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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) and (g) of the Securities Exchange Act of 1934
AMG OIL LTD.
(Name of Small Business Issuer in its charter)
STATE OF NEVADA
(State or other jurisdiction of incorporation or organization)
NA
(I.R.S. Employer Identification No.)
Suite 700, 700 - 6th Avenue SWCalgary, Alberta
Canada
T2P-0T8
(Address of Principal Executive Offices)
(403) 531-9706
Issuer's telephone number, including area code:
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of class)
(End of cover page)
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ITEM 1. DESCRIPTION OF BUSINESS
Except for the description of historical facts contained herein,
this Form 10-SB contains certain forward-looking statements within the
meaning of the "safe harbour" provisions of the Private Securities
Litigation Reform Act of 1995 concerning future activities of the
Registrant and the Registrant's future prospects that involve risks and
uncertainties, including the possibility that the Registrant will: (i)
be unable to find commercial quantities of hydrocarbons, (ii) never
achieve profitable operations, or (iii) not receive additional
financing as required to support future operations, as detailed herein
and under Item 2 - PLAN OF OPERATIONS and from time to time in the
Registrant's future filings with the Securities and Exchange Commission
and elsewhere. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties
which could cause actual results to differ materially from those
described in the forward-looking statements.
(a) Business Development
AMG Oil Ltd. ("the Registrant") and its wholly-owned subsidiary,
AMG Oil (NZ) Limited ("the NZ Subsidiary"), is a Calgary, Alberta,
Canada based oil and gas exploration company with a 30% participating
interest in Petroleum Exploration Permit 38256 ("PEP 38256"), a
hydrocarbon property located on the South Island of New Zealand. (Refer
to Item 3 - Description of Property). The Registrant's operations are
conducted through its NZ Subsidiary and its exploration office in
Wellington, New Zealand. The Registrant intends to participate in the
exploration and, where warranted, development of its property and to
investigate and to acquire interests in other oil and gas properties in
the Austral-Pacific region.
The Registrant was incorporated on February 20, 1997 under the
name Trans New Zealand Oil Company by filing its Articles of
Incorporation with the Secretary of State (Nevada). The Registrant
changed its name to AMG Oil Ltd. on July 27, 1998. The Registrant's
fiscal year end is September 30.
The shares of the Registrant became quoted through the facilities
of the Over-the-Counter Bulletin Board ("OTCBB"), United States, on May
19, 1997 where its shares continued to be quoted through that facility
under the symbol "AMGO" until August 1, 1999. On August 1, 1999, the
Registrant's shares discontinued from trading on the OTCBB due to the
Registrant's failure to become a "Reporting Issuer" under the 1934
Exchange Act. Since August 1, 1999, the Registrant's shares continue to
be quoted on the "Pink Sheets," operated by the National Quotation
Bureau, under the symbol "AMGO."
At December 31, 1999, the authorized capital of the Registrant was
100,000,000 common shares with a par value of US$0.00001 per common
share of which 14,200,000 common shares were outstanding (undiluted).
(b) Business of the Issuer
Currently, the Registrant holds a 30% in PEP 38256, a petroleum
exploration license located on the South Island of New Zealand and
holds an option to acquire up to a further 50% interest in PEP 38256.
PEP 38256 is in the exploration stage. The assessment of the potential
of this property to contain petroleum reserves involves, among other
things, a consideration of discoveries made by third parties on
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properties adjacent to, or, depending on circumstances, in the area of
the properties of the Registrant. Geological conditions are, however,
unpredictable. The discovery of reserves on properties adjacent to, or
in the area of, properties of the Registrant is no assurance that
commercially recoverable reserves of oil and gas will be discovered on
the Registrant's properties. See Risk Factors under this item.
Hydrocarbon Tenures in New Zealand
In New Zealand, a prospecting licence was a form of tenure held
under the Petroleum Act 1937, the predecessor legislation to the Crown
Minerals Act of 1991. As the tenure of such permits granted under the
original act expired, they were replaced by exploration permits under
the 1991 legislation. In New Zealand, permits are granted to the first
applicant for specified minerals in a specific area, and generally
prescribe work to be performed over the term of the permit. In most
cases, permits contain a work program approved by the Minister of
Energy.
Prospecting permits are limited forms of tenure granted under the
1991 Act for two years under conditions the Minister of Energy
considers appropriate. The Registrant does not hold any prospecting
permits.
Under the Crown Minerals Act of 1991, the exploration permit
grants the right to explore for a specified mineral for a term of five
years and may be extended for up to a further five (5) years over half
its area on conditions the Minister of Energy considers appropriate. If
the holder of an exploration permit (the "Holder") discovers a deposit
or occurrence, and satisfies the Minister of Energy that the results of
exploration justify granting a mining permit, the Holder may, on
application before the expiry of the exploration permit, obtain a
mining permit for up to 40 years for such part of the land as the
deposit or occurrence relates to. Changes to the conditions prescribed
in a permit may be made by application to the Minister of Energy,
provided the Holder is in substantial compliance with the conditions of
the permit.
The Crown Minerals Act of 1991 also provides for the revocation of
a permit if the Minister of Energy has reason to believe that the
Holder is contravening, or not making reasonable efforts to comply
with, the Crown Minerals Act, the conditions of the permit, or a notice
to rectify the contravention or non-compliance. Any transfer or other
dealing with a permit is subject to the timely completion of an
application and becomes effective only upon the consent of the Minister
of Energy, under such conditions as deemed appropriate.
The Minister of Energy may also direct that any resultant
petroleum products be refined or processed in New Zealand. The Minister
of Energy also has the jurisdiction to unitize producing permits.
Finally, the Crown Minerals Act of 1991 provides procedures for the
resolution of conflict with other forms of land tenure.
Environmental Regulation in New Zealand
Since 1990, the government of New Zealand has developed a
comprehensive statutory regime dealing with the effect of development
on the environment. Depending on the location of the petroleum
interest, differing laws apply where petroleum exploration and
development is concerned. On land and in waters within twelve miles of
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the coast, the Resource Management Act of 1991 controls users of
natural and physical resources, with a view to managing resource usage
in ways that will not compromise future utilization. The Resource
Management Act of 1991 places the emphasis on the assessment of the
proposed activities' impact on the environment and sustainable
management of the environment.
Under the Resource Management Act of 1991, resource management is
governed by local authorities. Regional and district councils establish
their own rules and standards for environmental assessments and
required degrees of consultation. Both regional and district councils
must produce and continuously update planning schemes for their
jurisdictions. These schemes may limit industries to designated areas,
depending on the environmental or social effects. The right to take
from, and discharge into, waterways for industrial purposes requires
approval from various regional catchment authorities, which may require
maintenance of water quality standards.
Resource consents authorize the use or development of a natural or
physical resource, or permit an activity to be conducted which may
affect the environment. Under the Resource Management Act of 1991,
there are five types of resource consents: land use consent,
subdivision consent, water permits, discharge permits and coastal
permits. Certain applications require public notice and allow public
involvement in the assessment process. Adverse decisions made by a
regional or district council may be appealed to the Environmental
Court.
Petroleum exploration and development outside of the twelve-mile
coastal boundary fall under the Maritime Transport Act of 1994. The
Registrant holds no licenses or permits that fall under the
jurisdiction of this authority.
Risk Factors
The common shares of the Registrant must be considered a
speculative investment due to a number of factors. Readers should
carefully consider the risks described below before deciding whether to
invest in shares of the Registrant's common stock. If the Registrant
does not successfully address any of the risks described below, there
could be a material adverse effect on the Registrant's business,
financial condition or results of operations, and the trading price of
the Registrant's common stock may decline and investors may lose all or
part of their investment. The Registrant cannot assure any investor
that it will successfully address these risks.
The purchase of the common shares involves a number of significant
risk factors. Purchasers of common shares should consider the
following:
1. Limited History of Operations and Reliance on Expertise of
Certain Persons
The Registrant has a limited history of operations and is
dependent on management by its president and directors for the
acquisition, exploration and development of petroleum properties, and
on the advice of consulting geologists retained by the Registrant from
time to time. Certain key individuals employed by the Registrant are
experienced in the acquisition, exploration and development of
petroleum properties in New Zealand. Should these individuals leave the
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Registrant, the Registrant may have difficulty in finding a person of
comparable education and experience to manage the business of the
Registrant.
2. Limited Financial Resources
The Registrant has limited financial resources and will have to
raise additional funds to sustain, continue and expand its business.
The Registrant currently has no revenues and relies principally on the
issuance of common shares to raise funds to finance the business of the
Registrant. There is no assurance that market conditions will continue
to permit the Registrant to raise funds if required. Should the
Registrant fail to raise additional capital the Registrant will be
unable to carry out its plan of operations (See ITEM 2 - PLAN OF
OPERATIONS) and will be forced to abandon PEP 38256 which is currently
the Registrant's sole property (See Risk Factor #15).
3. Competition with Other Companies
Other companies with greater financial resources or expertise are
in competition with the Registrant. The Registrant must compete with
such companies in bidding for the acquisition of petroleum interests
from various state authorities, in purchasing or leasing equipment
necessary to explore for, develop and produce hydrocarbons and in
obtaining the services of personnel in the exploration for, and
development and production of, hydrocarbons. While the Registrant has
acquired various rights to explore, there is no assurance that
personnel and equipment will be available to carry out the programs
planned by the Registrant.
4. Failure to Locate Commercial Quantities of Hydrocarbons and
Geological Risks
There is no assurance that commercial quantities of hydrocarbons
will be discovered and prices for hydrocarbons may vary, rendering any
deposit discovered uneconomic. In addition, even if hydrocarbons are
discovered, the costs of extraction and delivering the hydrocarbons to
market may render any deposit found uneconomic. Geological conditions
are variable and unpredictable. Even if production is commenced from a
well, the production will inevitably decline and may be affected or
terminated by changes in geological conditions that cannot be foreseen
or remedied by the Registrant.
Prices for oil and gas may fluctuate widely from time to time
depending on international demand, production and other factors which
cannot be foreseen by the Registrant. A decline in price may render a
discovery uneconomic.
5. Governmental Laws and Local Conditions
Claims of aboriginal peoples in New Zealand may adversely affect
the rights or operations of the Registrant. There is no assurance that
governmental regulation will not vary, including regulations relating
to prices, royalties, allowable production, environmental matters,
import and export of hydrocarbons and protection of water resources and
agricultural lands. The Registrant is subject to numerous foreign
governmental regulations that relate directly and indirectly to its
operations including title to the petroleum interests acquired by the
Registrant, production, marketing and sale of hydrocarbons, taxation,
environmental matters, restriction on the withdrawal of capital from a
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country in which the Registrant is operating and other factors. There
is no assurance that the laws relating to the ownership of petroleum
interests and the operation of the business of the Registrant in the
jurisdictions in which it currently operates will not change in a
manner that may materially and adversely affect the business of the
Registrant. There is, however, no assurance that the laws of any
jurisdiction in which the Registrant carries on business may not change
in a manner that materially and adversely affects the business of the
Registrant.
6. Environmental Risks
The Registrant is subject to laws and regulations that control the
discharge of materials into the environment, require removal and
cleanup in certain circumstances, require the proper handling and
disposal of waste materials or otherwise relate to the protection of
the environment. In operating and owning petroleum interests, the
Registrant may be liable for damages and the costs of removing
hydrocarbon spills for which it is held responsible. Laws relating to
the protection of the environment have in many jurisdictions become
more stringent in recent years and may, in certain circumstances,
impose strict liability, rendering the Registrant liable for
environmental damage without regard to negligence or fault on the part
of the Registrant. Such laws and regulations may expose the Registrant
to liability for the conduct of, or conditions caused by, others or for
acts of the Registrant that were in compliance with all applicable laws
at the time such acts were performed. The application of these
requirements or the adoption of new requirements could have a material
adverse effect on the business of the Registrant. The Registrant
believes that it has conducted its business in substantial compliance
with all applicable environmental laws and regulations.
7. Possible Lack of or Inadequacy of Insurance
The Registrant maintains insurance against certain public
liability, operational and environmental risks, but there is no
assurance that an event causing loss will be covered by such insurance,
that such insurance will continue to be available to, or carried by,
the Registrant or, if available and carried, that such insurance will
be adequate to cover the Registrant's liability.
8. No Assurance of Earnings or Dividends and Taxation of
Dividends
The Registrant has no history of earnings and there is no
assurance that the business of the Registrant will be profitable and,
even if the business of the Registrant is profitable, there is no
assurance the board of directors will declare dividends on common
shares.
9. Marketing of Petroleum Products
The availability of products sold, or to be sold, by the
Registrant may be restricted or rendered unavailable due to factors
beyond the control of the Registrant, such as change in laws in the
jurisdictions in which the properties of the Registrant are located,
changes in the source of supply in foreign countries, prohibition on
use due to testing and licencing requirements and in certain areas of
the world civil disorder or governmental confiscation without
compensation.
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Even if the Registrant makes discoveries in commercial quantities,
development of a discovery may take a number of years and financial
conditions at that time cannot be determined. The Registrant holds its
cash reserves in US dollars but incurs the majority of its expenses in
New Zealand dollars. An increase in value of the New Zealand dollar
versus the US dollar would have a detrimental effect to the Registrant
as the Registrant's expenses incurred would, in turn, increase in US
dollars.
10. Activities of Management
The management of the Registrant and the growth of the
Registrant's business depends on certain key individuals who may not be
easily replaced if they should leave the Registrant; and persons in
management have other business interests which may result in them
devoting, from time to time, some of their time to such other
interests.
11. Inadequacy of Public Market
The Registrant's common shares are quoted through the facilities
of the National Quotation Bureau. Management's strategy is to develop
a public market for its common shares by soliciting brokers to become
market makers of the Registrant's common shares. To date, however, the
Registrant has solicited only a limited number of such securities
brokers to become market makers. There can be no assurance that a
stable market for the Registrant's common shares will ever develop or,
if it should develop, be sustained. It should be assumed that the
market for the Registrant's common shares will continue to be highly
illiquid, sporadic and volatile. These securities should not be
purchased by anyone who cannot afford the loss of the entire
investment. As of August 1999, the Registrant was required to become
and maintain status as a reporting issuer under the Securities Exchange
Act of 1934 (the "34 Act"), in order to be traded by broker-dealers
regulated by the National Association of Securities Dealers. If the
Company is delayed in becoming a reporting issuer under the 34 Act, or
fails to continue to be a reporting issuer, management may encounter
difficulty in maintaining or expanding a trading market in the near
term, if at all, and shareholders may not be able to sell their shares
in the public market. While management currently intends to obtain and
maintain status as a reporting issuer under the 34 Act, there can be no
assurance that the Registrant can or will obtain or maintain such
status.
12. Dilution
The Registrant's Articles of Incorporation authorize the issuance
of 100,000,000 shares of common stock. The Registrant's Board of
Directors has the power to issue any or all of such shares that are not
yet issued without stockholder approval. The Registrant's Board of
Directors will likely issue some or all of such shares to acquire
further capital in order to carry out its intended operations or expand
its current operations, or to provide additional financing in the
future. The issuance of any such shares may result in a reduction of
the book value or market price of the outstanding shares of the
Registrant's common shares. If the Registrant does issue any such
additional shares, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other shareholders.
Further, any such issuance may result in a change of control of the
Registrant.
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The Registrant has adopted a stock option plan authorizing the
purchase of up to 3,000,000 shares. The Registrant has additional
options issued and outstanding as of December 31, 1999 to purchase up
to 800,000 shares exercisable at a price of US$0.50 per share. The
existence of below market options could adversely affect the market
price of the Registrant's shares and could impair the Registrant's
ability to raise additional capital through the sale of its equity
securities or debt financing.
13. Loss of Investment
An investment in the common shares of the Registrant should only
be made by persons who can afford a complete loss of their investment
and there is no assurance that the common shares of the Registrant will
increase in value from the amount at which a member acquired common
shares of the Registrant.
14. Shares Eligible For Future Sale
Approximately 1,200,000 shares of restricted common stock will
become eligible for sale under Rule 144 on approximately March 17,
2000. Although there is no assurance or agreement that these holders
will not sell any of their shares, management believes that they intend
to retain most if not all of their holdings for the near future. If a
substantial number of these shares were to be offered for sale or sold
in the market, the market price of the Registrant's common shares
likely would be affected adversely
15. Risk Inherent in Exploration
All of the properties of the Registrant are at the exploration
stage and without known, commercial reserves of oil or gas. Oil and gas
exploration and development involves a high degree of risk and few
properties that are explored are ultimately developed into producing
and profitable properties.
16. Consequences of Failure to Satisfy Prescribed Permit or
License Terms and Conditions
In all cases, the terms and conditions of the permit or license
granting the right to the Registrant, or the party from which the
Registrant acquired, or agreed to acquire, directly or indirectly, the
right to explore for and develop hydrocarbons prescribe a work program
and the date or dates before which such work program must be done.
Varying circumstances, including the financial resources available to
the Registrant, availability of required equipment, expertise of the
management of the Registrant and other matters relating to the
Registrant, reliance on third party operators of permits and licenses
or circumstances beyond the control or influence of the Registrant may
result in the failure to satisfy the terms and conditions of a permit
or license and result in the complete loss of the interest in the
permit or license without compensation to the Registrant. Such terms
and conditions may, in certain cases, be renegotiated with applicable
regulatory authorities, but there is no assurance that if a term or
condition of a license or permit that is required to be satisfied will
not, or has not been met and may result in the loss of the interest in
such permit or license that such term or condition will be renegotiated
with the applicable authority.
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17. Dealings with Associated Companies
The Registrant shares its interest in PEP 38256 with two other
companies through their respective subsidiaries, Indo-Pacific Energy
Ltd. and Trans-Orient Petroleum Ltd., which have common or connected
management and the same principal shareholder.
The percentage participation of the Registrant and another
associated company in a property is determined by the boards of
directors of each such company in accordance with the best business
judgment of the board based on the assessment of the relative
requirements and abilities of the companies to participate and
applicable law. Persons who are not willing to rely on the exercise of
judgment by the respective boards of directors in determining the
participation in properties should not consider an investment in the
shares of the Registrant or of other associated companies.
18. Defeasance of Title
The possibility exists that title to one or more properties of the
Registrant may be lost due to an omission in the claim of title. The
Registrant does not maintain title insurance.
19. Penny Stock Regulation
The Securities and Exchange Commission (the "SEC") has adopted
rules that regulate broker-dealer practices in connection with
transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00 per share (other than
securities registered on certain national securities exchanges or
quoted on the NASDAQ National Market System, provided that current
price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the SEC that provides information about
penny stocks and the nature and level of risks in the penny stock
market. The broker-dealer also must provide the customer with bid and
offer quotations for the penny stock, the compensation of the broker-
dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the
customer's account. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such
rules, the broker-dealer must make a special written determination that
a penny stock is a suitable investment for the purchaser and receive
the purchaser's written agreement to the transaction. These disclosure
requirements often have the effect of reducing the level of trading
activity in any secondary market for a stock that becomes subject to
the penny stock rules. The Registrant's common stock is currently
subject to the penny stock rules, and accordingly, investors may find
it difficult to sell their shares, if at all.
Employees and Consultants
The Registrant is in the development stage and other than its
executive officers, Mr. Cameron Fink (President) and Dr. David Bennett
(Vice-President of Exploration), the Registrant does not have any
employees, as exploration activities on PEP 38256 are conducted by the
joint venture operator, Indo-Pacific Energy Ltd. As the operator incurs
expenses on the permit the operator submits cash calls on a periodic
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basis to the Registrant. The dollar value of the cash calls submitted
by the operator to the Registrant will be based upon the Registrant's
percentage interest in PEP 38256. The Registrant also receives
corporate services from DLJ Management Corp. The services consist of
shareholder relations and communications, legal and accounting support.
DLJ Management Corp. provides their services on a part time basis
whereby they devote approximately 20% of their time to matters related
to the Registrant. DLJ Management Corp. is paid for its services on a
cost recovery basis.
In addition to the foregoing, the Registrant also receives
technical services from exploration consultants. The principal
consultants engaged by the Registrant are Dr. Bruce Morris, Mr. Roger
Brand, Mr. David Francis and Mr. Carey Mills.
Dr. Morris trained and lectured as a sedimentologist at University
of Victoria (New Zealand). Over the last nine years, he has been
involved in remote oilfield operations in Papua New Guinea, and with
exploration in the Taranaki and East Coast Basin of New Zealand. Dr.
Morris has also worked as a well site geologist for Exxon in the
Gippsland Basin, Australia.
Mr. Brand has over 20 years experience in the oil industry. After
graduating from Oxford University (United Kingdom) in 1974, he worked
for British Petroleum as a geologist in the North Sea and onshore
United Kingdom. Following a move to New Zealand in 1982, Mr. Brand
served as Chief Geologist for New Zealand Oil and Gas Ltd. for three
years. Since 1986, he has conducted a variety of exploration
assessments and prospect valuations for major and minor oil companies
based in New Zealand, Australia and Papua New Guinea. His main
interests lie in the definition of hydrocarbon plays in New Zealand's
Taranaki Basin.
Mr. Francis is a highly experienced field geologist with over 15
years specialist activity in New Zealand's East Coast Basin. He has
completed numerous scientific papers and company reports detailing East
Coast petroleum geology.
Mr. Mills provides a broad range of capabilities. Before joining
the Registrant, Mr. Mills worked as a petrophysisist for Exxon on the
West Tuna Field in the Gippsland Basin, Australia, on the Moran
discovery in Papua New Guinea and had other responsibilities.
For definitions of technical terms used in the description of
properties, see the Glossary of Industry Terms.
GLOSSARY OF INDUSTRY TERMS
Currency and Measurement
All currency amounts in this Form 10-SB are stated in United States
dollars unless otherwise indicated.
Metric and Imperial Units
Conversion from metric units into imperial equivalents is as follows:
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Metric Units Imperial Units
hectare 2.471 acres
meter (m) 3.281 feet
kilometer (km) 0.621 miles (3,281 feet)
Geologic Time
Number of Years
Name of Era Name of Period before Present
(Millions)
Quaternary Holocene 0 to 0.4
Pleistocene 0.4 to 1.8
Tertiary Pliocene 1.8 to 5.0
Miocene 5.0 to 24
Oligocene 24 to 38
Eocene 38 to 56
Paleocene 56 to 66
Mesozoic Cretaceous 66 to 140
Jurassic 140 to 200
Triassic 200 to 250
Paleozoic Permian 250 to 290
Carboniferous 290 to 365
Devonian 365 to 405
Silurian 405 to 425
Ordovician 425 to 500
Cambrian 500 to 570
Precambrian Precambrian > 570
Other Geological Expressions
Anticline is a geologic structure in which the sedimentary strata are
folded to form an arch or dome.
Appraisal Well is a well drilled after an existing discovery well to
determine the extent of the resources of the field.
Basin is a segment of the crust of the Earth in which thick layers of
sediments have accumulated over a long period of time.
Condensate refers to hydrocarbons associated with natural gas which are
liquid under surface conditions but gaseous in a reservoir before
extraction.
Depletion is the reduction in petroleum reserves due to production.
Development refers to the phase in which a proven oil or gas field is
brought into production by drilling and completing production wells and
the wells, in most cases, are connected to the petroleum gathering
system.
Discovery is the location by drilling of a well of an accumulation of
gas, condensate or oil reserves, the size of which may be estimated but
not precisely quantified and which may or may not be commercially
economic, depending on a number of factors.
Dry Hole is a well drilled without finding commercially economic
quantities of hydrocarbons.
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Exploration Well is a well drilled in a prospect without knowledge of
the underlying sedimentary rock or the contents of the underlying rock.
Farm In or Farm Out refers to a common form of agreement between or
among petroleum companies where the holder of the petroleum interest
agrees to assign all or part of an interest in the ownership to another
party that is willing to fund agreed exploration activities which may
be more or less than the proportionate interest assigned to such other
party.
Fault is a fracture in a rock or rock formation along which there has
been an observable amount of displacement.
Field is an area that is producing, or has been proven to be capable of
producing, hydrocarbons.
Formation is a reference to a group of rocks of the same age extending
over a substantial area of a basin.
Frontier Exploration is exploration in an area that has seen little
previous exploration but offers the potential for the discovery of
large reserves of hydrocarbons.
Geology is the science relating to the history and development of the
Earth.
Hydrocarbon is the general term for oil, gas, condensate and other
petroleum products.
Lead is an inferred geological feature or structural pattern which on
further investigation may be upgraded to a prospect.
Participating Interest or Working Interest is an equity interest,
compared with a royalty interest, in an oil and gas property whereby
the participating interest holder pays its proportionate or agreed
percentage share of development and operating costs and receives its
proportionate share of the proceeds of hydrocarbon sales after
deduction of royalties due on gross income.
Pay Zone is the stratum or strata of sedimentary rock in which oil or
gas is found.
Permit or License is an area that is granted for a prescribed period of
time for exploration, development or production under specific
contractual or legislative conditions.
Pipeline is a system of interconnected pipes that gather and transport
hydrocarbons from a well or field to a processing plant or to a
facility that is built to take the hydrocarbons for further transport,
such as a gas liquifaction plant.
Play is a combination of geologic features that have the potential for
the accumulation of hydrocarbons.
Prospect is a potential hydrocarbon trap which has been confirmed by
geological and geophysical studies to warrant the drilling of an
exploration well.
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Reservoir is a porous and permeable sedimentary rock formation
containing adequate pore space in the rock to provide storage space for
oil, gas or water.
Royalty is the entitlement to a stated or determinable percentage of
the proceeds received from the sale of hydrocarbons calculated as
prescribed in applicable legislation or in the agreement reserving the
royalty to the owner of the royalty.
Seal is an impervious sedimentary rock formation overlying a reservoir
that prevents the further migration of hydrocarbons.
Seep is the natural flow of oil or gas to the Earth's surface from a
formation or through cracks and faults indicating that a formation
containing hydrocarbons may be located somewhere nearby.
Seismic refers to a geophysical technique using low frequency sound
waves to determine the subsurface structure of sedimentary rocks.
Show is the detectable presence of hydrocarbons during the drilling of
a well.
Source Rock is sedimentary rock, usually fine-grained shale rich in
organic matter, the geologic conditions, including conditions of
temperature, pressure and time, and history of which is favourable for
the formation of hydrocarbons.
Top Seal is a rock formation through which hydrocarbons cannot move
which lies above a trap and below which hydrocarbons accumulate to form
a pool.
Trap is a geological structure in which hydrocarbons build up to form
an oil, condensate or gas field.
ITEM 2. PLAN OF OPERATIONS
The Registrant has been principally involved in the acquisition,
interpretation and mapping of seismic on PEP 38256 during the past two
years and hence has not yet received revenues from operations,
profitability or break-even cash flow.
The plan of operations for the next 12 months is to continue the
exploration of PEP 38256, with a view to acquiring sufficient seismic
data and interpreting such data to be able to identify at least one
drilling prospect and to then consider exercising an option to acquire
up to an 80% interest in the permit. The Registrant intends to pay for
and collect another 100 miles of seismic data to define prospects to a
level suitable for drilling before June 16, 2000. Upon exercising the
drilling option the Registrant will be required to pay the costs of
drilling up to two exploration wells to earn an additional 50% interest
in the permit, or the cost of one exploration well to earn an
additional 35% interest in the permit. Currently the terms of the
permit require the participants by August 25, 2000 to drill an
exploration well to the lesser of 1,200 metres or the economic
basement.
<PAGE> 14
The Registrant has experienced losses in each fiscal period
reported on. At the end of the Registrant's 1999 fiscal year, it had
$295,025 in working capital, consisting of $258,129 in cash, $92 in
accounts receivable and $42,876 in marketable securities minus accounts
payable of $6,072. The estimated costs to acquire the additional
seismic are approximately $300,000. The costs to drill the initial well
are approximately $1,000,000 including testing. The Registrant does not
have sufficient funds to carry out its intended plan of operations for
the next 12 months without seeking additional funds. The Registrant
relies principally on the issuance of common shares by private
placements to raise funds to finance the business of the Registrant.
There is no assurance that market conditions will continue to permit
the Registrant to raise funds when required. If possible the Registrant
will issue more common shares at prices determined by the Board of
Directors, possibly resulting in dilution of the value of common
shares, and, given there is no preemptive right to purchase common
shares, if a member does not purchase additional common shares, the
percentage share ownership of the member in the Registrant will be
reduced.
Management does not expect any significant increases in the number
of employees in the near future.
ITEM 3. DESCRIPTION OF PROPERTY
The Registrant maintains a 120 square foot head office space
located at Suite 700, 700 - 6th Avenue SW, Calgary, Alberta, Canada,
from which the President of the Registrant conducts business on behalf
of the Registrant. The Registrant also maintains a 4,000 square foot
operations office in Wellington, New Zealand from which the joint
venture operations are conducted. This office space is shared with the
operator of PEP 38256, Indo-Pacific Energy Ltd. and two other
exploration companies.
The sole interest owned by the Registrant is a 30% participating
interest in PEP 38256, an exploration permit, and an option to acquire
before June 16, 2000 up to a further 50% participating interest in PEP
38256 from Indo-Pacific Energy Ltd. ("Indo") and Trans-Orient Petroleum
Ltd. ("TOP"). Indo is the operator on PEP 38256 and is carrying out the
required exploration programs for the Registrant pursuant to an
operating agreement dated June 25, 1998 and under which the initial 30%
participating interest of the Registrant was acquired. The option
agreement was modified by three subsequent agreements dated December 3,
1998, October 26, 1999 and February 23, 2000 which extended the period
of time in which the Registrant must exercise its option to acquire a
further interest in PEP 38256 to June 16, 2000. Additionally, the
amendments provided the Registrant with a choice of committing to:
( Option A') to earn an additional 50% participating interest in PEP
38256 (25% each from Indo and TOP) by funding all expenditures
including an agreed program of seismic work leading up to and including
the drilling of two exploration wells. Alternatively, the Registrant
may, at its election, earn an additional 35% participating interest
(17.5% each from Indo and TOP) in PEP 38256 by funding all work leading
up to and including the drilling of one exploration well ( Option B').
In the event that the Registrant exercises Option B, it shall acquire
a further option ( Option C') to earn an additional 15% participating
interest in PEP 38256 by funding all further work up to and including
<PAGE> 15
a second exploration well on a separate exploration target. Option C
must be exercised within 30 days of reaching the predetermined target
depth in the exploration well drilled pursuant to the exercise of
Option B.
The Registrant is maintaining the option by funding ongoing costs
including the acquisition of additional seismic, an independent
evaluation of the permit by the Geology Department of the University of
Canterbury, and other technical studies.
On January 31, 2000, Indo and TOP issued a news release disclosing
that Indo and TOP have entered into a letter of intent under which all
of the oil and gas assets of TOP will be sold to Indo including TOP's
PEP 38256 permit interest. Should Indo and TOP conclude the agreement
to sell these assets the interest holders in PP 38256 would be the
Registrant (30%) and Indo (70%).
Petroleum Exploration Permit 38256, South Island
The Canterbury Basin is located both onshore and offshore in the
area surrounding Christchurch, on the South Island of New Zealand. The
total area of the Canterbury Basin is approximately twelve million
acres. The sediments in the Canterbury Basin range in age from Middle
Cretaceous to Miocene. PEP 38256, which contains a portion of the
Canterbury Basin, was granted on August 25, 1997 to Indo and TOP. The
permit area is situated in the onshore area surrounding Christchurch
and encompasses 2,760,120 acres (4,312.69 square miles). The permit
term is five years, but a minimum of 50% must be relinquished within
three years. Any production permits granted will be for a term of up to
40 years from the date of issue. The Crown in right of New Zealand has
reserved a royalty of the greater, in any one year, of five per cent of
net sales revenue from the sale of petroleum products or 20% of
accounting profits.
On June 25, 1998, Indo and TOP granted two options to the
Registrant. The first option was for the Registrant to acquire a 30%
participating interest upon payment of past costs and a 125-mile
seismic program designed to identify two drilling prospects. This
option was exercised on August 4, 1998. The second option entitles the
Registrant to acquire up to a further 50% participating interest on
payment of any additional required seismic and for the cost of drilling
up to two exploratory wells. Currently the participants and their
interests in PEP 38256 are the Registrant (30%), Indo (35%) and TOP
(35%).
Five exploration wells have been drilled on PEP 38256 since 1914.
Four exploration wells in the offshore part of the Canterbury Basin
have been drilled since 1970, two of which resulted in gas-condensate
discoveries. The data gathered from these past activities is relevant
in interpreting the geology of PEP 38256, but generally, the area is
lightly explored. The basement rocks are Paleozoic and Mesozoic
metasediments. Overlying these in places are Cretaceous coal measure
formations, and Paleocene and Eocene terrestrial sediments which
gradually become of marine origin towards the eastern part of the
basin. Overlying these formations are Oligocene limestone and sandstone
formations which are principally marine in origin. The early Miocene
period saw the deposition of marine sandstones and mudstones with a
gradation to nonmarine sediments in the late Miocene period. The
Pliocene and Quaternary strata are principally gravels derived from the
formation of the Southern Alps with some volcanics.
<PAGE> 16
The sandstones in the Miocene, Paleocene and late Cretaceous
formations are considered to be potential reservoirs, with lesser
emphasis placed on the Eocene and Oligocene limestones. Interbedded
mudstones would provide seals for the reservoirs. Source formations are
thought to be Late Jurassic to Upper Cretaceous coal formations, and
Late Cretaceous Whangai mudstones and Paleocene Waipawa Black Shale
formations, which are identified as source rocks in other New Zealand
basins.
Under the terms of the permit, the participants completed a work
program to locate and analyse petroleum seeps within the permit area,
model existing gravity data and acquire new gravity data, collect and
interpret a minimum of ten magnetotelluric stations, process existing
seismic data and complete surface geological work by November 25, 1998.
Additionally, the participants met the requirement to collect, process
and interpret 48 miles of new seismic data by August 25, 1999. The
participants also acquired, processed and interpreted a further 25
miles of additional seismic data, required by February 25, 2000, and
committed to drilling the first exploratory well. In addition to the
work required to be completed under the terms of the permit, the
participants intend to acquire a further 100 miles of seismic in order
to define a suitable drilling location. The participants are now
required to drill an exploratory well by August 25, 2000.
Several sizable leads and prospects, including the Ealing, Arcadia
and Chertsey South Leads, were identified by the 125 miles of seismic
data collected in 1998, and by the 165 miles of seismic data collected
in 1999. However more seismic data is required to define drilling
targets on those prospects.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The Registrant's securities are recorded on the books of its
transfer agent in registered form. However, a majority of such shares
are registered in the name of intermediaries such as brokerage houses
and clearing houses on behalf of their respective clients and the
Registrant does not have knowledge of the beneficial owners thereof.
The Registrant is not directly or indirectly owned or controlled by a
corporation or foreign government.
As of February 29, 2000, the Registrant had an authorized share
capital of 100,000,000 common shares with a par value of $0.00001 per
share of which 14,200,000 shares were issued and outstanding.
The following table sets forth, as of February 29, 2000, the
beneficial shareholdings of persons or entities holding five per cent
or more of the Registrant's common stock, each director individually,
each named executive officer and all directors and officers of the
Registrant as a group. Each person has sole voting and investment power
with respect to the shares of Common Stock shown, and all ownership is
of record and beneficial.
<PAGE> 17
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Owner Ownership Position of Class
Cameron Fink Nil [1] President and 0.00%
Calgary, Alberta Director
Michael Hart Nil [1] Director 0.00%
Vancouver,
British Columbia
Alex Guidi 4,477,000 Director 31.53%
Vancouver, shares [1]
British Columbia
David Bennett 20,000 Director 0.14%
Karori, New Zealand shares [1]
Mark Katsumata 8,000 Secretary/Treasurer 0.06%
Vancouver, shares [1] and Chief Financial
British Columbia Officer
All officers 4,505,000 31.73%
and directors shares
as a group
Source Rock Holdings 1,800,000 12.68%
Ltd., a wholly-owned shares
subsidiary of Indo-
Pacific Energy Ltd.
[2][4]
Karori, New Zealand
Reservoir Rock Holdings 1,400,000 9.86%
Ltd., a wholly-owned shares
subsidiary of Trans-
Orient Petroleum Ltd.
[3][4]
Karori, New Zealand
Brad Holland 1,173,500 8.26%
Vancouver, shares
British Columbia
Ronald Bertuzzi 1,103,000 7.77%
Vancouver, shares
British Columbia
[1] The Registrant established a non-qualified stock option plan (the
"Plan") for directors, officers, employees and consultants who
provide services to the Registrant. Under the terms of the plan,
3,000,000 shares will be reserved for issuance under the plan. Any
options issued under the plan will expire on the earlier of 10
years from the establishment of the Plan or the expiry date
assigned to the individual option grant. As of the end of February
2000, the Registrant has not issued any options under the Plan.
The Registrant is in the process of determining the appropriate
number of options each director, officer, employee and consultant
of the Registrant will receive.
<PAGE> 18
[2] Source Rock Holdings Ltd., a wholly-owned subsidiary of Indo-
Pacific Energy Ltd., holds an option to acquire 200,000 shares
exercisable at a price of US$0.50 per share expiring on July 31,
2000.
[3] Reservoir Rock Holdings Ltd., a wholly-owned subsidiary of Trans-
Orient Petroleum Ltd., holds an option to acquire 600,000 shares
exercisable at a price of US$0.50 per share expiring on July 31,
2000.
[4] The parent companies of Source Rock Holding Ltd. and Reservoir
Rock Holdings Ltd., Indo-Pacific Energy Ltd. ("Indo") and Trans-
Orient Petroleum Ltd. ("TOP"), respectively, have entered into a
letter of intent under which all of the oil and gas assets of TOP
will be sold to Indo. As part of the payment for these assets,
Indo will transfer its 1,800,000 shares of the Registrant and the
remaining option to acquire 200,000 shares in the Registrant to
TOP's subsidiary, Reservoir Rock Holdings Ltd. After the
transaction is completed, TOP will own a total of 3,200,000 shares
(22.54% of the Registrant's outstanding shares) and a combined
option to acquire 800,000 shares exercisable at a price of US$0.50
per share expiring on July 31, 2000.
Mr. Alex Guidi is currently in discussions with TOP regarding the
transfer of 3,000,000 common shares of the Registrant owned by Mr.
Guidi to TOP. No agreement has been executed as the parties are still
negotiating the terms of the sale. Should the sale occur, TOP would own
43.66% of the Registrant's outstanding shares.
See Item 7 - Certain Relationships and Related Transactions
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names, municipality of residence, age and position held of the
directors and executive officers of the Registrant are as follows:
Name and Municipality of Age Position Held
Residence
Cameron Fink 32 President & Director
Calgary, Alberta
Canada
Dr. David Bennett [1] 54 Director & Vice-President of
Karori, Wellington Exploration
New Zealand
Alex Guidi [1] 41 Director
Vancouver, British Columbia
Canada
Michael Hart [1] 52 Director
Vancouver, British Columbia
Canada
Mark Katsumata 34 Secretary, Treasurer and
Vancouver, British Columbia Chief Financial Officer
Canada
<PAGE> 19
Notes:
[1] Member of audit committee.
All directors have a term of office expiring at the next annual
general meeting of the Registrant, unless re-elected or earlier vacated
in accordance with the bylaws of the Registrant. All officers have a
term of office lasting until their removal or replacement by the board
of directors.
Mr. Cameron Fink has been a member of the board of directors since
December 1999. Mr. Fink received a B.Sc. in Geophysics at the
University of Alberta, graduating in 1993 with First Class Honours. In
June of 1995, he graduated with an M.Sc. in Geophysics with First Class
standing. In August of 1995, Mr. Fink joined Amoco Canada Petroleum
Company as an interpretation geophysicist in the exploration department
where he worked primarily in the structural trapping regime of the
Rocky Mountain foothills. Mr. Fink's position required that he be
critically involved in the design of seismic surveys, both 2-D and 3-D,
oversee the processing of the seismic data, and develop quality
drillable prospects through the interpretation of these data. In the
fall of 1997, Mr. Fink accepted an expatriate assignment in New
Orleans, Louisiana working Amoco's offshore shelf properties in the
Gulf of Mexico. In September 1999, Mr. Fink was employed as a Senior
Geophysicist by Dominion Energy Canada Limited.
Dr. David Bennett has been a member of the board of directors
since June 1998. Dr. Bennett received a Bachelor of Arts (Natural
Sciences) from Cambridge University in 1968 and a Master of Science in
Exploration Geophysics from the University of Leeds in 1969. In 1973,
Dr. Bennett received his doctorate in Geophysics from the Australian
National University and from 1973 to 1975 conducted post-doctoral
research at the University of Texas (Dallas). From 1975 to 1977, Dr.
Bennett was a post-doctoral fellow and lecturer at the University of
Wellington, New Zealand. From 1977 to 1982, Dr. Bennett was employed by
the Department of Scientific and Industrial Research, Government of New
Zealand and from 1982 to 1994 was employed as geophysicist, exploration
manager and finally general manager by New Zealand Oil and Gas Ltd. Dr.
Bennett was an independent consultant from 1994 to 1996 when he joined
the Registrant. Dr. Bennett has been the president, chief executive
officer and member of the board of directors of Indo-Pacific Energy
Ltd. since October 1996. Since April 1997, he has been the president of
Trans-Orient Petroleum Ltd. and a member of the board of directors and
president of Durum Cons. Energy Corp.
Mr. Alex Guidi has been a member of the board of directors since
August 1997. Mr. Guidi has been involved in public markets since 1985,
and since 1989 in the oil and gas sector. Mr. Guidi has organized and
financed several oil and gas companies. Mr. Guidi has been chairman of
the board and a member of the board of directors of the Indo-Pacific
Energy Ltd. since October 1996. From July 1988 to December 1995, Mr.
Guidi was a member of the board of directors of Trans-Orient Petroleum
Ltd. and was elected a member of the board of directors on January 28,
1998 and chairman on April 22, 1998. From December 1990 to May 1996,
Mr. Guidi was a member of the board of directors of Durum Cons. Energy
Corp. and was president from August 1992 to May 1996. See Item 7 -
Certain Relationships and Related Transactions.
<PAGE> 20
Mr. Hart has worked in the financial services sector with a number
of large financial institutions, between the years 1983-1990, where he
acted as an account executive and financial consultant. From 1990 to
1995, Mr. Hart fulfilled the responsibilities of business and sales
manager within the automotive sector. Subsequent to 1995, Mr. Hart
worked with an investment banking group which was responsible for
taking projects from their infancy to the public markets and has had
experience with public companies operating within the oil & gas
industry. Currently, Mr. Hart is the President of both Hart-Byrne
Enterprises Ltd. and On The Wing Productions Inc., private companies
that are developing specialized products for the music industry.
Mr. Mark Katsumata was a director from February 29, 1997 to August
6, 1997 and secretary from February 20, 1997 to August 6, 1997. Mr.
Katsumata was appointed secretary-treasurer on June 25, 1997. Mr.
Katsumata is a certified general accountant who was in public practice
from 1990 to 1994 in Vancouver, B.C. In 1994, Mr. Katsumata joined
associated companies of the Registrant as controller. Mr. Katsumata is
also the secretary of Trans-Orient Petroleum Ltd., Durum Cons. Energy
Corp., Indo-Pacific Energy Ltd. and secretary-treasurer of Gondwana
Energy, Ltd. and Verida Internet Corp.
None of the individuals listed above are subject to any
anticipated or threatened legal proceedings of a material nature.
ITEM 6. EXECUTIVE COMPENSATION
Annual Compensation Long-Term Compensation
<TABLE>
<CAPTION>
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Annual Restricted Under Other
Name and Compen- Stock Options/ LTIP Compen
Principal Salary Bonus sation Awards SARS Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Bennett 1999 - - 4,483 - - - -
Vice-President 1998 - - 4,295 - - - -
Exploration & 1997 - - - [1] - - -
Director
Cameron Fink 1999 - - - - - - -
President 1998 - - - - - - -
& Director 1997 - - - - - - -
Ronald Bertuzzi 1999 - - - - - - -
Former 1998 - - - - - - -
President 1997 - - - [2] - - -
& Director
Michael Hart 1999 - - - - - - -
Director 1998 - - - - - - -
1997 - - - - - - -
Alex Guidi 1999 - - - - - - -
Director 1998 - - 18,000 - - - -
1997 - - - [3] - - -
Mark Katsumata 1999 - - - - - - -
Secretary, 1998 - - - - - - -
Treasurer & 1997 - - - [4] - - -
CFO
</TABLE>
[1] On April 2, 1997, Dr. David Bennett was issued 20,000 shares at a
price of $0.10 per share under Regulation D (Rule 504), for total
proceeds paid by Dr. Bennett of $2,000. On April 2, 1997, the
Registrant's shares were not quoted on the OTCBB.
<PAGE> 21
[2] On April 2, 1997, Ronald Bertuzzi was issued 1,000,000 shares at
a price of $0.001 per share under Regulation D (Rule 504), for
total proceeds paid by Mr. Bertuzzi of $1,000. On April 2, 1997,
the Registrant's shares were not quoted on the OTCBB.
[3] On April 2, 1997, Pacific Reach Management Ltd., a private company
wholly-owned by Alex Guidi, was issued 195,000 shares at a price
of $0.10 per share under Regulation D (Rule 504), for total
proceeds paid by Pacific Reach Management Ltd. of $19,500. On
April 2, 1997, the Registrant's shares were not quoted on the
OTCBB.
On August 11, 1997, International Resource Management Corporation
(formerly 437577 B.C. Ltd.), a private company wholly-owned by
Alex Guidi, was issued 3,000,000 shares at a price of $0.01 per
share under Regulation S (901), for total proceeds paid by
International Resource Management Corporation of $30,000. On
August 8, 1997, (the closest date to the issuance on which the
Registrant's shares traded) the Registrant's share price closed at
$.50 per share.
[4] On April 2, 1997, Mark Katsumata was issued 5,000 shares at a
price of $0.10 per share under Regulation D (Rule 504), for total
proceeds paid by Mr. Katsumata of $500. On April 2, 1997, the
Registrant's shares were not quoted on the OTCBB.
On September 29, 1997, Mark Katsumata was issued 5,000 shares at
a price of $0.05 per share under Regulation D (Rule 504), for total
proceeds paid by Mr. Katsumata of $250. On September 17, 1997 (the
closest date to the issuance on which the Registrant's shares traded)
the Registrant's share price closed at $.50 per share.
The Registrant established a non-qualified stock option plan (the
"Plan") for directors, officers, employees and consultants who provide
services to the Registrant. Under the terms of the plan, 3,000,000
shares will be reserved for issuance under the plan. Any options issued
under the plan will expire on the earlier of 10 years from the
establishment of the Plan or the expiry date assigned to the individual
option grant. As at March 13, 2000, the Registrant has not issued any
options under the Plan. The Registrant is in the process of determining
the appropriate number of options each director, officer and employee
of the Registrant will receive.
The Registrant does not have any long-term incentive plans to the
Named Executive Officers during the 1999 fiscal year.
The directors of the Registrant do not receive salaries or fees
for serving as directors of the Registrant, nor do they receive any
compensation for attending meetings of the Board of Directors or
serving on committees of the Board of Directors. The Registrant may,
however, determine to compensate its directors in the future. Directors
are entitled to reimbursement of expenses incurred in attending
meetings. In addition, the directors of the Registrant are entitled to
participate in the Registrant's stock option plan. See above
description of the stock option plan in this section.
There are no compensation arrangements for employment, termination
of employment or change-in-control between the Registrant and the Named
Executive Officers.
<PAGE> 22
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Related Parties
None of the directors or officers of the Registrant nor any person
who beneficially owns, directly or indirectly, shares carrying more
than five percent of outstanding shares of the Registrant, has any
material interest, direct or indirect, in any transaction during the
last two years or in any proposed transaction which, in either case,
has or will materially affect the Registrant, or any subsidiaries,
except as follows:
(a) by an agreement dated June 25, 1998, the Registrant was
granted an option to earn a 30% participating interest (15% from each
of Indo and TOP) in Petroleum Exploration Permit 38256, Canterbury
Basin, South Island, New Zealand exercisable by paying for the costs of
a 200-kilometer seismic program and was granted the right to elect to
earn up to a further 50% participating interest (25% from each of Indo
and TOP) by paying for any additional seismic to define two drilling
prospects and the costs of drilling two exploration wells (the
"Drilling Option");
(b) by agreements dated December 3, 1998, October 26, 1999 and
February 23, 2000, the Drilling Option was extended to June 15, 2000
and the conditions of the Drilling Option have been amended
accordingly;
(c) by agreements dated June 25, 1998 and July 25, 1998, the
Registrant issued 1,000,000 shares to Source Rock Holdings Ltd.
("Source Rock"), a subsidiary of Indo, at a price of US$0.25 per share
and 1,000,000 shares to Reservoir Rock Holdings Ltd. ("Reservoir
Rock"), a subsidiary of TOP, for US$0.25 per share;
(d) by agreements dated June 25, 1998, the Registrant granted to
each of Source Rock and Reservoir Rock an option to acquire 1,000,000
shares exercisable at a price of US$0.50 per share before the earlier
of July 31, 2000 or thirty business days after the Registrant or any
subsidiary of the Registrant ceases to have a right to earn an interest
in, or to hold an interest in, PEP 38256, Canterbury Basin, South
Island, New Zealand. On March 17, 1999, Source Rock exercised part of
its option and acquired 800,000 shares of the Registrant in exchange
for the payment of $400,000. Additionally, on March 17, 1999, Reservoir
Rock exercised its part of its option and acquired 400,000 shares of
the Registrant in exchange for the payment of $200,000.
(e) by an agreement dated June 25, 1998, the Registrant assigned
to Gondwana Energy, Ltd. ("Gondwana") a 20% participating interest in
Petroleum Exploration Permit 38723, Taranaki Basin, North Island, New
Zealand for past costs and for 100,000 shares of Gondwana at a deemed
price of US$0.10 per share;
(f) by an agreement dated April 1, 1998, a subsidiary of the
Registrant assigned to a subsidiary of TOP for past costs a 20%
participating interest in Petroleum Exploration Permit 38332, East
Coast Basin, North Island, New Zealand with the consent of Indo and
Boral Energy Resources NZ Ltd.; and
<PAGE> 23
(g) subsidiaries of Indo and TOP agreed to transfer to a
subsidiary of the Registrant a 20% participation interest in PEP 38256,
Canterbury Basin, South Island, New Zealand in 1997, but this
transaction was cancelled by agreement dated December 31, 1997 because
the subsidiary did not at the time have sufficient funds to carry out
required work.
Except as otherwise disclosed in this Form 10-SB, the following is
of relevance:
Mr. Alex Guidi is a member of the board of directors, the chairman
and principal shareholder of Indo. Mr. Guidi is the chairman, a member
of the board of directors, principal shareholder and the promoter of
TOP. Mr. Guidi is a member of the board of directors, principal
shareholder and promoter of the Registrant. Mr. Guidi is the principal
shareholder and promoter of Gondwana.
Dr. David Bennett is the president, chief executive officer,
member of the boards of directors and a shareholder of the Registrant
and Indo. Dr. Bennett is a member of the board of directors and a
shareholder of TOP.
Mr. Mark Katsumata is the secretary and controller and a
shareholder of the Registrant, Indo, TOP and Gondwana.
Mr. Michael Hart is member of the board of directors of Registrant
and TOP.
Transactions with Promoter
In addition to his position in the management of the Registrant,
Mr. Alex Guidi is the promoter of the Registrant. During the previous
five-year period Mr. Guidi received directly or indirectly, from the
Registrant the following:
On April 2, 1997, Pacific Reach Management Ltd., a private company
wholly-owned by Alex Guidi, was issued 195,000 shares at a price of
$0.10 per share under Regulation D (Rule 504), for total proceeds paid
by Pacific Reach Management Ltd. of $19,500.
On August 11, 1997, International Resource Management Corporation
(formerly 437577 B.C. Ltd.), a private company wholly-owned by Alex
Guidi, was issued 3,000,000 shares at a price of $0.01 per share under
Regulation S (901), for total proceeds paid by International Resource
Management Corporation of $30,000.
ITEM 8. DESCRIPTION OF SECURITIES
The Registrant's securities consist of common stock with a par
value of $0.00001 per share. The Registrant's authorized capital is
100,000,000 common shares of which 14,200,000 common shares are issued
and outstanding as of February 29, 2000. All of the Registrant's common
stock, both issued and unissued, is of the same class and ranks equally
as to dividends, voting powers and participation in the assets of the
Registrant on a winding-up or dissolution. No common shares have been
issued subject to call or assessment. Each common share is entitled to
one vote with respect to the election of directors and other matters.
The shares of common stock do not have cumulative voting rights.
<PAGE> 24
Therefore, the holders of a majority of shares voting for the election
of directors can elect all the directors then standing for election, if
they chose to do so, and in such event the holders of the remaining
shares will not be able to elect any directors.
The common shares have no preemptive or conversion rights, and no
provisions for redemption, purchase for cancellation, surrender of
sinking fund or purchase fund. Provisions as to the creation or
modifications, amendments or variations of such rights or such
provisions are contained in the Private Corporations Act, Chapter 78,
Nevada Revised Statutes.
Neither the Articles of Incorporation nor the Bylaws of the
Registrant contain specific provisions which would delay, defer or
prevent a change in control of the Registrant. However, approximately
85.8 million common stock shares are authorized but unissued as of
February 29, 2000. All of such authorized but unissued shares will be
available for future issuance by the Board of Directors without
additional shareholder approval. These additional shares may be used
for a variety of purposes, including future offerings to raise
additional capital or to facilitate acquisitions. One of the effects of
the existence of unissued and unreserved common stock may be to enable
the Board of Directors to issue shares to persons friendly to current
management, which could render more difficult or discourage an attempt
to obtain control of the Registrant by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of
management. Such additional shares also could be used to dilute the
stock ownership of persons seeking to obtain control of the Registrant.
The Registrant's transfer agent is American Securities Transfer &
Trust, Inc. 938 Quail Street, Suite 101, Lakewood, Co 80215, telephone
(303) 234-5300, facsimile (303) 234-5340.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
The Registrant's shares trade on the "Pink Sheets" interdealer
quotation operated by the National Quotation Bureau under the symbol
AMGO. Prior to August 2, 1999, the Registrant's shares traded on the
Bulletin Board under the trading symbol "AMGO." Summary trading by
quarter for the 1999 and 1998 fiscal years are as follows:
Calendar Quarter High Bid[1] Low Bid[1]
1999
First Quarter 1.875 1.125
Second Quarter 2.0625 0.75
Third Quarter 0.9375 0.0625
Fourth Quarter 0.625 0.25
1998
First Quarter 1.875 1.21875
Second Quarter 1.75 0.125
Third Quarter 3.125 1.25
Fourth Quarter 3.125 1.50
<PAGE> 25
Note:
[1] These quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not represent actual
transactions.
At February 29, 2000, there were 14,200,000 common shares of the
Registrant issued and outstanding.
At February 29, 2000, there were 21 holders of record including
common shares held by brokerage clearing houses, depositories or
otherwise in unregistered form. Other than those entities described in
Item 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, the Registrant does not know the beneficial owners of such
shares.
No cash dividends have been declared by the Registrant nor are any
intended to be declared. The Registrant is not subject to any legal
restrictions respecting the payment of dividends, except that they may
not be paid to render the Registrant insolvent. Dividend policy will
be based on the Registrant's cash resources and needs and it is
anticipated that all available cash will be needed for property
acquisition, exploration and development for the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Registrant is
subject to or which are anticipated or threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Registrant's former independent auditor, KPMG LLP, Chartered
Accountants, of Vancouver, British Columbia, Canada was dismissed by
the Registrant on January 25, 1999. The former auditor had not
expressed an opinion on any financial statements of the Registrant.
The decision to change auditors was approved by the Registrant's
board of directors. The board of directors decided to dismiss the
former auditor due to the belief that the former auditor would not be
able to consistently meet the time requirements for the preparation of
the Registrant's financial statements. There were no disagreements with
the former auditor on any audit or accounting issues.
The Registrant engaged the firm of Telford Sadovnick, PLLC,
Certified Public Accountants, as its new auditor.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant was incorporated in February 1997. In the past
three fiscal years, the Registrant has issued the following
unregistered securities at the following prices. There were no
underwriters engaged and no underwriting discounts or commissions paid.
All issues were made pursuant to exemptions from registration contained
in Regulation D, Rule 504 and Regulation S, Rules 901-905 of the 1933
Securities Act.
<PAGE> 26
Date Type of Security Number Proceeds Exemption
1997
02/04/97 Common Shares 2,000,000 $101,000 Reg. D (504)
11/08/97 Common Shares 3,000,000 $ 30,000 Reg. S (901)
29/09/97 Common Shares 4,000,000 $200,000 Reg. D (504)
31/12/97 Common Shares 2,000,000 $100,000 Reg. D (504)
1998
02/07/98 Common shares 1,500,000 $375,000 Reg. S (901)
14/08/98 Common Shares 500,000 $125,000 Reg. S (901)
1999
17/03/99 Common Shares 1,200,000 $600,000 Reg. S (901)
There are no outstanding warrants to purchase shares. The
Registrant established a stock option plan (the "Plan") for directors,
officers, employees and consultants who provide services to the
Registrant. Under the terms of the plan, 3,000,000 shares will be
reserved for issuance under the plan. Any options issued under the plan
will expire on the earlier of 10 years from the establishment of the
Plan or the expiry date assigned to the individual option grant. As of
March 15, 2000, the Registrant has not issued any options under the
Plan. The Registrant is in the process of determining the appropriate
number of options each director, officer, employee and consultants of
the Registrant will receive.
There are 800,000 shares subject to option to acquire common
shares held as follows:
Name and Address Number of Shares Expiry Date and Percent
of Beneficial Owner Under Option Exercise Price of Class
Source Rock Holdings Ltd. 200,000[1][3] July 31, 2000 25.00%
Karori, New Zealand US$0.50 per share
Reservoir Rock Holdings Ltd. 600,000[2][3] July 31, 2000 75.00%
Karori, New Zealand US$0.50 per share
[1] Source Rock Holdings Ltd. is a wholly-owned subsidiary of Indo-
Pacific Energy Ltd.
[2] Reservoir Rock Holdings Ltd. is a wholly-owned subsidiary of
Trans-Orient Petroleum Ltd.
[3] The parent companies of Source Rock Holding Ltd. and Reservoir
Rock Holdings Ltd., Indo-Pacific Energy Ltd. ("Indo") and Trans-
Orient Petroleum Ltd. ("TOP"), respectively, have entered into a
letter of intent under which all of the oil and gas assets of TOP
will be sold to Indo. As part of the payment for these assets,
Indo will transfer its 1,800,000 shares of the Registrant and the
remaining option to acquire 200,000 shares in the Registrant to
TOP's subsidiary, Reservoir Rock Holdings Ltd. After the
transaction is completed, TOP will own a total of 3,200,000 shares
(22.54% of the Registrant's outstanding shares) and a combined
option to acquire 800,000 shares exercisable at a price of US$0.50
per share expiring on July 31, 2000.
<PAGE> 27
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The constating documents of the Registrant provide that the
Registrant shall indemnify any director, officer, employee or agent of
the Registrant to the full extent permitted by the laws of the State of
Nevada. Chapter 78, rules 78.7502, 78.751 and 78.752 of the Nevada
Revised Statutes contain the provisions which, subject to certain
restrictions, in general provide for the Registrant's ability to
indemnify, and thereby limit the personal liability of, the directors
and officers of the Registrant against certain liabilities. Officers
and directors of the Registrant are indemnified generally against
expenses, actually and reasonably, incurred in connection with
proceedings, whether civil or criminal, provided that it is determined
that they acted in good faith, were not found guilty and, in any
criminal matter, had reasonable cause to believe their conduct was not
unlawful.
PART F/S
Financial Statement begin on following page.
<PAGE> 28
TELFORD SADOVNICK, P.L.L.C.
Certified Public Accountants
114 West Magnolia Street
Suite 423
Bellingham, Washington 98225
(360) 392-2886
FAX (360) 392-2887
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of AMG Oil Ltd. (formerly
Trans New Zealand Oil Company)
We have audited the accompanying consolidated balance sheets of AMG Oil
Ltd. (formerly Trans New Zealand Oil Company) (a development stage
enterprise) as of September 30, 1999, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholders' equity
and cash flows for the years ended September 30, 1999, 1998, for the
period from inception on February 20, 1997 to September 30, 1997 and
for the period from inception on February 20, 1997 to September 30,
1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of AMG Oil Ltd. (formerly Trans New Zealand Oil Company) (a development
stage enterprise) as of September 30, 1999, 1998 and 1997 and the
results of its operations and its cash flows for the years ended
September 30, 1999, 1998 and for the period from inception on February
20, 1997 to September 30, 1997 and for the period from inception on
February 20, 1997 to September 30, 1999 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company is a development stage enterprise
and has yet to establish any revenues from business operations. As a
result, there is substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Telford Sadovnick, P.L.L.C
CERTIFIED PUBLIC ACCOUNTANTS
Bellingham, Washington
February 23, 2000
F-1
<PAGE> 29
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As at September 30, 1999 1998 1997
<S> <C> <C> <C>
Assets
Current
Cash $ 258,129 $ 155,748 $ 310,612
Accounts receivable 92 917 -
Marketable securities (Note 3) 42,876 180,510 -
----------- ---------- ---------
301,097 337,175 310,612
Investments (Note 4) 10,000 10,000 -
Oil and gas property (Note 5) 962,554 423,307 -
----------- ---------- ---------
Total Assets $ 1,273,651 $ 770,482 $ 310,612
=========== ========== =========
Liabilities
Current
Accounts payable and
accrued liabilities $ 6,072 $ 5,738 $ 1,500
----------- ---------- ---------
Total Liabilities 6,072 5,738 1,500
----------- ---------- ---------
Commitments and Contingencies
(Notes 1 and 7)
Stockholders' Equity
Common stock, $0.00001 par
value (Note 8) 100,000,000
shares authorized
Issued and outstanding at
September 30,
1999: 14,200,000 shares
1998: 13,000,000 shares
1997: 9,000,000 shares 142 130 90
Additional paid-in capital 1,530,858 930,870 330,910
Deficit accumulated during
the development stage (263,421) (166,256) (21,888)
Total Stockholders' Equity 1,267,579 764,744 309,112
----------- ---------- ---------
Total Liabilities and
Stockholders' Equity $ 1,273,651 $ 770,482 $ 310,612
=========== ========== =========
</TABLE>
Approved by the Board of Directors:
/s/ Cameron Fink /s/ David Bennett
Director Director
See accompanying notes to the consolidated financial statements
F-2
<PAGE> 30
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the
Period from Cumulative
Inception from Inception
on February on February
Year Ended Year Ended 20,1997 to 20, 1997 to
09/30/99 09/30/98 09/30/97 09/30/99
<S> <C> <C> <C> <C>
Revenues
Interest income $ 11,467 $ 14,970 $ 2,294 $ 28,731
--------- ---------- --------- ------------
Expenses
General and administrative 43,786 21,931 24,182 89,899
Loss on sale of marketable
securities 16,135 - - 16,135
Write-down of
marketable securities 48,551 144,346 - 192,897
Write-down of oil and
gas property 160 - - 160
--------- ---------- --------- ------------
108,632 166,277 24,182 299,091
--------- ---------- --------- ------------
(97,165) (151,307) (21,888) (270,360)
Gain on sale of oil
and gas property - 6,939 - 6,939
--------- ---------- --------- ------------
Net loss for the period $ (97,165) $ (144,368) $ (21,888) $ (263,421)
========= ========== ========= ============
Basic and diluted loss per
share (Note 9) $ (0.01) $ (0.01) $ (0.01) $ (0.03)
========= ========== ========= ============
</TABLE>
See accompanying notes to the consolidated financial statements
F-3
<PAGE> 31
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the
Period from Cumulative
Inception from Inception
on February on February
Year Ended Year Ended 20,1997 to 20, 1997 to
09/30/99 09/30/98 09/30/97 09/30/99
<S> <C> <C> <C> <C>
Operating Activities
Net loss for the period $ (97,165) $ (144,368) $ (21,888) $ (263,421)
Adjustments to reconcile net
loss to cash applied to
operating activities:
Loss on sale of marketable
securities 16,135 - - 16,135
Write-down of marketable
securities 48,551 144,346 - 192,897
Write-down of oil and
gas property 160 - - 160
Gain on sale of oil and
gas property - (6,939) - (6,939)
Changes in non-cash working capital:
Accounts receivable 825 (917) - (92)
Accounts payable and accrued
liabilities 334 4,238 1,500 6,072
---------- ---------- --------- -----------
Net cash used in
operating activities (31,160) (3,640) (20,388) (55,188)
---------- ---------- --------- -----------
Financing Activities
Common shares issued for cash 600,000 600,000 331,000 1,531,000
---------- ---------- --------- -----------
Net cash provided by financing
activities 600,000 600,000 331,000 1,531,000
---------- ---------- --------- -----------
Investing Activities
Purchase of marketable securities - (324,856) - (324,856)
Proceeds from sale of marketable
securities 72,948 - - 72,948
Oil and gas property:
Exploration (539,407) (426,368) - (965,775)
---------- ---------- --------- -----------
Net cash used in
investing activities (466,459) (751,224) - (1,217,683)
---------- ---------- --------- -----------
Net increase (decrease) in cash
during the period 102,381 (154,864) 310,612 258,129
Cash position - Beginning
of period 155,748 310,612 - -
---------- ---------- --------- -----------
Cash position - End
of period $ 258,129 $ 155,748 $ 310,612 $ 258,129
========== ========== ========= ===========
Supplemental disclosure of non-cash
investing activities:
Purchase of investments $ - $ (10,000) $ - $ (10,000)
========== ========== ========= ===========
</TABLE>
See accompanying notes to the consolidated financial statements
F-4
<PAGE> 32
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Consolidated Statements of Changes in Stockholders' Equity
For the Periods Ended September 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional during the Total
Common Stock Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
<S> <C> <C> <C> <C> <C>
Balance at inception on
February 20, 1997 - $ - $ - $ - $ -
Common stock issued for
cash at $0.01, $0.05 and
$0.10 per share 9,000,000 90 330,910 331,000
Net loss during the period (21,888) (21,888)
---------- ----- ----------- ---------- -----------
Balance at
September 30, 1997 9,000,000 90 330,910 (21,888) 309,112
Common stock issued
for cash at $0.05
per share 2,000,000 20 99,980 100,000
Common stock issued
for cash at $0.25
per share 2,000,000 20 499,980 500,000
Net loss during
the period (144,368) (144,368)
---------- ----- ----------- ---------- -----------
Balance at
September 30, 1998 13,000,000 130 930,870 (166,256) 764,744
Common stock issued
for cash at $0.50
per share 1,200,000 12 599,988 600,000
Net loss during the period (97,165) (97,165)
---------- ----- ----------- ---------- -----------
Balance at
September 30, 1999 14,200,000 $ 142 $ 1,530,858 $ (263,421) $ 1,267,579
========== ===== =========== ========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
F-5
<PAGE> 33
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 1 - NATURE OF OPERATIONS AND CONTINGENCIES
The Company is a development stage company incorporated under the laws of
the State of Nevada as Trans New Zealand Oil Company on February 20,
1997. The Company's name was subsequently changed to AMG Oil Ltd. on
July 27, 1998.
The Company is primarily engaged in the acquisition, exploration and
development of its oil and gas property and has yet to determine whether
its property contains oil and gas reserves that are economically
recoverable. The recoverability of the amounts capitalized for oil and
gas property is dependent upon the completion of exploration work, the
discovery of oil and gas reserves in commercial quantities and the
subsequent development of such reserves.
The Company does not generate sufficient cash flow from operations to
fund its entire exploration and development activities and has therefore
relied principally upon the issuance of securities for financing. The
Company intends to continue relying upon the issuance of securities to
finance its operations and exploration and development activities to the
extent such measures are available and obtainable under terms acceptable
to the Company. Accordingly, the Company's consolidated financial
statements are presented on a going concern basis.
Refer to Note 7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Consolidation
These consolidated financial statements include the accounts of AMG Oil
Ltd. and its wholly-owned subsidiaries, AMG Oil (NZ) Limited and Trans
New Zealand Oil (PNG) Limited. All significant intercompany balances and
transactions have been eliminated.
b) Accounting Principles and Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the fiscal year. Actual results may differ from those estimates.
c) Translation of Foreign Currencies
The Company's foreign operations through its subsidiaries are of an
integrated nature and accordingly, the remeasurement method of foreign
currency translation is used for conversion into United States dollars as
follows:
F-6
<PAGE> 34
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenues and expenses arising from foreign currency transactions are
translated into United States dollars at the average rate for the year.
Monetary assets and liabilities are translated into United States dollars
at the rates prevailing at the balance sheet date. Other assets and
liabilities are translated into United States dollars at the rates
prevailing on the transaction dates. Exchange gains and losses are
recorded as income or expense in the year in which they occur.
d) Financial Instruments and Financial Risk
The Company's financial instruments consist of current assets and current
liabilities. The fair values of the current assets and liabilities
approximate the carrying amounts due to the short-term nature of these
instruments.
e) Accounting Pronouncements Recently Issued
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 128: Earnings per Share ("SFAS 128"),
effective for fiscal periods ending after December 15, 1997 and requiring
restatement of all prior period earnings per share data. SFAS 128
replaces the presentation of primary earnings per share ("EPS") with a
presentation of both basic and diluted EPS for all entities with complex
capital structures.
Basic EPS excludes dilutive securities and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if dilutive securities were converted into
common shares and is computed similarly to fully diluted EPS pursuant to
previous accounting pronouncements. SFAS 128 applies equally to loss per
share presentations.
The FASB issued Statement of Financial Accounting Standards No. 130:
Reporting Comprehensive Income ("SFAS 130"), effective for fiscal periods
beginning after December 15, 1997 and requiring restatement of all
comparative financial statements disclosed. SFAS 130 requires that all
items required to be recognized under accounting standards as components
of comprehensive income be reported as part of the basic financial
statements. The Company does not expect adoption of this new standard to
have a material effect on its financial reporting.
The FASB issued Statement of Financial Accounting Standards No. 131:
Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"), effective for fiscal periods beginning after December 15,
1997 and requiring restatement of all comparative financial statements
disclosed. SFAS 131 establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports. The
Company does not expect adoption of this new standard to have a material
effect on its financial reporting.
F-7
<PAGE> 35
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The FASB issued Statement of Financial Accounting Standards No. 133:
Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"), effective for fiscal periods beginning after June 15, 1999. SFAS
133 requires that the fair-market value of derivatives be reported on the
balance sheet and any changes in the fair value of the derivative be
reported in income or other comprehensive income, as appropriate. The
Company does not expect adoption of this new standard to have a material
effect on its financial reporting.
f) Joint Operations
The Company's exploration and development activities are conducted
jointly with other companies and accordingly, these financial statements
reflect only the Company's proportionate interest in these activities.
g) Oil and Gas Property
The Company follows the full cost method of accounting for oil and gas
operations whereby all costs associated with the acquisition, exploration
and development of oil and gas properties are capitalized in cost centers
on a country-by-country basis. Such costs include property acquisition
costs, geological and geophysical studies, carrying charges on non-
producing properties, costs of drilling both productive and non-
productive wells, and overhead expenses directly related to these
activities.
Depletion is calculated for producing properties by using the unit-
of-production method based on proved reserves, before royalties, as
determined by management of the Company or independent consultants.
Sales of oil and gas properties are accounted for as adjustments of
capitalized costs, without any gain or loss recognized, unless such
adjustments significantly alter the relationship between capitalized
costs and proved reserves of oil and gas attributable to a cost center.
Costs of abandoned oil and gas properties are accounted for as
adjustments of capitalized costs and written off to expense.
A ceiling test is applied to each cost center by comparing the net
capitalized costs to the present value of the estimated future net
revenues from production of proved reserves discounted by 10%, net of the
effects of future costs to develop and produce the proved reserves, plus
the costs of unproved properties net of impairment, and less the effects
of income taxes. Any excess capitalized costs are written off to
expense. Unproved properties are assessed for impairment on an annual
basis by applying factors that rely on historical experience. In
general, the Company may write-off any unproved property under one or
more of the following conditions:
F-8
<PAGE> 36
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
i) there are no firm plans for further drilling on the unproved
property;
ii) negative results were obtained from studies of the unproved
property;
iii) negative results were obtained from studies conducted in the
vicinity of the unproved property; or
iv) the remaining term of the unproved property does not allow
sufficient time for further studies or drilling.
h) Income Taxes
The Company accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, all expected future
events other than enactment of changes in the tax laws or rates are
considered.
NOTE 3 - MARKETABLE SECURITIES
Marketable securities comprise of 79,400 common shares (September 30,
1998: 109,400 shares and September 30, 1997: Nil) of Trans-Orient
Petroleum Ltd. acquired at a cost of $235,773 (September 30, 1998:
$324,856 and September 30, 1997: Nil) and recorded at an estimated
market value of $42,876 (September 30, 1998: $180,510 and September 30,
1997: Nil).
Refer to Note 6
NOTE 4 - INVESTMENTS
Investments consists of 300,000 common shares (September 30, 1998:
300,000 shares and September 30, 1997: Nil) of Gondwana Energy, Ltd.
("Gondwana") acquired at a deemed cost of $10,000 and recorded at an
estimated market value of $10,000 (September 30, 1998: $10,000 and
September 30, 1997: Nil).
The Company has the right to a further 300,000 common shares of Gondwana
if a commercial discovery is located in Petroleum Exploration Permit
38723.
Refer to Note 6
F-9
<PAGE> 37
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 5 - OIL AND GAS PROPERTY
PEP 38256
The Company has a 30% participating interest in Petroleum Exploration
Permit 38256 ("PEP 38256") which was granted on August 25, 1997. The
other participants in PEP 38256 are Indo-Pacific Energy Ltd. (35%), as
the operator, and Trans-Orient Petroleum Ltd. (35%). PEP 38256 is
located in New Zealand and provides for the exclusive right to explore
for petroleum for an initial term of five years. The participants are
required to relinquish at least one-half of the original area by August
25, 2000 and a further one-half of the remaining area upon extension of
PEP 38256 for a further five years. The participants can apply for
extensions or reductions of the committed work program for PEP 38256
under certain circumstances. Any production permits granted will be for
a term of up to 40 years from the date of issue. The New Zealand
government has reserved a royalty of the greater of 5% of net sales
revenue or 20% of accounting profits from the sale of petroleum products.
By an agreement dated June 25, 1998, the Company acquired a right to earn
up to an 80% participating interest in PEP 38256 from Indo-Pacific Energy
Ltd. and Trans-Orient Petroleum Ltd. In July 1998, the Company earned a
30% participating interest in PEP 38256 by funding all of the costs of
acquiring, processing and interpreting 200 kilometers of new seismic
data. The Company has the right to earn an additional 50% participating
interest by funding all of the costs of drilling two exploration wells
including any further seismic data required prior to drilling. By
agreements dated December 3, 1998 and October 26, 1999, this right has
been extended to May 31, 2000.
The Company and the other participants have completed the work program
required for the first two and a half years. The remaining work program
requires the participants to drill one exploration well prior to August
25, 2000.
At September 30, 1999, PEP 38256 is in good standing with respect to its
work commitments. The Company's share of the committed work program for
the 2000 fiscal year requires an estimated $1,350,000 of exploration
expenditures to be incurred.
Refer to Notes 6 and 12
NOTE 6 - RELATED PARTY TRANSACTIONS
a) Marketable Securities
Marketable securities consist entirely of common shares of Trans-Orient
Petroleum Ltd., a public company with directors, officers and/or
principal shareholders in common with the Company.
Refer to Note 3
F-10
<PAGE> 38
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
b) Investments
Investments consist entirely of common shares of Gondwana Energy, Ltd.
("Gondwana"), a public company with directors, officers and/or principal
shareholders in common with the Company.
During the 1998 fiscal year, the Company sold its 20% participating
interest in Petroleum Exploration Permit 38723 ("PEP 38723") to Gondwana
in exchange for 300,000 common shares of Gondwana at a deemed value of
$0.03333 per share. If a commercial discovery is located in PEP 38723
before October 30, 2002, an additional 300,000 common shares of Gondwana
will be issued to the Company.
Refer to Note 4
c) Oil and Gas Property
Indo-Pacific Energy Ltd. ("Indo-Pacific") and Trans-Orient Petroleum Ltd.
("Trans-Orient") are public companies with directors, officers and/or
principal shareholders in common with the Company. During the 1998
fiscal year, these companies granted the Company a right to earn up to an
80% participating interest in Petroleum Exploration Permit 38256.
Refer to Note 5
d) Private Placements and Stock Options
During the 1998 fiscal year, the Company issued a total of 2,000,000
shares at a price of $0.25 per share pursuant to private placement
agreements for total proceeds of $500,000 in equal proportions to Source
Rock Holdings Limited ("Source Rock"), a wholly-owned subsidiary of Indo-
Pacific, and Reservoir Rock Holdings Limited ("Reservoir Rock"), a
wholly-owned subsidiary of Trans-Orient. Additionally, stock options to
purchase a total of 2,000,000 shares exercisable at a price of $0.50 per
share expiring on July 31, 2000 were granted in equal proportions to
Source Rock and Reservoir Rock.
During the 1999 fiscal year, the Company issued 800,000 shares at a price
of $0.50 per share to Source Rock and 400,000 shares at a price of $0.50
per share to Reservoir Rock pursuant to the exercise of stock options for
total cash proceeds of $600,000.
Refer to Note 8
e) Consulting Agreements
During the 1999 fiscal year, the Company paid $4,483 (1998 fiscal year:
$4,295 and 1997 fiscal period: Nil) in consulting fees to directors of
the Company.
F-11
<PAGE> 39
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
During the 1999 fiscal year, the Company paid $18,288 (1998 fiscal year:
Nil and 1997 fiscal period: Nil) in consulting fees to a Company having
directors, officers and/or principal shareholders in common with the
Company.
During the 1998 fiscal year, the Company paid $30,000 (1997 fiscal
period: Nil) in consulting fees to private companies wholly-owned by
various shareholders of the Company.
f) Management Agreement
During the 1998 fiscal year, the Company paid $5,921 (1997 fiscal period:
Nil) in management fees to a subsidiary of Source Rock.
g) Loan Payable
During the 1997 fiscal period, the Company repaid a $6,250 loan to a
shareholder of the Company.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company participates in oil and gas exploration and development
activities as a joint venturer with related parties and is contractually
committed under agreements to complete certain exploration programs. The
Company's management estimates that the total commitments under various
agreements are approximately $1,350,000.
The Company is not aware of any events of noncompliance in its operations
with any environmental laws or regulations nor of any potentially
material contingencies related to environmental issues. However, the
Company cannot predict whether any new or amended environmental laws or
regulations introduced in the future will have a material adverse effect
on the future business of the Company.
NOTE 8 - COMMON STOCK
a) Authorized and Issued Share Capital
The authorized share capital of the Company is 100,000,000 shares of
common stock with a par value of $0.00001 per share. At September 30,
1999, there were 14,200,000 shares (September 30, 1998: 13,000,000 shares
and September 30, 1997: 9,000,000 shares) issued and outstanding.
b) Share Issuances
During the 1999 fiscal year, the Company issued 1,200,000 shares pursuant
to the exercise of stock options for total cash proceeds of $600,000.
F-12
<PAGE> 40
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 8 - COMMON STOCK (continued)
During the 1998 fiscal year, the Company issued 4,000,000 shares pursuant
to private placements for total cash proceeds of $600,000.
During the 1997 fiscal period, the Company issued 9,000,000 shares
pursuant to private placements for total cash proceeds of $331,000.
Refer to Note 6
c) Stock Options
The Company applies Accounting Principles Board Opinion No. 25:
Accounting for Stock Issued to Employees to account for all compensatory
stock options granted. Further, Statement of Financial Accounting
Standards No. 123: Accounting for Stock-Based Compensation ("SFAS 123")
requires additional disclosure to reflect the results of the Company had
it elected to follow SFAS 123.
SFAS 123 requires a fair value based method of accounting for all
compensatory stock options using the Black-Scholes option pricing model.
However, these models were developed for use in estimating the fair value
of traded options and require the input of and are highly sensitive to
subjective assumptions including the expected stock price volatility.
The stock options granted by the Company have characteristics
significantly different from those of traded options and, in the opinion
of management, the existing model does not provide a reliable single
measure of the fair value of any compensatory stock options granted by
the Company.
In accordance with SFAS 123, the following is a summary of the changes in
the Company's stock options for the 1999, 1998 and 1997 fiscal periods:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
Fixed Options of Shares Price of Shares Price of Shares Price
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period 2,000,000 $ 0.50 - $ - - $ -
Granted - - 2,000,000 0.50 - -
Exercised (1,200,000) 0.50 - - - -
Outstanding and
exercisable at
end of period 800,000 $ 0.50 2,000,000 $ 0.50 - $ -
Weighted-average
fair value of
options granted
during the period $ - $ - $ -
</TABLE>
F-13
<PAGE> 41
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 8 - COMMON STOCK (continued)
During the 1999 fiscal year and the 1997 fiscal period, no stock options
were granted by the Company thus no weighted-average fair value has been
assigned. During the 1998 fiscal year, the Company granted stock options
to purchase a total of 2,000,000 shares exercisable at a price of $0.50
per share until expiry on July 31, 2000. As these stock options were not
compensatory in nature, the calculation of compensation cost under APB 25
and SFAS 123 do no apply. Accordingly, the Company's net loss and basic
and diluted loss per share as reported and pro forma as if SFAS 123 had
been applied are the same for the 1999, 1998 and 1997 fiscal periods.
Refer to Note 6
NOTE 9 - LOSS PER SHARE
Statement of Financial Accounting Standards No. 128: Earnings per Share
("SFAS 128") replaces the presentation of primary earnings per share
("EPS") with a presentation of both basic and diluted EPS for all
entities with complex capital structures including a reconciliation of
each numerator and denominator. Basic EPS excludes dilutive securities
and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the year.
Diluted EPS reflects the potential dilution that could occur if dilutive
securities were converted into common stock and is computed similarly to
fully-diluted EPS pursuant to previous accounting pronouncements. SFAS
128 applies equally to loss per share presentations.
The following is a reconciliation of the numerators and denominators of
the basic and diluted loss per share calculations for the 1999, 1998 and
1997 fiscal periods:
1999 1998 1997
[S] [C] [C] [C]
Numerator, net loss
for the period $ (97,165) $ (144,368) $ (21,888)
Denominator:
Weighted-average number
of shares outstanding 13,650,959 10,941,096 2,354,260
Basic and diluted
loss per share $ (0.01) $ (0.01) $ (0.01)
Stock options outstanding were not included in the computation of diluted
loss per share as such inclusion would be antidilutive due to net losses
incurred for the 1999, 1998 and 1997 fiscal periods.
F-14
<PAGE> 42
AMG OIL LTD. (Formerly Trans New Zealand Oil Company)
(A Development Stage Enterprise)
Notes to the Consolidated Financial Statements
For the Period from February 20, 1997 (Inception) to September 30, 1999
NOTE 10 - INCOME TAXES
There are no income taxes payable by the Company for the September 30,
1999, 1998 and 1997 fiscal periods. At September 30, 1999, the Company
has certain resource and other unused tax pools to offset future taxable
income derived in the United States and New Zealand.
The benefits of these resource and other unused tax pools have been
offset by a valuation allowance of the same amount.
NOTE 11 - NAME CHANGE
On July 27, 1998, the name of the Company was changed from Trans New
Zealand Oil Company to AMG Oil Ltd.
NOTE 12 - SUBSEQUENT EVENT
By an amendment to an agreement dated February 23, 2000 between the
Company and the other participants of PEP 38256, the Company will fund
the acquisition of additional seismic data in return for an extension of
the Company's right to earn up to an additional 50% participating
interest in PEP 38256 to June 15, 2000. Additionally, the Company's
right to increase its participating interest in PEP 38256 has been
amended as follows:
i) earn an additional 50% participating interest in PEP 38256 by
funding all of the costs of drilling two exploration wells including
any further seismic data required prior to drilling; or
ii) earn an additional 35% participating interest in PEP 38256 by
funding all of the costs of drilling one exploration well including
any further seismic data required prior to drilling and, at the
option of the Company upon completion of the first exploration well,
earn a further 15% participating interest in PEP 38256 by funding
all of the costs of drilling a second exploration well including any
further seismic data required prior to drilling.
The first exploration well must be drilled prior to August 25, 2000.
F-15
<PAGE> 43
PART III
ITEM 1. INDEX TO EXHIBITS
The following exhibits required by Item 601 of Regulation S-B are filed
herewith:
Exhibit
Number Description
3.1 Initial Articles of Incorporation, as filed February 20, 1997
3.2 Bylaws
3.3 Articles of Amendment to the Articles of Incorporation, as
filed on July 27, 1998.
27 Financial Data Schedule
99.1 PEP 38256 Option Agreement dated June 25, 1998
99.2 Amending Agreement #1, Amendment #2 and Amendment Agreement #3
to PEP 38256 Option Agreement dated December 3, 1998, October
26, 1999 and February 23, 2000.
99.3 PEP 38256 Joint Operating Agreement
99.4 AMG Oil Ltd. 2000 Stock Option Plan
<PAGE> 44
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the Registrant has caused this signature page to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMG OIL LTD.
Name Title Date
/s/ Cameron Fink
Cameron Fink President and Director March 18, 2000
/s/ Alex Guidi
Alex Guidi Director March 18, 2000
/s/ Michael Hart
Michael Hart Director March 18, 2000
/s/ David Bennett
David Bennett Director March 18, 2000
<PAGE> 45
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
Trans New Zealand Oil Company
* * * * *
FIRST
The name of the corporation is Trans New Zealand Oil
Company
SECOND
Its principal office in the state of Nevada is located at
1 East First Street, Suite 1411, Reno, Nevada 89501. The name and
address of its resident agent is The Corporation Trust Company of
Nevada, 1 East First Street, Suite 1411, Reno, Nevada 89501.
THIRD
The purpose or purposes for which the corporation is
organized:
To engage in and carry on any lawful business
activity or trade, and any activities necessary,
convenient, or desirable to accomplish such purposes, not
forbidden by law or by these articles of incorporation.
FOURTH
The amount of the total authorized capital stock of the
corporation is One Thousand Dollars ($1,000.00) consisting of One
Hundred Million (100,000,000) shares of common stock of the par
value of $0.00001 each.
FIFTH
The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be
increased or decreased in such manner as shall be provided by the
bylaws of this corporation.
The names and addresses of the first board of directors
are:
<PAGE> 46
NAME POST-OFFICE ADDRESS
Ronald Bertuzzi 4489 Angus Drive
Vancouver, British Columbia
Canada V6J 4J2
Mark Katsumata 15655 92B Avenue
Surrey, British Columbia
Canada V4N 3B2
John Holland 816 - 235 Keith Road
West Vancouver, British Columbia
Canada V7T 1L5
The number of members of the Board of Directors shall not
be less than three nor more than thirteen.
SIXTH
The capital stock, after the amount of the subscription
price, or par value, has been paid in shall not be subject to
assessment to pay the debts of the corporation.
SEVENTH
The name and addresses of each of the incorporators
signing the Articles of Incorporation are as follows:
NAME POST-OFFICE ADDRESS
Conrad C. Lysiak 601 West First Avenue
Suite 503
Spokane, Washington 99204
EIGHTH
The corporation is to have perpetual existence.
NINTH
In furtherance, and not in limitation of the powers
conferred by statute, the board of directors is expressly
authorized:
Subject to the bylaws, if any, adopted by the
stockholders, to make, alter or amend the bylaws of the
corporation.
<PAGE> 47
To fix the amount to be reserved as working capital over
and above its capital stock paid in, to authorize and cause to be
executed mortgages and liens upon the real and personal property of
this corporation.
By resolution passed by a majority of the whole board, to
designate one (1) or more committees, each committee to consist of
one (1) or more of the directors of the corporation, which, to the
extent provided in the resolution or in the bylaws of the
corporation, shall have and may exercise the powers of the board of
directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it. Such committee or
committees shall have such name or names as may be stated in the
bylaws of the corporation or as may be determined from time to time
by resolution adopted by the board of directors.
When and as authorized by the affirmative vote of
stockholders holding stock entitling them to exercise at least a
majority of the voting power given at a stockholders' meeting
called for that purpose, or when authorized by the written consent
of the holders of at least a majority of the voting stock issued
and outstanding, the board of directors shall have power and
authority at any meeting to sell, lease or exchange all of the
property and assets of the corporation, including its good will and
its corporate franchises, upon such terms and conditions as its
board of directors deem expedient and for the best interests of the
corporation.
TENTH
Meeting of stockholders may be held outside the State of
Nevada, if the bylaws so provide. The books of the corporation may
be kept (subject to any provision contained in the statutes)
outside the State of Nevada at such place or places as may be
designated from time to time by the board of directors or in the
bylaws of the corporation.
<PAGE> 48
ELEVENTH
This corporation reserves the right to amend alter,
change or repeal any provision contained in the Articles of
Incorporation, in the manner now or hereafter prescribed by
statute, or by the Articles of Incorporation, and all rights
conferred upon stockholders herein are granted subject to this
reservation.
TWELFTH
The corporation shall indemnify its officers, directors,
employees and agents to the full extent permitted by the laws of
the State of Nevada.
I, THE UNDERSIGNED, being the incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Nevada, do make and file
these Articles of Incorporation, hereby declaring and certifying
that the facts herein stated are true, and accordingly have
hereunto set my hand this 19th day of February, 1997.
/s/ Conrad C. Lysiak
CONRAD C. LYSIAK
STATE OF WASHINGTON )
)
COUNTY OF SPOKANE )
On this 19th day of February, 1997, before me, a Notary
Public, personally appeared CONRAD C. LYSIAK, who severally
acknowledged that he executed the above instrument.
/s/ Judy Terese Lysiak
Notary Public, residing in the State
of Washington, residing in Spokane.
My Commission Expires:
October 8, 1998
<PAGE> 49
EXHIBIT 3.2
BYLAWS
OF
TRANS NEW ZEALAND OIL COMPANY
Originally adopted on June 25, 1998.
Amendments are listed on page (i).
AMENDMENTS
Article/Section Effect Amendment Date of
Amendment
NONE
TABLE OF CONTENTS
Article/
Section Provision Page
ARTICLE I. OFFICES 1
ARTICLE II. NUMBER OF DIRECTORS 1
ARTICLE III. SHAREHOLDERS 1
Section 3.1 Annual Meeting 1
Section 3.2 Special Meetings 1
Section 3.3 Place of Meetings 1
Section 3.4 Fixing of Record Date 2
Section 3.5 Voting Lists 2
Section 3.6 Notice of Meetings 2
Section 3.7 Waiver of Notice 3
Section 3.8 Manner of Acting; Proxies 3
Section 3.9 Participation by Conference Telephone 3
Section 3.10 Quorum 3
Section 3.11 Voting of Shares 4
Section 3.12 Voting for Directors 4
Section 3.13 Voting of Shares by Certain Holders 4
Section 3.14 Action by Shareholders Without a Meeting 5
ARTICLE IV. BOARD OF DIRECTORS 5
Section 4.1 General Powers 5
Section 4.2 Number, Tenure, and Qualification 5
Section 4.3 Annual and Other Regular Meetings 5
Section 4.4 Special Meetings 5
Section 4.5 Quorum 6
Section 4.6 Manner of Acting 6
Section 4.7 Participation by Conference Telephone 6
Section 4.8 Presumption of Assent 6
Section 4.9 Action by Board Without a Meeting 6
Section 4.10 Board Committees 7
Section 4.11 Resignation 7
Section 4.12 Removal 7
Section 4.13 Vacancies 7
Section 4.14 Compensation 8
<PAGE> 50
ARTICLE V. OFFICERS. 8
Section 5.1 Number 8
Section 5.2 Appointment and Term of Office 8
Section 5.3 Resignation 8
Section 5.4 Removal 8
Section 5.5 Chairman and Vice-Chairmen of the Board 9
Section 5.6 President 9
Section 5.7 Vice-Presidents 9
Section 5.8 Secretary 9
Section 5.9 Treasurer 10
Section 5. 10 Assistant Officers 10
Section 5.11 Compensation of Officers and Employees 10
ARTICLE VI. CONTRACTS, LOANS, CHECKS, DEPOSITS 10
Section 6.1 Contracts 10
Section 6.2 Loans 10
Section 6.3 Checks, Drafts, Etc 10
Section 6.4 Deposits 11
Section 6.5 Contracts With or Loans
to Directors and Officers 11
ARTICLE VII. SHARES 11
Section 7.1 Certificates for Shares 11
Section 7.2 Issuance of Shares 11
Section 7.3 Beneficial Ownership 12
Section 7.4 Transfer of Shares 12
Section 7.5 Lost or Destroyed Certificates 12
Section 7.6 Restrictions on Transfer 12
Section 7.7 Stock Transfer Records 12
ARTICLE VIII. SEAL 13
ARTICLE IX. INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND AGENTS 13
Section 9.1 Power to Indemnify 13
Section 9.2 Indermnification of Directors, Officers,
Employees, and Agents 14
Section 9.3 Insurance 15
Section 9.4 Survival of Benefits 15
Section 9.5 Severability 15
Section 9.6 Applicable Law 15
ARTICLE X. BOOKS AND RECORDS 15
ARTICLE XI. FISCAL 15
ARTICLE XII. VOTING OF SHARES OF ANOTHER CORPORATION 15
ARTICLE XIII. AMENDMENTS TO BYLAWS 16
<PAGE> 51
BYLAWS
OF
TRANS NEW ZEALAND OIL COMPANY
ARTICLE I. OFFICES
The principal office and place of business of the corporation in the
state of Nevada will be located at One East First Street, Reno, Nevada
89501.
The corporation may have such other offices within or without the state
of Nevada as the board of directors may designate or the business of
the corporation may require from time to time.
ARTICLE II. NUMBER OF DIRECTORS
The board of directors of this corporation will consist of not less
than three and not more than thirteen directors.
ARTICLE III. SHAREHOLDERS
Section 3.1 Annual Meeting
The annual meeting of the shareholders will be held at such date or
time as may be determined by the board of directors, for the purpose of
electing directors and for the transaction of such other business as
may come before the meeting. If the day fixed for the annual meeting
will be a legal holiday in the state of Nevada, the meeting will be
held on the next succeeding business day. If the election of directors
is not held on the day designated herein for any annual meeting of the
shareholders or at any adjournment thereof, the board of directors will
cause the election to be held at a meeting of the shareholders as soon
thereafter as may be convenient.
Section 3.2 Special Meetings
Special meetings of the shareholders for any purpose or purposes unless
otherwise prescribed by statute may be called by the president, by the
board of directors, or by the written request of any director or
holders of at least ten percent of the votes entitled to be cast on
each issue to be considered at the special meeting.
Section 3.3 Place of Meetings
Meetings of the shareholders will be held at either the principal
office of the corporation or at such other place within or without the
state of Nevada as the board of directors or the president may
designate.
<PAGE> 52
Section 3.4 Fixing of Record Date
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or
shareholders entitled to receive payment of any dividend or
distribution, or in order to make a determination of shareholders for
any other proper purpose, the board of directors may fix in advance a
date as the record date for any such determination of shareholders,
which date in any case will not be less than ten or more than 60 days
before the date on which the particular action requiring such
determination of shareholders is to be taken.
If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend or distribution,
the day before the first notice of a meeting is dispatched to
shareholders or the date on which the resolution of the board of
directors authorizing such dividend or distribution is adopted, as the
case may-be, will be the record date for such determination of
shareholders.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made as provided in this
section, such determination will apply to any adjournment thereof
unless the board of directors fixes a new record date, which it must do
if the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting.
Section 3.5 Voting Lists
At least ten days before each meeting of the shareholders, the officer
or agent having charge of the stock transfer books for shares of the
corporation will prepare an alphabetical list of all its shareholders
on the record date who are entitled to vote at the meeting or any
adjournment thereof, arranged by voting group, and within each voting
group by class or series of shares, with the address of and the number
of shares held by each, which record for a period of ten days before
the meeting will be kept on file at the principal office of the
corporation or at a place identified in the meeting notice in the city
where the meeting will be held. Such record will be produced and kept
open at the time and place of the meeting and will be subject to the
inspection of any shareholder, shareholder's agent or shareholder's
attorney at any time during the meeting or any adjournment thereof.
Failure to comply with the requirements of this bylaw will not affect
the validity of any action taken at the meeting.
Section 3.6 Notice of Meetings
Written or printed notice stating the date, time, and place of a
meeting of shareholders and, in the case of a special meeting of
shareholders, the purpose or purposes for which the meeting is called,
will be given by or at the direction of the president the secretary, or
the officer or persons calling the meeting to each
<PAGE> 53
shareholder of record entitled to vote at such meeting (unless required
by law to send notice to all shareholders regardless of whether or not
such shareholders are entitled to vote), not less than ten days and not
more than 60 days before the meeting, except that notice of a meeting
to act on an amendment to the articles of incorporation, a plan of
merger or share exchange, a proposed sale, lease, exchange, or other
disposition of all or substantially all of the assets of the
corporation other than in the usual course of business, or the
dissolution of the corporation will be given not less than 20 days and
not more than 60 days before the meeting. Written notice may be
transmitted by mail, private carrier, or personal delivery, telegraph
or teletype; or telephone, wire, or wireless equipment that transmits
a facsimile of the notice. Such notice will be effective upon dispatch
if sent to the shareholder's address, telephone number, or other number
appearing on the records of the corporation.
If an annual or special shareholders' meeting is adjourned to a
different date, time or place, notice need not be given of the new
date, time or place if the new date, time or place is announced at the
meeting before adjournment unless a new record date is or must be
fixed. If a new record date for the adjourned meeting is or must be
fixed, however, notice of the adjourned meeting must be given to
persons who are shareholders as of the new record date.
Section 3.7 Waiver of Notice
A shareholder may waive any notice required to be given under the
provisions of these bylaws, the articles of incorporation, or by
applicable law, whether before or after the date and time stated
therein. A valid waiver is created by any of the following three
methods:
(a) in writing signed by the shareholder entitled to the notice
and delivered to the corporation for inclusion in its corporate
records;
(b) by attendance at the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or
transacting business at the meeting; or
(c) by failure to object at the time of presentation of a matter
not within the purpose or purposes described in the meeting
notice.
Section 3.8 Manner of Acting, Proxies
A shareholder may vote either in person or by proxy. A shareholder may
vote by proxy by means of a proxy appointment form that is executed in
writing by the shareholder, his agent, or by his duly authorized
attorney-in-fact. All proxy appointment forms will be filed with the
secretary of the corporation before or at the commencement of meetings.
No unrevoked proxy appointment form will be valid after eleven months
from the date of its execution unless
<PAGE> 54
otherwise expressly provided in the appointment form. No proxy
appointment may be effectively revoked until notice in writing of such
revocation has been given to the secretary of the corporation by the
shareholder appointing the proxy.
Section 3.9 Participation by Conference Telephone
At the discretion of the board of directors, shareholders or proxies
may participate in a meeting of the shareholders by any means of
communication by which all persons participating in the meeting can
hear each other during the meeting, and participation by such means
will constitute presence in person at the meeting.
Section 3.10 Quorum
At any meeting of the shareholders, five per cent of all the shares
outstanding, represented by shareholders of record, will constitute a
quorum of that voting group for action on that matter. Once a share is
represented at a meeting, other than to object to holding the meeting
or transacting business, it is deemed to be present for purposes of a
quorum for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be fixed for the adjourned
meeting.
At such reconvened meeting, any business may be transacted that might
have been transacted at the adjourned meeting. If a quorum exists,
action on a matter is approved by a voting group if the votes cast
within the voting group favoring the action exceed the votes cast
within the voting group opposing the action, unless the question is one
upon which a different vote. is required by express provision of law or
of the articles of incorporation or of these bylaws.
Section 3.11 Voting of Shares
Each outstanding share, regardless of class, will be entitled to one
vote on each matter submitted to a vote at a meeting of shareholders,
except as may be otherwise provided in the articles of incorporation.
Section 3.12 Voting for Directors
Unless otherwise provided in the articles of incorporation,
shareholders entitled to vote at any election of directors are not
entitled to cumulate votes. Unless otherwise provided in the articles
of incorporation, in any election of directors the candidates elected
are those receiving the largest numbers of votes cast by the shares
entitled to vote in the election, up to the number of directors to be
elected by such shares.
Section 3.13 Voting of Shares by Certain Holders
3.13.1 Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the board of
directors of such corporation may determine. A certified copy of a
resolution adopted by such directors will be conclusive as to their
determination.
<PAGE> 55
3.13.2 Shares held by a personal representative, administrator,
executor, guardian, or conservator may be voted by such administrator,
executor, guardian, or conservator, without a transfer of such shares
into the name of such personal representative, administrator, executor,
guardian, or conservator. Shares standing in the name of a trustee may
be voted by such trustee, but no trustee will be entitled to vote
shares held in trust without a transfer of such shares into the name of
the trustee.
3.13.3 Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be
voted by the receiver without the transfer thereof into his name if
authority so to do is contained in an appropriate order of the court by
which such receiver was appointed.
3.13.4 If shares are held jointly by three or more fiduciaries, the
will of the majority of the fiduciaries will control the manner of
voting or appointment of a proxy, unless the instrument or order
appointing such fiduciaries otherwise directs.
3.13.5 Unless the pledge agreement expressly provides otherwise, a
shareholder whose shares are pledged will be entitled to vote such
shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee will be entitled to vote the shares
so transferred.
3.13.5 Shares held by another corporation will not be voted at any
meeting or counted in determining the total number of outstanding
shares entitled to vote at any given time if a majority of the shares
entitled to vote for the election of directors of such other
corporation is held by this corporation.
3.13.6 On and after the date on which written notice of redemption of
redeemable shares has been dispatched to the holders thereof and a sum
sufficient to redeem such shares has been deposited with a bank or
trust company with irrevocable instruction and authority to pay the
redemption price to the holders thereof upon surrender of certificates
therefor, such shares will not be entitled to vote on any matter and
will be deemed to be not outstanding shares.
Section 3.14 Action by Shareholders Without a Meeting
Any action that may or is required to be taken at a meeting of the
shareholders may be taken without a meeting if one or more written
consents setting forth the action so taken will be signed, either
before or after the action taken, by all the shareholders entitled to
vote with respect to the subject matter thereof. Action taken by
written consent of the shareholders is effective when all consents are
in possession of the corporation, unless the consent specifies a later
effective date. Whenever any notice is required to be given to any
shareholder of the corporation pursuant to applicable law, a waiver
thereof in writing, signed by the person or persons entitled notice,
will be deemed equivalent to the giving of notice.
<PAGE> 56
ARTICLE IV. BOARD OF DIRECTORS
Section 4.1 General Powers
The business and affairs of the corporation will be managed by its
board of directors.
Section 4.2 Number, Tenure, and Qualification
The number of directors set forth in Article II of these bylaws may be
increased or decreased from time to time by amendment to or in the
manner provided in these bylaws. No decrease, however, will have the
effect of shortening the term of any incumbent director unless such
director resigns or is removed in accordance with the provisions of
these bylaws. Except as classification of directors may be specified by
the articles of incorporation and unless removed in accordance with
these bylaws, each director will hold office until the next annual
meeting of the shareholders and until a successor will have been
elected and qualified. Directors need not be residents of the state of
Nevada or shareholders of the corporation.
Section 4.3 Annual and Other Regular Meetings
An annual meeting of the board of directors will be held without other
notice than this bylaw, immediately after and in the same city as the
annual meeting of shareholders. The board of directors may specify by
resolution the time and place, either within or without the state of
Nevada, for holding any other regular meetings of the board of
directors.
Section 4.4 Special Meetings
Special meetings of the board of directors may be called by the board
of directors, the chairman of the board, the president, the secretary,
or any director. Notice of special meetings of the board of directors
stating the date, time, and place thereof will be given at least two
days before the date set for such meeting by the person or persons
authorized to call such meeting, or by the secretary at the direction
of the person or persons authorized to call such meeting.
The notice may be oral or written. Oral notice may be communicated in
person or by telephone, wire or wireless equipment, which does not
transmit a facsimile of -the notice. Oral notice is effective when
communicated. Written notice may be transmitted by mail, private
carrier, or personal delivery; telegraph or teletype; or telephone,
wire, wireless equipment that transmits a facsimile of the notice or
Email. Written notice is effective upon dispatch if such notice is sent
to the director's address, telephone number, or other number appearing
on the records of the corporation. If no place for such meeting is
designated in the notice thereof, the meeting will be held at the
principal office of the corporation or may be held by telephone or in
such other manner as the directors determine.
<PAGE> 57
Any director may waive notice of any meeting at any time. Whenever-any
notice is required to be given to any director of the corporation
pursuant to applicable law, a waiver thereof in writing signed by the
director, entitled to notice, will be deemed equivalent to the giving
of notice. 'Me attendance of a director at a meeting will constitute a
waiver of notice of the meeting except where a director attends a
meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully convened.
Unless otherwise required by law, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the board of
directors need be specified in the notice or waiver of notice of such
meeting.
Section 4.5 Quorum
A majority of the number of directors specified in or fixed in
accordance with these bylaws will constitute a quorum for the
transaction of any business at any meeting of directors. If less than
a majority will attend a meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice, and
those directors present at such adjourned meeting will constitute a
quorum and may transact business.
Section 4.6 Manner of Acting
If a quorum is present when a vote is taken, the affirmative vote of a
majority of directors present is the act of the board of directors.
Section 4.7 Participation by Conference Telephone
Directors may participate in a regular or special meeting of the board
by, or conduct the meeting through the use of, any means of
communication by which all directors participating can hear each other
during the meeting and participation by such means will constitute
presence in person at the meeting.
Section 4.8 Presumption of Assent
A director who is present at a meeting of the board of directors where
action is taken will be presumed to have assented to the action taken
unless such director's dissent will be entered in the minutes of the
meeting or unless such director will file his written dissent to such
action with the person acting as secretary of the meeting before the
adjournment thereof or will forward such dissent by registered mail to
the secretary of the corporation immediately after adjournment of the
meeting. Such right to dissent will not apply to a director who voted
in favor of such action.
Section 4.9 Action by Board Without a Meeting
Any action permitted or required to be taken at a meeting of the board
of directors may be taken without a meeting if one or more written
consents setting forth the action so taken will be signed, either
<PAGE> 58
before or after the action taken, by all the directors. Action taken by
written consent is effective when the last director signs the consent,
unless the consent specifies a later effective date.
Section 4.10 Board Committees
The board of directors may by resolution designate from among its
members an executive committee and one or more other committees, each
of which must have two or more members and will be governed by the same
rules regarding meetings, action without meetings, notice, waiver of
notice, and quorum and voting requirements as applied to the board of
directors. To the extent provided in such resolutions, each such
committee will have and may exercise the authority of the board of
directors, except as limited by applicable law. The designation of any
such committee and the delegation thereto of authority will not relieve
the board of directors, or any members thereof, of any responsibility
imposed by law.
Section 4.11 Resignation
Any director may resign at any time by delivering written notice to the
chairman of the board, the president, the secretary, or the registered
office of the corporation, or by giving oral notice at any meeting of
the directors or shareholders. Any such resignation will take effect at
any subsequent time specified therein, or if the time is not specified,
upon delivery thereof and, unless otherwise specified therein, the
acceptance of such resignation will not be necessary to make it
effective.
Section 4.12 Removal
At a meeting of the shareholders called expressly for that purpose, any
director or the entire board of directors may be removed from office,
with or without cause (unless the articles of incorporation provide
that directors may be removed only for cause) by a vote of the holders
of a majority of the shares then entitled to vote at an election of the
director or directors whose removal is sought. If shareholders have the
right to cumulate votes in the election of directors and if less than
the entire board is to be removed, not one of the directors may be
removed if the votes cast against his removal would be sufficient to
elect him if then cumulatively voted at an election of the entire board
or the class of directors of which he is a part If the board of
directors or any one or more directors is so removed, new directors may
be elected at this same meeting.
Section 4.13 Vacancies
A vacancy on the board of directors may occur by the resignation,
removal, or death of an existing director, or by reason of increasing
the number of directors on the board of directors as provided in these
bylaws.
<PAGE> 59
Except as may be limited by the articles of incorporation, any vacancy
occurring in the board of directors may be filled by the affirmative
vote of a majority of the remaining directors though less than a
quorum.
A director elected to fill a vacancy will be elected for the unexpired
term of his predecessor in office, except that a vacancy to be filled
by reason of an increase *in the number of directors will be filled by
the board of directors for a term of office continuing only until the
next election of directors by shareholders.
If the vacant office was held by a director elected by holders of one
or more authorized classes or series of shares, only the holders of
those classes or series of shares are entitled to vote to fill the
vacancy.
Section 4.14 Compensation
By resolution of the board of directors, the directors may be paid a
fixed sum plus their expenses, if any, for attendance at meetings of
the board of directors or committee thereof, or a stated salary as
director. No such payment will preclude any director from serving the
corporation in any other capacity, and receiving compensation therefor.
ARTICLE V. OFFICERS
Section 5.1 Number
The corporation will have a president, a secretary and a treasurer, and
may have one or more vice-presidents each of whom will be appointed by
the board of directors. Such other officers and assistant officers,
including a chairman of the board, as may be deemed necessary or
appropriate may be appointed by the board of directors.
By resolution, the board of directors may designate any officer as
chief executive officer, chief operating officer, chief financial
officer, or any similar designation. Any two or more offices may be
held by the same person.
Section 5.2 Appointment and Term of Office
The officers of the corporation will be appointed by the board of
directors for such term as the board may deem advisable or may be
appointed to serve for an indefinite term at the pleasure of the board.
Each officer will hold office until a successor will have been
appointed regardless of such officer's term of office, except in the
event of such officer's termination of an indefinite term at the
pleasure of the board or such officer's removal in the manner herein
provided.
<PAGE> 60
Section 5.3 Resignation
Any officer may resign at any time by delivering written notice to the
chairman of the board, the president, a vice-president, the secretary,
or the board of directors, or by giving oral notice at any meeting of
the board.
Any such resignation will take effect at any subsequent time specified
therein, or if the time is not specified, upon delivery thereof and,
unless otherwise specified therein, the acceptance of such resignation
will not be necessary to make it effective.
Section 5.4 Removal
Any officer appointed by the board of directors may be removed by the
board of directors with or without cause.
The removal will be without prejudice to the contract rights, if any,
of the person so removed. Appointment of an officer or agent will not
of itself create contract rights.
Section 5.5 Chairman and Vice-Chairmen of the Board
The chairman of the board, if there be such an office, will, if
present, preside at all meetings of the board of directors, and
exercise and perform such other powers and duties as may be determined
from time to time by resolution of the board of directors. The vice-
chairman of the board, if there be such an office. -or in the event
there will be more than one vice-chairman, the one designated most
senior at the time of election, will perform the duties of the chairman
of the board in the chairman's absence, or in the event of the
chairman's death, disability or refusal to act. The vice-chairman of
the board will exercise and perform such other powers and duties as may
be determined from time to time by resolution of the board of
directors.
Section 5.6 President
The president will be the principal executive officer of the
corporation and, subject to the control of the board of directors, will
generally supervise and control the business and affairs of the
corporation. When present the president will preside at all meetings of
the shareholders and in the absence of the chairman of the board, or if
there be none, at all meetings of the board of directors.
The president may sign with the secretary or any other proper officer
of the corporation thereunto authorized by law, certificates for shares
of the corporation, and may sign deeds, mortgages, bonds, contracts, or
other instruments that the board of directors has authorized to be
executed, except in cases where the signing and execution thereof will
be expressly delegated by the board of directors or by these bylaws to
some other officer or agent of the corporation or will be required by
law to be otherwise signed or executed. In general, the president will
<PAGE> 61
perform all duties incident to the office of president and such other
duties as may be prescribed by resolution of the board of directors
from time to time.
Section 5.7 Vice-Presidents
In the absence of the president or in the event of his death,
disability, or refusal to act, the vice-president, or in the event
there will be more than one vice-president the vice-presidents, in the
order designated at the time of their election, or in the absence of
any designation then in the order of their election, if any, will
perform the duties of the president. When so acting the vice-president
will have all the powers of and be subject to all the restrictions upon
the president and will perform such other duties as from time to time
may be assigned to the vice-president by resolution of the board of
directors.
Section 5.8 Secretary
The secretary will keep the minutes of the proceedings of the
shareholders and board of directors, will give notices in accordance
with the provisions of these bylaws and as required by law, will be
custodian of the corporate records of the corporation, will keep a
record of the names and addresses of all shareholders and the number
and class of shares held by each, have general charge of the stock
transfer books of the corporation, may sign with the president or a
vice-president, certificates for shares of the corporation, deeds,
mortgages, bonds, contracts, or other instruments that will have been
authorized by resolution of the board of directors, and in general will
perform all duties incident to the office of secretary and such other
duties as from time to time may be assigned to the secretary by
resolution of the board of directors.
Section 5.9 Treasurer
If required by the board of directors, the treasurer will give a bond
for the faithful discharge of his duties, in such sum and with such
surety or sureties as the board of directors will determine. The
treasurer will have charge and custody of and be responsible for
keeping correct and complete books and records- of account for all
funds and securities of the corporation, receive and give receipts for
moneys due and payable to the corporation from any source whatsoever,
deposit all such moneys in the name of the corporation in the banks,
trust companies, or other depositories as will be selected in
accordance with the provisions of these bylaws, and in general perform
all of the duties incident to the office of treasurer and such other
duties as from time to time may be assigned to the treasurer by
resolution of the board of directors.
<PAGE> 62
Section 5.10 Assistant Officers
The assistant officers in general will perform such duties as are
customary or as will be assigned to them by resolution of the board of
directors. If required by the board of directors, the assistant
treasurers will respectively give bonds for the faithful discharge of
their duties in such sums and with such sureties as the board of
directors will determine.
Section 5.11 Compensation of Officers and Employees
The board of directors will fix compensation of officers and may fix
compensation of other employees from time to time. No officer will be
prevented from receiving a salary by reason of the fact that such
officer is also a director of the corporation. In the event any salary
payment, or portion thereof, to an officer or other employee is not
allowable as a deduction for employee compensation under Section
162(a)(1) of the Internal Revenue Code of 1986, as may be amended from
time to time, on the grounds such payment was unreasonable in amount,
then such officer or employee will promptly repay the amount disallowed
as a deduction to the corporation.
ARTICLE VI. CONTRACTS, LOANS, CHECKS, DEPOSITS
Section 6.1 Contracts
The board of directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and that
authority may be general or confined to specific instances.
Section 6.2 Loans
No loans will be contracted on behalf of the corporation and no
evidences of indebtedness will be issued in its name unless authorized
by a resolution of the board of directors, which authority may be
general.
Section 6.3 Checks, Drafts, Etc.
All checks, drafts, or other orders for the payment of money, notes, or
other evidences of indebtedness issued in the name of the corporation
will be signed by the officer or officers, or agent or agents, of the
corporation and in the manner as will from time to time be prescribed
by resolution of the board of directors.
Section 6.4 Deposits
All funds of the corporation not otherwise employed will be deposited
from time to time to the credit of the corporation in the banks, trust
companies, or other depositories as the board of directors may select.
<PAGE> 63
Section 6.5 Contracts With or Loans to Directors and Officers
The corporation may enter into contracts and otherwise transact
business as vendor, purchaser, or otherwise, with its directors,
officers, and shareholders and with corporations, associations, firms,
and entities in which they are or may become interested as directors,
officers, shareholders, members, or otherwise, as freely as though such
interest did not exist as permitted by applicable law. In the absence
of fraud the fact that any director, officer, shareholder, or any
corporation, association, firm or other entity of which any director,
officer, or shareholder is interested, is in any way interested in any
transaction or contract will not make the transaction or contract void
or voidable, or require the director, officer, or shareholder to
account to this corporation for any profits therefrom if the
transaction or contract is or will be authorized, ratified, or approved
by
(a) vote of a majority of a quorum of the board of directors
excluding any interested director or directors,
(b) the written consent of the holders of a majority of the shares
entitled to vote, or
(c) a general resolution approving the acts of the directors and
officers adopted at a shareholders meeting by vote of the holders
of the majority of the shares entitled to vote.
Nothing herein contained will create or imply any liability in the
circumstances above described or prevent the authorization,
ratification, or approval of such transactions or contracts in any
other manner.
ARTICLE VII. SHARES
Section 7.1 Certificates for Shares
The shares of the corporation may be represented by certificates in
such form as prescribed by the board of directors. Signatures of the
corporate officers on the certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or
registered by a registrar, other than the corporation itself or an
employee of the corporation.
All certificates will be consecutively numbered or otherwise
identified. All certificates will bear such legend or legends as
prescribed by the board of directors or these bylaws.
Section 7.2 Issuance of Shares
Shares of the corporation will be issued only when authorized by the
board of directors, which authorization will include the consideration
to be received for each share.
<PAGE> 64
Section 7.3 Beneficial Ownership
Except as otherwise permitted by these bylaws, the person in whose name
shares stand on the books of the corporation will be deemed by the
corporation to be the owner thereof for all purposes. The board of
directors may adopt by resolution a procedure whereby a shareholder of
the corporation may certify in writing to the corporation that all or
a portion of the shares registered in the name of such shareholder are
held for the account of a specified person or persons. Upon receipt by
the corporation of a certification complying with such procedure, the
persons specified in the certification will be deemed, for the purpose
or purposes set forth in the certification, to be the holders of record
of the number of shares specified in place of the shareholder making
the certification.
Section 7.4 Transfer of Shares
Transfer of shares of the corporation will be made only on the stock
transfer books of the corporation by the holder of record thereof or by
his legal representative who will furnish proper evidence of authority
to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the secretary of the corporation,
on surrender for cancellation of the certificate for the shares. All
certificates surrendered to the corporation for transfer will be
cancelled and no new certificate will be issued until the former
certificate for a like number of shares will have been surrendered and
cancelled.
Section 7.5 Lost or Destroyed Certificates
In the case of a lost, destroyed, or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the board of directors may prescribe.
Section 7.6 Restrictions on Transfer
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are
not required under applicable securities laws, all certificates
representing shares of the corporation will bear a legend on the face
of the certificate or on the reverse of the certificate if a reference
to the legend is contained on the face, to the effect as follows:
These securities are not registered under state or federal
securities laws and may not be offered, sold, pledged, or
otherwise transferred, nor may these securities be transferred on
the books of the company, without an opinion of counsel or other
assurance satisfactory to the company that no violation of such
registration provisions would result therefrom.
<PAGE> 65
Section 7.7 Stock Transfer Records
The stock transfer books will be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or
registrar. The name and address of the person to whom the shares
represented by any certificate, together with the class, number of
shares, and date of issue, will be entered on the stock transfer books
of the corporation. Except as provided in these bylaws, the person in
whose name shares stand on the books of the corporation will be deemed
by the corporation to be the owner thereof for all purposes.
ARTICLE VIII. SEAL
This corporation need not have a corporate seal. If the directors adopt
a corporate seal, the seal of the corporation will be circular in form
and consist of the name of the corporation, the state and year of
incorporation, and the words "Corporate Seal."
ARTICLE IX. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND
AGENTS
Section 9.1 Power to Indemnify
The corporation will have the following powers:
9.1.1 Power to Indemnify. The corporation may indemnify and hold
harmless to the full extent permitted by applicable law each person who
was or is made a party to or is threatened to be made a party to or is
involved (including, without limitation, as a witness) in any actual or
threatened action, suit or other proceeding, whether civil, criminal,
administrative, or investigative, by reason of that fact that he or she
is or was a director, officer, employee, or agent of the corporation
or, being or having been such a director, officer, employee, or agent,
he or she is or was serving at the request of the corporation as a
director, officer, employee, agent, trustee, or in any other capacity
of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action or
omission in an official capacity or in any other capacity while serving
as a director, officer, employee, agent, trustee, or in any other
capacity, against all expense, liability and loss (including, without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes, or
penalties and amounts to be paid in settlement) actually or reasonably
incurred or suffered by such person in connection therewith. Such
indemnification may continue as to a person who has ceased to be a
director, officer, employee or agent of the corporation and will inure
to the benefit of his or her heirs and personal representatives.
9.1.2 Power to Pay Expenses in Advance of Final Disposition. The
corporation may pay expenses incurred in defending any such proceeding
in advance of the final disposition of any such proceeding, provided,
however, that the payment of such expenses in advance of the final
disposition of a proceeding will be made to or on behalf of a director,
officer, employee, or agent only upon delivery to the corporation of an
<PAGE> 66
undertaking, by or on behalf of such director, officer, employee, or
agent, to repay all amounts so advanced if it will ultimately be
determined that such director, officer, employee, or agent is not
entitled to be indemnified under this Article or otherwise, which
undertaking may be unsecured and may be accepted without reference to
financial ability to make repayment.
9.1.3 Power to Enter Into Contracts. The corporation may enter into
contracts with any person who is or was a director, officer, employee,
and agent of the corporation in furtherance of the provisions of this
Article and may create a trust fund, grant a security interest in
property of the corporation, or use other means (including, without
limitation, a letter of credit) to ensure the payment of such amounts
as may be necessary to effect indemnification as provided in this
Article.
9.1.4 Expansion of Powers. If the Nevada Business Corporation Act is
amended in the future to expand or increase the power of the
corporation to indemnify, to pay expenses in advance of final
disposition, to enter into contracts, or to expand or increase any
similar or related power, then, without any further requirement of
action by the shareholders or directors of this corporation, the powers
described in this Article will be expanded and increased to the fullest
extent permitted by the Nevada Business Corporation Act as so amended.
9.1.5 Limitation on Powers. No indemnification will be provided under
this Article to any such person if the corporation is prohibited by the
nonexclusive provisions of the Nevada Business Corporation Act or other
applicable law as then in effect from paying such indemnification. For
example, no indemnification will be provided to any director in respect
of any proceeding, whether or not involving action in his or her
official capacity, in which he or she will have been finally adjudged
to be liable on the basis of intentional misconduct or knowing
violation of law by the director, or that the director personally
received a benefit in money, property, or services to which the
director was not legally entitled.
Section 9.2 Indemnification of Directors, Officers, Employees, and
Agents
9.2.1 Directors. The corporation will indemnify and hold harmless any
person who is or was a director of this corporation, and pay expenses
in advance of final disposition of a proceeding, to the full extent to
which the corporation is empowered.
9.2.2 Officers, Employees, and Agents. The corporation may, by action
of its Board of Directors from time to time, indemnify and hold
harmless any person who is or was an officer, employee, or agent of the
corporation, and pay expenses in advance of final disposition of a
proceeding, to the full extent to which the corporation is empowered,
or to any lesser extent which the Board of Directors may determine.
<PAGE> 67
9.2.3 Character of Rights. The rights to indemnification and payment of
expenses in advance of final disposition of a proceeding conferred by
or pursuant to this Article will be contract rights.
9.2.4 Enforcement. A director, officer, employee, or agent ("claimant")
will be presumed to be entitled to indemnification and/or payment of
expenses under this Article upon submission of a written claim (and, in
an action brought to enforce a claim for expenses incurred in defending
any proceeding in advance of its final disposition, where the
undertaking in subsection 9.1.2 above has been delivered to the
corporation) and thereafter the corporation will have the burden of
proof to overcome the presumption that the claimant is so entitled.
If a claim under this Article is not paid in full by the corporation
within sixty (60) days after a written claim has been received by the
corporation, except in the case of a claim for expenses incurred in
defending a proceeding in advance of its final disposition, in which
case the applicable period will be twenty (20) days, the claimant may
at any time thereafter bring suit against the corporation to recover
the unpaid amount of the claim and, to the extent successful in whole
or in part, the claimant will be entitled to be paid also the expense
of prosecuting such claim.
Neither the failure of the corporation (including its board of
directors, its shareholders, or independent legal counsel) to have made
a determination before the commencement of such action that
indemnification of or reimbursement or advancement of expenses to the
claimant is proper in the circumstances nor an actual determination by
the corporation (including its board of directors, its shareholders, or
independent legal counsel) that the claimant is not entitled to
indemnification or to the reimbursement or advancement of expenses will
be a defense to the action or create a presumption that the claimant is
not so entitled.
9.2.5 Rights Not Exclusive. The right to indemnification and payment of
expenses in advance of final disposition of a proceeding conferred in
this Article will not be exclusive of any other right that any person
may have or hereafter acquire under any statute, provision of the
articles of incorporation, bylaws, agreement, vote of shareholders, or
disinterested directors or otherwise.
Section 9.3 Insurance
The corporation may purchase and maintain insurance, at its expense, to
protect itself and any director, officer, employee, agent, or trustee
of the corporation or another corporation, partnership, joint venture,
trust, or other enterprise against any expense, liability or loss,
whether or not the corporation would have the power to indemnify such
person against such expense, liability or loss under the Nevada
Business Corporation Act.
<PAGE> 68
Section 9.4 Survival of Benefits
Any repeal or modification of this Article will not adversely affect
any right of any person existing at the time of such repeal or
modification.
Section 9.5 Severability
If any provision of this Article or any application thereof will be
invalid, unenforceable, or contrary to applicable law, the remainder of
this Article, or the application of such provision to persons or
circumstances other than those as to which it is held invalid,
unenforceable, or contrary to applicable law, will not be affected
thereby and will continue in full force and effect.
Section 9.6 Applicable Law
For purposes of this Article, "applicable law" will at all times be
construed as the applicable law in effect at the date indemnification
may be sought or the law in effect at the date of the action, omission,
or other event giving rise to the situation for which indemnification
may be sought whichever is selected by the person seeking
indemnification.
ARTICLE X. BOOKS AND RECORDS
The corporation will keep correct and complete books and records of
account stock transfer books, minutes of the proceedings of its
shareholders and the board of directors, and such other records as may
be necessary or advisable.
ARTICLE XI. FISCAL YEAR
The fiscal year of the corporation will be determined by resolution
adopted by the board of directors. In the absence of such a resolution,
the fiscal year will be the calendar year.
ARTICLE XII. VOTING OF SHARES OF ANOTHER CORPORATION
Shares of another corporation held by this corporation may be voted by
the president or vice-president, or by proxy appointment form executed
by either of them, unless the directors by resolution will designate
some other person to vote the shares.
ARTICLE XIII. AMENDMENTS TO BYLAWS
These bylaws may be altered, amended, or repealed, and new bylaws may
be adopted by the board of directors or by the shareholders.
The undersigned, being the secretary of the corporation, hereby
certifies that these bylaws are the bylaws of Trans New Zealand Oil
Company, adopted by resolution of the directors on June 25, 1998.
DATED June 25, 1998. Mark Katsumata, Secretary
<PAGE> 69
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION
(After Issuance of Stock)
Filed by: The Corporation Trust Company of
Nevada One East First Street,
Suite 1411, Reno, Nevada
TRANS NEW ZEALAND OIL COMPANY
We, the undersigned President and Secretary of TRANS NEW
ZEALAND OIL COMPANY do hereby certify:
That the shareholders in general meeting and the board of
directors of said corporation at a meeting duly convened, both
held on July 22, 1998 adopted a resolution to amend the
original articles as follows:
Article First is hereby amended to read as follows:
"The name of the is AMG OIL LTD."
The number of share of the company corporation outstanding and
entitled to vote on an amendment to the Articles of Incorporation
is 12,500,000; that the said amendment has been cosented to and
approved by a majority votes of the stockholders holding at least
a majority of each class of stock outstanding and entitled to
vote thereon.
/s/ RONALD BERTUZZI, President
/s/ MARK KATSUMATA, SECRETARY
Province of British Columbia
County of Vancouver
On July 22, 1998 personally appeared before me, a Notary Public,
Ronald Bertuzzi and MARK Katsumata, who acknowledged do they
executed the above instrument.
BERNHARD ZINKHOFER, a Notary Public Notary Seal
in and for the province of British Columbia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at Septembre 30, 1999 Audited
and the Consolidated Statement of Income for the twelve months ended September
30, 1999 Audited and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 258,129
<SECURITIES> 42,876
<RECEIVABLES> 92
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 301,097
<PP&E> 962,554
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,273,651
<CURRENT-LIABILITIES> 6,072
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 1,530,858
<TOTAL-LIABILITY-AND-EQUITY> 1,273,651
<SALES> 0
<TOTAL-REVENUES> 11,467
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 108,632
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (97,165)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (97,165)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
<PAGE> 71
EXHIBIT 99.1
AGREEMENT FOR GRANT OF OPTIONS TO ACQUIRE 30% AND 50% INTERESTS IN
PETROLEUM EXPLORATION PERMIT 38256, NEW ZEALAND
THIS AGREEMENT made as of June 25,1998
AMONG:
TRANS-ORIENT PETROLEUM (NZ) LTD., a body corporate subsisting
under the laws of New Zealand, with a place of business at 284
Kaori Road, Kaori, Wellington, New Zealand
("TOP")
OF THE FIRST PART
AND:
INDO-PACIFIC ENERGY (NZ) LTD., a body corporate subsisting under
the laws of New Zealand, with a place of business at 284 Kaori
Road, Kaori, Wellington, New Zealand
("Indo")
OF THE SECOND PART
AND:
TRANS NEW ZEALAND OIL COMPANY (NZ) LTD., a body corporate
subsisting under the laws of New Zealand, with a place of business
at 284 Kaori Road, Kaori, Wellington, New Zealand
("TNZ")
OF THE THIRD PART
WHEREAS:
A. TOP is the holder of a 50% participating interest, and Indo is
the holder of a 50% participating interest, in and to petroleum
exploration permit 38256, Canterbury Basin, South Island, New Zealand,
granted on August 25, 1997 pursuant to -the Crown Mineral Act 1991
(NZ);
B. Each of TOP and Indo wish to grant to TNZ an option to acquire
from each an undivided interest of 15% in and to petroleum exploration
permit 38256 on the terms and conditions of this Agreement; and
C. Each of TOP and Indo wish to grant to TNZ a further option to
acquire from each an undivided interest of 25% in and to petroleum
exploration permit 38256 on the terms and conditions of this Agreement;
WITNESSES THAT the parties mutually covenant and agree as follows:
<PAGE> 72
ARTICLE 1 DEFINITIONS AND INTERPRETATION
1.01 In this Agreement, including its recitals and schedules, the
following words and phrases have the following meanings:
1991 Act means the Crown Minerals Act 1991 (NZ), as amended from time
to time.
Assignment Agreement means an assignment and assumption agreement in a
form prescribed by the Operator by which an Optioned Interest is
transferred to TNZ subject to a Notice being lodged with the Secretary
and to filing with, and receipt of the consent of, the Minister on such
terms and conditions as he sees fit, under section 41 of the 1991 Act.
Business day means a day that is not a Saturday or Sunday or a public
holiday in New Zealand.
Drilling Interest means the participating interest to be acquired by
TNZ on exercise of the Drilling Option and vested in TNZ on issue of a
Permit Endorsement reflecting filing of a Notice and an Assignment
Agreement relating to exercise of the Drilling Option.
Drilling Option means the grant by each of Indo and TOP to TNZ of an
option to acquire from each an undivided 25% participating interest in
and to the Permit in consideration that TNZ pay for all Well Costs for
the drilling of two exploration wells on the Permit in such location or
locations as is determined appropriate by the Participants in
accordance with the Operating Agreement.
Effective Date means, with respect to the Exploration Option, the date
on which TNZ delivers a notice exercising the Exploration Option and,
with respect to the Drilling Option, the date on which TNZ delivers a
notice exercising the Drilling Option.
Exchange Rate means the ratio of the value of United States dollars to
New Zealand dollars on June 25, 1998.
Exploration Interest means the participating interest to be acquired by
TNZ on exercise of the Exploration Option and vested in TNZ on issue of
a Permit Endorsement reflecting filing of a Notice and an Assignment
Agreement relating to exercise of the Exploration Option.
Exploration Option means the grant by each of Indo and TOP to TNZ of an
option to acquire from each an undivided 15% participating interest in
and to the Permit in consideration that TNZ pay for all costs
associated with, or incurred in connection with, the collection,
processing and interpretation of at least 200 kilometers of 2D seismic
data, as proposed, approved and paid for in accordance with the
Operating Agreement.
Indo means Indo-Pacific Energy (NZ) Ltd., a body corporate subsisting
under the laws of New Zealand, with an office at 284 Kaori Road, Kaori,
Wellington, New Zealand.
<PAGE> 73
Joint Venture means the relationship established between Indo and TOP
for the exploration and development of, and production from, the Permit
as provided in the Operating Agreement.
Minister means the Minister of Energy (NZ).
Notice means the notice in the form prescribed under subsection 41(8)
of the 1991 Act.
Participants means until issuance of a Permit Endorsement for the
assignment of the Exploration Interest, Indo and TOP, and thereafter
Indo, TOP, TNZ and such other parties as are admitted to the Joint
Venture in accordance with the Operating Agreement.
Permit means petroleum exploration permit issued on August 25, 1997
under the 1991 Act to Indo and TOP in the proportions of 50% each.
Permit Endorsement means an amendment to the Permit as issued by the
Minister after lodging of a Notice with the Secretary in accordance
with section 41 of the 1991 Act.
Operating Agreement means the agreement dated June 25, 1998 between
Indo and TOP providing for the appointment of Indo as Operator and the
conduct of joint operations on, and in connection with, the Permit.
Operator means Indo or its successor as duly appointed in accordance
with the Operating Agreement.
Optioned Interests means the Exploration Interest or the Drilling
Interest.
TNZ means Trans New Zealand Oil Company (NZ) Ltd., a body corporate
subsisting under the laws of New Zealand, with an office at 284 Kaori
Road, Kaori, Wellington, New Zealand.
TNZ Options means an option granted by TNZ(US) to each of Source Rock
Holdings Ltd. and Reservoir Rock Holdings Ltd. to purchase before the
earlier of July 1, 2000 or 30 business days after the date on which TNZ
ceases to have an interest in PEP 38256 for US$0.50 per share up to
1,000,000 common shares of TNZ(US).
TNZ Shares means 1,000,000 common shares of TNZ(US) to be issued for
US$0.25 per share to Source Rock Holdings Ltd. and 500,000 common
shares of TNZ(US) to be issued for US$0.25 per share to Reservoir Rock
Holdings Ltd.
TNZ(US) means Trans New Zealand Oil Company, a body corporate
subsisting under the laws of Nevada, with an office at Suite 1200, 1090
West Pender Street, Vancouver, British Columbia V6E 2N7.
TOP means Trans-Orient Petroleum (NZ) Ltd., a body corporate subsisting
under the laws of New Zealand, with an office at 284 Kaori Road, Kaori,
Wellington, New Zealand.
<PAGE> 74
Secretary means the Secretary of Commerce (NZ).
Well Costs means in respect of an exploration well, all direct and
indirect costs incurred in the planning and drilling of the well,
including but not limited to the following operations and costs:
(a) site surveys;
(b) mobilization and demobilization of the drilling unit and
associated vehicles;
(c) running and setting surface and intermediate casing,
cementing, wireline logging, coring and repeat formation testing;
(d) the remedying of any blow out or mechanical failure of the
well including redrilling the well;
(e) plugging and abandoning or suspending; and
(f) analysis of results required for the preparation of completion
reports.
1.02 The captions, section numbers and article numbers appearing
in this Agreement are inserted for convenience of reference only and
will in no way define, limit, constrict or describe the scope or intent
of this Agreement nor in any way affect this Agreement.
1.03 This Agreement and all matters arising under this Agreement
will be governed by, construed and enforced in accordance with the laws
of New Zealand and all disputes will be referred to the court of
appropriate jurisdiction in the City of Wellington, New Zealand to
which jurisdiction the parties irrevocably attorn.
1.04 In this Agreement, wherever the context requires, words
importing the singular number will include the plural and vice versa,
words importing the masculine gender will include the feminine and
neuter genders and words importing persons will 11 include firms and
corporations and vice versa.
1.05 Unless otherwise stated, a reference in this Agreement to a
numbered or lettered article, section, subsection, paragraph,
subparagraph or clause refers to the article, section, subsection,
paragraph, subparagraph or clause bearing that number or letter in this
Agreement.
1.06 Each provision of this Agreement is intended to be severable
and if any term or provision of this Agreement is determined by a court
of competent jurisdiction to be illegal or invalid or unenforceable for
any reason whatsoever, such provision will be severed from this
Agreement and will not affect the legality, enforceability or Validity
of the remainder or any other provision of this Agreement.
<PAGE> 75
1.07 The word "including", when following any general term or
statement, is not to be construed as limiting the general term or
statement to the specific items or matters set forth or to similar
items or matters, but rather as referring to all other items or matters
that could reasonably fall within the broadest possible scope of the
general term or statement.
1.08 Accounting terms not otherwise defined have the means
assigned to them in accordance with New Zealand generally accepted
accounting principles.
1.09 A reference to currency means United States currency and will
be converted to New Zealand currency at the Exchange Rate.
1.10 A reference to statute or code includes every regulation made
pursuant thereto, all amendments to the statute or code or to any such
regulation in force from time to time, any statute, code or regulation
which supplements or supersedes such statute code or any such
regulation and applicable policies, orders, notices and interpretation
bulletins promulgated in connection with such statute.
1.11 A reference to an entity includes any entity that is a
successor to such entity.
1.12 Time is of the essence of the performance of every obligation
under this Agreement, and no failure or lack of diligence by any party
in proclaiming or seeking redress for any violation of, or insisting on
strict performance of, any provision of this Agreement will prevent a
subsequent violation of that provision, or of any other provision, from
giving rise to any remedy that would be available if it were an
original violation of that provision or another provision.
1.13 This Agreement will be binding upon and entire to the
benefit of the respective heirs, executors, administrators and other
legal representatives and, to the extent permitted hereunder and to be
permitted under an operating agreement relating to the Permit, the
respective successors and assigns, of the parties.
ARTICLE 2. TNZ'S REPRESENTATIONS, WARRANTIES AND COVENANTS
2.01 Indo and TOP severally represent and warrant to, and covenant
with, TNZ that:
(a) each is duly incorporated under the laws of New Zealand,
validly exists andis in good standing with respect to all
applicable law, and is duly registered to carry on business in all
other jurisdictions in which it carries on business;
(b) each owns all right, title and interest in an to 50% of the
Permit as tenants-in-common and no other person, firm or
corporation has any legal or beneficial interest, vested or
contingent, in or to the Permit;
<PAGE> 76
(c) the Permit is valid and subsisting in accordance with its
terms and conditions and the provisions of the 1991 Act;
(d) each has good and sufficient right and authority to
enter into this Agreement on the terms and conditions set
forth, to grant the Optioned Interests to TNZ, and on
exercise of either of the Optioned Interests by TNZ and on
compliance with section 41 of the 1991 Act, transfer the
legal and beneficial title to the Optioned Interest which TNZ
has exercised to TNZ;
(e) the Operating Agreement is a valid and subsisting agreement
enforceable in accordance with its terms and is the entire
agreement among Indo and TOP with respect to the conduct of
operations on, and in connection with, the Permit;
(f) the making of this Agreement and the completion of the
transactions contemplated in this Agreement does not conflict with
or result in the breach or acceleration of any indebtedness under,
or constitute default under, the constating documents of Indo or
TOP or any indenture, mortgage, agreement, lease, license or other
instrument to which either is a party or by which it is bound, or
any judgment or order of any court or administrative body by which
either is bound;
(g) there are no liabilities, whether direct, indirect absolute,
contingent or otherwise that would have a material adverse affect
on the Permit or the Optioned Interests;
(h) there is no basis for and there are no actions, suits
judgments, investigations or proceedings outstanding or pending by
or against Indo or TOP and, to the several knowledge of Indo or
TOP or either of them, there is no basis for and there are no
actions, suits, judgments, investigations or proceedings
threatened against or affecting Indo or TOP at law or in equity or
before or by any- federal, provincial, state, municipal or other
governmental department, commission, board, bureau or agency which
would materially adversely affect the right, title or interest of
Indo or TOP in or to the Permit; and
(i) the grant of either the Exploration Option of the Drilling
Option does not constitute a disposition of all or substantially
all of the assets or undertaking of either Indo or TOP.
2.02 Indo and TOP covenant and agree to and with TNZ that they
will, at all times this Agreement is subsisting permit TNZ, through its
representatives, to make such investigation of the Permit and the
Optioned Interests as TNZ) deems necessary or advisable to familiarize
itself with such assets, operating on, or in connection with, the
Permit and other matters, provided such investigation will not,
however, affect or mitigate Indo's and TOP's covenants, representations
and warranties under this Agreement which will continue in full force
and effect;
<PAGE> 77
2.03 The several representations, warranties, covenants and
agreements of Indo and TOP contained in this Agreement will be true at
and as of the date of vesting of the Exploration Interest and of the
Drilling Interest as though such representations, warranties, covenants
and agreements were made at and as of such dates and except for the
waiver of any condition by TNZ, the representations, warranties,
covenants and agreements of Indo, and TOP will survive such dates and,
notwithstanding the exercise of the Optioned Interests, will continue
in full force and effect.
2.04 Indo and TOP will severally defend, indemnify and save TNZ
harmless from and against all actions, causes of action, losses,
damages, costs, charges, liabilities and expenses, including, but not
limited to, actual legal fees, arising out of or in connection with any
breach of any term or condition by Indo or TOP of any covenant,
representation or agreement contained in this Agreement and not
accepted or waived by TNZ at the time of exercise of the Exploration
Option or at the time of exercise of the Drilling Option.
2.05 Indo and TOP acknowledge and agree that TNZ has entered into
this Agreement relying on the warranties, representations, covenants
and other terms and conditions of this Agreement, and that no
information which is now known or which may become known to TNZ or its
professional advisors after the date or this Agreement will limit or
extinguish the right to an indemnity under this provision, except any
breach accepted or waived by TNZ at the time of exercise of the
Exploration Option or at the time of exercise of the Drilling Option.
ARTICLE 3 TNZ'S REPRESENTATIONS, WARRANTIES AND COVENANTS
3.01 TNZ represents and warrants to, and covenant with, Indo and
TOP that:
(a) TNZ is duly incorporated under the laws of New Zealand,
validly exists and is in good standing with respect to all
applicable law, and is duly registered to carry on business in all
other jurisdictions in which it carries on business;
(b) TNZ has good and sufficient right and authority to enter into
this Agreement on the terms and conditions set forth and to
acquire the legal and beneficial title to the Exploration Interest
and the Drilling Interest;
(c) the making of this Agreement and the completion of the
transactions contemplated in this Agreement does not conflict with
or result in the breach or acceleration of any indebtedness under,
or constitute default under, the constating documents of TNZ or
any indenture, mortgage, agreement, lease, license or other
instrument to which either is a party or by which it is bound, or
any judgment or order of any court or administrative body by which
it is bound;
<PAGE> 78
(d) TNZ acknowledges the terms and conditions of the Operating
Agreement and covenants to permit the Operator to conduct on
behalf of TNZ before the exercise of any of the Exploration Option
of the Drilling Option all operations on, or in connection with,
the Permit on, and in accordance with, the terms and conditions of
the Operating Agreement;
(e) there is no basis for and there are no actions, suits
judgments, investigations or proceedings outstanding or pending by
or against TNZ and, to the knowledge of TNZ, there is no basis for
and there are no actions, suits, judgments, investigations or
proceedings threatened against or affecting TNZ at law or in
equity or before or by any federal, provincial, state, municipal
or other governmental department, commission, board, bureau or
agency which would materially adversely affect the right, title or
interest of TNZ in or to the Exploration Interest or the Drilling
Interest when acquired;
(k) TNZ is solvent and able to meet in the ordinary course its
obligations with respect to the exploration Option and the
Drilling Option, subject to the acceptance and approval from time
to time by TNZ of authorizations for expenditure prepared from
time to time by the Operator.
3.02 The representations, warranties, covenants and agreements of
TNZ contained in this Agreement will be true at and as of the date of
vesting of the Exploration Interest and of the Drilling Interest as
though such representations, warranties, covenants and agreements were
made at and as of such dates and except for the waiver of any condition
by Indo and TOP, the representations, warranties, covenants and
agreements of TNZ will survive such dates and, notwithstanding the
exercise of the Optioned Interests, will continue in full force and
effect.
3.03 TNZ will defend, indemnify and save Indo and TOP harmless
from and against all actions, causes of action, losses, damages, costs,
charges, liabilities and expenses, including, but not limited to,
actual legal fees, arising out of or in connection with any breach of
any term or condition by TNZ of any covenant, representation of
agreement contained in this Agreement and except any breach accepted or
waived by TNZ at the time of exercise of the Exploration Option or at
the time of exercise of the Drilling Option.
3.04 TNZ acknowledges and agrees that Indo and TOP have entered
into this Agreement relying on the warranties, representations,
covenants and other terms and conditions of this Agreement, and that no
information which is now known or which may become known to Indo or TOP
or its professional advisors after the date of this Agreement will
limit or extinguish the right to an indemnity under this provision,
except any breach accepted or waived by Indo or TOP at the time of
exercise of the Exploration Option or at the time of exercise of the
Drilling Option.
<PAGE> 79
ARTICLE 4 CONDITIONS PRECEDENT TO GRANT OF EXPLORATION OPTION
4.01 It is a condition that on execution and delivery of this
Agreement:
(a) there is executed and delivered by TNZ(US) and Source Rock
Holdings Ltd. an agreement providing for the issue of the TNZ
Shares to be issued to Source Rock Holdings Ltd. and such TNZ
Shares are issued in accordance with securities applicable law;
(b) there is executed and delivered by TNZ(US) and Reservoir Rock
Holdings Ltd. an agreement providing for the issue of the TNZ
Shares to be issued to Reservoir Rock Holdings Ltd. and such TNZ
Shares are issued in accordance with securities applicable law;
(c) there is executed and delivered by TNZ(US) and Source Rock
Holdings Ltd. an agreement providing for the grant of the TNZ
Options to be granted to Source Rock Holdings Ltd. in accordance
with securities applicable law; and
(d) there is executed and delivered by TNZ(US) and Reservoir Rock
Holdings Ltd. an agreement providing for the grant of the TNZ
Options to be granted to Reservoir Rock Holdings Ltd. in
accordance with securities applicable law.
ARTICLE 5 ACQUISITION OF THE EXPLORATION OPTION
5.01 Each of Indo and TOP grants to TNZ the sole and exclusive
right and option, on the terms and other conditions of this Agreement,
to acquire the Exploration Interest free and clear of all charges,
encumbrances and claims, except for those set out in the Operating
Agreement.
5.02 This Agreement and the Exploration and the Drilling Options
will terminate if before delivering a notice exercising the Exploration
Option TNZ has failed to make any payments to the Operator in
connection with work approved in accordance with the Operating
Agreement required to be done to exercise the Exploration Option and
TNZ will not be entitled to compensation or return of monies paid in
connection with work done to exercise the Exploration Option.
5.03 All operations on, or in connection with, the Permit until
exercise of the Exploration Option will be conducted under the
Operating Agreement as if TNZ were a party to the Operating Agreement
without a vote.
ARTICLE 6 EXERCISE OF THE EXPLORATION OPTION
6.01 The Operator will provide all reports, maps data and
interpretation of such data, and any other information relating to the
Permit that is, or has come into, in the possession of the Operator, to
TNZ in order that TNZ may determine whether it will exercise the
Exploration Option and become a Participant and will by written notice
inform TNZ when all such information has been provided.
<PAGE> 80
6.02 Within 20 business days of delivery of the notice by the
Operator under section 6.01, TNZ will exercise the Exploration Option
by delivery of a written notice to Indo and TOP to such effect and on
and from such Effective Date will as among the parties to this
Agreement become a Participant in the Joint Venture with respect to the
Exploration Interest but nothing will obligate TNZ to exercise the
Exploration Option.
6.03 The Operator will forthwith prepare and forward an Assignment
Agreement for execution and delivery among the Participants assigning
to TNZ the Exploration Interest and lodge such Assignment Agreement and
the required Notice with the Secretary and request the consent of the
Minister under the 1991 Act.
6.04 It is a condition that TNZ comply with such conditions as are
prescribed by the Minister in connection with the grant of the consent
of the Minister under the 1991 Act to the transfer of the Exploration
Interest, and if there are further costs to be incurred in connection
with compliance with such conditions, such costs will be deemed to be
part of the costs of acquiring the Exploration Interest and will be
borne by TNZ.
6.05 If and when a Permit Endorsement has been issued in
connection with the request for consent to the transfer of the
Exploration Interest, a 30% right, title and interest in and to the
Permit will vest in TNZ free and clear of all charges, encumbrances and
claims, except for the obligations of TNZ under the Operating
Agreement.
ARTICLE 7 ACQUISITION OF THE DRILLING OPTION
7.01 If TNZ has exercised the Exploration Option, it may by
delivery within 80 business days of delivery of the notice under
section 6.02 acquire the Drilling Option by the delivery of a written
notice to Indo and TOP that it is acquiring the Drilling Option and on
delivery of such notice, each of Indo and TOP grants to TNZ the sole
and exclusive right and option, on the terms and other conditions of
this Agreement, to acquire the Drilling Interest free and clear of all
charges, encumbrances and claims, except for those set out in the
Operating Agreement.
7.02 This Agreement and the Drilling Option will terminate if
before delivering the notice exercising the Drilling Option TNZ has
failed to make any payments to the Operator in connection with Well
Costs approved in accordance with the Operating Agreement required to
be done to exercise the Drilling Option and TNZ will not be entitled to
compensation for, or return of monies paid in connection with, Well
Costs.
7.03 All operations on, or in connection with, the Permit until
exercise of the Drilling Option will be conducted under the Operating
Agreement as if TNZ were a Participant holding the Exploration
Interest.
<PAGE> 81
ARTICLE 8 EXERCISE OF THE DRILLING OPTION
4.2 The obligation of TNZ to pay Well Costs will have been met on
the first to occur of:
(a) the Joint Venture deciding in accordance with the Operating
Agreement to run production casing in the second well drilled
under the Drilling Option; or
(b) the Joint Venture deciding in accordance with the Operating
Agreement to plug and abandon the second well drilled under the
Drilling Option.
8.02 The Operator will provide all reports, maps data,
interpretation of such data, results of tests, reserve calculations,
completion reports and any other information relating to the Permit
that is, or has come into, in the possession of the Operator, to TNZ in
order that TNZ may determine whether it will exercise the Drilling
Option and will by written notice inform TNZ when all such information
has been provided.
8.03 Within 20 business days of delivery of the notice by the
Operator under section 8.02, TNZ will exercise the Drilling Option by
delivery of a written notice to Indo and TOP to such effect and on and
from such Effective Date will as among the parties to this Agreement
become a Participant in the Joint Venture with respect to the
Exploration Interest and the Drilling Interest but nothing will
obligate TNZ to exercise the Drilling Option.
8.04 The Operator will forthwith prepare and forward an Assignment
Agreement for execution and delivery among the Participants assigning
to TNZ the Drilling Interest and lodge such Assignment Agreement and
the required Notice with the Secretary and request the consent of the
Minister under the 1991 Act.
8.05 It is a condition that TNZ comply with such conditions as are
prescribed by the Minister in connection with the grant of the consent
of the Minister under the 1991 Act to the transfer of the Drilling
Interest, and if there are further costs to be incurred in connection
with compliance with such conditions, such costs will be deemed to be
Well Costs and will be borne by TNZ.
8.06 If and when a Permit Endorsement has been issued in
connection with the request for consent to the transfer of the Drilling
Interest, a further 50% right, title and interest in and to the Permit
will vest in TNZ free and clear of all charges, encumbrances and
claims, except for the obligations of TNZ under the Operating
Agreement.
<PAGE> 82
ARTICLE 9 RIGHT OF ENTRY AND ATTORNMENT TO OPERATING AGREEMENT
9.01 Throughout the term of the Exploration Option and, if TNZ
elects to proceed with the Drilling Option, the term of the Drilling
Option, the directors and officers of TNZ and TNZ(UZ), and their
servants, agents and independent contractors, will have the rights in
respect of the Permit and information relating to the Permit as is
prescribed in the Operating Agreement as if TNZ or TNZ(US) were a
Participant.
9.02 The Operator will conduct all operations on, or in connection
with the Permit in accordance with Operating Agreement to which
agreement TNZ attorns and if an action or cause of action arises
against the Operator in such capacity before TNZ becomes a Participant,
TNZ may commence and maintain such action in accordance with the
Operating Agreement as if were a Participant.
9.03 During the term of the Exploration Option, the Operator will
deal in all respects with TNZ as if TNZ were a Participant with no vote
under the Operating Agreement.:
ARTICLE 10 TERMINATION OF THE EXPLORATION OPTION
10.01 If the Exploration Option is terminated otherwise than upon
exercise, TNZ will deliver at no cost to Indo or TOP within 90 days
after termination of the Exploration Option copies of all relevant
reports, maps, assay results and other relevant technical data compiled
by, or in the possession of, TNZ with respect to the Permit.
ARTICLE 11 TAX CONSIDERATIONS
11.01 The Operator will provide TNZ all relevant information
required to enable TNZ to assume and obtain the benefit of allowable
deductions in respect of the work to be performed to exercise the
Exploration Option and, if applicable, the Drilling Option under
applicable income tax legislation.
11.02 The Permit is a wildcat exploration area with no proven
economic reserves of petroleum and that the value of the right, title
and interest that may be acquired by TNZ is nil.
11.03 Each party will bear its own costs and expenses including,
without limitation, all legal costs and expenses in relation to the
preparation, negotiation and execution of this Agreement and each of
the documents which this Agreement requires any of the parties to
execute and deliver.
11.04 TNZ will bear all stamp duty and registration fees payable
under the 1991 Act and any applicable tax legislation on this Agreement
and each of the documents which this Agreement requires any of the
parties to execute.
<PAGE> 83
ARTICLE 12 GENERAL
12.01 The parties will execute and deliver all such further
documents and instruments and do all such further acts and things as
any of the other parties may reasonably require to carry out the full
intent and meaning of this Agreement.
12.02 This Agreement and the Operating Agreement contain the hole
agreement among the parties in respect of the grant of the Exploration
and the drilling Options and the conduct of operations on, and in
connection with, the Permit, and there are no warranties,
representations, terms, conditions, or collateral agreements, express,
implied or statutory, other than those expressly set forth in this
Agreement and the Operating Agreement.
12.03 No consent or waiver, express or implied, by any party to or
of any breach or default by any other party of any or all of its
obligations under this Agreement will:
(a) be valid unless it is in writing and stated to be a consent or
waiver pursuant to this paragraph;
(b) be relied upon as a consent or waiver to or of any other
breach or default of the same or any other obligation;
(c) constitute a general waiver under this Agreement; or
(d) eliminate or modify the need for a specific consent or waiver
pursuant to this paragraph in any other subsequent instance.
12.04 Any notice to be given by any party to another will be
deemed to be given when in writing and delivered or telecopied on any
business day to the address for notice of the intended recipient.
12.05 The address for notice of TNZ will, until changed, be:
Trans New Zealand Oil Company
Suite 1200, 1090 West Pender Street
Vancouver, B. C. V6E 2N7
Attention: Mr. Ronald Bertuzzi, President
Telecopy: 604-682-1174
12.06 The address for notice of each of Indo and TOP will, until
changed, be:
Indo-Pacific Energy (NZ) Ltd.
Trans-Orient Petroleum (NZ) Ltd.
284 Karori Road Karori,
Wellington, New Zealand
Attention: Dr. David Bennett, President
Telecopy: 011-64-4-476-0120
12.07 A party may by notice to all other parties change its
address for notice to some other address.
<PAGE> 84
12.08 A notice delivered to an address for notice will be deemed
to be valid and given notwithstanding the death or incapacity of the
person to whom the notice is directed, whether known or unknown to the
person giving the notice.
12.09 TNZ may not assign its right to acquire the Exploration
Interest or the Drilling Interest without the consent in writing of
each of In and TOP first had and received on such terms and conditions
as may be prescribed by Indo and TOP and any assignment of a
Participating Interest by TNZ will be done in accordance with the
Operating Agreement.
12.10 Until INZ has exercised the Exploration Option, Indo or TOP
may deal in such manner as they wish with the 10% Participating
Interest owned by each in accordance with the Operating Agreement, but
will until the expiry of the time prescribed for acquisition by TNZ of
the Drilling Option do nothing, and not suffer or permit anything to be
done, which would render them unable to transfer to TNZ the Drilling
Interest.
12.11 This Agreement will enure to the benefit of and be binding
upon the parties to this Agreement and their respective successors and
permitted he Permit.
EXECUTED AS AN AGREEMENT
Signed for Indo, Pacific Energy (NZ) Limited
by its duly authorised representative
/s/ D. J. Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
Signed for Trans-Orient Petroleum (NZ) Limited
by its duly authorised representative
/s/ D. J. Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
Signed for Trans New Zealand Oil Company (NZ) Ltd.
by its duly authorised representative
/s/ D. J. Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
<PAGE> 85
EXHIBIT 99.2
AMG Oil, (NZ) Ltd.
284 Karon" Road
PO Box 17258 Tel: (64-4-476 2717)
Wellington Fax: (64-4-476 0120)
New Zealand [email protected]
Director
Trans-Orient Petroleum (NZ) IA.
Director
Indo-Pacific Energy (NZ) Ltd. 3 December 1998
Dear Sirs
AMG 0ption PEP 38256
Under an agreement dated 25 June 1998, AMG Oil (NZ) Ltd.(then Trans
New Zealand Oil agreement holds the option (the "Drilling 0ption"
acquire an additional 25% equity in PEP 38256 from each of the Trans-
Orient Petroleum (NZ) Ltd. and Indo-Pacific Energy (NZ)Ltd. by agreeing
to fund the drilling costs of two exploration wells. The agreement
requires this option to e exercised by AMG Oil (NZ) Ltd. by 8 December
1998.
Due to delays in processing the new seismic data acquired in the permit
during 1998, and in obtaining and reprocessing existing data, none of
the optionee or optionor companies has, at this adequate opportunity to
assess the information acquired, and make rational decisions ongoing
exploration.
AMG Oil (NZ) Ltd. therefore requests the optionors, Trans-Orient
Petroleum (NZ) Ltd. and Indo-Pacific Energy (NZ) Ltd. to extend the
date on which the Drilling Option be exercised, to October 31, 1998.
In order to maintain this option AMG Oil (NZ) Ltd. mill fund all
ongoing costs including any further seismic prior to the exercisable
date, and the cost of an independent analysis of the permit area
commissioned by the Joint Venture from the Natural Hazards Research
Centre of the University of Canterbury. This report is expected to be
completed in early February. It incorporates the existing seismic data
with field mapping of the area completed over recent years by members
of the University of Canterbury and is being conducted by Dr. Richard
Jongens, with overview provided by Professors Jarg Pettinga and Jocelyn
Campbell. It is expected that this report will provide a clearer basis
for all parties to consider ongoing exploration work in PEP 38256.
<PAGE> 86
Should this extension of the exercise date of the Drilling Option be
acceptable to Trans-Orient Petroleum (NZ) Ltd. and Indo-Pacific Energy
(NZ) Ltd., please countersign in. the spaces provided below.
Yours sincerely,
/s/ D. J. Bennett
D. J. Bennett
The extension of the Drilling Option exercise date on the basis stated
in this letter is acceptable to the signatories.
/s/ D. J. Bennett /s/ D. J. Bennett
Signature of Representative Signature of Representative
Director Director
Trans-Orient Petroleum (NZ)Ltd. Indo-Pacific Energy (NZ) Ltd.
/s/ D. J. Bennett
Signature of Representative
Director AMG Oil (NZ) Ltd.
<PAGE> 87
AMG Oil (NZ) Ltd
Indo-Pacific House
284 Karori Road
PO Box 17258 Tel: (64-4-476 2717)
Wellington Fax: (64-4-476 0120)
New Zealand [email protected]
Director Director
Trans-Orient Petroleum (NZ) Ltd Indo-Pacific Energy (NZ) Ltd
26 October 1999
Dear Sir,
AMG Option : PEP 38256
Under an amendment to an agreement dated 3rd December 1998, AMG Oil,
via its subsidiary AMG Oil (NZ) Ltd (then Trans New Zealand Oil Company
(NZ) Ltd) holds the option (the "Drilling Option"), to acquire an
additional 25% equity in PEP 38256 from each of the respective
subsidiaries of Trans-Orient Petroleum (NZ) Ltd and Indo-Pacific Energy
(NZ) Ltd, by agreeing to fund the drilling costs of two exploration
wells. The agreement requires this option to be exercised by AMG Oil by
October 31 1999.
Due to delays in seismic processing the new seismic data acquired in
the permit during 1998, and in obtaining and reprocessing existing data
none of the optionee Or optionor companies has, at this time, had
adequate opportunity to assess the information acquired, and make
rational decisions regarding ongoing exploration. Some prospects and
leads have been identified, but it is likely that further seismic work
will be required before drilling in August 2000.
AMG Oil (NZ) Ltd therefore requests the optionors, Trans-Orient
Petroleum (NZ) Ltd and Indo-Pacific Energy (NZ) Ltd to extend the date
on which the Drilling Option be exercised, to 31 May 2000.
In order to maintain this option AMG Oil (NZ) Ltd. will continue to
fund its ongoing share of Joint Venture costs.
Trans-Orient Petroleum Ltd and Indo-Pacific Energy Ltd will indicate
their acceptance of the extension of the exercise date of the Drilling
Option by countersigning below.
Yours sincerely,
/s/ Jenni Lean
Jenni Lean Corporate Affairs Manager
<PAGE> 88
The extension of Drilling Option exercise date on the basis stated in
this letter is acceptable to the signatories.
Signature of Representative Signature of Representative
/s/ D. J. Bennett /s/ D. J. Bennett
Director of Trans-Orient Director, Indo-Pacific
Petroleum Ltd. Energy (NZ) Ltd.
/s/ D. J. Bennett
Signature of Representative
Director, AMG Oil (NZ) Ltd
<PAGE> 89
AMG Oil (NZ) Ltd
284 Karori Road
PO Box 17258 Tel: (64-4-476 2717)
Wellington Fax: (64-4-476 0120)
New Zealand
To
The Directors The Directors
Trans-Orient Petroleum (NZ) Ltd Indo-Pacific Energy (NZ) Ltd
23 February 2000
Dear Sirs
AMG Option: PEP 38256
Under an amendment to an agreement dated 3rd December 1998, AMG Oil
Ltd, via its subsidiary AMG Oil (NZ) Ltd (then Trans New Zealand Oil
Company (NZ) Ltd) held an option (the 'Drilling Option'), to acquire an
additional 25% equity in PEP 38256 from each of the respective
subsidiaries of Trans Orient Petroleum (NZ) Ltd and Indo-Pacific Energy
(NZ) Ltd, by funding the drilling costs of two exploration wells. The
agreement required this option to be exercised by AMG Oil by October 31
1999.
Two separate seismic surveys in 1998 and 1999 have identified various
prospects and leads in the permit area. However, further seismic data
will be required before a rational decision on whether and where to
drill can be made. The permit requires a well to be drilled by end of
August 2000.
AMG Oil (NZ) Ltd ("AMG") and the optionors, Trans-Orient Petroleum (NZ)
Ltd ("TRANS") and Indo-Pacific Energy (NZ) Ltd ("INDO") therefore
agreed to extend the date on which the Drilling Option be exercised, to
31 May 2000. This agreement was signed on 26 October 1999.
By this letter, AMG, INDO and TRANS now further agree that AMG will
fund an additional phase of seismic and other expenditure in the permit
to further define drilling targets, up to a revised option exercise
date which the parties hereby agree shall be set as 15' June 2000. This
is intended to allow sufficient time to acquire, process and interpret
a further round of seismic to be acquired over the Ealing, Arcadia and
Chertsey South Leads, in order to define one or more drilling targets.
The new option overrides all previous option agreements and is as
follows:
AMG has the option ('Option A') to earn an additional 50% in PEP 38256
(25% each from INDO and TRANS) by funding all expenditure including an
agreed program of seismic work leading up to and including the drilling
of two exploration wells. Alternatively, AMG may, at its election, earn
an additional 35% in the permit by funding all work leading up to and
including the drilling of one exploration well ('Option B'). In the
event that AMG exercises Option B, it shall acquire a further option
<PAGE> 90
('Option C') to earn an additional 15% in the permit by funding all
further work up to and including a second exploration well on a
separate exploration target. Option C must be exercised within 30 days
of reaching Target Depth in the exploration well drilled pursuant to
exercise of Option B.
AMG may exercise one or other of Option A or Option B by advising INDO
and TRANS in writing of its election prior to close of business in New
Zealand, on Friday,16 June 2000. All exploration wells shall penetrate
to the base of the Tertiary section, unless engineering considerations
make this impracticable; and the first exploration well shall be
drilled in a timely manner to meet the PEP 38256 permit work obligation
to drill a well by 25 August 2000.
The parties indicate their acceptance of the extension of the exercise
date of the Drilling Option, and the alteration to the terms of the
Drilling Option, as set out in this letter by countersigning below.
The extension and alteration of the Drilling Option exercise date on
the basis stated in this letter is acceptable to the signatories.
/s/ D. J. Bennett
Director, Indo-Pacific Energy (NZ) Ltd
/s/ D. J. Bennett
Director, Trans-Orient Petroleum (NZ) Ltd
/s/ D. J. Bennett
Director, AMG Oil (NZ) Ltd
<PAGE> 91
EXHIBIT 99.3
JOINT VENTURE OPERATING
AGREEMENT
PEP 38256
BETWEEN:
INDO-PACIFIC ENERGY (NZ) LTD
And
TRANS-ORIENT PETROLEUM (NZ) LIMITED
<PAGE> 92
OPERATING AGREEMENT
PEP 38256
TABLE OF CONTENTS
Clause Description Page
OPERATIVE PROVISIONS 7
1 DEFINITIONS AND INTERPRETATIONS 7
1.1 Definitions 7
1.2 Interpretation 12
1.3 Headings 13
2 JOINT VENTURE 13
2.1 Establishment of Joint Venture 13
2.2 Term of Joint Venture 13
2.3 Participating Interests 13
2.4 Tenants in Common 13
2.5 Separate Joint Ventures 14
3 MUTUAL OBLIGATIONS 14
3.1 Covenants by the Parties 14
3.2 Rights and Obligations Several 15
3.3 No Partnership 15
3.4 No Joint Liability 15
4 OPERATOR 15
4.1 Operator 15
4.2 Removal of Operator 15
4.3 Non-Operators' Power to Nullify or Suspend Removal 16
4.4 Replacement of Operator 16
4.5 Resignation of Operator 16
4.6 Appointment of New Operator 16
4.7 Consent to Appointment as Operator 17
4.8 No Appointment of Removed Operator 17
4.9 Effective Date of Appointment 17
4.10 Delivery of Property on Change of Operator 17
4.11 Consequences of Change and Delivery of Property 18
4.12 Audit of Accounts on Change of Operator 18
5 FUNCTIONS AND DUTIES OF OPERATOR 18
5.1 Control and Management of Joint Operations 18
5.2 Independent Status of Operator 18
5.3 Proper Practices in Joint Operations 18
5.4 Books and Records 19
5.5 Protection from Liens 19
5.6 Non-Operator's Rights of Access 19
5.7 Compliance with Terms of Permit 19
5.8 Taxes and Fees 19
5.9 Budget Expenditures by Operator 20
5.10 Operator to Hold Property 20
5.11 Operator's General Duties 20
5.12 Operator to Let for Bid Certain Contracts 21
<PAGE> 93
6 OPERATOR LIABILITY AND INDEMNITY 21
6.1 Liability. of Operator 21
6.2 Indemnity of Operator 22
7 OPERATING COMMITTEE 22
7.1 Composition of Operating Committee 22
7.2 Formation of Operating Committee 22
7.3 Vote Required for Decisions of Operating Committee 23
7.4 Quorum for Meetings of Operating Committee 23
7.5 Meetings of Operating Committee 23
7.6 Resolution in Absence of Meeting 24
7.7 Sub-Committees 25
7.8 Place of Meetings 25
7.9 Operator's Duties Concerning Meetings 25
7.10 Operating Committee's Functions 26
7.11 Minimum Participating Interest for Representation 26
8 PROGRAMS AND BUDGETS 26
8.1 Submission of Programs and Budgets 26
8.2 Adoption of Programs and Budgets 27
8.3 Minimum Programs Budgets and Work
Obligation Determination 27
8.4 Review of Programs and Budgets 28
8.5 Authorities for Expenditure (AFEs) 28
8.6 When Expenditure in Excess of Approved
AFE is Authorised 28
8.7 Approved Well Plan 29
8.8 AFEs for Wells 29
8.9 Casing Point Decision 29
8.10 Rights of Party Voting Against
Operating Programs and Budget 30
8.11 Consenting Parties' Premium 30
8.12 Notice to Operator 31
9 COSTS AND EXPENSES 31
9.1 Allocation of Expenditure 31
9.2 Accounting Procedure as Basis 31
9.3 Payment by Operator and Reimbursement 31
9.4 Calls by Operator 32
9.5 Banking of Funds 32
9.6 Investment of Funds 32
9.7 Withdrawal of Funds 32
10 INFORMATION ON JOINT OPERATIONS 32
10.1 Information as to Petroleum Production 32
10.2 Access to Records and Information 32
10.3 Drilling Information and Privileges of Non-Operators 33
10.4 Testing and Information to Non- Operators 33
10.5 Logging Information to Non-Operators 34
10.6 Test Following Logging 34
10.7 Seismic and Other Reports 34
<PAGE> 94
11 INSURANCE AND LITIGATION 34
11.1 Operator to Maintain Insurance 34
11.2 Contractors Insurance 35
11.3 Review of Insurances 35
11.4 Naming of Parties as Co-insured 35
11.5 Advice to Non-Operators of Current Insurance 36
11.6 Party's Right to Increase Insurance 36
11.7 Cost of Insurance and Charging of Losses 36
11.8 Litigation 36
12 SOLE RISK OPERATIONS 37
12.1 Sole Risk Operation 37
12.2 Proposal of Sole Risk Operation 38
12.3 Operating Committee to Consider Sole
Risk Operation Notice 38
12.4 Sole Risk Operation Notice for Existing Well 38
12.5 Sole Risk Operation Notice for Exploration Well 38
12.6 Sole Risk Operation Notice for Appraisal Well 38
12.7 Election to Participate 39
12.8 Sole Risk Interest 40
12.9 Time for Commencing Operations 40
12.10 Conduct of Sole Risk Operation 40
12-11 Operator for Sole Risk Operations 40
12.12 Sole Risk Parties May Complete and Equip 40
12.13 Premiums Accruing to Sole Risk
Parties - Exploration Wells 41
12.14 Premiums Accruing to Sole Risk
Parties - Appraisal Wells 41
12.15 Deepening, Plugging Back, Reworking,
Recompleting, Sidetracking 41
12.16 Premiums Accruing to Sole Risk Parties - Completing 42
12.17 Premiums Accruing to Sole Risk Parties - Equipping 42
12.18 Multiple Reservoirs 42
12.19 Sole Risk Operation Notice When Rig is on Site 43
12.20 Deepening or Sidetracking of Sole Risk Well 44
12.21 Priority of Recovery of Premium 44
12.22 Abandonment of Sole Risk
Operation - Salvable Material 44
12.23 Accounts During Sole Risk Operations
and Premium Recovery 45
12.24 Sole Risk Parties' Relationship 45
12.25 Indemnification of Non-Sole Risk Parties 45
12.26 Use of Joint Property 46
12.27 Non-Sole Risk Parties to Receive Information 46
12.28 Net Proceeds of Sale of Petroleum 46
12.29 Early Re-Entry by Non-Sole Risk Parties 47
12.30 Conclusion of Sole Risk Operation 47
13 DISPOSAL OF PRODUCTION 47
13.1 Ownership 47
13.2 Royalties 48
13.3 Production Reports 48
13.4 Delivery 48
13.5 Risk 48
<PAGE> 95
14 OFFTAKE AGREEMENT 48
14.1 Crude Oil 48
14.2 Natural Gas 49
15 DEFAULTS 49
15.1 Notice of Default 49
15.2 Defaulting Party Liable for Interest 49
15.3 Payment by Operator 49
15.4 Defaulting Party may be Sued 50
15.5 Non-Defaulting Parties to Contribute 50
15.6 Rights of Paying Parties 50
15.7 Defaulting Party's Petroleum 50
15.8 Suspension of Rights of Defaulting Party 51
15.9 Default of Operator in Payment 51
15.10 Application of Defaulting Party's Funds 51
15.11 Valuation of Defaulting Party's Interest 51
15.12 Option to Purchase Defaulting Party's Interest 52
16 WITHDRAWAL AND SURRENDER 54
16.1 Any Party May Withdraw 54
16.2 Notice of Withdrawal 54
16.3 Other Parties may Join in Withdrawal 54
16.4 Other Parties may Accept Assignment 54
16.5 Prompt Execution of Documents 55
16.6 Withdrawing Party's Obligations 55
16.7 Costs of Assignment 55
16.8 Assignment to all Parties 55
16.9 Selection of Area Required to be Surrendered 56
16.10 Voluntary Surrender of Area 56
17 ASSIGNMENTS AND MORTGAGES 56
17.1 Restriction on Right to Assign and Mortgage 56
17.2 Assignment to Related Companies 57
17.3 Assignment to Third Parities 57
17.4 Assumption by Assignee 58
17.5 Consequences of Assignment 58
17.6 Charge of Participating Interest 58
18 CONFIDENTIALITY 59
18.1 Information Confidential 59
18.2 Related Companies 60
18.3 Compliance with Stock Exchange Requirements 60
18.4 Obligations to Continue 60
18.5 Termination 60
19 FORCE MAJEURE 60
19.1 Obligations Suspended by Event of Force Majeure 60
19.2 Certain Actions not Required 61
19.3 Meaning of Force Majeure 61
20 LAWS AND REGULATIONS 61
20.1 Subject to Applicable Laws 61
20.2 Governing Law 61
20.3 Submission to Jurisdiction 61
<PAGE> 96
21 NOTICES 62
21.1 Notice in Willing 62
21.2 Effective Date 62
21.3 Time of Receipt 62
21.4 Address for Service 62
21.5 Authorised Officer 63
22 GENERAL 63
22.1 Remedies not Exclusive 63
22.2 Mutual Indemnity 63
22.3 Limited Invalidity 63
22.4 Waiver 63
22.5 How Moneys Paid 63
22.6 Successors Bound 63
22.7 Further Assurance 64
22.8 Entire Agreement 64
22.9 Amendment 64
22.10 No Partition 64
22.11 Counterparts 64
22.12 Time of Essence
SCHEDULE I 66
ACCOUNTING PROCEDURE 66
ARTICLE I - GENERAL PROVISIONS 66
1.1 Definitions 66
1.2 Statements, Billings and Adjustments
1.3 Advances and Payments
1.4 Audits 69
ARTICLE 2 - CHARGEABLE COSTS AND EXPENDITURES 69
2.1 Joint Account (Direct Charges) 69
2.1.1 Labour and Related Costs 69
2.1.2 Material 70
2.1.3 Transportation and Employee Relocation Costs 70
2.1.4 Services 71
2.1.5 Damage and Losses of Joint Property 71
2.1.6 Insurance 71
2.1.7 Legal Expense 72
2.1.8 Duties and Taxes 72
2.1.9 Offices, Camps and Miscellaneous Facilities 72
2.1.10 Payments to Government 72
2.1.11 Other Charges 72
2.2 Joint Account (Indirect Charges) 72
2.2.1 Administrative Overhead 72
2.3 Joint Account (Excluded Charges)
ARTICLE 3 - MATERIAL 73
3.1 Acquisitions 73
3.2 Disposals 73
3.3 Inventories 74
SCHEDULE 2 - DESCRIPTION OF THE PERMIT AREA 75
<PAGE> 97
THIS AGREEMENT is made on the 25th day of June, 1998.
BETWEEN INDO-PACIFIC ENERGY (NZ) LTD of Indo Pacific House, 284 Karori
Rd, Karori, Wellington, New Zealand. ("Indo")
AND TRANS-ORIENT PETROLEUM (NZ) LIMITED of Indo Pacific House, 284
Karori Rd, Karori, Wellington, New Zealand.. ("Trans")
RECITALS
The Parties wish to enter into this Agreement to record the terms and
conditions upon which they will conduct Joint Operations on the Area.
OPERATIVE PROVISIONS
1 DEFINITIONS AND INTERPRETATIONS
1.1 Definitions
In this Agreement, except where the context otherwise requires,
the following terms and expressions shall have the following
meanings:
"Accounting Procedure" means the method of accounting to be
applied in recording debits and credits to the Joint Account as
set out in Schedule 1;
"Act" means the Crown Minerals Act 1991 (New Zealand)
"AFE means an authority for expenditure setting out details of the
estimated expenditure in respect of a specific project which, when
approved in accordance with this Agreement, constitutes
authorisation for the Operator to incur such expenditure.
"Agreement" means this Agreement and the Annexures and Schedules
to this Agreement.
"Appraisal Well" means a well drilled or proposed to be drilled
for the purpose of evaluating the quantities of Petroleum in a
Reservoir discovered by an Exploration Well.
"Approved Well Plan" has the meaning given to that term in Clause
8.7.
"Area" means the area for the time being enclosed by the external
boundaries of the Permit which boundaries are, as at the Effective
Date, for the purposes of identification only, shown on the map
attached as Schedule 2, and any other area, whether or not
contiguous to that area, which the Parties unanimously agree shall
form part of the Area.
"Authorised Expenditure" has the meaning given to that term in
Clause 9. 1.
<PAGE> 98
"Business Day" means a day, other than a Saturday, Sunday or
public holiday, on which trading banks are open for business in
Wellington, New Zealand.
"Casing Point" means the time at which a well drilled under this
Agreement has reached its projected depth or such lesser depth as
the Operating Committee may have decided upon and all logs and
tests necessary to enable a decision as to whether to plug and
abandon the well or attempt to complete it as a producer have been
carried out and communicated to the Parties.
"Chargee" has the meaning given to that term in Clause 17.6.
"Chargor" has the meaning given to that term in Clause 17.6.
"Complete" means with respect to a well the completion of the well
as a producer of Petroleum, which operations shall include
(without limitation);
(a) to acquire, install and perforate production casing;
(b) to run tubing;
(c) to install equipment in the well up to and including the wing
valve of the Christmas tree (in the case of an oil well) and
to the well head (in the case of a gas well);
(d) to conduct such tests as are necessary to demonstrate that
the well is capable of production;
(e) to swab the well;
(f) to install such artificial lift equipment including
subsurface pumps, pump rods, power cables and surface pump
equipment as is necessary to initiate or promote the
production of Petroleum to the surface,
and "Completing", "Completed" and "Completion" have corresponding
meanings.
"Completion Costs" means all costs directly incurred in respect of
Completion;
"Consenting Parties" has the meaning given to that term in Clause
8. 10;
"Default Interest Rate" means in respect of any day the rate per
annum which is the aggregate of 5% per annurn and the rate of
interest from time to time charged by the ASB Bank Ltd on
corporate overdraft accounts in excess of $100,000.00 as advised
by the said ASB Bank Ltd to the Operator;
"Default Notice" has the meaning given to that term in Clause 15.
1;
"Defaulting Party" has the meaning given to that term in Clause
15.1;
<PAGE> 99
"Delivery Costs" has the meaning given to that term in Clause
12.28;
"Delivery Point" means the point or points determined by the
Operating Committee from time to time as the point or points at
which the Parties shall take delivery of their respective shares
of Petroleum produced from the Area.
"Development Well" means a well (other than an Exploration Well or
an Appraisal Well) drilled, proposed to be drilled or which is
used or is capable of being used, for the production of Petroleum
from a previously discovered Reservoir, which is less than 1000m
from a well which is capable of producing Petroleum in Payable
Quantities from that Reservoir.
"Drill" includes, where the context permits, to deepen, rework,
fracc, plug back, run logs, velocity survey, carry out testing on,
recomplete or sidetrack a well;
"Drilling Costs" means all costs and expenses directly incurred in
drilling, deepening, reworking, plugging back, recompleting or
sidetracking a well, including without limitation, rig
mobilisation and demobilisation, conducting tests, obtaining core
and other samples, running logs and conducting a velocity survey;
"Effective Date" means the 25h June 1998.
"Effective Date of Assignment" has the meaning given to that term
in Clause 17.5;
"Effective Date of Withdrawal" has the meaning given to that term
in Clause 16.2;
"Electing Party" has the meaning given to that term in Clause
12.8;
"Entitlement" has the meaning given to that term in Clause 14. 1;
"Equip" means (with respect to a well which has been Completed) to
acquire and install all such equipment as is necessary to place
the well in production, and to handle, treat and bring Petroleum
from such well to the Delivery Point including flow lines,
treatment and separation facilities and stock tanks; and
"Equipping" and "Equipped" have corresponding meanings;
"Equipping Costs" means all costs directly incurred in Equipping
a well;
"Exploration Well" means any well whose purpose at the time of the
commencement of drilling is to explore for an accumulation of
Petroleum whose existence was at that time unproven by drilling;
"Force Majeure" has the meaning given to that term in Clause 19.3;
<PAGE> 100
"Government" means the government of New Zealand;
"Gross Negligence" means such wanton and reckless conduct as
constitutes, or raises the reasonable belief that it constitutes,
an utter disregard for the harmful foreseeable and avoidable
consequences which result from it;
"Information" has the meaning given to that term in Clause 18. 1;
"Joint Account" means the accounts established and maintained by
the: Operator in accordance with this Agreement to record all
charges, expenditures, credits and receipts in respect of Joint
Operations which are chargeable or to be credited to each of the
individual Parties as provided for in this Agreement; and "for the
Joint Account" means for the account expense, risk or benefit of
the Parties in accordance with their Participating Interests;
"Joint Operations" means all activities of the Joint Venture
conducted on behalf of the Parties pursuant to this Agreement
(including without limitation, abandonment activities) but
excludes those activities which are related to Sole Risk
Operations;
"Joint Property" means:
a) all other property of any nature or kind, whether real or
personal, (including without limitation, any extraction,
transportation, processing, treatment storage or other
facility or chose in action and any estate or interest
therein) acquired by the Parties in the conduct, or for the
purposes of, Joint Operations, and
b) all other estate, right, title or interest of the Parties
arising under or by virtue of this Agreement;
"Joint Venture" means the joint venture between the Parties in
accordance with and constituted by the terms of this Agreement;
"Net Abandonment Costs" has the meaning given to that term in
Clause 16.6;
"Net Proceeds of Sale" has the meaning given to that term in
Clause 12.28;
"Non-Consenting Party" has the meaning given to that term in
Clause 8.10;
"Non-Defaulting Parties" has the meaning given to that term in
Clause 15.1;
"Non-Operator" means a Party other than the Operator;
"Non-Sole Risk Parties" means the Parties which do not participate
in a Sole Risk-Operation;
<PAGE> 101
"Notice of Withdrawal" has the meaning given to that term in
Clause 16.2;
"Operating Committee" means the operating committee established
pursuant to Clause 7 of this Agreement;
"Operating Costs" means all costs directly incurred in producing,
handling, transporting and treating Petroleum from a well,
exclusive of Drilling Costs, Completion Costs and Equipping Costs,
up to the Delivery Point;
"Operator" means the party from time to time appointed pursuant to
this Agreement to carry out the management of the Joint Venture
and Joint Operations;
"Option" has the meaning given to that term in Clause 15.12;
"Option Commencement Date" has the meaning given to that term in
Clause 15.12;,
"Participating Interest" means the following obligations, benefits
and rights of a. Party, expressed as a percentage and determined
in accordance with this Agreement:
a) the obligation, subject to this Agreement, to contribute that
percentage of all expenditure and all other obligations
arising under or by virtue of this Agreement;
b) the ownership of, and the right and benefit as a tenant in
common to receive in kind and to dispose of for its own
account, that percentage of Petroleum, and
c) the beneficial ownership as a tenant in common of an
undivided share in the percentage of all Joint Property.
"Party" means a party to this Agreement, its successors and
permitted assigns;
"Payable Quantities" means:
(a) in the case of a well not Completed and Equipped for
production, the anticipated output from that well of that
quantity of Petroleum which, considering the Completion
Costs, Equipping Costs, Operating Costs and other costs
related to any of the foregoing, the kind and quality of
Petroleum to be produced, the price to be received therefor
and the royalties and other burdens payable in respect
thereof, would in the opinion of the Operating Committee
warrant incurring the Completion Costs and Equipping Costs of
the well; and
(b) in the case of a well Completed and Equipped for production,
the output from that well of that quantity of Petroleum
which, considering the factors referred to in paragraph (a)
above (other than Completion Costs and Equipping Costs),
would in the opinion of the Operating Committee wan-ant
continuing production from the well;
<PAGE> 102
"Paying Party" has the meaning given to that term in Clause 15.6;
"Payment Date" has the meaning given to that term in Clause 15.5;
"Permit" means Petroleum Exploration Permit 38256 granted under
the Act copy of which is set out in Schedule 2; and any permits or
leases granted pursuant thereto together with any extensions,
renewals, conversions, substitutions, modifications or variations
thereof;
"Permit Year" means a year beginning on 25th August and ending on
24th August.
"Petroleum" has the meaning given to that term in the Act;
"Proceeds of Sale" has the meaning given to that term in Clause
12.28;
"Proposing Party" means a Party giving notice of its intention to
drill, Complete or Equip a well as a Sole Risk Operation;
"Purchaser" or "Purchasers" has the meaning given to that term in
Clause 15.12;
"Receiving Parties" means the Parties other than the Proposing
Party;
"Related Company" shall have the meaning given in section 2(3) of
the Companies Act 1993 of New Zealand, and for the purposes of
paragraph (d) of that section specifically includes companies
which have substantially common, actual (although not necessarily
legal) management and control;
"Reservoir" means that part of a geological formation which
contains a single pool or accumulation of Petroleum separate from
any other such pool or accumulation in the same or another
geological formation, in a single pressure system so that
production of Petroleum from any part affects the remainder;
"Sole Risk Interest" has the meaning given to that term in Clause
12.8;
"Sole Risk Operation" means any or all of the drilling, Completing
and Equipping of a well proposed by one or more of the Parties but
in which less than all Parties participate;
"Sole Risk Operation Notice" means the notice of intention to
drill, Complete or Equip a well given by a Proposing Party in
respect of a proposed Sole Risk Operation;
"Sole Risk Operator" means a Party appointed as operator for a
Sole Risk Operation pursuant to Clause 12.11;
<PAGE> 103
"Sole Risk Party" means a Party which participates in a Sole Risk
Operation;
"Unpaid Amount" has the meaning given to that ter m in Clause 15.
1;
"Wilful Misconduct" means intentional acts and omissions done or
omitted to be done, which raise the reasonable belief that they
were the result of a conscious indifference to the right or
welfare of those who are or may be affected by them;
"Withdrawing Party" has the meaning given to that term in Clause
16.2; and
"Work Obligation" means the minimum work or expenditure required
to be performed or made by the registered holders of the Permit as
a condition of the Permit;
1.2 Interpretation
Unless expressed to the contrary:
(a) words importing:
(1) the singular include the plural and vice versa; and
(2) any gender includes the other genders;
(b) if a word or phrase is defined cognate words and phrases have
corresponding definitions;
(c) a reference to:
(1) a person includes a firm, unincorporated association,
corporation and a government or statutory body or
authority;
(2) a person includes the legal personal representatives,
successors and assigns of that person;
(3) a statute, ordinance, code or other law includes
regulations and other statutory instruments under it and
consolidations, amendments, re-enactments or
replacements of any of them;
(4) a right includes a benefit, remedy, discretion,
authority or power;
(5) an obligation includes a warranty or representation and
a reference to a failure to observe or perform an
obligation includes a breach of warranty or
representation;
(d) provisions or terms of this document or another document,
agreement, understanding or arrangement include a reference
to both express and implied provisions and terms;
(e) "$", "NZ$" or "dollars" is a reference to the lawful currency
of New Zealand;
<PAGE> 104
(f) this or any other document includes the document as varied or
replaced and notwithstanding any change in the identity of
the parties;
(g) writing includes any mode of representing or reproducing
words in a tangible and permanently visible form, and
includes facsimile transmission; and
(h) a reference to any thing (including, without limitation, any
amount) is a reference to the whole or any part of it and a
reference to a group of things or persons is a reference to
any one or more of them.
1.3 Headings
The clause headings used herein are for convenience only and shall
not be used in construing or interpreting any provision of this
Agreement.
2 JOINT VENTURE
2.1 Establishment of Joint Venture
On and from the Effective Date the Parties associate themselves in
an unincorporated joint venture for the purpose of exploration for
Petroleum in the Area and if commercially viable the production,
processing, transportation and sale of Petroleum from the Area and
all things necessary and incidental thereto.
2.2 Term of Joint Venture
This Agreement shall continue in effect for so long as the Permit
remains in force and until all Joint Property which relates to the
Area has been disposed of and final settlement has been made
between the Parties in relation thereto in accordance with their
respective rights and obligations under this Agreement.
2.3 Participating Interests
At the date of this Agreement the Parties acknowledge and agree
that the Participating Interests in this Permit are as follows:
Indo - 50.0%
Trans - 50.0%
-------
100.00%
2.4 Tenants in Common
Subject to this Agreement, all Joint Property shall be
beneficially owned by the Parties as tenants in common in shares
equal to their respective Participating Interests.
<PAGE> 105
2.5 Separate Joint Ventures
This Agreement shall apply separately in relation to each permit
lease, title or other instrument granted under the Act in relation
to the Area or any part of it so as to constitute separate joint
ventures in respect of the area comprised within such permit,
lease, title or other instrument on the same terms and conditions,
mutatis mutandis, as this Agreement.
3 MUTUAL OBLIGATIONS
3.1 Covenants by the Parties
Each Party covenants with each of the other Parties as follows:
(a) to do, to the extent of its Participating Interest, all
things on its part necessary to ensure that:
(1) the Work Obligation is diligently observed and
performed;
(2) the Permit is kept in good standing and the Joint
Property in a safe and operable condition;
(3) the Permit and all other titles necessary for the Joint
Operations hereunder are duly renewed or extended unless
the Parties shall unanimously agree otherwise;
(b) to be just and faithful to each other Party in all things
relating to this Agreement; and
(c) not to engage (either alone or in association with others) in
any activity in relation to the Area or the Joint Property
except as authorised by this Agreement.
(d) that it has full right power and authority to enter into this
Agreement and to engage in Joint Operations
(e) that it has obtained all requisite consents and approvals to
enter into this Agreement
(f) to attend diligently to the conduct of all Joint Operations
in which the Party is involved
(g) to pay punctually its separate debts and to indemnify the
other Parties and the Joint Property against the same and all
expenses on account thereof.
(h) to account promptly for all moneys, cheques and negotiable
instruments received by it for (i) and on behalf of the other
Parties;
(i) to afford, when called upon to do so, all reasonable
assistance in the conduct of Joint Operations for the mutual
advantage of all Parties
<PAGE> 106
(j) to observe and perform its obligations, express and implied,
under this Agreement the Licence and the Act; and
(k) to make full, frank and prompt disclosures and give truthful
explanations to the other Parties of all material matters
coming to its attention in respect of Joint Operations and
Joint Property.
3.2 Rights and Obligations Several
The rights, duties, obligations and liabilities of the Parties
shall be several and not joint nor joint and several. It is the
express purpose and intention of the Parties that their ownership
of the Permit and the Joint Property and their liabilities shall
be as tenants-in-common.
3.3 No Partnership
Nothing contained in this Agreement shall be construed as creating
or evidencing a partnership between the Parties or any of them or
as to lead to the joint receipt of income by the Parties or any of
them.
4 OPERATOR
4.1 Operator
Indo is hereby appointed Operator and agrees to act as such in
accordance with the terms and conditions of this Agreement.
4.2 Removal of Operator
Notwithstanding that the Operator may have given notice of
intention to resign pursuant to Clause 4.5, the Operator shall
cease to be Operator and shall be deemed to be removed if.
(a) a controller (as defined in the Companies Act 1993 of New
Zealand) is appointed in respect of the whole or any part of
the property of the Operator;
(b) an order is made that the Operator be wound up;
(c) a liquidator or provisional liquidator is appointed in
respect of the Operator;
(d) there is a resolution for the winding up of the Operator
except to reconstruct or amalgamate while solvent and on
terms approved by the Operating Committee, such approval not
to be unreasonably withheld;
(e) an administrator is appointed to the Operator;
<PAGE> 107
(f) the Operator assigns or purports to assign, all or any of its
general powers and responsibilities of supervision and
management as Operator under this Agreement otherwise than to
a Related Company with the prior written consent of the other
Parties;
(g) the Operator becomes a Defaulting Party pursuant to Clause
15; or
(h) the Operator commits any breach of this Agreement (other than
a default in payment for which provision is made in Clause
15, in which case, Clause 4.2
(g) shall apply) which places the whole or any part of the Permit
or Joint Property in jeopardy and continues such breach for
a period of not less than twenty (20) Business Days after
notice requiring the same to be remedied shall have been
given to the Operator by one or more of the Parties.
(i) the Operator and its Related Companies cease to hold an
aggregate Participating Interest of 20% or greater, unless no
other Party holds a greater Participating Interest.
4.3 Non-Operators' Power to Nullify or Suspend Removal
Notwithstanding the provisions of Clause 4.2 and until the
appointment of a new Operator pursuant to the provisions of Clause
4.6(a), the Parties, other than the former Operator, may by
unanimous resolution, subject to such conditions, if any, as are
specified in such resolution:
(a) nullify the removal of the Operator; and
(b) suspend or postpone the removal of the Operator either for a
specified period or for an unspecified period to be
specified by a subsequent unanimous resolution of the Non
Operators.
4.4 Replacement of Operator
The Operator shall be replaced if at least two Parties being
holders of not less than seventy-five percent (75%) of the
Participating Interests held by all the Parties so resolve and
upon such resolution the Operating Committee shall appoint a
successor Operators as provided in Clause 4.6(b).
4.5 Resignation of Operator
The Operator may resign by giving each of the Parties ninety (90)
Business Days' written notice (or such lesser period of notice as
the Operating Committee may resolve to accept) of its intention to
do so.
<PAGE> 108
4.6 Appointment of New Operator
If an Operator:
(a) is deemed to have been removed pursuant to Clause 4.2 a
successor Operator shall be appointed by a vote carried by
such number of the Parties, other than the removed Operator
and any Related Company of the removed Operator, the total of
whose Participating Interests constitutes a majority of the
total of the Participating Interests of the Parties other
than the removed Operator and any Related Company of the
removed Operator; or
(b) is replaced pursuant to Clause 4.4 a successor Operator shall
be appointed by the Operating Committee provided that in the
event that a decision of the Operating Committee is not
promptly reached pursuant to Clause 7.3, then a successor
Operator may be appointed by a vote carried by such number of
the Parties, other than the former Operator and any Related
Company of a former Operator, the total of whose
Participating Interests constitutes a majority of the total
of the Participating Interests of the Parties other than the
former Operator and any Related Company of the former
Operator; or
(c) resigns pursuant to Clause 4.5, the Operating Committee shall
appoint a new Operator.
4.7 Consent to Appointment as Operator
Except as provided in this Clause 4.7, no Party shall be appointed
Operator unless it has given written consent to the appointment.
If by reason of failure to appoint a new or replacement Operator,
no Operator is functioning at any time, then until the appointment
of an Operator the Party having the greatest Participating
Interest (excluding the Party or Related Company of that Party
removed or replaced as Operator or which has resigned as Operator)
shall act as Operator for the time being. If two or more of such
Non-Operators have equal Participating Interests then the Operator
for the time being shall be selected by Parties (excluding the
Party or Related Company of that Party removed or replaced as
Operator or which has resigned as Operator) holding a simple
majority of Participating Interests and in the event that there
are no other such Parties then the selection shall be made by lot.
4.8 No Appointment of Removed Operator
An Operator which is deemed to have been removed under Clause 4.2
shall not be re-appointed as its. own immediate successor
Operator, except with the unanimous consent of the Parties.
<PAGE> 109
4.9 Effective Date of Appointment
The appointment of a successor Operator shall take effect in
accordance with the following provisions:
(a) in the case of the deemed removal of an Operator pursuant to
Clause 4.2, the appointment of a successor Operator pursuant
to Clause 4.6(a) or Operator for the time being pursuant to
Clause 4.7 shall take effect forthwith upon such appointment;
(b) in the case of the replacement of an Operator pursuant to
Clause 4.4, the appointment of the outgoing Operator shall
cease at a time to be agreed upon by the Operating Committee
and the outgoing Operator or in the absence of agreement at
8.00 am on the first Business Day of the month following the
month in which it is resolved to replace the Operator
pursuant to Clause 4.4, and the appointment of a successor
Operator pursuant to Clause 4.6(b) or Operator for the time
being under Clause 4.7 shall take effect in each case at such
time; and
(c) in the case of the resignation of an Operator pursuant to
Clause 4.5, the appointment of a successor Operator pursuant
to Clause 4.6(c) or Operator for the time being under Clause
4.7 shall take effect at 8.00 am on the first day following
the expiration of ninety (90) Business Days (or such lesser
period of notice as is accepted by the Operating Committee)
after the date upon which notice of resignation was given
pursuant to Clause 4.5.
4.10 Delivery of Property on Change of Operator
At the effective date of the resignation, removal or replacement
of the Operator as herein provided, the outgoing Operator shall
deliver to the successor Operator custody of all Joint Operations
for the Joint Account or otherwise operated by the outgoing
Operator, the Joint Property, and all other facilities held for
the Joint Account or due to Sole Risk Operations, all books of
account and records kept for the Joint Account or due to Sole Risk
Operations and all documents, agreements and other, papers
relating thereto and all other things held by the Operator, as
Operator.
4.11 Consequences of Change and Delivery of Property
Upon delivery of the property, books and records referred to in
Clause 4. 10, the outgoing Operator shall be released and
discharged from, and the successor Operator shall assume, all
duties and obligations of the Operator, except the unsatisfied
duties and obligations of the outgoing Operator accrued prior to
the effective date of the change of Operator and for which such
outgoing Operator shall, notwithstanding its release or discharge,
continue to remain liable. In order to give effect. to the
potential application of the provisions of this Clause, each
<PAGE> 110
Operator shall use its best endeavours to ensure that all
contracts and engagements entered into by such outgoing Operator
for the Joint Account enure for the benefit of and are, if
applicable, assignable to a successor Operator without penalty or
premium upon such assignment.
4.12 Audit of Accounts on Change of Operator
Upon every change of Operator and not later than eighty (80)
Business Days after the successor Operator commences to act as
Operator, the Parties (other than the outgoing Operator) shall
cause an audit to be made of the books of account and records kept
for the Joint Account. 'Me cost of the audit shall be for the
Joint Account unless the Operator has been replaced pursuant to
Clause 4.4 in which case the cost of the audit shall be charged to
those Parties who have voted to replace the Operator.
5 FUNCTIONS AND DUTIES OF OPERATOR
5.1 Control and Management of Joint Operations
Subject to the terms of this Agreement and to the control and
direction of the Operating Committee under this Agreement, the
Operator shall have the exclusive control and management of, and
shall be obligated to conduct, Joint Operations.
5.2 Independent Status of Operator
The Operator shall furnish or cause to be furnished all material,
labour and services necessary for Joint Operations, consistent
with approved programs and budgets. Subject to Clause 5.3, the
Operator shall determine the number of employees, their selection
and the hours of labour and the compensation for services to be
paid to them in connection with Joint Operations. All employees,
agents and contractors used in Joint Operations shall be the
employees, agents and contractors of the Operator or a Related
Company of the Operator.
In all dealings with contractors, suppliers and other third parties
in accordance with this Agreement the Operator shall act and
contract as agent for the Parties.
5.3 Proper Practices in Joint Operations
The Operator shall carry on all Joint Operations in a proper,
efficient economical and safe manner in accordance with good
oilfield practices and conservation principles, with all
reasonable skill and effort in the circumstances, with good and
sufficient equipment and in accordance with the terms and
.conditions of the Permit and the Act.
<PAGE> 111
5.4 Books and Records
The Operator shall, with respect to all Joint Operations conducted
by it, keep and maintain at its principal office for the Joint
Account, as required by the Act and in accordance with generally
accepted accounting principles in New Zealand, true and correct
books, records and accounts showing the development and progress
made, drilling done, other Joint Operations carried out, the
quantity of Petroleum produced from each well and the disposition
thereof.
5.5 Protection from Liens
Subject to the Operator holding sufficient funds in the Joint
Account from time to time, the Operator shall pay, or cause to be
paid, as and when they become due and payable, all -accounts of
contractors and claims for wages and salaries for services
rendered or performed and insofar as it may be within its control
for materials supplied in respect of any Joint Operations, and
keep the Permit and any property acquired for the Joint Account
free from liens and encumbrances resulting from such Joint
Operations save to the extent only that the same may arise from a
bona fide dispute with respect to any such account or claims and
shall not suffer any claims of or dues to or on behalf of any
Government Governmental Board or Authority to remain unsatisfied
or become in arrears.
5.6 Non-Operator's Rights of Access
Subject to:
(1) the giving of 24 hours' prior notice to the Operator (except
in the case of testing, coring, logging, measurement of total
depth, plugging and abandoning); and
(2) not causing any unreasonable interference with the conduct of
the Joint Operations, each Non-Operator shall have the right
at the Non-Operator's sole risk, cost and expense for persons
authorised and nominated by it and advised to the Operator to
have full and free access at all reasonable times for the
purposes of inspection and observation of all Joint
Operations and the records of Joint Operations and any
information obtained as a result of Joint Operations.
5.7 Compliance with Terms of Permit
The Parties acknowledge and agree that, when the Operator enters
into any contract for the Joint Account it contracts solely as
agent for each Party severally in proportion to its Participating
Interest and not as principal, and notwithstanding that the names
of the non-operators do not appear on any such contract or that
the Operator does not disclose the existence or identity of any
Party as principal or the capacity of the Operator as agent.
<PAGE> 112
5.8 Taxes and Fees
The Operator shall pay for the Joint Account, all taxes (exclusive
of any taxes measured by the income of any Party or receipt by any
of them of Petroleum), fees and other payments pertaining to the
Permit and Joint Operations required to be paid to the Government
in a manner which will discharge the Parties' obligations with
respect thereto.
5.9 Budget Expenditures by Operator
The Operator shall conduct each program of Joint Operations
approved by the Operating Committee and shall not undertake any
Joint Operations not included in any approved program or incur
expenditures in excess of the expenditures authorised by an AFE
approved pursuant to Clause 8.5 or otherwise authorised in this
Agreement.
5.10 Operator to Hold Property
The Operator shall have and hold full and exclusive possession,
custody and control on behalf of the Parties of all Joint Property
and the title documents to the Permit.
5.11 Operator's General Duties
In the conduct of Joint Operations, the Operator shall:
(a) confer freely with the Non-Operators and keep them currently
advised of all significant matters arising in connection with
Joint Operations;
(b) acquire and maintain custody of all such premises, furniture,
fixtures, fittings, materials, supplies, plant, machinery,
equipment and services as are necessary or desirable for such
Joint Operations;
(c) obtain from outside experts and consultants such technical,
legal, accounting and other professional advice and services
as are necessary or desirable for Joint Operations;
(d) prepare and file reports and returns (other than those based
upon or measured by income) required by law or this Agreement
and furnish the Non-Operators promptly with copies thereof;
(e) keep books, accounts and records of Joint Operations and
prepare and furnish to the Non Operators reports, including
but not limited to, exploration progress reports, geological
and geophysical reports, daily drilling reports, well logs,
production reports and, reports furnished by the Operator to
the Government relating to Joint Operations;
<PAGE> 113
(f) subject to their availability, make available to any Non-
Operator requesting the same samples of rocks, cores and
formation fluids taken from any wells drilled under this
Agreement;
(g) prepare and present to the Non-Operators proposed work
programs, corresponding budgets and AFEs as provided in
Clause 8;
(h) subject to the provisions of Clause 12, carry out all Sole
Risk Operations;
(i) procure and maintain insurance and adjust losses and claims
arising out of such insurance as provided in this Agreement;
(j) provide the Non-Operators, upon request with a copy of all or
any contract entered into by the Operator pursuant to this
Agreement;
(k) do all such other acts and things as may be necessary or
desirable under this Agreement for the efficient and
economical conduct of Joint Operations;
(l) provide on a timely basis and at the cost of the Non-Operator
concerned, such data additional to that distributed pursuant
to this Agreement as is required to enable each of the
Non-Operators to make, to the extent that any such Non-
Operator legally is required so to do, public statements or
announcements to any governmental agency or official stock
exchange;
(m) within twenty (20) Business Days after the end of each month,
furnish to each Non-Operator a summary report on Joint
Operations conducted during such month;
(n) negotiate with the Government on behalf of all of the Parties
in respect of those matters which the Operating Committee
considers necessary or desirable; and
(o) provide on a timely basis and at the cost of the Non-Operator
concerned such data additional to that distributed pursuant
to this Agreement as that Non-Operator may reasonably
require.
5.12 Operator to Let for Bid Certain Contracts
Unless the Operating Committee decides otherwise, the Operator
will comply with the following provisions in relation to entering
into contracts:
(a) the Operator shall invite competitive tenders in respect of
contracts for materials or services for the Joint Account the
cost of which is likely to exceed $75,000 for any one item or
series of related items.
<PAGE> 114
(b) In addition to any other approvals required under this
Agreement, the Operator shall obtain Operating Committee
approval to the principal terms of contracts for materials or
services for the Joint Account, the cost of which, in the
opinion of the Operator, is likely to exceed, for any one
item or series of related items:
1) in the case of contracts for drilling rigs - $500,000
2) in the case of contracts for the acquisition and/or
processing of seismic - $250,000
3) in the case of contracts incorporated in a program and
budget other than contracts for drilling rigs and
seismic - $150,000
(c) where bids are required under this Clause 5.12, each Party
and any-Related Company of a Party shall have the right to
submit a bid.
6 OPERATOR LIABILITY AND INDEMNITY
6.1 Liability of Operator
The Operator and its directors, officers, employees, shall not be
responsible for any costs, losses, claims, damages or liabilities
suffered or incurred by any Party arising out of or in the course
of the discharge of its duties as Operator hereunder except for:
(a) any costs, losses, claims, damages and liabilities arising,
directly or indirectly, from Wilful Misconduct or Gross
Negligence of the Operator; and
(b) those amounts which the Operator is liable to expend or
contribute in the discharge of its obligations as a Party in
terms of this Agreement.
The Operator shall not be liable in any circumstances for any loss
of profits or other consequential losses whatsoever or howsoever
occurring.
6.2 Indemnity of Operator
Each of the Non-Operators, severally to the extent of its
Participating Interest, shall at all times indemnify and keep
indemnified the Operator and its directors, officers and employees
against all liabilities, losses, damages, costs and expenses
suffered or incurred by the Operator and its directors, officers
and employees in relation to Joint Operations other than those
liabilities, losses, damages, costs or expenses arising directly
from the Wilful Misconduct or Gross Negligence of the Operator.
<PAGE> 115
7 OPERATING COMMITTEE
7.1 Composition of Operating Committee
To provide for the orderly selection, control and direction of
Joint Operations there shall be established promptly an Operating
Committee. Subject to Clause 7.11, the Operating Committee shall
be comprised of a representative of each of the Parties and each
Party shall appoint one representative and one alternate
representative to serve on the Operating Committee. The Operators
representative shall be the chairman of the Operating Committee.
7.2 Formation of Operating Committee
Subject to clause 7.11, within twenty (20) Business Days after the
Effective Date, each Party shall notify each of the other Parties
of the names and addresses of its representative and alternate
representative who shall represent such Party and is deemed
authorised to bind such Party with respect to all matters in
connection with Joint Operations. Each alternate representative
shall be entitled to attend all Operating Committee meetings but
shall have no vote at such meetings except in the absence or
disability of the representative for whom he is the alternate.
Each Party shall have the right to change its representative
and/or alternate at any time by giving notice to such effect to
the Other Parties.
In addition to the representative and alternate representative,
each Party may bring to all such meetings such technical and other
advisers as it may deem appropriate. The Parties shall pay the
expenses of attendance at Operating Committee meetings of their
own representative and/or alternative representative and advisers.
7.3 Vote Required for Decisions of Operating Committee
Except as otherwise provided in this Agreement, all decisions of
the operating Committee on all matters coming before it shall be
made by the affirmative vote of two or more Parties having
collectively not less than seventy five percent (75%) of the
aggregate of the Participating Interests of the parties entitled
to vote thereon. The Operating Committee shall have no power to
make a decision:
(a) to assign or (except with the unanimous approval of the
Parties) voluntarily surrender any part or parts of the
Permit; or
(b) to enter into, amend or vary this Agreement or any agreement
between the Parties and a Government; or
(c) upon any matter in respect of which specific provision is
made in this Agreement for a decision to be made in a
different fashion.
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Except as otherwise specifically provided in this Agreement, the
decisions of the Operating Committee shall be binding on the
Parties.
7.4 Quorum for Meetings of Operating Committee
(a) No meeting of the Operating Committee shall transact any
business unless a quorum is present.
(b) A quorum for the purposes of a meeting of the Operating
Committee shall be constituted by the representatives of not
less than two Parties present and entitled to vote holding
Participating Interests aggregating at least seventy five
percent (75%) of the Participating Interests of the Parties
entitled to vote.
(c) If a quorum is not present within an hour from the time
appointed for a meeting of the Operating Committee (or such
longer period as the Parties then present unanimously agree
to remain), the meeting shall stand adjourned for five (5)
Business Days to the same time and place.
7.5 Meetings of Operating Committee
(a) The Operating Committee may meet, either personally or by
telephone, video conference or any other form of
instantaneous communication by which all participants can
properly communicate with each other, for the dispatch of
business and, subject to this Agreement adjourn and otherwise
regulate its meetings as it thinks fit One of such meetings
shall be the annual meeting of the Operating Committee and
shall take place no later than 1 month prior to the
commencement of the next succeeding Permit Year.
(b) The Operating Committee shall meet whenever requested by the
giving of fifteen (15) Business Days' written notice by the
Operator and shall meet at least once each year to consider
the program and budget referred to in Clause 8. A notice
given pursuant to this Clause shall include the agenda for
the meeting. The Operating Committee may meet at such other
times as the Parties entitled to vote unanimously agree.
(c) Any Party requesting the Operator to give a notice requesting
a meeting shall provide the Operator with sufficient
information concerning the matters to be considered thereat
to enable the Operator to comply with its obligations
pursuant to Clause 7.9(a).
(d) Any Party requesting the Operator in the manner provided in
Clause 7.5(b) to give a notice requesting a meeting shall be
entitled to give such notice in lieu of the Operator if the
Operator fails to give such notice within five (5) Business
Days of receiving the request from such Party in which case
the meeting shall be held at the time and place as specified
by such Party in the said notice.
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(e) Meetings of the Operating Committee shall resolve only such
matters as are specified in the notice of meeting provided
however that the Operating Committee may by the unanimous
vote of the representatives of all Parties amend any notice
of meeting to include additional matters.
(f) The failure by a Party to vote on any resolution put for
decision by the Operating Committee shall be deemed to be a
vote against such resolution.
7.6 Resolution in Absence of Meeting
(a) In lieu of a meeting, the Operator may and shall promptly at
the request in writing of any Non-Operator submit any matter
which is proper for consideration by the Operating Committee
to the representatives of the Parties by giving each
representative notice by mail or facsimile adequately
describing the matter so submitted. Each representative of a
Party entitled to vote shall communicate its vote thereon to
the Operator and to the other Parties by mail or facsimile
within such period as may be designated in the notice given
by the Operator, which period shall not except as otherwise
provided in this Agreement, be less than six (6) Business
Days after receipt of such notice.
(b) Where the Parties are requested to vote on any proposal in
circumstances other than those described in Clause 7.6(c) or
Clause 12.19 and where the matter presented for consideration
by its nature requires determination in less than six (6)
Business Days and such fact and lesser period (which shall
not be less than forty-eight (48) hours after receipt of such
notice) are so stated in the notice submitting the proposal,
the Parties shall cast their vote within such lesser period.
The Operator shall use all reasonable endeavours to ensure
that each Party is aware of the proposal. Failure by a Party
to cast its vote within the relevant period shall be regarded
as a vote by that Party against the proposal.
(c) Where the Parties are requested to vote in circumstances
other than those described in Clause 12.19 on any proposal in
respect of a well on which drilling equipment is then
located:
(1) any request made or response given may be made or given
by telephone and shall be confirmed by facsimile the
same day or, if outside normal business hours, on the
next Business Day. Any time periods provided in this
Clause 7.6(c) shall begin to run from the time of such
request and
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(2) each Party shall cast its vote within twenty-four (24)
hours of the receipt of such request or within such
longer period as is stated in the request. Failure of a
Party to cast its vote within the relevant period shall
be regarded as a vote by that Party against the
proposal.
(d) If the proposal is not one to which Clause 7.6(b), Clause
7.6(c) or Clause 12.19 applies and within six (6) Business
Days after receipt of such notice, a request by any Party is
made for a meeting to consider such matter, it shall be
considered at a meeting duly called for that purpose. If a
meeting is not requested, then at the expiration of the
period designated in the notice given by the Operator, the
Operator shall give to each representative written notice
stating the tabulation and results of the vote. The absence
of a response by any representative shall be deemed to be a
negative vote.
(e) Decisions of the Parties made pursuant to Clause 7.6 shall be
made by the same vote as is provided for in Clause 7.3 and
shall have the same effect as decisions made at a meeting of
the Operating Committee pursuant to Clause 7.3.
7.7 Sub-Committees
The Operating Committee may establish such sub-committees,
including a technical sub-committee, consisting of a nominee of
each Party, as the Operating Committee may deem appropriate. The
functions of such sub-committees shall be determined by the
Operating Committee. Such subcommittees shall meet whenever
requested by the giving of ten (10) Business Days' written notice
by the Operator (which shall give such notice within five (5)
Business Days after it is requested to do so by any Party). Such
sub-committees shall be advisory only and shall have no power to
direct the Operator or the Operating Committee.
7.8 Place of Meetings
Except as provided for in Clause 7.5(c), all meetings of the
Operating Committee shall be held at an office nominated by the
Operator or such other place as may be decided by the Operating
Committee.
7.9 Operator's Duties Concerning Meetings
With respect to meetings of the Operating Committee, the
Operator's duties shall include, but not be limited to:
(a) preparation and distribution of an agenda together with
reasonably adequate supporting information;
(b) organization and conduct of the meeting;
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(c) preparation of a written record of decisions taken at each
meeting for signature by all Parties prior to the end of the
meeting;
(d) preparation of minutes of each meeting with copies thereof
delivered to the representatives of the Parties as soon
thereafter as possible (but no later than ten (10) Business
Days) for approval as to the accuracy thereof provided always
that if none of the representatives of the Parties to whom
copies of any such minutes are required to be sent shall
object thereto by writing to the Operator within fifteen (15)
Business Days of receipt of the copy then such minutes are
deemed to have been approved provided further that the
failure by the representatives to approve such minutes shall
not invalidate any decision taken at such operating Committee
meeting; and
(e) maintenance of a permanent file of all Operating Committee
decisions.
7.10 Operating Committees Functions
The functions of the Operating Committee shall include, but not be
limited to:
(a) review and approval of programs and budgets and of AFEs;
(b) determining policies with respect to all Joint Operations;
(c) consideration of the necessity or otherwise of feasibility
studies and terms of reference thereof in relation to Joint
Operations on the Area;
(d) approval of the locations and well plans of all proposed
wells;
(e) approval of well spacing patterns;
(f) approval of production profiles;
(g) determining applications for the renewal of the Permit; and
(h) deciding such other matters pertaining to Joint Operations
and proposed Joint Operations as may arise from time to time
and are required to be submitted to the Operating Committee
by the terms of this Agreement and to make decisions in
respect of all other matters pertaining to this Agreement not
assigned to the Operator or the Parties hereunder.
<PAGE> 120
7.11 Minimum Participating Interest for Representation
A Party whose Participating Interest is less than five percent
(5%) or becomes less than five percent (5%), shall not be entitled
to appoint or retain a representative or alternate pursuant to
Clause 7.2, nor to have a vote proportionate to its Participating
Interest in connection with any decision of the Operating
Committee, except as hereinafter provided.
Two or more Parties, having Participating Interests the sum of
which is five percent (5%) or more, may combine to appoint a
representative and alternate pursuant to Clause 7.2, which
representative shall represent and be deemed authorised to bind
such Parties in every way as though such Parties were one Party
having a Participating Interest equal to the sum of such Parties'
Participating Interests, and such Parties shall be entitled to
cast a vote in connection with any decision of the Operating
Committee as though such Parties were one Party having a single
vote proportionate to the sum of such Parties' Participating
Interests.
8 PROGRAMS AND BUDGETS
8.1 Submission of Programs and Budgets
During the term of this Agreement and unless otherwise agreed by
the Operating Committee the Operator shall submit to each Party's
representative on the Operating Committee by no later than
three(3) months before the commencement of each Permit Year a
recommended program and budget for such Permit Year.
8.2 Adoption of Programs and Budgets
Unless otherwise agreed by the Operating Committee, by no later
than one (1) month before the commencement of each Permit Year the
Operating Committee shall meet to decide upon the program and
budget for such Permit Year. Subject to the provisions of Clauses
8.4, 8.5 and 8.10 to 8.12 inclusive, such decision shall oblige
the Parties to bear and pay their respective Participating
Interest shares of all liabilities, costs and expenses arising or
incurred under the program and budget so approved.
8.3 Minimum Programs, Budgets and Work Obligation Determination
(a) If by fifteen days before the commencement of any Permit Year
the Operating Committee having used all reasonable endeavours
has been unable to decide on the program and budget for that
Permit Year the Operating Committee shall attempt to
determine a programme and budget sufficient to meet the Work
Obligation for such Permit Year by the affirmative vote of
Parties the aggregate of whose Participating Interests
exceeds fifty percent (50%). If the Parties at any time from
time to time, fail to approve an AFE necessary to meet that
program and budget, then the Operating Committee shall be
<PAGE> 121
deemed to have approved all AFEs necessary for the Operator to
carry out Joint Operations sufficient to meet all of the Work
Obligation relating to that Permit Year, which has not by that
date, been satisfied.
(b) If the Operating Committee is still unable to decide upon a
program and budget within ten (10) Business Days after the
commencement of such Permit Year, the Operator shall prepare
and dispatch without delay and in any event by not later than
thirty (30) Business Days after the commencement of the
Permit Year to each of the Parties a program and budget
sufficient to meet the Work Obligation for such Permit Year.
The Operating Committee shall be deemed to have approved such
program and budget and all AFEs necessary to give effect
thereto and each of the Parties shall be liable to the extent
of its Participating Interest for all costs and expenses
incurred by the Operator in carrying out the Work Obligation
in accordance with the AFEs.
(c) Not less than two(2) months prior to any date on which a Work
Obligation is to be agreed with the Minister for a new period
of the Permit, the Operating Committee shall meet to vote
upon the program to be submitted as the proposed Work
Obligation.
(d) Any Party voting against a program agreed under paragraph c)
shall despite clause 16.2 (a) have the right to withdraw from
the Permit by giving notice of its intention to do so within
10 days of the vote being taken. Such a withdrawn party must
be notified of any modified programme submitted under 8.3 (e)
and is deemed not to have withdrawn, unless anew notice under
(e) is received.
(e) If the Minister withholds approval of the program submitted
in accordance with paragraph c) above and invites submittal
of a modified program in accordance with the Act then the
Operating Committee shall meet and vote on a modified
program; and the right for a Party to withdraw, having voted
against the modified program will apply in the same manner as
in paragraph d) above.
8.4 Review of Programs and Budgets
Each approved program and budget shall be reviewed by the
Operating Committee at such times as the Operating Committee may
decide. If upon any such review the program and budget is amended,
the amended program and budget shall become the approved program
and budget provided always that any such amendment shall not
invalidate any authorised commitment or expenditure made by the
Operator prior thereto.
<PAGE> 122
8.5 Authorities for Expenditure (AFEs)
Subject to the provisions of Clauses 8.3, 8.6, 11.7 and 11.8, the
Operator shall not enter into any commitment or incur any
expenditure whether under an approved program and budget or
otherwise except in accordance with an AFE approved in accordance
with the following provisions of this Clause 8.5:
(a) The Operator shall after the Operating Committee has approved
a program and budget prepare an AFE in respect of each
seismic program, well or other major division of work in the
approved program and submit each such AFE to the Parties in
a timely fashion having regard to the Joint Operations to be
carried out under the approved program and the provisions of
this Clause 8.5.
(b) The Parties shall consider and unless a meeting of the
Operating Committee is called for such purpose vote upon each
AFE in accordance with the procedures provided for in Clause
7.6 except that such vote must be communicated not later than
ten (10) Business Days after its submission to the Parties.
A Party who fails to vote on such AFE within such ten (10)
Business Day period shall be deemed to have voted not to
approve the AFE.
(c) When the Operating Committee approves an AFE the Operator
shall be authorised and obliged to proceed with the
expenditure or commitment provided for therein and each Party
shall be obliged to bear and pay its respective Participating
Interest share of all liabilities, costs and expenses arising
or incurred under the AFE so approved.
(d) Each AFE submitted to the Parties and each approved AFE shall
be divided into individual meaningful categories, each of
which shall describe the operational and financial
requirements thereof in sufficient detail to identify its
scope and set out particulars of the best estimate of the
funds required to complete the work.
8.6 When Expenditure in Excess of Approved AFE is Authorised
Notwithstanding the provisions in Clause 8.5:
(a) if at any time it becomes apparent to the Operator that the
expenditure which will be incurred in respect of Joint
Operations covered by an approved AFE will exceed by more
than ten percent (10%) the amount allowed in the approved
AFE, the Operator shall forthwith prepare and submit to the
Parties for approval by the Operating Committee a
supplementary AFE relating to such excess expenditure. The
Operator shall use all reasonable efforts to prepare and
submit such supplementary AFE to the parties before any part
of such excess expenditure is incurred. If the Operating
Committee does not approve the supplementary AFE, the
Operator shall take all steps reasonably necessary to
<PAGE> 123
conclude, as expeditiously as possible, and with minimum cost
to the Parties, the Joint Operations in respect of which the
excess expenditure has been or is about to be incurred; and
(b) in the case of emergency, the Operator may take such action
as may in its judgment be necessary for the protection of
life or property and may incur all reasonable expenditure on
behalf of the Parties in so doing. In the event of so doing,
the Operator shall report promptly to the Parties the amount
of such expenditures and the circumstances in which they were
made.
Expenditure in excess of an approved AFE properly incurred by
the Operator pursuant to the provisions of paragraph (a) or
(b) above is deemed to be Authorised Expenditure within the
meaning of Clause 9. 1.
8.7 Approved Well Plan
Prior to the commencement of drilling of any well, the Operating
Committee shall have approved a well plan ("Approved Well Plan')
for that well which shall provide the detail relating to the
drilling of the well to its agreed total depth, including but not
limited to the casing program, mud program and proposed coring,
testing and wireline logging operations.
8.8 AFEs for Wells
The Operator shall compile an AFE for the drilling of a well on a
dry hole basis, but to include provision for such coring or open
hole testing as is in accordance with the Approved Well Plan for
that well.
8.9 Casing Point Decision
(a) Any decision by the Operating Committee pursuant to Clause 8
regarding the drilling, deepening, reworking, fraccing, side-
tracking or plugging back of a well shall not be deemed an
agreement or decision regarding the setting of casing and the
making of a Completion attempt for production.
(b) After any well drilled, deepened, reworked, fracced, side-
tracked or plugged back has reached Casing Point the Operator
shall give immediate notice pursuant to Clause 7.6(c) to all
Parties.
(c) The notice given by the Operator pursuant to the preceding
Clause 8.9(b) shall contain the Operator's recommendation
either:
<PAGE> 124
(1) to plug and abandon the well; or
(2) to Complete the well as a producer in which case the
notice shall include the appropriate Completion
procedures and the estimated cost of Completion and
Parties voting for the recommended Completion shall be
deemed to have voted in favour of a formal AFE to be
submitted as soon as practicable in the sum of such
estimated Completion costs.
(d) Each Party shall vote on the proposal in accordance with
Clause 7.6(c).
(e) If such number of Parties the aggregate of whose
Participating Interests-equals or exceeds the percentage
required for an affirmative vote of the Operating Committee
pursuant to Clause 7.3 approves the Completion of such well,
the Operator shall proceed to attempt the Completion of such
well as if such Completion had been approved at a meeting of
the Operating Committee.
(f) If there is a lesser percentage of approval for Completion
than that referred to in Clause 8.9(e) or if less than all
Parties have voted to plug and abandon the well, then the
Operator shall advise all Parties of the result of the vote
and any Party which voted for the Completion of the well may
thereupon immediately request that the operation to plug and
abandon the well be delayed (at such Partys expense) for a
period of up to 24 hours to enable Sole Risk Operations to be
considered. If no such request is made or if at the end of
the said 24 hours no Sole Risk Operation Notice has been
given, the Operator shall plug and abandon the well.
(g) Any notice to be given or election to be made pursuant to
this Clause 8.9 may be given or made by telephone and shall
be confirmed by facsimile as soon as practicable following
such telephone call. Any time periods provided in this Clause
8.9 shall begin to run from the time of such telephone call.
8. 10 Rights of Party Voting Against Operating Programs and Budget
(a) Subject to Clause 8.3, if any Party through its
representative at a meeting of the Operating Committee held
to approve a programme and budget votes against the carrying
out of any Joint Operations consisting of the drilling of one
or more wells which are not required to meet the work
Obligation for the relevant Permit Year ("Additional Joint
Operations") but which is included within a program and
budget for that Permit Year approved or deemed to be approved
by the Operating Committee, then such Party may notify the
Operator within the relevant time limits specified in Clause
8.12, that it will not participate in the Additional Joint
Operations ("Non-Consenting Party").
<PAGE> 125
(b) Subject to Clause 8.11, all the Parties which have approved
the program and budget containing the Additional Joint
Operations ("Consenting Parties") will thereafter share in
all costs, risks, liabilities, expenses and benefits arising
or incurred with respect to the Additional Joint Operations
in the proportion that each of their respective Participating
Interests bears to the total of the Participating Interests
of all the Consenting Parties.
8.11 Consenting Parties' Premium
(a) Where a Non-Consenting Party notifies the Operator that it
will not participate in the Additional Joint Operations, the
Operator shall notify the other Parties within 7 days of
receipt of such notice. If any Party which voted for the
program and budget containing the Additional Joint Operations
then notifies the Operator within 7 days of receipt of the
Operator's notice that it does not wish to participate in the
Additional Joint Operations, the Party shall be deemed to be
a Non-Consenting Party under this clause and thereafter shall
not be responsible for any costs, risks or expenses
attributable to the Additional Joint Operations. In this
event, the remaining Parties will be given immediate notice
of their projected readjusted contribution to costs, and have
an extra 48 hours to advise Operator of their consenting or
non-consenting status. Notwithstanding the above, such 7-day
notice period shall be shortened to 48 hours if the
Additional Joint Operations are currently in progress.
(b) The Consenting Parties' rights, interests and benefits in
respect of the results of the Additional Joint Operations
shall be determined in accordance with those sub-clauses of
Clause 12 applicable to the nature of the Additional Joint
Operations as if the Additional Joint Operations were Sole
Risk Operations and the Consenting Parties were Sole Risk
Parties in such Sole Risk Operations.
8.12 Notice to Operator
Notice to be given to the Operator by a Non-Consenting Party
pursuant to Clause 8. 1 0(a) shall be given within the following
periods:
(a) if the Additional Joint Operations are to be commenced within
30 days after the close of the meeting of the Operating
Committee at which the program and budget containing the
Additional Joint Operations was approved, within 7 days after
the date of that meeting;
(b) if the Additional Joint Operations are to be commenced more
than 30 days after the close of the meeting of the Operating
Committee at which the program and budget containing the
Additional Joint Operations was approved, within IS days
after the date of that meeting.
<PAGE> 126
(c) if the Additional Joint Operations are currently in progress,
within 48 hours after the receipt of notice from the Operator
thereof.
9 COSTS AND EXPENSES
9.1 Allocation of Expenditure
Subject to the provisions of this Agreement, all expenditure
relating to Joint Operations, including without limitation the
handling, treating, storing and transporting to the Delivery Point
of Petroleum produced from the Area shall, except as otherwise
specifically provided herein, be borne by the Parties in
proportion to their respective Participating Interests. All
liabilities of the Joint Venture shall be borne in the same
proportions. To the extent that any such expenditure is included
in an approved AFE or is otherwise authorised pursuant to this
Agreement, such expenditure shall be deemed to be authorised and
shall be referred to as "Authorised Expenditure".
9.2 Accounting Procedure as Basis
The Accounting Procedure shall be the basis for all charges and
credits to the Joint Account except as the Accounting Procedure
may be in direct conflict with this Agreement in which event the
provisions of this Agreement shall prevail, and the Operator shall
keep its records of costs and expenditure in accordance with such
Accounting Procedure. The Operator must charge on the basis that
it is intended to neither gain nor lose in performing the
functions and duties of the Operator under this Agreement.
9.3 Payment by Operator and Reimbursement
The Operator shall initially pay all Authorised Expenditure and
shall debit the Parties for their respective shares thereof.
Unless the Operator shall have received advances for such purposes
as provided for in this Agreement each Party shall forthwith
reimburse the Operator for its share of such Authorised
Expenditure in accordance with the provisions of this Agreement.
9.4 Calls by Operator
The Operator may require the Non-Operators to advance their
respective proportions of Authorised Expenditure in which event
the provisions of Article 1.2.1 of the Accounting Procedure shall
apply.
9.5 Banking of Funds
All funds received by the Operator under the provisions of this
Agreement (other than funds received for the purpose of a Sole
Risk Operation) shall be lodged by the Operator in a separate bank
account in the name of the Joint Venture maintained by the
Operator and styled as directed by the Operating Committee. The
<PAGE> 127
Operator shall deposit to such account its own share of Authorised
Expenditure or of advances to meet Authorised Expenditure due by
it within the same time limits within which the NonOperators are
required to pay their shares to the Operator. Pending the
expenditure thereof, the funds advanced by any Party shall be held
by the Operator in trust for the respective Party, subject to the
terms of this Agreement.
9.6 Investment of Funds
Each Party hereby authorises the Operator to invest the funds
lodged in the bank account referred to in Clause 9.5 from time to
time in interest bearing deposits with such bank or in such other
forms of investment as are from time to time approved by the
unanimous resolution of the Parties. Each Party shall be entitled
to receive or be credited with the interest earned upon the
investment of its funds.
9.7 Withdrawal of Funds
The Operator is hereby authorised to withdraw funds from the bank
account or interest bearing deposit or other investments as they
are required by the Operator to pay Authorised Expenditure.
10 INFORMATION ON JOINT OPERATIONS
10.1 Information as to Petroleum Production
The Operator shall furnish to each Party each month a statement of
the amount of Petroleum produced (including any Petroleum used,
flared or lost), gathered, treated, processed, transported, stored
and delivered during the preceding month and in stock at the end
of that month within the scope of such Operator's responsibility.
10.2 Access to Records and Information
Unless otherwise specifically provided for in this Agreement and
subject to Clause 15.8 and upon reasonable notice to the Operator
each of the Parties shall have access at all reasonable times for
the purpose of examination and, at its own expense, copying of all
tapes, data, reports, accounts, contracts, books, records and all
other information kept by the Operator in compliance with its
obligations hereunder including but not limited to those relating
to geological and geophysical surveys, drilling, exploration,
production and gathering, those relating to amounts of Petroleum
Produced, gathered, treated, processed, transported, stored and
delivered and those relating to plant and Pipeline design,
construction and costs.
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10.3 Drilling Information and Privileges of Non-Operators
Prior to the commencement of any well for the Joint Account the
Operator shall provide to each Party a copy of the Approved Well
Plan. With respect to any well drilled for the Joint Account, and
subject to Clause 15.8, the Operator shall furnish to each Party,
provided that weather or communication conditions do not prevent
the Operator from so doing:
(a) prompt notice by facsimile of the date of spudding in of the
well;
(b) daily drilling and geological reports; (c) immediate advice
by facsimile or telephone of:
(1) the encountering of any porous zone with showings of
hydrocarbons;
(2) any other occurrence not specified in the Approved Well
Plan which might justify the testing or evaluation of
the zone in question; or
(3) any material occurrence which the Operator considers
might justify a change from the Approved Well Plan,
together with a recommendation from the Operator of any
material departure from the Approved Well Plan which the
Operator thinks appropriate in the circumstances;
(d) on request, at the expense of the requesting Party, a
complete set of washed samples of the cuttings of the
formations penetrated if practicable;
(e) access to all cores taken; and (f) at the expense and risk of
each Party and upon reasonable notice to the Operator, access
to the drilling rig to such persons as that Party shall
nominate for the purposes of viewing any or all Joint
Operations provided that such access does not unreasonably
interfere with Joint Operations and that such persons comply
with all applicable safety requirements and directions.
10.4 Testing and Information to Non-Operators
With respect to any well drilled, the Operator shall:
(a) be ready to receive the comments of and discuss with the Non-
Operators any advice given by the Operator pursuant to Clause
10.3(c);
(b) proceed in all material respects in accordance with the
Approved Well Plan unless or until such time as the Operating
Committee directs otherwise;
(c) proceed with any variation of the Approved Well Plan directed
by the Operating Committee;
<PAGE> 129
(d) take representative samples and drill stem test fluid samples
and supply each Non-Operator with all information relative
thereto; and
(e) supply each Non-Operator with copies of the test and service
report on each test run, including copies of pressure charts
provided that each Non-Operator shall be entitled to no more
than two copies of each such report and related data.
10.5 Logging Information to Non-Operators
During the drilling of the well and upon the well reaching the
total depth, the Operator shall run all log surveys as are
approved by the Operating Committee and shall as soon as
practicable supply each Non-Operator with a copy of each log so
run.
10.6 Test Following Logging
At any time prior to any Operating Committee decision which would
negate such a request if a Party requests (which request may be
made by telephone or facsimile) that the Operator tests an
interval in the well, the Operator shall promptly request the
Parties to vote on the proposal pursuant to the provisions of
Clause 7.6(c).
10.7 Seismic and Other Reports
The Operator shall supply each Party at the expense of the Joint
Account with:
(a) a copy of all seismic sections;
(b) a copy of the final report on all seismic surveys;
(c) a copy of the well completion report for each well; and
(d) a copy of any other reports prepared on behalf of the Joint
Venture in connection with Joint Operations.
11 INSURANCE AND LITIGATION
11.1 Operator to Maintain Insurance
The Operator shall at all times while conducting Joint Operations
purchase and maintain for the Joint Account for the protection and
indemnification of the Parties:
(a) all such insurances as are required by the terms of the
Permit;
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(b) personal injury insurance and property damage insurance in
respect of motor vehicles of all kinds engaged in Joint
Operations for a minimum of $5,000,000.00 or such greater
amount as the Operating Committee may from time to time
determine;
(c) workers compensation (including unlimited common law risk),
employer's liability and other insurance of a similar or
dissimilar nature as may be required by law;
(d) public liability insurance for a minimum of $ 10,000,000.00
or such greater amount as the Operating Committee may from
time to time determine;
(e) industrial special risks insurance in respect of all Joint
Property for such amount as the Operating Committee may from
time to time determine;
(f) well control, pollution, seepage, clean up and redrilling
insurance (including underground blowout and
redrilling/recompletion) for a minimum of $ 10,000,000.00 or
such greater amount as the Operating Committee may from time
to time determine;
(g) insurance in respect of stocks of Petroleum held prior to
arrival at the Delivery Point in such amount as the Operating
Committee shall from time to time determine; and
(h) such other insurances or indemnities as the Operating
Committee may from time to time determine.
11.2 Contractors Insurance
The Operator shall in addition, require all contractors and sub-
contractors performing work for the Joint Venture to purchase and
maintain for the protection and indemnification of the Parties
insurances of the kind referred to in paragraphs (b), (c) and (d)
of Clause 11. 1 insofar as relates to such work of such
contractors or sub-contractors provided that the Operator may
(unless otherwise directed by the Operating Committee) dispense
with any such insurance in any case in which the Operator
determines that in all the circumstances it is appropriate to do
so and may determine such lower limit for any such insurance as
the Operator deems appropriate.
11.3 Review of Insurances
The Operator will when requested by the Operating Committee carry
out such review of the insurance effected pursuant to Clause 11.1
as the Operating Committee may require.
<PAGE> 131
11.4 Naming of Parties as Co-insured
The Operator and the other Parties and other persons for whose
benefit any policy of insurance is effected pursuant to Clauses
11.1 or 11.2 shall be named as co-insureds therein. The Operator
shall ensure that each such policy of insurance shall contain:
(a) a waiver of the right of subrogation by the insurer in favour
of the Parties; and
(b) a cross liabilities Clause to the effect that for the
purposes of the policy each Party and other person comprising
the insured shall be considered as a separate unit and the
policy shall apply to each such Party or other person in the
same manner as if a separate policy had been issued to each
of them in its name alone and the insurer waives all rights
of subrogation or action which it may have or acquire against
any such Party or other person.
11.5 Advice to Non-Operators of Current Insurance
The Operator will advise the Parties promptly of any additional
insurance effected or of any insurances cancelled, altered or
lapsed.
11.6 Partys Right to Increase Insurance
Any Party may at its own cost effect or increase any such
insurance so far as it relates to the interest of such Party under
this Agreement
11.7 Cost of Insurance and Charging of Losses
The actual costs of the insurance effected by the Operator
pursuant to Clause 11. 1 shall be charged to the Joint Account.
Any liability, loss, damage, claim or expense relating to Joint
Operations, whether in respect of an event which has been insured
or not shall be charged to the Joint Account and shall be borne
and paid by the Parties (without prejudice to any right of
indemnity or action which any Party may have) in proportion to
their Participating Interests at the time of the liability, loss,
damage, claim or expense in question.
Any Party may elect not to participate in any insurance if.
(a) it gives prompt notice of its non-participation to the
Operator (at least prior to the time at which the Operator
has entered into a contract for such insurance);
(b) its non-participation does not interfere, directly or
indirectly, with the Operator's negotiations for such
insurance and the other Parties participating in such
insurance or prejudice such insurance once obtained;
<PAGE> 132
(c) it produces to the Operating Committee such evidence of
insurance or financial responsibility, to cover its
Participating Interest share of the risks to be insured
against as the Operating Committee determines to be
acceptable; and
(d) any policy it effects to cover the risks to be insured
against includes waivers of subrogation by the insurer in
favour of the other Parties with respect to Joint Operations
and Joint Property and is subject to a condition that it
cannot be cancelled or varied, or permitted to expire,
without in each instance, the insurer having given to the
other Parties at least 14 days notice of that intent
11.8 Litigation
(a) Subject to the provisions of this Clause 11.8, all matters
relating to the enforcement or defence of rights in respect
of or arising out of Joint Operations shall be determined by
decisions of the Operating Committee.
(b) All actions taken by the Operator pursuant to this Clause
11.8 and all liabilities incurred pursuant thereto shall be
for the Joint Account and the payment of such liabilities
shall constitute Authorised Expenditure.
(c) All the provisions of this Agreement shall apply in relation
to matters referred to in this Clause 11.8 including without
limitation the provisions of Clauses 8.5 and 8.6 relating to
AFEs, the provisions of Clause 9.4 relating to calls by the
Operator and the provisions of Clause IS relating to defaults
in payment.
(d) The Operator shall promptly notify the Parties of any claim,
litigation, lien, demand or judgment relating to Joint
Operations.
(e) The Operator shall have the authority to prosecute, pursue,
defend or settle any claim, litigation, lien, demand or
judgment relating to Joint-Operations where the total amount
in dispute and/or the then total amount of damages together
with any costs is estimated by the Operator to be less than
$20,000.00 or such other amount as may from time to time be
specified by the Operating Committee.
(f) The Operator shall not except at the direction of the
Operating Committee prosecute, pursue, defend or settle any
claim, litigation, lien, demand or judgment relating to Joint
Operations where the then estimated total amount in dispute
and/or the total amount of damages together with any costs is
$20,000.00 (or such other amount as may from time to time be
specified by the Operating Committee) or greater.
<PAGE> 133
(g) Each Party shall promptly notify the other Parties of any
claim, litigation, lien, demand or judgment relating to Joint
Operations and shall use all reasonable endeavours not to
conduct such proceedings in such a way as to prejudice,
affect or vitiate any insurance effected pursuant to this
Clause 11.
(h) Notwithstanding the provisions of Clause 11.8(e), each Party
shall have the right to participate in any prosecution,
defence or settlement of any proceedings conducted in
accordance with Clauses 11.8(e) and 11.8(f) at its sole cost
and expense provided however that a Party exercising such a
right shall remain liable for its share of Joint Venture
costs.
(i) Any Party participating in the prosecution, defence or
settlement of any proceedings shall at all times take all
reasonable steps to ensure that it does so in such manner as
does not prejudice the rights of any of the other Parties.
(j) The provisions of this Clause 11.8 shall not apply to claims,
litigation, liens, demands or judgments made, brought or
obtained by a Party against another Party.
12 SOLE RISK OPERATIONS
12.1 Sole Risk Operation
The Parties shall propose and conduct Sole Risk Operations in
accordance with this Clause 12. A Party shall not give an Sole
Risk Operation Notice for a Sole Risk Operation (other than a Sole
Risk Operation where there is a rig on site as provided in Clause
12.19) unless the operation described in the Sole Risk Operation
Notice has been proposed in the Operating Committee in complete
form as contemplated in Clause 12.2 and has been rejected or after
the, next ensuing meeting of the Operating Committee it has failed
to gain approval.
12.2 Proposal of Sole Risk Operation
A Proposing Party may at any time give to the Receiving Parties an
Sole Risk Operation Notice, in which the Proposing Party shall
state the proposed location, purpose, program, estimated
commencement date and estimated cost (set out in the form of an
AFE) of the Sole Risk Operation and which shall be accompanied by
all relevant technical information (other than that already in the
hands of the Parties) and interpretations upon which the proposal
is based.
<PAGE> 134
12.3 Operating Committee to Consider Sole Risk Operation Notice
The Operator shall convene a meeting of the Operating Committee to
be held not less than twenty (20) Business Days and not more than
thirty (30) Business Days after the giving of an Sole Risk
Operation Notice. Unless all Receiving Parties shall prior to the
date of such meeting give notice to all Parties that the Sole Risk
Operation may proceed the Operating Committee shall meet and
consider the Sole Risk Operation Notice.
12.4 Sole Risk Operation Notice for Existing Well
If the Sole Risk Operation Notice relates to a well which is
suspended or is then being drilled other than a well which is
being or is about to be plugged and abandoned then the Sole Risk
Operation may proceed only if the Operating Committee approves the
same proceeding and in such event subject to such conditions, if
any, as the Operating Committee may impose on such Sole Risk
Operations.
12.5 Sole Risk Operation Notice for Exploration Well
If the Sole Risk Operation Notice relates to an Exploration Well
(which term includes an operation classified as an Exploration
Well pursuant to Clause. 12.15) then the Operating Committee shall
either:
(a) decide that the Joint Venture shall drill a well or conduct
an operation having the same purpose as the well or operation
described in the Sole Risk Operation Notice, to be commenced
(which in the case of the drilling of a well means spudded)
not later than six (6) months after service of the Sole Risk
Operation Notice; or
(b) make no such decision, whereupon the Proposing Party may
proceed with the Sole Risk Operation, subject to the
remaining provisions of this Agreement.
If the Operating Committee decides in accordance with paragraph
(a) above and the Joint Venture fails to commence to conduct the
operations within the six (6) months period provided for in that
paragraph, then the limitation period of six (6) months referred
to in Clause 12.9 is extended by the period of six (6) months and
the Proposing Party may proceed with the Sole Risk Operation,
subject to the remaining provisions of this Agreement.
12.6 Sole Risk Operation Notice for Appraisal Well
If the Sole Risk Operation Notice relates to an Appraisal Well
(which term includes without limitation, operations respectively
classified as Appraisal Wells pursuant to Clause 12.15 or Clause
12.18) then:
<PAGE> 135
(a) if at the time of service of the Sole Risk Operation Notice
Petroleum is not being produced from the Reservoir in respect
of which the operation described in the Sole Risk Operation
Notice is to be conducted, the Operating Committee shall:
(1) decide that the Joint Venture shall produce Petroleum
from such Reservoir within twelve (12) months after the
service of the Sole Risk Operation Notice; or
(2) decide that the Joint Venture shall drill a well or
conduct an operation having the same purpose as the well
or operation described in the Sole Risk Operation
Notice, to be commenced (which in the case of the
drilling of a well means spudded) not later than twelve
(12) months after the service of the Sole Risk Operation
Notice; or
(3) make no such decision, whereupon the Proposing Party may
proceed with the Sole Risk Operation, subject to the
remaining provisions of this Agreement; or
(b) if at the time of service of the Sole Risk Operation Notice
Petroleum is being produced from the Reservoir in respect of
which the operation described in the Sole Risk Operation
Notice is to be conducted, the Operating Committee shall
decide either:
(1) that the Joint Venture shall drill a well or conduct an
operation having the same purpose as the well or
operation described in the Sole Risk Operation Notice to
be commenced (which in the case of a well means spudded)
not later than six (6) months after service of the Sole
Risk Operation Notice; or
(2) make no such decisions whereupon the Proposing Party may
proceed with the Sole Risk Operation subject to the
remaining provisions of this Agreement.
If the Operating Committee decides in accordance with paragraph
(a)(i) or (a)(ii) above and the Joint Venture fails to produce
Petroleum or commence to conduct the operations within the twelve
(12) month period respectively provided for in those paragraphs,
then the limitation period of six (6) months referred to in Clause
12.9 is extended by the period of twelve (12) months, and the
Proposing Party may proceed with the Sole Risk Operation, subject
to the remaining provisions of this Agreement.
If the Operating Committee decides in accordance with paragraph
(b)(i) above and the Joint Venture fails to commence to conduct
the operations within the six (6) month period provided for in
that paragraph, then the limitation period of six (6) months
referred to in Clause 12.9 is extended by the period of six (6)
months, and the Proposing Party may proceed with the Sole Risk
Operation subject to the provisions of this Agreement.
<PAGE> 136
12.7 Election to Participate
If in consequence of the operation of Clauses 12.3, 12.4, 12.5 or
12.6 the Proposing Party may proceed with the relevant Sole Risk
Operation then the Proposing Party may give notice to each
Receiving Party that it has become entitled to and intends to
proceed with the Sole Risk Operation and each Receiving Party
shall within ten (10) Business Days of receipt of such notice give
notice to each other Party stating whether that Receiving Party
will participate in the Sole Risk Operation and, if so, the
maximum interest (being not less than its Participating Interest)
it will take in such Sole Risk Operation, failing which that
Receiving Party is deemed to have given notice to each other Party
that it will not participate in the Sole Risk Operation.
12.8 Sole Risk Interest
A Sole Risk Party shall participate in a Sole Risk Operation and
bear the costs, risks and liabilities thereof in the proportion
that its Participating Interest bears to the aggregate of the
Participating Interests of the Sole Risk Parties (such proportion
being hereinafter called its "Sole Risk Interest") unless
otherwise agreed among the Sole Risk Parties. When each Receiving
Party has given notice pursuant to Clause 12.7, the Proposing
Party shall forthwith notify each Party which elects pursuant to
Clause 12.7 to participate in the Sole Risk Operation ("Electing
Party") of its then Sole Risk Interest. If the then Sole Risk
Interest of any Electing Party exceeds the maximum interest
specified in its notice pursuant to Clause 12.7, then that
Electing Party may withdraw from the Sole Risk Operation by notice
to the remaining Electing Parties and the Proposing Party given
within five (5) Business Days after receipt of notice of its then
Sole Risk Interest, where-upon the remaining Electing Parties and
the Proposing Party shall agree the Sole Risk Interests. If the
remaining Electing Parties and the Proposing Party are unable to
agree the Sole Risk Interests within ten (10) Business Days after
the Proposing Party notifies the Electing Parties of their then
Sole Risk Interests, then the Proposing Party may proceed with the
Sole Risk Operation alone and thereafter no other Party may
participate in the Sole Risk Operation except with the unanimous
consent of the Sole Risk Parties.
12.9 Time for Commencing Operations
The Proposing Party may begin the Sole Risk Operation after the
Sole Risk Interests have been settled in accordance with Clause
12.8. A Sole Risk Party shall not commence a Sole Risk Operation
more than six (6) months after giving the relevant Sole Risk
Operation Notice. Another Sole Risk Operation Notice may be given
for the same Sole Risk Operation after the expiration of the said
six (6) month period. A Sole Risk Operation, once commenced, shall
be diligently prosecuted or abandoned by the Sole Risk Parties.
<PAGE> 137
12.10 Conduct of Sole Risk Operation
If less than such Parties as would be able to make a decision of
the Operating Committee pursuant to Clause 7.3, elect to
participate in a proposed Sole Risk Operation then the operation
shall continue to be a Sole Risk Operation and the provisions of
Clauses 12.11 to 12.30 shall apply and the Sole Risk Parties shall
promptly commence (subject to Clause 12.9), carry out and complete
the Sole Risk Operation diligently in accordance with good oil
field practice.
12.11 Operator for Sole Risk Operations
If the Operator is a Sole Risk Party, it shall carry out the Sole
Risk Operation. If the Operator is not a Sole Risk Party, the Sole
Risk Parties may appoint the Operator, if the Operator agrees to
accept such appointment, or one of their number as Sole Risk
Operator. All the provisions of this Agreement relating to the
conduct of Joint Operations shall (to the extent they have
application) apply mutatis mutandis, to the Sole Risk Operator and
to the Sole Risk Operation.
12.12 Sole Risk Parties May Complete and Equip
The Sole Risk Parties which drill a well as a Sole Risk Operation
are entitled, but are not obliged, to Complete such well, or
Complete and Equip such well as part of such Sole Risk Operation
at their sole risk and expense. Sole Risk Parties which Complete
a well as a Sole Risk Operation are entitled, but are not obliged,
to Equip such well as part of such Sole Risk operation at their
sole risk and expense. Sole Risk Parties Equipping a well as a
Sole Risk Operation or as part of a Sole Risk Operation shall not
Equip such well so as to handle production greater than that
reasonably expected from such well, unless the Operating Committee
decides otherwise,
12.13 Premiums Accruing to Sole Risk Parties - Exploration Wells
If the Sole Risk Operation is the drilling of an Exploration Well,
and the operation results in the discovery of a Reservoir from
which Petroleum is subsequently produced, the Sole Risk Parties
are entitled as follows:
(a) the Sole Risk Parties may take all Petroleum produced from
such Reservoir by all wells which are drilled and Completed
for production from such Reservoir until the Net Proceeds of
Sale thereof equals the sum of the Drilling Costs, Completion
Costs and Equipping Costs (if any) incurred by the Sole Risk
Parties as part of such Sole Risk Operation; and
(b) in addition to such entitlements, the Sole Risk Parties may
take all Petroleum produced from such Reservoir and all
subsequent wells which are drilled and Completed for
production from such Reservoir until the Net Proceeds of Sale
<PAGE> 138
thereof is an amount equal to one thousand per centum (1000%)
of the Drilling Costs of such well or, if such well is
Completed for production by the Sole Risk Parties as part of
such Sole Risk Operation, an amount equal to one thousand per
centurn (1000%) of such of the Drilling Costs and Completion
Costs as the Sole Risk Parties incur as part of such Sole
Risk Operation.
12.14 Premiums Accruing to Sole Risk Parties - Appraisal Wells
If the Sole Risk Operation is the drilling of an Appraisal Well
and such well is Completed for production from a Reservoir which
it was the purpose of the well to intersect, the Sole Risk Parties
are entitled as follows:
(a) the Sole Risk Parties may take all Petroleum produced from
such well from such Reservoir until the Net Proceeds of Sale
thereof equals the sum of the Drilling Costs, Completion
Costs and Equipping Costs (if any) incurred as part of the
relevant Sole Risk Operation; and
(b) in addition to such entitlement, the Sole Risk Parties may
take all Petroleum produced from such well until the Net
Proceeds of Sale thereof is an amount equal to five hundred
per centum (500%) of such Drilling Costs, Completion Costs
and Equipping Costs (if any).
12.15 Deepening, Plugging Back, Reworking, Recompleting, Sidetracking
If the Sole Risk Operation is the deepening, plugging back reworking,
recompleting or sidetracking of a well, and such operation results in:
(a) the discovery of a Reservoir from which Petroleum is
subsequently produced; or
(b) production from that section of the well deepened, plugged
back, recompleted or reworked; or
(c) production from a Reservoir intersected by the sidetracked
portion of the well; or
(d) production for the first time from a Reservoir intersected by
the well plugged back recompleted or reworked,
then for the purpose of dealing pursuant to Clause 12.13 or Clause
12.14 with Petroleum produced as a result of such operation, it is
classified as an Exploration Well or an Appraisal Well by
reference to the definitions of those terms in this Agreement and
to the purposes as stated in the Sole Risk Operation Notice for
which such deepening, plugging back, reworking, recompleting or
sidetracking is conducted.
<PAGE> 139
12.16 Premiums Accruing to Sole Risk Parties - Completing
If the Sole Risk Operation Notice is solely for the Completing or
the Completing and Equipping of a well from which Petroleum is
subsequently produced, the Sole Risk Parties are entitled (in
addition to any entitlement they may have pursuant to Clause
12.17) as follows:
(a) the Sole Risk Parties may take all Petroleum produced from
such well until the Net Proceeds of Sale thereof equals the
Completion Costs; and
(b) in addition to such entitlement, the Sole Risk Parties may
take all Petroleum produced from such well until the Net
Proceeds of Sale thereof is an amount equal to five hundred
per centum (500%) of the Completion Costs.
12.17 Premiums Accruing to Sole Risk Parties - Equipping
If the Sole Risk Operation Notice is solely for the Equipping or
the Completing and Equipping of a well or wells, the Sole Risk
Parties are entitled (in addition to any entitlement they may have
pursuant to Clause 12.16) as follows:
(a) the Sole Risk Parties may take all Petroleum from such well
or wells until the Net Proceeds of Sale thereof equals the
Equipping Costs of such well or wells; and
(b) in addition to such entitlement the Sole Risk Parties may
take all Petroleum produced from such well or wells until the
Net Proceeds of Sale thereof is an amount equal to five
hundred per centum (500%) of the Equipping Costs.
12.18 Multiple Reservoirs
(a) If a well intersects more than one Reservoir, then in respect
of each such Reservoir it may be classified as an Exploration
Well or an Appraisal Well by reference to the purpose, as
stated in the Sole Risk Operation Notice, for which the well
was drilled. A well-is classified as an Exploration Well in
respect of a Reservoir which is discovered by that well,
irrespective of the purpose for which the well was drilled.
(b) If a well intersects more than one Reservoir, and in respect
of all such Reservoirs it is classified as either an
Exploration Well, an Appraisal Well, then for the purposes of
dealing pursuant to Clauses 12.13 to 12.17 with Petroleum
produced from such well, Drilling Costs are the Drilling
Costs of the well to its total depth, Completion Costs are
equal to the sum of the Completion Costs for all Reservoirs,
and Equipping Costs are equal to the total Equipping Costs
for the well, and (without prejudice to any further
<PAGE> 140
entitlements which the Sole Risk Parties may have pursuant to
the remaining provisions of Clause 12) the Sole Risk Parties
may take Petroleum from all such Reservoirs until their total
entitlements in respect of the well have been satisfied.
(c) If a well intersects more than one Reservoir, and in respect
of any of such Reservoirs it is classified differently from
another of such Reservoirs, then for the purposes of dealing
pursuant to Clauses 12.13 to 12.17, with Petroleum produced
from such well, Completion Costs are equal to the sum of the
Completion Costs for all Reservoirs, and Equipping Costs' are
equal to the total Equipping Costs for the well. Drilling
Costs are:
(1) for a Reservoir or Reservoirs in respect of which the
well is an Exploration Well, such Drilling Costs as
would have been incurred if the intersection of that
Reservoir or the deepest of such Reservoirs was the only
purpose for which the well was drilled;
(2) for a Reservoir or Reservoirs in respect of which the
well is an Appraisal Well intersected below the deepest
Reservoir in respect of which the well is an Exploration
Well, the difference between the Drilling Costs as
ascertained for paragraph 12.18(c)(i) and such Drilling
Costs as would have been incurred if the intersection of
the Reservoir or the deepest of such Reservoirs in
respect of which the well is an Appraisal Well were the
only purpose for which the well was drilled;
(3) for a Reservoir or Reservoirs in respect of which the
well is an Appraisal Well, and such well does not
intersect a Reservoir in respect of which the well is an
Exploration Well, such Drilling Costs as would have been
incurred if the intersection of the Reservoir or the
deepest of such Reservoirs in respect of which the well
is an Appraisal Well were the only purpose for which the
well was drilled; and
(without prejudice to any further entitlements which the Sole Risk
Parties may have pursuant to the remaining provisions of Clause
12) the Sole Risk Parties may take Petroleum from all such
Reservoirs until their total entitlements in respect of the well
have been satisfied.
12.19 Sole Risk Operation Notice When Rig is on Site
Notwithstanding the other provisions of this Clause 12:
(a) if a drilling rig is on the location of the well when a Party
gives an Sole Risk Operation Notice proposing the deepening,
plugging back, testing, reworking, recompleting, sidetracking
or Completing of a well, the time within which the Operating
Committee shall decide in accordance with Clause 12.4, 12.5
<PAGE> 141
or 12.6 as the case may be (such decision being made by
facsimile vote of the Parties addressed to the Operator and
each other) and within which each Receiving Party shall give
notice to the Proposing Party pursuant to Clause 12.7 of its
election to participate in the Sole Risk Operation shall be
reduced to twenty-four (24) hours from receipt of the Sole
Risk Operation Notice, or to such longer time as the
Proposing Party may stipulate in the Sole Risk Operation
Notice. Unless the Operating Committee decides otherwise, if
the Sole Risk Parties do not commence the Sole Risk Operation
within five (5) Business Days after service of the Sole Risk
Operation Notice, the Sole Risk Operator shall abandon the
Sole Risk Operation; and
(b) if the Sole Risk Operation proceeds, the Sole Risk Parties
shall pay all costs accruing from the commencement of such
twenty-four (24) hour period. If the Sole Risk Operation does
not then proceed, the Proposing Party shall pay such extra
costs as may be occasioned by delay (including without
limitation, any delay to Joint Operations during the twenty-
four (24) hour period) associated with the giving of the Sole
Risk Operation Notice.
12.20 Deepening or Sidetracking of Sole Risk Well
(a) Any Party may participate in a Sole Risk Operation which is
the deepening or sidetracking of a well to a depth greater
than the depth of that well as at the commencement of the
relevant Sole Risk Operation, which well was previously the
subject of a Sole Risk Operation, whether or not such Party
participated in such prior Sole Risk Operation.
(b) If Petroleum is not produced from the well as a result of the
deepening or sidetracking operation, then:
(1) the Sole Risk Parties in respect of the drilling of the
well as originally programmed will be responsible for
the costs of abandoning that section of the well
resulting from that drilling; and
(2) the Sole Risk Parties in the deepening or sidetracking
will be responsible for the costs of abandoning that
section of the well resulting from that deepening or
sidetracking operation
(c) If Petroleum is produced from the well as a result of the
deepening or sidetracking operation, then the Sole Risk
Parties shall apply the Net Proceeds of Sale of such
Petroleum first in reimbursement to the Parties participating
in the well as originally programmed of their Drilling Costs
of the well to the depth from which the deepening or
sidetracking Sole Risk Operation commenced.
<PAGE> 142
12.21 Priority of Recovery of Premium
If more than one Sole Risk Operation is conducted in a well, then
each group of Parties to a Sole Risk Operation may take Petroleum
from the well and apply the Net Proceeds of Sale in reduction of
costs and premium pursuant to Clauses 12.13 to 12.17, in the order
of priority which is the same as the order in which each Sole Risk
Operation commenced.
12.22 Abandonment of Sole Risk Operation - Salvageable Material
(a) If a well in respect of which a deepening, plugging back,
reworking, recompleting or sidetracking operation has been
conducted as a Sole Risk Operation is abandoned, without any
production being taken from it, then the proceeds of sale of
salvageable equipment supplied at the cost of the Sole Risk
Parties accrue to the Sole Risk Parties. The proceeds of sale
of other salvageable equipment are for the Joint Account or,
if the well in respect of which the deepening, plugging back,
reworking, recompleting or sidetracking operation was
conducted was itself drilled as a Sole Risk Operation, such
proceeds accrue to the Sole Risk Parties in such Sole Risk
Operation.
(b) If the Sole Risk Parties abandon a well which has been the
subject of a Sole Risk Operation before production from it,
if any, has been sufficient to meet all costs and premiums
payable to the Sole Risk Parties, the proceeds of sale of all
salvageable equipment in and about the well, the initial cost
of which was included in the Drilling Costs, Completion Costs
or Equipping Costs of the well, are deemed to be part of Net
Proceeds of Sale of Petroleum produced from the well, for the
purpose of accounting between the Sole Risk Parties and the
Non-Sole Risk Parties.
12.23 Accounts During Sole Risk Operations and Premium Recovery
(a) The computation of costs and expenses relating to Sole Risk
Operations shall be made in accordance with this Agreement
and the Accounting Procedure. While carrying out Sole Risk
Operations, the Sole Risk Operator shall maintain separate
books, records and accounts for Sole Risk Operations which
shall be subject to the same examination and audit as are
applicable to the books maintained for the Joint Account.
(b) During the period that production of Petroleum from a well is
being applied in reduction of costs and premiums payable to
Sole Risk Parties in a Sole Risk Operation the Sole Risk
Operator for such well shall supply all Parties each month
with a statement on which shall appear:
(1) the names and Sole Risk Interests of the Sole Risk
Parties;
<PAGE> 143
(2) the quantity and Proceeds of Sale of Petroleum produced
from such well (and where necessary for the purposes of
Clause 12.18, from each Reservoir in such well and where
applicable other wells drilled into the same Reservoir)
for the preceding month;
(3) the Net Proceeds of Sale for the preceding month and the
manner of calculation thereof; and
(4) the sum of costs and premiums remaining outstanding and
the manner of calculation thereof
(c) The Sole Risk Parties shall promptly furnish to the Sole Risk
Operator each month information necessary for the Sole Risk
Operator to prepare such statement.
12.24 Sole Risk Parties' Relationship
Unless the Sole Risk Parties otherwise agree concerning their
relationship with each other and the relationship of the Sole Risk
Parties and the Sole Risk Operator, then subject to the specific
provisions of this Clause 12 the provisions of this Agreement
shall (to the extent that they may have application) apply mutatis
mutandis both generally and to such relationship during the
conduct of a Sole Risk Operation and until all Sole Risk Parties'
entitlements pursuant to this Clause 12 have been satisfied. No
agreement between the Sole Risk Parties inter se shall affect any
of the rights of any Non-Sole Risk Party under this Agreement.
12.25 Indemnification of Non-Sole Risk Parties
Each Sole Risk Party to the extent of its Sole Risk Interest
hereby indemnifies and holds harmless the Non-Sole Risk Parties
against all actions, claims, demands and proceedings whatsoever
brought by any third party (including without limitation any
employee of the Sole Risk Party) arising out of or in connection
with the Sole Risk Operation and shall insofar as it may be within
its control keep the Permit free from all liens, charges and
encumbrances which might arise by reason of the conduct of the
Sole Risk Operation. The approval of the Non-Sole Risk Parties to
the conduct of a Sole Risk Operation (whether or not such approval
is required) shall not constitute a waiver of these provisions.
12.26 Use of Joint Property
(a) The Sole Risk Parties may use Joint Property in connection
with Petroleum produced as a result of a Sole Risk Operation,
to the extent of such of the capacity of such Joint Property
from time to time as is not required for Joint Operations for
the Joint Account.
(b) Any costs and expenses incurred by reason of such use of
Joint Property shall be paid by the Sole Risk Parties.
<PAGE> 144
12.27 Non-Sole Risk Parties may Receive Information
The Sole Risk Operator may provide to the Non-Sole Risk Parties
all such information in respect of the Sole Risk Operation.
12.28 Net Proceeds of Sale of Petroleum
In this Clause 12 the following expressions shall have the
following meanings:
(a) "Net Proceeds of Sale" of the relevant Petroleum means the
Proceeds of Sale less the sum of
(1) Government royalty and all other royalties, excise and
other levies calculated specifically in relation to the
relevant Petroleum as may be applied from time to time;
and
(2) Operating Costs, payable by the Sole Risk Parties in
respect of such Petroleum.
(b) "Proceeds of Sale" of Petroleum means:
(1) where it is sold at arms length, the monetary value of
the consideration received for the sale of such
Petroleum less Delivery Costs; and
(2) where it is not sold at arms length, or where it is sold
prior to further processing by the Sole Risk Party which
owns it, a monetary value which such Sole Risk Party and
the Non-Sole Risk Parties agree to be the actual
consideration which would be obtainable for such
Petroleum upon a sale at arms length less an agreed
amount as the equivalent of Delivery Costs provided
that:
(A) if such Parties are unable to agree within one (1)
month of the first occasion upon which Petroleum
is taken by the Sole Risk Party which does not
intend to sell such Petroleum at arms length, then
such Parties shall agree upon a qualified person
who shall determine such monetary value; and
(B) if such Parties are unable to agree upon a
qualified person within a further month, any such
Party may request the Chairman or the next most
senior Councillor (not being an officer of any
Party) of the Petroleum Association of New Zealand
to nominate a qualified person to determine such
monetary value. In making such determination such
person shall be acting as an expert and not as an
arbitrator and his decision shall be final and
binding on the Parties. The costs of the
determination shall be borne by the Parties in
proportion to their Participating interests.
<PAGE> 145
(c) "Delivery Costs" means all costs incurred in marketing the
relevant Petroleum and in transporting it from the Delivery
Point to the point of sale.
12.29 Early Re-Entry by Non-Sole Risk Parties
(a) At any time within one hundred and twenty (120) Business Days
following the date upon which a Sole Risk Operation was
completed each Non-Sole Risk Party may, at its option, elect
to discharge its share of the total amount or amounts to
which each Sole Risk Party is entitled under Clauses 12.13,
12.14, 12.16 or 12.17 by paying in cash to the Sole Risk
Parties within the said period of one hundred and twenty
(120) Business Days an amount equal to fifty percent (50%) of
the total of amounts which the Sole Risk Parties would
otherwise have been entitled to receive under the relevant
Clause.
(b) Upon making such cash payment such Non-Sole Risk Party shall
be restored to its full rights hereunder as if the Non-Sole
Risk Party had participated in such Sole Risk Operation.
(c) For the purpose of facilitating a payment pursuant to this
Clause the Operator shall, within eighty (80) Business Days
after the completion of each Sole Risk Operation, advise all
Parties of the cost of such Operation.
(d) Within forty (40) Business Days of the date of the cash
payment by a Non-Sole Risk Party there shall be an accounting
and a cash settlement between such Non-Sole Risk Party and
the Sole Risk Parties for the Net Proceeds of Sale (whether
a positive or negative amount) calculated from the date of
completion of the Sole Risk Operation to the date of the cash
payment.
(e) A Non-Sole Risk Party exercising this option shall not
thereby become entitled to share in payments received in
respect of any other Non-Sole Risk Party pursuant to any of
Clauses 12.13, 12.14, 12.16 or 12.17.
12.30 Conclusion of Sole Risk Operation
As soon as sufficient Petroleum has been produced to satisfy all
costs and premiums due to the Sole Risk Parties, the well with all
associated equipment shall thereupon become Joint Property.
<PAGE> 146
13 DISPOSAL OF PRODUCTION
13.1 Ownership
Subject to the provisions of this Agreement each Party shall have
the right and obligation to receive and take in kind as its own
property at the Delivery Point and to sell or otherwise dispose of
its Participating Interest share of all Petroleum produced from
the Area excepting so much thereof as may be required by the
Operator in connection with idle conduct of Joint Operations or is
unavoidably lost
13.2 Royalties
All royalties, levies, duties and taxes payable to the Government
and all those payable to third parties shall be delivered or paid
whether in cash or in kind, by each Party in respect of production
taken by it and each Party hereby agrees to indemnify and hold
harmless all other Parties against all claims, liabilities, costs
and expenses arising out of its failure to make such deliveries or
payments.
13.3 Production Reports
The Operator shall maintain full and accurate records of Petroleum
production inventories and deliveries to the Parties.
13.4 Delivery
All Petroleum shall be delivered to the Parties by the Operator at
the Delivery Point.
13.5 Risk
The risk attaching to Petroleum delivered to each Party shall pass
to that Party at the Delivery Point.
14 OFFTAKE AGREEMENT
14.1 Crude Oil
If crude oil is to be produced from the Area the Parties shall in
good faith and not less than three (3) months, or such lesser
period as the Parties may agree, prior to the scheduled date of
first delivery of crude oil, negotiate and conclude the terms of
an agreement to cover the offtake of crude oil produced from the
Area. Such offtake agreement shall include, without limitation,
provision for:
(a) the Operator to provide regular periodic advice to the
Parties of estimates of total available production broken
down by succeeding periods, and grades of crude oil, for as
far ahead as is necessary for the Operator and the Parties to
plan offtake arrangements. Such advice shall also cover for
each grade of crude oil, total available production and
<PAGE> 147
deliveries for the preceding period, inventory, overlifts and
underlifts and each Party's Participating Interest share of
available production after adjustment for overlifts and underlifts
("Entitlement")
(b) elimination of overlifts and underlifts;
(c) the rights of the Parties if a Party fails in any relevant
period to take the whole or part of its Entitlement for that
period;
(d) delivery to the Parties of Entitlements to ensure, to the
extent Parties take delivery of their Entitlements rateably
to their accrual, that each Party shall receive current
Entitlements in like grade, gravity and quality to that
received by each other Party and, to the extent that delivery
on such basis is impracticable because of availability of
facilities and minimum cargo sizes, a method of making
periodic adjustments.
14.2 Natural Gas
The Parties recognise that, in the event of any discovery of
Natural Gas, it may or will be or become desirable for them to
enter into special arrangements for the disposal of the same and
they agree that, in such event and upon the request of any of
them, their respective representatives shall meet together as
necessary to consider their entry into such arrangements and that,
if and to the extent that any such arrangements are agreed, they
will adopt and undertake the same.
15 DEFAULTS
15.1 Notice of Default
(a) If any Party fails to make any payment as required by this
Agreement by the due date for payment, the Operator shall
upon becoming aware of such failure give notice of such
failure to such Party giving particulars of the alleged
failure and of the amount thereof ("Unpaid Amount").
(b) If at the expiration of ten (10) Business Days after receipt
of such notice such Party or any of their respective
Participating Interests or other person (not being a Party)
on its behalf has not paid in full the amount due by it and
all amounts subsequently due to the Operator pursuant to this
Agreement by such Party, such Party ("Defaulting Party")
shall be in default pursuant to this Agreement. The Operator
shall promptly give notice of all such defaults to all
Parties.
(c) Each such notice ("Default Notice") shall set out particulars
of the Unpaid Amount. For the purpose of this Clause 15 all
Parties other than any Defaulting Party are referred to as
the "Non-Defaulting Parties".
<PAGE> 148
15.2 Defaulting Party Liable for Interest
(a) Any amount payable by a Defaulting Party which remains unpaid
shall bear interest and the Defaulting Party shall pay
interest at the Default Interest Rate (which is applicable on
the due date for payment of such amount) from the due date of
payment of such amount until the actual date of payment.
(b) Such interest shall accrue to the Non-Defaulting Parties in
proportion to their respective Participating Interests or if
one or more of the Non-Defaulting Parties become Paying
Parties within the meaning of Clause 15.6, then thereafter to
the Paying Parties as is provided in Clause 15.6.
15.3 Payment by Operator
In the event that the payment which a Party that is or becomes a
Defaulting Party has failed to make is a payment due under this
Agreement to a person who is not a Party, the Operator may and
shall if so directed by the Operating Committee, by a vote of Non-
Defaulting Parties whose Participating Interests aggregate a
simple majority of the total Participating Interests of the Non-
Defaulting Parties, pay the same to such person. Any amount so
paid shall constitute a debt immediately due and payable by such
Party to the Operator.
15.4 Defaulting Party may be Sued
Without prejudice to any other remedy for or consequence of
default provided for in this Agreement the Operator shall if so
directed by the Operating Committee by a vote of Non-Defaulting
Parties whose Participating Interests aggregate a simple majority
of the total Participating Interests of the Non-Defaulting Parties
sue in any Court of competent jurisdiction a Defaulting Party
(which term shall without limitation include any Party removed
from the position of Operator for failing to pay or contribute or
advance its proportionate share of Authorised Expenditure) for the
recovery of any moneys due and payable to the Operator or the
Paying Parties (as defined in Clause 15.6) or any of them by that
Defaulting Party which remain unpaid by the Defaulting Party at
the expiration of ten (10) Business Days after the receipt of the
Default Notice by the Defaulting Party.
15.5 Non-Defaulting Parties to Contribute
If at any time after the end of the ten (10) Business Days period
referred to in Clause 15.4 the Operator shall not then have
received in full from the Defaulting Party or any other person
(not being a Party) on its behalf the then aggregate of the Unpaid
Amount of such Defaulting Party plus interest thereon at the
Default Interest Rate the Operator may and shall if so directed by
the Operating Committee by a vote taken in accordance with Clause
15.4, require by notice in writing each of the Non-Defaulting
Parties to pay to the Operator the amount of its proportion of
<PAGE> 149
such Unpaid Amounts on a date ("Payment Date") not less than five
(5) Business Days after receipt of such notice. Such proportion
shall be that proportion which the relevant Non-Defaulting Party's
Participating Interest bears to the aggregate of the Participating
Interests of all the Non-Defaulting Parties. A Party which does
not pay each amount due by it under this Clause 15.5 within ten
(10) Business Days of receipt of a request for payment of such
moneys shall be regarded as a Defaulting Party and all the
provisions of this Clause 15 shall apply to such Party in respect
of any amount not so paid.
15.6 Rights of Paying Parties
A Non-Defaulting Party (including without limitation the Operator
in its capacity as a Party) which pays to the Operator or bears
any amount payable by it under Clause 15.5 is herein called a
"Paying Party" and is deemed to have advanced such amount to the
Defaulting Party on the terms that it is immediately repayable and
may sue the Defaulting Party to recover the same but without
prejudice to any other rights and remedies.
The amount owing by a Defaulting Party to a Paying Party shall
bear interest at the Default Interest Rate from the date the
Paying Party made the payment under Clause 15.5 to the date it has
recovered such amount in full.
15.7 Defaulting Party's Petroleum
For so long as any Unpaid Amount is not paid in full the
Defaulting Party forfeits its rights to take any Petroleum
produced from the Area and the Operator shall be entitled to take
and receive all of the Defaulting Party's share of Petroleum
produced from the Area and to sell and dispose of the same until
such time as the net proceeds of sale of such Petroleum exceeds
the Unpaid Amount plus interest on the Unpaid Amount at the
Default Interest Rate. Such net proceeds of sale shall be
distributed to the Paying Parties in proportion to the amounts
paid by them pursuant to Clause 15.5 until all amounts owing by
the Defaulting Party to the Paying Parties plus interest thereon
at the Default Interest Rate has been paid in full and any
remaining surplus of such net proceeds of sale will be distributed
to the Defaulting Party. The receipt of any amounts by the Non-
Defaulting Parties under this Clause 15.7 shall be without
prejudice to any other rights or remedies of such Non-Defaulting
Parties.
15.8 Suspension of Rights of Defaulting Party
A Defaulting Party shall not be entitled either to attend or to
vote at any meeting of the Operating Committee or the Parties or
to have access to Joint Operations or to records of Joint
Operations or information pursuant to Clauses 5.6 and 10 or to
receive information or be consulted with respect to Joint
Operations unless and until all amounts then due and payable by
<PAGE> 150
that Defaulting Party in accordance with the terms of this
Agreement shall have been received in full or the default is
otherwise rectified or is waived by each Non-Defaulting Party.
Except that the Defaulting Party should have access to information
as reasonably necessary to remedy the default or to dispute the
call made.
15.9 Default of Operator in Payment
In the event that the Operator fails to make any payment as
required by this Agreement in its capacity as a Party thereto,
then unless and until a replacement Operator is, appointed the
rights and responsibilities prescribed for the Operator under this
Clause 15 shall be exercised for and on behalf of the Non-
Defaulting Parties by the Party other than the Operator having the
greatest Participating Interest and such Party shall be deemed to
be the Operator for the purpose of exercising the rights and
duties of the Operator under this Clause 15.
15.10 Application of Defaulting Party's Funds
Upon default by any Party in the payment of any moneys payable
under this Agreement and without limiting Clause 15.7, the
Operator shall (notwithstanding anything contained herein to the
contrary, and without prejudice to other rights and remedies),
retain any moneys which may be held for such Defaulting Party or
which come to the hands of the Operator on behalf of such
Defaulting Party, and apply such moneys until the amount owed by
such Defaulting Party in accordance with this Agreement has been
paid in full.
15.11 Valuation of Defaulting Party's Interest
(a) If at the end of twenty (20) Business Days from the date of
receipt by a Defaulting Party of a Default Notice the
relevant Unpaid Amount and interest thereon have not been
paid in full, then unless:
(1) the Defaulting Party has reached agreement with the
Operator on behalf of all the Non Defaulting Parties as
to the value of its Participating Interest; or
(2) all Non-Defaulting Parties have agreed that a valuation
should not be obtained, the Operator shall request the
Chairman or the next most senior Councillor (not being
an officer of any Party) of the Petroleum Association of
New Zealand to nominate a person to determine the value
of the Participating Interest of the Defaulting Party.
(b) The person so nominated shall value the Defaulting Party's
Participating Interest on the basis that the Joint Venture is
a going concern and the price payable is that which would be
payable by a willing but not anxious buyer to a willing but
not anxious seller dealing at arms' length. In making such
determination such person shall be acting as an expert and
not as an arbitrator and his decision shall be final and
binding on all Parties.
<PAGE> 151
(c) The costs of obtaining such valuation shall in the first
instance be paid out of the Joint Account but shall be
charged to and recoverable from the Defaulting Party as
though it were part of the Unpaid Amount.
(d) Upon receipt of the valuation of the Participating Interest
of the Defaulting Party the Operator shall promptly forward
a copy of the same to each Party including the Defaulting
Party.
(e) The value of the Participating Interest of the Defaulting
Party as agreed pursuant to Clause 15.11 (a) or as determined
pursuant to Clause 15.11 (b) shall be and be deemed to be the
value of such interest for the purposes of Clause 15.12.
15.12 Option to Purchase Defaulting Party's Interest
If at the end of forty (40) Business Days from the date of receipt
by a Defaulting Party of a Default Notice the relevant Unpaid
Amount and interest thereon have not been paid in full ("Option
Commencement Date"), then each of the Non-Defaulting Parties shall
have an option and such Defaulting Party hereby grants to each of
the Non-Defaulting Parties the option ("Option") to purchase its
Participating Interest (and if more than one Non-Defaulting Party
exercises such option, in the proportions which the respective
Participating Interests of such Non-Defaulting Parties bear to the
total of their Participating Interests, or in such other
proportions as such Non-Defaulting Parties shall agree upon) and
upon the following terms and conditions:
(a) A Non-Defaulting Party may exercise or join in the exercise
of the Option at any time on or after the Option Commencement
Date provided that the Option shall cease to be exercisable
at the expiration of twenty (20) Business Days after the
earliest exercise of the Option by a NonDefaulting Party or
in the event that on such earliest date of exercise the
valuation of the Defaulting Party's Participating Interest
pursuant to Clause 15.11 (b) has not been received then at
the expiration of twenty (20) Business Days after the receipt
of such valuation by all the Non-Defaulting Parties.
(b) A Non-Defaulting Party exercising the Option shall do so by
giving a notice in writing to the Defaulting Party and at the
same time giving a copy of such notice to all other Parties.
(c) In the event of the exercise of this Option, the Option
Exercise Date shall be the earlier of the date upon which all
Non-Defaulting Parties have notified such exercise or twenty
(20) Business Days after notification by the first Non-
Defaulting Party to exercise such Option. (The Non-Defaulting
Party or Parties exercising the Option are hereinafter
referred to as the "Purchaser" or "Purchasers").
<PAGE> 152
(d) The purchase price payable by the Purchasers for the
Defaulting Party's Participating Interest shall be a sum
equal to ninety percent (90%) of the value of such
Participating Interest as determined pursuant to Clause
15.11. Such purchase price shall be payable to the Defaulting
Party by each Purchaser in proportion to the percentage of
such Participating Interest it has acquired. Each Party
hereby agrees that the difference between the full value of
the Participating Interest of the Defaulting Party and the
selling price under this Clause constitutes a pre-estimate of
the liquidated damages which will be sustained by the Non-
Defaulting Parties by reason of breach of this Agreement by
the Defaulting Party.
(e) The completion of the purchase shall be effected at whichever
is the latest date of thirty (30) Business Days after the
Option Exercise Date or ten (10) Business Days after the
receipt of all necessary approvals to the purchase or ten
(10) Business Days after the receipt by the Purchasers of the
valuation of the Participating Interest of the Defaulting
Party pursuant to Clause 15.11 (b).
(f) Upon such completion the Purchasers shall be at liberty to
deduct from the purchase price the following amounts and to
apply the amount deducted in paying or reimbursing such
amounts:
(1) the amount required to discharge or satisfy liabilities
secured by any charge or encumbrance over the
Participating Interest of the Defaulting Party;
(2) the amount required to discharge the several liabilities
of the Defaulting Party at the date of completion under
this Agreement including all Unpaid Amounts; and
(3) the amount of any stamp duty payable on any transfer or
other instrument arising from the exercise of the
option.
(g) Upon and in exchange for the payment to it of the balance (if
any) of the purchase price pursuant to the preceding Clause
15.12(f) or, if such be the case, upon the determination that
there is no such balance payable, the Defaulting Party shall
forthwith do all such acts and things and execute and deliver
to the Purchasers all such transfers, deeds and other
documents as arc necessary to give effect to and complete the
sale pursuant to this Clause 15.12.
(h) If the Defaulting Party fails to act in any manner provided
for in Clause 15.12(g) within twenty (20) Business Days of a
request so to do made by the Operator or other Party
nominated by the purchaser, then the Operator or other Party
nominated by the purchaser shall be and be deemed to be the
agent and attorney of the Defaulting Party for all purposes
necessary to give effect to the sale pursuant to this Clause
15.12.
<PAGE> 153
(i) Any sale pursuant to this Clause 15.12 shall be subject to
all Governmental consents and approvals required by law. If
any such consent or approval is refused any contract
constituted by an exercise of the Option hereunder shall
cease to have further force or effect.
(j) The remedying of the default in whole or in part after the
date of the exercise of the Option by the first Non-
Defaulting Party to exercise the same shall not derogate from
the rights of any of the Non-Defaulting Parties in respect of
this Option which rights shall remain in full force and
effect.
16 WITHDRAWAL AND SURRENDER
16.1 Any Party May Withdraw
Any of the Parties hereto may withdraw from the Joint Venture
constituted hereby, by giving notice in accordance with the term
of this Agreement but providing that no Party may withdraw if it
is participating in an approved programs and budget or a Work
Obligation which has commenced unless one or more of the Non
Withdrawing Parties agrees to accept a transfer of the whole of
the Withdrawing Party's Participating Interest.
16.2 Notice of Withdrawal
(a) Subject to Clauses 8.3 and 16.3 any Party desiring to
withdraw ("Withdrawing Party") shall give to the other
Parties notice of its withdrawal ("Notice of Withdrawal") not
less am sixty (60) days prior to the end of a Work Obligation
stage.
(b) Such Notice of Withdrawal shall take effect on the last day
of the Work Obligation stage in which the Notice of
Withdrawal is given ("Effective Date of Withdrawal") provided
that the Withdrawing Party has complied with all of its
obligations in respect of the -program and budget for that
Work Obligation stage and the then current Work Obligation.
(c) Such Notice shall constitute an offer of assignment for a
consideration of $1.00 to the other Parties of the whole of
the Withdrawing Parties Participating Interest The Notice of
Withdrawal shall not be revocable except with the unanimous
consent of all other Parties.
16.3 Other Parties may Join in Withdrawal
Each of the other Parties may within twenty (20) Business Days of
receipt of a notice given pursuant to Clause 16.2 give notice to
the other Parties that it elects to join in such withdrawal to
take effect on the Effective Date of Withdrawal whereupon it will
become a Withdrawing Party for the purposes of this Clause 16.
Such notice shall constitute an offer of assignment for a
<PAGE> 154
consideration of $ 1.00 to the other Parties of the whole of the
Withdrawing Parties Participating Interest The election of a Party
to join in withdrawal shall not be revocable except with the
unanimous consent of all non-withdrawing Parties.
16.4 Other Parties may Accept Assignment
The other Parties shall have forty (40) Business Days from the
latest date of receipt of notice given pursuant to Clauses 16.2 or
16.3 to notify the Withdrawing Party whether they accept the offer
and elect to receive an assignment of the Withdrawing Partys
Participating Interest in the proportions that their respective
Participating Interests bear to the aggregate of their
Participating Interests. If some only of such Parties accept such
offer or if the acceptance of any accepting Party is limited in
percentage, then the interest of the Withdrawing Party or the
portion of such interest remaining after the allocation of any
limited percentages accepted shall be distributed amongst the
other accepting Parties wishing to receive the same in the
proportions that their respective Participating Interests bear to
the aggregate of the Participating Interests of such Parties or in
such other proportions as such Parties agree among themselves.
16.5 Prompt Execution of Documents
If some or all of the other Parties give notice pursuant to Clause
16.4 of acceptance and election to receive such assignment all
Parties concerned shall promptly execute and deliver all documents
and do and perform all acts and things necessary and appropriate
to validly effect such assignment.
16.6 Withdrawing Party's Obligations
(a) In the event of an assignment under this Clause 16 the
Withdrawing Party shall remain liable to meet its
proportionate share of:
(1) all Authorised Expenditure and liabilities incurred or
accrued by the Operator on or before the Effective Date
of Withdrawal; and
(2) all other liabilities of the Parties for anything done
or omitted to be done in the course of Joint Operations
on or before the Effective Date of Withdrawal.
The Withdrawing Party shall remain responsible for such
obligations (including without limitation, payments of
amounts to the Operator) although the extent of such
obligations may not be ascertainable until after the
Effective Date of Withdrawal provided that the Withdrawing
Party shall not be liable for any obligation accruing after
the date of Notice of Withdrawal given pursuant to Clause
16.2 or the date of a notice given pursuant to Clause 16.3 in
consequence of a decision by the Operating Committee after
<PAGE> 155
such date either to renew the Permit or any other title of
the Joint Venture or to adopt a program and budget to the
extent that it exceeds a minimum program and budget pursuant
to Clause 8.3 or to increase any such program and budget.
(b) Notwithstanding the provisions of Clause 16.6(a), in the
event that within one (1) year after the Effective Date of
Withdrawal of a Withdrawing Party the remaining members of
the Joint Venture resolve to abandon or determine the Joint
Venture, the Withdrawing Party shall remain liable for and
shall pay its proportionate share of the Net Abandonment
Costs incurred consequent upon that resolution determined on
the basis that such Withdrawing Party had not withdrawn from
the Joint Venture until the end of such year.
(c) For the purposes of Clause 16.6(b), "Net Abandonment Costs"
shall mean the rehabilitation costs, well abandonment costs
and any other costs of the abandonment of the Joint Venture
net of the salvage value of all Joint Property.
16.7 Costs of Assignment
All costs incurred by a Party in connection with any assignment
under this Clause 16 including stamp duty, registration fees and
legal fees shall be paid by the Withdrawing Party.
16.8 Assignment to all Parties
In the event that by the expiration of forty (40) Business Days
from the latest date of receipt of the notice from a Withdrawing
Party pursuant to Clauses 16.2 or 16.3 the interest of the
Withdrawing Party or any portion of such interest remains
unallocated or undistributed to other Parties pursuant to Clause
16.4 then the Withdrawing Party shall assign its interest or the
portion thereof remaining unallocated or undistributed to all of
the other Parties not being Withdrawing Parties in the proportions
agreed between them or in the absence of agreement in the
proportions that their respective Participating Interests bear to
the aggregate of their Participating Interests. In the event that
there are then no Parties willing to accept an assignment of an
unallocated or undistributed interest, all Parties shall be deemed
to have abandoned the Joint Venture constituted hereby and shall
forthwith co-operate with each other to bring the Joint Venture to
an end and effect a final settlement between them.
16.9 Selection of Area Required to be Surrendered
(a) If at any time relinquishment or surrender of any portion of
the area subject to the Permit is required by operation of
law or the terms and provisions of the Permit the Operator
shall give timely written notice to the Operating Committee,
setting forth in detail the reasons for such relinquishment
or surrender and a description of the areas which the
Operator suggests be .relinquished or surrendered in
compliance with such requirement.
<PAGE> 156
(b) The Operating Committee shall consider all matters relevant
to the question of such relinquishment or surrender, and
shall, within one (1) month (or such shorter period of time
as may be required by the Permit or by law), determine and
notify the Operator of the decision to be carried out
provided that any determination of the areas which are to be
relinquished or surrendered must be in accordance with the
decision of the Parties whose Participating Interests are in
aggregate not less than ninety percent (90%). Failure of any
Party to notify the Operator of its decision within such
period of time shall be deemed to be a decision and
notification by such Joint Venturer in accordance with the
Operators suggestion. If the Parties holding in aggregate
Participating Interests not less than ninety percent (90%)
cannot agree on the areas to be relinquished or surrendered
then the matter shall be determined by the Operator.
16.10 Voluntary Surrender of Area
Any Party may at any time propose to the other Parties that one or
more portions of the Area be surrendered, which proposal shall,
subject to the granting of any necessary Government consents, be
given effect to if approved by all Parties.
17 ASSIGNMENTS AND MORTGAGES
17.1 Restriction
(a) Except as permitted in this Article 17 or with the prior
written consent of all the other Parties, a Party shall not
directly nor indirectly, without the prior written consent of
each other Party, sell, assign, transfer, mortgage, pledge,
charge, encumber, lease, sublease, license or otherwise
dispose of (but expressly excluding including by way of
change in the ownership, management, trusteeship or control
of any corporation or trust estate holding a Percentage
Interest but expressly excluding or by way of sale of all of
the shares in the capital of a Party or any bona fide merger
or amalgamation of the whole of a Party's assets and
undertaking with that of another person, which may occur
without such prior written consent of all the other Parties)
or create or suffer to exist a royalty (except a governmental
royalty) or other interest, lien, charge or other encumbrance
over, or trust in respect of, the whole or any part of its
right title interest, obligations or liabilities (including,
without limitation, any Percentage Interest) in, under and
pursuant to this Agreement whether by conditional or
unconditional act, deed, agreement, arrangement
understanding, conduct, or by merger, consolidation or
reconstruction or operation of law or otherwise (hereinafter
in this Article I! called an "assignment", and the words
"assign", "assignor" and "assignee" and their derivatives
shall have a corresponding meaning).
<PAGE> 157
(b) No assignment shall be made by a Party if as a result thereof
the Percentage Interest of the assignor or assignee would be
less than 5%.
No assignment shall be made by a Party if as a result the
assignor or its Related Company affiliate or the assignee or
its Related Company affiliate would retain or acquire a
Percentage Interest in part but not all of the area of any
Permit Licence.
17.2 Assignment to Related Company - Affiliate - Right
Subject to Sections 17.1 and 17.2, each Party may, subject to any
necessary approval of and registration by the Minister Authority
and any other government consent and to the provisions of this
Article 17, at any time upon prior written notice to each other
Party, assign the whole or any part of its Percentage Interest to
a Related Company.
(a) If, within a period of I year after the effective date of any
assignment pursuant to Section 17.3. 1, the Related Company
Affiliate of the assignor to which the assignment was made
ceases to be a Related Company an Affiliate of the assignor,
then the provisions of Section 17.4 shall apply, mutatis
mutandis, and the Related Company Affiliate shall forthwith
give such notice pursuant to Section 17.4.1 specifying the
then current fair and reasonable arms length terms and
conditions and each Party (other than the assignor) shall
have the right to require the assignment to it (upon such
then current fair and reasonable arm's length terms and
conditions) of a share of the Percentage Interest previously
assigned to such Related Company Affiliate pursuant to
Section 17.3. 1, such share being in the proportion which its
Percentage Interest bears to the aggregate Percentage
Interests of all Parties so entitled, or as otherwise agreed
by such Parties. If a Party, within 28 days of receipt of
notice pursuant to this Section 17.3.2, as herein required
gives notice to each other Party that it considers the said
terms and conditions to be other than the then current fair
and reasonable arm's length terms and conditions, then the
matter shall promptly be referred to a person appointed in
accordance with clause 15. 11 (a) an Independent Expert, who
shall determine for all Parties what will be the said then
current fair and reasonable arm's length terms and
conditions, acting as an independent expert and not as an
arbitrator.
17.3 Assignment to Non Related Company Non-Affiliate - Right
(a) Subject to Sections 17.1 and 17.2, each Party may, subject to
any necessary approval of and registration by the Minister
and any other government consent and to the provisions of
this Article 17, at any time assign the whole or any part of
its Percentage Interest to any other Party or person to which
<PAGE> 158
it is not a Related Company and which, in either case, has
demonstrated to each other Party both that it has, or has
access to, adequate financial capability to meet its
prospective obligations and liabilities under this Agreement
and that it has adequate petroleum industry experience. If a
Party wishes to make such an assignment it shall first give
notice to each other Party and Operator specifying the name,
address and qualifications of the proposed assignee and the
terms and conditions of the proposed assignment.
(b) Thereafter, any of the other Parties may within sixty (60)
days after receipt of such notice, request by notice to all
other Parties the assignment of such whole or part Percentage
Interest to it in which event the assignment shall be made to
it on the same or commercially equivalent terms as the said
proposed assignment or, if more than one Party so requests by
notice, to them in the proportion (unless otherwise agreed
between themselves) which their respective Percentage
Interest bear to each other; provided that if the proposed
assignment is to another Party and one or more of the other
Parties gives notice then the firstnamed Party shall be
deemed to have likewise given notice hereunder; and
(c) if none of the other Parties so requests the assignment of
such whole or part Percentage Interest the relevant Party may
assign it to the proposed assignee on the proposed terms and
conditions; provided that the instrument evidencing the
assignment shall be executed by the parties thereto and
submitted for the approval of, and registration by, the
Minister Authority within one hundred and twenty (120) days
of the expiry of the sixty (60) day period referred to in the
preceding sub-paragraph 17.4.1.1.
17.4 Assumption by Assignee
Any assignment by a Party of the whole or any part of its
Participating Interest or of such Participating Interest or part
by any person exercising power of sale pursuant to any mortgage or
charge otherwise permitted pursuant to this Agreement shall be
made expressly subject to the terms and provisions of this
Agreement and shall be made expressly conditional upon:
(a) the obtaining of all necessary consents and approvals to the
assignment; and
(b) the execution and delivery by the assignee to the Operator as
agent for the Parties of a deed of assumption and covenant in
such form as the non-assigning Parties shall approve (which
approval shall not be unreasonably withheld) whereby the
assignee assumes the obligations and is conferred with the
rights of a Party under the documents relating to the Joint
Venture Documents to the extent of the Participating Interest
assigned.
<PAGE> 159
17.5 Consequences of Assignment
(a) Subject to Clause 17.4 with effect on and from a date agreed
by the assigning Party and the assignee to be the effective
date of the assignment of a Participating Interest or part
thereof ("Effective Date of Assignment"), the assignee shall,
to the extent of the assignment, become a Party in the place
of the Party whose Participating Interest or part thereof has
been assigned provided that the assigning Party shall
indemnify and keep indemnified the other Parties against all
liabilities accruing in respect of the Participating Interest
of the assigning Party up to the Effective Date of Assignment
(b) The assigning Party shall, in addition, remain liable to and
shall indemnify and keep indemnified the other Parties
against all liabilities accruing in respect of the
Participating Interest of the assignee on and after the
Effective Date of Assignment, unless and until the Parties
shall have resolved or shall resolve by unanimous vote, are
you sure? that the assignee or proposed assignee is a
respectable and financially responsible person for the
purposes of the Joint Venture. Upon the later of such
unanimous resolution and the Effective Date of Assignment,
the assigning Party shall (as between the assigning Party and
the other Parties) be relieved and discharged from all such
liabilities of the assignee accruing thereafter and any
obligation to indemnify the other Parties in respect thereof.
(c) The onus of proving to the satisfaction of the Parties that
the assignee or proposed assignee is a respectable and
financially responsible person for the purposes of the Joint
Venture shall rest upon the assigning Party. Upon proof that
a proposed assignee is such a respectable and financially
responsible person, no Party shall unreasonably withhold its
vote to a resolution on that matter.
(d) Each Party shall, when required by any such assignee,
perform, execute, acknowledge and deliver all such further
acts, deeds and assurances as may be reasonably required of
it to perfect the assignment of a Participating Interest or
part thereof to, or the assumption of rights or obligations
thereunder by, such assignee.
17.6 Charge of Participating Interest
Without prejudice to its right to charge any of its property or
assets other than its Participating Interest any Party ("Chargor")
may, without the consent of the other Parties (but subject to all
other necessary consents and approvals), charge in favour of any
person ("Chargee") the whole of its Participating Interest
provided that such charge shall be made subject to the Joint
Venture Documents.
<PAGE> 160
18 CONFIDENTIALITY
18.1 Information Confidential
This Agreement and all of its provisions, and all records, reports
and other data information and studies made in the course of or
resulting from Joint Operations except any of the same which is at
the relevant time, in the public domain (collectively,
"Information") shall be and remain confidential between the
Parties and shall not be disclosed to any third party without the
prior consent of all of them (which consent provided that an
undertaking as to confidentiality by the third party in a form
reasonably satisfactory to the Parties is first obtained, shall
not be unreasonably withheld and shall be deemed to have been
given if Parties whose Participating Interests aggregate in excess
of seventy-five percent (75%) have consented) provided always that
any of the Parties shall be at liberty without such consent to
disclose or make a public statement or announcement regarding the
Information:
(a) to the extent that such Party (or in the case of statements
or announcements to be made by the Operator, any Party) is
legally required so to do, to any governmental agency or
instrumentality or by an official stock exchange on which the
shares of such Party or a Related Company are quoted, in
which case all reasonable efforts shall be made to
communicate the statement or announcement to the other
Parties prior to the disclosure announcement or publication;
(b) to any chargee, bank or other financial institution in
connection with the organisation of the Parties' financial
affairs or a bona fide prospective purchaser of part or all
of a Party's Participating Interest (including without
limitation, a corporation with whom a Party is conducting
bona fide negotiations directed toward a merger or
consolidation) provided that the chargee, bank, financial
institution or prospective purchaser agrees previously in
writing to keep the same confidential;
(c) to any of such Party's employees, directors, consultants,
legal counsel, auditors and other persons for the purposes of
all matters pertaining to such person's duties provided that
each of the persons to whom disclosure is made then owes to
the Party a duty to keep the same confidential (the
observance of which duty, the Party hereby undertakes to the
other Parties to use its best efforts, to enforce).
18.2 Related Companies
The Information may be disclosed to Related Companies without the
prior consent of the other Parties provided that:
<PAGE> 161
(a) each recipient shall prior to the disclosure of the
Information have executed and deposited with the Operator an
undertaking as to confidentiality in favour of all Parties;
(b) breach by a recipient in terms of this Clause 18.2 shall be
deemed to be a breach by the Party of its obligations in
terms of Clause 18. 1; and
(c) the provisions of Clauses 18.1 and 18.5 apply, mutatis
mutandis, to each recipient as if it was a Party.
18.3 Compliance with Stock Exchange Requirements
To ensure compliance by any Party or Related Company of a Party,
the securities of which are listed on a stock exchange or quoted
on a quotation system ("listed company"), with the listing
requirements of that stock exchange or other applicable securities
disclosure laws the Operator shall disclose immediately to all
Parties any significant discovery of hydrocarbons or
mineralisation within the Permit. Any such listed company shall
have the right to make all or part of such information available
to such stock exchange or other public disclosure system. A Party
shall provide to each other Party, for approval, a copy of each
announcement report or advice, if reasonably practicable, prior to
providing it to such stock exchange, containing or referring to
such information, made by it or a Related Company.
18.4 Obligations to Continue
The obligations enumerated in Clauses 18.1 and 18.2 shall be
continuing obligations and shall be complied with notwithstanding
that a Party has ceased to be a party to this Agreement a
corporation has ceased to be a Related Company or this Agreement
has been terminated.
18.5 Termination
The obligations described in this Clause 18 shall continue to
apply for a period of five (5) years after the date of termination
of this Agreement.
19 FORCE MAJEURE
19.1 Obligations Suspended by Event of Force Majeure
If any Party is rendered unable wholly or in part by Force Majeure
to carry out its obligations under this Agreement (other than any
obligation to make money payments) that Party shall give to all
other Parties prompt written notice of the Force Majeure with
reasonably full particulars concerning it. The obligations of the
Party giving the notice so far as they are affected by the Force
Majeure shall be suspended during but not longer than the
continuance of the effects of the Force Majeure. The affected
Party shall use all reasonable efforts to overcome the effects of
the Force Majeure as quickly as possible.
<PAGE> 162
19.2 Certain Actions not Required
The provisions of Clause 19.1 shall not require the settlement of
strikes, boycotts, lockouts or other labour difficulty by the
Party involved contrary to its wishes and such matters shall be
handled entirely within the discretion of the Party concerned.
19.3 Meaning of Force Majeure
In this Clause 19 the term "Force Majeure" means any event or
circumstance beyond the reasonable control of a Party which
renders that Party unable in whole or in part to carry out its
obligations under this Agreement including without limitation,
strike, lockout, fire, flood, tornado,, hurricane, lightning,
explosion, collision, radiation, act of God or the public enemy,
war, blockade, governmental regulation, order or decree,
uncontrollable delay in transportation, inability to obtain
adequate labour, contractors or necessary materials or equipment
in the open market inadequate facilities for the transportation of
necessary materials or equipment or any other cause, whether
similar or dissimilar to the causes herein specifically
enumerated, beyond the reasonable control of such Party and which
such Party is unable to overcome by the exercise of reasonable
diligence and at a reasonable cost provided however, the lack of
finances or inability to borrow the same shall in no event be
deemed a cause beyond the reasonable control of a Party.
20 LAWS AND REGULATIONS
20.1 Subject to Applicable Laws
This Agreement and the respective rights and obligations of the
Parties hereto shall be subject to all valid and applicable laws,
rules, ordinances, regulations and orders of New Zealand, and in
the event that this Agreement or any provision thereof is or the
Joint Operations contemplated hereunder are found to be
inconsistent with or contrary to any such law, rule, ordinance,
regulation or order the latter shall be deemed to control the
former and this Agreement shall be regarded as modified
accordingly and as so modified shall continue in full force and
effect.
20.2 Governing Law
This Agreement shall be governed by and construed in accordance
with the laws of New Zealand.
20.3 Submission to Jurisdiction
Each of the Parties hereby submits unconditionally and exclusively
to the jurisdictions of the Courts in New Zealand holding
jurisdiction in relation to matters relating to this Agreement.
<PAGE> 163
21 NOTICES
21.1 Notice in Writing
A notice, demand, waiver, approval, consent communication or other
document in connection with this document ("Notice"):
(a) may be given by an Authorised Officer of the relevant party;
and
(b) must be in writing; and
(c) must be left at the address of the addressee, or sent by
prepaid ordinary post (airmail if outside New Zealand) to the
address of the addressee or by facsimile to the facsimile
number of the addressee which is specified below or if the
addressee notifies in writing another address or facsimile
number then to that address or facsimile number.
21.2 Effective Date
Unless a later time is specified in it a Notice takes effect from
the time it is actually received or taken to be received.
21.3 Time of Receipt
A Notice sent by post or facsimile is taken to be received:
(a) in the case of a letter, on the 5th (10th, if outside New
Zealand) day after posting; and
(b) in the case of a facsimile, on production of a transmission
report by the machine from which the facsimile was sent which
indicates that the facsimile was sent in its entirety to the
facsimile number of the recipient notified for the purpose of
this clause if produced before 5 pm on a business day
otherwise on the next business day.
21.4 Address for Service
The address for service of a Notice shall be as follows:
INDO-PACIFIC ENERGY (NZ) LTD
of Indo-Pacific House,
284 Karori Rd,
Karori, Wellington, New Zealand. ("Indo")
TRANS-ORIENT PETROLEUM (NZ) LIMITED
of Indo-Pacific House,
284 Karori Rd,
Karori, Wellington, New Zealand.. ("Trans")
<PAGE> 164
21.5 Authorised Officer
For the purposes of Clause 21.1, an Authorised Officer of a party
includes a director, secretary or other governing officer of the
party.
22 GENERAL
22.1 Remedies not Exclusive
Each and every power and remedy herein specifically given to a
Party affected by the default of another Party shall be in
addition to every other power and remedy now or hereafter existing
at law or in equity, and each and every power and remedy may be
exercised from time to time and simultaneously and as often and in
such order as may be deemed expedient. All such powers and
remedies shall be cumulative and the exercise of one shall not be
deemed a waiver of the right to exercise any other or others.
22.2 Mutual Indemnity
Subject to the provisions of this Agreement each Party
("Indemnifying Party") will indemnify and keep indemnified each of
the other Parties from every claim, demand, action or liability or
loss resulting from each and every breach or default by the
Indemnifying Party of any of its obligations -under any of the
documents relating to the Joint Venture.
22.3 Limited Invalidity
If any Clause or part thereof of this Agreement shall be, or shall
be deemed to be, invalid for any reason whatsoever such invalidity
shall not affect the validity or operation of the remainder of
that Clause or any other Clause of this Agreement except only so
far as may be necessary to give effect to such invalidity.
22.4 Waiver
No waiver by any Party of a right or a default hereunder or any
delay or omission in the exercise of any right, remedy or power,
shall constitute a waiver by such Party of any subsequent right,
power, remedy or default whether of a like nature or otherwise.
22.5 How Moneys Paid
Any sum of money paid or tendered by the Parties hereto shall be
validly and effectually paid or tendered if such payment is given,
delivered or made in legal currency or by bank cheque or by the
party's own cheque after presentment and clearance.
22.6 Successors Bound
This Agreement shall enure for the benefit of and bind the Parties
and their assigns and successors in title.
<PAGE> 165
22.7 Further Assurance
Each Party agrees that it will perform, execute, acknowledge and
deliver all such further acts, deeds, assurances and instruments
as shall be reasonably required for the purposes of this Agreement
or otherwise to carry out the agreements made herein.
22.8 Entire Agreement
This Agreement is the entire agreement between the Parties hereto
in relation to its subject matter and supersedes all prior
agreements in connection therewith, and each Party covenants that
it has full right title and power to enter into this Agreement.
22.9 Amendment
This Agreement may not be amended except by one or more written
instruments executed by all the Parties hereto.
22.10 No Partition
No Party shall institute any action or proceedings for partition
or sale in lieu of partition of the Permit, the Area or any of the
Joint Property.
22.11 Counterparts
This Agreement may be executed in any number of counterparts each
of which shall be deemed an original but all of which shall
constitute one and the same instrument.
EXECUTED AS AN AGREEMENT
Signed for Indo Pacific Energy (NZ) Limited
by its duly authorised representative
/s/ D. J. Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
Signed for Trans-Orient Petroleum (NZ) Limited
by its duly authorised representative
/s/ D. J. Bennett
Signature of representative
Office Held: President
Name of Representative: D. J. Bennett
<PAGE> 166
SCHEDULE 1
ACCOUNTING PROCEDURE
The purpose of this Accounting Procedure is to establish equitable
methods for determining charges and credits applicable to Joint
Operations under the Operating Agreement to which this Accounting
Procedure is a Schedule ("Operating Agreement!') in respect of the
Permit The Parties agree that if any of such methods prove unfair or
inequitable to the Operator or the Non-Operators, the Parties will
subject to Article 2.2.3 meet and in good faith endeavour to agree on
changes in methods deemed necessary to correct any unfairness or
inequity.
The purpose of this Accounting Procedure is to ensure that subject to
Article 2.2.3 the Operator neither gains nor loses by performing the
activities of Operator.
In the event of any conflict between the provisions of this Accounting
Procedure and the provisions of the Operating Agreement the provisions
of the Operating Agreement shall apply.
ARTICLE I - GENERAL PROVISIONS
1.1 Definitions
1.1.1 "Administrative Overhead" means the charge made to the Joint
Account pursuant to Article 2.2, which charge shall be in
lieu of and shall be deemed to cover all indirect costs
incurred by the Operator in respect of Joint Operations which
are not otherwise provided for in the Operating Agreement or
this Accounting Procedure.
1.1.2 "Advances" has the meaning given in clause 1.2
1.1.3 "Agreement of Non-Operators" means the agreement or action of
a majority in Participating Interests of the Non-Operators.
1.1.4 "Annual Base Expenditure" means in respect of any Permit
Year, the Authorised Expenditure charged to the Joint Account
in that Permit Year in respect of Joint Operations PROVIDED
THAT Base Expenditure shall:
(a) exclude, without limitation, any charge to the Joint Account
in respect of Administrative Overhead;
(b) exclude, without limitation, any royalty, taxes, duties and
the like, levied on production or in respect of income from
production;
(c) include, without limitation, Authorised Expenditure in
respect of the construction and maintenance of field access
roads;
<PAGE> 167
(d) include, without limitation, Materials only when such
Materials are utilised and charged to an approved AFE; and
(e) be reduced by any credits received other than any credits or
receipts from sales of Material, insurance claims or any
other credits agreed by the Operating Committee.
1.1.5 "Cash Calls" has the meaning given in clause 1.2
1.1.6 "Controllable Material" shall mean material which the
Operator subjects to record control and inventory. A list of
types of such materials shall be furnished to the Non-
Operators upon request.
1.1.7 "Material" means movable property, including supplies and
equipment acquired and held for use in Joint Operations.
1.1.8 Unless the provisions of this Accounting Procedure require
otherwise, all words and phrases contained herein shall have
the same meaning as in the Operating Agreement.
1.2 Advances and Payment by the Joint Venture Parties
1.2.1 If the Operator so requests, each of the Parties shall
advance to the Operator their share of the estimated cash
requirements for approved AFEs or Budget line items for the
succeeding month for the Joint Operations and in accordance
with the provisions of clause 1.2. . Such estimates shall be
based on the latest information available to the Operator at
the time the request is sent as to the actual cash
requirements for the month. No less than fifteen (15) days
prior to the beginning of each month, the Operator shall
furnish the Parties with its estimate of the cash
requirements by AFE or Budget line item for that month. This
estimate shall specifically identify the particular approved
AFE or Budget line item giving rise to such cash requirements
and shall constitute a request for an Advance (a Cash Call).
Appended to the Cash Call the Operator shall provide a
revised forecast of future cash requirements for the
following three (3) months, analysed by AFE or Budget line
item for each approved Budget. The cash forecast for the
first month will be the Cash Call for that month as provided
under this clause 1.2.1
Except as otherwise provided in this agreement Cash Calls
shall not be made for expenditures which require an AFE
unless such AFE has been approved or deemed approved as
required under this Agreement Cash Calls may be made for
certain licence maintenance costs, required to keep the
licence in good standing, and Administrative Overhead costs
as defined and determined in clause 2.2.1 without prior
approval of such costs by way of AFE. Not withstanding the
above, Cash Calls on AFEs of less than $20,000 and on
Administrative Overheads will only be made quarterly, on the
basis of forecast quarterly expenditure, rather than monthly.
<PAGE> 168
In any the Operator at all times provide estimates of
forecast expenditure monthly. Adjustments to reflect
Administrative Overhead to be charged on actual expenditures
shall be made at the end of the year, and such adjustment
shall be separately identified in Cash Calls and billing
statements.
1.2.2 Cash Calls made by the Operator under 1.2.1 shall be paid by
each Party according to its proportionate share in the
currency (or currencies) requested by the Operator, to the
appropriate bank account (or bank accounts) maintained by the
Operator for the Joint Account by the fifteenth (I 5th) day
of the month for which the Advances are requested.
1.2.3 Should the Operator be required to pay any sums of money
which were unforeseen at the time of preparing the monthly
estimates of expenditure, under clause 1.2.1 and/or are
required to be paid before the Operator would receive the
Parties payments, under clause 1.2.2, the Operator may make
a written request to the Parties for special Advances
covering their share of such expenditures. A Special Cash
Call made under this clause 1.2.3 shall be paid by each Party
in its proportionate share, in the currency (or currencies)
requested within fourteen (14) days after receipt of such
Cash Call.
1.2.4 If it is determined that a Party's Advances for a certain
month exceed its share of cash disbursements for that month,
the Operator may reduce that Party's share of the next
succeeding Cash Call, after such determination, or , at the
Operator's discretion, the Operator shall deposit such excess
Advances as soon as possible in either a short term interest
bearing bank account with a New Zealand trading bank or in a
Government backed interest earing deposit or such other
financial institutions as agreed by the Operating Committee,
until they are required for disbursement However, if the
excess funds are unlikely to be required for future
disbursements, a Party may request that such excess Advances
be refunded and the Operator shall make such refund within
fifteen (15) days after the receipt of such request.
1.2.5 If a Party's Advances for a certain month are less than its
share of cash disbursements for the same month, at the
Operator's discretion, the deficiency shall either:
1.2.5.1 Be added to a subsequent request for Advances, or
1.2.5.2 Be paid by such Party in the currency requested by the
Operator, within fifteen (15) days following the receipt
of the Operator's billing showing such deficiency.
<PAGE> 169
1.2.6 If the Operator chooses not to request Advances from Non-
Operators as provided under clauses 1.2.1 and 1.2.3, payment
to the Operator by each Non-Operator shall be made within
twenty (20) days after receipt of the Joint Operations
billing statement as rendered under clause 1.3
1.2.7 If payment of the amount of any Cash Call or statement
provided for in this clause 1.2 is not made when due:
1.2.7.1 The Operator shall immediately notify the Party from
whom such payment has not been received that it has not
received payment and such Party shall within two (2)
Business Days of receipt of such notice remedy such
failure to make payment; and
1.2.7.2 The unpaid balance thereof shall bear interest at the
Default Interest Rate from the due date for payment to
the date of actual payment.
1.2.8 Adjustments between estimated and actual costs and expenses
shall be made by the Operator at the close of each month and
the account of the respective Parties adjusted accordingly.
1.3 Statements and Billings
1.3.1 Following the end of each month, the accumulated charges and
credits in the Joint Account will be determined and the
Operator will issue a statement recording actual cash
expenditure against Advances made for that month. Such
statement shall be accompanied by a Joint Operations billing
statement summarising all charges and credits accrued to the
Joint Account by appropriate classifications indicative of
the nature thereof and adjusted back to a cash basis in
relation to the amounts shown on the statement. All such
statements shall identify all expenditure by reference to the
relevant budget and AFE pursuant to which such expenditure
was incurred. The Operator shall provide each such statement
to the Non-Operators within twenty-five (25) days of the
expiry of the relevant month.
1.4 Audits
1.4.1 A Non-Operator, upon at least twenty (20) Business Days
advance written notice to the Operator and other Non-
Operators, shall have the right at its sole expense to audit
the Joint Account and records relating to Joint Operations
for any Permit Year or portion thereof within the twenty-four
(24) month period following the end of such Permit Year;
Where there are two or more Non-Operators, the Non-Operators
shall make every reasonable effort to conduct joint or
simultaneous audits in a manner which will result in a
minimum of inconvenience to the Operator.
<PAGE> 170
1.4.2 Subject to prior approval of all of the Parties, the cost of
any audit or verification of the Joint Account, other than
the audit provided for in Article 1.4. 1, shall be chargeable
to the Joint Account.
1.4.3 In respect of charges made to the Joint Account for
Administrative Overhead pursuant to Article 2.2, the Non-
Operators right of audit shall include, without limitation,
verification of Annual Base Expenditure and the calculation
of Administrative Overhead thereon, but shall exclude,
without limitation, verification of the Operator's indirect
costs which such Administrative Overhead is deemed to cover.
ARTICLE 2 - CHARGEABLE COSTS AND EXPENDITURES
The Operator shall charge the Joint Account for all costs incurred
pursuant to an approved AFE on the basis herein provided. Such Joint
Account costs shall include, but are not necessarily limited to, items
referred to below:
2.1 Joint Account (Direct Charges)
The Operator shall charge the Joint Account with all direct costs and
expenses incurred in connection with the Operating Agreement, the
Permit and the Joint Property. Without in any way limiting the
generality of the foregoing, chargeable direct costs and expenditures
shall include:
2.1.1 Labour and Related Costs
All personnel, other than those described in Article 2. 1. 1.(1)
who are employed by the Operator and who work on Joint Operations
under the direct control of the Operator, will maintain monthly
time sheets for the purpose of charging salary and related
benefits direct to the Joint Account. Time sheets will record time
spent on Joint Operations whether such personnel (including
without limitation, managers, supervisors and technical employees
such as geologists, geophysicists, engineers, drilling, production
and construction supervisors and operators, field co-ordinators,
drafting staff and technical assistants and non-technical
employees such as landmen, purchasing officers and such accounting
staff as are specifically responsible for the account of the Joint
Venture) are engaged full-time or part-time on Joint Operations
and will show the time worked on the various projects and other
classifications of cost to enable personnel costs to be allocated
to such classifications for budget and cost control purposes.
(1) Time sheets will not be maintained for such purposes by the
following personnel:
(1) Administrative support personnel, including without
limitation, secretaries, typists, filing clerks,
messengers, commissionaries, telephone and facsimile
operators;
<PAGE> 171
(2) Accounts personnel, including without limitation,
cashiers handling joint funds, employees handling the
salaries of personnel employed on Joint Operations and
employees handling invoices and accounts for payment but
excluding such accounting staff as are specifically
responsible for the accounting of the Joint Venture.
(2) The amount to be charged to the Joint Account for each person
who is employed by the Operator (other than any such person
who is described in Article 2. 1. 1 (1)) and who is working
on Joint Operations under the direct control of the Operator,
shall be the proportion of the Operator's actual cost of
salaries and related benefits for each such person that the
time worked by such person on Joint Operations bears to the
total time worked by such person in respect of which such
cost is incurred. For the purpose of this Article, the
Operator's actual cost of salaries and related benefits shall
include salaries, wages, overtime pay, rest day pay, holiday
pay, long service pay, living and housing allowances,
accident and illness compensation, group life insurance,
pension, superannuation, retirement and other benefit plans
of a like nature and all payroll expenses incurred by reason
of any governmental regulations or laws.
(3) The cost of personnel described in Article 2.1.1(1) which is
applicable to Joint Operations shall be deemed to be covered
by the percentage charge for Administrative Overheads in
Article 2.2.1.
(4) Personnel Seconded to the Operator from a Non-Operator. The
amount to be charged to the Joint Account for each person who
is working on Joint Operations under the direct control of
the Operator (other than any such person who is described in
Article 2.1.1(1)) and who is seconded to the Operator from a
Non-Oprator shall (subject to agreement to the contrary) be
the proportion of the Non-Operator's actual cost of salaries
and related benefits for each such person that the time
worked on Joint Operations by such person bears to the total
time worked by such person in respect of which such cost is
incurred. Tune sheets must be kept by such persons in the
same form as those kept by the employees of the Operator.
(5) For the purposes of Article 2.1.1(4) the Non-Operator's
actual cost of salaries and related benefits shall be as
defined in Article 2.1.1(2).
2.1.2 Material
Material purchased or furnished for use in Joint Operations as
provided under Article 3 herein.
<PAGE> 172
2.1.3 Transportation and Employee Relocation Costs
(1) Transportation of Material and other related costs such as
expediting, crating, dock charges, inland and ocean freight
and unloading at destination.
(2) Transportation of employees as necessary or desirable for the
conduct of Joint Operations.
(3) Relocation costs of employees permanently or temporarily
assigned to the Joint Operations except that relocation costs
from New Zealand shall only be charged if the employee is
returned to the country from which he was relocated. Such
costs shall include transportation of employees' families and
their personal and household effects and all other relocation
costs in accordance with the Operators usual practice
including without limitation, an allocation of such costs on
an equitable basis, having regard to the amount of time each
employee was engaged in other areas of operation. The budget
shall include an estimate of the relocation costs likely to
be incurred in the current budget.
2.1.4 Services
(1) Contract services, professional consultants and other
services procured from outside sources other than services
covered by Article 2.1.7.
(2) Technical services, such as, but not limited to, laboratory
analysis, drafting, geophysical and geological
interpretation, engineering and related data processing,
performed by the Operator, the Non-Operators and their
Related Companies for the direct benefit of the Joint
Operations, provided such costs shall not exceed those
currently prevailing if performed by outside technical
service companies.
(3) Use of equipment and facilities furnished by the Operator,
the Non-Operator and their Related Companies at rates
commensurate with the cost of the ownership and operation
thereof, but such rates shall not exceed those currently
prevailing in the general vicinity of the Permit.
2.1.5 Damage and Losses of Joint Property
All costs or expenses necessary for the repair or replacement of
any Joint Property resulting from damage or losses incurred by
fire, flood, storm, theft, accident or any other cause. The
Operator shall furnish the Non-Operators with written notice of
damages or losses incurred in excess of $50,000.00 as soon as
practicable.
<PAGE> 173
2.1.6 Insurance
(1) Premiums for insurance required by the Joint Property or any
law or regulation and insurance acquired for the benefit of
all Parties as approved by the Operating Committee.
(2) Credits for settlements received from the insurance carrier
and others and attributable to the Joint Account.
(3) Actual expenditure incurred in the settlement of all losses,
claims, damages, judgments and other expenses for the benefit
of Joint Operations.
2.1.7 Legal Expense
(1) All costs or expenses of handling, investigating and settling
litigation or claims arising by reason of Joint Operations or
necessary to protect or recover the Permit or the Joint
Property, including but not limited to, attorney fees, court
costs, cost of investigation or procuring evidence and
amounts paid in settlement; however, no charge shall be made
for the services of the Operator and any Related Companys
legal staff unless by prior agreement of the Non-Operators.
(2) All other solicitors or barristers or legal costs necessary
for Joint Operations, except no charge shall be made for the
services of the Operator's and any Related Company's legal
staff unless by prior agreement of the Non-Operators.
2.1.8 Duties and Taxes
All duties and taxes (except taxes based on income), fees and
governmental assessments of every land and nature including,
without limitation, goods and services tax. The Operator shall, in
respect of Joint Operations, be responsible for compliance with
the New Zealand Tax Act 1994 Amendment Act 1996 including, without
limitation, the filing of returns and other related matters.
2.1.9 Offices, Camps and Miscellaneous Facilities
Net cost of maintaining, equipping, furnishing and operating any
offices, sub-offices, camps, warehousing, housing and other
facilities directly serving the Joint Operations and approved by
the Operating Committee, shall be charged to the Joint Account. If
such facilities serve Joint Operations in addition to the Joint
Operations, the net cost shall be allocated to the properties
served on an equitable basis.
2.1.10 Payments to Government
Expenditure necessary to acquire and maintain rights under the
Permit.
<PAGE> 174
2.1.11 Other Charges
All other costs and expenses incurred by the Operator which are
not mentioned above and which are necessary and proper for the
conduct of Joint Operations.
2.2 Joint Account (Indirect Charges)
All indirect costs incurred in respect of Joint Operations shall
be deemed to be covered by the following charges which the
Operator may charge to the Joint Account.
2.2.1 Administrative Overhead
Subject to the provisions of this Article 2.2, the Operator shall
charge to the Joint Account an Administrative Overhead which shall
be calculated by applying percentages to tranches of Annual Base
Expenditure as follows:
On the first $ 1,000,000 4%
On the next $4,000,000 3%
On the next $5,000,000 2%
Above $ 10,000,000 1%
However the minimum Administrative Overhead chargeable to the
Joint Account will be thirty thousand dollars (NZ$30,000.00) per
Permit Year chargeable on a pro rata monthly basis.
2.2.2 Subject to the charging of the minimum Administrative
Overhead referred to in Article 2.2. 1, Administrative
Overhead shall be charged to the Joint Account quarterly:
(a) based on that quarter's cumulative current year to date
Annual Base Expenditure; and
(b) reduced by the cumulative current year to date Administrative
Overhead charged to the previous quarter.
2.2.3 The charges to be made pursuant to Article 2.2.1 shall be
reviewed annually by the Operator in order to verify that the
charge equitably compensates the Operator for the costs they
are intended to cover and appropriate adjustment either
upward or downward will be made subject to approval by the
Committee.
2.3 Joint Account (Excluded Charges)
Depreciation, amortisation and restoration provisions of
facilities and other capital assets comprising the Joint Property
will not be recorded as operating costs in the Joint Account.
<PAGE> 175
ARTICLE 3 - MATERIAL
3.1 Acquisitions
3.1.1 Material purchases shall be charged at net cost incurred by
the Operator. Net cost shall include, but shall not be
limited to, such items as transportation, duties, licence
fees and applicable taxes.
3.1.2 New Material (Condition "I") transferred from the Operator's
stock or other properties, shall be priced at new purchase
net cost determined in accordance with Article 3. 1.1 above.
Good used Material (Condition "2") being used Material in
sound and serviceable condition, suitable for re-use without
reconditioning, shall be priced at seventy-five percent (75%)
of such new purchase net cost. Used Material which cannot be
classified at Condition "2" shall be priced at a value
commensurate with its use.
3.2 Disposals
3.2.1 The Operator shall be under no obligation to purchase the
interest of Non-Operators in new or used surplus Material.
3.2.2 The Operator shall have the right to dispose of surplus
Material to a bona fide purchaser but shall advise and secure
prior agreement of the Non-Operators for each proposed
disposition of Materials costing in the aggregate of $
10,000.00 or more.
3.2.3 Proceeds from all sales shall be credited to the Joint
Account at the net amount actually collected.
3.3 Inventories
3.3.1 Inventories shall be taken annually by the Operator of all
Controllable Material unless otherwise agreed by the Parties.
The Operator shall give ninety (90) days written notice of
intention to take such inventories to allow the Non-Operators
to be represented when any inventory is taken. Failure of any
Non-Operator to be represented shall bind such NonOperator to
accept the inventory taken by the Operator.
3.3.2 Reconciliation of inventory with the Joint Account shall be
made and a list of overages and shortages shall be furnished
to the Non-Operators. Inventory adjustments shall be made to
the Joint Account if required by the Parties.
3.3.3 Whenever there is a sale or change of Participating Interest
a special inventory may be taken by the Operator, provided
the seller and/or purchaser of such Participating Interest
agree to bear all the expenses thereof. In such cases, the
seller, the purchaser and any other Party shall be entitled
to be represented and shall be bound by the inventory so
taken.
<PAGE> 176
SCHEDULE 2 - Description of the Permit Area
Having an area of 11,183.17 sq km
Coastline at 171 00E
North along 171 00E to
171 00E 4500S
170 45E 4500S
170 45E 4445S
171 00E 4445S
171 00E 4400S
171 13E 4400S
171 13E 4340S
171 30E 4340S
171 30E 4330S
172 00E 4330S
172 00E 43 15S
172 15E 4315S
172 15E 4310S
172 30E 4310S
East along 172 30E to coast
South along coast to 43 33S
West along 42 33S around coastline to
172 33E 4333S
172 33E 4345S
172 38E 4345S
South along 172 38E to coast
South and west along coast to 17100 to join
<PAGE> 177
EXHIBIT 99.4
AMG OIL LTD.
2000 NONQUALIFYING STOCK OPTION PLAN
ARTICLE I
Purpose of Plan
This 2000 NONQUALIFYING STOCK OPTION PLAN (the "Plan") of AMG
OIL LTD. (the "Company") for persons employed or associated with the
Company, including without limitation any employee, director, general
partner, officer, attorney, accountant, consultant or advisor, is
intended to advance the best interests of the Company by providing
additional incentive to those persons who have a substantial
responsibility for its management, affairs, and growth by increasing
their proprietary interest in the success of the Company, thereby
encouraging them to maintain their relationships with the Company.
Further, the availability and offering of Stock Options under the Plan
supports and increases the Company's ability to attract, engage and
retain individuals of exceptional talent upon whom, in large measure,
the sustained progress growth and profitability of the Company for the
shareholders depends.
ARTICLE II
Definitions
For Plan purposes, except where the context might clearly
indicate otherwise, the following terms shall have the meanings set
forth below:
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Committee" shall mean the Compensation Committee, or such
other committee appointed by the Board, which shall be designated by
the Board to administer the Plan. The Committee shall be composed of
two or more persons as from time to time are appointed to serve by the
Board and may be members of the Board.
"Common Shares" shall mean the Company's Common Shares $0.001
par value per share, or, in the event that the outstanding Common
Shares are hereafter changed into or exchanged for different shares or
securities of the Company, such other shares or securities.
"Company" shall mean AMG OIL LTD., a Nevada corporation, and
any parent or subsidiary corporation of AMG OIL LTD., as such terms are
defined in Section 425(e) and 425(f), respectively of the Code.
"Optionee" shall mean any person employed or associated with
the affairs of the Company who has been granted one or more Stock
Options under the Plan.
<PAGE> 178
"Stock Option" or "NQSO" shall mean a stock option granted
pursuant to the terms of the Plan.
"Stock Option Agreement" shall mean the agreement between the
Company and the Optionee under which the Optionee may purchase Common
Shares hereunder.
ARTICLE III
Administration of the Plan
1. The Committee shall administer the plan and accordingly,
it shall have full power to grant Stock Options, construe and interpret
the Plan, establish rules and regulations and perform all other acts,
including the delegation of administrative responsibilities, it
believes reasonable and proper.
2. The determination of those eligible to receive Stock
Options, and the amount, price, type and timing of each Stock Option
and the terms and conditions of the respective stock option agreements
shall rest in the sole discretion of the Committee, subject to the
provisions of the Plan.
3. The Committee may cancel any Stock Options awarded under
the Plan if an Optionee conducts himself in a manner which the
Committee determines to be inimical to the best interest of the Company
and its shareholders as set forth more fully in paragraph 8 of Article
X of the Plan.
4. The Board, or the Committee, may correct any defect,
supply any omission or reconcile any inconsistency in the Plan or in
any granted Stock Option, in the manner and to the extent it shall deem
necessary to carry it into effect.
5. Any decision made, or action taken, by the Committee or
the Board arising out of or in connection with the interpretation and
administration of the Plan shall be final and conclusive.
6. Meetings of the Committee shall be held at such times
and places as shall be determined by the Committee. A majority of the
members of the Committee shall constitute a quorum for the transaction
of business, and the vote of a majority of those members present at any
meeting shall decide any question brought before that meeting. In
addition, the Committee may take any action otherwise proper under the
Plan by the affirmative vote, taken without a meeting, of a majority of
its members.
7. No member of the Committee shall be liable for any act
or omission of any other member of the Committee or for any act or
omission on his/her own part, including, but not limited to, the
exercise of any power or discretion given to him/her under the Plan
except those resulting from his/her own gross negligence or willful
misconduct.
<PAGE> 179
8. The Company, through its management, shall supply full
and timely information to the Committee on all matters relating to the
eligibility of Optionees, their duties and performance, and current
information on any Optionee's death, retirement, disability or other
termination of association with the Company, and such other pertinent
information as the Committee may require. The Company shall furnish
the Committee with such clerical and other assistance as is necessary
in the performance of its duties hereunder.
ARTICLE IV
Shares Subject to the Plan
1. The total number of shares of the Company available for
grants of Stock Options under the Plan shall be 3,000,000 Common
Shares, subject to adjustment as herein provided, which shares may be
either authorized but unissued or reacquired Common Shares of the
Company.
2. If a Stock Option or portion thereof shall expire or
terminate for any reason without having been exercised in full, the
unpurchased shares covered by such NQSO shall be available for future
grants of Stock Options.
ARTICLE V
Stock Option Terms and Conditions
1. Consistent with the Plan's purpose, Stock Options may be
granted to any person who is performing or who has been engaged to
perform services of special importance to management in the operation,
development and growth of the Company.
2. Determination of the option price per share for any
stock option issued hereunder shall rest in the sole and unfettered
discretion of the Committee.
3. All Stock Options granted under the Plan shall be
evidenced by agreements which shall be subject to applicable provisions
of the Plan, and such other provisions as the Committee may adopt,
including the provisions set forth in paragraphs 2 through 11 of this
Article V.
4. All Stock Options granted hereunder must be granted
within ten years from the date this Plan is adopted.
5. No Stock Option granted hereunder shall be exercisable
after the expiration of ten years from the date such NQSO is granted.
The Committee, in its discretion, may provide that an option shall be
exercisable during such ten year period or during any lesser period of
time. The Committee may establish installment exercise terms for a
Stock Option such that the NQSO becomes fully exercisable in a series
of cumulating portions. If an Optionee shall not, in any given
installment period, purchase all the Common Shares which such Optionee
<PAGE> 180
is entitled to purchase within such installment period, such Optionee's
right to purchase any Common Shares not purchased in such installment
period shall continue until the expiration or sooner termination of
such NQSO. The Committee may also accelerate the exercise of any NQSO.
6. A Stock Option, or portion thereof, shall be exercised
by delivery of (i) a written notice of exercise to the Company
specifying the number of Common Shares to be purchased, and (ii)
payment of the full price of such Common Shares, as fully set forth in
paragraph 7 of this Article V. No NQSO or installment thereof shall be
reusable except with respect to whole shares, and fractional share
interests shall be disregarded. Not less than 100 Common Shares may be
purchased at one time unless the number purchased is the total number
at the time available for purchase under the NQSO. Until the Common
Shares represented by an exercised NQSO are issued to an Optionee,
he/she shall have none of the rights of a shareholder.
7. The exercise price of a Stock Option, or portion
thereof, may be paid:
A. In United States dollars, in cash or by cashier's
check, certified check, bank draft or money order, payable to
the order of the Company in an amount equal to the option
price; or,
B. At the discretion of the Committee, through the
delivery of fully paid and nonassessable Common Shares, with
an aggregate fair market value (determined as the average of
the highest and lowest reported sales prices on the Common
Shares as of the date of exercise of the NQSO, as reported by
such responsible reporting service as the Committee may
select, or if there were not transactions in the Common
Shares on such day, then the last preceding day on which
transactions took place), as of the date of the NQSO exercise
equal to the option price, provided such tendered shares, or
any derivative security resulting in the issuance of Common
Shares, have been owned by the Optionee for at least thirty
(30) days prior to such exercise; or,
C. By a combination of both A and B above.
The Committee shall determine acceptable methods for
tendering Common Shares as payment upon exercise of a Stock Option and
may impose such limitations and prohibitions on the use of Common
Shares to exercise an NQSO as it deems appropriate.
8. With the Optionee's consent, the Committee may cancel
any Stock Option issued under this Plan and issue a new NQSO to such
Optionee.
<PAGE> 181
9. Except by will, the laws of descent and distribution, or
with the written consent of the Committee, no right or interest in any
Stock Option granted under the Plan shall be assignable or
transferable, and no right or interest of any Optionee shall be liable
for, or subject to, any lien, obligation or liability of the Optionee.
Upon petition to, and thereafter with the written consent of the
Committee, an Optionee may assign or transfer all or a portion of the
Optionee's rights and interest in any stock option granted hereunder.
Stock Options shall be exercisable during the Optionee's lifetime only
by the Optionee or assignees, or the duly appointed legal
representative of an incompetent Optionee, including following an
assignment consented to by the Committee herein.
10. No NQSO shall be exercisable while there is outstanding
any other NQSO which was granted to the Optionee before the grant of
such option under the Plan or any other plan which gives the right to
the Optionee to purchase stock in the Company or in a corporation which
is a parent corporation (as defined in Section 425(e) of the Code) of
the Company, or any predecessor corporation of any of such corporations
at the time of the grant. An NQSO shall be treated as outstanding
until it is either exercised in full or expires by reason of lapse of
time.
11. Any Optionee who disposes of Common Shares acquired on
the exercise of a NQSO by sale or exchange either (i) within two years
after the date of the grant of the NQSO under which the stock was
acquired, or (ii) within one year after the acquisition of such Shares,
shall notify the Company of such disposition and of the amount realized
upon such disposition. The transfer of Common Shares may also be
restricted by applicable provisions of the Securities Act of 1933, as
amended.
ARTICLE VI
Adjustments or Changes in Capitalization
1. In the event that the outstanding Common Shares of the
Company are hereafter changed into or exchanged for a different number
of kinds of shares or other securities of the Company by reason of
merger, consolidation, other reorganization, recapitalization,
reclassification, combination of shares, stock split-up or stock
dividend:
A. Prompt, proportionate, equitable, lawful and
adequate adjustment shall be made of the aggregate number and
kind of shares subject to Stock Options which may be granted
under the Plan, such that the Optionee shall have the right
to purchase such Common Shares as may be issued in exchange
for the Common Shares purchasable on exercise of the NQSO had
such merger, consolidation, other reorganization,
recapitalization, reclassification, combination of shares,
stock split-up or stock dividend not taken place;
<PAGE> 182
B. Rights under unexercised Stock Options or portions
thereof granted prior to any such change, both as to the
number or kind of shares and the exercise price per share,
shall be adjusted appropriately, provided that such
adjustments shall be made without change in the total
exercise price applicable to the unexercised portion of such
NQSO's but by an adjustment in the price for each share
covered by such NQSO's; or,
C. Upon any dissolution or liquidation of the Company
or any merger or combination in which the Company is not a
surviving corporation, each outstanding Stock Option granted
hereunder shall terminate, but the Optionee shall have the
right, immediately prior to such dissolution, liquidation,
merger or combination, to exercise his/her NQSO in whole or
in part, to the extent that it shall not have been exercised,
without regard to any installment exercise provisions in such
NQSO.
2. The foregoing adjustment and the manner of application
of the foregoing provisions shall be determined solely by the
Committee, whose determination as to what adjustments shall be made and
the extent thereof, shall be final, binding and conclusive. No
fractional Shares shall be issued under the Plan on account of any such
adjustments.
ARTICLE VII
Merger, Consolidation or Tender Offer
1. If the Company shall be a party to a binding agreement
to any merger, consolidation or reorganization or sale of substantially
all the assets of the Company, each outstanding Stock Option shall
pertain and apply to the securities and/or property which a shareholder
of the number of Common Shares of the Company subject to the NQSO would
be entitled to receive pursuant to such merger, consolidation or
reorganization or sale of assets.
2. In the event that:
A. Any person other than the Company shall acquire
more than 20% of the Common Shares of the Company through a
tender offer, exchange offer or otherwise;
B. A change in the "control" of the Company occurs, as
such term is defined in Rule 405 under the Securities Act of
1933;
C. There shall be a sale of all or substantially all
of the assets of the Company;
any then outstanding Stock Option held by an Optionee, who is deemed by
the Committee to be a statutory officer ("insider") for purposes of
Section 16 of the Securities Exchange Act of 1934 shall be entitled to
receive, subject to any action by the Committee revoking such an
<PAGE> 183
entitlement as provided for below, in lieu of exercise of such Stock
Option, to the extent that it is then exercisable, a cash payment in an
amount equal to the difference between the aggregate exercise price of
such NQSO, or portion thereof, and, (i) in the event of an offer or
similar event, the final offer price per share paid for Common Shares,
or such lower price as the Committee may determine to conform an option
to preserve its Stock Option status, times the number of Common Shares
covered by the NQSO or portion thereof, or (ii) in the case of an event
covered by B or C above, the aggregate fair market value of the Common
Shares covered by the Stock Option, as determined by the Committee at
such time.
3. Any payment which the Company is required to make
pursuant to paragraph 2 of this Article VII, shall be made within
fifteen (15) business days, following the event which results in the
Optionee's right to such payment. In the event of a tender offer in
which fewer than all the shares which are validity tendered in
compliance with such offer are purchased or exchanged, then only that
portion of the shares covered by an NQSO as results from multiplying
such shares by a fraction, the numerator of which is the number of
Common Shares acquired purchase to the offer and the denominator of
which is the number of Common Shares tendered in compliance with such
offer, shall be used to determine the payment thereupon. To the extent
that all or any portion of a Stock Option shall be affected by this
provision, all or such portion of the NQSO shall be terminated.
4. Notwithstanding paragraphs 1 and 3 of this Article VII,
the Company may, by unanimous vote and resolution, unilaterally revoke
the benefits of the above provisions; provided, however, that such vote
is taken no later than ten business days following public announcement
of the intent of an offer of the change of control, whichever occurs
earlier.
ARTICLE VIII
Amendment and Termination of Plan
1. The Board may at any time, and from time to time,
suspend or terminate the Plan in whole or in part or amend it from time
to time in such respects as the Board may deem appropriate and in the
best interest of the Company.
2. No amendment, suspension or termination of this Plan
shall, without the Optionee's consent, alter or impair any of the
rights or obligations under any Stock Option theretofore granted to
him/her under the Plan.
3. The Board may amend the Plan, subject to the limitations
cited above, in such manner as it deems necessary to permit the
granting of Stock Options meeting the requirements of future amendments
or issued regulations, if any, to the Code.
4. No NQSO may be granted during any suspension of the Plan
or after termination of the Plan.
<PAGE> 184
ARTICLE IX
Government and Other Regulations
The obligation of the Company to issue, transfer and deliver
Common Shares for Stock Options exercised under the Plan shall be
subject to all applicable laws, regulations, rules, orders and approval
which shall then be in effect and required by the relevant stock
exchanges on which the Common Shares are traded and by government
entities as set forth below or as the Committee in its sole discretion
shall deem necessary or advisable. Specifically, in connection with
the Securities Act of 1933, as amended, upon exercise of any Stock
Option, the Company shall not be required to issue Common Shares unless
the Committee has received evidence satisfactory to it to the effect
that the Optionee will not transfer such shares except pursuant to a
registration statement in effect under such Act or unless an opinion of
counsel satisfactory to the Company has been received by the Company to
the effect that such registration is not required. Any determination
in this connection by the Committee shall be final, binding and
conclusive. The Company may, but shall in no event be obligated to
take any other affirmative action in order to cause the exercise of a
Stock Option or the issuance of Common Shares purchased thereto to
comply with any law or regulation of any government authority.
ARTICLE X
Miscellaneous Provisions
1. No person shall have any claim or right to be granted a
Stock Option under the Plan, and the grant of an NQSO under the Plan
shall not be construed as giving an Optionee the right to be retained
by the Company. Furthermore, the Company expressly reserves the right
at any time to terminate its relationship with an Optionee with or
without cause, free from any liability, or any claim under the Plan,
except as provided herein, in an option agreement, or in any agreement
between the Company and the Optionee.
2. Any expenses of administering this Plan shall be borne
by the Company.
3. The payment received from Optionee from the exercise of
Stock Options under the Plan shall be used for the general corporate
purposes of the Company.
4. The place of administration of the Plan shall be in the
State of Nevada and the validity, contraction, interpretation,
administration and effect of the Plan and its rules and regulations,
and rights relating to the Plan, shall be determined solely in
accordance with the laws of the State of Nevada.
5. Without amending the Plan, grants may be made to persons
who are foreign nationals or employed outside the United States, or
both, on such terms and conditions, consistent with the Plan's purpose,
different from those specified in the Plan as may, in the judgment of
the Committee, be necessary or desirable to create equitable
opportunities given differences in tax laws in other countries.
<PAGE> 185
6. In addition to such other rights of indemnification as
they may have as members of the Board or Committee, the members of the
Committee shall be indemnified by the Company against all costs and
expenses reasonably incurred by them in connection with any action,
suit or proceeding to which they or any of them may be party by reason
of any action taken or failure to act under or in connection with the
Plan or any Stock Option granted thereunder, and against all amounts
paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid
by them in satisfaction of a judgment in any such action, suit or
proceeding, except a judgment based upon a finding of bad faith;
provided that upon the institution of any such action, suit or
proceeding a Committee member shall in writing, give the Company notice
thereof and an opportunity, at its own expense, to handle and defend
the same before such Committee member undertakes to handle and defend
it on his/her own behalf.
7. Stock Options may be granted under this Plan from time
to time, in substitution for stock options held by employees of other
corporations who are about to become employees of the Company as the
result of a merger or consolidation of the employing corporation with
the Company or the acquisition by the Company of the assets of the
employing corporation or the acquisition by the Company of stock of the
employing corporation as a result of which it become a subsidiary of
the Company. The terms and conditions of such substitute stock options
so granted my vary from the terms and conditions set forth in this Plan
to such extent as the Board of Director of the Company at the time of
grant may deem appropriate to conform, in whole or in part, to the
provisions of the stock options in substitution for which they are
granted, but no such variations shall be such as to affect the status
of any such substitute stock options as a stock option under Section
422A of the Code.
8. Notwithstanding anything to the contrary in the Plan, if
the Committee finds by a majority vote, after full consideration of the
facts presented on behalf of both the Company the Optionee, that the
Optionee has been engaged in fraud, embezzlement, theft, commission of
a felony or proven dishonesty in the course of his/her association with
the Company or any subsidiary corporation which damaged the Company or
any subsidiary corporation, or for disclosing trade secrets of the
Company or any subsidiary corporation, the Optionee shall forfeit all
unexercised Stock Options and all exercised NQSO's under which the
Company has not yet delivered the certificates and which have been
earlier granted the Optionee by the Committee. The decision of the
Committee as to the case of an Optionee's discharge and the damage done
to the Company shall be final. No decision of the Committee, however,
shall affect the finality of the discharge of such Optionee by the
Company or any subsidiary corporation in any manner. Further, if
Optionee voluntarily terminates employment with the Company, the
Optionee shall forfeit all unexercised stock options.
<PAGE> 186
ARTICLE XI
Securities Regulations
The securities issued pursuant to this Plan are "restricted
securities" as defined in Rule 144 of the Securities Act of 1933 and
may not be resold except in compliance with the registration
requirements of the Securities Act of 1933 or an exemption therefrom.
Ninety (90) days after the Company becomes subject to the reporting
requirements of Section 13 of 15(d) of the Securities Exchange Act of
1934, securities issued pursuant to the Plan may be resold by persons
other than affiliates in reliance upon Rule 144 without compliance with
paragraphs (c), (d), (e) and (h) thereof, and affiliates without
compliance with paragraph (d) thereof. The Company is currently not
subject to the reporting requirements of the Securities Exchange Act of
1934.
ARTICLE XII
Written Agreement
Each Stock Option granted hereunder shall be embodied in a
written Stock Option Agreement which shall be subject to the terms and
conditions prescribed above and shall be signed by the Optionee and by
the President or any Vice President of the Company, for and in the name
and on behalf of the Company. Such Stock Option Agreement shall
contain such other provisions as the Committee, in its discretion shall
deem advisable.
ARTICLE XIII
Effective Date
This Plan shall become unconditionally effective as of the
date of approval of the Plan by the Board of Directors of the Company.
No Stock Option may be granted later than ten (10) years from the
effective date of the Plan; provided, however, that the Plan and all
outstanding Stock Options shall remain in effect until such NQSO's have
expired or until such options are canceled.
