EXHIBIT 10.5
AGREEMENT
BETWEEN
(1) CANARGO SAMGORI LIMITED
AND
(2) GEORGIAN OIL SAMGORI LIMITED
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COVERING: THE SAMGORI PRODUCTION SHARING CONTRACT,
GEORGIA
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Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
AGREEMENT DATED ________ JANUARY 2004 (THE "AGREEMENT")
between
(1) CANARGO SAMGORI LIMITED, a company organised and existing under the laws
of Guernsey (registered number 41491), and having its registered office at
▇▇ ▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇ (CanArgo, and its successors
and assignees, if any, will be referred to as "CanArgo")
and
(2) GEORGIAN OIL SAMGORI LIMITED, a company wholly owned by the Joint Stock
National Oil Company Georgian Oil ("Georgian Oil"), a legal entity
organised and existing under the laws of Georgia pursuant to the Charter
of Georgian Oil Samgori Limited and the Law on Oil and Gas and having
offices at ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ (Georgian Oil Samgori
Ltd, and its successors and assignees, if any, will be referred to as
"GOSL")
CanArgo and GOSL together being referred to as the "Parties" and "Party" shall
be a reference to either of them.
WHEREAS
(A) A Production Sharing Contract was entered into on 29 May 2001 (the "PSC")
among (1) The State Agency for Regulation of Oil and Gas Resources of
Georgia (the "State Agency"), (2) the Joint Stock National Oil Company
Saknavtobi ("Georgian Oil"), both duly authorised representatives of the
State of Georgia, and (3) National Petroleum Limited ("NPL"), and signed
pursuant to the Georgian Law on Oil and Gas of 16 April 1999 (hereinafter
the "Law"), in terms of which NPL was the sole Contractor (as defined in
the PSC) under the PSC;
(B) GOSL became a party to and the sole Contractor under the PSC by the
acquisition of 100% of NPL's interest in the PSC pursuant to the Agreement
of Assignment dated 16 December 2003 (the "Assignment") between NPL and
GOSL;
(C) GOSL wishes and is obliged to implement the Assignment provisions which
include an agreed Work Programme as described in Annex 1 of the Assignment
(the "Work Programme"), but does not currently possess sufficient funds
and is looking for a partner;
(D) GOSL desires to assign, and CanArgo desires to acquire a fifty per cent
(50%) interest in GOSL's rights and obligations as the Contractor party
under the PSC on the terms and on the basis set forth herein;
(E) The Parties express a desire to jointly implement the Work Programme as
defined in the Assignment and the provisions of the Assignment and
subsequently the PSC;
(F) Ioris Valley Oil and Gas Limited ("IVOG"), the Operating Company for
Petroleum Operations under the PSC owned fifty per cent (50%) by Georgian
Oil and fifty per cent (50%) by GOSL, currently holds an undivided one
hundred per cent (100%) interest in the Licence (as defined in the PSC)
over the Contract Area as described in Annex A and Annex B of the PSC,
unless CanArgo has been notified that a new Operating Company has been
duly appointed in accordance with the provisions of the PSC;
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
(G) GOSL wishes to sell and CanArgo wishes to acquire GOSL's entire 50% share
in IVOG (or in the event that another Operating Company has been appointed
in accordance with the PSC then in such Operating Company) for a nominal
price of one United States dollar (USD1).
NOW THEREFORE, in consideration of the promises and the mutual covenants and
conditions herein contained, it is hereby agreed as follows:
1 DEFINITIONS
Words and terms used in this Agreement shall unless otherwise expressly
specified in this Agreement have the meanings attributed to them in the
PSC:
"Assignment" is defined in Recital B to this Agreement and a copy of which
is annexed hereto as Appendix 1;
"Completion" means completion of the farm in pursuant to Article 3;
"Contractor" has the meaning attributed thereto in the PSC;
"Contractor Percentage Interest" means the percentage interest of each of
GOSL and CanArgo (as the case may be) in the Contractor's rights and
obligations under the PSC;
"Deed of Assignment and Adherence" means the deed in the form annexed
hereto as Appendix 2;
"PSC" is defined in Recital A to this Agreement and a copy of which is
annexed hereto as Appendix 3;
2 SCOPE OF CONTRACT
2.1 The purpose of this Agreement is:-
(i) to allow GOSL to give notice to NPL pursuant to Article 5.3 of the
Assignment;
(ii) to provide for the development of the Samgori Field and Contract
Area through the implementation of the Work Programme pursuant to
the Assignment and the PSC (hereinafter the "Project"); and
(iii) to allow for the participation of CanArgo as a Contractor party
under the PSC on the terms and subject to the conditions set out
herein.
2.2 Following Completion, the respective Contractor Percentage Interest of
each of GOSL and CanArgo shall be as follows:-
(a) GOSL - Fifty per cent (50%)
(b) CanArgo - Fifty per cent (50%)
3 ASSIGNMENT TO CANARGO
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
3.1 Completion of the assignment of a fifty per cent (50%) Contractor
Percentage Interest to CanArgo shall be conditional upon receipt of and
GOSL shall use its best efforts to obtain:-
(a) documentary proof, to the satisfaction of CanArgo, that the
conditions outlined in Article 5.2 of the Assignment have been
satisfied in full by GOSL and as such the Assignment is fully
effective, as determined by Article 5 of the Assignment, for its
entire term, which term is for the avoidance of doubt the Contract
term specified in Article 4 of the PSC;
(b) written confirmation, to the satisfaction of CanArgo, that, as at
the date of this Agreement, NPL has not exercised its option
pursuant to Article 3 of the Assignment;
(c) written confirmation, to the satisfaction of CanArgo, that the
Assignment and any arrangement to follow thereon has been duly
registered in accordance with Georgian law and that GOSL is the
legal owner of 100% of the Contractor party's interest under the
PSC;
(d) in the event that a new Operating Company has been appointed under
the PSC, written confirmation to the satisfaction of CanArgo that
CanArgo can acquire a fifty per cent (50%) share in such an
Operating Company on the same basis that it would have acquired a
fifty per cent (50%) share in IVOG and that such Operating Company
has been properly appointed in accordance with the terms of both the
PSC and Georgian law;
(e) the consent of the State Agency and Georgian Oil for the assignment
by GOSL of a fifty per cent (50%) Contractor Percentage Interest to
CanArgo pursuant to Article 26 of the PSC;
(f) a waiver from the State Agency and Georgian Oil of their pre-emption
rights under Article 26 of the PSC; and
(g) completion, to the sole satisfaction of CanArgo, of satisfactory
financial, legal, technical and other due diligence in respect of
IVOG (or such other Operating Company duly appointed under the PSC),
the PSC and any relevant supplemental documentation.
3.2 In the event that any of the conditions outlined in Articles 3.1, with the
exception of Article 3.1(g), are not fulfilled by 1st March 2004, CanArgo
shall have the option to take over negotiations from GOSL and negotiate
directly with third parties.
In implementing the terms of the Assignment GOSL will not take any
decisions or any act or omission without the prior written approval of
CanArgo. Furthermore, GOSL will provide CanArgo as soon as possible with
copies of all notices received pursuant to the Assignment. If requested by
CanArgo, GOSL will approach NPL with a view to CanArgo becoming a party to
the Assignment.
3.3 As soon as possible but certainly within one (1) month of the satisfaction
of the conditions specified in Article 3.1 GOSL and CanArgo shall execute
a Deed of Assignment and Adherence in terms satisfactory to CanArgo in
respect of a fifty per cent (50%) Contractor Percentage Interest in the
PSC.
3.4 On completion of the Deed of Assignment and Adherence and its effective
registration with the State Agency and the matters referred to in Article
3.5 of this Agreement, CanArgo shall
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
commence to make the necessary funds outlined in Article 4 available in
the amounts and within the timeframes narrated in Article 4 herein.
3.5 Coincident with completion of the Deed of Assignment and Adherence, GOSL
will:
(a) prior to the sale by GOSL of its fifty per cent (50%) share in IVOG
(or, in the event that a new Operating Company is appointed, then in
such new Operating Company) pursuant to Article 3.5(b) below, if
required by CanArgo, obtain the consent of Georgian Oil for the
charter capital of IVOG (or, if necessary, such other new Operating
Company) to be reduced to a nominal amount in such a way as to
minimise any potential tax liability for CanArgo and GOSL shall
further ensure that the requirements of Georgian law are complied
with in order to effect such a reduction;
(b) sell its full fifty per cent (50%) share in IVOG (or the new
Operating Company appointed under the PSC) to CanArgo for a nominal
price of one United States dollar (USD1) and procure any necessary
waivers of pre-emption rights or other consents; and
(c) obtain the consent of Georgian Oil for the chairman of IVOG (or such
other new Operating Company appointed under the PSC) to be appointed
solely by CanArgo and as such CanArgo through the chairman will have
a casting vote. If required by CanArgo the constitutional documents
of IVOG (or such other new Operating Company appointed under the
PSC) will be amended to provide that CanArgo shall have a casting
vote at both directors and shareholders meetings.
In the event that NPL exercises its option pursuant to Article 3.1
of the Assignment and as such reacquires its 50% interest in IVOG,
CanArgo agrees that, if required, it shall use its reasonable
endeavours to ensure that the Charter of IVOG is amended back to its
original form.
3.6 CanArgo hereby confirms that upon completion of the acquisition of its
fifty per cent (50%) share in IVOG (or the new Operating Company appointed
under the PSC) pursuant to Article 3.5(b), it shall not change the
management of IVOG (or such other new Operating Company) without the prior
permission of Georgian Oil (such permission not to be unreasonably
withheld or delayed) within two years of the date of signing of this
Agreement.
3.7 As soon as practicable following the execution of the Deed of Assignment
and Adherence the Parties will negotiate and enter into a joint operating
agreement based on the current Association of International Petroleum
Negotiators Model International Joint Operating Agreement ("JOA"). The JOA
will include among others a sole risk provision and the provision for the
joint sale of the Contractor's share of Petroleum produced from the
Contract Area.
4 WORK PROGRAMME AND OBLIGATIONS OF THE PARTIES
4.1 In consideration of GOSL implementing the provisions of the Agreement in
full, CanArgo at its own risk will fund one hundred per cent (100%) of the
costs of drilling the first horizontal well pursuant to Phase I of the
Work Programme which may be a horizontal section from an existing well as
determined by the Project.
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
4.2 Based on the results of the drilling of the first horizontal well and the
decision of the Parties, GOSL and CanArgo will jointly fund on a pro rata
basis according to each Contractor's Percentage Interest the drilling of
the second horizontal well pursuant to Phase I of the Work Programme which
may be a horizontal section from an existing well as determined by the
Project.
4.3 Within 15 months from signing this Agreement, the Parties will provide
funds for fulfilling Phase 1 of the Work Programme determined by the
Assignment, by taking into account the principles of Articles 4.1 and 4.2
above. For the avoidance of doubt, all costs associated with the
implementation of the Work Programme with the exception of the costs
associated with the drilling of the first horizontal, which may be a
horizontal well section, will be borne pro rata by the Parties in
accordance with their respective Contractor Percentage Interest.
4.4 Obligations under the Assignment including the obligations to pay the Net
Profit Interest to NPL shall be met by the parties pro rata according to
their Contractor Percentage Interest.
4.5 For the avoidance of doubt, in the event that either party refuses or is
unable to fund all or any part of its share of the funding for the Work
Programme, the other Party shall be entitled to proceed on a sole risk
basis and any operations carried out by either Party acting alone in
relation to this Agreement shall be governed by the provisions outlined in
Appendix 4.
5 RIGHTS UNDER THE PSC
5.1 The Parties agree that IVOG (or the new Operating Company appointed under
the PSC in which CanArgo is acquiring a fifty per cent (50%) share
pursuant to this Agreement) shall act as the Operating Company for the
implementation of the Work Programme determined by the Project.
5.2 The Parties agree that CanArgo shall represent the Contractor Party on the
Co-ordination Committee established under the PSC providing that Georgian
Oil remains the State Representative on the Coordination Committee. In the
event that Georgian Oil is no longer the State Representative on the
Coordination Committee, CanArgo shall have a majority of the Contractor
Representatives on the Coordination Committee and shall appoint the chief
representative from the Contractor party.
5.3 The Parties agree, within a period of 45 (forty-five) days after
completion of the Deed of Assignment and Adherence pursuant to Article 3
of this Agreement, to establish a Contractor Management Council ("CMC")
which shall comprise a maximum of four (4) members, two (2) from GOSL and
two (2) from CanArgo. The CMC shall agree on the matters to be discussed
and the position to be adopted by the Contractor with respect to the
Coordination Committee. The chairman of the CMC shall be designated by
CanArgo and CanArgo shall represent the Contractor parties at the
Coordination Committee. In the event that Georgian Oil is privatised or it
sells its interest to a non-state company, GOSL or its assignee shall be
entitled to have 50% of the total number of the Contractor's
representatives in the Coordination Committee.
5.4 Following the assignment of a fifty per cent (50%) Contractor Percentage
Interest in and under the PSC to CanArgo, the Parties agree that CanArgo
will become the Contractor Parties' chief representative in all dealings
with the State.
6 ALLOCATION OF PRODUCTION AND RECOVERY OF COSTS AND EXPENSES
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
6.1 In order to fulfil the obligations under Article 2 of the Assignment, the
Parties agree to jointly sell all Crude Oil and Natural Gas allocated to
the Contractor parties under the PSC.
6.2 Until such time as the Parties have negotiated and duly executed a JOA,
the Parties hereby agree that CanArgo will have sole responsibility for
the selling of all Crude Oil and Natural Gas allocated to the Parties
pursuant to this Agreement. Monies received by CanArgo from such sales
shall be deposited into a jointly held bank account (the "Joint Account")
which may be operated in either local or foreign currency or both.
Thereafter, the proceeds of such sales, less all costs incurred by the
Parties in respect of such sales and any Net Profit Interest payable to
NPL pursuant to the Assignment, shall be distributed between the Parties
pro rata in accordance with their respective Contractor Percentage
Interest and the PSC. For the avoidance of doubt, there shall be two
signatories for the Joint Account, one from GOSL and one from CanArgo.
7 FORCE MAJEURE
7.1 For the purposes of this Agreement, "Force Majeure" shall mean a
circumstance which is irresistible or beyond the reasonable control of the
Party affected, any act of Georgia or any governmental or administrative
body therein, or any other hindrance of the affected Party's performance
not due to its fault or negligence.
7.2 If as a result of Force Majeure, either Party is rendered unable, wholly
or in part, to carry out its obligations under this Agreement, other than
the obligation to pay any amounts due, then the obligations of that Party,
so far as and to the extent that the obligations are affected by such
Force Majeure, shall be suspended during the continuance of any inability
so caused, but for no longer period.
8 ASSIGNMENTS AND TRANSFERS
8.1 Neither party may assign its rights or obligations hereunder without the
prior written consent of the other, not to be unreasonably withheld or
delayed. This provision shall not cover an assignment of rights and
obligations hereunder in favour of an Affiliated Company, as stipulated in
Article 26 of the PSC.
8.2 Save in the case of any assignment to an Affiliated Company, the Party
wishing to assign all or part of its rights and interests hereunder or
under the PSC or in any circumstances where there is deemed to be an
assignment, the Party wishing to make the assignment shall first give
written notice to the other Party specifying the proposed terms and
conditions of the assignment.
Following receipt of those terms and conditions, for a period of thirty
(30) days the other Party shall have the preferential right to match the
terms and conditions of the proposed assignment or deemed assignment. This
right may be exercised by any Party giving written notice of its intention
to match the relevant terms and conditions (the "Acceptance") and
thereafter the relevant Parties shall negotiate all necessary
documentation in good faith. If within a further period of ninety (90)
days from receipt of the Acceptance the relevant parties have not reached
final agreement the Party seeking to assign may within a further period of
thirty (30) days complete an assignment to a third party on the same terms
and
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
conditions. For the avoidance of doubt any assignment to a third party
shall be subject to the assigning Party and the third party complying with
the provisions of this Article and the PSC and assuming its pro rata share
of obligations under the Assignment, including the obligation to meet the
Net Profit Interest.
9 DISPUTE RESOLUTION
9.1 If any dispute or difference arises between the Parties in connection with
this Agreement then either Party may at any time give notice to the other
Party of its intention to refer such dispute or difference to
international arbitration in Stockholm, Sweden.
9.2 Notwithstanding the provisions of Article 9.1, in the event that the
Parties have executed a JOA in accordance with Article 3.6, any dispute or
difference between the Parties in connection with this Agreement shall be
carried out in accordance with the terms of the JOA which shall contain
the following options for dispute resolution:-
(i) if such a dispute or difference is of a technical matter it shall be
referred to a technical expert;
(ii) if such a dispute or difference is of a legal or commercial nature
such matter shall be referred to arbitration; or
(iii) in the event that the Parties are unable to reach agreement on the
Work Programme as determined by the Assignment or some future Work
Programme or Budget (as defined in the PSC) a sole risk provision
will exist.
10 GOVERNING LAW
10.1 This Agreement shall be governed by and construed in accordance with the
law of England.
10.2 The parties hereto submit to the non-exclusive jurisdiction of the English
courts as regards any claim, dispute or matter arising out of or relating
to this Agreement and its implementation or effect.
10.3 This Agreement hereby supersedes any and all other agreements, oral or
written, between the Parties and constitutes the entire agreement among
the Parties hereto in respect of the subject matter of this Agreement.
10.4 This Agreement may only be amended by an agreement in writing executed by
all the Parties.
11 TERM
11.1 This Agreement shall become effective on its signing date taking into
consideration the terms of Article 3 herein and shall continue in full
force and effect until the PSC and Licence are terminated under Article 4
of the PSC or the Assignment is terminated by NPL exercising its option
pursuant to the provisions of Article 3.1 therein, whichever occurs
earlier.
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
12 REPRESENTATION AND WARRANTIES
12.1 All representations and warranties stipulated herein shall remain in force
for the duration of this Agreement.
12.1.1 The Parties severally provide the following representations and
warranties as of the date hereof:
a. The Parties are entitled and have all necessary powers to make, to
sign, to exchange documents and to execute this Agreement. Signing,
transfer and execution of this Agreement have been properly approved
by all necessary corporate and other actions of the Parties. This
Agreement, after it is signed by both Parties, shall be binding for
the Parties, and can be enforced in relation to each Party according
to its terms and conditions;
b. The Parties are properly established and exist according to the
legislation of the jurisdiction;
c. Hereby the Parties warrant to each other that the corresponding
representatives of GOSL and CanArgo, which sign this Agreement,
possess all necessary authorities for conclusion of this Agreement
and creation of rights and responsibilities for both Parties;
d. Hereby the Parties warrant to each other that during implementation
of the responsibilities undertaken they will act in good faith in
relation to each other;
12.1.2 GOSL solely represents and warrants that as of the date hereof:-
a. GOSL or NPL has not committed any material violations of the PSC
terms, including violations of environmental standards and
instructions and so far as GOSL is aware there are no claims,
counterclaims, orders of court, legal proceedings and investigations
related to non-fulfilment or improper fulfilment of the PSC terms by
GOSL or NPL;
b. GOSL has not committed any material violations of the terms of the
Assignment and NPL has not exercised its option pursuant to Article
3 of the Assignment;
c. GOSL owns 100% of the participation interest of the Contractor in
the PSC; and
d. the PSC and Assignment are valid and so far as GOSL is aware there
are no grounds for the early termination of either contract.
12.1.3 CanArgo confirms that as at the date hereof it is acquainted with the PSC
and the Assignment and agrees to comply with its terms upon completion of
the Deed of Assignment and Adherence pursuant to Article 3 of this
Agreement. Furthermore, CanArgo shall procure that its parent company,
CanArgo Energy Corporation, shall provide Georgian Oil with a side letter
indemnifying Georgian Oil in the event of a claim under the Parent Company
Guarantee between Georgian Oil and NPL dated 16 December 2003 for an
amount equivalent to the CanArgo's Contractor Percentage Interest of any
such claim, in the form outlined in Appendix 5.
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
12.2 In the event that either Party suffers actual loss as a result of any of
the foregoing representations and warranties given by the other proving to
be incorrect, the Party suffering the said actual loss shall be entitled
on demand to recover that loss from the other Party provided that; in no
circumstances shall either Party's liability hereunder exceed USD2,000,000
(two million US dollars); any claim made for breach of representation or
warranty must be made and submitted in writing to the other Party within
two years of the date hereof.
13 NOTICES AND CONFIDENTIALITY
13.1 Except as otherwise specifically provided, all notices authorised or
required between the Parties by any of the provisions of this Agreement,
shall be in writing in English and delivered in person or by registered
mail or by courier service or by any electronic means of transmitting
written communications which provides confirmation of complete
transmission, and addressed to such Parties as designated below. The
addresses for service of notices on each of the parties is as follows:
CANARGO :
CanArgo Samgori Limited
▇▇ ▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Telephone ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
Facsimile ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
GOSL:
Georgian Oil Samgori Limited
Kostava 65
Tbilisi 0171
Georgia
Telephone +995 ___________
Facsimile ▇▇▇▇ ▇▇ ▇▇▇▇▇▇
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
14 TERMINATION AND BREACH
14.1 This Agreement shall terminate immediately upon the exercise by NPL of its
option pursuant to Clause 3 of the Assignment or termination of the PSC,
whichever is the earlier.
14.2 Notwithstanding the provisions of Article 14.1 of this Agreement, in the
event that the condition outlined in Article 3.1(g) of this Agreement is
not satisfied to the sole satisfaction of CanArgo within 3 months of the
date of this Agreement, CanArgo shall have the right to terminate this
Agreement with immediate effect.
14.3 Furthermore, notwithstanding the provisions of Article 14.1, if a new
Operating Company has been appointed under the PSC and the condition
outlined in Article 3.1(d) of this Agreement is not satisfied to the sole
satisfaction of CanArgo then CanArgo shall have the right to terminate
this Agreement with immediate effect.
14.4 Subject to Articles 14.2 and 14.3, neither Party may terminate this
Agreement unilaterally.
14.5 Termination shall be without prejudice to the prior rights of either
Party.
IN WITNESS WHEREOF this Agreement has been duly executed on behalf of each of
the parties on the day and year first before written
SIGNED by SIGNED by
on behalf of CANARGO SAMGORI LIMITED on behalf of GEORGIAN OIL SAMGORI LIMITED
............................... ..................................
Name: Dr ▇▇▇▇▇ ▇▇▇▇▇▇ Name: ...........................
Position: Chairman Position:.........................
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
Appendix 1
AGREEMENT of ASSIGNMENT
between
NATIONAL PETROLEUM LIMITED
and
GEORGIAN OIL SAMGORI LIMITED
Dated 16 December 2003
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
Appendix 2
The Deed of Assignment and Adherence
THIS ASSIGNMENT is made as a Deed on the _______day of _________2004
BETWEEN
(1) GEORGIAN OIL SAMGORI LIMITED, a company wholly owned by the Joint Stock
National Oil Company Georgian Oil ("GEORGIAN OIL"), a legal entity
organised and existing under the laws of Georgia pursuant to the Charter
of Georgian Oil Samgori Limited and the Law on Oil and Gas and having its
offices at ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ (the "ASSIGNOR"); and
(2) CANARGO SAMGORI LIMITED, a company organised and existing under the laws
of Guernsey (registered number 41491), and having its registered office at
▇▇ ▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇ (the "ASSIGNEE").
WHEREAS:-
(A) On 29th May 2001 The State Agency for Regulation of Oil and Gas Resources
in Georgia, Georgian Oil and National Petroleum Limited ("NPL") entered
into a production sharing contract (the "PSC") in relation to the Samgori,
Partadzuli and South Dome oilfields and Licence Block XIB in the Republic
of Georgia and more particularly described in the PSC. The Assignor became
a party to and the sole Contractor (as defined in the PSC) under the PSC
by the acquisition of 100% of NPL's interest in the PSC pursuant to the
Agreement of Assignment dated 16th December 2003 between the Assignor and
NPL.
(B) Pursuant to the farm-in agreement dated January 2004, (the "AGREEMENT")
the Assignor has agreed to transfer and assign to the Assignee a 50%
Contractor Percentage Interest (as defined in the Agreement) in and under
the PSC, together with all rights and interests of the Assignor under the
PSC.
THIS DEED WITNESSES as follows:-
1 Words and expressions defined in the Agreement shall have the same meaning
when used in this Assignment.
2 In consideration of the obligations undertaken by the Assignee as set out
in the Agreement, the Assignor hereby assigns to the Assignee a 50%
Contractor Percentage Interest in and under the PSC and the Assignee
hereby accepts such assignment.
3 The Assignor and Assignee hereby expressly state that the rights and
privileges of The State Agency for Regulation of Oil and Gas Resources in
Georgia (the "STATE AGENCY") under the PSC shall not be prejudiced by the
provisions of this Deed.
4 The assignment shall become effective upon the date (the "EFFECTIVE DATE")
it is signed by the State Agency and the assignment to be fully legal and
effective.
5 The Assignee hereby confirms that it has been supplied with a copy of the
PSC and hereby irrevocably and unconditionally covenants with each of the
other parties to the PSC from
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
time to time to perform and be bound by all of the terms of the PSC as
Contractor as if the Assignee were an original contractor party thereto.
6 This Deed of Assignment is an Annex to the PSC and constitutes an integral
part to it.
7 For better understanding, following the assignment of a 50% Contractor
Percentage Interest in and under the PSC to the Assignee, the Assignee
will become the Contractor Parties' representative in all dealings with
the state, will maintain all obligations and responsibilities of a
Contractor Party under the PSC and any dispute arising out of this Deed of
Assignment or the Agreement will be a dispute between the parties to this
document and will have no impact on operations performed under PSC.
8 This Assignment shall be governed by and construed in accordance with the
law of England.
The parties hereto submit to the non-exclusive jurisdiction of the Courts of
England as regards any claim, dispute or matter arising out of or relating to
this assignment and its implementation or effect.
IN WITNESS of which the parties have executed this document as a deed on the
date first before written.
Executed and delivered as a Deed
For and on behalf of
GEORGIAN OIL SAMGORI LIMITED
By .............................. (Director)
.............................. (Director/Secretary)
Executed and delivered as a Deed
For and on behalf of
CANARGO SAMGORI LIMITED
By .............................. (Director)
.............................. (Director/Secretary)
State Agency for Regulation of Oil
and Gas Resources of Georgia
Head of the Agency Acting under the Georgian Law on Oil and
Gas, by signing this document on the date of
2004, the State Agency for Regulation of Oil
----------------------- and Gas Resources of Georgia approves the
G. Itonishvili Deed of Assignment regarding assignment of
part of the investor's rights
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
Appendix 3
PRODUCTION SHARING CONTRACT
between
NATIONAL PETROLEUM LIMITED
and
THE STATE OF GEORGIA
represented by
The State Agency for the Regulation of Oil & Gas
and
The Joint Stock National Oil Company Saknavtobi
Dated 29 May 2001
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
Appendix 4
1 OPERATIONS BY LESS THAN ALL PARTIES - EXCLUSIVE OPERATIONS
1.1 (a) No operations may be conducted in furtherance of the Work Programme
except as joint operations carried out and funded by the Parties in
accordance with this Agreement and funded in accordance with their
respective Contractor Percentage Interest or as Exclusive Operations
under the provisions of this Appendix 4.
(b) The following operations may be proposed and conducted as other than
joint operations carried out in accordance with this Agreement
("Exclusive Operations"), subject to the terms of this Appendix 4:
(i) drilling and/or testing of exploration ▇▇▇▇▇ and appraisal
▇▇▇▇▇;
(ii) completion of exploration ▇▇▇▇▇ and appraisal ▇▇▇▇▇ not then
completed as productive of Petroleum;
(iii) extending horizontally, deepening, sidetracking, plugging back
and/or recompletion of exploration ▇▇▇▇▇ and appraisal ▇▇▇▇▇;
and
(iv) the carrying out of a development plan (or an amended
development plan) pursuant to a commercial discovery;
(v) the redevelopment or use of a well which would otherwise be
abandoned;
(vi) the further development of an existing well or existing
distribution structure;
(iv) the acquisition and processing of seismic data.
No other type of operation may be proposed or conducted as an
Exclusive Operation.
1.2 Subject to Article 1.1 of this Appendix 4, if a Party proposes to conduct
an Exclusive Operation, such Party shall give notice of the proposed
operation to the other Party. Such notice shall specify that such
operation is proposed as an Exclusive Operation, the work to be performed,
the location, the objectives, and estimated cost of such operation.
1.3 A Party entitled to receive such notice shall have the right to
participate in the proposed operation by notifying the other Party within
sixty (60) days after receipt of the notice proposing the Exclusive
Operation.
1.4 Failure of a Party to whom a proposal notice is delivered to properly
reply within the period specified above shall constitute an election by
that Party not to participate in the proposed operation.
If the other Party properly exercises its rights to participate, then the
proposed operation shall be conducted as a joint operation.
1.5 If the Party entitled to receive such proposal notice properly exercise
its rights to participate, then:
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
(a) the Party proposing the Exclusive Operations shall have the right
exercisable for the applicable notice period set out in Article 1.3
of this Appendix 4 to conduct the Exclusive Operation;
(b) if the Exclusive Operation is conducted, the parties agreeing to
participate in and pay their share of the cost of an Exclusive
Operation ("Consenting Parties") shall bear the sole liability and
expense and operation of such Exclusive Operation; and
(c) if such Exclusive Operation has not been commenced within one
hundred and eighty (180) Days (excluding any extension specifically
agreed by all Parties or allowed by the force majeure) after the
date that the right to conduct Exclusive Operations is acquired, the
right to conduct such Exclusive Operation shall terminate. If any
Party still desires to conduct such Exclusive Operation, notice
proposing such operation must be resubmitted to the Parties in
accordance with this Appendix 4, as if no proposal to conduct an
Exclusive Operation had been previously made.
1.6 (a) The Consenting Parties shall bear the entire cost and liability of
conducting an Exclusive Operation and shall indemnify the non
consenting parties from any and all costs and liabilities incurred
incident to such Exclusive Operation (including but not limited to
all costs, expenses or liabilities for environmental, or losses
arising from business interruption, reservoir or formation damage,
pollution control and environmental amelioration or rehabilitation)
and shall keep the remaining contract area free and clear of all
liens and encumbrances of every kind created by or arising from such
Exclusive Operation. The Consenting Parties shall ensure that the
Exclusive Operations do not breach the terms of the PSC.
(b) Notwithstanding Article 1.6(a) of this Appendix 4, each Party shall
continue to bear its 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
Operation.
1.7 With regard to any Exclusive Operation, for so long as a non consenting
party has the option under Article 1.9 of this Appendix 4 to reinstate the
rights it relinquished under Article 1.8 of this Appendix 4, such non
consenting party shall (at its own expense) be entitled to have reasonable
access concurrently with the Consenting Parties to all data and other
information relating to such Exclusive Operation.
1.8 Subject to Article 1.9 of this Appendix 4, the non consenting party shall
be deemed to have relinquished to the Consenting Party, and the Consenting
Party shall be deemed to own, in any Exclusive Operation:
(a) All of each such non consenting party's right to participate in
further operations in the well or deepened or sidetracked portion of
a well in which the Exclusive Operation was conducted and on any
discovery made or appraised in the course of such Exclusive
Operation; and
(b) All of each such non consenting party's right pursuant to this
Agreement and the PSC to take and dispose of Petroleum produced and
saved (or the cash proceeds thereof):
(i) From the well or deepened or sidetracked portion of a well in
which such Exclusive Operation was conducted, and
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
(ii) From any ▇▇▇▇▇ drilled to appraise or develop a discovery made
or appraised in the course of such Exclusive Operation.
1.9 A non consenting party shall have only the following options to reinstate
the rights it relinquished pursuant to Article 1.8 of this Appendix 4:
(a) If the Consenting Parties decide to develop, appraise a discovery
made in the course of an Exclusive Operation or to conduct further
exploration not included in the original proposal for Exclusive
Operations, the Consenting Parties shall submit to each non
consenting party the approved budget and work programme. For thirty
(30) Days from receipt of such budget and work programme, each non
consenting party shall have the option to reinstate the rights it
relinquished pursuant to Article 1.8 of this Appendix 4 and to
participate in such programme. The non consenting party may exercise
such option by notifying the other Party within the period specified
above that such non consenting party agrees to bear fifty (50)
percent of the expense and liability of such work programme, to pay
the lump sum amount as set out in Article 1.11(a) of this Appendix 4
and to pay the Cash Premium as set out in Article 1.11(b) of this
Appendix 4.
1.10 (a) If a non consenting party does not properly and in a timely manner
exercise such option, including paying in a timely manner in
accordance with Article 1.11 of this Appendix 4 all lump sum amounts
and Cash Premiums, if any, due to the Consenting Party, such non
consenting party shall have forfeited the options as set out in
Article 1.9 of this Appendix 4 and the right to participate in the
proposed programme, unless such programme, plan or operation is
materially modified or expanded (in which case a new notice and
option shall be given to such non consenting party under Article 1.9
of this Appendix 4).
(b) A non consenting party shall become a Consenting Party with regard
to an Exclusive Operation at such time as the non consenting party
gives notice pursuant to Article 1.9 of this Appendix 4; provided
that such non consenting party shall in no way be deemed to be
entitled to any lump sum amount or Cash Premium paid incident to
such Exclusive Operation. Such non consenting party shall be
entitled to cost recover its fifty (50) percent of expenses paid
pursuant to Article 1.9 of this Appendix 4. If all Parties
participate in the proposed operation, then such operation shall be
conducted as a Joint Operation pursuant to the Agreement.
(c) If after the expiry of the period in which a non consenting party
may exercise its option to participate in a work programme, the
Consenting Party desires to proceed, notice shall be given to the
State under the appropriate provision of the PSC requesting a
meeting to advise the State that the discovery is considered to be a
Commercial Discovery. Following such meeting, the Contractor shall
(at the Consenting Party's sole cost) apply for an Exploitation Area
(if applicable in the PSC). The non consenting party to such
development plan shall be deemed to have:
(i) Forfeited all economic interest in such Exploitation Area;
(ii) Assumed a fiduciary duty to exercise its legal interest in
such Exploitation Area for the benefit of the Consenting
Parties.
The non consenting party shall be deemed to have withdrawn from this
Agreement and the PSC to the extent it relates to such Exploitation
Area, even if the development plan is modified or expanded
subsequent to the commencement of
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
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 Exploitation Area designed
solely for the use of such Exploitation Area.
1.11 (a) Within thirty (30) Days of the exercise of its option under Article
1.9 of this Appendix 4, the non consenting party shall pay in
immediately available funds to the Consenting Party a lump sum
amount, in the currency designated by such Consenting Party, equal
to such non consenting party's Contractor's Percentage Interest of
all liabilities and expenses, including overhead, that were incurred
in every Exclusive Operations relating to the Discovery, or well, as
the case may be, in which the non consenting party desires to
reinstate the rights it relinquished pursuant to Article 1.8 of this
Appendix 4, and that were not previously paid by such non consenting
party.
(b) In addition to amounts payable under Article 1.11(a) of this
Appendix 4, within thirty (30) Days of the exercise of its option
under Article 1.9 of this Appendix 4 the non consenting party shall
pay in immediately available funds, in the currency designated by
the Consenting Party who took the risk of such Exclusive Operations,
to such Consenting Party a Cash Premium equal to the total of five
hundred percent (500%) of all liabilities and expenses, including
overhead, that were incurred in the Exclusive Operations and any
other Costs and Expenses whatsoever properly incurred in the
Exclusive Operations.
1.12 (a) There shall be maintained separate books, financial records and
accounts for Exclusive Operations.
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
Appendix 5
CanArgo Energy Corporation Side Letter
[NOTEPAPER OF CANARGO ENERGY CORPORATION]
Georgian Oil
Kostava 65
Tbilisi 0171
Georgia
(hereinafter referred to as "Georgian Oil")
January 2004
Dear Sirs
In the event that there is any claim under the Parent Company Guarantee granted
by Georgian Oil in favour of National Petroleum Limited dated 16 December 2003,
we, CanArgo Energy Corporation, hereby undertake to indemnify Georgian Oil for
an amount equivalent to our Contractor Percentage Interest (as defined in the
Agreement between Georgian Oil Samgori Limited and CanArgo Samgori Limited dated
on or around the date of this Letter) of any such claim.
This Letter shall be governed by and construed in accordance with the laws of
England.
Yours faithfully
.................................... Director
For and on behalf of CANARGO
ENERGY CORPORATION
Farm-In Agreement between CanArgo Samgori Ltd and Georgian Oil Samgori Ltd
AGREEMENT OF ASSIGNMENT
This Agreement of Assignment (hereinafter referred to as "Agreement") made and
entered on this_______ day of _____________2003 by and between:
National Petroleum Limited, a company established and existing under the law of
Bermuda, with registered office at ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
(hereinafter referred to as "NPL"), and
Georgian Oil Samgori Ltd, a company established and existing under the law of
Georgia, with registered office in ▇▇▇▇▇▇▇ ▇▇▇▇▇▇. ▇▇, ▇▇▇▇▇▇▇, Georgia
(hereinafter referred to as "GOSL")
NPL and GOSL are sometimes hereinafter collectively referred to as the "Parties"
and individually as a "Party".
WITNESSETH
WHEREAS (1) the State Agency for Regulation of Oil and Gas Resources of Georgia
(hereinafter the "State Agency"), (2) the Joint Stock National Oil Company
Saknavtobi (hereinafter "Georgian Oil"), both duly authorised representatives of
the State of Georgia, together with (3) NPL have signed, pursuant to the
Georgian Law on Oil and Gas of April 16, 1999 (hereinafter the "Law") a
Production Sharing Contract (hereinafter the "PSC") dated May 29, 2001 which, by
fully complying with the Contract provisions, entered into force on September 1,
2001 (hereinafter the "Effective Date");
WHEREAS Ioris Valley Oil and Gas Limited ("IVOG"), a company owned fifty percent
(50%) by NPL and fifty percent (50%) by Georgian Oil holds an undivided one
hundred percent (100%) interest in the Licence over the Contract Area as
described in Annex A and Annex B of the PSC.
WHEREAS, pursuant to Article 26 of the PSC, NPL on the basis of an approval of
the State Agency and Georgian Oil, has the right to transfer a part or all of
its rights under the PSC to a third party;
WHEREAS, NPL desires to assign, and GOSL desires to acquire the whole one
hundred percent (100%) of NPL's rights and obligations in and under the PSC,
subject to the Annual Net Profit interest to NPL and the other terms and
conditions contained
1
in this Agreement.
WHEREAS, in order to attract sufficient funds GOSL requires a maximum of 15
(fifteen) months for negotiating and executing the relevant agreements with its
new investors.
WHEREAS, the definitions as contained in Article 1 of the PSC shall apply to
this Agreement, unless specifically amended herein;
NOW THEREFORE, the Parties have agreed as follows:
ARTICLE 1: NPL OBLIGATIONS
1.1 NPL will transfer all its rights and obligations under the PSC to
GOSL on the Assignment Date in full compliance with the terms of
this Agreement, Article 22 0f the Law and Article 26 of the PSC;
1.2 NPL will sell its full share in IVOG to GOSL, which is 50% of the
entire interest, for a symbolic price of $US1;
ARTICLE 2: GOSL OBLIGATIONS
In return for fulfilment of Clauses 1 and 2 of Article 1 of the Agreement,
GOSL and/or its assignees will undertake the following;
2.1 GOSL and/or its assignees will fully implement and fund the agreed
Work Programme, as described in Annex 1 of this Agreement. The Work
Programme shall commence upon full satisfaction of Articles 5.2 and
5.3 of this Agreement;
2.2 From the Assignment Date, GOSL and/or its assignees will pay to NPL
30 (thirty) percent of the Annual Net Profit obtained; until the
prior costs and expenses made by NPL and as determined in Article 4
hereunder are fully recovered;
2.3 In the event of developing new oil and gas fields as a result of
GOSL exploring
2
prospective structures identified on the basis of seismic surveys
(coordinates are given in Annex 2) performed by NPL in the
Exploration Area to pay 5 (five) percent of the Annual Net Profit
obtained from the implementation of this project;
2.4 The Net Profit payments described in Article 2.2 above will continue
until the unrecovered prior costs and expenses incurred by NPL and
as determined in Article 4 hereunder are fully recovered;
2.5 The Net Profit payments described in Article 2.3 above will continue
until the unrecovered prior costs and expenses incurred by NPL and
as determined in Article 4 hereunder are fully recovered;
2.6 Thereafter GOSL and/or its assignees will continue to pay five (5)
percent of the Annual Net Profit obtained until the Contract Term of
the PSC expires under Article 4 thereof; thereafter GOSL will have
no further liability towards NPL.
2.7 NPL will be entitled to attend all meetings of the Co-ordination
Committee, and receive a copy of the minutes thereof; NPL may
express an opinion, but will have no voting rights at such meetings;
2.8 As long as Article 2.2 above is in effect , the GOSL and/or its
assignees will employ (at their cost) a consultant acceptable to NPL
to implement the Cost Recovery, Cost Reimbursement and Accountancy
Procedures described in the PSC and such additional roles as may be
agreed between the consultant, NPL, GOSL and/or its assignees. This
consultant will provide regular (monthly) cash flow and production
reports to the GOSL and/or its assignees and NPL.
2.9 GOSL and/or its assignees will provide NPL with copies and reports
of all relevant data related to the conduct of petroleum operations
which they will get from the operator.
2.10 Annual Net Profit will be determined as follows and confirmed by an
internationally
3
recognized audit:
"Annual Net Profit" means
(1) the gross revenue accruing to GOSL from sales of Petroleum from
the Contract Area and all other revenues attributable to Petroleum
Operations
less
(2) the total of the following deductions:
(i) all costs incurred by GOSL attributable to Petroleum
Operations and/or the sale of Petroleum and which are
consistent with prudent international oil and gas practice
including, but not limited to, transportation and processing
costs;
(ii) all Georgian taxes, royalties or other Governmental imposts on
the Contractor Parties arising in respect of the Contract
Area:
(iii) all financing costs whether with Affiliates or third parties,
associated with the obtaining of finance and/or provision of
monetary security for Petroleum Operations which are
consistent with Article 1.39 of the PSC;
(iv) all costs associated with or set aside for decommissioning,
abandonment or reclamation of any facilities erected on the
Contract Area;
(v) the cost of premiums and deductibles in respect of insurance
of Petroleum Operations on the Contract Area; and
(vi) the cost of the consultant as described in Article 2.8 herein;
2.11 Advance Funds determined by clauses 2.2 and 2.3 of Article 2 of this
Agreement will be paid quarterly within forty five (45) days of the
conclusion of each calendar quarter which afterwards will be
regulated by an annual conclusion of internationally recognised
audit.
4
2.12 If GOSL and/or its assignees fails to pay any amount payable by it
under this Agreement, interest shall accrue on the due amount from
the last day of the period within which the payment was due up to
the date of actual payment at a percentage rate per annum that is
the aggregate of LIBOR and Margin. The payment of accrued interest
shall be made together with the payment of due amount.
2.13 In this Agreement LIBOR means the British Bankers' Association
Interest Settlement Rate for US Dollars for the period of one (1)
month, fixed on the last day of the period within which the payment
was due as of 11:00 a. m. London time, displayed on the appropriate
page of the Telerate screen. If the agreed page is replaced or
service ceases to be available NPL may specify another page or
service displaying the appropriate rate after consultation with
GOSL.
2.14 In this Agreement Margin means three percent (3%) per annum.
2.15 GOSL will endeavour to obtain the international market price for its
share of the oil and gas produced, as described under Article 12 of
the PSC.
2.16 GOSL and/or its successors shall have the right to assign, mortgage,
transfer title, or effect any other similar action to its share or
part thereof, providing NPL with written information of such
transaction.
2.17 Georgian Oil shall provide NPL with a guarantee that it holds
ultimate responsibility for the fulfillment of the rights and
responsibilities of GOSL.
ARTICLE 3: NPL OPTION
3.1. In the event GOSL and/or its assignees has not completed any Phase
of the Work Programme described in Annex 1 within its defined
timeframe, NPL may, in accordance and compliance with Article 3.2 of
this Agreement, at its discretion, exercise the right to reacquire,
free of charge, one hundred
5
percent (100%) of GOSL's Participating interest in the PSC,
ownership interests/shares in IVOG and any rights which GOSL and/or
its assignees may have acquired under any operating agreement
entered into with respect to the Contract Area (collectively "GOSL's
Interests") within one hundred and eighty (180) days (the "Option
Period").
3.2. Based on actual geological, technical and economic terms in the
implementation of the Work Programme, Parties will have a right to
amend, change or correct a Work Programme and amend the technical
terms and/or volumes and/or timing of the work, subject to their
unanimous agreement and the consent of the State Agency.
3.3. In order to exercise the option under Article 3.1 to reacquire
GOSL's Interests, NPL must deliver to GOSL and/or its assignees
within the Option Period, a notice in writing setting forth NPL's
election. If NPL elects to reacquire GOSL's Interest it will assume
any and all further obligations under the PSC.
3.4. In the event of NPL reacquiring GOSL's Interests, the Work Programme
(Annex 1) will be suspended for a period of up to 12 (twelve)
months.
3.5. It is understood that the right in Article 3.1, if exercised, is
conditional upon receipt of Assignment Approval. In the event NPL
exercises the right in accordance with Article 4.2 above, GOSL
and/or its assignees agrees to apply for and use all reasonable
endeavours to obtain all Assignment Approvals and consents required
to reassign such Participating Interest to NPL.
3.6. If NPL does not elect to exercise the right in Article 3.1 before
the end of the relevant Option Period, the right shall terminate and
shall be of no further force and effect.
6
3.7. If NPL elect to exercise the right in Article 3.1, the new
investor's investments in compliance with the PSC shall be deemed as
costs and expenses and shall be cost recoverable.
ARTICLE 4: NPL PRIOR COSTS AND EXPENSES
NPL's unrecovered prior costs and expenses up to the end of the 3rd quarter of
1998 have been audited and amount to $33,936,279.0. NPL's subsequent unrecovered
costs and expenses will be determined by NPL subject to a joint audit by NPL and
Georgian Oil with participation of the Agency. The audit conclusion will be
included in Annex 3 prior to the Assignment Date).
ARTICLE 5: ASSIGNMENT DATE
5.1. This Agreement shall enter into force and effect in its entirety on
its signing date and shall remain in force unconditionally for a
period of not more than 15 (fifteen) months.
5.2. This Agreement shall become fully effective for its entire term, ie
the term determined in Article 4 of the PSC, from the date
(hereinafter the "Assignment Date") that the following conditions
have been fulfilled to the satisfaction of an internationally
recognized auditor:
(i) The Prior Costs and Expenses have been agreed to the
satisfaction of NPL, Georgian Oil and the State Agency and
inserted in Annex 3;
(ii) The transfer of NPL's interest in the Operating Company to
GOSL has been registered;
(iii) The Parties have agreed on the appointment of the consultant
(Article 2.8) and concluded a contract with the consultant.
Subject to the contractual obligations, the Parties may, by
unanimous agreement, chose to replace the consultant on the
anniversary of the contract;
7
(iv) The Parties have agreed on the appointment of the independent
auditor (Articles 2.10 and 5.2) and concluded a contract with
the independent auditor. Subject to the contractual
obligations, the Parties may, by unanimous agreement, chose to
replace the independent auditor on the anniversary of the
contract;
(v) The State Agency has given its consent to the assignment and
the NPL option as described in Article 3 of this Agreement;
(vi) Georgian Oil has issued the guarantees described in Annex 4,
in accordance with Article 2.17 of this Agreement.
5.3. Within 15 months of the date of execution of this Agreement, GOSL
will notify NPL and the State Agency that it is in a position to
commence work (the "Work Commencement Date") and the Work Programme
described in Annex 1 shall commence.
5.4. Notwithstanding any other provisions of this Agreement and the PSC,
including but not limited to Article 29 thereof, if after the
expiration of 15 (fifteen) months from the date of execution of this
Agreement by all Parties, the above conditions , as determined by
the provisions of Articles 5.2 and 5.3, have not been met, then this
Agreement shall terminate and neither shall be of any further force
or effect.
ARTICLE 6: LIABILITY
GOSL and/or it assignees agree that they will be liable to Georgian Oil
and the State Agency under the said PSC for all duties and obligations
provided for in the PSC, but their liability shall be several and not
joint or collective and nothing contained herein shall ever be construed
as creating a partnership of any kind or an association or a trust or as
imposing upon any or all of the Parties hereto any partnership duty,
obligations or liability.
Each Party shall be responsible only for its obligations as set forth in
this Agreement, and always pursuant to their foregoing respective
participating interest. After the Assignment Date, NPL shall have no
further duties, obligations or liabilities under the PSC.
8
ARTICLE 7: CONFIDENTIALITY
All information and data disclosed and delivered between the Parties shall
be confidential and shall not be disclosed by the Parties to any third
party either during the validity of this Agreement. Either Party shall be
entitled to disclose the confidential information without the other
Party's prior written consent to such of the following persons:
(a) employees, officers and directors of the respective Party;
(b) employees, officers and directors of an affiliated company;
(c) any consultant or agent retained by the respective Party or
its Affiliated Company;
(d) any bank or other Financial institution or entity funding or
proposing to fund the respective Party's participation related
to the assignment, including any consultant retained by such
bank or other financial institution or entity.
(e) state taxation and controlling bodies.
ARTICLE 8: GOVERNING LAW AND ARBITRATION
8.1 This Agreement shall be governed by and interpreted in accordance
with the substantive law of England and Wales. For state tax
purposes, the Parties are subject to Georgian legislation.
8.2 The Parties hereto agree that any dispute 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 by Arbitration in accordance with the Rules of Conciliation
and Arbitration of the International Chamber of Commerce by three
Arbitrators appointed in accordance with the said rules. The
Arbitration shall be held in London and shall be conducted in the
English language.
8.3 The resulting arbitral award shall be final and binding, and
judgment upon such award may be entered in any court having
jurisdiction thereof. A dispute shall be deemed to have arisen when
either Party notifies the other Party in writing to that effect.
ARTICLE 9: TERM
9
9.1 This Agreement shall become effective on its signing date taking
into consideration terms of Article 5 herein and continue in full
until the PSC and Licence are terminated under Article 4 of the PSC.
Articles 6,7,8 and 9 of this Agreement shall remain in effect for a
further three (3) years from the date of termination;
9.2 The assignment made hereunder shall be binding upon and inure to the
benefit of the Parties hereto, their successors, heirs and
assignees.
9.3 This Agreement contains the entire agreement between the Parties
hereto in relation to the subject matter hereof and supersedes any
previous understandings or agreements in relation hereto. No
purported future modification hereto or amendment hereof shall be
binding on the Parties unless the same shall be in writing and
executed by the authorised representatives of the Parties and shall
expressly refer to this Agreement.
ARTICLE 10: FORCE MAJEURE
10.1 If as a result of Force Majeure, any Party is rendered unable,
wholly or in part, to carry out its obligations under this
Agreement, other than the obligation to pay any amounts of money
due, then the obligations of such Party so far as and to the extent
that the obligations are affected by such Force Majeure, shall be
suspended during the continuance of any inability so caused, but for
no longer period.
Such Party shall notify all other Parties of the Force Majeure
situation within (14) Days of becoming aware of the circumstances
relied upon and shall keep all other Parties informed of all
significant developments. Such notice shall give reasonably full
particulars of the said Force Majeure, and also estimate the period
of time which such Party will probably require to remedy the Force
Majeure. Failure to give any such notification in a timely fashion
shall mean that the period of Force Majeure shall be deemed to have
commenced on the date of the giving of such notice.
The affected Party shall use all reasonable diligence to remove or
overcome or avoid
10
the Force Majeure situation as quickly as possible in an economic
manner. The period of any such non-performance or delay, together
with such period as may be necessary for the restoration of any
damage done during such delay, shall be added to the time given in
this Agreement for the performance of any obligation dependent
thereon and the continuation of any right granted; provided,
however, the term of this Agreement shall be not be extended as a
result of
(i) any particular event of Force Majeure, if the duration of any
such particular event of Force Majeure which, together with
any period of time required for restoration, is for a period
of 30 Days or less; and
(ii) the enactment or adoption of a law, rule or regulation by the
State or any local or legislative body of or within Georgia,
whether acting directly or through Georgian Oil, if such law,
rule or regulation is comparable to one which has been enacted
or adopted, on or before the date the Contract is signed, by a
member nation of the European Union or any legislative or
regulatory body of the European Union. Notwithstanding
anything to the contrary herein contained, no event shall
constitute Force Majeure if it does not delay or prevent the
Contractor from engaging in the conduct of Petroleum
Operations.
For the purposes of this Agreement, "Force Majeure" shall mean
natural calamities, strikes, sabotage and other production
disorders, civil disturbance, war (declared or undeclared), or other
military actions, terrorist or guerrilla activity, blockade, revolt,
earthquake, avalanche, orders, laws or decrees of any state or
governmental entity of any country, or other similar events beyond
the control of the Party claiming Force Majeure which could not have
been prevented by it.
10.2 The exercise by Georgian Oil or by the State Agency of any right
under the PSC shall not constitute Force Majeure under any
circumstance.
11
ARTICLE 11: NOTICES
Notices under this Agreement shall be deemed properly given when sent by fax,
telex or registered mail to the following addresses:
NPL
Address: ▇, ▇▇▇▇ ▇▇ ▇▇▇▇-▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇
Fax: + ▇▇ ▇▇ ▇▇▇ ▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Authorised Representative
Georgian Oil Samgori Limited
Address: ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
Fax: ▇▇▇▇ ▇▇ ▇▇▇▇▇▇
Attn: Giorgi Makharadze, General Director
This Agreement is made in two (2) original copies in Georgian and English
languages. Each counterpart shall be deemed an original Agreement for all
purposes.
IN WHITNESS WHEREOF, the Parties have executed this Agreement of Assignment on
the day and year first above written.
SIGNED by
Duly authorized for and
on behalf of
(NPL)
SIGNED by
(Giorgi Makharadze)
Duly authorized for and
on behalf of
(GOSL)
12
ANNEX 1: AGREED WORK PROGRAMME
The objective of the work programme will be to increase production and revenue
in the Samgori-Patardzeuli oil field through the implementation of a horizontal
well drilling programme and rehabilitation of existing ▇▇▇▇▇. Additional
production and revenue may be obtained through exploration activity in the
adjacent areas of Licence block XIb.
The programme shall consist of three phases:
PHASE 1 will determine the feasibility of the proposed programme. It will
include a geological study of the existing oil-water contact, the drilling of
two horizontal well sections which may be from a new well or as a horizontal
section from an existing well, whichever will be more reasonable to drill on the
basis of hydro-geological studies. Both ▇▇▇▇▇ will be tested in the oil-bearing
Middle Eocene volcaniclastic reservoir with horizontal sections of 500 metres
long, The section length will be justified on geological and technical
feasibility. The expected cost of the geological study is $200,000, the
sidetrack well $1.5 million and the new well $3.0 million.
At the same time a continuous programme of workover and rehabilitation will
continue on the existing Samgori-Patardzeuli-South Dome-Krtsanisi fields with
the objective of increasing production to over 100 tons per day. Phase 1 of this
programme is expected to cost up to $1 million.
Phase 1 should be completed within 18 months of the Work Commencement Date
determined by Article 5.3 of the Agreement.
PHASE 2 In the event of successful results of ▇▇▇▇▇ ▇, ▇▇▇▇▇ 2 will continue the
implementation of horizontal drilling from the old ▇▇▇▇▇ and the new horizontal
well drilling programme. Its conclusion would be defined as the point at which
revenue obtained from the Assignment Date exceeds the expenditure from the
Assignment Date.
The programme of workover and rehabilitation will continue on the existing
Samgori-Patardzeuli-South Dome-Krtsanisi fields with the objective of increasing
production to over 120 tons per day. The expected cost of this programme is
$600,000 per year.
PHASE 3 In the event of positive results from ▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇ will conclude the
horizontal drilling from the old ▇▇▇▇▇ and the new horizontal well drilling
programme when at least 10 horizontal ▇▇▇▇▇ with horizontal sections of 500
metres long have been completed. The section length will be justified on
geological and technical feasibility.
13
The programme of workover and rehabilitation will continue on the existing
Samgori-Patardzeuli-South Dome-Krtsanisi fields with the objective of containing
the decline in production to less than 15% per year. The expected cost of this
programme is $600,000 per year.
The minimum capital expenditure in Phases 1 to 3 is expected to be: drilling
$22.5 million, workovers and facilities $2.2 million, geological studies
$200,000.
Phases 1 to 3 should be completed within thirty six (36) months of the Work
Commencement Date described in Article 5.3. This may be extended to a maximum of
60 months if required for successful implementation of Phase 2.
Drilling of only 10 (ten) horizontal sections is required within all three
Phases.
EXPLORATION DRILLING on the adjacent structures will be dependant on both the
technical and the commercial success of the above programme
SUMMARY CHART: BLOCK XIB PROPOSED WORK PROGRAMME
- PHASE 1
18 months*
----------
2 horizontal well sections $ 3.0 m
Geological study $ 0.2 m
Enhanced workover activity $ 1.0 m
- PHASE 2
to payback
----------
horizontal well sections
workover activity $ 0.6 m/y
- PHASE 3
Conclusion of 10 horizontal well sections
workover activity $0.6 m/y
- TOTAL PHASES 1 TO 3
36 months*
----------
10 horizontal well sections $ 22.5 m
Geological study $ 0.2 m
Enhanced workover activity $ 2.2 m
* from Assignment Date
- EXPLORATION DRILLING
Contingent on the technical and commercial success
of the above programme
14
ANNEX 2: COORDINATES OF THE EXPLORATION AREA COVERED IN THIS AGREEMENT
## NNL NEL
-- ---------------- ----------------
1 41 degrees 34'52" 45 degrees 14'38"
2 41 degrees 33'08" 45 degrees 08'19"
3 41 degrees 38'35" 45 degrees 03'55"
4 41 degrees 41'50" 45 degrees 04'51"
5 41 degrees 45'00" 45 degrees 05'00"
6 41 degrees 45'53" 45 degrees 09'43"
7 41 degrees 44'26" 45 degrees 13'47"
8 41 degrees 42'50" 45 degrees 15'03"
9 41 degrees 38'02" 45 degrees 16'22"
15
ANNEX 3: AUDIT CONCLUSION
16
ANNEX 4: PARENT COMPANY GUARANTEE
JSC National Oil Company Saknavtobi and/or its successors ("GEORGIAN OIL")
hereby refers to the Assignment Agreement (the "Agreement") between National
Petroleum Limited ("NPL") and its subsidiary Georgian Oil Samgori Ltd and/or its
successors ("GOSL") together with the Production Sharing Contract for Georgia
onshore block XIb as therein described (hereinafter called the "Contract") among
NPL and the State of Georgia (the "STATE") represented by the State Agency for
Regulation of Oil and Gas Resources (the "State Agency") and Georgian Oil.
GEORGIAN OIL states that it has taken notice of all of the clauses contained in
the Agreement and the Contract and in particular those that relate to GOSL's
commitments in favour of NPL and the STATE.
GEORGIAN OIL states that it has also taken notice of the relevant Georgian and
English laws and regulations in accordance with which the Agreement and the
Contract have been executed.
GEORGIAN OIL states that GOSL possesses full technical capabilities for the
execution of the operations stipulated in the Agreement and the Contract and
guarantees to NPL and the STATE that all of these commitments will be fulfilled
by GOSL, or in the absence of such fulfilment, by GEORGIAN OIL as herein below
provided.
GEORGIAN OIL states that GOSL possesses full financial capabilities for the
execution of the financial commitments whether in the form of obligations or
liabilities as stipulated in the Agreement and the Contract and guarantees to
NPL and the STATE that all of these commitments will be fulfilled by GOSL, or in
the absence of such fulfilment, by GEORGIAN OIL as herein below provided.
In the event of default by GOSL in the execution of any of its obligations,
GEORGIAN OIL commits and guarantees to execute and fulfil the said obligation(s)
no later than thirty (30) Days after the receipt of a written notification of
the default from either NPL (as defined in the Agreement) or the State Agency
(as defined in the Contract). This written notification will specify the nature
of the default by GOSL.
17
However, GOSL will have the right during this thirty (30) Day period to correct
its default before this guarantee comes into effect.
This guarantee is irrevocable and will not expire, subject to any remaining
responsibilities and obligations in respect of GOSL as provided in the Agreement
and the Contract until the earliest of (i) the date on which all of the
obligations stipulated in the Agreement and the Contract have been accomplished,
which are not necessarily co-extensive with the Contract; or (ii) the date GOSL
relinquishes all of its interests under the Contract.
The definitions used in this guarantee will have the meaning given to them in
the Agreement and the Contract.
In Witness GEORGIAN OIL has duly executed this GUARANTEE as of _____________ ,
2003.
GEORGIAN OIL
___________________
18
AMENDED
PRODUCTION SHARING CONTRACT
NATIONAL PETROLEUM LIMITED
AND
THE STATE OF GEORGIA
REPRESENTED BY
THE STATE AGENCY FOR THE REGULATION OF OIL & GAS
AND
THE JOINT STOCK NATIONAL OIL COMPANY SAKNAVTOBI
MAY 2001
INDEX OF CONTENTS
Page
Article 1 Definitions 6
Article 2 Scope of Contract and General Provisions 17
Article 3 Contract Area 20
Article 4 Contract Term 22
Article 5 Relinquishments 23
Article 6 Co-ordination Committee 26
Article 7 Operating Company 32
Article 8 Minimum Work Programme 34
Article 9 Procedure for Approval of Appraisal and Development Plans 37
Article 10 Annual Work Programme and Budgets 43
Article 11 Allocation of Production, Recovery of Costs and
Expenses, Production Sharing, and Right of Export 45
Article 12 Crude Oil and Natural Gas Valuation 50
Article 13 Ancillary Rights of the Contractor and the Operating Company 53
Article 14 Assistance Provided By the State 58
Article 15 Measurement of Petroleum 61
Article 16 Natural Gas 63
Article 17 Tax/Fiscal Regime 69
Article 18 Accounting, Financial Reporting and Audit 80
Article 19 Currency, Payments and Exchange Control 82
Article 20 Import and Export 85
Article 21 Export of Hydrocarbons, Transfer of Ownership,
and Regulations for Disposal 87
Article 22 Ownership of Assets 89
Article 23 Insurance 91
Article 24 Environmental, Health, Safety and Liability 93
Article 25 Force Majeure 99
Article 26 Assignments and Guarantees 101
Article 27 Contract Enforcement and Stabilisation, and
Representations and Warranties 107
Article 28 Notices and Confidentiality 113
Article 29 Termination and Breach 116
Article 30 Dispute Resolution 120
2
Article 31 Text 123
Article 32 Effective Date 124
ANNEXES
Annex A Extract from the License ▇▇▇
▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ Description and Map 128
Annex C Accounting Procedure 129
Annex D Addresses for Service ▇▇▇
▇▇▇▇▇ ▇ Operating Company Charter 157
Annex F Prior Costs and Expenses 180
Annex G Cost Reimbursement Agreement 187
3
PRODUCTION SHARING CONTRACT
This Contract is made and entered into as of 2001 by and between
(1) The State of Georgia ("the State") represented by the State Agency for
Regulation of Oil and Gas Resources ("State Agency");
(2) The Joint Stock National Oil Company Saknavtobi, a legal entity under
the laws of Georgia pursuant to the Charter of Saknavtobi and the Law
on Oil and Gas ("Georgian Oil");
(3) National Petroleum Limited, a company organised and existing under the
laws of Bermuda ("Contractor");
The State, Georgian Oil, and Contractor may individually be referred to as a
"Party" and collectively as the "Parties".
WITNESSETH:
WHEREAS, Georgian Oil and Contractor have entered into a Production Sharing
Agreement dated June 9 1995, as amended by Addendum No 1 of June 20 1997 and
Addendum No 2 of August 21 1998 (the "Original Agreements"); and
WHEREAS, a certain licence, series 33, 34, 46,47, number 7, was issued
provisionally on behalf of the State by the Georgian Oil Department of the
Republic of Georgia on July 10 1995 in respect of the Contract Area; and
subsequently reissued by licence, series 33, 34, 46,47, number 0058, by the
Department for the Protection of Mineral Resources and Mining of the Ministry of
Environmental Protection on October 13 1995; and subsequently extended by the
State Agency for the Regulation of Oil and Gas Resources and subsequently
re-issued temporary licence Series OGA Number 002 Code 01-11B by them on October
2 2000; and
WHEREAS, on April 16, 1999 the Law on Oil and Gas in Georgia ("the Petroleum
Law")
4
came into effect;
WHEREAS, the Petroleum Law, among other things, provided for the creation of the
State Agency and vested in it the power to represent the State in management of
oil and gas operations to include entering into production sharing contracts on
behalf of the State, to issue and to reissue licenses to investors for
performance of oil and gas operations, and to delegate all operational and
commercial functions of the State under production sharing contracts to Georgian
Oil until the State ceases to own more than 75% of its shares;
WHEREAS, the Petroleum Law, among other things, designated Georgian Oil to
perform the functions of the National Oil Company (as that term is defined in
Article 1.39 of the Petroleum Law) so long as the State owns more than 75% of
its shares;
WHEREAS, the Parties wish to amend and restate the terms of the Original
Agreements to take account of changed economic circumstances and the
introduction of the Georgian Law on Oil and Gas;
NOW, THEREFORE, in consideration of the promises and the mutual covenants and
conditions herein contained, it is hereby agreed as follows:
5
ARTICLE 1
DEFINITIONS
The following words and terms used in this Contract shall unless otherwise
expressly specified in this Contract have the following respective meanings:
1.1 "Accounting Procedure" means the accounting procedure set out in Annex
"C" hereto.
1.2 "Administrative Fees" shall mean any fees, fees, charges, or other
imposts which are generally applicable or which are imposed for
specific services or materials provided by the Government or any local
authority, provided they are imposed by laws, rules and regulations of
general application and do not discriminate or have the effect of
discriminating against the Contractor.
1.3 An "Affiliated Company" or "Affiliate" means:
1.3.1 with respect to Contractor or, as indicated, the Parent
Company, a company, corporation, partnership or other legal
entity:
i) in which Contractor or the Parent Company, as the case
may be, owns, directly or indirectly, more than fifty
percent (50%) of the shares or voting interests as well
as the unrestricted right to exercise management control
on all matters and otherwise has the right to establish
management policy and exercise such management control;
or
ii) in which at least fifty percent (50%) of the shares or
voting interests are owned directly or indirectly by a
company, corporation, partnership or other legal entity,
which owns directly or indirectly more than fifty percent
(50%) of the shares or voting interest as well as the
unrestricted right to exercise management control on all
matters, and otherwise has the right to establish
management policy and exercise such management control,
of Contractor or Parent Company;
6
1.3.2 with respect to Georgian Oil, any legal entity directly or
indirectly controlled by Georgian Oil, or any legal entity
that directly or indirectly controls Georgian Oil. For the
purposes of this part of the definition, the term to "control"
shall mean with respect to any such entity, having the right
to carry out direct or indirect supervision of such entity or
to define a general scope of its activity based on holding the
shares entitled to vote, any other form of ownership, or on
any other grounds.
1.4 "Annex" or "Annexes" means each or all of the Annexes "A" through "G"
attached to this Contract and made a part hereof. In the event of a
conflict between the provisions of an Annex and a term in the main body
of this Contract, the provisions of the latter shall prevail.
1.5 "Annual Work Programme" means a work plan and schedule, prepared and
submitted by the Contractor to the Co-ordination Committee and
approved, or deemed approved, by the Co-ordination Committee, all as
more fully herein provided, setting forth the Petroleum Operations to
be carried out during a Calendar Year by the Contractor.
1.6 "Appraisal" means all works carried out by the Contractor to evaluate
and delineate a discovery of Petroleum in the Contract Area.
1.7 "Appraisal Area" means a part of the Contract Area in which an
Appraisal Programme is to be conducted by the Contractor.
1.8 "Appraisal Programme" means a Work Programme submitted by the
Contractor to the Coordination Committee for approval, under which the
Contractor will evaluate and delineate a discovery of Petroleum, and
which has been approved, or deemed approved, by the Coordination
Committee as herein provided. Any Appraisal Programme which has not yet
been so approved shall herein be referred to as a Draft Appraisal
Programme.
1.9 "Associated Natural Gas" means all gaseous hydrocarbons produced in
association with Crude Oil, which Crude Oil itself can be commercially
produced and separated
7
therefrom.
1.10 "Available Crude Oil" means Crude Oil produced and Saved from the
Contract Area and not used in Petroleum Operations in accordance with
Article 11.3.
1.11 "Available Natural Gas" means Associated or non-Associated Natural Gas
produced and Saved from the Contract Area and not used in Petroleum
Operations in accordance with Article 11.3.
1.12 "Available Petroleum" means Available Crude Oil and Available Natural
Gas.
1.13 "Barrel" means a quantity consisting of forty-two (42) United States
gallons liquid measure, corrected to a temperature of sixty (60)
degrees Fahrenheit with pressure at sea level.
1.14 "Base Level Oil" is the amount of oil that Georgian Oil expect they
would have produced from the Contract Area had there been no other
arrangements over the period 1996 to 2000. The Parties agree that this
Base Level Oil amounts to 250,000 tons.
1.15 "Budget" means the estimate of the expenditures, listed category by
category, relating to Petroleum Operations and contained in any Work
Programme.
1.16 "Calendar Quarter" or "Quarter" is a period of three consecutive months
beginning on January 1st, April 1st, July 1st and October 1st of each
Calendar Year.
1.17 "Calendar Year" or "Year" means a period of twelve (12) consecutive
months beginning on January 1st and ending on December 31st in the same
year, according to the Gregorian Calendar.
1.18 "Commercial Discovery" means a discovery of Petroleum in respect of
which the Contractor has given a notice pursuant to Article 9.3.1.
1.19 "Commencement of Commercial Production" means the date on which the
first lifting, shipment or delivery of Petroleum is made under
Commercial Production.
8
1.20 "Commercial Production" means production of Petroleum and delivery
under a lifting agreement or contract for sale as provided for in a
Development Plan as amended from time to time.
1.21 "Contract" or "PSC" means the Original Agreements as amended, restated
and superseded by this Production Sharing Contract together with all
attached Annexes and any variation, extension or modification hereto,
which may be agreed in writing by all the Parties.
1.22 "Contract Area" means the area (from the surface to all depths
accessible to drilling technology) specified in Article 3 hereof and
delineated in Annex A as reduced or enlarged from time to time in
accordance with the provisions of this Contract.
1.23 "Contractor" means the Contractor and his permitted assignees and
successors, as provided herein.
1.24 "Co-ordination Committee" means the committee constituted in accordance
with Article 6.
1.25 "Cost Recovery" means the method by which Costs and Expenses are
recovered in accordance with Article 11.5.
1.26 "Cost Recovery Petroleum" means Petroleum available for Cost Recovery
pursuant to Article 11.5.
1.27 "Costs and Expenses" means all incurred costs and expenses necessary to
conduct Petroleum Operations and chargeable to the Petroleum Operations
Account, all as more fully set forth and in accordance with the
Accounting Procedure, including such amounts so chargeable as are set
forth in Annex F in respect of costs and expenses incurred prior to the
date of this Contract or hereinafter stated to be approved by the
Co-ordination Committee, subject to the audit provisions of this
Contract.
1.28 "Crude Oil" means crude mineral oil, asphalt, ozokerite and all kinds
of hydrocarbons whether in a solid, liquid or mixed state at the
wellhead or separator or which is obtained from Natural Gas through
condensation or extraction, excluding methane gas.
9
1.29 "Customs Duties" means all import (or export) tariffs and duties and
other mandatory payments, other than Administrative Fees, as stipulated
by applicable laws, rules or regulations of Georgia with respect to the
import or export of Petroleum, materials, equipment, goods and any
other similar items.
1.30 "Day" means a calendar day.
1.31 "Development Area" means all or any part of the Contract Area specified
in a Development Plan approved, or deemed approved, by the Coordination
Committee as herein provided.
1.32 "Development Plan" is a plan presented by the Contractor in accordance
with Article 9.5 and approved, or deemed approved, by the Coordination
Committee as herein provided. Any development plan which has not yet
been so approved shall be a Draft Development Plan.
1.33 "Dispute" means any difference of view or disagreement between the
First Party and the Second Party in relation to or in connection with,
or arising out of any terms and conditions of this Contract, but does
not include (a) any difference of view or disagreement between the
First Party and the Second Party which under the provisions of this
Contract is to be referred for determination to a Sole Expert pursuant
to Article 30.9 or (b) any difference of view or disagreement falling
under Article 30.8.
1.34 "Dispute Parties" shall have the meaning as ascribed thereto in Article
30
1.35 "Dollar" or "US$" or "$" means the currency of the United States of
America.
1.36 "Double Tax Treaty" means any international treaty or convention for
the avoidance of double taxation of income and/or capital which is
applicable in Georgia.
1.37 "Effective Date" is defined in Article 32.2.
1.38 "Exploration Programme" shall mean all the exploration activities for
previously undiscovered Petroleum, which shall include geological,
geophysical, aerial and other survey activities and interpretation of
data relating thereto and the drilling of shot holes, core holes,
stratigraphic tests, exploratory ▇▇▇▇▇ and tests thereof for the
10
discovery of Petroleum and other related operations.
1.39 "Finance Costs" means in respect of debt incurred in carrying out
Petroleum Operations, approved (including all their terms in respect
thereof) by the Co-ordination Committee and owed to a party which is
not an Affiliate of the Contractor, all amounts of interest, fees and
charges paid in respect thereof, including any refinancing thereof, and
in respect of such debt so approved and owed to an Affiliate of the
Contractor, it shall include interest only to the extent it does not
exceed a rate which would have been agreed between independent parties.
1.40 "First Dispute Party" has the meaning assigned to it in Article 30.
1.41 "Force Majeure" is defined in Article 25.1.
1.42 "Foreign Employee" is defined in Article 17.19.
1.43 "Foreign Exchange" means any lawful currency other than the currency of
Georgia.
1.44 "Foreign Subcontractors" means Subcontractors in respect of which the
Contractor has complied with Article 17.24.
1.45 "Gas Sales Contract" is any contract to be entered into for the sale of
Natural Gas.
1.46 "Good Oilfield Practices" means all those things that are generally
accepted in the international petroleum industry as good, safe,
environmentally sound, economical and efficient in exploring for and
producing Petroleum.
1.47 "Insolvency Event" means, with respect to a Contractor Party
(i) the appointment, without recall within 60 Days of appointment,
of a liquidator, other than for the purposes of amalgamation
or reconstruction; or
(ii) the appointment, without recall or revocation of appointment
or resignation within 60 Days of appointment, of an
administrator, receiver or administrative receiver in respect
of the whole or part of the assets and undertaking of that
Contractor Party; or
11
(iii) outside Bermuda, any procedure analogous with either (a) or
(b) above in any other jurisdiction.
1.48 "IVOG" means Ioris Valley Oil and Gas Limited, of Lilo Station,
Chirnakhuli 9, Tbilisi, Georgia, a company half of which is owned by
Contractor and half by Georgian Oil.
1.49 "Letter of Credit" means, with reference to Article 8.2.4, an
engagement by a bank made on the instructions of the Contractor that
the bank will hounour demands for payment to the State Agency, subject
to the conditions specified in the Letter of Credit.
1.50 "Licence" means either:
(i) the Licence issued in connection with the Original Agreements,
provisionally issued by the Chairman of the specialised office
on Licensing and Informatics of Georgian Oil and formally
issued on 13 October 1995 by the Department of Protection of
Mineral Resources and Mining in the Ministry of Environmental
Protection, together with all annexes thereto and any
extension, renewal, re-issue or amendment thereof, including
that provided in 26.10.1 or
(ii) any Licence issued to the Contractor.
1.51 "Local Sales" is defined in Article 17.22.2.
1.52 "Marketing Team" is described in Article 16.5.
1.53 "Measurement Point" means the physical location at which title to
Petroleum passes to Parties entitled thereto, and specified in a
Development Plan.
1.54 "Minimum Work Programme" means the programme of work referred to in
Article 8.2.
1.55 "Month" or "Calendar Month" means a calendar month.
1.56 "Natural Gas" means Non-associated Natural Gas and Associated Natural
Gas in their natural state.
1.57 "Non-associated Natural Gas" means all gaseous hydrocarbons produced
from gas ▇▇▇▇▇, and includes wet gas, dry gas and residue gas remaining
after the extraction
12
of liquid hydrocarbons from wet gas.
1.58 "Operating Company" is the company formed pursuant to Article 7.1 and
acting pursuant to the provisions of Article 7 and the other provisions
of this Contract as the Operating Company.
1.59 "Original Agreements" shall mean the Production Sharing Agreement,
dated 9 June 1995 between Georgian Oil and NPL, and subsequent
amendments dated on 20 June 1997 and 21 August 1998.
1.60 "Parent Company" shall mean parent of a Third Party assignee under
Article 26.
1.61 "Party" or "Parties" shall have the meaning set forth in the first
paragraph of this Contract.
1.62 "Petroleum" means Crude Oil and Natural Gas.
1.63 "Petroleum Operations" means all Petroleum activities carried out by
the Contractor in or in relation to the Contract Area in accordance
with, and to the extent provided in the Contract, including any Minimum
Work Program under Article 8.
1.64 "Petroleum Operations Account" shall have the meaning given to it in
paragraph 1.4.1 of section I of the Accounting Procedure.
1.65 "Profit Natural Gas" is defined as set forth in Article 11.10.
1.66 "Profit Oil" is defined as set forth in Article 11.10.
1.67 "Profit Petroleum" means Profit Natural Gas and Profit Oil.
1.68 "Profit Tax" is defined as set forth in Article 17.4.
1.69 "Reservoir" means a discrete accumulation of Petroleum in a geological
feature located in part or in whole within the Contract Area, limited
by: -
(a) lithological boundaries; or
(b) structural boundaries
13
so that the accumulation of Petroleum is in pressure or hydrocarbon
communication.
1.70 "Saved" shall mean in respect of Petroleum, Petroleum which has been
produced and has not been lost in the course of Petroleum Operations,
reinjected into a producing field or flared or otherwise used in
accordance with the Development Plan..
1.71 "Second Dispute Party" has the meaning assigned to it in Article 30.
1.72 "Sole Expert" has the meaning assigned to it in Article 30.9.
1.73 "State" means the state and people of Georgia represented by the duly
constituted national Government of Georgia.
1.74 "State Representative" means the authorised representative of the State
appointed in accordance with Article 2.7
1.75 "Subcontractor" means any natural person or juridical entity contracted
directly or indirectly by or on behalf of the Contractor to supply
goods, works or services in connection with Petroleum Operations.
1.76 "Tax Inspectorate" is defined as set forth in Article 17.18.
1.77 "Taxes" means all levies, duties, taxes or other fees or imposts which
are in lieu thereof, but excluding Administrative Fees.
1.78 "Third Party" or "Third Parties" means one or more of a natural person
or juridical entity other than a Party hereto and any Affiliate of a
Party.
1.79 "VAT" means Georgian value added tax.
1.80 "Withholding Tax" is defined in Article 17.21.
1.81 "Wilful Misconduct" means, in relation to the Contractor or any
Affiliate, an intentional or reckless disregard of any provision of
this Contract or any Work Programme or Good Oilfield Practice not
justifiable by an emergency or comparable special circumstance, but
shall exclude any omission or error of
14
judgement made by the Contractor or any Affiliate of the Contractor or
any employee of the Contractor or its Affiliate in reasonable and good
faith exercise of any function, authority or discretion conferred on
the Contractor or its Affiliates under this Contract in relation to
Petroleum Operations, in respect of which justification and exclusion
the Contractor and Affiliate shall have the burden of proof.
1.82 "Work Programme" and "Work Programme and Budget" shall mean any work
programme and work programme and Budget, which sets out proposed
Petroleum Operations together with the associated Budget as the case
may be, submitted to the Co-ordination Committee by the Contractor and
approved, or deemed approved, by the Co-ordination Committee. Any Work
Programme or Work Programme and Budget not yet so approved shall be
referred to as a Draft Work Programme or Draft Work Programme and
Budget.
15
16
ARTICLE 2
SCOPE OF CONTRACT AND GENERAL PROVISIONS
2.1 The State hereby ratifies and confirms to the Contractor the License
for its term, for the purpose and in accordance with the provisions of
the Contract.
2.2 Subject to the terms and conditions of the Contract, the State hereby
grants to the Contractor, (and Operating Company as herein provided),
the exclusive rights to conduct Petroleum Operations in the Contract
Area during the term of this Contract.
2.3 This Contract is an existing agreement for the purposes of the
Petroleum Law as that term is defined in Article 1.36 thereof and shall
enjoy any and all benefits attributed to it by Georgian law.
2.4 The Contractor shall be responsible to the State for the execution of
all Petroleum Operations, including the activities of the Operating
Company, all in accordance with the provisions of this Contract.
The Contractor shall provide the financial and technical resources
required for the execution of the Petroleum Operations, and its other
obligations under this Contract. Subject to the other provisions of the
Contract, in performing the Petroleum Operations, the Contractor shall
conduct all operations diligently in accordance with Good Oilfield
Practices and in compliance with applicable laws, rules and
regulations.
The Contractor may borrow funds from Third Parties and/or Affiliated
Companies for the financing required for the investments necessary for
Petroleum Operations. Finance Costs charged for such loans shall be
recoupable as Costs and Expenses as provided in Article 11 and the
Accounting Procedure.
2.5 Except as provided in Article 9.8.4, the Contractor shall be reimbursed
for its investment and expenditures in connection with the conduct of
Petroleum
17
Operations not by way of reimbursement in cash, but only by receipt of
its share of Petroleum from the Contract Area to which it may become
entitled by way of Costs and Expenses from Cost Recovery Petroleum
under Article 11 and other provisions of this Contract. If Cost
Recovery Petroleum produced from Development Areas within the Contract
Area is insufficient to reimburse the Contractor for Costs and Expenses
incurred by the Contractor, the Contractor shall bear its own losses in
respect of any shortfall.
2.6 Where the Contractor is more than one person or entity, any obligation
of the Contractor hereunder shall be a joint and several obligation of
all of the persons and entities who constitute the Contractor, except
for the following which shall be a several obligation of each of said
persons and entities: i) the obligation to pay Profit Tax or any other
tax assessed and levied on profit or net income in accordance with
Article 17; ii) the obligation to observe stipulations relating to
confidentiality set out in Article 28, except in respect of their
application to anything done or to be done by the Contractor in his
capacity as such; and iii) the obligation to observe stipulations
relating to foreign exchange set forth in Article 19, except in respect
of their application to anything done or to be done by the Contractor
in his capacity as such.
2.7 The State has appointed the State Agency as its representative for the
purposes set out in Article 8 of the Petroleum Law and Georgian Oil as
its representative for the purposes set out in Article 9 of the
Petroleum Law, with right of substitution and removal, each to exercise
the State functions and to perform the State obligations under the
Contract as prescribed by the Petroleum Law and to enjoy the benefit as
herein provided. The State will give notice to the Contractor of the
appointment and removal and substitution of its representatives. The
Contractor will be entitled to assume that each State Representative
has full authority to represent the State for those State purposes
under the Contract assigned to it according to the Petroleum Law,
including those where herein specific reference is made to the State
Representative.
18
ARTICLE 3
CONTRACT AREA
3.1 The Contract Area is as set out by the geographic location and
co-ordinates described in Annex "B" attached hereto and delineated on
the map which forms part thereof. The total area of the Contract Area
may hereafter be reduced only in accordance with the provisions of this
Contract.
3.2 Except as for all rights and authorisations necessary for the
implementation of the provisions of this Contract, no right is granted
in favour of the Contractor to the use or disposal of any other natural
or man-made resources or aquatic resources other than as provided in
Article 3.2 and Article 13.5. For the sake of clarity, it is understood
that produced hydrocarbons and associated substances may be injected
into underground reservoirs provided the purpose of such activity is to
avoid discharge of deleterious substances into the environment or to
enhance hydrocarbon recovery or to conserve hydrocarbons for which
there is no immediate commercial market. It is also understood that
certain waters may be utilised in the Petroleum Operations envisioned
herein to enhance hydrocarbon recovery or process the hydrocarbons for
sale.
3.3 Contractor shall have the right of free ingress and egress to and over
the Contract Area over State lands and waters on, over, and adjoining
the Contract Area for the purpose of Petroleum exploration,
development, production, and removal. The State Agency will assist
Contractor to obtain other necessary easements and rights of way.
3.4 Contractor may, subject to approval and permitting required by the laws
and regulations of Georgia and to any contractual arrangements with
third parties as necessary or convenient, re-inject Petroleum extracted
from the Contract Area for operational reasons, including drilling,
testing, re-working, or other activities to enhance or maintain the
recovery of Petroleum or for storage of Petroleum for which there is no
immediate market, and re-inject produced water and associated
substances into underground reservoirs capable of commercial Petroleum
19
production or other strata if the purpose of such activity is to avoid
discharge of deleterious substances into the environment. Petroleum
re-injected for operational purposes is not to be deemed as "produced".
Petroleum produced from the Contract Area for which there is no
immediate commercial market may be also re-injected into appropriate
reservoirs or other strata, either on or off the Contract Area, for
storage. Title to such stored Petroleum shall pass to the Parties at
the Measurement Point at the time the stored Petroleum is withdrawn
from storage and sold or otherwise disposed of. All obligations of the
Parties to account for and to pay taxes or other obligations on or with
respect to such stored Petroleum shall accrue at the time title passes.
20
ARTICLE 4
CONTRACT TERM
4.1 The term of the Contract shall continue from the Effective Date for a
period of twenty years.
4.2 If in respect of any Development Area, Commercial Production, as set
forth in a revised Development Plan, remains possible beyond the twenty
year period specified in Article 4.1 the Contractor, after giving
notice to Georgian Oil and the State Agency at least one (1) year prior
to the end of such period, and after obtaining approval by the
Co-ordination Committee of such revised Development Plan shall be
entitled to have an extension of the term of this Contract with respect
to such Development Area for an additional term of fifteen (15) years,
or the producing life of the Development Area, whichever is lesser,
subject to the approval of the State Agency, such approval not to be
withheld unreasonably.
21
ARTICLE 5
RELINQUISHMENTS
5.1 Subject to Article 5.2, the Contractor shall select and relinquish
portions of the Contract Area as follows:
5.1.1 at least fifty percent (50%) of the Contract Area (excluding
any Development Areas) remaining after the relinquishment in
Clause 5.1.1, not later than the fifth anniversary of the
Effective Date of this Contract, and
5.1.2 at least fifty percent (50%) of the Contract Area (excluding
any Development Areas) remaining after the relinquishment in
Clause 5.1.2 occurs not later than the tenth anniversary of
the Effective Date of this Contract, and
5.1.3 at least fifty percent (50%) of the Contract Area (excluding
any Development Areas) remaining after the relinquishment in
Clause 5.1.3 occurs not later than the fifteenth anniversary
of the Effective Date of this Contract, and
5.1.4 the remainder of the Contract Area (excluding any Development
Areas which are subject to an extension under Article 4.2) not
later than the twentieth anniversary of the Effective Date of
this Contract.
5.1.5 the remainder of the Contract Area (if and to the extent the
term of this contract is extended pursuant to the provisions
of Article 4.2) not later than the thirty-fifth anniversary of
the Effective Date of this Contract or the producing life of
the Development Areas, whichever is the lesser.
5.2 Subject to the provisions of Article 5.1.6 and subject to the other
provisions of this Article 5.2, the Contractor shall not be required
pursuant to Article 5.1 to relinquish any portion of the Contract Area
containing a Development Area.
22
5.2.1 Following the expiration of five years from the declaration of
a Development Area, all depths deeper than the deeper of (a)
100 meters below the total depth of the deepest well drilled
within the Development Area, or (b) the base of the deepest
interval from which a well has produced, shall cease to be
included in the Development Area and shall be subject to
relinquishment under this Article 5.
5.2.2 The Development Areas identified in Article 8.10 shall be
deemed to have been declared as Development Areas on the
Effective Date of this Contract.
5.3 The Contractor shall furnish the State Agency with a description of the
boundaries of the part of the Contract Area to be relinquished not less
than ninety (90) Days in advance of the deadline for the relinquishment
prescribed in Article 5.1. If the Contract is earlier surrendered or
terminated, the Contractor shall provide such descriptions a minimum of
30 days before relinquishment.
The relinquishment shall be in accordance with the requirements and
obligations relating to site restoration, to the extent herein
applicable, as set forth in any applicable law, rule or regulation in
effect from time to time. The Contractor shall remain responsible for
any losses, damages and liabilities arising under any claim, demand,
action or proceeding arising from the conduct of Petroleum Operations
prior to the date of the relinquishment in accordance with this
Contract and any applicable laws, rules and regulations in effect at
the time such Petroleum Operations are performed from time to time.
5.4 The area designated for relinquishment shall consist as far as
practicable of rectangular blocks not less than five square kilometres
in area and bounded by lines running due north and south and due east
and west. The area designated for relinquishment need not consist of
one contiguous tract. Contractor shall use its best efforts to
designate non-contiguous tracts in such manner that subsequent
Petroleum Operations on the relinquished tracts are not unreasonably
impeded.
23
5.5 The Contractor may at any time relinquish voluntarily all or any part
of the Contract Area. Article 5.4 shall apply to all voluntary
relinquishments of a part only of the Contract Area. Any such voluntary
relinquishment of less than all of the Contract Area shall be credited
toward any subsequent relinquishment obligations hereunder.
Notwithstanding anything to the contrary contained herein, no
relinquishment of all or part of the the Contract Area shall relieve
the Contractor of its obligations under Article 8, Minimum Woek
Programme.
24
ARTICLE 6
CO-ORDINATION COMMITTEE
6.1 For the purpose of providing the overall supervision and direction and
ensuring the performance of the Petroleum Operations, Georgian Oil and
the Contractor shall establish a Co-ordination Committee within
forty-five (45) Days of the Effective Date.
6.2 The Co-ordination Committee shall comprise a total of six (6) members.
Georgian Oil shall appoint a total of three (3) representatives and the
Contractor shall appoint three (3) representatives to form the
Co-ordination Committee. Georgian Oil and the Contractor shall each
designate one of its representatives as its chief representative. All
the aforesaid representatives shall have the right to attend and
present their views at meetings of the Co-ordination Committee. Each
representative shall have the right to appoint an alternate who shall
be entitled to attend all meetings of the Co-ordination Committee. When
a decision is to be made on any proposal, the chief representative (or
in his absence, his alternate) from each Party shall be the spokesman
on behalf of such Party and shall cast a single vote.
The first chairman of the Co-ordination Committee shall be the chief
representative of the Contractor (or his alternate) and the first vice
chairman shall be the chief representative of Georgian Oil (or his
alternate).
The chairman of the Co-ordination Committee shall preside over meetings
of the Co-ordination Committee, and in the absence of the chairman (or
his alternate), the vice-chairman shall preside. Each Party may
designate a reasonable number of advisors, who may attend, but shall
not be entitled to vote at, Co-ordination Committee meetings. Such
advisors may speak only with the permission of the chairman or
vice-chairman.
For the purposes of clarification and for the avoidance of any doubt,
the chairman
25
shall have no determinative casting vote.
6.3 A regular meeting of the Co-ordination Committee shall be held at least
once each Calendar Quarter. The secretary to be designated pursuant to
this Article shall be responsible for calling such regular meetings of
the Co-ordination Committee and shall do so at the request of the
chairman by sending a notice to the Parties. Other meetings, if
necessary, may be held at any time at the request of Georgian Oil or
the Contractor. In each case, the secretary shall give the Parties at
least 30 Days notice (or such shorter period as the Parties may agree)
of the proposed meeting date, the time and location of the meeting.
6.4 The Parties hereby empower the Co-ordination Committee to:
6.4.1 review and approve any Work Programme, Budget, production
schedule and lifting schedule proposed by the Contractor and
any amendment thereof, and verify and supervise the accounting
of costs and the conformity of the operating and accounting
records with the terms of this Contract and Annexes "C" and
"E" hereof;
6.4.2 review and approve Development Plans, including the respective
development operations and Budgets, and the demarcation of a
Development Area, all after determining the commerciality
thereof;
6.4.3 approve or confirm the following specific items of procurement
and expenditure:
i) approve procurement and purchase contracts of any item
within a Budget with a unit price exceeding one hundred
thousand US$ (US$100,000) or any single purchase order of
total monetary value exceeding two hundred and fifty
thousand US$ (US$250,000);
ii) approve a lease of equipment, or an engineering
subcontract or a service contract within a Budget worth
more than two hundred and fifty thousand US$ (US$250,000)
in total; and
26
iii) confirm excess expenditures pursuant to Article 10.5
hereof and the expenditures pursuant to Article 10.6
hereof;
iv) Unless otherwise agreed by the Coordination Committee,
every contract in excess of two hundred and fifty
thousand US$ (US$250,000) should be negotiated and
concluded by the Contractor rather than the Operating
Company.
6.4.4 review and approve the insurance programme proposed by the
Contractor provided however, notwithstanding any such approval
the Contractor shall be fully liable for the adequacy,
sufficiency and suitability, as well as any shortcomings, of
any such insurance programme;
6.4.5 review and approve emergency procedures on safety and
environmental protection; provided, however, that
notwithstanding any such approval, the Contractor shall be
fully liable for the adequacy, sufficiency and suitability, as
well as any shortcomings, of such procedures, including their
compliance with applicable laws, rules and regulations;
6.4.6 review and approve personnel policies, selection and training
programmes for the Contractor, to the extent it is performing
Petroleum Operations in Georgia, and Operating Company.
Without prejudice to the foregoing, it is accepted that part
of the personnel policy of Contractor, to the extent it is
performing Petroleum Operations in Georgia, and Operating
Company shall be to give priority in the event of equal
qualifications to Georgian citizens who may be former
employees of Georgian Oil recommended by Georgian Oil,
provided that the conduct of Petroleum Operations shall not be
adversely affected and provided that candidates have the
required level of skill and experience. In furtherance of the
above, Georgian Oil will
27
specifically offer nominations for the positions of General
Director and Technical Director.
6.4.7 deal with any other matters that have been proposed by any of
the Parties to the Co-ordination Committee;
6.4.8 review and approve any matter required to be submitted to
relevant authorities of the State;
6.4.9 review and approve the development work and methodology
proposed by the Contractor or Georgian Oil;
6.4.10 appoint sub-committees to meet from time to time to review and
make recommendations concerning any aspect of Petroleum
Operations, which the Co-ordination Committee thinks fit; and
6.4.11 appoint an auditor for the Petroleum Operations pursuant to
Article 18.4.
6.5 Decisions of the Co-ordination Committee shall be unanimous. All
decisions made unanimously shall be deemed to be formal decisions and
shall be conclusive and equally binding upon the Parties.
6.6 In the event that the Co-ordination Committee fails to reach agreement:
6.6.1 within thirty (30) Days of the date of submission, concerning
the approval of any Work Programme or Budget submitted by the
Contractor, the proposal of the Contractor will be deemed to
have been approved and to be binding; provided, however, in
the case of a Work Programme to give effect to the provisions
of a Development Plan, it is consistent with the requirements
of that Development Plan as approved or deemed to have been
approved by the Coordination Committee;
28
6.6.2 within ninety (90) Days from the date of submission,
concerning the approval of a Development Plan submitted by the
Contractor, or concerning a proposal submitted by the
Contractor to amend a Development Plan, either Georgian Oil or
the Contractor, or both of them jointly, may, in accordance
with Article 30, refer the disagreement to a Sole Expert who
will be asked to determine whether or not the Development Plan
as submitted by the Contractor, or as the case may be, as
amended in accordance with the Contractor's proposal, would
satisfy the requirements relating to Development Plans set out
in Article 9.
6.6.3 A determination by a Sole Expert of a disagreement referred to
him under Article 6.6.2 shall be final and binding on the
Parties with effect that the proposal submitted by the
Contractor to the Coordination Committee will be deemed to
have been approved, or as the case may be, rejected, provided,
however, that if the proposal seeking approval of a
Development Plan is deemed to have been rejected the
Contractor at its election shall either as soon as practicable
after the determination of the Sole Expert has been
communicated to the Parties submit an alternative proposal or
inform Georgian Oil that the discovery to which the
Development Plan relates is no longer considered by the
Contractor to be commercial.
6.4 A matter which requires urgent handling may be decided by the
Co-ordination Committee without convening a meeting, with the
Co-ordination Committee making decisions through telexes, e-mail, or
faxes or the circulation of documents, subsequently confirmed in
writing by the chief representative from each party.
6.8 The Co-ordination Committee shall nominate a secretary, to record
minutes of the meetings of the Co-ordination Committee. The secretary
shall take a record of each proposal voted on and the results of such
vote at each meeting of the Co-ordination Committee. Each
representative of the Parties shall sign and be provided with a copy of
such record at the end of such meeting. The secretary shall provide
each Party with a copy of the minutes of each meeting of the
Co-ordination Committee within thirty (30) Days after the end of such
meeting. Each Party shall thereafter have a period of fifteen (15) Days
to give notice of any objections to the minutes to the secretary.
Failure to give notice within the said fifteen (15) Day period shall be
deemed approval of those minutes. In any event the record of proposals
voted on to be provided at the end of each meeting shall be conclusive
and take precedence
29
over the minutes. The Co-ordination Committee shall provide the State
Agency with a copy of the approved minutes.
6.9 All costs and expenses incurred with respect to the activities of the
Co-ordination Committee shall be paid or reimbursed by the Contractor
and shall be Costs and Expenses in accordance with the Accounting
Procedures.
30
ARTICLE 7
OPERATING COMPANY
7.1 The Contractor and Georgian Oil shall re-register in Georgia their
existing joint venture company Ioris Valley Oil and Gas as a juridical
person having limited liability. The object of such company shall be to
fulfil the functions of and act as Operating Company for Petroleum
Operations (including, but not limited to, the employment and
remuneration of staff) pursuant to the instructions of the Contractor
and only in accordance with the technical, operational and management
instructions of the Contractor, which shall be in accordance with Work
Programmes and Budgets and Development Plans. The Contractor shall be
fully liable for all actions and omissions of Operating Company
performed or omitted within the scope of the above mentioned, it being
agreed and understood the Operating Company is obligated to comply with
the terms of this Contract and its Charter referred to below.
7.2 The Charter of the Operating Company will be as set forth in Annex E.
7.3 The Operating Company, pursuant to the instructions of the Contractor,
which shall be in accordance with Work Programmes, Budgets and
Development Plans, as approved by the Coordination Committee as herein
provided, shall
7.3.1 perform Petroleum Operations reasonably, economically and
efficiently in accordance with such instructions
7.3.2 assist the Contractor in preparation of the Work Programmes
and Budgets and Development Plans;
7.3.3 propose and, when approved by Contractor, undertake
procurement of installations, equipment and supplies and enter
into subcontracts and service contracts with service providers
and vendors related to the Petroleum Operations;
31
7.3.4 prepare and submit for approval to the Contractor a personnel
training program and budget and carry out the same as approved
by the Coordination Committee;
7.3.5 keep and maintain accurate accounts in accordance with
Georgian legislation and the Accounting Procedure;
7.3.6 make necessary preparations for regular meetings of the
Coordination Committee, and submit to the Coordination
Committee information related to the matters to be reviewed
and approved by the Coordination Committee; and
7.3.7 assist the Contractor and Georgian Oil in the provision of
reports to the Coordination Committee on Petroleum Operations.
7.4 The Operating Company shall provide all Parties with copies of all
relevant data and reports pertaining to Petroleum Operations requested
by such Parties.
7.5 The Operating Company shall conduct Petroleum Operations on a no profit
no loss basis and in accordance with Good Oilfield Practices and in
compliance with applicable laws, rules and regulations.
7.6 The Operating Company may use Petroleum produced from the area for the
purpose of Petroleum Operations only in accordance with Good Oilfield
Practice.
32
ARTICLE 8
MINIMUM WORK PROGRAMME
8.1 The Contractor shall perform the Minimum Work Programme, as set forth
in Article 8.2, and shall complete said Minimum Work Programme not
later than 12 months after the Effective Date.
8.2 The Minimum Work Programme shall consist of:
8.2.1 Within 12 months of the Effective Date, Contractor will
undertake to shoot and process seismic at a cost of $1.25
million which may be up to 200 km of new data.
8.2.2 Within 12 months of the Effective Date, the Contractor will
carry out rehabilitation work in the Development Areas on the
Samgori, Patardzeuli, South Dome and Krtsanisi Fields
(outlined in red on the map in Annex B) to the value of $0.75
million.
8.2.3 Within 18 months of the Effective Date, the Contractor will
complete a technical and economic evaluation of all known oil
or gas discoveries in the Contract Area. In the event that the
Contractor concludes that any such discovery may result in a
Commercial Discovery, then the procedures described in Article
9 shall apply. In the event that the Contractor concludes that
any such discovery would not lead to a Commercial Discovery,
then the area of the discovery shall be relinquished at the
first opportunity, unless there is demonstrable prospectivity
in horizons above or below the discovery horizon.
8.2.4 Financing of the Minimum Work Programme will be guaranteed by
a stand-by Letter of Credit for $2 million. The Letter of
Credit will be made out in favour of the State Agency for
payment not before 31st _______2002 according to either of the
following terms and conditions:
(i) Default or partial default in execution of the
Minimum Work Programme
(ii) Termination of the Contract as per the provisions of
Article 29.2.2
33
The value of the Letter of Credit will be automatically
reduced by the amount of any payment made by NPL on account of
the Minimum Work Programme. All payments must be made by NPL's
bank, make reference to the Letter of Credit, and be approved
by the Co-ordination Committee and the State Agency.
8.3 After the completion of the acquisition of the initial seismic data
(and additional seismic data, if deemed necessary by the Contractor),
the Contractor may, within 18 Months of the Effective Date, present to
the Coordination Committee an Exploration or Appraisal Programme,
which, if necessary, may provide for the drilling of an exploration or
appraisal well, the depth of such will be defined by the seismic data
as determined by Contractor, and shall commence such Exploration or
Appraisal Programme, as approved by the Coordination Committee, within
24 Months of the Effective Date.
8.4 If the Contractor fails to present such an Exploration
or Appraisal Programme because the Contractor has determined that
the seismic surveys have not defined one or more structures with
sufficient commercial potential to justify at least an exploration
or appraisal well of the type described above, then Georgian Oil and
the Contractor shall discuss in good faith on how to proceed. If no
agreement is reached concerning a mutually acceptable Exploration
Programme then all the areas outside the Development Areas shall be
relinquished within three (3) years
8.5 If an exploration well is drilled as aforesaid and the Contractor
concludes therefrom that there are significant quantities of Petroleum
which may result in a Commercial Discovery and gives a notice under
Article 9.1, then the provisions of Article 9.2 shall apply.
8.6 Upon completion of an Exploration or Appraisal Programme which has
resulted in the drilling of a well, the Contractor, at its option,
shall have the right to continue an Exploration Programme in the
Contract Area for two (2) years. If as a result of this additional
Exploration Programme, the Contractor believes therefrom that there are
34
not sufficient quantities of Petroleum to lead to a Commercial
Discovery, then Georgian Oil and the Contractor shall discuss in good
faith on how to proceed with further exploration under this Contract.
Subsequently, if no agreement is reached concerning a mutually
acceptable Exploration Programme then all the areas outside the
Development Areas shall be relinquished within 3 (three) years.
Notwithstanding anything to the contrary contained herein, if there
exists a conflict in the provisions of this Article 8 and the
relinquishment provisions required under Article 5.1, then the
provisions of Article 5.1 shall prevail.
8.7 Commencing with the operations described in this Article, Contractor
shall use its reasonable and diligent efforts to reduce the timing of
the implementation of the operations consistent with Good Oil Field
Practices.
8.8 Contractor shall, with respect to any report or proposal it submits to
the Coordination Committee pursuant to this Article 8, submit a copy at
the same time to Georgian Oil and to State Agency.
8.9 At the request of the State Agency, the Contractor agrees to meet with
the State Agency for consultative purposes concerning regulatory issues
related to Work Programmes.
8.10 It is agreed that the Samgori, Patardzeuli, South Dome and Krtsanisi
Fields (outlined in red on the map in Annex B) are Development Areas as
of the Effective Date.
8.11 The Contractor will diligently continue rehabilitation work in the
Development Areas throughout the term of the Contract or until, in the
Contractor's view, production declines to an uneconomic level, in order
to achieve the most efficient rate of production for the fields. If the
Contractor determines that production from such Development Areas has
declined to an uneconomic level, then the Contractor shall immediately
relinquish any such uneconomic Development Areas. Nothing in this
Article 8.11 should prevent the Contractor suspending operations
temporarily through cyclical falls in the price of oil or gas.
35
ARTICLE 9
PROCEDURE FOR APPROVAL OF
APPRAISAL AND DEVELOPMENT PLANS
9.1 If the Contractor, following the drilling of any exploration well,
concludes therefrom that there are significant quantities of Petroleum
which may result in a Commercial Discovery, the Contractor will notify
the Coordination Committee within 45 Days of the completion of the well
that it intends to prepare an Appraisal Programme for presentation to
the Coordination Committee. In addition to the foregoing the
Contractor, should it wish to carry out appraisal work in any part of
the Contract Area, shall present to the Coordination Committee a
proposed Appraisal Programme. The proposed Appraisal Programme shall
specify, in reasonable detail, the work proposed to be carried out by
the Contractor, including seismic work, drilling of ▇▇▇▇▇ and technical
studies, and the estimated timetable within which such work will be
conducted, including commencement and completion dates.
9.2 The Contractor shall carry out the Appraisal Programme as approved or
deemed to be approved by the Coordination Committee. Within ninety (90)
Days after completion of such Appraisal Programme, the Contractor shall
provide to the Coordination Committee a schedule describing the
estimated completion of the laboratory and other studies' completion to
enable Contractor to submit to the Coordination Committee a
comprehensive evaluation report on the Appraisal Programme. Such
evaluation report shall include, but not be limited to, geological
conditions, such as structural configuration, physical properties and
extent of reservoir rocks, pressure, volume and temperature analysis of
the reservoir fluid, fluid characteristics, including gravity of liquid
hydrocarbons, sulphur percentage, sediment and water percentage, and
product yield pattern, Natural Gas composition, production forecasts
(per well and per Reservoir), and estimates of recoverable reserves.
36
9.3 Together with any evaluation report submitted in accordance with
Article 9.2 or at any other time together with a reasonably detailed
report supporting one of the following statements, the Contractor shall
submit to the Coordination Committee a written declaration, including
one of the following statements:
9.3.1 that the Contractor believes that Commercial Production from
the Appraisal Area is feasible;
9.3.2 that the Contractor believes that Commercial Production from
the Appraisal Area is not feasible; or
9.3.3 that Commercial Production can be determined only after
further specified work that the Contractor commits to carry
out under a further Appraisal Programme in specified areas
within or outside the relevant Appraisal Area. The Contractor
shall submit such an Appraisal Programme to the Coordination
Committee within 90 days from submission of the above
declaration.
9.4 In the event that the Contractor makes a statement under Article 9.3.3,
the Contractor shall be entitled to retain the relevant Appraisal Area
temporarily pending the completion with reasonable diligence of the
further work committed by the Contractor under said Article, at which
time the Contractor shall advise the Coordination Committee of its
conclusion as to whether or not there is in fact a new Commercial
Discovery and the provisions of Article 9.3.1 or Article 9.3.2 shall be
applied accordingly.
9.5 If the Contractor states pursuant to Article 9.3.1 that it believes
that Commercial Production is feasible, the Contractor shall submit to
the Coordination Committee for review and approval a proposed
Development Plan in respect of the relevant Commercial Discovery. The
Development Plan shall be submitted within 3 to 12 months of such
declaration, depending on the complexity of the development. The
Contractor, with any assistance requested of the Operating Company,
shall proceed promptly and diligently to prepare the Development Plan
and, if the Development Plan is approved or deemed to be approved by
the Coordination Committee as herein provided, implement it in
accordance with Good Oilfield Practices.
37
9.6 The Contractor's proposed Development Plan to be submitted pursuant to
Article 9.5 shall:
9.6.1 contain the Contractor's proposal for the designation of the
Development Area which shall, except in cases where the
Contractor proposes in accordance with Good Oilfield Practices
to develop Petroleum in an area or areas overlying proven or
potential producing horizons which may or may not be
subdivided into separate Reservoirs under a single Development
Plan, be a single area not exceeding the lateral extent of the
Reservoir in respect of which a statement has been made by the
Contractor pursuant to article 9.3.1 together with a
reasonable margin surrounding the periphery of that area;
9.6.2 be prepared on sound engineering and economic principles in
accordance with accepted standards prevailing in the
international petroleum industry and designed to ensure:
(i) the economic recovery of Petroleum by the efficient,
beneficial and timely use of the Petroleum resources
of the Development Area;
(ii) protection for the environment taking account of any
environmental impact assessment studies which may
have been undertaken by or on behalf of the
Contractor and under the laws, rules and regulations
at the time Petroleum Operations are performed from
time to time;
(iii) give details of the Contractor's proposals for the
development and operation of the Development Area
that Contractor believes will be required based on
information available at the time, including details
of:
- facilities and infrastructure which may be
required up to the Measurement Point either within
or outside the Development Area;
- production parameters, timing, number and location
of ▇▇▇▇▇;
38
- the facilities and infrastructure (including
proposed locations) to be installed for production
storage and loading of petroleum;
- an estimate of the overall costs of the relevant
Petroleum Operations and estimates of the time
required to complete each phase of the Development
Plan;
(iv) provide a production forecast and indicate any other
factor, including factors relating to the
transportation and disposal of Petroleum, that would
affect the economic and technical feasibility of the
Development Plan;
(v) provide details of the Contractor's proposals for the
employment and training of citizens of Georgia; and
(vi) include an abandonment and site restoration programme
and a funding procedure for such programme in
accordance with the requirements of Article 9.7.
9.7 Subject to the limitation set forth in Article 24.3, each abandonment
and site restoration programme included in a Development Plan shall:
9.7.1 describe removal and abandonment measures deemed necessary in
accordance with Good Oilfield Practices following completion
of production from the relevant Development Area together with
an estimate of the costs thereof. The abandonment plan shall
provide for the removal of facilities and equipment used in
Petroleum Operations or their in place abandonment, if
appropriate, in the Development Area and insofar as practical
restoration of used areas to a condition as defined in the
Development Plan. For the sake of clarity, it shall be
understood that the intent is to restore, insofar as
practical, to conditions which were shown in the environmental
baseline studies referred to in Article 24.3; and
39
9.7.2 establish in respect of the measures described in 9.7.1 above
an abandonment and site restoration fund estimated from time
to time to be sufficient to fund those measures and placed in
a special interest bearing US$ account ("the Special
Account"), to be held in the joint names of the State Agency
and the Contractor and dedicated exclusively to meeting
expenditures for abandonment and site restoration. Except as
provided in Article 17.4 of the Petroleum Law, no taxes shall
be imposed on any amounts paid into, received or earned by, or
held in the Special Account and payments made into the Special
Account by the Contractor shall be treated as expenses
recoverable as Costs and Expenses.
9.8 Discharge of abandonment obligations:
9.8.1 Unless, not later than one Year prior to date on which the
rights of the Contractor under this Contract will terminate,
the State has informed the Contractor by notice in writing
that on termination another contractor, or Georgian Oil, will
take over the Development Area as a going concern, the
Contractor will be responsible for carrying out the
abandonment and site restoration programme here in this
Article described proceeding with all due diligence and in the
event that the funds available in the special interest bearing
account are insufficient for that purpose, will make up the
shortfall.
9.8.2 In respect of the obligations of the Contractor under Article
9.8.1, this Contract shall, notwithstanding the provision of
Article 4, remain in force until the Contractor has discharged
those obligations in full, and for that purpose the provisions
of Article 30 shall continue to be applicable.
9.8.3 If the State gives the Contractor a notice of the kind
referred to in Article 9.8.1 the Contractor shall have no
further responsibility for carrying out the abandonment and
site restoration programme and title to the funds in the
Special Account shall vest exclusively in the State Agency.
40
9.8.4 If the Contractor has discharged in full its obligations under
Article 9.8.1 and surplus funds remain in the Special Account
after meeting the related costs, such surplus shall first be
used to recover any unrecovered Costs and Expenses and any
surplus shall be divided between the Contractor and Georgian
Oil in proportions which correspond to the proportions in
which the Contractor and Georgian Oil have shared cumulative
Profit Oil.
9.9 Any significant changes to an approved Development Plan or proposals
related to extension of a Development Area or for enhanced recovery
projects shall be submitted to the Coordination Committee for approval.
9.10 Subject to the terms of this Contract, the Contractor shall carry out,
at its own expense and financial risk, all the necessary Petroleum
Operations to implement an approved Development Plan. However, if the
Contractor is able to demonstrate to the reasonable satisfaction of the
Coordination Committee that exploitation turns out not to be
commercially profitable, the Coordination Committee shall decide on the
steps to be taken as a consequence of such an event, and the Contractor
shall not be obligated to continue implementation of the original
Development Plan.
9.11 Contractor shall, with respect to any report or proposal it submits to
the Coordination Committee pursuant to this Article 9, submit a copy at
the same time to Georgian Oil and to the State Agency in compliance
with the regulations of the State Agency in force from time to time.
9.12 At the request of the State Agency, the Contractor agrees to meet with
the State Agency for consultative purposes concerning regulatory issues
related to Work Programmes.
41
ARTICLE 10
ANNUAL WORK PROGRAMMES AND BUDGETS
10.1 The Contractor shall be responsible for the procurement of
installations, equipment and supplies and entering into contracts for
the purchase of goods and services with Foreign Subcontractors and
others required for Petroleum Operations, all in accordance with
approved Annual Work Programmes and Budgets. Such activities may be
delegated to the Operating Company.
10.2 Within ninety (90) Days after the Effective Date, the Contractor shall
submit to the Co-ordination Committee for its approval an Annual Work
Programme and Budget for the remainder of the then current Calendar
Year and a forecast for the next succeeding Calendar Year.
10.3 Before 31 October in each Calendar Year, the Contractor shall prepare
and submit to the Co-ordination Committee for its review a proposed
Annual Work Programme and Budget for the next Calendar Year. Article
6.4 shall apply to the approval of Annual Work Programmes and Budgets
and modifications thereto.
10.4 In connection with the review and approval of an Annual Work Programme
and Budget, the Contractor shall submit to the Co-ordination Committee
such supporting data as may be requested by the Co-ordination
Committee.
10.5 Subject to the provisions of Article 6.4, the Contractor may, in
accordance with the following provisions, incur expenditures in excess
of an approved Budget or expenditures outside an approved Budget in
carrying out an approved Work Programme, provided that the objectives
in the approved Work Programme are not substantially changed, subject
to the following conditions:
(i) In carrying out an approved Annual Work Programme the
Contractor may, if necessary, incur excess expenditures of no
more than ten percent (10%) of the approved Budget in any
specified budgetary category. The Contractor
42
shall report quarterly the aggregate amount of all such excess
expenditures to the Co-ordination Committee for information.
(ii) For the efficient performance of Petroleum Operations, the
Contractor may, without approval, undertake certain individual
projects which are not included in an approved Annual Work
Programme and Budget, for a maximum expenditure of two hundred
and fifty thousand US$ (US$250,000) per Calendar Year, but
shall, within ten (10) Days after such expenditures are
incurred, report to the Co-ordination Committee for
information.
(iii) Excess expenditures under this Article 10.5 shall not exceed
five percent (5%) of the approved or modified annual Budget
for the Calendar Year. If such excess is expected to be in
excess of said five percent (5%) of the approved total annual
Budget, the Contractor shall present its reasons therefor to
the Co-ordination Committee and obtain its approval prior to
incurring such expenditures.
10.6 In case of emergency, the Contractor (or the Operating Company on
behalf of the Contractor) may incur emergency expenditures for the
amount actually needed but shall report such expenditures to the
Co-ordination Committee as soon as practicable after they are made.
Such emergency expenditures shall not be subject to Article 10.5 above.
10.7 Except as provided otherwise in this Contract, Petroleum Operations
will only be performed in accordance with an approved or modified
Annual Work Programme and Budget.
43
ARTICLE 11
ALLOCATION OF PRODUCTION, RECOVERY OF COSTS AND
EXPENSES, PRODUCTION SHARING, AND RIGHT OF EXPORT
11.1 The Contractor shall provide or procure the provision of all resources,
including funds, required to conduct Petroleum Operations under
approved Annual Work Programmes under this Contract, except as
otherwise provided in this Contract, and the Contractor shall be
entitled to recover its Costs and Expenses from Petroleum produced from
the Contract Area as provided below.
11.2 Prior Costs and Expenses and Prior Cost Recovery Petroleum
11.2.1 Cost and Expenses incurred by the Contractor or IVOG in
connection with Petroleum Operations prior to the Effective
Date and summarised in Annex F shall be deemed to be Costs and
Expenses for the purposes of this Contract and shall be deemed
to be incurred on the Effective Date and shall be fully
recoverable from Cost Recovery Petroleum in accordance with
the provisions of this Contract.
11.2.2 Costs and Expenses incurred by the Contractor between 1
January 2000 and the Effective Date, but not included in Annex
F, shall be audited as soon as possible thereafter. Subject to
approval by the Co-ordination Committee and the State Agency,
such Costs and Expenses shall be deemed to be Costs and
Expenses for the purposes of this Contract and shall be deemed
to be incurred on the Effective Date and shall be fully
recoverable from Cost Recovery Petroleum in accordance with
the provisions of this Contract.
11.2.3 Cost Recovery Petroleum taken by the Contractor in connection
with Petroleum Operations prior to the Effective Date and
summarised in Annex F shall be deemed to be Cost Recovery
Petroleum for the purposes of this Contract and shall be
deemed to have been taken on the Effective Date
44
11.3 The Contractor shall have the right to use free of charge Petroleum
produced from the Contract Area to the extent required for Petroleum
Operations under the Contract. The amount of Petroleum which the
Contractor shall be entitled to use for Petroleum Operations shall not
exceed the amount which would be expected to be used in accordance with
international Petroleum industry practice in the exercise of Good
Oilfield Practices. For the avoidance of doubt, such Petroleum shall be
used only for the benefit of Petroleum Operations and not for the
personal gain of any Party.
11.4 Available Crude Oil and Available Natural Gas shall be measured at the
applicable Measurement Point and allocated as set forth below in
Articles 11.5 and 11.10.
11.5 The Contractor shall be entitled to recover all Costs and Expenses
incurred in respect of Petroleum Operations from a maximum of fifty
percent (50%) per Calendar Quarter of all Available Crude Oil and
Available Natural Gas from the Contract Area (hereinafter referred to
as Cost Recovery Crude Oil and Cost Recovery Natural Gas, as the case
may be).
Recovery of Costs and Expenses shall be in a manner consistent with the
Accounting Procedure and Article 11.6.
11.6 Costs and Expenses shall be recoverable from Cost Recovery Petroleum on
a first in, first out basis (i.e. Costs and Expenses incurred will be
recovered according to the date they were incurred, earliest first and
measured in US$ in accordance with Article 18.1) and shall be
calculated on a Calendar Quarter basis.
11.7 To the extent that in a Calendar Quarter outstanding recoverable Costs
and Expenses related to the Contract Area exceed the value of all Cost
Recovery Crude Oil and Cost Recovery Natural Gas for such Calendar
Quarter, the excess shall be carried forward for recovery in the next
succeeding Calendar Quarters until fully recovered, but in no case
after termination of the Contract. In amplification of the foregoing a
full audit shall be undertaken in every Calendar Year to ensure
compliance, among other matters, with the principles of Article 11.5.
45
11.8 Recovery of Costs and Expenses shall be achieved by transferring to a
Party at the Measurement Point title to quantities of Cost Recovery
Petroleum of equivalent value (determined in accordance with Article
12) to the Costs and Expenses to be recovered in accordance with this
Article 11. [No change]
11.9 To the extent that the value of Cost Recovery Petroleum received by a
Party from the Contract Area during a Calendar Quarter is greater or
less than the Party was entitled to receive for that Calendar Quarter,
an appropriate adjustment shall be made in accordance with the
Accounting Procedure in the subsequent Calendar Quarters.
11.10 Following recovery of Costs and Expenses from Cost Recovery Petroleum
in each Calendar Quarter in accordance with the provisions of this
Article 11, the remaining Petroleum, including any portion of Cost
Recovery Petroleum not then required or available for recovery of Costs
and Expenses (hereinafter referred to as "Profit Oil" or "Profit
Natural Gas") shall be allocated in each Calendar Quarter between
Georgian Oil and the Contractor as follows:
11.10.1 Fifty percent (50%) of the Profit Oil (and Profit Natural Gas)
resulting from Petroleum Operations will be allocated to
Georgian Oil and fifty percent (50%) to the Contractor, so
long as the cumulative Costs and Expenses, plus finance costs
incurred by the Contractor exceed the value of the cumulative
Cost Recovery Petroleum, cumulative Profit Oil and cumulative
Profit Natural Gas given to the Contractor, calculated from
the Effective Date to the end of the prior quarter.
11.10.2 If at any time the value of the cumulative Cost Recovery
Petroleum, cumulative Profit Oil and cumulative Profit Natural
Gas delivered to the Contractor exceeds the cumulative Costs
and Expenses, plus interest incurred by the Contractor (but
excluding interest already included in Costs and Expenses and
excluding interest on interest), then seventy percent (70%) of
the Profit Oil (and Profit Natural Gas) resulting from
Petroleum Operations will be allocated to Georgian Oil and
thirty percent
46
(30%) to the Contractor, calculated from the Effective Date to
the end of the prior quarter.
11.11 Notwithstanding Articles 11.5 and 11.10, when the value of the
cumulative Cost Recovery Petroleum, cumulative Profit Oil and
cumulative Profit Natural Gas delivered to the Contractor exceeds the
cumulative Costs and Expenses, plus finance costs incurred by the
Contractor, and calculated from the Effective Date to the end of the
prior quarter, then Georgian Oil will be entitled to receive, as a
priority, up to 250,000 tons of oil (or oil equivalent) from a maximum
of fifty percent (50%) per Calendar Quarter of all Available Crude Oil
and Available Natural Gas from the Contract Area (the Base Level Oil).
11.11.1 During the period that Base Level Oil is being delivered to
Georgian Oil, the Contractor shall be entitled to recover all
Costs and Expenses, calculated from the Effective Date to the
end of the prior quarter incurred in respect of Petroleum
Operations, as Cost Recovery Petroleum from a maximum of fifty
percent (50%) per Calendar Quarter of the remaining Available
Crude.
11.11.2 During the period that Base Level Oil is being delivered to
Georgian Oil, after delivery of Base Level Oil and Cost
Recovery Petroleum the remaining Available Crude Oil and
Available Natural Gas resulting from Petroleum Operations in
the Contract Area will be allocated as Profit Oil (and Profit
Natural Gas) with fifty percent (50%) being delivered to
Georgian Oil and fifty percent (50%) being delivered to the
Contractor.
11.12 The Contractor shall prepare and provide to Georgian Oil and the State
Agency not less than ninety (90) Days prior to the beginning of each
Calendar Quarter a written
47
forecast setting out the total quantity of Petroleum that the
Contractor estimates can be produced and saved hereunder during each of
the next four (4) Calendar Quarters in accordance with Good Oilfield
Practices and the Annual Work Programme approved in accordance with
Article 10.
11.13 Crude Oil, whether as Cost Recovery Petroleum or as Profit Oil, shall
be measured at the Measurement Point for purposes of the Contract and
delivered to Georgian Oil and Contractor who as owners shall take in
kind, assume risk of loss and separately dispose of their respective
entitlements of Crude Oil. All Natural Gas shall be sold on a jointly
committed basis or as otherwise provided in accordance with Article 16
of this Contract.
11.14 For the avoidance of any doubt, title to their relevant shares of
Petroleum shall pass from the State to Georgian Oil and Contractor as
appropriate at the Measurement Point and the Operating Company will
have no title to any Petroleum.
Georgian Oil and the Contractor shall agree on procedures for taking
volumes of Crude Oil corresponding to their respective entitlements on
a regular basis and in a manner that is appropriate having regard to
the respective destinations and uses of the Crude Oil, all in
accordance with the provisions of this Contract. If necessary, Georgian
Oil and the Contractor will enter into a lifting agreement setting out
the agreed procedures for taking volumes of Crude Oil, and such
agreement shall comply with the principles of Good Oilfield Practices.
Details of all Costs and Expenses approved as herein provided shall be
given by the Contractor to the State Agency and Georgian Oil on a
quarterly basis.
48
ARTICLE 12
CRUDE OIL AND NATURAL GAS VALUATION
12.1 The value of Crude Oil that constitutes Cost Recovery Crude Oil and is
sold by Contractor to Third Parties in "fairly valued" transactions
shall be the net realised price (i.e., after deducting commissions and
brokerages) ex works at the Measurement Point. The sale is "fairly
valued" if
(i) the price is the sole consideration for the sale; and
(ii) the terms of the sale are not affected by any commercial
relationship, other than that created by the contract of sale
itself, between the seller or an Affiliate and the buyer or an
Affiliate; and
(iii) the seller or an Affiliate does not have any interest in the
subsequent resale or disposal of the Crude Oil or any product
derived therefrom.
12.2 It is the intent of the Parties that the value of Cost Recovery
Petroleum that is sold by Contractor other than to Third Parties in
"fairly valued" transactions shall reflect the prevailing international
market price for Crude Oil saved and sold from the Contract Area ex
works the Measurement Point. For the purpose of determining the value
and allocation of Cost Recovery Petroleum taken and disposed of by the
Parties and/or their assignees under this Contract during each Calendar
Quarter, Georgian Oil and the Contractor shall agree upon a basket of
no more than four (4) Crude Oils freely traded in international
markets, and the value of Cost Recovery Petroleum shall be adjusted to
reflect the weighted average daily f.o.b. prices for term contract
sales from Petroleum producing countries in international markets for
the same Calendar Quarter of such basket of Crude Oils, it being
understood that the following principles will apply:
(i) Each of such basket marker Crude Oils shall originate from the
closest
49
geographic location to the Contract Area as possible and have
the same primary geographic market as the Contract Area Crude
Oil being valued. The weighted average of the basket shall be
such that the average gravity, sulphur content and product
yield of the basket and the average gravity, sulphur content
and product yield of the Crude Oil produced under this
Contract shall approximate each other as nearly as is
possible; and
(ii) The prices for individual referenced Crude Oil markers used
within the basket shall be based upon the numerical average of
a daily report of the actual price for each referenced Crude
Oil marker as published in agreed internationally recognised
publications; and
(iii) Adjustment provisions will be incorporated into the basket
formula to take account of transportation costs and location
differentials between the marker basket of Crude Oils and the
Crude Oil produced under this Contract arriving at a
designated sales point (where the sales point is not the
Measurement Point) and to take account of gravity and sulphur
content variation beyond a pre-agreed range; and
(iv) Contractor's third party fairly valued sales prices received
for Crude Oil produced under this Contract shall be the basis
used to determine appropriate changes to the adjustments set
out in (iii) above;
(v) Unless agreed otherwise, the last calculated weighted average
basket price shall serve as the provisional price for a
Calendar Quarter until a new price is determined.
12.3 In the event that Georgian Oil and the Contractor are unable to agree
upon the
50
basket of Crude Oils envisaged in Article 12.2 above, or the principles
relating thereto, then either Georgian Oil or the Contractor or both of
them jointly may pursuant to Article 30, refer the matter or matters in
issue for determination by a Sole Expert. Pending such determination,
the price shall be as determined under Article 12.2 (iv) above.
12.4 Natural Gas shall be valued at the actual revenues received by
Contractor less transportation, storage, treatment, processing,
liquefaction and all other associated costs incurred by the Contractor
beyond the Measurement Point in supplying Natural gas to customers
beyond the Measurement Point. If the Contractor bears the cost of
installing and operating the pipeline required to transport Natural Gas
produced from the Contract Area to the market for such Natural Gas and
such pipeline is located downstream of the Measurement Point, the
Contractor shall be entitled to deduct a tariff from the sales price of
the Natural Gas for the purpose of determining the value of Cost
Recovery Petroleum. The tariff associated with such natural gas
pipeline shall be computed on the basis of the investment incurred in
such pipeline, the operating costs of such pipeline and a reasonable
return on Contractor's investment.
51
ARTICLE 13
ANCILLARY RIGHTS OF THE CONTRACTOR AND OPERATING COMPANY
13.1 The State and Georgian Oil shall provide or otherwise procure access
for the Contractor to all existing facilities and infrastructure, which
is available on an open access basis for private commercial purposes,
which for the sake of clarification does not include such facilities or
infrastructure subject to contractual or treaty obligations or
restrictions, in the Contract Area owned by the State or Georgian Oil
necessary for the purpose of carrying out Petroleum Operations during
the term of the Contract. Such access shall be on terms as regards
access and tariffs no less favourable than the best terms then being
offered to other private commercial Third Parties namely non-State
owned entities, for comparable usage.
13.2 Provided that Georgian Oil and the State Agency are provided with
copies of the following data, the Contractor shall, subject to the
confidentiality provisions herein provided, have the right to use,
reproduce, reprocess and export all existing geoscience, engineering,
environmental and geodetic data (including magnetic tapes and films),
maps, surveys, reports, and studies it deems necessary to carry out
Petroleum Operations hereunder, including, but not limited to, magnetic
surveys, seismic surveys, well logs and analysis, core analysis, well
files, geological and geophysical maps and reports, reservoir studies,
reserve calculations, accurate geodetic co-ordinates for the location
of all ▇▇▇▇▇ and seismic lines and all other pertinent data relative to
the Contract Area. Georgian Oil and the Contractor may sell such data,
subject to the approval of the Co-ordination Committee and the prior
consent of the State Agency and, in the event of such approval, subject
to the entering into of a confidentiality agreement on terms comparable
to those herein set forth by the purchaser thereof. The proceeds from
any such sale shall be shared in accordance with the provisions of
Article 11.10.
52
13.3 The Contractor shall have the right within the Contract Area to conduct
all geoscience, engineering, environmental and geodetic studies it
deems necessary to carry out Petroleum Operations hereunder. Said
studies may include, but are not limited to, seismic surveys, magnetic
surveys, global positioning surveys, aerial photography, and the
collection of soil/water/oil/gas/rock samples for scientific and
environmental studies. The Contractor shall be granted access to and/or
permission to fly, subject to obtaining appropriate consents (which
will not be unreasonably withheld or delayed), over the Contract Area
to conduct said studies. The Contractor shall have the right to import
equipment and supplies necessary to conduct said studies as well as the
right to export data, film and samples, subject to the provisions of
Article 13.2, to laboratories outside the State to conduct such
studies.
13.4 The agents, employees, and personnel of the Contractor or the
Subcontractors, may enter or leave the Contract Area and have free
access, within the scope of their functions, to all installations put
in place by the Contractor or otherwise utilised in Petroleum
Operations and to installations used for Petroleum Operations outside
the Contract Area.
13.5 Subject to applicable laws, rules and regulations, as herein provided,
including the prior approval of any appropriate State bodies as well as
any local governmental bodies, and the approval of the Coordination
Committee to a draft Work Programme describing the utilisation
hereinbelow contemplated and the Development Plan and the agreement of
relevant landowners, the Contractor shall have the right to utilise the
upper soil, mature timber, clay, sand, lime, gypsum and stones other
than precious stones, and any other similar substances, necessary for
the performance of Petroleum Operations. The Contractor, subject as
aforesaid, may utilise the surface and subsurface water necessary for
Petroleum Operations on condition that reasonable efforts are taken to
minimise potentially adverse effects on irrigation and navigation, and
that land, houses and the watering places are not
53
adversely affected.
13.6 Subject to applicable laws, rules and regulations, as herein provided,
including the prior approval of any appropriate State bodies as well as
any local governmental bodies, obtained through the State Agency, which
shall not be unreasonably withheld, and the approval of the
Coordination Committee to a draft Work Programme describing the
utilisation hereinbelow contemplated and the Development Plan and the
agreement of relevant owners, the Contractor, to the extent necessary
for the performance of the Petroleum Operations, may clear land, dig,
▇▇▇▇▇▇, drill, construct, operate and maintain pits, tanks, ▇▇▇▇▇,
trenches, excavations, dams, canals, water pipes, reservoirs, maritime
storage facilities, primary distillation units, separating units for
first oil extraction, sulphur factories and other Petroleum producing
facilities, as well as pipelines, pumping stations, compressor
stations, generator units, power plants, high voltage lines, telephone,
telegraph, radio, internet connections, and any other means of public
or private communication (including satellite communication systems),
warehouses, offices, personnel housing, hospitals, schools, docks,
harbours, dikes, jetties, dredges, breakwaters, underwater piers and
other installations, ships, vehicles, railroad cars, roads, bridges,
ferry-boats, airplanes, airstrips and other means of transportation,
garages, hangars, maintenance and repair shops.
13.7 It is recognised by the Parties that in order to maximise the benefit
of Petroleum Operations to the State, Georgian Oil and the Contractor,
it is in the interests of the State to promote cooperation among
Georgian and foreign enterprises carrying on Petroleum Operations in
Georgia to share infrastructure in such a manner as to ensure efficient
operation among themselves. The State Agency and Georgian Oil, at their
discretion, hereby agree to seek to promote, using reasonable efforts
under the circumstances, subject to contractual commitments, treaty
obligations and the
54
rights of Third Parties, access for the Contractor to any existing, new
or modernised pipelines or other infrastructure including sea ports and
rail terminals, passing through or in Georgia which may be constructed
or upgraded during the term of the Contract on terms with regard to
access and tariffs no less favourable than the then prevailing terms
available to private commercial Third Parties, namely non-State owned
or controlled entities, for comparable usage, excluding any contractors
or participants of said construction or upgrading.
13.8 The Contractor shall be entitled to bring Foreign Employees into
Georgia in connection with the performance of Petroleum Operations. The
entry into Georgia of such personnel is hereby authorised, and the
State shall issue at the Contractor's request the required documents,
such as entry and exit visas, work permits and residence cards, subject
to the normal procesures of Georgian law. At the Contractor's request,
the State shall facilitate all immigration formalities at the points of
exit and entry into Georgia for the employees and family members of the
Contractor, its Affiliates and Subcontractors. The Contractor (or the
Operating Company on its behalf) shall contact the appropriate offices
of the State to secure the necessary documents, and to satisfy the
required formalities.
13.9 All employees working within the scope of Petroleum Operations shall be
placed under the authority of the Contractor, as herein set forth, its
Affiliates, or its Subcontractors or Operating Company, each of which
shall act individually in their capacity as employers. The works,
hours, wages, and all other conditions relating to their employment
shall be determined by the relevant employer of such employees. In
relation to employees who are citizens of Georgia their employment
shall be in accordance with Georgian law. To the extent that any
Foreign Employees are engaged under a contract subject to Georgian law,
that contract shall comply with the provisions of Georgian law. The
Contractor, taking into
55
account Article 6.5.6, or its Affiliates, and its Subcontractors and
Operating Company, however, shall enjoy full freedom in the selection
and assignment of their employees.
56
ARTICLE 14
ASSISTANCE PROVIDED BY THE STATE
14.1 To enable the Contractor to properly carry out the Petroleum Operations
as set forth in Work Programmes and Development Plans, the State shall,
in good faith, provide reasonable assistance to help the Contractor to:
(i) secure the approvals or permits needed to conduct such
Petroleum Operations and open bank accounts (for both local
and foreign currency) in Georgia;
(ii) provide for Foreign Exchange conversion in accordance with the
principles set out in Article 19.7 of this Contract;
(iii) obtain office space, office supplies, transportation and
communication facilities and make arrangements for
accommodations as required;
(iv) facilitate any custom formalities;
(v) provide, in accordance with Article 13.8 and subject to the
normal provisions of Georgian law, entry and exit visas and
work permits for Foreign Employees and their family members of
the Contractor, its Affiliates and Foreign Subcontractors, who
are not citizens of Georgia, who come to Georgia for the
implementation of the Contract and to provide assistance for
their transportation, travel and medical facilities whilst in
Georgia;
(vi) provide necessary permissions to send abroad documents, data
and samples for analysis or processing related to such
Petroleum Operations;
57
(vii) contact and instruct appropriate departments and ministries of
the State and any other bodies controlled by the State to do
all things, within and according to their authority, necessary
to help expedite such Petroleum Operations;
(viii) provide permits, approvals, and land use rights, in accordance
with applicable rules and regulations, requested by the
Contractor for the construction of bases, facilities and
installations for use in conducting such Petroleum Operations;
and
(ix) provide to the Contractor existing data and samples concerning
the Contract Area useful for the conduct of such Petroleum
Operations, other than those produced as a result of Petroleum
Operations hereunder.
14.2 The State may charge as Administrative Fees for such assistance such
reasonable amounts as may be customary for the provision of such
services, but in no event shall such charges be in excess of charges
applicable to Third Parties for comparable service or assistance. It is
also understood that with respect to a number of matters such as the
conversion of currency and the provision of accommodations, for
example, the State may also have to secure the services of private
Third Parties.
14.3 Notwithstanding anything in this Contract to the contrary, the
Contractor agrees to pay the fees described in Article 14.2 to the
State Agency, together with reimbursement to the State Agency for all
direct expenses incurred by it in preparing and making necessary
applications to ministries, state agencies and other governmental
authorities in the course of obtaining permits and approval required
for the Contractor and/or the Operating Company to conduct Petroleum
Operations. Such direct expenses may include the cost of retaining
experts to review or prepare technical submissions (e.g., environmental
or engineering data). But in no event
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shall the State Agency charge for additional compensation, if any, to
its personnel for performing such services. Other direct expense items
shall include, but not be limited to, copying or printing of
applications and supporting data submitted to other governmental
bodies, transportation and hall rental for public hearings required by
laws or authorities other than those of the State Agency itself, and
similar items that the State Agency cannot reasonably provide through
its own resources.
14.4 Fees and direct expenses paid under Articles 14.2, 14.3 and 14.5 shall
be treated as Costs and Expenses for the purposes of determining Cost
Recovery Petroleum.
14.5 The contractor pays regulatory fee to the State Agency for Regulation
of Oil and Gas Resources, in the amount of USD 150.000, the half of the
sum shall be paid by the time of signing the PSA and the second half
within the 12 month of the effective date, the management,
coordination, monitoring, control and supervision by the State Agency
also covering of the costs related to the implementation of the
competence envisaged by the present Agreement and Georgian legislation.
14.6 Contrctor shall pay all fees and charges in compliance with the
normative acts promulgated by the State Agency, provided that such fees
and charges are not discriminatory with respect to the Contractor. Such
fees and charges shall be Costs and Expenses for the purposes of
determining Cost Recovery Petroleum.
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ARTICLE 15
MEASUREMENT OF PETROLEUM
15.1 All Petroleum produced, Saved and not used in the Petroleum Operations
in accordance with Article 11.3 shall be measured at the Measurement
Point. Georgian Oil and State Agency shall be afforded access to the
Measurement Point by Contractor as long as such access does not
significantly interfere with Petroleum Operations.
15.2 The Measurement Point shall be at the end of the facilities for which
the costs are included as Costs and Expenses. The Measurement Point
shall be determined in accordance with the provisions set out in
Articles 9 and 11.
15.3 All Petroleum shall be measured in accordance with standards generally
acceptable in the international Petroleum industry and certified
Georgian standards. All measurement equipment shall be installed,
maintained and operated by the Contractor. The Contractor and Georgian
Oil and State Agency shall be entitled periodically to inspect the
measuring equipment installed and all charts and other measurement or
test data at all reasonable times. The accuracy of measuring equipment
shall be verified by tests at regular intervals and upon request by
State Agency or Georgian Oil or the Contractor, using means and methods
generally accepted in the international Petroleum industry.
15.4 Should a meter malfunction occur, the Contractor shall immediately have
the meter repaired, adjusted and corrected and following such repairs,
adjustment or correction shall have it tested or calibrated to
establish its accuracy. Upon the discovery of metering error, the
Contractor shall have the meter tested immediately and shall take the
necessary steps to correct any error that may be discovered.
15.5 In the event a measuring error is discovered, the Contractor shall use
all reasonable efforts to determine the correct production figures for
the period during which there
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was a measuring error and correct previously used readings. The
Contractor shall submit to the Co-ordination Committee and State Agency
a report on the corrections carried out. In determining the correction,
the Contractor shall use, where required, the information from other
measurements made inside or outside the Development Area. If it proves
impossible to determine when the measuring error first occurred, the
commencement of the error shall be deemed to be the point in time
halfway between the date of the last previous test and the date on
which the existence of the measuring error was first discovered.
15.6 All measurements for all purposes in this Contract shall be adjusted to
standard conditions of pressure at sea level and temperature at sixty
(60) degrees Fahrenheit.
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ARTICLE 16
NATURAL GAS
16.1 Associated Natural Gas
16.1.1 Associated Natural Gas produced within the Contract Area shall
be used primarily for purposes related to the Production
Operations and production enhancement, including, without
limitation, oil treating, gas injection, gas lifting and power
generation.
16.1.2 Based on the principle of full utilisation of the Associated
Natural Gas and with no impediment to normal production of the
Crude Oil, any Development Plan shall include a plan of
utilisation of Associated Natural Gas. If there is any excess
Associated Natural Gas remaining in any Oil Field after
utilisation pursuant to Article 16.1.1 (hereafter referred to
as "Excess Associated Natural Gas"), the Contractor shall
carry out a feasibility study regarding the commercial
utilisation of such Excess Associated Natural Gas.
If Georgian Oil and the Contractor agree that Excess
Associated Natural Gas has no commercial value, then such
Natural Gas shall be disposed of by the Contractor through
reinjection, venting, flaring or otherwise as may be provided
in an approved Development Plan, and subject to approval from
the State Agency.
If Georgian Oil and the Contractor agree that Excess
Associated Natural Gas has commercial value, they will
endeavour to enter into gas sales agreement(s) and/or other
commercial and/or technical arrangements with Third Parties
required to develop such Natural Gas. Investments in the
facilities necessary for production, transportation and
delivery of Excess Associated Natural Gas shall be made by the
Contractor.
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If either Georgian Oil or the Contractor considers that Excess
Associated Natural Gas has commercial value while the other
considers that Excess Associated Natural Gas has no commercial
value, the one who considers Excess Associated Natural Gas to
have commercial value may utilise such Excess Associated
Natural Gas, at its own cost and expense and without impeding
the production of Crude Oil and without affecting the shares
of Crude Oil and Natural Gas otherwise to be allocated under
the other provisions of this Contract, but if such Excess
Associated Natural Gas is not so utilised at any time or from
time to time, then such Excess Associated Natural Gas shall be
disposed of by the Contractor, in a manner approved by the
State Agency.
16.1.3 Investments made in conjunction with the utilisation of both
Associated Natural Gas and Excess Associated Natural Gas,
together with investments incurred after approval of a
Development Plan in carrying out feasibility studies on the
utilisation of Excess Associated Natural Gas, shall be Costs
and Expenses.
16.2 Non-associated Natural Gas
16.2.1 When any Non-associated Natural Gas is discovered within the
Contract Area, the Contractor may present proposals for
appraisal and development as follows:
After Non-associated Natural Gas has been discovered within
the Contract Area, the Contractor shall present to the
Co-ordination Committee, a report, including, without
limitation, an initial estimate of the boundaries of the
Non-associated Natural Gas Reservoir and a range of
recoverable reserves.
The Contractor shall be required to decide whether to submit
an Appraisal Programme as soon as is practical in all the
circumstances but not later than thirty-six (36) Months from
the date of the submission of the
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discovery report.
If the Contractor commits to an approved Appraisal Programme
for the Non-associated Natural Gas Reservoir, delineation and
review of the potential of the Non-associated Natural Gas
Reservoir will continue for a period not longer than three (3)
Years from the Approval of the Appraisal Programme. During the
review period and the period of the Appraisal Programme, the
Contractor shall maintain all rights and interests in the
relevant portion of the Contract Area.
The expenses incurred by the Contractor in carrying out the
said review, evaluation and Appraisal Programme shall be Costs
and Expenses.
16.2.2 Following the completion and review of the Appraisal
Programme, the Contractor shall submit an appraisal report to
the Co-ordination Committee and may submit a Development Plan
for approval in accordance with Article 9.5. Georgian Oil and
the Contractor shall also endeavour to finalise Gas Sales
Contract(s) and other agreements necessary for the commercial
exploitation of such Non-associated Natural Gas.
16.2.3 Unless otherwise agreed between the Contractor and Georgian
Oil, all Non-associated Natural Gas (and excess Associated
Natural Gas) produced from the Contract Area under a
Development Plan which has been approved, or deemed to have
been approved, by the Co-ordination Committee shall be sold by
the Contractor on its own behalf and as agent for Georgian Oil
on a joint dedicated basis on terms common to both Parties.
Every such agreement shall require the express approval of
Georgian Oil which shall not be unreasonably withheld.
Georgian Oil may engage independent experts, as proper and
reasonable, to make the necessary examination of any such
agreement the costs of which shall be reimbursed to Georgian
Oil by the Contractor and shall constitute Costs and Expenses.
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16.2.4 Where Non-associated Natural Gas (or excess Associated Natural
Gas) is sold by the Contractor on a joint dedicated basis
pursuant to Article 16.2.3, the provisions of Article 11,
relating to the allocation of Petroleum for recovery of costs
and production sharing, shall apply to the distribution of the
proceeds from the sale of Non-associated Natural Gas with
effect that Georgian Oil and the Contractor shall have title
in undivided shares to the Non-associated Natural Gas
available for sale on a joint dedicated basis and will hold
those shares in undivided proportions equal to the proportions
in which during that period they were entitled to share
available Petroleum. Accordingly the net proceeds from the
sale on a joint dedicated basis of Non-associated Natural Gas
in any given period shall be divided between Georgian Oil and
the Contractor in the proportions in which they had title to
the Non-associated Natural Gas sold.
16.2.5 The production period for any Non-associated Natural Gas
within the Contract Area shall be a period equal to the
greater of the term of the Gas Sales Contract(s) or other
commercial Natural Gas agreement for such Non-associated
Natural Gas and twenty-five (25) consecutive Years beginning
on the date of commencement of Commercial Production of such
Non-associated Natural Gas. Such period shall not exceed the
maximum term of the Contract, plus any extensions permitted
under Article 4,2. Georgian Oil and the Contractor shall
endeavour to conclude Gas Sales Contract(s) and implement a
Development Plan for Non-associated Natural Gas so as to
deplete each Reservoir within its production period and within
the term of this Contract, subject always to the application
of Good Oilfield Practices.
16.2.6 In the event that the development of Non-associated Natural
Gas appears to be uneconomic under the provisions of this
Contract, the Parties shall meet to discuss amending the terms
of this Contract. In the event the
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Parties are unable to agree upon modifications to make
development, production, and marketing of a Non-associated
Natural Gas discovery economic to the Contractor, the State
and Georgian Oil agree that they will not enter into any
arrangements for the development of such Non-associated
Natural Gas discovery with any Third Parties under less
favourable terms to the State and Georgian Oil than the
Contractor's last offer under the negotiations above, without
first offering such development and terms to the Contractor.
State and Georgian Oil shall notify Contractor in writing
within thirty (30) days of receipt of any such offer, giving
the full details of such offer. Contractor shall have one
hundred eighty (180) days following its receipt of notice of
the Third Party offer to match the offer. This right of first
refusal shall run concurrent with the term of this Contract
and shall survive the expiration or termination of this
Contract for a period of five (5) years. If the Third Party
offer to the State and Georgian Oil is on more favourable
commercial terms to the State and Georgian Oil than
Contractor's last offer, the above limitation on the State and
Georgian Oil shall not apply.
16.3 The Contractor may participate in the installation and operation of the
pipeline(s) required to transport Non-associated Natural Gas produced
from the Contract Area to the market for such Non-associated Natural
Gas and share with Georgian Oil in any revenues, in the proportion in
which Article 11 they were entitled to share available Petroleum,
generated from the use of said pipeline(s) by others. If the Contractor
participates in the installation and operation of such pipeline(s), the
installation and operation of such pipeline(s) shall be included in
Development Plan and Petroleum Operations under this Contract.
16.4 If the State-owned company or other entity, or Georgian Oil provides
Natural Gas
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transportation services to the Contractor, then the tariffs charged to
the Contractor for such services shall be non-discriminatory,
reasonably based on the investment necessary to provide the
transportation services and in no event will exceed the rates then
available to other Third Parties for comparable services based on
comparable usage and comparable agreement terms. The State through such
State owned company and Georgian Oil, as the case may be, will ensure
that such transportation services will be provided in a time frame that
will not delay field development, all as may be set forth in an
agreement providing for such services.
16.5 The Co-ordination Committee may appoint a Marketing Team to investigate
the market conditions and opportunities for the sale of Natural Gas and
the costs of the Marketing Team will be Costs and Expenses. The Parties
agree to use their best efforts working with Contractor to secure
markets and, if necessary, improved Natural Gas terms which may
include, among other things with respect to Natural Gas:
the local Georgian market needs and demands;
the Parties shall have the right to submit potential customers for
Natural Gas sales;
the local Georgian market shall have priority if the commercial terms
available in that market are at least equivalent to commercial terms
available to Contractor in other markets;
provisions for a holiday or exemption from Profits Tax and Mineral
Usage Tax;
Cost Recovery out of up to 100% of production; and
a reduced share of the Profit Natural Gas for the Parties representing
the State.
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ARTICLE 17
TAX/FISCAL REGIME
17.1 In the event that Contractor introduces other Contractors to this
Contract this Article shall apply to each Contractor party
individually.
17.2 Contractor, Foreign Subcontractor, Foreign Employee and Operating
Company shall be entitled to full and complete exemption from all Taxes
prior to or after the Effective Date of this Contract, except as
otherwise provided for in this Contract and the Georgian Tax Code. It
is acknowledged by the Parties that any modification of Taxes payable
or imposition of new Taxes may be cause for enforcement of the
provisions of Article 27.3 of this Contract at the discretion of the
Contractor.
17.3 It is acknowledged that Georgia may enter into Double Tax Treaties
which may have the effect of giving relief from Taxes to, but not
limited to, the Contractor, Foreign Subcontractors and Foreign
Employees.
17.4 Contractor Party shall be subject to the following Taxes in accordance
with the Laws of Georgia as set forth in the Tax Code of Georgia in
effect on the date of signing of this Contract:
(i) the Tax on Profits (the "Profit Tax") which is at the rate
currently prescribed in the Tax Code of Georgia for those
existing agreements that were signed prior to entry into force
of the Tax Code of Georgia;
(ii) the Mineral Usage Tax (the "Mineral Usage Tax");
(iii) VAT on Local Sales;
(iv) Social Tax and Medical Insurance Contribution on Georgian
nationals ("the Social Taxes"); and
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(v) Customs Duties and VAT on sales of equipment or assets
imported free of Customs Duties and VAT and subsequently sold
by Contractor for purposes other than the Petroleum
Operations.
17.5 Except for the Taxes listed in Article 17.4, neither the Operating
Company nor any Contractor Party shall be subject to any other Taxes,
bonuses, duties, levies, funds or similar types of payments of any
nature imposed prior to the date of signing of this Contract, currently
or in the future by the State or any other Governmental entity or
subdivision of the State, including, but not limited to Enterprise
Property Tax, VAT (otherwise than in the cases indicated at Article
17.4 (iii) and (v)), Stamp Duty, Profit Repatriation Tax, Export Duty,
Customs Duty, Freight Tax, Dividend Tax, Land Tax, Property Transfer
Tax, Road Use Tax, Excise Tax, Entrepreneur's Tax, fees for
administration (with the exception of any Administrative Fees as
defined in Article 1.2) any Taxes on the transportation and export of
Petroleum, and any Taxes related to the assignment of all or a portion
of the Contractor's interest under this Contract in accordance with the
Laws of Georgia as set forth in the Tax Code of Georgia in effect on
the date of signing of this Contract.
In the event that the Contractor becomes liable to Taxes not listed in
Article 17.4 above, notwithstanding the provisions of Article 17.2 and
27.3, such additional Taxes shall be considered as Costs and Expenses
for the purposes of determining Cost Recovery Petroleum.
17.6. Contractor Party shall be liable for the Profit Tax at the rate of ten
percent (10%) on the taxable base defined in Article 17.8. The rate of
Mineral Usage Tax shall be five percent (5%) on the value of produced
Petroleum excluding VAT for the duration of the Contract.
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17.7 Assumption, payment and discharge of taxes shall take place as follows:
The State shall ensure that Georgian Oil (or its successors or
assignees) shall assume, pay and discharge when due, in the name and on
behalf of Contractor, Profit Tax liability and Mineral Usage Tax
liability for each Calendar Year calculated in accordance with this
Article 17 out of Georgian Oil's share of Profit Oil and Profit Natural
Gas for each Calendar Year. For the avoidance of ambiguity, this
obligation of Georgian Oil as related to the Mineral Usage Tax and
Profit Tax under this Article 17.7 shall also extend to the Operating
Company if, under the laws of Georgia, under the License it is deemed
liable instead of the Contractor Parties for the payment of Profit Tax
or Mineral Usage Tax. Also for the avoidance of ambiguity, Georgian Oil
shall have the obligation to obtain any necessary consents or approvals
from the Tax Inspectorate in relation to the provisions of this Article
17.7 within one (1) month from the date of signing this Contract, as
more fully described in Article 32.2.
The obligation of Georgian Oil to assume, pay and discharge
Contractor's entire Profit Tax and Mineral Usage Tax liability in
accordance with the provisions of this Article 17.7 shall fulfil the
entire Profit Tax and Mineral Usage Tax liability of Contractor and of
Operating Company, if it has any such liability, as set out above.
17.8 The calculation of the taxable base for Contractor for a Calendar Year
shall be as follows:
17.8.1 The taxable base for each Contractor Party shall be determined
as the total of each such Contractor Party's sales revenues
from Cost Recovery Petroleum, Profit Oil and Profit Natural
Gas acquired by that Contractor Party pursuant to Article 11
of this Contract increased by an amount equal to the
Contractor's Profit Tax and Mineral Usage Tax paid on its
behalf by Georgian Oil pursuant to Article 17.7 of this
Contract and reduced by the amount of Mineral Usage Tax and
Deductions.
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"Deductions" shall include all costs incurred by each Contractor Party
during each Calendar Year in connection with Petroleum Operations,
whether incurred in Georgia or elsewhere and whether paid by the
Contractor Party directly or through the Operating Company, including
the following:
(i) the Contractor Party's Costs and Expenses recoverable
from Cost Recovery Petroleum in accordance with
Article 11; and
(ii) the Contractor Party's share of costs and the
Contractor Party's own costs incurred during a
Calendar Year in respect of Petroleum Operations
which are not included in Costs and Expenses
determining Cost Recovery Petroleum in Article 11 of
this Contract, including any transportation and other
associated costs incurred when Profit Oil is not sold
at the Measurement Point; and
(iii) any loss calculated in accordance with Article 17.9
of this Contract.
17.8.2 Sales revenues from Cost Recovery Petroleum shall be defined
as the value of the volumes of Cost Recovery Petroleum taken
and disposed of by the Contractor and/or his assignees under
this Contract during a Calendar Year and determined by
applying the principles of valuation set out in Article 12 of
this Contract. Sales revenues from Profit Oil and Profit
Natural Gas shall be defined as the value of the volumes of
Profit Oil and Profit Natural Gas taken and disposed of by the
Contractor and/or his assignees under this Contract during a
Calendar Year.
Profit Oil volumes and Profit Natural Gas volumes sold to
Third Parties will be valued at the actual price received at
the Measurement Point where actually sold at the Measurement
Point. Where Profit Oil volumes are not
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sold at the Measurement Point, they shall be valued at the
actual price received at the sales point less transportation
and other associated costs incurred by the Contractor in
transporting such Profit Oil from the Measurement Point to the
actual sales point. The value of sales of Profit Oil and
Profit Natural Gas to any Affiliate or sales involving barter
will be determined by applying the principles of valuation as
set out in Article 12 of this Contract.
17.8.3 For the purposes of this Article 17 and specifically for the
purposes of calculating the taxable base of Contractor in
accordance with this Article 17.8 and Article 17.9, the costs
and expenses approved by the Parties pursuant to Article 11.2
shall be deemed to have been incurred on the Effective Date of
this Contract.
17.9 If in calculating the taxable base of Contractor the total sum of
Deductions exceeds sales revenues from Cost Recovery Petroleum, Profit
Oil and Profit Natural Gas in any Calendar Year, the resulting loss may
be carried forward by Contractor to the following Calendar Year and to
subsequent Calendar Years, one at a time in chronological order, and
shall be deductible in full and without restriction in computing
Contractor's taxable base in such Calendar Year(s) until such time as
the loss is wholly offset against Contractor's taxable base, or
otherwise in accordance with the Tax Code of Georgia.
17.10 Each Contractor Party shall maintain its tax books and records in US$
and Georgian Lari (with conversion in accordance with the provisions of
Article 19), in accordance with the laws of Georgia.
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17.11 The Profit Tax return for Contractor shall be prepared and submitted as
follows:
17.11.1 Contractor shall prepare a Profit Tax return for each Calendar
Year and submit it to the Tax Inspectorate by 31 March
following such Calendar Year and provide a copy to Georgian
Oil and the State Agency.
17.11.2 Other records or documentation shall be submitted to the Tax
Inspectorate when and as required by Georgian law.
17.11.3 Only one (1) Profit Tax return shall be required to be
prepared and submitted to the Tax Inspectorate for Contractor
for a Calendar Year.
17.12 Contractor Party shall prepare a Mineral Usage Tax return and submit it
to the Tax Inspectorate in accordance with the provisions of the Tax
Code of Georgia and provide a copy to Georgian Oil and the State
Agency.
17.13 Georgian Oil shall furnish to Contractor and the State Agency the
proper official assessments and proper official receipts that evidence
official payment by Georgian Oil of Contractor's Profit Tax and Mineral
Usage liability for a Calendar Year by 15 April following that Calendar
Year.
17.14 Georgian Oil, in computing its Profit Tax liability or any other
payments required of it to the State or treasury of Georgia, shall not
receive any subsidy or claim any credit which is calculated or
determined, directly or indirectly, by reference to the amount of
income tax paid by Contractor or by reference to the base used to
compute the amount of such income tax. However, Georgian Oil may deduct
the payments of Contractor Parties' Profit Tax or Mineral Usage Tax for
a Calendar Year in calculating Georgian Oil's Profit Tax liability for
that Calendar Year.
17.15 In the event that the Tax Inspectorate has issued a Contractor Party
with a notice of
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additional Profit Tax or Mineral Usage Tax due pursuant to an audit of
the Contractor Party in accordance with Article 17.19, then the
Contractor Party shall assume, pay and discharge any and all penalties,
interest, fines or similar levies assessed as a result of such notice.
The principal amount of Profit Tax or Mineral Usage Tax in this case
shall continue to be assumed, paid and discharged by Georgian Oil in
accordance with Article 17.7.1. Any and all penalties, interest, fines
or similar levies assessed as a result of such notice and assumed, paid
and discharged by the Contractor Party shall be treated as Costs and
Expenses for the purposes of determining Cost Recovery Petroleum in
accordance with Article 11, however any penalties, interest, fines or
similar levies due to Contractor Party's failure to provide necessary
information to the Tax Inspectorate in a timely fashion and by the
proper dates, as provided in Article 17.16, shall not be included as
Costs and Expenses.
17.16 Georgian Oil shall assume, pay and discharge any penalties, interest,
fines or similar levies for late payment of Contractor's Profit Tax or
Mineral Usage Tax liability in respect of any Calendar Year unless the
Contractor has failed to provide the necessary information to the Tax
Inspectorate in a timely fashion and by the dates herein provided.
17.17 The filing of the Profit Tax and Mineral Usage Tax returns and the
payment of Profit Tax and Mineral Usage Tax for a Calendar Year will be
considered the final settlement of all Profit Tax and Mineral Usage Tax
liabilities for a Contractor for that Calendar Year upon the date six
years from the end of the Calendar Year for which the return was filed.
17.18 The State will notify Contractor within one (1) Month of the Effective
Date of this Contract of the tax inspectorate office ("the Tax
Inspectorate") which is to be located in Tbilisi and be responsible for
and administer the implementation of the provisions of this Contract,
including, but not limited to, the filing of Contractor's Profit Tax
and Mineral Usage Tax returns for each Calendar Year, the issuing of
official assessments and receipts evidencing the payment of
Contractor's Profit Tax and Mineral Usage Tax liability, any audit in
respect of any Calendar Year of Contractor's Profit Tax and Mineral
Usage Tax returns and any other payment, liability or procedures in
respect of any other Taxes.
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17.19 Employees of the Contractor, its Affiliates and Subcontractors, and
those employees assigned by the Contractor to the Operating Company who
are not citizens or permanent residents of Georgia ("Foreign
Employees") shall be liable to Georgian Individual Income Tax imposed
by the State in accordance with the provisions of the Tax Code of
Georgia A Foreign Employee will continue to be subject to any
applicable Double Tax Treaty.
17.20 Foreign Employees who perform work in Georgia and their employers that
would otherwise be covered by and subject to social insurance, pension
fund contributions and similar payments under the social security
system of Georgia will be exempt from those payments in accordance with
the provisions of the Tax Code of Georgia and of the 1996 Law of
Georgia on Investment Promotion and Guarantees.
17.21 The only Taxes to be levied by the State or by any other Governmental
entity on a Foreign Subcontractor in connection with Petroleum
Operations pursuant to this Contract shall be a tax to be withheld by
any person or other legal entity making payments to a Foreign
Subcontractor (the "Withholding Tax"). The Withholding Tax shall be
calculated and will apply as follows:
17.21.1 The Withholding Tax will be calculated at a fixed rate of four
percent (4%) of any payment made to a Foreign Subcontractor in
respect of work and/or services undertaken in Georgia in
connection with Petroleum Operations pursuant to this
Contract. For the avoidance of doubt, work and/or services
performed by Foreign Subcontractors outside Georgia are not
subject to the Withholding Tax.
17.21.2 Any person or other legal entity making payments to a Foreign
Subcontractor must pay the Withholding Tax to the Tax
Inspectorate upon making the payment to the Foreign
Subcontractor. The Tax
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Inspectorate shall issue the person or other legal entity
making the payment with proper official receipts in the name
of the Foreign Subcontractor within fifteen (15) Days of the
payment of the Withholding Tax that evidence the payment of
the Withholding Tax stating the date, the amount, and other
particulars customary for such receipts. The State Agency and
Georgian Oil shall provide the Contractor with any necessary
assistance in obtaining such receipts.
17.21.3 In the event that such Withholding Tax is paid late, the
person responsible for the Withholding Tax to the Tax
Inspectorate shall be subject to interest at the rate
determined by the Tax Code of Georgia for late payment,
calculated from the latest date that the Withholding Tax
should have been paid to the Tax Inspectorate.
17.21.4 A Foreign Subcontractor will continue to be subject to the
provisions of any applicable Double Tax Treaty.
17.22 Value Added Tax ("VAT") shall be imposed, and VAT refunds shall be
made, as follows:
17.22.1 Goods, works and services supplied directly or indirectly to a
Contractor Party or to the Operating Company for the purposes
of Petroleum Operations shall be exempt from VAT.
17.22.2 The Contractor shall charge VAT at the current rate of twenty
percent (20%) on Petroleum sold locally within Georgia which
is not intended for export in circumstances in which the
purchaser is a Georgian national or Georgian entity ("Local
Sales").
17.22.3 The Contractor shall be entitled to a refund of any VAT paid
on local purchases within forty-five (45) business Days of the
submission of a request to the Tax Inspectorate. The refund
shall be equal to VAT paid on local purchases in excess of VAT
charged on Local Sales. If a full
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VAT refund is not paid within forty five (45) business Days as
specified above, the Contractor shall be entitled to recover
the relevant amount as Costs and Expenses in accordance with
the provisions of Article 11.
17.22.4 All imports, including, but not limited to, goods, equipment,
works or services acquired by a Contractor Party, its
Affiliates, their Subcontractors or the Operating Company for
the purpose of the Petroleum Operations shall be exempt from
VAT.
17.22.5 Exports of Petroleum by each Contractor Party shall be liable
to VAT at the rate of zero per cent (0%).
17.22.6 All exports and re-exports by a Contractor Party or its
Affiliates or Subcontractors of goods, works and services
supplied for the purposes of Petroleum Operations, including,
but not limited to, re-export of goods imported into Georgia
for the purposes of Petroleum Operations shall be exempt from
VAT or be liable to VAT at the rate of zero percent (0%) as
the case may be.
17.22.7 The Tax Inspectorate shall provide each Contractor Party and
its Affiliates, Operating Company and Foreign Subcontractors
with certificates confirming the VAT exemption provided in the
Tax Code of Georgia and referred to in Articles 17.23.1 and
17.23.4 within thirty (30) Days of the Contractor Party
requesting such a certificate. State Agency and Georgian Oil
shall provide the Contractor with any necessary assistance in
this respect.
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17.23 Contractor and its Affiliates shall have no liability or responsibility
for any Taxes which its Subcontractors do not pay or for any other
failure of such Subcontractors to comply with the laws of Georgia.
17.24 The Contractor shall treat a Subcontractor as a Foreign Subcontractor
for the purposes of Article 17.21 provided that:
(i) the Subcontractor is a legal entity organised outside Georgia;
and
(ii) the Subcontractor has demonstrated to the Contractor's
satisfaction that it does not have a Georgian Tax registration
certificate.
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ARTICLE 18
ACCOUNTING, FINANCIAL REPORTING AND AUDIT
18.1 The Contractor shall maintain books and accounts of Petroleum
Operations in accordance with the Accounting Procedure. These shall be
maintained in US$ in accordance with generally accepted international
Petroleum industry accounting principles, which US$ maintained books
and accounts shall control for the purposes of this Contract and the
rights and obligations of the Parties hereunder. In addition, these
books and accounts shall also be maintained in Lari to the extent
required and provided by law. All books and accounts which are made
available to Georgian Oil and the State in accordance with the
provisions of the Accounting Procedure shall be prepared both in the
Georgian and English languages.
18.2 The Accounting Procedure specifies the procedure to be used to verify
and establish promptly and conclusively the amount of Costs and
Expenses in respect of the matters covered by this Contract.
18.3 Sales revenues, expenditures, financial results, tax liabilities, and
loss carry-forwards of Contractor shall be determined in accordance
with the rules, rights, and obligations set forth in this Contract in
so far as such sales revenues, expenditures, financial results, tax
liabilities, and loss carry-forwards are related to Petroleum
Operations under this Contract.
18.4 The Co-ordination Committee may, and if requested by Georgian Oil
shall, appoint an independent auditor of international standing,
familiar with international Petroleum industry accounting practice, to
conduct an audit of the Contractor's accounts and records in respect of
Petroleum Operations for each Calendar Year, provided, however, any
such audit shall be no more frequent than on an annual basis. The costs
of such auditor shall be borne by the Contractor and treated as Costs
and Expenses. In the event that the Co-ordination Committee cannot
reach agreement on the appointment of such auditor, the view of
Georgian Oil as to such
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appointment shall prevail.
18.5 Contractor shall during the term of the Contract, at its own expense,
prepare and submit, in both English and Georgian, to Georgian Oil and
the State Agency its own financial statements for each of its
accounting periods audited in accordance with international auditing
standards.
18.6 Pursuant to paragraph 1.3.1 of the Accounting Procedure set out in
Annex C, the State Agency or Georgian Oil shall have the right to audit
the Contractor's accounts and records at their discretion.
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ARTICLE 19
CURRENCY, PAYMENTS AND EXCHANGE CONTROL
19.1 The Contractor and its Affiliates and the Operating Company shall have
the right to open, maintain, and operate Foreign Exchange bank accounts
both in and outside of Georgia and local currency bank accounts inside
Georgia.
19.2 The Contractor and its Affiliates and the Operating Company shall have
the right to transfer all funds received in or converted to Foreign
Exchange in Georgia to bank accounts outside of Georgia without payment
of any Taxes for the right to effect such transfer of funds.
The Contractor and its Affiliates and the Operating Company shall have
the right to transfer funds outside of Georgia in the form of dividends
or the payment of principal and interest on loans used for funding
Petroleum Operations without the payment of or withholding of any
Taxes.
At the Effective Date the Parties are not aware of any such taxes in
the Tax Code of Georgia and any subsequent imposition would result in
the implementation of Article 27.3.
19.3 The Contractor and its Affiliates and Foreign Subcontractors and the
Operating Company shall have the right to hold, receive and retain
outside Georgia and freely use all funds received and derived directly
or indirectly from Petroleum Operations by them outside Georgia without
any obligation to repatriate or return the funds to Georgia, including,
but not limited to, all payments received from export sales of
Contractor's share of Petroleum and any sales proceeds from an
assignment of its interest in this Contract. [No change]
19.4 The Contractor and its Affiliates and Foreign Subcontractors and the
Operating Company, with respect to Foreign Exchange maintained in
Georgia, shall be
81
exempt from all legally required or mandatory conversions of Foreign
Exchange into local or other currency, except to the extent such
conversion is non-discriminatory and required because of a national
emergency as declared by the State, the parliament of Georgia or the
national bank of Georgia. Notwithstanding the foregoing provisions of
this Article 19 the Contractor and the Operating Company will pay
citizens of Georgia and Georgian legal entities engaged by them in
Petroleum Operations in local currency for so long as this is a
requirement of the law of Georgia.
19.5 The Contractor and its Affiliates and Foreign Subcontractors and the
Operating Company have the right in accordance with applicable laws to
import into Georgia funds required for Petroleum Operations under this
Contract in Foreign Exchange.
19.6 The Contractor and its Affiliates and Foreign Subcontractors and the
Operating Company shall have the right to pay outside of Georgia for
goods, works and services of whatever nature in connection with the
conduct of Petroleum Operations under this Contract without having
first to transfer to Georgia the funds for such payments.
19.7 Whenever such a need arises, the Contractor and its Affiliates and
Foreign Subcontractors and the Operating Company shall be entitled to
purchase local currency with Foreign Exchange and convert local
currency into Foreign Exchange, at banks authorised to do business in
Georgia, at the most favourable exchange rate legally available to
private commercial parties and in any event at an exchange rate which
shall be no less beneficial than that granted to other foreign
investors by the National Bank of Georgia, if the National Bank of
Georgia engages in currency exchanges for private parties, without the
payment of any Taxes.
19.8 The Contractor and its Affiliates and Foreign Subcontractors shall have
the right to pay outside Georgia principal and interest on loans used
for funding Petroleum Operations without having to first transfer to
Georgia the funds for such payment and without payment of any
withholding taxes.
82
19.9 The Contractor and its Affiliates and Foreign Subcontractors and the
Operating Company shall have the right to pay wages, salaries,
allowances and benefits of their foreign personnel working in Georgia
in Foreign Exchange outside Georgia, subject to the obligations of such
personnel under Article 17 hereof.
19.10 The Contractor and its Affiliates and the Operating Company shall have
the right to pay their Foreign Subcontractors working on Petroleum
Operations in Georgia in Foreign Exchange outside Georgia, subject to
the obligations of the Contractor and such Foreign Subcontractors under
Article 17 hereof.
19.11. Conversions of currency shall be recorded at the rate actually
experienced in that conversion. Expenditures incurred and amounts
received in currency other than US$ shall be translated to US$ at the
official rate as posted by the National Bank of Georgia at the close of
business on the date upon which such expenditures are incurred or
amounts received.
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ARTICLE 20
IMPORT AND EXPORT
20.1 Contractor and each of its Affiliates and their agents, and
Subcontractors and the Operating Company shall have the right to import
and re-export from Georgia free of any Taxes, other than VAT, which
shall be applied at a rate of zero percent (0 %), and restrictions,
including, but not limited to, Customs Duties, in their own name
materials, equipment, machinery and tools, vehicles, spare parts,
foodstuffs, goods and supplies necessary in the Contractor's reasonable
opinion for the proper conduct and achievement of Petroleum Operations
and only in connection therewith. Notwithstanding the above, if for any
reason any Taxes are levied on import or re-export by each Contractor
Party and each of their Affiliates and their agents, Subcontractors and
the Operating Company, then such Taxes shall be treated as Costs and
Expenses for the purposes of determining Cost Recovery Petroleum.
20.2 Contractor and each of its Affiliates, their agents and Subcontractors
and the Operating Company shall have the right to sell any materials or
equipment or goods which were used in Petroleum Operations provided
that customs duties at the applicable rate as well as VAT and other
applicable Taxes shall be payable by the importer on the written down
value of such items, if they are sold in Georgia to a person who would
not be exempt from the payment of Customs Duties, VAT or other such
Taxes on the import of such items. The proceeds therefore shall be
applied as in the Accounting Procedure provided.
20.3 The Contractor, its customers and their carriers shall have the right
to freely export, free of all Taxes, other than VAT, which shall be
applied at a rate of zero per cent (0%), including, but not limited to,
Customs Duties, and at any time, the share of Petroleum to which
Contractor is entitled in accordance with the provisions of this
Contract.
84
20.4 Petroleum to which the Contractor is entitled in accordance with the
provisions of this Contract shall not be subject to any requirements
imposed currently or in the future by the State or any other
Governmental entity or subdivision of the State as to export quotas or
export licenses or any other similar requirements.
20.5 All copies of original records and data and representative portions of
all samples or information prepared or obtained by the Contractor and
its Affiliates and their Subcontractors and the Operating Company with
regard to activities under this Contract which is exported for use
thereof by the Contractor, including, but not limited to, processing,
analysing or studying, shall be exempt from any requirements imposed,
currently or in the future, by the State or any other Governmental
entity or subdivision of the State as to export licenses, any
restrictions on export and Customs Duties or Taxes with respect to such
data and information.
20.6 The Contractor shall be exempt from any obligatory registration,
existing currently or in the future in Georgia, as exporters of
Petroleum.
20.7 Foreign Employees of the Contractor and its Affiliates and the
Operating Company, and Foreign Subcontractors and their dependants
shall have the right after arrival to import into Georgia personal and
household effects free of Customs Duties or other Taxes, provided,
however, that Customs Duties at the applicable rate or other applicable
Taxes shall become payable by the importer in respect of the sales
price of any such item which is sold in Georgia to a person who would
not be exempt from the payment of Customs Duties or other Taxes on the
import or sale of such items, provided, however, any such effects may
be re-exported without the payment of any Customs Duties or other
Taxes.
85
ARTICLE 21
EXPORT OF HYDROCARBONS, TRANSFER OF
OWNERSHIP, AND REGULATIONS FOR DISPOSAL
21.1 The Contractor, any purchaser from him and their respective carriers
shall, for the duration of this Contract, have the unrestricted right
to export from any export point selected by the Contractor for such
purpose, the share of Petroleum to which the Contractor is entitled
under this Contract.
Access to such export points shall be provided to the above parties on
terms, including access and tariffs, no less favourable as is then
generally available to private commercial Third Parties, namely
non-State owned or controlled entities for comparable usage.
21.2 Title to Petroleum produced under this Contract shall pass to Georgian
Oil and the Contractor at the Measurement Point unless otherwise agreed
in a lifting agreement.
21.3 The Contractor and Georgian Oil shall each be entitled to designate (at
their own cost) an employee, independent company or consultant who
shall check the liftings of Petroleum from the Measurement Point.
21.4 Before the Commencement of Commercial Production Georgian Oil and the
Contractor will enter into a lifting agreement on appropriate terms.
Such lifting agreement shall provide that if one of the Parties is
unable to lift its share of Petroleum in due time, with the result that
Petroleum Operations shall be interfered with or disrupted, then after
the giving of such notice as is practical under the circumstances, any
other Party may dispose of it, and thereafter at its option give back
to such non-lifting Party an equivalent amount of Petroleum or the
actual net proceeds from such disposal, after taking into account any
necessary costs reasonably incurred. Such lifting agreement shall also
provide that Contractor Parties and Georgian Oil (and any purchaser
from any such Party, and their respective carriers) shall have access
to the lifting point for lifting their shares of Petroleum subject to
laws, regulations and safety, capacity, environmental, scheduling and
operational requirements.
86
87
ARTICLE 22
OWNERSHIP OF ASSETS
22.1 Ownership of all assets, whether fixed or moveable, acquired by or on
behalf of the Contractor in connection with Petroleum Operations, shall
vest in the State, without consideration, on the day the original cost
thereof has been recovered by the Contractor as Costs and Expenses from
Cost Recovery Petroleum.
22.2 Notwithstanding the provisions of Article 22.1, the Contractor shall
enjoy continued free, exclusive and unrestricted use of all assets
acquired by or on behalf of the Contractor in connection with Petroleum
Operations at no cost or loss of benefit to the Contractor until the
termination of this Contract or until, if earlier, they are no longer
required for Petroleum Operations. The Contractor, shall bear the
custody and maintenance of such assets and all risks of loss or damage
thereto for so long as they are required for Petroleum Operations,
provided, however, that all costs necessary to operate, maintain and
repair such assets and to replace or repair any damage or loss shall be
recoverable as Costs and Expenses from Cost Recovery Petroleum.
22.3 When the Contractor relinquishes part of the Contract Area, all
moveable assets located in the relinquished Contract Area may be
transferred to any part of the remaining Contract Area for conducting
Petroleum Operations and all fixed assets located on the relinquished
Contract Area shall vest in the State. When the Contract comes to an
end, all moveable assets whose cost has not been recovered by the
Contractor as Costs and Expenses from Cost Recovery Petroleum remain
the property of the Contractor, subject to any adjustment necessary to
account for partial recovery of costs.
22.4 The provisions of Articles 22.1, 22.2 and 22.3. shall not apply to
materials or other property that are rented or leased to the
Contractor, its Affiliates, the Operating Company or Subcontractors or
which belong to employees of the Contractor, its Affiliates, the
Operating Company or Subcontractors
88
89
ARTICLE 23
INSURANCE
23.1 The Contractor shall obtain and maintain for all Petroleum Operations
insurance of the type, and in such amount as is customary for
exploration and development in the international petroleum industry in
accordance with Good Oilfield Practices. Said insurance, without
prejudice to the generality of the foregoing, shall cover:
23.1.1 loss or damage to any and all property, including
installations, equipment, pipelines and other assets, whether
leased or owned, for so long as they are used in the Petroleum
Operations;
23.1.2 liability to Third Parties, including property loss or damage
or bodily injury suffered by any Third Party;
23.1.3 liability for damages resulting from sudden or accidental
pollution arising out of Petroleum Operations;
23.1.4 expenses for wild well control; and
23.1.5 destruction of Crude Oil in storage, following extraction from
the Reservoir and removal or transportation to surface storage
facilities.
The Contractor shall require its Subcontractors to carry
insurance of the type and in such amount as is customary, for
on-shore exploration and development, in the international
petroleum industry in accordance with Good Oilfield Practices.
The Contractor shall exhibit to the Co-ordination Committee
and the State Agency certificates of insurance or other
statements from brokers or underwriters confirming any
insurance providing coverage with respect to Petroleum
Operations or procured pursuant to this Article 23.1,
including, but not limited to, the identity of the insurers,
types and amounts of coverage, applicable deductibles,
premiums paid and changes thereto. The premiums for all
insurance (excluding premiums for insurance covering the
marketing of Petroleum) obtained by the Contractor for
Petroleum Operations pursuant to this Article 23.1, as well
90
as deductibles for such insurance, in amounts as approved by
the Co-ordination Committee, shall be deemed to be recoverable
as Costs and Expenses from Cost Recovery Petroleum.
23.2 The Contractor, notwithstanding the provisions of Article 23.1, may
self-insure, subject to the agreement of Georgian Oil, which shall not
be unreasonably withheld, it being understood that the basis of the
terms of any such self-insurance shall be international insurance
industry standards for comparable risks.
91
ARTICLE 24
ENVIRONMENT, HEALTH, SAFETY AND LIABILITY
24.1 Notwithstanding the other provisions of this Contract, the Contractor
shall indemnify and hold harmless the State and Georgian Oil against
all losses, damages and liability arising under any claim, demand,
action or proceeding brought or instituted against the State or
Georgian Oil by any employee of the Contractor or any Subcontractor or
dependent thereof, for personal injuries, industrial illness, death or
damage to personal property sustained in connection with, related to or
arising out of the performance or non-performance of this Contract
regardless of the fault or negligence in whole or in part of any entity
or individual; provided, however, that such losses, damages and
liabilities are not caused by or do not arise out of the performance or
non-performance of this Contract by the State and/or Georgian Oil, and
the State and/or Georgian Oil shall indemnify and hold the Contractor
(including for this purpose any Affiliate, the Operating Company and
all Subcontractors) harmless against all such damage, losses and
liabilities.
24.2 The Contractor (including for this purpose any Affiliate, the Operating
Company and all Subcontractors) shall indemnify the State and Georgian
Oil for all loss or damage suffered by the State or Georgian Oil
arising out of the Contractor's Petroleum Operations if such Petroleum
Operations were not in accordance with Good Oilfield Practices or
applicable laws, rules and regulations and, notwithstanding the
foregoing, for any loss or damage to the environment or any cultural or
national monument arising out of conduct of the Petroleum Operations;
provided, however, that the Contractor (including for this purpose any
Affiliate, the Operating Company and all Subcontractors) shall have no
liability hereunder if and to the extent any loss and damage is caused
by or arises out of any breach of this Contract (and any other
agreements that may be entered into by and between the Contractor, the
State or Georgian Oil in respect of the Petroleum Operations) or breach
of duty by the State or Georgian Oil. Notwithstanding the foregoing the
Contractor (including for this purpose any Affiliate, the Operating
Company and all Subcontractors) shall not be liable to the State or
Georgian Oil for any punitive or exemplary damages or any other
indirect or consequential damages.
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24.3.1 The Contractor shall not be responsible to the State or
Georgian Oil for, and shall bear no cost, expense or liability
of the State or Georgian Oil for, any claim, damage or loss to
the extent such claim, damage or loss does not arise out of a
failure to conduct Petroleum Operations as provided in Article
24.2.
24.3.2 The Contractor shall not be liable for damages arising from
any environmental condition or damage existing in the Contract
Area prior to the 10th July 1995, or caused by a Force Majeure
event subsequent to that date, provided, however, that
Contractor shall be ▇▇▇▇▇▇ for environmental conditions or
damages resulting from a Force Majeure event to the extent
that such conditions or damages result from Contractor's
failure to exercise Good Oilfield Practices that would have
prevented or ameliorated such environmental conditions or
damages.
24.3.3 Notwithstanding any other provision of this Contract,
Contractor and Georgian Oil acknowledge that, as of the date
of signing of this Contract, there exists on the Contract Area
certain environmental damage, and Contractor and Georgian Oil
agree to perform clean-up and remediation of such damage to
their respective properties as specified in this Article 24.3.
24.3.4 Not later than one Month following the Effective Date hereof,
Contractor and Georgian Oil shall prepare, in consultation
with the State Agency and with the approval of the Head of the
State Agency, a clean-up and remediation plan for the Contract
Area. Such plan shall specify the particular areas of
responsibility of the Contractor and Georgian Oil, and it
shall specify the activities required by each of them to
restore the portions of the Contract Area damaged by oilfield
activities whether prior to or subsequent to 10 July 1995, to
a condition acceptable under internationally accepted
standards for the restoration of lands
93
damaged by oilfield production and storage activities. The
Contractor and Georgian Oil shall agree a time frame for the
implementation and completion of the clean up and remediation
with the State Agency. The plan shall include work plans for
at least the following:
(i) Inspection of all ▇▇▇▇▇ and well bores for safety and
absence of leakage of Petroleum, both at the surface
and down hole;
(ii) Plugging and abandonment, consistent with
internationally acceptable standards, of all ▇▇▇▇▇
and well bores not capable of economic production;
(iii) Equipping each well capable of economic production
with suitable wellhead equipment and casing for
prevention of loss or leakage of Petroleum, or repair
and refurbishment of existing equipment;
(iv) Removal and proper disposition of spilled Petroleum,
drilling fluids, and other waste materials, and, to
the extent practicable, restoration of soil; and
(v) Removal and proper disposition of all scrap, junk,
and surplus equipment.
24.3.5 In the event that Contractor fails or refuses to submit a plan
under this Article 24, or fails to implement and complete
clean-up and remediation, the State Agency may take all steps
to develop and implement a clean-up and remediation plan.
Contractor shall promptly reimburse the State Agency for all
costs and expenses thereof, plus five (5%) percent of such
costs and expense, in addition to all other penalties and
consequences.
24.3.6 The State and Georgian Oil shall indemnify the Contractor
against any claim, damage or loss arising from environmental
condition or damage existing on 10 July 1995, subject to the
Contractor's implementing the clean-up and remediation plan
described in this Article 24, and taking all reasonable
actions to mitigate continued impact of of such conditions or
damage, and excluding any
94
and all natural conditions existing on that date or
thereafter. It is understood that the Contractor is
knowledgeable concerning conditions on the Contract Area and
has assumed the risk of pursuing Petrleum Operations thereon.
24.4 In conducting Petroleum Operations, the Contractor shall operate
according to Good Oilfield Practices and use best endeavours to
minimise potential disturbances to the environment, including the
surface, subsurface, sea, air, flora, fauna, other natural resources
and property. The order of priority for actions shall be protection of
life, environment, cultural heritage and property.
24.5 The Contractor shall take all necessary steps to respond to, and shall
promptly notify the State Agency of, all emergency and other events
(including explosions, leaks and spills), occurring in relation to the
Petroleum Operations which are causing or likely to cause material
environmental damage or material risk to health and safety. Such notice
shall include a summary description of the circumstances and steps
taken and planned by the Contractor to control and remedy the
situation. The Contractor shall provide such additional reports to the
State Agency as are necessary in respect of the effects of such events
and the course of all actions taken to prevent further loss and to
mitigate deleterious effects.
24.6 In the event of emergency situations as set forth in 24.5, above, at
the request of the Contractor, the State, without prejudice and in
addition to any indemnification obligations the State may have
hereunder, shall assist the Contractor, to the extent possible, in any
emergency response, remedial or repair effort by making available any
labour, materials and equipment in reasonable quantities requested by
the Contractor which are not otherwise readily available to the
Contractor and by facilitating the measures taken by Contractor to
bring into Georgia personnel, materials and equipment to be used in any
such emergency response or remedial or repair effort. Contractor shall
reimburse the State's reasonable and necessary costs incurred in such
efforts, which reimbursed amounts shall be considered Costs and
Expenses.
95
24.7 The Contractor shall not be liable to the State, Georgian Oil or Third
Parties for any damages caused by contamination entering the Contract
Area as a result of State, Georgian Oil or Third Party activities
beyond or within the boundaries of the Contract Area. The State shall
be legally and financially responsible for any loss, damage and
liability, including remediation of environmental conditions which may
be required for safe conduct of the Petroleum Operations, caused by the
State's or Georgian Oil's activities beyond or within the Contract
Area.
24.8 The Contractor shall not be liable for any loss or damage, including
but not limited to spillage, explosion, contamination or similar
environmental damage, in respect of any storage facilities, pipelines
or means of transportation which are not under the direct possession
and control of the Contractor or its Affiliates or its Subcontractors
or the Operating Company. In addition to the foregoing, the Contractor
shall not be liable for any damage whatsoever in respect of the State
share of Petroleum, storage or transportation thereof once Georgian Oil
has taken custody of the State share of Petroleum.
24.9 The State shall make best efforts to ensure the safety and security of
the Contractor's property and personnel in Georgia and to protect them
from loss, injury and damage resulting from war (declared or
undeclared), civil conflict, sabotage, blockade, riot, terrorism,
unlawful commercial extortion, or organised crime. Notwithstanding
anything to the contrary contained herein, Contractor acknowledges and
agrees that the obligations undertaken by the State in this Article
24.9 are no greater than the general obligations of the State towards
citizens of Georgia in respect to the perils named above. Furthermore,
Contractor agrees that it shall have no claim for legal or equitable
relief for failure of the State to comply with the provisions of
Article 24.9, except as may be permitted by law.
96
24.10 Except as set forth in Article 29 hereof, it is understood and agreed
that the State shall not seek or declare any cancellation or
termination of this Contract and/or the License as a result of the
occurrence of any emergency event described in this Article 24.
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ARTICLE 25
FORCE MAJEURE
25.1 If as a result of Force Majeure, any Party, including the Contractor is
rendered unable, wholly or in part, to carry out its obligations under
this Contract, other than the obligation to pay any amounts of money
due, then the obligations of such Party so far as and to the extent
that the obligations are affected by such Force Majeure, shall be
suspended during the continuance of any inability so caused, but for no
longer period.
Such Party shall notify all other Parties of the Force Majeure
situation within (14) Days of becoming aware of the circumstances
relied upon and shall keep all other Parties informed of all
significant developments. Such notice shall give reasonably full
particulars of the said Force Majeure, and also estimate the period of
time which such Party will probably require to remedy the Force
Majeure. Failure to give any such notification in a timely fashion
shall mean that the period of Force Majeure shall be deemed to have
commenced on the date of the giving of such notice.
The affected Party shall use all reasonable diligence to remove or
overcome or avoid the Force Majeure situation as quickly as possible in
an economic manner. The period of any such non-performance or delay,
together with such period as may be necessary for the restoration of
any damage done during such delay, shall be added to the time given in
this Contract for the performance of any obligation dependent thereon
and the continuation of any right granted; provided, however, the term
of this Contract shall be not be extended as a result of
(i) any particular event of Force Majeure, if the duration of any
such particular event of Force Majeure which, together with
any period of time required for restoration, is for a period
of 30 Days or less; and
(ii) the enactment or adoption of a law, rule or regulation by the
State or any local or legislative body of or within Georgia,
whether acting directly or through Georgian Oil, if such law,
rule or regulation is comparable to one which has
98
been enacted or adopted, on or before the date the Contract is
signed, by a member nation of the European Union or any
legislative or regulatory body of the European Union.
Notwithstanding anything to the contrary herein contained, no
event shall constitute Force Majeure if it does not delay or
prevent the Contractor from engaging in the conduct of
Petroleum Operations.
For the purposes of this Contract, "Force Majeure" shall mean natural
calamities, strikes, sabotage and other production disorders, civil
disturbance, war (declared or undeclared), or other military actions,
terrorist or guerrilla activity, blockade, revolt, earthquake,
avalanche, orders, laws or decrees of any state or governmental entity
of any country, or other similar events beyond the control of the Party
claiming Force Majeure which could not have been prevented by it. [No
change]
25.2 The exercise by Georgian Oil or by State Agency of any right under this
Contract shall not constitute Force Majeure under any circumstance
25.3 It is recognised that a Force Majeure event may pertain only to part of
the Contract Area. In the event part of the License is in Force Majeure
when a Work Programme or a relinquishment become due, then the Work
Programme and/or relinquishment required shall be reduced in size by a
ratio proportionate to the area in Force Majeure divided by the full
size of the then current Contract Area.
Likewise, the time period for a Work Programme and/or relinquishment
for any area under Force Majeure shall be suspended for the time it is
under Force Majeure.
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ARTICLE 26
ASSIGNMENTS AND GUARANTEES
26.1 No assignment, mortgage or charge or other encumbrance or transfer (for
the purposes of this Article 26, all of the foregoing an "assignment"
and correlatives thereof) shall be made by the Contractor of its rights
obligations or interests arising under this Contract other than in
accordance with the provisions of this Article 26.
26.2 Except in case of an assignment made pursuant to the provisions of
Articles 26.4 and 26.5, the provisions of this Section 26.2 shall first
apply. Any Party, (which shall include Georgian Oil, or any other
successor entity owned by the State, from and after its exercise of its
rights under this Section pursuant to which it shall have become a
Contractor by acquiring the rights of a Contractor or otherwise shall
become a Contractor), wishing to assign all or part of its rights and
interests hereunder or in any circumstances where there is deemed to be
an assignment shall first give written notice to the other Parties
specifying the proposed terms and conditions of the assignment.
Following receipt of those terms and conditions, for a period of thirty
(30) Days, each Party shall have the preferential right to match the
terms and conditions of the proposed assignment or deemed assignment.
This right may be exercised by any Party giving written notice within
said period of its intention to match the relevant terms and conditions
(the "Acceptance") and thereafter the relevant Parties shall negotiate
all necessary documentation. If, within a further period of sixty (60)
Days from the receipt of the Acceptance, the relevant Parties have not
reached substantially final agreement, the Party seeking to assign may
within a further period of thirty (30) Days complete an assignment to a
Third Party on the same terms and conditions. In amplification of the
foregoing sentence and for the avoidance of any doubt, any assignment
to a Third Party shall be subject to the assigning Party and the Third
Party complying with the provisions of this Article 26.
26.3 Contractor may assign all or part of its rights, obligations and
interests arising from this Contract, and the Parent Company may,
whether directly or indirectly, assign Control of a Contractor Party,
to a Third Party or another Contractor provided that
100
any such assignee:
26.3.1 has the technical and financial ability to perform the
obligations to be assumed by it under the Contract; provided,
however, that the technical or financial ability or experience
of a prospective assignee shall not be assumed merely because
such assignee has the financial ability or technical ability
or experience of the assigning Contractor Party or its Parent
Company, whether singly or collectively, or has already become
another Contractor Party;
26.3.2 accepts and assumes all of the terms and conditions of the
Contract, including providing a Parent Company Guarantee;
26.3.3 is an entity with which the State, Georgian Oil and the
Contractor can legally do business.
Any such assignment shall be subject to the prior written consent of
the State Agency which consent shall not be unreasonably withheld or
delayed. Georgian Oil shall be deemed to have approved any assignment
to which the State Agency has consented.
By way of clarification and not in limitation of the foregoing
provisions of this Article, the State shall not be considered to be
acting unreasonably in declining to consent to any such assignment if
the assignment to such proposed assignee is deemed contrary to State
interests, as evidenced by a writing to that effect signed by the
President, the State Minister or State Chancellor/Secretary, or the
Minister of Foreign Affairs or Defence or there is an act of Parliament
to that effect.
If within thirty (30) Days following notification of an intended
assignment, accompanied by a copy of the proposed deed of assignment
and related documentation with respect to the proposed assignee,
including certified financial statements and other evidence to the
State's reasonable satisfaction of the matters set forth in Article
26.3.1 and such documentation, which shall include evidence of
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the identity of owners of the assignee, provided in the case of a
company the stock of which is registered on a recognised stock
exchange, a copy of the documents identifying the significant owners,
as such concept is defined or used in the applicable laws pursuant to
which such company registered its stock, will satisfy the foregoing
requirements, and its direct and indirect parent companies, including
the identity of the owners of the ultimate parent, subject to the
foregoing proviso, as may be reasonably necessary for the State, and as
requested by the State, to make a determination of the State interests
as described above, the State has not given its written decision
concerning such assignment, then it shall be deemed that the State has
declined to give such consent; provided that thereafter if upon the
further written request of the Contractor for a written decision, the
State has not given a written response of any kind within fifteen (15)
Days after such further request, then the assignment shall be deemed
approved and the State shall execute an assignment, in the form
contemplated in Article 26.8 accepting such assignment. This second
request from the Contractor shall cite the provisions of this paragraph
and the Contractor shall obtain confirmation from the State that the
request has been received.
26.4 Notwithstanding the provisions of Article 26.3, Contractor may assign
all or part of its rights, obligations and interests arising from this
Contract to an Affiliate without the prior consent of the State or
Georgian Oil, provided that any such Affiliate:
26.4.1 has the technical and financial ability and experience to
perform the obligations to be assumed by it under the
Contract; and
26.4.2 accepts and assumes all of the terms and conditions of the
Contract as if the Affiliate had originally been a signatory
to this Contract.
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In the event of such an assignment, the Parent Company shall provide an
undertaking to the State guaranteeing that it holds ultimate control of
its Affiliate and ultimate responsibility for the rights and
responsibilities of the Affiliate.
If such Affiliate shall be less that 100%, directly and indirectly
owned by the Parent Company, then the consent of the State shall be
required, but may not be withheld unless the Parent Company does not
have voting control over all decisions of the proposed assignee,
whether such decisions are exercised as stockholder or indirectly
through the board of directors or other governing body of such
assignee, provided, however, the election or appointment of a resident
or citizen of the nation or territory, where an entity is incorporated,
as a member of the board of directors or other governing body of such
entity or the ownership of a nominal equity interest in such entity by
any such person to satisfy the mandatory requirements of any applicable
law of such nation or territory shall not be deemed to negate the
satisfaction of the foregoing. The Contractor shall provide the State
with such evidence that the State may reasonably request to satisfy the
State that it does not have the right to decline to give its consent
based on the provisions of the foregoing provision.
If the Parent Company wishes to assign its direct or indirect Control
of a Contractor Party to an Affiliate which is 100% directly or
indirectly owned by the Parent Company, then the consent of the State
shall not be required.
26.5 Provided that Contractor has obtained the prior consent of the State
(not to be unreasonably withheld) as contemplated in Article 26.3,
Contractor and its assignees shall not be restricted in any way and
shall not be required to obtain any
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additional consent for any pledge or assignment of their respective
interests in this Contract or any Petroleum Operations undertaken
pursuant hereto to any bank, lender or other person providing financing
in connection with this Contract or such Petroleum Operations and if
such bank, lender or other person shall foreclose upon such interest
pledged or assigned, such bank, lender or person shall become entitled
to the rights, and subject to the obligations of an assignee hereunder.
26.6 Georgian Oil may assign its rights, obligations and interests arising
from this Contract (including, but not limited to, all or part of its
right to lift a share of Profit Oil); provided, however,
notwithstanding the provisions of Article 26, the obligations of
Georgian Oil under this Contract may, and may only, be assigned to
another majority owned State entity.The provisions of this Article 26.6
shall not apply to the assignment of any rights that Georgian Oil may
hold as a Contractor Party.
26.7 No Taxes, fees or other charges shall be payable to the State or to
Georgian Oil as a consequence of any assignment; provided, however,
appropriate Administrative Fees, including the reasonable and proper
fees of any independent advisors, may be charged, including for a
review of the appropriate documents and payment for re-registration of
the license.
26.8 Every assignment under this Article shall be evidenced by an
assignment, incorporating all the terms hereinabove provided in this
Article 26, including those contemplated in Article 26.7, and shall be
executed by all of the State, Georgian Oil, the assignor and assignee
and all other appropriate Parties, which assignment shall include
provisions whereby the assignee, accept and assume all of the terms and
conditions of this Contract. In addition, a Parent Company Guarantee
shall also be provided by the applicable Parent Company. Such
assignment instrument and Parent Company Guarantee shall be subject to
the reasonable satisfaction of the State.
26.9 In this Article 26, "Control" shall mean the ownership or control of
such interests in an entity as to enable a person or persons acting
together to exercise, directly or through another entity or entities,
management control or establish management
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policy. Equity ownership of a majority of the outstanding ownership
interests in any entity shall be deemed to constitute Control. In
clarification of the foregoing, a change in the membership of the board
of directors does not in and of itself constitute a change or loss of
Control.
26.10 Licence
26.10.1 The Licence shall continue to be held by the re-registered Operating
Company, and the State Agency shall issue a supplementary amendment to
the Licence, including therein a reference to this Contract and
confirming the Contractor's rights and obligations under this Contract.
The State Agency shall issue the supplementary amendment not more than
thirty days after the execution hereof.
26.10.2 Contractor agrees to be responsible for the fulfilment of all
obligations of the Licence by the Operating Company or otherwise and
for all liabilities arising from any breach of the Licence.
26.10.3 The Operating Company may assign the Licence only with the prior
written consent of the Contractor, Georgian Oil, and the State Agency.
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ARTICLE 27
CONTRACT ENFORCEMENT AND STABILISATION, AND REPRESENTATIONS AND WARRANTIES
27.1 In the course of performing the Petroleum Operations, the Contractor
shall be subject to all applicable laws, decrees, rules and regulations
of Georgia.
27.2 The Parties agree to cooperate in every possible way in order to
achieve the objectives of this Contract. Subject to applicable laws,
decrees, rules and regulations, the State shall facilitate the exercise
of the Contractor's activities by granting it all necessary permits,
licenses and access rights as in this Contract set forth so that the
Parties may derive the greatest benefit from Petroleum Operations for
their own benefit and for the benefit of Georgia.
27.3 If at any time after this Amended Production Sharing Contract is
signed, there is a change in the applicable laws of Georgia which:
27.3.1 materially affects the Contractor's or the Operating Company's
conduct of Petroleum Operations in Georgia under this
Contract; or
27.3.2 imposes on the Contractor or the Operating Company any Taxes
which would not have been applicable to the Contractor or the
Operating Company when this Contract was signed or increases
the rates of any Taxes that applied when this Contract was
signed; or
27.3.3 places an undue material economic burden on the Contractor
which was not present when the Contract was signed;
Then the State undertakes that:
27.3.4 in the case of a change falling under Article 27.3.1 the
Contractor and the Operating Company will, in respect of any
matter for which express
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provision is made in this Contract, be deemed to be in full
compliance with the law as amended from time to time, if the
Petroleum Operations carried out by the Contractor or the
Operating Company comply with the provisions of this Contract,
and any relevant plan approved or deemed to be approved by the
Co-ordination Committee, and are consistent with Good Oilfield
Practices.
27.3.5 in the case of a change falling under Article 27.3.2, the
State and Georgian Oil will, after consultation with the
Contractor, propose alterations to this Contract which will
restore the Contractor, or as the case may be, the Operating
Company, to the same overall economic position which it, or
they, would have enjoyed if the change in the applicable law
had not been made. If the proposal made by the State and
Georgian Oil, or any amendment of that proposal put forward by
the State and Georgian Oil is not accepted by the Contractor
within ninety (90) Days from the date on which a notice in
writing of a proposed amendment is made, any party may refer
the matter in dispute to arbitration in accordance with
Article 30.
27.3.6 in the case of a change falling under Article 27.3.3, the
State and Georgian Oil will, after consultation with the
Contractor, propose alterations to this Contract which will
restore the Contractor, to the same overall economic position
which it, or they, would have enjoyed if the change in the
applicable law had not been made. If the proposal made by the
State and Georgian Oil, or any amendment of that proposal put
forward by the State and Georgian Oil is not accepted by the
Contractor within ninety (90) Days from the date on which a
notice in writing of a proposed amendment is made, any party
may refer the matter in dispute to arbitration in accordance
with Article 30.
27.3.7 Nothing in this Article 27.3 shall be read or construed as
relieving the Contractor or the Operating Company from the
obligation to comply with the provisions of laws, decrees,
rules and regulations in force from time to
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time after the date the Petroleum Law became effective, which
relate to health, safety or environmental protection;
provided, such laws, decrees, rules and regulations do not
discriminate against the Contractor or the Operating Company;
27.4 The State hereby represents and warrants to the Contractor as follows:
27.4.1 The State has taken the appropriate steps necessary to appoint
State Agency and Georgian Oil as the first State
Representatives in accordance with Article 2.7 and to
authorise the State Agency and Georgian Oil to execute the
Contract on behalf of the State and has the power to do so;
27.4.2 The signatories to this Contract on behalf of the State are
duly authorised to bind State Agency and Georgian Oil in their
capacities as the State Representatives.
27.4.3 The Licence is a valid instrument issued by the State in
respect of the Contract Area and any and all issuance,
re-issuance, registration, re-registration or extension
thereof, provisional or otherwise, has been duly authorised by
the State.
27.5 Georgian Oil hereby represents and warrants that:
27.5.1 It is a legal entity duly organised, validly existing and in
good standing under the laws of Georgia and has all requisite
corporate power and authority to enter into this Contract and
to perform its obligations hereunder and that all such actions
have been duly authorised by all necessary procedures on its
part;
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27.6 NPL hereby represents and warrants that:
27.6.1 The execution, delivery and performance by NPL of this
Contract are within the corporate powers of NPL and have been
duly authorised by all necessary corporate action of NPL.
27.7 The State and the State Representatives unconditionally and irrevocably
agree that the execution, delivery and performance by them of this
Contract constitute a private and commercial act. In furtherance of the
foregoing, the State and State Representatives hereby irrevocably and
unconditionally agree that:
27.7.1 should any proceedings be brought against them or the State
assets, other than assets protected by diplomatic and consular
privileges under the State Immunity Act of England or the
Foreign Sovereign Immunities Act of the United States or any
analogous legislation, or assets otherwise exempt from
execution under the laws of Georgia in effect on the Effective
Date, subject to the State's obligations under the New York
Convention on Recognition and Enforcement of Arbitral Awards
(collectively, the "Protected Assets") in any jurisdiction in
relation to the Contract or any of the transactions
contemplated by the Contract, no claim of immunity from such
proceedings shall be claimed by or on behalf of them or any of
the State assets, other than the Protected Assets; For the
avoidance of any doubt, the State's share of Petroleum
hereunder is the property of the State and a state asset for
the purposes of this article.
27.7.2 The State and State Representatives waive any right of
immunity, if any, which the State or any of the State assets,
other than the Protected Assets, now has or may in the future
have in any jurisdiction in connection with any such
proceedings; and
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27.7.3 Subject to the provisions of Article 30, the State and the
State Representatives consent to the service of proceedings
and enforcement of any award or judgement against them in any
such proceedings in any jurisdiction and to the giving of any
interim or final relief or the issue of any process in
connection with such proceedings, including, without
limitation, the making, enforcement or execution against or in
respect of its assets, other than the Protected Assets.
27.8 In the event that Georgian Oil becomes a private party to the
Contract, Georgian Oil unconditionally and irrevocably agrees
that the execution, delivery and performance by it of this
Contract constitute a private and commercial act. In
furtherance of the foregoing it irrevocably and
unconditionally represents, warrants and agrees, and the
State, as the sole founder and shareholder of Georgian Oil,
hereby confirms that:
27.8.1 Georgian Oil, as a person of private law and not the State
Representative, is not entitled to any right of sovereign
immunity under Georgian law and shall not use this or similar
defences should any proceedings be brought against it or its
assets in any jurisdiction with respect to this Contract or
any of the transactions contemplated by this Contract;
27.8.2 Georgian Oil, as a person of private law and not as the State
Representative, subject to the provisions of Article 30,
consents to the service of proceedings and enforcement of any
award or judgement against it in any such proceedings in any
jurisdiction and to the giving of any interim or final relief
or the issue of any process in connection with such
proceedings, including, without limitation, the making,
enforcement or execution against or in respect of its assets,
other than the Protected Assets.
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27.9 Notwithstanding the provisions of Article 27.7 and 27.8 or anything
else in this Contract contained, neither Georgian Oil nor the State
shall be liable (whether in contract, tort or otherwise) for any
consequential loss or damage arising out of this Contract, it being
understood that the limit of such liability are direct damages only.
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ARTICLE 28
NOTICES AND CONFIDENTIALITY
28.1 Except as otherwise specifically provided, all notices authorised or
required between the Parties by any of the provisions of this Contract,
shall be in writing in Georgian and English and delivered in person, by
registered mail, by courier service or by fax (with a copy by mail) to
the addresses, including fax numbers, given for the purpose.
The originating notice given under any provision of this Contract shall
be deemed delivered only when received by the Party to whom such notice
is directed, and the time for such Party to deliver any notice in
response to such originating notice shall run from the date the
originating notice is received. The second or any responsive notice
shall be deemed delivered when received. "Received" for purposes of
this Article with respect to written notice delivered pursuant to this
Contract shall be actual delivery of the notice to the Party to be
notified specified in accordance with this Article.
Each Party shall have the right to change its address at any time
and/or designate that copies of all such notices be directed to another
person at another address, by giving written notice thereof to all
other Parties. Until such notice is given the respective addresses for
service are those set out in Annex D.
28.2 Subject to the provisions of the Contract, the Parties agree that all
information and data acquired or obtained by any Party in respect of
Petroleum Operations shall be considered confidential and shall be kept
confidential and not be disclosed for a period of five (5) years from
the date the information or data was acquired or obtained, to any
person or entity not a Party to this Contract, except:
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28.2.1 To an Affiliate, provided such Affiliate maintains
confidentiality as provided herein;
28.2.2 To a State agency or other entity when required by,
contemplated by or necessary under the Contract, or any person
or his successor who has been involved by the State in the
review and approval process of this Contract or is involved in
the maintenance or review of this Contract hereafter;
28.2.3 To the extent such data and information is required to be
furnished in compliance with any applicable laws or
regulations, or pursuant to any legal proceedings or because
of any order of any court binding upon a Party;
28.2.3 To prospective or actual contractors, consultants and
attorneys employed by any Party where disclosure of such data
or information is essential to such contractor's, consultant's
or attorney's work, but only to the extent that such person
needs to know such data or information;
28.2.5 To a bona fide prospective transferee of a Party's
participating interest (including an entity with whom a Party
or its Affiliates are conducting bona fide negotiations
directed toward a merger, consolidation or the sale of a
majority of its or an Affiliate's shares), provided that such
prospective transferee is prima facie eligible to become an
assignee under Article 26 by satisfying the conditions therein
set forth;
28.2.6 To a bank or other financial institution to the extent
appropriate to a Contractor Party arranging for funding;
28.2.7 To the extent such data and information must be disclosed
pursuant to any rules or requirements of any government or
stock exchange having jurisdiction over such Party, or its
Affiliates;
28.2.8 To its respective employees for the purposes of Petroleum
Operations,
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subject to each Party taking customary precautions to ensure
such data and information is kept confidential;
28.2.9 To the extent that any data or information which, through no
fault of a Party, becomes a part of the public domain;
28.2.10 To the extent that the Contractors have, with the consent of
Georgian Oil and the State Agency, exchanged or "traded" any
seismic, well or production data for comparable data obtained
by a contractor in an adjacent license, concession or contract
area. Both of the Contractors and said contractor shall be
obliged to maintain such traded data confidential pursuant to
Article 28.4 or comparable provision or agreement.
28.2.11 In respect of areas which have been relinquished by the
Contractor as herein provided, the State may use any such data
and information in respect of negotiating, whether by auction
or otherwise, subject to the recipient party entering into
appropriate confidentiality agreements, and entering into
agreements with other parties in respect of other areas for
exploration or development, which agreements in respect of
such data shall also be subject to appropriate confidentiality
agreements.
28.3 Disclosure as pursuant to Articles 28.2.4, 28.2.5, 28.3.6, 28.3.10 and
28.2.11 shall not be made unless prior to such disclosure the
disclosing Party has obtained a written undertaking from the recipient
party to keep the data and information strictly confidential for at
least five (5) Years and not to use or disclose the data and
information except for the express purpose for which disclosure is to
be made.
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ARTICLE 29
TERMINATION AND BREACH
29.1 At any time, if in the opinion of the Contractor, acting reasonably and
in good faith, circumstances do not warrant continuation of the
Petroleum Operations in the Contract Area or in any Development Area,
the Contractor may, by giving not less than ninety (90) Days written
notice to that effect to the State Agency with a copy to Georgian Oil
relinquish its rights and be relieved of its obligations pursuant to
this Contract as to the Contract Area or as to that Development Area,
except such rights and obligations as related to the period prior to
such relinquishment, including, without limitation, any obligation
under Articles 5.3, 8 and 9.7.
29.2 Subject to the remaining provisions of this Article 29, the State may,
by written notice to the Contractor, terminate the Contract in any of
the following events:
29.2.1 the Contractor is in material breach of the Contract
(excluding a breach elsewhere in this Article 29.2 referred
to), and such breach continues for ninety (90) Days after
receipt of notice of the breach;
29.2.2 the Contractor is in breach of Article 8 of this Contract and
such breach continues thirty (30) Days after receipt of notice
of the breach:
29.2.3 any material breach of the provisions of Article 26 where the
Contractor comprises one entity;
29.2.4 any failure to comply with any decision of an arbitration
tribunal under Article 30 within the period specified in such
decision or, if none is specified, ninety (90) Days from the
date of such decision;
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29.2.5 any failure within a thirty (30) days to accept and to
commence implementation of the decision of a Sole Expert to
whom, pursuant to the Contract, any matter has been referred;
29.2.6 an Insolvency Event occurs with respect to the Contractor
where the Contractor comprises one entity;
29.2.7 is in material breach of the Contract pursuant to Article
26.8.
29.2.8 Failure to develop known and prospective Petroleum reservoirs
diligently as a reasonable and prudent operator would develop
the same under the same or similar circumstances is a material
breach within the meaning of this Article 29.
29.2.9 Failure or refusal to timely complete the clean up and
remediation programme established pursuant to Article 24.3.
29.3 In the event that more than one entity constitutes the Contractor or
the Parent Company, and in respect of any such entity (here in this
Article 29 a "Defaulting Participant") an event occurs of the kind
described in Articles 29.2.2, 29.2.3, 29.2.4 or 29.2.5 or any such
entity (also herein referred to as a "Defaulting Participant") is in
material breach of an obligation which as provided in the Contract is a
several obligation, the State and Georgian Oil will not be entitled to
terminate the Contract unless all the entities who constitute the
Contractor and the Parent Company are Defaulting Participants, but may,
acting together, and subject to Article 29.5, serve on the Defaulting
Participants a notice (hereinafter a "Default Assignment Notice").
29.4 Where a Default Assignment Notice has been served on a Defaulting
Participant, the Defaulting Participant shall forthwith,
unconditionally, without consideration, and free from all encumbrances,
assign its undivided participating share, including
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rights and obligations, in the Contract to the other Contractors (the
"Non-Defaulting Participants") in undivided shares in proportion to the
undivided shares in which the Non-Defaulting Participants hold their
shares in the Contract and each of the Non-Defaulting Participants
shall be obliged to accept that assignment, including all the
obligations arising after the date thereof. In amplification and
clarification of the foregoing, a Non-Defaulting Participant accepting
such an assignment shall not be responsible for any obligation of the
assigning Defaulting Participant to the State, Georgian Oil or any
Third Party which accrued prior to the date of the assignment.
29.5 The State may terminate the Contract pursuant to Article 29.2.1 or
serve a Default Assignment Notice only if:
29.5.1 the State gives not less that thirty (30) Days written notice
("Notice") to the Contractor or, as the case may be, the
Defaulting Participant, of an intention to terminate the
Contract or to serve a Default Assignment Notice, stating in
detail in the Notice the alleged material breach or other
grounds for termination or service of a Default Assignment
Notice relied upon by the State;
29.5.2 the Contractor or the Defaulting Participant is given a period
of ninety (90) Days from receipt of the Notice to cure or
remove such material breach or other grounds specified in the
Notice for termination or service of a Default Assignment
Notice; and
29.5.3 the Contractor or the Defaulting Participant has failed within
such ninety (90) Days to cure or remove such material breach.
29.6 It is acknowledged that the Contractor or the Defaulting Participant
may invoke its arbitration rights under Article 30 and thereby dispute
any such termination. If the Contractor or any Defaulting Participant
submits any matter to arbitration, then such submission shall not
suspend the effectiveness of a termination under Articles 29.2.1,
29.2.2 and 29.7. Further if there should be any violation of any law,
rule or regulation, the applicable provisions thereof shall govern with
respect to the
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consequences of any such violation.
29.7 Notwithstanding anything in this Contract to the contrary, if a Parent
Company fails to comply with its obligations under Article 26 and
further fails to reasonably and in good faith commence acting to
correct such failure within thirty (30) Days of notification thereof;
then such failure to comply shall constitute a material breach with the
result that this Contract shall terminate immediately with respect to
the Affiliate of the defaulting Parent Company which is a Contractor
Party.
29.8 The Licence shall terminate, ipso facto, upon the termination or
expiration of this Contract. In the event that this Contract terminates
with respect to fewer than all of the Parties, all rights of such
Parties under the Licence shall terminate, ipso facto, concurrently
with such partial termination.
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ARTICLE 30
DISPUTE RESOLUTION
30.1 Save in the case of disagreements falling within Article 30.5, for the
purpose of this Article, there are two parties that is to say the State
and Georgian Oil who shall so long as Georgian Oil is designated as the
National Oil Company together constitute the First Dispute Party and
the Contractor who shall constitute the Second Dispute Party, and
references in this Article to the Dispute Parties shall be construed
accordingly. In the event that Georgian Oil ceases to be designated as
the National Oil Company, the Parties will reasonably and in good faith
review this Article 30.1.
30.2 The Parties hereby consent to submit to the International Centre for
Settlement of Investment Disputes (ICSID) any Dispute in relation to or
arising out of this Contract for settlement by arbitration pursuant to
the Convention on the Settlement of Investment Disputes between States
and Nationals of Other States (the "Convention"). It is acknowledged
that the State has signed and deposited its instrument of ratification
of the Convention on the 7th of August 1992 and the Dispute Parties may
rely on the Convention having entered into force in the Republic of
Georgia without qualification on the 6th September 1992.
30.3 The Dispute Parties agree that, for the purposes of Article 25(1) of
the Convention, any Dispute is a legal dispute arising directly out of
an investment.
30.4 For the purposes of Article 25(2) of the Convention, it is agreed that
NPL is a national of Bermuda and any wholly owned subsidiaries shall be
treated as nationals of the latter state for the purposes of the
Convention.
30.5 In the event that a dispute arises among the private Parties to this
Contract and neither the State nor Georgian Oil is a Dispute Party, the
private Parties, unless otherwise agreed among the private Parties to
the Contract, hereby submit to arbitration in London, United Kingdom in
accordance with the arbitration rules of the London Court of
International Arbitration. Judgement upon any arbitral award
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under this Article 30.5 may be entered in any jurisdiction by any court
having jurisdiction of the relevant Party, its property or assets.
30.6 Arbitration proceedings shall be conducted in the English language.
30.7 Any arbitration tribunal constituted pursuant to this Contract shall
apply the provisions of this Contract as governed and construed
according to the law of Georgia and such rules of international law as
may be applicable.
30.8 Contractor, the State and Georgian Oil (with reference to any matter
pertaining to Georgian Oil's role as a State Representative) hereby
consent to submit to ICSID any disagreement arising out of the
Contract, including, without limitation, whether the State and Georgian
Oil have served a valid Default Assignment Notice. The provisions of
Articles 30.2, 30.3, 30.4, 30.7 and 30.8 shall apply to the arbitration
of such disagreement. In the event that Contractor is organised in a
state which is not a party to the Convention, any disagreement shall be
submitted for settlement by arbitration under the Additional Facility
Rules of ICSID.
30.9 Either the First Dispute Party or the Second Dispute Party may commence
a Sole Expert determination with respect to any matter in dispute
between such Dispute Parties which may be or is required to be referred
to a Sole Expert under the provisions of the Contract (or with respect
to any other matter which the First Dispute Party and the Second
Dispute Party may otherwise agree to so refer) by giving written notice
to such effect. Such notice shall contain a statement describing the
issue and all relevant information associated therewith. A Sole Expert
shall be an independent and impartial person of international standing
with relevant qualifications and experience appointed pursuant to the
mutual agreement of the First Dispute Party and the Second Dispute
Party. The Sole Expert shall act as an expert and not as an arbitrator
or mediator and, unless otherwise agreed, shall be instructed to
resolve the dispute referred to him within thirty (30) Days of his
appointment. Upon the selection of the Sole Expert, the Dispute Party
receiving the notice of referral above shall submit its own statement
containing all information it considers relevant with respect to the
matter in dispute. The decision of the Sole
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Expert shall be final and binding and not subject to any appeal. If the
First Dispute Party and the Second Dispute Party are unable to agree on
the appointment of a Sole Expert within twenty (20) Days after a
Dispute Party has received a notice of referral under this Clause 30.10
the Sole Expert shall be selected by the Secretary General of ICSID and
the person so selected shall be deemed to have been appointed by the
Dispute Parties.
30.10 The fees and expenses of the Sole Expert appointed under the provisions
of Article 30.9 or other provision of this Contract shall be borne by
the losing Dispute Party and shall not be considered Costs and
Expenses.
30.11 It is further agreed by the Parties, that no registered presence that
the Contractor may establish or may be required to establish in
Georgia, including but not limited to the formation of an Operating
Company, registration of an NPL representative office, registration
with the tax authorities or creation of a permanent establishment for
tax purposes, shall constitute a Georgian legal entity for the purposes
of Article 30.2 of the Petroleum Law. To amplify the foregoing, the
State and Georgian Oil hereby irrevocably and unconditionally confirm
that the arbitration agreement set forth in Article 5 of the Original
Contract, as amended hereunder is valid, effective and binding on the
State and Georgian Oil.
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ARTICLE 31
TEXT
31.1 This Contract shall be executed in three (3) originals in the Georgian
language and three (3) originals in the English language. The two
versions shall be certified as exact translations. by a competent
authorised body, and each of which shall have equal legal force and
effect; provided, however, that in the case of dispute, conflict or
arbitration the English version shall (after the Georgian version has
been reviewed and its provisions have been discussed in good faith)
control for interpretative purposes and shall be used as the authentic
version to determine the rights and obligations of the Parties which
shall be determined by reference solely to the English version of this
Contract. [No change]
31.2 Contract shall be amended only by written document signed by all the
Parties.
31.3 If and for so long as any provision of this Contract shall be deemed or
judged to be invalid for any reason whatsoever, such invalidity shall
not affect the validity or operation of any other provision of this
Contract except only as far as shall be necessary to give effect to the
construction of such invalidity, and any such invalid provision shall
be deemed severed from this Contract without affecting the validity of
the rest of the Contract.
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ARTICLE 32
EFFECTIVE DATE
32.1 This Contract, as an amendment to the Original Agreements, shall enter
into force and effect in its entirety on the Effective Date..
32.2 The Effective Date of the Contract will be the date on which the
following conditions have been fulfilled to the satisfaction of the
Contractor, the State and Georgian Oil and declared as such:
32.2.1 The Operating Company has been re-registered
32.2.2 The Licence has been amended as provided in Article 26.10.1.
32.2.3 The Licence has been ammended to provide for its full term by
the State Agency
32.2.4 The Administration Fee set forth in Article 14.5 and any other
outstanding fees or sums then due and owing by the Contractor
or the Operating Company to the State, if any, have been paid
by the Contractor.
32.2.5 The Letter of Credit, referred to in Article 8.2.4 has been
issued.
32.2.6 Georgian Oil has obtained the consent or approval from the Tax
Inspectorate for Georgian Oil (or its successors or assigns)
to assume, pay and discharge, in the name and on the behalf of
NPL NPL's entire Profit Tax liability and Mineral Usage Tax
liability for each Calendar Year in accordance with the legal
procedures set by the Georgian Tax Code.
32.2.7 All Parties have agreed in writing to the report of auditors
and the content of Annex F, Prior Cost and Expenses.
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32.3 Notwithstanding any other provision of this Contract, including but not
limited to Article 29, if after the expiration of one (1) year from the
date of the execution of this Contract by all Parties, the Effective
Date, as determined by provisions of Article 32.2, has not occurred,
then the Licence and this Contract shall terminate and neither shall be
of any further force and effect.
This Contract is executed this day of 2001 in three (3) versions
in the Georgian language and three (3) versions in the English language.
Joint Stock National Oil Company SAKNAVTOBI
By:
NATIONAL PETROLEUM LIMITED
By:
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By execution hereof, the State Agency for Regulation of Oil and Gas Resources in
Georgia, acting in its capacity as the sovereign representative of Georgia,
pursuant to the Law of Georgia on Oil and Gas, enacted 16 April 1999 and as
successor to Saknavtobi in such capacity, joins as a Party to the foregoing
Production Sharing Contract, as amended, and consents to provisions thereof.
Signed and sealed this ____ day of _____________________, 2001, at Tbilisi,
Georgia.
STATE AGENCY FOR REGULATION OF OIL AND GAS
RESOURCES IN GEORGIA
By: ____________________________________
Gia Itonishvili, Head of Agency
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ANNEX A
LICENCE
Licence issued by the State Agency
126
ANNEX B
CONTRACT AREA - MAP AND CO-ORDINATES
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ANNEX C
ACCOUNTING PROCEDURE
SECTION I
GENERAL PROVISIONS
1.1. PURPOSE
The accounting procedures included in this Accounting Procedure
establish a framework of accounting principles as generally accepted
within the international Petroleum industry. The purpose of this
Accounting Procedure is to establish a fair and equitable method for
accounting for Petroleum Operations under the Contract, to classify
expenditures, define Costs and Expenses and prescribe the manner in
which the Contractor's accounts shall be prepared and approved.
1.2. DEFINITIONS
For the purpose of this Accounting Procedure the following terms shall
have the following meanings:
"Accepted Accounting Procedure" shall mean accounting principles,
practices and procedures generally accepted and recognised in the
international Petroleum industry.
"Accounting Procedure" shall mean the accounting principles, practices
and procedures set forth in this Annex C.
"Accruals Accounting Basis" shall mean the basis of accounting which
records the effect of transactions and events on financial conditions
and income when an obligation is created or a right arises.
"Contract" shall mean the production sharing contract this Accounting
Procedure is annexed to.
"Controllable Material" means all materials and equipment controlled
and inventoried by the Contractor. A list of types of such Controllable
Material shall be
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furnished to Georgian Oil upon request.
"Material and Equipment" means property, including without limitation
all exploration, appraisal and development facilities together with
supplies and equipment, acquired and held for use in Petroleum
Operations.
The words and phrases defined in the Contract but not defined above
shall have the same meaning in this Accounting Procedure as is given to
them in the Contract.
1.3. AUDITS
1.3.1 The State or Georgian Oil shall have the right to audit the
Contractor's accounts and records maintained under the
Contract with respect to each Calendar Year within two Years
from the end of each such Year as follows. Should Georgian Oil
decide not to perform its own audit, the audit may be
conducted by the State Agency. However, the audit may be
conducted instead by an independent auditor of international
standing familiar with international petroleum industry
practice in accordance with international auditing standards
at the request of Georgian Oil or the State Agency, but not
both. If audit is performed by an independent auditor, the
cost of such auditor should be borne by the Contractor and
treated as Costs and Expenses. For the avoidance of doubt, it
is understood that Contractor shall be subject to no more than
one audit in total in a single Calendar Year.
1.3.2 Any audit exceptions shall be made in writing and notified to
the Contractor within ninety (90) Days, following completion
of the audit in question, and failure to give such written
exception within such time shall be deemed to be an
acknowledgement of the correctness of the Contractor's books
and accounts.
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1.3.3 For purposes of auditing, the State or Georgian Oil may
examine and verify, upon providing at least sixty (60) days
advance notice to Contractor and at its sole expense, all
charges and credits relating to the Petroleum Operations, such
as books of account, accounting entries, material records and
inventories, vouchers, payrolls, invoices and any other
documents, correspondence and records including electronic
records considered necessary by the State or Georgian Oil to
audit and verify the charges and credits. Furthermore, the
auditors shall have the right in connection with such audit,
to visit and inspect at reasonable times, all sites, plants,
facilities, warehouses and offices of the Contractor directly
or indirectly serving the Petroleum Operations and to question
personnel associated with those Operations. Where the State or
Georgian Oil requires verification of charges made by an
Affiliated Company of the Contractor, the State or Georgian
Oil shall have the right to obtain an audit certificate from
an internationally recognised firm of public accountants
acceptable to both the State or Georgian Oil and the
Contractor, which may be the Contractor's statutory auditor.
The auditors shall make every reasonable effort to conduct
their examination in a manner which will result in a minimum
of inconvenience to the Contractor
1.3.4 The Contractor shall answer any notice of exception under
paragraph 1.3.2 within one hundred eighty (180) Days of the
receipt of such notice. Where the Contractor has, after the
said one hundred eighty (180) Days, failed to answer a notice
of exception the exception shall prevail.
1.3.5 All agreed adjustments resulting from an audit and all
adjustments required by prevailing exceptions shall be
promptly made in the Contractor's accounts and any
consequential adjustments to payments due to the State or
Georgian Oil shall be made promptly.
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1.3.6 If the Contractor and the State or Georgian Oil are unable to
reach final agreement on proposed audit adjustments they shall
refer their dispute for binding and final resolution by an
internationally recognised firm of independent public
accountants appointed in accordance with the procedures for
appointing a Sole Expert pursuant to Article 30 of the
Contract. When issues are outstanding with respect to an
audit, the Contractor shall maintain the relevant documents
and permit inspection thereof until the issue is resolved.
1.4. THE CONTRACTOR'S BOOKS
1.4.1 The Contractor shall maintain at the Contractor's office in
Georgia in English in local currency and US$ and on an Accrual
Accounting Basis books and accounts for Petroleum Operations.
Such books and accounts shall be kept in accordance with
Accepted Accounting Procedure and the provisions of the
Contract and this Accounting Procedure ("Petroleum Operations
Account").
1.4.2 All US$ expenditures shall be charged in the amount expended.
Expenditures incurred in currencies other than US$ shall be
translated into US$ in accordance with Article 19.11 of the
Contract. A record shall be kept of the exchange rates used in
translating expenditures incurred in currencies other than
US$. Any gain or loss resulting from the exchange of
currencies required for Petroleum Operations and any fees or
other banking charges levied in connection with such exchange
of currencies or any gain or loss resulting from translation
of expenditures and sales revenues in accordance with the
provisions of Article 19.11 shall be included in Costs and
Expenses and recoverable from Cost Recovery Petroleum and
credited or charged to the Petroleum Operations Account.
1.4.3 The Contractor shall maintain books and accounts relating to
Petroleum
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Operations for six (6) Years following the end of the Calendar
Year to which they relate.
1.5. PRECEDENCE OF DOCUMENTS
In the event of any inconsistency or conflict between the provisions of
this Accounting Procedure and the provisions of the Contract treating
the same subject differently, the provisions of the Accounting
Procedure shall prevail.
1.6. REVISION OF ACCOUNTING PROCEDURE
This Accounting Procedure may be revised from time to time by mutual
written agreement among the Parties.
1.7. ARBITRATION PROCEDURES
Any dispute in relation to or arising out of this Accounting Procedure
shall, unless otherwise provided in this Accounting Procedure, be
submitted first to a Sole Expert who shall have the rights set forth in
the Contract, the cost of which shall be reimbursable as Cost Recovery
Petroleum. If such matter is not so settled, the dispute shall be
submitted to arbitration in accordance with Article 30 of the Contract.
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SECTION II
CLASSIFICATION, DEFINITION AND ALLOCATION OF COSTS
2.1 SEGREGATION OF COSTS
Costs shall be segregated in accordance with the purposes for which
such costs are incurred. The purposes which shall qualify are those
which have been included in the approved Work Programme and Budget for
the year in which the costs are incurred and other items which have
been agreed by the Parties from time to time. All costs allowable under
Section III relating to Petroleum Operations shall be classified,
defined and allocated as set out below.
2.2. EXPLORATION COSTS
"Exploration Costs" are all direct and allocated indirect costs
incurred in the search for Petroleum in an area which is, or was at the
time when such costs were incurred, part of the Contract Area
including:
2.2.1 Aerial, geophysical, geochemical, paleontological, geological,
topographical and seismic surveys and studies and their
interpretation and purchased geological and geophysical
information all separately identified.
2.2.2 Stratigraphic test hole drilling and water well drilling.
2.2.3 Labour, materials, supplies, and services used in drilling
▇▇▇▇▇ with the object of finding Petroleum or appraisal ▇▇▇▇▇
excluding any costs of the subsequent completion of such ▇▇▇▇▇
as producing ▇▇▇▇▇.
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2.2.4 Facilities used solely in support of the purposes described in
Paragraphs 2.2.1, 2.2.2 and 2.2.3 above, including access
roads, all separately identified.
2.2.5 That portion of all Service Costs (as defined in Paragraph
2.5) and that portion of all General and Administrative Costs
(as defined in Paragraph 2.6) allocated to Exploration Costs
as determined by the proportionate share of total Costs and
Expenses (excluding General and Administrative Costs and
Service Costs) represented by all other Exploration Costs.
2.2.6 Any other costs incurred in the search for and appraisal of
Petroleum after the Effective Date but prior to the
Commencement of Commercial Production and not covered under
Paragraph 2.3.
2.3 DEVELOPMENT AND PRODUCTION COSTS
"Development and Production Costs" shall consist of all costs, whether
incurred by acquisition of assets, leasing or other financial
arrangement incurred in:
2.3.1 Drilling ▇▇▇▇▇, other than ▇▇▇▇▇ classified as Exploration
Costs, whether these ▇▇▇▇▇ are dry or producing and drilling
▇▇▇▇▇ for the injection of water or gas to enhance recovery of
Petroleum.
2.3.2 Completing ▇▇▇▇▇ by way of installation of casing or equipment
or otherwise after a well has been drilled for the purpose of
bringing the well into use as a producing well or as a well
for the injection of water or gas to enhance recovery of
Petroleum.
2.3.3 Acquisition, construction or provision of Petroleum
production, transport and storage facilities such as
pipelines, flow lines, production and treatment units,
wellhead equipment, subsurface equipment, enhanced recovery
systems, Petroleum storage facilities, and access roads for
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production activities.
2.3.4 Engineering and design studies for the ▇▇▇▇▇ and facilities
referred to in Paragraphs 2.3.1, 2.3.2 and 2.3.3.
2.3.5 That portion of all Service Costs and that portion of all
General and Administrative Costs allocated to Development and
Production Costs as determined by the proportionate share of
total Petroleum Operations Costs (excluding General and
Administrative Costs and Service Costs) represented by all
other Development and Production Costs.
2.3 OPERATING COSTS
Operating Costs are all costs incurred in Petroleum Operations after
the Commencement of Commercial Production which are other than
Exploration Costs and Development and Production Costs, including those
portions of General and Administrative Costs and Service Costs which
are not allocated to Exploration Costs or Development and Production
Costs.
2.5 SERVICE COSTS
Service Costs are costs in support of Petroleum Operations including
warehouses, vehicles, motorised rolling equipment, aircraft, fire and
security stations, workshops, water and sewerage plants, power plants,
housing, community and recreational facilities and furniture, tools and
equipment used in these activities. Service Costs in any Calendar Year
shall include the costs incurred in such year to purchase and/or
construct the said facilities as well as the annual costs of
maintaining and operating the same. All Service Costs shall be
regularly allocated as specified in Paragraphs 2.2.5, 2.3.5 and 2.4 to
Exploration Costs, Development and Production Costs and Operating Costs
and shall be separately shown under each of these categories. Where
Service Costs are incurred in respect of shared facilities the basis of
allocation of costs to Petroleum Operations hereunder shall be
specified.
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2.6 GENERAL AND ADMINISTRATIVE COSTS
2.6.1 Direct Overhead
Direct overhead covers all office, field office and general
administrative expenditures of the Contractor and its
Affiliates in the State of Georgia.
Services performed outside Georgia by the departments of the
Contractor and its Affiliates which directly benefit Petroleum
Operations under the contract shall be charged as direct costs
in accordance with Paragraph 3.7 of this Annex C.
2.6.2 Indirect Overhead
Indirect overhead covers an annual charge for indirect
services rendered by the Contractor's Affiliates outside
Georgia to support and manage Petroleum Operations under the
Contract. Indirect overhead will be deemed to cover the actual
cost incurred for indirect services rendered by those
functions of Contractor's Affiliates which:
(i) cannot, without unreasonable effort and/or
expenditure or without the release of confidential
data proprietary to Contractor's affiliates be
charged under any other Section of this Annex C; and
(ii) are properly allocable to Petroleum Operations under
the Contract.
2.6.3 The Contractor's indirect overhead, as described above, shall
be charged to Petroleum Operations Account based on a
percentage applied monthly to the actual expenditures
attributable to Petroleum Operations during each
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month. The percentage to be applied to each month's actual
expenditures attributable to Petroleum Operations will be
determined by the following table and based on cumulative
actual direct expenditures attributable to Petroleum
Operations incurred during each Calendar Year:
(i) Exploration Costs
Rate
----
($US per Calendar Year)
$0 to $10,000,000 of expenditures 5.0%
$10,000,000 to $15,000,000 of expenditures 3.0%
Over $15,000,000 of expenditures 2.0%
(ii) Development and Production Costs
Rate
----
($US per Calendar Year)
$0 to $10,000,000 of expenditures 3.0%
$10,000,000 to $15,000,000 of expenditures 2.5%
Over $15,000,000 of expenditures 2.0%
(iii) Producing Operations
The indirect rate for production operations shall be two
percent (2.0%) of the total amount of the actual costs
for the Operating Costs in each Calendar Year.
2.7 FINANCE COSTS
Finance Costs are all costs as defined in Article 1.39 of the Contract
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SECTION III
COSTS, EXPENSES, AND EXPENDITURES AND CREDITS
Except to the extent provided in Paragraph 3.17 of this Section the Contractor
shall charge the Petroleum Operations Account for all Costs and Expenses
incurred and necessary to conduct Petroleum Operations under this Contract as
classified under the headings set forth in Section II of this Accounting
Procedure. For the purposes of this Accounting Procedure Costs and Expenses
referred to in Article 11.2 shall be deemed to be incurred on the Effective Date
of this Contract. Costs and Expenses shall include, but not be limited to:
3.1 LICENSES, PERMITS
All costs, if any, attributable to the acquisition, maintenance,
renewal or relinquishment of licenses (excluding the Licence as defined
in Article 1.49), permits, contractual and/or surface rights acquired
for Petroleum Operations.
3.2 SALARIES, WAGES AND RELATED COSTS
3.2.1 The employees of Contractor and its Affiliates in Georgia
directly engaged in Petroleum Operations whether temporarily
or permanently assigned. Time of such employees shall be
documented by timesheets.
3.2.2 The employees of Contractor and its Affiliates outside Georgia
directly engaged in Petroleum Operations whether temporarily
or permanently assigned, and not otherwise covered in Section
3.7.2. Time of such employees shall be documented by
timesheets.
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3.2.3 Salaries and wages, including everything constituting the
employees' total compensation. To the extent not included in
salaries and wages, the Petroleum Operations Account shall
also be charged with the cost to Contractor of holiday,
vacation, sickness, disability benefits, living and housing
allowances, travel time, bonuses, tax equalisation payments
and other customary allowances applicable to the salaries and
wages chargeable hereunder, as well as costs to Contractor for
employee benefits, including but not limited to employee group
life insurance, group medical insurance, hospitalisation,
retirement, severance payments required by laws or regulations
of the State of Georgia, and other benefit plans of a like
nature applicable to labour costs of Contractor. Contractor's
employees participating in Georgian benefit plans may be
charged at a percentage rate to reflect payments or accruals
made by Contractor applicable to such employees.
3.2.4 Expenditures or contributions made pursuant to assessments
imposed by governmental authority for payments with respect
thereto or on account of such employees.
3.2.5 Salaries and wages charged in accordance with Contractor's
usual practice, when and as paid or accrued, or on a basis of
the Contractor'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
3.2.6 Reasonable expenses (including related travel costs) of those
employees whose salaries and wages are chargeable to the
Petroleum Operations
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Account under Sections 3.2.1 and 3.2.2 of this Section III and
for which expenses the employees are reimbursed under the
usual practice of Contractor.
3.2.7 If employees are engaged in other activities in addition to
the Petroleum Operations, the cost of such employees shall be
allocated on an equitable basis.
3.2.8 Costs related to training or technology transfer for the State
or Georgian Oil representatives including related travel and
subsistence costs, course work and materials.
3.3 EMPLOYEE RELOCATION COSTS
3.3.1 Except as provided in paragraph 3.3.3 of this Section III, the
Contractor's or its Affiliates costs of employees' relocation
to or from the Contract Area vicinity or location where the
employees will reside or work, whether permanently or
temporarily assigned to the Petroleum Operations. If such
employee works on other activities of the Contractor in
addition to Petroleum Operations, such relocation costs shall
be charged to the other activities based on the percentage
time expected to be worked on other activities multiplied by
the employee relocation costs.
3.3.2 Such relocation costs shall include transportation of
employees and their family, personal and household effects of
the employee and their family, transit expenses, and all other
related reasonable costs in accordance with the Contractor's
and its Affiliates' usual practice.
3.3.3 Relocation costs from the vicinity of the Contract Area to
another location classified as a foreign location by the
Contractor shall not be chargeable to the Petroleum Operations
Account unless such foreign location is the point of origin of
the employee.
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3.4 OFFICES, CAMPS AND MISCELLANEOUS FACILITIES
All costs of maintaining any offices, sub-offices, camps, warehouses,
housing, and other facilities of the Contractor and/or Affiliates
directly serving the Petroleum Operations either within Georgia or
elsewhere. If such facilities serve operations in addition to the
Petroleum Operations the costs shall be allocated to the properties
served on an equitable basis approved by the Parties.
3.5 MATERIAL AND EQUIPMENT
Costs of materials and supplies, equipment, machines, tools and any
other goods of a similar nature used or consumed in Petroleum
Operations subject to the following:
3.5.1 Acquisition - the Contractor shall only supply or purchase
materials for use in Petroleum Operations that may be used in
the foreseeable future. The accumulation of surplus stocks and
inventory shall be avoided so far as is reasonably practical
and consistent with efficient and economical operations.
Inventory levels shall, however, take into account the time
lag for replacement, emergency needs, weather conditions
affecting operations and similar considerations.
3.5.2 Components of costs, arm's length transactions - except as
otherwise provided in paragraph 3.5.3 below, material
purchased by the Contractor in arm's length transactions in
the open market for use in the Petroleum Operations under the
Contract shall be valued to include invoice price less trade
and cash discounts (if any), purchase and procurement fees
plus freight and forwarding charges between point of supply
and point of shipment, freight to port of destination,
insurance, taxes, customs duties, consular fees, excise taxes,
other items chargeable against imported materials and, where
applicable, handling and transportation expenses from point of
importation to warehouse or operating site.
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3.5.3 Accounting - such material costs shall be charged to the
accounting records and books in accordance with the "First in,
First out" (FIFO) method;
3.5.4 Material purchased from or sold to Affiliates of the
Contractor or transferred from other activities of the
Contractor to or from Petroleum Operations under the Contract
shall be valued and charged or credited at the prices
specified as follows:
3.5.4.1 New material, including new material moved from
inventory (Condition "A"), shall be valued at the
current international net price which shall not
exceed the price prevailing in normal arm's length
transactions in the open market.
3.5.4.2 Used material (Conditions "B", "C" and "D");
(i) Material which is in sound and serviceable
condition and is suitable for re-use without
reconditioning shall be classified as Condition
"B" and priced at seventy-five percent (75%) of
the current price of new material defined in
Paragraph 3.5.4.1;
(ii) Material which cannot be classified as Condition
"B" but which after reconditioning will be further
serviceable for its original function shall be
classified as Condition "C" and priced at not more
than fifty percent (50%) of the current price of
new material as defined in 3.5.4.1 above. The cost
of reconditioning shall be charged to the
reconditioned material provided that the value of
Condition "C" material plus the cost of
reconditioning do not exceed the value of
Condition "B" material;
(iii) Material which cannot be classified as Condition
"B" or Condition "C" shall be classified as
Condition "D" and priced at a value commensurate
with its use by the
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Contractor. If material is not fit for use by the
Contractor it shall be disposed of as junk.
3.5.4.3 Material involving erection costs shall be charged at
the applicable condition percentage of the current
knocked-down price of new material as defined in
Paragraph 3.5.4.1 above.
3.5.4.4 When the use of material is temporary and its service
to the Petroleum Operations under the Contract does
not justify the reduction in price as provided for in
paragraph 3.5.4.2(b) hereof, such material shall be
priced on a basis that will result in a net charge to
the accounts under the Contract consistent with the
value of the service rendered.
3.5.4.5 Premium prices - whenever material is not readily
obtainable at published or listed prices because of
national emergencies, strikes or other unusual causes
over which the Contractor has no control, the
Contractor may charge Petroleum Operations for the
required material at the Contractor's actual cost
incurred in providing such material, in making it
suitable for use, and in moving it to the Contract
Area; provided notice in writing is furnished to the
State of the proposed charge prior to charging
Petroleum Operations for such material and the State
shall have the right to challenge the transaction on
audit.
3.6 EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF THE CONTRACTOR AND
AFFILIATES
Charges for exclusively owned equipment, facilities and utilities of
the Contractor and its Affiliates at costs or rates commensurate with
the cost of ownership and operation not to exceed the average cost or
rates of non-affiliated Third Parties then prevailing for the
Contractor for like equipment, facilities, and utilities for use.
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3.7 SERVICES
3.7.1 Third Parties: the actual cost of contract services, services
of professional consultants, utilities and other services
necessary for the conduct of Petroleum Operations performed by
Third Parties.
3.7.2 Affiliates of the Contractor: the cost of services performed
by Affiliates of the Contractor which the Contractor may use
in lieu of having its own employees. Charges shall reflect the
cost of providing their services and shall not include any
element of profit and shall be no less favourable than similar
charges for other operations carried on by the Contractor and
its Affiliates.
The charges for such services shall not exceed those currently
prevailing if performed by Third Parties, considering the quality and
availability of such services.
Examples of such services include, but are not limited to, the
following:
Geologic studies and interpretation
Seismic data processing
Well log analysis, correlation and interpretation
Well test analysis and interpretation
Laboratory services
Well site geology
Project engineering
Source rock analysis
Petrophysical analysis
Geochemical analysis
Drilling supervision
Development evaluation
Accounting and professional services
Other data processing
Costs shall include salaries and wages of such technical and
professional personnel, lost time, governmental assessments, employee
benefits, and expenses which are considered reasonable in accordance
with the Contractor's and its Affiliates' usual practice. Costs shall
also include all support costs necessary for such technical and
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professional personnel to perform such services, such as, but not
limited to, rent, utilities, administration, support staff, drafting,
telephone and other communications expenses, computer support,
supplies, and depreciation. Where the work is performed outside the
home office base of such personnel, the daily rate shall be charged
from the date such personnel leave the home office base where they
usually work up to their return thereto, including days which are not
working days in the location where the work is performed, excluding any
holiday entitlements derived by such personnel from their employment at
their home office base.
3.8 INSURANCE
Premiums paid for insurance required by law or the Contract to be
carried for the benefit of the Petroleum Operations. If the insurance
is for the benefit of operations in addition to the Petroleum
Operations the premiums paid shall be allocated to the operations
covered on an equitable basis.
3.9 DAMAGES AND LOSSES TO PROPERTY
3.9.1 All costs or expenditures necessary to replace or repair any
damages, losses incurred by fire, flood, storm, theft,
accident, or any other cause. Operating Company shall maintain
written documentation of damages or losses.
3.9.2 Expenditures incurred in the settlement of all losses, claims,
damages, judgements, and other expenses for the account of
Petroleum Operations.
3.10 LITIGATION AND LEGAL EXPENSES
The Costs and Expenses of litigation and legal services necessary for
the protection
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of the Petroleum Operations under this Contract as follows:
Legal Services necessary or expedient for the protection of the
Petroleum Operations, and all Costs and Expenses of litigation,
arbitration or other alternative dispute resolution procedure,
including, but not limited to, lawyers' fees and expenses, court costs,
cost of investigation of procuring evidence, together with all
judgements obtained against the Parties or any of them arising from the
Petroleum Operations.
3.11 TAXES AND DUTIES
All Taxes, duties, assessments and charges, of every kind and nature
(except for the Profit Tax, Mineral Usage Tax and VAT unless the
provisions of Clause 17.22.1 of the Contract apply) assessed or levied
upon or in connection with the Petroleum Operations.
If the Contractor or an Affiliate is subject to withholding tax as a
Foreign Subcontractor as a result of services performed for Petroleum
Operations under the Contract, its charges for such services may be
increased by the amount of such taxes incurred.
3.12 ABANDONMENT AND SITE RESTORATION
3.12.1 Any costs and expenditures in relation to abandonment and site
restoration prior to the cessation of Petroleum Operations in
any part of the Contract Area.
3.12.2 Any payments in accordance with the funding procedure
described in Article 9.7 of the Contract shall be charged to
the Petroleum Operations Account.
3.13 ENERGY EXPENSES
All costs of fuel, electricity, heat, water or other energy used for
Petroleum Operations.
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3.14 COMMUNICATION CHARGES
The costs of acquiring, leasing, installing, operating, repairing and
maintaining communications systems.
3.15 FINANCE COSTS
All Finance Costs
3.16 CO-ORDINATION COMMITTEE
All costs and expenditures incurred with respect to the activities of
the Co-ordination Committee pursuant to Article 6 of the Contract.
3.17 COSTS AND EXPENDITURE NOT TO BE TREATED AS COSTS AND EXPENSES
The following costs and expenditures shall not be included in the Costs
and Expenses recoverable under Article 11: -
3.17.1 Profit Tax paid in accordance with Article 17 of the Contract;
3.17.2 Any payment made to the State by reason of the failure of the
Contractor to fulfil the minimum expenditure obligations under
Article 8 of the Contract;
3.17.3 The cost of any letter of guarantee required under the
Contract;
3.17.4 Costs incurred before the Effective Date except as provided in
Article 11.2 of the Contract;
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3.17.5 Costs of marketing or transportation of Petroleum beyond the
Measurement Point except as otherwise provided in this
Contract;
3.17.6 Attorney's fees and other costs of proceedings in connection
with arbitration under Article 30 of the Contract or as
provided in the Contract or this Accounting Procedure and all
fees relating to a Sole Expert determination under Article
30.9, which shall be borne by the losing Dispute Party in
full;
3.17.7 Fines and penalties imposed under the laws of Georgia.
3.17.8 Payments which violate the laws of Georgia.
3.17.9 Costs occasioned by Wilful Misconduct of the Contractor, its
Affiliates or Subcontractors.
3.18 CREDITS
The Contractor will credit to the Petroleum Operations Account the
proceeds, other than proceeds from the sale of Petroleum, received from
Petroleum Operations of transactions, including, but not limited to,
the following:
3.18.1 Any successful insurance claim in connection with Petroleum
Operations where the claim is with respect to operations or
assets which were insured and where the insurance premiums
with respect thereto have been charged to the Petroleum
Operations Account.
3.18.2 Any successful claim in connection with Petroleum Operations
where the costs and expenditures relating to the subject of
the claim have been charged to the Petroleum Operations
Account.
3.18.3 The sale, exchange or salvage of Material and Equipment
previously charged to Petroleum Operations Account will be
credited to the
148
Petroleum Operations Account less any expenses associated with
the disposition of the Material and Equipment. Material and
Equipment transferred to the Contractor or an Affiliate will
be credited to the Petroleum Operations Account at fair market
value.
3.18.4 Legal costs charged to the Petroleum Operations Account and
subsequently recovered by the Contractor.
3.18.5 Revenue received from Third Parties for the use of property or
assets the cost of which has been charged to the Petroleum
Operations Account.
3.18.6 Any adjustment received by the Contractor from the suppliers
or manufacturers or their agents in connection with a
defective material the cost of which was previously charged by
the Contractor to the accounts under the Contract.
3.18.7 Rentals, refunds, including refunds of taxes paid, or other
credits received by the Contractor which apply to any charge
which has been made to the accounts under the Contract, but
excluding any award granted to the Contractor under
arbitration or Sole Expert proceedings referred to in Article
30 of the Contract.
3.18.8 Prices originally charged to the accounts under the Contract
for materials subsequently exported from Georgia without being
used in Petroleum Operations under the Contract.
3.18.9 The sale or license of any intellectual property the
development costs of which were incurred pursuant to the
Contract.
3.18.10 The sale, exchange, lease, hire, transfer or disposal in any
manner whatsoever of any other item the costs of which have
been charged to the Petroleum Operations Account.
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3.19 DUPLICATION OF CHARGES AND CREDITS
Notwithstanding any provision to the contrary in this Accounting
Procedure, there shall be no duplication of charges or credits to the
Petroleum Operations Account.
3.20 OTHER EXPENDITURES
Any other costs and expenditures incurred by the Contractor for the
necessary and proper conduct of the Petroleum Operations in accordance
with approved Work Programmes and Budgets and not covered in this
Section III of this Accounting Procedure may be charged to the
Petroleum Operations Account.
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SECTION IV
INVENTORIES
4.1 Periodic Inventories, Notice and Representation
At reasonable intervals as determined by the Co-ordination Committee
inventories shall be taken by the Contractor of all Controllable
Material, which shall include materials, physical assets and
construction projects. Written notice of intention to take inventory
shall be given by the Contractor to the Co-ordination Committee at
least thirty (30) Days before any inventory is to begin.
4.2 RECONCILIATION AND ADJUSTMENT OF INVENTORIES
Reconciliation of inventory shall be made by the Contractor and
adjusted by the Contractor as determined by the Co-ordination
Committee.
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SECTION V
FINANCIAL REPORTS
5.1 ACCOUNTS OF PETROLEUM OPERATIONS
The Contractor shall submit to Georgian Oil by March 15 following each
Calendar Year accounts in accordance with this Accounting Procedure.
5.2 STATEMENT FOR RECOVERY OF COSTS AND OF COST RECOVERY PETROLEUM
The Contractor shall render to State Agency and Georgian Oil as
promptly as practical but not later than forty five (45) Days after the
end of the last Calendar Quarter in which the date of commencement of
Commercial Production first occurs, and not later than forty five (45)
Days after the end of each succeeding Calendar Quarter, a Calendar
Quarter Cost Recovery report and Calendar Quarter Profit Petroleum
division report showing:
5.2.1 Costs and Expenses carried forward from the previous Calendar
Quarter, if any;
5.2.2 Costs and Expenses incurred during the Calendar Quarter;
5.2.3 Total recoverable Costs and Expenses for the Calendar Quarter
(sum of 5.2.1 plus 5.2.2);
5.2.4 Volume and value of Cost Recovery Petroleum taken and
separately disposed of by the Contractor for the Calendar
Quarter;
5.2.5 Amount of Costs and Expenses actually recovered for the
Calendar Quarter;
5.2.6 Amount of recoverable Costs and Expenses to be carried forward
into the succeeding Calendar Quarters if any;
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5.2.7 Excess, if any, of the value of Cost Recovery Petroleum taken
and separately disposed of by the Contractor over recoverable
Costs and Expenses for the Calendar Quarter;
5.2.8 The value and volume of Petroleum produced, Petroleum used in
Petroleum Operations and Petroleum available for lifting and
actually lifted by Parties during the Calendar Quarter; and
5.2.9 Profit Petroleum allocated to the Contractor and Georgian Oil
during the Calendar Quarter.
5.3 PAYMENTS
If such statement shows an amount due to a Party, payment of that
amount shall be made in US$
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SECTION VI
CONTROL AND MAJOR ACCOUNTS
6.1 COST RECOVERY CONTROL ACCOUNT
The Contractor may establish a cost recovery control account and an
offsetting contract account to control therein the amount of cost
remaining to be recovered, if any, and the amount of cost recovered.
6.2 MAJOR ACCOUNTS
For the purpose of classifying costs, expenses and expenditures for
cost recovery, costs, expenses and expenditures shall be recorded in
major accounts, including, but not limited to, the following:
(a) Exploration Costs
(b) Development and Production Costs.
(c) Operating Costs
(d) Finance Costs
Any other necessary sub-accounts shall be used.
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ANNEX D
ADDRESSES FOR SERVICE
State Agency for Regulation of Oil & Gas Resources:
Head of Agency
State Agency for the Regulation of Oil & Gas
Resources
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Fax: ▇▇▇▇-▇▇-▇▇▇-▇▇▇
JSC National Oil Company Saknavtobi:
The General Director
Georgian Oil
Georgia,
Tbilisi 380015,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇
Fax: ▇▇▇▇-▇▇-▇▇▇-▇▇▇
National Petroleum Limited
[Details to be added when
Representative Office has been set up]
155
ANNEX E
OPERATING COMPANY CHARTER
156
REGISTERED BY THE DECREE NO ________________
OF THE DISTRICT COURT OF ____________
ON __________________ 2001
CHARTER
OF THE
LIMITED LIABILITY COMPANY
IORIS VALLEY OIL AND GAS LIMITED
Tbilisi May 2001
157
CHARTER
TABLE OF CONTENTS
ARTICLE 1 GENERAL PROVISIONS
ARTICLE 2 PURPOSE AND SUBJECT OF ACTIVITIES OF THE COMPANY
ARTICLE 3 PARTNERS OF THE COMPANY
ARTICLE 4 CHARTER CAPITAL OF THE COMPANY
ARTICLE 5 LEGAL STATUS OF THE COMPANY AND THE PARTNERS
ARTICLE 6 MEETING OF THE PARTNERS
ARTICLE 7 THE DIRECTORATE
ARTICLE 8 ANNUAL AND QUARTERLY RESULTS AND DISTRIBUTION OF PROFITS
ARTICLE 9 TERMINATION OF THE COMPANY
ARTICLE 10 SETTLEMENT OF DISPUTES
ARTICLE 11 FINAL PROVISIONS
158
CHARTER
OF
THE LIMITED LIABILITY COMPANY IORIS VALLEY OIL & GAS
ARTICLE 1
GENERAL PROVISIONS
1.1 Name of the Company
In Georgian: __________
In English: Ioris Valley Oil & Gas Ltd
1.2 Address of the Company:
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇.
1.3 The Company's fiscal year shall be the calendar year. The period from
the moment of registration to December 31, 2001 shall be an incomplete
fiscal year.
1.4 The Company shall exist for the term of the PSC and Licence.
1.5 The Company is a legal person under the legislation of Georgia. The
Company is entitled to acquire, use and dispose of on its own behalf
property and individual non-property rights, to act as plaintiff and
defendant in arbitration, trial, appellate and other courts, and have
its seal with the Company name.
1.6 The Company activities shall be regulated by Georgian and international
law; other agreements between and among the Partners, the Company and
third parties; and this Charter.
1.7 The Company's liability to creditors shall be limited to its assets and
that of the Partners' to their share in the Charter Capital. Use of the
term "partners" is meant
159
only to be consistent with use of the term in the Georgian Law on
Entrepreneurs with respect to limited liability companies and shall not
be construed as creating a partnership under the laws of Georgia or any
other jurisdiction. Ioris Valley Oil & Gas is a limited liability
company.
1.8 Georgian and English shall be the official working languages of the
Company.
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ARTICLE 2
PURPOSE AND SUBJECT OF ACTIVITIES OF THE COMPANY
2.1 During Petroleum Operations, the Company shall act as a non-commercial
agent. The purpose of the Company is to hold in its name, the license
for the Samgori - Patardzeuli block and to carry out activities in the
areas of oil and gas exploration, development and production on behalf
of the Contractor in connection to the latter's Production Sharing
Contract signed on _________ with NPL, Joint Stock National Oil Company
Saknavtobi and the State Agency for the Regulation of Oil and Gas
Resources. It has no title to ownership of the produced oil or gas and
hence no right to sell any of the oil or gas so produced.
2.2 The subject activities of the Company are any business activity not
prohibited by law, subject to proper licenses and approvals from the
government, including but not limited to:
2.2.1 Exploration, development, production and transportation of oil
and gas, including the construction of field and processing
facilities, in Georgia;
2.2.2 purchase, execute lease or exchange, hire or otherwise acquire
and hold any estate or interest in any lands, buildings,
easements, rights, privileges, concessions, designs,
copyrights, patents, patent rights, licenses, processes,
machinery, plant, and any real or personal property of any
kind necessary or convenient for the purposes of or in
connection with the Company's business;
2.2.3 guarantee obligations and contracts;
2.2.4 engage in training, servicing and all other activities related
to the business of the Company; and
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2.2.5 do all or any of the above things, either as principals,
agents, trustees, contractors or otherwise, and either alone
or in conjunction with others, and either by or through
agents, trustees, sub-contractors or otherwise.
2.3 The Company shall operate on a cost reimbursement basis, in accordance
with the Cost Reimbursement Agreement.
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ARTICLE 3
PARTNERS OF THE COMPANY
The Partners of the Company are:
3.1 National Petroleum Ltd ("NPL"), registered under the laws of Bermuda
Registration No.,
Address: Bank of Bermuda Building
Front Street
▇▇▇▇▇▇▇▇,
Bermuda
3.2 Georgian Oil, registered under the laws of Georgia,
Registration No.,
Address: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇
Georgia
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ARTICLE 4
CHARTER CAPITAL OF THE COMPANY
4.1 The Charter Capital of the Company registered in 1995 was $10 million.
4.2 Each of the Partners had the following interest in and contribution to
the Charter Capital:
NPL: $5 million, i.e. 50% of the Charter Capital
GEORGIAN OIL: $5 million, i.e. 50% of the Charter Capital
4.3 Partners' interests in the charter capital are reflected in the Charter
and in the Enterprise Register kept at the registering district court.
4.4 If a Partner exceeds the time limit set for the making of his
contribution, another Partner may demand in writing that he makes his
contribution, specifying a new time limit and warning that he may be
expelled from the Company. Any additional time period shall be no less
than one month.
In case of failure to meet the above deadline, the Partner whose
contribution is overdue shall lose his share and shall not be entitled
to any profits or benefits earned as a result of his partially
performed obligation. He shall be informed of the above in writing.
4.5 The contribution to the Charter Capital is considered to be the
Company's property. The return of the contribution shall be allowed
only by way of decreasing the Charter Capital, which shall be duly
reflected in the Charter. The decrease of the Charter Capital shall be
registered in the Entrepreneurs' Register at the court.
4.6 In case the amount of the Charter Capital becomes less than the minimum
amount established by the law (currently two thousand (2,000) Lari), it
shall be urgently replenished up to the established minimum amount.
4.7 None of the Partners shall have any special rights to use any assets
which are regarded as property of the Company.
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ARTICLE 5
LEGAL STATUS OF THE COMPANY AND THE PARTNERS
5.1 In accordance with the terms of this Charter, the Company shall have
the right to:
5.1.1 execute agreements on its own behalf;
5.1.2 establish affiliates within and outside Georgia in accordance
with applicable legislation;
5.1.3 own, use and dispose of its assets in accordance with Georgian
legislation and the purposes of the Company;
5.2 In accordance with the terms of this Charter and subject to article 5.5
below, every Partner of the Company or his duly authorised
representative shall have the right to:
5.2.1 participate in the Meetings of the Partners;
5.2.2 have one vote per each percentage of ownership at the Meeting
of the Partners;
5.2.3 receive a copy of all operating and financial reports, budgets
and any documents generated by the Company;
5.2.4 verify the accuracy of all reports and for this purpose
examine documents in person or have them examined by
independent auditors and demand explanation from management
before approval of any reports;
5.2.5 have free access to all operations, facilities, personnel and
documents of the Company;
5.2.6 partners whose shares in the Company jointly or severally
amount to 5% of the Charter Capital shall have the right to
convene an extraordinary meeting of partners if it is in the
interest of the Company. Such request
165
shall be in writing to the Director and state reasons. If the
extraordinary meeting is not held within 8 days, it can be
caused by the Partners;
5.2.7 receive dividends in proportion to share ownership, except as
otherwise agreed; and
5.2.8 in case of the Company's liquidation, receive the assets of
the Company in proportion to share ownership after covering
the Company's debts.
5.3 Any action in respect to a Partner's share or part thereof, such as
assignment. mortgaging, transfer of title, or any other similar action
shall be allowed only if approved by the Meeting of the Partners.
In case of assignment or alienation by a Partner of his share, the
agreement shall be notarised.
5.4 Each Partner shall undertake to do the following except as otherwise
agreed:
5.4.1 to make timely payments of their respective contributions to
the Charter Capital in the manner and on the dates determined
herein and by future decisions of the Meeting of the Partners;
5.4.2 not to disclose confidential information concerning the
operation of the Company to third parties, unless approved by
the Meeting of the Partners;
5.4.3 to discharge his assumed responsibilities (i.e., being a board
member) with diligence and in time;
5.4.4 to effect additional inputs (i.e. additional capital
injections) as may be decided by the Meeting of the Partners;
5.4.5 to comply with the provisions of the Charter and decisions of
the Meeting of Partners; and
5.4.6 except as may be provided in this Charter, not to incur any
debts, liabilities, or obligations on behalf of the Company.
Any unauthorised act of a Partner and/or of any of the
Company's agents, shall not bind the Company.
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ARTICLE 6
MEETINGS OF THE PARTNERS
6.1 The highest governing body of the Company shall be the Meeting of the
Partners. The Meeting of the Partners shall determine the general
business policy of the Company, as well as the Company's principal
guidelines, activities and structure. Partners are expected to
personally attend meetings. If a Partner is unable to attend the
Meeting in person, he may vote on any matter on the agenda for such
meeting by appointing a proxy by written notice to the Chairman of the
Meeting prior to the Meeting or by giving notice of his actual vote on
the matter in writing to the Chairman before the Meeting.
6.2 The Meeting of the Partners shall be held as necessary, but not less
than once per year. The Meeting of the Partners will be held at the
registered address of the Company unless otherwise agreed by the
Partners.
6.3 The Meeting of the Partners shall be convened by the Directorate (as
defined in Article 7) which shall notify the Partners of the meeting
and the draft agenda not later than 8 days prior to the Meeting. Upon
receipt of the notice related to the Meeting, a Partner may, within
five days, introduce changes and/or amendment to the draft agenda of
the Meeting. In the beginning of the Meeting, Partners may vote on
individual issues to be included in the agenda.
6.4 Any person attending the Meeting of the Partners in any capacity is
bound by the same rules regarding maintenance of confidentiality and
disclosure of interest which bind the Partners.
6.5 The Directorate is responsible to convene immediately the Meeting of
the Partners if it is in the interest of the Company, provided that any
notice given under this article shall give the Partners sufficient time
to travel to such meeting.
6.6 The Directorate and a Partner whose shares amount to at least 5% of the
Charter Capital shall be entitled to demand an extraordinary meeting of
the Partners by specifying the purpose and grounds for such meeting and
addressing it to the other Partners.
167
6.7 A Meeting shall be entitled to decision-making only if it is attended
by the Partners holding more than 50% of the voting rights.
Notwithstanding the foregoing, the following matters are deemed to be
outside the routine operations of the Company and require the
attendance of all Partners that have the right to vote:
(i) amendments to the Charter;
(ii) changes in the Charter Capital or shares therein;
(iii) approval of a competent, properly certified auditor to conduct
auditing activities required by law;
(iv) reorganisation, merger, liquidation or alienation of the
Company or substantially all of its assets;
(v) appointment and release of Directors, the Chief Geologist and
the Chief Accountant:
(vi) representing the Company in legal proceedings against
Directors.
6.8 Each Partner must cast all its votes as a block and may not divide its
votes on any matter.
6.9 The decisions of the Meeting of the Partners shall be adopted by a
simple majority vote.
6.10 The annual, as well as extraordinary Meeting of the Partners need not
be held if each Partner which has the right to vote, gives a written
consent with regard to the issue under consideration. If any Partner is
against such a procedure, an actual Meeting of the Partners shall be
held to discuss the matter.
6.11 The Meeting of the Partners shall be presided over by the Chairman of
the Meeting. The representative of NPL shall serve as Chairman of the
meeting in the first year and the representative of Georgian Oil shall
serve as Chairman of the meeting in the second year, thereafter
alternating on an annual basis.
6.12 After any and all Meetings of the Partners at which a decision is
adopted, minutes shall be recorded, signed by the Chairman of the
Meeting, and sent to all Partners.
The minutes shall indicate the place, date and time of the Meeting of
the Partners, the list of participating Partners and guests, the
agenda, the issues under consideration,
168
the decisions of the Meeting of the Partners and any special opinion of
a Partner.
Partners shall confirm their approval or disapproval of the Minutes
within thirty days of receipt thereof.
169
ARTICLE 7
THE DIRECTORATE
7.1. The Company shall be managed and represented by the Directorate. The
Directorate shall be responsible for the managing and the supervising
the day-to-day operations of the Company according to the direction of
the Meeting of the Partners.
7.2. The members of the Directorate shall consist of:
- A General Director
- A Deputy General Director
- A Technical Director
- A Finance Director
7.3 The General Director shall be authorised to carry out and be
responsible for the following, within the framework of the decisions of
the Partners, the provisions of this Charter and the applicable
legislation:
7.3.1 Subject to any limitation in the Charter, to represent the
Company in its dealings with outside parties and to conclude,
without a power of attorney, contracts and other obligations
on behalf of the Company. The conclusion by the Company of any
transaction or a set of related transactions outside the
procedures in the Cost Reimbursement Agreement shall require
the approval of the Partners. The aforementioned limit may be
changed by the decision of the Partners;
7.3.2 To manage and dispose of the property of the Company in the
ordinary course of business;
7.3.3 To ensure the fulfilment of the policies and directives of the
Partners.
7.3.4 Implement the decisions of the Partners within the frame work
of this Charter and the applicable legislation.
7.4 The Partners shall appoint a bookkeeper or accountant who, under the
supervision of
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the Directorate shall be responsible for developing financial reporting
and control systems in order to allow the Partners to monitor
efficiently the financial status and results of the Company. The
Directorate shall be responsible for ensuring proper record-keeping and
payment with respect to taxes, customs, charges, levies or fees imposed
by the authorities and for keeping abreast of all changes in official
legislation or regulations relevant to the Company's finances,
accounting, reporting and payment obligations.
7.5 The Directorate shall ensure that unaudited quarterly financial
statements are prepared and submitted to the Partners for approval
within the time frame set by the Partners. In addition, the Directorate
shall ensure that audited annual financial statements are prepared
according to GAAP or IAS, consisting of balance sheet, income
statement, and cash flow statement, and are submitted to the Partners
for approval no later than ten weeks after the end of the fiscal year
covered.
7.6 Every year, on a day to be determined by the Meeting of the Partners,
the Directorate shall submit to the Meeting of the Partners the
proposed capital and operating budgets for the subsequent year to be
approved by the Partners.
7.7 Without prior consent of the Partners, the Directorate shall not be
entitled to conduct separately the same activities as those of the
Company or to take part in the activities of companies of the same
type.
7.8 The members of the Directorate shall conduct the activities of the
Company in good faith and in accordance with the governing law and this
Charter, as well as in accordance with the decisions of the Meeting of
the Partners.
7.9 The members of the Directorate shall comply with the rules and
regulations of the Company and shall conduct all activities which
require the prior consent of the Meeting of the Partners only upon
their agreement.
7.10 The Directorate shall provide the Partners information on the
day-to-day operations of the Company as requested.
7.11 The following actions of the Directorate require prior approval of all
Partners. Such approval shall be obtained by a Meeting of the Partners
or by written decision:
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7.11.1 acquisition (including construction), or lease of tangible or
intangible capital property;
7.11.2 alienation and encumbrance of real estate and any other
immovable or movable;
7.11.3 participation in any other ventures, as well as creation and
liquidation of branches;
7.11.4 execution of license, supply or operating agreement, and all
other agreements with other enterprises, concerning the
provision of oil and gas and their products
7.11.5 annual budget, strategic and business plans, the planned
balance, and the profit and loss balance-sheet, as well as the
investment plan;
7.11.6 the establishment of long-term (more than 6 months) binding
relations with third parties or the adoption of financial
commitments (i.e. purchase contracts) which exceed monetary
limits set above or by the Meeting of the Partners;
7.11.7 liabilities arising from long-term (more than 6 months)
obligations;
7.11.8 obtain loans and credits or assumption of indebtedness which
exceed the amount to be determined by the Meeting of the
Partners;
7.11.9 guarantee loans and credits;
7.11.10 any new investment activity;
7.11.11 disclosure of annual budgets, quarterly and annual financial
statements, or any other report to third parties, except as
required by proper government authorities;
7.11.12 selection of banks for local and foreign accounts and for
effecting any transaction;
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7.11.13 issuance and annulment of "powers-of-attorney", with the
exception of routine specific authorisations;
7.11.14 instalment of internal controls and procedures; and
7.11.15 any other actions which go beyond normal operational
activities and of equal importance to the above in this
article 7.11, shall be determined by the Meeting of the
Partners.
7.12 The Meeting of the Partners may adopt further rules and regulations of
the Company with a view to fully determine the rights, obligations,
scope of competence and authority of the Directorate.
7.13 The Directorate shall have custody of the Corporate Seal of the Company
and shall affix and attest the same to all instruments requiring it and
shall act so within the scope of authority as determined by the Meeting
of the Partners.
7.14 In case of violation of duties, the members of the Directorate shall be
held personally liable before the Partners for the losses incurred.
Individual members of the Directorate may prove that there was no
violation of duties on their part and be relieved of such
responsibility.
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ARTICLE 8
ANNUAL AND QUARTERLY RESULTS AND DISTRIBUTION OF PROFITS
8.1 The unaudited quarterly and audited annual financial statements and
reports shall be prepared under the supervision of the Directorate for
submission to the Partners. Quarterly reports shall be submitted within
the time frame set by the Meeting of the Partners and annual reports
not more than 10 weeks after the end of the fiscal year covered. The
quarterly and annual reports shall be approved by the Meeting of the
Partners.
8.2 The Directorate shall be responsible for producing and maintaining
proper books, accounts and reports in compliance with Georgian law and
International Accounting Standards (IAS) or Generally Accepted
Accounting Principles (GAAP).
8.3 The books of the Company shall be annually audited by independent
auditors appointed by the Meeting of the Partners. All charges for the
services and expenses related to the above auditing shall be paid by
the Company.
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ARTICLE 9
TERMINATION OF THE COMPANY
9.1 The Partners may agree by majority vote to liquidate the Company.
9.2 The Partners may agree by majority vote to reorganise the Company
(merger, amalgamation, division, transformation).
9.3 Liquidation of the Company pursuant to this Article shall be
implemented by the Directorate. Upon the request of one of the
Partners, liquidators may be appointed by the court in whose
jurisdiction the Company is located. The court shall be entitled to
appoint a liquidator who is not the Director.
9.4 The property of the liquidated company, after the repayment of debts,
shall be distributed between the Partners in proportion to their share
in the Company. The distribution shall be made only upon the expiration
of a one year period. This period shall begin from the date when the
creditors were informed about the liquidation by way of publication and
notices no less than three times.
The distribution of property may be effected by the court prior to the
expiration of a one year period, if the prevailing situation creates no
risk to creditors.
9.5 If a dispute arises between the Partners during the distribution of
property, the liquidator shall stop the distribution until the dispute
is legally settled.
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ARTICLE 10
SETTLEMENT OF DISPUTES
10.1 Dispute between the Partners, arising out of or in connection with this
Charter or the interpretation hereof, shall be settled amicably by the
Partners themselves. If the dispute cannot be resolved in this manner
within 30 calendar days after first conferring, or such further period
as the Partners shall agree in writing, then the dispute shall be
finally settled by arbitration.
Arbitration shall take place at the Arbitration Institute of the
Stockholm Chamber of Commerce in accordance with the UNCITRAL rules of
arbitration. Each party to the dispute may appoint one arbitrator, and
the arbitrators so appointed shall agree on an additional arbitrator to
serve as Chairman. All arbitrators shall be selected from the list
maintained by the Institute. The language of the proceedings shall be
the official language of the location where the arbitration shall be
held, except that the proceedings shall be in English if the
arbitration is held in Stockholm.
10.2 All decisions of the Court of Arbitration shall be final and binding on
the Partners.
10.3 Neither the existence of any dispute, controversy or claim, nor the
fact that arbitration is pending hereunder, shall relieve any of the
Partners of its obligation under this Charter.
10.4 Without prejudice to this Article 10, the Partners shall have the right
at their discretion to initiate legal actions against the Directorate
in the Georgian courts or any such jurisdiction as it deems necessary.
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ARTICLE 11
FINAL PROVISIONS
11.1 No amendment to this Charter shall be effected unless notarised and
duly registered in the court where the Company is registered.
11.2 If any provisions of this Charter shall be invalid, the validity of the
Charter as a whole shall not in any way be affected.
11.3 Any notice required to be given by the Company to any person ("the
recipient") under these articles may be given by means of hand delivery
or international courier post to the address or number of the recipient
notified to the Company by the recipient for such purpose (or, if not
so notified, then to the address or number of the recipient last known
to the Company). Any notice so given shall be deemed, in the absence of
any agreement to the contrary between the Company and the recipient, to
have been served at the time of delivery (or, if delivery is refused,
then when tendered) and delivery shall be deemed to have occurred no
later than 10 days after dispatch in the case of international courier
post and at the expiration of 24 hours after dispatch in the case of
hand delivery.
Delivery may be made by facsimile only if the Partners agree in writing
that they may receive notice by that method.
11.4 The communications addresses of the Partners for any notice sent under
this agreement are as follows:
National Petroleum Ltd
Telephone:
Facsimile:
Georgian Oil
Kostava ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
Telephone:
Facsimile:
177
11.5 This Charter is being executed in Georgian and English and the two
versions shall be certified as exact translations. The Georgian version
is official and determinative for all business before the Georgian
government, or any subdivision thereof, and in the event of arbitration
or litigation in a Georgian forum. The English version shall prevail,
however, in the event of any arbitration or litigation conducted
outside of Georgia.
Signed:
National Petroleum Limited
____________
____________, Founding Partner
Georgian Oil
______________
______________, Founding Partner
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ANNEX F
PRIOR COSTS AND EXPENSES
The Parties agree that $US 33,710,454 have been incurred as Costs and Expenses,
less the value of cost recovered oil of $US623,997, for purposes of determining
the value of outstanding Cost Recovery Petroleum by NPL prior to 31 December
1998, as shown below:
SUMMARY OF COSTS AND EXPENSES
(IN THOUSANDS OF DOLLARS)
1995 1996 1997 1998 Total
------------------------------------------------------------------------------
CAPITAL EXPENDITURE
NPL 2,087.7 9,565.5 8,814.1 446.9 20,914.2
NPDL 912.6 679.7 981.1 214.0 2,787.4
OPERATING EXPENDITURE
Ioris Valley Oil & Gas 281.0 3,152.0 3,120.4 463.4 7,016.8
Salaries 526.6 1,128.8 1,209.1 421.0 3,285.5
------------------------------------------------------------------------------
Total Costs & Expenses 3,875.6 14,788.8 14,124.7 1,545.3 34,334.5
------------------------------------------------------------------------------
COST RECOVERY
Value of Recovered Oil (324.0) (300.0) (624.0)
------------------------------------------------------------------------------
Total 3,875.6 14,788.8 13,800.7 1,245.3 33,710.5
------------------------------------------------------------------------------
The figures for 1999, 2000 and the period 1st January to 29th May 2001 are still
subject to audit and will be assessed and agreed at the earliest opportunity.
179
ANNEX G
COST REIMBURSEMENT AGREEMENT
180
COST REIMBURSEMENT AGREEMENT
BETWEEN
NATIONAL PETROLEUM LIMITED
AND
IORIS VALLEY OIL AND GAS LTD
TBILISI MAY 2001
181
COST REIMBURSEMENT AGREEMENT
This Cost Reimbursement Agreement (this "Agreement"), dated as of ____________,
2001, is entered into by National Petroleum Limited, a company formed under the
laws of Bermuda ("Contractor") and Ioris Valley Oil and Gas Limited, a Limited
Liability Company formed under the laws of Georgia (the "Operating Company");
with the Contractor and the Operating Company collectively called the "Parties"
and each of them individually called a "Party").
RECITALS
A. The Operating Company, on behalf of the Contractor, may incur certain
Costs and Expenses (as defined below) in connection with the
development of the Project (as defined below). The Contractor and the
Operating Company now wish to set forth their understanding with
respect to the Operating Company's entitlement to reimbursement of
Costs and Expenses incurred as Costs and Expenses in Petroleum
Operations (as defined below) under the Production Sharing Contract (as
defined below).
B. It is not the intention of the Parties that the Operating Company shall
make either a profit or a loss as a consequence of the discharge of its
obligations under this Agreement
1 DEFINITIONS
The following words and terms shall have the following meanings:
1.1 "Authorisation for Expenditure" or "AFE" shall mean a document
submitted by the Operating Company showing the detailed breakdown of
Project activity (or other Petroleum Operations required by
Contractor), costs, manpower and timing, and duly approved.
1.2 "Business Day" means any day other than a Saturday, a Sunday, or a day
on which banks in Tbilisi, Geneva or London are authorised or required
by law to be closed.
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1.3 "Costs and Expenses" shall have the same meaning ascribed thereto in
Article 1.27 of the Production Sharing Contract.
1.4 "day" means a calendar day.
1.5 "dollars" or "$" means U.S. dollars.
1.6 "Petroleum Operations" shall have the same meaning ascribed thereto in
Article 1.63 of the Production Sharing Contract.
1.7 "Production Sharing Contract" shall have the same meaning ascribed
thereto in Article 1.21 of the Production Sharing Contract.
1.8 "Project" means the exploration appraisal, and the subsequent
development of any discovery, financing, construction, ownership,
maintenance, and operation of such facilities by or on behalf of
Contractor (or carried out by the Operating Company on its behalf)
under the Production Sharing Contract.
1.9 "Project Contracts" means any agreements to which the Operating Company
is or will be a party that are approved in advance by Contractor
including:
(i) agreements relating to the provision of goods and services in
Petroleum Operations;
(ii) the agreement or agreements under which one or more
contractors will design, procure, construct, complete, test,
commission, perform and remedy defects in the Project;
(iii) the agreement under which a service company will provide
operating and maintenance services to the Operating Company in
connection with the Project;
(iv) the agreement or agreements under which the Operating Company
will acquire title to the sites for the Project or will be
granted leasehold title in those sites;
(v) any other agreement with another Person for the exploration,
development
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construction, operation, maintenance of the Project,
1.10 "Project Manager" means the individual assigned to supervise the
design, implementation and completion of a Project and to control its
costs.
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2 RIGHTS AND COSTS
2.1 APPROVAL OF COSTS & EXPENSES. All Costs and Expenses to be incurred by
the Operating Company for Petroleum Operations under the Production
Sharing Contract shall be shall be submitted as AFEs by the Operating
Company for approval by the Contractor. The Operating Company agrees
not to negotiate, contract, or incur any liability other than Costs and
Expenses for Petroleum Operations approved through an AFE by
Contractor.
2.2 TRANSFER OF RIGHTS Project Contracts entered into by the Operating
Company shall be executed by the Operating Company, and all data,
engineering and other information relating to the Project will be
developed for the benefit of Contractor, subject to Oil & Gas Law of
Georgia..
2.3 The Operating Company shall have no claim against Contractor in respect
of any service or product provided hereunder
3. REIMBURSEMENT OF COSTS AND EXPENSES
REIMBURSEMENT GENERALLY To the extent Contractor approves the AFEs in
Article 2.1, Operating Company shall be entitled to reimbursement or to
have Contractor discharge the payment under any Project Contract or
other Petroleum Operations required by Contractor. It is understood
that the Operating Company shall neither gain or lose from providing
services or entering into Project Contracts as required by Contractor.
Contractor shall not be liable to pay, and Operating Company
indemnifies Contractor against, any expense, liability or Costs and
Expenses the Operating Company becomes liable for, that have not been
approved by Contractor in accordance with Article 2. Operating Company
covenants with Contractor that it will only undertake activities and
perform Petroleum Operations that have been approved by the
Coordination Committee.
3.2 PAYMENT OF REIMBURSEMENT Prior to the commencement of each phase of a
Project
185
(or other Petroleum Operations required by Contractor) and following
the approval of the AFE, Contractor shall advance sufficient funds to
the Operating Company, up to the amount specified in the AFE, for the
Operating Company to implement the Project under the supervision of the
Project Manager. The Contractor may elect to discharge some or all of
the payments itself.
Should it appear that the Project cost is likely to exceed the AFE and
the sum advanced, the Project Manager shall prepare and submit a
supplementary AFE explaining the reasons for the cost increase and
detailing the additional costs and, if necessary, timing changes.
Subject to approval of the supplementary AFE, the Contractor will
advance sufficient funds to the Operating Company for it to continue
with the Project.
At the completion (or at such other time as Contractor may require) of
each phase of a Project or other Petroleum Operations required by
Contractor, the Operating Company shall submit details of expenditure
to Contractor for Costs and Expenses incurred through each phase of the
Project (or for other Petroleum Operations required by Contractor) as
applicable to the AFE.
In the event that the expenditure is less than the sum advanced by the
Contractor, the Operating Company shall reimburse the difference to the
Contractor within 30 days of making the expenditure, or at such other
time as Contractor may require. The Contractor may opt to carry forward
such reimbursements.
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4. RESOLUTION OF DISPUTES
4.1 ARBITRATION If any dispute or claim between Contractor and the
Operating Company (in this Section 4.1, each a "disputing party")
arising out of this Agreement or the rights and duties of the
Contractor and the Operating Company arising out of this Agreement (in
this Section 4.1, a "claim") has not been resolved by mutual agreement
on or before the 30th day following the first notice of the subject
matter of the claim to or from the disputing parties, then any
disputing party may refer the claim to arbitration under the following
provisions:
(i) To refer a claim to arbitration, a disputing party must
provide notice to the other disputing parties stating (a) a
general description of the claim and (b) that the claim is
being referred to arbitration under this Section 4.1. (the
"Notice").
(ii) The disputing parties shall endeavour to agree promptly on a
panel of three arbitrators. If no agreement is reached within
30 days of receipt of the Notice either party may request the
panel of three arbitrators be appointed in accordance with the
rules of the International Chamber of Commerce.
(iii) The arbitration shall be conducted in London or such other
place as the disputing parties may agree. The arbitrators
shall set the date, the time, and the place of the hearing,
which must commence on or before the 30th day following the
designation of the third arbitrator. The hearing may be
adjourned to later times and dates as the arbitrators
determine. The arbitration shall be conducted under the rules
of the International Chamber of Commerce not inconsistent with
the provisions of this Agreement. The arbitrators shall
endeavour to notify any disputing parties not present of any
adjournment to other dates or places; however, the proceedings
may continue in the absence of any disputing party that has
received notice of the date, the time, and the place of the
initial session of the hearing. All hearings shall be
conducted in English.
(iv) The arbitrators shall endeavour to render their decision on or
before the 30th day following the last session of the hearing.
If the position of one or more disputing parties prevails,
then the other disputing party or parties shall pay all fees
and expenses of the arbitrators and the prevailing disputing
party in the arbitration. Each disputing party against which
the decision assesses a
187
monetary obligation shall pay that obligation on or before the
30th day following the decision or such other date as the
decision may provide.
(v) The decisions of the arbitrators are final and binding on all
disputing parties and are not subject to appeal. Without
limiting the provisions of Section 4.2, the decisions of the
arbitrators may be enforced in any court of competent
jurisdiction, and the disputing parties authorise any such
court to enter judgement on the arbitrators' decisions.
(vi) Each Party agrees that arbitration under this Section 4.1 is
the exclusive method for resolving any claim and that it will
not commence any action or proceeding based on a claim, except
to reinforce arbitrators' decisions as provided in section
4.1(v) or to compel the other Party to participate in
arbitration under this section 4.1.
4.2 JURISDICTION
(i) This Section 4.2 does not affect the limitations set forth in
Section 4.1 on commencing judicial proceedings, but may be
used to enforce arbitrators' decisions, to compel Parties to
participate in arbitration, or to compel Parties that have
brought judicial proceedings other than in compliance with
this Article 4 to dismiss those proceedings.
(ii) Any action arising out of this Agreement or the rights and
duties of the Parties arising out of this Agreement may be
brought, if at all, only in the courts of England and not in
any other jurisdiction, court or tribunal.
(iii) Each Party submits itself and its property to the personal
jurisdiction of the English courts in any such action. In this
connection, each Party waives any objection that now or in the
future it may have to the venue of any such action
188
and any right to assert that the court is inconvenient, and
agrees not to raise any such objection or assertion. A copy of
this Agreement may serve as evidence of this waiver.
189
5. MISCELLANEOUS PROVISIONS
5.1 NOTICES All notices, requests, or consents provided for or permitted to
be given under this Agreement must be in writing and are effective on
actual receipt by the intended recipient or by delivery to the address
or facsimile number for the recipient listed below:
To Contractor at:
Attn:
Fax No.:
To the Operating Company at:
Attn:
Fax No.
Any Party may change the address to which notices are to be directed to
it by notice to the other Parties in the manner specified above.
190
5.2 GOVERNING LAW. This Agreement and the rights and duties of the Parties
arising out of this Agreement shall be governed by and construed in
accordance with the laws of England.
5.3 FURTHER ASSURANCES Each Party shall procure all acts, matters, and
things and the execution or signature of all other and further deeds
and documents to give full effect to the provisions of this Agreement.
5.4 ASSIGNMENT The Operating Company may assign this Agreement only with
the consent of the Contractor. All the terms of this Agreement shall be
binding on and inure to the benefit of the Parties, their permitted
assigns and successors-in-interests.
5.5 ENTIRE AGREEMENT This Agreement supersedes all prior agreements and
undertakings, oral or written, between the Operating Company on the one
hand and the Contractor on the other with respect to the subject matter
of this Agreement.
5.6 AMENDMENT An amendment or modification of this Agreement shall be
effective or binding only if it is in writing and signed by the Parties
affected.
5.7 WAIVERS Any waiver, express or implied, by any of the Parties of any
right under this Agreement or of any breach by another Party shall not
constitute or be deemed as a waiver of any other right or any other
breach, whether of a similar or dissimilar nature to the right or
breach being waived. A waiver of a Party's rights under this Agreement
shall be effective only if that Party agrees.
5.8 LANGUAGE This Agreement has been drafted in English and Georgian; the
English version shall prevail over any translations.
191
5.9 NO THIRD PARTY BENEFICIARIES This Agreement is solely for the benefit
of the Parties and their respective successors and permitted assigns,
and this Agreement shall not otherwise be deemed to confer upon or give
to any other third party any remedy, claim, liability, reimbursement,
cause of action or other right.
5.10 SEVERABILITY If any of the provisions of this Agreement are held to be
invalid or unenforceable under the applicable law of any jurisdiction,
the remaining provisions shall not be affected in that jurisdiction,
and any such invalidity or unenforceability shall not invalidate or
render unenforceable that provision in any other jurisdiction. In that
event, the Parties agree that the provisions of this Agreement shall be
modified and reformed so as to effect the original intent of the
Parties as closely as possible with respect to those provisions that
were held to be invalid or unenforceable.
5.11 COUNTERPARTS This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which constitute but one agreement.
IN WITNESS WHEREOF, the Parties have entered into this Agreement as of the
day and year first above written.
National Petroleum Limited. Ioris Valley Oil & Gas Limited
By By
Name Name
Title Title
192