SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission file number 0-29670
DRUCKER INDUSTRIES, INC.
-------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware N/A
- --------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
#1-1035 Richards Street, Vancouver, B.C. Canada V6B 3E4
- ----------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 681-4421
--------------
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act
COMMON STOCK $.0001 PAR VALUE
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 the filing
requirements for at least the past 90 days.
Yes No X
------- ------
Indicate by check mark if disclosure of delinquent filers in Response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of Registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
Yes No X
------ -------
<PAGE>
Registrants gross revenues for its most recent fiscal year were $157,538 from
interest income only and operations expenses totaled $798,668 for a net loss of
$(641,130).
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant: $6,170,487 as of December 31, 1998 (a $.19/share bid at December
28, 1998).
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock: 32,476,250 common shares as of December 31, 1998.
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Business..............................................................1
Item 2. Properties ..........................................................11
Item 3. Legal Proceedings....................................................12
Item 4. Submission of Matters to a Vote of
Security Holders.....................................................12
PART II
Item 5. Market for Registrant's Common Stock and
Security Holder Matters .............................................12
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ..........................................................14
Item 7. Financial Statements and Supplementary Data..........................20
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...............................20
PART III
Item 9. Directors and Executive Officers of the
Registrant ..........................................................21
Item 10. Executive Compensation...............................................23
Item 11. Security Ownership of Certain Beneficial
Owners and Management................................................25
Item 12. Certain Relationships and Related
Transactions.........................................................27
PART IV
Item 13. Exhibits, Financial Statement Schedule
and Reports on Form 8-K..............................................28
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Description and Development of Business.
HISTORY OF COMPANY
(Through December 31, 1997)
On February 4, 1971, the Registrant was incorporated under the laws of
the State of Idaho, under the name of Monetary Metals Corporation.
On December 16, 1988, Drucker Sound Design Corporation was incorporated
under the laws of the State of California.
On October 18, 1989, Gul Industries Corp. was incorporated under the laws
of the State of Delaware.
On December 14, 1989, the Registrant entered into an Agreement and Plan
of Reorganization, whereby the issuer acquired 100% of the assets subject to
liabilities of Drucker Sound Design Corporation, a California corporation. The
Registrant began engaging in the manufacturing and distribution of audio,
cellular, C.B., radar, and other electronic installation systems for
automobiles. The Company decided to redomicile in Delaware and entered into a
merger agreement with Gul Industries, Inc., a Delaware corporation. On April 16,
1990, the Registrant filed Articles of Amendment in the State of Idaho changing
its name from Monetary Metals Corporation to Drucker Sound Design Corporation.
On June 6, 1990, Gul Industries Corp. filed a Certificate of Amendment to the
State of Delaware changing its name to Drucker Sound Design Corporation. On June
19, 1990, a Certificate of Merger was filed in the State of Delaware. On August
7, 1990, a Certificate of Merger was filed in the State of Idaho. Prior to
September 1991, the Registrant discontinued engaging in the business of
manufacturing and distributing of audio, cellular, C.B., radar, and other
electronic installation systems for automobiles. On September 4, 1991, the
Registrant filed Certificate of Amendment in the State of Delaware changing its
name to Drucker Industries, Inc.
In September 1991, the Company purchased the license to the "N-Viro
Process" in Japan from N-Viro Energy Systems, Ltd. for $466,063. The Company
made a $100,000 down payment and paid the balance by quarterly installments. The
Company was delinquent on minimum royalty payments due June 30, 1994 and
September 30, 1994, totalling $50,000, and consequently all rights and
privileges granted to the Company under the license agreement were cancelled by
the licensor. The license agreement costs, net of accumulated amortization, were
written-off during the year ended December 31, 1994. The Company at December 31,
1995, terminated any attempts in the N-Viro business.
1
<PAGE>
No activities were conducted in 1995 or 1996. In 1997, new management
was engaged and a business plan to engage in oil and gas exploration was
adopted.
THE COMPANY BUSINESS
1. General Operations
The Company has had very limited operations within the last three
years, and such operations have been restricted to investigation of
opportunities, evaluation and negotiations of the joint venture agreements
described hereafter, and joint venture participations in oil exploration
projects in China in fall 1997 and in Egypt in 1999.
Current Business
The Company was inactive from 1994 until late 1996. The Company's
primary business focus is the acquisition, exploration and development of
mineral properties and oil and natural gas properties. In early 1997, the
Company negotiated joint venture farm-in agreements with two Vancouver based oil
companies with whom the companies' officers and directors are affiliates for a
50% interest in certain oil projects in the People's Republic of China. The
projects were unsuccessful and were abandoned in 1998, although Company the
retains an investment in China in the Shaanxi exploration project which is not
under active exploration. The Registrant has a participation in the Gulf of Suez
joint venture in Egypt, which has in 1999 made one oil discovery, has drilled
one dry hole, and has a third well being drilled.
The Company anticipates that its business will continue to require
capital to make required financial investments under exploration joint venture
agreements. The Company intends to use the capital Markets of the United States,
Canada, and Europe to secure the capital funding required by the Company and its
operations. It has no commitments for funding as of the date of this Report, nor
anticipated sources of debt or equity funding, except its cash on hand.
The Company has not established, and does not intend to formally
establish, criteria for the selection or evaluation of oil and gas properties or
participations. When a property is located which the management, in its opinion,
believes holds the potential for profit for the Company, an attempt will be made
to secure an option, or lease, in the property. Shareholder approval will not be
sought for property acquisitions. Therefore, shareholders will be dependent upon
the judgment of management in selecting properties (see "Management"). If such
an interest is acquired, the Company will then expend funds for preliminary
exploration and testing of the property to determine the feasibility of
production of such property. Based on the results of such preliminary testing,
the Company will decide, without shareholder approval, whether to acquire or
abandon the property. A property may be acquired by outright purchase; by
purchasing or leasing the oil, gas or mineral rights of the property; or by
exchange of the shares for leases or interests in properties.
2
<PAGE>
The Company may expend funds to rework, explore or test any oil and gas
prospects it acquires to determine the economic production feasibility of such
properties. The Company will rely on outside consultants (none of whom have been
designated) to provide management with competent evaluation and recommendations
concerning property or interests in properties to be considered for acquisition.
The Company has no agreement or understanding, express or implied, with any
outside professional; and there is no assurance that it will be able to retain
the services of competent experts or as to the fees which such experts will
charge the Company. Based upon the results of such exploration and tests, as
interpreted by management, the Company will then determine whether such
properties should be acquired, explored further, sold or leased to a third
party, held for possible later development or abandoned; or whether development
to production should be attempted by the Company either by itself or through
joint venture or other business arrangements with other companies or entities.
The Company currently maintains its offices #1- 1035 Richards
Street, Vancouver, B.C. Canada V6B 3E4. Its telephone number is 604-681-4421.
(b) Parents and Subsidiaries
Parent
DRUCKER INDUSTRIES, INC., a Delaware corporation
Subsidiaries
DRUCKER PETROLEUM, INC., a British Virgin Islands corporation
(c) Oil and Gas Activities.
Registrants oil and gas exploration, development and production
activities have been limited due to lack of capital and lack of focus in such
area prior to 1997. The Company, in 1997 received stock sale proceeds to finance
its oil & gas joint ventures. The Company terminated its China exploration
ventures 1998 after drilling a dry hole.
The Company's proposed principal areas of activities are described
below.
Exploration and Production Activity. The Company's strategy with
respect to its oil exploration related activities is to identify geological
areas in which the Company may invest or participate in non-producing or
producing oil and gas prospects or joint ventures for development and where the
company may lease prospects for oil and gas exploration. In 1997, it joined
joint ventures to explore for oil and gas in China. In 1998, it terminated and
abandoned its joint venture in China after drilling one dry hole and finding its
3
<PAGE>
other China prospects to bear slim chances of success. In 1998, the Company
began a participation in the West Gharib, Egypt concession and one successful
well was drilled there in 1999.
During the last five (5) fiscal years, the Company conducted
exploration activities on oil and gas properties for joint venture participation
in China and Egypt. If the Company acquires oil and gas prospects in the future,
the Company may agree to assign rights in certain properties to be drilled to
the general or managing partner of a partnership or joint venture which thereby
becomes the owner of a working interest in the property and the Company will
retain an interest in the property. The Company actively reviews prospects for
participatioon in exploration or development drilling joint ventures, but
currently has no proposal being negotiated on any specific property, lease or
asset, not otherwise discussed herein.
The Company does not own any drilling rigs, nor does it employ drilling
or operating crews. The Company will not be the actual contract driller of
wells. If and when the Company decides to drill to explore a prospect, the
Company will contract with third-party non-affiliated drilling companies to
drill oil and gas wells on a fixed-cost (turnkey) basis. Once a well has reached
its desired depth, the Company, in consultations with experts, will then
determine whether to complete such wells and/or to plug and abandon the well.
All well completion activities are conducted under supervision of the Company
and its consultants, by third party service contractors. When the Company is
merely a participant in a venture on a minority basis, all decisions regarding
drillers, operations, and consultants will be made by third party management of
the venture and not by the registrant.
The Company is not carrying any reserve values of any properties due to
the lack of any production or found reserves.
Exploration Results 1997 1998 Prior Years
------------------- ---- ---- -----------
Gas Wells 0 0 0
Dry Holes 1 0 0
Oil Wells 0 0 0
Financing of Oil and Gas Activities. The Company's future oil and gas
financing activities will be conducted primarily pursuant to ventures with other
Independent companies and through Joint Ventures in which the Company may act as
co-venturer ("Company-Joint Ventures") or as a working interest participant. The
Company has contacted some independent companies who have indicated an interest
in participating in financing if the project interests them. The Company is a
participant in the West Gharib, Guf of Suez, Egypt exploration venture (see
"Registrant's Joint Venture Interests" hereafter). In 1997, the Company
participated in exploration participation in China in which it paid 100% of
costs for a 50% interest in the concession and any production found. The 1997
results were one dry hole in the China venture.
4
<PAGE>
The following table sets forth, for the years indicated, the funds
invested by the Company pursuant to contracts under Participation Agreements and
Joint Ventures. The Company may record revenues from operations on the
percentage of completion method as the oil and gas projects are drilled or
constructed, rather than when funds are received.
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
Participation Payments $0 $0 $50,802 $1,275,217 $1,262,106
Under Agreements
Total $0 $0 $50,802 $1,275,217 $1,262,106
</TABLE>
In 1997, the Company offered and sold 5,179,500 units at $1.00 per unit
pursuant to an Offering Memorandum. The cash proceeds of this offering have been
used to fund the Company operations. Each unit is to consist of one common share
and one share purchase warrant which will entitle the holder thereof to acquire
an additional unit at $1.50 per unit. This warrant would have expired in
eighteen months from the closing of the Offering Memorandum, but the warrant was
extended to March 31, 2000. The additional unit is to consist of one common
share and one additional share purchase warrant to acquire one common share at
$2.00 per share. This warrant has been extended to March 31, 2001.
(d) Narrative Description of Business.
The primary initial focus of business operations was to make an
investment in oil and gas exploration joint ventures in China. The Chinese joint
venture has been terminated, although the Company retains a project investment
interest which gives the Company the right to participate in exploratory wells
by paying 100% of the drilling cost for a 50% interest. The Company has
participated in a well in Egypt in the Gulf of Suez, which has been completed as
an oil discovery in July 1999. Further wells are planned in Egypt. In 1998, the
Company did not complete any successful oil or gas wells.
See also (c) "Oil and Gas Activities," "Properties," and "Joint
Ventures" hereafter for more complete discussion).
Governmental Regulation for Oil Exploration Operations
General - The Registrant's oil and gas production activities
are subject to extensive regulation by numerous national, state and local
governmental authorities in the countries where project participation is
commenced. Taxation and regulation of the Registrant's production,
transportation and sale of oil or gas, and federal price and allocation controls
in particular, have a significant effect on the Registrant and its operating
results.
5
<PAGE>
State Regulation - The production operations of the Registrant
are subject to regulation by national bureaus or ministries which have authority
to issue permits prior to the commencement of drilling activities, establish
allowable rates of production, control spacing of wells, establish prices or
taxes, prevent waste and protect correlative rights, and aid in the conservation
of oil and gas. Typical state regulations require permits to drill and produce
oil or gas, protection of fresh water horizons, and confirmation that wells have
been properly plugged and abandoned.
Environmental Matters - Various national and state authorities
have authority to regulate the production and development of oil and gas and
mineral properties with respect to environmental matters. Such laws and
regulations, presently in effect or as hereafter promulgated, may significantly
affect the cost of the workover and development activities contemplated by the
Registrant and could result in loss or liability to the Registrant in the event
that its operations are subsequently deemed inadequate for purposes of any such
law or regulation. New regulations, if adopted, could result in significant
capital expenditures by the Registrant, resulting in unprofitable operations.
Uncertainties Related to the Oil and Gas Business in General
The Registrant's operations will be subject to all of the
risks normally incident to the production of oil and gas, including blowouts,
pollution and fires. Each of these incidents could result in damage to or
destruction of oil and gas wells or formations or production facilities or
damage to persons or property. As is common in the oil and gas industry, the
Registrant is not fully insured against these risks either because insurance is
not available or because the Registrant has elected not to insure due to
prohibitive premium costs.
The Registrant's future oil and gas activities may involve a
significant risk that commercial oil or gas production will not be maintained.
The costs of drilling, completing reworking or operating wells is often
uncertain. Further, operations, may be curtailed or delayed as a result of many
factors, weather conditions, delivery delays, shortages of pipe and equipment,
and the availability of workover equipment.
The oil and gas business is further subject to many other
contingencies which are beyond the control of the Registrant. Wells may have to
be shut-in because they have become uneconomical to operate due to changes in
the price of oil, depletion of reserves, or deterioration of equipment. Changes
in the price of imported oil, the discovery of new oil and gas fields and the
development of alternative energy sources have had and will continue to have an
important effect on the Registrant's business.
Registrant's Joint Venture Interests
West Gharib Concession
6
<PAGE>
On April 27, 1998, the Company, through its wholly owned subsidiary,
Drucker Petroleum, Inc. (DPI), entered into a farm-in agreement to acquire an
undivided 20% participating interest in the right to explore for and exploit
petroleum in a concession located in West Gharib, Gulf of Suez, Egypt. The
Agreement provided that DPI shall pay:
1. $352,000 within seven days of the execution of the agreement (paid)
2. pay 20% of all costs and expenses incurred subsequent to the
execution of the agreement related to this concession
3. 40% of the costs and expenses associated with the drilling of
exploratory well to a maximum cost to the Company of $600,000; thereafter, DPI
shall pay 20% of all costs and expenses associated with any further activity
associated with the concession.
4. In addition, DPI provided a bank guarantee of $2,000,000 within
seven days of the execution of the agreement, being 40% of a letter of
guarantee.
DPI has the right but not the obligation to participate in additional
wells in the West Gharib, Egypt concession.
DPI's interest in this oil and gas concession is subject to 7% net
profit interest payable to a related company, after DPI has recovered all its
exploration and development expenditures. This company is related by virtue of
common directors.
Drucker Petroleum, Inc., a wholly owned subsidiary of Drucker
Industries, Inc., holds the 20% interest. Tanganyika Oil Company, Ltd., through
its wholly owned subsidiary, Dublin International Petroleum (Egypt) Limited, is
the operator of the West Gharib block holding a 50% interest and GHP Exploration
(West Gharib) Ltd., a wholly owned subsidiary of TransAtlantic Petroleum (USA)
Corp. holds the remaining 30% interest.
The Hana-1 well was drilled to a total depth of 7,415 feet and
production casing was landed at 5,475 feet in order to evaluate the prospective
Middle Miocene Kareem formation. Logs run through casing indicate a gross sand
section of 116 feet with 60 feet of net sand pay which is believed to be
hydrocarbon bearing. The uppermost 20 feet of sand interval was perforated from
4,868 to 4,888 feet and the well flowed oil to surface. Typical wells in this
region require pumping equipment to maximize production When assisted with a
nitrogen string set at 2,500 feet, the Hana-1 well flowed at rates averaging 500
barrels of oil per day at 25.8 degrees API gravity oil with zero water content.
Products, Services, Markets, Methods of Distribution, and Revenues. Oil and
natural gas are presently the principal products sought to be produced by the
Company but none is presently being produced.
Working Capital Needs. The working capital needs of the company consist
primarily of: investigation activities, acquisition of prospect acreage and
costs of participation in joint ventures. These requirements may be met by
7
<PAGE>
private placement of stock or loans or sale of working interests. The Company
will need to develop additional working capital for future operations.
Industry Segments
The company's industry's segment is the oil and gas industry. The company's
geographic segments are Canada, China and Egypt.
<TABLE>
<CAPTION>
December 31, 1998
Canada China Egypt Total
Identifiable Assets
<S> <C> <C> <C> <C>
Current $ 2,771,380 $ - $ - $ 2,771,380
Oil and gas projects - 895,306 366,800 1,262,106
-------------- ------------ ------------ --------------
$ 2,771,380 $ 895,306 $ 366,800 $ 4,033,486
============== ============ ============ ==============
December 31, 1997
Canada China Egypt Total
Identifiable Assets
Current $ 3,489,285 $ - $ - $ 3,489,285
Oil and gas projects - 1,275,217 - 1,275,217
-------------- -------------- ------------- --------------
$ 3,489,285 $ 1,275,217 $ - $ 4,764,502
============== ============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997
==== ====
Operations
<S> <C> <C>
Canada $( 24,8$7) ( 116,019)
China ( 368,290) ( 433,795)
Egypt ( 247,973) -
--------------- ---------------
$( 641,$30) ( 549,814)
=============== ===============
</TABLE>
(3) Dependence on a Single Customer or a Few Customers.
a) Revenues - None. The Company has no customers at this time.
b) Client Services revenues - none
During the five (5) years ending December 31, 1998, no
revenues were generated from client services.
(4) Backlog of Orders. None at this time.
(5) Government Contracts. None.
(6) Competitive Conditions. The oil and gas industry is highly
competitive. The Company faces competition from large numbers of oil and gas
companies, public and private drilling programs and major oil companies engaged
in the acquisition, exploration, development and production of hydrocarbons in
8
<PAGE>
all areas in which it may attempt to operate in the future. Many of the programs
and companies so engaged possess greater financial and personnel resources than
the Company and therefore have greater leverage to use in acquiring prospects,
hiring personnel and marketing oil and gas. Accordingly, a high degree of
competition in these areas is expected to continue. The markets for crude oil
and natural gas production have increased substantially in recent years. Oil
prices have stabilized generally, but the world market for crude oil should be
considered unstable due to uncertainty in the Mideast. There is considerable
uncertainty as to future production levels of major oil producing countries.
Significant increases in production could create additional downward pressure on
the price of oil. A precipitous drop in oil & natural gas prices in the futures
market occurred in January 1986, and the Company could be adversely affected if
further drops occur in the future.
In the past surpluses in natural gas supplies and other factors have
combined to have a negative impact on the natural gas business. Purchasers have
canceled contracts or might propose to cancel contracts. Other purchasers have
lowered the price they will pay for unregulated natural gas, which previously
commanded premium prices. There is no assurance that the Company's revenues, if
any ever develop, will not be adversely affected by these factors.
Oil concessions in foreign countries are usually controlled by the
Government, which after could impose taxes or restrictions at any time which
would make operations, if any, unprofitable and infeasible and cause a write off
of capital investment in oil and gas opportunities.
The oil exploration situation is highly competitive. The Company faces
competition from large numbers of companies in any areas in which it may attempt
to operate in the future. Many of the companies so engaged possess much greater
financial and personnel resources than the Company and therefore have greater
leverage to use in acquiring participation interests, hiring personnel and
marketing. Accordingly, a high degree of competition in these areas is expected
to continue.
A number of factors, beyond the Registrant's control and the effect of
which cannot be accurately predicted, affect the production and marketing of oil
and gas. These factors include crude oil imports, actions of foreign oil
producing nations, the availability of adequate pipeline and other
transportation facilities, the marketing of competitive fuels and other matters
affecting the availability of a ready market, such as fluctuating supply and
demand.
(7) Registrant Sponsored Research and Development. None.
(8) Compliance with Environmental Laws and Regulations. The exploration
operations of the Company are subject to local, provincial and national laws and
regulations in the country of Egypt and in China if any exploration is
recommended. To date, compliance with these regulations by the Company has had
9
<PAGE>
no material effect on the Company's operations, capital, earnings, or
competitive position, and the cost of such compliance has not been material. The
Company is unable to assess or predict at this time what effect such regulations
or legislation could have on its activities in the future.
(a) Local Regulation -
The Company cannot determine to what extent future operations
and earnings of the Company may be affected by new legislation, new regulations
or changes in existing regulations.
(b) National Regulation - None.
The Company cannot determine to what extent future operations
and earnings of the Company may be affected by new legislation, new regulations
or changes in existing regulations.
The value of the Company's investments in the joint ventures
may be adversely affected by significant political, economic and social
uncertainties in the area of interest. Any changes in the policies by the
Government of the area of interest could adversely affect the company area of
interest by, among other factors, changes in laws, regulations or the
interpretation thereof, confiscatory taxation, restrictions on currency
conversion, imports and sources of supplies, the expropriation or
nationalization of private enterprises, wars, or political relationships with
other countries.
(c) Environmental Matters - None at the date of this
registration statement.
(d) Other Industry Factors - Oil and gas drilling operations
are subject to hazards such as fire, explosion, blowouts, cratering and oil
spills, each of which could result in substantial damage to oil and gas wells,
producing facilities, other property and the environment or in personal injury.
(9) Number of Persons Employed. As of December 31, 1998, the Company
had two part time employees, A. Ken Kow, manager of Petroleum Operations at a
salary of $3,000 Canadian per month and the President, Gerald William Runolfson
at no salary bottle in Vancouver, B.C.
10
<PAGE>
ITEM 2. PROPERTIES
(a) Real Estate. None
(b) Title to properties. See item (1) below.
(c) Oil and Gas Drilling Activities. None.
(d) Oil and Gas Production. None.
(e) Oil and Gas Reserves. None
(f) Present value of Estimated future Net Reserves From Proved
Developed Oil and Gas Reserves. None.
(g) Reserves Reported to Other Agencies. None.
(h) Natural Gas Gathering/Processing Facilities. None.
(i) Present Activities and Subsequent Events:
Material Agreements
(1) West Gharib Concession
On April 27, 1998, DPI entered into a farm-out agreement to
acquire an undivided 20% participating interest in the right to explore for and
exploit petroleum in a concession located in West Gharib, Gulf of Suez, Egypt.
The terms of the Agreement are that DPI agreed to pay for a 20% interest:
a. $352,000 within seven days of the execution of the agreement (paid)
b. pay 20% of all costs and expenses incurred subsequent to the
execution of the agreement related to this concession
c. 40% of the costs and expenses associated with the drilling of
exploratory well to a maximum cost to the Company of $600,000; thereafter, DPI
shall pay 20% of all costs and expenses associated with any further activity
associated with the concession.
d. In addition, DPI provided a bank guarantee of $2,000,000 within
seven days of the execution of the agreement.
DPI's interest in this oil and gas concession is subject to 7%
net profit interest payable to a related company, Richco Investors, Inc., after
DPI has recovered all its exploration and development expenditures. This company
is related by virtue of common directors.
11
<PAGE>
(j) Criteria:
The Company will consider the following criteria when evaluating
whether to participate in an oil and gas prospect in any area of interest:
1) Geological and Seismic (when available) Data
2) Market demand for products;
3) Efficient transportation availability;
4) Location;
5) Weather;
6) Management;
7) Cost of participation;
8) Terms;
9) Risk vs. rewards;
10) Feasibility study;
11) Whether capital is available to fund participation.
ITEM 3. LEGAL PROCEEDINGS
None at date of Registration Statement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None in Fiscal Year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is now traded on the "Over-the-Counter"
market on the National Quotation Bureau or the NASD Electronic Bulletin Board.
The following table sets forth high and low bid prices of the Company's common
stock for the three (3) years ended December 31, 1998, 1997, and 1996 as
follows:
Bid
High Low
1998
First Quarter .53 .24
Second Quarter .62 .18
Third Quarter .50 .14
Fourth Quarter .29 .17
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<PAGE>
Bid
High Low
1997
First Quarter 2 1/8 1 1/8
Second Quarter 1 13/16 1
Third Quarter 1.09 .65
Fourth Quarter .84 .31
Bid
High Low
1996
First Quarter 1/4 1/8
Second Quarter 15/32 1/8
Third Quarter 5/16 9/32
Fourth Quarter 2 1/16 1/8
Such over the counter market quotations reflect interdealer prices,
without retail mark up, mark down or commission and may not necessarily
represent actual transactions.
(b) As of December 31, 1998, the Company had 84 shareholders of record
of the common stock.
(c) No dividends on outstanding common stock have been paid within the
last two fiscal years, and interim periods. The Company does not anticipate or
intend upon paying dividends for the foreseeable future.
13
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information presented herein, should be read in conjunction with
the Company's consolidated financial statements and related notes appearing
elsewhere herein.
Selected Financial Information
<TABLE>
<CAPTION>
(A DEVELOPMENT STAGE COMPANY)
Fiscal Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues 0 0 0 0 0
Cost of
Revenues 0 0 0 0 0
Gross Profit 0 0 0 0 0
General and
Administrative
Expenses 0 247,566 3,118 46,004 89,541
Income (loss)
from
operations 616,263 (685,080) 0 0 0
Other income
(expense) 157,538 135,266 0 (33,451) (64,769)
Amortization of
License Agreement 0 0 0 0 (409,236)
(write off -1994)
Income (loss)
before income
taxes (641,130) (549,814) (3,118) (79,455) (563,546)
Provisions for
income taxes 0 0 0 0 0
Net income
(loss) per Greater
common share than (.02) (.02) (.00) (.004) (.028)
Average shares
outstanding 32,476,250 30,167,056 26,554,183 21,575,697 20,477,500
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
FY FY FY
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current Assets 2771,380 3,489,288 0 0 1,344
Total 0 4,764,502 50,802 0 1,344
Assets
Current 47,455 137,341 53,327 37,407 562,012
Liabilities
Long-term debt,
net of current
portion 0 0 0 0 0
Deficit Accum-
ulated during
Development
Stage (2,352,887) (1,711,757) (1,161,943) (1,158,825) (1,079,370)
Stockholders'
equity (deficiency) 3,986,031 4,627,161 (2,525) (37,407) (560,668)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND CHANGES IN
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has no primary income source, other than interest on
deposits, at this time. Capital from private placements or borrowing against
assets may be required to fund future operations. The company completed a
private offering of Units at $1.00 per share for $5,179,500, in May 1997.
The Company had no operating revenues for the twelve month period
ending December 31, 1998, but had interest income of $157,538. The Company
recommenced limited business operations in late 1996, and incurred a significant
net loss from operations in 1997 $685,080 resulting from costs of participation
in its joint oil exploration venture in Peoples Republic of China which it has
now terminated. The Company may continue to show losses resulting from joint
venture participation for an indeterminate time. In 1997, the Company commenced
regular operations and incurred significantly greater expenses which continued
through 1998.
The Company incurred the following expenses in the past fiscal
year compared to the 1997 fiscal year.
15
<PAGE>
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
<S> <C> <C>
OPERATING EXPENSES
Accounting $9,539 $44,651
Consulting 32,185 38.288
Foreign exchange (gain) loss (778) 1,111
Interest and bank charges 406 619
Investor relations 45,280 9,834
Legal 59,795 12,104
Office and general 29,776 29,957
Printing 10,059 0
Promotion 1,409 0
Rent 7,376 8,020
Telephone 6,741 2,718
Transfer Agent 0 11,042
Travel 45,778 0
Write-off of advances - 24,061
TOTAL OPERATING COSTS $247,566 $182,405
============================= ==================================
</TABLE>
It is expected that expenses will continue at a significantly increased
rate due to costs of seeking and investigating oil opportunities and
implementing exploration pursuant to joint ventures. In the event oil
exploration joint ventures continue to be unsuccessful, continued significant
losses should be anticipated.
Cash Flows:
The Company has achieved no revenues from any operations
during the year, ending December 31, 1998.
At this time, the Company is dependent upon its cash reserves,
interest income, private placements, or loans for future operations and funding.
When its cash reserves are depleted, it will have to either borrow money, if
possible, or raise funds through subsequent public or private offerings to
16
<PAGE>
continue operations until when, or if, it ever develops sufficient revenue from
its assets to maintain operations. If operating losses continue at the same
rates in the future as in 1997 and 1998, the Company will deplete its cash
within the 2000 fiscal year. If revenues are not generated, the Company will be
forced to develop another line of business, or to finance its operations through
borrowed funds, the sale of assets it has, or enter into the sale of stock for
additional capital none of which may be feasible when needed. The Company has no
specific management ability, and no financial resources or plans to enter any
other business as of this date although the Company will be open to suggestion
and opportunity.
CHANGES IN FINANCIAL CONDITION
At year end 1998 the Company's assets were $4,033,486 compared to
$4,764,502 at end of 1997. The decrease was a result of write-offs for
expenditures for the exploration (dry hole) cost of the China joint ventures and
initial expenses for drilling participations in Egypt.
The liabilities, nearly all of which are current liabilities, decreased
significantly as a result of reduction of accounts payable related to expenses
for the oil exploration joint venture in China. At year end 1998, current
liabilities were $47,455 a decrease of 65% over the 1997 year end liabilities of
$137,341.
Stockholders' equity at year end 1998 was $3,986,031, a decrease over
the 1997 stockholder's equity of $4,627,161, resulting from losses on
operations.
From the aspect of whether the Company can continue toward its business
goal of exploring for oil, the Company may use all of its available capital
without generating revenues. Without revenues and without continued capital
infusions or loans or a combination thereof, it is doubtful that the Company can
carry out its business goals regarding any oil exploration operations or
participations for any extended period beyond 1999.
Results of Operations for Year Ended December 31, 1998 as Compared to Year Ended
December 31, 1997
The Company had no revenues from operations in 1998; however, it had
interest income of $157,538. The Company had no revenues in 1997 but had
interest income of $135,266.
In 1998, the Company incurred $182,40 in general and administrative
expenses, a decrease from $247,566 in 1997. The Company had dry hole expenses of
$40,403 in 1998 compared to $147,281 in 1997. The Company incurred $575,860 in
exploration expenses in 1998 as compared to $286,514 in exploration expenses in
1997. The Company incurred a loss on operations of ($798,668) in 1998 as
compared to the loss on operations of $ ($685,080) in 1997.
17
<PAGE>
The Company expects that its expenses for Joint Venture participation
in its Egyptian exploration will continue at a substantially increased rate for
1999. The Company anticipates minimal expenditures for its previous China
prospects which have been abandoned or are inactive.
The Company incurred a net loss in 1998 of ($641,130) and in 1997 had a
net loss of ($549,814). The net loss per share was ($.02) in 1998 and ($.02) in
1997.
<TABLE>
<CAPTION>
EXPLORATION EXPENSES
January 1,
1997 (date of
Inception of
Exploration
Stage) to
Nixgxia Shaanxi December
Concession Concession West Gharib 1998 Total 1997 Total 1996 Total 31, 1998
- -------------- ------------------- ------------------- ------------------- ------------------ ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
$312,126 $15,761 $247,973 $575,860 $286,514 $- $862,374
</TABLE>
Comparison of Results of Operation for the Fiscal Years Ended December 31, 1997
and 1996
The Company had no operating revenues in either 1996 or 1997.
The Company incurred operating expenses, all of which are general and
administrative in nature, totaling $3,118 in 1996 as compared to $247,566 in
1997 in general and administrative expenses and $433,795 in joint venture
expenses. As a result of having no operating income, the Company incurred
operating losses of $(3,118) in 1996 and $(685,080) in 1997. The Company
anticipates that the trend of net losses will continue in 1998 as it continues
to incur major expenses in attempting to start up its China oil joint ventures.
General and Administrative costs increased in 1997 to $247,566 from a
total of $3,118 in 1996. Expenses of a General and Administrative nature
increased substantially as a result of registering its common stock under the
Securities and Exchange Act of 1934, increased audit costs and expenses related
to private placements to fund the China oil exploration and related
administrative costs.
The per-share loss amounted to $(.02) in 1997 as compared to $.000 in
1996.
The Company incurred no interest expenses in 1997 and no interest
expense in 1996. The Company earned interest of $135,266 on deposits after its
Unit offering in 1997.
Comparison of Results of Operation for the Fiscal Years Ended December 31, 1996
and 1995
The Corporation had no operating revenues in either 1996 or 1995.
18
<PAGE>
The Company incurred operating expenses, all of which are general and
administrative in nature, totaling $3,118 in 1996 as compared to $79,455 in
1995. As a result of having no operating income, the Company incurred operating
losses of $(3,118) in 1996 and $(79,455) in 1995.
General and Administrative costs decreased in 1996 to $3,118 from a
total of $46,004 in 1995.
Travel expenses in 1996 were about the same as 1995. Office expenses,
including telephone, were $0 in 1996 and $0 in 1995. These expenses were
contributed by President Gerald Runolfson. 1996 expense for accounting totaled
$0, while in 1995 accounting and other professional expenses were $0. The
per-share loss amounted to $0.00 in 1996 as compared to $.004 in 1995.
LIQUIDITY
The Company expects that its need for liquidity will increase for the
coming year due to its drilling expense obligations on its Egyptian oil venture
participation
Short Term.
On a short term basis, the Company does not generate any revenue to
cover operations. Based on prior experience, the Company believes it will
continue to have insufficient revenue to satisfy current and recurring
liabilities as it seeks to locate business opportunities. For short term needs
the Company will be dependent on cash reserves.
The Company had current assets of $2,763,628 at December 31, 1998 and
had current liabilities of $47,455.
Long Term.
On a long-term basis, the Company has no fixed assets. It did have at
year end $2,763,628 in cash.
The Company has no business at this time from which it generates
income. Its operations have no net cash flow at this time. It is reliant upon
success in its oil exploration ventures, at this time, for possibility of future
income, none of which are assured.
CAPITAL RESOURCES
The primary capital resources of the Company are its stock and cash on
deposit only. Stock may be illiquid because it is restricted in an unproved
company with no income.
19
<PAGE>
As of the date of this report, the Company has material commitments for
capital expenditures within the next year, pursuant to the Egyptian joint
ventures, which amounts may exceed its available capital of $2,000,000.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is included as a separate Exhibit to this report.
Please see pages F-1 through F-11.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
a) None
b) In connection with audits of two most recent fiscal years
and any interim period preceding resignation, no disagreements exist with any
former accountant on any matter of accounting principles or procedure, which
disagreements if not resolved to the satisfaction of the former accountant would
have caused him to make reference in connection with his report to the subject
matter of the disagreement(s).
c) The principal accountant's report on the financial
statements for any of the past two years contained no adverse opinion or a
disclaimer of opinion nor was qualified as to uncertainty, audit scope, or
accounting principles except for the "going concern" qualification.
d) The decision to change accountants was approved by the
Board of Directors as the registrant has no audit committee.
20
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The following table furnishes the information concerning the
directors of the Company as of December 31, 1998. The directors of the Company
are elected every year and serve until their successors are elected and qualify.
<TABLE>
<CAPTION>
Name Age Title Term
- ---- --- ----- ----
<S> <C> <C> <C>
Gerald William Runolfson 57 President and Director Annual
Ernest Cheung 48 Secretary and Director Annual
Patrick Pak Ling Chan 44 Director and Chairman Annual
Joseph S. Tong 48 Director Annual
</TABLE>
The term of office for each director is one (1) year, or until his/her
successor is elected at the Company's annual meeting and qualified. The term of
office for each officer of the Company is at the pleasure of the board of
directors.
The board of directors has no nominating, auditing committee but has
set up a compensation committee. Therefore, the selection of person or election
to the board of directors was neither independently made nor negotiated at arm's
length.
The term of office for each director is one (1) year, or until his/her
successor is elected at the Company's annual meeting and qualified. The term of
office for each officer of the Company is at the pleasure of the board of
directors.
(c) Identification of Certain Significant Employees.
There are no employees other than the executive officers disclosed
above who make, or are expected to make, significant contributions to the
business of the Company, the disclosure of which would be material.
(d) Family Relationships. None.
(e) Business Experience.
The following is a brief account of the business experience during the
past five years of each director and executive officer of the Company, including
principal occupations and employment during that period and the name and
principal business of any corporation or other organization in which such
occupation and employment were carried on.
21
<PAGE>
MANAGEMENT EXPERIENCE
Gerald William Runolfson, President and Director, age 58, has been
President and Director of the Company since 1991. He received a Bachelor of
Science in Civil Engineering in 1963 from University of Saskatchewan Canada. He
studied Business Administration 1970 - 1971 at University of Alberta, Canada.
From 1988 to date, he has been President of International Butec Industries
Corp., Vancouver, B.C. From 1991 to 1994 he was President of N-Viro Recovery,
Inc. From 1994 to present he has been President of Elkon Products, Inc. of
Vancouver, B.C. He has been a Director of Horseshoe Gold Mines since 1991.
Ernest Cheung, Secretary and Director, age 49, received an MBA in Finance
and Marketing from Queen's University, in Kingston, Ontario in 1975, and
obtained a Bachelors Degree in Math in 1973 from University of Waterloo,
Ontario. From 1984 to 1991 he was vice President and Director, Capital Group
Securities, Ltd. in Toronto, Canada. From 1991 to 1993 he was Vice President of
Midland Walwyn Capital, Inc. of Toronto, Canada. From 1993 to 1994 he was Vice
Chairman, Tele Pacific International Communications Corp. of Vancouver, B.C.
From 1994 - 1996 he was Vice President of Finance of BIT Integration Technology,
Inc. of Toronto, Canada. From May 1995 to present he has served as President of
Richco Investors, Inc. of Vancouver, BC and from 1998 to present he has served
as President of Sino-City Gas, Inc. (a Delaware corporation).
From 1992-1995, he served as a Director of Tele Pacific International
Communications Corp. (VSE). He has also served as a Director of Richco
Investors, Inc. (CDN) since 1995. From 1995-1996, he was a Director of BIT
Integration Technology, Inc. (ASE). Since 1997, he has served and is still
serving as Director of the following companies: Agro International Holdings,
Inc. (VSE); Spur Ventures, Inc. (VSE); Drucker Industries, Inc. (NASD Bulletin
Board); Xin Net Corp. (NASD Bulletin Board); Sino-City Gas, Inc. (NASD Bulletin
Board); Global-Pacific Minerals, Inc. (TSE); and Pacific E-Link Corp. (VSE).
He has held a Canadian Securities license but is currently inactive. He
has been a Director of Registrant since January 1997.
Patrick Pak Ling Chan, age 45, has been a Director of Registrant since
January 1997 and is now Chairman. He graduated from McGill University in
Montreal, Quebec with a Bachelor of Commerce in Accounting in 1977. He is a
Chartered Accountant in British Columbia (since 1980). From 1992 to 1993 he was
executive assistance to the Chairman, Solid Pacific Enterprises, a company
engaged in manufacturing and distribution of confectionery products in Hong Kong
and China. From 1985 to 1992 he was employed at Coopers & Lybrand, Toronto,
Canada, and focused on mergers and acquisitions. From 1993 to 1995 he was a
registered Securities Representative with Bache Securities.
Joseph S. Tong, age 49, has been a director of Registrant since January
1997. Mr. Tong matriculated from La Salle College, Kowloon, Hong Kong in 1968.
From 1986 to 1990 he was a Branch Manager for Canadian Imperial Bank of
Commerce. From 1990 to 1994 he
22
<PAGE>
was Regional Manager, Asian Banking, Canadian Imperial Bank of Commerce. From
1994 to 1995 he was President of China Growth Enterprises Corporation. From 1995
to present he has been a Director, Corporate Finance, of Corporate Capital Group
in Ontario, Canada. He is currently a director of Agro International Holdings,
Inc. of Vancouver, B.C. since January 1997 and Global Pacific Minerals, Inc. of
Vancouver, B.C. since January 1997.
Directors Compensation
Each member of the Board of Directors of the Company receives $1,000.00
plus reasonable outside travel expenses for each Board meeting he attends and
for each Committee meeting he attends during the fiscal year. Directors who are
also officers of the Company receive no compensation for services as a director.
ITEM 10. EXECUTIVE COMPENSATION
(a) Cash Compensation.
Compensation paid by the Company for all services provided during the
fiscal year ended December 31, 1998, (1) to each of the Company's five most
highly compensated executive officers whose cash compensation exceeded $60,000
and (2) to all officers as a group is set forth below under directors.
23
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Annual Compensation Awards
Name and Year Salary ($) Bonus Other Annual Restricted Securities
Principal ($) Compensation ($) Stock Underlying
Position Award(s)($) Options/SARs(#)
<S> <C> <C> <C> <C> <C> <C>
Gerald 1998 0 0 0 0 0
Runolfson,
President and
Director
1997 0 0 0 0 0
1996 0 0 0 0 0
Ernest Cheung, 1998 0 0 0 0 0
Secretary and
Director
1997 0 0 0 0 0
1996 0 0 0 0 0
Patrick Chan, 1998 0 0 0 0 0
Director
1997 0 0 0 0 0
1996 0 0 0 0 0
Joseph Tong, 1998 0 0 0 0 0
Director
1997 0 0 0 0 0
1996 0 0 0 0 0
============ =============== ============ ======================== =================== ===============
</TABLE>
(b) Compensation Pursuant to Plans. None.
(c) Other Compensation. None. No stock appreciation rights or warrants
exist to management
(d) Compensation of Directors.
Compensation paid by the Company for all services provided during the
fiscal year ended December 31, 1998 (1) to each of the Company's directors whose
cash compensation exceeded $60,000 and (2) to all directors as a group is set
forth below:
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
(Except for compensation of Officers who are also Directors which Compensation
is listed in Summary Compensation Table of Executives)
24
<PAGE>
<TABLE>
<CAPTION>
Cash Compensation Security Grants
Name Annual Meeting Consulting Number Number of Securities
Retainer Fees ($) Fees/Other of Underlying
Fees ($) Fees ($) Shares(#) Options/SARs(#)
<S> <C> <C> <C> <C> <C>
A. Director 0 0 0 0 0
Gerald Runolfson
B. Director 0 0 0 0 0
Ernest Cheung
C. Director 0 0 0 0 0
Patrick Chan
D. Director 0 0 0 0 0
Joseph Tong
================================ ================= ================ ====================== ============== ======================
</TABLE>
(e) Termination of Employment and Change of Control Arrangements.
None
(f) KEY EMPLOYEES INCENTIVE STOCK OPTION PLAN: NONE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership of equity securities of the
Company with the Securities and Exchange Commission and NASDAQ. Officers,
directors and greater-than 10% shareholders are required by the Securities and
Exchange Commission regulation to furnish the Company with copies of all Section
16(a) that they file. No officers, directors or 10% shareholders have filed any
Reports pursuant to Section 16(a) at year end.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of five percent (5) or greater, of the
Registrant's Common Stock and Warrants: No Preferred Stock is outstanding at the
date of this offering. The following sets forth information with respect to
ownership by holders of more than five percent (5%) of the Company's Common
Stock known by the Company based upon 32,476,250 shares outstanding at December
31, 1998.
25
<PAGE>
<TABLE>
<CAPTION>
Title Name and Amount and Percent
of Address of Nature of of
Class Beneficial Owner Beneficial Interest Class
- ----- ---------------- ------------------- -------
<S> <C> <C> <C>
Common Stock Richco Investors, Inc. 9,225,000(1)(2) 28.4%
789 West Pender St. #830
Vancouver, B.C. Canada V6C 1H2
</TABLE>
b) The following sets forth information with respect to the Company's
Common Stock beneficially owned by each Officer and Director, and by all
Directors and Officers as a group.
<TABLE>
<CAPTION>
Title Name of Amount and Percent
of Beneficial Nature of of
Class Owner Beneficial Ownership Class
- ----- ---------- -------------------- -------
<S> <C> <C> <C>
Common Gerald Runolfson 512,501 (a)(b) 1.5%
President and Director
4151 Rose Crescent
West Vancouver, B.C. Canada
(a) Porta-Pave Industries, Inc. (company owned
by Runolfson family) 380,002
(b) Gerald Runolfson, individually 132,499
512,501
Title Name of Amount and Percent
of Beneficial Nature of of
Class Owner Beneficial Class
Ownership
- ----- ---------- ---------- -------
Common Ernest Cheung 9,225,000(1)(2) 28.4%
Secretary and Director
904 - 183 Keefer Place
Vancouver, B.C. Canada
V6B 6B9
Common Patrick Chan 0 0%
Director and Chairman
#7 Conduit Road, Flat 6E
Hong Kong
Common Joseph Tong, Director 0 0%
33 Allview Crescent
North York, Ont., Canada
M2J 2R4
26
<PAGE>
Officers and Directors as a Group 9,737,501 29.98%
</TABLE>
(1) 9,225,000 shares are owned by Richco Investors, Inc. of which Ernest
Cheung is a director, officer and shareholder.
(2) Richco Investors, Inc. is beneficially owned by Raoul Tsakok
through ownership of 50%+ shares of common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
Richco Investors, Inc. is the parent of Richi Petroleum Corp. and is deemed
beneficially owned by Ernest Cheung, Secretary and a Director. Raoul Tsakok of
Vancouver, B.C. owns more than 50% of the outstanding equity of Richco
Investors, Inc. Richi Petroleum Corp. and Milco Petroleum, Inc. are wholly owned
subsidiaries of Richco Investors, Inc. Richco Investors, Inc. owns 9,225,000
shares of common stock of the company (28.4% of the outstanding stock of
Registrant) in 1997. The Registrant had entered into joint ventures in China
with Richi and Milco in which Registrant would pay 100% of the cost of drilling
for a 50% interest in the wells. Such ventures were unsuccessful and have been
terminated. Registrant paid $40,403 in dry hole costs in 1998 for the
participation and has invested a total of $895,306 for its participation in
China exploration venture.
The Company's interest in the West Gharib Egyptian oil and gas
concession is subject to a 7% net profit interest payable to a related company,
Richco Investors, Inc., owned by Ernest Cheung, director and secretary, after
DPI has recovered all of its exploration and development expenditures. This
company is related by virtue of common directors.
Oil and gas project costs - advances to (due from) project are advanced
to companies with a common director. These advances are unsecured, non-interest
bearing and have no specific terms for repayment.
Accounts payable and accrued expenses include $4,446 ( 1997: $55,338)
payable to a company with a common director.
During the year ended December 31, 1998, the Company wrote-off advances
to a related company in the amount of $24,061. This company is related by virtue
of a common director.
The Company was charged the following expenses by a related company:
27
<PAGE>
<TABLE>
<CAPTION>
January 1, 1997
(Date of Incep-
tion of Explora-
tion Stage) to
December 31,
1998 1997 1996 1998
----------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Consulting $- $- $- $36,000
Office & general 13,785 - - 13,795
Rent 8,020 - - 8,020
----------------------- --------------------- ---------------------- ----------------------
$21,805 - - $57,815
======================= ===================== ====================== ======================
</TABLE>
This company was related by virtue of common directors.
The Company also issued 362,565 shares of common stock as a finder's
fee to a non-affiliate.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) Financial Statements and Schedules. The following
financial statements and schedules for Drucker Industries, Inc., as of December
31, 1998 and 1997 are filed as part of this report.
Page
(1) Financial statements of Drucker Industries, Inc:
Reports of Independent Accountants, Amisano & Hanson for years
ended December 31, 1998 and December 31, 1997 F-1 Balance Sheets
F-2 Statements of Operations F-3 Statements of Shareholders'
Equity F-4 - F-6 Statements of Cash Flow F-7 Schedule of General
and Administrative expenses Schedule #1 Schedule of Dry Hole
expenses Schedule #2 Schedule of Exploration expenses Schedule #3
Notes to Financial Statements F-8 - F-11
(2) Financial Statement Schedules:
(a) None
(b) Reports on Form 8-K: None
(c) Exhibits
28
<PAGE>
Item No.
(under 601)
4.1 Articles of Incorporation and By-Laws:Incorporated by
Reference as filed with Form 10 with the Securities and
Exchange Commission
10.1 West Gharib Egypt Joint Operating Agreement
West Gharib Block Operating/Technical Committee meeting March
1999 Resolution
10.2 West Gharib Block Operating/Technical Committee meting March
1999 Resolution
10.3 Farmout Agreement
10.4 Concession Agreement - West Gharib - To be filed by amendment.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATE September 21, 1999 DRUCKER INDUSTRIES, INC.
/s/ Gerald Runolfson
By: --------------------------------
Gerald Runolfson, President
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Gerald Runolfson
- --------------------- President September 21, 1999
Gerald Runolfson and Director
/s/ Ernest Cheung
- ---------------------- Secretary September 21, 1999
Ernest Cheung and Director
/s/ Patrick Pak Ling Chan
- ---------------------- Director September 21, 1999
Patrick Pak Ling Chan
/s/ Joseph S. Tong
- ---------------------- Director September 21, 1999
Joseph S. Tong
30
EXHIBIT 10.1
WEST GHARIB EGYPT JOINT OPERATING AGREEMENT
<PAGE>
INTERNATIONAL JOINT OPERATING AGREEMENT
WEST GHARIB AREA
THIS AGREEMENT is made as of the Effective Date,
AMONG:
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED, a body corporate
organized under the laws of the Republic of Ireland (hereinafter
referred to as "Dublin");
-and-
GHP EXPLORATION (WEST GHARIB) LTD., a body corporate organized under
the laws of Bermuda (hereinafter referred to as "GHP");
-and-
DRUCKER PETROLEUM INC., a body corporate organized under the laws of
the British Virgin Islands (hereinafter referred to as "Drucker").
WITNESSETH:
WHEREAS, Dublin and Tanganyika Oil Company Ltd. ("Tanganyika") entered into the
Concession Agreement for Petroleum Exploration and Exploitation (the
"Concession") with the Government of the Arab Republic of Egypt and the Egyptian
General Petroleum Corporation ("EGPC") for the West Gharib Area, Arab Republic
of Egypt, a copy of which is attached hereto as Exhibit "B"; and
WHEREAS Tanganyika has transferred its entire right, title and interest in the
Concession to Dublin; and
WHEREAS Dublin and Drucker are parties to a Farmout Agreement dated April 27,
1998, pursuant to which and subject to the terms thereof, Dublin agreed to
assign a Participating Interest to Drucker; and
WHEREAS Dublin and GHP are parties, or successors to the parties, to a Farmout
Agreement dated April 27, 1998, pursuant to which and subject to the terms
thereof, Dublin agreed to assign a Participating Interest to GHP; and
WHEREAS, the Parties desire to define their respective rights and obligations
with respect to their operations under the Concession.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements and obligations set out below and to be performed, the Parties agree
as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following words and terms shall have the meaning
ascribed to them below:
<PAGE>
1.1 "Accounting Procedure" means the rules, provisions and conditions set
forth and contained in Exhibit "A" to this Agreement.
1.2 "AFE" means an authorization for expenditure pursuant to Article 6.6.
1.3 "Affiliate" means a company, partnership or other legal entity which
controls, or is controlled by, or which is controlled by an entity
which controls a Party. Control means the ownership or the right to
cast or cause to be cast, directly or indirectly, of fifty (50%)
percent or more of the shares or voting rights in a company,
partnership or legal entity.
1.4 "Agreed Interest Rate" means interest compounded on a monthly basis, at
the rate per annum equal to the one (1) month term, LIBOR rate for U.S.
dollar deposits, as published by The Wall Street Journal or if not so
published, then by the Financial Times of London, plus five percent
(5%), applicable on the first Business Day prior to the due date of
payment and thereafter on the first Business Day of each succeeding one
(1) month term. If the aforesaid rate is contrary to any applicable
usury law, the rate of interest to be charged shall be the maximum rate
permitted by such applicable law.
1.5 "Agreement" means this agreement, together with Exhibits "A" and "B"
attached to this agreement and forming a part hereof.
1.6 "Appraisal Well" means any well whose purpose at the time of
commencement of drilling such well is the determination of the extent
or the volume of Hydrocarbon reserves contained in an existing
Discovery.
1.7 "Board of Directors" means the Board of Directors of the Operating
------------------
Company and "Director" means a member of the Board of Directors.
1.8 "Business Day" means a day on which the banks in Cairo, Egypt are
------------
customarily open for business.
1.9 "Calendar Quarter" means a period of three (3) months commencing with
January 1 and ending on the following March 31, a period of three (3)
months commencing with April 1 and ending on the following June 30, a
period of three (3) months commencing with July 1 and ending on the
following September 30, or a period of three (3) months commencing with
October 1 and ending on the following December 31 according to the
Gregorian Calendar.
1.10 "Calendar Year" means a period of twelve (12) months commencing
--------------
with January 1 and ending on the following December 31 according to the
Gregorian Calendar.
1.11 "Cash Premium" means the payment made pursuant to Article 7.5(B) by a
------------
Non-Consenting Party to reinstate its rights to participate in an
Exclusive Operation.
1.12 "Commercial Discovery" shall have the meaning set out in Article III(c)
(i) of the Concession.
1.13 "Completion" means an operation intended to complete a well through the
Christmas tree as a producer of Hydrocarbons in one or more Zones,
including, but not limited to, the setting of production casing,
perforating, stimulating the well and production Testing conducted in
such operation. "Complete" and other derivatives shall be construed
accordingly.
1.14 "Concession" means collectively the Concession Agreement authorized and
put in full force by Law 15 of 1998 of the Arab Republic of Egypt and
which agreement is attached as Exhibit "B" hereto, and any Development
Leases or other mineral rights which may be derived from the Concession
Agreement including any extension, renewal or amendment of any of the
foregoing.
<PAGE>
1.15 "Concession Area" has the meaning ascribed to the term 'Area' in the
Concession as the same may be adjusted from time to time in accordance
with the terms thereof.
1.16 "Consenting Party" means a Party who agrees to participate in and pay
-----------------
its share of the cost of an Exclusive Operation.
1.17 "Cost Oil" means that portion of the total production of Hydrocarbons
which is allocated to the Parties under the Concession for the recovery
of Petroleum Costs and referred to and defined as "Cost Recovery
Petroleum" in Article VII(a)1 of the Concession.
1.18 "Crude Oil" has the meaning given to such term in the Concession.
1.19 "Day" means a calendar day unless otherwise specifically provided.
1.20 "Deepening" means an operation whereby a well is drilled to an
objective Zone below the deepest Zone in which the well was previously
drilled, or below the deepest Zone proposed in the associated AFE,
whichever is the deeper. "Deepen" and other derivatives shall be
construed accordingly.
1.21 "Defaulting Party" shall have the meaning ascribed in Article 8.1.
1.22 "Development Block" has the meaning given to such term in the
Concession.
1.23 "Development Lease" has the meaning given to such term in the
Concession.
1.24 "Development Period" has the meaning given to such term in Article
III(d)(iii) of the Concession.
1.25 "Development Plan" means the plan for the development of Hydrocarbons
from a Development Lease which shall include, inter alia:
A) Details of the proposed work to be undertaken, personnel required and
expenditures to be incurred, including the timing of same;
B) An estimated date for the commencement of production;
C) A delineation of the proposed Development Lease; and
D) Any other information requested by the Operating Committee.
1.26 "Development Well" means any well drilled for the production of
Hydrocarbons in the Development Period.
1.27 "Discovery" means the discovery of an accumulation of Hydrocarbons
whose existence until that moment was unproven by drilling, and for
greater certainty, shall include a Commercial Oil Well and a Commercial
Gas Well (as those terms are defined in the Concession).
1.28 "Drucker Farmout Agreement" means the Farmout Agreement between Dublin
--------------------------
and Drucker dated April 27, 1998 and any amendments and revisions
thereto.
1.29 "Effective Date" means the date this Agreement comes into effect as
stated in Article II.
1.30 "EGPC" means the Egyptian General Petroleum Corporation.
1.31 "Entitlement" means a quantity of produced Hydrocarbons of which a
Party has the right and obligation to take delivery pursuant to the
Concession or, if applicable, an offtake agreement, which, subject to
<PAGE>
the terms of the GHP Farmout Agreement and the Drucker Farmout
Agreement, shall be derived in proportion to that Party's Participating
Interest in the Hydrocarbons produced after adjustment for overlifts
and underlifts.
1.32 "Excess Cost Oil" has the meaning given to "Excess Cost Recovery
---------------
Petroleum" in Article VII(a)2 of the Concession.
1.33 "Exclusive Operations" means those operations and activities carried
out by Operator, pursuant to this Agreement, the costs of which are
chargeable to the account of less than all the Parties.
1.34 "Exclusive Well" means a well drilled pursuant to an Exclusive
Operation.
1.35 "Exploration Advisory Committee" means the committee of that name
provided for in the Concession.
1.36 "Exploration Period" means any and all periods of exploration set out
in the Concession.
1.37 "Exploration Sub-Period" means one of the periods for exploration set
out in the Concession.
1.38 "Exploration Well" means any well drilled during the course of
-----------------
exploration work other than an Appraisal Well or Development Well.
1.39 "Farmout Agreements" means the Drucker Farmout Agreement and the GHP
Farmout Agreement.
1.40 "Financial Year" has the meaning given to such term in the Concession.
1.41 "G & G Data" means geological, geophysical and geochemical data and
other information that is not obtained through a wellbore.
1.42 "GHP Farmout Agreement" means the Farmout Agreement between Dublin and
----------------------
GHP dated April 27, 1998 and any amendments and revisions thereto.
1.43 "Government" means the Government of the Arab Republic of Egypt or any
agency thereof.
1.44 "Gross Negligence" means any act or failure to act (whether sole, joint
or concurrent) by a Party which was intended to cause, or which was in
reckless disregard of or wanton indifference to, harmful consequences
such Party knew, or should have known, such act or failure would have
had on the safety or property of another person or entity, or which was
in reckless disregard of or wanton indifference to the rights of
another party or the Government, but shall not include any error of
judgement or mistake made by such Party in the exercise in good faith
of any function, authority or discretion conferred on the Party
employing such under this Agreement.
1.45 "Hydrocarbons" means all substances including liquid and gaseous
hydrocarbons which are subject to and covered by the Concession.
1.46 "Joint Account" means the accounts and records established and
maintained by Operator for Joint Operations in accordance with the
provisions of this Agreement and of the Accounting Procedure.
1.47 "Joint Operations" means those operations and activities carried out by
Operator pursuant to this Agreement, the costs of which are chargeable
to all Parties.
1.48 "Joint Property" means, at any point in time and subject to the
Concession, all wells, facilities, equipment, materials, information,
funds and the property held for the Joint Account.
<PAGE>
1.49 "Mandatory Appraisal Well" means an Appraisal Well which, unless
otherwise agreed to by EGPC, is required pursuant to the terms of the
Concession to be drilled before notice of a Commercial Discovery may be
given, excepting any such well which would qualify as an obligatory
well under the Minimum Work Obligations for the then current
Exploration Sub-Period..
1.50 "Minimum Work Obligations" means the work and/or expenditure
obligations during the Exploration Period, as specified in the
Concession, which must be performed or expended in order to satisfy the
obligations contained in the Concession.
1.51 "Non-Consenting Party" means a Party who elects not to participate in
an Exclusive Operation.
1.52 "Non-Operator(s)" means the Party or Parties to this Agreement other
than Operator.
1.53 "Operating Committee" means the committee constituted in accordance
with Article V.
1.54 "Operating Company" means the company to be created to conduct
------------------
operations under the Concession after a Commercial Discovery.
1.55 "Operator" means a Party to this Agreement designated as such in
accordance with this Agreement.
1.56 "Participating Interest" means the undivided percentage interest of
each Party in the rights and obligations derived from the Concession
and this Agreement.
1.57 "Party" means any of the entities named in the first paragraph to this
Agreement and any respective successors or assigns in accordance with
the provisions of this Agreement.
1.58 "Petroleum Costs" means costs and expenses incurred by the Parties
----------------
and allowed by EGPC to be recovered pursuant to the Concession.
1.59 "Plugging Back" means a single operation whereby a deeper Zone is
abandoned in order to attempt a Completion in a shallower Zone. "Plug
Back" and other derivatives shall be construed accordingly.
1.60 "Production Sharing Oil" means that portion of the total production of
Hydrocarbons, in excess of Cost Oil, which is allocated to the Parties
under the terms of Article VII(b) of the Concession and includes the
Parties share of Excess Cost Oil contemplated in Article VII(a)2 of the
Concession.
1.61 "Recompletion" means an operation whereby a Completion in one Zone is
abandoned in order to attempt a Completion in a different Zone within
the existing wellbore. "Recomplete" and other derivatives shall be
construed accordingly.
1.62 "Reworking" means an operation conducted in the wellbore of a well
after it is Completed to secure, restore, or improve production in a
Zone which is currently open to production in the wellbore. Such
operations include, but are not limited to, well stimulation
operations, but exclude any routine repair or maintenance work, or
drilling, Sidetracking, Deepening, Completing, Recompleting, or
Plugging Back of a well. "Rework" and other derivatives shall be
construed accordingly.
1.63 "Senior Supervisory Personnel" means with respect to a Party, any
individual who functions as such Party's senior resident manager, who
directs all operations and activities of such Party in the country or
region in which he is resident, and any individual who functions for
such Party or one of its Affiliates at a management level equivalent to
or superior to the senior resident manager, or any officer or director
of such Party or one of its Affiliates, but excluding all managers or
<PAGE>
supervisors who are responsible for or in charge of installations or
facilities, onsite drilling, construction or production and related
operations, or any other field operations.
1.64 "Sidetracking" means the directional control and intentional deviation
of a well from vertical so as to change the bottom hole location unless
done to straighten the hole or to drill around junk in the hole or to
overcome other mechanical difficulties. "Side-track" and other
derivatives shall be construed accordingly.
1.65 "Testing" means an operation intended to evaluate the capacity of a
Zone to produce Hydrocarbons. "Test" and other derivatives shall be
construed accordingly.
1.66 "Work Program and Budget" means a work program for Joint Operations and
budget therefor as described and approved in accordance with Article
VI.
1.67 "Zone" means a stratum of earth containing or thought to contain a
common accumulation of Hydrocarbons separately producible from any
other common accumulation of Hydrocarbons.
ARTICLE II
EFFECTIVE DATE AND TERM
2.1 Effective Date and Term
This Agreement shall have effect from the 27th Day of April, 1998 and
shall, subject always to the Parties' continuing obligations under
Article XV, continue in effect until the Concession terminates and
thereafter until all materials, equipment and personal property used in
connection with the Joint Operations have been removed and disposed of,
and final settlement has been made among the Parties.
For the avoidance of doubt, the portions of this Agreement described in
(A), (B) and (C) below shall remain in effect until:
A) all wells have been properly abandoned in accordance with Article X;
and
B) all obligations, claims, arbitrations and lawsuits have been settled
or otherwise disposed of in accordance with Article 4.5 and Article
XVIII; and
C) the time relating to the protection of confidential information and
proprietary technology has expired in accordance with Article XV.
ARTICLE III
PARTICIPATING INTERESTS
3.1 Scope
A) The purpose of this Agreement is to establish the respective
rights and obligations of the Parties with regard to
operations under the Concession, including without limitation,
the joint exploration, appraisal, development and production
of Hydrocarbon reserves from the Concession Area.
B) Without limiting the generality of Article 3.1(A), the
following activities are outside of the scope of this
Agreement and are not addressed herein:
<PAGE>
1) Construction, operations, maintenance, repair and removal of facilities
downstream from the point of delivery of the Parties' share of Hydrocarbons
under the offtake agreement provided for in Article 9.2;
2) Transportation of Hydrocarbons beyond the point of delivery of the Parties'
shares of Hydrocarbons under the offtake agreement provided for in Article 9.2;
3) Marketing and sales of Hydrocarbons, except as expressly provided in Articles
8.7 and in Article IX;
4) Acquisition of rights to explore for, appraise, develop or produce
Hydrocarbons outside of the Concession Area (other than as a consequence of
unitization with an adjoining area under the terms of the Concession); and
5) Exploration, appraisal, development or production of minerals other than
Hydrocarbons, whether inside or outside of the Concession Area.
3.2 Participating Interests
A) The Participating Interests of the Parties shall be as follows :
Dublin - 50%
GHP - 30%
Drucker - 20%
B) If a Party transfers all or part of its Participating Interest pursuant
to the provisions of this Agreement and the Concession, the
Participating Interests of the Parties shall be revised accordingly.
3.3 Ownership, Obligations and Liabilities
A) Unless otherwise provided in this Agreement or either of the
Farmout Agreements, all the rights and interests in and under
the Concession, all Joint Property and any Hydrocarbons
produced from the Concession Area shall, subject to the terms
of the Concession and any laws and regulations which may be
applicable, be owned by the Parties in accordance with their
respective Participating Interests.
B) Unless otherwise provided in this Agreement or either of the
Farmout Agreements, the obligations of the Parties under the
Concession and all liabilities and expenses incurred by
Operator in connection with Joint Operations shall be charged
to the Joint Account and all credits to the Joint Account
shall be shared by the Parties, as among themselves, in
accordance with their respective Participating Interests.
C) Subject to the terms of this Agreement and the Farmout
Agreements, each Party shall pay when due, in accordance with
the Accounting Procedure, its Participating Interest share of
Joint Account expenses, including cash advances and interest,
accrued pursuant to this Agreement and the Accounting
Procedure shall govern the accrual and satisfaction of the
respective obligations, liabilities and credits among the
Parties.
<PAGE>
ARTICLE IV
OPERATOR
4.1 Designation of Operator
Dublin is designated as Operator and agrees to act in accordance with
the terms and conditions of the Concession and this Agreement, which
terms and conditions shall also apply to any successor Operator.
4.2 Rights and Duties of Operator
A) Subject to the terms and conditions of this Agreement,
Operator shall have exclusive charge of and shall conduct all
Joint Operations. Operator may employ independent contractors
and/or agents (which may include Affiliates of Operator) in
such Joint Operations.
B) In the conduct of Joint Operations, Operator shall exercise
its best efforts to:
1) Perform Joint Operations in accordance with the
provisions of the Concession, this Agreement and the
instructions of the Operating Committee not in
conflict with this Agreement and in material
compliance with applicable laws, rules, regulations
and decrees of the Arab Republic of Egypt;
2) Conduct all Joint Operations in a diligent, safe and
efficient manner in accordance with good and prudent
oil field practices and conservation principles
generally followed by the international petroleum
industry under similar circumstances;
3) Subject to Article 4.6 and the Accounting Procedure,
neither gain a profit nor suffer a loss as a result
of being the Operator in its conduct of Joint
Operations, provided that Operator may rely on
Operating Committee approval of specific accounting
practices not in conflict with the Accounting
Procedure;
4) Perform the duties for the Operating Committee set
out in Article V and prepare and submit to the
Operating Committee the proposed Work Programs and
Budgets and AFEs as provided in Article VI;
5) Acquire all licenses, permits, consents, approvals,
surface or other rights that may be required for or
in connection with the conduct of Joint Operations;
6) Upon receipt of reasonable advance notice, permit the
representatives of any of the Parties to have at all
reasonable times and at their own risk and expense
reasonable access to the Joint Operations with the
right to observe all such Joint Operations and to
inspect all Joint Property and to conduct financial
audits as provided in the Accounting Procedure;
7) Maintain the Concession in full force and effect.
Operator shall promptly pay and discharge all
liabilities and expenses incurred in connection with
Joint Operations and use its reasonable efforts to
keep and maintain the Joint Property free from all
liens, charges and encumbrances arising out of Joint
Operations;
8) Pay to the Government for the Joint Account, within
the periods and in the manner prescribed by the
Concession and all applicable laws and regulations,
all periodic payments, royalties, taxes, fees and
other payments pertaining to Joint Operations, but
excluding any taxes measured by the incomes of the
Parties;
<PAGE>
9) Carry out the obligations of Contractor, as such term
is defined in the Concession, including, but not
limited to, preparing and furnishing such reports,
records and information as may be required pursuant
to the Concession;
10) Have, in accordance with the decisions of the
Operating Committee, Article 5.14, and Article
6.3(C), the exclusive right and obligation to
represent the Parties in all dealings with the
Government with respect to matters arising under the
Concession and Joint Operations. Operator shall
notify the other Parties as soon as possible of such
meetings. Non-Operators shall have the right to
attend such meetings but only in the capacity of
observers. Nothing contained in this Agreement
shall restrict any Party from holding discussions
with the Government with respect to any issue
peculiar to its particular business interests arising
under this Agreement, but in such event such Party
shall promptly advise the Parties, if possible,
before and in any event promptly after such
discussions, provided that such Party shall not be
required to divulge to the Parties any matters
discussed to the extent the same involve proprietary
information on matters not affecting the Parties; and
11) Take all necessary and proper measures for the
protection of life, health, the environment and
property in the case of an emergency; provided,
however, that Operator shall immediately notify the
Parties of the details of such emergency and
measures.
4.3 Employees of Operator
Subject to the Concession and this Agreement, Operator shall determine
the number of employees, the selection of such employees, the hours of
work and the compensation to be paid all such employees in connection
with Joint Operations and Exclusive Operations conducted by Operator
under this Agreement. Operator shall employ only such employees, agents
and contractors as are reasonably necessary to conduct Joint
Operations.
4.4 Information Supplied by Operator
A) Operator shall provide each Non-Operator with one (1) paper
copy of the following data and reports as they are currently
produced or compiled from the Joint Operations:
1) Copies of all logs or surveys;
2) Daily drilling progress reports;
3) Copies of all tests and core analysis reports;
4) Copies of the plugging reports;
5) Copies of the final geological and geophysical maps
and reports in seismic digital format;
6) Engineering studies, development schedules and annual
progress reports on development projects;
7) Field and well performance reports, including
reservoir studies and reserve estimates;
8) Copies of all reports relating to Joint Operations
furnished by Operator to the Government, except
<PAGE>
magnetic tapes which shall be stored by Operator and
made available for inspection and/or copying at the
sole expense of the Non-Operator requesting same;
9) Other reports as frequently as is justified by the
activities or as instructed by the Operating
Committee; and
10) Subject to Article 15.3, such additional information
for Non-Operators as they or any of them may request,
provided that the requesting Party or Parties pay the
costs of preparation of such information and that the
preparation of such information will not unduly
burden Operator's administrative and technical
personnel. Only Non-Operators who pay such costs
shall receive such additional information.
B) Operator shall give Non-Operators access at all reasonable
times to all other data acquired in the conduct of Joint
Operations. Any Non-Operator may make copies of such other
data at its sole expense.
4.5 Settlement of Claims and Lawsuits
A) Operator shall promptly notify the Parties of any and all
material claims or suits and such other claims and suits as
the Operating Committee may direct which arise out of Joint
Operations or relate in any way to Joint Operations. Operator
shall represent the Parties and defend or oppose or settle the
claim or suit. Operator may in its sole discretion compromise
or settle any such claim or suit or any related series of
claims or suits for an amount not to exceed the equivalent of
one hundred thousand (U.S.$100,000) Dollars (U.S.) inclusive
of legal fees. Operator shall obtain the approval and
direction of the Operating Committee on amounts in excess of
the above stated amount. Each Non-Operator shall have the
right to be represented by its own counsel at its own expense
in the settlement, compromise or defense of such claims or
suits.
B) Any Non-Operator shall promptly notify the other Parties of
any claim made against such Non-Operator by a third party
which arises out of or which may affect the Joint Operations
and such Non-Operator shall defend or settle the same in
accordance with any directions given by the Operating
Committee. Those costs, expenses and damages incurred pursuant
to such defense or settlement which are attributable to Joint
Operations shall be for the Joint Account.
C) Notwithstanding Article 4.5(A) and Article 4.5(B), each Party
shall have the right to participate in any such suit,
prosecution, defense or settlement conducted in accordance
with Article 4.5(A) and Article 4.5(B) at its sole cost and
expense; provided always that no Party may settle its
Participating Interest share of any claim without first
satisfying the Operating Committee that it can do so without
prejudicing the interests of the Joint Operations.
4.6 Liability of Operator
A) Except as set out in this Article 4.6, neither the Party
designated as Operator nor any other Indemnitee (as defined
below) shall bear (except as a party to the extent of its
Participating Interest share) any damage, loss, cost, expense
or liability resulting from performing (or failing to perform)
the duties and functions of the Operator and the Indemnitees
are hereby released from liability to Non-Operators for any
and all damages, losses, costs, expenses and liabilities
arising out of, incident to or resulting from such performance
or failure to perform, even though caused in whole or in part
<PAGE>
by a pre-existing defect, the negligence (sole, joint or
concurrent), Gross Negligence, strict liability or other legal
fault of Operator (or any such Indemnitee).
B) Except as set out in this Article 4.6, the Parties shall in
proportion to their Participating Interests defend and
indemnify Operator and its Affiliates, and their respective
consultants, agents, employees, officers and directors (the
"Indemnitees"), from any and all damages, losses, costs,
expenses (including reasonable legal costs, expenses and
attorneys' fees) and liabilities incident to claims, demands
or causes of action of every kind and character brought by or
on behalf of any person or entity, which claims, demands or
causes of action arise out of, are incident to or result from
Joint Operations regardless of the cause of such damage, loss,
injury, illness or death and even though caused in whole or in
part by a pre-existing defect, the negligence (whether sole,
joint or concurrent), Gross Negligence, strict liability or
other legal fault of Operator (or any such Indemnitee).
C) Nothing in this Article 4.6 shall be deemed to relieve the
Party designated as Operator from its Participating Interest
share of any damage, loss, cost, expense or liability arising
out of, incident to or resulting from Joint Operations.
D) Notwithstanding Articles 4.6(A) and 4.6(B), if any Senior
Supervisory Personnel of Operator or its Affiliates engage in
Gross Negligence that proximately causes the Parties to incur
damage, loss, cost, expense or liability for claims, demands
or causes of action referred to in Articles 4.6(A) or 4.6(B),
Operator shall solely be responsible for the first five
million ($5,000,000) Dollars (U.S.) of such damages, losses,
costs, expenses and liabilities.
E) Notwithstanding the foregoing, under no circumstances shall
any Indemnitee (except as a Party to the extent of its
Participating Interest) bear any cost, expense or liability
for environmental, consequential, punitive or any other
similar indirect damages or losses, including but not limited
to, those arising from business interruption, reservoir or
formation damage, inability to produce Hydrocarbons, loss of
profits, pollution control and environmental amelioration or
rehabilitation.
4.7 Insurance Obtained by Operator
A) Operator shall procure and maintain or cause to be procured
and maintained for the Joint Account all insurance in the
types and amounts required by the Concession and applicable
laws, rules and regulations.
B) Operator shall obtain for the Joint Account such further
insurance, at competitive rates, as the Operating Committee
may from time to time require.
C) Any Party may elect not to participate in the insurance to be
procured under Article 4.7(B) provided such Party:
1) gives prompt written notice to that effect to
Operator;
2) does nothing which may interfere with Operator's
negotiations for such insurance for the other
Parties; and
3) obtains and maintains such insurance (in respect of
which an annual certificate of adequate coverage
from a reputable insurance broker shall be sufficient
evidence) or other evidence of financial
responsibility which fully covers its Participating
Interest share of the risks that would be covered by
the insurance procured under Article 4.7(B),
<PAGE>
and which the Operating Committee may determine to be
acceptable. No such determination of acceptability
shall in any way absolve a non-participating Party
from its obligation to meet each cash call, including
any cash call in respect of damages and losses and/or
the costs of remedying the same, in accordance with
the terms of this Agreement. If such Party obtains
other insurance, such insurance shall contain a
waiver of subrogation in favor of all the other
Parties and the Operator, but only in respect of
their interests under this Agreement.
D) The cost of insurance in which all the Parties are
participating shall be for the Joint Account and the cost of
insurance in which less than all the Parties are participating
shall be charged to the Parties participating in proportion to
their respective Participating Interests.
E) Operator shall, in respect of all insurance obtained pursuant
to this article:
1) promptly inform the participating Parties when such
insurance is obtained and supply them with copies of
the relevant policies when the same are issued;
2) arrange for the participating Parties, according to
their respective Participating Interests, to be named
as co-insurers on the relevant policies with waivers
of subrogation in favor of all the Parties; and
3) duly file all claims and take all necessary and
proper steps to collect any proceeds and credit any
proceeds to the participating Parties in proportion
to their respective Participating Interests.
F) Operator shall use its reasonable efforts to require all
contractors performing work in respect of Joint Operations to
obtain and maintain any and all insurance in the types and
amounts required by any applicable laws, rules and regulations
or any decision of the Operating Committee and shall use its
reasonable efforts to require all such contractors to name the
Parties as additional insureds on contractors' insurance
policies or to obtain from their insurers waivers of all
rights of recourse against Operator, Non-Operators and their
insurers.
4.8 Commingling of Funds
Operator may not commingle with Operator's own funds the monies which
Operator receives from or for the Joint Account pursuant to this
Agreement.
4.9 Resignation of Operator
Subject to Article 4.11, Operator may resign as Operator at any time by
so notifying the other Parties at least one hundred and twenty (120)
Days prior to the effective date of such resignation. Operator shall
continue to act as such until a successor has taken over.
4.10 Removal of Operator
A) Subject to Article 4.11, Operator shall be removed upon
receipt of notice from any Non-Operator if:
1) An order is made by a court or an effective
resolution is passed for the dissolution,
liquidation, winding up or reorganization by
creditors of Operator;
<PAGE>
2) Operator dissolves, liquidates or terminates its
corporate existence;
3) Operator becomes insolvent, bankrupt o r makes an
assignment for the benefit of creditors; or
4) A receiver is appointed for a substantial part of
Operator's assets.
B) Subject to Article 4.11, Operator may be removed by the
decision of the Non-Operators if Operator has committed a
material breach of this Agreement and has either failed to
commence to rectify the breach within thirty (30) Days of
receipt of a notice from Non-Operators detailing the alleged
breach or failed to diligently pursue such activities to
completion. Any decision of Non-Operators to give notice of
breach to Operator or to remove Operator under this Article
4.10(B) shall be made by the unanimous vote of all
Non-Operators.
C) If Operator together with any Affiliate of Operator is or
becomes the holder of a Participating Interest of less than
twenty percent (20%), then Operator shall be required to
promptly notify the other Parties. The Operating Committee
shall then vote within thirty (30) Days of such notification
on whether or not a successor Operator should be named
pursuant to Article 4.11.
D) If there is a direct or indirect change in control of Operator
(other than a transfer of control to an Affiliate of
Operator), Operator shall be required to promptly notify the
other Parties. Upon a Non-Operator's inquiry in respect of a
change of control, Operator shall reply within ten (10) Days
of receipt of such inquiry or of such change of control. The
Operating Committee shall vote within thirty (30) Days of
receipt of such notice or reply from Operator on whether or
not a successor Operator should be appointed pursuant to
Article 4.11. For purposes of this Article, control means the
ownership directly or indirectly of fifty percent (50%) or
more of the shares or voting rights of Operator.
4.11 Appointment of Successor
When a change of Operator occurs pursuant to Article 4.9 or Article
4.10:
A) The Operating Committee shall meet as soon as possible to
appoint a successor Operator pursuant to the voting procedure
of Article 5.9. However, no Party may be appointed successor
Operator against its will.
B) If the Operator disputes the commission of or failure to
rectify a material breach alleged pursuant to Article 4.10(B)
and proceedings are initiated pursuant to Article XVIII, no
successor Operator may be appointed pending the conclusion or
abandonment of such proceedings and during the period such
proceedings are pending Operator shall continue to act as
such, subject to the terms of Article 8.3 with respect to
Operator's breach of its payment obligations.
C) If an Operator is removed, other than in the case of Article
4.10(C) or Article 4.10(D), neither Operator nor any Affiliate
of Operator shall have the right to vote for itself on the
appointment of a successor Operator, nor be considered as a
candidate for the successor Operator.
D) A resigning or removed Operator shall be compensated out of
the Joint Account for its reasonable expenses directly related
to its resignation or removal, except in the case of Article
4.10(B).
<PAGE>
E) If requested by the resigning Operator or the successor
Operator or any Non-Operator, the Operating Committee shall
arrange for the taking of an independent inventory of all
Joint Property and Hydrocarbons, and an audit of the books and
records of the removed Operator. Such inventory and audit
shall be completed, if possible, no later than the effective
date of the change of Operator. The liabilities and expenses
of such inventory and audit shall be charged to the Joint
Account.
F) The resignation or removal of Operator and its replacement by
the successor Operator shall not become effective prior to
receipt of any necessary Government approvals.
G) Upon the effective date of the resignation or removal, the
successor Operator shall succeed to all duties, rights and
authority prescribed for Operator. The former Operator shall
transfer to the successor Operator custody of all Joint
Property, Hydrocarbons in storage or in transit, books of
account, records and other documents maintained by Operator
pertaining to the Concession and to Joint Operations. Upon
delivery of the above-described property and data, the former
Operator shall be released and discharged from all obligations
and liabilities as Operator accruing after such date.
ARTICLE V
OPERATING COMMITTEE
5.1 Establishment of Operating Committee
To provide for the overall supervision and direction of Joint
Operations, there is established an Operating Committee composed of
representatives of each Party holding a Participating Interest. Each
Party shall appoint one (1) representative and one (1) alternate
representative to serve on the Operating Committee. Each Party shall as
soon as possible and in any event within thirty (30) Days after the
date of this Agreement give notice in writing to the other Parties of
the name and address of its representative and alternate representative
to serve on the Operating Committee. Each Party shall have the right to
change its representative and alternate at any time by giving proper
notice to such effect to the other Parties.
5.2 Powers and Duties of Operating Committee
The Operating Committee shall have power and duty to authorize and
supervise Joint Operations that are necessary or desirable to discharge
the obligations of the Parties under the Concession, any applicable
laws and regulations and to properly explore and exploit the Concession
Area in accordance with this Agreement and in a manner appropriate in
the circumstances.
5.3 Authority to Vote
The representative of a Party, or in his absence his alternate
representative, shall be authorized to represent and bind such Party
with respect to any matter which is within the powers of the Operating
Committee and is properly brought before the Operating Committee. Each
such representative shall have a vote equal to the Participating
Interest of the Party such person represents. Each alternate
representative shall be entitled to attend all Operating Committee
meetings but shall have no vote at such meetings except in the absence
of the representative for whom he is the alternate. In addition to the
representative and alternate representative, each Party may also bring
to any Operating Committee meetings such technical and other advisors
as it may deem appropriate.
5.4 Subcommittees
The Operating Committee may establish such subcommittees, including
technical subcommittees, as the Operating Committee may deem
appropriate. The functions of such subcommittees shall be in an
advisory capacity or as otherwise determined unanimously by the
Parties. Each subcommittee shall appoint a chairman.
5.5 Notice of Meeting
A) Operator may call a meeting of the Operating Committee by
giving notice to the Parties at least fifteen (15) Days in
advance of such meeting.
B) Any Non-Operator may request a meeting of the Operating
Committee by giving proper notice to all the other Parties.
Upon receiving such request, Operator shall call such meeting
for a date not less than fifteen (15) Days nor more than
twenty (20) Days after receipt of the request.
C) The notice periods above may only be waived with the unanimous
consent of all the Parties.
<PAGE>
5.6 Contents of Meeting Notice
A) Each notice of a meeting of the Operating Committee as
provided by Operator shall contain:
1) The date, time and location of the meeting; and
2) An agenda of the matters and proposals to be
considered and/or voted upon, together with copies of
all materials relating or relevant thereto or
reasonably necessary for the consideration thereof.
B) A Party, by notice to the other Parties given not less than
seven (7) Days prior to a meeting, may add additional matters
to the agenda for a meeting.
C) On the request of a Party, and with the unanimous consent of
all Parties, the Operating Committee may consider at a meeting
a proposal not contained in such meeting agenda.
5.7 Location of Meetings
All meetings of the Operating Committee shall be held in Cairo, Arab
Republic of Egypt or elsewhere as may be decided by the Operating
Committee.
5.8 Operator's Duties for Meetings
A) With respect to meetings of the Operating Committee and any
subcommittee, Operator's duties shall include, but not be
limited to:
1) Timely preparation and distribution of the agenda;
2) Organization and conduct of the meeting; and
3) Preparation of a written record or minutes of each meeting.
B) Operator shal have the right to appoint the chairman of the
Operating Committee and all subcommittees.
<PAGE>
5.9 Voting Procedure
Except as otherwise expressly provided in this Agreement, all
decisions, approvals and other actions of the Operating Committee on
all proposals coming before it under this Agreement shall be decided by
the affirmative vote of two (2) or more Parties, which are not
Affiliates, then having collectively at least sixty five percent (65%)
of the Participating Interests.
5.10 Record of Votes
The chairman of the Operating Committee shall appoint a secretary who
shall make a record of each proposal voted on and the results of such
voting at each Operating Committee meeting. Each representative shall
sign and be provided a copy of such record at the end of such meeting
and it shall be considered the final record of the decisions of the
Operating Committee.
5.11 Minutes
The secretary shall provide each Party with a copy of the minutes of
the Operating Committee meeting within seven (7) Days after the end of
the meeting. Each Party shall have fifteen (15) Days after receipt of
such minutes to give notice of its objections to the minutes to the
secretary. Any objection to the minutes shall become an agenda item for
the next meeting unless earlier resolved. A failure to give notice
specifying objection to such minutes within said fifteen (15) Day
period shall be deemed to be approval of such minutes. In any event,
the votes recorded under Article 5.10 shall take precedence over the
minutes described above.
5.12 Voting by Notice
A) In lieu of a meeting, Operator may submit any proposal for a
decision of the Operating Committee by giving each
representative proper notice describing the proposal so
submitted. Each Party shall communicate its vote by proper
notice to Operator and the other Parties within the following
time periods after receipt of Operator's notice as is
applicable thereto:
1) twenty four (24) hours in the case of operations
which involve the use of a drilling rig, service rig,
well servicing equipment or seismic crew that is
standing by in the Concession Area; or
2) ten (10) Days in the case of all other proposals.
B) Except in the case of Article 5.12(A)(1), any Non-Operator
may, by notice delivered to all Parties within five (5) Days
of receipt of Operator's notice, request that the proposal be
decided at a meeting rather than by notice. In such an event,
that proposal shall be decided at a meeting duly called for
that purpose.
C Except as provided in Article X, any Party failing to
communicate its vote shall be deemed to have voted against
such proposal.
D) If a meeting is not requested, then at the expiration of the
appropriate time period, Operator shall give each Party a
confirmation notice stating the tabulation and results of the
vote.
5.13 Effect of Vote
All decisions taken by the Operating Committee pursuant to this
Article, shall be conclusive and binding on all the Parties, except
that:
<PAGE>
A) If pursuant to this Article, a Joint Operation, other than an
operation to fulfil the Minimum Work Obligations, has been
properly proposed to the Operating Committee and the Operating
Committee has not approved such proposal in a timely manner,
then any Party shall have the right for the appropriate period
specified below to propose, in accordance with Article VII, an
Exclusive Operation involving operations essentially the same
as those proposed for such Joint Operation.
1) For proposals involving the use of a drilling rig
that is standing by the Concession Area, such right
shall be exercisable for twenty-four (24) hours after
the time specified in Article 5.12(A)(1) has expired
or after receipt of Operator's notice given pursuant
to Article 5.13(D), as applicable;
2) For proposals to develop a Discovery, such right
shall be exercisable for ten (10) Days after the date
the Operating Committee was required to consider such
proposal pursuant to Article 5.6 or Article 5.12; or
3) For all other proposals, such right shall be
exercisable for five (5) Days after the date the
Operating Committee was required to consider such
proposal pursuant to Article 5.6 or Article 5.12.
B) If a Party voted against any proposal which was approved by
the Operating Committee and which could be conducted as an
Exclusive Operation pursuant to Article VII, then such Party
shall have the right not to participate in the operation
contemplated by such approval. Any such Party wishing to
exercise its right of non-consent must give notice of
non-consent to all other Parties within ten (10) Days (or
within twenty-four (24) hours if the drilling rig, service
rig, well servicing equipment or seismic crew to be used in
such operation is standing by in the Concession Area)
following Operating Committee approval of such proposal. The
Parties that were not entitled to give or did not give notice
of non-consent shall be Consenting Parties as to the
operation contemplated by the Operating Committee approval,
and shall conduct such operation as an Exclusive Operation
under Article VII. Any Party that gave notice of non-
consent shall be a Non-Consenting Party as to such Exclusive
Operation.
C) If the Consenting Parties to an Exclusive Operation under
Article 5.13(A) or (B) concur, then the Operating Committee
may, at any time, pursuant to this Article, reconsider and
approve, decide or take action on any proposal that the
Operating Committee declined to approve earlier, or modify or
revoke an earlier approval, decision or action.
D) Once a Joint Operation for the drilling, Deepening, Testing,
Side-tracking, Plugging Back, Completing, Recompleting,
Reworking or plugging of a well, has been approved and
commenced, such operation shall not be discontinued without
the consent of the Operating Committee; provided, however,
that such operation may be discontinued, if:
1) an impenetrable substance or other condition in
the hole is encountered which in the reasonable
judgement of Operator causes the continuation of such
operation to be impractical; or
2) other circumstances occur which in the reasonable
judgement of Operator causes the continuation of such
operation to be unwarranted.
On the occurrence of either of the above, Operator shall
promptly notify the Parties that such operation is being
discontinued pursuant to the foregoing, and any Party shall
have the right to propose, in accordance with Article VII, an
Exclusive Operation to continue such operation.
<PAGE>
5.14 Representation of Non-Operators
A) Each of Dublin, GHP and Drucker shall have the right to
appoint one (1) representative to the Exploration Advisory
Committee. This right is assignable by any of such Parties to
any other of such Parties, to an Affiliate of any of such
Parties and to a third party permitted assignee. The Operator
shall be entitled to appoint a representative to the
Exploration Advisory Committee if a Party fails or refuses to
appoint its representative or, without prejudice to Article
8.2, if a Party's Participating Interest is transferred
pursuant to Article 8.4.
B) Notwithstanding the appointment of a representative to the
Exploration Advisory Committee by one or more Non-Operators,
and provided that the Operator consults with and considers
the input of the representative(s) appointed by the Non-
Operators, the Operator shall be the primary spokesman for the
Joint Operators on the Exploration Advisory Committee. The
respective Party's member to the Exploration Advisory
Committee shall fully support and vote in conformity with
the decisions and instructions of the Operating Committee with
respect to matters brought before the Exploration Advisory
Committee, notwithstanding that such decision or instruction
may not have been approved unanimously by the Operating
Committee.
ARTICLE VI
WORK PROGRAMS AND BUDGETS
6.1 Exploration and Appraisal
A) Immediately after the date of execution of this Agreement,
Operator shall deliver to the Parties a proposed Work Program
and Budget detailing the Joint Operations to be performed in
the Concession Area for the remainder of the current Financial
Year and the next ensuing Financial Year. Within fifteen (15)
Days of such delivery, the Operating Committee shall meet to
consider and to endeavour to agree on a Work Program and
Budget.
B) At least sixty (60) Days prior to the applicable deadline
under Article IV(c) of the Concession or such other deadline
as may be agreed to by EGPC, Operator shall deliver to the
Parties a proposed Work Program and Budget detailing the Joint
Operations to be performed in the Concession Area for the
following Financial Year. Within thirty (30) Days of such
delivery, the Operating Committee shall meet to consider and
to endeavour to agree on a Work Program and Budget. Upon
receipt of Operating Committee approval, such Work Program and
Budget shall be submitted to the Exploration Advisory
Committee as required by the Concession. The Operating
Committee shall further meet and consider any revisions to the
Work Program and Budget recommended by the Exploration
Advisory Committee and make any such revisions as may be
agreeable prior to submission to the EGPC.
C) If a Discovery is made, Operator shall deliver any notice of
Discovery required under the Concession and shall as soon as
possible or within such time period as directed by the
Operating Committee, submit to the Parties a report
containing available details concerning the Discovery and
Operator's recommendation as to whether the Discovery merits
appraisal. If the Operating Committee determines that the
Discovery merits appraisal, Operator, within ninety (90) Days,
shall deliver to the Parties a proposed Work Program and
Budget for the appraisal of the Discovery. Within thirty (30)
Days of such delivery, or earlier if necessary to meet any
applicable deadline under the Concession, the Operating
Committee shall meet to consider, modify and then either
approve or reject the appraisal Work Program and Budget. If
the appraisal Work Program and Budget is approved by the
Operating Committee, Operator shall take such steps as may be
required under the Concession to secure approval of the
<PAGE>
appraisal Work Program and Budget by EGPC. In the event EGPC
requires changes in the appraisal Work Program and Budget, the
matter shall be resubmitted to the Operating Committee for
further consideration.
D) In addition to the requirements of Article 6.1(C), if a
Discovery is made and the drilling of a Mandatory Appraisal
Well or Wells is required under the Concession in order to
obtain a Development Lease in respect of the Discovery , the
Operating Committee shall consider the drilling of the
Mandatory Appraisal Well(s). Each of the Parties shall have
the right not to participate in the drilling of such Mandatory
Appraisal Well in which case the provisions of Article VII
(and Article 7.4(C) in particular) shall apply.
E) The Work Program and Budget agreed pursuant to this Article
shall include the Minimum Work Obligations, or at least that
part of such Minimum Work Obligations required to be carried
out during the Financial Year in question under the terms of
the Concession. If, within the time periods prescribed in this
Article, the Operating Committee is unable to agree on such
Work Program and Budget, then the proposal capable of
satisfying the Minimum Work Obligations for the Financial
Year in question that receives the largest Participating
Interest vote (even if less than the applicable percentage
under Article 5.9) shall be deemed adopted as part of the
annual Work Program and Budget. If competing proposals
receive equal votes, then Operator shall choose between those
competing proposals. Any portion of a Work Program and Budget
adopted pursuant to this Article, instead of Article 5.9
shall include only such operations for the Joint Account as
are reasonably necessary to maintain the Concession in full
force and effect, including such operations as are necessary
to fulfill the Minimum Work Obligations required for the given
Financial Year.
F) Subject to Article 6.7, approval of any such Work Program and
Budget, which includes an Exploration or Appraisal Well,
whether by drilling, Deepening or Sidetracking, shall include
approval for only expenditures necessary for the drilling,
Deepening, or Sidetracking, of such well, as applicable.
When an Exploration Well or Appraisal Well has reached its
authorized depth, all logs, cores and other approved Tests
have been conducted and the results furnished to the Parties,
Operator shall submit to the Parties in accordance with
Article 5.12(A)(1) an election to participate in an attempt
to Complete or perform additional downhole operations for such
well. Operator shall include in such submission Operator's
recommendation on such Completion attempt and an AFE for such
Completion costs. In the event that less than all of the
Parties elect to participate in such Completion, the
Completion may proceed as an Exclusive Operation under Article
VII. Any Party that gave notice of non-consent shall be a
Non-Consenting Party as to such Exclusive Operation.
6.2 Development
If, before or after the drilling of any Mandatory Appraisal Wells, the
Operating Committee determines that a Discovery may be a Commercial
Discovery, the Operator shall prepare and submit a Development Plan to
the Operating Committee for approval prior to providing notice of the
Commercial Discovery to EGPC. The Operating Committee shall meet to
consider, modify and either approve or reject the Development Plan. If
the Development Plan is approved by the Operating Committee, Operator
shall, as soon as possible and in accordance with the timing
requirements set out in the Concession, provide notice of the
Commercial Discovery to EGPC.
Within sixty (60) Days following receipt of such notice by the
Government and EGPC, Operator and EGPC shall meet to review all
appropriate data with a view to agreeing on the existence of a
Commercial Discovery. If EGPC or the Government require changes in the
Development Plan, Operator shall resubmit the matter to the Operating
<PAGE>
Committee for review and approval. Upon EGPC's agreement that the
Discovery constitutes a Commercial Discovery under the Concession the
Operating Company contemplated in Article VI of the Concession shall be
formed for the purposes of conducting further operations and activities
under the Concession.
6.3 Operating Company
A) Upon formation of the Operating Company, as aforesaid, the
Parties shall meet to allocate duties and responsibilities
between the Operating Company and the Operator. To the extent
that the Operator's duties and responsibilities under this
Agreement are assumed by the Operating Company, the Operator
shall be released from any further responsibility and
liability therefor.
B) Provided there are three (3) Parties and no more than three
(3) Parties to this Agreement, each Party that holds at least
a twenty percent (20%) Participating Interest shall be
entitled to appoint one (1) Direct or to represent Contractor
on the Board of Directors of the Operating Company. In all
other cases, each Party shall be entitled to appoint one
(1) Director to the Board of Directors for each twenty-
five percent (25%) Participating Interest held by such Party.
Parties having a Participating Interest less than twenty-
five percent (25%) shall be entitled to have a representative
attend Directors' meetings as an observer only. The Operator
shall be entitled to appoint representatives to fill any
vacancy in the four (4) positions allotted to Contractor on
the Board of Directors.
C) Notwithstanding the formation of the Operating Company, the
Operator shall continue to represent the interests of the
Parties in all matters that are not specifically delegated to
the Operating Company under the Concession and, except for the
appointment of Contractor's Directors to the Board of
Directors of the Operating Company as set forth in Article
6.3(B), shall continue to satisfy the obligations of
Contractor under the Concession on behalf of the Non-Operators
in accordance with the terms of this Agreement. Without
limiting the generality of the foregoing, Operator shall:
1) Review and provide recommendations to the Parties
with respect to proposals and recommendations
submitted by the Operating Company to the Board of
Directors thereof, including, without limitation,
proposed Work Programs and Budgets, production
schedules and estimated cash requirements;
2) Assist the Operating Company, by secondment of
personnel or through a service contract, in the
conduct of the Operating Company's operations under
the Concession as agent for the Parties and EGPC;
3) Make reasonable efforts to cause the Operating
Company to submit the proposed Work Program and
Budget to the Operating Committee within a timeframe
so as to allow for a reasonable period to conduct its
review and obtain its approval prior to submission to
the Board of Directors; and
4) In the event that the Board of Directors require
changes to any Work Program and Budget, resubmit the
matter to the Operating Committee for approval.
D) In the meetings of the Board of Directors and of the
shareholders of the Operating Company, each Party's
respective member(s) of the Board of Directors and their
respective representative(s) and the Party's representatives
at the shareholder meetings (and any proxy for them) and the
members of the Operating Company management appointed by the
Operator, shall fully support and vote in conformity with the
decisions of the Operating Committee previously made in
accordance with the provisions of the Agreement and any other
resolution previously taken by the Parties under this
Agreement. If a Party will not have a representative present
at a meeting of either the Board of Directors or the
shareholders of the Operating Company, such Party shall, prior
<PAGE>
to such meeting, furnish the other Party a written proxy for
the votes to be taken at such meeting, consistent with the
vote of the Operating Committee. If an Exclusive Operation is
to be conducted by the Operating Company, the Parties shall
agree upon procedures regarding decision making within and
governance of the Parties' interests in the Operating Company
in conducting such operations, including without limitation,
procedures for Board of Directors voting by the Parties,
confidentiality and allocation of the Exclusive Operations
costs and expenses within the Operating Company.
E) After formation of the Operating Company, certain of the Joint
Operations shall be carried out by Operating Company, pursuant
to the Concession, as agent on behalf of the shareholders of
Operating Company, or where necessary by Operator or through
duly authorized agents or independent contractors engaged by
either Operator or Operating Company.
F) In the conduct of Joint Operations, Operator, under the
direction and supervision of the Operating Committee, shall
use all reasonable efforts to require that Operating Company
shall:
1) Conduct diligently all Joint Operations in accordance
with Operator's standards and the practices generally
followed by the petroleum industry in the Arab
Republic of Egypt under similar circumstances and
conditions and in conformance with good oilfield and
engineering practices; perform all Joint Operations
in an efficient and economic manner and in compliance
with the provisions of the Concession and all
applicable laws and regulations;
2) Proceed with due diligence to acquire for the Joint
Account any and all surface rights that may be
required for or in connection with the conduct of the
Joint Operations;
3) Keep the Joint Property free from liens, charges and
encumbrances arising out of the Joint Operations;
4) Pay all costs and expenses incurred by it in the
Joint Operations promptly and when due and payable;
5) Purchase and maintain in force any and all insurance
required by law and purchase or provide any
additional insurance authorized by the Board of
Directors; and
6) Carry out each program of Joint Operations adopted by
the Operating Committee within the limits of the
approved Operating Company budget and shall not
undertake any Joint Operations not included in an
approved budget or make any expenditures during a
budget period in excess of the budgeted amounts
approved therefor except in compliance with the
internal rules and regulations of the Operating
Company and subject to approval as may be required
under Articles 6.6 and 6.7 of this Agreement, as
applicable.
6.4 Itemization of Expenditures
A) During the preparation of the proposed Work Programs and
Budgets contemplated in this Article, Operator shall consult
with the Operating Committee regarding the contents of such
Work Programs and Budgets.
<PAGE>
B) Each Work Program and Budget and Development Plan submitted by
Operator shall contain an itemized estimate of the costs of
Joint Operations and all other expenditures to be made for the
Joint Account during the Calendar Year in question and shall
inter alia:
1) identify each work category in sufficient detail to
afford the ready identification of the nature, scope
and duration of the activity in question;
2) include such reasonable information regarding
Operator's allocation procedures and estimated
manpower costs as the Operating Committee may
determine; and
3) comply with the requirements of the Concession.
C) The Work Program and Budget shall designate the portion or
portions of the Concession Area in which Joint Operations
itemized in such Work Program and Budget are to be conducted
and shall specify the kind and extent of such operations in
such detail as the Operating Committee may deem suitable.
6.5 Contract Awards
A) Operator shall award each contract for approved Joint
Operations tendered or placed by Operator on the following
basis:
1) For contracts in amounts less than or equal to two
hundred thousand ($200,000) Dollars (U.S.) Operator
shall award the contract to the best qualified
contractor as determined by cost and ability to
perform the contract without the obligation to tender
and without informing or seeking the approval of the
Operating Committee, exceptthat before entering into
contracts with Affiliates of the Operator, Operator
shall obtain the approval of the Operating Committee.
If requested by any Party, Operator shall circulate
to the Parties a copy of the final version of the
contract awarded.
2) For contracts anticipated to be in an amount greater
than two hundred thousand ($200,000) Dollars (U.S.)
Operator shall:
(a) Provide the Parties with a list of the
entities whom Operator proposes to invite to
tender for the said contract;
(b) Add to such list any entity whom a Party
requests to be added within fourteen (14)
Days of receipt of such list;
(c) Prepare and dispatch the tender documents to
the entities on the list as aforesaid and to
Non-Operators; (d) After the expiration of
the period allowed for tendering, consider
and analyze the details of all bids
received;
(e) Prepare and circulate to the Parties a bid
analysis, stating Operator's determination
as to the entity to whom the contract should
be awarded, the reasons therefor, and the
technical, commercial and contractual terms
to be agreed upon; and
(f) Upon the request of a Party, provide such
Party with a copy of the final version of
the contract.
3) For contracts in amounts greater than five hundred
thousand ($500,000) Dollars (U.S.), Operator shall
obtain Operating Committee approval of its award
recommendation.
<PAGE>
B) Notwithstanding the above, Operator shall comply with all
applicable rules, procedures, decrees and regulations
regarding tendering for and awarding of contracts, services
and importation of equipment, materials and consumables as
required from time to time by EGPC. Approval of the Operating
Committee shall be required if Operator proposes to not comply
with such EGPC tender and award rules in respect of any
contract, service or materials with a value in excess of fifty
thousand ($50,000) Dollars (U.S.).
C) Operator undertakes to use all reasonable efforts to require
Operating Company to submit contracts to tender in compliance
with the internal rules and regulations of the Operating
Company and EGPC policies or practice. Operator shall use all
reasonable efforts to require the Operating Company to
competitively tender for all purchases of materials or
equipment and hiring of services or equipment with a value
estimated to exceed fifty thousand ($50,000) Dollars (U.S.).
In all purchases of materials or equipment and hiring of
services or equipment, it is understood that Operating
Company or Operator, as the case may be, are subject to the
provisions regarding use of local contractors and supplies set
out in Article XXVI of the Concession. If Operating Company
estimates a contract value will exceed five hundred thousand
($500,000) Dollars (U.S.), Operator shall provide each Party
with a list of the proposed bidders and each Party shall have
the right to make suggestions for inclusion on such list and
this shall be conveyed to the Operating Company. Upon the
Operating Company's completion of its evaluation and
submission of same to Operator, Operator shall notify the
Operating Committee of the entity to whom the Operating
Company proposes to award such contract. Operator's notice
shall be supported by a summary of the Operating Company's
analysis of the various bids received. For purposes of
approval of any tender or contract in excess of five hundred
thousand ($500,000) Dollars (U.S.), Operating Committee shall
vote on the award in advance of the vote by the Board of
Directors.
6.6 Authorization for Expenditure ("AFE") Procedure
Subject to the requirements of the Operating Company,
A) If a commitment or expenditure has been approved as part of a
Work Program and Budget, and if such commitment or expenditure
is estimated to be in excess of one hundred thousand
($100,000) Dollars (U.S.), or if the expenditure or commitment
is not included in an approved Work Program and Budget, then
prior to making such commitment or expenditure, Operator shall
send to each Non-Operator an AFE containing Operator's best
estimate of the total funds required to carry out such work,
the estimated timing of expenditures, and any other necessary
supportive information.
B) If an AFE covers commitments or expenditures within the
monetary amounts set out in the Work Program and Budget, it is
for informational purposes only, unless:
1) the AFE costs exceed the costs for such operation in
the approved budget by more than ten percent (10%) of
the applicable line item amount for such operation or
by more than five percent (5%) of the total Work
Program and Budget; or
2) the AFE is technically incorrect.
In the event that the circumstances in either Article
6.6(B)(1) or (2) occur, the Operating Committee shall vote on
the AFE. If such AFE is not approved by the Operating
Committee, the work in question shall immediately cease.
C) Each AFE proposed by the Operator shall:
<PAGE>
1) Identify the operation by specific reference to the
applicable line items in the Work Program and Budget;
2) Describe the work in detail;
3) Contain Operator's best estimate of the total funds
required to carry out such work;
4) Outline the proposed work schedule;
5) Provide a timetable of expenditures, if known; and
6) Be accompanied by such other supporting information
as is necessary for an informed decision.
6.7 Overexpenditures of Work Programs and Budgets
Subject to the requirements of the Operating Company,
A) For expenditures on any line item of an approved Work Program
and Budget, Operator shall be entitled to incur without
further approval of the Operating Committee an overexpenditure
for such line item up to ten percent (10%) of the authorized
amount for such line item; provided that the cumulative total
of all expenditures for a Calendar Year shall not exceed five
percent (5%) of the total Work Program and Budget in question.
B) At such time that Operator is certain that the limits of
Article 6.7(A) will be exceeded, Operator shall furnish a
supplemental AFE for the estimated overexpenditures to the
Operating Committee for its approval and shall provide the
Parties with full details of such overexpenditures. Operator
shall promptly give notice of the amounts of overexpenditures
when actually incurred. Should the Operating Committee fail to
approve the supplemental AFE, all work in question shall
immediately cease.
ARTICLE VII
OPERATIONS BY LESS THAN ALL PARTIES
7.1 Limitation on Applicability
A) No operations may be conducted in furtherance of the
Concession except as Joint Operations under Article V, or as
Exclusive Operations under this Article.
B) Operations which are required to fulfil the Minimum Work
Obligations must be proposed and conducted as Joint Operations
under Article V and may not be proposed or conducted as
Exclusive Operations under this Article VII. Except for
Exclusive Operations relating to Deepening, Testing,
Completing, Sidetracking, Plugging Back, Recompletions or
Reworking of a well drilled to fulfil the Minimum Work
Obligations or the drilling of any Mandatory Appraisal Well,
no Exclusive Operations may be proposed or conducted until the
Minimum Work Obligations for the then current Exploration
Sub-Period are fulfilled.
C) No Exclusive Operation shall be conducted:
1) until it has been proposed as a Joint Operation;
2) which conflicts or would interfere with a Joint
Operation;
<PAGE>
3) which relates to a Zone which the Parties have agreed
to appraise or develop under an approved Work Program
and Budget;
4) which relates to a currently producing Zone or to any
previously discovered Zone which is capable of
producing Hydrocarbons in commercial quantities;
5) which relates to a Zone which is above the
stratigraphic equivalent of the deepest Zone
producing or capable of producing Hydrocarbons in
commercial quantities; and
6) if a well proposed thereunder is to be drilled at
substantially the same location, to the same
subsurface target or into the same Zone as a well
included in an approved Work Program and Budget.
D) No Party may propose or conduct an Exclusive Operation under
this Article unless and until such Party has properly
exercised its right to propose an Exclusive Operation pursuant
to Article 5.13(A), or is entitled to conduct an Exclusive
Operation pursuant to Article 5.13(B), Article 6.1(D), Article
6.1(F), Article VII or Article 10.1(C).
E) Subject to this Article, any operation that may be proposed
and conducted as a Joint Operation may be proposed and
conducted as an Exclusive Operation.
7.2 Procedure to Propose Exclusive Operations
A) Subject to Article 7.1, if any Party proposes to conduct an
Exclusive Operation, such Party shall give notice of the
proposed operation to all Parties, other than Non-Consenting
Parties who have relinquished their rights to participate in
such operation and have no option to reinstate such rights
under Article 7.4(D). Such notice shall specify that such
operation is proposed as an Exclusive Operation, the work to
be performed, the location, the objectives, and estimated cost
of such operation.
B) Any Party entitled to receive such notice shall have the right
to participate in the proposed operation in accordance with
the following:
1) For proposals to Deepen, Test, Complete, Side-track,
Plug Back, Recomplete or Rework involving the use of
a drilling rig, service rig, well servicing equipment
that is standing by in the Concession Area, or
proposals to acquire G & G Data where the seismic
crew and equipment are standing by in the Concession
Area, any such Party wishing to exercise such right
must so notify Operator within twenty-four (24) hours
after receipt of the notice proposing the Exclusive
Operation; or
2) For all other proposals, any such Party wishing to
exercise such right must so notify Operator within
ten (10) Days after receipt of the notice proposing
the Exclusive Operation.
C) Failure of a Party to whom a proposal notice is delivered to
properly reply within the period specified above shall
constitute an election by that Party not to participate in the
proposed operation.
D) If all Parties properly exercise their rights to participate,
then the proposed operation shall be conducted as a Joint
Operation. The Operator shall commence such Joint Operation as
promptly as practicable and conduct it with due diligence,
provided that with respect to operations pursuant to which a
<PAGE>
party has given a notice under Article 7.2(F), the Operator
may proceed with operations prior to the expiry of the
applicable time period in this Article 7.2.
E) If less than all Parties entitled to receive such proposal
notice properly exercise their rights to participate, then:
1) Immediately after the expiration of the applicable
notice period set out in Article 7.2(B), the Operator
shall notify all Parties of the names of the
Consenting Parties and the recommendation of the
proposing Party as to whether the Consenting Parties
should proceed with the Exclusive Operation.
2) Concurrently, Operator shall request the Consenting
Parties to specify the Participating Interest each
Consenting Party is willing to bear in the Exclusive
Operation.
3) Within twenty-four (24) hours after receipt of such
notice, each Consenting Party shall respond to the
Operator stating that it is willing to bear a
Participating Interest in such Exclusive Operation
equal to:
(a) Only its Participating Interest;
(b) A fraction, the numerator of which is such
Consenting Party's Participating Interest
and the denominator of which is the
aggregate of the Participating Interests of
the Consenting Parties; or
(c) The total of its Participating Interest as
contemplated by Article 7.2(E)(3)(b) plus
all or any part of the difference between
one hundred percent (100%) and the total of
the Participating Interests subscribed by
the other Consenting Parties.
4) Any Consenting Party failing to advise Operator
within the response period set out above shall be
deemed to have elected to bear the Participating
Interest set out in Article 7.2(E)(3)(b) as to the
Exclusive Operation.
5) If within the response period set out above, the
Consenting Parties subscribe for less than one
hundred percent (100%) of the Participating Interest
in the Exclusive Operation, the Party proposing
such Exclusive Operation shall be deemed to have
withdrawn its proposal for the Exclusive Operation,
unless within twenty-four (24) hours of the expiry
of the response period set out in Article 7.2(E)(3),
the proposing Party notifies the other Consenting
Parties that the proposing Party shall bear the
unsubscribed Participating Interest.
6) If one hundred percent (100%) subscription to the
proposed Exclusive Operation is obtained, Operator
shall promptly notify the Consenting Parties of their
Participating Interests in the Exclusive Operation.
7) As soon as any Exclusive Operation is fully
subscribed pursuant to Article 7.2(E)(6), Operator
(subject to Article 7.8(G)), shall commence such
Exclusive Operation as promptly as practicable and
conduct it with due diligence in accordance with this
Agreement.
8) If such Exclusive Operation has not been commenced
within One Hundred Twenty (120) Days (excluding any
extension specifically agreed by all Parties or
allowed by the force majeure provisions of Article
XVI), the right to conduct such Exclusive Operation
shall terminate. If any Party still desires to
<PAGE>
conduct such Exclusive Operation, written notice
proposing such operation must be resubmitted to the
Parties in accordance with Article V, as if no
proposal to conduct an Exclusive Operation had been
previously made.
F) In accordance with Article 6.1(F), in the event that less than
all of the Parties elect to participate in the Completion or
other downhole operations referred to in Article 6.1(F), such
Completion or downhole operations referred to in the election
notice may be conducted as an Exclusive Operation. In
anticipation of such possibility, and notwithstanding anything
to the contrary in the provisions of Article 5.12, Article
5.13 and this Article VII:
1) Should the Operator, at the time it submits the
election to the Parties pursuant to Article 6.1(F),
be prepared to undertake such Completion or
downhole operations regardless of the election of
the other Parties, the Operator may, at the same
time it submits the notice under Article 5.12(A) to
the other Parties, also provide a notice under
Article 7.2(A) to conduct such Completion or downhole
operations as an Exclusive Operation. In such a case,
the time periods under Article 5.12(A) and 7.2(B)
shall run concurrently and, notwithstanding Article
5.13, Operator may proceed immediately with such
Completion or other downhole operations at the risk
and expense of it and the other Parties who elect to
participate.
2) Should a Non-Operator, at the time it makes its
election pursuant to Article 6.1(F), be prepared to
undertake such Completion or downhole operations
regardless of the election of the other Parties, it
may immediately notify the other Parties of such by
providing a notice under Article 7.2(A). In such a
case, the time periods under Article 5.12(A) and
7.2(B) shall run concurrently and upon receipt of
such notice under Article 7.2(A), Operator may
proceed immediately with such Completion or other
downhole operations at risk and expense of the Party
giving such notice and the other Parties electing to
participate.
Should less than all Parties elect to participate, then if a
Party has given a notice under Article 7.2(A), it shall be
deemed to have elected to bear a Participating Interest in
such Exclusive Operation in accordance with Article
7.2(E)(3)(c).
7.3 Responsibility for Exclusive Operations
A) The Consenting Parties shall bear in accordance
with the Participating Interests agreed under
Article 7.2(E) the entire cost and liability of
conducting an Exclusive Operation and shall
indemnify the Non-Consenting Parties from any and
all costs and liabilities incurred incident to such
Exclusive Operation (including but not limited to all
costs, expenses or liabilities for environmental,
consequential, punitive or any other similar indirect
damages or losses arising from business interruption,
reservoir or formation damage, inability to produce
petroleum, loss of profits, pollution control and
environmental amelioration or rehabilitation) and
shall keep the Concession Area free and clear of all
liens and encumbrances of every kind created by or
arising from such Exclusive Operation.
B) Notwithstanding Article 7.3(A), each Party shall continue to
bear its Participating Interest share of the cost and
liability incident to the operations in which it participated,
including but not limited to plugging and abandoning and
restoring the surface location, but only to the extent those
costs were not increased by the Exclusive Operation.
7.4 Consequences of Exclusive Operations
A) With regard to any Exclusive Operation, other than an Exclusive
Operation which is a Mandatory Appraisal Well, for so long as a
Non-Consenting Party has the option to reinstate the rights it relinquished
under Article 7.4(D) below, such Non-Consenting Party shall be entitled to
have access, concurrently with the Consenting Parties, to all data and
other information relating to such Exclusive Operation, other than G & G
Data obtained in an Exclusive Operation. For the acquisition of G&G Data,
if a Non-Consenting Party desires to receive and acquire the right at any
time to use all or part of such G & G Data, then such Non-Consenting Party
shall have the right to do so by paying to the Consenting Parties the
amount set out in Article 7.5(A) and the Cash Premium set out in Article
7.5(B)(3). B) With regard to any Exclusive Operation, other than an
Exclusive Operation which is a Mandatory Appraisal Well and subject to
Articles 7.4(C) and (D) below, each Non-Consenting Party shall be deemed to
have relinquished to the Consenting Parties, and the Consenting Parties
shall be deemed to own, in proportion to their respective Participating
Interests in the Exclusive Operation as determined in accordance with
Article 7.2(E)(3):
1) All of each such Non-Consenting Party's right to
participate in operations for the acquisition of, and
all rights to have access to, all G & G Data obtained
from such Exclusive Operation or in further
operations in a well or Deepened or Sidetracked
portion of a well in which the Exclusive Operation
was conducted and in any Discovery made or appraised
in the course of such Exclusive Operation; and
2) All of each such Non-Consenting Party's right pursuant to the Concession
to take and dispose of Hydrocarbons produced and saved:
(a) From the well or Deepened or Sidetracked portion of a
well in which such Exclusive Operation was conducted,
and
(b) From any wells drilled to appraise or develop a
Discovery made or appraised in the course of such
Exclusive Operation, and
<PAGE>
(c) From the Development Lease containing the Discovery
arising out of such Exclusive Operation. C) Where an
Exclusive Operation is the drilling of a Mandatory
Appraisal Well, each Non-Consenting Party in such
Exclusive Operation shall be deemed to have
relinquished to the Consenting Parties, and the
Consenting Parties shall be deemed to own in proportion
to their Participating Interest in such Exclusive
Operation as determined in accordance with Article
7.2(E)(3):
1) All of each such Non-Consenting Party's right to
participate in further operations in the Development
Lease containing such Mandatory Appraisal Well; and
2) All of each such Non-Consenting Party's right pursuant
to the Concession to take and dispose of Hydrocarbons
produced and saved from the Development Lease
containing such Mandatory Appraisal Well. In such case,
a Non-Consenting Party shall have no option to
reinstate such relinquished rights and Article 7.4(D)
shall not apply.
D) With the exception of the right to reinstate set out in Article 7.4(G),
a Non-Consenting Party shall have the following and only the following
options to reinstate the rights it relinquished pursuant to Article 7.4(B):
1) If the Consenting Parties decide to appraise a
Discovery made in the course of an Exclusive Operation,
the Consenting Parties shall submit to each
Non-Consenting Party the approved appraisal program.
For thirty (30) Days (or forty-eight (48) hours if the
drilling rig which is to be used in such appraisal
program is standing by in the Concession Area) from
receipt of such appraisal program, each Non-Consenting
Party shall have the option to reinstate the rights it
relinquished pursuant to Article 7.4(B) and to
participate in such appraisal program. The
Non-Consenting Party may exercise such option by
notifying Operator within the period specified above
that such Non-Consenting Party agrees to bear its
Participating Interest share of the expense and
liability of such appraisal program, to pay the lump
sum amount as set out in Article 7.5(A) and to pay the
Cash Premium as set out in Article 7.5(B);
2) Without prejudice to Article 7.4(C), if the Consenting
Parties decide to develop a Discovery made or appraised
in the course of an Exclusive Operation, each
Non-Consenting Party shall have the option, exercisable
for a period of sixty (60) Days from the receipt by the
Non-Consenting Parties of all information pertaining to
the Discovery, including the proposed Development Plan,
to reinstate the rights it relinquished pursuant to
Article 7.4(B) and to participate in such development.
Each Non-Consenting Party may exercise such option by
notifying the Party proposing to act as Operator for
such development within the period specified above that
such Non-Consenting Party agrees to bear its
Participating Interest share of the liability and
expense of such development and such future operating
and production costs, to pay the lump sum amount as set
out in Article 7.5(A) and to pay the Cash Premium as
set out in Article 7.5(B).
3) If the Consenting Parties decide to Deepen, Test,
Complete, Side-track, Plug Back, Recomplete or Rework
an Exclusive Well, other than a Mandatory Appraisal
Well, and such further operation was not included in
the original proposal for such Exclusive Well, the
Consenting Parties shall submit to the Non-Consenting
Parties the approved AFE for such further operation.
For thirty (30) Days (or forty-eight (48) hours if the
drilling rig which is to be used in such operation is
standing by in the Concession Area) from receipt of
such AFE, each Non-Consenting Party shall have the
option to reinstate the rights it relinquished pursuant
to Article 7.4(B) and to participate in such operation.
Each Non-Consenting Party may exercise such option by
notifying the Operator within the period specified
above that such Non-Consenting Party agrees to bear its
Participating Interest share of the liability and
expense of such further operation, to pay the lump sum
amount as set out in Article 7.5(A) and to pay the Cash
Premium as set out in Article 7.5(B).
E) If a Non-Consenting Party does not properly and in a timely manner
exercise such option, including paying in a timely manner in accordance
with Article 7.5, all lump sum amounts and Cash Premiums, if any, due to
the Consenting Parties, such Non-Consenting Party shall have forfeited the
options as set out in Article 7.4(D) and the right to participate in the
proposed program, plan or operation, unless such program, plan or operation
is materially modified or expanded.
F) A Non-Consenting Party shall become a Consenting Party with regard to an
Exclusive Operation at such time as the Non-Consenting Party gives proper
notice pursuant to Article 7.4(D); provided that such Non-Consenting Party
shall in no way be deemed to be entitled to any lump sum amount or Cash
Premium paid incident to such Exclusive Operation. The Participating
Interest of such Non-Consenting Party in such Exclusive Operation shall be
its Participating Interest at the time the Non-Consenting Party elected not
to participate. The Consenting Parties who assumed a portion of the
Non-Consenting Party's Participating Interest in such Exclusive Operation
shall contribute the Participating Interest of the Non-Consenting Party
proportionately to their assumption of same. If all Parties participate in
the proposed operation, then such operation shall be conducted as a Joint
Operation pursuant to Article V.
G) If, after the expiry of the period in which a Non-Consenting Party may
exercise its option to participate in the development of a Discovery, the
Consenting Parties desire to proceed, Operator, or if Operator is a
Non-Consenting Party, the Party chosen by the Consenting Parties to act as
Operator, shall, subject to Article 6.2 hereof, give notice to EGPC under
Article III(c)(iii) of the Concession that the Consenting Parties consider
the Discovery to be a Commercial Discovery. Conditional upon EGPC's
agreement that such Discovery constitutes a Commercial Discovery, the
Parties and EGPC shall meet to determine the extent of the area capable of
production to be covered by a Development Lease and shall submit such area
to the Government for approval in accordance with Article III(d)(i) of the
Concession. Upon written concurrence by EGPC of the Consenting Party's
determination that the Discovery is a Commercial Discovery and Government
approval of the Development Lease, each Non-Consenting Party in such
Discovery shall forfeit its right to reinstate its interest in the
applicable Development Lease and shall be deemed to have withdrawn from the
Concession and this Agreement to the extent that it relates to such
Development Lease; provided, however, if EGPC or the Government require
revision or modification to the Development Plan approved by the Consenting
Parties, each Non-Consenting Party shall be notified, provided with all
requested revisions or modifications to the Development Plan and shall have
ten (10) Days in which to reinstate its right as to the Development Lease.
In the event that such Development Lease represents the only interest of
the Non-Consenting Party in the Concession Area and as such the
Non-Consenting Party is deemed to have withdrawn from the entire
Concession, then such Party shall also forfeit all of its shares and voting
rights in the Operating Company that were issued pursuant to the
Concession.
<PAGE>
7.5 Premium to Participate in Exclusive Operations
A) Within thirty (30) Days of the exercise of its option under Article
7.4(D), or with respect to G&G Data, within thirty (30) Days of its request
to acquire the right to use all or part of such G&G Data under Article
7.4(A), each such Non-Consenting Party shall pay in immediately available
funds to the Consenting Parties that took all or a portion of the cost
obligation of the Participating Interest of the Non-Consenting Party in
such Exclusive Operation proportionately to their assumption of such
obligation, a lump sum amount payable in the currency designated by such
Consenting Parties. Such lump sum amount shall be equal to such
Non-Consenting Party's Participating Interest share of all liabilities and
expenses, including overhead, that were incurred in every Exclusive
Operation relating to the G&G Data, Discovery or well, as the case may be,
in which the Non-Consenting Party desires to reinstate the rights it
relinquished pursuant to Article 7.4(B), and that were not previously paid
by such Non-Consenting Party.
B) In addition to Article 7.5(A), if a Cash Premium is due, then within
thirty (30) Days of the exercise of its option under Article 7.4(A) or
7.4(D) each such Non-Consenting Party shall pay in immediately available
funds, in the currency designated by the Consenting Parties who took the
risk of such Exclusive Operations, to such Consenting Parties in proportion
to their assumption of such risk, a Cash Premium equal to the total of:
1) Six hundred percent (600%) of such Non-Consenting
Party's Participating Interest share of all liabilities
and expenses, including overhead, that were incurred in
any Exclusive Operations relating to the drilling,
Deepening, Testing, Completing, Sidetracking, Plugging
Back, Recompleting and Reworking of the Exploration
Well which made the Discovery in which the
Non-Consenting Party desires to reinstate the rights it
relinquished pursuant to Article 7.4(B), and that were
not previously paid by such Non-Consenting Party; plus
2) Four hundred percent (400%) of the Non-Consenting
Party's Participating Interest share of all liabilities
and expenses, including overhead, that were incurred in
any Exclusive Operations relating to the drilling,
Deepening, Testing, Completing, Sidetracking, Plugging
Back, Recompleting and Reworking of the Appraisal
Well(s) other than Mandatory Appraisal Well(s), which
delineated the Discovery made in the Exclusive
Operations in which the Non-Consenting Party desires to
reinstate the rights it relinquished pursuant to
Article 7.4(B), and that were not previously paid by
such Non-Consenting Party; plus
3) One hundred percent (100%) of the Non-Consenting
Party's Participating Interest share of all liabilities
and expenses, including overhead, that were incurred by
the Consenting Parties in any Exclusive Operation for
the acquisition of G & G Data in which the
Non-Consenting Party desires to reinstate the rights it
relinquished pursuant to Article 7.4(B), and that were
not previously paid by such Non-Consenting Party.
7.6 Order of Preference of Operations
A) Except as otherwise specifically provided in this Agreement, if any
Party desires to propose the conduct of an operation that will conflict
with an existing proposal for an Exclusive Operation, such Party shall have
the right exercisable for five (5) Days, or twenty-four (24) hours if the
drilling rig to be used is standing by in the Concession Area, from receipt
of the proposal for the Exclusive Operation, to deliver to all Parties
entitled to participate in the proposed operation such Party's alternative
proposal. Such alternative proposal shall contain the information required
under Article 7.2(A).
<PAGE>
B) Each Party receiving such proposals shall elect by delivery of notice to
Operator within the appropriate response period set out in Article 7.2(B)
to participate in one of the competing proposals. Any Party not notifying
Operator within the response period shall be deemed not to have voted.
C) The proposal receiving the largest aggregate Participating Interest vote
shall have priority over all other competing proposals. In the case of a
tie vote, the Operator shall choose among the proposals receiving the
largest aggregate Participating Interest vote. Operator shall deliver
notice of such result to all Parties entitled to participate in the
operation within five (5) Days of the end of the response period, or
twenty-four (24) hours if the drilling rig to be used is standing by in the
Concession Area.
D) Each Party shall then have two (2) Days (or twenty-four (24) hours if
the drilling rig to be used is standing by in the Concession Area) from
receipt of such notice to elect by delivery of notice to Operator whether
such Party will participate in such Exclusive Operation, or will relinquish
its interest pursuant to Article 7.4(B). Failure by a Party to deliver such
notice within such period shall be deemed an election not to participate in
the prevailing proposal.
E) Notwithstanding the provisions of Article 7.4(B), if for reasons other
than the encountering of granite or other practically impenetrable
substance or any other condition in the hole rendering further operations
impracticable, a well drilled as an Exclusive Operation fails to reach the
deepest objective Zone described in the notice proposing such well,
Operator shall give notice of such failure to each Non-Consenting Party who
submitted or voted for an alternative proposal under this Article to drill
such well to a shallower Zone than the deepest objective Zone proposed in
the notice under which such well was drilled. Each such Non-Consenting
Party shall have the option exercisable for forty-eight (48) hours from
receipt of such notice to participate in the initial proposed Completion of
such well. Each such Non-Consenting Party may exercise such option by
notifying the Operator that it wishes to participate in such Completion and
by paying its share of the cost of drilling such well, calculated in the
manner provided in Article 7.8(B), to its deepest depth drilled in the Zone
in which it is Completed. If any such Non-Consenting Party does not
properly elect to participate in the first Completion proposed for such
well, the relinquishment provisions of Article 7.4(B) shall continue to
apply to such Non-Consenting Party's interest.
7.7 Stand-By Costs
When an operation has been performed, all tests have been conducted and
the results of such tests furnished to the Parties, stand by costs
incurred pending response to any Party's notice proposing an Exclusive
Operation for Deepening, Testing, Sidetracking, Completing, Plugging
Back, Recompleting, Reworking or other further operation in such well
(including the period required under Article 7.6 to resolve competing
proposals) shall be charged and borne as part of the operation just
completed. Stand by costs incurred subsequent to all Parties
responding, or expiration of the response time permitted, whichever
first occurs, shall be charged to and borne by the Parties proposing
the Exclusive Operation in proportion to their Participating Interests,
regardless of whether such Exclusive Operation is actually conducted.
<PAGE>
7.8 Miscellaneous
A) Each Exclusive Operation shall be carried out by the Consenting Parties
acting as the Operating Committee, subject to the provisions of this
Agreement applied mutatis mutandis to such Exclusive Operation and subject
to the terms and conditions of the Concession.
B) The computation of liabilities and expenses incurred in Exclusive
Operations, including the liabilities and expenses of Operator for
conducting such operations, shall be made in accordance with the principles
set out in the Accounting Procedure.
C) Operator shall maintain separate books, financial records and accounts
for Exclusive Operations which shall be subject to the same rights of audit
and examination as the Joint Account and related records, all as provided
in the Accounting Procedure. Said rights of audit and examination shall
extend to each of the Consenting Parties and each of the Non-Consenting
Parties so long as the latter are, or may be, entitled to elect to
reinstate its interest in such operations.
D) Operator, if it is not a Consenting Party and it is conducting an
Exclusive Operation for the Consenting Parties, shall be entitled to
request cash advances and shall not be required to use its own funds to pay
any cost and expense and shall not be obliged to commence or continue
Exclusive Operations until cash advances requested have been made, and the
Accounting Procedure shall apply to Operator in respect of any Exclusive
Operations conducted by it.
E) Should the Parties determine that a Discovery constitutes a Commercial
Discovery, and prior to notification of EGPC regarding such Commercial
Discovery, should any Party wish to drill an additional Appraisal Well
other than a Mandatory Appraisal Well, prior to development, then subject
to Article 7.1(B), the Party proposing such well as an Exclusive Operation
shall be entitled to proceed first, but without the right to future
reimbursement of costs or to any premium pursuant to Article 7.5. If, as
the result of drilling such well as an Exclusive Operation, the Parties
proposing to develop a Discovery decide to not develop the Discovery, then
each Non-Consenting Party who voted in favor of such development prior to
the drilling of such appraisal well shall pay to the Consenting Party the
amount such Non-Consenting Party would have paid had such appraisal well
been drilled as a Joint Operation.
F) In the case of any Exclusive Operation for Deepening, Testing,
Completing, Sidetracking, Plugging Back, Recompleting or Reworking, the
Consenting Parties shall be permitted to use, free of cost, all casing,
tubing and other equipment in the well, that is not needed for Joint
Operations, but the ownership of all such equipment shall remain unchanged.
On abandonment of a well after such Exclusive Operation, the Consenting
Parties shall account for all such equipment to the Parties who shall
receive their respective Participating Interest shares, in value, less cost
of salvage.
G) If the Operator is a Non-Consenting Party to an Exclusive Operation to
develop a Discovery, then, subject to obtaining any necessary Government
approval, the Operator may resign, but in any event shall resign on the
request of the Consenting Parties, as Operator for the Development Lease
for such Discovery and the Consenting Parties shall select a Party to serve
as Operator for such Development Lease.
7.9 Production Bonuses
Production bonuses shall be charged to the Joint Account if there is no
production of Hydrocarbons from an Exclusive Operation at the time they
are incurred. If there is production of Hydrocarbons from one (1) or
more Exclusive Operations, then any production bonus which becomes
payable under the Concession shall be borne by each Development Lease
in the proportion that its average daily production of Hydrocarbons
bears to the total average daily production of Hydrocarbons from the
Concession Area during the ninety (90) Day period preceding the date on
which the liability for the production bonus was incurred.
The Parties in a Development Lease shall bear the production bonus
allocated to that Development Lease in accordance with their
Participating Interests in the Development Lease as of the date on
which liability for the production bonus was incurred.
ARTICLE VIII
<PAGE>
DEFAULT
8.1 Default and Notice
Any Party that fails to pay when due its Participating Interest share
of Joint Account expenses, including cash advances and interest,
incurred pursuant to this Agreement (a "Defaulting Party") shall be in
default under this Agreement. Operator, or any non-defaulting Party in
the case of the default of Operator, shall promptly give written notice
of such default to the Defaulting Party and each of the non-defaulting
Parties (the "Default Notice"). The amount not paid by the Defaulting
Party shall bear interest from the date due until paid in full.
Interest will be calculated using the Agreed Interest Rate.
8.2 Operating Committee Meetings and Data
After any default has continued for ten (10) Days from the date of the
Default Notice and for as long thereafter as the Defaulting Party
remains in default on any payment due under this Agreement, the
Defaulting Party shall not be entitled to attend Operating Committee
meetings or to vote on any matter coming before the Operating Committee
until all of its defaults have been remedied (including payment of
accrued interest). Further, the Defaulting Party shall not be entitled
to attend meetings of the Exploration Advisory Committee, nor the
Directors' Meetings of the Operating Company, nor shall it have the
right to vote in any meeting held by the Operating Company. Unless
agreed otherwise by the non-defaulting Parties, the voting interest of
each non-defaulting Party shall be in the proportion which its
Participating Interest bears to the total of the Participating
Interests of all the non-defaulting Parties. Any matters requiring
unanimous vote of the Parties shall not require the vote of the
Defaulting Party. After the said ten (10) Days and while the Defaulting
Party remains in default as aforesaid, the Defaulting Party shall not
have access to any data or information relating to Joint Operations,
and non-defaulting Parties shall be entitled to trade data without such
Defaulting Party's consent and the Defaulting Party shall have no right
to any data received on such trade unless and until its default is
remedied in full. Notwithstanding the foregoing, the Defaulting Party
shall be deemed to have approved, and shall join with the
non-defaulting Parties in taking any action to maintain and preserve
the Concession.
8.3 Allocation of Defaulted Accounts
A) The Party providing the Default Notice shall, either include in the
Default Notice or by separate notice, notify each non-defaulting Party of
the sum of money it is to pay as its portion (such portion being in the
ratio that each non-defaulting Party's Participating Interest bears to the
Participating Interests of all non-defaulting Parties) of such amount in
default (excluding interest). Each non-defaulting Party shall, if such
default continues, pay Operator, within five (5) Days after receipt of the
Default Notice, its share of the amount which the Defaulting Party failed
to pay. If any non-defaulting Party fails to pay its share of the amount in
default as aforesaid, such non-defaulting Party shall thereupon be in
default and shall be a Defaulting Party subject to the provisions of this
Article. The non-defaulting Parties which pay the amount owed by any
Defaulting Party shall be entitled to receive their respective share of the
principal and interest payable by such Defaulting Party pursuant to Article
8.1.
B) If Operator is a Defaulting Party, then all payments otherwise payable
to Operator for Joint Account costs pursuant to this Agreement shall be
made to the notifying Party instead, until the default is cured or a
successor Operator appointed. The notifying Party shall maintain such funds
in a segregated account separate from its own funds and shall apply such
funds to third party claims due and payable from the Joint Account of which
it has notice, to the extent Operator would be authorized to make such
payments under the terms of this Agreement. The notifying Party shall be
entitled to bill or cash call the other Parties in accordance with the
Accounting Procedure for proper third party charges that become due and
payable during such period to the extent sufficient funds are not
available. When Operator has cured its default or a successor Operator is
appointed, the notifying Party shall turn over all remaining funds in the
account to Operator and shall provide Operator and the other Parties with a
detailed accounting of the funds received and expended during this period.
The notifying Party shall not be liable for damages, losses, costs,
expenses or liabilities arising as a result of its actions under this
Article 8.3(B) except to the extent Operator would be liable under Article
4.6.
<PAGE>
C) The total of all amounts paid by the non-defaulting Parties for the
Defaulting Party, together with interest accrued on such amounts, shall
constitute a debt due and owing by the Defaulting Party to the
non-defaulting Parties in proportion to such amounts paid. In addition, the
non-defaulting Parties may, in the manner contemplated by this Article,
satisfy such debt (together with interest) and may accrue an amount equal
to the Defaulting Party's Participating Interest share of the estimated
cost to abandon any Joint Property.
D) A Defaulting Party may remedy its default by paying to Operator the
total amount due, together with interest calculated as provided in Article
8.1, at any time prior to transfer of its interest pursuant to Article 8.4,
and upon receipt of such payment Operator shall remit to each
non-defaulting Party its proportionate share of such amount.
E) The rights granted to each non-defaulting Party pursuant to this
Article, shall be in addition to, and not in substitution for any other
rights or remedies which each non-defaulting Party may have at law or
equity or pursuant to the other provisions of this Agreement.
8.4 Transfer of Interest
A) For thirty (30) Days after each failure by the Defaulting Party to
remedy its default by the thirtieth (30th) Day following the Defaulting
Party's receipt of the Default Notice, without prejudice to any other
rights of the non-defaulting Parties to recover the amounts paid for the
Defaulting Party, together with interest accrued on such amount, each
non-defaulting Party shall have the option to give notice to the Defaulting
Party requiring the Defaulting Party to transfer its Participating Interest
to the non-defaulting Parties. To that end if any of the non-defaulting
Parties so elect, the Defaulting Party shall be deemed to have transferred
and to have empowered the electing non-defaulting Parties to execute on
said Defaulting Party's behalf any documents required to effect a transfer,
of all of its right, title and beneficial interest in and under this
Agreement and the Concession, and in all wells and Joint Property to the
electing non-defaulting Parties. If requested, each Party shall execute a
Power of Attorney in the form prescribed by the Operating Committee. The
Defaulting Party shall, without delay following any request from the
non-defaulting Parties, do any and all acts required to be done by
applicable law or regulation in order to render such transfer legally
valid, including, without limitation, the obtaining of all Government
consents and approvals, and shall execute any and all documents and take
such other actions as may be necessary in order to effect prompt and valid
transfer of the interests described above, free of all liens and
encumbrances. In the event all Government consents and approvals are not
timely obtained, the Defaulting Party shall hold its Participating Interest
in trust for such non-defaulting Parties who elected to assume such
Defaulting Party's Participating Interest.
<PAGE>
B) In the absence of an agreement among the non-defaulting Parties to the
contrary, any such transfer to the non-defaulting Parties shall be in the
proportion that the non-defaulting Parties have paid the amounts due from
the Defaulting Party.
C) Subject to Article 12.1(C), on the effective date of such transfer the
Defaulting Party shall forthwith cease to be a Party to this Agreement. The
acceptance or non-acceptance by a non-defaulting Party of any portion of a
Defaulting Party's Participating Interest shall be without prejudice to any
rights or remedies such non-defaulting Parties have to recover the
outstanding debts (including interest) owed by the Defaulting Party.
8.5 Continuation of Interest
If, within thirty (30) Days after each failure by the Defaulting Party
to remedy its default by the thirtieth (30th) Day following the
Defaulting Party's receipt of the Default Notice, the non-defaulting
Parties fail to elect to acquire the Defaulting Party's Participating
Interest or elect not to acquire the Defaulting Party's Participating
Interest, as provided in Article 8.4 and to continue to bear the
Defaulting Party's Participating Interest share of liabilities and
expenses, then the non-defaulting Parties shall either (a) abandon
operations hereunder pursuant to Article 8.6, or (b) accumulate all
such liabilities and expenses as a debt pursuant to Article VIII, but
the Defaulting Party shall continue to be a Party subject to Article
8.2 and Article 8.7. If Operator disposes of any Joint Property or any
other credit or adjustment is made to the Joint Account, or if Operator
sells any of the Defaulting Party's Participating Interest share of
Hydrocarbons, then, in respect of the Defaulting Party's Participating
Interest share of the proceeds of such disposal, credit or adjustment
or sale, Operator shall be entitled to retain and to set off the same
against all amounts, together with interest accrued on such amount, due
and owing from the Defaulting Party plus an accrued amount equal to the
Defaulting Party's Participating Interest share of the estimated cost
to abandon any Joint Property. Any surplus remaining after setting off
the same as aforesaid shall be paid promptly to the Defaulting Party.
8.6 Abandonment
If, within thirty (30) Days after the failure by the Defaulting Party
to remedy its default by the thirtieth (30th) Day as aforesaid, no
non-defaulting Party elects to acquire the Defaulting Party's
Participating Interest as provided in Article 8.4, or to bear the
Defaulting Party's Participating Interest share of liabilities and
expenses as provided in Article 8.5, then no transfer shall be made and
Joint Operations shall be abandoned subject to any necessary consents
and notices being given, and each Party, including the Defaulting
Party, shall pay its Participating Interest share of all costs of
abandoning and relinquishing the Concession. If abandonment occurs as
aforesaid, all monies paid by the non-defaulting Parties for the
Defaulting Party pursuant to Article 8.3, together with interest
accrued on such amount, shall remain a debt due and owing by the
Defaulting Party.
8.7 Sale of Hydrocarbons
If a Party defaults after the commencement of commercial production and
has not remedied the default by the thirtieth (30th) Day as aforesaid,
then, during the continuance of such default, the Defaulting Party
shall not be entitled to its Entitlement which shall vest in and be the
property of the non-defaulting Parties, and Operator shall be
authorized to sell such Hydrocarbons at the best price obtainable under
the circumstances and, after deducting all costs, charges and expenses
incurred by Operator in connection with such sale, pay the proceeds
proportionately to the non-defaulting Parties which proceeds shall be
credited against all monies advanced pursuant to Article 8.3, together
with interest accrued thereon. Any surplus remaining shall be paid to
the Defaulting Party, and any deficiency shall remain a debt due from
the Defaulting Party to the non-defaulting Parties. Notwithstanding any
such sales by Operator, the provisions of Article 8.4 shall continue to
apply.
8.8 No Right of Set Off
Each Party acknowledges and accepts that a fundamental principle of
this Agreement is that each Party pays its Participating Interest share
of all amounts due under this Agreement as and when required.
Accordingly, any Party which becomes a Defaulting Party undertakes
that, in respect of either any exercise by the non-defaulting Parties
of any rights under or the application of any of the provisions of this
Article, such Party shall not raise by way of set off or invoke as a
defense, whether in law or equity, any failure to pay amounts due and
owing under this Agreement or any alleged or unliquidated claim that
such Party may have against Operator or any Non-Operator, whether such
claim arises under this Agreement or otherwise. Such Party further
undertakes not to raise by way of defense, whether in law or in equity,
that the nature or the amount of the remedies granted to the
non-defaulting Parties is unreasonable or excessive.
<PAGE>
ARTICLE IX
DISPOSITION OF PRODUCTION
9.1 Right and Obligation to Take in Kind
Except as otherwise provided in this Article 9 and Article 8.7, each
Party shall have the right and obligation to own, take in kind and
separately dispose of its Participating Interest share of total
production available to the Parties pursuant to the Concession in such
quantities and in accordance with such procedures as may be set forth
in the offtake agreement referred to in Article 9.2 or in the special
arrangements for natural gas referred to in Article 9.3. If EGPC is
party to the offtake agreement, then the Parties shall endeavor to
obtain its agreement to the principles set forth in this Article 9. To
the extent that a Party requires separate facilities to exercise its
rights under this Article 9.1, the costs of such separate facilities
will be borne solely by such Party.
9.2 Offtake Agreement for Crude Oil
If Crude Oil is to be produced from the Concession, the Operator shall
submit an offtake agreement for the Parties consideration, and the
Parties shall in good faith, and not less than three (3) months prior
to first delivery of Crude Oil, negotiate and conclude the terms of an
agreement to cover the offtake of Crude Oil produced under the
Concession. EGPC may, if necessary and practicable, also be party to
the offtake agreement. This offtake agreement shall, to the extent
consistent with the Concession, make provision for:
A) The delivery point, at which title and risk of loss of Participating
Interest shares of Crude Oil shall pass to the Parties interested (or as
the Parties may otherwise agree);
B) Operator's regular periodic advice to the Parties of estimates of total
available production for succeeding periods, Entitlements, and grades of
Crude Oil for as far ahead as is necessary for Operator and the Parties to
plan offtake arrangements. Such advice shall also cover for each grade of
Crude Oil total available production and deliveries for the preceding
period, inventory and overlifts and underlifts;
C) Nomination by the Parties to Operator of acceptance of their Entitlement of
total available production for the succeeding period. Such nominations
shall in any one period be for each Party's entire Entitlement arising
during that period subject to operational tolerances and agreed minimum
economic cargo sizes or as the Parties may otherwise agree;
D) Elimination of overlifts and underlifts;
E) If offshore loading or a shore terminal for vessel loading is involved,
risks regarding acceptability of tankers, demurrage and (if applicable)
availability of berths;
F) Distribution to the Parties of Entitlements to ensure, to the extent
Parties take delivery of their Entitlements in proportion to the accrual of
such Entitlements, that each Party shall receive currently Entitlements of
grades, gravities and qualities of Hydrocarbons similar to Hydrocarbons
received by each other Party;
G) To the extent that distribution of Entitlements on such basis is
impracticable due to availability of facilities and minimum cargo sizes, a
method of making periodic adjustments; and
H) The option and the right of the other Parties to sell an Entitlement which
a Party fails to nominate for acceptance pursuant to Article 9.2(C) above
or of which a Party fails to take delivery, in accordance with applicable
agreed procedures, provided that such failure either constitutes a breach
of Operator's or Parties' obligations under the terms of the Concession, or
is likely to result in the curtailment or shut-in of production. Such sales
shall be made only to the limited extent necessary to avoid disruption in
Joint Operations. Operator shall give all Parties as much notice as is
practicable of such situation and that a sale option has arisen. Any sale
shall be of the unnominated or undelivered Entitlement as the case may be
and for reasonable periods of time in no event to exceed twelve (12)
months. The right of sale shall be revocable at will subject to any prior
contractual commitments. Sales to non-affiliated third parties shall be for
the realized price f.o.b. the delivery point. Sales to any of the Parties
or their Affiliates shall be at current market value f.o.b. the delivery
point. The Party arranging the sale shall pay to the Party whose
Entitlement is involved the above price after deduction of all costs,
including storage costs, incurred in respect of such sale and a marketing
fee of an agreed percentage of the applicable price less deductions,
reflecting actual costs of disposal at immediate notice. Current market
value shall be the value of the Entitlement in international markets
(unless the Entitlement was required to be delivered into the Government's
domestic market, in which case it shall be the value therein) between a
willing buyer and a willing seller and shall be agreed between the two
Parties concerned, or failing agreement, determined by an expert to be
appointed in accordance with procedures set forth in the offtake agreement.
If an offtake agreement has not been entered into by the date of first
delivery of Crude Oil, the Parties shall be bound by the principles set
forth in this Article 9.2 until an offtake agreement has been entered into.
9.3 Separate Agreement for Natural Gas
The Parties recognize that if natural gas is discovered it may be
necessary for the Parties to enter into a long term Gas Sales Agreement
as contemplated in Article III(d)(ii) of the Concession. Failing such
agreement, the Parties shall negotiate special arrangements, including
gas balancing, for the disposal of same.
9.4 EGPC Preferential Right of Purchase
In the event EGPC exercises its preferential right to purchase
Hydrocarbons produced under the Concession, each Party shall contribute
the quantity required proportionately to its Entitlement thereof. Or,
if EGPC requires that Crude Oil from the Concession be sold to or with
EGPC under a joint marketing arrangement or otherwise, Operator shall
use its best efforts to obtain the unanimous agreement of the Operating
Committee to the terms and conditions of any such arrangement or
agreement.
9.5 Government's Right of Requisition
In the event the Government requisitions Contractor's share of
Hydrocarbons produced under the Concession, each Party shall contribute
the quantity required proportionately to its Participating Interest
share thereof.
<PAGE>
ARTICLE X
ABANDONMENT OF WELLS
10.1 Abandonment of Wells Drilled as Joint Operations
A) Any well which has been drilled as a Joint Operation and which
is proposed to be plugged and abandoned shall not be plugged
and abandoned without the consent of all Parties, and in the
event that the Operating Company has been formed, the consent
of EGPC.
B) Should any such Party fail to reply within the period
prescribed in Article 5.12(A)(1) or Article 5.12(A)(2),
whichever is applicable, after delivery of notice of the
Operator's proposal to plug and abandon such well, such Party
shall be deemed to have consented to the proposed abandonment.
If all the Parties consent to abandonment, such well shall be
plugged and abandoned in accordance with applicable
regulations and at the cost, risk and expense of the Parties
or the Consenting Parties, as applicable.
C) If all Parties do not agree to the abandonment of such well,
those wishing to continue operations shall assume financial
responsibility over the well and shall be deemed to be
Consenting Parties conducting an Exclusive Operation pursuant
to Article VII. In the case of a producing well, the
Consenting Parties shall be entitled to continue producing
only from the Zone open to production at the time they assumed
responsibility for the well.
D) Each Non-Consenting Party shall be deemed to have relinquished
to the Consenting Parties in proportion to their Participating
Interests all of its interest in the wellbore of a produced
well and related equipment in accordance with Article 7.4(B),
insofar and only insofar as such interest covers the right to
obtain production from that wellbore in the Zone then open to
production.
E) Subject to Articles 6.3 and 7.8(G), Operator shall continue to
operate a produced well for the account of the Consenting
Parties at the rates and charges contemplated by this
Agreement, plus any additional cost and charges which may
arise as the result of the separate allocation of interest in
such well.
10.2 Abandonment of Exclusive Operations
This Article shall apply mutatis mutandis to the abandonment of an
Exclusive Well or any well in which an Exclusive Operation has been
conducted; provided that no well shall be permanently plugged and
abandoned unless and until all Parties having the right to conduct
further operations in such well have been notified of the proposed
abandonment and afforded the opportunity to elect to take over the well
in accordance with the provisions of this Article X.
<PAGE>
ARTICLE XI
SURRENDER, EXTENSIONS AND RENEWALS
11.1 Surrender
A) Operator shall advise the Operating Committee of any surrender
requirement under the Concession at least one hundred and twenty (120)
Days in advance of the earlier of the date for filing an irrevocable
notice of such surrender or the date of such surrender. Prior to the
end of such period, the Operating Committee shall determine, pursuant
to Article V, the size and shape of the surrendered area, consistent
with the requirements of the Concession. If a sufficient vote of the
Operating Committee cannot be attained, then the proposal supported by
a simple majority of the Participating Interests shall be adopted. If
no proposal attains the support of a simple majority of the
Participating Interests, then the proposal receiving the largest
aggregate Participating Interest vote shall be adopted. In the event
of a tie, the Operator shall choose among the proposals receiving the
largest aggregate Participating Interest vote. The Parties shall
execute any and all documents and take such other actions as may be
necessary to effect the surrender. Each Party renounces all claims and
causes of action against Operator and any other Parties on account of
any area surrendered in accordance with the foregoing but against its
recommendation if Hydrocarbons are subsequently discovered under the
surrendered area. B) A surrender of all or any part of the Concession
Area which is not required by the Concession shall require the
unanimous consent of the Parties.
11.2 Extension of the Term
A) A proposal by any Party to extend the term of the Exploration Period
or Development Period or any Exploration Sub-Period of the Concession,
a proposal to enter into a new phase of the Exploration Period, and a
proposal to extend the term of the Concession shall be brought before
the Operating Committee pursuant to Article V.
B) Any Party shall have the right to enter into or extend the term of the
Exploration Period or Development Period or any Exploration Sub-Period
of the Concession or extend the term of the Concession, regardless of
the level of support in the Operating Committee. If any Party or
Parties take such action, any Party not wishing to extend or enter
into a new period shall have a right to withdraw, subject to the
requirements of Article XIII.
<PAGE>
ARTICLE XII
TRANSFER OF INTEREST OR RIGHTS
12.1 Obligations
A) Subject always to the requirements of the Concession and subject to
the terms of transfer contained in Articles VIII or XIII, the transfer
of all or part of a Party's Participating Interest shall be effective
only if it satisfies the terms and conditions of this Article.
B) Except in the case of a Party transferring all of its Participating
Interest, no transfer shall be made by any Party which results in the
transferor or the transferee holding a Participating Interest of less
than five (5%) percent or holding any interest other than a
Participating Interest in the Concession and this Agreement.
C) The transferring Party shall, notwithstanding the transfer, be liable
to the other Parties for any obligations, financial or otherwise,
which have vested, matured or accrued under the provision of the
Concession or this Agreement prior to such transfer. Such obligations
shall include, without limitation, any proposed expenditure approved
by the Operating Committee prior to the transferring Party notifying
the other Parties of its proposed transfer.
D) The transferee shall have no rights in and under the Concession or
this Agreement unless and until it obtains any necessary Government
approval and expressly undertakes in writing to perform all
obligations of the transferor under the Concession and this Agreement
in respect of the Participating Interest being transferred, to the
satisfaction of the Parties.
E) The transferee other than an Affiliate shall have no rights in and
under the Concession or this Agreement unless each Party has consented
in writing to such transfer, which consent shall be denied only if
such transferee fails to establish to the reasonable satisfaction of
each Party its financial and technical capability to perform its
obligations under the Concession and this Agreement. With respect to a
transfer to an Affiliate, the transferring Party shall provide each of
the Parties with prior written notice of the transfer. Notwithstanding
such transfer, the transferring Party shall remain liable for any and
all obligations under this Agreement unless such Affiliate establishes
to the reasonable satisfaction of each Party its financial and
technical capability to perform its obligations under the Concession
and this Agreement.
F) Nothing contained in this Article shall prevent a Party from
mortgaging, pledging, charging or otherwise encumbering all or part of
its interest in the Concession and in this Agreement for the purpose
of security relating to a financing provided that:
1) such Party shall remain liable for all obligations
relating to such interest;
2) the encumbrance shall be subject to any necessary
approval of the Government and be expressly
subordinated to the rights of the other Parties under
this Agreement;
3) such Party shall ensure that any such mortgage, pledge,
charge or encumbrance shall be expressed to be without
prejudice to the provisions of this Agreement; and
4) such Party shall advise the remaining Parties of the
existence of any financing, subject to said Party's
right to disclosure under its financing agreements and
shall provide proof of compliance with Article
12.1(F)(3).
12.2 Rights
Each Party shall have the right, subject to the provisions of the
Concession and Article 12.1 hereof, to freely transfer its
Participating Interest.
<PAGE>
ARTICLE XIII
WITHDRAWAL FROM AGREEMENT
13.1 Right of Withdrawal
A) Subject to the provisions of this Article, any Party may
withdraw from this Agreement and the Concession by giving
notice to all other Parties stating its decision to withdraw
and specifying a proposed effective date of withdrawal which
shall be at least sixty (60) Days, but not more than one
hundred eighty (180) Days after the date of such notice. Such
notice shall be unconditional and irrevocable when given.
B) Notwithstanding Article 13.1(A), a Party shall not have the right to
withdraw from this Agreement and the Concession until the Minimum Work
Obligation for the then current Exploration Sub-Period set forth in the
Concession has been fulfilled. However, if the Operating Committee or any
Party decides to accept new Minimum Work Obligations by voluntarily
extending the current or entering into a new Exploration Sub-Period under
the Concession, a Party that voted against such decision shall not be
prevented from withdrawing; provided that such Party delivers notice of its
withdrawal to all Parties within thirty (30) Days of such vote pursuant to
Article 11.2 and fully satisfies its Participating Interest share of the
outstanding Minimum Work Obligation for the then current Exploration
Sub-Period, if any.
C) Subject to Articles 13.1(A) and (B), 13.5 and 13.9, the effective date
of withdrawal for a withdrawing Party shall be the end of the calendar
month following the calendar month in which notice of withdrawal is given.
D) Notwithstanding anything to the contrary contained herein, a Party that
elects to withdraw shall not, unless such Party otherwise agrees, be
considered to have withdrawn from this Agreement or the Concession as it
applies to a Development Lease in which such Party has a Participating
Interest.
<PAGE>
13.2 Withdrawal by Some or All of the Parties
A) Within thirty (30) Days of receipt of each withdrawing Party's
notification, each of the other Parties may also give notice that it
desires to withdraw from this Agreement and the Concession. Should all
Parties give notice of withdrawal, the Parties shall proceed to abandon the
Concession Area and terminate the Concession and this Agreement in
accordance with their respective terms. If less than all of the Parties
give such notice of withdrawal, then the withdrawing Parties shall take all
steps to withdraw from the Concession and this Agreement on the earliest
possible date and execute and deliver all necessary instruments and
documents to assign their Participating Interest to the Parties that are
not withdrawing, at its sole cost and expense and without any compensation
whatsoever, in accordance with the provisions of Article 13.6.
B) If any part of the withdrawing Party's Participating Interest remains
unclaimed after sixty (60) Days from the date of the first notice of
withdrawal, the Parties shall be deemed to have decided to withdraw from
the Concession and this Agreement, unless at least one Party agrees to
accept the unclaimed Participating Interest.
C) Any Party withdrawing under Article 11.2(B) or under this Article XIII
shall, at its option,
1) withdraw from the entirety of the Concession Area; or
2) withdraw only from all exploration activities under the Concession,
but not from any Development Lease made prior to such withdrawal.
A Party withdrawing pursuant to this Article 13.2(C)(2) shall
retain its rights in the Joint Property, but only insofar as
they relate to any such Development Lease, and shall abandon
all other rights in the Joint Property.
<PAGE>
13.3 Rights of a Withdrawing Party
A withdrawing Party shall have the right to receive its Entitlement of
Hydrocarbons produced through the effective date of its withdrawal. The
withdrawing Party shall be entitled to receive all information to which
such Party is otherwise entitled under this Agreement until the
effective date of its withdrawal. After giving its notification of
withdrawal, a Party shall not be entitled to vote on any matters coming
before the Operating Committee, other than matters for which such Party
continues to have financial responsibility.
13.4 Obligations and Liabilities of a Withdrawing Party
A) A withdrawing Party shall, following its notification of
withdrawal, remain liable only for its share of the following:
1) Costs of Joint Operations, and Exclusive Operations in which
it has agreed to participate, that were approved by the
Operating Committee or Consenting Parties as part of a Work
Program and Budget or AFE prior to such Party's notification
of withdrawal, regardless of when they are actually
incurred;
2) Any Minimum Work Obligations for the current Exploration
Sub-Period or phase of the Concession, and for any
subsequent period or phase which has been approved pursuant
to Article 11.2 and with respect to which such Party has
failed to give its notice of withdrawal within the time
periods set out in Article 13.4(B);
3) Emergency expenditures as described in Articles 4.2(B)(11)
and 13.5;
4) All other obligations and liabilities of the Parties or
Consenting Parties, as applicable, with respect to acts or
omissions under this Agreement which were incurred or are
attributable to the period prior to the effective date of
such Party's withdrawal for which such Party would have been
liable, had it not withdrawn from this Agreement; and
5) In the case of a partially withdrawing Party, any costs and
liabilities with respect to Development Leases from which it
has not withdrawn.
The obligations and liabilities for which a withdrawing Party remains
liable shall specifically include its share of any costs of plugging
and abandoning wells or portions of wells in which it participated (or
was required to bear a share of the costs pursuant to Article
13.4(A)(1)), to the extent such costs of plugging and abandoning are
payable by the Parties under the Concession. Any liens, charges and
other encumbrances which the withdrawing Party placed on such Party's
Participating Interest prior to its withdrawal shall be fully
satisfied or released, at the withdrawing Party's expense, prior to
its withdrawal. A Party's withdrawal shall not relieve it from
liability to the non-withdrawing Parties with respect to any
obligations or liabilities attributable to the withdrawing Party under
this Article XIII merely because they are not identified or
identifiable at the time of withdrawal.
<PAGE>
B) Notwithstanding the foregoing, a Party shall not be liable
for any operations or expenditures it voted against (other
than operations and expenditures described in Article
13.4(A)(2) or 13.4(A)(3)) if it sends notification of its
withdrawal within five (5) Days (or within twenty-four (24)
hours if the drilling rig to be used in such operation is
standing by on the Concession Area) of the Operating
Committee vote approving such operation or expenditure.
Likewise, a Party voting against voluntarily entering into
or extending of an Exploration Sub-Period, Exploration
Period or Development Period or any phase of the Concession
or voluntarily extending the Concession shall not be liable
for the Minimum Work Obligations associated therewith
provided that it sends notification of its withdrawal within
the earlier of thirty (30) Days of such vote pursuant to
Article 11.2 or five (5) Days prior to the last date upon
which the Parties must give notice to EGPC pursuant to the
Concession in order to enter such period or obtain such
extension.
13.5 Emergency
A Party's notification of withdrawal shall not become effective if prior to the
proposed effective date of withdrawal a well goes out of control or a fire, blow
out, sabotage or other emergency occurs. The notification of withdrawal shall
become effective only after the emergency has been contained and the withdrawing
Party has paid, or has provided, security satisfactory to the Parties for its
Participating Interest share of the costs of such emergency.
13.6 Assignment
A withdrawing Party shall assign its Participating Interest to each of the
non-withdrawing Parties which shall be allocated to them in the proportion which
each of their Participating Interests (prior to the withdrawal) bears to the
total Participating Interests of all the non-withdrawing Parties (prior to the
withdrawal), unless the non-withdrawing Parties agree otherwise. The expenses
associated with the withdrawal and assignments shall be borne by the withdrawing
Party.
13.7 Approvals
A withdrawing Party shall promptly join in such actions as may be necessary or
desirable to obtain any Government approvals required in connection with the
withdrawal and assignments, and any penalties or expenses incurred by the
Parties in connection with such withdrawal shall be borne by the withdrawing
Party.
13.8 Abandonment Security
A withdrawing Party shall provide Security satisfactory to the other Parties to
satisfy any such obligations or liabilities which were approved or accrued prior
to notice of withdrawal, but which become due after its withdrawal, including,
without limitation, Security to cover the costs of an abandonment, if
applicable; provided that the withdrawing Party was participating or was
obligated to participate in the operations which gave rise to such obligations
or liabilities. "Security" means a standby letter of credit issued by a bank or
an on demand bond issued by a corporation, such bank or corporation having a
credit rating indicating it has sufficient worth to pay its obligations in all
reasonably foreseeable circumstances.
13.9 Withdrawal or Abandonment by all Parties
In the event all Parties decide to withdraw or are required to do so pursuant to
this Article, the Parties agree that they shall be bound by the terms and
conditions of this Agreement for so long as may be necessary to wind up the
affairs of the Parties with the Government, to satisfy any requirements of
applicable law or to facilitate the sale, disposition or abandonment of property
or interests held by the Joint Account.
<PAGE>
ARTICLE XIV
RELATIONSHIP OF PARTIES AND TAX
14.1 Relationship of Parties
The rights, duties, obligations and liabilities of the Parties under
this Agreement shall be individual, not joint or collective. It is not
the intention of the Parties to create, nor shall this Agreement be
deemed or construed to create a mining or other partnership, joint
venture, association or trust, or as authorizing any Party to act as an
agent, servant or employee for any other Party for any purpose
whatsoever except as explicitly set forth in this Agreement. In their
relations with each other under this Agreement, the Parties shall not
be considered fiduciaries except as expressly provided in this
Agreement.
14.2 Tax
Operator shall provide each Party, in a timely manner and at such
Party's sole expense, with such information with respect to Joint
Operations as such Party may reasonably request for preparation of its
tax returns or responding to any audit or other tax proceeding.
<PAGE>
ARTICLE XV
CONFIDENTIAL INFORMATION - PROPRIETARY TECHNOLOGY
15.1 Confidential Information
A) Subject to the provisions of the Concession, the Parties agree that all
information and data acquired or obtained by any Party in respect of Joint
Operations shall be considered confidential and shall be kept confidential and
not be disclosed during the term of the Concession and for a period of two (2)
years after expiration of the Concession to any person or entity not a Party to
this Agreement, except:
1) To an Affiliate, provided such Affiliate maintains
confidentiality as provided in this Article;
2) To a governmental agency or other entity when required by
the Concession;
3) To the extent such data and information is required to be
furnished in compliance with any applicable laws or
regulations, or pursuant to any legal proceedings or because
of any order of any court binding upon a Party;
4) Subject to Article 15.1(B), to potential contractors,
contractors, consultants and attorneys employed by any Party
where disclosure of such data or information is essential to
such contractor's, consultant's or attorney's work;
5) Subject to Article 15.1(B), to a bona fide prospective
transferee of a Party's Participating Interest (including an
entity with whom a Party or its Affiliates is conducting
bona fide negotiations directed toward a merger,
consolidation or the sale of a majority of its or an
Affiliate's shares);
6) Subject to Article 15.1(B), to a bank or other financial
institution to the extent appropriate to a Party arranging
for funding for its obligations under this Agreement;
7) To the extent such data and information must be disclosed
pursuant to any rules or requirements of any government or
stock exchange having jurisdiction over such Party, or its
Affiliates; provided that if any Party desires to disclose
information in an annual or periodic report to its or its
Affiliates' shareholders and to the public and such
disclosure is not required pursuant to any rules or
requirements of any government or stock exchange, then such
Party shall comply with Article 20.2;
8) To its respective employees for the purposes of Joint
Operations, subject to each Party taking customary
precautions to ensure such data and information is kept
confidential; and
9) Where any data or information which, through no fault of a
Party, becomes a part of the public domain.
B) Disclosure as pursuant to Article 15.1(A)(4), (5), and (6) shall not be made
unless prior to such disclosure the disclosing Party has obtained a written
undertaking from the recipient party to keep the data and information strictly
confidential and not to use or disclose the data and information except for the
express purpose for which disclosure is to be made.
<PAGE>
15.2 Continuing Obligations
Any Party ceasing to own a Participating Interest during the term of
this Agreement shall nonetheless remain bound by the obligations of
confidentiality and any disputes shall be resolved in accordance with
Article XVIII.
15.3 Proprietary Technology
Nothing in this Agreement shall require a Party to divulge proprietary
technology to the other Parties; provided that where the cost of
development of proprietary technology has been charged to the Joint
Account, such proprietary technology shall be disclosed to all Parties
bearing a portion of such cost and may be used by such Party or its
Affiliates in other operations.
15.4 Trades
Notwithstanding the foregoing provisions of this Article, Operator may,
with prior approval of the Operating Committee, make well trades and
data trades for the benefit of the Parties, with any data, the cost of
which has been charged to the Joint Account, so obtained to be
furnished to all Parties. Operator shall obtain an undertaking from the
third party receiving such information to keep such information
confidential.
<PAGE>
ARTICLE XVI
FORCE MAJEURE
16.1 Obligations
If as a result of Force Majeure any Party is rendered unable, wholly or
in part, to carry out its obligations under this Agreement, other than
the obligation to pay any amounts due or to furnish security, then the
obligations of the Party giving such notice, so far as and to the
extent that the obligations are affected by such Force Majeure, shall
be suspended during the continuance of any inability so caused, but for
no longer period. The Party claiming Force Majeure shall notify the
other Parties of the Force Majeure situation within a reasonable time
after the occurrence of the facts relied on and shall keep all Parties
informed of all significant developments. Such notice shall give
reasonably full particulars of said Force Majeure, and also estimate
the period of time which said Party will probably require to remedy the
Force Majeure. The affected Party shall use all reasonable diligence to
remove or overcome the Force Majeure situation as quickly as possible
in an economic manner, but shall not be obligated to settle any labor
dispute except on terms acceptable to it and all such disputes shall be
handled within the sole discretion of the affected Party.
16.2 Definition of Force Majeure
For the purposes of this Agreement, "Force Majeure" shall have the
meaning as set forth in Article XXIII(b) of the Concession.
<PAGE>
ARTICLE XVII
NOTICES
17.1 Notices
Except as otherwise specifically provided, all notices authorized or
required between the Parties by any of the provisions of this
Agreement, shall be in writing, in English and delivered in person or
by registered mail or by courier service or by any electronic means of
transmitting written communications which provides confirmation of
complete transmission, and addressed to such Parties as designated
below. The originating notice given under any provision of this
Agreement shall be deemed delivered only when received by the Party to
whom such notice is directed, and the time for such Party to deliver
any notice in response to such originating notice shall run from the
date the originating notice is received. The second or any responsive
notice shall be deemed delivered when received. "Received" for purposes
of this Article with respect to written notice delivered pursuant to
this Agreement shall be actual delivery of the notice to the address of
the Party to be notified specified in accordance with this Article.
Each Party shall have the right to change its address at any time
and/or designate that copies of all such notices be directed to another
person at another address, by giving written notice thereof to all
other Parties.
In the case of a notice to Dublin at:
Dublin International Petroleum (Egypt) Limited
#52 Youssif Abbass Street
Nasr City, Cairo
Telephone: (202) 405-0002
Facsimile: (202) 405-0003
With a copy to:
Tanganyika Oil Company Ltd.
802 - 1015 - 4th Street S.W.
Calgary, Alberta, Canada
T2R 1J4
Telephone: (403) 234-8199
Facsimile: (403) 234-8140
In the case of a notice to GHP at:
GHP Exploration (West Gharib) Ltd.
1900 W. Loop South, Suite 900
Houston, Texas
U.S.A .77027
Attention: Mr. Barry Lasker
Telephone: (713) 626-9373
Facsimile: (713) 626-9374
In the case of notice to Drucker:
Drucker Petroleum Inc.
#830, 789 West Pender Street
Vancouver, British Columbia
V6C 1H2
Telephone: (604) 689-4407
Facsimile: (604) 689-7654
<PAGE>
ARTICLE XVIII
APPLICABLE LAW AND DISPUTE RESOLUTION
18.1 Applicable Law
This Agreement shall be governed by, construed, interpreted and applied
in accordance with the laws of Alberta, Canada, excluding any choice of
law rules which would refer the matter to the laws of another
jurisdiction.
18.2 Dispute Resolution
A) Any dispute, controversy or claim arising out of or in relation to or in
connection with this Agreement or the operations carried out under this
Agreement, including without limitation any dispute as to the construction
validity, interpretation, enforceability or breach of this Agreement, shall be
exclusively and finally settled by arbitration, and any Party may submit such a
dispute, controversy or claim to arbitration.
B) The arbitration shall be heard and determined by three (3) arbitrators. All
decisions and awards by the arbitration tribunal shall be made by majority vote.
C) Unless otherwise expressly agreed in writing by the Parties to the
arbitration proceedings:
1) The arbitration proceedings shall be held in Calgary,
Alberta;
2) The arbitration proceedings shall be conducted in the
English language and the arbitrators shall be fluent in the
English language;
3) The arbitrators shall be and remain at all times wholly
independent and impartial;
4) The arbitration proceedings shall be conducted in accordance
with the UNCITRAL Model Law on International Commercial
Arbitration, in effect upon commencement of arbitration;
5) Any procedural issues not determined under the arbitral
rules selected pursuant to Article 18.2(C)(4) shall be
determined by the law of the place of arbitration, other
than those laws which would refer the matter to another
jurisdiction;
6) The costs of the arbitration proceedings (including legal
fees and costs) shall be borne in the manner determined by
the arbitrators;
7) The decision of the majority of the arbitrators, shall be
reduced to writing; final and binding without the right of
appeal; the sole and exclusive remedy regarding any claims,
counterclaims, issues or accountings presented to the
arbitrator; made and promptly paid in U.S. dollars free of
any deduction or setoff (except if the Party is a Defaulting
Party under Article VIII) and any costs or fees incident to
enforcing the award, shall to the maximum extent permitted
by law, be charged against the Party resisting such
enforcement;
8) Consequential, punitive or other similar damages shall not
be allowed;
9) The award shall include interest from the date of any breach
or violation of this Agreement, as determined by the
arbitral award, and from the date of the award until paid in
full, at the Agreed Interest Rate; and
10) Judgement upon the award may be entered in any court having
jurisdiction over the person or the assets of the Party.
Application may also be made to such court for a judicial
acceptance of the award and an order of enforcement, as the
case may be.
<PAGE>
ARTICLE XIX
ALLOCATION OF COST RECOVERY RIGHTS
19.1 Allocation of Total Production
For the purposes of recovery of Petroleum Costs, the total quantity of
Hydrocarbons which are produced and saved from all Development Leases
in a Calendar Quarter and to which the Parties are entitled under the
Concession shall be designated as either Cost Oil or Production Sharing
Oil.
19.2 Allocation of Cost Oil
Subject to each of the Farmout Agreements and Article 19.4, Cost Oil
shall be allocated in accordance with the Parties' respective
Participating Interests. The allocation of Cost Oil shall be as
required to recover, in the sequence incurred, all Petroleum Costs and
which are recoverable in such Calendar Quarter.
19.3 Allocation of Production Sharing Oil
Production Sharing Oil shall be allocated among the Parties in
proportion to their respective Participating Interests.
19.4 Exclusive Operations and Extensions of the Exploration Period
Prior to the extension of the term of the Exploration Period or and
Exploration Sub-Period by less than all Parties or, where practicable,
prior to the conduct of an Exclusive Operation (or if not, as soon
thereafter as is practicable), the Parties shall meet to determine:
A) the allocation of Cost Oil and Production Sharing Oil between and Development
Leases in which the Parties have different Participating Interests;
B) the allocation of Cost Oil and Production Sharing Oil between the Parties
where Petroleum Costs have been incurred but do not relate to Joint Operations
resulting in the creation of a Development Lease but which become recoverable as
a result of production from another Development Lease elsewhere in the
Concession Area, provided always that Petroleum Costs in relation to a
Development Lease shall be recovered first;
C) without prejudice to Article 7.9, the manner in which the bonuses
contemplated in Article IX of the Concession will be discharged; and
D) such other matters as the Parties may agree.
<PAGE>
ARTICLE XX
GENERAL PROVISIONS
20.1 Warranties as to no Payments, Gifts and Loans
Each of the Parties warrants that neither it nor its affiliates has
made or will make, with respect to the matters provided for hereunder,
any offer, payment, promise to pay or authorization of the payment of
any money, or any offer, gift, promise to give or authorization of the
giving of anything of value, directly or indirectly, to or for the use
or benefit of any official or employee of the Government or EGPC or to
or for the use or benefit of any political party, official, or
candidate for the purpose of influencing an official act or decision of
that person; inducing that person to do or omit to do any act in
violation of his or her lawful duty; or inducing that person to use his
or her influence with the Government or EGPC to affect or influence any
Government or EGPC decision; unless such offer, payment, gift, promise
or authorization is authorized by the written laws or regulations of
the Arab Republic of Egypt. Each of the Parties further warrants that
neither it nor its affiliates has made or will make any such offer,
payment, gift, promise or authorization to or for the use or benefit of
any other person if the Party knows, has a firm belief, or is aware
that there is a high probability that the other person would use such
offer, payment, gift, promise or authorization for any of the purposes
described in the preceding sentence. The foregoing warranties do not
apply to any facilitating or expediting payment to secure the
performance of routine Government action. Routine Government action,
for purposes of this Article 20.1, shall not include, among other
things, Government action regarding the terms, award or continuation of
the Concession. Each Party shall respond promptly, and in reasonable
detail, to any notice from any other Party or its auditors pertaining
to the above stated warranty and representation and shall furnish
documentary support for such response upon request from such other
Party.
20.2 Conflicts of Interest
A) Each Party undertakes that it shall avoid any conflict of interest between
its own interests (including the interests of Affiliates) and the interests of
the other Parties in dealing with suppliers, customers and all other
organizations or individuals doing or seeking to do business with the Parties in
connection with activities contemplated under this Agreement.
B) The provisions of the preceding paragraph shall not apply to:
1) A Party's performance which is in accordance with the local
preference laws or policies of the Government; or
2) A Party's acquisition of products or services from an
Affiliate, or the sale thereof to an Affiliate, made in
accordance with rules and procedures established by the
Operating Committee.
20.3 Public Announcements
A) Operator shall be responsible for the preparation and release of all public
announcements and statements regarding this Agreement and the Joint Operations;
provided that, no public announcement or statement shall be issued or made
unless prior to its release all the Parties have been furnished with a copy of
such statement or announcement and two (2) or more Parties holding more than
fifty percent (50%) of the Participating Interests have approved the same. Where
a public announcement or statement becomes necessary or desirable because of
danger to or loss of life, damage to property or pollution as a result of
activities arising under this Agreement, Operator is authorized to issue and
make such announcement or statement without prior approval of the Parties, but
shall promptly furnish all the Parties with a copy of such announcement or
statement.
B) If a Party wishes to issue or make any public announcement or statement
regarding this Agreement or the Joint Operations, it shall not do so unless
prior to its release, such Party furnishes all the Parties with a copy of such
announcement or statement, and obtains the approval of the Parties holding fifty
percent (50%) or more of the Participating Interests; provided that,
notwithstanding any failure to obtain such approval, no Party shall be
prohibited from issuing or making any such public announcement or statement if
it is necessary to do so in order to comply with the applicable laws, rules or
regulations of any government, legal proceedings or stock exchange having
jurisdiction over such Party as set forth in Articles 15.1(A)(3) and (7).
<PAGE>
20.4 Successors and Assigns
Subject to the limitations on transfer contained in Article XII, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Parties.
20.5 Waiver
No waiver by any Party of any one or more defaults by another Party in
the performance of this Agreement shall operate or be construed as a
waiver of any future default or defaults by the same Party, whether of
a like or of a different character. Except as expressly provided in
this Agreement no Party shall be deemed to have waived, released or
modified any of its rights under this Agreement unless such Party has
expressly stated, in writing, that it does waive, release or modify
such right.
20.6 Severance of Invalid Provisions
If and for so long as any provision of this Agreement shall be deemed
to be judged invalid for any reason whatsoever, such invalidity shall
not affect the validity or operation of any other provision of this
Agreement except only so far as shall be necessary to give effect to
the construction of such invalidity, and any such invalid provision
shall be deemed severed from this Agreement without affecting the
validity of the balance of this Agreement.
20.7 Modifications
Except as is provided in Article 20.6, there shall be no modification
of this Agreement except by written consent of all Parties.
20.8 Headings
The topical headings used in this Agreement are for convenience only
and shall not be construed as having any substantive significance or as
indicating that all of the provisions of this Agreement relating to any
topic are to be bound in any particular Article.
20.9 Singular and Plural
Reference to the singular includes a reference to the plural and vice
versa.
20.10 Gender
Reference to any gender includes a reference to all other genders.
20.11 Counterpart Execution
This Agreement may be executed in any number of counterparts and each
such counterpart shall be deemed an original Agreement for all
purposes; provided no Party shall be bound to this Agreement unless and
until all Parties have executed a counterpart. For purposes of
assembling all counterparts into one document, Operator is authorized
to detach the signature page from one or more counterparts and, after
signature thereof by the respective Party, attach each signed signature
page to a counterpart.
20.12 Entirety and Conflict
This Agreement constitutes the entire agreement of the Parties and
supersedes all prior understandings and negotiations of the Parties,
with the exception of Article 2 of the GHP Farmout Agreement and
Article 2 of the Drucker Farmout Agreement. In the event of a conflict
between Article 2 of the GHP Farmout Agreement and this Agreement, as
between GHP and Dublin, the terms of Article 2 of the GHP Farmout
Agreement shall govern to the extent of the conflict. In the event of a
conflict between Article 2 of the Drucker Farmout Agreement and this
Agreement, as between Drucker and Dublin, the terms of Article 2 of the
Drucker Farmout Agreement shall govern to the extent of the conflict.
<PAGE>
IN WITNESS of their agreement each Party has caused its duly authorized
representative to sign this instrument on the date indicated below such
representative's signature.
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
By: -----------------------------------
Title: ___________________________________
Date: ___________________________________
GHP EXPLORATION (WEST GHARIB) LTD.
By: -----------------------------------
Title: ___________________________________
Date: ___________________________________
DRUCKER PETROLEUM INC.
By: ___________________________________
-----------------------------------
Title: ___________________________________
Date: ___________________________________
<PAGE>
3
TABLE OF CONTENTS
ARTICLE I DEFINITIONS..........................................................1
ARTICLE II EFFECTIVE DATE AND TERM.............................................7
ARTICLE III PARTICIPATING INTERESTS............................................8
ARTICLE IV OPERATOR...........................................................10
ARTICLE V OPERATING COMMITTEE.................................................17
ARTICLE VI WORK PROGRAMS AND BUDGETS..........................................21
ARTICLE VII OPERATIONS BY LESS THAN ALL PARTIES...............................28
ARTICLE VIII DEFAULT..........................................................38
ARTICLE IX DISPOSITION OF PRODUCTION..........................................42
ARTICLE X ABANDONMENT OF WELLS................................................44
ARTICLE XI SURRENDER, EXTENSIONS AND RENEWALS.................................45
ARTICLE XII TRANSFER OF INTEREST OR RIGHTS....................................46
ARTICLE XIII WITHDRAWAL FROM AGREEMENT........................................48
ARTICLE XIV RELATIONSHIP OF PARTIES AND TAX...................................51
ARTICLE XV CONFIDENTIAL INFORMATION - PROPRIETARY TECHNOLOGY..................52
ARTICLE XVI FORCE MAJEURE.....................................................54
ARTICLE XVII NOTICES..........................................................55
ARTICLE XVIII APPLICABLE LAW AND DISPUTE RESOLUTION...........................57
ARTICLE XIX ALLOCATION OF COST RECOVERY RIGHTS................................59
ARTICLE XX GENERAL PROVISIONS.................................................60
<PAGE>
INTERNATIONAL JOINT OPERATING AGREEMENT
Between :
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
-and-
GHP EXPLORATION (WEST GHARIB) LTD.
-and-
DRUCKER PETROLEUM INC.
West Gharib Area
Arab Republic of Egypt
EXHIBIT 10.2
WEST GHARIB BLOCK OPERATING/TECHNICAL COMMITTEE
MEETING MARCH 1999 RESOLUTION
<PAGE>
DUBLIN
INTERNATIONAL PETROLEUM (EGYPT) LIMITED
Suite 802 - 1015-4th Street S.W. Calgary, Alberta, Canada, TR 1J4
Telephone: (403) 234-8199 - Facsimile: (403) 234-8140
March 24, 1999
GHP Exploration (West Gharib) Ltd. Drucker Petroleum Ltd.
Suite 900 Suite 830
1900 West Loop South 789 West Pender Street
Houston, Texas Vancouver, B.C.
77027 V6H 1H2
Gentlemen:
Re: Operating/Technical Committee Meeting-March 17, 1999
West Gharib Block
Enclosed are the minutes of the captioned meeting with four resolutions
capturing the agreements reached among the partners.
I would appreciate it if you would sign the attached copies of the resolutions
and return them to me as soon as possible. Your acceptance by fax (403-234-8140)
followed by originally signed copies by mail would expedite the process of
submitting the Work Program and Budget to EGPC for their approval.
If you have any concerns with respect to the enclosed material please call me
immediately at 403-234-8199.
Your truly,
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
/s/ E. L. Molnar
Edward L. Molnar
President
<PAGE>
APPENDIX A
Resolution No. 1
It is acknowledged by all parties that exploration activities must be conducted
as cost effectively as possible with particular regard to the risk/reward
aspects of each and every expenditure.
It was agreed that the earning provisions of the Farmout Agreements between
Dublin International Petroleum (Egypt) Limited ("Dublin") (Farmor) and GHP
Exploration (Egypt) Ltd. (Farmee) ("GHP") and Drucker Petroleum Inc. ("Drucker")
(Farmee)did not necessarily represent the most efficient use of funds by
requiring
a deep test, regardless of technical merit.
It was therefore unanimously agreed that the Farmout Agreement between Dublin
and Drucker dated April 27, 1998 be amended as follows:
o "Clause 1:01 - "Contract Depth" means a depth sufficient to adequately
evaluate the full potential of the Rudels Sand but to a depth of no
less than 200 feet below the top of the uppermost sand in the Rudeis
Formation."
o "Clause 2.03 - Drucker shall bear and pay forty percent (40%) of the
costs and expenses associated with the drilling of one or more
exploratory wells to Contract Depth including casing to total depth and
subsequent testing or abandonment of the said well(s) in the Initial
Exploration Period. When total cumulative costs incurred in drilling
and completing or abandoning the said well(s) equal to one million two
hundred and fifty United States Dollars (US $1,250,000), or a maximum
cost to Drucker of five hundred thousand United States Dollars
(US $500,000); Drucker thereafter shall pay twenty percent (20%) of all
costs and expenses with any further activity related to the well(s).
APPROVED AND ACCEPTED
Dublin International Petroleum (Egypt) Limited
/s/ E.L. Molnar
- ---------------------------
Edward L. Molnar, President
Drucker Petroleum Inc.
(Signed)
- ---------------------------
Ernest Cheung, President
<PAGE>
EXCLUDED DEVELOPMENT LEASE ARE DELINEATED BY POINTS:
POINT NO. LAT. NORTH LONG. EAST
- --------- ---------- ----------
1 28o 27' 00.000" 32o 54' 45.000"
2 28o 23' 30.000" 32o 54' 45.000"
3 28o 23' 30.000" 32o 53' 30.000"
4 28o 23' 00.000" 32o 53' 30.000"
5 28o 23' 00.000" 32o 56' 30.000"
6 28o 20' 30.000" 32o 56' 30.000"
7 28o 20' 30.000" 32o 53' 30.000"
8 28o 21' 00.000" 32o 53' 30.000"
9 28o 21' 00.000" 32o 50' 30.000"
10 28o 27' 00.000" 32o 50' 30.000"
EXHIBIT 10.3
FARMOUT AGREEMENT
<PAGE>
FARMOUT AGREEMENT
BETWEEN
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
a wholly-owned subsidiary of
TANGANYIKA OIL COMPANY LTD.
and
DRUCKER PETROLEUM INC.
a wholly-owned subsidiary of
DRUCKER INDUSTRIES LTD.
<PAGE>
I N D E X
Article Number Heading Page
1.1_ Definitions 2
2.0 Obligations of the Parties 3
3.0 Representations and Warranties 4
4.0 Relationship of the Parties 6
5.0 Information 6
6.0 Applicable Law & Resolution of Disputes 7
7.0 Miscellaneous 7
Annexure "A" Concession Agreement
Annexure "B" Deed of Assignment
<PAGE>
FARMOUT AGREEMENT
THIS AGREEMENT is made and entered into as of the 28th day of April 1998, by and
between:
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED, a company organised and
existing under the laws of the Republic of Ireland ("Dublin") and
wholly-owned subsidiary of TANGANYIKA OIL COMPANY LTD., a company
organised and existing under the laws of Canada ("Tanganyika") and;
DRUCKER PETROLEUM INC., a company organised and existing under the laws
of the British Virgin Islands ("Drucker") and wholly-owned subsidiary
of DRUCKER INDUSTRIES LTD., a company organised and existing under the
laws of the United States.
WITNESSETH WHEREAS:
1. On November 17, 1997, Dublin was notified of the acceptance by the
Exploration Offers Committee of the Egyptian General Petroleum
Corporation (EGPC) of Dublin=s application in a concession covering an
area of approximately 2,320 square kilometres known as Block H, West
Gharib, Gulf of Suez, Egypt.
2. On December 1, 1997, Dublin and EGPC initiated a concession agreement
(the "CA") pursuant to which Dublin was granted the right to explore
for and exploit petroleum on the Contract Area (as hereinafter
defined). The CA is subject to ratification by the Government of the
Arab Republic of Egypt (the "Government").
3. On December 28, 1997, Dublin and EGPC signed a Pre-Effective Date
Expenditure Agreement pursuant to which Dublin's Concession
expenditures would be recoverable under the CA prior to the effective
date of the CA.
4. On March 24, 1998 Dublin was notified by EGPC that Law No. 15 for 1998
concerning the CA was issued.
<PAGE>
5. Subject to the approvals of the Government and EGPC, Dublin is willing
to transfer and assign to Drucker an undivided twenty percent (20%)
Participating Interest in the CA, together with all rights and
obligations pertaining thereto; and
6. Drucker is desirous of acquiring the said twenty percent (20%)
Participating Interest on the basis of the terms and conditions set
forth herein.
NOW THEREFORE in consideration of the mutual promises, agreements and covenants
hereinafter set forth, the parties hereto agree as follows:
1.1_ DEFINITIONS
1.01 The terms defined in the recitals hereof or at other instances herein shall
have the meanings attributed to them thereby. In addition, the following words
and expressions shall, for the purpose of this Agreement, bear the meanings
respectively set opposite them:
"Acquired Interest" means a twenty (20%) undivided Participating Interest
free and clear of all encumbrances to be transferred
and assigned as contemplated herein by Dublin to
Drucker;
"Affiliate" means in relation to each Party, any company,
corporation or other entity
1. which is directly or indirectly controlled by
such Party; or
2. which directly or indirectly controls such
Party; or
3. which is directly or indirectly controlled by
a company, corporation or other entity that
also directly or indirectly controls such
Party.
To this effect, control is conclusive by fact of owning
directly or indirectly shares in the company
representing more than fifty percent (50%) of the vote
in general meeting.
"Agreement" means this Farmout Agreement;
<PAGE>
"Contract Area" means the area described in the Concession Agreement
(CA);
"Contract Depth" means at depth of 200 feet into the Nubia Formation or
9,000 feet whichever is shallower.
"Deed of Assignment" means the instrument of transfer to be submitted to
the Government and EGPC for the purpose of obtaining
all the necessary official consents to the assignment
of the Acquired Interest by Dublin to Drucker, which
instrument will substantially be in the form set forth
in Annex "B" attached hereto;
"Effective Date" means the date of execution of this Agreement;
"Joint Operating means the Joint Operating Agreement to be entered into
Argeement" or "JOA" between the Parties;
"Participating Interest" means an undivided percentage interest in the CA and
the JOA and all rights and obligations pertaining
thereto;
"Party" means a party to this Agreement.
All other terms specifically defined in the CA and not defined herein shall have
the meanings assigned to them in the CA unless the context clearly requires
otherwise. A copy of the CA is attached hereto as Annexure AA@.
1.02 Unless the context otherwise requires, reference to any Article is to an
Article of this Agreement. In addition, where the context requires, the singular
shall include the plural and the plural shall include the singular.
2.0 OBLIGATIONS OF THE PARTIES
2.01 Drucker shall, within seven (7) days of the Effective Date, pay to
Dublin the following:
<PAGE>
a. thirty-four thousand United States Dollars (US$34,000), being
twenty percent (20%) of all costs incurred prior to the
Effective Date;
b. three hundred thousand United States Dollars (US$300,000),
being forty percent (40%) of the Signature Bonus payable to
EGPC;
c. eight thousand United States Dollars (US$8,000), being twenty
percent (20%) of the CA administration costs payable to EGPC;
1. ten thousand United States Dollars (US$10,000), being twenty
percent (20%) of the annual training bonus payable to EGPC.
Payments shall be effected to Tanganyika=s bank account numbered 1489057.202
with Cantrade Ormond Burrus Banque Privee S.A., 12 rue Ami-Lullin, P.O. Box
3142, CH-1211, Geneva 3, Switzerland.
2.02 From and after the Effective date, Drucker shall bear and pay twenty
percent (20%) of all costs and expenses including but not limited to the
Financial Obligations related to the CA.
2.03 Drucker shall bear and pay forty percent (40%) of the costs and expenses
associated with the drilling of an exploratory well to Contract Depth including
casing to total depth and subsequent testing or abandonment of said well in the
Initial Exploration Period. Notwithstanding the above, upon the earlier to occur
of (a) the drilling and testing of this exploratory well, or (b) total
cumulative costs incurred in drilling and completing or abandoning the said well
equal to one million five hundred thousand United States Dollars (US$1,500,000),
or a maximum cost to Drucker of six hundred thousand United States Dollars
(US$600,000); thereafter, Drucker shall pay twenty percent (20%) of all costs
and expenses with any further activity related to this well.
2.04 Drucker shall, within seven (7) days of the Effective Date, provide either
Dublin or Tanganyika (at Dublin=s option) with a bank guarantee from a bank
acceptable to Dublin equivalent to two million United States Dollars
(US$2,000,000), being forty percent (40%) of the Letter of Guarantee. Both
<PAGE>
Dublin and Tanganyika shall immediately provide Drucker with a Trust Agreement
covering the 20% working interest of Drucker until a Deed of Assignment is
approved by EGPC and the Government.
2.05 Dublin shall, upon receipt of the sums set out in Article 2.01 and the bank
guarantee set out in Article 2.04, prepare, execute and submit the Deed of
Assignment to Drucker for execution by Drucker.
2.06 Dublin shall, as soon as possible following the date of receiving the fully
executed Deed of Assignment, submit the same for approval by EGPC and the
Government and will use its best efforts to obtain said approvals.
2.07 Following the approval of the Deed of Assignment by EGPC and the
Government, the respective Participating Interests of the Parties shall be as
follows:
Dublin 50%
GHP 30%
Drucker 20%
----
100%
2.08 Drucker agrees to assume its respective share of the rights and obligations
of Dublin arising from and under the CA with respect to the Acquired Interest
from and after the date of execution of the Deed of Assignment.
2.09 The Parties shall use reasonable efforts to execute the JOA, which shall
take effect as of the Effective Date, within thirty (30) days after execution of
this Agreement.
2.10 The Parties agree that the Operator shall be Dublin. The Operator shall
conduct all operations in accordance with the provisions of the CA and the JOA.
<PAGE>
3.0 REPRESENTATIONS AND WARRANTIES
3.01 Dublin hereby represents and warrants to Drucker that:
a. it is duly established and existing under the laws of the
Republic of Ireland and has the power and authority to own its
own assets and to conduct the business which it carries on;
b. it has the corporate power to enter into this Agreement, the
JOA and the Deed of Assignment and to carry out the
transactions provided for therein and has taken all necessary
corporate action to authorise the execution and delivery of
this Agreement, the Deed of Assignment and the JOA, which
agreements constitute legally binding obligations on it;
c. the CA is valid, approved by Majlis Al Shaab (Egyptian
Parliament) and in good standing and there has been no default
by Dublin under, or breach by Dublin of the CA; and
d. Law No. 15 for 1998 has been issued by the Government giving
the beneficial title to the Acquired Interest and such title
is free and clear of all charges and claims of all persons and
entities (and will be so assigned free and clear at the date
of assignment) other than those of the Government and EGPC,
whose charges and claims are fully set forth in the CA;
e. there is no pending of threatened litigation which would
materially affect the consumption of, and benefits under this
Agreement, the Deed of Assignment and/or the JOA; and
f. it shall, pursuant to Article 2, use its best efforts to
obtain all official consents to the Deed of Assignment.
<PAGE>
3.02 Drucker hereby represents and warrants to Dublin that:
a. it is duly established and existing under the laws of the
British Virgin Islands;
b. it has the corporate power to enter into this Agreement, the
Deed of Assignment and the JOA, and to carry out the
transactions provided for therein and has taken all necessary
corporate action to authorise the execution and delivery of
this Agreement, the Deed of Assignment and the JOA which
agreements constitute legally binding obligations on it.
4.0 RELATIONSHIP OF THE PARTIES
4.01 The rights, duties, obligations and liabilities of the Parties herein shall
be several and not joint or collective; and nothing herein contained shall ever
be construed as creating a partnership of any kind, an association, or a trust,
or as imposing upon any or all of the Parties hereto any partnership duty,
obligation or liability. Each Party shall be individually responsible only for
its obligations as set out in this Agreement.
5.0 INFORMATION
5.01 On the Effective Date, Dublin will make available and furnish to Drucker
all data and information related to the Contract Area and the CA.
5.02 Subject to the CA, the Parties hereto agree that the terms of this
Agreement shall be considered confidential and shall not be disclosed to any
third party, except to the extent provided by (d) below. Neither Party shall,
without the prior written consent of the other Party, disclose during the
currency of this Agreement to any third party any data or information acquired
or obtained by any of them under the CA, provided that any Party may disclose
any such information or data:
a. to the Government and EGPC;
b. to an Affiliate;
<PAGE>
c. to any technical, financial or other professional consultant
retained by it or its Affiliate, which requires the
information or data to provide professional services to Dublin
or Drucker;
d. to the extent required:
i. by law, or
ii. by the rules and regulations of any stock exchange
upon which the shares or other securities of any
Party or an Affiliate are listed or in connection
with an application to any stock exchange for listing
of any such shares or other securities;
e. to any third party with which bona fide negotiations for a
Participating Interest are conducted; or
f. to the extent that the information is in the public domain;
provided always that with the exception of disclosure under (a), (b), (d), and
(f) hereinabove, the recipient of any information agrees in writing to keep the
same strictly confidential.
6.0 APPLICABLE LAW AND RESOLUTION OF DISPUTES
6.01 This Agreement shall be governed by and construed in accordance with the
laws of Canada, excluding, however, any of its conflict of law rules which would
direct or refer to the laws of another jurisdiction. The Parties hereto
specifically attorn and submit themselves to the jurisdiction of the courts of
Canada. In addition, each Party irrevocably waives any objection which it may
now or hereafter have to laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in the courts of Canada, and
irrevocably waives any claim that any such suit, action or proceeding brought in
the courts of Canada has been brought in an inconvenient forum and further
irrevocably waives the right to object, with respect to such claim, suit action
or proceeding brought in the courts of Canada, that such court does not have
jurisdiction over such Party.
7.0 MISCELLANEOUS
7.01 This Agreement is subject to regulatory body approval.
<PAGE>
7.02 Any obligation of the Parties hereunder shall be suspended while they or
any of them is prevented or hindered from complying therewith by any cause of
force majeure as that term is defined in the Force Majeure Article of the CA.
Any time limitations set forth in the Agreement shall be automatically extended
for the same period of time that the obligations are so suspended.
7.03 The terms, conditions, warranties and representations in this Agreement
shall survive the execution of the Deed of Assignment and the JOA.
7.04 This Agreement may be amended in any manner and at any time only by a
written instrument executed by the Parties hereto.
7.05 Whether or not the transactions contemplated herein shall be consummated,
each of the Parties shall (except as otherwise specifically provided herein) pay
his own expenses incidental to the preparation, execution and performance of
this Agreement.
7.06 Either of the Parties shall execute and deliver such other certificates,
agreements and other documents and take such other actions as may reasonably be
requested by the other Party in order to consummate or implement the
transactions contemplated by this Agreement.
7.07 All notices, requests, demands or other communications hereunder shall be
in writing, and shall be delivered by hand or sent by courier. Notices sent by
<PAGE>
fax are deemed to be received on the working day of the recipient following
dispatch provided that the recipient acknowledge receipt by return fax.
a. If to DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED:
Suite 1320-885 West Georgia Street
Vancouver, BC
Canada V6V 3E8
Attention: Mr. Lukas Lundin
Telephone: (604) 689 7842
Facsimile: (604) 689 4250
2. If to DRUCKER PETROLEUM INC.:
Suite 900, 789 West Pender Street
Vancouver, B.C.
Canada V6C 1H2
Attention: Mr. Ernest Cheung
Telephone: (604) 685-3193
Facsimile: (604) 681-7536
The address of each Party hereto may be changed for any or all purposes of the
Agreement by five (5) days advance written notification from the Party changing
its address to the other Party.
7.08 This Agreement and all the provisions hereof shall be binding upon and
enure to the benefit of the Parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights, interest or
obligations hereunder shall be assigned, by operation of law or otherwise
consent of the other Parties, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, each Party shall be entitled, upon notification,
to assign to an Affiliate without the consent of the other Party.
7.09 This Agreement may be executed in one or more counterparts, all of which
will constitute one and the same instrument.
<PAGE>
7.10 The section headings in this Agreement are for convenience and reference
only and shall not be deemed to alter or affect the meaning or interpretation of
any provision thereof.
7.11 This Agreement hereby supersedes any and all other agreements, oral or
written, and constitutes the entire agreement among the Parties hereto in
respect of the subject matter of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
day and year first above written.
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
"Edward L. Molnar"
- -----------------------------
Name: Edward L. Molnar
Title: President
DRUCKER PETROLEUM INC.
"Ernest Cheung"
- -----------------------------
Name:
Title:
<PAGE>
ANNEXURE "A"
CONCESSION AGREEMENT
<PAGE>
ANNEXURE "B"
DEED OF ASSIGNMENT
<PAGE>
DEED OF ASSIGNMENT
THIS DEED OF ASSIGNMENT is made as of this day of April, 1998 between:
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED, a company incorporated
under the laws of the Republic of Ireland ("Dublin"); and
DRUCKER PETROLEUM INC., a company incorporated under the laws of the
British Virgin Islands ("Drucker").
WHEREAS:
A. On April $____, 1998 Dublin signed a Concession Agreement (the "CA") with the
Government of the Arab Republic of Egypt (the "Government") and the Egyptian
General Petroleum Corporation ("EGPC") pursuant to which Dublin was granted the
right to explore for and exploit petroleum from areas described in the CA;
B. Subject to the approval of the Government and EGPC, Dublin is willing to
transfer and assign to Drucker an undivided twenty percent (20%) participating
interest in the CA, together with all rights and obligations pertaining thereto;
and
C. Drucker is desirous of acquiring the said thirty percent (20%) participating
interest on the basis of the terms and conditions set forth herein.
NOW THEREFORE, the Parties hereto agree as follows:
1. Dublin hereby assigns to Drucker an undivided twenty percent (20%)
participating interest in and to the CA and the Drucker hereby accepts such
assignment.
2. Dublin hereby expressly states that the rights and privileges of the
Government and EGPC under the CA shall not be prejudiced by the provisions of
this Agreement.
<PAGE>
3. Drucker hereby expressly agrees to be bound by all the obligations provided
for under the CA.
4. For the purposes of the CA, Drucker=s address is as follows:
Suite 900, 789 West Pender Street
Vancouver, B.C.
Canada V6C 1H2
Attention: Mr. Ernest Cheung
Telephone: (604) 685-3193
Facsimile: (604) 681-7536
5. This Assignment shall be effective upon obtaining the consent of the
Government and EGPC hereto in accordance with Article 21 of the CA.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
day and year first above written.
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
- ---------------------------------
Name:
Title:
DRUCKER PETROLEUM INC.
- ---------------------------------
Name:
Title:
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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0
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<TOTAL-LIABILITY-AND-EQUITY> 40,333,486
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<OTHER-EXPENSES> 798,668
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