REPUBLIC OF YEMEN
MINISTRY OF OIL & MINERAL RESOURCES
MEMORANDUM OF UNDERSTANDING
This Memorandum of understanding (MOIU) is made and entered into on the 17th day
Of Rajab 1420 H, corresponding to the 26th day, of October 1999, between the
Following Parties:
1- The Ministry of Oil & Mineral Resources in the Republic of Yemen
(Hereinafter referred to as MINISTRY):
And
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2- ADAIR INTERNATIONAL OIL & GAS, INC (ADAIR), a Texas Corporation, having its
headquarters at 3000 Richmond Avenue Suite 100, Houston, Texas, USA, and
PARTNERS IN EXPLORATION, LLC (PIE), a limited liability corporation, having
its headquarters at 1001 Hampshire Lane, Richardson, Texas, USA being duly
organized and existing under the Laws and Regulations of The State of
Nevada, with ADAIR and PIE as joint venture partners (hereinafter referred
to as "CONTRACTOR").
In Reference to Block No (20) Al-Sabatain area of Marib-Shabwa Govern orates
Republic of Yemen as determined by the coordinates, and the map attached hereto
with approximate area of 2049 Sq. Km.
The MINISTRY and the CONTRACTOR hereby agree to start negotiating in good faith
a production sharing Agreement (PSA) immediately and finalize it within a
maximum two (2) months period from the date of signing of this MOU, During the
said period of (2) months, MINISTRY agrees that it will not enter into any
Memorandum of Understanding, commitment or agreement in respect of the said
block No (20) with any party other than CONTRACTOR, In the event the Parties are
not able to agree upon the terms and conditions of the PSA within the said two
(2) months period, this MOU will automatically expire and be of no further force
or effect, unless extended in writing by the Parties hereto.
This MOU records the basis for the principal commercial terms of the PSA. The
Exploration period shall be ( 5 ) Years to be divided into (2) phases:
The First Exploration Phase:
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The First Phase of Exploration Period shall be an obligatory period of Thirty
Six ( 36) months plus Zero ( 0 ) Months extension upon written Request by the
CONTRACTOR and the approval of the MINISTRY.
Minimum Exploration Work Program and Budget:
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MINIMUM EXPLORATION WORK PROGRAM AND BUDGET:
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- Reprocess (1000 km of 2D seismic data related to the Block (U$ 300,000
USD).
- Conduct, acquire, process and interpret minimum Zero Km (2D) of New seismic
lines.
- Conduct, acquire, process and interpret minimum 100 Sq Km (3D) of New
seismic lines ($ 4,0 Million USD).
- Drill and evaluate ( 2 ) exploration wells with total depth as mutually
agreed and Technically Justified to test identified prospect objectives
($4,0 million USD).
The CONTRACTOR shall provide to the MINISTRY full amount of irrevocable Letter
of Credit, issued by any local Bank in ROY, or mutually acceptable Bank in
correspondence with a Yemeni Bank and submitted to the MINISTRY on the signature
date of the PSA and becomes valid on the Effective date, of the total
Expenditure Commitment of the First Exploration Phase and shall be in the
minimum amount of Eight Million Three Hundred Thousand United State Dollars (US$
8,3).
The Second Exploration Phase:
--------------------------------
The Second Phase ( optional ) shall be twenty-four ( 24 ) months plus twelve
( 12 ) months extension upon approval of the MINISTRY.
Minimum Exploration work Program and Budget:
- Conduct, acquire, process and interpret an additional Zero Km (2D) of New
seismic lines.
- Conduct, acquire, process and interpret minimum Zero Sq Km (3D) of New
seismic lines.
- Drill and evaluate four (4) exploration wells with total depth as mutually
agreed and Technically Justified to test identified prospect objectives
Eight Million United State Dollars (US$ 8,0 Million).
The CONTRACTOR shall provide to the MINISTRY full amount of irrevocable Letter
of Credit, issued by local Bank in ROY, or mutually acceptable Bank in
correspondence with a Yemeni Bank and submitted to the MINISTRY in due time, of
the total minimum Expenditure commitment by the CONTRACTOR of the Second Phase
and shall be in the Minimum amount of Eight Million United State Dollars (US$
8,0).
The Total Minimum Expenditures for both phases will be Sixteen Million Three
Hundred Thousand United State Dollars (US$ 16,3 Million).
The minimum work commitment shall be carried out and performed in full
regardless of the minimum Expenditure commitment and according to Good
International Petroleum Industry Practices.
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ROYALTY
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The MINISTRY shall be entitled to have as Royalty:-
0 - 25,000 BOPD (3%)
25,000 - 50,000 BOPD (4%)
50,000 - 75,000 BOPD (5%)
75,000 - 100,000 BOPD (6%)
In excess of 100,000 BOPD (8%)
Fixed Tax:
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CONTRACTOR shall pay a fixed percentage tax (" fixed tax ") equivalent to Three
(3%) percent of all its actual Exploration Expenditures incurred and paid in
conducting its Exploration Operations.
Signature Bonus:
-----------------
The CONTRACTOR shall pay to the MINISTRY Four Hundred Thousand United State
Dollars (US$ 400,000 ) as signature Bonus. The CONTRACTOR shall provide to the
MINISTRY full amount of irrevocable Letter of Credit, issued by any local bank
in ROY and submitted to the MINISTRY within (2) weeks after the signing of the
PSA, such letter of Credit shall be payable immediately upon the ratification of
the PSA by Parliament or by authorization of the PSA by Presidential Decree.
Commercial and Production Bonuses:
-------------------------------------
- US Dollars One Million (US$ 1,0) within fifteen (15) days after first
tanker lifting.
- US Dollars One Million (US$ 1.0 ) when the Production reaches (12,500 )
BOPD.
- US Dollars One Million (US$ 1.0) when the Production reaches (25,000 )
BOPD.
- US Dollars Two Million (US$ 2.0 ) when the Production reaches ( 50,000 )
BOPD.
- US Dollars Three Million (US$ 3.0 ) when the Production reaches (75,000 )
BOPD.
- US Dollars Four Million (US$ 4.0 ) when the Production reaches (100,000)
BOPD.
Each of the Bonuses is to be paid once only at time as the production level is
achieved for a period of thirty (30) consecutive days as indicated above
Training Bonus:
----------------
The CONTRACTOR shall pay annually to the MINISTRY during the Agreement Period
an amount of One Hundred Thousand United State Dollars (US$ 100,000) as Training
Bonus commencing from the effective date.
Institutional bonus:
---------------------
The CONTRACTOR shall pay annually to the MINISTRY during the Agreement Period an
Amount of one hundred Thousand United State Dollars (US $ 100,000) as
Institutional Bonus commencing from the Effective date.
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Social Development Bonus:
----------------------------
The CONTRACTOR Shall ay annually to the MINISTRY during the Agreement
Period an amount of Thousand United State Dollars (US$ 5.0OO&) as
Social Development Bonus commencing from the Effective date
All Taxes, Royalties and Bonuses are not recoverable from the Cost Oil. Cost Oil
Recovery:
COST OIL RECOVERY:
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Fifty percent (50 %) Maximum of oil produced and saved after deduction of
Royalty, shall be allocated for the recovery of costs incurred and paid by the
CONTRACTOR in conducting petroleum operations in the Agreement Area, and will
be recovered annually as follows:-
- Exploration Expenditure 75%.
- Development Expenditure 75%.
- Operation Expenditure 100%.
Production sharing oil:
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Increment MINISTRY CONTRACTOR
0-12,500 BOPD 63% 37%
12,500-25,000 BOPD 65% 35%
25,000-50,000 BOPD 70% 30%
50.000-75,000 BOPD 75% 25%
75,000-100,000 BOPD 80% 20%
In excess of 100,000 BOPD 82% 18%
Relinquishments:
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- 25% of the original area at the and of the First
phase of the Exploration period, if the CONTRACTOR
elects to enter into the Second phase of the
exploration period.
- 100% of the remaining area except the area
(s) transferred into development area (s).
Development Period:
--------------------
The development period shall be Twenty ( 20 ) years starting from the first
Commercial Discovery and can be extended up to five (5) years Upon six (6)
months written request by the CONTRACTOR and subject to written approval of the
MINISTRY.
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MINISTRY'S Participating Carried Interests:
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The MINISTRY'S operating arm the Yemen Company shall acquire as of the
CONTRACTOR'S right and working Interests of seven percent (7%) under the PSA.
This MOU is signed in two (2) originals in the English language, MINISTRY and
one (1) for the CONTRACTOR.
On behalf of the MINISTRY On behalf of the CONTRACTOR
1- ADAIR
INTERNATIONAL
OIL
By: /s/ RASHID S. BA-RABA'A By: /s/ JALAL AL GHANI
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Name: RASHID S. BA-RABA'A Name: JALAL AL GHANI
Title: Deputy Minister Title: Vice Chairman and Chief
Financial Officer
2- PARTNERS
IN EXPLORATION
By: /s/ RICHARD G. BOYCE
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Name: RICHARD G. BOYCE
Title: Vice President
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