PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT ("Agreement") is made and entered into as of March
31, 2000, by and among Adair Yemen Exploration Limited, a company organized and
existing under the laws of the Bahamas ("Adair"), Saba Yemen Oil Company
Limited, a limited liability company organized and existing under the laws of
the British Virgin Islands ("Saba"), and Occidental Yemen Sabatain, Inc., a
company organized and existing under the laws of Nevis ("Occidental"). (Adair,
Saba, and Occidental are hereinafter collectively referred to as the "Parties").
W I T N E S S E T H:
WHEREAS, concurrently herewith the Parties, The Yemen Company for Investment in
Oil and Minerals, a subsidiary of Yemen Oil and Gas Company ("YICOM"), and the
Ministry of Oil and Mineral Resources (the "MOMR") of the Republic of Yemen,
are entering into a Production Sharing Contract for the Exploration, Development
and Production of Petroleum (as the same may be amended or modified from time
to time, the "PSA"), covering Block 20 in Sabatain Area, Marib-Shabwa
Governorates in Yemen; and
WHEREAS, concurrently herewith the Parties and YICOM are entering into a Joint
Operating Agreement (as the same may be amended from time to time, the "YICOM
JOA"); and
WHEREAS, concurrently herewith, the Parties are entering into a Joint Management
Agreement (as the same may be amended from time to time, the "JMA"); and
WHEREAS, the Parties desire to enter into this Agreement in order to set forth
certain additional agreements among them in respect of the PSA, the YICOM JOA
and the JMA.
NOW, THEREFORE, in consideration of the covenants and premises set forth below,
it is hereby mutually agreed as follows:
ARTICLE 1- DEFINITIONS
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1.1 "Effective Date" means the date of issuance of the law ratifying the PSA
as provided in Article 33 of the PSA.
1.2 "Management Committee" means at any time the committee established
pursuant to Article 5.1 of the JMA.
1.3 "Operations" means any operations conducted by Operator under the JMA,
whether as Joint Operations or Sole Risk Operations, as defined in
the JMA.
1.4 "Participating Interest" means the undivided percentage interest of each
Party in the rights and obligations, privileges, and liabilities in
And under the JMA, as set forth in Article 3.1(a) of the JMA.
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1.5 "Third Party" or "Third Parties" shall mean any individual or entity, or
any individuals or entities, other than any of the Parties.
All other terms used in this Agreement that are defined in the English version
of the PSA shall have the same meaning as expressed in the English version of
the PSA, unless otherwise defined herein.
ARTICLE 2- PAYMENT TO ADAIR
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Within ten (10) days of the Effective Date, Occidental shall pay to Adair the
amount of Seven Hundred and Fifty Thousand United States Dollars (U.S.
$750,000).
ARTICLE 3- OCCIDENTAL FUNDING OBLIGATIONS
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Subject to Management Committee approval of the Work Programs and Budgets in
respect of the First Exploration Period, Occidental shall pay for its sole
account one hundred percent (100%) of the costs to acquire and process up to two
hundred (200) square kilometers of 3D seismic; provided, 'however, that
Occidental shall not be obliged to expend more than Four Million United States
Dollars (U.S. $4,000,000) (the "Cap") for such purpose. If the costs in respect
of such 3D seismic exceed the Cap, the Parties shall pay any and all of such
excess in proportion to their respective Participating Interests. Occidental
shall have the first right to all Cost Oil in respect of the full amount
expended by it on such 3D seismic up to the Cap, and, subject to Article 4 of
this Agreement, the concurrent right to all Cost Oil in respect of the full
amount expended by it in excess of the Cap in proportion to its Participating
Interest. For clarity, except as provided in this Article 3, the liability of
the Parties under the PSA, the YICOM JOA and the JMA in respect of Petroleum
Operations shall be several and not joint; and each Party shall be responsible
only for a share of the obligations, costs and expenses of Operations
proportionate to its respective Participating Interest.
ARTICLE 4- COST OIL ASSIGNMENT
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Adair hereby assigns, transfers, and conveys to Occidental all of its right,
title, and interest to receive the first One Million United States Dollars (U.S.
$1,000,000) of Cost Oil to which Adair is entitled under the JMA due to costs
and expenditures actually incurred and made by Adair thereunder.
ARTICLE 5- LETTERS OF CREDIT
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5.1 Support for the Signature Bonus
5.1.1 Within two(2)weeks after the signing of the PSA, Adair shall
provide or cause to be provided to the MOMR an irrevocable
letter of credit in the amount of Four Hundred Thousand
Dollars (U.S.$400,000) and in accordance with the
requirements of Article 9.2.1 of the PSA.
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5.1.2 Within ten (10) days of signing the PSA, Occidental shall
either (a) transfer Two Hundred Thousand Dollars (U.S.
$200,000) to an account of Adair designated in writing by
Adair not less than three (3) days prior to the date such
transfer is required to be made or (b) provide to Adair or
its designee an irrevocable letter of credit in such amount.
5.1.3 Within ten (10) days of the signing of the PSA, Saba shall
either (a) transfer Eighty Thousand Dollars (U.S. $80,000)
to an account of Adair designated in writing by Adair not
less than three (3) days prior to the date such transfer is
required to be made or (b) provide to Adair or its designee
an irrevocable letter of credit in such amount.
5.1.4 Any amounts transferred by Occidental or Saba under Section
5.1.2 or 5.1.3 shall be deposited and shall remain on
deposit in an account of Adair and shall remain the
respective property of Occidental or Saba or both, as the
case may be, unless and until the PSA shall have been
ratified by the Parliament, as provided in Article 9.2.1 of
the PSA ("Ratification"). Until Ratification, Adair shall
hold such funds in trust and escrow for Occidental or Saba,
as the case may be, it being agreed that if Ratification
does not occur on or before May 30, 2001, Adair shall return
and transfer back to Occidental or Saba or both of them any
amounts originally transferred, together with any amounts of
interest actually earned on such funds. Upon Ratification,
any funds transferred to Adair by Occidental and Saba under
this Section 5.1, shall be and become the property of Adair,
provided that the expenditure of such funds shall be
considered to be a charge to the Joint Account under the
JMA.
5.1.5 Any letters of credit provided by Occidental or Saba under
Section 5.1.2 or 5.1.3 shall be payable upon Ratification,
provided that the respective amount paid thereunder shall be
considered to be a charge to the Joint Account under the
JMA.
5.2 Support for the Minimum Work Obligation
5.2.1 Within thirty (30) Working Days of the Effective Date of the
PSA, Occidental shall provide or cause to be provided to the
MOMIR an irrevocable letter of credit in the amount of Eight
Million Three Hundred Thousand Dollars (U.S. $8,300,000) and
in accordance with the requirements of Article 2.1.4 and
Annex D of the PSA.
5.2.2 Within thirty (30) Working Days of the Effective Date of the
PSA, Adair shall provide or cause to be provided to
Occidental an irrevocable letter of credit payable to
Occidental in the amount of One Million Two Hundred Ninety
Thousand Dollars (U.S. $1,290,000) and in accordance with
the same requirements of Article 2.1.4 and Annex D of the
PSA applicable to a the letter of credit to be provided by
Occidental pursuant to Section 5.2 of this Agreement.
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5.2.3 Within thirty (30) Working Days of the Effective Date of the
PSA, Saba shall provide or cause to be provided to
Occidental an irrevocable letter of credit payable to
Occidental in the amount of Eight Hundred Sixty Thousand
Dollars (U.S. $860,000) and in accordance with the same
requirements of Article 2.1.4 and Annex D of the PSA
applicable to the letter of credit to be provided by
Occidental pursuant to Section 5.2 of this Agreement.
5.2.4 If a letter of credit is required under Article 2.1.4 of the
PSA and by the MOMIR for the Second Exploration Period,
Occidental will provide such second letter of credit or
similar credit support under the PSA, and Adair and Saba
each will also provide a second letter of credit to
Occidental in an amount determined by multiplying such
Party's Percentage Interest by the amount of such second
letter of credit provided by Occidental.
5.3 The reasonable and customary bank fees and charges paid by the Parties
for any letters of credit delivered pursuant to this Section 5 shall
be charged to the Joint Account under the JMA.
5.4 If any Party fails to provide any letter of credit required by this
Section 5 within the specified time, such Party shall be considered to
be in default under Article IX of the JMA to the same extent as if
such failure was a failure to make a payment under the JMA, such Party
shall be considered a Defaulting Party under Article IX of the JMA,
and the non-Defaulting Parties shall be entitled to all of the rights
and remedies of a non-Defaulting Party under such Article IX unless
and until such Defaulting Party shall cure such default.
ARTICLE 6- MISCELLANEOUS
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6.1 The Parties agree to keep the terms of this Agreement strictly
confidential and shall not disclose such information to any Third
Party, other than an Affiliated Company, or its attorneys, without the
prior consent of the other Parties, which shall not be unreasonably
withheld. Nothing in this Article 6 shall prevent a Party from
disclosing the contents of this Agreement to:
6.1.1 Any contractor, consultant, financial or banking institution
in connection with this Agreement, provided such Third Party
executes an agreement to keep this Agreement confidential;
6.1.2 An Affiliated Company, provided such Affiliated Company
shall be committed to treat such information as
confidential;
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6.1.3 The extent that any Party is legally required to disclose
any information contained in this Agreement in an annual or
periodic report to shareholders or governmental bodies;
6.1.4 The extent required to make an announcement or statement to
comply with a legal obligation in Yemen or elsewhere, or
with the applicable requirements of a government agency or
other regulatory body, or an established stock exchange on
which such Party or an Affiliated Company has its shares or
securities listed or proposed to be listed.
6.2 This Agreement shall be governed by and construed and enforced in
accordance with the laws of England, except for any choice of law
rules which would cause the laws of another jurisdiction to apply. Any
and all disputes, controversies, claims or differences between the
Parties in connection with this Agreement, or relating to this
Agreement, or the existence, construction, validity, interpretation or
meaning, performance, non-performance, enforcement, operation, breach,
continuance or termination of this Agreement which cannot be resolved
amicably by the Parties through prompt good faith negotiations, shall
be exclusively submitted to and finally resolved through an
arbitration proceeding in accordance with Article 15 of the JMA.
6.3 Notices given under this Agreement shall be given or confirmed in
writing, in the English language, and may be sent by international
overnight courier mail, by telefax, or delivered by hand, in each case
with a copy sent and addressed as follows:
If to Occidental:
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Occidental Oil and Gas Corporation
5 Greenway Plaza, Suite 2400
Houston
TX 77227-775 7
Attention: John Winterman
Vice President Worldwide Exploration
Telephone: (713) 215 7184
Facsimile: (918) 641 7045
With copy to:
Occidental International Exploration and Production Company
10889 Wilshire Boulevard
Seventh Floor
Los Angeles, CA 90024
U.S.A.
<PAGE>
Attention: Nathan E. Fagre
Senior Vice President and General Counsel
Telephone: 310-443-6831
Facsimile: 310-443-6192
If to Adair:
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Adair Yemen Exploration Limited
do Adair International Oil & Gas, Inc.
3000 Richmond Avenue, Suite 100
Houston, Texas 77098
U.S.A.
Attention: John W. Adair
Chairman of the Board and Chief Executive Officer
Telephone: (713) 621-8241
Facsimile: (713) 621-8240
If to Saba:
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Saba Yemen Oil Company Limited
P.O. Box 16921
Sana'a, Republic of Yemen
Attention: Kamal Salem Mi Abdo
Vice Chairman
Telephone: 967 1 401 447
Facsimile: 967 1 200 989
or to such other address or telefax number as may from time to time be
noticed in writing by any of the Parties to the other. Any notice
delivered by hand or sent by international overnight courier mail
shall be deemed to have been served at the time of receipt, and any
notice sent by telefax shall be deemed to have been served on the date
on which it is transmitted.
6.4 The Parties each represent and warrant to the other that, except as
disclosed in writing to the other Parties prior to the date hereof,no
Party has engaged or dealt with any broker, finder or similar
intermediary in connection with the execution, or negotiations leading
to the execution, of this Agreement, the PSA, the YICOM JOA or the
JMA. Any fees, payments, obligations or claims arising with respect to
any such broker, finder or similar intermediary, whether arising in
the past, present or future, shall be for the sole account and expense
of the Party whose actions or course of conduct gave rise to such
liability.
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6.5 All costs and expenses incurred by a Party prior to execution of this
Agreement, the PSA, the YICOM JOA and the JMA shall be for the sole
account of such Party. No Party shall be under any obligation to
reimburse another Party for any costs and expenses not specifically
agreed to in writing in advance by all Parties.
6.6 It is understood that upon execution of this Agreement no provisions
of this Agreement shall be modified, altered, or waived, except by
prior written consent of the Parties. This Agreement shall be binding
upon the successors and assigns of the Parties hereto.
6.7 This Agreement, the PSA, the YICOM JOA and the JMA, together
constitute the entire understanding of the Parties with respect to the
subject matter hereof and supersede all prior negotiations and
agreements pertaining to the subject matter hereof, whether oral or
written, of the Parties.
6.8 As between the Parties, in the case of a conflict, express or implied,
between the provisions of this Agreement, and those of the JMA or the
YICOM JOA, this Agreement shall control.
6.9 Each Party may sign identical counterparts of this Agreement with the
same effect as if the Parties signed the same document. A copy of this
Agreement signed by a Party and delivered by facsimile transmission to
the other Party shall have the same effect as the delivery of an
original of this Agreement containing the original signature of such
Party.
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of the Parties hereto
have executed this Agreement in duplicate.
ADAIR YEMEN EXPLORATION LIMITED
By:
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Title: President
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Date: 31 March 2000
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SABA YEMEN OIL COMPANY LIMITED
By:
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Title: Chairman
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Date: 31 March 2000
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OCCIDENTAL YEMEN SABATAIN, INC.
By:
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Title: Attorney in Fact
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Date: 31 March 2000
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