SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB/A
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
CIK NO.: 0001042053
For Quarter Ended Commission File Number
September 30, 1999 0-29670
DRUCKER INDUSTRIES, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware N/A
--------- ------------
(State of incorporation) (I.R.S. Employer
Identification No.)
#1-1035 Richards Street, Vancouver, B.C. Canada V6B 3E4
---------------------------------------------------------------
(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code: (604) 681-4421
--------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
32,476,250 as of September 30, 1999
<PAGE>
ITEM 1. Financial Statements
DRUCKER INDUSTRIES, INC.
(An Exploration Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Stated in U.S. dollars)
(Unaudited - See Note 1)
<PAGE>
<TABLE>
<CAPTION>
SEE ACCOMPANYING NOTES
DRUCKER INDUSTRIES, INC.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
(Stated in U.S. dollars)
ASSETS September 30, December 31,
1999 1998
Current
<S> <C> <C>
Cash and term deposits $ 2,898,386 $ 2,763,628
Accrued interest receivable 7,152 5,483
Prepaid expenses - 2,269
2,905,538 2,771,380
Oil and gas projects 485,406 1,262,106
$ 3,390,944 $ 4,033,486
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable and accrued expenses $ 142,693 $ 47,455
Stockholders' Equity - Note 2
Common stock $.001 par value, authorized 50,000,000 shares:
32,476,250 shares issued and outstanding 32,115 32,115
Additional paid-in capital 6,306,803 6,306,803
Deficit accumulated during the exploration stages ( 3,090,667) ( 2,352,887)
3,248,251 3,986,031
$ 3,391,144 $ 4,033,486
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
<CAPTION>
DRUCKER INDUSTRIES, INC.
(A Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine month periods ended September 30, 1999 and 1998
and January 1, 1997 (Date of Inception of Exploration Stage) to September 30, 1999
(Stated in U.S. dollars)
(Unaudited - See Note 1)
January 1, 1997
(Date of Incep-
tion of Explora-
Three months ended Nine months ended tion Stage) to
Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
General and administrative
Expenses-Schedule 1 $ 32,426 $ 27,274 $ 138,492 $ 130,774 $ 568,463
Dry hole expenses-Schedule 2 - - - - 147,281
Exploration expenses-Schedule 3 406,964 211,600 704,737 211,600 1,554,025
Loss before the following: ( 439,390) ( 238,874) ( 843,229) ( 342,374) ( 2,269,769)
Interest income 37,961 11,213 105,449 112,723 465,740
Net loss $ ( 401,429)$ ( 227,661) $ ( 737,780) $ ( 229,651) $ ( 1,804,029)
Net loss per share $ ( 0.01) $ ( 0.01) $ ( 0.02) $ ( 0.01)
Weighted average shares
outstanding 32,476,250 32,476,250 32,476,250 32,476,250
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
<CAPTION>
DRUCKER INDUSTRIES, INC.
(A Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the nine months ended September 30, 1996, 1997, 1998 and 1999 and years ended December 31, 1990 to
December 31, 1998 and
February 4, 1971 (Date of Inception) to September 30, 1999
(Stated in U.S. dollars)
(Unaudited - See Note 1)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Explora-
Shares Amount Capital tion Stage Total
<S> <C> <C> <C> <C> <C>
Shares issued to acquire Monetary Metals, Inc. 675,000 $ 675 $ ( 675) $ -
Shares issued to acquire net assets of Drucker
Sound Design Corporation 2,700,000 2,700 65,046 67,746
Net loss from inception to December 31, 1989 $( 8,115) ( 8,115)
Net loss for year ended December 31, 1990 (144,333) (144,333)
Five for one forward split of outstanding shares 13,500,000 13,500 ( 13,500) -
Funds contributed by stockholder 124,196 124,196
Sale of units for cash, September 1991 1,050,000 1,050 103,950 105,000
Sale of units for cash, December 1991 750,000 750 74,250 75,000
Shares issued to settle debts 52,500 53 5,197 ( 5,250) -
Shares issued to directors as compensation 450,000 450 44,550 ( 45,000) -
Correct funds contributed to stockholders ( 24,990) ( 24,990)
Interest on note payable ( 7,370) ( 7,370)
Net loss for year ended December 31, 1991 ( 38,417) ( 38,417)
Balance, December 31, 1991, as previously reported 19,177,500 19,178 378,024 (248,485) 148,717
Adjustments to previously reported amounts:
Fiscal agent fees ( 18,000) ( 7,300) ( 25,300)
Balance, December 31, 1991, as restated 19,177,500 19,178 360,024 (255,785) 123,417
Sale of common stock, March 1992 700,000 700 69,300 70,000
Sale of common stock, September 1992 500,000 500 54,500 55,000
Net loss for year ended December 31, 1992 ( 78,078) ( 78,078)
Balance, December 31, 1992, as previously reported 20,377,500 20,378 483,824 (333,863) 170,339
<PAGE>
DRUCKER INDUSTRIES, INC.
(A Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the nine months ended September 30, 1996, 1997, 1998 and 1999 and years ended
December 31, 1990 to December 31, 1998 and
February 4, 1971 (Date of Inception) to September 30, 1999
(Stated in U.S. dollars)
(Unaudited - See Note 1)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Explora-
Shares Amount Capital tion Stage Total
Balance Forward, December 31, 1992, as previously reported 20,377,500 20,378 483,824 (333,863) 170,339
Adjustments to previously reported amounts:
Fiscal agent fees ( 12,500) ( 20,600) ( 33,100)
Balance, December 31, 1992, as restated 20,377,500 20,378 471,324 (354,463) 137,239
Net loss for the year ended December 31, 1993 (134,081) (134,081)
Balance, December 31, 1993 20,377,500 20,378 471,324 (488,544) 3,158
Adjustment to previously reported amounts:
Fiscal agent fees ( 27,280) ( 27,280)
Balance, December 31, 1993, as restated 20,377,500 20,378 471,324 (515,824) ( 24,122)
Sale of common stock, July, 1994 200,000 200 29,800 30,000
Fiscal agent fees ( 3,000) ( 3,000)
Net loss for the year ended December 31, 1994 (563,546) (563,546)
Balance, December 31, 1994 20,577,500 20,578 498,124 (1,079,370) (560,668)
Shares issued to settle debts 5,976,683 5,977 596,739 602,716
Net loss for the year ended December 31, 1995 ( 79,455) ( 79,455)
Balance, December 31, 1995 26,554,183 26,555 1,094,863 (1,158,825) ( 37,407)
SEE ACCOMPANYING NOTES
<PAGE>
DRUCKER INDUSTRIES, INC.
(A Exploration Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the nine months ended September 30, 1996, 1997, 1998 and 1999 and years ended December 31, 1990
to December 31, 1998 and February 4, 1971 (Date of Inception) to September 30, 1999
(Stated in U.S. dollars)
(Unaudited - See Note 1)
Deficit
Accumulated
Additional During the
Common Stock Paid-in Explora-
Shares Amount Capital tion Stage Total
Balance Forward, December 31, 1995 26,554,183 26,555 1,094,863 (1,158,825) ( 37,407)
Net income for the nine months ended September 30, 1996 20 20
Balance, September 30, 1996 26,554,183 26,555 1,094,863 (1,158,805) ( 37,387)
Shares issued to settle debts 380,002 380 37,620 38,000
Net loss for the three months ended December 31, 1996 ( 3,138) ( 3,138)
Balance, December 31, 1996 26,934,185 26,935 1,132,483 (1,161,943) ( 2,525)
Sale of units for cash, May, 1997 5,179,500 5,180 5,174,320 5,179,500
Shares issued for finders' fee 362,565 -
Net loss for the nine months ended September 30, 1997 ( 42,986) ( 42,986)
Balance, September 30, 1997 32,476,250 32,115 6,306,803 (1,204,929) 5,133,989
Net loss for the three months ended December 31, 1997 ( 506,828) ( 506,828)
Balance, December 31, 1997 32,476,250 32,115 6,306,803 (1,711,757) 4,627,161
Net loss for the nine months ended September 30, 1998 ( 229,651) ( 229,651)
Balance, September 30, 1998 32,476,250 32,115 6,306,803 (1,941,408) 4,397,510
Net loss for the three months ended December 31, 1998 ( 411,479) (411,479)
Balance, December 31, 1998 32,476,250 32,115 6,306,803 (2,352,887) 3,986,031
Net loss for the nine months ended September 30, 1999 ( 737,780) (737,780)
Balance, September 30, 1999 32,476,250 32,115 6,306,803 (3,090,667) 3,248,251
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
<CAPTION>
DRUCKER INDUSTRIES, INC.
(A Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
for the nine months ended September 30, 1999 and 1998
and January 1, 1997 (Date of Inception of Exploration Stage) to September 30, 1999
(Stated in U.S. dollars)
(Unaudited - See Notice to Reader)
January 1, 1997
(Date of
Inception of
Exploration
Stage)
Nine months ended Sept. 30, to Sept. 30,
1999 1998 1999
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss for the period $ ( 737,780) $ ( 229,651) $ ( 1,928,724)
Add item not involving cash:
Capital assets written-off - - 40,288
Write-off of advances - - 31,285
( 737,780) ( 229,651) ( 1,857,151)
Adjustments to reconcile net loss to net cash used
in operations
Advances receivable - 250,709 -
Accrued interest receivable ( 1,669) ( 1,621) ( 7,152)
Prepaid expenses 2,269 - -
Accounts payable and accrued expenses 95,238 ( 75,508) 140,168
Advance payable - ( 50,812) -
Net cash used in operating activities ( 641,942) ( 106,883) ( 1,724,135)
Cash flows used in investing activities
Oil and gas projects costs 776,700 ( 352,000) ( 506,177)
Cash flow from financing activities:
Proceeds from sale of common stock - - 5,179,500
Advance payable - - ( 50,802)
- - 5,128,698
Net increase (decrease) in cash 134,758 ( 458,883) 2,898,386
Cash and term deposits, beginning of period 2,763,628 3,238,576 -
Cash and term deposits, end of period $ 2,898,386 $ 2,779,693 $ 2,898,386
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
DRUCKER INDUSTRIES, INC.
(An Exploration Stage Company)
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
for the three and nine month periods ended September 30, 1998 and 1997
and January 1, 1997 (Date of Inception of Exploration Stage) to September 30, 1999
(Stated in US Dollars)
(Unaudited - See Note 1)
January 1, 1997
(Date of Incep-
tion of Explora-
tion Stage)
Three months ended Sept. 30, Nine months ended Sept. 30, to Sept. 30,
1999 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
Accounting and audit $ 1,824 $ 1,995 $ 39,481 $ 42,642 $ 93,671
Advances written-off - - - - 24,061
Consulting fee 10,763 10,749 43,537 30,911 114,010
Foreign exchange (gain) loss 662 418 1,213 2,614 1,546
Interest and bank charges 1,095 226 1,707 528 2,732
Investor relations 9,611 3,938 21,028 6,852 77,551
Legal - 1,072 66 7,211 71,965
Office and general 5,726 4,252 18,290 26,657 94,823
Rent 2,010 1,906 6,049 6,063 21,445
Transfer agent 425 265 1,074 2,027 3,792
Travel 310 2,453 6,047 5,269 62,867
$ 32,426 $ 27,274 $ 138,492 $ 130,774 $ 568,463
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
<CAPTION>
Schedule 2
DRUCKER INDUSTRIES, INC.
(An Exploration Stage Company)
SCHEDULE OF DRY HOLE EXPENSES
for the three and nine month periods ended September 30, 1999 and 1998
and January 1, 1997 (Date of Inception of Exploration Stage) to September 30, 1999
(Stated in US Dollars)
(Unaudited - See Note 1)
January 1, 1997
(Date of Incpe-
tion of Explora-
tion Stage)
Three months ended Sept. 30, Nine months ended Sept. 30, to Sept. 30,
Fuxian Concession 1999 1998 1999 1998 1999
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Administration $ - $ - $ - $ - $ 3,484
Amortization - - - - 2,827
Audit - - - - 1,875
Consulting - - - - 10,875
Entertainment - - - - 2,347
Office supplies - - - - 582
Other - - - - 4,454
Surveying - - - - 105,625
Travel - - - - 14,713
Wages and benefits - - - - 499
$ - $ - $ - $ - $ 147,281
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
<CAPTION>
Schedule 3
DRUCKER INDUSTRIES, INC.
(An Exploration Stage Company)
CONSOLIDATED SCHEDULE OF EXPLORATION EXPENSES
for the three and nine months ended September 30, 1999 and 1998
and January 1, 1997 (Date of Inception of Exploration Stage) to September 30, 1999
(Stated in US Dollars)
(Unaudited - See Note 1)
January 1, 1997
(Date of Incep-
tion of Explora-
tion Stage)
Three months ended Sept. 30, Nine months ended Sept. 30, to Sept. 30,
1999 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
Administration $ 8,559 $ 31,600 $ 44,845 $ 31,600 $ 91,547
Amortization - - - - 18,042
Audit - - - - 7,371
Capital assets written-off - 13,800 - 13,800 31,170
Consumables - - 111,119 - 141,191
Drilling 368,821 2,000 409,841 2,000 410,261
Entertainment - - - - 12,221
Geological/Geophysical - 20,400 83,386 20,400 248,326
Insurance - - - - 2,645
Mine clearance - 9,800 - 9,800 -
Office Supplies - - - - 5,754
Other - - - - 6,309
Overhead 29,584 - 55,546 - 47,062
Rental - - - - 8,826
Repairs and maintenance - - - - 2,612
Surveying and testing - 134,000 - 134,000 399,957
Telephone - - - - 5,942
Travel - - - - 52,673
Wages and benefits - - - - 63,296
Interest income - - - - ( 7,614)
Other income - - - - ( 3,566)
$ 406,964 $ 211,600 $ 704,737 $ 211,600 $ 1,544,025
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
DRUCKER INDUSTRIES, INC.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Stated in U.S. dollars)
(Unaudited - See Note 1)
Note 1 Interim Reporting
-----------------
These consolidated financial statements have not been audited or
reviewed and have been prepared on a compilation basis only.
Readers are cautioned that these statements may not be appropriate
for their purposes.
While the information presented in the accompanying interim nine
months financial statements is unaudited, it includes all
adjustments which are, in the opinion of management, necessary to
present fairly the financial position, results of operations and
cash flows for the interim periods presented. It is suggested that
these interim financial statements be read in conjunction with the
company's December 31, 1998 annual financial statements.
Note 2 Common Stock
------------
Commitment
Share Purchase Warrants
At September 30, 1999, 5,179,500 share purchase warrants are
outstanding. Each warrant entitles the holder to purchase one
additional unit of the company at $0.40 per unit until the earlier
of March 31, 2000 and the 90th day after the day on which the
weighted average trading price of the company's shares exceed
$0.90 per share for 10 consecutive trading days. Each unit
consists of one common share of the company and one additional
warrant. Each additional warrant entitles the holder to purchase
one additional common share of the company at $0.60 per share. The
additional warrants will expire one year after the occurrence of
the exercise of the original warrant.
Note 3 Uncertainty Due to the Year 2000 Issue
--------------------------------------
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using the year 2000 date is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced
before, on, or after January 1, 2000 and if not addressed, the
impact on operations and financial reporting may range from minor
errors to significant system failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The Company has continued its drilling participation in its Egypt venture. The
Company has participated in a successful discovery well and a successful step
out well in the quarter. One well was abandoned as a dry hole. The Company did
not have any revenues from operations through September 30, 1999.
RESULTS OF OPERATIONS FOR NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------
The Company had no operating revenues during the period. The Company incurred
$843,229 in operating and exploration expenses in 1999 compared to $342,374 in
the period in 1998. The primary increase in expenses resulted from the increase
in exploration costs to $704,737 in 1999 compared to $211,600 in the period in
1998. The Company had interest income of $105,449 in 1999 compared to $112,723
in the period in 1998. The net loss for the nine month period was ($737,780) in
1999 and ($229,651) in 1998. The net loss per share was ($.02) in 1999 compared
to ($.01) in 1998.
RESULTS OF OPERATIONS FOR QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO THE SAME
- --------------------------------------------------------------------------------
PERIOD IN 1998
- --------------
The Company had no operating revenues during the period. The company incurred
$439,390 in operating and exploration expenses in the period in 1999 compared to
$238,874 in 1998. The increase was directly related to exploration expenditures
in 1999 of $406,964 compared to $211,600 in the period in 1998. The Company had
interest income of $37,961 in the period in 1999 compared to $11,213 in 1998.
The net loss for the period in 1999 was ($401,429) compared to ($227,661) for
the period in 1998. The loss per share was less than ($.01) per share in the
period in 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1999, the Company had $2,898,386 in cash and had $485,406
invested in oil exploration projects which was illiquid. The Company had
$142,693 in current liabilities at September 30, 1999. If the Company's expenses
related to drilling participation continue at the current pace, the Company may
have cash to last only six to nine months. The Company has no other capital
resources other than stock and warrant from which to achieve capital raising.
PART II - OTHER INFORMATION
-----------------------------
ITEM 1. LEGAL PROCEEDINGS
- -----------------------------
None
<PAGE>
ITEM 2. CHANGES IN SECURITIES
- ---------------------------------
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
- ------------------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------
None
ITEM 5. OTHER INFORMATION
- -----------------------------
Egypt Exploration
The Hana-2 appraisal well has been successfully drilled to a total
depth of 5,459 feet and cased as a Miocene Kareen Sand oil well. This well was
drilled as a step-out to the Hana-1 oil discovery on the West Gharib Block,
Egypt earlier this summer.
The top of the pay zone was encountered 73 feet higher than in the
Hana-1 well, and the entire Kareen (Upper Markha Member) is oil bearing with an
estimated 76 feet of net pay (21% porosity) over a gross interval of 146 feet.
The well is currently being completed and will undergo extensive testing to
determine productivity and reservoir characteristics. By comparison, the Hana-1
well encountered an estimated 60 feet of net pay and produced at a rate of 568
barrels of oil per day (25.8 degrees PI) from only 20 feet of perforations at
the top of the pay interval. The higher structural position and thicker
contiguous pay section of the Hana-2 well enhances the interpretive scope and
size of the Hana oil Field. The Joint Venture is planning additional development
drilling. The West Gharib Egypt Concession covers a total area of 2530 square
kilometers and is located near several producing oil fields.
Drucker Petroleum, Inc., a wholly owned subsidiary of Drucker
Industries, Inc., holds 20% interest. Tanganykia 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 Egyptian General Petroleum Corporation has granted
"commerciality" status and approved a "Development Plan" for the Hana oil
discovery on the West Gharib Block, onshore Gulf of Suez, Egypt. With this
approval, production operations will be initiated immediately through temporary
facilities. Crude oil produced from the Hana-1 and Hana-2 wells is expected to
average 4,000 barrels per day and will be trucked some 15 kilometres to the Bakr
South shipping terminal, operated by the General Petroleum Corporation.
Permanent storage/process facilities and an 8 inch, 11 kilometre pipeline
designed to handle over 20,000 barrels of oil per day, are expected to be
commissioned by May, 2000. The EDC rig No. 17 has contracted to drill 3
<PAGE>
additional development wells commencing in early January, 2000. Additional
producers and pressure maintenance injection wells are planned for later in the
first half of next year.
Exploration activities will be augmented with an extensive
geophysical program encompassing 310 square kilometres of 3D seismic, to
commence before year-end, 1999. Subsequent drilling is planned for the second
half of next year in the West Gharib Concession which covers an area of 2530 sq.
km.
Algeria Interest
The Company has a 2.5% interest in the Semhari East-1 oil
exploration well on the Hassi Bir Rekaiz concession in Algeria. The well has
spudded on Nov. 8, 1999 and will be drilled to total depth of approximately
3,800 metres, targeting the Triassic and Ordovician reservoirs, the most
prolific reservoirs in the region. Drilling to date has reached a depth of 1800
m. The Hassi Bir Rekaiz oil concession covers 788,000 acres (3,192 sq. km) in
the northern portion of the prolific Ghadames basin in northern Algeria where
major oil reserves in excess of 4 billion barrels have recently been discovered
by Agip, Burlington, Cepsa, BHP and Anadarko, whose El Merk North discovery is
reported to contain over 1 billion barrels of oil in place. The flow rate on
their discovery well was repeated in excess of 21,000 barrels per day.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------
a. SK# Exhibit
10.1 Concession Agreement for Egypt
27 Financial Data Schedule
b. Reports on Form 8-K
None.
<PAGE>
DRUCKER INDUSTRIES, INC.
(A Development Stage Company)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DRUCKER INDUSTRIES, INC.
/s/ Ernest Cheung
Date: December 15, 1999 ---------------------------------
Ernest Cheung, Secretary
<PAGE>
EXHIBIT 10.1
CONCESSION AGREEMENT
<PAGE>
CONCESSION AGREEMENT FOR
PETROLEUM
EXPLORATION AND EXPLOITATION
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE EGYPTIAN GENERAL PETROLEUM
CORPORATION
AND
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
AND
TANGANYIKA OIL COMPANY LTD.
IN
WEST GHARIB AREA
EASTERN DESERT
A.R.E.
<PAGE>
INDEX
ARTICLE TITLE PAGE
I Definitions 2
II Annexes to the Agreement 6
III Grant of Rights and Term 8
IV Work Program and Expenditures 18
During Exploration Period
V Mandatory and Voluntary Relinquishments 25
VI Operations After Commercial Discovery 27
VII Recovery of Costs and Expenses and 30
Production Sharing
VIII Title to Assets 50
IX Bonuses 51
X Office and Service of Notices 52
XI Saving of Petroleum and Prevention 53
of Loss
XII Customs Exemptions 54
XIII Books of Account: Accounting and Payments 57
XIV Records, Reports and Inspection 58
XV Responsibility for Damages 60
XVI Privileges of Government Representatives 60
XVII Employment Rights and Training of Arab 61
Republic of Egypt Personnel
<PAGE>
INDEX
ARTICLE TITLE PAGE
XVIII Laws and Regulations 63
XIX Stabilization 64
XX Right of Requisition 65
XXI Assignment 66
XXII Breach of Agreement and Power to Cancel 67
XXIII Force Majeure 69
XXIV Disputes and Arbitration 70
XXV Status of Parties 72
XXVI Local Contractors and Locally 73
Manufactured Material
XXVII Arabic Text 73
XXVIII General 74
XXIX Approval of the GOVERNMENT 74
ANNEXES TO THE CONCESSION AGREEMENT
Annex "A" Boundary Description of the Concession Area 75
Annex "B" Illustrative Map showing Area covered 78
Annex "C" Letter of Guaranty 79
Annex "D" Charter of Operating Company 81
Annex "E" Accounting Procedure 86
Annex "F" Map of the National Gas Pipeline Grid 104
System
<PAGE>
CONCESSION AGREEMENT FOR PETROLEUM
EXPLORATION AND EXPLOITATION
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE EGYPTIAN GENERAL PETROLEUM CORPORATION
AND
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
AND
TANGANYIKA OIL COMPANY LTD.
IN
WEST GHARIB AREA
EASTERN DESERT
A.R.E.
This Agreement made and entered on this______ , of _____ 199 , the ARAB REPUBLIC
OF EGYPT (hereinafter referred "A.R.E." or as the "GOVERNMENT"), the EGYPTIAN
GENERAL PETROLEUM CORPORATION, a legal entity created by Law No. 167 of 1958 as
amended (hereinafter referred to as "EGPC") and DUBLIN INTERNATIONAL PETROLEUM
(EGYPT) LIMITED., a company organized and existing under the laws of the
REPUBLIC OF IRELAND, (hereinafter referred to as "DUBLIN") and TANGANYIKA OIL
COMPANY LTD., a company organized and existing under the laws of the Province of
British Columbia - CANADA. (hereinafter referred to as "TANGANYIKA") (DUBLIN and
TANGANYIKA shall be hereinafter referred to collectively as "CONTRACTOR" and
individually as "CONTRACTOR MEMBER".
WITNESSETH
WHEREAS, all minerals including petroleum, existing in mines and quarries in
A.R.E., including the territorial waters, and in the subject to its jurisdiction
and extending beyond the territorial are the property of the State; and
WHEREAS, EGPC has applied for an exclusive concession for the exploration and
exploitation of petroleum in and throughout the area referred to in Article 11,
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and referred to in Article 11, and described in Annex "A" and shown
approximately on Annex "B," which are attached hereto and made part hereof
(hereinafter referred to as the "Area"); and WHEREAS, "DUBLIN and TANGANYIKA"
agree to undertake their obligations provided hereinafter as a CONTRACTOR with
respect to the exploration, development and production of petroleum in West
Gharib Area in Eastern Desert ; and WHEREAS, the GOVERNMENT desires hereby to
grant such Concession; and WHEREAS, the Minister Qf Petroleum pursuant to the
provisions of Law No. 86 of 1956, may enter into a concession agreement with
EGPC, and with DUBLIN and TANGANYIKA as a contractor in the said Area. NOW,
THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
(a) "Exploration" shall include such geological, geophysical, aerial
and other surveys as may be contained in the approved Work
Programs and Budgets, and the drilling of such shot holes, core
holes, stratigraphic tests, holes for the discovery of Petroleum
or the appraisal of Petroleum discoveries and other related holes
and wells, and the purchase or acquisition of such supplies,
materials, services and equipment therefor, all as may be
contained in the approved Work Programs and Budgets. The verb
"explore" means the act of conducting Exploration.
(b) "Development" shall include, but not be limited to, all the
operations and activities pursuant to approved Work Programs and
Budgets under this Agreement with respect to:
(i) the drilling, plugging, deepening, side tracking, redrilling,
completing, equipping of development wells, the changing of
the status of a well, and
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(ii) design, engineering, construction, installation, servicing
and maintenance of equipment, lines, systems facilities,
plants and related operations to produce and operate said
development wells, taking, saving, treating, handling,
storing, transporting and delivering petroleum, repressuring,
recycling and other secondary recovery projects, and
(iii) transportation, storage and any other work or activities
necessary or ancillary to the activities specified in(i) and
(ii).
(c) "Petroleum" means liquid crude oil of various densities, asphalt,
gas, casinghead gas and all other hydrocarbon substances that may
be found in, and produced, or otherwise obtained and saved from
the Area under this Agreement, and all substances that may be
extracted therefrom.
(d) "Liquid Crude Oil" or "Crude Oil" or "Oil" means any hydrocarbon,
produced from the Area which is in a liquid state at the wellhead
or lease separators or which is extracted from the gas or
casinghead gas in a plant. Such liquid state shall exist at sixty
degrees Fahrenheit (60 0F) and atmospheric pressure of 14.65 PSIA.
Such term includes distillate and condensate.
(e) "Gas" means natural gas both associated and non-associated, and all
of its constituent elements produced from any well in the Area
(other than Liquid Crude Oil) and all non-hydrocarbon substances
therein. Said term shall include residual gas, that Gas remaining
after removal of LPG.
(f) "LPG" means liquefied petroleum gas, which is a mixture principally
of butane and propane liquefied by pressure and temperature.
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(g) A "Barrel" shall consist of forty-two (42) United States gallons
liquid measure, corrected to a temperature of sixty degrees
Fahrenheit (60 0F) at atmospheric pressure of 14.65 PSIA.
(h) (1) "Commercial 0il Well" means the first well on any geological
feature which after testing for a period of not more than
thirty consecutive days where practical, but in any event in
accordance with sound and accepted industry production
practices, and verified by EGPC, is found to be capable of
producing at the average rate of not less than two thousand
(2000) Barrels of oil per day (BOPD). The date of discovery of
a "Commercial Oil Well" is the date on which such well is
tested and completed according to the above.
(2) "Commercial Gas Well" means the first well on any geological
feature which after testing for a period of not more than
thirty (30) consecutive days where practical, but in any event
in accordance with sound and accepted industry production
practices and verified by EGPC, is found to be capable of
producing at the average rate of not less than fifteen million
(15,000,000) standard cubic feet of Gas per day (MMSCFD). The
date of discovery of a "Commercial Gas Well" is the date on
which such well is tested and completed according to the above.
(i)A.R.E." means ARAB REPUBLIC OF EGYPT.
(j) "Effective Date" means the date on which the text of this
Agreement is signed by the GOVERNMENT, EGPC and CONTRACTOR,
after the relevant Law is issued.
(k) (1) "Year" means a period of twelve (1.9) months according to the
Gregorian Calendar.
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(2) "Calendar Year" means a period of twelve (12) months according
to the Gregorian Calendar being lst January to 31st December.
(1) "Financial Year" means the GOVERNMENT's financial year according to
the laws and regulations of the A.R.E.
(m) "Tax Year" means the period of twelve (12) months according to the
laws and regulations of the A.R.E.
(n) An "Affiliated Company" means a company:
(i) of which the share capital, conferring a majority of votes at
stockholders' meetings of such company, is owned directly or
indirectly by a party hereto; or
(ii) which is the owner directly or indirectly of share capital
conferring a majority of votes at stockholders' meetings of a
party hereto; or
(iii) of which the share capital conferring a majority of votes at
stockholders' meetings of such company and the share capital
conferring a majority of votes at stockholders' meetings of a
party hereto are owned directly or indirectly by the same
company.
(o) "Exploration Block" shall mean an area, the corner points of which
have to be coincident with three (3) minutes by three(3) minutes
latitude and longitude divisions, according to the International
Grid System where possible or with the existing boundaries of the
Area covered by this Concession Agreement as set out in Annex "A".
(p) "Development Block" shall mean an area, the corner points of which
have to be coincident with one (1) minute by one (1) minute
latitude and longitude divisions, according to the International
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Grid System where possible or with the existing boundaries of the
Area covered by this Concession Agreement as set out in Annex "A".
(q) "Development Lease(s)" shall mean the Development Block or
Blocks covering the geological structure capable of production,
the corner points of which have to be coincident with one (1)
minute by one (1) minute latitude and longitude divisions according
to the International Grid System where possible or with the
existing boundaries of the Area covered by this Concession
Agreement as set out in Annex "A".
(r) "Agreement" shall mean this Concession Agreement and its Annexes.
(s) "Gas Sales Agreement" shall mean a written agreement between EGPC
and CONTRACTOR (as sellers) and EGPC (as buyer), which contains the
terms and conditions for Gas sales from a Development Lease entered
into pursuant to Article VII (e).
(t) "Standard Cubic Foot" (SCF) is the amount of gas necessary to fill
one (1) cubic foot of space at atmospheric pressure of 14.65 PSIA at
a base temperature of sixty degrees Fahrenheit (60 0 F).
ARTICLE 11
ANNEXES TO THE AGREEMENT
Annex "A" is a description of the area covered and affected by this Agreement,
hereinafter referred to as the "Area".
Annex "B" is a provisional illustrative map on the scale of approximately 1.:
600 000 indicating the Area covered and affected by this Agreement and described
in Annex "A".
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Annex "C" is the form of a Letter of Guarantee to be submitted by CONTRACTOR to
EGPG one (1) day before the time of signature by the Minister of Petroleum of
this Agreement, for the sum of five million (5,000,000) U. S. Dollars
guaranteeing the execution of CONTRACTOR's minimum Exploration obligations
hereunder for the initial three(3) year Exploration period. In case CONTRACTOR
extends the initial Exploration Period for two (2) additional periods of three
(3) years and of two (2) years respectively, each in accordance with Article
III(b) of this Agreement, similar Letters of Guarantee shall be issued and be
submitted by CONTRACTOR on the day the CONTRACTOR exercises its option to
extend. The first such Letter of Guarantee shall be for the sum of four million
(4,000,000) U.S. Dollars and the second such Letter of Guarantee shall be for
the sum of four million and five hundred thousand (4,500,000) U.S. Dollars less
in both instances any excess expenditure of the preceding Exploration period
permitted for carry forward in accordance with Article IV (b) third paragraph of
this Agreement. Each of' the three Letters of Guarantee shall remain effective
for six (6) months after t he end of the Exploration period for which it has
been issued except as it may be released prior to that time in accordance with
the terms thereof.
Annex "D" is the form of a Charter of the Operating Company to be formed as
provided for in Article VI.
Annex "E" is the Accounting Procedure.
Annex "F" is a current map of the National Gas Pipeline Grid System established
by the Government. The point of delivery for gas shall be agreed upon by EGPC
and CONTRACTOR under a Gas Sales Agreement, which point of delivery shall be
located at the flange connecting the development lease pipeline to the nearest
point on the National Gas pipeline Grid System as depicted in this Annex "F" or
as otherwise agreed upon between EGPC and CONTRACTOR .
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Annexes "A", "B", "C", "D", "E" and "F" to this Agreement are hereby made part
hereof, and they shall be considered as having equal force and effect with the
provisions of this Agreement.
ARTICLE III
GRANT OF RIGHTS AND TERM
The GOVERNMENT hereby grants EGPC and CONTRACTOR subject to the terms, covenants
and conditions set out in this Agreement, which insofar as they are contrary to,
or inconsistent with any provisions of Law No. 66 of 1953, as amended, shall
have the force of Law, an exclusive concession in and to the Area described in
Annexes "A" and "B".
(a) The GOVERNMENT shall own and be entitled, as hereinafter provided to a
royalty in cash or in kind of ten percent (10%) of the total quantity of
Petroleum produced and saved from the Area during the development period
including renewal. Said royalty shall be borne and paid by EGPC and
shall not be the obligation of CONTRACTOR. The payment of royalties by
EGPC shall not be deemed to result in income attributable to the
CONTRACTOR.
(b) An initial Exploration Period of three (3) years shall start from the
Effective Date. Two (2) successive extensions to the initial
Exploration period of three (3) years and two (2) years respectively,
shall be granted to CONTRACTOR at its option, upon not less than thirty
(30) days prior written notice to EGPC, such notice to be given not
later than the end of the then current period, as may be extended
pursuant to the provisions of Article V (a), and subject only to its
having fulfilled its obligations hereunder for that period. This
Agreement shall be terminated if neither a Commercial Oil Discovery nor
a Commercial Gas Discoverv is established by the end of the eighth
(8th) year of the Exploration period, as may be extended pursuant to
<PAGE>
to Article V(a). The election by EGPC to undertake a sole risk venture
under paragraph (c) below shall not extend the Exploration Period nor
affect the termination of this Agreement as to CONTRACTOR.
(c) Commercial Discovery:
(i) A Commercial Discovery -whether of Oil or Gas -may consist of one
producing reservoir or a group of producing reservoirs which is
worthy of being developed commercially. After discovery of a
Commercial Oil or Gas Well CONTRACTOR shall, unless otherwise
agreed upon with EGPC, undertake as part of its Exploration
program the appraisal of the discovery by drilling one or more
appraisal wells, to determine whether such discovery is worthy of
being developed commercially, taking into consideration the
recoverable reserves, production, pipelines and terminal
facilities required, estimated Petroleum prices, and all other
relevant technical and economic factors.
(ii) The provisions laid down herein postulate the unity and
indivisibility of the concepts of Commercial Discovery and
Development Lease. They shall apply uniformly to Oil and Gas
unless otherwise specified.
(iii) CONTRACTOR shall give notice of a Commercial Discovery to EGPC
immediately after the discovery is considered by CONTRACTOR to
be worthy of commercial development but in any event with
respect to a Commercial Oil Well not later than thirty (30) days
following the completion of the second appraisal well or twelve
(12) months following the date of the discovery of the Commercial
Oil Well, whichever is earlier or with respect to a Commercial
Gas Well not later than twenty four (24) months following the
date of the discovery of the Commercial Gas Well (unless EGPC
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agrees reservoirs even if the well or wells thereon are not
"Commercial" within the definition of the "Commercial Well" if,
in its opinion, a reservoir or a group of reservoirs, considered
collectively, could be worthy of commercial development.
CONTRACTOR may also give a notice of a Commercial oil Discovery
in the event it wishes to undertake a gas recycling project.
A notice of Commercial Gas Discovery shall contain all detailed
particulars of the discovery and especially the area of Gas
reserves, the estimated production potential and profile and
field life.
Within sixty (60) days following receipt of a notice of a
Commercial Oil or Gas Discovery, EGPC and CONTRACTOR shall meet
and review all appropriate data with a view to mutually agreeing
upon the existence of a Commercial Discovery. The date of
Commercial Discovery shall be the date EGPC and CONTRACTOR
jointly agree in writing that a Commercial Discovery exists.
(iv) If Crude Oil is discovered but is not deemed by CONTRACTOR
to be a Commercial 0il Discovery under the above provisions of
this paragraph (c), EGPC shall one (1) month after the expiration
of the period specified above within which CONTRACTOR can give
notice of a Commercial Oil Discovery, or thirteen 13 months after
the completion of a well not considered to be a "Commercial Oil
Well", have the right, following sixty (60) days notice in writing
to CONTRACTOR, at its sole cost, risk and expense, to develop,
<PAGE>
produce and dispose of all Crude Oil from the geological feature
on which the well has been drilled. Said notice shall state the
specific area covering said geological feature to be developed,
the wells to be drilled, the production facilities to be installed
and EGPC's estimated cost thereof. Within thirty (30) days after
receipt of said notice CONTRACTOR may, in writing, elect to
develop such area as provided for in the case of Commercial
Discovery hereunder. In such event all terms of this Agreement
shall continue to apply to the specified area.
If CONTRACTOR elects not to develop such area, the specific area
covering said geological feature shall be set aside for sole risk
operations by EGPC, such area to be mutually agreed upon by EGPC
and CONTRACTOR on the basis of good petroleum industry practice.
EGPC shall be entitled to perform or in the event Operating
Company has come into existence, to have Operating Company perform
such operations for the account of EGPC and at EGPC's sole cost,
risk and expense. When EGPC has recovered from the Crude Oil
produced from such specific area a quantity of Crude Oil equal in
value to three hundred percent (300%) of the cost it has incurred
in carrying out the sole risk operations, CONTRACTOR shall have
the option, only in the event there has been a separate Commercial
Oil Discovery, elsewhere within the Area, to share in further
development and production of that specific area upon paying EGPC
one hundred percent (100%) of such costs incurred by EGPC.
Such one hundred percent (100%) payment shall not be Recovered by
CONTRACTOR. Immediately following such Payment the specific area
shall either (i) revert to the status of an ordinary Development
Lease under this Agreement and thereafter shall be operated in
<PAGE>
accordance with the terms hereof; or (ii) alternatively, in the
event that at such time EGPC or its Affiliated Company is
conducting Development operations in the area at its sole
expense and EGPC elects to continue operating, the area shall
remain set aside and CONTRACTOR shall only be entitled to its
production sharing percentages of the Crude Oil as specified in
Article VII (b). The sole risk Crude Oil shall be valued in the
manner provided in Article VII (c). In the event of any
termination of this Agreement under the provisions of Article
III (b), this Agreement shall, however, continue to apply to
EGPC's operations of any sole risk venture hereunder, although
such Agreement shall have been terminated with respect to
CONTRACTOR pursuant to the provisions of Article III (b).
(d) Conversion to a Development Lease:
(i) Following a Commercial Oil Discovery or a Commercial Gas
Discovery the extent of the whole area capable of production to
be covered by a Development Lease shall be mutually agreed upon
by EGPC and CQNTRACTOR and be subject to the approval of the
Minister of Petroleum. Such area shall be converted
automatically into a Development Lease without the issue of any
additional legal instrument or permission.
(ii) Following the conversion of an area to a Development Lease based
on a Commercial Gas Discovery (or upon the discovery of Gas in a
Development Lease granted following a Commercial Oil Discovery),
EGPC shall endeavor with diligence to find adequate local
markets capable of absorbing the production of Gas and shall
advise CONTRACTOR of the potential outlets for such Gas, and the
expected annual schedule of demand. Thereafter, EGPC and
CONTRACTOR sha11 meet with a view to assessing whether the
<PAGE>
outlets for such Gas and other relevant factors warrant the
development and production of the Gas and in case of agreement
the Gas thus made available shall be disoosed of to EGPC under a
long-term Gas Sales Agreement in accordance with and subject to
the condition set forth in Article VII.
(iii) The Development period of each Development Lease shall be as
follows:
(aa) In respect of a Commercial Oil Discovery, twenty (20)
years from the date of such Commercial Discovery plus the
Optional Extension Period (as defined below) provided
that, in the event that, subsequent to the conversion of a
Commercial Oil Discovery into a Development Lease, Gas is
discovered in the same Development Lease and is used or is
capable of being used locally or for export hereunder, the
period of the Development Lease shall be extended only
with respect to such Gas, LPG extracted from such Gas and
Crude Oil in the form of condensate produced with such Gas
for twenty (20) years from the date of first deliveries of
Gas locally or for export plus the Optional Extension
Period (as defined below) provided that the duration of
such Development Lease based on a Commercial Oil Discovery
may not be extended beyond thirty-five (35) years from the
date of such Commercial Oil Discovery, wise agreed upon
between EGPC and CONTRACTOR and subject to the approval of
the Minister of Petroleum.
CONTRACTOR shall immediately notify EGPC of any Gas
Discovery but shall not be required to apply for a new
Development Lease in respect of such Gas.
<PAGE>
(bb) In respect of a Commercial Gas Discovery, twenty (20) years
from the date of first deliveries of Gas locally or for
export plus the Optional Extension Period (as defined
below) provided that, if subsequent to the conversion of a
Commercial Gas Discovery into a Development Lease, Crude
Oil is discovered in the same Development Lease,
CONTRACTOR's share of such Crude Oil from the Development
Lease (except LPG extracted from Gas or Crude Oil in the
form of condensate produced with Gas) and. Gas associated
with such Crude Oil shall revert entirely to EGPC upon the
lapse of twenty (20) years from the date of such Crude Oil
Discovery plus the Optional Extension Period (as defined
below).
Notwithstanding, anything to the contrary under this
Agreement, the duration of a Development Lease based on a
Commercial Gas Discovery shall in no case exceed
thirty-five (35) years from the date of such Commercial Gas
Discovery, unless otherwise agreed upon between EGPC and
CONTRACTOR and subject to the approval of the Minister of
Petroleum.
CONTRACTOR shall immediately notify EGPC of any Oil
Discovery but shall not be required to apply for a new
Development Lease in respect of such Crude Oil. The
"Optional Extension Period" shall mean a period of five (5)
years which may be elected by CONTRACTOR upon six (6)
months written notice to EGPC prior to the expiry of the
relevant twenty (20) year period.
(e) Development operations shall upon the issuance of a Development Lease
granted following a Commercial Oil Discovery, be started promptly by Operating
<PAGE>
Company and be conducted in accordance with good- oil field practices' and
accepted petroleum engineering principles, until the field is considered to be
fully developed, it being understood that if associated gas is not utilized,
EGPC and CONTRACTOR shall negotiate in good faith to determine the best way to
avoid impairing the production in the interest of the parties.
In the event no Commercial Production of Oil in regular shipments is established
in any Development Block within four (4) years from the -date of the Commercial
Oil Discovery, such Development Block shall immediately be relinquished, unless
there is a Commercial Gas discovery on the Development Lease. Each Development
Block in a Development Lease being partly within the radius of drainage of any
producing well in such Development Lease shall be considered as participating in
the Commercial Production referred to above.
Development operations in respect of Gas and Crude Oil in the form of condensate
or LPG to be produced with or extracted from such Gas shall, upon the signature
of a Gas Sales Agreement or commencement of a scheme to dispose of the Gas,
whether for export as referred to in Article Vil or otherwise, be started
promptly by Operating Company and be conducted in accordance with good gas field
practices and accepted petroleum engineering principles and the provisions of
such Gas Sales Agreement or scheme. In the event no Commercial Production of Gas
is established in accordance ' with such Gas Sales Agreement or scheme, the
Development Lease relating to such Gas shall be relinquished, unless otherwise
agreed upon by EGPC.
If, upon application by CONTRACTOR it is recognized by EGPC that Crude Oil or
Gas is being drained from an Exploration block under this Agreement into a
Development Block on an adjoining concession area held by CONTRACTOR, the Block
being drained shall be considered as participating in the Commercial Production
<PAGE>
of the Development Block in question and the Block being drained shall be
converted into a Development Lease with the ensuing allocation of costs and
production (calculated from the Effective Date or the date such drainage occurs,
whichever is later) between the two Concession Areas. The allocation of such
costs and production under each Concession Agreement shall be in the same
portion that the recoverable reserves in the drained geological structure
underlying each Concession Area bears to the total recoverable reserves of such
structure underlying both Concession Areas. The production allocated to a
concession area shall be priced according to the concession agreement covering
that concession area.
(f) CONTRACTOR shall bear and pay all the costs and expenses required in
carrying out all the operations under this Agreement but such costs and expenses
shall not include any interest on investment. CONTRACTOR shall look only to the
Petroleum to which it is entitled under this Agreement to recover such costs and
expenses. Such costs and expen ses shall be recoverable as provided in Article
VII. During the term of this Agreement and its renewal, the total production
achieved in the conduct of such operations shall be divided between EGPC and
CONTRACTOR in accordance with the provisions of Article VII.
(g) (1) Unless otherwise provided, CONTRACTOR shall be subject to Egyptian laws
and shall comply with the requirements of such laws with respect to the
filing of returns, the assessment of tax, and keeping and showing of
books and records.
(2) CONTRACTOR's annual income for Egyptian income tax purposes under this
Agreement shall be an amount calculated as follows:
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The total of the sums received by CONTRACTOR from the sale or other disposition
of all Petroleum acquired by CONTRACTOR pursuant to Article VII (a) and Article
VII (b);
Reduced by:
(i) The costs and expenses of CONTRACTOR;
(ii) The value as determined according to Article VII (c), of EGPC's share of
the Excess Cost Recovery Petroleum repaid to EGPC in cash or in kind, if
any,
Plus:
An amount equal to CONTRACTOR's Egyptian income taxes grossed up in the manner
shown in Annex E" Article VI.
For purposes of above tax deductions in any Tax Year, Article Vil (a) shall
apply only in respect of classification of costs and expenses and rates of
amortization, without regard to the percentage limitation referred to in the
first paragraph of Article V[] (a) (1). All costs and expenses of CONTRACTOR in
conducting the operations under this Agreement which are not controlled by
Article Vil (a) as above qualified shall be deductible in accordance with the
provisions of the Egyptian Income Tax Law.
(3) EGPC shall assume, pay and discharge, in the name and on behalf of
CONTRACTOR, CONTRACTOR's Egyptian income tax out of EGPC's share of the
Petroleum produced and saved and not used in operations under Article
Vil. All taxes paid by EGPC in the name and on behalf of CONTRACTOR
shall be considered income to CONTRACTOR.
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(4) EGPC shall furnish to CONTRACTOR the proper official receipts evidencing
the payment of CONTRACTOR's Egyptian income tax for each Tax Year within
ninety (90) days following the receipt by EGPC of CONTRACTOR's tax
declaration for the preceding Tax Year. Such receipts shall . be issued
by the proper Tax Authorities and shall state the amount and other
particulars customary for such receipts.
(5) As used herein, Egyptian Income Tax shall be inclusive of all income
taxes--payable in the A.R.E. (including tax on tax) such as the tax on
income from movable capital and the tax on profits from commerce and
industry and inclusive of taxes based on income or profits including all
dividends, withholding with respect to shareholders and other taxes
imposed by the GOVEFINMENT on the distribution of income or profits by
CONTRACTOR.
(6) In calculating its A.R.E. income taxes, EGPC shall be entitled to
deduct all royalties paid by EGPC to the GOVERNMENT and CONTRACTOR's
Egyptian income taxes paid by EGPC on CONTRACTOR's behalf.
ARTICLE IV
WORK PROGRAM AND EXPENDITURES
DURING EXPLORATION PERIOD
(a) CONTRACTOR shall commence Exploration operations hereunder not later
than six (6) months after the Effective Date with a commitment of
reprocessing most of the existing seismic data, acquire and process
three hundred (300 km seismic survey and fifty (50) sq. km 3D seismic
survey. Not later than the end of the twelfth (12th) month after the
Effective Date, CONTRACTOR shall start Exploratory drilling in the Area
<PAGE>
during the initial Exploration period with a commitment of drilling
three (3) wells. EGPC shall make available for CONTRACTOR's use all
seismic, wells and other Exploration data in EGPC's possession with
respect to the Area as EGPC is entitled to so do.
(b) The initial Exploration period shall be three(3)years. CONTRACTOR may
extend this Exploration period for two (2) successive extension periods
of three (3) years and two (2) years respectively, in accordance with
Article Ill (b), each of which upon at least thirty (30) days prior
written notice to EGPC, subject to its expenditure of its minimum
Exploration obligations and of its fulfillment of the drilling
obligations hereunder, for the then current period.
CONTRACTOR shall spend a minimum of five million (5,000,000) U.S.
Dollars on Exploration operations and activities related thereto during
the initial three (3) year Exploration period; provided that
CONTRACTOR shall drill three (3) wells and reprocessing most of the
existing seismic data and acquire and process three hundred (300) km.
seismic survey and fifty (50) sq. km. 3D seismic survey. For the first
three (3) year extension period that CONTRACTOR elects to extend beyond
the initial Exploration period, CONTRACTOR shall spend a minimum of four
million (4,000,000) U.S. Dollars and acquire and process two hundred
(200) km seismic survey and fifty (50) sq. km 3D seismic survey and for
the second two (2) year extension period that CONTRACTOR elects to
extend beyond the three (3) year first extension period, CONTRACTOR
shall also spend a minimum of four million and five hundred thousand
(4,500,000) U.S. Dollars. During the first and second extension periods
that CONTRACTOR elects to extend beyond the initial Exploration period,
CONTRACTOR shall drill two (2) wells in the first extension and three
(3) wells in the second extension. Should CONTRACTOR spend more than
the minimum amount required to be expended or drill more wells than the
minimum required to be drilled or acquire more seismic survey than the
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minimum required during the initial three (3) year Exploration period,
or during any period thereafter, the excess may be subtracted from the
minimum amount of money required to be expended by CONTRACTOR or minimum
number of wells required to be drilled or minimum kilometres of seismic
survey to be acquired during any succeeding Exploration period (s) as
the case may be.
In case CONTRACTOR surrenders its Exploration rights under this
Agreement as set forth above before or at the end of the third (3rd)
year of the initial Exploration period, having expended less than the
total sum of five million (5,000,000) U.S. Dollars, on Exploration or in
the event at the end of the three (3) years of the initial Exploration
period, CONTRACTOR has expended less than said sum in the Area, an
amount equal to the difference between the said five million (5,000,000)
U.S. Dollars and the amount actually spent on Exploration shall be paid
by CONTRACTOR to EGPC at the time of surrendering or within three (3)
months from the end of the third (3rd) year of the initial Exploration
period, as the case may be. Any expenditure deficiency by CONTRACTOR at
the end of any additional period for the reasons above noted shall
similarly result in a payment by CONTRACTOR to EGPC of such deficiency.
Provided this Agreement is still in force as to CONTRACTOR, CONTRACTOR
shall be entitled to recover any such payments as Exploration
expenditure in the manner provided for under Article VII in the
event of Commercial Production.
Without prejudice to Article III (b), in case no Commercial Oil
Discovery is established or no notice of Commercial Gas Discovery is
given by the end of the eighth (8th) year, as may be extended
pursuant to Article V (a) or in case CONTRACTOR surrenders the Area
under this Agreement prior to such time, EGPC shall not bear any of the
aforesaid expenses spent by CONTRACTOR.
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<PAGE>
(c) At least four (4) months prior to the beginning of each Financial Year
or at such other times as may mutually be agreed to by EGPC and
CONTRACTOR, CONTRACTOR shall prepare an Exploration Work Program and
Budget for the Area setting forth the Exploration operations which
CONTRACTOR proposes to carry out during the ensuing Year.
The Exploration Work Program and Budget shall he reviewed by a joint
committee to be established by EGPC and CONTRACTOR after the Effective
Date of this Agreement. This Committee, hereinafter referred to as the
"Exploration Advisory Committee", shall consist of six (6) members,
three (3) of whom shall be appointed by EGPC and three (3) by
CONTRACTOR. The Chairman of the Exploration Advisory Committee shall
be designated by EGPC from tmong the members appointed by it. The
Exploration Advisory Committee shall review and give such advice as it
deems appropriate with respect to the proposed Work Program and Budget.
Following review by the Exploration Advisory Committee, CONTRACTOR
shall make such revisions as CONTRACTOR deems appropriate and submit
the Exploration Work Program and Budget to EGPC for its approval.
Following such approval, it is further agreed that:
(i) CONTRACTOR shall not substantially revise or modify said Work
Program and Budget nor reduce the approved budgeted expenditure
without the approval of EGPC;
(ii) In the event of emergencies involving danger of loss of lives
or property, CONTRACTOR may expend such additional unbudgeted
amounts as may be required to alleviate such danger. Such
expenditure shall be considered in all aspects as Exploration
expenditure and shall be recovered pursuant to the provisions
of Article VII.
(d) CONTRACTOR shall advance all necessary funds for all
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materials, equipment, supplies, personnel administration and operations
pursuant to the Exploration Work Program and Budget and EGPC shall not
be responsible to bear or repay any of the aforesaid costs.
(e) CONTRACTOR shall be responsible for the preparation and performance of
the Exploration Work Program which shall be implemented in a
workmanlike manner and consistent with good industry practices.
Except as is appropriate for the processing of data, specialized
laboratory engineering and development studies thereon, to be made in
specialized centers outside A.R.E., all geological and geophysical
studies as well as any other studies related to the performance of
this Agreement, shall be made in the A.R.E.
CONTRACTOR shall entrust the management of Exploration operations in
the A.R.E. to its technically competent General Manager and Deputy
General Manager. The names of such Manager and Deputy General Manager
shall, upon appointment, be forthwith notified to the GOVERNMENT and
to EGPC. The General Manager and, in his absence, the Deputy General
Manager shall be entrusted by CONTRACTOR with sufficient powers to
carry out immediately all lawful written directions given to them by
the GOVERNMENT or its representative under the terms of this
Agreement. All lawful regulations issued or hereafter to be issued
which are applicable hereunder and not in conflict with this
Agreement shall apply to CONTRACTOR.
(f) CONTRACTOR shall supply EGPC, within thirty (30) days from the end of
each calendar quarter, with a Statement of Exploration activity showing
costs incurred by CONTRACTOR during such quarter. CONTRACTOR's records
and necessary supporting documents shall be available for inspection by
EGPC at any time during regular working hours for three (3) months from
the date of
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<PAGE>
receiving each statement.
Within the three (3) months from the date of receiving such Statement,
EGPC shall advise CONTRACTOR in writing if it considers:
(1) that the record of costs is not correct;
(2) that the costs of goods - or services supplied are not in line
with the international market prices for goods or services of
similar quality-supplied on similar terms prevailing at the
time such goods or services were supplied, provided however,
that purchases made and services performed within the A.R.E.
shall be subject to Article XXVI;
(3) that the condition of the materials furnished by CONTRACTOR
does not tally with their prices; or
(4) that the costs incurred are. not reasonably required for
operations.
CONTRACTOR shall confer with EGPC in connection with the problem thus
presented, and the parties shall attempt to reach a settlement which
is mutually satisfactory.
Any reimbursement due to EGPC out of the Cost Recovery Petroleum as a
result of reaching agreement or of an arbitrary award shall be
promptly made in cash to EGPC, plus simple interest at LIBOR plus two
and half percent per annum from the date on which the disputed
amount(s) would have been paid to EGPC according to Article VII (a)
and Annex "E" (i.e., the date of rendition of the relevant Cost
Recovery Statement) to the date of payment. The LIBOR rate applicable
shall be the average of the figure or figures published by the
Financial Times representing the mid-point of the rates (bid and ask)
applicable to one month U.S.Dollars deposits in the London lnterbank
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Eurocurrency Market on each fifteenth (15th) day of each month
occurring between the date on which the disputed amount(s) would have
been paid to EGPC and the date on which it is settled.
If the LIBOR rate is available on any fifteenth (15th) day but is not
published in the Financial Times in respect of such day for any
reason, the LIBOR rate chosen shall be that offered by Citibank N.A.
to other leading banks in the London lnterbank Eurocurrency Market-for
one month U.S. Dollar deposits.
If such fifteenth (15th) day is not a day on which LIBOR rates are
quoted in the London lnterbank Eurocurrency Market, the LIBOR rate to
be used shall be that quoted on the next following day on which such
rates are quoted.
If within the time limit of the three (3) month period provided for in
this paragraph, EGPC has not advised CONTRACTOR of its objection to
any Statement, such Statement shall be considered as approved.
(g) CONTRACTOR shall supply all funds necessary for its operations in the
A.R.E. under this Agreement in freely convertible currency from abroad.
CONTRACTOR shall have the right to freely purchase Egyptian currency in
the amounts necessary for its operations in the A.R.E. from any bank or
entity authorized by the GOVERNMENT to conduct foreign currency
exchanges.
(h) EGPC is authorized to advance to CONTRACTOR the Egyptian currency
required for the operations under this Agreement against receiving from
CONTRACTOR an equivalent amount of U.S. Dollars at the official A.R.E.
rate of exchange. Such amount
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<PAGE>
in U.S. Dollars shall be deposited in an EGPC account abroad with a
correspondent bank of the National Bank of Egypt, Cairo. Withdrawals
from said account shall be used for financing EGPC's and its Affiliated
Companies foreign currency requirements subject to the approval of the
Minister of Petroleum.
ARTICLE V
MANDATORY AND VOLUNTARY RELINQUISHMENTS
(a) MANDATORY.
At the end of the third (3rd) year after the Effective Date hereof,
CONTRACTOR shall relinquish to the GOVERNMENT a total of twenty five
percent (25%) of the original Area not then converted to a
Development Lease or leases. Such relinquishment shall be in units of
whole Exploration Blocks or parts of Exploration Blocks not converted
to Development Leases so as to enable the relinquishment requirements
to be precisely fulfilled.
At the end of the sixth (6th) year after the Effective Date hereof,
CONTRACTOR shall relinquish to the GOVERNMENT an additional twenty-
five percent (25%) of the original Area not then converted to a
Development Lease or Leases. Such relinquishment shall be in units of
whole Exploration Blocks or parts of Exploration Blocks not converted
to Development Leases so as to enable the relinquishment requirements
to be precisely fulfilled.
Without prejudice to Articles III and XXIII and the last three
paragraphs of this Article V (a), at the end of the eighth (8th) year
of the Exploration period, CONTRACTOR shall relinquish
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<PAGE>
the remainder of the Area not then converted to a Development Lease or
Leases.
It is understood that at the time of any relinquishment the areas to
be converted into Development Leases and which are submitted to the
Minister of Petroleum for his approval according to Article III (d)
shall, subject to such approval, be deemed converted to Development
Leases.
CONTRACTOR shall not be required to relinquish any Exploration Block
or Blocks on which a Commercial Oil or Gas Well is discovered before
the period of time referred to in Article III (c) given to CONTRACTOR
to determine whether such Well is a Commercial Discovery worthy of
Development or to relinquish an Exploration Block in respect of
which a notice of Commercial Gas Discovery has been given to EGPC
subject to EGPC's right to agree on the existence of a Commercial
Discovery pursuant to Article III (c), and without prejudice to the
requirements of Article III (e).
In the event at the end of the initial Exploration period or either
of the two successive extensions of the initial Exploration period,
a well is actually drilling or testing, CONTRACTOR shall be allowed up
to six (6) months to enable it to discover a Commercial Oil or Gas
Well or to establish a Commercial Discovery, as the case may be.
However, any such extension of up to six (6) months shall reduce the
length of the next succeeding Exploration Period, as applicable, by
that amount.
(b) VOLUNTARY.
CONTRACTOR may, voluntarily, during any period relinquish all or any
part of the Area in whole Exploration Blocks or parts of
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<PAGE>
Exploration Blocks provided that at the time of such voluntary
relinquishment its Exploration obligations under Article AV (b) have
been satisfied for such period.
Any relinquishments hereunder shall be credited toward the mandatory
provisions of Article V (a) above.
Following Commercial Discovery, EGPC and CONTRACTOR shall mutually
agree upon any area to be relinquished thereafter, except for the
relinquishment provided for above at the end of the total Exploration
period.
ARTICLE VI
OPERATIONS AFTER COMMERCIAL DISCOVERY
(a) On Commercial Discovery, EGPC and CONTRACTOR shall form in the A.R.E. an
operating company pursuant to Article V] (b) ",nd Annex (D) (hereinafter
referred to as "Operating Company") which company shall be named by
mutual agreement between EGPC and CONTRACTOR and such name shall be
subject to the approval of the Minister of Petroleum. Said company shall
be a private sector company. Operating Company shall be subject to the
laws and regulations in force in the A.R.E. to the extent that such laws
and regulations are not inconsistent with the provisions of this
Agreement or the Charter of Operating Company.
However, Operating Company and CONTRACTOR shall, for the purpose of this
Agreement, be exempted from the following laws and regulations as now or
hereafter amended or substituted:
- Law No. 48 of 1978, on the employee regulations of public sector
companies;
-27-
<PAGE>
- Law No. 159 of 1981, promulgating the law on joint stock companies,
partnership limited by shares and limited liability companies;
- Law No. 97 of 1983 promulgating the law concerning public sector
organizations and companies;
- Law No. 203 of 1991 promulgating the law on public business sector
companies; and
- Law No. 38 of 1994, organizing dealings in foreign currencies.
(b) The Charter of Operating Company is hereto attached as Annex "D". Within
thirty (30) days after the date of Commercial Oil Discovery or within
thirty (30) days after signature of a Gas Sales Agreement or
commencement of a scheme to dispose of Gas (unless otherwise agreed upon
by EGPC and CONTRACTOR), the Charter shall take effect and Operating
company shall automatically come into existence without any further
procedures. The Exploration Advisory Committee shall be dissolved
forthwith upon the coming into existence of the Operating Company.
(c) Ninety (90) days after the date Operating Company comes into existence
in accordance with paragraph (b) above, it shall prepare a Work Program
and Budget for further Exploration and Development for the remainder of
the year in which the Commercial Discovery is made; and not later than
four (4) months before the end of the current Financial Year (or such
other date as may be agreed upon by EGPC and CONTRACTOR) and four (4)
months preceding the commencement of each succeeding Financial Year
thereafter (or such other date as may be agreed upon by EGPC and
CONTRACTOR), Operating Company shall prepare an annual Production
Schedule, Work Program and Budget for further Exploration and
Development for the succeeding Financial Year. The Production Schedule,
Work Program and Budget shall be submitted to the Board of Directors for
approval.
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<PAGE>
(d) No later than the twentieth (20th) day of each month, Operating Company
shall furnish to CONTRACTOR a written estimate of its total cash
requirements for expenditure for the first half and the second half of
the succeeding month expressed in U.S. Dollars having regard to the
approved Budget. Such estimate shall take into consideration any cash
expected to be on hand at month end.
Payment for the appropriate period of such month shall be made to the
correspondent bank designated in paragraph (e) below on the first (1st)
day and fifteenth (15th) day respectively, or the next following
business day, if such day is not a business day.
(e) Operating Company is authorized to keep at its own disposal abroad in an
account opened with a correspondent bank of the National Bank of Egypt,
Cairo, the foreign funds advanced by CONTRACTOR. Withdrawals from said
account shall be used for payment for goods and services acquired abroad
and for transferring to a local bank in the A.R.E. the required amount
to meet the expenditures in Egyptian Pounds for Operating Company in
connection with its activities under this Agreement.
Within sixty (60) days after the end of each Financial Year, Operating
Company shall submit to the appropriate exchange control authorities
in the A.R.E. a statement, duly certified by a recognized firm of
auditors, showing the funds credited to that account, the disbursements
made out of that account and the balance outstanding at the end of the
Year.
(f) If and for as long during the period of production operations there
exists an excess capacity in facilities which can not during the period
of such excess be used by the Operating Company, EGPC and CONTRACTOR
will consult together to find a mutually agreed formula whereby EGPC may
use the excess capacity if it so desires without any unreasonable
financial or unreasonable operational disadvantage to the CONTRACTOR.
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<PAGE>
ARTICLE VII
RECOVERY OF COSTS AND EXPENSES AND
PRODUCTION SHARING
(a)l. COST RECOVERY PETROLEUM:
Subject to the auditing provisions under this Agreement, CONTRACTOR shall
recover quarterly all costs, expenses and expenditures in respect of all
the Exploration, Development and related operations under this Agreement
to the extent and out of thirty percent (30%) of all Petroleum produced
and saved from all Development Leases within the Area hereunder and not
used in Petroleum operations. Such Petroleum is hereinafter referred to
as "Cost Recovery Petroleum".
For the purpose of determining the classification of all costs, expenses
and expenditures for their recovery, the following terms shall apply:
1. "Exploration Expenditures" shall mean all costs and expenses for
Exploration and the related portion of indirect expenses and
overheads.
2. "Development Expenditures" shall mean all costs and expenses for
Development (with the exception of Operating Expenses) and the related
portion of indirect expenses and overheads.
3. "Operating Expenses" shall mean all costs, expenses and expenditures
made after initial Commercial Production, which costs, expenses and
expenditures are not normally depreciable.
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<PAGE>
However, Operating Expenses shall include workover, repair and
maintenance of assets but shall not include any of the following:
sidetracking, redrilling and changing of the status of a well,
replacement of assets or part of an asset, additions, improvements,
renewals or major overhauling that extend the life of the asset.
Exploration Expenditures, Development Expenditures and Operating
Expenses shall be recovered from Cost Recovery Petroleum in the
following manner:
(i) Exploration Expenditures, including those accumulated prior
to the commencement of initial Commercial Production, which for
the purposes of this Agreement shall mean the date on which the
first regular shipment of Crude Oil or the first deliveries of
Gas are made, shall be recoverable at the rate of twenty-five
percent (25%) per annum starting either in the Tax Year in which
such expenditures are incurred and paid or the Tax Year in
which initial Commercial Production commences, whichever is
the later date.
(ii) Development Expenditures, including those accumulated prior to
the commencement of initial Commercial Production which for the
purposes of this Agreement shall mean the date on which the
first regular shipment of Crude Oil or the first deliveries of
Gas are made, shall be recoverable at the rate of twenty-five
percent (25 %) per annum starting either in the Tax Year in
which such expenditures areincurred and paid or the Tax
Year in which initial Commercial Production commences,
whichever is the later date.
(iii) Operating Expenses, incurred and paid after the date of initial
Commercial Production, which for the purposes of this Agreement
shall mean the date on which the first regular
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<PAGE>
shipment of Crude Oil or the first deliveries of Gas are made,
shall be recoverable either in the Tax Year in which such costs
and expenses are incurred and paid or the Tax Year in which
initial Commercial Production occurs, whichever is the later
date.
(iv) To the extent that, in a Tax Year, costs, expenses or
expenditures recoverable per paragraphs (i), (ii) and (iii)
preceding, exceed the value of all Cost Recovery Petroleum for
such Tax Year, the excess shall be carried forward for recovery
in the next succeeding Tax Year(s) until fully recovered, but in
no case after the termination of this Agreement, as to
CONTRACTOR.
(v) The recovery of costs and expenses, based upon the rates
referred to above, shall be allocated to each quarter
proportionately (one fourth to each quarter). However, any
recoverable costs and expenses not recovered in one quarter as
thus allocated, shall be carried forward for recovery in the
next quarter.
2. Except as provided in Article VII (a) (3) and Article VII (e) (1),
CONTRACTOR shall each quarter be entitled to take and own all Cost
Recovery Petroleum, which shall be taken and disposed of in the manner
determined pursuant to Article VII (e). To the extent that the value of
all Cost Recovery Petroleum (as determined in Article VII (c)) exceeds
the actual recoverable costs and expenditures, includ ing any carry
forward under Article VII (a)(i)(iv), to be recovered in that quarter,
then the value of such Excess Cost Recovery Petroleum shall be split as:
Seventy percent (70%) for EGPC and thirty percent (30%) for CONTRACTOR
and EGPC's share shall be paid by CONTRACTOR to EGPC either (i) in cash
in the manner set forth in Article IV of the Accounting Procedure
contained in Annex "E" or (ii) in kind in accordance with Article VII(a)
(3).
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<PAGE>
3. Ninety (90) days prior to the commencement of each Calendar Year EGPC
shall be entitled to elect by notice in writing to CONTRACTOR to require
payment of up to one hundred percent (100%) of EGPC's share of Excess
Cost Recovery Petroleum in kind. Such payment will be in Crude Oil from
the Area F.O.B. kind. Such payment will be in Crude Oil from the Area
F.O.B. export terminal or other agreed delivery point provided that
the amount of Crude Oil taken by EGPC in kind in a quarter shall not
exceed the value of Cost Recovery Crude Oil actually taken and from the
Area during separately disposed of by CONTRACTOR from the Area during
the previous quarter. If EGPC's entitlement to receive payment of its
share of Excess Cost Recovery Petroleum in kind is limited by the
foregoing provision, the balance of such entitlement shall be paid in
cash.
(b) Production Sharing
1. The remaining seventy percent (70%) of the Petroleum shall be divided
between EGPC and CONTRACTOR according to the following shares: Such
share shall be taken and disposed of pursuant to Article VII (e):
<TABLE>
<CAPTION>
(i) Crude 0il
<S> <C> <C>
Crude Oil produced and saved EGPC CONTRACTOR
under this Agreement and not used SHARE SHARE
in Petroleum operations. Barrels per
day (BOPD) (quarterly average).
That portion or increment (seventy (thirty percent)
up to 5,000 BOPD. percent) (30%)
(70%)
That portion or increment in (seventy-two (twenty-seven
excess of 5,000 BOPD and & half percent) & half perent)
up to 10,000 BOPD (7.25%) (27.5%)
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<PAGE>
EGPC CONTRACTOR
SHARE SHARE
That portion or increment in (seventy- five (twenty-five
excess of 10,000 BOPD and percent percent)
up to 15,000 BOPD (75%) (25%)
That portion or increment in (seventy-seven (twenty-two
excess of 15,000 BOPD and & half percent) & half percent)
up to 25,000 BOPD (77.5%) (22/5%)
That portion or increment in (eighty percent) (twenty percent)
excess of 25,000 BOPD and (80%) (20%)
up to 60,000 BOPD
That portion or increment in (eighty two (seventy two
excess of 50,000 BOPD and & half percent) & half percent)
up to 100,000 BOPD (82.5%) (17.5%)
That portion or increment in (eighty five percent) (fifteen percent
excess of 100,000 BOPD (85%) (15%)
</TABLE>
<TABLE>
<CAPTION>
(ii) Gas and LPG
GAS and LPG produced and saved under this Agreement and not used in
petroleum operations Barrels oil equivalent per day (BOEPD) (Quarterly
average)
EGPC CONTRACTOR
SHARE SHARE
<S> <C> <C>
That portion or increment up to sixty five thirty five
5000 BOEPD percent percent
(65%) (35%)
That portion or increment seventy thirty
in excess of 5000 BOEPD percent percent
and up to 10,000 BOEPD (70%) (30%)
That portion or increment seventy five twenty five
in excess of 10,000 BOEPD percent percent
and up to 15,000 BOEPD (75%) (25%)
-34-
<PAGE>
EGPC CONTRACTOR
SHARE SHARE
That portion or increment eighty twenty
in excess of 15,000 BOEPD percent percent
and up to 25,000 BOEPD (80%) (20%)
That portion or increment eighty five fifteen
in excess of 25,000 BOEPD (85%) (15%)
</TABLE>
2. After the end of each contractual year during the term of any Gas
Sales Agreement entered into pursuant to Article Vil (e), EGPC and
CONTRACTOR (as sellers) shall render to EGPC (as buyer) a statement
for an amount of Gas, if any, equal to the amount by which the
quantity of Gas of which EGPC (as buyer) has taken delivery fails
below seventy five percent (75%) of the Contract quantities of Gas as
established by the applicable Gas Sales Agreement (the "Shortfall"),
provided the Gas is available. Within sixty (60) days of receipt of
the statement, EGPC (as buyer) shall pay EGPC and CONTRACTOR (as
sellers) for the amount of the Shortfall, if any. The Shortfall shall
be included in EGPC's and CONTRACTOR's entitlement to Gas pursuant to
Article VII (a) and Article VII (b) in the fourth (4th) quarter of
such contractual year.
Quantities of Gas not taken but to be paid for shall be recorded in a
separate "Take-or-Pay" account. Quantities of Gas ("Make Up Gas")
which are delivered in subsequent years in excess of seventy five
percent (75%) of the contract quantities of Gas as established by the
applicable Gas Sales Agreement, shall be set against and reduce
quantities of Gas in the ("Take-or-Pay") account to the extent thereof
and, to that extent, no payment shall be due in respect of such Gas.
Such Make Up Gas shall not be included in CONTRACTOR's entitlement to
Gas pursuant to Article
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<PAGE>
VII (a) and Article VII (b). CONTRACTOR shall have no rights to such"
Make Up Gas"
The percentages set forth in Article VII (a) hereinabove and this
Article VII (b) in respect of LPG produced from a plant constructed
and operated by or on behalf of EGPC and CONTRACTOR shall apply to all
LPG available for delivery.
(c) VALUATION OF PETROLEUM
1. Crude Oil:
(i) The Cost Recovery Crude Oil to which CONTRACTOR is entitled
hereunder shall be valued by EGPC and CONTRACTOR at "Market
Price" for each calendar quarter.
(ii) "Market Price" shall mean the weighted average prices
realized from sales by EGPC or CONTRACTOR during the quarter,
whichever is higher, provided that the sales to be used in
arriving at the weighted average(s) shall be sales of
comparable quantities on comparable credit terms in freely
convertible currency from F.O.B. point of export sales to
nonaffiliated companies at arm's length under all Crude Oil
sales contracts then in effect, but excluding Crude Oil sales
contracts involving barter and,
(1) Sales, whether direct or indirect, through brokers or otherwise,
of EGPC or CONTRACTOR to any Affiliated Company.
(2) Sales involving a quid pro quo other than payment in a freely
convertible currency or motivated in whole or in part by
considerations other than the usual economic incentives for
commercial arm's length crude oil sales.
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<PAGE>
(iii) It is understood that in the case of C.E.F. sales,
appropriate deductions shall be made for transport and
insurance charges to calculate the F.O.B. point of export
price; and always taking into account the appropriate
adjustment for quality of Crude Oil, freight advantage or
disadvantage of port of loading and other appropriate
adjustments. Market Price shall be determined separately for
each Crude Oil or Crude Oil mix, and for each port of
loading.
(iv) If during any calikndar quarter, there are no such sales by
EGPC and/or CONTRACTOR under the Crude Oil sales contracts in
effect, EGPC and CONTRACTOR shall mutually agree upon the
Market Price of the barrel of Crude Oil to be used for such
quarter, and shall be guided by all relevant and available
evidence including current prices in freely convertible
currency of leading crude oils produced by major oil
producing countries (in the Arabian Gulf or the Mediterranean
Area), which are regularly sold in the open market according
to actual sales contracts terms but excluding paper sales and
sales promises where no crude oil is delivered, to the extent
that such sales are effected under such terms and conditions
(excluding the price) not significantly different from those
under which the crude oil to be valued, was sold, and always
taking into consideration appropriate adjustments for crude
oil quality, freight advantage or disadvantage of port of
loading and other appropriate adjustments, as the case may
be, for differences in gravity, sulphur, and other factors
generally recognized by sellers and purchasers, as reflected
in crude prices, transportation ninety (90) days insurance
premiums, unusual fees borne by the seller, and for credit
terms in excess of sixty (60) days, and the cost of loans or
guarantees granted for the benefit of the sellers at
prevailing interest rates.
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<PAGE>
(v) If either EGPC or CONTRACTOR considers that the Market Price
as determined under sub-paragraph (ii) above does not reflect
the prevailing Market Price or in the event EGPC and
CONTRACTOR fail to agree on Market Price for any Crude Oil
produced under this Agreeinent for any quarter within fifteen
(15) days after the end thereof, any party may elect at any
time thereafter to submit to a single arbitrator the
question, what single price per barrel, in the arbitrator's
judgment, best represents for the pertinent quarter the
Market Price for the Crude Oil in question. The arbitrator
shall make his determination as soon as possible following
the quarter in question. His determination shall be final
and binding upon all the parties. The arbitrator shall be
selected in the manner described below.
In the event EGPC and CONTRACTOR fall to agree on the
arbitrator within thirty (30) days from the date any party
notifies the other that it has decided to submit the
determination of the Market Price to an arbitrator, such
arbitrator shall be chosen by the appointing authority
designated in accordance with Article XXIV (e), or such other
appointing authority with access to such expertise as may be
agreed to between EGPC and CONTRACTOR, with regard to the
qualifications for arbitrators set forth below, upon written
application of one or both of EGPC and CONTRACTOR. Copies of
such application by one of them shall be promptly sent to the
other. The arbitrator shall be as nearly as possible a
person with an established reputation in the international
petroleum industry as an expert in pricing and marketing
crude oil in international commerce.
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<PAGE>
The arbitrator shall not be a citizen of a country which does
not have diplomatic relations with both the A.R.E. and the
REPUBLIC OF IRELAND and CANADA. He may not be, at the time of
selection, employed by, or an arbitrator or consultant on a
continuing or frequent basis to, the American Petroleurn
Institute, the Organization of the Petroleum Exporting
Countries or the Organization of Arab Petroleum Exporting
Countries, or a consultant on a continuing basis to EGPC,
CONTRACTOR or an Affiliated Company of either, but past
occasional consultation with such companies, with other
petroleum companies, with governmental agencies or
organizations shall not be a ground for disqualification. He
may not have been, at any time during the two (2) years
before selection, an employee of any petroleum company or of
any governmental agency or organization.
Should a selected person decline or be unable to serve as
arbitrator or should the position of arbitrator fall vacant
prior to the decision called for, another person shall be
chosen in the same manner provided in this paragraph. EGPC
and CONTRACTOR shall share equally the expenses of the
arbitrator.
The arbitrator shall make his determination in accordance
with the provisions of this paragraph, based on the best
evidence available to him. He will review oil sales contracts
as well as other sales data and information but shall be free
to evaluate the extent to which any contracts, data or
information is substantiated or pertinent. Representatives of
EGPC and CONTRACTOR shall have the right to consult with the
arbitrator and furnish him written materials provided the
arbitrator may impose reasonable limitations on this right.
EGPC and CONTRACTOR each shall cooperate with the arbitrator
to the fullest extent and each shall insure such cooperation
of its trading companies. The arbitrator shall be
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<PAGE>
provided access to crude oil sales contracts and related data
and information which EGPC and CONTRACTOR or their trading
companies are able to make available and which in the
judgment of the arbitrator might aid the arbitrator in making
a valid determination.
(vi) Pending Market Price agreement by EGPC and CONTRACTOR or
determination by the arbitrator, as applicable, the Market
Price agreed for the quarter preceding the quarter in
question shall remain temporarily in effect. In the event
either EGPC or CONTRACTOR should incur a loss by virtue of
the temporary continuation of the Market Price of the
previous quarter, it shall promptly be reimbursed such loss
by the other party plus simple interest at the LIBOR plus two
and one - half percent (2.5%) per annum rate provided for in
Article IV (f) from the date on which the disputed amount(s)
should have been paid to the date of payment.
2. Gas and LPG
(i) The Cost Recovery and Production Shares of Gas subject to a
Gas Sales Agreement between EGPC and CONTRACTOR (as sellers)
and EGPC (as buyer) entered into pursuant to Article VII (e)
shall be valued, delivered to and purchased by EGPC at a
price determined monthly according to the following formula:
PG = 0.85 X ______F_______ X H
42.96 X 10 6
Where:
PG = the value of the Gas in U.S. Dollars per thousand
Standard cubic feet (MSCF).
F = a value in U.S. Dollars per metric ton of the crude oil
of Gulf of Suez Blend "FOB Ras Shukheir" A.R.E calculated
by
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referring to "Piatt's Oilgram Price Report" during a
month under the heading "Spot Crude Price Assessment for
Suez Blend". This value reflects the total averages of
the published low and high values for a Barrel during
such month divided by the number of days in such month
for which such values were quoted. The value per metric
ton shall be calculated on the basis of a conversion
factor to be agreed upon annually between EGPC and
CONTRACTOR.
H = the number of British Thermal Units (BTU's) per thousand
standard cubic feet (MSCF) of the Gas, based on gross
calorific value.
In the event that the value of F cannot be determined because
Platt's Oilgram Price Report is not published at all during a
month, EGPC and CONTRACTOR shall meet and agree the value of
F by reference to other published sources. In the event that
there are no such published sources or if the value of F
cannot be determined pursuant to the foregoing for any other
reason, EGPC and CONTRACTOR shall meet and agree to a value
of F.
Such evaluation of Gas under a formula providing for a
fifteen percent (15%) discount is based upon delivery at the
delivery point specified in Article II and Article VII(e)2
(ii) herinafter, and is to enable EGPC to finance and
maintain the portions of the pipeline distribution system to
be provided by EGPC.
(ii) The Cost Recovery and Production Shares of LPG produced from
a plant constructed and operated by or on behalf of EGPC and
CONTRACTOR shall be separately valued for Propane and Butane
at the outlet of such LPG plant according to the following
formula (unless otherwise agreed between EGPC and
CONTRACTOR):
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PLPG = 0.95 PR - (J X 0.85 X _____F___________)
6
42.96 X 10
Where
PLPG = LPG price (separately determined for Propane and
Butane) in U.S. Dollars per metric ton.
PR = The average over a period of a month of the figures
representing the mid-point between the high and low
prices in U.S. Dollars per metric ton quoted in
"Platt's LPGaswire" during such month for Propane and
Butane FOB Ex-Ref/Stor. West Mediterranean
J = BTU's removed from the Gas stream by the LPG plant per
metric ton of LPG produced.
F = the same value as F under sub-paragraph (i) above.
In the event that Platt's LPGaswire is issued on certain day
during a month but not on others, the value of PR shall be
calculated using only those issues which are published during
such month. In the event that the value of PR can not be
determined because Platt's LPGaswire is not published at all
during a month, EGPC and CONTRACTOR shall meet and agree to
the value of PR by reference to other published sources. In
the event that there are no such other published sources or
if the value of PR cannot be determined pursuant to the
foregoing for any other reason EGPC and CONTRACTOR shall meet
and agree to the value of PR by reference to the value of LPG
(Propane and Butane) delivered FOB from the Mediterranean
Area.
Such valuation of LPG is based upon delivery at the delivery
point specified in Article Vil (e) (2) (iii) hereinafter.
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(iii) The prices of Gas and LPG so calculated shall apply during
the same month.
(iv) The Cost Recovery and Production Shares of Gas and LPG
disposed of by EGPC and CONTRACTOR other than to EGPC
pursuant to Article Vil (e) hereinafter shall be valued at
their actual realized price.
(d) FORECASTS:
Operating Company shall prepare (not less than ninety (90) days
prior to the beginning of each calendar semester following first
regular production) and furnish in writing to CONTRACTOR and
total quantity of Petroleum that can be produced, saved and EGPC
a forecast setting out a total quantity of Petroleum that
Operating Company estimates can be produced, saved and
transported hereunder during such calendar semester in accordance
with good oil and gas industry practices.
Operating Company shall endeavor to produce each calendar
semester the forecast quantity. The Crude Oil shall be run to
storage tanks or offshore loading facilities constructed,
maintained and operated according to Government Regulations, by
Operating Company in which said Crude Oil shall be metered or
otherwise measured for royalty, and other purposes required by
this Agreement. Gas shall be handled by Operating Company in
accordance with the provisions of Article VII(e).
(e) DISPOSITION OF PETROLEUM:
(1) EGPC and CONTRACTOR shall have the right and the obligation to
separately take and freely export or otherwise dispose of,
currently all of the Crude Oil to which each is entitled under
Article VII (a) and Article VII (b). Subject to payment of
sums due to EGPC under Article VII (a)(2) and Article IX,
CONTRACTOR shall have the right to remit and
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retain abroad all funds acquired by it including the proceeds
from the sale of its share of Petroleum.
Notwithstanding anything to the contrary. under this Agreement
priority shall be given to meet the requirements of the A.R.E.
market from CONTRACTOR's share under Article VII (b) of the
Crude Oil produced from the Area and EGPC shall have the
preferential right to purchase such Crude Oil at a price to be
determined pursuant to Article VII(c). The amount of Crude Oil
so purchased shall be a portion of CONTRACTOR's share under
Article VII (b). Such amount shall be proportional to
CONTRACTOR's share of the total production of crude oil from
the concession areas in the A.R.E. that are also subject to
EGPC's preferential right to purchase. The payment for such
purchased amount shall be made by EGPC in U.S. Dollars or in
any other freely convertible currency remittable by CONTRACTOR
abroad.
It is agreed upon that EGPC shall notify CONTRACTOR, at least
forty-five (45) days prior to the beginning of the Calendar
Semester, of the amount to be purchased during such semester
under this Article VII (e)(1).
(2) With respect to Gas and LPG produced from the Area:
(i) Priority shall be given to meet the requirements of the
local market as determined by EGPC.
(ii) In the event that EGPC is to be the buyer of Gas, the
disposition of Gas to the local markets as indicated
above shall be by virtue of long term Gas Sales
Agreements to be entered into between EGPC and
CONTRACTOR (as seller) and EGPC (as buyer).
EGPC and CONTRACTOR (as sellers) shall have the
obligation to deliver Gas to the following point where
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such Gas shall be metered for sales, royalty, and other
purposes required by this Agreement:
(a) In the event no LPG plant is constructed to
process such Gas, the delivery point shall be
at the flange connecting the Lease pipeline to
the nearest point on the National Gas Pipeline
Grid System as depicted in Annex "F" hereto, or
as otherwise agreed by EGPC and CONTRACTOR.
(b) In the event an LPG plant is constructed to
process such Gas, such Gas shall, for the
purposes of valuation and sales, be metered at
the inlet to such LPG Plant. However,
notwithstanding the fact that the metering
shall take place at the LPG Plant inlet,
CONTRACTOR shall through the Operating Company
build a pipeline suitable for transport of the
processed Gas from the LPG. Plant outlet to the
nearest point on the National Gas Pipeline Grid
System as depicted in Annex "F" hereto, or as
otherwise agreed by EGPC and CONTRACTOR. Such
pipeline shall be owned in accordance with
Article VII (a) by EGPC, and its cost shall be
financed and recovered by CONTRACTOR as
Development Expenditures pursuant to Article
VII.
(iii) EGPC and CONTRACTOR shall consult together to
determine whether to build an LPG plant for recovering
LPG from any Gas produced hereunder. In the event EGPC
and CONTRACTOR decide to build such a plant, the plant
shall, as is appropriate, be in the vicinity of the
point of delivery as determined in Article II and
Article VII(e)2(ii) above. The delivery of LPG for,
royalty and other purposes required by this
Agreement shall be at
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the outlet of the LPG plant. The costs of any such LPG
plant shall be recoverable in accordance with the
provisions of this Agreement unless the Minister of
Petroleum agrees to accelerated recovery.
(iv) EGPC (as buyer) shall have the option to elect, by
ninety (90) days prior written notice to EGPC and
CONTRACTOR (as sellers), whether payment for the Gas
which is subject to a Gas Sales Agreement between EGPC
and CONTRACTOR (as sellers) and EGPC (as buyer) and
LPG produced from a plant constructed and operated by
or on behalf of EGPC and CONTRACTOR, as valued in
accordance with Article VII (c), and to which
CONTRACTOR is entitled under the Cost Recovery and
Production Sharing provisions of Article Vil, shall be
made 1) in cash or 2) in kind.
Payments in cash shall be made by EGPC (as buyer) at
intervals provided for in the relevant Gas Sales I
Agreement in U.S.Dollars, remittable by CONTRACTOR
abroad.
Payments in kind shall be calculated by converting the
value of Gas and LPG to which CONTRACTOR is entitled
into equivalent barrels of Crude Oil to be taken
concurrently by CONTRACTOR from the Area, or to the
extent that such Crude Oil is insufficient, Crude Oil
from CONTRACTOR's other concession areas or such
other areas as may be agreed. Such Crude Oil shall be
added to the Crude Oil that CONTRACTOR is otherwise
entitled to lift under this Agreement. Such
equivalent barrels shall be calculated on the basis of
the provisions of Article VII (c) relating to the
valuation of Cost Recovery Crude Oil.
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Provided that:
(aa) Payment of the value of Gas and LPG shall always
be made in cash in U.S. Dollars remittable by
CONTRACTOR abroad to the extent that there is
insufficient Crude Oil available for conversion
as provided for above; (bb) payment of the value
of Gas and LPG shall always be made in kind as
provided for above to the extent that payments
in cash are not made by EGPC.
Payments to CONTRACTOR (whether in cash or kind), when
related to CONTRACTOR's Cost Recovery Petroleum, shall
be included in CONTRACTOR's Statement of Recovery of
Costs and of Cost Recovery Petroleum referred to in
Article IV of Annex "E" of this Agreement.
(v) Should EGPC (as buyer) fail to enter into a long-term Gas
Sales Agreement with EGPC and CONTRACTOR (as sellers)
within five (5) years (unless otherwise agreed) from a
notice of Commercial Gas Discovery pursuant to Article
III, EGPC and CONTRACTOR shall have the right to take and
freely dispose of the quantity of Gas and LPG in respect
of which the notice of Commercial Discovery is given by
exporting such Gas and LPG.
(vi) The proceeds of sale of CONTRACTOR's share of Gas and LPG
disposed of pursuant to the above subparagraph (v) may be
freely remitted or retained abroad by CONTRACTOR.
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(vii) In the event EGPC and CONTRACTOR agree to accept new Gas
and LPG producers to join in an ongoing export project,
such producers shall have to contribute a fair and
equitable share of the investment made.
(viii) (aa) Upon the expiration of the five (5) year period
referred to in Article VII (e) (2) (v) above,
CONTRACTOR shall have the obligation to exert its
reasonable efforts to find an export market for
Gas reserves.
(bb) In the event at the end of the five (5) year
period referred to under Article VII (e) (2) (v)
above, CONTRACTOR and EGPC have not entered into a
Gas Sales Agreement, CONTRACTOR shall retain its
rights to such Gas reserves for a further period
of up to seven (7) years, subject to Article VII
(e) (2) (viii)(cc) below, during which period EGPC
shall attempt to find a market for the Gas
reserves.
(cc) In the event that CONTRACTOR is not exporting the
Gas and CONTRACTOR has not entered into a Gas
Sales Agreement pursuant to Article VII (e)
(2) prior to the expiry of twelve (12) years from
CONTRACTOR's notice of Commercial Gas Discovery,
CONTRACTOR shall surrender the Gas reserves in
respect of which such notice has been given. It
being understood that CONTRACTOR shall, at any
time prior to the expiry of such twelve (12) year
period, surrender the Gas reserves, if CONTRACTOR
is not exporting the Gas and/or CONTRACTOR does
not accept an offer of a Gas Sales Agreement from
EGPC within six (6) months from the date such
offer is made provided that the
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Gas Sales Agreement offered to CONTRACTOR shall
take into consideration the relevant technical and
economic factors to enable a commercial contract
including:
- A sufficient delivery rate.
- Delivery pressure to enter the National Gas
Pipeline Grid System at the point of
delivery.
- Delivered Gas quality specifications not more
stringent than those imposed or required for
the Naitonal Gas Pipeline Grid System.
- The Gas prices as specified in this
Agreement.
(ix) CONTRACTOR shall not be obligated to surrender a
Development Lease based on a Commercial Gas Discovery, if
Crude Oil has been discovered in commercial quantities in
the same Development Lease and vice versa.
(f) Operations:
If following the reversion to EGPC of any rights to Crude Oil
hereunder, CONTRACTOR retains rights to Gas in the same
Development Lease, or if, following surrender of rights to Gas
hereunder, CONTRACTOR retains rights to Crude Oil in the same
Development Lease, operations to explore for or exploit the
Petroleum the rights to which have reverted or been surrendered
(Oil or gas as the case may be) may only be carried out by
Operating Company which shall act on behalf of EGPC alone,
unless CONTRACTOR and EGPC agree otherwise.
(g) Tanker Scheduling:
At a reasonable time prior to the commencement of Commercial
Production EGPC and CONTRACTOR shall meet and agree upon a
procedure for scheduling tanker liftings from the agreed upon
point of export.
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ARTICLE VIII
TITLE TO ASSETS
(a) EGPC shall become the owner of all CONTRACTOR acquired and owned assets
which assets were charged to Cost Recovery by CONTRACTOR in connection
with the operations carried out by CONTRACTOR or Operating Company in
accordance with the following:
(1) Land shall become the property of EGPC as soon as it is purchased.
(2) Title to fixed and moveable assets shall be transferred
automatically and gradually from CONTRACTOR to EGPC as they become
subject to recovery in accordance with the provisions of Article
VII; however the full title to fixed and movable assets shall be
transferred automatically from CONTRACTOR to EGPC when its total
cost has been recovered by CONTRACTOR in accordance with the
provisions of Article VII or at the time of termination of this
Agreement with respect to all assets chargeable to the operations
whether recovered or not, whichever first occurs.
The book value of the assets created during each calendar quarter shall
be communicated by CONTRACTOR to EGPC or by Operating Company to EGPC
and CONTRACTOR within thirty (30) days of the end of each quarter.
(b) During the term of this Agreement and the renewal period EGPC,
CONTRACTOR and Operating Company are entitled to the full use and
enjoyment of all fixed and movable assets referred to above in
connection with operations hereunder or under any other Petroleum
concession agreement entered into by the Parties. Proper accounting
adjustment shall be made. CONTRACTOR and EGPC shall not dispose of the
same except with agreement of the other.
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(c) CONTRACTOR and Operating Company may freely import into the A.R.E., use
therein and freely export at the end of such use, machinery and
equipment which they either rent ' or lease in accordance with good
industry practices, including but not limited to the lease of computer
hardware and software.
ARTICLE IX
BONUSES
(a) CONTRACTOR shall pay to EGPC as a signature bonus the sum of seven
hundred and fifty thousand (750,000) U.S.Dollars on the Effective Date.
(b) CONTRACTOR shall pay to EGPC the sum of two million (2,000,000) U.S.
Dollars as a production bonus when the total average daily production
from the Area first reaches the rate of twenty five thousand (25,000)
Barrels per day for a period of thirty (30) consecutive producing days.
Payment will be made within fifteen (15) days thereafter.
(c) CONTRACTOR shall also pay to EGPC the additional sum of three million
(3,000,000) U.S. Dollars as a production bonus when the total average
daily production from the Area first reaches the rate of fifty thousand
(50,000) barrels per day for a period of thirty (30) consecutive
producing days. Payment will be made within fifteen (15) days
thereafter.
(d) CONTRACTOR shall also pay to EGPC the additional sum of five million
(5,000,000) U.S. Dollars as a production bonus when the total average
daily production from the Area first reaches the rate of one-hundred
thousand (100,000) barrels per day for a period of thirty (30)
consecutive producing days. Payment will be made within fifteen (15)
days thereafter.
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(e) All the above mentioned bonuses shall in no event be recovered by
CONTRACTOR.
(f) In the event that EGPC elects to develop any part of the Area pursuant
to the sole risk provisions of Article III (c) (iv), production from
such sole risk area shall be considered for the purposes of this Article
IX only if CONTRACTOR exercises its option to share in such production,
and only from the initial date of sharing.
(g) Gas shall be taken into account for the purposes of determining the
total average daily production from the Area under Article IX (b-d) by
converting daily Gas delivered into equivalent barrels of daily Crude
Oil production in accordance with the following formula:
MSCF x H x 0.136 = equivalent barrels of Crude Oil
where
MSCF = one thousand Standard Cubic Feet of Gas.
H = the number of million British Thermal Units (BTU's per MSCF).
ARTICLE X
OFFICE AND SERVICE OF NOTICES
CONTRACTOR shall maintain an office in A.R.E. at which notices shall be validly
served.
The General Manager and Deputy General Manager shall be entrusted by CONTRACTOR
with sufficient power to carry out immediately all local written directions
given to them by the Government or its representatives under the terms of this
Agreement. All lawful
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regulations issued or hereafter to be issued which are applicable hereunder and
not in conflict with this Agreement shall apply to the duties and activities of
the General Manager and Deputy General Manager.
All matters and notices shall be deemed to be validly served which are delivered
to the office of the General Manager or which are sent to him by registered mail
to CONTRACTOR's office in the A.R.E.
All matters and notices sh - all be deemed to be validly served which are
delivered to the office of the Chairman of EGPC or which are sent to hirn by
registered mail at EGPC's main office in Cairo.
ARTICLE XI
SAVING OF PETROLEUM AND PREVENTION OF LOSS
(a) Operating Company shall take all proper measures, according to generally
accepted methods in use in the oil and gas industry to prevent loss or
waste of Petroleum above or under the ground in any form during
drilling, producing, gathering, and distributing or storage operations.
The GOVERNMENT has the right to prevent any operation on any well that
it might reasonably expect would result in loss or damage to the well or
the Oil or Gas field.
(b) Upon completion of the drilling of a productive well, Operating
Company shall inform the GOVERNMENT or its representative of , the time
when the well will be tested and the production rate ascertained.
(c) Except in instances where multiple producing formations in the same
well can only be produced economically through a single tubing string,
Petroleum shall not be produced from multiple oil bearing zones through
one string of tubing at the same time,
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except with the prior approval of the GOVERNMENT or its
representative, which shall not be unreasonably withheld.
(d) Operating Company-shall record data regarding the.quantities of
Petroleum and water produced monthly from each Development Lease. Such
data shall be sent to the GOVERNMENT or its representative on the
special forms provided for that purpose within thirty (30) days after
the data are obtained. Daily or weekly statistics regarding the
production from the Area shall be available at all reasonable times for
examination by authorized representatives of the GOVERNMENT.
(e) Daily drilling records and the graphic logs of wells must show the
quantity and type of cement and the amount of any other materials used
in the well for the purpose of protecting Petroleum, gas bearing or
fresh water strata.
(f) Any substantial change of mechanical conditions of the well after its
completion shall be subject to the approval of the representative of the
GOVERNMENT.
ARTICLE XII
CUSTOMS EXEMPTIONS
(a) EGPC, CONTRACTOR, and Operating Company shall be permitted to import and
shall be exempted from customs duties, any taxes, levies or fees
(including fees imposed by Ministerial Decision No. 254 of 1993 issued
by the Minister of Finance, as now or hereafter amended or substituted)
of any nature (except wherd an actual service has been rendered to
CONTRACTOR by a competent authority), and from the importation rules
with respect to the importation of machinery, equipment, appliances,
materials, items, means of transport and transportation (the exemption
from taxes and duties for cars shall only apply to cars to be used in
operations), electric appliances, air conditioners
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for offices, field housing and facilities, electronic appliances,
computer hardware and software, as well as spare parts required for any
of the imported items, all subject to a duly approved certificate
issued by the responsible representative nominated by EGPC for such
purpose, which states that the imported items are required for
conducting the operations pursuant to this Agreement. Such certificate
shall be final and binding and shall automatically result in the
importation and the exemption without any further approval, delay or
procedure.
(b) Machinery, equipment, appliances and means of transport and
transportation imported by EGPC'S, CONTRACTOR's and Operating Company's
contractors and sub-contractors temporarily engaged in any activity
pursuant to the operations which are the subject of this Agreement,
shall be cleared under the "Temporary Release System" without payment of
customs duties, any taxes, levies or fees (including fees imposed by
Ministerial Decision No. 254 of 1993 issued by the Minister of Finance,
as now or hereafter amended or substituted) of any nature (except where
an actual service has been rendered to CONTRACTOR by a competent
authority), upon presentation of a duly approved certificate issued by
an EGPC responsible representative nominated by EGPC for such purpose
which states, that the imported items are required for conducting the
operations pursuant to this Agreement. Items (excluding cars not to be
used in operations) set out in Article XII (a) imported by EGPC'S,
CONTRACTOR's and Operating Company's contractors and sub-contractors for
the aforesaid operations, in order to be installed or used permanently
or consumed shall meet the conditions for exemption set forth in Article
XII (a) after being duly certified by an EGPC responsible representative
to be used for conducting operations pursuant to this Agreement.
(c) The expatriate employees of CONTRACTOR, Operating Company and their
contractors and sub-contractors shall not be entitled to
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any exemptions from customs duties and other ancillary taxes and charges
except within the limits of the provisions of the laws and regulations
applicable in the A.R.E. However, personal household goods and furniture
(including one (1) car) for each expatriate employee of CONTRACTOR
and/or Operating company shall be cleared under the "Temporary Release
System" (without payment of any customs duties and other ancillary
taxes) upon presentation of a letter to the appropriate customs
authorities by CONTRACTOR or Operating Company approved by an EGPC
responsible representative that the imported items are imported for the
sole use of the expatriate employee and his family, and that such
imported items shall be re-exported outside the A.R.E. upon the
repatriation of the concerned expatriate employee.
(d) Items imported into the A.R.E. whether exempt or not exempt from customs
duties and other ancillary taxes and charges hereunder, may be exported
by the importing party at any time after obtaining EGPC's approval,
which approval shall not be unreasonably withheld, without any export
duties, taxes or charges or any taxes or charges from which such items
have been already exempt, being applicable. Such items may be sold
within the A.R.E. after obtaining the approval of EGPC which approval
shall not be unreasonably withheld. In this event, the purchaser of such
items shall pay all applicable customs duties and other ancillary taxes
and charges according to the condition and value of such items and the
tariff applicable on the date of sale, unless such items have already
been sold to an Affiliated Company of CONTRACTOR, if any, or EGPC,
having the same exemption, or unless title to such items (excluding cars
not used in operations) has passed to EGPC. In the event of any such
sale under this paragraph (d), the proceeds from such sale shall be
divided in the following manner:
CONTRACTOR shall be entitled to reimbursement of its unrecovered cost,
if any, in such items and the excess, if any, shall be paid to EGPC.
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(e) The exemption provided for in Article Xii (a) shall not apply to any
imported items when items of the same or substantially the same kind and
quality are manufactured locally meeting CONTRACTOR's and/or Operating
Company's specifications for quality and safety and are available for
timely purchase and delivery in the A.R.E. at a price not higher than
ten percent (10%) of the cost of the imported item, before customs
duties but after freight and insurance costs, if any, have been added.
(f) CONTRACTOR, EGPC and their respective buyers shall have the right to
freely export the Petroleum produced from the Area pursuant to this
Agreement; no license shall be required, and such petroleum shall be
exempted from any customs duties, any taxes, levies or any other imposts
in respect of the export of Petroleum hereunder.
ARTICLE XIII
BOOKS OF ACCOUNT: ACCOUNTING AND PAYMENTS
(a) EGPC, CONTRACTOR and Operating Company shall each maintain at their
business offices in the A.R.E. books of account, in accordance with the
Accounting Procedure in Annex "E" and accepted accounting practices
generally used in the petroleum industry, and such other books and
records as may be necessary to show the work performed under this
Agreement, including the amount and value of all Petroleum produced and
saved hereunder. CONTRACTOR and Operating Company shall keep their books
of account and accounting records in United States Dollars.
Operating Company shall furnish to the GOVERNMENT or its representatives
monthly returns showing the amount of Petroleum produced and saved
hereunder. Such returns shall be prepared in the form required by the
GOVERNMENT, or its representative and shall be signed by the General
Manager or by
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the Deputy General Manager or a duly designated deputy and delivered to
the GOVERNMENT or its representative within thirty (30) days after the
end of the month covered in the return.
(b) The aforesaid books of account and other books and records referred to
above shall be available at all reasonable times for inspection by duly
authorized representatives of the GOVERNMENT.
(c) CONTRACTOR shall submit to EGPC a Profit and Loss Statement of its Tax
Year not later than four (4) months after the commencement of the
following Tax Year to show its net profit or loss from the Petroleum
operations under this Agreement for such Tax Year.
CONTRACTOR shall at the same time submit a year-end Balance Sheet for
the same Tax Year to EGPC. The Balance Sheet and financial statements
shall be certified by an Egyptian certified accounting firm.
ARTICLE XIV
RECORDS, REPORTS AND INSPECTION
(a) CONTRACTOR and/or Operating Company shall prepare and, at all times
while this Agreement is in force, maintain accurate and current records
of its operations in the Area. CONTRACTOR and/or Operating Company shall
furnish the GOVERNMENT or its representative, in conformity with
applicable regulations or as the GOVERNMENT or its representative may
reasonably require information and data concerning its operations under
this Agreement. Operating Company will perform the functions indicated
in this Article XIV in accordance with its respective role as specified
in Article VI.
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(b) CONTRACTOR and/or Operating Company shall save and keep for a
reasonable period of time a representative portion of each sample of
cores and cuttings taken from drilling wells, to be disposed of, or
forwarded to the GOVER4MENT or its representative in the rnanner
directed by the GOVERNMENT. All samples acquired by CONTRACTOR and/or
Operating Company for their own purposes shall be considered available
- for inspection at any reasonable time by the GOVERNMENT or its
representatives.
(c) Unless otherwise agreed to by EGPC, in case of exporting any rock
samples outside A.R.E., samples equivalent in size and quality shall,
before such exportation, be delivered to EGPC as representative of the
GOVERNMENT.
(d) Originals of records can only be exported with the permission of EGPC;
provided, however, that magnetic tapes and any other data which must be
processed or analyzed outside the A.R.E. may be exported if a monitor
or a comparable record, if available, is maintained in the A.R.E. and
provided that such exports shall be repatriated to A.R.E. promptly
following such processing or analysis on the understanding that they
belong to EGPC.
(e) During the period CONTRACTOR is conducting the Exploration operations,
EGPC's duly authorized representatives or employees shall have the
right to full and complete access to the Area at all reasonable times
with the right to observe the operations being conducted and to inspect
all assets, records and data kept by CONTRACTOR. EGPC's representative,
in exercising its rights under the preceding sentence of this
paragraph (e), shall not interfere with CONTRACTOR's operations.
CONTRACTOR shall provide EGPC with copies of any and all data
(including, but not limited to, geological and geophysical reports,
logs and well surveys) information and
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interpretation of such data, and other information in CONTRACTOR's
possession.
For the purpose of obtaining new offers, the GOVERNMENT and/or EGPC
may, after the eighth (8th) year of the Exploration period or the date
of termination of this Agreement, whichever is the earlier, show any
other party uninterpreted basic geophysical and geological data (such
data to be not less than one (1) year old unless CONTRACTOR agrees to a
shorter period, which agreement shall not--be unreasonably withheld)
with respect to the Area, provided that the GOVERNMENT and/or EGPC
may at any time show another party such data directly obtained over or
acquired from those parts of the Area which CONTRACTOR has relinquished
as long as such data is at least one (1) year old.
ARTICLE XV
RESPONSIBILITY FOR DAMAGES
CONTRACTOR shall entirely and solely be responsible in law toward third parties
for any damage caused by CONTRACTOR's Exploration operations and shall indemnify
the GOVERNMENT and/or EGPC against all damages for which they may be held liable
on account of any such operations.
ARTICLE XVI
PRIVILEGES OF GOVERNMENT REPRESENTATIVES
Duly authorized representatives of the GOVERNMENT shall have access to the Area
covered by this Agreement and to the Operations conducted thereon. Such
representatives may examine the books, registers and records of EGPC, CONTRACTOR
and Operating Company and make a reasonable number of surveys, drawings and
tests for the purpose of enforcing this Agreement. They shall, for this purpose,
be entitled to make reasonable u-qe of the machinery and
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instruments of CONTRACTOR or Operating Company on the condition that no danger
or impediment to the operations hereunder shall arise directly or indirectly
from such use. Such representatives shall be given reasonable assistance by the
agents and employees of CONTRACTOR or Operating Company so that none of the
activities shall endanger or hinder the safety or efficiency of the operations.
CONTRACTOR or Operating Company shall offer such representatives all privileges
and facilities accorded to its own employees in the field and shall provide
them, free of charge, the use of reasonable office space and of adequately
furnished housing while they are in the field for the purpose of facilitating
the objectives of this Article. Without prejudice to Article XIV (e) any and all
information obtained by the GOVERNMENT or its representatives under this Article
XVI shall be kept confidential with respect to the Area.
ARTICLE XVII
EMPLOYMENT RIGHTS AND TRAINING OF
ARAB REPUBLIC OF EGYPT PERSONNEL
(a) It is the desire of EGPC and CONTRACTOR that operations hereunder be
conducted in a business-like and efficient manner.
(1) The expatriate administrative, professional and technical
personnel employed by CONTRACTOR or Operating Company and the
personnel of its contractors for the conduct of the operations
hereunder, shall be granted a residence as provided for in Law
No. 89 of 1960 as amended and Ministerial Order No. 280 of
1981 as amended, and CONTRACTOR agrees that all immigration,
passport, visa and employment regulations of the A.R.E.,
shall be applicable to all alien employees of CONTRACTOR
working in the A.R.E.
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(2) A minimum of twenty-five percent (25%) of the combined
(b) CONTRACTOR and Operating Company shall each select its employees and
determine the number thereof, to be used for operations hereunder.
(c) CONTRACTOR, shall after consultation with EGPC, prepare and carry out
specialized training programs for all its A.R.E.. employees engaged in
operations hereunder with respect to applicable aspects of the petroleum
industry. CONTRACTOR and Operating Company undertake to replace
gradually their non-executive expatriate staff by qualified nationals as
they are available.
(d) During any of the Exploration phases, CONTRACTOR shall give mutually
agreed numbers of EGPC employees an opportunity to attend and
participate in CONTRACTOR's and CONTRACTOR's Affiliated Cornpanies
training programs relating to Exploration and Development operations. In
the event that the total cost of such programs is less than fifty
thousand (50,000) United States Dollars in any Financial Year during
such period, CONTRACTOR shall pay EGPC the amount of the shortfall
within thirty (30) days following the end of such Firfancial Year.
However, EGPC shall have the right that said amount (U.S.$50,000)
allocated for training, be paid directly to EGPC for such purpose.
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ARTICLE XVIII
LAWS AND REGULATIONS
(a) CONTRACTOR and Operating Company shall be subject to Law No. 66 of 1953
(excluding Article 37 thereof) as amended by Law No. 86 of 1956 and the
regulations issued for the implementation thereof, including the
regulations for the safe and efficient performance of operations carried
out for the execution of this Agreement and for-the conservation of
the petroleum resources of the A.R.E. provided that no regulations,
or modification or interpretation thereof, shall be contrary to or
inconsistent with the provisions of this Agreement.
(b) Except as provided in Article Ill (g) for Income Taxes, EGPC, CONTRACTOR
and Operating Company shall be exempted from all taxes and duties,
whether imposed by the GOVERNMENT or municipalities including among
others, Sales Tax, Value Added Tax and Taxes on the Exploration,
Development, extracting, producing, exporting or transporting of
Petroleum and LPG as well as any and ail withholding taxes that might
otherwise be imposed on dividends, interest, technical service fees,
patent and trademark royalties, and similar items. CONTRACTOR shall also
be exempted from any tax on the liquidation of CONTRACTOR, or
distributions of any income to the shareholders of CONTRACTOR, and from
any tax on capital.
(c) The rights and obligations of EGPC and CONTRACTOR under, and for the
effective term of this Agreement shall be governed by and in accordance
with the provisions of this Agreement and can only be altered or amended
by the written mutual agreement of the said contracting parties.
(d) The contractors and sub-contractors of CONTRACTOR and Operating Company
shall be subject to the provisions of this
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Agreement which affect them. Insofar as all regulations which are duly
issued by the GOVERNMENT apply from time to time and are not in accord
with the provisions of this Agreement, such regulations shall not apply
to CONTRACTOR, Operating Company and their respective contractors and
sub-contractors, as the case may be.
(e) EGPC, CONTRACTOR, Operating Company and their respective contractors and
sub-contractors shall for the purposes of this Agreement be exempted
from all professional stamp duties, imposts and levies imposed by
syndical laws with respect to their documents and activities hereunder.
(f) All the exemptions from the application of the A.R.E. laws or
regulations granted to EGPC, CONTRACTOR, the Operating Company, their
contractors and sub-contractors under this Agreement shall include such
laws and regulations as presently in effect or hereafter amended or
substituted.
ARTICLE XIX
STABILIZATION
In case of changes in existing legislation or regulations applicable to the
conduct of Exploration, Development and production of Petroleum, which take
place after the Effective Date, and which significantly affect the economic
interest of this Agreement to the detriment of CONTRACTOR or which imposes on
CONTRACTOR an obligation to remit to the A.R.E. the proceeds from sales of
CONTRACTOR's Petroleum, CONTRACTOR shall notify EGPC of the subject legislative
or regulatory measure. In such case, the Parties shall negotiate possible
modifications to this Agreemefit designed to restore the economic balance
thereof which existed on the Effective Date.
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The Parties shall use their best efforts to agree on amendments to this
Agreement within ninety (90) days from aforesaid notice.
These amendments to this Agreement shall not in any event diminish or increase
the rights and obligations of CONTRACTOFF as these were agreed on the Effective
Date.
Failing agreement between the Parties during the period referred to above in
this Article XIX , the dispute may be submitted to arbitration, as provided in
Article XXIV of this Agreement.
ARTICLE XX
RIGHT OF REQUISITION
(a) In case of national emergency due to war or imminent expectation of war
or internal causes, the GOVERNMENT may requisition all or part of the
production from the Area obtained hereunder and require Operating
Company to increase such production to the utmost possible rnaximum. The
GOVERNMENT may also requisition the Oil and/or Gas field itself and, if
necessary, related facilities.
(b) In any such case, such requisition shall not be effected except after
inviting EGPC and CONTRACTOR or their representative by registered
letter, with acknowledgement of receipt, to express their views with
respect to such requisition.
(c) The requisition of production shall be effected by Ministerial Order.
Any requisition of an Oil and/or Gas field, or any related facilities
shall be effected by a Presidential Decree duly notified to EGPC and
CONTRACTOR.
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(d) In the event of any requisition as provided above, the GOVERNMENT shall
indemnify in full EGPC and CONTRACTOR for the period during which the
requisition is maintained, including:
(1) All damages which result from such requisition; and
(2) Full repayment each month for all Petroleum extracted by the
GOVERNMENT less the royalty share of such production.
However, any damage resulting from enemy attack is not within the meaning of
this paragraph (d). Payment hereunder shall be made to CONTRACTOR in U.S.
Dollars remittable abroad. The price paid to CONTRACTOR for Petroleum taken
shall be calculated in accordance with Article Vil (c).
ARTICLE XXI
ASSIGNMENT
(a) Neither EGPC nor CONTRACTOR may assign to a person, firm or
corporation, in whole or in part, any of its rights, privileges, duties
or obligations under this Agreement without the written consent of the
GOVERNMENT.
(b) To enable consideration to be given to any request for such consent,
the following conditions must be fulfilled:
(1) The obligations of the assignor deriving from this Agreement
must have been duly fulfilled as of the date such request is
made.
(2) The instrument of assignment must include provisions stating
precisely that the assignee is bound by all covenants
contained in this Agreement and any
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modifications or additions in writing that up to such time may
have been made. A draft of such instrument of assignment shall
be submitted to EGPC for review and approval before being
formally executed.
(c) Notwithstanding the provisions of Article XXI (a), CONTRACTOR may assign
all or any of its rights, privileges, duties or obligations under this
Agreement to an Affiliated Company, provided that CONTRACTOR shall
advise the GOVERNMENT and EGPC in writing of the assignment.
(d) Any assignment, sale, transfer or other such conveyance made pursuant to
the provisions of this Article XXI shall be free of any transfer,
capital gains taxes or related taxes, charges or fees including without
limitation, all Income Tax, Sales Tax, Value Added Tax, Stamp Duty, or
other Taxes or similar payments.
(e) As long as the assignor shall hold any interest under this Agreement,
the assignor together with the assignee shall be jointly and severally
liable for all duties and obligations of CONTRACTOR under this
Agreement.
ARTICLE XXII
BREACH OF AGREEMENT AND POWER TO CANCEL
(a) The GOVERNMENT shall have the right to cancel this Agreement by Order
or Presidential Decree, with respect to CONTRACTOR, in the following
instances:
(1) If it knowingly has submitted any false statements to the
GOVERNMENT which were of a material consideration for the
execution of this Agreement;
(2) If it assigns any interest hereunder contrary to the
provisions of Article XXI;
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(3) If it is adjudicated bankrupt by a court of a competent
jurisdiction;
(4) If it does not comply with any final decision reached as the
result of court proceedings conducted under Article XXIV(a);
(5) If it intentionally extracts any mineral other than Petroleum
not authorized by this Agreement or without the authority of
the GOVERNMENT, except such extractions as may be unavoidable
as the result of the operations conducted hereunder in
accordance with accepted petroleum industry practice and which
shall be notified to the GOVERNMENT or its representative as
soon as possible; and
(6) If it commits any material breach of this Agreement or of the
provisions of Law No. 66 of 1953, as amended by Law No. 86 of
1956, which are not contradicted by the provisions of this
Agreement.
Such cancellation shall take place without prejudice to any
rights which may have accrued to the GOVERNMENT I against
CONTRACTOR in accordance with the provisions of this
Agreement, and, in the event of such cancellation,
CONTRACTOR, shall have the right to remove from the Area
all its personal property.
(b) If the GOVERNMENT deems that one of the aforesaid causes (other than a
force majeure cause referred to in Article XXIII) hereof exists to
cancel this Agreement, the GOVERNMENT shall give CONTRACTOR ninety (90)
days written notice personally served on CONTRACTOR's General Manager in
the legally official manner and receipt of which is acknowledged by him
or by his legal agents, to remedy and remove such cause; but if for any
reason such service is impossible due to unnotified
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change of address, publication in the Official Journal of the GOVERNMENT
of such notice shall be considered as valid service upon CONTRACTOR. If
at the end of the said ninety (90) day notice period such cause has not
been remedied and removed, this Agreement may be canceled forthwith by
Order or Presidential Decree as aforesaid; provided however, that if
such cause, or the failure to remedy or remove such cause, results from
any act or omission of one party, cancellation of this Agreement shall
be effective only against that party and not as against any other party
hereto.
ARTICLE XXIII
FORCE MAJEURE
(a) The non-performance or delay in performance by EGPC and CONTRACTOR, or
either of them of any obligation under this Agreement shall be excused
if, and. to the extent that, such nonperformance or delay is caused by
force majeure. The period of any such non-performance or delay, together
with such period as may be necessary for the restoration of any damage
done during such delay, shall be added to the time given in this
Agreement for the performance of such obligation and for the performance
of any obligation dependent thereon and consequently, to the term of
this Agreement, but only with respect to the block or blocks affected.
(b) "Force Majeure" within the meaning of this Article XXIII, shall be any
order, regulation or direction of the GOVERNMENT of the ARAB REPUBLIC OF
EGYPT, or the Government of the REPBULIC OF IRELAND or the Government of
CANADA, with respect to CONTRACTOR whether promulgated in the form of a
law or otherwise or any act of God, insurrection, riot, war, strike, and
other labor disturbance, fires, floods or any cause not due to the fault
or negligence of EGPC and CONTRACTOR or either of them, whether or not
similar to the
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foregoing, provided that any such cause is beyond the reasonable control
of EGPC and CONTRACTOR, or either of them.
(c) Without prejudice to the above and except as may be otherwise provided
herein, the GOVERNMENT shall incur no responsibility whatsoever to EGPC
and CONTRACTOR, or either of them for any damages, restrictions or loss
arising in consequence of such case of force majeure except a force
majeure caused by the order, regulations or--direction of the
GOVERNMENT.
(d) If the force majeure event occurs during the initial Exploration period
or any extension thereof and continues in effect for a period of six (6)
months CONTRACTOR shall have the option upon ninety (90) days prior
Written notice to EGPC to terminate its obligations hereunder without
further liability of any kind.
ARTICLE XXIV
DISPUTES AND ARBITRATION
(a) Any dispute, controversy or claim arising out of or relating to this
Agreement or the breach, termination or invalidity thereof, between the
GOVERNMENT and the parties shall be referred to the jurisdiction of the
appropriate A.R.E. Courts and shall be finally settled by such Courts.
(b) Any dispute, controversy or claim arising out of or relating to this
Agreement, or breach, termination or Invalidity thereof between EGPC and
CONTRACTOR shall be settled by arbitration in accordance with the
Arbitration Rules of the Cairo Regional Center for International
Commercial Arbitration (the Center) in effect on the date of this
Concession Agreement. The award of the arbitrators shall be final and
binding on the parties.
(c) The number of arbitrators shall be three (3).
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(d) Each party shall appoint one arbitrator. If, within thirty (30) days
after receipt of the claimant's notification of the appointment of an
arbitrator the respondent has not notified the claimant in writing of
the name of the arbitrator he appoints, the claimant may request the
Center to appoint the second arbitrator.
(e) The two arbitrators thus appointed shall choose the third arbitrator who
will act as the presiding arbitrator of the tribunal. If within thirty
(30) days after the appointment of the second arbitrator, the two
arbitrators have not agreed upon the choice of the presiding arbitrator,
then either party may request the Secretary General of the Permanent
Court of Arbitration at the Hague to designate the appointing authority.
Such appointing authority shall appoint the presiding arbitrator in the
same way as a sole arbitrator would be appointed under Article 6.3 of
the UNCITRAL Arbitration Ru'les. Such presiding arbitrator shall be a
person of a nationality other than the A.R.E. or IRELAND or CANADA and
of a country which has diplomatic relations with both the A.R.E., and
IRELAND and CANADA, and who shall have no economic interests in the
Petroleum business of the signatories hereto.
(f) Unless otherwise agreed by the parties to the arbitration, the
arbitration, including the making of the award, shall take place in
Cairo, A.R.E.
(g) The decision of a majority of the arbitrators shall be final and binding
upon the Parties and the arbitral award rendered shall be final and
conclusive. Judgment on the arbitral award rendered, may be entered in
any court having Jurisdiction or application may be made in such court
for a judicial acceptance of the award and for enforcement, as the case
may be.
(h) Egyptian Law shall apply to the dispute except that in the event of any
conflict between Egyptian Laws and this Agreement the provisions of this
Agreement (including the arbitration provision) shall prevail. The
arbitration shall be conducted in the English language.
(i) EGPC and CONTRACTOR agree that if, for whatever reason,
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arbitration in accordance with the above procedure cannot take Place, or
is likely to take place under circumstances for CONTRACTOR which could
prejudice CONTRACTOR's right to fair arbitration, all disputes,
controversies or claims arising out of or relating to this Agreement or
the breach, termination or invalidity thereof shall be settled by ad hoc
arbitration in accordance with the UNCITRAL Rules in effect on the
Effective Date.
ARTICLE XXV
STATUS OF PARTIES
(a) The rights, duties, obligations and liabilities in respect of EGPC and
CONTRACTOR hereunder shall be several and not joint or collective, it
being understood that this Agreement shall not be construed as
constituting an association or corporation or partnership.
(b) Each CONTRACTOR MEMBER shall be subject to the laws of the place where
it is incorporated regarding its legal status or creation,
organization, charter and by-iawsg shareholding, and ownership. Each
CONTRACTOR MEMBER's shares of capital which are entirely held abroad
shall not be negotiable in the A.R.E. and shall not be offered for public
subscription nor shall be subject to the stamp tax on capital shares nor
any tax or duty in the A.R.E. CONTRACTOR shall be exempted from the
application of Law No. 159 of 1981 as amended.
(c) All CONTRACTOR MEMBERS shall be jointly and severally liable for the
performance of the obligations of CONTRACTOR under this Agreement.
ARTICLE XXVI
LOCAL CONTRACTORS AND
LOCALLY MANUFACTURED MATERIAL
CONTRACTOR or Operating Company, as the case rnay be, and their contractors
shall:
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(a) Give priority to local contractors and sub-contractors, including EGPC's
Affiliated Companies as long as their performance is comparable with
international performance and the prices of their services are not
higher than the prices of other contractors and sub-contractors by more
than ten percent (10%).
(b) Give preference to locally manufactured material, equipment, machinery
and consumables so long as their quality and time of delivery are
comparable to internationally available material, equipment, machinery
and consumables. However, such material, equipment, machinery and
consumables may be imported for operations conducted hereunder if the
local price of such items at CONTRACTOR's or Operating Company's
operating base in A.R.E. is more than ten percent (10%) higher than the
price of such imported items before customs duties, but after
transportation and insurance costs have been added.
ARTICLE XXVII
ARABIC TEXT
The Arabic version of this Agreement shall, before the courts of A.R.E. be
referred to in construing or interpreting this Agreement; provided however, that
in any arbitration pursuant to Article XXIV herein between EGPC and CONTRACTOR
the English and Arabic versions shall both be referred to as having equal force
in construing or interpreting the Agreement.
ARTICLE XXVIII
GENERAL
The headings or titles to each of the Articles to this Agreement are solely for
the convenience of the parties hereto and shall not be used with respect to the
interpretation of said Articles.
Nothing in this Agreement shall be constructed as constituting any relationship
to any petroleum concession agreement heretofore entered into by the parties and
each of these agreements shall be
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treated separately and independently in all respects, including but not limited
to royalties, taxes and the computation of the net profits of EGPC, DUBLIN and
TANGANYIKA respectively, except where this Agreement expressly provides to the
contrary.
ARTICLE XXIX
APPROVAL OF THE GOVERNMENT
This Agreement shall not be binding upon any of the parties hereto unless and
until a law is issued by the competent authorities of the A.R.E. authorizing the
Minister of Petroleum to sign this Agreement and giving this Agreement full
force and effect of law notwithstanding any countervailing Governmental
enactment, and the Agreement is signed by the GOVERNMENT, EGPC, and CONTRACTOR.
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
BY ---------------------------------
TANGANYIKA OIL COMPANY LTD.
BY ---------------------------------
EGYPTIAN GENERAL PETROLEUM CORPORATION
BY ---------------------------------
ARAB REPUBLIC OF EGYPT
By: ---------------------------------
Date: ------------------------------
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ANNEX "A"
CONCESSION AGREEMENT
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
EGYPTIAN GENERAL PETROLEUM CORPORATION.
AND
DUBLIN INTERNAITONAL PETROLEUM (EGYPT) LIMITED
AND
TANGANYIKA OIL COMPANY LTD.
IN
WEST GHARIB AREA
EASTERN DESERT
A.R.E.
BOUNDARY DESCRIPTION OF THE CONCESSION AREA
Annex "B" is a provisional illustrative map at an approximate scale of (1:
600,000) showing the Area covered and affected by this Agreement.
The Area measure approximately (two thousand five hundred and thirty (2530)
square kilometers).
- - It is to be noted that the delineation lines of the Area in Annex "B" are
intended to be only illustrative and provisional and may not show
accurately their true position in relation to existing monuments and
geographical features.
Coordinates of the corner points of the Area are given in the following
table which forms an integral part of Annex "A":
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BOUNDARY COORDINATES OF
WEST GHARIB AREA IN EASTERN DESERT
POINT.NO. LAT. NORTH LONG. EAST
- --------- ---------- ----------
1 28 42' 00.000" Intersection of Lat 280
with shore line of west b
of G.O.S.to point 2
2 28 33' 39.510" 32 55' 3.55"
3 28 32' 03.980" 32 53' 13.490
4 28 18' 00.000" 33 04' 21.400"
5 28 18' 00.000" 33 03' 13.600"
6 28 18' 26.980" 33 02' 55.940"
7 28 16' 59.050" 32 58' 27.000"
8 28 10' 37.560" 33 02' 03.880"
9 28 12' 55.380" 33 06' 32.660"
10 28 10' 58.950" 33 07' 48.650"
11 28 ll' 34.698" 33 08' 58.460"
12 28 09' 02.779" 33 10' 58.484"
13 28 08' 24.000" 33 09' 55.990"
14 28 03' 58.000" 33 13' 25.990"
15 28 03' 00.000" 33 12' 00.000"
16 27 56' 00.000" 33 12' 00.000"
17 27 52' 02.417" 33 15' 14"
18 27 47' 11.821" 33 10' 04.354"
19 28 08' 22.463" 32 47' 25.847"
20 28 ll' 18.722" 32 50' 37.709"
21 28 20' 25.584" 32 41' 16.940"
22 28 21' 21.485" 32 42' 13.658"
23 28 30' 57.046" 32 32' 33.338"
24 28 42' 00.000" 32 45' 06.944"
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EXCLUDED DEVELOPMENT LEASE AREA DELINEATED BY POINTS
POINT NO. LAT. NORTH LONG. EAST
- --------- ---------- ----------
1 28 27' 00.000" 32 54' 45.000"
2 28 23' 30.000" 32 54' 45.000"
3 28 23' 30.000" 32 53' 30.000"
4 28 23' 00.000" 32 53' 30.000"
5 28 23' 00.000" 32 56' 30.000"
6 28 20' 30.000" 32 56' 30.000"
7 28 20' 30.000" 32 53' 30.000"
8 28 21' 00.000" 32 53' 30.000"
9 28 21' 00.000" 32 50' 30.000"
10 28 27' 00.000" 32 50' 30.000"
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ANNEX "B"
CONCESSION AGREEMENT FOR PETROLEUM
EXPLORATION AND EXPLOITATION
BETWEEN
ARAB REPUBLIC OF EGYPT
AND
EGYPTIAN GENERAL PETROLEUM CORPORATION
AND
UBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
AND
TANGANYIKA OIL COMPANY LTD.
IN
WEST GHARIB AREA
EASTERN DESERT
A.R.E
SCALE 1 : 600,000
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ANNEX "C"
LETTER OF GUARANTEE
Letter of Guarantee No ----- Cairo, EGYPTIAN GENERAL PETROLEUM CORPORATION.
Gentlemen,
The undersigned, National Bank of Egypt, as Guarantor, hereby guarantees to the
EGYPTIAN GENERAL PETROLEUM CORPORATION (hereinafter referred to as "EGPC") to
the limit of five million (5,000,000) U.S. Dollars, the performance by "DUBLIN
INTERNATIONAL PETROLEUM (EGYPT) LIMITED." and TANGANYIKA OIL COMPANY LTD.,
(hereinafter referred to as "CONTRACTOR") of their obligations required for
Exploration operations to spend a minimum of five million (5,000,000) U.S.
Dollars during the initial three (3) years of the Exploration period under
Article IV of that certain Concession Agreement (hereinafter referred to as the
"Agreement") covering that Area described in Annexes "A" and "B" of said
Agreement, by and between the Arab Republic of Egypt (hereinafter referred to as
("A.R.E."), EGPC and CONTRACTOR, dated -------.
It is understood that this Guarantee and the liability of the Guarantor
hereunder shall be reduced quarterly, during the period of expenditure of said
five million (5,000,000) U.S. Dollars by the amount of money expended by
CONTRACTOR for such Exploration operations during each such quarter. Each such
reduction shall be established by the joint written statement of CONTRACTOR and
EGPC.
In the event of a claim by EGPC of non-performance or surrender of the Agreement
on the part of CONTRACTOR prior to fulfilment of said minimum expenditure
obligations under Article IV of the Agreement, there shall be no liability on
the undersigned Guarantor for payment to EGPC unless and until such liability
has been established by written statement of EGPC setting forth the amount due
under the Agreement.
It is a further condition of this Letter of Guarantee that:
(1) This Letter of Guarantee will become available only provided that the
Guarantor will have been informed in writing by CONTRACTOR and EGPC
that the Agreement between CONTRACTOR, A.R.E. and EGPC has become
effective according to its-terms, and said Guarantee shall become
effective on the Effective Date of said Agreement.
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(2) This Letter of Guarantee shall in any event automatically expire:
(a) Three(3) yearsand Six(6)effective, or months after the date it
becomes effective. or
(b) At such time as the total of the amounts shown on quarterly
joint statements of EGPC and CONTRACTOR equals or exceeds the
amount of said minimum expenditure obligation, whichever is
earlier.
(3) Consequently, any claim, in respect thereof should be made to the
Guarantor prior to either of said expiration dates at the latest
accompanied by EGPC's written statement, setting forth the amount of
under-expenditure by CONTRACTOR to the effect that:
(a) CONTRACTOR has failed to perform its expenditure obligations
referred to in this Guarantee, and
(b) CONTRACTOR has failed to pay the expenditure deficiency to
EGPC.
Please return to us this Letter of Guarantee in the event it does not become
effective, or upon the expiry date.
Yours Faithfully,
BY: -----------------------
ACCOUNTANT: ------------------
MANAGER: ------------------------
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ANNEX "D"
CHARTER OF OPERATING COMPANY
ARTICLE I
A joint stock company having the nationality of the ARAB REPUBLIC OF EGYPT shall
be formed with the authorization of the GOVERNMENT in accordance with the
provisions of this Agreement referred to below and of this Charter.
The Company shall be subject to all laws and regulations in force in the A.R.E.
to the extent that such laws and regulations are not inconsistent with the
provisions of this Charter and the Agreement referred to below.
ARTICLE II
The name of the Operating Company shall be mutually agreed upon between EGPC and
CONTRACTOR on the date of the Commercial Discovery and shall be subject to the
approval of the Minister of Petroleum.
ARTICLE III
The Head Office of Operating Company shall be in the A.R.E. in Cairo.
ARTICLE IV
The object of Operating Company is to act as the agency through which EGPC and
CONTRACTOR, carry out and conduct the Development operations required in
accordance with the provisions
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of the Agreement signed on the ------ day of --------------- by and between the
ARAB REPUBLIC OF EGYPT, THE EGYPTIAN GENERAL PETROLEUM CORPORATION and
CONTRACTOR covering Petroleum operations in West Gharib Area in Eastern Desert
described therein.
Operating Company shall be the agency to carry out and conduct Exploration
operations after the date of Commercial Discovery pursuant to Work Programs and
Budgets approved in accordance with the Agreement.
Operating Company shall keep account of all costs, expenses and expenditures for
such operations under the terms of the Agreement and Annex "E" thereto.
Operating Company shall not engage iri any business or undertake any activity
beyond the performance of said operations unless otherwise agreed upon by EGPC
and CONTRACTOR.
ARTICLE V
The authorized capital of Operating Company is twenty thousand Egyptian Pounds
divided into five thousand shares of common stock with a value of four Egyptian
Pounds per share having equal voting rights, fully paid and non-assessable.
EGPC and CONTRACTOR shall each pay for, hold and own, throughout the life of
Operating Company, one half (112) of the capital stock of Operating Company
provided that only in the event that either party should transfer or assign the
whole or any percentage of its ownership interest in the entirety of the
Agreement, may such transferring or .assigning party transfer or assign any of
the capital stock of Operating Company and, in that event, such transferring or
assigning party (and its successors and assignees) must transfer and assign a
stock
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interest in Operating Company equal to the transferred or assigned whole or
percentage of its ownership interest in the entirety of the said Agreement.
ARTICLE VI
Operating Company shall not own any right, title, interest or estate in or under
the Agreement or any Development Lease created thereunder or in any of the
Petroleum produced from any Exploration Block or Development Lease thereunder or
in any of the assets, equipment or other property obtained or used in connection
therewith, and shall not be obligated as a principal for the financing or
performance of any of the duties or obligations of either EGPC or CONTRACTOR
under the Agreement. Operating Company shall not make any profit from any source
whatsoever.
ARTICLE VII
Operating Company shall be no more than an agent for EGPC and CONTRACTOR.
Whenever it is indicated herein that Operating Company shall decide, take action
or make a proposal and the like, it is understood that such decision or judgment
is the result of the decision or judgment of EGPC, CONTRACTOR or EGPC and
CONTRACTOR, as may be required by the Agreement.
ARTICLE VIII
Operating Company shall have a Board of Directors consisting of eight (8)
members, four (4) of whom shall be designated by EGPC and the other four (4) by
CONTRACTOR. The Chairman shall be designated by EGPC and shall also be a
Managing Director. CONTRACTOR shall designate the General Manager who shall also
be a Managing Director.
-83-
<PAGE>
ARTICLE IX
Meetings of the Board of Directors shall be valid if a majority of the Directors
are present and any decision taken at such meetings must have the affirmative
vote of five (5) or more of the Directors; provided, however, that any Director
may be represented and vote by proxy held by another Director.
ARTICLE X
General meetings of the Shareholders shall be valid if a majority of the capital
stock of Operating Company is represented thereat. Any decision taken at such
meetings must have the affirmative vote of Shareholders owning or representing a
majority of the capital stock.
ARTICLE XI
The Board of Directors shall approve the regulations covering the terms and
conditions of employment of the personnel of Operating Company employed directly
by Operating Company and not assigned thereto by CONTRACTOR and EGPC.
The Board shall, in due course, draw up the By-Laws of Operating Company, and
such By-Laws shall be effective upon being approved by a General Meeting of the
Shareholders, in accordance with the provisions of Article X hereof.
ARTICLE XII
Operating Company shall come into existence within thirty (30) days after the
date of Commercial Oil Discovery or within thirty (30) days after signature of a
Gas Sales Agreement or commencement of a scheme to dispose of Gas, as provided
for in the Agreement (unless otherwise agreed by EGPC and CONTRACTOR).
-84-
<PAGE>
The duration of Operating Company shall be for a period equal to the duration of
the said Agreement, including any renewal thereof, unless otherwise agreed by
EGPC and CONTRACTOR.
The Operating Company shall be wound up if the Agreement referred to above is
terminated for any reason as provided for therein.
DUBLIN INTERNATIONAL- PETROLEUM (EGYPT) LIMITED
BY ---------------------------
TANGANYIKA OIL COMPANY LTD.
BY ---------------------------
EGYPTIAN GENERAL PETROLEUM CORPORATION
BY --------------------------
-85-
<PAGE>
ANNEX "E"
ACCOUNTING PROCEDURE
ARTICLE I
GENERAL PROVISIONS
(a) Definitions:
The definitions contained in Article I of the Agreement shall apply to this
Accounting Procedure and have the same meanings.
(b) Statements of activity:
(1) CONTRACTOR shall, pursuant to Article IV of this Agreement, and until
the coming into existence of the Operating Company - in accordance with
Article VI of the Agreement - render to EGPC within thirty (30) days of
the end of each calendar quarter a Statement of Exploration Activity
reflecting all charges and credits related to the Exploration operations
for that quarter summarized by appropriate classifications indicative of
the nature thereof.
(2) Following its coming into existence, Operating Company shall render to
EGPC and CONTRACTOR within fifteen (15) days of the end of each calendar
quarter a Statement of Development and Exploration Activity reflecting
all charges and credits related to the Development and Exploration
operations for that quarter summarized by appropriate classifications
indicative of the nature thereof, except that items of controllable
material and unusual charges and credits shall be detailed.
-86-
<PAGE>
(c) Adjustments and Audits:
(1) Each quarterly Statement of Exploration Activity pursuant to Article I
(b) (1) of this Annex shall conclusively be presumed to be true and
correct after three (3) months . following the receipt of each Statement
by EGPC unless within the said three (3) months EGPC takes written
exception thereto pursuant to Article IV (f) of the Agreement. During
the said three (3) month period supporting documents will be available
for inspection by PGPC during all working hours.
CONTRACTOR will have the same audit rights on Operating Company
Statements as EGPC under this sub-paragraph.
(2) All Statements of Development and Exploration Activity for any calendar
quarter pursuant to Article I (b) (2) of this Annex, shall conclusively
be presumed to be true and correct three (3) months following the
receipt of such Statement, unless within the said three (3) months
period F-GPC or CONTRACTOR takes written exception thereto. Pending
expiration of said three (3) months EGPC or CONTRACTOR or both of them
shall have the right to audit Operating Company accounts, records and
supporting documents for such quarter in the same manner as provided in
Article IV (f) of the Agreement.
(d) Currency Exchange:
CONTRACTOR's books for Exploration and Operating Company's books for
Development and Exploration, if any, shall be kept in the A.R.E. in U.S.
Dollars. All U.S. Dollar expenditures shall be charged in the amount
expended. All Egyptian Pounds expenditures shall be converted to U.S.
Dollars at the applicable rate of exchange issued by the Central Bank of
Egypt on the first
-87-
<PAGE>
day of the month in which expenditures are recorded, and all other
non-U.S. Dollar expenditures shall be translated to U.S. Dollars at the
buying rate of exchange for such currency as quoted by National
Westminster Bank Limited, London at 10.30 a.m. G.M.T., on the first day
of the month in which expenditures are recorded. A record shall be kept
of the exchange rates used in translating Egyptian Pounds or other
non-U.S Dollar expenditures to U.S. Dollars.
(e) Precedence of Documents:
In the event of any inconsistency or conflict between the provisions of
this Accounting Procedure and the provisions of the Agreement treating
the same subject differently, then the provisions of the Agreement shall
prevail.
(f) Revision of Accounting Procedure:
By mutual agreement between EGPC and CONTRACTOR, this Accounting
Procedure may be revised in writing from time to time in the light of
future arrangements.
(g) No Charge for Interest on Investment:
Interest on investment or any bank fees, charges or commissions related
to any bank guarantees shall not at any time be charged as recoverable
costs under the Agreement.
ARTICLE II
COSTS, EXPENSES AND EXPENDITURES
Subject to the provisions of the Agreement, CONTRACTOR shall alone bear and,
directly or through Operating Company, pay the following
-88-
<PAGE>
costs and expenses, which costs and expenses shall be classified and allocated
to the activities according to sound and generally accepted accounting
principles and treated and recovered in accordance with Article VII of this
Agreement:
(a) Surface Rights:
All direct cost attributable to the acquisition, renewal or relinquishment
of surface rights acquired and maintained in force for the Area.
(b) Labor and Related Costs:
(1) Salaries and Wages of CONTRACTOR's or Operating Company's employees, as
the case may be, directly engaged in the various activities under the
Agreement including salaries and wages paid to geologists and other
employees who are temporarily assigned to and employed in such
activities. Such salaries and wages to be certified by a certified
public accounting firm.
Reasonable revisions of such salaries and wages shall be effected to
take into account changes in CONTRACTOR's policies and amendments of
laws applicable to salaries. For the purpose of this Article II (b) and
Article II (c), salaries and wages shall mean the assessable amounts for
A.R.E. Income Taxes, including the salaries during vacations and sick
leaves, but excluding all the amounts of the other items covered by the
percentage fixed under (2) below.
(2) For expatriate employees permanently assigned to Egypt:
1. All allowances applicable to salaries and wages;
2. Cost of established plans; and
-89-
<PAGE>
3. All travel and relocation costs of such expatriate employees and their
families to and from the employee's country or point of origin at the
time of employment, at the time of separation, or as a result of
transfer from one location to another and for vacation (transportation
costs for employees and their families transferring from the A.R.E. to
another location other than their country of origin shall not be charged
to A.R.E. Operations).
Costs under this Article II (b)(2) shall be deemed to be equal to fourty
seven percent (47%) of basic salaries and wages paid for such expatriate
personnel including those paid during vacations and sick leaves as
established in CONTRACTOR's international policies, chargeable under
Article II (b) (1), Article II (i), Article II (k) (1) and Article II
(k)(3) of this Annex.
However, salaries and wages during vacations, sick leaves and disability
are covered by the foregoing percentage. The percentage outlined above
shall be deemed to reflect CONTRACTOR's actual costs as of the Effective
Date with regard to the following benefits, allowances and costs:
1. Housing and Utilities Allowance.
2. Commodities and Services Allowance.
3. Special Rental Allowance.
4. Vacation Transportation Allowance.
5. Vacation Travel Expense Allowance.
6. Vacation Excess Baggage Allowance.
7. Education Allowances (Children of Expatriate Employees).
8. Hypothetical U.S. Tax Offset (which results in a reduction of the
chargeable percentage).
9. Storage of Personal Effects.
10. Housing Refurbishment Expense.
11. Property Management Service Fees.
-90-
<PAGE>
12. Recreation Allowance.
13. Retirement Plan.
14. Group Life Insurance.
15. Group Medical Insurance.
16. Sickness and Disability.
17. Vacation Plans Paid (excluding Allowable Vacation
Travel Expenses).
18. Savings Plan.
19. Educational Assistance.
20. Military Service Allowance.
21. F.I.C.A.
22. Workman's Compensation.
23. Federal and State Unemployment Insurance.
24. Personnel Transfer Expense.
25. National Insurance.
26. Any other Costs, Allowances and Benefits of a like nature as
established in CONTRACTOR's International Policies.
The percentages outlined above shall be reviewed at intervals of
three (3) years from the Effective Date and at such time CONTRACTOR
and EGPC will agree on new percentages to be used under this
paragraph.
Revisions of the percentages will take into consideration variances in
costs and changes in CONTRACTOR's international policies which change or
exclude any of the above allowances and benefits.
The revised percentages will reflect as nearly as possible CONTRACTOR's
actual costs of all its established allowances and benefits and of
personnel transfers.
(3) For expatriate employees temporarily assigned to Egypt all allowances,
costs of established plans and all travel relocation costs for such
expatriates as paid in accordance with CONTRACTOR's international
policies. Such costs shall not
-91-
<PAGE>
include any administrative overhead other than what is mentioned in
Article (k) (2) of this Annex.
(4) Costs of expenditure or contributions made pursuant to law or assessment
imposed by Governmental authority which are applicable to labor cost of
salaries and wages as provided under Article II (b) (1), Article II(b)
(2), Article II(i), Article II(k)(1) and Article II(k)(3) of this Annex.
(c) Benefits, allowances and related costs of national employees B onuses,
overtime, customary allowances and benefits on a basis similar to that
prevailing for oil companies operating in the A.R.E., all as chargeable
under Article II (b) (1), Article II (i), Article II (k) (1) and Article
11 (k) (3) of this Annex. Severance pay will be charged at a fixed rate
applied to payrolls which will equal an amount equivalent to the maximum
liability for severance payment as required under the A.R.E. Labor Law.
(d) Material
Material, equipment and supplies purchased or furnished as such by
CONTRACTOR or Operating Company.
(1) Purchases:
Material, equipment and supplies purchased shall be at the price paid by
CONTRACTOR or Operating Company plus any related cost and after
deduction of all discounts actually received.
(2) Material Furnished by CONTRACTOR:
Material required for operations shall be purchased directly whenever
practicable, except that CONTRACTOR may furnish such material from
CONTRACTOR's or CONTRACTOR's
-92-
<PAGE>
Affiliated Companies stocks outside the A.R.E. under the following
conditions:
1. New Material (Condition "A")
New Material transferred from CONTRACTOR's or CONTRACTOR's Affiliated
Companies warehouse or other properties shall be priced at cost,
provided that the cost of material supplied is not higher than
international prices for material of -- similar quality supplied on
similar terms, prevailing at the time such material was supplied.
2. Used Material (Conditions "B" and "C")
a) Material which is in sound and serviceable condition and is
suitable for reuse without reconditioning shall be classed as
Condition "B" and priced at seventy -five percent (75%) of the
price of new material.
b) Material which cannot be classified as Condition "B" but which is
serviceable for original function but substantially not suitable
for reconditioning, shall be classed as Condition "C" and priced
at fifty percent (50%) of the price of new material.
c) Material which cannot be classified as Condition "B" or Condition
"C" shall be priced at a value commensurate with its use.
d) Tanks, buildings and other equipment involving erection costs
shall be charged at applicable percentage of knocked - down new
price.
-93-
<PAGE>
(3) Warranty of Materials Furnished by CONTRACTOR
CONTRACTOR does not warrant the material furnished beyond or back
of the dealer's or manufacturer's Guarantee; and in case of
defective material, credit shall not be recorded until adjustment
has been received by CONTRACTOR from manufacturers or their
agents.
(e) Transportation and Employee Relocation Costs:
(1) Transportation of equipment, materials and supplies necessary
for the conduct of CONTRACTOR's or Operating Company's
activities.
(2) Business travel and transportation expenses to the extent
covered by established policies of CONTRACTOR or with regard to
expatriate and national employees, as incurred and paid by, or
for, employees in the conduct of CONTRACTOR's or Operating
Company's business.
(3) Employees transportation and relocation costs for national
employees to the extent covered by established policies.
(f) Services:
(1) Outside services. The costs of contracts for consultants,
services and utilities procured from third parties.
(2) Cost of services performed by EGPC or by CONTRACTOR, or their
Affiliated Companies in facilities inside or outside the A.R.E.
Regular, recurring, routine services, such as interpreting
magnetic tapes and/or other analyses, shall be performed and
charged by EGPC and/or CONTRACTOR or their Affiliated Companies
at an agreed contracted price. Major projects involving
engineering and design services shall be performed by EGPC
and/or CONTRACTOR or their Affiliated Companies at a negotiated
contract amount.
-94-
<PAGE>
(3) Use of EGPC'S, CONTRACTOR's or their Affiliated Companies,
wholly owned equipment shall be charged at a rental rate
commensurate with the cost of ownership and operation, but not
in excess of competitive rates currently prevailing in the
A.R.E.
(4) CONTRACTOR's and CONTRACTOR's Affiliated Companies' rates shall
not include any administrative or overhead costs other than what
is mentioned in Article II (k) (2).
(g) Damages and Losses:
All costs or expenses, necessary to replace or repair damages or
losses incurred by fire, flood, storm, theft, accident or any
other cause not controllable by CONTRACTOR or Operating Company
through the exercise of reasonable diligence. CONTRACTOR or
Operating Company shall furnish EGPC and CONTRACTOR written
notice of damages or losses incurred in excess of ten thousand
($10,000) U.S. Dollars per occurrence, as soon as practicable
after report of the same has been received by CONTRACTOR or
Operating Company.
(h) Insurance and Claims:
The cost of any public liability, property damages and other
insurance against liabilities of CONTRACTOR, Operating Company
and/or the parties or any of them to their employees and/or
outsiders as may be required by the laws, rules and regulations
of the GOVERNMENT or as the parties may agree upon. The proceeds
of any such insurance or claim collected, less the actual cost
of making a claim, shall be credited against operations.
If no insurance is carried for a particular risk, in accordance
with good international oil field practices, all related actual
expenditures incurred and paid by CONTRACTOR or Operating
-95-
<PAGE>
Company in settlement of any and all losses, claims, damages,
judgments and any other expenses, including legal services.
(i) Indirect Expenses:
Camp overhead and facilities such as shore base, warehouses,
water systems, road systems, salaries and expenses of field
supervisory personnel, field clerks, assistants, and other
general employees indirectly serving the Area.
(j) Legal Expenses:
All costs and expenses of litigation, or legal services
otherwise necessary or expedient for the protection of the Area,
including attorney's fees and expenses as hereinafter provided,
together with all judgments obtained against the parties or any
of them on account of the operations under the Agreement, and
actual expenses incurred by any party or parties hereto in
securing evidence for the purpose of defending against any
action or claim prosecuted or urged against the operations or
the subject matter of the Agreement. In the event actions or
claims affecting the interests hereunder shall be handled by the
legal staff of one or more of the parties hereto, a charge
commensurate with cost of providing and furnishing such services
may be made to operations.
(k) Administrative Overhead and General Expenses:
(1) While CONTRACTOR is conducting Exploration operations, the cost
of staffing and maintaining CONTRACTOR's head office in the
A.R.E. and/or other offices established in the A.R.E. as
appropriate other than field offices which will be charged as
provided in Article II (i), and excepting salaries of employees
of CONTRACTOR who are temporarily assigned to and directly
serving on the Area, which will be charged as provided in
Article II (b) of this Annex.
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<PAGE>
(2) CONTRACTOR's administrative overhead outside the A.R.E.
applicable to Exploration operations in the A.R.E. during the
period prior to the formation of the Operating Company shall be
charged each month at the rate of five percent (5%) of total
Exploration expenditures, where CONTRACTOR's Explorations
operations are carried out by CONTRACTOR itself, provided that
no administrative overhead of CONTRACTOR outside the A.R.E.
applicable to A.R.E. Exploration operations will be charged
while Exploration operations are being conducted following the
formations of the Operating Company. No other direct charges as
such for CONTRACTOR's administrative overhead outside the A.R.E.
will be applied against the Exploration obligations. Examples of
the type of costs CONTRACTOR is incurring and charging hereunder
due to activities under the Agreement and covered by said
percentage are:
1. Executive - Time of executive officers.
2. Treasury - Financial and exchange problems.
3. Purchasing - Procuring materials, equipment and supplies.
4. Exploration and Production-Directing, advising and
controlling the entire project.
5 Other departments such as legal, comptroller and engineering
which contribute time, knowledge and experience to the
operations.
The foregoing does not preclude charging for direct service
under Article II (f) (2) of this Annex.
(3) While Operating Company is conducting operations, Operating
Company's personnel engaged in general clerical and office work,
supervisors and officers whose time is generally spent in the
main office and not the field, and all employees generally
considered as general and administrative and not charged to
other types of expense will be charged to operations. Such
expenses shall be allocated each month between Exploration and
Development operations according to sound and practicable
-97-
<PAGE>
accounting methods.
(i) Taxes:
All taxes, duties or levies paid in the A.R.E. by CONTRACTOR or
Operating Company with respect to this Agreement other than those
covered by Article III (9) (1) of this Agreement.
(m) Continuing CONTRACTOR Costs:
Costs of CONTRACTOR activities required under the Agreement and
incurred exclusively in the A.R.E. after Operating Company is
formed. No sales expenses incurred outside or inside the A.R.E.
may be recovered as a cost.
(n) Other Expenditures:
Any costs, expenses or expenditures, other than those which are
covered and dealt with by the foregoing provisions of this
Article II, incurred by CONTRACTOR or Operating Company under
approved Work Programs and Budgets.
ARTICLE III
INVENTORIES
(a) Periodic Inventories, Notice and Representation:
At reasonable intervals as agreed upon by EGPC and CONTRACTOR
inventories shall be taken by Operating Company of the operations
materials, which shall include all such materials, physical
assets and construction projects. Written notice of intention
to take inventory shall be given by Operating Company to EGPC and
CONTRACTOR at least thirty (30) days before any inventory is to
begin so that EGPC and CONTRACTOR may be represented when any
inventory is taken.
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<PAGE>
Failure of EGPC and/or CONTRACTOR to be represented at an
inventory shall bind them to accept the inventory taken by
Operating Company, who shall in that event furnish the party not
represented with a copy thereof.
(b) Reconciliation and Adjustment of Inventories:
Reconciliation of inventory shall be made by CONTRACTOR and EGPC,
and a list of overages and shortages shall be jointly determined
by Operating Company and CONTRACTOR and EGPC, and the inventory
adjusted by Operating Company.
ARTICLE IV
COST RECOVERY
(a) Statements of Recovery of Costs and of Cost Recovery Petroleum:
CONTRACTOR shall, pursuant to Article VII of the Agreement,
render to EGPC as promptly as practicable but not later than
fifteen (15) days after receipt from Operating Company of the
Statements for Development and Exploration Activity for the
calendar quarter a Statement for that quarter showing:
1. Recoverable costs carried forward from the previous quarter,
if any.
2. Recoverable costs incurred and paid during the quarter.
3. Total recoverable costs for the quarter (1) + (2).
4. Value of Cost Recovery Petroleum taken and separately disposed
of by CONTRACTOR for the quarter.
5. Amount of costs recovered for the quarter.
6. Amount of recoverable costs carried into the succeeding
quarter, if any.
7. Excess, if any, of the value of Cost Recovery Petroleum taken
and separately disposed of by CONTRACTOR over costs recovered
for the quarter.
-99-
(b) Payments:
If such Statement shows an amount due to EGPC, payment of that I
amount shall be made in U.S. Dollars by CONTRACTOR with the
rendition of such Statement. If CONTRACTOR fails to make any such
payment to EGPC on the date when such payment is due, then
CONTRACTOR shall pay an interest of two and one half percent
(2.5%) per annum higher than the London Interbank Borrowing
Offered Rate (LIBOR) for three (3) months U.S. Dollars deposits
prevailing on the date such interest is calculated. Such interest
payment shall not be recoverable.
(c) Settlement of Excess Cost Recovery Petroleum:
EGPC has the right to take its entitlement of Excess Cost
Recovery Petroleum under Article VII (a) of the Agreement in kind
during the said quarter. A settlement shall be required with the
rendition of such Statements in case CONTRACTOR has taken more
than its own entitlement of such Excess Cost Recovery Petroleum.
(d) Audit Right:
EGPC shall have a period of twelve (12) months from receipt of
any Statement under this Article IV in which to audit and raise
objection to any such Statement. EGPC and CONTRACTOR shall any
required adjustments. Supporting documents and will be available
to EGPC during said twelve (12) month period.
-100-
<PAGE>
ARTICLE V
CONTROL AND MAJOR ACCOUNTS
(a) Exploration Obligation Control Accounts:
CONTRACTOR will establish an Exploration Obligation Control
Account and an offsetting contra account to control therein the
total amount of Exploration expenditures reported on Statements
of activity prepared per Article I (b) (1), less any reductions
agreed to by EGPC and CONTRACTOR following written exceptions
taken by a non-operator pursuant to Article I (c) (1) of this
Annex, in order to determine when minimum Exploration obligations
have been met.
(b) Cost Recovery Control Account:
CONTRACTOR will establish a Cost Recovery Control Account and an
off-setting contra account to control therein the amount of cost
remaining to be recovered, if any, the amount of cost recovered
and the value of Excess Cost Recovery Petroleum, if any.
(c) Major Accounts:
For the purpose of classifying costs, expenses and expenditures
for Cost Recovery as well as for the purpose of establishing when
the minimum Exploration obligations have been met, costs,
expenses and expenditures shall be recorded in major accounts
including the following:
- Exploration Expenditures;
- Development Expenditures other than Operating Expenses;
- Operating Expenses;
Necessary sub-accounts shall be used.
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<PAGE>
Revenue accounts shall be maintained by CONTRACTOR to the extent
necessary for the control of recovery of costs and the treatment
of Cost Recovery Petroleum.
ARTICLE VI
TAX IMPLEMENTATION PROVISIONS
It is understood that CONTRACTOR shall be subject to Egyptian Income Tax Laws
except as otherwise provided in the Agreement, that any A.R.E. Income Taxes paid
by EGPC on CONTRACTOR's behalf constitute additional income to CONTRACTOR, and
this additional income is also subject to A.R.E. income tax, that is "grossed
up".
CONTRACTOR's annual income, as determined in Article III (g) (2) of this
Agreement, less the amount equal to CONTRACTOR's grossed-up Egyptian income tax
liability, shall be CONTRACTOR's "Provisional Income".
The "gross-up value" is an amount added to Provisional Income to give "Taxable
Income", such that the grossed-up value is equivalent to the A.R.E. Income
Taxes.
THEREFORE:
Taxable Income = Provisional Income plus Grossed-up Value
and
Grossed-up Value = A.R.E. Income Tax on Taxable Income.
If the "A.R.E. Income Tax rate", which means the effective or composite tax rate
due to the various A.R.E. taxes levied on income or profits, is constant and not
dependent on the level of
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<PAGE>
income, then:
Grossed-up Value = A.R.E. incorne tax rate TIMES Taxable Income.
Combining the first and last equations above
Grossed-up Value= Provisional income X Tax Rate
-----------------------------
1 - Tax Rate
where the tax rate is expressed as a decimal.
The above computations are illustrated by the following numerical example.
Assuming that the Provisional Income is $10 and the A.R.E. Income Tax rate is
forty percent (40%), then the Grossed-up Value is equal to:
$ 10 X 0.4 = $ 6.67
----------
1 - 0.4
Therefore:
Provisional income $10.00
Plus Grossed-up Value 6.67
----------
Taxable Income $16.67
Less: A.R.E. Income Taxes at 40% $ 6.67
----------
CONTRACTOR's Income after taxes $10.00
-103-
<TABLE> <S> <C>
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<PERIOD-END> SEP-30-1999
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 3391144
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