures made by the Parties
hereunder will be allocated by the Government tax authorities to the
Parties based on the share of each tax item actually received or borne by
each Party. If such allocation is not accomplished due to the application
of the laws and regulations of the Government or other Government action,
the Parties shall attempt to adopt mutually agreeable arrangements that
will allow the Parties to achieve the financial results intended. Operator
shall provide each Party, in a timely manner and at such Party's sole
expense, with such information with respect to Joint Operations as such
Party may reasonably request for preparation of its tax returns or
responding to any audit or other tax proceeding.
14.3 UNITED STATES TAX ELECTION
(A) If, for United States federal income tax purposes, this Agreement and
the operations under this Agreement are regarded as a partnership (and if
the Parties have not agreed to form a tax partnership), each "U.S. Party"
(as defined below) elects to be excluded from the application of all of the
provisions of Subchapter "K", Chapter 1, Subtitle "A" of the United States
Internal Revenue Code of 1986, as amended (the "Code"), as permitted and
authorized by Section 761(a) of the Code and the regulations promulgated
under the Code. Each Party is authorized and directed to execute and file
for each U.S. Party such evidence of this election as may be required by
the Internal Revenue Service, including specifically, but not by way of
limitation, all of the returns, statements, and the data required by United
States Treasury Regulations Sections 1.761-2 and 1.6031-1(d)(2), and shall
provide a copy thereof to each U.S. Party. Should there be any requirement
that any U.S. Party give further evidence of this election, each U.S. Party
shall execute such documents and furnish such other evidence as may be
required by the Internal Revenue Service or as may be necessary to evidence
this election.
(B) No Party shall give any notice or take any other action inconsistent
with the election made above. If -21- any income tax laws of any state or
other political subdivision of the United States or any future income tax
-21-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
laws of the United States or any such political subdivision contain
provisions similar to those in Subchapter "K", Chapter 1, Subtitle "A" of
the Code, under which an election similar to that provided by Section
761(a) of the Code is permitted, each U.S. Party shall make such election
as may be permitted or required by such laws. In making the foregoing
election, each U.S. Party states that the income derived by it from
operations under this Agreement can be adequately determined without the
computation of partnership taxable income.
(C) For the purposes of this Article XIV, "U.S. Party" shall mean any Party
which is subject to the income tax law of the United States in respect of
operations under this Agreement.
(D) No activity shall be conducted under this Agreement that would cause
any Party that is not a U.S. Party to be deemed to be engaged in a trade or
business within the United States under applicable tax laws and
regulations.
(E) A Party which is not a U.S. Party shall not be required to do any act
or execute any instrument which might subject it to the taxation
jurisdiction of the United States.
ARTICLE XV - CONFIDENTIAL INFORMATION -- PROPRIETARY TECHNOLOGY
15.1 CONFIDENTIAL INFORMATION
(A) Subject to the provisions of the Contract, the Parties agree that all
information and data acquired or obtained by any Party in respect of Joint
Operations shall be considered confidential and shall be kept confidential
and not be disclosed during the term of the Contract to any person or
entity not a Party to this Agreement, except:
(1) To an Affiliate, provided such Affiliate maintains confidentiality
as provided in this Article XV;
(2) To a governmental agency or other entity when required by the
Contract;
(3) To the extent such data and information is required to be
furnished in compliance with anyapplicable laws or regulations, or
pursuant to any legal proceedings or because of any order of any court
binding upon a Party;
(4) To prospective or actual contractors, consultants and attorneys
employed by any Party where disclosure of such data or information is
essential to such contractor's, consultant's or attorney's work;
(5) To a bona fide prospective transferee of a Party's Participating
Interest (including an entity with whom a Party or its Affiliates are
conducting bona fide negotiations directed toward a merger,
consolidation or the sale of a majority of its or an Affiliate's
shares);
(6) To a bank or other financial institution to the extent appropriate
to a Party arranging for funding;
(7) To the extent such data and information must be disclosed pursuant
to any rules or requirements of any government or stock exchange
having jurisdiction over such Party, or its Affiliates; provided that
if any Party desires to disclose information in an annual or periodic
report to its or its Affiliates' shareholders and to the public and
such disclosure is not required pursuant to any rules or requirements
of any government or stock exchange, then such Party shall comply with
Article 20.3;
(8) To its respective employees for the purposes of Joint Operations,
subject to each Party taking customary precautions to ensure such data
and information is kept confidential;
(9) Any data or information which, through no fault of a Party,
becomes a part of the public domain.
(B) Disclosure as pursuant to Article 15.1(A)(4), (5), and (6) shall not be
made unless prior to such disclosure the disclosing Party has obtained a
written undertaking from the recipient party to keep the data and
information strictly confidential for at least five (5) years and not to
use or disclose the data and information except for the express purpose for
which disclosure is to be made. 15.2 CONTINUING OBLIGATIONS
Any Party ceasing to own a Participating Interest during the term of
this Agreement shall nonetheless remain bound by the obligations of
confidentiality in Article 15.1 and any disputes shall be resolved
inaccordance with Article XVIII.
15.3 PROPRIETARY TECHNOLOGY
Nothing in this Agreement shall require a Party to divulge proprietary
technology to the other Parties; provided that where the cost of
development of proprietary technology has been charged to the Joint
Account, such proprietary technology shall be disclosed to all Parties
bearing a portion of such cost and may be used by any such Party or its
Affiliates in other operations.
-22-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
15.4 TRADES OF INFORMATION
Notwithstanding the foregoing provisions of this Article XV, Operator
may, with approval of the Operating Committee, make trade or sell Project
and well information, logs, and other data or information for the benefit
of the Parties, with any data so obtained to be furnished to all Parties
who participated in the cost of the data that was traded. Operator shall
cause any third party to such trade to enter into an undertaking to keep
the traded data confidential. Data that is sold may or may not be
confidential depending on the arrangement the Operator makes with the
acquiring entity or person. Any value or benefit from the sale will be paid
pro-rata to the Parties.
ARTICLE XVI- FORCE MAJEURE
16.1 OBLIGATIONS
If as a result of Force Majeure any Party is rendered unable, wholly
or in part, to carry out its obligations under this Agreement, other than
the obligation to pay any amounts due or to furnish security, then the
obligations of the Party giving such notice, so far as and to the extent
that the obligations are affected by such Force Majeure, shall be suspended
during the continuance of any inability so caused and for such reasonable
period thereafter as may be necessary for the Party to put itself in the
same position that it occupied prior to the Force Majeure, but for no
longer period. The Party claiming Force Majeure shall notify the other
Parties of the Force Majeure within a reasonable time after the occurrence
of the facts relied on and shall keep all Parties informed of all
significant developments. Such notice shall give reasonably full
particulars of the Force Majeure, and also estimate the period of time
which the Party will probably require to remedy the Force Majeure. The
affected Party shall use all reasonable diligence to remove or overcome the
Force Majeure situation as quickly as possible in an economic manner, but
shall not be obligated to settle any labor dispute except on terms
acceptable to it and all such disputes shall be handled within the sole
discretion of the affected Party.
16.2 DEFINITION OF FORCE MAJEURE
For the purposes of this Agreement, "Force Majeure" shall have the
same meaning as:
(A) Is set out in the Contract, or;
(B) Circumstances which were beyond the reasonable control of the Party
concerned and shall include strikes, lockouts and other industrial
disturbances even if they were not "beyond the reasonable control" of the
Party.
ARTICLE XVII - NOTICES
Except as otherwise specifically provided, all notices authorized or
required between the Parties by any of the provisions of this Agreement,
shall be in writing, in English and delivered in person or by courier
service or by any electronic means of transmitting written communications,
but electronic means, including emails, are only effective notices if the
sender of the notice actually receives a return email that acknowledges
receipt of the notice. All notices must be addressed to such Parties as
designated below. Oral communication does not constitute notice for
purposes of this Agreement, and telephone numbers for the Parties are
listed below as a matter of convenience only. The originating notice given
under any provision of this Agreement shall be deemed delivered only when
received by the Party to whom such notice is directed, and the time for
such Party to deliver any notice in response to such originating notice
shall run from the date the originating notice is received. The second or
any responsive notice shall be deemed delivered when received. "Received"
for purposes of this Article XVII shall mean actual delivery of the notice
to the address of the Party to be notified specified in accordance with
this Article XVII. Each Party shall have the right to change its address at
any time and/or designate that copies of all such notices be directed to
another person at another address, by giving written notice thereof to all
other Parties.
-23-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
COMPANIA CONSULTORA DE PETROLEO, S.A. RADIAL ENERGY, INC.
------------------------------------- -------------------
Attention: Attention:
▇▇▇▇▇▇▇-Peru, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 12
Fax: 713 - 850 - 1235
Telephone: 713 - 850 - 0960
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇.▇▇▇
ARTICLE XVIII - APPLICABLE LAW AND DISPUTE RESOLUTION
18.1 APPLICABLE LAWS
This Agreement shall be governed by, construed, interpreted and
applied in accordance with the laws of the Republic of Peru, excluding any
choice of law rules which would refer the matter to the laws of another
jurisdiction.
18.2 DISPUTE RESOLUTION
(A) Any dispute, controversy or claim arising out of or in relation to or
in connection with this Agreement or the operations carried out under this
Agreement, including without limitation any dispute as to the construction,
validity, interpretation, enforceability or breach of this Agreement, shall
be exclusively and finally settled by arbitration in accordance with this
Article 18.2. Any Party may submit such a dispute, controversy or claim to
arbitration by notice to the other Parties.
(B)The arbitration shall be heard and determined by three (3) arbitrators.
Each side shall appoint an arbitrator of its choice within thirty (30) Days
of the submission of a notice of arbitration. The Party-33appointed
arbitrators shall in turn appoint a presiding arbitrator of the tribunal
within sixty (60) Days following the appointment of both Party-appointed
arbitrators. If the Party-appointed arbitrators cannot reach agreement on a
presiding arbitrator of the tribunal and/or one Party refuses to appoint
its Party-36appointed arbitrator within said sixty (60) Day period, the
appointing authority for the implementation of such procedure shall be the
American Arbitration Association, who shall appoint an independent
arbitrator who does not have any financial interest in the dispute,
controversy or claim.
(C) Unless otherwise expressly agreed in writing by the Parties to the
arbitration proceedings:
(1) The arbitration proceedings shall be held in Lima, Peru;
(2) The arbitration proceedings shall be conducted in the English
language and the arbitrator(s) shall be fluent in the English
language;
(3) The arbitrator(s) shall be and remain at all times wholly
independent and impartial;
(4) The arbitration proceedings shall be conducted under the
Arbitration Rules of the American Arbitration Association in effect on
the Effective Date of this Agreement.
(5) Any procedural issues not determined under the arbitral rules
selected pursuant to Article 18.2(C)(4) shall be determined by the
arbitration act and any other applicable laws of the Republic of Peru,
other than those laws which would refer the matter to another
jurisdiction;
(6) The costs of the arbitration proceedings (including attorneys'
fees and costs) shall be borne in the manner determined by the
arbitrator(s);
(7) The decision of the sole arbitrator or a majority of the
arbitrators, as the case may be, shall be reduced to writing; final
and binding without the right of appeal; the sole and exclusive remedy
regarding any claims, counterclaims, issues or accountings presented
to the arbitrator; made and promptly paid in U.S. dollars free of any
deduction or offset; and any costs or fees incident to enforcing the
award, shall to the maximum extent permitted by law be charged against
the Party resisting such enforcement;
-24-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
(8) Consequential, punitive or other similar damages shall not be
allowed except those payable to third parties for which liability is
allocated among the Parties by the arbitral award;
(9) The award shall include interest from the date of any breach or
violation of this Agreement, as determined by the arbitral award, and
from the date of the award until paid in full, at the Agreed Interest
Rate; and
(10) Judgment upon the award may be entered in any court having
jurisdiction over the person or the assets of the Party owing the
judgment or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be.
(11) Whenever the Parties are of more than one nationality, the single
arbitrator or the presiding arbitrator, as the case may be, shall not
be of the same nationality as any of the Parties or their ultimate
parent entities.
(12) For purposes of allowing the arbitration provided in this Article
XVIII, the enforcement and execution of any arbitration decision and
award, and the issuance of any attachment or other interim remedy, no
government agency will be involved as to the Contract License as this
is a private contract for the Contract Area and Project.
(13) The arbitration shall proceed in the absence of a Party who,
after due notice, fails to answer or appear. An award shall not be
made solely on the default of a Party, but the arbitrator(s) shall
require the Party who is present to submit such evidence as the
arbitrator(s) may determine is reasonably required to make an award.
(14) If an arbitrator should die, withdraw or otherwise become
incapable of serving, or refuse to serve, a successor arbitrator shall
be selected and appointed in the same manner as the original
arbitrator.
ARTICLE XIX - ALLOCATION OF COST RECOVERY RIGHTS
19.1 ALLOCATION OF PRODUCTION
Where applicable or necessary, each Party's share of Cost Oil, Profit
Oil, or similar concepts during each Calendar Quarter shall be determined
pursuant to this Article XIX as follows: (A) Oil available to the Parties
from the Contract Area during each Calendar Quarter shall be allocated
equitably for any and all purposes by type and grade on a pro-rata share of
Participating Interests owned, and any oil or interest that is allocated to
or re-allocated to the Government in the future will be allocated pro-rata
based on the various Party shares of Participating Interests in the
Project.
ARTICLE XX - GENERAL PROVISIONS
20.1 WARRANTIES AS TO NO PAYMENTS, GIFTS AND LOANS
Each of the Parties warrants that neither it nor its affiliates has
made or will make, with respect to the matters provided for hereunder, any
offer, payment, promise to pay or authorization of the payment of any
money, or any offer, gift, promise to give or authorization of the giving
of anything of value, directly or indirectly, to or for the use or benefit
of any official or employee of the Government or to or for the use or
benefit of any political party, official, or candidate unless such offer,
payment, gift, promise or authorization is authorized by the written laws
or regulations the Republic of Peru, of Canada, or of the United States of
America.
20.2 CONFLICTS OF INTEREST
(A) Operator undertakes that it shall avoid any conflict of interest
between its own interests (including the interests of Affiliates) and the
interests of the other Parties in dealing with suppliers, customers and all
other organizations or individuals doing or seeking to do business with the
Parties in connection with activities contemplated under this Agreement.
(B) The provisions of the preceding paragraph shall not apply to:
(1) Operator's performance which is in accordance with the local
preference laws or policies of the Government; or
(2) Operator's acquisition of products or services from an Affiliate,
or the sale thereof to an Affiliate, made in accordance with the terms
of this Agreement.
-25-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
20.3 PUBLIC ANNOUNCEMENTS
(A) Operator shall be responsible for the preparation and release of all
public announcements and statements regarding this Agreement or the Joint
Operations; provided that, no public announcement or statement shall be
issued or made unless prior to its release all the Parties have been
furnished with a copy of such statement or announcement and the approval of
at least two (2) non-affiliated Parties holding fifty percent (50%), or
more, of the Participating Interests has been obtained. Where a public
announcement or statement becomes necessary or desirable because of danger
to or loss of life, damage to property or pollution as a result of
activities arising under this Agreement, Operator is authorized to issue
and make such announcement or statement without prior approval of the
Parties, but shall promptly furnish all the Parties with a copy of such
announcement or statement.
(B) If a Party wishes to issue or make any public announcement or statement
regarding this Agreement or the Joint Operations, it shall not do so unless
prior to its release, such Party furnishes all the Parties with a copy of
such announcement or statement, and obtains the approval of at least two
(2) Parties which are not Affiliates holding fifty percent (50%) or more of
the Participating Interests; provided that, notwithstanding any failure to
obtain such approval, no Party shall be prohibited from issuing or making
any such public announcement or statement if it is necessary to do so in
order to comply with the applicable laws, rules or regulations of any
government, legal proceedings or stock exchange having jurisdiction over
such Party or its Affiliates as set forth in Articles 15.1(A)(3) and (7).
(C) Notwithstanding the provisions of this Article XIX, any Party may issue
or make public announcements or may make regulatory filings as required by
securities or similar laws in any jurisdiction in which it operates or is
regulated.
20.4 SUCCESSORS AND ASSIGNS
Subject to the limitations on transfer contained in Article XII, this
Agreement shall inure to the benefit of and be binding upon the successors
and assigns of the Parties.
20.5 WAIVER
No waiver by any Party of any one or more defaults by another Party in
the performance of this Agreement shall operate or be construed as a waiver
of any future default or defaults by the same Party, whether of a like or
of a different character. Except as expressly provided in this Agreement no
Party shall be deemed to have waived, released or modified any of its
rights under this Agreement unless such Party has expressly stated, in
writing, that it does waive, release or modify such right.
20.6 SEVERANCE OF INVALID PROVISIONS
If and for so long as any provision of this Agreement shall be deemed
to be judged invalid for any reason whatsoever, such invalidity shall not
affect the validity or operation of any other provision of this Agreement
except only so far as shall be necessary to give effect to the construction
of such invalidity, and any such invalid provision shall be deemed severed
from this Agreement without affecting the validity of the balance of this
Agreement.
20.7 MODIFICATIONS
Except as is provided in Articles 11.2(B) and 20.6, there shall be no
modification of this Agreement or the Contract except by written consent of
all Parties.
20.8 HEADINGS
The topical headings used in this Agreement are for convenience only
and shall not be construed as having any substantive significance or as
indicating that all of the provisions of this Agreement relating to any
topic are to be found in any particular Article.
20.9 SINGULAR AND PLURAL
Reference to the singular includes a reference to the plural and vice
versa.
20.10 GENDER
Reference to any gender includes a reference to all other genders.
20.11 COUNTERPART EXECUTION
This Agreement is executed in three (3) original counterparts and each
such counterpart shall be deemed an original Agreement for all purposes;
provided no Party shall be bound to this Agreement unless and until all
Parties have executed a counterpart. For purposes of assembling all
counterparts into one document, Operator is authorized to detach the
signature page from one or more counterparts and, after signature thereof
by the respective Party, attach each signed signature page to a
counterpart. Any Party may file this document of record in any forum or
jurisdiction that they desire or require, and Parties agree to sign
additional original or notarized copies of the signature page to facilitate
recording requirements of other Party(ies).
20.12 ENTIRETY
-26-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
This Agreement is the entire agreement of the Parties with respect to
the subject matter contained herein and supersedes all prior understandings
and negotiations of the Parties, except as to agreements among and/or
between the various Parties in entering into the original investments and
interest acquisition in the Project which other or additional agreements
survive this Agreement until those other agreements are completed or
satisfied.
IN WITNESS of their agreement each Party has caused its duly authorized
representative to sign this instrument on the date indicated below such
representative's signature.
Notary Compania Consultora de Petroleo, S.A. ("CCP")
By:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
Date:
-27-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
Radial Energy, Inc. ("Radial")
▇▇▇▇▇▇▇-Peru, Inc. ("ZPI") By:
(Company Name)
(Print or type name)
Notary Radial
By:
G. ▇▇▇▇▇ ▇▇▇▇▇
Title: President
Date:
Notary I, the undersigned Notary
have verified that the signer is
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and he swore,
verified, and affirmed that he signed
this document for the purposes
stated therein.
---------------------------------------------
Notary in and for the State of Texas,
Signed in ▇▇▇▇▇▇ County.
My Commission Expires:
Seal
Form For Other Later Signatories Below
(Company Name)
By: (Print or type name)
Title: Date:
-28-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
NOTARY Radial Energy, Inc. ("Radial")
By: /s/ G. ▇▇▇▇▇ ▇▇▇▇▇
[NOTORY SEAL GOES HERE] ------------------------------
G. ▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Title: President
Date: May 11, 2006
To witness signature of G. ------------------------------
▇▇▇▇▇ ▇▇▇▇▇
Notary I, the undersigned Notary ▇▇▇▇▇▇▇-Peru, Inc. ("ZPI")
have verified that the signer is
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and he swore, By:
verified, and affirmed that he ------------------------------
signed this document for the
purposes stated therein. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------- Date:
Notary in and for the State of ------------------------------
Texas
Signed in ▇▇▇▇▇▇ County.
My Commission Expires:
Seal
Form For Other Later Signatories Below
------------------------------------
(Company Name)
By:
---------------------------------
---------------------------------
(Print or type name)
Title: -----------------------------
Date: -----------------------------
-28-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
NOTARY Radial Energy, Inc. ("Radial")
By:
------------------------------
G. ▇▇▇▇▇ ▇▇▇▇▇
Title: President
Date:
------------------------------
Notary I, the undersigned Notary ▇▇▇▇▇▇▇-Peru, Inc. ("ZPI")
have verified that the signer is
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and he swore, By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
verified, and affirmed that he ------------------------------
signed this document for the
purposes stated therein. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------- Date: 5-10-2006
Notary in and for the State of ------------------------------
Texas
Signed in ▇▇▇▇▇▇ County.
My Commission Expires:
Seal
[NOTARY SEAL GOES
HERE]
Form For Other Later Signatories Below
------------------------------------
(Company Name)
By:
---------------------------------
---------------------------------
(Print or type name)
Title: -----------------------------
Date: -----------------------------
-28-
MODEL FORM INTERNATIONAL OPERATING AGREEMENT - 1995
This Agreement is the entire agreement of the Parties with respect to
the subject matter contained herein and supercedes all prior understandings
and negotiations of the Parties, except as to agreements among and/or
between the various Parties in entering into the original investments and
interest acquisition in the Project which other or additional agreements
survive this Agreement until those other agreements are completed or
satisfied.
IN WITNESS of their agreement each Party has caused the duly authorized
representative to sign the instrument on the date indicated below each
representative's signature.
{NOTARY SEAL GOES HERE] COMPANIA CONSULTORA DE PETROLEO, SA ("CCP")
By: /s/ ▇▇▇▇▇ TOMAYLIA ▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇ Tomaylia ▇▇▇▇▇▇▇▇
DNI: ▇▇▇▇▇▇▇▇
Title: President
Date: May 11, 2006
---------------------------
EXHIBIT C
ACCOUNTING PROCEDURE TO JOA
HUAYA ANTICLINE PROJECT
EFFECTIVE MAY 5, 2006
TABLE OF CONTENTS
SECTION PAGE
SECTION I. GENERAL PROVISIONS ............................................. 1
1.1 PURPOSE. . ................................................. 1
1.2 CONFLICT WITH AGREEMENT. . ................................. 1
1.3 DEFINITIONS.. .............................................. 1
1.4 JOINT ACCOUNT RECORDS AND CURRENCY EXCHANGE.. .............. 2
1.5 STATEMENTS AND ▇▇▇▇▇▇▇▇... ................................. 2
1.6 PAYMENTS AND ADVANCES.. .................................... 3
1.7 ADJUSTMENTS .................. ............................. 6
1.8 AUDITS. . .................................................. 6
1.9 ALLOCATIONS. . ............................................. 8
SECTION II. DIRECT CHARGES ................................................ 8
2.1 LICENSES, PERMITS, ETC. . .................................. 8
2.2 SALARIES, WAGES AND RELATED COSTS.... ...................... 8
2.3 EMPLOYEE RELOCATION COSTS. . ............................... 9
2.4 OFFICES, CAMPS, AND MISCELLANEOUS FACILITIES.. ............. 9
2.5 MATERIAL.. ................................................. 9
2.6 EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF OPERATOR
AND AFFILIATES. ...........................................9
2.7 SERVICES .................................................. 10
2.8 INSURANCE. . .............................................. 10
2.9 DAMAGES AND LOSSES TO PROPERTY ............................ 11
2.10 LITIGATION AND LEGAL EXPENSES.... ......................... 11
2.11 TAXES AND DUTIES.. ........................................ 11
2.12 ECOLOGICAL AND ENVIRONMENTAL. . ........................... 11
2.13 DECOMMISSIONING (ABANDONMENT) AND RECLAMATION. . .......... 12
2.14 OTHER EXPENDITURES. . ..................................... 12
SECTION III. INDIRECT CHARGES ............................................ 12
3.1 PURPOSE. . ................................................ 12
3.2 AMOUNT.. .................................................. 12
3.3 EXCLUSIONS. . ............................................. 13
SECTION IV. ACQUISITION OF MATERIAL ...................................... 13
4.1 ACQUISITIONS.. ............................................ 13
4.2 MATERIALS FURNISHED BY OPERATOR. . ........................ 13
4.3 PREMIUM PRICES. . ......................................... 14
4.4 WARRANTY OF MATERIAL FURNISHED BY OPERATOR. . ............. 14
SECTION V. DISPOSAL OF MATERIALS ......................................... 15
5.1 DISPOSAL. . ............................................... 15
5.2 MATERIAL PURCHASED BY A PARTY OR AFFILIATE ................ 15
5.3 DIVISION IN KIND. . ....................................... 15
5.4 SALES TO THIRD PARTIES... ................................. 15
SECTION VI. INVENTORIES .................................................. 16
6.1 PERIODIC INVENTORIES - NOTICE AND REPRESENTATION. . ....... 16
6.2 SPECIAL INVENTORIES... .................................... 16
ACCOUNTING PROCEDURE
INTRODUCTION
Attached to and made part of the Operating Agreement, hereinafter called the
"Agreement," effective as of the 5th day of May, 2006, by and between Cia.
Consultora De Petroleo, S.A., ▇▇▇▇▇▇▇-Peru, Inc., and Radial Energy, Inc. Any
other Party or Participating Interest subsequently created will as required in
the Agreement, also follow this Accounting Procedure.
SECTION I.
GENERAL PROVISIONS
1.1 PURPOSE.
1.1.1 The purpose of this Accounting Procedure is to establish
equitable methods for determining charges and credits applicable
to operations under the Agreement which reflect the costs of
Joint Operations to the end that no Party shall gain or lose in
relation to other Parties. 20
1.1.2 The Parties agree, however, that if the methods prove unfair or
inequitable to Operator or Non-Operators, the Parties shall meet
and in good faith endeavor to agree on changes in methods deemed
necessary to correct any unfairness or inequity.
1.2 CONFLICT WITH AGREEMENT.
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions of the Agreement shall prevail.
1.3 DEFINITIONS.
The definitions contained in ARTICLE I of the Agreement to which this
Accounting Procedure is attached shall apply to this Accounting Procedure
and have the same meanings when used herein. Certain terms used herein are
defined as follows:
"ACCRUAL BASIS" means that basis of accounting under which costs and
benefits are regarded as applicable to the period in which the liability
for the cost is incurred or the right to the benefit arises, regardless of
when invoiced, paid, or received.
"AGREEMENT" means the Huaya Anticline Project JOA with an effective date of
May 5, 2006.
"CASH BASIS" means that basis of accounting under which only costs actually
paid and revenue actually received are included for any period.
"COUNTRY OF OPERATIONS" means the Republic of Peru.
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 1
"MATERIAL" means machinery, equipment and supplies acquired and held for
use in Joint Operations.
"SECONDEES" means technical and professional personnel employed by a
Non-Operator or its Affiliate(s) who, with Operator's approval, are loaned
to Operator to perform services for, and under the direction and control
of, Operator under a secondment agreement.
JOINT ACCOUNT RECORDS AND CURRENCY EXCHANGE.
1.4.1 Operator shall at all times maintain and keep true and correct
records of the production and disposition of all liquid and
1.4 gaseous Hydrocarbons, and of all costs and expenditures under the
Agreement, as well as other data necessary or proper for the
settlement of accounts between the Parties hereto in connection
with their rights and obligations under the Agreement and to
enable Parties to comply with their respective applicable income
tax and other laws.
1.4.2 Operator shall maintain accounting records pertaining to Joint
Operations in accordance with generally accepted accounting
practices used in the international petroleum industry and any
applicable statutory obligations of the Country of Operations as
well as the provisions of the Contract and the Agreement.
1.4.3 The Joint Account financial records shall be maintained by
Operator in the Spanish language and in United States of America
("U.S.") currency and in such other language and currency as may
be required by the laws of the Country of Operations or the
Contract. Conversions of currency shall be recorded at the rate
actually experienced in that conversion. Currency translations
for expenditures and receipts shall be recorded at the arithmetic
average of the buying and selling exchange rates at the close of
business on the last day of the month preceding the current
accounting period
1.4.4 Any currency exchange gains or losses shall be credited or
charged to the Joint Account, except as otherwise specified in
this Accounting Procedure.
1.4.5 This Accounting Procedure shall apply, to Non-Participating,
Non-Consent, or Exclusive Operations, if any, in the same manner
that it applies to Joint Operations; provided, however, that the
charges and credits applicable to Consenting Parties shall be
distinguished by an Exclusive Operation Account. For the purpose
of determining and calculating the remuneration of the Consenting
Parties, including the premiums for Exclusive Operations, the
costs and expenditures shall be expressed in U.S. currency
(irrespective of the currency in which the expenditure was
incurred).
1.4.6 The cash basis for accounting shall be used in preparing accounts
concerning the Joint Operations. If a "cash" basis for accounting
is used, Operator shall show accruals, if any, as memorandum
items.
STATEMENTS AND ▇▇▇▇▇▇▇▇.
1.5
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 2
1.5.1 Unless otherwise agreed by the Parties, Operator shall submit
monthly to each Party, on or before the 15th Day of each month,
statements of the costs and expenditures incurred during the
prior month, indicating by appropriate classification the nature
thereof, the corresponding budget category, and the portion of
such costs charged to each of the Parties.
These statements, as a minimum, shall contain the following
information:
- advances of funds setting forth the currencies received from
each Party,
- the share of each Party in total expenditures,
- the accrued expenditures,
- the current account balance of each Party,
- summary of costs, credits, and expenditures on a current month,
year-to-date, and inception-to-date basis or other periodic
basis, as agreed by Parties (such expenditures shall be grouped
by the categories and line items designated in the approved
Work Program and Budget submitted by Operator in accordance
with ARTICLE 6.4 of the Agreement so as to facilitate
comparison of actual expenditures against that work Program and
Budget), and
- details of unusual charges and credits in excess of U.S.
dollars ten thousand (U.S. $ 10,000).
1.5.2 Operator shall, upon request, furnish a description of the
accounting classifications or account numbers and definitions
used by it on the statements provided to Parties.
1.5.3 Amounts included in the statements and billings shall be
expressed in U.S. currency and reconciled to the currencies
advanced.
1.5.4 Each Party shall be responsible for preparing its own accounting
and tax reports to meet the requirements of the Country of
Operations and of all other countries to which it may be subject.
Operator, to the extent that the information is reasonably
available from the Joint Account records, shall provide
Non-Operators in a timely manner with the necessary information
to facilitate the discharge of such responsibility.
1.6 PAYMENTS AND ADVANCES.
1.6.1 Upon approval of any Work Program and Budget, if Operator so
requests, each Non-Operator shall advance its share of estimated
cash requirements for the succeeding one month of operations.
Each such cash call shall be equal to the Operator's estimate of
the money to be spent in the currencies required to perform its
duties under the approved Work Program and Budget during the
month concerned. For informational purposes the cash call shall
contain an estimate of the funds required for the succeeding two
(2) months detailed by
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 3
the categories designated in the approved Work Program and Budget
submitted by Operator in accordance with Article 6 of the
Agreement.
1.6.2 Each such cash call, detailed by the categories designated in the
approved Work Program and Budget submitted by Operator in
accordance with Article 6 of the Agreement shall be made in
writing and delivered to all Non-Operators not less than fifteen
(15) Days before the payment due date. The due date for payment
of such advances shall be set by Operator but shall be no sooner
than the first Business Day of the month for which the advances
are required. All advances shall be made without bank charges.
Any charges related to receipt of advances from a Non-Operator
shall be borne by that Non-Operator.
1.6.3 Each Non-Operator shall wire transfer its share of the full
amount of each such cash call to Operator on or before the due
date, in the currencies requested or any other currencies
acceptable to Operator and at a bank designated by Operator. If
currency provided by a Non-Operator is other than the requested
currency, then the entire cost of converting to the requested
currency shall be charged to that Non-Operator.
1.6.4 Notwithstanding the provisions of Section 1.6.2, should Operator
be required to pay any sums of money for the Joint Operations
which were unforeseen at the time of providing the Non-Operators
with said estimates of its requirements, Operator may make a
written request of the Non-Operators for special advances
covering the Non-Operators' share of such payments. Each such
Non-Operator shall make its proportional special advances within
ten (10) Days after receipt of such notice.
1.6.5 If a Non-Operator's advances exceed its share of cash
expenditures, the next succeeding cash advance requirements,
after such determination, shall be reduced accordingly.
1.6.6 If Non-Operator's advances are less than its share of cash
expenditures, the deficiency shall, at Operator's option, be
added to subsequent cash advance requirements or be paid by
Non-Operator within ten (10) Days following the receipt of
Operator's billing to Non-Operator for such deficiency.
1.6.7 If, under the provisions of the Agreement, Operator is required
to segregate funds received from the Parties, any interest
received on such funds shall be applied against the next
succeeding cash call or, if directed by the Operating Committee,
distributed quarterly. The interest thus received shall be
allocated to the Parties on an equitable basis taking into
consideration date of funding by each Party to the accounts in
proportion to the total funding into the account. A monthly
statement summarizing receipts, disbursements, transfers to each
joint bank account and beginning and ending balances thereof
shall be provided by Operator to the Parties.
1.6.8 If Operator does not request Non-Operators to advance their share
of estimated cash requirements, each Non-Operator shall pay its
share of cash expenditures within ten (10) Days following receipt
of Operator's billing.
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 4
1.6.9 Payments of advances or ▇▇▇▇▇▇▇▇ shall be made on or before the
due date. In accordance with ARTICLE VIII of the Agreement, if
these payments are not received by the due date the unpaid
balance shall bear and accrue interest from the due date until
the payment is received by Operator at the Agreed Interest Rate.
For the purpose of determining the unpaid balance and interest
owed, Operator shall translate to U.S. currency all amounts owed
in other currencies using the currency exchange rate readily
available to Operator at the close of the last Business Day prior
to the due date for the unpaid balance as quoted by the
applicable authority identified in Section 1.4.3 of this Section
I.
1.6.10 Subject to governmental regulation, Operator shall have the
right, at any time and from time to time, to convert the funds
advanced or any part thereof to other currencies to the extent
that such currencies are then required for operations. The cost
of any such conversion shall be charged to the Joint Account.
1.6.11 Operator shall endeavor to maintain funds held for the Joint
Account in bank accounts at a level consistent with that required
for the prudent conduct of Joint Operations.
1.6.12 If under the Agreement, Operator is required to segregate funds
received from or for the Joint Account, the provisions under this
Section 1.6 for payments and advances by Non-Operators shall
apply also to Operator.
1.6.13 Funding by Operator
1.6.13.1 Notwithstanding any of the provisions of Sections 1.6.1
through 1.6.6 to the contrary, Operator may elect to
fund the costs of the Joint Operations and ▇▇▇▇ the
Non-Operators for such funding pursuant to the
provisions of this Section 1.6.13. Operator shall
exercise such election by submission of notice to the
Non-Operators at the time of submission of any proposed
Work Program and Budget to the Parties pursuant to
ARTICLE VII of the Agreement. In consideration for such
funding, each Non-Operator shall pay Operator the
financing charge specified in Section 1.6.13.3.
1.6.13.2 Not later than the tenth (10th) Day after the end of
any month for which the Operator has funded the Joint
Operations, Operator shall ▇▇▇▇ each Non-Operator for
(1) its share of the cash expenditure, and (2) the
financing charge calculated in accordance with Section
1.6.13.3.
1.6.13.3 Operator may charge the Joint Operations interest at a
maximum of the monthly LIBOR rate as determined and
defined in the Agreement for any Joint Operations
funded by the Operator.
1.6.13.4 Notwithstanding the provisions of Section 1.6.8, each
▇▇▇▇ under this Section 1.6.13 shall be due on the
twentieth (20th) day of the month in which the ▇▇▇▇ was
issued, or if such day is not a Business
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 5
Day in the Country of Operations, the first Business Day
thereafter.
1.6.13.5 In any subsequent Calendar Year, Operator may elect to adopt a
cash call procedure in accordance with Sections 1.6.1 through
1.6.6 by notice submitted to the Non-Operators at the time of
submission of any proposed Work Program and Budget to the
Parties.
ADJUSTMENTS.
Payments of any advances or ▇▇▇▇▇▇▇▇ shall not prejudice the right of any
Non-Operator to protest or question the correctness thereof; provided, however,
all bills and statements rendered to Non-Operators by Operator during any
Calendar Year shall conclusively be presumed to be true and correct after
twenty-four (24) months following the end of such Calendar Year, unless within
the said twenty-four (24) month period a Non-Operator takes written exception
thereto and makes claim on Operator for adjustment. Failure on the part of a
Non-Operator to make claim on Operator for adjustment within such period shall
establish the correctness thereof and preclude the filing of exceptions thereto
or making claims for adjustment thereon. No adjustment favorable to Operator
shall be made unless it is made within the same prescribed period. The
provisions of this paragraph shall not prevent adjustments resulting from a
physical inventory of the Material as provided for in Section VI. Operator shall
be allowed to make adjustments to the Joint Account after such twenty-four (24)
month period if these adjustments result from audit exceptions outside of this
Agreement, third party claims, or Government or Government Oil Company
requirements. Any such adjustments shall be subject to audit within the time
period specified in Section 1.8.1.
AUDITS.
1.8.1 A Non-Operator, upon at least sixty (60) Days advance notice in
writing to Operator and all other Non-Operators, shall have the
right to audit the Joint Accounts and records of Operator
relating to the accounting hereunder for any Calendar Year within
the twenty-four (24) month period following the end of such
Calendar Year except as otherwise provided in Section 3.1. As
provided in ARTICLE 4.2(B)(6) of the Agreement, Non-Operators
shall have reasonable access to Operator's personnel and to the
facilities, warehouses, and offices directly or indirectly
serving Joint Operations. The cost of each such audit shall be
borne by Non-Operators conducting the audit. Where there are two
or more Non-Operators, the Non-Operators shall make every
reasonable effort to conduct joint or simultaneous audits in a
manner that will result in a minimum of inconvenience to the
Operator. Non-Operators must take written exception to and make
claim upon the Operator for all discrepancies disclosed by said
audit within said twenty-four (24) month period. Operator shall
endeavor to produce information from its Affiliates reasonably
necessary to support charges from those Affiliates to the Joint
Account other than those charges referred to in Section 3.1. If
an Affiliate considers such information confidential or
proprietary or if such Affiliate will not allow the Non-
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 6
Operators to audit its accounts, the statutory auditor of the
Affiliate shall be used to confirm the details and facts as
required, provided such statutory auditor is an internationally
recognized firm of public accountants. The auditing Non-Operator
may instruct the statutory auditor on the scope of such
confirmation; however, the scope shall be subject to the approval
of the Affiliate in question, such approval not to be
unreasonably withheld. Should the statutory auditor of the
Affiliate decline to act in such capacity, or not be an
internationally recognized independent firm of public
accountants, the auditing Non-Operators shall select an
internationally recognized independent firm of public accountants
to carry out such confirmation, subject to the approval of the
Affiliate in question, such approval not to be unreasonably
withheld. The cost of such audit by the statutory auditor or the
independent firm of public accountants, as the case may be, shall
be charged to the Joint Account.
1.8.3 Any information obtained by a Non-Operator under the provisions
of this Section 1.8 which does not relate directly to the Joint
Operations shall be kept confidential and shall not be disclosed
to any party, except as would otherwise be permitted by the
Agreement.
1.8.4 In the event that the Operator is required by law or the Contract
to employ a public accounting firm to audit the Joint Account and
records of Operator relating to the accounting hereunder, the
cost thereof shall be a charge against the Joint Account, and a
copy of the audit shall be furnished to each Party.
1.8.5 At the conclusion of each audit, the Parties shall endeavor to
settle outstanding matters expeditiously. To this end the Parties
conducting the audit will make a reasonable effort to prepare and
distribute a written report to the Operator and all the Parties
who participated in the audit as soon as possible and in any
event within ninety (90) Days after the conclusion of each audit.
The report shall include all claims arising from such audit
together with comments pertinent to the operation of the accounts
and records. Operator shall make a reasonable effort to reply to
the report in writing as soon as possible and in any event no
later than ninety (90) Days after receipt of the report. Should
the Non-Operators consider that the report or reply requires
further investigation of any item therein, the Non-Operators
shall have the right to conduct further investigation in relation
to such matter notwithstanding the provisions of Sections 1.7 and
1.8.1 that the period of twenty-four (24) months may have
expired. However, conducting such further investigation shall not
extend the twenty-four (24) month period for taking written
exception to and making a claim upon the Operator for all
discrepancies disclosed by said audit. Such further
investigations shall be commenced within thirty (30) Days and be
concluded within sixty (60) Days after the receipt of such report
or reply, as the case may be.
1.8.6 All adjustments resulting from an audit agreed between the
Operator and the Non-Operator conducting the audit shall be
reflected promptly in the Joint Account by the Operator and
reported to the Non-Operator(s). If any dispute shall arise in
connection with an audit, it shall be reported to and discussed
by the Operating Committee, and, unless otherwise agreed by the
parties to the dispute, resolved in accordance with the
provisions of Article XVIII of the Agreement (Dispute and
Arbitration sections). If all the parties to the dispute so
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 7
agree, the adjustment(s) may be referred to an independent expert
agreed to by the parties to the dispute. At the election of the
parties to the dispute, the decision of the expert will be
binding upon such parties. Unless otherwise agreed, the cost of
such expert will be shared equally by all parties to the dispute.
1.9 ALLOCATIONS.
If it becomes necessary to allocate any costs or expenditures to or between
Joint Operations and any other operations, such allocation shall be made on
an equitable basis. For informational purposes only, Operator shall furnish
a description of its allocation procedures pertaining to these costs and
expenditures and its rates for personnel and other charges, along with each
proposed Work Program and Budget.
SECTION II.
DIRECT CHARGES
Operator shall charge the Joint Account with all costs and expenditures incurred
in connection with Joint Operations. It is also understood that charges for
services normally provided by an operator such as those contemplated in Sections
2.7.2 and 2.7.3 which are provided by a Party's Affiliate shall reflect the cost
to the Affiliate, excluding profit, for performing such services, except as
otherwise provided in Section 2.6, Section 2.7.1, and Section 2.5.1 if selected.
26
The costs and expenditures shall be recorded as required for the settlement of
accounts between the Parties hereto in connection with the rights and
obligations under this Agreement and for purposes of complying with the tax laws
of the Country of Operations and of such other countries to which any of the
Parties may be subject. Without in any way limiting the generality of the
foregoing, chargeable costs and expenditures shall include:
2.1 LICENSES, PERMITS, ETC.
All costs, if any, attributable to the acquisition, maintenance, renewal or
relinquishment of licenses, permits, contractual and/or surface rights
acquired for Joint Operations and bonuses paid in accordance with the
Contract when paid by Operator in accordance with the provisions of the
Agreement.
2.2 SALARIES, WAGES AND RELATED COSTS.
Salaries, wages and related costs include everything constituting the
employees' total compensation, as well as the cost to Operator of holiday,
vacation, sickness, disability benefits, living and housing allowances,
travel time, bonuses, and other customary allowances applicable to the
salaries and wages chargeable hereunder, as well as the costs to Operator
for employee benefits, including but not limited to employee group life
insurance, group medical insurance, hospitalization, retirement, severance
payments
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 8
required by the laws or regulations of the Country of Operations and other
benefit plans of a like nature applicable to labor costs of Operator.
All costs associated with organizational restructuring (e.g., separation
benefits, relocation costs, asset disposition costs) of Operator or its
Affiliates, other than those costs which are directly related to employees
of Operator who are directly engaged in Joint Operations on a full time
basis, will require the approval of the Parties to be chargeable to the
Joint Account.
Any costs associated with Country of Operations benefit plans which are not
currently funded shall be accrued and not be paid by Non-Operators, unless
otherwise approved by the Operating Committee, until the same are due and
payable to the employee, upon withdrawal of a Party pursuant to the
Agreement and then only by the withdrawing Party, or upon termination of
the Agreement, whichever occurs first.
2.3 EMPLOYEE RELOCATION COSTS.
No employee relocation costs will be charged to the Joint Operations unless
approved by the Operating Committee. Employee relocation costs are those
costs to permanently move an employee and his family and dependents from
one area of residence to another. Employee relocation costs are different
than travel and housing/camp expenses that may be set forth in other
sections.
2.4 OFFICES, CAMPS, AND MISCELLANEOUS FACILITIES.
Cost of maintaining any offices, sub-offices, camps with meals and lodging,
warehouses, housing, and other facilities of the Operator and/or Affiliates
directly serving the Joint Operations. If such facilities serve operations
in addition to the Joint Operations the costs shall be allocated to the
properties served on an equitable basis.
2.5 MATERIAL.
Cost, net of discounts taken by Operator, of Material purchased or
furnished by Operator. Such costs shall include, but are not limited to,
export brokers' fees, transportation charges, loading, unloading fees,
export and import duties and license fees associated with the procurement
of Material and in-transit losses, if any, not covered by insurance. So far
as it is reasonably practical and consistent with efficient and economical
operation, only such Material shall be purchased for, and the cost thereof
charged to, the Joint Account as may be required for immediate use.
2.6 EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF OPERATOR AND AFFILIATES.
Charges for exclusively owned equipment, facilities, and utilities of
Operator or any of its Affiliates at rates not to exceed the average
commercial rates of non-affiliated third parties then prevailing for like
equipment, facilities, and utilities for use in the area where the same are
used hereunder. On request, Operator shall furnish Non-Operators a list of
rates and the basis of application. Such rates shall be revised from time
to time if found to be either excessive or insufficient, but not more than
once every six months.
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 9
Exclusively owned drilling tools and other equipment lost in the hole or
damaged beyond repair may be charged at replacement cost less depreciation
plus transportation costs to deliver like equipment to the location where
used.
2.7 SERVICES.
2.7.1 The charges for services provided by third parties, including the
Affiliates of the respective Parties which have contracted with
Operator to perform services that are normally provided by third
parties, other than those services covered by Section 2.7.2 and
Section 2.7.3, shall be chargeable to the Joint Account. Such
charges for services by the Affiliates of the respective Parties
shall not exceed those currently prevailing if performed by
non-affiliated third parties, considering quality and
availability of services.
2.7.2 The cost of services performed by Operator's Affiliates technical
and professional staffs not located within the Country of
Operation shall be chargeable to the Joint Account. The
individual rates shall include salaries and wages of such
technical and professional personnel, lost time, governmental
assessments, and employee benefits. Costs shall also include all
support costs necessary for such technical and professional
personnel to perform such services, such as, but not limited to,
rent, utilities, support staff, drafting, telephone and other
communication expenses, computer support, supplies, depreciation,
and other reasonable expenses.
2.7.3 The cost of services performed with the approval of Operator by
the technical and professional staffs of the Non-Operators and
the Affiliates of the respective Non-Operators, including the
cost to such Affiliates and Non-Operators of their respective
Secondees, shall be chargeable to the Joint Account. The
individual rates shall include salaries and wages of such
technical and professional personnel and Secondees, lost time,
governmental assessments, and employee benefits. Costs (other
than for Secondees) shall also include all support costs
necessary for such technical and professional personnel to
perform such services, such as, but not limited, to rent,
utilities, support staff, drafting, telephone and other
communication expenses, computer support, supplies, depreciation,
and other reasonable expenses.
2.7.4 A Non-Operator shall ▇▇▇▇ Operator for direct costs of services
and of Secondees charged under the provisions of Section 2.7.3 on
or before the last day of each month for charges for the
preceding month, to which charges Non-Operator shall not add an
administrative overhead rate. Within thirty (30) Days after
receipt of a ▇▇▇▇ for such charges, Operator shall pay the amount
due thereon.
INSURANCE.
Premiums paid for insurance required by law or the Agreement to be carried
for the benefit of the Joint Operations.
2.8
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 10
2.9 DAMAGES AND LOSSES TO PROPERTY.
2.9.1 All costs or expenditures necessary to replace or repair damages
or losses incurred by fire, flood, storm, theft, accident, or any
other cause shall be chargeable to the Joint Account. Costs shall
be listed separately in the monthly statement of costs and
expenditures.
2.9.2 Credits for settlements received from insurance carried for the
benefit of Joint Operations and from others for losses or damages
to Joint Property or Materials shall be chargeable to the Joint
Account. Each Party shall be credited with its Participating
Interest share thereof except where such receipts are derived
from insurance purchased by Operator for less than all Parties in
which event such proceeds shall be credited to those Parties for
whom the insurance was purchased in the proportion of their
respective contributions toward the insurance coverage.
2.9.3 Expenditures incurred in the settlement of all losses, claims,
damages, judgments, and other expenses for the account of Joint
Operations shall be chargeable to the Joint Account.
2.10 LITIGATION AND LEGAL EXPENSES.
The costs and expenses of litigation and legal services necessary for the
protection of the Joint Operations under this Agreement as follows:
2.10.1 Legal services necessary or expedient for the protection of the
Joint Operations, and all costs and expenses of litigation,
arbitration or other alternative dispute resolution procedure,
including reasonable attorneys' fees and expenses, together with
all judgments obtained against the Parties or any of them arising
from the Joint Operations.
2.10.2 If the Parties hereunder shall so agree, actions or claims
affecting the Joint Operations hereunder may be handled by the
legal staff of one or any of the Parties hereto; and a charge
commensurate with the reasonable costs of providing and
furnishing such services rendered may be made by the Party
providing such service to Operator for the Joint Account, but no
such charges shall be made until approved by the Parties.
2.11 TAXES AND DUTIES.
All taxes, duties, assessments and governmental charges, of every kind and
nature, assessed or levied upon or in connection with the Joint Operations,
other than any that are measured by or based upon the revenues, income and
net worth of a Party.
2.12 ECOLOGICAL AND ENVIRONMENTAL.
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 11
Costs incurred on the Joint Property as a result of statutory regulations
for archaeological and geophysical surveys relative to identification and
protection of cultural resources and/or other environmental or ecological
surveys as may be required by any regulatory authority. Also, costs to
provide or have available pollution containment and removal equipment plus
costs of actual control, clean up and remediation resulting from
responsibilities associated with Hydrocarbon contamination as required by
all applicable laws and regulations.
2.13 DECOMMISSIONING (ABANDONMENT) AND RECLAMATION.
Costs incurred for decommissioning (abandonment) and reclamation of the
Joint Property, including costs required by governmental or other
regulatory authority or by the Contract.
2.14 OTHER EXPENDITURES.
Any other costs and expenditures incurred by Operator for the necessary and
proper conduct of the Joint Operations in accordance with approved Work
Programs and Budgets and not covered in this Section II or in Section III.
20
SECTION III.
INDIRECT CHARGES
3.1 PURPOSE.
Operator shall charge the Joint Account monthly for the cost of indirect
services and related office costs of Operator not otherwise provided in
this Accounting Procedure. Indirect costs chargeable under this Section III
represent the cost of general assistance and support services provided by
Operator and its Affiliates. These costs are such that it is not practical
to identify or associate them with specific projects but are for services
which provide the Joint Operations with needed and necessary resources
which Operator requires and provide a real benefit to Joint Operations. No
cost or expenditure included under Section II shall be included or
duplicated under this Section III. The charges under Section III are not
subject to audit under Sections 1.8.1 and 1.8.2 other than to verify that
the overhead percentages are applied correctly to the expenditure basis.
3.2 AMOUNT.
3.2.1 The indirect charge defined in Section 3.1 shall be U.S. dollars six
thousand (U.S. $ 6,000) per month for the 100% Joint Operation and Project,
plus an additional charge of 0.35% of the Hydrocarbon gross revenues for
the Project from each preceding month billed with the current month
indirect charge.
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 12
3.2.2 The Operating Committee may adjust the amount or basis of calculation
for the charge in Section 3.1 and 3.2.1 every six months.
3.2.3 No annual assessment will be made based on the cost of expenditures.
3.3 EXCLUSIONS.
The expenditures used to calculate the monthly indirect charge shall not
include the indirect charge (calculated either as a percentage of
expenditures or as a minimum monthly charge), rentals on surface rights
acquired and maintained for the Joint Account, guarantee deposits, pipeline
tariffs, concession acquisition costs, bonuses paid in accordance with the
Contract, royalties and taxes on production or revenue to the Joint Account
paid by Operator, expenditures associated with major construction projects
for which a separate indirect charge is established hereunder, payments to
third parties in settlement of claims, and other similar items.
Credits arising from any government subsidy payments, disposition of
Material, and receipts from third parties for settlement of claims shall
not be deducted from total expenditures in determining such indirect
charge.
SECTION IV.
ACQUISITION OF MATERIAL
4.1 ACQUISITIONS.
Materials purchased for the Joint Account shall be charged at net cost paid
by the Operator. The price of Materials purchased shall include, but shall
not be limited to export broker's fees, insurance, transportation charges,
loading and unloading fees, import duties, license fees, and demurrage
(retention charges) associated with the procurement of Materials, and
applicable taxes, less all discounts taken.
4.2 MATERIALS FURNISHED BY OPERATOR.
Materials required for operations shall be purchased for direct charge to
the Joint Account whenever practicable, except the Operator may furnish
such Materials from its stock under the following conditions:
4.2.1 NEW MATERIALS (CONDITION "A").
New Materials transferred from the warehouse or other properties
of Operator shall be priced at net cost determined in accordance
with Section 4.1 above as if Operator had purchased such new
Material just prior to its transfer. Such net costs shall in no
event exceed the then current market price.
4.2.2 USED MATERIALS (CONDITIONS "B" AND "C").
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 13
4.2.2.1 Material which is in sound and serviceable condition and suitable
for use without repair or reconditioning shall be classed as
Condition "B" and priced at seventy-five percent (75%) of such
new purchase net cost at the time of transfer.
4.2.2.2 Materials not meeting the requirements of Section 4.2.2.1 above,
but which can be made suitable for use after being repaired or
reconditioned, shall be classed as Condition "C" and priced at
fifty percent (50%) of such new purchase net cost at the time of
transfer. The cost of reconditioning shall also be charged to the
Joint Account provided the Condition "C" price, plus cost of
reconditioning, does not exceed the Condition "B" price; and
provided that Material so classified meet the requirements for
Condition "B" Material upon being repaired or reconditioned.
4.2.2.3 Material which cannot be classified as Condition "B" or Condition
"C", shall be priced at a value commensurate with its use.
4.2.2.4 Tanks, derricks, buildings, and other items of Material involving
erection costs, if transferred in knocked-down condition, shall
be graded as to condition as provided in this Section 4.2.2 of
Section IV, and priced on the basis of knocked-down price of like
new Material.
4.2.2.5 Material including drill pipe, casing and tubing, which is no
longer useable for its original purpose but is useable for some
other purpose, shall be graded as to condition as provided in
this Section 4.2.2 of Section IV. Such Material shall be priced
on the basis of the current price of items normally used for such
other purpose if sold to third parties.
PREMIUM PRICES.
4.3
Whenever Material is not readily obtainable at prices specified in Sections
4.1 and 4.2 of this Section IV because of national emergencies, strikes or
other unusual causes over which Operator has no control, Operator may
charge the Joint Account for the required Material at Operator's actual
cost incurred procuring such Material, in making it suitable for use, and
moving it to the Contract Area, provided that notice in writing, including
a detailed description of the Material required and the required delivery
date, is furnished to Non-Operators of the proposed charge. Operator is not
required to accept Material furnished in kind by that Non-Operator. If
Operator fails to submit proper notification prior to billing Non-Operators
for such Material, Operator shall only charge the Joint Account on the
basis of the price allowed during a "normal" pricing period in effect at
time of movement.
WARRANTY OF MATERIAL FURNISHED BY OPERATOR.
4.4
OPERATOR NOR OTHER SUPPLYING PARTIES WARRANT THE CONDITION OR FITNESS FOR
THE PURPOSE INTENDED OF ANY MATERIAL FURNISHED TO THE PROJECT. IN CASE
DEFECTIVE
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 14
MATERIAL IS FURNISHED BY OPERATOR FOR THE JOINT ACCOUNT, CREDIT SHALL NOT
BE PASSED TO THE JOINT ACCOUNT UNTIL ADJUSTMENT HAS BEEN RECEIVED BY
OPERATOR FROM THE MANUFACTURERS OR THEIR AGENTS.
SECTION V.
DISPOSAL OF MATERIALS
5.1 DISPOSAL.
Operator shall be under no obligation to purchase the interest of
Non-Operators in new or used surplus Materials. Operator shall have the
right to dispose of Materials but shall advise and secure prior agreement
of the Operating Committee of any proposed disposition of Materials having
an original cost to the Joint Account either individually or in the
aggregate of ten thousand U.S. Dollars (U.S. $ 10,000) or more. When Joint
Operations are relieved of Material charged to the Joint Account, Operator
shall advise each Non-Operator of the original cost of such Material to the
Joint Account so that the Parties may eliminate such costs from their asset
records. Credits for Material sold by Operator shall be made to the Joint
Account in the month in which payment is received for the Material. Any
Material sold or disposed of under this Section shall be on an "as is,
where is" basis without guarantees or warranties of any kind or nature.
Costs and expenditures incurred by Operator in the disposition of Materials
shall be charged to the Joint Account.
5.2 MATERIAL PURCHASED BY A PARTY OR AFFILIATE.
Proceeds received from Material purchased from the Joint Property by a
Party or an Affiliate thereof shall be credited by Operator to the Joint
Account, with new Material valued in the same manner as new Material under
Section 4.2.1 and used Material valued in the same manner as used Material
under Section 4.2.2, unless otherwise agreed by the Operating Committee.
5.3 DIVISION IN KIND.
Division of Material in kind, if made between the Parties, shall be in
proportion to their respective interests in such Material. Each Party will
thereupon be charged individually with the value (determined in accordance
with the procedure set forth in Section 5.2) of the Material received or
receivable by it.
5.4 SALES TO THIRD PARTIES.
Proceeds received from Material purchased from the Joint Property by third
parties shall be credited by Operator to the Joint Account at the net
amount collected by Operator from the buyer. If the sales price is less
than that determined in accordance with the procedure set forth in Section
5.2, then approval by the Operating Committee shall be required prior to
the sale. Any claims by the buyer for defective materials or otherwise
shall be charged back to the Joint Account if and when paid by Operator.
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 15
SECTION VI.
INVENTORIES
6.1 PERIODIC INVENTORIES - NOTICE AND REPRESENTATION.
At reasonable intervals, but at least annually, inventories shall be taken
by Operator of all Material held in warehouse stock on which detailed
accounting records are normally maintained. The expense of conducting
periodic inventories shall be charged to the Joint Account. Operator shall
give Non-Operators written notice at least sixty Days (60) in advance of
its intention to take inventory, and Non-Operators, at their sole cost and
expense, shall each be entitled to have a representative present. The
failure of any Non-Operator to be represented at such inventory shall bind
such Non-Operator to accept the inventory taken by Operator, who shall in
that event furnish each Non- Operator with a reconciliation of overages and
shortages. Inventory adjustments to the Joint Account shall be made for
overages and shortages. Any adjustment equivalent to ten thousand U.S.
Dollars (U.S. $ 10,000) or more shall be brought to the attention of the
Operating Committee.
6.2 SPECIAL INVENTORIES.
Whenever there is a sale or change of interest in the Agreement, a special
inventory may be taken by the Operator provided the seller and/or purchaser
of such interest agrees to bear all of the expense thereof. In such cases,
both the seller and the purchaser shall be entitled to be represented and
shall be governed by the inventory so taken. END OF ACCOUNTING PROCEDURE
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
MAY 17, 2000
PAGE 16