UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
[ ] TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to____________________
Commission file number 0-28184
MASON OIL COMPANY, INC.
(Exact name of small business issuer in its charter)
Utah 37-109974
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(State of incorporation) (I.R.S. Employer Identification No.)
6337 Ravenwood Drive, Sarasota, FL 34243
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(Address of principal executive (ZIP Code)
offices)
Issuer's telephone number: (941) 351-3102
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
$0.001 par value Common Stock
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No _____
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. [X]
The issuer's revenues for its most recent fiscal year consisted of interest
income in the amount of approximately $45,782.
<PAGE>
The aggregate market value of the voting Common Stock held by non-affiliates of
the issuer (treating all executive officers and directors of the issuer, for
this purpose, as if they may be affiliates of the issuer) was approximately
$322,473 as of December 31, 1998 (based on the average bid and asked price of
such Common Stock).
Ten million eight hundred ninety thousand five hundred four (10,890,504) shares
of the issuer's Common Stock were outstanding as of December 31, 1998.
Transitional Small Business Disclosure Format (check one):
Yes _______ No X
<PAGE>
MASON OIL COMPANY, INC.
For Fiscal Year Ended June 30, 1998
TABLE OF CONTENTS
Form 10-KSB
PART I
Item Page
1 Description of Business. 1
2. Description of Property 3
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Issuer's Common Equity and Related Stockholder
Matters 9
6. Management's Discussion and Analysis or Plan of Operation 10
7. Financial Statements 11
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 12
PART III
9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 12
10. Executive Compensation 13
11. Security Ownership of Certain Beneficial Owners and
Management 13
12. Certain Relationships and Related Transactions 14
PART IV
13. Exhibits and Reports on Form 8-K 14
Signatures 16
<PAGE>
PART I
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. The forward looking
statements include statements that reflect management's intentions, plans,
beliefs, expectations or predictions of future operations, conditions, and
potential future capitalization of the Company. These forward-looking statements
are based on current expectations that involve numerous risks and uncertainties.
Assumptions relating to such current expectations involve judgments with respect
to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could be inaccurate and therefore there
can be no assurance that the forward-looking statements included in this Form
10-KSB will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation of the Company or
any other person that the objectives and plans of the Company will be achieved.
Item 1. Description of Business.
General. Mason Oil Company, Inc., a Utah corporation formed in 1980 (the
"Company"), is positioning itself to participate in the acquisition, development
and operation of selected oil and gas properties, expected to be located
principally in Australia and Southeast Asia. From 1981 until 1996, the Company
was dormant, with no significant assets or liabilities. Controlling interest in
the Company was acquired in September, 1996 by Paul B. Ingram and John L.
Naylor, for the purpose of establishing a vehicle for the identification,
exploration, development and operation of promising oil and gas properties.
Since the date of such transaction, the Company has investigated potential
petroleum exploration and development prospects and explored how it might
participate in the development and operation of such properties.
In October of 1996, Mr. Ingram and Mr. Naylor sold a 100% working interest in
two South Australian oil and gas exploration licenses, identified as Petroleum
Exploration Licenses 61 and 63 ("PELs 61 and 63", and collectively the "PELs"),
to the Company, subject to a 3% royalty interest retained by Mr. Ingram and Mr.
Naylor, in exchange for 6,000,000 shares of the Company's stock. The PELs are
held by Hemley Exploration Pty. Ltd., an Australian corporation ("Hemley")
which, as a result of the transaction with Mr. Ingram and Mr. Naylor, became a
wholly owned subsidiary of the Company. At the time of the transaction, the PELs
constituted the only significant assets of Hemley, and Hemley had not conducted
any significant operations with respect to the PELs or otherwise.
<PAGE>
The initiation of exploration activities under the PELs was further delayed in
1998 because of negotiations with the aboriginal tribes claiming interests in
the geographic areas covered by the PELs. In recent months, a native group
asserted rights to title of the land subject to PEL 63. The Company believes
however, that it has resolved such claims by entering into an Access Agreement
with this native group (the "PEL 63 Access Agreement"). The PEL 63 Access
Agreement sets forth the terms upon which the Company has agreed with the native
group to all access to PEL 63 for purposes of conducting exploration and
production activities. The Company is obligated under the PEL 63 Access
Agreement to make certain payment in return for rights to use the area. The
Company performed additional aeromagnetic surveys in the northeast portion of
the Officer Basin of South Australia during the last fiscal year, being the
geographic area covered by the PELs, and the data is in the process of being
interpreted. A report on such data is expected in the near future. This data
will assist the Company in pursuing drilling activities which are, at present,
practically unwise due to the decline of oil prices in recent months.
Sale of Drilling Rig Interest. The company recently sold its one-half interest
in a Cabot/Franks 1000 drilling rig. The rig was purchased when drilling
equipment in the vicinity of the PELs was not readily available. Due to the
deflated market price for oil, however, the Company decided to not transport the
rig to Australia for use in the PELs. At current market prices for oil, the
Company believes that it is now more economical to contract the drilling work
out to third parties. Accordingly, the Company decided to sell its interest in
the rig back to the operator, T. D. International, at a price equal to that for
which the Company purchase the rig, $300,000. T.D. International is also
returning 806,666 shares of common stock of the Company which it acquired in the
purchase of the rig, and the Company is obtaining unencumbered title to a 50 man
portable drilling camp. At the time of this report, the rig sales agreement has
been signed and the stock is being returned for cancellation.
Indonesian Venture. Over the past two years the Company has been exploring
various ventures in Indonesia as a means of acquiring proven reserves to broaden
the base of the Company's operations. The Company recently signed a Memorandum
of Agreement (MOA) with a banking group by invitation, which is intended to
result in an 80% management interest in a joint venture with the banking group
under a Technical Assistance Contract (TAC) with Pertamina, the Indonesian
national oil company. The MOA covers 195 square kilometers, including two
previously discovered and partially developed fields in the Bintuni Basin of
Irian Jaya (Western New Guinea).
The joint venture working interest would entitle the joint venture to 67% of the
production (with the Company to receive 80% of the joint venture proceeds) with
33% going to the state of Indonesia. Two independent reports show these fields
have in excess of 500 million barrels of original oil in place (OOIP) average
reserves. These detailed reports also estimate that the 6 million barrels
produced between 1955 and 1961 represents less than 2% of the total that could
be produced from these fields. In addition, there are two structures in this
Bintuni Basin block that have never been explored. There were a total of 53
producing wells in the two fields at the time they were closed down in 1961.
The Company believes that it will need $2.4 million U. S. to reopen the
Indonesian field and prove that substantially similar pressures and depth of the
oil/water interface exist today when compared with the time they were closed. If
and when financing is secured, the Company plans to proceed to open and test at
least one well in each field and one well in each producing formation. The
proving period is expected to run through August of 1999, subject to certain
rights of extension. The production period, without any new discoveries, is
expected to last for up to 6 years and, if the reported reserves can be
effectively extracted, to produce at least 6 million barrels of oil during that
time.
<PAGE>
In order to take advantage of this joint venture opportunity, the Company must
obtain some form of financing. There can be no assurance that the Company can
obtain such needed financing. Given its present cash position, the Company
anticipates that it can satisfy its cash requirements, at current operating
levels for a period of one year or more. Moreover, the political situation in
Indonesian around Jakarta, Indonesia is less than ideal at this time, but the
situation on Irian Jaya is quite different, showing no signs of unrest. However,
there can be no assurance that the political situation around the field will
remain calm.
General Risks and Uncertainties
Currently the Company is not involved in any oil and gas production activities.
There can be no assurance that in the future the Company will locate proven
reserves in addition to those discovered in Indonesia, whether associated with
the PELs or otherwise. Exploration and development activities undertaken may not
result in the establishment of producing wells. Moreover, even with proven
reserves positively identified, the feasibility of recovery is strongly
dependent upon world market prices for oil and gas. There can be no assurance
that amounts capitalized as acquisition, exploration and development costs will
be recoverable through future operations.
Operating Hazards and Insurance. The oil and gas business involves a variety of
operating risks, including the risks of fire, explosions, blow outs, pipe
failures, abnormally pressured formations and environmental hazards such as oil
spills, gas leaks, ruptures or discharges of toxic gases, the occurrence of any
of which could result in substantial losses due to injury or loss of life,
severe damage to or destruction of property, natural resources and equipment,
pollution or other environmental damage, clean up responsibilities, regulatory
investigations and penalties and suspension of operations. Upon the initiation
of development activities, the Company will seek to obtain a gas and oil lease
operator policy that would insure the Company against certain risks associated
with drilling, completing and operating any wells. There can be no assurance
that such insurance would be available to the Company or, if it is obtained,
that it would be adequate to cover any losses or exposure to liability. Once the
Company commences exploration and development activities, even if it obtains
insurance as customary in the industry, such insurance coverage would not
provide complete coverage against all operating risks. An uninsured or partially
insured claim, if successful and of sufficient magnitude, could have a material
adverse effect on the Company and its financial condition. Any difficulty in
obtaining or maintaining insurance coverage may impair the Company's ability to
engage in its proposed business activities.
Regulation. The oil and gas industry is extensively regulated by national,
regional and local authorities in each jurisdiction in which the Company may be
involved in exploration, development and production activities. In particular,
oil and gas production operations and economics are affected by price controls,
environmental protection statutes, governmental control of extraction
activities, tax statutes and other laws and regulations relating to the
petroleum industry, as well as by changes in such laws, changing administrative
regulations and the interpretations and application of such laws, rules and
regulations. Oil and gas industry legislation and agency regulation are under
constant review for amendment and expansion for a variety of political, economic
and other reasons. Numerous governmental and regulatory authorities, national,
regional and local, are empowered to issue rules and regulations impacting the
oil and gas industry, some of which carry substantial penalties for failure to
comply. The legal and regulatory framework for conducting petroleum exploration,
development and production activities in foreign countries is also subject to
change due to changes in the parties in power. The Company's proposed activities
would be subject to the risks associated with political instabilities. The
regulatory burdens and political risks associated with the oil and gas industry
increase the cost of doing business and, consequently, affect a participant's
ability to achieve profitability.
<PAGE>
Competition. The oil and gas industry is highly competitive in all of its
phases. The Company will encounter competition from other oil and gas companies
in all areas of its operations, including the acquisition of interests in
exploration and development properties, the marketing of oil and gas that may be
produced, and the availability of drilling rigs. Many of these competitors
possess greater financial, technical and other resources than the Company.
Competition for acquisition of rights to exploration and development of
properties is affected by the amount of funds available to the Company and
information about producing properties available to the Company. Competition may
also be presented by alternative fuel sources, including heating oil and other
fossil fuels. There has been increased competition for lower risk development
opportunities and available sources of financing.
Environmental Regulation. Various national, regional and local laws and
regulations covering the discharge of materials into the environment or
otherwise relating to the protection of the public health and the environment
may affect the Company's operations, expenses and costs. The Company does not
believe that its environmental risks will be materially different from those of
comparable oil and gas companies operating in similar geographic areas.
Nevertheless, no assurance can be given that environmental laws will not, in the
future, result in the curtailment in production activities or materially
increase the costs of exploration, development or production, or otherwise
adversely effect the Company's operations and financial condition.
Bankruptcy Proceeding. As has been disclosed in prior filings, on December 31,
1985, the Company filed a Chapter 11 Petition for Voluntary Bankruptcy in the
United States Bankruptcy Court for the District of Utah, Central Division. At
the Company's request, on January 14, 1988 the bankruptcy proceedings were
dismissed.
Employees. The Company has two employees, both of which work full time for the
Company. The employees are Paul Ingram and John Naylor, the two officers of the
Company, who between themselves handle all administrative functions and the
investigation and evaluation of potential exploration and development projects.
Item 2. Description of Property.
General. The Company's primary asset is its interests in the PELs, which were
issued by the State of South Australia, and an access agreement providing the
Company with access to the property covered by the PELs, negotiated with the
Anangu Pitjantjatjari aboriginal tribe.
The area covered by the PELs is roughly described as a portion of the Eastern
Officer Basin, consisting of 17,188 square kilometers (4.2 million acres),
situated approximately 200 miles south of Alice Springs and approximately 700
miles north of Adelaide. Although the location is remote from populated areas, a
modern railway and a year-round, sealed highway service the site, and provide
access from the site to a refinery at Alice Springs to the north, and a refinery
and deep water port at Port Augusta and Adelaide to the south. The terrain is
relatively flat, making access to rail and highway uncomplicated. Due to the
remoteness of the site, it is anticipated that development would cause minimal
disturbance to human population, flora or fauna. Climatic conditions typically
allow operations 350 days of the year.
<PAGE>
Grant and Area of PELs. The PELs were granted to Hemley on 23 May 1996, pursuant
to the terms of the Petroleum Act 1940 (South Australia) (the "Petroleum Act").
Under Australian law, minerals and petroleum are vested in the Government;
rights to explore and extract petroleum within mainland South Australia are
conferred under and regulated by the Petroleum act and regulations made by the
South Australian Government under that Act.
In broad terms, the PELs confer the right to explore for gas and liquid
hydrocarbons within the license area, but not to undertake commercial production
of any reserves which are discovered. The initial term of each PEL is five (5)
years, ending on 22 May 2001. The PELs were issued by the South Australian
Department of Mines and Energy (the "Department") on behalf of the Minister for
Mines and Energy.
PEL 61 covers an area of approximately 6,258 square kilometers, and falls
entirely within the land area known as the "Pitjantjatjara Lands." These lands
are subject of the Pitjantjatjara Land Rights Act 1981 (South Australia) (the
"Pitjantjatjara Act"). Pursuant to this Act, ownership of the Pitjantjatjara
Lands had been vested in a corporation, Anangu Pitjantjatjara, on behalf of the
local traditional occupiers of the land. The vesting of these lands in Anangu
Pitjantjatjara, and the terms of the Pitjantjatjara Act, do not prevent Hemley
Exploration from exercising its rights under PEL 61. However, in order to comply
with the Pitjantjatjara Act, Hemley Exploration is subject to an Access
Agreement with Anangu Pitjantjatjara, which further regulates Hemley
Exploration's activities on the PEL area.
PEL 63 covers an area which is adjacent to (but outside of) the Pitjantjatjara
Lands area. The total area covered by the license is 10,930 square kilometers,
though the license is expressed only to apply to specified categories of land
within this area. In essence, these are categories of land in respect of which,
under Australian law, the Company believes that a native title claim will not
(or is most unlikely to) apply. However, in recent months, a native group did
assert rights to land subject to this license agreement. To resolve such
conflict, the Company has entered into the PEL 63 Access Agreement with the
native group which regulates Hemley Exploration's activities on the PEL area.
Petroleum Exploration Licenses - Rights and Obligations. The PELs have been
issued for an initial term of five years, subject to the license renewal
provisions contained in the Petroleum Act. The Petroleum Act prescribes minimum
exploration expenditure requirements to apply during the initial term of an
Exploration License. However, in the case of each of PELs 61 and 63, a detailed
plan setting out minimum levels of exploration for each year of the initial term
of the PEL is included in the License conditions.
<PAGE>
The plan includes minimum estimated expenditure levels for each year, as
follows:
PEL 61 PEL 63
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Year 1 (ending 22 May 1997) A $1,250,000 A $ 645,000
Year 2 (ending 22 May 1998) 2,000,000 340,000
Year 3 (ending 22 May 1999) 2,450,000 1,700,000
Year 4 (ending 22 May 2000) 3,950,000 1,770,000
Year 5 (ending 22 May 2001) 4,975,000 300,000
Total A $14,625,000 A $4,755,000
Under the terms of each License, if Hemley fails to comply with the prescribed
exploration requirements in any year of the term, the responsible Minister may
(at his discretion) cancel or vary the License or, alternatively, vary these
expenditure requirements. The Company has to date been unable to meet the
exploratory requirements of the PELs, as a result of lack of capital and certain
complications associated with the status of one of the PELs . The South
Australian Department of Mines and Energy ("MESA") has eased the requirements
associated with the Company's PELs and has agreed to work with the Company to
resolve such complications. Currently the Company believes that both PELs are in
good standing with MESA.
In brief, some of the principal rights and obligations attaching to Hemley as
the holder of a Petroleum Exploration License are as follows:
(a) the Licensee has the exclusive right to engage in petroleum
exploration on the subject area;
(b) the Licensee must comply with general conservation and rehabilitation
obligations set out in the Petroleum Act and Regulations;
(c) the Licensee is subject to ongoing reporting obligations to the
Department in respect of work undertaken and expenditure incurred;
(d) the Licensee must also consult with and obtain the approval of the
Department in respect of work to be undertaken for the remainder of
the term; and
(e) where any part of the License area is being used for certain other
purposes, such as for the cultivation of crops or as pasture, the
Licensee must first obtain the consent of the relevant occupier or
user.
A most important obligation of Hemley as the Licensee under the PELs is to
notify the Minister upon the discovery of petroleum (whether liquid or gaseous)
within the relevant License area. Particulars of the quantity and quality of the
petroleum must be provided as soon as practicable. The rights of Hemley to apply
for a Production License in this event are referenced below.
<PAGE>
Extension of Term of PEL. The Petroleum Act makes provision for the renewal of
Petroleum Exploration Licensees for further terms of five years. Hemley would be
entitled to apply for and obtain such an extension at the end of the current
term of the PELs, subject to satisfying the Department that all of the
obligations applicable to the initial term have been satisfied. Upon any such
renewal, the existing area of the PEL would be required to be reduced by not
less than 25% by the excision of area(s) from the existing area of the License.
PEL 61 and PEL 63 - Access Agreements. As referenced above, the area of PEL 61
is subject to the Pitjantjatjara Act. Under the terms of that Act, in order for
any exploration or production activities to be undertaken on the Pitjantjatjara
Lands under (inter alia) the Petroleum Act, the permission of Anangu
Pitjantjatjara must first be obtained. The Access Agreement for PEL 61 dated 5
March 1996, between Anangu Pitjantjatjara (on the one hand) and Paul Ingram and
John Naylor (on the other), sets out the terms upon which permission has been
granted for both exploration and production operations within the area of PEL
61. The PEL 61 Access Agreement was entered into by Messrs. Ingram and Naylor
prior to the grant of the PEL, but the Agreement contemplates the substitution
of a company owned by them. Accordingly, Hemley is now bound by the terms of the
PEL 61 Access Agreement. The area of PEL 63 is subject to the assertion of
various rights by a native group indigenous to the area. The Company has entered
into the PEL 63 Access Agreement with such group in order to resolve the claims
raised and permit the Company to continue its exploration and production
activities. The PEL 63 Access Agreement dated May 1, 1998 among Yankunytjatjara
Council, Antakirinja Land Management, Paddy Jones, Jean Woods, Tilly Waye, Sadie
Singer, Lallie Lennon, Johnny Cullinan, William Herbert Lennon Snr., Eileen
Crombie, Ian Crombie, Keith Smith and Hemley sets out the terms upon which the
Company may conduct exploration and production activities.
The Access Agreements generally provide for certain payments to be made, based
on:
(a) annual exploration expenditure on the License area; and
(b) the well-head value of any petroleum produced from the License area.
The Access Agreement for PEL 61 also entitles Anangu Pitjantjatjara to take up a
participatory interest of up to 10% in any Petroleum Production License which
may be granted in respect to any petroleum discovery within the area of PEL 61.
Grant of Petroleum Production License. As the holder of PELs 61 and 63, Hemley
enjoys priority rights in respect of any petroleum reserves which it discovers
within the area of either license. Provided that it is in compliance with its
obligations under the relevant PEL and the Petroleum Act at the time of
discovery, Hemley will be entitled to apply for a Petroleum Production License
for the area within which the petroleum is discovered. In this event, and
subject to the foreign investment and native title considerations referenced
below, the Minister will be obliged to grant the License, unless the reserves or
quality of petroleum are not sufficient to warrant production. If the holder of
a Petroleum Exploration License makes an economic discovery, and fails to apply
for a Production License within twelve (12) months, the responsible Minister may
then grant a Production License in respect of the field to any third party.
<PAGE>
A Petroleum Production License has a term of twenty-one (21) years, but may be
renewed for further 21 year terms. The are of such a License may not exceed 260
square kilometers. A Production License confers upon the licensee the exclusive
right to conduct operations for the production of petroleum within the License
area, including all necessary construction and other works.
If Hemley is granted any Petroleum Production Licenses, under the terms of the
Petroleum Act, these will also be subject to a royalty, payable to the
Government, at a rate of 10% of the well-head value of petroleum recovered.
Foreign Investment Considerations. Australia's foreign investment policy is
administered by the Federal Treasurer with the assistance of the Foreign
Investment Review Board ("FIRB"). For the purposes of the policy, Hemley will
constitute a "foreign interest." While the granting of the PELs to Hemley would
not have attracted the operation of the policy, it is likely that Hemley will be
required to obtain the approval of the FIRB under that policy before being
entitled to the grant of one or more Petroleum Production Licenses. Under the
current policy, the level of scrutiny of the proposal will, in broad terms,
depend on the projected level of investment in the development. If the planned
investment is less than A$50 million, the FIRB will normally approve the grant
without examination. If this level is exceeded, the FIRB will examine the
proposal, and will approve the grant of the License unless this is considered by
the Government to be contrary to the national interest.
Native Title Considerations
1. Native Title. In 1992, the High Court of Australia handed down its decision
in the "Mabo case." In that decision, the Court rejected the traditional
doctrine that Australia was terra nullius (land belonging to no one) at the
time of British settlement. It stated that the common law of Australia
recognizes the existence of a form of native title held by Australia's
indigenous inhabitants over their traditional lands where:
(a) a group of indigenous people can establish that it has maintained a
substantial connection with the land, in accordance with traditional
laws and customs of the group, since the time of British settlement;
and
(b) the native title rights have not been lawfully extinguished.
The Court found that the content of native title is dependent upon the
traditions, customs and laws of the particular Aboriginal group. There is
no single, universal native title rather it will vary from group to group.
Therefore, once a group has established that it has maintained the
requisite connection with the land since British settlement, the court must
look to the traditions, customs and laws of that group to determine the
precise content of native title.
In response to the High Court's decision, the Commonwealth Parliament
enacted the Native Title Act 1993 (the "NTA") in December 1993. The NTA has
a number of objectives:
(a) Protection of native title - to provide for the recognition and
protection of native title.
<PAGE>
(b) Validation of past acts - to provide for, or allow, the validation of
Government acts (including the grant of interests in land) done before
the commencement of the NTA on 1 January 1994, which might otherwise
be invalid because of the existence of native title.
(c) Compensation - to provide for compensation to be paid to native title
holders where native title has been extinguished or impaired as a
result of validation of a past act.
(d) Validity of future acts - to establish procedures to be followed to
ensure that Government acts after 1 January 1994 which may affect
native title can proceed without extinguishing or impairing native
title, and are therefore valid. These include the "right to negotiate"
procedure which applies in relation to the grant, renewal and
extension of mining and exploration titles.
(e) Native title claims - to establish a procedure for native title claims
to be made and determined.
The NTA also established the National Native Title Tribunal ("NNTT") for
the purposes of carrying out specified functions under the NTA.
2. Future Act Regime. In order to ensure that native title rights are
protected in relation to future grants of interests in land, the NTA
specifies that such grants can only be validly made over land in which
native title might exist if certain conditions are satisfied. These
conditions include giving native title holders the same procedural rights
as the holders of ordinary "freehold" title to the land, including the
right to be notified.
In addition, the NTA prescribes a special procedure called the "right to
negotiate" procedure (the "RTN procedure") which must be followed to
ensure the validity of certain types of future acts relating to onshore
land. These acts include:
(a) the creation of a right to mine (which is defined to include
exploration and prospecting for petroleum or gas); and
(b) an extension of the period of a right to mine, where the extension was
not part of the original grant of the right to mine.
Under the RTN procedure, a State Government that is planning to do the act
(for example, the granting of a petroleum exploration license) must give
notice of its intention to do so to various parties, including:
(a) any registered native title holders or claimants (native title
parties) in relation to the land;
(b) any representative Aboriginal body that will be affected by the
proposed act; and
(c) the general public.
<PAGE>
Aboriginal groups which wish to oppose or have input in relation to the
proposed future act have two months from the issuance of the notice in
which to notify the NNTT. The Government must then give the native title
parties an opportunity to make submissions in relation to the proposed
future act, and must negotiate in good faith with the native title parties
and the grantee with a view to obtaining the agreement of the native title
parties to the doing of the act. If the parties fail to reach an agreement
within a specified period of time, the NNTT can be requested to make a
determination.
3. Conditions Relating to Grant of Petroleum Exploration Licenses 61 and 63.
Both PELs were granted after the commencement of the NTA. Accordingly, the
future act regime and the RTN procedure applied to the grant of the
Licenses. Although it is not apparent from the terms of the License
documents themselves, it is assumed that these procedures were followed by
the South Australian Department of Mines and Energy and the Licenses were
therefore validly granted under the NTA.
PEL 63 is a "Swiss cheese" grant, in that the License relates only to land
for which native title is likely to have been extinguished. This land is
described in the License document as including:
(a) land that is now or was formerly the subject of a grant of freehold
title or of a perpetual Government lease; and
(b) land which is or was formerly subject to a pastoral lease granted by
the South Australian Government.
Land over which native title may still exist is intended to be excluded
from the scope of the License.
4. Native Title Claims. As mentioned above, the NTA allows for Aboriginal
groups to register claims for native title with the NNTT. Once a claim is
accepted and registered, the claimants are then entitled to receive notice
of any proposed dealing in the claimed land by the relevant Government. If
other parties, such as the relevant State or Territory Government or
underlying landowners, oppose the claim, the NNTT must direct the parties
to try and reach an agreement about the existence of native title.
On the basis of a search of the Register of Native Title Claims kept by the
NNTT, the only claim which has been registered with the NNTT and which may
affect the PELs is a claim lodged by William Lennon Snr on behalf of the
Antakirinja Muntuntjarra people (Claim No. SC 95/7). This claim would only
affect land within the boundary of PEL 63. The claim was accepted by the
Registrar on August 29, 1996. The Company believes that the substance of
this claim has been resolved by the PEL 63 Access Agreement.
5. Renewal of the PELs and Grant of Petroleum Production Licenses. Under the
current regime, renewal of the PELs or the grant of a Petroleum Production
License to Hemley will constitute a future act to which the RTN procedure
applies. Therefore, prior to renewal or grant, the governmental authority
will be required to notify any registered native title holders or
claimants, who will then have the opportunity to oppose the renewal or
grant.
<PAGE>
On the assumption that no further native title claims are lodged over the
areas covered by the PELs, it appears that the renewal of PEL 61, or a
grant of a PPL in substitution for it, is unlikely to be opposed by any
aboriginal groups. This is because the area covered by the PEL (or PPL) is
part of the Pitjantjatjara Lands, and so covered by the Pitjantjatjara Act
and the Access Agreement. However, the position is less certain in respect
of PEL 63.
6. Legislative Amendments; Recent Developments. The current Federal Government
has proposed extensive amendments to the NTA. These amendments include the
exclusion of certain exploration and mining tenements from the RTN
procedure, provided certain conditions are met. It is expected that
substantial revisions will be made to the amendments before they are
passed.
The content of the amendments will also be affected by the Government's
response to the High Court's decision in the recent "Wik case," which was
handed down on 23 December 1996. In that case, the Court held that pastoral
leases did not necessarily extinguish native title rights. This decision
may have some impact on PEL 63, as it appears to cover substantial areas of
land which are or have been the subject of pastoral leases. The South
Australian Government may also take steps to clarify the status of mineral
and petroleum tenements granted over pastoral lease land, as a result of
the High Court's decision.
No Active Exploration Activities or Wells. The Company has not yet commenced
active exploration and production activities, has drilled no wells and has no
production wells or developed acres.
Company Facilities. The Company currently conducts its business operations out
of facilities located in Sarasota, Florida provided by its officers, at no cost
to the Company. In March 1997, Hemley entered into an operating lease for office
space in Australia. The terms of the lease provide for payments of approximately
$10,500 annually and the lease expires in March of 1999. It is anticipated that
at the time of commencement of substantial exploration and development
activities, offices and facilities will be established at the site of such
operations
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Issuer's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is traded on the NASDAQ bulletin board, under the
symbol MSNO. The Company estimates that at December 31, 1998, there were
approximately 2,365 holders of record of the Company's Common Stock.
<PAGE>
The Company has not declared or paid any cash dividends on its Common Stock
during the last two fiscal years, and does not anticipate the declaration or
payment of dividends in the foreseeable future. The Company is not subject to
any restrictions that limit its ability to pay dividends, other than the
unavailability of funds and a statutory restriction found in the Utah Revised
Business Corporation Act, which prohibits the payment of distributions to
sharehodlers if, after giving effect to such distribution:
(a) The Company would not be able to pay its debts as they become due in
the usual course of business; or
(b) The Company's total assets would be less than the sum of its total
liabilities.
The following table sets forth the range of high and low bid information, as
reported by the bulletin board services, for the Company's Common Stock for each
quarter since Mr. Naylor and Mr. Ingram acquired a controlling interest in the
Company and transferred the PELs to the Company, reviving it from its dormant
status. Over-the-counter quotations reflect inter-dealer prices without retail
mark-up, mark-down, or commission and may not represent actual transactions.
Common Stock
------------------------
High Low
------------ ----------
March 31, 1997 $ 1.875 $ 1.25
June 30, 1997 $ 0.5625 $ 0.4375
December 31, 1997 $ 0.50 $ 0.375
March 31, 1998 $ 0.3125 $ 0.125
June 30, 1998 $ 0.18 $ 0.07
September 30, 1998 $ 0.16 $ 0.125
December 31, 1998 $ 0.16 $ 0.14
During the last fiscal year, the Company sold no securities that were not
registered under the Securities Act of 1933.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The Company has not had revenues from operations in either of the last two
fiscal years. The Company's plan of operation for the next twelve months is set
forth below.
Given its current cash position and resources, the Company anticipates that it
can satisfy its cash requirements, at current operating levels, for a period of
one year. The Company will continue to conduct investigations and evaluations of
promising exploration and development opportunities, and will conduct testing
and gather data with respect to such properties, but will defer any substantial
exploration or production activities pending receipt of additional financing.
The Company plans to seek to raise additional capital to fund development
operations in Indonesia and to otherwise fund future exploration and development
operations. The Company anticipates that funding will be raised through the
issuance of additional equity in either the private or public markets within the
next 12 months. There can be no assurance that the Company will be able to
obtain any such financing.
<PAGE>
The Company does not anticipate any significant changes in the number of
employees, pending receipt of additional funding and commencement of exploration
and development activities.
Year 2000
The Year 2000 ("Y2K") problem is the result of two potential malfunctions that
could have an impact on systems and equipment. The first problem arises due to
computers being programmed to use two rather than four digits to define the
applicable year. The second problem arises in embedded chips, where microchips
and microcontrollers have been designed using two rather than four digits to
define the applicable year. If uncorrected, the problem could result in computer
system and program failures or equipment malfunctions that could result in a
disruption of business operations.
To date, the Company has not completed an internal review of its minimal number
of systems to determine major areas of exposure to Y2K issues. The Company does
not, however, operate a significant number of computer systems and does not rely
on computers to regulate any critical corporate functions. Accordingly, the
Company believes that even without any corrective measures being taken, the
Company will not suffer material adverse effects from the Y2K problems. However,
there can be no assurance that the Company will not experience loss of data and
loss of capacity to continue pursuing its operations if Y2K issues are not
addressed and remedied.
In addition, third parties with whom the Company interacts, need to be surveyed
to assess Y2K compliance, or if contingency plans will become necessary. If such
third party systems are not addressed, any failure of such systems could have an
adverse effect on the Company's development and exploration activities. Inasmuch
as the Company intends to rely heavily on third parties for its exploration
activities, if such third parties' systems fail, it could have a material
adverse effect on the Company.
<PAGE>
Item 7. Financial Statements.
MASON OIL COMPANY, INC.
AND SUBSIDIARY
Consolidated Financial Statements
As of June 30, 1998
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Table of Contents
Page
Independent Auditors' Report..........................................1
Consolidated Financial Statements
Consolidated Balance Sheet......................................2
Consolidated Statements of Operations...........................3
Consolidated Statement of Changes in Stockholders' Equity.......4
Consolidated Statements of Cash Flows...........................5
Notes to Consolidated Financial Statements............................7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Mason Oil Company, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Mason Oil
Company, Inc. and Subsidiary (the "Company") as of June 30, 1998, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the years in the two year period ended June 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mason Oil Company,
Inc. and Subsidiary as of June 30, 1998, and the results of their operations and
their cash flows for each of the years in the two year period ended June 30,
1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's future exploration and development
commitments and recurring net losses raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding those matters are
also described in Note 2. As further described in Note 5, the Company has been
unable to meet the exploratory operation requirements for its petroleum leases
(PEL's). If the Company is unable to satisfactorily obtain a modified
exploration commitment and drilling program schedule, the Company could lose
these PEL's. These PEL's reflect the Company's only cost center and potential
revenue source at this time. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
December 3, 1998
Denver, Colorado
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Consolidated Balance Sheet
June 30, 1998
Assets
Current Assets
Cash and cash equivalents ............................. $ 473,652
-----------
Total current assets ............................. 473,652
-----------
Property and equipment, at cost
Unproved oil and gas properties, full
cost method Notes 3 and 5) ........................... 274,994
Vehicles .......................................... 37,185
Other ............................................. 7,684
-----------
319,863
Less accumulated depreciation .................... (11,980)
-----------
307,883
-----------
Other assets
Investment in joint venture (Note 6) .................. 528,894
Deposits .............................................. 19,682
-----------
548,576
-----------
Total assets ........................................... $ 1,330,111
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ...................................... $ 32,673
Notes payable - related parties (Note 4) .............. 197,599
Current portion of notes payable (Note 4) ............. 13,588
-----------
Total current liabilities ........................ 243,860
-----------
Long-term notes payable (Note 4) ....................... 1,695
Deferred salary - stockholder .......................... 72,000
-----------
Total liabilities ................................ 317,555
-----------
Commitments and contingencies (Notes 2, 5 and 6)
Stockholders' equity
Common stock, $.001 par value, 200,000,000
shares authorized; 11,697,171 issued and
outstanding .......................................... 11,697
Additional paid in capital ............................ 2,485,994
Accumulated deficit ................................... (1,498,738)
Foreign currency translation adjustment ............... 13,603
-----------
1,012,556
-----------
Total liabilities and stockholders' equity ............. $ 1,330,111
===========
See notes to consolidated financial statements.
- 2 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended
June 30,
------------------------------
1998 1997
------------ ------------
General and administrative expenses ...... $ 799,293 $ 312,940
Impairment loss on investment in joint
venture (Note 6) ........................ 406,649 --
------------ ------------
Loss from operations .......... 1,205,942 312,940
Other (expense) income
Interest income ......................... 45,782 25,507
Interest expense ........................ (28,024) (13,939)
------------ ------------
17,758 11,568
Net (loss) ............................... $ (1,188,184) $ (301,372)
============ ============
Basic loss per common share .............. (.10) (.04)
============ ============
Weighted average common shares outstanding 11,398,815 8,028,767
============ ============
See notes to consolidated financial statements.
- 3 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency
------------------------- Paid-in Accumulated Translation
Shares Amount Capital Deficit Adjustment Total
--------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 .............. 100 $ 100 $ 900 $ (1,116) $ (231) $ (347)
Recapitalization and issuance of stock
for assets in connection with reverse
acquisition (Note 1) ................. 9,225,354 9,125 (900) (8,066) -- 159
Issuance of stock for consulting
services (Note 6) .................... 190,000 190 34,776 -- -- 34,966
Issuance of stock, net of related
costs of $216,500 (Note 6) ........... 1,475,050 1,475 1,847,025 -- -- 1,848,500
Net loss .............................. -- -- -- (301,372) -- (301,372)
Foreign currency translation adjustment -- -- -- -- (1,347) (1,347)
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1997 .............. 10,890,504 10,890 1,881,801 (310,554) (1,578) 1,580,559
Stock issued for investment in joint
venture (Note 6) ..................... 806,667 807 604,193 -- -- 605,000
Net loss .............................. -- -- -- (1,188,184) -- (1,188,184)
Foreign currency translation adjustment -- -- -- -- 15,181 15,181
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1998 .............. 11,697,171 $ 11,697 $ 2,485,994 $(1,498,738) $ 13,603 $ 1,012,556
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended
June 30,
----------------------------
1998 1997
----------- -----------
Cash used in operating activities
Net loss ................................ $(1,188,184) $ (301,372)
----------- -----------
Changes to reconcile net loss to net cash
used in operating activities
Stock issued for services ............. -- 34,966
Impairment loss on disposal of joint
venture interest ..................... 406,649 --
Depreciation and amortization ......... 10,000 2,067
Changes in assets and liabilities
Prepaid expenses and other .......... 1,478 (1,857)
Deposits ............................ (5,190) (943)
Organizational costs ................ 1,049 77
Accounts payable and accrued expenses 62,598 36,916
----------- -----------
476,584 71,226
Net cash used in operating
activities ..................... (711,600) (230,146)
----------- -----------
Cash used in investing activities
Purchase of interest in joint venture
interest ................................. (300,000) --
Oil and gas exploration expenditures ...... (107,816) (16,433)
Purchase of vehicles and equipment ........ (7,012) (11,754)
----------- -----------
Net cash used in investing
activities ...................... (414,828) (28,187)
----------- -----------
Cash provided from financing activities
Notes payable ............................. 50,872 --
Payments on notes payable ................. (14,076) (15,629)
Issuance of common stock, net ............. -- 1,848,500
Cash acquired in reverse acquisition ...... -- 2,159
----------- -----------
Net cash provided by financing
activities ...................... 36,796 1,835,030
----------- -----------
Effect of exchange rates on cash ........... (24,343) (1,347)
----------- -----------
Net (decrease) increase in cash and cash
equivalents ............................... (1,113,975) 1,575,350
Cash and cash equivalents - beginning of
period .................................... 1,587,627 12,277
----------- -----------
Cash and cash equivalents - end of period .. $ 473,652 $ 1,587,627
=========== ===========
Continued on the following page.
See notes to consolidated financial statements.
- 5 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Continued from the previous page.
Supplemental disclosure of non-cash financing and investing activities:
During the year ended June 30, 1998, the Company issued 806,667 shares of
stock valued at $605,000 and paid $300,000 cash to purchase a joint
venture interest in a drilling rig.
DURING FISCAL YEAR 1998 AND 1997, THE COMPANY FINANCED $9,554 AND $24,601,
RESPECTIVELY, TO PURCHASE VEHICLES.
DURING THE YEAR ENDED JUNE 30, 1997, THE COMPANY ENTERED INTO A MERGER
AGREEMENT WHICH HAS BEEN ACCOUNTED FOR AS A REVERSE ACQUISITION. THE
FOLLOWING ASSETS WERE ACQUIRED AND LIABILITIES WERE ASSUMED IN EXCHANGE
FOR ALL COMMON STOCK OF THE SURVIVING COMPANY:
Cash $ 2,159
Notes payable (2,000)
--------
Net assets acquired $ 159
========
Net common stock received $ 9,125
Reduction of additional paid-in-capital (900)
Net effect on retained earnings (8,066)
--------
Net effect on equity $ 159
========
See notes to consolidated financial statements.
- 6 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
Nature of Business and Organization
Mason Oil Company, Inc. and Subsidiary (the Company) was incorporated in Utah
and conducts principally oil and gas acquisition, exploration, and development
activities in South Australia through a wholly owned Australian subsidiary,
Hemley Exploration Pty. Ltd.
In October 1996, Mason Oil Company, Inc. (Mason Oil) acquired all of the issued
and outstanding common shares of IAN Holdings Limited and Subsidiaries (IAN) in
exchange for 6,000,000 shares of common stock of Mason Oil. For financial
reporting purposes, the business combination was accounted for as an additional
capitalization of the Company (a reverse acquisition with IAN as the acquirer).
IAN is considered the surviving entity. The historical financial statements
prior to the merger are those of IAN. Mason Oil's only assets consisted of cash
and a liability with a net book value of $159. Mason Oil and IAN subsequently
merged with Mason Oil (the Company) as the legal survivor and continues to be
governed under such Articles of Incorporation and bylaws in effect immediately
prior to consummation of the merger.
Principles of Consolidation
The consolidated financial statements include the accounts of Mason Oil, Inc.
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Risks and Uncertainties
Currently the Company has not identified any proven reserves, and therefore, is
not involved in any oil & gas production activities. There can be no assurance
that in the future the Company will locate proved reserves associated with its
leasehold interests. In the event proved reserves are identified the feasibility
of recovery is strongly dependent upon world market prices for oil & gas, and
accordingly there can be no guarantee that amounts capitalized as acquisition,
exploration, and development costs will be recoverable through future
operations.
The Company's principal operations are conducted in South Australia where the
Australian dollar is the functional currency. Future operations of the Company
could be adversely affected by unfavorable foreign currency fluctuations.
- 7 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Foreign Currency Translation
All assets and liabilities of the Company's subsidiary are translated into U.S.
dollars using the prevailing exchange rates as of the balance sheet date. Income
and expenses are translated using the weighted average exchange rates for the
period. Stockholders' investments are translated at the historical exchange
rates prevailing at the time of such investments. Any gains or losses from
foreign currency translation are included as a separate component of
stockholders' equity. The prevailing exchange rate at June 30, 1998 was
approximately 1 U.S. dollar to 1.62 Australian dollars.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. The Company had balances in excess
of FDIC limits of approximately $290,000 at June 30, 1998.
Deposits
Deposits at June 30, 1998 consist of security bonds on deposit with the
Australian Department of Mines and Energy (MESA) as required by the associated
license agreements and a deposit for an office in Jakarta, Indonesia.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets which range
from five to seven years.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with acquisition, exploration, and
development of oil and gas reserves, including directly related overhead costs,
are capitalized. Amounts capitalized by the Company as exploration costs
currently consist of geological and geophysical (G&G) costs in addition to
leasehold maintenance costs.
- 8 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Oil and Gas Properties (continued)
Investments in unproved properties are not amortized until proved reserves
associated with the projects can be determined or until impairment occurs. If
the results of an assessment indicate that the properties are impaired, the
amount of the impairment is included in capitalized costs to be amortized.
Management of the Company assesses costs excluded from the full cost pool
periodically for impairment.
Income Taxes
The Company is subject to U.S. Federal income taxes and is subject to foreign
taxes in Australia for earnings of its Australian subsidiaries. No income taxes
are currently due. The Company recognizes deferred tax assets and liabilities
for future tax consequences attributable to differences between financial
statement carry amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax
rules expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered and settled at June 30, 1998. The
Company has foreign net operating loss carryforwards of approximately $614,000,
which can be used to offset future Australian income taxes payable. The net
operating loss carryforwards have been fully reserved for by a valuation
allowance.
Fair Value of Financial Instruments
The carrying amounts for cash, accounts payable and accrued expenses
approximated their fair values as of June 30, 1998 due to the relatively short
maturities of these instruments.
The carrying amounts of Notes Payable outstanding also approximate their fair
values as of June 30, 1998 because interest rates on these instruments
approximate the interest rate on debt with similar terms to the Company.
The Company cannot reasonably estimate the fair value of deferred salary -
stockholder due to uncertainties surrounding the repayment which is based on
achieving certain revenue levels or capital being raised.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
- 9 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Basic Loss Per Common Share
During the year ended June 30, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 128, "Earnings Per Share" (SFAS
128). FAS 128 established new definitions for calculating and disclosing basic
and diluted earnings per share. Basic loss per share is based upon the weighted
average number of shares outstanding. All dilutive potential common shares have
an antidilutive effect on diluted net loss per share and therefore have been
excluded in determining net loss per share. The Company's basic and diluted loss
per share are equivalent and accordingly only basic loss per share has been
presented.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements.
Note 2 - Going Concern
The Company's commitments for future exploration and development activities
required under its Petroleum Exploration Leases coupled with the recurring net
losses from inception to June 30, 1998 raise substantial doubt about the
entity's ability to continue as a going concern. Management's plans to fund such
commitments include raising additional capital through a private placement and
the public markets. Management believes that the Company will be able to raise
adequate capital to fund such future exploration and development operations.
Note 3 - Unproved Oil and Gas Properties
The Company maintains two petroleum exploration leases (PEL's) with 5 years
terms expiring May 22, 2001. The Company may renew the leases for additional 5
year terms subject to the terms contained in the PEL's (Note 5).
- 10 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3 - Unproved Oil and Gas Properties (continued)
The Company is currently participating in oil and gas exploration activities on
approximately 4,200,000 acres in the state of South Australia, which is known as
the Eastern Officer Basin situated approximately 200 miles south of Alice
Springs and 700 miles north of Adelaide. Such acreage comprises the Company's
only cost center. The Company anticipates commencement of drilling activities
during fiscal year 1999.
Costs excluded from amortization consist of the following at June 30, 1998:
Acquisition Exploration
Period Incurred Costs Costs Total
- -------------------------- --------- --------- ---------
Inception to June 30, 1998 $ 23,874 $ 251,120 $ 274,994
========= ========= =========
Period ended June 30, 1996 $ 27,339 $ 147,539 $ 174,878
Year ended June 30, 1997 -- 18,015 18,015
Year ended June 30, 1998 -- 115,057 115,057
Effect of exchange rates (3,465) (29,491) (32,956)
--------- --------- ---------
$ 23,874 $ 251,120 $ 274,994
========= ========= =========
Note 4 - Notes Payable
Notes payable consists of the following at June 30, 1998:
Note payable (unsecured) - stockholder, interest at 8%, due
on demand ................................................... $173,718
Note payable (unsecured) - stockholder, interest at 8%, due
on demand ................................................... 23,881
--------
Total related party notes payable ............................ $197,599
========
Note payable - finance corporation, interest at 8.5%, due in
monthly installments of $431 including interest through
October 1999. The note is collateralized by a vehicle ...... $ 6,535
Note payable - finance corporation, interest at 11%, due in
monthly installments of $557 including interest through
March 1999. The note is collateralized by a vehicle ........ 4,786
- 11 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 4 - Notes Payable (continued)
Note payable - finance corporation, interest at 10.35%, due
in monthly installments of $379 through May 1999. The note
is collateralized by a vehicle .............................. 3,962
--------
15,283
Less current portion ................................... (13,588)
--------
$ 1,695
========
Future installments due on notes payable are as follows:
Year Ending June 30,
--------------------
1999 $13,588
2000 1,695
-------
$15,283
=======
Note 5 - Commitments and Contingencies
Petroleum Exploration Licenses (PEL's)
The Company has two Petroleum Exploration Licenses (PEL's) with the state of
South Australia which contain certain commitments related to exploratory
operations to be incurred over the five year term of each lease. The licenses
contain estimates of the costs to complete such exploratory operation
requirements, stated in Australian dollars (A $) which are also presented in
United States dollars (U.S. $) using the June 30, 1998 exchange rate as follows:
A $ U.S. $
------------ -------------
Year one, ending May 22, 1997 $1,895,000 $1,170,000
Year two, ending May 22, 1998 2,340,000 1,444,000
Year three, ending May 22, 1999 4,150,000 2,562,000
Year four, ending May 22, 2000 5,720,000 3,531,000
Year five, ending May 22, 2001 5,275,000 3,256,000
---------- ----------
Total estimated exploratory
costs $19,380,000 $11,963,000
=========== ===========
- 12 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5 - Commitments and Contingencies (continued)
Petroleum Exploration Leases (PEL's) (continued)
As of June 30, 1998, the Company has been unable to meet the exploratory
operation requirements of the PEL's. MESA has eased the requirements associated
with the Company's PEL's and has agreed to work with the Company to reach a
revised exploration commitment schedule including drilling activities.
Currently, the Company's management and legal counsel believes that both PEL's
are in good standing with MESA and anticipates receiving favorable approval of a
revised exploration and drilling activity commitment schedule in 1999.
In addition to the PEL's, the Company entered into Access Agreements with Anangu
Pitjanjatjara (AP) on March 5, 1996 and with the Yankunytjatjara Council (YC) on
May 1, 1998. Pursuant to such agreements, the Company has agreed that annual
rental payments be made to AP and YC for each of the parcels covered by the
PEL's. While both Access Agreements stipulate a minimum payment of $12,300, the
rental payments for AP and YC are calculated based upon the amount of Annual
Exploration Expenditures (AEE's) incurred as follows:
2.5% AND 2.55%, RESPECTIVELY OF AEE'S LESS THAN OR EQUAL TO $308,600 1.5%
OF AEE'S IN EXCESS OF $308,600
The conversion rate used for these financial statement disclosures are as of
June 30, 1998 and reflect an exchange rate of approximately 1 U.S. dollar to
1.62 Australian dollar.
Under the terms of the Access Agreements, any application for a Petroleum
Production License (PPL) by the Company would entitle the respective parties to
obtain a participatory interest in any exploration and production joint venture
agreement (JVA). If either party so elects, the maximum participating interest
is 10% in no event can the participatory interest be less than 1%.
The access agreements provide for the reimbursement of surveying services
provided by AP and YC and for certain overriding royalty payments to be made for
all petroleum recovered under any PEL's or any PPL granted by the South
Australian Department of Mines and Energy. In addition, certain stockholders' of
the Company have been personally granted a 3% overriding royalty interest in any
PPL's granted to the Company's subsidiary Hemley Exploration Pty. Ltd.
Operating Leases
In March 1997, the Company's Australian subsidiary entered into an operating
lease for office space. The terms of the lease provide for minimum payments of
approximately $8,600 annually and the lease expires in March 1999, with an
option to renew for three additional years. The future minimum lease payments
under the office lease for the fiscal year ended June 1999 is approximately
$6,500.
- 13 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5 - Commitments and Contingencies (continued)
Operating Leases (continued)
Rental expense under the office lease was approximately $9,446 and $2,860 for
the years ended June 30, 1998 and 1997.
In June 1998, the Company's Australian subsidiary entered into an operating
lease for residential housing. The terms of the lease provide for payments
totaling approximately $8,700 for a one year term.
Rental expense for housing leases was approximately $20,600 for the year ended
June 30, 1998.
Stock Options
The Company had the following stock option activity for the year ended June 30,
1998:
Exercise
Number Price Expiration
---------- --------- ---------------
Balance at June 30, 1997 - $ -
Stock options issued 3,500,000 1.00 November 14, 2002
Stock options cancelled (1,500,000) 1.00
---------- ---------
Balance at June 30, 1998 2,000,000 $ 1.00 November 14, 2002
========= =========
(1) Options were issued to outside consultants and directors for future
services to be performed. Such services were never performed and the
related options were cancelled.
Contingent Claim
The Company has received notification from an unrelated Australian exploration
company (AEC) for damages which it claims it will seek if it forfeits its only
significant asset (a certain PEL) as a result of early 1998 acquisition
negotiations between AEC and the Company. Management of the Company and legal
counsel believe this contingent claim will not result in any material adverse
effect on the financial condition of the Company.
Consulting Agreement - Related Party
The Company has entered into a consulting agreement with a company owned by one
of the Company's directors. The agreement calls for engineering services to be
provided to the Company's subsidiary at a rate of approximately $75,000
annually. The Company paid approximately $65,000 and $35,000 in consulting
expense to this related entity for the years ended June 30, 1998 and 1997,
respectively.
- 14 -
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6 - Investment in Joint Venture
In September 1997, the Company entered into an agreement to purchase a 50%
interest in a joint venture to own and operate a drilling rig. Based on the
terms of the agreement, the purchase price of $905,000 was funded by issuing
806,667 shares of common stock valued at $605,000 and $300,000 cash.
As a result of declining world oil prices mobilization and use of the rig became
unfeasible, and the Company entered into an agreement in October 1998 to sell
their interest in the drilling rig joint venture back to the other 50% owner.
The subsequent sale of the Company's investment in the drilling rig joint
venture caused the Company to record an impairment of $406,649, reflecting the
net realizable value of the investment. Based on the terms of the agreement, the
net realizable value of $522,459 from the sale is to be received in the form of
a $300,000 note receivable, the transfer of title to the Company for a portable
rig camp valued at $121,626, and the return of 806,667 shares of Company's
common stock originally used to purchase the joint venture interest valued at
$100,833.
- 15 -
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.
As previously reported in a current report on Form 8-K dated September 22, 1997,
effective as of September 22, 1997, the firm of Mantyla, McReynolds & Associates
("Mantyla") was dismissed as the Company's principal independent accountant, and
the accounting firm of Ehrhardt Keefe Steiner & Hottman PC was engaged by the
Company to serve as the principal accountants to audit the Company's financial
statements.
The reports of Mantyla on the Company's financial statements for the two fiscal
years ended December 31, 1995 and December 31, 1994 did not contain an adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit, scope, or accounting principles. The decision to change
accountants was approved by the Company's Board of Directors. There were no
disagreements with Mantyla, whether or not resolved, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to Mantyla's satisfaction, would have caused
Mantyla to make reference to the subject matter of the disagreement in
connection with its report.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The Company's directors and executive officers are as follows:
Paul B. Ingram, Age 67
President and Principal Executive Officer Mr. Ingram has served as the President
and a director of the Company since September 13, 1996. Mr. Ingram was active as
an independent oil and gas producer until 1995.
John L. Naylor, Age 58
Secretary-Treasurer and Principal Accounting and Financial Officer Mr. Naylor
has served as the Secretary and Treasurer of the Company, and as a member of its
Board of Directors, since September 13, 1996. Mr. Naylor has been active in the
oil and gas business for the past 30 years both from a technical and a business
standpoint in Australia, Southeast Asia and the U.S.
John K. Price, Age 56
Mr. Price has served as a director of the Company since December 1996. Mr. Price
is a college professor at North West Louisiana University. Mr. Price holds a
Ph.D. degree in Political Science.
Geoffrey J. Pickles, Age 60
Mr. Pickles has served as a director of the Company since June 1, 1997. He is a
stock broker in the energy field in Sydney, NSW, Australia, with the firm of
Dicksons Limited. Mr. Pickles has had many years of experience in the
exploration and development of natural resources.
All directors serve until the next annual meeting of shareholders, and until
their successors are duly elected and qualified. None of the current directors
of the Company serves as a director of any other reporting company.
<PAGE>
The Company has no employees other than its executive officers.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file certain reports
regarding ownership of and transactions in the Company's equity securities with
the Securities and Exchange Commission. Such officers, directors and ten-percent
shareholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) forms that they file.
Based solely upon its review of copies of such forms or "no filings required
letters" received by it, the Company believes that during the fiscal year ended
June 30, 1997, all reports were filed on a timely basis.
Item 10. Executive Compensation.
Set forth below is a Summary Compensation Table, showing the various elements of
compensation earned during the last completed fiscal year and during the
previous two years. No executive officer was compensated in the amount of
$100,000 or more during any of the last three years.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------------
Annual Compensation Awards
----------------------------------- ------------------------------
Securities
Name and Principal Fiscal Other Annual Restricted Underlying LTIP All Other
Position Year Salary Bonus Compensation Stock Award(s) Options/SARs Payouts Compensation
- ------------------ ---------- -------- ------- ------------ ------------- ------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO 1998 $48,000* 0 0 0 0 0 0
Paul B. Ingram 1997 $24,000* 0 0 0 0 0 0
</TABLE>
* Compensation is earned and accrued at this rate, commencing from January
1, 1997, but payments have been deferred until the Company has sufficient
cash flow.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The table below sets forth as of the Record Date (i) the name and address of
each person known by management to own beneficially more than five percent (5%)
of the Company's outstanding Common Stock, the number of shares beneficially
owned by each such shareholder and the percentage of outstanding shares owned
and (ii) the number and percentage of outstanding shares of Common Stock
beneficially owned by each of the Company's directors and each of the five
highest paid executive officers of the Company, individually (excluding
executive officers whose annual compensation is less than $100,000) and by all
directors and executive officers of the Company as a group. Unless otherwise
noted, the persons named below have sole voting and investment power with
respect to such shares.
<PAGE>
Percent
Number of Beneficially
Beneficial Owners Shares Owned
- ------------------------------------- ----------- ----------
Paul B. Ingram (Director and Officer)
6337 Ravenwood Drive
Sarasota, FL 34243 .................. 3,700,000 33.97%
John L. Naylor (Director and Officer)
6337 Ravenwood Drive
Sarasota, FL 34243 .................. 3,700,000 33.97%
Geoffrey J. Pickles (Director)
Kardinea Road
Cliffton Gardens
2088 NSW, Australia ................. 0 0%
John K. Price (Director)
104 Wynnwood
Ruston, Louisiana 71270 ............. 0 0%
All Executive Officers and
Directors as a group (4
persons)-Total ...................... 7,400,000 67.94%
Item 12. Certain Relationships and Related Transactions.
Except as otherwise set forth below, to the knowledge of management, during the
past two years, the Company was not involved in any transaction and is not
currently involved in any proposed transaction, in which the Company or any of
its subsidiaries was or is to be a party, in which any of its directors,
officers, nominees for election as directors, security holders or immediate
family member of any of the parties mentioned above, have a direct or indirect
material interest, other than transactions involving employment or consulting
relationships or other transactions where the amount involved did not exceed
$60,000 per year. The Company has entered into a consulting arrangement for
engineering services with an entity owned by John Naylor, a director of the
Company. The Company paid approximately $65,000 during the fiscal year ended
June 30, 1998 under such consulting arrangement. Additionally, Hemley
Exploration Pty. Ltd., a wholly owned subsidiary of the Company, paid for John
L. Naylor's rent and living expenses for approximately one month when he moved
from the Philippines to Australia during the last fiscal year.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
*Exhibit 3.1 Articles of Incorporation of the Registrant. (Filed as
Exhibit 3.1 to the Registrant's Form 10-SB-A1, Reg. No. 0-28184 filed
May 31, 1996).
<TABLE>
<CAPTION>
<S> <C>
*Exhibit 3.2 Articles of Amendment to Articles of Incorporation.
(Filed as Exhibit 3.2 to the Registrant's Form
10-SB-A1, Reg. No. 0-28184 filed May 31, 1996).
*Exhibit 3.3 Bylaws of the Registrant. (Filed as Exhibit 3.3 to
the Registrant's Form 10-SB-A1, Reg. No. 0-28184 filed
May 31, 1996).
*Exhibit 3.4 Amended Bylaws of the Registrant. (Filed as Exhibit
3.4 to the Registrant's Form 10-SB-A1, Reg. No.
0-28184 filed May 31, 1996).
*Exhibit 10 Stock Purchase Agreement, dated September 10, 1996, by
and between Craig Carpenter, Mason Oil Company, Inc.,
Paul B. Ingram and John L. Naylor. (Filed as Exhibit
2.1 to the Registrant's Form 10-QSB Reg. No. 000-28184
filed November 15, 1996).
*Exhibit 10.1 Stock Purchase and Sale Agreement, dated October 14,
1996, between Registrant, Paul B. Ingram and John L.
Naylor. (Filed as Exhibit 2.2 to the Registrant's
Form 10-QSB Reg. No. 000-28184 filed November
15, 1996).
*Exhibit 10.2 Access Agreement between Anangu Pitjantjatjara and
John Leonard Naylor and Paul Bryan Ingram. (Filed as
Exhibit 2.5 to the Registrant's Form 10-QSB, Reg. No.
000-28184 filed February 21, 1997).
*Exhibit 10.3 Petroleum Exploration License (PEL) No. 61 and PEL
Agreement. (Filed as Exhibit 2.3 to the Registrant's
Form 10-QSB Reg. No. 000-28184 filed February 21,
1997).
*Exhibit 10.4 Petroleum Exploration License No. 63 and PEL
Agreement. (Filed as Exhibit 2.4 to the Registrant's
Form 10-QSB Reg. No. 000-28184 filed February 21,
1997).
*Exhibit 10.5 Joint Venture Agreement between Hemley Exploration
PTY. LTD., an Australian corporation and PT. PUTRA
BAKTI MAHKOTA, an Indonesian corporation. (Filed
as Exhibit 10.5 to the Registrant's Form 10-KSB
for the fiscal year ended June 30, 1997).
*Exhibit 10.6 Subscription Agreement and Investment Representation,
dated February 28, 1997. (Filed as Exhibit 10.1 to
the Registrant's Form 10-QSB Reg. No. 000-28184 filed
May 20, 1997).
<PAGE>
*Exhibit 10.7 Consulting Fee Agreement dated February 28, 1997.
(Filed as a plan to the Registrant's Registration
Statement in Form S-8 Reg. No. 333-24467 filed April
3, 1997).
*Exhibit 10.8 Amendment No. 1 to Consulting Fee Agreement dated May
8, 1997, amending the Consulting Fee Agreement dated
February 28, 1997, and previously filed with the
Securities and Exchange Commission on a Form S-8
Registration Statement dated March 25, 1997. (Filed
as Exhibit 10.2 to the Registrant's Form 10-QSB Reg.
No. 000-28184 filed May 20, 1997).
Exhibit 10.9 Access Agreement dated May 1, 1998 among Yan
Kun ytjatjara Council, Antakirinja Land
Management, Paddy Jones, Jean Woods, Tilly Waye,
Sadie Singer, Lallie Dennon, Johnny Cullinan,
William Herbert Lennon Snr., Eileen Crombie, Ian
Crombie, Keith Smith and Henley
Exhibit 10.10 Drilling Rig Sales Agreement
Exhibit 10.11 Memorandum of Agreement between PT. Patrindo
Persadamadjn and Hemley Exploration Pty. Ltd., dated
August 24, 1998.
*Exhibit 16 Letter on Change in Certifying Accountant. (Filed as
Exhibit 16 to the Registrant's Form 8K Reg. No.
0-28184 filed September 29, 1997).
Exhibit 21 Subsidiaries of the Registrant.
Exhibit 24 Power of Attorney (included on page 17 herewith).
Exhibit 27 Financial Data Schedule.
</TABLE>
*Exhibits incorporated herein by reference.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
January _____, 1999
MASON OIL COMPANY, INC.
By: /s/Paul B. Ingram
Paul B. Ingram, President (Principal
Executive Officer) and Director
POWER OF ATTORNEY
KNOW ALL PERSONS by these presents that each person whose signature to this
Annual Report appears below hereby constitutes and appoints Paul B. Ingram and
John L. Naylor, and each of them as his true and lawful attorney-in-fact and
agent, with full power of substitution, to sign on his behalf individually and
in the capacity stated below and to perform any acts necessary to be done in
order to file all amendments and post-effective amendments to this Annual
Report, and any and all instruments or documents filed as part of or in
connection with this Annual Report or the amendments thereto and each of the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or his substitutes, shall do or cause to be done by virtue hereof.
In accordance with the requirements of Section 13, or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
January ___, 1999 /s/Paul B. Ingram
Paul B. Ingram, President (Principal
Executive Officer) and Director
January ___, 1999 /s/John L. Naylor
John L. Naylor, Secretary-Treasurer
(Principal Accounting and Financial
Officer) and Director
January ___, 1999 /s/John Price
John Price, Director
January ___, 1999 /s/Geoffrey J. Pickles
Geoffrey J. Pickles, Director
ACCESS AGREEMENT
BETWEEN
YANKUNYTJATJARA COUNCIL (ABORIGINAL CORPORATION)
AND
ANTAKIRINJA LAND MANAGEMENT (ABORIGINAL CORPORATION)
AND
PADDY JONES
JEAN WOODS
TILLY WAYE
SADIE SINGER
LALLIE LENNON
JOHNNY CULLINAN
AND
WILLIAM HERBERT LENNON SNR.
EILEEN CROMBIE
IAN CROMBIE
KEITH SMITH
AND
HEMLEY EXPLORATION PTY. LTD.
prepared by:
PITJANTJATJARA COUNCIL INC. (LEGAL DEPARTMENT)
3 Wilkinson Street,
P.O. Box 2189
ALICE SPRINGS, N.T. 0870
Phone: (08) 8950 5419
Fax: (08) 89 52 3261
<PAGE>
CONTENTS
Page 2 Recital
CLAUSE
1. Definitions
2. Interpretation and Other Matters
3. Consent
4. Undertaking
5. Initial Survey of License Area by Explorers
6. Consideration Given by the Explorers
7. Notification of Operations
8. Land Entry and Occupation
9. Identification
10. Petroleum Operations
11. Scouting Teams
12. Screening and Clearance
13. Effect of Operations on the Environment
14. Advisory Committee
15. Removal of Employees
16. Instruction in Aboriginal Culture
17. Explorer Covenants
18. The NTPs Covenants
19. Rights of Traditional Owners
20. Rights of Explorer
21. Reversion of Infrastructure
22. Indemnity
<PAGE>
23. Field Development and Production
24. Petroleum Production License
25. Force Majeure
26. Assignment
27. Operations
28. Confidential Information
29. Termination
30. Termination of Activities
31. Consequences of Termination
32. Costs and Payments
33. Disputes
34. Term
35. Variation
36. Further Assurance
37. Notices
Schedule 1
Description of the License Area
Schedule 2
Schedule 3
Payments to the NTPs pursuant to Clause 6.1.3 of the Agreement
in respect of Petroleum Operations under the PEL
Schedule 4
Payments to the NTPs pursuant to Clause 6.1.4 of the Agreement
in respect of Petroleum Operations under the PPL
<PAGE>
AGREEMENT
THIS AGREEMENT is made the 1st day of May 1998
BETWEEN:
YANKUNYTJATJARA COUNCIL (ABORIGINAL CORPORATION): an Association incorporated
pursuant to the provisions of the Aboriginal Councils & Associations Act 1976
(Clth) and having its principal office at 3 Wilkinson Street, Alice Springs in
the Northern Territory of Australia, of the first part.
- -AND-
ANTAKIRINJA LAND MANAGEMENT (ABORIGINAL CORPORATION) an association incorporated
pursuant to the provisions of the Aboriginal Councils & Associations Act 1976
(Clth) and having its principal office at Umoona Community Council, Family Care
Workers Office, Coober Pedy in the State of South Australia, of the second part.
- -AND-
PADDY JONES, JEAN WOODS, TILLY WAYE, SADIE SINGER, LALLIE LENNON AND JOHNNY
CULLINAN the registered Native Title Claimants on behalf of all the Claimants
referred in the Application for Native Title Determination known as SC97/9
lodged 21st November 1997 by Aboriginal Legal Rights Movement Inc. of 321-325
King William Street Adelaide in the State of South Australia of the third part.
- -AND-
WILLIAM HERBERT LENNON SNR. EILEEN CROMBIE, IAN CROMBIE, and KEITH SMITH the
registered Native Title Claimants on behalf of all the Claimants referred to in
the Application for Native Title Determination known as SC95/7 lodged 14th
November 1995 by Aboriginal Legal Rights Movement Inc. of 321-325 King William
Street, Adelaide in the State of South Australia, of the fourth part.
[the parties of the first to the fourth parts hereinafter
collectively referred to as the Native Title Parties [ N.T.Ps j
- -AND-
- 1 -
<PAGE>
HEMLEY EXPLORATION PTY LTD (ACN 073 039 059) a body incorporated pursuant to the
lncorporation's Law having its principal office at ECH House, Suite 3, 174
Greenhill Road, Parkside in the State of South Australia ("hereinafter referred
to as the Explorer") of the fifth part.
WHEREAS:-
A. Yankunytjatjara Council (Aboriginal Corporation) is an Association the
Objects and Rules of which include the protection of the culture and
heritage of the Traditional Lands of its members.
B. Antakirinja Land Management (Aboriginal Corporation) is an Association the
Objects and Rules of which include the pursuit of a Native Title
Determination and the protection of the culture and heritage of the
Traditional Lands of its members.
C. On the 23rd day of May 1996 the Explorer was granted by the South
Australian Minister for Mines & Energy under the provisions of the
Petroleum Act 1940 (SA), Petroleum Exploration License No. 63
("hereinafter referred to as the 'tenement") which is located over
portions of Pastoral Leases known as Lambina, Welborne Hill, Wintinna
West, and Mt Willoughby as well as a portion of the Tallaringa
Conservation Park.
D. The Traditional Lands are areas where the Native Title Parties currently
exercise native title rights includes the area boarded by the tenement.
E. The NTPs believe that the grant of the tenement gave the Explorer no right
to carry out Petroleum Operations on it as Sub-division B of Division 3 of
Part 2 of the Native Title Act 1993 (CLTH) has yet to be complied with.
F. Without waiving any other rights the NTPs may possess against the State of
South Australia for failure to comply with the provisions of the Native
Title Act 1993 (CLTH) the NTPs enter into this Agreement in lieu of any
other agreement they may have entered into pursuant to the procedures
under the Native Title Act 1993 (CLTH).
G. The parties having negotiated in good faith intend that this
Agreement shall:-
(a) provide the terms and conditions under which the Explorer can access
the tenement for the purpose of carrying out Petroleum Operations;
(b) provide an undertaking by the NTPs not to challenge the validity of
the grant of the tenement by the Minister for Mines & Energy Resources
(SA) or the validity of the Explorer's right to carry out Petroleum
Operations unless there is a breach of the provisions of this
Agreement; and
(c) provide the methodology for the protection of sites of spiritual and
cultural significance to the NTPs and the protection of sites and
objects under the Heritage Act 1988 (SA).
H THE EXPLORER'S OBLIGATIONS UNDER THIS AGREEMENT ARE NOT DEPENDENT UPON
NTPS ESTABLISHING NATIVE TITLE OVER THE TENEMENT OR HAVING A DETERMINATION
OF NATIVE TITLE MADE BY THE NATIONAL NATIVE TITLE TRIBUNAL, THE FEDERAL
COURT OR ANY OTHER COURT OF COMPETENT JURISDICTION.
- 2 -
<PAGE>
I. The land covered by the tenement is included in Applications for a Native
Title Determination (SC 95/07) lodged with the National Native Title
Tribunal on the 14th November 1995 and accepted on the 29th August 1996,
and ( SC 97/9) lodged on the 21st November 1997.
J. NTPs having used all reasonable endeavors to identify all persons who hold
or who may hold native title rights in relation to the License Area and
having consulted with those persons, act with their authority for the
purpose of entering into this Agreement.
K SHOULD THE COMMONWEALTH NATIVE TITLE ACT OR COMPLEMENTARY SOUTH AUSTRALIAN
LEGISLATION BE AMENDED TO PROVIDE FOR THE REGISTRATION OF AGREEMENTS
BETWEEN THE CLAIMANTS OR HOLDERS OF NATIVE TITLE AND THIRD PARTIES WITH
ANY PROPRIETORIAL RIGHTS ON NATIVE TITLE CLAIMED LAND, THIS AGREEMENT
SHALL BE REGISTERED AS IS, OR, IF IT REQUIRES AMENDMENT TO ENABLE
REGISTRATION. THE PARTIES AGREE TO AMEND THE AGREEMENT ACCORDINGLY.
NOW THIS AGREEMENT WITNESSES as follows:
1. DEFINITIONS
In this Agreement unless the context, otherwise requires, the
following words and expressions shall have the following meanings:
the Advisory Committee means the Advisory Committee constituted
under Clause 14 hereof;
Areas of Significance means any site on the tenement that is
identified by the Scouting Team as being of
cultural, social or spiritual significance
to the Traditional Owners of those areas
and includes any "Aboriginal site" as
defined by the Aboriginal Heritage Act 1988
(South Australia) and any "significant
aboriginal areas" as defined in the
Aboriginal and Torres Strait Islander
Protection Act 1984 (Cwth);
the Explorer means Hemley Exploration Pty Ltd [ACN 073
039 0591 and includes any assignee pursuant
to Clause 26.
License means, as the context requires, the
petroleum exploration license known as
Petroleum Exploration License No.63 granted
by the Minister for Mines and Energy on the
23 May 1996 covering the area described in
Schedule 1 hereto and any petroleum
production license or pipeline license
issuing therefrom and any renewals and
extensions of the same;
License Area means the area more particularly described in
Schedule 1 hereto, and subsequent to the grant of
the petroleum production license, the area for the
time being the subject of the License as defined
herein;
- 3 -
<PAGE>
License Year means such twelve calendar month period
commencing on the date of grant of the PEL and
thereafter on each subsequent anniversary of the
date of such grant.
Native Title Parties (NTPS) means the parties of the first
to fourth parts described hereto and shall include
members of the Yankunytjatjara Council (Aboriginal
Corporation), and Antakirinja Land management
(Aboriginal Corporation);
"native title" has the same meaning as that term is
defined in the Native Title Act 1993 [Clth]
the Minister means the Minister of Mines and Energy for
the State of South Australia, or his
successor;
the Operator means Hemley Exploration Pty Ltd or any
additional or substituted operator approved
by the NTPs under Clause 30 hereof;
Operational Area means any part of the License Area upon which
from time to time under the terms of this Agreement
the Explorer propose to carry out or carry out
Petroleum Operations;
PEL means Petroleum Exploration License No. 63
described in Schedule 1 hereto and any
renewals and extensions of the same;
PPL means any one or more petroleum production license
or pipeline license for which the Explorer may
apply and be granted covering an area within the
area described in Schedule 1 hereto and any
renewals and extensions of the same;
Petroleum has the same meaning assigned to that
expression in the Petroleum Act. Where the
term "Petroleum" is used herein it shall
include each and all constituents thereof;
the Petroleum Act means the Petroleum Act 1940 of South
Australia as amended or any enactment substituted
therefore together with any regulations and
subordinate legislation made thereunder;
- 4 -
<PAGE>
Petroleum Operations means operations carried out pursuant to,
or for the purpose of giving effect to, the
License and, without limiting the foregoing
shall include, drilling, geological,
geophysical and other exploration
activities, and the-development,
production, gathering, separating, pressure
maintenance, dehydrating, heating,
treating, processing, handling,
transportation, fractionation, storage and
marketing of Petroleum produced or to be
produced from the License Area, including
but not limited to, the design, capacity,
installation, operation, maintenance,
repair and replacement of all facilities
required;
Scouting Team means the persons referred to in Clause 11
hereof;
Seismic Lines; access road
corridor means a corridor of 100 meters on either side
of a proposed or existing seismic line or
access road which has been screened and
cleared in accordance with Clause 12 hereof;
to transfer means to sell, assign, transfer, convey or
otherwise dispose of; and "transfer",
"transferred" and "transferring" have
corresponding meanings
Traditional Lands means that area of land situated within
the State of South Australia and included
within Applications for a Native Title
determination
Traditional Owner in relation to the Operational Area means
an Aboriginal person who has, in accordance with
Aboriginal tradition, social, economic and
spiritual affiliations with and responsibilities
for, the Operational Area or any part of it;
Work Site means any camp site or other living area,
air strip, water bore site or drill site in
the License Area which the Explorer
pursuant to the terms of this Agreement
propose to locate or locate in an
Operational Area and includes any other
area in the License Area (other than the
proposed or actual location of a seismic
line or access road) in which the Explorer
pursuant thereto proposes to carry out or
carry out Petroleum Operations.
2. INTERPRETATION AND OTHER MATTERS
2.1 The Recitals and the Schedules to this Agreement shall be deemed to
form part of this Agreement and shall be used in its interpretation
and construction.
2.2 Unless the contrary intention appears in this Agreement-
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2.2.1 monetary references are references to Australian currency;
2.2.2 a reference to an act or regulation includes any amendments to
that act or regulation for the time being in force and also to
any act or regulation passed in substitution therefore;
2.2.3 the singular includes the plural and vice versa and words
importing the masculine gender include the feminine or neuter
gender;
2.2.4 a reference to a person includes a firm, company, corporation,
authority or body whether incorporated or not;
2.2.5 reference to a Minister, Department, authority, body or person
includes the Minister, Department, authority, body or person for
the time being performing the functions of such Minister,
Department, authority, body or person at the date of this
Agreement; and
2.2.6 a reference to the Explorer includes the employees, servants,
agents, contractors and sub-contractors of the Explorer engaged
for the purposes of the Petroleum Operations and their permitted
invitees and any obligation or duty imposed upon the Explorer
shall, where the Explorer have engaged an agent, contractor or
sub-contractor to undertake any activity which the Explorer is
required or authorized to undertake under this Agreement, be
construed as an obligation or duty upon the Explorer to procure
that its agent, contractor or sub-contractor performs that
obligation or duty.
2.3 The headings in this Agreement shall not be deemed to be a part of
this Agreement and shall not be used in its interpretation or
construction.
2.4 This Agreement shall be governed by and construed in accordance with
the laws of the State of South Australia and each party hereby submits
to the jurisdiction of the appropriate courts of that State and the
Commonwealth and any Courts competent to hear appeals therefrom.
2.5 The Clauses in this Agreement shall prevail over any inconsistent
provisions in any Appendix or Schedule to this Agreement.
2.6 No modification, variation or amendment to this Agreement shall be or
any force unless in writing and executed by each party.
2.7 No waiver by a party of any of the provisions of this Agreement shall
be binding unless made in writing and any such waiver shall relate
only to the specific matter, non-compliance or breach in respect of
which it is given and shall not apply to any subsequent or other
matter, non-compliance or breach.
2.8 This Agreement shall be binding upon and enure to the benefit of the
parties and their respective successors and permitted assigns.
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2.9 Each party agrees to execute such deeds and documents and do such
further acts and things as shall be necessary to give effect to this
Agreement.
2.10 If any court or other competent authority declares, or if any statute
or regulation renders any part of this Agreement ineffective, void,
voidable, illegal or unenforceable or if by reason of a declaration by
any Court or other competent authority or any statute or regulation
this Agreement would, if any part hereof were not omitted herefrom, be
ineffective, void, voidable, illegal or unenforceable then:
2.10.1 that part shall, without in any way affecting the
effectiveness, validity, legality or enforce ability of the
remainder of this Agreement, be severable herefrom and this
Agreement shall be read and construed and take effect for all
purposes as if that part were not contained herein; and
2.10.2 the parties shall attempt to renegotiate, in good faith, that
part.
3. CONSENT
Subject to the provisions of this Agreement and in particular Clause 4
hereof, the NTPs hereby grant their permission to the Explorer to carry out
Petroleum Operations under and in accordance with this Agreement upon that
part of the License Area, situated on the Traditional Lands.
4. UNDERTAKING
Having used their best endeavors and having acted with the authority of all
those holders or potential holders of native title as referred to in
Recital J, the NTPs undertake that should any other person, group or
association lodge an Application for a Native Title determination the NTPs
shall use their best endeavors to:-
(a) bring this Agreement to the attention of such applicant; and
(b) have such applicant sign an Annexure to this Agreement binding the
applicant to its terms and conditions including an acknowledgment of
the intent of this Agreement as referred to in recital H.
5. INITIAL SURVEY OF LICENSE AREA BY EXPLORERS
5.1 It is acknowledged between the parties that at the date of execution
of this Agreement the Explorer has not been afforded an opportunity to
enter upon the tenement for the purposes of undertaking an initial
survey ("the Survey") of the License Area.
5.2 Notwithstanding the provisions of this Agreement relating to screening
and clearing of Operational Areas, the NTPs acknowledge that, in order
to efficiently carry out the purposes of this Agreement, it will be
necessary for the Explorer to enter onto the tenement to undertake a
detailed Survey of the License Area and the parties agree that the
conditions contained in Clause 12 hereof do not apply to the Survey
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<PAGE>
5.3 Within twenty one days of the execution of this Agreement by all
parties, the Explorer shall, pursuant to this Clause 5, provide the
NTPs with sufficient details of the proposed Survey to allow the NTPs
to determine whether a Scouting Team or
Liaison Officer will be required in order for the Explorer to carry
out any part or parts of the survey.
6. CONSIDERATION GIVEN BY THE EXPLORERS
6.1 in consideration for the permission hereby granted by the NTPs in
respect of the carrying out of Petroleum Operations in the License
Area, the Explorer hereby covenants that:
6.1.1 the Explorer shall grant to the NTPs such rights and privileges
as set out in this Agreement; and
6.1.2 subject to compliance on the part of the NTPs with their
obligations hereunder, the Explorer will comply with the terms
and conditions on its part herein contained and shall make
payments to the NTPs of the amounts to which the NTPs are
entitled from time to time as provided in this Agreement;
6.1.3 subject to Clause 6.1.2 the Explorer shall make payments to the
NTPs in relation to Petroleum Operations carried out pursuant
to the PEL in accordance with Schedule 3 hereto;
6.1.4 subject to Clause 6.1.2 where a PPL is applied for and granted
under Clause 24 herein, the Explorer shall make payments to the
NTPs in relation to Petroleum Operations carried out pursuant to
the PPL in accordance with Schedule 4 hereto.
6.2 In the event that at the time a Petroleum Production License is
granted to the Explorer there is:
6.2.1. a native title claimant[s] who has not become a party to this
Agreement; and
6.2.2. no determination of native title in relation to the land
covered by the Petroleum Production License by the National
Native Title Tribunal, Federal Court of Australia, or any other
relevant court with competent jurisdiction; then the Explorer
shall execute a trust deed ('the Trust Deed') with the
Australian Legal Rights Movement Inc. of 231235 King William
Street, Adelaide, S.A. 5000 ('the ALRM') providing (inter alia)
for -
6.2.3 the benefits paid under this Agreement in relation to Schedule
4 pursuant to Clause 6.1.4 to be paid in to a trust fund to be
administered by the ALRM as trustee, pending the determination
of native title; any interest accruing under the trust fund
shall accrue to the trust fund; and
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<PAGE>
6.2.4 upon a determination of native title over the License Area, all
monies held at that time in trust by ALRM pursuant to the Trust
Deed, are to be paid to the native title claimant or claimants
in whose favor the native title determination is made in
accordance with its or their instructions.
6.3 In the event of a determination of native title over the License Area
by the National Native Title Tribunal, Federal Court of Australia or
any other relevant Court with competent jurisdiction wholly in favor
of a native title claimant or claimants not a party to this Agreement,
this Agreement shall thereupon terminate.
7. NOTIFICATION OF OPERATIONS
7.1 Subject to the provisions of Clause 12.10 hereof, the Explorer shall
provide the NTPs at least one month in advance of Petroleum Operations
being conducted in the Operational Area particulars in writing of the
following parts of the proposed operational program, namely:-
7.1.1 the proposed location of seismic lines and access roads;
7.1.2 the proposed approximate location of Work Sites;
7.1.3 the proposed method of seismic operations and other
consequential operations, including exploration drilling and
testing and the proposed use of seismic lines and access roads
in such operations,
7.1.4 the major items of equipment proposed to be used;
7.1.5 the proposed method of disposal of any waste material arising
out of Petroleum Operations;
7.1.6 the proposed method of minimizing environmental disturbance or
pollution, including oil spills and blowouts;
7.1.7 the proposed site and nature of any buildings or structures
(including pipelines and associated facilities); and
7.1.8 any other aspect of the Operational Program which is likely to
have adverse impact upon or cause substantial disturbance to any
part of the tenement which may effect the way of life of the
NTPS.
7.2 If the NTPs are not reasonably satisfied with the particulars of the
Petroleum Operations given pursuant to Clause 7.1 hereof, the NTPs
may, prior to the proposed commencement of Petroleum Operations
request the Explorer to provide, and the Explorer shall provide,
further particulars of such proposed operations insofar as the
particulars relate to the impact upon or disturbance to any part of
the tenement or the way of life of the NTPs.
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<PAGE>
7.3 The Explorer shall also give notice to the NTPs if the Explorer at any
time proposes to implement a substantial change in the existing method
of Petroleum Operations.
7.4 In the event that the NTPs have a specific objection to any part of
the particulars of the Petroleum Operations supplied by the Explorer
under Clause 7.1, or to any substantial change therein of which notice
has been given under Clause 7.3, the NTPs shall refer such objection
to the Advisory Committee within thirty days of being supplied with
such particulars or given such notice, and that part of the existing,
intensified or changed operational program to which objection is taken
shall not commence until the Advisory Committee has reached unanimous
agreement. Objection may only be taken where the matter objected to is
likely to have an adverse impact upon or cause substantial disturbance
to any part of the tenement or the way of life of the NTPs. If no such
specific objection is raised within the said thirty day period, the
NTPs shall be deemed to have consented to the proposed Petroleum
operations, subject to Clause 12 and other relevant provisions of this
Agreement.
8. LAND ENTRY AND OCCUPATION
8.1 Upon the execution of this Agreement and until the termination of this
Agreement or, (subject to Clause 21 hereof) earlier cessation or
completion of Petroleum Operations, the Explorer, their contractors,
sub-contractors, employees, agents and visitors shall be permitted in
accordance with the terms and conditions of this Agreement and in
particular to the provisions of Clause 12, to:
8.1.1 enter upon that part of the Traditional Lands situated in the
License Area at all times and commence and proceed with
Petroleum Operations necessary to enable it to carry out its
duties in a satisfactory and efficient manner;
8.1.2 construct necessary access roads across the Traditional Lands
adjacent to the License Area so as to gain access to the License
Area; and
8.1.3 use and draw water from agreed sources and failing agreement, as
determined by the Advisory Committee pursuant to Clause 14.
8.2 The NTPs or any authorized agent of the NTPs possessing written
authority for such purposes from the NTPs may specify in writing, upon
reasonable grounds, that a person or class or persons may not be
permitted access to the License Area and the Explorer shall ensure
that, as far as is possible within their power, such person or persons
shall not enter upon the License Area
9. IDENTIFICATION
9.1 The Explorer shall notify the NTPs of the names of all employees,
contractors, agents, and visitors who will be working on, or visiting
the License Area, such notice to be given fourteen (14) days in
advance in writing.
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<PAGE>
9.2 The Explorer shall inform all of its contractors, employees, agents
and visitors, of the obligation upon them to remain within seismic
line access corridors or Work Sites which have been screened and
cleared in accordance with Clause 12 of this Agreement and to comply
with those conditions consistent with this Agreement.
10. PETROLEUM OPERATIONS
The Explorer shall at all times upon the License Area:
10.1 comply with the provisions of the Petroleum Act and the licenses
granted to it thereunder;
10.2 conduct itself in accordance with good and accepted oil field
practice;
10.3 ensure that it Petroleum Operations cause minimum disturbance to the
Traditional Lands and the way of life of the NTPs living within the
Traditional Lands; and
10.4 use good and accepted oil field practice to avoid oil spills or
blowouts.
11. SCOUTING TEAMS
The NTPs in consultation with the Explorer, shall arrange for the
formation of one or more Scouting Teams which shall be constituted
and remunerated in accordance with the provisions set out in Schedule
2 hereof and shall undertake the duties of screening and clearance as
set out in Clause 12 hereof.
12. SCREENING AND CLEARANCE
12.1 The parties acknowledge that this Agreement is made for the purpose,
inter alia, of providing a workable and effective arrangement to avoid
disputes and differences in relation to Areas of Significance.
12.2 In order to protect Areas of Significance, the Explorer shall with the
particulars supplied or in the notice given under Clause 7 hereof,
request clearance from the NTPs before proceeding with any land based
Petroleum Operations in an Operational Area or part thereof which has
not already been screened and cleared by the NTPs pursuant to this
Agreement .
12.3 Subject to Clause 12.4, upon receipt of the aforesaid particulars or
notice, the NTPs shall, in conjunction with the Explorer undertake at
the expense of the Explorer and in accordance with this Agreement, the
Organization and implementation of a screening program by the Scouting
Team of the Operational Area or part thereof referred to in the
aforesaid particulars or notice ("the Area to be Screened").
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<PAGE>
12.4 Where the NTPs receive a request for clearance pursuant to Clause 7 or
this Clause 12 in respect of an Operational Area or part thereof and
the Operational Area or part thereof has been the subject of prior
screening and clearance in accordance with the terms and conditions of
this Agreement, the NTPs shall by notice in writing within two (2)
weeks of the request so notify the Explorer that such Operational Area
or part thereof shall be deemed to have been screened and cleared in
accordance with the requirements of this Agreement.
12.5 Subject to religious and/or ceremonial obligations of members of the
NTPs, the tasks of the Scouting Team shall be to:
12.5.1 determine whether proposed seismic lines, access roads or Work
Sites are likely to be in Areas of Significance;
12.5.2 give advance warning to the Explorer's representative attached
to the Scouting Team to enable any representative of the
Explorer to relocate parts of seismic lines, access roads,
or Work sites, in order to avoid Areas of Significance;
12.5.3 show reasonable diligence in preparing for and carrying out
such work, while the Explorer meets its obligations pursuant to
this Agreement; and
12.5.4 make every reasonable endeavor to proceed with its work at a
rate that will avoid any standby of the line clearing and
seismic operations.
12.6 The representative of the Explorer attached to the Scouting Team shall
be responsible for marking the track of the proposed seismic lines,
access roads and Work Sites and for relocating these where there is a
likelihood of Areas of Significance being disturbed by the Petroleum
operations. The NTPs will notify the Explorer in writing of the name
of the anthropologist who shall be responsible for coordination of the
Scouting Team operations.
12.7 The NTPs shall ensure that any Traditional Owners accompanying the
Scouting Team shall have knowledge of the Area to be Screened and
shall have sole responsibility on behalf of the NTPs in determining
whether there are any Areas of Significance within the area to be
screened and the Explorer shall ensure that the area to be screened is
appropriately flagged, including the track of seismic line or access
road and the perimeter of a Work Site.
12.8 The Scouting Team and the Explorer will discuss the methods by which
the Explorer may proceed with Petroleum Operations without entering
any Areas of Significance.
12.9 In the event that it is necessary to deviate any proposed seismic line
or access road, such deviation shall be made as small as possible and
any deviated line or road will be returned to the original planned
line or road as soon as practicable, bearing in mind the proximity of
any Areas of Significance and the need to minimize unduly sharp line
deflections. In the event that relocation of a proposed drill site for
an exploration appraisal or development well is being considered, any
movement of the proposed drill site shall be minimized so far as
possible.
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<PAGE>
12.10In the event that the Explorer wishes to make minor modifications or
additions to any part of the program of Petroleum Operations or an
existing cleared seismic line or access road, or to use any existing
water source, the Explorer shall immediately notify the NTPs
accordingly and request that the Scouting Team screens such proposed
modifications, additions, Work Site or water source in accordance with
the provisions of this Agreement. In such case the NTPs shall as soon
as possible and in any event not later than seven days after receipt
of such request, either notify the Explorer in writing of its consent
to such modifications, additions, Work Site or water source, or ensure
the commencement by the Scouting Team of the screening of those areas
as requested by the Explorer, or refer such notification to the
Advisory Committee for its determination and advice.
12.11The Explorer shall follow the flagged seismic lines and access roads
as closely as practicable but in any event shall remain within the
seismic line/access road corridors. Any deviation beyond the seismic
line/access road corridor shall require a further scouting exercise.
12.12Upon screening and clearance of an Operational Area or any part
thereof by the Scouting Team, the Explorer shall be entitled to
commence Petroleum Operations without being required to obtain further
clearance except as otherwise provided in Clauses 12.10. Where an
Operational Area or any part thereof has been screened and cleared
subject to compliance with conditions (if any) specified by the
Scouting Team, the Explorer shall conduct Petroleum Operations thereon
only in accordance with such conditions.
12.13A representative of the Explorer shall accompany the Scouting Team at
all times during its scouting tours and within seven days of the
completion of each scouting tour, the NTPs will notify the Explorer in
writing of the Scouting Team's decisions concerning the acceptability
of proposed locations of the Explorer seismic lines, access roads and
Work Sites. Such notification will specify the proposed locations
which have been screened and cleared for use by the Explorer and the
conditions (if any) attached to that use.
12.14The Explorer shall be absolutely entitled to rely on clearances
notified by the NTPs pursuant to Clause 12.13 and Petroleum Operations
conducted in accordance with such clearances as notified by the NTPs
shall foreclose any future claims that such operations interfered with
any Area of Significance.
12.15Neither the NTPs nor any member of the Scouting Team or Teams shall
be required to disclose to the Explorer or the Operator the location
of any cultural information in relation to any Area of Significance.
12.16During the term of this Agreement and while Petroleum Operations are
conducted within the License Area, the Explorer shall engage the
service of a Liaison Officer as needed to be nominated by the NTPs
whose duties and functions shall include:
12.16.1 liaising between the NTPs and the Traditional Owners and the
Explorer with respect to such matters as the parties may from
time to time agree; coordinating those Traditional Owners
from time to time forming part of the Scouting Team; and
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12.16.2 liaising with the Explorer during tours by the Scouting Team.
12.17The costs and expenses of employment of the Liaison Officer and the
reasonable expenses incurred by him or her in carrying out his or her
duties shall be at the expense of the Explorer.
12.18The parties acknowledged that there is no contractual relationship of
any sort whatsoever as between the Explorer and any person employed or
engaged by the NTPs to form part of any Scouting Team, and that
nothing contained in this Agreement will be interpreted or deemed to
constitute any employment or contractual relationship as between such
persons and the Explorer. The NTPs will ensure compliance with the
Workers Rehabilitation and Compensation Act 1986, the Occupational
Health, Safety and Welfare Act 1986, the Income Tax Assessment 1936
(Cwth) and any other legislation relevant to the terms or basis upon
which the NTPs engage or retain any person to this Agreement.
13. EFFECT OF OPERATIONS ON THE ENVIRONMENT
13.1 The parties acknowledge that a further purpose of this Agreement is
to:
13.1.1 provide a workable and effective arrangement to minimize the
physical, ecological and social effect of Petroleum Operations
conducted by the Explorer in Operational Areas from time to
time
13.1.2 provide that all reasonable steps are taken to ensure the most
effective regeneration of the Operational Areas and any other
parts of the Traditional Lands affected by Petroleum Operations
and
13.1.3 ensure observance of all both Federal and State government
requirements in relation to the environment.
13.2 in order to achieve the objects stated in Clause 13.1 the Explorer
undertakes to comply with the requirements of the Petroleum Act and in
particular to comply with Regulation 16 of the regulations made
thereunder.
14. ADVISORY COMMITTEE
14.1 In order to provide for the smooth working of this Agreement, and the
continuous co-operation of the parties hereto, the parties agree to
form an Advisory Committee, consisting of two members appointed by the
Explorer, and two members appointed by the NTPs. Each member shall
have the right to appoint a proxy to attend on his or her behalf and
to invite a reasonable number of non-members to attend committee
meetings having regard to the matters under discussion.
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14.2 The Advisory Committee shall meet on a regular basis and in any event
whenever any member of either party requests a Committee meeting on
twenty one days notice (or such other period as the members may agree)
to be given, together with details of agenda to the members of the
Committee.
14.3 The Committee shall meet at such place and in accordance with such
procedures as the Committee shall determine from time to time and
shall keep minutes which shall be supplied to the Explorer and the
NTPs.
14.4 Unless otherwise specified, the majority decision of the Advisory
Committee shall be the determination of the Committee. In the event of
a deadlock the matter will be resolved as a dispute in accordance with
Clause 33.
14.5 The Explorer shall observe and act in accordance with the decisions of
the Advisory Committee determined in accordance with this Clause 14.
14.6 Costs and expenses incurred by the parties relating to the attendance
of their respective members at meetings of the Committee shall be
borne equally between the parties unless otherwise determined by the
Committee.
14.7 The functions of the Advisory Committee shall include:-
14.7.1 maintaining liaison between the Explorer and the local
Yankunytjatjara and Antakirinja people;
14.7.2 reviewing the working of this Agreement and the progress of
Petroleum Operations hereunder;
14.7.3 making determinations under Clause 12.10 hereof;
14.7.4 receiving and hearing any specific objection or complaint
relating to any part of the Petroleum Operations; and
14.7.5 making recommendations to the Explorer in relation to the
employment of, and appropriate training for Yankunytjatjara
and Antakirinja people and other people entering the
Operational Areas for the purposes of the Petroleum Operations
and in particular, using its best endeavors to ensure that no
incidends occur which degrade, prejudice or besmirch the
customs, lifestyle, race or character of the Yankunytjatjara
and Antakirinja people.
14.8 The parties agree that they will at all times use their best endeavors
to carry out the provisions of this Agreement so that Petroleum
Operations may be conducted efficiently and with adequate regard to
the aspirations and welfare of the Yankunytjatjara and Antakirinja
people affected by the Petroleum Operations.
14.9 The Explorer shall use its best endeavors in consultation with the
NTPs to promote the training referred to in Clause and to utilize the
services of Yankunytjatjara and Antakirinja people in connection with
the Petroleum Operations.
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<PAGE>
15. REMOVAL OF EMPLOYEES
15.1 Unless the NTPs otherwise agree, the Explorer shall take all
reasonably steps to ensure immediate removal from the License Area of
any contractor, employee, agent, or visitor of any of the Explorer,
who:
15.1.1 has recklessly or willfully trespassed on or in any way
interfered with any Area of Significance;
15.1.2 has recklessly or willfully moved outside any Seismic
line/access road corridor or Work Site;
15.1.3 has violated any of the conditions set out on the contractor's
employee's, agents or visitors identification card or permit;
or/and
15.1.4 has acted in a drunken and disorderly manner on the License
Area or has supplied liquor in an unauthorized fashion to
members of the NTPs;
15.2 In the event of a dispute between the NTPs and the Explorer as to
whether a person has acted in a manner justifying removal from the
License Area the matter shall be referred to the Advisory Committee
for determination.
16. INSTRUCTION IN ABORIGINAL CULTURE
16.1 the Explorer shall promote among non-Aborigines employed in Petroleum
Operations, a knowledge, understanding and respect for the tradition,
language and culture of the Yankunytjatjara and Antakirinja people.
16.2 The Explorer shall ensure that:
16.2.1 all non-Aboriginal employees and personnel are given
appropriate instruction on aspects of Yankunytjatjara and
Antakirinja traditions, history and culture by way of
background and orientation;
16.2.2 all "on-site" supervisory staff are given an initial course and
periodic refresher courses of a more comprehensive and advanced
nature than the instructions envisaged in Clause 16.2.1 above.
16.3 The Explorer shall consult and have regard to the views of the NTPs in
relation to the formulation and presentation of the instruction and
courses referred to in Clause 16.2 hereof. The NTPs shall, whenever
requested by the Explorer to do so, give all reasonable assistance to
the Explorer in attaining the objectives of this Clause 16 and shall
be reimbursed by the Explorer for all reasonable expenses incurred by
it in so doing.
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17. EXPLORER COVENANTS
The Explorer covenants with the NTPs that in connection with the
conduct of Petroleum Operations by it on the License Area it shall;
17.1 keep each Work Site to the minimum area considered necessary to
conduct efficient Petroleum Operations;
17.2 take all proper precautions to reduce fire risk on the License Area;
17.3 not make any break in any of the NTPs fences without either promptly
installing an adequate gate or making good the break; and
17.4 ensure all well sites are capped or sufficiently fenced off after
drilling so as to prevent injury to persons or stock.
18. THE NTPs COVENANTS
18.1 The NTPs covenant with the Explorer that the NTPs shall:
18.1.1 not interfere with the conduct of Petroleum Operations upon the
License Area except in accordance with this Agreement; and
18.1.2 not lodge or make any objections to the grant of a renewal of
the PEL to the Explorer for which the Explorer may apply under
the Petroleum Act in respect of the License Area, or, subject
to the Explorer complying with this Agreement, to the granting
to it of a PPL or any renewal or extension thereof of a PPL.
18.2 The NTPs further covenant that they having used their best endeavors
to make a full and proper search for the Traditional Owners of the
License Area they acknowledge that the Explorer has entered into this
Agreement on the basis that the NTPs represent all Traditional Owners
of the License Area and the NYPs hereby indemnify and keep indemnified
the Explorer in respect of any loss, damage or delay occasioned by any
future claim made, pursuant to the Native Title Act 1993 (Cwth),
and/or the Native Title (South Australia) Act 1994 by a third party or
third parties in respect of the License Area.
19. RIGHTS OF TRADITIONAL OWNERS
19.1 The Explorer acknowledges that the members of the NTPs who are the
Traditional Owners, have the right except where their presence may
cause danger to health and safety, or where their presence may
interfere with the conduct of efficient Petroleum Operations:
19.1.1 to move freely throughout the Operational Areas including all
roads thereon;
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19.1.2 to establish residents within reasonable proximity to other
residences in any place in the Operational Areas where other
people reside; and
19.1.3 to pursue customary and traditional activities in the
Operational Areas.
19.2 The NTPs, members and agents shall be permitted the use of all roads
constructed for the purpose of Petroleum Operations provided such use
does not interfere with the conduct of efficient Petroleum Operations.
19.3 The use of roads in accordance with this clause shall be subject to
reasonable control by the Explorer for the purpose of safety and to
priority of use by the Explorer for the purpose of Petroleum
Operations.
20. RIGHTS OF EXPLORER
Subject to this Agreement the Explorer shall have the right to
conduct Petroleum Operations in the License Area in accordance with
the terms of this Agreement freely and in an efficient manner without
disturbance or interruption from the NTPs, in order to discharge it's
legal obligations and duties in respect thereof, in particular under
the Petroleum Act and the License and any other legislative or
administrative requirements relating to the carrying out of Petroleum
Operations.
21 REVERSION OF INFRASTRUCTURE
21.1 Within the period of twelve calendar months, or such other time as may
be agreed between the parties, after of the Explorer ceases to have
any right to conduct operations pursuant to the PEL under the
Petroleum Act in the License Area, and it holds no other tenements
under the Petroleum Act in the License Area the Explorer shall remove
from the License Area all infrastructure or facilities constructed for
the purposes of Petroleum Operations, which are capable of removal
other than those which the NTPs agree may remain thereon.
21.2 In the event that the NTPs agree that any or all of the infrastructure
or facilities remain, the Explorer shall not be liable for any state
or condition of repair for such infrastructure or facilities not
removed from the License Area and the NTPs hereby waive and releases
the Explorer from any claim demands costs or expenses made or incurred
by the NTPs in respect of such infrastructure or facilities and will
indemnify the Explorer against any claims demands suits or proceedings
of any third party arising out of the state or condition of repair of
such infrastructure or facilities.
21.3.Any infrastructure or facilities the NTPs do not agree should remain
and are not removed by the Explorer within the period of twelve
calendar months as aforesaid shall become the property of the NTPs
without any payment or assumption of any mortgage, lien or charge
thereof on the part of the NTPs.
21.4.Upon acquisition by the NTPs of such infrastructure or facilities,
the NTPs shall become responsible for the maintenance thereof and
shall maintain where necessary, repair and renovate such facilities as
required. - 17 -
<PAGE>
22. INDEMNITY
Subject to Clause 12.17 herein, the NTPs and its employees, agents and
contractors shall be indemnified by the Explorer in respect of all actions,
suits, claims, demands, or cost of third parties arising out of or in connection
with any work carried out by or on behalf of the Explorer pursuant to this
Agreement or relating to the NTPs activities except where such action, suit,
claim, demand or cost arises out of the negligence or willful act or omission of
the NTPS, its employees, agents or contractors.
23. FIELD DEVELOPMENT AND PRODUCTION
The parties acknowledge that at any time during or after completion of the
Petroleum Operations carried out pursuant to PEL, the Explorer may wish to apply
for a PPL under the Petroleum Act in respect of the whole or any part of the
License Area. In the event of the Explorer so applying, and a PPL being granted
by the Minister, unless the parties otherwise agree, the provisions of this
Agreement including the Principles of Agreement contained in Schedule 5 shall
apply in relation to the conduct of Petroleum Operations on the PPL so granted.
24. PETROLEUM PRODUCTION LICENSE
24.1 Where the Explorer intends to make application for a PPL within the
License Area pursuant to the Petroleum Act, the Explorer shall notify
the NTPs of it's intention to lodge such application, at least 30 days
prior to lodgement with the Minister and shall at that time provide to
the NTPs technical and financial data as set out in Schedule 5 herein.
24.2 Where notification is received by the NTPs pursuant to Clause herein
the NTPs shall, subject to the terms and conditions set out in
Schedule 5 herein and in particular upon the payment of past
exploration expenditure as provided for in that Schedule 5, be
entitled to elect to take up to a maximum 10% participatory interest
in any joint venture in respect of the PPL PROVIDED HOWEVER THAT if
the NTPs elect to take up any participatory interest that
participatory interest must be not less than 1 %.
24.3 Where the Explorer makes application for the grant of a PPL pursuant
to the Petroleum Act it shall forward a copy of that application and
all relevant supporting documentation to the NTPs, and the NTPs shall
consent to the grant of the PPL where the application is in
accordance with the terms contemplated in this Agreement,
24.4 Where the Minister grants to the Explorer a PPL the provisions of this
Agreement mutatis mutandis shall apply in respect of any work or
activities conducted by the Explorer within the License Area for so
long as the PPL shall exist and any obligations on the parties
pursuant to the Act shall be deemed to have been met.
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<PAGE>
25. FORCE MAJEURE
25.1 In the event that the performance of the Agreement by either party is
prevented or delayed in whole or in part by acts of God, flood, fire
or damage caused by lightning, storm, tempest, unseasonable rains,
strikes, lockouts or other industrial disturbance, riots, blowouts,
laws, rules, regulations, or directions of a governing body having
jurisdiction over the License Area, religious or other ceremonial
activities of members of the NTPs, inability to obtain equipment or
material or any other causes which by the exercise of due diligence
that the party is unable to prevent or overcome ("force majeure"),
this Agreement shall nevertheless continue and remain in force and
effect but that party shall not be in default hereunder for as long as
it continues to be prevented or delayed as aforesaid by such force
majeure and the time within which such party is required to perform
any work to satisfy any obligations hereunder shall be extended by a
period equivalent to that during which such prevention or delay
continues provided that:
25.1.1 the cause of the force majeure as far as possible shall be
remedied with all reasonable dispatch by such party;
25.1.2 neither party shall be required to settle any strike, lockout,
or other industrial disturbance on terms that it does not
regard as satisfactory.
25.2 The party affected by any event of force majeure as aforesaid
shall forthwith give notice in writing thereof to the other party
of the occurrence of such event and the cessation thereof.
26. ASSIGNMENT
26.1 Except as otherwise provided in this Clause 26, the Explorer
shall not transfer the whole or any part of its interests, rights
or obligations under this Agreement.
26.2 The Explorer may transfer the whole or any part of it's
interests, rights or obligations under this Agreement subject to
the conditions hereinafter specified, to any financially
responsible person or persons or corporation (having regard to
the extent of the financial obligations to be assumed by the
proposed transferee) selected by the Explorer. The conditions of
such transfer are:
26.2.1 The NTPs have given their consent in writing to such
transfer, which consent shall not be unreasonably
withheld, and if there are no grounds for reasonably
withholding such consent, then such consent shall be given
as expeditiously as possible and in any event not more
than 30 days from the date of notification of the proposed
transfer. If the NTPs withhold their consent, such
withholding must be accompanied by a written notice
stating in detail the reasons thereof and such notice
shall be given as expeditiously as possible and in any
event not more than 30 days from the date of notification
of the proposed transfer;
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<PAGE>
26.2.2 the proposed transferee shall execute in favor of the NTPs an
agreement or covenant undertaking to observe and comply with
all the obligations or the Explorer to this Agreement.
27. OPERATIONS
27.1 For the purposes of fulfilling its obligations under the License, the
Explorer may exercise all its rights and perform all its obligations
under this Agreement through an Operator. The Explorer may from time
to time request the approval of the NTPs to the appointment of the
Operator and such approval shall not be unreasonably withheld. The
NTPs shall notify their approval or disapproval of such an Operator
within 28 days of receipt of such request (and no such appointment
shall take place until such approval is given.) The NTPs shall be
entitled to deal with the Operator as though the NTPs were dealing
with the Explorer.
27.2 The NTPs shall be entitled to select and engage all such employees,
agents and independent contractors as are necessary and desirable for
the carrying out of any or all of their obligations under this
Agreement.
28. CONFIDENTIAL INFORMATION
28.1 No party shall advertise, publish or release to anyone other than
another party any information concerning this Agreement or any matter
or thing done or required to be done pursuant thereto. All information
supplied pursuant to this Agreement by one party to this Agreement to
another party to this Agreement (including all information relating to
Areas of Significance) shall be confidential and shall not be released
to a party without the other party's' written consent PROVIDED HOWEVER
THAT:
28.1.1 the Explorer shall be free to make such reports as may be
required either by the rules of any Stock Exchange in Australia
or elsewhere on which shares of such Explorer are listed or by
the laws and regulations of any government or governmental
agency having jurisdiction over such matter or Explorer;
28.1.2 the Explorer may disclose such information except information
identifying Areas of Significance to a third party in
connection with bona fide discussions regarding a proposed
sale of all or part of such Explorer's interest in the License
to that third party or when necessary in connection with
efforts to obtain funds to carry out such Explorer's
reponsibilities hereunder but all such disclosures shall be
made on a confidential basis; and
28.1.3 the NTPs or the Explorer may disclose such information to any
of its bona fide consultants subject to their agreeing to be
bound by the provisions of this Clause 28.
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<PAGE>
29. TERMINATION
29.1 The NTPs may terminate this Agreement by giving to the Explorer three
months notice in writing only on the following conditions:
29.1.1 in the event that the Explorer fails to pay any monies due to
the NTPs and such default continues for more than 30 days after
receipt of notice of failure to pay, except in the case where a
bona fide dispute as to the liability or amount of monies
payable has arisen;
29.1.2 if the Explorer is in breach of any term or condition of this
Agreement and, if such breach is capable of being remedied,
fails to remedy or commence to remedy such breach within 30
days after receipt of a notice given by the NTPs in writing of
such breach.
29.2 It is specifically agreed and understood that this Agreement shall not
terminate because of any change or reduction of the NTPs entitlements
to payment under any PEL or PPL covering the License Area or' any part
thereof, so long as the Explorer is in compliance with the terms
hereof.
30. TERMINATION OF ACTIVITIES
30.1 The Explorer shall notify the NTPs one month prior to any surrender of
the PEL (or PPL) pursuant to the Petroleum Act.
30.2 A surrender under Clause 30.1 is effective on and from the date the
PEL (or PPL) is effectively surrendered pursuant to the Petroleum Act.
30.3 In the event of such surrender by the Explorer, the consent of the
NTPs to the grant of the PEL (or PPL) shall be deemed to be withdrawn
and to be of no effect as of the effective date or surrender.
30.4 The Explorer shall cease Petroleum Operations immediately the PEL (or
PPL) expires or is surrendered, withdrawn, revoked or cancelled.
30.5 Upon the surrender withdrawal revocation or cancellation of the PEL
(or the PPL) as the case may be:
30.5.1 the Explorer shall pay to the NTPs all monies then payable or
accrued which are due to it pursuant to this Agreement;
30.5.2 except to the extent that entry or occupation is required for
the purposes of Clause 21 the Explorer, their employees,
servants, agents, contractors and/or sub-contractors shall
immediately and permanently leave the License Area;
30.5.3 each party shall remain liable to the other party in respect of
any liability it has to the other as a consequence of any prior
breach of this Agreement;
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<PAGE>
30.5.4 nothing in this Agreement shall be construed as imposing an
obligation on the Explorer to carry out or complete the
Petroleum Operations;
30.5.5 except as provided in Clause 31 this Agreement shall terminate
when the parties have complied with Clause 30, the PEL (or PPL)
has terminated or has been surrendered, withdrawn, revoked,
cancelled, as the case may be, whichever occurs earlier;
30.5.6 the parties obligations under Clause 13.2, shall to the extent
referred to therein survive any termination of this Agreement
31. CONSEQUENCES OF TERMINATION
Upon termination of this Agreement pursuant to Clauses 6.3 or 30;
31.1 the rights of the Explorer hereunder, unless otherwise provided in
this Agreement, shall thereupon cease without prejudice to any
liability in respect of any antecedent breach or default under this
Agreement; and
31.2 the Explorer shall, without prejudice to its obligations under Clauses
13 and 21.1 hereof, be relieved of all obligations under this
Agreement except those obligations which arose prior to the date of
such termination.
32. COSTS AND PAYMENTS
32.1 The Explorer shall not be liable to pay the wages and expenses of
persons employed by the NTPs, to the extent that such wages and
expenses are already funded by a State or Commonwealth Government.
32.2 The NTPs shall prepare and provide to the Explorer on a monthly basis
or at such other times as may be agreed between the parties, detailed
accounts in respect of scouting activities undertaken by the Scouting
Team at the request of the Explorer in accordance with the schedule of
fees set out in Schedule 2 hereto and, in the absence of any dispute
as to the amount so claimed by the NTPs, the Explorer shall within
thirty days of receipt of such invoice, pay to the NTPs the amount
claimed.
32.3 The Explorer shall make payment to the NTPs of amounts in respect of:
32.3.1 Exploration payments in accordance with the provisions of
Schedule 3 herein;
32.3.2 Compensation payments in accordance with the provisions of
Schedule 4 herein;
32.3.3 Annual advance payments and/or dividends payments in accordance
with the provisions of Schedule 5 herein.
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<PAGE>
32.4 In the event of a dispute as to the amount or amounts claimed or
payable pursuant to Clauses 32.2 and 32.3 herein, the matter shall be
referred to the Advisory Committee for resolution and in the absence
of agreement the matter shall be referred for arbitration in
accordance with Clause 33 hereof.
33. DISPUTES
33.1 If any dispute or difference arises between the Explorer and the NTPs
in connection with this Agreement, or the rights, duties or
obligations of any party hereunder, the parties shall meet to discuss
the dispute or difference and endeavor to amicably resolve such
dispute or difference by themselves. The parties may, by mutual
agreement, appoint an independent mediator to assist them to negotiate
a resolution of such dispute; the cost of the independent mediator to
be agreed upon by the parties in advance and to be met equally by
them.
33.2 If after discussions the parties are unable to resolve such dispute or
difference, the matter shall be referred to arbitration. The
arbitrator shall be agreed upon between the parties hereto and failing
agreement within one month of one party giving notice of intention to
arbitrate to the others, shall be nominated by the President for the
time being of the Law Society of South Australia.
34. TERM
This Agreement shall commence on the date first appearing herein and shall
continue for the duration of any PEL held by the Explorer in respect of the
License Area or, in the event of application by the Explorer for, and grant to
the Explorer or, a PPL or PPL's for the duration of the PPL, PPL's or until
terminated in accordance with Clauses 6.3, 29 or 30 herein.
35. VARIATION
The parties may from time to time by agreement in writing add to, substitute
for, cancel or vary any of the provisions of this Agreement for the purpose of
more efficiently or satisfactorily implementing or facilitating any of the
objects of this Agreement.
36. FURTHER ASSURANCE
Each of the parties hereto will sign, execute, make and do all such assurances,
documents, acts and things as may be necessary for effectually carrying out the
terms of this Agreement
37 NOTICES
37.1 Any notice, request or other demand or writing required or permitted
to be given hereunder may be duly served or at the option of the party
giving the notice may be validly and sufficiently given if sent by
telex, facsimile or post addressed to:
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<PAGE>
In the Case of the Explorer to:
Hemley Exploration Pty Ltd
C/- Mc Donald & Co.
262-266 Pirie Street
PO Box 3216 Rundle Mall
ADELAIDE SA 5000
Telephone: (08) 82722355
Facsimile: (08) 82720533
In the case of Yankunytjatjara Council (Aboriginal
Corporation) to:
Principal Legal Officer,
Pitjantjatjara Council Inc.,
PO Box 2189
ALICE SPRINGS NT 0871
Telephone: (08) 89 505418
Facsimile: (08) 89523261
In the case of Antakirinja Land Management (Aboriginal Corporation)
to:
Principal Legal Officer,
Aboriginal Legal Rights Movement Inc., Native Title Unit,
321 - 325 King William Street,
ADELAIDE, S.A. 5000
Telephone (08) 8212 1244
Facsimile (08) 8211 7424
In the case of PADDY JONES, JEAN WOODS,
TILLY WAYE, SADIE SINGER, LALLIE LENNON and
JOHNNY CULLINAN to:
Principal Legal Officer,
Aboriginal Legal Rights Movement Inc., Native Title Unit,
321 - 325 King William Street,
ADELAIDE, S.A. 5000
Telephone (08) 8212 1244
Facsimile (08) 8211 7424
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<PAGE>
In the case of WILLIAM HERBERT LENNON Snr,
EILEEN CROMBIE, IAN CROMBIE and KEITH SMITH to;
Principal Legal Officer,
Aboriginal Legal Rights Movement Inc.,
Native Title Unit,
321-325 King William Street,
ADELAIDE, S.A. 5000
Telephone [08[ 82121244
Facsimile [08] 82117424
37.2 FOR THE PURPOSES OF THIS AGREEMENT A NOTICE SERVED ON THE EXPLORER BY THE
PRINCIPAL LEGAL OFFICER, ABORIGINAL LEGAL RIGHTS MOVEMENT INC NATIVE TITLE
UNIT PURPORTING TO BE FOR AND ON BEHALF OF THE NTPS SHALL BE DEEMED TO BE
SERVED ON THE EXPLORER
BY THE NTPS.
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<PAGE>
IN WITNESS WHEREOF the parties have set their hands and seals the day and year
first hereinbefore written.
THE COMMON SEAL of
YANKUNYTJATJARA
COUNCIL (ABORIGINAL CORPORATION) was hereto affixed with the authority of the
Executive Board in the presence of five members thereof, who hereby certify that
this act is done in conformity with a resolution of Yankunytjatjara Council
(Aboriginal Corporation)
THE COMMON SEAL of
ANTAKIRINJA LAND
MANAGEMENT
(ABORIGINAL
CORPORATION) was hereto affixed with the authority of the Executive Board in the
presence of three members thereof, who hereby certify that this act is done in
conformity with a resolution of Yankunytjatjara Council (Aboriginal Corporation)
- 26 -
<PAGE>
Signed by the said PADDY JONES in the presence of:
Signed by the said JEAN WOODS in the presence of:
Signed by the said TILLY WAYE in the presence of:
Signed by the said SADIE SINGER in the presence of:
Signed by the said LALLIE LENNON in the presence of:
Signed by the said JOHNNY CULLINAN in the presence of:
Signed by the said WILLIAM LENNON Snr in the presence of:
Signed by the said EILEEN CROMBIE in the presence of:
Signed by the said IAN CROMBIE in the presence of:
Signed by the said KEITH SMITH in the presence of:
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<PAGE>
THE COMMON SEAL of
HEMLEY EXPLORATION PTY LTD was affixed hereto dated this 9th day of APRIL 1998
in the presence of:
- ---------------------
DIRECT
- ---------------------
SECRETARY
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<PAGE>
Schedule
Description of the License Area:
All that part of the State of South Australia bounded as follows:-
Commencing at a point being at the intersection of latitude 27(Degree)00'S and
longitude 134(Degree)10'E, thence south to latitude 28(Degree)10'S, west to
longitude 133(Degree)31'E, south to latitude 28(Degree)35'S, west to longitude
133(Degree)00'E, north to the southern boundary of the Pitjantjatjara Lands,
thence generally north easterly along the boundary of the said lands to latitude
27(Degree)00'S, and east to a point of commencement, all within latitudes and
longitudes being geodetic and expressed in the terms of the Australian Geodetic
Datum as defined on page 4984 of the Commonwealth Gazette No. 84 dated 6 October
1966.
AREA: 10930 square kilometers (approximately)
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<PAGE>
Schedule 2
1. The NTPs will provide a Scouting Team or Teams to undertake screening and
clearing of Petroleum Operations within the License Area if and when the
requirement arises in accordance with Clause 7 of this Agreement. The
composition of the Scouting Team or Teams may vary from time to time as
determined by the NTPs in consultation with the Explorer provided that the
Scouting Team or Teams will at no time comprise more than four male and
four female members of the NTPs.
2. The NTPs will ensure that both a male and/or a female anthropologist are
available to join the Scouting Team depending on the part of the License
Area under consideration at any given time and the Area or Areas of
Significance that may be therein.
3. The male anthropologist appointed by the NTPs will coordinate the Scouting
Teams provided for in Clause 11 of this Agreement and will be responsible
for conveying the results of the Scouting Team's determinations and
assessments of the Explorer's Petroleum Operations under the terms of this
Agreement.
4. Subject to this Agreement, the NTPs will ensure that the Scouting Team is
available to undertake additional anthropological assessment in respect of
campsites and bore sites as and when such sites are required by the
Explorer in the course of carrying out the Petroleum Operations. Where such
additional anthropological assessment is required, the NTPs will ensure
that the Scouting Team operates on a regular work schedule that coincides
with the work schedule of the Explorer.
5. The NTPs will arrange suitable camping facilities for the Scouting Team.
6. The NTPs will ensure that a Traditional Owner or Owners (but in event not
exceeding three persons) with first hand knowledge of Areas of Significance
in the particular Operational Area, together with the appropriate support
equipment, are available for Scouting purposes.
7. The NTPs will provide an all terrain four-wheel drive vehicle for use by
the Scouting Team while it is undertaking the anthropological assessment
and thereafter for use by the Liaison Officer in carrying out his or her
duties pursuant to this Agreement. Provided however that in the event that
the Scouting Team and the Liaison Officer are both doing work associated
with the Scouting Operations at the same time, they will share the use of
the vehicle.
8. The said vehicle will be insured by the NTPs and equipped by the NTPs with
sufficient spare parts.
9. The NTPs will cause a log-book to be kept and will ensure that the
following information is recorded in the log book in relation to the use of
the 4 WD vehicle:
(a) date;
(b) place of departure;
(c) destination;
(d) reason for the journey; - 30 -
<PAGE>
(e) name of driver; and
(f) number of kilometers traveled in respect of each occasion that the 4
WD vehicle is used for or incidental to the carrying out of the
Scouting Operations and will make the log-book available to the
Explorer upon request.
10. The Explorer will reimburse the NTPs for its costs in: (a) employing the
services of the persons comprising the Scouting Team; (b) providing food to
the Scouting Team; and (c) providing a 4 wheel drive vehicle for use by the
Scouting Team in accordance with the scale set out in paragraph 12 herein.
11. In the event that there are at any time more than three Traditional Owners
forming part of the Scouting Team the Explorer shall not be responsible for
the expense of the additional persons in such group, unless otherwise
agreed between the parties.
12. Remuneration
12.1 Scouting Team Members:
12.1.2 The NTPs members (max. four male and four female at any one
time) Duty rate
12.2 Food for Scouting Team:
The Explorer will pay the NTPs the sum of $30.00 per day by way of
food allowance in respect of each member of the Scouting Team for each
day that such member is on duty in the License Area or travelling to
or from the License Area.
12.3 Four Wheel Drive Vehicle:
The Explorer will pay to the NTPs the sum of 55 cents per kilometer in
respect of the total number of kilometers recorded in the log-book as
having been traveled by the 4 wheel drive vehicle where the vehicle
was being used by the Scouting Team or the Liaison Officer for or
incidental to the carrying out of the Petroleum Operations, provided
that the Explorer will not be required to pay the abovementioned rate
per kilometer in respect of kilometers recorded in the log-book unless
the information referred to in paragraph 9 hereof has been recorded to
the satisfaction of the Explorer
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<PAGE>
Schedule 3
Payments to the NTPs pursuant to Clause 6.1.3 of the Agreement
in respect of Petroleum Operations under the PEL
1. The Explorer agrees to pay to the NTPs an amount equal to the following
percentages of Annual Exploration Expenditure (as hereinafter defined)
("AEE");
1.1 2.55% of such amount of AEE which is less than or equal to $500,000.00
per annum; and
1.2 1.5% of such amount of AEE which exceeds $500,000.00 per annum.
"Annual Exploration Expenditure" means:
All expenses incurred in any one year in respect of exploration carried out on
the License Area as are required to be reported to the Minister pursuant to
Subsections 18d and e of the Petroleum Act, save and excluding such expenses as
may reasonably be defined as administrative or managerial in nature; legal,
accounting and/or consultants fees; off-site travelling costs together with any
other expenses which may reasonably be characterized as off-site expenses
whether or not such costs may be, or may be required to be, included in any
report of exploration expenditure provided to the Minister.
2. Notwithstanding the above provision, the Explorer will make a guaranteed
minimum payment of $20,000.00 in respect of a calendar year in which
on-site Petroleum Operations are carried out pursuant to the PEL.
3. Subject to the terms and conditions set out in the Agreement, the Explorer
shall:
3.1 prior to 23 May 1998 make the initial payment of the amount set out in
paragraph 2 herein and thereafter annually for the duration of each
the PEL;
3.2 within ninety (90) days of the end of each calendar year make payment
to the NTPs of the amount or amounts set out in paragraph 1 herein
less an amount in respect of any minimum payment pursuant to paragraph
2 herein already made.
If the report pursuant to Sections 18d and 18e has not been forwarded
to the Minister for Mines & Energy within ninety (90) days of the end
of each calendar year, the Explorer is to make its best estimate of
AEE and make any payment due on the basis of that estimate,
adjustments shall be made within one month after the final report to
the Minister is submitted.
4. For the purposes of this Schedule each calendar year shall be deemed to
commence as at the date of grant of the PEL and subsequently on the
anniversary of the date of such grant.
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Schedule 4
Payments to the NTPs pursuant to Clause 6.1.4 of the Agreement
in respect of Petroleum Operations under the PPL
1. Application of Schedule 4
Save as otherwise provided in the Agreement and in particular as provided
in Schedule 5 hereto, this Schedule shall apply to payments to the NTPs in
the event that the NTPs elect not to exercise or is deemed not to have
exercised its rights pursuant to Clause 24.2 of the Agreement.
2. Compensation Payments
Subject to paragraph 4 the Explorer shall pay to the NTPs in respect of the
production of all Petroleum, the following amounts by way of compensation:
2.1 in respect of production up to and including 8,000,000 barrels of oil
(or barrels of oil equivalent), 1% of the value at the well head of
Petroleum produced and sold;
2.2 in respect of production from 8,000,001 to 14,000,000 barrels of oil
(or barrels of oil equivalent), 1.5% of the value at the well head of
Petroleum produced and sold;
2.3 in respect of production from 14,000,001 to 20,000,000 barrels of oil
(or barrels of oil equivalent), 2% of the value at the well head of
Petroleum produced and sold;
2.4 in respect of production from 20,000,001 to 30,000,000 barrels of oil
(or barrels of oil equivalent), 2.5% of the value at the well head of
Petroleum produced and sold;
2.5 in respect of production in excess of 30,000,001 barrels of oil (or
barrels of oil equivalent), 3% of the value at the well head of
Petroleum produced and sold.
3. Calculation of Payments
The payments referred to in paragraph 2 herein are to be calculated as follows:
3.1 Value at the well head of Petroleum produced and sold is to be
calculated in the same way that "value at the well head of Petroleum"
is calculated pursuant to section 35(6) of the Petroleum Act where the
sale price is bona fide and to an arms length purchaser PROVIDED that
the "Guidelines for Payment of Royalty and Provision of Information"
issued by the Department of Mines & Energy of South Australia, a copy
of which is annexed to this Schedule 4, shall be applied mutatis
mutandis as if the reference to the royalty rate of 10% therein were a
reference to the relevant percentage rate of compensation referred to
in paragraph 2 herein;
3.2 subject only to paragraphs 3.3 and 3.4 herein, the minimum sale price
of oil shall be deemed to be $24.00 per barrel (the "floor price");
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<PAGE>
3.3 in the event of an increase in the sale price of oil per barrel of
$2.00 or more above the floor price, which increase remains constant
for a minimum period of 30 consecutive days, then for each such
increase of $2.00 the percentage production payments set out in
paragraph 2 herein shall increase correspondingly by an amount of
0.125%;
3.4 subject to paragraph 3.2 herein, where the sale price of oil per
barrel decreases by $2.00 or more, which decrease remains constant for
a minimum period of thirty consecutive days, then for each such
decrease of $2.00 the percentage production payments set out in
paragraph 2 herein shall decrease correspondingly by an amount of
0.125%;
3.5 a ceiling sale price of $45.00 per barrel of oil shall apply to the
percentage increases referred to in paragraph 3.3 herein and no
percentage increase shall apply to sale price increases in excess of
$45.00 per barrel.
4. Conversion rates from Oil to other Petroleum products
For the purposes of the determination of the barrels of oil equivalent as
referred to in paragraph 2 herein, the following conversion table shall apply:
Petroleum Product Volume Equivalent to:
- ----------------- ---------------- -----------------
Crude Oil 1 Barrel 1 B.O.E.
Sales Gas 1 Petajoule 174.937 B.O.E. x 10 3
Condensate/Naphtha 1 Barrel 0.935 B.O.E.
LPG 1 tonne 8.458 B.O.E.
5. Identification of Field Size
5.1 The Explorer shall within a reasonable time period and in any event
within 5 years from the date of grant of the PPL, prepare a reserves
assessment report of the producible field, subject of the PPL and
shall provide to the NTPs a copy of the report.
5.2 The NTPs shall, within a period of six months from the date of receipt
of the report referred to in paragraph 5.1 herein, be entitled to
dispute the finding made therein.
5.3 In the event that the NTPs disputes the assessment in accordance with
paragraph 5.2 herein, it shall provide to the Explorer a notice of
dispute in writing setting out detailed reasons for such dispute
within the said six month period.
5.4 Where the NTPs do not notify the Explorer in accordance with paragraph
5.3 herein, the NTPs shall be deemed to have accepted the Explorer
report and the Explorer shall be entitled to base their calculations
in respect of adjustment of compensation payments set out in paragraph
6 herein on that assessment.
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<PAGE>
5.5 Where the NTPs notify the Explorer pursuant to paragraph 5.2 herein
and an agreement as to the volume of reserves assessed in respect of
the relevant producible field cannot be reached, the matter shall be
resolved by reference to an independent expert appointed by the
parties who shall determine the extent of reserves and whose opinion
shall be final and binding on the parties. Costs in respect of the
appointment of the independent expert shall be borne equally between
the Explorer and the NTPS.
6. Adjustment of Compensation Payments - Field Decline
6.1 If in the Operator's opinion the relevant field has gone or is to go
into decline, the Operator shall give the NTPs notice to that effect,
and:
6.1.1 the parties shall meet and negotiate and use their best
endeavors to agree upon a date on and from which the relevant
field has gone or is to go into decline (the "Relevant Date").
6.1.2 the Relevant Date shall be determined on the basis of the field
reserves assessment report referred to in paragraph 5.1 herein
which shall set out the estimated remaining reserves as a
percentage of the total estimated field and shall further set
out the point at which the field shall be deemed to have gone
or is to go into decline as a percentage of the total estimated
field (the "Relevant Percentage") PROVIDED HOWEVER that the
Relavant Percentage shall be no less than 50% and no more than
70% of the total estimated field;
6.1.3 if within 60 days from the giving of the notice referred to in
paragraph 6.1 herein, the parties are unable to agree, the
Chief Executive Officer of Mines & Energy South Australia shall
be requested to nominate and appoint an independent qualified
reservoir engineer who shall carry out a study to determine the
Relevant Date on and from which the relevant field has gone or
is to go into decline and who in so doing shall act as an
expert and whose opinion and study shall be final and binding
on the parties.
6.2 On and as from the Relevant Date, compensation payments to the NTPs as
set out in paragraph 2 herein shall be reduced by an amount of 0.5% of
the value at the well head of Petroleum produced and sold for each
additional 10% of the total estimated field produced in excess of the
Relevant Percentage, PROVIDED HOWEVER that the minimum percentage of
compensation payable to the NTPs pursuant to this paragraph shall be
1.5% of the value at the well head of petroleum produced and sold.
7. Time for Payment
Payments due to the NTPs as calculated in accordance with paragraphs 2 and 3
herein shall be made by the Explorer and/or the Operator within 30 days after
the last day of each calendar month in which the Petroleum in respect of which
such compensation applies was sold, or within 30 days after the last day of the
calendar month in which payment is actually received by the party selling the
Petroleum or other Product, whichever is the earlier date.
- 35 -
<PAGE>
8. Adjustment of Compensation Payments
8.1 The Explorer shall at the Explorer's expense provide to the NTPs,
within 90 days after the end of each License Year commencing with the
License Year in which production of Petroleum first occurs from the
License Area, a report setting out the amount of Petroleum produced
and sold during the preceding License Year, calculations of the
proceeds attributable to the NTPs in accordance with this Schedule 4
for such year, and providing such other information as the NTPs shall
reasonably request.
8.2 If any such report indicates that payments actually made to the NTPs
were less than the amount reflected as being payable, the amount of
the difference plus interest at 2 percentage points above the then
prevailing interest rate as charged by the ANZ bank for loans less
than $100,000.00 shall be promptly adjusted by an appropriate
balancing payment to the NTPs .
8.3 If any such report indicates that payments actually made to the NTPs
were greater than the amount reflected as being payable, the amount of
the difference shall be promptly adjusted by an appropriate deduction
from the first month or months, as appropriate, payment to the NTPs of
its due entitlements pursuant to this Schedule 5.
9. Auditing
9.1 The Explorer shall cause to be kept and maintained complete books and
records in respect of the NTPs entitlements pursuant to this Schedule
4 and shall retain such books and records for at least five years.
9.2 The NTPs, upon at least thirty days advance written notice to the
Explorer and/or any interested third party or third parties (the
"Third Party"), shall have the right, at its sole expense to audit the
books and related records for any License Year or proportion thereof
within the 12 month period following the end of the License Year to
which they relate.
9.3 All bills and statements rendered to the NTPs by the Explorer and/or
the Third Party during any License Year shall conclusively be presumed
to be true and correct after 12 months following the end of any such
License Year unless within the said 12 month period the NTPs takes
written exception thereto and make claim for adjustment.
9.4 The conducting of an audit shall not extend the time for the taking of
written exception to and the adjustment of accounts as provided above.
9.5 If any such audit demonstrates that amounts owing to the NTPs have
been underpaid by more than 10% then, provided the NTPs protests
within six months from the close of the calendar year being audited,
in addition to promptly making a balancing payment with interest to
the NTPs , the Explorer and/or the Third Party, shall in accordance
with their respective participation interests reimburse the NTPs for
the expense of the audit.
- 36 -
<PAGE>
Schedule 5
Principles for Agreement on the grant of a Petroleum
Production License
1. Definitions
Unless otherwise defined in this Schedule, the Definitions of Clause 1 of the
Principal Agreement apply to this schedule.
1.1 "Principal Agreement" Means the Agreement signed by the NTPs and the
Explorer on ___ day of ________ 1998;
1.2 "Petroleum Operations" Means the operations for the exploration and
recovery of Petroleum, by the Explorer and the
License Area and any production therefrom;
1.3 "Petroleum Operations
Area Means the area of land required for the purpose
of the Petroleum Operations, including any access
roads and airstrips on the tenement;
1.4 "Joint Venture
Agreement" Means any agreement entered into by the Explorer
and a third party or third parties and/or
production within the License Area (the "JVA")
1.5 "Joint Venture
Participants" Means all parties (excluding the NTPs) to the
JVA (the "JV Participants")
2. Principles of Agreement
2.1 Subject to the Act and the terms and conditions of the Principal
Agreement the parties wish to record certain principles of agreement
setting out terms and conditions as to payments and other terms and
conditions for the purpose of Clause 23 of the Principal Agreement.
2.2 It is acknowledged that at the date these principles have been agreed
the location, quantity of reserves and characteristics of any
Petroleum deposits which may be discovered are entirely unknown and
that, between the date hereof and the date of an application for and
the grant of PPL, economic conditions (including government levies and
taxes) affecting the development of Petroleum wells and the sale of
Petroleum products may alter considerably.
2.3 The parties have agreed that any agreement entered into by the parties
pursuant to Clause 23 of the Principal Agreement shall contain terms
and conditions incorporating the principles set out in this Schedule
and where the matter is not specifically dealt with in this Schedule,
as agreed.
- 37 -
<PAGE>
3. Option to Take up Participatory Interest
The election right afforded to the NTPs in Clause 24 of the Principal Agreement
shall be exercised as follows:
3.1 The Explorer shall by notice in writing advise the NTPs 30 days prior
to lodging an application for grant of a PPL within the License Area
with the Minister, of their intention to lodge such application ("the
Date of Notification").
3.2 The notification referred to in paragraph 3.1 herein shall include
such technical and financial information as necessary to enable the
NTPs to make an informed decision whether or not to take up its
participatory interest pursuant to Clause 24 of the Principal
Agreement and in particular such information shall include details of
past exploration expenditure, a copy of the PPL application, and an
assessment of anticipated future expenditure in relation to the PEL
and PPL.
3.3 The NTPs may, within 30 days of the date the Date of Notification, by
notice given in writing to the Explorer and/or the JV Participants (as
the case may be), make a once only election to take up a participatory
interest of up to 1 0 % but in any event no less than 1 % in the JVA
and failure to so notify the Explorer and/or the JV Participants
within the said time period shall be deemed to be a forfeiture on the
part of the NTPs of their election rights pursuant to Clause 24.1 of
the Principal Agreement.
In the event that at the time of the election there is no JVA
applicable in respect of the License Area, the Explorer and the NTPs
agree to enter into an agreement with each other for the conduct of
Petroleum Operations within the License Area and such agreement shall
be deemed a JVA as that term is defined in this Schedule S.
3.4 The NTPs election to take up its participatory interest shall be
conditional upon the NTPs entering into an undertaking to bear 100% of
the costs and obligations of its participatory interest and the NTPs
shall within 30 days of the Date of Notification, pay to the Explorer
and or the JV Participants an amount in respect of past exploration
expenditure proportional to the NTPs elected participatory interest
and failure to make such payment within the said time period shall be
deemed to be a forfeiture on the part of the NTPs of its election
rights pursuant to Clause 24.2 of the Principal Agreement,
notwithstanding any notice which may have been given pursuant to
paragraph 3.3 herein.
For the purpose of this paragraph 3.4 "past exploration expenditure"
shall include all costs charges and expenses related to the operation,
administration and management of the PEL up to the date of election by
the NTPs as provided for in Clause 24.2 of the Principal Agreement.
3.5 Subject to paragraphs 3.3 and 3.4 herein, the NTPs shall be entitled
to take up their participatory interest in any existing or subsequent
JVA in respect of the License Area and the Explorer covenant that, in
the event that the Explorer enters into a JVA with a third party or
third parties prior to the Date of Notification, the terms of such
agreement will be such as to protect the possible future participatory
interest of the NTPs and will provide an appropriate mechanism whereby
the NTPs is guaranteed the opportunity to elect to take up an interest
in such JVA of up to 1 0%; - 38 -
<PAGE>
3.6 3.6.1 Where a JVA applies in respect of the whole of the License
Area, the NTPs election right relates only to the first PPL
applied for within the License Area and once exercised or
forfeited cannot subsequently be exercised in respect of
additional PPL's applied for or granted within the License
Area.
3.6.2 However, should the License Area be divided into sub-blocks or
sub-areas then the NTPs shall have an election right in respect
of the first PPL applied for within each relevant subarea or
sub-block. Once exercised or forfeited in respect of any
particular sub-block or sub-area the election right cannot
subsequently be exercised in respect of additional PPLs applied
for or granted within that particular sub-area or sub-block
but may be exercised in respect of the first PPL applied for
within any other-sub area or sub-block in respect of which
the election right has not been exercised or forfeited.
3.7 Subject to the anticipated production from the PPL being sustainable
at the rate of 2500 barrels of oil (or oil equivalent) per day which
decision shall be made by the Explorer and where the NTPs elect to
take up its participatory interest, the Explorer and/or the JV
Participants shall cause to be made to the NTPs, upon commencement of
actual production following the grant of a PPL an annual advance
payment of the following sums to be deducted from compensation
payments payable to the NTPs in any one production year:
3.7.1where annual production is less than or equal to 10,000,000
barrels of oil (or barrels of oil equivalent), the sum of
$100,000.00;
3.7.2where annual production is greater than 10,000,000 but less than
or equal to 20,000,000 barrels of oil (or barrels of oil
equivalent), the sum of $150,000.00;
3.7.3where annual production is greater than 20,000,000 barrels of
oil (or barrels of oil equivalent), the sum of $200,000.00.
3.8 The NTPs agree to comply with all of its obligations under the JVA and
in particular agrees:
3.8.1to satisfy any shortfall between annual advance payments and
obligations in respect of its participatory interest (the
"shortfall") from predicted production compensation payments; and
3.8.2where compensation payments are insufficient to meet the
shortfall, from any dividend payable to the NTPs in respect of
its participatory interest in any one License Year.
4. Application of Schedules 3 and 4 to these Principles of Agreement
Whether or not the NTPs elects to take up its participatory interest (or fails
to exercise its right to do so), compensation payments to the NTPs shall be made
in accordance with the terms of payment set out in Schedule 3 of the Principal
Agreement, and where the NTPs elects to take up its participatory interest, the
payments referred to in Schedules 3 and 4 of the Principal Agreement shall be in
addition to any dividend to which the NTPs may be entitled in respect of its
participatory interest in the JVA.
- 39 -
<PAGE>
5. Participation and Voting Rights
The NTPs participation in a JVA shall be on the same terms and conditions as
apply to other JV Participants and the Explorer covenants that any JVA entered
into shall allow for the NTPs upon taking up its participatory interest, to
exercise full voting rights, and further covenants that no special voting rights
shall be given to any other JV Participant without the express agreement of the
NTPs thereto.
6. Independent Audit
Upon the giving of prior notice to the Explorer, the NTPs shall, through an
independent auditor reasonably acceptable to the explorer, and whose appointment
shall be to the cost of the NTPs have the right to be provided with and have
access to inspect and copy information relevant to the calculation of statutory
royalties and to the calculation of any payments payable pursuant to the
Principal Agreement and or this Schedule.
7. Term of Agreement
The parties shall ensure that subject to Clause 30 of the Principal Agreement,
the JVA shall continue in force until the expiration of twenty-one years from
the date of grant of the PPL.
8. Extension of Term
The NTPs agree that, provided the Explorer has substantially complied with their
obligations under the JVA, it will at the request of the Explorer made within
five years prior to the date upon which the JVA terminates under paragraph 7
herein, enter into good faith negotiations with the Explorer and any other
relevant party or parties with a view to reaching agreement on terms and
conditions for a renewal of the JVA after expiration thereof, and that it will
commence such negotiations within thirty days after receiving such request.
9. Arbitration
In the event that the parties cannot agree on the terms and conditions of a
renewal of the JVA then either the Explorer or the NTPs may serve notice upon
the other requiring that they or it submit to arbitration to determine the terms
and conditions for a renewal of the JVA and the arbitrator's decision will be
binding on the parties.
10. Additional Terms and Conditions
In addition to the foregoing, the JVA shall contain such terms and conditions as
may reasonably relate to the Petroleum Operations and to the use and occupation
of the tenement, including terms and conditions dealing with matters
specifically dealt with in the Principal Agreement which may be applied mutatis
mutandis or otherwise amended to fit the circumstances of the JVA.
- 40 -
DRILLING RIG SALE AND PURCHASE AGREEMENT
BETWEEN:
TD INTERNATIONAL SA
("TDI")
MASON OIL COMPANY, INC.
(`Mason")
HEMLEY EXPLORATION PTY LTD
(ACN 073 039 059) ("Hemley")
DESCO INCORPORATED
("DESCO")
AND
DAVID A MUNNS ("Munns")
<PAGE>
THIS AGREEMENT is made the _________ day of _________, 1998.
BETWEEN:
TD INTERNATIONAL SA a company registered in Panama, with its principal place of
business at 32 Tuas Avenue 4, Singapore 639381 ("TDI")
MASON OIL COMPANY, INC. a Utah corporation with its principal place of business
at PO Box 1566 Sarasota, Florida ("Mason" and sometimes collectively with Hemley
"the Sellers") HEMLEY EXPLORATION PTY LTD (ACN 073 039 059) a company registered
in Australia and a wholly owned subsidiary of Mason with its principal place of
business at Suite 3, CCH House, 174 Greenhill Road, Parkside 5063 South
Australia ("Hemley") DESCO INCORPORATED a Philippines corporation having its
registered office at KM, 21 Villonco Road, West Service Road, Muninlupa City,
Philippines ("DESCO") AND DAVID A MUNNS C/- 32 Tuas Avenue 4, Singapore 639381
("Munns")
RECITALS
A. Pursuant to a Rig Sale, Purchase and Utilisation Agreement dated 13
November 1997, between the Sellers and TDI ("the Purchase Agreement"),
Hemley owns an undivided 50% interest in and to a Franks Cabor 1000hp
drilling rig and all equipment associated therewith as described in Part 1
of Exhibit A to the Purchase Agreement ("the Rig").
B. Pursuant to the operation of a drilling agreement between Monument
Resources (Overseas) Limited having its registered office at Cedar house,
41 Cedar House,Hamilton HM 12 Bermuda "(Monument") and DESCO ("the Monument
Drilling Agreement"), DESCO and in respect of the drilling of a well in
Laos within licence known as BLOCK MROL/SDC, DESCO has acquired a rig camp
and the camp's inventory ("the Camp") as described in Schedule VI to the
Monument Drilling Agreement.
C. Pursuant to a Master Drilling Contract between TDI and Hemley dated 22
April 1998, ("the TDI Drilling Contract"), TDI has agreed to drill and
complete one exploration well on Exploration Permit 18 in the Northern of
Australia ("EP 18") as described in the Drilling Order attached to the TDI
Drilling Contract, using the Rig.
D. Munns is a shareholder and director of TDI and DESCO.
E. Hemley wishes to sell and TDI has agreed to buy, Hemley's 50% undivided
interest in the Rig, subject to the terms and conditions set out in this
Agreement.
<PAGE>
NOW, THEREFORE the parties hereto agree as follows:
1. Purchase and Sale
Subject to the terms and conditions of this Agreement, effective as of the
Closing Date, Hemley sells to TDI and TDI buys from Hemley, Hemley's
undivided 50% interest in the Rig, free from any encumbrance, security or
third party interest.
2. Purchase Price
In consideration for the purchase of Hemley's interest in the Rig as
referred to in clause 1 TDI will:
2.1 pay to Hemley (or its nominee) by bank cheque or wire transfer,
immediately available funds of US$300,000 payable as follows:
2.1.1 US$50,000 on the Closing Date; and
2.1.2 US$50,000 for each of the next remaining 5 quarters payable
by 1 January 1999, 30 March 1999, 30 June 1999,
30 September 1999, and 1 January 2000, respectively.
2.2 transfer to such agent as nominated by Mason, all shares of Mason's
common stock held by TDI, being 806,667 shares in such common stock
("the Shares") together with all options in Mason's common stock held
by TDI being options to purchase an additional 500,000 shares in
common stock of Mason; and
DESCO will on the Completion Date:-
2.3 TRANSFER TO HEMLEY FREE FROM ANY ENCUMBRANCE, SECURITY OR THIRD PARTY
INTEREST, ALL ITS RIGHT, TITLE AND INTEREST IN THE CAMP, THE VALUE OF
WHICH FOR THE PURPOSES OF THIS AGREEMENT IS AGREED TO BE US$121,626.00
3. Interest
3.1 TDI shall pay interest on the unpaid balance of the purchase price and
on overdue monies to Hemley
3.2 Interest shall be paid by TDI in arrears:
3.2.1 at the time that installments of the balance of the
purchase price are paid to Hemley until the installment
becomes due and owing; and
3.2.2 upon demand on overdue monies.
<PAGE>
3.3 The interest rate:
3.3.1 on the unpaid balance of the purchase price until it becomes
due and owing will be the higher rate but if:
3.3.1.1 an interest payment calculated at the lower rate
is receive by Hemley on or before the relevant
interest payment date; and
3.3.1.2 on that interest payment date there is no unwaived
and continuing event of default, Mason shall
accept that payment for the period to which it
relates instead of an interest payment calculated
at the higher rate; and
3.3.2 on overdue monies will be the higher rate.
3.1 For the purposes of this clause:
3.4.1 "Higher rate" means 10% per annum;
3.4.2 "Lower rate" means 8% per annum; 3.4.3 "Interest payment
date" means the date that the installments referred to in
clause 2.1 are due and payable.
4. Time and Place of Closing
Closing is to occur within 7 days of the execution of this Agreement by the
parties, at such place or in such manner as the parties may agree (the
"Closing Date").
5. Obligations of TDI/DESCO at Closing
5.1 At the Closing:-
5.1.1 TDI must deliver to Hemley all certificates held by it in
respect of the Shares together with such duly executed
transfer forms or other documents in respect of the Shares
as Hemley or Mason may so request;
5.1.2 TDI must pay to Hemley (or its nominee) the amount of US
$100,000 in the manner as set out in clause 2.1;
5.1.3 DESCO shall deliver to Hemley a Bill of Sale in the form of
Annexure "A" hereto, duly executed by DESCO and such other
certificates of title and other instruments as shall be
necessary to vest right, title and interest in the Camp to
Hemley.
6. Re-Location of Camp
TDI and/or DESCO within sixty (60) days after execution of this Agreement
shall move the Camp at its cost to the port of Laem Chabang, Thailand and
Hemley will take possession of the Camp at that point. Notwithstanding the
handover at the Closing to Hemley of a Bill of Sale in respect of the Camp
all risk in relation to the Camp shall remain with TDI and DESCO, prior to
handover of possession to Hemley in Thailand.
<PAGE>
7. TDI Drilling Contract
7.1 Mason and Hemley acknowledge that TDI has requested that TDI be
released of its obligations under the TDI Drilling Contract to drill a
well on EP18 in accordance with the terms and conditions of that
Contract and TDI acknowledges that Hemley has given certain
undertakings to Mataranka Oil N.L. and the Northern Territory
Department of Mines & Energy to drill a well on EP18 utilizing the Rig
pursuant to the TDI Drilling Contract.
7.2 Subject to clause 7.3, Mason and Hemley hereby release TDI from any
and all of its obligations under the TDI Drilling Contract and from
the date of execution hereof by the parties hereto, the TDI Drilling
Contract shall be deemed to have been terminated.
8. Security and Warranty
8.1 To ensure the fulfillment by TDI of its obligations under this
Agreement, TDI undertakes to execute in favor of Hemley a charge over
the Rig in the form set out in Annexure "B".
8.2 TDI and Munns jointly and severally warrant that as at the date hereof
and as at the Closing Date, TDI does and TDI will own its interest in
the Rig unencumbered and free from any prior mortgage, charge or other
security interest so that the charge shall be a first ranking charge
securing the indebtedness and performance of TDI under the terms of
this Agreement.
9. Undertaking by David A. Munns
Munnshereby guarantees the performance by each of TDI and DESCO of its
obligations under this Agreementincluding without limitation, the
performance of obligations arising under clause 7.3 above.
10. Applicable Law
This Agreement shall be governed by and construed in accordance with the
laws of South Australia.
11. Notices
All notices or other communications required or which may be give hereunder
shall be addressed to the party concerned at the relevant address give for
the party in this Agreement.
<PAGE>
12. Entire Agreement
This instrument contains the entire Agreement between the parties and
supersedes all other prior negotiations, undertakings, notes, memoranda and
agreements, whether written or oral, concerning the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, of the parties hereto have duly executed this Agreement by
their authorized representatives, respectively, as of the day and year first
above written.
TD INTERNATIONAL SA HEMLEY EXPLORATION PTY LTD
By: /s/ D.A. Munns By: /s/ J.L. Naylor
Name: D.A. Munns Name: J.L. Naylor
Title: Director Title: Managing Director
Date: 23/10/98 Date: 10 October 1998
DESCO INCORPORATED MASON OIL COMPANY, INC.
By: /s/ D.A. Munns By: /s/ J. L. Naylor
Name: D.A. Munns Name: J.L. Naylor
Title: Director Title: Managing Director
Date: 23/10/98 Date: 14 October 1998
DAVID A MUNNS
/s/ D.A. Munns
Date: 23/10/98
<PAGE>
ANNEXURE A
Form of Bill of Sale
BILL OF SALE
THIS BILL OF SALE made as of the __________ day of ___________ 1998 is between
DESCO INCORPORATED a Philippines corporation having its registered office at KM,
21 Villanco Road, West Service Road, Muninlupa City, Philippines ("Seller") and
HEMLEY EXPLORATION PTY LTD an Australian Company with offices at Suite 3, BCH
House, 174 Greenhill Road, Parkside 5063, South Australia ("Buyer").
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of which are
hereby acknowledged, Seller does hereby, bargain, sell, assign, transfer and set
over unto Buyer the Seller's right, title and interest in the rig camp and the
camp's inventory as described in Schedule VI to the drilling agreement between
the Seller and Monument Resources (Overseas) Limited and utilized by the Seller
in relation to the drilling of a well in Laos within license known as BLOCK
MROL/SDC ("the Camp").
TO HAVE AND TO HOLD the same unto Buyer, its successors and assigns forever.
Seller warrants title to the Camp and further warrants that the Camp is free and
clear of liens, charges, mortgages, interest, rights, claims and encumbrances
and Seller agrees to defend Buyer and its successors and assigns against all
persons or entities claiming or to claim any interest in the Camp.
Seller also assigns and transfers unto Buyer the Seller's rights and privileges
and with respect to any and all warranties relating to the Camp, to the extent
the same are assignable and transferable.
This Bill of Sale is made and given pursuant to the Agreement by and Among
Seller, TD International SA, Buyer, Mason Oil Company and David A. Munns dated
of 23 October 1998 and the terms and conditions thereof, including
representations and warranties with respect to the Camp are incorporated herein
by this reference.
IN WITNESS WHEREOF Seller and Buyer have executed this Bill of Sale effective as
of 23 October 1998.
SELLER: BUYER:
DESCO INCORPORATED HEMLEY EXPLORATION PTY LTD
By:/s/ D.A. Munns By: /s/ J.L. Naylor
Name: David A. Munns Name: J.L. Naylor
Title: Director Title: Managing Director
<PAGE>
ANNEXURE B
Form of Mortgage
<PAGE>
ANNEXURE "B"
THIS DEED OF CHARGE is made on ________________ 1998
BY
TD INTERNATIONAL S.A. a company registered in Panama with offices in
Singapore ("Mortgagor")
IN FAVOR OF:
HEMLEY EXPLORATION PTY LTD (ACN 073 039 059) a company registered in Australia
being a wholly owned subsidiary of Mason Oil Company, a U.S. company registered
in the State of Utah, USA ("Creditor").
OPERATIVE PART
1. INTERPRETATION
1.1 Definitions
In this document, unless the context otherwise requires:
"Attorney" means any attorney appointed under Clause 14 and any person
who derives a right by delegation directly or indirectly from an
attorney. "Authorized representative" means in relation to any party:
(a) if that party is a corporation, a director or secretary of that
party'
(b) that party's lawyer; and
(c) a person appointed by that party to act as an authorized
representative for the purpose of this document and whose
appointment is notified in writing by the appointor to the other
party;
"Bankruptcy" means:
(a) in relation to any corporation the appointment of an
administrator, provisional liquidator or liquidator in respect of
it because it is or may be insolvent; and
(b) in relation to an individual, that person becoming an insolvent
under administration as defined in Section 9 of the Corporation
Law of Australia or any similar or equivalent legislation in any
relevant jurisdiction.
"Business day" means a day which is not a Saturday, Sunday or a
public or bank holiday in Australia;
"Credit support" means:
(a) any guarantee by which any person guarantees the payment of the
secured money;
(b) any security which secures:
(i) payment of the secured money; or
(ii) the payment of moneys or damages owing (actually or
contingently) from time to time by any guarantor in relation
to a guarantee of the payment of the secured money.
<PAGE>
"Credit support provider" means a person:
(a) who has given a credit support; or
(b) who holds any property which is subject to a security which is a
credit support.
"Default Notice" means a notice under Clause 7(2).
"Encumbrance" in relation to any property means:
(a) any interest in or right over the property; and
(b) anything which prevents, restricts or delays;
(i) the exercise of any right over the property;
(ii) the use of the property; or
(iii)the registration of any interest in or dealing with the
property
"Event of default" means any event described in Clause 6.
"Financial indebtedness" of a person means any indebtedness or
liability (actual or contingent) relating to any guarantee given by it
or relating to any financial accommodation granted to it, including,
without limitation, any indebtedness or liability for payments in
respect of:
(a) moneys borrowed or raised by that person;
(b) the sale or negotiation of any bill of exchange or promissory
note;
(c) any finance lease or hire purchase agreement under which that
person is the lessee;
(d) the deferred purchase price of any property or services other
than indebtedness for the purchase price of trading stock
incurred by that person in the ordinary course of its ordinary
trading business;
(e) any redeemable preference share issued by that person.
"Government body" means
(a) any person, agency or other thing exercising an executive,
legislative, judicial or other governmental function of any
country or political sub-division of any country;
(b) any public authority constituted by or under a law of any country
or political sub-division of any country; and
(c) any person deriving a right by delegation directly or indirectly
from any other government body.
"Material adverse effect" means a material adverse effect upon either:
(a) the ability of the mortgagor to perform its obligations under
this document; or
(b) the effectiveness, priority or enforceability of this or any
other credit support. "Parts" means any parts, appliances,
instruments, accessories, furnishing and other equipment or
components including motors and engines which are from time to
time part of or used on the Rig.
<PAGE>
"Potential event of default" means anything which the giving of notice
lapse of time or determination of materiality will constitute an event
of default.
"Receiver" means a receiver or receiver and manager appointed under
this document and any person who derives a right by delegation
directly or indirectly from any receiver.
"Remedy proceeds" means money received from the exercise of any right
against the secured property.
"Representative" of a person means an officer, employee, contractor or
agent of that person.
"Rig Agreements" means relating to the acquisition, servicing,
maintenance or repair of the secured property and includes, without
limitation, any warranty, condition or other obligations as to the
condition, quality or fitness for any purpose of the rig or the spare
parts.
"Rig" means Franks Cabot 1000hp drilling rig (Serial No. 31449) and
all equipment associated with it.
"Secured Money" means all money and damages which now or in the future
are owed (actually or contingently) by the mortgagor to the creditor
for any reason and, without limitation, includes money and damages
payable:
(a) by the mortgagor alone or jointly or severally with any other
person;
(b) if there is more than one mortgagor, by all or any of them;
(c) by the mortgagor in its own right or in any capacity;
(d) to the creditor in its own right or in any capacity;
(e) to the creditor pursuant to any assignment by any person to the
creditor of a debt payable by the mortgagor or other transaction,
including, without limitation, any assignment or other
transaction to which the mortgagor is not a party and
irrespective of whether before that assignment or other
transaction the payment of those monies was secured or unsecured,
interest was payable by the mortgagor on that debt or any other
thing;
(f) by the mortgagor as liquidated or unliquidated damages cause or
contributed to by any breach by the mortgagor or any obligation
owed by the mortgagor to the creditor, any tort by the mortgagor
or any other act or omission of the creditor; and
(g) by the mortgagor under this document.
"Secured Property" means:
(a) the rig;
(b) the spare parts;
(c) the technical records; and
(d) the mortgagor's rights under the rig agreements and the
mortgagor's copy or counterpart of the rig agreements.
"Security" means any instrument or transaction which reserves or
creates a security interest or under which a person agrees to create a
security interest.
<PAGE>
"Security Interest" means an interest in or right over property which
secures the payment of a debt or other monetary obligation or the
performance of any other obligation.
"Spare Parts" means any spare engine, motor, parts, appliances,
instruments, accessories, furnishings and other equipment or
components which are from time to time kept by the mortgagor for
possible use on the rig.
"Taxes" means taxes, rates, levies, imposts and duties (other than
those on the net overall income of the creditor) and any interest,
penalties, fines and expenses relating to any of them.
"Technical Records" means in relation to the rig, all technical data,
manuals, logs, warranties of manufacturers and suppliers of the rig
and all service contracts relating to the rig and all Rig agreements.
1.2 General In this document, unless the context otherwise requires:
(a) a reference to any legislation or legislative provision includes any
statutory modification or re-enactment of, or legislative provision
substituted for, and any statutory instrument issued under, that
legislation or legislative provision;
(b) a word denoting the singular number includes the plural number and
vice versa;
(c) a word denoting an individual or person includes a corporation, firm,
authority, government body and vice versa;
(d) a word denoting a gender includes all genders;
(e) a reference to a clause of this document;
(f) a reference to any agreement or document is to that agreement or
document (and, where applicable, any of its provisions) as varied,
novated, supplemented or replaced from time to time; and
(g) a reference to any party includes that party's executors,
administrators, substitutes, successors and permitted assigns.
1.3 Headings and Parts of Speech In this document:
(a) headings are for convenience of reference only and do not affect
interpretation; and
(b) where an expression is defined, another part of speech or grammatical
form of that expression has a corresponding meaning.
<PAGE>
2. SECURITY AND RELEASE
2.1 Security
The mortgagor charges the secured property to the creditor to secure the
payment of the secured money.
2.2 Release
The creditor shall at the request of the mortgagor discharge any charge
created by this document if the mortgagor's obligation to pay the secured
money is satisfied and in the creditor's opinion no payment towards the
satisfaction of the mortgagor's obligation to pay the unsecured money is
likely to be void or voidable under law relating to bankruptcy.
2.3 Consideration - Continuing Security
2.3.1The mortgagor has entered into this document for valuable
consideration from the creditor and receipt of the consideration is
acknowledged.
2.3.2This document is a continuing security for the whole of the secured
money.
3. PAYMENT AND INTEREST
3.1 Place manner and time of payment
The mortgagor, subject to Clause 7.2, shall pay the secured moneys to
the creditor in accordance with any agreement which obliges the
mortgagor to pay them and in the absence of agreement:
3.1.1upon demand at the time and place and in the manner reasonably
required by the creditor, and
3.1.2in immediately available funds and without set-off, counter
claims, conditions, or, unless required by law, deductions or
withholdings.
3.2 Interest
3.2.1The mortgagor shall pay interest on that part of the secured
money which is from time to time owing by the mortgagor to the
creditor.
<PAGE>
3.2.2
(a)Interest shall be paid in accordance with any agreement
requiring interest to be paid on the secured money.
(b)Inthe absence of any agreement, the applicable interest rate
will be that determined from time to time by the creditor,
interest will accrue from day to day, interest will be
computed from and including the day when the moneys upon
which interest is payable become owing to the creditor by
the mortgagor until but excluding the day of payment of
those moneys and interest will be calculated on the actual
number of days elapsed on the basis of a 365 day year.
3.2.3The creditor may capitalize any part of any interest which
becomes due and owing on demand at the times determined by the
creditor and, if no determination is made, on the last day of
each month and interest shall be payable in accordance with this
document upon capitalized interest.
3.2.4If the liability of the mortgagor to pay to the creditor any
moneys payable under this document becomes merged in any deed,
judgement, order or other thing the mortgagor shall pay interest
on the amount owing from time to time under that deed, judgment,
order or other thing in accordance with this document.
3.3 Currency of Payment
3.3.1The mortgagor shall pay the secured money in the currency in
which it is payable under any agreement which obliges the
mortgagor to pay it and in the absence of agreement in the
currency reasonably required by the creditor.
3.3.2If the creditor accepts a payment under this document in a
currency other than that required by Clause
3.3.1that payment will not satisfy the amount due except to the
extent that the creditor could in the ordinary course of its
business buy with the payment received the required currency at
the time of or within a reasonable time after the payment after
the deduction of all costs relating to the purchase.
3.4 Appropriation
The creditor may, subject to any express provision in this document to
the contrary, appropriate any payment towards the satisfaction of any
moneys due by the mortgagor in relation to this document in any way
that the creditor requires and notwithstanding any purported
appropriation by the mortgagor.
<PAGE>
3.5 Payments in Gross
The creditor in applying towards satisfaction of the secured money any
money received by it shall credit the mortgagor only with that part of
those moneys which is actually received by the creditor in immediately
available funds.
4. REPRESENTATIONS AND WARRANTIES
4.1 List
The mortgagor represents and warrants that:
4.1.1if the mortgagor purports to be a corporation, it is duly
incorporated in accordance with the laws of Panama validly exists
under those laws and has the capacity to sue or be sued in its
own name and to own its property;
4.1.2
(a)this document is enforceable by the creditor in accordance
with its terms and is not void or voidable;
(b)any security interest which this document purports to create
is validly created and has the priority which ft purports to
have under this document or any priority agreement between
the mortgagor and the creditor;
4.1.3each authorization from a government body necessary to enable:
(a) the mortgagor to perform its obligations under this
document; and
(b) the creditor to exercise its rights under this document, has
been obtained.
4.1.4the unconditional execution and delivery of and performance by
the mortgagor of its obligations under this document does not
contravene:
(a) a law or directive from a government body;
(b) if the mortgagor is a corporation, the memorandum and
articles of association or other constitutional documents of
the mortgagor;
(c) an agreement or instrument to which the mortgagor is a
party; or
(d) an obligation of the mortgagor to any other person.
4.1.5all information given to and each statement made to the creditor
relating to this document by or at the direction of the mortgagor
is correct, complete and not misleading.
<PAGE>
4.1.6except as notified to the creditor in writing prior to the date
of this document:
(a) no litigation, arbitration or administrative proceeding is
now current, pending or, to the knowledge of the mortgagor,
threatened which has or is likely to have a material adverse
effect;
(b) there are no encumbrances over the secured property other
than permitted encumbrances;
(c) there is no restriction on or proposal by any government
body or any other person to restrict the use of the secured
property or to resume the secured property, which has or is
likely to have a material adverse effect.
4.1.7no unremedied or unwaived event of default has occurred;
4.1.8each Rig agreement is enforceable by the creditor in accordance
with its terms and is not void or voidable;
4.1.9each authorization from a government body necessary to enable:
(a) the mortgagor unconditionally to execute and deliver and
perform its obligations under this document and carry on its
principal business or activity; or
(b) the creditor to exercise its rights under this
document, has been obtained.
4.1.10 all information given to and each statement made to the
creditor by or at the direction of the mortgagor in relation to
this document is correct, complete and not misleading.
4.2 General
4.2.1The interpretation of any statement contained in any
representation or warranty shall not be restricted by reference
to or inference from any other statement contained in any other
representation or warranty.
4.2.2The mortgagor acknowledges that the creditor has entered into
this document in reliance upon the representations and
warranties.
4.2.3Each representation and warranty will survive the execution of
this document and be deemed to be repeated with reference to the
facts and circumstances then existing whenever any financial
accommodation secured by this document is granted by the creditor
or any property becomes subject to any security interest created
by this document.
5. GENERAL UNDERTAKINGS
5.1 Prohibited dealings with variation of other secured indebtedness
5.1.1The mortgagor shall not cause or permit any person to acquire any
interest in the secured property except permitted encumbrances.
<PAGE>
5.1.2The mortgagor shall not incur any debt or monetary obligation
(actual or contingent) to a holder, other than the creditor, of a
security interest over the secured property the payment of which
is secured by that security interest except financial
indebtedness incurred as a consequence of that holder granting
financial accommodation to the mortgagor or a person whose
obligations are guaranteed by the mortgagor to that holder in
accordance with an agreement existing at the date of this
document:
(i) which has been fully disclosed to and approved by the
creditor; and
(ii) under which the holder is, at the date of this document,
actually or contingently obliged to grant that financial
accommodation.
5.1.3The mortgagor, subject to Clause 5.1.2 shall not cause or permit
any person to acquire any interest in the secured property.
5.2 Title Documents
5.2.1
(i) The mortgagor shall upon the execution of this document by
the mortgagor deposit with the creditor the title documents
relating to the secured property;
(ii) The creditor may have possession and control of the title
documents unfit the creditor is obliged to release the
secured property from the security interest created by this
document.
(iii)The rights of the creditor under this Clause 5.2.1 are
subject to the rights of the holder of any other encumbrance
over the secured property which ranks in priority before any
security interest created by this document to have
possession of the title documents.
5.2.2The mortgagor may from time to time and at reasonable times at
its request and at its own cost and on payment of the creditors
costs and expenses relating to the exercise of the mortgagoes
right, inspect and make copies or abstracts of or extracts from,
the title documents or other documents relating to the secured
property in the possession or under the control of the creditor.
5.3 Material adverse effect The mortgagor shall use its best
endeavors to delay and prevent any occurrence in relation to the
secured property which has or is likely to have a material
adverse effect.
<PAGE>
5.4 Mortgagor's other obligations
The mortgagor shall duly perform its obligations in relation to
the secured property, including, without limitation, under any
encumbrance over the secured property, under any law applicable
to the secured property and under any lawful direction from any
government body.
5.5 Creditor's right to entry and assistance
5.5.1The creditor and its nominees may at any reasonable time
enter on any property owned, used or occupied by the
creditor for any purpose related to this document.
5.5.2The mortgagor shall provide the creditor with all reasonable
assistance and facilities to enable the creditor to exercise
its rights under this document.
5.6 Information The mortgagor shall give to the creditor:
5.6.1full particulars of any event of default or potential event of
default immediately after its occurrence;
5.6.2upon receipt of a copy of any notice or order received from any
government body or any other person relating to any proposal in
relation to the secured property which if implemented may have or
be likely to have a material adverse effect;
5.6.3as soon as it is commenced or to the knowledge of the mortgagor
is threatened, full particulars of any litigation, arbitration or
administrative proceeding which affects the mortgagor or the
secured property and which may have a material adverse effect.
5.7 Further assurances
The mortgagor shall promptly execute any document and do anything else
that the creditor from time to time reasonably requires for further or
more perfectly:
5.7.1establishing the priority of this document and stamping and
registering it in any jurisdiction that the creditor demands;
5.7.2giving to the creditor the rights that this document purports to
give or which are contemplated by it;
5.7.3charging the secured property to the creditor.
5.8 Preservation and Enforcement Default
5.8.1The mortgagor shall take any action a prudent person would take
to preserve and enforce the mortgaged rights.
5.8.2The mortgagor shall not cause or permit an event of default to
occur.
<PAGE>
5.9. Legislation compliance The mortgagor shall:
5.9.1
(i) cause the Rig at all times to remain duly registered or
licensed if required under any relevant legislation
applicable to the Rig either in the name of the mortgagor or
any other person who has, with the approval of the creditor,
possession or control of the Rig pursuant to a contract of
hire or charter and upon demand deliver to the creditor a
copy of any certificate of registration or licence;
(ii) notify any relevant government body of the security interest
created by this document;
5.9.2maintain and keep current any certificates and licences required
for the use and operation of the Rig;
5.9.3 not maintain, use or operate the Rig in violation of:
(i) any law of any government body which has jurisdiction over
the Rig;
(ii) any certificate, licence or registration relating to the
Rig; and without limitation, comply with all relevant
provisions of applicable legislation; and
5.9.4
(i) maintain all logs and other records which a prudent owner of
the Rig and spare parts would maintain, including, without
limitation, those required by relevant legislation to be
maintained;
(ii) promptly comply with any direction from any relevant
government body relating to the Rig;
(iii)immediately notify the creditor of any failure to comply
with any direction from any relevant government body or any
obligations imposed upon the mortgagor under relevant
legislation.
5.10 Rig Maintenance
The mortgagor shall:
5.10.1 maintain the Rig and spare parts in good operating condition,
ordinary wear and tear excepted, and without limitation,
maintain, service, repair, overhaul and test the Rig in
accordance with any direction or recommendation from any relevant
authority or the Rig's manufacturer;
5.10.2 not make any equipment changes which may reduce the value,
utility or condition of the Rig;
5.10.3 give by the creditor at 6 monthly intervals and otherwise when
required by the creditor a maintenance and servicing schedule for
the Rig and upon demand duly completed certificates acceptable to
the creditor evidencing completion of the maintenance and
servicing contemplated by the schedules; and
<PAGE>
5.10.4 not do anything which will prejudice any rights of the
mortgagor or the creditor against any manufacturer or supplier or
any person who carries out work on the Rig.
5.11 Location, Use and Possession The mortgagor shall:
5.11.1 not cause or permit the Rig to be operated or the secured
property to be located:
(i) outside Laos or Thailand, or
(ii) in any area excluded from coverage by any insurance except
in the case of a requisition by or for an Australian
government body, where the mortgagor obtains an indemnity in
lieu of the insurance from that Australian government body
against the risks and for the amounts covered by the
insurance;
5.11.2 not register the ownership of the secured property under the
laws of any country except Panama, Australia or Singapore;
5.11.3 not use the Rig or spare parts for any purpose other than the
conduct of its business of the drilling of oil and gas wells;
5.11.4 give to the creditor upon demand full particulars of the actual
and anticipated whereabouts of the secured property;
5.11.5 not permit any person to have possession or control of the
secured property except as contemplated by this document.
5.12 Inspection and copies
5.12.1 The creditor or its representatives may at any reasonable time
upon reasonable notice being given, inspect the secured property
and carry out any tests of it.
5.12.2 The mortgagor shall upon demand provide to the creditor copies
of any technical records or Rig agreements.
5.13 Replacement Parts The mortgagor shall promptly replace all parts that
are lost, stolen, destroyed, confiscated or unfit for use with
replacements which are:
5.13.1 owned by the mortgagor free of encumbrances (except permitted
encumbrances);
5.13.2 in good condition and fit for the purpose of the parts they
replace; and
5.13.3 of a value not less than those of the parts they replace.
<PAGE>
5.14 Alteration The mortgagor may make any alteration to the Rig which is
necessary:
5.14.1 to comply with the requirements of any relevant government body
without limitation, to maintain any certificate, license or
registration applicable to the Rig;
5.14.2 for the proper and efficient use of the Rig by the mortgagor in
the ordinary course of its business if the alteration:
(i) does not lessen the value of the Rig or fitness fo the Rig
for the purpose for which it was designed, immediately
before the alteration was carried out;
(ii) meets any requirements of any relevant government body, and
(iii)does not prejudice the creditors security.
6. DEFAULT
Each of the following is an event of default (whether or not cause by
anything outside the control of the mortgagor);
(a) The mortgagor does not pay the secured money in accordance with this
document or perform its obligations under Clause 5.1.
(b) The mortgagor does not perform one of its other obligations under this
document and if that default is capable of rectification:
(i) it is not rectified within 10 business days (or any other longer
period agreed by the creditor) of its occurrence; and
(ii) the mortgagor does not during that period take all action which
in the creditor's opinion is necessary or desirable to quickly
remedy that default.
(c) A representation, warranty or statement made or deemed to be made by
the mortgagor in this document is untrue or misleading in any material
respect.
(d) This document is void, voidable or otherwise unenforceable by the
creditor or is claimed to be so by the mortgagor.
(e) A security interest which this document purports to create ceases to
have the priority which it purports to have under this document or
under any agreement between the mortgagor and the creditor or ceases
to secure the payment of the moneys or the performance of the
obligations which it purports to secure, otherwise than by any act of
the creditor;
(f) A distress, attachment or execution is levied or becomes enforceable
against any property of the mortgagor for an amount exceeding
$5,000.00 or its equivalent;
(g) An authorization from a government body necessary to enable:
(i) the mortgagor to perform its obligations under this document; or
(ii) the creditor to exercise its rights under this document; is
withdrawn or terminates.
<PAGE>
(h) An event or series of events, whether related or not, including,
without limitation, any material adverse change in the property or
financial condition of the mortgagor, occurs which has or is in the
creditor's opinion likely to have a material adverse effect.
(i) Any person who holds a security over the secured property becomes
entitled to exercise a right under that security to recover any moneys
the payment of which is secured by that security or enforce any other
obligation the performance of which is secured by it;
(j) A default by the mortgagor or any event occurs which is or is deemed
to be or is defined as a default by the mortgagor;
(k)
(i) the bankruptcy of the mortgagor;
(ii) the mortgagor enters into an arrangement or compromise with, or
assignment for the benefit, of all or any class of its creditors
or members or a moratorium involving any of them;
(iii)the mortgagor being or staffing that it is unable to pay its
debts when they fall due;
(iv) the appointment of a receiver or receiver and manager in respect
of the mortgagor or any of its property;
(v) an application being made (which is not dismissed or withdrawn
within 10 business days) for an order, a resolution being passed
or proposed, a meeting being convened or any other action being
taken to cause anything described above;
(l)
(i) financial indebtedness of the mortgagor in excess of $5,000.00 or
its equivalent becomes due and owing or capable of being declared
due and owing before its stated maturity other than by the
exercise of an option of the mortgagor to pay it before its
maturity;
(ii) an obligation by any person to the mortgagor to provide financial
accommodation or to acquire or underwrite financial indebtedness
ceases before its stated maturity other than by the exercise of
an option of the mortgagor to cancel that transaction;
(iii)the mortgagor fails to pay when due and owing any financial
indebtedness in excess of $5,000.00 or its equivalent; or
(m) if the mortgagor is a corporation:
(i) the appointment of an official manager, provisional liquidator or
liquidator in respect of the mortgagor or the dissolution of the
mortgagor;
(a) reduces or attempts to reduce its capital other than by the
redemption of preference shares;
(b) passes or attempts to pass a resolution under Section 188(2)
or Section 205(10) of the Corporations Law or any similar or
equivalent statutory provision in any other jurisdiction; or
<PAGE>
(c) takes any action to buy shares in itself, other than the
insertion in its articles of association of a provision to
the effect that the Mortgagor may buy ordinary shares in
itself;
(ii) an event described in Section 461 of the Corporations Law or any
similar or equivalent statutory provision in any other
jurisdiction occurs in respect of the mortgagor;
(iii)a share issued by the mortgagor is required to be redeemed or
repurchased before its stated maturity other than by the exercise
of an option of the issuer to redeem or repurchase;
(n) the mortgagor ceases or threatens to cease to carry on its business or
a substantial part of its business;
(o) a material part of the mortgaged goods are lost, stolen, damaged or
destroyed.
7. DEFAULT POWERS
7.1 General
(a) The creditor may, subject to the operation of any applicable law,
at any time after an event of default has occurred, exercise any
or all of the rights set out in this Clause 7 in any manner and
at any time, notwithstanding that a receiver has been appointed.
(b) The interpretation of any right set out in this Clause 7 shall
not be restricted by reference to or inference from any other
right.
7.2 Acceleration
If an event of default occurs the creditor may at any time by notice
to the mortgagor make:
(a) the secured money which is owing; and
(b) an amount equal to that part of the secured money which is
contingently owing by the mortgagor to the creditor, immediately
due and owing.
7.3 Statutory and implied Powers The creditor may exercise all rights
capable of being conferred by the statutes and other laws of any
relevant Jurisdiction upon mortgagees.
7.4 Dealings The creditor may:
(a) take possession or control of and get in the secured property;
(b) manage, quietly enjoy and otherwise deal with the secured
property;
(c)
(i) exercise the rights of the mortgagor and perform its
obligations in respect of the secured property and cause and
permit any other person to perform their obligations in
respect of the secured property;
<PAGE>
(ii) vary, replace or release any right or interest of the
mortgagor or any other person;
(d) exchange any part of the secured property for any other property
and, if there is a difference in value between the property
exchanged, give or receive, as the case may be, any moneys or
other consideration equal to the difference in value in order to
give or receive equal value for the exchange;
(e) vary, replace, rescind or terminate any agreement relating to the
secured property to which it or the mortgagor is a party;
(f) the creditor may in the exercise of its rights under this Clause
7.4:
(i) break open any doors, windows, gates, fences or other
obstructions and otherwise employ reasonable force against
any property of any person; and
(ii) enter upon, occupy and use any property of or occupied by
the mortgagor upon which the mortgaged goods are situated
and go to and from that property over other property.
7.5 Investment of Moneys Any moneys received by the creditor which are not
required to be immediately applied in the exercise of any right or
pursuant to Clause 10 may be invested in any way authorized by the
laws of any relevant jurisdiction for the investment of trust moneys
and the creditor may vary or otherwise deal with the investment.
7.6 Ancillary Powers The creditor may:
(a) employ or engage any person for the purpose of exercising any of
the creditor's rights under this Clause 7;
(b) commence, defend, prosecute, settle, discontinue and compromise
litigation, administrative or arbitral proceedings relating to
the secured property;
(c) give receipts for and satisfy, release, or compromise any debt or
other obligation owed to or by the mortgagor in relation to the
secured property;
(d) enter into and execute and deriver documents and agreements
relating to the exercise of its rights under this Clause 7;
(e) delegate to any person any right (including this right of
delegaton) under this Clause 7; and do anything incidental or
conducive to the exercise of any of its rights under this Clause
7.
<PAGE>
7.7 Receivers The creditor may:
(a) either before or after it has taken possession of the secured
property appoint in writing:
(i) any one or more persons to be a receiver and manager of the
secured property or a part of it; or
(ii) different receivers or receivers and managers for different
parts of the secured property;
(b) if more than one person is appointed as receiver of any property, the
creditor may appoint them jointly or jointly and severally;
(c) remove the receiver and appoint another if the receiver is removed,
retires or dies and, in the case of removal or retirement reappoint
that receiver; and
(d) fix the remuneration of the receiver.
8. RECEIVERS
8.1 Agent The creditor may appoint a receiver who will be the agent of
either:
(a) the mortgagor, who alone shall be responsible for the receiver's
acts and omissions and remuneration; or
(b) the creditor.
8.2 Powers
(a) A receiver shall have the right in relation to any property of
which the receiver is appointed to do everything that the
mortgagor may lawfully authorize an agent to do on behalf of the
mortgagor in relation to that property and, without limitation,
a receiver may in relation to that property exercise;
(i) the rights capable of being conferred upon receivers and
receivers and managers by the Corporations Law or any
similar or equivalent statutory provision in any other
Jurisdiction and statutes and laws of any relevant
Jurisdiction;
(ii) the rights of the creditor under this document except the
right to accelerate payment of the secured money and the
right to appoint a receiver;
(iii)the rights of the mortgagor and, if the mortgagor is a
corporation, the directors of the mortgagor; and
(iv) any other rights the creditor may by written notice to a
receiver give to a receiver.
(b) The creditor may by written notice to a receiver at the time of a
receivers appointment or any subsequent times give any rights to
or limit any rights of a receiver.
<PAGE>
9. EXERCISE OF DEFAULT RIGHTS
9.1 No Hindrance The mortgagor shall not cause or permit the creditor, a
receiver or an attorney to be prevented or hindered from exercising
its rights under this document.
9.2 Mortgagee in possession
(a) If the creditor, a receiver or an attorney exercises its rights
under this document or takes possession of the secured property,
it will not be liable to account as mortgagee or chargee in
possession.
(b) If the creditor has taken possession of the secured property it
may give up possession of the secured property at any time.
(c) The obligations of the mortgagor under this document relating to
the secured property shall not be affected by the creditor, any
receiver or any attorney taking possession of the secured
property.
9.3 Exclusion of Legislation
(a) The provisions implied in securities by any statute will for the
purposes of this document be negatived or varied only so far as
they are inconsistent with the provisions of this document and
are otherwise varied so as to become consistent with this
document.
(b) Any statutory restrictions (other than mandatory restrictions)
upon any right of the creditor, receiver or attorney to deal
with the secured property will not apply to the rights of those
persons under this document.
9.4 Default Notice
(a) The mortgagor and the creditor, to the extent that any applicable
law permits, dispense with:
(i) any notice to the mortgagor (including, without limitation,
any notice identifying a default by the mortgagor, giving a
period to rectify it and staffing that the power to sell the
secured property, appoint a receiver to the secured property
or take possession of the secured property can be exercised
if the default is not rectified); or
(ii) any lapse of time (including, without limitation, a period
to rectify a default), prescribed by any statute or rule of
law or equity and which would otherwise be required to be
given or allowed before the creditor exercises its rights
relating to an event of default.
(b) If an applicable law requires notice to be given or a lapse of
time before any right can be exercised, then if no particular
period of notice or lapse of time is required, the period of
notice or lapse shall be one day.
<PAGE>
10. APPLICATION OF MONEY
10.1 Method
The remedy proceeds shall, subject to any mandatory statutory
requirements, be applied or paid by the creditor, any receiver or any
attorney as follows:
(a) first, towards any moneys owing (actually or contingently) by the
mortgagor to any person who is, in the creditors opinion, the
holder of any security interest ranking in priority before any
security interested created by this document to the extent that
their security interest secures the payment of those moneys in
priority before the secured money;
(b) secondly:
(i) towards the secured money which is then due and owing and,
if any secured money is contingently owing or owing but not
due, in accordance with Clause 10.5 and the remedy proceeds
shall be appropriated between, those categories of secured
money as the creditor requires; and
(ii) to any person who is in the creditors opinion the holder of
any security interest in the secured property which ranks
equally with any security interest created by this document
to the extent that their security interest secures the
payment of those moneys equally with the secured money;
(c) thirdly, towards any moneys owing (actually or contingently) by
the mortgagor to any person who in the creditors opinion is the
holder of any security interest in the secured property which
ranks in priority after any security interest created by this
document to the extent that their security interest secures the
payment of those moneys in priority after the secured money; and
(d) fourthly, to any person entitled to the secured property or
authorized to give receipts for those moneys.
10.2 Creditor's certificate and disputes
(a) The creditor may rely upon a certificate issued by any person who
claims to be entitled to receive any of the remedy proceeds to
the effect that moneys are owing (actually or contingently) by
the mortgagor to it and stating the amount owing (actually or
contingently) without being obliged to make any further inquiry.
(b) If there is any dispute between any persons (other than the
creditor) as to who is entitled to receive the remedy proceeds,
the creditor may pay those moneys into court and if that is done
the creditor will have no further obligations in relation to
those moneys.
10.3 No interest or remedy proceeds The creditor is not obliged to pay
interest to any person upon the remedy proceeds.
<PAGE>
10.4 Payment into bank account If the creditor pays any moneys into a bank
account in the name of any person to whom the creditor is obliged to
pay moneys under Clause 10.1 and notifies that person of the
particulars of the account the creditor will have no further
obligations- in relation to those moneys;
10.5 Contingent Debts If part of the secured money is in the opinion of the
creditor contingently owing or owing but not due and the creditor
receives any moneys pursuant to this document the creditor may:
(a) pay those moneys into a suspense account and hold them to secure
the payment of the secured money; and
(b) at any time appropriate any moneys in the suspense account
towards the satisfaction of any moneys due by the mortgagor to
the creditor in any way that the creditor requires, and when the
secured money is satisfied in full or the creditor no longer
holds that opinion, the creditor shall pay the balance to any
person entitled to the secured property or authorized to give
receipts for those moneys.
11. THIRD PARTY DEALINGS
11.1 Creditor's receipts and discharges The creditor may give valid
discharges and receipts for any moneys payable by any third party in
respect of any exercise of a right by the creditor, any receiver or
any attorney.
11.2 No duty to inquire
(a) Any person dealing with the creditor, any receiver or any
attorney in relation to the exercise by any of them of a right
under this document shall not be concerned to inquire whether:
(i) any event of default has occurred;
(ii) the receiver or attorney is properly appointed;
(iii)the right is otherwise properly exercised by that person;
and
(iv) any money's paid by it to the creditor, receiver or attorney
are properly applied, and the title of that person to any
property acquired by it from the creditor, receiver or
attorney, shall not be adversely affected by any improper
exercise of the right or application of moneys by the
creditor, any receiver or any attorney.
(b) The benefit of Clause
11.2
(a) is held on trust for the benefit of the creditor and each person
dealing with the creditor, any receiver or any attorney.
<PAGE>
12. COSTS AND EXPENSES
12.1 General The mortgagor shall pay and if paid by the creditor reimburse
to the creditor:
(a) the creditor's reasonable costs and expenses relating to this
document, including, without limitation, those which the
mortgagor is liable to pay under any applicable law and those in
relation to:
(i) the negotiation, preparation, execution, stamping and
registration of this document;
(ii) any consent, request for consent, communication, the waiver
of any right or the variation or replacement of this
document;
(iii)the exercise or attempted exercise or the preservation of
any rights of the creditor under this document;
(iv) any event or default or potential event of default; and
(v) the creation, lodgment, registration or release of or any
dealing relating to any encumbrance, including any security
interest created by this document, over the secured
property; and
(b) any taxes and registration or other fees (and fines and penalties
relating to the taxes and fees) which are payable or are assessed
by a relevant government body to be payable in relation to this
document, any document contemplated by it or any transaction
contemplated by it.
12.2 Legal costs
A REFERENCE TO COSTS AND EXPENSES IN THIS DOCUMENT INCLUDES, WITHOUT
LIMITATION, LEGAL COSTS AND EXPENSES ON A FULL INDEMNITY BASIS.
12.3 Acts at mortgagor's expense
ANYTHING WHICH THIS DOCUMENT STATES IS TO BE DONE BY EITHER THE
CREDITOR OF THE MORTGAGOR IS TO BE DONE AT THE MORTGAGOR'S EXPENSE.
12.4 Remuneration
THE CREDITOR, ANY RECEIVER AND ANY ATTORNEY SHALL BE REMUNERATED BY
THE MORTGAGOR FOR ANY SERVICES RENDERED BY THEM IN RELATION TO THE
EXERCISE OF ANY RIGHT UNDER THIS DOCUMENT AND THE RATE OF THE
REMUNERATION AND THE MANNER OF PAYMENT WILL BE THAT DETERMINED BY THE
CREDITOR.
<PAGE>
13. INDEMNITIES
13.1 General
The mortgagor indemnifies the creditor and each receiver and attorney
and their respective representatives and the representatives of the
creditor against any liability, loss, cost or expense caused or
contributed to by any event of default or the exercise or attempted
exercise of any right by the creditor, any receiver or any attorney
under this document.
13.2 Independence and survival
Each indemnity in this document is a continuing obligation, separate
and independent from the other obligations of the mortgagor and
survives the termination of this document.
13.3 Currency deficiency
If there is any deficiency between:
(a) an amount payable by the mortgagor under this document which is
received by the creditor in a currency other than the currency
payable under this document because of a judgment, order,
bankruptcy or otherwise; and
(b) the amount produced by converting the payment received from the
currency in which it was paid into the currency in which it was
agreed to be paid, the mortgagor shall pay to the creditor the
deficiency and any loss, cost or expense resulting from it.
14. ATTORNEY
14.1 Appointment and powers The mortgagor irrevocably appoints the creditor
its attorney with the right to do everything that the mortgagor may
lawfully authorize an agent to do in respect of the secured property.
14.2 General
(a) Any attorney may exercise its rights notwithstanding that the
exercise of the right constitutes a conflict of interest or duty.
(b) The mortgagor shall ratify any exercise of a right by an
attorney.
(c) The power of attorney is granted for valuable consideration
(receipt of which is acknowledged by the mortgagor) and to secure
the performance of the obligations of the mortgagor to the
creditor under this document and any proprietary interests of the
creditor under this document.
15. MISCELLANEOUS
15.1 Set-Off
The creditor may:
(a) set-off against the secured money any debt due and owing by the
creditor to the mortgagor, including, without limitation, any
moneys in any currency held by the creditor for the account of
the mortgagor in any place; and
<PAGE>
(b) if the debt due and owing by the creditor to the mortgagor is
payable in a currency other than that in which the debt due and
owing by the mortgagor to the creditor is payable, convert the
creditors debt into the currency in which the mortgagor's debt is
payable by applying an exchange rate determined by the creditor.
15.2 Creditor's determination
(a) If any matter related to this document is to be resolved by the
determination or opinion of the creditor or an attorney or
receiver-.
(i) the determination or opinion of the creditor, attorney or
receiver will be binding upon the mortgagor if it is
reasonable;
(ii) the creditor, attorney or receiver is not obliged to give
the reasons for a determination or opinion; and
(iii)the mortgagor will have the -onus of proving that a
determination or opinion of the creditor, attorney or
receiver is unreasonable.
(b) A determination or an opinion of an authorized representative of
the creditor, which is given to the mortgagor or otherwise
expressed or acted upon by the creditor as being a determination
or an opinion of the creditor will be deemed to be a
determination or opinion of the creditor.
15.3 Rights cumulative The rights of the creditor in respect of this
document are cumulative and in addition to any other rights of the
creditor.
15.4 Variation No variation or waiver of, or any consent to any departure
by a party from, a provision of this document is effective unless it
is confirmed in writing signed by the creditor and then that
variation, waiver or consent is effective only in circumstances for
which it may be made or given.
15.5 Liability of parties If any party to this document consists of more
than one person then the liability of those persons under this
document is a joint liability of all those persons and a separate
liability of each of them.
15.6 Severance If any provision of this document is unenforceable in
accordance with its terms., other provisions which are self-sustaining
and capable of separate enforcement with regard to the unenforceable
provision, are and continue to be, enforceable in accordance with
their terms.
15.7 Governing law and jurisdiction This document is governed by, and is to
be construed in accordance with, the laws of Australia and the parties
submit to the non-exclusive jurisdiction of the courts of Australia
and any court hearing appeals from those courts.
<PAGE>
16. NOTICE
16.1 General Any notice, demand, certification or other communication under
this document shall be given in writing and in the English language
and may be given by an authorized representative of the sender.
16.2 Method of giving notices A communication required or permitted to be
given by any party to another under this document must be in writing
and is treated as being duly given if it is:
(a) left at that party's address;
(b) sent by pre-paid mail to that party's address;
(c) transmitted by telex to that party's address; or
(d) transmitted by facsimile to that party's address.
16.3 Time of receipt A communication given to a party in accordance with
this Clause 16 is treated as having been duly given and received:
(a) when delivered (in the case of it being left at that party's
address);
(b) on the third business day after posting (in the case of it being
sent by pre-paid mail;
(c) on the business day after transmission (in the case of it being
given by facsimile and sent to the facsimile receiver number of
that party and no intimation having been received that the notice
had not been received, whether that intimation comes from that
party or from the operation of facsimile machinery or otherwise).
16.4 Address of parties For the purposes of Clause 16, the address of a
party is the address set out below or another address which that party
may from time to time notify each other party:
The Mortgagor: TD INTERNATIONAL SA
Address: 35 Gul Crescent, Singapore 629544
Facsimile:
Attention: David Munns
The Creditor: HEMLEY EXPLORATION PTY LTD
Address: 174 Greenhill Road, Parkside SA 5063
Facsimile:
Attention: John Naylor
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this DEED by their authorized
representatives respectively, as of the day and year first written
TD INTERNATIONAL SA HEMLEY EXPLORATION PTY LTD
By:/s/ D.A. Munns By:/s/ J.L. Naylor
Name: D.A. Munns Name: J.L. Naylor
Title: Director Title: Director
Date: 23/10/98 Date: 14 October 1998
MEMORANDUM OF AGREEMENT
BETWEEN
PT PATRINDO PERSADAMAJU
AND
HEMLEY EXPLORATION PTY. LTD.
This MEMORANDUM OF AGREEMENT (the "MOA") is made and entered into effective as
of August 24, 1998, by and between:
PT. PATRINDO PERSADAMADJU (the "Patrindo"), a private company that is under the
law of Republic of Indonesia, residing in JL. Falatehan 1/31, Kebayoran Baru,
Jakarta 12160, Indonesia. For the purpose of this MOA, Patrindo will be
represented by Baskara Sukarya as the President Director of Patrindo.
AND,
HEMLEY EXPLORATION PTY. LTD (the "HEMLEY"), a corporation that is under the law
of Australia, residing in Suite 3 ECH House, 174 Greenhill Road, Parkside 5063,
South Australia. For the purpose of this MOA, HEMLEY will be represented by John
L. Naylor as the CEO and Director of HEMLEY.
RECITALS
Patrindo has entered into a Technical Assistance Contract (the "TAC") in the
form attached hereto as Exhibit A of the TAC with Perusahean Pertanbengan Mtnyak
dan Gas Bumi Negara (the "PERTAMINA"), an Indonesia State Enterprise established
on the basis of Law No. 8/1971, relating to the development of the Contract Area
(which falls within the Contract Area as defined in the TAC). PERTAMINA and
Patrindo are now the sole parties to the TAC and Patrindo is the sole Contractor
thereunder. Patrindo has incurred certain costs and expenses in connection of
Petroleum Operations (as defined in the TAC) as from the date Patrindo commenced
the Petroleum Operations. Patrindo is not legally bound or committed to any
third party with respect to the development of the Petroleum Operations in the
Contract Area. The Parties hereto desire to establish a joint venture for the
further development of the Contract Area. For the purpose of satisfying the
intention expressed in Recital D, the parties shall establish a joint venture
company to carry out the purposes subject to certain conditions as stipulated
below. NOW THEREFORE IT IS AGREED: Prior to establishment of the JV, HEMLEY has
performed a technical evaluation of the Contract Area and will perform a program
to commercialize the existing recoverable petroleum reserves of the area which
will take up to 9 (nine) months. An extension of 3 (three) months is permissible
should HEMLEY require to do so (this period hereinafter will be called the
"Pre-commercial Period"). All data obtained and evaluation reports prepared by
HEMLEY should be made available to Patrindo and PERTAMINA on a timely basis.
During the Pre-commercial Period, HEMLEY will bear all the costs of the
Petroleum Operations in the Contract Area which will be classified as
recoverable costs of the TAC and be incorporated as a continuation of the
Financial Books of Patrindo.
<PAGE>
During the Pre-commercial Period, HEMLEY will employ the necessary personnel to
legally maintain the TAC and has no obligation to hire the current existing
personnel of Patrindo. HEMLEY will consider to hire those Patrindo personnel
which in the opinion of HEMLEY are usable. Such recruitment will be through an
evaluation/screening undertaken by HEMLEY. The hiring process should commence at
the commencement date of this MOA. During the Pre-commercial Period, for the
purpose of such Petroleum Operations, HEMLEY will pay Patrindo for any materials
presently owned by Patrindo and considered to be usable by HEMLEY in the present
operations at cost. During the Pre-commercial Period, for the purpose of such
Petroleum Operations HEMLEY also agrees to pay Patrindo for mechanical equipment
or machinery or services hired from PT. Panata Burni Sarana Pelita and be used
by HEMLEY for such Petroleum Operations at cost. Provided the results of the
Pre-commercial Period are positive, Patrindo shall assign 80% (eighty percent)
of its Rights and Interests in the TAC contract to HEMLEY. This is done
according to PERTAMINA - Patrindo TAC Contract Subsection 4.2.6 dated July 14,
1994.
Provided the results of Pre-commercial Period are positive then HEMLEY shall be
entitled to first recover from initial commercial production 50% (fifty percent)
of the costs spent during the Pre-commercial Period. The remaining 50% (fifty
percent) of the HEMLEY costs of the Pre-commercial Period will be accumulated
with the ongoing Petroleum Operations costs which are the responsibility of
HEMLEY. Such costs will be recovered through the allowed 65% Costs Recovery
which Patrindo and HEMLEY will share on a pro rata basis. The prorate ratio will
be based on the agreed sunk costs of Patrindo and the costs accumulated and
spent by HEMLEY. The calculated interest to be incorporated in the prorate ratio
will be based on the same Debt Fund Ratio and interest rate for both parties.
The agreed sunk costs will exclude those materials belonging to Patrindo which
are not required by HEMLEY for the Pre-commercial Period program and subsequent
oil field development programs. HEMLEY will incorporate those materials
belonging to Patrindo if available during the formation of the work program.
During the Pre-commercial Period HEMLEY will perform a financial due diligence
of the Patrindo financial interests in the TAC for the establishment of cost
recover not later than 6 (six) months from the commencement of this MOA. The
commencement date of the Pre-commercial Period will be on the date the field
trip is mobilized. This field trip will be mobilized within 30 (30) days of the
signing of this MOA. HEMLEY agrees to pay Patrindo a sum of USA $300,000 (United
States Dollars Three Hundred Thousand) within 90 (ninety) days of the TAC being
declared commercial by PERTAMINA. HEMLEY does not take any responsibility for
the previous debts of Patrindo which are linked directly or indirectly to this
project. Patrindo hereby holds harmless and warrants HEMLEY against any such
actions by its creditors and suppliers. HEMLEY will assume responsibility for
payment of direct field operations expenses upon the mobilization of its
equipment to carry out the Pre-commercial Programs. This amount which HEMLEY
will bear responsibility for will not exceed US$150,000 (United States Dollars
Hundred and Fifty Thousand). Patrindo has the option to participate an
additional 10% (ten percent) in the exploration and development of any new
structures within the Contract Area.
<PAGE>
If at the conclusion of this Pre-commercial Period during which time HEMLEY will
have technically re-evaluated and tested at least 4 (four) Mogoi wells and 2
(two) Wasian wells and HEMLEY decides that the Contract Area is uneconomical for
whatever reasons, HEMLEY hereby has the right to withdraw without any penalty or
further obligations. Such notice will be issued to Patrindo prior to the expiry
date of the Pre-commercial Period. If HEMLEY decides not to continue with the
project, HEMLEY agrees to return all data supplied to HEMLEY by Patrindo at the
expenses of HEMLEY.
FT. PATRINDO PERSADAMAJU HEMLEY EXPLORATION PTY LTD.
________________________ ________________________
BASKARA SUKARYA JOHN L. NAYLOR
WITNESSETH BY
________________________ ________________________
Exhibit 21
Subsidiaries of the Registrant
The Registrant's only subsidiary is Hemley Exploration Pty. Ltd., an Australian
corporation.
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