EXHIBIT 10(d)
INTERNATIONAL OPERATING AGREEMENT
GHK COMPANY COLOMBIA
Operator
DINDAL AREA,
DEPARTMENT OF CUNDINAMARCA,
REPUBLIC OF COLOMBIA
TABLE OF CONTENTS
ARTICLE PAGE
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I Definitions .......................................... 2
II Effective Date and Term ............................. 11
III Participating Interest ............................... 11
3.1 Participating Interest ........................ 11
3.2 Ownership, Obligations and
Liabilities .................................. 13
IV Operator . . . ....................................... 14
4.1 Designation of Operator ....................... 14
4.2 Rights and Duties of Operator ................ 14
4.3 Employees of Operator ........................ 17
4.4 Information Supplied by Operator .............. 17
4.5 Settlement of Claims and Lawsuits ............ 19
4.6 Liability of Operator.......................... 20
4.7 Insurance Obtained by Operator ................ 22
4.8 Commingling of Funds........................... 24
4.9 Resignation of Operator........................ 24
4.10 Removal of Operator............................ 24
4.11 Appointment of Successor ...................... 26
V Operating Committee .................................. 28
5.1 Establishment of Operating Committee........... 28
5.2 Powers and Duties of Operating
Committee ..................................... 28
5.3 Authority to Vote ............................ 29
5.4 Subcommittees ................................. 29
5.5 Notice of Meeting ............................. 30
5.6 Contents of Meeting Notice .................... 30
5.7 Location of Meetings .......................... 31
5.8 Operator's Duties for Meetings ................ 31
5.9 Voting Procedure .............................. 31
5.10 Record of Votes ............................... 32
5.11 Minutes ....................................... 32
5.12 Voting by Notice .............................. 32
5.13 Effect of Vote ................................ 34
VI Work Programs and Budgets ............................ 37
6.1 Exploration and Appraisal ..................... 37
6.2 Development ................................... 39
6.3 Production .................................... 41
6.4 Itemization of Expenditures ................... 41
6.5 Contract Awards ............................... 42
6.6 Authorization for Expenditure
("AFE") Procedure ............................. 44
6.7 Overexpenditures of Work Programs
and Budgets ................................... 46
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VII Operations By Less Than All Parties .................. 47
7.1 Limitation on Applicability ................... 47
7.2 Procedure to Propose Exclusive
Operations .................................... 47
7.3 Responsibility for Exclusive
Operations .................................... 50
7.4 Consequences of Exclusive Operations .......... 51
7.5 In-Kind Penalty................................ 52
7.6 Order of Preference of Operations ............. 56
7.7 Stand-By Costs ................................ 57
7.8 Special Considerations Regarding
Deepening and Sidetracking .................... 59
7.9 Miscellaneous ................................. 61
VIII Default .............................................. 63
8.1 Default and Notice ............................ 63
8.2 Operating Committee Meetings and
Data .......................................... 64
8.3 Allocation of Defaulted Accounts .............. 65
8.4 Transfer of Interest .......................... 66
8.5 Continuation of Interest ...................... 68
8.6 Abandonment ................................... 70
8.7 Sale of Hydrocarbons .......................... 70
8.8 No Right of Set Off ........................... 71
IX Disposition of Production ............................ 72
9.1 Right and Obligation to Take in Kind .......... 72
9.2 Offtake Agreement for Crude Oil ............... 72
9.3 Separate Agreement for Natural Gas ............ 76
X Abandonment of ▇▇▇▇▇ ................................. 76
10.1 Abandonment of ▇▇▇▇▇ Drilled as
Joint Operations .............................. 76
10.2 Abandonment of Exclusive Operations ........... 78
XI Surrender, Extensions and Renewals ................... 78
11.1 Surrender ..................................... 78
11.2 Extension of the Term ......................... 79
XII Transfer of Interest or Rights ....................... 80
12.1 Obligations ................................... 80
12.2 Rights ........................................ 82
XIII Withdrawal from Agreement ............................ 83
13.1 Right of Withdrawal ........................... 83
13.2 Partial or Complete Withdrawal ................ 84
13.3 Voting ........................................ 85
13.4 Obligations and Liabilities ................... 85
13.5 Emergency ..................................... 86
13.6 Assignment .................................... 87
13.7 Approvals ..................................... 87
13.8 Abandonment Security .......................... 87
13.9 Withdrawal or Abandonment by all
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Parties ....................................... 88
XIV Relationship of Parties and Tax ...................... 88
14.1 Relationship of Parties ....................... 88
14.2 Tax ........................................... 89
14.3 United States Tax Election .................... 89
XV Confidential Information -
Proprietary Technology ........................ 90
15.1 Confidential Information ...................... 90
15.2 Continuing Obligations ........................ 92
15.3 Proprietary Technology ........................ 92
15.4 Trades ........................................ 93
XVI Force Majeure ........................................ 93
16.1 Obligations ................................... 93
16.2 Definition of Force Majeure ................... 94
XVII Notices . . ......................................... 94
XVIII Applicable Law and Dispute Resolution ................ 96
18.1 Applicable Law ................................ 96
18.2 Dispute Resolution ............................ 97
XIX General Provisions ................................... 100
19.1 Conflicts of Interest ......................... 100
19.2 Public Announcements .......................... 100
19.3 Successors and Assigns ........................ 102
19.4 Waiver ........................................ 102
19.5 Severance of Invalid Provisions ............... 102
19.6 Modifications ................................. 103
19.7 Headings ...................................... 103
19.8 Singular and Plural ........................... 103
19.9 Gender ........................................ 103
19.10 Counterpart Execution ......................... 103
19.11 Entirety ...................................... 104
Signature Page ....................................... 105
Acknowledgment........................................ 106
Exhibit "A" - Accounting Procedure
Exhibit "B" - United States Tax
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OPERATING AGREEMENT
THIS AGREEMENT is made as of the Effective Date among GHK Company
Colombia, a company incorporated in under the laws of the State of Oklahoma,
U.S.A. (hereinafter referred to as "GHK");
Cimarrona Limited Liability Company, a company formed under the laws of
the State of Oklahoma, U.S.A. (hereinafter referred to as "Cimarrona");
▇▇▇▇▇▇▇▇▇ Limited Liability Company, a company formed under the laws of
the State of Oklahoma, U.S.A. (hereinafter referred to as "▇▇▇▇▇▇▇▇▇");
Sociedad Internacional Petrolera S.A., a company formed under the laws of
the Republic of Chile (hereinafter referred to as "Sipetrol");
Seven Seas Petroleum Colombia, Inc., a company formed under the laws of
the Cayman Islands (hereinafter referred to as "Seven Seas"); and
Petrolinson S.A., a company formed under the laws of the Republic of
Panama (hereinafter referred to as "Petrolinson").
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The companies named above may sometimes individually be referred to as "Party"
and collectively as the "Parties".
WITNESSETH:
WHEREAS, GHK and Petrolinson have entered into an Association Contract
dated January 22, 1993, effective March 23, 1993, approved by Resolution No. 7
173 of July 28, 1993 of the Ministry of Mines and Energy of the Republic of
Colombia (the "Contract") with Empresa Colombiana de Petroleos (hereinafter
referred to as "Ecopetrol") covering certain areas located in the Dindal Area,
Cundinamarca Department, Republic of Colombia, referred to as the Contract Area;
WHEREAS, GHK, Petrolinson, and Ecopetrol have entered into an amendment
to the Contract on May 4, 1995 which re-defined the Contract Area and also
provided for changes to Clauses 5, 5.1, 5.12 and 5.13 of the Contract;
WHEREAS, the Parties desire to define their respective rights and
obligations with respect to their operations under the Contract, as amended.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements and obligations set out below and to be performed, the Parties
agree as follows:
ARTICLE I - DEFINITIONS
As used in this Agreement, the following words and terms shall have the
meaning ascribed to them below:
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1.1 ACCOUNTING PROCEDURE means the rules, provisions and conditions set forth
and contained in Exhibit A to this Agreement.
1.2 AFE means an authorization for expenditure pursuant to Article 6.6.
1.3 AFFILIATE means a company, partnership or other legal entity which
controls, or is controlled by, or which is controlled by an entity which
controls a Party. Control means the ownership directly or indirectly of
more than fifty (50) percent of the shares or voting rights in a company,
partnership or legal entity.
1.4 AGREED INTEREST RATE means interest compounded on a monthly basis, at the
rate per annum equal to the one (1) month term, LIBOR rate for U.S.
dollar deposits, as published by THE WALL STREET JOURNAL or if not
published, then by the FINANCIAL TIMES OF LONDON, plus four (4)
percentage points, applicable on the first Business Day prior to the due
date of payment and thereafter on the first Business Day of each
succeeding one (1) month term. If the aforesaid rate is contrary to any
applicable usury law, the rate of interest to be charged shall be the
maximum rate permitted by such applicable law.
1.5 AGREEMENT means this agreement, together with the Exhibits attached to
this agreement.
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1.6 APPRAISAL WELL means any well whose purpose at the time of commencement
of drilling such well is the determination of the extent or the volume of
Hydrocarbon reserves contained in an existing Discovery. APPRAISE and
other derivatives shall be construed accordingly.
1.7 BUSINESS DAY means a day on which the banks in The Republic of Colombia
are customarily open for business.
1.8 CALENDAR QUARTER means a period of three (3) months commencing with
January 1 and ending on the following March 31, a period of three (3)
months commencing with April 1 and ending on the following June 30, a
period of three (3) months commencing with July 1 and ending on the
following September 30, or a period of three (3) months commencing with
October 1 and ending on the following December 31 according to the
Gregorian Calendar.
1.9 COMMERCIAL DISCOVERY means any discovery of Hydrocarbons which is
sufficient to entitle the Parties to apply for authorization from the
Government to commence exploitation.
1.10 COMPLETE means an operation intended to complete a well through the
Christmas tree as a producer of Hydrocarbons in one or more Zones,
including, but not limited to, the setting of production casing,
perforating, stimulating the well and production testing conducted in
such operation.
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COMPLETION and other derivatives shall be construed accordingly.
1.11 CONSENTING PARTY means a Party who agrees to participate in and pay its
share of the cost of an Exclusive Operation.
1.12 CONTRACT means the instrument identified in the second paragraph of this
Agreement and any extension, renewal or amendment thereof.
1.13 CONTRACT AREA means as of the Effective Date the surface area which is
identified in the second paragraph of this Agreement. The perimeter or
perimeters of the Contract Area shall correspond to that area covered by
the Contract, as such area may vary from time to time during the term of
validity of the Contract.
1.14 CONTRACT YEAR means a period of one year commencing March 23.
1.15 DAY means a calendar day unless otherwise specifically provided.
1.16 DEFAULTING PARTY shall have the meaning ascribed in Article 8.1.
1.17 DEEPEN means an operation whereby a well is drilled to an objective Zone
below the deepest Zone in which the well was previously drilled, or below
the deepest Zone proposed
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in the associated AFE, whichever is the deeper. DEEPENING and other
derivatives shall be construed accordingly.
1.18 DEVELOPMENT PLAN means a plan for the development of Hydrocarbons from an
Exploitation Area covering all or a portion of the Contract Area.
1.19 DEVELOPMENT WELL means any well drilled for the production of
Hydrocarbons pursuant to a Development Plan. DEVELOP and other
derivatives shall be construed accordingly.
1.20 DISCOVERY means the discovery of an accumulation of Hydrocarbons whose
existence until that moment was unknown; provided Hydrocarbons are
recovered at the surface in a flow measurable by conventional production
test methods.
1.21 EFFECTIVE DATE means the date this Agreement comes into effect as stated
in Article II.
1.22 ENTITLEMENT means a quantity of Hydrocarbons of which a Party has the
right and obligation to take delivery pursuant to the Contract or, if
applicable, an offtake agreement, and shall be derived from that Party's
Participating Interest in the Hydrocarbons produced after adjustment for
overlifts and underlifts.
1.23 EXCLUSIVE OPERATION means those operations and activities carried out by
Operator, pursuant to this
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Agreement, the costs of which are chargeable to the account of less than
all the Parties.
1.24 EXCLUSIVE WELL means a well drilled pursuant to an Exclusive Operation.
1.25 EXPLOITATION AREA means that part of the Contract Area which is
established for exploitation pursuant to the Contract.
1.26 EXPLOITATION PERIOD means any and all periods of exploitation established
pursuant to the Contract.
1.27 EXPLORATION PERIOD means any and all periods of exploration set out in
the Contract.
1.28 EXPLORATION WELL means any well drilled during the course of exploration
work other than an Appraisal Well or Development Well.
1.29 G & G DATA means only geological, geophysical and geochemical data and
other information that is not obtained through a well bore.
1.30 GOVERNMENT means the government of the Republic of Colombia.
1.31 GOVERNMENT OIL COMPANY means Ecopetrol.
1.32 GROSS NEGLIGENCE means any act or failure to act (whether sole, joint or
concurrent) by a Party which was intended to cause, or which was in
reckless disregard of or wanton indifference to, harmful consequences
such Party
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knew, or should have known, such act or failure would have had on the
safety or property of another person or entity, but shall not include any
error of judgment or mistake made by such Party in the exercise in good
faith of any function, authority or discretion conferred on the Party
employing such under this Agreement.
1.33 HYDROCARBONS means all substances including liquid and gaseous
hydrocarbons which are subject to and covered by the Contract.
1.34 IN KIND PREMIUM means the grant of interest in production made pursuant
to Article 7.5(C) by a NonConsenting Party to reinstate its rights under
an Exclusive Operation.
1.35 JOINT ACCOUNT means the accounts maintained by Operator in accordance
with the provisions of this Agreement and of the Accounting Procedure for
Joint Operations.
1.36 JOINT OPERATIONS means those operations and activities carried out by
Operator pursuant to this Agreement, the costs of which are chargeable to
all Parties.
1.37 JOINT PROPERTY means, at any point in time, all ▇▇▇▇▇, facilities,
equipment, materials, information, funds and the property held for the
Joint Account.
1.38 MINIMUM WORK OBLIGATIONS means those work and/or expenditure obligations
specified in the Contract which must
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be performed in order to satisfy the obligations of the Contract.
1.39 NON-CONSENTING PARTY means a Party who elects not to participate in an
Exclusive Operation.
1.40 NON-OPERATOR(S) means the Party or Parties to this Agreement other than
Operator.
1.41 OPERATING COMMITTEE means the committee constituted in accordance with
Article V.
1.42 OPERATOR means a Party to this Agreement designated as such in accordance
with this Agreement.
1.43 PARTICIPATING INTEREST means the undivided percentage interest of each
Party in the rights and obligations derived from the Contract and this
Agreement.
1.44 PARTY means any of the entities named in the first paragraph to this
Agreement and any respective successors or assigns in accordance with the
provisions of this Agreement.
1.46 PLUG BACK means a single operation whereby a deeper Zone is abandoned in
order to attempt a Completion in a shallower Zone. PLUGGING BACK and
other derivatives shall be construed accordingly.
1.47 RECOMPLETE means an operation whereby a Completion in one Zone is
abandoned in order to attempt a Completion in a different Zone within the
existing wellbore. RECOMPLETION and other derivatives shall be construed
accordingly.
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1.48 REWORK means an operation conducted in the wellbore of a well after it is
Completed to secure, restore, or improve production in a Zone which is
currently open to production in the wellbore. Such operations include,
but are not limited to, well stimulation operations, but exclude any
routine repair or maintenance work, or drilling, Sidetracking, Deepening,
Completing, Recompleting, or Plugging Back of a well. REWORKING and other
derivatives shall be construed accordingly.
1.49 SENIOR SUPERVISORY PERSONNEL means any supervisory employee of a Party
who functions as such Party's designated manager or supervisor who is
responsible for, or in charge of onsite drilling, construction or
production and related operations, or any other field operations; and,
any employee of such Party who functions at or above such management
level or an officer or a director of such Party.
1.50 SIDETRACK means the directional control and intentional deviation of a
well from vertical so as to change the bottom hole location unless done
to straighten the hole or to drill around junk in the hole or to overcome
other mechanical difficulties. SIDETRACKING and other derivatives shall
be construed accordingly.
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1.51 TEST means an operation intended to evaluate the capacity of a Zone to
produce Hydrocarbons. TESTING and other derivatives shall be construed
accordingly.
1.52 WORK PROGRAM AND BUDGET means a work program for Joint Operations and
budget therefor as described and approved in accordance with Article VI.
1.53 ZONE means a stratum of earth containing or thought to contain a common
accumulation of Hydrocarbons separately producible from any other common
accumulation of Hydrocarbons.
ARTICLE II - EFFECTIVE DATE AND TERM
This Agreement shall have effect from the 1st Day of August,
1994 and shall, subject always to the Parties' continuing obligations under
Article XV, continue in effect until the later of (i) the Contract terminates or
(ii) until all materials, equipment and personal property used in connection
with the Joint Operations have been removed and disposed of, and final
settlement has been made among the Parties, including, without limitation:
(A) all ▇▇▇▇▇ have been properly abandoned in accordance with Article X;
and
(B) all obligations, claims, arbitrations and lawsuits have been settled
or otherwise disposed of in accordance with Article 4.5 and Article
XVIII; and
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(C) the time relating to the protection of confidential information and
proprietary technology has expired in accordance with Article XV.
ARTICLE III - PARTICIPATING INTEREST
3.1 PARTICIPATING INTEREST
(A) The Participating Interests of the Parties under the Contract are as
follows:
GHK 10.94%
CIMARRONA 25.38%
▇▇▇▇▇▇▇▇▇ 9.78%
SIPETROL 32.90%
SEVEN SEAS 15.00%
PETROLINSON 6.00%
provided, however, that with respect to costs during the Exploration
Period, each of GHK, Cimarrona, ▇▇▇▇▇▇▇▇▇, Sipetrol and Seven Seas, if
its elects to participate therein, will pay its Participating Interest
share of Petrolinson's Participating Interest of such costs. After such
carry, the costs and production from the Exploration ▇▇▇▇▇ shall be
shared according to the foregoing Participating Interests; provided,
however, that any right of Petrolinson to recover costs out of the share
of production of Ecopetrol in such Exploration ▇▇▇▇▇ shall be allocated
to the Parties in the proportions that they paid
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the costs of such Exploration ▇▇▇▇▇. Each of GHK, Cimarrona, ▇▇▇▇▇▇▇▇▇,
Sipetrol, and Seven Seas agree to participate in the costs of the second
year well, the El Segundo, through the completing and equipping, or
plugging and abandoning if a dry hole.
(B) The Parties recognize that their Participating Interests are subject
to the rights of Ecopetrol under the Contract, and GHK, Cimarrona,
▇▇▇▇▇▇▇▇▇, Sipetrol and Seven Seas recognize that their Participating
Interests are subject to a 2% reversionary interest under that certain
agreement dated September 11, 1992 as amended October 13, 1994 between
The GHK Company and ▇▇▇ ▇▇▇▇▇▇, Ph.D.
3.2 OWNERSHIP, OBLIGATIONS AND LIABILITIES
(A) Unless otherwise provided in this Agreement, all the rights and
interests in and under the Contract, all Joint Property and any
Hydrocarbons produced from the Contract Area shall, subject to the terms
of the Contract, be owned by the Parties in accordance with their
respective Participating Interests.
(B) Unless otherwise provided in this Agreement, the obligations of the
Parties under the Contract and all liabilities and expenses incurred by
Operator in connection with Joint Operations shall be charged to the
Joint Account and all credits to the Joint Account shall be shared by the
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Parties, as among themselves, in accordance with their respective
Participating Interests.
(C) Unless otherwise provided in this Agreement, all liabilities incurred
by any Party in connection with Joint Operations shall be borne by the
Parties in accordance with their respective Participating Interests.
(D) Each Party shall pay when due, in accordance with the Accounting
Procedure, its Participating Interest share of Joint Account expenses,
including cash advances and interest, accrued pursuant to this Agreement.
The Accounting Procedure shall govern the accrual and satisfaction of the
respective obligations, liabilities and credits among the Parties.
(E) If a Party transfers all or part of its Participating Interest
pursuant to the provisions of this Agreement and the Contract, the
Participating Interests of the Parties shall be revised accordingly.
ARTICLE IV - OPERATOR
4.1 DESIGNATION OF OPERATOR
GHK Company Colombia is designated as Operator, and agrees to act as an
independent contractor in accordance with the terms and conditions of the
Contract and this Agreement, which terms and conditions shall also apply
to any successor Operator.
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4.2 RIGHTS AND DUTIES OF OPERATOR
(A) Subject to the terms and conditions of this Agreement, Operator shall
have all of the rights, functions and duties of Operator under the
Contract and shall have exclusive charge of and shall conduct all Joint
Operations. Operator may employ independent contractors and/or agents in
such Joint Operations.
(B) In the conduct of Joint Operations Operator shall:
(1) Perform Joint Operations in accordance with the provisions of the
Contract, this Agreement and the instructions of the Operating
Committee;
(2) Conduct all Joint Operations in a diligent, safe and efficient
manner in accordance with good and prudent oil field practices and
conservation principles generally followed by the international
petroleum industry under similar circumstances;
(3) Subject to Article 4.6, neither gain a profit nor suffer a loss as
a result of being the Operator in its conduct of Joint Operations;
(4) Perform the duties for the Operating Committee set out in Article
V, and prepare and submit to the Operating Committee the proposed
Work Programs, Budgets and AFEs as provided in Article VI;
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(5) Acquire all permits, consents, approvals, surface or other rights
that may be required for or in connection with the conduct of
Joint Operations;
(6) Permit the representatives of any of the Parties to have at all
reasonable times and at their own risk and expense reasonable
access to the Joint Operations with the right to observe all such
Joint Operations and to inspect all Joint Property and to conduct
financial audits as provided in the Accounting Procedure;
(7) Maintain the Contract in full force and effect. Operator shall
promptly pay and discharge all liabilities and expenses incurred
in connection with Joint Operations and use its reasonable efforts
to keep and maintain the Joint Property free from all liens,
charges and encumbrances arising out of Joint Operations;
(8) Pay to the Government for the Joint Account, within the periods
and in the manner prescribed by the Contract and all applicable
laws and regulations, all periodic payments, royalties, taxes,
fees and other payments pertaining to Joint Operations, but
excluding any taxes measured by the incomes of the Parties;
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(9) Carry out the obligations of Operator pursuant to the Contract,
including, but not limited to, preparing and furnishing such
reports, records and information as may be required pursuant to
the Contract;
(10) Have in accordance with the decisions of the Operating Committee,
the exclusive right and obligation to represent the Parties in all
dealings with the Government with respect to matters arising under
the Contract and Joint Operations. Operator shall notify the other
Parties as soon as possible of such meetings. Non-Operators shall
have the right to attend such meetings but only in the capacity of
observers. Nothing contained in this Agreement shall restrict any
Party from holding discussions with the Government with respect to
any issue peculiar to its particular business interests arising
under this Agreement, but in such event such Party shall promptly
advise the Parties, if possible, before and in any event promptly
after such discussions, provided that such Party shall not be
required to divulge to the Parties any matters discussed to the
extent the same involve proprietary information on matters not
affecting the Parties; and
(11) Take all
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necessary and proper measures for the protection of life, health,
the environment and property in the case of an emergency;
provided, however, that Operator shall immediately notify the
Parties of the details of such emergency and measures.
4.3 EMPLOYEES OF OPERATOR
Subject to the Contract and this Agreement, Operator shall determine the
number of employees, the selection of such employees, the hours of work
and the compensation to be paid all such employees in connection with
Joint Operations.
Operator shall employ only such employees, agents and contractors as are
reasonably necessary to conduct Joint Operations.
4.4 INFORMATION SUPPLIED BY OPERATOR
(A) Operator shall provide Non-Operators the following data and reports
as they are currently produced or compiled from the Joint Operations:
(1) Copies of all electrical logs or surveys;
(2) Daily drilling progress reports;
(3) Copies of all drill stem tests and core analysis reports;
(4) Copies of the plugging reports;
(5) Copies of the final geological and geophysical maps and
reports;
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(6) Engineering studies, development schedules and annual progress
reports on development projects;
(7) Field and well performance reports, including reservoir
studies and reserve estimates;
(8) Copies of all reports relating to Joint Operations furnished
by Operator to the Government, except magnetic tapes which shall
be stored by Operator and made available for inspection and/or
copying at the sole expense of the Non-Operator requesting same;
(9) Other reports as frequently as is justified by the activities
or as instructed by the Operating Committee; and
(10) Subject to Article 15.3, such additional informa tion for
Non-Operators as they or any of them may request, provided that
the requesting Party or Parties pay the costs of preparation of
such information and that the preparation of such information will
not unduly burden Operator's administrative and technical
personnel. Only Non-Operators who pay such costs shall receive
such additional information.
(B) Operator shall give Non-Operators access at all reasonable times to
all other data acquired in the conduct of Joint Operations. Any
Non-Operator may make copies of such other data at its sole expense.
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4.5 SETTLEMENT OF CLAIMS AND LAWSUITS
(A) Operator shall promptly notify the Parties of any and all material
claims or suits and such other claims and suits as the Operating
Committee may direct which arise out of Joint Operations or relate in any
way to Joint Operations. Operator shall represent the Parties and defend
or oppose the claim or suit. Operator may in its sole discretion
compromise or settle any such claim or suit or any related series of
claims or suits for an amount not to exceed the equivalent of U.S.
dollars Twenty Five Thousand (U.S. $25,000) exclusive of legal fees.
Operator shall obtain the approval and direction of the Operating
Committee on amounts in excess of the above stated amount. Each
Non-Operator shall have the right to be represented by its own counsel at
its own expense in the settlement, compromise or defense of such claims
or suits.
(B) Any Non-Operator shall promptly notify the other Parties of any claim
made against such Non-Operator by a third party relating to or which may
affect the Joint Operations and insofar as such claim relates to or
affects the Joint Operations such Non-Operator shall defend or settle the
same in accordance with any directions given by the Operating Committee
and such costs, expenses and damages
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as are payable pursuant to such defense or settlement shall be for the
Joint Account.
(C) Notwithstanding Article 4.5(A) and Article 4.5(B), each Party shall
have the right to participate in any such pursuit, prosecution, defense
or settlement conducted in accordance with Article 4.5(A) and Article
4.5(B) at its sole cost and expense; provided always that no Party may
settle its Participating Interest share of any claim without first
satisfying the Operating Committee that it can do so without prejudicing
the interests of the Joint Operations.
4.6 LIABILITY OF OPERATOR
(A) Except as set out in this Article 4.6, the Party designated as
Operator shall bear no cost, expense or liability resulting from
performing the duties and functions of the Operator. Nothing in this
Article shall, however, be deemed to relieve the Party designated as
Operator from any cost, expense or liability for its Participating
Interest share of Joint Operations.
(B) The Parties shall be liable in proportion to their Participating
Interests and shall defend and indemnify Operator and its consultants,
agents, employees, officers and directors (the "Indemnitees") from any
and all costs, expenses (including reasonable attorneys' fees) and
liabilities incident to claims, demands or causes of action
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of every kind and character brought by or on behalf of any person or
entity for damage to or loss of property or the environment, or for
injury to, illness or death of any person or entity, which damage, loss,
injury, illness or death arises out of or is incident to any act or
failure to act by Indemnitees in the conduct of or in connection with
Joint Operations regardless of the cause of such damage, loss, injury,
illness or death and EVEN THOUGH CAUSED IN WHOLE OR IN PART BY A
PRE-EXISTING DEFECT, THE NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT),
GROSS NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL FAULT OF OPERATOR (OR
ANY SUCH AFFILIATE); provided that if any Senior Supervisory Personnel of
Operator, engage in Gross Negligence that proximately causes the Parties
to incur cost, expense or liability for such damage, loss, injury,
illness or death, then Operator shall bear all such costs, expenses and
liabilities.
(C) Notwithstanding the foregoing under no circumstances shall any
Indemnitee (except as a Party to the extent of its Participating
Interest) bear any cost, expense or liability for environmental,
consequential, punitive or any other similar indirect damages or losses,
including but not limited to those arising from business interruption,
reservoir or formation damage, inability to produce
22
hydrocarbons, loss of profits, pollution control and environmental
amelioration or rehabilitation.
4.7 INSURANCE OBTAINED BY OPERATOR
(A) Operator shall procure and maintain or cause to be procured and
maintained for the Joint Account all insurance in the types and amounts
required by the Contract and applicable laws, rules and regulations.
Operator shall give non-Operators notice of the insurances required to
give them the opportunity to use their own policies, if possible.
(B) Operator shall obtain such further insurance, at competitive rates,
as the Operating Committee may from time to time require.
(C) Any Party may elect not to participate in the insurance to be
procured under Article 4.7(B) provided such Party:
(1) gives prompt written notice to that effect to Operator;
(2) does nothing which may interfere with Operator's negotiations
for such insurance for the other Parties; and
(3) obtains and maintains such insurance (in respect of which an
annual certificate of adequate coverage from a reputable insurance
broker shall be sufficient evidence) or other evidence of
financial responsibility
23
which fully covers its Participating Interest share of the risks
that would be covered by the insurance procured under Article 4.7
(B), and which the Operating Committee may determine to be
acceptable. No such determination of acceptability shall in any
way absolve a non-participating Party from its obligation to meet
each cash call including any cash call in respect of damages and
losses and/or the costs of remedying the same in accordance with
the terms of this Agreement. If such Party obtains other
insurance, such insurance shall contain a waiver of subrogation in
favor of all the other Parties and the Operator, but only in
respect of their interests under this Agreement.
(D) The cost of insurance in which all the Parties are participating
shall be for the Joint Account and the cost of insurance in which less
than all the Parties are participating shall be charged to the Parties
participating in proportion to their respective Participating Interests.
(E) Operator shall, in respect of all insurance obtained pursuant to this
Article:
(1) promptly inform the participating Parties when such insurance
is obtained and supply them with copies of the relevant policies
when the same are issued;
24
(2) arrange for the participating Parties, according to their
respective Participating Interests, to be named as co-insureds on
the relevant policies with waivers of subrogation in favor of all
the Parties; and
(3) duly file all claims and take all necessary and proper steps
to collect any proceeds and credit any proceeds to the
participating Parties in proportion to their respective
Participating Interests.
(F) Operator shall use its reasonable efforts to require all contractors
performing work in respect of Joint Operations to obtain and maintain any
and all insurance in the types and amounts required by any applicable
laws, rules and regulations or any decision of the Operating Committee
and shall use its reasonable efforts to require all such contractors to
name the Parties as additional insureds on contractor's insurance
policies or to obtain from their insurers waivers of all rights or
recourse against Operator and Non-Operators.
4.8 COMMINGLING OF FUNDS
Operator may not commingle with its own funds the monies which it
receives from or for the Joint Account pursuant to this Agreement.
4.9 RESIGNATION OF OPERATOR
25
Subject to Article 4.11, Operator may resign as Operator at any time by
so notifying the other Parties at least one hundred and twenty (120) Days
prior to the effective date of such resignation.
4.10 REMOVAL OF OPERATOR
(A) Subject to Article 4.11, Operator shall be removed upon receipt of
notice from any Non-Operator if:
(1) An order is made by a court or an effective resolution is
passed for the dissolution, liquidation, winding up, or
reorganization of Operator;
(2) Operator dissolves, liquidates or terminates its corporate
existence;
(3) Operator becomes insolvent, bankrupt or makes an assignment
for the benefit of creditors; or
(4) A receiver is appointed for a substantial part of Operator's
assets.
(B) Subject to Article 4.11, Operator may be removed by the decision of
the Non-Operators if Operator has committed a material breach of this
Agreement which Operator has failed to commence to rectify within thirty
(30) Days of receipt of a notice from Non-Operators detailing the alleged
breach. Any decision of Non-Operators to give notice of breach to
Operator or to remove Operator under this Article 4.10(B) shall be made
by an affirmative vote of two or more non-
26
operators holding a combined 75% of the total Participating Interest
held by the non-operators.
(C) If Operator together with any Affiliate of Operator is or becomes the
holder of a Participating Interest of less than five percent (5%), then
Operator shall be required to promptly notify the other Parties. The
Operating Committee shall then vote within thirty (30) Days of such
notification on whether or not a successor Operator should be named
pursuant to Article 4.11.
(D) If there is a direct or indirect change in control of Operator (other
than a transfer of control to an Affiliate of Operator), Operator shall
be required to promptly notify the other Parties. The Operating Committee
shall vote within thirty (30) Days of such notification on whether or not
a successor Operator should be named pursuant to Article 4.11. For
purposes of this Article, control means the ownership directly or
indirectly of fifty percent (50%) or more of the shares or voting rights
of Operator.
4.11 APPOINTMENT OF SUCCESSOR
When a change of Operator occurs pursuant to Article 4.9 or Article 4.10:
(A) The Operating Committee shall meet as soon as possible to appoint a
successor Operator pursuant to the voting
27
procedure of Article 5.9. However, no Party may be appointed successor
Operator against its will.
(B) If the Operator disputes commission of or failure to rectify a
material breach alleged pursuant to Article 4.10(B) and proceedings are
initiated pursuant to Article XVIII, no successor Operator may be
appointed pending the conclusion or abandonment of such proceedings,*
(C) If an Operator is removed, other than in the case of Article 4.10(C)
or Article 4.10(D), neither Operator nor any Affiliate of Operator shall
have the right to vote for itself on the appointment of a successor
Operator, nor be considered as a candidate for the successor Operator.
(D) A resigning or removed Operator shall be compensated out of the Joint
Account for its reasonable expenses directly related to its resignation
or removal, except in the case of Article 4.10(B).
(E) The Operating Committee shall arrange for the taking of an
independent inventory of all Joint Property and Hydrocarbons, and an
audit of the books and records of the removed Operator. Such inventory
and audit shall be completed, if possible, no later than the effective
date of the change of Operator. The liabilities and expenses of such
inventory and audit shall be charged to the Joint Account.
28
(F) The resignation or removal of Operator and its replacement by the
successor Operator shall not become effective prior to receipt of any
necessary governmental approvals.
(G) Upon the effective date of the resignation or removal, the successor
Operator shall succeed to all duties, rights and authority prescribed for
Operator. The former Operator shall transfer to the successor Operator
custody of all Joint Property, books of account, records and other
documents maintained by Operator pertaining to the Contract Area and to
Joint Operations. Upon delivery of the above-described property and data,
the former Operator shall be released and discharged from all obligations
and liabilities as Operator accruing after such date.
ARTICLE V - OPERATING COMMITTEE
5.1 ESTABLISHMENT OF OPERATING COMMITTEE
To provide for the overall supervision and direction of Joint Operations,
there is established an Operating Committee composed of representatives
of each Party holding a Participating Interest. Each Party shall appoint
one (1) representative and one (1) alternate representative to serve on
the Operating Committee. Each Party shall as soon as possible after the
date of this Agreement give notice in writing to the other Parties of the
name and address of its
29
representative and alternate representative to serve on the Operating
Committee. Each Party shall have the right to change its representative
and alternate at any time by giving proper notice to such effect to the
other Parties.
5.2 POWERS AND DUTIES OF OPERATING COMMITTEE
The Operating Committee shall have power and duty to authorize and
supervise Joint Operations that are necessary or desirable to fulfill the
Contract and properly explore and exploit the Contract Area in accordance
with this Agreement and in a manner appropriate in the circumstances.
5.3 AUTHORITY TO VOTE
The representative of a Party, or in his absence his alternate
representative, shall be authorized to represent and bind such Party with
respect to any matter which is within the powers of the Operating
Committee and is properly brought before the Operating Committee. Each
such representative shall have a vote equal to the Participating Interest
of the Party such person represents; provided that with respect to any
operation in which Petrolinson is carried pursuant to Article 3.1, each
Party shall have a vote equal to its share of costs in the operation.
Each alternate representative shall be entitled to attend all
30
Operating Committee meetings but shall have no vote at such meetings
except in the absence of the representative for whom he is the alternate.
In addition to the representative and alternate representative, each
Party may also bring to any Operating Committee meetings such technical
and other advisors as it may deem appropriate.
5.4 SUBCOMMITTEES
The Operating Committee may establish such subcommittees, including
technical subcommittees, as the Operating Committee may deem appropriate.
The functions of such subcommittees shall be in an advisory capacity or
as otherwise determined unanimously by the Parties.
5.5 NOTICE OF MEETING
(A) Operator may call a meeting of the Operating Committee by giving
notice to the Parties at least fifteen (15) Days in advance of such
meeting.
(B) Any Non-Operator may request a meeting of the Operating Committee by
giving proper notice to all the other Parties. Upon receiving such
request, Operator shall call such meeting for a date not less than
fifteen (15) Days nor more than twenty (20) Days after receipt of the
request.
(C) The notice periods above may only be waived with the unanimous
consent of all the Parties.
31
5.6 CONTENTS OF MEETING NOTICE
(A) Each notice of a meeting of the Operating Committee as provided by
Operator shall contain:
(1) The date, time and location of the meeting; and
(2) An agenda of the matters and proposals to be considered and/or
voted upon.
(B) A Party, by notice to the other Parties given not less than seven (7)
Days prior to a meeting, may add additional matters to the agenda for a
meeting.
(C) On the request of a Party, and with the unanimous consent of all
Parties, the Operating Committee may consider at a meeting a proposal not
contained in such meeting agenda.
5.7 LOCATION OF MEETINGS
All meetings of the Operating Committee shall be held in Oklahoma City,
Oklahoma U.S.A, or elsewhere as may be decided by the Operating
Committee.
5.8 OPERATOR'S DUTIES FOR MEETINGS
(A) With respect to meetings of the Operating Committee and any
Subcommittee, Operator's duties shall include, but not be limited to:
(1) Timely preparation and distribution of the agenda;
32
(2) Organization and conduct of the meeting; and (3) Preparation
of a written record or minutes of each meeting.
(B) Operator shall have the right to appoint the chairman of the
Operating Committee and all subcommittees.
5.9 VOTING PROCEDURE
Except as otherwise expressly provided in this Agreement, all decisions,
approvals and other actions of the Operating Committee on all proposals
coming before it under this Agreement shall be decided by the affirmative
vote of two (2) or more Parties, which are not Affiliates, then having
collectively at least seventy-five percent (75%) of the Participating
Interests.
5.10 RECORD OF VOTES
The chairman of the Operating Committee shall appoint a secretary who
shall make a record of each proposal voted on and the results of such
voting at each Operating Committee meeting. Each representative shall
sign and be provided a copy of such record at the end of such meeting and
it shall be considered the final record of the decisions of the Operating
Committee.
5.11 MINUTES
33
The secretary shall provide each Party with a copy of the minutes of the
Operating Committee meeting within fifteen (15) Days after the end of the
meeting. Each Party shall have fifteen (15) Days after receipt of such
minutes to give notice of its objections to the minutes to the secretary.
A failure to give notice specifying objection to such minutes within said
fifteen (15) Day period shall be deemed to be approval of such minutes.
In any event, the votes recorded under Article 5.10 shall take precedence
over the minutes described above.
5.12 VOTING BY NOTICE
(A) In lieu of a meeting, Operator may submit any proposal for a decision
of the Operating Committee by giving each representative proper notice
describing the proposal so submitted. Each Party shall communicate its
vote by proper notice to Operator and the other Parties within one of the
following appropriate time periods after receipt of Operator's notice:
(1) Forty-eight (48) hours in the case of operations which involve
the use of a drilling rig that is standing by in the Contract
Area.
(2) Fifteen (15) Days in the case of all other proposals.
34
(3) Fifteen (15) Days in the case of an AFE or supplemental AFE if
submitted for approval pursuant to Article 6.6(A).
(B) Except in the case of Article 5.12(A)(1), any Non- Operator may by
notice delivered to all Parties within five (5) Days of receipt of
Operator's notice request that the proposal be decided at a meeting
rather than by notice. In such an event, that proposal shall be decided
at a meeting duly called for that purpose. (C) Except as provided in
Article X, any Party failing to communicate its vote in a timely manner
shall be deemed to have voted against such proposal. (D) If a meeting is
not requested, then at the expiration of the appropriate time period,
Operator shall give each Party a confirmation notice stating the
tabulation and results of the vote.
5.13 EFFECT OF VOTE
All decisions taken by the Operating Committee pursuant to this Article,
shall be conclusive and binding on all the Parties, except that: (A) If
pursuant to this Article, a Joint Operation, other than an operation to
fulfill the Minimum Work Obligations,
35
has been properly proposed to the Operating Committee and the Operating
Committee has not approved such proposal in a timely manner, then any
Party shall have the right for the appropriate period specified below to
propose in accordance with Article VII, an Exclusive Operation involving
operations essentially the same as those proposed for such Joint
Operation.
(1) For proposals involving the use of a drilling rig that is
standing by in the Contract Area, such right shall be exercisable
for twenty-four (24) hours after the time specified in Article
5.12(A)(1) has expired.
(2) For proposals to develop a Discovery, such right shall be
exercisable for ten (10) Days after the date the Operating
Committee was required to consider such proposal pursuant to
Article 5.6 or Article 5.12;
(3) For all other proposals, such right shall be exercisable for
five (5) Days after the date the Operating Committee was required
to consider such proposal pursuant to Article 5.6 or Article 5.12.
(B) If a Party voted against any proposal which was approved by the
Operating Committee and which could be conducted as an Exclusive
Operation pursuant to Article VII other than any proposal relating to
Minimum Work Obligations, then such Party shall have the right not to
36
participate in the operation contemplated by such approval. Any such
Party wishing to exercise its right of non-consent must give notice of
non-consent to all other Parties within five (5) Days (or within
twenty-four (24) hours if the drilling rig to be used in such operation
is standing by in the Contract Area) following Operating Committee
approval of such proposal. The Parties that were not entitled to give or
did not give notice of non-consent shall be Consenting Parties as to the
operation contemplated by the Operating Committee approval, and shall
conduct such operation as an Exclusive Operation under Article VII. Any
Party that gave notice of non-consent shall be a Non-Consenting Party as
to such Exclusive Operation.
(C) If the Consenting Parties to an Exclusive Operation under Article
5.13(A) or Article 5.13(B) concur, then the Operating Committee may, at
any time, pursuant to this Article, reconsider and approve, decide or
take action on any proposal that the Operating Committee declined to
approve earlier, or modify or revoke an earlier approval, decision or
action.
(D) Once a Joint Operation for the drilling, Deepening, Testing,
Sidetracking, Plugging Back, Completing, Recompleting, Reworking or
plugging of a well, has been approved and commenced, such operation shall
not be
37
discontinued without the consent of the Operating Committee; provided,
however, that such operation may be discontinued, if:
(1) an impenetrable substance or other condition in the hole is
encountered which in the reasonable judgment of Operator causes
the continuation of such operation to be impractical; or
(2) other circumstances occur which in the reasonable judgment of
Operator causes the continuation of such operation to be
unwarranted and after notice the Operating Committee within the
period required under Article 5.12(A)(1) approves discontinuing
such operation.
On the occurrence of either of the above, Operator shall promptly notify
the Parties that such operation is being discontinued pursuant to the
foregoing, and any Party shall have the right to propose in accordance
with Article VII an Exclusive Operation to continue such operation.
ARTICLE VI - WORK PROGRAMS AND BUDGETS
6.1 EXPLORATION AND APPRAISAL
38
(A) The Parties recognize that they have previously approved the Work
Program and Budget for the initial Contract Year, which includes the
first two ▇▇▇▇▇ under the Contract as the Minimum Work Obligations for
such Year. Each Party agrees to pay its share of such ▇▇▇▇▇ as set forth
in Article 3.1(A). The provisions of Articles 6.1(B) shall govern Work
Programs and Budgets for the second and subsequent Contract Years.
(B) On or before the first day of the fourth month of each Contract Year,
Operator shall deliver to the Parties a proposed Work Program and Budget
detailing the Joint Operations to be performed in the Contract Area for
the such Contract Year. Within forty-five (45) Days of such delivery, the
Operating Committee shall meet to consider and to endeavor to agree on a
Work Program and Budget.
(C) If a Discovery is made, Operator shall deliver any notice of
Discovery required under the Contract and shall as soon as possible
submit to the Parties a report containing available details concerning
the Discovery and Operator's recommendation as to whether the Discovery
merits appraisal.
If the Operating Committee determines that the Discovery merits
appraisal, Operator within sixty (60) Days, shall deliver to the Parties
a proposed Work Program and Budget for the appraisal of the Discovery.
Within thirty (30) Days
39
of such delivery, or earlier if necessary to meet any applicable deadline
under the Contract, the Operating Committee shall meet to consider,
modify and then either approve or reject the appraisal Work Program and
Budget. If the appraisal Work Program and Budget is approved by the
Operating Committee, Operator shall take such steps as may be required
under the Contract to secure approval of the appraisal Work Program and
Budget by the Government and Government Oil Company. In the event the
Government or the Government Oil Company requires changes in the
appraisal Work Program and Budget, the matter shall be resubmitted to the
Operating Committee for further consideration.
(D) Each Party hereby agrees to a Work Program and Budget to the extent
that it includes the Minimum Work Obligations, required by the Contract
to be carried out during the Contract Year in question. If within the
time periods prescribed in this Article the Operating Committee is unable
to agree on other items included in Work Program and Budget, Operator
shall take such actions, but only such actions for the Joint Account as
are necessary to maintain the Contract in full force and effect,
including the commencement of a Work Program and Budget to fulfill the
Minimum Work Obligations required for the given Contract Year.
40
(E) Subject to Article 6.7, approval of any such Work Program and Budget,
which includes:
(1) an Exploration Well, whether by drilling, Deepening or
Sidetracking, shall include approval for all expenditures
necessary for drilling, Testing and Completing such Exploration
Well.
(2) an Appraisal Well, whether by drilling, Deepening or
Sidetracking, shall include approval for all expenditures
necessary for drilling, Testing and Completing such Appraisal
Well.
(F) Any Party desiring to propose a Completion attempt, or an alternative
Completion attempt, must do so within the time period provided in Article
5.12(A)(1) by notifying all other Parties. Any such proposal shall
include an AFE for such Completion Costs.
6.2 DEVELOPMENT
(A) If the Operating Committee determines that a Discovery may be
commercial, the Operator shall, as soon as practicable, deliver to the
Parties a Development Plan together with the first annual Work Program
and Budget and provisional Work Programs and Budgets for the remainder of
the development of the Discovery, which shall contain, inter alia:
41
(1) Details of the proposed work to be undertaken, personnel
required and expenditures to be incurred, including the timing of
same, on a Contract Year basis;
(2) An estimated date for the commencement of production;
(3) A delineation of the proposed Exploitation Area; and
(4) Any other information requested by the Operating Committee.
(B) After receipt of the Development Plan, or earlier if necessary to
meet any applicable deadline under the Contract, the Operating Committee
shall meet to consider, modify and then either approve or reject the
Development Plan and the first annual Work Program and Budget for the
development submitted by Operator. If the Development Plan is approved by
the Operating Committee, Operator shall, as soon as possible, deliver any
notice of Commercial Discovery required under the Contract and take such
other steps as may be required under the Contract to secure approval of
the Development Plan by the Government and Government Oil Company. In the
event the Government or Government Oil Company requires changes in the
Development Plan, the matter shall be resubmitted to the Operating
Committee for further consideration.
42
(C) If the Development Plan is approved, such work shall be incorporated
into and form part of annual Work Programs and Budgets, and Operator
shall, on or before the first Day of the fourth month of each Contract
Year submit a Work Program and Budget for the Exploitation Area, for the
such Contract Year. Within forty-five (45) Days after such submittal, the
Operating Committee shall endeavor to agree to such Work Program and
Budget, including any necessary or appropriate revisions to the Work
Program and Budget for the approved Development Plan.
6.3 PRODUCTION
On or before the first Day of tenth month of each Contract Year, Operator
shall deliver to the Parties a proposed production Work Program and
Budget detailing the Joint Operations to be performed in the Exploitation
Area and the projected production schedule for the following Contract
Year. Within forty-five (45) Days of such delivery, the Operating
Committee shall agree upon a production Work Program and Budget.
6.4 ITEMIZATION OF EXPENDITURES
(A) During the preparation of the proposed Work Programs and Budgets and
Development Plans contemplated in this Article, Operator shall consult
with the Operating Committee
43
regarding the contents of such Work Programs and Budgets and Development
Plans.
(B) Each Work Program and Budget and Development Plan submitted by
Operator shall contain an itemized estimate of the costs of Joint
Operations and all other expenditures to be made for the Joint Account
during the Contract Year in question.
(C) The Work Program and Budget shall designate the portion or portions
of the Contract Area in which Joint Operations itemized in such Work
Program and Budget are to be conducted and shall specify the kind and
extent of such operations in such detail as the Operating Committee may
deem suitable.
6.5 CONTRACT AWARDS
Operator shall award each contract for approved Joint Operations on the
following basis (the amounts stated are in thousands of U.S. dollars):
PROCEDURE A PROCEDURE B PROCEDURE C
----------- ----------- -----------
Exploration
and Appraisal $200,000 to
Operations (less than)$200,000 $500,000 (greater than)$500,000
Development $200,000 to
Operations (less than)$200,000 $500,000 (greater than)$500,000
44
Production $200,000 to
Operations (less than)$200,000 $500,000 (greater than)$500,000
PROCEDURE A
(A) Operator shall award the contract to the best qualified contractor as
determined by cost and ability to perform the contract without the
obligation to tender and without informing or seeking the approval of the
Operating Committee, except that before entering into contracts with
Affiliates of the Operator exceeding U.S. dollars Fifty Thousand (U.S.
$50,000), Operator shall obtain the approval of the Operating Committee.
PROCEDURE B
(B) Operator shall:
(1) Provide the Parties with a list of the entities whom Operator
proposes to invite to tender for the said contract;
(2) Add to such list any entity whom a Party requests to be added
within fourteen (14) Days of receipt of such list;
(3) Complete the tendering process within a reasonable period of
time;
(4) Inform the Parties of the entities to whom the contract has
been awarded, provided that before
45
awarding contracts to Affiliates of the Operator which exceed U.S.
dollars (U.S.$50,000), Operator shall obtain the approval of the
Operating Committee;
(5) Circulate to the Parties a competitive bid analysis stating
the reasons for the choice made; and
(6) Upon the request of a Party, provide such Party with a copy of
the final version of the contract awarded.
PROCEDURE C
(C) Operator shall:
(1) Provide the Parties with a list of the entities whom Operator
proposes to invite to tender for the said contract;
(2) Add to such list any entity whom a Party requests to be added
within fourteen (14) Days of receipt of such list;
(3) Prepare and dispatch the tender documents to the entities on
the list as aforesaid and to Non-Operators;
(4) After the expiration of the period allowed for tendering,
consider and analyze the details of all bids received;
(5) Prepare and circulate to the Parties a competitive bid
analysis, stating Operator's recommendation as to the entity to
whom the contract should be awarded, the
46
reasons therefor, and the technical, commercial and contractual
terms to be agreed upon;
(6) Obtain the approval of the Operating Committee to the
recommended bid; and
(7) Upon the request of a Party, provide such Party with a copy of
the final version of the contract.
6.6 AUTHORIZATION FOR EXPENDITURE ("AFE") PROCEDURE
(A) Prior to incurring any commitment or expenditure, which is estimated
to be:
47
(1) In excess of U.S. dollars fifty thousand (U.S. $50,000) in an
exploration or appraisal Work Program and Budget;
(2) In excess of U.S. dollars fifty thousand (U.S. $50,000) in a
development Work Program and Budget; and
(3) In excess of U.S. dollars fifty thousand (U.S. $50,000) in a
production Work Program and Budget. Operator shall send to each
Non-Operator an AFE containing Operator's best estimate of the total
funds required to carry out such work; the estimated timing of
expenditures, and any other necessary supportive information. These AFEs
shall be for informational purposes only and Operator shall not be
required to obtain approval for such AFE prior to commencement of work.
(B) Prior to incurring any commitment or expenditure estimated to be in
excess of $200,000 in an approved Work Program and Budget, Operator shall
send to each Non-Operator and AFE containing the same information as
established in (A). Operator shall obtain the Operating Committee
approval to such AFE prior to incurring commitment of expenditure. Any
Party voting to disapprove an AFE issued in furtherance of an approved
Work Program and Budget shall demonstrate that such disapproval is duly
justified and shall state the reasons for such disapproval.
48
(C) Prior to incurring any commitment or expenditure which is not
contained in an approved Work Program and Budget, Operator shall send to
each Non-Operator an AFE containing the same information as established
in (A) and shall obtain the Parties' approval regardless the amount of
such AFE.
(D) The restrictions contained in this Article shall be without prejudice
to Operator's rights to make expenditures as set out in Article
4.2(B)(11) and Article 13.5.
6.7 OVEREXPENDITURES OF WORK PROGRAMS AND BUDGETS
(A) For expenditures on any line item of an approved Work Program and
Budget, Operator shall be entitled to incur without furnishing a
supplemental AFE an overexpenditure for such line item up to ten percent
(10%) of the authorized amount for such line item; provided that
cumulative total of all overexpenditures for a Contract Year shall not
exceed ten percent (10%) of the total Work Program and Budget in
question.
(B) At such time that Operator is certain that the limits of Article
6.7(A) will be exceeded, Operator shall furnish a supplemental AFE for
the estimated overexpenditures to the Operating Committee for its
approval and shall provide the Parties with full details of such
overexpenditures. Operator shall promptly give notice of the amounts of
overexpenditures when actually incurred.
49
ARTICLE VII - OPERATIONS BY LESS THAN ALL PARTIES
7.1 LIMITATION ON APPLICABILITY
(A) No operations may be conducted in furtherance of the Contract except
as Joint Operations under Article V, or as Exclusive Operations under
this Article. No Exclusive Operation shall be conducted which conflicts
with a Joint Operation.
(B) Operations which are required to fulfill the Minimum Work Obligations
must be proposed and conducted as Joint Operations under Article V, and
may not be proposed or conducted as Exclusive Operations under this
Article.
(C) No Party may propose or conduct an Exclusive Operation under this
Article, unless and until such Party has properly exercised its right to
propose an Exclusive Operation pursuant to Article 5.13, or is entitled
to conduct an Exclusive Operation pursuant to Article X.
(D) Subject to this Article, any operation that may be proposed and
conducted as a Joint Operation, other than operations pursuant to an
approved Development Plan, may be proposed and conducted as an Exclusive
Operation.
7.2 PROCEDURE TO PROPOSE EXCLUSIVE OPERATIONS
(A) Subject to Articles V and 7.1, if any Party proposes to conduct an
Exclusive Operation, such Party shall give notice
50
of the proposed operation to all other Parties entitled to propose such
operation. 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.
(B) Any Party entitled to receive such notice shall have the right to
participate in the proposed operation.
(1) For proposals to Deepen, Test, Complete, Sidetrack, Plug Back,
Recomplete or Rework involving the use of a drilling rig that is
standing by in the Contract Area, any such Party wishing to
exercise such right must so notify Operator within forty-eight
(48) hours after receipt of the notice proposing the Exclusive
Operation.
(2) For proposals to develop a Discovery, any Party wishing to
exercise such right must so notify the Party proposing to develop
within fifteen (15) Days after receipt of the notice proposing the
Exclusive Operation.
(3) For all other proposals, any such Party wishing to exercise
such right must so notify Operator within ten (10) Days after
receipt of the notice proposing the Exclusive Operation;
(C) Failure of a Party to whom a proposal notice is delivered to properly
reply within the period specified
51
above shall constitute an election by that Party not to participate in
the proposed operation.
(D) If all Parties properly exercise their rights to participate, then
the proposed operation shall be conducted as a Joint Operation. The
Operator shall commence such Joint Operation as promptly as practicable
and conduct it with due diligence.
(E) If less than all Parties entitled to receive such proposal notice
properly exercise their rights to participate, then:
(1) The Party proposing the Exclusive Operation, together with any
other Consenting Parties, shall have the right exercisable for the
applicable notice period set out in Article 7.2(B), to instruct
Operator (subject to Article 7.9(G)) to conduct the Exclusive
Operation.
(2) If the Exclusive Operation is conducted, the Consenting
Parties shall bear the sole liability and expense of such
Exclusive Operation in a fraction, the numerator of which is such
Consenting Party's Participating Interest as stated in Article 3.1
and the denominator of which is the aggregate of the Participating
Interests of the Consenting Parties as stated in Article 3.1, or
in such other proportion totaling one hundred percent (100%) of
such liability
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and expense as the Consenting Parties may agree; provided that,
for operations during the Exploration Period for which Petrolinson
is carried pursuant to Article 3.1(A), the interest of each Party
other than Petrolinson shall be increased as provided in that
Article.
(3) If work in the field on such Exclusive Operation has not been
commenced within ninety (90) Days (excluding any extension
specifically agreed by all Parties or allowed by the force majeure
provisions of Article XVI), the right to conduct such Exclusive
Operation shall terminate. If any Party still desires to conduct
such Exclusive Operation, written notice proposing such operation
must be resubmitted to the Parties in accordance with Article V,
as if no proposal to conduct an Exclusive Operation had been
previously made.
7.3 RESPONSIBILITY FOR EXCLUSIVE OPERATIONS
(A) The Consenting Parties shall bear in accordance with the
Participating Interests agreed under Article 7.2(E) 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
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costs, expenses or liabilities for environmental, consequential, punitive
or any other similar indirect damages or losses arising from business
interruption, reservoir or formation damage, inability to produce
petroleum, loss of profits, pollution control and environmental
amelioration or rehabilitation) and shall keep the Contract Area free and
clear of all liens and encumbrances of every kind created by or arising
from such Exclusive Operation.
(B) Notwithstanding Article 7.3(A), each Party shall continue to bear its
Participating Interest share of the cost and liability incident to the
operations in which it participated, including but not limited to
plugging and abandoning and restoring the surface location, but only to
the extent those costs were not increased by the Exclusive Operation.
7.4 CONSEQUENCES OF EXCLUSIVE OPERATIONS
(A) With regard to any Exclusive Operation, for so long as a
Non-Consenting Party has the option to reinstate the rights it
relinquished under Article 7.4(B) below, such NonConsenting Party shall
be entitled to have access concurrently with the Consenting Parties, to
all data and other information relating to such Exclusive Operation,
other than G & G Data obtained in an Exclusive Operation.
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If a Non-Consenting Party desires to receive and acquire the right to use
such G & G Data, then such Non-Consenting Party shall have the right to
do so by paying to the Consenting Parties its Participating Interest
share as set out in Article 3.1(A) of the cost incurred in obtaining such
G & G Data.
(B) With regard to any Exclusive Operation and subject to Article 7.4(C)
and Article 7.8, below, each Non-Consenting Party shall be deemed to have
relinquished to the Consenting Parties, and the Consenting Parties shall
be deemed to own, in proportion to their respective Participating
Interests in the Exclusive Operation:
(1) All of each such Non-Consenting Party's right to participate
in further operations to Appraise or Develop any Discovery made in
the course of such Exclusive Operation; and
(2) All of each such Non-Consenting Party's right pursuant to the
Contract to take and dispose of Hydrocarbons produced and saved:
(a) From the well in which such Exclusive Operation was
conducted, and
(b) From any ▇▇▇▇▇ drilled to Appraise or Develop a
Discovery.
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(C) A Non-Consenting Party shall have the option to reinstate the rights
it relinquished pursuant to Article 7.4(B) after satisfying the In Kind
Penalty as set out in Article 7.5(A).
7.5 IN-KIND PENALTY
(A) The In Kind Penalty shall be the right to own, take in kind and
separately dispose of Hydrocarbons produced out of all of the
Non-Consenting Party's Entitlement to future production (including the
right to recoup costs out of Ecopetrol's share, as provided in the
Contract and, where applicable under the Contract, gas) from the
Exploitation Area for the Discovery in which the Non-Consenting Party
desires to reinstate the rights it relinquished pursuant to Article
7.4(B) until the In Kind Penalty has been satisfied. In Kind Penalty
shall equal a total of:
(1) Two Hundred percent (200%) of such Non-Consenting Party's
Participating Interest share of all liabilities and expenses,
including overhead, that were incurred in any Exclusive Operations
relating to the obtaining of the portion of the G & G Data which
pertains to the Discovery, and that were not previously paid by
such Non-Consenting Party; plus
(2) Five Hundred percent (500%) of such Non-Consenting Party's
Participating Interest share of all liabilities
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and expenses, including overhead, that were incurred in any
Exclusive Operations relating to the drilling, Deepening, Testing,
Completing, Sidetracking, Plugging Back, Recompleting and
Reworking of the Exploration Well which made the Discovery in
which the Non-Consenting Party desires to reinstate the rights it
relinquished pursuant to Article 7.4(B), and that were not
previously paid by such Non-Consenting Party; plus
(3) Three Hundred percent (300%) of the Non-Consenting Party's
Participating Interest share of all liabilities and expenses,
including overhead, that were incurred in any Exclusive Operations
relating to the drilling, Deepening, Testing, Completing,
Sidetracking, Plugging Back, Recompleting and Reworking of the
Appraisal or Development Well(s) which Appraised or Developed
delineated the Discovery in which the Non-Consenting Party desires
to reinstate the rights it relinquished pursuant to Article
7.4(B), and that were not previously paid by such Non-Consenting
Party.
(4) One Hundred percent (100%) of the cost of surface equipment
not covered above, including, but not limited to, pipelines and
(5) One Hundred percent (100%) of the cost of operating the
foregoing ▇▇▇▇▇ and equipment.
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(B) The In Kind Penalty shall be deemed fully satisfied when the proceeds
(less taxes measured by production, royalties and other burdens on
production) of the sale of Hydrocarbons received by the Consenting
Parties as equals the sum of the In Kind Penalty calculated in U.S.
dollars pursuant to Articles 7.5(A) and (C)). After such satisfaction the
Consenting Parties' right to such In Kind Penalty shall terminate, and
such Non-Consenting Party shall own, take and dispose of its Entitlement
from such Exploitation Area. Production from other fields in the Contract
Area, outside such Exploitation Area shall not be used to satisfy the In
Kind Penalty. Any obligation of the Non-Consenting Party to satisfy the
In Kind Penalty shall terminate with the cessation of production from the
Exploitation Area (or well, as the case may be) which the In Kind Penalty
encumbers.
(C) Within ninety (90) Days after the Completion of any Exclusive
Operation, the Operator shall furnish to each NonConsenting Party that
has granted an In Kind Penalty in respect of such Exclusive Operation an
inventory of the equipment in and connected to the well, and an itemized
statement of the cost of such Exclusive Operation, including equipping
the well for production. Each Calendar Quarter during the period of
satisfying an In Kind Penalty, Operator
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shall furnish to the Non-Consenting Parties that have granted such In
Kind Penalty an itemized statement of all costs and liabilities incurred
in the Exclusive Operation(s), establishing the value of such In Kind
Penalty together with a statement of the quantity of Hydrocarbons
produced to satisfy such In Kind Penalty and the amount of proceeds
realized from the sale of such production during the preceding Calendar
Quarter.
(D) In determining the quantity of Hydrocarbons produced for purposes of
the In Kind Penalty, the Consenting Parties shall use industry accepted
methods such as but not limited to metering or periodic well tests.
(E) During the period of time Consenting Parties are entitled to an In
Kind Penalty, such Consenting Parties shall be responsible for the
payment of all royalties, charges, taxes, and all other burdens
established by the Contract directly related to such In Kind Penalty.
(F) Any amount realized from the sale or other disposition of equipment,
which was acquired in connection with an Exclusive Operation, shall be
credited against the satisfaction of the In Kind Penalty.
(G) On satisfaction of the In Kind Penalty, the right of such
Non-Consenting Party to own, take in kind and separately dispose of its
Entitlement granted under Article
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7.5(C), shall be reinstated automatically as of 7:00 a.m. on the Day
following the Day on which such satisfaction occurs.
7.6 ORDER OF PREFERENCE OF OPERATIONS
(A) Except as otherwise specifically provided in this Agreement, if any
Party desires to propose the conduct of an operation that will conflict
with an existing proposal for an Exclusive Operation, such Party shall
have the right exercisable for five (5) Days, or forty-eight (48) hours
if the drilling rig to be used is standing by in the Contract Area, from
receipt of the proposal for the Exclusive Operation, to deliver to all
Parties entitled to participate in the proposed operation such Party's
alternative proposal. Such alternative proposal shall contain the
information required under Article 7.2(A).
(B) Each Party receiving such proposals shall elect by delivery of notice
to Operator within the appropriate response period set out in Article
7.2(B) to participate in one of the competing proposals. Any Party not
notifying Operator within the response period shall be deemed not to have
voted.
(C) The proposal receiving the largest aggregate Participating Interest
vote shall have priority over all other competing proposals. In the case
of a tie vote, the
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Operator shall choose among the proposals receiving the largest aggregate
Participating Interest vote. Operator shall deliver notice of such result
to all Parties entitled to participate in the operation within five (5)
Days of the end of the response period, or forty-eight (48) hours if the
drilling rig to be used is standing by in the Contract Area.
(D) Each Party shall then have two (2) Days (or forty-eight (48) hours if
the drilling rig to be used is standing by in the Contract Area) from
receipt of such notice to elect by delivery of notice to Operator whether
such Party will participate in such Exclusive Operation, or will
relinquish its interest pursuant to Article 7.4(B). Failure by a Party to
deliver such notice within such period shall be deemed an election not to
participate in the prevailing proposal.
7.7 STAND-BY COSTS
(A) When an operation has been performed, all tests have been conducted
and the results of such tests furnished to the Parties, stand by costs
incurred pending response to any Party's notice proposing an Exclusive
Operation for Deepening, Testing, Sidetracking, Completing, Plugging
Back, Recompleting, Reworking or other further operation in such well
(including the period required under Article 7.6 to resolve competing
proposals) shall be charged and borne as part of the operation just
completed. Stand by costs
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incurred subsequent to all Parties responding, or expiration of the
response time permitted, whichever first occurs, shall be charged to and
borne by the Parties proposing the Exclusive Operation in proportion to
their Participating Interests, regardless of whether such Exclusive
Operation is actually conducted.
(B) If a further operation is proposed while the drilling rig to be
utilized is on location, any Party may request and receive up to five (5)
additional Days after expiration of the applicable response period
specified in Article 7.2(B) within which to respond by notifying Operator
that such Party agrees to bear all stand by costs and other costs
incurred during such extended response period. Operator may require such
Party to pay the estimated stand by time in advance as a condition to
extending the response period. If more than one Party requests such
additional time to respond to the notice, stand by costs shall be
allocated between such Parties on a Day-to-Day basis in proportion to
their Participating Interests.
7.8 SPECIAL CONSIDERATIONS REGARDING DEEPENING
(A) An Exclusive Well shall not be Deepened without first affording the
Non-Consenting Parties in accordance with this Article the opportunity to
participate in such operation.
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(B) In the event any Consenting Party desires to Deepen an Exclusive
Well, such Party shall initiate the procedure contemplated by Article
7.2. If a Deepening operation is approved pursuant to such provisions,
and if any NonConsenting Party to the Exclusive Well elects to
participate in such Deepening operation, the payment, if any, pursuant to
Article 7.5 of such Non-Consenting Party shall be calculated based on the
following liabilities and expenses:
(1) If the proposal is to Deepen and is made prior to the
Completion of such well as a Commercial Discovery, then payment
shall be based on such Non-Consenting Party's Participating
Interest share of the liabilities and expenses incurred in
connection with drilling the Exclusive Well from the surface to
the depth previously drilled which such Non-Consenting Party would
have paid had such Non-Consenting Party agreed to participate in
such Exclusive Well, plus the Non-Consenting Party's Participating
Interest share of the liabilities and expenses of Deepening and of
participating in any further operations on such Exclusive Well in
accordance with the other provisions of this Agreement; provided,
however, all liabilities and expenses for Testing and Completing
or attempting Completion of the well incurred
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by Consenting Parties prior to the commencement of actual
operations to Deepen beyond the depth previously drilled shall be
for the sole account of Consenting Parties in the proportion their
Participating Interest bears to the aggregate of their
Participating Interests.
(2) If the proposal is to Deepen and is made for an Exclusive Well
that has been previously Completed as a Commercial Discovery, but
is no longer producing, then payment shall be based on the
Non-Consenting Party's Participating Interest share of all costs
of drilling and Completing said well from the surface to the depth
previously drilled, calculated in the manner provided in Article
7.8(B)(1), less those costs recouped by the Consenting Parties
from the sale of production from such Exclusive Well, plus the
Non-Consenting Party's Participating Interest share of all costs
of reentering said well, plus the Non-Consenting Party's
proportionate part (based on the percentage of the Exclusive Well
such Non-Consenting Party would have owned had it previously
participated in such Exclusive Well) of the costs of salvable
materials and equipment remaining in the hole and salvable surface
equipment used in connection with such well shall be determined in
accordance with the
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Accounting Procedure. If at the time such Deepening operation is
conducted the Consenting Parties have recouped from the Exclusive
Well the amount calculated pursuant to Article 7.5, then a
Non-Consenting Party may participate in the Deepening of the
Exclusive Well with no payment for liabilities and expenses
incurred prior to reentering the well for Deepening.
7.9 MISCELLANEOUS
(A) Each Exclusive Operation shall be carried out by the Consenting
Parties acting as the Operating Committee, subject to the provisions of
this Agreement applied mutatis mutandis to such Exclusive Operation and
subject to the terms and conditions of the Contract.
(B) The computation of liabilities and expenses incurred in Exclusive
Operations, including the liabilities and expenses of Operator for
conducting such operations, shall be made in accordance with the
principles set out in the Accounting Procedure.
(C) Operator shall maintain separate books, financial records and
accounts for Exclusive Operations which shall be subject to the same
rights of audit and examination as the Joint Account and related records,
all as provided in the Accounting Procedure. Said rights of audit and
examination shall extend to each of the Consenting Parties and each of
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the Non-Consenting Parties so long as the latter are, or may be,
entitled to elect to participate in such operations.
(D) Operator, if it is not a Consenting Party and it is conducting an
Exclusive Operation for the Consenting Parties, shall be entitled to
request cash advances and shall not be required to use its own funds to
pay any cost and expense and shall not be obliged to commence or continue
Exclusive Operations until cash advances requested have been made, and
the Accounting Procedure shall apply to Operator in respect of any
Exclusive Operations conducted by it.
(E) Should the submission of a Development Plan be approved in accordance
with Article 5.9, or should any Party propose a development in accordance
with Article VII, with either proposal not calling for the conduct of
additional appraisal drilling, and should any Party wish to drill an
additional Appraisal Well prior to development, then the Party proposing
the Appraisal Well as an Exclusive Operation shall be entitled to proceed
first, but without the right to future reimbursement of costs or to any
Penalty, pursuant to Article 7.5. If, as the result of drilling such
Appraisal Well as an Exclusive Operation, the Party proposing to apply
for an Exploitation Area decides to not develop the reservoir, then each
Non-Consenting Party who voted in favor of such Development Plan prior to
the drilling of such
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Appraisal Well shall pay to the Consenting Party the amount such
Non-Consenting Party would have paid had such Appraisal Well been drilled
as a Joint Operation.
(F) In the case of any Exclusive Operation for Deepening, Testing,
Completing, Plugging Back, Recompleting or Reworking, the Consenting
Parties shall be permitted to use, free of cost, all casing, tubing and
other equipment in the well, that is not needed for Joint Operations, but
the ownership of all such equipment shall remain unchanged. On
abandonment of a well after such Exclusive Operation, the Consenting
Parties shall account for all such equipment to the Parties who shall
receive their respective Participating Interest shares, in value, less
cost of salvage.
(G) If the Operator is a Non-Consenting Party to an Exclusive Operation
to Develop a Discovery, then subject to obtaining any necessary
Government approval the Operator may resign, but in any event shall
resign on the request of the Consenting Parties, as Operator for the
Exploitation Area for such Discovery and the Consenting Parties shall
select a Party to serve as Operator.
ARTICLE VIII - DEFAULT
8.1 DEFAULT AND NOTICE
Any Party that fails to pay when due its Participating Interest share of
Joint Account expenses including cash
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advances and interest, accrued pursuant to this Agreement (a "Defaulting
Party") shall be in default under this Agreement. Operator, or any other
Party in the case of the default of Operator, shall promptly give written
notice of such default to such Party and each of the non-defaulting
Parties. The amount not paid by the Defaulting Party shall bear interest
from the date due until paid in full. Interest will be calculated using
the Agreed Interest Rate.
8.2 OPERATING COMMITTEE MEETINGS AND DATA
After any default has continued for five (5) Business Days from the date
of written notice of default under Article 8.1, and for as long
thereafter as the Defaulting Party remains in default on any payment due
under this Agreement, the Defaulting Party shall not be entitled to
attend Operating Committee meetings or to vote on any matter coming
before the Operating Committee during the period such default continues.
Unless agreed otherwise by the non-defaulting Parties, the voting
interest of each non-defaulting Party shall be in the proportion which
its Participating Interest bears to the total of the Participating
Interests of all the non-defaulting Parties. Any matters requiring
unanimous vote of the Parties shall be deemed to exclude the Defaulting
Party. After the said five
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(5) Business Days and while the Defaulting Party remains in default as
aforesaid, the Defaulting Party shall not have access to any data or
information relating to Joint Operations, and non-defaulting Parties
shall be entitled to trade data without such Defaulting Party's consent
and the Defaulting Party shall have no right to any data received on such
trade unless and until its default is remedied in full.
Notwithstanding the foregoing, the Defaulting Party shall be deemed to
have approved, and shall join with the non-defaulting Parties in taking
any action to maintain and preserve the Contract.
8.3 ALLOCATION OF DEFAULTED ACCOUNTS
(A) Operator shall, either at the time of giving notice of default as
provided in Article 8.1, or by separate notice, notify each
non-defaulting Party of the sum of money it is to pay as its portion
(such portion being in the ratio that each non-defaulting Party's
Participating Interest bears to the Participating Interests of all
non-defaulting Parties) of such amount in default. Each non-defaulting
Party shall, if such default continues, pay Operator, within five (5)
Business Days after receipt of such notice, its share of the amount which
the Defaulting Party failed to pay. If any non-defaulting Party fails to
pay its share of the amount in default as aforesaid, such non-defaulting
Party shall
69
thereupon be in default and shall be a Defaulting Party subject to the
provisions of this Article. The non-defaulting Parties which pay the
amount owed by any Defaulting Party shall be entitled to receive their
respective share of the principal and interest payable by such Defaulting
Party pursuant to Article 8.1.
(B) The total of all amounts paid by the non-defaulting Parties for the
Defaulting Party, together with interest accrued on such amounts shall
constitute a debt due and owing by the Defaulting Party to the
non-defaulting Parties in proportion to such amounts paid. In addition
the non-defaulting Parties may in the manner contemplated by this
Article, satisfy such debt (together with interest) and may accrue an
amount equal to the Defaulting Party's Participating Interest share of
the estimated cost to abandon any Joint Property.
(C) A Defaulting Party may remedy its default by paying to Operator the
total amount due, together with interest calculated as provided in
Article 8.1, at any time prior to transfer of its interest pursuant to
Article 8.4, and upon receipt of such payment Operator shall remit to
each non-defaulting Party its proportionate share of such amount.
(D) The rights granted to each non-defaulting Party pursuant to this
Article, shall be in addition to, and not
70
in substitution for any other rights or remedies which each
non-defaulting Party may have at law or equity or pursuant to the other
provisions of this Agreement.
8.4 TRANSFER OF INTEREST
(A) For thirty (30) Days after each failure by the Defaulting Party to
remedy its default by the thirtieth (30th) Day following notice of
default without prejudice to any other rights of the non-defaulting
Parties to recover the amounts paid for the Defaulting Party, together
with interest accrued on such amount, each non-defaulting Party shall
have the option to give notice to the Defaulting Party requiring the
Defaulting Party to transfer its interest to the non-defaulting Parties.
To that end if any of the non-defaulting Parties so elect, the Defaulting
Party shall be deemed to have transferred and to have empowered the
electing non-defaulting Parties to execute on said Defaulting Party's
behalf any documents required to effect a transfer, of all of its right,
title and beneficial interest in and under this Agreement and the
Contract, and in all ▇▇▇▇▇ and Joint Property to the electing
non-defaulting Parties. If requested, each Party shall execute a Power of
Attorney in the form prescribed by the Operating Committee. The
Defaulting Party shall, without delay following any request from the
non-defaulting Parties, do any and all acts
71
required to be done by applicable law or regulation in order to render
such transfer legally valid, including, without limitation, the
obtaining of all governmental consents and approvals, and shall execute
any and all documents and take such other actions as may be necessary in
order to effect prompt and valid transfer of the interests described
above, free of all liens and encumbrances. In the event all Government
approvals are not timely obtained, the Defaulting Party shall hold its
Participating Interest in trust for such non-defaulting Parties who
elected to assume such Defaulting Party's Participating Interest.
(B) In the absence of an agreement among the non-defaulting Parties to
the contrary, any such transfer to the non-defaulting Parties shall be in
the proportion that the non-defaulting Parties have paid the amounts due
from the Defaulting Party.
(C) Subject to Article 12.1(C), on the effective date of such transfer
the Defaulting Party shall forthwith cease to be a Party to this
Agreement to the extent of the Participating Interest so transferred. The
acceptance or non-acceptance by a non-defaulting Party of any portion of
a Defaulting Party's Participating Interest shall be without prejudice to
any rights or remedies such non-defaulting
72
Parties have to recover the outstanding debts (including interest) owed
by the Defaulting Party.
8.5 CONTINUATION OF INTEREST
If within thirty (30) Days after each failure by the Defaulting Party to
remedy its default by the thirtieth (30th) Day following notice of
default the non-defaulting Parties elect to not acquire the Defaulting
Party's Participating Interest as provided in Article 8.4 and to continue
to bear the Defaulting Party's Participating Interest share of
liabilities and expenses, then the non-defaulting Parties shall
accumulate all such liabilities and expenses as a debt pursuant to
Article VIII, but the Defaulting Party shall continue to be a Party
subject to Article 8.2 and Article 8.7. If Operator disposes of any Joint
Property or any other credit or adjustment is made to the Joint Account,
or if Operator sells any of the Defaulting Party's Participating Interest
share of Hydrocarbons, then, in respect of the Defaulting Party's
Participating Interest share of the proceeds of such disposal, credit or
adjustment or sale, Operator shall be entitled to retain and to set off
the same against all amounts, together with interest accrued on such
amount, due and owing from the Defaulting Party plus an accrued amount
equal to the Defaulting Party's Participating Interest share
73
of the estimated cost to abandon any Joint Property. Any surplus
remaining after setting off the same as aforesaid shall be paid promptly
to the Defaulting Party.
8.6 ABANDONMENT
If, within thirty (30) Days after the failure by the Defaulting Party to
remedy its default by the thirtieth (30th) Day as aforesaid, no
non-defaulting Party elects to acquire the Defaulting Party's
Participating Interest as provided in Article 8.4, or to bear the
Defaulting Party's Participating Interest share of liabilities and
expenses as provided in Article 8.5, then no transfer shall be made and
Joint Operations shall be abandoned subject to any necessary consents and
notices being given, and each Party, including the Defaulting Party shall
pay its Participating Interest share of all costs of abandoning and
relinquishing the Contract. If abandonment occurs as aforesaid, all
monies paid by the non-defaulting Parties for the Defaulting Party
pursuant to Article 8.3, together with interest accrued on such amount,
shall remain a debt due and owing by the Defaulting Party.
8.7 SALE OF HYDROCARBONS
If a Party defaults after the commencement of commercial production and
has not remedied the default by the thirtieth (30th) Day as aforesaid,
then, during the
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continuance of such default, the Defaulting Party shall not be entitled
to its Participating Interest share of Hydrocarbons which shall vest in
and be the property of the non-defaulting Parties, and Operator shall be
authorized to sell such Hydrocarbons at the best price obtainable under
the circumstances and, after deducting all costs, charges and expenses
incurred by Operator in connection with such sale, pay the proceeds
proportionately to the non-defaulting Parties which proceeds shall be
credited against all monies advanced pursuant to Article 8.3, together
with interest accrued thereon. Any surplus remaining shall be paid to the
Defaulting Party, and any deficiency shall remain a debt due from the
Defaulting Party to the non-defaulting Parties. Notwithstanding any such
sales by Operator, the provisions of Article 8.4 shall continue to apply.
8.8 NO RIGHT OF SET OFF
Each Party acknowledges and accepts that a fundamental principle of this
Agreement is that each Party pays its Participating Interest share of all
amounts due under this Agreement as and when required. Accordingly, any
Party which becomes a Defaulting Party undertakes that, in respect of
either any exercise by the non-defaulting Parties of any rights under or
the application of any of the provisions of this Article, such Party
shall not raise by way of set off
75
or invoke as a defense, whether in law or equity, any failure to pay
amounts due and owing under this Agreement or any alleged or unliquidated
claim that such Party may have against Operator or any Non-Operator,
whether such claim arises under this Agreement or otherwise. Such Party
further undertakes not to raise by way of defense, whether in law or in
equity, that the nature or the amount of the remedies granted to the
non-defaulting Parties is unreasonable or excessive.
ARTICLE IX - DISPOSITION OF PRODUCTION
9.1 RIGHT AND OBLIGATION TO TAKE IN KIND
Except as otherwise provided in this Article, each Party shall have the
right and obligation to own, take in kind and separately dispose of its
Participating Interest share of total production available to the Parties
pursuant to the Contract from any Exploitation Area in such quantities
and in accordance with such procedures as may be set forth in the offtake
agreement referred to in Article 9.2 or in the special arrangements for
natural gas referred to in Article 9.3. If Government Oil Company is
party to the offtake agreement, then the Parties shall endeavor to obtain
its agreement to the principles set forth in this Article.
9.2 OFFTAKE AGREEMENT FOR CRUDE OIL
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If crude oil is to be produced from an Exploitation Area, the Parties
shall in good faith, and not less than three (3) months prior to first
delivery of crude oil, negotiate and conclude the terms of an agreement
to cover the offtake of crude oil produced under the Contract. The
Government Oil Company may, if necessary and practicable, also be party
to the offtake agreement. This offtake agreement shall, to the extent
consistent with the Contract, make provision for:
(A) The delivery point, at which title and risk of loss of
Participating Interest shares of crude oil shall pass to the
Parties interested (or as the Parties may otherwise agree);
(B) Operator's regular periodic advice to the Parties of estimates
of total available production for suc ceeding periods,
Participating Interest shares, and grades of crude oil for as far
ahead as is necessary for Operator and the Parties to plan offtake
arrangements. Such advice shall also cover for each grade of crude
oil total available production and deliveries for the preceding
period, inventory and overlifts and underlifts;
(C) Nomination by the Parties to Operator of acceptance of their
Participating Interest share of
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total available production for the succeeding period. Such
nominations shall in any one period be for each Party's entire
Participating Interest share arising during that period subject to
operational tolerances and agreed minimum economic cargo sizes or
as the Parties may otherwise agree;
(D) Elimination of overlifts and underlifts;
(E) If offshore loading or a shore terminal for vessel loading is
involved, risks regarding acceptability of tankers, demurrage and
(if applicable) availability of berths;
(F) Distribution to the Parties of Entitlements to ensure, to the
extent Parties take delivery of their Entitlements in proportion
to the accrual of such Entitlements, that each Party shall receive
currently Entitlements of grades, gravities and qualities of
Hydrocarbons similar to Hydrocarbons received by each other Party.
(G) To the extent that distribution of Entitlements on such basis
is impracticable due to availability of facilities and minimum
cargo sizes, a method of making periodic adjustments; and
(H) The option and the right of the other Parties to sell an
Entitlement which a Party fails to nominate for
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acceptance pursuant to (C) above or of which a Party fails to take
delivery, in accordance with applicable agreed procedures,
provided that such failure either constitutes a breach of
Operator's or Parties' obligations under the terms of the
Contract, or is likely to result in the curtailment or shut-in of
production. Such sales shall be made only to the limited extent
necessary to avoid disruption in Joint Operations. Operator shall
give all Parties as much notice as is practicable of such
situation and that a sale option has arisen. Any sale shall be of
the unnominated or undelivered Entitlement as the case may be and
for reasonable periods of time as are consistent with the minimum
needs of the industry and in no event to exceed twelve (12)
months. The right of sale shall be revocable at will subject to
any prior contractual commitments. Sales to non-affiliated third
parties shall be for the realized price f.o.b. the delivery point.
Sales to any of the Parties or their Affiliates shall be at
current market value f.o.b. the delivery point. The Party
arranging the sale shall pay to the Party whose Entitlement is
involved the above price after deduction of all costs, including
storage costs, incurred in respect of such sale, reflecting actual
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costs of disposal at immediate notice. Current market value shall
be the value of the Entitlement in international markets (unless
the Entitlement was required to be delivered into the Government's
domestic market, in which case it shall be the value therein)
between a willing buyer and a willing seller and shall be agreed
between the two Parties concerned, or failing agreement,
determined by an expert to be appointed in accordance with
procedures set forth in the offtake agreement.
9.3 SEPARATE AGREEMENT FOR NATURAL GAS
The Parties recognize that if natural gas is discovered it may be
necessary for the Parties to enter into special arrangements for the
disposal of the natural gas, which are consistent with the Development
Plan and subject to the terms of the Contract.
ARTICLE X - ABANDONMENT OF ▇▇▇▇▇
10.1 ABANDONMENT OF ▇▇▇▇▇ DRILLED AS JOINT OPERATIONS
(A) Any well which has been drilled as a Joint Operation and which is
proposed to be plugged and abandoned shall not be plugged and abandoned
without the consent of all Parties.
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(B) Should any such Party fail to reply within the period prescribed in
Article 5.12(A)(1) or Article 5.12(A)(2), whichever is applicable, after
delivery of notice of the Operator's proposal to plug and abandon such
well, such Party shall be deemed to have consented to the proposed
abandonment. If all the Parties consent to abandonment, such well shall
be plugged and abandoned in accordance with applicable regulations and at
the cost, risk and expense of the Parties who participated in the cost of
drilling such well.
(C) If all Parties do not agree to the abandonment of such well, those
wishing to continue operations shall assume financial responsibility over
the well and shall be deemed to be Consenting Parties conducting an
Exclusive Operation pursuant to Article VII. In the case of a producing
well, the Consenting Parties shall be entitled to continue producing only
from the Zone open to production at the time they assumed responsibility
for the well.
(D) Consenting Parties taking over a well as provided above shall tender
to each of the Non-Consenting Parties such NonConsenting Parties'
Participating Interest share of the value of the well's salvable material
and equipment, determined in accordance with the Accounting Procedure,
less the estimated cost of salvaging and the estimated cost of
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plugging and abandoning as of the date the Consenting Party assumed
responsibility for the well; provided, however, that in the event the
estimated cost of plugging and abandoning and the estimated cost of
salvaging are higher than the value of the well's salvable material and
equipment, each of the abandoning Parties shall continue to be liable
pursuant to Article 7.3(B) for their respective Participating Interest
shares of the estimated excess cost.
(E) Each Non-Consenting Party shall be deemed to have relinquished to the
Consenting Parties in proportion to their Participating Interests all of
its interest in the wellbore of a produced well and related equipment in
accordance with Article 7.4(B), insofar and only insofar as such interest
covers the right to obtain production from that wellbore in the Zone then
open to production.
(F) Subject to Article 7.9(G), Operator shall continue to operate a
produced well for the account of the Consenting Parties at the rates and
charges contemplated by this Agreement, plus any additional cost and
charges which may arise as the result of the separate allocation of
interest in such well.
10.2 ABANDONMENT OF EXCLUSIVE OPERATIONS
This Article shall apply mutatis mutandis to the abandonment of an
Exclusive Well or any well in which an
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Exclusive Operation has been conducted; provided that no well shall be
permanently plugged and abandoned unless and until all Parties having the
right to conduct further operations in such well have been notified of
the proposed abandonment and afforded the opportunity to elect to take
over the well in accordance with the provisions of this Article X.
ARTICLE XI - SURRENDER, EXTENSIONS AND RENEWALS
11.1 SURRENDER
(A) If the Contract requires the Parties to surrender any portion of the
Contract Area, Operator shall advise the Operating Committee of such
requirement at least one hundred and twenty (120) Days in advance of the
earlier of the date for filing irrevocable notice of such surrender or
the date of such surrender. Prior to the end of such period, the
Operating Committee shall determine pursuant to Article V, the size and
shape of the surrendered area, consistent with the requirements of the
Contract. If a sufficient vote of the Operating Committee cannot be
attained, then the proposal supported by a simple majority of the
Participating Interests shall be adopted. If no proposal attains the
support of a simple majority of the Participating Interests, then the
proposal receiving the largest aggregate Participating Interest vote
shall be adopted. In the event
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of a tie, the Operator shall choose among the proposals receiving the
largest aggregate Participating Interest vote. The Parties shall execute
any and all documents and take such other actions as may be necessary to
effect the surrender. Each Party renounces all claims and causes of
action against Operator and any other Parties on account of any area
surrendered in accordance with the foregoing but against its
recommendation if Hydrocarbons are subsequently discovered under the
surrendered area.
(B) A surrender of all or any part of the Contract Area which is not
required by the Contract shall require the unanimous consent of the
Parties.
11.2 EXTENSION OF THE TERM
(A) A proposal by any Party to extend the term of the Exploration or
Exploitation Period or any phase of the Contract, a proposal to enter
into a new phase of the Exploration Period, and a proposal to extend the
term of the Contract shall be brought before the Operating Committee
pursuant to Article V.
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(B) Any Party shall have the right to extend the term of the Exploration
or Exploitation Period or any phase of the Contract to enter into a new
phase of the Exploration Period or extend the term of the Contract to the
extent provided in the Contract. Any Party not wishing to extend, shall
have a right to withdraw, subject to the requirements of Article XIII.
(C) The Contract shall not be modified, or a new contract shall not be
entered into, without a written agreement duly executed by all Parties.
ARTICLE XII - TRANSFER OF INTEREST OR RIGHTS
12.1 OBLIGATIONS
(A) Subject always to the requirements of the Contract, the transfer of
all or part of a Party's Participating Interest shall be effective only
if it satisfies the terms and conditions of this Article.
(B) Except in the case of a Party transferring all of its Participating
Interest, no transfer shall be made by any Party which results in the
transferor or the transferee holding a Participating Interest of less
than ten percent (10%) or holding any Interest other than a Participating
Interest in the Contract, the Contract Area and this Agreement.
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(C) The transferring Party shall, notwithstanding the transfer, be liable
to the other Parties for any obligations, financial or otherwise, which
have vested, matured or accrued under the provision of the Contract or
this Agreement prior to such transfer. Such obligations shall include,
without limitation, any proposed expenditure approved by the Operating
Committee, prior to the transferring Party notifying the other Parties of
its proposed transfer.
(D) The transferee shall have no rights in and under the Contract, the
Contract Area or this Agreement unless and until it obtains any necessary
Government or Government Oil Company approval and expressly undertakes in
writing to perform the obligations of the transferor under the Contract
and this Agreement in respect of the Participating Interest being
transferred, to the satisfaction of the Parties and furnishes any
guarantees required by the Government or the Contract.
(E) The transferee shall have no rights in and under the Contract, the
Contract Area or this Agreement unless each Party has consented in
writing to such transfer, which consent shall be denied only if such
transferee fails to establish to the reasonable satisfaction of each
Party its
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financial or technical capability to perform its obligations under the
Contract and this Agreement.
(F) Nothing contained in this Article shall prevent a Party from
mortgaging, pledging, charging or otherwise encumbering all or part of
its interest in the Contract Area and in and under this Agreement for the
purpose of security relating to finance provided that:
(1) such Party shall remain liable for all obligations relating to
such interest;
(2) the encumbrance shall be subject to any necessary approval of
the Government and be expressly subordinated to the rights of the
other Parties under this Agreement; and
(3) such Party shall ensure that any such mortgage, pledge, charge
or encumbrance shall be expressed to be without prejudice to the
provisions of this Agreement.
(G) Notwithstanding the foregoing, a Party may transfer all or a part of
its Participating Interest to an Affiliate of that Party. Such transfer
shall be effective only upon the transferor furnishing to the Parties a
guarantee of the obligations of the transferee, in a form satisfactory to
the other Parties.
12.2 RIGHTS
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(A) Each Party shall have the right, subject to the provisions of Article
12.1, to freely transfer its Participating Interest.
ARTICLE XIII - WITHDRAWAL FROM AGREEMENT
13.1 RIGHT OF WITHDRAWAL
(A) Subject to the provisions of this Article, any Party may withdraw
from this Agreement and the Contract by giving notice to all other
Parties stating its decision to withdraw and specifying a proposed
effective date of withdrawal which shall be at least sixty (60) Days, but
not more than one hundred eighty (180) Days after the date of such
notice. Such notice shall be unconditional and irrevocable when given.
(B) Notwithstanding Article 13.1(A) a Party shall not have the right to
withdraw from this Agreement and the Contract until the Minimum Work
Obligation set forth in the Contract has been fulfilled. However, if the
Operating Committee or any Party decides to accept new Minimum Work
Obligations by voluntarily extending the current or entering into a new
exploration period under the Contract, a Party that voted against such
decision shall not be prevented from withdrawing; provided that such
Party delivers notice of its withdrawal to all Parties within thirty (30)
Days of such
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vote pursuant to Article 11.2 and fully satisfies its outstanding Minimum
Work Obligation, if any.
(C) Subject to Articles 13.1(A) and (B) and Article 13.5, the effective
date of withdrawal for a withdrawing Party shall be the later of:
(1) The date proposed in the notice of withdrawal; or
(2) The date that the withdrawing Party has fulfilled its
obligations under this Article.
13.2 PARTIAL OR COMPLETE WITHDRAWAL
(A) Within thirty (30) Days of receipt of each withdrawing Party's
notification, each of the other Parties may also give notice that it
desires to withdraw from this Agreement and the Contract. Should all
Parties give notice of withdrawal, the Parties shall proceed to abandon
the Contract Area and terminate the Contract and this Agreement. If less
than all of the Parties give such notice of withdrawal, then the
withdrawing Parties shall take all steps to withdraw from the Contract
and this Agreement on the earliest possible date and execute and deliver
all necessary instruments and documents to assign their Participating
Interest to the Parties which are not withdrawing, without any
compensation whatsoever, in accordance with the provisions of Article
13.6.
89
(B) If any part of the withdrawing Party's Participating Interest remains
unclaimed after sixty (60) Days from the date of the first notice of
withdrawal, the Parties shall be deemed to have decided to withdraw from
the Contract and this Agreement, unless at least one Party agrees to
accept the unclaimed Participating Interest.
(C) Any Party withdrawing under Article 11.2 or under this Article shall
withdraw from all exploration activities under the Contract, but not from
any Exploitation Area, Commercial Discovery, or Discovery whether
appraised or not, made prior to such withdrawal. Such withdrawing Party
shall retain its rights in the Joint Property but only insofar as they
relate to any Exploitation Area, Commercial Discovery or Discovery
whether appraised or not, and shall abandon all other rights in the Joint
Property.
13.3 VOTING
After giving its notification of withdrawal, a Party shall not be
entitled to vote on any matters coming before the Operating Committee,
other than matters for which such Party has financial responsibility.
13.4 OBLIGATIONS AND LIABILITIES
(A) A withdrawing Party, prior to its withdrawal, shall satisfy all
obligations and liabilities it has incurred or attributable to it prior
to its withdrawal, including,
90
without limitation, any expenditures budgeted and/or approved by the
Operating Committee prior to its written notification of withdrawal
(development projects included), and any liability for acts, occurrences
or circumstances taking place or existing prior to its withdrawal.
Furthermore, any liens, charges and other encumbrances which the
withdrawing Party placed on such Party's Participating Interest prior to
its withdrawal shall be fully satisfied or released, at the withdrawing
Party's expense, prior to its withdrawal. A Party's withdrawal shall not
relieve it from liability to the non-withdrawing Parties with respect to
any obligations or liabilities attributable to the withdrawing Party
which are not identified or identifiable at the time of withdrawal.
91
(B) Notwithstanding the foregoing, a Party shall not be liable for any
operations or expenditures it voted against if it sends notification of
its withdrawal within five (5) Days (or within twenty-four (24) hours if
the drilling rig to be used in such operation is standing by on the
Contract Area) of the Operating Committee vote approving such operation
or expenditure, nor shall such Party be liable for any operations or
expenditures approved by the Operating Committee, excluding those
approved pursuant to Article 13.5, after notice has been given pursuant
to Article 13.1.
13.5 EMERGENCY
A Party's notification of withdrawal shall not become effective if prior
to the proposed date of withdrawal a well goes out of control or a fire,
blow out, sabotage or other emergency occurs. The notification of
withdrawal shall become effective only after the emergency has been
contained and the withdrawing Party has paid, or has provided, security
satisfactory to the Parties for its Participating Interest share of the
costs of such emergency.
13.6 ASSIGNMENT
A withdrawing Party shall assign its Participating Interest to each of
the non-withdrawing Parties which shall be allocated to them in the
proportion which each of their
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Participating Interests (prior to the withdrawal) bears to the total
Participating Interests of all the non-withdrawing Parties (prior to the
withdrawal), unless the non- withdrawing Parties agree otherwise. The
expenses associated with the withdrawal and assignments shall be borne by
the withdrawing Party.
13.7 APPROVALS
A withdrawing Party shall promptly join in such actions as may be
necessary or desirable to obtain any Government or Government Oil Company
approvals required in connection with the withdrawal and assignments, and
any penalties or expenses incurred by the Parties in connection with such
withdrawal shall be borne by the withdrawing Party.
(Continued on Page 87-A)
13.8 ABANDONMENT SECURITY
(A) A withdrawing Party shall provide Security satisfactory to the other
Parties to satisfy any such obligations or liabilities which were
approved or accrued prior to notice of withdrawal, but which become due
after its withdrawal, including, without limitation, Security to cover
the costs of an abandonment, if applicable.
(B) Failure to provide Security shall constitute default under this
Agreement.
93
(C) "Security" means a standby letter of credit issued by a bank or an on
demand bond issued by a corporation, such bank or corporation having a
credit rating indicating it has sufficient worth to pay its obligations
in all reasonably foreseeable circumstances, or, failing the provision of
either of those, cash contributed to a secure fund administered by
independent trustees and invested in securities backed by the full faith
and credit of the government of the United States of America.
13.9 WITHDRAWAL OR ABANDONMENT BY ALL PARTIES
In the event all Parties decide to withdraw or are required to do so
pursuant to this Article, the Parties agree that they shall be bound by
the terms and conditions of this Agreement for so long as may be
necessary to wind up the affairs of the Parties with the Government, to
satisfy any requirements of applicable law or to facilitate the sale,
disposition or abandonment of property or interests held by the Joint
Account.
ARTICLE XIV - RELATIONSHIP OF PARTIES AND TAX
14.1 RELATIONSHIP OF PARTIES
The rights, duties, obligations and liabilities of the Parties under this
Agreement shall be individual, not joint or collective. It is not the
intention of the Parties to create, nor shall this Agreement be deemed or
construed to
94
create a mining or other partnership, joint venture, association or
trust, or as authorizing any Party to act as an agent, servant or
employee for any other Party for any purpose whatsoever except as
explicitly set forth in this Agreement. In their relations with each
other under this Agreement, the Parties shall not be considered
fiduciaries except as expressly provided in this Agreement.
14.2 TAX
Each Party shall be responsible for reporting and discharging its own tax
measured by the income of the Party and the satisfaction of such Party's
share of all contract obligations under the Contract and under this
Agreement. Each Party shall protect, defend and indemnify each other
Party from any and all loss, cost or liability arising from a failure or
refusal to report and discharge such taxes or satisfy such obligations.
14.3 UNITED STATES TAX ELECTIONS
The Parties who are subject to the income tax laws of the United States
of America shall be governed by the tax provisions marked Exhibit B,
attached hereto and made a part hereof.
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ARTICLE XV - CONFIDENTIAL INFORMATION -
PROPRIETARY TECHNOLOGY
15.1 CONFIDENTIAL INFORMATION
(A) Subject to the provisions of the Contract, the Parties agree that
all information and data acquired or obtained by any Party in
respect of Joint Operations shall be considered confidential and
shall be kept confidential and not be disclosed during the term of
the Contract and for a period of one (1) year after expiration of
the Contract to any person or entity not a Party to this
Agreement, except:
(1) To an Affiliate, provided such Affiliate maintains
confidentiality as provided in this Article;
(2) To a governmental agency or other entity when required by the
Contract;
(3) To the extent such data and information is required to be
furnished in compliance with any applicable laws or regulations,
or pursuant to any legal proceedings or because of any order of
any court binding upon a Party;
(4) Subject to Article 15.1(B), to potential contractors,
contractors, consultants and attorneys employed by any Party where
disclosure of such data or
96
information is essential to such contractor's, consultant's or
attorney's work;
(5) Subject to Article 15.1(B), to a bona fide prospective
transferee of a Party's Participating Interest (including an
entity with whom a Party or its Affiliates is conducting bona fide
negotiations directed toward a merger, consolidation or the sale
of a majority of its or an Affiliate's shares);
(6) Subject to Article 15.1(B), to a bank or other financial
institution to the extent appropriate to a Party arranging for
funding for its obligations under this Agreement;
(7) To the extent such data and information must be disclosed
pursuant to any rules or requirements of any government or stock
exchange having jurisdiction over such Party, or its Affiliates;
provided that if any Party desires to disclose information in an
annual or periodic report to its or its Affiliates' shareholders
and to the public and such disclosure is not required pursuant to
any rules or requirements of any government or stock exchange,
then such Party shall comply with Article 19.2;
(8) To its respective employees for the purposes of Joint
Operations, subject to each Party taking customary
97
precautions to ensure such data and information is kept
confidential;
(9) Where any data or information which, through no fault of a
Party, becomes a part of the public domain.
(B) Disclosure as pursuant to Article 15.1(A)(4), (5), and (6) shall not
be made unless prior to such disclosure the disclosing Party has obtained
a written undertaking from the recipient party to keep the data and
information strictly confidential and not to use or disclose the data and
information except for the express purpose for which disclo sure is to be
made.
15.2 CONTINUING OBLIGATIONS
Any Party ceasing to own a Participating Interest during the term of this
Agreement shall nonetheless remain bound by the obligations of
confidentiality and any disputes shall be resolved in accordance with
Article XVIII.
15.3 PROPRIETARY TECHNOLOGY
Nothing in this Agreement shall require a Party to divulge proprietary
technology to the other Parties; provided that where the cost of
development of proprietary technology has been charged to the Joint
Account, such proprietary technology shall be disclosed to all Parties
bearing a portion of such cost and may be used by such Party or its
Affiliates in other operations.
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15.4 TRADES
Notwithstanding the foregoing provisions of this Article, Operator may,
with approval of the Operating Committee, make well trades and data
trades for the benefit of the Parties, with any data, the cost of which
has been charged to the Joint Account, so obtained to be furnished to all
Parties. In such event, Operator must enter into an undertaking with any
third party to such trade to keep such information confidential.
ARTICLE XVI - FORCE MAJEURE
16.1 OBLIGATIONS
If as a result of Force Majeure any Party is rendered unable, wholly or
in part, to carry out its obligations under this Agreement, other than
the obligation to pay any amounts due or to furnish security, then the
obligations of the Party giving such notice, so far as and to the extent
that the obligations are affected by such Force Majeure, shall be
suspended during the continuance of any inability so caused, but for no
longer period. The Party claiming Force Majeure shall notify the other
Parties of the Force Majeure situation within a reasonable time after the
occurrence of the facts relied on and shall keep all Parties informed of
all significant developments. Such notice shall give reasonably full
particulars of said Force Majeure, and
99
also estimate the period of time which said Party will probably require
to remedy the Force Majeure. The affected Party shall use all reasonable
diligence to remove or overcome the Force Majeure situation as quickly as
possible in an economic manner, but shall not be obligated to settle any
labor dispute except on terms acceptable to it and all such disputes
shall be handled within the sole discretion of the affected Party.
16.2 DEFINITION OF FORCE MAJEURE
For the purposes of this Agreement, "Force Majeure" shall have the same
meaning as is set out in Clause 34 of the Contract for "fuerza mayor o
caso fortuito."
ARTICLE XVII - NOTICES
Except as otherwise specifically provided, all notices authorized or
required between the Parties by any of the provisions of this Agreement,
shall be in writing, in English and delivered in person or by 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
originating notice given under any provision of this Agreement shall be
deemed delivered only when received by the Party to whom such notice is
directed, and the time for such Party to deliver any notice in
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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
Agreement shall be actual delivery of the notice to the address of 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.
Petrolinson ▇.▇.
▇▇▇▇▇ 100 No. 8A-49- Ofc. ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
FAX: ▇▇▇-▇▇-▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
GHK Company Colombia
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
▇▇▇▇▇▇▇▇▇ Limited Liability Company
101
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇.▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Cimarrona Limited Liability Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇.▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Sociedad Internacional Petrolera S.A.
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇
Telefax: (▇▇-▇) ▇▇▇ ▇▇▇▇
Attention: Sr. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ G.
Seven Seas Petroleum Colombia, Inc.
Three Post Oak Central, Suite 960
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telefax: (713.621.9770)
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇
ARTICLE XVIII - APPLICABLE LAW AND DISPUTE RESOLUTION
18.1 APPLICABLE LAW
This Agreement shall be governed by, construed, interpreted and applied
in accordance with the laws of New
102
York, U.S.A., excluding any choice of law rules which would refer the
matter to the laws of another jurisdiction.
103
18.2 DISPUTE RESOLUTION
(A) Any dispute, controversy or claim arising out of or relating to this
contract, or the breach, termination or invalidity thereof, shall be
settled by arbitration in accordance with the UNCITRAL Arbitration Rules
(the "Rules") as at present in force.
(B) The arbitration shall be heard and determined by three (3)
arbitrators. Each side shall appoint an arbitrator of its own choice
within ten (10) days of the submission of a Notice of Arbitration. The
party-appointed arbitrators shall in turn appoint a presiding arbitrator
of the tribunal within ten (10) days following the appointment of the
arbitrators. If the party-appointed arbitrators cannot reach agreement on
a presiding arbitrator of the tribunal, the appointing authority for the
implementation of such procedure shall be the President for the time
being of the American Arbitration Association in New York, who shall
appoint an independent arbitrator who has no financial interest in the
controversy. If all members of the tribunal were not to accept the
appointment within ten (10) days after receipt of the Notice of
Arbitration, and/or one Party refuses to appoint its party-appointed
arbitrator within said ten (10) days period, either one of the Parties
may require from the said President the designation of a single
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arbitrator, who has no financial interest in the controversy, to solve
the controversy. All decisions and awards made by the arbitration
tribunal shall be by majority vote.
(C) The controversy may not be submitted to any court.
(D) Unless otherwise expressly agreed in writing by the Parties to the
arbitration proceedings:
(1) The arbitration proceedings shall be held in New York, USA;
(2) The arbitration proceedings shall be conducted in the English
language and the arbitrator(s) shall be fluent in the Spanish and
English languages;
(3) The arbitrator(s) shall be and remain at all times wholly
independent and impartial;
(4) Any procedural issues not determined under the Rules shall be
determined by the laws of the place of arbitration, except those
laws which would refer the matter to another jurisdiction;
(5) The cost of the arbitration proceedings (including attorney's
fees and costs) shall be borne in the manner determined by the
arbitrator(s);
(6) The decision of the sole arbitrator or the decision of a
majority of the arbitrators, as the case may be, shall be written,
final and binding without the
105
right of appeal, the sole and exclusive remedy regarding any
claims, counterclaims, issues or accounts presented to the
arbitrator, made as promptly paid in Dollars free of any deduction
or offset. Any costs or fees incident to enforcing the award, up
to the maximum extent permitted by law, will be charged against
the Party resisting such enforcement;
(7) Consequential, punitive or other similar damages shall not be
allowed; provided, however, the award may include appropriate
punitive damages where a Party has engaged in delaying and
dilatory actions;
(8) The award shall include interest from the date of any breach
of violation of this Agreement, as determined by the arbitral
award, and from the date of the award until paid in full, at the
Agreed Interest Rate;
(9) Judgment upon the award rendered may be entered in any court
having jurisdiction over the person or the assets of the indebted
Party, or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case
may be; and
(10) Whenever the Parties are of more than one nationality, the
single arbitrator or the presiding arbitrator, as the case may be,
shall not be of the same
106
nationality as any of the Parties or their ultimate parent
entities.
ARTICLE XIX - GENERAL PROVISIONS
19.1 CONFLICTS OF INTEREST
(A) Each Party undertakes that it shall avoid any conflict of interest
between its own interests (including the interests of Affiliates) and the
interests of the other Parties in dealing with suppliers, customers and
all other organizations or individuals doing or seeking to do business
with the Parties in connection with activities contemplated under this
Agreement.
(B) The provisions of the preceding paragraph shall not apply to:
(1) A Party's performance which is in accordance with the local
preference laws or policies of the host government; or
(2) A Party's acquisition of products or services from an
Affiliate, or the sale thereof to an Affiliate, made in accordance
with rules and procedures established by the Operating Committee.
19.2 PUBLIC ANNOUNCEMENTS
107
(A) Operator shall be responsible for the preparation and release of all
public announcements and statements regarding this Agreement or the Joint
Operations; provided that, no public announcement or statement shall be
issued or made unless prior to its release all the Parties have been
furnished with a copy of such statement or announcement and the approval
of at least two (2) non-affiliated Parties holding fifty percent (50%),
or more, of the Participating Interests has been obtained. Where a public
announcement or statement becomes necessary or desirable because of
danger to or loss of life, damage to property or pollution as a result of
activities arising under this Agreement, Operator is authorized to issue
and make such announcement or statement without prior approval of the
Parties, but shall promptly furnish all the Parties with a copy of such
announcement or statement.
(B) If a Party wishes to issue or make any public announcement or
statement regarding this Agreement or the Joint Operations, it shall not
do so unless prior to its release, such Party furnishes all the Parties
with a copy of such announcement or statement, and obtains the approval
of at least two (2) non-affiliated Parties holding fifty percent (50%) or
more of the Participating Interests; provided that, notwithstanding any
failure to obtain such
108
approval, no Party shall be prohibited from issuing or making any such
public announcement or statement if it is necessary to do so in order to
comply with the applicable laws, rules or regulations of any government,
legal proceedings or stock exchange having jurisdiction over such Party
as set forth in Articles 15.1(A)(3) and (7).
19.3 SUCCESSORS AND ASSIGNS
Subject to the limitations on transfer contained in Article XII, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Parties.
19.4 WAIVER
No waiver by any Party of any one or more defaults by another Party in
the performance of this Agreement shall operate or be construed as a
waiver of any future default or defaults by the same Party, whether of a
like or of a different character. Except as expressly provided in this
Agreement no Party shall be deemed to have waived, released or modified
any of its rights under this Agreement unless such Party has expressly
stated, in writing, that it does waive, release or modify such right.
19.5 SEVERANCE OF INVALID PROVISIONS
109
If and for so long as any provision of this Agreement shall be deemed to
be judged invalid for any reason whatsoever, such invalidity shall not
affect the validity or operation of any other provision of this Agreement
except only so far as shall be necessary to give effect to the
construction of such invalidity, and any such invalid provision shall be
deemed severed from this Agreement without affecting the validity of the
balance of this Agreement.
19.6 MODIFICATIONS
Except as is provided in Article 19.5, there shall be no modification of
this Agreement except [by written consent of all Parties.
19.7 HEADINGS
The topical headings used in this Agreement are for convenience only and
shall not be construed as having any substantive significance or as
indicating that all of the provisions of this Agreement relating to any
topic are to be bound in any particular Article.
19.8 SINGULAR AND PLURAL
Reference to the singular includes a reference to the plural and vice
versa.
19.9 GENDER
110
Reference to any gender includes a reference to all other genders.
19.10 COUNTERPART EXECUTION
This Agreement may be executed in any number of counterparts and each
such counterpart shall be deemed an original Agreement for all purposes;
provided no Party shall be bound to this Agreement unless and until all
Parties have executed a counterpart. For purposes of assembling all
counterparts into one document, Operator is authorized to detach the
signature page from one or more counterparts and, after signature thereof
by the respective Party, attach each signed signature page to a
counterpart.
19.11 ENTIRETY
This Agreement is the entire agreement of the Parties and supersedes all
prior understandings and negotiations of the Parties.
111
IN WITNESS of their agreement each Party has caused its duly authorized
representative to sign this instrument on the date indicated below such
representative's signature.
Attest: GHK COMPANY COLOMBIA
------------------
Secretary
By______________________________
Vice President
CIMARRONA LIMITED LIABILITY
COMPANY by The GHK Company
L.L.C., Manager
By______________________________
Attorney-in-Fact
▇▇▇▇▇▇▇▇▇ LIMITED LIABILITY
COMPANY by The GHK Company
L.L.C., Manager
By______________________________
Attorney-in-Fact
SOCIEDAD INTERNACIONAL PETROLERA
S.A.
By______________________________
Title:________________________
SEVEN SEAS PETROLEUM COLOMBIA,
INC.
By
Title:
Attest: PETROLINSON S.A.
-------------------
Secretary
By____________________________
112
Title:________________________
STATE OF OKLAHOMA )
)
COUNTY OF OKLAHOMA )
On this ___ day of ____________,1996, before me, the undersigned, a
Notary Public, in and for the county and state aforesaid, personally appeared
____________________________, to me known to be the identical person who signed
the name of GHK Company Colombia to the within and foregoing instrument as its
________ President and acknowledged to me that he executed the same as his free
and voluntary act and deed, and as the free and voluntary act and deed of said
corporation, for the uses and purposes therein set forth.
Given under my hand and seal the day and year last above written.
My commission expires: Notary Public
--------------------------
[SEAL]
STATE OF OKLAHOMA )
)
COUNTY OF OKLAHOMA )
On this ___ day of ____________,1996, before me, the undersigned, a
Notary Public, in and for the county and state aforesaid, personally appeared
____________________________, to me known to be the identical person who signed
the name of Cimarrona Limited Liability Company to the within and foregoing
instrument as its Manager and acknowledged to me that he executed the same as
his free and voluntary act and deed, and as the free and voluntary act and deed
of said company for the uses and purposes therein set forth.
Given under my hand and seal the day and year last above written.
113
My commission expires: Notary Public
--------------------------
[SEAL]
STATE OF OKLAHOMA )
)
COUNTY OF OKLAHOMA )
On this ___ day of ____________,1996, before me, the undersigned, a
Notary Public, in and for the county and state aforesaid, personally appeared
____________________________, to me known to be the identical person who signed
the name of ▇▇▇▇▇▇▇▇▇ Limited Liability Company to the within and foregoing
instrument as its Manager and acknowledged to me that he executed the same as
his free and voluntary act and deed, and as the free and voluntary act and deed
of said company, for the uses and purposes therein set forth.
Given under my hand and seal the day and year last above written.
My commission expires: Notary Public
--------------------------
[SEAL]
STATE OF _______________ )
)
COUNTY OF ______________ )
On this ___ day of ____________,1996, before me, the undersigned, a
Notary Public, in and for the county and state aforesaid, personally appeared
____________________________, to me known to be the identical person who signed
the name of Sociedad Internacional Petrolera S.A. to the within and foregoing
instrument as its ________ President and acknowledged to me that he executed the
same as his free and voluntary act and deed, and as the free and voluntary act
and deed of said corporation, for the uses and purposes therein set forth.
Given under my hand and seal the day and year last above written.
114
My commission expires: Notary Public
--------------------------
[SEAL]
STATE OF _______________ )
)
COUNTY OF ______________ )
On this ___ day of ____________,1996, before me, the undersigned, a
Notary Public, in and for the county and state aforesaid, personally appeared
____________________________, to me known to be the identical person who signed
the name of Seven Seas Petroleum Colombia, Inc. to the within and foregoing
instrument as its ________ President and acknowledged to me that he executed the
same as his free and voluntary act and deed, and as the free and voluntary act
and deed of said corporation, for the uses and purposes therein set forth.
Given under my hand and seal the day and year last above written.
My commission expires: Notary Public
--------------------------
[SEAL]
STATE OF _______________ )
)
COUNTY OF ______________ )
On this ___ day of ____________,1996, before me, the undersigned, a
Notary Public, in and for the county and state aforesaid, personally appeared
____________________________, to me known to be the identical person who signed
the name of Petrolinson S.A. to the within and foregoing instrument as its
________ President and acknowledged to me that he executed the same as his free
and voluntary act and deed, and as the free and voluntary act and deed of said
corporation, for the uses and purposes therein set forth.
115
Given under my hand and seal the day and year last above written.
My commission expires: Notary Public
--------------------------
[SEAL]
116
AIPN MODEL FORM
INTERNATIONAL ACCOUNTING PROCEDURE
EXHIBIT A
ACCOUNTING PROCEDURE
TABLE OF CONTENTS
SECTION PAGE
SECTION I - GENERAL PROVISIONS
1.1 Purpose.............................................................1
1.2 Conflict with Agreement.............................................2
1.3 Definitions.........................................................2
1.4 Joint Account Records and Currency Exchange.........................3
1.5 Statements and Billings.............................................6
1.6 Payments and Advances...............................................8
1.7 Adjustments........................................................13
1.8 Audits.............................................................14
1.9 Allocations........................................................16
SECTION II - DIRECT CHARGES
2.1 Licenses, Permits, Etc.............................................17
2.2 Salaries, Wages and Related Costs..................................17
2.3 Employee Relocation Costs..........................................21
2.4 Offices, Camps and Miscellaneous Facilities........................22
2.5 Material...........................................................22
2.6 Exclusively Owned Equipment and Facilities of Operator and
Affiliates.........................................................23
2.7 Services...........................................................24
2.8 Insurance..........................................................24
2.9 Damages and Losses to Property.....................................25
2.10 Litigation and Legal Expenses......................................26
2.11 Taxes and Duties...................................................27
2.12 Other Expenditures.................................................28
SECTION III - INDIRECT CHARGES
3.1 Purpose............................................................28
3.2 Amount.............................................................29
3.3 Exclusions.........................................................30
3.4 Indirect Charge for Projects.......................................30
3.5 Changes............................................................31
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SECTION PAGE
SECTION IV - ACQUISITION OF MATERIAL
4.1 Acquisitions.......................................................31
4.2 Materials Furnished by Operator....................................32
4.2.1 New Materials (Condition "1")...............................32
4.2.2 Used Materials (Condition "2" and "3")......................32
4.3 Premium Prices.....................................................34
4.4 Warranty of Material Furnished by Operator.........................36
SECTION V - DISPOSAL OF MATERIALS
5.1 Disposal...........................................................36
5.2 Material Purchased by a Party or Affiliate.........................37
5.3 Division In Kind...................................................38
5.4 Sales to Third Parties.............................................38
SECTION VI - INVENTORIES
6.1 Periodic Inventories - Notice and Representation...................39
6.2 Special Inventories................................................39
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-1-
EXHIBIT A
ACCOUNTING PROCEDURE
Attached to and made part of the Operating Agreement, hereinafter called the
"Agreement," effective as of the 8th day of December, 1993, by and between GHK
Company Colombia, Operator, and others, Non-operators.
SECTION I
GENERAL PROVISIONS
1.1 PURPOSE.
1.1.1 The purpose of this Accounting Procedure is to establish
equitable methods for determining charges and credits
applicable to operations under the Agreement which reflect the
costs of Joint Operations to the end that no Party shall gain
or lose in relation to other Parties.
It is intended that approval of the Work Program and Budget and
AFE's as provided in the Agreement shall constitute approval of
the rates and allocation methods used therein to currently
charge the Joint Account, but subject to verification by audit
at a later date as provided in the Accounting Procedure.
1.1.2 The Parties agree, however, that if the methods prove unfair or
inequitable to Operator or Non-Operators, the Parties shall
meet and in good faith endeavor to agree on changes in methods
deemed necessary to correct any unfairness or inequity.
1.2 CONFLICT WITH AGREEMENT. In the event of a conflict between the
provisions of this Accounting Procedure and the provisions of the
Agreement to which this Accounting Procedure is attached, the provisions
of the Agreement shall prevail.
1.3 DEFINITIONS. The definitions contained in ARTICLE I of the Agree
ment to which this Accounting Procedure is attached shall apply to
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this Accounting Procedure and have the same meanings when used herein.
Certain terms used herein are defined as follows:
"COUNTRY OF OPERATIONS" shall mean the Republic of Colombia.
"MATERIAL" shall mean personal property (including, but not limited to,
equipment and supplies) acquired and held for use in Joint Operations.
1.4 JOINT ACCOUNT RECORDS AND CURRENCY EXCHANGE.
1.4.1 Operator shall at all times maintain and keep true and
correct records of the production and disposition of all
liquid and gaseous Hydrocarbons, and of all costs and
expenditures under the Agreement, as well as other data
necessary or proper for the settlement of accounts
between the Parties hereto in connection with their
rights and obligations under the Agreement and to enable
Parties to comply with their respective applicable
income tax and other laws. The Operator shall charge to
the Joint Account only the foregoing expenses and shall
maintain their respective back-up and supporting
documents. Operator shall keep, available for Non-
Operators audit, in its main office in Colombia, all the
original supporting documents, or copies of them if
required to keep the originals in a different place.
1.4.2 Operator shall maintain accounting records pertaining to Joint
Operations in accordance with generally accepted accounting
practices used in the international petroleum industry and any
applicable statutory obligations of the Country of Operations
as well as the provisions of the Contract and the Agreement.
1.4.3 Joint Account records shall be maintained by Operator in the
English language and in United States of America ("U.S.")
currency and in such other language and currency as may be
required by the laws of the Country of Operations. Conversions
of currency shall be recorded at the rate actually experienced
in that
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conversion. Currency translations for expenditures and receipts
shall be recorded at the arithmetic average buying and selling
exchange rates for the day of the expenditure or receipt as
published by the WALL STREET JOURNAL or, if not published by
the WALL STREET JOURNAL for such day, then for the next
preceding day for which a rate was so published.
1.4.4 Any currency exchange gain or losses shall be credited or
charged to the Joint Account, except as otherwise specified in
this Accounting Procedure.
1.4.5 This Accounting Procedure shall apply, MUTATIS MUTANDIS,
to Exclusive Operations in the same manner that it
applies to Joint Operations; provided, however, that the
charges and credits applicable to Consenting Parties
shall be distinguished by an Exclusive Operation Ac
count. For the purpose of determining and calculating
the remuneration of the Consenting Parties, including
the premiums for Exclusive Operations, the costs and
expenditures shall be expressed in U.S. currency (irre
spective of the currency in which the expenditure was
incurred).
1.4.6 The cash basis for accounting shall be used in preparing
accounts concerning the Joint Operations. Operator shall show
accruals as memorandum items.
1.5 STATEMENTS AND BILLINGS.
1.5.1 Unless otherwise agreed by the Parties, Operator shall
submit monthly to each Party, on or before the last Day
of each month, statements of the costs and expenditures
incurred during the prior month, indicating by
appropriate classification the nature thereof, the
corresponding budget category, and the portion of such
costs charged to each of the Parties. The final format
to be used shall be approved by the Operating Committee.
These statements, as a minimum, shall contain the
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-4-
following information:
- advances of funds setting forth the currencies
received from each Party
- the share of each Party in total expenditures
- the current account balance of each Party
- summary of costs, credits, and expenditures on a cur rent
month, year-to-date, and inception-to-date basis or other
periodic basis, as agreed by Parties
- details of unusual charges and credits in excess of
U.S. dollars Twenty-five Thousand (U.S.$25,000).
1.5.2 Operator shall, upon request, furnish a description of
the accounting classifications used by it.
1.5.3 Amounts included in the statements and billings shall be
expressed in U.S. currency and reconciled to the
currencies advanced.
1.5.4 Each Party shall be responsible for preparing its own
accounting and tax reports to meet the requirements of
the Country of Operations and of all other countries to
which it may be subject. Operator, to the extent that
the information is reasonably available from the Joint
Account records, shall provide Non-Operators in a timely
manner with the necessary statements to facilitate the
discharge of such responsibility.
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1.6 PAYMENTS AND ADVANCES.
1.6.1 Upon approval of any Work Program and Budget, if Opera
tor so requests, each Non-Operator shall advance its
share of estimated cash requirements for the succeeding
month's operations. Each such cash call shall be equal
to the Operator's estimate of the money to be spent in
the currencies required to perform its duties under the
approved Work Program and Budget during the month
concerned. For informational purposes the cash call
shall contain an estimate of the funds required for the
succeeding two (2) months.
1.6.2 Each such cash call, detailed by major budget catego
▇▇▇▇, shall be made in writing and delivered to all Non-
Operators not less than fifteen (15) Days before the
payment due date. The due date for payment of such ad
vances shall be set by Operator but shall be no sooner
than the first Business Day of the month for which the
advances are required. All advances shall be made
without bank charges. Any charges related to receipt of
advances from a Non-Operator shall be borne by that Non-
Operator.
1.6.3 Each Non-Operator shall wire transfer its share of the
full amount of each such cash call to Operator on or
before the due date, in US dollars or Colombian pesos as
requested by Operator, and at a bank designated by
Operator. If currency provided by a Non-Operator is
other than the requested currency, then the entire cost
of converting to the requested currency shall be charged
to that Non-Operator.
1.6.4 Notwithstanding the provisions of Section 1.6.2, should
Operator be required to pay any sums of money for the
Joint Operations which were unforeseen at the time of
providing the Non-Operators with said estimates of its
requirements, Operator may make a written request of the
Non-Operators for special advances covering the Non-
Operators' share of such payments. Each such Non-
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Operator shall make its proportional special advances within
fifteen (15) Days after receipt of such notice.
1.6.5 If a Non-Operator's advances exceed its share of cash
expenditures, the next succeeding cash advance require
ments, after such determination, shall be reduced
accordingly. A Non-Operator may request that its excess
advances be refunded. Operator shall make such refund
within ten (10) Days after receipt of the Non-Operator's
request provided that the amount is in excess of the
requesting Non-Operator's share of the cash advance
requirements for the succeeding month.
1.6.6 If Non-Operator's advances are less than its share of cash
expenditures, the deficiency shall, at Operator's option, be
added to subsequent cash advance requirements or be paid by
Non-Operator within fifteen (15) Days following the receipt of
Operator's billing to Non- Operator for such deficiency.
1.6.7 If, under the provisions of the Agreement, Operator is
required to segregate funds received from the Parties,
any interest received on such funds shall be applied
against the next succeeding cash call or, if directed by
the Operating Committee, distributed quarterly. The
interest thus received shall be allocated to the Parties
on an equitable basis taking into consideration date of
funding by each Party to the accounts in proportion to
the total funding into the account. A monthly statement
summarizing receipts, disbursements, transfers to each
joint bank account and beginning and ending balances
thereof shall be provided by Operator to the Parties.
1.6.8 If Operator does not request Non-Operators to advance their
share of estimated cash requirements, each Non- Operator shall
pay its share of cash expenditures within fifteen (15) Days
following receipt of Operator's billing.
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1.6.9 Payments of advances or ▇▇▇▇▇▇▇▇ shall be made on or before the
due date. If these payments are not received by the due date
the unpaid balance shall bear and accrue interest from the due
date until the payment is received by Operator at the Agreed
Interest Rate. For the purpose of determining the unpaid
balance and interest owed, Operator shall translate to U.S.
currency all amounts owed in other currencies using the
currency exchange rate readily available to Operator at the
close of the last Business Day prior to the due date for the
unpaid balance as quoted by the applicable authority identified
in Section 1.4.3 of this Section I.
1.6.10 Subject to governmental regulation, Operator shall have the
right, at any time and from time to time, to convert the funds
advanced or any part thereof to other currencies to the extent
that such currencies are then required for operations. The cost
of any such conver sion shall be charged to the Joint Account.
1.6.11 Operator shall maintain funds held for the Joint Account in
bank accounts at a level consistent with that required for the
prudent conduct of Joint Operations.
1.6.12 If under the Agreement, Operator is required to segre gate
funds received from or for the Joint Account, the provisions
under this Section 1.6 for payments and advances by
Non-Operators shall apply also to Operator.
1.7 ADJUSTMENTS. Payments of any advances or ▇▇▇▇▇▇▇▇ shall not prejudice the
right of any Non-Operator to protest or question the correctness thereof;
provided, however, all bills and statements rendered to Non-Operators by
Operator during any Calendar Year shall conclusively be presumed to be
true and correct after twenty-four (24) months following the end of such
Calendar Year, unless within the said twenty-four (24) month period a
Non-Oper ator takes written exception thereto and makes claim on Operator
for adjustment. Failure on the part of a Non-Operator to make claim on
Operator for adjustment within such period shall establish the
correctness thereof and preclude the filing of exceptions
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
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thereto or making claims for adjustment thereon. No adjustment favorable
to Operator shall be made unless it is made within the same prescribed
period. The provisions of this paragraph shall not prevent adjustments
resulting from a physical inventory of the Property as provided for in
Section VI. Operator shall be allowed to make adjustments to the Joint
Account after such twenty-four (24) month period if these adjustments
result from audit exceptions outside of this Agreement, third party
claims, or Government or Government Oil Company requirements. Any such
adjustments shall be subject to audit within the time period specified in
Section 1.8.1.
1.8 AUDITS.
1.8.1 A Non-Operator, upon at least sixty (60) Days advance
notice in writing to Operator and all other Non-Opera
tors, shall have the right to audit the Joint Accounts
and records of Operator relating to the accounting here
under for any Calendar Year within the twenty-four (24)
month period following the end of such Calendar Year.
The cost of each such audit shall be borne by Non-
Operators conducting the audit. It is provided,
however, that Non-Operators must take written exception
to and make claim upon the Operator for all discrepan
cies disclosed by said audit within said twenty-four
(24) month period. Where there are two or more Non-
Operators, the Non-Operators shall make every reasonable
effort to conduct joint or simultaneous audits in a
manner which will result in a minimum of inconvenience
to the Operator. Operator and Non-Operators shall make
every effort to resolve any claim resulting from an
audit within a reasonable period of time.
A Non-Operator may audit the records of an Affiliate of
Operator relating to that Affiliate's charges. The provisions
of this Accounting Procedure shall apply MUTATIS MUTANDIS to
such audits.
1.8.2 Any information obtained by a Non-Operator under the
provisions of this Section 1.8 which does not relate
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
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-8-
directly to the Joint Operations shall be kept confi dential
and shall not be disclosed to any party, except as would
otherwise be permitted by ARTICLE 15.1(A)(3) AND (9) of the
Agreement.
1.8.3 In the event that the Operator is required by law to
employ a public accounting firm to audit the Joint
Account and records of Operator relating to the ac
counting hereunder, the cost thereof shall be a charge
against the Joint Account, and a copy of the audit shall
be furnished to each Party. On the contrary, audits
required to be conducted either to the Operator's or to
any of the non-Operator's records, not directly and
specifically related to the Joint Operations, shall be
borne and paid by the audited company.
1.9 ALLOCATIONS. If it becomes necessary to allocate any costs or
expenditures to or between Joint Operations and any other opera tions,
such allocation shall be made on an equitable basis. Upon request,
Operator shall furnish a description of its allocation procedures
pertaining to these costs and expenditures.
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SECTION II
DIRECT CHARGES
Operator shall charge the Joint Account with all costs and expenditures incurred
in connection with Joint Operations. It is also understood that charges for
services normally provided by an operator such as those contemplated in Section
2.7.2 which are provided by Operator's Affiliates shall reflect the cost to the
Affiliate, excluding profit, for performing such services, except as otherwise
provided in Section 2.6, Section 2.7.1, and Section 2.5.1 if selected.
The costs and expenditures shall be recorded as required for the settle ment of
accounts between the Parties hereto in connection with the rights and
obligations under this Agreement and for purposes of complying with the tax laws
of the Country of Operations and of such other countries to which any of the
Parties may be subject. Without in any way limiting the generality of the
foregoing, chargeable costs and expenditures shall include:
2.1 LICENSES, PERMITS, ETC. All costs, if any, attributable to the
acquisition, maintenance, renewal or relinquishment of licenses, permits,
contractual and/or surface rights acquired for Joint Operations and
bonuses paid in accordance with the Contract when paid by Operator in
accordance with the provisions of the Agreement.
2.2 SALARIES, WAGES AND RELATED COSTS.
2.2.1 The employees of Operator and its Affiliates in the Country of
Operations directly engaged in Joint Opera tions whether
temporarily or permanently assigned.
2.2.2 The employees of Operator and its Affiliates outside the
Country of Operations directly engaged in Joint Operations
whether temporarily or permanently assigned, and not otherwise
covered in Section 2.7.2.
2.2.3 Salaries and wages, including everything constituting
the employees' total compensation. To the extent not
AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
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-11-
included in salaries and wages, the Joint Account shall also be
charged with the cost to Operator of holiday, vacation,
sickness, disability benefits, living and housing allowances,
travel time, and other customary allowances applicable to the
salaries and wages charge able hereunder, as well as costs to
Operator for employee benefits, including but not limited to
employee group life insurance, group medical insurance,
hospitalization, retirement, and other benefit plans of a like
nature applicable to labor costs of Operator. Operator's
employees participating in Country of Opera tions benefit plans
may be charged at a percentage rate to reflect payments or
accruals made by Operator appli cable to such employees. Such
accruals for Country of Operations benefit plans shall not be
paid by Non- Operators, unless otherwise approved by the
Operating Committee, until the same are due and payable to the
employee, upon withdrawal of a Party pursuant to the Agreement,
or upon termination of the Agreement, which ever occurs first.
2.2.4 Expenditures or contributions made pursuant to assess ments
imposed by governmental authority for payments with respect
thereto or on account of such employees.
2.2.5 Salaries and wages charged in accordance with Operator's
usual practice, when and as paid or accrued, or on a
basis of the Operator's average cost per employee for
each job category; and the rates to be charged shall be
initially determined by the Operating Committee and
reviewed at least annually to reflect the Operator's
actual costs. 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
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2.2.6 Reasonable expenses (including related travel costs) of those
employees whose salaries and wages are chargeable to the Joint
Account under Sections 2.2.1 and 2.2.2 of this Section II and
for which expenses the employees are reimbursed under the usual
practice of Operator.
2.2.7 If employees are engaged in other activities in addition to the
Joint Operations, the cost of such employees shall be allocated
on an equitable basis.
2.3 EMPLOYEE RELOCATION COSTS.
2.3.1 Except as provided in Section 2.3.3, Operator's cost of
employees' relocation to or from the Contract Area
vicinity or location where the employees will reside or
work, whether permanently or temporarily assigned to the
Joint Operations. If such employee works on other
activities in addition to Joint Operations, such relo
cation costs shall be allocated on an equitable basis.
Such costs shall not exceed the cost of relocating such
employees to and from the contract area vicinity to and
from the Operator's head office.
2.3.2 Such relocation costs shall include transportation of
employees, families, personal and household effects of the
employee and family, transit expenses, and all other related
costs in accordance with Operator's usual practice.
2.3.3 Relocation costs from the vicinity of the Contract Area to
another location classified as a foreign location by Operator
shall not be chargeable to the Joint Account unless such
foreign location is the point of origin of the employee.
2.4 OFFICES, CAMPS, AND MISCELLANEOUS FACILITIES. Cost of maintaining
any offices, sub-offices, camps, warehouses, housing, and other
facilities of the Operator and/or Affiliates directly serving the
Joint Operations. If such facilities serve operations in addition
to the Joint Operations the costs shall be allocated to the
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properties served on an equitable basis.
2.5. MATERIAL. Cost, net of discounts taken by Operator, of Material
purchased or furnished by Operator. Such costs shall include, but
are not limited to, export brokers' fees, transportation charges,
loading, unloading fees, export and import duties and license fees
associated with the procurement of Material and in-transit losses,
if any, not covered by insurance. So far as it is reasonably
practical and consistent with efficient and economical operation,
only such Material shall be purchased for, and the cost thereof
charged to, the Joint Account as may be required for immediate
use.
2.6 EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF OPERATOR AND AFFILIATES.
Charges for exclusively owned equipment, facilities, and utilities of
Operator and its Affiliates at rates not to exceed the average commercial
rates of non-affiliated third parties then prevailing for like equipment,
facilities, and utilities for use in the area where the same are used
hereunder. On request, Operator shall furnish Non-Operators a list of
rates and the basis of application. Such rates shall be determined by the
Operating Committee and revised from time to time if found to be either
excessive or insuffi cient, but not more than once every six months.
Drilling tools and other equipment lost in the hole or damaged beyond
repair may be charged at replacement cost less depreciation plus
transportation costs to deliver like equipment to the location where
used.
2.7 SERVICES.
2.7.1 The cost of services provided by third parties including
Affiliates of Operator other than those services covered by
Section 2.7.2. Such charges for services by Operator's
Affiliates shall not exceed those currently prevailing if
performed by non-affiliated third parties, considering quality
and availability of services.
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2.7.2 The cost of services performed by Operator's Affiliates
technical and professional staffs not located within the
Country of Operation, with the previous agreement of the
Operating Committee.
2.8 INSURANCE. Premiums paid for insurance required by law or the Agreement
to be carried for the benefit of the Joint Operations, provided however
that Operator shall give non-Operators notice of the insurance required
to give them the opportunity to use their own policies, if possible.
2.9 DAMAGES AND LOSSES TO PROPERTY.
2.9.1 All costs or expenditures necessary to replace or repair
damages or losses incurred by fire, flood, storm, theft,
accident, or any other cause. Operator shall furnish
Non-Operators written notice of damages or losses
incurred in excess of Ten Thousand U.S. dollars (U.S.
$10,000) as soon as practical after report of the same
has been received by Operator. All losses in excess of
Ten Thousand U.S. dollars (U.S. $10,000) shall be listed
separately in the monthly statement of costs and
expenditures.
2.9.2 Credits for:
Settlements received from insurance carried for the benefit of
Joint Operations and from others from losses or damages to
Joint Property or Materials;
Government subsidy payments, disposition of material and
receipts from third parties for settlement of claims;
Interest amounts earned by investment of cash surpluses;
and
Any other credit arising from Joint Operations, contracts or
sales of Joint Property pursuant to the Contract or the Joint
Operating Agreement.
Each Party shall be credited with its Participating Interest
share thereof except where such receipts are
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derived from insurance purchased by Operator for less than all
Parties in which event such proceeds shall be credited to those
Parties for whom the insurance was purchased in the proportion
of their respective contributions toward the insurance
coverage.
2.9.3 Expenditures incurred in the settlement of all losses,
claims, damages, judgments, and other expenses for the
account of Joint Operations.
2.10 LITIGATION AND LEGAL EXPENSES. The costs and expenses of litiga
tion and legal services necessary for the protection of the Joint
Operations under this Agreement as follows:
2.10.1 Legal services necessary or expedient for the protection of the
Joint Operations, and all costs and expenses of litigation,
arbitration or other alternative dispute resolution procedure,
including reasonable attorneys' fees and expenses, together
with all judgments obtained against the Parties or any of them
arising from the Joint Operations.
2.10.2 If the Parties hereunder shall so agree, actions or
claims affecting the Joint Operations hereunder may be
handled by the legal staff of one or any of the Parties
hereto; and a charge commensurate with the reasonable
costs of providing and furnishing such services rendered
may be made by the Party providing such service to
Operator for the Joint Account, but no such charges
shall be made until approved by the Parties.
2.11 TAXES AND DUTIES. All taxes, duties, assessments and governmental
charges, of every kind and nature, assessed or levied upon or in
connection with the Joint Operations, other than any that are measured by
or based upon the revenues, income and net worth of a Party.
If Operator or an Affiliate is subject to income or withholding tax as a
result of services performed at cost for the operations under the
Agreement, its charges for such services may be in
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creased by the amount of such taxes incurred (grossed up).
2.12 OTHER EXPENDITURES. Any other costs and expenditures incurred by Operator
for the necessary and proper conduct of the Joint Opera tions in
accordance with approved Work Programs and Budgets and not covered in
this Section II or in Section III.
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AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE
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SECTION III
INDIRECT CHARGES
3.1 PURPOSE. Operator shall charge the Joint Account monthly for the cost of
indirect services and related office costs of Operator and its Affiliates
not otherwise provided in this Accounting Procedure. Indirect costs
chargeable under this Section III represent the cost of general
counseling and support services provided to Operator by its Affiliate.
These costs are such that it is not practical to identify or associate
them with specific projects but are for services which provide Operator
with needed and necessary resources which Operator requires and provide a
real benefit to Joint Operations. No cost or expenditure included under
Section II shall be included or duplicated under this Section III.
3.2 AMOUNT. The charge for the period beginning with the Calendar Year
through the end of the period covered by Operator's invoice
("Year-to-Date") under Section 3.1 above shall be a percentage of the
Year-to-Date expenditures, calculated on the following scale (U.S.
Dollars):
ANNUAL EXPENDITURES
$0 to $2,000,000 of expenditures = 3%
Next $3,000,000 of expenditures = 2%
Excess above $5,000,000 of expenditures = 1%
A minimum amount of U.S.$120,000 shall be assessed each year.
3.3 EXCLUSIONS. The expenditures used to calculate the monthly indi rect
charge shall not include the indirect charge (calculated either as a
percentage of expenditures or as a minimum monthly charge), rentals on
surface rights acquired and maintained for the Joint Account, guarantee
deposits, pipeline tariffs, concession
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acquisition costs, bonuses paid in accordance with the Contract,
royalties and taxes paid under the Contract, expenditures associated with
major construction projects for which a separate indirect charge is
established hereunder, payments to third parties in settlement of claims,
and other similar items.
Credits arising from any government subsidy payments, disposition of
Material, and receipts from third parties for settlement of claims shall
not be deducted from total expenditures in determin ing such indirect
charge.
3.4 INDIRECT CHARGE FOR PROJECTS. As to major construction projects (such as,
but not limited to, pipelines, gas reprocessing and processing plants,
and final loading and terminalling facilities) when the estimated cost of
each project amounts to more than U.S. $5,000,000, a separate indirect
charge for such project shall be set by the Operating Committee at the
time of approval of the project.
3.5 CHANGES. The indirect charges provided for in this Section III may be
amended periodically by mutual agreement between the Parties if, in
practice, these charges are found to be insufficient or excessive.
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SECTION IV
ACQUISITION OF MATERIAL
4.1 ACQUISITIONS. Materials purchased for the Joint Account shall be charged
at net cost paid by the Operator. The price of Materials purchased shall
include, but shall not be limited to export broker's fees, insurance,
transportation charges, loading and unloading fees, import duties,
license fees, and demurrage (retention charges) associated with the
procurement of Materials, and applicable taxes, less all discounts taken.
4.2 MATERIALS FURNISHED BY OPERATOR. Materials required for opera tions shall
be purchased for direct charge to the Joint Account whenever practicable,
except the Operator or any other party may furnish such Materials from
its stock under the following conditions:
4.2.1 NEW MATERIALS (CONDITION "1"). New Materials trans ferred from
the warehouse or other properties of Opera tor shall be priced
at net cost determined in accordance with Section 4.1 above, as
if Operator had purchased such new Material just prior to its
transfer. Such net costs shall in no event exceed the then
current market price.
4.2.2 USED MATERIALS (CONDITIONS "2" AND "3").
4.2.2.1 Material which is in sound and serviceable condition
and suitable for use without repair or
reconditioning shall be classed as Condition "2" and
priced at seventy-five percent (75%) of such new
purchase net cost at the time of transfer.
4.2.2.2 Materials not meeting the requirements of Section
4.2.2.1 above, but which can be made suitable for
use after being repaired or reconditioned, shall be
classed as Condition "3" and priced at fifty percent
(50%) of
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such new purchase net cost at the time of transfer.
The cost of reconditioning shall also be charged to
the Joint Account provid ed the Condition "3" price,
plus cost of reconditioning, does not exceed the
Condi tion "2" price; and provided that Material so
classified meet the requirements for Condition "2"
Material upon being repaired or reconditioned.
4.2.2.3 Material which cannot be classified as Con dition
"2" or Condition "3", shall be priced at a value
commensurate with its use, but not exceeding the
price of Condition "3" material. This type of
material shall be purchased only when immediately
needed for the Joint Operations and not for stock.
4.2.2.4 Tanks, derricks, buildings, and other items of
Material involving erection costs, if transferred in
knocked-down condition, shall be graded as to
condition as provided in this Section 4.2.2 of
Section IV, and priced on the basis of knocked-down
price of like new Material.
4.2.2.5 Material including drill pipe, casing and tubing,
which is no longer useable for its original purpose
but is useable for some other purpose, shall be
graded as to condition as provided in this Section
4.2.2 of Section IV. Such Material shall be priced
on the basis of the current price of items normally
used for such other purpose if sold to third
parties.
For purposes of this Section, the Operator shall provide to the Non- Operators a
list of the relevant materials that are necessary for the Joint Operations
according to the Work Program.
4.3 PREMIUM PRICES. Whenever Material is not readily obtainable at
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prices specified in Sections 4.1 and 4.2 of this Section IV because of
national emergencies, strikes or other unusual causes over which Operator
has no control, Operator may charge the Joint Account for the required
Material at Operator's actual cost incurred procuring such Material, in
making it suitable for use, and moving it to the Contract Area, provided
that notice in writing, including a detailed description of the Material
required and the required delivery date, is furnished to Non-Operators of
the proposed charge at least 10 Days (or such shorter period as may be
specified by Operator) before the Material is projected to be needed for
operations and prior to billing Non-Operators for such Material the cost
of which exceeds Twenty-five Thousand U.S. dollars (U.S. $25,000). Each
Non-Operator shall have the right, by so electing and notifying Operator
within 5 Days (or such shorter period as may be specified by Operator)
after receiving notice from Operator, to furnish in kind all or part of
his share of such Material per the terms of the notice which is suitable
for use and acceptable to Operator both as to quality and time of
delivery. Such acceptance by Operator shall not be unreasonably withheld.
If Material furnished is deemed unsuitable for use by Operator, all costs
incurred in disposing of such Material or returning Material to owner
shall be borne by the Non-Operator furnishing the same unless otherwise
agreed by the Parties. If a Non-Operator fails to properly submit an
election notification within the designated period, Operator is not
required to accept Material furnished in kind by that Non-Operator. If
Operator fails to submit proper notification prior to billing
Non-Operators for such Material, Operator shall only charge the Joint
Account on the basis of the price allowed during a "normal" pricing
period in effect at time of movement.
4.4 WARRANTY OF MATERIAL FURNISHED BY OPERATOR. Operator does not warrant the
Material furnished. In case of defective Material, credit shall not be
passed to the Joint Account until adjustment has been received by
Operator from the manufacturers or their agents.
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SECTION V
DISPOSAL OF MATERIALS
5.1 DISPOSAL. Operator shall be under no obligation to purchase the interest
of Non-Operators in new or used surplus Materials. Operator shall have
the right to dispose of Materials but shall advise and secure prior
agreement of the Operating Committee of any proposed disposition of
Materials having an original cost to the Joint Account either
individually or in the aggregate of Twenty-five Thousand U.S. Dollars
(U.S. $25,000) or more. When Joint Operations are relieved of Material
charged to the Joint Account, Operator shall advise each Non-Operator of
the original cost of such Material to the Joint Account so that the
Parties may eliminate such costs from their asset records. Credits for
Material sold by Operator shall be made to the Joint Account in the month
in which payment is received for the Material. Any Material sold or
disposed of under this Section shall be on an "as is, where is" basis
without guarantees or warranties of any kind or nature. Costs and
expenditures incurred by Operator in the disposition of Materials shall
be charged to the Joint Account.
5.2 MATERIAL PURCHASED BY A PARTY OR AFFILIATE. Material purchased from the
Joint Property by a Party or an Affiliate thereof shall be credited by
Operator to the Joint Account, with new Material valued in the same
manner as new Material under Section 4.2.1 and used Material valued in
the same manner as used Material under Section 4.2.2, unless otherwise
agreed by the Operating Committee.
5.3 DIVISION IN KIND. Division of Material in kind, if made between the
Parties, shall be in proportion to their respective interests in such
Material. Each Party will thereupon be charged individu ally with the
value (determined in accordance with the procedure set forth in Section
5.2) of the Material received or receivable by it.
5.4 SALES TO THIRD PARTIES. Material purchased from the Joint
Property by third parties shall be credited by Operator to the
Joint Account at the net amount collected by Operator from the
buyer. If the sales price is less than that determined in
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accordance with the procedure set forth in Section 5.2, then approval by
the Operating Committee shall be required prior to the sale. Any claims
by the buyer for defective materials or otherwise shall be charged back
to the Joint Account if and when paid by Operator.
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SECTION VI
INVENTORIES
6.1 PERIODIC INVENTORIES - NOTICE AND REPRESENTATION. At reasonable
intervals, but at least annually, inventories shall be taken by Operator
of all Material on which detailed accounting records are normally
maintained. The expense of conducting periodic invento ▇▇▇▇ shall be
charged to the Joint Account. Operator shall give Non-Operators written
notice at least thirty Days (30) in advance of its intention to take
inventory, and Non-Operators, at their sole cost and expense, shall each
be entitled to have a representative present. The failure of any
Non-Operator to be represented at such inventory shall bind such
Non-Operator to accept the inventory taken by Operator, who shall in that
event furnish each Non-Operator with copies of the inventory listings and
a reconciliation of overages and shortages. Inventory adjust ments to the
Joint Account shall be made for overages and short ages. Any adjustment
equivalent to Twenty-five Thousand U.S. Dollars (U.S.$25,000) or more
shall be brought to the attention of the Operating Committee.
6.2 SPECIAL INVENTORIES. Whenever there is a sale or change of interest in
the Agreement, a special inventory may be taken by the Operator provided
the seller and/or purchaser of such interest agrees to bear all of the
expense thereof. In such cases, both the seller and the purchaser shall
be entitled to be represented and shall be governed by the inventory so
taken.
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