<PAGE> 1
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-29344
INDO-PACIFIC ENERGY LTD.
(Exact name of registrant as specified in its charter)
YUKON TERRITORY, CANADA NOT APPLICABLE
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Suite 1200, 1090 West Pender Street
Vancouver, British Columbia Canada V6E 2N7
(Address of principal executive offices)
Registrant's telephone number including area code: (604) 682-6496
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 [ ]
The number of common shares without par value outstanding on
September 30, 1998 was 28,262,398 shares.
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<PAGE> 2
PART 1.
ITEM 1. FINANCIAL INFORMATION.
Indo-Pacific Energy Ltd.
Consolidated Balance Sheets
As at September 30, 1998
Unaudited, Prepared by Management
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
1998 1997
ASSETS
<S> <C> <C>
Current
Cash and short-term deposits $8,259,610 $10,505,690
Accounts receivable 92,909 104,425
Due from related parties 16,565 63,765
Goods and services
tax receivable 17,730 22,055
Marketable securities 610,726 -
Prepaid expenses 5,793 4,310
---------- -----------
9,003,333 10,700,245
Petroleum and natural gas
properties 3,357,348 2,013,473
Property and equipment 137,427 138,491
---------- -----------
Total Assets $12,498,108 $12,852,209
=========== ===========
LIABILITIES
Current
Accounts payable and
accrued liabilities $ 2,006 $ 17,339
----------- -----------
Total Liabilities 2,006 17,339
----------- -----------
Shareholders' Equity
Share capital 17,617,045 17,727,021
Deficit (5,120,943) (4,892,151)
----------- -----------
Total Shareholders' Equity 12,496,102 12,834,870
----------- -----------
Total Liabilities and
Shareholders' Equity $12,498,108 $12,852,209
=========== ===========
</TABLE>
F-1
<PAGE> 3
Indo-Pacific Energy Ltd.
Consolidated Statements of Loss and Deficit
For the Nine Month Period Ended September 30, 1998
(Comparative figures are for the nine month period ended September 30, 1997)
Unaudited, Prepared by Management
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues
Petroleum sales $ 181,125 $ 363,460
Interest 285,824 223,131
----------- -----------
466,949 586,591
----------- -----------
Cost of sales
Production costs 38,606 71,628
Depletion 62,957 246,351
----------- -----------
101,563 317,979
----------- -----------
365,386 268,612
----------- -----------
Expenses
Accounting and audit 29,562 42,363
Amortization 38,366 20,280
Compensation recovery (109,197) (363,375)
Consulting 37,778 116,419
Corporate relations
and development 53,896 71,366
Filing and transfer agent 5,856 8,285
Foreign exchange loss 93,571 85,374
Legal 97,029 30,780
Management fees - -
Office and miscellaneous 9,206 68,598
Printing 107,936 77,212
Rent 57,147 18,992
Telephone 36,986 14,720
Travel 51,450 36,267
Wages and benefits 41,629 79,995
----------- -----------
551,215 307,276
----------- -----------
Net loss for the period (185,829) (38,664)
Deficit - Beginning of period (4,935,114) (4,853,487)
----------- -----------
Deficit - End of period $(5,120,943) $(4,892,151)
=========== ===========
</TABLE>
F-2
<PAGE> 4
Indo-Pacific Energy Ltd.
Consolidated Statements of Changes in Financial Position
For the Nine Month Period Ended September 30, 1998
(Comparative figures are for the nine month period ended September 30, 1997)
Unaudited, Prepared by Management
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss for the period $ (185,829) $ (38,664)
Adjustments to reconcile net loss to
cash applied to operating activities:
Amortization 38,366 20,280
Depletion 62,957 246,351
Changes in non-cash working capital:
Accounts receivable 41,565 38,410
Goods and services tax
receivable (17,730) (22,055)
Prepaid expenses 3,676 7,162
Marketable securities (377,216) -
Due to/from related parties 135,808 (69,213)
Accounts payable and
accrued liabilities (43,698) (63,844)
----------- ------------
Cash provided by (used in)
operating activities (342,101) 118,427
----------- ------------
FINANCING ACTIVITIES
Common shares issued for cash (102,681) 2,214,443
----------- ------------
Cash provided by (used in)
financing activities (102,681) 2,214,443
----------- ------------
INVESTING ACTIVITIES
Petroleum and natural
gas properties (1,490,466) (1,145,896)
Property and equipment (60,549) (123,838)
----------- ------------
Cash used in investing activities (1,551,015) (1,269,734)
----------- ------------
Net increase (decrease) in
cash during the period (1,995,797) 1,063,136
Cash position
Beginning of period 10,255,407 9,442,554
----------- ------------
Cash position - End of period $8,259,610 $ 10,505,690
========== ============
</TABLE>
F-3
<PAGE> 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
The Registrant (OTCBB symbol: INDX) is an independent oil and
gas exploration and production company focused exclusively in the
Austral-Pacific region. The business of the Registrant was
organized in 1996. In New Zealand, the Registrant has varying
participating interests in 5,746,000 acres of onshore exploration
permits and a five percent participating interest in onshore
petroleum mining permit 38148, Taranaki Basin, North Island. In
China the Registrant has a 50% interest in a 2,500,000 acre area
under negotiation, in Australia varying interests in 551,000 acres
of offshore exploration permits, and in Papua New Guinea a 40%
interest in a 1,200,000 onshore acre exploration licence and a 40%
interest in an application for an exploration licence over a
600,000 onshore acre area.
The business and securities of the Registrant are speculative.
For other information regarding the Registrant, see (1) other EDGAR
filings in SEC file number 0-29344, www.sec.gov (2) Canadian SEDAR
filings at www.sedar.com and (3) the Registrant's website at
www.indopacific.com.
Property maps: www.sec.indopacific.com
The Registrant has experienced losses in each fiscal period
reported on. Its main source of capital is the issuance of equity
securities. Total losses incurred from incorporation to December
31, 1997 were $4,935,114. Gain(loss) for the quarter ending
September 30, 1998 was nil and loss for the first three quarters
was $185,829 ($0.01 per share).
Operating Revenue
Gross third quarter production revenue from PMP 38148 was
$51,317 (second quarter: $61,309). The decrease is due to a change
in average oil sale price of $12.09 per barrel to $10.89 per barrel
and a change in production volume from 5,072 barrels to 4,711
barrels. This was offset by commencement of gas sales in the
quarter of $3,746 with gas production averaging 0.14 million cubic
feet a day in August and September.
Gross production revenue for the first three quarters of 1998
was $181,125 (1997: $363,460). The difference is due to a decline
in the price received for oil and reduced oil production because of
the shut in of Ngatoro-2 well from December 1997 to July 1998 for
a work over.
<PAGE> 6
Interest Income.
Interest income for the first three quarters was $285,824
compared with $223,131 for the comparable 1997 period.
Costs and Expenses.
Property exploration expenses and New Zealand development
expenses were:
Expense for Expense for
Country Quarter Three Quarters
New Zealand
Exploration $ 113,854 $ 376,113
Development 91,090 179,567
Australia 120,726 927,248
Papua New Guinea 6,319 7,536
China NIL NIL
General and administrative expenses for the first three
quarters were $551,215 (1997: $307,276). The increase is due to
greater activity associated with field activities and expenses
incurred in connection with regulatory compliance.
Depletion expense for the first three quarters was $62,957
(1997: $246,351).
Interest Expense.
There is no borrowing and consequently no interest expense.
Liquidity.
The Registrant has maintained adequate liquidity to fund its
expenditure programs in the past and has no reason to conclude that
this will not continue for fiscal 1998 and 1999. The Registrant is
satisfied with its ability to access capital through private
placements, public offerings, and convertible securities in order
to preserve liquidity. Joint venture arrangements reduce exposure
on exploration and development programs.
At September 30, 1998 cash reserves were $8,259,610 and
property commitments for the fourth quarter were $161,664. Permits
require 1999 property expenses of $1,765,053.
<PAGE> 7
In the third quarter 1,406,250 escrow shares were acquired by
the Company and the same number replacing such shares were issued
as approved by shareholders on June 24, 1998. No rights, warrants
or options to acquire shares were granted or exercised.
Capital Resources.
Material capital commitments to December 31, 1998 are
described in Amendment Two to the Form 10, as filed with the
Securities and Exchange Commission, at Item 1. Business-Plan of
Operations as at December 31, 1997. At September 30, 1998, working
capital was $9,001,327 (1997: $10,682,906).
The Registrant has no other anticipated capital expenditures
of a material amount. However, the Registrant intends to acquire
additional petroleum interests which may give rise to further
capital expenditures.
The Registrant has no agreements respecting additional
financing at this time. Because of the nature of the Registrant's
business, there are no trends in the nature of its capital
resources which could be considered predictable. To date, the
Registrant's capital resources have consisted solely of the
issuance of common shares pursuant to either public distributions,
private placements or the exercise of convertible securities.
Results of Operations.
The Registrant is an exploration company. The Registrant's
primary focus is the acquisition and exploration of unproven oil
and gas properties. The Registrant's policy is to acquire
interests and, where possible, minimize its risk exposure by
farming out or joint venturing property interests to other industry
participants.
Material changes on petroleum properties during the third quarter
are:
NORTH ISLAND, NEW ZEALAND, ONSHORE EAST COAST BASIN
Petroleum Exploration Permit PEP 38330 (34%), Operator: Indo-Pacific
Interpretation of seismic data collected in June 1998 was
completed. Collection of more seismic data is planned for the
fourth quarter of 1998. Drilling is planned for 1999. The
Registrant is discussing farm outs with third parties.
Petroleum Exploration Permits PEP 38328 (40%) & PEP 38332 (42.5%),
Operator: Indo-Pacific
<PAGE> 8
Interpretation of seismic data collected in May 1998 was
completed. Collection of more seismic data is planned for the
fourth quarter of 1998. Targets may be proposed for drilling in
early 1999. The Registrant is discussing farm outs with third
parties.
NORTH ISLAND, NEW ZEALAND, ONSHORE TARANAKI BASIN
Petroleum Mining Permit PMP 38148 (5%), Operator: New Zealand Oil
& Gas
See Operating Revenue for petroleum sales.
Two new oil wells, Ngatoro-9 and Ngatoro-11, were completed.
The Ngatoro-2 oil well, shut-in since December 1997 for repair,
recommenced production. The operator estimates proved and probable
reserves have increased by two to three million barrels due to the
Ngatoro-9 and 11 wells.
Drilling two new wells to test separate oil prospects is being
considered. A water injection well is planned to increase recovery
from the Ngatoro-1 oil pool.
Petroleum Prospecting Licence PPL 38706 (7.75%), Operator: Fletcher
Challenge Energy
The Registrant made a contribution to the cost of the Tariki-
2C well which was located about 200 meters from the boundary of PPL
38706 in the adjacent PML 38138 permit. The contribution gave
access to all information from the well. Both permits are operated
by Fletcher Challenge Energy. The Tariki-2C well was a commercial
success and the structure found by the well has been mapped as
extending several kilometers into PPL 38706. Fletcher Challenge
has recognized the permits may be unitized, i.e., treated as one
producing pool.
PPL 38706 expired on July 31, 1998. The New Zealand Minister
of Energy granted a retention license expiring July 31, 2001 over
about 5,800 acres of PPL 38706 adjacent to the Tariki-2C discovery
with reservation of an 11% carried interest. The location of a
well is being determined and is scheduled to be drilled early in
1999. Fletcher Challenge has stated that in excess of ten million
barrels of oil may be situated in PPL 38706.
Petroleum Exploration Permit PEP 38716 (19.8%), Operator: Marabella
Enterprises Ltd.
A drilling location has been defined on the Crown Prospect,
and preparation for drilling the Huinga-1 well has commenced. A
farm out agreement with Australian Worldwide Exploration N.L. and
sale of a five percent interest for US$150,000 to Antrim Oil and
Gas Limited, Calgary have reduced exposure to about 8.5% of well
<PAGE> 9
cost, with equity of 19.8%. Drilling of the well has been delayed
until 1999 to settle an objection to the issuance of operating
permits under land use legislation. Aside from this delay, the
Registrant does not anticipate any other difficulty in commencing
operations.
Seismic has also detailed the shallower Oru Prospect to the
south of the Crown Prospect. The Oru Prospect may be drilled late
in 1999.
Petroleum Exploration Permit PEP 38720 (50%), Operator: Indo-Pacific
The Waitoriki Prospect is a sizable gas-condensate drilling
target of about 2,000 acres within the Kapuni Formation at a depth
of about 13,000 feet and a smaller area at the 7,000 foot Moki
Sandstone Formation level. PEP 38720 also has good potential for
Mt. Messenger oil discoveries at depths of five to 6,000 feet. A
well is planned for 1999.
Petroleum Exploration Permit PEP 38723 (40%), Operator: Indo-Pacific
This permit lies northwest of PEP 38716, adjacent to PEP 38720
and abuts four producing fields. The Registrant continues to
reprocess and reinterpret existing seismic data to define drilling
targets in the Mt. Messenger sandstones and the deeper Tikorangi
limestones. A small portion of the Tariki-2C pool may lie within
PEP 38723. A separate Tikorangi Limestone lead in PEP 38723 may be
upgraded by operations within PPL 38706.
SOUTH ISLAND, NEW ZEALAND, CANTERBURY BASIN
Petroleum Exploration Permit PEP 38256 (35%); Operator: Indo-Pacific
AMG Oil Ltd. ("AMG") earned a 30% interest by funding a 120
mile seismic survey. If AMG pays additional required seismic and
the dry hole costs of drilling two exploration wells, it will earn
another 50% of the permit. The Registrant owns 1,000,000 shares of
AMG (7.7% undiluted) and has an option to buy another 1,000,000
shares for US$0.50 before July 31, 2000. Several leads have been
identified but more seismic data is required to identify drilling
targets.
OFFSHORE AUSTRALIA
Timor Sea, Offshore Exploration Permit WA-199-P (5.0%), Operator:
Santos Ltd.
The participants decided not to fund the drilling of the
Avocet Deep prospect. The permit lapsed in September 1998.
<PAGE> 10
Timor Sea, Offshore Exploration Permit AC/P19 (65%): Operator:
Indo-Pacific
The permit encompasses the southern part of the Cartier Trough
and parts of the Ashmore Platform to the west. The existence in
the area of fan sandstones, with the potential to be reservoirs,
was demonstrated by 1997 drilling by Cultus Petroleum of the 7,500
barrel a day Tenacious-1 discovery well immediately southeast of
the permit. The Corvus structure has been defined as similar in
size and type to the nearby Jabiru oil field. In August, 80 km of
2D seismic data was collected and is being processed. Farm in
participants as are being sought.
Gippsland Basin, Bass Strait, Offshore Permit VIC/P39 (33.3%),
Operator: Indo-Pacific
A "state-of-the-art" prestack migration processing of seismic
data is being completed to overcome the distortion effect on
seismic data of shallow velocity variations which obscure the
deeper Latrobe Formation targets. Subject to success of this work,
farm-in participants will be sought to fund an exploration well in
1999.
PAPUA NEW GUINEA: Onshore PPL 192 (40%), Operator: Indo-Pacific
A 60 mile seismic survey is planned for early 1999 to detail
the Kamu and Douglas prospects. Exploration drilling in adjacent
offset acreage to the northwest and the southeast during late 1998
and early 1999 could substantially upgrade the value of PPL 192.
Permit PPL 195 in the highlands was awarded to a third party.
The Registrant filed, and the Papua New Guinea government accepted,
an application called APPL 215 for a 600,000 acre area immediately
east of PPL 192. The area contains exploration targets similar to
those on PPL 192.
CHINA: Technical Study Area, Nanling and Wuwei Basins, Anhui
Province, China (50%) Operator: Indo-Pacific
In 1997, the Registrant completed a technical review of this
2,500,000 acre area and identified the Hongzhuang Prospect in the
Nanling basin, the Longtangwan Prospect in the Wuwei basin and
several other prospects and leads of geological types similar to
those which have provided oil and gas discoveries elsewhere in
China. The Technical Study Agreement ended in March, 1998.
Negotiations with China Petrochemical Corporation continue for a
contract for the next stage of work.
<PAGE> 11
PART II.
ITEM 1. LEGAL PROCEEDINGS.
No material legal proceedings are pending which the Registrant
is a party or of which any of Registrant's property is the subject
matter. No legal proceedings are known to be contemplated by an
governmental authorities.
ITEM 2. CHANGES IN SECURITIES.
No constituent instruments defining the rights of the holders
of any class of registered securities of the Registrant have been
materially modified. No rights evidenced by any class of registered
securities have been materially limited or qualified by the issuance
of modification of any other class of securities. There are no
working capital restrictions or other limitations upon the payment
of dividends except as reported in Registrant's Form 10.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no material defaults in the payment of
principal interest, a sinking or purchase fund installment, or any
other material default not cured within thirty days, with respect to
any indebtedness of the Registrant or any of its significant
subsidiaries exceeding five percent (5%) of the total assets of the
Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
No matters were submitted to a vote of securityholders during
the period covered by this Form 10-Q.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
No reports on Form 8-K have been filed during the quarter for
which this Form 10-Q is filed.
EXHIBIT INDEX
10.64 Option dated June 25, 1998 with Trans New Zealand Oil
Company (NZ) Ltd. regarding PEP 38256.
10.65 Operating Agreement dated June 25, 1998 on PEP 38256.
<PAGE> 12
10.66 Deed of Assignment and Assumption dated August 3, 1998 on
PEP 38256.
10.67 Permit Endorsement dated August 17, 1998 on PEP 38256.
10.68 Operating Agreement dated June 25, 1998 on PEP 38723.
10.69 Extension Licence dated August 25, 1998 on PPL 38706.
10.70 PEP 38716 sale agreement dated July 30, 1998 to Antrim Oil
& Gas Ltd.
10.71 Subsidiary Source Rock Holding Ltd. purchase of 1,000,000
shares of Trans New Zealand Oil Company (NZ) Ltd. by
agreement dated June 25, 1998.
10.72 Subsidiary Source Rock Holding Ltd. acquisition of option
to purchase 1,000,000 shares of Trans New Zealand Oil
Company (NZ) Ltd. by agreement dated June 25, 1998.
27 Financial Data Schedule.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities & Exchange Act
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
INDO-PACIFIC ENERGY LTD.
By: /s/ Alex Guidi November 11, 1998
Alex Guidi, Chairman
By: /s/ Mark Katsumata November 13, 1998
Mark Katsumata, Secretary
<PAGE> 14
EXHIBIT 10.64
AGREEMENT FOR GRANT OF OPTIONS TO ACQUIRE 30% AND 50% INTERESTS
IN PETROLEUM EXPLORATION PERMIT 38256, NEW ZEALAND
THIS AGREEMENT made as of June 25, 1998
AMONG:
TRANS-ORIENT PETROLEUM (NZ) LTD., a body corporate
subsisting under the laws of New Zealand, with a place of
business at 284 Kaori Road, Kaori, Wellington, New
Zealand
("TOP")
OF THE FIRST PART
AND:
INDO-PACIFIC ENERGY (NZ) LTD., a body corporate
subsisting under the laws of New Zealand, with a place of
business at 284 Kaori Road, Kaori, Wellington, New
Zealand
("Indo")
OF THE SECOND PART
AND:
TRANS NEW ZEALAND OIL COMPANY (NZ) LTD., a body corporate
subsisting under the laws of New Zealand, with a place of
business at 284 Kaori Road, Kaori, Wellington, New
Zealand
("TNZ")
OF THE THIRD PART
WHEREAS: A. TOP is the holder of a 50% participating interest,
and Indo is the holder of a 50% participating interest, in and to
petroleum exploration permit 38256, Canterbury Basin, South Island,
New Zealand, granted on August 25, 1997 pursuant to the Crown
Mineral Act 1991 (NZ);
B. Each of TOP and Indo wish to grant to TNZ an option
to acquire from each an undivided interest of 15% in and to
petroleum exploration permit 38256 on the terms and conditions of
this Agreement; and
C. Each of TOP and Indo wish to grant to TNZ a further
option to acquire from each an undivided interest of 25% in and to
petroleum exploration permit 38256 on the terms and conditions of
this Agreement;
WITNESSES THAT the parties mutually covenant and agree as follows:
<PAGE> 15
ARTICLE 1 DEFINITIONS AND INTERPRETATION
1.01 In this Agreement, including its recitals and
schedules, the following words and phrases have the following
meanings: 1991 Act means the Crown Minerals Act 1991 (NZ), as
amended from time to time.
Assignment Agreement means an assignment and assumption
agreement in a form prescribed by the Operator by which an Optioned
Interest is transferred to TNZ subject to a Notice being lodged
with the Secretary and to filing with, and receipt of the consent
of, the Minister on such terms and conditions as he sees fit, under
section 41 of the 1991 Act.
Business day means a day that is not a Saturday or Sunday or
a public holiday in New Zealand.
Drilling Interest means the participating interest to be
acquired by TNZ on exercise of the Drilling Option and vested in
TNZ on issue of a Permit Endorsement reflecting filing of a Notice
and an Assignment Agreement relating to exercise of the Drilling
Option.
Drilling Option means the grant by each of Indo and TOP to TNZ
of an option to acquire from each an undivided 25% participating
interest in and to the Permit in consideration that TNZ pay for all
Well Costs for the drilling of two exploration wells on the Permit
in such location or locations as is determined appropriate by the
Participants in accordance with the Operating Agreement.
Effective Date means, with respect to the Exploration Option,
the date on which TNZ delivers a notice exercising the Exploration
Option and, with respect to the Drilling Option, the date on which
TNZ delivers a notice exercising the Drilling Option.
Exchange Rate means the ratio of the value of United States
dollars to New Zealand dollars on June 25, 1998.
Exploration Interest means the participating interest to be
acquired by TNZ on exercise of the Exploration Option and vested in
TNZ on issue of a Permit Endorsement reflecting filing of a Notice
and an Assignment Agreement relating to exercise of the Exploration
Option.
Exploration Option means the grant by each of Indo and TOP to
TNZ of an option to acquire from each an undivided 15%
participating interest in and to the Permit in consideration that
TNZ pay for all costs associated with, or incurred in connection
with, the collection, processing and interpretation of at least 200
kilometres of 2D seismic data, as proposed, approved and paid for
in accordance with the Operating Agreement.
<PAGE> 16
Indo means Indo-Pacific Energy (NZ) Ltd., a body corporate
subsisting under the laws of New Zealand, with an office at 284
Kaori Road, Kaori, Wellington, New Zealand.
Joint Venture means the relationship established between Indo
and TOP for the exploration and development of, and production
from, the Permit as provided in the Operating Agreement.
Minister means the Minister of Energy (NZ).
Notice means the notice in the form prescribed under
subsection 41(8) of the 1991 Act.
Participants means until issuance of a Permit Endorsement for
the assignment of the Exploration Interest, Indo and TOP, and
thereafter Indo, TOP, TNZ and such other parties as are admitted to
the Joint Venture in accordance with the Operating Agreement.
Permit means petroleum exploration permit issued on August 25,
1997 under the 1991 Act to Indo and TOP in the proportions of 50%
each.
Permit Endorsement means an amendment to the Permit as issued
by the Minister after lodging of a Notice with the Secretary in
accordance with section 41 of the 1991 Act.
Operating Agreement means the agreement dated June 25, 1998
between Indo and TOP providing for the appointment of Indo as
Operator and the conduct of joint operations on, and in connection
with, the Permit.
Operator means Indo or its successor as duly appointed in
accordance with the Operating Agreement.
Optioned Interests means the Exploration Interest or the
Drilling Interest.
TNZ means Trans New Zealand Oil Company (NZ) Ltd., a body
corporate subsisting under the laws of New Zealand, with an office
at 284 Kaori Road, Kaori, Wellington, New Zealand.
TNZ(US) means Trans New Zealand Oil Company, a body corporate
subsisting under the laws of Nevada, with an office at Suite 1200,
1090 West Pender Street, Vancouver, British Columbia V6E 2N7.
TOP means Trans-Orient Petroleum (NZ) Ltd., a body corporate
subsisting under the laws of New Zealand, with an office at 284
Kaori Road, Kaori, Wellington, New Zealand.
Secretary means the Secretary of Commerce (NZ).
Well Costs means in respect of an exploration well, all direct
and indirect costs incurred in the planning and drilling of the
well, including but not limited to the following operations and
costs:
<PAGE> 17
(a) site surveys;
(b) mobilization and demobilization of the drilling unit and
associated vehicles;
(c) running and setting surface and intermediate casing,
cementing, wireline logging, coring and repeat formation
testing;
(d) the remedying of any blow out or mechanical failure of the
well including redrilling the well;
(e) plugging and abandoning or suspending; and
(f) analysis of results required for the preparation of
completion reports.
1.02 The captions, section numbers and article numbers
appearing in this Agreement are inserted for convenience of
reference only and will in no way define, limit, constrict or
describe the scope or intent of this Agreement nor in any way
affect this Agreement.
1.03 This Agreement and all matters arising under this
Agreement will be governed by, construed and enforced in accordance
with the laws of New Zealand and all disputes will be referred to
the court of appropriate jurisdiction in the City of Wellington,
New Zealand to which jurisdiction the parties irrevocably attorn.
1.04 In this Agreement, wherever the context requires, words
importing the singular number will include the plural and vice
versa, words importing the masculine gender will include the
feminine and neuter genders and words importing persons will
include firms and corporations and vice versa.
1.05 Unless otherwise stated, a reference in this Agreement to
a numbered or lettered article, section, subsection, paragraph,
subparagraph or clause refers to the article, section, subsection,
paragraph, subparagraph or clause bearing that number or letter in
this Agreement.
1.06 Each provision of this Agreement is intended to be
severable and if any term or provision of this Agreement is
determined by a court of competent jurisdiction to be illegal or
invalid or unenforceable for any reason whatsoever, such provision
will be severed from this Agreement and will not affect the
legality, enforceability or validity of the remainder or any other
provision of this Agreement.
<PAGE> 18
1.07 The word "including", when following any general term or
statement, is not to be construed as limiting the general term or
statement to the specific items or matters set forth or to similar
items or matters, but rather as referring to all other items or
matters that could reasonably fall within the broadest possible
scope of the general term or statement.
1.08 Accounting terms not otherwise defined have the means
assigned to them in accordance with New Zealand generally accepted
accounting principles.
1.09 A reference to currency means United States currency and
will be converted to New Zealand currency at the Exchange Rate.
1.10 A reference to statute or code includes every regulation
made pursuant thereto, all amendments to the statute or code or to
any such regulation in force from time to time, any statute, code
or regulation which supplements or supersedes such statute, code or
any such regulation and applicable policies, orders, notices and
interpretation bulletins promulgated in connection with such
statute.
1.11 A reference to an entity includes any entity that is a
successor to such entity.
1.12 Time is of the essence of the performance of every
obligation under this Agreement, and no failure or lack of
diligence by any party in proclaiming or seeking redress for any
violation of, or insisting on strict performance of, any provision
of this Agreement will prevent a subsequent violation of that
provision, or of any other provision, from giving rise to any
remedy that would be available if it were an original violation of
that provision or another provision.
1.13 This Agreement will be binding upon and enure to the
benefit of the respective heirs, executors, administrators and
other legal representatives and, to the extent permitted hereunder
and to be permitted under an operating agreement relating to the
Permit, the respective successors and assigns, of the parties.
ARTICLE 2 INDO AND TOP'S REPRESENTATIONS, WARRANTIES AND COVENANTS
2.01 Indo and TOP severally represent and warrant to, and
covenant with, TNZ that:
(a) each is duly incorporated under the laws of New Zealand,
validly exists and is in good standing with respect to all
applicable law, and is duly registered to carry on business in
all other jurisdictions in which it carries on business;
<PAGE> 19
(b) each owns all right, title and interest in an to 50% of
the Permit as tenants-in-common and no other person, firm or
corporation has any legal or beneficial interest, vested or
contingent, in or to the Permit;
(c) the Permit is valid and subsisting in accordance with its
terms and conditions and the provisions of the 1991 Act;
(d) each has good and sufficient right and authority to enter
into this Agreement on the terms and conditions set forth, to
grant the Optioned Interests to TNZ, and on exercise of either
of the Optioned Interests by TNZ and on compliance with
section 41 of the 1991 Act, transfer the legal and beneficial
title to the Optioned Interest which TNZ has exercised to TNZ;
(e) the Operating Agreement is a valid and subsisting
agreement enforceable in accordance with its terms and is the
entire agreement among Indo and TOP with respect to the
conduct of operations on, and in connection with, the Permit;
(f) the making of this Agreement and the completion of the
transactions contemplated in this Agreement does not conflict
with or result in the breach or acceleration of any
indebtedness under, or constitute default under, the
constating documents of Indo or TOP or any indenture,
mortgage, agreement, lease, license or other instrument to
which either is a party or by which it is bound, or any
judgment or order of any court or administrative body by which
either is bound;
(g) there are no liabilities, whether direct, indirect
absolute, contingent or otherwise that would have a material
adverse affect on the Permit or the Optioned Interests;
(h) there is no basis for and there are no actions, suits
judgments, investigations or proceedings outstanding or
pending by or against Indo or TOP and, to the several
knowledge of Indo or TOP or either of them, there is no basis
for and there are no actions, suits, judgments, investigations
or proceedings threatened against or affecting Indo or TOP at
law or in equity or before or by any federal, provincial,
state, municipal or other governmental department, commission,
board, bureau or agency which would materially adversely
affect the right, title or interest of Indo or TOP in or to
the Permit; and
(i) the grant of either the Exploration Option of the Drilling
Option does not constitute a disposition of all or
substantially all of the assets or undertaking of either Indo
or TOP.
<PAGE> 20
2.02 Indo and TOP covenant and agree to and with TNZ that they
will, at all times this Agreement is subsisting permit TNZ, through
its representatives, to make such investigation of the Permit and
the Optioned Interests as TNZ) deems necessary or advisable to
familiarize itself with such assets, operating on, or in connection
with, the Permit and other matters, provided such investigation
will not, however, affect or mitigate Indo's and TOP's covenants,
representations and warranties under this Agreement which will
continue in full force and effect;
2.03 The several representations, warranties, covenants and
agreements of Indo and TOP contained in this Agreement will be true
at and as of the date of vesting of the Exploration Interest and of
the Drilling Interest as though such representations, warranties,
covenants and agreements were made at and as of such dates and
except for the waiver of any condition by TNZ, the representations,
warranties, covenants and agreements of Indo and TOP will survive
such dates and, notwithstanding the exercise of the Optioned
Interests, will continue in full force and effect.
2.04 Indo and TOP will severally defend, indemnify and save
TNZ harmless from and against all actions, causes of action,
losses, damages, costs, charges, liabilities and expenses,
including, but not limited to, actual legal fees, arising out of or
in connection with any breach of any term or condition by Indo or
TOP of any covenant, representation or agreement contained in this
Agreement and not accepted or waived by TNZ at the time of exercise
of the Exploration Option or at the time of exercise of the
Drilling Option.
2.05 Indo and TOP acknowledge and agree that TNZ has entered
into this Agreement relying on the warranties, representations,
covenants and other terms and conditions of this Agreement, and
that no information which is now known or which may become known to
TNZ or its professional advisors after the date or this Agreement
will limit or extinguish the right to an indemnity under this
provision, except any breach accepted or waived by TNZ at the time
of exercise of the Exploration Option or at the time of exercise of
the Drilling Option.
ARTICLE 3 TNZ'S REPRESENTATIONS, WARRANTIES AND COVENANTS
3.01 TNZ represents and warrants to, and covenant with, Indo
and TOP that:
(a) TNZ is duly incorporated under the laws of New Zealand,
validly exists and is in good standing with respect to all
applicable law, and is duly registered to carry on business in
all other jurisdictions in which it carries on business;
<PAGE> 21
(b) TNZ has good and sufficient right and authority to enter
into this Agreement on the terms and conditions set forth and
to acquire the legal and beneficial title to the Exploration
Interest and the Drilling Interest;
(c) the making of this Agreement and the completion of the
transactions contemplated in this Agreement does not conflict
with or result in the breach or acceleration of any
indebtedness under, or constitute default under, the
constating documents of TNZ or any indenture, mortgage,
agreement, lease, license or other instrument to which either
is a party or by which it is bound, or any judgment or order
of any court or administrative body by which it is bound;
(d) TNZ acknowledges the terms and conditions of the Operating
Agreement and covenants to permit the Operator to conduct on
behalf of TNZ before the exercise of any of the Exploration
Option of the Drilling Option all operations on, or in
connection with, the Permit on, and in accordance with, the
terms and conditions of the Operating Agreement;
(e) there is no basis for and there are no actions, suits
judgments, investigations or proceedings outstanding or
pending by or against TNZ and, to the knowledge of TNZ, there
is no basis for and there are no actions, suits, judgments,
investigations or proceedings threatened against or affecting
TNZ at law or in equity or before or by any federal,
provincial, state, municipal or other governmental department,
commission, board, bureau or agency which would materially
adversely affect the right, title or interest of TNZ in or to
the Exploration Interest or the Drilling Interest when
acquired;
(k) TNZ is solvent and able to meet in the ordinary course its
obligations with respect to the Exploration Option and the
Drilling Option, subject to the acceptance and approval from
time to time by TNZ of authorizations for expenditure prepared
from time to time by the Operator.
3.02 The representations, warranties, covenants and agreements
of TNZ contained in this Agreement will be true at and as of the
date of vesting of the Exploration Interest and of the Drilling
Interest as though such representations, warranties, covenants and
agreements were made at and as of such dates and except for the
waiver of any condition by Indo and TOP, the representations,
warranties, covenants and agreements of TNZ will survive such dates
and, notwithstanding the exercise of the Optioned Interests, will
continue in full force and effect.
<PAGE> 22
3.03 TNZ will defend, indemnify and save Indo and TOP harmless
from and against all actions, causes of action, losses, damages,
costs, charges, liabilities and expenses, including, but not
limited to, actual legal fees, arising out of or in connection with
any breach of any term or condition by TNZ of any covenant,
representation of agreement contained in this Agreement and except
any breach accepted or waived by TNZ at the time of exercise of the
Exploration Option or at the time of exercise of the Drilling
Option.
3.04 TNZ acknowledges and agrees that Indo and TOP have
entered into this Agreement relying on the warranties,
representations, covenants and other terms and conditions of this
Agreement, and that no information which is now known or which may
become known to Indo or TOP or its professional advisors after the
date of this Agreement will limit or extinguish the right to an
indemnity under this provision, except any breach accepted or
waived by Indo or TOP at the time of exercise of the Exploration
Option or at the time of exercise of the Drilling Option.
ARTICLE 4 CONDITIONS PRECEDENT TO GRANT OF EXPLORATION OPTION
4.01 It is a condition that on execution and delivery of this
Agreement:
(a) the representations, warranties and covenants of Indo
contained in this Agreement are true and complete; and
(b) the representations, warranties and covenants of TOP
contained in this Agreement are true and complete.
ARTICLE 5 ACQUISITION OF THE EXPLORATION OPTION
5.01 Each of Indo and TOP grants to TNZ the sole and exclusive
right and option, on the terms and other conditions of this
Agreement, to acquire the Exploration Interest free and clear of
all charges, encumbrances and claims, except for those set out in
the Operating Agreement.
5.02 This Agreement and the Exploration and the Drilling
Options will terminate if before delivering a notice exercising the
Exploration Option TNZ has failed to make any payments to the
Operator in connection with work approved in accordance with the
Operating Agreement required to be done to exercise the Exploration
Option and TNZ will not be entitled to compensation or return of
monies paid in connection with work done to exercise the
Exploration Option.
5.03 All operations on, or in connection with, the Permit
until exercise of the Exploration Option will be conducted under
the Operating Agreement as if TNZ were a party to the Operating
Agreement without a vote.
<PAGE> 23
ARTICLE 6 EXERCISE OF THE EXPLORATION OPTION
6.01 The Operator will provide all reports, maps data and
interpretation of such data, and any other information relating to
the Permit that is, or has come into, in the possession of the
Operator, to TNZ in order that TNZ may determine whether it will
exercise the Exploration Option and become a Participant and will
by written notice inform TNZ when all such information has been
provided.
6.02 Within 20 business days of delivery of the notice by the
Operator under section 6.01, TNZ will exercise the Exploration
Option by delivery of a written notice to Indo and TOP to such
effect and on and from such Effective Date will as among the
parties to this Agreement become a Participant in the Joint Venture
with respect to the Exploration Interest but nothing will obligate
TNZ to exercise the Exploration Option.
6.03 The Operator will forthwith prepare and forward an
Assignment Agreement for execution and delivery among the
Participants assigning to TNZ the Exploration Interest and lodge
such Assignment Agreement and the required Notice with the
Secretary and request the consent of the Minister under the 1991
Act.
6.04 It is a condition that TNZ comply with such conditions as
are prescribed by the Minister in connection with the grant of the
consent of the Minister under the 1991 Act to the transfer of the
Exploration Interest, and if there are further costs to be incurred
in connection with compliance with such conditions, such costs will
be deemed to be part of the costs of acquiring the Exploration
Interest and will be borne by TNZ.
6.05 If and when a Permit Endorsement has been issued in
connection with the request for consent to the transfer of the
Exploration Interest, a 30% right, title and interest in and to the
Permit will vest in TNZ free and clear of all charges, encumbrances
and claims, except for the obligations of TNZ under the Operating
Agreement.
ARTICLE 7 ACQUISITION OF THE DRILLING OPTION
7.01 If TNZ has exercised the Exploration Option, it may by
delivery within 80 business days of delivery of the notice under
section 6.02 acquire the Drilling Option by the delivery of a
written notice to Indo and TOP that it is acquiring the Drilling
Option and on delivery of such notice, each of Indo and TOP grants
to TNZ the sole and exclusive right and option, on the terms and
other conditions of this Agreement, to acquire the Drilling
Interest free and clear of all charges, encumbrances and claims,
except for those set out in the Operating Agreement.
<PAGE> 24
7.02 This Agreement and the Drilling Option will terminate if
before delivering the notice exercising the Drilling Option TNZ has
failed to make any payments to the Operator in connection with Well
Costs approved in accordance with the Operating Agreement required
to be done to exercise the Drilling Option and TNZ will not be
entitled to compensation for, or return of monies paid in
connection with, Well Costs.
7.03 All operations on, or in connection with, the Permit
until exercise of the Drilling Option will be conducted under the
Operating Agreement as if TNZ were a Participant holding the
Exploration Interest.
ARTICLE 8 EXERCISE OF THE DRILLING OPTION
4.2 The obligation of TNZ to pay Well Costs will have been
met on the first to occur of:
(a) the Joint Venture deciding in accordance with the
Operating Agreement to run production casing in the second
well drilled under the Drilling Option; or
(b) the Joint Venture deciding in accordance with the
Operating Agreement to plug and abandon the second well
drilled under the Drilling Option.
8.02 The Operator will provide all reports, maps data,
interpretation of such data, results of tests, reserve
calculations, completion reports and any other information relating
to the Permit that is, or has come into, in the possession of the
Operator, to TNZ in order that TNZ may determine whether it will
exercise the Drilling Option and will by written notice inform TNZ
when all such information has been provided.
8.03 Within 20 business days of delivery of the notice by the
Operator under section 8.02, TNZ will exercise the Drilling Option
by delivery of a written notice to Indo and TOP to such effect and
on and from such Effective Date will as among the parties to this
Agreement become a Participant in the Joint Venture with respect to
the Exploration Interest and the Drilling Interest but nothing will
obligate TNZ to exercise the Drilling Option.
8.04 The Operator will forthwith prepare and forward an
Assignment Agreement for execution and delivery among the
Participants assigning to TNZ the Drilling Interest and lodge such
Assignment Agreement and the required Notice with the Secretary and
request the consent of the Minister under the 1991 Act.
<PAGE> 25
8.05 It is a condition that TNZ comply with such conditions as
are prescribed by the Minister in connection with the grant of the
consent of the Minister under the 1991 Act to the transfer of the
Drilling Interest, and if there are further costs to be incurred in
connection with compliance with such conditions, such costs will be
deemed to be Well Costs and will be borne by TNZ.
8.06 If and when a Permit Endorsement has been issued in
connection with the request for consent to the transfer of the
Drilling Interest, a further 50% right, title and interest in and
to the Permit will vest in TNZ free and clear of all charges,
encumbrances and claims, except for the obligations of TNZ under
the Operating Agreement.
ARTICLE 9 RIGHT OF ENTRY AND ATTORNMENT TO OPERATING AGREEMENT
9.01 Throughout the term of the Exploration Option and, if TNZ
elects to proceed with the Drilling Option, the term of the
Drilling Option, the directors and officers of TNZ and TNZ(UZ), and
their servants, agents and independent contractors, will have the
rights in respect of the Permit and information relating to the
Permit as is prescribed in the Operating Agreement as if TNZ or
TNZ(US) were a Participant.
9.02 The Operator will conduct all operations on, or in
connection with the Permit in accordance with Operating Agreement
to which agreement TNZ attorns and if an action or cause of action
arises against the Operator in such capacity before TNZ becomes a
Participant, TNZ may commence and maintain such action in
accordance with the Operating Agreement as if were a Participant.
9.03 During the term of the Exploration Option, the Operator
will deal in all respects with TNZ as if TNZ were a Participant
with no vote under the Operating Agreement.:
ARTICLE 10 TERMINATION OF THE EXPLORATION OPTION
10.01 If the Exploration Option is terminated otherwise
than upon exercise , TNZ will deliver at no cost to Indo or TOP
within 90 days after termination of the Exploration Option copies
of all relevant reports, maps, assay results and other relevant
technical data compiled by, or in the possession of, TNZ with
respect to the Permit.
ARTICLE 11 TAX CONSIDERATIONS
11.01 The Operator will provide TNZ all relevant
information required to enable TNZ to assume and obtain the
benefit of allowable deductions in respect of the work to be
performed to exercise the Exploration Option and, if applicable,
the Drilling Option under applicable income tax legislation.
<PAGE> 26
11.02 The Permit is a wildcat exploration area with no
proven economic reserves of petroleum and that the value of the
right, title and interest that may be acquired by TNZ is nil.
11.03 Each party will bear its own costs and expenses
including, without limitation, all legal costs and expenses in
relation to the preparation, negotiation and execution of this
Agreement and each of the documents which this Agreement requires
any of the parties to execute and deliver.
11.04 TNZ will bear all stamp duty and registration fees
payable under the 1991 Act and any applicable tax legislation on
this Agreement and each of the documents which this Agreement
requires any of the parties to execute.
ARTICLE 12 GENERAL
12.01 The parties will execute and deliver all such
further documents and instruments and do all such further acts
and things as any of the other parties may reasonably require to
carry out the full intent and meaning of this Agreement.
12.02 This Agreement and the Operating Agreement contain
the whole agreement among the parties in respect of the grant of
the Exploration and the drilling Options and the conduct of
operations on, and in connection with, the Permit, and there are
no warranties, representations, terms, conditions, or collateral
agreements, express, implied or statutory, other than those
expressly set forth in this Agreement and the Operating
Agreement.
12.03 No consent or waiver, express or implied, by any
party to or of any breach or default by any other party of any or
all of its obligations under this Agreement will:
(a) be valid unless it is in writing and stated to be a
consent or waiver pursuant to this paragraph;
(b) be relied upon as a consent or waiver to or of any other
breach or default of the same or any other obligation;
(c) constitute a general waiver under this Agreement; or
(d) eliminate or modify the need for a specific consent or
waiver pursuant to this paragraph in any other subsequent
instance.
12.04 Any notice to be given by any party to another will
be deemed to be given when in writing and delivered or telecopied
on any business day to the address for notice of the intended
recipient.
12.05 The address for notice of TNZ will, until changed, be:
<PAGE> 27
Trans New Zealand Oil Company
Suite 1200, 1090 West Pender Street
Vancouver, B. C. V6E 2N7
Attention: Mr. Ronald Bertuzzi, President
Telecopy: 604-682-1174
12.06 The address for notice of each of Indo and TOP
will, until changed, be:
Indo-Pacific Energy (NZ) Ltd.
Trans-Orient Petroleum (NZ) Ltd.
284 Karori Road
Karori, Wellington, New Zealand
Attention: Dr. David Bennett, President
Telecopy: 011-64-4-476-0120
12.07 A party may by notice to all other parties change
its address for notice to some other address.
12.08 A notice delivered to an address for notice will be
deemed to be valid and given notwithstanding the death or
incapacity of the person to whom the notice is directed, whether
known or unknown to the person giving the notice.
12.09 TNZ may not assign its right to acquire the
Exploration Interest or the Drilling Interest without the consent
in writing of each of Indo and TOP first had and received on such
terms and conditions as may be prescribed by Indo and TOP and any
assignment of a Participating Interest by TNZ will be done in
accordance with the Operating Agreement.
12.10 Until TNZ has exercised the Exploration Option, Indo
or TOP may deal in such manner as they wish with the 10%
Participating Interest owned by each in accordance with the
Operating Agreement, but will until the expiry of the time
prescribed for acquisition by TNZ of the Drilling Option do
nothing, and not suffer or permit anything to be done, which would
render them unable to transfer to TNZ the Drilling Interest.
12.11 This Agreement will enure to the benefit of and be
binding upon the parties to this Agreement and their respective
successors and permitted assigns.
EXECUTED AS AN AGREEMENT
Signed for Indo Pacific Energy (NZ) Limited
by its duly authorised representative
/s/ Dave Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
<PAGE> 28
Signed for Trans-Orient Petroleum (NZ) Limited
by its duly authorised representative
/s/ Dave Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
Signed for Trans New Zealand Oil Company (NZ) Ltd.
by its duly authorised representative
/s/ Dave Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
<PAGE> 30
EXHIBIT 10.65
JOINT VENTURE OPERATING AGREEMENT
PEP 38256
Between:
INDO-PACIFIC ENERGY (NZ) LTD
And
TRANS-ORIENT PETROLEUM (NZ) LIMITED
OPERATING AGREEMENT
PEP 38256
Table of Contents
Clause Description Page
OPERATIVE PROVISIONS 7
1 DEFINITIONS AND INTERPRETATIONS 7
1.1 Definitions 7
1.2 Interpretation 12
1.3 Headings 13
2 JOINT VENTURE 13
2.1 Establishment of Joint Venture 13
2.2 Term of Joint Venture 13
2.3 Participating Interests 13
2.4 Tenants in Common 13
2.5 Separate Joint Ventures 14
3 MUTUAL OBLIGATIONS 14
3.1 Covenants by the Parties 14
3.2 Rights and Obligations Several 15
3.3 No Partnership 15
3.4 No Joint Liability 15
4 OPERATOR 15
4.1 Operator 15
4.2 Removal of Operator 15
4.3 Non-Operators' Power to Nullify or Suspend Removal 16
4.4 Replacement of Operator 16
4.5 Resignation of Operator 16
4.6 Appointment of New Operator 16
4.7 Consent to Appointment as Operator 17
4.8 No Appointment of Removed Operator 17
4.9 Effective Date of Appointment 17
4.10 Delivery of Property on Change of Operator 17
4.11 Consequences of Change and Delivery of Property 18
4.12 Audit of Accounts on Change of Operator 18
<PAGE> 31
5 FUNCTIONS AND DUTIES OF OPERATOR 18
5.1 Control and Management of Joint Operations 18
5.2 Independent Status of Operator 18
5.3 Proper Practices in Joint Operations 18
5.4 Books and Records 19
5.5 Protection from Liens 19
5.6 Non-Operator's Rights of Access 19
5.7 Compliance with Terms of Permit 19
5.8 Taxes and Fees 19
5.9 Budget Expenditures by Operator 20
5.10 Operator to Hold Property 20
5.11 Operator's General Duties 20
5.12 Operator to Let for Bid Certain Contracts 21
6 OPERATOR LIABILITY AND INDEMNITY 21
6.1 Liability of Operator 21
6.2 Indemnity of Operator 22
7 OPERATING COMMITTEE 22
7.1 Composition of Operating Committee 22
7.2 Formation of Operating Committee 22
7.3 Vote Required for Decisions of Operating Committee 23
7.4 Quorum for Meetings of Operating Committee 23
7.5 Meetings of Operating Committee 23
7.6 Resolution in Absence of Meeting 24
7.7 Sub-Committees 25
7.8 Place of Meetings 25
7.9 Operator's Duties Concerning Meetings 25
7.10 Operating Committee's Functions 26
7.11 Minimum Participating Interest for Representation 26
8 PROGRAMS AND BUDGETS 26
8.1 Submission of Programs and Budgets 26
8.2 Adoption of Programs and Budgets 27
8.3 Minimum Programs Budgets and Work
Obligation Determination 27
8.4 Review of Programs and Budgets 28
8.5 Authorities for Expenditure (AFEs) 28
8.6 When Expenditure in Excess of Approved AFE
is Authorised 28
8.7 Approved Well Plan 29
8.8 AFEs for Wells 29
8.9 Casing Point Decision 29
8.10 Rights of Party Voting Against Operating
Programs and Budget 30
8.11 Consenting Parties' Premium 30
8.12 Notice to Operator 31
9 COSTS AND EXPENSES 31
9.1 Allocation of Expenditure 31
9.2 Accounting Procedure as Basis 31
9.3 Payment by Operator and Reimbursement 31
9.4 Calls by Operator 32
9.5 Banking of Funds 32
9.6 Investment of Funds 32
9.7 Withdrawal of Funds 32
<PAGE> 32
10 INFORMATION ON JOINT OPERATIONS 32
10.1 Information as to Petroleum Production 32
10.2 Access to Records and Information 32
10.3 Drilling Information and Privileges of Non-Operators 33
10.4 Testing and Information to Non-Operators 33
10.5 Logging Information to Non-Operators 34
10.6 Test Following Logging 34
10.7 Seismic and Other Reports 34
11 INSURANCE AND LITIGATION 34
11.1 Operator to Maintain Insurance 34
11.2 Contractors Insurance 35
11.3 Review of Insurances 35
11.4 Naming of Parties as Co-insured 35
11.5 Advice to Non-Operators of Current Insurance 36
11.6 Party's Right to Increase Insurance 36
11.7 Cost of Insurance and Charging of Losses 36
11.8 Litigation 36
12 SOLE RISK OPERATIONS 37
12.1 Sole Risk Operation 37
12.2 Proposal of Sole Risk Operation 38
12.3 Operating Committee to Consider Sole Risk
Operation Notice 38
12.4 Sole Risk Operation Notice for Existing Well 38
12.5 Sole Risk Operation Notice for Exploration Well 38
12.6 Sole Risk Operation Notice for Appraisal Well 38
12.7 Election to Participate 39
12.8 Sole Risk Interest 40
12.9 Time for Commencing Operations 40
12.10 Conduct of Sole Risk Operation 40
12.11 Operator for Sole Risk Operations 40
12.12 Sole Risk Parties May Complete and Equip 40
12.13 Premiums Accruing to Sole Risk
Parties - Exploration Wells 41
12.14 Premiums Accruing to Sole Risk
Parties - Appraisal Wells 41
12.15 Deepening, Plugging Back,
Reworking, Recompleting, Sidetracking 41
12.16 Premiums Accruing to Sole Risk Parties - Completing 42
12.17 Premiums Accruing to Sole Risk Parties - Equipping 42
12.18 Multiple Reservoirs 42
12.19 Sole Risk Operation Notice When Rig is on Site 43
12.20 Deepening or Sidetracking of Sole Risk Well 44
12.21 Priority of Recovery of Premium 44
12.22 Abandonment of Sole Risk
Operation - Salvable Material 44
12.23 Accounts During Sole Risk Operations and Premium Recovery45
12.24 Sole Risk Parties' Relationship 45
12.25 Indemnification of Non-Sole Risk Parties 45
12.26 Use of Joint Property 46
12.27 Non-Sole Risk Parties to Receive Information 46
12.28 Net Proceeds of Sale of Petroleum 46
12.29 Early Re-Entry by Non-Sole Risk Parties 47
12.30 Conclusion of Sole Risk Operation 47
<PAGE> 33
13 DISPOSAL OF PRODUCTION 47
13.1 Ownership 47
13.2 Royalties 48
13.3 Production Reports 48
13.4 Delivery 48
13.5 Risk 48
14 OFFTAKE AGREEMENT 48
14.1 Crude Oil 48
14.2 Natural Gas 49
15 DEFAULTS 49
15.1 Notice of Default 49
15.2 Defaulting Party Liable for Interest 49
15.3 Payment by Operator 49
15.4 Defaulting Party may be Sued 50
15.5 Non-Defaulting Parties to Contribute 50
15.6 Rights of Paying Parties 50
15.7 Defaulting Party's Petroleum 50
15.8 Suspension of Rights of Defaulting Party 51
15.9 Default of Operator in Payment 51
15.10 Application of Defaulting Party's Funds 51
15.11 Valuation of Defaulting Party's Interest 51
15.12 Option to Purchase Defaulting Party's Interest 52
16 WITHDRAWAL AND SURRENDER 54
16.1 Any Party May Withdraw 54
16.2 Notice of Withdrawal 54
16.3 Other Parties may Join in Withdrawal 54
16.4 Other Parties may Accept Assignment 54
16.5 Prompt Execution of Documents 55
16.6 Withdrawing Party's Obligations 55
16.7 Costs of Assignment 55
16.8 Assignment to all Parties 55
16.9 Selection of Area Required to be Surrendered 56
16.10 Voluntary Surrender of Area 56
17 ASSIGNMENTS AND MORTGAGES 56
17.1 Restriction on Right to Assign and Mortgage 56
17.2 Assignment to Related Companies 57
17.3 Assignment to Third Partiies 57
17.4 Assumption by Assignee 58
17.5 Consequences of Assignment 58
17.6 Charge of Participating Interest 59
18 CONFIDENTIALITY 59
18.1 Information Confidential 59
18.2 Related Companies 60
18.3 Compliance with Stock Exchange Requirements 60
18.4 Obligations to Continue 60
18.5 Termination 60
19 FORCE MAJEURE 60
19.1 Obligations Suspended by Event of Force Majeure 60
19.2 Certain Actions not Required 61
19.3 Meaning of Force Majeure 61
<PAGE> 34
20 LAWS AND REGULATIONS 61
20.1 Subject to Applicable Laws 61
20.2 Governing Law 61
20.3 Submission to Jurisdiction 61
21 NOTICES 62
21.1 Notice in Writing 62
21.2 Effective Date 62
21.3 Time of Receipt 62
21.4 Address for Service 62
21.5 Authorised Officer 63
22 GENERAL 63
22.1 Remedies not Exclusive 63
22.2 Mutual Indemnity 63
22.3 Limited Invalidity 63
22.4 Waiver 63
22.5 How Moneys Paid 63
22.6 Successors Bound 63
22.7 Further Assurance 64
22.8 Entire Agreement 64
22.9 Amendment 64
22.10 No Partition 64
22.11 Counterparts 64
22.12 Time of Essence 65
SCHEDULE 1 66
ACCOUNTING PROCEDURE 66
ARTICLE 1 - GENERAL PROVISIONS 66
1.1 Definitions 66
1.2 Statements, Billings and Adjustments 67
1.3 Advances and Payments 68
1.4 Audits 69
ARTICLE 2 - CHARGEABLE COSTS AND EXPENDITURES 69
2.1 Joint Account (Direct Charges) 69
2.1.1 Labour and Related Costs 69
2.1.2 Material 70
2.1.3 Transportation and Employee Relocation Costs 70
2.1.4 Services 71
2.1.5 Damage and Losses of Joint Property 71
2.1.6 Insurance 71
2.1.7 Legal Expense 72
2.1.8 Duties and Taxes 72
2.1.9 Offices, Camps and Miscellaneous Facilities 72
2.1.10 Payments to Government 72
2.1.11 Other Charges 72
2.2 Joint Account (Indirect Charges) 72
2.2.1 Administrative Overhead 72
ARTICLE 3 - MATERIAL 73
3.1 Acquisitions 73
3.2 Disposals 73
3.3 Inventories 73
SCHEDULE 2 - Description of the Permit Area 73
<PAGE> 35
THIS AGREEMENT is made on the 25th day of June, 1998.
BETWEEN INDO-PACIFIC ENERGY (NZ) LTD
of Indo Pacific House, 284 Karori Rd, Karori,
Wellington, New Zealand. ("Indo")
AND TRANS-ORIENT PETROLEUM (NZ) LIMITED
of Indo Pacific House, 284 Karori Rd, Karori,
Wellington, New Zealand.. ("Trans")
RECITALS
The Parties wish to enter into this Agreement to record the
terms and conditions upon which they will conduct Joint
Operations on the Area.
OPERATIVE PROVISIONS
1 DEFINITIONS AND INTERPRETATIONS
1.1 Definitions
In this Agreement, except where the context otherwise
requires, the following terms and expressions shall have the
following meanings:
"Accounting Procedure" means the method of accounting to be
applied in recording debits and credits to the Joint Account as
set out in Schedule 1;
"Act" means the Crown Minerals Act 1991 (New Zealand)
"AFE" means an authority for expenditure setting out details
of the estimated expenditure in respect of a specific project
which, when approved in accordance with this Agreement,
constitutes authorisation for the Operator to incur such
expenditure.
"Agreement" means this Agreement and the Annexures and
Schedules to this Agreement.
"Appraisal Well" means a well drilled or proposed to be
drilled for the purpose of evaluating the quantities of Petroleum
in a Reservoir discovered by an Exploration Well.
"Approved Well Plan" has the meaning given to that term in
Clause 8.7.
"Area" means the area for the time being enclosed by the
external boundaries of the Permit which boundaries are, as at the
Effective Date, for the purposes of identification only, shown on
the map attached as Schedule 2, and any other area, whether or
not contiguous to that area, which the Parties unanimously agree
shall form part of the Area.
<PAGE> 36
"Authorised Expenditure" has the meaning given to that term
in Clause 9.1.
"Business Day" means a day, other than a Saturday, Sunday or
public holiday, on which trading banks are open for business in
Wellington, New Zealand.
"Casing Point" means the time at which a well drilled under
this Agreement has reached its projected depth or such lesser
depth as the Operating Committee may have decided upon and all
logs and tests necessary to enable a decision as to whether to
plug and abandon the well or attempt to complete it as a producer
have been carried out and communicated to the Parties.
"Chargee" has the meaning given to that term in Clause 17.6.
"Chargor" has the meaning given to that term in Clause 17.6.
"Complete" means with respect to a well the completion of
the well as a producer of Petroleum, which operations shall
include (without limitation);
(a) to acquire, install and perforate production casing;
(b) to run tubing;
(c) to install equipment in the well up to and including
the wing valve of the Christmas tree (in the case of an oil
well) and to the well head (in the case of a gas well);
(d) to conduct such tests as are necessary to
demonstrate that the well is capable of production;
(e) to swab the well;
(f) to install such artificial lift equipment including
subsurface pumps, pump rods, power cables and surface pump
equipment as is necessary to initiate or promote the
production of Petroleum to the surface,
and "Completing", "Completed" and "Completion" have
corresponding meanings.
"Completion Costs" means all costs directly incurred in
respect of Completion;
"Consenting Parties" has the meaning given to that term in
Clause 8.10;
"Default Interest Rate" means in respect of any day the rate
per annum which is the aggregate of 5% per annum and the rate of
interest from time to time charged by the ASB Bank Ltd on
corporate overdraft accounts in excess of $100,000.00 as advised
by the said ASB Bank Ltd to the Operator;
<PAGE> 37
"Default Notice" has the meaning given to that term in
Clause 15.1;
"Defaulting Party" has the meaning given to that term in
Clause 15.1;
"Delivery Costs" has the meaning given to that term in
Clause 12.28;
"Delivery Point" means the point or points determined by the
Operating Committee from time to time as the point or points at
which the Parties shall take delivery of their respective shares
of Petroleum produced from the Area.
"Development Well" means a well (other than an Exploration
Well or an Appraisal Well) drilled, proposed to be drilled or
which is used or is capable of being used, for the production of
Petroleum from a previously discovered Reservoir, which is less
than 1000m from a well which is capable of producing Petroleum in
Payable Quantities from that Reservoir.
"Drill" includes, where the context permits, to deepen,
rework, fracc, plug back, run logs, velocity survey, carry out
testing on, recomplete or sidetrack a well;
"Drilling Costs" means all costs and expenses directly
incurred in drilling, deepening, reworking, plugging back,
recompleting or sidetracking a well, including without
limitation, rig mobilisation and demobilisation, conducting
tests, obtaining core and other samples, running logs and
conducting a velocity survey;
"Effective Date" means the 25th June 1998.
"Effective Date of Assignment" has the meaning given to that
term in Clause 17.5;
"Effective Date of Withdrawal" has the meaning given to that
term in Clause 16.2;
"Electing Party" has the meaning given to that term in
Clause 12.8;
"Entitlement" has the meaning given to that term in Clause
14.1;
"Equip" means (with respect to a well which has been
Completed) to acquire and install all such equipment as is
necessary to place the well in production, and to handle, treat
and bring Petroleum from such well to the Delivery Point
including flow lines, treatment and separation facilities and
stock tanks; and "Equipping" and "Equipped" have corresponding
meanings;
<PAGE> 38
"Equipping Costs" means all costs directly incurred in
Equipping a well;
"Exploration Well" means any well whose purpose at the time
of the commencement of drilling is to explore for an accumulation
of Petroleum whose existence was at that time unproven by
drilling;
"Force Majeure" has the meaning given to that term in Clause
19.3;
"Government" means the government of New Zealand;
"Gross Negligence" means such wanton and reckless conduct as
constitutes, or raises the reasonable belief that it constitutes,
an utter disregard for the harmful foreseeable and avoidable
consequences which result from it;
"Information" has the meaning given to that term in Clause
18.1;
"Joint Account" means the accounts established and
maintained by the Operator in accordance with this Agreement to
record all charges, expenditures, credits and receipts in respect
of Joint Operations which are chargeable or to be credited to
each of the individual Parties as provided for in this Agreement;
and "for the Joint Account" means for the account, expense, risk
or benefit of the Parties in accordance with their Participating
Interests;
"Joint Operations" means all activities of the Joint Venture
conducted on behalf of the Parties pursuant to this Agreement
(including without limitation, abandonment activities) but
excludes those activities which are related to Sole Risk
Operations;
"Joint Property" means:
(a) all other property of any nature or kind, whether
real or personal, (including without limitation, any
extraction, transportation, processing, treatment, storage
or other facility or chose in action and any estate or
interest therein) acquired by the Parties in the conduct, or
for the purposes of, Joint Operations, and
(b) all other estate, right, title or interest of the
Parties arising under or by virtue of this Agreement;
"Joint Venture" means the joint venture between the Parties
in accordance with and constituted by the terms of this
Agreement;
<PAGE> 39
"Net Abandonment Costs" has the meaning given to that term
in Clause 16.6;
"Net Proceeds of Sale" has the meaning given to that term in
Clause 12.28;
"Non-Consenting Party" has the meaning given to that term in
Clause 8.10;
"Non-Defaulting Parties" has the meaning given to that term
in Clause 15.1;
"Non-Operator" means a Party other than the Operator;
"Non-Sole Risk Parties" means the Parties which do not
participate in a Sole Risk Operation;
"Notice of Withdrawal" has the meaning given to that term in
Clause 16.2;
"Operating Committee" means the operating committee
established pursuant to Clause 7 of this Agreement;
"Operating Costs" means all costs directly incurred in
producing, handling, transporting and treating Petroleum from a
well, exclusive of Drilling Costs, Completion Costs and Equipping
Costs, up to the Delivery Point;
"Operator" means the party from time to time appointed
pursuant to this Agreement to carry out the management of the
Joint Venture and Joint Operations;
"Option" has the meaning given to that term in Clause 15.12;
"Option Commencement Date" has the meaning given to that
term in Clause 15.12;
"Participating Interest" means the following obligations,
benefits and rights of a Party, expressed as a percentage and
determined in accordance with this Agreement:
(a) the obligation, subject to this Agreement, to
contribute that percentage of all expenditure and all other
obligations arising under or by virtue of this Agreement;
(b) the ownership of, and the right and benefit as a
tenant in common to receive in kind and to dispose of for
its own account, that percentage of Petroleum, and
(c) the beneficial ownership as a tenant in common of
an undivided share in the percentage of all Joint Property.
<PAGE> 40
"Party" means a party to this Agreement, its successors and
permitted assigns;
"Payable Quantities" means:
(a) in the case of a well not Completed and Equipped
for production, the anticipated output from that well of
that quantity of Petroleum which, considering the Completion
Costs, Equipping Costs, Operating Costs and other costs
related to any of the foregoing, the kind and quality of
Petroleum to be produced, the price to be received therefor
and the royalties and other burdens payable in respect
thereof, would in the opinion of the Operating Committee
warrant incurring the Completion Costs and Equipping Costs
of the well; and
(b) in the case of a well Completed and Equipped for
production, the output from that well of that quantity of
Petroleum which, considering the factors referred to in
paragraph (a) above (other than Completion Costs and
Equipping Costs), would in the opinion of the Operating
Committee warrant continuing production from the well;
"Paying Party" has the meaning given to that term in Clause
15.6;
"Payment Date" has the meaning given to that term in Clause
15.5;
"Permit" means Petroleum Exploration Permit 38256 granted
under the Act the area of which is set out in Schedule 2; and any
permits or leases granted pursuant thereto together with any
extensions, renewals, conversions, substitutions, modifications
or variations thereof;
"Permit Year" means a year beginning on 25th August, and
ending on 24th August.
"Petroleum" has the meaning given to that term in the Act;
"Proceeds of Sale" has the meaning given to that term in
Clause 12.28;
"Proposing Party" means a Party giving notice of its
intention to drill, Complete or Equip a well as a Sole Risk
Operation;
"Purchaser" or "Purchasers" has the meaning given to that
term in Clause 15.12;
"Receiving Parties" means the Parties other than the
Proposing Party;
<PAGE> 41
"Related Company" shall have the meaning given in section
2(3) of the Companies Act 1993 of New Zealand, and for the
purposes of paragraph (d) of that section specifically includes
companies which have substantially common, actual (although not
necessarily legal) management and control;
"Reservoir" means that part of a geological formation which
contains a single pool or accumulation of Petroleum separate from
any other such pool or accumulation in the same or another
geological formation, in a single pressure system so that
production of Petroleum from any part affects the remainder;
"Sole Risk Interest" has the meaning given to that term in
Clause 12.8;
"Sole Risk Operation" means any or all of the drilling,
Completing and Equipping of a well proposed by one or more of the
Parties but in which less than all Parties participate;
"Sole Risk Operation Notice" means the notice of intention
to drill, Complete or Equip a well given by a Proposing Party in
respect of a proposed Sole Risk Operation;
"Sole Risk Operator" means a Party appointed as operator for
a Sole Risk Operation pursuant to Clause 12.11;
"Sole Risk Party" means a Party which participates in a Sole
Risk Operation;
"Unpaid Amount" has the meaning given to that term in Clause
15.1;
"Wilful Misconduct" means intentional acts and omissions
done or omitted to be done, which raise the reasonable belief
that they were the result of a conscious indifference to the
right or welfare of those who are or may be affected by them;
"Withdrawing Party" has the meaning given to that term in
Clause 16.2; and
"Work Obligation" means the minimum work or expenditure
required to be performed or made by the registered holders of the
Permit as a condition of the Permit;
1.2 Interpretation
Unless expressed to the contrary:
(a) words importing:
(i) the singular include the plural and vice versa;
and
<PAGE> 42
(ii) any gender includes the other genders;
(b) if a word or phrase is defined cognate words and
phrases have corresponding definitions;
(c) a reference to:
(i) a person includes a firm, unincorporated
association, corporation and a government or statutory
body or authority;
(ii) a person includes the legal personal
representatives, successors and assigns of that person;
(iii) a statute, ordinance, code or other law
includes regulations and other statutory instruments
under it and consolidations, amendments, re-enactments
or replacements of any of them;
(iv) a right includes a benefit, remedy, discretion,
authority or power;
(v) an obligation includes a warranty or
representation and a reference to a failure to observe
or perform an obligation includes a breach of warranty
or representation;
(d) provisions or terms of this document or another
document, agreement, understanding or arrangement include a
reference to both express and implied provisions and terms;
(e) "$", "NZ$" or "dollars" is a reference to the lawful
currency of New Zealand;
(f) this or any other document includes the document as
varied or replaced and notwithstanding any change in the
identity of the parties;
(g) writing includes any mode of representing or
reproducing words in a tangible and permanently visible
form, and includes facsimile transmission; and
(h) a reference to any thing (including, without
limitation, any amount) is a reference to the whole or any
part of it and a reference to a group of things or persons
is a reference to any one or more of them.
1.3 Headings
The clause headings used herein are for convenience only and
shall not be used in construing or interpreting any provision of
this Agreement.
<PAGE> 43
2 JOINT VENTURE
2.1 Establishment of Joint Venture
On and from the Effective Date the Parties associate
themselves in an unincorporated joint venture for the purpose of
exploration for Petroleum in the Area and if commercially viable
the production, processing, transportation and sale of Petroleum
from the Area and all things necessary and incidental thereto.
2.2 Term of Joint Venture
This Agreement shall continue in effect for so long as the
Permit remains in force and until all Joint Property which
relates to the Area has been disposed of and final settlement has
been made between the Parties in relation thereto in accordance
with their respective rights and obligations under this
Agreement.
2.3 Participating Interests
At the date of this Agreement the Parties acknowledge and
agree that the Participating Interests in this Permit are as
follows:
Indo - 50.0%
Trans - 50.0%
------
100.00%
2.4 Tenants in Common
Subject to this Agreement, all Joint Property shall be
beneficially owned by the Parties as tenants in common in shares
equal to their respective Participating Interests.
2.5 Separate Joint Ventures
This Agreement shall apply separately in relation to each
permit, lease, title or other instrument granted under the Act in
relation to the Area or any part of it so as to constitute
separate joint ventures in respect of the area comprised within
such permit, lease, title or other instrument on the same terms
and conditions, mutatis mutandis, as this Agreement.
3 MUTUAL OBLIGATIONS
3.1 Covenants by the Parties
Each Party covenants with each of the other Parties as
follows:
<PAGE> 44
(a) to do, to the extent of its Participating Interest, all
things on its part necessary to ensure that:
(i) the Work Obligation is diligently observed and
performed;
(ii) the Permit is kept in good standing and the Joint
Property in a safe and operable condition;
(iii) the Permit and all other titles necessary for
the Joint Operations hereunder are duly renewed or
extended unless the Parties shall unanimously agree
otherwise;
(b) to be just and faithful to each other Party in all
things relating to this Agreement; and
(c) not to engage (either alone or in association with
others) in any activity in relation to the Area or the Joint
Property except as authorised by this Agreement.
(d) that it has full right, power and authority to enter
into this Agreement and to engage in Joint Operations
(e) that it has obtained all requisite consents and
approvals to enter into this Agreement
(f) to attend diligently to the conduct of all Joint
Operations in which the Party is involved
(g) to pay punctually its separate debts and to indemnify
the other Parties and the Joint Property against the same
and all expenses on account thereof: to account promptly for
all moneys, cheques and negotiable instruments received by
it for and on behalf of the other Parties;
(i) to afford, when called upon to do so, all reasonable
assistance in the conduct of Joint Operations for the mutual
advantage of all Parties to observe and perform its
obligations, express and implied, under this Agreement, the
Licence and the Act; and to make full, frank and prompt
disclosures and give truthful explanations to the other
Parties of all material matters coming to its attention in
respect of Joint Operations and Joint Property.
3.2 Rights and Obligations Several
The rights, duties, obligations and liabilities of the
Parties shall be several and not joint nor joint and several. It
is the express purpose and intention of the Parties that their
ownership of the Permit and the Joint Property and their
liabilities shall be as tenants-in-common.
<PAGE> 45
3.3 No Partnership
Nothing contained in this Agreement shall be construed as
creating or evidencing a partnership between the Parties or any
of them or as to lead to the joint receipt of income by the
Parties or any of them.
4 OPERATOR
4.1 Operator
Indo is hereby appointed Operator and agrees to act as such
in accordance with the terms and conditions of this Agreement.
4.2 Removal of Operator
Notwithstanding that the Operator may have given notice of
intention to resign pursuant to Clause 4.5, the Operator shall
cease to be Operator and shall be deemed to be removed if:
(a) a controller (as defined in the Companies Act 1993 of
New Zealand) is appointed in respect of the whole or any
part of the property of the Operator;
(b) an order is made that the Operator be wound up;
(c) a liquidator or provisional liquidator is appointed in
respect of the Operator;
(d) there is a resolution for the winding up of the
Operator except to reconstruct or amalgamate while solvent
and on terms approved by the Operating Committee, such
approval not to be unreasonably withheld;
(e) an administrator is appointed to the Operator;
(f) the Operator assigns or purports to assign, all or any
of its general powers and responsibilities of supervision
and management as Operator under this Agreement otherwise
than to a Related Company with the prior written consent of
the other Parties;
(g) the Operator becomes a Defaulting Party pursuant to
Clause 15; or
(h) the Operator commits any breach of this Agreement
(other than a default in payment for which provision is made
in Clause 15, in which case, Clause 4.2(g) shall apply)
which places the whole or any part of the Permit or Joint
Property in jeopardy and continues such breach for a period
of not less than twenty (20) Business Days after notice
requiring the same to be remedied shall have been given to
the Operator by one or more of the Parties.
<PAGE> 46
(i) the Operator and its Related Companies cease to
hold an aggregate Participating Interest of 20% or greater,
unless no other Party holds a greater Participating
Interest.
4.3 Non-Operators' Power to Nullify or Suspend Removal
Notwithstanding the provisions of Clause 4.2 and until the
appointment of a new Operator pursuant to the provisions of
Clause 4.6(a), the Parties, other than the former Operator, may
by unanimous resolution, subject to such conditions, if any, as
are specified in such resolution:
(a) nullify the removal of the Operator; and
(b) suspend or postpone the removal of the Operator either
for a specified period or for an unspecified period to be
specified by a subsequent unanimous resolution of the Non-Operators.
4.4 Replacement of Operator
The Operator shall be replaced if at least two Parties being
holders of not less than seventy-five percent (75%) of the
Participating Interests held by all the Parties so resolve and
upon such resolution the Operating Committee shall appoint a
successor Operators as provided in Clause 4.6(b).
4.5 Resignation of Operator
The Operator may resign by giving each of the Parties ninety
(90) Business Days' written notice (or such lesser period of
notice as the Operating Committee may resolve to accept) of its
intention to do so.
4.6 Appointment of New Operator
If an Operator:
(a) is deemed to have been removed pursuant to Clause 4.2 a
successor Operator shall be appointed by a vote carried by
such number of the Parties, other than the removed Operator
and any Related Company of the removed Operator, the total
of whose Participating Interests constitutes a majority of
the total of the Participating Interests of the Parties
other than the removed Operator and any Related Company of
the removed Operator; or
(b) is replaced pursuant to Clause 4.4 a successor Operator
shall be appointed by the Operating Committee provided that
in the event that a decision of the Operating Committee is
not promptly reached pursuant to Clause 7.3, then a
successor Operator may be appointed by a vote carried by
<PAGE> 47
such number of the Parties, other than the former Operator
and any Related Company of a former Operator, the total of
whose Participating Interests constitutes a majority of the
total of the Participating Interests of the Parties other
than the former Operator and any Related Company of the
former Operator; or
(c) resigns pursuant to Clause 4.5, the Operating Committee
shall appoint a new Operator.
4.7 Consent to Appointment as Operator
Except as provided in this Clause 4.7, no Party shall be
appointed Operator unless it has given written consent to the
appointment. If by reason of failure to appoint a new or
replacement Operator, no Operator is functioning at any time,
then until the appointment of an Operator the Party having the
greatest Participating Interest (excluding the Party or Related
Company of that Party removed or replaced as Operator or which
has resigned as Operator) shall act as Operator for the time
being. If two or more of such Non-Operators have equal
Participating Interests then the Operator for the time being
shall be selected by Parties (excluding the Party or Related
Company of that Party removed or replaced as Operator or which
has resigned as Operator) holding a simple majority of
Participating Interests and in the event that there are no other
such Parties then the selection shall be made by lot.
4.8 No Appointment of Removed Operator
An Operator which is deemed to have been removed under
Clause 4.2 shall not be re-appointed as its own immediate
successor Operator, except with the unanimous consent of the
Parties.
4.9 Effective Date of Appointment
The appointment of a successor Operator shall take effect in
accordance with the following provisions:
(a) in the case of the deemed removal of an Operator
pursuant to Clause 4.2, the appointment of a successor
Operator pursuant to Clause 4.6(a) or Operator for the time
being pursuant to Clause 4.7 shall take effect forthwith
upon such appointment;
(b) in the case of the replacement of an Operator pursuant
to Clause 4.4, the appointment of the outgoing Operator
shall cease at a time to be agreed upon by the Operating
Committee and the outgoing Operator or in the absence of
agreement at 8.00 am on the first Business Day of the month
following the month in which it is resolved to replace the
Operator pursuant to Clause 4.4, and the appointment of a
<PAGE> 48
successor Operator pursuant to Clause 4.6(b) or Operator for
the time being under Clause 4.7 shall take effect in each
case at such time; and
(c) in the case of the resignation of an Operator pursuant
to Clause 4.5, the appointment of a successor Operator
pursuant to Clause 4.6(c) or Operator for the time being
under Clause 4.7 shall take effect at 8.00 am on the first
day following the expiration of ninety (90) Business Days
(or such lesser period of notice as is accepted by the
Operating Committee) after the date upon which notice of
resignation was given pursuant to Clause 4.5.
4.10 Delivery of Property on Change of Operator
At the effective date of the resignation, removal or
replacement of the Operator as herein provided, the outgoing
Operator shall deliver to the successor Operator custody of all
Joint Operations for the Joint Account or otherwise operated by
the outgoing Operator, the Joint Property, and all other
facilities held for the Joint Account or due to Sole Risk
Operations, all books of account and records kept for the Joint
Account or due to Sole Risk Operations and all documents,
agreements and other papers relating thereto and all other things
held by the Operator, as Operator.
4.11 Consequences of Change and Delivery of Property
Upon delivery of the property, books and records referred to
in Clause 4.10, the outgoing Operator shall be released and
discharged from, and the successor Operator shall assume, all
duties and obligations of the Operator, except the unsatisfied
duties and obligations of the outgoing Operator accrued prior to
the effective date of the change of Operator and for which such
outgoing Operator shall, notwithstanding its release or
discharge, continue to remain liable. In order to give effect to
the potential application of the provisions of this Clause, each
Operator shall use its best endeavours to ensure that all
contracts and engagements entered into by such outgoing Operator
for the Joint Account enure for the benefit of and are, if
applicable, assignable to a successor Operator without penalty or
premium upon such assignment.
4.12 Audit of Accounts on Change of Operator
Upon every change of Operator and not later than eighty (80)
Business Days after the successor Operator commences to act as
Operator, the Parties (other than the outgoing Operator) shall
cause an audit to be made of the books of account and records
kept for the Joint Account. The cost of the audit shall be for
the Joint Account unless the Operator has been replaced pursuant
to Clause 4.4 in which case the cost of the audit shall be
charged to those Parties who have voted to replace the Operator.
<PAGE> 49
5 FUNCTIONS AND DUTIES OF OPERATOR
5.1 Control and Management of Joint Operations
Subject to the terms of this Agreement and to the control
and direction of the Operating Committee under this Agreement,
the Operator shall have the exclusive control and management of,
and shall be obligated to conduct, Joint Operations.
5.2 Independent Status of Operator
The Operator shall furnish or cause to be furnished all
material, labour and services necessary for Joint Operations,
consistent with approved programs and budgets. Subject to Clause
5.3, the Operator shall determine the number of employees, their
selection and the hours of labour and the compensation for
services to be paid to them in connection with Joint Operations.
All employees, agents and contractors used in Joint Operations
shall be the employees, agents and contractors of the Operator or
a Related Company of the Operator.
In all dealings with contractors, suppliers and other third
parties in accordance with this Agreement the Operator shall act
and contract as agent for the Parties.
5.3 Proper Practices in Joint Operations
The Operator shall carry on all Joint Operations in a
proper, efficient, economical and safe manner in accordance with
good oilfield practices and conservation principles, with all
reasonable skill and effort in the circumstances, with good and
sufficient equipment and in accordance with the terms and
conditions of the Permit and the Act.
5.4 Books and Records
The Operator shall, with respect to all Joint Operations
conducted by it, keep and maintain at its principal office for
the Joint Account, as required by the Act and in accordance with
generally accepted accounting principles in New Zealand, true and
correct books, records and accounts showing the development and
progress made, drilling done, other Joint Operations carried out,
the quantity of Petroleum produced from each well and the
disposition thereof.
5.5 Protection from Liens
Subject to the Operator holding sufficient funds in the
Joint Account from time to time, the Operator shall pay, or cause
to be paid, as and when they become due and payable, all accounts
of contractors and claims for wages and salaries for services
rendered or performed and insofar as it may be within its control
for materials supplied in respect of any Joint Operations, and
<PAGE> 50
keep the Permit and any property acquired for the Joint Account
free from liens and encumbrances resulting from such Joint
Operations save to the extent only that the same may arise from a
bona fide dispute with respect to any such account or claims and
shall not suffer any claims of or dues to or on behalf of any
Government, Governmental Board or Authority to remain unsatisfied
or become in arrears.
5.6 Non-Operator's Rights of Access
Subject to:
(i) the giving of 24 hours' prior notice to the Operator
(except in the case of testing, coring, logging, measurement
of total depth, plugging and abandoning); and
(ii) not causing any unreasonable interference with the
conduct of the Joint Operations,
each Non-Operator shall have the right at the Non-Operator's
sole risk, cost and expense for persons authorised and
nominated by it and advised to the Operator to have full and
free access at all reasonable times for the purposes of
inspection and observation of all Joint Operations and the
records of Joint Operations and any information obtained as
a result of Joint Operations.
5.7 Compliance with Terms of Permit
The Parties acknowledge and agree that, when the Operator
enters into any contract for the Joint Account, it contracts
solely as agent for each Party severally in proportion to its
Participating Interest, and not as principal, and notwithstanding
that the names of the non-operators do not appear on any such
contract or that the Operator does not disclose the existence or
identity of any Party as principal or the capacity of the
Operator as agent.
5.8 Taxes and Fees
The Operator shall pay for the Joint Account, all taxes
(exclusive of any taxes measured by the income of any Party or
receipt by any of them of Petroleum), fees and other payments
pertaining to the Permit and Joint Operations required to be paid
to the Government in a manner which will discharge the Parties'
obligations with respect thereto.
5.9 Budget Expenditures by Operator
The Operator shall conduct each program of Joint Operations
approved by the Operating Committee and shall not undertake any
Joint Operations not included in any approved program or incur
<PAGE> 51
expenditures in excess of the expenditures authorised by an AFE
approved pursuant to Clause 8.5 or otherwise authorised in this
Agreement.
5.10 Operator to Hold Property
The Operator shall have and hold full and exclusive
possession, custody and control on behalf of the Parties of all
Joint Property and the title documents to the Permit.
5.11 Operator's General Duties
In the conduct of Joint Operations, the Operator shall:
(a) confer freely with the Non-Operators and keep them
currently advised of all significant matters arising in
connection with Joint Operations;
(b) acquire and maintain custody of all such premises,
furniture, fixtures, fittings, materials, supplies, plant,
machinery, equipment and services as are necessary or
desirable for such Joint Operations;
(c) obtain from outside experts and consultants such
technical, legal, accounting and other professional advice
and services as are necessary or desirable for Joint
Operations;
(d) prepare and file reports and returns (other than those
based upon or measured by income) required by law or this
Agreement and furnish the Non-Operators promptly with copies
thereof;
(e) keep books, accounts and records of Joint Operations
and prepare and furnish to the Non-Operators reports,
including but not limited to, exploration progress reports,
geological and geophysical reports, daily drilling reports,
well logs, production reports and reports furnished by the
Operator to the Government relating to Joint Operations;
(f) subject to their availability, make available to any
Non-Operator requesting the same samples of rocks, cores and
formation fluids taken from any wells drilled under this
Agreement;
(g) prepare and present to the Non-Operators proposed work
programs, corresponding budgets and AFEs as provided in
Clause 8;
(h) subject to the provisions of Clause 12, carry out all
Sole Risk Operations;
<PAGE> 52
(i) procure and maintain insurance and adjust losses and
claims arising out of such insurance as provided in this
Agreement;
(j) provide the Non-Operators, upon request, with a copy of
all or any contract entered into by the Operator pursuant to
this Agreement;
(k) do all such other acts and things as may be necessary
or desirable under this Agreement for the efficient and
economical conduct of Joint Operations;
(l) provide on a timely basis and at the cost of the Non-
Operator concerned, such data additional to that distributed
pursuant to this Agreement as is required to enable each of
the Non-Operators to make, to the extent that any such Non-
Operator legally is required so to do, public statements or
announcements to any governmental agency or official stock
exchange;
(m) within twenty (20) Business Days after the end of each
month, furnish to each Non-Operator a summary report on
Joint Operations conducted during such month;
(n) negotiate with the Government on behalf of all of the
Parties in respect of those matters which the Operating
Committee considers necessary or desirable; and
(o) provide on a timely basis and at the cost of the Non-
Operator concerned such data additional to that distributed
pursuant to this Agreement as that Non-Operator may
reasonably require.
5.12 Operator to Let for Bid Certain Contracts
Unless the Operating Committee decides otherwise, the
Operator will comply with the following provisions in relation to
entering into contracts:
(a) the Operator shall invite competitive tenders in
respect of contracts for materials or services for the Joint
Account the cost of which is likely to exceed $75,000 for
any one item or series of related items.
(b) In addition to any other approvals required under this
Agreement, the Operator shall obtain Operating Committee
approval to the principal terms of contracts for materials
or services for the Joint Account, the cost of which, in the
opinion of the Operator, is likely to exceed, for any one
item or series of related items:
(i) in the case of contracts for drilling rigs -
$500,000
<PAGE> 53
(ii) in the case of contracts for the acquisition
and/or processing of seismic - $250,000
(iii) in the case of contracts incorporated in a
program and budget other than contracts for drilling
rigs and seismic- $150,000
(c) where bids are required under this Clause 5.12, each
Party and any Related Company of a Party shall have the
right to submit a bid.
6 OPERATOR LIABILITY AND INDEMNITY
6.1 Liability of Operator
The Operator and its directors, officers, employees, shall
not be responsible for any costs, losses, claims, damages or
liabilities suffered or incurred by any Party arising out of or
in the course of the discharge of its duties as Operator
hereunder except for:
(a) any costs, losses, claims, damages and liabilities
arising, directly or indirectly, from Wilful Misconduct or
Gross Negligence of the Operator; and
(b) those amounts which the Operator is liable to expend or
contribute in the discharge of its obligations as a Party in
terms of this Agreement.
The Operator shall not be liable in any circumstances for
any loss of profits or other consequential losses whatsoever or
howsoever occurring.
6.2 Indemnity of Operator
Each of the Non-Operators, severally to the extent of its
Participating Interest, shall at all times indemnify and keep
indemnified the Operator and its directors, officers and
employees against all liabilities, losses, damages, costs and
expenses suffered or incurred by the Operator and its directors,
officers and employees in relation to Joint Operations other than
those liabilities, losses, damages, costs or expenses arising
directly from the Wilful Misconduct or Gross Negligence of the
Operator.
7 OPERATING COMMITTEE
7.1 Composition of Operating Committee
To provide for the orderly selection, control and direction
of Joint Operations there shall be established promptly an
Operating Committee. Subject to Clause 7.11, the Operating
Committee shall be comprised of a representative of each of the
<PAGE> 54
Parties and each Party shall appoint one representative and one
alternate representative to serve on the Operating Committee.
The Operator's representative shall be the chairman of the
Operating Committee.
7.2 Formation of Operating Committee
Subject to clause 7.11, within twenty (20) Business Days
after the Effective Date, each Party shall notify each of the
other Parties of the names and addresses of its representative
and alternate representative who shall represent such Party and
is deemed authorised to bind such Party with respect to all
matters in connection with Joint Operations. Each alternate
representative shall be entitled to attend all Operating
Committee meetings but shall have no vote at such meetings except
in the absence or disability of the representative for whom he is
the alternate. Each Party shall have the right to change its
representative and/or alternate at any time by giving notice to
such effect to the Other Parties.
In addition to the representative and alternate
representative, each Party may bring to all such meetings such
technical and other advisers as it may deem appropriate. The
Parties shall pay the expenses of attendance at Operating
Committee meetings of their own representative and/or alternative
representative and advisers.
7.3 Vote Required for Decisions of Operating Committee
Except as otherwise provided in this Agreement, all
decisions of the Operating Committee on all matters coming before
it shall be made by the affirmative vote of two or more Parties
having collectively not less than seventy five percent (75%) of
the aggregate of the Participating Interests of the Parties
entitled to vote thereon. The Operating Committee shall have no
power to make a decision:
(a) to assign or (except with the unanimous approval of the
Parties) voluntarily surrender any part or parts of the
Permit; or
(b) to enter into, amend or vary this Agreement or any
agreement between the Parties and a Government; or
(c) upon any matter in respect of which specific provision
is made in this Agreement for a decision to be made in a
different fashion.
Except as otherwise specifically provided in this Agreement,
the decisions of the Operating Committee shall be binding on the
Parties.
<PAGE> 55
7.4 Quorum for Meetings of Operating Committee
(a) No meeting of the Operating Committee shall transact
any business unless a quorum is present.
(b) A quorum for the purposes of a meeting of the Operating
Committee shall be constituted by the representatives of not
less than two Parties present and entitled to vote holding
Participating Interests aggregating at least seventy five
percent (75%) of the Participating Interests of the Parties
entitled to vote.
(c) If a quorum is not present within an hour from the time
appointed for a meeting of the Operating Committee (or such
longer period as the Parties then present unanimously agree
to remain), the meeting shall stand adjourned for five (5)
Business Days to the same time and place.
7.5 Meetings of Operating Committee
(a) The Operating Committee may meet, either personally or
by telephone, video conference or any other form of
instantaneous communication by which all participants can
properly communicate with each other, for the dispatch of
business and, subject to this Agreement, adjourn and
otherwise regulate its meetings as it thinks fit. One of
such meetings shall be the annual meeting of the Operating
Committee and shall take place no later than 1 month prior
to the commencement of the next succeeding Permit Year.
(b) The Operating Committee shall meet whenever requested
by the giving of fifteen (15) Business Days' written notice
by the Operator and shall meet at least once each year to
consider the program and budget referred to in Clause 8. A
notice given pursuant to this Clause shall include the
agenda for the meeting. The Operating Committee may meet at
such other times as the Parties entitled to vote unanimously
agree.
(c) Any Party requesting the Operator to give a notice
requesting a meeting shall provide the Operator with
sufficient information concerning the matters to be
considered thereat to enable the Operator to comply with its
obligations pursuant to Clause 7.9(a).
(d) Any Party requesting the Operator in the manner
provided in Clause 7.5(b) to give a notice requesting a
meeting shall be entitled to give such notice in lieu of the
Operator if the Operator fails to give such notice within
five (5) Business Days of receiving the request from such
Party in which case the meeting shall be held at the time
and place as specified by such Party in the said notice.
<PAGE> 56
(e) Meetings of the Operating Committee shall resolve only
such matters as are specified in the notice of meeting
provided however that the Operating Committee may by the
unanimous vote of the representatives of all Parties amend
any notice of meeting to include additional matters.
(f) The failure by a Party to vote on any resolution put
for decision by the Operating Committee shall be deemed to
be a vote against such resolution.
7.6 Resolution in Absence of Meeting
(a) In lieu of a meeting, the Operator may and shall
promptly at the request in writing of any Non-Operator
submit any matter which is proper for consideration by the
Operating Committee to the representatives of the Parties by
giving each representative notice by mail or facsimile
adequately describing the matter so submitted. Each
representative of a Party entitled to vote shall communicate
its vote thereon to the Operator and to the other Parties by
mail or facsimile within such period as may be designated in
the notice given by the Operator, which period shall not,
except as otherwise provided in this Agreement, be less than
six (6) Business Days after receipt of such notice.
(b) Where the Parties are requested to vote on any proposal
in circumstances other than those described in Clause 7.6(c)
or Clause 12.19 and where the matter presented for
consideration by its nature requires determination in less
than six (6) Business Days and such fact and lesser period
(which shall not be less than forty-eight (48) hours after
receipt of such notice) are so stated in the notice
submitting the proposal, the Parties shall cast their vote
within such lesser period. The Operator shall use all
reasonable endeavours to ensure that each Party is aware of
the proposal. Failure by a Party to cast its vote within
the relevant period shall be regarded as a vote by that
Party against the proposal.
(c) Where the Parties are requested to vote in
circumstances other than those described in Clause 12.19 on
any proposal in respect of a well on which drilling
equipment is then located:
(i) any request made or response given may be made or
given by telephone and shall be confirmed by facsimile
the same day or, if outside normal business hours, on
the next Business Day. Any time periods provided in
this Clause 7.6(c) shall begin to run from the time of
such request; and
<PAGE> 57
(ii) each Party shall cast its vote within twenty-four
(24) hours of the receipt of such request or within
such longer period as is stated in the request.
Failure of a Party to cast its vote within the relevant
period shall be regarded as a vote by that Party
against the proposal.
(d) If the proposal is not one to which Clause 7.6(b),
Clause 7.6(c) or Clause 12.19 applies and within six (6)
Business Days after receipt of such notice, a request by any
Party is made for a meeting to consider such matter, it
shall be considered at a meeting duly called for that
purpose. If a meeting is not requested, then at the
expiration of the period designated in the notice given by
the Operator, the Operator shall give to each representative
written notice stating the tabulation and results of the
vote. The absence of a response by any representative shall
be deemed to be a negative vote.
(e) Decisions of the Parties made pursuant to Clause 7.6
shall be made by the same vote as is provided for in Clause
7.3 and shall have the same effect as decisions made at a
meeting of the Operating Committee pursuant to Clause 7.3.
7.7 Sub-Committees
The Operating Committee may establish such sub-committees,
including a technical sub-committee, consisting of a nominee of
each Party, as the Operating Committee may deem appropriate. The
functions of such sub-committees shall be determined by the
Operating Committee. Such sub-committees shall meet whenever
requested by the giving of ten (10) Business Days' written notice
by the Operator (which shall give such notice within five (5)
Business Days after it is requested to do so by any Party). Such
sub-committees shall be advisory only and shall have no power to
direct the Operator or the Operating Committee.
7.8 Place of Meetings
Except as provided for in Clause 7.5(c), all meetings of the
Operating Committee shall be held at an office nominated by the
Operator or such other place as may be decided by the Operating
Committee.
7.9 Operator's Duties Concerning Meetings
With respect to meetings of the Operating Committee, the
Operator's duties shall include, but not be limited to:
(a) preparation and distribution of an agenda together with
reasonably adequate supporting information;
(b) organisation and conduct of the meeting;
<PAGE> 58
(c) preparation of a written record of decisions taken at
each meeting for signature by all Parties prior to the end
of the meeting;
(d) preparation of minutes of each meeting with copies
thereof delivered to the representatives of the Parties as
soon thereafter as possible (but no later than ten (10)
Business Days) for approval as to the accuracy thereof
provided always that if none of the representatives of the
Parties to whom copies of any such minutes are required to
be sent shall object thereto by writing to the Operator
within fifteen (15) Business Days of receipt of the copy
then such minutes are deemed to have been approved provided
further that the failure by the representatives to approve
such minutes shall not invalidate any decision taken at such
Operating Committee meeting; and
(e) maintenance of a permanent file of all Operating
Committee decisions.
7.10 Operating Committee's Functions
The functions of the Operating Committee shall include, but
not be limited to:
(a) review and approval of programs and budgets and of
AFEs;
(b) determining policies with respect to all Joint
Operations;
(c) consideration of the necessity or otherwise of
feasibility studies and terms of reference thereof in
relation to Joint Operations on the Area;
(d) approval of the locations and well plans of all
proposed wells;
(e) approval of well spacing patterns;
(f) approval of production profiles;
(g) determining applications for the renewal of the Permit;
and
(h) deciding such other matters pertaining to Joint
Operations and proposed Joint Operations as may arise from
time to time and are required to be submitted to the
Operating Committee by the terms of this Agreement and to
make decisions in respect of all other matters pertaining to
this Agreement not assigned to the Operator or the Parties
hereunder.
<PAGE> 59
7.11 Minimum Participating Interest for Representation
A Party whose Participating Interest is less than five
percent (5%) or becomes less than five percent (5%), shall not be
entitled to appoint or retain a representative or alternate
pursuant to Clause 7.2, nor to have a vote proportionate to its
Participating Interest in connection with any decision of the
Operating Committee, except as hereinafter provided.
Two or more Parties, having Participating Interests the sum
of which is five percent (5%) or more, may combine to appoint a
representative and alternate pursuant to Clause 7.2, which
representative shall represent and be deemed authorised to bind
such Parties in every way as though such Parties were one Party
having a Participating Interest equal to the sum of such Parties'
Participating Interests, and such Parties shall be entitled to
cast a vote in connection with any decision of the Operating
Committee as though such Parties were one Party having a single
vote proportionate to the sum of such Parties' Participating
Interests.
8 PROGRAMS AND BUDGETS
8.1 Submission of Programs and Budgets
During the term of this Agreement and unless otherwise
agreed by the Operating Committee the Operator shall submit to
each Party's representative on the Operating Committee by no
later than three (3) months before the commencement of each
Permit Year a recommended program and budget for such Permit
Year.
8.2 Adoption of Programs and Budgets
Unless otherwise agreed by the Operating Committee, by no
later than one (1) month before the commencement of each Permit
Year the Operating Committee shall meet to decide upon the
program and budget for such Permit Year. Subject to the
provisions of Clauses 8.4, 8.5 and 8.10 to 8.12 inclusive, such
decision shall oblige the Parties to bear and pay their
respective Participating Interest shares of all liabilities,
costs and expenses arising or incurred under the program and
budget so approved.
8.3 Minimum Programs, Budgets and Work Obligation Determination
(a) If by fifteen days before the commencement of any
Permit Year the Operating Committee having used all
reasonable endeavours has been unable to decide on the
program and budget for that Permit Year the Operating
Committee shall attempt to determine a programme and budget
sufficient to meet the Work Obligation for such Permit Year
by the affirmative vote of Parties the aggregate of whose
<PAGE> 60
Participating Interests exceeds fifty percent (50%). If the
Parties at any time from time to time, fail to approve an
AFE necessary to meet that program and budget, then the
Operating Committee shall be deemed to have approved all
AFEs necessary for the Operator to carry out Joint
Operations sufficient to meet, all of the Work Obligation
relating to that Permit Year, which has not by that date,
been satisfied.
(b) If the Operating Committee is still unable to decide
upon a program and budget within ten (10) Business Days
after the commencement of such Permit Year, the Operator
shall prepare and dispatch without delay and in any event by
not later than thirty (30) Business Days after the
commencement of the Permit Year to each of the Parties a
program and budget sufficient to meet the Work Obligation
for such Permit Year. The Operating Committee shall be
deemed to have approved such program and budget and all AFEs
necessary to give effect thereto and each of the Parties
shall be liable to the extent of its Participating Interest
for all costs and expenses incurred by the Operator in
carrying out the Work Obligation in accordance with the
AFEs.
(c) Not less than two(2) months prior to any date on which
a Work Obligation is to be agreed with the Minister for a
new period of the Permit, the Operating Committee shall meet
to vote upon the program to be submitted as the proposed
Work Obligation.
(d) Any Party voting against a program agreed under
paragraph c) shall despite clause 16.2 (a) have the right to
withdraw from the Permit by giving notice of its intention
to do so within 10 days of the vote being taken. Such a
withdrawn party must be notified of any modified programme
submitted under 8.3 (e) and is deemed not to have withdrawn,
unless anew notice under (e) is received.
(e) If the Minister withholds approval of the program
submitted in accordance with paragraph c) above and invites
submittal of a modified program in accordance with the Act,
then the Operating Committee shall meet and vote on a
modified program; and the right for a Party to withdraw,
having voted against the modified program will apply in the
same manner as in paragraph d) above.
8.4 Review of Programs and Budgets
Each approved program and budget shall be reviewed by the
Operating Committee at such times as the Operating Committee may
decide. If upon any such review the program and budget is
amended, the amended program and budget shall become the approved
<PAGE> 61
program and budget provided always that any such amendment shall
not invalidate any authorised commitment or expenditure made by
the Operator prior thereto.
8.5 Authorities for Expenditure (AFEs)
Subject to the provisions of Clauses 8.3, 8.6, 11.7 and
11.8, the Operator shall not enter into any commitment or incur
any expenditure whether under an approved program and budget or
otherwise except in accordance with an AFE approved in accordance
with the following provisions of this Clause 8.5:
(a) The Operator shall after the Operating Committee has
approved a program and budget prepare an AFE in respect of
each seismic program, well or other major division of work
in the approved program and submit each such AFE to the
Parties in a timely fashion having regard to the Joint
Operations to be carried out under the approved program and
the provisions of this Clause 8.5.
(b) The Parties shall consider and unless a meeting of the
Operating Committee is called for such purpose vote upon
each AFE in accordance with the procedures provided for in
Clause 7.6 except that such vote must be communicated not
later than ten (10) Business Days after its submission to
the Parties. A Party who fails to vote on such AFE within
such ten (10) Business Day period shall be deemed to have
voted not to approve the AFE.
(c) When the Operating Committee approves an AFE the
Operator shall be authorised and obliged to proceed with the
expenditure or commitment provided for therein and each
Party shall be obliged to bear and pay its respective
Participating Interest share of all liabilities, costs and
expenses arising or incurred under the AFE so approved.
(d) Each AFE submitted to the Parties and each approved AFE
shall be divided into individual meaningful categories, each
of which shall describe the operational and financial
requirements thereof in sufficient detail to identify its
scope and set out particulars of the best estimate of the
funds required to complete the work.
8.6 When Expenditure in Excess of Approved AFE is Authorised
Notwithstanding the provisions in Clause 8.5:
(a) if at any time it becomes apparent to the Operator that
the expenditure which will be incurred in respect of Joint
Operations covered by an approved AFE will exceed by more
than ten percent (10%) the amount allowed in the approved
AFE, the Operator shall forthwith prepare and submit to the
<PAGE> 62
Parties for approval by the Operating Committee a
supplementary AFE relating to such excess expenditure. The
Operator shall use all reasonable efforts to prepare and
submit such supplementary AFE to the parties before any part
of such excess expenditure is incurred. If the Operating
Committee does not approve the supplementary AFE, the
Operator shall take all steps reasonably necessary to
conclude, as expeditiously as possible, and with minimum
cost to the Parties, the Joint Operations in respect of
which the excess expenditure has been or is about to be
incurred; and
(b) in the case of emergency, the Operator may take such
action as may in its judgment be necessary for the
protection of life or property and may incur all reasonable
expenditure on behalf of the Parties in so doing. In the
event of so doing, the Operator shall report promptly to the
Parties the amount of such expenditures and the
circumstances in which they were made.
Expenditure in excess of an approved AFE properly incurred
by the Operator pursuant to the provisions of paragraph (a) or
(b) above is deemed to be Authorised Expenditure within the
meaning of Clause 9.1.
8.7 Approved Well Plan
Prior to the commencement of drilling of any well, the
Operating Committee shall have approved a well plan ("Approved
Well Plan") for that well which shall provide the detail relating
to the drilling of the well to its agreed total depth, including
but not limited to the casing program, mud program and proposed
coring, testing and wireline logging operations.
8.8 AFEs for Wells
The Operator shall compile an AFE for the drilling of a well
on a dry hole basis, but to include provision for such coring or
open hole testing as is in accordance with the Approved Well Plan
for that well.
8.9 Casing Point Decision
(a) Any decision by the Operating Committee pursuant to
Clause 8 regarding the drilling, deepening, reworking,
fraccing, side-tracking or plugging back of a well shall not
be deemed an agreement or decision regarding the setting of
casing and the making of a Completion attempt for
production.
(b) After any well drilled, deepened, reworked, fracced,
side-tracked or plugged back has reached Casing Point, the
Operator shall give immediate notice pursuant to Clause
7.6(c) to all Parties.
<PAGE> 63
(c) The notice given by the Operator pursuant to the
preceding Clause 8.9(b) shall contain the Operator's
recommendation either:
(i) to plug and abandon the well; or
(ii) to Complete the well as a producer in which case
the notice shall include the appropriate Completion
procedures and the estimated cost of Completion and
Parties voting for the recommended Completion shall be
deemed to have voted in favour of a formal AFE to be
submitted as soon as practicable in the sum of such
estimated Completion costs.
(d) Each Party shall vote on the proposal in accordance
with Clause 7.6(c).
(e) If such number of Parties the aggregate of whose
Participating Interests equals or exceeds the percentage
required for an affirmative vote of the Operating Committee
pursuant to Clause 7.3 approves the Completion of such well,
the Operator shall proceed to attempt the Completion of such
well as if such Completion had been approved at a meeting of
the Operating Committee.
(f) If there is a lesser percentage of approval for
Completion than that referred to in Clause 8.9(e) or if less
than all Parties have voted to plug and abandon the well,
then the Operator shall advise all Parties of the result of
the vote and any Party which voted for the Completion of the
well may thereupon immediately request that the operation to
plug and abandon the well be delayed (at such Party's
expense) for a period of up to 24 hours to enable Sole Risk
Operations to be considered. If no such request is made or
if at the end of the said 24 hours no Sole Risk Operation
Notice has been given, the Operator shall plug and abandon
the well.
(g) Any notice to be given or election to be made pursuant
to this Clause 8.9 may be given or made by telephone and
shall be confirmed by facsimile as soon as practicable
following such telephone call. Any time periods provided in
this Clause 8.9 shall begin to run from the time of such
telephone call.
8.10 Rights of Party Voting Against Operating Programs and Budget
(a) Subject to Clause 8.3, if any Party through its
representative at a meeting of the Operating Committee held
to approve a programme and budget, votes against the
carrying out of any Joint Operations consisting of the
drilling of one or more wells which are not required to meet
<PAGE> 64
the work Obligation for the relevant Permit Year
("Additional Joint Operations") but which is included within
a program and budget for that Permit Year approved or deemed
to be approved by the Operating Committee, then such Party
may notify the Operator within the relevant time limits
specified in Clause 8.12, that it will not participate in
the Additional Joint Operations ("Non-Consenting Party").
(b) Subject to Clause 8.11, all the Parties which have
approved the program and budget containing the Additional
Joint Operations ("Consenting Parties") will thereafter
share in all costs, risks, liabilities, expenses and
benefits arising or incurred with respect to the Additional
Joint Operations in the proportion that each of their
respective Participating Interests bears to the total of the
Participating Interests of all the Consenting Parties.
8.11 Consenting Parties' Premium
(a) Where a Non-Consenting Party notifies the Operator that
it will not participate in the Additional Joint Operations,
the Operator shall notify the other Parties within 7 days of
receipt of such notice. If any Party which voted for the
program and budget containing the Additional Joint
Operations then notifies the Operator within 7 days of
receipt of the Operator's notice that it does not wish to
participate in the Additional Joint Operations, the Party
shall be deemed to be a Non-Consenting Party under this
clause and thereafter shall not be responsible for any
costs, risks or expenses attributable to the Additional
Joint Operations. In this event, the remaining Parties will
be given immediate notice of their projected re-adjusted
contribution to costs, and have an extra 48 hours to advise
Operator of their consenting or non-consenting status.
Notwithstanding the above, such 7-day notice period shall be
shortened to 48 hours if the Additional Joint Operations are
currently in progress.
(b) The Consenting Parties' rights, interests and benefits
in respect of the results of the Additional Joint Operations
shall be determined in accordance with those sub-clauses of
Clause 12 applicable to the nature of the Additional Joint
Operations as if the Additional Joint Operations were Sole
Risk Operations and the Consenting Parties were Sole Risk
Parties in such Sole Risk Operations.
8.12 Notice to Operator
Notice to be given to the Operator by a Non-Consenting Party
pursuant to Clause 8.10(a) shall be given within the following
periods:
<PAGE> 65
(a) if the Additional Joint Operations are to be commenced
within 30 days after the close of the meeting of the
Operating Committee at which the program and budget
containing the Additional Joint Operations was approved,
within 7 days after the date of that meeting;
(b) if the Additional Joint Operations are to be commenced
more than 30 days after the close of the meeting of the
Operating Committee at which the program and budget
containing the Additional Joint Operations was approved,
within 15 days after the date of that meeting.
(c) if the Additional Joint Operations are currently in
progress, within 48 hours after the receipt of notice from
the Operator thereof.
9 COSTS AND EXPENSES
9.1 Allocation of Expenditure
Subject to the provisions of this Agreement, all expenditure
relating to Joint Operations, including without limitation the
handling, treating, storing and transporting to the Delivery
Point of Petroleum produced from the Area shall, except as
otherwise specifically provided herein, be borne by the Parties
in proportion to their respective Participating Interests. All
liabilities of the Joint Venture shall be borne in the same
proportions. To the extent that any such expenditure is included
in an approved AFE or is otherwise authorised pursuant to this
Agreement, such expenditure shall be deemed to be authorised and
shall be referred to as "Authorised Expenditure".
9.2 Accounting Procedure as Basis
The Accounting Procedure shall be the basis for all charges
and credits to the Joint Account except as the Accounting
Procedure may be in direct conflict with this Agreement, in which
event the provisions of this Agreement shall prevail, and the
Operator shall keep its records of costs and expenditure in
accordance with such Accounting Procedure. The Operator must
charge on the basis that it is intended to neither gain nor lose
in performing the functions and duties of the Operator under this
Agreement.
9.3 Payment by Operator and Reimbursement
The Operator shall initially pay all Authorised Expenditure
and shall debit the Parties for their respective shares thereof.
Unless the Operator shall have received advances for such
purposes as provided for in this Agreement, each Party shall
forthwith reimburse the Operator for its share of such Authorised
Expenditure in accordance with the provisions of this Agreement.
<PAGE> 66
9.4 Calls by Operator
The Operator may require the Non-Operators to advance their
respective proportions of Authorised Expenditure in which event
the provisions of Article 1.2.1 of the Accounting Procedure shall
apply.
9.5 Banking of Funds
All funds received by the Operator under the provisions of
this Agreement (other than funds received for the purpose of a
Sole Risk Operation) shall be lodged by the Operator in a
separate bank account in the name of the Joint Venture maintained
by the Operator and styled as directed by the Operating
Committee. The Operator shall deposit to such account its own
share of Authorised Expenditure or of advances to meet Authorised
Expenditure due by it within the same time limits within which
the Non-Operators are required to pay their shares to the
Operator. Pending the expenditure thereof, the funds advanced by
any Party shall be held by the Operator in trust for the
respective Party, subject to the terms of this Agreement.
9.6 Investment of Funds
Each Party hereby authorises the Operator to invest the
funds lodged in the bank account referred to in Clause 9.5 from
time to time in interest bearing deposits with such bank or in
such other forms of investment as are from time to time approved
by the unanimous resolution of the Parties. Each Party shall be
entitled to receive or be credited with the interest earned upon
the investment of its funds.
9.7 Withdrawal of Funds
The Operator is hereby authorised to withdraw funds from the
bank account or interest bearing deposit or other investments as
they are required by the Operator to pay Authorised Expenditure.
10 INFORMATION ON JOINT OPERATIONS
10.1 Information as to Petroleum Production
The Operator shall furnish to each Party each month a
statement of the amount of Petroleum produced (including any
Petroleum used, flared or lost), gathered, treated, processed,
transported, stored and delivered during the preceding month and
in stock at the end of that month within the scope of such
Operator's responsibility.
10.2 Access to Records and Information
Unless otherwise specifically provided for in this Agreement
and subject to Clause 15.8 and upon reasonable notice to the
Operator each of the Parties shall have access at all reasonable
<PAGE> 67
times for the purpose of examination and, at its own expense,
copying of all tapes, data, reports, accounts, contracts, books,
records and all other information kept by the Operator in
compliance with its obligations hereunder including but not
limited to those relating to geological and geophysical surveys,
drilling, exploration, production and gathering, those relating
to amounts of Petroleum produced, gathered, treated, processed,
transported, stored and delivered and those relating to plant and
pipeline design, construction and costs.
10.3 Drilling Information and Privileges of Non-Operators
Prior to the commencement of any well for the Joint Account,
the Operator shall provide to each Party a copy of the Approved
Well Plan. With respect to any well drilled for the Joint
Account, and subject to Clause 15.8, the Operator shall furnish
to each Party, provided that weather or communication conditions
do not prevent the Operator from so doing:
(a) prompt notice by facsimile of the date of spudding in
of the well;
(b) daily drilling and geological reports;
(c) immediate advice by facsimile or telephone of:
(i) the encountering of any porous zone with showings
of hydrocarbons;
(ii) any other occurrence not specified in the Approved
Well Plan which might justify the testing or evaluation
of the zone in question; or
(iii) any material occurrence which the Operator
considers might justify a change from the Approved Well
Plan, together with a recommendation from the Operator
of any material departure from the Approved Well Plan
which the Operator thinks appropriate in the
circumstances;
(d) on request, at the expense of the requesting Party, a
complete set of washed samples of the cuttings of the
formations penetrated if practicable;
(e) access to all cores taken; and
(f) at the expense and risk of each Party and upon
reasonable notice to the Operator, access to the drilling
rig to such persons as that Party shall nominate for the
purposes of viewing any or all Joint Operations provided
that such access does not unreasonably interfere with Joint
Operations and that such persons comply with all applicable
safety requirements and directions.
<PAGE> 68
10.4 Testing and Information to Non-Operators
With respect to any well drilled, the Operator shall:
(a) be ready to receive the comments of and discuss with
the Non-Operators any advice given by the Operator pursuant
to Clause 10.3(c);
(b) proceed in all material respects in accordance with the
Approved Well Plan unless or until such time as the
Operating Committee directs otherwise;
(c) proceed with any variation of the Approved Well Plan
directed by the Operating Committee;
(d) take representative samples and drill stem test fluid
samples and supply each Non-Operator with all information
relative thereto; and
(e) supply each Non-Operator with copies of the test and
service report on each test run, including copies of
pressure charts provided that each Non-Operator shall be
entitled to no more than two copies of each such report and
related data.
10.5 Logging Information to Non-Operators
During the drilling of the well and upon the well reaching
the total depth, the Operator shall run all log surveys as are
approved by the Operating Committee and shall as soon as
practicable supply each Non-Operator with a copy of each log so
run.
10.6 Test Following Logging
At any time prior to any Operating Committee decision which
would negate such a request, if a Party requests (which request
may be made by telephone or facsimile) that the Operator tests an
interval in the well, the Operator shall promptly request the
Parties to vote on the proposal pursuant to the provisions of
Clause 7.6(c).
10.7 Seismic and Other Reports
The Operator shall supply each Party at the expense of the
Joint Account with:
(a) a copy of all seismic sections;
(b) a copy of the final report on all seismic surveys;
(c) a copy of the well completion report for each well; and
<PAGE> 69
(d) a copy of any other reports prepared on behalf of the
Joint Venture in connection with Joint Operations.
11 INSURANCE AND LITIGATION
11.1 Operator to Maintain Insurance
The Operator shall at all times while conducting Joint
Operations purchase and maintain for the Joint Account for the
protection and indemnification of the Parties:
(a) all such insurances as are required by the terms of the
Permit;
(b) personal injury insurance and property damage insurance
in respect of motor vehicles of all kinds engaged in Joint
Operations for a minimum of $5,000,000.00 or such greater
amount as the Operating Committee may from time to time
determine;
(c) workers compensation (including unlimited common law
risk), employer's liability and other insurance of a similar
or dissimilar nature as may be required by law;
(d) public liability insurance for a minimum of
$10,000,000.00 or such greater amount as the Operating
Committee may from time to time determine;
(e) industrial special risks insurance in respect of all
Joint Property for such amount as the Operating Committee
may from time to time determine;
(f) well control, pollution, seepage, clean up and
redrilling insurance (including underground blowout and
redrilling/recompletion) for a minimum of $10,000,000.00 or
such greater amount as the Operating Committee may from time
to time determine;
(g) insurance in respect of stocks of Petroleum held prior
to arrival at the Delivery Point in such amount as the
Operating Committee shall from time to time determine; and
(h) such other insurances or indemnities as the Operating
Committee may from time to time determine.
11.2 Contractors Insurance
The Operator shall in addition, require all contractors and
sub-contractors performing work for the Joint Venture to purchase
and maintain for the protection and indemnification of the
Parties insurances of the kind referred to in paragraphs (b), (c)
and (d) of Clause 11.1 insofar as relates to such work of such
<PAGE> 70
contractors or sub-contractors provided that the Operator may
(unless otherwise directed by the Operating Committee) dispense
with any such insurance in any case in which the Operator
determines that in all the circumstances it is appropriate to do
so and may determine such lower limit for any such insurance as
the Operator deems appropriate.
11.3 Review of Insurances
The Operator will when requested by the Operating Committee
carry out such review of the insurance effected pursuant to
Clause 11.1 as the Operating Committee may require.
11.4 Naming of Parties as Co-insured
The Operator and the other Parties and other persons for
whose benefit any policy of insurance is effected pursuant to
Clauses 11.1 or 11.2 shall be named as co-insureds therein. The
Operator shall ensure that each such policy of insurance shall
contain:
(a) a waiver of the right of subrogation by the insurer in
favour of the Parties; and
(b) a cross liabilities Clause to the effect that for the
purposes of the policy each Party and other person
comprising the insured shall be considered as a separate
unit and the policy shall apply to each such Party or other
person in the same manner as if a separate policy had been
issued to each of them in its name alone and the insurer
waives all rights of subrogation or action which it may have
or acquire against any such Party or other person.
11.5 Advice to Non-Operators of Current Insurance
The Operator will advise the Parties promptly of any
additional insurance effected or of any insurances cancelled,
altered or lapsed.
11.6 Party's Right to Increase Insurance
Any Party may at its own cost effect or increase any such
insurance so far as it relates to the interest of such Party
under this Agreement.
11.7 Cost of Insurance and Charging of Losses
The actual costs of the insurance effected by the Operator
pursuant to Clause 11.1 shall be charged to the Joint Account.
Any liability, loss, damage, claim or expense relating to Joint
Operations, whether in respect of an event which has been insured
or not, shall be charged to the Joint Account and shall be borne
and paid by the Parties (without prejudice to any right of
<PAGE> 71
indemnity or action which any Party may have) in proportion to
their Participating Interests at the time of the liability, loss,
damage, claim or expense in question.
Any Party may elect not to participate in any insurance if:
(a) it gives prompt notice of its non-participation to the
Operator (at least prior to the time at which the Operator
has entered into a contract for such insurance);
(b) its non-participation does not interfere, directly or
indirectly, with the Operator's negotiations for such
insurance and the other Parties participating in such
insurance or prejudice such insurance once obtained;
it produces to the Operating Committee such evidence of
insurance or financial responsibility, to cover its
Participating Interest share of the risks to be insured
against, as the Operating Committee determines to be
acceptable; and
any policy it effects to cover the risks to be insured
against includes waivers of subrogation by the insurer in
favour of the other Parties with respect to Joint Operations
and Joint Property and is subject to a condition that it
cannot be cancelled or varied, or permitted to expire,
without, in each instance, the insurer having given to the
other Parties at least 14 days notice of that intent.
11.8 Litigation
(a) Subject to the provisions of this Clause 11.8, all
matters relating to the enforcement or defence of rights in
respect of or arising out of Joint Operations shall be
determined by decisions of the Operating Committee.
(b) All actions taken by the Operator pursuant to this
Clause 11.8 and all liabilities incurred pursuant thereto
shall be for the Joint Account and the payment of such
liabilities shall constitute Authorised Expenditure.
(c) All the provisions of this Agreement shall apply in
relation to matters referred to in this Clause 11.8
including without limitation the provisions of Clauses 8.5
and 8.6 relating to AFEs, the provisions of Clause 9.4
relating to calls by the Operator and the provisions of
Clause 15 relating to defaults in payment.
(d) The Operator shall promptly notify the Parties of any
claim, litigation, lien, demand or judgment relating to
Joint Operations.
<PAGE> 72
(e) The Operator shall have the authority to prosecute,
pursue, defend or settle any claim, litigation, lien, demand
or judgment relating to Joint Operations where the total
amount in dispute and/or the then total amount of damages
together with any costs is estimated by the Operator to be
less than $20,000.00 or such other amount as may from time
to time be specified by the Operating Committee.
(f) The Operator shall not except at the direction of the
Operating Committee prosecute, pursue, defend or settle any
claim, litigation, lien, demand or judgment relating to
Joint Operations where the then estimated total amount in
dispute and/or the total amount of damages together with any
costs is $20,000.00 (or such other amount as may from time
to time be specified by the Operating Committee) or greater.
(g) Each Party shall promptly notify the other Parties of
any claim, litigation, lien, demand or judgment relating to
Joint Operations and shall use all reasonable endeavours not
to conduct such proceedings in such a way as to prejudice,
affect or vitiate any insurance effected pursuant to this
Clause 11.
(h) Notwithstanding the provisions of Clause 11.8(e), each
Party shall have the right to participate in any
prosecution, defence or settlement of any proceedings
conducted in accordance with Clauses 11.8(e) and 11.8(f) at
its sole cost and expense provided however that a Party
exercising such a right shall remain liable for its share of
Joint Venture costs.
(i) Any Party participating in the prosecution, defence or
settlement of any proceedings shall at all times take all
reasonable steps to ensure that it does so in such manner as
does not prejudice the rights of any of the other Parties.
(j) The provisions of this Clause 11.8 shall not apply to
claims, litigation, liens, demands or judgments made,
brought or obtained by a Party against another Party.
12 SOLE RISK OPERATIONS
12.1 Sole Risk Operation
The Parties shall propose and conduct Sole Risk Operations
in accordance with this Clause 12. A Party shall not give an
Sole Risk Operation Notice for a Sole Risk Operation (other than
a Sole Risk Operation where there is a rig on site as provided in
Clause 12.19) unless the operation described in the Sole Risk
Operation Notice has been proposed in the Operating Committee in
complete form as contemplated in Clause 12.2 and has been
rejected or after the next ensuing meeting of the Operating
Committee it has failed to gain approval.
<PAGE> 73
12.2 Proposal of Sole Risk Operation
A Proposing Party may at any time give to the Receiving
Parties an Sole Risk Operation Notice, in which the Proposing
Party shall state the proposed location, purpose, program,
estimated commencement date and estimated cost (set out in the
form of an AFE) of the Sole Risk Operation and which shall be
accompanied by all relevant technical information (other than
that already in the hands of the Parties) and interpretations
upon which the proposal is based.
12.3 Operating Committee to Consider Sole Risk Operation Notice
The Operator shall convene a meeting of the Operating
Committee to be held not less than twenty (20) Business Days and
not more than thirty (30) Business Days after the giving of an
Sole Risk Operation Notice. Unless all Receiving Parties shall
prior to the date of such meeting give notice to all Parties that
the Sole Risk Operation may proceed the Operating Committee shall
meet and consider the Sole Risk Operation Notice.
12.4 Sole Risk Operation Notice for Existing Well
If the Sole Risk Operation Notice relates to a well which is
suspended or is then being drilled other than a well which is
being or is about to be plugged and abandoned then the Sole Risk
Operation may proceed only if the Operating Committee approves
the same proceeding and in such event subject to such conditions,
if any, as the Operating Committee may impose on such Sole Risk
Operations.
12.5 Sole Risk Operation Notice for Exploration Well
If the Sole Risk Operation Notice relates to an Exploration
Well (which term includes an operation classified as an
Exploration Well pursuant to Clause 12.15) then the Operating
Committee shall either:
(a) decide that the Joint Venture shall drill a well or
conduct an operation having the same purpose as the well or
operation described in the Sole Risk Operation Notice, to be
commenced (which in the case of the drilling of a well means
spudded) not later than six (6) months after service of the
Sole Risk Operation Notice; or
(b) make no such decision, whereupon the Proposing Party
may proceed with the Sole Risk Operation, subject to the
remaining provisions of this Agreement.
If the Operating Committee decides in accordance with
paragraph (a) above and the Joint Venture fails to commence to
conduct the operations within the six (6) months period provided
for in that paragraph, then the limitation period of six (6)
<PAGE> 74
months referred to in Clause 12.9 is extended by the period of
six (6) months and the Proposing Party may proceed with the Sole
Risk Operation, subject to the remaining provisions of this
Agreement.
12.6 Sole Risk Operation Notice for Appraisal Well
If the Sole Risk Operation Notice relates to an Appraisal
Well (which term includes without limitation, operations
respectively classified as Appraisal Wells pursuant to Clause
12.15 or Clause 12.18) then:
(a) if at the time of service of the Sole Risk Operation
Notice Petroleum is not being produced from the Reservoir in
respect of which the operation described in the Sole Risk
Operation Notice is to be conducted, the Operating Committee
shall:
(i) decide that the Joint Venture shall produce
Petroleum from such Reservoir within twelve (12) months
after the service of the Sole Risk Operation Notice; or
(ii) decide that the Joint Venture shall drill a well
or conduct an operation having the same purpose as the
well or operation described in the Sole Risk Operation
Notice, to be commenced (which in the case of the
drilling of a well means spudded) not later than twelve
(12) months after the service of the Sole Risk
Operation Notice; or
(iii) make no such decision, whereupon the
Proposing Party may proceed with the Sole Risk
Operation, subject to the remaining provisions of this
Agreement; or
(b) if at the time of service of the Sole Risk Operation
Notice Petroleum is being produced from the Reservoir in
respect of which the operation described in the Sole Risk
Operation Notice is to be conducted, the Operating Committee
shall decide either:
(i) that the Joint Venture shall drill a well or
conduct an operation having the same purpose as the
well or operation described in the Sole Risk Operation
Notice to be commenced (which in the case of a well
means spudded) not later than six (6) months after
service of the Sole Risk Operation Notice; or
(ii) make no such decisions whereupon the Proposing
Party may proceed with the Sole Risk Operation subject
to the remaining provisions of this Agreement.
<PAGE> 75
If the Operating Committee decides in accordance with
paragraph (a)(i) or (a)(ii) above and the Joint Venture fails to
produce Petroleum or commence to conduct the operations within
the twelve (12) month period respectively provided for in those
paragraphs, then the limitation period of six (6) months referred
to in Clause 12.9 is extended by the period of twelve (12)
months, and the Proposing Party may proceed with the Sole Risk
Operation, subject to the remaining provisions of this Agreement.
If the Operating Committee decides in accordance with
paragraph (b)(i) above and the Joint Venture fails to commence to
conduct the operations within the six (6) month period provided
for in that paragraph, then the limitation period of six (6)
months referred to in Clause 12.9 is extended by the period of
six (6) months, and the Proposing Party may proceed with the Sole
Risk Operation subject to the provisions of this Agreement.
12.7 Election to Participate
If in consequence of the operation of Clauses 12.3, 12.4,
12.5 or 12.6 the Proposing Party may proceed with the relevant
Sole Risk Operation then the Proposing Party may give notice to
each Receiving Party that it has become entitled to and intends
to proceed with the Sole Risk Operation and each Receiving Party
shall within ten (10) Business Days of receipt of such notice
give notice to each other Party stating whether that Receiving
Party will participate in the Sole Risk Operation and, if so, the
maximum interest (being not less than its Participating Interest)
it will take in such Sole Risk Operation, failing which that
Receiving Party is deemed to have given notice to each other
Party that it will not participate in the Sole Risk Operation.
12.8 Sole Risk Interest
A Sole Risk Party shall participate in a Sole Risk Operation
and bear the costs, risks and liabilities thereof in the
proportion that its Participating Interest bears to the aggregate
of the Participating Interests of the Sole Risk Parties (such
proportion being hereinafter called its "Sole Risk Interest")
unless otherwise agreed among the Sole Risk Parties. When each
Receiving Party has given notice pursuant to Clause 12.7, the
Proposing Party shall forthwith notify each Party which elects
pursuant to Clause 12.7 to participate in the Sole Risk Operation
("Electing Party") of its then Sole Risk Interest. If the then
Sole Risk Interest of any Electing Party exceeds the maximum
interest specified in its notice pursuant to Clause 12.7, then
that Electing Party may withdraw from the Sole Risk Operation by
notice to the remaining Electing Parties and the Proposing Party
given within five (5) Business Days after receipt of notice of
its then Sole Risk Interest, where-upon the remaining Electing
Parties and the Proposing Party shall agree the Sole Risk
Interests. If the remaining Electing Parties and the Proposing
Party are unable to agree the Sole Risk Interests within ten (10)
<PAGE> 76
Business Days after the Proposing Party notifies the Electing
Parties of their then Sole Risk Interests, then the Proposing
Party may proceed with the Sole Risk Operation alone and
thereafter no other Party may participate in the Sole Risk
Operation except with the unanimous consent of the Sole Risk
Parties.
12.9 Time for Commencing Operations
The Proposing Party may begin the Sole Risk Operation after
the Sole Risk Interests have been settled in accordance with
Clause 12.8. A Sole Risk Party shall not commence a Sole Risk
Operation more than six (6) months after giving the relevant Sole
Risk Operation Notice. Another Sole Risk Operation Notice may be
given for the same Sole Risk Operation after the expiration of
the said six (6) month period. A Sole Risk Operation, once
commenced, shall be diligently prosecuted or abandoned by the
Sole Risk Parties.
12.10 Conduct of Sole Risk Operation
If less than such Parties as would be able to make a
decision of the Operating Committee pursuant to Clause 7.3, elect
to participate in a proposed Sole Risk Operation then the
operation shall continue to be a Sole Risk Operation and the
provisions of Clauses 12.11 to 12.30 shall apply and the Sole
Risk Parties shall promptly commence (subject to Clause 12.9),
carry out and complete the Sole Risk Operation diligently in
accordance with good oil field practice.
12.11 Operator for Sole Risk Operations
If the Operator is a Sole Risk Party, it shall carry out the
Sole Risk Operation. If the Operator is not a Sole Risk Party,
the Sole Risk Parties may appoint the Operator, if the Operator
agrees to accept such appointment, or one of their number as Sole
Risk Operator. All the provisions of this Agreement relating to
the conduct of Joint Operations shall (to the extent they have
application) apply mutatis mutandis, to the Sole Risk Operator
and to the Sole Risk Operation.
12.12 Sole Risk Parties May Complete and Equip
The Sole Risk Parties which drill a well as a Sole Risk
Operation are entitled, but are not obliged, to Complete such
well, or Complete and Equip such well as part of such Sole Risk
Operation at their sole risk and expense. Sole Risk Parties
which Complete a well as a Sole Risk Operation are entitled, but
are not obliged, to Equip such well as part of such Sole Risk
Operation at their sole risk and expense. Sole Risk Parties
Equipping a well as a Sole Risk Operation or as part of a Sole
<PAGE> 77
Risk Operation shall not Equip such well so as to handle
production greater than that reasonably expected from such well,
unless the Operating Committee decides otherwise.
12.13 Premiums Accruing to Sole Risk Parties - Exploration
Wells
If the Sole Risk Operation is the drilling of an Exploration
Well, and the operation results in the discovery of a Reservoir
from which Petroleum is subsequently produced, the Sole Risk
Parties are entitled as follows:
(a) the Sole Risk Parties may take all Petroleum produced
from such Reservoir by all wells which are drilled and
Completed for production from such Reservoir until the Net
Proceeds of Sale thereof equals the sum of the Drilling
Costs, Completion Costs and Equipping Costs (if any)
incurred by the Sole Risk Parties as part of such Sole Risk
Operation; and
(b) in addition to such entitlements, the Sole Risk Parties
may take all Petroleum produced from such Reservoir and all
subsequent wells which are drilled and Completed for
production from such Reservoir until the Net Proceeds of
Sale thereof is an amount equal to one thousand per centum
(1000%) of the Drilling Costs of such well or, if such well
is Completed for production by the Sole Risk Parties as part
of such Sole Risk Operation, an amount equal to one thousand
per centum (1000%) of such of the Drilling Costs and
Completion Costs as the Sole Risk Parties incur as part of
such Sole Risk Operation.
12.14 Premiums Accruing to Sole Risk Parties - Appraisal
Wells
If the Sole Risk Operation is the drilling of an Appraisal
Well and such well is Completed for production from a Reservoir
which it was the purpose of the well to intersect, the Sole Risk
Parties are entitled as follows:
(a) the Sole Risk Parties may take all Petroleum produced
from such well from such Reservoir until the Net Proceeds of
Sale thereof equals the sum of the Drilling Costs,
Completion Costs and Equipping Costs (if any) incurred as
part of the relevant Sole Risk Operation; and
(b) in addition to such entitlement, the Sole Risk Parties
may take all Petroleum produced from such well until the Net
Proceeds of Sale thereof is an amount equal to five hundred
per centum (500%) of such Drilling Costs, Completion Costs
and Equipping Costs (if any).
<PAGE> 78
12.15 Deepening, Plugging Back, Reworking, Recompleting,
Sidetracking
If the Sole Risk Operation is the deepening, plugging back,
reworking, recompleting or sidetracking of a well, and such
operation results in:
(a) the discovery of a Reservoir from which Petroleum is
subsequently produced; or
(b) production from that section of the well deepened,
plugged back, recompleted or reworked; or
(c) production from a Reservoir intersected by the
sidetracked portion of the well; or
(d) production for the first time from a Reservoir
intersected by the well plugged back, recompleted or
reworked,
then for the purpose of dealing pursuant to Clause 12.13 or
Clause 12.14 with Petroleum produced as a result of such
operation, it is classified as an Exploration Well or anAppraisal
Well by reference to the definitions of those terms in this
Agreement and to the purposes as stated in the Sole Risk
Operation Notice for which such deepening, plugging back,
reworking, recompleting or sidetracking is conducted.
12.16 Premiums Accruing to Sole Risk Parties - Completing
If the Sole Risk Operation Notice is solely for the
Completing or the Completing and Equipping of a well from which
Petroleum is subsequently produced, the Sole Risk Parties are
entitled (in addition to any entitlement they may have pursuant
to Clause 12.17) as follows:
(a) the Sole Risk Parties may take all Petroleum produced
from such well until the Net Proceeds of Sale thereof equals
the Completion Costs; and
(b) in addition to such entitlement, the Sole Risk Parties
may take all Petroleum produced from such well until the Net
Proceeds of Sale thereof is an amount equal to five hundred
per centum (500%) of the Completion Costs.
12.17 Premiums Accruing to Sole Risk Parties - Equipping
If the Sole Risk Operation Notice is solely for the
Equipping or the Completing and Equipping of a well or wells, the
Sole Risk Parties are entitled (in addition to any entitlement
they may have pursuant to Clause 12.16) as follows:
<PAGE> 79
(a) the Sole Risk Parties may take all Petroleum from such
well or wells until the Net Proceeds of Sale thereof equals
the Equipping Costs of such well or wells; and
(b) in addition to such entitlement, the Sole Risk Parties
may take all Petroleum produced from such well or wells
until the Net Proceeds of Sale thereof is an amount equal to
five hundred per centum (500%) of the Equipping Costs.
12.18 Multiple Reservoirs
(a) If a well intersects more than one Reservoir, then in
respect of each such Reservoir it may be classified as an
Exploration Well or an Appraisal Well by reference to the
purpose, as stated in the Sole Risk Operation Notice, for
which the well was drilled. A well is classified as an
Exploration Well in respect of a Reservoir which is
discovered by that well, irrespective of the purpose for
which the well was drilled.
(b) If a well intersects more than one Reservoir, and in
respect of all such Reservoirs it is classified as either an
Exploration Well, an Appraisal Well, then for the purposes
of dealing pursuant to Clauses 12.13 to 12.17 with Petroleum
produced from such well, Drilling Costs are the Drilling
Costs of the well to its total depth, Completion Costs are
equal to the sum of the Completion Costs for all Reservoirs,
and Equipping Costs are equal to the total Equipping Costs
for the well, and (without prejudice to any further
entitlements which the Sole Risk Parties may have pursuant
to the remaining provisions of Clause 12) the Sole Risk
Parties may take Petroleum from all such Reservoirs until
their total entitlements in respect of the well have been
satisfied.
(c) If a well intersects more than one Reservoir, and in
respect of any of such Reservoirs it is classified
differently from another of such Reservoirs, then for the
purposes of dealing pursuant to Clauses 12.13 to 12.17, with
Petroleum produced from such well, Completion Costs are
equal to the sum of the Completion Costs for all Reservoirs,
and Equipping Costs are equal to the total Equipping Costs
for the well. Drilling Costs are:
(i) for a Reservoir or Reservoirs in respect of which
the well is an Exploration Well, such Drilling Costs as
would have been incurred if the intersection of that
Reservoir or the deepest of such Reservoirs was the
only purpose for which the well was drilled;
(ii) for a Reservoir or Reservoirs in respect of which
the well is an Appraisal Well intersected below the
deepest Reservoir in respect of which the well is an
<PAGE> 80
Exploration Well, the difference between the Drilling
Costs as ascertained for paragraph 12.18(c)(i) and such
Drilling Costs as would have been incurred if the
intersection of the Reservoir or the deepest of such
Reservoirs in respect of which the well is an Appraisal
Well were the only purpose for which the well was
drilled; for a Reservoir or Reservoirs in respect of
which the well is an Appraisal Well, and such well does
not intersect a Reservoir in respect of which the well
is an Exploration Well, such Drilling Costs as would
have been incurred if the intersection of the Reservoir
or the deepest of such Reservoirs in respect of which
the well is an Appraisal Well were the only purpose for
which the well was drilled; and
(without prejudice to any further entitlements which the Sole
Risk Parties may have pursuant to the remaining provisions of
Clause 12) the Sole Risk Parties may take Petroleum from all such
Reservoirs until their total entitlements in respect of the well
have been satisfied.
12.19 Sole Risk Operation Notice When Rig is on Site
Notwithstanding the other provisions of this Clause 12:
(a) if a drilling rig is on the location of the well when a
Party gives an Sole Risk Operation Notice proposing the
deepening, plugging back, testing, reworking, recompleting,
sidetracking or Completing of a well, the time within which
the Operating Committee shall decide in accordance with
Clause 12.4, 12.5 or 12.6 as the case may be (such decision
being made by facsimile vote of the Parties addressed to the
Operator and each other) and within which each Receiving
Party shall give notice to the Proposing Party pursuant to
Clause 12.7 of its election to participate in the Sole Risk
Operation shall be reduced to twenty-four (24) hours from
receipt of the Sole Risk Operation Notice, or to such longer
time as the Proposing Party may stipulate in the Sole Risk
Operation Notice. Unless the Operating Committee decides
otherwise, if the Sole Risk Parties do not commence the Sole
Risk Operation within five (5) Business Days after service
of the Sole Risk Operation Notice, the Sole Risk Operator
shall abandon the Sole Risk Operation; and
(b) if the Sole Risk Operation proceeds, the Sole Risk
Parties shall pay all costs accruing from the commencement
of such twenty-four (24) hour period. If the Sole Risk
Operation does not then proceed, the Proposing Party shall
pay such extra costs as may be occasioned by delay
(including without limitation, any delay to Joint Operations
during the twenty-four (24) hour period) associated with the
giving of the Sole Risk Operation Notice.
<PAGE> 81
12.20 Deepening or Sidetracking of Sole Risk Well
(a) Any Party may participate in a Sole Risk Operation
which is the deepening or sidetracking of a well to a depth
greater than the depth of that well as at the commencement
of the relevant Sole Risk Operation, which well was
previously the subject of a Sole Risk Operation, whether or
not such Party participated in such prior Sole Risk
Operation.
(b) If Petroleum is not produced from the well as a result
of the deepening or sidetracking operation, then:
(i) the Sole Risk Parties in respect of the drilling
of the well as originally programmed will be
responsible for the costs of abandoning that section of
the well resulting from that drilling; and
(ii) the Sole Risk Parties in the deepening or
sidetracking will be responsible for the costs of
abandoning that section of the well resulting from that
deepening or sidetracking operation.
(c) If Petroleum is produced from the well as a result of
the deepening or sidetracking operation, then the Sole Risk
Parties shall apply the Net Proceeds of Sale of such
Petroleum first in reimbursement to the Parties
participating in the well as originally programmed of their
Drilling Costs of the well to the depth from which the
deepening or sidetracking Sole Risk Operation commenced.
12.21 Priority of Recovery of Premium
If more than one Sole Risk Operation is conducted in a well,
then each group of Parties to a Sole Risk Operation may take
Petroleum from the well and apply the Net Proceeds of Sale in
reduction of costs and premium pursuant to Clauses 12.13 to
12.17, in the order of priority which is the same as the order in
which each Sole Risk Operation commenced.
12.22 Abandonment of Sole Risk Operation - Salvageable
Material
(a) If a well in respect of which a deepening, plugging
back, reworking, recompleting or sidetracking operation has
been conducted as a Sole Risk Operation is abandoned,
without any production being taken from it, then the
proceeds of sale of salvageable equipment supplied at the
cost of the Sole Risk Parties accrue to the Sole Risk
Parties. The proceeds of sale of other salvageable
equipment are for the Joint Account or, if the well in
respect of which the deepening, plugging back, reworking,
<PAGE> 82
recompleting or sidetracking operation was conducted was
itself drilled as a Sole Risk Operation, such proceeds
accrue to the Sole Risk Parties in such Sole Risk Operation.
(b) If the Sole Risk Parties abandon a well which has been
the subject of a Sole Risk Operation before production from
it, if any, has been sufficient to meet all costs and
premiums payable to the Sole Risk Parties, the proceeds of
sale of all salvageable equipment in and about the well, the
initial cost of which was included in the Drilling Costs,
Completion Costs or Equipping Costs of the well, are deemed
to be part of Net Proceeds of Sale of Petroleum produced
from the well, for the purpose of accounting between the
Sole Risk Parties and the Non-Sole Risk Parties.
12.23 Accounts During Sole Risk Operations and Premium
Recovery
(a) The computation of costs and expenses relating to Sole
Risk Operations shall be made in accordance with this
Agreement and the Accounting Procedure. While carrying out
Sole Risk Operations, the Sole Risk Operator shall maintain
separate books, records and accounts for Sole Risk
Operations which shall be subject to the same examination
and audit as are applicable to the books maintained for the
Joint Account.
(b) During the period that production of Petroleum from a
well is being applied in reduction of costs and premiums
payable to Sole Risk Parties in a Sole Risk Operation the
Sole Risk Operator for such well shall supply all Parties
each month with a statement on which shall appear:
(i) the names and Sole Risk Interests of the Sole Risk
Parties;
(ii) the quantity and Proceeds of Sale of Petroleum
produced from such well (and where necessary for the
purposes of Clause 12.18, from each Reservoir in such
well and where applicable other wells drilled into the
same Reservoir) for the preceding month;
(iii) the Net Proceeds of Sale for the preceding
month and the manner of calculation thereof; and
(iv) the sum of costs and premiums remaining
outstanding and the manner of calculation thereof.
(c) The Sole Risk Parties shall promptly furnish to the
Sole Risk Operator each month information necessary for the
Sole Risk Operator to prepare such statement.
<PAGE> 83
12.24 Sole Risk Parties' Relationship
Unless the Sole Risk Parties otherwise agree concerning
their relationship with each other and the relationship of the
Sole Risk Parties and the Sole Risk Operator, then subject to the
specific provisions of this Clause 12 the provisions of this
Agreement shall (to the extent that they may have application)
apply mutatis mutandis both generally and to such relationship
during the conduct of a Sole Risk Operation and until all Sole
Risk Parties' entitlements pursuant to this Clause 12 have been
satisfied. No agreement between the Sole Risk Parties inter se
shall affect any of the rights of any Non-Sole Risk Party under
this Agreement.
12.25 Indemnification of Non-Sole Risk Parties
Each Sole Risk Party to the extent of its Sole Risk Interest
hereby indemnifies and holds harmless the Non-Sole Risk Parties
against all actions, claims, demands and proceedings whatsoever
brought by any third party (including without limitation any
employee of the Sole Risk Party) arising out of or in connection
with the Sole Risk Operation and shall insofar as it may be
within its control keep the Permit free from all liens, charges
and encumbrances which might arise by reason of the conduct of
the Sole Risk Operation. The approval of the Non-Sole Risk
Parties to the conduct of a Sole Risk Operation (whether or not
such approval is required) shall not constitute a waiver of these
provisions.
12.26 Use of Joint Property
(a) The Sole Risk Parties may use Joint Property in
connection with Petroleum produced as a result of a Sole
Risk Operation, to the extent of such of the capacity of
such Joint Property from time to time as is not required for
Joint Operations for the Joint Account.
(b) Any costs and expenses incurred by reason of such use
of Joint Property shall be paid by the Sole Risk Parties.
12.27 Non-Sole Risk Parties may Receive Information
The Sole Risk Operator may provide to the Non-Sole Risk
Parties all such information in respect of the Sole Risk
Operation.
12.28 Net Proceeds of Sale of Petroleum
In this Clause 12 the following expressions shall have the
following meanings:
(a) "Net Proceeds of Sale" of the relevant Petroleum means
the Proceeds of Sale less the sum of:
<PAGE> 84
(i) Government royalty and all other royalties, excise
and other levies calculated specifically in relation to
the relevant Petroleum as may be applied from time to
time; and
(ii) Operating Costs,
payable by the Sole Risk Parties in respect of such
Petroleum.
(b) "Proceeds of Sale" of Petroleum means:
(i) where it is sold at arms length, the monetary
value of the consideration received for the sale of
such Petroleum less Delivery Costs; and
(ii) where it is not sold at arms length, or where it
is sold prior to further processing by the Sole Risk
Party which owns it, a monetary value which such Sole
Risk Party and the Non-Sole Risk Parties agree to be
the actual consideration which would be obtainable for
such Petroleum upon a sale at arms length less an
agreed amount as the equivalent of Delivery Costs
provided that:
(A) if such Parties are unable to agree within
one (1) month of the first occasion upon which
Petroleum is taken by the Sole Risk Party which
does not intend to sell such Petroleum at arms
length, then such Parties shall agree upon a
qualified person who shall determine such monetary
value; and
(B) if such Parties are unable to agree upon a
qualified person within a further month, any such
Party may request the Chairman or the next most
senior Councillor (not being an officer of any
Party) of the Petroleum Association of New Zealand
to nominate a qualified person to determine such
monetary value. In making such determination such
person shall be acting as an expert and not as an
arbitrator and his decision shall be final and
binding on the Parties. The costs of the
determination shall be borne by the Parties in
proportion to their Participating Interests.
(c) "Delivery Costs" means all costs incurred in marketing
the relevant Petroleum and in transporting it from the
Delivery Point to the point of sale.
<PAGE> 85
12.29 Early Re-Entry by Non-Sole Risk Parties
(a) At any time within one hundred and twenty (120)
Business Days following the date upon which a Sole Risk
Operation was completed each Non-Sole Risk Party may, at its
option, elect to discharge its share of the total amount or
amounts to which each Sole Risk Party is entitled under
Clauses 12.13, 12.14, 12.16 or 12.17 by paying in cash to
the Sole Risk Parties within the said period of one hundred
and twenty (120) Business Days an amount equal to fifty
percent (50%) of the total of amounts which the Sole Risk
Parties would otherwise have been entitled to receive under
the relevant Clause.
(b) Upon making such cash payment such Non-Sole Risk Party
shall be restored to its full rights hereunder as if the
Non-Sole Risk Party had participated in such Sole Risk
Operation.
(c) For the purpose of facilitating a payment pursuant to
this Clause the Operator shall, within eighty (80) Business
Days after the completion of each Sole Risk Operation,
advise all Parties of the cost of such Operation.
(d) Within forty (40) Business Days of the date of the cash
payment by a Non-Sole Risk Party there shall be an
accounting and a cash settlement between such Non-Sole Risk
Party and the Sole Risk Parties for the Net Proceeds of Sale
(whether a positive or negative amount) calculated from the
date of completion of the Sole Risk Operation to the date of
the cash payment.
(e) A Non-Sole Risk Party exercising this option shall not
thereby become entitled to share in payments received in
respect of any other Non-Sole Risk Party pursuant to any of
Clauses 12.13, 12.14, 12.16 or 12.17.
12.30 Conclusion of Sole Risk Operation
As soon as sufficient Petroleum has been produced to satisfy
all costs and premiums due to the Sole Risk Parties, the well
with all associated equipment shall thereupon become Joint
Property.
13 DISPOSAL OF PRODUCTION
13.1 Ownership
Subject to the provisions of this Agreement each Party shall
have the right and obligation to receive and take in kind as its
own property at the Delivery Point and to sell or otherwise
dispose of its Participating Interest share of all Petroleum
<PAGE> 86
produced from the Area excepting so much thereof as may be
required by the Operator in connection with the conduct of Joint
Operations or is unavoidably lost.
13.2 Royalties
All royalties, levies, duties and taxes payable to the
Government and all those payable to third parties shall be
delivered or paid whether in cash or in kind, by each Party in
respect of production taken by it and each Party hereby agrees to
indemnify and hold harmless all other Parties against all claims,
liabilities, costs and expenses arising out of its failure to
make such deliveries or payments.
13.3 Production Reports
The Operator shall maintain full and accurate records of
Petroleum production inventories and deliveries to the Parties.
13.4 Delivery
All Petroleum shall be delivered to the Parties by the
Operator at the Delivery Point.
13.5 Risk
The risk attaching to Petroleum delivered to each Party
shall pass to that Party at the Delivery Point.
14 OFFTAKE AGREEMENT
14.1 Crude Oil
If crude oil is to be produced from the Area the Parties
shall in good faith and not less than three (3) months, or such
lesser period as the Parties may agree, prior to the scheduled
date of first delivery of crude oil, negotiate and conclude the
terms of an agreement to cover the offtake of crude oil produced
from the Area. Such offtake agreement shall include, without
limitation, provision for:
(a) the Operator to provide regular periodic advice to the
Parties of estimates of total available production broken
down by succeeding periods, and grades of crude oil, for as
far ahead as is necessary for the Operator and the Parties
to plan offtake arrangements. Such advice shall also cover
for each grade of crude oil, total available production and
deliveries for the preceding period, inventory, overlifts
and underlifts and each Party's Participating Interest share
of available production after adjustment for overlifts and
underlifts ("Entitlement");
<PAGE> 87
(b) elimination of overlifts and underlifts;
(c) the rights of the Parties if a Party fails in any
relevant period to take the whole or part of its Entitlement
for that period;
(d) delivery to the Parties of Entitlements to ensure, to
the extent Parties take delivery of their Entitlements
rateably to their accrual, that each Party shall receive
current Entitlements in like grade, gravity and quality to
that received by each other Party and, to the extent that
delivery on such basis is impracticable because of
availability of facilities and minimum cargo sizes, a method
of making periodic adjustments.
14.2 Natural Gas
The Parties recognise that, in the event of any discovery of
Natural Gas, it may or will be or become desirable for them to
enter into special arrangements for the disposal of the same and
they agree that, in such event and upon the request of any of
them, their respective representatives shall meet together as
necessary to consider their entry into such arrangements and
that, if and to the extent that any such arrangements are agreed,
they will adopt and undertake the same.
15 DEFAULTS
15.1 Notice of Default
(a) If any Party fails to make any payment as required by
this Agreement by the due date for payment, the Operator
shall upon becoming aware of such failure give notice of
such failure to such Party giving particulars of the alleged
failure and of the amount thereof ("Unpaid Amount").
(b) If at the expiration of ten (10) Business Days after
receipt of such notice such Party or any of their respective
Participating Interests or other person (not being a Party)
on its behalf has not paid in full the amount due by it and
all amounts subsequently due to the Operator pursuant to
this Agreement by such Party, such Party ("Defaulting
Party") shall be in default pursuant to this Agreement. The
Operator shall promptly give notice of all such defaults to
all Parties.
(c) Each such notice ("Default Notice") shall set out
particulars of the Unpaid Amount. For the purpose of this
Clause 15 all Parties other than any Defaulting Party are
referred to as the "Non-Defaulting Parties".
<PAGE> 88
15.2 Defaulting Party Liable for Interest
(a) Any amount payable by a Defaulting Party which remains
unpaid shall bear interest and the Defaulting Party shall
pay interest at the Default Interest Rate (which is
applicable on the due date for payment of such amount) from
the due date of payment of such amount until the actual date
of payment.
(b) Such interest shall accrue to the Non-Defaulting
Parties in proportion to their respective Participating
Interests or if one or more of the Non-Defaulting Parties
become Paying Parties within the meaning of Clause 15.6,
then thereafter to the Paying Parties as is provided in
Clause 15.6.
15.3 Payment by Operator
In the event that the payment which a Party that is or
becomes a Defaulting Party has failed to make is a payment due
under this Agreement to a person who is not a Party, the Operator
may and shall if so directed by the Operating Committee, by a
vote of Non-Defaulting Parties whose Participating Interests
aggregate a simple majority of the total Participating Interests
of the Non-Defaulting Parties, pay the same to such person. Any
amount so paid shall constitute a debt immediately due and
payable by such Party to the Operator.
15.4 Defaulting Party may be Sued
Without prejudice to any other remedy for or consequence of
default provided for in this Agreement, the Operator shall if so
directed by the Operating Committee by a vote of Non-Defaulting
Parties whose Participating Interests aggregate a simple majority
of the total Participating Interests of the Non-Defaulting
Parties sue in any Court of competent jurisdiction a Defaulting
Party (which term shall without limitation include any Party
removed from the position of Operator for failing to pay or
contribute or advance its proportionate share of Authorised
Expenditure) for the recovery of any moneys due and payable to
the Operator or the Paying Parties (as defined in Clause 15.6) or
any of them by that Defaulting Party which remain unpaid by the
Defaulting Party at the expiration of ten (10) Business Days
after the receipt of the Default Notice by the Defaulting Party.
15.5 Non-Defaulting Parties to Contribute
If at any time after the end of the ten (10) Business Days
period referred to in Clause 15.4 the Operator shall not then
have received in full from the Defaulting Party or any other
person (not being a Party) on its behalf the then aggregate of
the Unpaid Amount of such Defaulting Party plus interest thereon
<PAGE> 89
at the Default Interest Rate the Operator may and shall if so
directed by the Operating Committee by a vote taken in accordance
with Clause 15.4, require by notice in writing each of the Non-
Defaulting Parties to pay to the Operator the amount of its
proportion of such Unpaid Amounts on a date ("Payment Date") not
less than five (5) Business Days after receipt of such notice.
Such proportion shall be that proportion which the relevant Non-
Defaulting Party's Participating Interest bears to the aggregate
of the Participating Interests of all the Non-Defaulting Parties.
A Party which does not pay each amount due by it under this
Clause 15.5 within ten (10) Business Days of receipt of a
request for payment of such moneys shall be regarded as a
Defaulting Party and all the provisions of this Clause 15 shall
apply to such Party in respect of any amount not so paid.
15.6 Rights of Paying Parties
A Non-Defaulting Party (including without limitation the
Operator in its capacity as a Party) which pays to the Operator
or bears any amount payable by it under Clause 15.5 is herein
called a "Paying Party" and is deemed to have advanced such
amount to the Defaulting Party on the terms that it is
immediately repayable and may sue the Defaulting Party to recover
the same but without prejudice to any other rights and remedies.
The amount owing by a Defaulting Party to a Paying Party
shall bear interest at the Default Interest Rate from the date
the Paying Party made the payment under Clause 15.5 to the date
it has recovered such amount in full.
15.7 Defaulting Party's Petroleum
For so long as any Unpaid Amount is not paid in full the
Defaulting Party forfeits its rights to take any Petroleum
produced from the Area and the Operator shall be entitled to take
and receive all of the Defaulting Party's share of Petroleum
produced from the Area and to sell and dispose of the same until
such time as the net proceeds of sale of such Petroleum exceeds
the Unpaid Amount plus interest on the Unpaid Amount at the
Default Interest Rate. Such net proceeds of sale shall be
distributed to the Paying Parties in proportion to the amounts
paid by them pursuant to Clause 15.5 until all amounts owing by
the Defaulting Party to the Paying Parties plus interest thereon
at the Default Interest Rate has been paid in full and any
remaining surplus of such net proceeds of sale will be
distributed to the Defaulting Party. The receipt of any amounts
by the Non-Defaulting Parties under this Clause 15.7 shall be
without prejudice to any other rights or remedies of such Non-
Defaulting Parties.
<PAGE> 90
15.8 Suspension of Rights of Defaulting Party
A Defaulting Party shall not be entitled either to attend or
to vote at any meeting of the Operating Committee or the Parties
or to have access to Joint Operations or to records of Joint
Operations or information pursuant to Clauses 5.6 and 10 or to
receive information or be consulted with respect to Joint
Operations unless and until all amounts then due and payable by
that Defaulting Party in accordance with the terms of this
Agreement shall have been received in full or the default is
otherwise rectified or is waived by each Non-Defaulting Party.
Except that the Defaulting Party should have access to
information as reasonably necessary to remedy the default or to
dispute the call made.
15.9 Default of Operator in Payment
In the event that the Operator fails to make any payment as
required by this Agreement in its capacity as a Party thereto,
then unless and until a replacement Operator is appointed the
rights and responsibilities prescribed for the Operator under
this Clause 15 shall be exercised for and on behalf of the Non-
Defaulting Parties by the Party other than the Operator having
the greatest Participating Interest and such Party shall be
deemed to be the Operator for the purpose of exercising the
rights and duties of the Operator under this Clause 15.
15.10 Application of Defaulting Party's Funds
Upon default by any Party in the payment of any moneys
payable under this Agreement and without limiting Clause 15.7,
the Operator shall (notwithstanding anything contained herein to
the contrary, and without prejudice to other rights and
remedies), retain any moneys which may be held for such
Defaulting Party or which come to the hands of the Operator on
behalf of such Defaulting Party, and apply such moneys until the
amount owed by such Defaulting Party in accordance with this
Agreement has been paid in full.
15.11 Valuation of Defaulting Party's Interest
(a) If at the end of twenty (20) Business Days from the
date of receipt by a Defaulting Party of a Default Notice
the relevant Unpaid Amount and interest thereon have not
been paid in full, then unless:
(i) the Defaulting Party has reached agreement with
the Operator on behalf of all the Non-Defaulting
Parties as to the value of its Participating Interest;
or
(ii) all Non-Defaulting Parties have agreed that a
valuation should not be obtained,
<PAGE> 91
the Operator shall request the Chairman or the next most
senior Councillor (not being an officer of any Party) of the
Petroleum Association of New Zealand to nominate a person to
determine the value of the Participating Interest of the
Defaulting Party.
(b) The person so nominated shall value the Defaulting
Party's Participating Interest on the basis that the Joint
Venture is a going concern and the price payable is that
which would be payable by a willing but not anxious buyer to
a willing but not anxious seller dealing at arms' length.
In making such determination such person shall be acting as
an expert and not as an arbitrator and his decision shall be
final and binding on all Parties.
(c) The costs of obtaining such valuation shall in the
first instance be paid out of the Joint Account but shall be
charged to and recoverable from the Defaulting Party as
though it were part of the Unpaid Amount.
(d) Upon receipt of the valuation of the Participating
Interest of the Defaulting Party the Operator shall promptly
forward a copy of the same to each Party including the
Defaulting Party.
(e) The value of the Participating Interest of the
Defaulting Party as agreed pursuant to Clause 15.11(a) or as
determined pursuant to Clause 15.11(b) shall be and be
deemed to be the value of such interest for the purposes of
Clause 15.12.
15.12 Option to Purchase Defaulting Party's Interest
If at the end of forty (40) Business Days from the date of
receipt by a Defaulting Party of a Default Notice the relevant
Unpaid Amount and interest thereon have not been paid in full
("Option Commencement Date"), then each of the Non-Defaulting
Parties shall have an option and such Defaulting Party hereby
grants to each of the Non-Defaulting Parties the option
("Option") to purchase its Participating Interest (and if more
than one Non-Defaulting Party exercises such option, in the
proportions which the respective Participating Interests of such
Non-Defaulting Parties bear to the total of their Participating
Interests, or in such other proportions as such Non-Defaulting
Parties shall agree upon) and upon the following terms and
conditions:
(a) A Non-Defaulting Party may exercise or join in the
exercise of the Option at any time on or after the Option
Commencement Date provided that the Option shall cease to be
exercisable at the expiration of twenty (20) Business Days
after the earliest exercise of the Option by a Non-
Defaulting Party or in the event that on such earliest date
<PAGE> 92
of exercise the valuation of the Defaulting Party's
Participating Interest pursuant to Clause 15.11(b) has not
been received then at the expiration of twenty (20) Business
Days after the receipt of such valuation by all the Non-Defaulting Parties.
(b) A Non-Defaulting Party exercising the Option shall do
so by giving a notice in writing to the Defaulting Party and
at the same time giving a copy of such notice to all other
Parties.
(c) In the event of the exercise of this Option, the Option
Exercise Date shall be the earlier of the date upon which
all Non-Defaulting Parties have notified such exercise or
twenty (20) Business Days after notification by the first
Non-Defaulting Party to exercise such Option. (The Non-
Defaulting Party or Parties exercising the Option are
hereinafter referred to as the "Purchaser" or "Purchasers").
(d) The purchase price payable by the Purchasers for the
Defaulting Party's Participating Interest shall be a sum
equal to ninety percent (90%) of the value of such
Participating Interest as determined pursuant to Clause
15.11. Such purchase price shall be payable to the
Defaulting Party by each Purchaser in proportion to the
percentage of such Participating Interest it has acquired.
Each Party hereby agrees that the difference between the
full value of the Participating Interest of the Defaulting
Party and the selling price under this Clause constitutes a
pre-estimate of the liquidated damages which will be
sustained by the Non-Defaulting Parties by reason of breach
of this Agreement by the Defaulting Party.
(e) The completion of the purchase shall be effected at
whichever is the latest date of thirty (30) Business Days
after the Option Exercise Date or ten (10) Business Days
after the receipt of all necessary approvals to the purchase
or ten (10) Business Days after the receipt by the
Purchasers of the valuation of the Participating Interest of
the Defaulting Party pursuant to Clause 15.11(b).
(f) Upon such completion the Purchasers shall be at liberty
to deduct from the purchase price the following amounts and
to apply the amount deducted in paying or reimbursing such
amounts:
(i) the amount required to discharge or satisfy
liabilities secured by any charge or encumbrance over
the Participating Interest of the Defaulting Party;
(ii) the amount required to discharge the several
liabilities of the Defaulting Party at the date of
completion under this Agreement including all Unpaid
Amounts; and
<PAGE> 93
(iii) the amount of any stamp duty payable on any
transfer or other instrument arising from the exercise
of the option.
(g) Upon and in exchange for the payment to it of the
balance (if any) of the purchase price pursuant to the
preceding Clause 15.12(f) or, if such be the case, upon the
determination that there is no such balance payable, the
Defaulting Party shall forthwith do all such acts and things
and execute and deliver to the Purchasers all such
transfers, deeds and other documents as are necessary to
give effect to and complete the sale pursuant to this Clause
15.12.
(h) If the Defaulting Party fails to act in any manner
provided for in Clause 15.12(g) within twenty (20) Business
Days of a request so to do made by the Operator or other
Party nominated by the purchaser, then the Operator or other
Party nominated by the purchaser shall be and be deemed to
be the agent and attorney of the Defaulting Party for all
purposes necessary to give effect to the sale pursuant to
this Clause 15.12.
(i) Any sale pursuant to this Clause 15.12 shall be subject
to all Governmental consents and approvals required by law.
If any such consent or approval is refused any contract
constituted by an exercise of the Option hereunder shall
cease to have further force or effect.
(j) The remedying of the default in whole or in part after
the date of the exercise of the Option by the first Non-
Defaulting Party to exercise the same shall not derogate
from the rights of any of the Non-Defaulting Parties in
respect of this Option which rights shall remain in full
force and effect.
16 WITHDRAWAL AND SURRENDER
16.1 Any Party May Withdraw
Any of the Parties hereto may withdraw from the Joint
Venture constituted hereby, by giving notice in accordance with
the terms of this Agreement, but providing that no Party may
withdraw if it is participating in an approved programme and
budget or a Work Obligation which has commenced unless one or
more of the Non Withdrawing Parties agrees to accept a transfer
of the whole of the Withdrawing Party's Participating Interest.
16.2 Notice of Withdrawal
(a) Subject to Clauses 8.3 and 16.3 any Party desiring to
withdraw ("Withdrawing Party") shall give to the other
Parties notice of its withdrawal ("Notice of Withdrawal")
<PAGE> 94
not less than sixty (60) days prior to the end of a Work
Obligation stage.
(b) Such Notice of Withdrawal shall take effect on the last
day of the Work Obligation stage in which the Notice of
Withdrawal is given ("Effective Date of Withdrawal")
provided that the Withdrawing Party has complied with all of
its obligations in respect of the program and budget for
that Work Obligation stage and the then current Work
Obligation.
(c) Such Notice shall constitute an offer of assignment for
a consideration of $1.00 to the other Parties of the whole
of the Withdrawing Party's Participating Interest. The
Notice of Withdrawal shall not be revocable except with the
unanimous consent of all other Parties.
16.3 Other Parties may Join in Withdrawal
Each of the other Parties may within twenty (20) Business
Days of receipt of a notice given pursuant to Clause 16.2 give
notice to the other Parties that it elects to join in such
withdrawal to take effect on the Effective Date of Withdrawal
whereupon it will become a Withdrawing Party for the purposes of
this Clause 16. Such notice shall constitute an offer of
assignment for a consideration of $1.00 to the other Parties of
the whole of the Withdrawing Party's Participating Interest. The
election of a Party to join in withdrawal shall not be revocable
except with the unanimous consent of all non-withdrawing Parties.
16.4 Other Parties may Accept Assignment
The other Parties shall have forty (40) Business Days from
the latest date of receipt of notice given pursuant to Clauses
16.2 or 16.3 to notify the Withdrawing Party whether they accept
the offer and elect to receive an assignment of the Withdrawing
Party's Participating Interest in the proportions that their
respective Participating Interests bear to the aggregate of their
Participating Interests. If some only of such Parties accept
such offer or if the acceptance of any accepting Party is limited
in percentage, then the interest of the Withdrawing Party or the
portion of such interest remaining after the allocation of any
limited percentages accepted shall be distributed amongst the
other accepting Parties wishing to receive the same in the
proportions that their respective Participating Interests bear to
the aggregate of the Participating Interests of such Parties or
in such other proportions as such Parties agree among themselves.
<PAGE> 95
16.5 Prompt Execution of Documents
If some or all of the other Parties give notice pursuant to
Clause 16.4 of acceptance and election to receive such assignment
all Parties concerned shall promptly execute and deliver all
documents and do and perform all acts and things necessary and
appropriate to validly effect such assignment.
16.6 Withdrawing Party's Obligations
(a) In the event of an assignment under this Clause 16 the
Withdrawing Party shall remain liable to meet its
proportionate share of:
(i) all Authorised Expenditure and liabilities
incurred or accrued by the Operator on or before the
Effective Date of Withdrawal; and
(ii) all other liabilities of the Parties for anything
done or omitted to be done in the course of Joint
Operations on or before the Effective Date of
Withdrawal.
The Withdrawing Party shall remain responsible for such
obligations (including without limitation, payments of
amounts to the Operator) although the extent of such
obligations may not be ascertainable until after the
Effective Date of Withdrawal provided that the Withdrawing
Party shall not be liable for any obligation accruing after
the date of Notice of Withdrawal given pursuant to Clause
16.2 or the date of a notice given pursuant to Clause 16.3
in consequence of a decision by the Operating Committee
after such date either to renew the Permit or any other
title of the Joint Venture or to adopt a program and budget
to the extent that it exceeds a minimum program and budget
pursuant to Clause 8.3 or to increase any such program and
budget.
(b) Notwithstanding the provisions of Clause 16.6(a), in
the event that within one (1) year after the Effective Date
of Withdrawal of a Withdrawing Party the remaining members
of the Joint Venture resolve to abandon or determine the
Joint Venture, the Withdrawing Party shall remain liable for
and shall pay its proportionate share of the Net Abandonment
Costs incurred consequent upon that resolution determined on
the basis that such Withdrawing Party had not withdrawn from
the Joint Venture until the end of such year.
(c) For the purposes of Clause 16.6(b), "Net Abandonment
Costs" shall mean the rehabilitation costs, well abandonment
costs and any other costs of the abandonment of the Joint
Venture net of the salvage value of all Joint Property.
<PAGE> 96
16.7 Costs of Assignment
All costs incurred by a Party in connection with any
assignment under this Clause 16 including stamp duty,
registration fees and legal fees shall be paid by the Withdrawing
Party.
16.8 Assignment to all Parties
In the event that by the expiration of forty (40) Business
Days from the latest date of receipt of the notice from a
Withdrawing Party pursuant to Clauses 16.2 or 16.3 the interest
of the Withdrawing Party or any portion of such interest remains
unallocated or undistributed to other Parties pursuant to Clause
16.4 then the Withdrawing Party shall assign its interest or the
portion thereof remaining unallocated or undistributed to all of
the other Parties not being Withdrawing Parties in the
proportions agreed between them or in the absence of agreement in
the proportions that their respective Participating Interests
bear to the aggregate of their Participating Interests. In the
event that there are then no Parties willing to accept an
assignment of an unallocated or undistributed interest, all
Parties shall be deemed to have abandoned the Joint Venture
constituted hereby and shall forthwith co-operate with each other
to bring the Joint Venture to an end and effect a final
settlement between them.
16.9 Selection of Area Required to be Surrendered
(a) If at any time relinquishment or surrender of any
portion of the area subject to the Permit is required by
operation of law or the terms and provisions of the Permit,
the Operator shall give timely written notice to the
Operating Committee, setting forth in detail the reasons for
such relinquishment or surrender and a description of the
areas which the Operator suggests be relinquished or
surrendered in compliance with such requirement.
(b) The Operating Committee shall consider all matters
relevant to the question of such relinquishment or
surrender, and shall, within one (1) month (or such shorter
period of time as may be required by the Permit or by law),
determine and notify the Operator of the decision to be
carried out provided that any determination of the areas
which are to be relinquished or surrendered must be in
accordance with the decision of the Parties whose
Participating Interests are in aggregate not less than
ninety percent (90%). Failure of any Party to notify the
Operator of its decision within such period of time shall be
deemed to be a decision and notification by such Joint
Venturer in accordance with the Operator's suggestion. If
the Parties holding in aggregate Participating Interests not
<PAGE> 97
less than ninety percent (90%) cannot agree on the areas to
be relinquished or surrendered then the matter shall be
determined by the Operator.
16.10 Voluntary Surrender of Area
Any Party may at any time propose to the other Parties that
one or more portions of the Area be surrendered, which proposal
shall, subject to the granting of any necessary Government
consents, be given effect to if approved by all Parties.
17 ASSIGNMENTS AND MORTGAGES
17.1 Restriction
Except as permitted in this Article 17 or with the prior
written consent of all the other Parties, a Party shall not
directly nor indirectly, without the prior written consent of
each other Party, sell, assign, transfer, mortgage, pledge,
charge, encumber, lease, sublease, license or otherwise dispose
of (but expressly excluding including by way of change in the
ownership, management, trusteeship or control of any corporation
or trust estate holding a Percentage Interest but expressly
excluding or by way of sale of all of the shares in the capital
of a Party or any bona fide merger or amalgamation of the whole
of a Party's assets and undertaking with that of another person,
which may occur without such prior written consent of all the
other Parties) or create or suffer to exist a royalty (except a
governmental royalty) or other interest, lien, charge or other
encumbrance over, or trust in respect of, the whole or any part
of its right, title, interest, obligations or liabilities
(including, without limitation, any Percentage Interest) in,
under and pursuant to this Agreement whether by conditional or
unconditional act, deed, agreement, arrangement, understanding,
conduct, or by merger, consolidation or reconstruction or
operation of law or otherwise (hereinafter in this Article 17
called an "assignment", and the words "assign", "assignor" and
"assignee" and their derivatives shall have a corresponding
meaning).
No assignment shall be made by a Party if as a result
thereof the Percentage Interest of the assignor or assignee would
be less than 5%.
No assignment shall be made by a Party if as a result the
assignor or its Related Company affiliate or the assignee or its
Related Company affiliate would retain or acquire a Percentage
Interest in part but not all of the area of any Permit Licence.
<PAGE> 98
17.2 Assignment to Related Company - Affiliate Right
Subject to Sections 17.1 and 17.2, each Party may, subject
to any necessary approval of and registration by the Minister
Authority and any other government consent and to the provisions
of this Article 17, at any time upon prior written notice to each
other Party, assign the whole or any part of its Percentage
Interest to a Related Company.
If, within a period of 1 year after the effective date of
any assignment pursuant to Section 17.3.1, the Related Company
Affiliate of the assignor to which the assignment was made ceases
to be a Related Company an Affiliate of the assignor, then the
provisions of Section 17.4 shall apply, mutatis mutandis, and the
Related Company Affiliate shall forthwith give such notice
pursuant to Section 17.4.1 specifying the then current fair and
reasonable arm's length terms and conditions and each Party
(other than the assignor) shall have the right to require the
assignment to it (upon such then current fair and reasonable
arm's length terms and conditions) of a share of the Percentage
Interest previously assigned to such Related Company Affiliate
pursuant to Section 17.3.1, such share being in the proportion
which its Percentage Interest bears to the aggregate Percentage
Interests of all Parties so entitled, or as otherwise agreed by
such Parties. If a Party, within 28 days of receipt of notice
pursuant to this Section 17.3.2, as herein required gives notice
to each other Party that it considers the said terms and
conditions to be other than the then current fair and reasonable
arm's length terms and conditions, then the matter shall promptly
be referred to a person appointed in accordance with clause 15.
11(a) an Independent Expert, who shall determine for all Parties
what will be the said then current fair and reasonable arm's
length terms and conditions, acting as an independent expert and
not as an arbitrator.
17.3 Assignment to Non Related Company Non-Affiliate Right
Subject to Sections 17.1 and 17.2, each Party may, subject
to any necessary approval of and registration by the Minister and
any other government consent, and to the provisions of this
Article 17, at any time assign the whole or any part of its
Percentage Interest to any other Party or person to which it is
not a Related Company and which, in either case, has demonstrated
to each other Party both that it has, or has access to, adequate
financial capability to meet its prospective obligations and
liabilities under this Agreement and that it has adequate
petroleum industry experience. If a Party wishes to make such an
assignment, it shall first give notice to each other Party and
Operator specifying the name, address and qualifications of the
proposed assignee and the terms and conditions of the proposed
assignment.
<PAGE> 99
Thereafter, any of the other Parties may within sixty (60)
days after receipt of such notice, request by notice to all other
Parties the assignment of such whole or part Percentage Interest
to it in which event the assignment shall be made to it on the
same or commercially equivalent terms as the said proposed
assignment or, if more than one Party so requests by notice, to
them in the proportion (unless otherwise agreed between
themselves) which their respective Percentage Interest bear to
each other; provided that if the proposed assignment is to
another Party and one or more of the other Parties gives notice
then the firstnamed Party shall be deemed to have likewise given
notice hereunder; and
if none of the other Parties so requests the assignment of
such whole or part Percentage Interest, the relevant Party may
assign it to the proposed assignee on the proposed terms and
conditions; provided that the instrument evidencing the
assignment shall be executed by the parties thereto and submitted
for the approval of, and registration by, the Minister Authority
within one hundred and twenty (120) days of the expiry of the
sixty (60) day period referred to in the preceding sub-paragraph
17.4.1.1.
17.2 Assumption by Assignee
Any assignment by a Party of the whole or any part of its
Participating Interest or of such Participating Interest or part
by any person exercising power of sale pursuant to any mortgage
or charge otherwise permitted pursuant to this Agreement, shall
be made expressly subject to the terms and provisions of this
Agreement and shall be made expressly conditional upon:
the obtaining of all necessary consents and approvals to the
assignment; and
the execution and delivery by the assignee to the Operator
as agent for the Parties of a deed of assumption and
covenant in such form as the non-assigning Parties shall
approve (which approval shall not be unreasonably withheld)
whereby the assignee assumes the obligations and is
conferred with the rights of a Party under the documents
relating to the Joint Venture Documents to the extent of the
Participating Interest assigned.
17.3 Consequences of Assignment
(a) Subject to Clause 17.4 with effect on and from a date
agreed by the assigning Party and the assignee to be the
effective date of the assignment of a Participating Interest
or part thereof ("Effective Date of Assignment"), the
assignee shall, to the extent of the assignment, become a
Party in the place of the Party whose Participating Interest
<PAGE> 100
or part thereof has been assigned provided that the
assigning Party shall indemnify and keep indemnified the
other Parties against all liabilities accruing in respect of
the Participating Interest of the assigning Party up to the
Effective Date of Assignment.
(b) The assigning Party shall, in addition, remain liable to
and shall indemnify and keep indemnified the other Parties
against all liabilities accruing in respect of the
Participating Interest of the assignee on and after the
Effective Date of Assignment, unless and until the Parties
shall have resolved or shall resolve by unanimous vote, -
are you sure? that the assignee or proposed assignee is a
respectable and financially responsible person for the
purposes of the Joint Venture. Upon the later of such
unanimous resolution and the Effective Date of Assignment,
the assigning Party shall (as between the assigning Party
and the other Parties) be relieved and discharged from all
such liabilities of the assignee accruing thereafter and any
obligation to indemnify the other Parties in respect
thereof.
(c) The onus of proving to the satisfaction of the Parties
that the assignee or proposed assignee is a respectable and
financially responsible person for the purposes of the Joint
Venture shall rest upon the assigning Party. Upon proof that
a proposed assignee is such a respectable and financially
responsible person, no Party shall unreasonably withhold its
vote to a resolution on that matter.
(d) Each Party shall, when required by any such assignee,
perform, execute, acknowledge and deliver all such further
acts, deeds and assurances as may be reasonably required of
it to perfect the assignment of a Participating Interest or
part thereof to, or the assumption of rights or obligations
thereunder by, such assignee.
17.6 Charge of Participating Interest
Without prejudice to its right to charge any of its
property or assets other than its Participating Interest any
Party ("Chargor") may, without the consent of the other Parties
(but subject to all other necessary consents and approvals),
charge in favour of any person ("Chargee") the whole of its
Participating Interest provided that such charge shall be made
subject to the Joint Venture Documents.
<PAGE> 101
18 CONFIDENTIALITY
18.1 Information Confidential
This Agreement and all of its provisions, and all records,
reports and other data information and studies made in the course
of or resulting from Joint Operations except any of the same
which is at the relevant time, in the public domain
(collectively, "Information") shall be and remain confidential
between the Parties and shall not be disclosed to any third party
without the prior consent of all of them (which consent, provided
that an undertaking as to confidentiality by the third party in a
form reasonably satisfactory to the Parties is first obtained,
shall not be unreasonably withheld and shall be deemed to have
been given if Parties whose Participating Interests aggregate in
excess of seventy-five percent (75%) have consented) provided
always that any of the Parties shall be at liberty without such
consent to disclose or make a public statement or announcement
regarding the Information:
(a) to the extent that such Party (or in the case of
statements or announcements to be made by the Operator, any
Party) is legally required so to do, to any governmental
agency or instrumentality or by an official stock exchange
on which the shares of such Party or a Related Company are
quoted, in which case all reasonable efforts shall be made
to communicate the statement or announcement to the other
Parties prior to the disclosure announcement or publication;
(b) to any chargee, bank or other financial institution in
connection with the organisation of the Parties' financial
affairs or a bona fide prospective purchaser of part or all
of a Party's Participating Interest (including without
limitation, a corporation with whom a Party is conducting
bona fide negotiations directed toward a merger or
consolidation) provided that the chargee, bank, financial
institution or prospective purchaser agrees previously in
writing to keep the same confidential;
(c) to any of such Party's employees, directors,
consultants, legal counsel, auditors and other persons for
the purposes of all matters pertaining to such person's
duties provided that each of the persons to whom disclosure
is made then owes to the Party a duty to keep the same
confidential (the observance of which duty, the Party hereby
undertakes to the other Parties to use its best efforts, to
enforce).
18.2 Related Companies
The Information may be disclosed to Related Companies
without the prior consent of the other Parties provided that:
<PAGE> 102
(a) each recipient shall prior to the disclosure of the
Information have executed and deposited with the Operator an
undertaking as to confidentiality in favour of all Parties;
(b) breach by a recipient in terms of this Clause 18.2
shall be deemed to be a breach by the Party of its
obligations in terms of Clause 18.1; and
(c) the provisions of Clauses 18.1 and 18.5 apply, mutatis
mutandis, to each recipient as if it was a Party.
18.3 Compliance with Stock Exchange Requirements
To ensure compliance by any Party or Related Company of a
Party, the securities of which are listed on a stock exchange or
quoted on a quotation system ("listed company"), with the
listing requirements of that stock exchange or other applicable
securities disclosure laws the Operator shall disclose
immediately to all Parties any significant discovery of
hydrocarbons or mineralisation within the Permit. Any such
listed company shall have the right to make all or part of such
information available to such stock exchange or other public
disclosure system. A Party shall provide to each other Party,
for approval, a copy of each announcement, report or advice, if
reasonably practicable, prior to providing it to such stock
exchange, containing or referring to such information, made by it
or a Related Company.
18.4 Obligations to Continue
The obligations enumerated in Clauses 18.1 and 18.2 shall be
continuing obligations and shall be complied with notwithstanding
that a Party has ceased to be a party to this Agreement, a
corporation has ceased to be a Related Company or this Agreement
has been terminated.
18.5 Termination
The obligations described in this Clause 18 shall continue
to apply for a period of five (5) years after the date of
termination of this Agreement.
19 FORCE MAJEURE
19.1 Obligations Suspended by Event of Force Majeure
If any Party is rendered unable wholly or in part by Force
Majeure to carry out its obligations under this Agreement (other
than any obligation to make money payments) that Party shall give
to all other Parties prompt written notice of the Force Majeure
with reasonably full particulars concerning it. The obligations
of the Party giving the notice so far as they are affected by the
Force Majeure shall be suspended during but not longer than the
<PAGE> 103
continuance of the effects of the Force Majeure. The affected
Party shall use all reasonable efforts to overcome the effects of
the Force Majeure as quickly as possible.
19.2 Certain Actions not Required
The provisions of Clause 19.1 shall not require the
settlement of strikes, boycotts, lockouts or other labour
difficulty by the Party involved contrary to its wishes and such
matters shall be handled entirely within the discretion of the
Party concerned.
19.3 Meaning of Force Majeure
In this Clause 19 the term "Force Majeure" means any event
or circumstance beyond the reasonable control of a Party which
renders that Party unable in whole or in part to carry out its
obligations under this Agreement including without limitation,
strike, lockout, fire, flood, tornado, hurricane, lightning,
explosion, collision, radiation, act of God or the public enemy,
war, blockade, governmental regulation, order or decree,
uncontrollable delay in transportation, inability to obtain
adequate labour, contractors or necessary materials or equipment
in the open market, inadequate facilities for the transportation
of necessary materials or equipment, or any other cause, whether
similar or dissimilar to the causes herein specifically
enumerated, beyond the reasonable control of such Party and which
such Party is unable to overcome by the exercise of reasonable
diligence and at a reasonable cost, provided however, the lack of
finances or inability to borrow the same shall in no event be
deemed a cause beyond the reasonable control of a Party.
20 LAWS AND REGULATIONS
20.1 Subject to Applicable Laws
This Agreement and the respective rights and obligations of
the Parties hereto shall be subject to all valid and applicable
laws, rules, ordinances, regulations and orders of New Zealand,
and in the event that this Agreement or any provision thereof is
or the Joint Operations contemplated hereunder are found to be
inconsistent with or contrary to any such law, rule, ordinance,
regulation or order the latter shall be deemed to control the
former and this Agreement shall be regarded as modified
accordingly and as so modified shall continue in full force and
effect.
20.2 Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of New Zealand.
<PAGE> 104
20.3 Submission to Jurisdiction
Each of the Parties hereby submits unconditionally and
exclusively to the jurisdictions of the Courts in New Zealand
holding jurisdiction in relation to matters relating to this
Agreement.
21 NOTICES
21.1 Notice in Writing
A notice, demand, waiver, approval, consent, communication
or other document in connection with this document ("Notice"):
(a) may be given by an Authorised Officer of the relevant
party; and
(b) must be in writing; and
(c) must be left at the address of the addressee, or sent
by prepaid ordinary post (airmail if outside New Zealand) to
the address of the addressee or by facsimile to the
facsimile number of the addressee which is specified below
or if the addressee notifies in writing another address or
facsimile number then to that address or facsimile number.
21.2 Effective Date
Unless a later time is specified in it a Notice takes effect
from the time it is actually received or taken to be received.
21.3 Time of Receipt
A Notice sent by post or facsimile is taken to be received:
(a) in the case of a letter, on the 5th (10th, if outside
New Zealand) day after posting; and
(b) in the case of a facsimile, on production of a
transmission report by the machine from which the facsimile
was sent which indicates that the facsimile was sent in its
entirety to the facsimile number of the recipient notified
for the purpose of this clause if produced before 5 pm on a
business day otherwise on the next business day.
21.4 Address for Service
The address for service of a Notice shall be as follows:
INDO-PACIFIC ENERGY (NZ) LTD
of Indo-Pacific House, 284 Karori Rd, Karori, Wellington,
New Zealand. ("Indo")
<PAGE> 105
TRANS-ORIENT PETROLEUM (NZ) LIMITED
of Indo-Pacific House, 284 Karori Rd, Karori, Wellington,
New Zealand. ("Trans")
21.5 Authorised Officer
For the purposes of Clause 21.1, an Authorised Officer of a
party includes a director, secretary or other governing officer
of the party.
22 GENERAL
22.1 Remedies not Exclusive
Each and every power and remedy herein specifically given to
a Party affected by the default of another Party shall be in
addition to every other power and remedy now or hereafter
existing at law or in equity, and each and every power and remedy
may be exercised from time to time and simultaneously and as
often and in such order as may be deemed expedient. All such
powers and remedies shall be cumulative and the exercise of one
shall not be deemed a waiver of the right to exercise any other
or others.
22.2 Mutual Indemnity
Subject to the provisions of this Agreement each Party
("Indemnifying Party") will indemnify and keep indemnified each
of the other Parties from every claim, demand, action or
liability or loss resulting from each and every breach or default
by the Indemnifying Party of any of its obligations under any of
the documents relating to the Joint Venture.
22.3 Limited Invalidity
If any Clause or part thereof of this Agreement shall be, or
shall be deemed to be, invalid for any reason whatsoever such
invalidity shall not affect the validity or operation of the
remainder of that Clause or any other Clause of this Agreement
except only so far as may be necessary to give effect to such
invalidity.
22.4 Waiver
No waiver by any Party of a right or a default hereunder or
any delay or omission in the exercise of any right, remedy or
power, shall constitute a waiver by such Party of any subsequent
right, power, remedy or default whether of a like nature or
otherwise.
<PAGE> 106
22.5 How Moneys Paid
Any sum of money paid or tendered by the Parties hereto
shall be validly and effectually paid or tendered if such payment
is given, delivered or made in legal currency or by bank cheque
or by the party's own cheque after presentment and clearance.
22.6 Successors Bound
This Agreement shall enure for the benefit of and bind the
Parties and their assigns and successors in title.
22.7 Further Assurance
Each Party agrees that it will perform, execute, acknowledge
and deliver all such further acts, deeds, assurances and
instruments as shall be reasonably required for the purposes of
this Agreement or otherwise to carry out the agreements made
herein.
22.8 Entire Agreement
This Agreement is the entire agreement between the Parties
hereto in relation to its subject matter and supersedes all prior
agreements in connection therewith, and each Party covenants that
it has full right title and power to enter into this Agreement.
22.9 Amendment
This Agreement may not be amended except by one or more
written instruments executed by all the Parties hereto.
22.10 No Partition
No Party shall institute any action or proceedings for
partition or sale in lieu of partition of the Permit, the Area or
any of the Joint Property.
22.11 Counterparts
This Agreement may be executed in any number of counterparts
each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
EXECUTED AS AN AGREEMENT
Signed for Indo Pacific Energy (NZ) Limited
by its duly authorised representative
/s/ David Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
<PAGE> 107
Signed for Trans-Orient Petroleum (NZ) Limited
by its duly authorised representative
/s/ David Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
<PAGE> 108
SCHEDULE 1
ACCOUNTING PROCEDURE
The purpose of this Accounting Procedure is to establish
equitable methods for determining charges and credits applicable
to Joint Operations under the Operating Agreement to which this
Accounting Procedure is a Schedule ("Operating Agreement") in
respect of the Permit. The Parties agree that if any of such
methods prove unfair or inequitable to the Operator or the Non-
Operators, the Parties will subject to Article 2.2.3 meet and in
good faith endeavour to agree on changes in methods deemed
necessary to correct any unfairness or inequity.
The purpose of this Accounting Procedure is to ensure that
subject to Article 2.2.3 the Operator neither gains nor loses by
performing the activities of Operator.
In the event of any conflict between the provisions of this
Accounting Procedure and the provisions of the Operating
Agreement, the provisions of the Operating Agreement shall apply.
ARTICLE 1 - GENERAL PROVISIONS
1.1 Definitions
1.1.1 "Administrative Overhead" means the charge made to
the Joint Account pursuant to Article 2.2, which charge
shall be in lieu of and shall be deemed to cover all
indirect costs incurred by the Operator in respect of Joint
Operations which are not otherwise provided for in the
Operating Agreement or this Accounting Procedure.
1.1.2 "Advances" has the meaning given in clause 1.2
1.1.3 "Agreement of Non-Operators" means the agreement
or action of a majority in Participating Interests of the
Non-Operators.
1.1.4 "Annual Base Expenditure" means in respect of any
Permit Year, the Authorised Expenditure charged to the Joint
Account in that Permit Year in respect of Joint Operations
PROVIDED THAT Base Expenditure shall:
(a) exclude, without limitation, any charge to the
Joint Account in respect of Administrative Overhead;
(b) exclude, without limitation, any royalty, taxes,
duties and the like, levied on production or in respect
of income from production;
<PAGE> 109
(c) include, without limitation, Authorised
Expenditure in respect of the construction and
maintenance of field access roads;
(d) include, without limitation, Materials only when
such Materials are utilised and charged to an approved
AFE; and
(e) be reduced by any credits received other than any
credits or receipts from sales of Material, insurance
claims or any other credits agreed by the Operating
Committee.
1.1.5 "Cash Calls" has the meaning given in clause 1.2
1.1.6 "Controllable Material" shall mean material which
the Operator subjects to record control and inventory. A
list of types of such materials shall be furnished to the
Non-Operators upon request.
1.1.7 "Material" means movable property, including
supplies and equipment, acquired and held for use in Joint
Operations.
1.1.8 Unless the provisions of this Accounting Procedure
require otherwise, all words and phrases contained herein
shall have the same meaning as in the Operating Agreement.
1.2 Advances and Payment by the Joint Venture Parties
1.2.1 If the Operator so requests, each of the Parties
shall advance to the Operator their share of the estimated
cash requirements for approved AFEs or Budget line items for
the succeeding month for the Joint Operations and in
accordance with the provisions of clause 1.2. . Such
estimates shall be based on the latest information available
to the Operator at the time the request is sent as to the
actual cash requirements for the month. No less than
fifteen (15) days prior to the beginning of each month, the
Operator shall furnish the Parties with its estimate of the
cash requirements by AFE or Budget line item for that month.
This estimate shall specifically identify the particular
approved AFE or Budget line item giving rise to such cash
requirements and shall constitute a request for an Advance
(a Cash Call). Appended to the Cash Call the Operator shall
provide a revised forecast of future cash requirements for
the following three (3) months, analysed by AFE or Budget
line item for each approved Budget. The cash forecast for
the first month will be the Cash Call for that month as
provided under this clause 1.2.1 Except as otherwise
provided in this agreement, Cash Calls shall not be made for
expenditures which require an AFE unless such AFE has been
approved or deemed approved as required under this
<PAGE> 110
Agreement. Cash Calls may be made for certain licence
maintenance costs, required to keep the licence in good
standing, and Administrative Overhead costs as defined and
determined in clause 2.2.1 without prior approval of such
costs by way of AFE. Not withstanding the above, Cash Calls
on AFEs of less than $20,000 and on Administrative Overheads
will only be made quarterly, on the basis of forecast
quarterly expenditure, rather than monthly. In any the
Operator at all times provide estimates of forecast
expenditure monthly. Adjustments to reflect Administrative
Overhead to be charged on actual expenditures shall be made
at the end of the year, and such adjustment shall be
separately identified in Cash Calls and billing statements.
1.2.2 Cash Calls made by the Operator under 1.2.1 shall
be paid by each Party according to its proportionate share
in the currency (or currencies) requested by the Operator,
to the appropriate bank account (or bank accounts)
maintained by the Operator for the Joint Account, by the
fifteenth (15th) day of the month for which the Advances are
requested.
1.2.3 Should the Operator be required to pay any sums of
money which were unforeseen at the time of preparing the
monthly estimates of expenditure, under clause 1.2.1 and/or
are required to be paid before the Operator would receive
the Parties payments, under clause 1.2.2, the Operator may
make a written request to the Parties for special Advances
covering their share of such expenditures. A Special Cash
Call made under this clause 1.2.3 shall be paid by each
Party in its proportionate share, in the currency (or
currencies) requested within fourteen (14) days after
receipt of such Cash Call.
1.2.4 If it is determined that a Party's Advances for a
certain month exceed its share of cash disbursements for
that month, the Operator may reduce that Party's share of
the next succeeding Cash Call, after such determination, or
, at the Operator's discretion, the Operator shall deposit
such excess Advances as soon as possible in either a short
term interest bearing bank account with a New Zealand
trading bank or in a Government backed interest earing
deposit or such other financial institutions as agreed by
the Operating Committee, until they are required for
disbursement. However, if the excess funds are unlikely to
be required for future disbursements, a Party may request
that such excess Advances be refunded and the Operator shall
make such refund within fifteen (15) days after the receipt
of such request.
1.2.5 If a Party's Advances for a certain month are less
than its share of cash disbursements for the same month, at
the Operator's discretion, the deficiency shall either:
<PAGE> 111
1.2.5.1 Be added to a subsequent request for
Advances, or
1.2.5.2 Be paid by such Party in the currency
requested by the Operator, within fifteen (15) days
following the receipt of the Operator's billing showing
such deficiency.
1.2.6 If the Operator chooses not to request Advances
from Non-Operators as provided under clauses 1.2.1 and
1.2.3, payment to the Operator by each Non-Operator shall be
made within twenty (20) days after receipt of the Joint
Operations billing statement as rendered under clause 1.3
1.2.7 If payment of the amount of any Cash Call or
statement provided for in this clause 1.2 is not made when
due:
1.2.7.1 The Operator shall immediately notify the
Party from whom such payment has not been received that
it has not received payment and such Party shall within
two (2) Business Days of receipt of such notice remedy
such failure to make payment; and
1.2.7.2 The unpaid balance thereof shall bear
interest at the Default Interest Rate from the due date
for payment to the date of actual payment.
1.2.8 Adjustments between estimated and actual costs and
expenses shall be made by the Operator at the close of each
month and the account of the respective Parties adjusted
accordingly.
1.3 Statements and Billings
1.3.1 Following the end of each month, the accumulated
charges and credits in the Joint Account will be determined
and the Operator will issue a statement recording actual
cash expenditure against Advances made for that month. Such
statement shall be accompanied by a Joint Operations billing
statement summarising all charges and credits accrued to the
Joint Account by appropriate classifications indicative of
the nature thereof and adjusted back to a cash basis in
relation to the amounts shown on the statement. All such
statements shall identify all expenditure by reference to
the relevant budget and AFE pursuant to which such
expenditure was incurred. The Operator shall provide each
such statement to the Non-Operators within twenty-five (25)
days of the expiry of the relevant month.
<PAGE> 112
1.4 Audits
1.4.1 A Non-Operator, upon at least twenty (20) Business
Days advance written notice to the Operator and other Non-
Operators, shall have the right at its sole expense to audit
the Joint Account and records relating to Joint Operations
for any Permit Year or portion thereof within the twenty-
four (24) month period following the end of such Permit
Year; Where there are two or more Non-Operators, the Non-
Operators shall make every reasonable effort to conduct
joint or simultaneous audits in a manner which will result
in a minimum of inconvenience to the Operator.
1.4.2 Subject to prior approval of all of the Parties,
the cost of any audit or verification of the Joint Account,
other than the audit provided for in Article 1.4.1, shall be
chargeable to the Joint Account.
1.4.3 In respect of charges made to the Joint Account
for Administrative Overhead pursuant to Article 2.2, the
Non-Operators right of audit shall include, without
limitation, verification of Annual Base Expenditure and the
calculation of Administrative Overhead thereon, but shall
exclude, without limitation, verification of the Operator's
indirect costs which such Administrative Overhead is deemed
to cover.
ARTICLE 2 - CHARGEABLE COSTS AND EXPENDITURES
The Operator shall charge the Joint Account for all costs
incurred pursuant to an approved AFE on the basis herein
provided. Such Joint Account costs shall include, but are not
necessarily limited to, items referred to below:
2.1 Joint Account (Direct Charges)
The Operator shall charge the Joint Account with all direct
costs and expenses incurred in connection with the Operating
Agreement, the Permit and the Joint Property. Without in any way
limiting the generality of the foregoing, chargeable direct costs
and expenditures shall include:
2.1.1 Labour and Related Costs
All personnel, other than those described in Article
2.1.1.(1) who are employed by the Operator and who work on Joint
Operations under the direct control of the Operator, will
maintain monthly time sheets for the purpose of charging salary
and related benefits direct to the Joint Account. Time sheets
will record time spent on Joint Operations whether such personnel
(including without limitation, managers, supervisors and
technical employees such as geologists, geophysicists, engineers,
drilling, production and construction supervisors and operators,
<PAGE> 113
field co-ordinators, drafting staff and technical assistants and
non-technical employees such as landmen, purchasing officers and
such accounting staff as are specifically responsible for the
account of the Joint Venture) are engaged full-time or part-time
on Joint Operations and will show the time worked on the various
projects and other classifications of cost to enable personnel
costs to be allocated to such classifications for budget and cost
control purposes.
(1) Time sheets will not be maintained for such purposes by
the following personnel:
(i) Administrative support personnel, including
without limitation, secretaries, typists, filing
clerks, messengers, commissionaries, telephone and
facsimile operators;
(ii) Accounts personnel, including without
limitation, cashiers handling joint funds, employees
handling the salaries of personnel employed on Joint
Operations and employees handling invoices and accounts
for payment, but excluding such accounting staff as are
specifically responsible for the accounting of the
Joint Venture.
(2) The amount to be charged to the Joint Account for each
person who is employed by the Operator (other than any such
person who is described in Article 2.1.1(1)) and who is
working on Joint Operations under the direct control of the
Operator, shall be the proportion of the Operator's actual
cost of salaries and related benefits for each such person
that the time worked by such person on Joint Operations
bears to the total time worked by such person in respect of
which such cost is incurred. For the purpose of this
Article, the Operator's actual cost of salaries and related
benefits shall include salaries, wages, overtime pay, rest
day pay, holiday pay, long service pay, living and housing
allowances, accident and illness compensation, group life
insurance, pension, superannuation, retirement and other
benefit plans of a like nature and all payroll expenses
incurred by reason of any governmental regulations or laws.
(3) The cost of personnel described in Article 2.1.1(1)
which is applicable to Joint Operations shall be deemed to
be covered by the percentage charge for Administrative
Overheads in Article 2.2.1.
(4) Personnel Seconded to the Operator from a Non-Operator.
The amount to be charged to the Joint Account for each
person who is working on Joint Operations under the direct
control of the Operator (other than any such person who is
described in Article 2.1.1(1)) and who is seconded to the
<PAGE> 114
Operator from a Non-Operator shall (subject to agreement to
the contrary) be the proportion of the Non-Operator's actual
cost of salaries and related benefits for each such person
that the time worked on Joint Operations by such person
bears to the total time worked by such person in respect of
which such cost is incurred. Time sheets must be kept by
such persons in the same form as those kept by the employees
of the Operator.
(5) For the purposes of Article 2.1.1(4) the Non-Operator's
actual cost of salaries and related benefits shall be as
defined in Article 2.1.1(2).
2.1.2 Material
Material purchased or furnished for use in Joint Operations
as provided under Article 3 herein.
2.1.3 Transportation and Employee Relocation Costs
(1) Transportation of Material and other related costs such
as expediting, crating, dock charges, inland and ocean
freight and unloading at destination.
(2) Transportation of employees as necessary or desirable
for the conduct of Joint Operations.
(3) Relocation costs of employees permanently or
temporarily assigned to the Joint Operations except that
relocation costs from New Zealand shall only be charged if
the employee is returned to the country from which he was
relocated. Such costs shall include transportation of
employees' families and their personal and household effects
and all other relocation costs in accordance with the
Operator's usual practice including without limitation, an
allocation of such costs on an equitable basis, having
regard to the amount of time each employee was engaged in
other areas of operation. The budget shall include an
estimate of the relocation costs likely to be incurred in
the current budget.
2.1.4 Services
(1) Contract services, professional consultants and other
services procured from outside sources other than services
covered by Article 2.1.7.
(2) Technical services, such as, but not limited to,
laboratory analysis, drafting, geophysical and geological
interpretation, engineering and related data processing,
performed by the Operator, the Non-Operators and their
Related Companies for the direct benefit of the Joint
<PAGE> 115
Operations, provided such costs shall not exceed those
currently prevailing if performed by outside technical
service companies.
(3) Use of equipment and facilities furnished by the
Operator, the Non-Operator and their Related Companies at
rates commensurate with the cost of the ownership and
operation thereof, but such rates shall not exceed those
currently prevailing in the general vicinity of the Permit.
2.1.5 Damage and Losses of Joint Property
All costs or expenses necessary for the repair or
replacement of any Joint Property resulting from damage or losses
incurred by fire, flood, storm, theft, accident or any other
cause. The Operator shall furnish the Non-Operators with written
notice of damages or losses incurred in excess of $50,000.00 as
soon as practicable.
2.1.6 Insurance
(1) Premiums for insurance required by the Joint Property
or any law or regulation and insurance acquired for the
benefit of all Parties as approved by the Operating
Committee.
(2) Credits for settlements received from the insurance
carrier and others and attributable to the Joint Account.
(3) Actual expenditure incurred in the settlement of all
losses, claims, damages, judgments and other expenses for
the benefit of Joint Operations.
2.1.7 Legal Expense
(1) All costs or expenses of handling, investigating and
settling litigation or claims arising by reason of Joint
Operations or necessary to protect or recover the Permit or
the Joint Property, including but not limited to, attorney
fees, court costs, cost of investigation or procuring
evidence and amounts paid in settlement; however, no charge
shall be made for the services of the Operator and any
Related Company's legal staff unless by prior agreement of
the Non-Operators.
(2) All other solicitors or barristers or legal costs
necessary for Joint Operations, except no charge shall be
made for the services of the Operator's and any Related
Company's legal staff unless by prior agreement of the Non-Operators.
<PAGE> 116
2.1.8 Duties and Taxes
All duties and taxes (except taxes based on income), fees
and governmental assessments of every kind and nature including,
without limitation, goods and services tax. The Operator shall,
in respect of Joint Operations, be responsible for compliance
with the New Zealand Tax Act 1994 Amendment Act 1996 including,
without limitation, the filing of returns and other related
matters.
2.1.9 Offices, Camps and Miscellaneous Facilities
Net cost of maintaining, equipping, furnishing and operating
any offices, sub-offices, camps, warehousing, housing and other
facilities directly serving the Joint Operations and approved by
the Operating Committee, shall be charged to the Joint Account.
If such facilities serve Joint Operations in addition to the
Joint Operations, the net cost shall be allocated to the
properties served on an equitable basis.
2.1.10 Payments to Government
Expenditure necessary to acquire and maintain rights under
the Permit.
2.1.11 Other Charges
All other costs and expenses incurred by the Operator which
are not mentioned above and which are necessary and proper for
the conduct of Joint Operations.
2.2 Joint Account (Indirect Charges)
All indirect costs incurred in respect of Joint Operations
shall be deemed to be covered by the following charges which the
Operator may charge to the Joint Account.
2.2.1 Administrative Overhead
Subject to the provisions of this Article 2.2, the Operator
shall charge to the Joint Account an Administrative Overhead
which shall be calculated by applying percentages to tranches of
Annual Base Expenditure as follows:
On the first $1,000,000 4%
On the next $4,000,000 3%
On the next $5,000,000 2%
Above $10,000,000 1%
However the minimum Administrative Overhead chargeable to
the Joint Account will be thirty thousand dollars (NZ$30,000.00)
per Permit Year chargeable on a pro rata monthly basis.
<PAGE> 117
2.2.2 Subject to the charging of the minimum
Administrative Overhead referred to in Article 2.2.1,
Administrative Overhead shall be charged to the Joint
Account quarterly:
(a) based on that quarter's cumulative current year to
date Annual Base Expenditure; and
(b) reduced by the cumulative current year to date
Administrative Overhead charged to the previous
quarter.
2.2.3 The charges to be made pursuant to Article 2.2.1
shall be reviewed annually by the Operator in order to
verify that the charge equitably compensates the Operator
for the costs they are intended to cover and appropriate
adjustment either upward or downward will be made subject to
approval by the Committee.
2.3 Joint Account (Excluded Charges)
Depreciation, amortisation and restoration provisions of
facilities and other capital assets comprising the Joint Property
will not be recorded as operating costs in the Joint Account.
ARTICLE 3 - MATERIAL
3.1 Acquisitions
3.1.1 Material purchases shall be charged at net cost
incurred by the Operator. Net cost shall include, but shall
not be limited to, such items as transportation, duties,
licence fees and applicable taxes.
3.1.2 New Material (Condition "1") transferred from the
Operator's stock or other properties, shall be priced at new
purchase net cost determined in accordance with Article
3.1.1 above. Good used Material (Condition "2") being used
Material in sound and serviceable condition, suitable for
re-use without reconditioning, shall be priced at seventy-
five percent (75%) of such new purchase net cost. Used
Material which cannot be classified at Condition "2" shall
be priced at a value commensurate with its use.
3.2 Disposals
3.2.1 The Operator shall be under no obligation to
purchase the interest of Non-Operators in new or used
surplus Material.
<PAGE> 118
3.2.2 The Operator shall have the right to dispose of
surplus Material to a bona fide purchaser but shall advise
and secure prior agreement of the Non-Operators for each
proposed disposition of Materials costing in the aggregate
of $10,000.00 or more.
3.2.3 Proceeds from all sales shall be credited to the
Joint Account at the net amount actually collected.
3.3 Inventories
3.3.1 Inventories shall be taken annually by the
Operator of all Controllable Material unless otherwise
agreed by the Parties. The Operator shall give ninety (90)
days written notice of intention to take such inventories to
allow the Non-Operators to be represented when any inventory
is taken. Failure of any Non-Operator to be represented
shall bind such Non-Operator to accept the inventory taken
by the Operator.
3.3.2 Reconciliation of inventory with the Joint Account
shall be made and a list of overages and shortages shall be
furnished to the Non-Operators. Inventory adjustments shall
be made to the Joint Account, if required by the Parties.
3.3.3 Whenever there is a sale or change of
Participating Interest, a special inventory may be taken by
the Operator, provided the seller and/or purchaser of such
Participating Interest agree to bear all the expenses
thereof. In such cases, the seller, the purchaser and any
other Party shall be entitled to be represented and shall be
bound by the inventory so taken.
<PAGE> 119
SCHEDULE 2 - Description of the Permit Area
Having an area of 11,183.17 sq km
Coastline at 171 00E
North along 171 00E to
171 00E 45 00S
170 45E 45 00S
170 45E 44 45S
171 00E 44 45S
171 00E 44 00S
171 13E 44 00S
171 13E 43 40S
171 30E 43 40S
171 30E 43 30S
172 00E 43 30S
172 00E 43 15S
172 15E 43 15S
172 15E 43 10S
172 30E 43 10S
East along 172 30E to coast
South along coast to 43 33S
West along 42 33S around coastline to
172 33E 43 33S
172 33E 43 45S
172 38E 43 45S
South along 172 38E to coast
South and west along coast to 171 00 to join
<PAGE> 120
EXHIBIT 10.66
Dated 3 August 1998
INDO-PACIFIC ENERGY (NZ) LIMITED
TRANS NEW ZEALAND OIL COMPANY (NZ) LIMITED
TRANS-ORIENT PETROLEUM (NZ) LIMITED
DEED OF ASSIGNMENT AND ASSUMPTION - PEP 38256
THIS DEED is made 3rd August 1998
BETWEEN TRANS NEW ZEALAND OIL COMPANY (NZ) LIMITED of 284
Karori Road, Wellington, New Zealand ("TNZO")
AND TRANS-ORIENT PETROLEUM (NZ) LIMITED of 284 Karori
Road, Wellington, New Zealand ("TOP(NZ)")
AND INDO-PACIFIC ENERGY (NZ) LIMITED of 284 Karori Road,
Wellington, New Zealand ("Indo-Pacific")
RECITALS
A. As at the date of this Deed Indo-Pacific and TOP(NZ)
are parties to an unincorporated joint venture for the purpose of
holding their respective Participating Interests in PEP 38256 in
the percentages set out as follows;
Indo-Pacific 50.00%
TOP(NZ) 50.00%
B. TOP(NZ) and Indo-Pacific have agreed to sell to TNZO
the Assigned Interests and in order to comply with the terms of
the joint venture the Parties have entered into this Deed.
AGREEMENT
1.1 DEFINITIONS AND INTERPRETATION
Definitions: In this Deed (including the Recitals) unless
the context otherwise requires:
"Act" means the Crown Minerals Act (NZ) 1991 and any
regulations made thereto.
"Assigned Interests" means a 15% Participating Interest
owned by TOP(NZ) and a 15% Participating Interest owned by Indo-Pacific.
<PAGE> 121
"Continuing Parties" means Indo-Pacific and TOP(NZ)
"Deed" means this deed between the Parties.
"Effective Date" means 00.01 hours on 25th June 1998
"Minister" means the Minister of Energy as defined under the
Act who administers the approval and registration procedure under
the Act.
"Parties" means each of Indo-Pacific, TOP(NZ), and TNZO.
"Participating Interest" means a percentage interest of a
Party in the Permit and the Joint Venture Operating Agreement
dated 25th June 1998.
"Permit" means petroleum exploration permit PEP 38256 or any
renewal or extension thereof and any mining permit granted
pursuant thereto.
1.2 Interpretation: In this Deed, unless a contrary
intention appears:
(a) a reference to this Deed is a reference to this Deed as
amended, varied, novated or substituted from time to time;
(b) a reference to any legislation or any provision of any
legislation includes:
(i) all regulations, orders or instruments issued
under the legislation or provision; and
(ii) any modification, consolidation, amendment, re-
enactment, replacement or codification of such
legislation or provision;
(c) a word:
(i) importing the singular includes the plural and
vice versa; and
(ii) denoting an individual includes corporations,
firms, unincorporated bodies, authorities and
instrumentalities;
(d) a reference to a Party to this Deed or any other
instrument includes that Party's executors, administrators,
successors and permitted assigns;
(e) where a word or phrase is given meaning, any other part
of speech or grammatical form has a corresponding meaning;
and
<PAGE> 122
(f) a reference to a clause number, schedule number or
annexure number (or letter) is a reference to a clause,
schedule or annexure of this Deed;
(g) words and expressions used in this Deed which are used
in the Act shall where the context admits have the same
meaning as they have in the Act.
2. APPROVAL
2.1 This Deed and the assignments provided for by it are
conditional upon the consent of the Minister being given to this
Deed and the assignment pursuant to the Act. The assignment
evidenced by this Deed to which the Act applies will relate back
to and take effect on and from the Effective Date upon the date
of obtaining approval for such dealing in accordance with the
Act.
2.2 The Parties must use all reasonable endeavours to have
all dealings evidenced by this Deed approved as contemplated by
clause 2.1 as expeditiously as possible.
2.3 If any dealing evidenced by this Deed is not approved
and registered in accordance with clause 2.1 within 12 months
from the Effective Date (or such other date as the Parties may
agree), any Party may terminate this Deed at any time by notice
to the other Parties and this Deed will terminate on the receipt
of that notice.
2.4 On termination of this Deed under clause 2.3, the
Parties must execute all documents and do all other things
necessary or desirable to place each other in the same position
as they would have been had this Deed not been executed or acted
upon.
3. ASSIGNEE
3.1 With effect on and from the Effective Date, TOP(NZ) and
Indo-Pacific assign to TNZO and TNZO assumes the obligations and
liabilities in respect of the Assigned Interest arising on and
from the Effective Date (excluding liabilities and obligations
arising prior to the Effective Date) and shall be entitled to the
full benefit and advantage of Assigned Interest and all rights
thereunder to the same extent to which TOP(NZ) and Indo-Pacific
would have been so entitled had the Assigned Interest not been
assigned to TNZO.
3.2 TNZO will indemnify and keep indemnified the Continuing
Parties against all liability which each of them may incur by
reason of any breach or non-observance by TNZO of any of the
provisions of this Deed.
<PAGE> 123
3.3 With effect on and from the Effective Date, the
Continuing Parties accept the liability of TNZO as set out in
clause 3.1.
4. ASSIGNOR
4.1 TOP(NZ) and Indo-Pacific covenant and agree with TNZO
to duly and punctually discharge all liabilities and perform all
obligations incurred in respect of the Assigned Interest prior to
the Effective Date (excluding liabilities and obligations
scheduled for performance on or after the Effective Date)
regardless of whether such liability and obligations arise before
or after the Effective Date.
4.2 TOP(NZ) and Indo-Pacific shall indemnify and hold
themselves and TNZO harmless from and against all liability which
each of them may incur by reason of any breach or non-observance
by TOP(NZ) and Indo-Pacific of this Deed.
5. PARTICIPATING INTERESTS
5.1 The Parties agree that on and from the Effective Date
their respective Participating Interests shall be as set out
below:
Indo-Pacific 35.00%
TNZO 30.00%
TOP(NZ) 35.00%
6. MISCELLANEOUS
6.1 This Deed will be binding upon and enure to the benefit
of the Parties, their respective successors and each person who
derives from them title to a Participating Interest.
6.2 This Deed will be governed by and construed in
accordance with laws of New Zealand for the time being in force.
6.3 The Parties submit to the non-exclusive jurisdiction of
the Courts of New Zealand and all courts competent to hear
appeals therefrom.
6.4 The Parties will bear their own legal costs arising out
of the preparation of this Deed, but TNZO will bear all stamp
duty and consent fees payable on this Deed and any document
directly related to or consequential upon this Deed.
6.5 Each of the Parties must take all such steps, execute
all such documents and do all such acts and things as may be
reasonably required by any other Party to give effect to the
intent of this Deed.
<PAGE> 124
6.6 If any party executes this Deed by means of an attorney
then such attorney states that he or she has no notice of the
revocation of that power of attorney.
EXECUTED by the parties as a Deed.
Executed for and on behalf of INDO-PACIFIC ENERGY (NZ)
LIMITED by its duly authorised representatives in the presence
of:
/s/ J. Watson /s/ Jenni Lean
Signature of witness Signature of Representative
Jeanette Watson Jenni Lean
Name of witness Name of representative
Executed for and on behalf of TRANS NEW ZEALAND OIL COMPANY
(NZ) LIMITED by its duly authorised representative in the
presence of:
/s/ J. Watson /s/ Jenni Lean
Signature of witness Signature of representative
Jeanette Watson Jenni Lean
Name of witness Name of representative
Executed for and on behalf of TRANS-ORIENT PETROLEUM (NZ)
LIMITED by its duly authorised representative in the presence of:
/s/ J. Watson /s/ Jenni Lean
Signature of witness Signature of representative
Jeanette Watson Jenni Lean
Name of witness Name of representative
<PAGE> 125
EXHIBIT 10.67
PERMIT ENDORSEMENT
Permit Petroleum Exploration Permit (PEP) 38256
Action In terms of section 41 of the Crown Minerals Act
1991, and in accordance with a delegation from the Minister of
Energy of 20 January 1998, the Manager Crown Minerals consented
to a Deed of Assignment and Assumption whereby Indo-Pacific
Energy (NZ) Limited and Trans-Orient Petroleum Company (NZ)
Limited assigned an interest in the permit to Trans New Zealand
Oil Company (NZ) Limited.
Date 13 August 1998
Details The participating interests in this permit are now
as follows:
Indo-Pacific Energy (NZ) Limited 35.00 percent
Trans-Orient Petroleum Company (NZ) Limited 35.00 percent
Trans New Zealand Oil Company (NZ) Limited. 30.00 percent
Certified True and Correct
/s/ C.T Bennett
Clyde Bennett for Unit Manager-Permitting
17/8/1998
<PAGE> 126
EXHIBIT 10.68
JOINT VENTURE OPERATING AGREEMENT
PEP 38723
Between:
INDO-PACIFIC ENERGY (NZ) LTD
And
TRANS-ORIENT PETROLEUM (NZ) LIMITED
And
TRANS NEW ZEALAND OIL COMPANY (NZ) LIMITED
OPERATING AGREEMENT
PEP 38723
Table of Contents
Clause Description Page
OPERATIVE PROVISIONS 7
1 DEFINITIONS AND INTERPRETATIONS 7
1.1 Definitions 7
1.2 Interpretation 12
1.3 Headings 13
2 JOINT VENTURE 13
2.1 Establishment of Joint Venture 13
2.2 Term of Joint Venture 13
2.3 Participating Interests 13
2.4 Tenants in Common 14
2.5 Separate Joint Ventures 14
3 MUTUAL OBLIGATIONS 14
3.1 Covenants by the Parties 14
3.2 Rights and Obligations Several 15
3.3 No Partnership 15
3.4 No Joint Liability 15
4 OPERATOR 15
4.1 Operator 15
4.2 Removal of Operator 15
4.3 Non-Operators' Power to Nullify
or Suspend Removal 16
4.4 Replacement of Operator 16
4.5 Resignation of Operator 16
4.6 Appointment of New Operator 16
<PAGE> 127
4.7 Consent to Appointment as Operator 17
4.8 No Appointment of Removed Operator 17
4.9 Effective Date of Appointment 17
4.10 Delivery of Property on Change of Operator 18
4.11 Consequences of Change and Delivery of Property 18
4.12 Audit of Accounts on Change of Operator 18
5 FUNCTIONS AND DUTIES OF OPERATOR 18
5.1 Control and Management of Joint Operations 18
5.2 Independent Status of Operator 18
5.3 Proper Practices in Joint Operations 19
5.4 Books and Records 19
5.5 Protection from Liens 19
5.6 Non-Operator's Rights of Access 19
5.7 Compliance with Terms of Permit 19
5.8 Taxes and Fees 20
5.9 Budget Expenditures by Operator 20
5.10 Operator to Hold Property 20
5.11 Operator's General Duties 20
5.12 Operator to Let for Bid Certain Contracts 21
6 OPERATOR LIABILITY AND INDEMNITY 22
6.1 Liability of Operator 22
6.2 Indemnity of Operator 22
7 OPERATING COMMITTEE 22
7.1 Composition of Operating Committee 22
7.2 Formation of Operating Committee 22
7.3 Vote Required for Decisions of
Operating Committee 23
7.4 Quorum for Meetings of Operating Committee 23
7.5 Meetings of Operating Committee 23
7.6 Resolution in Absence of Meeting 24
7.7 Sub-Committees 25
7.8 Place of Meetings 25
7.9 Operator's Duties Concerning Meetings 25
7.10 Operating Committee's Functions 26
7.11 Minimum Participating Interest for Representation 26
8 PROGRAMS AND BUDGETS 27
8.1 Submission of Programs and Budgets 27
8.2 Adoption of Programs and Budgets 27
8.3 Minimum Programs Budgets and Work
Obligation Determination 27
8.4 Review of Programs and Budgets 28
8.5 Authorities for Expenditure (AFEs) 28
8.6 When Expenditure in Excess of Approved
AFE is Authorised 28
8.7 Approved Well Plan 29
8.8 AFEs for Wells 29
8.9 Casing Point Decision 29
8.10 Rights of Party Voting Against Operating
Programs and Budget 30
8.11 Consenting Parties' Premium 30
8.12 Notice to Operator 31
9 COSTS AND EXPENSES 31
<PAGE> 128
9.1 Allocation of Expenditure 31
9.2 Accounting Procedure as Basis 31
9.3 Payment by Operator and Reimbursement 32
9.4 Calls by Operator 32
9.5 Banking of Funds 32
9.6 Investment of Funds 32
9.7 Withdrawal of Funds 32
10 INFORMATION ON JOINT OPERATIONS 32
10.1 Information as to Petroleum Production 32
10.2 Access to Records and Information 33
10.3 Drilling Information and Privileges
of Non-Operators 33
10.4 Testing and Information to Non-Operators 33
10.5 Logging Information to Non-Operators 34
10.6 Test Following Logging 34
10.7 Seismic and Other Reports 34
11 INSURANCE AND LITIGATION 34
11.1 Operator to Maintain Insurance 34
11.2 Contractors Insurance 35
11.3 Review of Insurances 35
11.4 Naming of Parties as Co-insured 35
11.5 Advice to Non-Operators of Current Insurance 36
11.6 Party's Right to Increase Insurance 36
11.7 Cost of Insurance and Charging of Losses 36
11.8 Litigation 36
12 SOLE RISK OPERATIONS 37
12.1 Sole Risk Operation 37
12.2 Proposal of Sole Risk Operation 38
12.3 Operating Committee to Consider Sole
Risk Operation Notice 38
12.4 Sole Risk Operation Notice for Existing Well 38
12.5 Sole Risk Operation Notice for Exploration Well 38
12.6 Sole Risk Operation Notice for Appraisal Well 39
12.7 Election to Participate 39
12.8 Sole Risk Interest 40
12.9 Time for Commencing Operations 40
12.10 Conduct of Sole Risk Operation 40
12.11 Operator for Sole Risk Operations 40
12.12 Sole Risk Parties May Complete and Equip 41
12.13 Premiums Accruing to Sole Risk
Parties - Exploration Wells 41
12.14 Premiums Accruing to Sole Risk
Parties - Appraisal Wellss 41
12.15 Deepening, Plugging Back, Reworking,
Recompleting, Sidetracking 42
12.16 Premiums Accruing to Sole Risk
Parties - Completing 42
12.17 Premiums Accruing to Sole Risk
Parties - Equipping 42
12.18 Multiple Reservoirs 42
12.19 Sole Risk Operation Notice When
Rig is on Site 43
<PAGE> 129
12.20 Deepening or Sidetracking of Sole Risk Well 44
12.21 Priority of Recovery of Premium 44
12.22 Abandonment of Sole Risk Operation -
Salvable Material 44
12.23 Accounts During Sole Risk Operations
and Premium Recovery 45
12.24 Sole Risk Parties' Relationship 45
12.25 Indemnification of Non-Sole Risk Parties 46
12.26 Use of Joint Property 46
12.27 Non-Sole Risk Parties to Receive Information 46
12.28 Net Proceeds of Sale of Petroleum 46
12.29 Early Re-Entry by Non-Sole Risk Parties 47
12.30 Conclusion of Sole Risk Operation 48
13 DISPOSAL OF PRODUCTION 48
13.1 Ownership 48
13.2 Royalties 48
13.3 Production Reports 48
13.4 Delivery 48
13.5 Risk 48
14 OFFTAKE AGREEMENT 48
14.1 Crude Oil 48
14.2 Natural Gas 49
15 DEFAULTS 49
15.1 Notice of Default 49
15.2 Defaulting Party Liable for Interest 49
15.3 Payment by Operator 50
15.4 Defaulting Party may be Sued 50
15.5 Non-Defaulting Parties to Contribute 50
15.6 Rights of Paying Parties 50
15.7 Defaulting Party's Petroleum 51
15.8 Suspension of Rights of Defaulting Party 51
15.9 Default of Operator in Payment 51
15.10 Application of Defaulting Party's Funds 51
15.11 Valuation of Defaulting Party's Interest 52
15.12 Option to Purchase Defaulting Party's Interest 52
16 WITHDRAWAL AND SURRENDER 54
16.1 Any Party May Withdraw 54
16.2 Notice of Withdrawal 54
16.3 Other Parties may Join in Withdrawal 54
16.4 Other Parties may Accept Assignment 54
16.5 Prompt Execution of Documents 55
16.6 Withdrawing Party's Obligations 55
16.7 Costs of Assignment 56
16.8 Assignment to all Parties 56
16.9 Selection of Area Required to be Surrendered 56
16.10 Voluntary Surrender of Area 56
17 ASSIGNMENTS AND MORTGAGES 57
17.1 Restriction on Right to Assign and Mortgage 57
17.2 Assignment to Related Companies 57
17.3 Assignment to Third Parties 58
17.4 Assumption by Assignee 58
17.5 Consequences of Assignment 58
<PAGE> 130
17.6 Charge of Participating Interest 59
18 CONFIDENTIALITY 59
18.1 Information Confidential 59
18.2 Related Companies 60
18.3 Compliance with Stock Exchange Requirements 60
18.4 Obligations to Continue 60
18.5 Termination 61
19 FORCE MAJEURE 61
19.1 Obligations Suspended by Event of Force Majeure 61
19.2 Certain Actions not Required 61
19.3 Meaning of Force Majeure 61
20 LAWS AND REGULATIONS 61
20.1 Subject to Applicable Laws 61
20.2 Governing Law 62
20.3 Submission to Jurisdiction 62
21 NOTICES 62
21.1 Notice in Writing 62
21.2 Effective Date 62
21.3 Time of Receipt 62
21.4 Address for Service 62
21.5 Authorised Officer 63
22 GENERAL 63
22.1 Remedies not Exclusive 63
22.2 Mutual Indemnity 63
22.3 Limited Invalidity 63
22.4 Waiver 63
22.5 How Moneys Paid 64
22.6 Successors Bound 64
22.7 Further Assurance 64
22.8 Entire Agreement 64
22.9 Amendment 64
22.10 No Partition 64
22.11 Counterparts 64
22.12 Time of Essence 64
SCHEDULE 1 65
ACCOUNTING PROCEDURE 66
ARTICLE 1 - GENERAL PROVISIONS 66
1.1 Definitions 66
1.2 Statements, Billings and Adjustments 67
1.3 Advances and Payments 68
1.4 Audits 69
ARTICLE 2 - CHARGEABLE COSTS AND EXPENDITURES 69
2.1 Joint Account (Direct Charges) 69
2.1.1 Labour and Related Costs 69
2.1.2 Material 70
2.1.3 Transportation and Employee Relocation Costs 70
2.1.4 Services 71
2.1.5 Damage and Losses of Joint Property 71
2.1.6 Insurance 71
2.1.7 Legal Expense 72
2.1.8 Duties and Taxes 72
2.1.9 Offices, Camps and Miscellaneous Facilities 72
<PAGE> 131
2.1.10 Payments to Government 72
2.1.11 Other Charges 72
2.2 Joint Account (Indirect Charges) 72
2.2.1 Administrative Overhead 72
2.3 Joint Account (Excluded Charges)
ARTICLE 3 - MATERIAL 73
3.1 Acquisitions 73
3.2 Disposals 73
3.3 Inventories 73
SCHEDULE 2 - Description of the Permit Area 73
THIS AGREEMENT is made on the 25th day of June, 1998
BETWEEN INDO-PACIFIC ENERGY (NZ) LTD of Indo Pacific House, 284
Karori Rd, Karori, Wellington, New Zealand. ("Indo")
AND TRANS-ORIENT PETROLEUM (NZ) LIMITED of Indo Pacific
House, 284 Karori Rd, Karori, Wellington, New Zealand..
("Trans")
AND TRANS NEW ZEALAND OIL COMPANY (NZ) LIMITED of Indo
Pacific House, 284 Karori Rd, Karori, Wellington, New
Zealand. ("Tranz")
RECITALS
The Parties wish to enter into this Agreement to record the
terms and conditions upon which they will conduct Joint
Operations on the Area.
OPERATIVE PROVISIONS
1 DEFINITIONS AND INTERPRETATIONS
1.1 Definitions
In this Agreement, except where the context otherwise
requires, the following terms and expressions shall have the
following meanings:
"Accounting Procedure" means the method of accounting to be
applied in recording debits and credits to the Joint Account as
set out in Schedule 1;
"Act" means the Crown Minerals Act 1991 (New Zealand)
"AFE" means an authority for expenditure setting out details
of the estimated expenditure in respect of a specific project
which, when approved in accordance with this Agreement,
constitutes authorisation for the Operator to incur such
expenditure.
<PAGE> 132
"Agreement" means this Agreement and the Annexures and
Schedules to this Agreement.
"Appraisal Well" means a well drilled or proposed to be
drilled for the purpose of evaluating the quantities of Petroleum
in a Reservoir discovered by an Exploration Well.
"Approved Well Plan" has the meaning given to that term in
Clause 8.7.
"Area" means the area for the time being enclosed by the
external boundaries of the Permit which boundaries are, as at the
Effective Date, for the purposes of identification only, shown on
the map attached as Schedule 2, and any other area, whether or
not contiguous to that area, which the Parties unanimously agree
shall form part of the Area.
"Authorised Expenditure" has the meaning given to that term
in Clause 9.1.
"Business Day" means a day, other than a Saturday, Sunday or
public holiday, on which trading banks are open for business in
Wellington, New Zealand.
"Casing Point" means the time at which a well drilled under
this Agreement has reached its projected depth or such lesser
depth as the Operating Committee may have decided upon and all
logs and tests necessary to enable a decision as to whether to
plug and abandon the well or attempt to complete it as a producer
have been carried out and communicated to the Parties.
"Chargee" has the meaning given to that term in Clause 17.6.
"Chargor" has the meaning given to that term in Clause 17.6.
"Complete" means with respect to a well the completion of
the well as a producer of Petroleum, which operations shall
include (without limitation);
(a) to acquire, install and perforate production casing;
(b) to run tubing;
(c) to install equipment in the well up to and including
the wing valve of the Christmas tree (in the case of an oil
well) and to the well head (in the case of a gas well);
(d) to conduct such tests as are necessary to demonstrate
that the well is capable of production;
(e) to swab the well;
<PAGE> 133
(f) to install such artificial lift equipment including
subsurface pumps, pump rods, power cables and surface pump
equipment as is necessary to initiate or promote the
production of Petroleum to the surface,
and "Completing", "Completed" and "Completion" have corresponding
meanings.
"Completion Costs" means all costs directly incurred in
respect of Completion;
"Consenting Parties" has the meaning given to that term in
Clause 8.10;
"Default Interest Rate" means in respect of any day the rate
per annum which is the aggregate of 5% per annum and the rate of
interest from time to time charged by the ASB Bank Ltd on
corporate overdraft accounts in excess of $100,000.00 as advised
by the said ASB Bank Ltd to the Operator;
"Default Notice" has the meaning given to that term in
Clause 15.1;
"Defaulting Party" has the meaning given to that term in
Clause 15.1;
"Delivery Costs" has the meaning given to that term in
Clause 12.28;
"Delivery Point" means the point or points determined by the
Operating Committee from time to time as the point or points at
which the Parties shall take delivery of their respective shares
of Petroleum produced from the Area.
"Development Well" means a well (other than an Exploration
Well or an Appraisal Well) drilled, proposed to be drilled or
which is used or is capable of being used, for the production of
Petroleum from a previously discovered Reservoir, which is less
than 1000m from a well which is capable of producing Petroleum in
Payable Quantities from that Reservoir.
"Drill" includes, where the context permits, to deepen,
rework, fracc, plug back, run logs, velocity survey, carry out
testing on, recomplete or sidetrack a well;
"Drilling Costs" means all costs and expenses directly
incurred in drilling, deepening, reworking, plugging back,
recompleting or sidetracking a well, including without
limitation, rig mobilisation and demobilisation, conducting
tests, obtaining core and other samples, running logs and
conducting a velocity survey;
"Effective Date" means the 25th June 1998.
<PAGE> 134
"Effective Date of Assignment" has the meaning given to that
term in Clause 17.5;
"Effective Date of Withdrawal" has the meaning given to that
term in Clause 16.2;
"Electing Party" has the meaning given to that term in
Clause 12.8;
"Entitlement" has the meaning given to that term in Clause
14.1;
"Equip" means (with respect to a well which has been
Completed) to acquire and install all such equipment as is
necessary to place the well in production, and to handle, treat
and bring Petroleum from such well to the Delivery Point
including flow lines, treatment and separation facilities and
stock tanks; and "Equipping" and "Equipped" have corresponding
meanings;
"Equipping Costs" means all costs directly incurred in
Equipping a well;
"Exploration Well" means any well whose purpose at the time
of the commencement of drilling is to explore for an accumulation
of Petroleum whose existence was at that time unproven by
drilling;
"Force Majeure" has the meaning given to that term in Clause
19.3;
"Government" means the government of New Zealand;
"Gross Negligence" means such wanton and reckless conduct as
constitutes, or raises the reasonable belief that it constitutes,
an utter disregard for the harmful foreseeable and avoidable
consequences which result from it;
"Information" has the meaning given to that term in Clause
18.1;
"Joint Account" means the accounts established and
maintained by the Operator in accordance with this Agreement to
record all charges, expenditures, credits and receipts in respect
of Joint Operations which are chargeable or to be credited to
each of the individual Parties as provided for in this Agreement;
and "for the Joint Account" means for the account, expense, risk
or benefit of the Parties in accordance with their Participating
Interests;
<PAGE> 135
"Joint Operations" means all activities of the Joint Venture
conducted on behalf of the Parties pursuant to this Agreement
(including without limitation, abandonment activities) but
excludes those activities which are related to Sole Risk
Operations;
"Joint Property" means:
(a) all other property of any nature or kind, whether real
or personal, (including without limitation, any extraction,
transportation, processing, treatment, storage or other
facility or chose in action and any estate or interest
therein) acquired by the Parties in the conduct, or for the
purposes of, Joint Operations, and
(b) all other estate, right, title or interest of the
Parties arising under or by virtue of this Agreement;
"Joint Venture" means the joint venture between the Parties
in accordance with and constituted by the terms of this
Agreement;
"Net Abandonment Costs" has the meaning given to that term
in Clause 16.6;
"Net Proceeds of Sale" has the meaning given to that term in
Clause 12.28;
"Non-Consenting Party" has the meaning given to that term in
Clause 8.10;
"Non-Defaulting Parties" has the meaning given to that term
in Clause 15.1;
"Non-Operator" means a Party other than the Operator;
"Non-Sole Risk Parties" means the Parties which do not
participate in a Sole Risk Operation;
"Notice of Withdrawal" has the meaning given to that term in
Clause 16.2;
"Operating Committee" means the operating committee
established pursuant to Clause 7 of this Agreement;
"Operating Costs" means all costs directly incurred in
producing, handling, transporting and treating Petroleum from a
well, exclusive of Drilling Costs, Completion Costs and Equipping
Costs, up to the Delivery Point;
<PAGE> 136
"Operator" means the party from time to time appointed
pursuant to this Agreement to carry out the management of the
Joint Venture and Joint Operations;
"Option" has the meaning given to that term in Clause 15.12;
"Option Commencement Date" has the meaning given to that
term in Clause 15.12;
"Participating Interest" means the following obligations,
benefits and rights of a Party, expressed as a percentage and
determined in accordance with this Agreement:
(a) the obligation, subject to this Agreement, to contribute
that percentage of all expenditure and all other obligations
arising under or by virtue of this Agreement;
(b) the ownership of, and the right and benefit as a tenant
in common to receive in kind and to dispose of for its own
account, that percentage of Petroleum, and
(c) the beneficial ownership as a tenant in common of an
undivided share in the percentage of all Joint Property.
"Party" means a party to this Agreement, its successors and
permitted assigns;
"Payable Quantities" means:
(a) in the case of a well not Completed and Equipped for
production, the anticipated output from that well of that
quantity of Petroleum which, considering the Completion
Costs, Equipping Costs, Operating Costs and other costs
related to any of the foregoing, the kind and quality of
Petroleum to be produced, the price to be received therefor
and the royalties and other burdens payable in respect
thereof, would in the opinion of the Operating Committee
warrant incurring the Completion Costs and Equipping Costs
of the well; and
(b) in the case of a well Completed and Equipped for
production, the output from that well of that quantity of
Petroleum which, considering the factors referred to in
paragraph (a) above (other than Completion Costs and
Equipping Costs), would in the opinion of the Operating
Committee warrant continuing production from the well;
"Paying Party" has the meaning given to that term in Clause
15.6;
"Payment Date" has the meaning given to that term in Clause
15.5;
<PAGE> 137
"Permit" means Petroleum Exploration Permit 38723 granted
under the Act the area of which is set out in Schedule 2; and any
permits or leases granted pursuant thereto together with any
extensions, renewals, conversions, substitutions, modifications
or variations thereof;
"Permit Year" means a year beginning on 30th October, and
ending on 29th October.
"Petroleum" has the meaning given to that term in the Act;
"Proceeds of Sale" has the meaning given to that term in
Clause 12.28;
"Proposing Party" means a Party giving notice of its
intention to drill, Complete or Equip a well as a Sole Risk
Operation;
"Purchaser" or "Purchasers" has the meaning given to that
term in Clause 15.12;
"Receiving Parties" means the Parties other than the
Proposing Party;
"Related Company" shall have the meaning given in section
2(3) of the Companies Act 1993 of New Zealand, and for the
purposes of paragraph (d) of that section specifically includes
companies which have substantially common, actual (although not
necessarily legal) management and control;
"Reservoir" means that part of a geological formation which
contains a single pool or accumulation of Petroleum separate from
any other such pool or accumulation in the same or another
geological formation, in a single pressure system so that
production of Petroleum from any part affects the remainder;
"Sole Risk Interest" has the meaning given to that term in
Clause 12.8;
"Sole Risk Operation" means any or all of the drilling,
Completing and Equipping of a well proposed by one or more of the
Parties but in which less than all Parties participate;
"Sole Risk Operation Notice" means the notice of intention
to drill, Complete or Equip a well given by a Proposing Party in
respect of a proposed Sole Risk Operation;
"Sole Risk Operator" means a Party appointed as operator for
a Sole Risk Operation pursuant to Clause 12.11;
"Sole Risk Party" means a Party which participates in a Sole
Risk Operation;
<PAGE> 138
"Unpaid Amount" has the meaning given to that term in Clause
15.1;
"Wilful Misconduct" means intentional acts and omissions
done or omitted to be done, which raise the reasonable belief
that they were the result of a conscious indifference to the
right or welfare of those who are or may be affected by them;
"Withdrawing Party" has the meaning given to that term in
Clause 16.2; and
"Work Obligation" means the minimum work or expenditure
required to be performed or made by the registered holders of the
Permit as a condition of the Permit;
1.2 Interpretation
Unless expressed to the contrary:
(a) words importing:
(i) the singular include the plural and vice versa;
and
(ii) any gender includes the other genders;
(b) if a word or phrase is defined cognate words and
phrases have corresponding definitions;
(c) a reference to:
(i) a person includes a firm, unincorporated
association, corporation and a government or statutory
body or authority;
(ii) a person includes the legal personal
representatives, successors and assigns of that person;
(iii) a statute, ordinance, code or other law
includes regulations and other statutory instruments
under it and consolidations, amendments, re-enactments
or replacements of any of them;
(iv) a right includes a benefit, remedy, discretion,
authority or power;
(v) an obligation includes a warranty or
representation and a reference to a failure to observe
or perform an obligation includes a breach of warranty
or representation;
<PAGE> 139
(d) provisions or terms of this document or another
document, agreement, understanding or arrangement include a
reference to both express and implied provisions and terms;
(e) "$", "NZ$" or "dollars" is a reference to the lawful
currency of New Zealand;
(f) this or any other document includes the document as
varied or replaced and notwithstanding any change in the
identity of the parties;
(g) writing includes any mode of representing or
reproducing words in a tangible and permanently visible
form, and includes facsimile transmission; and
(h) a reference to any thing (including, without
limitation, any amount) is a reference to the whole or any
part of it and a reference to a group of things or persons
is a reference to any one or more of them.
1.3 Headings
The clause headings used herein are for convenience only and
shall not be used in construing or interpreting any provision of
this Agreement.
2 JOINT VENTURE
2.1 Establishment of Joint Venture
On and from the Effective Date the Parties associate
themselves in an unincorporated joint venture for the purpose of
exploration for Petroleum in the Area and if commercially viable
the production, processing, transportation and sale of Petroleum
from the Area and all things necessary and incidental thereto.
2.2 Term of Joint Venture
This Agreement shall continue in effect for so long as the
Permit remains in force and until all Joint Property which
relates to the Area has been disposed of and final settlement has
been made between the Parties in relation thereto in accordance
with their respective rights and obligations under this
Agreement.
2.3 Participating Interests
At the date of this Agreement the Parties acknowledge and
agree that the Participating Interests in this Permit are as
follows:
<PAGE> 140
Indo - 40.00%
Trans - 40.00%
Tranz - 20.00%
-------
100.00%
2.4 Tenants in Common
Subject to this Agreement, all Joint Property shall be
beneficially owned by the Parties as tenants in common in shares
equal to their respective Participating Interests.
2.5 Separate Joint Ventures
This Agreement shall apply separately in relation to each
permit, lease, title or other instrument granted under the Act in
relation to the Area or any part of it so as to constitute
separate joint ventures in respect of the area comprised within
such permit, lease, title or other instrument on the same terms
and conditions, mutatis mutandis, as this Agreement.
3 MUTUAL OBLIGATIONS
3.1 Covenants by the Parties
Each Party covenants with each of the other Parties as
follows:
(a) to do, to the extent of its Participating Interest, all
things on its part necessary to ensure that:
(i) the Work Obligation is diligently observed and
performed;
(ii) the Permit is kept in good standing and the Joint
Property in a safe and operable condition;
(iii) the Permit and all other titles necessary for
the Joint Operations hereunder are duly renewed or
extended unless the Parties shall unanimously agree
otherwise;
(b) to be just and faithful to each other Party in all
things relating to this Agreement; and
(c) not to engage (either alone or in association with
others) in any activity in relation to the Area or the Joint
Property except as authorised by this Agreement.
(d) that it has full right, power and authority to enter
into this Agreement and to engage in Joint Operations
(e) that it has obtained all requisite consents and
approvals to enter into this Agreement
<PAGE> 141
(f) to attend diligently to the conduct of all Joint
Operations in which the Party is involved
(g) to pay punctually its separate debts and to indemnify
the other Parties and the Joint Property against the same
and all expenses on account thereof: to account promptly
for all moneys, cheques and negotiable instruments received
by it for and on behalf of the other Parties;
(i) to afford, when called upon to do so, all reasonable
assistance in the conduct of Joint Operations for the mutual
advantage of all Parties to observe and perform its
obligations, express and implied, under this Agreement, the
Licence and the Act; and to make full, frank and prompt
disclosures and give truthful explanations to the other
Parties of all material matters coming to its attention in
respect of Joint Operations and Joint Property.
3.2 Rights and Obligations Several
The rights, duties, obligations and liabilities of the
Parties shall be several and not joint nor joint and several. It
is the express purpose and intention of the Parties that their
ownership of the Permit and the Joint Property and their
liabilities shall be as tenants-in-common.
3.3 No Partnership
Nothing contained in this Agreement shall be construed as
creating or evidencing a partnership between the Parties or any
of them or as to lead to the joint receipt of income by the
Parties or any of them.
4 OPERATOR
4.1 Operator
Indo is hereby appointed Operator and agrees to act as such
in accordance with the terms and conditions of this Agreement.
4.2 Removal of Operator
Notwithstanding that the Operator may have given notice of
intention to resign pursuant to Clause 4.5, the Operator shall
cease to be Operator and shall be deemed to be removed if:
(a) a controller (as defined in the Companies Act 1993 of
New Zealand) is appointed in respect of the whole or any
part of the property of the Operator;
(b) an order is made that the Operator be wound up;
<PAGE> 142
(c) a liquidator or provisional liquidator is appointed in
respect of the Operator;
(d) there is a resolution for the winding up of the
Operator except to reconstruct or amalgamate while solvent
and on terms approved by the Operating Committee, such
approval not to be unreasonably withheld;
(e) an administrator is appointed to the Operator;
(f) the Operator assigns or purports to assign, all or any
of its general powers and responsibilities of supervision
and management as Operator under this Agreement otherwise
than to a Related Company with the prior written consent of
the other Parties;
(g) the Operator becomes a Defaulting Party pursuant to
Clause 15; or
(h) the Operator commits any breach of this Agreement
(other than a default in payment for which provision is made
in Clause 15, in which case, Clause 4.2(g) shall apply)
which places the whole or any part of the Permit or Joint
Property in jeopardy and continues such breach for a period
of not less than twenty (20) Business Days after notice
requiring the same to be remedied shall have been given to
the Operator by one or more of the Parties.
(i) the Operator and its Related Companies cease to hold an
aggregate Participating Interest of 20% or greater, unless
no other Party holds a greater Participating Interest.
4.3 Non-Operators' Power to Nullify or Suspend Removal
Notwithstanding the provisions of Clause 4.2 and until the
appointment of a new Operator pursuant to the provisions of
Clause 4.6(a), the Parties, other than the former Operator, may
by unanimous resolution, subject to such conditions, if any, as
are specified in such resolution:
(a) nullify the removal of the Operator; and
(b) suspend or postpone the removal of the Operator either
for a specified period or for an unspecified period to be
specified by a subsequent unanimous resolution of the Non-Operators.
4.4 Replacement of Operator
The Operator shall be replaced if at least two Parties being
holders of not less than seventy-five percent (75%) of the
Participating Interests held by all the Parties so resolve and
upon such resolution the Operating Committee shall appoint a
successor Operators as provided in Clause 4.6(b).
<PAGE> 143
4.5 Resignation of Operator
The Operator may resign by giving each of the Parties ninety
(90) Business Days' written notice (or such lesser period of
notice as the Operating Committee may resolve to accept) of its
intention to do so.
4.6 Appointment of New Operator
If an Operator:
(a) is deemed to have been removed pursuant to Clause 4.2 a
successor Operator shall be appointed by a vote carried by
such number of the Parties, other than the removed Operator
and any Related Company of the removed Operator, the total
of whose Participating Interests constitutes a majority of
the total of the Participating Interests of the Parties
other than the removed Operator and any Related Company of
the removed Operator; or
(b) is replaced pursuant to Clause 4.4 a successor Operator
shall be appointed by the Operating Committee provided that
in the event that a decision of the Operating Committee is
not promptly reached pursuant to Clause 7.3, then a
successor Operator may be appointed by a vote carried by
such number of the Parties, other than the former Operator
and any Related Company of a former Operator, the total of
whose Participating Interests constitutes a majority of the
total of the Participating Interests of the Parties other
than the former Operator and any Related Company of the
former Operator; or
(c) resigns pursuant to Clause 4.5, the Operating Committee
shall appoint a new Operator.
4.7 Consent to Appointment as Operator
Except as provided in this Clause 4.7, no Party shall be
appointed Operator unless it has given written consent to the
appointment. If by reason of failure to appoint a new or
replacement Operator, no Operator is functioning at any time,
then until the appointment of an Operator the Party having the
greatest Participating Interest (excluding the Party or Related
Company of that Party removed or replaced as Operator or which
has resigned as Operator) shall act as Operator for the time
being. If two or more of such Non-Operators have equal
Participating Interests then the Operator for the time being
shall be selected by Parties (excluding the Party or Related
Company of that Party removed or replaced as Operator or which
has resigned as Operator) holding a simple majority of
Participating Interests and in the event that there are no other
such Parties then the selection shall be made by lot.
<PAGE> 144
4.8 No Appointment of Removed Operator
An Operator which is deemed to have been removed under
Clause 4.2 shall not be re-appointed as its own immediate
successor Operator, except with the unanimous consent of the
Parties.
4.9 Effective Date of Appointment
The appointment of a successor Operator shall take effect in
accordance with the following provisions:
(a) in the case of the deemed removal of an Operator
pursuant to Clause 4.2, the appointment of a successor
Operator pursuant to Clause 4.6(a) or Operator for the time
being pursuant to Clause 4.7 shall take effect forthwith
upon such appointment;
(b) in the case of the replacement of an Operator pursuant
to Clause 4.4, the appointment of the outgoing Operator
shall cease at a time to be agreed upon by the Operating
Committee and the outgoing Operator or in the absence of
agreement at 8.00 am on the first Business Day of the month
following the month in which it is resolved to replace the
Operator pursuant to Clause 4.4, and the appointment of a
successor Operator pursuant to Clause 4.6(b) or Operator for
the time being under Clause 4.7 shall take effect in each
case at such time; and
(c) in the case of the resignation of an Operator pursuant
to Clause 4.5, the appointment of a successor Operator
pursuant to Clause 4.6(c) or Operator for the time being
under Clause 4.7 shall take effect at 8.00 am on the first
day following the expiration of ninety (90) Business Days
(or such lesser period of notice as is accepted by the
Operating Committee) after the date upon which notice of
resignation was given pursuant to Clause 4.5.
4.10 Delivery of Property on Change of Operator
At the effective date of the resignation, removal or
replacement of the Operator as herein provided, the outgoing
Operator shall deliver to the successor Operator custody of all
Joint Operations for the Joint Account or otherwise operated by
the outgoing Operator, the Joint Property, and all other
facilities held for the Joint Account or due to Sole Risk
Operations, all books of account and records kept for the Joint
Account or due to Sole Risk Operations and all documents,
agreements and other papers relating thereto and all other things
held by the Operator, as Operator.
<PAGE> 145
4.11 Consequences of Change and Delivery of Property
Upon delivery of the property, books and records referred to
in Clause 4.10, the outgoing Operator shall be released and
discharged from, and the successor Operator shall assume, all
duties and obligations of the Operator, except the unsatisfied
duties and obligations of the outgoing Operator accrued prior to
the effective date of the change of Operator and for which such
outgoing Operator shall, notwithstanding its release or
discharge, continue to remain liable. In order to give effect to
the potential application of the provisions of this Clause, each
Operator shall use its best endeavours to ensure that all
contracts and engagements entered into by such outgoing Operator
for the Joint Account enure for the benefit of and are, if
applicable, assignable to a successor Operator without penalty or
premium upon such assignment.
4.12 Audit of Accounts on Change of Operator
Upon every change of Operator and not later than eighty (80)
Business Days after the successor Operator commences to act as
Operator, the Parties (other than the outgoing Operator) shall
cause an audit to be made of the books of account and records
kept for the Joint Account. The cost of the audit shall be for
the Joint Account unless the Operator has been replaced pursuant
to Clause 4.4 in which case the cost of the audit shall be
charged to those Parties who have voted to replace the Operator.
5 FUNCTIONS AND DUTIES OF OPERATOR
5.1 Control and Management of Joint Operations
Subject to the terms of this Agreement and to the control
and direction of the Operating Committee under this Agreement,
the Operator shall have the exclusive control and management of,
and shall be obligated to conduct, Joint Operations.
5.2 Independent Status of Operator
The Operator shall furnish or cause to be furnished all
material, labour and services necessary for Joint Operations,
consistent with approved programs and budgets. Subject to Clause
5.3, the Operator shall determine the number of employees, their
selection and the hours of labour and the compensation for
services to be paid to them in connection with Joint Operations.
All employees, agents and contractors used in Joint Operations
shall be the employees, agents and contractors of the Operator or
a Related Company of the Operator.
In all dealings with contractors, suppliers and other third
parties in accordance with this Agreement the Operator shall act
and contract as agent for the Parties.
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5.3 Proper Practices in Joint Operations
The Operator shall carry on all Joint Operations in a
proper, efficient, economical and safe manner in accordance with
good oilfield practices and conservation principles, with all
reasonable skill and effort in the circumstances, with good and
sufficient equipment and in accordance with the terms and
conditions of the Permit and the Act.
5.4 Books and Records
The Operator shall, with respect to all Joint Operations
conducted by it, keep and maintain at its principal office for
the Joint Account, as required by the Act and in accordance with
generally accepted accounting principles in New Zealand, true and
correct books, records and accounts showing the development and
progress made, drilling done, other Joint Operations carried out,
the quantity of Petroleum produced from each well and the
disposition thereof.
5.5 Protection from Liens
Subject to the Operator holding sufficient funds in the
Joint Account from time to time, the Operator shall pay, or cause
to be paid, as and when they become due and payable, all accounts
of contractors and claims for wages and salaries for services
rendered or performed and insofar as it may be within its control
for materials supplied in respect of any Joint Operations, and
keep the Permit and any property acquired for the Joint Account
free from liens and encumbrances resulting from such Joint
Operations save to the extent only that the same may arise from a
bona fide dispute with respect to any such account or claims and
shall not suffer any claims of or dues to or on behalf of any
Government, Governmental Board or Authority to remain unsatisfied
or become in arrears.
5.6 Non-Operator's Rights of Access
Subject to:
(i) the giving of 24 hours' prior notice to the Operator
(except in the case of testing, coring, logging, measurement
of total depth, plugging and abandoning); and
(ii) not causing any unreasonable interference with the
conduct of the Joint Operations, each Non-Operator shall
have the right at the Non-Operator's sole risk, cost and
expense for persons authorised and nominated by it and
advised to the Operator to have full and free access at all
reasonable times for the purposes of inspection and
observation of all Joint Operations and the records of Joint
Operations and any information obtained as a result of Joint
Operations.
<PAGE> 147
5.7 Compliance with Terms of Permit
The Parties acknowledge and agree that, when the Operator
enters into any contract for the Joint Account, it contracts
solely as agent for each Party severally in proportion to its
Participating Interest, and not as principal, and notwithstanding
that the names of the non-operators do not appear on any such
contract or that the Operator does not disclose the existence or
identity of any Party as principal or the capacity of the
Operator as agent.
5.8 Taxes and Fees
The Operator shall pay for the Joint Account, all taxes
(exclusive of any taxes measured by the income of any Party or
receipt by any of them of Petroleum), fees and other payments
pertaining to the Permit and Joint Operations required to be paid
to the Government in a manner which will discharge the Parties'
obligations with respect thereto.
5.9 Budget Expenditures by Operator
The Operator shall conduct each program of Joint Operations
approved by the Operating Committee and shall not undertake any
Joint Operations not included in any approved program or incur
expenditures in excess of the expenditures authorised by an AFE
approved pursuant to Clause 8.5 or otherwise authorised in this
Agreement.
5.10 Operator to Hold Property
The Operator shall have and hold full and exclusive
possession, custody and control on behalf of the Parties of all
Joint Property and the title documents to the Permit.
5.11 Operator's General Duties
In the conduct of Joint Operations, the Operator shall:
(a) confer freely with the Non-Operators and keep them
currently advised of all significant matters arising in
connection with Joint Operations;
(b) acquire and maintain custody of all such premises,
furniture, fixtures, fittings, materials, supplies, plant,
machinery, equipment and services as are necessary or
desirable for such Joint Operations;
(c) obtain from outside experts and consultants such
technical, legal, accounting and other professional advice
and services as are necessary or desirable for Joint
Operations;
<PAGE> 148
(d) prepare and file reports and returns (other than those
based upon or measured by income) required by law or this
Agreement and furnish the Non-Operators promptly with copies
thereof;
(e) keep books, accounts and records of Joint Operations
and prepare and furnish to the Non-Operators reports,
including but not limited to, exploration progress reports,
geological and geophysical reports, daily drilling reports,
well logs, production reports and reports furnished by the
Operator to the Government relating to Joint Operations;
(f) subject to their availability, make available to any
Non-Operator requesting the same samples of rocks, cores and
formation fluids taken from any wells drilled under this
Agreement;
(g) prepare and present to the Non-Operators proposed work
programs, corresponding budgets and AFEs as provided in
Clause 8;
(h) subject to the provisions of Clause 12, carry out all
Sole Risk Operations;
(i) procure and maintain insurance and adjust losses and
claims arising out of such insurance as provided in this
Agreement;
(j) provide the Non-Operators, upon request, with a copy of
all or any contract entered into by the Operator pursuant to
this Agreement;
(k) do all such other acts and things as may be necessary
or desirable under this Agreement for the efficient and
economical conduct of Joint Operations;
(l) provide on a timely basis and at the cost of the Non-
Operator concerned, such data additional to that distributed
pursuant to this Agreement as is required to enable each of
the Non-Operators to make, to the extent that any such Non-
Operator legally is required so to do, public statements or
announcements to any governmental agency or official stock
exchange;
(m) within twenty (20) Business Days after the end of each
month, furnish to each Non-Operator a summary report on
Joint Operations conducted during such month;
(n) negotiate with the Government on behalf of all of the
Parties in respect of those matters which the Operating
Committee considers necessary or desirable; and
<PAGE> 149
(o) provide on a timely basis and at the cost of the Non-
Operator concerned such data additional to that distributed
pursuant to this Agreement as that Non-Operator may
reasonably require.
5.12 Operator to Let for Bid Certain Contracts
Unless the Operating Committee decides otherwise, the
Operator will comply with the following provisions in relation to
entering into contracts:
(a) the Operator shall invite competitive tenders in
respect of contracts for materials or services for the Joint
Account the cost of which is likely to exceed $75,000 for
any one item or series of related items.
(b) In addition to any other approvals required under this
Agreement, the Operator shall obtain Operating Committee
approval to the principal terms of contracts for materials
or services for the Joint Account, the cost of which, in the
opinion of the Operator, is likely to exceed, for any one
item or series of related items:
(i) in the case of contracts for drilling rigs -
$500,000
(ii) in the case of contracts for the acquisition
and/or processing of seismic - $250,000
(iii) in the case of contracts incorporated in a
program and budget other than contracts for drilling
rigs and seismic- $150,000
(c) where bids are required under this Clause 5.12, each
Party and any Related Company of a Party shall have the
right to submit a bid.
6 OPERATOR LIABILITY AND INDEMNITY
6.1 Liability of Operator
The Operator and its directors, officers, employees, shall
not be responsible for any costs, losses, claims, damages or
liabilities suffered or incurred by any Party arising out of or
in the course of the discharge of its duties as Operator
hereunder except for:
(a) any costs, losses, claims, damages and liabilities
arising, directly or indirectly, from Wilful Misconduct or
Gross Negligence of the Operator; and
<PAGE> 150
(b) those amounts which the Operator is liable to expend or
contribute in the discharge of its obligations as a Party in
terms of this Agreement.
The Operator shall not be liable in any circumstances for
any loss of profits or other consequential losses whatsoever or
howsoever occurring.
6.2 Indemnity of Operator
Each of the Non-Operators, severally to the extent of its
Participating Interest, shall at all times indemnify and keep
indemnified the Operator and its directors, officers and
employees against all liabilities, losses, damages, costs and
expenses suffered or incurred by the Operator and its directors,
officers and employees in relation to Joint Operations other than
those liabilities, losses, damages, costs or expenses arising
directly from the Wilful Misconduct or Gross Negligence of the
Operator.
7 OPERATING COMMITTEE
7.1 Composition of Operating Committee
To provide for the orderly selection, control and direction
of Joint Operations there shall be established promptly an
Operating Committee. Subject to Clause 7.11, the Operating
Committee shall be comprised of a representative of each of the
Parties and each Party shall appoint one representative and one
alternate representative to serve on the Operating Committee.
The Operator's representative shall be the chairman of the
Operating Committee.
7.2 Formation of Operating Committee
Subject to clause 7.11, within twenty (20) Business Days
after the Effective Date, each Party shall notify each of the
other Parties of the names and addresses of its representative
and alternate representative who shall represent such Party and
is deemed authorised to bind such Party with respect to all
matters in connection with Joint Operations. Each alternate
representative shall be entitled to attend all Operating
Committee meetings but shall have no vote at such meetings except
in the absence or disability of the representative for whom he is
the alternate. Each Party shall have the right to change its
representative and/or alternate at any time by giving notice to
such effect to the Other Parties.
In addition to the representative and alternate
representative, each Party may bring to all such meetings such
technical and other advisers as it may deem appropriate. The
<PAGE> 151
Parties shall pay the expenses of attendance at Operating
Committee meetings of their own representative and/or alternative
representative and advisers.
7.3 Vote Required for Decisions of Operating Committee
Except as otherwise provided in this Agreement, all
decisions of the Operating Committee on all matters coming before
it shall be made by the affirmative vote of two or more Parties
having collectively not less than seventy five percent (75%) of
the aggregate of the Participating Interests of the Parties
entitled to vote thereon. The Operating Committee shall have no
power to make a decision:
(a) to assign or (except with the unanimous approval of the
Parties) voluntarily surrender any part or parts of the
Permit; or
(b) to enter into, amend or vary this Agreement or any
agreement between the Parties and a Government; or
(c) upon any matter in respect of which specific provision
is made in this Agreement for a decision to be made in a
different fashion.
Except as otherwise specifically provided in this Agreement,
the decisions of the Operating Committee shall be binding on the
Parties.
7.4 Quorum for Meetings of Operating Committee
(a) No meeting of the Operating Committee shall transact
any business unless a quorum is present.
(b) A quorum for the purposes of a meeting of the Operating
Committee shall be constituted by the representatives of not
less than two Parties present and entitled to vote holding
Participating Interests aggregating at least seventy five
percent (75%) of the Participating Interests of the Parties
entitled to vote.
(c) If a quorum is not present within an hour from the time
appointed for a meeting of the Operating Committee (or such
longer period as the Parties then present unanimously agree
to remain), the meeting shall stand adjourned for five (5)
Business Days to the same time and place.
7.5 Meetings of Operating Committee
(a) The Operating Committee may meet, either personally or
by telephone, video conference or any other form of
instantaneous communication by which all participants can
<PAGE> 152
properly communicate with each other, for the dispatch of
business and, subject to this Agreement, adjourn and
otherwise regulate its meetings as it thinks fit. One of
such meetings shall be the annual meeting of the Operating
Committee and shall take place no later than 1 month prior
to the commencement of the next succeeding Permit Year.
(b) The Operating Committee shall meet whenever requested
by the giving of fifteen (15) Business Days' written notice
by the Operator and shall meet at least once each year to
consider the program and budget referred to in Clause 8. A
notice given pursuant to this Clause shall include the
agenda for the meeting. The Operating Committee may meet at
such other times as the Parties entitled to vote unanimously
agree.
(c) Any Party requesting the Operator to give a notice
requesting a meeting shall provide the Operator with
sufficient information concerning the matters to be
considered thereat to enable the Operator to comply with its
obligations pursuant to Clause 7.9(a).
(d) Any Party requesting the Operator in the manner
provided in Clause 7.5(b) to give a notice requesting a
meeting shall be entitled to give such notice in lieu of the
Operator if the Operator fails to give such notice within
five (5) Business Days of receiving the request from such
Party in which case the meeting shall be held at the time
and place as specified by such Party in the said notice.
(e) Meetings of the Operating Committee shall resolve only
such matters as are specified in the notice of meeting
provided however that the Operating Committee may by the
unanimous vote of the representatives of all Parties amend
any notice of meeting to include additional matters.
(f) The failure by a Party to vote on any resolution put
for decision by the Operating Committee shall be deemed to
be a vote against such resolution.
7.6 Resolution in Absence of Meeting
(a) In lieu of a meeting, the Operator may and shall
promptly at the request in writing of any Non-Operator
submit any matter which is proper for consideration by the
Operating Committee to the representatives of the Parties by
giving each representative notice by mail or facsimile
adequately describing the matter so submitted. Each
representative of a Party entitled to vote shall communicate
its vote thereon to the Operator and to the other Parties by
mail or facsimile within such period as may be designated in
the notice given by the Operator, which period shall not,
except as otherwise provided in this Agreement, be less than
six (6) Business Days after receipt of such notice.
<PAGE> 153
(b) Where the Parties are requested to vote on any proposal
in circumstances other than those described in Clause 7.6(c)
or Clause 12.19 and where the matter presented for
consideration by its nature requires determination in less
than six (6) Business Days and such fact and lesser period
(which shall not be less than forty-eight (48) hours after
receipt of such notice) are so stated in the notice
submitting the proposal, the Parties shall cast their vote
within such lesser period. The Operator shall use all
reasonable endeavours to ensure that each Party is aware of
the proposal. Failure by a Party to cast its vote within
the relevant period shall be regarded as a vote by that
Party against the proposal.
(c) Where the Parties are requested to vote in
circumstances other than those described in Clause 12.19 on
any proposal in respect of a well on which drilling
equipment is then located:
(i) any request made or response given may be
made or given by telephone and shall be confirmed
by facsimile the same day or, if outside normal
business hours, on the next Business Day. Any
time periods provided in this Clause 7.6(c) shall
begin to run from the time of such request; and
(ii) each Party shall cast its vote within twenty-
four (24) hours of the receipt of such request or
within such longer period as is stated in the
request. Failure of a Party to cast its vote
within the relevant period shall be regarded as a
vote by that Party against the proposal.
(d) If the proposal is not one to which Clause 7.6(b),
Clause 7.6(c) or Clause 12.19 applies and within six (6)
Business Days after receipt of such notice, a request by any
Party is made for a meeting to consider such matter, it
shall be considered at a meeting duly called for that
purpose. If a meeting is not requested, then at the
expiration of the period designated in the notice given by
the Operator, the Operator shall give to each representative
written notice stating the tabulation and results of the
vote. The absence of a response by any representative shall
be deemed to be a negative vote.
(e) Decisions of the Parties made pursuant to Clause 7.6
shall be made by the same vote as is provided for in Clause
7.3 and shall have the same effect as decisions made at a
meeting of the Operating Committee pursuant to Clause 7.3.
<PAGE> 154
7.7 Sub-Committees
The Operating Committee may establish such sub-committees,
including a technical sub-committee, consisting of a nominee of
each Party, as the Operating Committee may deem appropriate. The
functions of such sub-committees shall be determined by the
Operating Committee. Such sub-committees shall meet whenever
requested by the giving of ten (10) Business Days' written notice
by the Operator (which shall give such notice within five (5)
Business Days after it is requested to do so by any Party). Such
sub-committees shall be advisory only and shall have no power to
direct the Operator or the Operating Committee.
7.8 Place of Meetings
Except as provided for in Clause 7.5(c), all meetings of the
Operating Committee shall be held at an office nominated by the
Operator or such other place as may be decided by the Operating
Committee.
7.9 Operator's Duties Concerning Meetings
With respect to meetings of the Operating Committee, the
Operator's duties shall include, but not be limited to:
(a) preparation and distribution of an agenda together with
reasonably adequate supporting information;
(b) organisation and conduct of the meeting;
(c) preparation of a written record of decisions taken at
each meeting for signature by all Parties prior to the end
of the meeting;
(d) preparation of minutes of each meeting with copies
thereof delivered to the representatives of the Parties as
soon thereafter as possible (but no later than ten (10)
Business Days) for approval as to the accuracy thereof
provided always that if none of the representatives of the
Parties to whom copies of any such minutes are required to
be sent shall object thereto by writing to the Operator
within fifteen (15) Business Days of receipt of the copy
then such minutes are deemed to have been approved provided
further that the failure by the representatives to approve
such minutes shall not invalidate any decision taken at such
Operating Committee meeting; and
(e) maintenance of a permanent file of all Operating
Committee decisions.
<PAGE> 155
7.10 Operating Committee's Functions
The functions of the Operating Committee shall include, but
not be limited to:
(a) review and approval of programs and budgets and of
AFEs;
(b) determining policies with respect to all Joint
Operations;
(c) consideration of the necessity or otherwise of
feasibility studies and terms of reference thereof in
relation to Joint Operations on the Area;
(d) approval of the locations and well plans of all
proposed wells;
(e) approval of well spacing patterns;
(f) approval of production profiles;
(g) determining applications for the renewal of the Permit;
and
(h) deciding such other matters pertaining to Joint
Operations and proposed Joint Operations as may arise from
time to time and are required to be submitted to the
Operating Committee by the terms of this Agreement and to
make decisions in respect of all other matters pertaining to
this Agreement not assigned to the Operator or the Parties
hereunder.
7.11 Minimum Participating Interest for Representation
A Party whose Participating Interest is less than five
percent (5%) or becomes less than five percent (5%), shall not be
entitled to appoint or retain a representative or alternate
pursuant to Clause 7.2, nor to have a vote proportionate to its
Participating Interest in connection with any decision of the
Operating Committee, except as hereinafter provided.
Two or more Parties, having Participating Interests the sum
of which is five percent (5%) or more, may combine to appoint a
representative and alternate pursuant to Clause 7.2, which
representative shall represent and be deemed authorised to bind
such Parties in every way as though such Parties were one Party
having a Participating Interest equal to the sum of such Parties'
Participating Interests, and such Parties shall be entitled to
cast a vote in connection with any decision of the Operating
Committee as though such Parties were one Party having a single
vote proportionate to the sum of such Parties' Participating
Interests.
<PAGE> 156
8 PROGRAMS AND BUDGETS
8.1 Submission of Programs and Budgets
During the term of this Agreement and unless otherwise
agreed by the Operating Committee the Operator shall submit to
each Party's representative on the Operating Committee by no
later than three (3) months before the commencement of each
Permit Year a recommended program and budget for such Permit
Year.
8.2 Adoption of Programs and Budgets
Unless otherwise agreed by the Operating Committee, by no
later than one (1) month before the commencement of each Permit
Year the Operating Committee shall meet to decide upon the
program and budget for such Permit Year. Subject to the
provisions of Clauses 8.4, 8.5 and 8.10 to 8.12 inclusive, such
decision shall oblige the Parties to bear and pay their
respective Participating Interest shares of all liabilities,
costs and expenses arising or incurred under the program and
budget so approved.
8.3 Minimum Programs, Budgets and Work Obligation
Determination
(a) If by fifteen days before the commencement of any
Permit Year the Operating Committee having used all
reasonable endeavours has been unable to decide on the
program and budget for that Permit Year the Operating
Committee shall attempt to determine a programme and budget
sufficient to meet the Work Obligation for such Permit Year
by the affirmative vote of Parties the aggregate of whose
Participating Interests exceeds fifty percent (50%). If the
Parties at any time from time to time, fail to approve an
AFE necessary to meet that program and budget, then the
Operating Committee shall be deemed to have approved all
AFEs necessary for the Operator to carry out Joint
Operations sufficient to meet, all of the Work Obligation
relating to that Permit Year, which has not by that date,
been satisfied.
(b) If the Operating Committee is still unable to decide
upon a program and budget within ten (10) Business Days
after the commencement of such Permit Year, the Operator
shall prepare and dispatch without delay and in any event by
not later than thirty (30) Business Days after the
commencement of the Permit Year to each of the Parties a
program and budget sufficient to meet the Work Obligation
for such Permit Year. The Operating Committee shall be
deemed to have approved such program and budget and all AFEs
necessary to give effect thereto and each of the Parties
shall be liable to the extent of its Participating Interest
<PAGE> 157
for all costs and expenses incurred by the Operator in
carrying out the Work Obligation in accordance with the
AFEs.
(c) Not less than two(2) months prior to any date on which
a Work Obligation is to be agreed with the Minister for a
new period of the Permit, the Operating Committee shall meet
to vote upon the program to be submitted as the proposed
Work Obligation.
(d) Any Party voting against a program agreed under
paragraph c) shall despite clause 16.2 (a) have the right to
withdraw from the Permit by giving notice of its intention
to do so within 10 days of the vote being taken. Such a
withdrawn party must be notified of any modified programme
submitted under 8.3 (e) and is deemed not to have withdrawn,
unless anew notice under (e) is received.
(e) If the Minister withholds approval of the program
submitted in accordance with paragraph c) above and invites
submittal of a modified program in accordance with the Act,
then the Operating Committee shall meet and vote on a
modified program; and the right for a Party to withdraw,
having voted against the modified program will apply in the
same manner as in paragraph d) above.
8.4 Review of Programs and Budgets
Each approved program and budget shall be reviewed by the
Operating Committee at such times as the Operating Committee may
decide. If upon any such review the program and budget is
amended, the amended program and budget shall become the approved
program and budget provided always that any such amendment shall
not invalidate any authorised commitment or expenditure made by
the Operator prior thereto.
8.5 Authorities for Expenditure (AFEs)
Subject to the provisions of Clauses 8.3, 8.6, 11.7 and
11.8, the Operator shall not enter into any commitment or incur
any expenditure whether under an approved program and budget or
otherwise except in accordance with an AFE approved in accordance
with the following provisions of this Clause 8.5:
(a) The Operator shall after the Operating Committee has
approved a program and budget prepare an AFE in respect of
each seismic program, well or other major division of work
in the approved program and submit each such AFE to the
Parties in a timely fashion having regard to the Joint
Operations to be carried out under the approved program and
the provisions of this Clause 8.5.
<PAGE> 158
(b) The Parties shall consider and unless a meeting of the
Operating Committee is called for such purpose vote upon
each AFE in accordance with the procedures provided for in
Clause 7.6 except that such vote must be communicated not
later than ten (10) Business Days after its submission to
the Parties. A Party who fails to vote on such AFE within
such ten (10) Business Day period shall be deemed to have
voted not to approve the AFE.
(c) When the Operating Committee approves an AFE the
Operator shall be authorised and obliged to proceed with the
expenditure or commitment provided for therein and each
Party shall be obliged to bear and pay its respective
Participating Interest share of all liabilities, costs and
expenses arising or incurred under the AFE so approved.
(d) Each AFE submitted to the Parties and each approved AFE
shall be divided into individual meaningful categories, each
of which shall describe the operational and financial
requirements thereof in sufficient detail to identify its
scope and set out particulars of the best estimate of the
funds required to complete the work.
8.6 When Expenditure in Excess of Approved AFE is
Authorised
Notwithstanding the provisions in Clause 8.5:
(a) if at any time it becomes apparent to the Operator that
the expenditure which will be incurred in respect of Joint
Operations covered by an approved AFE will exceed by more
than ten percent (10%) the amount allowed in the approved
AFE, the Operator shall forthwith prepare and submit to the
Parties for approval by the Operating Committee a
supplementary AFE relating to such excess expenditure. The
Operator shall use all reasonable efforts to prepare and
submit such supplementary AFE to the parties before any part
of such excess expenditure is incurred. If the Operating
Committee does not approve the supplementary AFE, the
Operator shall take all steps reasonably necessary to
conclude, as expeditiously as possible, and with minimum
cost to the Parties, the Joint Operations in respect of
which the excess expenditure has been or is about to be
incurred; and
(b) in the case of emergency, the Operator may take such
action as may in its judgment be necessary for the
protection of life or property and may incur all reasonable
expenditure on behalf of the Parties in so doing. In the
event of so doing, the Operator shall report promptly to the
Parties the amount of such expenditures and the
circumstances in which they were made.
<PAGE> 159
Expenditure in excess of an approved AFE properly incurred
by the Operator pursuant to the provisions of paragraph (a) or
(b) above is deemed to be Authorised Expenditure within the
meaning of Clause 9.1.
8.7 Approved Well Plan
Prior to the commencement of drilling of any well, the
Operating Committee shall have approved a well plan ("Approved
Well Plan") for that well which shall provide the detail relating
to the drilling of the well to its agreed total depth, including
but not limited to the casing program, mud program and proposed
coring, testing and wireline logging operations.
8.8 AFEs for Wells
The Operator shall compile an AFE for the drilling of a well
on a dry hole basis, but to include provision for such coring or
open hole testing as is in accordance with the Approved Well Plan
for that well.
8.9 Casing Point Decision
(a) Any decision by the Operating Committee pursuant to
Clause 8 regarding the drilling, deepening, reworking,
fraccing, side-tracking or plugging back of a well shall not
be deemed an agreement or decision regarding the setting of
casing and the making of a Completion attempt for
production.
(b) After any well drilled, deepened, reworked, fracced,
side-tracked or plugged back has reached Casing Point, the
Operator shall give immediate notice pursuant to Clause
7.6(c) to all Parties.
(c) The notice given by the Operator pursuant to the
preceding Clause 8.9(b) shall contain the Operator's
recommendation either:
(i) to plug and abandon the well; or
(ii) to Complete the well as a producer in which case
the notice shall include the appropriate Completion
procedures and the estimated cost of Completion and
Parties voting for the recommended Completion shall be
deemed to have voted in favour of a formal AFE to be
submitted as soon as practicable in the sum of such
estimated Completion costs.
(d) Each Party shall vote on the proposal in accordance
with Clause 7.6(c).
<PAGE> 160
(e) If such number of Parties the aggregate of whose
Participating Interests equals or exceeds the percentage
required for an affirmative vote of the Operating Committee
pursuant to Clause 7.3 approves the Completion of such well,
the Operator shall proceed to attempt the Completion of such
well as if such Completion had been approved at a meeting of
the Operating Committee.
(f) If there is a lesser percentage of approval for
Completion than that referred to in Clause 8.9(e) or if less
than all Parties have voted to plug and abandon the well,
then the Operator shall advise all Parties of the result of
the vote and any Party which voted for the Completion of the
well may thereupon immediately request that the operation to
plug and abandon the well be delayed (at such Party's
expense) for a period of up to 24 hours to enable Sole Risk
Operations to be considered. If no such request is made or
if at the end of the said 24 hours no Sole Risk Operation
Notice has been given, the Operator shall plug and abandon
the well.
(g) Any notice to be given or election to be made pursuant
to this Clause 8.9 may be given or made by telephone and
shall be confirmed by facsimile as soon as practicable
following such telephone call. Any time periods provided in
this Clause 8.9 shall begin to run from the time of such
telephone call.
8.10 Rights of Party Voting Against Operating Programs and
Budget
(a) Subject to Clause 8.3, if any Party through its
representative at a meeting of the Operating Committee held
to approve a programme and budget, votes against the
carrying out of any Joint Operations consisting of the
drilling of one or more wells which are not required to meet
the work Obligation for the relevant Permit Year
("Additional Joint Operations") but which is included within
a program and budget for that Permit Year approved or deemed
to be approved by the Operating Committee, then such Party
may notify the Operator within the relevant time limits
specified in Clause 8.12, that it will not participate in
the Additional Joint Operations ("Non-Consenting Party").
(b) Subject to Clause 8.11, all the Parties which have
approved the program and budget containing the Additional
Joint Operations ("Consenting Parties") will thereafter
share in all costs, risks, liabilities, expenses and
benefits arising or incurred with respect to the Additional
Joint Operations in the proportion that each of their
respective Participating Interests bears to the total of the
Participating Interests of all the Consenting Parties.
<PAGE> 161
8.11 Consenting Parties' Premium
(a) Where a Non-Consenting Party notifies the Operator that
it will not participate in the Additional Joint Operations,
the Operator shall notify the other Parties within 7 days of
receipt of such notice. If any Party which voted for the
program and budget containing the Additional Joint
Operations then notifies the Operator within 7 days of
receipt of the Operator's notice that it does not wish to
participate in the Additional Joint Operations, the Party
shall be deemed to be a Non-Consenting Party under this
clause and thereafter shall not be responsible for any
costs, risks or expenses attributable to the Additional
Joint Operations. In this event, the remaining Parties will
be given immediate notice of their projected re-adjusted
contribution to costs, and have an extra 48 hours to advise
Operator of their consenting or non-consenting status.
Notwithstanding the above, such 7-day notice period shall be
shortened to 48 hours if the Additional Joint Operations are
currently in progress.
(b) The Consenting Parties' rights, interests and benefits
in respect of the results of the Additional Joint Operations
shall be determined in accordance with those sub-clauses of
Clause 12 applicable to the nature of the Additional Joint
Operations as if the Additional Joint Operations were Sole
Risk Operations and the Consenting Parties were Sole Risk
Parties in such Sole Risk Operations.
8.12 Notice to Operator
Notice to be given to the Operator by a Non-Consenting Party
pursuant to Clause 8.10(a) shall be given within the following
periods:
(a) if the Additional Joint Operations are to be commenced
within 30 days after the close of the meeting of the
Operating Committee at which the program and budget
containing the Additional Joint Operations was approved,
within 7 days after the date of that meeting;
(b) if the Additional Joint Operations are to be commenced
more than 30 days after the close of the meeting of the
Operating Committee at which the program and budget
containing the Additional Joint Operations was approved,
within 15 days after the date of that meeting.
(c) if the Additional Joint Operations are currently in
progress, within 48 hours after the receipt of notice from
the Operator thereof.
<PAGE> 162
9 COSTS AND EXPENSES
9.1 Allocation of Expenditure
Subject to the provisions of this Agreement, all expenditure
relating to Joint Operations, including without limitation the
handling, treating, storing and transporting to the Delivery
Point of Petroleum produced from the Area shall, except as
otherwise specifically provided herein, be borne by the Parties
in proportion to their respective Participating Interests. All
liabilities of the Joint Venture shall be borne in the same
proportions. To the extent that any such expenditure is included
in an approved AFE or is otherwise authorised pursuant to this
Agreement, such expenditure shall be deemed to be authorised and
shall be referred to as "Authorised Expenditure".
9.2 Accounting Procedure as Basis
The Accounting Procedure shall be the basis for all charges
and credits to the Joint Account except as the Accounting
Procedure may be in direct conflict with this Agreement, in which
event the provisions of this Agreement shall prevail, and the
Operator shall keep its records of costs and expenditure in
accordance with such Accounting Procedure. The Operator must
charge on the basis that it is intended to neither gain nor lose
in performing the functions and duties of the Operator under this
Agreement.
9.3 Payment by Operator and Reimbursement
The Operator shall initially pay all Authorised Expenditure
and shall debit the Parties for their respective shares thereof.
Unless the Operator shall have received advances for such
purposes as provided for in this Agreement, each Party shall
forthwith reimburse the Operator for its share of such Authorised
Expenditure in accordance with the provisions of this Agreement.
9.4 Calls by Operator
The Operator may require the Non-Operators to advance their
respective proportions of Authorised Expenditure in which event
the provisions of Article 1.2.1 of the Accounting Procedure shall
apply.
9.5 Banking of Funds
All funds received by the Operator under the provisions of
this Agreement (other than funds received for the purpose of a
Sole Risk Operation) shall be lodged by the Operator in a
separate bank account in the name of the Joint Venture maintained
by the Operator and styled as directed by the Operating
Committee. The Operator shall deposit to such account its own
share of Authorised Expenditure or of advances to meet Authorised
<PAGE> 163
Expenditure due by it within the same time limits within which
the Non-Operators are required to pay their shares to the
Operator. Pending the expenditure thereof, the funds advanced by
any Party shall be held by the Operator in trust for the
respective Party, subject to the terms of this Agreement.
9.6 Investment of Funds
Each Party hereby authorises the Operator to invest the
funds lodged in the bank account referred to in Clause 9.5 from
time to time in interest bearing deposits with such bank or in
such other forms of investment as are from time to time approved
by the unanimous resolution of the Parties. Each Party shall be
entitled to receive or be credited with the interest earned upon
the investment of its funds.
9.7 Withdrawal of Funds
The Operator is hereby authorised to withdraw funds from the
bank account or interest bearing deposit or other investments as
they are required by the Operator to pay Authorised Expenditure.
10 INFORMATION ON JOINT OPERATIONS
10.1 Information as to Petroleum Production
The Operator shall furnish to each Party each month a
statement of the amount of Petroleum produced (including any
Petroleum used, flared or lost), gathered, treated, processed,
transported, stored and delivered during the preceding month and
in stock at the end of that month within the scope of such
Operator's responsibility.
10.2 Access to Records and Information
Unless otherwise specifically provided for in this Agreement
and subject to Clause 15.8 and upon reasonable notice to the
Operator each of the Parties shall have access at all reasonable
times for the purpose of examination and, at its own expense,
copying of all tapes, data, reports, accounts, contracts, books,
records and all other information kept by the Operator in
compliance with its obligations hereunder including but not
limited to those relating to geological and geophysical surveys,
drilling, exploration, production and gathering, those relating
to amounts of Petroleum produced, gathered, treated, processed,
transported, stored and delivered and those relating to plant and
pipeline design, construction and costs.
<PAGE> 164
10.3 Drilling Information and Privileges of Non-Operators
Prior to the commencement of any well for the Joint Account,
the Operator shall provide to each Party a copy of the Approved
Well Plan. With respect to any well drilled for the Joint
Account, and subject to Clause 15.8, the Operator shall furnish
to each Party, provided that weather or communication conditions
do not prevent the Operator from so doing:
(a) prompt notice by facsimile of the date of spudding in
of the well;
(b) daily drilling and geological reports;
(c) immediate advice by facsimile or telephone of:
(i) the encountering of any porous zone with showings
of hydrocarbons;
(ii) any other occurrence not specified in the Approved
Well Plan which might justify the testing or evaluation
of the zone in question; or
(iii) any material occurrence which the Operator
considers might justify a change from the Approved Well
Plan, together with a recommendation from the Operator
of any material departure from the Approved Well Plan
which the Operator thinks appropriate in the
circumstances;
(d) on request, at the expense of the requesting Party, a
complete set of washed samples of the cuttings of the
formations penetrated if practicable;
(e) access to all cores taken; and
(f) at the expense and risk of each Party and upon
reasonable notice to the Operator, access to the drilling
rig to such persons as that Party shall nominate for the
purposes of viewing any or all Joint Operations provided
that such access does not unreasonably interfere with Joint
Operations and that such persons comply with all applicable
safety requirements and directions.
10.4 Testing and Information to Non-Operators
With respect to any well drilled, the Operator shall:
(a) be ready to receive the comments of and discuss with
the Non-Operators any advice given by the Operator pursuant
to Clause 10.3(c);
<PAGE> 165
(b) proceed in all material respects in accordance with the
Approved Well Plan unless or until such time as the
Operating Committee directs otherwise;
(c) proceed with any variation of the Approved Well Plan
directed by the Operating Committee;
(d) take representative samples and drill stem test fluid
samples and supply each Non-Operator with all information
relative thereto; and
(e) supply each Non-Operator with copies of the test and
service report on each test run, including copies of
pressure charts provided that each Non-Operator shall be
entitled to no more than two copies of each such report and
related data.
10.5 Logging Information to Non-Operators
During the drilling of the well and upon the well reaching
the total depth, the Operator shall run all log surveys as are
approved by the Operating Committee and shall as soon as
practicable supply each Non-Operator with a copy of each log so
run.
10.6 Test Following Logging
At any time prior to any Operating Committee decision which
would negate such a request, if a Party requests (which request
may be made by telephone or facsimile) that the Operator tests an
interval in the well, the Operator shall promptly request the
Parties to vote on the proposal pursuant to the provisions of
Clause 7.6(c).
10.7 Seismic and Other Reports
The Operator shall supply each Party at the expense of the
Joint Account with:
(a) a copy of all seismic sections;
(b) a copy of the final report on all seismic surveys;
(c) a copy of the well completion report for each well; and
(d) a copy of any other reports prepared on behalf of the
Joint Venture in connection with Joint Operations.
<PAGE> 166
11 INSURANCE AND LITIGATION
11.1 Operator to Maintain Insurance
The Operator shall at all times while conducting Joint
Operations purchase and maintain for the Joint Account for the
protection and indemnification of the Parties:
(a) all such insurances as are required by the terms of the
Permit;
(b) personal injury insurance and property damage insurance
in respect of motor vehicles of all kinds engaged in Joint
Operations for a minimum of $5,000,000.00 or such greater
amount as the Operating Committee may from time to time
determine;
(c) workers compensation (including unlimited common law
risk), employer's liability and other insurance of a similar
or dissimilar nature as may be required by law;
(d) public liability insurance for a minimum of
$10,000,000.00 or such greater amount as the Operating
Committee may from time to time determine;
(e) industrial special risks insurance in respect of all
Joint Property for such amount as the Operating Committee
may from time to time determine;
(f) well control, pollution, seepage, clean up and
redrilling insurance (including underground blowout and
redrilling/recompletion) for a minimum of $10,000,000.00 or
such greater amount as the Operating Committee may from time
to time determine;
(g) insurance in respect of stocks of Petroleum held prior
to arrival at the Delivery Point in such amount as the
Operating Committee shall from time to time determine; and
(h) such other insurances or indemnities as the Operating
Committee may from time to time determine.
11.2 Contractors Insurance
The Operator shall in addition, require all contractors and
sub-contractors performing work for the Joint Venture to purchase
and maintain for the protection and indemnification of the
Parties insurances of the kind referred to in paragraphs (b), (c)
and (d) of Clause 11.1 insofar as relates to such work of such
contractors or sub-contractors provided that the Operator may
(unless otherwise directed by the Operating Committee) dispense
with any such insurance in any case in which the Operator
<PAGE> 167
determines that in all the circumstances it is appropriate to do
so and may determine such lower limit for any such insurance as
the Operator deems appropriate.
11.3 Review of Insurances
The Operator will when requested by the Operating Committee
carry out such review of the insurance effected pursuant to
Clause 11.1 as the Operating Committee may require.
11.4 Naming of Parties as Co-insured
The Operator and the other Parties and other persons for
whose benefit any policy of insurance is effected pursuant to
Clauses 11.1 or 11.2 shall be named as co-insureds therein. The
Operator shall ensure that each such policy of insurance shall
contain:
(a) a waiver of the right of subrogation by the insurer in
favour of the Parties; and
(b) a cross liabilities Clause to the effect that for the
purposes of the policy each Party and other person
comprising the insured shall be considered as a separate
unit and the policy shall apply to each such Party or other
person in the same manner as if a separate policy had been
issued to each of them in its name alone and the insurer
waives all rights of subrogation or action which it may have
or acquire against any such Party or other person.
11.5 Advice to Non-Operators of Current Insurance
The Operator will advise the Parties promptly of any
additional insurance effected or of any insurances cancelled,
altered or lapsed.
11.6 Party's Right to Increase Insurance
Any Party may at its own cost effect or increase any such
insurance so far as it relates to the interest of such Party
under this Agreement.
11.7 Cost of Insurance and Charging of Losses
The actual costs of the insurance effected by the Operator
pursuant to Clause 11.1 shall be charged to the Joint Account.
Any liability, loss, damage, claim or expense relating to Joint
Operations, whether in respect of an event which has been insured
or not, shall be charged to the Joint Account and shall be borne
and paid by the Parties (without prejudice to any right of
indemnity or action which any Party may have) in proportion to
their Participating Interests at the time of the liability, loss,
damage, claim or expense in question.
<PAGE> 168
Any Party may elect not to participate in any insurance if:
(a) it gives prompt notice of its non-participation to the
Operator (at least prior to the time at which the Operator
has entered into a contract for such insurance);
(b) its non-participation does not interfere, directly or
indirectly, with the Operator's negotiations for such
insurance and the other Parties participating in such
insurance or prejudice such insurance once obtained; it
produces to the Operating Committee such evidence of
insurance or financial responsibility, to cover its
Participating Interest share of the risks to be insured
against, as the Operating Committee determines to be
acceptable; and any policy it effects to cover the risks to
be insured against includes waivers of subrogation by the
insurer in favour of the other Parties with respect to Joint
Operations and Joint Property and is subject to a condition
that it cannot be cancelled or varied, or permitted to
expire, without, in each instance, the insurer having given
to the other Parties at least 14 days notice of that intent.
11.8 Litigation
(a) Subject to the provisions of this Clause 11.8, all
matters relating to the enforcement or defence of rights in
respect of or arising out of Joint Operations shall be
determined by decisions of the Operating Committee.
(b) All actions taken by the Operator pursuant to this
Clause 11.8 and all liabilities incurred pursuant thereto
shall be for the Joint Account and the payment of such
liabilities shall constitute Authorised Expenditure.
(c) All the provisions of this Agreement shall apply in
relation to matters referred to in this Clause 11.8
including without limitation the provisions of Clauses 8.5
and 8.6 relating to AFEs, the provisions of Clause 9.4
relating to calls by the Operator and the provisions of
Clause 15 relating to defaults in payment.
(d) The Operator shall promptly notify the Parties of any
claim, litigation, lien, demand or judgment relating to
Joint Operations.
(e) The Operator shall have the authority to prosecute,
pursue, defend or settle any claim, litigation, lien, demand
or judgment relating to Joint Operations where the total
amount in dispute and/or the then total amount of damages
together with any costs is estimated by the Operator to be
less than $20,000.00 or such other amount as may from time
to time be specified by the Operating Committee.
<PAGE> 169
(f) The Operator shall not except at the direction of the
Operating Committee prosecute, pursue, defend or settle any
claim, litigation, lien, demand or judgment relating to
Joint Operations where the then estimated total amount in
dispute and/or the total amount of damages together with any
costs is $20,000.00 (or such other amount as may from time
to time be specified by the Operating Committee) or greater.
(g) Each Party shall promptly notify the other Parties of
any claim, litigation, lien, demand or judgment relating to
Joint Operations and shall use all reasonable endeavours not
to conduct such proceedings in such a way as to prejudice,
affect or vitiate any insurance effected pursuant to this
Clause 11.
(h) Notwithstanding the provisions of Clause 11.8(e), each
Party shall have the right to participate in any
prosecution, defence or settlement of any proceedings
conducted in accordance with Clauses 11.8(e) and 11.8(f) at
its sole cost and expense provided however that a Party
exercising such a right shall remain liable for its share of
Joint Venture costs.
(i) Any Party participating in the prosecution, defence or
settlement of any proceedings shall at all times take all
reasonable steps to ensure that it does so in such manner as
does not prejudice the rights of any of the other Parties.
(j) The provisions of this Clause 11.8 shall not apply to
claims, litigation, liens, demands or judgments made,
brought or obtained by a Party against another Party.
12 SOLE RISK OPERATIONS
12.1 Sole Risk Operation
The Parties shall propose and conduct Sole Risk Operations
in accordance with this Clause 12. A Party shall not give an
Sole Risk Operation Notice for a Sole Risk Operation (other than
a Sole Risk Operation where there is a rig on site as provided in
Clause 12.19) unless the operation described in the Sole Risk
Operation Notice has been proposed in the Operating Committee in
complete form as contemplated in Clause 12.2 and has been
rejected or after the next ensuing meeting of the Operating
Committee it has failed to gain approval.
12.2 Proposal of Sole Risk Operation
A Proposing Party may at any time give to the Receiving
Parties an Sole Risk Operation Notice, in which the Proposing
Party shall state the proposed location, purpose, program,
estimated commencement date and estimated cost (set out in the
form of an AFE) of the Sole Risk Operation and which shall be
<PAGE> 170
accompanied by all relevant technical information (other than
that already in the hands of the Parties) and interpretations
upon which the proposal is based.
12.3 Operating Committee to Consider Sole Risk Operation
Notice
The Operator shall convene a meeting of the Operating
Committee to be held not less than twenty (20) Business Days and
not more than thirty (30) Business Days after the giving of an
Sole Risk Operation Notice. Unless all Receiving Parties shall
prior to the date of such meeting give notice to all Parties that
the Sole Risk Operation may proceed the Operating Committee shall
meet and consider the Sole Risk Operation Notice.
12.4 Sole Risk Operation Notice for Existing Well
If the Sole Risk Operation Notice relates to a well which is
suspended or is then being drilled other than a well which is
being or is about to be plugged and abandoned then the Sole Risk
Operation may proceed only if the Operating Committee approves
the same proceeding and in such event subject to such conditions,
if any, as the Operating Committee may impose on such Sole Risk
Operations.
12.5 Sole Risk Operation Notice for Exploration Well
If the Sole Risk Operation Notice relates to an Exploration
Well (which term includes an operation classified as an
Exploration Well pursuant to Clause 12.15) then the Operating
Committee shall either:
(a) decide that the Joint Venture shall drill a well or
conduct an operation having the same purpose as the well or
operation described in the Sole Risk Operation Notice, to be
commenced (which in the case of the drilling of a well means
spudded) not later than six (6) months after service of the
Sole Risk Operation Notice; or
(b) make no such decision, whereupon the Proposing Party
may proceed with the Sole Risk Operation, subject to the
remaining provisions of this Agreement.
If the Operating Committee decides in accordance with
paragraph (a) above and the Joint Venture fails to commence to
conduct the operations within the six (6) months period provided
for in that paragraph, then the limitation period of six (6)
months referred to in Clause 12.9 is extended by the period of
six (6) months and the Proposing Party may proceed with the Sole
Risk Operation, subject to the remaining provisions of this
Agreement.
<PAGE> 171
12.6 Sole Risk Operation Notice for Appraisal Well
If the Sole Risk Operation Notice relates to an Appraisal
Well (which term includes without limitation, operations
respectively classified as Appraisal Wells pursuant to Clause
12.15 or Clause 12.18) then:
(a) if at the time of service of the Sole Risk Operation
Notice Petroleum is not being produced from the Reservoir in
respect of which the operation described in the Sole Risk
Operation Notice is to be conducted, the Operating Committee
shall:
(i) decide that the Joint Venture shall produce
Petroleum from such Reservoir within twelve (12) months
after the service of the Sole Risk Operation Notice; or
(ii) decide that the Joint Venture shall drill a well
or conduct an operation having the same purpose as the
well or operation described in the Sole Risk Operation
Notice, to be commenced (which in the case of the
drilling of a well means spudded) not later than twelve
(12) months after the service of the Sole Risk
Operation Notice; or
(iii) make no such decision, whereupon the
Proposing Party may proceed with the Sole Risk
Operation, subject to the remaining provisions of this
Agreement; or
(b) if at the time of service of the Sole Risk Operation
Notice Petroleum is being produced from the Reservoir in
respect of which the operation described in the Sole Risk
Operation Notice is to be conducted, the Operating Committee
shall decide either:
(i) that the Joint Venture shall drill a well or
conduct an operation having the same purpose as the
well or operation described in the Sole Risk Operation
Notice to be commenced (which in the case of a well
means spudded) not later than six (6) months after
service of the Sole Risk Operation Notice; or
(ii) make no such decisions whereupon the Proposing
Party may proceed with the Sole Risk Operation subject
to the remaining provisions of this Agreement.
If the Operating Committee decides in accordance with
paragraph (a)(i) or (a)(ii) above and the Joint Venture fails to
produce Petroleum or commence to conduct the operations within
the twelve (12) month period respectively provided for in those
paragraphs, then the limitation period of six (6) months referred
<PAGE> 172
to in Clause 12.9 is extended by the period of twelve (12)
months, and the Proposing Party may proceed with the Sole Risk
Operation, subject to the remaining provisions of this Agreement.
If the Operating Committee decides in accordance with
paragraph (b)(i) above and the Joint Venture fails to commence to
conduct the operations within the six (6) month period provided
for in that paragraph, then the limitation period of six (6)
months referred to in Clause 12.9 is extended by the period of
six (6) months, and the Proposing Party may proceed with the Sole
Risk Operation subject to the provisions of this Agreement.
12.7 Election to Participate
If in consequence of the operation of Clauses 12.3, 12.4,
12.5 or 12.6 the Proposing Party may proceed with the relevant
Sole Risk Operation then the Proposing Party may give notice to
each Receiving Party that it has become entitled to and intends
to proceed with the Sole Risk Operation and each Receiving Party
shall within ten (10) Business Days of receipt of such notice
give notice to each other Party stating whether that Receiving
Party will participate in the Sole Risk Operation and, if so, the
maximum interest (being not less than its Participating Interest)
it will take in such Sole Risk Operation, failing which that
Receiving Party is deemed to have given notice to each other
Party that it will not participate in the Sole Risk Operation.
12.8 Sole Risk Interest
A Sole Risk Party shall participate in a Sole Risk Operation
and bear the costs, risks and liabilities thereof in the
proportion that its Participating Interest bears to the aggregate
of the Participating Interests of the Sole Risk Parties (such
proportion being hereinafter called its "Sole Risk Interest")
unless otherwise agreed among the Sole Risk Parties. When each
Receiving Party has given notice pursuant to Clause 12.7, the
Proposing Party shall forthwith notify each Party which elects
pursuant to Clause 12.7 to participate in the Sole Risk Operation
("Electing Party") of its then Sole Risk Interest. If the then
Sole Risk Interest of any Electing Party exceeds the maximum
interest specified in its notice pursuant to Clause 12.7, then
that Electing Party may withdraw from the Sole Risk Operation by
notice to the remaining Electing Parties and the Proposing Party
given within five Business Days after receipt of notice of its
then Sole Risk Interest, where-upon the remaining Electing
Parties and the Proposing Party shall agree the Sole Risk
Interests. If the remaining Electing Parties and the Proposing
Party are unable to agree the Sole Risk Interests within ten
Business Days after the Proposing Party notifies the Electing
Parties of their then Sole Risk Interests, then the Proposing
Party may proceed with the Sole Risk Operation alone and
thereafter no other Party may participate in the Sole Risk
Operation except with the unanimous consent of the Sole Risk
Parties.
<PAGE> 173
12.9 Time for Commencing Operations
The Proposing Party may begin the Sole Risk Operation after
the Sole Risk Interests have been settled in accordance with
Clause 12.8. A Sole Risk Party shall not commence a Sole Risk
Operation more than six (6) months after giving the relevant Sole
Risk Operation Notice. Another Sole Risk Operation Notice may be
given for the same Sole Risk Operation after the expiration of
the said six (6) month period. A Sole Risk Operation, once
commenced, shall be diligently prosecuted or abandoned by the
Sole Risk Parties.
12.10 Conduct of Sole Risk Operation
If less than such Parties as would be able to make a
decision of the Operating Committee pursuant to Clause 7.3, elect
to participate in a proposed Sole Risk Operation then the
operation shall continue to be a Sole Risk Operation and the
provisions of Clauses 12.11 to 12.30 shall apply and the Sole
Risk Parties shall promptly commence (subject to Clause 12.9),
carry out and complete the Sole Risk Operation diligently in
accordance with good oil field practice.
12.11 Operator for Sole Risk Operations
If the Operator is a Sole Risk Party, it shall carry out the
Sole Risk Operation. If the Operator is not a Sole Risk Party,
the Sole Risk Parties may appoint the Operator, if the Operator
agrees to accept such appointment, or one of their number as Sole
Risk Operator. All the provisions of this Agreement relating to
the conduct of Joint Operations shall (to the extent they have
application) apply mutatis mutandis, to the Sole Risk Operator
and to the Sole Risk Operation.
12.12 Sole Risk Parties May Complete and Equip
The Sole Risk Parties which drill a well as a Sole Risk
Operation are entitled, but are not obliged, to Complete such
well, or Complete and Equip such well as part of such Sole Risk
Operation at their sole risk and expense. Sole Risk Parties
which Complete a well as a Sole Risk Operation are entitled, but
are not obliged, to Equip such well as part of such Sole Risk
Operation at their sole risk and expense. Sole Risk Parties
Equipping a well as a Sole Risk Operation or as part of a Sole
Risk Operation shall not Equip such well so as to handle
production greater than that reasonably expected from such well,
unless the Operating Committee decides otherwise.
12.13 Premiums Accruing to Sole Risk Parties -
Exploration Wells
If the Sole Risk Operation is the drilling of an Exploration
Well, and the operation results in the discovery of a Reservoir
<PAGE> 174
from which Petroleum is subsequently produced, the Sole Risk
Parties are entitled as follows:
(a) the Sole Risk Parties may take all Petroleum produced
from such Reservoir by all wells which are drilled and
Completed for production from such Reservoir until the Net
Proceeds of Sale thereof equals the sum of the Drilling
Costs, Completion Costs and Equipping Costs (if any)
incurred by the Sole Risk Parties as part of such Sole Risk
Operation; and
(b) in addition to such entitlements, the Sole Risk Parties
may take all Petroleum produced from such Reservoir and all
subsequent wells which are drilled and Completed for
production from such Reservoir until the Net Proceeds of
Sale thereof is an amount equal to one thousand per centum
(1000%) of the Drilling Costs of such well or, if such well
is Completed for production by the Sole Risk Parties as part
of such Sole Risk Operation, an amount equal to one thousand
per centum (1000%) of such of the Drilling Costs and
Completion Costs as the Sole Risk Parties incur as part of
such Sole Risk Operation.
12.14 Premiums Accruing to Sole Risk Parties - Appraisal
Wells
If the Sole Risk Operation is the drilling of an Appraisal
Well and such well is Completed for production from a Reservoir
which it was the purpose of the well to intersect, the Sole Risk
Parties are entitled as follows:
(a) the Sole Risk Parties may take all Petroleum produced
from such well from such Reservoir until the Net Proceeds of
Sale thereof equals the sum of the Drilling Costs,
Completion Costs and Equipping Costs (if any) incurred as
part of the relevant Sole Risk Operation; and
(b) in addition to such entitlement, the Sole Risk Parties
may take all Petroleum produced from such well until the Net
Proceeds of Sale thereof is an amount equal to five hundred
per centum (500%) of such Drilling Costs, Completion Costs
and Equipping Costs (if any).
12.15 Deepening, Plugging Back, Reworking,
Recompleting, Sidetracking
If the Sole Risk Operation is the deepening, plugging back,
reworking, recompleting or sidetracking of a well, and such
operation results in:
(a) the discovery of a Reservoir from which Petroleum is
subsequently produced; or
<PAGE> 175
(b) production from that section of the well deepened,
plugged back, recompleted or reworked; or
(c) production from a Reservoir intersected by the
sidetracked portion of the well; or
(d) production for the first time from a Reservoir
intersected by the well plugged back, recompleted or
reworked, then for the purpose of dealing pursuant to Clause
12.13 or Clause 12.14 with Petroleum produced as a result of
such operation, it is classified as an Exploration Well or
anAppraisal Well by reference to the definitions of those
terms in this Agreement and to the purposes as stated in the
Sole Risk Operation Notice for which such deepening,
plugging back, reworking, recompleting or sidetracking is
conducted.
12.16 Premiums Accruing to Sole Risk Parties -
Completing
If the Sole Risk Operation Notice is solely for the
Completing or the Completing and Equipping of a well from which
Petroleum is subsequently produced, the Sole Risk Parties are
entitled (in addition to any entitlement they may have pursuant
to Clause 12.17) as follows:
(a) the Sole Risk Parties may take all Petroleum produced
from such well until the Net Proceeds of Sale thereof equals
the Completion Costs; and
(b) in addition to such entitlement, the Sole Risk Parties
may take all Petroleum produced from such well until the Net
Proceeds of Sale thereof is an amount equal to five hundred
per centum (500%) of the Completion Costs.
12.17 Premiums Accruing to Sole Risk Parties - Equipping
If the Sole Risk Operation Notice is solely for the
Equipping or the Completing and Equipping of a well or wells, the
Sole Risk Parties are entitled (in addition to any entitlement
they may have pursuant to Clause 12.16) as follows:
(a) the Sole Risk Parties may take all Petroleum from such
well or wells until the Net Proceeds of Sale thereof equals
the Equipping Costs of such well or wells; and
(b) in addition to such entitlement, the Sole Risk Parties
may take all Petroleum produced from such well or wells
until the Net Proceeds of Sale thereof is an amount equal to
five hundred per centum (500%) of the Equipping Costs.
<PAGE> 176
12.18 Multiple Reservoirs
(a) If a well intersects more than one Reservoir, then in
respect of each such Reservoir it may be classified as an
Exploration Well or an Appraisal Well by reference to the
purpose, as stated in the Sole Risk Operation Notice, for
which the well was drilled. A well is classified as an
Exploration Well in respect of a Reservoir which is
discovered by that well, irrespective of the purpose for
which the well was drilled.
(b) If a well intersects more than one Reservoir, and in
respect of all such Reservoirs it is classified as either an
Exploration Well, an Appraisal Well, then for the purposes
of dealing pursuant to Clauses 12.13 to 12.17 with Petroleum
produced from such well, Drilling Costs are the Drilling
Costs of the well to its total depth, Completion Costs are
equal to the sum of the Completion Costs for all Reservoirs,
and Equipping Costs are equal to the total Equipping Costs
for the well, and (without prejudice to any further
entitlements which the Sole Risk Parties may have pursuant
to the remaining provisions of Clause 12) the Sole Risk
Parties may take Petroleum from all such Reservoirs until
their total entitlements in respect of the well have been
satisfied.
(c) If a well intersects more than one Reservoir, and in
respect of any of such Reservoirs it is classified
differently from another of such Reservoirs, then for the
purposes of dealing pursuant to Clauses 12.13 to 12.17, with
Petroleum produced from such well, Completion Costs are
equal to the sum of the Completion Costs for all Reservoirs,
and Equipping Costs are equal to the total Equipping Costs
for the well. Drilling Costs are:
(i) for a Reservoir or Reservoirs in respect of which
the well is an Exploration Well, such Drilling Costs as
would have been incurred if the intersection of that
Reservoir or the deepest of such Reservoirs was the
only purpose for which the well was drilled;
(ii) for a Reservoir or Reservoirs in respect of which
the well is an Appraisal Well intersected below the
deepest Reservoir in respect of which the well is an
Exploration Well, the difference between the Drilling
Costs as ascertained for paragraph 12.18(c)(i) and such
Drilling Costs as would have been incurred if the
intersection of the Reservoir or the deepest of such
Reservoirs in respect of which the well is an Appraisal
Well were the only purpose for which the well was
drilled; for a Reservoir or Reservoirs in respect of
which the well is an Appraisal Well, and such well does
not intersect a Reservoir in respect of which the well
<PAGE> 177
is an Exploration Well, such Drilling Costs as would
have been incurred if the intersection of the Reservoir
or the deepest of such Reservoirs in respect of which
the well is an Appraisal Well were the only purpose for
which the well was drilled; and (without prejudice to
any further entitlements which the Sole Risk Parties
may have pursuant to the remaining provisions of Clause
12) the Sole Risk Parties may take Petroleum from all
such Reservoirs until their total entitlements in
respect of the well have been satisfied.
12.19 Sole Risk Operation Notice When Rig is on Site
Notwithstanding the other provisions of this Clause 12:
(a) if a drilling rig is on the location of the well when a
Party gives an Sole Risk Operation Notice proposing the
deepening, plugging back, testing, reworking, recompleting,
sidetracking or Completing of a well, the time within which
the Operating Committee shall decide in accordance with
Clause 12.4, 12.5 or 12.6 as the case may be (such decision
being made by facsimile vote of the Parties addressed to the
Operator and each other) and within which each Receiving
Party shall give notice to the Proposing Party pursuant to
Clause 12.7 of its election to participate in the Sole Risk
Operation shall be reduced to twenty-four (24) hours from
receipt of the Sole Risk Operation Notice, or to such longer
time as the Proposing Party may stipulate in the Sole Risk
Operation Notice. Unless the Operating Committee decides
otherwise, if the Sole Risk Parties do not commence the Sole
Risk Operation within five (5) Business Days after service
of the Sole Risk Operation Notice, the Sole Risk Operator
shall abandon the Sole Risk Operation; and
(b) if the Sole Risk Operation proceeds, the Sole Risk
Parties shall pay all costs accruing from the commencement
of such twenty-four (24) hour period. If the Sole Risk
Operation does not then proceed, the Proposing Party shall
pay such extra costs as may be occasioned by delay
(including without limitation, any delay to Joint Operations
during the twenty-four (24) hour period) associated with the
giving of the Sole Risk Operation Notice.
12.20 Deepening or Sidetracking of Sole Risk Well
(a) Any Party may participate in a Sole Risk Operation
which is the deepening or sidetracking of a well to a depth
greater than the depth of that well as at the commencement
of the relevant Sole Risk Operation, which well was
previously the subject of a Sole Risk Operation, whether or
not such Party participated in such prior Sole Risk
Operation.
<PAGE> 178
(b) If Petroleum is not produced from the well as a result
of the deepening or sidetracking operation, then:
(i) the Sole Risk Parties in respect of the drilling
of the well as originally programmed will be
responsible for the costs of abandoning that section of
the well resulting from that drilling; and
(ii) the Sole Risk Parties in the deepening or
sidetracking will be responsible for the costs of
abandoning that section of the well resulting from that
deepening or sidetracking operation.
(c) If Petroleum is produced from the well as a result of
the deepening or sidetracking operation, then the Sole Risk
Parties shall apply the Net Proceeds of Sale of such
Petroleum first in reimbursement to the Parties
participating in the well as originally programmed of their
Drilling Costs of the well to the depth from which the
deepening or sidetracking Sole Risk Operation commenced.
12.21 Priority of Recovery of Premium
If more than one Sole Risk Operation is conducted in a well,
then each group of Parties to a Sole Risk Operation may take
Petroleum from the well and apply the Net Proceeds of Sale in
reduction of costs and premium pursuant to Clauses 12.13 to
12.17, in the order of priority which is the same as the order in
which each Sole Risk Operation commenced.
12.22 Abandonment of Sole Risk Operation - Salvageable
Material
(a) If a well in respect of which a deepening, plugging
back, reworking, recompleting or sidetracking operation has
been conducted as a Sole Risk Operation is abandoned,
without any production being taken from it, then the
proceeds of sale of salvageable equipment supplied at the
cost of the Sole Risk Parties accrue to the Sole Risk
Parties. The proceeds of sale of other salvageable
equipment are for the Joint Account or, if the well in
respect of which the deepening, plugging back, reworking,
recompleting or sidetracking operation was conducted was
itself drilled as a Sole Risk Operation, such proceeds
accrue to the Sole Risk Parties in such Sole Risk Operation.
(b) If the Sole Risk Parties abandon a well which has been
the subject of a Sole Risk Operation before production from
it, if any, has been sufficient to meet all costs and
premiums payable to the Sole Risk Parties, the proceeds of
sale of all salvageable equipment in and about the well, the
initial cost of which was included in the Drilling Costs,
Completion Costs or Equipping Costs of the well, are deemed
<PAGE> 179
to be part of Net Proceeds of Sale of Petroleum produced
from the well, for the purpose of accounting between the
Sole Risk Parties and the Non-Sole Risk Parties.
12.23 Accounts During Sole Risk Operations and Premium
Recovery
(a) The computation of costs and expenses relating to Sole
Risk Operations shall be made in accordance with this
Agreement and the Accounting Procedure. While carrying out
Sole Risk Operations, the Sole Risk Operator shall maintain
separate books, records and accounts for Sole Risk
Operations which shall be subject to the same examination
and audit as are applicable to the books maintained for the
Joint Account.
(b) During the period that production of Petroleum from a
well is being applied in reduction of costs and premiums
payable to Sole Risk Parties in a Sole Risk Operation the
Sole Risk Operator for such well shall supply all Parties
each month with a statement on which shall appear:
(i) the names and Sole Risk Interests of the Sole Risk
Parties;
(ii) the quantity and Proceeds of Sale of Petroleum
produced from such well (and where necessary for the
purposes of Clause 12.18, from each Reservoir in such
well and where applicable other wells drilled into the
same Reservoir) for the preceding month;
(iii) the Net Proceeds of Sale for the preceding
month and the manner of calculation thereof; and
(iv) the sum of costs and premiums remaining
outstanding and the manner of calculation thereof.
(c) The Sole Risk Parties shall promptly furnish to the
Sole Risk Operator each month information necessary for the
Sole Risk Operator to prepare such statement.
12.24 Sole Risk Parties' Relationship
Unless the Sole Risk Parties otherwise agree concerning
their relationship with each other and the relationship of the
Sole Risk Parties and the Sole Risk Operator, then subject to the
specific provisions of this Clause 12 the provisions of this
Agreement shall (to the extent that they may have application)
apply mutatis mutandis both generally and to such relationship
during the conduct of a Sole Risk Operation and until all Sole
Risk Parties' entitlements pursuant to this Clause 12 have been
satisfied. No agreement between the Sole Risk Parties inter se
shall affect any of the rights of any Non-Sole Risk Party under
this Agreement.
<PAGE> 180
12.25 Indemnification of Non-Sole Risk Parties
Each Sole Risk Party to the extent of its Sole Risk Interest
hereby indemnifies and holds harmless the Non-Sole Risk Parties
against all actions, claims, demands and proceedings whatsoever
brought by any third party (including without limitation any
employee of the Sole Risk Party) arising out of or in connection
with the Sole Risk Operation and shall insofar as it may be
within its control keep the Permit free from all liens, charges
and encumbrances which might arise by reason of the conduct of
the Sole Risk Operation. The approval of the Non-Sole Risk
Parties to the conduct of a Sole Risk Operation (whether or not
such approval is required) shall not constitute a waiver of these
provisions.
12.26 Use of Joint Property
(a) The Sole Risk Parties may use Joint Property in
connection with Petroleum produced as a result of a Sole
Risk Operation, to the extent of such of the capacity of
such Joint Property from time to time as is not required for
Joint Operations for the Joint Account.
(b) Any costs and expenses incurred by reason of such use
of Joint Property shall be paid by the Sole Risk Parties.
12.27 Non-Sole Risk Parties may Receive Information
The Sole Risk Operator may provide to the Non-Sole Risk
Parties all such information in respect of the Sole Risk
Operation.
12.28 Net Proceeds of Sale of Petroleum
In this Clause 12 the following expressions shall have the
following meanings:
(a) "Net Proceeds of Sale" of the relevant Petroleum means
the Proceeds of Sale less the sum of:
(i) Government royalty and all other royalties, excise
and other levies calculated specifically in relation to
the relevant Petroleum as may be applied from time to
time; and
(ii) Operating Costs,
payable by the Sole Risk Parties in respect of such
Petroleum.
(b) "Proceeds of Sale" of Petroleum means:
<PAGE> 181
(i) where it is sold at arms length, the monetary
value of the consideration received for the sale of
such Petroleum less Delivery Costs; and
(ii) where it is not sold at arms length, or where it
is sold prior to further processing by the Sole Risk
Party which owns it, a monetary value which such Sole
Risk Party and the Non-Sole Risk Parties agree to be
the actual consideration which would be obtainable for
such Petroleum upon a sale at arms length less an
agreed amount as the equivalent of Delivery Costs
provided that:
(A) if such Parties are unable to agree within
one (1) month of the first occasion upon which
Petroleum is taken by the Sole Risk Party which
does not intend to sell such Petroleum at arms
length, then such Parties shall agree upon a
qualified person who shall determine such monetary
value; and
(B) if such Parties are unable to agree upon a
qualified person within a further month, any such
Party may request the Chairman or the next most
senior Councillor (not being an officer of any
Party) of the Petroleum Association of New Zealand
to nominate a qualified person to determine such
monetary value. In making such determination such
person shall be acting as an expert and not as an
arbitrator and his decision shall be final and
binding on the Parties. The costs of the
determination shall be borne by the Parties in
proportion to their Participating Interests.
(c) "Delivery Costs" means all costs incurred in marketing
the relevant Petroleum and in transporting it from the
Delivery Point to the point of sale.
12.29 Early Re-Entry by Non-Sole Risk Parties
(a) At any time within one hundred and twenty (120)
Business Days following the date upon which a Sole Risk
Operation was completed each Non-Sole Risk Party may, at its
option, elect to discharge its share of the total amount or
amounts to which each Sole Risk Party is entitled under
Clauses 12.13, 12.14, 12.16 or 12.17 by paying in cash to
the Sole Risk Parties within the said period of one hundred
and twenty (120) Business Days an amount equal to fifty
percent (50%) of the total of amounts which the Sole Risk
Parties would otherwise have been entitled to receive under
the relevant Clause.
<PAGE> 182
(b) Upon making such cash payment such Non-Sole Risk Party
shall be restored to its full rights hereunder as if the
Non-Sole Risk Party had participated in such Sole Risk
Operation.
(c) For the purpose of facilitating a payment pursuant to
this Clause the Operator shall, within eighty (80) Business
Days after the completion of each Sole Risk Operation,
advise all Parties of the cost of such Operation.
(d) Within forty (40) Business Days of the date of the cash
payment by a Non-Sole Risk Party there shall be an
accounting and a cash settlement between such Non-Sole Risk
Party and the Sole Risk Parties for the Net Proceeds of Sale
(whether a positive or negative amount) calculated from the
date of completion of the Sole Risk Operation to the date of
the cash payment.
(e) A Non-Sole Risk Party exercising this option shall not
thereby become entitled to share in payments received in
respect of any other Non-Sole Risk Party pursuant to any of
Clauses 12.13, 12.14, 12.16 or 12.17.
12.30 Conclusion of Sole Risk Operation
As soon as sufficient Petroleum has been produced to satisfy
all costs and premiums due to the Sole Risk Parties, the well
with all associated equipment shall thereupon become Joint
Property.
13 DISPOSAL OF PRODUCTION
13.1 Ownership
Subject to the provisions of this Agreement each Party shall
have the right and obligation to receive and take in kind as its
own property at the Delivery Point and to sell or otherwise
dispose of its Participating Interest share of all Petroleum
produced from the Area excepting so much thereof as may be
required by the Operator in connection with the conduct of Joint
Operations or is unavoidably lost.
13.2 Royalties
All royalties, levies, duties and taxes payable to the
Government and all those payable to third parties shall be
delivered or paid whether in cash or in kind, by each Party in
respect of production taken by it and each Party hereby agrees to
indemnify and hold harmless all other Parties against all claims,
liabilities, costs and expenses arising out of its failure to
make such deliveries or payments.
<PAGE> 183
13.3 Production Reports
The Operator shall maintain full and accurate records of
Petroleum production inventories and deliveries to the Parties.
13.4 Delivery
All Petroleum shall be delivered to the Parties by the
Operator at the Delivery Point.
13.5 Risk
The risk attaching to Petroleum delivered to each Party
shall pass to that Party at the Delivery Point.
14 OFFTAKE AGREEMENT
14.1 Crude Oil
If crude oil is to be produced from the Area the Parties
shall in good faith and not less than three (3) months, or such
lesser period as the Parties may agree, prior to the scheduled
date of first delivery of crude oil, negotiate and conclude the
terms of an agreement to cover the offtake of crude oil produced
from the Area. Such offtake agreement shall include, without
limitation, provision for:
(a) the Operator to provide regular periodic advice to the
Parties of estimates of total available production broken
down by succeeding periods, and grades of crude oil, for as
far ahead as is necessary for the Operator and the Parties
to plan offtake arrangements. Such advice shall also cover
for each grade of crude oil, total available production and
deliveries for the preceding period, inventory, overlifts
and underlifts and each Party's Participating Interest share
of available production after adjustment for overlifts and
underlifts ("Entitlement");
(b) elimination of overlifts and underlifts;
(c) the rights of the Parties if a Party fails in any
relevant period to take the whole or part of its Entitlement
for that period;
(d) delivery to the Parties of Entitlements to ensure, to
the extent Parties take delivery of their Entitlements
rateably to their accrual, that each Party shall receive
current Entitlements in like grade, gravity and quality to
that received by each other Party and, to the extent that
delivery on such basis is impracticable because of
availability of facilities and minimum cargo sizes, a method
of making periodic adjustments.
<PAGE> 184
14.2 Natural Gas
The Parties recognise that, in the event of any discovery of
Natural Gas, it may or will be or become desirable for them to
enter into special arrangements for the disposal of the same and
they agree that, in such event and upon the request of any of
them, their respective representatives shall meet together as
necessary to consider their entry into such arrangements and
that, if and to the extent that any such arrangements are agreed,
they will adopt and undertake the same.
15 DEFAULTS
15.1 Notice of Default
(a) If any Party fails to make any payment as required by
this Agreement by the due date for payment, the Operator
shall upon becoming aware of such failure give notice of
such failure to such Party giving particulars of the alleged
failure and of the amount thereof ("Unpaid Amount").
(b) If at the expiration of ten (10) Business Days after
receipt of such notice such Party or any of their respective
Participating Interests or other person (not being a Party)
on its behalf has not paid in full the amount due by it and
all amounts subsequently due to the Operator pursuant to
this Agreement by such Party, such Party ("Defaulting
Party") shall be in default pursuant to this Agreement. The
Operator shall promptly give notice of all such defaults to
all Parties.
(c) Each such notice ("Default Notice") shall set out
particulars of the Unpaid Amount. For the purpose of this
Clause 15 all Parties other than any Defaulting Party are
referred to as the "Non-Defaulting Parties".
15.2 Defaulting Party Liable for Interest
(a) Any amount payable by a Defaulting Party which remains
unpaid shall bear interest and the Defaulting Party shall
pay interest at the Default Interest Rate (which is
applicable on the due date for payment of such amount) from
the due date of payment of such amount until the actual date
of payment.
(b) Such interest shall accrue to the Non-Defaulting
Parties in proportion to their respective Participating
Interests or if one or more of the Non-Defaulting Parties
become Paying Parties within the meaning of Clause 15.6,
then thereafter to the Paying Parties as is provided in
Clause 15.6.
<PAGE> 185
15.3 Payment by Operator
In the event that the payment which a Party that is or
becomes a Defaulting Party has failed to make is a payment due
under this Agreement to a person who is not a Party, the Operator
may and shall if so directed by the Operating Committee, by a
vote of Non-Defaulting Parties whose Participating Interests
aggregate a simple majority of the total Participating Interests
of the Non-Defaulting Parties, pay the same to such person. Any
amount so paid shall constitute a debt immediately due and
payable by such Party to the Operator.
15.4 Defaulting Party may be Sued
Without prejudice to any other remedy for or consequence of
default provided for in this Agreement, the Operator shall if so
directed by the Operating Committee by a vote of Non-Defaulting
Parties whose Participating Interests aggregate a simple majority
of the total Participating Interests of the Non-Defaulting
Parties sue in any Court of competent jurisdiction a Defaulting
Party (which term shall without limitation include any Party
removed from the position of Operator for failing to pay or
contribute or advance its proportionate share of Authorised
Expenditure) for the recovery of any moneys due and payable to
the Operator or the Paying Parties (as defined in Clause 15.6) or
any of them by that Defaulting Party which remain unpaid by the
Defaulting Party at the expiration of ten (10) Business Days
after the receipt of the Default Notice by the Defaulting Party.
15.5 Non-Defaulting Parties to Contribute
If at any time after the end of the ten (10) Business Days
period referred to in Clause 15.4 the Operator shall not then
have received in full from the Defaulting Party or any other
person (not being a Party) on its behalf the then aggregate of
the Unpaid Amount of such Defaulting Party plus interest thereon
at the Default Interest Rate the Operator may and shall if so
directed by the Operating Committee by a vote taken in accordance
with Clause 15.4, require by notice in writing each of the Non-
Defaulting Parties to pay to the Operator the amount of its
proportion of such Unpaid Amounts on a date ("Payment Date") not
less than five (5) Business Days after receipt of such notice.
Such proportion shall be that proportion which the relevant Non-
Defaulting Party's Participating Interest bears to the aggregate
of the Participating Interests of all the Non-Defaulting Parties.
A Party which does not pay each amount due by it under this
Clause 15.5 within ten (10) Business Days of receipt of a
request for payment of such moneys shall be regarded as a
Defaulting Party and all the provisions of this Clause 15 shall
apply to such Party in respect of any amount not so paid.
<PAGE> 186
15.6 Rights of Paying Parties
A Non-Defaulting Party (including without limitation the
Operator in its capacity as a Party) which pays to the Operator
or bears any amount payable by it under Clause 15.5 is herein
called a "Paying Party" and is deemed to have advanced such
amount to the Defaulting Party on the terms that it is
immediately repayable and may sue the Defaulting Party to recover
the same but without prejudice to any other rights and remedies.
The amount owing by a Defaulting Party to a Paying Party
shall bear interest at the Default Interest Rate from the date
the Paying Party made the payment under Clause 15.5 to the date
it has recovered such amount in full.
15.7 Defaulting Party's Petroleum
For so long as any Unpaid Amount is not paid in full the
Defaulting Party forfeits its rights to take any Petroleum
produced from the Area and the Operator shall be entitled to take
and receive all of the Defaulting Party's share of Petroleum
produced from the Area and to sell and dispose of the same until
such time as the net proceeds of sale of such Petroleum exceeds
the Unpaid Amount plus interest on the Unpaid Amount at the
Default Interest Rate. Such net proceeds of sale shall be
distributed to the Paying Parties in proportion to the amounts
paid by them pursuant to Clause 15.5 until all amounts owing by
the Defaulting Party to the Paying Parties plus interest thereon
at the Default Interest Rate has been paid in full and any
remaining surplus of such net proceeds of sale will be
distributed to the Defaulting Party. The receipt of any amounts
by the Non-Defaulting Parties under this Clause 15.7 shall be
without prejudice to any other rights or remedies of such Non-
Defaulting Parties.
15.8 Suspension of Rights of Defaulting Party
A Defaulting Party shall not be entitled either to attend or
to vote at any meeting of the Operating Committee or the Parties
or to have access to Joint Operations or to records of Joint
Operations or information pursuant to Clauses 5.6 and 10 or to
receive information or be consulted with respect to Joint
Operations unless and until all amounts then due and payable by
that Defaulting Party in accordance with the terms of this
Agreement shall have been received in full or the default is
otherwise rectified or is waived by each Non-Defaulting Party.
Except that the Defaulting Party should have access to
information as reasonably necessary to remedy the default or to
dispute the call made.
<PAGE> 187
15.9 Default of Operator in Payment
In the event that the Operator fails to make any payment as
required by this Agreement in its capacity as a Party thereto,
then unless and until a replacement Operator is appointed the
rights and responsibilities prescribed for the Operator under
this Clause 15 shall be exercised for and on behalf of the Non-
Defaulting Parties by the Party other than the Operator having
the greatest Participating Interest and such Party shall be
deemed to be the Operator for the purpose of exercising the
rights and duties of the Operator under this Clause 15.
15.10 Application of Defaulting Party's Funds
Upon default by any Party in the payment of any moneys
payable under this Agreement and without limiting Clause 15.7,
the Operator shall (notwithstanding anything contained herein to
the contrary, and without prejudice to other rights and
remedies), retain any moneys which may be held for such
Defaulting Party or which come to the hands of the Operator on
behalf of such Defaulting Party, and apply such moneys until the
amount owed by such Defaulting Party in accordance with this
Agreement has been paid in full.
15.11 Valuation of Defaulting Party's Interest
(a) If at the end of twenty (20) Business Days from the
date of receipt by a Defaulting Party of a Default Notice
the relevant Unpaid Amount and interest thereon have not
been paid in full, then unless:
(i) the Defaulting Party has reached agreement with
the Operator on behalf of all the Non-Defaulting
Parties as to the value of its Participating Interest;
or
(ii) all Non-Defaulting Parties have agreed that a
valuation should not be obtained,
the Operator shall request the Chairman or the next most
senior Councillor (not being an officer of any Party) of the
Petroleum Association of New Zealand to nominate a person to
determine the value of the Participating Interest of the
Defaulting Party.
(b) The person so nominated shall value the Defaulting
Party's Participating Interest on the basis that the Joint
Venture is a going concern and the price payable is that
which would be payable by a willing but not anxious buyer to
a willing but not anxious seller dealing at arms' length.
In making such determination such person shall be acting as
an expert and not as an arbitrator and his decision shall be
final and binding on all Parties.
<PAGE> 188
(c) The costs of obtaining such valuation shall in the
first instance be paid out of the Joint Account but shall be
charged to and recoverable from the Defaulting Party as
though it were part of the Unpaid Amount.
(d) Upon receipt of the valuation of the Participating
Interest of the Defaulting Party the Operator shall promptly
forward a copy of the same to each Party including the
Defaulting Party.
(e) The value of the Participating Interest of the
Defaulting Party as agreed pursuant to Clause 15.11(a) or as
determined pursuant to Clause 15.11(b) shall be and be
deemed to be the value of such interest for the purposes of
Clause 15.12.
15.12 Option to Purchase Defaulting Party's Interest
If at the end of forty (40) Business Days from the date of
receipt by a Defaulting Party of a Default Notice the relevant
Unpaid Amount and interest thereon have not been paid in full
("Option Commencement Date"), then each of the Non-Defaulting
Parties shall have an option and such Defaulting Party hereby
grants to each of the Non-Defaulting Parties the option
("Option") to purchase its Participating Interest (and if more
than one Non-Defaulting Party exercises such option, in the
proportions which the respective Participating Interests of such
Non-Defaulting Parties bear to the total of their Participating
Interests, or in such other proportions as such Non-Defaulting
Parties shall agree upon) and upon the following terms and
conditions:
(a) A Non-Defaulting Party may exercise or join in the
exercise of the Option at any time on or after the Option
Commencement Date provided that the Option shall cease to be
exercisable at the expiration of twenty (20) Business Days
after the earliest exercise of the Option by a Non-
Defaulting Party or in the event that on such earliest date
of exercise the valuation of the Defaulting Party's
Participating Interest pursuant to Clause 15.11(b) has not
been received then at the expiration of twenty (20) Business
Days after the receipt of such valuation by all the Non-Defaulting Parties.
(b) A Non-Defaulting Party exercising the Option shall do
so by giving a notice in writing to the Defaulting Party and
at the same time giving a copy of such notice to all other
Parties.
(c) In the event of the exercise of this Option, the Option
Exercise Date shall be the earlier of the date upon which
all Non-Defaulting Parties have notified such exercise or
twenty (20) Business Days after notification by the first
<PAGE> 189
Non-Defaulting Party to exercise such Option. (The Non-
Defaulting Party or Parties exercising the Option are
hereinafter referred to as the "Purchaser" or "Purchasers").
(d) The purchase price payable by the Purchasers for the
Defaulting Party's Participating Interest shall be a sum
equal to ninety percent (90%) of the value of such
Participating Interest as determined pursuant to Clause
15.11. Such purchase price shall be payable to the
Defaulting Party by each Purchaser in proportion to the
percentage of such Participating Interest it has acquired.
Each Party hereby agrees that the difference between the
full value of the Participating Interest of the Defaulting
Party and the selling price under this Clause constitutes a
pre-estimate of the liquidated damages which will be
sustained by the Non-Defaulting Parties by reason of breach
of this Agreement by the Defaulting Party.
(e) The completion of the purchase shall be effected at
whichever is the latest date of thirty (30) Business Days
after the Option Exercise Date or ten (10) Business Days
after the receipt of all necessary approvals to the purchase
or ten (10) Business Days after the receipt by the
Purchasers of the valuation of the Participating Interest of
the Defaulting Party pursuant to Clause 15.11(b).
(f) Upon such completion the Purchasers shall be at liberty
to deduct from the purchase price the following amounts and
to apply the amount deducted in paying or reimbursing such
amounts:
(i) the amount required to discharge or satisfy
liabilities secured by any charge or encumbrance over
the Participating Interest of the Defaulting Party;
(ii) the amount required to discharge the several
liabilities of the Defaulting Party at the date of
completion under this Agreement including all Unpaid
Amounts; and
(iii) the amount of any stamp duty payable on any
transfer or other instrument arising from the exercise
of the option.
(g) Upon and in exchange for the payment to it of the
balance (if any) of the purchase price pursuant to the
preceding Clause 15.12(f) or, if such be the case, upon the
determination that there is no such balance payable, the
Defaulting Party shall forthwith do all such acts and things
and execute and deliver to the Purchasers all such
transfers, deeds and other documents as are necessary to
give effect to and complete the sale pursuant to this Clause
15.12.
<PAGE> 190
(h) If the Defaulting Party fails to act in any manner
provided for in Clause 15.12(g) within twenty (20) Business
Days of a request so to do made by the Operator or other
Party nominated by the purchaser, then the Operator or other
Party nominated by the purchaser shall be and be deemed to
be the agent and attorney of the Defaulting Party for all
purposes necessary to give effect to the sale pursuant to
this Clause 15.12.
(i) Any sale pursuant to this Clause 15.12 shall be subject
to all Governmental consents and approvals required by law.
If any such consent or approval is refused any contract
constituted by an exercise of the Option hereunder shall
cease to have further force or effect.
(j) The remedying of the default in whole or in part after
the date of the exercise of the Option by the first Non-
Defaulting Party to exercise the same shall not derogate
from the rights of any of the Non-Defaulting Parties in
respect of this Option which rights shall remain in full
force and effect.
16 WITHDRAWAL AND SURRENDER
16.1 Any Party May Withdraw
Any of the Parties hereto may withdraw from the Joint
Venture constituted hereby, by giving notice in accordance with
the terms of this Agreement, but providing that no Party may
withdraw if it is participating in an approved programme and
budget or a Work Obligation which has commenced unless one or
more of the Non Withdrawing Parties agrees to accept a transfer
of the whole of the Withdrawing Party's Participating Interest.
16.2 Notice of Withdrawal
(a) Subject to Clauses 8.3 and 16.3 any Party desiring to
withdraw ("Withdrawing Party") shall give to the other
Parties notice of its withdrawal ("Notice of Withdrawal")
not less than sixty (60) days prior to the end of a Work
Obligation stage.
(b) Such Notice of Withdrawal shall take effect on the last
day of the Work Obligation stage in which the Notice of
Withdrawal is given ("Effective Date of Withdrawal")
provided that the Withdrawing Party has complied with all of
its obligations in respect of the program and budget for
that Work Obligation stage and the then current Work
Obligation.
(c) Such Notice shall constitute an offer of assignment for
a consideration of $1.00 to the other Parties of the whole
of the Withdrawing Party's Participating Interest. The
<PAGE> 191
Notice of Withdrawal shall not be revocable except with the
unanimous consent of all other Parties.
16.3 Other Parties may Join in Withdrawal
Each of the other Parties may within twenty (20) Business
Days of receipt of a notice given pursuant to Clause 16.2 give
notice to the other Parties that it elects to join in such
withdrawal to take effect on the Effective Date of Withdrawal
whereupon it will become a Withdrawing Party for the purposes of
this Clause 16. Such notice shall constitute an offer of
assignment for a consideration of $1.00 to the other Parties of
the whole of the Withdrawing Party's Participating Interest. The
election of a Party to join in withdrawal shall not be revocable
except with the unanimous consent of all non-withdrawing Parties.
16.4 Other Parties may Accept Assignment
The other Parties shall have forty (40) Business Days from
the latest date of receipt of notice given pursuant to Clauses
16.2 or 16.3 to notify the Withdrawing Party whether they accept
the offer and elect to receive an assignment of the Withdrawing
Party's Participating Interest in the proportions that their
respective Participating Interests bear to the aggregate of their
Participating Interests. If some only of such Parties accept
such offer or if the acceptance of any accepting Party is limited
in percentage, then the interest of the Withdrawing Party or the
portion of such interest remaining after the allocation of any
limited percentages accepted shall be distributed amongst the
other accepting Parties wishing to receive the same in the
proportions that their respective Participating Interests bear to
the aggregate of the Participating Interests of such Parties or
in such other proportions as such Parties agree among themselves.
16.5 Prompt Execution of Documents
If some or all of the other Parties give notice pursuant to
Clause 16.4 of acceptance and election to receive such assignment
all Parties concerned shall promptly execute and deliver all
documents and do and perform all acts and things necessary and
appropriate to validly effect such assignment.
16.6 Withdrawing Party's Obligations
(a) In the event of an assignment under this Clause 16 the
Withdrawing Party shall remain liable to meet its
proportionate share of:
(i) all Authorised Expenditure and liabilities
incurred or accrued by the Operator on or before the
Effective Date of Withdrawal; and
<PAGE> 192
(ii) all other liabilities of the Parties for anything
done or omitted to be done in the course of Joint
Operations on or before the Effective Date of
Withdrawal.
The Withdrawing Party shall remain responsible for such
obligations (including without limitation, payments of
amounts to the Operator) although the extent of such
obligations may not be ascertainable until after the
Effective Date of Withdrawal provided that the Withdrawing
Party shall not be liable for any obligation accruing after
the date of Notice of Withdrawal given pursuant to Clause
16.2 or the date of a notice given pursuant to Clause 16.3
in consequence of a decision by the Operating Committee
after such date either to renew the Permit or any other
title of the Joint Venture or to adopt a program and budget
to the extent that it exceeds a minimum program and budget
pursuant to Clause 8.3 or to increase any such program and
budget.
(b) Notwithstanding the provisions of Clause 16.6(a), in
the event that within one (1) year after the Effective Date
of Withdrawal of a Withdrawing Party the remaining members
of the Joint Venture resolve to abandon or determine the
Joint Venture, the Withdrawing Party shall remain liable for
and shall pay its proportionate share of the Net Abandonment
Costs incurred consequent upon that resolution determined on
the basis that such Withdrawing Party had not withdrawn from
the Joint Venture until the end of such year.
(c) For the purposes of Clause 16.6(b), "Net Abandonment
Costs" shall mean the rehabilitation costs, well abandonment
costs and any other costs of the abandonment of the Joint
Venture net of the salvage value of all Joint Property.
16.7 Costs of Assignment
All costs incurred by a Party in connection with any
assignment under this Clause 16 including stamp duty,
registration fees and legal fees shall be paid by the Withdrawing
Party.
16.8 Assignment to all Parties
In the event that by the expiration of forty (40) Business
Days from the latest date of receipt of the notice from a
Withdrawing Party pursuant to Clauses 16.2 or 16.3 the interest
of the Withdrawing Party or any portion of such interest remains
unallocated or undistributed to other Parties pursuant to Clause
16.4 then the Withdrawing Party shall assign its interest or the
portion thereof remaining unallocated or undistributed to all of
the other Parties not being Withdrawing Parties in the
proportions agreed between them or in the absence of agreement in
<PAGE> 193
the proportions that their respective Participating Interests
bear to the aggregate of their Participating Interests. In the
event that there are then no Parties willing to accept an
assignment of an unallocated or undistributed interest, all
Parties shall be deemed to have abandoned the Joint Venture
constituted hereby and shall forthwith co-operate with each other
to bring the Joint Venture to an end and effect a final
settlement between them.
16.9 Selection of Area Required to be Surrendered
(a) If at any time relinquishment or surrender of any
portion of the area subject to the Permit is required by
operation of law or the terms and provisions of the Permit,
the Operator shall give timely written notice to the
Operating Committee, setting forth in detail the reasons for
such relinquishment or surrender and a description of the
areas which the Operator suggests be relinquished or
surrendered in compliance with such requirement.
(b) The Operating Committee shall consider all matters
relevant to the question of such relinquishment or
surrender, and shall, within one (1) month (or such shorter
period of time as may be required by the Permit or by law),
determine and notify the Operator of the decision to be
carried out provided that any determination of the areas
which are to be relinquished or surrendered must be in
accordance with the decision of the Parties whose
Participating Interests are in aggregate not less than
ninety percent (90%). Failure of any Party to notify the
Operator of its decision within such period of time shall be
deemed to be a decision and notification by such Joint
Venturer in accordance with the Operator's suggestion. If
the Parties holding in aggregate Participating Interests not
less than ninety percent (90%) cannot agree on the areas to
be relinquished or surrendered then the matter shall be
determined by the Operator.
16.10 Voluntary Surrender of Area
Any Party may at any time propose to the other Parties that
one or more portions of the Area be surrendered, which proposal
shall, subject to the granting of any necessary Government
consents, be given effect to if approved by all Parties.
17 ASSIGNMENTS AND MORTGAGES
17.1 Restriction
Except as permitted in this Article 17 or with the prior
written consent of all the other Parties, a Party shall not
directly nor indirectly, without the prior written consent of
each other Party, sell, assign, transfer, mortgage, pledge,
<PAGE> 194
charge, encumber, lease, sublease, license or otherwise dispose
of (but expressly excluding including by way of change in the
ownership, management, trusteeship or control of any corporation
or trust estate holding a Percentage Interest but expressly
excluding or by way of sale of all of the shares in the capital
of a Party or any bona fide merger or amalgamation of the whole
of a Party's assets and undertaking with that of another person,
which may occur without such prior written consent of all the
other Parties) or create or suffer to exist a royalty (except a
governmental royalty) or other interest, lien, charge or other
encumbrance over, or trust in respect of, the whole or any part
of its right, title, interest, obligations or liabilities
(including, without limitation, any Percentage Interest) in,
under and pursuant to this Agreement whether by conditional or
unconditional act, deed, agreement, arrangement, understanding,
conduct, or by merger, consolidation or reconstruction or
operation of law or otherwise (hereinafter in this Article 17
called an "assignment", and the words "assign", "assignor" and
"assignee" and their derivatives shall have a corresponding
meaning).
No assignment shall be made by a Party if as a result
thereof the Percentage Interest of the assignor or assignee would
be less than 5%.
No assignment shall be made by a Party if as a result the
assignor or its Related Company affiliate or the assignee or its
Related Company affiliate would retain or acquire a Percentage
Interest in part but not all of the area of any Permit Licence.
17.2 Assignment to Related Company - Affiliate Right
Subject to Sections 17.1 and 17.2, each Party may, subject
to any necessary approval of and registration by the Minister
Authority and any other government consent and to the provisions
of this Article 17, at any time upon prior written notice to each
other Party, assign the whole or any part of its Percentage
Interest to a Related Company.
If, within a period of 1 year after the effective date of
any assignment pursuant to Section 17.3.1, the Related Company
Affiliate of the assignor to which the assignment was made ceases
to be a Related Company an Affiliate of the assignor, then the
provisions of Section 17.4 shall apply, mutatis mutandis, and the
Related Company Affiliate shall forthwith give such notice
pursuant to Section 17.4.1 specifying the then current fair and
reasonable arm's length terms and conditions and each Party
(other than the assignor) shall have the right to require the
assignment to it (upon such then current fair and reasonable
arm's length terms and conditions) of a share of the Percentage
Interest previously assigned to such Related Company Affiliate
pursuant to Section 17.3.1, such share being in the proportion
<PAGE> 195
which its Percentage Interest bears to the aggregate Percentage
Interests of all Parties so entitled, or as otherwise agreed by
such Parties. If a Party, within 28 days of receipt of notice
pursuant to this Section 17.3.2, as herein required gives notice
to each other Party that it considers the said terms and
conditions to be other than the then current fair and reasonable
arm's length terms and conditions, then the matter shall promptly
be referred to a person appointed in accordance with clause 15.
11(a) an Independent Expert, who shall determine for all Parties
what will be the said then current fair and reasonable arm's
length terms and conditions, acting as an independent expert and
not as an arbitrator.
17.3 Assignment to Non Related Company Non-Affiliate Right
Subject to Sections 17.1 and 17.2, each Party may, subject
to any necessary approval of and registration by the
MinisterAuthority and any other government consent, and to the
provisions of this Article 17, at any time assign the whole or
any part of its Percentage Interest to any other Party or person
to which it is not a Related Company and which, in either case,
has demonstrated to each other Party both that it has, or has
access to, adequate financial capability to meet its prospective
obligations and liabilities under this Agreement and that it has
adequate petroleum industry experience. If a Party wishes to make
such an assignment, it shall first give notice to each other
Party and Operator specifying the name, address and
qualifications of the proposed assignee and the terms and
conditions of the proposed assignment.
Thereafter, any of the other Parties may within sixty (60)
days after receipt of such notice, request by notice to all other
Parties the assignment of such whole or part Percentage Interest
to it in which event the assignment shall be made to it on the
same or commercially equivalent terms as the said proposed
assignment or, if more than one Party so requests by notice, to
them in the proportion (unless otherwise agreed between
themselves) which their respective Percentage Interest bear to
each other; provided that if the proposed assignment is to
another Party and one or more of the other Parties gives notice
then the firstnamed Party shall be deemed to have likewise given
notice hereunder; and if none of the other Parties so requests
the assignment of such whole or part Percentage Interest, the
relevant Party may assign it to the proposed assignee on the
proposed terms and conditions; provided that the instrument
evidencing the assignment shall be executed by the parties
thereto and submitted for the approval of, and registration by,
the Minister Authority within one hundred and twenty (120) days
of the expiry of the sixty (60) day period referred to in the
preceding sub-paragraph 17.4.1.1.
<PAGE> 196
17.4 Assumption by Assignee
Any assignment by a Party of the whole or any part of its
Participating Interest or of such Participating Interest or part
by any person exercising power of sale pursuant to any mortgage
or charge otherwise permitted pursuant to this Agreement, shall
be made expressly subject to the terms and provisions of this
Agreement and shall be made expressly conditional upon: the
obtaining of all necessary consents and approvals to the
assignment; and the execution and delivery by the assignee to the
Operator as agent for the Parties of a deed of assumption and
covenant in such form as the non-assigning Parties shall approve
(which approval shall not be unreasonably withheld) whereby the
assignee assumes the obligations and is conferred with the rights
of a Party under the documents relating to the Joint Venture
Documents to the extent of the Participating Interest assigned.
17.5 Consequences of Assignment
(a) Subject to Clause 17.4 with effect on and from a date
agreed by the assigning Party and the assignee to be the
effective date of the assignment of a Participating Interest
or part thereof ("Effective Date of Assignment"), the
assignee shall, to the extent of the assignment, become a
Party in the place of the Party whose Participating Interest
or part thereof has been assigned provided that the
assigning Party shall indemnify and keep indemnified the
other Parties against all liabilities accruing in respect of
the Participating Interest of the assigning Party up to the
Effective Date of Assignment.
(b) The assigning Party shall, in addition, remain liable to
and shall indemnify and keep indemnified the other Parties
against all liabilities accruing in respect of the
Participating Interest of the assignee on and after the
Effective Date of Assignment, unless and until the Parties
shall have resolved or shall resolve by unanimous vote, -
are you sure? that the assignee or proposed assignee is a
respectable and financially responsible person for the
purposes of the Joint Venture. Upon the later of such
unanimous resolution and the Effective Date of Assignment,
the assigning Party shall (as between the assigning Party
and the other Parties) be relieved and discharged from all
such liabilities of the assignee accruing thereafter and any
obligation to indemnify the other Parties in respect
thereof.
(c) The onus of proving to the satisfaction of the Parties
that the assignee or proposed assignee is a respectable and
financially responsible person for the purposes of the Joint
Venture shall rest upon the assigning Party. Upon proof that
a proposed assignee is such a respectable and financially
responsible person, no Party shall unreasonably withhold its
vote to a resolution on that matter.
<PAGE> 197
(d) Each Party shall, when required by any such assignee,
perform, execute, acknowledge and deliver all such further
acts, deeds and assurances as may be reasonably required of
it to perfect the assignment of a Participating Interest or
part thereof to, or the assumption of rights or obligations
thereunder by, such assignee.
17.6 Charge of Participating Interest
Without prejudice to its right to charge any of its property
or assets other than its Participating Interest any Party
("Chargor") may, without the consent of the other Parties (but
subject to all other necessary consents and approvals), charge in
favour of any person ("Chargee") the whole of its Participating
Interest provided that such charge shall be made subject to the
Joint Venture Documents.
18 CONFIDENTIALITY
18.1 Information Confidential
This Agreement and all of its provisions, and all records,
reports and other data information and studies made in the course
of or resulting from Joint Operations except any of the same
which is at the relevant time, in the public domain
(collectively, "Information") shall be and remain confidential
between the Parties and shall not be disclosed to any third party
without the prior consent of all of them (which consent, provided
that an undertaking as to confidentiality by the third party in a
form reasonably satisfactory to the Parties is first obtained,
shall not be unreasonably withheld and shall be deemed to have
been given if Parties whose Participating Interests aggregate in
excess of seventy-five percent (75%) have consented) provided
always that any of the Parties shall be at liberty without such
consent to disclose or make a public statement or announcement
regarding the Information:
(a) to the extent that such Party (or in the case of
statements or announcements to be made by the Operator, any
Party) is legally required so to do, to any governmental
agency or instrumentality or by an official stock exchange
on which the shares of such Party or a Related Company are
quoted, in which case all reasonable efforts shall be made
to communicate the statement or announcement to the other
Parties prior to the disclosure announcement or publication;
(b) to any chargee, bank or other financial institution in
connection with the organisation of the Parties' financial
affairs or a bona fide prospective purchaser of part or all
of a Party's Participating Interest (including without
limitation, a corporation with whom a Party is conducting
bona fide negotiations directed toward a merger or
<PAGE> 198
consolidation) provided that the chargee, bank, financial
institution or prospective purchaser agrees previously in
writing to keep the same confidential;
(c) to any of such Party's employees, directors,
consultants, legal counsel, auditors and other persons for
the purposes of all matters pertaining to such person's
duties provided that each of the persons to whom disclosure
is made then owes to the Party a duty to keep the same
confidential (the observance of which duty, the Party hereby
undertakes to the other Parties to use its best efforts, to
enforce).
18.2 Related Companies
The Information may be disclosed to Related Companies
without the prior consent of the other Parties provided that:
(a) each recipient shall prior to the disclosure of the
Information have executed and deposited with the Operator an
undertaking as to confidentiality in favour of all Parties;
(b) breach by a recipient in terms of this Clause 18.2
shall be deemed to be a breach by the Party of its
obligations in terms of Clause 18.1; and
(c) the provisions of Clauses 18.1 and 18.5 apply, mutatis
mutandis, to each recipient as if it was a Party.
18.3 Compliance with Stock Exchange Requirements
To ensure compliance by any Party or Related Company of a
Party, the securities of which are listed on a stock exchange or
quoted on a quotation system ("listed company"), with the
listing requirements of that stock exchange or other applicable
securities disclosure laws the Operator shall disclose
immediately to all Parties any significant discovery of
hydrocarbons or mineralisation within the Permit. Any such
listed company shall have the right to make all or part of such
information available to such stock exchange or other public
disclosure system. A Party shall provide to each other Party,
for approval, a copy of each announcement, report or advice, if
reasonably practicable, prior to providing it to such stock
exchange, containing or referring to such information, made by it
or a Related Company.
18.4 Obligations to Continue
The obligations enumerated in Clauses 18.1 and 18.2 shall be
continuing obligations and shall be complied with notwithstanding
that a Party has ceased to be a party to this Agreement, a
corporation has ceased to be a Related Company or this Agreement
has been terminated.
<PAGE> 199
18.5 Termination
The obligations described in this Clause 18 shall continue
to apply for a period of five (5) years after the date of
termination of this Agreement.
19 FORCE MAJEURE
19.1 Obligations Suspended by Event of Force Majeure
If any Party is rendered unable wholly or in part by Force
Majeure to carry out its obligations under this Agreement (other
than any obligation to make money payments) that Party shall give
to all other Parties prompt written notice of the Force Majeure
with reasonably full particulars concerning it. The obligations
of the Party giving the notice so far as they are affected by the
Force Majeure shall be suspended during but not longer than the
continuance of the effects of the Force Majeure. The affected
Party shall use all reasonable efforts to overcome the effects of
the Force Majeure as quickly as possible.
19.2 Certain Actions not Required
The provisions of Clause 19.1 shall not require the
settlement of strikes, boycotts, lockouts or other labour
difficulty by the Party involved contrary to its wishes and such
matters shall be handled entirely within the discretion of the
Party concerned.
19.3 Meaning of Force Majeure
In this Clause 19 the term "Force Majeure" means any event
or circumstance beyond the reasonable control of a Party which
renders that Party unable in whole or in part to carry out its
obligations under this Agreement including without limitation,
strike, lockout, fire, flood, tornado, hurricane, lightning,
explosion, collision, radiation, act of God or the public enemy,
war, blockade, governmental regulation, order or decree,
uncontrollable delay in transportation, inability to obtain
adequate labour, contractors or necessary materials or equipment
in the open market, inadequate facilities for the transportation
of necessary materials or equipment, or any other cause, whether
similar or dissimilar to the causes herein specifically
enumerated, beyond the reasonable control of such Party and which
such Party is unable to overcome by the exercise of reasonable
diligence and at a reasonable cost, provided however, the lack of
finances or inability to borrow the same shall in no event be
deemed a cause beyond the reasonable control of a Party.
<PAGE> 200
20 LAWS AND REGULATIONS
20.1 Subject to Applicable Laws
This Agreement and the respective rights and obligations of
the Parties hereto shall be subject to all valid and applicable
laws, rules, ordinances, regulations and orders of New Zealand,
and in the event that this Agreement or any provision thereof is
or the Joint Operations contemplated hereunder are found to be
inconsistent with or contrary to any such law, rule, ordinance,
regulation or order the latter shall be deemed to control the
former and this Agreement shall be regarded as modified
accordingly and as so modified shall continue in full force and
effect.
20.2 Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of New Zealand.
20.3 Submission to Jurisdiction
Each of the Parties hereby submits unconditionally and
exclusively to the jurisdictions of the Courts in New Zealand
holding jurisdiction in relation to matters relating to this
Agreement.
21 NOTICES
21.1 Notice in Writing
A notice, demand, waiver, approval, consent, communication
or other document in connection with this document ("Notice"):
(a) may be given by an Authorised Officer of the relevant
party; and
(b) must be in writing; and
(c) must be left at the address of the addressee, or sent
by prepaid ordinary post (airmail if outside New Zealand) to
the address of the addressee or by facsimile to the
facsimile number of the addressee which is specified below
or if the addressee notifies in writing another address or
facsimile number then to that address or facsimile number.
21.2 Effective Date
Unless a later time is specified in it a Notice takes effect
from the time it is actually received or taken to be received.
<PAGE> 201
21.3 Time of Receipt
A Notice sent by post or facsimile is taken to be received:
(a) in the case of a letter, on the 5th (10th, if outside
New Zealand) day after posting; and
(b) in the case of a facsimile, on production of a
transmission report by the machine from which the facsimile
was sent which indicates that the facsimile was sent in its
entirety to the facsimile number of the recipient notified
for the purpose of this clause if produced before 5 pm on a
business day otherwise on the next business day.
21.4 Address for Service
The address for service of a Notice shall be as follows:
INDO-PACIFIC ENERGY (NZ) LTD of Indo-Pacific House, 284
Karori Rd, Karori, Wellington, New Zealand. ("Indo")
TRANS-ORIENT PETROLEUM (NZ) LIMITED of Indo-Pacific House,
284 Karori Rd, Karori, Wellington, New Zealand. ("Trans")
TRANS NEW ZEALAND OIL COMPANY (NZ) LIMITED of Indo-Pacific
House, 284 Karori Rd, Karori, Wellington, New Zealand..
("Tranz")
21.5 Authorised Officer
For the purposes of Clause 21.1, an Authorised Officer of a
party includes a director, secretary or other governing officer
of the party.
GENERAL
22.1 Remedies not Exclusive
Each and every power and remedy herein specifically given to
a Party affected by the default of another Party shall be in
addition to every other power and remedy now or hereafter
existing at law or in equity, and each and every power and remedy
may be exercised from time to time and simultaneously and as
often and in such order as may be deemed expedient. All such
powers and remedies shall be cumulative and the exercise of one
shall not be deemed a waiver of the right to exercise any other
or others.
<PAGE> 202
22.2 Mutual Indemnity
Subject to the provisions of this Agreement each Party
("Indemnifying Party") will indemnify and keep indemnified each
of the other Parties from every claim, demand, action or
liability or loss resulting from each and every breach or default
by the Indemnifying Party of any of its obligations under any of
the documents relating to the Joint Venture.
22.3 Limited Invalidity
If any Clause or part thereof of this Agreement shall be, or
shall be deemed to be, invalid for any reason whatsoever such
invalidity shall not affect the validity or operation of the
remainder of that Clause or any other Clause of this Agreement
except only so far as may be necessary to give effect to such
invalidity.
22.4 Waiver
No waiver by any Party of a right or a default hereunder or
any delay or omission in the exercise of any right, remedy or
power, shall constitute a waiver by such Party of any subsequent
right, power, remedy or default whether of a like nature or
otherwise.
22.5 How Moneys Paid
Any sum of money paid or tendered by the Parties hereto
shall be validly and effectually paid or tendered if such payment
is given, delivered or made in legal currency or by bank cheque
or by the party's own cheque after presentment and clearance.
22.6 Successors Bound
This Agreement shall enure for the benefit of and bind the
Parties and their assigns and successors in title.
22.7 Further Assurance
Each Party agrees that it will perform, execute, acknowledge
and deliver all such further acts, deeds, assurances and
instruments as shall be reasonably required for the purposes of
this Agreement or otherwise to carry out the agreements made
herein.
22.8 Entire Agreement
This Agreement is the entire agreement between the Parties
hereto in relation to its subject matter and supersedes all prior
agreements in connection therewith, and each Party covenants that
it has full right title and power to enter into this Agreement.
<PAGE> 203
22.9 Amendment
This Agreement may not be amended except by one or more
written instruments executed by all the Parties hereto.
22.10 No Partition
No Party shall institute any action or proceedings for
partition or sale in lieu of partition of the Permit, the Area or
any of the Joint Property.
22.11 Counterparts
This Agreement may be executed in any number of counterparts
each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
EXECUTED AS AN AGREEMENT
Signed for Indo Pacific Energy (NZ) Limited
by its duly authorised representative
/s/ David Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
Signed for Trans-Orient Petroleum (NZ) Limited
by its duly authorised representative
/s/ David Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
Signed for Trans New Zealand Oil Company (NZ) Ltd.
by its duly authorised representative
/s/ David Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
<PAGE> 204 SCHEDULE 1
ACCOUNTING PROCEDURE
The purpose of this Accounting Procedure is to establish
equitable methods for determining charges and credits applicable
to Joint Operations under the Operating Agreement to which this
Accounting Procedure is a Schedule ("Operating Agreement") in
respect of the Permit. The Parties agree that if any of such
methods prove unfair or inequitable to the Operator or the Non-
Operators, the Parties will subject to Article 2.2.3 meet and in
good faith endeavour to agree on changes in methods deemed
necessary to correct any unfairness or inequity.
The purpose of this Accounting Procedure is to ensure that
subject to Article 2.2.3 the Operator neither gains nor loses by
performing the activities of Operator.
In the event of any conflict between the provisions of this
Accounting Procedure and the provisions of the Operating
Agreement, the provisions of the Operating Agreement shall apply.
ARTICLE 1 - GENERAL PROVISIONS
1.1 Definitions
1.1.1 "Administrative Overhead" means the charge
made to the Joint Account pursuant to Article 2.2,
which charge shall be in lieu of and shall be deemed to
cover all indirect costs incurred by the Operator in
respect of Joint Operations which are not otherwise
provided for in the Operating Agreement or this
Accounting Procedure.
1.1.2 "Advances" has the meaning given in clause
1.2
1.1.3 "Agreement of Non-Operators" means the
agreement or action of a majority in Participating
Interests of the Non-Operators.
1.1.4 "Annual Base Expenditure" means in respect of
any Permit Year, the Authorised Expenditure charged to
the Joint Account in that Permit Year in respect of
Joint Operations PROVIDED THAT Base Expenditure shall:
(a) exclude, without limitation, any charge to
the Joint Account in respect of Administrative
Overhead;
(b) exclude, without limitation, any royalty,
taxes, duties and the like, levied on production
or in respect of income from production;
<PAGE> 205
(c) include, without limitation, Authorised
Expenditure in respect of the construction and
maintenance of field access roads;
(d) include, without limitation, Materials only
when such Materials are utilised and charged to an
approved AFE; and
(e) be reduced by any credits received other than
any credits or receipts from sales of Material,
insurance claims or any other credits agreed by
the Operating Committee.
1.1.5 "Cash Calls" has the meaning given in clause
1.2
1.1.6 "Controllable Material" shall mean material
which the Operator subjects to record control and
inventory. A list of types of such materials shall be
furnished to the Non-Operators upon request.
1.1.7 "Material" means movable property, including
supplies and equipment, acquired and held for use in
Joint Operations.
1.1.8 Unless the provisions of this Accounting
Procedure require otherwise, all words and phrases
contained herein shall have the same meaning as in the
Operating Agreement.
1.2 Advances and Payment by the Joint Venture Parties
1.2.1 If the Operator so requests, each of the
Parties shall advance to the Operator their share of
the estimated cash requirements for approved AFEs or
Budget line items for the succeeding month for the
Joint Operations and in accordance with the provisions
of clause 1.2. . Such estimates shall be based on the
latest information available to the Operator at the
time the request is sent as to the actual cash
requirements for the month. No less than fifteen (15)
days prior to the beginning of each month, the Operator
shall furnish the Parties with its estimate of the cash
requirements by AFE or Budget line item for that month.
This estimate shall specifically identify the
particular approved AFE or Budget line item giving rise
to such cash requirements and shall constitute a
request for an Advance (a Cash Call). Appended to the
Cash Call the Operator shall provide a revised forecast
of future cash requirements for the following three (3)
months, analysed by AFE or Budget line item for each
approved Budget. The cash forecast for the first month
will be the Cash Call for that month as provided under
<PAGE> 206
this clause 1.2.1 Except as otherwise provided in this
agreement, Cash Calls shall not be made for
expenditures which require an AFE unless such AFE has
been approved or deemed approved as required under this
Agreement. Cash Calls may be made for certain licence
maintenance costs, required to keep the licence in good
standing, and Administrative Overhead costs as defined
and determined in clause 2.2.1 without prior approval
of such costs by way of AFE. Not withstanding the
above, Cash Calls on AFEs of less than $20,000 and on
Administrative Overheads will only be made quarterly,
on the basis of forecast quarterly expenditure, rather
than monthly. In any the Operator at all times provide
estimates of forecast expenditure monthly. Adjustments
to reflect Administrative Overhead to be charged on
actual expenditures shall be made at the end of the
year, and such adjustment shall be separately
identified in Cash Calls and billing statements.
1.2.2 Cash Calls made by the Operator under 1.2.1
shall be paid by each Party according to its
proportionate share in the currency (or currencies)
requested by the Operator, to the appropriate bank
account (or bank accounts) maintained by the Operator
for the Joint Account, by the fifteenth (15th) day of
the month for which the Advances are requested.
1.2.3 Should the Operator be required to pay any
sums of money which were unforeseen at the time of
preparing the monthly estimates of expenditure, under
clause 1.2.1 and/or are required to be paid before the
Operator would receive the Parties payments, under
clause 1.2.2, the Operator may make a written request
to the Parties for special Advances covering their
share of such expenditures. A Special Cash Call made
under this clause 1.2.3 shall be paid by each Party in
its proportionate share, in the currency (or
currencies) requested within fourteen (14) days after
receipt of such Cash Call.
1.2.4 If it is determined that a Party's Advances
for a certain month exceed its share of cash
disbursements for that month, the Operator may reduce
that Party's share of the next succeeding Cash Call,
after such determination, or , at the Operator's
discretion, the Operator shall deposit such excess
Advances as soon as possible in either a short term
interest bearing bank account with a New Zealand
trading bank or in a Government backed interest earing
deposit or such other financial institutions as agreed
by the Operating Committee, until they are required for
disbursement. However, if the excess funds are
unlikely to be required for future disbursements, a
<PAGE> 207
Party may request that such excess Advances be refunded
and the Operator shall make such refund within fifteen
(15) days after the receipt of such request.
1.2.5 If a Party's Advances for a certain month are
less than its share of cash disbursements for the same
month, at the Operator's discretion, the deficiency
shall either:
1.2.5.1 Be added to a subsequent request for
Advances, or
1.2.5.2 Be paid by such Party in the currency
requested by the Operator, within fifteen (15)
days following the receipt of the Operator's
billing showing such deficiency.
1.2.6 If the Operator chooses not to request
Advances from Non-Operators as provided under clauses
1.2.1 and 1.2.3, payment to the Operator by each Non-
Operator shall be made within twenty (20) days after
receipt of the Joint Operations billing statement as
rendered under clause 1.3
1.2.7 If payment of the amount of any Cash Call or
statement provided for in this clause 1.2 is not made
when due:
1.2.7.1 The Operator shall immediately notify
the Party from whom such payment has not been
received that it has not received payment and such
Party shall within two (2) Business Days of
receipt of such notice remedy such failure to make
payment; and
1.2.7.2 The unpaid balance thereof shall bear
interest at the Default Interest Rate from the due
date for payment to the date of actual payment.
1.2.8 Adjustments between estimated and actual
costs and expenses shall be made by the Operator at the
close of each month and the account of the respective
Parties adjusted accordingly.
1.3 Statements and Billings
1.3.1 Following the end of each month, the
accumulated charges and credits in the Joint Account
will be determined and the Operator will issue a
statement recording actual cash expenditure against
Advances made for that month. Such statement shall be
accompanied by a Joint Operations billing statement
summarising all charges and credits accrued to the
<PAGE> 208
Joint Account by appropriate classifications indicative
of the nature thereof and adjusted back to a cash basis
in relation to the amounts shown on the statement. All
such statements shall identify all expenditure by
reference to the relevant budget and AFE pursuant to
which such expenditure was incurred. The Operator
shall provide each such statement to the Non-Operators
within twenty-five (25) days of the expiry of the
relevant month.
1.4 Audits
1.4.1 A Non-Operator, upon at least twenty (20)
Business Days advance written notice to the Operator
and other Non-Operators, shall have the right at its
sole expense to audit the Joint Account and records
relating to Joint Operations for any Permit Year or
portion thereof within the twenty-four (24) month
period following the end of such Permit Year; Where
there are two or more Non-Operators, the Non-Operators
shall make every reasonable effort to conduct joint or
simultaneous audits in a manner which will result in a
minimum of inconvenience to the Operator.
1.4.2 Subject to prior approval of all of the
Parties, the cost of any audit or verification of the
Joint Account, other than the audit provided for in
Article 1.4.1, shall be chargeable to the Joint
Account.
1.4.3 In respect of charges made to the Joint
Account for Administrative Overhead pursuant to Article
2.2, the Non-Operators right of audit shall include,
without limitation, verification of Annual Base
Expenditure and the calculation of Administrative
Overhead thereon, but shall exclude, without
limitation, verification of the Operator's indirect
costs which such Administrative Overhead is deemed to
cover.
ARTICLE 2 - CHARGEABLE COSTS AND EXPENDITURES
The Operator shall charge the Joint Account for all costs
incurred pursuant to an approved AFE on the basis herein
provided. Such Joint Account costs shall include, but are not
necessarily limited to, items referred to below:
2.1 Joint Account (Direct Charges)
The Operator shall charge the Joint Account with all direct
costs and expenses incurred in connection with the Operating
Agreement, the Permit and the Joint Property. Without in any way
limiting the generality of the foregoing, chargeable direct costs
and expenditures shall include:
<PAGE> 209
2.1.1 Labour and Related Costs
All personnel, other than those described in Article
2.1.1.(1) who are employed by the Operator and who work on
Joint Operations under the direct control of the Operator,
will maintain monthly time sheets for the purpose of
charging salary and related benefits direct to the Joint
Account. Time sheets will record time spent on Joint
Operations whether such personnel (including without
limitation, managers, supervisors and technical employees
such as geologists, geophysicists, engineers, drilling,
production and construction supervisors and operators, field
co-ordinators, drafting staff and technical assistants and
non-technical employees such as landmen, purchasing officers
and such accounting staff as are specifically responsible
for the account of the Joint Venture) are engaged full-time
or part-time on Joint Operations and will show the time
worked on the various projects and other classifications of
cost to enable personnel costs to be allocated to such
classifications for budget and cost control purposes.
(1) Time sheets will not be maintained for such
purposes by the following personnel:
(i) Administrative support personnel, including
without limitation, secretaries, typists, filing
clerks, messengers, commissionaries, telephone and
facsimile operators;
(ii) Accounts personnel, including without
limitation, cashiers handling joint funds,
employees handling the salaries of personnel
employed on Joint Operations and employees
handling invoices and accounts for payment, but
excluding such accounting staff as are
specifically responsible for the accounting of the
Joint Venture.
(2) The amount to be charged to the Joint Account for
each person who is employed by the Operator (other than
any such person who is described in Article 2.1.1(1))
and who is working on Joint Operations under the direct
control of the Operator, shall be the proportion of the
Operator's actual cost of salaries and related benefits
for each such person that the time worked by such
person on Joint Operations bears to the total time
worked by such person in respect of which such cost is
incurred. For the purpose of this Article, the
Operator's actual cost of salaries and related benefits
shall include salaries, wages, overtime pay, rest day
pay, holiday pay, long service pay, living and housing
allowances, accident and illness compensation, group
life insurance, pension, superannuation, retirement and
<PAGE> 210
other benefit plans of a like nature and all payroll
expenses incurred by reason of any governmental
regulations or laws.
(3) The cost of personnel described in Article
2.1.1(1) which is applicable to Joint Operations shall
be deemed to be covered by the percentage charge for
Administrative Overheads in Article 2.2.1.
(4) Personnel Seconded to the Operator from a Non-
Operator. The amount to be charged to the Joint
Account for each person who is working on Joint
Operations under the direct control of the Operator
(other than any such person who is described in Article
2.1.1(1)) and who is seconded to the Operator from a
Non-Operator shall (subject to agreement to the
contrary) be the proportion of the Non-Operator's
actual cost of salaries and related benefits for each
such person that the time worked on Joint Operations by
such person bears to the total time worked by such
person in respect of which such cost is incurred. Time
sheets must be kept by such persons in the same form as
those kept by the employees of the Operator.
(5) For the purposes of Article 2.1.1(4) the Non-
Operator's actual cost of salaries and related benefits
shall be as defined in Article 2.1.1(2).
2.1.2 Material
Material purchased or furnished for use in Joint
Operations as provided under Article 3 herein.
2.1.3 Transportation and Employee Relocation Costs
(1) Transportation of Material and other related
costs such as expediting, crating, dock charges,
inland and ocean freight and unloading at
destination.
(2) Transportation of employees as necessary or
desirable for the conduct of Joint Operations.
(3) Relocation costs of employees permanently or
temporarily assigned to the Joint Operations
except that relocation costs from New Zealand
shall only be charged if the employee is returned
to the country from which he was relocated. Such
costs shall include transportation of employees'
families and their personal and household effects
and all other relocation costs in accordance with
the Operator's usual practice including without
limitation, an allocation of such costs on an
<PAGE> 211
equitable basis, having regard to the amount of time
each employee was engaged in other areas of operation.
The budget shall include an estimate of the relocation
costs likely to be incurred in the current budget.
2.1.4 Services
(1) Contract services, professional consultants
and other services procured from outside sources
other than services covered by Article 2.1.7.
(2) Technical services, such as, but not limited
to, laboratory analysis, drafting, geophysical and
geological interpretation, engineering and related
data processing, performed by the Operator, the
Non-Operators and their Related Companies for the
direct benefit of the Joint Operations, provided
such costs shall not exceed those currently
prevailing if performed by outside technical
service companies.
(3) Use of equipment and facilities furnished by
the Operator, the Non-Operator and their Related
Companies at rates commensurate with the cost of
the ownership and operation thereof, but such
rates shall not exceed those currently prevailing
in the general vicinity of the Permit.
2.1.5 Damage and Losses of Joint Property
All costs or expenses necessary for the repair or
replacement of any Joint Property resulting from damage
or losses incurred by fire, flood, storm, theft,
accident or any other cause. The Operator shall
furnish the Non-Operators with written notice of
damages or losses incurred in excess of $50,000.00 as
soon as practicable.
2.1.6 Insurance
(1) Premiums for insurance required by the Joint
Property or any law or regulation and insurance
acquired for the benefit of all Parties as
approved by the Operating Committee.
(2) Credits for settlements received from the
insurance carrier and others and attributable to
the Joint Account.
(3) Actual expenditure incurred in the settlement
of all losses, claims, damages, judgments and
other expenses for the benefit of Joint
Operations.
<PAGE> 212
2.1.7 Legal Expense
(1) All costs or expenses of handling,
investigating and settling litigation or claims
arising by reason of Joint Operations or necessary
to protect or recover the Permit or the Joint
Property, including but not limited to, attorney
fees, court costs, cost of investigation or
procuring evidence and amounts paid in settlement;
however, no charge shall be made for the services
of the Operator and any Related Company's legal
staff unless by prior agreement of the Non-Operators.
(2) All other solicitors or barristers or legal
costs necessary for Joint Operations, except no
charge shall be made for the services of the
Operator's and any Related Company's legal staff
unless by prior agreement of the Non-Operators.
2.1.8 Duties and Taxes
All duties and taxes (except taxes based on
income), fees and governmental assessments of every
kind and nature including, without limitation, goods
and services tax. The Operator shall, in respect of
Joint Operations, be responsible for compliance with
the New Zealand Tax Act 1994 Amendment Act 1996
including, without limitation, the filing of returns
and other related matters.
2.1.9 Offices, Camps and Miscellaneous Facilities
Net cost of maintaining, equipping, furnishing and
operating any offices, sub-offices, camps, warehousing,
housing and other facilities directly serving the Joint
Operations and approved by the Operating Committee,
shall be charged to the Joint Account. If such
facilities serve Joint Operations in addition to the
Joint Operations, the net cost shall be allocated to
the properties served on an equitable basis.
2.1.10 Payments to Government
Expenditure necessary to acquire and maintain
rights under the Permit.
2.1.11 Other Charges
All other costs and expenses incurred by the
Operator which are not mentioned above and which are
necessary and proper for the conduct of Joint
Operations.
<PAGE> 213
2.2 Joint Account (Indirect Charges)
All indirect costs incurred in respect of Joint Operations
shall be deemed to be covered by the following charges which the
Operator may charge to the Joint Account.
2.2.1 Administrative Overhead
Subject to the provisions of this Article 2.2, the
Operator shall charge to the Joint Account an Administrative
Overhead which shall be calculated by applying percentages
to tranches of Annual Base Expenditure as follows:
On the first $1,000,000 4%
On the next $4,000,000 3%
On the next $5,000,000 2%
Above $10,000,000 1%
However the minimum Administrative Overhead chargeable
to the Joint Account will be thirty thousand dollars
(NZ$30,000.00) per Permit Year chargeable on a pro rata
monthly basis.
2.2.2 Subject to the charging of the minimum
Administrative Overhead referred to in Article 2.2.1,
Administrative Overhead shall be charged to the Joint
Account quarterly:
(a) based on that quarter's cumulative current year to
date Annual Base Expenditure; and
(b) reduced by the cumulative current year to date
Administrative Overhead charged to the previous
quarter.
2.2.3 The charges to be made pursuant to Article
2.2.1 shall be reviewed annually by the Operator in order to
verify that the charge equitably compensates the Operator
for the costs they are intended to cover and appropriate
adjustment either upward or downward will be made subject to
approval by the Committee.
2.3 Joint Account (Excluded Charges)
Depreciation, amortisation and restoration provisions
of facilities and other capital assets comprising the Joint
Property will not be recorded as operating costs in the
Joint Account.
<PAGE> 214
ARTICLE 3 - MATERIAL
3.1 Acquisitions
3.1.1 Material purchases shall be charged at net
cost incurred by the Operator. Net cost shall include,
but shall not be limited to, such items as
transportation, duties, licence fees and applicable
taxes.
3.1.2 New Material (Condition "1") transferred from
the Operator's stock or other properties, shall be
priced at new purchase net cost determined in
accordance with Article 3.1.1 above. Good used
Material (Condition "2") being used Material in sound
and serviceable condition, suitable for re-use without
reconditioning, shall be priced at seventy-five percent
(75%) of such new purchase net cost. Used Material
which cannot be classified at Condition "2" shall be
priced at a value commensurate with its use.
3.2 Disposals
3.2.1 The Operator shall be under no obligation to
purchase the interest of Non-Operators in new or used
surplus Material.
3.2.2 The Operator shall have the right to dispose
of surplus Material to a bona fide purchaser but shall
advise and secure prior agreement of the Non-Operators
for each proposed disposition of Materials costing in
the aggregate of $10,000.00 or more.
3.2.3 Proceeds from all sales shall be credited to
the Joint Account at the net amount actually collected.
3.3 Inventories
3.3.1 Inventories shall be taken annually by the
Operator of all Controllable Material unless otherwise
agreed by the Parties. The Operator shall give ninety
(90) days written notice of intention to take such
inventories to allow the Non-Operators to be
represented when any inventory is taken. Failure of
any Non-Operator to be represented shall bind such Non-
Operator to accept the inventory taken by the Operator.
3.3.2 Reconciliation of inventory with the Joint
Account shall be made and a list of overages and
shortages shall be furnished to the Non-Operators.
Inventory adjustments shall be made to the Joint
Account, if required by the Parties.
<PAGE> 215
3.3.3 Whenever there is a sale or change of
Participating Interest, a special inventory may be
taken by the Operator, provided the seller and/or
purchaser of such Participating Interest agree to bear
all the expenses thereof. In such cases, the seller,
the purchaser and any other Party shall be entitled to
be represented and shall be bound by the inventory so
taken.
SCHEDULE 2 - Description of the Permit Area
Having an area of 80.15662 sq km
174 Degree 20' 30" E 39 Degree 12' 00"S
174 Degree 20' 30" E 39 Degree 11' 15"S
174 Degree 20' 45" E 39 Degree 11' 15"S
174 Degree 20' 45" E 39 Degree 11' 00"S
174 Degree 21' 30" E 39 Degree 11' 00"S
174 Degree 21' 30" E 39 Degree 10' 00"S
174 Degree 21' 45" E 39 Degree 10' 00"S
174 Degree 21' 45" E 39 Degree 09' 15"S
174 Degree 21' 30" E 39 Degree 09' 15"S
174 Degree 21' 30" E 39 Degree 08' 45"S
174 Degree 21' 15" E 39 Degree 08' 45"S
174 Degree 21' 15" E 39 Degree 08' 15"S
174 Degree 20' 15" E 39 Degree 08' 15"S
174 Degree 20' 15" E 39 Degree 08' 40"S
174 Degree 18' 15" E 39 Degree 08' 40"S
174 Degree 18' 15" E 39 Degree 09' 00"S
174 Degree 18' 00" E 39 Degree 09' 00"S
174 Degree 18' 00" E 39 Degree 09' 15"S
174 Degree 17' 30" E 39 Degree 09' 15"S
174 Degree 17' 30" E 39 Degree 09' 45"S
174 Degree 17' 45" E 39 Degree 09' 45"S
174 Degree 17' 45" E 39 Degree 10' 25"S
174 Degree 17' 30" E 39 Degree 10' 25"S
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174 Degree 12' 00" E 39 Degree 13' 30"S
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174 Degree 18' 45" E 39 Degree 14' 15"S
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174 Degree 19' 00" E 39 Degree 14' 45"S
174 Degree 18' 45" E 39 Degree 14' 45"S
174 Degree 18' 45" E 39 Degree 15' 00"S
174 Degree 18' 30" E 39 Degree 15' 00"S
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174 Degree 18' 15" E 39 Degree 15' 15"S
174 Degree 18' 15" E 39 Degree 15' 45"S
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174 Degree 18' 00" E 39 Degree 16' 30"S
174 Degree 19' 45" E 39 Degree 16' 30"S
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174 Degree 20' 00" E 39 Degree 12' 00"S
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<PAGE> 217
EXHIBIT 10.69
CERTIFICATE OF EXTENSION OF DURATION
IN THE MATTER of the Crown Minerals Act 1991
AND
IN THE MATTER of Petroleum Prospecting Licence 38706 in the name
of Fletcher Challenge Energy Taranaki Limited, Southern Petroleum
(Ohanga) Limited and Ngatoro Energy Limited
Pursuant to section 37(2) of the Crown Minerals Act 1991 and
in accordance with a delegation from the Minister of Energy of 20
January 1998, an extension of licence duration is granted to 31
July 2001. This extension of duration is granted in relation to
the area described in the attached first schedule and subject to
the attached second and third schedules.
DATED at Wellington this 25th day of August 1998
/s/ B. J. Fowke
SIGNED by Barrie John Fowke
Manager Crown Minerals
PPL 38706
SECOND SCHEDULE
1. The licensees shall carry out the following work
programme:
(a) Prior to 31 July 1999
i incorporate results of Tariki-2C exploration well
test;
ii re-process 300 km of existing 2D seismic across
the Tariki Structure;
iii acquire, process and undertake interpretation of
20 km of infill 2D seismic in the KuparaNorth area;
iv integrate well and seismic results into a refined
field interpretation of the Tariki Structure in the
KuparaNorth area; and
either
make a firm commitment by notice in writing to the Secretary of
Commerce to complete the work programme detailed in (b) below;
<PAGE> 218
or
surrender the licence.
(b) Prior to 31 July 2000:
i complete field interpretation and develop a
geological and reservoir model; and.
ii drill and test one appraisal well in PPL 38706.
(c) Prior to 31 July 2001, if an appraisal well was drilled
under (b) above;
i complete testing of the appraisal well and analyse
results;
ii fully incorporate the results of the appraisal
well in the geological and reservoir model; and
iii prior to the expiry of the Appraisal Extension
submit a Mining Licence Application to the Ministry of
Commerce.
2. An annual fee is to be paid as under Sections 9 and
47M(l)(f) of the Petroleum Act 1937 and Amendment One of the
Petroleum Regulations 1978.
3. The Licensees shall pay to the Secretary of Commerce a
royalty on any petroleum produced under this licence or any
mining licence resulting from this prospecting licence and
granted in accordance with Section II of the Petroleum Act 1937.
The royalty shall be calculated in accordance with the attached
Third Schedule.
4. The Minister of Energy, or any other person authorised
by him to act on behalf of the Crown, shall immediately on the
grant of this prospecting licence acquire and shall be deemed to
(I) have acquired an interest of 11 percent in the licence and
(2) be a holder of the licence to the extent of the interest. The
interest shall be held on the following terms and conditions:
(a) the interest is an undivided 11 percent interest in the
licence;
(b) the interest is participating and carries no obligation
to contribute to any costs or meet any liabilities
associated with holding an interest in the licence subject
to Section 21 of the Petroleum Act 1937;
(c) the interest shall continue for the term of the licence
and any extensions thereof granted pursuant to Section 6(4)
of the Petroleum Act 1937;
<PAGE> 219
(d) the interest may be sold or otherwise dealt with (in
which case the rights of the Minister of Energy, or any
other person authorised by him to act on behalf of the
Crown, as holder of the interest contained in (e) below
shall run with the interest);
(e) if this licence or part of this licence is surrendered
and exchanged for a mining licence pursuant to Section 11 of
the Petroleum Act 1937 the Minister of Energy or any other
person authorised by him to act on behalf of the Crown as
holder of the interest shall be entitled to participate in
the mining of petroleum under that mining licence on the
following terms and conditions:
i the interest shall be an undivided 11 percent
interest in the mining licence;
ii the interest will be participating and will carry
an obligation to contribute to all costs and
liabilities associated with holding an interest in the
mining licence but only to the extent of that interest;
iii the interest will continue for the term of the
mining licence and any extensions thereof granted
pursuant to Section 13(3)(c) of the Petroleum Act 1937;
and
iv the interest may be sold or otherwise dealt with.
PETROLEUM PROSPECTING LICENCE (PPL) 38706
THIRD SCHEDULE
The licensees shall pay to the Secretary of Commerce a
royalty on any petroleum produced under tile licence or any
subsequent mining permit granted in accordance with Section 32 of
the Crown Minerals Act. The royalty shall be calculated as
follows.
The numbering in this schedu1e follows the numbering in the
Minerals Programme for Petroleum 1995.
7.1 In this licence/permit, unless the context otherwise
requires: "permit" includes a licence issued under the Petroleum
Act 1937; "permit holder" includes a licensee under the Petroleum
Act 1937.
7.2 Terms used in these royalty provisions indicated in
bold, are defined in paragraph 7.52 or reference is given there
to where the term is elsewhere defined. In calculating royalties,
the permit holder shall be required to use accounting procedures
which are in accordance with generally accepted accounting
practice, except where otherwise indicated.
<PAGE> 220
7.3 The permit holder shall be liable for the calculation
and payment of royalties to the Crown in respect of all petroleum
obtained under the permit, which is either sold or used in the
production process as fuel or is otherwise exchanged or removed
from the permit without sale, or remains unsold on the surrender,
expiry or revocation of the permit, except as provided for in
paragraph 7.4.
7.4 No royalty is payable in respect of:
(a) Any petroleum that, in the opinion of the Minister, has
been unavoidably lost. This includes petroleum which is
flared for safety reasons, or flared as part of an approved
testing programme. and
(b) Any petroleum which has been mined or otherwise
recovered from its natural condition, but which has been
returned to a natural reservoir within the area of the
permit (for example, reinjected gas).
7.5 On all petroleum produced under this prospecting
licence, the permit holder shall pay a 5 percent ad valorem
royalty in respect of any period for which a royalty return must
be provided, in accordance with paragraph 7.29. The ad valorem
royalty liability is to be determined in accordance with
paragraphs 7.7 and 7.10 to 7.19.
7.6 On all petroleum produced under any subsequent mining
permit awarded under section 32 of the Crown Minerals Act the
permit holder shall calculate and pay the higher of either a 5
percent ad valorem royalty or a 20 percent accounting profits
royalty in respect of any period for which a royalty return must
be provided in accordance with paragraph 7.29, except where the
exemption in paragraph 7.45 applies. In the event that
abandonment costs are still to be incurred in respect of the
permit, the permit holder shall be liable to pay the higher of a
5 percent ad valorem royalty or a 20 percent provisional
accounting profits royalty except where the exemption in
paragraph 7.45 applies. The ad valorem royalty, the accounting
profits royalty and the provisional accounting profits royalty
are to be determined in accordance with the provisions of
paragraphs 7.7 to 7.27.
AD VALOREM ROYALTY
7.7 The ad valorem royalty (AVR) shall be 5 percent of the
net sales revenues from the permit, calculated in accordance with
the provisions in paragraphs 7.10 to 7.19.
<PAGE> 221
ACCOUNTING PROFITS ROYALTY
7.8 The accounting profits royalty (APR) shall be 20
percent of accounting profits from the mining permit. For any
period for which a royalty return must be provided, accounting
profits are the excess of net sales revenues (determined in
accordance with paragraphs 7.10 to 7.19) over the total of
allowable APR deductions. Allowable APR deductions are:
Production Costs;
Capital Costs (exploration costs, development costs, permit
acquisition costs and feasibility study costs);
Indirect Costs;
Abandonment Costs;
Operating and Capital Overhead Allowance;
Operating Losses and Capital Costs Carried Forward; and
Abandonment Costs Carried Back.
The total of allowable APR deductions for any period for
which a royalty return must be provided is the sum of allowable
APR deductions less any capital proceeds. For the purposes of
calculating the allowable APR deductions, all costs are to be
included as incurred. The allowable APR deductions and the total
of allowable APR deductions are discussed further in paragraphs
7.20 to 7.24. In no case may non allowable costs be deducted in
calculating accounting profits for accounting profits royalty
purposes and, as provided for in paragraph 7.25, no deduction or
allowance shall be made more than once in respect of any amount
expended.
7.9 The provisional accounting profits royalty shall be 20
percent of provisional accounting profits from the mining permit.
For any period for which a royally return must be provided,
provisional accounting profits are the excess of net sales
revenues over the allowable APR deductions referred to in
paragraph 7.8. other than abandonment costs carried back. When
abandonment costs carried back are taken into account in
accordance with paragraph 7.20(g), the resulting figures shall be
the final accounting profits figures for such periods, upon which
the final accounting profits royalty liability is calculated.
NET SALES REVENUES
7.10 Net sales revenues are the basis of calculating tile ad
valorem royalty or accounting profits royalty or provisional
accounting profits royalty liability. For each period for which a
royalty return must be provided, net sales revenues are the sum
of total gross sales of petroleum (G), plus the value of
petroleum not sold but on which royalty is payable (P), minus any
allowable netbacks (or plus any net forwards) (N), as defined in
paragraphs 7.11 to 7.19 below.
<PAGE> 222
i.e. Net sales revenues (G)+(P)-(N) (or (G)+(P)+(N))
For the purposes of calculating net sales revenues, all revenues
are to be inc1uded as realised (except where indicated
otherwise).
7.11 Gross sales means the total sales of petro1eum from the
permit during the period for which a royalty return must be
provided, determined in accordance with Generally Accepted
Accounting Practice (GAAP) and excluding goods and services tax
(GST), always provided that:
i Where a take or pay contract or a forward sales
contract applies then the sale of petroleum shall be
included in gross sales at the date of delivery, and the
sales price will be that received under the default
provisions of the take or pay contract or under the forward
sales contract;
ii If any of the sale prices have been denominated in a
foreign currency, the sales price to be used for calculating
gross sales will be translated into New Zealand dollars at
the sell rate obtained. In the event that sale proceeds are
not immediately translated into New Zealand Dollars, but are
retained in a foreign currency, then the exchange rate to
use shall be the mid point between the buy and sell rates
for the foreign currency on the date of sale, set by a major
New Zealand registered bank. Foreign currency gains and
losses are non allowable costs;
iii If any gross sale amount has not been determined on a
fully arm's length basis, for example pursuant to a contract
between related parties, then the said quantity shall be
valued by the permit holder using an arm's length value, as
approved by the Minister in accordance with paragraph 7.27;
and
iv Petroleum futures contracts used as hedging
transactions are irrelevant in determining gross sales, and
gains and losses arising therefrom are non allowable costs.
Payments received in respect of the default provisions of a
take or pay contract, which are not recompensed with
delivery of petroleum products at a later date before the
expiry of the permit are irrelevant in determining gross
sales.
7.12 The value of petroleum used in the production process
and not sold, but on which royalty is payable (refer paragraphs
7.3 and 7.4) shall be determined using an arm's length value, as
approved by the Minister in accordance with paragraph 7.27. In
determining an appropriate price, the Minister will take into
consideration that petroleum used as a process fuel or otherwise
exchanged or removed from the permit without sale, may have a
lesser value to a similar product being marketed.
<PAGE> 223
7.13 Netbacks (net forwards) means that portion of the sale
price that represents the cost of transporting and/or storing
and/or processing the petroleum between the point of valuation
(refer paragraphs 7.15 to 7.19) and the point of sale, provided
that:
i If any of the costs of transporting, storing or
processing are not considered to have been charged on a
fully arm's length basis, for example costs that have been
determined pursuant to a contract between related parties,
then the netbacks (net forwards) to be used shall be
calculated by the permit holder using an arm's length value,
as approved by the Minister in accordance with paragraph
7.27; and
ii The amount of netbacks may not exceed gross sales.
7.14 If the point of sale for petroleum is downstream from
the point(s) of valuation, netbacks should be deducted from gross
sales to arrive at net sales revenues. If the point of sale of
petroleum is upstream of the point(s) of valuation, then net
forwards incurred between the point of sale and the point(s) of
valuation should be added to gross sales to arrive at net sales
revenues.
POINT OF VALUATION
7.15 The point(s) of valuation for calculating net sales
revenues shall be defined by the Minister, in consultation with
the permit holder, at the time of granting a mining permit or in
respect of a prospecting licence, by written notice given by the
Minister to the permit holder within 30 working days, or such
other time as shall be notified to the permit holder, after the
time when production of petroleum under the permit commences. The
Minister shall endeavour to provide that the point of valuation
will generally be the same as, or very close to, the point of
sale for each product stream and. therefore, netbacks or net
forwards will not generally be allowed or will not be
significant.
7.16 In the case of oil, the point of valuation will
normally be expected to be defined at a point where both:
i The associated bulk sediment and water content of the
oil is less than l percent (or such higher levels as are
acceptable to a purchaser); and
ii The oil is available for shipment to customers via a
mainline pipeline, a marine tanker or appropriate truck or
rail transport.
<PAGE> 224
The point of valuation for oil will normally be expected to
be defined as the outlet valve of a central storage facility,
which is the final storage facility prior to the sale of the oil.
7.17 In the case of natural gas, the point of valuation will
normally be expected to be defined at the outlet valve from the
production facilities or an associated processing plant.
7.18 In the case of natural gas liquids which are sold as
products distinct from oil and natural gas, the point of
valuation will normally be expected to be defined at the outlet
valve of the processing facilities producing a readily saleable
product.
7.19 When determining the point of valuation, the Minister
has as the objective to obtain an ad valorem royalty take per
unit of output for similar products that is broadly equitable
between permit holders notwithstanding that permit holders may
have different delivery and sales arrangements.
ALLOWABLE APR DEDUCTIONS
7.20 For any period for which a royalty return must be
provided, accounting profits are the excess of net sales revenues
over the total of allowable APR deductions. The allowable APR
deductions are:
a Production Costs
The eligible costs are described in definition (pp),
paragraph 7.52.
b Capital Costs
Development costs, exploration costs, feasibility study
costs and permit acquisition costs are deductible from net
sales revenues as capital costs.
These are described in definitions (o), (p). (q) and (II)
respectively, paragraph 7.52.
Development costs which are deductible from net sales
revenues are those incurred by the permit holder to enable
mining operations in respect of the mining permit, both
before and subsequent to the date that the mining permit was
granted and prior to the date the mining permit is
relinquished.
Exploration costs which are deductible from net sales
revenues are those incurred by the permit holder.
<PAGE> 225
i In respect only of the area defined in the mining
permit, subsequent to the date that the mining permit
was granted; and
ii Within an area defined in the prospecting licence
from which the mining permit was derived, subsequent to
the date that the respective prospecting licence was
granted and before the mining permit was granted. This
includes exploration costs within any part of the
prospecting licence, even if the area had been
relinquished in accordance with section 6(3)(a) of the
Petroleum Act 1937 (refer also paragraphs 7.23 and
7.24); and
iii Within the area of any extensions of area to the
mining permit, prior to their inclusion in the mining
permit, provided that these were incurred under an
exploration permit held by the permit holder
immediately prior to the area's inclusion in the mining
permit.
c Indirect Costs
Those costs deductible from net sales revenues are defined
in definition (x), paragraph 7.52.
d Abandonment Costs
The eligible costs deductible from net sales revenues are
defined in definition (a), paragraph 7.52. In most
instances, abandonment costs are incurred when production
under the permit has ended. These will be able to be
deducted from the surplus of net sales revenues over other
allowable APR deductions, once the actual abandonment costs
have been incurred (also refer abandonment costs carried
back below).
e Operating and Capital Overhead Allowance
This is an allowance to reflect head office costs
attributable to the mining permit. For any period for which
a royalty return must be provided, the allowance is 2.5
percent (for onshore mining permits) or 1.5 percent (for
offshore or part offshore and onshore mining permits) of the
total production costs, capital costs and indirect costs
claimed in the period for which a royalty return must be
provided. This allowance may not be claimed in respect of
abandonment costs.
<PAGE> 226
f Operating Losses and Capital Costs Carried Forward
The excess of operating and capital expenses (being the sum
of production costs, capital costs, indirect costs,
abandonment costs, operating and capital overhead allowance)
over net sales revenues in any period for which a royalty
return must be provided, may be accumulated as operating
losses and capital costs carried forward. Operating losses
and capital costs carried forward may then be deducted in
subsequent periods for which royalty returns must be
provided where net sales revenues exceed operating and
capital expenses. Operating losses and capital costs carried
forward are taken forward to subsequent periods for which
royalty returns must be provided until fully utilised or the
mining permit is relinquished.
g Abandonment Costs Carried Back and Recapture of Capital
Expenditure Deductions
Abandonment costs that are incurred during the duration of
the permit and are unable to be deducted against net sales
revenues because they are incurred after production on the
permit has significantly declined or has finished, should be
included in the permit holder's final royalty return for the
purpose of calculating the abandonment costs carried back.
Abandonment costs carried back may be claimed as a deduction
in respect of any period or periods for which provisional
accounting profits royalties were paid.
In the royalty return in which such abandonment costs are
entered, the permit holder will also provide a schedule
setting out all equipment and other tangible assets which
had been included in previous royalty returns as capital
costs. Such schedule will list:
i each such item of equipment and other tangible
asset and its original cost; and
ii the means by which each has been or will be
disposed of, whether by sale, transfer or scrapping;
and
iii the actual or estimated proceeds from such
dispositions; and
iv the reporting period in which the equipment or
other tangible asset which had been sold or transferred
had been accounted for as capital proceeds
Except for equipment and other tangible assets previously
accounted for as capital proceeds, abandonment costs carried
back will be reduced by the proceeds of the sale of
equipment or other tangible assets, the cost of which was
<PAGE> 227
previously deducted, and/or insurance reimbursement
resulting from loss or damage to such equipment or other
tangible assets, not to exceed the equipment's or other
tangible asset's original cost.
Except for equipment and other tangible assets previously
accounted for as capital proceeds, if equipment or other
tangible assets, either in total or in part, the cost of
which was previously deducted, has been transferred to or in
respect of another exploration or mining permit without
being sold, a sale of such equipment or other tangible
assets will be deemed to have occurred, with the proceeds of
such sale being the arm's length sale value of the equipment
or other tangible assets or part thereof.
In respect of equipment and tangible assets, the cost of
which was previously deducted, for which disposition has not
actually occurred. a sale of such equipment or other
tangible assets will be deemed to have occurred with the
proceeds of such sale being the arm's length sale value of
the equipment or other tangible assets or part thereof.
For those periods to which abandonment costs are carried
back, accounting profits will be redetermined in accordance
with paragraph 7.8. The final royalties payable for those
periods will be redetermined in accordance with paragraph
7.6.
7.21 The total of allowable APR deductions for any period
for which a royalty return must be provided, as noted in
paragraph 7.8, is the sum of allowable APR deductions as outlined
in paragraph 7.20(a) to (g) above, less any capital proceeds.
Capital proceeds result from the sale of equipment or other
tangible assets, the cost of which was previously deducted,
and/or insurance reimbursement resulting from loss or damages to
such equipment or other tangible assets, not to exceed the
related equipment's or other tangible assets original cost. If
equipment or other tangible assets, either in total or in part,
the cost of which was previously deducted, is transferred to or
in respect of another exploration permit or mining permit without
being sold, a sale of said equipment or other tangible assets
will be deemed to have occurred with the proceeds of the sale
being the arm's length sale value of the equipment or other
tangible assets or part thereof.
7.22 If any of the production costs, indirect costs,
abandonment costs, exploration costs, development costs, permit
acquisition costs, feasibility study costs or capital proceeds
have not been determined pursuant to an arm's length contract,
then the relevant costs to be used shall be calculated by the
permit holder using an arm's length value(s) approved by the
Minister in accordance with paragraph 7.27.
<PAGE> 228
CARRYING FORWARD OF EXPLORATION COSTS INCURRED PRIOR TO
MINING PERMIT
7.23 The permit holder shall ensure that any exploration
costs to be claimed as a deduction as described in paragraph
7.2O(b)(ii), are brought forward for accounting profits royalty
assessment purposes in the first royalty return forwarded after
the grant of the mining permit, or in the case of exploration
costs described in paragraph 7.2O(b)(iii), the first royalty
return after the extension is approved.
7.24 With respect to exploration costs incurred by the
permit holder in an prospecting licence or exploration permit
preceding the mining permit, paragraphs 7.2O(b)(ii) and 7.23 have
been written on the general premise that the exploration costs
that are incurred within a prospecting licence or exploration
permit area will be attributable to a single mining permit, for
deduction against accounting profits royalty liabilities.
However, it is recognised that there may be cases in which the
permit holder develops more than one mining permit from a
prospecting licence or exploration permit area, on the basis of
information gained during the term of the prospecting licence or
exploration permit. In this case, the Minister will accept
requests, at the time of the granting of the first mining permit,
for the allocation of the total exploration costs incurred within
the prospecting licence or exploration permit area prior to the
commencement of the first mining permit, between the first mining
permit and any additional mining permits envisaged by the permit
holder.
DEDUCTION ALLOWED ONLY ONCE
7.25 Notwithstanding that an amount expended by a permit
holder may fall under more than one category of deduction under
these royalty provisions, no deduction or allowance shall be made
more than once in respect of any amount expended.
ARM'S LENGTH VALUE
7.26 When a person is not, or having been, ceases to be,
under the influence or control of another, s/he is said to be "at
arm's length" with her/him. If such is not the situation, and
there are contracts or transactions between the parties, then the
contracts or transactions may be deemed to be not at arm's
length. For example contracts or transactions between related
parties.
7.27 Where costs and prices used in determining petroleum
royalties liabilities are not the result of arm's length
transactions between parties, the arm's length value of costs and
prices used shall be such amount as is agreed between the permit
holder and the Minister or, in the absence of agreement within
<PAGE> 229
such period as the Minister allows, shall be such amount as is
determined by the Minister to be the value. The Minister, in
determining the arm's length value shall have regard, but is not
limited to any of the following as relevant:
- the grade of the petroleum commodity;
- the point of valuation;
- the nature of the market for the petroleum being sold
or transferred or the asset or service being purchased
or acquired;
- the terms of relevant contracts or sales agreements and
the quantities specified therein;
- the state of the market at the time the prices in the
contracts or sales, purchase, employment, service etc
agreements were set;
- the provisions of the contracts or sales agreements
relating to the variation or renegotiation of prices;
- prices paid to producers of similar petroleum products
elsewhere in arm's length transactions;
- costs paid for similar assets or services elsewhere in
arm's length transactions;
- prices recommended by international associations of
governments of countries producing the mineral
commodity;
- any provisions in joint venture operating agreements
which relate to transactions between related parties;
and
- such other matters as the Minister thinks fit.
In determining arm's length value, the Minister may seek
advice from experts but, in any event, the Minister's decision is
final.
REPORTING PERIOD
7.28 The 12 monthly reporting period which is to be the
basis for the calculation and payment of royalty liability by the
permit holder shall be specified upon grant of any mining permit.
The reporting period shall be determined by the Minister in
consultation with the mining permit applicant prior to the grant
of the permit. The reporting period shall be either the financial
year of the permit holder or some other fiscal year approved by
the Minister.
<PAGE> 230
7.29 If exploration under this prospecting licence results
in petroleum production on which a royalty is payable (refer
paragraphs 7.3 and 7.4), then the Minister may, after
consultation with the permit holder, amend the conditions of the
permit in accordance with section 36 of the Crown Minerals Act
1991, to specify a 12 monthly reporting period, with the initial
period for which the royalty return must be provided commencing
on a specified date. As for mining permits, the reporting period
shall be either the financial year of the permit holder or some
other fiscal year approved by the Minister.
PERIOD FOR WHICH A ROYALTY RETURN MUST BE PROVIDED
7.30 The permit holder shall provide to the Secretary a
royalty return for every period within the duration of the
permit, between a date for the commencement of a period and the
next following date for the expiry of a period.
7.31 Dates for the commencement of a period are.
(a) The date of commencement of the permit; and
(b) The date of commencement of a reporting period; and
(c) The date following the date of transfer of the permit
or of an ownership interest in the permit.
7.32 Dates for the expiry of a period are:
(a) The date of expiry of a reporting period; and
(b) The date of transfer of the permit or an ownership
interest in the permit; and
(c) The date of expiry, surrender or revocation of the
permit.
7.33 In the case of a prospecting licence, the initial
period for which a royalty return must be provided shall not
commence before the initial reporting period commencement date
specified in the permit (refer paragraph 7.29).
7.34 A royalty return shall be provided within 90 days of
the end of the relevant period.
ROYALTY RETURN
7.35 The royalty return shall be in the form prescribed,
from time to time, in relevant regulations. In summary, the
permit holder will be required where applicable to provide, on
the royalty return, the following information:
<PAGE> 231
(a) A calculation of gross sales and net sales revenues for
the relevant period as determined in accordance with
paragraphs 7.30 to 7.33.
(b) For the relevant period as determined in accordance
with paragraphs 7.30 to 7.33 in total, details of:
Production Costs;
Capital Costs;
Indirect Costs;
Abandonment Costs;
Operating and Capital Overhead Allowance;
Operating Losses and Capital Costs Carried Forward; and
Capital Proceeds.
(c) A calculation of the provisional accounting profits for
the relevant period as determined in accordance with
paragraphs 7.30 to 7.33.
(d) A calculation of ad valorem royalties and the
provisional accounting profits royalties for the relevant
period as determined in accordance with paragraphs 7.30 to
7.33.
There will be a special final royalty return form for taking
into account abandonment costs carried back and calculating final
accounting profits royalty Liabilities.
7.36 Where the permit holder is a joint venture, partnership
or otherwise made up of two or more parties, a royalty return may
include separate statements from each of the parties detailing
each party's share of;
Gross sales;
Net salts revenues;
Production costs;
Capital costs;
Indirect costs;
Abandonment costs;
Operating and Capital Overhead Allowance;
Operating Losses and Capital Costs Carried Forward;
Capital Proceeds; and
The royalty liability.
7.37 Every royalty return is required to be accompanied by a
written statement from an auditor, or in the case of a royalty
return which includes separate statements from each of the
parties comprising a permit holder, a written statement from an
auditor in respect of each party's statement. This shall be in
the form prescribed in the relevant regulations. It is expected
that the auditor making a written statement will be the auditor
that the permit holder or party uses in the regular course of
business. The audit statement shall be paid for by the permit
holder or party.
<PAGE> 232
7.38 The collection of royalties shall be administered by
the Secretary. The Secretary shall review every royalty return
and, if required, may request additional information or a
detailed explanation of the basis of the royalty
return from the permit holder who shall comply with such request
within a reasonable period. The Secretary may also audit royalty
returns or appoint someone else to do this audit. The Secretary
shall pay for any such audit.
SALE OR TRANSFER OF ALL OR PART OF PERMIT INTEREST
7.39 Where a permit has been sold or transferred, or an
ownership interest in a permit has been sold or transferred, any
pro-rata balance of operating losses and capital costs carried
forward which have not been deducted against net sales revenues,
shall be carried forward and shall be available to the new permit
holder to the same extent as if no transaction had taken place
PAYMENT AND REFUND OF ROYALTIES
7.40 The permit holder shall pay the royalty due for any
period for which a royalty return must be provided within 90 days
of the end of the period. Where the royalty return has been
provided with separate statements from the parties to a permit
(refer paragraph 7.36), the royalty due may be paid by such
parties forwarding their share of the royalty due together with a
copy of their statement.
7.41 Where the royalty due is the provisional accounting
profits royalty, the royalty shall be provisional pending the
calculation of total abandonment costs for the duration of the
permit (refer paragraph 7.20(g). Following the calculation of
total abandonment costs, the final accounting profits royalty
shall be determined. After the Secretary is satisfied as to the
validity of the final royalty return, a one time refund, if any,
to the permit holder shall be made. The permit holder fling the
final royalty return may nominate the persons to whom any final
refund of royalty shall be paid.
INTERIM PAYMENTS
7.42 If the net sales revenues for any quarter in a
reporting period, or a lesser period for which a royalty return
must be provided, are $250,000 or more, the permit holder shall
make an interim royalty payment to the Secretary, of 5 percent of
the net sales revenues for the quarter or lesser period, within
thirty calendar days after the end of the quarter or lesser
period. Where the permit holder is a partnership, joint venture
or otherwise made up of two or more parties, the interim payment
due may be made by each of the parties paying an agreed share.
<PAGE> 233
7.43 If the interim royalties paid in a period vary by more
than 20 percent from the previous quarterly payment, the permit
holder may be required to provide an explanation of the variance
and, if required by the Minister, copies of underlying
accounting/production records.
FINAL PAYMENT
7.44 If, upon completion of the royalty return for a period,
there is a balance of royalties payable net of interim payments
made in respect of the period, the permit holder shall be
required to pay the balance within 90 days following the end of
the period. If upon completion of the royalty return, the total
of interim payments exceeds the amount of the royalties due for
the period, the overpayment of royalties shall be refunded or
may, at the request of the permit holder, be applied against
future liabilities.
SPECIAL PROVISION FOR SMALL PRODUCERS
7.45 Until such time as net sales revenues exceed $1,000,000
(one million dollars) within a reporting period for the permit,
the permit holder shall only be required to calculate and pay the
5 percent ad valorem royalty for any period for which a royalty
return must be provided, and shall be exempt from the provisional
accounting profits royalty or the accounting profits royalty.
7.46 Where a permit has initial net sales revenues below
$1,000,000 within a reporting period (and thus the permit holder
is exempt the provisional accounting profits royalty), but it is
anticipated net sales revenues will exceed $1,000,000 in
subsequent reporting periods, the permit holder shall retain
comprehensive records of operating and capital expenses in order
to claim allowable APR deductions against any future accounting
profits royalty liabilities.
7.47 (deleted]
BOOKS AND RECORDS
7.48 The permit holder shall, for the purposes of supporting
the royalty return, keep for ten years or until the expiry of the
permit, whichever occurs first, proper books of account and
records maintained in accordance with accepted business practice.
The permit holder shall provide detailed records and supporting
information to explain any aspect of the royalty return upon the
request of the Secretary.
FAILURE TO FILE A RETURN AND FAILURE TO PAY ROYALTY
<PAGE> 234
7.49 Every permit holder who fails to comply with a
condition requiring the permit holder to file a royalty return or
fails to pay royalties owed to the Crown commits an offence
against [section 100(2) of the Crown Minerals Act l991] or
[section 47L of the Petroleum Act 1937] and shall be liable on
summary conviction to a fine not exceeding $10,000 and, if the
offence is a continuing one, to a further fine not exceeding
$1,000 for every day or part of a day during which the offence
continues.
7.50 (deleted)
7.51 (deleted)
DEFINITIONS
7.52 Unless specifically defined, terms and references in
these royalty provisions shall be interpreted in accordance with
generally accepted usage in the International Oil and Gas
Industry and specifically with reference to the interpretations
set out in Regulation SX 4-10 of the United States Securities and
Exchange Commission titled "Financial Reporting for Oil and Gas
Producing Activities Pursuant to the Federal Securities Laws and
The Energy Policy and Conservation Act of 1975".
(a) "Abandonment Costs" means for any mining permit, the
post production costs of abandoning and restoring sites and
dismantling or demolishing equipment or structures, used in
mining operations in respect of the mining permit.
(b) "Abandonment Costs Carried Back" has the meaning
expressed in paragraph 7.20(g) of these royalty provisions.
(c) "Accounting Profits" has the meaning expressed in
paragraph 7.8 of these royalty provisions
(d) "Accounting Profits Royalty" means a royalty in respect
of accounting profits resulting from petroleum producing
activities determined in accordance with paragraphs 7.8 and
7.10 to 7.27.
(e) "Ad Valorem Royalty" means a royalty in respect of net
sales revenues resulting from petroleum producing activities
determined in accordance with paragraphs 7.7 and 7.10 to
7.19.
(f) "Allowable APR Deductions" has the meaning expressed in
paragraphs 7.8 and 7.20.
(g) "Arm's length" has the meaning expressed in paragraph
7.26.
<PAGE> 235
(h) "Arm's Length Value" means in respect of costs and
prices, those which a willing buyer and a willing seller,
who are not related parties, would agree are fair in the
circumstances. Paragraph 7.27 describes criteria that may be
used to determine the arm's length value of costs and p6ces
when this situation is not satisfied.
(i) "Auditor" means:
i A member of the New Zealand Society of Accountants
who holds a certificate of public practice; or
ii An officer of the Audit Department authorised in
writing by the Controller and Auditor-General to be an
auditor of a company for the purposes of section 199 of
the Companies Act 1993; or
iii A member, fellow, or associate of an association
of accountants constituted outside New Zealand which is
for the time being approved for the purposes of section
199 of the Companies Act 1993 by the Minister of
Justice by notice in the Gazette.
(j) "Capital Costs" are development costs, exploration
costs, feasibility study costs and permit acquisition costs
as outlined in paragraph 7.20(b).
(k) "Capital Proceeds" has the meaning expressed in
paragraph 7.21 of these royalty provisions.
(l) "Condensate" means a liquid hydrocarbon of high API
gravity above 60 degrees (very light crude-oil composition)
that condenses into a liquid upon production and surface
conditions.
(m) "Date of Delivery" means the actual date a petroleum
product is physically transferred to the purchaser.
(n) "Date of Sale" means the date on which a sale is deemed
to have occurred in accordance with GAAP. In respect of
forward sales contracts and take or pay contracts,
notwithstanding the terms of such contracts, date of sale
means the date or delivery of the petroleum to the
purchaser.
(o) "Development Costs" means costs incurred to obtain
access to petroleum and to provide facilities for
extracting, treating, gathering and storing the petroleum up
to the point of valuation. More specifically development
costs include, but are not limited to costs incurred to:
<PAGE> 236
i Gain access to and prepare well location sites for
drilling, including surveying well locations for the
purpose of determining specific development drilling
sites, clearing ground, draining, road building, and
relocating public roads, gas lines and power lines, to
the extent necessary in developing the resource;
ii Drill and equip development wells, development
type stratigraphic test wells and service wells,
including the costs of platforms and of well equipment
such as casing, tubing, pumping equipment and the
wellhead equipment;
iii Acquire, construct and install production
facilities such as flow lines, separators, treaters,
heaters, manifolds, measuring devices and production
storage tanks, natural gas cycling and processing
plants and central utility and waste disposal systems;
iv Provide improved recovery systems;
v Acquire through purchase or capitalisable lease
equipment otherwise used in production; and
vi Acquire, construct and install support facilities
to service the development site and the personnel
directly involved in development and production.
Development costs do not include indirect costs, exploration
costs, abandonment costs, production costs or non allowable
costs.
(p) "Exploration Costs" are those costs incurred, in
identifying areas that may warrant examination and in
examining and appraising specific areas that are considered
to have prospects of containing petroleum reserves including
costs of drilling exploratory wells and exploratory type
stratigraphic test wells. Principal types of exp1oration
costs, which include capital and applicable operating costs
of support facilities charged through day rates or other
allocation mechanisms and other costs of exploration
activities, are:
i Costs of topographical, geological and geophysical
studies, rights of access to properties to conduct
those studies and salaries and other expenses of
geologists, geophysical crews and others conducting
those studies. Collectively these costs are sometimes
referred to as Geological and Geophysical or "G&G"
Costs. These costs may be incurred directly by the
permit holder, on behalf of the permit holder pursuant
to a contract, or in the form of a payment to a third
patty to purchase the results of Geological and
Geophysical studies carried out by that third party;
<PAGE> 237
ii Costs of drilling and equipping exploratory and
appraisal wells;
iii Costs of seismic work undertaken outside the
prospecting licence area to facilitate bridging to pre-
existing survey tie lines; and
iv Costs associated with testing operations of any
discovery made.
Exploration costs do not include development costs,
production costs, indirect costs, abandonment costs or non
allowable costs.
(q) "Feasibility Study Costs" means costs of studies
leading to the determination of technical feasibility and
commercial viability of an prospecting licence or a mining
permit. This may include market feasibility studies and
market negotiations relating to initial petroleum sales
contracts.
(r) "Forward Sales Contract" means a contract to sell
production from a permit producing petroleum at a specified
price on a fixed future date.
(s) "Futures Contract" mean's transactions undertaken for
hedging purposes which involve the purchase and sale of
contracts to supply petroleum on a recognised futures
trading exchange.
(t) "GAAP" means Generally Accepted Accounting Practice.
(u) "Generally Accepted Accounting Practice" is as defined
in the Financial Reporting Act 1993.
(v) "Gross Sales" has the meaning expressed in paragraph
7.11.
(w) "Head Office Costs" means costs incurred outside of the
mining permit operations which, while in some manner may
benefit the mining permit, do not qualify as indirect costs
and are, therefore, non allowable costs. An operating and
capital overhead allowance is permitted in lieu of head
office costs.
(x) "Indirect Costs" means actual general and
administrative costs incurred by the permit holder that are
not capital costs, non allowable costs, production costs or
abandonment costs, directly related to the petroleum
producing activities, carried out on or in respect to the
mining permit. Such costs, while not directly relating to
production from the mining permit, provide supporting
services which are reasonable and necessary to effective and
efficient production. Insurance costs are included in this
<PAGE> 238
definition. Marketing costs incurred up to the point of sale
which are directly related to petroleum produced from the
mining permit are also included in this definition. Indirect
costs are those which would normally be allocated by the
operator to joint venture parties in a conventional Joint
Venture Operating Agreement such as, but not limited to,
communications, travel, audit, legal, office expenses,
insurance; etc.
(y) "Insurance Costs" means costs incurred by the permit
holder in keeping with normal business practices, which
provide reasonable and prudent protection against risk of
loss of assets, equipment, personnel, etc related to the
prospecting Licence and mining permit, and result from the
payment of premiums to an insurance company. Insurance costs
include reasonable and prudent co-insurance and deductible
amounts
(z) "Land Access Costs" means either
i payments made to land owners and/or occupiers to
gain access to their land to conduct mining operations;
or
ii costs of purchasing land to gain access to land to
conduct mining operations, provided that the amount
which can be claimed shall be the lesser of the actual
land purchase price or twice the government valuation
of the land.
(aa) "Natural Gas" means all gaseous hydrocarbons produced
from wells including wet gas and residual gas remaining
after the extraction of condensate and natural gas liquids
from wet gas.
(bb) "Natural Gas Liquids" means, for these royalty
provisions, the liquid hydrocarbons other than condensate
extracted from wet gas and sold as natural gas liquids, for
example, LPG.
(cc) "Netbacks (Net forwards)" has the meaning expressed in
paragraph 7.13. Netbacks or net forwards are amounts either
incurred to third parties, or where the permit holder owns
its own means of transportation, storage or processing are
the arm's length cost to use those means between the point
of sale and the point of valuation. In this respect, the
capital costs of any owned transportation, storage or
processing assets are therefore non allowable costs.
(dd) "Net Sales Revenues" has the meaning expressed in, and
is determined in accordance with, paragraphs 7.10 to 7.19.
(ee) "Non Allowable Costs" include the following categories:
<PAGE> 239
i Depreciation and amortisation;
ii Royalties payable to the Crown or any other party
from the proceeds of production;
iii Head office costs,
iv Interest costs or cost of equity;
v Income taxes and Goods and Services Taxes;
vi Costs incurred in purchasing title to an existing
prospecting licence or exploration permit or mining
permit or an ownership interest therein;
vii Cash bonus bid payments;
viii Foreign exchange gains and losses;
ix The capital cost of owned transportation, storage
and processing assets used by the permit holder between
the point of valuation and the point of sale;
x Donations; and
xi Other costs not directly associated with the
mining permit.
(ff) "Offshore" means any area of the sea out from the
landward boundary, as detailed in the "Coastal Marine Area"
definition given in the Resource Management Act 1991. If
there is any disagreement as to whether a project is
offshore, then the Minister shall have the right of
determination.
(gg) "Oil" means all petroleum, including condensate, except
natural gas and natural gas Liquids.
(hh) "Onshore" means any petroleum project inland from the
landward boundary, as detailed in the 'Coastal Marine Area'
definition given in the Resource Management Act 1991. If
there is any disagreement as to whether a project is
onshore, then the Minister shall have the right of
determination.
(ii) "Operating and Capital Expenses'' means the sum of
production costs, capital Costs, indirect costs, abandonment
costs, and operating and capital overhead a1lowance (refer
paragraph 7.20(f)).
(jj) "Operating Losses and Capital Costs Carried Forward"
has the meaning expressed in paragraph 7.20(f).
<PAGE> 240
(kk) "Operating and Capital Overhead Allowance" is an
allowance to reflect head office costs attributable to the
mining permit. For any period for which a royalty return
must be provided, the allowance is 2.5 percent for onshore
mining permits or 1.5 percent for offshore or part offshore
and onshore mining permits of the total production costs,
capital costs and indirect costs claimed in the particular
period. The operating and capital overhead allowance may not
be claimed in respect of abandonment costs. (Refer paragraph
7.20(e)).
(ll) "Permit Acquisition Costs" means the payments made to
the Crown and other governmental authorities by the permit
holder to:
i obtain and maintain an exploration permit and/or a
mining permit, other than cash bonus bidding payments
which are non allowable costs; and
ii to obtain and maintain associated resource
consents, including costs associated with the
preparation of any Environmental Impact Statement(s)
which may be required under the Resource Management Act
1991.
Also included herein are land access costs.
(mm) "Petro1eum Producing Activities" include:
i the search for petroleum in its natural state and
original location; and
ii construction, drilling and production activities
necessary to retrieve petroleum from its natural
reservoirs and the acquisition, construction,
installation and maintenance of field gathering and
storage Systems, including lifting the petroleum to the
surface and gathering, treating, field processing (as
in the case of processing gas to extract liquid
hydrocarbons) and field storage. For the purposes of
this definition, the petroleum producing activities
shall normally be regarded as terminating at the point
of valuation.
(nn) "Point of Sale" means the point at which the sale of
petroleum is deemed to have occurred in accordance with
GAAP.
(oo) "Point of Valuation" has the meaning expressed and is
determined in accordance with the provisions outlined in
paragraphs 7.15 to 7.19.
<PAGE> 241
(pp) "Production Costs' means:
i Costs incurred to operate and maintain wells and
related equipment and facilities up to the point of
valuation, including capital and applicable operating
costs of support facilities, charged to production
activities in the form of a day rate or similar
allocation mechanism, and other costs incurred to
maintain and operate those wells and related
facilities. Examples of production costs are..
- Costs of labour to operate the wells and related
equipment and facilities; labour costs may include
remuneration elements such as wages and salaries,
and reasonable fringe benefits as provided for in
employment contracts such as housing, education,
health care and recreation;
- Repairs and maintenance;
- Materials, supplies and purchased fuel consumed
and supplies used in operating the wells and
related equipment and facilities;
- Site maintenance costs during production; and
- Costs for leasing or hiring of capital equipment.
ii Some support equipment or facilities may serve
petroleum producing activities on two or more mining
permits and may also serve transportation, refining and
marketing activities. To the extent that support
equipment and facilities are used in respect of two or
more mining permits and/or in more than one facet of
petro1eum producing activities, a reasonable allocation
of related capital and applicable operating costs can
be deducted as production costs. In no circumstance may
the total of such allocated costs exceed the cost to be
allocated.
Production costs do not include exploration costs,
development costs, indirect costs, abandonment costs or non
allowable costs.
(qq) "Provisional Accounting Profits Royalty" has the
meaning expressed and is determined in accordance with the
provisions outlined in paragraph 7.9.
(rr) "Related Parties" refers to:
<PAGE> 242
i Entities that directly or through one or more
intermediaries, exercise control, or are controlled by,
or are under common control with the permit holder; and
similarly the corresponding set of entities when the
relationship is based on significant influence.
(Included are holding companies, subsidiaries and
associates and fellow subsidiaries and associates7
joint ventures and other contractual arrangements);
ii Individuals and their close family members or
controlled trusts owning directly or indirectly, an
interest in the voting power of the permit holder that
gives them significant influence over that entity.
(Close members of the family of an individual are those
that may be expected to influence or be influenced by
that person in their dealings with an entity);
iii Key management personnel, that is those persons
having authority and responsibility for planning,
directing and controlling the activities of the permit
holder including directors and officers of companies
and close members of the families of such individuals;
and
iv Entities in which a substantial interest in the
voting power is owned, directly or indirectly, by any
person described in (ii) or (iii) over which such a
person is able to exercise significant influence. This
includes entities owned by directors or major
shareholders of the permit holder and entities that
have a member of key management in common with the
permit holder.
(ss) Reporting Period' means the fiscal year defined in the
permit as the reporting period for the permit. (Refer also
to paragraphs 7.28 and 7.29.)
(tt) "Royalty Return" means a detailed statement of the
permit holder's petroleum producing activities in the form
prescribed, from time to time, in regulations (refer
paragraph 7.35).
(uu) "Take or Pay Contract" means a contract between a
producer and a purchaser whereby a purchaser agrees to take
or pay for a minimum quantity of product per year whether or
not the purchaser takes delivery of the product. Usually,
any product paid for but not taken in a particular period
may be taken at some later time subject to limitations.
<PAGE> 244
EXHIBIT 10.70
MARABELLA ENTERPRISES LTD
INDO-PACIFIC ENERGY (NZ) LIMITED
PEP 38716 LIMITED
DURUM ENERGY CORPORATION
EURO PACIFIC ENERGY PTY LTD
AWE NEW ZEALAND PTY LIMITED
ANTRIM OIL AND GAS LIMITED
DEED OF ASSIGNMENT AND ASSUMPTON - PEP 38716
CORRS CHAMBERS WESTGARTH
Lawyers
Level 35, Waterfront Place
1 Eagle Street
BRISBANE QLD 4000
AUSTRALIA
Tel: (07)3228 9333
Fax. (07) 3228 9444
DX: 135 Brisbane
Ref: J Kelly
B/67080
THIS DEED is made on 30 July 1998
BETWEEN MARABELLA ENTERPRISES LTD of Level 18, 200 Mary Street,
Brisbane, Queensland, Australia ("Marabella")
AND INDO-PACIFIC ENERGY (NZ) LIMITED of 284 Karori Road
Wellington, New Zealand ("716.")
AND PEP 38716 LIMITED of 284 Karori Road, Wellington, New
Zealand ("716")
AND DURUM ENERGY CORPORATION of Suite 1200, 1090 West
Pender Street, Vancouver, British Colombia, Canada
("Durum")
AND EURO PACIFIC ENERGY PTY LTD (CAN 003 835 765) of 100
Stirling Street, Perth, Western Australia ("Euro")
AND AWE NEW ZEALAND PTY LIMITED (ACN 079 230 354) of Level
9, 60 Miller Street, North Sydney, New South Wales
("AWENZ")
AND ANTRIM OIL AND GAS LIMITED of 600, 603 - 7 Avenue S.W.
Calgary, Alberta, Canada T2P2T5 ("Antrim")
<PAGE> 245
RECITALS
A The Existing Participants are the holders of the following
Participating Interests in the PEP 38716 Joint Venture:
Marabella 39.60%
Indo 17.40%
716 7.40%
Durum 4.00%
Euro 6.60%
AWENZ 25.00%
100.00%
B The Assignors have agreed to sell and transfer to Antrim an
aggregate 15% Participating Interest in the PEP 38716 Joint
Venture and Antrim has agreed to purchase and accept the
transfer of such Participating Interest on the terms and
conditions set out in this Deed.
OPERATIVE PROVISIONS
I DEFINITIONS AND INTERPRETATIONS
1.1 Definitions
In this Deed, including the Recitals, except to the extent
that the context otherwise requires:
"Assignors" means Marabella and Indo and each is referred to
as an "Assignor".
"Effective Date" means 1 January 1998.
"Existing Participants" means Marabella, Indo, 716, Durum,
Euro and AWENZ.
"Joint Venture Documents" has the meaning given to that term
in the Operating Agreement.
"Operating Agreement" means the Operating Agreement dated 17
July 1997 entered into between Marabella, Indo, 716, Durum
and Euro in relation to PEP38716.
"Participating Interest" has the meaning given to that term
in the Operating Agreement.
"PEP38716" means Petroleum Exploration Permit 38716 issued
under the Crown Minerals Act 1991 of New Zealand as amended
from time to time.
"PEP38716 Joint Venture" means the unincorporated joint
venture established in relation to PEP387I6 by the Operating
Agreement.
<PAGE> 246
1.2 Interpretation
Unless expressed to the contrary:
(a) words importing:
(i) the singular include the plural and vice
versa;
(ii) any gender include the other genders;
(b) if a word or phrase is defined cognate words and
phrases have corresponding definitions;
(c) a reference to:
(i) a person includes a firm, unincorporated
association, corporation and a government or
statutory body or authority;
(ii) a person includes its legal personal
representatives, successors and
assigns;
(iii)a statute, ordinance, code or other law
includes regulations and other
statutory instruments under it and consolidations,
amendments1 reenactments or replacements of any of
them;
(iv) a right includes a benefit, a remedy, a
discretion, an authority or power;
(v) an obligation includes a warranty or
representation and reference to a failure to
observe or perform an obligation includes a breach
of warranty or representation;
(d) provisions or terms of this Deed or another
agreement, understanding or arrangement includes a
reference to both express and implied provisions and
terms;
(e) "US$" or "dollars" is a reference to the lawful
currency of the United States of America;
(f) this or any other agreement includes the document
as varied or replaced and notwithstanding any change in
the identity of the parties;
(g) writing includes any mode of representing or
reproducing words in tangible and permanently visible
form, and includes facsimile transmission;
<PAGE> 247
(h) a reference to anything (including, without
limitation, any amount) is a reference to the whole or
any part of it and a reference to a group of things or
persons is a reference to any one or more of them;
(i) an agreement representation or warranty on the
part of or in favour of two or more persons binds, or
is for the benefit of them jointly and severally.
1.3 Headings
The clause headings used herein are for convenience only and
shall not be used in construing or interpreting any
provision of this Deed.
2 ACQUISITION OF INTERESTS
2.1 Sale of Participating Interests
The Assignors severa1ly agree to sell and transfer to Antrim
for the sum of US$450,000 the following Participating
Interests with effect from the Effective Date.
Marabella 10.00%
Indo 5.00%
15.00%
2.2 Purchase by Antrim
Antrim agrees to purchase and accept the transfer of the
Participating Interests referred to in clause 2.1.
2.3 Payment
Antrim shall pay to the Assignors the sum of US$450,000 on
or before the date hereof in the following amounts:
Marabella US$300,000
Indo US$150,000
US$450,000
2.4 Warranty
Each Assignor warrants to Antrim that it has good title to
the Participating Interest which it has agreed to sell and
transfer to Antrim under this Deed and that it has the power
and authority to transfer such Participating Interest to
Antrim subject to compliance with relevant legislative
requirements and subject to the Operating Agreement.
2.5 Termination
Any Assignor may terminate this Deed by notice to Antrim if
Antrim fails to pay the sum of US$450,000 on or before the
<PAGE> 248
date hereof. Termination of this Deed shall not prejudice
any rights which the Assignors may have against Antrim.
3 ASSIGNMENT OF INTERESTS
1.1 Assignment
Subject to payment of the sum of US$450,000 by Antrim in
accordance with clause 2.3 on or before the date hereof, the
Assignors hereby assign to Antrim the Participating
Interests in PEP 38716 and the PEP 38716 Joint Venture
indicated be1ow with effect from the Effective Date.
Marabella 10.00%
Indo 5.00%
15.00%
3.2 Acceptance of Assignment
Antrim accepts the assignment of the Participating Interests
under clause 3.1 so that with effect from the Effective
Date, the Participating Interests in PEP38716 and the
PEP38716 Joint Venture will be held as follows:
Marabella 29.60%
Indo 12.40%
716 7.40%
Durum 4.00%
Euro 6.60%
AWENZ 25.00%
Antrim 15.00%
100.00%
4 ASSUMPTION OF OBLIGATIONS
4.1 Assumption of Liability
Antrim, to the extent of the 15.00% Participating Interest
assigned to it under this Deed, assumes and covenants with
each of the Existing Participants to perform with effect
from the Effective Date3 the liabilities, obligations,
responsibilities and duties of the Assignors under the
Operating Agreement and any other Joint Venture Documents as
if Antrim were originally a party thereto including without
limitation all liability to pay costs and expenses under
AFEs approved prior to the Effective Date, which costs and
expenses relate to expenditure to be incurred on and from
the Effective Date. Antrim agrees to indemnify and hold the
Assignors harmless against all such liabilities,
obligations, responsibilities and duties with effect from
the Effective Date. Notwithstanding clause 17 of the
Operating Agreement, the Existing Participants release and
discharge each Assignor from the liabilities, obligations,
<PAGE> 249
responsibilities and duties arising on or after the
Effective Date in respect of the Participating Interest to
be assigned by that Assignor to Antrim under this Deed.
4.2 Confirmation of Operating Agreement
Each of the Existing Participants covenants with Antrim with
effect from the Effective Date to be bound by, observe and
perform its obligations under the Operating Agreement and
any other Joint Venture Documents to the extent of its
Participating Interest in PEP38716 and the PEP38716 Joint
Venture as set out in clause 3.2.
4.3 Consent to Assignment
Notwithstanding the provisions of clause 17 of the Operating
Agreement, each of the Existing Participants hereby consents
to the assignment to Antrim provided for in clause 3.1 and
each of them waives the operation of clause 17 of the
Operating Agreement in
respect of such assignment.
5 APPROVALS
This Deed and the transfer to be effected pursuant to
clauses 2 and 3 above, are subject to and conditional upon
the obtaining of any relevant consents and approvals under
die Crown Minerals Act 1991 (NZ) or any other legislation
which are necessary to give effect to this Deed. Upon the
date of obtaining such consents and approvals, the Deed and
the transfer will be binding and effective and will relate
back to and take effect from the Effective Date. The
Assignors and Antrim agree to do all acts and things within
their respective powers which are reasonably necessary to
apply for and obtain all such consents and approvals.
6 COSTS AND STAMP DUTY
All stamp duty payable on this Deed and any instrument
executed pursuant hereto shall be borne by Antrim which
shall indemnify and keep indemnified the Existing
Participants against all and any claims and all liability
for stamp duty. Antrim shall also be liable for any consent
fees or other fees payable in respect of obtaining any and
all approvals and/or registration under the Crown Minerals
Act 1991 (NZ) in respect of this Deed. Otherwise each party
shall pay its own costs in respect of this Deed.
7 GOVERNING LAW
This Deed shall be governed by and be construed in
accordance with the laws of New Zealand and the parties
agree to and hereby submit themselves to the jurisdiction of
<PAGE> 250
the Courts of New Zealand and any Courts of Appeal from
them.
8 FURTHER ASSURANCES
The parties shall execute and deliver such documents and
shall take such actions and do all such things as shall be
necessary for the complete performance of all their
respective obligations under this Deed.
9 INVALIDITY
If any term, clause or provision of this Deed shall be or be
deemed or judged to be invalid for any reason, such
invalidity shall not affect the validity or operation of any
other term, clause or provision of this Deed except to the
extent necessary to give effect to such invalidity.
10 ENTIRE AGREEMENT
10.1 Entire Agreement
This Deed constitutes the entire agreement between the
parties with respect to the subject matter thereof and
contains all the representations, undertakings, warranties,
covenants, agreements and deeds of the parties.
10.2 Supersedes Prior Agreements
This Deed supersedes all prior negotiations, contracts,
arrangements, understandings, agreements and deeds with
respect to the subject matter thereof.
10.3 No Warrants
There are no representations, undertakings, warranties,
covenants, agreements or deeds between the parties, express
or implied except as contained in this Deed or any document
contemplated by this Deed.
11 WAIVER AND VARIATION
A provision or a right created by this Deed may not be
waived or varied except in writing signed by the party or
parties to be bound.
12 NOTICES
12.1 Giving of Notice
A notice, demand, waiver, approval, consent, communication
or other document in connection with this Deed ("Notice")
which is to be given to Antrim:
<PAGE> 251
(a) may be given to an authorised officer of Antrim;
and
(b) must be given in writing, and
(c) must be left at the address of Antrim or sent by
prepaid ordinary post (airmail if outside Australia) to
the address of Antrim or by facsimile to the facsimile
number of Antrim which is specified below.
12.2 Effective Time of Notice
Unless a later time is specified in it, a Notice takes
effect from the time it is actually received or taken to be
received. A Notice sent by post or facsimile is taken to be
received:
(a) in the case of a letter, on the 3rd (7th if
outside Australia) business day after posting, and
(b) in the case of a facsimile, on the date of
production of a transmission report by the machine from
which the facsimile was sent which indicates that the
facsimile was sent in its entirety to the facsimile
number of Antrim specified in clause 12.3.
12.3 Address for Service
The address of Antrim for service of a Notice under this
Deed or any notice under the Operating Agreement or any
Joint Venture Documents will be as follows:
(a) Address
600,603 - 7 Avenue S.W.
Calgary, Alberta
Canada T2P 2T5
(b) Facsimile number
1-4O3-264-5113
IN WITNESS WHEREOF this Deed of Assignment and Assumption was
executed on the date first written above.
<PAGE> 252
THE COMMON SEAL of )
MARABELLA ENTERPRISES LTD )
is affixed in accordance with )
its articles of association )
in the presence of: )
/s/ M. Malloy Director
M. Malloy Name of Director (print)
/s/ A.S. Bogg Director
A. S. Bogg Name of Director(print)
SIGNED by )
INDO-PACIFIC ENERGY(NZ)LIMITED)
Indo-Pacific Energy (NZ)Limited
by its duly appointed Attorney)
by its duly appointed Attorney:
who certifies that as at the )
date of execution of this )
Agreement he/she had received )
no notice of revocation of )
the Power of Attorney, and in ) /s/ Jenni Lean
the presence of; ) Signature
/s/ K. B. Witt Witness
Karen Barbara Witt Full name of Witness (print)
SIGNED by )
PEP 38716 LIMITED ) PEP 38716 Limited
by its director)
/s/ Jenni Lean Director
/s/ K. B. Witt Witness
Karen Barbara Witt Full name of Witness (print)
SIGNED by )
DURUM ENERGY CORPORATION ) Durum Energy Corporation
by its duly appointed Attorney)
by its duly appointed Attorney:
who certifies that as at the )
date of execution of this )
Agreement he/she had received )
no notice of revocation of )
the Power of Attorney, and in ) /s/ Jenni Lean
the presence of; ) Signature
/s/ K. B. Witt Witness
Karen Barbara Witt Full name of Witness (print)
<PAGE> 253
THE COMMON SEAL of )
EURO PACIFIC ENERGY PTY LTD )
is affixed in accordance with )
its articles of association )
in the presence of: )
/s/ Colin Crabb Director
Colin Crabb Name of Director (print)
/s/ G. A. Corner Director
Gregory Alan Corner Name of Director(print)
THE COMMON SEAL of )
AWE NEW ZEALAND PTY LIMITED )
is affixed in accordance with )
its articles of association )
in the presence of: )
/s/ Bruce McKay Director
Bruce G. McKay Name of Director (print)
/s/ Bruce Phillips Director
Bruce J. Phillips Name of Director(print)
THE COMMON SEAL of )
ANTRIM OIL AND GAS LIMITED )
is affixed in accordance with )
its articles of association )
in the presence of: )
/s/ S. Greer Director
S. Greer Name of Director (print)
<PAGE> 254
EXHIBIT 10.71
PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
THIS AGREEMENT made as of June 25, 1998
BETWEEN:
TRANS NEW ZEALAND OIL COMPANY, a body corporate subsisting
under the laws of Nevada, with a place of business at Suite
1200, 1090 West Pender Street, Vancouver, British Columbia
V6E 2N7 (the "Company")
OF THE FIRST PART
AND:
SOURCE ROCK HOLDINGS LTD., a body corporate subsisting under
the laws of New Zealand, with a place of business at 284
Karori Road, Karori, Wellington, New Zealand (the
"Purchaser")
OF THE SECOND PART
WHEREAS:
A. The Company wishes to issue and sell 1,000,000 shares for
US$0.25 per share;
B. The Company is not a reporting company under the Securities
Exchange Act of 1934 ("Exchange Act");
C. The Purchaser is an affiliate of the Company as interpreted
under the Securities Act of 1933 ("Securities Act"); and
D. The Company has agreed to issue to the Purchaser 1,000,000
shares for US$0.25 per share on the terms and conditions of
this Agreement;
WITNESSES that the parties mutually covenant and agree as
follows:
ARTICLE 1 DEFINITIONS AND INTERPRETATION
1.01 In this Agreement, including the recitals and schedules
to this Agreement, unless the context otherwise requires:
Closing means the procedure for the issue of Shares on the
Closing Date.
Closing Date means June 25, 1998, the date on which the Company
will issue, and the Purchaser will pay for, the Shares.
Exchange means the OTC Bulletin Board.
<PAGE> 255
Securities Act means the Securities Act of 1933, as amended from
time to time.
Shares means 1,000,000 common shares of the Company as
constituted on June 25, 1998.
Subscription Funds means the funds paid by the Purchaser to the
Company for the Shares purchased pursuant to this Agreement.
Captions and Section Numbers
1.02 The captions, section numbers and article numbers
appearing in this Agreement are inserted for convenience of
reference only and will in no way define, limit, constrict or
describe the scope or intent of this Agreement nor in any way
affect this Agreement.
Governing Law
1.03 This Agreement and all matters arising under this
Agreement will be governed by, construed and enforced in
accordance with the laws of Nevada and any proceeding commenced
or maintained in connection with this Agreement will be so
commenced and maintained in the court of appropriate jurisdiction
in the City of Reno to which jurisdiction the parties irrevocably
attorn.
Number and Gender
1.04 In this Agreement, wherever the context requires, words
importing the singular number will include the plural and vice
versa, words importing the masculine gender will include the
feminine and neuter genders and words importing persons will
include firms and corporations and vice versa.
Section References
1.05 Unless otherwise stated, a reference in this Agreement
to a numbered or lettered article, section, paragraph or clause
refers to the article, section, paragraph or clause bearing that
number or letter in this Agreement.
Severability of Clauses
1.06 If any covenant or other provision of this Agreement is
invalid, illegal or incapable of being enforced by reason of any
rule of law or public policy such covenant or other provision
will be severed; all other terms and conditions of this Agreement
will, nevertheless, remain in full force and effect and no
covenant or provision will be deemed dependent upon any other
covenant or provision unless so expressed herein.
<PAGE> 256
ARTICLE 2 SUBSCRIPTION FOR SHARES
Subscription
2.01 The Purchaser subscribes for, and agrees to pay on the
Closing Date for, the Shares at the subscription price of US$0.25
per Share on the terms and other conditions of this Agreement.
Acceptance
2.02 The Company accepts the Purchaser's subscription and
agrees to allot and issue to the Purchaser on the Closing Date
the Shares on the terms and other conditions of this Agreement
and to cause a certificate or certificates representing the
Shares to be issued to the Purchaser.
Certificate Legend
2.03 The certificate or certificates representing the Shares
will be endorsed with a legend as follows:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), THE
NEVADA STATE SECURITIES ACT OR ANY OTHER APPLICABLE
SECURITES ACT AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND SUCH STATE SECURITIES LAWS, OR (2) AT THE
OPTION OF THE COMPANY, UPON DELIVERY TO THE COMPANY OF AN
OPINION OF COUNSEL FOR THE TRANSFEROR, REASONABLY
SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED.
Securities Considerations
2.04 Purchaser acknowledges that the Shares are issued
pursuant to the exemption from the registration requirements
contained in Regulation S of the Securities Act and that:
(a) the Shares have not been registered under the Securities
Act or any state securities laws, and are being offered in
reliance on certain exemptions contained in the Securities
Act and such state securities laws;
(b) the Shares will not be sold or transferred except
pursuant to:
(i) an effective registration statement under the
Securities Act and any applicable state securities
laws;
(ii) Rule 144 promulgated under the Securities Act; or
<PAGE> 257
(iii) an opinion of counsel satisfactory to the Company
to the effect that such registration is not required;
and
(c) no federal or state agency has made any finding or
determination as to the fairness of the investment, or any
recommendation or endorsement of the Shares.
ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS
Representations, Warranties and Covenants of the Company
3.01 The Company represents and warrants to, and covenants
with, the Purchaser that:
(a) the Company is a body corporate subsisting under the
laws of Nevada, validly exists and is in good standing with
respect to all applicable law, and is duly registered to
carry on business in all jurisdictions in which it carries
on business;
(b) the Shares for which certificates are delivered to the
Purchaser pursuant to this Agreement will, at the time of
such delivery, be duly authorized, validly issued, fully
paid and non-assessable;
(c) the authorized capital of the Company is 100,000,000
common shares without par value and the Company will allot
and conditionally reserve for issuance sufficient number of
common shares to issue the Shares;
(d) the Company is not, and makes no representation that it
will become, a reporting corporation under the Securities
and Exchange Act of 1934; and
(e) the execution and delivery of this Agreement has been
duly authorized by all necessary corporate proceedings and
the completion of the transactions contemplated in this
Agreement does not conflict with or result in the breach or
acceleration of any indebtedness under, or constitute
default under, the constating documents of the Company or
any indenture, mortgage, agreement, lease, license or other
instrument to which the Company is a party or by which it is
bound, or any judgment or order of any Court or
administrative body by which the Company is bound; and
3.02 The representations, warranties, covenants and
agreements of the Company contained in this Agreement will be
true at and as of the Closing as though such representations,
warranties, covenants and agreements were made at and as of the
Closing and except for the waiver of any condition by the
Purchaser, the representations, warranties, covenants and
<PAGE> 258
agreements of the Company will survive the Closing and
notwithstanding the closing of the issuance of the Shares under
this Agreement, will continue in full force and effect.
Representations, Warranties and Covenants of the Purchaser
3.03 The Purchaser represents and warrants to and covenants
with the Company that:
(a) the Purchaser is a resident of New Zealand located
outside the United States and is aware that the Shares are
being issued pursuant to the exemption from registration
contained in Regulation S of the Securities Act;
(b) the Purchaser is purchasing the Shares for investment
purposes as principal for its own account and not for the
benefit of any other person;
(c) the Purchaser has the legal capacity and competence to
execute this Agreement and that all necessary approvals by
directors and shareholders of the Purchaser have been, or
will in the ordinary course be, given to authorize the
execution and delivery of this Agreement by the Purchaser;
(d) the Purchaser is not purchasing the Shares as a result
of having any material information about the Company's
affairs which has not been generally disclosed as at the
date of the announcement of the purchase;
(e) the Purchaser acknowledges that any interest accruing on
Subscription Funds will accrue to the sole benefit of the
Company and may be applied by the Company for general
corporate purposes; and
(f) the Purchaser is an affiliate of the Company as
interpreted under the Securities Act;
(g) the Purchaser understands that the Shares have not been
registered under the Securities Act or the securities laws
of any states, and that Purchaser has no right to require
such registration;
(h) the Purchaser has such knowledge and experience in
financial and business matters that it is capable of seeking
out and evaluating the information relevant to evaluating
the Company, the proposed activities thereof, and the merits
and risks of the prospective investment, and to make an
informed investment decision in connection therewith;
(i) the Purchaser realizes that, since the Shares are
restricted and cannot be readily sold, that the Purchaser
may not be able to sell or dispose of any of the Shares and,
<PAGE> 259
therefore, that Purchaser must not purchase the Shares
unless Purchaser has liquid assets sufficient to assure that
such purchase will cause no undue financial difficulties;
(j) the Purchaser is aware of the provisions of Rule 144
promulgated under the Securities Act ("Rule 144") which permit
limited resale of shares purchased in a private placement
subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the
Shares or conversion stock, the availability of certain
current public information about the Company, the resale
occurring not less than one year after a party has purchased
and paid for the security to be sold, the sale being effected
through a "broker's transaction" or in transactions directly
with a "market maker" and the number of shares being sold
during any three-month period not exceeding specified
limitations;
(k) the Purchaser understands that all information which
Purchaser has provided to the Company concerning the
Purchaser, the Purchaser's financial position and knowledge
of financial and business matters is correct and complete as
of this Agreement and, if there should be any material
change in such information before the acceptance of this
subscription, the Purchaser promptly notify the Company;
(l) the Purchaser is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D promulgated by the
Securities and Exchange Commission;
(m) the Purchaser has been provided with all materials and
information requested, to the extent possessed or obtainable
by the Company without unreasonable effort and expense,
including any information requested to verify information
furnished and has been provided the opportunity to ask
questions of, and receive answers from, the Company and the
officers, employees, and representatives of the Company
concerning the terms and conditions of this offering; and
(n) no party has made any representations to the Purchaser
as to the profitability, if any, of the Company, nor has the
Purchaser relied on any statements made by any persons
concerning the value of the investment in the Shares or the
risks associated therewith and the Purchaser has made such
inquiries as deemed necessary to make an informed decision,
independent of any representations by any persons connected
in any way with the Company.
3.05 The representations, warranties, covenants and
agreements of the Purchaser contained in this Agreement will be
true at and as of the Closing as though such representations,
warranties, covenants and agreements were made at and as of the
Closing and except for the waiver of any condition by the
<PAGE> 260
Company, the representations, warranties, covenants and
agreements of the Purchaser will survive the Closing and
notwithstanding the closing of the issuance of the Shares under
this Agreement, will continue in full force and effect.
ARTICLE 4 CLOSING
4.01 Closing will occur at the principal business office of the
Company at 10:00 a.m. on the Closing Date.
4.2 At the Closing, the issuance of the Shares will be completed
by the tabling and delivery:
(a) by the Company of:
(i) a share certificate representing the Shares;
(ii) a certificate of a duly authorized officer of the
Company to the effect that the issuance and delivery of
the certificates representing the Shares have been so
issued and delivered in accordance with the terms and
conditions of this Agreement and applicable law;
(b) by the Purchaser of:
(i) a certified cheque or bank draft drawn in United
States dollars and payable to the Company for the
Subscription Funds.
ARTICLE 5 GENERAL PROVISIONS
Time
5.01 Time is of the essence of the performance of every
obligation under this Agreement, and no failure or lack of
diligence by any party in proclaiming or seeking redress for any
violation of, or insisting on strict performance of, any
provision of this Agreement will prevent a subsequent violation
of that provision, or of any other provision, from giving rise to
any remedy that would be available if it were an original
violation of that provision or another provision.
5.02 This Agreement will be binding upon and enure to the
benefit of the respective heirs, executors, administrators and
other legal representatives and, to the extent permitted
hereunder, the respective successors and assigns, of the parties.
Notices
5.03 Unless otherwise provided herein, any notice, payment
or other communication to a party under this Agreement may be
made, given or served by delivery or telecopy and addressed as
follows:
<PAGE> 261
(a) if to the Company:
Trans New Zealand Oil Company
Suite 1200, 1090 West Pender Street
Vancouver, B. C. V6E 2N7
Attention: Mr. Ronald Bertuzzi, President
Telecopy: 604-682-1174
(b) if to the Purchaser:
Source Rock Holdings Ltd.
284 Kaori Road, Kaori
Wellington, New Zealand
Attention: Dr. David Bennett
Telecopy: 011-644-476-0120
5.04 Any notice, payment or other communication so delivered
or telecopied will be deemed to have been given or served at the
time of delivery of transmission by telecopy
5.05 A party may by notice change its address for service.
Entire Agreement
5.06 This Agreement constitutes the entire agreement between
the parties and supercedes all previous agreements or
understandings between the parties in any way relating to its
subject matter and the Company has made not representations,
inducements, warranties or promises concerning this Agreement or
the matters referred to herein which are not embodied in this
Agreement.
Binding Agreement
5.07 This Agreement will enure to the benefit of and will be
binding upon the parties hereto and their respective heirs,
executors, administrators, personal representatives and
successors.
IN WITNESS WHERE OF this Agreement has been executed by the
Company and the Purchaser as at the date first set forth above.
TRANS NEW ZEALAND OIL COMPANY
By: /s/ Ronald Bertuzzi, President
By: /s/ Mark Katsumata, Secretary
<PAGE> 262
EXECUTED AS AN AGREEMENT
Signed for Source Rock Holdings Limited
by its duly authorised representative
/s/ D.J. Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
<PAGE> 263
EXHIBIT 10.72
STOCK OPTION AGREEMENT
THIS AGREEMENT made as of June 25, 1998 BETWEEN:
TRANS NEW ZEALAND OIL COMPANY, a body corporate subsisting
under the laws of Nevada, with a place of business at Suite
1200, 1090 West Pender Street, Vancouver, British Columbia V6E
2N7 (the "Company")
OF THE FIRST PART
AND:
SOURCE ROCK HOLDINGS LTD., a body corporate subsisting under
the laws of New Zealand, with a place of business at 284
Karori Road, Karori, Wellington, New Zealand(the "Grantee")
OF THE SECOND PART
WHEREAS:
A. The Company's common shares are traded through the facilities
of the OTC Bulletin Board, United States;
B. The Company is not a reporting company under the Securities
Exchange Act of 1934;
C. The Grantee is an affiliate of the Company as interpreted
under the Securities Act of 1933; and
D. The Company wishes to grant to the Grantee an option to
purchase common shares of the Company;
WITNESSES that the parties mutually covenant and agree as
follows:
ARTICLE 1 DEFINITIONS AND INTERPRETATION
1.01 In this Agreement, including the recitals and schedules
to this Agreement, unless the context otherwise requires:
Company means Trans New Zealand Oil Company.
Exchange means the OTC Bulletin Board.
Exchange Act means the Securities Exchange Act of 1934 (U.S.), as
amended from time to time.
Exercise Price means US$0.50 per Optioned Share.
<PAGE> 264
Expiry Date means the earlier of 5:00 p.m., Nevada time, on July
31, 2000 or thirty business days after the Company or any
subsidiary of the Company ceases to have a right to earn an
interest in, or to hold an interest in, petroleum exploration
permit 38256, South Island, New Zealand.
Grantee means Source Rock Holding Ltd.
Option means the right granted by this Agreement to acquire the
Optioned Shares.
Optioned Shares means 1,000,000 Shares.
Regulation S means Regulation S promulgated under the Securities
Act.
Securities Act means the Securities Act of 1933 (U.S.), as amended
from time to time.
Share or Shares means a common share or common shares of the
Company as constituted on June 25, 1998.
1.02 The captions, section numbers and article numbers
appearing in this Agreement are inserted for convenience of
reference only and will in no way define, limit, constrict or
describe the scope or intent of this Agreement nor in any way
affect this Agreement.
1.03 This Agreement and all matters arising under this
Agreement will be governed by, construed and enforced in accordance
with the laws of Nevada and any proceeding commenced or maintained
in connection with this Agreement will be so commenced and
maintained in the court of appropriate jurisdiction in the City of
Reno, Nevada to which jurisdiction the parties irrevocably attorn.
1.04 In this Agreement, wherever the context requires, words
importing the singular number will include the plural and vice
versa, words importing the masculine gender will include the
feminine and neuter genders and words importing persons will
include firms and corporations and vice versa.
1.05 Unless otherwise stated, a reference in this Agreement to
a numbered or lettered article, section, paragraph or subparagraph
refers to the article, section, paragraph or subparagraph bearing
that number or letter in this Agreement.
1.06 If any covenant or other provision of this Agreement is
invalid, illegal or incapable of being enforced by reason of any
rule of law or public policy such covenant or other provision will
be severed; all other terms and conditions of this Agreement will,
nevertheless, remain in full force and effect and no covenant or
provision will be deemed dependent upon any other covenant or
provision unless so expressed herein.
<PAGE> 265
ARTICLE 2 GRANT OF OPTION
2.01 The Company grants the Grantee an irrevocable, non-
transferable and non-assignable option (the "Option") to purchase
Optioned Shares for the Exercise Price on the terms and other
conditions of this Agreement.
2.02 It is a condition that:
(a) the Grantee has executed and delivered an agreement
granting to the Company the right to earn a 15% interest, and
subsequently a 25% interest, in and to petroleum exploration
permit 38256, South Island, New Zealand; and
(b) the Grantee has by separate agreement subscribed and paid
for 1,000,000 Shares at US$0.25 per share.
ARTICLE 3 EXERCISE OF OPTION
3.01 The Grantee may exercise the Option from time to time
with respect to all or part of the Optioned Shares or the Optioned
Shares remaining unpurchased.
3.02 The Option will be exercised by the Grantee or its legal
representative by delivering to the principal business office of
the Company in Vancouver, British Columbia or such other place as
is designated by the Company from time to time:
(a) a notice stating the number of Optioned Shares being
purchased; and
(b) a certified cheque or bank draft in favour of the Company
drawn in United States dollars for the product of the number
of Optioned Shares being purchased and the Exercise Price.
3.03 On exercise of Option, the Company will forthwith cause
its transfer agent to deliver to any of the Grantee, its legal
representative or such other person as the Grantee may otherwise
direct in the notice of exercise of the Option a certificate or
certificates in the name of any of the Grantee, its legal
representative or such other person as the Grantee may otherwise
direct in the notice of exercise of the Option representing such
number of Optioned Shares for which payment has been made.
3.04 Nothing in this Agreement obligates or will obligate the
Grantee to purchase or pay for any Optioned Shares except those
Optioned Shares in respect of which the Grantee has exercised the
Option in the manner prescribed.
3.05 The certificate or certificates representing the Optioned
Shares issued from time to time will be endorsed with a legend as
follows:
<PAGE> 266
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), THE
NEVADA STATE SECURITIES ACT OR ANY OTHER APPLICABLE SECURITES
ACT AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT (1)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND SUCH STATE SECURITIES LAWS, OR (2) AT THE OPTION OF THE
COMPANY, UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL
FOR THE TRANSFEROR, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
3.06 The Grantee acknowledges that the Option has been
granted, and the Optioned Shares will from time to time be issued
pursuant to the exemption from the registration requirements
contained in Regulation S of the Securities Act and that:
(a) the Option and the Optioned Shares have not been
registered under the Securities Act or any state securities
laws, and are being offered in reliance on certain exemptions
contained in the Securities Act and such state securities
laws;
(b) the Optioned Shares will not be sold or transferred except
pursuant to:
(i) an effective registration statement under the
Securities Act and any applicable state securities laws;
(ii) Rule 144 promulgated under the Securities Act; or
(iii) an opinion of counsel satisfactory to the Company
to the effect that such registration is not required; and
(c) no federal or state agency has made any finding or
determination as to the fairness of the investment, or any
recommendation or endorsement of the Optioned Shares.
ARTICLE 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE GRANTEE
4.01 The Grantee represents and warrants to, and covenants
with, the Company that:
(a) the Grantee is a resident of New Zealand located outside
the United States and is aware that the Option is being
granted, and the Optioned Shares will from time to being
issued pursuant to the exemption from registration contained
in Regulation S of the Securities Act;
(b) the Grantee is acquiring the Option and any Optioned
Shares acquired on exercise of the Option for investment
purposes as principal for its own account and not for the
benefit of any other person;
<PAGE> 267
(c) the Grantee has the legal capacity and competence to
execute this Agreement and that all necessary approvals by
directors and shareholders of the Grantee have been, or will
in the ordinary course be, given to authorize the execution
and delivery of this Agreement by the Grantee;
(d) the Grantee is not acquiring the Option as a result of
having any material information about the Company's affairs
which has not been generally disclosed as at the date of the
announcement of the purchase;
(e) the Grantee is an affiliate of the Company as interpreted
under the Securities Act;
(f) the Grantee understands that the Optioned Shares have not
been registered under the Securities Act or the securities
laws of any states, and that Grantee has no right to require
such registration;
(g) the Grantee has such knowledge and experience in financial
and business matters that it is capable of seeking out and
evaluating the information relevant to evaluating the Company,
the proposed activities thereof, and the merits and risks of
the prospective investment, and to make an informed investment
decision in connection therewith;
(h) the Grantee realizes that, because the Optioned Shares are
restricted and cannot be readily sold, that the Grantee may
not be able to sell or dispose of any of the Optioned Shares
and, therefore, that Grantee must not purchase the Optioned
Shares unless Grantee has liquid assets sufficient to assure
that such purchase will cause no undue financial difficulties;
(i) the Grantee is aware of the provisions of Rule 144
promulgated under the Securities Act ("Rule 144") which permit
limited resale of shares purchased in a private placement
subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the
Optioned Shares or conversion stock, the availability of
certain current public information about the Company, the
resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being
effected through a "broker's transaction" or in transactions
directly with a "market maker" and the number of shares being
sold during any three-month period not exceeding specified
limitations;
(j) the Grantee understands that all information which Grantee
has provided to the Company concerning the Grantee, the
Grantee's financial position and knowledge of financial and
business matters is correct and complete as of this Agreement
and, if there should be any material change in such
information before the acceptance of this subscription, the
Grantee will promptly notify the Company;
<PAGE> 268
(k) the Grantee is an "accredited investor" within the meaning
of Rule 501(a) of Regulation D promulgated by the Securities
and Exchange Commission;
(l) the Grantee has been provided with all materials and
information requested, to the extent possessed or obtainable
by the Company without unreasonable effort and expense,
including any information requested to verify information
furnished and has been provided the opportunity to ask
questions of, and receive answers from, the Company and the
officers, employees, and representatives of the Company
concerning the terms and conditions of this offering; and
(m) no party has made any representations to the Grantee as to
the profitability, if any, of the Company, nor has the Grantee
relied on any statements made by any persons concerning the
value of the investment in the Optioned Shares or the risks
associated therewith and the Grantee has made such inquiries
as deemed necessary to make an informed decision, independent
of any representations by any persons connected in any way
with the Company.
4.02 The representations, warranties, covenants and agreements
of the Grantee contained in this Agreement will be true at and as
of the date of issuance of Optioned Shares as though such
representations, warranties, covenants and agreements were made at
and as of such date and except for the waiver of any condition by
the Company, the representations, warranties, covenants and
agreements of the Grantee will survive the issuance of the Optioned
Shares and, notwithstanding such issuance, will continue in full
force and effect.
ARTICLE 5 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
5.01 The Company represents and warrants to, and covenants
with, the Grantee that:
(a) the Company is a body corporate subsisting under the laws
of Nevada, validly exists and is in good standing with respect
to all applicable law, and is duly registered to carry on
business in all jurisdictions in which it carries on business;
(b) the Optioned Shares for which certificates are delivered
to the Purchaser pursuant to this Agreement will, at the time
of such delivery, be duly authorized, validly issued, fully
paid and non-assessable;
(c) the authorized capital of the Company is 100,000,000
common shares without par value and the Company will allot and
conditionally reserve for issuance sufficient number of common
shares to issue the Optioned Shares;
<PAGE> 269
(d) the Company is not, and makes no representation that it
will become, a reporting corporation under the Exchange 1934;
and
(e) the execution and delivery of this Agreement has been duly
authorized by all necessary corporate proceedings and the
completion of the transactions contemplated in this Agreement
does not conflict with or result in the breach or acceleration
of any indebtedness under, or constitute default under, the
constating documents of the Company or any indenture,
mortgage, agreement, lease, license or other instrument to
which the Company is a party or by which it is bound, or any
judgment or order of any Court or administrative body by which
the Company is bound; and
5.02 The representations, warranties, covenants and agreements
of the Company contained in this Agreement will be true at and as
of the time of issuance of the Optioned Shares as though such
representations, warranties, covenants and agreements were made at
and as such date and except for the waiver of any condition by the
Grantee, the representations, warranties, covenants and agreements
of the Company will survive the issuance of the Optioned Shares and
notwithstanding such issuance, will continue in full force and
effect.
ARTICLE 6 TERMINATION OF OPTION
6.01 The Option and this Agreement will terminate on the
earlier of the Expiry Date or:
(a) the date on which the Grantee makes an assignment for the
benefit of its creditors or otherwise seeks the protection of
applicable insolvency or bankruptcy legislation;
(b) the time at which any securities regulatory authority
issues against the Grantee a cease trade order based on a
determination that trading of the securities of the Company by
the Grantee is not in the best interests of the public; or
(c) the time at which the Company determines that any of the
Grantee, its legal representative or such other person as is
designated by the Grantee in the notice exercising the Option
as the person to whom Optioned Shares are to be issued is in
breach of any condition in this Agreement or applicable law
relating to the sale by the Grantee, its legal representative
or such other person as is designated of any of the Optioned
Shares.
ARTICLE 7 PROHIBITION ON DEALING WITH THE OPTION AND RESTRICTIONS
ON SALE OF OPTIONED SHARES
7.01 The Grantee will not pledge, mortgage, hypothecate, sell,
assign or transfer, or agree to pledge, mortgage, hypothecate,
<PAGE> 270
sell, assign or transfer the Option or any interest in, or right
to, the Option.
7.02 Purchaser acknowledges that the Option is granted, and
the Optioned Shares will be issued, pursuant to the exemption from
the registration requirements contained in Regulation S of the
Securities Act and that:
(a) the Option and the Optioned Shares have not been
registered under the Securities Act or any state securities
laws, and are being offered in reliance on certain exemptions
contained in the Securities Act and such state securities
laws;
(b) the Optioned Shares will not be sold or transferred except
pursuant to:
(i) an effective registration statement under the
Securities Act and any applicable state securities laws;
(ii) Rule 144 promulgated under the Securities Act; or
(iii) an opinion of counsel satisfactory to the Company
to the effect that such registration is not required; and
(c) no federal or state agency has made any finding or
determination as to the fairness of the investment, or any
recommendation or endorsement of the Optioned Shares.
ARTICLE 8 ADJUSTMENT OF NUMBER OF OPTIONED SHARES
8.01 The number of Optioned Shares deliverable upon the
exercise of the Option will be adjusted as follows:
(a) if there is any subdivision or subdivisions of the Shares
while the Option is in effect into a greater number of Shares,
the Company will deliver at the time of purchase of Optioned
Shares, in addition to the number of Optioned Shares in
respect of which the right to purchase is being exercised,
such additional number of Optioned Shares as result from such
subdivision or subdivisions without the Grantee making any
additional payment or giving any other consideration;
(b) if there is any consolidation or consolidations of the
Shares while the Option is in effect into a lesser number of
Shares, the Company will deliver and the Grantee will accept,
at the time of purchase of Optioned Shares, instead of the
number of Optioned Shares in respect of which the right to
purchase is being exercised, the lesser number of Optioned
Shares as a result from such consolidation or consolidations;
<PAGE> 271
(c) if there is any change of the Shares of the Company while
the Option is in effect, the Company will deliver at the time
of purchase of Optioned Shares the number of Optioned Shares
of the appropriate class resulting from the such change as the
Grantee would have been entitled to receive in respect of the
number of Optioned Shares so purchased had the right to
purchase been exercised before such change;
(d) if there is any capital reorganization, reclassification
or change of outstanding equity shares, other than a change in
the par value, of the Company or if there is any
consolidation, merger or amalgamation of the Company with or
into any other company or any sale of the property of the
Company as or substantially as an entirety at any time while
the Option is in effect, the Grantee may purchase and receive,
instead of the Optioned Shares purchasable and receivable upon
the exercise of the Option, the kind and amount of Shares and
other securities and property receivable upon such capital
reorganization, reclassification, change, consolidation,
merger, amalgamation or sale which the holder of a number of
Shares equal to the number of Optioned Shares purchasable and
receivable upon the exercise of the Option would have received
as a result of such event.
The subdivision or consolidation of Shares at any time
outstanding into a greater or lesser number of Shares, whether with
or without par value, will not be deemed to be a capital
reorganization or a reclassification of the capital of the Company
for the purposes of this paragraph (d).
8.02 The adjustments provided for in section 8.01 are
cumulative.
8.03 The Company will not be required to issue fractional
Optioned Shares in satisfaction of its obligations and any
fractional interest in an Optioned Share that would, except for the
provisions of this section, be deliverable upon the exercise of the
Option will be cancelled and not be deliverable by the Company.
8.04 If any questions at any time arise with respect to the
exercise price or number of Optioned Shares deliverable upon
exercise of the Option, such questions will be conclusively
determined by the Company's auditors, or, if they decline to so
act, any other firm of chartered accountants that the Company may
designate and who will have access to all appropriate records and
such determination will be binding upon the Company and the
Grantee.
8.05 The Grantee will have no rights whatsoever as a
shareholder in respect of any of the Optioned Shares, including any
right to receive dividends or other distributions, other than in
respect of Optioned Shares in respect of which the Grantee has
exercised its Option and which the Grantee has taken up and paid
for.
<PAGE> 272
ARTICLE 9 GENERAL PROVISIONS
9.01 Time is of the essence of the performance of every
obligation under this Agreement, and no failure or lack of
diligence by any party in proclaiming or seeking redress for any
violation of, or insisting on strict performance of, any provision
of this Agreement will prevent a subsequent violation of that
provision, or of any other provision, from giving rise to any
remedy that would be available if it were an original violation of
that provision or another provision.
9.02 This Agreement will be binding upon and enure, to the
extent permitted, to the benefit of the respective successors and
assigns of the parties.
9.03 Unless otherwise provided herein, any notice, payment or
other communication to a party under this Agreement may be made,
given or served by delivery or telecopy and addressed as follows:
(a) if to the Company:
Trans New Zealand Oil Company
Suite 1200, 1090 West Pender Street
Vancouver, B. C. V6E 2N7
Attention: President
Telecopy: 604-682-1174
(b) if to the Grantee:
Source Rock Holdings Ltd.
284 Karori Road, Karori
Wellington, New Zealand
Attention: President
Telecopy: 011-644-476-0120
8.04 Any notice, payment or other communication so delivered
or telecopied will be deemed to have been given or served at the
time of delivery of transmission by telecopy
8.05 A party may by notice change its address for service.
8.06 This Agreement constitutes the entire agreement between
the parties and supercedes all previous agreements or
understandings between the parties in any way relating to its
subject matter and the Company has made not representations,
inducements, warranties or promises concerning this Agreement or
the matters referred to herein which are not embodied in this
Agreement.
IN WITNESS WHERE OF this Agreement has been executed by the
parties as at the date first above written.
<PAGE> 273
TRANS NEW ZEALAND OIL COMPANY
By: /s/ Ronald Bertuzzi, President
By: /s/ Mark Katsumata, Secretary
EXECUTED AS AN AGREEMENT
Signed for Source Rock Holdings Ltd.
by its duly authorised representative
/s/ D.J. Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This summary contains summary financial information extracted from the
consolidated statement of financial condition at September 30, 1998
(unaudited) and the consolidated statement of income for the nine months
ended September 30, 1998 (unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 8,259,610
<SECURITIES> 610,726
<RECEIVABLES> 110,639
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,003,333
<PP&E> 4,449,234
<DEPRECIATION> (1,004,459)
<TOTAL-ASSETS> 12,498,108
<CURRENT-LIABILITIES> 2,006
<BONDS> 0
0
0
<COMMON> 17,617,045
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,498,108
<SALES> 181,125
<TOTAL-REVENUES> 466,949
<CGS> (101,563)
<TOTAL-COSTS> (101,563)
<OTHER-EXPENSES> (551,215)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (185,829)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
