Exhibit 10.3
ALADDIN MIDDLE EAST LTD.
ERSAN PETROL SANAYII A.S.
AVENUE ENERGY INC.
JOINT OPERATING AGREEMENT
KARAKILISE
LICENSES AR/AME - EPS-AVE 2674, 2677 AND ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ OF TURKEY
TABLE OF CONTENTS
JOINT OPERATING AGREEMENT
Article Page
1. DEFINITIONS AND INTERPRETATIONS..........................................................................1
2. SCOPE OF UNDERSTANDING AND DURATION......................................................................8
2.1 Scope...........................................................................................8
2.2 Understanding...................................................................................8
2.3 Commencement and Duration.......................................................................8
3. INTEREST OF THE PARTIES..................................................................................8
3.1 Percentage Interests............................................................................8
3.2 Withholding tax.................................................................................9
3.3 Ownership, Obligations and Liabilities..........................................................9
4. THE OPERATOR............................................................................................10
4.1 Designation....................................................................................10
4.2 Resignation and Removal........................................................................10
4.3 Election of Successor Operator.................................................................11
4.4 Transfer of Responsibilities...................................................................11
5. AUTHORITIES AND DUTIES OF OPERATOR......................................................................12
5.1 Right..........................................................................................12
5.2 Responsibility.................................................................................12
5.3 Liens and Encumbrances.........................................................................13
5.4 Representation of the Parties..................................................................13
5.5 Records........................................................................................14
5.6 Reports........................................................................................14
5.7 Consultation and Information...................................................................15
5.8 Emergencies....................................................................................15
5.9 Disposal and Abandonment.......................................................................15
5.10 Contractors, Turnkeys, and Percentage Interests in ▇▇▇▇▇.......................................15
5.11 Abandonment Agreement..........................................................................19
6. RIGHTS OF THE PARTIES...................................................................................19
6.1 Reservation of Rights..........................................................................19
6.2 Inspection Rights..............................................................................19
6.3 Access Rights..................................................................................19
7. INSURANCE AND LITIGATION................................................................................19
7.1 Insurance......................................................................................19
7.2 Litigation.....................................................................................21
8. THE OPERATING COMMITTEE.................................................................................22
8.1 Establishment and Powers.......................................................................22
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8.2 Representation.................................................................................23
8.3 Chairman.......................................................................................24
8.4 Meetings and Voting............................................................................24
8.5 Minutes........................................................................................25
8.6 Action Without A Meeting.......................................................................25
8.7 License Provisions.............................................................................25
9. WORK PROGRAMS AND BUDGET................................................................................26
9.1 Exploration and Appraisal......................................................................26
9.2 Development....................................................................................27
9.3 Production.....................................................................................28
9.4 Itemization of Expenditures....................................................................28
9.5 Contract Awards................................................................................29
9.6 Authorization for Expenditure ("AFE") Procedure................................................29
9.7 Overexpenditures of Programs and Budgets.......................................................30
10. OPERATIONS BY LESS THAN ALL PARTIES.....................................................................30
10.1 Limitation on Applicability....................................................................30
10.2 Procedure to Propose Exclusive Risk Operations.................................................31
10.3 Responsibility for Exclusive Risk Operations...................................................32
10.4 Consequences of Exclusive Risk Operations......................................................33
10.5 Premium to Participate in Exclusive Risk Operations............................................35
10.6 Order of Preference of Operations..............................................................36
10.7 Stand-By Costs.................................................................................36
10.8 Use of Property................................................................................37
10.9 Miscellaneous..................................................................................38
11. ACCOUNTING AND TAXES....................................................................................39
11.1 Accounting.....................................................................................39
11.2 Taxes..........................................................................................39
12. DEFAULT.................................................................................................40
12.1 Failure to Pay.................................................................................40
12.2 Remedy of Default..............................................................................41
12.3 Continuation of Default........................................................................41
12.4 In the event that either:......................................................................43
12.5 Exclusive Remedy...............................................................................43
13. DISPOSAL OF PETROLEUM...................................................................................43
13.1 Right and Obligation...........................................................................43
13.2 NGLs and Natural Gas...........................................................................44
14. CONFIDENTIALITY.........................................................................................44
14.1 Confidential Data and Information..............................................................44
14.2 Trading Rights.................................................................................45
15. PUBLIC ANNOUNCEMENTS....................................................................................45
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16. OUTGOINGS...............................................................................................46
17. COVENANT, UNDERTAKING AND RELATIONSHIP..................................................................46
17.1 Covenant and Undertaking.......................................................................46
17.2 Relationship...................................................................................47
18. ASSIGNMENT AND ENCUMBRANCES.............................................................................47
18.1 Restriction....................................................................................47
18.2 Right..........................................................................................48
18.3 Effective Date.................................................................................49
18.4 Continuing Obligations.........................................................................49
18.5 Costs..........................................................................................49
18.6 Encumbrance....................................................................................49
18.7 Joint Venture Agreements.......................................................................50
18.8 Meaning of "Assignment" .......................................................................50
18.9 Introducing Parties............................................................................50
19. WITHDRAWAL..............................................................................................51
19.1 Restriction....................................................................................51
19.2 Right..........................................................................................51
19.3 Conditions.....................................................................................51
20. FORCE MAJEURE...........................................................................................53
21. APPLICABLE LAW AND ARBITRATION..........................................................................54
21.2 Arbitration....................................................................................54
22. NOTICES.................................................................................................54
22.1 Manner of service..............................................................................54
22.2 Time of Notice.................................................................................54
22.3 Addresses......................................................................................55
23. MISCELLANEOUS...........................................................................................56
SIGNING PAGE.....................................................................................................57
SCHEDULE 1 - ACCOUNTING PROCEDURE ATTACHED
SCHEDULE 2 - MAP OF LICENSE AREAS N/A
SCHEDULE 3 - FORM OF TURNKEY CONTRACT ATTACHED
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JOINT OPERATING AGREEMENT
THIS AGREEMENT is made the 22 day of October, 2004
BETWEEN:
ALADDIN MIDDLE EAST LTD, a corporation organized and existing under the laws of
the State of Delaware in the U.S.A., having offices in the city of Ankara and in
the city of Wichita, Kansas, (hereinafter referred to as "AME");
and
ERSAN PETROL SANAYII A.S., a corporation existing under the laws of the Republic
of Turkey, having its head office in the city of Ankara ("ERSAN");
and
AVENUE ENERGY INC., a corporation organized and existing under the laws of the
State of Delaware in the U.S.A., having offices at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, ▇▇▇ and in Australia at ▇▇-▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ (hereinafter referred to as "AVENUE").
RECITALS
A. The Parties are the holders of Licenses AR/AME - EPS-AVE/2674, 2677 and
2678 in ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇.
B. The Parties desire to provide for the exploration, development,
production and operation of the License Area and to define their
respective rights and obligations in respect thereof.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements and obligations herein contained and to be performed, IT
IS AGREED by and between the Parties AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATIONS
In this Agreement:
"ACCOUNTING PROCEDURE" means the Accounting Procedure set out in Schedule 1
hereto.
"ADVANCE" means each payment of cash required to be made pursuant to a Cash
Call.
"AFE" means authorization for expenditure.
"AFFILIATE" means, with respect to any Person, any other Person that (a) owns or
controls the first Person, (b) is owned or controlled by the first Person, or
(c) is under common ownership or control with the first Person, where 'own'
means a direct or indirect ownership of more than 50% of the equity interests or
rights to distributions on account of equity of the Person and 'control' means
the direct or indirect power to direct the management or policies of the Person,
whether through the ownership of voting securities, by contract, or otherwise;
notwithstanding the foregoing, each member of SGC is deemed to be an Affiliate
of each other member of SGC for the purposes of this Agreement.
"APPRAISAL WELL" means a well drilled to determine or further evaluate the
extent, size, or nature of a hydrocarbon accumulation in a geological formation
contained in a trap, structure or closure in which a Discovery has been made by
a previous Exploration Well drilled (whether within or outside the License Area)
on such trap, structure or closure. Appraisal and other derivatives shall be
construed accordingly.
"AVENUE INTEREST" means the 15% Percentage Interest held by AVENUE at the date
of this Agreement.
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"BASE RATE" means the best rate of interest for Dollars in effect at the
CitiBank branch in Ankara Turkey or the best rate of interest Operator is able
to borrow money at in the Republic of Turkey, whichever is lesser, at 10:00 a.m.
New York, NY, time on the day in question or, if no such rates are quoted on
that day, on the immediately preceding day on which such rates were quoted.
"BUDGET" means any budget in respect of a Program.
"CAPITAL EXPENDITURE" means costs and expenditures incurred in but not limited
to the following operations: the drilling of all ▇▇▇▇▇ (including testing, if
applicable, plugging and abandoning), development feasibility studies, the
design, construction, installation, acquisition, replacement or final
abandonment of any permanent facilities, permanent additions to Joint Property
and administrative costs directly attributed to such functions.
"CASH CALL" means any request to the Parties for the payment of cash made by
Operator in accordance with the provisions of the Accounting Procedure in
connection with the Joint Operations or, where the context so requires, to the
Consenting Parties in connection with any Exclusive Risk Operation.
"CASH PREMIUM" means the payment made pursuant to Article 10.5 by a
Non-Consenting Party to reinstate its rights to participate in an Exclusive Risk
Operation.
"COMMUNICATION" has the meaning specified in Article 22.1.
"COMPLETION" means an operation to complete a well through the christmas tree as
a producer of Petroleum 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.
"CONSENTING PARTY" means a Party who has agreed to participate in and pay its
share of the cost of an Exclusive Risk Operation.
"CONVERSION RATE" means the conversion rate as published in the Wall Street
Journal for the two currencies in question on the relevant date or, if no such
rates are quoted on that date, on the immediately preceding day on which such
rates were quoted.
"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 deeper. Deepen and
derivatives shall be construed accordingly.
"DEFAULT" has the meaning specified in Article 12.1.
"DEFAULTING PARTY" has the meaning specified in Article 12.1.
"DEVELOPMENT PLAN" means a plan for the development of Petroleum from the
License Area.
"DEVELOPMENT WELL" means a well which is drilled for the purpose of producing
from and depleting a known Petroleum bearing reservoir or for the purpose of
injecting gas or liquid substances into that reservoir to enhance the recovery
of Petroleum from that reservoir.
"DISCOVERY" means any discovery of reserves of Petroleum which are tested and
produced in the well encountering the same, or if not so tested, are determined
by Operating Committee to be capable of being produced.
"DOLLARS" or "$" means dollars of the United States of America.
"ENTITLEMENT" means a quantity of Petroleum of which a Party has the right and
obligation to take delivery pursuant to the License terms or, if applicable, on
off-take agreement and the terms of this Agreement, after adjustments for
overlifts and underlifts.
"ERSAN ROYALTY INTEREST" means the right of ERSAN to a 7.5% overriding royalty
interest in Petroleum produced from the License Area.
"EXCLUSIVE RISK OPERATION" has the meaning specified in Article 10.1.
"EXPLORATION WELL" means any well other than an Appraisal Well or a Development
Well.
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"FARMIN AND PARTICIPATION AGREEMENT" means the agreement referred to in Recital
A of this Agreement as the same may be changed from time to time by mutual
consent of the parties thereto.
"G&G DATA" means any geological, geophysical and geochemical data.
"GOVERNMENT" means the Government of the Republic of Turkey, from time to time,
or any relevant agency, division or representative thereof.
"INITIAL EXPLORATION PROGRAM" has the meaning specified in Article 9.1.
"JOINT ACCOUNT" means the account established and maintained by Operator to
record all Advances, expenditures and receipts in the conduct of the Joint
Operations.
"JOINT OPERATIONS" means all operations relating to the License Area approved,
or deemed to be approved, by the Operating Committee and conducted by Operator
in accordance with this Agreement and in the case of operations under a
development Program and Budget means all operations in which all Parties are
obliged to participate.
"JOINT PETROLEUM" means all Petroleum produced under the Joint Operations.
"JOINT PROPERTY" means all property, of whatever nature, acquired or held for
use in connection with the Joint Operations. "LICENSE AREA" means the area for
the time being covered by the Licenses.
"LICENSES" means each of:
(a) License AR/AME - EPS-AVE/2674, 2677 and 2678 in Petroleum
District XI, Diyarbakir, the Republic of Turkey;
(b) (unless the context otherwise requires) any Production Lease
granted under the Petroleum Law to the Parties in relation to
all or part of the License Area;
(c) any other Exploration License or Production Lease granted
under the Petroleum Law which the Parties from time to time
agree expressly and in writing to bring within the scope of
this Agreement,
as any such License or Production Lease may be extended, modified or replaced
from time to time.
"MATERIAL" means personal property, equipment or supplies.
"MINIMUM NOTIFICATION OBLIGATION DATE" means subsequent to the drilling of the
Karakilise-2 well, the date by which Non-Operator is obligated to notify the
Operator of its intent to participate in a Minimum Work Obligation. The Minimum
Notification Obligation Date shall be seventy-five (75) days prior to the date
of the subject Minimum Work Obligation. Operator shall provide Non-Operators
with notice of Minimum Notification Obligation Dates at least 150 days prior to
the date of the subject Minimum Work Obligation.
"MINIMUM WORK OBLIGATIONS" means those work and/or expenditure obligations
specified in the Licenses or Petroleum Law which must be performed during the
then current License phase or period in order to satisfy the obligations of the
License or Petroleum Law, including the drilling of a well.
"NATURAL GAS" means hydrocarbons which at atmospheric conditions of temperature
and pressure are in a gaseous phase.
"NET PRE-TAX REVENUE" means sales receipts (net of withholdings and deductions
at source and excluding VAT (if any), but before income or corporate tax
calculated and chargeable by reference to individual Parties), less:
(a) royalties and similar payments made or due to the Government
or under the ERSAN Royalty Interest in respect of such sales
or related production; and
(b) operating costs authorized under the terms of this Agreement
incurred by Operator and/or the relevant Parties (or any of
them) in connection with the production of those receipts
(including production and transportation charges, commissions,
salaries, fees and expenses chargeable to the Joint Account).
"NGLS" means any hydrocarbon found in Natural Gas which may be extracted or
isolated as liquefied Petroleum.
3
"NON-CONSENTING PARTY" means a Party who elects not to participate in an
Exclusive Risk Operation.
"NON-DEFAULTING PARTIES" has the meaning specified in Article 12.1.
"NON-OPERATOR" means a Party other than Operator.
"OPERATING COMMITTEE" means the committee established pursuant to Article 8.
"OPERATOR" means the Party from time to time acting as such pursuant to Article
4.
"OTHER PARTIES" has the meaning specified in Article 18.1.
"OUTGOING OPERATOR" has the meaning specified in Article 4.3.
"PARTY" or "PARTIES" means any party or parties to this Agreement and their
respective successors and permitted assigns.
"PERCENTAGE INTEREST" means, for each of the Parties, the undivided percentage
interest held from time to time by it pursuant to this Agreement in the
Licenses, the Joint Property and the Joint Petroleum, or, where the context so
requires, in any Exclusive Risk Operation.
"PERSON" includes any individual, corporation, company, partnership (general or
limited), business trust, or other governmental or non-governmental entity or
association.
"PETROLEUM" has the meaning assigned to it under the Petroleum Law.
"PETROLEUM LAW" means Petroleum Law ▇▇. ▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇, as
amended from time to time (including but not limited to Laws No. 6558, 6987,
1702, 2217 and 2208) and the Petroleum Regulations promulgated thereafter under
Government Decree 89/14111 published with the Official Gazette on 17 July 1989
issue no. 20224, as amended from time to time and the Petroleum Marketing Law
No. 5015, enacted on December 4, 2003 and published in the Official Gazette, No.
25322, on December 20, 2003.
"PETROLEUM RIGHT HOLDER" means a Person registered under and in accordance with
the Petroleum Law as a petroleum right holder.
"PLUGGING BACK" means a single operation where a deeper Zone is abandoned in
order to attempt a Completion in a shallower Zone. Plug Back and other
derivatives shall be construed accordingly.
"PRODUCTION LEASE" means that part of the License Area which is established for
development of a Discovery pursuant to the License which is delineated as the
Production Lease in a Development Plan approved as a Joint Operation or as an
Exclusive Risk Operation.
"PROGRAM" means any program of operations.
"QUARTER" means a period of three months ending on 31st March, 30th June, 30th
September, or 31st December in any year.
"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.
"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.
"SGC" means the ▇▇▇▇▇ Group Consortium, consisting of AME, ERSAN,
Transmediterranean Oil Company Ltd and Guney Yildizi Petrol Uretim Sondaj
Muteahhitlik ve Ticaret A.S.
"SGC INTEREST" means that part of the total Percentage Interests of all of the
Parties that does not consist of the Avenue Interest (or part thereof).
4
"SIDE TRACKING" 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. Side track and other derivatives shall be construed
accordingly.
"SUB-AREA" means, at any given time, any part of the License Area determined as
such by the Operating Committee being delineated by surface area but applying
only to that interpreted closure of any geological structure or stratigraphic
trap in which a reservoir or reservoirs of Petroleum exist, and which is subject
to operations by less than all Parties pursuant to the terms of this Agreement.
"TESTING" means an operation intended to evaluate the capacity of a Zone to
produce Petroleum. Test and other derivatives shall be construed accordingly.
"TURNKEY" means any contract pursuant to which the Operator or any other party
shall agree to drill and complete a well through a well bore, or perform any
other operation for a fixed price.
"VAT" means value added tax applicable to the provision of goods and services
according to the Value Added Tax Law No. 3065 published in the Turkish Official
▇▇▇▇▇▇▇ ▇▇. ▇▇▇▇▇ dated November 2, 1984 and the Council of Ministers' Decrees
issued under the same Law, as both may be amended time to time.
"WILFUL MISCONDUCT" means in relation to Operator an intentional and conscious
or reckless disregard of:
(a) any provision or requirement of this Agreement or, in so far
as applicable to the Joint Operations, or applicable law or
regulations; or
(b) any Program, not justifiable by any special circumstances,
by any director, officer, supervisory or management employee, agent or
contractor or sub-contractor of Operator or its Affiliates, but shall not
include any error in judgment or mistake made by any such person in the
exercise, in good faith, of any function, authority or discretion conferred upon
Operator.
"WITHDRAWING PARTY" has the meaning specified in Article 19.3(i).
"WITHHOLDING TAX" means the withholding from the petroleum exploration and
production revenues in accordance with Council of Ministers Decree No. 93/5147
published in the Turkish Official Gazette No. 21805(R) dated 30 December 1993,
as may be amended, and any other withholding that may be applicable to this
Agreement, the activities and payments hereunder or the Parties.
"ZONE" means a stratum of earth containing or thought to contain an accumulation
of Petroleum separately producible from any other accumulation of Petroleum.
Reference to any statute, statutory provision or statutory instrument includes a
reference to that statute, statutory provision or statutory instrument as may
from time to time be amended, extended or re-enacted.
Reference to any gender includes a reference to all other genders.
Unless the context otherwise requires reference to any Article is to an article
of this Agreement and reference to any Section is to a section of the Accounting
Procedure.
Reference to the singular includes a reference to the plural and vice versa.
The headings are used for convenience only and shall not affect the construction
or validity of this Agreement.
2. SCOPE OF UNDERSTANDING AND DURATION
2.1 SCOPE
2.1.1 The scope of this Agreement shall extend to the exploration for and the
production of Petroleum under the Licenses and the joint marketing and
joint sales of Petroleum so produced, including the manner in which
abandonment obligations (whether arising under the Licenses or by law)
shall be met, and shall include the treatment, storage and
transportation of Petroleum within the License Area.
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2.2 UNDERSTANDING
This Agreement represents the entire Agreement and understanding
between the Parties as to the subject matter hereof. There are no
verbal understandings, agreements, representations or warranties which
are not expressly set forth herein. Notwithstanding the foregoing, the
provisions of the Farmin and Participation Agreement remain in full
force and effect. Notwithstanding anything to the contrary in the
Farmin and Participation Agreement, in the event of a conflict between
this Agreement and the Farmin and Participation Agreement, the terms
and interpretation of this Agreement shall prevail to the extent it
affects the Licenses which are the subject of this Agreement.
2.3 COMMENCEMENT AND DURATION
This Agreement shall commence on the date first mentioned above and
shall, continue for so long as the Licenses (or any of them) remain in
force and until all Joint Property has been disposed of and final
settlement has been made between the Parties in accordance with their
respective rights and obligations hereunder.
3. INTEREST OF THE PARTIES
3.1 PERCENTAGE INTERESTS
Subject to Article 3.3 and to the other terms and conditions of this
Agreement, the Licenses and all Joint Property and all Joint Petroleum
shall be owned by the Parties, and the Net Pre-tax Revenue derived from
the Joint Operations (including the sale of Joint Petroleum by Operator
on behalf of the Parties) shall accrue and be allocated to the Parties,
and all costs and obligations incurred in the proper conduct of the
Joint Operations shall be borne by the Parties, in proportion to their
respective Percentage Interests, which at the date hereof are as
follows:
AVENUE 15%
AME 80%
ERSAN 5%
---------------
Total 100%
AME represents and warrants to Avenue that the outstanding royalty,
overriding royalty, carried interest and other burdens with respect to
the Licenses are as at the date of this Agreement solely as follows:
Government 12.5%, ERSAN 7.5%.
The Parties recognize that the Government Royalty may be changed by the
Government from time to time and that each Party's Percentage Interest
shall be liable to bear its proportionate share of such royalty and the
Ersan Royalty Interest.
As of the date of this Agreement and pursuant to the provisions set
forth in the Revised and Restated Participation Agreement dated __
October, 2004, AME shall assume liability for all past and future
expenditures related to 85% of the Participating Interest in the
Karakilise License and assume complete responsibility for all
expenditures for past workover operations on the Karakilise-1 Well.
3.2 WITHHOLDING TAX
Notwithstanding anything to the contrary in this Agreement, any
Withholding Tax incurred in relation to the costs and expenses charged
to the Joint Account, or the payments by the Parties (or any of them)
in relation thereto, shall ultimately be borne by the Parties in
proportion to their Percentage Interest.
3.3 OWNERSHIP, OBLIGATIONS AND LIABILITIES
3.3.1 Unless otherwise provided in this Agreement, all the rights and
interests in and under the Licenses, all Joint Property and any
Petroleum produced from the Licenses shall be owned by the Parties in
accordance with their respective Percentage Interests.
6
3.3.2 Unless otherwise provided in this Agreement, the obligations of the
Parties under the License 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
Percentage Interests.
3.3.3 Each Party shall pay when due, in accordance with the Accounting
Procedure, its Percentage Interest share of Joint Account expenses,
including cash advances and interest, accrued pursuant to this
Agreement. A Party's payment of any charge under this Agreement shall
be without prejudice to its right to later contest the charge.
3.3.4 Commencing in October 2004, and continuing so long as Avenue retains a
Percentage Interest hereunder, Avenue shall be required to pay AME a monthly
administration fee, as further defined in the Revised and Restated Participation
Agreement dated __ October, 2004, in the amount of $380 which shall cover the
ongoing Exploration License rentals and filings required to keep in good
standing the Licenses.
4. THE OPERATOR
4.1 DESIGNATION
AME is hereby designated and agrees to act as Operator under and
subject to the terms of this Agreement.
4.2 RESIGNATION AND REMOVAL
4.2.1 Operator shall have the right to resign at the end of any month, by
giving not less than two hundred and seventy (270) days' notice to the
Parties, or such shorter period of notice as the Operating Committee
may direct.
4.2.2 Operator may be removed:
(i) at the end of any month, if the Operating Committee so decides
and gives not less than ninety (90) days' written notice to
Operator; or
(ii) by notice from any Non-Operator (other than a Non-Operator
which is an Affiliate of the Operator or a Non-Operator that
is in Default), if Operator:
(a) ceases or threatens to cease to carry on business or
a major part thereof;
(b) makes an assignment for the benefit of creditors,
admits its inability to pay its debts as they become
due, or such fact is determined in a judicial
proceeding, files or has filed against it a petition
in bankruptcy or other similar insolvency proceeding
or is adjudicated a bankrupt or insolvent;
(c) files a petition seeking for itself any
reorganization, arrangement, composition,
readjustment, liquidation, dissolution or other
similar arrangement under any present or future
statute, law or regulation; or
(d) consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of it or of all or
any substantial part of its assets or properties, or
if it or the holders of its common stock take any
action contemplating its dissolution or liquidation;
or
(iii) forthwith upon the Operating Committee so determining and
giving written notice to Operator, if:
(a) the aggregate of the Percentage Interests of Operator
and any Affiliate of Operator is less than fifteen
percent (15%); or
(b) the Operating Committee determines and notifies
Operator that there has been an event of negligence
or Wilful Misconduct or a material breach of this
Agreement or a License by Operator and Operator fails
within twenty eight (28) days after receipt of such
notice (or such longer period as may be specified in
the said notice) to remedy such breach to the
reasonable satisfaction of the
7
other Parties or, if such breach is not capable of
remedy, to otherwise restore as nearly as practicable
the other Parties to the position they would have
been in had the relevant event or breach not
occurred.
4.2.3 Subject to the following, Operator shall have no claim against any
Party as a result of the resignation or removal of Operator, provided
always that any resignation or removal of Operator shall be without
prejudice to any rights, obligations or liabilities which accrued
during the period when Operator served in that capacity. If Operator
resigns before the completion of all working obligations set out in the
Licenses or arising under the Petroleum Law in respect of the Licenses,
Operator shall not be entitled to any costs or expenses incurred in
connection with the change of operatorship, but if Operator resigns
thereafter or is removed it shall be entitled to charge the Joint
Account any costs or expenses incurred by it as a result of the change
of operatorship as may be approved by the Operating Committee (such
approval not to be unreasonably withheld).
4.3 ELECTION OF SUCCESSOR OPERATOR
As soon as practicable after notice is duly given as to the resignation
or removal of Operator (hereinafter referred to as "Outgoing Operator")
under Article 4.2, one of the Non-Operators shall, subject to its
acceptance of the position under the terms of this Agreement and
subject to any necessary approval of the Government, be selected by the
Operating Committee to assume the position of Operator upon the
effective date of the resignation or removal of the Outgoing Operator,
provided that if the Outgoing Operator is removed or in Default at the
time of its resignation and the Outgoing Operator or any Party which is
an Affiliate of the Outgoing Operator either fails to vote or votes for
itself or any of its Affiliates as successor to the operatorship, those
votes shall be disregarded and the percentage figure set out in Article
8.4.5 shall apply to the total votes available to the remaining
Parties.
4.4 TRANSFER OF RESPONSIBILITIES
4.4.1 Upon the effective date of the resignation or removal of the Outgoing
Operator, the Outgoing Operator shall hand over or deliver to, or
relinquish custody in favor of, the Non-Operator selected to succeed it
as Operator, or if no such selection has yet been made, then to the
Non-Operator having the largest Percentage Interest (or, in the event
that more than one Non-Operator shall equally hold the largest
Percentage Interest, the nominee of the Outgoing Operator among such
Non-Operators), all funds relating to the Joint Account, all Joint
Property, all Joint Petroleum and all books, records and inventories
relating to the Joint Operations other than those books, records and
inventories maintained by the Outgoing Operator in its capacity as the
owner of a Percentage Interest. The Outgoing Operator shall use its
best efforts to transfer to the aforesaid Non-Operator, effective as of
the effective date of such resignation or removal, its rights as
Operator under all contracts exclusively relating to the Joint
Operations and the aforesaid Non-Operator shall assume all obligations
of Operator thereunder (other than obligations arising or relating to
any period or time prior to such effective date). Pending such transfer
and in relation to all other contracts relating to the Joint Operations
(to the extent they so relate), the Outgoing Operator shall hold its
rights and interests as Operator from such effective date for the
account and to the order of the aforesaid Non-Operator and the Parties
shall, from such effective date, indemnify and hold harmless the
Outgoing Operator from all obligations thereunder except and to the
extent that the same devolve upon the Party which is the Outgoing
Operator in its capacity as the holder of a Percentage Interest or
arise from any default, negligence or Wilful Misconduct of the Outgoing
Operator in its capacity as Operator occurring prior to the effective
date of its resignation or removal as Operator.
4.4.2 As soon as practicable after the date on which the Outgoing Operator is
required to transfer its responsibilities as provided in Article 4.4.1,
the Parties shall audit the Joint Account and conduct an inventory of
all Joint Property and all Joint Petroleum and such inventory shall be
used in the return of and the accounting for the said Joint Property
and Joint Petroleum by the Outgoing Operator for the purposes of the
transfer of responsibilities under this Article 4. All costs and
expenses incurred in connection with such audit and inventory shall be
for the Joint Account.
5. AUTHORITIES AND DUTIES OF OPERATOR
5.1 RIGHT
5.1.1 Subject to this Agreement, Operator has the right and the obligation to
conduct Joint Operations by itself, or through its agents or its
contractors, subject to the overall supervision and control of the
Operating Committee. Such right shall not be assigned without the
written consent of the Non-Operators and any necessary consent of the
Government, provided that the Non-Operators shall not withhold their
consent in the case of an assignment to an Affiliate of Operator which
has demonstrated to the satisfaction of the Non-Operators its financial
and technical capability to perform the functions of Operator hereunder
and which enters into a written instrument accepting and assuming all
of the obligations of Operator under this Agreement.
8
5.1.2 If Operator conducts any or all of the Joint Operations through its
agents, contractors or Affiliates, Operator shall nevertheless remain
responsible to the Parties for such operations as Operator, as and to
the extent provided in this Agreement.
5.2 RESPONSIBILITY
5.2.1 Subject to the term and conditions of this Agreement and to the overall
supervision and control of the Operating Committee, the
responsibilities of Operator shall include, but not be limited to:
(i) the preparation of Programs, Budgets and AFEs pursuant to the
provisions of this Agreement,
(ii) the implementation of such Programs and Budgets as shall,
together with the relevant AFEs, have been approved by the
Operating Committee;
(iii) providing each of the Parties with reports, data and
information concerning the Joint Operations;
(iv) the planning for and obtaining of all requisite services and
material;
(v) the supervision, direction and control of statistical and
accounting services;
(vi) making provision for and payment of all royalties due to the
Government and to Ersan in a timely manner and providing all
required and necessary accounting in relation thereto; and,
(vii) providing all technical and advisory services required for the
efficient performance of Joint Operations.
5.2.2 Operator shall conduct the Joint Operations in a prudent and
workmanlike manner in accordance with methods and practices customarily
used in prudent oil and gas field practice and with that degree of
diligence and prudence reasonably and ordinarily exercised by
experienced operators engaged in similar activities under similar
circumstances.
5.2.3 Operator shall cause to be done, with due diligence, all such acts and
things within its control as may be necessary to keep and maintain the
Licenses in full force and effect and shall conduct Joint Operations in
compliance with the requirements of the Licenses, the Petroleum Law and
any other applicable law.
5.2.4 The number of employees of Operator employed in connection with the
Joint Operations and their selection, hours of work and remuneration
shall be determined by Operator subject to the Budget.
5.3 LIENS AND ENCUMBRANCES
Operator shall, insofar as it may be within its reasonable control,
keep all Joint Property free from all liens, charges, encumbrances, and
adverse claims, except as provided in Article 3.1.
5.4 REPRESENTATION OF THE PARTIES
Subject to any determination by the Operating Committee, Operator shall
represent the Parties regarding any matters or dealing with the
Government, any other governmental authorities or third parties insofar
as the same relate to the Joint Operations, provided always that there
is reserved to each Party unfettered right to deal with the Government,
any other governmental authorities or third parties with respect to
matters relating to its own Percentage Interest. Operator shall, in any
event, give prior notice to the Parties of any representations which it
proposes to make as Operator to the Government or any other
governmental authorities or third parties which may reasonably be
expected to have a material effect upon the interests of the Parties
hereunder or under the Licenses. Operator shall also give notice to all
Parties of the results of any such representations made in accordance
with this Article 5.4.
9
5.5 RECORDS
Operator shall prepare and maintain proper books of account, records
and inventories of the Joint Operations which shall be kept in
compliance with the Accounting Procedure attached hereto and with due
regard to the requirements of the Petroleum Law and the Licenses.
5.6 REPORTS
Operator shall promptly provide each Party with the following reports:
(i) All logs and surveys;
(ii) Daily drilling progress reports;
(iii) Copies of all tests and core analysis reports;
(iv) Copies of the plugging reports;
(v) Copies of G&G Data;
(vi) Engineering studies, (including reservoir studies and reserve
estimates), as approved by the Operating Committee,
development schedules and annual progress reports on
development projects;
(vii) Weekly field and well performance reports, provided that
during the first 90 days of production from a newly producing
well, daily production reports will be provided on a daily
basis, followed by daily production on a weekly basis for the
following 90 days of production;
(viii) Copies of all reports relating to Joint Operations furnished
by Operator to the Government, except magnetic tapes which
shall be stored by Operator and made available for inspection
and/or copying at the sole expense of the Non-Operator
requesting same;
(ix) (Other reports as frequently as is justified by the activities
or as instructed by the Operating Committee; and
(x) 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.
Operator shall also timely make all reports concerning the Joint
Operations to the Government as required under the Petroleum Law and
the Licenses and, concurrently therewith, furnish copies of all such
reports to the Parties.
5.7 CONSULTATION AND INFORMATION
Operator shall consult freely with the Parties and keep them informed
of matters concerning the Joint Operations. Without prejudice to the
generality of the foregoing, Operator shall:
(i) inform each Party of all logging, coring, testing and, in
addition, such other information concerning the Joint
Operations as the Operating Committee may decide, with such
advance notice as is practicable in the circumstances, so that
each Party may, subject to Article 6.3, have a representative
present on location during the conduct of such operations; and
(ii) provide each Party with copies of all well logs and core
analyses and sample fluids for pre-production assay tests and
such engineering, geological, geophysical and technical data
and such further data and information relating to the Joint
Operations as the Operating Committee may decide and, at the
sole cost of the Party requesting the same, provide such Party
with such additional data and information as such Party may
reasonably request.
10
5.8 EMERGENCIES
Operator is authorized to make any expenditure or incur commitments for
the expenditures or take any actions it deems necessary in the case of
emergency (but not otherwise) for the safeguarding of lives or property
or the prevention of pollution.
Operator shall promptly notify all the Parties of any such
circumstances, the amount of expenditures and commitments for
expenditures so made and incurred, the actions so taken in accordance
with this Article 5.8 and the results thereof.
5.9 DISPOSAL AND ABANDONMENT
5.9.1 Operator shall, subject to the Accounting Procedure, dispose of any
item of Joint Property which Operator determines is no longer needed or
suitable for Joint Operations provided that any such disposal shall be
with the prior written approval of the Operating Committee and subject
to such terms and conditions as would be arrived at pursuant to arms
length negotiations.
5.9.2 If the Parties decide to abandon the Joint Operations, or any part
thereof, Operator shall, subject to the Accounting Procedure, recover
and endeavour to dispose of as much of the Joint Property as the
Operating Committee determines can economically and reasonably be
recovered, or as may be required to be recovered under the Licenses,
the Petroleum Law or any other applicable law, and the net costs or net
proceeds therefrom shall be charged or credited to the Joint Account.
5.10 CONTRACTORS, TURNKEYS, AND PERCENTAGE INTERESTS IN ▇▇▇▇▇
5.10.1 In the case of any proposed Joint Operations, Operator shall, unless
otherwise decided by Parties having in the aggregate between them
Percentage Interests exceeding eighty-five percent (85%) and except in
the circumstances referred to in Article 5.8 and in respect of
contracts of insurance placed pursuant to the provisions of Article
7.1.1, comply with the following provisions:
(i) AME shall be appointed as the drilling contractor for all
▇▇▇▇▇ to be drilled during the term of this Agreement. The
cost of performing drilling, completion and other operations
required under this Agreement shall be negotiated in good
faith. AME shall use reasonable endeavours to provide Turnkey
quotes for such drilling and other services at least one
hundred (100) days, but not more than one hundred twenty (120)
days, prior to the estimated spud dates for each well. Along
with the Turnkey quotes, AME shall provide a detailed AFE
showing all proposed costs for such drilling and completion
operations and justify the AFE prices cited. In the event that
any Party believes that such quotes are not competitive, it
shall have the right to seek other quotes from other bona fide
qualified contractors registered to provide such services in
the Republic of Turkey. If any such quote on a Turnkey basis
is less than AME has quoted for its comparable services, AME
shall have the right to reduce the Turnkey price accordingly
or elect to not conduct such services. All outside services
and materials should be provided at cost. There should be no
indirect operating costs charged under the Accounting
Procedure for Turnkey work. The Turnkey price should be for a
dry hole with logs run at the casing point and over the bottom
hole section, with one core in the reservoir and testing as
deemed necessary by AME. There shall be a separate Turnkey
price negotiated for completion based upon similar parameters.
Turnkey prices and contracts shall be finalized by the Parties
not less than sixty (60) days prior to any proposed spud
dates, which, for the avoidance of doubt, is fifteen (15) days
after the Minimum Notification Obligation Date. The form of
Turnkey contract is attached as Schedule 3.
(ii) Pursuant to the Turnkey contract and subject to reduction
pursuant to Article 5.10.1 (iii) below, Avenue shall be
required to contribute fifty percent (15%) of its Percentage
Interest of the agreed upon Turnkey drilling price to the
Operator's bank account maintained at Citibank NA, Ataturk
Bulvari ▇▇. ▇▇/▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇, Account No.
310 030 031, Ankara Subesi, not less than thirty (30) days
prior to the anticipated spud date. Such funds shall be
immediately available to Operator for pre-drilling
expenditures. The balance of the Turnkey price shall be paid
as follows: twenty percent (20%) within five (5) days of the
spud date, fifteen percent (15%) within five (5) days of a
Communication by the Operator to Avenue that the well has
reached a depth of 5,000 feet, and the remaining balance
within five (5) days of a Communication from the Operator that
the well has reached the total depth and the Turnkey
Completion Costs anticipated to be incurred within the next
thirty (30) days of a Communication from the Operator that a
Completion attempt will be made, if Avenue agrees to
participate in the Completion attempt.
11
(iii) If Avenue has elected to participate in a Joint Operation for
any Appraisal or Development well on the structure on which
the Karakilise-1 Discovery was made:
(a) it may elect to participate in such well for less
than its full Percentage Interest, but in no event
less than half of its Percentage Interest, by giving
a Communication to Operator not later than thirty
(30) days after receipt of the AFE for any other such
well, which Operator shall provide not less than
ninety (90) days before the proposed spudding of such
well.
(b) If Avenue notifies Operator in a timely manner that
it has elected to participate for less than its full
Percentage Interest in any such Appraisal or
Development well, the other Parties, or their
Affiliates shall have the right up to the time such
well is spudded.
i) finance the remainder of Avenue's Percentage
Interest themselves, on a pro-rated basis,
or such other percentage basis as such
Parties may agree; or
ii) to bring in a third party as a farminee,
which is not an Affiliate of any Party, to
fund that portion of the expense in which
Avenue and the other Parties have elected
not to participate. The terms by which such
a third party may farmin to such Percentage
Interest shall be on the terms mutually
negotiated and agreed to by Avenue, Operator
and such third party.
(c) In the event, prior to the actual spudding of such
well neither the other Parties, their Affiliates nor
any third party farminee, have entered into a binding
contract to finance all of the Percentage Interest
Avenue elected to not participate in under Article
5.10.1 (iii) (b) above, Avenue shall have the right,
on a first come first served basis, to commit to
finance any such Percentage Interest, by a
Communication to Operator of the amount by which it
has elected to increase its Percentage Interest and
shall, within five (5) days of the date of such
Communication pay to Operator its proportionate share
of cash calls on a pro-rata basis to conform with the
payment schedule set out in Article 5.10.1 (ii)
hereof.
(d) Avenue shall make assignments of its Percentage
Interests in the Licenses or Leases, it has elected
to not participate in, as provide above, to the other
Parties or any third party farminee, as necessary to
reflect the Percentage Interest of the respective
parties at the time the subject well is spudded. Any
such assignment shall exclude any Sub Area within
such License or Lease attributable to production from
any existing producing well Avenue has a Percentage
Interest in.
(iv) In the event that the Operator has not commenced a Joint
Operation as agreed upon between the Parties as of sixty (60)
days after the projected commencement date for the relevant
Joint Operation, the Non-Operator(s) shall have the right to
request that any funds advanced for such Joint Operation be
returned. Any such request for the return of funds advanced
for a Joint Operation shall be reviewed by the Operator and a
response shall be sent within five (5) days setting forth the
reasons for the delay in commencing such Joint Operation. The
Parties shall attempt to come to an amicable solution to such
a request within 10 days of the response from the Operator to
the request for the return of funds. In the event the Parties
cannot come to an amicable solution, the Operator shall be
required to return the funds advanced. After the funds are
returned, the Operator shall notify the Parties of any new
proposals for such Joint Operation and proceed in accordance
with the terms of this Agreement with respect to such
proposal.
5.10.2 In the case of any proposed contract for the Joint Operations, Operator
shall, unless otherwise agreed by the Operating Committee, use its
reasonable endeavours to ensure that:
(i) any such contract can be freely assigned to any Non-Operator
in the event of any change of Operator;
(ii) in all contracts with contractors, Operator will be entitled
to recover on behalf of all the Parties the full amount of:
(a) any loss, damage, injury or expense suffered or
incurred by them as a result of any tort or breach of
such contract on the part of the contractor concerned
or any sub-contractor of that contractor; or
12
(b) any right of indemnity contained therein;
subject to the defenses, limitations, indemnities or exclusions of
liability in favour of the said contractor in such contracts or
available to the said contractor in connection with such contract; and
(iii) in all contracts with contractors, such contractors shall
agree to make or bring all actions, claims or demands of
whatsoever nature arising out of or in connection with such
contracts on or against Operator and, without prejudice to any
right which Operator may have to join any Non-Operator as
party to any such action, such contractors shall agree that no
such action, claim or demand is made or brought against any
Non-Operator.
5.10.3 Operator or any of its Affiliates or any of the Parties or any of their
Affiliates may supply material, services and facilities for Joint
Operations and such supply shall not be subject to the terms of
Articles 5.10.1 and 5.10.2 provided that one of the following
conditions for such supply has been met:
(i) the terms, conditions and rates of such supply have been
approved by the Operating Committee; or
(ii) such supply is in respect of a contract placed in the
circumstances referred to in Article 5.8.
5.11 ABANDONMENT AGREEMENT
Not less than two years prior to the expected date for abandonment of
any production or other substantial facilities, the Parties shall agree
to the terms of an abandonment agreement which shall comply with any
relevant provisions of the Petroleum Law and any regulations issued
pursuant thereto and ensures that appropriate provision will be made
for the cost of abandonment of those facilities and any related
liabilities. Unless otherwise agreed abandonment liabilities shall be
shared by the Parties in proportion to Percentage Interests. In the
event of a Party defaulting under the abandonment agreement, then the
Party in question shall be in default under this Agreement and deemed
to be a Defaulting Party under Article 12 hereof.
6. RIGHTS OF THE PARTIES
6.1 RESERVATION OF RIGHTS
Except as otherwise provided in this Agreement, each Party reserves all
its rights under the Licenses.
6.2 INSPECTION RIGHTS
Each Party shall have the right to inspect, at all reasonable times
during usual business hours, all books, records and inventories of any
kind or nature maintained by or on behalf of Operator and relating to
the Joint Operations (other than those books, records and inventories
maintained by the Party acting as Operator in its capacity as the owner
of a Percentage Interest), provided that such Party gives Operator
reasonable prior notice of the date upon which it desires to make such
inspection and identifies the person or persons who will conduct the
inspection.
6.3 ACCESS RIGHTS
Each Non-Operator shall have the right, at all reasonable times and at
its Exclusive Risk and expense, of access to the License Area and/or
the Joint Operations, provided such Non-Operator gives Operator
reasonable notice of the date such access is required and identifies
the representative or representatives to whom such access is to be
granted.
7. INSURANCE AND LITIGATION
7.1 INSURANCE
7.1.1
(i) Operator shall obtain and maintain, with respect to the Joint
Operations and the Joint Property, all insurance required
under the Petroleum Law, the Licenses or any other applicable
law. Without limitation to the foregoing, AME shall obtain and
maintain:
13
(a) Workers' Compensation and Employer's Liability
Insurance;
(b) Employer's Third Party Liability Insurance; and,
(c) Comprehensive General Liability Insurance,
in each case with a reputable and Government approved insurer
and on terms that are commercially reasonable and customary
for such risks in the same or similar circumstances.
(ii) Operator shall also obtain such other insurance as the
Operating Committee may from time to time determine or the
Parties may from time to time agree (including in the Farmin
and Participation Agreement). With respect to such other
insurance, any Party may elect not to participate, if such
Party:
(a) gives written notice to that effect to Operator; and
(b) does nothing which may interfere with Operator's
negotiations for such insurance for the other
Parties; and
(c) obtains and maintains its own insurance with respect
to its Percentage Interest share of all the risks
covered by such other insurance. Such Party shall
provide Operator with evidence of such other
insurance (in respect of which a certificate of
adequate coverage from a reputable insurance broker
shall be sufficient evidence) or other evidence of
financial responsibility as the other Parties may
determine to be acceptable (provided however, that 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 to damages and losses and/or the costs of
remedying the same in accordance with the terms of
this Agreement; and provided further that if such
Party obtains other insurance, such insurance shall
contain a waiver of subrogation in favour of all the
other Parties in respect of their interests
hereunder).
(iii) 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 so participating in proportion
to their respective Percentage Interests. Operator shall, with
respect to all insurance obtained by it pursuant to this
Article 7.1.1:
(a) inform the Parties at least ten (10) days before the
inception or renewal dates of the applicable
insurance contract or contracts of the salient terms
and conditions (including premia) quoted by the
insurers to Operator;
(b) promptly inform the Parties participating therein
when such insurance is taken out and supply them with
copies of the relevant policies when the same are
issued;
(c) arrange for the Parties participating therein,
according to their respective Percentage Interests,
to be named as co-insureds on the relevant policies
with waivers of subrogation in favour of the Parties;
and
(d) duly file and notify the Parties of all claims and
take all necessary and proper steps to collect any
proceeds and, if all the Parties are participating
therein, credit them to the Joint Account, or, if
less than all the Parties are participating therein,
credit them to the participating Parties in
proportion to their respective Percentage Interests.
Subject to the foregoing, any of the Parties may obtain such insurance
as it deems advisable for its own account and at its own expense,
provided that each such policy contains a waiver of subrogation in
favour of the other Parties.
7.1.2 Each of the Parties shall, in addition to any insurance required under
Article 7.1.1, obtain and maintain, with respect to its Percentage
Interest share of any liability to third parties which may arise in
connection with the Joint Operations, such insurance, or demonstrate
such other evidence of its financial responsibility, as may from time
to time be determined by the Operating Committee. Each of the Parties
shall, as and when required by any other Party, produce to the
Operating Committee such evidence as it may reasonably require to
establish that such insurance or other evidence
14
of financial responsibility is being maintained. Such insurance shall
in so far as it relates to Joint Operations contain a waiver of
subrogation by the insurers in favour of the Parties.
7.1.3 Operator shall take all reasonable steps to ensure that all contractors
(including subcontractors) performing work in respect to the Joint
Operations obtain and maintain all insurance required under the
Licenses, the Petroleum Law, any other applicable law and such other
insurance as Operator or the Operating Committee deems appropriate.
Operator shall, with respect to all insurance obtained by such
contractors (sub-contractors), take all reasonable steps to arrange for
such contractors (including sub-contractors) to obtain from their
insurers a waiver of subrogation in favour of the Parties in respect of
their interests hereunder.
7.1.4 Operator shall promptly notify the Parties of any accident or incident
causing damage to Joint Property or arising out of the conduct of the
Joint Operations which could in its opinion reasonably be expected to
give rise to a claim for damages by a third party for a sum in excess
of One Hundred Thousand Dollars ($100,000). Operator shall provide the
Parties' insurers all reasonable assistance in connection with their
investigation of all claims.
7.2 LITIGATION
7.2.1 Operator shall promptly notify the Parties of any litigation, lien,
demand, adverse claim or judgement relating to the Joint Operations or
Joint Property where the total amount of damages together with
associated costs are estimated to exceed of One Hundred Thousand
Dollars ($100,000) or such other amount as may, from time to time, be
determined by the Operating Committee. Operator shall have the
authority to prosecute, defend or settle any litigation, lien, demand,
adverse claim or judgement relating to the Joint Operations or Joint
Property (other than as between the Parties), except where the total
amount in dispute and/or the total amount of damages together with
associated costs are estimated by Operator to exceed of One Hundred
Thousand Dollars ($100,000), or such other amount as may from time to
time be determined by the Operating Committee, in which event Operator
shall have no authority without the prior approval of the Operating
Committee, other than the authority necessary to enable Operator to
prevent judgement being awarded against it in default of appearance or
defence.
7.2.2 Notwithstanding Article 7.2.1, each Party shall have the right to
participate in any such prosecution, defence or settlement at its own
cost and expense provided always that no Party may settle its
Percentage Interest share of any claim without first satisfying the
Operating Committee that it can do so without prejudicing the interests
of the Joint Operations.
7.2.3 Subject to Article 7.2.1, any claim, litigation, demand, adverse claim,
judgement or other proceedings relating to Joint Operations or Joint
Property made against any Party to this Agreement shall be promptly
transmitted to all the other Parties by the Party against whom the same
may be made, and the Party to the proceedings shall thereafter
regularly consult with the other Parties and take account of their
reasonable views with regard to the proper conduct of the same.
7.2.4 Provided that a Party complies in all respects with the provisions of
Article 7.2.3 and except as otherwise provided in this Agreement, that
Party shall be entitled to charge to the relevant Joint Account any
loss, damage and expense reasonably and properly incurred by such Party
with respect to the proceedings in question.
8. THE OPERATING COMMITTEE
8.1 ESTABLISHMENT AND POWERS
There is hereby established an Operating Committee which shall exercise
general supervision and control over all matters pertaining to the
Joint Operations. Without limiting the generality of the foregoing, but
subject as otherwise provided in this Agreement, the powers and duties
of the Operating Committee shall include:
(i) the consideration and determination of all matters relating to
general policies, procedures and methods of operation
hereunder;
(ii) subject to Article 15 the approval of any public announcement
or statement regarding this Agreement or the Joint Operations;
(iii) the consideration, revision and approval or disapproval of all
proposed Programs and Budgets and AFE's prepared and submitted
to it pursuant to the provisions of this Agreement;
15
(iv) the determination of the timing and location of all ▇▇▇▇▇
drilled under the Joint Operations (including the deepening,
completing, sidetracking, plugging back, reworking or
abandonment thereof) and any change in the use or status of a
well;
(v) the consideration and determination of extensions or renewals
of a License and the area required to be surrendered in
accordance with the Petroleum Law or the relevant License
including the voluntary surrender of a License or any part
thereof;
(vi) removal of Operator in accordance with Article 4.2.2 hereof
and the election of a successor Operator;
(vii) the consideration and determination of contributions to and
from third parties for the drilling of ▇▇▇▇▇ and the purchase,
sale or exchange of information from, to or with third
parties;
(viii) the determination of any field to be included in a development
Program for a Discovery and the making of any related
application for the issue of a production lease to be issued
under the Petroleum Law in respect of the License Area (or any
part of it);
(ix) the consideration and, if so required, the determination of
any other matter relating to the Joint Operations which may be
referred to it by the Parties or any of them (other than any
proposal to amend this Agreement) or which is otherwise
designated under this Agreement for reference to it.
8.2 REPRESENTATION
The Operating Committee shall consist of representatives appointed by
each of the Parties, provided always that more than one of the Parties
may appoint the same representative who shall represent them
separately. Each Party shall, as soon as possible after the date of
this Agreement, give notice to all the other Parties of the name of its
representative and of an alternate on the Operating Committee. Such
representative or alternate representative may be replaced from time to
time, by like notice. Representatives may bring to meetings of the
Operating Committee such advisers as they consider necessary. The
representative of a Party or, in the absence of the representative, his
alternate, shall be deemed authorized to represent and bind such Party
with respect to any matter which is within the powers of the Operating
Committee.
All decisions of the Operating Committee shall be adopted by a vote of
the representatives of the Parties in which the vote of each
representative shall be weighted by the Percentage Interest in the
Licenses of the Party or Parties he represents. By way of example, the
vote of a representative of a Party with a Ten Percent (10%) Percentage
Interest in the Licenses shall be worth Ten Percent (10%) of the total
votes of representatives of all the Parties.
8.3 CHAIRMAN
The representative of the Party which is Operator shall be the chairman
of the Operating Committee unless otherwise agreed by the Operating
Committee.
8.4 MEETINGS AND VOTING
8.4.1 The Operating Committee shall hold meetings every six months, at which
each Party must have an authorized representative present (or at more
frequent intervals as may be agreed by the Operating Committee). All
meetings of the Operating Committee shall be held at AME's offices in
Ankara or in such other places as the Parties may from time to time
agree. Alternatively, meetings may be conducted or Parties may at their
election attend meetings by telephone conference call. Operator shall
call such meetings and shall give at least twenty (20) days notice of
the time, date and place of each meeting, together with an agenda and a
proposed resolution therefor. However, Operator shall use its
reasonable best efforts to give at least forty (40) days notice for
meetings which deal with operations and/or ▇▇▇▇▇ drilled under the
Joint Operations. When calling a meeting, Operator shall as soon as is
reasonably practicable thereafter, supply the Parties with copies of
relevant data and information available to it relating to the matters
on the agenda for such meeting. By notice to Operator, any Party can
request that additional matters be placed on the agenda, and provided
such notice is given at least seven (7) days before the date of the
meeting, those matters will be placed on the agenda and considered by
the Operating Committee. The representatives of all Parties may agree
to consider a matter not on the agenda for such meeting. All items duly
placed on the agenda must be voted on by the Operating Committee at the
meeting.
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8.4.2 The Operating Committee shall hold a special meeting upon the request
of any Party. Such request shall be made by written notice to all the
other Parties and shall state the matters to be considered at that
meeting. Upon receiving such request, Operator shall, without delay,
call a special meeting for a date not less than ten (10) nor more than
twenty (20) days after receipt of the request, or such other date as
may be agreed by all the Parties.
8.4.3 For any meeting of the Operating Committee, the notice period set forth
above may be waived with the consent of all the Parties.
8.4.4 Any Party not represented at a meeting may vote on any matter on the
agenda for such meeting by either:
(i) appointing a proxy in writing; or
(ii) giving written notice of such vote to Operator prior to the
submission of such matter for vote at such meeting.
8.4.5 Except as otherwise expressly provided in this Agreement, all
decisions, approvals and other actions of the Operating Committee on
all proposals coming before it under this Agreement shall be decided by
the affirmative vote of Parties owing in the aggregate Percentage
Interests equating to more than fifty five percent (55%) of the
aggregate Percentage Interests of all Parties entitled to vote. An
abstention or refrain from voting shall be considered a negative vote,
except as otherwise specifically provided in this Agreement in cases
where failure to reply is deemed approval or an affirmative vote. Each
Party is entitled to vote in proportion to the respective Percentage
Interest held by it at the time the vote is taken.
8.5 MINUTES
8.5.1 For each meeting, the Operating Committee (failing which Operator)
shall appoint a secretary for the Operating Committee who shall prepare
the minutes of each meeting.
8.5.2 The secretary 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 the meeting and it shall be considered the final record of the
decisions of the Operating Committee.
8.5.3 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 objections to such
"minutes" within the said fifteen (15) days period shall be deemed to
be approval of such "minutes". In any event, the votes recorded under
Article 8.5.2 shall take precedence over the "minutes" described above.
8.6 ACTION WITHOUT A MEETING
The Parties may vote on and determine, by notice to Operator,
any proposal which is submitted to them by Operator by notice and which
they could validly determine at a meeting of the Operating Committee if
duly held for that purpose. Each Party shall cast its vote within
twenty (20) days after the proposal is received by it, except that
where the Parties are requested to vote on and determine any proposal
relating to the Deepening, Plugging back, Testing or abandonment of a
well on which drilling equipment is then located or where the matter
presented for consideration by its nature requires determination in
less than twenty (20) days and such fact and lesser period are so
stated in the notice submitting the proposal, the Parties shall cast
their votes within such lesser period which shall be not less than
forty eight (48) hours after receipt of the notice. Failure by a Party
to cast its vote within such period shall be regarded as a vote by that
Party against the proposal. Operator shall give prompt notice of the
results of any such voting to the Parties and any decision so made
shall constitute an effective decision of the Operating Committee and
shall be binding on the Parties.
8.7 LICENSE PROVISIONS
The Operating Committee shall determine the location and the time at
which all working obligations required by the Licenses or the Petroleum
Law shall be performed, unless and to the extent relief from such
obligation is sought and obtained from the Government.
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9. WORK PROGRAMS AND BUDGET
9.1 EXPLORATION AND APPRAISAL
9.1.1 The initial exploration Program shall be the work to be undertaken by
AME pursuant to clause 4.5 of the Farm-In and Participation Agreement,
dated November 14, 2002. The initial Exploration Well, the
Karakilise-1, was completed on September 13, 2003, and application has
been made by Operator to the Government to classify such well as a
Discovery. It is currently proposed that the Karakilise-2 be drilled as
an Appraisal Well, spudding to commence no later than March 13, 2004,
and Karakilise-3, to be drilling as an Appraisal Well, spudding to be
no later than September 13, 2004, subject to approval of the Operating
Committee as to final spud dates, AFE, Turnkey terms and locations for
each well. The provisions of this Section 9 shall not apply to the
Karakilise-1 well, but shall be applied to all ▇▇▇▇▇ drilled hereafter
in the License Area.
9.1.2 On or before the 15th Day of November of each Calendar Year, Operator
shall deliver to the Parties a proposed Program and Budget detailing
the Joint Operations to be performed for the following Calendar Year,
except for 2004 the Program and Budget shall be submitted within
fifteen (15) days of the execution of this Agreement. Within thirty
(30) days of such delivery, the Operating Committee shall meet to
consider and to endeavor to agree on a Program and Budget.
9.1.3 If a Discovery is made, Operator shall deliver any notice of Discovery
required under the License and shall as soon as possible submit to the
Parties a report containing available details concerning the Discovery
and Operator's recommendation as to whether the Discovery merits an
Appraisal Well. If the Operating Committee determines that the
Discovery merits an Appraisal Well, Operator within sixty (60) days,
shall deliver to the Parties a proposed Program and Budget for the
Appraisal of the Discovery. Within thirty (30) days of such delivery,
the Operating Committee shall meet to consider, modify and then either
approve or reject the Appraisal Program and Budget. If the Appraisal
Program and Budget is approved by the Operating Committee, Operator
shall take such steps as may be required under the License or Petroleum
Law to secure approval of the Appraisal Program and Budget by the
Government. In the event the Government requires changes in the
Appraisal Program and Budget, the matter shall be resubmitted to the
Operating Committee for further consideration and a decision shall be
reached by the Operating Committee within thirty (30) days of the date
of submittal.
9.1.4 The Program and Budget agreed pursuant to Article 9.1.2 shall include
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 License. Any portion of a Program and
Budget adopted pursuant to Article 9.1.3 shall include such operations
for the Joint Account as are necessary to maintain the License in full
force and effect, including such operations for the Joint Account as
are necessary to fulfill the Minimum Work Obligations required for the
given Calendar Year. Any items of infrastructure costs in a Program and
Budget, such as roads, living facilities or tank farms may be approved,
in part, and rejected, in part, by vote of the Operating Committee.
9.1.5 Any approved 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 Program and Budget shall be amended
accordingly. The Operator shall prepare and submit a corresponding
Program and Budget amendment to the Government if required by the terms
of the License.
9.1.6 Approval of any such Program and Budget, which includes:
(a) an Exploration Well, whether by drilling, Deepening or
Sidetracking, shall include approval for only expenditures
necessary for the drilling, Deepening or Sidetracking of such
well, as applicable. When an Exploration Well has reached its
authorized depth, all logs, cores and other approved Tests
have been conducted and the results furnished to the Parties,
Operator shall submit to the Parties an election to
participate in an attempt to Complete such well. Operator
shall include in such submission Operator's recommendation on
such Completion attempt and an AFE or Turnkey price for such
Completion costs.
(b) an Appraisal Well, whether by drilling, Deepening or
Sidetracking, shall include approval for only expenditures
necessary for the drilling, Deepening or Sidetracking of such
well, as applicable. When an Appraisal Well has reached its
authorized depth, all logs, cores and other approved Tests
have been conducted and the results furnished to the Parties,
Operator shall submit to the Parties an election to
participate in an attempt to Complete such well. Operator
shall include in such
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submission Operator's recommendation on such Completion
attempt and an AFE or Turnkey price for such Completion costs.
9.1.7 Any Party desiring to propose a Completion attempt, or an alternative
Completion attempt, must do so within the time period provided in
Article 8.6 by notifying all other Parties. Any such proposal shall
include an AFE or Turnkey price for such Completion costs.
9.2 DEVELOPMENT
9.2.1 If the Operating Committee determines that a Discovery may be
commercial, the Operator shall, as soon as practicable, deliver to the
Parties a Development Plan together with the first annual Program and
Budget and provisional Programs and Budgets for the remainder of the
development of the Discovery, which shall contain, inter alia:
(i) Details of the proposed work to be undertaken, personnel
required and expenditures to be incurred, including the timing
of same, on a Calendar Year basis;
(ii) An estimated date for the commencement of production;
(iii) A delineation of the proposed Production Lease; and
(iv) Any other information requested by the Operating Committee.
9.2.2 Within sixty (60) to ninety (90) days of receipt of the Development
Plan, the Operating Committee shall meet to consider, modify and then
either approve or reject the Development Plan and the first annual
Program and Budget for the development submitted by Operator. If the
Development Plan is approved by the Operating Committee, Operator
shall, as soon as possible, deliver any notice of Discovery required
under the License and take such other steps as may be required under
the License to secure approval of the Development Plan by the
Government. In the event the Government requires changes in the
Development Plan, the matter shall be resubmitted to the Operating
Committee for further consideration and a decision shall be reached by
the Operating Committee within thirty (30) days of the date of
submittal.
9.2.3 If the Development Plan is approved, such work shall be incorporated
into and form part of the annual Programs and Budgets, and Operator
shall, on or before the 15th Day of November of each Calendar Year
submit a Program and Budget for the Production Lease, for the following
Calendar Year. For the 2004 Calendar Year such Program and Budget shall
be submitted within fifteen (15) days of the execution of this
Agreement. Within sixty (60) days after such submittal, the Operating
Committee shall endeavor to agree to such Program and Budget, including
any necessary or appropriate revisions to the Work Program and Budget
for the approved Development Plan. Any items of infrastructure costs in
a Program and Budget, such as roads, living facilities or tank farms
may be approved, in part, and rejected, in part, by vote of the
Operating Committee.
9.3 PRODUCTION
On or before the 15th day of November of each calendar year, Operator
shall deliver to the Parties a proposed production Program and Budget
detailing the Joint Operations to be performed in the Production Lease
and the projected production schedule for the following Calendar Year.
Within sixty (60) days of such delivery, the Operating Committee shall
agree upon a production Program and Budget.
9.4 ITEMIZATION OF EXPENDITURES
9.4.1 During the preparation of the proposed Programs and Budgets and
Development Plans contemplated in this Article 9, Operator shall
consult with the Operating Committee regarding the contents of such
Programs and Budgets and Development Plans.
9.4.2 Each Program and Budget and Development Plan 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, inter alia:
(i) identify each work category in sufficient detail to afford the
ready identification of the nature, scope and duration of the
activity in question;
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(ii) include such reasonable information regarding Operator's
allocation procedures and estimated manpower costs as the
Operating Committee may determine;
(iii) comply with the requirements of the License and the Petroleum
Law;
(iv) contain an estimate of funds to be expended by Calendar
Quarter;
(v) during the Exploration Period, provide a forecast of annual
expenditures and activities through the end of the Exploration
Period; and
9.4.3 The Program and Budget shall designate the portion or portions of the
License Area in which Joint Operations itemized in such 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.
9.5 CONTRACT AWARDS
9.5.1 Operator shall award contracts to the best qualified contractors as it
determines, in its sole discretion, by cost and ability to perform the
contract without obligation to tender and without informing or seeking
the approval of the Operating Committee, provided the contract
requirements and liabilities are in accordance with the Programs and
Budget and Development Plans as approved. In the event that a Party
produces a bid for services or equipment less than a bid from Operator
or its Affiliates, Operator shall award the contract to such
non-affiliate, so long as it is of comparable quality, or Operator
shall have the right to match the lower bid..
9.5.2 Subject to Article 5.10.1, Operator may employ its own tools and
equipment in the drilling and completing of ▇▇▇▇▇, but its charges
therefore shall be in accordance with the prevailing rates in the area
and the rate of such charges shall be agreed upon by the parties in
writing before drilling operations are commenced, and such work shall
be performed by Operator under the same terms and conditions as are
customary and usual in the area in Contracts of independent contractors
who are doing work of a similar nature, provided the Contract
requirements and liabilities are in accordance with the Programs and
Budget and Development Plans and in accordance with the terms of any
approved Turnkey.
9.6 AUTHORIZATION FOR EXPENDITURE ("AFE") PROCEDURE
9.6.1 At least thirty (30) days prior to incurring any commitment or
expenditure for the Joint Account, which is estimated to be in excess
of U.S. dollars one hundred thousand dollars (U.S. $100,000.00) in an
approved Program and Budget, Operator shall send to each Non-Operator
an AFE as described in Article 9.6.3.
9.6.2 The approval process for each AFE shall be as stated in the Sections
7.3, 7.4 and 7.5 of the Accounting Procedure.
9.6.3 Each AFE proposed by the Operator shall:
(i) Identify the operation by specific reference to the applicable
line items in the Work Program and Budget;
(ii) Describe the work in detail;
(iii) Contain Operator's best estimate of the total funds required
to carry out such work;
(iv) Outline the proposed work schedule;
(v) Provide a timetable of expenditures, if known; and
(vi) Be accompanied by such other supporting information as is
necessary for an informed decision.
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9.7 OVEREXPENDITURES OF PROGRAMS AND BUDGETS
9.7.1 For expenditures on any line item of an approved 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 Program and Budget in
question.
9.7.2 At such time that Operator is certain that the limits of Article 9.7.1
will be exceeded, Operator shall furnish a supplemental AFE for the
estimated overexpenditures to the Operating Committee for its review
and shall provide the Parties with full details of such
overexpenditures. Operator shall promptly give notice of the amounts of
overexpenditures when actually incurred.
9.7.3 The restrictions contained in this Article 9.7 shall be without
prejudice to Operator's rights to make expenditures as set out in
Article 5.8.
10. OPERATIONS BY LESS THAN ALL PARTIES
10.1 LIMITATION ON APPLICABILITY
10.1.1 No operations may be conducted in furtherance of a License except as
Joint Operations pursuant to Article 9 or as Exclusive Risk Operations
under this Article 10. No Exclusive Risk Operation shall be conducted
which conflicts with or could reasonably be expected to hinder,
obstruct, diminish, or impede a previously approved Joint Operation, or
a previously approved Exclusive Risk Operation, or a previously drilled
well (or Zone of a well) in the License Area..
10.1.2 Subject to the provisions of Article 19.2.2 of this Agreement,
Operations which are required to fulfill the Minimum Work Obligations
must be proposed and conducted as Joint Operations, and may not be
proposed or conducted as Exclusive Risk Operations under this Article
10. Except for Exclusive Risk Operations relating to Deepening,
Testing, Completing, Sidetracking, Plugging Back, Recompletions or
Reworking of a well originally drilled to fulfill the Minimum Work
Obligations, no Exclusive Risk Operations may be proposed or conducted
until the Minimum Work Obligations are fulfilled.
10.1.3 No Party may propose or conduct an Exclusive Risk Operation under this
Article 10, unless and until such Party has properly exercised its
right to propose a Joint Operation pursuant to Article 9 in which the
other parties have elected not to participate.
10.2 PROCEDURE TO PROPOSE EXCLUSIVE RISK OPERATIONS
10.2.1 Subject to Article 10.1, if any Party proposes to conduct an Exclusive
Risk Operation, such Party shall give notice of the proposed operation
to all Parties. Such notice shall specify that such operation is
proposed as an Exclusive Risk Operation, the work to be performed, the
location, the objectives, and estimated cost of such operation.
10.2.2 Any Party entitled to receive such notice shall have the right to
participate in the proposed operation.
(i) For proposals to Deepen, Test, Complete, Sidetrack, Plug Back,
Recomplete or Rework involving the use of a drilling rig that
is standing by in the License Area, any such Party wishing to
exercise such right must so notify Operator within forty eight
(48)hours after receipt of the notice proposing the Exclusive
Risk Operation.
(ii) For proposals to develop a Discovery, any Party wishing to
exercise such right must so notify the Party proposing to
develop within ninety (90) days after receipt of the notice
proposing the Exclusive Risk Operation.
(iii) For all other proposals, any such Party wishing to exercise
such right must so notify Operator within thirty (30) days
after receipt of the notice proposing the Exclusive Risk
Operation.
10.2.3 Failure of a Party to properly reply within the period specified above
shall constitute an election by that Party not to participate in the
proposed operation.
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10.2.4 If all Parties properly exercise their rights to participate, then the
proposed operation shall be conducted as a Joint Operation. The
Operator shall commence such Joint Operation as promptly as practicable
and conduct it with due diligence.
10.2.5 If less than all Parties entitled to receive such proposal notice
properly exercise their rights to participate, then:
(i) Immediately after the expiration of the applicable notice
period set out in Article 10.2.2, the Operator shall notify
all Parties of the names of the Consenting Parties and the
recommendation of the proposing Party as to whether the
Consenting Parties should proceed with the Exclusive Risk
Operation.
(ii) Concurrently, Operator shall request the Consenting Parties to
specify the Percentage Interest each Consenting Party is
willing to bear in the Exclusive Risk Operation.
(iii) Within seventy two (72) hours after receipt of such notice,
each Consenting Party shall respond to the Operator stating
that it is willing to bear a Percentage Interest in such
Exclusive Risk Operation equal to:
(a) Only its Percentage Interest as stated in Article
3.1;
(b) A fraction, the numerator of which is such Consenting
Party's Percentage Interest as stated in Article 3.1
and the denominator of which is the aggregate of the
Percentage Interests of the Consenting Parties as
stated in Article 3.1; or
(c) The total of its Percentage Interest as contemplated
by Article 10.2.5.(iii)(b) plus all or any part of
the difference between one hundred percent (100%) and
the total of the Percentage Interests subscribed by
the other Consenting Parties.
(iv) Any Consenting Party failing to advise Operator within the
response period set out above shall be deemed to have elected
to bear the Percentage Interest set out in Article
10.2.5(iii)(b) as to the Exclusive Risk Operation.
(v) If within the response period set out above, the Consenting
Parties subscribe less than one hundred percent (100 %) of the
Percentage Interest in the Exclusive Risk Operation, the Party
proposing such Exclusive Risk Operation shall be deemed to
have withdrawn its proposal for the Exclusive Risk Operation,
unless within forty eight (48) hours of the expiry of the
response period set out in Article 10.2.5(iii), the proposing
Party notifies the other Consenting Parties that the proposing
Party shall bear the unsubscribed Percentage Interest.
(vi) If one hundred percent (100%) subscription to the proposed
Exclusive Risk Operation is obtained, Operator shall promptly
notify the Consenting Parties of their Percentage Interests in
the Exclusive Risk Operation.
(vii) As soon as any Exclusive Risk Operation is fully subscribed,
Operator shall commence such Exclusive Risk Operation as
promptly as practicable and conduct it with due diligence in
accordance with this Agreement.
(viii) If such Exclusive Risk Operation has not been commenced
between sixty (60) and one hundred eighty (180) days after the
date of the notice given by Operator under Article
10.2.5(vii), the right to conduct such Exclusive Risk
Operation shall terminate. If any Party still desires to
conduct such Exclusive Risk Operation, notice proposing such
operation must be resubmitted to the Parties in accordance
with Article 10.2, as if no proposal to conduct an Exclusive
Risk Operation had been previously made.
10.3 RESPONSIBILITY FOR EXCLUSIVE RISK OPERATIONS
10.3.1 The Consenting Parties shall bear in accordance with the Percentage
Interests agreed under Article 10.2.5 the entire cost and liability of
conducting an Exclusive Risk Operation and shall indemnify the
Non-Consenting Parties from any and all costs and liabilities incurred
incident to such Exclusive Risk Operation (including but not limited to
all costs, expenses or liabilities for environmental, consequential,
punitive or any other similar indirect damages or losses arising from
business interruption, reservoir or formation damage, inability to
produce petroleum, loss of profits, pollution control and environmental
amelioration or rehabilitation) and shall keep the License Area free
and clear of all liens and encumbrances of every kind created by or
arising from such Exclusive Risk Operation.
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10.3.2 Notwithstanding Article 10.3.1, each Party shall continue to bear its
Percentage Interest share of the cost and liability incident to the
operations in which it participated, including but not limited to
Plugging and abandoning and restoring the surface location, but only to
the extent those costs were not increased by the Exclusive Risk
Operation.
10.4 CONSEQUENCES OF EXCLUSIVE RISK OPERATIONS
10.4.1 With regard to any Exclusive Risk Operation, for so long as a
Non-Consenting Party has the option under Article 10.4.3 to reinstate
the rights it relinquished under Article 10.4.2, such Non-Consenting
Party shall be entitled to have access concurrently with the Consenting
Parties to all data and other information relating to such Exclusive
Risk Operation, other than G & G Data obtained in an Exclusive Risk
Operation. If a Non-Consenting Party desires to receive and acquire the
right to use such G & G Data, then such Non-Consenting Party shall have
the right to do so by paying to the Consenting Parties its Percentage
Interest share as set out in Article 3.1 of the cost incurred in
obtaining such G & G Data.
10.4.2 Subject to Article 10.4.3, each Non-Consenting Party shall be deemed to
have relinquished to the Consenting Parties, and the Consenting Parties
shall be deemed to own, in proportion to their respective Percentage
Interests in any Exclusive Risk Operation all of each such
Non-Consenting Party's right to participate in further operations in
such Exclusive Risk Operation or Deepened or Sidetracked portion of a
well in which the Exclusive Risk Operation was conducted.
10.4.3 A Non-Consenting Party shall have only the following options to
reinstate the rights it relinquished pursuant to Article 10.4.2:
(i) If the Consenting Parties decide to appraise a Discovery made
in the course of an Exclusive Risk Operation, the Consenting
Parties shall submit to each Non-Consenting Party the approved
Appraisal program. For thirty (30) days from receipt of such
Appraisal program, each Non-Consenting Party shall have the
option to reinstate the rights it relinquished pursuant to
Article 10.4.2 and to participate in such Appraisal program;
(ii) If the Consenting Parties decide to develop a Discovery made
or Appraised in the course of an Exclusive Risk Operation, the
Consenting Parties shall submit to the Non-Consenting Parties
a Development Plan substantially in the form intended to be
submitted to the Government under the License. For sixty (60)
days from receipt of such Development Plan , each
Non-Consenting Party shall have the option to reinstate the
rights it relinquished pursuant to Article 10.4.2 and to
participate in such Development Plan;
(iii) If the Consenting Parties decide to Deepen, Complete,
Sidetrack, Plug Back or Recomplete an Exclusive Risk Well and
such further operation was not included in the original
proposal for such Exclusive Risk Well, the Consenting Parties
shall submit to the Non-Consenting Parties the approved AFE
for such further operation. For thirty (30) days from receipt
of such AFE, each Non-Consenting Party shall have the option
to reinstate the rights it relinquished pursuant to Article
10.4.2 and to participate in such operation;
The Non-Consenting Party may exercise such options by notifying the
Operator within the respective period specified above that such
Non-Consenting Party agrees to pay the Cash Premium as set out in
Article 10.5.2, or to elect to reinstate under Article 10.5.3.
10.4.4 A Non-Consenting Party shall become a Consenting Party with regard to
an Exclusive Risk Operation at such time as the Non-Consenting Party
gives notice pursuant to Article 10.4.3; provided that such
Non-Consenting Party shall in no way be deemed to be entitled to any
lump sum amount Cash Premium paid incident to such Exclusive Risk
Operation. The Percentage Interest of such Non-Consenting Party in such
Exclusive Risk Operation shall be its Percentage Interest set out in
Article 3.1 (subject to election of a reduced interest under Article
5.10.1(iii)). The Consenting Parties shall contribute to the Percentage
Interest of the Non-Consenting Party in proportion to the excess
Percentage Interest that each received under Article 10.2.5(iii). If
all Parties participate in the proposed operation, then such operation
shall be conducted as a Joint Operation pursuant to Article 9.
10.4.5 If after the expiry of the period in which a Non-Consenting Party may
exercise its option to participate in further operation pursuant to
Article 10.4.3, the Consenting Parties desire to proceed, the Party
chosen by the Consenting Parties proposing to act as Operator for such
development, shall give notice to the Government under the appropriate
provision of the License requesting a meeting to advise the Government
that the Consenting Parties consider the Discovery to be a commercial
Discovery. Following such meeting such Operator for such development
shall apply for a Production Lease (if applicable in the License).
Unless the Development Plan is materially modified or expanded
23
prior to the commencement of operations under such plan (in which case
a new notice and option shall be given to the Non-Consenting Parties
under Article 10.4.3), each Non-Consenting Party to such Development
Plan shall:
(i) If the License so allows, elect not to apply for a Production
Lease covering such development and forfeit all interest in
such Production Lease, or
(ii) If the License does not so allow, be deemed to have:
(a) Elected not to apply for a Production Lease covering
such development;
(b) Forfeited all economic interest in such Production
Lease;
(c) Assumed a fiduciary duty to exercise its legal
interest in such Production Lease for the benefit of
the Consenting Parties.
In either case such Non-Consenting Party shall be deemed to have
withdrawn from this Agreement to the extent it relates to such
Production Lease, even if the Development Plan is modified or expanded
subsequent to the commencement of operations under such Development
Plan and shall be further deemed to have forfeited any right to
participate in the construction and ownership of facilities outside
such Production Lease designed solely for the use of such Production
Lease. The Operating Committee shall be responsible for determining
that part of the License Area which shall be maintained outside the
area of the Production Lease and the Non-Consenting Party shall retain
its rights and such retained portion of the License Area.
10.5 PREMIUM TO PARTICIPATE IN EXCLUSIVE RISK OPERATIONS
10.5.1 (INTENTIONALLY OMITTED)
10.5.2 Within thirty (30) days of the exercise of its option under Article
10.4.3, each such Non-Consenting Party shall pay to such Consenting
Parties in proportion to their respective interest in such Exclusive
Risk Operation a Cash Premium equal to (i) such Non-Consenting Party's
Percentage Interest share of all liabilities and expenses, that were
incurred in any Exclusive Risk Operations relating to the obtaining of
the portion of the G & G Data which pertains to the Discovery, the
drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back,
Recompleting and Reworking of the Exploration Well which made the
Discovery or, the Appraisal Well(s) which delineated the Discovery in
which the Non-Consenting Party desires to reinstate the rights it
relinquished pursuant to Article 10.4.2 multiplied by four-hundred
percent (400%) and (ii) such Non-Consenting Parties Percentage Interest
share of all liabilities and expenses that were incurred in the
Exclusive Risk Operations relating to any prior Development ▇▇▇▇▇ that
were part of the Development Plan multiplied by two-hundred percent
(200%).
10.5.3 In lieu of payment of the Cash Premium in the amounts provided in
Article 10.5.2 and 10.5.2, a Non-Consenting Party may elect to
participate in an Exclusive Risk Operation and all further operations
in the License Area, at such time as the Consenting Parties shall have
recovered from net production revenues from such Exclusive Risk
Operations a sum equal to one-hundred - fifty percent (150%) of the
amounts specified in Article10.5.2. The election pursuant to this
Article 10.5.3 shall be made within thirty (30) days of the option to
reinstate provided in Article 10.4.3.
10.5.4 Articles 10.5.2, and 10.5.3 shall be subject to the election by the
Non-Consenting Party to reduce its Percentage Interest in such
Exclusive Risk Operation by up to one-half and reduce pro-rata, the
Cash Premium or recover amounts under Article 10.5.2 or 10.5.3. Such
election must be made within thirty (30) days of the exercise of its
option under Article 10.4.3.
10.6 ORDER OF PREFERENCE OF OPERATIONS
10.6.1 Except as otherwise specifically provided in this Agreement, if any
Party desires to propose the conduct of an operation that will conflict
with an existing proposal for an Exclusive Risk Operation, such Party
shall have the right exercisable for five (5) days, or twenty four (24)
hours if the drilling rig to be used is standing by in the License Area
from receipt of the proposal for the Exclusive Risk Operation, to
deliver to all Parties entitled to participate in the proposed
operation such Party's alternative proposal.
10.6.2 Each Party receiving such proposals shall elect by delivery of notice
to Operator within the appropriate response period set out in Article
10.2.2 to participate in one of the competing proposals. Any Party not
notifying Operator within the response period shall be deemed to have
voted against the proposal.
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10.6.3 The proposal receiving the largest aggregate Percentage Interest vote
shall have priority over all other competing proposals. Operator shall
deliver notice of such result to all Parties entitled to participate in
the operation within five (5) days of the end of the response period,
or twenty four (24) hours if the drilling rig to be used is standing by
in the License Area
10.6.4 Each Party shall then have two (2) days (or twenty four (24) hours if
the drilling rig to be used is standing by in the License Area from
receipt of such notice to elect by delivery of notice to Operator
whether such Party will participate in such Exclusive Risk Operation,
or will relinquish its interest pursuant to Article 10.4.2. Failure by
a Party to deliver such notice within such period shall be deemed an
election not to participate in the prevailing proposal.
10.7 STAND-BY COSTS
10.7.1 When an operation has been performed, all tests have been conducted and
the results of such tests furnished to the Parties, stand by costs
incurred pending response to any Party's notice proposing an Exclusive
Risk Operation for Deepening, Testing, Sidetracking, Completing,
Plugging Back, Recompleting, Reworking or other further operation in
such well (including the period required under Article 10.6 to resolve
competing proposals) shall be charged and borne as part of the
operation just completed. Stand by costs incurred subsequent to all
Parties responding, or expiration of the response time permitted,
whichever first occurs, shall be charged to and borne by the Parties
proposing the Exclusive Risk Operation in proportion to their
Percentage Interests, regardless of whether such Exclusive Risk
Operation is actually conducted.
10.7.2 If a further operation is proposed while the drilling rig to be
utilized is on location, any Party may request and thereupon shall
receive up to five (5) additional days after expiration of the
applicable response period specified in Article 10.2.2 within which to
respond by notifying Operator that such Party agrees to bear all stand
by costs and other costs incurred during such extended response period.
Operator may require such Party to pay the estimated stand by time in
advance as a condition to extending the response period. If more than
one Party requests such additional time to respond to the notice, stand
by costs shall be allocated between such Parties on a day-to-day basis
in proportion to their Participating Interests.
10.8 USE OF PROPERTY
10.8.1 The Parties participating in any Deepening, Testing, Completing,
Sidetracking, Plugging Back, Recompleting or Reworking of any well
drilled under this Agreement shall be permitted to use, free of cost,
all casing, tubing and other equipment in the well that is not needed
for operations by the owners of the wellbore, but the ownership of all
such equipment shall remain unchanged. On abandonment of a well in
which operations with differing participation have been conducted, the
Parties abandoning the well shall account for all equipment in the well
to the Parties owning such equipment by tendering to them their
respective Percentage Interest shares of the value of such equipment
less the cost of salvage.
10.8.2 Spare capacity in equipment that is constructed pursuant to this
Agreement and used for processing or transporting oil and gas after it
has passed through primary separators and dehydrators (including
without limitation treatment facilities, gas processing plants and
pipelines) shall be available for use by any Party for Hydrocarbon
production from the License Area on the terms set forth below. All
Parties desiring to use such equipment shall nominate capacity in such
equipment on a monthly basis by notice to Operator at least ten (10)
days prior to the beginning of each month. Operator may nominate
capacity for the owners of the equipment if they so elect. If at any
time the capacity nominated exceeds the total capacity of the
equipment, the capacity of the equipment shall be allocated in the
following priority: (1) first, to the owners of the equipment up to
their respective Percentage Interest shares of total capacity, (2)
second, to owners of the equipment desiring to use capacity in excess
of their Participating Interest shares, in proportion to the Percentage
Interest of each such Party and (3) third, to Parties not owning
interests in the equipment, in proportion to their Participating
Interests in the Agreement. Owners of the equipment shall be entitled
to use up to their Percentage Interest share of total capacity without
payment of a fee under this Article 10.8.2. Otherwise, each Party using
equipment pursuant to this Article 10.8.2 shall pay to the owners of
the equipment monthly throughout the period of use an arm's-length fee
based upon third party charges for similar services in the vicinity of
the License Area. If no arm's-length rates for such services are
available, then the Party desiring to use equipment pursuant to this
Article 10.8.2 shall pay to the owners of the equipment a monthly fee
equal to (1) that portion of the total cost of the equipment, divided
by the number of months of useful life established for such equipment
under the tax law of the host country, that the capacity made available
to such Party on a fee basis under this Article 10.8.2 bears to the
total capacity of the equipment plus (2) that portion of the monthly
cost of maintaining, operating and financing the equipment that the
capacity made available to such Party on a fee basis under this Article
10.8.2 bears to the total capacity of the equipment.
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10.8.3 Payment for the use of equipment under Article 10.8.2 shall not result
in an acquisition of any additional interest in the equipment by the
paying Parties. However, such payments shall be included in the costs
which the paying Parties are entitled to recoup under Article 10.5.
10.8.4 Parties electing to use spare capacity or equipment pursuant to Article
10.8.2 shall indemnify the owners of the equipment against any and all
costs and liabilities incurred as a result of such use (including but
not limited to all costs, expenses or liabilities for environmental,
consequential, punitive or other similar indirect damages or losses,
whether arising from business interruption, reservoir or formation
damage, inability to produce petroleum, loss of profits, pollution
control, environmental amelioration or rehabilitation or otherwise).
10.9 MISCELLANEOUS
10.9.1 Each Exclusive Risk Operation shall be carried out by the Consenting
Parties acting as the Operating Committee, subject to the provisions of
this Agreement applied mutatis mutandis to such Exclusive Risk
Operation and subject to the terms and conditions of the License.
10.9.2 The computation of liabilities and expenses incurred in Exclusive Risk
Operations, including the liabilities and expenses of Operator for
conducting such operations, shall be made in accordance with the
principles set out in the Accounting Procedure.
10.9.3 Operator shall maintain separate books, financial records and accounts
for Exclusive Risk Operations which shall be subject to the same rights
of audit and examination as the Joint Account and related records, all
as provided in the Accounting Procedure. Said rights of audit and
examination shall extend to each of the Consenting Parties and each of
the Non-Consenting Parties so long as the latter are, or may be,
entitled to elect to participate in such operations.
10.9.4 Operator, if it is conducting an Exclusive Risk Operation for the
Consenting Parties, regardless of whether it is participating in that
Exclusive Risk Operation, shall be entitled to request cash advances
and shall not be required to use its own funds to pay any cost and
expense and shall not be obliged to commence or continue Exclusive Risk
Operations until cash advances requested have been made, and the
Accounting Procedure shall apply to Operator in respect of any
Exclusive Risk Operations conducted by it.
10.9.5 Should the submission of a Development Plan be approved in accordance
with Article 9.2, or should any Party propose a development in
accordance with Article 10, with either proposal not calling for the
conduct of additional Appraisal drilling, and should any Party wish to
drill an additional Appraisal Well prior to development, then the Party
proposing the Appraisal Well as an Exclusive Risk Operation shall be
entitled to proceed first, but without the right (subject to the
following sentence) to future reimbursement pursuant to Article 10.5.
If such an Appraisal Well is produced, the Consenting Party or Parties
shall own and have the right to take in kind and separately dispose of
all of the Non-Consenting Parties' Entitlement from such Appraisal Well
until the value thereof, determined in accordance with the price which
such Consenting Parties receive from the sale of such Petroleum to
non-affiliated purchasers in arms length transactions, equals one
hundred percent (100%) of such Non-Consenting Parties' Percentage
Interest shares of all liabilities and expenses, including overhead,
that were incurred in any Exclusive Risk Operations relating to the
Appraisal Well. If, as the result of drilling such Appraisal Well as an
Exclusive Risk Operation, the Party proposing to apply for the
Production Lease decides to not develop the reservoir, then each
Non-Consenting Party who voted in favor of such Development Plan prior
to the drilling of such Appraisal Well shall pay to the Consenting
Party the amount such Non-Consenting Party would have paid had such
Appraisal Well been drilled as a Joint Operation.
10.9.6 If the Operator is a Non-Consenting Party to an Exclusive Risk
Operation to develop a Discovery, then subject to obtaining any
necessary Government approvals the Operator may resign, but in any
event shall resign on the request of the Consenting Parties, as
Operator for the Production Lease for such Discovery and the Consenting
Parties shall select a Party to serve as Operator.
10.9.7 If prior to approval by the Operating Committee the Operator or any
other Party commences an operation for infrastructure improvements,
such as roads, pipelines, tank farms, production facilities, or
associated downstream costs ("Infrastructure"), a Party may elect not
to participate in the costs of Infrastructure and the other Parties may
proceed as an Exclusive Risk Operation, resulting in the ownership of
Infrastructure by Consenting Parties and the charging of a reasonable
rental fee to the Joint Operations for use of Infrastructure. Charges
for Infrastructure that benefit more than one well in a License Area
shall be allocated equally between all ▇▇▇▇▇ benefited. The
Non-Consenting Parties may elect for a period of twenty four (24)
months after the completion of the Infrastructure, to
26
obtain an ownership interest in such Infrastructure by paying to the
Consenting Parties their Percentage Interest share of costs for the
Infrastructure plus interest at the Base Rate from the date of
expenditure for the Infrastructure.
11. ACCOUNTING AND TAXES
11.1 The Accounting Procedure is hereby made part of this Agreement. In the
event of any conflict between this Agreement and the Accounting
Procedure, this Agreement shall prevail. The Accounting Procedure is an
inseparable part of this Agreement. The Accounting Procedure rights of
audit pursuant to Section 1.9 shall apply to any account maintained by
the Operator into which revenues from Production for Joint Operations
or Exclusive Risk Operations are deposited, and Non-Operators shall
have access to such accounts and account records within five (5) days
of request for same from the Operator.
11.2 TAXES
11.2.1 VAT
Unless otherwise expressly stated in this Agreement, all amounts
expressed to be payable under this Agreement shall be exclusive of any
VAT.
11.2.2 STAMP TAX
Avenue shall be liable for all stamp tax arising in the Republic of
Turkey in connection with the execution of this Agreement (if any).
12. DEFAULT
12.1 FAILURE TO PAY
If any Party ("Defaulting Party") fails to pay its full share of any
Advance by the due date in accordance with the Accounting Procedure (a
"Default"), provided that a Default under one License shall not be
treated as a Default under any other Licenses,
(i) Operator shall, as soon as practicable, notify all the Parties
of such Default;
(ii) unless one or more of the Parties who (between them, if more
than one) would be required by (a) below to contribute more
than fifty percent (50%) of the amount in default decide
otherwise:
(a) each Party other than the Defaulting Party
("Non-Defaulting Parties") shall contribute, as
hereinafter provided, a share of the amount in
Default in the proportion that its Percentage
Interest bears to the total of the Percentage
Interests of the Non-Defaulting Parties and pending
receipt of such additional contributions Operator
shall make arrangements to meet any commitments
falling due by borrowing the necessary funds from
outside sources or by making the necessary funds
available itself. All costs of any such financing
shall be charged to the Non-Defaulting Parties;
financing made available by Operator shall bear
interest calculated on a day-to-day basis at a rate
equal to five (5) percent per annum above Base Rate;
(b) within six (6) days following the notification by
Operator under (i) above, Operator shall notify all
the Parties of the liability of each of the
Non-Defaulting Parties to contribute to the amount in
Default and shall make a further Cash Call
accordingly to take effect on the expiration of nine
(9) days specified in (c) below; and
(c) if such Default continues for more than nine (9) days
after the date of notification by Operator, each of
the Non-Defaulting Parties shall, on the day next
following such ninth day, pay the amount notified
under (b) above, and thereafter shall continue to
pay, in addition to its share of subsequent Advances,
the same proportion of that part of all such
subsequent Advances attributed to the Defaulting
Party, until such time as the Defaulting Party has
remedied its default in full or until forfeiture, as
hereinafter provided. Failure by any Party to make
such payments shall likewise and with the same
results render that Party in Default.
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12.2 REMEDY OF DEFAULT
The Defaulting Party shall have the right to remedy the Default at any
time prior to forfeiture, as hereinafter provided, by payment in full
to Operator or, if the Non-Defaulting Parties have paid any amounts
under Article 12.1, the Non-Defaulting Parties, in proportion to the
amounts so paid to them, of all amounts in respect of which the
Defaulting Party is in Default, which shall include any cost of
financing or interest chargeable to the Non-Defaulting Parties pursuant
to Article 12.1 (ii), together with interest thereon calculated on a
day-to-day basis at a rate equal to five (5) percent per annum above
Base Rate from time to time from and including the due date for payment
of such amounts until the actual date of payment.
12.3 CONTINUATION OF DEFAULT
12.3.1 If any Default continues for more than fifteen (15) days after the date
of notification by Operator under Article 12.1(i) then, for so long as
the Default so continues, the Defaulting Party shall not be entitled to
Production in kind or to receive or retain the Net Pre-tax Revenue to
which it would otherwise be entitled from the well to which the
Defaults relates, and instead such Net Pre-tax Revenue shall be
credited to the Non Defaulting Parties in the proportions in which
their respective Percentage Interests bear to the total of the
Percentage Interests of the Non-Defaulting Parties.
12.3.2 During the continuation of any Default, the Defaulting Party shall not
be entitled to attend meetings of the Operating Committee or be
entitled to vote thereat (so that the voting interest of each Party
other than the Defaulting Party shall be in the proportion which its
Percentage Interest bears to the total Percentage Interests of such
Parties), except in relation to decisions or matters concerning any of
the Licenses or previously completed ▇▇▇▇▇ as to which the Default is
not applicable. Notwithstanding that a Defaulting Party may not be
entitled to attend or vote at a meeting of the Operating Committee in
relation to any particular matter, it shall be bound by decisions of
the Operating Committee made during the continuation of the Default in
relation to that matter. If the Default subsists for sixty (60) days
after the date of notification by Operator under Article 12.1(i) and
the Defaulting Party continues to hold a Percentage Interest, then from
the end of such sixty (60) day period, while the Default subsists, the
Defaulting Party shall grant to Operator a perfected security interest
against the Defaulting Parties accounts receivable, as necessary to
insure payment to the Non-defaulting Parties. Furthermore, the
Defaulting Party shall have no further access to any data and
information relating to the Joint Operations, except in relation to
data or information concerning any of the Licenses or previously
completed ▇▇▇▇▇ as to which the Default is not applicable.
12.3.3
(i) In the event that the Default continues for more than
one-hundred and fifty (150) days after the date of
notification by Operator under Article 12.1(i) and such
Default is material and not resulting from a good-faith
dispute under this Agreement, Accounting Procedure or Turnkey
contract, then each of the Non-Defaulting Parties shall have
the right to have forfeited to it and to acquire the
Percentage Interest of the Defaulting Party in the ▇▇▇▇▇ to
which the Default relates (excluding any previously completed
▇▇▇▇▇ in respect of which the Defaulting Party is not in
Default) , by notice to the other Parties given within fifteen
(15) days after notice from Operator that the Defaulting Party
remains in Default under this Article 12.3.3 (ii) ,
(ii) If none of the Non-Defaulting Parties exercises its right as
is mentioned in Article 12.3.3 (i) then, without prejudice to
any rights of the Non-Defaulting Parties, the Parties shall be
deemed to have decided to abandon the Joint Operations in
relation to the relevant well and (subject to any abandonment
agreement entered into pursuant to Article 5.11.3) each Party,
including the Defaulting Party, shall pay its Percentage
Interest share of the costs of abandoning such Joint
Operations.
12.3.4 With respect to Article 12.3.3, any such forfeiture and acquisition of
the interest of the Defaulting Party in any ▇▇▇▇▇ to which a Default
relates, shall be:
(i) subject to any necessary consent of the Government;
(ii) without prejudice to any other rights of each Party other than
the Defaulting Party;
(iii) so forfeited and acquired as beneficial owner or owners free
of any charges and encumbrances (other than rent and royalty
under the relevant Licenses) but subject to all obligations
under this Agreement and the relevant Licenses insofar as the
interest assigned is concerned;
28
(iv) subject to the Defaulting Party remaining liable and obligated
for its Percentage Interest share of all net costs and
obligations that in any way relate to the abandonment of the
relevant Joint Operations, except to the extent they result
from Joint Operations carried out after the date of
forfeiture; and
(v) effective as of the date of Default;
and the Defaulting Party shall promptly join in such actions as may be
necessary or desirable to obtain any necessary consent of the
Government and shall execute and deliver any and all documents
necessary to effect any such forfeiture and acquisition and all costs
and expenses pertaining to any such forfeiture and acquisition shall be
the responsibility of the Defaulting Party.
12.3.5 Notwithstanding anything to the contrary in Articles 12.3.3 or 12.3.4,
the Defaulting Party shall continue to retain its economic interest in
any ▇▇▇▇▇ (or Zones of ▇▇▇▇▇) for which it previously earned its
economic interest, free and clear of amounts due for Default.
12.4 IN THE EVENT THAT EITHER
(i) less than all of the Non-Defaulting Parties acquire the
interest of the Defaulting Party in any ▇▇▇▇▇ and (to the
relevant extent) in and under this Agreement by forfeiture and
acquisition in terms of Article 12.3.3; or
(ii) Non-Defaulting Parties acquire such interest otherwise than in
proportion to their respective Percentage Interests,
then not later than onehundred-twenty (120) days after the date of
notification by Operator under Article 12.1(i) the Non-Defaulting
Parties shall make such cash adjustments between themselves as may be
required to ensure that all amounts paid by them under Article
12.1(ii)(c) are borne and the amounts (if any) recouped from the
Defaulting Party are recouped by the Non-Defaulting Parties in
proportion to the Percentage Interests of the Non-Defaulting Parties
subsequent to forfeiture and acquisition in terms of Article 12.3.3. In
the event that the Defaulting Party's Net Pre- Tax Revenue has been
applied under Article 12.3.1 in or towards remedying the Default, such
cash adjustments shall take into account the amount so applied.
12.5 EXCLUSIVE REMEDY
THE REMEDIES DESCRIBED IN THIS ARTICLE 12 SHALL CONSTITUTE THE
EXCLUSIVE REMEDIES FOR DEFAULTS.
13. DISPOSAL OF PETROLEUM
13.1 RIGHT AND OBLIGATION
Subject to the provisions hereinafter contained and subject to the
Petroleum Law, in respect of the development of any Discovery:
(i) as an alternative to receiving under Article 3.1 a share of
Net Pre-Tax Revenue derived from the sale of Joint Petroleum
by Operator on behalf of the Parties, each Party shall have
the right to take in kind and separately dispose of its
Percentage Interest share of the total quantities of Joint
Petroleum available under this Agreement, but excluding the
Operator's reasonable estimate of the amount of such Joint
Petroleum unavoidably lost in the course of Joint Operations
or used by Operator in the conduct of the Joint Operations,
and less a quantity of such Joint Petroleum equivalent to that
required to satisfy any Government royalty and the obligations
of the Parties in relation to the ERSAN Royalty Interest; and
(ii) Operator, if so required from time to time by a Party, shall
arrange for the lifting, marketing, sale and dispose of Joint
Petroleum, provided that the arrangement contemplated complies
with the provisions set forth in the Petroleum Law and
Regulations.
13.2 NGLS AND NATURAL GAS
The Parties recognize that, in the event of the production of NGLs or
Natural Gas, it may or will be or become desirable for them to enter
into special arrangements for the disposal of the same and they agree
that, in such event and
29
upon the request of any of them, their respective representatives shall
meet together as necessary to consider their entry into such
arrangements and that, if and to the extent that any such arrangements
are agreed, they will adopt and undertake the same. Until such time as
the Parties have entered into special arrangements for the disposal of
NGLs or Natural Gas, all operations with regard to the production of
NGLs or Natural Gas shall be governed by the terms and conditions of
this Agreement.
14. CONFIDENTIALITY
14.1 CONFIDENTIAL DATA AND INFORMATION
Each Party shall, and shall cause its Affiliates to, keep confidential
all of the terms of this Agreement and all written and/or
electronically stored data and information acquired or received by that
Party under this Agreement throughout the term of this Agreement and
for a period of two (2) years thereafter; provided, however, that this
obligation of confidentiality shall not apply to any disclosure of
information:
(i) that is in or enters the public domain without a breach of a
duty of confidentiality by the disclosing Person or was
obtained from a third party having no confidentiality
restriction to the Parties;
(ii) the disclosure of which is required by the Petroleum Law or
related Regulations or of the disclosing Party or its
Affiliate by law, regulation, legal process, or order of any
court or governmental body having jurisdiction (including
applicable State and Federal securities laws, rules and
regulations in the USA) or pursuant to the regulations of any
securities exchange upon which any of the Parties or its
Affiliate is (or is to be) listed or its securities are (or
are to be) traded;
(iii) to any Affiliate or bona fide potential assignee of such
Party, and to the employees, agents, consultants, bankers,
financial and professional advisers of that Party, its
Affiliate or any such bona fide potential assignee, provided
that (a) they have a reasonable need to know the information
and (b) they are instructed and agree in writing to maintain
this information confidential;
(iv) by any Party or its Affiliates or any Person referred to in
paragraph (iii) above to whom any Party has disclosed the
same, to investors or targeted potential investors in any
Party or the interests of any Party or financial institutions
or their advisors, or any Affiliate of any Party in connection
with a capital raising or the listing of equities or project
financing or the like;
(v) or any potential farminee, which agrees in writing to maintain
such information confidential;
In the event of any Party ceasing to hold a Percentage Interest,
such Party shall nevertheless remain bound by this Article
14.1.
14.2 TRADING RIGHTS
Operator may, with the prior written approval of all Parties and on
such terms and conditions as they may determine, exchange any such data
and information for other similar data and information and Operator
shall promptly provide all the Parties with a conformed, copy of the
agreement regulating such exchange and all such other data and
information. Notwithstanding the foregoing provisions of this Article
14, if any Party is also the owner or part owner of such other data and
information or otherwise has a right of access to the same, it shall
not be entitled to prevent an exchange which has been approved by the
other Parties. In the event that the aforesaid proviso is invoked
against a Party which is already owner or part owner of the other data
and information then:
(i) that Party shall be entitled to request Operator to use all
reasonable endeavours to arrange within ninety (90) days of
the exchange approved by all the other Parties, a separate
exchange with the third party selected by the Party concerned
subject to Operating Committee approval of the third party for
such purpose (which approval shall not be unreasonably
withheld); and
(ii) upon receiving a request under sub-paragraph (i) above,
Operator shall use all reasonable endeavours to comply with
such requests and shall divulge to the Parties, subject to the
terms of the said separate exchange, all data and information
received pursuant thereto.
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15. PUBLIC ANNOUNCEMENT
15.1 Subject to Article 15.2, any Party may propose the preparation and
release of public announcements and statements regarding this Agreement
or the Joint Operations, provided always (except in the case of an
emergency pertaining to operations under this Agreement) that no such
public announcement or statement shall be issued or made unless prior
thereto all the Parties have been furnished with a copy thereof and the
approval of the Operating Committee has been obtained.
15.2 No Party shall issue or make any public announcement or statement
regarding this Agreement or the Joint Operations unless prior thereto
it furnished all the Parties with a copy of such announcement or
statement and obtains the approval of the Operating Committee provided
that, notwithstanding any failure to obtain such approval, no Party or
any Affiliate of such 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 any applicable law, the regulations of a
recognized stock exchange or the requirements of the Securities and
Exchange Commission of the United States of America or any relevant
Government authority in the Republic of Turkey.
16. OUTGOINGS
The Parties shall be liable for the payment of their respective
Percentage Interest shares of all sums which may be properly payable
under the Petroleum Law and the Licenses, provided that to the extent
permitted by the Petroleum Law and the Licenses, Operator shall pay all
such sums (including royalties) from the Joint Account. Pursuant to the
terms of the Accounting Procedure, all Parties shall have rights of
audit for all expenditures made from the Joint Account bank account and
the Operator shall pay all net sums to the non-operators from the Joint
Account to the specified non-operator bank accounts within thirty (30)
days of the determination by Operator of the net funds available.
17. COVENANT, UNDERTAKING AND RELATIONSHIP
17.1 COVENANT AND UNDERTAKING
17.1.1 Without prejudice to the overriding responsibility of Operator under
Article 5.2.2, each Party hereby covenants and undertakes with each
other Party that it will comply with all the applicable provisions and
requirements of the Petroleum Law and the Licenses and will do all such
acts and things within its control as may be necessary to keep and
maintain the Licenses in full force and effect.
17.1.2 Each Party hereby covenants and undertakes with each other Party as
follows:
(i) neither it nor any of its Affiliates nor any of their
officers, directors, employees, agents, shareholders or
representatives (including a consultant) shall make, or cause
to be made, in connection with the License, the Joint
Operations, this Agreement or the transactions contemplated by
this Agreement, payments, loans or gifts or promises or offer
of payments, loans or gifts of any money or anything of value,
directly or indirectly:
(a) to or for the use or benefit of any official or
employee of any government or agency or
instrumentality thereof (including without limitation
any enterprise owned or controlled by such
government), or any Person acting in an official
capacity for or on behalf of any government,
department, agency or instrumentality;
(b) to or for the use or benefit of any political party
or official or candidate thereof, or any official or
employee of a public international organization, or
any person acting in an official capacity for or on
behalf of any political party or public international
organization;
(c) in violation of any applicable law; or
(d) to any other Person either as an advance or as a
reimbursement if it knows that any part of such
payment, loan or gift will be directly or indirectly
given or paid by such other Person to an official,
party, party official or candidate referred to in
sub-paragraph (a) or (b) above, or will reimburse
such other Person for payments, gifts, or loans
previously made, to any such official, party, party
official or candidate;
31
(ii) the receipt by it of the consideration which may be obtained
hereunder or of any funds or interests under License does not
violate the laws, decrees and regulations of the Republic of
Turkey;
(iii) it shall answer and shall cause each of its officers,
directors, employees and attorneys-in-fact, and its Affiliates
and their respective officers, directors, employees and
attorneys-in-fact, to answer, and shall exert reasonable
commercial efforts to cause its and their consultants to
answer, in reasonable detail, any questionnaire or other
written or oral communications, or any request for information
from AVENUE or its outside auditors, relating to the covenants
and undertakings set forth in paragraphs (i) and (ii) above;
and
(iv) to provide, on or before the 30th day after notice from AVENUE
so requesting, AVENUE with certification to the effect that it
has not, and its Affiliates and their personnel have not, made
or sought any payments, directly or indirectly, in violation
of paragraph (i) or (ii) above.
17.2 RELATIONSHIP
17.2.1 The liability of the Parties hereunder shall be several and not joint
or collective and each Party shall be responsible only for its
individual obligations hereunder. It is expressly agreed that it is not
the purpose or intention of this Agreement to create, nor shall the
same be construed as creating, any mining partnership, commercial
partnership or other partnership. Notwithstanding the foregoing, the
Parties acknowledge that they are fiduciaries to each other within the
scope of the terms of this Agreement, and fiduciary duties under
California law of loyalty, disclosure and fair dealing between the
Parties shall be applicable.
17.2.2 Each Party, to the extent of its Percentage Interest share, agrees to
indemnify each other Party, for any claim by or liability to (including
any costs and expenses necessarily incurred in respect of such claim or
liability) any person not being a Party, arising from or in connection
with the Joint Operations.
17.2.3 Nothing in Article 17.2.2 shall require a Party to indemnify a Party in
respect of claims against or liabilities of that Party arising from its
acts, defaults or omissions as Operator or in any capacity (including
as contractor of or service or equipment supplier to the Joint
Operations) other than as the holder of a Participating Interest.
18. ASSIGNMENT AND ENCUMBRANCES
18.1 RESTRICTION
No assignment of any interest under the Licenses (or any of them) or
this Agreement shall be made by any Party otherwise than :
(i) in respect of an equal undivided interest in all or part of
its interest in all (but not some only) of the Licenses and in
and under this Agreement (so that any such assignment shall
include all or a corresponding part of any interest of such
Party in an Exclusive Risk Project), provided that if a Party
notifies the other Parties (the "OTHER PARTIES") that it
wishes to assign an interest in less than all of the Licenses
or a different proportionate interest in different Licenses,
the Parties shall, at the cost of the Party who gave the
notice, in good faith seek to reach agreement on arrangements
which would accommodate such an assignment whilst addressing
any legitimate concerns of the Other Parties (or any of them)
in relation to the consequences of such an arrangement (which
concerns may relate to, amongst other matters,
confidentiality, cost and revenue allocation, unitisation of
fields underlying more that one License area, and
representation on and decision-making of the Operating
Committee, and which arrangements to address such concerns may
include, amongst other things, the entering into of separate
joint operating agreements in substantially the same terms as
this Agreement for each of the Licenses), and if such an
agreement is reached the restriction in this Article 18.1(i)
shall apply subject to the terms of that agreement;
(ii) in the case of an assignment of part only of the interest of
the assigning Party in the Licenses and under this Agreement,
where that part equates to a Percentage Interest of not less
than 5% and the Percentage Interest to be retained by the
assigning Party immediately following the assignment is not
less than 5%; and
(iii) in accordance with the following provisions of this Article.
32
18.2 RIGHT
18.2.1 Each of the Parties may, subject to any necessary consent and approval
of the Government and to the provisions hereinafter contained, at any
time upon written notice to the other Parties (accompanied by written
confirmation from the Party proposing to assign that the assignment is
not being made with the intention that the assignee should thereafter
cease to be an Affiliate of such Party) assign all or part of its
Percentage Interest to an Affiliate of such Party if either:
(i) the Affiliate has demonstrated to the satisfaction of the
other Parties its financial capability to meet its prospective
obligations hereunder; or
(ii) the assigning Party has agreed to remain jointly and severally
liable with the Affiliate for the performance of the assigned
obligations.
18.2.2 Each of the Parties may at any time assign all or part of its
Percentage Interest other than as provided in Article 18.2.1 or Article
18.6 if and only if:
(i) any necessary consent and approval of the Government to such
assignment shall have been obtained; and
(ii) the remaining, non-assigning Parties shall have consented to
such assignment in writing (which consent may only be withheld
on the grounds of lack of financial responsibility and
capability of the proposed assignee to discharge the
obligations under this Agreement as they relate to the
interest to be assigned).
18.3 EFFECTIVE DATE
No such assignment shall be effective or binding upon the Parties until
the date upon which the assignor or assignee furnishes all the Parties
with:
(i) an executed or photostatic copy of an instrument evidencing
such assignment, together with any necessary consent and
approval of the Government; and
(ii) a written instrument (in form and content satisfactory to the
Parties and duly executed by the assignee) under which the
assignee accepts and assumes all of the obligations under this
Agreement, and complying with the requirements of any
abandonment agreement entered into pursuant to Article 5,
insofar as the interest assigned is concerned.
18.4 CONTINUING OBLIGATIONS
18.4.1 Any Party making an assignment, withdrawal or relinquishment of any of
its Percentage Interest in an Exploration License or Production Lease
hereunder shall be responsible for filing all necessary applications
and taking all necessary actions related thereto. In the event a Party
is unable or refuses to take such action, the Joint representative of
such Party is hereby granted authority, as necessary, to make an
assignment and such other actions as necessary to assign such interest.
18.4.2 A Party so assigning all or part of its Percentage Interest shall
remain liable to the other Parties for all obligations attaching to the
interest assigned pursuant to this Article 18 which are incurred prior
to the effective date of such assignment and such obligations shall in
addition become the obligations of the assignee.
18.4.3 The Parties shall promptly join in such reasonable actions as may be
necessary or desirable to obtain any consent and approval of the
Government in connection with, and shall execute and deliver any and
all documents reasonably necessary to effect, any such assignment.
18.5 COSTS
All costs and expenses pertaining to any such assignment shall be the
responsibility of the assignor.
33
18.6 ENCUMBRANCE
Each of the Parties may mortgage, pledge or otherwise encumber all or
part of its interest in the Licenses and in and under this Agreement
for the purpose of security relating to finance provided that:
(i) such Party shall remain liable for all obligations relating to
such interest;
(ii) the encumbrance shall be subject to any necessary approval of
the Government and is registered with the Petroleum Registry.
18.7 JOINT VENTURE AGREEMENTS
Nothing contained in this Article 18 shall prevent a Party from
assigning an interest in the Licenses, subject to the terms of this
Agreement. All Parties must consent to any farmout, farmin or joint
venture operations pursuant to which a third party acquires a
Participating Interest in the Licenses, which would proportionately
reduce the Participating Interests of all the Parties. In the event of
any such farmout, farmin or joint venture relationships, the respective
rights and obligations of the parties pursuant to this Agreement shall
be maintained, mutatis mutandis, to the extent feasible, including a
proportionate share of the ERSAN Royalty Interest. All third party
participations shall be required to bear its proportionate share of the
ERSAN Royalty Interest whereupon such royalty burden upon AME and
Avenue shall be proportionately reduced corresponding to the reduction
in net revenue interest to AME and Avenue. For example, if a joint
venture party receives a 50% net revenue interest for undertaking G&G
and/or drilling obligations, the aggregate royalty burden from AME and
Avenue to ERSAN shall be reduced from 7.5% of 100% to 7.5% of 50% All
Parties shall be kept apprised of any negotiations for farm-ins,
farm-outs or joint ventures on a current basis and will be afforded
opportunities to review communications and to participate in all
meetings or discussions, prior to the finalization and execution of
agreements. Any Party may recommend potential farmin or joint venture
partners
18.8 MEANING OF "ASSIGNMENT"
For the purposes of this Article 18, unless the context otherwise
requires, 'assignment' includes an assignment, transfer, novation,
charge, encumbrance or other security interest, or a disposal of any
other kind of a legal or beneficial right or interest in the Licenses
(or any of them) or under this Agreement, and 'assign' and 'assigning'
shall be construed accordingly.
18.9 INTRODUCING PARTIES
Notwithstanding anything to the contrary contained herein, if Avenue
introduces a prospective investor or participant to AME ("Introduced
Party"), AME shall cooperate with the Introduced Party and provide
necessary information as requested by the introduced party, subject to
any necessary confidentiality agreements reasonably requested by AME.
If any transaction is proposed to be entered into with the Introducing
Party, the terms of such transaction shall be subject to the consent of
Avenue. In addition, if AME enters into any transactions with the
Introduced Party with respect to other projects in the future, any
promotional benefits received by AME for such transaction will be held
in constructive trust for Avenue and be the property of Avenue.
Notwithstanding the foregoing, if the Introduced Party has previously
been involved in a substantial business relationship with AME, or has
previously been solicited by AME to participate in the Joint
Operations, AME shall so notify Avenue within 10 days of the
introduction, and the terms of this Paragraph will then not be
applicable. Introductions by Avenue shall include introduction by any
of the principals of Avenue, its employees and its consultants.
19. WITHDRAWAL
19.1 RESTRICTION
No Party may withdraw from any of the Licenses or this Agreement
otherwise than in accordance with the following provisions of this
Article.
19.2 RIGHT
19.2.1 Any Party may, subject to Article 19.3, at any time give notice to the
other Parties that it wishes to withdraw from all or any of the
Licenses. Within thirty (30) days of receipt of such notice, any of the
other Parties may similarly give notice that it wishes to withdraw from
the Licenses the subject of that withdrawal notice. If all the other
Parties give such
34
notice no assignment of an interest in the relevant Licenses shall take
place, the Parties shall be deemed to have decided to abandon the Joint
Operations insofar as they relate to the relevant Licenses and the
relevant Licenses shall be surrendered on the earliest possible date.
If less than all the other Parties give such notice, the withdrawing
Parties shall withdraw from the relevant Licenses on the earliest
possible date by assigning their respective interests in the Licenses
to one or more of the non-withdrawing Parties in accordance with
Article 19.3 without any compensation whatsoever, provided that if such
an assignment has not been completed within ninety (90) days of the
notice, all of the Parties shall be deemed to have decided to abandon
the Joint Operations insofar as they relate to the relevant Licenses
and the relevant Licenses shall be surrendered on the earliest possible
date.
19.2.2 If, by the Minimum Notification Obligation Date Operator has timely
provided all required notices and information to Non-Operators and a
Party has failed to notify the Operator that it will participate in a
Minimum Work Obligation, such Party shall be deemed to have given
notice under Article 19.2.1 of its intention to withdraw from the
relevant Licenses. In the event the Parties have already jointly
drilled an economically viable producing well, the Withdrawing
Non-Operator shall be deemed to have withdrawn from the Licenses not
including the acreage attributable to the economically producing well.
Acreage attributable to a producing more oil than gas or other
hydrocarbons well shall be 40 acres centered on the producing well and
for a producing more gas than oil or other hydrocarbons well shall be
640 acres centered on the producing well. The Withdrawing Party shall
assign its relevant interest corresponding to the relinquished acreage
in the Licenses to the non-withdrawing Parties in accordance with
Article 19.3, without any compensation whatsoever.
19.3 CONDITIONS
With respect to Article 19.2, unless all of the Parties have notified
their desire to withdraw from a License pursuant to Article 19.2.1 (in
which event, for the avoidance of doubt, the relevant License will be
surrendered):
(i) a Party which has notified its intention to withdraw from a
License pursuant to Article 19.2.1 (a "WITHDRAWING PARTY")
shall, promptly after the expiry of the period of thirty (30)
days referred to in Article 19.2.1, assign all of its interest
to the non-withdrawing Parties as wish or are obliged to
accept it, which shall (unless otherwise agreed by such
non-withdrawing Parties) be allocated to them in the
proportion in which their respective Percentage Interests
prior to the effective date of withdrawal (as hereinafter
defined) bears to the total of the same;
(ii) the Withdrawing Party shall promptly join in such actions as
may be necessary or desirable to obtain any consent of the
Government in connection with, and shall execute and deliver
any and all documents necessary to effect, any such
assignment. A withdrawal shall not be effective and binding
upon the Parties until the date upon which the same shall have
been done ("the effective date of withdrawal" shall be the
date of expiry of the period of thirty (30) days referred to
in Article 19.2.1);
(iii) the Withdrawing Party shall promptly join in all actions
required by the other Parties for the maintenance of the
Licenses provided that its participation in such actions shall
not cause it to incur, after the date on which notice of
withdrawal is given, any financial obligations except as
provided in this Article 19;
(iv) the Withdrawing Party shall pay all costs, including license
registration fees, fines and penalties which may be prescribed
by the Government and all reasonable and documented costs and
expenses incurred by the other Parties in connection with such
withdrawal;
(v) the Withdrawing Party shall not be allowed to withdraw from
the Licenses if its interest is subject to any liens, charges
or encumbrances (other than (a) rents and royalties due under
the Licenses or the Petroleum Law (b) the ERSAN Royalty
Interest (as defined in Article 1 of this Agreement) and (c) a
lien, charge or encumbrance granted in favour of all of the
other parties and securing the performance of obligations
under this Agreement), unless the other Parties are willing to
accept the assignment subject to such additional liens,
charges or encumbrances;
(vi) unless the Party or Parties acquiring its interest agree to
accept the withdrawing Party's liabilities and obligations,
the Withdrawing Party shall remain liable and obligated for
its Percentage Interest share of all expenditure accruing to
the Joint Account under any Program and Budget approved by the
Operating Committee and authorized by AFE prior to the date on
which notice of withdrawal is given, even if the operations
concerned are to be implemented thereafter, provided always
that this sub-paragraph (vi) shall not render a withdrawing
Party liable for any amounts which such Party would not have
been obliged to pay had it not withdrawn;
35
(vii) the Withdrawing Party shall remain liable and obligated for
its share of all costs and obligations that in any way relate
to the abandonment of Joint Operations or a Exclusive Risk
Project in which such withdrawing Party participated in
accordance with any abandonment agreement entered into
pursuant to Article 5 or with the provisions of this Agreement
if abandonment operations commence within three (3) years
after the effective date of withdrawal; and
(viii) if the Withdrawing Party withdraws from some only of the
Licenses:
(a) the non-withdrawing Parties in respect of the
Licenses from which the Withdrawing Party is
withdrawing shall promptly execute a joint operating
agreement in identical terms, mutatis mutandis, to
this Agreement, except that such agreement shall
exclude the Withdrawing Party as a party, shall
relate only to the Licenses from which the
Withdrawing Party has withdrawn, shall reflect the
Percentage Interests of the non-Withdrawing Parties
in the relevant Licenses immediately following
completion of the assignments effected or to be
effected pursuant to sub-paragraph (i) above, and
shall take effect from the completion of such
assignments; and
(b) with effect from the completion of such assignments,
this Agreement shall cease to apply to the Licenses
the subject of the new agreement entered into
pursuant to sub-paragraph (viii)(a) above and all
associated Joint Operations and Joint Property,
provided that any decisions, notices, actions or
other things made, given or done under and in
accordance with this Agreement prior to that time and
relating solely to such Licenses and associated Joint
Operations and Joint Property shall be deemed to have
been taken under and in accordance with, and shall be
equally effective and valid for purposes of, that new
agreement.
20. FORCE MAJEURE
20.1 The obligations of each of the Parties hereunder, other than the
obligations to make payment of money, shall be suspended during the
period and to the extent that such Party is prevented or hindered from
complying therewith by "Force Majeure" (as hereinafter defined). In
such event, such Party shall give notice of suspension as soon as
reasonably possible to the other Parties stating the date and extent of
such suspension and the cause thereof. Any of the Parties whose
obligations have been suspended as aforesaid shall resume the
performance of such obligations as soon as reasonably possible after
the removal of the cause and shall so notify all the other Parties.
20.2 In this Article 20 "Force Majeure" means any cause beyond the
reasonable control of a Party provided that a lack of funds shall not
constitute "Force Majeure".
21. APPLICABLE LAW AND ARBITRATION
21.1 This Agreement shall be governed by and construed in accordance with
laws of the State of California, USA, excluding any provisions thereof
which would require the application of the laws of any other
jurisdiction.
21.2 ARBITRATION
21.2.1 All disputes arising out of or in connection with this Agreement,
including any question regarding its existence, validity or
termination, shall be referred to and finally resolved under the rules
of the London Court of International Arbitration, which rules are
deemed to be incorporated by reference to this Article.
21.2.2 The number of arbitrators shall be one (or three if the Parties
mutually so agree).
21.2.3 The seat or place of the arbitration shall be San Francisco,
California, USA.
21.2.4 The language to be used in the arbitral proceedings shall be English.
21.2.5 The arbitrators' award may include compensatory damages against either
Party, but under no circumstances shall the arbitrators be authorized
to nor shall they award punitive damages or multiple damages against
any Party.
36
21.2.6 The Parties hereby exclude any right of application or appeal to any
court, to the extent that they may validly so agree, and in particular
in connection with any question of law arising during the course of the
arbitration or out of the arbitration panel.
22. NOTICES
22.1 MANNER OF SERVICE
Any notice or other communication (a "COMMUNICATION") which any Party
may desire to give or deliver in connection with this Agreement shall
be in writing and shall be delivered by hand or sent by fax or email to
the addressee at its address or fax number or email address and marked
for the attention of the person set out in Article 22.3. Any such
notice sent by fax or email shall be confirmed in hard copy form by
post or by hand or email.
22.2 TIME OF NOTICE
A Communication shall be deemed to have been given and received:
(i) if delivered by hand, at the time of delivery; or
(ii) if sent by fax, on acknowledgment of the addressee's facsimile
receiving equipment on the day following the day of such
acknowledgment.
(iii) if sent by email, on the day following acknowledgement of the
addressee's receipt of the email by confirmation back to the
sender from the recipient in an electronic communication
initiated by the recipient, but not otherwise;
(iv) as to any notice period of forty eight (48) hours or less,
Operator shall utilize its best efforts to give a prompt
telephone notice each Party's Operating Committee
representative
22.3 ADDRESSES
The current addresses, fax numbers, email addresses and, where
applicable, contact names of the Parties for the purposes of
Communications are as follows:
AME and ERSAN:
c/o ALADDIN MIDDLE EAST LTD
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇ and
Mr. Cem ▇▇▇▇▇
Sogutozu Caddesi No:23
Balgat-Ankara ▇▇▇▇▇ ▇▇▇▇▇▇
Tel: ▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇ or ▇▇▇ ▇▇▇▇
Fax: ▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇ or 287 5768
Email ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
AVENUE
Attn: ▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇
Tel: ▇▇▇▇ ▇▇▇ ▇▇▇▇
Fax: ▇▇▇▇ ▇▇▇ ▇▇▇▇
Email ▇▇▇▇▇▇▇▇.▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
37
Copied to:
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇-▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
Tel: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
Fax:▇▇▇▇ ▇▇▇▇ ▇▇▇▇
Email ▇▇▇▇▇▇▇@▇▇▇.▇▇▇
And to:
▇▇ ▇▇▇▇ Poll
▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇
Tel: ▇▇▇ ▇ ▇▇▇▇ ▇▇▇▇
Fax: + ▇▇ ▇ ▇▇▇▇ ▇▇▇▇
Email ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇.▇▇
And to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Jeffer, Mangels, ▇▇▇▇▇▇ & Marmaro LLP
Seventh Floor
1900 Avenue of the Stars
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
E-mail: ▇▇▇@▇▇▇▇.▇▇▇
A Party may change its address, fax number, email address or contact
name for the purpose of Communications by serving notice on the other
Parties in accordance with this Article.
23. MISCELLANEOUS
23.1 This Agreement shall be prepared in the English language and no
translation into any other language shall be utilized in its
interpretation. During the implementation of this Agreement the English
language shall be used as working language. Without prejudice to the
foregoing, the Parties shall promptly arrange for the preparation and
execution of a Turkish translation of this Agreement solely for the
purpose of submission to the Government.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
23.2 All schedules referred to herein and attached hereto, including the
Accounting Procedure, are by this reference incorporated herein as an
integral part of this Agreement.
23.3 This Agreement shall be binding upon and inure to the benefit of the
Parties hereto and their successors and permitted assigns.
38
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
written above.
ALADDIN MIDDLE EAST LTD.
By:/s/ Oyman ▇▇▇▇▇
Name: Oyman ▇▇▇▇▇
Position: Executive Vice President
and General Manager
ERSAN PETROL SANAYII A.S.
By: /s/ Oyman ▇▇▇▇▇
Name: Oyman ▇▇▇▇▇
Position: Executive Vice President and General
Manager
AVENUE ENERGY INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Name:
Position: President
39
SCHEDULE 1
TO JOINT OPERATING AGREEMENT
BETWEEN
ALADDIN MIDDLE EAST LTD
ERSAN PETROL SANAYII A.S.
AND
AVENUE ENERGY INC.
RELATING TO
KARAKILISE PROSPECT
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.
It is intended that approval of a Program and Budget
and AFE's as provided in the Agreement shall constitute
approval of the rates and allocation methods used therein to
currently charge the Joint Account, but subject to
verification by audit at a later date as provided in the
Accounting Procedure.
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. In the event of a conflict between the provisions of this
Accounting Procedure and the provisions of the Agreement, the
provisions of the Agreement shall, to the extent of the conflict,
prevail.
1.3 DEFINITIONS. The definitions contained in Article 1 of the Agreement
shall apply to this Accounting Procedure and have the same meanings
when used herein. Certain terms used herein are defined as follows:
"THE AGREEMENT" shall mean the main body (Articles 1
to 23) of the Joint Operating Agreement to which this
Accounting Procedure is a schedule.
"COUNTRY OF OPERATIONS" shall mean Republic of
Turkey.
"MATERIAL" shall mean personal property (including,
but not limited to, equipment and supplies) acquired and held
for use in Joint Operations.
1.4 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 Petroleum and
Natural Gas, 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 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 Licenses and the Agreement.
1.4.3 Joint Account records shall be maintained by Operator in the
English 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. 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 rates at the close of business on the last
day of the preceding month as published by the Central Bank of
Turkey, or if not published by the Central Bank of Turkey,
then by the clearing bank with whom the Parties commingled
Dollar denominated funds are maintained.
1.4.4 Any currency exchange gain 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, mutatis mutandis, to
Exclusive Risk Operations 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 Risk Operation Account. For the
purpose of determining and calculating the remuneration of the
Consenting Parties, including the premiums for Exclusive Risk
1
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 accrual basis for accounting shall be used in preparing
accounts concerning the Joint Operations.
1.5 STATEMENTS AND BILLINGS.
1.5.1 Unless otherwise agreed by the Parties or pursuant to Turnkey
contracts, Operator shall submit monthly to each Party, on or
before the 25th 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 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
- details of unusual charges and credits in excess of
U.S. dollars five thousand (U.S.$5,000.00).
1.5.2 Operator shall, upon request, furnish a description of the
accounting classifications used by it.
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. Without limiting the foregoing, each Party
acknowledges that it will keep its records and accounts in
accordance with Turkish Accounting Procedures and Fiscal
Procedure Law as published in the Turkish Official Gazette on
10.01.1961 Law Number 213. 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 statements to facilitate the discharge of such
responsibility.
1.6 BANK ACCOUNTS.
1.6.1 Operator shall open and maintain a single set of bank accounts
for the Joint Operations. Should there be a change in Operator
under the Agreement (other than pursuant to a transfer to an
Affiliate), then separate bank accounts shall thereafter be
maintained by the successor Operator. To the extent permitted
by applicable law and regulations, Operator will utilise
interest bearing accounts when possible so temporary short
term cash balances held pending disbursement can earn
interest.
1.6.2 The bank accounts shall be denominated in Dollars and Turkish
Lira and any other foreign currency that Operator deems
necessary.
1.6.3 Operator shall notify the Parties of the name of the bank and
the account numbers on opening of each account.
1.6.4 The accounts shall be established in the Republic of Turkey
and/or any other country the Operating Committee may deem
appropriate.
1.6.5 Operator may not commingle in any of the accounts its own
funds.
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1.7 PAYMENTS AND ADVANCES.
1.7.1 Not less than ten (10) days prior to the beginning of each
month, except pursuant to Turnkey contracts, Operator shall
furnish the Parties with a Cash Call, requesting an Advance or
Advances for such month and showing estimated Cash Calls for
the two (2) months immediately following that month. The
amount requested in a Cash Call shall be Operator's estimate
of the amount required from the Parties to enable Operator to
defray the net cash payments, being cash payments less cash
receipts as adjusted for cash on hand, due in the relevant
month under obligations properly incurred by Operator in
connection with the Joint Operations and in accordance with
the Agreement.
1.7.2 Each Cash Call shall be made in writing and delivered to all
Non-Operators not less than twenty (20) days before the
payment due date and shall be accompanied by a statement
indicating the Budget and, where applicable, AFEs for which
the funds are required and the amounts attributed to each
major budget heading for which the funds are required,
analysed by Budget and, where applicable, AFE. The due date
for payment of such Advances shall be set by Operator but
shall be no sooner than the first 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.
1.7.3 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, and to a bank account
established under Section 1.6 designated by Operator and
denominated in the relevant currency. If currency provided by
a Non Operator is other than as requested, the entire cost of
converting to the requested currency shall be charged to that
Non-Operator.
1.7.4 Notwithstanding the provisions of Section 1.7.2, 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 and
which have been authorised by the Parties in an approved
Budget and, if applicable, an AFE, 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 fifteen
(15) days after receipt of such notice.
1.7.5 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. A
Non-Operator may request that its excess advances be refunded.
Operator shall make such refund within ten (10) days after
receipt of the Non-Operator's request provided that the amount
is in excess of the requesting Non-Operator's share of the
cash advance requirements for the succeeding Month.
1.7.6 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.
1.7.7 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.
Any interest received by Operator from interest-bearing
accounts containing commingled funds received from the Parties
shall be credited to the Parties in accordance with the
allocation procedure as set forth above.
1.7.8 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.
1.7.9 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.
1.7.10 If under the Agreement, Operator is required to segregate
funds received from or for the Joint Account, the provisions
under this Section 1.7 for payments and Advances by
Non-Operators shall apply also to Operator.
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1.8 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 year shall conclusively be
presumed to be true and correct after twenty-four (24) months following
the end of such 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 Property 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 requirements. Any
such adjustments shall be subject to audit within the time period
specified in Section 1.9.1.
1.9 AUDITS.
1.9.1 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 Year within the
twenty-four (24) month period following the end of such Year.
The cost of each such audit shall be borne by Non-Operators
conducting the audit. It is provided, however, that
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. 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 which will result in a minimum of
inconvenience to the Operator. Operator and Non-Operators
shall make every effort to resolve any claim resulting from an
audit within a reasonable period of time.
1.9.2 In connection with any audit under Section 1.9.1, a
Non-Operator may audit the records of an Affiliate of Operator
relating to that Affiliate's charges. The provisions of this
Accounting Procedure shall apply mutatis mutandis to such
audit. Operator shall procure its relevant Affiliates
facilitat6e any such audit.
1.9.3 At the conclusion of each audit, each Party shall endeavour to
settle outstanding matters with Operator and shall circulate a
written report concerning unresolved items to all the Parties
within two (2) months of 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 reply to the report in
writing as soon as possible and in any event not later than
two (2) months following receipt of the report. Should the
Parties (or any of them) consider that the report or reply
requires further investigation of any item therein, such
Parties shall have the right to conduct further investigation
in relation to such matter notwithstanding that the said
period of twenty-four (24) months may have expired. Such
further investigation shall be commenced within ninety (90)
days and be concluded within one hundred and twenty (120) days
of the receipt of such report or reply.
1.9.4 All adjustments resulting from an audit agreed between
Operator and the Parties conducting the audit shall be
rectified promptly in the Joint Account by Operator and
reported to the other Parties. If any dispute shall arise in
connection with an audit, it shall be referred to the
Operating Committee. If Operator and such Parties are unable
to reach final agreement on a proposed audit adjustment and
the amount in dispute is in excess of $20,000, and either
Operator or such Parties so desire, such adjustment may be
referred by the Operating Committee to an internationally
recognised independent firm of public accountants selected by
such other Parties and approved by Operator, such approval not
to be unreasonably withheld. The decision of such firm of
public accountants shall be final and binding upon the
Parties.
1.9.5 Any information obtained by a Non-Operator under the
provisions of this Section 1.9 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 Article 14 of the Agreement.
1.9.6 In the event that the Operator is required by law 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.
1.10 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. Upon request,
Operator shall furnish a description of its allocation procedures
pertaining to these costs and expenditures.
4
SECTION II
DIRECT CHARGES
Subject to the Agreement, Operator shall charge the Joint Account with
all costs and expenditures incurred after the date of the Agreement in
connection with Joint Operations. Charges for services normally provided by an
operator which are provided by Operator's Affiliates shall reflect the cost to
the Affiliate, excluding profit, for performing such services, except as
otherwise provided in Section 2.6.
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, when paid by Operator in accordance with the provisions of
the Agreement provided that no such amount shall be charged to the
Joint Account where payment of that amount, or of an amount in lieu
thereof, is provided for in clause 6.5 of the Farmin and Participation
Agreement.
2.2 SALARIES, WAGES AND RELATED COSTS.
2.2.1 Costs related to the employees of Operator and its Affiliates
in the Country of Operations directly engaged in Joint
Operations whether temporarily or permanently assigned, as
more particularly set out below. For the avoidance of doubt,
costs related to any such employees shall not be charged to
the Joint Account to the extent they relate to activities of
the Operator or its Affiliates carried out other than in
pursuance of the duties of the Operator under the Agreement
(e.g. where the Operator or its Affiliate are acting as
contractor for the Parties in relation to drilling
operations).
2.2.2 Salaries and wages, including everything constituting the
employees' total compensation. To the extent not included in
salaries and wages, the Joint Account shall also be charged
with 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 costs
to Operator for employee benefits, including but not limited
to employee group life insurance, group medical insurance,
hospitalization, retirement, and other benefit plans of a like
nature applicable to labor costs of Operator. Operator's
employees participating in Country of Operations benefit plans
may be charged at a percentage rate to reflect payments or
accruals made by Operator applicable to such employees. Such
accruals for Country of Operations benefit plans shall 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, or upon termination of the Agreement, whichever
occurs first.
2.2.3 Expenditures or contributions made pursuant to assessments
imposed by governmental authority for payments with respect
thereto or on account of such employees.
2.2.4 Salaries and wages charged in accordance with Operator's usual
practice, when and as paid or accrued, or on a basis of the
Operator's average cost per employee for each job category;
and the rates to be charged shall be reviewed at least
annually. In determining the average cost per employee for
each job category, expatriate and national employee salaries
and wages shall be calculated separately. During a given
period of time it is understood that some costs for salaries
and wages may be charged on an actual basis while the
remaining costs for salaries and wages are charged at a rate
based upon the above described average cost.
2.2.5 Reasonable expenses (including related travel costs) of those
employees whose salaries and wages are chargeable to the Joint
Account under Section 2.2.1 of this Section II and for which
expenses the employees are reimbursed under the usual practice
of Operator.
2.2.6 All personnel who are not engaged exclusively on the Joint
Operations and are under the direct control of Operator or its
Affiliates will maintain time sheets for the purpose of
charging salary and related benefits to the Joint Account.
Time sheets will record time worked on the Joint Operations
and all other operations whether such personnel are engaged
full time or part time on the Joint Operations and will show
the time
5
worked on the various projects and other classifications of
cost to enable personnel costs to be shown separately for
budget and cost control purposes.
Indirect time such as annual holidays, public
holidays, sickness, staff training, general supervisory
duties, general administration, and other like items shall be
allocated both to Joint Operations and to other operations in
the same ratio as direct time writing.
2.2.7 The amount to be charged to the Joint Account for each
employee referred to in Section 2.2.1 shall be the proportion
of Operator's or any of its Affiliates' actual cost of
salaries and related benefits for each such person that the
time worked by such person on the Joint Operations including
indirect time allocation bears to the total time worked by
such person as shown on the time sheets, provided that
payments in respect of retirement and severance and other like
items shall be allocated equitably to the Joint Operations and
other operations of Operator and its Affiliates which have
benefited from the services of the staff involved.
2.3 EMPLOYEE RELOCATION COSTS.
2.3.1 Except as provided in Section 2.3.3, Operator's cost of
employees' relocation to or from the License Area vicinity or
location where the employees will reside or work, whether
permanently or temporarily assigned to the Joint Operations.
If such employee works on other activities in addition to
Joint Operations, such relocation costs shall be allocated on
an equitable basis.
2.3.2 Such relocation costs shall include transportation of
employees, families, personal and household effects of the
employee and family, transit expenses, and all other related
costs in accordance with Operator's usual practice.
2.3.3 Relocation costs from the vicinity of the License Area to
another location classified as a foreign location by Operator
shall not be chargeable to the Joint Account unless such
foreign location is the point of origin of the employee.
2.4 OFFICES, CAMPS, AND MISCELLANEOUS FACILITIES. Cost of maintaining any
offices, sub-offices, camps, 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 as specified in Section IV of this
Accounting Procedure. 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 and 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.
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. The cost of services provided by third parties including
Affiliates of Operator. Such charges for services by Operator's
Affiliates shall not exceed those currently prevailing if performed by
non-affiliated third parties, considering quality and availability of
services.
2.8 INSURANCE. Premiums paid for insurance required by law or the Agreement
to be carried for the benefit of the Joint Operations.
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. Operator shall furnish
Non-Operators written notice of damages or losses
6
incurred in excess of twenty thousand U.S. dollars (U.S.
$20,000.00) as soon as practical after report of the same has
been received by Operator. All losses in excess of five
thousand U.S. dollars (U.S. $5,000.00) 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. 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.
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 shall so agree, actions or claims affecting the
Joint Operations may be handled by the legal staff of one or
any of the Parties; 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.
If Operator or an Affiliate is subject to income or
withholding tax as a result of services performed at cost for the
operations under the Agreement, its charges for such services may be
increased by the amount of such taxes incurred (grossed up).
2.12 OTHER EXPENDITURES. Any other costs and expenditures incurred by
Operator for the necessary and proper conduct of the Joint Operations
in accordance with approved Programs and Budgets and not covered in
this Section II or in Section III.
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 and its
Affiliates not otherwise provided for in this Accounting Procedure.
These costs are such that it is not practical to identify or associate
them with specific projects but are for services which provide Operator
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.
3.2 AMOUNT. The charge for the period beginning with the Year through the
end of the period covered by Operator's invoice ("Year-to-Date") under
Section 3.1 above shall be a percentage of the Year-to-Date
expenditures, calculated on the following scale (U.S. Dollars):
Annual Expenditures $0 to $1,000,000 of
expenditures = 5 % Next $1,500,000 of
expenditures = 3 % Next $3,500,000 of
expenditures = 2 % Excess above $6,000,000 of
expenditures = 1%
A minimum amount of U.S.$2,500 shall be assessed each month.
7
Notwithstanding the foregoing, the indirect rates and related
calculation method for development operations and for production
operations shall be agreed upon by the Parties prior to the submission
of the first annual Budget for those phases of operations.
The above amounts shall be calculated for the aggregate of all
Licenses and Production Leases held by the parties.
3.3 EXCLUSIONS. The expenditures used to calculate the monthly indirect
charge shall not include expenditures incurred or relating to a period
or time prior to the date of the Agreement, the indirect charge,
rentals on surface rights acquired and maintained for the Joint
Account, any payments under the Farmin and Participation Agreement or
in respect of the works and operations referred to in clauses 3 to 6
(both inclusive) of that agreement, guarantee deposits, pipeline
tariffs, concession acquisition costs, bonuses paid in accordance with
the Licenses, royalties and taxes paid under the Licenses, 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.
3.4 INDIRECT CHARGE FOR PROJECTS. As to major construction projects (such
as, but not limited to, pipelines, gas reprocessing and processing
plants, and final loading and terminalling facilities) when the
estimated cost of each project amounts to more than one hundred
thousand dollars (U.S. $100,000.00) a separate indirect charge for such
project shall be set by the Operating Committee at the time of approval
of the project.
3.5 CHANGES. The indirect charges provided for in this Section III may be
amended periodically by mutual agreement between the Parties if, in
practice, these charges are found to be insufficient or excessive.
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, the purchasing fee
provided for in Section 2.5.1, 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 "1"). 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 "2" AND "3").
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 "2" and priced at
seventy-five percent (75%) of its original issue price.
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 "3" and priced at fifty percent (50%) of its
original issue price. The cost of reconditioning shall also be
charged to the Joint Account provided the Condition "3" price,
plus cost of reconditioning, does not exceed the Condition "2"
price; and provided that Material so classified meet the
requirements for Condition "2" Material upon being repaired or
reconditioned.
8
4.2.2.3 Material which cannot be classified as
Condition "2" or Condition "3", 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.
4.3 PREMIUM PRICES. 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 License
Area.
4.4 WARRANTY OF MATERIAL FURNISHED BY OPERATOR. Operator does not warrant
the Material furnished. In CASE of defective Material, 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 twenty-five thousand U.S.
Dollars (U.S. $25,000.00) 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. 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. 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.
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 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 thirty days (30) 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
9
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 twenty thousand U.S. Dollars (U.S.$20,000.00)
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.
SECTION VII
BUDGETING AND AFES
7.1 BUDGET PREPARATION.
7.1.1 Exploration and Appraisal Budgets. Each Exploration and each
Appraisal Budget required under the Agreement shall include:
(i) an estimate in Dollars of the total cost of the
relevant Program and a sub-division of such total
into each main classification and sub-classification
of cost. The estimates for each such classification
and sub-classification of cost shall be based on an
Accrual Basis for each of the Quarters of the
relevant Year or Years;
(ii) a schedule of estimated Joint Property warehouse
stock movement;
(iii) the amount of any escalation allowance;
(iv) the amount of any contingency allowance;
(v) a statement indicating which budget items, if any,
are contingent upon the outcome of other budget items
such as the testing of Exploration ▇▇▇▇▇ and related
salaries and overheads;
(vi) an estimate of the timing and value of each AFE and
commitment (being contracts or other orders placed or
goods purchased) to be made under the Budget;
7.1.2 DEVELOPMENT BUDGETS. Each development Budget required under
Article 9 of the Agreement shall include:
(i) an estimate on an annual basis in Dollars of the
total cost of the development and a sub-division of
such total into each main classification and
sub-classification of cost. The estimate for each
such classification and sub-classification of cost
shall be phased on an Accrual Basis and shall be
shown by Quarter;
(ii) the items detailed in paragraphs (ii) to (v)
inclusive of Section 7.1.1;
(iii) an estimate of the timing and value of the AFEs and
commitments to be made under the Budget identifying
the total commitments under each main classification
of cost in each Quarter of the first Year and the
subsequent Year. Operator shall endeavour to provide
the timing and estimated commitment for currencies
other than Dollars (with the exchange rate used)
where such commitment is known;
7.1.3 PRODUCTION BUDGETS. Each production Budget required under the
Agreement shall be divided into the following sections:
(i) Capital Expenditure
(ii) operating expenditure
(iii) extraordinary expenditure.
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Each production Budget shall include the items
detailed in paragraphs (i) to (vi) inclusive of this Section
7.1.1, and an estimate of the cost to complete projects
commencing in the respective Budget year.
7.2. PROCEDURE FOR BUDGET APPROVAL. The procedure for approval of
Exploration, Appraisal, Development and Production Budgets is provided
in Article 9 of the Agreement.
7.3 BUDGET APPROVAL AND AFE APPROVAL. Approval of Budgets for Exploration,
Appraisal, Development and Production provides Operator with general
approval of the proposals but does not, subject to Article 5.8 and 9.6
of the Agreement, permit Operator to enter into commitments or incur
any expenditures for any item included in the said Budgets for which an
AFE is required in accordance with the provisions of the Agreement
until such AFE is approved by the Operating Committee or deemed to be
approved as hereinafter provided.
7.4. SUB-DIVISION OF BUDGETS FOR APPROVAL BY AFE AND FOR CONTROL.
7.4.1 Exploration, Appraisal, Development and Production Budgets
shall be divided into separately numbered classifications and
sub-classifications of cost to provide a breakdown of the
project into work elements in sufficient detail to allow
adequate cost allocation and control. Where individual items
of expenditure are attributable to more than one such
classification or sub-classification such items shall be
apportioned on an equitable basis.
7.4.2 Notwithstanding the above to the extent that such AFE's are
required in accordance with the Agreement AFE's for ▇▇▇▇▇
included in an exploration or an appraisal Budget shall be
issued on a dry hole basis. Estimated testing costs will be
provided with such AFE's for information and if testing is
required approval will be sought in a telex detailing the
testing program. Where an AFE is required this will be
followed as soon as possible with a formal AFE for testing.
7.4.3 Operator may not, without the prior approval of the Operating
Committee, transfer sums over US$100,000 between Budget
classifications or sub-classifications after Budgets have been
approved.
7.5. AUTHORIZATION FOR EXPENDITURE.
7.5.1 Operator shall request approval of an AFE in accordance with
Article 9 of the Agreement at a time when the main details of
the relevant commitment or expenditure can be ascertained but
consistent with giving the Non-Operators ten (10) days advance
notice of the date by which approval is required.
7.5.2 The AFE will describe the project, state the justification for
the items of expenditure, give the estimate of the items of
expenditure necessary to complete the project, and give the
estimated phasings of such expenditures. Necessary further
details to support the estimated cost of the project will be
included as attachments to the extent reasonably required by
the Non-Operators.
Any Party which has voted in favour of an AFE shall sign an
AFE Form indicating its authorisation thereof. After approval
Operator shall promptly notify the Parties indicating the
identity of those Parties whose authorisation have formed part
of such approval.
Operator shall notify the Parties of a deemed approval of an
AFE as soon as such has become effective.
7.5.3 Approval, or where permitted deemed approval, of an AFE
constitutes authority for Operator to enter into any
commitment or incur any expenditure properly made in relation
to any approved AFE, whether or not payments in respect of
such commitments and expenditure will result in the final cost
of such commitments and expenditure exceeding the estimated
cost of such AFE, provided that if at any time it becomes
apparent that:
(i) commitments yet to be made will or are likely to
cause the estimated cost to be exceeded; or
(ii) expenditure to be incurred under commitments already
made will cause the estimated cost to be exceeded by
more than 10% or twenty thousand Dollars ($20,000)
(whichever is the lower),
Operator shall immediately notify the Parties and
shall without delay prepare a revised AFE giving the reasons
for the increased cost, and shall request approval of the
revised AFE and shall not enter into any
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new commitment in relation to such AFE until the revised AFE
has been approved, or where permitted deemed to be approved.
SECTION VIII
OVERRIDING PROVISIONS
8.1 General. Sections 8.2, 8.3 and 8.4 apply notwithstanding any provision
of this Accounting Procedure to the contrary.
8.2 Farming and Participation Agreement. No amount shall be payable by
Avenue under the Agreement or this Accounting Procedure for or in
connection with the works and operations the subject of clauses 4.4 and
4.5 of the Farmin and Participation Agreement.
8.3 Pre-Agreement Costs. No amount shall be payable by Avenue under the
Agreement or this Accounting Procedure in relation to costs,
expenditures or liabilities incurred or relating to a period or time
prior to the date of the Agreement, all of which shall be borne by AME
and ERSAN, as between them equally or in such other proportions as they
may agree, except for costs associated with the Krakilise-1 well.
8.4 Turnkey. The payment terms and conditions specified in a Turnkey
contract shall supersede any contrary provisions of this Accounting
Procedure. The terms of any Turnkey contract proposed by AME shall be
consistent with the most favorable terms available in the locale from
comparable operators.
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