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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
Commission file number 1-12322
SABA PETROLEUM COMPANY
(Name of Small Business Issuer in Its Charter)
Colorado 47-0617589
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3201 Skyway Drive, Suite 201
Santa Maria, California 93455
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER (805) 347-8700
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each Exchange
on which registered
Convertible Senior Subordinated Debentures American Stock Exchange
Common Stock, No Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
[ ]
The Registrant's revenues for its fiscal year ended December 31, 1996 were
$33.2 million. At March 25, 1997, 10,625,321 shares of Common stock (the
Registrant's only class of voting stock) were outstanding. The aggregate market
value of the Common Stock on that date (based upon the closing price on the
American Stock Exchange on March 25, 1997 of $18 7/8) held by non-affiliates
was approximately $93.7 million.
Documents incorporated by reference: Certain portions of the Registrant's
definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A- Part III, Items 9, 10, 11, and 12.
Transitional Small Business Disclosure Format.
[ ] YES [ X ] NO
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
General - Development of the Business of Saba
Saba Petroleum Company (together with its subsidiaries herein called the
"Company" or "Saba") was incorporated in Colorado in 1979 under the name
Bordeaux Petroleum Company for the principal purpose of engaging in the energy
business. In 1988, Mr. Ilyas Chaudhary (see "Management") acquired
approximately 40.7% of the then outstanding stock of Bordeaux. In 1991,
Bordeaux acquired Saba Energy of Texas, Incorporated, of which Mr. Chaudhary
owned approximately 87%, with the result that Mr. Chaudhary directly and
indirectly owned approximately 81.7% of the common stock of Bordeaux, giving
Mr. Chaudhary control of Bordeaux. Until the acquisition of Saba Energy of
Texas, Bordeaux was essentially a dormant company. After the acquisition of
Saba Energy of Texas, the Company grew rapidly to its present configuration,
essentially though a series of acquisitions of producing oil and gas properties
and the further development of certain of those properties.
Prior to the time that Mr. Chaudhary assumed control of Saba, the Company did
not make various required filings with the Securities and Exchange Commission
(the "Commission"), may not have complied with requisite corporate formalities,
in a 1988 amendment to its Articles of Incorporation, may have inadvertently
subjected itself to having preemptive rights (the right of an existing
shareholder to purchase additional shares to prevent dilution of its ownership
percentage), may have not complied with requirements for cumulative voting and
may have failed to validly adopt a material amendment to its Articles of
Incorporation. The failure to utilize cumulative voting has continued until the
1997 annual meeting. Cumulative voting is essentially the right of a
shareholder to multiply the number of shares he possesses by the number of
directors to be elected, and cast his votes for one or more directors, thereby
affording to the minority shareholders a greater opportunity to elect one or
more directors. In addition, the Company has been unable to locate all of its
original minutes for meetings of the Board of Directors and shareholders and
stock records for much of the time since its incorporation. When these matters
were discovered in 1995 (save with respect to cumulative voting, which was
discovered in 1997), the Company took certain corrective, ratifying and other
actions as described below.
In 1995, the Board of Directors ratified and approved all past actions of the
Company which may not have complied with all requisite corporate formalities,
and the Board and the shareholders of the Company approved a corrective
amendment to the Company's Articles of Incorporation restating a provision
denying preemptive rights to shareholders, but did not address the issue of
cumulative voting. The preemptive rights provision had been inadvertently
omitted in a December 1988 amendment to the Articles of Incorporation. The
Company has obtained waivers of preemptive rights from the holders of
approximately 90% of the affected Common Stock at the time of each issuance.
As of the date hereof, no person has asserted a claim against the Company
alleging such person has been denied the opportunity to exercise preemptive
rights to purchase Common Stock of the Company or to vote cumulatively. The
Company believes that the likelihood of a person asserting any such a claim
against the Company will diminish with the passage of time. If any person who
may have preemptive rights or believing that he or she has been denied the
right to cumulative voting, and thereby asserts a claim against the Company
with respect to those issues, the Company
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General - Development of the Business of Saba (continued)
intends to vigorously defend the matter. If the Company were obligated to issue
shares to satisfy the preemptive rights of any person who has not waived his
rights, Capco Resources Ltd., ("Capco"), a company controlled by Mr. Chaudhary
which, in turn, controls Saba, has agreed to indemnify the Company against any
financial impact by either selling or causing to be sold to the Company a like
number of shares, at the same price at which the Company is obligated to issue
the shares, and has agreed to deliver certificates for 150,000 shares into an
escrow to secure its obligation, thereby practically eliminating any potential
financial effect on the Company. Since Mr. Chaudhary, either directly or
indirectly, would nevertheless been entitled to elect a majority of the Board
of Directors of the Company had cumulative voting been implemented in the past,
the Company believes that the failure to inform shareholders of the existence
of cumulative voting did not have a material effect upon the election of
previous Boards.
The Company is presenting a proposal to its shareholders at the 1997 Annual
Meeting, which if adopted, would result in the change of domicile of the
Company from Colorado to Delaware. It is believed that such a change will
further reduce the likelihood of any adverse effect from the foregoing.
Business of the Company
The Company is an independent producer of, and to a lesser extent, explorer
for, oil and gas, primarily in the United States, but with significant oil and
gas operations in Colombia and Canada. The Company is seeking to acquire
exploratory and producing properties in other parts of the world, and is
presently in negotiations for the acquisition of a concession in Indonesia.
The Company maintains a presence in Indonesia and the Indian subcontinent, and
has informal agreements with persons in other countries pursuant to which the
Company seeks and evaluates potential oil and gas property acquisitions.
The Company also owns an asphalt refinery located in Santa Maria, California,
where it currently processes approximately 4,000 BOPD. See "Description of
Property - Refining Operations." Incident to its oil and gas operations, the
Company has acquired fee interests in real estate. See "Description of
Property - Real Estate."
Glossary
The following are used in this report and the definitions contained herein are
provided for the convenience of the reader:
Bbl or Barrel - means 42 United States gallons liquid volume, usually used
herein in reference to crude oil or other liquid hydrocarbons.
BOE or Barrel of Oil Equivalent - converts gas to oil at a ratio of 6,000 cubic
feet of gas to one Bbl of oil, usually. Then oil and gas are added together
for total BOE.
BOPD - means barrels of oil per day.
Developed Acreage - means the number of acres of oil and gas leases held or
owned, which are allocated or assignable to producing wells or wells capable of
production.
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Glossary (continued)
Development Well - means a well which is drilled to and completed in a known
producing formation adjacent to a producing well in a previously discovered
field and in a stratigraphic horizon known to be productive.
Exploration - means the search for economic deposits of minerals, petroleum and
other natural earth resources by any geological, geophysical, or geochemical
technique.
Exploratory Well - means a well drilled either in search of a new, as-yet
undiscovered oil or gas reservoir or to greatly extend the known limits of a
previously discovered reservoir, as indicated by reasonable interpretation of
available data, with the objective of completing in that reservoir.
Field - means a geographic area in which a number of oil or gas wells produce
from a continuous reservoir.
MBOE - means one thousand barrels of oil equivalent.
MMBOE - means one million barrels of oil equivalent.
MBOPD - means one thousand barrels of oil per day.
Mcf - means one thousand cubic feet of natural gas.
Net Acres or Net Wells - mean the sum of fractional working interests owned
in gross acres or gross wells.
Operator - means the person or company actually operating an oil or gas well.
PV-10 Value - means the present value, employing a 10% discount factor, of the
future net revenues computed using current prices from the production of proven
reserves.
FORWARD LOOKING INFORMATION
With the exception of historical information, the matters discussed in this
Report contain forward-looking statements that involve risks and uncertainties.
Although the Company believes that its expectations are based upon reasonable
assumptions, it can give no assurance that its goals will be achieved.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements contained in this report include the
time and extent of changes in commodity prices for oil and gas, increases in
the cost of conducting operations, including remedial operations, the extent of
the Company's success in discovering, developing and producing reserves,
political conditions, including those in Colombia and other areas in which the
Company possesses properties, condition of capital and equity markets, changes
in environmental laws and other laws affecting the ability of the Company to
explore for and produce oil and gas and the cost of so doing and other factors
which are described in this report.
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BUSINESS STRATEGY
The Company intends to continue to increase its proven reserves, production
rates and operating cash flow through a program, which includes the following
key elements:
Exploitation of existing reserve base. The Company attempts to enhance the
reserve potential of its properties through the use of horizontal drilling, 3-D
seismic analysis and other modern drilling and recovery technologies. The
Company has developed a five-year inventory of potential drilling locations,
which includes some 184 locations in California and at least 250 locations in
Colombia. From January 1, 1995 through December 31, 1996, the Company completed
20 of 22 development wells. The Company expects that its drilling program will
provide it with a cost-effective means to increase proved reserves, production
rates and operating cash flow.
Acquisition of producing properties with development potential. The Company
actively seeks to acquire domestic and international producing properties where
it can significantly increase reserves through development drilling and reduce
unit of production costs through improved operating controls. The Company
believes that its substantial experience and established relationships in the
oil and gas industry enable it to identify, evaluate and acquire high potential
properties on favorable terms.
Selective pursuit of exploration prospects. The Company seeks to significantly
expand its reserve base by acquiring high potential exploration prospects. The
Company believes opportunities exist outside the United States and Canada to
discover significant reserves in known productive regions and to achieve
favorable recovery economics. In pursuing exploration opportunities, the
Company may seek to limit its direct financial exposure by entering into
strategic partnerships. The Company also attempts to reduce its exploration
risk by pursuing properties that can be delineated through 3-D seismic surveys.
Acquisitions
During the period from January 1, 1992 through December 31, 1996, the Company
acquired approximately $33.4 million of producing oil and gas properties or
properties, which the Company believes, can be restored to production. The
properties acquired consisted primarily of leasehold oil and gas interests and
in limited instances, both leasehold and fee interests. Amounts expended during
1992 amounted to approximately $6.2 million for properties in Michigan and
California; during 1993, approximately $1.2 million for properties in
California; in 1994, approximately $800,000 for properties in California, $3.1
for properties in Canada, and $13.0 million for properties in Colombia; during
1995, approximately $2.6 million for properties in Texas and New Mexico; and
during 1996, $3.4 million for properties in Louisiana, Texas and Michigan. In
addition, during 1994, the Company acquired its refinery property in California
at a cost of approximately $1.7 million. See "Description of Property -
Refining Operations." The foregoing amounts are gross prices and do not
reflect credits (essentially price reductions) for production between the
effective date for the acquisition of a property and the closing date.
The Company acquired a producing property located in Louisiana in November
1996, at a purchase price of approximately $3.2 million. This property is
located in Jefferson Parish, and contains 8 producing oil wells. The Company
has no present plans to drill additional wells on the property, but anticipates
conducting a 3-D seismic study of the property in the third quarter of 1997, in
an attempt
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Acquisitions (continued)
to identify additional oil reserves that could be produced from current
non-producing wells.
In December 1996, the Company entered into an agreement with another oil
company granting Saba the right to earn up to a 66.7% interest in 633 gross
acres covering a major portion of a field located in Oxnard, California, which
the Company believes has significant horizontal drilling potential. The
Company will earn this interest if it spends $10 million developing the
property over the next two years. The Company has prepared a two-year
horizontal well development drilling program for this property, on which it
expects to spend $3 million in 1997. There are currently four vertically
drilled producing wells in the Oxnard field, which the Company estimates
produce approximately 20 BOPD. See "Description of Property - Oxnard Field."
In January 1995, the Company acquired a 25% interest in the Velasquez oil field
in Colombia, South America at a cost of $1,250,000 from Omimex de Colombia,
Ltd. ("Omimex"), a subsidiary of a privately held Fort Worth, Texas company,
which, in turn, had acquired a 100% interest from a subsidiary of Texaco, Inc
("Texaco"). In April 1995, the Company and Omimex each acquired one-half of
Texaco's (i) 50% interest in the Teca and Nare oil fields, (ii) 100% interest
in the Cocorna oil field and (iii)100% interest in the Velasquez-Galan Pipeline
(which connects the fields to a refinery). A 50% interest in the Teca and Nare
oil fields is owned by Empresa Colombiana de Petroleos ("Ecopetrol"), the
Colombian state oil company. All of the above mentioned fields lie in the
Middle Magdalena Basin, which is approximately 93 miles northwest of Bogota,
Colombia. The Company's net acquisition cost for the Teca and Nare fields and
Velasquez-Galan Pipeline was approximately $8.3 million. The Company financed
the purchase price in part with loans from affiliates of the Company (see
"Certain Relationships and Related Transactions"). The Company's net
acquisition cost for the Cocorna field was approximately $533,000. The
contract governing the Cocorna field expired in February 1997, and was not
renewed.
Exploration and Development Activities
Prior to 1996 the Company's business strategy dictated the acquisition of
producing oil and gas properties which were believed to have potential for
increased production through reworking and other remedial operations. In 1996,
the Company expanded its strategy to include the exploration and development of
oil and gas prospects, including those on leases which the Company had
previously acquired. The Company has identified over 430 potential drilling
locations on its leases in California and Colombia, which represent an
estimated five-year inventory at planned drilling rates. In addition, the
Company has identified a number of drilling locations on its domestic
properties located outside of California and in Canada. The Company is also
pursuing the acquisition of high potential international exploration prospects
to enhance its inventory of drilling opportunities. In 1997, the Company
expects to spend approximately $43.0 million on selected exploration and
development activities, including the drilling of some 36 horizontal wells on
its California properties. The Company plans to drill at least one pair (two
wells) under the SAGD (steam assisted gravity drainage) process (described two
paragraphs later in this section) and more if the results of the process are
satisfactory. The success of this process will dictate the 1998 and subsequent
years development utilizing SAGD.
The Company's exploration and development drilling programs are conducted by
its in-house technical staff. These professionals oversee the Company's
development strategy, which is designed to maximize the value and productivity
of its existing property base through development drilling
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Exploration and Development Activities (continued)
and enhanced recovery methods. One of the most important components of the
Company's California development program is its use of horizontal drilling
technology. In general, a horizontal well is able to encounter a greater
portion of a hydrocarbon bearing formation than a comparable vertical well. As
a result, in appropriate formations, a horizontal well may generate both higher
initial production and greater ultimate recovery of oil and gas than a vertical
well. In addition, because a horizontal well can be extended laterally into a
reservoir for a significant distance, it can greatly reduce the number of wells
required to drain a given formation. The Company believes that the favorable
results of its horizontal drilling program are largely attributable to its
application of measurement while drilling ("MWD") tools. The use of MWD
enables the Company to continuously monitor the location of a drillbit during
drilling and guide it into a tightly defined target zone in a particular
formation. The Company believes that its MWD enhanced horizontal drilling
program will increase reserve recovery and decrease drilling and operating
costs.
During 1997, the Company intends to employ on a pilot basis initially, a
drilling technique known as SAGD, which generally involves drilling two
horizontal wells in a parallel configuration, one above the other, and within a
short distance of each other. Steam will be injected into the upper wellbore,
which creates a steam chamber and heats the oil so that it may flow by gravity
to the lower producing wellbore, where it is extracted. This SAGD process has
been successfully employed in Canada in thick reservoirs containing viscous
oils, similar to those found in certain of the Company's California fields.
While this technique is initially more costly than employing a single
horizontal well, the Company anticipates that, should the process prove
successful in its application to the Company's properties, it will result in
increased production rates and recoveries and will result in lower per unit
production costs. Should the initial tests of the process prove successful,
the Company intends to expand its use of the SAGD process.
California
Between June 20, 1996 and December 31, 1996, the Company drilled and completed
four horizontal wells in the Sisquoc sands of the Cat Canyon field (See
"Description of Property - California Properties"). Of the four wells, one has
experienced sand intrusion into the wellbore and, if the problem cannot be
eliminated, the well will probably be converted to a water injection well. The
remaining three wells are producing an average of 500, 350, and 82 BOPD. The
Company commenced drilling a fifth horizontal well in December 1996 and
completed it in early January 1997. The well is currently producing 52 BOPD.
See "Description of Property - Recent Developments". The Company expects to
drill an additional 36 horizontal wells (at least one of which will apply the
SAGD process, which will include the drilling of an accompanying steam
injection well) in California in 1997. These relatively shallow wells are
anticipated to cost an average of $500,000 per well and reach an average depth
of 2,700 feet with an average lateral extension of approximately 1,400 feet.
The Company believes that horizontal drilling will be particularly effective in
producing the heavy oil contained in these fields because of the geological
formation of the Sisquoc sands. The Company has identified seven distinct
horizons in the Sisquoc sands of the Cat Canyon and Gato Ridge fields. To date,
the Company has tested only the shallowest horizon to an approximate depth of
2,500 feet. The Company intends to begin selectively exploring additional
horizons, the deepest of which is believed to extend to approximately 3,500
feet.
The Company has not yet drilled any horizontal wells in its California Central
Coast Fields (see "Description of Property" for a description of such fields)
outside of Cat Canyon. The Company
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California (continued)
believes, however, that horizontal wells drilled in those fields will exhibit
similar production characteristics as the horizontal wells it recently drilled
in the Cat Canyon field. This view is based upon the Company's analysis of the
production histories of existing vertical wells in the Casmalia, Santa Maria,
Paris Valley and Oxnard fields and its review of existing geological and
geophysical data.
Colombia
The Company and the operator of the Colombian fields, Omimex, acquired their
interests in the Middle Magdelena Basin properties from Texaco in 1995. The
Company has a 25% working interest in these properties. Omimex and Ecopetrol,
the Colombian state oil company, own the remaining working interests. The
exploitation and development of the Teca, Nare, and the adjacent Nare North,
Chicala and Moriche fields are governed by association contracts originally
entered into between Ecopetrol and Texaco in 1980. Under these contracts, the
Company and Omimex each receives 20% of the crude oil produced at these fields,
while Ecopetrol receives 40% of production and the Colombian government
receives the remaining 20% of production in the form of royalties. Each of the
Company and Omimex bears 25% of the production costs at the Teca and Nare
fields and Ecopetrol is responsible for the remaining 50% of such costs. The
exploitation rights under these contracts governing operations of these five
fields expire in 2008 and are not renewable by the Company under their current
terms. Depending on future circumstances, the Company may seek an extension of
these contracts. All of the Company's crude oil produced at the fields has
historically been sold exclusively to Ecopetrol at prices established by
Ecopetrol. See "Description of Business -- Marketing of Production."
The Company has entered into a joint operating agreement with Omimex under
which Omimex operates the Colombia properties. The Company currently
anticipates attempting to increase production at the Teca and Nare fields and,
in this regard, the assets purchased from Texaco include a drilling rig,
tubular goods and related oil field supplies that the Company believes will
help facilitate such an increase. Any such increase will require, among other
things, the agreement of Omimex and Ecopetrol. The Teca and Nare fields had
proved reserves of 7.3 MMBOE of oil at December 31,1996.
The Company and Omimex have designed a development program on the Nare North,
Chicala and Moriche fields, which includes, pending regulatory approval, the
drilling of approximately 250 development wells through the year 2001 at an
average depth of 2,900 feet. The Company and Omimex expect to drill the first
35 of these wells in 1997 at a cost to the Company of approximately $2.6
million. This program is based largely on a related 600 well program originally
designed and submitted to agencies of the Colombian government by Texaco, the
original operator of all of the Company's Middle Magdelena Basin fields.
Although the Texaco program was reviewed by Ecopetrol in 1991, it was not
implemented due to what the Company believes was Ecopetrol's concern with
refinery capacity and oil prices in effect at such time. Advances in drilling
technology since 1991 have enabled Omimex and the Company to design a 250 well
program which they believe could yield the same ultimate reserve recovery as
Texaco's original 600 well program.
The ability of Omimex, as operator of the fields, to implement this development
program is conditioned upon the prior approval of Ecopetrol and the Colombian
Ministry of the Environment. In September 1996, Omimex received the approval of
Ecopetrol to initially test production of three
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Colombia (continued)
existing wells in the North Nare Field. Prior to commencing such tests,
however, Omimex must receive approval from the Colombian Ministry of the
Environment. Omimex has submitted its plan to the Ministry of the Environment
and is awaiting approval. Once its plan is approved and completed, Omimex will
submit the results of such tests to Ecopetrol and the Ministry of the
Environment for approval of the 250 well development program.
In addition to these development activities, the Company is also pursuing
selected exploration opportunities in Colombia. The Company and Omimex are
currently seeking to acquire third party 3-D seismic data on the currently
producing Velasquez field to determine its exploration potential.
Other United States and Canadian Properties
On its non-California domestic properties, the Company has working interests in
320 oil wells and 56 gas wells located principally in Alabama, Louisiana,
Michigan, New Mexico, Oklahoma and Texas. The Company has successfully
completed two of six exploratory and six of six development wells it has
drilled on these properties since 1995. The Company plans to increase reserves
and production from its non-California domestic properties by performing
multiple workovers, 3-D seismic surveys, re-completions and development
drilling on selected properties in 1997. The Company has recently completed
workovers on two of the wells located in Jefferson Parish that the Company
acquired in November, 1996. In Lea County, New Mexico, the Company utilized
3-D seismic surveys to identify the location for a well, which was being
drilled at year-end and is currently being completed for production. See
"Description of Property - Recent Developments - New Mexico." The Company
anticipates spending approximately $5.0 million on the exploration and
development of its non-California domestic properties in 1997.
The Company's operations in Canada are managed exclusively through Beaver Lake
Resources Corporation, in which the Company holds a 74% interest. The Company
has focused its exploration and development operations in Canada on low risk
oil and gas projects, which are near existing processing and transportation
facilities. The Company seeks to reduce drilling risk by utilizing advanced
technologies such as 3-D seismic analysis and to increase production and proved
reserves through the application of horizontal drilling techniques. Beaver
Lake's development activities are currently focused on the Eaglesham area in
Northwestern Alberta where it has been acquiring 3-D seismic data in order to
confirm the presence of viable drilling locations. The Company has identified
four drilling locations on Company-owned lands in addition to three locations
on offsetting lands. Beaver Lake has a 100% interest in the Eaglesham area and
intends to drill a horizontal oil well in the first half of 1997 and a sour gas
well in the second half of 1997. Beaver Lake is also pursuing several other
programs including infill drilling to exploit its currently producing fields.
The Company plans to spend approximately $5 million on drilling activities on
its Canadian properties in 1997. Beaver Lake has a credit facility of $2.6
million separate from that of the Company, on which approximately $1.6 million
was outstanding at December 31, 1996. From time to time, the Company and Beaver
Lake have discussed the possibility of the Company acquiring all of the shares
of Beaver Lake not held by the Company. It is expected that further
discussions will occur during 1997.
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GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
United States and Canada - General
The production of oil and natural gas is subject to regulation under a wide
range of federal, state and local statutes, rules, orders and regulations. Such
statutes and regulations require drilling bonds, reports concerning operations
and permits for drilling, reworking and re- completion operations. Most areas
in which the Company owns and operates properties have regulations governing
conservation matters, including provisions for the unitization or pooling of
oil and natural gas properties, the establishment of maximum rates of
production from oil and natural gas wells and the regulation of the spacing.
Many jurisdictions also restrict production to the market demand for oil and
natural gas and several states have indicated interest in revising applicable
regulations. These regulations may limit the rate at which oil and natural gas
could otherwise be produced from the Company's properties. Some jurisdictions
have also enacted statutes prescribing ceiling prices for natural gas sold from
such jurisdictions.
Environmental Regulation and Concerns
Various federal, state and local laws and regulations relating to the
protection of the environment affect the Company's operations and costs. In
particular, the Company's production operations and its use of facilities for
treating, processing or otherwise handling hydrocarbons and wastes therefrom
are subject to stringent environmental regulation. Compliance with these
regulations increases the cost of Company operations. Environmental
regulations have historically been subject to frequent change by regulatory
authorities and the Company is unable to predict the ongoing cost of complying
with these laws and regulations or the future impact of such regulations on its
operations.
The oil and gas industry is also subject to environmental hazards, such as oil
spills, oil and gas leaks, ruptures and discharges of oil and toxic gases,
which could expose the Company to substantial liability for remediation costs,
environmental damages, and claims by third parties for personal injury and
property damage. The Company has not obtained environmental surveys, such as
Phase I reports, which would disclose matters of public record and could
disclose evidence of environmental contamination requiring remediation, on
producing properties outside of Michigan or California in which it holds an
interest. The Company has had Phase I or more limited environmental assessments
done for substantially all of its California and Michigan oil and gas
properties. These assessments disclose environmental impacts typical of oil
field operations and certain areas of potentially greater environmental
concern, including possible groundwater impact at certain properties in which
the Company has up to a 25% working interest and as to which the seller has
assumed responsibility for remediation costs in excess of $2 million (up to
$500,000 to the Company) that have not been resolved or further investigated.
Generally, the assessments are four or five years old and do not disclose any
more recent environmental matters. The Company's oil and gas properties as to
which environmental assessments have not been performed should also be expected
to have environmental concerns typical of oil field operations generally, and
may contain other areas of greater environmental concern. See "Description of
Business - Governmental Regulation and Environmental Matters - Property
Matters."
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OPERATIONAL HAZARDS AND UNINSURED RISKS
Oil and gas drilling and producing activities involve hazards such as fire,
explosions, blow-outs, pipe failures, casing collapses, unusual or unexpected
formations and pressures and environmental hazards such as oil spills, gas
leaks, ruptures and discharges of toxic gases, any one of which may result in
environmental damage, personal injury and other harm that could result in
substantial liabilities to third parties and losses to the Company. The Company
maintains insurance against certain risks, which it believes are customarily
insured against in the oil and gas industry by companies of comparable size and
scope of operations. The insurance that the Company maintains does not cover
all of the risks involved in oil exploration, drilling and production and if
coverage does exist may not be sufficient to pay the full amount of such
liabilities. The Company may not be insured against all losses or liabilities
which may arise from all hazards because such insurance is unavailable at
economic rates, because of limitations in the Company's insurance policies or
because of other factors. Any uninsured loss could have a material and adverse
effect on the Company. The Company maintains insurance which covers, among
other things, environmental risks; however, there can be no assurance that the
insurance the Company carries will be adequate to cover any loss or exposure to
liability, or that such insurance will continue to be available on terms
acceptable to the Company.
REFINERY MATTERS
Pursuant to the purchase and sale agreement of the asphalt refinery in Santa
Maria, California, the sellers agreed to perform certain remediation and other
environmental activities on portions of the refinery property through June
1999. Because the purchase and sale agreement contemplates that the Company
might also incur remediation obligations with respect to the refinery, the
Company engaged an independent consultant to perform an environmental
compliance survey for the refinery. The survey did not disclose required
remediation in areas other than those where the seller is responsible for
remediation, but did disclose that it was possible that all of the required
remediation may not be completed in the five-year period. The Company, however,
believes that all required remediation will be completed by the seller within
the five year period. Environmental compliance surveys such as those the
Company has had performed are limited in their scope and should not be expected
to disclose all environmental contamination as may exist.
PROPERTY MATTERS
In 1993, the Company acquired a producing mineral interest from a major oil
company. At the time of acquisition, the Company's investigation revealed that
the major oil company had suffered a discharge of diluent (a light oil based
fluid which is often mixed with heavier grade crudes). The purchase agreement
required the major company to remediate the area of the diluent spill. After
the Company assumed operation of the property, the Company became aware of the
fact that diluent was seeping into a drainage area, which traverses the
property. The Company took action to arrest the contamination and requested
that the major company bear the cost of remediation. The major company has
taken the position that its obligation is limited to the specified contaminated
area and that the source of the contamination is not within the area that the
major company has agreed to remediate. The Company has commenced an
investigation into the source of the contamination to ascertain whether it is
physically part of the area, which the major company agreed to remediate, or is
a separate spill area. Investigation and discussions with the major company are
ongoing. Should the Company be required to remediate the area itself, the cost
to the Company could be significant. The Company has spent approximately
$150,000 to date in remediation activities, and present
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<PAGE> 13
PROPERTY MATTERS (CONTINUED)
estimates are that the cost of complete remediation could approach $1 million.
Since the investigation is not complete, an accurate estimate of cost to be
ultimately borne by the Company cannot be made.
In 1995, the Company agreed to acquire, for less than $50,000, an oil and gas
interest on which a number of oil wells had been drilled by the seller. None of
the wells were in production at the time of acquisition. The acquisition
agreement required that the Company assume the obligation to abandon any wells
that the Company did not return to production, irrespective of whether certain
consents of third parties necessary to transfer the property to the Company
would be obtained. The Company has been unable to secure all of the requisite
consents to transfer the property but nevertheless may have the obligation to
abandon the wells. The Company is evaluating its drilling options and is
considering whether to continue to attempt to secure the transfer consents. A
preliminary estimate of the cost of abandoning the wells and restoring the well
sites is approximately $800,000. The Company is currently unable to assess its
exposure to third parties if the Company elects to plug such wells without
first obtaining necessary consent.
The Company, as is customary in the industry, is required to plug and abandon
wells and remediate facility sites on its properties after production
operations are completed. The cost of such operation will be significant and
will occur, from time to time, as properties are abandoned.
There can be no assurance that material costs for remediation or other
environmental compliance will not be incurred in the future. The incurrence of
such environmental compliance costs could be materially adverse to the Company.
No assurance can be given that the costs of closure of any of the Company's
other oil and gas properties would not have a material adverse effect on the
Company.
COSTS AND EFFECT OF COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company's activities are subject to numerous foreign, United States federal
and state laws and regulations concerning the storage, use and discharge of
materials into the environment, the remediation of environmental impacts and
other matters relating to environmental protection, all of which may adversely
affect the Company's operations and the costs of doing business. The operation
of the Company's domestic properties and the Company's Colombian fields have
been affected by environmental concerns in the past and may be so in the
future. The Company believes that the cost of environmental compliance has
increased its costs of operations, but cannot quantify the amount of the
increase. There can be no assurance that future legislation or administrative
regulations or interpretations will not impose stricter requirements that could
have an adverse impact on the operating costs of the Company and the oil and
gas industry in general.
Factors Relating to Colombian Operations and Other Foreign Countries
Foreign operations generally involve risks of local currency instability,
inflation, the risk of realizing economic currency exchange losses when
transactions are completed in currencies other than United States dollars, and
the ability to repatriate earnings under existing exchange control laws.
Changes in domestic and foreign import and export laws and tariffs can also
materially impact foreign operations. The Company's Colombian investment
involves the risks of loss of revenue, property and equipment from such hazards
as expropriation, nationalization, war, insurrection and other political risks;
risks of increases in taxes and governmental royalties; renegotiations of
contracts with
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<PAGE> 14
Factors Relating to Colombian Operations and Other Foreign Countries
(continued)
governmental and quasi-governmental entities; and abrupt changes in governments
and in laws and policies governing foreign operations. In addition, Colombia,
which has a history of political instability, is currently experiencing such
instability due to, among other factors: insurgent guerilla activity, which has
affected other oil production and pipeline operations; drug-related violence
and actual and alleged drug-related political payments; kidnapping of political
and business personnel; the potential change of the national government by
means other than a recognized democratic election, labor unrest including
strikes and civil disobedience; and a substantial downturn in the overall rate
of economic growth. There can be no assurance that such matters, individually
or cumulatively, will not materially affect the Company's Colombian properties
and operations or by affecting Colombian governmental policy, have an impact on
the Company's Colombian properties and operations.
UNCERTAINTIES IN UNITED STATES -- COLOMBIA BILATERAL POLITICAL, TRADE AND
INVESTMENT RELATIONS
Pursuant to the International Narcotics Control Act of 1990, the President of
the United States is required to determine whether to certify that Colombia has
cooperated with the United States, or taken adequate steps on its own, to
achieve the goals of the United Nations Convention Against Illicit Traffic in
Narcotic Drugs and Psychotropic Substances. In 1995, 1996 and 1997 the
President did not certify Colombia. The 1995 de-certification was later subject
to a so-called "national interest" waiver, effectively nullifying its statutory
effects. Based on the 1996 Presidential de-certification, the United States
imposed substantial economic sanctions on Colombia, including the withholding
of bilateral economic assistance, the blocking of Export-Import Bank and
Overseas Private Investment Corporation loans and political risk insurance, and
the entry of United States votes against multilateral assistance to Colombia in
the World Bank, and the Inter-American Development Bank. It is likely the
United States will continue to not certify Colombia for so long as the current
Colombian government remains in power.
The consequences of continued and successive United States de-certifications of
Colombian activities are not fully known, but may include the imposition of
additional economic sanctions on Colombia in 1997 and succeeding years. The
President also has authority to impose far-reaching economic, trade and
investment sanctions on Colombia pursuant to the International Emergency
Economic Powers Act of 1978, which powers were exercised against Panama in a
dispute over narcotics trafficking activities by the Panamanian government in
1987. Additionally, legislation is now pending before the United States
Congress, which would force the President to impose additional, substantial
economic and trade sanctions on Colombia in 1997. The Colombian government's
reaction to United States sanctions could potentially include, among other
things, restrictions on the repatriation of profits and the nationalization of
Colombian assets owned by United States entities. Accordingly, imposition of
the economic and trade sanctions on Colombia could materially affect the
Company.
Dependence on Approval by Governmental Agencies
The Company, together with Omimex de Colombia, Ltd., an affiliate of Omimex,
the operator of the Colombian fields, is seeking to drill up to approximately
250 development wells on its Colombian fields through the year 2001. The
ability of the Company to implement this plan is conditioned upon the prior
approval of Ecopetrol and the Colombian Ministry of the Environment. Omimex has
received the approval of Ecopetrol to initially test production of three
existing wells. Prior to
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<PAGE> 15
Dependence on Approval by Governmental Agencies (continued)
commencing such tests, however, Omimex must receive approval of the Colombian
Ministry of the Environment. Application to approve the three well testing plan
was submitted to the Colombian Ministry of the Environment in the Summer of
1996, and approval of the plan was initially anticipated to be received in the
Fall of 1996. To date, this Ministry has not approved the plan. There can be no
assurance that the Ministry of the Environment will approve the three well
testing programs. If the three well testing plan is approved and ultimately
successful, approvals from both Ecopetrol and the Colombian Ministry of the
Environment must then be obtained for the 250 well drilling program. There can
be no assurance that such approvals will be obtained. In addition, the Company
plans to drill six additional wells in 1997 in the developed acreage in
Colombia in an effort to reduce an otherwise anticipated annual 12% production
decline rate. Ministry of the Environment approval to commence such drilling
was received in March 1997. Failure to obtain such approvals on a timely basis
could have a material impact on the Company. See "Description of Property -
Recent Developments" for information concerning recent drilling activity.
COLOMBIAN OPERATIONS
The operation of the Company's properties in Colombia has been affected by
environmental concerns in the past and may be so affected in the future. The
Colombian Ministry of the Environment issued a resolution (the "Resolution") in
June 1995 directing Texaco to correct certain environmental deficiencies
allegedly found at the Nare oil field which is now part of the Company's
holdings. The Resolution ordered Texaco to temporarily close one of its five
production modules (surface vessels through which crude is treated to separate
gas and water from oil) and any wells whose crude oil which required processing
in that module until Texaco provided the Ministry of the Environment a written
timetable setting forth Texaco's scheduled implementation of requisite
corrective measures. The temporary closing of the module, which was reopened in
the second half of 1996, did not have a substantial effect on total production
because substantially all of the crude oil which would otherwise have been
processed in the closed module was diverted to other production modules. The
Resolution also ordered the opening of an environmental investigation of
Texaco's operation in the area. The Company engaged an independent consultant
to perform an environmental compliance survey of the Nare oil field. The
consultant estimated that the costs of environmental compliance attributable to
the Company's interest would not exceed $375,000. Under the terms of the
Company's agreement with Texaco, the Company acquired Texaco's interests "as
is" and could be subject to liability materially greater than $375,000. In
addition, consistent with the independent consultant's survey, Omimex estimates
that as much as $250,000 may be expended by the Company to upgrade waste water
disposal capabilities, including currently anticipated reinjection of certain
produced water.
Labor Disturbances
All of the workers employed at the Company's Colombian fields belong to one of
two unions. Omimex is currently in contract negotiations with one of these
unions and has experienced mild organized work disruptions, including
insignificant intermittent disruption of production during the course of such
discussions. While to date there have been no major union disturbances, there
can be no assurance that the Company will not experience such disturbances,
including significant production interruption due to sabotage, work slowdowns
or work stoppages.
15
<PAGE> 16
PRINCIPAL PURCHASERS - MARKETING OF PRODUCTION
Volatility of Commodity Prices and Markets
Oil and gas prices have been and are likely to continue to be volatile and
subject to wide fluctuations in response to any of the following factors:
relatively minor changes in the supply of and demand for oil and gas; market
uncertainty; political conditions in international oil producing regions; the
extent of domestic production and importation of oil in certain relevant
markets; the level of consumer demand; weather conditions; the competitive
position of oil or gas as a source of energy as compared with other energy
sources; the refining capacity of oil purchasers, the effect of regulation on
the production, transportation and sale of oil and natural gas, and other
factors beyond the control of the Company.
MARKETING OF PRODUCTION
North America Production
Substantially all of the Company's North American crude oil production is sold
at the wellhead at posted prices under short-term contracts, as is customary in
the industry. In 1996, approximately 21.7% and 11.1% of the Company's North
American oil and gas revenues were derived from sales to two purchasers, Petro
Source Corporation and Texaco Inc., respectively. The Company believes that the
loss of any purchaser would not be material to its operations and that
alternative purchasers of production may be readily found.
Colombian Production
Oil produced from the Company's Middle Magdelena Basin fields, after being sold
to Ecopetrol, is processed in a 180 MBOPD government owned refinery in
Barrancabermeja, Colombia. The Company believes that the refinery has
sufficient unused throughput capacity to satisfy any increase in production,
which might be achieved from the Company's Colombian exploration and
development program. The refinery is connected to the Company's Colombian
fields through the 118 mile Velasquez-Galan Pipeline. The pipeline is currently
operating at approximately 12,000 BOPD (together with 18,000 Bbls of diluent
per day) and has the capacity to carry approximately 20,000 BOPD (together with
30,000 Bbls of diluent per day). Accordingly, significant capacity exists for
additional throughput. The Company owns a 50% interest in the Velasquez-Galan
Pipeline and is working with Omimex, the owner of the remaining 50% interest,
to explore the feasibility of extending it to an export terminal on the
Colombian coast. The pipeline currently generates approximately $65,000 in
monthly net revenues to the Company, and the Company expects the pipeline to
generate similar revenues in 1997.
LIMITED MARKET FOR SALE OF COLOMBIAN PRODUCTION
All of the Company's oil production in Colombia is, and, as a practical matter,
can be, sold only to Ecopetrol, which also owns a 50% working interest in the
Teca and Nare fields. The Company's Colombian oil production accounted for
40.9% of total oil and gas revenues for the year ended December 31, 1996 and
24.2% of total oil and gas revenues in 1995. Ecopetrol has the power to
determine the prices that the Company will receive for all oil produced in
Colombia. Prices received from the sale of oil and gas produced at the
Company's Colombian properties are determined by formulas set by Ecopetrol. The
formula for determining the price paid for crude oil produced at the
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<PAGE> 17
LIMITED MARKET FOR SALE OF COLOMBIAN PRODUCTION (CONTINUED)
Company's Teca and Nare fields is based upon the average of specified fuel oil
and international crude oil prices, which average is then discounted relative
to the price of West Texas Intermediate crude oil. The formula is expected to
be adjusted again in February 1999. There can be no assurance that Ecopetrol
will not decrease the prices it pays for the Company's oil in the future. A
material decrease in the price paid by Ecopetrol would have a material adverse
effect on the Company's future operations.
COMPETITION
The oil and gas industry is highly competitive. Many of the Company's current
and potential competitors have greater financial resources and a greater number
of experienced and trained managerial and technical personnel than the Company.
There can be no assurance that the Company will be able to compete effectively
with such firms. Saba's operations are largely dependent upon its ability to
acquire reserves of oil and gas in commercial quantities. The general
competitive conditions in the oil and gas industry in which the Company
operates have been and are expected to continue to be intense. Saba has
experienced, and will continue to encounter, strong competition from other
parties attempting to acquire oil and gas properties, either directly or
through the acquisition of entities owning mineral resources.
EMPLOYEES
As of December 31, 1996, the Company employed 94 persons in the operation of
its business, 44 of who were administrative employees. The Company has not
entered into any collective bargaining agreements with any unions and believes
that its overall relations with its employees are good. Omimex, the operator
of the Company's Colombian fields, has experienced minor organized work
disruptions from its union employees. See "Description of Business --
Colombian Operations -- Labor Disturbances."
ITEM 2. DESCRIPTION OF PROPERTY
The proved developed and undeveloped oil and gas reserve figures presented in
this report are estimates based on reserve reports prepared by independent
petroleum engineers. The estimation of reserves requires substantial judgment
on the part of the petroleum engineers, resulting in imprecise determinations,
particularly with respect to new discoveries. Estimates of reserves and of
future net revenues prepared by different petroleum engineers may vary
substantially, depending, in part, on the assumptions made, and may be subject
to material adjustment. Estimates of proved undeveloped reserves, which
comprise a substantial portion of the Company's reserves, are, by their nature,
much less certain than proved developed reserves. The accuracy of any reserve
estimate depends on the quality of available data as well as engineering and
geological interpretation and judgment. Results of drilling, testing and
production or price changes subsequent to the date of the estimate may result
in changes to such estimates. The estimates of future net revenues in this
report reflect oil and gas prices and production costs as of the date of
estimation, without escalation, except where changes in prices were fixed under
existing contracts. There can be no assurance that such prices will be realized
or that the estimated production volumes will be produced during the periods
specified in such reports. Since December 31, 1996 (the date of the estimates)
and the date of this report, oil and gas prices have generally declined. At
December 31, 1996, the price of West Texas Sweet Intermediate Crude (a
benchmark crude) as quoted on the New York Mercantile Exchange, was
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<PAGE> 18
ITEM 2. DESCRIPTION OF PROPERTY (CONTINUED)
$25.92 per barrel and the comparable price at March 14, 1997 was $21.28 per
barrel. Quotations for the comparable periods for natural gas were $4.22 per
Mcf and $2.14 per Mcf, respectively. The prices received by the Company for
its crude oil and natural gas have also declined. At such dates, the estimated
reserves and future net revenues may be subject to material downward or upward
revision based upon production history, results of future development,
prevailing oil and gas prices and other factors. A material decrease in
estimated reserves or future net revenues could have a material adverse effect
on the Company and its operations.
Principal Properties
The Company's properties are focused on four primary regions: Colombia,
California, and the remainder of the United States and Canada. The following
describes the material properties of the Company at December 31, 1996.
California Properties
The Company's operations in California are focused on the California Central
Coast Fields which consist of six onshore fields that collectively comprise
4,405 gross (4,367 net) developed acres and 2,974 gross (1,915 net) undeveloped
acres. The Company intends to capitalize on the potential of these properties
through a drilling program, which includes the drilling of as many as 184
wells. The Company operates all of its wells in the California Central Coast
Fields and maintains an average working interest in these wells of 98.8%, and
an average net revenue interest of 89.4%. The Company's California Central
Coast Fields consist of the Cat Canyon, Gato Ridge, Santa Maria, Casmalia,
Paris Valley and Oxnard fields. The Company also has producing properties
located in Solano, Kern and Orange counties, California.
Cat Canyon Field: The Cat Canyon field, which represented approximately 26.1%
of the Company's PV-10 Value at December 31, 1996, is located in Santa Barbara
County, California, and covers approximately 1,775 acres. The Company owns a
100% working interest and a 99.7% net revenue interest in 40 producing wells in
the Cat Canyon field, which primarily produce heavy grade oil (from 8# to 19#).
The Company acquired this property in 1993, at which time the property
contained 89 producing and 74 suspended wells. Such wells were drilled
vertically to either the Sisquoc or Monterey formations (lying between
approximately 2,400 feet and 3,400 feet and 4,000 feet and 6,600 feet,
respectively) and were producing approximately 425 BOPD. In 1996, the Company
drilled, completed and tested 4 horizontal wells in the Sisquoc formation of
the Cat Canyon field, which have reached an average depth of 2,300 feet with a
lateral length of approximately 1,400 feet. These wells cost approximately
$500,000 as completed wells. Of the four wells drilled and completed by the
Company in 1996, three are considered to be commercial producers, producing
approximately 500, 350 and 82 gross BOPD; the fourth well has experienced
formation difficulties (See "Description of Business - Exploration and
Development Activities - California") and, if not placed on production will be
converted to a water injection well. The Company commenced drilling a fifth
horizontal well in December 1996 and completed it in early January 1997. The
well is currently producing 52 BOPD. See "Description of Property - Recent
Developments." The Company anticipates drilling 19 horizontal wells to the
Sisquoc formation in 1997 at an average cost of $400,000 for a completed well
($300,000 for a dry hole). Since acquiring the property, the company has
increased average daily production from 425 BOPD to 1,125 BOPD.
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<PAGE> 19
California Properties (continued)
Gato Ridge Field: The Gato Ridge field, which is proximate to Cat Canyon and
represented .2% of the Company's PV-10 Value at December 31, 1996, is located
in the Santa Maria Basin and covers approximately 405 acres. The Company owns
a 100% working interest and net revenue interests ranging from 83.0% to 100% in
seven producing wells in the Gato Ridge field which primarily produce a heavy
oil (11#) from the same formations underlying the Cat Canyon field. The
existing wells are vertically drilled. The Company anticipates drilling five
horizontal wells to the Sisquoc and Monterey formations on this property at an
average cost per well of $400,000 ($300,000 for a dry hole) in 1997.
Casmalia Field: The Casmalia field, which represented approximately 3.0% of the
Company's PV-10 Value at December 31, 1996, is located in the Santa Maria Basin
and covers approximately 1,390 acres. The Company owns a 100% working interest
and a net revenue interest of 83.0% in 36 producing wells in the Casmalia field
which primarily produce a heavy oil (13#) from the Monterey formation. The
Company anticipates drilling three horizontal wells at an average cost of
$550,000 for a completed well ($450,000 for a dry hole) in 1997.
Santa Maria Field: The Santa Maria field, which represented approximately 1.9%
of the Company's PV-10 Value at December 31, 1996, is located in the Santa
Maria Basin and covers approximately 836 acres. The Company owns working
interests ranging from 90.0% to 100.0% and net revenue interests ranging from
75.0% to 96.7% in 13 wells in the Santa Maria field which primarily produce
heavy oil (13#). Wells in this field produce from the Pt. Sal, Monterey and
Franciscan formations, which generally lie between 1,700 and 6,000 feet. The
Company anticipates drilling two horizontal wells at an average cost per well
of $400,000 ($300,000 for a dry hole) in 1997.
Paris Valley Field: The Paris Valley field is located in Monterey County,
California. The property, which was leased by the Company in 1996, covers
approximately 1,200 undeveloped acres. The Company owns a 100% working
interest and a net revenue interest of 87.5% in this property. There are
currently no producing wells in the Paris Valley field. The Company
anticipates drilling four horizontal wells at an average cost of $400,000 for a
completed well ($300,000 for a dry hole) in 1997.
Oxnard Field: The Oxnard field, which represented approximately 4.0% of the
Company's PV-10 value at December 31, 1996, is located in Ventura County,
California. This field produces a highly viscous oil from the Vaca Tar Sands,
which is a formation in excess of two hundred feet thick and is found at depths
of between 1,950 and 2,400 feet. The reservoir is highly porous (35%) and
permeable (1,800 md.). The oil is heavy (6# - 8#) and is highly viscous.
Consequently, steam injection is necessary to heat the oil and reduce its
viscosity, permitting it to flow readily through the well bores. In existing
operations, the former operator generates steam at the surface and injects it
into the producing formation. The heat permeates the formation, and the
operator then pumps the oil in a conventional manner. Because of the use of
steam, operations are comparatively expensive while the price received for the
oil is relatively low. Produced water is disposed of in wells on-site and
operated by the operator. The field is equipped with two steam generators, a
large capacity (9,300 barrels) tank farm, disposal wells, fresh water source
wells and all other equipment needed for steam operations on this property.
There are currently four producing wells in the Oxnard field. The Company is
currently developing a comprehensive horizontal drilling program to expand the
current production base. The Company anticipates drilling one pair of SAGD
wells, consisting of two horizontal wells, in addition to other vertical and
horizontal wells, at a total cost
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California Properties (continued)
of approximately $3 million in 1997.
Richfield East Dome Unit (REDU): The REDU unit, which represented approximately
3.4% of the Company's PV-10 value at December 31, 1996, is located in Orange
County, California and covers approximately 420 acres. The Company is operator
of this unit and owns a working interest of 50.6% and a net revenue interest of
40.8%. The unit is under waterflood and contains approximately 68 producers,
39 shut-in wells and 54 water injection wells. The Company has no plans to
drill wells on this property in 1997.
North Belridge Field: The North Belridge field, which represented approximately
1.7% of the Company's PV-10 value at December 31, 1996 is located in Kern
County, California and is operated by another oil company. The Company owns
270 gross (135 net) acres of oil and gas leases in the North Belridge field, on
which there are located 40 gross (20 net) producing oil wells. The Company
owns a 50.0% working interest and net revenue interests ranging from 38.1% to
43.8% in the wells. The Company has no plans to drill wells on this property
during 1997.
Other: The Company owns other producing properties located principally in
Solano and Orange counties, California, which in the aggregate, represented
approximately 4.5% of the Company's PV-10 Value at December 31, 1996.
Colombia Properties
The Company's Colombian operations are concentrated on six fields, covering
6,769 gross (1785 net) developed acres and 5,719 gross (1,430 net) undeveloped
acres, in the Middle Magdelena Basin region of central Colombia, approximately
93 miles northwest of Bogota. Daily production from the three producing fields
attributable to the Company's interest averaged 2.7 MBOE for the quarter ended
December 31, 1996 and proved reserves attributable to the Company's interests
in Colombia at December 31, 1996 were 9.6 MMBOE. The Company's Teca and Nare
fields represented approximately 27.2% of the Company's PV-10 Value at December
31, 1996 and produced an average of 1.9 MBOPD for the quarter ended December
31, 1996 from 309 wells covering 2,598 gross (649 net) developed acres. The
Company also has an interest in the Velasquez field that accounted for
approximately 0.6% of the Company's PV-10 Value at December 31, 1996 and
produced an average of 425 BOPD for the quarter ended December 31, 1996 from 66
wells covering 3,800 gross (950 net) developed acres. The Company's interest
in the Cocorna field, located adjacent to the Teca and Nare fields, represented
approximately 0.03% of the Company's PV-10 Value at December 31, 1996 and
produced an average of 330 BOPD for the quarter ended December 31, 1996 from 28
wells covering 371 gross (186 net) developed acres. Wells in these fields
produce from the Upper and Lower Miocene age group, which lies between 1,500
and 2,000 feet. Wells generally cost approximately $300,000 as completed wells
($100,000 as dry holes).
In conjunction with its purchase of interests in the Teca and Nare fields, the
Company also purchased a 50% interest in the 118 mile Velasquez-Galan
pipeline, which connects the Teca, Nare, Velasquez, and Cocorna fields to the
180 MBOPD Colombian government-owned refinery at Barrancabermeja. The pipeline
transports Company produced oil as well as oil of the Company's working
interest partners, and a lighter crude oil supplied by Ecopetrol which acts as
a diluent to the heavier crude provided by the Company and its working interest
partners. The pipeline generates revenues through collection of tariffs for use
of the pipeline. Throughput in December 1996
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<PAGE> 21
Colombia Properties (continued)
averaged 31,816 BOPD, of which the Company's share was approximately 2,500
BOPD.
Other United States Properties
In addition to properties in California, the Company owns producing properties
in numerous states, including Alabama, Louisiana, Michigan, New Mexico,
Oklahoma, and Texas that collectively represented 16.1% of the Company's PV-10
Value at December 31, 1996. These properties had proved reserves of 2.9 MMBOE
at December 31, 1996 and an average daily production of 962 BOE for the three
months ended December 31, 1996.
Canada Properties
The Company's Canadian properties represented approximately 10.3% of the
Company's PV-10 Value at December 31, 1996. These Canadian properties produced
an average of 573 BOPD for the quarter ended December 31, 1996 from 147 wells
covering 57,436 gross (12,943 net) developed acres, most of which are located
in the province of Alberta and had proved reserves of 2.7 MMBOE at December 31,
1996.
RECENT DEVELOPMENTS
California
In 1996, the Company commenced the drilling of a fifth horizontal well on its
Cat Canyon property. Subsequent to year-end, such well was completed as a
commercial producer at a rate of approximately 52 BOPD.
New Mexico
In December, 1996 the Company commenced drilling of an exploratory well on its
Lea County, New Mexico property. The well was completed in the Devonian
formation at approximately 14,000 feet in March 1997. During a four-hour test
period the oil recovery rate increased from 25 barrels per hour to 100 barrels
per hour of 59.7 degree gravity oil with no water and a marginal amount of gas
production. The rate at which the well will be produced will be determined on
the basis of several other factors and will be significantly lower than the
test results. The Company has a 50% working interest and a 37% net revenue
interest in this well. The Company has interests in some 2,000 gross acres in
the prospect area.
Colombia
In March 1997, Ministry of the Environment approval was obtained for the
drilling of six wells at the Nare field. The operator expects to commence
drilling the first well in April 1997. In February 1997, the Articles of
Association covering the Cocorna field expired according to its terms and the
property interest reverted to Ecopetrol. At such date, the Cocorna field was
producing approximately 660 BOPD, of which the Company's share was 330 BOPD.
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Oil and Gas Reserves
The Company's proved reserves and PV-10 Value from proved developed and
undeveloped oil and gas properties have been estimated by the following
independent petroleum engineers: In 1996 and 1995, Netherland, Sewell &
Associates, Inc. prepared reports on the Company's reserves in the United
States and Colombia and Sproule Associates Limited prepared a report on the
Company's Canadian reserves. The estimates of these independent petroleum
engineers were based upon review of production histories and other geological,
economic, ownership and engineering data provided by the Company. In
accordance with SEC guidelines, the Company's estimates of future net revenues
from the Company's proved reserves and the present value thereof are made using
oil and gas sales prices in effect as of the dates of such estimates and are
held constant throughout the life of the properties, except where such
guidelines permit alternate treatment, including, in the case of gas contracts,
the use of fixed and determinable contractual price escalations. Future net
revenues at December 31, 1996 reflect a weighted average price of $17.05 per
BOE compared to $11.30 per BOE at December 31, 1995. There have been no
reserve estimates filed with any United States federal authority or agency,
except that the Company participates in a Department of Energy annual survey,
which includes furnishing reserve estimates of certain of the Company's
properties. The estimates furnished are identical to those included herein
with respect to the properties covered by the survey.
The following tables present total proved developed and proved undeveloped
reserve volumes as of December 31, 1996 and 1995 and estimates of the future
net revenues and PV-10 Value therefrom. There can be no assurance that these
estimates are accurate predictions of future net revenues from oil and gas
reserves or their present value. Pursuant to industry standards, the Company's
proved reserves include all of the proved reserves of Beaver Lake Resources
Corporation, a 74% owned subsidiary of the Company.
22
<PAGE> 23
Estimated Proved Oil and Gas Reserves
<TABLE>
<CAPTION>
Reserve Category
-----------------------------------------------------------------------
Proved Developed Proved Undeveloped Total
----------------------------- -------------------------- -----------------------------------------
1996 Oil (MBbls) Gas (MMcf) Oil (MBbls) Gas (MMcf) Oil (MBbls) Gas (MMcf)
---- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <<C> <C> <C>
United
States 7,994 11,521 8,157 1,593 16,151 13,114
Canada 710 2,654 211 7,897 921 10,551
Colombia 4,692 - 4,915 - 9,607 -
------- ------- ------- ------ ------- -------
Total 13,396 14,175 13,283 9,490 26,679 23,665
======= ======= ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1995 Oil (MBbls) Gas (MMcf) Oil (MBbls) Gas (MMcf) Oil (MBbls) Gas (MMcf)
---- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <<C> <C> <C>
United
States 5,386 8,191 1,177 912 6,563 9,103
Canada 750 2,051 176 8,325 926 10,376
Colombia 4,732 - 311 - 5,043 -
------- ------- ------- ------ ------- -------
Total 10,868 10,242 1,664 9,237 12,532 19,479
======= ======= ======= ====== ======= =======
</TABLE>
The estimated future net revenues (using current prices and costs at the
respective years end) and the present value of future net revenues (using a
discount factor of 10 percent per annum) before income taxes for Saba's proved
developed and proved undeveloped oil and gas reserves as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
Reserve Category
----------------------------------------------------------------------------
Proved Developed Proved Undeveloped Total
----------------------------- ------------------------ -------------------------------------
Present Present Present
value of value of value of
(Dollars in Future net future net Future net future net Future net future net
thousands) revenue revenue revenue revenue revenue revenue
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1996
----
United
States $ 89,456 $60,650 $ 66,354 $34,502 $155,810 $ 95,152
Canada 14,136 9,235 12,015 6,843 26,151 16,078
Colombia 31,020 24,258 40,921 20,451 71,941 44,709
-------- ------- -------- ------- -------- --------
Total $134,612 $94,143 $119,290 $61,796 $253,902 $155,939
======== ======= ======== ======= ======== ========
1995
----
United
Canada 7,905 5,259 5,463 2,213 13,368 7,472
Colombia 18,695 15,101 1,771 910 20,466 16,011
-------- ------- -------- ------- -------- --------
Total $ 58,294 $41,662 $ 15,231 $ 6,493 $ 73,525 $ 48,155
======== ======= ======== ======= ======== ========
</TABLE>
"Proved developed" oil and gas reserves are reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.
"Proved undeveloped" oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. In recent years,
the
23
<PAGE> 24
Estimated Proved Oil and Gas Reserves (continued)
market for oil and gas has experienced substantial fluctuations, which have
resulted in significant swings in the prices for oil and gas. The Company
cannot predict the future of oil and gas prices or whether future declines in
prices will occur. Any such decline would have an adverse effect on the
Company.
Net Quantities of Oil and Gas Produced
The net quantities of oil and gas produced by the Company during 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
Oil (Bbls) Gas (Mcf) BOE
---------- --------- ---
<S> <C> <C> <C>
1996
- ----
United States 803,070 1,089,576 984,666
Canada (1) 134,008 561,042 227,515
Colombia 1,031,207 - 1,031,207
--------- --------- ---------
Total 1,968,285 1,650,618 2,243,388
========= ========= =========
1995
- ----
United States 710,271 938,577 866,701
Canada (1) 85,800 398,616 152,236
Colombia 430,808 - 430,808
--------- --------- ---------
Total 1,226,879 1,337,193 1,449,745
========= ========= =========
</TABLE>
(1) No reduction is made for the minority interest in Beaver Lake Resources
Corporation.
Average Sales Price and Production Cost
The following table sets forth information concerning average per unit sales
price and production cost for the Company's oil and gas production for the
periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C> <C>
Average sales price per barrel of oil equivalent United States $ 15.87 $ 13.04
Canada $ 13.26 $ 10.32
Colombia $ 12.49 $ 9.44
Combined $ 14.05 $ 11.69
Average production cost per barrel of oil
equivalent United States $ 8.29 $ 8.57
Canada $ 5.15 $ 5.92
Colombia $ 5.11 $ 5.17
Combined $ 6.51 $ 7.29
</TABLE>
24
<PAGE> 25
Productive Oil and Gas Wells
The following table sets forth certain information at December 31, 1996
relating to the number of productive oil and gas wells (producing wells and
wells capable of production, including wells that are shut in) in which the
Company owned a working interest:
<TABLE>
<CAPTION>
Oil Gas Total
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
United States 512 195.3 102 52.5 614 247.8
Canada (1) 85 22.6 39 9.0 124 31.6
Colombia 413 112.3 - - 413 112.3
----- ----- --- ---- ----- -----
1,010 330.2 141 61.5 1,151 391.7
===== ===== === ==== ===== =====
</TABLE>
(1) No reduction is made for the minority interest in Beaver Lake Resources
Corporation.
In addition to its working interest, the Company held royalty interests in 86
productive wells in the United States and Canada at December 31, 1996. The
Company does not own any royalty interests in Colombia.
Oil and Gas Acreage
The following table sets forth certain information at December 31, 1996
relating to oil and gas acreage in which the Company owned a working interest:
<TABLE>
<CAPTION>
Developed (1) Undeveloped
------------- -----------
Country Gross Net Gross Net
------- ----- --- ----- ---
<S> <C> <C> <C> <C>
United States 51,567 14,629 17,034 11,029
Canada (2) 57,436 12,943 48,724 18,935
Colombia 6,769 1,785 5,719 1,430
------- ------ ------ ------
Total 115,772 29,357 71,477 31,394
======= ====== ====== ======
</TABLE>
(1) Developed acreage is acreage assigned to productive wells.
(2) No reduction is made for the minority interest in Beaver Lake Resources
Corporation.
Title to Properties
Many of the Company's oil and gas properties are held in the form of mineral
leases. As is customary in the oil and gas industry, a preliminary
investigation of title is made at the time of acquisition of undeveloped
properties. Title investigations covering the drillsite are generally
completed, however, before commencement of drilling operations or the
acquisition of producing properties. Generally, the Company's working interest
are subject to customary royalty and overriding royalty interests, liens for
current taxes and operating agreements and other customary imperfections of
title which do not immediately affect operations. Properties acquired by
purchases are also often subject to environmental covenants designed to protect
the seller from liability for environmental damage. The Company believes that
its methods of investigating title to, and acquisition of, its oil and gas
properties are consistent with practices customary in the industry and that it
has generally satisfactory title to the leases covering its proved reserves.
25
<PAGE> 26
Drilling Activity
The following table sets forth certain information for each of the years in the
two-year period ended December 31, 1996 relating to the Company's participation
in the drilling of exploratory and development wells.
<TABLE>
<CAPTION>
1996 1995
-------------------- ---------------------
Gross(1) Net(2) Gross(1) Net(2)
----- --- ----- ---
<S> <C> <C> <C> <C>
Exploratory
Oil - - - -
Gas 3 1.35 - -
Dry (3) 4 1.29 3 0.46
Development
Oil 11 7.59 4 1.51
Gas (4) 3 .64 2 0.19
Dry (3) 1 .35 1 0.04
Total
Oil 11 7.59 4 1.51
Gas (4) 6 1.99 2 0.19
Dry (3) 5 1.64 4 0.50
</TABLE>
(1) A gross well is a well in which a working interest is owned. The
number of gross wells is the total number of wells in which a
working interest is owned.
(2) A net well is deemed to exist when the sum of fractional working
interest ownership in gross wells equals one. The number of net
wells is the sum of fractional working interests owned in gross
wells expressed as whole numbers and fractions thereof. No
reduction is made for the minority interest in Beaver Lake
Resources Corporation.
(3) A dry hole is an exploratory or development well that is not a
producing well.
(4) Includes two gross (1.01 net) wells and one gross (0.09 net)
well drilled in Canada in 1996 and 1995, respectively; all other
drilling activity was conducted in the United States.
Refining Operations
The Company owns an asphalt refinery located in Santa Barbara County,
California, which has the capacity to process approximately 8,000 BOPD.
Current throughput is approximately 4,000 BOPD. The refinery is located on
approximately 389 acres of land held in fee by the Company. Approximately 30
acres of the land are currently used by the refinery and the balance is being
held for future expansion or sale. In 1995, the Company entered into a
processing agreement with an unaffiliated company pursuant to which the latter
company purchases crude (including that produced by the Company), delivers the
crude to the refinery, reimburses the Company's out of pocket costs for
refining, then markets the asphalt and other refinery products. Profits from
the refinery operations (computed after recovery of crude costs and other costs
of operations) are generally shared equally by the Company and the unaffiliated
company. The processing agreement has a term which ends December 31, 1998.
The Company is considering not renewing the processing agreement and assuming
the purchasing and marketing operations itself.
26
<PAGE> 27
Real Estate
The Company from time to time has purchased real estate in conjunction with its
acquisition of oil and gas properties in California and plans to continue this
practice. In connection with the acquisition of oil and gas producing
properties in Santa Maria, California in June 1993, the Company purchased 247
acres in Santa Barbara County for an aggregate purchase price of $65,000 and
also agreed to acquire an additional 1,460 acres in Santa Maria for an
aggregate purchase price of $400,000, the closing of which was subject to
certain conditions and approval of a subdivision map. The closing took place
in March 1997. In addition, the Company entered into an agreement to acquire
385 fee acres in Santa Barbara County in 1995 in connection with an acquisition
of producing oil and gas properties at a contract purchase price of $400,000,
the closing of which took place in June 1995. In addition, the Company
acquired approximately 360 acres of undeveloped land in Santa Maria, California
in June 1994 in connection with the acquisition of its Santa Maria refinery.
The Company plans to retain these real estate holdings for asset appreciation
which may include developmental activities at a future date.
Office Facilities
The Company's executive and California operations offices are located in Santa
Maria, California and its accounting offices are located in Irvine, California.
The Company maintains regional operating offices in Edmond, Oklahoma, Calgary,
Canada and Bogota, Colombia. These offices, consisting of approximately 16,000
square feet, are leased with varying expiration dates to March, 2002, at an
aggregate rate of $13,302 per month. The Company owns its office facilities at
the asphalt refinery in Santa Maria, which occupy approximately 1,500 square
feet of space.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain litigation that has arisen in the normal
course of its business and that of its subsidiaries. In the opinion of
management, none of this litigation is likely to have a material effect on the
Company's financial statements or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1996.
27
<PAGE> 28
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock and Number of Holders
The Common Stock trades on the American Stock Exchange under the symbol "SAB."
At March 25, 1997, the Company had 2,877 shareholders of record. The following
table sets forth the high and low quarterly closing sales prices of the Common
Stock as reported on the American Stock Exchange for the periods indicated. The
sales prices set forth below have been adjusted to reflect a two-for-one stock
split in the form of a stock dividend paid in December 1996. Prior to May 22,
1995, the Common Stock was traded on the Emerging Company Marketplace of the
American Stock Exchange.
<TABLE>
<CAPTION>
LOW HIGH
---------- ---------
<S> <C> <C>
1997
First Quarter (through March 25, 1997) . . . . . . . . . . . . . . . . . $12 3/4 $25 1/4
1996
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9 3/8 $27 1/8
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3/16 9 15/16
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 7/8 8
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9/16 4 3/4
1995
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3 7/16 $ 4
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3/4 4 1/8
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1/2 4 1/8
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1/16 2 5/8
</TABLE>
On March 25, 1997, the last reported sales price of the Common Stock on the
American Stock Exchange was $18 7/8.
The Company has never paid cash dividends on its Common Stock and does not
anticipate doing so in the foreseeable future. The indenture for the Company's
Senior Subordinated Debentures due 2005 (the "Debentures") and the Company's
principal revolving credit agreement include provisions which restrict the
payment of dividends by the Company. See Note 8 of Notes to Consolidated
Financial Statements of the Company.
28
<PAGE> 29
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statement of the Company and the Notes thereto and the
Selected Financial Data included elsewhere in this statement.
General
The Company is an independent energy company engaged in the acquisition,
exploration and development of oil and gas properties. To date, the Company
has grown primarily through the acquisition of producing properties with
significant exploration and development potential in the United States,
Colombia and Canada. This strategy has enabled the Company to assemble a
significant inventory of properties over the past five years. From January 1,
1992 through December 31, 1996, the Company completed 22 property acquisitions
which, when measured with associated drilling activities, have added
approximately 35.5 MMBOE of proved reserves at an average finding cost of $2.53
per BOE. Between 1992 and 1996, the Company's proved reserve base, production
and operating cash flow have increased at compound annual growth rates of
165.8%, 154.8% and 158.6%, respectively. The Company's strategy has expanded
to emphasize growth through exploration and development drilling.
The Company's revenues are primarily comprised of oil and gas sales
attributable to properties in which the Company owns a majority or substantial
interest. The Company accounts for its oil and gas producing activities under
the full cost method of accounting. Accordingly, the Company capitalizes, in
separate cost centers, all costs incurred in connection with the acquisition of
oil and gas properties and the exploration for and development of oil and gas
reserves. Proceeds from the disposition of oil and gas properties are
accounted for as a reduction in capitalized costs, with no gain or loss
recognized unless such disposition involves a significant change in reserves.
The Company's financial statements have been consolidated to reflect the
operations of its subsidiaries, including the Company's approximate 74%
ownership interest in Beaver Lake Resources Corporation, a Canadian public
company.
CRUDE OIL PRICES
The price received by the Company for its oil produced in North America is
influenced by the world price for crude oil, as adjusted for the particular
grade of oil. The oil produced from the Company's California properties is
predominantly a heavy grade of oil, which is typically sold at a discount to
lighter oil. Heavy oil producers, however, have benefited recently from a
decline in the price differential between light and heavy oil and the rise in
oil prices generally. The oil produced from the Company's Colombian properties
is predominantly a heavy grade of oil. The prices received by the Company for
its Colombian produced oil are determined based on formulas set by Ecopetrol.
See "Description of Business - "Principal Purchasers - Marketing of Production"
and "Limited Market for Sale of Colombian Production."
29
<PAGE> 30
RESULTS OF OPERATIONS
Results of the Company's oil and gas activities for the years ended December
31, 1996 and 1995 were as follows:
Year Ended December 31, 1996
<TABLE>
<CAPTION>
United
Total States Canada Colombia
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Oil and gas sales $31,520,757 $15,626,884 $3,016,803 $12,877,070
Production costs $14,604,291 $ 8,160,641 $1,171,944 $ 5,271,706
Depletion $ 4,979,361 $ 2,499,423 $ 339,054 $ 2,140,884
General and administrative expenses $ 3,919,435 $ 3,170,240 $ 536,186 $ 213,009
Production:
Oil volume (Bbls) 1,968,285 803,070 134,008 1,031,207
Gas Volume (Mcf) 1,650,618 1,089,576 561,042 -
Barrels of oil equivalent (BOE) 2,243,388 984,666 227,515 1,031,207
Average per BOE:
Sales price $ 14.05 $15.87 $13.26 $ 12.49
Production $ 6.51 $ 8.29 $ 5.15 $ 5.11
Depletion $ 2.22 $ 2.54 $ 1.49 $ 2.08
Proved Reserves:
Oil (Bbls) 26,678,925 16,151,058 920,800 9,607,067
Gas (Mcf) 23,664,965 13,113,965 10,551,000 -
Barrels of oil equivalent (BOE) 30,623,086 18,336,719 2,679,300 9,607,067
</TABLE>
30
<PAGE> 31
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
- ----------------------------
United
Total States Canada Colombia
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Oil and gas sales $16,941,247 $11,304,023 $1,571,380 $4,065,844
Production costs $10,561,552 $ 7,431,057 $ 901,198 $2,229,297
Depletion $ 2,605,419 $ 1,680,765 $ 143,979 $ 780,675
General and administrative expenses $ 2,005,192 $ 1,711,008 $ 243,386 $ 50,798
Production:
Oil volume (Bbls) 1,226,879 710,271 85,800 430,808
Gas volume (Mcf) 1,337,193 938,577 398,616 -
Barrels of oil equivalent (BOE) 1,449,745 866,701 152,236 430,808
Average per BOE:
Sales price $11.69 $13.04 $10.32 $ 9.44
Production costs $ 7.29 $ 8.57 $ 5.92 $ 5.17
Depletion $ 1.80 $ 1.94 $ 0.95 $ 1.81
Proved Reserves:
Oil (Bbls) 12,531,297 6,562,595 926,200 5,042,502
Gas (Mcf) 19,479,049 9,103,049 10,376,000 -
Barrels of oil equivalent (BOE) 15,777,805 8,079,770 2,655,533 5,042,502
Year Ended December 31, 1994
- ----------------------------
</TABLE>
<TABLE>
<CAPTION>
United
Total States Canada
----------- ----------- ------------
<S> <C> <C> <C>
Oil and gas sales $12,170,203 $10,403,835 $1,766,368
Production costs $ 7,547,479 $ 6,722,813 $ 824,666
Depletion $ 1,906,203 $ 1,451,265 $ 454,938
General and administrative expenses $ 1,881,852 $ 1,705,699 $ 176,153
Production:
Oil volume (Bbls) 737,963 658,016 79,947
Gas volume (Mcf) 1,453,045 979,893 473,152
Barrels of oil equivalent (BOE) 980,137 821,331 158,806
Average per BOE:
Sales price $12.42 $12.67 $11.12
Production costs $ 7.70 $ 8.19 $ 5.19
Depletion $ 1.94 $ 1.77 $ 2.86
Proved Reserves:
Oil (Bbls) 7,135,731 6,671,341 464,390
Gas (Mcf) 9,791,773 7,225,973 2,565,800
Barrels of oil equivalent (BOE) 8,767,693 7,875,670 892,023
</TABLE>
31
<PAGE> 32
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
OIL AND GAS SALES
Oil and gas sales increased approximately 86.4% to $31.5 million during 1996
from $16.9 million for 1995. Excluding the financial impact of the Colombian
properties, which were principally acquired in September 1995, oil and gas
sales increased 44.2% during 1996 to $18.6 million from $12.9 million for 1995.
Average sales price per BOE for 1996 increased 20.2% to $14.05 from $11.69 per
BOE for 1995.
Total production increased 46.7% to 2.2 MMBOE in 1996 as compared to 1.5 MMBOE
for 1995. The increase in oil and gas production was primarily attributable to
the acquisitions of the Company's Colombian properties, which were completed in
the second half of 1995, and the Company's drilling and rework activities
performed in 1996.
OTHER REVENUES
Other revenues increased to $1.7 million for 1996 as compared to $753,000 for
1995. This increase was due primarily to net tariffs of $717,000 for use of
the Velasquez-Galan Pipeline in Colombia, which the Company acquired in
September 1995. In addition, the Company's asphalt refining operation reported
processing fee income of $514,000 for 1996 as compared to no processing fee
income in 1995.
PRODUCTION COSTS
Oil and gas production costs increased 37.7% to $14.6 million for 1996 as
compared to $10.6 million for 1995, due primarily to the increase in production
volumes. Excluding the financial impact of the Colombian properties, the
Company's average production costs per BOE decreased 5.9% to $7.70 for 1996
from $8.18 for 1995. For 1996, production costs for the Colombian properties
were $5.3 million, or $5.11 per BOE.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $3.9 million in 1996 from $2.0
million for 1995. The Company's general and administrative expenses per BOE
increased 26.8% to $1.75 per BOE for 1996 from $1.38 per BOE in 1995. The
overall increase in general and administrative expenses was due principally to
the Company's expanded international operations in Canada and Colombia in the
third and fourth quarters of 1995, and an increase in employment in its
domestic offices to support anticipated future growth.
DEPLETION, DEPRECIATION AND AMORTIZATION EXPENSES
Depletion, depreciation and amortization expenses increased 96.4% to $5.5
million for 1996 from $2.8 million for 1995. Depletion, depreciation and
amortization expenses per BOE increased 26.8% to $2.46 per BOE for 1996 from
$1.94 per BOE for 1995. This increase was primarily attributable to the capital
costs recorded by the Company in its full cost pools during 1996 and the
anticipated future development and abandonment costs to be incurred in
connection with the management of its oil and gas properties.
32
<PAGE> 33
INTEREST EXPENSE
Interest expense increased to $2.4 million in 1996 from $1.4 million for 1995.
This increase was due primarily to interest expense totaling $998,000
attributable to the Debentures, which were issued in December 1995.
The average debt balance outstanding under the Company's revolving line of
credit in 1996 increased 7.0% to $9.2 million from $8.6 million for 1995, due
principally to the use of loan proceeds to fund the Company's acquisition and
development program in 1996. The weighted average interest rate for the
Company's revolving line of credit decreased to 9.0% in 1996 from 9.8% for
1995.
OTHER INCOME (EXPENSE)
Other income increased approximately 87.0% to $215,000 in 1996 as compared to
$115,000 for 1995. The change was due primarily to foreign currency
transaction gains of $41,000 and additional interest income of $97,000 realized
in 1996.
INCOME TAX
Income taxes increased 557.3% in 1996 to $2,958,000, compared to $450,000 in
1995. The Company's effective tax rate for 1996 was 44.0%, a decrease from
45.1% in 1995 due to the impact of foreign tax credits.
NET INCOME
Net income was significantly higher in 1996, increasing 594.7% to $3.8 million
from $547,000 for 1995. The increase in net income reflects the effects of
increases in oil and gas sales, other revenues, production costs, general and
administrative expenses, depletion, depreciation and amortization and interest
expense, discussed above.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
OIL AND GAS SALES
The Company's total oil and gas sales increased 38.5% to $16.9 million during
1995 from $12.2 million for 1994. The increase was primarily attributable to
property acquisitions in Colombia during 1995. The average sales price per BOE
decreased 5.9% to $11.69 in 1995 from $12.42 in 1994, due to sales from the
Colombian properties, which were acquired in 1995. The average sales price per
BOE for United States and Canadian operations was $13.04 and $10.32,
respectively, in 1995, an increase of 2.9% and a decrease of 7.2%,
respectively, from the comparable 1994 averages.
Oil and gas production increased 53.1% to 1.5 MMBOE in 1995 from 980 MBOE for
1994. This increase was due primarily to production from properties acquired
during 1995.
33
<PAGE> 34
OTHER REVENUES
Other revenues decreased 4.0% to $753,000 in 1995 from $784,000 in 1994. This
decrease was primarily attributable to a decline in operator fee income of
35.6% to $219,000 in 1995 as compared to $340,000 in 1994, as a result of
property dispositions and reduced expenditures on Company-operated properties.
Pipeline tariffs received by the Company as a result of its 50% ownership of
the Velasquez-Galan Pipeline, which was acquired in September 1995, generated
revenue of $439,000 in 1995. A gain on sale of real estate in 1994 provided
revenue of $428,000. Rental of facilities and agricultural land at the
Company's asphalt refinery produced revenue of $74,000 in 1995 as compared to
no revenue in 1994.
PRODUCTION COSTS
Production costs increased 39.5% to $10.6 million in 1995 from $7.6 million in
1994. This increase was due primarily to increased production volume resulting
from the Company's acquisition of its Colombian properties in 1995. From the
acquisition dates of the Velasquez field (January 1995) and the Teca and Nare
fields (September 1995), the Company incurred production costs of $2.2 million
in 1995 in such fields. The Company's production costs per BOE decreased 5.3%
to $7.29 in 1995 from $7.70 in 1994.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 5.3% to $2.0 million in 1995 from
$1.9 million in 1994. The increase was due principally to expenses incurred in
connection with the Company's refinery operations which began in the second
quarter of 1995, the Company's Colombian operations, which began in the first
quarter of 1995, and hiring of additional personnel in the fourth quarter of
1995 for the Company's Canadian operations. The Company's general and
administrative expenses per BOE decreased 27.7% to $1.38 in 1995 from $1.91 in
1994.
DEPLETION, DEPRECIATION AND AMORTIZATION EXPENSES
Depletion, depreciation and amortization expenses increased 40.0% to $2.8
million in 1995 as compared to $2.0 million in 1994. This increase was
primarily attributable to producing property acquisitions in Colombia in 1995.
Depletion, depreciation and amortization expenses per BOE decreased 6.7% to
$1.94 per BOE for 1995 from $2.08 per BOE for 1994.
INTEREST EXPENSE
Interest expense increased 120.8% to $1.4 million in 1995 from $634,000 in
1994, due principally to the Company's increased bank borrowings under its
revolving credit facility. The average debt balance outstanding under the
Company's revolving credit facility in 1995 increased 50.9% to $8.6 million as
compared to an average debt balance of $5.7 million in 1994. This increase was
due principally to loan proceeds used to fund producing oil and gas property
acquisitions, which closed during 1995. The weighted average interest rate for
the Company's revolving credit facility increased to 9.8% in 1995 from 8.1% in
1994.
34
<PAGE> 35
OTHER INCOME (EXPENSE)
Other income increased $72,000 to $115,000 in 1995 from income of $43,000 in
1994. In 1995, the Company realized a gain of $125,000 as a result of the
issuance of common stock by a subsidiary. In 1994, the Company realized
$198,000 in the settlement of litigation, while non-recurring expenses
declined to $23,000 in 1995 from $199,000 in 1994.
INCOME TAX
Income taxes increased 17.2% in 1995 to $450,000, compared to $384,000 in 1994.
The Company's effective tax rate for 1995 was 45.1%, up from 43.0% in 1994 due
to higher tax rates applicable to the Company's foreign operations.
NET INCOME
Net income increased 7.5% to $547,000 in 1995 from $509,000 in 1994. This
increase reflected the effects of increases in oil and gas sales, production
costs, general and administrative expenses, depletion, and depreciation and
amortization and interest expense as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since 1991, the Company's strategy has emphasized growth through the
acquisition of producing properties with significant exploration and
development potential. The Company recently expanded its focus to emphasize
drilling, enhanced recovery methods and increased production efficiencies.
During the past five years, the Company financed its acquisitions and other
capital expenditures primarily though secured bank financing, the creation of
joint interest operations and production payment obligations, and sales of
Common Stock and the Debentures. Supplemental cash and working capital are
provided through internally generated cash flows, secured bank financing and
debt and equity financing.
During 1995 and 1996, the Company used a combination of secured bank financing,
the proceeds from the sale of the Debentures and internally generated cash flow
to fund its acquisitions and other capital expenditures, which included $16.3
million for acquisitions of producing properties in California, Colombia,
Canada, New Mexico, Texas and Louisiana. In December 1995 and February 1996,
the Company realized $9.2 million and $1.4 million, respectively, in net
proceeds from the sale of the Debentures.
Working Capital. The Company's working capital decreased in 1996 from $2.5
million at December 31, 1995 to $2.4 million at December 31, 1996. This
decrease was primarily due to an increase of $2.9 million in accounts
receivable, reduced by increases of $1.4 million in income taxes payable and
$1.3 million in the current portion of long-term debt, and a net decrease in
other current assets and liabilities of $231,000.
Operating Activities. The Company's operating activities during 1996 provided
net cash flow of $6.9 million. Working capital requirements were responsible
for cash outflows of $3.1 million. Cash flows from operating activities
provided net cash flow of $1.7 million in 1995.
35
<PAGE> 36
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Investing Activities. Investing activities during 1996 resulted in a net cash
outflow of $10.7 million. Of this amount, oil and gas property acquisition,
development and exploration expenditures totaled $12.2 million. An additional
$586,000 was expended for other assets. Reimbursement of a restricted
certificate of deposit provided proceeds of $1.8 million.
Investing activities during 1995 resulted in a net cash outflow of $17.1
million. Of this amount, oil and gas property acquisition, development and
exploration expenditures totaled $12.8 million. An additional $2.7 million was
expended for other assets, consisting principally of an oil transmission
pipeline and related oil field equipment, which were acquired in connection
with a property acquisition in Colombia.
Financing Activities. Financing activities during 1996, which provided net cash
flow of $3.9 million, consisted principally of activity on the Company's
revolving credit facility and proceeds from the sale of the Debentures, net of
related financing costs. Proceeds from the exercise of options, sale of stock
and contributed capital provided cash inflows in the amount of $435,000 during
1996.
Financing activities during 1995, which provided net cash flow of $15.2
million, consisted principally of activity on the Company's revolving line of
credit, proceeds from the sale of the Debentures, net of related costs, in the
amount of $9.2 million, a loan from the Company's parent company of $1.6
million, and retirement of a $606,000 note payable that was outstanding at
December 31, 1994. Advances from affiliated companies in the amount of $204,000
were used to partially fund the note payable payoff. Proceeds from the exercise
of options, sale of stock and contributed capital provided cash inflows in the
total amount of $1.1 million in 1995.
Credit Facilities. In September 1993, the Company established a reducing,
revolving line of credit with Bank One, Texas, N.A. to provide funds for the
retirement of a production note payable, the retirement of other short-term
fixed rate indebtedness and for working capital. At December 31, 1996, the
borrowing base under the credit agreement was $13.8 million, subject to a
monthly reduction of $250,000, of which $12.1 million was outstanding.
The Company also has available from Bank One, Texas, N.A. a commitment for a
term credit facility of as much as $4.0 million to fund development projects in
the United States, of which $450,000 was outstanding as of December 31, 1996.
On February 7, 1996, underwriters for the Company's Debenture offering
exercised their overallotment option, resulting in net proceeds to the Company
of $1.4 million, a portion of which was utilized to reduce the outstanding
balance under the Company's revolving line of credit. Effective March 6, 1996,
the Company's Canadian subsidiary converted its term loan to a demand revolving
reducing loan. Outstanding debt at December 31, 1996 for this credit facility
was $1.6 million. Effective February 13, 1997, the borrowing base of this
facility was increased to $2.6 million. Reductions to the maximum principal
amount available under the loan will be reviewed on or before July 1, 1997.
The Company's budget for capital expenditures for 1997 is $53.9 million. The
expenditures will be made primarily for the development of existing properties.
Additional capital expenditures may be made for acquisitions of producing
properties, both domestically and internationally. The Company is currently in
negotiation with Pertamina, the Indonesia state-owned oil company regarding an
exploration block on the island of Java. The initial commitment including cash
bonus, seismic and drilling costs for a period of up to three years, is $19
million. At this time, the Company has no
36
<PAGE> 37
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
agreements regarding any other significant acquisitions. The amount of capital
expenditures will change during future periods depending on market conditions,
results of the Company's development drilling program and other related
economic factors, including the price of oil and natural gas. The funds
available (including those from credit lines) for anticipated capital
expenditures will be affected by prices for oil and natural gas, results of the
Company's development drilling program and other factors beyond the control of
the Company.
IMPACT OF INFLATION
The price the Company receives for its oil and gas has been impacted primarily
by the world oil market and the domestic market for natural gas, respectively,
rather than by any measure of general inflation. Because of the relatively low
rates of inflation experienced in the United States in recent years, the
Company's production costs and general and administrative expenses have not
been impacted significantly by inflation.
NEW ACCOUNTING STANDARDS
In 1997, the Company will adopt SFAS No. 125, "Accounting for Transfers and
Servicing Financial Assets and Extinguishment of Liabilities." Management does
not believe that the adoption of this accounting standard will have a material
impact on the financial statements of the Company.
In 1997, the Company will adopt Statement of Position ("SOP") 96-1,
"Environmental Remediation Liabilities." Management does not believe that the
adoption of the provisions of this SOP will have a material impact on the
financial statements of the Company.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements and supplementary data of the Company are
included as part of this Form 10-KSB following the signature page:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
Consolidated Statements of Income, years ended December 31,
1996 and 1995 F-3
Consolidated Statements of Stockholders' Equity, years ended
December 31, 1996 and 1995 F-4
Consolidated Statements of Cash Flows, years ended December
31, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6 - F-24
</TABLE>
37
<PAGE> 38
ITEM 7. FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Supplemental Information About Oil and Gas Producing Activities
(Unaudited) F-25 - F-29
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Incorporated by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 1997 annual
meeting.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 1997 annual
meeting.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 1997 annual
meeting.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 1997 annual
meeting.
38
<PAGE> 39
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF ITEM
- ---------------- --------------------
<S> <C>
3(i).1 Articles of Incorporation of the Company (filed as exhibit 3(i).1 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995 and incorporated
herein by reference)
3(ii).1 By-Laws of the Company (filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1982 and incorporated herein by reference)
4.1 Form of Indenture (including form of Debenture) (filed as Exhibit 4.1 to the
Company's Registration Statement on Form SB-2 (File No. 33-94678) and incorporated
herein by reference)
10.1 Form of Indemnification Agreement entered into with officers and directors of the
Company (filed as Exhibit 10.1 to the Company's Registration Statement on Form SB-2
(File No. 33-94678) and incorporated herein by reference)
10.2 Benefit Plans (filed as Exhibit 10.1 to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1996 and incorporated herein by reference)
10.3 Employment Agreement with Ilyas Chaudhary (filed as Exhibit 10.3 to the Company's
Registration Statement on Form SB-2 (File No. 33-94678) and incorporated herein by
reference)
10.4 First Amended and Restated Loan Agreement between the Company and Bank One, Texas,
N.A. (filed as Exhibit 10.1 to the Company's Quarterly Report Form 10-QSB for the
quarter ended September 30, 1996, and incorporated herein by reference)
10.5 Stock Purchase Agreement (filed as an exhibit to the Company's Current Report on
Form 8-K dated January 10, 1995 and incorporated herein by reference)
10.6 Processing Agreement between Santa Maria Refining Company and Petro Source Refining
Corporation (filed as Exhibit 10.6 to the Company's Registration Statement on Form
SB-2 (File No. 33-94678) and incorporated herein by reference)
10.7 Agreement among Saba Petroleum Company, Omimex de Colombia, Ltd. and Texas
Petroleum Company to acquire Teca and Nare fields (filed as Exhibit 10.7 to the
Company's Registration Statement on Form SB-2 (File No. 33-94678) and incorporated
herein by reference)
10.8 Agreement among Saba Petroleum Company, Omimex de Colombia, Ltd. and Texas
Petroleum Company to acquire Cocorna Field (filed as Exhibit 10.8 to the Company's
Registration Statement on Form SB-2 (File No. 33-94678) and incorporated herein by
reference)
10.9 Agreement among Saba Petroleum Company and Cabot Oil and Gas Corporation to acquire
Cabot Properties (filed as Exhibit 10.9 to the Company's Registration Statement on
Form SB-2 (File No. 33-94678) and incorporated herein by reference)
10.10 Agreement among Saba Petroleum Company, Beaver Lake Resources Corporation and Capco
Resource Properties Ltd. (filed as Exhibit 10.10 to the Company's Registration
Statement on Form SB-2 (File No. 33-94678) and incorporated herein by reference)
10.11 Amendment to Agreement among the Company, Omimex de Colombia, Ltd. and Texas
Petroleum Company to acquire the Teca and Nare fields (filed as Exhibit 2.2 to the
Company's Current Report on Form 8-K dated September 14, 1995 and incorporated
herein by reference)
10.12 Promissory Notes of the Company (filed as Exhibit 10.13 to the Company's
Registration Statement on Form SB-2 (file No. 33-94678) and incorporated herein by
reference)
10.13 CRI Stock Purchase Termination Agreement (filed as Exhibit 10.14 to the Company's
Registration Statement on Form SB-2 (file No. 33-94678) and incorporated herein by
reference)
10.14 Form of Common Stock Conversion Agreement between Capco and the Company (filed as
Exhibit 10.15 to the Company's Registration Statement on Form SB-2 (file No.
33-94678) and incorporated herein by reference).
10.15 Form of Agreement regarding exercise of preemptive rights between Capco and the
Company (filed as Exhibit 10.16 to the Company's Registration Statement on Form
SB-2 (File No. 33-94678) and incorporated herein by reference)
10.16 Letter Agreement, as amended, between Omimex de Colombia, Ltd. and the Company
(filed as Exhibit 10.17 to the Company's Registration Statement on Form SB-2 (File
No. 33-94678) and incorporated herein by reference)
10.17 Promissory Note of Mr. Chaudhary (filed as Exhibit 10.2 to the Company's quarterly
report on Form 10-QSB for the quarter ended June 30, 1996 and incorporated herein
by reference)
</TABLE>
39
<PAGE> 40
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF ITEM
- ---------------- --------------------
<S> <C>
10.18 Form of Stock Option Agreements between Mr. Chaudhary and Messrs. Hickey and Barker
(filed as Exhibit 10.3 to the Company's quarterly report on Form 10-QSB for the
quarter ended June 30, 1996 and incorporated herein by reference)
10.19 Form of Stock Option Termination Agreements between the Company and Messrs. Hagler
and Richards (filed as Exhibit 10.4 to the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1996 and incorporated by reference)
10.20 Amendment Number One to First Amended and Restated Loan Agreement between the
Company and Bank One, Texas, N.A.*
10.21 Agreement Minutes concerning Colombia oil sales Contract between Omimex as operator
and Ecopetrol*
10.22 Operating Agreement between Omimex and Sabacol-Velasquez property*
10.23 Operating Agreement between Omimex and Sabacol-Cocorna and Nare properties*
10.24 Operating Agreement between Omimex and Sabacol-Velasquez-Galan Pipeline*
10.25 Operating Agreement between Omimex and Sabacol-Cocorna Concession property*
10.26 Life insurance contract on life of Ilyas Chaudhary*
10.27 Life insurance contract on life of Ilyas Chaudhary*
10.28 Agreement for Assignment of Leases**
10.29 Agreement to Provide Collateral between Capco and Saba Petroleum Company*
10.30 Purchase and Sale Agreement between DuBose Ventures, Inc., Rockbridge Oil &
Gas, Inc., Saba Energy of Texas, Incorporated and Energy Asset Management
Corporation to acquire properties in Jefferson Parish, LA*
10.31 Employment Agreement with Walton C. Vance*
10.32 Amended Employment Agreement with Larry R. Burroughs*
10.33 First Amendment, Letter Agreement with Bradley T. Katzung*
10.34 Consultant Agreement with Burt Cormany*
11.1 Computation of Earnings per Common Share*
21.1 Subsidiaries of the Company (filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995 and incorporated herein by
reference)
23.1 Consent of Coopers & Lybrand L.L.P. (Los Angeles, California)*
23.2 Consent of Netherland, Sewell & Associates, Inc.*
23.3 Consent of Sproule Associates Limited*
27.1 Financial Data Schedule*
</TABLE>
______________________
* Filed herewith
** Omitted and filed separately, and confidentially, with the Securities and
Exchange Commission.
No reports were filed under Form 8-K during the quarter ended December 31,
1996.
40
<PAGE> 41
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
SABA PETROLEUM COMPANY
DATED APRIL 4, 1997
By: /s/ Ilyas Chaudhary
Ilyas Chaudhary
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Ilyas Chaudhary
- ---------------------------- Chairman of the Board, April 4, 1997
Ilyas Chaudhary President and Chief
Executive Officer
(Principal Executive
Officer)
/s/ Walton C. Vance April 4, 1997
- ---------------------------- Vice President, Chief
Walton C. Vance Financial Officer and
Secretary and
Director
(Principal Financial
and Accounting
Officer)
/s/ Alex S. Cathcart Director April 4, 1997
- ----------------------------
Alex S. Cathcart
/s/ William N. Hagler Director April 4, 1997
- ----------------------------
William N. Hagler
/s/ William J. Hickey Director April 4, 1997
- ----------------------------
William J. Hickey
/s/ Rodney C. Hill Director April 4, 1997
- ----------------------------
Rodney C. Hill
/s/ William E. Richards Director April 4, 1997
- ----------------------------
William E. Richards
</TABLE>
41
<PAGE> 42
[REPORT OF INDEPENDENT ACCOUNTANTS]
[COOPERS & LYBRAND LETTERHEAD]
To the Board of Directors
Saba Petroleum Company
We have audited the accompanying consolidated balance sheets of Saba Petroleum
Company and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Saba Petroleum
Company and subsidiaries as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 26, 1997
F-1
<PAGE> 43
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 734,036 $ 640,287
Restricted certificate of deposit (Note 2) - 1,750,000
Accounts receivable, net of allowance for doubtful
accounts of $65,000 (1996) and $57,000 (1995) 7,361,326 4,444,209
Other current assets 3,485,924 2,995,172
------------ ------------
Total current assets 11,581,286 9,829,668
------------ ------------
Property and equipment (Note 8):
Oil and gas properties (full cost method) 44,494,387 32,602,571
Land 1,888,578 1,849,313
Plant and equipment 3,799,307 3,240,771
------------ ------------
50,182,272 37,692,655
Less accumulated depletion and depreciation (15,323,780) (10,108,845)
------------ ------------
Total property and equipment 34,858,492 27,583,810
------------ ------------
Other assets:
Deposits on properties 42,529 50,000
Notes receivable, less current portion 834,590 9,166
Deferred financing costs 1,123,250 1,995,458
Due from affiliates 205,226 183,975
Deposits and other 471,513 99,020
------------ ------------
Total other assets 2,677,108 2,337,619
------------ ------------
$ 49,116,886 $ 39,751,097
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 5,377,137 $ 5,619,163
Oil imbalance obligation (Note 2) - 692,384
Income taxes payable 1,981,064 541,651
Current portion of long-term debt 1,805,556 504,985
------------ ------------
Total current liabilities 9,163,757 7,358,183
Long-term debt, net of current portion 20,811,980 23,543,307
Other liabilities 108,295 194,836
Deferred taxes 590,285 321,237
Minority interest in consolidated subsidiary 727,359 485,285
------------ ------------
Total liabilities 31,401,676 31,902,848
------------ ------------
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock - no par value, authorized
50,000,000 shares; none issued - -
Common stock - no par value, authorized
150,000,000 shares; issued and outstanding
10,081,026 (1996) and 8,529,180 (1995) shares 12,901,083 6,796,140
Retained earnings 4,802,845 1,038,129
Cumulative translation adjustment 11,282 22,480
Unearned compensation - (8,500)
------------ ------------
Total stockholders' equity 17,715,210 7,848,249
------------ ------------
$ 49,116,886 $ 39,751,097
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 44
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ --------------
<S> <C> <C>
Revenues:
Oil and gas sales $ 31,520,757 $ 16,941,247
Other 1,681,587 753,008
------------ -------------
Total revenues 33,202,344 17,694,255
------------ -------------
Expenses:
Production costs 14,604,291 10,561,552
General and administrative 3,919,435 2,005,192
Depletion, depreciation and amortization 5,527,418 2,826,684
------------ -------------
Total expenses 24,051,144 15,393,428
------------ -------------
Operating income 9,151,200 2,300,827
------------ -------------
Other income (expense):
Interest income 114,302 16,924
Other 92,149 (26,614)
Interest expense, net of interest capitalized
of $27,000 (1995) (2,401,856) (1,364,110)
Gain on issuance of shares of subsidiary 8,305 124,773
------------ -------------
Total other income (expense) (2,187,100) (1,249,027)
------------ -------------
Income before income taxes 6,964,100 1,051,800
Provision for taxes on income (2,957,983) (449,636)
Minority interest in earnings of consolidated subsidiary (241,401) (55,632)
------------ -------------
Net income $ 3,764,716 $ 546,532
============ =============
Net earnings per common share:
Primary $ 0.40 $ 0.06
============ =============
Fully-diluted $ 0.37 $ 0.06
============ =============
Weighted average common and common
equivalent shares outstanding:
Primary 9,416,033 8,742,768
============ =============
Fully-diluted 12,066,256 8,784,099
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 45
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Cumulative Total
---------------------- Translation Unearned Retained Stockholders'
Shares Amount Adjustment Compensation Earnings Equity
--------- ----------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 8,238,514 $ 5,772,457 $ - $ - $ 510,870 $ 6,283,327
Minority interest in subsidiary (19,273) (19,273)
Exercise of options 116,666 189,583 189,583
Issuance of common stock for
compensation 24,000 25,500 25,500
Issuance of common stock 150,000 600,000 600,000
Cumulative translation adjustment 22,480 22,480
Unearned compensation (8,500) (8,500)
Contributed surplus - 208,600 208,600
Net income 546,532 546,532
---------- ----------- --------- ------- ---------- -----------
Balance at December 31, 1995 8,529,180 6,796,140 22,480 (8,500) 1,038,129 7,848,249
Exercise of options 118,000 647,100 647,100
Issuance of common stock 14,000 42,000 42,000
Cumulative translation adjustment (11,198) (11,198)
Unearned compensation 8,500 8,500
Debenture conversions 1,419,846 5,415,843 5,415,843
Net income 3,764,716 3,764,716
---------- ----------- --------- ------- ---------- -----------
Balance at December 31, 1996 10,081,026 $12,901,083 $ 11,282 $ - $4,802,845 $17,715,210
========== =========== ========= ======= ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 46
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,764,716 $ 546,532
Adjustments to reconcile net income to net cash
provided by operations:
Depletion, depreciation and amortization 5,527,418 2,826,684
Amortization of unearned compensation 8,500 17,000
Deferred tax provision (benefit) 366,389 (39,000)
Compensation expense attributable to non-employee option 91,600 -
Minority interest in earnings of consolidated
subsidiary 241,403 55,632
Gain on issuance of shares of subsidiary (8,305) (124,773)
Changes in:
Accounts receivable (2,919,287) (1,999,984)
Other assets (572,233) (2,452,503)
Accounts payable and accrued liabilities (237,328) 2,396,976
Income taxes payable and other liabilities 650,644 509,343
------------ ------------
Net cash provided by operating activities 6,913,517 1,735,907
------------ ------------
Cash flows from investing activities:
Deposit (purchase) of restricted certificate of deposit 1,750,000 (1,750,000)
Expenditures for oil and gas properties (12,171,392) (12,807,412)
Expenditures for equipment, net (585,893) (2,660,120)
Proceeds from sale of oil and gas properties 256,646 157,933
------------ ------------
Net cash used in investing activities (10,750,639) (17,059,599)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 17,085,315 34,814,900
Principal payments on notes payable and long-term debt (12,296,839) (19,136,299)
Increase in notes receivable (1,172,639) -
Proceeds from notes receivable 67,384 302,968
Increase in deferred financing costs (165,777) (1,854,421)
Net change in accounts with affiliated companies (21,251) (47,120)
Net proceeds from exercise of options and issuance of
common stock 422,500 789,583
Increase in contributed surplus - 208,600
Capital subscription of minority interest 12,805 74,778
------------ ------------
Net cash provided by financing activities 3,931,498 15,152,989
------------ ------------
Effect of exchange rate changes on cash
and cash equivalents (627) 12,006
------------ ------------
Net increase (decrease) in cash and cash equivalents 93,749 (158,697)
Cash and cash equivalents at beginning of year 640,287 798,984
------------ ------------
Cash and cash equivalents at end of year $ 734,036 $ 640,287
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 47
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - GENERAL
Saba Petroleum Company ("Saba" or the "Company") is a Colorado corporation
formed in 1979 as a natural resources company. Saba is an international
oil and gas producer with principal producing properties located in the
continental United States, Canada and Colombia. Until 1994, all of the
Company's principal assets were located in the United States. In 1994 and
1995, the Company acquired interests in producing properties in Canada and
Colombia. For the years ended December 31, 1996 and 1995, approximately
50.4% and 33.3% of the Company's gross revenues from oil and gas production
were derived from its international operations. Saba's principal United
States oil and gas producing properties are located in California,
Louisiana, Michigan, New Mexico, Oklahoma, Texas, and Wyoming. As of
December 31, 1996, 55.1% of the Company's outstanding Common Stock is owned
directly, or indirectly, by the Company's Chief Executive Officer.
- - 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
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
- - CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly and majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
- - FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents - The Company considers all liquid investments
with an original maturity of three months or less to be cash equivalents.
The carrying amount approximates fair value because of the short maturity
of those instruments.
Other Financial Instruments - The Company does not hold or issue financial
instruments for trading purposes. The Company's financial instruments
consist of notes receivable and long-term debt. The fair value of the
Company's notes receivable and long-term debt, excluding the Debentures, is
estimated based on current rates offered to the Company for similar issues
of the same remaining maturates. The fair value of the Debentures is based
on quoted market prices.
The fair value of the Company's notes receivable and long-term debt,
excluding the Debentures, at December 31, 1996 and 1995 approximates
carrying value. The carrying value and fair value of the Debentures at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
9% convertible senior subordinated
debentures - due 2005 $6,438,000 $36,374,700 $11,000,000 $10,945,000
</TABLE>
F-6
<PAGE> 48
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
- - OIL AND GAS PROPERTIES
The Company's oil and gas producing activities are accounted for using the
full cost method of accounting. Accordingly, the Company capitalizes all
costs, in separate cost centers for each country, incurred in connection
with the acquisition of oil and gas properties and with the exploration for
and development of oil and gas reserves. Such costs include lease
acquisition costs, geological and geophysical expenditures, costs of
drilling both productive and non-productive wells, and overhead expenses
directly related to land acquisition and exploration and development
activities. Proceeds from the disposition of oil and gas properties are
accounted for as a reduction in capitalized costs, with no gain or loss
recognized unless such disposition involves a significant change in
reserves in which case the gain or loss is recognized.
Depletion of the capitalized costs of oil and gas properties, including
estimated future development, site restoration, dismantlement and
abandonment costs, net of estimated salvage values, is provided using the
equivalent unit-of-production method based upon estimates of proved oil and
gas reserves and production which are converted to a common unit of measure
based upon their relative energy content. Unproved oil and gas properties
are not amortized but are individually assessed for impairment. The cost
of any impaired property is transferred to the balance of oil and gas
properties being depleted.
In accordance with the full cost method of accounting, the net capitalized
costs of oil and gas properties are not to exceed their related estimated
future net revenues discounted at 10 percent, net of tax considerations,
plus the lower of cost or estimated fair market value of unproved
properties.
Substantially all of the Company's exploration, development and production
activities are conducted jointly with others and, accordingly, the
financial statements reflect only the Company's proportionate interest in
such activities.
- - PLANT AND EQUIPMENT
Plant, consisting of an asphalt refining facility, is stated at the
acquisition price of $500,000 plus the cost to refurbish the equipment.
Depreciation is calculated using the straight-line method over its
estimated useful life. Equipment is stated at cost. Depreciation of
equipment is calculated using the straight-line method over the estimated
useful lives of the equipment, ranging from three to fifteen years.
Depreciation expense in 1996 and 1995 was $293,245 and $155,900,
respectively. Normal repairs and maintenance are charged to expense as
incurred. Upon disposition of plant and equipment, any resultant gain or
loss is recognized in current operations.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to
which it relates and is amortized over the asset's estimated useful life.
The implementation in 1995 of Statement of Financial Accounting ("SFAS")
No. 121, "Accounting for the Impairment of long-lived Assets and for
long-lived Assets to Be Disposed Of", has had no impact on the financial
statements.
- - DEFERRED FINANCING COSTS
The costs related to the issuance of debt are capitalized and amortized
using the effective interest method over the original terms of the related
debt. At December 31, 1996, the Company had unamortized costs in the
amount of $102,837 and $1,020,413 relating to its bank credit facilities
and debentures, respectively. Amortization expense in 1996 and 1995 was
$241,827 and $63,600, respectively.
F-7
<PAGE> 49
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
- - STOCK-BASED COMPENSATION
In 1996, the Company implemented the disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation." This statement sets
forth-alternative standards for recognition of the cost of stock-based
compensation and requires that a company's financial statements include
certain disclosures about stock-based employee compensation arrangements
regardless of the method used to account for them. As allowed in this
statement, the Company continues to apply Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in recording compensation related to its plans.
- - INCOME TAXES
The Company accounts for income taxes pursuant to the asset and liability
method of computing deferred income taxes. Deferred tax assets and
liabilities are established for the temporary differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts
are realized or settled. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized.
- - FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated at year-end
rates of exchange; income and expenses are translated at the weighted
average rates of exchange during the year. The resultant cumulative
translation adjustments are included as a separate component of
stockholders' equity. Foreign currency transaction gains and losses are
included in net income.
- - EARNINGS PER COMMON SHARE
Primary earnings per common share are based on the weighted average number
of shares outstanding during each year plus, when their effect is dilutive,
common stock equivalents consisting of certain shares subject to stock
options. The calculation of fully diluted earnings per common share
additionally assumes the conversion of the 9% convertible senior
subordinated debentures due December 15, 2005, using the conversion price
of $4.38 per common share.
- - SALE OF SUBSIDIARY STOCK
The Company accounts for a change in its proportionate share of a
subsidiary's equity resulting from the issuance by the subsidiary of its
stock in current operations in the consolidated financial statements.
- - TWO-FOR-ONE FORWARD STOCK SPLIT
On November 21, 1996, The Company's Board of Directors approved a
two-for-one forward stock split effected as a stock dividend on all
outstanding shares of Common Stock. The Company's outstanding stock option
awards and Debentures were also adjusted accordingly. The record date
established for such stock split was December 9, 1996 with a payment date
of December 16, 1996. All share and per share amounts have been adjusted
to give retroactive effect to this split for all periods presented.
- - RECLASSIFICATION
Certain previously reported financial information has been reclassified to
conform to the current year's presentation.
2. ACQUISITIONS
In September 1995, the Company acquired a 25% interest in the Teca and Nare
oil fields ("Teca/Nare
F-8
<PAGE> 50
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
Fields") and a 50% interest in the Velasquez-Galan pipeline, all of which
are located in Colombia, South America. The Company's gross acquisition
cost for the acquired interests was $12.25 million, which was reduced by the
Company's share of net revenue credits from the properties from the
effective date of January 1, 1995 to the closing date ($3.95 million),
leaving a net purchase price of $8.3 million. In addition, the Company
assumed an oil imbalance obligation of approximately $1.25 million at the
closing date. In December 1995, the Company acquired a 50% interest in the
Cocorna oil field in Colombia at a net acquisition cost of $533,000.
In connection with the acquisition of the Teca/Nare Fields, the Colombia
government owned oil company (Ecopetrol) required that Omimex, the operator
of the properties, obtain a letter of credit for the benefit of Ecopetrol in
the amount of $3.5 million to secure payments due third party vendors at the
Teca/Nare Fields. Such letter of credit was issued in November 1995. In
connection with the issuance of the letter of credit, Omimex required that
the Company pledge collateral consisting of a $1.75 million certificate of
deposit. The letter of credit expired by its own terms in 1996 and the
collateral was returned to the Company.
The acquisition cost of the properties has been assigned to various accounts
in the accompanying balance sheet (primarily oil and gas properties), and
the results of operations of the properties are included in the accompanying
financial statements from the respective dates of acquisition of each
property.
The following unaudited proforma financial information presents the results
of operations of the Company as if the acquisitions had occurred as of
January 1, 1995. The proforma financial information does not necessarily
reflect the results of operations that would have occurred had the
properties been acquired at January 1, 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands, except per share amounts) 1995
----
(Unaudited)
<S> <C>
Total revenues $ 27,678
Total operating expenses, including general and
administrative and depletion, depreciation and
amortization (20,036)
Interest expense (1,985)
Other expense (10)
Income before income taxes 5,647
Provision for taxes on income 2,767
---------
Net income $ 2,880
=========
Net earnings per common share $ 0.33
=========
</TABLE>
F-9
<PAGE> 51
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
In October 1995, all of the issued shares of Capco Resource Properties Ltd.
("CRPL"), the Company's 100% owned subsidiary, were exchanged for 13,437,322
voting common shares of Beaver Lake Resources Corporation ("BLRC"), a
publicly traded corporation located in Alberta, Canada.
The net assets of BLRC were deemed to be acquired at their net book value
(which approximated fair market value) at the date of acquisition.
Net assets acquired were as follows:
<TABLE>
<S> <C>
Working capital deficiency $(105,981)
Oil and gas properties 316,420
---------
$ 210,439
=========
</TABLE>
On the same date as the share exchange with the Company, BLRC acquired
interests in certain oil and gas properties in exchange for 1,443,204 shares
of its common stock. Property interests of $399,527 were acquired and
production notes receivable in the amount of $157,311 were deemed to be
paid.
In addition, as part of a private placement of 1,200,000 shares in 1995, the
Company purchased 1,000,000 common shares of BLRC at a cost of approximately
$370,000. In 1996, BLRC issued a total of 35,000 shares of common stock to
minority shareholders. As a result of these transactions, the Company owned
74.3% of the outstanding common stock of BLRC at December 31, 1996.
The sales of shares of common stock by the subsidiary resulted in net gains
in 1996 and 1995 of $8,305 and $124,773, respectively, which the Company has
reported in current operations. Deferred income taxes have not been
recorded in conjunction with these transactions as the Company plans to
maintain a majority ownership position in the subsidiary.
3. NOTES RECEIVABLE
Notes receivable are comprised of the following at December 31, 1996:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Canadian prime plus 1% (5.75% at December 31, 1996) production
notes receivable, with interest paid currently, collateralized by
producing oil and gas properties $120,385 $121,126
Prime plus 0.75% (9% at December 31, 1996) promissory note from
an officer of the Company with quarterly interest only
installments, due April 30, 1998, collateralized by vested stock
options 300,000 -
9% note receivable from a director of the Company, due June 30,
1997, uncollateralized 30,000 -
</TABLE>
F-10
<PAGE> 52
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. NOTES RECEIVABLE (CONTINUED)
<TABLE>
<S> <C> <C>
Prime plus 0.75% (9% at December 31, 1996) note receivable from
joint venture partner with principal payments through October 2000
and interest payments at the end of twenty-four and forty-eight
months, collateralized by producing oil and gas properties
739,206 -
9.25% note receivable from an employee of the Company, with
principal and interest due in full on September 30, 1997,
collateralized by vested stock options 45,000 -
Other 4,917 17,526
---------- --------
1,239,508 138,652
Less current portion (included in other current assets) 404,918 129,486
---------- --------
$ 834,590 $ 9,166
========== ========
</TABLE>
4. OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT
Oil and gas properties, land, plant and equipment at December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
United
States Canada Colombia Total
------- ------ -------- -----
<S> <C> <C> <C> <C>
December 31, 1996
-----------------
Oil and gas properties
----------------------
Unevaluated oil and gas properties $ 843,351 $ - $ - $ 843,351
Proved oil and gas properties 29,933,734 4,999,809 8,717,493 43,651,036
----------- ----------- ----------- -----------
Total capitalized costs 30,777,085 4,999,809 8,717,493 44,494,387
Less accumulated depletion
And depreciation 11,038,022 824,752 2,921,559 14,784,333
----------- ----------- ----------- -----------
Capitalized costs, net $19,739,063 $ 4,175,057 $ 5,795,934 $29,710,054
=========== =========== =========== ===========
Other property and equipment
----------------------------
Land $ 1,583,344 $ - $ 305,234 $ 1,888,578
Plant and equipment 2,222,464 69,081 1,507,762 3,799,307
----------- ----------- ----------- -----------
3,805,808 69,081 1,812,996 5,687,885
Less accumulated depreciation 337,816 26,874 174,757 539,447
----------- ----------- ----------- -----------
$ 3,467,992 $ 42,207 $ 1,638,239 $ 5,148,438
=========== =========== =========== ===========
December 31, 1995
-----------------
Oil and gas properties
----------------------
Unevaluated oil and gas properties $ 305,974 $ - $ - $ 305,974
Proved oil and gas properties 20,195,774 3,857,561 8,243,262 32,296,597
----------- ----------- ----------- -----------
Total capitalized costs 20,501,748 3,857,561 8,243,262 32,602,571
</TABLE>
F-11
<PAGE> 53
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OIL AND GAS PROPERTIES, LAND, PLANT AND EQUIPMENT (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
Less accumulated depletion
And depreciation 8,538,599 518,304 780,675 9,837,578
----------- ----------- ----------- -----------
Capitalized costs, net $11,963,149 $ 3,339,257 $ 7,462,587 $22,764,993
=========== =========== =========== ===========
Other property and equipment
----------------------------
Land $ 1,548,938 $ - $ 300,375 $ 1,849,313
Plant and equipment 1,754,329 62,894 1,423,548 3,240,771
----------- ----------- ----------- -----------
3,303,267 62,894 1,723,923 5,090,084
Less accumulated depreciation 217,270 12,601 41,396 271,267
----------- ----------- ----------- -----------
$ 3,085,997 $ 50,293 $ 1,682,527 $ 4,818,817
=========== =========== =========== ===========
</TABLE>
Costs incurred in oil and gas property acquisition, exploration, and
development activities are as follows:
<TABLE>
<CAPTION>
United
States Canada Colombia Total
----------- ------ -------- -----
<S> <C> <C> <C> <C>
1996
----
Exploration $ 1,832,579 $ 150,262 $ - $ 1,982,841
Development 5,572,690 734,269 - 6,306,959
Acquisition of proved properties 3,149,644 257,717 474,231 3,881,592
----------- ---------- ---------- -----------
Total costs incurred $10,554,913 $1,142,248 $ 474,231 $12,171,392
=========== ========== ========== ===========
1995
----
Exploration $ 328,322 $ 31,718 $ - $ 360,040
Development 1,453,593 134,883 - 1,588,476
Acquisition of proved properties 3,349,594 802,804 8,243,262 12,395,660
----------- ---------- ---------- -----------
Total costs incurred $ 5,131,509 $ 969,405 $8,243,262 $14,344,176
=========== ========== ========== ===========
</TABLE>
Oil and gas depletion expense in 1996 and 1995 was $4,979,361 and
$2,605,419, or $2.22 and $1.80 per produced barrel of oil equivalent,
respectively.
5. STATEMENT OF CASH FLOWS
Following is certain supplemental information regarding cash flows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest paid $2,309,475 $1,388,369
========== ==========
Income taxes paid $1,150,029 $ -
========== ==========
</TABLE>
Non-cash investing and financing transactions:
F-12
<PAGE> 54
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. STATEMENT OF CASH FLOWS (CONTINUED)
In February 1996, the company issued 14,000 shares of Common Stock to a
director of the Company in settlement of an obligation in the amount of
$42,000.
Debentures in the principal amount of $6,212,000, less related costs of
$796,157, were converted into 1,419,846 shares of Common Stock during the
year ended December 31, 1996.
The Company incurred a credit to Stockholders' Equity in the amount of
$91,600 resulting from the issuance of stock options to a consultant during
the year ended December 31, 1996.
The Company incurred a credit to Stockholders' Equity in the amount of
$133,000 attributable to the income tax effect of stock options exercised
during the year ended December 31, 1996.
Cumulative foreign currency translation gains (losses) of ($15,655) and
$18,216 were recorded during the years ended December 31, 1996 and 1995,
respectively.
The Company realized gains in 1996 and 1995 of $8,305 and $124,773,
respectively, as a result of the issuance of common stock by a subsidiary.
In January 1995, the Company awarded 24,000 shares of Common Stock with a
fair market value of $25,500 to an employee.
The acquisition cost of oil and gas properties which were acquired in
September 1995 included an oil imbalance obligation in the amount of
$1,248,866 which was assumed by the Company.
In October 1995, the Company's Canadian subsidiary issued common stock to
acquire a corporation at a recorded net cost of $210,439.
In October 1995, interests in oil and gas properties with a cost of $399,527
were acquired by the issuance of 1,443,204 shares of common stock of the
Company's Canadian subsidiary and cancellation of notes receivable in the
amount of $157,311.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Trade accounts payable $3,545,599 $3,568,400
Undistributed revenue payable 341,614 398,519
Insurance and tax assessments payable 684,758 716,597
Other accrued expenses 805,166 935,647
---------- ----------
Total $5,377,137 $5,619,163
========== ==========
</TABLE>
7. INCOME TAXES
The components of income (loss) before income taxes and after minority
interest in earnings of consolidated subsidiary for the years ended December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
United States $ 383,453 $ (523,572)
Canada 693,439 134,138
Colombia 5,645,807 1,385,602
---------- ----------
Total $6,722,699 $ 996,168
========== ==========
</TABLE>
F-13
<PAGE> 55
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Components of income tax expense (benefit) for the years ended December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C> <C>
Current:
Federal $ 149,600 $(112,364)
State 259,994 45,000
Foreign 2,182,000 556,000
---------- ---------
2,591,594 488,636
---------- ---------
Deferred:
Federal 207,787 (44,350)
State 158,602 5,350
---------- ---------
366,389 (39,000)
---------- ---------
$2,957,983 $ 449,636
========== =========
</TABLE>
The provision (benefit) for income taxes differs from the amount that would
result from applying the federal statutory rate for the years ended December
31, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected tax provision (benefit) 34.0% 34.0%
State income taxes, net of
Federal benefit 4.1 3.3
Effect of foreign earnings (0.9) (13.0)
Change in valuation allowance 4.4 15.6
Other 2.4 5.2
---- ----
44.0% 45.1%
==== ====
</TABLE>
The tax effected temporary differences which give rise to the deferred tax
provision consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Property and equipment $1,084,200 $ 337,900
Effect of state taxes (120,000) (12,300)
Net operating losses (2,200) 209,500
Foreign tax credits (845,811) (640,000)
Alternative minimum tax credits (61,200) (38,100)
Change in valuation allowance 295,000 155,000
Other 16,400 (51,000)
---------- ---------
$ 366,389 $ (39,000)
========== =========
</TABLE>
F-14
<PAGE> 56
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The components of the tax effected deferred income tax asset (liability) as
of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Property and equipment $(2,060,800) $ (976,600)
State taxes 171,800 51,800
Net operating losses 39,400 37,200
Foreign tax credits 1,600,800 640,000
Alternative minimum tax credits 196,400 135,200
Other 35,200 51,600
----------- ----------
(17,200) (60,800)
Valuation allowance (450,000) (155,000)
----------- ----------
Net deferred income tax liability $ (467,200) $ (215,800)
=========== ==========
</TABLE>
At December 31, 1996 and 1995, $123,000 and $105,400 of current deferred
taxes are included in other current assets, respectively.
At December 31, 1996, the Company had approximately $650,000 of California
net operating loss carryovers that begin to expire in 1998.
At December 31, 1996, the Company had approximately $1,600,000 of foreign
tax credit carryovers, which expire in the year 2001. A $450,000 valuation
allowance has been provided for a portion of the foreign tax credits which
are not likely to be realized during the carryforward period. The Company
also has alternative minimum tax credit carryforwards for federal and state
purposes of approximately $156,700 and $39,700, respectively. The credits
carry over indefinitely and can be used to offset future regular tax to the
extent of current alternative minimum tax.
In general, section 382 of the Internal Revenue Code includes provisions
which limit the amount of net operating loss carryforwards and other tax
attributes that may be used annually in the event that a greater than 50%
ownership change (as defined) takes place in any three year period. As of
December 31, 1996, management is not aware of such a change for purposes of
section 382.
8. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
9% convertible senior subordinated debentures - due 2005 $ 6,438,000 $11,000,000
Revolving loan agreement with a bank 12,100,000 9,500,000
Term loan agreement with a bank 450,000 -
Demand loan agreement with a bank 1,605,136 1,026,392
Promissory note 450,000 900,000
Promissory notes - Capco 1,574,400 1,621,900
----------- ------------
22,617,536 24,048,292
Less current portion 1,805,556 504,985
----------- ------------
$20,811,980 $23,543,307
=========== ============
</TABLE>
F-15
<PAGE> 57
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
On December 26, 1995, the Company issued $11,000,000 of 9% convertible
senior subordinated debentures ("Debentures") due December 15, 2005. The
Debentures are convertible into common stock of the Company, at the option
of the holders of the Debentures, at any time prior to maturity at a
conversion price of $4.38 per share, subject to adjustment in certain
events. The Company has reserved 3,000,000 shares of its Common Stock for
the conversion of the Debentures. The Debentures are not redeemable by the
Company prior to December 15, 1997. Mandatory sinking fund payments of 15%
of the original principal, adjusted for conversions prior to the date of
payments, are required annually commencing December 15, 2000. The
Debentures are uncollateralized and subordinated to all present and future
senior debt, as defined, of the Company and are effectively subordinated to
all liabilities of subsidiaries of the Company. The principal use of
proceeds from the sale of the Debentures was to retire short-term
indebtedness incurred by the Company in connection with its acquisitions of
producing oil and gas properties in Colombia. A portion of the proceeds was
used to reduce the balance outstanding under the Company's revolving credit
agreement. On February 7, 1996, the Company issued an additional $1,650,000
of Debentures pursuant to the exercise of an over-allotment option by the
underwriting group. Net proceeds to the Company were approximately $1.5
million and a portion was utilized to reduce the outstanding balance under
the Company's revolving line of credit.
Certain terms of the Debentures contain requirements and restrictions on the
Company with regard to the following limitations on Restricted Payments (as
defined in the Indenture), on transactions with affiliates, and on oil and
gas property divestitures; Change of Control (as defined), which will
require immediate redemption; maintenance of life insurance coverage of
$5,000,000 on the life of the Company's Chief Executive Officer; and
limitations on fundamental changes and certain trading activities, on
Mergers and Consolidations (as defined) of the Company, and on ranking of
future indebtedness. Debentures in the amount of $6,212,000 were converted
into 1,419,846 shares of Common Stock during the year ended December 31,
1996.
In September 1993, the Company consummated a Revolving Loan Agreement
("Agreement") with Bank One, Texas, N.A. The loan is subject to semi-
annual redeterminations and will be converted to a three-year term loan on
June 1, 1998. Funds advanced under the facility are collateralized by
substantially all of the Company's U.S. oil and gas producing properties and
the common stock of its principal U.S. subsidiaries. The Company is charged
a commitment fee equal to 0.5% of the available, but not used, loan amount.
Effective September 23, 1996, the Agreement was amended and restated.
Included in the amendments was a reduction in the base lending rate to prime
rate plus 0.75% (9.0% at December 31, 1996), and the option to select LIBOR
rate pricing for portions of the outstanding indebtedness. In addition, the
amended Agreement provides for a commitment ("term loan") of as much as $4.0
million with an interest rate of prime plus 4.0% (12.25% at December 31,
1996) which may be borrowed for the purpose of funding development of oil
and gas properties in the United States. Effective November 1, 1996, the
primary borrowing base for the revolving loan was increased from $9,200,000
to $14,000,000, subject to a monthly reduction of $250,000. In accordance
with the terms of the Agreement, $1,356,000 of the loan balances are
classified as currently payable at December 31, 1996. The Agreement
requires, among other things, that the Company maintain at least a 1 to 1
working capital ratio, stockholders' equity of $6,250,000, a ratio of cash
flow to debt service of not less than 1.25 to 1.0 and general and
administrative expenses at a level not greater than
F-16
<PAGE> 58
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
20% of revenue, all as defined in the Agreement. Additionally, the Company
is restricted from paying dividends and advancing funds in excess of
specified limits to affiliates. The Company was in compliance with the
terms of the Agreement at December 31, 1996.
Prior to March 5, 1996, BLRC had a demand non-revolving bank loan with
principal repayments of $53,500 on the first day of every month. The loan
provided for interest at a variable rate equal to the Canadian prime rate
plus 1.75% per annum. Effective March 5, 1996, the loan was converted to a
demand revolving reducing loan in the face amount of $1.8 million. Interest
was payable at a variable rate equal to the Canadian prime rate plus 1% per
annum (5.75% at December 31, 1996). Effective February 13, 1997, BLRC
renegotiated its bank loan, and now has available a demand revolving
reducing loan in the face amount of $2.6 million. Reductions to the maximum
principal amount available under the loan will be reviewed on or before July
1, 1997, with no repayments of the balance outstanding at December 31, 1996
anticipated in 1997. Interest will be payable at a variable rate equal to
the Canadian prime rate plus 0.75% per annum. The loan is collateralized by
BLRC's Canadian oil and gas producing properties, and a first fixed and
floating change debenture in the principal amount of $3.6 million over all
assets of BLRC. Terms of the loan agreement require that, based on an annual
engineering report, the discounted net present value of the collateralized
properties exceed 175% of the outstanding loan balance and that estimated
annual future net revenue exceed 150% of that period's debt service.
Although the bank can demand payment in full of the loan at any time, it has
provided a written commitment not to do so except in the event of default.
The promissory note is due to the seller of an oil refining facility, which
was acquired by the Company in June 1994. Final payment of the note, which
bears interest at the prime rate in effect on the note anniversary date,
plus two percent (10.25% at December 31, 1996), is due on June 24, 1997. The
note is collateralized by a deed of trust on the acquired assets.
The promissory notes - Capco are due to the Company's parent company, Capco
Resources Ltd. and to Capco Resources, Inc., formerly wholly- owned by Capco
Resources Ltd. and now majority-owned by Capco Resources Ltd. Payment of
the notes, which bear interest at the rate of 9% per annum, is due April 1,
2006. The loan proceeds were utilized by the Company principally in
connection with the acquisition of producing oil and gas properties in
Colombia. The notes are subordinated to the same extent the Debentures are
subordinated.
Maturities of long term debt are as follows:
<TABLE>
<S> <C>
1997 $ 1,805,556
1998 5,091,247
1999 3,083,333
2000 4,067,493
2001 2,525,827
Thereafter 6,044,080
-----------
$22,617,536
===========
</TABLE>
F-17
<PAGE> 59
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS
Related party transactions are described as follows:
In 1996, the Company provided a short-term advance to an affiliate in the
amount of $10,000.
In 1996, the Company received remittances in the amount of $120,200 and made
payments in the amount of $90,900 for reimbursement of prior period account
balances.
In 1996, the Company charged affiliates $19,400 and was charged $152,300 by
affiliates for interest on promissory notes.
In 1996, the Company loaned $30,000 to a director of the Company, on an
unsecured basis, at an interest rate of 9% per annum.
In 1996, the Company loaned $300,000 to the Chief Executive Officer of the
Company at an interest rate of prime plus 0.75% due in quarterly
installments. The loan is collateralized by the officer's vested, but
unexercised, Common Stock options.
In 1996, an affiliate of the Company participated, on a joint interest
basis, in one of the Company's exploratory drilling prospects. At December
31, 1996, the affiliate had been assessed a total of $112,150 for costs
associated with the drilling prospect. Of such amount, $64,650 was unpaid
at December 31, 1996.
In 1996 and 1995, the Company charged its affiliates $26,300 and $92,900,
respectively, for reimbursement of certain general and administrative
expenses.
In 1995, the Company charged an affiliate $7,600 and was charged $30,000 by
affiliates for interest on short-term advances.
In 1995, the Company received remittances from affiliates totaling $107,300
in payment of prior and current period charges for general and
administrative expenses and cash advances.
In 1995, the Company received a short-term advance in the amount of $10,500
from an affiliate.
In 1995, the Company loaned $101,700 to a company controlled by the
Company's Chief Executive Officer at an interest rate of 9% per annum. The
loan is collateralized by the officer's vested, but unexercised, Common
Stock options.
In 1995, the Company borrowed $350,000 from a company controlled by a
director of the Company. The entire amount, plus interest at the rate of
10% per annum, was repaid in December 1995.
In 1995, affiliated companies loaned a total of $2,221,900 to the Company,
at an interest rate of 9% per annum, in connection with the acquisition of
producing oil and gas properties in Colombia. Of this amount, $600,000 was
converted to equity by the issuance of 150,000 shares of Common Stock of the
Company. The balance of the borrowings is due April 1, 2006 and is
subordinated to the same extent as the Debentures are subordinated. The
Company incurred interest expense in the amount of $67,600 in 1995 as a
result of this indebtedness.
F-18
<PAGE> 60
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMON STOCK AND STOCK OPTIONS
In April 1996 and June 1996, the Company's Board of Directors and
shareholders, respectively, approved the Company's 1996 Incentive Equity
Plan ("Plan"). The purpose of the Plan is to enable the Company to provide
officers, other key employees and consultants with appropriate incentives
and rewards for superior performance. Subject to certain adjustments, the
maximum aggregate number of shares of the Company's Common Stock that may be
issued pursuant to the Plan, and the maximum number of shares of Common
Stock granted to any individual in any calendar year, shall not in the
aggregate exceed 500,000 and 100,000, respectively. At December 31, 1996,
no awards had been made under the Plan.
In July 1995, the Company cancelled its Incentive and Nonqualified Stock
Option Plans. No options were granted under either plan prior to
cancellation.
During the year 1996, the Company's issued options to acquire 100,000 shares
of the Company's Common Stock to a consultant. The options had an exercise
price of $4.00 and were exercisable over a period of 180 days, beginning May
21, 1996. The options were fully exercised during the year 1996. The
Company also issued options to acquire 20,000 shares of the Company's Common
Stock to an employee under the terms of an employment agreement.
During the year 1995, the Company issued options to acquire 200,000 shares
of the Company's Common Stock to a consultant. The options had an exercise
price of $1.63 and were exercisable for a period of one year, beginning
January 2, 1995. Options to acquire 116,666 shares of Common Stock were
exercised during the year ended December 31, 1995. In July 1995, the
consulting arrangement was terminated and the balance of the options was
cancelled. The Company also issued options to acquire 200,000 shares of the
Company's Common Stock to an employee under the terms of an employment
agreement.
In January 1995, the Company awarded 24,000 shares of Common Stock to an
employee pursuant to the terms of an employment agreement. The cost of the
stock award, based on the stock's fair market value at the award date, was
charged to stockholders' equity and was amortized against earnings over the
contract term.
As of December 31, 1996, the Company had outstanding options for 742,000
shares of Common Stock to certain employees of the Company. These options,
which are not covered by the Incentive Equity Plan, become exercisable
ratably over a period of five years from the date of issue. The exercise
price of the options, which ranges from $1.25 to $4.38, is the fair market
value of the Common Stock at the date of grant. There is no contractual
expiration date for exercise of these options.
The Company accounts for stock based compensation to employees under the
rules of Accounting Principles Board Opinion No 25. The compensation cost
for options granted in 1996 and 1995 was $139,962 and $115,880,
respectively.
F-19
<PAGE> 61
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
Information regarding the shares under option and weighted average exercise
price for the years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ---------------------------
Wt. Avg. Wt. Avg.
Shares Ex. Pr. Shares Ex. Pr.
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Beginning of year 740,000 $1.40 890,000 $1.42
Granted 120,000 $4.06 400,000 $1.56
Exercised (118,000) $3.58 (116,666) $1.63
Cancelled - (433,334) $1.52
-------- --------
End Of Year 742,000 $1.49 740,000 $1.40
======== ========
Options exercisable
at end of year 306,000 $1.37 176,000 $1.34
======== ===== ======== =====
Weighted average fair value of options
granted during the year $1.17 $0.29
===== =====
</TABLE>
The fair value of each option granted during 1996 and 1995 is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: (a) risk-free interest rates ranging from 4.9% to
7.9%, (b) expected volatility of 58.4%, (c) average time to exercise ranging
from six month to five years, and (d) expected dividend yield of 0.0%. If
the compensation cost for the Company's 1996 and 1995 grants to employees
had been determined consistent with SFAS No. 123, the Company's net income
and net earnings per common share (primary) for 1996 and 1995 would
approximate the proforma amounts set forth below:
<TABLE>
<CAPTION>
1996 1995
----------------------------- ---------------------------
As Reported Proforma As Reported Proforma
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net income $3,764,716 $3,733,426 $546,532 $457,189
========== ========== ======== ========
Net earnings per common share
(primary) $0.40 $0.40 $0.06 $0.05
===== ===== ===== =====
</TABLE>
11. RETIREMENT PLAN
The Company sponsors a defined contribution retirement savings plan ("401(k)
Plan") to assist all eligible U.S. employees in providing for retirement or
other future financial needs. The Company currently provides matching
contributions equal to 50% of each employee's contribution, subject to a
maximum of 4% of employee earnings. The Company's contributions to the
401(k) Plan were $44,014 in 1996 and $25,745 in 1995.
F-20
<PAGE> 62
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various legal proceedings, which arise in the
normal course of business. Based on discussions with legal counsel,
management does not believe that the ultimate resolution of such actions
will have a significant effect on the Company's financial statements or
operations.
LEASES
The Company leases office space, vehicles and office equipment under
non-cancelable operating leases expiring in the years 1997 through 2001.
Future minimum lease payments under all leases are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $218,767
1998 176,285
1999 120,151
2000 100,413
2001 96,292
--------
$711,908
========
</TABLE>
Rent expense amounted to $246,013 and $129,470 for the years ended December
31, 1996 and 1995, respectively.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
The Company invests its cash primarily in deposits with major banks.
Certain deposits may, at times, be in excess of federally insured limits
($2,461,583 and $2,740,655 at December 31, 1996 and December 31, 1995,
respectively, according to bank records). The Company has not incurred
losses related to such cash balances.
The Company's accounts receivable result from its activities in the oil and
gas industry. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of joint interest partners
comprising the Company's customer base. Ongoing credit evaluations of the
financial condition of joint interest partners are performed and, generally,
no collateral is required. The Company maintains reserves for potential
credit losses and such losses have not exceeded management's expectations.
Included in accounts receivable at December 31, 1996 and 1995 are the
following amounts due from unaffiliated parties (each accounting for 10% or
more of accounts receivable):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Customer A $2,566,700 $1,986,000
========== ==========
Customer B $1,267,100 $ 817,900
========== ==========
Customer C $ 899,600 $ -
========== ==========
</TABLE>
F-21
<PAGE> 63
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Sales to major unaffiliated customers (customers accounting for 10 percent
or more of gross revenue), all representing purchasers of oil and gas and
related transportation tariffs and the applicable geographic area for each
customer, for each of the years ended December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
Geographic Area 1996 1995
--------------- ---- ----
<S> <C> <C> <C>
Customer A Colombia $13,594,000 $4,505,000
=========== ==========
Customer B United States $ 4,117,000 $2,926,000
=========== ==========
Customer C United States $ - $2,150,000
=========== ==========
</TABLE>
All sales to the geographic area of Colombia are to the government owned oil
company.
CONTINGENCIES
The Company is subject to extensive Federal, state, and local environmental
laws and regulations. These requirements, which change frequently, regulate
the discharge of materials into the environment. The Company believes that
it is in compliance with existing laws and regulations.
ENVIRONMENTAL CONTINGENCIES
The Colombian Ministry of the Environment ("Ministry") issued a resolution
dated June 7, 1995 that set forth a number of measures aimed at correcting
certain deficiencies that the Ministry has allegedly found in environmental
aspects of the Teca and Nare fields. Among such measures, the Ministry
ordered the temporary closing of one of five production modules and of any
wells processed in that module until Texas Petroleum Company, the former
owner and operator of the properties, provided a document detailing the
timetable to implement some of the measures described above. The temporary
closing of the module did not have a substantial effect on total production
because substantially all of the crude oil which would otherwise have been
processed in the closed module was directed to other production modules.
The resolution also ordered the opening of an environmental investigation of
Texas Petroleum Company's operation of the Teca and Nare fields. The
document containing the requested timetable was presented to the Ministry on
July 6, 1995. On June 18, 1996, the Ministry issued a resolution which
allowed the curent operator of the Teca and Nare fields to reopen the module,
while requiring its efforts to finalize correction of the cited deficiencies.
In 1993, the Company acquired a producing mineral interest from a major oil
company ("Seller"). At the time of acquisition, the Company's investigation
revealed that the Seller had suffered a discharge of diluent (a light oil
based fluid which is often mixed with heavier grade crudes). The purchase
agreement required the Seller to remediate the area of the diluent spill.
After the Company assumed operation of the property, the Company became
aware of the fact that diluent was seeping into a drainage area, which
traverses the property. The Company took action to eliminate the fluvial
contamination and requested that the Seller bears the cost of remediation.
The Seller has taken the
F-22
<PAGE> 64
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
position that its obligation is limited to the specified contaminated area
and that the source of the contamination is not within the area that the
Seller has agreed to remediate. The Company has commenced an investigation
into the source of the contamination to ascertain whether it is physically
part of the area which the Seller agreed to remediate or is a separate spill
area. Investigation and discussions with the Seller are ongoing. Should
the Company be required to remediate the area itself, the cost to the
Company could be significant. The Company has spent approximately $150,000
to date in remediation activities, and present estimates are that the cost
of completes remediation could approach $1 million. Since the investigation
is not complete, an accurate estimate of cost cannot be made.
13. BUSINESS SEGMENTS
The Company considers that its operations are principally in one industry
segment that of acquisition, exploration, development and production of oil
and gas reserves. A summary of the Company's operations by geographic area
for the years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Corporate
United and
States Canada Colombia Other Total
------ ------ -------- ----- -----
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
----------------------------
Total revenues $15,907 $3,105 $13,594 $ 596 $33,202
Production costs 8,160 1,172 5,272 - 14,604
Other operating expenses 759 536 213 - 1,508
Depreciation, depletion and
amortization 2,565 353 2,275 334 5,527
Income tax expense (benefit) 1,561 2,917 (1,520) 2,958
------- ------ -------
Results of operations from oil
and gas producing activities $ 2,862 $1,044 $ 2,917
======= ====== =======
Interest and other expenses (net) 4,840 4,840
-------- -------
Net income (loss) $ (3,058) $ 3,765
======== =======
Identifiable assets at
December 31, 1996 $28,730 $5,346 $12,473 $ 2,568 $49,117
======= ====== ======= ======== =======
Year ended December 31, 1995
----------------------------
Total revenues $11,538 $1,577 $ 4,505 $ 74 $17,694
Production costs 7,431 901 2,229 - 10,561
Other operating expenses 398 243 51 - 692
Depreciation, depletion and
amortization 1,735 156 823 113 2,827
</TABLE>
F-23
<PAGE> 65
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
Income tax expense (benefit) 849 147 645 (1,191) 450
------- ------ ------- ------- --------
Results of operations from oil
and gas producing activities $ 1,125 $ 130 $ 757
======= ====== =======
Interest and other expenses (net) 2,617 2,617
------- -------
Net income (loss) $(1,465) $ 547
======= =======
Identifiable assets at
December 31, 1995 $19,525 $3,963 $13,514 $ 2,749 $39,751
======= ====== ======= ======= =======
</TABLE>
F-24
<PAGE> 66
SABA PETROLEUM COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
ESTIMATED PROVED RESERVES
Estimates of the Company's proved developed and undeveloped oil and gas
reserves for its working and royalty interest wells were prepared by
independent engineers. The estimates are based upon engineering principles
generally accepted in the petroleum industry and take into account the
effect of past performance and existing economic conditions. Reserve
estimates vary from year to year because they are based upon judgmental
factors involved in interpreting and analyzing production performance,
geological and engineering data and changes in prices, operating costs and
other economic, regulatory, and operating conditions. Changes in such
factors can have a significant impact on the estimated future recoverable
reserves and estimated future net revenue by changing the economic lives of
the properties. Proved undeveloped oil and gas reserves include only those
reserves which are expected to be recovered on undrilled acreage from new
wells which are reasonably certain of production when drilled, or from
presently existing wells which could require relatively major expenditures
to effect recompletion.
Presented below is a summary of proved reserves of the Company's oil and gas
properties:
<TABLE>
<CAPTION>
United
Year ended December 31, 1996 States Canada (1) Colombia Total
---------------------------- ------ ---------- -------- -----
<S> <C> <C> <C> <C>
Oil (Barrels)
Proved reserves:
Beginning of year 6,562,595 926,200 5,042,502 12,531,297
Acquisition, exploration and
development of minerals in place 4,501,828 103,837 - 4,605,665
Revisions of previous estimates 5,950,525 24,771 5,595,772 11,571,068
Production (803,070) (134,008) (1,031,207) (1,968,285)
Sales of minerals in place (60,820) - - (60,820)
---------- ---------- ----------- ----------
End of year 16,151,058 920,800 9,607,067 26,678,925
========== ========== =========== ==========
Proved developed reserves, end of year 7,993,854 710,000 4,692,140 13,395,994
========== ========== =========== ==========
Gas (Thousands of cubic feet)
Proved reserves:
Beginning of year 9,103,049 10,376,000 - 19,479,049
Acquisition, exploration and
development of minerals in place 4,186,184 924,033 - 5,110,217
Revisions of previous estimates 1,046,326 48,213 - 1,094,539
Production (1,089,576) (561,042) - (1,650,618)
Sales of minerals in place (132,018) (236,204) - (368,222)
---------- ---------- ----------- ----------
End of year 13,113,965 10,551,000 - 23,664,965
========== ========== =========== ==========
Proved developed reserves, end of year 11,520,707 2,654,000 - 14,174,707
========== ========== =========== ==========
</TABLE>
(1) See reference (1) on page F-26
F-25
<PAGE> 67
SABA PETROLEUM COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
(UNAUDITED)
ESTIMATED PROVED RESERVES (CONTINUED)
<TABLE>
<CAPTION>
United
Year ended December 31, 1995 States Canada(1) Colombia Total
- ---------------------------- ------ --------- -------- -----
<S> <C> <C> <C> <C>
Oil (Barrels)
Proved reserves:
Beginning of year 6,671,341 464,390 - 7,135,731
Acquisition, exploration and
Development of minerals in place 1,295,876 289,113 5,473,310 7,058,299
Revisions of previous estimates (691,553) 264,497 - (427,056)
Production (710,271) (85,800) (430,808) (1,226,879)
Sales of minerals in place (2,798) (6,000) - (8,798)
--------- ---------- --------- ----------
End of year 6,562,595 926,200 5,042,502 12,531,297
========= ========== ========== ==========
Proved developed reserves, end of year 5,385,856 750,500 4,731,369 10,867,725
========= ========== ========== ==========
Gas (Thousands of cubic feet)
Proved reserves:
Beginning of year 7,225,973 2,565,800 - 9,791,773
Acquisition, exploration and
Development of minerals in place 1,333,669 464,028 - 1,797,697
Revisions of previous estimates 1,519,718 7,832,888 - 9,352,606
Production (938,577) (398,616) - (1,337,193)
Sales of minerals in place (37,734) (88,100) - (125,834)
--------- ---------- --------- ----------
End of year 9,103,049 10,376,000 - 19,479,049
========= ========== ========== ==========
Proved developed reserves, end of year 8,190,986 2,051,000 - 10,241,986
========= ========== ========== ==========
</TABLE>
(1) The proved reserve information at December 31, 1996 and 1995 includes the
following proved reserve amounts attributable to the approximately 26%
minority interest resulting from the CRPL business combination with BLRC
in October 1995. See Note 2 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Oil (Bbls) 236,911 237,237
Gas (Mcf) 2,714,646 2,657,709
Barrels of oil equivalent (BOE) 689,352 680,188
Standardized measure of discounted future net
cash flows $2,840,628 $1,893,643
</TABLE>
F-26
<PAGE> 68
SABA PETROLEUM COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
(UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES
The following information has been prepared in accordance with Statement of
Financial Accounting Standards No. 69, which requires the standardized
measure of discounted future net cash flows to be based on sales prices,
costs and statutory income tax rates in effect at the time the projections
are made and a 10 percent per year discount rate. The projections should
not be viewed as estimates of future cash flows nor should the "standardized
measure" be interpreted as representing current value to the Company.
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
(Dollars in thousands)
United
States Canada (1) Colombia Total
------ ---------- -------- -----
<S> <C> <C> <C> <C>
Future cash inflows $ 324,206 $ 39,985 $157,552 $ 521,743
Future production costs (143,964) (13,247) (63,458) (220,669)
Future development costs (24,432) (587) (22,153) (47,172)
Future income tax expenses (36,539) (9,529) (22,172) (68,240)
--------- -------- -------- ---------
Future net cash flows 119,271 16,622 49,769 185,662
10 percent annual discount for
estimated timing of cash flows (45,942) (5,581) (17,650) (69,173)
--------- -------- -------- ---------
Standardized measure of discounted
future net cash flows $ 73,329 $ 11,041 $ 32,119 $ 116,489
========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------
(Dollars in thousands)
United
States Canada(1) Colombia Total
------ --------- -------- -------
<S> <C> <C> <C> <C>
Future cash inflows $ 100,559 $ 25,411 $ 52,335 $ 178,305
Future production costs (56,871) (8,979) (30,193) (96,043)
Future development costs (3,997) (3,064) (1,675) (8,736)
Future income tax expenses (10,872) (3,204) (5,623) (19,699)
-------- -------- -------- --------
Future net cash flows 28,819 10,164 14,844 53,827
10 percent annual discount for
estimated timing of cash flows (9,585) (2,771) (2,406) (14,762)
-------- -------- -------- --------
Standardized measure of discounted
future net cash flows $ 19,234 $ 7,393 $ 12,438 $ 39,065
======== ======== ======== ========
</TABLE>
(1) See reference (1) on page F-26
F-27
<PAGE> 69
SABA PETROLEUM COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
(UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES (CONTINUED)
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows during 1996 and 1995.
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
(Dollars in thousands)
United
States Canada (1) Colombia Total
------ ---------- -------- -----
<S> <C> <C> <C> \ <C>
Balance at beginning of year $ 19,234 $ 7,393 $ 12,438 $ 39,065
Acquisitions, discoveries and extensions 43,988 1,604 - 45,592
Sales and transfers of oil and gas
produced, net of production costs (7,590) (1,845) (7,605) (17,040)
Changes in estimated future
development costs (15,038) 2,430 (16,233)
(28,841)
Net changes in prices, net of
production costs 14,951 5,680 20,390 41,021
Sales of reserves in place (667) (77) - (744)
Development costs incurred
during the period 330 120 - 450
Changes in production rates and other 16 (490) (2,236) (2,710)
Revisions of previous quantity estimates 32,023 436 32,781 65,240
Accretion of discount 2,467 748 1,601 4,816
Net change in income taxes (16,385) (4,958) (9,017) (30,360)
-------- ------- ------- ---------
Balance at end of year $ 73,329 $11,041 $ 32,119 $ 116,489
======== ======= ======== =========
</TABLE>
(1) See reference (1) on page F-26
F-28
<PAGE> 70
SABA PETROLEUM COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
(UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES (CONTINUED)
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
(Dollars in thousands)
United
States Canada(1) Colombia Total
------ --------- -------- -----
<S> <C> <C> <C> <C>
Balance at beginning of year $18,779 $ 2,348 $ - $21,127
Acquisitions, discoveries and extensions 6,561 2,123 17,848 26,532
Sales and transfers of oil and gas
produced, net of production costs (3,873) (670) (1,837) (6,380)
Changes in estimated future
development costs 2,329 (2,716) - (387)
Net changes in prices, net of
production costs (1,682) 1,614 - (68)
Sales of reserves in place (11) (115) - (126)
Development costs incurred
during the period 126 - - 126
Changes in production rates and other (3,358) (2,757) - (6,115)
Revisions of previous quantity estimates (1,452) 7,313 - 5,861
Accretion of discount 2,367 332 - 2,699
Net change in income taxes (552) (79) (3,573) (4,204)
------- ------- ------- -------
Balance at end of year $19,234 $ 7,393 $12,438 $39,065
======= ======= ======= =======
</TABLE>
(1) See reference (1) on page F-26
F-29
<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT
TO
FIRST AMENDED AND RESTATED LOAN AGREEMENT
DATED SEPTEMBER 23, 1996
BY AND BETWEEN SABA PETROLEUM COMPANY, ET AL.
AND BANK ONE, TEXAS, N.A.
This First Amendment to the First Amended and Restated Loan Agreement
dated September 23, 1996 (this "First Amendment") by and between SABA PETROLEUM
COMPANY, a Colorado corporation (the "Borrower") et al., and BANK ONE, TEXAS,
N.A., a national banking association (the "Bank") , is entered into on this 5th
day of November, 1996.
W I T N E S S E T H:
Borrower and Bank have entered into a First Amended and Restated Loan
Agreement dated September 23, 1996, (the "Loan Agreement").
Borrower has requested that Bank amend certain provisions of the Loan
Agreement, and the Bank has agreed to such amendments to the extent expressly
set forth herein.
NOW, THEREFORE, in consideration of the promises herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged by the Borrower and the Bank, and each intending to be legally
bound hereby, the parties agree as follows:
I. Specific Amendments to Loan Agreement.
Article I is hereby amended by adding or replacing, as
applicable, the following definitions:
"EAMC" means Energy Asset Management Company, L.L.C., an Arkansas
limited liability company.
"First Amendment" means the First Amendment to this Agreement executed
by Borrower and Bank on November 5, 1996.
"Former MV Partners" means DuBose Ventures, Inc. and Rockbridge Oil &
Gas, Inc.
"Guarantor (s)" means, individually and collectively, Saba Energy of
Texas, Incorporated, a Texas corporation, Saba Petroleum, Inc., a California
corporation, Saba Petroleum of Michigan, Inc., a Michigan corporation, and MV
Ventures, G.P., a Texas general partnership.
"Guaranty" means, with respect to each Guarantor other than MV
Ventures, the guaranty of such Guarantor of all of Borrower's Obligations to
the Bank, executed pursuant to the
1
<PAGE> 2
Prior Loan Agreement, as ratified pursuant to this Agreement, and with respect
to MV Ventures, its guaranty executed pursuant to the First Amendment.
"MV Acquisition" means the closing of the MV Purchase and Sale
Agreement.
"MV Partnership Agreement" means that certain partnership agreement
executed on November 1, 1995, between the Former Partners, as subsequently
amended.
"MV Purchase and Sale Agreement" means that certain Purchase and Sale
Agreement dated October 8, 1996, between the Former Partners, as Sellers, and
SETI and EAMC, as Buyers, pursuant to which SETI and EAMC acquired MV Ventures
and became the sole partners therein.
"MV Ventures" means that certain Texas general partnership formally
known as MV Ventures, G.P., formed pursuant to the MV Partnership Agreement.
"Revolving Commitment Limit" means $16,000,000.00 as of the date of
this Agreement, and such different amounts as are subsequently established,
from time to time, pursuant to Section 2.19 hereof.
"SETI" means Saba Energy of Texas, Incorporated, a Texas corporation,
which is a wholly-owned subsidiary of Borrower.
Section 2.03 is amended by inserting the following text after the
second sentence of such section:
Effective as of the closing of the First Amendment, Borrowing Base I
is redetermined to be Fourteen Million and No/100 Dollars
($14,000,000.00), which shall thereafter decline in the amount of
$250,000.00, monthly, beginning on December 1, 1996, and at the
beginning of each successive month thereafter until the effective date
of the next redetermination of the Borrowing Base as set forth in
this Section.
Article III is hereby amended by adding the following new Section 3.13
thereto:
3.13 Closing of First Amendment. Prior to the funding of
any Loans that are based on the increased Loan availability resulting
from the increase in the Borrowing Base pursuant to the First
Amendment, in addition to Borrower satisfying the requirements of the
other applicable Sections of Article III, the Bank shall have
received:
2
<PAGE> 3
(a) satisfactory evidence that SETI and EAMC have closed
the MV Acquisition, subject only to payment to the Former Partners of
an aggregate cash sum not to exceed $3,836,571.35, and that upon the
Bank's advance of Loan proceeds sufficient to fund such payment, such
transaction shall have been consummated.
(b) satisfactory evidence that:
- the Former Partners have amended the MV Partnership Agreement to
correctly designate the name of "MV Ventures, G.P.," and to include
provisions adequate to insure that the sale of the partnership from
the Former Partners to SETI and EAMC shall not cause a dissolution of
the partnership,
- SETI and EAMC have acquired MV Ventures free and clear of all liens,
claims and encumbrances (including, but not limited to, releases
obtained at least one day prior to closing of the First Amendment of
any of the foregoing held or claimed by Compass Bank, Lexas Oil,
L.L.C., or LCO Company),
- MV Ventures has Marketable Title to its Oil and Gas Properties, as
described in the MV Purchase and Sale Agreement, and
- SETI and EAMC have amended the MV Partnership Agreement to designate
SETI as Managing Partner and to grant the Managing Partner full
complete power and authority to manage the business of the
Partnership.
(c) a Guaranty, in form and substance satisfactory to the
Bank, pursuant to which MV Ventures shall guaranty the Obligations of
Borrower to Bank.
(d) a mortgage of the Oil and Gas Properties of MV
Ventures, in form and substance satisfactory to the Bank, pursuant to
which the Oil and Gas Properties of MV Ventures are mortgaged to
secure the Obligations of Borrower to the Bank and MV Ventures'
obligations under its Guaranty to the Bank.
(e) a security agreement, in form and substance
satisfactory to the Bank, pursuant to which SETI pledges it
partnership interest in MV Ventures, and in the contracts, accounts
and
3
<PAGE> 4
proceeds associated therewith or resulting therefrom, to the Bank to
secure the Obligations of Borrower and the Guaranty of SETI.
(f) UCC-1 Financing Statements, in form and substance
satisfactory to the Bank, relating to the instruments identified in
clauses (d) and (e), above.
(g) Transfer order letters, in form and substance
satisfactory to the Bank, from MV Ventures to the Bank covering MV
Ventures' interest in production from its Oil and Gas Properties.
(h) a certificate of the secretary or assistant secretary
of SETI, both in its own capacity and in its capacity as managing
partner of MV Ventures, attesting to the adoption of resolutions by
SETI and the adoption of a unanimous consent by SETI and EAMC, as the
sole partners of MV Ventures, authorizing the transactions evidenced
by the First Amendment.
(i) a Compliance Certificate executed by Borrower.
(j) a Request for Advance executed by Borrower.
(k) such other documents and instruments as Bank may
reasonably request.
The terms "satisfactory evidence" or "evidence satisfactory to the
Bank," as used in this section 3.13, means evidence satisfactory to
the Bank, in its sole discretion.
Section 8.04 is hereby amended to change to address and fax number of
Borrower and each Guarantor to:
c/o Saba Petroleum Company
201 N. Salsipuedes, Suite 104
Santa Barbara, California 93103
Attention: Walton C. Vance
Fax: (805) 884-0672
II. Reaffirmation of Representations and Warranties. To induce the Bank
to enter into this First Amendment, the Borrower and each Guarantor hereby
reaffirms, as of the date hereof, its representations and warranties contained
in Article IV of the Loan Agreement and in all other documents executed pursuant
thereto, and additionally represents and warrants as follows:
4
<PAGE> 5
A. The execution and delivery of this First Amendment
and the performance by the Borrower and each Guarantor of its
obligations under this First Amendment are within the Borrower's and
each Guarantor's power, have been duly authorized by all necessary
corporate action, have received all necessary governmental approval
(if any shall be required), and do not and will not contravene or
conflict with any provision of law or of the charter or by-laws of the
Borrower or any Guarantor or of any agreement binding upon the
Borrower or any Guarantor.
B. The Loan Agreement as amended by this First Amendment
represents the legal, valid and binding obligations of the Borrower
and each Guarantor, enforceable against each in accordance with their
respective terms subject as to enforcement only to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
the enforcement of creditors' rights generally.
C. No Event of Default or Unmatured Event of Default has
occurred and is continuing as of the date hereof.
III. Defined Terms. Except as amended hereby, terms used herein that are
defined in the Loan Agreement shall have the same meanings herein.
IV. Reaffirmation of Loan Agreement. This First Amendment shall be deemed
to be an amendment to the Loan Agreement, and the Loan Agreement, as further
amended hereby, is hereby ratified, approved and confirmed in each. and every
respect. All references to the Loan Agreement herein and in any other
document, instrument, agreement or writing shall hereafter be deemed to refer
to the Loan Agreement as amended hereby.
V. Entire Agreement. The Loan Agreement, as hereby further amended,
embodies the entire agreement between the Borrower, the Guarantors and the Bank
and supersedes all prior proposals, agreements and understandings relating to
the subject matter hereof. The Borrower and each Guarantor certifies that it
is relying on no representation, warranty, covenant or agreement except for
those set forth in the Loan Agreement as hereby further amended and the other
documents previously executed or executed of even date herewith.
VI. Governing Law. THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. This First Amendment has been entered
into in Harris County, Texas, and it shall be performable for all purposes in
Harris County, Texas. Courts within the State of Texas shall have jurisdiction
over any and all disputes between the Borrower and the Bank, whether in law or
equity, including, but not limited to, any and all disputes arising out of or
relating to this First Amendment or any other
5
<PAGE> 6
Loan Document; and venue in any such dispute whether in federal or state court
shall be laid in Harris County, Texas.
VII. Severability. Whenever possible each provision of this First
Amendment shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this First Amendment shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this First Amendment.
VIII. Execution in Counterparts. This First Amendment may be executed in
any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument, and any signed counterpart shall be deemed delivered by the party
executing such counterpart if sent to any other party hereto by electronic
facsimile transmission.
IX. Section Captions. Section captions used in this First Amendment are
for convenience of reference only, and shall not affect the construction of
this First Amendment.
X. Successors and Assigns. This First Amendment shall be binding upon
the Borrower, each Guarantor and the Bank and their respective successors and
assigns, and shall inure to the benefit of the Borrower, each Guarantor and the
Bank, and the respective successors and assigns of the Bank.
XI. Non-Application of Chapter 15 of Texas Credit Codes. The provisions
of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil Statutes, Article
5069-15) are specifically declared by the parties hereto not to be applicable
to the Loan Agreement as hereby further amended or any of the other Loan
Documents or to the transactions contemplated hereby.
XII. Notice. THIS FIRST AMENDMENT TOGETHER WITH THE LOAN AGREEMENT, AND
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the day and year first above written.
BORROWER
SABA PETROLEUM COMPANY
By: /s/ WALTON C. VANCE
-----------------------------
Walton C. Vance,
Chief Financial Officer
BANK
BANK ONE, TEXAS, N.A.
By: /s/ LINDA F. MASERA
-----------------------------
Linda F. Masera
Vice President
GUARANTORS:
SABA ENERGY OF TEXAS, INCORPORATED
By: /s/ BRADLEY T. KATZUNG
-------------------------------
Bradley T. Katzung, President
SABA PETROLEUM, INC.
By: /s/ WALTON C. VANCE
-------------------------------
Walton C. Vance,
Chief Financial officer
SABA PETROLEUM OF MICHIGAN, INC.
By: /s/ BRADLEY T. KATZUNG
-------------------------------
Bradley T. Katzung, President
MV VENTURES, G. P.
By: SABA ENERGY OF TEXAS, INCORPORATED,
Managing Partner
By: /s/ BRADLEY T. KATZUNG
-------------------------------
Bradley T. Katzung,
President
7
<PAGE> 1
Exhibit 10.21
AGREEMENT MINUTES
In the month of February there were several meetings between Omimex de Colombia
and Ecopetrol to analyze different aspects of the new crude price negotiation
for the Cocorna and Nare Association and the new tariff for the crude
transported through the Velasquez-El Sauce Pipeline, Property of Omimex. As
per the mentioned before and in consideration to the additional contract
DIJ-(P)-424-AD, signed on March 8, 1994, that had validity until December 31,
1995. From January 1, 1996 the accepted clauses were as per contract LEG-205-84
with its modifications agreed an April 8, 1987, which was mentioned by the
Presidency of Ecopetrol in its letter sent to Texas Petroleum Company on
September 28, 1995 ECP-625).
Once the mentioned points were evaluated, it were agreed on the
following aspects.
1st. From February 1, 1996 and for three (3) consecutive years, the monthly
purchasing crude price from Teca and Nare fields will be determined by using
the arithmetic average of a crude basket and a crude fuel oil basket with a
maximum (ceiling) and minimum (floor) discount. Value which will be in
relation to the Crude Texas Intermediate current price (This price is published
in the Platts Oilgram, and will be:
CRUDE BASKET: Arithmetic average of the crude Maya, Mandji and Itsmus according
to gravity API and sulphur content. The process of calculation will be done in
the same way as per the contract that was in place until Dec. 31, 1995.
CRUDE FUEL OIL BASKET: Arithmetic Average between the fuel oil with 1% of
sulphur from the USA Gulf and the fuel oil of Ecopetrol for exportation without
corrections. The calculation mechanism will be the same as per the contract
that was valid until Dec. 31, 1995.
DISCOUNT: The average of the corrected crude basket and fuel oil (calculated
with two decimal digits) will be affected by a discount value that will depend
upon the current average monthly price of the West Texas Intermediate crude.
This should be stated a month prior to the invoicing date (Price published in
the Platts Oilgram) in the same way that is done for the crude and fuel oil
baskets, and these are:
CRUDE PRICES WTI PURCHASING PRICE
Less than 16,00 US$/B Average Basket - 1,65
Between 16,00 and 20,00 US$/B Average Basket - 2,05
Over 20,00 US$/B Average Basket - 2,45
2nd. Ecopetrol will transport through the Velasquez - Sauce Pipeline owned by
Omimex de Colombia its production share from Teca and Nare fields plus the
required crude's disolvent in a proportion of 1.5 barrels per heavy oil crude;
with the following tariff:
<PAGE> 2
From 0 to 18,000 Bpdc 0.61 US$/Bbl Which are valid from
February 1st, 1996
From 18,001 Bpdc and over 0.56 US$/Bbl
3rd. It is modified the deadline for the payment of the invoices, both in Pesos
and Dollars, and will be in thirty (30) days from the date that Ecopetrol
receives the invoices processed adequately.
4th. The crude pending of devolution by Omimex, mentioned in an additional
contract DIJ-(P)-424AD OF March 8, 1994, will be returned to Ecopetrol the
total volume (84,302 Barrels) and in cash during the month of February of
1996.
It is signed the present agreement, which should be ratified for both
administrations, in the Technical Division of Ecopetrol on February 23, 1996.
For Omimex de Colombia For Ecopetrol
Segundo A. Gonzalez Jorge Lozano J.
Gustavo Mendez O.
<PAGE> 1
Exhibit 10.22
OPERATING AGREEMENT
VELASQUEZ FIELD
THIS AGREEMENT, entered into this 11th day of September, 1995, but
effective December 30, 1994, by and between OMIMEX DE COLOMBIA, LTD.,
hereinafter designated and referred to as "Operator", and SABACOL, INC.,
hereinafter referred to as "Non-Operator", collectively called the Parties,
WITNESSETH:
WHEREAS, the Parties to this agreement are owners of the Velasquez
Field, Colombia, S.A. identified in Exhibit "A", and the Parties hereto have
reached an agreement to develop and operate this Field,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
DEFINITIONS
As used in this agreement, the following words and terms shall have
the meanings here ascribed to them:
A. The term "oil and gas" shall mean oil, gas, casinghead gas, gas
condensate, and all other liquid or gaseous hydrocarbons and other
marketable substances produced therewith, unless an intent to limit
the inclusiveness of this term is specifically stated.
B. The term "Contract Area" shall mean all lands and oil and gas
interests intended to be developed and operated for oil and gas
purposes under this agreement. Such lands and oil and gas interests
are described in Exhibit "A".
C. The term "drillsite" shall mean the site on which a proposed well
is to be located.
D. The terms "Drilling Party" and "Consenting Party" shall mean a
party who agrees to join in and pay its share of the cost of any
operation conducted under the provisions of this agreement.
E. The terms "Non-Drilling Party" and "Non-Consenting Party" shall
mean a party who elects not to participate in a proposed operation.
Unless the context otherwise clearly indicates, words used in the
singular include the plural, the plural include the singular, and the neuter
gender includes the masculine and the feminine.
Page 1
<PAGE> 2
ARTICLE II
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
A. Exhibit "A" - Identification of the lands subject to this
agreement and the interests of the Parties.
B. Exhibit "B" - Accounting Procedure
C. Exhibit "C" - Insurance
ARTICLE III
INTEREST OF THE PARTIES
Unless changed by other provisions, all costs and liabilities incurred
in operations under this agreement shall be borne and paid, and all equipment
and materials acquired in operations on the Contract Area shall be owned, by
the Parties as their interests are set forth in Exhibit "A". In the same
manner, the Parties shall also own all production of oil and gas from the
Contract Area.
Nothing contained in this Article III. shall be deemed an assignment
or cross-assignment of interests covered hereby.
ARTICLE IV
OPERATOR
OMIMEX DE COLOMBIA, LTD., shall be Operator of the Contract Area, and
shall conduct and direct and have full control of all operations on the
Contract Area as permitted and required by, and within the limits of this
agreement. It shall conduct all operations in a good and workmanlike manner,
but it shall have no liability as Operator to the other party for losses
sustained or liabilities incurred, except such as may result from gross
negligence or willful misconduct.
Operator may resign at any time by written notice thereof to
Non-Operator. If Operator terminates its legal existence, no longer owns an
interest in the Contract Area, or is no longer capable of serving as Operator
because Operator is insolvent, bankrupt or is placed in receivership, Operator
shall be deemed to have resigned without any action by Non-Operator, except the
selection of a successor. Operator may be removed by Non-Operator by majority
vote or if it fails or refuses to carry out its duties hereunder. Such
resignation or removal shall not become effective until 7:00 A.M. on the first
day of the calendar month following the expiration of (90) days after giving of
the notice of resignation by Operator or action by the Non-Operator to remove
Operator, unless a successor Operator has been selected and assumes the duties
of Operator at an earlier date.
Page 2
<PAGE> 3
Upon the resignation of Operator or removal by Non-Operator, a
successor Operator shall be selected by Parties owning an interest in the
Contract Area at the time such successor Operator is selected, excluding the
ownership of the retiring or removed Operator.
The number of employees used by the Operator in conducting operations
hereunder, their selection, and the hours of labor and the compensation for
services performed shall be determined by Operator, and all such employees
shall be the employees of Operator.
ARTICLE V
DRILLING AND DEVELOPMENT
A. OPERATIONS:
Should any party hereto desire to drill additional wells on the
Contract Area or rework, deepen or plug back a dry hole or a well not currently
producing in paying quantities, the party desiring to perform such operation
shall give the other party written notice of the proposed operation and the
estimated cost of the operation. The party receiving such a notice shall have
thirty (30) days after receipt of the notice within which to notify the party
wishing to do the work whether they elect to participate in the cost of the
proposed operation. If a rig is on location the notice of a proposed rework,
plug back or drill deeper may be given by telephone and the response period
shall be limited to forty-eight (48) hours, exclusive of Saturday, Sunday and
legal holidays. Failure of a party receiving such notice to reply within the
period fixed above shall constitute an election by that party not to
participate in the cost of the proposed operation. Any notice or response
given by telephone shall be promptly confirmed in writing.
If all Parties elect to participate in such a proposed operation,
Operator shall, within ninety (90) days after expiration of the notice period
(or as promptly as possible after the expiration of the forty-eight (48) hour
period when a drilling rig is on location), actually commence the proposed
operation and complete it with due diligence at the risk and expense of all the
Parties hereto. Said commencement may be extended for thirty (30) days, upon
written notice to the other party, if in the Operator's sole opinion additional
time is reasonably necessary to obtain permits, equipment or surface rights.
If not commenced within the time periods set forth above, then the Operator
shall resubmit to the other party its proposal as if no prior proposal had
been made.
If less than all Parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable notice period, shall
advise the Consenting Parties of the total interest approving such operation
and its recommendation as to whether the Consenting Parties should proceed with
the operation as proposed. If the decision is to proceed the entire cost and
risk of conducting such operations shall be borne by the Consenting Parties in
their adjusted proportions. Upon commencement of operations in accordance with
the provisions of this Article, each Non-Consenting Party shall be deemed to
have relinquished to Consenting Parties, and the Consenting Parties shall own
and be entitled to receive, in proportion to their respective interests, all
such Non-Consenting Party's interest in the well and share of production
therefrom until the proceed of the sale of such share, calculated at the well
shall equal the total of the following:
Page 3
<PAGE> 4
a) 300% of each Non-Consenting Party's share of the cost of
any newly acquired surface equipment beyond the wellhead
connections (including, but not limited to, stock tanks,
separators, treaters, pumping equipment and piping), plus 100%
of each such Non-Consenting Party's share of the cost of
operation of the well commencing with first production and
continuing until each such Non-Consenting Party's relinquished
interest shall revert to it, it agreed that each
Non-Consenting Party's share of such cost and equipment will
be that interest which would have been chargeable to such
Non-Consenting Party had it participated in the well from the
beginning of the operations; and
b) 300% of that portion of the cost and expenses of drilling,
reworking, deepening, plugging back, testing and completing,
and 300% of that portion of the cost of newly acquired
equipment in the well (to and including the wellhead
connections), which would have been chargeable to such
Non-Consenting Party if it had participated therein.
An election not to participate in the drilling or the deepening of a
well shall be deemed an election not to participate in any reworking or
plugging back operation proposed in such well, or portion thereof, to which the
initial Non-Consent election applied that is conducted at any time prior to
full recovery by the Consenting Parties of the Non-Consenting Parties
recoupment account. Any such work during the recoupment period shall be deemed
part of the cost of operation of said well and there shall be added to the sums
to be recouped by the Consenting Parties 300% of that portion of the costs of
the work.
Within sixty (60) days after the completion of any operation under
this Article, the Operator shall furnish each Non-Consenting Party with an
inventory of the equipment in and connected to the well, and an itemized
statement of the cost of the operation. Thereafter, at least semi-annually, the
Operator shall provide each Non-Consenting Party with a payout statement
reflecting costs and revenue attributable to the well from the time of the
non-consent election to the date of the statement.
If and when the Consenting Parties recover from a Non-Consenting
Party's relinquished interest the amounts provided for above, the relinquished
interests of such Non-Consenting Party shall automatically revert to it, and
from and after such reversion, such Non-Consenting Party shall own the same
interest in such well, the material and equipment in or pertaining thereto, and
the production therefrom as such Non-Consenting Party would have been entitled
had it participated in the operation on said well.
B. TAKING OF PRODUCTION:
Each Party to this agreement shall be responsible for disposing of and
accounting for its proportionate share of the production in accordance with the
sales agreement(s) with Ecopetrol or any other purchaser as agreed to by the
Parties or as required by the appropriate government authority of the Republic
of Colombia.
C. ACCESS TO CONTRACT AREA AND INFORMATION:
Each party shall have access to the Contract Area at all reasonable
times, at its sole cost and risk
4
<PAGE> 5
to inspect or observe operations, and shall have access at reasonable times to
information pertaining to the development or operation thereof, including
Operator's books and records relating thereto. Operator, upon request, shall
furnish each of the other Parties with copies of all forms and reports filed
with governmental agencies, daily drilling reports, well logs, tank tables,
daily gauge and run tickets and reports of stock on hand at the first of each
month, and shall make available samples of any cores or cuttings taken from any
well drilled on the Contract Area. The cost of gathering and furnishing
information to Non-Operator, other than that specified above, shall be charged
to the Non-Operator that requests the information.
D. ABANDONMENT OF WELLS:
If a well has produced, excluding the interest of any Non-Consenting
Party, it shall not be plugged and abandoned without the consent of all
Parties. If all Parties consent to the plugging and abandonment, such action
shall be at the cost, risk and expense of all the Parties. Should Operator
after diligent effort, be unable to contact any party, or should any party fail
to reply with-in forty-eight (48) hours after receipt of notice of the proposal
to plug and abandon such well, such party shall be deemed to have consented to
the proposed abandonment.
If a well has produced, excluding the interest of any Non-Consenting
Party, shall not be plugged and abandoned without the consent of all Parties.
If all Parties consent the plugging shall be at the cost, risk and expense of
all the Parties. If, within thirty (30) days, after receipt of the notice to
plug and abandon, any party elects not to consent to the plugging of the well,
then said party shall assume operation of the well and pay the Parties
consenting to the plugging and abandonment the estimated salvage value less the
estimated cost to plug and abandon the well. Each abandoning party shall
assign, without warranty, express or implied, of any kind or nature, all its
interest in the well. Thereafter the abandoning Parties shall have no further
responsibility, liability, or interest in the operation of or production from
the well.
All wells shall be plugged and abandoned in accordance with all
governmental rules and regulations.
ARTICLE VI
EXPENDITURES AND LIABILITIES OF PARTIES
A. LIABILITIES OF PARTIES:
The liability of the Parties shall be several, not joint or
collective. Each party shall be responsible only for its obligations, and
shall be liable only for its proportionate share of the costs of developing and
operating the Contract Area. Accordingly, the liens granted among the Parties
are given to secure only the debts of each severally. It is not the intention
of the Parties to create, nor shall this agreement be construed as creating, a
mining or other partnership or association, or to render the Parties liable as
partners.
B. LIENS AND PAYMENT DEFAULTS:
Each Non-Operator grants to Operator, a lien on all of each
Non-Operator's right in the
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<PAGE> 6
Contract Area, and a security interest in its share of oil and/or gas when
extracted and its interest in all equipment, to secure payment of its share of
expense, together with interest thereon at the rate shown in Exhibit "B".
Operator grants a like lien and security interest to the Non-Operators to
secure payment of Operator's proportionate share of expense.
C. PAYMENTS AND ACCOUNTING:
Except as otherwise specifically provided, Operator shall promptly pay
and discharge expenses incurred in the development and operation of the
Contract Area pursuant to this agreement and shall charge each of the Parties
hereto with their respective proportionate shares upon the expense basis
provided in Exhibit "B". Operator shall keep an accurate record of the joint
account hereunder, showing expenses and charges and credits made and received.
Operator may request advance payment of estimated expenses. If any party fails
to pay its share of said estimated expenses within the time specified, the
amount due shall bear interest as provided in Exhibit "B". Such request shall
include a detail listing of the expenses to be covered by the advance payment.
Exhibit "B" shall detail the accounting procedures for the Contract
Area.
D. LIMITATION OF EXPENDITURES:
Operator shall notify all Parties in writing and an AFE shall be
prepared before incurring any item of expense, which is equal to or exceeds US
$50,000.00. Such item of expense shall not be incurred unless a majority in
interest of the Parties signify their consent thereto in writing within 10 days
of the written notice.
E. INSURANCE:
Operator shall also carry or provide insurance for the benefit of the
joint account of the Parties as outline in Exhibit "C", attached to and made a
part hereof. Operator shall require all contractors engaged in work on or for
the Contract Area to maintain statutorily required insurance and insurance
equal to that shown on Exhibit "C".
F. ANNUAL BUDGET MEETING:
Operator shall, with at least 30 days written notice, call an annual
meeting of the Parties for the purpose of approving an annual budget and
capital expenditures program.
ARTICLE VII
MAINTENANCE OF UNIFORM INTEREST
For the purpose of maintaining uniformity of ownership of the
interests covered by this agreement, no party shall sell, encumber, transfer or
make other disposition of its interest in the Contract Area and in the wells,
equipment and production unless such disposition covers the entire undivided
interest of the party.
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<PAGE> 7
ARTICLE VIII
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or
suit arising from operations hereunder if the expenditure does not exceed
Twenty Thousand Dollars (US $20,000.00) and if the payment is in complete
settlement of such claim or suit. If the amount required for settlement
exceeds the above amount, the Parties hereto shall assume and take over further
handling of the claim or suit, unless such authority is delegated to Operator.
All costs and expenses of handling, settling or otherwise discharging such
claim or suit shall be the joint expense of the Parties participating in the
operation from which the claim or suit arises. If a claim is made against any
party or any party is sued on account of any matter arising from operations
hereunder over which such individual has no control because of the rights given
Operator by this agreement, such party shall immediately notify all other
Parties, and the claim or suit shall be treated as any other claim or suit
involving operations hereunder.
ARTICLE IX
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 the 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;
thereupon, the obligations of the party giving the notice, so far as they are
affected by the force majeure, shall be suspended during, but no longer than,
the continuance of the force majeure. The affected party shall use all
reasonable diligence to remove the force majeure situation as quickly as
practicable.
The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty by the party involved, contrary to its wishes; how all
such difficulties shall be handled shall be entirely within the discretion of
the party concerned.
The term "force majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of equipment
and any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control of the party claiming
suspension.
ARTICLE X
NOTICES
All notices authorized or required between the Parties and required by
any of the provisions of this agreement, unless otherwise specifically
provided, shall be given in writing by mail or telegram, postage or charges
prepaid, or by telex or telecopier and addressed to the Parties to whom the
notice
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<PAGE> 8
is given at the addresses listed in Exhibit "A". The originating notice given
under any provision hereof shall be deemed given only when received by the
party to whom such notice is directed, and the time for such party to give any
notice in response thereto shall run from the date the originating notice is
received. The second or any responsive notice shall be deemed given when
deposited in the mail or with the telegraph company, with postage or charges
prepaid, or sent by telex or telecopier. Each party shall have the right to
change its address at any time, and from time to time, by giving written notice
thereof to all other Parties.
ARTICLE XI
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the
Contract Area for so long as any wells are producing from the Contract Area.
Upon termination of this agreement the Parties shall remain responsible for the
proportionate share of any costs attributable to the final plugging and
abandonment of the wells and the facilities associated therewith. It is agreed
however, that the termination of this agreement shall not relieve any party
from any liability which has accrued or attached prior to the date of such
termination.
ARTICLE XII
APPLICABLE LAW
This agreement, its meaning and interpretation and the relationship of
the Parties hereunder, shall be governed by the laws of the United States of
America and all matters arising therefrom shall be brought before and submitted
exclusively to the courts of United States.
ARTICLE XIII
MISCELLANEOUS
A. US INTERNAL REVENUE CODE ELECTION
It is the express and specific intent of the Parties that a partnership
relationship not be created between them or among them and any other co-owner of
an interest in the Contract Area. In accordance with the applicable provision
of the US Internal Revenue Code of 1954 and regulations promulgated pursuant and
further thereto, the Parties do hereby elect not to be treated or considered as
partners and further elect that none of the provisions of Sub-Chapter K of said
Code shall be applicable with respect to the operation of the Contract Area.
The Parties expressly authorize Operator to file with the proper authorities
executed copies of this agreement, and such copies when filed, shall be
conclusive notice to said authorities of this election pursuant to said Contract
Area from all of the provisions of said Sub-Chapter K and said regulations.
Operator may in lieu of filing copies hereof, notify said authorities of this
election by separate instrument in proper form.
8
<PAGE> 9
B. HEADINGS:
The topic heading used herein are inserted for convenience only and
shall not be construed as having any substantive significance or meaning.
C. MODIFICATION:
There shall be no modification or amendment of this agreement except
by written instrument signed by all Parties.
D. ASSIGNMENT:
Except as otherwise provided herein, this agreement shall be binding
upon and inure to the benefit of the Parties, their respective successors and
assigns.
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement is executed as of the date first
above mentioned.
WITNESSED: OPERATOR:
[SIG] OMIMEX DE COLOMBIA, LTD.
- -------------------------
[SIG] [SIG]
- ------------------------- --------------------------
WITNESSED: NON-OPERATOR:
[SIG] SABACOL, INC.
- --------------------------
[SIG] [SIG]
- -------------------------- ---------------------------
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<PAGE> 10
EXHIBIT "A"
Attached to and made a part of that certain Operating Agreement
covering the Velasquez Field by and between OMIMEX DE COLOMBIA, LTD. and
SABACOL, INC. dated the 11th day of September, 1995, but effective December 30,
1994.
CONTRACT AREA & INTERESTS OF THE PARTIES
CONTRACT AREA: VELASQUEZ FIELD --
LOCATED IN THE PUERTO BOYACA
MUNICIPALITY, STATE OF BOYACA,
REPUBLIC OF COLOMBIA, S.A. WHICH IS
PART OF THE PRIVATE PROPERTY
DENOMINATED "GUAGUAQUI-TERAN", THE
LATTER REGISTERED UNDER NUMBER 7,
PAGES 58 THROUGH 66 OF BOOK 2 OF THE
LEGAL DEPARTMENT FILES OF THE
MINISTRY OF MINES AND ENERGY.
INTERESTS OF THE PARTIES:
PERCENT
-------
OMIMEX DE COLOMBIA, LTD. 75%
5608 Malvey, Penthouse Suite Carrera 17 No. 93-82 Off. 303
Fort Worth, Texas 76107 Santafe De Bogota, Colombia
Phone: (817) 735-1500 Phone: 571-623-5905
Fax: (817) 735-8033 Fax: 571-218-1395
SABACOL, INC. 25%
17512 Von Karman Ave. 109 No. 15-60 Off. 301
Irvine, California 92714 Santafe De Bogota, Colombia
Phone: (714) 724-1112 Phone: 571-612-7185
Fax: (714) 724-1555 Fax: 571-612-3969
<PAGE> 11
EXHIBIT "B"
JOINT OPERATIONS ACCOUNTING PROCEDURE
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions Agreement shall prevail.
The purpose of this Accounting Procedure is to establish equitable
methods for determining charges and credits applicable to operations under the
Agreement. The Parties agree that if any of such methods prove unfair or
inequitable to Operator or Non-Operator(s), the Parties will meet and in good
faith endeavor to agree on changes in methods deemed necessary to correct any
unfairness or inequity.
1- GENERAL PROVISIONS
1.1 Definitions
1.1.1. Agreement means the Joint Operating Agreement to which this
Accounting Procedure is attached.
1.1.2. Contract Area shall have the same definition as contained in
the Agreement.
1.1.3. Controllable Material shall mean material which the Operator
according to good oil field practice, subjects to record
control and inventory. A list of types of such material shall
be furnished to Non-Operator(s) upon request.
1.1.4. Days shall in all cases mean calendar days.
1.1.5. Field Supervisors as used herein the term "Field Supervisors"
shall mean those employees whose primary function in Joint
Operations is the direct supervision of other employees and/or
contract labor directly employed on the Joint Property in a
field operating capacity.
1.1.6. Joint Account shall be the set of accounts maintained by the
Operator to record all expenditures and other transactions
under the provisions of the Agreement.
1.1.7. Joint operations shall mean all activities necessary and
proper under the provisions of the Agreement.
1.1.8. Joint Property shall mean the real and personal property
acquired and held for use in connection with operations under
the Agreement.
<PAGE> 12
1.1.9. Material shall mean personal property, including supplies and
use charge, acquired and held for use in Joint Operations.
1.1.10 Non-Operator(s) shall mean the parties to the Agreement other
than the Operator.
1.1.11 Operator shall have the same definition as contained in the
Agreement.
1.1.12. Party or Parties shall have the same definitions as contained
in the Agreement.
1.1.13. Technical Employees as used herein the term "Technical
Employees" shall mean those employees having special and
specific engineering, geological or other professional skills,
and whose primary function in Joint Operations is handling of
specific operating conditions and problems for the benefit of
the Joint Property.
1.1.14. Operating Committee as used herein shall mean such committee
as may be appointed by the parties consisting of one
representative of the Operator and one representative of each
Non-Operator.
1.2 Statements, Billings and Adjustments
1.2.1. Each Party to the Agreement is responsible for preparing its
own accounting, statistical and tax reports to meet Contract
Area and any other country or corporate requirements, except
that Operator shall be responsible for preparation and filling
of any United States Partnership Income Tax Returns that may
be required. The parties may elect out of Subchapter K.
Operator is required to furnish Non-Operator(s) statements and
billings in such form as required to facilitate discharging
such responsibilities.
1.2.2. Operator shall bill Non-Operator(s) on or before the last day
of each month for their proportionate share of expenditures
for the preceding month. Such billings shall be accompanied
by statement of charges and credits to the Joint Account
summarized by appropriate accounting classifications
indicative of the nature thereof, except that items of
Controllable Material and unusual charges and credits shall be
detailed. Such billings shall indicate the monetary origin
(Colombian Pesos or U.S. Dollars) of the charges and credits.
<PAGE> 13
1.2.3. Operator shall, upon request by Non-Operator(s), furnish a
description of such accounting classifications.
1.2.4. In accordance with Colombian law, operator shall keep the
Joint Account in Colombian pesos. The Operator will also
maintain these accounts in U.S. dollar equivalency or shall
provide the applicable exchange rate(s) monthly so that
Non-Operator(s) may convert these Colombian peso accounts to
U.S. Dollars each month. The parties shall agree as to the
procedure to be used in establishing the exchange rate(s) to
be used in making the conversion from Colombian pesos to U.S.
dollars or vice-versa. Expenditures made in U.S. Dollars
shall be separately identified and reported to Non-Operator(s)
on a monthly basis. Accounts maintained for recording
property, plant and equipment shall be maintained in both
Colombia pesos and U.S. dollars and such accounts shall
reflect the monetary origin (pesos or dollars) of each item of
property, plant and equipment purchased for the Joint Account.
In the conversion of currencies and in accounting for advances
of different currencies as provided for in Paragraph 1.3 of
this Article, or any other currency transactions affecting the
Joint Operations, it is the intent that none of the Parties
shall experience gain or loss at the expense of, or to the
benefit of, the other Parties.
1.2.5. Payment of the bills referred to in paragraph 1.2.2. of this
article shall not prejudice the rights of any Non-Operator(s)
to protest or question the correctness thereof; however, all
bills and statements rendered to Non-Operator(s) by Operator
during any calendar year shall conclusively be presumed to be
true and correct after twenty-four (24) months following the
end of any such calendar year, unless within the said
twenty-four month period a Non-Operator takes written
exception thereto and makes claim on Operator for adjustment.
No adjustment favorable to Operator shall be made unless it is
made within the same prescribed period. The provisions of
this paragraph shall not prevent adjustments resulting from a
physical inventory of the Joint Property acquired for Joint
operations.
1.2.6. The accrual method of accounting shall be used for the Joint
Account.
<PAGE> 14
1.3 Advances and Payment
1.3.1. Non-Operator(s) shall advance by immediately available funds
to Operator within 15 days of notice by Operator their share
of estimated cash requirements for the succeeding month's
Operations in accordance with Article VI of the Agreement.
Such advance shall be credited when the actual billings per
1.2.2. above are issued.
1.3.2. Should the Operator be required to pay any large (in excess of
U.S. $50,000.00) sums of money on behalf of the Joint
Operation, which were unforeseen at the time of providing the
Non-Operator(s) with said monthly estimates of its
requirements, the Operator shall make a written request of the
Non-Operators(s) for special advances covering the
Non-Operators' share of such payments. Non-Operator(s) shall
make their proportional special advances within fifteen (15)
days after receipt of such notice.
1.3.3. If Non-Operator(s) advances exceed their share of the
expenditures, the next succeeding cash advance requirements,
after such determination, shall be reduced accordingly or
deducted from the next billing, whichever comes first.
However, Non-Operator(s) may request that excess advances be
refunded. The Operator shall make such refund within fifteen
(15) days after receipt of Non-Operator(s) request. Such
refund shall be made in the currency so advanced.
1.3.4. If Non-Operator(s) advances are less than their share of
actual expenditures, the deficiency shall, at operator's
option, be added to subsequent cash advance requirements or be
paid by Non-Operator(s) within thirty (30) days following
receipt of Operators for such deficiency.
1.3.5. If Operator does not request Non-Operator(s) to advance their
share of estimated cash requirements, Non-Operator(s) shall
pay their share of actual expenditures within thirty (30) days
following receipt of Operator's billing.
1.3.6. Payment of advances or billings shall be made on or before the
due date, and if not so paid the unpaid balance shall be
treated as provided under Article VI of the Agreement.
<PAGE> 15
1.4 Audits
1.4.1. A Non-Operator, upon at least thirty (30) days written notice
to Operator and other Non-Operator(s) shall have the right at
its sole expense to audit the Joint Account and related
records for any calendar year or portion thereof within the
twenty-four (24) month period following the end of such
calendar year; however, the conducting of an audit shall not
extend the time for the taking of written exception to and the
adjustment of accounts as provided for in Paragraph 1.2.5. of
this Article. Where there are two or more Non-Operators the
Non-Operators shall make every reasonable effort to conduct
joint or simultaneous audits in a manner which will result in
a minimum of inconvenience to the Operator.
1.4.2. Subject to unanimous prior approval of the Parties, the cost
of any special audit or verification of the Joint Account that
is for the benefit of all Parties shall be chargeable to the
Joint Account.
1.4.3. Normal recurring internal audits of the Joint Account made by
the Operator to assess internal controls shall be chargeable
to the Joint Account and copies thereof shall be furnished to
Non-Operators upon request.
1.5 Interest
1.5.1 Should interest be accessed per the terms of the Agreement, (1)
the rate on non U.S. $ Cash Calls shall be the Colombian Prime
Rate as quoted by Banco Ganadero plus 10% and (2) on U.S. $ Cash
Calls Prime as quoted by Bank One, Texas, N.A. plus 3%. Should
said rate(s) exceed the maximum rate allowed by law, then the
maximum lawful rate(s) shall apply.
2- CHARGEABLE COST AND EXPENDITURES
Operator shall charge Joint Account for all costs necessary to conduct
Joint Operations in or with respect to the Contract Area. Such cost
shall include, but are not necessarily limited to:
2.1 Control, License or Permit Payments
2.1.1. All expenditures necessary to acquire and to maintain rights
to the Contract Area.
<PAGE> 16
2.2 Labor and Related Costs
2.2.1. Salaries. Salaries and wages of Operator's field employees
directly employed on the Joint Property in the conduct of
Joint Operations, salaries and wages of Field Supervisors, and
salaries and wages of Technical Employees that perform work
and services directly relating to or for the benefit of the
Joint Property.
2.2.2. Salary Benefits. Operator's cost of holiday, vacation,
sickness and disability benefits and other customary
allowances paid to employees whose salaries and wages are
chargeable to the Joint Account under Article 2.2.1 above.
Such costs under this Article 2.2.2 may be charged on a "when
and as paid basis" or by "percentage assessment" on the amount
of salaries and wages chargeable to the Joint Account under
Article 2.2.1 above. If percentage assessment is used, the
rate shall be based on the Operator's cost experience and
adjusted at least annually to the Operator's actual cost.
2.2.3. Assessments. Expenditures or contributions made pursuant to
assessments imposed by governmental authority which are
applicable to Operator's costs chargeable to the Joint Account
under Article 2.2.1 and 2.2.2 above.
2.2.4. Personal Related Expenses. Personal Expenses, including but
not limited to the following: travel and other reasonable
reimbursable expenses of Operator's employees, hospital and
medical expense, schools for employees and their children,
insurance policies, and all other reasonable activities
applicable to the employee and family, of those employees
whose salaries and wages are chargeable to the Joint Account
under Article 2.2.1 above.
2.2.5. Employee Benefit Plans. Operator's current cost of
established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other customary benefit plans of a like nature
provided under Operator's usual practices, applicable to
Operator's labor cost chargeable to the Joint Account under
Article 2.2.1 above shall be at Operator's actual cost.
<PAGE> 17
2.3 Material
2.3.1. Material purchased or furnished by Operator for use in Joint
Operations as provided under Article 3 of this Accounting
Procedure.
2.4 Transportation and Employee Relocation Costs
2.4.1. Transportation of Material and other related costs such as
expediting crating, dock charges, inland and ocean freight,
customs duties and taxes and unloading at destination.
2.4.2. Transportation of employees as required in the conduct of
Joint Operations.
2.4.3. Relocation costs to the Contract Area vicinity or to other
locations in Colombia of employees permanently or temporarily
assigned to the Joint Operations. Such costs shall include
transportation of employees' families and their personal and
household effects and all other relocation costs in accordance
with Operator's usual practice. Relocation from Colombia
shall not be charged to the Joint Account.
2.5 Services
2.5.1. Contract services, professional consultants, and other
services covered by Paragraph 2.8
2.5.2. Technical services for specific projects resulting in a
presentation or a written report, such as, but not limited to,
laboratory analysis, drafting, geophysical interpretation,
engineering, and related data processing, performed by the
Operator and its Affiliates for the direct benefit of the
Joint Operations, provided such costs shall not exceed those
currently prevailing if performed by outside technical service
companies.
2.5.3. Use of equipment, services and facilities furnished by
Operator or Non-Operated(s) or their Affiliates provided such
equipment, services or facilities is of a quality and cost
commensurate and competitive with that offered by third
parties in the general vicinity of the Contract Area.
2.6 Damage and Losses to Joint Property
2.6.1. All costs or expenses necessary for the repair or
replacement of Joint Property resulting from
<PAGE> 18
damages or losses incurred by fire, flood,
storm, theft, accident, or any other cause.
Operator shall furnish Non-Operator(s) written
notice of damages or losses in excess of nominal
value as soon as practicable. Any payment(s) by
insurance companies shall be deducted in
determining the amount due.
2.7 Insurance
2.7.1. Net premiums for insurance are required by the Parties of the
Agreement.
2.7.2. Actual expenditures in the settlement of all losses,
claims, damages, judgements, and other expenses for
the benefit of the Joint Operations a per the
Agreement.
2.7.3. Credits for settlements received from the insurance policies
and others.
2.8 Legal Expense
2.8.1. All costs or expenses of litigation or legal services
otherwise necessary or expedient for the protection
of the Joint Property, including but not limited to
attorney's fees, court costs, cost of investigation
or procuring evidence and amounts paid in settlement
or satisfaction of any such litigation of claims.
These services may be performed by the Operator's
legal staff or an outside firm as necessary. Operator
shall not incur more than Ten Thousand U.S. Dollar
(US $10,000) in costs for legal services in
connection with any single, suit, proceeding or
matter without first obtaining the prior approval of
the other parties.
2.9 Duties and Taxes
2.9.1. All duties and taxes (except taxes based on income, net
worth and royalty based on production from the Contract
Area and any other taxes for which the Parties are
liable severally but not Jointly), fees and
governmental assessment of every kind and nature in
relation with Joint Operations.
2.10 Offices, Camps and Miscellaneous Facilities
2.10.1. Cost of maintaining and operating any offices,
suboffices, camps, warehouses, housing and other
facilities directly serving the Joint Operations shall
be charged to the Joint Account. If such
<PAGE> 19
Facilities serve operations in addition to the Joint
operations, the costs shall be allocated to the
properties served on an equitable basis as may be
approved by the Operating Committee which approval
shall not be unreasonably withheld.
2.11 Administrative Overhead
2.11.1. An administrative overhead covering services and
related office costs of personnel performing
administrative, legal, accounting, purchasing,
treasury, tax, employee relations, computer services
and other functions for the benefit of the Operations
provided they are not included elsewhere, shall be
charged to the Joint Account monthly.
2.11.2. The charge under the foregoing paragraph shall be for
services of all personnel and offices of Operator who
are not directly assigned to operations and shall be
charged each month at the rate of 12% on total
expenditures attributable to Joint Operations in the
preceding month, except only 5% shall be charged on
expenditures for capital expenditure items.
2.11.3. Notwithstanding anything to the contrary which might
be stated in the Accounting Procedure, it is
understood that no cost or expenditure included
under sections 2.2.1 through 2.10 shall be included
or duplicated in the administrative overhead rate
charged in this Article 2.11. Further, at any
party's request, the rates in 2.11.2 above shall be
reviewed annually and adjusted if determined to be
inadequate or excessive.
2.12 Other Expenditures
2.12.1. Any other expenditures not covered or dealt with in
the foregoing provisions which are incurred by the
Operator and its Affiliates for the ordinary,
necessary and proper conduct of the Joint Operations.
3- MATERIALS
The cost of material, equipment and supplies purchased or furnished by
the Operator for use on the Joint Property shall be charged to the
Joint Account on the basis set forth below. So far as it is reasonably
practical and consistent with efficient and economical operation, only
such material shall be purchased for or transferred to the Joint
Property as may be required for immediate use, and the accumulation of
surplus stock shall be avoided.
<PAGE> 20
operator shall give thirty (30) days written notice of
intention to take such inventories to allow
Non-Operator(s) to be represented when any inventory is
taken. Failure of any Non-Operator to be represented
shall bind such Non-operator to accept the inventory
taken by operator.
3.3.2. Reconciliation of inventory with the Joint Account
shall be made and a list of overages and shortages as
well as obsolete and surplus materials shall be
furnished to the Non-Operator(s). Inventory
adjustments shall be made to the Joint Account in
accordance with good accounting practices.
3.3.3. Whenever there is a sale or change of interest in the
Joint Property, a special inventory shall be taken by
the operator if required by the seller and/or purchaser
and the seller and/or purchaser of such interest shall
bear all of the expense thereof. In such cases, both
the seller and the purchaser shall be entitled to be
represented and shall be governed by the inventories
taken.
4- FIXED ASSETS
Inventories of Fixed Assets will be taken as determined by the Parties
but not less than every five (5) years. Operator shall give
thirty (30) days written notice of intention to take such inventories to
allow Non-Operator(s) to be represented when any inventory is taken.
Failure of any Non-Operator to be represented shall bind such
Non-Operator to accept the inventory taken by operator.
<PAGE> 21
EXHIBIT "C"
Attached to and made a part of that certain Operating Agreement covering the
Velasquez Field by and between OMIMEX DE COLOMBIA, LTD. and SABACOL, INC. dated
the 11th day of September, 1995, but effective December 30, 1994.
INSURANCE
Operator shall, in the performance of its obligations hereunder, carry
statutorily required insurance and Public Liability Insurance in amounts of not
less than US $ 1,000,000.00 per occurance or accident with an aggregate limit
of not less than US $ 2,000,000.00. Operator shall likewise cause all
contractors to carry insurance in such amounts commensurate with those set
forth above.
<PAGE> 1
Exhibit 10.23
OPERATING AGREEMENT
COCORNA AND NARE ASSOCIATIONS
THIS AGREEMENT, entered into this 11th day of September, 1995, but
effective January 1, 1995, by and between OMIMEX DE COLOMBIA, LTD., hereinafter
designated and referred to as "Operator", and SABACOL, INC., hereinafter
referred to as "Non-Operator", collectively called the Parties,
WITNESSETH:
WHEREAS, the Parties to this agreement are owners of the Cocorna and Nare
Associations, Colombia, S.A. identified in Exhibit "A", and the Parties hereto
have reached an agreement to develop and operate these Fields,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
DEFINITIONS
As used in this agreement, the following words and terms shall have the
meanings here ascribed to them:
A. The term "oil and gas" shall mean oil, gas,
casinghead gas, gas condensate, and all other liquid or gaseous
hydrocarbons and other marketable substances produced therewith,
unless an intent to limit the inclusiveness of this term is
specifically stated.
B. The term "Contract Area" shall mean all lands and oil
and gas interests intended to be developed and operated for oil
and gas purposes under this agreement. Such lands and oil and
gas interests are described in Exhibit "A".
C. The term "drillsite" shall mean the site on which a
proposed well is to be located.
D. The terms "Drilling Party" and "Consenting Party" shall
mean a party who agrees to join in and pay its share of the cost
of any operation conducted under the provisions of this
agreement.
E. The terms "Non-Drilling Party" and "Non-Consenting
Party" shall mean a party who elects not to participate in a
proposed operation.
Unless the context otherwise clearly indicates, words used in the singular
include the plural, the plural include the singular, and the neuter gender
includes the masculine and the feminine.
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ARTICLE II
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
A. Exhibit "A" - Identification of the lands subject to
this agreement and the interests of the Parties.
B. Exhibit "B" - Accounting Procedure
C. Exhibit "C" - Insurance
ARTICLE III
INTEREST OF THE PARTIES
Unless changed by other provisions, all costs and liabilities incurred in
operations under this agreement shall be borne and paid, and all equipment and
materials acquired in operations on the Contract Area shall be owned, by the
Parties as their interests are set forth in Exhibit "A". In the same manner,
the Parties shall also own all production of oil and gas from the Contract Area.
Nothing contained in this Article III shall be deemed an assignment or
cross-assignment of interests covered hereby.
ARTICLE IV
OPERATOR
OMIMEX DE COLOMBIA, LTD., shall be Operator of the Contract Area, and shall
conduct and direct and have full control of all operations on the Contract Area
as permitted and required by, and within the limits of this agreement. It
shall conduct all operations in a good and workmanlike manner, but it shall
have no liability as Operator to the other party for losses sustained or
liabilities incurred, except such as may result from gross negligence or
willful misconduct.
Operator may resign at any time by written notice thereof to Non-Operator.
If Operator terminates its legal existence, no longer owns an interest in the
Contract Area, or is no longer capable of serving as Operator because Operator
is insolvent, bankrupt or is placed in receivership, Operator shall be deemed
to have resigned without any action by Non-Operator, except the selection of a
successor. Operator may be removed by Non-Operator by majority vote or if it
fails or refuses to carry out its duties hereunder. Such resignation or
removal shall not become effective until 7:00 A.M. on the first day of the
calendar month following the expiration of (90) days after giving of the notice
of resignation by Operator or action by the Non-Operator to remove Operator,
unless a successor Operator has been selected and assumes the duties of
Operator at an earlier date.
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Upon the resignation of Operator or removal by Non-Operator, a successor
Operator shall be selected by Parties owning an interest in the Contract Area
at the time such successor Operator is selected, excluding the ownership of the
retiring or removed Operator.
The number of employees used by the Operator in conducting operations
hereunder, their selection, and the hours of labor and the compensation for
services performed shall be determined by Operator, and all such employees
shall be the employees of Operator.
ARTICLE V
DRILLING AND DEVELOPMENT
A. OPERATIONS:
Should any party hereto desire to drill additional wells on the Contract
Area or rework, deepen or plug back a dry hole or a well not currently producing
in paying quantities, the party desiring to perform such operation shall given
the other party written notice of the proposed operation and the estimated cost
of the operation. The party receiving such a notice shall have thirty (30) days
after receipt of the notice within which to notify the party wishing to do the
work whether they elect to participate in the cost of the proposed operation. If
a rig is on location the notice of a proposed rework, plug back or drill deeper
may be given by telephone and the response period shall be limited to
forty-eight (48) hours, exclusive of Saturday, Sunday and legal holidays.
Failure of a party receiving such notice to reply within the period fixed above
shall constitute an election by that party not to participate in the cost of the
proposed operation. Any notice or response given by telephone shall be promptly
confirmed in writing.
If all Parties elect to participate in such a proposed operation,
Operator shall, within ninety (90) days after expiration of the notice period
(or as promptly as possible after the expiration of the forty-eight (48) hour
period when a drilling rig is on location), actually commence the proposed
operation and complete it with due diligence at the risk and expense of all the
Parties hereto. Said commencement may be extended for thirty (30) days, upon
written notice to the other party, if in the Operator's sole opinion such
additional time is reasonably necessary to obtain permits, equipment or surface
rights. If not commenced within the time periods set forth above, then the
Operator shall resubmit to the other party its proposal as if no prior proposal
had been made.
If less than all Parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable notice period, shall
advise the Consenting Parties of the total interest approving such operation and
its recommendation as to whether the Consenting Parties should proceed with the
operation as proposed. If the decision is to proceed the entire cost and risk of
conducting such operations shall be borne by the Consenting Parties in their
adjusted proportions. Upon commencement of operations in accordance with the
provisions of this Article, each Non-Consenting Party shall be deemed to have
relinquished to Consenting Parties, and the Consenting Parties shall own and be
entitled to receive, in proportion to their respective interests, all such
Non-Consenting Party's interest in the well and share of production therefrom
until the proceed of the sale of such share, calculated at the well shall equal
the total of the following:
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a) 300% of each Non-Consenting Party's share of the cost
of any newly acquired surface equipment beyond the wellhead
connections (including, but not limited to, stock tanks,
separators, treaters, pumping equipment and piping), plus 100%
of each such Non-Consenting Party's share of the cost of
operation of the well commencing with first production and
continuing until each such Non-Consenting Party's relinquished
interest shall revert to it, it being agreed that each
Non-Consenting Party's share of such cost and equipment will be
that interest which would have been chargeable to such
Non-Consenting Party had it participated in the well from the
beginning of the operations; and
b) 300% of that portion of the cost and expenses of
drilling, reworking, deepening, plugging back, testing and
completing, and 300% of that portion of the cost of newly
acquired equipment in the well (to and including the wellhead
connections), which would have been chargeable to such
Non-Consenting Party if it had participated therein.
An election not to participate in the drilling or the deepening of a well
shall be deemed an election not to participate in any reworking or plugging
back operation proposed in such well, or portion thereof, to which the intital
Non-Consent election applied that is conducted at any time prior to full
recovery by the Consenting Parties of the Non-Consenting Parties recoupment
account. Any such work during the recoupment period shall be deemed part of
the cost of operation of said well and there shall be added to the sums to be
recouped by the Consenting Parties 300% of that portion of the costs of the
work.
Within sixty (60) days after the completion of any operation under this
Article, the Operator shall furnish each Non-Consenting Party with an inventory
of the equipment in and connected to the well, and an itemized statement of the
cost of the operation. Thereafter, at least semi-annually, the Operator shall
provide each Non-Consenting Party with a payout statement reflecting costs and
revenue attributable to the well from the time of the non-consent election to
the date of the statement.
If and when the Consenting Parties recover from a Non-Consenting Party's
relinquished interest the amounts provided for above, the relinquished
interests of such Non-Consenting Party shall automatically revert to it, and
from and after such reversion, such Non-Consenting Party shall own the same
interest in such well, the material and equipment in or pertaining thereto, and
the production thereform as such Non-Consenting Party would have been entitled
had it participated in the operation on said well.
B. TAKING OF PRODUCTION:
Each Party to this agreement shall be responsible for disposing of and
accounting for its proportionate share of the production in accordance with the
sales agreement(s) with Ecopetrol or any other purchaser as agreed to by the
Parties or as required by the appropriate government authority of the Republic
of Colombia.
C. ACCESS TO CONTRACT AREA AND INFORMATION:
Each party shall have access to the Contract Area at all reasonable
times, at its sole cost and risk
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<PAGE> 5
to inspect or observe operations, and shall have access at reasonable times to
information pertaining to the development or operation thereof, including
Operator's books and records relating thereto. Operator, upon request, shall
furnish each of the other Parties with copies of all forms and reports filed
with governmental agencies, daily drilling reports, well logs, tank tables,
daily guage and run tickets and reports of stock on hand at the first of each
month, and shall make available samples of any cores or cuttings taken from any
well drilled on the Contract Area. The cost of gathering and furnishing
information to Non-Operator, other than that specified above, shall be charged
to the Non-Operator that requests the information.
D. ABANDONMENT OF WELLS:
If a well has produced, excluding the interest of any Non-Consenting
Party, it shall not be plugged and abandoned without the consent of all
Parties. If all Parties consent to the plugging and abandonment, such action
shall be at the cost, risk and expense of all the Parties. Should Operator,
after diligent effort, be unable to contact any party, or should any party fail
to reply with-in forty-eight (48) hours after receipt of notice of the proposal
to plug and abandon such well, such party shall be deemed to have consented to
the proposed abandonment.
If a well has produced, excluding the interest of any Non-Consenting Party,
shall not be plugged and abandoned without the consent of all Parties. If all
Parties consent the plugging shall be at the cost, risk and expense of all the
Parties. If, within thirty (30) days, after receipt of the notice to plug and
abandon, any party elects not to consent to the plugging of the well, then said
party shall assume operation of the well and pay the Parties consenting to the
plugging and abandonment the estimated salvage value less the estimated cost to
plug and abandon the well. Each abandoning party shall assign, without
warranty, express or implied, of any kind or nature, all its interest in the
well. Thereafter the abandoning Parties shall have no further responsibility,
liability, or interest in the operation of or production from the well.
All wells shall be plugged and abandoned in accordance with all
governmental rules and regulations.
ARTICLE VI
EXPENDITURES AND LIABILITIES OF PARTIES
A. LIABILITY OF PARTIES:
The liability of the Parties shall be several, not joint or collective. Each
party shall be responsible only for its obligations, and shall be liable only
for its proportionate share of the costs of developing and operating the
Contract Area. Accordingly, the liens granted among the Parties are given to
secure only the debts of each severally. It is not the intention of the
Parties to create, nor shall this agreement be construed as creating, a mining
or other partnership or association, or to render the Parties liable as
partners.
B. LIENS AND PAYMENT DEFAULTS:
Each Non-Operator grants to Operator, a lien on all of each Non-Operator's
right in the
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Contract Area, and a security interest in its share of oil and/or gas when
extracted and its interest in all equipment, to secure payment of its share of
expense, together with interest thereon at the rate shown in Exhibit "B".
Operator grants a like lien and security interest to the Non-Operators to secure
payment of Operator's proportionate share of expense.
C. PAYMENTS AND ACCOUNTING:
Except as otherwise specifically provided, Operator shall promptly pay
and discharge expenses incurred in the development and operation of the Contract
Area pursuant to this agreement and shall charge each of the Parties hereto with
their respective proportionate shares upon the expense basis provided in Exhibit
"B". Operator shall keep an accurate record of the joint account hereunder,
showing expenses and charges and credits made and received. Operator may request
advance payment of estimated expenses. If any party fails to pay its share of
said estimated expenses within the time specified, the amount due shall bear
interest as provided in Exhibit "B". Such request shall include a detail listing
of the expenses to be covered by the advance payment.
Exhibit "B" shall detail the accounting procedures for the Contract
Area.
D. LIMITATION OF EXPENDITURES:
Operator shall notify all Parties in writing and an AFE shall be
prepared before incurring any item of expense, which is equal to or exceeds US
$50,000.00. Such item of expense shall not be incurred unless a majority in
interest of the Parties signify their consent thereto in writing within 10 days
of the written notice.
E. INSURANCE:
Operator shall also carry or provide insurance for the benefit of the
joint account of the Parties as outlined in Exhibit "C", attached to and made a
part hereof. Operator shall require all contractors engaged in work on or for
the Contract Area to maintain statutorily required insurance and insurance equal
to that shown on Exhibit "C".
F. ANNUAL BUDGET MEETING:
Operator shall, with at least 30 days written notice, call an annual
meeting of the Parties for the purpose of approving an annual budget and capital
expenditures program.
ARTICLE VII
MAINTENANCE OF UNIFORM INTEREST
For the purpose of maintaining uniformity of ownership of the interests
covered by this agreement, no party shall sell, encumber, transfer or make other
disposition of its interest in the Contract Area and in the wells, equipment and
production unless such disposition covers the entire undivided interest of the
party.
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ARTICLE VIII
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or suit
arising from operations hereunder if the expenditure does not exceed Twenty
Thousand Dollars (US $20,000.00) and if the payment is in complete settlement
of such claim or suit. If the amount required for settlement exceeds the above
amount, the Parties hereto shall assume and take over further handling of the
claim or suit, unless such authority is delegated to Operator. All costs and
expenses of handling, settling or otherwise discharging such claim or suit
shall be the joint expense of the Parties participating in the operation from
which the claim or suit arises. If a claim is made against any party or any
party is sued on account of any matter arising from operations hereunder over
which such individual has no control because of the rights given Operator by
this agreement, such party shall immediately notify all other Parties, and the
claim or suit shall be treated as any other claim or suit involving operations
hereunder.
ARTICLE IX
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 the 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;
thereupon, the obligations of the party giving the notice, so far as they are
affected by the force majeure, shall be suspended during, but no longer than,
the continuance of the force majeure. The affected party shall use all
reasonable diligence to remove the force majeure situation as quickly as
practicable.
The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty by the party involved, contrary to its wishes; how all
such difficulties shall be handled shall be entirely within the discretion of
the party concerned.
The term "force majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of equipment,
and any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control of the party claiming
suspension.
ARTICLE X
NOTICES
All notices authorized or required between the Parties and required by any
of the provisions of this agreement, unless otherwise specifically provided,
shall be given in writing by mail or telegram, postage or charges prepaid, or by
telex or telecopier and addressed to the Parties to whom the notice
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is given at the addresses listed in Exhibit "A". The originating notice given
under any provision hereof shall be deemed given only when received by the
party to whom such notice is directed, and the time for such party to give any
notice in response thereto shall run from the date the originating notice is
received. The second or any responsive notice shall be deemed given when
deposited in the mail or with the telegraph company, with postage or charges
prepaid, or sent by telex or telecopier. Each party shall have the right to
change its address at any time, and from time to time, by giving written notice
thereof to all other Parties.
ARTICLE XI
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the Contract Area
for so long as any wells are producing from the Contract Area. Upon
termination of this agreement the Parties shall remain responsible for the
proportionate share of any costs attributable to the final plugging and
abanonment of the wells and the facilities associated therewith. It is agreed
however, that the termination of this agreement shall not relieve any party
from any liability which has accrued or attached prior to the date of such
termination.
ARTICLE XII
APPLICABLE LAW
This agreement, its meaning and interpretation and the relationship of the
Parties hereunder, shall be governed by the laws of the United States of
America and all matters arising therefrom shall be brought before and submitted
exclusively to the courts of United States.
ARTICLE XIII
MISCELLANOUS
A. US INTERNAL REVENUE CODE ELECTION
It is the express and specific intent of the Parties that a partnership
relationship not be created between them or among them and any other co-owner
of an interest in the Contract Area. In accordance with the applicable
provision of the US Internal Revenue Code of 1954 and regulations promulgated
pursuant and further thereto, the Parties do hereby elect not to be treated or
considered as partners and further elect that none of the provisions of
Sub-Chapter K of said Code shall be appicable with respect to the operation of
the Contract Area. The Parties expressly authorize Operator to file with the
proper authorities executed copies of this agreement, and such copies when
filed, shall be conclusive notice to said authorities of this election pursuant
to said Contract Area from all of the provisions of said Sub-Chapter K and said
regulations. Operator may in lieu of filing copies hereof, notify said
authorities of this election by separate instrument in proper form.
8
<PAGE> 9
B. HEADINGS:
The topic heading used herein are inserted for convenience only and
shall not be construed as having any substantive significance or meaning.
C. MODIFICATION:
There shall be no modification or amendment of this agreement except by
written instrument signed by all Parties.
D. ASSIGNMENT:
Except as otherwise provided herein, this agreement shall be binding
upon and inure to the benefit of the Parties, their respective successors and
assigns.
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement is executed as of the date first above
mentioned.
WITNESSED: OPERATOR:
[SIG.] OMIMEX DE COLOMBIA, LTD.
- -----------------------------
[SIG.] [SIG.]
- ------------------------------ --------------------------
WITNESSED: NON-OPERATOR:
[SIG.] SABACOL, INC.
- -----------------------------
[SIG.] [SIG.]
- ----------------------------- ---------------------------
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EXHIBIT "A"
Attached to and made a part of that certain Operating Agreement covering the
Velasquez Field by and between OMIMEX DE COLOMBIA, LTD. and SABACOL, INC. dated
the 11th day of September, 1995, but effective December 30, l994.
CONTRACT AREA & INTERESTS OF THE PARTIES
CONTRACT AREA: VELASQUEZ FIELD - -
LOCATED IN THE PUERTO BOYACA
MUNICIPALITY, STATE OF BOYACA,
REPUBLIC OF COLOMBIA, S.A. WHICH IS
PART OF THE PRIVATE PROPERTY
DENOMINATED "GUAGUAQUI-TERAN", THE
LATTER REGISTERED UNDER NUMBER 7,
PAGES 58 THROUGH 66 OF BOOK 2 OF THE
LEGAL DEPARTMENT FILES OF THE
MINISTRY OF MINES AND ENERGY.
INTERESTS OF THE PARTIES:
PERCENT
-------
OMIMEX DE COLOMBIA, LTD. 75%
5608 Malvey, Penthouse Suite Carrera 17 No. 93-82 Off. 303
Fort Worth, Texas 76107 Santafe De Bogota, Colombia
Phone: (817) 735-1500 Phone: 571-623-5905
Fax: (817) 735-8033 Fax: 571-218-1395
SABACOL, INC. 25%
17512 Von Karman Ave. 109 No. 15 - 60 Off. 301
Irvine, California 92714 Santafe De Bogota, Colombia
Phone: (714) 724-1112 Phone: 571 - 612-7185
Fax: (714) 724-1555 Fax: 571 - 612-3969
<PAGE> 11
EXHIBIT "B"
JOINT OPERATIONS ACCOUNTING PROCEDURE
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions Agreement shall prevail.
The purpose of this Accounting Procedure is to establish equitable
methods for determining charges and credits applicable to operations under the
Agreement. The Parties agree that if any of such methods prove unfair or
inequitable to Operator or NonOperator(s), the Parties will meet and in good
faith endeavor to agree on changes in methods deemed necessary to correct any
unfairness or inequity.
1- GENERAL PROVISIONS
1.1 Definitions
1.1.1. Agreement means the Joint Operating Agreement to
which this Accounting Procedure is attached.
1.1.2. Contract Area shall have the same definition as
contained in the Agreement.
1.1.3. Controllable Material shall mean material which the
Operator according to good oil field practice,
subjects to record control and inventory. A list of
types of such material shall be furnished to
Non-Operator(s) upon request.
1.1.4. Days shall in all cases mean calendar days.
1.1.5. Field Supervisors as used herein the term "Field
Supervisors" shall mean those employees whose primary
function in Joint Operations is the direct
supervision of other employees and/or contract labor
directly employed on the Joint Property in a field
operating capacity.
1.1.6. Joint Account shall be the set of accounts maintained
by the Operator to record all expenditures and other
transactions under the provisions of the Agreement.
1.1.7. Joint Operations shall mean all activities necessary
and proper under the provisions of the Agreement.
1.1.8. Joint Property shall mean the real and personal
property acquired and held for use in connection with
operations under the Agreement.
<PAGE> 12
1.1.9. Material shall mean personal property, including
supplies and use charge, acquired and held for use in
Joint Operations.
1.1.10 Non-Operator(s) shall mean the parties to the Agreement
other than the operator.
1.1.11 Operator shall have the same definition as contained in
the Agreement.
1.1.12. Party or Parties shall have the same definitions as
contained in the Agreement.
1.1.13. Technical Employees as used herein the term "Technical
Employees" shall mean those employees having special
and specific engineering, geological or other
professional skills, and whose primary function in
Joint operations is handling of specific operating
conditions and problems for the benefit of the Joint
Property.
1.1.14. Operating Committee as used herein shall mean such
committee as may be appointed by the parties consisting
of one representative of the Operator and one
representative of each Non-Operator.
1.2 Statements, Billings and Adjustments
1.2.1. Each Party to the Agreement is responsible for
preparing its own accounting, statistical and tax
reports to meet Contract Area and any other country or
corporate requirements, except that Operator shall be
responsible for preparation and filling of any United
States Partnership Income Tax Returns that may be
required. The parties may elect out of Subchapter K.
Operator is required to furnish Non-Operator(s)
statements and billings in such form as required to
facilitate discharging such responsibilities.
1.2.2. Operator shall bill Non-Operator(s) on or before the
last day of each month for their proportionate share of
expenditures for the preceding month. Such billings
shall be accompanied by statement of charges and
credits to the Joint Account summarized by appropriate
accounting classifications indicative of the nature
thereof, except that items of Controllable Material and
unusual charges and credits shall be detailed. Such
billings shall indicate the monetary origin (Colombian
Pesos or U.S. Dollars) of the charges and credits.
<PAGE> 13
1.2.3. Operator shall, upon request by Non-Operator(s),
furnish a description of such accounting
classifications.
1.2.4. In accordance with Colombian law, Operator shall
keep the Joint Account in Colombian pesos. The
operator will also maintain these accounts in U.S.
dollar equivalency or shall provide the applicable
exchange rate(s) monthly so that Non-Operator(s) may
convert these Colombian peso accounts to U.S. Dollars
each month. The parties shall agree as to the
procedure to be used in establishing the exchange
rate(s) to be used in making the conversion from
Colombian pesos to U.S. dollars or vice-versa.
Expenditures made in U.S. Dollars shall be separately
identified and reported to NonOperator(s) on a
monthly basis. Accounts maintained for recording
property, plant and equipment shall be maintained in
both Colombia pesos and U.S. dollars and such
accounts shall reflect the monetary origin (pesos or
dollars) of each item of property, plant and
equipment purchased for the Joint Account. In the
conversion of currencies and in accounting for
advances of different currencies as provided for in
Paragraph 1.3 of this Article, or any other currency
transactions affecting the Joint Operations, it is
the intent that none of the Parties shall experience
gain or loss at the expense of, or to the benefit of,
the other Parties.
1.2.5. Payment of the bills referred to in paragraph
1.2.2. of this article shall not prejudice the
rights of any Non-Operator(s) to protest or question
the correctness thereof; however, all bills and
statements rendered to Non-Operator(s) by Operator
during any calendar year shall conclusively be
presumed to be true and correct after twenty-four
(24) months following the end of any such calendar
year, unless within the said twenty-four month period
a Non-Operator takes written exception thereto and
makes claim on operator for adjustment. No
adjustment favorable to Operator shall be made unless
it is made within the same prescribed period. The
provisions of this paragraph shall not prevent
adjustments resulting from a physical inventory of
the Joint Property acquired for Joint Operations.
1.2.6. The accrual method of accounting shall be used for
the Joint Account.
<PAGE> 14
1.3 Advances and Payment
1.3.1. Non-Operator(s) shall advance by immediately available
funds to Operator within 15 days of notice by Operator
their share of estimated cash requirements for the
succeeding month's Operations in accordance with
Article VI of the Agreement. Such advance shall be
credited when the actual billings per 1.2.2. above are
issued.
1.3.2. Should the Operator be required to pay any large
(in excess of U.S. $50,000.00) sums of money on
behalf of the Joint operation, which were
unforeseen at the time of providing the Non-
Operator(s) with said monthly estimates of its
requirements, the Operator shall make a written
request of the Non-Operators(s) for special
advances covering the Non-Operators' share of such
payments. Non-Operator(s) shall make their
proportional special advances within fifteen (15)
days after receipt of such notice.
1.3.3. If Non-Operator(s) advances exceed their share of the
expenditures, the next succeeding cash advance
requirements, after such determination, shall be
reduced accordingly or deducted from the nextbilling,
whichever comes first. However, Non-Operator(s) may
request that excess advances be refunded. The
Operator shall make such refund within fifteen (15)
days after receipt of Non-Operator(s) request. Such
refund shall be made in the currency so advanced.
1.3.4. If Non-Operator(s) advances are less than their share
of actual expenditures, the deficiency shall, at
Operator's option, be added to subsequent cash
advance requirements or be paid by Non-Operator(s)
within thirty (30) days following receipt of
Operator(s) for such deficiency.
1.3.5. If Operator does not request Non-Operator(s) to
advance their share of estimated cash requirements,
Non-Operator(s) shall pay their share of actual
expenditures within thirty (30) days following
receipt of Operator's billing.
1.3.6. Payment of advances or billings shall be made on or
before the due date, and if not so paid the unpaid
balance shall be treated as provided under Article VI
of the Agreement.
<PAGE> 15
1.4 Audits
1.4.1. A Non-Operator, upon at least thirty (30) days written
notice to Operator and other Non-Operator(s) shall have
the right at its sole expense to audit the Joint
Account and related records for any calendar year or
portion thereof within the twenty-four (24) month
period following the end of such calendar year;
however, the conducting of an audit shall not extend
the time for the taking of written exception to and the
adjustment of accounts as provided for in Paragraph
1.2.5. of this Article. Where there are two or more
Non-Operators the Non-Operators shall make every
reasonable effort to conduct joint or simultaneous
audits in a manner which will result in a minimum of
inconvenience to the Operator.
1.4.2. Subject to unanimous prior approval of the Parties, the
cost of any special audit or verification of the Joint
Account that is for the benefit of all Parties shall be
chargeable to the Joint Account.
1.4.3. Normal recurring internal audits of the Joint Account
made by the Operator to assess internal controls shall
be chargeable to the Joint Account and copies thereof
shall be furnished to Non-Operators upon request.
1.5 Interest
1.5.1 Should interest be accessed per the terms of the
Agreement, (1) the rate on non U. S. $ Cash Calls
shall be the Colombian Prime Rate as quoted by Banco
Ganadero plus 10% and (2) on U. S. $ Cash Calls Prime
as quoted by Bank One, Texas, N.A. plus 3%. Should
said rate(s) exceed the maximum rate allowed by law,
then the maximum lawful rate(s) shall apply.
2- CHARGEABLE COST AND EXPENDITURES
operator shall charge Joint Account for all costs necessary to conduct
Joint Operations in or with respect to the Contract Area. Such cost
shall include, but are not necessarily limited to:
2.1 Control, License or Permit Payments
2.1.1. All expenditures necessary to acquire and to maintain
rights to the Contract Area.
<PAGE> 16
2.2 Labor and Related Costs
2.2.1. Salaries. Salaries and wages of Operator's field
employees directly employed on the Joint Property in
the conduct of Joint Operations, salaries and wages
of Field Supervisors, and salaries and wages of
Technical Employees that perform work and services
directly relating to or for the benefit of the Joint
Property.
2.2.2. Salary Benefits. Operator's cost of holiday,
vacation, sickness and disability benefits and other
customary allowances paid to employees whose salaries
and wages are chargeable to the Joint Account under
Article 2.2.1 above. Such costs under this Article
2.2.2 may be charged on a "when and as paid basis" or
by "percentage assessment" on the amount of salaries
and wages chargeable to the Joint Account under
Article 2.2.1 above. If percentage assessment is
used, the rate shall be based on the Operator's cost
experience and adjusted at least annually to the
Operator's actual cost.
2.2.3. Assessments. Expenditures or contributions made
pursuant to assessments imposed by governmental
authority which are applicable to Operator's costs
chargeable to the Joint Account under Article 2.2.1
and 2.2.2 above.
2.2.4. Personal Related Expenses. Personal Expenses,
including but not limited to the following: travel
and other reasonable reimbursable expenses of
Operator's employees, hospital and medical expense,
schools for employees and their children, insurance
policies, and all other reasonable activities
applicable to the employee and family, of those
employees whose salaries and wages are chargeable to
the Joint Account under Article 2.2.1 above.
2.2.5. Employee Benefit Plans. Operator's current cost of
established plans for employees' group
life insurance, hospitalization, pension, retirement,
stock purchase, thrift, bonus, and other customary
benefit plans of a like nature provided under
Operator's usual practices, applicable to operator's
labor cost chargeable to the Joint Account under
Article 2.2.1 above shall be at Operator's actual
cost.
<PAGE> 17
2.3. Material
2.3.1. Material purchased or furnished by Operator for use in
Joint Operations as provided under Article 3 of this Accounting
Procedure.
2.4 Transportation and Employee Relocation Costs
2.4.1. Transportation of Material and other related costs such as
expediting crating, dock charges, inland and ocean freight,
customs duties and taxes and unloading at destination.
2.4.2. Transportation of employees as required in the conduct of Joint
Operations.
2.4.3. Relocation costs to the Contract Area vicinity or to other
locations in Colombia of employees permanently or temporarily
assigned to the Joint Operations. Such costs shall include
transportation of employees' families and their personal and
household effects and all other relocation costs in accordance
with Operator's usual practice. Relocation from Colombia shall
not be charged to the Joint Account.
2.5 Services
--------
2.5.1. Contract services, professional consultants, and other services
covered by Paragraph 2.8
2.5.2. Technical services for specific projects resulting in a
presentation or a written report, such as, but not limited to,
laboratory analysis, drafting, geophysical interpretation,
engineering, and related data processing, performed by the
Operator and its Affiliates for the direct benefit of the Joint
Operations, provided such costs shall not exceed those currently
prevailing if performed by outside technical service companies.
2.5.3 Use of equipment, services and facilities furnished by Operator
or Non-Operated(s) or their Affiliates provided such equipment,
services or facilities is of a quality and cost commensurate and
competitive with that offered by third parties in the general
vicinity of the Contract Area.
2.6 Damage and Losses to Joint Property
2.6.1 All costs or expenses necessary for the repair or replacement of
Joint Property resulting from
<PAGE> 18
damages or losses incurred by fire, flood, storm, theft,
accident, or any other cause. Operator shall furnish Non-
Operator(s) written notice of damages or losses in excess of
nominal value as soon as practicable. Any payment(s) by
insurance companies shall be deducted in determining the amount
due.
2.7 Insurance
2.7.1. Net premiums for insurance are required by the Parties of the
Agreement.
2.7.2. Actual expenditures in the settlement of all losses, claims,
damages, judgements, and other expenses for the benefit of the
Joint Operations as per the Agreement.
2.7.3. Credits for settlements received from the insurance policies and
others.
2.8 Legal Expense
2.8.1. All costs or expenses of litigation or legal services otherwise
necessary or expedient for the protection of the Joint Property,
including but not limited to attorney's fees, court costs, cost
of investigation or procuring evidence and amounts paid in
settlement or satisfaction of any such litigation of claims.
These services may be performed by the Operator's legal staff or
an outside firm as necessary. Operator shall not incur more than
Ten Thousand U.S. Dollar (US $10,000) in costs for legal services
in connection with any single suit, proceeding or matter without
first obtaining the prior approval of the other parties.
2.9 Duties and Taxes
2.9.1. All duties and taxes (except taxes based on income, net worth and
royalty based on production from the Contract Area and any other
taxes for which the Parties are liable severally but not Jointly),
fees and governmental assessment of every kind and nature in
relation with Joint Operations.
2.10 Offices, Camps and Miscellaneous Facilities
2.10.1. Cost of maintaining and operating any offices, suboffices, camps,
warehouses, housing and other facilities directly serving the
Joint operations shall be charged to the Joint Account. If such
<PAGE> 19
facilities serve operations in addition to the Joint Operations,
the costs shall be allocated to the properties served on an
equitable basis as may be approved by the Operating Committee
which approval shall not be unreasonably withheld.
2.11 Administrative Overhead
2.11.1. An administrative overhead covering services and related office
costs of personnel performing administrative, legal, accounting,
purchasing, treasury, tax, employee relations, computer services
and other functions for the benefit of the operations provided
they are not included elsewhere, shall be charged to the Joint
Account monthly.
2.11.2. The charge under the foregoing paragraph shall be for services
of all personnel and offices of Operator who are not directly
assigned to operations and shall be charged each month at the
rate of 12% on total expenditures attributable to Joint
Operations in the preceding month, except only 5% shall be
charged on expenditures for capital expenditure items.
2.11.3. Notwithstanding anything to the contrary which might be stated in
the Accounting Procedure, it is understood that no cost or
expenditure included under sections 2.2.1 through 2.10 shall be
included or duplicated in the administrative overhead rate
charged in this Article 2.11. Further, at any party's request,
the rates in 2.11.2 above shall be reviewed annually and adjusted
if determined to be inadequate or excessive.
2.12 Other Expenditures
2.12.1. Any other expenditures not covered or dealt with in the foregoing
provisions which are incurred by the Operator and its Affiliates
for the ordinary, necessary and proper conduct of the Joint
Operations.
3- MATERIALS
The cost of material, equipment and supplies purchased or furnished by the
Operator for use on the Joint Property shall be charged to the Joint
Account on the basis set forth below. So far as it is reasonably
practical and consistent with efficient and economical operation, only
such material shall be purchased for or transferred to the Joint Property
as may be required for immediate use, and the accumulation of surplus
stock shall be avoided.
<PAGE> 20
Operator shall give thirty (30) days written notice of intention
to take such inventories to allow Non-Operator(s) to be
represented when any inventory is taken. Failure of any
Non-Operator to be represented shall bind such Non-Operator
to accept the inventory taken by Operator.
3.3.2. Reconciliation of inventory with the Joint Account shall be made
and a list of overages and shortages as well as obsolete and
surplus materials shall be furnished to the Non-Operator(s).
Inventory adjustments shall be made to the Joint Account in
accordance with good accounting practices.
3.3.3. Whenever there is a sale or change of interest in the Joint
Property, a special inventory shall be taken by the Operator if
required by the seller and/or purchaser and the seller and/or
purchaser of such interest shall bear all of the expense thereof.
In such cases, both the seller and the purchaser shall be
entitled to be represented and shall be governed by the
inventories taken.
4- FIXED ASSETS
Inventories of Fixed Assets will be taken as determined by the Parties but
not less than every five (5) years. Operator shall give thirty (30) days
written notice of intention to take such inventories to allow
Non-Operator(s) to be represented when any inventory is taken. Failure of
any Non-Operator to be represented shall bind such Non-Operator to accept
the inventory taken by Operator.
<PAGE> 21
EXHIBIT "C"
Attached to and made a part of that certain Operating Agreement covering the
Velasquez Field by and between OMIMEX DE COLOMBIA, LTD. and SABACOL INC. dated
the 11th day of September, 1995, but effective December 30, 1994.
INSURANCE
Operator shall, in the performance of its obligations hereunder, carry
statutorily required insurance and Public Liability Insurance in amounts of not
less than US $ 1,000,000.00 per occurance or accident with an aggregate limit
of not less than US $ 2,000,000.00. Operator shall likewise cause all
contractors to carry insurance in such amounts commensurate with those set
forth above.
<PAGE> 1
Exhibit 10.24
OPERATING AGREEMENT
VELASQUEZ-GALAN PIPELEINE
THIS AGREEMENT, entered into this 11th day of September, 1995, but
effective January 1, 1995, by and between OMIMEX DE COLOMBIA, LTD., hereinafter
designated and referred to as "Operator", and SABACOL, INC., hereinafter
referred to as "Non-Operator", collectively called the Parties,
WITNESSETH:
WHEREAS, the Parties to this agreement are owners of the Velasquez-Galan
Pipeline, Colombia, S.A. identified in Exhibit "A", and the Parties hereto have
reached an agreement to develop and operate this Pipeline,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
DEFINITIONS
As used in this agreement, the following words and terms shall have the
meanings here ascribed to them:
A. The term "Contract Area" or "Pipeline" shall mean the
Velasquez-Galan Pipeline and its associated facilities Such
being described in Exhibit "A".
Unless the context otherwise clearly indicates, words used in the singular
include the plural, the plural include the singular, and the neuter gender
includes the masculine and the feminine.
ARTICLE II
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
A. Exhibit "A" - Identification of the Pipeline subject
to this agreement and the interests of the Parties.
B. Exhibit "B" - Accounting Procedure
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<PAGE> 2
C. Exhibit "C" - Insurance
ARTICLE III
INTEREST OF THE PARTIES
Unless changed by other provisions, all costs and liabilities incurred in
operations under this agreement shall be borne and paid, and all equipment and
materials acquired in operations on the Contract Area shall be owned, by the
Parties as their interests are set forth in Exhibit "A". In the same manner,
the Parties shall also share in the revenues from the Contract Area.
Nothing contained in this Article III shall be deemed an assignment or
cross-assignment of interests covered hereby.
ARTICLE IV
OPERATOR
OMIMEX DE COLOMBIA, LTD., shall be Operator of the Contract Area, and
shall conduct and direct and have control of all operations on the Contract Area
as permitted and required by, and within the limits of this agreement. It shall
conduct all operations in a good and workmanlike manner, but it shall have no
liability as Operator to the other party for losses sustained or liabilities
incurred, except such as may result from gross negligence or willful misconduct.
Operator may resign at any time by written notice thereof to
Non-Operator. If Operator terminates its legal existence, no longer owns an
interest in the Contract Area, or is no longer capable of serving as Operator
because Operator is insolvent, bankrupt or is placed in receivership, Operator
shall be deemed to have resigned without any action by Non-Operator, except the
selection of a successor. Operator may be removed by Non-Operator by majority
vote or if it fails or refuses to carry out its duties hereunder. Such
resignation or removal shall not become effective until 7:00 A.M. on the first
day of the calendar month following the expiration of (90) days after giving of
the notice of resignation by Operator or action by the Non-Operator to remove
Operator, unless a successor Operator has been selected and assumes the duties
of Operator at an earlier date.
Upon the resignation of Operator or removal by Non-Operator, a
successor Operator shall be selected by Parties owning an interest in the
Contract Area at the time such successor Operator is selected, excluding the
ownership of the retiring or removed Operator.
The number of employees used by the Operator in conducting operations
hereunder, their selection, and the hours of labor and the compensation for
services performed shall be determined by Operator, and all such employees
shall be the employees of Operator.
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<PAGE> 3
ARTICLE V
ACCESS TO CONTRACT AREA AND INFORMATION
Each party shall have access to the Contract Area at all reasonable
times, at its sole cost and risk to inspect or observe operations, and shall
have access at reasonable times to information pertaining to the development or
operation thereof, including Operator's books and records relating thereto.
Operator, upon request, shall furnish each of the other Parties with copies of
all forms and reports filed with governmental agencies and reports of crude oil
volumes transported by the Pipeline. The cost of gathering and furnishing
information to Non-Operator, other than that specified above, shall be charged
to the Non-Operator that requests the information.
ARTICLE VI
REVENUES, EXPENDITURES AND LIABILITIES, OF PARTIES
A. Liability of Parties:
The liability of the Parties shall be several, not joint or collective.
Each party shall be responsible only for its obligations, and shall be liable
only for its proportionate share of the costs of developing and operating the
Contract Area. Accordingly, the liens granted among the Parties are given to
secure only the debts of each severally. It is not the intention of the
Parties to create, nor shall this agreement be construed as creating, a mining
or other partnership or association, or to render the Parties liable as
partners.
B. Liens and Payment Defaults:
Each Non-Operator grants to Operator, a lien on all of each
Non-Operator's right in the Contract Area, and a security interest in its
interest in all equipment and the revenues received from Third Parties for the
transportation of crude oil, to secure payment of its share of expense,
together with interest thereon at the rate shown in Exhibit "B". Operator
grants a like lien and security interest to the Non-Operators to secure payment
of Operator's proportionate share of expense.
C. Payments and Accounting:
Except as otherwise specifically provided, Operator shall promptly pay
and discharge expenses incurred in the development and operation of the
Contract Area pursuant to this agreement and shall charge each of the Parties
hereto with their respective proportionate shares upon the expense basis
provided in Exhibit "B". Operator shall keep an accurate record of the joint
account hereunder, showing expenses and charges and credits made and received.
Operator may request advance payment of estimated expenses. If any party fails
to pay its share of said estimated expenses within the time specified, the
amount due shall bear interest as provided in Exhibit "B". Such request shall
include a detail listing of the expenses to be covered by the advance payment.
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<PAGE> 4
Revenue for transport of Third Party crude oil by the Pipeline shall shared
by the Parties in the proportionate shares as set forth on Exhibit "A".
Payment by Operator to Non-Operator shall be made within 30 days of the date of
receipt by Operator of payment from the Third Party.
Exhibit "B" shall detail the accounting procedures for the Contract Area.
D. Limitation of Expenditures:
Operator shall notify all Parties in writing and an AFE shall be
prepared before incurring any item of expense, which is equal to or exceeds
US $50,000.00. Such item of expense shall not be incurred unless a majority
in interest of the Parties signify their consent thereto in writing within 10
days of the written notice.
E. Insurance:
Operator shall also carry or provide insurance for the benefit of the joint
account of the Parties as outline in Exhibit "C", attached to and made a part
hereof. Operator shall require all contractors engaged in work on or for the
Contract Area to maintain statutorily required insurance and insurance equal to
that shown on Exhibit "C".
F. Annual Budget Meeting:
Operator shall, with at least 30 days written notice, call an annual
meeting of the Parties for the purpose of approving an annual budget and
capital expenditures program.
ARTICLE VII
MAINTENANCE OF UNIFORM INTEREST
For the purpose of maintaining uniformity of ownership of the
interests covered by this agreement, no party shall sell, encumber, transfer or
make other disposition of its interest in the Contract Area and in the wells,
equipment and production unless such disposition covers the entire undivided
interest of the party.
ARTICLE VIII
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or
suit arising from operations hereunder if the expenditure does not exceed Twenty
Thousand Dollars (US $20,000.00) and if the payment is in complete settlement of
such claim or suit. If the amount required for settlement exceeds the above
amount, the Parties hereto shall assume and take over further handling of the
claim or suit, unless such authority is delegated to Operator. All costs and
expenses of handling, settling or otherwise discharging such claim or suit shall
be the joint expense of the Parties participating in the operation from which
the claim or suit arises. If a claim is made against any
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<PAGE> 5
party or any party is sued on account of any matter arising from operations
hereunder over which such individual has no control because of the rights given
Operator by this agreement, such party shall immediately notify all other
Parties, and the claim or suit shall be treated as any other claim or
suit involving operations hereunder.
ARTICLE IX
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 the 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;
thereupon, the obligations of the party giving the notice, so far as they are
affected by the force majeure, shall be suspended during, but no longer than,
the continuance of the force majeure. The affected party shall use all due
diligence to remove the force majeure situation as quickly as practicable.
The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty by the party involved, contrary to wishes; how all such
difficulties shall be handled shall be entirely within the discretion of the
party concerned.
The term "force majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of equipment,
and any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control Of the party claiming
suspension.
ARTICLE X
NOTICES
All notices authorized or required between the Parties and required by any
of the provisions of this agreement, unless otherwise specifically provided,
shall be given in writing by mail or telegram, postage or charges prepaid, or by
telex or telecopier and addressed to the Parties to whom the notice is given at
the addresses listed in Exhibit "A". The originating notice given under any
provision hereof shall be deemed given only when received by the party to whom
such notice is directed, and the time for such party to give any notice in
response thereto shall run from the date the originating notice is received.
The second or any responsive notice shall be deemed given when deposited in the
mail or with the telegraph company, with postage or charges prepaid, or sent by
telex or telecopier. Each party shall have the right to change its address at
any time, and from time to time, by giving written notice thereof to all other
Parties.
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<PAGE> 6
ARTICLE XI
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the Contract
Area for so long as the Pipeline is in operation. Upon termination of this
agreement the Parties shall remain responsible for the proportionate share of
any costs attributable to the final plugging and abandonment of the wells and
the facilities associated therewith. It is agreed however, that the
termination of this agreement shall not relieve any party from any liability
which has accrued or attached prior to the date of such termination.
ARTICLE XII
APPLICABLE LAW
This agreement, its meaning and interpretation and the relationship of the
Parties hereunder, shall be governed by the laws of the United States of
America and all matters arising therefrom shall be brought before and submitted
exclusively to the courts of United States.
ARTICLE XIII
MISCELLANOUS
A. US INTERNAL REVENUE CODE ELECTION
It is the express and specific intent of the Parties that a partnership
relationship not be created between them or among them and any other co-owner of
an interest in the Contract Area. In accordance with the applicable provision
of the US Internal Revenue Code of 1954 and regulations promulgated pursuant and
further thereto, the Parties do hereby elect not to be treated or considered as
partners and further elect that none of the provisions of Sub-Chapter K of said
Code shall be appicable with respect to the operation of the Contract Area. The
Parties expressly authorize Operator to file with the proper authorities
executed copies of this agreement, and such copies when filed, shall be
conclusive notice to said authorities of this election pursuant to said Contract
Area from all of the provisions of said Sub-Chapter K and said regulations.
Operator may in lieu of filing copies hereof, notify said authorities of this
election by separate instrument in proper form.
B. HEADINGS:
The topic heading used herein are inserted for convenience only and shall
not be construed as having any substantive significance or meaning.
6
<PAGE> 7
C. MODIFICATION:
There shall be no modification or amendment of this agreement except by
written instrument signed by all Parties.
D. ASSIGNMENT:
Except as otherwise provided herein, this agreement shall be binding
upon and inure to the benefit of the Parties, their respective successors and
assigns.
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement is executed as of the date first above
mentioned.
WITNESS OPERATOR:
[SIG]
____________________________ OMIMEX DE COLOMBIA, LTD.
[SIG] [SIG]
____________________________ ______________________________
WITNESS NON-OPERATOR:
SABACOL, INC.
[SIG]
____________________________
[SIG] [SIG]
____________________________ ______________________________
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<PAGE> 8
EXHIBIT "A"
Attached to and made a part of that certain Operating Agreement covering
Velasquez-Galan Pipeline by and between OMIMEX DE COLOMBIA, LTD. and SABACOL,
INC. dated the 11th day of September, 1995, but effective January 1, 1995.
CONTRACT AREA & INTERESTS OF THE PARTIES
CONTRACT AREA: VELASQUEZ - GALAN PIPELINE
Being the Pipeline described in Attachment 6 of
that certain Purchase and Sale Agreement dated
April 20, 1995 by and between Texas Petroleum
Company and Omimex de Colombia, Ltd. and
Sabacol, Inc. covering the Cocorna and Nare
Associations and Velasquez- Galan Pipeline.
INTERESTS OF THE PARTIES:
PERCENT
OMIMEX DE COLOMBIA LTD. 50%
5608 Malvey, Penthouse Suite Carrera 17 No. 93-82 Off. 303
Fort Worth, Texas 76107 Santafe De Bogota, Colombia
Phone: (817) 735-1500 Phone: 571-623-5905
Fax: (817) 735-8033 Fax: 571-218-1395
SABACOL, INC. 50%
17512 Von Karman Ave. 109 No. 15-60 Off. 301
Irvine, California 92714 Santafe De Bogota, Colombia
Phone: (714) 724-1112 Phone: 571-612-7185
Fax: (714) 724-1555 Fax: 571-612-3969
<PAGE> 9
EXHIBIT "B"
JOINT OPERATIONS ACCOUNTING PROCEDURE
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions Agreement shall prevail.
The purpose of this Accounting Procedure is to establish equitable
methods for determining charges and credits applicable to operations under the
Agreement. The Parties agree that if any of such methods prove unfair or
inequitable to Operator or Non-Operator(s), the Parties will meet and in good
faith endeavor to agree on changes in methods deemed necessary to correct any
unfairness or inequity.
1- GENERAL PROVISIONS
1.1 Definitions
1.1.1. Agreement means the Joint Operating Agreement to which this
Accounting procedure is attached.
1.1.2. Contract Area shall have the same definition as contained in
the Agreement.
1.1.3. Controllable Material shall mean material which the Operator
according to good oil field practice, subjects to record
control and inventory. A list of types of such material shall
be furnished to Non-Operator(s) upon request.
1.1.4. Days shall in all cases mean calendar days.
1.1.5. Field Supervisors as used herein the term "Field Supervisors"
shall mean those employees whose primary function in Joint
Operations is the direct supervision of other employees and/or
contract labor directly employed on the Joint Property in a
field operating capacity.
1.1.6. Joint Account shall be the set of accounts maintained by the
Operator to record all expenditures and other transactions
under the provisions of the Agreement.
1.1.7. Joint Operations shall mean all activities necessary and
proper under the provisions of the Agreement.
1.1.8. Joint Property shall mean the real and personal property
acquired and held for use in connection with operations under
the Agreement.
<PAGE> 10
1.1.9. Material shall mean personal property, including supplies and
use charge, acquired and held for use in Joint Operations.
1.1.10 Non-Operator(s) shall mean the parties to the Agreement other
than the Operator.
1.1.11 Operator shall have the same definition as contained in the
Agreement.
1.1.12. Party or Parties shall have the same definitions as contained
in the Agreement.
1.1.13. Technical Employees as used herein the term "Technical
Employees" shall mean those employees having special and
specific engineering, geological or other professional skills,
and whose primary function in Joint Operations is handling of
specific operating conditions and problems for the benefit of
the Joint Property.
1.1.14. Operating Committee as used herein shall mean such committee
as may be appointed by the parties consisting of one
representative of the Operator and one representative of each
Non-Operator.
1.2 Statements, Billings and Adjustments
1.2.1. Each Party to the Agreement is responsible for preparing its
own accounting, statistical and tax reports to meet Contract
Area and any other country or corporate requirements, except
that Operator shall be responsible for preparation and filling
of any United States Partnership Income Tax Returns that may
be required. The parties may elect out of Subchapter K.
Operator is required to furnish Non-Operator(s) statements and
billings in such form as required to facilitate discharging
such responsibilities.
1.2.2. Operator shall bill Non-Operator(s) on or before the last day
of each month for their proportionate share of expenditures
for the preceding month. Such billings shall be accompanied
by statement of charges and credits to the Joint Account
summarized by appropriate accounting classifications
indicative of the nature thereof, except that items of
Controllable Material and unusual charges and credits shall be
detailed. Such billings shall indicate the monetary origin
(Colombian Pesos or U.S. Dollars) of the charges and credits.
<PAGE> 11
1.2.3. Operator shall, upon request by Non-Operator(s), furnish a
description of such accounting classifications.
1.2.4. In accordance with Colombian law, Operator shall keep the
Joint Account in Colombian pesos. The Operator will also
maintain these accounts in U.S. dollar equivalency or shall
provide the applicable exchange rate(s) monthly so that
Non-Operator(s) may convert these Colombian peso accounts to
U.S. Dollars each month. The parties shall agree as to the
procedure to be used in establishing the exchange rate(s) to
be used in making the conversion from Colombian pesos to U.S.
dollars or vice-versa. Expenditures made in U.S. Dollars
shall be separately identified and reported to Non-Operator(s)
on a monthly basis. Accounts maintained for recording
property, plant and equipment shall be maintained in both
Colombia pesos and U.S. dollars and such accounts shall
reflect the monetary origin (pesos or dollars) of each item of
property, plant and equipment purchased for the Joint Account.
In the conversion of currencies and in accounting for advances
of different currencies as provided for in Paragraph 1.3 of
this Article, or any other currency transactions affecting the
Joint Operations, it is the intent that none of the Parties
shall experience gain or loss at the expense of, or to the
benefit of, the other Parties.
1.2.5. Payment of the bills referred to in paragraph 1.2.2. of this
article shall not prejudice the rights of any Non-Operator(s)
to protest or question the correctness thereof; however, all
bills and statements rendered to Non-Operator(s) by operator
during any calendar year shall conclusively be presumed to be
true and correct after twenty-four (24) months following the
end of any such calendar year, unless within the said
twenty-four month period a Non-Operator takes written
exception thereto and makes claim on Operator for adjustment.
No adjustment favorable to Operator shall be made unless it is
made within the same prescribed period. The provisions of
this paragraph shall not prevent adjustments resulting from a
physical inventory of the Joint Property acquired for Joint
Operations.
1.2.6. The accrual method of accounting shall be used for the Joint
Account.
<PAGE> 12
1.3 Advances and Payment
1.3.1. Non-Operator(s) shall advance by immediately available funds
to Operator within 15 days of notice by Operator their share
of estimated cash requirements for the succeeding month's
Operations in accordance with Article VI of the Agreement.
Such advance shall be credited when the actual billings per
1.2.2. above are issued.
1.3.2. Should the Operator be required to pay any large (in excess of
U.S. $50,000.00) sums of money on behalf of the Joint
Operation, which were unforeseen at the time of providing the
Non-Operator(s) with said monthly estimates of its
requirements, the Operator shall make a written request of the
Non-Operators(s) for special advances covering the
Non-Operators' share of such payments. Non-Operator(s) shall
make their proportional special advances within fifteen (15)
days after receipt of such notice.
1.3.3. If Non-Operator(s) advances exceed their share of the
expenditures, the next succeeding cash advance requirements,
after such determination, shall be reduced accordingly or
deducted from the next billing, whichever comes first.
However, Non-Operator(s) may request that excess advances be
refunded. The Operator shall make such refund within fifteen
(15) days after receipt of Non-Operator(s) request. Such
refund shall be made in the currency so advanced.
1.3.4. If Non-Operator(s) advances are less than their share of
actual expenditures, the deficiency shall, at Operator's
option, be added to subsequent cash advance requirements or be
paid by Non-Operator(s) within thirty (30) days following
receipt of Operators for such deficiency.
1.3.5. If Operator does not request Non-Operator(s) to advance their
share of estimated cash requirements, Non-Operator(s) shall
pay their share of actual expenditures within thirty (30) days
following receipt of Operator's billing.
1.3.6. Payment of advances or billings shall be made on or before the
due date, and if not so paid the unpaid balance shall be
treated as provided under Article VI of the Agreement.
<PAGE> 13
1.4 Audits
1.4.1. A Non-Operator, upon at least thirty (30) days written notice
to Operator and other Non-Operators shall have the right at
its sole expense to audit the Joint Account and related
records for any calendar year or portion thereof within the
twenty-four (24) month period following the end of such
calendar year; however, the conducting of an audit shall not
extend the time for the taking of written exception to and the
adjustment of accounts as provided for in Paragraph 1.2.5. of
this Article. Where there are two or more Non-Operators the
Non-Operators shall make every reasonable effort to conduct
joint or simultaneous audits in a manner which will result in
a minimum of inconvenience to the Operator.
1.4.2. Subject to unanimous prior approval of the Parties, the cost
of any special audit or verification of the Joint Account that
is for the benefit of all Parties shall be chargeable to the
Joint Account.
1.4.3. Normal recurring internal audits of the Joint Account made by
the operator to assess internal controls shall be chargeable
to the Joint Account and copies thereof shall be furnished to
Non-Operators upon request.
1.5 Interest
1.5.1 Should interest be accessed per the terms of the Agreement,
(1) the rate on non U.S. $ Cash Calls shall be the Colombian
Prime Rate as quoted by Banco Ganadero plus 10% and (2) on
U.S. $ Cash Calls Prime as quoted by Bank One, Texas, N.A.
plus 3%. Should said rate(s) exceed the maximum rate allowed
by law, then the maximum lawful rate(s) shall apply.
2. CHARGEABLE COST AND EXPENDITURES
Operator shall charge Joint Account for all costs necessary to conduct
Joint Operations in or with respect to the Contract Area. Such cost
shall include, but are not necessarily limited to:
2.1 Control, License or Permit Payments
2.1.1. All expenditures necessary to acquire and to maintain rights
to the Contract Area.
<PAGE> 14
2.2 Labor and Related Costs
2.2.1. Salaries. Salaries and wages of Operator's field employees
directly employed on the Joint Property in the conduct of
Joint Operations, salaries and wages of Field Supervisors, and
salaries and wages of Technical Employees that perform work
and services directly relating to or for the benefit of the
Joint Property.
2.2.2. Salary Benefits. Operator's cost of holiday, vacation,
sickness and disability benefits and other customary
allowances paid to employees whose salaries and wages are
chargeable to the Joint Account under Article 2.2.1 above.
Such costs under this Article 2.2.2 may be charged on a "when
and as paid basis" or by "percentage assessment" on the amount
of salaries and wages chargeable to the Joint Account under
Article 2.2.1 above. If percentage assessment is used, the
rate shall be based on the Operator's cost experience and
adjusted at least annually to the Operator's actual cost.
2.2.3. Assessments. Expenditures or contributions made pursuant
to assessments imposed by governmental authority which are
applicable to Operator's costs chargeable to the Joint Account
under Article 2.2.1 and 2.2.2 above.
2.2.4 Personal Related Expenses. Personal Expenses, including
but not limited to the following: travel and other reasonable
reimbursable expenses of Operator's employees, hospital and
medical expense, schools for employees and their children,
insurance policies, and all other reasonable activities
applicable to the employee and family, of those employees
whose salaries and wages are chargeable to the Joint Account
under Article 2.2.1 above.
2.2.5. Employee Benefit Plans. Operator's current cost of
established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other customary benefit plans of a like nature
provided under Operator's usual practices, applicable to
Operator's labor cost chargeable to the Joint Account under
Article 2.2.1 above shall be at operator's actual cost.
<PAGE> 15
2.3. Material
2.3.1. Material purchased or furnished by Operator for use in Joint
Operations as provided under Article 3 of this Accounting
Procedure.
2.4 Transportation and Employee Relocation Costs
2.4.1. Transportation of Material and other related costs such as
expediting crating, dock charges, inland and ocean freight,
customs duties and taxes and unloading at destination.
2.4.2. Transportation of employees as required in the conduct of
Joint Operations.
2.4.3. Relocation costs to the Contract Area vicinity or to other
locations in Colombia of employees permanently or temporarily
assigned to the Joint Operations. Such costs shall include
transportation of employees' families and their personal and
household effects and all other relocation costs in accordance
with Operator's usual practice. Relocation from Colombia shall
not be charged to the Joint Account.
2.5 Services
2.5.1. Contract services, professional consultants, and other
services covered by Paragraph 2.8
2.5.2. Technical services for specific projects resulting in a
presentation or a written report, such as, but not limited to,
laboratory analysis, drafting, geophysical interpretation,
engineering, and related data processing, performed by the
Operator and its Affiliates for the direct benefit of the
Joint Operations, provided such costs shall not exceed those
currently prevailing if performed by outside technical service
companies.
2.5.3 Use of equipment, services and facilities furnished by
Operator or Non-Operator(s) or their Affiliates provided such
equipment, services or facilities is of a quality and cost
commensurate and competitive with that offered by third
parties in the general vicinity of the Contract Area.
2.6 Damage and Losses to Joint Property
2.6.1 All costs or expenses necessary for the repair or replacement
of Joint Property resulting from
<PAGE> 16
damages or losses incurred by fire, flood, storm, theft,
accident, or any other cause. Operator shall furnish Non-
Operator(s) written notice of damages or losses in excess of
nominal value as soon as practicable. Any payment(s) by
insurance companies shall be deducted in determining the
amount due.
2.7 Insurance
2.7.1. Net premiums for insurance are required by the Parties of the
Agreement.
2.7.2. Actual expenditures in the settlement of all losses, claims,
damages, judgements, and other expenses for the benefit of the
Joint Operations as per the Agreement.
2.7.3. Credits for settlements received from the insurance policies
and others.
2.8 Legal Expense
2.8.1. All costs or expenses of litigation or legal services
otherwise necessary or expedient for the protection of the
Joint Property, including but not limited to attorney's fees,
court costs, cost of investigation or procuring evidence and
amounts paid in settlement or satisfaction of any such
litigation of claims. These services may be performed by the
Operator's legal staff or an outside firm as necessary.
Operator shall not incur more than Ten Thousand U.S. Dollar
(US $10,000) in costs for legal services in connection with
any single, suit, proceeding or matter without first obtaining
the prior approval of the other parties.
2.9 Duties and Taxes
2.9.1. All duties and taxes (except taxes based on income, net worth
and royalty based on production from the Contract Area and any
other taxes for which the Parties are liable severally but not
Jointly), fees and governmental assessment of every kind and
nature in relation with Joint Operations.
2.10 Offices, Camps and Miscellaneous Facilities
2.10.1. Cost of maintaining and operating any offices, suboffices,
camps, warehouses, housing and other facilities directly
serving the Joint Operations shall be charged to the Joint
Account. If such
<PAGE> 17
facilities serve operations in addition to the Joint
Operations, the costs shall be allocated to the properties
served on an equitable basis as may be approved by the
Operating Committee which approval shall not be unreasonably
withheld.
2.11 Administrative Overhead
2.11.1. An administrative overhead covering services and related
office costs of personnel performing administrative, legal,
accounting, purchasing, treasury, tax, employee relations,
computer services and other functions for the benefit of the
Operations provided they are not included elsewhere, shall be
charged to the Joint Account monthly.
2.11.2. The charge under the foregoing paragraph shall be for services
of all personnel and offices of Operator who are not directly
assigned to Operations and shall be charged each month at the
rate of 12% on total expenditures attributable to Joint
Operations in the preceding month, except only 5% shall be
charged on expenditures for capital expenditure items.
2.11.3. Notwithstanding anything to the contrary which might be
stated in the Accounting Procedure, it is understood that no
cost or expenditure included under sections 2.2.1 through 2.10
shall be included or duplicated in the administrative overhead
rate charged in this Article 2.11. Further, at any party's
request, the rates in 2.11.2 above shall be reviewed annually
and adjusted if determined to be inadequate or excessive.
2.12 Other Expenditures
2.12.1. Any other expenditures not covered or dealt with in the
foregoing provisions which are incurred by the Operator and
its Affiliates for the ordinary, necessary and proper conduct
of the Joint Operations.
3- MATERIALS
The cost of material, equipment and supplies purchased or furnished by
the Operator for use on the Joint Property shall be charged to the Joint
Account on the basis set forth below. So far as it is reasonably
practical and consistent with efficient and economical operation, only
such material shall be purchased for or transferred to the Joint
Property as may be required for immediate use, and the accumulation of
surplus stock shall be avoided.
<PAGE> 18
3.1 Materials Cost, Purchase, Furnishing
3.1.1. Material purchased shall be charged at the actual net cost
incurred by Operator or its Affiliates to obtain the material
from third parties. Net cost shall include, but shall not be
limited to, such items as the cost of purchasing,
transportation, duties, license fees and applicable taxes.
3.1.2. New Material (Condition "1") purchased for the Joint Account
or transferred from Operator's stock or other properties shall
be priced at Operator's book cost. Good used Material
(Condition "2") being used Material in sound and serviceable
condition, suitable for reuse without reconditioning shall be
priced at seventy-five percent (75%) of such book cost.
Material which cannot be classified as "Condition 2" but
which, after reconditioning will be further serviceable for
original function as good second-hand material (Condition 2)
or is serviceable for original function, but substantially not
suitable for reconditioning, shall be classified as "Condition
3" material and priced at fifty percent (50%) of "Condition 1"
price. Material which cannot be classified as "Condition 2"
or "Condition 3" shall be priced at a value commensurate with
its use. If the Operator wishes to use a method other than
the above for charging used material to the Joint Account,
such other method shall first be approved by the Operating
Committee.
3.2 Disposal
3.2.1. Operator shall be under no obligation to purchase the interest
of Non-Operator(s) in new or used surplus Material.
3.2.2. Operator shall have the right to dispose of surplus Materials
but shall advise and secure prior agreement of Non-Operators
of all proposed disposition of Materials valued in the
aggregate One Hundred-Thousand U.S. Dollars (U.S. $100,000)
or more per year.
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. Periodic inventories shall be taken by Operator of all
Controllable Materials at least annually or more frequently if
required by the Parties.
<PAGE> 19
Operator shall give thirty (30) days written notice of
intention to take such inventories to allow Non-Operator(s) to
be represented when any inventory is taken. Failure of any
Non-Operator to be represented shall bind such Non-Operator
to accept the inventory taken by Operator.
3.3.2. Reconciliation of inventory with the Joint Account
shall be made and a list of overages and shortages as well as
obsolete and surplus materials shall be furnished to the
Non-Operator(s). Inventory adjustments shall be made to the
Joint Account in accordance with good accounting practices.
3.3.3. Whenever there is a sale or change of interest
in the Joint Property, a special inventory shall be taken by
the Operator if required by the seller and/or purchaser and
the seller and/or purchaser of such interest shall bear all of
the expense thereof. In such cases, both the seller and the
purchaser shall be entitled to be represented and shall be
governed by the inventories taken.
4- FIXED ASSETS
Inventories of Fixed Assets will be taken as determined by the Parties
but not less than every five (5) years. Operator shall give
thirty (30) days written notice of intention to take such inventories to
allow Non-Operator(s) to be represented when any inventory is taken.
Failure of any Non-Operator to be represented shall bind such
Non-Operator to accept the inventory taken by Operator.
<PAGE> 20
EXHIBIT "C"
Attached to and made a part of that certain Operating Agreement covering
Velasquez-Galan Pipeline by and between OMIMEX DE COLOMBIA, LTD. and SABACOL,
INC. dated the 11th day of September, 1995, but effective January 1, 1995.
INSURANCE
Operator shall, in the performance of its obligations hereunder, carry
statutorily required insurance and Public Liability Insurance in amounts of not
less than US $1,000,000.00 per occurance or accident with an aggregate limit of
not less than US $2,000,000.00. Operator shall likewise cause all contractors
to carry insurance in such amounts commensurate with those set forth above.
<PAGE> 1
Exhibit 10.25
OPERATING AGREEMENT
COCORNA CONCESSION
THIS AGREEMENT, entered into this 11th day of September, 1995, but
effective January 1, 1995, by and between OMIMEX DE COLOMBIA, LTD., hereinafter
designated and referred to as "Operator", and SABACOL, INC., hereinafter
referred to as "Non-Operator", collectively called the Parties,
WITNESSETH:
WHEREAS, the Parties to this agreement are owners of the Cocorna
Concession, Colombia, S.A. identified in Exhibit "A", and the Parties hereto
have reached an agreement to develop and operate this Field,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
DEFINITIONS
As used in this agreement, the following words and terms shall have
the meanings here ascribed to them:
A. The term "oil and gas" shall mean oil, gas, casinghead gas, gas
condensate, and all other liquid or gaseous hydrocarbons and other
marketable substances produced therewith, unless an intent to limit the
inclusiveness of this term is specifically stated.
B. The term "Contract Area" shall mean all lands and oil and gas
interests intended to be developed and operated for oil and gas purposes
under this agreement. Such lands and oil and gas interests are described
in Exhibit "A".
C. The term "drillsite" shall mean the site on which a proposed
well is to be located.
D. The terms "Drilling Party" and "Consenting Party" shall mean a
party who agreed to join in and pay its share of the cost of any
operation conducted under the provisions of this agreement.
E. The terms "Non-Drilling Party" and "Non-Consenting Party" shall
mean a party who elects not to participate in a proposed operation.
Unless the context otherwise clearly indicates, words used in the
singular include the plural, the plural include the singular, and the neuter
gender includes the masculine and the feminine.
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<PAGE> 2
ARTICLE II
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
A. Exhibit "A" - Identification of the lands subject to
this agreement and the interests of the Parties.
B. Exhibit "B" - Accounting Procedure
C. Exhibit "C" - Insurance
ARTICLE III
INTEREST OF THE PARTIES
Unless changed by other provisions, all costs and liabilities incurred in
operations under this agreement shall be borne and paid, and all equipment and
materials acquired in operations on the Contract Area shall be owned, by the
Parties as their interests are set forth in Exhibit "A". In the same manner,
the Parties shall also own all production of oil and gas from the Contract
Area.
Nothing contained in this Article III shall be deemed an assignment or
cross-assignment of interests covered hereby.
ARTICLE IV
OPERATOR
OMIMEX DE COLOMBIA, LTD., shall be Operator of the Contract Area, and shall
conduct and direct and have full control of all operations on the Contract Area
as permitted and required by, and within the limits of this agreement. It
shall conduct all operations in a good and workmanlike manner, but it shall
have no liability as Operator to the other party for losses sustained or
liabilities incurred, except such as may result from gross negligence or
willful misconduct.
Operator may resign at any time by written notice thereof to Non-Operator.
If Operator terminates its legal existence, no longer owns an interest in the
Contract Area, or is no longer capable of serving as Operator because Operator
is insolvent, bankrupt or is placed in receivership, Operator shall be deemed
to have resigned without any action by Non-Operator, except the selection of a
successor. Operator may be removed by Non-Operator by majority vote or if it
fails or refuses to carry out its duties hereunder. Such resignation or
removal shall not become effective until 7:00 A.M. on the first day of the
calendar month following the expiration of (90) days after giving of the notice
of resignation by Operator or action by the Non-Operator to remove Operator,
unless a successor Operator has been selected and assumes the duties of
Operator at an earlier date.
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<PAGE> 3
Upon the resignation of Operator or removal by Non-Operator, a successor
Operator shall be selected by Parties owning an interest in the Contract Area
at the time such successor Operator is selected, excluding the ownership of the
retiring or removed Operator.
The number of employees used by the Operator in conducting operations
hereunder, their selection, and the hours of labor and the compensation for
services performed shall be determined by Operator, and all such employees
shall be the employees of Operator.
ARTICLE V
DRILLING AND DEVELOPMENT
A. OPERATIONS:
Should any party hereto desire to drill additional wells on the Contract
Area or rework, deepen or plug back a dry hole or a well not currently
producing in paying quantities, the party desiring to perform such operation
shall give the other party written notice of the proposed operation and the
estimated cost of the operation. The party receiving such a notice shall have
thirty (30) days after receipt of the notice within which to notify the party
wishing to do the work whether they elect to participate in the cost of the
proposed operation. If a rig is on location the notice of a proposed rework,
plug back or drill deeper may be given by telephone and the response period
shall be limited to forty-eight (48) hours, exclusive of Saturday, Sunday and
legal holidays. Failure of a party receiving such notice to reply within the
period fixed above shall constitute an election by that party not to
participate in the cost of the proposed operation. Any notice or response
given by telephone shall be promptly confirmed in writing.
If all Parties elect to participate in such a proposed operation, Operator
shall, within ninety (90) days after expiration of the notice period (or as
promptly as possible after the expiration of the forty-eight (48) hour period
when a drilling rig is on location), actually commence the proposed operation
and complete it with due diligence at the risk and expense of all the Parties
hereto. Said commencement may be extended for thirty (30) days, upon written
notice to the other party, if in the Operator's sole opinion such additional
time is reasonably necessary to obtain permits, equipment or surface rights.
If not commenced within the time periods set forth above, then the Operator
shall resubmitt to the other party its proposal as if no prior proposal had
been made.
If less than all Parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable notice period, shall
advise the Consenting Parties of the total interest approving such operation
and its recommendation as to whether the Consenting Parties should proceed with
the operation as proposed. If the decision is to proceed the entire cost and
risk of conducting such operations shall be borne by the Consenting Parties in
their adjusted proportions. Upon commencement of operations in accordance with
the provisions of this Article, each Non-Consenting Party shall be deemed to
have relinquished to Consenting Parties, and the Consenting Parties shall own
and be entitled to receive, in proportion to their respective interests, all
such Non-Consenting Party's interest in the well and share of production
therefrom until the proceed of the sale of such share, calculated at the well
shall equal the total of the following:
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<PAGE> 4
a) 300% of each Non-Consenting Party's share of the cost of any
newly acquired surface equipment beyond the wellhead connections
(including, but not limited to, stock tanks, separators,
treaters, pumping equipment and piping), plus 100% of each such
Non-Consenting Party's share of the cost of operation of the
well commencing with first production and continuing until each
such Non-Consenting Party's relinquished interest shall revert
to it, it being agreed that each Non-Consenting Party's share of
such cost and equipment will be that interest which would have
been chargeable to such Non-Consenting Party had it participated
in the well from the beginning of the operations; and
b) 300% of that portion of the cost and expenses of drilling,
reworking, deepening, plugging back, testing and completing, and
300% of that portion of the cost of newly acquired equipment in
the well (to and including the wellhead connections), which
would have been chargeable to such Non-Consenting Party if it
had participated therein.
An election not to participate in the drilling or the deepening of a
well shall be deemed an election not to participate in any reworking or plugging
back operation proposed in such well, or portion thereof, to which the initial
Non-Consent election applied that is conducted at any time prior to full
recovery by the Consenting Parties of the Non-Consenting Parties recoupment
account. Any such work during the recoupment period shall be deemed part of the
cost of operation of said well and there shall be added to the sums to be
recouped by the Consenting Parties 300% of that portion of the costs of the
work.
Within (60) days after the completion of any operation under this
Article, the Operator shall furnish each Non-Consenting Party with an inventory
of the equipment in and connected to the well, and an itemized statement of the
cost of the operation. Thereafter, at least semi-annually, the Operator shall
provide each Non-Consenting Party with a payout statement reflecting costs and
revenue attributable to the well from the time of the non-consent election to
the date of the statement.
If and when the Consenting Parties recover from a Non-Consenting Party's
relinquished interest the amounts provided for above, the relinquished interest
of such Non-Consenting Party shall automatically revert to it, and from and
after such reversion, such Non-Consenting Party shall own the same interest in
such well, the material and equipment in or pertaining thereto, and the
production therefrom as such Non-Consenting Party would have been entitled had
it participated in the operation on said well.
B. TAKING OF PRODUCTION:
Each Party to this agreement shall be responsible for disposing of and
accounting for it proportionate share of the production in accordance with the
sales agreement(s) with Ecopetrol or any other purchaser as agreed by the
Parties or as required by the appropriate government authority of the Republic
of Columbia.
C. ACCESS TO CONTRACT AREA AND INFORMATION:
Each party shall have access to the Contract Area at all reasonable
times, at its sole cost and risk
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<PAGE> 5
to inspect or observe operations, and shall have access at reasonable times to
information pertaining to the development or operation thereof, including
Operator's books and records relating thereto. Operator, upon request, shall
furnish each of the other Parties with copies of all forms and reports filed
with governmental agencies, daily drilling reports, well logs, tank tables,
daily gauge and run tickets and reports of stock on hand at the first of each
month, and shall make available samples of any cores or cuttings taken from any
well drilled on the Contract Area. The cost of gathering and furnishing
information to Non-Operator, other than that specified above, shall be charged
to the Non-Operator that requests the information.
D. ABANDONMENT OF WELLS:
If a well has produced, excluding the interest of any Non-Consenting
Party, it shall not be plugged and abandoned without the consent of all Parties.
If all Parties consent to the plugging and abandonment, such action shall be at
the cost, risk and expense of all the Parties. Should Operator, after diligent
effort, be unable to contact any party, or should any party fail to reply within
forty-eight (48) hours after receipt of notice of the proposal to plug and
abandon such well, such party shall be deemed to have consented to the proposed
abandonment.
If a well has produced, excluding the interest of any Non-Consenting
Party, shall not be plugged and abandoned without the consent of all Parties.
If all Parties consent the plugging shall be at the cost, risk and expense of
all the Parties. If, within thirty (30) days, after receipt of the notice to
plug and abandon, any party elects not to consent to the plugging of the well,
then said party shall assume operation of the well and pay the Parties
consenting to the plugging and abandonment the estimated salvage value less the
estimated cost to plug and abandon the well. Each abandoning party shall
assign, without warranty, express or implied, of any kind or nature, all its
interest in the well. Thereafter the abandoning Parties shall have no further
responsibility, liability, or interest in the operation of or production from
the well.
All wells shall be plugged and abandoned in accordance with all
governmental rules and regulations.
ARTICLE VI
EXPENDITURES AND LIABILITIES OF PARTIES
A. LIABILITY OF PARTIES:
The liability of the Parties shall be several, not joint or collective.
Each party shall be responsible only for its obligations, and shall be liable
only for its proportionate share of the costs of developing and operating the
Contract Area. Accordingly, the liens granted among the Parties are given to
secure only the debts of each severally. It is not the intention of the Parties
to create, nor shall this agreement be construed as creating, a mining or other
partnership or association, or to render the Parties liable as partners.
B. LIENS AND PAYMENT DEFAULTS:
Each Non-Operator grants to Operator, a lien on all of each
Non-Operator's right in the
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<PAGE> 6
Contract Area, and a security interest in its share of oil and/or gas when
extracted and its interest in all equipment, to secure payment of its share of
expense, together with interest thereon at the rate shown in Exhibit "B".
Operator grants a like lien and security interest to the Non-Operators to
secure payment of Operator's proportionate share of expense.
C. PAYMENTS AND ACCOUNTING:
Except as otherwise specifically provided, Operator shall promptly pay and
discharge expenses incurred in the development and operation of the Contract
Area pursuant to this agreement and shall charge each of the Parties hereto with
their respective proportionate shares upon the expense basis provided in Exhibit
B. Operator shall keep an accurate record of the joint account hereunder,
showing expenses and charges and credits made and received. Operator may
request advance payment estimated expenses. If any party fails to pay its share
of said estimated expenses within the time specified, the amount due shall bear
interest as provided in Exhibit "B". Such request shall include a detail
listing of the expenses to be covered by the advance payment.
Exhibit "B" shall detail the accounting procedures for the Contract Area.
D. LIMITATION OF EXPENDITURES:
Operator shall notify all Parties in writing and an AFE shall be
prepared before incurring any item of expense, which is equal to or exceeds US
$50,000.00. Such item of expense shall not be incurred unless a majority in
interest of the Parties signify their consent thereto in writing within 10 days
of the written notice.
E. INSURANCE:
Operator shall also carry or provide insurance for the benefit of the
joint account of the Parties as outline in Exhibit "C", attached to and made a
part hereof. Operator shall require all contractors engaged in work on or for
the Contract Area to maintain statutorily required insurance and insurance
equal to that shown on Exhibit "C".
F. ANNUAL BUDGET MEETING:
Operator shall, with at least 30 days written notice, call an annual
meeting of the Parties for the purpose of approving an annual budget and
capital expenditures program.
ARTICLE VII
MAINTENANCE OF UNIFORM INTEREST
For the purpose of maintaining uniformity of ownership of the
interests covered by this agreement, no party shall sell, encumber, transfer or
make other disposition of its interest in the Contract Area and in the wells,
equipment and production unless such disposition covers the entire undivided
interest of the party.
Page 6
<PAGE> 7
ARTICLE VIII
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or suit
arising from operations hereunder if the expenditure does not exceed Twenty
Thousand Dollars (US $20,000.00) and if the payment is in complete settlement
of such claim or suit. If the amount required for settlement exceeds the above
amount, the Parties hereto shall assume and take over further handling of the
claim or suit, unless such authority is delegated to Operator. All costs and
expenses of handling, settling or otherwise discharging such claim or suit
shall be the joint expense of the Parties participating in the operation from
which the claim or suit arises. If a claim is made against any party or any
party is sued on account of any matter arising from operations hereunder over
which such individual has no control because of the rights given Operator by
this agreement, such party shall immediately notify all other Parties, and the
claim or suit shall be treated as any other claim or suit involving operations
hereunder.
ARTICLE IX
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 the 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;
thereupon, the obligations of the party giving the notice, so far as they are
affected by the force majeure, shall be suspended during, but no longer than,
the continuance of the force majeure. The affected party shall use all
reasonable diligence to remove the force majeure situation as quickly as
practicable.
The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty by the party involved, contrary to its wishes; how all
such difficulties shall be handled shall be entirely within the discretion of
the party concerned.
The term "force majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of equipment,
and any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control of the party claiming
suspension.
ARTICLE X
NOTICES
All notices authorized or required between the Parties and required by any
of the provisions of this agreement, unless otherwise specifically provided,
shall be given in writing by mail or telegram, postage or charges prepaid, or
by telex or telecopier and addressed to the Parties to whom the notice
Page 7
<PAGE> 8
is given at the addresses listed in Exhibit "A". The originating notice given
under any provision hereof shall be deemed given only when received by the
party to whom such notice is directed, and the time for such party to give any
notice in response thereto shall run from the date the originating notice is
received. The second or any responsive notice shall be deemed given when
deposited in the mail or with the telegraph company, with postage or charges
prepaid, or sent by telex or telecopier. Each party shall have the right to
change its address at any time, and from time to time, by giving written notice
thereof to all other Parties.
ARTICLE XI
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the Contract
Area for so long as any wells are producing from the Contract Area. Upon
termination of this agreement the Parties shall remain responsible for the
proportionate share of any costs attributable to the final plugging and
abandonment of the wells and the facilities associated therewith. It is agreed
however, that the termination of this agreement shall not relieve any party
from any liability which has accrued or attached prior to the date of such
termination.
ARTICLE XII
APPLICABLE LAW
This agreement, its meaning and interpretation and the relationship of
the Parties hereunder, shall be governed by the laws of the United States of
America and all matters arising therefrom shall be brought before and submitted
exclusively to the courts of United States.
ARTICLE XIII
MISCELLANEOUS
A. US INTERNAL REVENUE CODE ELECTION
It is the express and specific intent of the Parties that a partnership
relationship not be created between them or among them and any other co-owner
of an interest in the Contract Area. In accordance with the applicable
provision of the US Internal Revenue Code of 1954 and regulations promulgated
pursuant and further thereto, the Parties do hereby elect not to be treated or
considered as partners and further elect that none of the provisions of
Sub-Chapter K of said Code shall be applicable with respect to the operation of
the Contract Area. The Parties expressly authorize Operator to file with the
proper authorities executed copies of this agreement, and such copies when
filed, shall be conclusive notice to said authorities of this election pursuant
to said Contract Area from all of the provisions of said Sub-Chapter K and said
regulations. Operator may in lieu of filing copies hereof, notify said
authorities of this election by separate instrument in proper form.
Page 8
<PAGE> 9
B. HEADINGS:
The topic heading used herein are inserted for convenience only and
shall not be construed as having any substantive significance or meaning.
C. MODIFICATION:
There shall be no modification or amendment of this agreement except by
written instrument signed by all Parties.
D. ASSIGNMENT:
Except as otherwise provided herein, this agreement shall be binding
upon and inure to the benefit of the Parties, their respective successors and
assigns.
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement is executed as of the date first
above mentioned
WITNESSED: OPERATOR:
[SIG] OMIMEX DE COLOMBIA, LTD.
- ----------------------------
[SIG] [SIG]
- ---------------------------- ----------------------------------
WITNESSED: NON-OPERATOR:
[SIG] SABACOL, INC.
- ----------------------------
[SIG] [SIG]
- ---------------------------- ----------------------------------
Page 9
<PAGE> 10
EXHIBIT "A"
Attached to and made a part of that certain Operating Agreement covering
the Cocorna Concession by and between OMIMEX DE COLOMBIA, LTD. and SABACOL, INC.
dated the 11th day of September, 1995, but effective January l, 1995.
CONTRACT AREA & INTERESTS OF THE PARTIES
----------------------------------------
CONTRACT AREA: COCORNA CONCESSION
Being the Concession Agreement described in
Attachment 4 of that certain Purchase and Sale
Agreement dated April 20, 1995 by and between
Texas Petroleum Company and Omimex de Colombia,
Ltd. and Sabacol, Inc. covering the Cocorna
Concession.
INTERESTS OF THE PARTIES:
PERCENT
OMIMEX DE COLOMBIA, LTD. 50%
5608 Malvey, Penthouse Suite Carrera 17 No. 93-82 Off. 303
Fort Worth, Texas 76107 Santafe De Bogota, Colombia
Phone: (817) 735-1500 Phone: 571-623-5905
Fax: (817) 735-8033 Fax: 571-218-1395
SABACOL, INC. 50%
17512 Von Karman Ave. 109 No. 15- 60 Off. 301
Irvine, California 92714 Santafe De Bogota, Colombia
Phone: (714) 724-1112 Phone: 571-612-7185
Fax: (714) 724-1555 Fax: 571-612-3969
<PAGE> 11
EXHIBIT "B"
JOINT OPERATIONS ACCOUNTING PROCEDURE
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions Agreement shall prevail.
The purpose of this Accounting Procedure is to establish equitable
methods for determining charges and credits applicable to operations under the
Agreement. The Parties agree that if any of such methods prove unfair or
inequitable to Operator or Non-Operator(s), the Parties will meet and in good
faith endeavor to agree on changes in methods deemed necessary to correct any
unfairness or inequity.
1- GENERAL PROVISIONS
1.1 Definitions
1.1.1. Agreement means the Joint Operating Agreement to which this
Accounting Procedure is attached.
1.1.2. Contract Area shall have the same definition as contained in
the Agreement.
1.1.3. Controllable Material shall mean material which the Operator
according to good oil field practice, subjects to record
control and inventory. A list of types of such material shall
be furnished to Non-Operator(s) upon request.
1.1.4. Days shall in all cases mean calendar days.
1.1.5. Field Supervisors as used herein the term "Field Supervisors"
shall mean those employees whose primary function in Joint
Operations is the direct supervision of other employees and/or
contract labor directly employed on the Joint Property in a
field operating capacity.
1.1.6. Joint Account shall be the set of accounts maintained by the
Operator to record all expenditures and other transactions
under the provisions of the Agreement.
1.1.7. Joint Operations shall mean all activities necessary and
proper under the provisions of the Agreement.
1.1.8. Joint Property shall mean the real and personal property
acquired and held for use in connection with operations under
the Agreement.
<PAGE> 12
1.1.9. Material shall mean personal property, including supplies and
use charge, acquired and held for use in Joint Operations.
1.1.10 Non-Operator(s) shall mean the parties to the Agreement other
than the Operator.
1.1.11 operator shall have the same definition as contained in the
Agreement.
1.1.12. Party or Parties shall have the same definitions as contained
in the Agreement.
1.1.13. Technical Employees as used herein the term "Technical
Employees" shall mean those employees having special and
specific engineering, geological or other professional skills,
and whose primary function in Joint Operations is handling of
specific operating conditions and problems for the benefit of
the Joint Property.
1.1.14. Operating Committee as used herein shall mean such committee
as may be appointed by the parties consisting of one
representative of the Operator and one representative of each
Non-Operator.
1.2 Statements, Billings and Adjustments
1.2.1. Each Party to the Agreement is responsible for preparing its
own accounting, statistical and tax reports to meet Contract
Area and any other country or corporate requirements, except
that Operator shall be responsible for preparation and filling
of any United States Partnership Income Tax Returns that may
be required. The parties may elect out of Subchapter K.
Operator is required to furnish Non-Operator(s) statements and
billings in such form as required to facilitate discharging
such responsibilities.
1.2.2. Operator shall bill Non-Operator(s) on or before the last day
of each month for their proportionate share of expenditures
for the preceding month. Such billings shall be accompanied
by statement of charges and credits to the Joint Account
summarized by appropriate accounting classifications
indicative of the nature thereof, except that items of
Controllable Material and unusual charges and credits shall be
detailed. Such billings shall indicate the monetary origin
(Colombian Pesos or U.S. Dollars) of the charges and credits.
<PAGE> 13
1.2.3. Operator shall, upon request by Non-Operator(s),
furnish a description of such accounting classifications.
1.2.4. In accordance with Colombian law, operator shall keep
the Joint Account in Colombian pesos. The Operator will also
maintain these accounts in U.S. dollar equivalency or shall
provide the applicable exchange rate(s) monthly so that
Non-Operator(s) may convert these Colombian peso accounts to
U.S. Dollars each month. The parties shall agree as to the
procedure to be used in establishing the exchange rate(s) to
be used in making the conversion from Colombian pesos to U.S.
dollars or vice-versa. Expenditures made in U.S. Dollars
shall be separately identified and reported to Non-Operator(s)
on a monthly basis. Accounts maintained for recording
property, plant and equipment shall be maintained in both
Colombia pesos and U.S. dollars and such accounts shall
reflect the monetary origin (pesos or dollars) of each item of
property, plant and equipment purchased for the Joint Account.
In the conversion of currencies and in accounting for advances
of different currencies as provided for in Paragraph 1.3 of
this Article, or any other currency transactions affecting the
Joint Operations, it is the intent that none of the Parties
shall experience gain or loss at the expense of, or to the
benefit of, the other Parties.
1.2.5. Payment of the bills referred to in paragraph 1.2.2.
of this article shall not prejudice the rights of any
Non-Operator(s) to protest or question the correctness
thereof; however, all bills and statements rendered to
Non-Operator(s) by Operator during any calendar year shall
conclusively be presumed to be true and correct after
twenty-four (24) months following the end of any such calendar
year, unless within the said twenty-four month period a
Non-Operator takes written exception thereto and makes claim
on Operator for adjustment. No adjustment favorable to
operator shall be made unless it is made within the same
prescribed period. The provisions of this paragraph shall not
prevent adjustments resulting from a physical inventory of the
Joint Property acquired for Joint operations.
1.2.6. The accrual method of accounting shall be used for the
Joint Account.
<PAGE> 14
1.3 Advances and Payment
1.3.1. Non-Operator(s) shall advance by immediately available funds
to Operator within 15 days of notice by Operator their share
of estimated cash requirements for the succeeding month's
Operations in accordance with Article VI of the Agreement.
Such advance shall be credited when the actual billings per
1.2.2. above are issued.
1.3.2. Should the operator be required to pay any large (in excess of
U.S. $50,000.00) sums of money on behalf of the Joint
operation, which were unforeseen at the time of providing the
Non-Operator(s) with said monthly estimates of its
requirements, the Operator shall make a written request of the
Non-Operators(s) for special advances covering the
Non-Operators' share of such payments. Non-Operator(s) shall
make their proportional special advances within fifteen (15)
days after receipt of such notice.
1.3.3. If Non-Operator(s) advances exceed their share of the
expenditures, the next succeeding cash advance requirements,
after such determination, shall be reduced accordingly or
deducted from the next billing, whichever comes first.
However, Non-Operator(s) may request that excess advances be
refunded. The Operator shall make such refund within fifteen
(15) days after receipt of Non-Operator(s) request. Such
refund shall be made in the currency so advanced.
1.3.4. If Non-Operator(s) advances are less than their share of
actual expenditures, the deficiency shall, at Operator's
option, be added to subsequent cash advance requirements or be
paid by Non-Operator(s) within thirty (30) days following
receipt of Operator(s) for such deficiency.
1.3.5. If Operator does not request Non-Operator(s) to advance their
share of estimated cash requirements, Non-Operator(s) shall
pay their share of actual expenditures within thirty (30) days
following receipt of operator's billing.
1.3.6. Payment of advances or billings shall be made on or before the
due date, and if not so paid the unpaid balance shall be
treated as provided under Article VI of the Agreement.
<PAGE> 15
1.4 Audits
1.4.1. A Non-Operator, upon at least thirty (30) days written notice
to Operator and other Non-Operator(s) shall have the right at
its sole expense to audit the Joint Account and related
records for any calendar year or portion thereof within the
twenty-four (24) month period following the end of such
calendar year; however, the conducting of an audit shall not
extend the time for the taking of written exception to and the
adjustment of accounts as provided for in Paragraph 1.2.5.
of this Article. Where there are two or more Non-Operators
the Non-Operators shall make every reasonable effort to
conduct joint or simultaneous audits in a manner which will
result in a minimum of inconvenience to the Operator.
1.4.2. Subject to unanimous prior approval of the Parties, the cost
of any special audit or verification of the Joint Account that
is for the benefit of all Parties shall be chargeable to the
Joint Account.
1.4.3. Normal recurring internal audits of the Joint Account made by
the Operator to assess internal controls shall be chargeable
to the Joint Account and copies thereof shall be furnished to
NonOperators upon request.
1.5 Interest
1.5.1 Should interest be accessed per the terms of the Agreement,
(1) the rate on non U.S. $ Cash Calls shall be the Colombian
Prime Rate as quoted by Banco Ganadero plus 10% and (2) on
U.S. $ Cash Calls Prime as quoted by Bank One, Texas, N.A.
plus 3%. Should said rate(s) exceed the maximum rate allowed
by law, then the maximum lawful rate(s) shall apply.
2- CHARGEABLE COST AND EXPENDITURES
Operator shall charge Joint Account for all costs necessary to conduct
Joint Operations in or with respect to the Contract Area. Such cost
shall include, but are not necessarily limited to:
2.1 Control, License or Permit Payments
2.1.1. All expenditures necessary to acquire and to maintain rights
to the Contract Area.
<PAGE> 16
2.2 Labor and Related Costs
2.2.1. Salaries. Salaries and wages of operator's field employees
directly employed on the Joint Property in the conduct of
Joint Operations, salaries and wages of Field Supervisors, and
salaries and wages of Technical Employees that perform work
and services directly relating to or for the benefit of the
Joint Property.
2.2.2. Salary Benefits. Operator's cost of holiday, vacation,
sickness and disability benefits and other customary
allowances paid to employees whose salaries and wages are
chargeable to the Joint Account under Article 2.2.1 above.
Such costs under this Article 2.2.2 may be charged on a "when
and as paid basis" or by "percentage assessment" on the amount
of salaries and wages chargeable to the Joint Account under
Article 2.2.1 above. If percentage assessment is used, the
rate shall be based on the operator's cost experience and
adjusted at least annually to the Operator's actual cost.
2.2.3. Assessments. Expenditures or contributions made pursuant
to assessments imposed by governmental authority which are
applicable to operator's costs chargeable to the Joint Account
under Article 2.2.1 and 2.2.2 above.
2.2.4. Personal Related Expenses including but not limited to the
following: travel and other reasonable reimbursable expenses
of Operator's employees, hospital and medical expense, schools
for employees and their children, insurance policies, and all
other reasonable activities applicable to the employee and
family, of those employees whose salaries and wages are
chargeable to the Joint Account under Article 2.2.1 above.
2.2.5. Employee Benefit Plans. Operator's current cost of
established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other customary benefit plans of a like nature
provided under operator's usual practices, applicable to
operator's labor cost chargeable to the Joint Account under
Article 2.2.1 above shall be at operator's actual cost.
<PAGE> 17
2.3. Material
2.3.1. Material purchased or furnished by Operator for use in Joint
Operations as provided under Article 3 of this Accounting
Procedure.
2.4 Transportation and Employee Relocation Costs
2.4.1. Transportation of Material and other related costs such as
expediting crating, dock charges, inland and ocean freight,
customs duties and taxes and unloading at destination.
2.4.2. Transportation of employees as required in the conduct of
Joint Operations.
2.4.3. Relocation costs to the Contract Area vicinity or to other
locations in Colombia of employees permanently or temporarily
assigned to the Joint Operations. Such costs shall include
transportation of employees' families and their personal and
household effects and all other relocation costs in accordance
with Operator's usual practice. Relocation from Colombia shall
not be charged to the Joint Account.
2.5 Services
2.5.1. Contract services, professional consultants, and other
services covered by Paragraph 2.8
2.5.2. Technical services for specific projects resulting in a
presentation or a written report, such as, but not limited to,
laboratory analysis, drafting, geophysical interpretation,
engineering, and related data processing, performed by the
Operator and its Affiliates for the direct benefit of the
Joint Operations, provided such costs shall not exceed those
currently prevailing if performed by outside technical service
companies.
2.5.3 Use of equipment, services and facilities furnished by
operator or Non-Operated(s) or their Affiliates provided such
equipment, services or facilities is of a quality and cost
commensurate and competitive with that offered by third
parties in the general vicinity of the Contract Area.
2.6 Damage and Losses to Joint Property
2.6.1 All costs or expenses necessary for the repair or replacement
of Joint Property resulting from
<PAGE> 18
damages or losses incurred by fire, flood, storm, theft,
accident, or any other cause. operator shall furnish
Non-Operator(s) written notice of damages or losses in excess
of nominal value as soon as practicable. Any payment(s)
by insurance companies shall be deducted in determining the
amount due.
2.7 Insurance
2.7.1. Net premiums for insurance are required by the Parties of the
Agreement.
2.7.2. Actual expenditures in the settlement of all losses, claims,
damages, judgements, and other expenses for the benefit of the
Joint Operations as per the Agreement.
2.7.3. Credits for settlements received from the insurance policies
and others.
2.8 Legal Expense
2.8.1. All costs or expenses of litigation or legal services
otherwise necessary or expedient for the protection of the
Joint Property, including but not limited to attorney's fees,
court costs, cost of investigation or procuring evidence and
amounts paid in settlement or satisfaction of any such
litigation of claims. These services may be performed by the
operator's legal staff or an outside firm as necessary.
Operator shall not incur more than Ten Thousand U.S. Dollar
(US $10,000) in costs for legal services in connection with
any single, suit, proceeding or matter without first obtaining
the prior approval of the other parties.
2.9 Duties and Taxes
2.9.1. All duties and taxes (except taxes based on income, net worth
and royalty based on production from the Contract Area and any
other taxes for which the Parties are liable severally but not
Jointly), fees and governmental assessment of every kind and
nature in relation with Joint Operations.
2.10 Offices, Camps and Miscellaneous Facilities
2.10.1. Cost of maintaining and operating any offices, suboffices,
camps, warehouses, housing and other facilities directly
serving the Joint operations shall be charged to the Joint
Account. If such
<PAGE> 19
facilities serve operations in addition to the Joint
Operations, the costs shall be allocated to the properties
served on an equitable basis as may be approved by the
Operating Committee which approval shall not be unreasonably
withheld.
2.11 Administrative Overhead
2.11.1. An administrative overhead covering services and related
office costs of personnel performing administrative, legal,
accounting, purchasing, treasury, tax, employee relations,
computer services and other functions for the benefit of the
operations provided they are not included elsewhere, shall be
charged to the Joint Account monthly.
2.11.2. The charge under the foregoing paragraph shall be for services
of all personnel and offices of operator who are not directly
assigned to Operations and shall be charged each month at the
rate of 12% on total expenditures attributable to Joint
Operations in the preceding month, except only 5% shall be
charged on expenditures for capital expenditure items.
2.11.3. Notwithstanding anything to the contrary which might be
stated in the Accounting Procedure, it is understood that no
cost or expenditure included under sections 2.2.1 through 2.10
shall be included or duplicated in the administrative overhead
rate charged in this Article 2.11. Further, at any party's
request, the rates in 2.11.2 above shall be reviewed annually
and adjusted if determined to be inadequate or excessive.
2.12 Other Expenditures
2.12.1. Any other expenditures not covered or dealt with in the
foregoing provisions which are incurred by the Operator and
its Affiliates for the ordinary, necessary and proper conduct
of the Joint operations.
3- MATERIALS
The cost of material, equipment and supplies purchased or furnished by
the Operator for use on the Joint Property shall be charged to the Joint
Account on the basis set forth below. So far as it is reasonably
practical and consistent with efficient and economical operation, only
such material shall be purchased for or transferred to the Joint
Property as may be required for immediate use, and the accumulation of
surplus stock shall be avoided.
<PAGE> 20
Operator shall give thirty (30) days written notice of intention to
take such inventories to allow Non-Operator(s) to be represented when
any inventory is taken. Failure of any Non-Operator to be represented
shall bind such Non-Operator to accept the inventory taken by Operator.
3.3.2. Reconciliation of inventory with the Joint Account shall be
made and a list of overages and shortages as well as obsolete
and surplus materials shall be furnished to the
Non-Operator(s). Inventory adjustments shall be made to
the Joint Account in accordance with good accounting
practices.
3.3.3. Whenever there is a sale or change of interest in the Joint
Property, a special inventory shall be taken by the Operator
if required by the seller and/or purchaser and the seller
and/or purchaser of such interest shall bear all of the
expense thereof. In such cases, both the seller and the
purchaser shall be entitled to be represented and shall be
governed by the inventories taken.
4- FIXED ASSETS
Inventories of Fixed Assets will be taken as determined by the Parties
but not less than every five (5) years. Operator shall give
thirty (30) days written notice of intention to take such inventories to
allow Non-Operator(s) to be represented when any inventory is taken.
Failure of any Non-Operator to be represented shall bind such
Non-Operator to accept the inventory taken by Operator.
<PAGE> 21
EXHIBIT "C"
Attached to and made a part of that certain Operating Agreement covering the
Cocorna Concession by and between OMIMEX DE COLOMBIA, LTD. and SABACOL, INC.
dated the 11th day of September, 1995, but effective January 1, 1995.
INSURANCE
Operator shall, in the performance of its obligations hereunder, carry
statutorily required insurance and Public Liability Insurance in amounts of not
less than US $1,000,000.00 per occurance or accident with an aggregate limit of
not less than US $2,000,000.00. Operator shall likewise cause all contractors
to carry insurance in such amounts commensurate with those set forth above.
<PAGE> 1
Exhibit 10.26
AETNA LIFE INSURANCE COMPANY
Hartford, Connecticut 06156
While this Policy is in force Aetna will pay Proceeds
subject to all its provisions. Other rights and benefits
are provided as described in this policy. ILYAS CHAUDHARY
R2636511
THIS POLICY IS A LEGAL CONTRACT BETWEEN YOU AND AETNA
PLEASE READ YOUR POLICY CAREFULLY
RIGHT OF POLICY EXAMINATION
This Policy may be returned to Aetna or its representative
within 10 days after its receipt. Return this Policy to Aetna,
Individual Life Insurance, at 151 Farmington Avenue, Hartford,
Connecticut 06156. Upon its return, this Policy will be deemed
void from its beginning and all premiums paid will be refunded.
Signed for Aetna on its Date of Issue.
/s/ Lucille M. Nickson /s/ Ronald E. Compton
- ---------------------- ---------------------
Secretary President
/s/ B. Phillips
---------------------------
Registrar
TEN-YEAR LEVEL PREMIUM RENEWABLE AND CONVERTIBLE
TERM LIFE INSURANCE POLICY
- - PREMIUMS REMAIN LEVEL FOR FIRST TEN POLICY YEARS
AND BECOME ADJUSTABLE BEGINNING IN YEAR 11
SUBJECT TO STATE MAXIMUMS
- - BEGINNING IN POLICY YEAR 11, POLICY BECOMES
ANNUALLY RENEWABLE TO ATTAINED AGE 100
- - CONVERTIBLE UNTIL THE EARLIER OF THE 10TH POLICY
ANNIVERSARY OR THE POLICY ANNIVERSARY NEAREST THE
INSURED'S ATTAINED AGE 70
- - CONDITIONAL EXCHANGE AVAILABLE ON THE 10TH POLICY
ANNIVERSARY
- - PARTICIPATING -- DIVIDENDS MAY BE PAYABLE
<PAGE> 2
TABLE OF CONTENTS
_______________________________________________________________________________
Page No. Page No.
POLICY SPECIFICATIONS.............PS1 DIVIDENDS.........................4
POLICY SUMMARY.....................1 General..........................4
DEFINITIONS........................1 Options..........................4
Attained Age......................1 Dividend at Death................4
Date of Issue.....................1 CHANGES IN INSURANCE COVERAGE.....4
Exchange Date.....................1 Decrease in Face Amount..........4
Expiration Date...................1 RENEWAL AND CONVERSION............5
Face Amount.......................1 Renewal..........................5
Home Office.......................1 Conversion.......................5
Minimum Face Amount...............1 Partial Conversions..............5
Policy Month......................1 CONDITIONAL EXCHANGE..............5
Policy Year/Policy Anniversary....2 SETTLEMENT OPTIONS................6
Subsequent Application(s).........2 Conditions.......................6
We, Our, Us, Company..............2 Income Options...................6
Written Request...................2 Option 1 - Interest..............6
You, Your.........................2 Option 2 - Fixed Period..........6
GENERAL PROVISIONS.................2 Option 3 - Life Income...........6
The Contract......................2 Option 4 - Joint Life Income
Assignment........................2 Reducing for Survivor............7
Participating.....................2 Interest Rate....................8
Policy Settlement.................2 Betterment of Payments...........8
Age and/or Sex....................2 Withdrawals and Death
Owner.............................2 of the Payee....................8
Beneficiary.......................2
Changes in Owner and Beneficiary..3
Proceeds..........................3
SUICIDE AND INCONTESTABILITY.......3
Incontestability..................3
Suicide Exclusion.................3
PREMIUMS AND REINSTATEMENTS........3
Premiums..........................3
Premium Adjustment................3
Grace Period......................4
Refund on Death...................4
Reinstatement.....................4
_______________________________________________________________________________
ANY RIDERS AND A COPY OF THE APPLICATION(S) ARE AT THE END OF THIS POLICY.
<PAGE> 3
POLICY SPECIFICATIONS
NAME OF
INSURED: ILYAS CHAUDHARY
POLICY
NUMBER R 2 636 511 DATE OF ISSUE APRIL 5, 1994
SEX: AGE: PREMIUM CLASS:
MALE 47 PREFERRED NONSMOKER
BENEFICIARY - SABA PETROLEUM COMPANY, IRVINE, CA, A CORPORATION.
POLICY OWNER - SABA PETROLEUM COMPANY, IRVINE, CA, A CORPORATION.
FACE AMOUNT - $5,000,000
MINIMUM FACE AMOUNT - $250,000
DIVIDEND OPTION: REDUCE PREMIUM
<TABLE>
<CAPTION>
PLAN FACE YEARS QUARTERLY
AMOUNT PAYABLE PREMIUM
<S> <C> <C> <C>
TEN YEAR LEVEL, RENEWABLE AND CONVERTIBLE TERM $5,000,000 10 $3,000.00
LIFE INSURANCE POLICY
TERM PERIOD 1 YEAR
BEGINNING APRIL 5, 1994
RENEWABLE TO APRIL 5, 2047
CONVERTIBLE BEFORE APRIL 5, 2004
EXCHANGE DATE OF APRIL 5, 2004
POLICY FEE $20.00
TOTAL QUARTERLY PREMIUM $3,020.00
</TABLE>
*******************************************************************
AUTOMATIC CHECK PLAN SEMI-ANNUAL ANNUAL QUARTERLY
$1,006.67 $5,640.00 $10,980.00 $3,020.00
*******************************************************************
METHOD OF PREMIUM ELECTED: QUARTERLY
TO DETERMINE THE APPROPRIATE POLICY FEES FOR MONTHLY, QUARTERLY AND SEMI-ANNUAL
MODES, DIVIDE THE ANNUAL POLICY FEE OF $80.00 BY 12, 4 AND 2, RESPECTIVELY.
WE RESERVE THE RIGHT TO ADJUST THE PREMIUM FOR EACH POLICY YEAR AFTER THIS
POLICY HAS BEEN IN FORCE FOR 10 YEARS FROM ITS DATE OF ISSUE. THE ADJUSTED
PREMIUM WILL NEVER EXCEED THE GUARANTEED RENEWAL PREMIUM FOR THAT YEAR. IT MAY
BE LESS OR GREATER THAN THE PREMIUM FOR THE PRECEDING YEAR.
PS 1
<PAGE> 4
PS 2
R 2 636 511 ILYAS CHAUDHARY
TABLE OF GUARANTEED MAXIMUM RENEWAL PREMIUMS
EFFECTIVE DATE OF TABLE: APRIL 5, 1994
THIS TABLE SHOWS THE MAXIMUM AMOUNT OF PREMIUM* FOR EACH RENEWAL TERM OF THIS
POLICY, DETERMINED AT THE BEGINNING OF THE TEN YEAR TERM BY THE INSURED'S ISSUE
AGE AND BY THE INSURED'S ATTAINED AGE FOR EACH POLICY YEAR, THEREAFTER.
<TABLE>
<CAPTION>
POLICY POLICY
QUARTERLY QUARTERLY
ATTAINED AGE PREMIUM ATTAINED AGE PREMIUM
<S> <C> <C> <C>
48 $3,000.00 74 $145,100.00
49 $3,000.00 75 $162,350.00
50 $3,000.00 76 $178,550.00
51 $3,000.00 77 $197,800.00
52 $3,000.00 78 $216,700.00
53 $3,000.00 79 $236,700.00
54 $3,000.00 80 $261,400.00
55 $3,000.00 81 $288,100.00
56 $3,000.00 82 $320,550.00
57 $25,200.00 83 $356,300.00
58 $28,650.00 84 $395,750.00
59 $31,700.00 85 $442,000.00
60 $34,900.00 86 $491,300.00
61 $38,500.00 87 $543,350.00
62 $42,600.00 88 $597,250.00
63 $47,250.00 89 $663,700.00
64 $52,500.00 90 $713,300.00
65 $58,350.00 91 $782,550.00
66 $64,550.00 92 $854,800.00
67 $71,400.00 93 $931,750.00
68 $78,700.00 94 $1,019,100.00
69 $86,650.00 95 $1,078,450.00
70 $95,650.00 96 $1,137,800.00
71 $106,600.00 97 $1,197,100.00
72 $117,500.00 98 $1,256,450.00
73 $131,000.00 99 $1,315,800.00
</TABLE>
* THIS TABLE DOES NOT INCLUDE THE POLICY FEE.
<PAGE> 5
POLICY SUMMARY
It is important that You understand Your insurance policy. We have tried to use
understandable language throughout this Policy. However, should You have any
questions after You have read it, please call the representative who sold this
Policy to You or call Us. This summary is not a substitute for the detailed
policy provisions.
This is a ten-year level term life insurance policy continuing as an annually
renewable term policy until Attained Age 100 on the life of the Insured named in
the Policy Specifications.
Premiums must be paid to continue this policy in force. Premium reminder
notices will be sent. This Policy may be reinstated.
This Policy's premiums remain level until the first day of the eleventh policy
year at which time this policy will become annually renewable until the Insured
reaches Attained Age 100. Subject to the conditions stated in this Policy, this
Policy may be converted to a permanent individual life insurance policy until
the earlier of the 10th Policy Anniversary or the Policy Anniversary nearest to
the Insured's Attained Age 70. On the tenth Policy Anniversary, this policy may
be exchanged for another policy of the same type or a similar policy made
available by Us at that time.
Other rights and benefits are explained in this Policy.
DEFINITIONS
ATTAINED AGE
Issue age of the Insured as shown in the Policy Specifications, increased by
the number of Policy Years elapsed. Issue age is the Insured's age on his/her
birthday nearest this Policy's Date of Issue.
DATE OF ISSUE
The effective date for initial coverage is the Date of Issue shown in the
Policy Specifications. The Date of Issue for any change in coverage as well as
the effective date of the change will be the Effective Date of Change shown in
the supplemental Policy Specifications which will be sent to You. Coverage is
conditional on payment of the first premium, if any, and issue of this Policy
as provided in the application.
EXCHANGE DATE
The date this policy can be exchanged for another policy of the same type or a
similar policy made available by Us at that time. The Exchange Date is shown in
the Policy Specifications.
EXPIRATION DATE
Subject to the conditions of this policy, this policy will remain in effect
until the Expiration Date. The Expiration Date is the same as the renewal date
shown in the Policy Specifications.
Coverage will terminate on the Expiration Date.
FACE AMOUNT
The Face Amount of this Policy is shown in the Policy Specifications.
HOME OFFICE
Our Home Office is located at 151 Farmington Avenue, Hartford, Connecticut
06156.
MINIMUM FACE AMOUNT
The Face Amount of this Policy cannot be reduced below this amount. The Minimum
Face Amount for this Policy is shown in the Policy Specifications.
POLICY MONTH
The Policy Month begins each month on the same day of the month as the Date of
Issue.
Page 1
<PAGE> 6
POLICY YEAR/POLICY ANNIVERSARY
The first Policy Year is the 12 month period beginning on the Date of Issue.
Your Policy Anniversary is the Date of Issue plus 1 year, 2 years, etc.
SUBSEQUENT APPLICATION(S)
Any application after the initial application, initiated by You or by Us.
WE, OUR, US, COMPANY
Aetna Life Insurance Company, its successors or assigns.
WRITTEN REQUEST
A request in writing, in a form satisfactory to Us and received by Us at Our
Home Office.
YOU, YOUR
The Owner(s).
GENERAL PROVISIONS
THE CONTRACT
This Policy, the initial application on the Insured, any Subsequent
Applications, and any amendment riders constitute the entire contract. Copies
of all applications are attached to and made a part of this Policy. Only the
President, Executive Vice President or the Corporate Secretary of the Company
may agree to a change in this Policy and then only in writing.
All statements made by or for the Insured are representations and not
warranties.
No statement will be used to void this Policy or defend against a claim unless
it is contained in the initial application or Subsequent Applications.
ASSIGNMENT
A copy of an assignment must be filed at the Home Office. Until We receive such
notice, We will not be required to take notice of, or be responsible for, any
transfer of interest in this Policy by assignment, agreement or otherwise.
We will not be responsible for the validity of any assignment.
PARTICIPATING
This Policy is eligible for payment of dividends. We do not anticipate that any
dividends will be payable on this Policy.
POLICY SETTLEMENT
All amounts payable by Us are payable by the Home Office. We may require return
of this Policy.
AGE AND/OR SEX
If the age/or sex of the Insured is misstated, the Proceeds on death will be
that which would have been purchased by the premium actually paid in the year
of death if the policy had been issued at the correct age and/or sex.
OWNER
Unless otherwise stated, this Policy is owned by the Insured.
All rights granted by this Policy or allowed by Us belong to the Owner.
If this Policy is owned jointly, any request to exercise rights granted by
this Policy must be made jointly.
BENEFICIARY
The Beneficiary for the Proceeds on death is as stated in the application
unless later changed. If no designated Beneficiary is living at the time of the
death of the Insured, all benefits will be paid to the Owner or the Owner's
executors, administrators or assigns.
Page 2
<PAGE> 7
CHANGES IN OWNER AND BENEFICIARY
Unless this Policy states otherwise, the Owner or the Beneficiary, or both, may
be changed. Your Written Request must be sent to Us. This may be done as often
as desired by the current owner of record before the death of the Insured. When
We give Our written acceptance, the change will take effect as of the date Your
Written Request was signed. The change will be subject to any action We take
before receipt of the written acceptance.
PROCEEDS
Proceeds on death will equal the Face Amount. All amounts payable by Us are
subject to adjustment under the Age and/or Sex, Incontestability, Suicide and
Grace period provisions.
SUICIDE AND INCONTESTABILITY
INCONTESTABILITY
With respect to statements made in the initial application for the Insured:
- We will not contest this Policy after it has been in force during the
lifetime of the Insured for 2 years from its Date of Issue.
With respect to statements made in any Subsequent Applications:
- We will not contest coverage relating to Subsequent Applications after
coverage has been in force during the lifetime of the Insured for 2 years
from the Date of Issue of such coverage.
If this Policy is contested, Your or the Beneficiary's rights may be affected.
SUICIDE EXCLUSION
If the Insured dies by suicide, while sane or insane, within 2 years from the
Date of Issue of this Policy, We will refund only premiums paid. Proceeds on
death will not be paid.
PREMIUMS AND REINSTATEMENT
PREMIUMS
Premium due dates are measured from the Date of Issue. The first premium is due
on the Date of Issue.
Any premiums after the first premium are payable only at Our Home Office. Each
premium is payable on or before its due date. Send Your check or money order,
payable to Aetna, to the Home Office. Please be sure to write Your policy
number on Your check.
Premium reminder notices will be sent annually or at any other frequency to
which We agree. Please notify Us of any change in Your address.
A receipt signed by an officer of the Company will be given upon request.
PREMIUM ADJUSTMENT
The premium for the first ten Policy Years is shown in the Policy
Specifications. Beginning with the eleventh Policy Year We reserve the right to
adjust the premium for each Policy Year. However, the adjusted premium will
never exceed the guaranteed maximum premium for that Policy Year as shown in
the Policy Specifications. We will send You written notice of the new premium
before the beginning of each Policy Year after Policy Year ten.
Beginning with the eleventh Policy Year, Premiums will be adjusted when Our
expectations for future investment earnings, mortality, experience and expenses
vary from the conditions expected at the time of pricing. Any such changes will
be done on a prospective basis only; changes will not be such as to recover
past losses or to distribute prior profits. Adjustments will be made on a
uniform basis for Insureds of the same Attained Age, sex, premium
classification, and whose policies have been in force for an equivalent length
of time.
Page 3
<PAGE> 8
GRACE PERIOD
We will allow You 31 days of grace from the premium due date for payment of an
overdue premium.
If the premium is not paid within the Grace Period, this Policy will terminate.
Termination will be effective as of the premium due date.
During this Grace Period, this Policy will stay in force. If the Insured dies
during the grace period, We will deduct from the Proceeds the portion of the
overdue premium which applies to the Policy Month in which death occurs.
REFUND ON DEATH
The portion of any premium paid which is for a period beyond the Policy Month
in which the Insured died will be payable in addition to the Proceeds.
REINSTATEMENT
If this Policy terminates as provided in the Grace Period provision, it may be
reinstated within 5 years after the date of termination and before the
Expiration Date.
We will require satisfactory evidence of insurability on the Insured.
All premiums due since termination must be paid.
DIVIDENDS
GENERAL
As a participating contract, this Policy is eligible to share in "divisible
surplus" that We apportion to policies issued under this policy form. Any such
divisible surplus would be declared annually by Our Board of Directors and
would be allocated to this Policy as an annual dividend at the beginning of the
Policy Year. Any dividends would apply equitably to all such policies.
It is not expected that any divisible surplus will be apportioned for policies
issued under this policy form. Therefore, We do not expect to pay any dividends
under this Policy.
OPTIONS
We will pay any dividends under one of the three options that You have elected:
1. Paid in cash; or
2. Used to reduce premiums; or
3. Left on deposit with Us to earn interest at a guaranteed annual rate of
3.5%. The rate credited may be higher. Deposits may be withdrawn at any
time; and remaining deposit will be paid in addition to the Proceeds.
The option You have chosen is shown in the Policy Specifications. If no
dividend option is in effect when a dividend becomes payable, We will pay the
dividend in cash to You. You can elect one of the other options within 31 days
after the dividend becomes payable.
DIVIDEND AT DEATH
Upon the death of the Insured, We will pay the portion of any dividend payable
to the date of death in addition to the Proceeds.
CHANGES IN INSURANCE COVERAGE
DECREASE IN FACE AMOUNT
You may decrease the Face Amount of this Policy. The decrease will not be
effective until the date when the next premium payment required to keep this
Policy in force is due.
When the Face Amount is decreased, We will change the premium amount payable
for the Year in which the change is effective. New premiums will be based on
Our table of premiums then in effect for the new Face Amount. New Policy
Specifications which reflect the change will be sent to You.
Page 4
<PAGE> 9
The amount of a decrease cannot reduce this Policy's Face Amount below the
Minimum Face Amount.
RENEWAL AND CONVERSION
RENEWAL
Beginning with Policy Year eleven, We will renew this policy annually without
evidence of insurability until the Expiration Date. Your premium payment must
be sent to Us within 31 days of each Policy Anniversary to renew this Policy.
If premiums are in default, this Policy will not be renewed.
CONVERSION
This Policy may be converted to any permanent plan of life insurance that We
make available for such purpose.
Your Written Request to convert must be received by Us while this Policy is in
force and within 30 days of the first to occur of (1) or (2):
1. the date the insured reaches Attained Age 70, or
2. the first day of the eleventh Policy Year.
The date Your conversion period expires is shown in the Policy Specifications.
Evidence of Insurability will not be required for the amount being converted.
We will credit any unearned premium which is attributable to the amount being
converted to the new policy.
The new policy will be issued:
- - for the Insured's Attained Age and sex at Our current rates at the time of
conversion;
- - with the same premium class as would have been assigned to the Insured for
the new policy had it been issued on this Policy's Date of Issue;
- - subject to any limitations of risk or assignments outstanding against this
Policy.
Extra benefit riders in force on this Policy at the time of conversion can be
issued on the new policy without additional evidence of insurability only with
Our consent. Extra benefit riders must be currently available for sale with the
new policy.
This Policy will terminate and the new Policy will begin on the date that Your
Written Request and the first premium due for the new Policy are received at
Our Home Office. The new Policy will not take effect if the Insured is not
living on the Date of Issue on the new Policy.
PARTIAL CONVERSIONS
A portion of this Policy's Face Amount may be converted according to the terms
of the Conversion provision. New Policy Specifications for this Policy will be
sent to You.
After a Partial Conversion, this Policy's Face Amount must be equal to or
greater than the Minimum Face Amount. The minimum amount that may be converted
is equal to the minimum face amount available for the new policy.
CONDITIONAL EXCHANGE
On the tenth Policy Anniversary, You may exchange this policy for a new policy
of the same type or a similar one made available by Us at that time. All
premiums on this policy due before the Exchange Date must be paid. The new
policy is subject to the following terms.
1. You must complete and submit a new application and the first premium to Us
within 90 days prior to the Exchange Date.
2. You must submit evidence of insurability satisfactory to Us.
3. Coverage under this policy will terminate when coverage under the new
Policy begins.
4. The new policy will be issued on the life of the Insured under this policy.
Page 5
<PAGE> 10
5. The Issue Age on the new policy will be the Insured's Attained Age on the
birthday nearest the Exchange Date.
6. The Insured's Issue Age cannot exceed 70.
7. Any extra benefit riders in this policy can be included in the new policy
provided those extra benefit riders are available for sale with the new
policy at the time of exchange. Any extra benefit rider is subject to the
rules and premium rates we are using on the Date of Issue of the new policy.
8. The Date of Issue of the new policy will be the Exchange Date.
9. Premium rates for the new policy will be based on the premium rates in
effect on the Exchange Date.
SETTLEMENT OPTIONS
CONDITIONS
All or part of the Proceeds of this Policy may be applied under one or more of
the options described below or in any manner to which We agree. An election
shall be made by Written Request filed with the Home Office. The payee of
Proceeds may make this election if no prior election has been made.
Payments will be made at intervals of 1, 3, 6 or 12 months in equal amounts as
elected. Our consent to the election of an option is required if:
1. The payee is not a natural person receiving payments in his or her own
right;
2. the payee is an assignee of this Policy; or,
3. payments would be less than $25 each or totalling less than $120 in a year.
INCOME OPTIONS
The rates for these Income Options are based on the 1983 Blended Individual
Annuity mortality table with 60% female and 40% male lives and a pivotal age of
55. For purposes of calculating payments, the Adjusted Ages of the payees will
be used. The Adjusted Age is the payee's age on his or her birthday nearest the
commencement date of the annuity and then reduced by one year for annuities
commencing in the 1990's, reduced two years for annuities beginning during
2000-2009, and so on.
Rates for ages and intervals not shown for any of the following income options
will be furnished upon request.
OPTION 1 - INTEREST
Payment of interest on Proceeds left with Us, Proceeds held under this option
may be left with Us after the death of the payee only with Our consent.
By Written Request, the payee may later elect to:
1. Receive all of a portion of the amount held under this option; or
2. apply all or a portion of this amount to options 2, 3 or 4 as described
below.
OPTION 2 - FIXED PERIOD
Payment for a stated number of years, not longer than 30 years, as elected from
the following table.
<TABLE>
<CAPTION>
PAYMENT PER $1,000 PROCEEDS
YEARS OF SEMI- YEARS OF SEMI-
FIXED PERIOD ANNUAL ANNUAL QUARTERLY MONTHLY FIXED PERIOD ANNUAL ANNUAL QUARTERLY MONTHLY
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 $343.23 $172.88 $86.76 $28.99 15 $81.33 $40.96 $20.56 $6.87
4 251.19 131.56 66.02 22.06 20 65.26 32.87 16.50 5.51
6 211.99 106.78 53.59 17.91 25 55.76 28.08 14.09 4.71
10 113.82 57.33 28.77 9.61 30 49.53 24.95 12.52 4.18
</TABLE>
OPTION 3 - LIFE INCOME
Payments for the lifetime of the payee. If also chosen, We will guarantee
payments for 60, 120, 180 or 240 months. No payment will be due after death,
except payment for any remaining fixed period.
Page 6
<PAGE> 11
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MONTHLY LIFE INCOME PER $1,000 PROCEEDS
- ----------------------------------------------------------------------------------------------
WITH FIXED PERIOD
-------------------------------------------------------------- WITHOUT
AGE 10 YEARS 15 YEARS 20 YEARS FIXED PERIOD
NEAREST ----------------------------------------------------------------------------------
BIRTHDAY MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.22 $3.89 $4.17 $3.86 $4.08 $3.82 $4.27 $3.90
51 4.30 3.95 4.23 3.92 4.14 3.88 4.34 3.97
52 4.37 4.01 4.30 3.98 4.20 3.93 4.43 4.03
53 4.45 4.08 4.37 4.04 4.26 3.99 4.51 4.10
54 4.54 4.15 4.45 4.11 4.32 4.04 4.60 4.18
55 4.62 4.22 4.53 4.18 4.39 4.11 4.70 4.25
56 4.72 4.30 4.61 4.25 4.45 4.17 4.80 4.34
57 4.82 4.38 4.69 4.32 4.51 4.23 4.91 4.42
58 4.92 4.47 4.78 4.40 4.58 4.30 5.03 4.52
59 5.03 4.56 4.87 4.48 4.65 4.37 5.15 4.61
60 5.14 4.66 4.96 4.57 4.71 4.44 5.28 4.72
61 5.27 4.76 5.06 4.66 4.78 4.51 5.43 4.83
62 5.39 4.87 5.16 4.75 4.84 4.58 5.58 4.95
63 5.53 4.98 5.26 4.85 4.90 4.65 5.74 5.08
64 5.66 5.10 5.36 4.95 4.96 4.72 5.91 5.21
65 5.81 5.22 5.46 5.05 5.02 4.79 6.10 5.36
66 5.96 5.36 5.56 5.16 5.08 4.86 6.30 5.51
67 6.12 5.50 5.66 5.26 5.13 4.93 6.51 5.67
68 6.28 5.65 5.77 5.37 5.18 5.00 6.73 5.85
69 6.44 5.80 5.86 5.49 5.23 5.06 6.97 6.04
70 6.61 5.97 5.96 5.60 5.27 5.12 7.23 6.25
71 6.79 6.14 6.05 5.71 5.31 5.18 7.51 6.47
72 6.96 6.32 6.14 5.83 5.34 5.23 7.80 6.71
73 7.14 6.50 6.23 5.94 5.37 5.28 8.12 6.98
74 7.32 6.69 6.31 6.04 5.40 5.32 8.46 7.26
75 7.50 6.89 6.38 6.14 5.42 5.35 8.82 7.57
- ----------------------------------------------------------------------------------------------
</TABLE>
OPTION 4 - JOINT LIFE INCOME REDUCING FOR SURVIVOR
Payments during the joint lifetimes of two payees. At the death of either,
payments will continue to the survivor. When this option is chosen, a choice
must be made of:
1. 100% of the payment to the survivor;
2. 66 2/3% of the payment to continue to the survivor;
3. 50% of the payment to continue to the survivor;
4. payments for a minimum of 120 months, with 100% of the payment to continue
to the survivor; or
5. 100% of the payment to continue to the survivor if the survivor is the
original payee, and 50% of the payment to continue to the survivor is the
second payee.
No payment will become due after the death of the surviving payee.
The following table illustrates the applicable rates if number (3) of Option 4
is chosen.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MONTHLY JOINT INCOME WITH 1/2 TO SURVIVOR PER $1,000 PROCEEDS
- ----------------------------------------------------------------------------------------------
AGE OF AGE OF FEMALE ANNUITANT
MALE ---------------------------------------------------------------------------------
ANNUITANT 50 55 60 65 70 75 80 85
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.08 $4.26 $4.48 $4.75 $5.07 $5.46 $ 5.90 $ 6.36
55 4.27 4.47 4.71 5.01 5.37 5.80 6.30 6.83
60 4.49 4.71 4.99 5.32 5.73 6.22 6.80 7.42
65 4.76 5.01 5.32 5.70 6.17 6.75 7.44 8.19
70 5.07 5.36 5.71 6.15 6.70 7.40 8.23 9.16
75 5.41 5.74 6.15 6.66 7.32 8.15 9.16 10.34
80 5.77 6.15 6.62 7.22 7.99 8.99 10.24 11.73
85 6.12 6.54 7.08 7.77 8.67 9.86 11.40 13.27
- ----------------------------------------------------------------------------------------------
Page 7
</TABLE>
<PAGE> 12
INTEREST RATE
The guaranteed interest rate is 3.5% per year compounded annually. This rate
applies to funds held under options 1, 2 and 3 during any fixed period. As to
these funds, We will allow such excess interest as We may declare each year. As
to Option 1, from time to time We may offer higher interest rates with certain
conditions on withdrawal as are then published by Us.
BETTERMENT OF PAYMENTS
If option 2, 3 or 4 is chosen and if the guaranteed payments are less than
those of Our current single premium immediate annuity on the same plan, those
larger amounts will be paid instead.
WITHDRAWALS AND DEATH OF THE PAYEE
As to funds held under option 1, withdrawals and changes of options may be made
if the payee makes the election or if the election so permits. No withdrawals
or changes of option may be made under Options 2, 3 and 4. Upon the death of
the payee, the current value of funds held under option 1 or the present value
of any guaranteed payments not yet paid will be paid in one lump sum to the
beneficiary. The beneficiary may elect to continue the remaining payments
instead of receiving the lump sum amount. If no beneficiary exists, the present
value of any remaining payments will be paid in one sum to the estate of the
payee.
The interest rate used to determine the first payment will be used to calculate
the present value of any remaining payments.
Page 8
<PAGE> 13
[AETNA LOGO]
LIFE INSURANCE APPLICATION
[ ] Aetna Life Insurance Company [ ] Aetna Life Insurance and Annuity Company
151 Farmington Avenue, Hartford, CT 06156
member Companies of AETNA LIFE & CASUALTY
===============================================================================
[X] New Insurance [ ] Increase in Amount $
------------------
Policy No. ANSWER ALL QUESTIONS
-------------
[ ] Term Conversion/Guaranteed Option $ .
---------------------
Continue $ as term insurance.
-----------------------
ANSWER QUESTIONS 1,4 (if applicable), 5, 6, 22, 23, 24 & 25
[ ] Other Policy Change ANSWER APPLICABLE QUESTIONS.
-----------------------------
[ ] Policy No. to be changed/converted
-----------------------------------------
===============================================================================
STATE OF DELIVERY [ ]
- -------------------------------------------------------------------------------
1. (PROPOSED) INSURED A (Print full legal name)
---------------------------------------------------------------------------
First Middle Last
ILYAS CHAUDHARY
---------------------------------------------------------------------------
Residence Address (No., Street) P.O. Box
151 TOBY LANE
---------------------------------------------------------------------------
City State Zip Code
ANAHEIM CA 92807
---------------------------------------------------------------------------
Sex Birth Date (Mo-Day-Yr) Place of Birth
M 02-09-47 Pakistan
---------------------------------------------------------------------------
2a. Occupation (Title & Give Exact Duties)
SELF EMPLOYED PRESIDENT, SABA PETROLEUM
---------------------------------------------------------------------------
2b. Employer's Name and Address
SELF EMPLOYED
---------------------------------------------------------------------------
2c. Annual Income $ 300,000
------------------------------------------------------------
2d. Amount of life insurance presently in force or applied for:
(Aetna) $ 5,000,000.00 ADB $
------------------- -------------------
(Other Companies) $ 1,000,000.00 ADB $
------------------- -------------------
3. Will life insurance or annuity in any company be replaced or changed if
insurance applied for is issued? [ ] Yes [X] No
Explain
--------------------------------------------------------------------
4. In the past 12 months, have you smoked cigarettes, cigars, pipes or used
tobacco in any form? If YES, describe usage.
[ ] Yes [X] No
===============================================================================
Complete For Spouse, Other Insured Rider, Joint Applications (Relationship to
Proposed Insured A)
- -------------------------------------------------------------------------------
1. (PROPOSED) INSURED B (Additional insured)
---------------------------------------------------------------------------
First Middle Last
---------------------------------------------------------------------------
Residence Address (No., Street) P.O. Box
---------------------------------------------------------------------------
City State Zip Code
---------------------------------------------------------------------------
Sex Birth Date (Mo-Day-Yr) Place of Birth
---------------------------------------------------------------------------
2a. Occupation (Title & Give Exact Duties)
---------------------------------------------------------------------------
2b. Employer's Name and Address
---------------------------------------------------------------------------
2c. Annual Income $
-----------------------------------------------------------
2d. Amount of life insurance presently in force or applied for:
(Aetna) $ ADB $
------------------- -------------------
(Other Companies) $ ADB $
------------------- -------------------
3. Will life insurance or annuity in any company be replaced or changed if
insurance applied for is issued? [ ] Yes [ ] No
Explain
--------------------------------------------------------------------
4. In the past 12 months, have you smoked cigarettes, cigars, pipes or used
tobacco in any form? If YES, describe usage.
[ ] Yes [ ] No
===============================================================================
5. POLICY INFORMATION: Basic Plan 10 YEARS TERM AMOUNT 5,000,000
-------------------------------------- -----------
If Universal Life [ ] Option 1 [ ] Option 2
If Mortgage Ins. Years Rate (%)
------ ------
Dividend Option: [ ] Pay in Cash [X] Reduce Premium
(not for salary deduction)
[ ] Other -- Specify
---------------------
If available, Automatic Premium Loan will be operative unless otherwise
requested.
Supplemental Benefits
Disability Waiver? [ ] Yes [X] No
Accidental Death Benefit?
Ins. A. [ ] Yes $ [X] No
---------
Ins. B. [ ] Yes $ [ ] No
---------
Riders*: $
------------------------------ -------------------------
$
------------------------------ -------------------------
$
------------------------------ -------------------------
$
------------------------------ -------------------------
*For CIR--Submit application supplement
===============================================================================
6. BENEFICIARY -- (PROPOSED) INSURED A
a. Primary-First, Middle, Last Relationship
SABA PETROLEUM COMPANY
---------------------------------------------------------------------------
b. Secondary-First, Middle, Last Relationship
---------------------------------------------------------------------------
c. FINAL: Unless otherwise requested below:
The executors or administrators of the insured.
---------------------------------------------------------------------------
===============================================================================
6. BENEFICIARY -- (PROPOSED) INSURED B
a. Primary-First, Middle, Last Relationship
---------------------------------------------------------------------------
b. Secondary-First, Middle, Last Relationship
---------------------------------------------------------------------------
c. FINAL: Unless otherwise requested below:
The executors or administrators of the insured.
---------------------------------------------------------------------------
Special instructions:
------------------------------------------------------
---------------------------------------------------------------------------
<PAGE> 14
PART II -- NON MEDICAL
QUESTIONS 7-21 SHOULD NOT BE COMPLETED
FOR TERM CONVERSIONS OR EXERCISE OF GUAR-
ANTEED INSURABILITY OPTION.
Proposed Insured
7. HAVE YOU WITHIN 2 YEARS: (If Yes, explain) A B
a. Flown as a pilot or crew member or Yes No Yes No
intend to do so? (If YES, furnish Aviation
Supplement) .................................. / / /X/ / / / /
b. Engaged in motor vehicle or boat racing,
rock or mountain climbing, hang gliding,
or sky, skin or scuba diving or intend
such activities? (If Yes, furnish Avocation
Supplement) .................................. / / /X/ / / / /
c. Had your license suspended or revoked,
had 3 or more moving violations, or been
charged with driving under the influence
of alcohol or drugs?.......................... / / /X/ / / / /
d. Frequently travelled outside of the United
States or intend to do so?.................... /X/ / / / / / /
8. HAVE YOU EVER:
a. Had insurance refused, or offered only
with an extra premium?........................ / / /X/ / / / /
b. Been arrested and convicted for a felony
offense? ..................................... / / /X/ / / / /
9. HAVE YOU IN THE LAST 5 YEARS: (If Yes,
explain)
a. Used hallucinogenic or narcotic drugs not
prescribed by a doctor? ...................... / / /X/ / / / /
b. Used alcoholic beverages? (Note type, quan-
tity and frequency) .......................... / / /X/ / / / /
c. Had or been advised to have counseling
for alcohol or drug use? ..................... / / /X/ / / / /
10. a. What is your current height? .................
-------- --------
b. What is your current weight? .................
-------- --------
c. If under age 2, birth weight? ................
-------- --------
11. Name, address and phone number of personal physician,
date and reason last seen, results:
Ins. A Ins. B
------------------------------------------------------------------------
DR. H. REHMAN
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
PHONE (716) 931-3800
------------------------------------------------------------------------
12. Have you had a history of heart, lung or liver Yes No Yes No
disorder, stroke, diabetes or cancer? ............ / / /X/ / / / /
If yes, an a exam is required, submit M.D. exam. (Not Para-Med)
QUESTIONS 13-18 NOT REQUIRED FOR EXAMINED
BUSINESS.
Proposed Insured
13. HAVE YOU EVER HAD OR BEEN TREATED A B
FOR: (If Yes, explain) Yes No Yes No
a. Mental or nervous disorder? .................. / / /X/ / / / /
b. Disease of the nervous system or brain? ...... / / /X/ / / / /
c. Fainting, seizures, paralysis or stroke? ..... / / /X/ / / / /
d. Shortness of breath, persistent cough? ....... / / /X/ / / / /
e. Emphysema or other lung disease? ............. / / /X/ / / / /
f. Chest pain, high blood pressure, heart
attack, heart murmur, disease of the heart
or blood vessels? ............................ / / /X/ / / / /
g. Hepatitis, cirrhosis, or other disease of the
liver or pancreas? ........................... / / /X/ / / / /
h. Ulcer, colitis, chronic diarrhea, or other
disorder of the stomach or intestine? ........ / / /X/ / / / /
i. Sugar, albumin, blood or pus in urine? ....... / / /X/ / / / /
j. Disease of the kidneys, reproductive
organs or sexually transmitted disease? ...... / / /X/ / / / /
k. Diabetes, thyroid or glandular disease? ...... / / /X/ / / / /
l. Arthritis, disease or injury of the muscles,
bones or joints? ............................. / / /X/ / / / /
m. Cancer, tumor, cyst, disease of skin or
lymph glands? ................................ / / /X/ / / / /
14. Have you in the last 10 years had or been
treated for immune deficiency, anemia, other
blood disorder, recurrent fever, fatigue or unex-
plained weight loss? (If Yes, explain) ........... / / /X/ / / / /
15. Have you in the last 10 years been diagnosed
or treated for AIDS/ARC by a member of the
medical profession? .............................. / / /X/ / / / /
16. OTHER THAN ABOVE, HAVE YOU WITHIN
THE PAST 5 YEARS: (If Yes, explain)
a. Had a checkup, consultation, illness,
injury, surgery or diagnostic test? .......... /X/ /X/ / / / /
b. Been advised to have any diagnostic test,
hospitalization of surgery which was not
completed? ................................... / / /X/ / / / /
c. Been a patient at any medical facility? ...... / / /X/ / / / /
17. a. Are you now under observation or
treatment? ................................... / / /X/ / / / /
b. Do you need assistance, supervision or
use of medical appliances of any kind? ....... / / /X/ / / / /
18. Do you have a family history of diabetes, heart
disease, or hereditary disease? .................. / / /X/ / / / /
19. EXPLANATIONS: Number, nature and severity of condition, frequency of
attacks, treatments received, medication, dates, name,
address & phone number of medical attendants and hospitals.
- --------------------------------------------------------------------------------
QUES (PROPOSED) INSURED A QUES (PROPOSED) INSURED B
- --------------------------------------------------------------------------------
7 - d HAVE TO TRAVEL OUTSIDE
- --------------------------------------------------------------------------------
THE U.S. REGARDING BUSINESS
- --------------------------------------------------------------------------------
MATTERS (ESPECIALLY TO CANADA)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16 - a HAD APPENDECTOMY BY DR. R. AT
- --------------------------------------------------------------------------------
LANNIGILL SASKATCHUAN CANADA. NO
- --------------------------------------------------------------------------------
COMPLICATIONS, FULL RECOVERY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 15
<TABLE>
<CAPTION>
[AETNA APPLICATION [ ] AETNA LIFE INSURANCE COMPANY
LOGO] PART 2 MEDICAL/ [ ] AETNA LIFE INSURANCE AND ANNUITY COMPANY
PARAMEDICAL EXAM Hartford, Connecticut 06156 member Companies of AETNA LIFE & CASUALTY
- ---------------------------------------------------------------------------------------------------------------------------------
Proposed Insured (Print Name -- First, Initial, Last) Date of Birth (Mo.-Day-Yr.)
Ilyas Chaudhary 2-9-47
- ---------------------------------------------------------------------------------------------------------------------------------
a. Name, address and phone no. of your personal physician Dr. Hameed Rahman, Santa Ana, CA
---------------------------------------------------------------------
b. Date and reason last consulted 1993
---------------------------------------------------------------------------------------------
c. What treatment was given or medication prescribed? None
-------------------------------------------------------------------------
d. Present status? Healthy
------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
13. HAVE YOU EVER HAD OR BEEN TREATED FOR: 19. DETAILS OF YES ANSWERS, IDENTIFY
(If Yes, explain) YES NO QUESTION NUMBER, CIRCLE APPLI-
a. Mental or nervous disorder? ........................................... [ ] [X] CABLE ITEMS. (Include diagnoses,
b. Disease of the nervous system or brain? ............................... [ ] [X] dates, treatments received,
c. Fainting, seizures, paralysis or stroke? .............................. [ ] [X] medication, results and name,
d. Shortness of breath, persistent cough? ................................ [ ] [X] address and phone number of all
e. Emphysema or other lung disease? ...................................... [ ] [X] attending physicians and medical
f. Chest pain, high blood pressure, heart attack, heart murmur, facilities.)
disease of heart or blood vessels? .................................... [ ] [X] -------------------------------------
g. Hepatitis, cirrhosis or other disease of the liver or pancreas? ....... [ ] [X] # Details
h. Ulcer, colitis, chronic diarrhea or other disorder of the stomach -------------------------------------
or intestines? ........................................................ [ ] [X] 16a Insurance Physical for
i. Sugar, albumin, blood or pus in the urine? ............................ [ ] [X] Kemper Life in 1992, Normal
j. Disease of the kidneys, reproductive organs or sexually Results
transmitted disease? .................................................. [ ] [X]
k. Diabetes, thyroid or glandular disease? ............................... [ ] [X]
l. Arthritis, disease or injury of the muscles, bones or joints? ......... [ ] [X]
m. Cancer, tumor, cyst, disease of skin or lymph glands? ................. [ ] [X]
14. Have you in the last 10 years had or been treated for immune deficiency,
anemia, other blood disorder, recurrent fever, fatigue or unexplained
weight loss? (If Yes, explain) ........................................... [ ] [X]
15. Have you in the last 10 years been diagnosed or treated for
AIDS/ARC by a member of the medical profession? .......................... [ ] [X]
16. OTHER THAN ABOVE, HAVE YOU WITHIN THE PAST 5 YEARS:
(If Yes, explain)
a. Had a checkup, consultation, illness, injury, surgery or
diagnostic test? ...................................................... [X] [ ]
b. Been advised to have any diagnostic test, hospitalization or
surgery which was not completed? ...................................... [ ] [X]
c. Been a patient at any medical facility? ............................... [ ] [X]
17. a. Are you now under observation or treatment? ........................... [ ] [X]
b. Do you need assistance, supervision or use of medical
appliances of any kind? ............................................... [ ] [X]
- -----------------------------------------------------------------------------------------
18. Family History: include heart or kidney disease, high blood pressure, stroke,
diabetes, cancer, mental illness or suicide. None
- -----------------------------------------------------------------------------------------
Living Dead
Age Health Status Age Cause of Death
- -----------------------------------------------------------------------------------------
Father 66 good -- --
- -----------------------------------------------------------------------------------------
Mother 70 good -- --
- ----------------------------------------------------------------------------------------- P M I
1 Brothers 41 good -- -- 2 CITY BLVD. EAST, #238
- ----------------------------------------------------------------------------------------- ORANGE, CA 92668
2 Sisters 44 good -- --
38
- --------------------------------------------------------------------------------------------------------------------------------
The above answers and statements are true and complete to the best of my knowledge and belief.
Signed at Irvine, CA on March 8th, 1994
---------------------------- --------------------------------------------------------------------------------------
(City, State) (Mo.-Day-Yr.)
In Presence of /s/ x /s/
---------------------------------------------- --------------------------------------------------------------
</TABLE>
<PAGE> 16
COMPLETE ONLY IF PAYMENT IS TO BE MADE WITH APPLICATION.
20. Have you within 90 days had or been advised to have surgery or to be
admitted to a medical facility or within 2 years consulted a physician for
heart disease, stroke, immune disorder or cancer?
Proposed Insured A / / Yes /X/ No B / / Yes / / No
PAYMENT CANNOT BE ACCEPTED OR TEMPORARY INSURANCE OFFERED IF OVER AGE 65,
AMOUNT AT RISK EXCEEDS $500,000 OR QUESTION 20 IS ANSWERED, YES. ANY
PAYMENT IS SUBJECT TO TERMS OF THE TEMPORARY INSURANCE AGREEMENT. THE
PAYMENT RECEIVED MUST BE AT LEAST ONE MODAL PREMIUM.
21a. Has payment been made? / / YES. Amt. $_____________ / / NO
b. Has Temporary Insurance Agreement been provided and explained?
/ / YES / / NO
- --------------------------------------------------------------------------------
22. POLICYOWNER: THE (PROPOSED) INSURED IS POLICYOWNER UNLESS UNDER AGE 15 OR
OTHERWISE REQUESTED.
OTHER: Provide full name and relationship First Middle Last
(If Business, provide name, city & state)
SABA PETROLEUM COMPANY 17512 VONKARMAN AVE. IRVINE, CA 92714
- --------------------------------------------------------------------------------
23. (PROPOSED) INSURED UNDER AGE 15: Unless otherwise requested, the person who
signs as policyowner shall be the policyowner until the insured is age of
majority in the state of policy delivery, at which time the insured becomes
policyowner.
OTHER: Provide full name and relationship: First Middle Last
- --------------------------------------------------------------------------------
24. SECONDARY POLICYOWNER: THE INSURED UNLESS OTHERWISE REQUESTED.
OTHER: Provide full name and relationship First Middle Last
(If Business, provide name, city & state)
- --------------------------------------------------------------------------------
25. POLICYOWNER TAXPAYER IDENTIFICATION NUMBER (MUST BE COMPLETED)
/ / Individual / / Partnership /X/ Corporation / / Trustee / / Other
47-0617589
Certification. -- Under penalties of perjury, I certify that:
(1) The number shown above is my correct taxpayer identification number (or I
am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS notified me
that I am no longer subject to backup withholding (does not apply to real
estate transactions, mortgage interest paid, the acquisition or abandonment
of secured property, contributions to an individual retirement arrangement
(IRA), and payments other than interest and dividends).
CERTIFICATION INSTRUCTIONS. -- You must cross out item (2) above if you have
been notified by IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return.
- --------------------------------------------------------------------------------
The answers above are true and complete to the best of my knowledge and belief.
Unless I have a Temporary Insurance Agreement, I agree that coverage can take
effect only if the proposed insured is alive, and all answers material to the
risk are still true and complete, when the policy is delivered and the entire
first premium is paid for. I agree that no agent may alter the terms of the
application, the Temporary Insurance Agreement or the policy. No agent may
waive any of Aetna's rights or requirements.
If this is a request to exercise an option in an existing policy, the request
will become effective in accordance with the terms of that option. If this is a
request for change, any and all values may be used to pay for the change and to
repay any loan indebtedness. The changed policy will be subject to any loan
indebtedness not repaid. Any assignment in effect prior to this request will
apply to any new insurance issued.
Signature of (Proposed) Insured A_____/s/____________________Date 2-15-94
Signature of (Proposed) Insured B____________________________Date______________
Signature of Applicant/Policyowner /s/ William James Hickey Date 2-15-94
if other than proposed insured_____________________________Date______________
Signature of Assignee, if applicable_________________________Date______________
City Irvine State California
Signature of Agent _________/s/______________________________Date 2-15-94
<PAGE> 17
TEN-YEAR LEVEL PREMIUM RENEWABLE AND CONVERTIBLE
TERM LIFE INSURANCE POLICY
- - PREMIUMS REMAIN LEVEL FOR FIRST TEN POLICY YEARS AND BECOME ADJUSTABLE
BEGINNING IN YEAR 11 SUBJECT TO STATED MAXIMUMS
- - BEGINNING IN POLICY YEAR 11, POLICY BECOMES ANNUALLY RENEWABLE TO
ATTAINED AGE 100
- - CONVERTIBLE UNTIL THE EARLIER OF THE 10TH POLICY ANNIVERSARY OR THE
POLICY ANNIVERSARY NEAREST THE INSURED'S ATTAINED AGE 70
- - CONDITIONAL EXCHANGE AVAILABLE ON THE 10TH POLICY ANNIVERSARY
- - PARTICIPATING - DIVIDENDS MAY BE PAYABLE
<PAGE> 1
Exhibit 10.27
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Hartford, Connecticut 06156
While this Policy is in force Aetna will pay Proceeds subject
to all its provisions. Other rights and benefits are provided ILYAS CHAUDHARY
as described in this policy.
W4309819
THIS POLICY IS A LEGAL CONTRACT BETWEEN YOU AND AETNA
PLEASE READ YOUR POLICY CAREFULLY
RIGHT OF POLICY EXAMINATION
This Policy may be returned to Aetna or its representative
within 10 days after its receipt. Return this Policy to
Aetna, Individual Life Insurance, at 151 Farmington Avenue,
Hartford, Connecticut 06156. Upon its return, this Policy
will be deemed void from its beginning and all premiums
paid will be refunded.
Signed for Aetna on its Date of Issue.
/s/ /s/ Dan Kearney
Secretary President
/s/
-------------------------------
Registrar
TEN-YEAR LEVEL PREMIUM RENEWABLE AND CONVERTIBLE
TERM LIFE INSURANCE POLICY
- - PREMIUMS REMAIN LEVEL FOR FIRST TEN POLICY YEARS
AND BECOME ADJUSTABLE BEGINNING IN YEAR 11
SUBJECT TO STATED MAXIMUMS
- - BEGINNING IN POLICY YEAR 11, POLICY BECOMES
ANNUALLY RENEWABLE TO ATTAINED AGE 100
- - CONVERTIBLE UNTIL THE EARLIER OF THE 10th POLICY
ANNIVERSARY OR THE POLICY ANNIVERSARY NEAREST THE
INSURED'S ATTAINED AGE 70
- - CONDITIONAL EXCHANGE AVAILABLE ON THE 10TH POLICY
ANNIVERSARY
- - NON-PARTICIPATING - NO DIVIDENDS PAYABLE
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE NO.
<S> <C>
POLICY SPECIFICATIONS......................................... PS1
POLICY SUMMARY................................................ 1
DEFINITIONS................................................... 1
Attained Age................................................ 1
Date of Issue............................................... 1
Exchange Date............................................... 1
Expiration Date............................................. 1
Face Amount................................................. 1
Home Office................................................. 1
Minimum Face Amount......................................... 1
Policy Month................................................ 1
Policy Year/Policy Anniversary.............................. 2
Subsequent Application(s)................................... 2
We, Our, Us, Company........................................ 2
Written Request............................................. 2
You, Your................................................... 2
GENERAL PROVISIONS............................................ 2
The Contract................................................ 2
Assignment.................................................. 2
Non-Participating........................................... 2
Policy Settlement........................................... 2
Age and/or Sex.............................................. 2
Owner....................................................... 2
Beneficiary................................................. 2
Changes in Owner and Beneficiary............................ 3
Proceeds.................................................... 3
SUICIDE AND INCONTESTABILITY.................................. 3
Incontestability............................................ 3
Suicide Exclusion........................................... 3
PREMIUMS AND REINSTATEMENTS................................... 3
Premiums.................................................... 3
Premium Adjustment.......................................... 3
Grace Period................................................ 4
Refund on Death............................................. 4
Reinstatement............................................... 4
CHANGES IN INSURANCE COVERAGE................................. 4
Decrease in Face Amount..................................... 4
RENEWAL AND CONVERSION........................................ 4
Renewal..................................................... 4
Conversion.................................................. 4
Partial Conversions......................................... 5
CONDITIONAL EXCHANGE.......................................... 5
SETTLEMENT OPTIONS............................................ 5
Conditions.................................................. 5
Income Options.............................................. 6
Option 1 - Interest......................................... 6
Option 2 - Fixed Period..................................... 6
Option 3 - Life Income...................................... 7
Option 4 - Joint Life Income Reducing for Survivor.......... 7
Interest Rate............................................... 8
Betterment of Payments...................................... 8
Withdrawals and Death of the Payee.......................... 8
</TABLE>
ANY RIDERS AND A COPY OF THE APPLICATION(S) ARE AT THE END OF THIS POLICY.
<PAGE> 3
P O L I C Y S P E C I F I C A T I O N S
NAME OF
INSURED: ILYAS CHAUDHARY
POLICY
NUMBER W 4 308 819 DATE OF ISSUE JULY 18, 1995
SEX: AGE: PREMIUM CLASS:
MALE 48 PREFERRED NONSMOKER
BENEFICIARY - SABA PETROLEUM COMPANY, IRVINE, CA, A CORPORATION.
POLICY OWNER - SABA PETROLEUM COMPANY, IRVINE, CA, A CORPORATION.
FACE AMOUNT - $5,000,000
MINIMUM FACE AMOUNT - $250,000
<TABLE>
<CAPTION>
FACE YEARS ANNUAL
PLAN AMOUNT PAYABLE PREMIUM
<S> <C> <C> <C>
TEN YEAR LEVEL PREMIUM, RENEWABLE AND $5,000,000 10 $11,800.00
CONVERTIBLE TERM LIFE INSURANCE POLICY
TERM PERIOD
BEGINNING JULY 18, 1995
RENEWABLE TO JULY 18, 2047
CONVERTIBLE BEFORE JULY 18, 2005
EXCHANGE DATE OF JULY 18, 2005
POLICY FEE $80.00
TOTAL ANNUAL PREMIUM $11,880.00
</TABLE>
********************************************************************************
AUTOMATIC CHECK PLAN QUARTERLY SEMI-ANNUAL ANNUAL
$1,056.67 $3,270.00 $6,140.00 $11,880.00
********************************************************************************
METHOD OF PREMIUM ELECTED: ANNUAL
TO DETERMINE THE APPROPRIATE POLICY FEES FOR MONTHLY, QUARTERLY AND SEMI-
ANNUAL MODES, DIVIDE THE ANNUAL POLICY FEE OF $80.00 BY 12, 4 AND 2,
RESPECTIVELY.
WE RESERVE THE RIGHT TO ADJUST THE PREMIUM FOR EACH POLICY YEAR AFTER THIS
POLICY HAS BEEN IN FORCE FOR 10 YEARS FROM ITS DATE OF ISSUE. THE ADJUSTED
PREMIUM WILL NEVER EXCEED THE GUARANTEED RENEWAL PREMIUM FOR THAT YEAR. IT MAY
BE LESS OR GREATER THAN THE PREMIUM FOR THE PRECEDING YEAR.
PS 1
<PAGE> 4
PS 2
W 4 309 819 ILYAS CHAUDHARY
TABLE OF GUARANTEED MAXIMUM RENEWAL PREMIUMS
EFFECTIVE DATE OF TABLE: JULY 18, 1995
THIS TABLE SHOWS THE MAXIMUM AMOUNT OF PREMIUM* FOR EACH RENEWAL TERM OF THIS
POLICY, DETERMINED AT THE BEGINNING OF THE TEN YEAR TERM BY THE INSURED'S ISSUE
AGE AND BY THE INSURED'S ATTAINED AGE FOR EACH POLICY YEAR, THEREAFTER.
<TABLE>
<CAPTION>
POLICY POLICY
ANNUAL ANNUAL
ATTAINED AGE PREMIUM ATTAINED AGE PREMIUM
- ------------ ------- ------------ -------
<S> <C> <C> <C>
49 $ 11,800.00 75 $ 590,450.00
50 $ 11,800.00 76 $ 652,950.00
51 $ 11,800.00 77 $ 719,350.00
52 $ 11,800.00 78 $ 787,950.00
53 $ 11,800.00 78 $ 860,800.00
54 $ 11,800.00 80 $ 950,550.00
55 $ 11,800.00 81 $1,051,200.00
56 $ 11,800.00 82 $1,165,650.00
57 $ 11,800.00 83 $1,295,550.00
58 $104,150.00 84 $1,439,000.00
59 $115,200.00 85 $1,607,300.00
60 $126,900.00 86 $1,786,600.00
61 $139,950.00 87 $1,975,800.00
62 $154,850.00 88 $2,171,750.00
63 $171,800.00 89 $2,377,000.00
64 $190,950.00 90 $2,593,850.00
65 $212,150.00 91 $2,845,550.00
66 $235,050.00 92 $3,108,650.00
67 $259,700.00 93 $3,388,200.00
68 $286,250.00 94 $3,705,800.00
69 $315,100.00 95 $3,921,650.00
70 $347,700.00 96 $4,137,400.00
71 $387,700.00 97 $4,353,150.00
72 $427,350.00 98 $4,588,900.00
73 $476,350.00 99 $4,784,700.00
74 $531,350.00
</TABLE>
* THIS TABLE DOES NOT INCLUDE THE POLICY FEE.
<PAGE> 5
POLICY SUMMARY
It is important that You understand Your insurance policy. We have tried to use
understandable language throughout this Policy. However, should You have any
questions after You have read it, please call the representative who sold this
Policy to You or call us. This summary is not a substitute for the detailed
policy provisions.
This is a ten-year level premium life insurance policy continuing as an
annually renewable term policy until Attained Age 100 on the life of the
Insured named in the Policy Specifications.
Premiums must be paid to continue this Policy in force. Premium reminder
notices will be sent. This Policy may be reinstated.
This Policy's premiums remain level until the first day of the eleventh policy
year at which time this policy will become annually renewable until the Insured
reaches Attained Age 100. Subject to the conditions stated in this Policy, this
Policy may be converted to a permanent individual life insurance policy until
the earlier of the 10th Policy Anniversary or the Policy Anniversary nearest to
the Insured's Attained Age 70. On the tenth Policy Anniversary, this policy may
be exchanged for another policy of the same type or a similar policy made
available by Us at that time.
Other rights and benefits are explained in this Policy.
DEFINITIONS
ATTAINED AGE
Issue age of the Insured as shown in the Policy Specifications, increased by
the number of Policy Years elapsed. Issue age is the Insured's age on his/her
birthday nearest this Policy's Date of Issue.
DATE OF ISSUE
The effective date for initial coverage is the Date of Issue shown in the
Policy Specifications. The Date of Issue for any change in coverage as well as
the effective date of the change will be the Effective Date of Change shown in
the supplemental Policy Specifications which will be sent to You. Coverage is
conditional on payment of the first premium, if any, and issue of this Policy
as provided in the application.
EXCHANGE DATE
The date this policy can be exchanged for another policy of the same type or a
similar policy made available by Us at that time. The Exchange Date is shown in
the Policy Specifications.
EXPIRATION DATE
Subject to the conditions of this policy, this policy will remain in effect
until the Expiration Date. The Expiration Date is the same as the renewal date
shown in the Policy Specifications.
Coverage will terminate on the Expiration Date.
FACE AMOUNT
The Face Amount of this Policy is shown in the Policy Specifications.
HOME OFFICE
Our Home Office is located at 151 Farmington Avenue, Hartford, Connecticut
06156.
MINIMUM FACE AMOUNT
The Face Amount of this Policy cannot be reduced below this amount. The Minimum
Face Amount for this Policy is shown in the Policy Specifications.
POLICY MONTH
The Policy Month begins each month on the same day of the month as the Date of
Issue.
Page 1
<PAGE> 6
POLICY YEAR/POLICY ANNIVERSARY
This first Policy Year is the 12 month period beginning on the Date of Issue.
Your Policy Anniversary is the Date of Issue plus 1 year, 2 years, etc.
SUBSEQUENT APPLICATION(S)
Any application after the initial application, initiated by You or by Us.
WE, OUR, US, COMPANY
Aetna Life Insurance Company, its successors or assigns.
WRITTEN REQUEST
A request in writing, in a form satisfactory to Us and received by Us at Our
Home Office.
YOU, YOUR
The Owner(s).
GENERAL PROVISIONS
THE CONTRACT
This Policy, the initial application on the Insured, any Subsequent
Applications, and any amendment riders constitute the entire contract. Copies
of all applications are attached to and made a part of this Policy. Only the
President, Executive Vice President or the Corporate Secretary of the Company
may agree to a change in this Policy and then only in writing.
All statements made by or for the Insured are representations and not
warranties.
No statement will be used to void this Policy or defend against a claim unless
it is contained in the initial application or Subsequent Applications.
ASSIGNMENT
A copy of an assignment must be filed at the Home Office. Until We receive such
notice, We will not be required to take notice of, or be responsible for, any
transfer of interest in this Policy by assignment, agreement or otherwise.
We will not be responsible for the validity of any assignment.
NON-PARTICIPATING
No dividends will be paid.
POLICY SETTLEMENT
All amounts payable by Us are payable by the Home Office. We may require return
of this Policy.
AGE AND/OR SEX
If the age and/or sex of the Insured is misstated, the Proceeds on death will
be that which would have been purchased by the premium actually paid in the
year of death if the policy had been issued at the correct age and/or sex.
OWNER
Unless otherwise stated, this Policy is owned by the Insured.
All rights granted by this Policy or allowed by Us belong to the Owner.
If this Policy is owned jointly, any request to exercise rights granted by this
Policy must be made jointly.
BENEFICIARY
The Beneficiary for the Proceeds on death is as stated in the application
unless later changed. If no designated Beneficiary is living at the time of the
death of the Insured, all benefits will be paid to the Owner or the Owner's
executors, administrators or assigns.
70165-94 Page 2
<PAGE> 7
CHANGES IN OWNER AND BENEFICIARY
Unless this Policy states otherwise, the Owner or the Beneficiary, or both, may
be changed. Your Written Request must be sent to Us. This may be done as often
as desired by the current owner of record before the death of the Insured. When
We give Our written acceptance, the change will take effect as of the date Your
Written Request was signed. The change will be subject to any action We take
before receipt of the written acceptance.
PROCEEDS
Proceeds on death will equal the Face Amount. All amounts payable by Us are
subject to adjustment under the Age and/or Sex, Incontestability, Suicide and
Grade Period provisions.
SUICIDE AND INCONTESTABILITY
INCONTESTABILITY
With respect to statements made in the initial application for the Insured:
- - We will not contest this Policy after it has been in force during the
lifetime of the Insured for 2 years from its Date of Issue.
With respect to statements made in any Subsequent Applications:
- - We will not contest coverage relating to Subsequent Applications after
coverage has been in force during the lifetime of the Insured for 2 years
from the Date of Issue of such coverage.
If this Policy is contested, Your or the Beneficiary's rights may be affected.
SUICIDE EXCLUSION
If the Insured dies by suicide, while sane or insane, within 2 years from the
Date of Issue of this Policy, We will refund only premiums paid. Proceeds on
death will not be paid.
PREMIUMS AND REINSTATEMENT
PREMIUMS
Premium due dates are measured from Date of Issue. The first premium is due on
the Date of Issue.
Any premiums after the first premium are payable only at Our Home Office. Each
premium is payable on or before its due date. Send Your check or money order,
payable to Aetna, to the Home Office. Please be sure to write Your policy
number on Your check.
Premium reminder notices will be sent annually or at any other frequency to
which We agree. Please notify Us of any change in Your address.
A receipt signed by an officer of the Company will be given upon request.
PREMIUM ADJUSTMENT
The premium for the first ten Policy Years is shown in the Policy
Specifications. Beginning with the eleventh Policy Year We reserve the right to
adjust the premium for each Policy Year. However, the adjusted premium will
never exceed the guaranteed maximum premium for that Policy Year as shown in
the Policy Specifications. We will send You written notice of the new premium
before the beginning of each Policy Year after Policy Year ten.
Beginning with the eleventh Policy Year, Premiums will be adjusted when Our
expectations for future investment earnings, mortality, experience and expenses
vary from the conditions expected at the time of pricing. Any such changes will
be done on a prospective basis only; changes will not be such as to recover
past losses or to distribute prior profits. Adjustments will be made on a
uniform basis for Insureds of the same Attained Age, sex, premium
classification, and whose policies have been in force for an equivalent length
of time.
Page 3
<PAGE> 8
GRACE PERIOD
We will allow You 31 days of grace from the premium due date for payment of an
overdue premium.
If the premium is not paid within the Grace Period, this Policy will terminate.
Termination will be effective as of the premium due date.
During the Grace Period, this Policy will stay in force. If the Insured dies
during the grace period, We will deduct from the Proceeds the portion of the
overdue premium which applies to the Policy Month in which death occurs.
REFUND ON DEATH
The portion of any premium paid which is for a period beyond the Policy Month
in which the Insured died will be payable in addition to the Proceeds.
REINSTATEMENT
If this Policy terminates as provided in the Grace Period provision, it may be
reinstated within 5 years after the date of termination and before the
Expiration Date.
We will require satisfactory evidence of insurability on the Insured.
All premiums due since termination must be paid.
CHANGES IN INSURANCE COVERAGE
DECREASE IN FACE AMOUNT
You may decrease the Face Amount of this Policy. The decrease will not be
effective until the date when the next premium payment required to keep this
Policy in force is due.
When the Face Amount is decreased, We will change the premium amount payable
for the Year in which the change is effective. New premiums will be based on
Our table of premiums then in effect for the new Face Amount. New Policy
Specifications which reflect the change will be sent to You.
The amount of a decrease cannot reduce this Policy's Face Amount below the
Minimum Face Amount.
RENEWAL AND CONVERSION
RENEWAL
Beginning with Policy Year eleven, We will renew this policy annually without
evidence of insurability until the Expiration Date. Your premium payment must
be sent to Us within 31 days of each Policy Anniversary to renew this Policy.
If premiums are in default, this Policy will not be renewed.
CONVERSION
This Policy may be converted to any permanent plan of life insurance that We
make available for such purpose.
Your Written Request to convert must be received by Us while this Policy is in
force and within 30 days of the first to occur of (1) or (2):
1. the date the Insured reaches Attained Age 70, or
2. the first day of the eleventh Policy Year.
The date Your conversion period expires is shown in the Policy Specifications.
Evidence of Insurability will not be required for the amount being converted.
We will credit any unearned premium which is attributable to the amount being
converted to the new policy.
The new policy will be issued:
- - for the Insured's Attained Age and sex at Our current rates at the time of
conversion:
Page 4
<PAGE> 9
- - with the same premium class as would have been assigned to the Insured for
the new policy had it been issued on this Policy's Date of Issue;
- - subject to any limitations of risk or assignments outstanding against this
Policy.
Extra benefit riders in force on this Policy at the time of conversion can be
issued on the new policy without additional evidence of insurability only with
Our consent. Extra benefit riders must be currently available for sale with the
new policy.
This Policy will terminate and the new Policy will begin on the date that Your
Written Request and the first premium due for the new Policy are received at
Our Home Office. The new Policy will not take effect if the Insured is not
living on the Date of Issue of the new Policy.
PARTIAL CONVERSIONS
A portion of this Policy's Face Amount may be converted according to the terms
of the Conversion provision. New Policy Specifications for this Policy will be
sent to You.
After a Partial Conversion, this Policy's Face Amount must be equal to or
greater than the Minimum Face Amount. The minimum amount that may be converted
is equal to the minimum face amount available for the new policy.
CONDITIONAL EXCHANGE
On the tenth Policy Anniversary, You may exchange this policy for a new policy
of the same type or a similar one made available by Us at that time. All
premiums on this policy due before the Exchange Date must be paid. The new
policy is subject to the following terms.
1. You must complete and submit a new application and the first premium to Us
within 90 days prior to the Exchange Date.
2. You must submit evidence of insurability satisfactory to Us.
3. Coverage under this policy will terminate when coverage under the new
policy begins.
4. The new policy will be issued on the life of the Insured under this policy.
5. The Issue Age on the new policy will be the Insured's Attained Age on the
birthday nearest the Exchange Date.
6. The Insured's Issue Age cannot exceed 70.
7. Any extra benefit riders in this policy can be included in the new policy
provided those extra benefit riders are available for sale with the new
policy at the time of exchange. Any extra benefit rider is subject to the
rules and premium rates we are using on the Date of Issue of the new policy.
8. The Date of Issue of the new policy will be the Exchange Date.
9. Premium rates for the new policy will be based on the premium rates in
effect on the Exchange Date.
SETTLEMENT OPTIONS
CONDITIONS
All or part of the Proceeds of this Policy may be applied under one or more of
the options described below or in any manner to which We agree. An election
shall be made by Written Request filed with the Home Office. The payee of
Proceeds may make this election if no prior election has been made.
Payments will be made at intervals of 1, 3, 6 or 12 months in equal amounts as
elected. Our consent to the election of an option is required if:
1. The payee is not a natural person receiving payments in his or her own
right;
2. the payee is an assignee of this Policy; or,
3. payments would be less than $25 each or totalling less than $120 in a year.
Page 5
<PAGE> 10
INCOME OPTIONS
The rates for these Income Options are based on the 1983 Individual Annuity
Mortality Table, Male or Female. For purposes of calculating payments, the
Adjusted Ages of the payees will be used. The Adjusted Age is the payee's age
on his or her birthday nearest the commencement date of the annuity and then
reduced by one year for annuities commencing in the 1990's, reduced two years
for annuities beginning during 2000-2009, and so on. Rates for ages and
intervals not shown for any of the following income options will be furnished
upon request.
OPTION 1 - INTEREST
Payment of interest on Proceeds left with Us. Proceeds held under this option
may be left with Us after the death of the payee only with Our consent.
By Written Request, the payee may later elect to:
1. Receive all or a portion of the amount held under this option; or
2. apply all or a portion of this amount to options 2, 3 or 4 as described
below.
OPTION 2 - FIXED PERIOD
Payment for a stated number of years, not longer than 30 years, as elected from
the following table.
- --------------------------------------------------------------------------------
PAYMENT PER $1,000 PROCEEDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS OF SEMI-
FIXED PERIOD ANNUAL ANNUAL QUARTERLY MONTHLY
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3 $343.23 $172.88 $86.76 $28.99
4 261.19 131.56 66.02 22.06
5 211.99 106.78 53.59 17.91
10 113.82 57.33 28.77 9.61
15 81.33 40.96 20.56 6.87
20 65.25 32.87 16.50 5.51
25 55.76 28.08 14.09 4.71
30 49.53 24.95 12.52 4.18
</TABLE>
- --------------------------------------------------------------------------------
Page 6
<PAGE> 11
OPTION 3 - LIFE INCOME
Payments for the lifetime of the payee. If also chosen, We will guarantee
payments for 60, 120, 180 or 240 months. No payment will be due after death,
except payment for any remaining fixed period.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MONTHLY LIFE INCOME PER $1,000 PROCEEDS
- -----------------------------------------------------------------------------------------------------
WITH FIXED PERIOD
-------------------------------------------------------------- WITHOUT
AGE 10 YEARS 15 YEARS 20 YEARS FIXED PERIOD
NEAREST -------------- -------------- -------------- -------------
BIRTHDAY Male Female Male Female Male Female Male Female
- -------- ---- ------ ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.22 $3.89 $4.17 $3.86 $4.08 $3.82 $4.27 $3.90
51 4.30 3.95 4.23 3.92 4.14 3.86 4.34 3.97
52 4.37 4.01 4.30 3.98 4.20 3.93 4.43 4.03
53 4.45 4.08 4.37 4.04 4.26 3.99 4.51 4.10
54 4.54 4.15 4.45 4.11 4.32 4.04 4.60 4.18
55 4.62 4.22 4.53 4.18 4.39 4.11 4.70 4.25
56 4.72 4.30 4.61 4.25 4.45 4.17 4.80 4.34
57 4.82 4.38 4.69 4.32 4.51 4.23 4.91 4.42
58 4.92 4.47 4.78 4.40 4.58 4.30 5.03 4.52
59 5.03 4.56 4.87 4.48 4.65 4.37 5.15 4.61
60 5.14 4.66 4.96 4.57 4.71 4.44 5.28 4.72
61 5.27 4.76 5.06 4.66 4.78 4.51 5.43 4.83
62 5.39 4.87 5.16 4.75 4.84 4.58 5.58 4.95
63 5.53 4.98 5.26 4.85 4.90 4.65 5.74 5.08
64 5.66 5.10 5.36 4.95 4.96 4.72 5.91 5.21
65 5.81 5.22 5.46 5.05 5.02 4.79 6.10 5.36
66 5.96 5.36 5.56 5.16 5.08 4.86 6.30 5.51
67 6.12 5.50 5.66 5.26 5.13 4.93 6.51 5.67
68 6.28 5.65 5.77 5.37 5.18 5.00 6.73 5.85
69 6.44 5.80 5.86 5.49 5.23 5.06 6.97 6.04
70 6.61 5.97 5.96 5.60 5.27 5.12 7.23 6.25
71 6.79 6.14 6.05 5.71 5.31 5.18 7.51 6.47
72 6.96 6.32 6.14 5.83 5.34 5.23 7.80 6.71
73 7.14 6.50 6.23 5.94 5.37 5.28 8.12 6.98
74 7.32 6.69 6.31 6.04 5.40 5.32 8.46 7.26
75 7.50 6.89 6.38 6.14 5.42 5.35 8.82 7.57
</TABLE>
OPTION 4 - JOINT LIFE INCOME REDUCING FOR SURVIVOR
Payments during the joint lifetimes of two payees. At the death of either,
payments will continue to the survivor. When this option is chosen, a choice
must be made of:
1. 100% of the payment to the survivor;
2. 66 2/3% of the payment to continue to the survivor;
3. 50% of the payment to continue to the survivor;
4. payments for a minimum of 120 months, with 100% of the payment to continue
to the survivor; or
5. 100% of the payment to continue to the survivor if the survivor is the
original payee, and 50% of the payment to continue to the survivor if the
survivor is the second payee.
No payment will become due after the death of the surviving payee.
The following table illustrates the applicable rates if number (3) of Option 4
is chosen.
Page 7
<PAGE> 12
MONTHLY JOINT INCOME WITH 1/2 TO SURVIVOR PER $1,000 PROCEEDS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
AGE OF AGE OF FEMALE ANNUITANT
MALE ----------------------------------------------------------------------------------
ANNUITANT 50 55 60 65 70 75 80 85
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.08 $4.26 $4.48 $4.75 $5.07 $5.46 $ 5.90 $ 6.36
55 4.27 4.47 4.71 5.01 5.37 5.80 6.30 6.83
60 4.49 4.71 4.99 5.32 5.73 6.22 6.80 7.42
65 4.76 5.01 5.32 5.70 6.17 6.75 7.44 8.19
70 5.07 5.36 5.71 6.15 6.70 7.40 8.23 9.16
75 5.41 5.74 6.15 6.66 7.32 8.15 9.16 10.34
80 5.77 6.15 6.62 7.22 7.99 8.99 10.24 11.73
85 6.12 6.54 7.08 7.77 8.67 9.86 11.40 13.27
- -----------------------------------------------------------------------------------------------
</TABLE>
INTEREST RATE
The guaranteed interest rate is 3.0% per year compounded annually. This rate
applies to funds held under options 1, 2 and 3 during any fixed period. As to
these funds, We will allow such excess interest as We may declare each year. As
to Option 1, from time to time We may offer higher interest rates with certain
conditions on withdrawal as are then published by Us.
BETTERMENT OF PAYMENTS
If option 2, 3 or 4 is chosen and if the guaranteed payments are less than those
of Our current single premium immediate annuity on the same plan, those larger
amounts will be paid instead.
WITHDRAWALS AND DEATH OF THE PAYEE
As to the funds held under option 1, withdrawals and changes of options may be
made if the payee makes the election or if the election so permits. No
withdrawals or changes of option may be made under Options 2, 3 and 4. Upon the
death of the payee, the current value of funds held under option 1 or the
present value of any guaranteed payments not yet paid in one lump sum to the
beneficiary. The beneficiary may elect to continue the remaining payments
instead of receiving the lump sum amount. If no beneficiary exists, the present
value of any remaining payments will be paid in one sum to the estate of the
payee.
The interest rate used to determine the first payment will be used to calculate
the present value of any remaining payments.
Page 8
<PAGE> 13
[AETNA Aetna Life Insurance and Annuity Company
LOGO] 151 Farmington Avenue
Hartford, CT 06156
AMENDMENT TO APPLICATION FOR LIFE INSURANCE
- --------------------------------------------------------------------------------
Name Date of Application Policy Number
ILYAS CHAUDHARY MAY 24, 1995 W4309819
Aetna is authorized to amend the application as follows. The answers to the
original questions on the application, as amended below, should now read as
follows:
- --------------------------------------------------------------------------------
Question # Answer
11 OTHER THAN 3/94 INSURANCE EXAM FOR AETNA-HAVE NOT
CONSULTED DR REHMAN OR ANY OTHER PHYSICIAN IN
MANY YEARS
The Undersigned agree(s) these changes and statements shall be a part of the
application referred to above, they shall be subject in all respects to the
agreements contained in the application.
- --------------------------------------------------------------------------------
Signed at (City, State) on (Mo.-Day-Yr.)
/s/ 7/27/95
- --------------------------------------------------------------------------------
Signature of Proposed Insured A Witness to Proposed Insured A
/s/ Rachael Y. Giardine
- --------------------------------------------------------------------------------
Signature of Proposed Insured B Witness to Proposed Insured B
- --------------------------------------------------------------------------------
Signature of Applicant A/Policyowner Witness to Applicant A/Policyowner
if other than the Proposed Insured(s)
/s/ Saba Petroleum Company /s/ Rachael Y. Giardine
by W.C. Vance Vice President
- --------------------------------------------------------------------------------
Signature of Applicant B/Policyowner Witness to Applicant B/Policyowner
if other than the Proposed Insured(s)
- --------------------------------------------------------------------------------
All signatures required if Applicant and Proposed Insured(s) are different
persons, unless Proposed Insured(s) is/are under age 15. If Applicant(s) is/are
a corporation or partnership, signatures of two officers or partners other than
the Proposed Insured(s) are required. The officers must sign and state title.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INSTRUCTIONS TO POLICYOWNER
(RETAIN THIS COPY FOR YOUR RECORDS)
The Policyowner and Agent's copies must be signed.
<PAGE> 14
[AETNA LOGO]
LIFE INSURANCE APPLICATION
[ ] Aetna Life Insurance Company [ ] Aetna Life Insurance and Annuity Company
151 Farmington Avenue, Hartford, CT 06156
member Companies of AETNA LIFE & CASUALTY
===============================================================================
[X] New Insurance [ ] Increase in Amount $
------------------
Policy No. ANSWER ALL QUESTIONS
-------------
[ ] Term Conversion/Guaranteed Option $ .
---------------------
Continue $ as term insurance.
-----------------------
ANSWER QUESTIONS 1, 4 (if applicable), 5, 6, 22, 23, 24 & 25
[ ] Other Policy Change ANSWER APPLICABLE QUESTIONS.
-----------------------------
[ ] Policy No. to be changed/converted
-----------------------------------------
===============================================================================
STATE OF DELIVERY California
- -------------------------------------------------------------------------------
1. (PROPOSED) INSURED A (Print full legal name)
---------------------------------------------------------------------------
First Middle Last
ILYAS CHAUDHARY
---------------------------------------------------------------------------
Residence Address (No., Street) P.O. Box
151 TOBY LN
---------------------------------------------------------------------------
City State Zip Code
ANAHEIM HILLS CA 92507
---------------------------------------------------------------------------
Sex Birth Date (Mo-Day-Yr) Place of Birth
M 02.09.1947 PAKISTAN
---------------------------------------------------------------------------
2a. Occupation (Title & Give Exact Duties)
PRESIDENT AND CHIEF EXECUTIVE OFFICER
---------------------------------------------------------------------------
2b. Employer's Name and Address
SABA PETROLEUM COMPANY
---------------------------------------------------------------------------
2c. Annual Income $------------------------------------------------------------
2d. Amount of life insurance presently in force or applied for:
(Aetna) $ ADB $
------------------- -------------------
(Other Companies) $ ADB $
------------------- -------------------
3. Will life insurance or annuity in any company be replaced or changed if
insurance applied for is issued? [ ] Yes [X] No
Explain
--------------------------------------------------------------------
4. In the past 12 months, have you smoked cigarettes, cigars, pipes or used
tobacco in any form? If YES, describe usage.
[ ] Yes [X] No
===============================================================================
Complete For Spouse, Other Insured Rider, Joint Applications (Relationship to
Proposed Insured A)
- -------------------------------------------------------------------------------
1. (PROPOSED) INSURED B (Additional insured)
---------------------------------------------------------------------------
First Middle Last
---------------------------------------------------------------------------
Residence Address (No., Street) P.O. Box
---------------------------------------------------------------------------
City State Zip Code
---------------------------------------------------------------------------
Sex Birth Date (Mo-Day-Yr) Place of Birth
---------------------------------------------------------------------------
2a. Occupation (Title & Give Exact Duties)
---------------------------------------------------------------------------
2b. Employer's Name and Address
---------------------------------------------------------------------------
2c. Annual Income $------------------------------------------------------------
2d. Amount of life insurance presently in force or applied for:
(Aetna) $ ADB $
------------------- -------------------
(Other Companies) $ ADB $
------------------- -------------------
3. Will life insurance or annuity in any company be replaced or changed if
insurance applied for is issued? [ ] Yes [ ] No
Explain
--------------------------------------------------------------------
4. In the past 12 months, have you smoked cigarettes, cigars, pipes or used
tobacco in any form? If YES, describe usage.
[ ] Yes [ ] No
- -------------------------------------------------------------------------------
5. POLICY INFORMATION: Basic Plan 10 YEARS TERM AMOUNT 5,000,000.00
----------------------------------- --------------
If Universal Life [ ] Option 1 [ ] Option 2
If Mortgage Ins. Years Rate (%)
------ ------
Dividend Option: [ ] Pay in Cash [ ] Reduce Premium
(not for salary deduction)
[ ] Other -- Specify
---------------------
If available, Automatic Premium Loan will be operative unless otherwise
requested.
Supplemental Benefits
Disability Waiver? [ ] Yes [ ] No
Accidental Death Benefit?
Ins. A. [ ] Yes $ [ ] No
---------
Ins. B. [ ] Yes $ [ ] No
---------
Riders*: $
------------------------------ -------------------------
$
------------------------------ -------------------------
$
------------------------------ -------------------------
$
------------------------------ -------------------------
*For CIR--Submit application supplement
===============================================================================
6. BENEFICIARY -- (PROPOSED) INSURED A
a. Primary-First, Middle, Last Relationship
SABA PETROLEUM COMPANY
---------------------------------------------------------------------------
b. Secondary-First Middle, Last Relationship
---------------------------------------------------------------------------
c. FINAL: Unless otherwise requested below:
The executors or administrators of the insured.
---------------------------------------------------------------------------
===============================================================================
6. BENEFICIARY -- (PROPOSED) INSURED B
a. Primary-First, Middle, Last Relationship
---------------------------------------------------------------------------
b. Secondary-First Middle, Last Relationship
---------------------------------------------------------------------------
c. FINAL: Unless otherwise requested below:
The executors or administrators of the insured.
---------------------------------------------------------------------------
Special instructions:
------------------------------------------------------
---------------------------------------------------------------------------
<PAGE> 15
PART II -- NON MEDICAL
QUESTIONS 7-21 SHOULD NOT BE COMPLETED
FOR TERM CONVERSIONS OR EXERCISE OF GUAR-
ANTEED INSURABILITY OPTION.
Proposed Insured
7. HAVE YOU WITHIN 2 YEARS: (If Yes, explain) A B
a. Flown as a pilot or crew member or Yes No Yes No
intend to do so? (If YES, furnish Aviation
Supplement) .................................. / / /X/ / / / /
b. Engaged in motor vehicle or boat racing,
rock or mountain climbing, hang gliding,
or sky, skin or scuba diving or intend
such activities? (If Yes, furnish Avocation
Supplement) .................................. / / /X/ / / / /
c. Had your license suspended or revoked,
had 3 or more moving violations, or been
charged with driving under the influence
of alcohol or drugs?.......................... / / /X/ / / / /
d. Frequently travelled outside of the United
States or intend to do so?.................... /X/ / / / / / /
8. HAVE YOU EVER:
a. Had insurance refused, or offered only
with an extra premium?........................ / / /X/ / / / /
b. Been arrested and convicted for a felony
offense? ..................................... / / /X/ / / / /
9. HAVE YOU IN THE LAST 5 YEARS: (If Yes,
explain)
a. Used hallucinogenic or narcotic drugs not
prescribed by a doctor? ...................... / / /X/ / / / /
b. Used alcoholic beverages? (Note type, quan-
tity and frequency) .......................... / / /X/ / / / /
c. Had or been advised to have counseling
for alcohol or drug use? ..................... / / /X/ / / / /
10. a. What is your current height? .................
-------- --------
b. What is your current weight? .................
-------- --------
c. If under age 2, birth weight? ................
-------- --------
11. Name, address and phone number of personal physician,
date and reason last seen, results:
Ins. A Ins. B
------------------------------------------------------------------------
DR. HAMID UR. REHMAN
------------------------------------------------------------------------
(719) 751-0101
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
12. Have you had a history of heart, lung or liver Yes No
disorder, stroke, diabetes or cancer? ............ / / /X/ / / / /
If yes, and exam is required, submit M.D. exam. (Not Para-Med)
QUESTIONS 13-18 NOT REQUIRED FOR EXAMINED
BUSINESS.
Proposed Insured
13. HAVE YOU EVER HAD OR BEEN TREATED A B
FOR: (If Yes, explain) Yes No Yes No
a. Mental or nervous disorder? .................. / / /X/ / / / /
b. Disease of the nervous system or brain? ...... / / /X/ / / / /
c. Fainting, seizures, paralysis or stroke? ..... / / /X/ / / / /
d. Shortness of breath, persistent cough? ....... / / /X/ / / / /
e. Emphysema or other lung disease? ............. / / /X/ / / / /
f. Chest pain, high blood pressure, heart
attack, heart murmur, disease of the heart
or blood vessels? ............................ / / /X/ / / / /
g. Hepatitis, cirrhosis, or other disease of the
liver or pancreas? ........................... / / /X/ / / / /
h. Ulcer, colitis, chronic diarrhea, or other
disorder of the stomach or intestines? ....... / / /X/ / / / /
i. Sugar, albumin, blood or pus in urine? ....... / / /X/ / / / /
j. Disease of the kidneys, reproductive
organs or sexually transmitted disease? ...... / / /X/ / / / /
k. Diabetes, thyroid or glandular disease? ...... / / /X/ / / / /
l. Arthritis, disease or injury of the muscles,
bones or joints? ............................. / / /X/ / / / /
m. Cancer, tumor, cyst, disease of skin or
lymph glands? ................................ / / /X/ / / / /
14. Have you in the last 10 years had or been
treated for immune deficiency, anemia, other
blood disorder, recurrent fever, fatigue or unex-
plained weight loss? (If Yes, explain) ........... / / /X/ / / / /
15. Have you in the last 10 years been diagnosed
or treated for AIDS/ARC by a member of the
medical profession? .............................. / / / / / / / /
16. OTHER THAN ABOVE, HAVE YOU WITHIN
THE PAST 5 YEARS: (If Yes, explain)
a. Had a checkup, consultation, illness,
injury, surgery or diagnostic test? .......... /X/ / / / / / /
b. Been advised to have any diagnostic test,
hospitalization or surgery which was not
completed? ................................... / / /X/ / / / /
c. Been a patient at any medical facility? ...... / / /X/ / / / /
17. a. Are you now under observation or
treatment? ................................... / / /X/ / / / /
b. Do you need assistance, supervision or
use of medical appliances of any kind? ....... / / /X/ / / / /
18. Do you have a family history of diabetes, heart
disease, or hereditary disease? .................. / / /X/ / / / /
19. EXPLANATIONS: Number, nature and severity of condition, frequency of
attacks, treatments received, medication, dates, name,
address & phone number of medical attendants and hospitals.
- --------------------------------------------------------------------------------
QUES (PROPOSED) INSURED A QUES (PROPOSED) INSURED B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 16
COMPLETE ONLY IF PAYMENT IS TO BE MADE WITH APPLICATION.
20. Have you within 90 days had or been advised to have Proposed Insured
surgery or to be admitted to a medical facility or A B
within 2 years consulted a physician for heart Yes No Yes No
disease, stroke, immune disorder or cancer? .......... / / /X/ / / / /
PAYMENT CANNOT BE ACCEPTED OR TEMPORARY INSURANCE OFFERED IF OVER AGE 65,
AMOUNT AT RISK EXCEEDS $500,000 OR QUESTION 20 IS ANSWERED, YES. ANY
PAYMENT IS SUBJECT TO TERMS OF THE TEMPORARY INSURANCE AGREEMENT. THE
PAYMENT RECEIVED MUST BE AT LEAST ONE MODAL PREMIUM.
21a. Has payment been made? / / YES. Amt. $________ / / NO.
b. Has Temporary Insurance Agreement
been provided and explained? / / YES / / NO
_______________________________________________________________________________
22. POLICYOWNER: THE (PROPOSED) INSURED IS POLICYOWNER UNLESS
UNDER AGE 15 OR OTHERWISE REQUESTED.
OTHER: Provide full name and relationship
First Middle Last(If Business,provide name, city, & state)
SABA PETROLEUM COMPANY 17512-VONKARMAN AVE IRVINE CA. 92714 (KEY MAN)
_______________________________________________________________________________
23. (PROPOSED) INSURED UNDER AGE 15: Unless otherwise requested, the person who
signs as policyowner shall be the policyowner until the insured is age of
majority in the state of policy delivery, at which time the insured becomes
policyowner.
OTHER: Provide full name and relationship: First Middle Last
_______________________________________________________________________________
24. SECONDARY POLICYOWNER: THE INSURED UNLESS OTHERWISE REQUESTED.
OTHER: Provide full name and relationship
First Middle Last(If Business,provide name, city, & state)
_______________________________________________________________________________
25. POLICYOWNER TAXPAYER IDENTIFICATION NUMBER (MUST BE COMPLETED)
/ / Individual
[ ][ ][ ]-[ ][ ]-[ ][ ][ ]
/ / Partnership /X/ Corporation / / Trustee / / Other
47-0617589
Certification - Under penalties of perjury, I certify that:
(1) The number shown above is my correct taxpayer identification number (or I am
waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS notified me that I am no
longer subject to backup withholding (does not apply to real estate
transactions, mortgage interest paid, the acquisition or abandonment of
secured property, contributions to an individual retirement arrangement
(IRA), and payments other than interest and dividends).
CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have been
notified by IRS that you are currently subject to backup withholding because of
underreporting interest or dividends on your tax return.
_______________________________________________________________________________
The answers above are true and complete to the best of my knowledge and belief.
Unless I have a Temporary Insurance Agreement, I agree that coverage can take
effect only if the proposed insured is alive, and all answers material to the
risk are still true and complete, when the policy is delivered and the entire
first premium is paid for. I agree that no agent may alter the terms of the
application, the Temporary Insurance Agreement or the policy. No agent may
waive any of AEtna's rights or requirements.
If this is a request to exercise an option in an existing policy, the request
will become effective in accordance with the terms of that option. If this is a
request for change, any and all values may be used to pay for the change and to
repay any loan indebtedness. The changed policy will be subject to any loan
indebtedness not repaid. Any assignment in effect prior to this request will
apply to any new insurance issued.
Signature of (Proposed) Insured A /s/ Date 05-24-95
- --------------------------------------------------------------------------------
Signature of (Proposed) Insured B Date
- --------------------------------------------------------------------------------
Signature of Applicant/Policyowner /s/ (Executive Date
Secretary)
---------------------------------------------
if other than proposed insured Date
- --------------------------------------------------------------------------------
Signature of Assignee, if applicable Date 05-25-95
- --------------------------------------------------------------------------------
City Irvine State CA
- --------------------------------------------------------------------------------
Signature of Agent /s/ Masood E. Khan (Masood E. Khan) Date 05-25-95
- --------------------------------------------------------------------------------
<PAGE> 17
<TABLE>
<S> <C> <C>
[AETNA APPLICATION [ ] AETNA LIFE INSURANCE COMPANY
LOGO] PART 2 MEDICAL/ [ ] AETNA LIFE INSURANCE AND ANNUITY COMPANY
PARAMEDICAL EXAM Hartford, Connecticut 06156-0007
- ---------------------------------------------------------------------------------------------------------------------------------
Proposed Insured (Print Name -- First, Initial, Last) Date of Birth (Mo.-Day-Yr.)
Ilyas Chaudhary 2-9-47
- ---------------------------------------------------------------------------------------------------------------------------------
a. Name, address and phone no. of your personal physician Dr. Shubes -- Anaheim, CA
---------------------------------------------------------------------
b. Date and reason last consulted Never Consulted
---------------------------------------------------------------------------------------------
c. What treatment was given or medication prescribed? Never Consulted
-------------------------------------------------------------------------
d. Present status? --
------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
13. HAVE YOU EVER HAD OR BEEN TREATED FOR: 19. DETAILS OF YES ANSWERS, IDENTIFY
(If Yes, explain) YES NO QUESTION NUMBER, CIRCLE APPLI-
a. Mental or nervous disorder? ........................................... [ ] [X] CABLE ITEMS. (Include diagnoses,
b. Disease of the nervous system or brain? ............................... [ ] [X] dates, treatments received,
c. Fainting, seizures, paralysis or stroke? .............................. [ ] [X] medication, results and name,
d. Shortness of breath, persistent cough? ................................ [ ] [X] address and phone number of all
e. Emphysema or other lung disease? ...................................... [ ] [X] attending physicians and medical
f. Chest pain, high blood pressure, heart attack, heart murmur, facilities.)
disease of heart or blood vessels? .................................... [ ] [X] -------------------------------------
g. Hepatitis, cirrhosis or other disease of the liver or pancreas? ....... [ ] [X] # Details
h. Ulcer, colitis, chronic diarrhea or other disorder of the stomach -------------------------------------
or intestines? ........................................................ [ ] [X] 18 Father has had stroke
i. Sugar, albumin, blood or pus in the urine? ............................ [ ] [X] ---------------------
Insurance Physical for
j. Disease of the kidneys, reproductive organs or sexually Aetna in 1994
transmitted disease? .................................................. [ ] [X] Normal Results
k. Diabetes, thyroid or glandular disease? ............................... [ ] [X]
l. Arthritis, disease or injury of the muscles, bones or joints? ......... [ ] [X]
m. Cancer, tumor, cyst, disease of skin or lymph glands? ................. [ ] [X]
14. Have you in the last 10 years had or been treated for immune deficiency,
anemia, other blood disorder, recurrent fever, fatigue or unexplained
weight loss? (If Yes, explain) ........................................... [ ] [X]
15. Have you in the last 10 years been diagnosed or treated for
AIDS/ARC by a member of the medical profession? .......................... [ ] [X]
16. OTHER THAN ABOVE, HAVE YOU WITHIN THE PAST 5 YEARS:
(If Yes, explain)
a. Had a checkup, consultation, illness, injury, surgery or
diagnostic test? ...................................................... [ ] [X]
b. Been advised to have any diagnostic test, hospitalization or
surgery which was not completed? ...................................... [ ] [X]
c. Been a patient at any medical facility? ............................... [ ] [X]
17. a. Are you now under observation or treatment? ........................... [ ] [X]
b. Do you need assistance, supervision or use of medical
appliances of any kind? ............................................... [ ] [X]
- -----------------------------------------------------------------------------------------
18. Family History: include heart or kidney disease, high blood pressure, stroke,
diabetes, cancer, mental illness or suicide.
- -----------------------------------------------------------------------------------------
Living Dead
Age Health Status Age Cause of Death
- -----------------------------------------------------------------------------------------
Father 76 good - stroke -- --
- -----------------------------------------------------------------------------------------
Mother 75 good -- --
- -----------------------------------------------------------------------------------------
1 Brothers 41 good -- --
- -----------------------------------------------------------------------------------------
2 Sisters 46 good -- --
39 good
- --------------------------------------------------------------------------------------------------------------------------------
The above answers and statements are true and complete to the best of my knowledge and belief.
Signed at Irvine, CA on June 30th, 1995
---------------------------- --------------------------------------------------------------------------------------
(City, State) (Mo.-Day-Yr.)
In Presence of /s/ x /s/
---------------------------------------------- --------------------------------------------------------------
</TABLE>
<PAGE> 18
TEN-YEAR LEVEL PREMIUM RENEWABLE AND CONVERTIBLE TERM LIFE INSURANCE POLICY
- - PREMIUMS REMAIN LEVEL FOR FIRST TEN POLICY YEARS AND BECOME ADJUSTABLE
BEGINNING IN YEAR 11 SUBJECT TO STATED MAXIMUMS
- - BEGINNING IN POLICY YEAR 11, POLICY BECOMES ANNUALLY RENEWABLE TO ATTAINED AGE
100
- - CONVERTIBLE UNTIL THE EARLIER OF THE 10TH POLICY ANNIVERSARY OR THE POLICY
ANNIVERSARY NEAREST THE INSURED'S ATTAINED AGE 70
- - CONDITIONAL EXCHANGE AVAILABLE ON THE 10TH POLICY ANNIVERSARY
- - NON-PARTICIPATING - NO DIVIDENDS PAYABLE
<PAGE> 1
Exhibit 10.29
CAPCO RESOURCES, LTD.
950, 444 FIFTH AVENUE S.W.
DAYON BUILDING
CALGARY, ALBERTA, CANADA T2P 2TB
April 2, 1997
Saba Petroleum Company
3201 Skyway Drive, Suite 201
Santa Maria, Ca. 93455
Attention: Mr. Alex Cathcart
Executive Vice President
Gentlemen:
Please refer to that certain indemnity agreement between the undersigned
("Capco") and you ("Saba") pursuant to which Capco has agreed to indemnify Saba
from any loss which may result from the assertion by a shareholder of Saba that
he was entitled to acquire shares of the common stock of Saba by reason of
preemptive rights held by such person and the failure of Saba to accord such
person the ability to exercise such rights.
Saba has requested that Capco provide certificates endorsed in blank
representing 150,000 shares of the common stock of Saba held by Capco as
security for the performance of the indemnity and that such shares be deposited
into an escrow or trust of Saba's selection to further collateralize such
performance. This constitutes Capco agreement to deposit such shares, provided
that Saba agrees the following terms:
1. The term of the escrow or trust shall end on September 1,
1998, at which time all shares deposited shall be returned to Capco,
unless prior to such time a covered claim has been asserted, in which
case those shares not required to provide indemnity to Saba with
respect to such claim and any other covered claims that may
theretofore have been discharged out of such deposit, shall be
returned to Capco and when such asserted claim shall have been
discharged, the remaining shares held with respect to it shall be
returned to Capco and the trust or escrow shall terminate.
2. The terms of the escrow or trust shall be consistent with the
indemnity agreement and this letter of agreement.
3. Capco shall retain the right to vote all shares deposited into
the trust or escrow and the right to receive all distributions made
with respect thereto, save only shares released to discharge a covered
claim.
<PAGE> 2
4. Capco shall have the right to approve any settlement of a claim that
purports to be a covered claim and no settlement thereof shall be made
without the written concurrence of Capco.
5. Nothing herein shall modify the terms of the indemnity agreement which
shall continue in effect in accordance with its original tenor, it
being the agreement of the parties that this agreement is only to
provide collateral for the indemnity agreement's performance by Capco.
If the foregoing is acceptable to you, please so indicate by signing and
returning one copy of this letter to the undersigned.
Very truly yours,
CAPCO RESOURCES, LTD.
by
----------------------------
ACCEPTED AND AGREED
this _ day of April 1997,
SABA PETROLEUM COMPANY
by
---------------------------------------
Alex Cathcart, Executive Vice President
<PAGE> 1
EXHIBIT 10.30
PURCHASE AND SALE AGREEMENT
This Agreement (the "Agreement") for the sale and purchase of MV VENTURES,
G.P., (herein called the "Partnership"), which owns the properties listed on
Exhibit "A," attached hereto, together with all wells, fixtures, facilities
and/or other improvements (other than any compressor, pipeline or gathering
system) located thereon (herein collectively called the "Properties") is
entered into on October 8, 1996 (herein called the "Contract Date") by and
between DuBose Ventures, Inc. and Rockbridge Oil & Gas, Inc., as sole partners
in the Partnership, located at 1200 Smith Street, Suite 2250, Houston, Texas
77002 (herein called "Seller") and SABA ENERGY OF TEXAS, INCORPORATED, 1603 SE
19th Street, Suite 203, Edmond, Oklahoma 73013 and ENERGY ASSET MANAGEMENT
CORPORATION, P.O. Box 1714, El Dorado, Arkansas 71731, (herein collectively
called "Purchaser"). Pursuant to the following terms and conditions, Seller
shall convey to Purchaser all of Seller's right, title and interest in and to
the Partnership for the purchase price of Four Million Dollars ($4,000,000 US)
(the "Purchase Price").
1. EFFECTIVE DATE AND TIME OF SALE AND PURCHASE AGREEMENT. Unless
otherwise agreed to in writing by Seller and Purchaser, the effective
date and time ("Effective Date") of this sale and purchase of the
Properties ("Sale/Purchase") is October 1, 1996 at 7:00 am C.S.T.
2. PERFORMANCE DEPOSIT/DOWN PAYMENT. As evidence of good faith,
Purchaser has deposited or will deposit with Seller a performance
deposit of One-Hundred-Fifty-Thousand ($150,000 US), applicable to the
above unadjusted Purchase Price, which deposit is non-refundable,
except as provided subsequently herein. On the closing date,
Purchaser shall pay and deliver to Seller the remaining unpaid portion
of the Purchase Price, adjusted as provided for herein.
3. ACCESS TO PROPERTIES AND DATA. Notwithstanding Purchaser's prior
opportunity to inspect and inventory, promptly after execution of this
Agreement by both parties and upon request of Purchaser, Seller shall
endeavor to provide Purchaser and Purchaser's authorized
representatives, at any reasonable time(s) before the closing date as
set forth below, (i) physical access to the wells, equipment, and
facilities included in whole or in part in the Properties that are
Seller-operated and to the Property and associated facilities, at
Purchaser's sole risk, cost and expense for the purpose of inspecting
the same, and (ii) access, with copying privileges, at Purchaser's
sole cost, to all raw geological, production, engineering, and other
technical data and records, and to all contract, land, lease, and
permit records, to the extent such data and records are in Seller's
possession and relate to the Properties; provided, however, Seller
shall have no obligation to provide Purchaser access to any
interpretative or predictive data or information which Seller
considers confidential or proprietary to it or which access Seller
cannot lawfully provide Purchaser because of third-party restrictions
on Seller.
4. CLOSING. Upon satisfaction of all the terms and conditions contained
herein, Seller and Purchaser shall close this Sale/Purchase on or
before November 1, 1996 (the "Closing Date") unless otherwise agreed
to by both parties in writing. Closing shall take place at Seller's
office. A one time extension to the closing date of no more than 60
days shall not be unreasonably withheld, if requested in writing. At
closing, the following shall occur:
a. Seller shall deliver to Purchaser a copy of the Partnership
agreement, resolutions, certificates of good standing, and
other documents as reasonably requested by Purchaser to show
Seller's authority and good standing to make this sale.
b. Seller shall deliver possession of the Partnership (subject to
the terms of applicable operating agreements, if any, and the
other provisions hereof), including all of Seller's rights,
title and interest in and to all inventories of oil in stock
tanks situated on said Properties, at the time of closing.
c. Seller shall transfer custody of all information and original
documents (or copies thereof) in Seller's possession or within
Seller's control pertaining to the Properties and Partnership,
together with all operating bank accounts, including the River
Oaks Escrow Account.
d. Purchaser shall pay the Purchase Price as provided below in
Section 6.
1
<PAGE> 2
5. PURCHASE PRICE. This is a cash sale with the Purchase Price, adjusted
if necessary as provided hereinbelow, to be paid by wire transfer at
closing.
a. Adjustments, if any, due to title failure or problems with
leases or other agreements, casualty losses, discrepancies in
Seller's cash flow representations, and/or environmental
problems affecting the Properties as described in Sections 6
and 16 hereinbelow, shall be handled as provided herein.
b. All revenues received from gas or oil produced after the
Effective Date, but prior to the Closing Date, will be
subtracted from the Purchase Price. Revenues received from
oil and gas produced prior to the Effective Date shall remain
the property of Seller.
c. The unpaid balance owed by Seller and secured by liens
affecting Properties shall be subtracted from the Purchase
Price unless Seller has obtained a release of any such lien
prior to closing.
d. Estimated ad valorem taxes for the period of time from the
January 1, 1996 through the Effective Date shall be subtracted
from the Purchase Price in accordance with Section 13 herein.
e. Funds received as a performance deposit ("Performance
Deposit") pursuant to the terms of this Agreement shall be
subtracted from the Purchase Price.
f. A One-Hundred-Fifty-Thousand ($150,000 US) sum will be
subtracted from the Purchase Price in the event Seller is
unable to obtain written authorization by November 1, 1996,
from the state of Louisiana for a one year extension to the
January 1, 1997 deadline to treat and dispose produced water
pursuant to Section 7b described hereinbelow.
g. The value of salable oil in the tanks located on said
Properties as of the Effective Date shall be added to the
Purchase Price. The value shall be calculated using the net
volume of oil in the tanks on the Effective Date and the
market price prevailing on the Effective Date for the
Properties.
h. All reasonable and necessary direct operating expenditures,
bond and insurance premiums which shall have actually been
incurred for the Properties and for which bills have been
received and paid by Seller, together with those charges as
set forth in Section 10 for operations after the Effective
Date but prior to closing, shall be added to the Purchase
Price.
i. The balance of the River Oaks escrow account at the time of
closing shall be added to the Purchase Price.
THERE SHALL BE NO POST-CLOSING SETTLEMENT. All revenues attributable to
production from the Properties after the Effective Date and received by Seller
after closing shall be remitted to Purchaser within ten (10) days of receipt.
Any operating expenses that were incurred from the Properties after the
effective date, but for which invoices were not received until on or after
closing shall be forwarded to Purchaser within five (5) days after receipt of
such information. Purchaser shall have, at its election and expense, at any
time within one (1) year from the date of closing, the right to audit the books
and records of Seller to verify the accuracy of revenues and expenses which are
allocated at closing and/or remitted post-closing. During this period, Seller
agrees to furnish copies of appropriate documentation of such revenues and
expenses or, at Seller's election, to make originals of the books and records
available at Seller's place of business. If any errors in the revenues and
expenses allocated are determined, then such errors shall be promptly rectified
by Purchaser or Seller, whichever is the applicable party.
6. WARRANTIES, TITLES AND EXAMINATIONS OF DOCUMENTS. Seller does
not warrant title to Properties, including both possessory and
non-possessory. The sale shall be for all of Seller's rights, titles
and interests in the Properties. The indication of particular
fractions of working interests and/or net revenue interests in Exhibit
"A", hereto, in no way implies or creates a general warranty, covenant
or other undertaking regarding any quantity of interest. Seller
confirms that there are no reserves of the Properties for which
payment has been received for production which has not been delivered.
If assignment of any of Seller's interest in the Properties is subject
to consent by any third party, then Seller shall obtain and produce
documentation of such necessary consent on or before closing.
2
<PAGE> 3
THIS SALE/PURCHASE SHALL BE WITHOUT ANY WARRANTY OF FITNESS OR
CONDITION OR MERCHANTABILITY OF THE MATERIAL, EQUIPMENT OR FACILITIES
CONVEYED. ALL SUCH PROPERTY WILL BE CONVEYED ON AN "AS IS" AND "WHERE
IS" BASIS.
Purchaser shall have no less than 15 days from the Contract Date to
examine title, confirm represented revenue and expense information,
review all contracts affecting the Properties and to notify Seller of
any significant title defects and/or contracts that materially or
adversely affect the value or use of the Properties, or discrepancies
in cash flow representations. Notwithstanding anything to the
contrary contained herein, unless the value of title defects, adverse
contracts and/or cash flow discrepancies affecting any property is in
excess of 5% of the allocated value set forth in Exhibit "B", it will
not be considered by Seller and Purchaser that there are significant
title defects, cash flow discrepancies, and/or contracts that
materially or adversely affect the value of the Properties and no
adjustment shall be made to the Purchase Price as set forth in Section
6.a. hereof. Seller shall have an additional ten (10) days to correct
any such significant title defect or terminate contracts to the
satisfaction of Purchaser. Purchaser's approval of corrections of
title defects shall not be unreasonably withheld. If, after the total
of twenty-five (25) days of the two periods specified above have
elapsed, the significant title defects have not been cured to
Purchaser's reasonable satisfaction, or contracts have not been
terminated, then Purchaser shall have, at its option, the right to
either (i) withdraw its offer with no further obligation to consummate
the Purchase with no liability to seller; or (ii) reasonably negotiate
in good faith, the value defect of the Properties with Seller. If
Purchaser withdraws its offer pursuant to this provision, seller shall
refund to Purchaser the total Performance Deposit. Seller and
Purchaser have all licenses, permits, certificates, approvals and
other authorizations necessary in order to enable them to own and
operate the Properties for their respective periods of operatorship.
7. SELLER'S REPRESENTATIONS. Seller hereby represents and warrants to
Purchaser as follows:
a. SELLER'S ORGANIZATION AND AUTHORITY RELATIVE TO THIS
AGREEMENT. Seller is a partnership duly organized, validly
existing and in good standing as a domestic partnership under
the laws of the State of Texas and has full power and
authority to enter into, deliver and perform this Agreement
and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Seller and the
consummation by Seller of the transactions contemplated hereby
have been duly authorized by all requisite action, and no
other corporate proceedings on the part of Seller are
necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement has been duly executed
and delivered by Seller and constitutes a legally valid and
binding obligation of Seller, enforceable in accordance with
its terms.
b. LEGAL AND REGULATORY PROCEEDINGS. With the exception of the
actions listed below, there is no suit, action, proceeding or
investigation pending or, to the knowledge of Seller,
threatened, against or affecting Seller, its respective
businesses or any of the Properties, in any court or before or
by any governmental or regulatory authority or agency,
domestic or foreign, or any arbitrator, which if adversely
determined could materially and adversely affect the
Properties or Purchaser's use of the same or the ability of
Seller to perform its obligations under this Agreement or any
instrument to be delivered pursuant hereto.
I) Declaratory Judgment Action filed by two minority interest
owners contesting the election of MV Ventures, GP as operator.
II) MV is currently pursuing an extension of the January 1, 1997
deadline to treat produced water and not discharge same into the
Manilla Village field bayou.
Notwithstanding the foregoing and based on legal opinion of outside
counsel, Seller represents that if there are any suits currently
pending that involve Seller and its operations of, or interests in
the Properties, any judgment in these existing suits, except for the
stare decisis effect of such decision, will not adversely affect
Purchaser.
IN THE EVENT THE STATE OF LOUISIANA DOES NOT ISSUE WRITTEN
AUTHORIZATION ON OR BEFORE NOVEMBER 1, 1996 GRANTING AN EXTENSION TO
THE JANUARY 1, 1997 DEADLINE TO TREAT AND DISPOSE PRODUCED WATER, THE
PURCHASE PRICE SHALL BE REDUCED BY A SUM OF ONE-HUNDRED-FIFTY-
THOUSAND DOLLARS ($150,000 US).
3
<PAGE> 4
8. PURCHASER'S REPRESENTATIONS. Purchaser hereby represents and warrants
to seller as follows:
a. PURCHASER'S ORGANIZATION AND AUTHORITY RELATIVE TO THIS
AGREEMENT. Purchaser is a corporation, is duly organized,
validly existing and in good standing as a corporation under
the laws of the State of Texas and has full corporate power
and authority to enter into, deliver and perform this
Agreement and to consummate the transactions contemplated
hereby; the execution and delivery of this Agreement by
Purchaser and the consummation by Purchaser of the
transactions contemplated hereby have been duly authorized by
all requisite action and no other corporate proceedings on the
part of Purchaser are necessary to authorize this Agreement
and the transactions contemplated hereby. This agreement has
been duly executed and delivered by Purchaser and constitutes
a legally valid and binding obligation of Purchaser,
enforceable in accordance with its terms.
b. EVALUATION. Purchaser represents that by reason of
Purchaser's knowledge and experience in the evaluation,
acquisition, and operation of oil and gas properties,
Purchaser has evaluated the merits and risks of purchasing the
Properties from seller and has formed an opinion based upon
Purchaser's knowledge and experience and upon historical
production and accounting data provided by Seller.
9. GAS IMBALANCES. Not Applicable.
10. PRIOR TO CLOSING. Seller shall, prior to closing, timely disburse
proceeds, pay all royalties and other leases obligations, and pay
expenses relating to the Properties and shall operate the Properties
as a reasonably prudent operator and in a good and workmanlike manner
for a fee equal to the COPAS overhead charge charged to the joint
account for the Properties. Seller shall not abandon any part of the
Properties. Seller further agrees not to convey, dispose or encumber
any part of the Properties. During this period, Seller shall not
remove any facilities except to replace defective components or to
repair and return them. Seller shall not make any major capital
expenditures in excess of Twenty-Five Thousand Dollars ($25,000.00)
after the Effective Date but prior to closing, without Purchaser's
prior written consent. In no event shall Seller have any obligation
or duty to perform any re-completion, workover or other remedial work
on the Properties after the Effective Date.
11. If prior to the closing, all or any substantial part of the Properties
shall be destroyed by fire or other casualty, or if any substantial
part of the Properties shall be destroyed by fire or other casualty,
or if any substantial part of the Properties shall be taken in
condemnation or under the right of eminent domain, or if proceedings
for such purposes shall be pending or threatened, or if any other
event shall occur that materially impairs the value of the Properties
(any of the foregoing being hereinafter referred to as a "Casualty
Loss") ("Casualty Loss" shall be defined to mean a loss in value of
the Properties in excess of Fifty-Thousand and No/100 Dollars
($50,000.00), there shall be no adjustment to the Purchase Price,
Purchaser or Seller may elect to terminate this Agreement. If this
Agreement is not so terminated, then this Agreement shall remain in
full force and effect and the Purchase Price shall be negotiated
downward in an amount equal to the loss resulting from the Casualty
Loss; provided, however, if no adjustment in Price can be agreed to by
Seller and Purchaser, this Agreement shall terminate. Seller shall
not voluntarily compromise, settle or adjust any amounts payable by
reason of a Casualty Loss without first obtaining the written consent
of Purchaser. If this Agreement is terminated due to Casualty Loss,
Seller shall refund the total Performance Deposit.
12. OTHER DOCUMENTS AND CONTRACTS. The bill of sale and assignment will
be made subject to any and all existing operating agreements, unit
agreements, gas purchase or sale contracts, as well as any and all
other agreements to which the Properties are subject, including, but
not limited to, any applicable farmin agreement. Purchaser shall
assume and be responsible for all obligations accruing under such
agreements as of the Effective Date. Seller shall make all contract
files available to Purchaser prior to closing. Purchaser shall be
liable for compliance with the terms of contracts which were provided
or are of record.
13. PRORATION OF TAXES. All applicable taxes on the Properties shall be
prorated between Seller and Purchaser as of the Effective Date. If
actual taxes or tax liabilities are not known at closing, tax
liabilities shall be estimated (and the Purchase Price adjusted
therewith), and reimbursements by Seller or refunds by Purchaser, as
appropriate, shall be made at such date(s) as actual taxes are levied.
Seller agrees to pay when due any severance, ad valorem, or other
taxes or fees payable after the effective date hereof where the basis
or valuation for such taxes is production which actually occurred
during the time in which Seller owned the Properties and/or received
proceeds from the production attributable thereto.
4
<PAGE> 5
All documentary, stamp and transfer taxes of any kind arising out of
or in connection with the sale of the Properties hereunder shall be
paid by Purchaser, and all charges for or in connection with the
recording of any document or instrument herein provided shall be paid
by Purchaser. All other federal, state and local taxes arising out of
or in connection with the sale of the Properties hereunder shall be
paid by Purchaser.
14. INDEMNITIES. If the Sale/Purchase is consummated, Purchaser agrees to
defend and indemnify Seller against any claims, suits, and other
liabilities to third parties under the leases and other agreements
related to the Properties and/or resulting from operations thereon or
activities or events related thereto after the Effective Date
(including, but not limited to, any liability resulting from any
failure to properly plug and abandon any wells located on the
Properties), except to the extent such liabilities result from the
negligence or willful misconduct of Seller.
If any claim is made by a party that would give rise to a right of
indemnification under this Agreement, the party entitled to
indemnification (the "Indemnified Party") will promptly give notice
thereof to the party required to provide indemnification (the
"Indemnifying Party"). The Indemnified Party will permit the
Indemnifying Party to assume the defense of any such claim or
litigation resulting therefrom. Counsel for the Indemnifying Party,
which will conduct the defense of such claim or litigation, must be
approved by the Indemnified Party, whose approval will not be
unreasonably withheld. The Indemnified Party may participate in such
defense at the Indemnified Party's expense. Neither party will
consent to the entry of any judgment or enter into any settlement
without the written consent of the other party, which consent will not
be unreasonably withheld. The Indemnified Party will cooperate fully
with the Indemnifying Party and make available to the Indemnifying
Party all pertinent information under its control.
15. PLUGGING AND ABANDONMENT OF WELLS; REMOVAL OF FACILITIES. After the
Effective Date, Purchaser recognizes and specifically assumes the
obligation to properly plug and abandon any and all wells; remove all
equipment and facilities, including, but not limited to, pipelines;
close all pits, and restore the surface associated with the Properties
when appropriate and in accordance with the rules, regulations, and
requirements of any governmental authority having jurisdiction
thereof, whether or not any such obligations arise prior to the
Effective Date. Purchaser agrees to pay all costs and expenses
associated with any such plugging and abandoning, removal, closing, or
restoration.
16. ENVIRONMENTAL CONDITIONS.
a. PHYSICAL CONDITION OF THE PROPERTIES. The properties have
been used for oil and gas drilling and production operations,
related oil field operations and possibly for the storage and
disposal of waste materials or hazardous substances. Physical
changes in or under the Properties or adjacent lands may have
occurred as a result of such uses. The Properties also may
contain buried pipelines and other equipment, whether or not
of a similar nature, the locations of which may not now be
known by Seller or be readily apparent by a physical
inspection of the Properties. Purchaser understands that
Seller foes not have the requisite information with which to
determine the exact nature or condition of the Properties nor
the effect any such use has had on the physical condition of
the Properties. Pursuant to the Safe Water Drinking and Toxic
Enforcement Act of 1986, Purchaser is hereby notified and
assumes the risk that detectable amounts of chemicals known to
cause cancer, birth defects and other reproductive harm may be
found in, on or around the Properties. As of the Closing
Date, Purchaser shall assume the risk that the Properties may
contain waste or contaminants and that adverse physical
conditions, including the presence of waste or contaminants,
may not have been revealed by Purchaser's investigation. As
of the Closing Date, all responsibility and liability related
to disposal, spills, waste or contamination on or below the
Properties shall be transferred from Seller to Purchaser, only
to the extent that such occurrences occurred after the period
of Seller's ownership of the Properties.
In addition, Purchaser acknowledges that some oil field
production equipment located on the Properties may contain
asbestos and/or naturally-occurring radioactive material
(NORM). In this regard, Purchaser expressly understands that
NORM may affix or attach itself to inside of wells, materials
and equipment as scale or in other forms, and that wells,
materials and equipment located on the Properties described
herein may contain NORM and that NORM-containing materials may
be buried or have been otherwise disposed of on the
Properties.
b. ENVIRONMENTAL ASSESSMENT AND INDEMNIFICATION. Purchaser shall
have the right to make any environmental assessment of the
Properties during the title examination period set forth in
Section 6., hereof, or not less than fifteen (15) days prior
to closing, whichever is greater. Purchaser and its agents
shall have the right to enter
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<PAGE> 6
upon and inspect the Properties and all buildings and other
improvements thereon, conduct soil and water tests and
borings, and generally conduct such tests, examinations,
investigations and studies as may be necessary or appropriate
for the preparation of appropriate engineering and other
reports and judgment relating to the Properties, their
condition, and the presence of waste or contaminants. Purchaser
agrees to immediately provide to Seller a copy of such
environmental assessment, including any reports, data and
conclusions. Purchaser shall keep any data or information
acquired by all such examinations and the results of all
analyses of such data and information strictly confidential and
not disclose same to any person or agency without the prior
written approval of Seller. If Purchaser, in its sole
discretion, determines that hazardous waste materials located
on any Property substantially violates an existing law, rule or
regulation of any federal, state or local governmental body for
purposes of this Agreement, a substantial violation is any
violation which would require Purchaser to expend more than 5%
of the allocated value to rectify the violation then, by so
notifying Seller within fifteen (15) days of closing, Seller
may elect to remediate any such violation or adjust the
Purchase Price in an amount equal to the cost of the
remediation. Should Seller not elect to adjust the Purchase
Price or remediate, Purchaser may remove the property from this
Agreement or terminate this Agreement and it shall be null and
void, and Purchaser and Seller shall have no further obligation
or liability of any kind hereunder or with respect hereto, and
the cash Performance Deposit shall be returned to Purchaser.
Purchaser is hereby granted access to the Properties to
conduct its environmental assessment upon the following
conditions: Purchaser waives and releases all claims against
Seller, its directors, officers, employees and agents and
parent or subsidiary companies, for injury to or death of
persons, or damage to property, arising in any way from the
exercise of rights, granted to Purchaser hereby or the
activities of Purchaser or its employees, agents or
contractors on the Properties. Purchaser shall indemnify
Seller, its directors, officers, employees, and agents against
and hold each and all of said indemnitees harmless from any
and all loss, cost, damage, expense or liability, including
attorney's fees, whatsoever arising out of (i) any and all
statutory or common law liens or other encumbrances for labor
or materials furnished in connection with such tests,
samplings, studies or surveys as Purchaser may conduct with
respect to the Properties; and (ii) any injury to or death of
persons or damage to property occurring in, on or about the
Properties as a result of such exercise or activities (except
for any such injuries or damages caused solely by the active
negligence or willful misconduct of any said indemnitees).
The foregoing obligation of indemnity shall survive closing.
c. INDEMNIFICATION AND ASSUMPTION OF ENVIRONMENTAL RISK.
Notwithstanding anything contained herein to the contrary,
Purchaser assumes full responsibility for, and agrees to
indemnify, hold harmless and defend Seller from and against
all loss, liability, claims, fines, expenses, costs (including
attorney's fees and expenses) and causes of action caused by
or arising out of any federal, state or local laws, rules,
orders and regulations applicable to any waste material or
hazardous substances on or included with the Properties or the
presence, disposal, releases or threatened release of all
waste material or hazardous substance from the Properties,
into the atmosphere or into or upon land or any water course
or body of water, including ground water, attributable to
Purchaser's activities or the activities of third parties
after the period of Seller's ownership of the Properties.
17. CONTINUING OBLIGATIONS. If the Sale/Purchase is consummated, with the
exception of Sections 6, 14, 15 and 16c, which will survive and
continue, the terms and conditions contained herein shall survive
closing to the extent of two (2) years from the Contract Date and
shall apply to and bind the successors and assigns of Seller and
Purchaser.
18. NOTICES. All communications required or permitted under this
Agreement shall be in writing. Any communication or delivery
hereunder shall be deemed to have been fully made if actually
delivered, sent by facsimile machine, or if mailed by registered or
certified mail, postage prepaid, to the applicable address as set
forth below:
Seller: Purchaser:
MV VENTURES, G.P. SABA ENERGY OF TEXAS, INCORPORATED
1200 Smith Street, Suite 2250 1603 S.E. 19th Street, Suite 202
Houston, TX 77002 Edmond, OK 73013
ATTN: A.C. DuBose ATTN: Brad Katzung, President
Telephone: (713) 652-5700 Telephone: (405) 340-3600
Facsimile: (713) 652-5720 Facsimile: (405) 340-3691
6
<PAGE> 7
19. FURTHER ASSURANCES. Each of the parties shall execute acknowledge and
deliver to the other such further instruments, and take such other
actions as may be reasonably necessary to carry out the provisions of
this Agreement.
20. CONDITIONS TO PURCHASER'S OBLIGATIONS. Each and every obligation of
Purchaser under this Agreement to be performed on or before the closing
shall be subject to the satisfaction, on or before the Closing Date, of
the following conditions:
a. The representations and warranties of Purchaser contained in
this Agreement shall be in all material respects true and
accurate as of the date when made and at and as of the Closing
Date.
b. Purchaser shall have performed and complied in all material
respects with each and every covenant, agreement and condition
required by this Agreement to be performed or complied with by
it prior to or on the Closing Date.
c. Except as provided in Section 7b, no order of any court or
administrative agency shall be in effect which restrains or
prohibits the transactions contemplated hereby. No suit,
action, investigation, inquiry or proceeding by any
governmental body or other person, or legal or administrative
proceeding shall have been instituted or threatened that
questions the validity or legality of the transactions
contemplated hereby or seeks to impose any liability on
Purchaser as a result of the transactions contemplated hereby.
d. All approvals of any private person, and all approvals or the
absence of disapprovals within applicable time periods, from
public authorities, federal, state, foreign or local (or
exemptions from the requirements therefor), the granting or
absence of which is necessary for the consummation of the
transactions contemplated by this Agreement, shall have been
obtained.
e. On the Closing Date, there shall be no effective injunction,
writ or temporary restraining order or any order of any nature
issued by a court or governmental agency or competent
jurisdiction directing the transactions provided for herein
not be consummated as herein provided.
21. PURCHASER'S DEFAULT. If Purchaser defaults on or prior to Closing in
a material way on Purchaser's obligations, including but not limited
to Purchaser's absence at the designated time and place for Closing,
Seller shall retain the performance deposit under Section 2. hereof as
liquidated damages. Further, Seller shall be free immediately to sell
the Properties to any third party without any restriction under or by
reason of this Agreement.
22. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between the parties and it may not be amended nor any rights hereunder
waived except by an instrument in writing signed by the party to be
charged with such amendment or waiver and delivered by such party to
the party claiming the benefit of such amendment or waiver.
If any provision of this Agreement, or the application thereof to any
person or circumstances, shall, to any extent, be held in any
proceeding to be invalid or unenforceable, the remainder of this
Agreement, and the application of such provisions to persons or
circumstances other than those to which it is held to be invalid or
unenforceable, shall not be affected thereby, and shall be valid and
enforceable to the fullest extend permitted by law, but only if and to
the extend such enforcement would not materially and adversely
frustrate the parties' essential objectives as expressed herein.
No party to this Agreement may assign its rights or obligations
hereunder without the written consent of all parties hereto; provided,
however, that Purchaser may assign its rights to any one of its
wholly-owned affiliates, partnerships, joint venture partners,
partners, etc., for the purpose of raising capital funding. Subject
to the foregoing, this Agreement shall be binding upon the parties
hereto, their respective successors and assigns, and nothing contained
in this Agreement, express or implied, is intended to confer upon any
other person or entity any benefits, rights, or remedies.
23. CHOICE OF LAW. THIS AGREEMENT AND ITS PERFORMANCE SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
TEXAS.
7
<PAGE> 8
24. COUNTERPARTS. This Agreement may be executed by Purchaser and Seller
in any number of counterparts, each of which shall be deemed an
original instrument, but all of which together shall constitute but
one and the same instrument.
25. COSTS. Except as otherwise agreed upon, each party shall pay its own
costs, including fees and expenses of its own counsel and accountants,
in connection with the purchase and sale of the Properties.
AGREED AND ACCEPTED
SELLER:
DUBOSE VENTURES, INC. ROCKBRIDGE OIL & GAS, INC.
By: /s/ A.C. DUBOSE By: /s/ JOHN DEAN
------------------- -------------
Name: A.C. DuBose Name: John Dean
Title: General Partner Title: President
PURCHASER:
SABA ENERGY OF TEXAS, INCORPORATED ENERGY ASSET MANAGEMENT
CORPORATION
By: /s/ BRADLEY T. KATSUNG By: /s/ ROBERT M. THOMMASON
---------------------- ------------------------
Name: Bradley T. Katzung Name: Robert M. Thommason
Title: President Title: Vice President
8
<PAGE> 9
EXHIBIT "A"
Attached to and made a part of that certain Letter of Understanding dated
September 18, 1996, executed by and between MV VENTURES, G.P., as SELLER and
SABA PETROLEUM COMPANY/ENERGY ASSET MANAGEMENT CORP., as BUYER, covering and
pertaining to the Manila Village Field, Jefferson Parish, Louisiana.
I. Oil, Gas and Mineral Leases that are the subject of the Letter of
Understanding to which this exhibit "A" is attached:
A) That certain Lease for Oil, Gas and Other Liquid or Gaseous
Minerals dated August 16, 1982, by and between the State
Mineral Board or the State of Louisiana (State Lease No.
10394), as Lessor, and James A. Whitson, Jr., as Lessee, filed
for record in Entry No. 1027740 Mineral Book 38, Folio 436 of
the records of Jefferson Parish, Louisiana; and as amended by
that certain Correction of State Mineral Lease No. 10394 dated
March 17, 1983, filed for record in Entry No. 83-22790 of the
records of Jefferson Parish, Louisiana.
B) That certain Oil and Gas Lease dated May 1, 1982 by and
between The Louisiana Land and Exploration Company, as Lessor,
and James A. Whitson, Jr., as Lessee, to which a recording
memorandum entitled Declaration has been filed for record in
Entry No. 1015347, Mineral Book 38, Folio 255 of the records
of Jefferson Parish, Louisiana.
C) That certain Leases for Oil, Gas and Other Liquid or Gaseous
Minerals dated June 13, 1983, by and between the State Mineral
Board of the State of Louisiana (State Lease No.10808), as
Lessor, and Primary Fuels, Inc., as Lessee, filed for record
in Mineral Book 39, Folio 576 of the records of Jefferson
Parish, Louisiana and in CO5 Book 571, Folio 664 of the
records of Plaquemines Parish, Louisiana.
D) That certain Oil and Gas Lease dated April 15, 1983, by and
between The Louisiana Land and Exploration Company, as Lessor,
and James A. Whitson, Jr., as Lessee, to which a recording
memorandum entitled Declaration has been filed for record in
Entry No.8318074, Mineral Book 39, Folio 146 of the records of
Jefferson Parish, Louisiana and in CO5 Book 565, Folio 941 of
the records of Plaquemines Parish, Louisiana.
E) That certain Oil, Gas and Other Hydrocarbon Standard
Development Lease dated November 7, 1991, by and between
Frederick E. Purcell, et al., as Lessor, and Wm. Bullen,
Inc., as Lessee, filed for record in Entry No. 9104193, CO5
Book 2930, Folio 213 of the records of Jefferson Parish,
Louisiana, as amended by that certain Lease Amendment and
extension Agreement dated August 11, 1994 filed for record in
Entry No. 09449744, CO5 Book 2902, Folio 396 of records of
Jefferson Parish, Louisiana.
F) That certain Oil and Gas Lease dated July 1, 1991, by and
between The Louisiana Land and Exploration Company, as Lessor,
and Corpus Christi Hydrocarbons Company, as Lessee, to which a
recording memorandum entitled Declaration has been filed for
record in Entry No. 9138700, Mineral Book 119, Folio 323 of
the records of Jefferson Parish, Louisiana.
10
<PAGE> 10
EXHIBIT "A"
II. Wells covered by this Agreement, all of which are located in Jefferson
Parish, Louisiana:
<TABLE>
<CAPTION> Lease or Unit Name
Serial Well Name ------------------ Well
Number Code No. Active Wells Number API Number
- ------ ----------- ------------------ ------- ----------
<S> <C> <C> <C> <C>
192432 047228 9800' RA VUB*:LL&E 10 1705120694
184580 040556 9400' RA SUD: LL&E 1 1705120641
185662 040558 9400' RA SUC: LL&E 3 1705120650
198096 039522 9800' RA VUB*:LL&E 9 1705120689
191924 047248 8900' RA VUA: LL&E 12 1705120691
214271 039522 LL&E 14 1705120826
214451 039522 9800' RA VUC*:LL&E 14D 1705120826
215844 039522 11,100' RA VUB*:LL&E 16D 1705120845
215573 11,000' RA SUB*: LL&E 16 1705120845
Inactive Wells - Temporarily Abandoned or Shut-in
185661 040557 9400' RA SUE: LL&E 2 1705120649
187188 040559 9400' RA SUE: LL&E 4 1705120656
198822 039522 LL&E 9D 1705120689
188743 039522 LL&E 7 1705120667
187189 042799 LL&E 5 1705120657
194423 042801 LL&E 12D 1705120691
</TABLE>
III. Interests of SELLER on a Lease or Unit basis:
<TABLE>
<CAPTION>
Serial Well Name Well CCHC CCHC
Number Code No. Lease or Unit Name Number WI NRI
- ------ ----------- ------------------ ------ --------- --------
<S> <C> <C> <C> <C> <C>
192432 047228 9800' RA VUB*:LL&E 10 50.678350% 35.474846%
184580 040556 9400' RA SUD:LL&E 1 50.678350% 34.548310%
185662 040558 9400'RA SUC: LL&E 3 50.678350% 34.802970%
198096 039522 9800' RA VUB*:LL&E 9 50.678350% 35.474846%
191924 047248 8900' RA VUA:LL&E 12 50.678350% 35.130910%
214271 039522 LL&E 14 50.678350% 35.474846%
214451 039522 9800' RA VUC*:LL&E 14D 50.678350% 35.474846%
215844 039522 11,100' RA VUB*:LL&E 16D 50.678350% 34.331602%
215573 11,000' RA SUB*:LL&E 16 50.678350% 35.474846%
</TABLE>
* Voluntary Unit currently being formed. WI and NRI for these units
only are approximations pending actual unit surveys and units becoming
effective.
** Currently in process of having LL&E #16 well recognized as the unit
well for the 11,000' RA SUB.
11
<PAGE> 1
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
WALTON C. VANCE
THIS AGREEMENT, effective as of this 1st day of July, 1993, by and
between SABA PETROLEUM COMPANY, a Colorado corporation (hereinafter referred to
as the "Company"), and WALTON C. VANCE, an individual (hereinafter referred to
as the "Employee"), the following terms and conditions.
RECITALS
A. It is in the best interest of the Company to employ the
services of Employee as Vice-President and Chief Financial Officer of
the Company, subject to and in accordance with the terms and
provisions set forth below.
B. After independent review and consideration of the Agreement,
Employee desires to accept such employment subject to, and in
accordance with, the terms and provisions set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT RELATIONSHIP; TERM; RENEWAL
Subject to the other terms, conditions and provisions of this Agreement, the
Company hereby employs Employee and Employee hereby accepts such employment for
a period of five (5) years, commencing on the Effective Date of this Agreement,
as that term is defined below, and subject to the termination provisions as
provided herein below in Paragraphs 6 and 8.
2. COMPENSATION
2.1 Signing Bonus
The Company shall pay, or cause to be paid to Employee, a signing
bonus in the amount of Ten Thousand and 00/100 Dollars ($10,000).
2.2 Annual Compensation
Subject to the terms and provisions hereof, the Company shall pay or
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<PAGE> 2
cause to be paid to Employee during the term hereof an annual salary as
described in Exhibit A hereto. Cash compensation shall be paid in equal
semi-monthly installments commencing on the Effective Date hereof and provided
only that such installments shall be pro-rated in the event of any partial
employment period hereunder.
2.2 ADDITIONAL COMPENSATION
Employee may be further entitled to additional compensation in the
form of stock options in amounts and subject to the conditions as set forth in
Exhibit B attached hereto and incorporated herein, by reference.
2.3 EMPLOYMENT TAXES
All compensation and benefits shall be subject to customary
withholding taxes and other employment taxes as from time to time are required
by any governmental statute, ordinance, or regulation with respect to such
compensation paid by the Company to an employee.
3. EMPLOYEE BENEFITS AND REIMBURSEMENTS
A. MEDICAL AND LIFE INSURANCE: During the term of this
Agreement and the employment described herein, the Company will make a
contribution towards standard medical benefits consistent with existing Company
policy. Such contribution to begin with the Effective Date.
B. REIMBURSEMENT FOR OUT-OF-POCKET EXPENSES: Company
shall, not less frequently than monthly, reimburse Employee with respect to all
ordinary out-of-pocket expenses which, in the sole judgment of the Company,
were incurred by Employee in the course of and/or in the conduct of Company
business by Employee, provided Employee follows and complies with Company
reporting and receipts submission procedures.
C. OTHER BENEFITS: In addition to the foregoing,
Employee shall also be provided any other benefits of whatever kind or nature
or shall be permitted to participate in such other benefits or programs which
may, from time to time, be adopted or provided by the Company and otherwise
made available by
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<PAGE> 3
the Company to other employees or officers of Company under substantially the
same restrictions and limitations, if any and as applicable.
D. RELOCATION: Company will reimburse Employee for reasonable and
necessary moving costs incurred in the course of Employee relocation. Company
will make the final determination whether items of moving costs are
"reasonable and necessary."
4. SERVICES AND DUTIES OF EMPLOYEE
Employee agrees that, expressly in his capacity as an officer of the
Company, Employee will at all times loyally and conscientiously perform all of
the following duties, responsibilities, and obligations:
(A) Those duties and responsibilities expressly or implicitly
contained in this Agreement;
(B) Those duties and responsibilities customarily incident to or
required of such position(s) and/or office(s) as may, from time to time, be
assigned to Employee by the Board of Directors;
(C) Such other services, acts, or things necessary, prudent, or
advisable in the exercise of Employee's reasonable judgment for the benefit of
the Company and
(D) Such additional duties, responsibilities and obligations and
such other services, acts, and things as, from time to time, may be designated
by the Board of Directors of the Company.
Without in any manner limiting the foregoing, Employee agrees to devote
such time as may be necessary to or for the business of the Company. By
entering into this Agreement, it is the mutual intention of the parties that
Employee shall devote all of his productive time, ability, and attention to the
business of the Company.
5. NO OUTSIDE EMPLOYMENT
By entering into this Agreement, it is the mutual intention of the
parties that Employee shall devote all of his productive time, ability, and
attention to the
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<PAGE> 4
business of the Company and shall not, without the prior written consent of the
Board, which may be withheld for any reason whatsoever, otherwise actively
engage in other business endeavors or pursuits, including, without limitation,
the direct or indirect rendition of any services of a business, commercial, or
professional nature to any other person or organization, whether for
compensation or otherwise.
6. CONFIDENTIALITY AND TRADE SECRETS
Employee acknowledges and agrees that, in prior meetings with other
employees, representatives, officers and directors of the Company, Employee
will, during the term of employment, have access to, become acquainted with,
and/or develop or invent various Trade Secrets and proprietary information
consisting of and including, without limitation, formulas, processes, plans,
charts, concepts, procedures, compilations, lists of data and information,
records, specifications, documents, contracts, reports, forms, manuals, names,
addresses, and telephone numbers and other information of customers, lenders,
investors, or identified prospective customers, lenders, or investors (all of
the foregoing sometimes collectively referred to as "Trade Secrets") which are
owned or have been or subsequently are developed, compiled, organized or
invented by the Company, the Employee, or the Company's other employees.
Employee, for the benefit of the Company and as a condition of this Agreement,
expressly agrees that Employee shall not disclose any of the Trade Secrets,
directly or indirectly; use them in any way; or claim proprietary ownership
interest therein, either during or after the term of this Agreement except as
required in the performance of Employee's duties hereunder or as expressly
authorized by the written consent and permission of the Company after full
explanation and disclosure of any such proposed use or disclosure by the
Employee to the Company.
Employee further acknowledges and agrees that all Trade Secrets, as
defined above, whether now existing or hereafter developed, are and shall at
all times be owned solely and exclusively by the Company and Employee shall
have no ownership interest therein or rights thereto.
7. EFFECTIVE DATE
The Effective Date of this Agreement shall be the day, month, and year
first set forth above.
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<PAGE> 5
8. TERMINATION UPON EVENT OF TERMINATION
8.1. EVENTS OF TERMINATION
This Agreement shall terminate immediately upon the occurrence of any
of the following events:
(A) Whenever the Company and Employee shall mutually agree in
writing to terminate this Agreement;
(B) Whenever the Company delivers written notice to Employee
terminating the Agreement for "cause" including, among other things,
Employee's material gross negligence or intentional misconduct under
the terms of this Agreement, unless waived in writing and signed by
the Company in the Company's sole and absolute discretion
(C) Upon the death of Employee;
(D) Upon the permanent incapacity of Employee because of illness,
physical injury, other physical or mental disability, or any reason
such that it reasonably appears that Employee will be unable to
perform or complete Employee's duties and responsibilities under this
Agreement.
If, for any reason other than those set forth immediately above, the Company
for any reason terminates this Agreement, then upon such termination, in
addition to the other provisions contained herein, the Company shall pay to
Employee as a severance allowance an amount equal to the Employee's then annual
salary.
8.2 POST-TERMINATION DUTIES AND OBLIGATIONS
Upon termination for any of the foregoing Events;
(A) Employee or the representative of Employee's estate, in the
event of the death of the Employee, shall be entitled to receive that
compensation earned by Employee that Employee would otherwise be
entitled to up to the date of termination less such amounts as are
required by law to be withheld and deducted; and
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<PAGE> 6
(B) Employee or the representative of Employee's estate, in the
event of the death of the Employee, shall deliver to the Company all
records, reports, files, schedules, lists, equipment, tools, and any
other property in his possession or under his control belonging to the
Company and, as appropriate, in good condition and repair, ordinary
wear and tear excepted.
9. COMPANY'S AUTHORITY
The Company expressly reserves the right to adopt and promulgate from
time to time, orally or in writing, Company rules, rules, regulations,
directives and policies with respect to Company operations and systems,
business expense reimbursements, general employee standard, and employee
performance requirements and evaluation criteria (all of the foregoing
collectively referred to as "Company Policies"). Employee agrees at all times
to observe and comply with all Company Policies, whether oral or in writing, as
stated and as reasonably interpreted by the Board of Directors.
10. PAID VACATION AND SICK LEAVE
(A) PAID VACATION: Employee shall be entitled to a paid vacation
each year pursuant to the then current policy of the Company.
(B) SICK LEAVE: As determined by the Company, Employee shall be
entitled to a reasonable number of days of sick leave with full
compensation as specified in the current policy of the Company during
each calendar year. In determining what is a reasonable number of
days, the Company shall take into account previous periods of illness
or disability, the number of days of sick leave taken in the current
and preceding years, and any other relevant factors it deems
pertinent.
11. INDEMNIFICATION
The Company shall indemnify the Employee and hold him harmless for and
with respect to all costs and expenses incurred by Employee resulting from any
acts or decisions made by him in good faith while performing services for the
Company within the scope of his position and authority hereunder.
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<PAGE> 7
12. NON-TRANSFERABILITY
This Agreement is personal to Employee and the services to be provided
by Employee are personal to and uniquely capable of performance by Employee.
Consequently, neither this Agreement nor any right, duties, or obligations
hereunder, or interests herein, shall be transferred, assigned, conveyed,
hypothecated, delegated or pledged, in whole or in part, voluntarily or
involuntarily, by operation of law or otherwise. Any attempted transfer,
assignment or delegation shall be null and void.
13. NOTICES
All notices provided in or permitted pursuant to this Agreement shall
be in writing and shall be deemed to have been duly given when delivered or
mailed by United States certified mail, return receipt requested, postage
prepaid, addressed to Company at its principal office address and to Employee
at Employee's residence address on the records of the Company or at such other
addresses either party may have furnished to the other party in writing in
accordance herewith.
14. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
15. AMENDMENTS
Any modification to or amendment of this Agreement shall be effective
only if:
(A) It is in writing;
(B) It expressly refers to this Agreement; and
(C) It is signed by all parties hereto.
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<PAGE> 8
16. CONSTRUCTION
This Agreement shall be construed without regard to any presumption or
other rule requiring construction against the party drafting a document. It
shall be construed neither for nor against any party, but each provision shall
be given reasonable interpretation in accordance with the plain meaning of its
terms and the expressed intent of the parties.
17. ENTIRE AGREEMENT
This Agreement supersedes any and all prior agreements between the
parties thereto, if any, whether oral or written, with respect to the
employment of Employee by the Company and contains all of the covenants,
conditions, and agreements between the parties with respect to the rendition of
such services as herein contemplated or to be performed hereunder. Each party
acknowledges for the benefit of the other;
(A) That no representations, inducements, promises, or agreements,
orally or in writing, have been made by any party, or any person
acting or claiming to be acting on behalf of the other party; and
(B) That no other agreement, statement, or promise with respect to
such employment which is not set forth herein shall be valid or
binding.
18. ATTORNEYS' FEES
In the event of any dispute or disagreement under this Agreement
whether or not suit is instituted, or if any action is instituted, at law or in
equity, including, without limitation, an action for declaratory or injunctive
relief to enforce or interpret the provisions of this Agreement, the prevailing
party shall be entitled to be reimbursed for all costs and expenses, including,
without limitation, reasonable attorneys' fees, which may be set by the court
in the same action if any action has been so commenced or in a separate action
brought for that purpose. Such right of reimbursement shall be in addition to
any other relief to which that party may be entitled.
-8-
<PAGE> 9
19. GOVERNING LAW AND VENUE
Irrespective of the place of execution or performance, this Agreement
will be governed by and construed in accordance with the laws of the State of
California. The venue of any and all such actions brought under or pursuant to
this Agreement shall be Orange County, California.
20. WAIVER
No provision of this Agreement may be modified, waived or discharged
unless such waiver modification or discharge is agreed to in writing and signed
by Employee and such Officer as may be authorized by the Board. No waiver by
either party thereto at any time of any breach of any condition or provision of
this Agreement shall be deemed a waiver of or to the subsequent enforcement of
each term and provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day, month, and year first set forth above.
"COMPANY" "EMPLOYEE"
SABA PETROLEUM COMPANY,
a Colorado Corporation
BY: /s/ ILYAS CHAUDHARY /s/ WALTON C. VANCE
------------------- -------------------
ILYAS CHAUDHARY WALTON C. VANCE
ITS: Chairman of the Board and
Chief Executive Officer
EXHIBIT A ANNUAL COMPENSATION
EXHIBIT B ADDITIONAL COMPENSATION
-9-
<PAGE> 10
EXHIBIT "A"
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Exercise Price Number of
Year Salary Per Share Option Shares
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $80,000 $2.50 5,000
2 88,000 2.50 8,000
3 96,800 2.50 10,000
4 106,500 2.50 13,000
5 117,200 2.50 16,000
------
52,000
</TABLE>
* The Employee may exercise the Option Shares in whole or in part at any
time on or after the Employment Anniversary date of the Employee in each of the
five (5) years of employment. For example: the option to purchase 5,000 shares
of the Company's common stock @ $2.50 may be exercised by the Employee giving
the Company written notice of the Employee's intention to do so at any time on
or after July 1, 1994. Similarly, the second year option could not be exercised
until on or after July 1, 1995. The right to exercise Option Shares shall vest
on respective Employment Anniversary Dates, and shall accumulate. In the event
the employment of the Employee is terminated for any reason, by the Employee or
by the Company, with or without cause, Employee's rights hereunder shall be
limited to those Option Shares which have vested.
<PAGE> 11
If there shall be any capital reorganization or consolidation or merger of the
Company with another corporation or corporations, in which the Company is not
the surviving entity, or upon change of "control" of the Company, as that term
is defined in Reg. 260.0-2(f) of the Securities Exchange Act of 1934, any and
all Option Shares shall immediately vest.
The Company will prepare, or cause to be prepared and filed with the
appropriate regulatory agencies a registration statement(s) which will cause
the Employee's Option Shares to be registered under Section 12(g) of the
Securities Act of 1933; to be freely transferable; and, to be represented by
stock certificates without any restrictive legends.
-2-
<PAGE> 12
EXHIBIT "B"
ADDITIONAL COMPENSATION
The Company grants to the Employee as additional compensation the
Option to purchase up to 72,000 shares of the Company's common stock at the
price of $2.50 per share, such option rights to vest on the following basis:
<TABLE>
<CAPTION>
Number
Year of Shares
---- ---------
<S> <C>
1 15,000
2 12,000
3 10,000
4 7,000
5 4,000
-----
48,000
</TABLE>
* The Employee may exercise the Option Shares in whole or in part at any
time on or after the Employment Anniversary date of the Employee in each of the
five (5) years of employment. For example: the option to purchase 20,000
shares of the Company's common stock @ $2.50 may be exercised by the Employee
giving the Company written notice of the Employee's intention to do so at any
time on or after July 1, 1994. Similarly, the second year option could not be
exercised until on or after July 1, 1995. The right to exercise Option Shares
shall vest on respective Employment Anniversary Dates, and shall accumulate.
In the event of voluntary termination of the employment of Employee, vested
shares from preceding years shall become due and exercisable within one year
from the date of termination, and any and all non-vested Option shares shall be
cancelled. In the event of involuntary termination, all option shares will
vest and will be exercisable during the five year period.
-1-
<PAGE> 13
If there shall be any capital reorganization or consolidation or merger of the
Company with another corporation or corporations, in which the Company is not
the surviving entity, or upon change of "control" of the Company, as that term
is defined in Reg. 260.0-2(f) of the Securities Exchange Act of 1934, any and
all Option Shares shall immediately vest.
The Company will prepare, or cause to be prepared and filed with the
appropriate regulatory agencies a registration statement(s) which will cause
the Employee's Option Shares to be registered under Section 12(g) of the
Securities Act of 1933; to be freely transferable; and, to be represented by
stock certificates without any restrictive legends.
-2-
<PAGE> 1
EXHIBIT 10.32
AMENDED EMPLOYMENT AGREEMENT
THIS AMENDED EMPLOYMENT AGREEMENT (the "Agreement"), effective as of the first
day of January 1, 1996, by and between SABA PETROLEUM, INC. and SABA
EXPLORATION COMPANY, California corporations (hereinafter referred to as the
"Companies"), and LARRY R. BURROUGHS, an individual (hereinafter referred to as
the "Employee"), the following terms and conditions.
RECITALS
A. It is in the best interest of the Companies to employ the services of
Employee as President and Chief Operating Officer of the Companies,
subject to and in accordance with the terms and provisions set forth
below.
B. Whereas Saba Petroleum, Inc. and Employee previously executed an
Employment Agreement effective August 1, 1994 (the "Effective Date")
which was first amended on July 18, 1995 to substitute Saba
Exploration Company for Saba Petroleum, Inc. and change certain other
terms of Employee's employment. Whereas the parties now desire to
expand Employee's responsibilities to include executive supervision of
both Companies, and therefore desire to amend the Employment Agreement
again in its entirety.
C. After independent review and consideration of the Agreement, Employee
desires to accept such revised employment responsibilities subject to,
and in accordance with, the terms and provisions set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT RELATIONSHIP; TERM; RENEWAL
Subject to the other terms, conditions and provisions of this
Agreement, the Companies hereby employ Employee and Employee hereby
accepts such employment for a period of five (5) years, commencing on
the Effective Date of this Agreement, as that term is defined above,
and subject to the termination provisions as provided herein below in
Paragraph 8.
2. COMPENSATION
2.1 ANNUAL COMPENSATION
Subject to the terms and provisions hereof, the Companies
shall pay or cause to be paid to Employee during the term
hereof an annual salary as described in Exhibit A hereto.
Cash compensation shall be paid in equal semi-monthly
installments provided only that such installments shall be
pro-rated in the event of any partial employment period
hereunder.
<PAGE> 2
2.2 ADDITIONAL COMPENSATION
Employee shall be further entitled to additional compensation
in the form of stock options in Saba Petroleum Company subject
to the conditions as set forth in Exhibit A attached hereto
and incorporated herein by reference. Additionally, Employee
will be eligible to receive bonus payments in the discretion
of the Board of Directors of Saba Petroleum Company and/or the
Companies. The option previously granted to Employee to
acquire up to twenty percent (20%) of the common stock of Saba
Exploration Company is hereby cancelled as of January 1, 1996
and the prior Exhibit B to this Agreement regarding said
option is deleted from this Agreement in its entirety.
2.3 EMPLOYMENT TAXES
All compensation and benefits shall be subject to customary
withholding taxes and other employment taxes as from time to
time are required by any governmental statute, ordinance, or
regulation with respect to such compensation paid by the
Companies to an employee.
3. EMPLOYEE BENEFITS AND REIMBURSEMENTS
A. MEDICAL INSURANCE
During the term of this Agreement and the employment described
herein, the Companies will pay the premium for standard
medical benefits for Employee. Dependent coverage is
available but at Employee expense.
B. REIMBURSEMENT FOR OUT-OF-POCKET EXPENSES
The Companies shall, not less frequently than monthly,
reimburse Employee with respect to all ordinary out-of-pocket
expenses which, in the sole judgment of the Companies, were
incurred by Employee in the course of and/or in the conduct of
the Companies' business by Employee, provided Employee follows
and complies with the Companies' reporting and receipts
submission procedures.
C. OTHER BENEFITS
In addition to the foregoing, Employee shall also be provided
any other benefits of whatever kind or nature or shall be
permitted to participate in such other benefits or programs
which may, from time to time, be adopted or provided by Saba
Petroleum Company or the Companies and otherwise made
available by Saba Petroleum Company or the Companies to other
employees or officers of Saba Petroleum Company or the
Companies under substantially the same restrictions and
limitations, if any and as applicable, including Saba
Petroleum Company's 401(K) Plan.
D. USE OF AUTOMOBILE
Employee will be provided with a vehicle to be used while on
official business of the Companies.
<PAGE> 3
E. RELOCATION
The Companies will reimburse Employee for reasonable and
necessary moving costs incurred in the course of Employee
relocation. The Companies will make the final determination
whether items of moving costs are "reasonable and necessary."
4. SERVICES AND DUTIES OF EMPLOYEE
Employee agrees that, expressly in his capacity as an officer of the
Companies, Employee will at all times loyally and conscientiously
perform all of the following duties, responsibilities, and
obligations:
A. Those duties and responsibilities expressly or implicitly
contained in this Agreement;
B. Those duties and responsibilities customarily incident to or
required of such position(s) and/or office(s) as may, from
time to time, be assigned to Employee by the Board of
Directors of the Companies or of Saba Petroleum Company;
C. Such other services, acts, or things necessary, prudent, or
advisable in the exercise of Employee's reasonable judgment
for the benefit of the Companies and;
D. Such additional duties, responsibilities and obligations and
such other services, acts, and things as, from time to time,
may be designated by the Board of Directors of the Companies
or of Saba Petroleum Company.
Without in any manner limiting the foregoing, Employee agrees to devote such
time as may be necessary to or for the business of the Companies. By entering
into this Agreement, it is the mutual intention of the parties that Employee
shall devote all of his productive time, ability, and attention to the business
of the Companies.
5. NO OUTSIDE EMPLOYMENT
By entering into this Agreement, it is the mutual intention of the
parties that Employee shall devote all of his productive time,
ability, and attention to the business of the Companies and shall not,
without the prior written consent of the Board, which may be withheld
for any reason whatsoever, otherwise actively engage in other business
endeavors or pursuits, including, without limitation, the direct or
indirect rendition of any services of a business, commercial, or
professional nature to any other person or organization, whether for
compensation or otherwise.
Notwithstanding the foregoing, the Companies recognize the following
exceptions to this full-time commitment: (i) President, Phillips Oil &
Gas, Inc., a
<PAGE> 4
Tennessee corporation; and (ii) Director, Stangrid PLC (owner of the shares of
Phillips Oil & Gas).
6. CONFIDENTIALITY AND TRADE SECRETS
Employee acknowledges and agrees that, in prior meetings with other
employees, representatives, officers and directors of the Companies,
Employee has or will, during the term of employment, have access to,
become acquainted with, and/or develop or invent various Trade Secrets
and proprietary information consisting of and including, without
limitation, formulas, processes, plans, charts, concepts, procedures,
compilations, lists of data and information, records, specifications,
documents, contracts, reports, forms, manuals, names, addresses, and
telephone numbers and other information of customers, lenders,
investors, or identified prospective customers, lenders, or investors
(all of the foregoing sometimes collectively referred to as "Trade
Secrets") which are owned or have been or subsequently are developed,
compiled, organized or invented by the Companies, the Employee, or the
Companies' other employees. Employee, for the benefit of the
Companies and as a condition of this Agreement, expressly agrees that
Employee shall not disclose any of the Trade Secrets, directly or
indirectly; use them in any way; or claim proprietary ownership
interest therein, either during or after the term of this Agreement
except as required in the performance of Employee's duties hereunder
or as expressly authorized by the written consent and permission of
the Companies after full explanation and disclosure of any such
proposed use or disclosure by the Employee to the Companies.
Employee further acknowledges and agrees that all Trade Secrets, as
defined above, whether now existing or hereafter developed are and
shall at all times be owned solely and exclusively by the Companies
and Employee shall have no ownership interest therein or rights
thereto.
7. EFFECTIVE DATE
The Effective Date of this Agreement shall be the day, month, and year
first set forth above. The effective date of this Agreement, as
amended, shall be January 1, 1996.
8. TERMINATION UPON EVENT OF TERMINATION
8.1 EVENTS OF TERMINATION
This Agreement shall terminate immediately upon the occurrence
of any of the following events:
A. Whenever the Companies and Employee shall mutually agree in
writing to terminate this Agreement;
B. Whenever the Companies deliver written notice to Employee
terminating the Agreement for "cause" including, among other
things, Employee's material gross negligence or intentional
misconduct under the terms of this Agreement, unless waived in
<PAGE> 5
writing and signed by the Companies in the Companies' sole and
absolute discretion;
C. Upon the death of Employee;
D. Upon the permanent incapacity of Employee because of illness,
physical injury, other physical or mental disability, or any
reason such that it reasonably appears that Employee will be
unable to perform or complete Employee's duties and
responsibilities under this Agreement.
If, the Companies terminate this Agreement without cause, then upon such
termination, in addition to the other provisions contained herein, the
Companies shall pay to Employee as a severance allowance an amount equal to the
Employee's then annual salary.
8.2 POST-TERMINATION DUTIES AND OBLIGATIONS Upon termination for any of
the foregoing Events;
A. Employee or the representative of Employee's estate, in the
event of the death of the Employee, shall be entitled to
receive that compensation earned by Employee that Employee
would otherwise be entitled to up to the date of termination
less such amounts as are required by law to be withheld and
deducted and;
B. Employee or the representative of Employee's estate, in the
event of the death of the Employee, shall deliver to the
Companies all records, reports, files, schedules, lists,
equipment, tools, and any other property in his possession or
under his control belonging to the Companies and, as
appropriate, in good condition and repair, ordinary wear and
tear excepted.
C. Employee shall have such other post-termination
responsibilities as Employee and the Companies shall mutually
agree.
9. COMPANIES' AUTHORITY
The Companies expressly reserve the right to adopt and promulgate from
time to time, orally or in writing, Companies rules, regulations,
directives and policies with respect to the Companies' operations and
systems, business expense reimbursements, general employee standards,
and employee performance requirements and evaluation criteria (all of
the foregoing collectively referred to as the "Companies' Policies").
Employee agrees at all times to observe and comply with the Companies'
Policies, whether oral or in writing, as stated and as reasonably
interpreted by the Board of Directors.
10. PAID VACATION AND SICK LEAVE
<PAGE> 6
A. PAID VACATION
Employee shall be entitled to two weeks' paid vacation each
year, subject to increase based upon the then current policy
of the Companies.
B. SICK LEAVE
As determined by the Companies, Employee shall be entitled to
a reasonable number of days of sick leave with full
compensation as specified in the current policy of the
Companies during each calendar year. In determining what is a
reasonable number of days, the Companies shall take into
account previous periods of illness or disability, the number
of days of sick leave taken in the current and preceding
years, and any other relevant factors it deems pertinent.
11. INDEMNIFICATION
The Companies shall indemnify the Employee and hold him harmless for
and with respect to all costs and expenses incurred by Employee
resulting from any acts or decisions made by him in good faith while
performing services for the Companies within the scope of his position
and authority hereunder.
12. NON-TRANSFERABILITY
This Agreement is personal to Employee and the services to be provided
by Employee are personal to and uniquely capable of performance by
Employee. Consequently, neither this Agreement nor any right, duties,
or obligations hereunder, or interests herein, shall be transferred,
assigned, conveyed, hypothecated, delegated or pledged, in whole or in
part, voluntarily or involuntarily, by operation of law or otherwise.
Any attempted transfer, assignment or delegation shall be null and
void.
13. NOTICES
All notices provided in or permitted pursuant to this Agreement shall
be in writing and shall be deemed to have been duly given when
delivered or mailed by United States certified mail, return receipt
requested, postage prepaid, addressed to the Companies at their
principal office address and to Employee at Employee's residence
address on the records of the Companies or at such other addresses
either party may have furnished to the other party in writing in
accordance herewith.
14. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
<PAGE> 7
15. AMENDMENTS
Any modification to or amendment of this Agreement shall be effective
only if:
A. It is in writing;
B. It expressly refers to this Agreement; and
C. It is signed by all parties hereto.
16. CONSTRUCTION
This Agreement shall be construed without regard to any presumption or
other rule requiring construction against the party drafting a
document. It shall be construed neither for nor against any party,
but each provision shall be given reasonable interpretation in
accordance with the plain meaning of its terms and the expressed
intent of the parties.
1 7. ENTIRE AGREEMENT
This Agreement supersedes any and all prior agreements between the
parties thereto, if any, whether oral or written, with respect to the
employment of Employee by the Companies and contains all of the
covenants, conditions, and agreements between the parties with respect
to the rendition of such services as herein contemplated or to be
performed hereunder. Each party acknowledges for the benefit of the
other;
A. That no representations, inducements, promises, or agreements,
orally or in writing, have been made by any party, or any
person acting or claiming to be acting on behalf of the other
party and;
B. That no other agreement, statement, or promise with respect to
such employment which is not set forth herein shall be valid
or binding.
18. ATTORNEY'S FEES
In the event of any dispute or disagreement under this Agreement
whether or not suit is instituted, or if any action is instituted, at
law or in equity, including, without limitation, an action for
declaratory or injunctive relief to enforce or interpret the
provisions of this Agreement, the prevailing party shall be entitled
to be reimbursed for all costs and expenses, including, without
limitation, reasonable attorneys' fees, which may be set by the court
in the same action if any action has been so commenced or in a
separate action brought for that purpose. Such right of reimbursement
shall be in addition to any other relief to which that party may be
entitled.
<PAGE> 8
19. GOVERNING LAW AND VENUE
Irrespective of the place of execution or performance, this Agreement
will be governed by and construed in accordance with the laws of the
State of California. The venue of any and all such actions brought
under or pursuant to this Agreement shall be Orange County,
California.
20. WAIVER
No provision of this Agreement may be modified, waived or discharged
unless such waiver modification or discharge is agreed to in writing
and signed by Employee and such Officer as may be authorized by the
Board. No waiver by either party thereto at any time of any breach of
any condition or provision of this Agreement shall be deemed a waiver
of or to the subsequent enforcement of each term and provision of this
Agreement.
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day,
month, and year first set forth above.
"COMPANIES" "EMPLOYEE"
SABA PETROLEUM, INC.
a California Corporation
BY:_____________________________ BY:_____________________________
ILYAS CHAUDHARY LARRY R. BURROUGHS
ITS: Chairman of the Board President and Chief Operating
Officer
SABA EXPLORATION COMPANY
a California Corporation
BY:_____________________________ BY:_____________________________
ILYAS CHAUDHARY LARRY R. BURROUGHS
ITS: Chairman of the Board President and Chief Operating
Officer
EXHIBIT A: COMPENSATION/OPTIONS GRANTED
<PAGE> 10
- -------------------------------------------------------------------------------
EXHIBIT "A"
- -------------------------------------------------------------------------------
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
EXCERISE PRICE NUMBER OF
YEAR SALARY PER SHARE OPTION SHARES
<S> <C> <C> <C>
1 $75,000.00 $3.00 20,000
2 $78,750.00 $3.00 20,000
3 $82,687.50 $3.00 20,000
4 $86,821.88 $3.00 20,000
5 $91,162.97 $3.00 20,000
-----------
100,000
</TABLE>
The Employee may exercise the Option Shares in whole or in part at any time on
or after the Employment Anniversary date of the Employee in each of the five (5)
years of employment. For example: the option to purchase 20,000 shares of Saba
Petroleum Company's common stock @ $3.00 may be exercised by the Employee giving
the Companies written notice of the Employee's intention to do so at any time on
or after August 1, 1995. Similarly, the second year option could not be
exercised until on or after August 1, 1996. The right to exercise Option Shares
shall vest on respective Employment Anniversary Dates, and shall accumulate.
In the event the employment of the Employee is terminated for any reason, by
the Employee or by the Companies, with or without cause, Employee's rights
hereunder shall be limited to those Option Shares which have vested, and all
non-vested Option Shares shall be cancelled immediately. Upon termination by
the Employee or by the Companies all vested Option Shares must be exercised
within one (1) year from the date of termination, or they will be cancelled.
If there shall be any capital reorganization or consolidation or merger of Saba
Petroleum Company with another corporation or corporations, in which Saba
Petroleum Company is not the surviving entity, or upon change of "control" of
Saba Petroleum Company, as that term is defined in Reg. 260.0-2(f) of the
Securities Exchange Act of 1934, any and all Option Shares shall immediately
vest.
Saba Petroleum Company will prepare, or cause to be prepared and filed
with the appropriate regulatory agencies a registration statement(s)
which will cause the Employee's Option Shares to be registered under
Section 12(g) of the Securities Act of 1933; to be freely
transferable; and, to be represented by stock certificates without any
restrictive legends.
<PAGE> 1
EXHIBIT 10.33
1ST AMENDMENT
-------------
LETTER AGREEMENT
This agreement, effective as of this 15th day of April, 1994, by and between
Saba Petroleum Company ("Company") and Bradley T. Katzung ("Employee") amends
and modifies the Employment Agreement ("Agreement") between the two parties
dated November 8, 1993.
RECITALS
A. It is in the best interest of the Company to promote Employee to the
position of President and Chief Operating Officer of Saba Energy of
Texas, Inc. (SETI), subject to and in accordance with the terms and
provisions set forth below.
B. After review and consideration of the Agreement, company and employee
agree to amend and modify the Agreement as set forth below:
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Subject to the terms, conditions and provisions of the
Agreement, the Company promotes Employee to President and
Chief Operating Officer of Saba Energy of Texas, Inc.
2. Annual salary for Employee will be adjusted to $75,000.00 and
will be reviewed on an annual basis.
3. Subject to the terms, conditions and provisions of Paragraph
2.2 and Exhibit 'B' of the Agreement, Employee stock options
will be increased to 10,000 option shares per year for a total
of 50,000 option shares during the five year contract.
Employee will be provided a company car at company expense to
be used while employed in this position.
Company to provide and administer a company 401K plan.
<PAGE> 2
May 6, 1994
Letter Agreement
Page 2
4. As an incentive, Company will pay a net profits bonus based on the
following:
- SETI net profits will be the net operating income before
income tax as determined by adding the oil and gas sales,
operating revenues, interest income and other income and
subtracting production and operating expenses (LOE), general
and administrative costs (G&A), depletion and depreciation and
interest expense,
- the bonus will be paid quarterly after posting of company 1O-Q
results beginning with the second quarter, 1994.
- the accounting period will be a full fiscal year,
- bonus will be determined by the schedule below:
<TABLE>
<CAPTION>
QUARTERLY
NET PROFITS $ BONUS
------------- -----
<S> <C> <C>
0 - 150,000 2%
150,000 - 300,000 3%
300,000 - 450,000 4%
450,000 - 600,000 5%
600,000 - 6%
</TABLE>
With the schedule above, as an example, if the quarterly net
profits were $600,000, the bonus would be $21,000.
5. The effective date of this Letter Agreement shall be the day, month
and year first set forth above.
6. This Letter Agreement amends and modifies the Agreement effective
November 8, 1993.
<PAGE> 3
In witness whereof, the parties have executed this Agreement as of the day,
month and year first set forth above.
COMPANY EMPLOYEE
Saba Petroleum Company,
A Colorado Corporation
By: /s/ ILYAS CHAUDHARY /s/ BRADLEY T. KATZUNG
------------------------- -----------------------
Ilyas Chaudhary Bradley T. Katzung
Its: Chairman of the Board and
Chief Executive Officer
CC: WALT VONCE
WILIAM HOCHEY
<PAGE> 4
EMPLOYMENT AGREEMENT
BRADLEY T. KATZUNG
THIS AGREEMENT, effective as of this 8th day of November, 1993, by and
between SABA PETROLEUM COMPANY, a Colorado corporation (hereinafter referred to
as the "Company"), and BRADLEY T. KATZUNG, an individual (hereinafter referred
to as the "Employee"), the following terms and conditions.
RECITALS
A. It is in the best interest of the Company to employ the
services of Employee as Vice-President of Operations of the Company,
subject to and in accordance with the terms and provisions set forth
below,
B. After independent review and consideration of the Agreement,
Employee desires to accept such employment subject to, and in
accordance with, the terms and provisions set forth below.
NOW, THEREFORE. for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT RELATIONSHIP; TERM; RENEWAL
Subject to the other terms, conditions and provisions of this
Agreement the Company hereby employs Employee and Employee hereby accepts such
employment for a period of five (5) years, commencing on the Effective Date of
this Agreement, as that term is defined below, and subject to the termination
provisions as provided herein below in Paragraphs 6 and 8.
2. COMPENSATION
2.1 ANNUAL COMPENSATION
Subject to the terms and provisions hereof, the Company shall pay or
cause to be paid to Employee during the term hereof an annual salary as
described
-1-
<PAGE> 5
in Exhibit A hereto. Cash compensation shall be paid in equal semi-monthly
installments commencing on the Effective Date hereof and provided only that
such installments shall be pro-rated in the event of any partial employment
period hereunder.
2.2 ADDITIONAL COMPENSATION
Employee may be further entitled to additional compensation in
the form of stock options in amounts and subject to the conditions as set forth
in Exhibit B attached hereto and incorporated herein by reference.
2.3 EMPLOYMENT TAXES
All compensation and benefits shall be subject to customary
withholding taxes and other employment taxes as from time to time are required
by any governmental statute, ordinance, or regulation with respect to such
compensation paid by the Company to an employee.
3. EMPLOYEE BENEFITS AND REIMBURSEMENTS
A. MEDICAL AND LIFE INSURANCE: During the term of this
Agreement and the employment described herein, the Company will make a
contribution towards standard medical benefits consistent with existing Company
policy. Such contribution to begin with the Effective Date.
B. REIMBURSEMENT FOR OUT-OF-POCKET EXPENSES: Company
shall, not less frequently than monthly, reimburse Employee with respect to all
ordinary out-of-pocket expenses which, in the sole judgment of the Company, were
incurred by Employee in the course of and/or in the conduct of Company business
by Employee, provided Employee follows and complies with Company reporting and
receipts submission procedures.
C. OTHER BENEFITS: In addition to the foregoing,
Employee shall also be provided any other benefits of whatever kind or nature
or shall be permitted to participate in such other benefits or programs which
may, from time to time, be adopted or provided by the Company and otherwise
made available by
-2-
<PAGE> 6
the Company to other employees or officers of Company under substantially the
same restrictions and limitations, if any and as applicable.
D. RELOCATION: Company will reimburse Employee for reasonable and
necessary moving costs incurred in the course of Employee relocation. Company
will make the final determination whether terms of moving costs are "reasonable
and necessary."
4. SERVICES AND DUTIES OF EMPLOYEE
Employee agrees that, expressly in his capacity as an officer of the
Company, Employee will at all times loyally and conscientiously perform all of
the following duties, responsibilities, and obligations:
(A) Those duties and responsibilities expressly or implicitly
contained in this Agreement;
(B) Those duties and responsibilities customarily incident to or
required of such position(s) and/or office(s) as may, from time to time, be
assigned to Employee by the Board of Directors;
(C) Such other services, acts, or things necessary, prudent, or
advisable in the exercise of Employee's reasonable judgment for the benefit of
the Company; and
(D) Such additional duties, responsibilities and obligations and
such other services, acts, and things as, from time to time, may be designated
by the Board of Directors of the Company.
Without in any manner limiting the foregoing, Employee agrees to
devote such time as may be necessary to or for the business of the Company. By
entering into this Agreement, it is the mutual intention of the parties that
Employee shall devote all of his productive time, ability, and attention to the
business of the Company.
5. NO OUTSIDE EMPLOYMENT
By entering into this Agreement, it is the mutual intention of the
parties that Employee shall devote all of his productive time, ability, and
attention to the
-3-
<PAGE> 7
business of the Company and shall not, without the prior written consent of the
Board, which may be withheld for any reason whatsoever, otherwise actively
engage in other business endeavors or pursuits, including, without limitation,
the direct or indirect rendition of any services of a business, commercial, or
professional nature to any other person or organization, whether for
compensation or otherwise.
6. CONFIDENTIALITY AND TRADE SECRETS
Employee acknowledges and agrees that, in prior meetings with other
employees, representatives, officers and directors of the Company, Employee has
or will, during the term of employment, have access to, become acquainted with,
and/or develop or invent various Trade Secrets and proprietary information
consisting of and including without limitation, formulas, processes, plans,
charts, concepts, procedures, compilations, lists of data and information,
records, specifications, documents, contracts, reports, forms, manuals, names,
addresses, and telephone numbers and other information of customers, lenders,
investors, or identified prospective customers, lenders, or investors (all of
the foregoing sometimes collectively referred to as "Trade Secrets") which are
owned or have been or subsequently are developed, compiled, organized or
invented by the Company, the Employee, or the Company's other employees.
Employee, for the benefit of the Company and as a condition of this Agreement,
expressly agrees that Employee shall not disclose any of the Trade Secrets,
directly or indirectly; use them in any way; or claim proprietary ownership
interest therein, either during or after the term of this Agreement except as
required in the performance of Employee's duties hereunder or as expressly
authorized by the written consent and permission of the Company after full
explanation and disclosure of any such proposed use or disclosure by the
Employee to the Company.
Employee further acknowledges and agrees that all Trade Secrets, as
defined above, whether now existing or hereafter developed, are and shall at
all times be owned solely and exclusively by the Company and Employee shall
have no ownership interest therein or rights thereto.
7. EFFECTIVE DATE
The Effective Date of this Agreement shall be the day, month, and year
first set forth above.
-4-
<PAGE> 8
8. TERMINATION UPON EVENT OF TERMINATION
8.1. EVENTS OF TERMINATION
This Agreement shall terminate immediately upon the occurrence of any
of the following events:
(A) Whenever the Company and Employee shall mutually agree in
writing to terminate this Agreement;
(B) Whenever the Company delivers written notice to Employee
terminating the Agreement for "cause" including, among other things,
Employee's material gross negligence or intentional misconduct under
the terms of this Agreement, unless waived in writing and signed by the
Company in the Company's sole and absolute discretion
(C) Upon the death of Employee;
(D) Upon the permanent incapacity of Employee because of illness,
physical injury, other physical or mental disability, or any reason
such that it reasonably appears that Employee will be unable to perform
or complete Employee's duties and responsibilities under this
Agreement.
If, for any reason other than those set forth immediately above, the Company
for any reason terminates this Agreement, then upon such termination, in
addition to the other provisions contained herein, the Company shall pay to
Employee as a severance allowance an amount equal to the Employee's then annual
salary.
8.2 POST-TERMINATION DUTIES AND OBLIGATIONS
Upon termination for any of the foregoing Events;
(A) Employee or the representative of Employee's estate, in the
event of the death of the Employee, shall be entitled to receive that
compensation earned by Employee that Employee would otherwise be
entitled to up to the date of termination less such amounts as are
required by law to be withheld and deducted; and
-5-
<PAGE> 9
(B) Employee or the representative of Employee's estate, in the
event of the death of the Employee, shall deliver to the Company all
records, reports, files, schedules, lists, equipment, tools, and any
other property in his possession or under his control belonging to the
Company and, as appropriate, in good condition and repair, ordinary
wear and tear excepted.
9. COMPANY'S AUTHORITY
The Company expressly reserves the right to adopt and promulgate from
time to time, orally or in writing, Company rules, rules, regulations,
directives and policies with respect to Company operations and systems,
business expense reimbursements, general employee standards, and employee
performance requirements and evaluation criteria (all of the foregoing
collectively referred to as "Company Policies"). Employee agrees at all times
to observe and comply with all Company Policies, whether oral or in writing, as
stated and as reasonably interpreted by the Board of Directors.
10. PAID VACATION AND SICK LEAVE
(A) PAID VACATION: Employee shall be entitled to a paid vacation
each year pursuant to the then current policy of the Company.
(B) SICK LEAVE: As determined by the Company, Employee shall
be entitled to a reasonable number of days of sick leave with full
compensation as specified in the current policy of the Company during
each calendar year. In determining what is a reasonable number of
days, the Company shall take into account previous periods of illness
or disability, the number of days of sick leave taken in the current
and preceding years, and any other relevant factors it deems
pertinent.
11. INDEMNIFICATION
The Company shall indemnify the Employee and hold him harmless for and
with respect to all costs and expenses incurred by Employee resulting from any
acts or decisions made by him in good faith while performing services for the
Company within the scope of his position and authority hereunder.
-6-
<PAGE> 10
Consequently, neither this Agreement nor any right, duties, or obligations
hereunder, or interests herein, shall be transferred, assigned, conveyed,
hypothecated, delegated or pledged, in whole or in part, voluntarily or
involuntarily, by operation of law or otherwise. Any attempted transfer,
assignment or delegation shall be null and void.
13. NOTICES
All notices provided in or permitted pursuant to this Agreement shall
be in writing and shall be deemed to have been duly given when delivered or
mailed by United States certified mail, return receipt requested, postage
prepaid, addressed to Company at its principal office address and to Employee
at Employee's residence address on the records of the Company or at such other
addresses either party may have furnished to the other party in writing in
accordance herewith.
14. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect
15. AMENDMENTS
Any modification to or amendment of this Agreement shall be effective
only if:
(A) It is in writing;
(B) It expressly refers to this Agreement; and
(C) It is signed by all parties hereto.
16. CONSTRUCTION
This Agreement shall be construed without regard to any presumption or
other rule requiring construction against the party drafting a document. It
shall be construed neither for nor against any party, but each provision shall
be given reasonable interpretation in accordance with the plain meaning of its
terms and the expressed intent of the parties.
-7-
<PAGE> 11
17. ENTIRE AGREEMENT
This Agreement supersedes any and all prior agreements between the
parties thereto, if any, whether oral or written, with respect to the
employment of Employee by the Company and contains all of the covenants,
conditions, and agreements between the parties with respect to the rendition of
such services as herein contemplated or to be performed hereunder. Each party
acknowledges for the benefit of the other:
(A) That no representations, inducements, promises, or agreements,
orally or in writing, have been made by any party, or any person
acting or claiming to be acting on behalf of the other party; and
(B) That no other agreement, statement, or promise with respect to
such employment which is not set forth herein shall be valid or
binding.
18. ATTORNEYS' FEES
In the event of any dispute or disagreement under this Agreement
whether or not suit is instituted, or if any action is instituted, at law or
in equity, including, without limitation, an action for declaratory or
injunctive relief to enforce or interpret the provisions of this Agreement, the
prevailing party shall be entitled to be reimbursed for all costs and expenses,
including, without limitation, reasonable attorneys' fees, which may be set by
the court in the same action if any action has been so commenced or in a
separate action brought for that purpose. Such right of reimbursement shall be
in addition to any other relief to which that party may be entitled.
19. GOVERNING LAW AND VENUE
Irrespective of the place of execution or performance, this Agreement
will be governed by and construed in accordance with the laws of the State of
California. The venue of any and all such actions brought under or pursuant to
this Agreement shall be Orange County, California.
-8-
<PAGE> 12
20. WAIVER
No provision of this Agreement may be modified, waived or discharged
unless such waiver modification or discharge is agreed to in writing and signed
by Employee and such Officer as may be authorized by the Board. No waiver by
either party thereto at any time of any breach of any condition or provision of
this Agreement shall be deemed a waiver of or to the subsequent enforcement of
each term and provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day, month, and year first set forth above.
"COMPANY" "EMPLOYEE"
SABA PETROLEUM COMPANY,
a Colorado Corporation
BY: /s/ ILYAS CHAUDHARY /s/ BRADLEY T. KATZUNG
------------------- ----------------------
ILYAS CHAUDHARY BRADLEY T. KATZUNG
ITS: Chairman of the Board
and Chief Executive Officer
EXHIBIT A ANNUAL COMPENSATION
EXHIBIT B ADDITIONAL COMPENSATION
-9-
<PAGE> 13
EXHIBIT "A"
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Exercise Price Number of
Year Salary Per Share Option Shares
---- ------ -------------- -------------
<S> <C> <C> <C>
1 $100,000 $2.75 2,000
2 100,000 2.75 1,000
3 100,000 2.75 2,000
4 100,000 2.75 2,000
5 100,000 2.75 2,000
------
10,000
</TABLE>
* The Employee may exercise the Option Shares in whole or in part at any
time on or after the Employment Anniversary date of the Employee in each of the
five (5) years of employment. For example: the option to purchase 2,000 shares
of the Company's common stock @ $2.75 may be exercised by the Employee giving
the Company written notice of the Employee's intention to do so at any time on
or after November 8, 1994. Similarly, the second year option could not be
exercised until on or after November 8, 1995. The right to exercise Option
Shares shall vest on respective Employment Anniversary Dates, and shall
accumulate. In the event the employment of the Employee is terminated for any
reason, by the Employee or by the Company, with or without cause, Employee's
rights hereunder shall be limited to those Option Shares which have vested.
<PAGE> 14
If there shall be any capital reorganization or consolidation or
merger of the Company with another corporation or corporations, in which the
Company is not the surviving entity, or upon change of "control" of the
Company, as that term is defined in Reg. 260.0-2(f) of the Securities Exchange
Act of 1934, any and all Option Shares shall immediately vest.
The Company will prepare, or cause to be prepared and filed with the
appropriate regulatory agencies a registration statement(s) which will cause
the Employee's Option Shares to be registered under Section 12(g) of the
Securities Act of 1933; to be freely transferable; and, to be represented by
stock certificates without any restrictive legends.
-2-
<PAGE> 15
EXHIBIT "B"
ADDITIONAL COMPENSATION
The Company grants to the Employee as additional compensation the
Option to purchase up to 10,000 shares of the Company's common stock at the
price of $2.75 per share, such option rights to vest on the following basis:
<TABLE>
<CAPTION>
Number
Year of Shares
---- ---------
<S> <C>
1 2,000
2 2,000
3 2,000
4 2,000
5 2,000
</TABLE>
* The Employee may exercise the Option Shares in whole or in part at any
time on or after the Employment Anniversary date of the Employee in each of the
five (5) years of employment. For example: the option to purchase the 2,000
shares of the Company's common stock @ $2.75 may be exercised by the Employee
giving the Company written notice of the Employee's intention to do so at any
time on or after November 8, 1994. Similarly, the second year option could not
be exercised until on or after November 8, 1995. The right to exercise Option
Shares shall vest on respective Employment Anniversary Dates, and shall
accumulate.
In the event of termination of the employment, as described in Section
8.1 herein above of Employee, vested shares from preceding years shall become
due and exercisable within one year from the date of termination, and any and
all non-vested Option shares shall be cancelled. In the event of termination,
not covered under Section 8.1 herein above, all option shares covered in this
Exhibit B will vest and will be exercisable during the five year period.
-1-
<PAGE> 16
If there shall be any capital reorganization or consolidation or
merger of the Company with another corporation or corporations, in which the
Company is not the surviving entity, or upon change of "control" of the
Company, as that term is defined in Reg. 260.0-2(f) of the Securities Exchange
Act of 1934, any and all Option Shares shall immediately vest.
The Company will prepare, or cause to be prepared and filed with the
appropriate regulatory agencies a registration statement(s) which will cause the
Employee's Option Shares to be registered under Section 12(g) of the Securities
Act of 1933; to be freely transferable; and, to be represented by stock
certificates without any restrictive legends.
-2-
<PAGE> 1
EXHIBIT 10.34
SANTA MARIA REFINING COMPANY
P O Box 1260
Santa Maria, CA 93456
Tel: 805-922-5871
Fax: 805-925-7764
CONSULTANT AGREEMENT
1. NAME: Burt Cormany
2. NAME OF THE COMPANY: Santa Maria Refinery Company (SMRC)
3. LOCATION: Santa Maria, California
4. JOB TITLE: President
5. EFFECTIVE DATE: July 1, 1994
6. MAJOR AREAS OF RESPONSIBILITY:
MANAGEMENT OF
All Refinery operations including
- budgets, cash flow needs and projections
- regulatory compliance
- CUP achievement
- asphalt marketing
7. REPORTING TO: Ilyas Chaudhary, Chairman of
SMRC's Board of Directors
8. COMPENSATION:
A. $60,000 per annum to be paid on a monthly basis and 12,000
shares of Saba Petroleum Company Common Stock to be issued as
fully paid on January 1, 1995 as a one time bonus. Compensation
for second year of the contract shall be $100,000 per annum
B. Standard medical and 401(K) Plan benefits
C. Company vehicle for Company usage
E. Bonus at discretion of the Directors
F. The Company shall indemnify against any claims while holding the
office
9. TERMINATION NOTICE: 90 days severance upon termination
10. CONTRACT TERM: 2 years from July 1, 1994 to
June 30, 1996
/s/ BURT CORMANY /s/ ILYAS CHAUDHARY
- -------------------------------- ---------------------------------
Burt Cormany Ilyas Chaudhary - Director
Santa Maria Refining Company
July 22, 1994 July 20, 1994
- -------------------------------- ---------------------------------
Date Date
<PAGE> 1
EXHIBIT 11.1
SABA PETROLEUM COMPANY
Computation of Earnings Per Common Share
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Year
Ended December 31
1996 1995
<S> <C> <C>
PRIMARY EARNINGS
Net income before minority interest
in earnings of consolidated
subsidiary 4,006,117 602,164
Minority interest in earnings of
consolidated subsidiary (241,401) (55,632)
--------- ---------
Net income available to Common 3,764,716 546,532
========= =========
PRIMARY SHARES
Weighted average number of Common
Shares outstanding 8,744,805 8,327,494
Additional shares assuming issuance of
shares underlying options 671,228 415,274
--------- ---------
Primary Shares 9,416,033 8,742,768
========= =========
PRIMARY EARNINGS PER COMMON SHARE
Net income available to Common $0.40 $0.06
========= =========
FULLY DILUTED EARNINGS
New income before minority interest
in earnings of consolidated
subsidiary 4,006,117 602,164
Minority interest in earnings of
consolidated subsidiary (241,401) (55,632)
Plus interest expense attributable
to Debentures, net of related income
taxes 645,585 12,722
--------- ---------
Net income available to Common 4,410,301 559,254
========= =========
FULLY DILUTED SHARES
Weighted average number of Common
Shares outstanding 8,744,805 8,327,494
Additional shares assuming issuance:
Of shares underlying options 671,228 415,274
Of convertible common shares
@ $4.375 per share underlying:
$11,000,000 from 12/26/95 2,514,285 41,331
$1,650,000 from 2/7/96 339,016 0
Less shares actually issued
upon conversions (203,078) 0
--------- ---------
Fully Diluted Shares 12,066,256 8,784,099
========= =========
FULLY DILUTED EARNINGS PER COMMON SHARE
Net income $0.37 $0.06
========= =========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this annual report on Form
10-KSB of our report dated March 26, 1997, on our audits of the consolidated
financial statements of Saba Petroleum Company and subsidiaries as of December
31, 1996 and 1995, and for the two years in the period ended December 31, 1996,
appearing in the registration statements on Form S-3 (SEC File Nos. 33-71272 and
333-00799) of Saba Petroleum Company filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933.
COOPERS & LYBRAND L.L.P.
Los Angeles, CA
April 1, 1997
<PAGE> 1
EXHIBIT 23.2
[NETHERLAND, SEWELL LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
The undersigned hereby consents to be named as the source for certain oil
and gas reserve information presented in the Form 10-KSB of Saba Petroleum
Company (the "Registrant") as filed with the Securities & Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERIC D. SEWELL
----------------------------------
Frederic D. Sewell
President
Dallas, Texas
March 31, 1997
<PAGE> 1
EXHIBIT 23.3
[SPROULE ASSOCIATES LETTERHEAD]
Ref: 2261.11489
March 31, 1997
Saba Petroleum Company
Ste. 201, 3201 Skyway Drive
Santa Maria, CA 93455
RE: CONSENT OF SPROULE ASSOCIATES LIMITED
Dear Sirs:
The undersigned hereby consents to be named as the source for certain oil and
gas reserve information presented in the Form 10-KSB of Saba Petroleum Company
(the "Registrant") as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended.
Sincerely,
R. KEITH MACLEOD, P. ENG.
- ---------------------------------
R. Keith MacLeod, P. Eng.
Manager, Engineering and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND CONSOLIDATED STATEMENT OF
INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 734,036
<SECURITIES> 0
<RECEIVABLES> 7,426,326
<ALLOWANCES> (65,000)
<INVENTORY> 0
<CURRENT-ASSETS> 11,581,286
<PP&E> 50,182,272
<DEPRECIATION> (15,323,780)
<TOTAL-ASSETS> 49,116,886
<CURRENT-LIABILITIES> 9,163,757
<BONDS> 20,811,980
0
0
<COMMON> 12,901,083
<OTHER-SE> 4,814,127
<TOTAL-LIABILITY-AND-EQUITY> 49,116,886
<SALES> 0
<TOTAL-REVENUES> 33,202,344
<CGS> 0
<TOTAL-COSTS> 24,051,144
<OTHER-EXPENSES> (214,756)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,401,856
<INCOME-PRETAX> 6,964,100
<INCOME-TAX> 2,957,983
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,764,716
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.37
</TABLE>
