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Exhibit 10.25
OPERATING AGREEMENT
COCORNA CONCESSION
THIS AGREEMENT, entered into this 11th day of September, 1995, but
effective January 1, 1995, by and between OMIMEX DE COLOMBIA, LTD., hereinafter
designated and referred to as "Operator", and SABACOL, INC., hereinafter
referred to as "Non-Operator", collectively called the Parties,
WITNESSETH:
WHEREAS, the Parties to this agreement are owners of the Cocorna
Concession, Colombia, S.A. identified in Exhibit "A", and the Parties hereto
have reached an agreement to develop and operate this Field,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
DEFINITIONS
As used in this agreement, the following words and terms shall have
the meanings here ascribed to them:
A. The term "oil and gas" shall mean oil, gas, casinghead gas, gas
condensate, and all other liquid or gaseous hydrocarbons and other
marketable substances produced therewith, unless an intent to limit the
inclusiveness of this term is specifically stated.
B. The term "Contract Area" shall mean all lands and oil and gas
interests intended to be developed and operated for oil and gas purposes
under this agreement. Such lands and oil and gas interests are described
in Exhibit "A".
C. The term "drillsite" shall mean the site on which a proposed
well is to be located.
D. The terms "Drilling Party" and "Consenting Party" shall mean a
party who agreed to join in and pay its share of the cost of any
operation conducted under the provisions of this agreement.
E. The terms "Non-Drilling Party" and "Non-Consenting Party" shall
mean a party who elects not to participate in a proposed operation.
Unless the context otherwise clearly indicates, words used in the
singular include the plural, the plural include the singular, and the neuter
gender includes the masculine and the feminine.
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ARTICLE II
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
A. Exhibit "A" - Identification of the lands subject to
this agreement and the interests of the Parties.
B. Exhibit "B" - Accounting Procedure
C. Exhibit "C" - Insurance
ARTICLE III
INTEREST OF THE PARTIES
Unless changed by other provisions, all costs and liabilities incurred in
operations under this agreement shall be borne and paid, and all equipment and
materials acquired in operations on the Contract Area shall be owned, by the
Parties as their interests are set forth in Exhibit "A". In the same manner,
the Parties shall also own all production of oil and gas from the Contract
Area.
Nothing contained in this Article III shall be deemed an assignment or
cross-assignment of interests covered hereby.
ARTICLE IV
OPERATOR
OMIMEX DE COLOMBIA, LTD., shall be Operator of the Contract Area, and shall
conduct and direct and have full control of all operations on the Contract Area
as permitted and required by, and within the limits of this agreement. It
shall conduct all operations in a good and workmanlike manner, but it shall
have no liability as Operator to the other party for losses sustained or
liabilities incurred, except such as may result from gross negligence or
willful misconduct.
Operator may resign at any time by written notice thereof to Non-Operator.
If Operator terminates its legal existence, no longer owns an interest in the
Contract Area, or is no longer capable of serving as Operator because Operator
is insolvent, bankrupt or is placed in receivership, Operator shall be deemed
to have resigned without any action by Non-Operator, except the selection of a
successor. Operator may be removed by Non-Operator by majority vote or if it
fails or refuses to carry out its duties hereunder. Such resignation or
removal shall not become effective until 7:00 A.M. on the first day of the
calendar month following the expiration of (90) days after giving of the notice
of resignation by Operator or action by the Non-Operator to remove Operator,
unless a successor Operator has been selected and assumes the duties of
Operator at an earlier date.
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Upon the resignation of Operator or removal by Non-Operator, a successor
Operator shall be selected by Parties owning an interest in the Contract Area
at the time such successor Operator is selected, excluding the ownership of the
retiring or removed Operator.
The number of employees used by the Operator in conducting operations
hereunder, their selection, and the hours of labor and the compensation for
services performed shall be determined by Operator, and all such employees
shall be the employees of Operator.
ARTICLE V
DRILLING AND DEVELOPMENT
A. OPERATIONS:
Should any party hereto desire to drill additional ▇▇▇▇▇ on the Contract
Area or rework, deepen or plug back a dry hole or a well not currently
producing in paying quantities, the party desiring to perform such operation
shall give the other party written notice of the proposed operation and the
estimated cost of the operation. The party receiving such a notice shall have
thirty (30) days after receipt of the notice within which to notify the party
wishing to do the work whether they elect to participate in the cost of the
proposed operation. If a rig is on location the notice of a proposed rework,
plug back or drill deeper may be given by telephone and the response period
shall be limited to forty-eight (48) hours, exclusive of Saturday, Sunday and
legal holidays. Failure of a party receiving such notice to reply within the
period fixed above shall constitute an election by that party not to
participate in the cost of the proposed operation. Any notice or response
given by telephone shall be promptly confirmed in writing.
If all Parties elect to participate in such a proposed operation, Operator
shall, within ninety (90) days after expiration of the notice period (or as
promptly as possible after the expiration of the forty-eight (48) hour period
when a drilling rig is on location), actually commence the proposed operation
and complete it with due diligence at the risk and expense of all the Parties
hereto. Said commencement may be extended for thirty (30) days, upon written
notice to the other party, if in the Operator's sole opinion such additional
time is reasonably necessary to obtain permits, equipment or surface rights.
If not commenced within the time periods set forth above, then the Operator
shall resubmitt to the other party its proposal as if no prior proposal had
been made.
If less than all Parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable notice period, shall
advise the Consenting Parties of the total interest approving such operation
and its recommendation as to whether the Consenting Parties should proceed with
the operation as proposed. If the decision is to proceed the entire cost and
risk of conducting such operations shall be borne by the Consenting Parties in
their adjusted proportions. Upon commencement of operations in accordance with
the provisions of this Article, each Non-Consenting Party shall be deemed to
have relinquished to Consenting Parties, and the Consenting Parties shall own
and be entitled to receive, in proportion to their respective interests, all
such Non-Consenting Party's interest in the well and share of production
therefrom until the proceed of the sale of such share, calculated at the well
shall equal the total of the following:
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a) 300% of each Non-Consenting Party's share of the cost of any
newly acquired surface equipment beyond the wellhead connections
(including, but not limited to, stock tanks, separators,
treaters, pumping equipment and piping), plus 100% of each such
Non-Consenting Party's share of the cost of operation of the
well commencing with first production and continuing until each
such Non-Consenting Party's relinquished interest shall revert
to it, it being agreed that each Non-Consenting Party's share of
such cost and equipment will be that interest which would have
been chargeable to such Non-Consenting Party had it participated
in the well from the beginning of the operations; and
b) 300% of that portion of the cost and expenses of drilling,
reworking, deepening, plugging back, testing and completing, and
300% of that portion of the cost of newly acquired equipment in
the well (to and including the wellhead connections), which
would have been chargeable to such Non-Consenting Party if it
had participated therein.
An election not to participate in the drilling or the deepening of a
well shall be deemed an election not to participate in any reworking or plugging
back operation proposed in such well, or portion thereof, to which the initial
Non-Consent election applied that is conducted at any time prior to full
recovery by the Consenting Parties of the Non-Consenting Parties recoupment
account. Any such work during the recoupment period shall be deemed part of the
cost of operation of said well and there shall be added to the sums to be
recouped by the Consenting Parties 300% of that portion of the costs of the
work.
Within (60) days after the completion of any operation under this
Article, the Operator shall furnish each Non-Consenting Party with an inventory
of the equipment in and connected to the well, and an itemized statement of the
cost of the operation. Thereafter, at least semi-annually, the Operator shall
provide each Non-Consenting Party with a payout statement reflecting costs and
revenue attributable to the well from the time of the non-consent election to
the date of the statement.
If and when the Consenting Parties recover from a Non-Consenting Party's
relinquished interest the amounts provided for above, the relinquished interest
of such Non-Consenting Party shall automatically revert to it, and from and
after such reversion, such Non-Consenting Party shall own the same interest in
such well, the material and equipment in or pertaining thereto, and the
production therefrom as such Non-Consenting Party would have been entitled had
it participated in the operation on said well.
B. TAKING OF PRODUCTION:
Each Party to this agreement shall be responsible for disposing of and
accounting for it proportionate share of the production in accordance with the
sales agreement(s) with Ecopetrol or any other purchaser as agreed by the
Parties or as required by the appropriate government authority of the Republic
of Columbia.
C. ACCESS TO CONTRACT AREA AND INFORMATION:
Each party shall have access to the Contract Area at all reasonable
times, at its sole cost and risk
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to inspect or observe operations, and shall have access at reasonable times to
information pertaining to the development or operation thereof, including
Operator's books and records relating thereto. Operator, upon request, shall
furnish each of the other Parties with copies of all forms and reports filed
with governmental agencies, daily drilling reports, well logs, tank tables,
daily gauge and run tickets and reports of stock on hand at the first of each
month, and shall make available samples of any cores or cuttings taken from any
well drilled on the Contract Area. The cost of gathering and furnishing
information to Non-Operator, other than that specified above, shall be charged
to the Non-Operator that requests the information.
D. ABANDONMENT OF ▇▇▇▇▇:
If a well has produced, excluding the interest of any Non-Consenting
Party, it shall not be plugged and abandoned without the consent of all Parties.
If all Parties consent to the plugging and abandonment, such action shall be at
the cost, risk and expense of all the Parties. Should Operator, after diligent
effort, be unable to contact any party, or should any party fail to reply within
forty-eight (48) hours after receipt of notice of the proposal to plug and
abandon such well, such party shall be deemed to have consented to the proposed
abandonment.
If a well has produced, excluding the interest of any Non-Consenting
Party, shall not be plugged and abandoned without the consent of all Parties.
If all Parties consent the plugging shall be at the cost, risk and expense of
all the Parties. If, within thirty (30) days, after receipt of the notice to
plug and abandon, any party elects not to consent to the plugging of the well,
then said party shall assume operation of the well and pay the Parties
consenting to the plugging and abandonment the estimated salvage value less the
estimated cost to plug and abandon the well. Each abandoning party shall
assign, without warranty, express or implied, of any kind or nature, all its
interest in the well. Thereafter the abandoning Parties shall have no further
responsibility, liability, or interest in the operation of or production from
the well.
All ▇▇▇▇▇ shall be plugged and abandoned in accordance with all
governmental rules and regulations.
ARTICLE VI
EXPENDITURES AND LIABILITIES OF PARTIES
A. LIABILITY OF PARTIES:
The liability of the Parties shall be several, not joint or collective.
Each party shall be responsible only for its obligations, and shall be liable
only for its proportionate share of the costs of developing and operating the
Contract Area. Accordingly, the liens granted among the Parties are given to
secure only the debts of each severally. It is not the intention of the Parties
to create, nor shall this agreement be construed as creating, a mining or other
partnership or association, or to render the Parties liable as partners.
B. LIENS AND PAYMENT DEFAULTS:
Each Non-Operator grants to Operator, a lien on all of each
Non-Operator's right in the
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Contract Area, and a security interest in its share of oil and/or gas when
extracted and its interest in all equipment, to secure payment of its share of
expense, together with interest thereon at the rate shown in Exhibit "B".
Operator grants a like lien and security interest to the Non-Operators to
secure payment of Operator's proportionate share of expense.
C. PAYMENTS AND ACCOUNTING:
Except as otherwise specifically provided, Operator shall promptly pay and
discharge expenses incurred in the development and operation of the Contract
Area pursuant to this agreement and shall charge each of the Parties hereto with
their respective proportionate shares upon the expense basis provided in Exhibit
B. Operator shall keep an accurate record of the joint account hereunder,
showing expenses and charges and credits made and received. Operator may
request advance payment estimated expenses. If any party fails to pay its share
of said estimated expenses within the time specified, the amount due shall bear
interest as provided in Exhibit "B". Such request shall include a detail
listing of the expenses to be covered by the advance payment.
Exhibit "B" shall detail the accounting procedures for the Contract Area.
D. LIMITATION OF EXPENDITURES:
Operator shall notify all Parties in writing and an AFE shall be
prepared before incurring any item of expense, which is equal to or exceeds US
$50,000.00. Such item of expense shall not be incurred unless a majority in
interest of the Parties signify their consent thereto in writing within 10 days
of the written notice.
E. INSURANCE:
Operator shall also carry or provide insurance for the benefit of the
joint account of the Parties as outline in Exhibit "C", attached to and made a
part hereof. Operator shall require all contractors engaged in work on or for
the Contract Area to maintain statutorily required insurance and insurance
equal to that shown on Exhibit "C".
F. ANNUAL BUDGET MEETING:
Operator shall, with at least 30 days written notice, call an annual
meeting of the Parties for the purpose of approving an annual budget and
capital expenditures program.
ARTICLE VII
MAINTENANCE OF UNIFORM INTEREST
For the purpose of maintaining uniformity of ownership of the
interests covered by this agreement, no party shall sell, encumber, transfer or
make other disposition of its interest in the Contract Area and in the ▇▇▇▇▇,
equipment and production unless such disposition covers the entire undivided
interest of the party.
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ARTICLE VIII
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or suit
arising from operations hereunder if the expenditure does not exceed Twenty
Thousand Dollars (US $20,000.00) and if the payment is in complete settlement
of such claim or suit. If the amount required for settlement exceeds the above
amount, the Parties hereto shall assume and take over further handling of the
claim or suit, unless such authority is delegated to Operator. All costs and
expenses of handling, settling or otherwise discharging such claim or suit
shall be the joint expense of the Parties participating in the operation from
which the claim or suit arises. If a claim is made against any party or any
party is sued on account of any matter arising from operations hereunder over
which such individual has no control because of the rights given Operator by
this agreement, such party shall immediately notify all other Parties, and the
claim or suit shall be treated as any other claim or suit involving operations
hereunder.
ARTICLE IX
FORCE MAJEURE
If any party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this agreement, other than the obligation to
make money payments, that party shall give to all other Parties prompt written
notice of the force majeure with reasonably full particulars concerning it;
thereupon, the obligations of the party giving the notice, so far as they are
affected by the force majeure, shall be suspended during, but no longer than,
the continuance of the force majeure. The affected party shall use all
reasonable diligence to remove the force majeure situation as quickly as
practicable.
The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty by the party involved, contrary to its wishes; how all
such difficulties shall be handled shall be entirely within the discretion of
the party concerned.
The term "force majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of equipment,
and any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control of the party claiming
suspension.
ARTICLE X
NOTICES
All notices authorized or required between the Parties and required by any
of the provisions of this agreement, unless otherwise specifically provided,
shall be given in writing by mail or telegram, postage or charges prepaid, or
by telex or telecopier and addressed to the Parties to whom the notice
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is given at the addresses listed in Exhibit "A". The originating notice given
under any provision hereof shall be deemed given only when received by the
party to whom such notice is directed, and the time for such party to give any
notice in response thereto shall run from the date the originating notice is
received. The second or any responsive notice shall be deemed given when
deposited in the mail or with the telegraph company, with postage or charges
prepaid, or sent by telex or telecopier. Each party shall have the right to
change its address at any time, and from time to time, by giving written notice
thereof to all other Parties.
ARTICLE XI
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the Contract
Area for so long as any ▇▇▇▇▇ are producing from the Contract Area. Upon
termination of this agreement the Parties shall remain responsible for the
proportionate share of any costs attributable to the final plugging and
abandonment of the ▇▇▇▇▇ and the facilities associated therewith. It is agreed
however, that the termination of this agreement shall not relieve any party
from any liability which has accrued or attached prior to the date of such
termination.
ARTICLE XII
APPLICABLE LAW
This agreement, its meaning and interpretation and the relationship of
the Parties hereunder, shall be governed by the laws of the United States of
America and all matters arising therefrom shall be brought before and submitted
exclusively to the courts of United States.
ARTICLE XIII
MISCELLANEOUS
A. US INTERNAL REVENUE CODE ELECTION
It is the express and specific intent of the Parties that a partnership
relationship not be created between them or among them and any other co-owner
of an interest in the Contract Area. In accordance with the applicable
provision of the US Internal Revenue Code of 1954 and regulations promulgated
pursuant and further thereto, the Parties do hereby elect not to be treated or
considered as partners and further elect that none of the provisions of
Sub-Chapter K of said Code shall be applicable with respect to the operation of
the Contract Area. The Parties expressly authorize Operator to file with the
proper authorities executed copies of this agreement, and such copies when
filed, shall be conclusive notice to said authorities of this election pursuant
to said Contract Area from all of the provisions of said Sub-Chapter K and said
regulations. Operator may in lieu of filing copies hereof, notify said
authorities of this election by separate instrument in proper form.
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B. HEADINGS:
The topic heading used herein are inserted for convenience only and
shall not be construed as having any substantive significance or meaning.
C. MODIFICATION:
There shall be no modification or amendment of this agreement except by
written instrument signed by all Parties.
D. ASSIGNMENT:
Except as otherwise provided herein, this agreement shall be binding
upon and inure to the benefit of the Parties, their respective successors and
assigns.
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement is executed as of the date first
above mentioned
WITNESSED: OPERATOR:
[SIG] OMIMEX DE COLOMBIA, LTD.
----------------------------
[SIG] [SIG]
---------------------------- ----------------------------------
WITNESSED: NON-OPERATOR:
[SIG] SABACOL, INC.
----------------------------
[SIG] [SIG]
---------------------------- ----------------------------------
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EXHIBIT "A"
Attached to and made a part of that certain Operating Agreement covering
the Cocorna Concession by and between OMIMEX DE COLOMBIA, LTD. and SABACOL, INC.
dated the 11th day of September, 1995, but effective January l, 1995.
CONTRACT AREA & INTERESTS OF THE PARTIES
----------------------------------------
CONTRACT AREA: COCORNA CONCESSION
Being the Concession Agreement described in
Attachment 4 of that certain Purchase and Sale
Agreement dated April 20, 1995 by and between
Texas Petroleum Company and Omimex de Colombia,
Ltd. and Sabacol, Inc. covering the Cocorna
Concession.
INTERESTS OF THE PARTIES:
PERCENT
OMIMEX DE COLOMBIA, LTD. 50%
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ No. 93-82 Off. 303
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Santafe De Bogota, Colombia
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ Phone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: ▇▇▇-▇▇▇-▇▇▇▇
SABACOL, INC. 50%
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇. 109 No. 15- 60 Off. 301
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Santafe De Bogota, Colombia
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ Phone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: ▇▇▇-▇▇▇-▇▇▇▇
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EXHIBIT "B"
JOINT OPERATIONS ACCOUNTING PROCEDURE
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions Agreement shall prevail.
The purpose of this Accounting Procedure is to establish equitable
methods for determining charges and credits applicable to operations under the
Agreement. The Parties agree that if any of such methods prove unfair or
inequitable to Operator or Non-Operator(s), the Parties will meet and in good
faith endeavor to agree on changes in methods deemed necessary to correct any
unfairness or inequity.
1- GENERAL PROVISIONS
1.1 Definitions
1.1.1. Agreement means the Joint Operating Agreement to which this
Accounting Procedure is attached.
1.1.2. Contract Area shall have the same definition as contained in
the Agreement.
1.1.3. Controllable Material shall mean material which the Operator
according to good oil field practice, subjects to record
control and inventory. A list of types of such material shall
be furnished to Non-Operator(s) upon request.
1.1.4. Days shall in all cases mean calendar days.
1.1.5. Field Supervisors as used herein the term "Field Supervisors"
shall mean those employees whose primary function in Joint
Operations is the direct supervision of other employees and/or
contract labor directly employed on the Joint Property in a
field operating capacity.
1.1.6. Joint Account shall be the set of accounts maintained by the
Operator to record all expenditures and other transactions
under the provisions of the Agreement.
1.1.7. Joint Operations shall mean all activities necessary and
proper under the provisions of the Agreement.
1.1.8. Joint Property shall mean the real and personal property
acquired and held for use in connection with operations under
the Agreement.
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1.1.9. Material shall mean personal property, including supplies and
use charge, acquired and held for use in Joint Operations.
1.1.10 Non-Operator(s) shall mean the parties to the Agreement other
than the Operator.
1.1.11 operator shall have the same definition as contained in the
Agreement.
1.1.12. Party or Parties shall have the same definitions as contained
in the Agreement.
1.1.13. Technical Employees as used herein the term "Technical
Employees" shall mean those employees having special and
specific engineering, geological or other professional skills,
and whose primary function in Joint Operations is handling of
specific operating conditions and problems for the benefit of
the Joint Property.
1.1.14. Operating Committee as used herein shall mean such committee
as may be appointed by the parties consisting of one
representative of the Operator and one representative of each
Non-Operator.
1.2 Statements, ▇▇▇▇▇▇▇▇ and Adjustments
1.2.1. Each Party to the Agreement is responsible for preparing its
own accounting, statistical and tax reports to meet Contract
Area and any other country or corporate requirements, except
that Operator shall be responsible for preparation and filling
of any United States Partnership Income Tax Returns that may
be required. The parties may elect out of Subchapter K.
Operator is required to furnish Non-Operator(s) statements and
▇▇▇▇▇▇▇▇ in such form as required to facilitate discharging
such responsibilities.
1.2.2. Operator shall ▇▇▇▇ Non-Operator(s) on or before the last day
of each month for their proportionate share of expenditures
for the preceding month. Such ▇▇▇▇▇▇▇▇ shall be accompanied
by statement of charges and credits to the Joint Account
summarized by appropriate accounting classifications
indicative of the nature thereof, except that items of
Controllable Material and unusual charges and credits shall be
detailed. Such ▇▇▇▇▇▇▇▇ shall indicate the monetary origin
(Colombian Pesos or U.S. Dollars) of the charges and credits.
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1.2.3. Operator shall, upon request by Non-Operator(s),
furnish a description of such accounting classifications.
1.2.4. In accordance with Colombian law, operator shall keep
the Joint Account in Colombian pesos. The Operator will also
maintain these accounts in U.S. dollar equivalency or shall
provide the applicable exchange rate(s) monthly so that
Non-Operator(s) may convert these Colombian peso accounts to
U.S. Dollars each month. The parties shall agree as to the
procedure to be used in establishing the exchange rate(s) to
be used in making the conversion from Colombian pesos to U.S.
dollars or vice-versa. Expenditures made in U.S. Dollars
shall be separately identified and reported to Non-Operator(s)
on a monthly basis. Accounts maintained for recording
property, plant and equipment shall be maintained in both
Colombia pesos and U.S. dollars and such accounts shall
reflect the monetary origin (pesos or dollars) of each item of
property, plant and equipment purchased for the Joint Account.
In the conversion of currencies and in accounting for advances
of different currencies as provided for in Paragraph 1.3 of
this Article, or any other currency transactions affecting the
Joint Operations, it is the intent that none of the Parties
shall experience gain or loss at the expense of, or to the
benefit of, the other Parties.
1.2.5. Payment of the bills referred to in paragraph 1.2.2.
of this article shall not prejudice the rights of any
Non-Operator(s) to protest or question the correctness
thereof; however, all bills and statements rendered to
Non-Operator(s) by Operator during any calendar year shall
conclusively be presumed to be true and correct after
twenty-four (24) months following the end of any such calendar
year, unless within the said twenty-four month period a
Non-Operator takes written exception thereto and makes claim
on Operator for adjustment. 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
Joint Property acquired for Joint operations.
1.2.6. The accrual method of accounting shall be used for the
Joint Account.
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1.3 Advances and Payment
1.3.1. Non-Operator(s) shall advance by immediately available funds
to Operator within 15 days of notice by Operator their share
of estimated cash requirements for the succeeding month's
Operations in accordance with Article VI of the Agreement.
Such advance shall be credited when the actual ▇▇▇▇▇▇▇▇ per
1.2.2. above are issued.
1.3.2. Should the operator be required to pay any large (in excess of
U.S. $50,000.00) sums of money on behalf of the Joint
operation, which were unforeseen at the time of providing the
Non-Operator(s) with said monthly estimates of its
requirements, the Operator shall make a written request of the
Non-Operators(s) for special advances covering the
Non-Operators' share of such payments. Non-Operator(s) shall
make their proportional special advances within fifteen (15)
days after receipt of such notice.
1.3.3. If Non-Operator(s) advances exceed their share of the
expenditures, the next succeeding cash advance requirements,
after such determination, shall be reduced accordingly or
deducted from the next billing, whichever comes first.
However, Non-Operator(s) may request that excess advances be
refunded. The Operator shall make such refund within fifteen
(15) days after receipt of Non-Operator(s) request. Such
refund shall be made in the currency so advanced.
1.3.4. If Non-Operator(s) advances are less than their share of
actual expenditures, the deficiency shall, at Operator's
option, be added to subsequent cash advance requirements or be
paid by Non-Operator(s) within thirty (30) days following
receipt of Operator(s) for such deficiency.
1.3.5. If Operator does not request Non-Operator(s) to advance their
share of estimated cash requirements, Non-Operator(s) shall
pay their share of actual expenditures within thirty (30) days
following receipt of operator's billing.
1.3.6. Payment of advances or ▇▇▇▇▇▇▇▇ shall be made on or before the
due date, and if not so paid the unpaid balance shall be
treated as provided under Article VI of the Agreement.
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1.4 Audits
1.4.1. A Non-Operator, upon at least thirty (30) days written notice
to Operator and other Non-Operator(s) shall have the right at
its sole expense to audit the Joint Account and related
records for any calendar year or portion thereof within the
twenty-four (24) month period following the end of such
calendar year; however, the conducting of an audit shall not
extend the time for the taking of written exception to and the
adjustment of accounts as provided for in Paragraph 1.2.5.
of this Article. 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.
1.4.2. Subject to unanimous prior approval of the Parties, the cost
of any special audit or verification of the Joint Account that
is for the benefit of all Parties shall be chargeable to the
Joint Account.
1.4.3. Normal recurring internal audits of the Joint Account made by
the Operator to assess internal controls shall be chargeable
to the Joint Account and copies thereof shall be furnished to
NonOperators upon request.
1.5 Interest
1.5.1 Should interest be accessed per the terms of the Agreement,
(1) the rate on non U.S. $ Cash Calls shall be the Colombian
Prime Rate as quoted by Banco Ganadero plus 10% and (2) on
U.S. $ Cash Calls Prime as quoted by Bank One, Texas, N.A.
plus 3%. Should said rate(s) exceed the maximum rate allowed
by law, then the maximum lawful rate(s) shall apply.
2- CHARGEABLE COST AND EXPENDITURES
Operator shall charge Joint Account for all costs necessary to conduct
Joint Operations in or with respect to the Contract Area. Such cost
shall include, but are not necessarily limited to:
2.1 Control, License or Permit Payments
2.1.1. All expenditures necessary to acquire and to maintain rights
to the Contract Area.
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2.2 Labor and Related Costs
2.2.1. Salaries. Salaries and wages of operator's field employees
directly employed on the Joint Property in the conduct of
Joint Operations, salaries and wages of Field Supervisors, and
salaries and wages of Technical Employees that perform work
and services directly relating to or for the benefit of the
Joint Property.
2.2.2. Salary Benefits. Operator's cost of holiday, vacation,
sickness and disability benefits and other customary
allowances paid to employees whose salaries and wages are
chargeable to the Joint Account under Article 2.2.1 above.
Such costs under this Article 2.2.2 may be charged on a "when
and as paid basis" or by "percentage assessment" on the amount
of salaries and wages chargeable to the Joint Account under
Article 2.2.1 above. If percentage assessment is used, the
rate shall be based on the operator's cost experience and
adjusted at least annually to the Operator's actual cost.
2.2.3. Assessments. Expenditures or contributions made pursuant
to assessments imposed by governmental authority which are
applicable to operator's costs chargeable to the Joint Account
under Article 2.2.1 and 2.2.2 above.
2.2.4. Personal Related Expenses including but not limited to the
following: travel and other reasonable reimbursable expenses
of Operator's employees, hospital and medical expense, schools
for employees and their children, insurance policies, and all
other reasonable activities applicable to the employee and
family, of those employees whose salaries and wages are
chargeable to the Joint Account under Article 2.2.1 above.
2.2.5. Employee Benefit Plans. Operator's current cost of
established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other customary benefit plans of a like nature
provided under operator's usual practices, applicable to
operator's labor cost chargeable to the Joint Account under
Article 2.2.1 above shall be at operator's actual cost.
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2.3. Material
2.3.1. Material purchased or furnished by Operator for use in Joint
Operations as provided under Article 3 of this Accounting
Procedure.
2.4 Transportation and Employee Relocation Costs
2.4.1. Transportation of Material and other related costs such as
expediting crating, dock charges, inland and ocean freight,
customs duties and taxes and unloading at destination.
2.4.2. Transportation of employees as required in the conduct of
Joint Operations.
2.4.3. Relocation costs to the Contract Area vicinity or to other
locations in Colombia of employees permanently or temporarily
assigned to the Joint Operations. Such costs shall include
transportation of employees' families and their personal and
household effects and all other relocation costs in accordance
with Operator's usual practice. Relocation from Colombia shall
not be charged to the Joint Account.
2.5 Services
2.5.1. Contract services, professional consultants, and other
services covered by Paragraph 2.8
2.5.2. Technical services for specific projects resulting in a
presentation or a written report, such as, but not limited to,
laboratory analysis, drafting, geophysical interpretation,
engineering, and related data processing, performed by the
Operator and its Affiliates for the direct benefit of the
Joint Operations, provided such costs shall not exceed those
currently prevailing if performed by outside technical service
companies.
2.5.3 Use of equipment, services and facilities furnished by
operator or Non-Operated(s) or their Affiliates provided such
equipment, services or facilities is of a quality and cost
commensurate and competitive with that offered by third
parties in the general vicinity of the Contract Area.
2.6 Damage and Losses to Joint Property
2.6.1 All costs or expenses necessary for the repair or replacement
of Joint Property resulting from
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damages or losses incurred by fire, flood, storm, theft,
accident, or any other cause. operator shall furnish
Non-Operator(s) written notice of damages or losses in excess
of nominal value as soon as practicable. Any payment(s)
by insurance companies shall be deducted in determining the
amount due.
2.7 Insurance
2.7.1. Net premiums for insurance are required by the Parties of the
Agreement.
2.7.2. Actual expenditures in the settlement of all losses, claims,
damages, judgements, and other expenses for the benefit of the
Joint Operations as per the Agreement.
2.7.3. Credits for settlements received from the insurance policies
and others.
2.8 Legal Expense
2.8.1. All costs or expenses of litigation or legal services
otherwise necessary or expedient for the protection of the
Joint Property, including but not limited to attorney's fees,
court costs, cost of investigation or procuring evidence and
amounts paid in settlement or satisfaction of any such
litigation of claims. These services may be performed by the
operator's legal staff or an outside firm as necessary.
Operator shall not incur more than Ten Thousand U.S. Dollar
(US $10,000) in costs for legal services in connection with
any single, suit, proceeding or matter without first obtaining
the prior approval of the other parties.
2.9 Duties and Taxes
2.9.1. All duties and taxes (except taxes based on income, net worth
and royalty based on production from the Contract Area and any
other taxes for which the Parties are liable severally but not
Jointly), fees and governmental assessment of every kind and
nature in relation with Joint Operations.
2.10 Offices, Camps and Miscellaneous Facilities
2.10.1. Cost of maintaining and operating any offices, suboffices,
camps, warehouses, housing and other facilities directly
serving the Joint operations shall be charged to the Joint
Account. If such
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facilities serve operations in addition to the Joint
Operations, the costs shall be allocated to the properties
served on an equitable basis as may be approved by the
Operating Committee which approval shall not be unreasonably
withheld.
2.11 Administrative Overhead
2.11.1. An administrative overhead covering services and related
office costs of personnel performing administrative, legal,
accounting, purchasing, treasury, tax, employee relations,
computer services and other functions for the benefit of the
operations provided they are not included elsewhere, shall be
charged to the Joint Account monthly.
2.11.2. The charge under the foregoing paragraph shall be for services
of all personnel and offices of operator who are not directly
assigned to Operations and shall be charged each month at the
rate of 12% on total expenditures attributable to Joint
Operations in the preceding month, except only 5% shall be
charged on expenditures for capital expenditure items.
2.11.3. Notwithstanding anything to the contrary which might be
stated in the Accounting Procedure, it is understood that no
cost or expenditure included under sections 2.2.1 through 2.10
shall be included or duplicated in the administrative overhead
rate charged in this Article 2.11. Further, at any party's
request, the rates in 2.11.2 above shall be reviewed annually
and adjusted if determined to be inadequate or excessive.
2.12 Other Expenditures
2.12.1. Any other expenditures not covered or dealt with in the
foregoing provisions which are incurred by the Operator and
its Affiliates for the ordinary, necessary and proper conduct
of the Joint operations.
3- MATERIALS
The cost of material, equipment and supplies purchased or furnished by
the Operator for use on the Joint Property shall be charged to the Joint
Account on the basis set forth below. So far as it is reasonably
practical and consistent with efficient and economical operation, only
such material shall be purchased for or transferred to the Joint
Property as may be required for immediate use, and the accumulation of
surplus stock shall be avoided.
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Operator shall give thirty (30) days written notice of intention to
take such inventories to allow Non-Operator(s) to be represented when
any inventory is taken. Failure of any Non-Operator to be represented
shall bind such Non-Operator to accept the inventory taken by Operator.
3.3.2. Reconciliation of inventory with the Joint Account shall be
made and a list of overages and shortages as well as obsolete
and surplus materials shall be furnished to the
Non-Operator(s). Inventory adjustments shall be made to
the Joint Account in accordance with good accounting
practices.
3.3.3. Whenever there is a sale or change of interest in the Joint
Property, a special inventory shall be taken by the Operator
if required by the seller and/or purchaser and the seller
and/or purchaser of such interest shall 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 inventories taken.
4- FIXED ASSETS
Inventories of Fixed Assets will be taken as determined by the Parties
but not less than every five (5) years. Operator shall give
thirty (30) days written notice of intention to take such inventories to
allow Non-Operator(s) to be represented when any inventory is taken.
Failure of any Non-Operator to be represented shall bind such
Non-Operator to accept the inventory taken by Operator.
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EXHIBIT "C"
Attached to and made a part of that certain Operating Agreement covering the
Cocorna Concession by and between OMIMEX DE COLOMBIA, LTD. and SABACOL, INC.
dated the 11th day of September, 1995, but effective January 1, 1995.
INSURANCE
Operator shall, in the performance of its obligations hereunder, carry
statutorily required insurance and Public Liability Insurance in amounts of not
less than US $1,000,000.00 per occurance or accident with an aggregate limit of
not less than US $2,000,000.00. Operator shall likewise cause all contractors
to carry insurance in such amounts commensurate with those set forth above.