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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1994
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-8674
GLOBAL NATURAL RESOURCES INC.
(Exact name of Registrant as specified in its charter)
NEW JERSEY 93-0835865
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5300 MEMORIAL DRIVE, SUITE 800 77007-8295
HOUSTON, TEXAS (Zip Code)
(Address of principal executive
offices)
REGISTRANT'S TELEPHONE NUMBER: (713) 880-5464
--------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1.00 par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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-K 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-K or any
amendment to this Form 10K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. (Computed by reference to the closing New
York Stock Exchange ("NYSE") price on March 1, 1995): $217,099,645.
As of March 1, 1995, 29,437,240 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement dated April 3,
1995 for the Annual Stockholders' Meeting to be held May 9, 1995, are
incorporated by reference into Part III.
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
Part I. Items 1
and 2. Business and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Oil and Gas Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Oil and Gas Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exploration and Development Activities and Producing Wells . . . . . . 5
Producing and Marketing Activities . . . . . . . . . . . . . . . . . . 6
Acreage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Exploration and Development Activities and Producing Wells . . . . . . 10
Certain Risks Applicable to Operations in Russia . . . . . . . . . . . 11
Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Producing and Marketing Activities . . . . . . . . . . . . . . . . . . 13
Exploration Activities . . . . . . . . . . . . . . . . . . . . . . . . 14
Certain Risks Applicable to Operations in Indonesia . . . . . . . . . 14
Ivory Coast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exploration Activities . . . . . . . . . . . . . . . . . . . . . . . . 15
Production Sharing Contract . . . . . . . . . . . . . . . . . . . . . 16
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Certain Risks Applicable to Operations in Ivory Coast . . . . . . . . 17
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Certain Risks Applicable to Operations in Malaysia . . . . . . . . . . 17
Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Qarun Concession Agreement . . . . . . . . . . . . . . . . . . . . . . 18
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Certain Risks Applicable to Operations in Egypt . . . . . . . . . . . 19
Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Certain Risks Applicable to Operations in Turkey . . . . . . . . . . . 20
Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Certain Risks Applicable to Operations in Argentina . . . . . . . . . 20
Pipeline Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Natural Gas Marketing . . . . . . . . . . . . . . . . . . . . . . . . 20
Natural Gas Supply . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Natural Gas Pipeline Operations . . . . . . . . . . . . . . . . . . . 21
Natural Gas Processing . . . . . . . . . . . . . . . . . . . . . . . . 21
Natural Gas Treating . . . . . . . . . . . . . . . . . . . . . . . . . 21
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Investment Properties International Limited . . . . . . . . . . . . . 21
Arctic Islands Interest . . . . . . . . . . . . . . . . . . . . . . . 22
North Cook Inlet . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Foreign Acreage . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Additional Factors Affecting the Business . . . . . . . . . . . . . . 26
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
i
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<TABLE>
<S> <C>
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . 27
Part II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . 28
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Five Year Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Interim Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 30
Oil and Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Pipeline Operations . . . . . . . . . . . . . . . . . . . . . . . . . 31
Russian Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . 33
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . 35
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Part III. Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . 62
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . 62
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . 62
Part IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . 63
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
ii
<PAGE> 4
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
THE COMPANY
Global Natural Resources Inc., its predecessor, and their respective
subsidiaries are hereinafter referred to collectively as the "Company." The
Company was incorporated in New Jersey in 1983 and is the successor to Global
Natural Resources PLC, a company organized in 1970 under the laws of the United
Kingdom. The Company is an independent producer of oil and natural gas and has
operations in the United States, Tatarstan - Russia, Indonesia, Ivory Coast,
Egypt, and Malaysia. The principal executive offices of the Company are
located at 5300 Memorial Drive, Suite 800, Houston, Texas 77007-8295.
In 1992, the Company adopted a two-fold strategy to direct internally
generated cash at growing the Company's base domestic assets, while directing
the balance sheet cash primarily towards international opportunities. The
primary objective is to generate significant growth in assets by means of
exploratory drilling, both domestically and internationally.
The Company's principal domestic activities during 1994 were concentrated
in the Texas gulf coast and offshore Gulf of Mexico. During 1994, the Company
significantly expanded its seismic data base, from which it will identify
opportunities of suitable reserve potential and geologic risk. Three of the
nine exploratory wells completed in 1994 were developed and operated by the
Company. In addition, the Company will continue evaluating farm-out
opportunities from others.
The Company's Russian activities began in 1990 and are conducted through
its 90% owned subsidiary, Texneft Inc. ("Texneft"), which has a 50% interest
in a joint venture ("Tatex") in Tatarstan, a republic which is part of the
Russian Federation. Texneft's 50% partner in the joint venture is Tatneft, the
state enterprise which operates the oil fields of Tatarstan. Joint venture
activities currently include two projects: 1) vapor recovery and 2) the
development and operation of the Onbysk field.
In Indonesia, the Company has a 1.714% interest in a joint venture for the
exploration, development and production of oil and gas in East Kalimantan,
Indonesia, under a production sharing contract ("PSC") with Perusahaan
Pertambangan Minyak Dan Gas Bumi Negara, the state petroleum enterprise of
Indonesia ("Pertamina").
In February 1993, the Company acquired an interest in 335,320 gross acres
in Block CI-11 offshore Ivory Coast, West Africa. The Company acquired a 10%
working interest in an area referred to as the "Special Area" and 16% working
interest in an area referred to as the "Remaining Area." The Company has
drilled two discoveries on this block and is proceeding with development plans
which include first oil production in the second quarter of 1995 and initial
gas production in the third quarter of 1995. In addition, the Company and its
working interest partners have signed an agreement with the government of the
Ivory Coast which provides the option to enter into a production sharing
contract on Block CI-12 which lies immediately adjacent to the east of CI-11.
In August 1994, the Company acquired a 25% working interest in the 1.9
million acre Qarun block located in the western desert of Egypt. During 1994,
the Company drilled two discoveries on this block. In September 1992, the
Company acquired a 10% net working interest in the SB-4 contract area offshore
Sabah, Malaysia covering 1,556,100 acres. In 1993, the Company exercised its
option and increased its net working interest to 15% in the contract area.
USAgas Pipeline, Inc. ("USAgas") is engaged in the operation and
development of natural gas gathering and transmission systems, natural gas
processing and treating plants, and the marketing and transportation of natural
gas for the Company and its joint interest partners.
For financial information relating to industry segments, see Note 9 of
Notes to Consolidated Financial Statements included herein.
1
<PAGE> 5
OIL AND GAS RESERVES*
The Company's net quantities of proved oil and natural gas reserves,
the estimated future net revenues based upon year-end prices held constant for
life and the present value of estimated future net revenues of oil and gas
reserves calculated at a 10% discount rate for the three years ended December
31, 1994 are presented in the table below. See "Supplementary Tables on Reserve
Data and Oil and Gas Operations" included in Item 8 herein.
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1994 1993 1992
-------- --------- --------
<S> <C> <C> <C>
UNITED STATES
Natural gas (Mmcf) . . . . . . . . . . . . . . . . . . . . . . 59,498 63,981 42,094
Oil and condensate (MBbl) . . . . . . . . . . . . . . . . . . . 2,173 1,459 939
Future net revenues before tax (thousands) . . . . . . . . . . $85,396 $108,418 $68,484
Present value of future net revenues before tax (thousands) . . $61,090 $73,027 $41,975
Present value of future net revenues after tax (thousands) . . $59,990 $68,227 $41,975
INDONESIA(1)
Natural gas (Mmcf) . . . . . . . . . . . . . . . . . . . . . . 79,990 79,706 76,081
Oil and condensate (MBbl) . . . . . . . . . . . . . . . . . . . 1,066 1,005 837
Future net revenues before tax (thousands) . . . . . . . . . . $131,838 $110,900 $152,292
Present value of future net revenues before tax (thousands) . . $67,369 $55,783 $78,294
Present value of future net revenues after tax (thousands) . . $34,223 $28,150 $38,607
RUSSIA(2)
Natural gas (Mmcf) . . . . . . . . . . . . . . . . . . . . . . -- -- --
Oil and condensate (MBbl) . . . . . . . . . . . . . . . . . . . 11,841 5,838 3,906
Future net revenues before tax (thousands) . . . . . . . . . . $70,191 $27,839 $32,953
Present value of future net revenues before tax (thousands) . . $39,774 $14,265 $13,903
Present value of future net revenues after tax (thousands) . . $27,728 $10,260 $ 9,776
IVORY COAST
Natural gas (Mmcf) . . . . . . . . . . . . . . . . . . . . . . 18,432 -- --
Oil and condensate (MBbl) . . . . . . . . . . . . . . . . . . . 2,210 -- --
Future net revenues before tax (thousands) . . . . . . . . . . $28,853 $ -- $ --
Present value of future net revenues before tax (thousands) . . $13,778 $ -- $ --
Present value of future net revenues after tax (thousands) . . $ 9,441 $ -- $ --
EGYPT
Natural gas (Mmcf) . . . . . . . . . . . . . . . . . . . . . . -- -- --
Oil and condensate (MBbl) . . . . . . . . . . . . . . . . . . . 3,520 -- --
Future net revenues before tax (thousands) . . . . . . . . . . $26,250 $ -- $ --
Present value of future net revenues before tax (thousands) . . $14,357 $ -- $ --
Present value of future net revenues after tax (thousands) . . $ 8,152 $ -- $ --
OTHER INTERNATIONAL(3)
Natural gas (Mmcf) . . . . . . . . . . . . . . . . . . . . . . -- -- 239
Oil and condensate (MBbl) . . . . . . . . . . . . . . . . . . . -- -- 148
Future net revenues before tax (thousands) . . . . . . . . . . $ -- $ -- $ 1,995
Present value of future net revenues before tax (thousands) . . $ -- $ -- $ 1,153
Present value of future net revenues after tax (thousands) . . $ -- $ -- $ 1,153
TOTALS
Natural gas (Mmcf) . . . . . . . . . . . . . . . . . . . . . . 157,920 143,687 118,414
Oil and condensate (MBbl) . . . . . . . . . . . . . . . . . . . 20,810 8,302 5,830
Future net revenues before tax (thousands) . . . . . . . . . . $342,528 $247,157 $255,724
Present value of future net revenues before tax (thousands) . . $196,368 $143,075 $135,325
Present value of future net revenues after tax (thousands) . . $139,534 $106,637 $91,511
------------------
(Footnotes on following page)
</TABLE>
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* Quantities of gas are expressed throughout as "Mcf" or "Mmcf" or "Bcf"
meaning one thousand, one million or one billion cubic feet, respectively.
Quantities of oil are expressed as "Bbl" or "MBbl" meaning barrel or one
thousand barrels.
(1) The Indonesian Joint Venture ("IJV") has no ownership in the underlying
oil and gas reserves. The Company's reserve estimates in Indonesia have
been obtained by the Company from a public source which, although not
independently verified, the Company believes to be reliable. All
Indonesian Mmcf amounts are for dry gas.
(2) The Russian reserves are associated with two projects operated by the
Company's Russian Joint Venture, Tatex. These projects are vapor recovery
and Onbysk field development. The vapor recovery reserves are derived
from recovered stock tank vapors which are exchanged for export grade
crude oil and sold on the international market. Tatex has no ownership in
the underlying oil reserves which are initially placed in the stock tanks.
The Company's share of the Onbysk field anticipated recoverable reserves
are computed net of the "Base Oil" future production which is retained by
an affiliate of Tatneft under the terms of the field lease agreement.
Base Oil attributable to the Onbysk field amounts to 2.8 million barrels
over the remaining eighteen year term of the field lease. Production
costs associated with Base Oil volumes are paid to the joint venture by
Tatneft affiliates. On March 3, 1995, the Company was notified that Tatex
had received an exemption from paying export tax on crude oil sold outside
of Russia. The exemption received was for one year and was effective
January 1, 1995. The exemption which is subject to an annual review by
the government and contingent upon its approval, can be renewed for two
additional years. The Company believes its exemption will be renewed for
two more years.
(3) Includes Canadian and Argentinean reserves which were sold during 1993.
At December 31, 1994, 1993 and 1992, the Company's gross oil and gas
reserve estimates for properties located in the United States, Russia and
Argentina were prepared by Ryder Scott Company Petroleum Engineers. At
December 31, 1994, Ivory Coast and Egypt gross oil and gas reserve estimates
were prepared by Netherland, Sewell & Associates, Inc. At December 31, 1992,
Canadian gross oil and gas reserve estimates were reviewed by Coles Gilbert
Associates, Ltd. Indonesian reserves are based on information obtained by the
Company from public sources.
Domestic reserve volumes remained flat in 1994 in comparison with 1993
because 1994 discoveries, positive revisions to previous reserve estimates and
purchases of reserves offset 1994 production and sales of reserves. Future net
revenues before taxes decreased from 1993 to 1994 primarily due to the decrease
in year-end 1994 natural gas prices.
Russian reserve volumes increased in 1994 in comparison with 1993 due
primarily to the reclassification of additional undeveloped reserves in the
Onbysk Field as proved undeveloped which were previously considered uneconomic
as a result of the lower crude oil price prevailing at year-end 1993.
Significant increases also resulted from upward revisions of previous estimates
and the purchase of a minority interest holder's stock. The increase in future
net revenues from Russian properties in 1994 compared with 1993 corresponds to
the combined effects of improved year end oil prices and reserve additions.
Indonesian reserve volumes increased slightly during 1994 in comparison
with 1993 due primarily to 1994 revisions to previous estimates being some what
greater than 1994 production. The increase in Indonesian future net revenues
before tax in 1994 compared to 1993 was $20.9 million. This increase was
primarily the result of an increase in year-end gas prices from approximately
$2.28 per MMBTU in 1993 to $2.50 per MMBTU in 1994.
Domestic reserve volumes and related present value of future net revenues
increased in 1993 in comparison with 1992 due primarily to 1993 discoveries and
positive revisions to previous reserve estimates. During 1993, domestic oil
and gas reserves increased by 40% and 51%, respectively. The 1993 drilling
program replaced 253% of 1993 oil production and 323% of 1993 gas production.
Included in the 1993 drilling program were significant discoveries in five
exploratory blocks offshore Texas and Louisiana and one new field adjacent to
the Company operated onshore Taylor Lake field. The Company drilled 3.1 net
wells in 1993 compared to 2.0 net wells in 1992.
The remaining increase in 1993 domestic volumes over those of 1992 is
attributable to revisions to prior year reserve estimates. In addition to the
above mentioned drilling programs, reserve revisions represent 57% of oil
produced and 94% of gas produced during 1993. The most significant oil and gas
revisions are associated with the Company's Taylor Lake field. The increases
to the Taylor Lake field were primarily the result of well performance and
improved geologic control from additional 1993 drilling activity. Other
significant gas revisions are associated with the Company's San Juan and Oak
Hill fields.
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<PAGE> 7
Russian reserve volumes increased in 1993 in comparison with 1992 due
primarily to the addition of reserves associated with the Onbysk field. The
decrease in future net revenues from Russian properties in 1993 compared with
1992 is the result of declines in oil prices which were partially offset by
reserve additions.
The decrease in the present value of Indonesian future net revenues from
1993 compared to 1992 is primarily attributable to declines in gas prices which
were partially offset by revisions in previous reserve estimates.
Selected major areas in the United States in which the Company held an
interest at December 31, 1994 are summarized in the table below:
<TABLE>
<CAPTION>
Total
Proved Reserves
-------------------------
Major Area Oil (MBbls) Gas (MMCF)
---------- ------------ -----------
<S> <C> <C>
Offshore Gulf Coast . . . . . . . . . . . . . 1,402 26,591
San Juan Basin . . . . . . . . . . . . . . . 4 15,274
Taylor Lake . . . . . . . . . . . . . . . . . 129 10,978
Royalties . . . . . . . . . . . . . . . . . . 159 3,672
</TABLE>
The above reserves account for 78% of the Company's United States oil
reserves and 95% of the Company's United States gas reserves at December 31,
1994.
Reserve estimates are based on many judgmental factors and may differ from
the quantities of oil and gas ultimately recovered. The accuracy of reserve
estimates depends on the quantity and quality of geological data, production
performance data and reservoir engineering data as well as the skill and
judgment of petroleum engineers in interpreting such data. Generally, reserve
estimates based on volumetric analysis (as is the case with certain fields
included in the above estimates) are less reliable than those based on lengthy
production history. The process of estimating reserves involves continual
revision of estimates (usually on an annual basis) based on additional
information becoming available through drilling, testing, reservoir studies and
acquiring historical pressure and production data and to reflect the impact of
changes in oil and gas prices. In addition, the discounted present value of
estimated future net revenues should not be construed as the fair market value
of oil and gas producing properties. Revenue calculations are based on
estimates by petroleum engineers as to the timing of oil and gas production,
and there is no assurance the actual timing of production will conform to, or
approximate, such estimates. Also, the estimates assume that prices will remain
constant from the date of the engineer's estimates except for changes reflected
under natural gas purchase contracts. There can be no assurance that actual
future prices will not vary as industry conditions, governmental regulations
and other factors affect the market price for oil and gas.
The Company has not filed estimates of its net oil and gas reserves with
any other federal agencies within the last year. Certain reserve information
is provided to the Department of Energy each year. However, such reserve
information is accumulated on a total operated and gross working interest basis
and not on a Company net basis, as provided above.
See Supplementary Tables on Reserve Data and Oil and Gas Operations
following Notes to Consolidated Financial Statements for additional data
relating to oil and gas producing activities in Item 8, herein.
OIL AND GAS OPERATIONS
UNITED STATES
GENERAL
The Company conducts oil and gas exploration and development for its own
interest or in conjunction with others. In this connection, the Company may
develop its own prospects and "farm out" a portion of such prospects by
assigning interests to third parties or "farm in" prospects by acquiring
interests from third parties. Three of the nine exploratory wells completed
during 1994 were developed and operated by the Company. In addition, the
Company has added significantly to its seismic database, from which it will
identify suitable opportunities of reserve potential and geologic risk.
4
<PAGE> 8
In 1994, 1993 and 1992, revenues from domestic production accounted for
approximately 40%, 27% and 34% of the Company's revenues, respectively.
Domestic oil and gas operations reported income (loss) before income tax
expense of $(11.8) million, $3.6 million and $(5.6) million in 1994, 1993 and
1992, respectively.
EXPLORATION AND DEVELOPMENT ACTIVITIES AND PRODUCING WELLS
The Company expended approximately $34.6 million, $14 million and $5.4
million in 1994, 1993 and 1992, respectively, for domestic oil and gas
exploration and development. In 1994, the Company's activities were
principally in the offshore Gulf of Mexico and Gulf Coast areas.
The Company's 1995 domestic budget is approximately $15.3 million, of
which approximately $8.8 million is intended for exploration activities. The
majority of these expenditures are planned for the Texas gulf coast and
offshore Gulf of Mexico areas.
The Company's domestic oil and gas exploration and development drilling
during the years indicated and the gross and net wells in which the Company had
a working interest were as follows:
WELLS DRILLED (1)
<TABLE>
<CAPTION>
Exploratory Development
Wells Wells Total
----------------- ----------------- -----------------
Gross Net Gross Net Gross Net
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1994
Oil . . . . . . . . . . . . . . . . . . . - - 6 0.4 6 0.4
Gas . . . . . . . . . . . . . . . . . . . 9 2.7 12 1.8 21 4.5
Dry . . . . . . . . . . . . . . . . . . . 9 3.8 - - 9 3.8
------ ------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . . 18 6.5 18 2.2 36 8.7
====== ====== ====== ====== ====== ======
1993
Oil . . . . . . . . . . . . . . . . . . . 1 0.2 3 0.2 4 0.4
Gas . . . . . . . . . . . . . . . . . . . 4 1.1 10 0.2 14 1.3
Dry . . . . . . . . . . . . . . . . . . . 5 1.1 1 0.3 6 1.4
------ ------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . . 10 2.4 14 0.7 24 3.1
====== ====== ====== ====== ====== ======
1992
Oil . . . . . . . . . . . . . . . . . . . 4 0.5 7 0.4 11 0.9
Gas . . . . . . . . . . . . . . . . . . . - - 2 0.1 2 0.1
Dry . . . . . . . . . . . . . . . . . . . 8 0.9 3 0.1 11 1.0
------ ------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . . 12 1.4 12 0.6 24 2.0
====== ====== ====== ====== ====== ======
</TABLE>
-----------
(1) The term "gross" as used herein with respect to wells refers to the
total number of wells in which the Company has any interest and
"net" refers to the Company's interest in such wells.
At December 31, 1994, the Company had 3 gross (.8 net) exploratory wells
and 1 gross (0.2 net) development wells awaiting completion; 1 gross (0.6 net)
exploratory wells and 1 gross (0.3 net) development wells were in the process
of drilling.
5
<PAGE> 9
PRODUCING WELLS AND WELLS CAPABLE OF PRODUCTION
<TABLE>
<CAPTION>
Gross Producing Net Producing
---------------- -------------
<S> <C> <C>
1994(1)
Oil . . . . . . . . . . . . . . . . . . . . . . . . . . 1,754 10
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . 430 20
------------ -----------
Total . . . . . . . . . . . . . . . . . . . . . . 2,184 30
============ ===========
1993
Oil . . . . . . . . . . . . . . . . . . . . . . . . . . 1,763 15
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . 482 33
------------ -----------
Total . . . . . . . . . . . . . . . . . . . . . . 2,245 48
============ ===========
1992
Oil . . . . . . . . . . . . . . . . . . . . . . . . . . 1,851 28
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . 543 45
------------ -----------
Total . . . . . . . . . . . . . . . . . . . . . . 2,394 73
============ ===========
</TABLE>
------------
(1) The number of oil and gas wells completed in more than one producing
formation were 4 gross (0.7 net) wells at December 31, 1994.
The decreases in gross and net producing wells from 1993 to 1994 and from
1992 to 1993 are the result of the dispositions during 1994 and 1993 of certain
domestic properties.
PRODUCING AND MARKETING ACTIVITIES
The Company's United States oil and gas sales in 1994 aggregated $20.1
million, of which gas sales accounted for 82%. The following table is a
summary of the Company's domestic production volumes expressed in Bbls and
Mcfs, average sales prices and average production (lifting) costs for each of
the three years ended December 31, 1994:
<TABLE>
<CAPTION>
Volume Produced 1994 1993 1992
--------------- ---------- ---------- ----------
<S> <C> <C> <C>
Oil and Condensate (Bbl) . . . . . . . . . . . . . . . . . . . 229,000 263,000 334,000
Natural Gas (Mcf) . . . . . . . . . . . . . . . . . . . . . . 8,904,000 7,088,000 6,425,000
<CAPTION>
Average Sales Price
-------------------
Oil and Condensate per Bbl . . . . . . . . . . . . . . . . . . $ 15.65 $ 17.11 $ 18.97
Natural Gas per Mcf(1) . . . . . . . . . . . . . . . . . . . . $ 1.86 $ 2.11 $ 2.00
<CAPTION>
Average Lifting Costs(2)
------------------------
Bbl equivalent . . . . . . . . . . . . . . . . . . . . . . . . $ 1.97 $ 2.61 $ 3.68
Mcf equivalent . . . . . . . . . . . . . . . . . . . . . . . . $ 0.33 $ 0.44 $ 0.62
</TABLE>
------------------
(1) Included in the 1992 gas revenues are pricing dispute settlement
proceeds of approximately $422,000. The 1992 gas price excluding
this settlement would have been $1.93 per Mcf. Included in the 1993
gas revenues are pricing dispute settlement proceeds of approximately
$660,000. The 1993 gas price excluding this settlement would have
been $2.01 per Mcf.
(2) For purposes of this computation, one barrel is considered equivalent
to six Mcf, although actual oil to gas equivalent will vary based
upon British Thermal Unit (BTU) content. Since the same field or well
often produces both oil and gas, lifting costs per Bbl or Mcf
represent the aggregate lifting costs per unit based on the foregoing
equivalent.
The Company's domestic natural gas production is marketed through a
combination of long-term and spot-market contracts. The ability of the Company
to sell natural gas and the price obtained depends on numerous considerations,
including contractual terms (such as "market-out" price reduction provisions
and other provisions of long-term contracts), market conditions in general,
curtailments by gas purchasers and transportation companies, the effects of
government
6
<PAGE> 10
legislation and regulations on production, transportation tariffs and the
proximity of wells to adequate transmission facilities. While gas curtailments
and price reductions can affect earnings and cash flow, the ability to seek
alternate markets is now generally available in the majority of fields operated
by the Company.
During 1994, the Company sold gas production from most of its properties
to unaffiliated third parties for spot market prices. The Company marketed the
majority of its operated production of crude oil and condensate to Hydrocarbon
Processing, Inc. and Sun Refining and Marketing Company, unaffiliated third
parties. The price obtained for crude oil and condensate depends on various
considerations, including the location, grade and quality of production and
general market conditions in world oil markets. Crude oil and condensate are
generally sold pursuant to short-term contracts. The Company generally sells
such production at a premium over the posted price.
Reference is made to the Supplementary Tables on Reserve Data and Oil and
Gas Operations following the Notes to Consolidated Financial Statements for
additional data relating to oil and gas producing activities in Item 8, herein.
ACREAGE
The Company's current policy is to only acquire acreage associated with
specific prospects, thereby minimizing carrying costs and administrative
expenses. Acreage in the United States in which the Company had an interest at
December 31, 1994 is summarized in the table below:
<TABLE>
<CAPTION>
Mineral and Royalty
Working Interest Acreage Interest Acreage
------------------------ -------------------
Gross Net Gross Net
--------- -------- ------- -----
<S> <C> <C> <C> <C>
PRODUCING OR DEVELOPED ACREAGE
Alabama . . . . . . . . . . . . . . . . 4,216 1,359 2,821 327
Alaska . . . . . . . . . . . . . . . . -- -- 9,920 103
California . . . . . . . . . . . . . . 160 40 779 7
Colorado . . . . . . . . . . . . . . . 200 66 838 13
Kansas . . . . . . . . . . . . . . . . 160 72 5,560 86
Louisiana . . . . . . . . . . . . . . . 1,520 395 17,715 920
Michigan . . . . . . . . . . . . . . . 837 309 -- --
Mississippi . . . . . . . . . . . . . . 217 54 5,690 193
Montana . . . . . . . . . . . . . . . . 480 41 160 6
New Mexico . . . . . . . . . . . . . . 2,500 880 45,044 546
North Dakota . . . . . . . . . . . . . 2,244 279 520 1
Offshore (Gulf of Mexico) . . . . . . . 11,520 3,487 -- --
Oklahoma . . . . . . . . . . . . . . . 2,169 356 84,295 3,564
Texas . . . . . . . . . . . . . . . . . 25,163 5,048 95,726 2,891
Utah . . . . . . . . . . . . . . . . . 640 320 8,539 159
Wyoming . . . . . . . . . . . . . . . . 2,630 1,360 1,529 41
Other . . . . . . . . . . . . . . . . . 905 83 320 5
------ ------ ------- -----
Total . . . . . . . . . . . . . . 55,561 14,149 279,456 8,862
====== ====== ======= ======
</TABLE>
(Table continued on following page)
7
<PAGE> 11
<TABLE>
<CAPTION>
Mineral and Royalty
Working Interest Acreage Interest Acreage
------------------------ ---------------------
Gross Net Gross Net
---------- -------- ------- -------
UNDEVELOPED ACREAGE
<S> <C> <C> <C> <C>
Alabama . . . . . . . . . . . . . . . . 2,740 942 12,949 1,150
Alaska . . . . . . . . . . . . . . . . -- -- 3,834 29
Arkansas . . . . . . . . . . . . . . . 2,345 1,336 -- --
California . . . . . . . . . . . . . . -- -- 528 30
Colorado . . . . . . . . . . . . . . . 15,566 13,025 25,788 6,180
Kansas . . . . . . . . . . . . . . . . -- -- 10,622 305
Louisiana . . . . . . . . . . . . . . . 1,705 772 40,900 342
Michigan . . . . . . . . . . . . . . . 822 461 1,430 363
Mississippi . . . . . . . . . . . . . . 514 145 30,062 795
Montana . . . . . . . . . . . . . . . . 880 52 4,220 197
New Mexico . . . . . . . . . . . . . . 19,907 2,624 17,051 682
North Dakota . . . . . . . . . . . . . 1,274 19 38,316 2,582
Offshore (Gulf of Mexico) . . . . . . . 42,239 22,199 1,946 18
Oklahoma . . . . . . . . . . . . . . . 2,197 307 59,833 3,340
Texas . . . . . . . . . . . . . . . . . 81,154 27,174 63,068 3,490
Utah . . . . . . . . . . . . . . . . . -- -- 19,208 893
Wyoming . . . . . . . . . . . . . . . . 7,853 2,855 7,216 74
Other . . . . . . . . . . . . . . . . . 792 80 1,348 28
------- ------ ------- ------
Total . . . . . . . . . . . . . . 179,988 71,991 338,319 20,498
======= ====== ======= ======
</TABLE>
RUSSIA
GENERAL
Through its 90% owned subsidiary, Texneft, the Company has a net 45%
interest in a joint venture in Russia with Tatneft, a Russian production
amalgamation which operates the oil fields of Tatarstan, a republic which is
part of the Russian Federation and is located west of the Ural Mountains and
east of the Volga River. The joint venture, Tatex, which is owned 50% by
Tatneft and 50% by Texneft, was registered with the Ministry of Finance of the
former USSR on November 15, 1990 and is also registered with the governments of
Russia, Tatarstan and the city of Almetyevsk. Under the terms of the joint
venture and various supplemental agreements, the funding for the joint venture
is supplied by Texneft and Tatneft through various credit agreements. In
November 1994, the Company purchased an additional 10% of Texneft's common
stock for approximately $.5 million increasing its ownership from 80% to 90%.
An agreement between the minority shareholder of Texneft and the Company
requires the Company to advance to Texneft sufficient cash to fund its
administrative expenses and its contributions to Tatex. In turn, Texneft will
make no distributions to its shareholders until the Company has been repaid a
sum equal to the total of its advances to Texneft.
The joint venture's activities currently include two projects: 1) vapor
recovery and 2) the development and operation of the Onbysk field. The vapor
recovery project began operations in 1991. Tatex has installed and operates
vapor recovery facilities which recover stock tank vapors from Tatneft's
production facilities located near the city of Almetyevsk. The recovered vapors
are exchanged for export grade Volga-Ural crude oil, which is sold for hard
currency on the international market. The vapor recovery activity at certain
locations eliminates gas and associated liquids which would otherwise be flared
and thus reduces the level of harmful pollutants; however, production has
declined at certain tank farms such that of the twenty-two vapor units
delivered, only nineteen were in service at the end of 1994 at seventeen tank
farms. The joint venture intends to sell the surplus vapor recovery units to
other users in the area. Tatex received 790,000 barrels, 573,000 barrels and
278,000 barrels of crude oil in 1994, 1993 and 1992, respectively. Tatex
expects to meet its quota to export an average of 2,167 barrels of oil per day
in 1995 in exchange for recovered vapors.
Two sour gas compression units have been delivered and located in
Tatarstan but neither has been placed in continuous service to date, although
at least one unit may go on stream in 1995. The construction and installation
of additional compressor units for sour gas recovery at various points in
Tatarstan has been deferred because of delays in the acceptance of a
standardized design and until the integrity of the downstream pipelines and
facilities handling the recompressed sour gas can be reliably established. The
integrity of the downstream systems is the responsibility of Tatneft and its
affiliates.
8
<PAGE> 12
In August 1993, Tatex signed a 20 year lease agreement with Zainskneft, an
affiliate of Tatneft, pursuant to which Tatex assumed operations and
development of the Onbysk field effective January 1, 1993. The lease
agreement, which requires lease payments totaling 349 million rubles over the
life of the lease, includes a provision that the equipment will become the sole
property of Tatex at the end of the lease. Tatex prepaid the lease obligation
in 1993 by making a one time payment of $295,000. In addition to the lease
payments, the agreement provides for the delivery of "Base Oil" volumes to
Zainskneft during the life of the lease. The Base Oil production has been
defined as the expected production of the field were the previous operator to
continue operations and equals a total of 797 barrels of oil per day during
1995 which is estimated to decline at a rate of 10% per year. Any oil
incremental to this volume, defined as "Own Oil," is the property of Tatex and
may be exported for hard currency.
Tatex continued development drilling in the Onbysk field in 1994.
Thirteen directional wells and six horizontal wells were drilled by Texneft
directed personnel. Production for the year totaled approximately 1,075,000
barrels, of which approximately 240,000 barrels were classified as Base Oil and
835,000 barrels as Own Oil, from a total of 139 wells producing on December 31,
1994. Production for 1993 totaled approximately 541,000 barrels, of which
approximately 328,000 barrels were classified as Base Oil and 213,000 barrels
as Own Oil, from a total of 114 wells producing on December 31, 1993.
Interruptions of production from the Onbysk field have occurred during 1993 and
1994 as a result of market weakness in the Russian Federation and pipeline
capacity. The aerial extent and multiple reservoirs present in the Onbysk field
will require considerable future drilling. The pace of development of this
field will depend upon results achieved, oil prices, available markets for the
oil, pipeline capacity and applicable taxes and expenses.
The Company's share of current proved reserves assigned to vapor recovery
facilities and to the Onbysk field based upon the year-end price of $14.41 per
barrel are 11,841 MBbl. The average price received during 1994 was $14.21 per
barrel as compared to $14.24 per barrel received in 1993.
A third project, now inactive, was a well stimulation program in and
adjacent to the sizeable Romashkino field. This project was conducted in 1994,
but the contract with Western Petroleum International Services ("Western") to
provide matrix acidizing and hydraulic fracturing stimulation services was
terminated in November 1994 and the project suspended pending resolution of
issues explained below. In connection with the third project, Tatex contracted
with Western to stimulate by matrix acidizing and hydraulic fracturing methods
selected wells from approximately 12,000 producing wells in the western and
northern part of the Romashkino field and certain fields adjacent to the north
and west of the Romashkino field owned by various production amalgamations
("NGDU") of Tatneft.
Western began operations in November 1993 and acidized six wells in the
Onbysk field and five wells in the Romashkino field before year's end. In
1994, Western performed a total of forty-two stimulations of which thirty-four
jobs were performed within the Onbysk Field and eight in other fields.
Activities were directed primarily at the Onbysk field because the Government
had not indicated whether or not, in the long-term, incremental oil resulting
from the stimulation activities in the Romashkino area would be designated Own
Oil and be exportable for hard currency. Because of the lack of clarification
of a long-range Government policy towards stimulation, the contract was
terminated on November 1, 1994. Should progress be made in establishing a firm
Own Oil classification over a clearly defined period, the stimulation program
may be reactivated at some later date.
A fourth project, an environmentally-driven program of development of
undrained reserves beneath the city of Almetyevsk, was proposed using the
latest long reach and horizontal drilling technology; however, it is no longer
considered an appropriate project for Tatex under the prevailing tax and
administrative uncertainties. As a result, no further action will be taken to
finalize the contract for the urban project which existed in draft form;
however, Tatneft and Texneft have agreed to examine alternative opportunities
to expand Tatex operations into other fields in which exploration, but not
development, activities have been carried out.
Texneft entered into a Service Agreement in October 1993 with Tatex
whereby Texneft agreed to furnish certain MWD (measurement while drilling)
tools, ancillary equipment and supervisory assistance to Tatex for deployment
in Tatarstan to insure that horizontal and long reach wells in the Onbysk field
and urban areas are drilled efficiently and in a cost effective manner.
Texneft's investment in the tools and equipment amounted to approximately $1.3
million. After being used to drill four horizontal wells effective January 1,
1995, the tools were sold to Tatex for approximately $1 million which
represents the purchase price less the cumulative rental charges paid by Tatex.
In January 1992, the Russian Federation imposed a tax of 30 European
Currency Units ("ECUs") per ton, currently approximately $5.22 per barrel, on
crude oil exported from Russia. Effective January 1, 1995, the export tax for
the first
9
<PAGE> 13
quarter of 1995 was set by Resolution 1446 at 23 ECUs per ton or approximately
$4.00 per barrel. The Company first applied for exemption from the tax in 1992
in accordance with the procedures stipulated by Regulation 1375-r for
enterprises which were registered before January 1, 1992. The Company's
efforts for exemption from the export tax in 1993 and 1994 culminated in an
application prepared in accordance with Resolution 497 of the Government of the
Russian Federation dated May 19, 1994, "About Preferential Tariffs Concerning
the Export from the Russian Federation of Oil and Petroleum Products Production
of Enterprises with Foreign Investment." As a result of limited government
action on the application, Tatex continued to pay the tax on crude oil
shipments throughout 1992, 1993 and 1994. On February 28, 1995, Mr. V.
Chernomyrdin, the Prime Minister of the Russian Federation, signed Government
order #282r whereby Tatex received an exemption from paying export tax on
exported oil effective January 1, 1995. This exemption is subject to an annual
review by the government and can be effective for no more than three years.
Under an order by the State Tax Service of the Russian Federation
effective January 1, 1995, oil producers will be required to pay the 10%
Mineral Replacement Tax based upon the export price of crude oil net of certain
deductions. In 1994, the tax was based upon the Russian domestic price of
crude oil which was typically one-third of the export price. Tatex is
currently seeking a clarification of this ruling. Tatex used the domestic
price as the basis for payments of the Mineral Replacement Tax in 1994 and will
continue to do so until a clarification is received.
Tatex's production is subject to an annual determination of Own Oil
established by the Ministry of Fuel & Energy of the Russian Federation and
certified by the Ministry of Economics as registered for export as follows for
1995: vapor recovery 791,000 barrels and Onbysk field development 1,535,000
barrels. The Company believes that the export quota levels set for 1995 are
commensurate with the planned activities for the projects.
Tatex oil production to date has been sold outside of the former USSR for
hard currency via the Transneft operated Druzhba pipeline. Access to the
Transneft pipeline system has been subject to intermittent interruption since
startup. Recent statements and actions by government ministries in connection
with the liberalization of Russian crude export controls indicate that in the
future, joint ventures may have to compete with Russian production associations
for limited pipeline capacity to export markets.
In 1992, the Company contributed to Tatex a 10% interest in exploration
licenses held 50% by the Company (the remaining 50% is owned indirectly by
Garnet Resources Corporation) covering the Akseki, Isparta and Egridir Blocks
in southwestern Turkey, concurrently with the contribution to Tatex by Tatneft
of a study which Tatneft conducted of that area. See "Oil and Gas
Operations-Turkey" included herein.
EXPLORATION AND DEVELOPMENT ACTIVITIES AND PRODUCING WELLS
The Russian joint venture expended approximately $9.1 million and $5.2
million in 1994 and 1993, respectively, for oil exploration and development in
Russia. In 1994, the joint venture's activities were principally development
drilling and oil production.
The Russian joint venture incorporated expenditures in its 1995 budget of
approximately $13.1 million, of which approximately $9.9 million is intended
for Onbysk field development. The majority of these budgeted expenditures are
projected to be funded through cash flow generated from the joint venture.
10
<PAGE> 14
The Company's Russian joint venture's oil and gas exploration and
development drilling during the years indicated were as follows:
WELLS DRILLED
<TABLE>
<CAPTION>
Exploratory Development Total
----------- ----------- -----
<S> <C> <C> <C> <C>
1994
Oil . . . . . . . . . . . . . . . . . . . . . . -- 19 19
Gas . . . . . . . . . . . . . . . . . . . . . . -- -- --
Dry . . . . . . . . . . . . . . . . . . . . . . -- -- --
------ ------ ------
Total . . . . . . . . . . . . . . . . . . -- 19 19
====== ====== ======
1993
Oil . . . . . . . . . . . . . . . . . . . . . . -- 22 22
Gas . . . . . . . . . . . . . . . . . . . . . . -- -- --
Dry . . . . . . . . . . . . . . . . . . . . . . -- -- --
------ ------ ------
Total . . . . . . . . . . . . . . . . . . -- 22 22
====== ====== ======
</TABLE>
At December 31, 1994, the Russian joint venture had 3 development wells
awaiting completion; and 2 development wells were in the process of drilling.
PRODUCING WELLS AND WELLS CAPABLE OF PRODUCTION
<TABLE>
<CAPTION>
Gross Producing
---------------
<S> <C>
1994(1)
Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
-----
Total . . . . . . . . . . . . . . . . . . . . . . . . . 139
=====
1993
Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
-----
Total . . . . . . . . . . . . . . . . . . . . . . . . . 114
=====
1992
Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
-----
Total . . . . . . . . . . . . . . . . . . . . . . . . . 87
=====
</TABLE>
-----------
(1) The number of oil and gas wells completed in more than one producing
formation was 24 wells at December 31, 1994.
CERTAIN RISKS APPLICABLE TO OPERATIONS IN RUSSIA
The Company's activities in Russia are subject to the usual risks
associated with foreign operations, including political and economic
uncertainties, risks of cancellation or unilateral modification of agreements,
operating restrictions, currency repatriation restrictions, expropriation,
export restrictions, the imposition of new taxes and the increase of existing
taxes, inflation and other risks arising out of foreign government sovereignty
over areas in which the operations are conducted. The Company has endeavored to
protect itself against certain political and commercial risks inherent in the
venture. There is no certainty that the steps taken by the Company will provide
adequate protection.
11
<PAGE> 15
INDONESIA
GENERAL
The Company has a 1.714% interest in the IJV, a joint venture for the
exploration, development and production of oil and natural gas in East
Kalimantan, Indonesia, under a PSC with Pertamina. The majority of the revenue
derived from the IJV results from the sale of liquefied natural gas ("LNG").
In 1994, the $11.7 million of revenues from the Company's interest in the
IJV accounted for approximately 23% of the Company revenues. Approximately 16%
and 21% of the Company's 1993 and 1992 revenues, respectively, were
contributed by the IJV.
Under the PSC with Pertamina that was amended and extended in 1990 until
August 7, 2018, the IJV is authorized to explore for, develop and produce
petroleum reserves in an approximately 1.1 million acre area in East
Kalimantan. In accordance with the requirements of the PSC, during 1994 the
IJV selectively relinquished approximately 10% of the PSC area. In addition,
the IJV must relinquish 10% of the PSC area by August 7, 1998; 10% by December
31, 2000; 15% by December 31, 2002 and 15% by December 31, 2004. However, the
IJV is not required to relinquish any of the PSC area in which oil or gas is
held for production.
Under the PSC, the IJV participants are entitled to recover cumulative
operating and certain capital costs out of the crude oil, condensate and
natural gas ("gas") produced each year, and to receive a share of the remaining
crude oil and condensate production and a share of the remaining revenues from
the sale of gas on an after Indonesian tax basis. The share of revenues from
the sale of gas after cost recovery through August 7, 1998 will remain at 35%
to the IJV after Indonesian income taxes and 65% to Pertamina. The split after
August 7, 1998 will be 25% to the IJV after Indonesian income taxes and 75% to
Pertamina for gas sales under the 1973 and 1981 LNG Sales Contracts, Korean
Carryover Sales Contract and liquefied petroleum gas sales contracts to the
extent that the gas to fulfill these contracts is committed from the Badak or
Nilam fields. After August 7, 1998, all other LNG sales contract revenues will
be split 30% to the IJV after Indonesian income taxes and 70% to Pertamina.
Based on current and projected oil production, the revenue split from oil sales
after cost recovery through August 7, 2018 will remain at 15% to the IJV after
Indonesian income taxes and 85% to Pertamina. These revenue splits are based on
Indonesian income tax rates of 56% through August 7, 1998 and 48% thereafter.
In addition, the IJV is required to sell out of its share of production 8.5% of
the total oil and gas condensate production from the contract area for
Indonesian domestic consumption. The sales price for the domestic market
consumption is $0.20 per barrel with respect to fields commencing production
prior to February 23, 1989 and 10% of the weighted average price of crude oil
sold from such fields commencing production after February 23, 1989. However,
for the first sixty consecutive months of production from new fields, domestic
market compensation is priced at the official Indonesian crude price. The
participants' remaining oil and condensate production is generally sold in
world markets. The IJV is also obligated to supply approximately 74 Mmcf per
day of gas to three local fertilizer plants at a price of $1.00 per million BTU
subject to a pipeline tariff. In addition, the IJV is required to supply
approximately 5 Mmcf per day of gas to the Balikpapan refinery at a price of
$1.49 per million BTU. In 1994, Pertamina executed a twenty-year contract,
commencing in November of 1997, for the sale of approximately 70 Mmcf per day
of gas to a local methanol plant at a price not less than $1.25 per million
BTU.
The IJV has no ownership interest in the oil and gas reserves. The IJV
has long-term supply agreements with Pertamina for the supply of natural gas and
petroleum gas to be liquefied at a liquefaction plant owned by Pertamina at
Bontang Bay (the "LNG Plant") and sold to certain buyers pursuant to sales
contracts. The IJV, other participating production sharing contractors and
Pertamina together market the LNG and the liquefied petroleum gas ("LPG")
produced at the LNG Plant and LPG facilities, and as to the amounts allocated to
the PSC, the IJV and Pertamina divide the net proceeds in accordance with the
percentages set out above.
Since the Company does not have direct access to information with respect
to oil and gas operations under the PSC, the information contained herein is
from a public source which, although not independently verified, the Company
believes to be reliable.
12
<PAGE> 16
PRODUCING AND MARKETING ACTIVITIES
The following table sets forth total natural gas liquefied and sold as
LNG, the Company's net share of such production, average sales prices
(excluding transportation costs) and average production (lifting) costs for
each of the three years ended December 31, 1994:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Natural Gas Production for LNG (Mmcf)(1) . . . . . 735,116 637,847 621,600
Company's net share of gas (Mmcf equivalency)(2) . 4,473 3,769 3,667
Average Sales Price per Mcf(3) . . . . . . . . . . $ 2.45 $ 2.75 $ 2.92
Average Production (Lifting) cost per Mcf(4) . . . $ 0.12 $ 0.13 $ 0.14
</TABLE>
------------
(1) Represents the volumes of LNG delivered and sold to purchasers,
which is measured by its BTU content and, for purposes of this table,
has been converted to Mmcf equivalents based on a ratio of
approximately 3.0 Bcf of natural gas required at the plant to
produce 2.9 trillion BTUs of LNG. The total natural gas production
includes production attributable to others.
(2) The Company's net share figures shown above represent the Mcf
equivalent of the Company's share of IJV revenues.
(3) The sales price is based on the average sales price (excluding
transportation) per MMBTU of LNG received by Pertamina. The term
"MMBTU" refers to 1 million BTU. The sales price per MMBTU has been
converted to a price per Mcf based on the conversion ratio referred
to in note (1) above.
(4) The production (lifting) costs do not include costs of liquefaction
and transportation.
The majority of the revenue derived from the IJV results from gas
produced, liquefied and sold as LNG. Gas subject to the PSC is liquefied at the
LNG Plant and transported via special tankers pursuant to several sales
contracts between Pertamina and its customers which principally consist of
Japanese, Taiwanese and Korean utility and industrial companies. The table
below sets forth information regarding the LNG Plant share of the LNG sales
contracts grouped together by the IJV's participating percentages in the sales
contracts (each such group being referred to as a "package").
<TABLE>
<CAPTION>
Base LNG Price Per
Remaining LNG Million BTU
Sales -----------------------
Package and Equity Term Volumes 12/31/94 02/24/95
------------------ --------- --------------- -------- --------
(trillion BTUs)
---------------
<S> <C> <C> <C> <C>
Package I - 97.9%
1973 LNG Sales . . . . . . . . . . . . . . 1977-1999 462 $2.58 $2.84
Package II - 66.4%
1981 LNG Sales Contract . . . . . . . . . . 1983-2003 1,409 $2.54 $2.82
Package III A - 50%
Korean Carryover Sales Contract . . . . . . 1986-2006 180 $2.58 $2.84
Package III B - 29.6%
Taiwan . . . . . . . . . . . . . . . . . . 1990-2009 1,369 $2.52 $2.79
Toho . . . . . . . . . . . . . . . . . . . Various, 17 $2.58 $2.84
ranging from
1988 to 1997
Additional 1981 Sales Contract cargoes . . 1990-2003 146 $2.54 $2.82
Package IV - 27.2%
Train F LNG Sales Contract . . . . . . . . 1994-2013 2,271 $2.40 $2.66
Korea II LNG Sales Contract . . . . . . . . 1994-2014 1,115 $2.42 $2.68
Other LNG Sales Contracts . . . . . . . . . 1990-2015 676 $2.40 $2.66
</TABLE>
During 1994, Pertamina executed agreements to extend the 1973 and 1981 LNG
Sales Contracts. The 1973 Sales Contract Extension (Package V) involves the
sale of 4,368 trillion BTUs over a ten-year period commencing in 2000. Also
executed was the Taiwan Medium-Term Sales Contract (Package VI) for the sale of
46 trillion BTUs between 1998 and 1999. The IJV has been allocated a
provisional 22 percent equity interest in deliveries under the 1973 LNG Sales
13
<PAGE> 17
Contract Extension and the Taiwan Medium-Term Sales Contract. The 1981 Sales
Contract Extension (Package VI) involves the sale of 941 trillion BTUs over a
five-year period commencing in 2003. The equity sharing percentage for Package
VI has not yet been determined.
EXPLORATION ACTIVITIES
The IJV has conducted extensive drilling activities on the island of East
Kalimantan. From 1972 through December 31, 1994, the IJV drilled 539 wells in
the area, 471 of which resulted in oil and/or gas condensate production. Two
significant fields, Badak and Nilam, have been discovered. The following
tables summarize drilling activity for each of the three years ended December
31, 1994:
EXPLORATORY DRILLING
<TABLE>
<CAPTION>
Wells New Dry
Year Drilled Discoveries Holes
----- ------- ----------- -----
<S> <C> <C> <C>
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1 1
1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 -- 3
1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 -- 2
</TABLE>
DEVELOPMENT OR FIELD EXTENSION DRILLING
<TABLE>
<CAPTION>
Wells Dual Dry
Year Drilled Gas Oil Oil & Gas Holes
----- ------- --- --- --------- -----
<S> <C> <C> <C> <C> <C>
1994 . . . . . . . . . . . . . . . . . . . . 20 10 1 8 1
1993 . . . . . . . . . . . . . . . . . . . . 31 25 1 3 2
1992 . . . . . . . . . . . . . . . . . . . . 31 24 5 2 --
</TABLE>
Of the 471 completed productive wells in the East Kalimantan contract
area, 268 contain more than one completion in the same bore hole.
Three wells were in progress at December 31, 1994. These include wells
which were drilled but not completed at the end of 1994. None of the suspended
or "in-progress" wells are included in the table above.
CERTAIN RISKS APPLICABLE TO OPERATIONS IN INDONESIA
The Company's interest in the IJV is an assignment of an interest in a
constructive trust. This interest is essentially a revenue interest without
any operating or informational rights. Although the Company now obtains
information about the IJV from a public source, there is no assurance that this
source of information will continue to be available in the future or that the
Company will be able to find alternative sources of information if its current
source of information becomes unavailable.
Indonesian oil competes in the world market with oil produced from other
nations. Indonesia is a member of the Organization of Petroleum Exporting
Countries ("OPEC"), and any OPEC-imposed restrictions on oil or LNG exports in
which Indonesia participates could have a material adverse effect on the
Company. The price of Indonesian oil is regulated by Pertamina.
The LNG plant competes for sales with other LNG plants in Indonesia, the
Middle East, Australia, Malaysia and elsewhere.
The IJV's activities in Indonesia are subject to risks common to foreign
operations in the oil and gas industry, including political and economic
uncertainties, the risks of cancellation or unilateral modification of contract
rights, operating restrictions, currency repatriation restrictions,
expropriation, export restrictions, the imposition of new taxes and the
increase of existing taxes and other risks arising out of foreign governmental
sovereignty over areas in which the IJV's operations are conducted.
14
<PAGE> 18
No methods to deliver or utilize the East Kalimantan natural gas reserves
are presently in place or in operation except liquefaction at the LNG Plant and
shipment by LNG tanker to purchasers. Consequently, any significant reduction
in the output of the LNG Plant or disruption in tanker operations would have a
material adverse effect on the Company's revenues from the IJV.
IVORY COAST
GENERAL
In May 1993, the Company acquired an interest in 335,320 gross acres in
the CI-11 Production Sharing Contract ("PSC") approximately eight miles
offshore Ivory Coast, West Africa. The Company acquired a 10% working interest
in an area referred to as the "Special Area" and an 16% working interest in an
area referred to as the "Remaining Area."
During November 1993, the Panthere #1 well was drilled in the "Remaining
Area" to a total depth of 10,575 feet and tested gas and condensate at the rate
of 34.8 Mmcf per day plus 675 Bbls per day on a 56/64 inch choke with a flowing
tubing pressure of 1,909 pounds per square inch from 66 feet of perforations
between 9,316 and 9,382 feet. The well was drilled in 264 feet of water and a
production caisson was set over the well.
The Lion #1 well was spudded in January 1994 to test a separate structure
in the "Special Area." This well was directionally drilled to a total depth of
11,270 feet and encountered approximately 205 feet of log-indicated net
hydrocarbon pay. Three intervals flowed a combined 22,700 barrels of 38 degree
crude oil per day and 65 Mmcf of gas per day through choke sizes ranging from
one inch to 7/8 inch. In November 1994, the B1-8X well, which was drilled by
the previous operator, was re-entered, completed and tied back to the Lion
caisson. The well tested a combined rate of 9,575 barrels of oil per day and
10 Mmcf of gas per day on a 3/4 inch choke from a total of 75 feet of
perforations between 8,294 and 9,495 feet. The Lion #2A well was spudded in
December 1994, and during initial tests flowed 5,460 barrels of 37.1 degree
crude oil per day and 4 Mmcf of gas per day on a one inch choke. The well is
currently being tied back to the Lion caisson.
On September 12, 1994, the government of the Ivory Coast granted the
Company and its PSC partners an exclusive exploitation authorization covering a
portion of the Special Area and the Remaining Area. This authorization allows
the joint venture to proceed with development activities in the authorized
area. In addition, the government has approved a gas development project and
has signed with the Company and its PSC partners a gas sales contract for gas
produced from the exploitation area. The contract calls for initial deliveries
of 20 Mmcf per day which increases to 50 Mmcf per day in year two, with a
maximum of 90 Mmcf per day. The gas will be sold at approximately $1.75 per
Mcf with a cost escalator in the fifth year of the contract.
The development plan approved by the government of the Ivory Coast calls
for first oil production in the second quarter of 1995 and initial gas
production in the third quarter of 1995. Total development expenditures for
the first phase of the project are estimated to be approximately $165 million.
The PSC partners are currently in the final stages of negotiating with the
International Finance Corporation, a subsidiary of the World Bank, for project
financing.
Future activity in the Ivory Coast, in addition to the development of the
two discoveries, includes exploratory drilling on additional prospects which
have been identified on Block CI-11. In addition, the Company and its working
interest partners have signed an agreement with the government of the Ivory
Coast which provides the option to enter into a production sharing contract on
Block CI-12 which lies immediately adjacent to the east of CI-11.
EXPLORATION ACTIVITIES
In 1994 and 1993, the Company's activities were principally in Block CI-11
offshore. The Company expended approximately $3.0 million, and $4.0 million in
1994 and 1993, respectively, for oil and gas exploration activities in the
Ivory Coast. In addition, the Company expended in 1994 approximately $2.6
million for development activities. The Company's 1995 Ivory Coast budget is
approximately $10.9 million, of which approximately $8.7 million is intended
for developmental activities in Block CI-11.
15
<PAGE> 19
The Company's Ivory Coast oil and gas exploration and development
drilling during the years indicated and the gross and net wells in which the
Company had a working interest were as follows:
WELLS DRILLED (1)
<TABLE>
<CAPTION>
Exploratory Development Total
--------------- ---------------- -----------------
Gross Net Gross Net Gross Net
----- --- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1994
Oil . . . . . . . . . . . . . . . . . . . 1 0.1 1 0.1 2 0.2
Gas . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
Dry . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
---- ---- ---- ---- ---- ----
Total . . . . . . . . . . . . . . . 1 0.1 1 0.1 2 0.2
==== ==== ==== ==== ==== ====
1993
Oil . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
Gas . . . . . . . . . . . . . . . . . . . 1 0.2 -- -- 1 0.2
Dry . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
---- ---- ---- ---- ---- ----
Total . . . . . . . . . . . . . . . 1 0.2 -- -- 1 0.2
==== ==== ==== ==== ==== ====
</TABLE>
(1) The term "gross" as used herein with respect to wells refers to the
total number of wells in which the Company has any interest and "net"
refers to the Company's interest in such wells.
At December 31, 1994, the Company had no exploratory wells and no
development wells awaiting completion; no exploratory wells and 1 gross (.1
net) development well was in the process of drilling.
PRODUCTION SHARING CONTRACT
Under the CI-11 PSC, the working interest partners pay 100% of capital and
operating costs, and production is split between the Ivorian government and the
working interest partners. Up to 40% of the oil and gas produced and sold from
the contract area is available to the working interest partners to recover
costs ("cost recovery petroleum"). Cost recovery petroleum forms a single,
unified pool for the entire area from which costs of all fields, zones,
products and types may be recovered without differentiation, except that
operating costs and financial costs are recovered prior to the recovery of any
capital costs. Capital costs include exploration, development and other
equipment and facilities costs. If during a calendar year any costs are not
recovered by the working interest partners from that year's cost recovery
petroleum, the unrecovered costs are carried forward to the next succeeding
calendar year until full recovery of all costs or until the end of the contract.
Any portion of cost recovery petroleum not used to recover costs will be split
between the Ivorian government and the working interest partners in the same
manner as remaining petroleum.
The remaining 60% of oil and gas produced and sold ("remaining petroleum")
is divided between the Ivorian government and the working interest partners.
All Ivorian government royalties and the working interest partners' Ivorian
income taxes attributable to their share of Ivorian taxable income, determined
in barrels ("tax petroleum"), are included in the Ivorian government's share of
remaining petroleum.
The working interest partners' percentage of remaining petroleum
("remaining oil and remaining gas") is applied to increments of production
based on the gross daily average of oil or gas production determined on a
quarterly basis and varies with the respect to the water depth location of the
specific wellhead as follows:
<TABLE>
<CAPTION>
Working Interest Partners' % of Remaining Oil
---------------------------------------------------
Gross Production Water Depths Water Depths
(Bbls of Oil Per Day) less than 200 meters greater than 200 meters
--------------------- --------------------- -----------------------
<S> <C> <C>
Up to 10,000 . . . . . . . . . . . . . . . . . . . . . 40% 50%
10,001 to 20,000 . . . . . . . . . . . . . . . . . . . 30% 50%
20,001 to 25,000 . . . . . . . . . . . . . . . . . . . 20% 50%
25,001 to 30,000 . . . . . . . . . . . . . . . . . . . 20% 40%
30,001 to 50,000 . . . . . . . . . . . . . . . . . . . 10% 40%
Over 50,000 . . . . . . . . . . . . . . . . . . . . . . 10% 30%
</TABLE>
16
<PAGE> 20
<TABLE>
<CAPTION>
Working Interest Partners' % of Remaining Gas
----------------------------------------------
Gross Production Water Depths Water Depths
(Mcf of Gas Per Day) less than 200 meters greater than 200
-------------------- -------------------- ------------------
<S> <C> <C>
Up to 75,000 . . . . . . . . . . . . . . . . . . . . . . 40% 50%
75,001 to 150,000 . . . . . . . . . . . . . . . . . . . . 30% 50%
Over 150,000 . . . . . . . . . . . . . . . . . . . . . . 20% 40%
</TABLE>
RESERVES
At December 31, 1994, gross proved oil and gas reserves for the CI-11 area
were estimated to be 27.9 million barrels and 173.1 million cubic feet of gas.
The Company's net proved oil and gas reserves at December 31, 1994 were 5.3
million barrels of oil equivalent. The Company's share of proved reserve
quantities includes an assumed dollar amount of estimated future production
necessary to recover costs. Therefore, the amount of Company net reserves for
a given amount of total CI-11 reserves varies with the assumed oil and gas
prices. The Company's net reserves include its share of cost recovery
petroleum, remaining petroleum and tax petroleum which are 2.9 million
equivalent barrels, 1.7 million equivalent barrels, and 0.7 million equivalent
barrels, respectively.
CERTAIN RISKS APPLICABLE TO OPERATIONS IN IVORY COAST
The Company's activities in the Ivory Coast are subject to certain risks,
including political and economic uncertainties, risks of cancellation or
unilateral modification of agreements, operating restrictions, currency
repatriation restrictions, expropriation, export restrictions, the imposition
of new taxes and the increase of existing taxes, inflation and other risks
arising out of foreign government sovereignty over areas in which the
operations are conducted.
MALAYSIA
GENERAL
In September 1992, the Company acquired a 10% net working interest in the
SB-4 contract area offshore Sabah, Malaysia, covering 1,556,100 acres. In 1993,
the Company exercised an option to increase its net working interest to 15% in
the contract area.
The initial well, Titik Terang #1, reached a total depth of 9,021 feet in
October 1992 and was abandoned as a gas discovery after three tests flowed gas
at a combined flow rate of approximately 46 Mmcf per day. The well encountered
in excess of 250 feet of net gas pay. Since that time, the Company has
acquired both 2-D and 3-D seismic data over the discovery, as well as other
parts of the block. Based upon this data, the Company, together with its joint
venture partners, has identified at least two additional prospects. However,
the joint venture partners have been waiting for the award by the government of
Sabah of a contract for electric power generation using natural gas as fuel.
After extensive delay in the award process, provisional selection of a bid was
made in December 1994. If a gas sales contract is signed, it would trigger a
cost recovery process whereby additional exploratory, as well as development,
costs would be recovered out of the first revenues from such gas sales. The
joint venture partners have determined that additional work will take place
only when such a gas sales agreement is in place.
During 1993, the Nangka-1 well was drilled on a second structure to a
total depth of 5,366 feet without successfully finding hydrocarbons. Neither
the Company nor its joint venture partners have any additional activities
planned for this structure at this time.
CERTAIN RISKS APPLICABLE TO OPERATIONS IN MALAYSIA
The Company's activities in Malaysia are subject to certain risks,
including political and economic uncertainties, risks of cancellation or
unilateral modification of agreements, operating restrictions, currency
repatriation restrictions, expropriation, export restrictions, the imposition
of new taxes and the increase of existing taxes, inflation and other risks
arising out of foreign government sovereignty over areas in which the
operations are conducted.
17
<PAGE> 21
EGYPT
GENERAL
In August 1994, the Company acquired a 25% working interest in the Qarun
Concession Agreement ("QCA") located 45 miles southwest of Cairo, Egypt. The
concession covers approximately 1.9 million acres. The Company, together with
its QCA partners, were committed to drill at least one exploratory well in the
initial three year exploratory period. The exploration rights may be extended
up to an additional four years by assuring additional drilling obligations.
The first exploratory well, the El Sagha #1A, was spudded on August 28,
1994 with dual objectives at approximately 9,000 and 14,000 feet. The
shallower objectives were successfully drilled and logged with open hole logs
indicating hydrocarbon zones in both the Bahariya and Kharita formations. The
logs indicated the presence of an aggregate of over 100 feet of net oil pay in
three sandstone intervals in the Bahariya plus over 100 feet of net oil pay in
a single sandstone interval in the Kharita. Analysis of a 90-foot core of some
of the Bahariya pay zones indicated good reservoir quality. While drilling to
the deeper objectives, mechanical problems developed which eventually lead to
the plugging and abandonment of the well without production testing.
On November 30, 1994, the El Sagha #2 was spudded at a location
approximately 1.6 miles northwest of the El Sagha #1. This exploratory well
had the same objectives (shallow and deep) as the first well and resulted in
the second new field discovery. This well encountered at the shallow objective
approximately 45 feet of net pay which tested at a rate of 1,370 barrels of 38
degree crude oil per day from 22 feet of perforations.
Activity in 1995 will include the drilling of a well updip to the El Sagha
#1A, the drilling of an exploratory well updip to a well drilled several years
ago with oil pay on water and the drilling of other prospects which have been
identified on the block. In addition, the Company plans to participate in a
bid for a concession which will be offered by the Egyptian government in March
1995.
Pursuant to the QCA, after commercial quantities of petroleum are
established, an Egyptian operating company will be formed to operate the block.
The operating company will be jointly owned by the QCA partners and EGPC (the
Egyptian national oil company). Production facilities and transportation
pipelines would need to be constructed before commercial production could
begin.
QARUN CONCESSION AGREEMENT
Under the QCA, the working interest partners pay 100% of capital and
operating costs and the production is split between EGPC and the working
interest partners. Up to 40% of the oil and gas produced and sold from the
Qarun concession is available to the working interest partners to recover costs
("cost recovery petroleum"). Cost recovery petroleum forms a single, unified
pool for the entire concession from which costs of all fields, zones, products
and types may be recovered without differentiation, except that operating costs
are recovered prior to the recovery of any capital costs. Capital costs (which
include exploration, development and other equipment and facilities costs) are
amortized for recovery over five years while operating expenses are recoverable
on a current basis. To the extent that costs eligible for recovery in any
quarter exceed the amount of cost recovery petroleum produced and sold in that
quarter, such costs are recoverable from cost recovery petroleum in future
quarters with no limit on the ability to carry forward such costs. Any portion
of cost recovery petroleum not used to recover costs goes to EGPC.
The remaining 60% of oil and gas produced and sold ("remaining petroleum")
is divided between EGPC and the working interest partners. All Egyptian
government royalties and the working interest partners Egyptian income taxes
attributable to their share of Egyptian taxable income, determined in barrels
("tax petroleum"), are included in EGPC's share of remaining petroleum.
18
<PAGE> 22
The working interest partner's percentage of remaining petroleum
("remaining oil") is applied to increments of production based on the gross
daily average of oil production determined on a quarterly basis as follows:
<TABLE>
<CAPTION>
Gross Production Working Interest Partners
(Bbls of Oil Per Day) % of Remaining Oil
--------------------- -------------------------
<S> <C>
Up to 5,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 30%
5,001 to 25,000 . . . . . . . . . . . . . . . . . . . . . . . . . 25%
25,001 to 50,000 . . . . . . . . . . . . . . . . . . . . . . . . 22%
Over 50,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
</TABLE>
The working interest partners percentage of the gas segment of remaining
petroleum is 22%.
RESERVES
At December 31, 1994, gross proved oil reserves for the Qarun concession
were estimated to be 23.6 million barrels. No proved gas reserves had been
assigned at December 31, 1994. The Company's net proved oil reserves at
December 31, 1994 were 3.5 million barrels. The Company's share of proved
reserve quantities includes an assumed dollar amount of estimated future
production necessary to recover costs. Therefore, the amount of Company net
reserves for a given amount of total concession reserves varies with the
assumed oil price. The Company's net reserves include its share of cost
recovery petroleum, remaining petroleum and tax petroleum which are 1.9 million
barrels, 1.0 million barrels and 0.6 million barrels, respectively.
CERTAIN RISKS APPLICABLE TO OPERATIONS IN EGYPT
The Company's activities in Egypt are subject to certain risks, including
political and economic uncertainties, risks of cancellation or unilateral
modification of agreements, operating restrictions, currency repatriation
restrictions, expropriation, export restrictions, the imposition of new taxes
and the increase of existing taxes, inflation and other risks arising out of
foreign government sovereignty over areas in which the operations are
conducted.
TURKEY
GENERAL
The Company owns interests in the "Isparta Permit," "Egridir Permit" and
"Akseki Permit" in southwestern Turkey covering 1,714,350 gross acres. In
1992, the Company contributed to Tatex a 10% working interest in all three
exploration licenses, concurrently with the contribution to Tatex by Tatneft of
a study which Tatneft conducted of the area.
In April 1993, the Company signed a farm-out agreement with Tatneft whereby
Tatneft would conduct certain activities in the permit areas during 1993 to
earn the right to drill two exploratory wells in 1994. The first phase of the
farm-out agreement was fulfilled during the last quarter of 1993 when Tatneft
successfully completed a 195 kilometer seismic survey. In the second phase,
Tatneft agreed to drill at least one exploratory well during 1994 and to
consider drilling a second well. The first well, Sobutepe #1, was spudded on
August 21, 1994. The well has been temporarily suspended at approximately
9,350 feet. Tatneft will determine in early 1995 whether or not to re-enter
the well.
The Company's share of the costs for the seismic survey and for the two
exploratory wells is borne by Tatneft in exchange for a portion of the
Company's working interest in the permit areas. Including its interest through
Tatex, the Company will retain in the three areas a 26.2% working interest
after the drilling of the first exploratory well.
Tatneft has informed the Company that at this time it does not intend to
drill the second exploratory well. Therefore, the Company relinquished 737,013
gross acres in February, 1995.
19
<PAGE> 23
CERTAIN RISKS APPLICABLE TO OPERATIONS IN TURKEY
The Company's activities in Turkey are subject to certain risks, including
political and economic uncertainties, risks of cancellation or unilateral
modification of agreements, operating restrictions, currency repatriation
restrictions, expropriation, export restrictions, the imposition of new taxes
and the increase of existing taxes, inflation and other risks arising out of
foreign government sovereignty over areas in which the operations are
conducted.
ARGENTINA
GENERAL
The Company owns overriding royalty interests in approximately 1,268,200
gross acres in the northwest basin of Argentina. The properties are comprised
of the Santa Victoria exploration permit and Ipaguazu concession, covering
1,114,900 acres, and the El Chivil and Surubi concessions, covering 153,300
acres.
In late 1992, the Company decided to farmout or sell its working interest
in these properties and in 1993, sold all of its producing and non-producing
properties. The Company retained an overriding royalty interest in the
properties.
CERTAIN RISKS APPLICABLE TO OPERATIONS IN ARGENTINA
The Company's activities in Argentina are subject to certain risks,
including political and economic uncertainties, risks of cancellation or
unilateral modification of agreements, operating restrictions, currency
repatriation restrictions, expropriation, export restrictions, the imposition
of new taxes and the increase of existing taxes, inflation and other risks
arising out of foreign government sovereignty over areas in which the
operations are conducted.
PIPELINE OPERATIONS
GENERAL
The Company's pipeline operations, acquired during 1990, are conducted
through USAgas Pipeline, Inc. ("USAgas"). In 1992, the Company increased its
ownership in these operations from 80% to 100% in a non-cash transaction.
USAgas is engaged in the operation and development of natural gas gathering
systems, natural gas processing and treating plants and the marketing and
transportation of natural gas for the Company and its joint interest partners.
USAgas purchases and takes title to gas at the wellhead, processing plants or
other points of receipt and sells such gas to major pipelines, industrial and
institutional users, local gas distribution companies and electric utilities.
USAgas' pipeline operating assets are as follows:
<TABLE>
<CAPTION>
Capacity
---------------
<S> <C>
Natural Gas Processing Plant . . . . . . . . . . . . . . . . . . 20,000 gallons/day
Natural Gas Treating Plant . . . . . . . . . . . . . . . . . . . 10,000 Mcf/day
Gathering Systems (14 systems) . . . . . . . . . . . . . . . . . 250,000 Mcf/day
</TABLE>
NATURAL GAS MARKETING
USAgas' gas marketing activities are conducted through its office in
Houston, Texas. It is USAgas' general practice to contract for a diverse
supply of gas from various geographic locations and producers to minimize its
reliance on any single source or region and to maximize its ability to deliver
gas to its customers.
USAgas' practice is to match its gas sales contracts with corresponding
gas purchase contracts. A single matched group may include one or more sales
contracts and one or more purchase contracts. The objective is for the
corresponding purchase and sales contracts to provide for the same aggregate
maximum (and minimum, if any) volumes of gas to be delivered, to extend for the
same term between price re-determinations or other possible events of
termination and to provide for a built-in "spread" between the purchase and
sales prices.
20
<PAGE> 24
NATURAL GAS SUPPLY
There is a trend in the natural gas pipeline business toward more
flexibility in commitment of gas reserves both as to term and pricing. It is
not practical for a pipeline company to tabulate gas reserves as being firmly
committed to its facilities. The Company believes that most of the gas wells
connected to USAgas' fourteen existing gathering systems are likely to remain
connected until their depletion. The gas from these reserves is primarily sold
to customers under contracts which require the customers to purchase defined
daily volumes. The shutting in or curtailment of these volumes is minimized
because the systems are tied into numerous major East Texas/Northwest Louisiana
pipeline systems. When one market lowers its daily throughput requirements,
the natural gas can be routed to another market.
In order for USAgas to maintain current levels of throughput in its
pipeline systems, new natural gas supplies must be obtained, primarily from
newly drilled wells, to offset the natural decline of production from existing
wells. Newly drilled wells also provide opportunities to increase business by
building additional natural gas pipeline systems to purchase or transport these
new supplies. However, the Company cannot predict whether new natural gas
supplies will become available in adequate quantities to maintain current
levels of throughput in USAgas' pipeline system.
NATURAL GAS PIPELINE OPERATIONS
The natural gas pipeline operations involve transportation of natural gas
located primarily in East Texas for others on a fee basis as well as the
purchase of natural gas from various suppliers and the transportation and
resale of such natural gas. USAgas' pipeline systems have considerable
flexibility in providing connections between producing and consuming areas.
The systems have multiple interconnections with interstate and intrastate
pipelines.
NATURAL GAS PROCESSING
USAgas' natural gas processing plant located in McLeod, Texas extracts
natural gas liquids (ethane, propane, butane and natural gasoline,
collectively, "NGLs") from natural gas supplied by producers located on two
gathering systems. After processing, the residue natural gas is sold. The
processing contracts provide that USAgas receives, as its fee for the
gathering, processing, treating and compressing of the natural gas, a portion
of the proceeds from the sale of the extracted NGLs and a portion of the
proceeds from the sale of the residue gas. USAgas sells the extracted NGLs and
residue gas on the open market. The profitability of such plants depends
directly upon the volumes and sales prices of the extracted NGLs and residue
gas.
NATURAL GAS TREATING
USAgas owns a natural gas treating plant also located in McLeod, Texas.
Natural gas treating operations involve removing impurities from natural gas to
make it marketable. This service is generally performed for purchasers or
producers located on the gathering systems. USAgas' facility removes acid gas
components, such as carbon dioxide, and inert gases, such as nitrogen, from the
natural gas delivered to the facility. These services are performed under
long-term contracts for a fee per unit of natural gas treated. The Company has
temporarily shut down operations of the nitrogen rejection unit at its McLeod
plant because of insufficient quantities of nitrogen laden natural gas. The
Company is not certain when sufficient quantities of nitrogen laden natural gas
will be available to resume operating this unit.
COMPETITION
The natural gas pipeline industry is highly competitive, both in terms of
buying, transporting and marketing natural gas on existing pipelines and in
terms of obtaining opportunities to construct new pipelines to connect new
supplies and serve new markets. Because of intense competition and market
uncertainties, USAgas' ability to maintain or increase its natural gas pipeline
throughput cannot be predicted. In addition, gas pipeline operations are
subject to significant state and federal regulations.
OTHER OPERATIONS
INVESTMENT PROPERTIES INTERNATIONAL LIMITED
The Company owns a 47% equity interest in Investment Properties
International Limited ("IPI"), a real estate investment company now in
liquidation under the supervision of a liquidator appointed by the Supreme
Court of Ontario. The principal asset of IPI is 89% of the equity interest in
Property Resources Limited ("PRL"), a Bahamian real estate
21
<PAGE> 25
investment company. The Board of PRL has undertaken to liquidate PRL and has
made seven distributions to its shareholders of proceeds received from the
disposition of its assets. The Company has received approximately $77.8 million
in liquidating distributions since 1979. The estimated net realizable assets of
IPI and PRL are subject to liquidators' fees and to certain other claims which
could reduce the amount of any potential future distributions. Definitive
information as to the remaining net realizable assets of IPI is not readily
available. However, based upon the limited information available, the Company
believes that the majority of the assets have been liquidated. The Company
received no distribution from IPI during 1994 or 1992 and $1.3 million in 1993.
At December 31, 1994 and 1993, the Company had no costs recorded related to this
investment.
ARCTIC ISLANDS INTEREST
The Company has interests in thirteen "Significant Discovery Areas"
("SDAs") representing 752,293 gross (33,364 net) acres in the Queen Elizabeth
Islands. These SDAs are Hecla, Whitefish, Cisco, Drake, Char, Balaena, Cape
MacMillan, MacLean, Skate, Jackson Bay, Kristoffer Bay, Cape Allison and
Sculpin. In the current economic environment, oil and gas prices are not
sufficient to generate positive cash flows from the production of oil and gas
from any of the aforementioned SDAs. Additionally, certain environmental and
engineering questions must also be resolved and transportation facilities for
Arctic oil and gas must be developed. Development of the region may also be
slowed by reduced demand, uncertain price structures and the Canadian
government's policies regarding the export of natural resources. The Company
cannot predict when or if its Arctic interest may be developed. At December
31, 1994 and 1993, the Company had no costs recorded related to this
investment.
NORTH COOK INLET
The Company has a 1% override in 9,620 acres in the North Cook Inlet area
of Alaska. Test rates announced for certain wells drilled during 1993 indicate
the presence of a potentially significant oil field. The Company continues to
monitor the activity in this area.
FOREIGN ACREAGE
The Company's acreage in areas outside the United States as of December
31, 1994 is summarized in the tables below.
<TABLE>
<CAPTION>
Undeveloped Acreage
----------------------------------------------------------
Working Interest Acreage Royalty Interest Acreage
------------------------ ------------------------
AREA: Gross Net Gross Net
--------- -------- --------- -------
<S> <C> <C> <C> <C>
Arctic Islands . . . . . . . . . 752,293 33,364 -- --
Argentina . . . . . . . . . . . . -- -- 1,268,100 19,022
Australia . . . . . . . . . . . . -- -- 3,502,007 4,382
Egypt . . . . . . . . . . . . . . 1,900,000 475,000 -- --
Indonesia . . . . . . . . . . . . 1,156,780 19,827 -- --
Ivory Coast . . . . . . . . . . . 335,320 59,755 -- --
Malaysia . . . . . . . . . . . . 1,556,100 233,415 -- --
Turkey . . . . . . . . . . . . . 1,714,350 379,043 -- --
--------- --------- --------- ------
7,414,843 1,200,404 4,770,107 23,404
========= ========= ========= ======
</TABLE>
<TABLE>
<CAPTION>
Producing or Developed Acreage
----------------------------------------------------------
Working Interest Acreage Royalty Interest Acreage
------------------------ ------------------------
AREA: Gross Net Gross Net
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Argentina . . . . . . . . . . . . -- -- 479 8
Australia . . . . . . . . . . . . -- -- 91,793 80
Indonesia . . . . . . . . . . . . 97,000 1,663 -- --
------- ------- ------- ----
97,000 1,663 92,272 88
======= ======= ======= ====
</TABLE>
22
<PAGE> 26
OTHER
REGULATORY MATTERS
Regulation at the federal level of natural gas transportation and sale for
resale is administered primarily by the Federal Energy Regulatory Commission
("FERC") pursuant to the Natural Gas Act ("NGA") and the Natural Gas Policy Act
("NGPA"). The sale for resale of natural gas in interstate commerce is
regulated, in part, pursuant to the NGA, and maximum sales prices of certain
categories of gas, whether sold in interstate or intrastate commerce, have been
regulated pursuant to the NGPA since 1978. Effective January 1, 1993, the
Natural Gas Wellhead Decontrol Act of 1989 deregulated natural gas prices for
all "first sales" of natural gas, which include all sales by the Company of its
own production. Consequently, sales of the Company's natural gas currently may
be made at market prices, subject to applicable contract provisions.
Transportation and sales for resale of gas in interstate commerce by
intrastate pipelines are regulated by FERC pursuant to NGPA Section 311.
Section 311 permits intrastate companies under certain circumstances to sell
gas to, transport gas for, or have gas transported by interstate pipeline
companies, and assign contract rights to purchase surplus gas from producers to
interstate pipeline companies without being regulated as interstate pipelines
under the NGA. In 1991, FERC issued regulations (Order 555) regarding new
pipeline construction, including construction performed by intrastate pipelines
of facilities for use for transportation pursuant to Section 311. The
regulations impose certain reporting and environmental requirements that could
affect new pipeline construction the Company may undertake. While FERC has
withdrawn these rules with respect to interstate pipelines, the reporting and
environmental requirements still apply to intrastate pipelines.
In 1990, one aspect of FERC's interpretation of the scope of NGPA Section
311 transportation authority was reversed by an appellate court. In September
1991, and as clarified in September 1992, FERC issued a new rule (Order 537)
which generally requires the entity on whose behalf service is provided to take
physical custody of and to transport the natural gas at some point during the
transaction or to hold title to the natural gas for a purpose related to its
status as an intrastate pipeline, local distribution company or interstate
pipeline, as applicable. The Company currently offers these services on its
intrastate pipelines. The new rule may also affect the availability of
transportation for gas sold by the Company.
Since 1985, FERC has endeavored to make natural gas transportation more
accessible to gas buyers and sellers on an open and non-discriminatory basis.
These efforts have significantly altered the marketing and pricing of natural
gas. Commencing in April 1992, FERC issued Order Nos. 636, 636-A and 636-B
("Order 636"), which contemplate, in part, the unbundling of pipeline merchant
and transportation functions. The goal of Order 636 is to ensure comparability
of service so that pipeline system supply is treated no differently than gas of
third-party shippers. Specifically, Order 636 proposes several procedures to
increase competition in the industry, including: (i) the issuance of blanket
sales certificates to interstate pipelines for unbundled services; (ii) the
continuation of pregranted abandonment of previously committed pipeline sales
and transportation services, essentially freeing up unused pipeline capacity
and clearing the way for excess transportation capacity to be reallocated to
the marketplace; (iii) requiring that firm and interruptible transportation
services be provided by the pipelines to all parties on a comparable basis; and
(iv) generally requiring that pipelines derive transportation rates using a
straight fixed variable ("SFV") rate method, which places all fixed costs in a
fixed demand charge. The specific details of each interstate pipeline's
restructuring plan were to be resolved in restructuring compliance filings and
through settlement conferences held between each interstate pipeline and all
interested parties. In many instances, Order 636 has substantially reduced or
brought to an end interstate pipelines' traditional role as wholesalers of
natural gas in favor of providing only storage and transportation services.
As of early 1995, FERC has issued final orders accepting most pipelines'
Order 636 compliance filings, and had commenced a series of one year reviews of
individuals pipeline implementations of Order 636. Numerous parties have filed
petitions for review of Order 636, as well as orders in individual pipeline
restructuring proceedings. Upon such judicial review, these orders may be
remanded or reversed in whole or in part. With Order 636 subject to court
review, and pending ongoing FERC reviews of individual pipeline restructurings,
it is difficult to predict with precision its ultimate effects.
While Order 636 does not directly regulate the Company's activities, it
has had and will have an indirect effect because of its broad scope. Among
other effects, Order 636 has substantially increased competition in natural gas
23
<PAGE> 27
markets, even though there remains significant uncertainty with respect to the
marketing and transportation of natural gas. Ultimately, however, Order 636 may
enhance the Company's ability to market and transport its gas production,
although it may also subject the Company to more restrictive pipeline imbalance
tolerances and greater penalties for violations of such tolerances.
In December 1992, the FERC issued Order No. 547, governing the issuance of
blanket marketer sales certificates to all natural gas sellers other than
interstate pipelines. The order eliminates the need for natural gas producers
and marketers to seek specific authorization under Section 7 of the NGA from
the FERC to make sales of natural gas for resale. Instead, effective January
7, 1993, these natural gas sellers, by operation of the order, were issued
blanket certificates of public convenience and necessity allowing them to make
jurisdictional natural gas sales for resale at negotiated rates without seeking
specific FERC authorization. The FERC intends Order No. 547, in tandem with
Order 636, to foster a competitive market for natural gas by giving natural gas
purchasers access to multiple supply sources at market-driven prices. Order
No. 547 does not apply to sales by the Company of gas produced from its own
properties, but Order No. 547 may increase competition in markets in which the
Company's natural gas is sold.
In July 1994, the FERC eliminated a regulation that had rendered virtually
all sales of natural gas by pipeline affiliates, such as the Company, to be
deregulated first sales. As a result, only sales by the Company of its own
production now qualify for this status. All other sales of gas by the Company,
such as those of gas purchased from third parties, are now jurisdictional sales
subject to the Order No. 547 certificate. The Company does not anticipate this
change will have any significant current adverse effects in light of the
flexible terms and conditions of the existing blanket certificate. Such sales
are subject to the future possibility of greater federal oversight, however,
including the possibility the FERC might prospectively impose more restrictive
conditions on such sales.
In October 1992, the Energy Policy Act of 1992 was enacted. This Act
streamlined the permitting process necessary to import Canadian gas and altered
the treatment of such gas under the NGPA, eliminating the FERC's jurisdiction
over the price of non-pipeline sales of gas imported from Canada. Canadian gas
imports still require import authorizations from the Department of Energy's
Office of Fossil Energy under Section 3 of the NGA, and construction and citing
authorizations, where applicable, from the FERC. These changes have enhanced
the ability of Canadian producers to export gas to the United States, and
increased competition in the domestic natural gas market.
The FERC has recently announced its intention to re-examine certain of its
transportation-related policies, including the appropriate manner in which
interstate pipelines release transportation capacity under Order 636, and the
use of market-based rates for interstate gas transmission. While any resulting
FERC action would affect the Company only indirectly, these inquires are
intended to further enhance competition in natural gas markets.
The Company's natural gas gathering operations may be or become subject to
safety and operational regulations relating to the design, installation,
testing, construction, operation, replacement, and management of facilities.
Pipeline safety issues have recently become the subject of increasing focus in
various political and administrative arenas at both the state and federal
levels. For example, federal legislation addressing pipeline safety issues has
been introduced, which, if enacted, would establish a federal "one call"
notification system. Additional pending legislation would, among other things,
increase the frequency with which certain pipelines must be inspected, as well
as increase potential civil and criminal penalties for violations of pipeline
safety requirements. The Company cannot predict what effect, if any, the
adoption of this or to other additional pipeline safety legislation might have
on its operations.
Regulatory agencies in certain states have authority to issue permits for
the drilling of wells, regulate the spacing of wells, prevent the waste of oil
and gas resources through proration, require drilling bonds and reports
concerning operations, and regulate environmental and safety matters. In 1993,
the states of Texas and Oklahoma adopted changes to oil and gas production and
proration regulations which alter the methods used to prorate gas production
from wells located in the state. These measures may limit the rate at which
gas can be produced from wells the Company operates or in which it has an
interest in such states.
Operations conducted by the Company on federal oil and gas leases must
comply with numerous regulatory restrictions, including various
non-discrimination statutes. Additionally, certain operations must be
conducted pursuant to appropriate permits issued by the Bureau of Land
Management and the Minerals Management Service of the Department of Interior,
and, in regard to certain federal leases, with prior approval of drill site
locations by the Environmental Protection Agency.
24
<PAGE> 28
Regulation of natural gas gathering activities is primarily a matter of
state oversight. While some states provide for the rate regulation of
pipelines engaged in the intrastate transportation of natural gas, such
regulation has not generally been applied against gatherers of natural gas.
State regulation of gathering facilities generally includes various safety,
environmental, and in some circumstances, non-discriminatory take requirements.
Natural gas gathering may receive greater regulatory scrutiny at the federal
and state levels as the pipeline restructuring under Order 636 is completed.
For example, in 1993, the State of Oklahoma enacted a prohibition against
discriminatory gathering rates, and recently announced plans to conduct an
inquiry on alleged discriminatory practices by gathers and transporters.
Commencing in May 1994, FERC issued a series of orders in individual cases that
delineate its gathering policy. Among other matters, FERC slightly narrowed
its statutory tests for establishing gathering status and reaffirmed that,
except in situations in which the gatherer acts in concert with an interstate
pipeline affiliate to frustrate FERC's transportation policies, it does not
have jurisdiction over gathering facilities and services and that such
facilities and services are properly regulated by state authorities. This FERC
action may further encourage regulatory scrutiny of natural gas gathering by
state agencies. In addition, FERC has approved several transfers by interstate
pipelines of gathering facilities to unregulated, independent or affiliated
gathering companies. This could increase competition among gatherers in the
affected areas. Certain FERC orders delineating its new gathering policy are
subject to pending court appeals. The Company's operations could be adversely
affected should they be subject in the future to the application of state or
federal regulation of rates and services.
Regulation of gathering and transportation activities in Louisiana and
Texas includes various transportation, safety, environmental and
non-discriminatory purchase and transport requirements. Most of the Company's
intrastate transportation operations occur within the State of Texas.
Intrastate pipeline rates excluding rates for city-gate sales for resale are
presumed by the Railroad Commission of Texas ("RRC") to be just and reasonable
where (I) neither the company nor the customer had an unfair advantage during
negotiations, (ii) the rates are substantially the same as rates for similar
service, or (iii) competition does or did exist for the market with another
supplier of natural gas or an alternative form of energy.
As required by the Energy Policy Act of 1992, in October 1993 the FERC
adopted a proposal to simplify the manner in which oil pipeline rates are set,
which, effective as of January 1, 1995, would generally index such rates to
inflation, subject to certain conditions and limitations. The FERC's decision
in this matter is currently the subject of various petitions for judicial
review. It is difficult to predict at this time what effect the new rules
might have on the cost of moving the Company's oil, condensate, and other
liquid products to market, but the new rules may have the effect of increasing
the cost of such transportation.
The Company cannot predict the effect that any of the aforementioned
orders or the challenges to the orders will have on the Company's operations.
Additional proposals and proceedings that might affect the natural gas industry
are pending before Congress, FERC and the courts. These include Congressional
energy bills and executive branch energy initiatives which have as their goal
the decreased reliance by the United States on foreign energy supplies. The
Company cannot predict when or whether any such proposals or proceedings may
become effective.
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the public health and the environment, may affect the Company's
operations, expenses and costs. The clear trend in environmental regulation is
to place more restrictions and limitations on activities that may impact the
environment, such as emissions of pollutants, generation and disposal of
wastes, and use and handling of chemical substances. Increasingly strict
environmental restrictions and limitations have resulted in increased operating
costs for the Company and other similar businesses throughout the United
States, and it is possible that the costs of compliance with environmental laws
and regulations will continue to increase. In particular, Congress is
currently considering reauthorization of the Federal Resource Conservation and
Recovery Act ("RCRA"), the principal statute governing the disposal of solid
and hazardous wastes, and Congressional committees are considering amendments
to RCRA in connection with such reauthorization that would repeal the statutory
exemption that classifies oil and gas exploration and production wastes as
non-hazardous. Such amendments, if adopted, could result in substantial
remedial obligations with respect to such wastes being imposed on domestic oil
and gas producers, including the Company. State initiatives to regulate
further the disposal of oil and gas wastes are also pending in certain states,
including states in which the Company has operations, and these initiatives
could have a similar impact on the Company. For instance, Texas State Senate
Bill 1103, adopted in 1991, directs the RRC to promulgate additional rules for
the disposal of oil and gas waste; however, no proposed rules have been issued
as of the date of this filing. In addition, the Company is subject to laws and
regulations concerning occupational health and safety. It is not anticipated
that the Company will be required in the near future to expend amounts that are
material in relation to its total capital expenditures program by reason of
25
<PAGE> 29
environmental or occupational health and safety laws and regulations, but
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance.
The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder
impose a variety of regulations on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills
in United States waters. A "responsible party" includes the owner or operator
of a facility or vessel, or the lessee or permittee of the area in which an
offshore facility is located. The OPA assigns liability to each responsible
party for oil removal costs and a variety of public and private damages. While
liability limits apply in some circumstances, a party cannot take advantage of
liability limits if the spill was caused by gross negligence or willful
misconduct or resulted from violation of a federal safety, construction or
operating regulation. If the party fails to report a spill or to cooperate
fully in the cleanup, liability limits likewise do not apply. Few defenses
exist to the liability imposed by the OPA.
The OPA also imposes ongoing requirements on a responsible party,
including proof of financial responsibility to cover a least some costs in a
potential spill. On August 25, 1993, the United States Minerals Management
Service (the "MMS"), which administers federal oil and gas leases, published an
advance notice of its intention to adopt a rule under the OPA that would
require owners and operators of offshore oil and gas facilities to establish
$150 million in financial responsibility. Under the proposed rule, financial
responsibility could be established through insurance, guaranty, indemnity,
surety bond, letter of credit, qualification as a self-insurer or a combination
thereof. There is some question as to whether insurance companies or
underwriters would be willing to provide coverage under the OPA because the
statute provides for direct lawsuits against insurers who provide financial
responsibility coverage, and most insurers have strongly protested this
requirement. Because of the negative comments submitted to the advanced
rulemaking notice, the MMS has not yet proposed a financial responsibility rule
under the OPA.
The OPA also imposes other requirements, such as the preparation of an oil
spill contingency plan. The Company has such a plan in place. Failure to
comply with ongoing requirements or inadequate cooperation during a spill event
may subject a responsible party to civil or criminal enforcement actions.
ADDITIONAL FACTORS AFFECTING THE BUSINESS
The oil and gas business is highly competitive in both the exploration and
the acquisition of reserves and in the marketing of oil and gas production.
Exploration for oil and gas is subject to a high degree of risk, and the
Company faces intense competition from present and potential competitors, many
of whom have greater resources than the Company.
Large expenditures are required to locate and acquire properties and to
drill exploratory and development wells, and the Company can never be certain
that such expenditures will result in the discovery of oil and gas reserves in
commercial quantities sufficient to replace reserves currently being produced
and sold. In certain areas where the Company operates, even where natural gas
or crude oil is present in substantial quantities, there may be no means to
transport the gas or oil to market.
The operations of the Company have been, and in the future from time to
time may be, affected by political developments in countries in which it
operates and by federal, state and local laws and regulations, such as
restrictions on production, changes in taxes, royalties and other amounts
payable to governments or governmental agencies, price controls and
environmental protection regulations, and the risks of nationalization and of
unilateral cancellation or adverse modification of contract or other rights.
The exploration, development, and production of crude oil and natural gas
are also subject to such operating risks as fires, blowouts, pollution and
other hazards. In many cases insurance for such risks is unavailable or
prohibitively expensive, and the occurrence of certain uninsured hazards could
have a material adverse effect on the Company's financial position and
operating results.
EMPLOYEES
As of March 1, 1995, the Company had a total of 92 full-time employees
which included 24 employees of the Company's wholly-owned subsidiary, USAgas.
In addition, outside consultants and specialists are sometimes utilized in
gathering and analyzing technical data, lease acquisitions, operating
activities, and field supervision.
26
<PAGE> 30
ITEM 3. LEGAL PROCEEDINGS
The Company has pending litigation incidental to its operations.
Management believes that none of the litigation is expected to have a material
adverse effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year ended December 31, 1994.
27
<PAGE> 31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The high and low sales prices for the common stock of the Company for each
quarter of the two years ended December 31, 1994, in the United States on the
New York Stock Exchange (under the symbol "GNR"), were as follows:
<TABLE>
<CAPTION>
1994 Market Price 1993 Market Price
-------------------- --------------------
Quarter Ended High Low High Low
------------- ----- ------ ------ ------
<S> <C> <C> <C> <C>
March 31 . . . . . . . . . . . . . . . . . $8.375 $6.750 $8.125 $5.125
June 30 . . . . . . . . . . . . . . . . . . $7.875 $6.375 $8.875 $6.875
September 30 . . . . . . . . . . . . . . . $8.125 $7.125 $9.250 $7.875
December 31 . . . . . . . . . . . . . . . . $9.625 $6.625 $9.000 $6.250
</TABLE>
As of March 1, 1995, the Company had 2,703 stockholders of record. The
Company has never paid cash dividends and does not expect to pay cash
dividends in the near future.
As of December 31, 1994 and March 1, 1995, the Company held 3,900,697 of
its own shares in treasury.
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR DATA
Selected financial data for the Company on a consolidated basis is
presented below. See Note 1 to Consolidated Financial Statements for
discussion of changes in the method of accounting for certain investments and
natural gas revenues in 1994, and income taxes in 1993.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(Amounts in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . $50,772 $70,482 $55,324 $59,933 $58,078
Exploration expense . . . . . . . . . . 18,829 6,822 6,522 11,925 5,947
Net income (loss) from continuing
operations . . . . . . . . . . . . . (8,253) 4,487 (2,846) (39,105) 7,496
Net income (loss) per share from
continuing operations(1) . . . . . . (.28) .16 (.12) (1.66) .33
Cash provided from operations(2) . . . 36,670 18,313 7,503 15,258 32,070
IPI distributions . . . . . . . . . . . -- 1,267 -- 3,040 4,560
Additions to properties and equipment 45,821 21,547 7,024 24,958 52,492
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves . . . . 130,557 106,637 91,511 97,075 168,840
Total assets . . . . . . . . . . . . . 150,913 160,703 130,861 140,125 179,216
Non-current redeemable bearer shares(3) 17,467 18,375 -- -- --
Common stock subject to put . . . . . . -- -- 200 650 1,040
Shareholders' equity(4) . . . . . . . . 107,756 120,376 114,653 118,156 101,240
Long-term portion of debt . . . . . . . -- -- 55 234 50,167
Working capital . . . . . . . . . . . . 25,039 61,275 40,369 35,012 31,637
Weighted average common shares
outstanding(5) . . . . . . . . . . . 29,661 28,361 23,593 23,515 22,543
</TABLE>
--------------
(1) Net income on a fully diluted basis for 1993 was $.15 per share.
(2) To be read in the context of the Consolidated Statements of Cash Flows
included in Item 8 herein.
(3) See Note 4 to Consolidated Financial Statements for discussion of
redeemable bearer shares.
(4) See Note 5 to Consolidated Financial Statements for discussion of
convertible preferred shares.
(5) Net of treasury shares.
28
<PAGE> 32
INTERIM FINANCIAL DATA (UNAUDITED)
The following is a condensed summary of the results of operations for the
calendar quarters of 1994 and 1993.
<TABLE>
<CAPTION>
1994 Quarter Ended
---------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
--------- --------- -------- --------
(Amounts in thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . $13,409 $11,309 $13,453 $12,601
Income (loss) from operations . . . . . . . . . . . . 3,108 (3,206) (609) (2,421)
Net income (loss) . . . . . . . . . . . . . . . . . . 2,065 (4,376) (2,415) (3,527)
Net income (loss) per share, primary . . . . . . . . .07 (.15) (.08) (.12)
Net income (loss) per share, fully diluted . . . . . .07 (.15) (.08) (.12)
</TABLE>
<TABLE>
<CAPTION>
1993 Quarter Ended
---------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
--------- ------- -------- -------
(Amounts in thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . $14,758 $17,556 $18,741 $19,427
Income from operations . . . . . . . . . . . . . . . 2,213 901 2,392 1,149
Net income . . . . . . . . . . . . . . . . . . . . . 2,230 267 1,612 378
Net income per share, primary . . . . . . . . . . . . .09 .01 .05 .01
Net income per share, fully diluted . . . . . . . . . .08 .01 .05 .01
</TABLE>
During the second, third and fourth quarters of 1994, the Company incurred
exploration expenditures of $6.4 million, $4.7 million and $6.1 million,
respectively. Included in these expenditures were dry hole costs for
unsuccessful exploratory wells of $4.6 million, $2.5 million and $3.9 million,
respectively.
During the first and fourth quarters of 1993, the Company recorded gains
of $2.1 million ($.09 per share) and $.6 million ($.02 per share),
respectively, on the sale of assets. (Unless otherwise indicated, all per
share information presented herein is on a per primary share basis.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
In 1994, 1993 and 1992, the Company generated $36.7 million, $18.3
million and $7.5 million respectively, in cash from operating activities. The
Company's expenditures for exploration and development activities in 1994, 1993
and 1992 were $42.9 million, $18.9 million and $7.3 million, respectively. In
1994 and 1992, the Company's expenditures for the acquisition of producing
properties were $3.8 million and $15 thousand, respectively. In 1993, the
Company acquired no producing properties. The Company currently anticipates
expending approximately $37.3 million in 1995 for exploration and development
activities. Domestic exploration and development expenditures are projected to
be approximately $15.3 million with expenditures related to international
exploration and development activities including Russia projected to be
approximately $22 million in 1995.
During 1994, 1993, and 1992 the Company's worldwide oil and gas reserve
base increased approximately 14.9 Mmbls (46%), 6.7 Mmbls (26%), and 1.6 Mmbls
(6%) of oil equivalent, respectively. These increases are the direct result of
the Company exploration and development efforts undertaken during these years.
The Company's reserve replacement ratio, inclusive of revisions of
previous estimates and based on net equivalent barrels, from exploration and
development activities for 1994, 1993 and 1992 was 502%, 336% and (6%),
respectively. The reserve replacement ratio for 1994 was the result of the
Company's 1994 drilling program, primarily international, and positive
revisions to previous estimates. The positive reserve replacement ratio for
1993 was the result of the Company's 1993 drilling program, primarily domestic,
and positive revisions to previous reserve estimates primarily associated with
the Company's Taylor Lake and San Juan properties. The negative reserve
replacement ratio for 1992 was the result of downward revisions of previous
estimates for the Oak Hill field in East Texas and a diminished drilling
program during the year.
29
<PAGE> 33
RESULTS OF OPERATIONS
In 1994, the Company had a net loss of $8.3 million ($.28 per share)
compared to net income of $4.5 million ($.16 per share) and a net loss of $2.8
million ($.12 per share) in 1993 and 1992, respectively. The net loss for 1994
includes $18.8 million in exploration expenses. During 1993 and 1992,
exploration expenses were $6.8 million and $6.5 million, respectively. The
increase in exploration expenses during 1994 is reflective of the Company's
increased international and domestic exploration activities in comparison to
previous years. Included in 1994 exploration expenditures were dry hole costs
of $11.2 million as compared to $1.9 million and $0.9 million in 1993 and 1992,
respectively. The net income for 1993 includes a $1.3 million distribution
from IPI, a $1.6 million net gain on the sale of producing properties,
including certain interests in San Juan properties, and $.7 million in gains on
other assets sales. The net loss for 1992 includes a $.4 million loss on the
disposition of domestic producing properties.
Oil and Gas
In 1994, 1993 and 1992, worldwide oil and gas production accounted for
$31.9 million (63%), $31.1 million (44%) and $31.2 million (56%) of the
Company's operating revenues, respectively. Domestic oil and gas operations
accounted for $20.1 million (40%), $19.3 million (27%) and $19.0 million (34%)
of the Company's operating revenues during the same periods, respectively.
Indonesian oil and gas operations accounted for $11.7 million (23%), $11.4
million (16%) and $11.7 million (21%) of the Company's operating revenues in
1994, 1993 and 1992, respectively.
Worldwide oil and gas revenues increased approximately 3% from 1993 to
1994. Slight increases were recorded for both Indonesian and domestic
revenues. During 1994, domestic oil and gas revenues increased approximately
4% as compared to 1993. This increase is the direct result of increased
natural gas production from the Company's Taylor Lake field and from new
offshore fields from which initial production began late in 1994. When
compared to 1993, domestic natural gas production increased 27% during 1994.
However, this increased production was principally offset by decreases during
1994 as compared to 1993 in gas prices, oil prices and oil production of 12%,
9% and 13%, respectively.
The slight decrease in worldwide oil and gas revenues from 1992 to 1993
was due primarily to the decrease in Indonesian revenues. Domestic gas
production increased approximately 10% in 1993. This increased production was
primarily in the Taylor Lake field located in the onshore Gulf Coast area. The
price received per Mcf increased 6% and is attributed to the demand for
domestic natural gas which resulted in gradually increasing gas prices
throughout 1993. These increases were partially offset by decreases in both
domestic oil production and the overall price per barrel received in 1993. In
1993, domestic oil production decreased 21% primarily as the result of sales
during the fourth quarter of 1992 of certain properties in the Rockies area.
The Company's oil and gas volumes and unit prices for the United States,
Indonesia and Argentina for 1994, 1993 and 1992 are summarized in the following
table:
<TABLE>
<CAPTION> United States Indonesia Argentina
---------------------- ---------------------- ----------------------
Volume Unit Price Volume Unit Price Volume Unit Price
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
1994
Oil (MBbl). . . . . . . . . . . . . . 229 $15.65 47 $16.58 -- --
Gas (Mmcf). . . . . . . . . . . . . . 8,904 $ 1.86 4,473 $ 2.45 -- --
1993
Oil (MBbl). . . . . . . . . . . . . . 263 $17.11 54 $18.31 19 $15.47
Gas (Mmcf). . . . . . . . . . . . . . 7,088 $ 2.11 3,769 $ 2.75 -- --
1992
Oil (MBbl). . . . . . . . . . . . . . 334 $18.97 47 $20.65 21 $18.37
Gas (Mmcf). . . . . . . . . . . . . . 6,425 $ 2.00 3,667 $ 2.92 -- --
</TABLE>
30
<PAGE> 34
The oil and gas revenue variances resulting from volume and price changes
for the United States and Indonesia during 1994 and 1993 are summarized in the
table below (amounts in thousands).
<TABLE>
<CAPTION>
United States Indonesia
-------------------- --------------------
Variance Due to: Variance Due to:
Price Volume Price Volume
----- ------ ----- ------
<S> <C> <C> <C> <C>
1994 VS 1993
------------
Oil . . . . . . . . . . . . . . . . . . . . . . $ (334) $ (582) $ (81) $ (128)
Gas . . . . . . . . . . . . . . . . . . . . . . $(2,226) $ 3,832 $(1,342) $1,936
1993 VS 1992
------------
Oil . . . . . . . . . . . . . . . . . . . . . . $ (489) $(1,347) $ (126) $ 145
Gas . . . . . . . . . . . . . . . . . . . . . . $ 780 $ 1,326 $ (641) $ 298
</TABLE>
Future oil and gas revenues, both domestic and foreign, will depend on
volumes sold and prices received. These in turn will depend on a number of
factors beyond the control of the Company including demand and price adjustments
under buyers' contracts with Pertamina.
Production expenses decreased 19% and 27% during 1994 and 1993,
respectively, when compared to production expenses of the previous year.
Domestic production expenses per equivalent barrel of oil produced during 1992,
1993 and 1994 were $3.68, $2.61 and $1.97, respectively. The decrease in
production expenses per equivalent barrel of oil during these three years is
reflective of the Company's decision to dispose of certain high cost properties
during 1992 and 1993 and of increased production during 1993 and 1994 from the
Company's lower cost Taylor Lake field.
Exploration expenses in 1994 increased approximately $12 million when
compared to exploration expenses incurred during 1993 and 1992. This increase
is reflective of the increased worldwide exploration activities undertaken by
the Company. As a result of these exploration efforts, the Company added during
1994 to its reserve base, excluding Russia, approximately 11.2 Mmbls (43%) on a
barrel of equivalent oil bases and increased future discounted net revenues
after tax effects approximately $38.8 million (40%). Included in 1994
exploration expenses were dry hole expenditures, leasehold impairments and
geological costs of approximately $11.2 million, $2.4 million and $2.9 million.
The same expenditures during 1993 were approximately $1.8 million, $2.4 million
and $1.0 million, respectively.
Depletion, depreciation and amortization increased approximately 7%
during 1994 when compared to 1993. This increase is the result of an increase
in oil and gas production. Domestic depletion, depreciation and amortization
per equivalent barrel of oil produced during 1992, 1993 and 1994 were $4.96,
$4.12 and $3.83. This downward trend is reflective of disposition of certain
high cost properties and of the Company's successful exploration and development
activities.
Administrative expenses decreased 13% and 9% during 1994 and 1993,
respectively, when compared to previous years. These decreases are reflective of
the Company's continuing efforts to focus on and reduce controllable costs
whenever possible. These cost reductions have occurred during periods of
increased exploration and development activities and increased oil and gas
production.
Pipeline Operations
Pipeline operations accounted for $18 million (35%), $38.6 million (55%)
and $23.9 million (43%) of the Company's consolidated revenues in 1994, 1993 and
1992, respectively. Pipeline operating expenses exclusive of depreciation were
$16.9 million, $37.5 million and $22.0 million for 1994, 1993 and 1992,
respectively. The pipeline segment generated losses from operations before taxes
of $0.3 million in 1994, $0.6 million in 1993 and $0.3 million in 1992. While
the losses from operations before taxes improved during 1994, the pipeline
segment continued to experience constricted operating margins. The increase in
the loss from operations before taxes from 1992 to 1993 of $0.3 million was
primarily the result of decreased operating margins in 1993. The loss in 1992
was due primarily to the impairment of certain pipeline assets and to repairs,
environmental and safety expenditures.
The primary reason for the decrease in pipeline segment revenues and
expenditures in 1994 as compared to 1993 was a decrease in marketing activities
for working interest partners at the Taylor Lake field. During 1994, revenue
and expenses, excluding depreciation, attributable to the marketing of gas
production from certain of the Company's operated
31
<PAGE> 35
properties were $3.3 million and $3.2 million, respectively. During 1993, these
revenues and expenses were $22.4 million and $22.2 million, respectively. In
addition, the Company has temporarily shut down operations of the nitrogen
rejection unit at its McLeod plant because of insufficient quantities of
nitrogen laden natural gas. The Company is not certain when or if sufficient
quantities of nitrogen laden natural gas will be available to resume operating
this unit.
The increase in pipeline segment revenues and expenses from 1992 to 1993
was primarily due to increased gas marketing activities of gas production from
certain of the Company's operated properties, and from increased gathering
systems volumes. During 1992, revenues and expenses, excluding depreciation,
attributable to the marketing of gas production from certain of the Company's
operated properties were $5.3 million and $5.2 million, respectively.
Russian Operations
The Company, through its 90% owned subsidiary, Texneft, has a net 45%
interest in Tatex, a Russian joint venture. Tatex's activities currently
include two projects: 1) vapor recovery and 2) the development and operation of
the Onbysk field. The vapor recovery activity was expanded in 1994 with a total
of 19 units on production at year's end. In addition, a total of 19 wells were
drilled in the Onbysk field by the joint venture during the year.
A third project, which is currently inactive, was a well stimulation
program in and adjacent to the Romashkino field. In connection with this
project during 1994, a total of 42 stimulations were performed of which 34 were
performed within the Onbysk field and 8 in other fields. Activities were
directed primarily at the Onbysk field because the Government had not indicated
whether or not, in the long-term, incremental oil resulting from the stimulation
activities in the Romashkino area would be designated as "own oil" and which may
be exported freely for hard currency. Because of the lack of clarification of
long-range Government policy towards stimulation, the contract was terminated on
November 1, 1994. Should progress be made in establishing a firm "own oil"
classification over a clearly defined period, the stimulation program may be
reactivated at some later date.
The assumption of operations by the joint venture of a fourth project,
the development of undeveloped reserves underlying urban areas within the
Romashkino field, is no longer considered an appropriate project for Tatex under
the prevailing tax and administrative uncertainties. As a result, no further
action will be taken to finalize the contract for the urban project which
existed in draft form. However, Tatneft and Texneft have agreed to examine
alternative opportunities to expand Tatex operations into other fields in which
exploration but not development, activities have been carried out.
As of December 31, 1994 and 1993, the Company's advances to Texneft were
$18.2 million and $11.7 million, respectively. The Company has recognized net
losses from its Russian operations for the periods ended December 31, 1994, 1993
and 1992 of $.1 million, $1.2 million and $.8 million, respectively. Included
in the 1994, 1993 and 1992 losses are $3.4 million, $1.4 million and $.3
million, respectively, of expense for the Russian government export tax on crude
oil. On March 3, 1995, the Company was notified that Tatex had received an
exemption from paying export tax on crude oil sold outside of Russia. The
exemption received was for one year and was effective January 1, 1995. The
exemption is subject to an annual review by the Government and subject to its
approval, can be renewed for two additional years.
32
<PAGE> 36
LIQUIDITY AND CAPITAL RESOURCES
Key balance sheet amounts and ratios stated in millions (except ratios
and per share amounts) at December 31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 2.7 $ 16.0 $ 19.5
Short-term liquid investments . . . . . . . . . . . . . . $ 33.3 $ 49.9 $ 21.8
Current assets . . . . . . . . . . . . . . . . . . . . . $ 49.5 $ 82.6 $ 55.7
Current liabilities . . . . . . . . . . . . . . . . . . . $ 24.5 $ 21.4 $ 15.3
Current ratio . . . . . . . . . . . . . . . . . . . . . . 202% 386% 364%
Non-current redeemable bearer shares . . . . . . . . . . $ 17.5 $ 18.4 $ --
Shareholders' equity . . . . . . . . . . . . . . . . . $107.8 $120.4 $114.7
Debt to equity ratio . . . . . . . . . . . . . . . . . . 16.2% 15.3% --
Equity per common share outstanding(1) . . . . . . . . . $ 3.67 $ 4.01 $ 4.89
Common shares outstanding at year end . . . . . . . . . . 29.4 30.0 23.5
------------------
</TABLE>
(1) If Prudential had converted its Preferred Stock to common stock on
December 31, 1992, equity per common share outstanding would have been
$3.85. See Note 5 to Consolidated Financial Statements.
Cash and cash equivalents combined with short-term liquid investments
decreased by $30 million during the year ended December 31, 1994. This
decrease was primarily due to capital expenditures of $45.8 million and the
$5.3 million treasury stock acquisition. These cash outlays were partially
offset by the $36.7 million of cash provided by operating activities net of the
$16.2 million change in short-term liquid investments.
Cash and cash equivalents combined with short-term liquid investments
increased by $24.7 million during the year ended December 31, 1993. This
increase was primarily due to the $19.2 million received in August 1993,
representing an interest-free loan, of the remaining cash held by Hambros
Trust. The loan is repayable on demand only to the extent necessary to redeem
bearer shares presented for exchange until July 2008. The loan is secured by a
letter of credit from a bank. The letter of credit is secured by certain of
the Company's short-term liquid investments. Each bearer share presented
during this period will be redeemed for $6.66. As of December 31, 1994, there
were 2,685,487 outstanding bearer shares. In July 2008, the obligation of the
Company to holders of bearer shares will cease, the interest-free loan will
terminate, and any remaining cash will revert to the Company and will be
accounted for as an increase in capital in excess of par value.
Cash provided by operating activities for the year ended December 31, 1994
was $36.7 million compared to $18.3 million for the same period in 1993. This
$18.4 million increase in cash provided by operations is primarily the result
of a decrease in short-term liquid investments of $16.2 million.
Cash provided by operating activities for the year ended December 31, 1993
was $18.3 million compared to $7.5 million for the same period in 1992. This
$10.8 million increase in cash provided by operations is primarily the result
of a $2.0 million net increase in income from operations adjusted for
depletion, impairments, dry hole expense and gain on disposition of properties
and an $8.4 million net increase resulting from changes in accounts receivable,
other current assets, accounts payable and accrued liabilities for 1993 as
compared to 1992.
The Company expended approximately $45.8 million for additions to
properties and equipment in 1994 compared to $21.5 million and $7.1 million in
1993 and 1992, respectively. Capital expenditures combined with the $5.3
million treasury stock acquisition are the primary reasons for the $36.2
million decrease in working capital in 1994. Working capital increased $20.9
million in 1993. The 1993 increase was primarily due to the $19.2 million
proceeds from redeemable bearer shares previously discussed.
In 1995, the Company intends to direct cash flow from its current base of
domestic properties and Indonesian interests to expand its exploration and
development efforts in the United States, mainly offshore Gulf of Mexico while
directing its balance sheet cash (cash and short-term investments) primarily
toward international opportunities. The Company plans to spend in 1995
approximately $15.3 million on exploration and development activities in the
United States. Capital expenditures for international activities, primarily in
Russia, Egypt and the Ivory Coast, are projected to be approximately $22
million for 1995. Factors such as political stability in the various host
countries and world oil
33
<PAGE> 37
prices will heavily influence the amount and timing of these expenditures. The
Company believes that it has adequate resources to fund these planned
expenditures.
In order to insure that the Company continues to have the necessary
financial flexibility in the future, the Company is currently negotiating a $25
million unsecured line of credit. In addition, the Company and its working
interest partners are currently negotiating project financing for the Ivory
Coast development activities. The Company seeks to finalize these credit
resources by mid-1995. In addition, the Company plans to obtain project
financing for Egyptian development activities when the extent of those
activities is more clearly defined.
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." This statement requires the use of fair value
accounting for investments in marketable equity and all debt securities. The
adoption of this statement had no impact on the Company's current year income.
Effective the second quarter of 1994, the Company changed its method of
accounting for natural gas revenues from the sales method, whereby the Company
recorded natural gas revenues based on the amount of gas sold, to the
entitlements method. Under the entitlements method, the Company records natural
gas revenues based upon the Company's entitled share of gas production. The
Company believes that the entitlement method will provide a more meaningful
presentation of the Company's financial position and will produce a better
matching of current revenues and costs. Prior to 1994, the Company had no
material gas imbalances, therefore the effect of the change in accounting method
would have had no material impact on net income reported in previous periods.
As of December 31, 1994, the Company had recorded a deferred credit from the
sale of approximately .4 billion cubic feet of natural gas in excess of its
entitled share. As a result, 1994 income was reduced by approximately $.7
million.
The Company believes inflation has not had a material effect on its
domestic operations or on its financial condition, but there can be no
assurance that future increases in the inflation rate, particularly in Russia,
would not have an adverse effect on the Company's financial statements. In
addition, the Company is not aware of any impending material change in its cost
of supplies, materials, equipment or labor. The Company's employees are
currently not members of any labor union or trade association.
A continued trend to greater environmental and safety awareness and
increasing environmental regulation has resulted in higher operating costs for
the oil and gas industry and the Company. The Company believes environmental
and safety costs will continue to increase in the future. To date, compliance
with environmental laws and regulations has not had a material impact on the
Company's capital expenditures, earnings or competitive position. The Company
has not received any notices from any regulatory agency regarding violations of
environmental laws. The Company monitors environmental laws and believes it is
in compliance with applicable environmental regulations and certain air quality
standards set by the Texas Air Quality Control Board and other appropriate
regulatory agencies. The Company is unable to predict the impact of future
laws and regulations on the Company's operations.
34
<PAGE> 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Global Natural Resources Inc.:
We have audited the accompanying consolidated balance sheets of Global
Natural Resources Inc. and subsidiaries as of December 31, 1994 and 1993 and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Global
Natural Resources Inc. and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in notes 1 and 2 to the consolidated financial statements, in
1994 the Company changed its method of accounting for certain investments to
adopt the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Debt and Equity Securities." As discussed in note 1 to
the consolidated financial statements, the Company changed its method of
accounting for natural gas revenues in 1994. As discussed in notes 1 and 6 to
the consolidated financial statements, in 1993 the Company changed its method
of accounting for income taxes to adopt the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG PEAT MARWICK LLP
Houston, Texas
February 28, 1995
35
<PAGE> 39
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,678 $ 16,045
Short-term liquid investments . . . . . . . . . . . . . . . . . . . . . . . . 33,279 49,947
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,023 14,081
Current investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832 1,663
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,709 891
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 49,521 82,627
-------- --------
Properties and equipment, at cost:
Oil and gas properties (successful efforts method) . . . . . . . . . . . . . . 109,849 91,036
Pipeline facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,320 18,976
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,502 10,054
-------- --------
139,671 120,066
Less: accumulated depletion, depreciation and amortization . . . . . . . . . (56,587) (54,156)
-------- --------
Net properties and equipment . . . . . . . . . . . . . . . . . . . . . . 83,084 65,910
-------- --------
Investment in Russian joint venture . . . . . . . . . . . . . . . . . . . . . . . 15,641 8,783
Indonesian venture advances, net . . . . . . . . . . . . . . . . . . . . . . . . 2,453 3,099
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 284
-------- --------
$150,913 $160,703
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,990 $ 14,319
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,196 6,248
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,296 785
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 24,482 21,352
-------- --------
Deferred credits and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,208 600
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Redeemable bearer shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,467 18,375
Shareholders' equity:
Common stock; authorized 100,000,000 shares at $1.00 par value;
issued and outstanding 33,335,487 in 1994 and 33,190,287 in 1993 . . . . . . 33,335 33,190
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . 138,355 137,648
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,167) (35,914)
-------- --------
127,523 134,924
Less: treasury stock; 3,900,697 shares in 1994 and 3,186,329 in 1993 . . . . (19,767) (14,548)
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 107,756 120,376
-------- --------
$150,913 $160,703
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 40
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . $ 31,859 $ 31,091 $ 31,220
Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . 18,009 38,610 23,875
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 904 781 229
----------- ----------- -----------
50,772 70,482 55,324
----------- ----------- -----------
Expenses:
Production . . . . . . . . . . . . . . . . . . . . . . . . . 3,368 4,173 5,686
Exploration . . . . . . . . . . . . . . . . . . . . . . . . 18,829 6,822 6,522
Pipeline cost of sales . . . . . . . . . . . . . . . . . . . 16,852 37,495 21,990
Depletion, depreciation and amortization . . . . . . . . . . 8,281 7,764 9,938
Administrative . . . . . . . . . . . . . . . . . . . . . . . 6,570 7,573 8,337
----------- ----------- -----------
53,900 63,827 52,473
----------- ----------- -----------
Income (loss) from operations . . . . . . . . . . . . . (3,128) 6,655 2,851
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . 2,030 1,954 1,836
Interest expense . . . . . . . . . . . . . . . . . . . . . . (76) (95) (208)
Distribution from IPI . . . . . . . . . . . . . . . . . . . -- 1,267 --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (478) 1,201 (853)
----------- ----------- -----------
1,476 4,327 775
----------- ----------- -----------
Income (loss) before income tax expense . . . . . . . . (1,652) 10,982 3,626
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 6,601 6,495 6,472
----------- ----------- -----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ (8,253) $ 4,487 $ (2,846)
=========== =========== ===========
Income (loss) per share based on weighted average shares
Net income (loss) primary . . . . . . . . . . . . . . . . . $ (0.28) $ 0.16 $ (0.12)
=========== =========== ===========
Net income (loss) assuming full dilution . . . . . . . . . . $ (0.28) $ 0.15 $ (0.12)
=========== =========== ===========
Weighted average common shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . 29,660,578 28,360,697 23,593,288
=========== =========== ===========
Assuming full dilution . . . . . . . . . . . . . . . . . . . 29,660,578 29,903,391 23,593,288
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 41
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- ----------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year . . . . . . . . . . $ 33,190 $ 26,701 $ 26,569
Adjustment of common stock subject to put . . . -- 28 67
Conversion of preferred stock into common stock -- 6,311 --
Issuance of common stock . . . . . . . . . . . . 145 150 65
-------- -------- --------
Balance at end of year . . . . . . . . . . . . . 33,335 33,190 26,701
-------- -------- --------
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year . . . . . . . . . . 137,648 88,423 87,739
Adjustment of common stock subject to put . . . -- 172 383
Issuance of treasury stock for bearer shares . . -- (198) --
Issuance of treasury stock to 401(k) plan . . . 35 13 --
Conversion of preferred stock into common stock -- 48,387 --
Issuance of common stock . . . . . . . . . . . . 672 851 301
-------- -------- --------
Balance at end of year . . . . . . . . . . . . . 138,355 137,648 88,423
-------- -------- --------
CONVERTIBLE PREFERRED STOCK
Balance at beginning of year . . . . . . . . . . -- 54,698 54,698
Conversion of preferred stock into common stock -- (54,698) --
-------- -------- --------
Balance at end of year . . . . . . . . . . . . . -- -- 54,698
-------- -------- --------
ACCUMULATED DEFICIT
Balance at beginning of year . . . . . . . . . . (35,914) (40,401) (37,555)
Net income (loss) . . . . . . . . . . . . . . . (8,253) 4,487 (2,846)
-------- -------- --------
Balance at end of year . . . . . . . . . . . . . (44,167) (35,914) (40,401)
-------- -------- --------
TREASURY STOCK
Balance at beginning of year . . . . . . . . . . (14,548) (14,768) (13,295)
Acquisition of treasury stock . . . . . . . . . (5,289) -- (1,473)
Issuance of treasury stock for bearer shares . . -- 198 --
Issuance of treasury stock to 401(k) plan . . . 70 22 --
-------- -------- --------
Balance at end of year . . . . . . . . . . . . . (19,767) (14,548) (14,768)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY $107,756 $120,376 $114,653
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE> 42
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- --------- ---------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ (8,253) $ 4,487 $ (2,846)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation, depletion and amortization . . . . . . . . . . . 8,281 7,764 9,938
Leasehold impairments and dry hole expense . . . . . . . . . . 13,635 4,272 4,031
Unrealized loss on short-term liquid and current investments. . 458 -- --
(Gain) loss on asset sales . . . . . . . . . . . . . . . . . . 39 (2,974) 448
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 84 (127)
Changes in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 5,058 (2,724) 34
Other current assets . . . . . . . . . . . . . . . . . . . . . (1,986) 2,067 188
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . (3,328) 3,111 72
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . 5,948 2,283 (3,957)
Short-term liquid investments . . . . . . . . . . . . . . . . 16,210 -- --
Deferred credits . . . . . . . . . . . . . . . . . . . . . . . 608 (57) (278)
-------- --------- ---------
Net cash provided by operating activities . . . . . . . . . . . . 36,670 18,313 7,503
-------- --------- ---------
Cash Flows from Investing Activities:
Additions to oil and gas properties . . . . . . . . . . . . . . . (44,854) (20,114) (5,637)
Additions to pipeline facilities and other properties
and equipment . . . . . . . . . . . . . . . . . . . . . . . . . (967) (1,433) (1,444)
Decrease in other assets . . . . . . . . . . . . . . . . . . . . . -- -- 57
Purchases of short-term liquid investments . . . . . . . . . . . . -- (829,948) (966,672)
Maturities of short-term liquid investments . . . . . . . . . . . -- 11,849 19,879
Proceeds from sales of short-term liquid investments . . . . . . . -- 789,936 952,458
Proceeds from sales of assets . . . . . . . . . . . . . . . . . . 6,724 10,251 4,087
Investment in Russian joint venture . . . . . . . . . . . . . . . (6,859) (2,465) (3,689)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625 478 59
-------- --------- ---------
Net cash used in investment activities . . . . . . . . . . . . . . (45,331) (41,446) (902)
-------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from common stock issuance . . . . . . . . . . . . . . . 852 685 366
Proceeds from redeemable bearer shares . . . . . . . . . . . . . . -- 19,149 --
Redemptions of bearer shares . . . . . . . . . . . . . . . . . . . (908) (129) --
Acquisitions of treasury stock . . . . . . . . . . . . . . . . . . (5,289) -- --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639 (13) (324)
-------- --------- ---------
Net cash provided by (used in) financing activities . . . . . . . (4,706) 19,692 42
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . . . (13,367) (3,441) 6,643
Cash and cash equivalents at beginning of period . . . . . . . . . 16,045 19,486 12,843
-------- --------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . $ 2,678 $ 16,045 $ 19,486
======== ========= =========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6 $ 21 $ 52
======== ========= =========
Income taxes:
U. S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 150 $ 120
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,577 6,320 6,474
-------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,577 $ 6,470 $ 6,594
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 43
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Supplemental disclosure of non-cash investing and financing activities:
In connection with the Company's Employees 401(k) Savings Plan referred to
in Note 7, the Company contributed 14,194 treasury shares during 1994 with a
market value of $104,000 to the plan. During 1993, the Company contributed
4,638 treasury shares with a market value of $35,000 to the plan.
As referred to in Note 5, in March 1993, Prudential converted its
preferred stock into 6,311,537 shares of the Company's common stock.
On September 21, 1992, Noel Group, Inc. ("Noel") completed a distribution
of shares owned by Noel in the Company, Garnet Resources Corporation ("Garnet")
and VISX, Incorporated ("VISX") to Noel shareholders. The Company received
from Noel 46,468 shares of Garnet, 53,907 shares of VISX and 203,098 shares of
the Company's stock as a result of the Noel distribution. The Company recorded
the investment in Garnet and VISX and the receipt of treasury stock at their
respective September 21, 1992 market values and reduced the book value of its
investment in Noel by a corresponding amount. On November 29, 1993, Noel
distributed shares owned by Noel in Sylvan Foods Holdings, Inc. ("Sylvan") to
Noel shareholders. The Company received from Noel 54,860 shares of Sylvan as a
result of the Noel distribution. The Company recorded the investment in Sylvan
at its November 29, 1993 market value and reduced the book value of Noel by a
corresponding amount.
As a result of the Hambros agreements referred to in Note 4, $.4 million
was transferred into capital in excess of par value and $.1 million into common
stock as a result of the reduction in common stock subject to put during 1992.
In 1993, $.2 million was transferred into capital in excess of par value and
approximately $28 thousand into common stock as a result of the reduction in
common stock subject to put.
See accompanying notes to consolidated financial statements.
40
<PAGE> 44
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain reclassifications have been made in the 1993 and 1992 financial
statements to conform to presentation used in 1994.
Principles of Consolidation
The consolidated financial statements include the accounts of Global
Natural Resources Inc. and its majority-owned entities (the "Company"). The
Company accounts for its investment in its Russian joint venture using the
equity method. All significant intercompany accounts and transactions have been
eliminated.
Cash Equivalents
The Company considers all investments with a maturity of ninety days or
less when purchased to be cash equivalents.
Short-Term Liquid Investments
Short-term liquid investments include investments having a maturity at the
date of purchase of more than ninety days. These investments, which have a
minimum rating of A1/P1, consist primarily of repurchase agreements, commercial
paper, certificates of deposit and U.S. government securities and are carried
at cost, which approximates market value. The Company believes that no single
short-term liquid investment exposes the Company to significant credit risk.
As of December 31, 1994, excluding U.S. government securities, the largest
individual short-term liquid investment did not exceed $6 million.
Current Investments
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("Statement No. 115"), "Accounting for Certain
Investments in Debt and Equity Securities." The cumulative effect of this
accounting change as of January 1, 1994 had no material impact upon the
financial statements of the Company. Under Statement No. 115, the Company
classifies its debt and marketable equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities for which the
Company has the ability and intent to hold until maturity. Any securities not
classified as trading or held-to-maturity are classified as available-for-sale.
The Company has no held-to-maturity or available-for-sale securities.
Trading securities are recorded at fair value. Unrealized holding gains and
losses on trading securities are included in earnings. Dividend and interest
income are recognized when earned.
Current investments are trading securities carried at fair value. Prior
to the adoption of Statement No. 115, current investments were carried at the
lower of aggregate cost or market value.
Oil and Gas Properties
The Company follows the successful efforts method of accounting for its
oil and gas operations whereby acquisition costs and exploratory drilling costs
related to properties with proved reserves and all development costs, including
development dry holes, are capitalized. Geological and geophysical costs and
the cost of retaining unproven properties are charged to expense as incurred.
Exploratory drilling costs applicable to unsuccessful exploration efforts are
charged to expense at the time the wells or other exploration activities are
determined to be nonproductive. Costs incurred to operate and maintain wells
and equipment and to lift oil and gas to the surface are expended as incurred.
Acquisition costs of unproved properties are evaluated periodically and any
impairment assessed is charged to expense. Capitalized costs are depleted using
the unit of production method based upon proved reserves for acquisition costs
and proved developed reserves for exploration and development costs. Estimated
costs (net of salvage value) of dismantling oil and gas production facilities,
including abandonment and site restoration costs, are computed by the Company's
engineers and are included when calculating depreciation and depletion using
the unit-of-production method. On a
41
<PAGE> 45
world-wide basis, should net capitalized costs exceed the estimated future
undiscounted after tax net cash flows from proved oil and gas reserves, such
excess costs will be charged to expense.
Other Property and Equipment
Pipelines, plant and equipment are depreciated on the straight-line method
over their estimated useful lives ranging from three to twenty-two years.
Miscellaneous property and equipment are depreciated on the straight-line and
declining-balance methods, based upon estimated useful lives ranging from three
to ten years.
Investment in Indonesian Production Sharing Contract
The Company has a 1.714% interest in a joint venture (the "IJV") for the
exploration, development and production of oil and natural gas in East
Kalimantan, Indonesia, under a production sharing contract ("PSC") with
Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, the state petroleum
enterprise of Indonesia ("Pertamina"). The Company makes advances to the
operator for exploration, development and operating costs. In April 1990,
Pertamina and the IJV signed an amendment and a 20-year extension to the PSC
with generally similar terms and conditions as the PSC prior to such amendment
and extension. The extended PSC will expire August 7, 2018. The share of
revenues from the sale of gas after cost recovery through August 7, 1998 will
remain at 35% to the IJV after Indonesian income taxes and 65% to Pertamina.
The split after August 7, 1998 will be either 25% or 30% to the IJV after
Indonesian income taxes and 75% or 70% to Pertamina, depending upon the sales
contract involved. Based on current and projected oil production, the revenue
split from oil sales after cost recovery through August 7, 2018 will remain at
15% to the IJV after Indonesian income taxes and 85% to Pertamina. These
revenue splits are based on Indonesian income tax rates of 56% through August
7, 1998 and 48% thereafter. The cost of the Company's original investment is
depleted on a straight-line basis over the remaining life of the original
production sharing contract.
Investment Properties International, Limited (IPI)
The Company owns 47% of the equity interests in IPI, which was a real
estate investment company that is now in liquidation under the supervision of a
liquidator. Definitive information relative to the net realizable assets of
IPI is not available. However, based upon limited information available from
the liquidator, the Company believes that the majority of the assets have been
liquidated. In 1993, the Company received a distribution from IPI of
approximately $1.3 million. No distributions were received from IPI during
1994 or 1992. At December 31, 1994 and 1993, the Company had no costs recorded
related to this investment.
Foreign Currency Translation
The Company uses the U.S. dollar as the functional currency for its
operations in Russia. Transactions denominated in rubles are translated into
U.S. dollars using the market rate.
Concentrations of Credit Risk
The Company's trade receivables include amounts due from purchasers of oil
and gas production and amounts due from joint venture partners for their
respective portions of operating expenses and exploration and development
costs. The Company believes that no single customer or joint venture partner
exposes the Company to significant credit risk. The Company's customers and
joint venture partners may be similarly affected by changes in economic,
regulatory or other factors and thereby impact the Company's overall credit
risk. There can be no assurance that the Company's joint venture partners will
be in a position to pay their joint venture obligations, in which case the
Company may be required to assume all or a portion of their financing
obligations. Trade receivables are generally not collateralized; however, the
Company analyzes customers' and joint venture partners' historical credit
positions prior to extending credit.
Environmental Liabilities
A provision for environmentally related expenditures is recorded when it
is determined that the Company's liability for environmental assessments and/or
cleanup is probable and the cost can be reasonably estimated. If it is
anticipated that future economic benefit will arise from environmental
expenditures, the amounts are capitalized; otherwise, they are expended.
42
<PAGE> 46
Natural Gas Revenues
Effective the second quarter of 1994, the Company changed its method of
accounting for natural gas revenues from the sales method, whereby the Company
recorded natural gas revenues based on the amount of gas sold, to the
entitlements method. Under the entitlements method, the Company records natural
gas revenues based upon the Company's entitled share of gas production. The
Company believes that the entitlement method will provide a more meaningful
presentation of the Company's financial position and will produce a better
matching of current revenues and costs. Prior to 1994, the Company had no
material gas imbalances, therefore the effect of the change in accounting method
would have had no material impact on net income reported in previous periods.
As of December 31, 1994, the Company had recorded a deferred credit from the
sale of approximately .4 billion cubic feet of natural gas in excess of its
entitled share. As a result, 1994 income was reduced by approximately $.7
million ($.02 per share).
Income Taxes
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109 ("Statement No. 109"). This change
in accounting method had no impact on income. Under the asset and liability
method of Statement No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement No. 109,
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992 and prior years, deferred income taxes were recognized for income and
expense items that were reported in different years for financial reporting and
income tax purposes using the tax rate applicable for the year of the
calculation.
Earnings per Share
Earnings per share is computed based upon the weighted average common
shares outstanding, computed on a monthly basis. Unexercised stock options do
not have a dilutive effect on the reported amount of earnings per common share.
Fully diluted earnings per share for 1993 was calculated assuming conversion of
Prudential's preferred stock into Company common stock effective January 1,
1993. See Note 5.
(2) CURRENT INVESTMENTS
Current investments at December 31, 1994 and 1993 consist of certificates
of deposit and U.S. government and corporate debt securities (included in
short-term liquid investments), and equity securities (included in current
investments). During the twelve month period ending December 31, 1994, the
Company recorded $0.5 million of unrealized losses resulting from changes in
the differences between cost and market value of short-term liquid investments
and current investments.
Short-term liquid investments at December 31, 1993 were carried at cost
which approximates fair value. Current investments at December 31, 1993 were
carried at the lower of aggregate cost ($1.7 million) or market value ($1.9
million). In 1993 the Company recorded a net unrealized loss of approximately
$0.6 million as the result of changes in the differences between the cost and
market value of items held as current investments at year end. No unrealized
losses were recorded in 1992.
(3) INVESTMENT IN TEXNEFT
In 1990, the Company formed Texneft Inc. ("Texneft") to participate in a
joint venture in Russia with Tatneft, a Russian oil production amalgamation
which operates the oil fields of Tatarstan, Russia. Texneft, a 90% owned
subsidiary, has a 50% interest in the joint venture, Tatex. In November 1994,
the Company purchased an additional 10% of Texneft's common stock, increasing
its ownership from 80% to 90%. An agreement between the minority shareholder
of Texneft and the Company requires the Company to advance to Texneft
sufficient cash to fund its administrative expenses and its contributions to
Tatex. In turn, Texneft will make no distributions to its shareholders until
the Company has been repaid a sum equal to the total of its advances to
Texneft. As of December 31, 1994, the Company's outstanding advances totaled
$18.2 million.
43
<PAGE> 47
Tatex was registered with the Ministry of Finance of the former USSR on
November 15, 1990, and subsequently registered with the governments of Russia,
Tatarstan and the City of Almetyevsk. The joint venture activities currently
include two projects: 1) vapor recovery and, 2) the development and operation
of the Onbysk field. A third project which is currently inactive, was well
stimulation in and adjacent to the Romashkino field. The assumption of
operations by the joint venture of a fourth project, development of undeveloped
reserves underlying urban areas within the Romashkino field, is no longer
considered an appropriate project for Tatex under the prevailing tax and
administrative uncertainties. However, Tatneft and Texneft have agreed to
examine alternative opportunities to expand Tatex operations in other fields in
which exploration, but not development, activities have been carried out.
The joint venture capital contributions total approximately $2.8 million
as of December 31, 1994. In 1991, Tatneft contributed .5 million rubles while
Texneft contributed the equivalent of .5 million rubles at the official
exchange rate. Fifty percent of Texneft's initial contribution, or
approximately $.4 million, was made in equipment and materials. In 1993,
Texneft and Tatneft each contributed $1 million to the Charter Fund as their
share of contributions required to finance the development of the Onbysk field
and the well stimulation operations.
Additional funding for the joint venture will be supplied by Texneft and
Tatneft through various credit agreements. The aggregate amount of all loans
made under the various credit agreements will not exceed $19.5 million from
Texneft and a total of 5.2 million rubles and $16.5 million from Tatneft. As
of December 31, 1994, 1993, and 1992, outstanding dollar advances from Texneft
were approximately $7.2 million, $2.8 million, and $1.8 million, respectively.
As of December 31, 1994, outstanding advances from Tatneft were approximately
$2.6 million.
The impact the Russian joint venture has had on the Company's financial
statements for the last three years is summarized in thousands in the following
table. The revenue and expense information presented is the Company's pro-rata
share of Texneft's consolidated financial statements which includes 50% of
Tatex activities.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 9,981 $ 3,682 $1,654
Expenses
Operating and administrative . . . . . . . 6,706 3,530 2,105
Export taxes . . . . . . . . . . . . . . . 3,409 1,388 333
------- ------- ------
Total expenses . . . . . . . . . . . . 10,115 4,918 2,438
------- ------- ------
Loss before U. S. income tax . . . . . . . . . (134) (1,236) (784)
Advances from Company, net . . . . . . . . . . 6,439 3,700 4,473
------- ------- ------
Net increase in equity investment . . . . . . . 6,305 2,464 3,689
Investment at beginning of period . . . . . . . 8,783 6,319 2,630
Acquisition of additional Texneft interest . . 553 -- --
------- ------- ------
Investment at end of period . . . . . . . . . . $15,641 $ 8,783 $6,319
======= ======= ======
</TABLE>
44
<PAGE> 48
The balance sheet information, presented in thousands, in the following
table is the Company's pro-rata share of Texneft's consolidated assets and
liabilities which includes 50% of Tatex's assets and liabilities.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Current assets . . . . . . . . . . . . . . . . $ 3,216 $1,514 $2,529
Non-current assets . . . . . . . . . . . . . . $12,886 $6,108 $2,943
Current liabilities . . . . . . . . . . . . . . $ 2,083 $1,183 $ 756
Non-current liabilities . . . . . . . . . . . . $16,133 $8,170 $5,210
</TABLE>
The Internal Revenue Service has ruled that Tatex will be treated as a
partnership for U.S. federal tax purposes and that Texneft will be treated as a
partner of the partnership. For financial statement purposes, the Company
accounts for its investment in Texneft on the equity method.
In January 1992, the Russian Federation imposed a tax of 30 European
Currency Units per ton, currently approximately $5.22 per barrel, on crude oil
exported from Russia. Although the Company applied for exemption from the tax
in accordance with the procedure stipulated by Regulation 1375-r for
enterprises which were registered before January 1, 1992, no exemption was
received in 1994 and Tatex continued to pay the tax on crude oil shipments
throughout 1994. The Company's pro-rata share of export taxes recorded by
Tatex are $3.4 million, $1.4 million and $.3 million in 1994, 1993 and 1992,
respectively.
Subsequent Event (Unaudited)
On March 3, 1995, the Company was notified that Tatex has received an
exemption from paying tax on exported oil. The exemption received was for one
year and was effective January 1, 1995. The exemption is subject to an annual
review by the government and subject to its approval, can be renewed for two
additional years.
Risks Applicable to Russian Operations
The Company's activities in Russia are subject to the usual risks
associated with foreign operations, including political and economic
uncertainties, risks of cancellation or unilateral modification of agreements,
operating restrictions, currency repatriation restrictions, expropriation,
export restrictions, the imposition of new taxes and the increase of existing
taxes, inflation and other risks arising out of foreign government sovereignty
over areas in which the operations are conducted. The Company has endeavored
to protect itself against certain political and commercial risks inherent in
the venture. There is no certainty that the steps taken by the Company will
provide adequate protection.
(4) REDEEMABLE BEARER SHARES
Global Natural Resources Inc. became the successor issuer to Global
Natural Resources PLC, a United Kingdom company ("U.K. Company"), on July 26,
1983 pursuant to the terms of a Scheme of Arrangement (the "Arrangement") under
Section 206 of the English Companies Act. The effect of the Arrangement was to
move the domicile of the parent company to the United States from the United
Kingdom.
Under the terms of the Arrangement, 24,270,876 registered common shares of
the Company were registered in the name of Hambros Trust ("Trust Shares"). The
Trust Shares were held for the owners of share warrants to bearer issued by the
U.K. Company. Holders of bearer shares were entitled to receive at their
election either cash or Company shares on a share-for-share basis until July
1993. After July 1993, holders of bearer shares are entitled to receive only
cash.
The Arrangement provided that Trust Shares not claimed by July 26, 1988
could be sold by the Trust and the proceeds from such sale together with earned
interest be used to satisfy future claims by the holders of share warrants to
bearer. Prior to August, 1993 the Company was obligated to maintain a
sufficient number of treasury shares or unissued shares to be issued in case the
Trust determined that it held an insufficient number of Company shares to effect
an exchange. The Company was also obligated to maintain a letter of credit in
favor of the Trust equal to the number of Company shares held by the Trust
multiplied by the escalated price. This obligation was accounted for as common
45
<PAGE> 49
stock subject to put. Prior to August 1993, unclaimed Trust Shares were
included in the total common shares issued and outstanding.
In August 1993, the Company received $19.2 million, the remaining cash
held by the Trust, in the form of an interest-free loan. The loan is repayable
on demand only to the extent necessary to redeem bearer shares presented for
exchange until July 2008. Each bearer share presented during this period will
be redeemed for $6.66. As of December 31, 1994 and 1993, there were 2,685,487
and 2,803,022 outstanding bearer shares, respectively. The loan is secured by
a letter of credit from a bank. The letter of credit is secured by certain of
the Company's short-term liquid investments. Drawings under the letter of
credit will revert to a term loan due more than one year from the date drawn.
Therefore the loan, except that portion estimated to be needed for the
redemption of bearer shares during the next twelve months, is classified as
non-current in the accompanying balance sheet. During 1994 and 1993, there
were no drawings under the letter of credit.
During July 2008, the obligation of the Company to holders of bearer
shares will cease, the interest-free loan will terminate, and any remaining
cash will revert to the Company and will be accounted for as an increase to
capital in excess of par value.
(5) SHAREHOLDERS' EQUITY
Preferred Share Purchase Rights Plan
In October 1988, the Board of Directors of the Company adopted a preferred
share rights plan (the "Rights Plan") pursuant to which holders of the
Company's common stock were issued rights ("Rights") to purchase shares of a
series of the Company's preferred stock. Generally, the Rights are exercisable
only if a person or group acquires 20% or more of the Company's outstanding
voting stock. The Rights Certificates are exercisable on the tenth business
day after the shares acquisition date, as defined, or such later date as
determined by the Board of Directors. Each Right entitles the holder thereof
to buy one one-hundredth of a share of Series B Junior Preferred Stock
("Preferred Stock") at an exercise price of $20.00 per Right, subject to
anti-dilution provisions. The Rights, under certain circumstances are
redeemable at the option of the Company's Board of Directors at a price of $.01
per Right and expire on October 20, 1998.
In addition to the right to purchase Preferred Stock, in the event that
the Company is acquired in a merger or other business combination transaction
or 50% or more of its consolidated assets or earning power are sold, each
holder of a Right will thereafter have the right to receive, upon the exercise
thereof at the then current exercise price of the Right, that number of shares
of common stock of the acquiring company which at the time of such transaction
will have a market value of two times the exercise price of the Right. In the
event that the Company is the surviving corporation in a merger and the
Company's common stock is not changed or exchanged, each holder of a Right,
other than Rights that are beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of the Company's common stock having a market
value of two times the exercise price of the Right.
In the event that a person or group acquires 20% or more of the
outstanding Voting Shares, then each Right (other than Rights owned by the
Acquiring Person and its affiliates and associates and all transferees thereof)
will entitle the holder to purchase, for the exercise price, a number of shares
of the Company's common stock having a then current market value of two times
the exercise price of the Right. If this provision becomes effective and the
Acquiring Person owns less than 50% of the Company's Voting Shares then
outstanding, the Board of Directors would have the option to redeem the Rights
in exchange for Common Shares at the rate of one share for each two shares for
which the Rights are then exercisable.
46
<PAGE> 50
Stock Activity
The following table reflects the activity in shares of the Company's
Common Stock, Convertible Preferred Stock and Treasury Stock during the three
years ended December 31, 1994.
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
COMMON STOCK OUTSTANDING
Shares at beginning of year . . . . . . . . . . 33,190,287 26,700,646 26,568,681
Adjustment of common stock subject to put . . . -- 28,304 66,965
Conversion of preferred stock into common stock -- 6,311,537 --
Issuance of common stock . . . . . . . . . . . . 145,200 149,800 65,000
---------- ---------- ----------
Shares at end of year . . . . . . . . . . . . . 33,335,487 33,190,287 26,700,646
---------- ---------- ----------
CONVERTIBLE PREFERRED STOCK OUTSTANDING
Shares at beginning of year . . . . . . . . . . -- 6,153,847 6,153,847
Conversion of preferred stock into common stock -- (6,153,847) --
---------- ---------- ----------
Shares at end of year . . . . . . . . . . . . . -- -- 6,153,847
---------- ---------- ----------
TREASURY STOCK OUTSTANDING
Shares at beginning of year . . . . . . . . . . 3,186,329 3,234,473 3,031,375
Acquisition of treasury stock . . . . . . . . . 728,562 -- 203,098
Issuance of treasury stock for bearer shares . . -- (43,506) --
Issuance of treasury stock to 401(k) plan . . . (14,194) (4,638) --
---------- ---------- ----------
Shares at end of year . . . . . . . . . . . . . 3,900,697 3,186,329 3,234,473
---------- ---------- ----------
</TABLE>
On May 31, 1994, the Company purchased in a private transaction 705,196
shares of its common stock from Noel Group Inc. ("Noel"). The purchase price
was $7.50 per share or approximately $5.3 million. In connection with the
repurchase of the shares, two of the four representatives of Noel on the
Company's Board of Directors resigned.
Preferred Stock
In 1987, the Board of Directors authorized the issuance of 6,153,847 shares
of $1.00 par value Series A Preferred Stock (the "Preferred Stock"). All such
Preferred Stock was issued to Prudential Insurance Company of America
("Prudential") in 1991 in exchange for $50 million of convertible subordinated
notes ("Notes"). Accrued long-term interest of $5.5 million that would have
been paid at the end of the term of the Notes, net of unamortized deferred debt
costs, was credited to convertible preferred stock. In March 1993, Prudential
converted the Preferred Stock into 6,311,537 shares of the Company's common
stock. These shares are not registered and Prudential will be unable to sell
these shares in the public market without registration with the SEC or an
exemption from such registration.
In 1988, the Board of Directors of the Company authorized the issuance of
750,000 shares of $1.00 par value Series B Junior Preferred Stock for the
purpose of issuance upon the exercise of Rights under the Rights Plan as
described above. Each share of such preferred stock issuable upon exercise of
the Rights will bear quarterly dividends of $2.50, a liquidation preference of
$2,000 and will be redeemable by the Company.
Stock Option Plans
The Key Employees Stock Option Plan was approved by the Company's
shareholders in June 1989. This plan reserved 1,500,000 shares of the
Company's common stock for issuance to employees at a price not less than the
greater of par value or fifty percent of the fair market value of such shares.
Options granted vest as determined by the Board of Directors and expire ten
years after grant. All options granted as of December 31, 1994 were granted at
the fair market value of the Company's common stock on the date of grant. At
December 31, 1994, 70,950 shares of common stock were available for grant.
47
<PAGE> 51
Information related to the options granted under the Key Employee's Stock
Option Plan is summarized as follows:
<TABLE>
<CAPTION>
1994 1993
-------------------------------- --------------------------------
Number of Option Price Number of Option Price
Shares Range Per Share Shares Range Per Share
--------- ------------------ --------- -----------------
<S> <C> <C> <C> <C>
Options outstanding:
Beginning of period . . . . 1,045,350 $5.1875 - $10.500 939,550 $5.1875 - $10.50
Granted . . . . . . . . . . 5,000 $7.75 - $7.9375 256,500 $6.25 - $7.875
Exercised . . . . . . . . . (145,200) $5.1875 - $6.2500 (149,800) $5.1875 - $7.250
Canceled . . . . . . . . . . (5,400) $6.25 - $6.6875 (900) $6.625 - $6.625
--------- ------------------ --------- -----------------
End of period . . . . . . . 899,750 $5.1875 - $10.500 1,045,350 $5.1875 - $10.50
========= ================== ========= =================
Options exercisable . . . . 662,150 $5.1875 - $10.500 631,400 $5.1875 - $10.50
========= ================== ========= =================
</TABLE>
The 1992 Stock Option Plan ("1992 Plan") was approved by the Company's
shareholders in June 1992. This plan reserved 1,000,000 shares of the
Company's common stock for issuance to employees, directors and other persons
who perform services for or on behalf of the Company. Options granted under
the 1992 Plan may be either incentive stock options, ("ISO") within the meaning
of the Internal Revenue Code or options which do not constitute incentive stock
options ("NQSO"). The price at which the Company can issue the options shall
not be less than the fair market value of such shares at the date of the grant
for ISO options and shall not be less than 50% of the fair market value of such
shares at the date of the grant for NQSO options. As of December 31, 1994, all
options granted were NQSO options and all except 50,000 options were granted at
the fair market value of the Company's common stock on the date of the grant.
On May 3, 1993, 50,000 options were granted to a member of the Board of
Directors at an option price of $5.875. The fair market value of the Company's
common stock on that date was $8.50. At December 31, 1994, 340,000 shares of
common stock were available for grant.
Information related to the options granted under the 1992 Plan is
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------- --------------------------------
Number of Option Price Number of Option Price
Shares Range Per Share Shares Range Per Share
-------- ------------------ ------- ------------------
<S> <C> <C> <C> <C>
Options outstanding:
Beginning of period . . . . 622,500 $5.875 - $7.750 500,000 $7.75 - $7.7500
Granted . . . . . . . . . . 37,500 $7.1875 - $8.000 122,500 $5.875 - $7.4375
Canceled . . . . . . . . . . -- -- -- -- -- --
------- ------------------ ------- ------------------
End of period . . . . . . . 660,000 $5.875 - $8.000 622,500 $5.875 - $7.7500
======= ================== ======= ==================
Options exercisable . . . . 480,000 $5.875 - $8.000 352,500 $5.875 - $7.7500
======= ================== ======= ==================
</TABLE>
Dividends
No dividends have been paid or declared.
(6) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement No. 109. The
cumulative effect of this accounting change as of January 1, 1993 had no impact
on 1993 net income.
48
<PAGE> 52
Income before income taxes and the components of income tax expense for
each of the three years ended December 31, 1994 stated in thousands, consisted
of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Income (loss) before income tax expense:
Domestic . . . . . . . . . . . . . $(8,846) $ 3,599 $(5,132)
Foreign(1) . . . . . . . . . . . . 7,194 7,383 8,758
------- ------- -------
$(1,652) $10,982 $ 3,626
======= ======= =======
Current income tax expense:
Federal . . . . . . . . . . . . . . $ 24 $ 175 $ (2)
Foreign . . . . . . . . . . . . . . 6,577 6,320 6,474
------- ------- -------
$ 6,601 $ 6,495 $ 6,472
======= ======= =======
</TABLE>
----------------
(1) Includes 1994, 1993 and 1992 losses related to Argentina, Canada,
Russia, Malaysia, Ivory Coast, Egypt and Turkey of $4,406, $3,834,
and $2,798, respectively.
The tax effects of temporary differences that gave rise to the significant
portions of the deferred tax liability and the deferred tax asset as of
December 31, 1993 and 1994 stated in thousands were as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred tax liability:
Other assets . . . . . . . . . . . . . . . . . . . . . . . $ (414) $ (435)
-------- --------
Deferred tax assets:
Properties and equipment . . . . . . . . . . . . . . . . . 2,766 2,251
Notes receivable . . . . . . . . . . . . . . . . . . . . . 5,248 6,978
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 892 784
Net operating loss carry forwards . . . . . . . . . . . . 10,267 8,955
Percentage depletion carry forwards . . . . . . . . . . . 3,736 3,485
Foreign tax credit carry forwards . . . . . . . . . . . . 1,545 2,067
Minimum tax credit carry forwards . . . . . . . . . . . . 934 811
Investment tax credit carry forwards . . . . . . . . . . . 1,192 1,290
-------- --------
Deferred tax assets . . . . . . . . . . . . . . . . . 26,580 26,621
Less - valuation allowance . . . . . . . . . . . . . . . . (26,166) (26,186)
-------- --------
Net deferred tax assets . . . . . . . . . . . . . . . 414 435
-------- --------
Net deferred tax . . . . . . . . . . . . . . . . . $ -- $ --
======== ========
</TABLE>
The Company's operating loss carry forwards expire in various amounts from
1997-2009, and the investment tax credit carry forwards expire in various
amounts from 1995-2000. The statutory depletion carry forward may be carried
forward indefinitely. Utilization of these carry forwards may be limited
because these tax attributes were generated in separate return limitation
years. In management's judgement, it is unlikely that the majority of the
deferred tax assets in the preceding table can be realized as reductions in
future taxable income or by utilizing available tax planning strategies.
Therefore, an appropriate valuation allowance has been established to recognize
this uncertainty. The Company will periodically review the likelihood of
realizing these assets and adjust the valuation allowance as needed.
49
<PAGE> 53
The effective tax rate in the accompanying consolidated statements of
operations was more than the computed expected tax expense at the federal
statutory rate of 35% for the years ended December 31, 1994 and 1993 and 34%
for the year ended December 31, 1992. Sources of these differences for each of
the three years ended December 31, 1994 stated in thousands are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------- ------
<S> <C> <C> <C>
Computed statutory tax expense (benefit) . . . . . . . . . . . . $ (578) $ 3,843 $1,233
Increase (decrease) in taxes resulting from:
Foreign taxes paid, net of federal income tax benefits . . . . 4,275 4,107 4,273
Benefit from sale of stock of Canadian subsidiary . . . . . . -- (4,129) --
Income tax benefit not utilized . . . . . . . . . . . . . . . 2,882 2,499 527
Depreciation and depletion applicable to different financial
cost basis of assets due to purchase accounting . . . . . . -- -- 162
Foreign income not taxed or taxed at different rates on
which U.S. federal income taxes are not provided . . . . . -- -- 279
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 175 (2)
------ ------- ------
$6,601 $ 6,495 $6,472
====== ======= ======
</TABLE>
Deferred federal income tax provisions result from timing differences in
the recognition of revenue and expense for tax and financial reporting
purposes. The sources of these differences and the tax effect of each for the
year ended December 31, 1992 stated in thousands were as follows:
<TABLE>
<CAPTION>
1992
------
<S> <C>
Intangible exploration and development costs deducted for tax
purposes which are capitalized and amortized for
financial purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 645
Lease impairments deducted for tax purposes less than amounts
recorded for financial purposes . . . . . . . . . . . . . . . . . . . . . . . . (625)
Depreciation, depletion and amortization deducted for tax purposes
less than amounts recorded for financial purposes . . . . . . . . . . . . . . . (1,820)
Other losses recognized for financial purposes prior to recognition
for tax purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,380
Loss on disposal of assets for tax purposes in excess of
amounts recognized for financial purposes . . . . . . . . . . . . . . . . . . . (550)
Income tax benefit not utilized . . . . . . . . . . . . . . . . . . . . . . . . . . 1,342
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (372)
------
$ --
======
</TABLE>
(7) EMPLOYEES' PENSION AND RETIREMENT BENEFITS
Pension Plan
The Company sponsors a defined benefit pension plan which covers
substantially all employees. The plan provides benefits based on the employee's
years of service and compensation during the years immediately preceding
retirement. The Company makes annual contributions to the plan to comply with
the minimum funding provisions of the Employee Retirement Income Security Act.
The plan investments consist primarily of common equities and fixed income
securities.
50
<PAGE> 54
The following tables detail (I) the components of pension income and
expenses, (ii) the funded status of the plan and amounts recognized in the
Company's consolidated balance sheets and (iii) major assumptions used to
determine these projected benefit obligations (amounts stated in thousands).
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Components of pension income (expense):
Service cost . . . . . . . . . . . . . . . . . . . $ (492) $ (524) $ (338)
Interest cost . . . . . . . . . . . . . . . . . . (348) (311) (309)
Actual return (loss) on plan assets . . . . . . . (306) 430 413
Net amortization and deferral . . . . . . . . . . 577 (168) (168)
------- ------- -------
Net pension cost . . . . . . . . . . . . $ (569) $ (573) $ (402)
======= ======= =======
Actuarial present value of benefit obligations:
Accumulated benefit obligations
Vested . . . . . . . . . . . . . . . . . . . $ 3,952 $3,877 $3,329
Nonvested . . . . . . . . . . . . . . . . . . 361 430 188
------- ------- -------
Total . . . . . . . . . . . . . . . $ 4,313 $4,307 $3,517
======= ======= =======
Projected benefit obligations for service rendered
to date . . . . . . . . . . . . . . . . . . . . . $ 5,229 $5,129 $4,258
Plan assets at fair value . . . . . . . . . . . . . . 3,733 3,952 3,497
------- ------- -------
Projected benefit obligations in excess of plan
assets . . . . . . . . . . . . . . . . . . . . . . 1,496 1,177 761
Unrecognized net transition obligation at January 1,
1986, recognized over 15 years . . . . . . . . . . (66) (76) (88)
Unrecognized prior service cost at January 1, 1989,
recognized over 9 years . . . . . . . . . . . . . (180) (189) (198)
Unrecognized net loss . . . . . . . . . . . . . . . . (670) (377) (106)
------- ------- -------
Accrued pension liability . . . . . . . . . . . . $ 580 $ 535 $ 369
======= ======= =======
Assumptions:
Discount rate . . . . . . . . . . . . . . . . . . 7.5% 7.0% 8.0%
Rate of increase in compensation levels . . . . . 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets . 7.0% 8.0% 8.0%
</TABLE>
Employee Savings Plan
On October 1, 1993, the Company adopted the Employees 401(k) Savings Plan
("ESP"), a defined contribution plan, which covers substantially all employees.
The Company matches a portion of the employees' contributions with treasury
shares of the Company's common stock. The Company recorded expense of
approximately $104,000 and $35,000 relating to its contributions to the ESP
during 1994 and 1993, respectively.
(8) COMMITMENTS AND CONTINGENCIES
Commitments
In the normal course of business, the Company undertakes commitments for
purchases of leases and delay rentals under oil, gas and mineral leases, all of
which are not expected to be material.
The Company leases office space and pipeline equipment under operating
leases that expire over the next several years. Minimum annual rental payments
stated in thousands for each of the next four years are:
<TABLE>
<S> <C>
1995 ................................... $ 344
1996 ................................... 344
1997 ................................... 344
1998 ................................... 29
------
$1,061
======
</TABLE>
51
<PAGE> 55
During 1994, 1993 and 1992, the Company's rent expense was $321,000,
$362,000 and $433,000, respectively.
Contingencies
The Company has pending litigation incidental to its operations.
Management believes none of the litigation is expected to have a material
adverse effect on the Company's financial position or the results of
operations.
(9) MAJOR BUSINESS SEGMENTS AND MAJOR CUSTOMERS
The Company operates in two industry segments, oil and gas exploration,
development and production and the transportation of natural gas and crude oil.
Oil and gas production is marketed with numerous purchasers under long-term,
short-term and spot-market contracts. In 1994, 1993 and 1992, sales to El Paso
Natural Gas Company represented 12.8%, 14.8% and 15% of the Company's
consolidated oil and gas revenues, respectively. Beginning January 1, 1994,
the Company entered into a long-term contract with Midcon Texas Pipeline
("Midcon") for gas sales from the Taylor Lake field. During 1994, 17.7% of the
Company's consolidated oil and gas revenues were attributable to sales to
Midcon.
The pipeline segment's customers are primarily located in the Southwest
and Midwest states. During 1994, the pipeline segment's sales were
concentrated with six customers accounting for 69% of its total sales.
Financial information by segment is stated in thousands and summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas operations (1) ........................ $ 32,763 $ 31,872 $ 31,449
Pipeline operations ............................... 20,664 43,415 25,721
Intersegment eliminations ......................... (2,655) (4,805) (1,846)
-------- -------- --------
Total revenues ................................ $ 50,772 $ 70,482 $ 55,324
======== ======== ========
Income (loss) before income tax expense:
Oil and gas operations (1)......................... $ (2,067) $ 10,449 $ 5,636
Pipeline operations ............................... (299) (642) (333)
Corporate ......................................... 714 1,175 (1,677)
-------- -------- --------
Total income (loss) before income
tax expense ............................... $ (1,652) $ 10,982 $ 3,626
======== ======== ========
Depletion, depreciation and amortization:
Oil and gas operations ............................ $ 6,690 $ 6,331 $ 7,598
Pipeline operations ............................... 1,229 1,184 2,120
Corporate ......................................... 362 249 220
-------- -------- --------
Total depletion, depreciation and
amortization............................... $ 8,281 $ 7,764 $ 9,938
======== ======== ========
Capital expenditures:
Oil and gas operations ............................ $ 44,854 $ 20,114 $ 5,637
Pipeline operations ............................... 477 1,191 1,201
Corporate ......................................... 490 242 186
-------- -------- --------
Total capital expenditures .................... $ 45,821 $ 21,547 $ 7,024
======== ======== ========
Identifiable assets:
Oil and gas operations ............................ $ 92,811 $ 67,524 $ 61,752
Pipeline operations ............................... 18,303 24,146 20,667
Corporate ......................................... 39,799 69,033 48,442
-------- -------- --------
Total identifiable assets ..................... $150,913 $160,703 $130,861
======== ======== ========
</TABLE>
----------------
(1) See Note 1 for discussion of the 1994 change in method of accounting
for natural gas revenues.
52
<PAGE> 56
Financial information by geographic area is stated in thousands and
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenues
United States . . . . . . . . . . . . . $ 39,028 $ 58,667 $ 43,066
Indonesia . . . . . . . . . . . . . . . 11,738 11,349 11,687
Other International (1) . . . . . . . . 6 466 571
-------- -------- --------
Total . . . . . . . . . . . . . . . $ 50,772 $ 70,482 $ 55,324
======== ======== ========
Income (loss) before income tax expense
United States . . . . . . . . . . . . . $(11,843) $ 3,557 $ (5,581)
Indonesia . . . . . . . . . . . . . . . 11,600 11,218 11,556
Russia (2) . . . . . . . . . . . . . . (134) (1,236) (784)
Other International (1) . . . . . . . . (1,275) (2,557) (1,565)
-------- -------- --------
Total . . . . . . . . . . . . . . . $ (1,652) $ 10,982 $ 3,626
======== ======== ========
Identifiable assets
United States . . . . . . . . . . . . . $115,678 $140,933 $115,227
Indonesia . . . . . . . . . . . . . . . 4,535 5,636 5,842
Russia (2) . . . . . . . . . . . . . . 15,641 8,783 6,319
Other International (1) . . . . . . . . 15,059 5,351 3,473
-------- -------- --------
Total . . . . . . . . . . . . . . . $150,913 $160,703 $130,861
======== ======== ========
</TABLE>
----------
(1) Other International includes Turkey, Malaysia, Ivory Coast, Egypt,
Argentina and Canada. During 1993, the Company sold its Argentinean
and Canadian properties.
(2) Amounts presented represent the Company's investment discussed in Note 3.
(10) RELATED PARTY TRANSACTIONS
In 1990, the Company issued 1,100,000 shares of common stock from its
treasury to Noel in exchange for Noel's 10% subordinated convertible debenture
in the principal amount of $6.6 million (the "Noel Debenture"). On December
31, 1990, the Noel Debenture was surrendered to Noel in exchange for 789,946
shares of Noel common stock, such number of shares having been determined by a
formula based upon the net value of Noel's assets. Noel conducts its principal
operations through small and medium sized operating companies in which Noel
holds controlling or other significant equity interests. Two members of Noel's
Board of Directors currently serve on the Company's Board of Directors.
On September 21, 1992, Noel distributed shares of certain companies owned
by Noel to Noel shareholders. The Company received 46,468 shares of Garnet,
53,907 shares of VISX Incorporated ("VISX") and 203,098 shares of the Company's
stock as a result of the distribution. During February 1993, the Company
disposed of its entire investment in VISX for an average net sales proceeds of
$11.76 per share. The distribution by Noel of shares of common stock of the
Company reduced Noel's ownership of the Company from approximately 25% to
approximately 3%.
On November 29, 1993, Noel distributed shares of Sylvan Foods Holdings,
Inc. ("Sylvan") owned by Noel to Noel shareholders. The Company received
54,860 shares of Sylvan as the result of the distribution. During December
1993, the Company disposed of 25,000 shares of Sylvan stock for an average net
sales proceeds of $8.37 per share. During January 1994, the Company disposed
of its remaining investment in Sylvan for an average net sales proceeds of
$7.89 per share.
On December 22, 1993, the Company sold 710,000 shares of Noel common stock
for an average net sales proceeds of $6.625 per share. On January 10, 1994,
the Company sold its remaining 79,946 shares of Noel common stock for an
average net sales proceeds of $7.00 per share.
See Note 5 for discussion of additional related party transactions.
53
<PAGE> 57
GLOBAL NATURAL RESOURCES INC.
SUPPLEMENTARY TABLES ON RESERVE DATA AND OIL AND GAS OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Results of Operations for Producing Activities and Costs Incurred in Oil and
Gas Property Acquisition, Exploration and Development Activities for the
three years ended December 31, 1994 and Capitalized Costs Relating to Oil
and Gas Producing Activities at December 31, 1994, 1993 and 1992
Table 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Reserve Quantity Information for the three years ended December 31, 1994
Table 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Standardized Measure of Discounted Future Net Cash Flows Related to Proved
Oil and Gas Reserves for the three years ended December 31, 1994
Table 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Notes to Supplementary Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
54
<PAGE> 58
TABLE 1
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES AND COSTS INCURRED IN OIL
AND GAS PROPERTY ACQUISITION EXPLORATION AND DEVELOPMENT ACTIVITIES FOR THE
THREE YEARS ENDED DECEMBER 31, 1994 AND CAPITALIZED COSTS RELATING TO
OIL AND GAS PRODUCING ACTIVITIES AT DECEMBER 31, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS) (UNAUDITED)
The following table reflects activity relating to oil and gas producing
activities by geographic area:
<TABLE>
<CAPTION>
Other
United States Indonesia International(1) Total
------------- --------- ----------------- ------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Net Revenues from production:
Sales of oil and gas to non-affiliates . $20,119 $11,738 $ 2 $31,859
Production (lifting costs) . . . . . . . . 3,368 -- -- 3,368
Depletion, depreciation and amortization . 6,559 131 -- 6,690
Exploration expense . . . . . . . . . . . . 17,710 -- 1,119 18,829
Income tax expense . . . . . . . . . . . . 24 6,577 -- 6,601
------- ------- ------- -------
Results of activities . . . . . . . . . . . $(7,542) $ 5,030 $(1,117) $(3,629)
======= ======= ======= =======
Company's share of Tatex (Russia)
results of producing activities . . . . $ 3,724
=======
YEAR ENDED DECEMBER 31, 1993
Net Revenues from production:
Sales of oil and gas to non-affiliates . $19,272 $11,349 $ 470 $31,091
Production (lifting costs) . . . . . . . . 3,730 -- 443 4,173
Depletion, depreciation and amortization . 5,888 131 312 6,331
Exploration expense . . . . . . . . . . . . 5,580 -- 1,242 6,822
Income tax expense . . . . . . . . . . . . 177 6,320 (2) 6,495
------- ------- ------- -------
Results of activities . . . . . . . . . . . $ 3,897 $ 4,898 $(1,525) $ 7,270
======= ======= ======= =======
Company's share of Tatex (Russia)
results of producing activities . . . . $ 1,311
=======
YEAR ENDED DECEMBER 31, 1992
Net Revenues from production:
Sales of oil and gas to non-affiliates . $18,962 $11,687 $ 571 $31,220
Production (lifting costs) . . . . . . . . 5,115 -- 571 5,686
Depletion, depreciation and amortization . 6,900 131 567 7,598
Exploration expense . . . . . . . . . . . . 6,286 -- 236 6,522
Income tax expense . . . . . . . . . . . . -- 6,474 (2) 6,472
------- ------- ------- -------
Results of activities . . . . . . . . . . . $ 661 $ 5,082 $ (801) $ 4,942
======= ======= ======= =======
Company's share of Tatex (Russia)
results of producing activities . . . . $ 1,086
=======
</TABLE>
------------------------
(1) Other International includes Malaysia, Egypt, Ivory Coast, Turkey,
Argentina and Canada. During 1993, the Company sold its Argentinean and
Canadian properties.
See accompanying Notes to Supplementary Tables
55
<PAGE> 59
TABLE 1 CONTINUED.
The following table reflects activity relating to costs incurred
in oil and gas property acquisition, exploration and development
activities by geographic area:
<TABLE>
<CAPTION>
United Other
States Egypt Ivory Coast International(1) Total
--------- ----- ----------- ---------------- -----
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Property acquisition costs:
Proved . . . . . . . . . . . . . . $ 3,790 $ -- $ -- $ -- $ 3,790
Unproved . . . . . . . . . . . . . 2,440 885 -- -- 3,325
Exploration costs . . . . . . . . . . 25,876 2,022 3,032 602 31,532
Development costs . . . . . . . . . . 8,773 -- 2,624 -- 11,397
------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . . $40,879 $ 2,907 $ 5,656 $ 602 $50,044
======= ======= ======= ======= =======
Company's share of Tatex (Russia)
costs of property acquisition
exploration and development . . . $ 4,309
=======
YEAR ENDED DECEMBER 31, 1993
Property acquisition costs:
Proved $ -- $ -- $ -- $ -- $ --
Unproved . . . . . . . . . . . . 3,334 -- 9 21 3,364
Exploration costs . . . . . . . . . 12,971 -- 4,001 917 17,889
Development costs . . . . . . . . . 1,027 -- 41 (10) 1,058
------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . $17,332 $ -- $ 4,051 $ 928 $22,311
======= ======= ======= ======= =======
Company's share of Tatex (Russia)
costs of property acquisition
exploration and development . . $ 2,146
=======
YEAR ENDED DECEMBER 31, 1992
Property acquisition costs:
Proved . . . . . . . . . . . . . $ 15 $ -- $ -- $ -- $ 15
Unproved . . . . . . . . . . . . 273 -- -- 507 780
Exploration costs . . . . . . . . . 4,546 -- -- 1,500 6,046
Development costs . . . . . . . . . 902 -- -- 383 1,285
------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . $ 5,736 $ -- $ -- $ 2,390 $ 8,126
======= ======= ======= ======= =======
Company's share of Tatex (Russia)
costs of property acquisition
exploration and development . . $ 614
=======
</TABLE>
------------------------
(1) Other International includes Malaysia, Turkey, Argentina and Canada.
During 1993, the Company sold its Argentinean and Canadian properties.
See accompanying Notes to Supplementary Tables
56
<PAGE> 60
TABLE 1 CONTINUED.
The following table reflects the capitalized costs relating to oil and gas
producing activities by geographic area:
<TABLE>
<CAPTION>
United Other
States Indonesia Egypt Ivory Coast International(1) Total
------ --------- ----- ----------- ---------------- -----
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1994
Capitalized cost:
Unproved . . . . . . . . . . . . . . $ 3,350 $ -- $ 885 $ 9 $ 386 $ 4,630
Producing . . . . . . . . . . . . . 89,666 3,962 1,877 8,798 916 105,219
Accumulated depletion and
depreciation . . . . . . . . . . . . (45,727) (2,648) -- -- -- (48,375)
-------- -------- ------- ------- ------- --------
Net Capitalized Costs . . . . . . . . . $ 47,289 $ 1,314 $ 2,762 $ 8,807 $ 1,302 $ 61,474
======== ======== ======= ======= ======= ========
AT DECEMBER 31, 1993
Capitalized cost:
Unproved . . . . . . . . . . . . . . $ 6,064 $ -- $ -- $ 9 $ 389 $ 6,462
Producing . . . . . . . . . . . . . 76,828 3,962 -- 3,784 -- 84,574
Accumulated depletion and
depreciation . . . . . . . . . . . . (44,832) (2,516) -- -- -- (47,348)
-------- -------- ------- ------- ------- --------
Net Capitalized Costs . . . . . . . . . $ 38,060 $ 1,446 $ -- $ 3,793 $ 389 $ 43,688
======== ======== ======= ======= ======= ========
AT DECEMBER 31, 1992
Capitalized cost:
Unproved . . . . . . . . . . . . . . $ 5,659 $ -- $ -- $ -- $ 1,317 $ 6,976
Producing . . . . . . . . . . . . . 79,559 3,962 -- -- 2,864 86,385
Accumulated depletion and
depreciation . . . . . . . . . . . . (52,589) (2,385) -- -- (1,047) (56,021)
-------- -------- ------- ------- ------- --------
Net Capitalized Costs . . . . . . . . . $ 32,629 $ 1,577 $ -- $ -- $ 3,134 $ 37,340
======== ======== ======= ======= ======= ========
</TABLE>
------------------------
(1) Other International includes Malaysia, Turkey, Argentina and Canada.
During 1993, the Company sold its Argentinean and Canadian properties.
See accompanying Notes to Supplementary Tables
57
<PAGE> 61
TABLE 2
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
RESERVE QUANTITY INFORMATION
NATURAL GAS (MMCF)
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
United Other
States Indonesia(1) Ivory Coast International(2) Total
------ ------------ ----------- ---------------- -----
<S> <C> <C> <C> <C> <C>
PROVED RESERVES:
JANUARY 1, 1992 . . . . . . . . . . . . . 54,435 74,971 -- 223 129,629
Revisions of previous estimates . . . (6,068) 4,777 -- 56 (1,235)
Extensions, discoveries and
other additions . . . . . . . . . 287 -- -- -- 287
Sales of reserves-in-place . . . . . (175) -- -- -- (175)
Production . . . . . . . . . . . . . (6,385) (3,667) -- (40) (10,092)
------ ------ ------ ------ -------
DECEMBER 31, 1992 . . . . . . . . . . . . 42,094 76,081 -- 239 118,414
Revisions of previous estimates . . . 6,651 7,394 -- -- 14,045
Extensions, discoveries and
other additions . . . . . . . . . 22,920 -- -- -- 22,920
Sales of reserves-in-place . . . . . (665) -- -- (170) (835)
Production . . . . . . . . . . . . . (7,019) (3,769) -- (69) (10,857)
------ ------ ------ ------ -------
DECEMBER 31, 1993 . . . . . . . . . . . . 63,981 79,706 -- -- 143,687
Revisions of previous estimates . . . 1,270 4,757 -- -- 6,027
Extensions, discoveries and
other additions . . . . . . . . . 9,875 -- 18,432 -- 28,307
Purchases of reserves in place . . . 2,079 -- -- -- 2,079
Sales of reserves-in-place . . . . . (8,803) -- -- -- (8,803)
Production . . . . . . . . . . . . . (8,904) (4,473) -- -- (13,377)
------ ------ ------ ------ -------
DECEMBER 31, 1994 . . . . . . . . . . . . 59,498 79,990 18,432 -- 157,920
====== ====== ====== ====== =======
PROVED DEVELOPED RESERVES:
December 31, 1992 . . . . . . . . . . 31,077 54,362 -- 239 85,678
December 31, 1993 . . . . . . . . . . 42,204 53,931 -- -- 96,135
December 31, 1994 . . . . . . . . . . 48,946 65,021 -- -- 113,967
</TABLE>
------------------------
(1) All Indonesia Mmcf amounts appearing in this table are for dry gas.
(2) Other International includes Argentina and Canada. During 1993, the
Company sold its Argentinean and Canadian reserves.
See accompanying Notes to Supplementary Tables
58
<PAGE> 62
TABLE 2 CONTINUED.
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
RESERVE QUANTITY INFORMATION
OIL/CONDENSATE (MBBL)
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
United Other
States Indonesia Egypt Ivory Coast International(1) Total
------ --------- ----- ----------- ---------------- -----
<S> <C> <C> <C> <C> <C> <C>
PROVED:
January 1, 1992 . . . . . . . . . . 1,402 827 -- -- 160 2,389
Revisions of previous estimates (140) 57 -- -- 17 (66)
Extensions, discoveries and
other additions . . . . . . 90 -- -- -- -- 90
Sales of reserves-in-place . . (87) -- -- -- -- (87)
Production . . . . . . . . . . (326) (47) -- -- (29) (402)
----- ----- ----- ----- ----- -------
December 31, 1992 . . . . . . . . . 939 837 -- -- 148 1,924
Revisions of previous estimates 161 222 -- -- -- 383
Extensions, discoveries and
other additions . . . . . . 666 -- -- -- -- 666
Sales of reserves-in-place . . (48) -- -- -- (125) (173)
Production . . . . . . . . . . (259) (54) -- -- (23) (336)
----- ----- ----- ----- ----- -------
December 31, 1993 . . . . . . . . . 1,459 1,005 -- -- -- 2,464
Revisions of previous estimates 232 108 -- -- -- 340
Extensions, discoveries and
other additions . . . . . . 792 -- 3,520 2,210 -- 6,522
Purchase of reserves-in-place . 15 -- -- -- -- 15
Sales of reserves-in-place . . (96) -- -- -- -- (96)
Production . . . . . . . . . . (229) (47) -- -- -- (276)
----- ----- ----- ----- ----- -------
December 31, 1994 . . . . . . . . . 2,173 1,066 3,520 2,210 -- 8,969
===== ===== ===== ===== ===== =======
PROVED DEVELOPED RESERVES:
December 31, 1992 . . . . . . . 800 566 -- -- 92 1,458
December 31, 1993 . . . . . . . 859 762 -- -- -- 1,621
December 31, 1994 . . . . . . . 1,085 870 -- -- -- 1,955
Company's proportional interest
in Tatex (Russia) Reserves:
December 31, 1992 . . . . . . . -- -- -- -- -- 3,906
December 31, 1993 . . . . . . . -- -- -- -- -- 5,838
December 31, 1994 . . . . . . . -- -- -- -- -- 11,841
</TABLE>
------------------------
(1) Other International includes Argentina and Canada. During 1993, the
Company sold its Argentinean and Canadian reserves.
See accompanying Notes to Supplementary Tables
59
<PAGE> 63
TABLE 3
GLOBAL NATURAL RESOURCES INC. AND SUBSIDIARIES
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATED TO PROVED OIL AND GAS RESERVES FOR THE
THREE YEARS ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
United Other
States Indonesia Egypt Ivory Coast International(1) Total
-------- --------- ------- ----------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994
Future cash flows . . . . . . . . . $124,471 $175,855 $55,378 $66,448 $ -- $422,152
Future production and
development costs . . . . . . . 39,075 44,017 29,128 37,595 -- 149,815
Future income taxes . . . . . . . . 2,076 64,823 9,497 8,974 -- 85,370
-------- -------- ------- ------- ------- --------
Future net cash flows . . . . . . . 83,320 67,015 16,753 19,879 -- 186,967
10% annual discount for estimated
timing of cash flows . . . . . . 23,330 32,792 8,601 10,438 -- 75,161
-------- -------- ------- ------- ------- --------
Standardized measure of discounted
future net cash flows relating to
oil and gas reserves . . . . . . $ 59,990 $ 34,223 $ 8,152 $ 9,441 $ -- $111,806
======== ======== ======= ======= ======== ========
Company's share of Tatex (Russia)
discounted cash flows . . . . . . $ 27,728
========
DECEMBER 31, 1993
Future cash flows . . . . . . . . . $160,935 $154,573 $ -- $ -- $ -- $315,508
Future production and
development costs . . . . . . . 52,516 43,673 -- -- -- 96,189
Future income taxes . . . . . . . . 7,705 54,915 -- -- -- 62,620
-------- -------- ------- ------- ------- --------
Future net cash flows. . . . . . . . 100,714 55,985 -- -- -- 156,699
10% annual discount for estimated
timing of cash flows . . . . . . 32,487 27,835 -- -- -- 60,322
-------- -------- ------- ------- ------- --------
Standardized measure of discounted
future net cash flows relating to
oil and gas reserves . . . . . . $ 68,227 $ 28,150 $ -- $ -- $ -- $ 96,377
======== ======== ======= ======= ======== ========
Company's share of Tatex (Russia)
discounted cash flows . . . . . $ 10,260
========
DECEMBER 31, 1992
Future cash flows . . . . . . . . . $ 97,162 $194,771 $ -- $ -- $ 2,809 $294,742
Future production and
development costs . . . . . . . . 28,678 42,479 -- -- 814 71,971
Future income taxes . . . . . . . . -- 76,913 -- -- -- 76,913
-------- -------- ------- ------- ------- --------
Future net cash flows . . . . . . . 68,484 75,379 -- -- 1,995 145,858
10% annual discount for estimated
timing of cash flows . . . . . . 26,509 36,772 -- -- 842 64,123
-------- -------- ------- ------- ------- --------
Standardized measure of discounted
future net cash flows relating to
oil and gas reserves . . . . . . $ 41,975 $ 38,607 $ -- $ -- $ 1,153 $ 81,735
======== ======== ======= ======= ======== ========
Company's share of Tatex (Russia)
discounted cash flows . . . . . $ 9,776
========
</TABLE>
------------------------
(1) Other International includes Argentina and Canada. During 1993, the
Company sold its Argentinean and Canadian reserves.
See accompanying Notes to Supplementary Tables
60
<PAGE> 64
TABLE 3 CONTINUED.
The following table shows changes in the Standardized Measure of
Discounted Future Net Cash Flows for the three years ended December 31, 1994:
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Beginning of year . . . . . . . . . . . . . . . . . $ 97,075 $ 81,735 $ 96,377
Changes resulting from:
Sales and transfers of oil and gas produced, net
of production costs . . . . . . . . . . . . . (25,534) (26,918) (28,491)
Net changes in prices and production costs . . . . (5,810) (23,855) (5,964)
Extensions, discoveries, additions and improved
recovery, less related costs . . . . . . . . . 802 27,493 38,813
Change in development cost during the period . . . 3,949 2,629 1,176
Revisions of previous quantity estimates . . . . . (854) 16,014 7,490
Purchase and sales of minerals-in-place, net . . . (685) (1,763) (9,115)
Accretion of discount . . . . . . . . . . . . . . . 13,192 11,206 12,624
Net changes in income taxes . . . . . . . . . . . . 4,506 7,804 (12,355)
Changes in production, timing and other . . . . . . (4,906) 2,032 11,251
-------- -------- --------
End of year . . . . . . . . . . . . . . . . . . . . $ 81,735 $ 96,377 $111,806
======== ======== ========
</TABLE>
Notes to Supplementary Tables
The estimates of proved reserves are inherently imprecise and are
continually subject to revision based on production history, results of
additional exploration and development and other factors.
At December 31, 1994, 1993 and 1992, the Company's gross oil and gas
reserve estimates for properties located in the United States, Russia and
Argentina were prepared by Ryder Scott Company Petroleum Engineers. At
December 31, 1994, Ivory Coast and Egypt gross oil and gas reserves estimates
were prepared by Netherland, Sewell & Associates, Inc. At December 31, 1992,
Canadian gross oil and gas reserve estimates were reviewed by Coles Gilbert
Associates, Ltd. Indonesian reserves are based on information obtained by the
Company from public sources.
Income tax expense (benefit) in Table 1 for United States and Canada is
alternative minimum tax. There are no other income taxes for this geographic
area because of net operating loss carry forwards (see Note 6 to consolidated
financial statements). The income tax expense in Table 1 for Indonesia
reflects actual taxes paid in Indonesia.
61
<PAGE> 65
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company will file with the Securities and Exchange Commission pursuant
to Regulation 14A a definitive Proxy Statement involving the election of
directors not later than 120 days after December 31, 1994. The information
required by this item with respect to officers and directors will appear in
such definitive Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The Company will file with the Securities and Exchange Commission pursuant
to Regulation 14A a definitive Proxy Statement involving the election of
directors not later than 120 days after December 31, 1994. The information
required by this item with respect to executive compensation will appear in
such definitive Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company will file with the Securities and Exchange Commission pursuant
to Regulation 14A a definitive Proxy Statement involving the election of
directors not later than 120 days after December 31, 1994. The information
required by this item with respect to security ownership will appear in such
definitive Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company will file with the Securities and Exchange Commission pursuant
to Regulation 14A a definitive Proxy Statement involving the election of
directors not later than 120 days after December 31, 1994. The information
required by this item with respect to certain relationships and related
transactions will appear in such definitive Proxy Statement and is incorporated
herein by reference.
62
<PAGE> 66
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements listed below are included as Part II, Item 8
hereof:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Balance Sheets at December 31, 1994 and 1993 . . . . . . . . . . . . . . 36
Consolidated Statements of Operations for the three years ended December 31,
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Consolidated Statements of Shareholders' Equity for the three years ended December
31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Consolidated Statements of Cash Flows for the three years ended December
31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 41
Supplementary Tables on Reserve Data and Oil and Gas Operations . . . . . . . . . . . . . 54
</TABLE>
(a)(2) Financial Statement Schedules
None
(a)(3) A list of Exhibits has been omitted from this document. A copy of such
list is available without charge upon written request to:
Global Natural Resources Inc.
P. O. Box 4682
Houston, Texas 77210
Attention: Eric Lynn Hill
Senior Vice President,
Finance and Administration
(b) Reports on Form 8-K for the quarter ended December 31, 1994.
None
63
<PAGE> 67
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
GLOBAL NATURAL RESOURCES INC.
Date: March 29, 1995 By /s/ ROBERT F. VAGT
-------------------------
Robert F. Vagt
Chairman of the Board
President and Chief
Executive Officer
Date: March 29, 1995 By /s/ ERIC LYNN HILL
-------------------------
Eric Lynn Hill
Senior Vice President,
Finance and Administration
(Principal Financial
and Accounting 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 INDICATED AS OF MARCH 31, 1994.
/s/ WILLIAM L. BENNETT *
------------------------------------------ Director
William L. Bennett
/s/ JOHN A. BROCK *
------------------------------------------ Director
John A. Brock
/s/ PAUL E. CARLTON *
------------------------------------------ Director
Paul E. Carlton
/s/ J. CHARLES HOLLIMON *
------------------------------------------ Director
J. Charles Hollimon
/s/ PATRICK L. MACDOUGALL *
------------------------------------------ Director
Patrick L. MacDougall
/s/ JOHN E. MCFARLANE *
------------------------------------------ Director
John E. McFarlane
/s/ JAMES G. NIVEN *
------------------------------------------ Director
James G. Niven
/s/ SIDNEY R. PETERSEN *
------------------------------------------ Director
Sidney R. Petersen
/s/ ROBERT F. VAGT
------------------------------------------ Chairman of the Board
Robert F. Vagt
* Signed via Power of Attorney
64
<PAGE> 68
EXHIBIT INDEX
(a)3. Exhibits:
The following documents are included as Exhibits to this report. Those
Exhibits listed below as "incorporated herein by reference" are indicated as
such by the information supplied in the parenthetical thereafter. If no
parenthetical appears after an Exhibit in the list, copies of the document have
been filed with this Report.
3.1 Restated Certificate of Incorporation of the Company dated May
10, 1983. (Incorporated herein by reference to Exhibit 3.1 to
the Company's Form 10-K for the year ended December 31,
1992.)
3.2 Amendment to Restated Certificate of Incorporation of the
Company dated July 31, 1987. (Incorporated herein by reference
to Exhibit 3.2 to the Company's Form 10-K for the year
ended December 31, 1992.)
3.3 Amendment to Restated Certificate of Incorporation of the
Company dated August 20, 1987. (Incorporated herein by
reference to Exhibit 3.3 to the Company's Form 10-K for the
year ended December 31, 1992.)
3.4 Correction to Amendment to Restated Certificate of
Incorporation of the Company dated September 9, 1988.
(Incorporated herein by reference to Exhibit 3.4 to the
Company's Form 10-K for the year ended December 31, 1992.)
3.5 Amendment to Restated Certificate of Incorporation of the
Company dated October 5, 1988. (Incorporated herein by
reference to Exhibit 3.5 to the Company's Form 10-K for the
year ended December 31, 1992.)
3.6 Amendment to Restated Certificate of Incorporation of the
Company dated October 17, 1990. (Incorporated herein by
reference to Exhibit 3.6 to the Company's Form 10-K for the
year ended December 31, 1992.)
3.7 Bylaws of the Company, as amended June 7, 1990. (Incorporated
herein by reference to Exhibit 3.7 to the Company's Form 10-K
for the year ended December 31, 1992.)
3.8 Amendment to Restated Certificate of Incorporation of the
Company dated May 26, 1993. (Incorporated herein by reference
to Exhibit 3.8 to the Company's Form 10-K for the year
ended December 31, 1993.)
3.9 Bylaws of the Company, as amended May 25, 1993. (Incorporated
herein by reference to Exhibit 3.9 to the Company's Form 10-K
for the year ended December 31, 1993.)
4.1 Rights Agreement dated as of October 5, 1988 between Global
Natural Resources Inc. and Registrar and Transfer Company,
which includes the form of Certificate of Amendment of
Restated Certificate of Incorporation setting forth the terms
of the Series B Junior Preferred Stock, par value $1.00 per
share, as Exhibit A, the form of Right Certificate as Exhibit
B and the Summary of Rights to Purchase Preferred Shares as
Exhibit C incorporated by reference to Exhibit A to the
Company's Registration Statement on Form 8-A, dated October
11, 1988. (Incorporated herein by reference to Exhibit A to
the Form 10-Q for the quarter ended September 30, 1988.)
4.2 First Amendment to Rights Agreement dated as of July 19, 1989
between Global Natural Resources Inc. and Registrar and
Transfer Company (Incorporated herein by reference to Exhibit
1.1 to Form 8 dated August 9, 1989.)
4.3 Second Amendment to Rights Agreement dated as of February 5,
1993 between Global Natural Resources Inc. and Registrar and
Transfer Company (Incorporated herein by reference to Exhibit
7.2 to Form 8 dated February 16, 1993)
4.4 Amended and Restated Rights Agreement dated as of September
28, 1993 between Global Natural Resources Inc. and Registrar
and Transfer Company (Incorporated herein by reference to
Exhibit 1.1
65
<PAGE> 69
to Form 8-K dated October 20, 1993)
10.1 Joint Venture Agreement dated August 8, 1968, between
Huffington, Virginia International Company, Austral Petroleum
Gas Corporation, Golden Eagle Indonesia, Limited and Union
Texas Far East Corporation, as amended. (Incorporated herein
by reference to Exhibit 6.6 to Registration Statement No.
2-58834.)
10.2 Agreement dated as of October 1, 1979 among the parties to the
Joint Venture Agreement referred to in Exhibit 10.1 above.
(Incorporated herein by reference to Exhibit 5.2 to
Registration Statement No. 2-66661.)
10.3 Production Sharing Contract, dated August 8, 1968, between
Pertamina, Huffington, and Virginia International Company, as
amended. (Incorporated herein by reference to Exhibit 6.5 to
Registration Statement No. 2-58834.)
10.4 Amendment dated as of January 1, 1978, to Production Sharing
Contract referred to in Exhibit 10.3 above. (Incorporated
herein by reference to Exhibit 5.4 to Registration
Statement No. 2-66661.)
10.5 LNG Sales Contract, dated November 3, 1973, between
Pertamina, The Chubu Electric Power Co., Inc., The Kansan
Electric Power Co., Inc., Kyushu Electric Power Co., Inc.,
Nippon Steel Corporation and Osaka Gas Company, Ltd., as
amended. (Incorporated herein by reference to Exhibit 6.8 to
Registration Statement No. 2-58834.)
10.6 Form of Agreement for Sale of Additional Cargoes, draft of
November 19, 1979, between the parties to the LNG Sales
Contract referred to in Exhibit 10.5 above. (Incorporated
herein by reference to Exhibit 5.6 to Registration Statement
No. 2-66661.)
10.7 Supply Agreement, dated as of December 3, 1974, between
Pertamina and the parties to the Joint Venture Agreement
referred to in Exhibit 10.1 above. (Incorporated herein by
reference to Exhibit 6.7 to Registration Statement
No. 2-58834.)
10.8 Amendment, dated as of August 15, 1977, to Supply Agreement,
dated as of December 3, 1974, between Pertamina and the
parties to the Joint Venture Agreement referred to in Exhibit
10.1 above. (Incorporated herein by reference to Exhibit
5.5.1 to Registration Statement No. 2-64347.)
10.9 Form of Supply Agreement for Additional Sales of Liquefied
Natural Gas from Badak Liquefaction Facility, draft of
November 16, 1979, between the parties to the Supply
Agreement referred to in Exhibit 10.7 above. (Incorporated
herein by reference to Exhibit 5.9 to Registration Statement
No. 2-66661.)
10.10 Transportation Agreement dated as of September 23, 1973,
between Burmast East Shipping Corporation and Pertamina, as
ended. (Incorporated herein by reference to Exhibit 6.11 to
Registration Statement No. 2-58834.)
10.11 Amendment No. 1 to Transportation Agreement referred to in
Exhibit 10.10 above, dated as of August 31, 1976, between
Burmah Gas Transport Limited and Pertamina. (Incorporated
herein by reference to Exhibit 5.11 to the Annual Report on
Form 20-F for the year ending December 31, 1979 (the "1979
20-F"), of the U.K. Company.)
10.12 Badak LNG Sales Contract, dated April 14, 1981, between
Perusahaan Pertambangan Minyak Dan Gas Bumi Negara
("Pertamina") as "Seller" and the Chubu Electric Power Co.,
Inc., The Kansan Electric Power Co., Inc., Osaka Gas Company,
Ltd., and Toho Gas Company, Ltd. as "Buyers." (Incorporated
herein by reference to Exhibit (10)-23 to the Annual Report on
Form 20-F for the year ending December 31, 1981, of
Virginia International Company.)
10.13 Royalty Incentive Plan, as amended. (Incorporated herein by
reference to Exhibit 1.4 to the Annual Report on Form 20-F for
the year ending December 31, 1981 (the "1981 20-F"),
of the U.K.
66
<PAGE> 70
Company.)
10.14 Natural Resources Corporation Supplemental Retirement Plan, as
amended by the Board of Directors effective December 12, 1985.
(Incorporated herein by reference to Exhibit 10.17 to the
1985 10-K.)
10.15 Arctic Lands Farm Out Agreement made as of the 29th day of
November, 1983, between Global Natural Resources Canada Limited
and Thomson-Jensen Energy. (Incorporated herein by reference
to Exhibit 2 to Global's report on Form 8-K dated
December 8, 1983.)
10.16 Global-TJE Agency Agreement made as of the 29th day of
November, 1983, between Global Natural Resources Canada
Limited and Thomson-Jensen Energy. (Incorporated herein by
reference to Exhibit 3 to Global's Report on Form 8-K
dated December 8, 1983.)
10.17 Settlement Agreement dated July 13, 1986 between Amoco
Production Company, Douglas Energy Company, Inc. and Global
Natural Resources Corporation. (Incorporated by
reference to Exhibit 10.25 to the 1986 10-K.)
10.18 Farm Out Contract dated July 1, 1986 between Amoco Production
Company, Douglas Energy Company, Inc. and Global Natural
Resources Corporation. (Incorporated herein by reference to
Exhibit 10.26 to the 1986 10-K.)
10.19 Joint Exploration and Development Agreement dated November 5,
1986 between Barnes Hugoton Corporation and Global Natural
Resources Corporation. (Incorporated herein by reference to
Exhibit 10.27 to the 1986 10-K.)
10.20 Global/Smith Participation Agreement (with exhibit).
(Incorporated herein by reference to Exhibit 2 to the
September 30, 1987 Form 10-Q.)
10.21 First Amendment to Claims Purchase Agreement. (Incorporated
herein by reference to Exhibit 3 to the September 30, 1987
Form 10-Q.)
10.22 San Pedro Ranch Venture Agreement (with exhibits) dated
July 1, 1984 between Scicomp Inc., Galaxy Oil Company and SPR
Energy Corporation. (Incorporated herein by reference to
Exhibits to the December 31, 1987 Form 10-K.)
10.23 San Pedro Ranch Agreement (with exhibits) dated April 1, 1988
between Global Natural Resources Corporation of Nevada and
Global Nevada-Galaxy I, Ltd. (Incorporated herein by reference
to Exhibits to the December 31, 1987 Form 10-K.)
10.24 Trust Agreement (with exhibits) dated March 31, 1988 between
Galaxy Oil Company, Global Natural Resources Corporation of
Nevada and MTrust Corp., N.A. (Incorporated herein by
reference to Exhibits to the December 31, 1987 Form 10-K.)
10.25 Agreement of Limited Partnership (with exhibits) dated
April 1, 1988 between Global Nevada-Galaxy I, Ltd. and the
Partners. (Incorporated herein by reference to Exhibits to the
December 31, 1987 Form 10-K.)
10.27 Settlement Agreement between Global Natural Resources
Corporation of Nevada, Global Nevada-Galaxy, Inc., Global
Nevada-Galaxy I, Ltd., SPR Energy Corporation and Valero
Transmission, L.P. (Incorporated herein by reference to
Exhibit 3 to the June 30, 1989 Form 10-Q.)
10.28 Indemnification Agreement and Agreement to Keep Registration
Statement Effective dated July 19, 1989 between Noel Group,
Inc. and Global Natural Resources Inc. (Incorporated herein by
reference to Exhibit 4.6 to Registration Statement No.
33-31536.)
*10.29 Global Natural Resources Inc. Key Employees Stock Option
Plan (1989) (Incorporated herein by reference to Exhibit 4.1
to Registration Statement No. 33-31537).
67
<PAGE> 71
*10.30 Form of Stock Option Agreement (Incorporated herein by
reference to Exhibit 4.2 to Registration Statement
No. 33-31537.)
10.31 Amendment to Agreement of Limited Partnership of Global
Nevada-Galaxy I, Ltd. (Incorporated herein by reference to
Exhibit 10.41 to the 1989 Form 10-K.)
10.32 Concession Purchase Agreement between Global Natural Resources
Corporation of Nevada and Chuska Energy Company. (Incorporated
herein by reference to Exhibit 10.43 to the 1989 Form 10-K.)
10.33 Stock Exchange Agreement by and between Noel Group, Inc. and
Global Natural Resources Inc. (Incorporated herein by
reference to Exhibit 2 to the September 30, 1990 Form 10-Q.)
10.34 USAgas Pipeline Company General Partnership Agreement.
(Incorporated herein by reference to Exhibit 1 to the
September 30, 1990 Form 10-Q.)
10.35 San Pedro Ranch Purchase and Sale Agreement. (Incorporated
herein by reference to Exhibit 10.51 to the Company's Form
10-K for the year ended December 31, 1991.)
10.36 Alabama Ferry Field Purchase and Sale Agreement. (Incorporated
herein by reference to Exhibit 10.52 to the Company's Form
10-K for the year ended December 31, 1991.)
*10.37 Global Natural Resources Inc. 1992 Stock Option Plan
(Incorporated herein by reference to Exhibit 10.47 to the
June 30, 1992 Form 10-Q).
*10.38 Form of Stock Option Agreement (Incorporated herein by
reference to Exhibit 10.48 to the June 30, 1992 Form 10-Q).
10.39 Assignment of Partnership Interests and Mutual Release
Agreement (Incorporated herein by reference to Exhibit 10.50
to the September 30, 1992 Form 10-Q).
10.40 Acquisition Agreement dated May 17, 1993 between UMIC Cote
D'Ivoire Corporation and G.N.R. (Cote D'Ivoire) Ltd. Ivory
Coast Production Sharing Contract - Block CI-11.
10.41 Farmout Agreement dated July 25, 1994 between GNR (Egypt) Ltd.
And Apache Oil Egypt, Inc. Qarun Concession Egypt.
11.1 Computation of Per Share Earnings
18 Letter of KPMG Peat Marwick LLP Regarding a Change in
Accounting method. (Incorporated herein by reference to
Exhibit 18 to the Company's Form 10-Q for the quarter ended
June 30, 1994.)
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Ryder Scott Company Petroleum Engineers
23.3 Consent of Netherland, Sewell & Associates, Inc.
24.1 Powers of Attorney of certain directors of the Company.
27 Financial Data Schedule for the year ended December 31, 1994.
-------------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report.
68
<PAGE> 1
Exhibit 10.40
ACQUISITION AGREEMENT
by and between
UMIC COTE D'IVOIRE CORPORATION
and
G.N.R. (COTE D'IVOIRE) LTD.
May 17, 1993
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 - Obligations of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4 - Additional Agreements of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 5 - Recovery of Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 6 - Conditions Precedent for Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 7 - Prospect Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 8 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 9 - Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 10 - Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 11 - Governing Law, Arbitration and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 12 - Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 13 - Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 14 - Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 15 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
EXHIBIT A - Production Sharing Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B - Joint Operating Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C - Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT D - Assignment and First Amendment to Joint Operating
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
EXHIBIT E - Prospect Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
EXHIBIT F - Assignment and First Amendment to Prospect Acquisition
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
EXHIBIT G - Foreign Corrupt Practices Act Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
</TABLE>
<PAGE> 3
ACQUISITION AGREEMENT
This Acquisition Agreement, made and entered into this 17 day of
May, 1993, between UMIC Cote d'Ivoire Corporation, a corporation organized and
existing under the laws of the State of Delaware, U.S.A. (hereinafter referred
to as "UMIC"), and G.N.R. (Cote d'Ivoire) Ltd., a corporation organized and
existing under the laws of the Cayman Islands (hereinafter referred to as the
"Purchaser").
WITNESSETH:
WHEREAS, UMIC signed the Contract as one of the parties
constituting the Contractor on 27 June 1992; and
WHEREAS, the Effective Date of the Contract is January 4, 1993; and
WHEREAS, UMIC and Petroci signed the Joint Operating Agreement on
27 June 1992; and
WHEREAS, the Purchaser has expressed a desire to become a party to
the Contract and the Joint Operating Agreement by acquiring from UMIC an
interest in and under the Contract and in and under the Joint Operating
Agreement; and
WHEREAS, UMIC has expressed a desire to assign to the Purchaser an
interest in and under the Contract and in and under the Joint Operating
Agreement;
WHEREAS, UMIC, GLOBEX Atlantic and Global Natural Resources
Corporation of Nevada entered into that certain Heads of Agreement on the 30th
day of March, 1993, as amended by that certain First Amendment To Heads Of
Agreement dated the 23rd day of April, 1993, and as amended by that certain
Second Amendment To Heads Of Agreement dated the 4th day of May, 1993, setting
forth certain general terms and conditions concerning the acquisition by Global
Natural Resources Corporation of Nevada of certain interests in and under the
Contract and in and under the Joint Operating Agreement; and
WHEREAS, by that certain assignment dated the 26th day of April,
1993, Global Natural Resources Corporation of Nevada assigned all of its rights
and obligations under the Heads of Agreement to the Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth below, the Parties hereby agree as follows:
<PAGE> 4
ARTICLE 1
Definitions
For the purposes of this Agreement, the following terms shall have
the meanings indicated below:
1.1 "Agreement" means this Acquisition Agreement and the
exhibits attached hereto.
1.2 "Agreement Date" means the date first set forth
above in this Agreement.
1.3 "Agreement Operating Costs" has the meaning ascribed
thereto in Section 5.1(a).
1.4 "Article" means an Article in this Agreement unless the
context provides otherwise.
1.5 "Assignment" means the assignment attached hereto and
marked as Exhibit "C".
1.6 "Assignment and First Amendment" means the Assignment
and First Amendment to Joint Operating Agreement attached hereto and marked as
Exhibit "D".
1.7 "Assignment Date" means the date on which the
Assignment is effective.
1.8 "Bank Guarantee" means the irrevocable bank guarantee
required by Article 4.6 of the Contract.
1.9 "Closing" has the meaning ascribed thereto in Section
9.1.
1.10 "Consultants" means Frank T. Barr and G. Willard Frank.
1.11 "Contract" means that certain Production Sharing
Contract signed in the French language in Abidjan, Cote d'Ivoire on 27 June
1992 by and between The Republic of Cote d'Ivoire on the one hand and UMIC Cote
d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la Cote
d'Ivoire on the other hand covering Block CI-11, a copy of which is attached
hereto and marked as Exhibit "A".
1.12 "Contractor" means Petroci and UMIC and the successors
and permitted assignees of either entity.
1.13 "Cost Oil" has the meaning ascribed thereto in Article
1.19 of the Joint Operating Agreement.
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<PAGE> 5
1.14 "Crude Oil" has the meaning ascribed thereto in Article
1.20 of the Joint Operating Agreement.
1.15 "Delimited Area" has the meaning ascribed thereto in
Article 1.25 of the Contract.
1.16 "Dollar" means the dollars in the currency of the
United States of America.
1.17 "Effective Date" has the meaning ascribed thereto in
Article 1.6 of the Contract, which is January 4, 1993.
1.18 "Field" has the meaning ascribed thereto in Article
1.30 of the Joint Operating Agreement.
1.19 "Fund Parties" has the meaning ascribed thereto in
Section 5.1.
1.20 "Government" means The Republic of Cote d'Ivoire.
1.21 "Heads of Agreement" means the agreement described in
the penultimate recitation clause of this Agreement.
1.22 "Initial Participating Interest" has the meaning
ascribed thereto in Article 3.1.2 of the Joint Operating Agreement.
1.23 "Joint Operating Agreement" means that certain Joint
Operating Agreement (Block CI-11) dated 27 June 1992 by and between UMIC and
Petroci covering operations in respect of the Contract, a copy of which is
attached hereto and marked as Exhibit "B".
1.24 "Natural Gas" has the meaning ascribed thereto in
Article 1.41 of the Joint Operating Agreement.
1.25 "Non-Consenting Party" has the meaning ascribed
thereto in Article 1.42 of the Joint Operating Agreement.
1.26 "Operating Committee" has the meaning ascribed thereto
in Article 1.47 of the Joint Operating Agreement.
1.27 "Operating Costs" shall include all the costs and
expenses incurred by the Contractor to operate and maintain wells and related
equipment and facilities with respect to a Field from the date of first
production from such Field as well as all costs and expenses incurred by the
Contractor with respect to the operations to produce, process, transport and
store Petroleum including but not limited to the operation of pipelines,
barges, tankers, storage tankers or tanks and shore facilities; Provided, in
the event the Contractor enters into a production testing program, all the costs
and expenses of such testing program, which would be Operating Costs but for
the fact that the date of first production has not occurred, shall be deemed to
be Operating Costs.
-3-
<PAGE> 6
1.28 "Operating Costs Recovery Account" has the meaning
ascribed thereto in Section 5.1(a).
1.29 "Operator" has the meaning ascribed thereto in Article
1.46 of the Joint Operating Agreement.
1.30 "Parties" means UMIC and the Purchaser and "Party"
means either of them.
1.31 "Payment Notice" has the meaning ascribed thereto in
Section 3.5.
1.32 "Petroci" means Societe Nationale d'Operations
Petrolieres de la Cote d'Ivoire.
1.33 "Petroleum" means Crude Oil and Natural Gas.
1.34 "Petroleum Costs" has the meaning ascribed thereto in
Article 1.9 of the Contract.
1.35 "Petroleum Operations" has the meaning ascribed thereto
in Article 1.54 of the Joint Operating Agreement.
1.36 "Phase I" has the meaning ascribed thereto in Article
1.55 of the Joint Operating Agreement.
1.37 "Phase II" has the meaning ascribed thereto in Article
1.56 of the Joint Operating Agreement.
1.38 "Profit Oil" has the meaning ascribed thereto in
Article 1.59 of the Joint Operating Agreement.
1.39 "Prospect Acquisition Agreement" means that certain
Prospect Acquisition Agreement dated December 20, 1991, by and among United
Meridian International Corporation, Frank T. Barr and G. Willard Frank covering
Block CI-11, a copy of which is attached hereto and marked as Exhibit E.
1.40 "Prospect Acquisition Payments" has the meaning
ascribed thereto in Section 5.1(b).
1.41 "Prospect Amendment" means the Assignment and First
Amendment to Prospect Acquisition Agreement attached hereto and marked as
Exhibit F.
1.42 "Prospect Cost Recovery Account" has the meaning
ascribed thereto in Section 5.1(b).
1.43 "Remaining Area" means that portion of the Delimited
Area not covered by the Special Area.
-4-
<PAGE> 7
1.44 "Section" means a Section in this Agreement unless the
context provides otherwise.
1.45 "Special Area" has the meaning ascribed thereto in
Article 1.26 of the Contract.
1.46 "Special Area Participating Interest" has the meaning
ascribed thereto in Article 3.1.1 of the Joint Operating Agreement.
1.47 "Special Fund" has the meaning ascribed thereto in
Section 5.1.
ARTICLE 2
Purchase and Sale
2.1 Subject to the provisions of this Agreement, UMIC will
sell, assign and convey at the Closing, and the Purchaser will purchase and
accept at the Closing, such assignment and conveyance to be effective for all
purposes on the date set forth in the Assignment, all of the following:
(a) An undivided ten percent (10%) interest in
and under the Contract insofar and only insofar as it covers the
Special Area; and
(b) An undivided eighteen percent (18%)
interest in and under the Contract insofar and only insofar as it
covers the Remaining Area.
The assignments and conveyances of the interests described in Sections 2.1(a)
and (b) shall be made using the Assignment.
2.2 In connection with the assignments described in
Sections 2.1(a) and (b) and subject to the provisions of this Agreement, UMIC
will sell, assign and convey at the Closing, and Purchaser will purchase and
accept at the Closing, such assignment and conveyance to be effective on the
date set forth in the Assignment and First Amendment, all of the following:
(a) An undivided ten percent (10%) Special Area
Participating Interest in and under the Joint Operating Agreement;
and
(b) An undivided eighteen percent (18%) Initial
Participating Interest in and under the Joint Operating Agreement.
The assignments and conveyances of the interests described in Sections 2.2(a)
and (b) shall be made using the Assignment and First Amendment.
2.3 Not later than ten (10) days after the Agreement Date,
the Purchaser shall submit (i) information to UMIC which is to be provided to
the Government in accordance with Article 34.1 of the Contract and (ii)
information to UMIC which is to be provided to
-5-
<PAGE> 8
Petroci in accordance with Article 12.2 of the Joint Operating Agreement. Not
later than twenty (20) days after the Agreement Date or such later date as may
be agreed upon in writing by the Parties, UMIC shall submit (a) to the
Government a copy of the Assignment, the information provided by the Purchaser
to UMIC pursuant to (i) above and a request that the Government consent to the
assignment by UMIC to the Purchaser of the interests described in Section 2.1,
and (b) to Petroci the information provided by the Purchaser to UMIC pursuant
to (ii) above with a request that Petroci confirm to UMIC in writing that it is
satisfied with the Purchaser's financial capability as set forth in Article
12.2 of the Joint Operation Agreement. The Purchaser shall use its reasonable
efforts promptly to provide to UMIC any additional information that reasonably
may be requested by the Government or by Petroci, and UMIC shall use its
reasonable efforts promptly to deliver such additional information to
the Government or Petroci, as the case may be.
2.4 Each Party shall use its reasonable efforts to obtain
promptly the consent of the Government to the Assignment and the confirmation
of Petroci that the requirements of Article 12.2 of the Joint Operating
Agreement have been satisfied; provided, that the obligation to use reasonable
efforts shall not include an obligation on either Party to agree to work or
expenditure obligations in excess of the obligations set forth in the Contract
or take any action which would violate the laws of any government having
jurisdiction over such Party.
ARTICLE 3
Obligations of the Purchaser
3.1 In consideration of the assignments and conveyances to
be made to the Purchaser in accordance with Sections 2.1 and 2.2, the Purchaser
shall perform the obligations set forth in this Article 3.
3.2 Subject to Section 3.7 or Section 4.15, as the case may
be, the Purchaser shall pay the following in respect of the Special Area until
the Purchaser has made total payments equal to one million six hundred thousand
Dollars ($1,600,000.00):
(a) All the costs, expenses and liabilities that
have been paid under the Joint Operating Agreement by UMIC on and
after January 4, 1993, until but not including the Agreement Date
in respect of a ten percent (10%) Special Area Participating
Interest held by UMIC and the additional ten percent (10%) Special
Area Participating Interest to be assigned and conveyed by UMIC to
the Purchaser in accordance with Sections 2.1(a) and 2.2(a); and
(b) All the costs, expenses and liabilities due
and payable under the Joint Operating Agreement by UMIC on and
after the Agreement Date in respect of (i) a ten percent (10%)
Special Area Participating Interest held by UMIC and (ii) the
additional ten percent (10%) Special Area Participating Interest to
be assigned and conveyed by UMIC to the Purchaser in accordance
with Sections 2.1(a) and 2.2(a).
-6-
<PAGE> 9
After the Purchaser has made total payments under this Section 3.2 equal to one
million six hundred thousand Dollars ($1,600,000.00), the Purchaser thereafter
will pay in accordance with the Joint Operating Agreement and the Contract all
of the costs, expenses and liabilities attributable to its ten percent (10%)
Special Area Participating Interest and its related ten percent (10%) interest
in and under the Contract assigned and conveyed by UMIC to the Purchaser
pursuant to this Agreement.
3.3 Subject to Section 3.7 or Section 4.15, as the case may
be, the Purchaser shall pay the following in respect of the Remaining Area
until the Purchaser has made total payments equal to one million eight hundred
thousand Dollars ($1,800,000.00):
(a) All of the costs, expenses and liabilities
that have been paid under the Joint Operating Agreement by UMIC on
and after January 4, 1993, until but not including the Agreement
Date in respect of (i) a nine percent (9%) Initial Participating
Interest held by UMIC, (ii) a one percent (1%) Initial
Participating Interest which represents that portion of the ten
percent (10%) carried interest of Petroci that is attributable to
the nine percent (9%) Initial Participating Interest referred to in
(i) above, (iii) the eighteen percent (18%) Initial Participating
Interest to be assigned and conveyed by UMIC to the Purchaser in
accordance with Sections 2.1(b) and 2.2(b) and (iv) a two percent
(2%) Initial Participating Interest which represents that portion
of the ten percent (10%) carried interest of Petroci that is
attributable to the eighteen percent (18%) Initial Participating
Interest referred to in (iii) above; and
(b) All the costs, expenses and liabilities due
and payable under the Joint Operating Agreement by UMIC on and
after the Agreement Date in respect of (i) a nine percent (9%)
Initial Participating Interest held by UMIC, (ii) a one percent
(1%) Initial Participating Interest which represents that portion
of the ten percent (10%) carried interest of Petroci that is
attributable to the nine percent (9%) Initial Participating
Interest referred to in (i) above, (iii) the eighteen percent (18%)
Initial Participating Interest to be assigned and conveyed by UMIC
to the Purchaser in accordance with Sections 2.1(b) and 2.2(b) and
(iv) a two percent (2%) Initial Participating Interest which
represents that portion of the ten percent (10%) carried interest
of Petroci that is attributable to the eighteen percent (18%)
Initial Participating Interest referred to in (iii) above.
After the Purchaser has made total payments under this Section 3.3 equal to one
million eight hundred thousand Dollars ($1,800,000.00), the Purchaser
thereafter will pay in accordance with the Joint Operating Agreement and the
Contract all the costs, expenses and liabilities attributable to the eighteen
percent (18%) Initial Participating Interest and its related eighteen percent
(18%) interest in and under the Contract assigned and conveyed by UMIC to the
Purchaser pursuant to this Agreement and the two percent (2%) Initial
Participating Interest of Petroci to be carried by said eighteen percent (18%)
Initial Participating Interest.
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<PAGE> 10
3.4 As soon as reasonably possible after the Agreement
Date, UMIC shall provide to the Purchaser an invoice for the sum of
money payable by the Purchaser under Section 3.2(a) and an invoice for the sum
of money payable by the Purchaser under Section 3.3(a). UMIC shall provide with
each invoice copies of the supporting documents received by UMIC from the
Operator in respect of the charges covered by such invoice. The Purchaser shall
pay to UMIC the sum of money due under an invoice within ten (10) days after
receiving such invoice. The Purchaser shall have the right for twelve (12)
months after the date of Closing, at its sole cost and expense, to audit the
accounts of the Operator to confirm the costs, expenses and liabilities payable
under Sections 3.2(a) and 3.3(a). The Purchaser shall give UMIC not less than
twenty (20) days, advance notice of an audit, and the audit shall be conducted
at reasonable times during regular business hours. In the event such audit
establishes that the sum of money paid under Section 3.2(a) or 3.3(a) was
incorrect, UMIC and the Purchaser shall meet within ninety (90) days after the
audit is completed and the audit report is delivered to UMIC to determine the
correct amount of money due under the invoice being questioned.
3.5 On and after the Agreement Date and until the date of
Closing, UMIC shall deliver to the Purchaser for payment by the Purchaser each
cash call, invoice, statement and other demand for payment received by UMIC
under the Joint Operating Agreement payable in accordance with Section 3.2(b) or
Section 3.3(b), as the case may be. After the date of Closing, UMIC shall
deliver to the Purchaser for payment by the Purchaser each cash call, invoice,
statement and other demand for payment received by UMIC under the Joint
Operating Agreement payable in accordance with Section 3.2(b)(i) or Sections
3.3(b)(i) and (ii), as the case may be, and the Purchaser shall pay each cash
call, invoice, statement and other demand for payment received by the Purchaser
under the Joint Operating Agreement payable in accordance with Section
3.2(b)(ii) or Sections 3.3(b)(iii) and (iv), as the case may be. Each such cash
call, invoice, statement and other demand referred to in this Section 3.5 is
hereinafter referred to as a "Payment Notice". The Purchaser shall pay such
Payment Notice as hereinafter provided:
(a) Any Payment Notice under the Joint Operating
Agreement that is payable under Section 3.2(b) shall be paid until
such time as the Purchaser has made payments under Section 3.2
equal to one million six hundred thousand Dollars ($1,600,000.00);
and
(b) Any Payment Notice under the Joint Operating
Agreement that is payable under Section 3.3(b) shall be paid until
such time as the Purchaser has made payments under Section 3.3
equal to one million eight hundred thousand Dollars
($1,800,000.00).
Upon the Operator issuing any Payment Notice to UMIC payable by the Purchaser
under this Section 3.5, UMIC shall deliver within three (3) days after the
issuance thereof a copy of such Payment Notice to the Purchaser. The Purchaser
shall make payment to the Operator of the sum set forth in a Payment Notice on
or before the date such Payment Notice is due and payable under the Joint
Operating Agreement. The Purchaser shall advise UMIC by telecopy on the date a
payment is made under this Section 3.5 specifying the sum of money paid and the
date of such payment.
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<PAGE> 11
3.6 If it is necessary to make a currency conversion under
this Agreement, the Parties shall use the currency conversion procedures set
forth in the Joint Operating Agreement.
3.7 It is the intent of the Parties that during Phase I the
Operator will drill and evaluate the Panthere No. 1 well (and if the results
justify mud-line suspend or sea-floor complete said well) and drill and
evaluate the Lion No. 1 well. If such operations are not concluded prior to the
commencement of Phase II, the Purchaser may elect in accordance with the Joint
Operating Agreement and the Contract not to proceed into Phase II. If the
Purchaser so elects, the Purchaser shall not be required to pay any costs,
expenses or liabilities owed under Sections 3.2 and 3.3 that are incurred under
the Joint Operating Agreement after the termination of Phase I, and UMIC shall
be obligated to pay such costs which are incurred under the Joint Operating
Agreement after the termination of Phase I. Upon the election not to proceed
into Phase II, the Purchaser promptly shall withdraw from the Joint Operating
Agreement and the Contract. In the event the Purchaser elects to proceed into
Phase II or in the event none of the parties to the Joint Operating Agreement
elects to proceed into Phase II but parties to the Joint Operating Agreement
including UMIC and the Purchaser agree to apply for an exclusive appraisal
authorization or an exclusive exploitation authorization under the Contract,
the Purchaser shall not withdraw and it shall be obligated to continue paying
the costs, expenses and liabilities under Sections 3.2 and 3.3 until the
Purchaser has expended the sums of money in accordance with Sections 3.2 and
3.3. If the Purchaser is to withdraw from the Joint Operating Agreement and the
Contract under this Section 3.7, it shall assign and convey to UMIC, and UMIC
shall be obligated to accept, all of the right, title and interest acquired
from UMIC pursuant to this Agreement free and clear of any liens, burdens or
encumbrances created by the Purchaser.
3.8 The Contract requires that the Contractor provide a
Bank Guarantee acceptable to the Government guaranteeing the work obligations
of the Contractor for the existing exploration period. In the event the Bank
Guarantee has not been provided by UMIC to the Government prior to the Closing,
at such time as the Government provides the necessary information for the Bank
Guarantee the Purchaser shall provide to the Government in accordance with
Article 4.6 of the Contract an irrevocable bank guarantee for Phase I in the
sum of eight hundred thousand Dollars ($800,000.00). In the event UMIC has
provided the Bank Guarantee to the Government prior to the Closing, UMIC shall
give the Purchaser notice that it has provided the Bank Guarantee and the
Purchaser shall provide at the Closing or within five (5) days after the notice
from UMIC, whichever is the last to occur, to Chase Manhattan Bank an
irrevocable letter of credit naming Chase Manhattan Bank as beneficiary for
Phase I in the sum of eight hundred thousand Dollars ($800,000.00) in a form
and from a bank reasonably acceptable to UMIC. The letter of credit provided to
Chase Manhattan Bank shall be released by Chase Manhattan Bank upon the release
by the Government of the Bank Guarantee provided by UMIC to the Government.
3.9 Article 33.3 of the Contract requires each entity
constituting the Contractor that is a subsidiary company of a parent company to
provide to the Government an undertaking guaranteeing to the Government the
performance of the obligations arising under the Contract. The Purchaser at the
Closing shall cause to be provided to UMIC for
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<PAGE> 12
delivery to the Government a performance guarantee from the parent company of
the Purchaser of the obligations under the Contract. The performance guarantee
shall be in the form of the Performance Guarantee marked as Appendix 3 and
attached to the Contract. The guarantee shall be in the French language and
shall be satisfactory to the Government.
ARTICLE 4
Additional Agreements of the Parties
4.1 UMIC and the Purchaser shall each (i) vote its
Participating Interest under the Joint Operating Agreement in favor of and (ii)
use its reasonable efforts to obtain the agreement of the parties to the Joint
Operating Agreement to the following schedule in respect of work to be
conducted under the Contract:
(a) Drill and evaluate the Panthere No. 1 well
during 1993 and, if the results justify, mud-line suspend or
sea-floor complete said well; and
(b) Promptly after completion of operations on
the Panthere No. 1 well, drill and evaluate the Lion No. 1 well.
At such time as the Lion No. 1 well has been drilled to total depth and
evaluated, the Parties will vote under the Joint Operating Agreement to (i)
determine whether to install a caisson on either well and place either well or
both wells on a long-term production test and (ii) determine whether to
re-enter the B1-8X well. Each Party may cast its vote on each issue in the
manner it so desires, but no Party may elect to be a Non-Consenting Party in
respect to the installation of the caisson or the long-term production test if
the matter being voted upon receives the required sixty percent (60%) vote
under Article 5.9.1 of the Joint Operating Agreement. Notwithstanding anything
to the contrary in this Agreement, the Purchaser understands and agrees that
the Operator may at any time be required by a vote of the parties to the Joint
Operating Agreement to enter into contracts for the purchase of the caisson and
the tangible equipment for the Panthere No. 1 well, the Lion No. 1 well and the
re-entry of the B1-8X well. In the event the Operator makes a cash call or
submits an invoice under the Joint Operating Agreement for any or all of such
items in accordance with the Joint Operating Agreement, the Purchaser shall pay
in accordance with Sections 3.2 and 3.3 the applicable portion of such costs
in accordance with this Agreement.
4.2 In the event the Closing has not occurred on or before
September 1, 1993, this Agreement shall terminate. In the event of such
termination, UMIC shall on or before September 16, 1993, reimburse the
Purchaser in Dollars all the sums of money the Purchaser has paid to UMIC and
the Operator in accordance with the provisions of this Agreement. In the event
UMIC requires information from the Purchaser in respect of any payments made by
the Purchaser that are to be reimbursed by UMIC, the Purchaser shall provide
such information to UMIC within five (5) days after a request for such
information.
4.3 In the event the Purchaser should fail to make any of
the payments to UMIC or the Operator, as the case may be, in accordance with
the provisions of this Agreement or otherwise perform its obligations under
this Agreement, the Purchaser shall be in default
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<PAGE> 13
under this Agreement. In such event UMIC shall give the Purchaser notice of
such default and unless the Purchaser remedies such default within seven (7)
days after receipt of such notice of default from UMIC by the payment of all
sums due and the performance of all obligations that are in default under this
Agreement, all of the Purchaser's rights under this Agreement, the Contract and
the Joint Operating Agreement shall immediately terminate and, as soon as the
consent of the Government is obtained (if required), the Purchaser shall assign
and convey to UMIC all the interests assigned and conveyed by UMIC to the
Purchaser under this Agreement and UMIC shall accept such assignment and
conveyance. Such assignment and conveyance shall be without prejudice to any
other remedies available to UMIC at law, in equity or under this Agreement and
free and clear of any liens, burdens or encumbrances created by the Purchaser.
The Purchaser shall pay all the costs and expenses in respect of such
termination, assignment and conveyance. In the event the notice of default is
given prior to any assignment being made under this Agreement and the Purchaser
has not remedied the default as described in this Section 4.3, the Purchaser's
rights under this Agreement shall immediately terminate without prejudice to
any other remedies available to UMIC at law, in equity or under this Agreement.
4.4 After the assignments provided for in Article 2 are
effective from UMIC to the Purchaser, the Special Area Participating Interests
in the Special Area will be held as follows:
<TABLE>
<CAPTION>
Special Area
Participating
Interests
-------------
<S> <C>
Petroci 40.0%
UMIC 50.0%
Purchaser 10.0%
</TABLE>
After the assignments provided for in Article 2 are effective from UMIC to the
Purchaser, the Initial Participating Interests in the Remaining Area will be
held as follows:
<TABLE>
<CAPTION>
Initial
Participating
Interests
-------------
<S> <C>
Petroci 10.0%
UMIC 72.0%
Purchaser 18.0%
</TABLE>
4.5 The Purchaser shall use its reasonable efforts to
assure that at the Closing it will not be under any legal or contractual
restrictions that would prohibit or delay the timely consummation of the
transactions contemplated by this Agreement. The Purchaser promptly shall
notify UMIC of any default, claim, obligation or suit which would affect the
Purchaser's ability to consummate at the Closing the transactions contemplated
by this Agreement.
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<PAGE> 14
4.6 UMIC shall use its reasonable efforts to assure that at
the Closing it will not be under any legal or contractual restrictions that
would prohibit or delay the timely consummation of the transactions
contemplated by this Agreement. UMIC promptly shall notify the Purchaser of any
default, claim, obligation or suit which would affect UMIC's ability to
consummate at the Closing the transactions contemplated by this Agreement.
4.7 UMIC and the Purchaser shall sign at the Closing the
Foreign Corrupt Practices Act Agreement attached hereto and marked as
Exhibit G.
4.8 In the event the Purchaser is required to make an
assignment and conveyance to UMIC in accordance with Section 3.7, Section 4.3
or Section 4.15, the Purchaser shall execute and deliver any and all documents
necessary to effect such assignment and conveyance and UMIC shall accept such
assignment and conveyance; Provided, the obligation of the Purchaser to assign
and convey to UMIC is subject to the rights, if any, of the other parties under
the Joint Operating Agreement to claim a portion of such interest. Upon the
date of such assignment and conveyance in the case of Section 4.3 and upon the
date of termination of Phase I in the case of Section 3.7 (but excluding an
assignment and conveyance under Section 4.15), the Purchaser shall indemnify,
defend and hold harmless UMIC from and against any and all claims, liabilities,
losses, costs and expenses (including, without limitation, court costs and
reasonable attorneys' fees) that are attributable to the interest or interests
assigned and conveyed and which relate to operations before the applicable date
even though the occurrence may arise after such date, regardless of whether
UMIC was wholly or partially negligent or otherwise at fault; Provided, in
the event of an assignment and conveyance under Section 4.3, the Purchaser's
obligation to pay its share of the costs and expenses required to plug and
abandon any well drilled prior to and any well drilling on the date of such
assignment and conveyance shall terminate five (5) years after the date of such
assignment and conveyance; and Provided further, in the event of an assignment
and conveyance under Section 3.7, UMIC shall assume and be responsible in
respect to the interest assigned and conveyed by the Purchaser to UMIC for the
plugging and abandoning of any well that has not been plugged on or before the
date of termination of Phase I and any well being drilled on the date of
termination of Phase I. Upon the date of such assignment and conveyance in the
case of an assignment under Section 4.3 and upon the date of termination of
Phase I in the case of an assignment and conveyance under Section 3.7, UMIC
shall indemnify, defend and hold harmless the Purchaser from and against any
and all claims, liabilities, losses, costs and expenses (including, without
limitation, court costs and reasonable attorney's fees) that are attributable
to the interest or interests assigned and conveyed and which relate to
operations after the applicable date; Provided, such indemnity shall be subject
to and without prejudice to any claim or cause of action UMIC may have against
the Purchaser under Section 4.3. In the event of an assignment and conveyance
by the Purchaser to UMIC under Section 4.15, UMIC shall indemnify, defend and
hold harmless the Purchaser from and against any and all claims, liabilities,
losses, costs and expenses (including, without limitation, court costs and
reasonable attorney's fees) that are attributable to the interest or interests
assigned and conveyed. Notwithstanding anything to the contrary in this Section
4.8, any and all costs, expenses and Liabilities associated with or arising out
of any environmental study or assessment or any measures taken to mitigate the
effect of Petroleum Operations on the environment that are incurred (i) after
the date of an assignment and conveyance by the Purchaser under Section 4.3 and
which relate to
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<PAGE> 15
Petroleum Operations in which the Purchaser participated shall be borne by the
Purchaser and (ii) after the date of termination of Phase I in the case of an
assignment and conveyance by the Purchaser under Section 3.7 shall be borne by
UMIC.
4.9 (a) Without prejudice to the provisions of the Contract
and the Joint Operating Agreement, so long as UMIC is Operator, and except as
otherwise provided in this Section 4.9, it shall, subject to any written
requirements of the Government, while conducting the Petroleum Operations be
subject to the general guidelines for operations set forth in the (i)
applicable safety and environmental laws and regulations of the Republic of the
Cote d'Ivoire, (ii) Outer Continental Shelf Regulations in force on the
Effective Date as promulgated by the U.S. Department of the Interior, Minerals
Management Service of the United States of America insofar and only insofar
as they apply to the United States Gulf of Mexico, (iii) World Bank
Environmental and Occupational Health and Safety Guidelines applicable to
offshore oil and gas development in force on the Effective Date and (iv)
regulations promulgated by the Environmental Protection Agency of the United
States of America in effect on the Effective Date insofar and only insofar as
they apply to the United States Gulf of Mexico.
(b) The following operations may be conducted notwithstanding anything
to the contrary in the laws and regulations referred to in (ii), (iii) or (iv)
of this Section 4.9:
(A) Natural Gas may be flared in accordance with the
Contract;
(B) The runoff of rain water may be permitted even though a
sheen may occur on the water;
(C) Operations may be conducted without a certificate of
financial responsibility except as required by the
Contract;
(D) Salt water that has been treated may be discharged;
(E) Cuttings and whole mud, except oil base mud containing
diesel as a lubricant, may be discharged; and
(F) The subsea survey conducted by UMIC and PETROCI shall
satisfy all requirements for an underwater survey of
any type.
Notwithstanding anything to the contrary in the laws and regulations referred
to in Section 4.9 (a)(ii), (iii) and (iv), UMIC acting as Operator shall not be
required to comply with any procedural or administrative filing, permitting or
reporting required by any such laws or regulations. The only purpose of
referring to said laws and regulations is to identify the general guidelines
set forth therein that will be applicable to UMIC's offshore operational
matters.
(c) In the event UMIC receives a notice from any party to the Joint
Operating Agreement claiming that UMIC acting as Operator has failed to operate
as required by this Section 4.9 within the general guidelines set forth in
Sections 4.9(a)(ii), (iii) and (iv), UMIC
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<PAGE> 16
and International Finance Corporation promptly shall meet to discuss the claim
or claims set forth in such notice. Subject to Section 4.9(d), in the event
UMIC and International Finance Corporation mutually agree in writing that UMIC
acting as Operator will change certain operating procedures to satisfy the
claim or claims set forth in the notice, UMIC shall make such changes in its
operating procedures as may be necessary to comply with the mutual agreement
between International Finance Corporation and UMIC.
(d) In the event one or more claims are made that require the mutual
written agreement of UMIC and International Finance Corporation under Section
4.9(c), UMIC shall not enter into such mutual written agreement with
International Finance Corporation in respect of a claim until such time as UMIC
has determined by contacting the parties to the Joint Operating Agreement that
such parties representing not less than (i) sixty percent (60%) of the Special
Area Participating Interests if the claim is in respect of the Special Area or
(ii) sixty percent (60%) of the Initial Participating Interests if the claim is
in respect of the Remaining Area, have agreed that changes in certain operating
procedures be made. At such time as UMIC is satisfied that the necessary parties
to the Joint Operating Agreement have agreed to changes in its operating
procedures, UMIC shall agree with International Finance Corporation to change
its operations as necessary.
4.10 UMIC agrees to obtain a vote of the Operating Committee
as soon as practicable after the Assignment Date and UMIC and the Purchaser
will vote in favor of, and UMIC will obtain the agreement of International
Finance Corporation (and any other entity which may have been assigned a
participating interest by UMIC) to vote in favor of, a proposal that funding be
provided and the necessary contract be entered into in order to conduct a study
of existing environmental conditions; Provided, the parties to the Joint
Operating Agreement shall not be required to approve a study costing in excess
of sixty thousand Dollars ($60,000.00). The costs and expenses incurred to
conduct a study of the existing environmental conditions shall be allocated
fifty percent (50%) to the Special Area and fifty percent (50%) to the
Remaining Area. That portion of the costs and expenses for such study allocable
to the Special Area Participating Interest and the Initial Participating
Interest that will be held by UMIC after the assignments and conveyances as set
forth in Section 4.4 shall be paid by UMIC and shall not be included in the
payments made by the Purchaser on behalf of UMIC under Section 3.2(b) and
Section 3.3(b). Payments made by the Purchaser in respect of its Special Area
Participating Interest and Initial Participating Interest portion of the costs
and expenses for such study shall not be taken into account in order to
determine whether the Purchaser has expended the sums of money required under
Sections 3.2 and 3.3.
4.11 UMIC shall obtain the irrevocable undertaking of
International Finance Corporation to vote, and the Purchaser and UMIC will
vote, under the Joint Operating Agreement that as soon as practicable after the
third well is drilled on the Delimited Area, an environmental assessment
satisfying the requirements of World Bank Technical Paper Number 154 shall be
carried out over the Delimited Area by an environmental consultant acceptable
to International Finance Corporation and UMIC (it being understood that the
re-entry of the B1-8X well will constitute the drilling of a well). The parties
to the Joint Operating Agreement shall not be required to approve an
environmental assessment costing in excess of one hundred twenty thousand
Dollars ($120,000.00).
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<PAGE> 17
4.12 In the event the environmental assessment conducted
under Section 4.11 makes one or more recommendations mutually acceptable in
writing to UMIC and International Finance Corporation concerning measures to be
taken to mitigate the effect of Petroleum Operations on the environment,
subject to Section 4.14, each such recommendation shall be promptly implemented
by UMIC acting as Operator.
4.13 In the event UMIC shall resign its functions of
Operator pursuant to Section 4.14 of the Joint Operating Agreement, UMIC shall
make the transfer of the operatorship subject to the successor Operator
agreeing in writing to operate subject to Sections 4.9 through 4.13.
4.14 In the event one or more recommendations are made that
require the mutual written agreement of UMIC and International Finance
Corporation under Section 4.12, UMIC shall not enter into such mutual written
agreement with International Finance Corporation until such time as UMIC has
determined by contacting the parties to the Joint Operating Agreement that such
parties representing not less than (i) sixty percent (60%) of the Special Area
Participating Interests if the recommendation is in respect of the Special Area
or (ii) sixty percent (60%) of the Initial Participating Interests if the
recommendation is in respect of the Remaining Area, have agreed that such
recommendations be performed. At such time as UMIC is satisfied that the
necessary parties to the Joint Operating Agreement have agreed to a
recommendation, UMIC shall agree with International Finance Corporation to
conduct such mitigation measures.
4.15 It has been determined that International Finance
Corporation cannot be a party to an arbitration under the Arbitration Rules of
the International Center for Settlement of Investment Disputes ("ICSID") set
forth in the Contract. In order to have International Finance Corporation as a
party to the Contract, UMIC and International Finance Corporation have agreed
to request that the Government amend Article 31 of the Contract to substitute
arbitration under the arbitration rules of the International Chamber of
Commerce in the place of arbitration under the ICSID Arbitration Rules. In the
event the Government refuses to amend Article 31 of the Contract, some other
means of solving the arbitration question may be agreed upon by UMIC and
International Finance Corporation. If an amendment is agreed upon by the
Purchaser, the Purchaser agrees to execute such amendment to the Contract. At
such time as the Contract has been amended or another solution has been agreed
upon as provided in this Section 4.15, UMIC shall meet with the Purchaser to
discuss such event. If the Purchaser is not satisfied with the solution
implemented, the Purchaser may withdraw from this Agreement and assign and
convey to UMIC all of the Purchaser's right, title and interest acquired from
UMIC pursuant to this Agreement free and clear of any liens, burdens or
encumbrances created by the Purchaser and UMIC shall be obligated to accept
such assignment and conveyance. If the Purchaser desires to withdraw, it shall
notify UMIC of such desire within ten (10) days after the meeting referred to
in this Section 4.15 and the assignment and conveyance by the Purchaser shall
be made promptly. In the event of such assignment and conveyance, UMIC shall
within ten (10) days after the date thereof reimburse to Purchaser in Dollars
all the sums of money the Purchaser has paid to UMIC and the Operator in
accordance with this Agreement.
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<PAGE> 18
ARTICLE 5
Recovery of Costs
5.1 Upon the receipt of proceeds from the sale of Crude
0il or Natural Gas under the Contract, the Parties shall establish a fund (the
"Special Fund") into which shall be deposited all the Cost Oil proceeds and all
the Profit Oil proceeds received by the Purchaser, 20/70 of the Cost Oil
proceeds and 20/70 of the Profit Oil proceeds received by UMIC that are
allocable to the Special Area, and 30/97.5 of the Cost Oil proceeds and 30/97.5
of the Profit Oil proceeds received by UMIC that are allocable to the Remaining
Area. The Parties shall open a bank account in a mutually acceptable bank which
shall be the Special Fund. All checks written or transfers made from the
Special Fund shall require the signature or written approval of UMIC. UMIC
shall provide to the Purchaser not later than thirty (30) days after the end of
each month while the Special Fund is in existence a statement for the prior
month of deposits to the Special Fund and payments therefrom. Certain costs and
expenses shall be paid on behalf of UMIC and the Purchaser (the "Fund Parties")
out of the Special Fund, and such parties shall recover certain costs and
expenses out of the Special Fund as hereinafter provided in this Article 5:
(a) The first priority of payment out of the
Special Fund shall be the Operating Costs of the Purchaser, 20/70
of the Operating Costs of UMIC attributable to the Special Area and
30/97.5 of the Operating Costs of UMlC attributable to the
Remaining Area (the "Agreement Operating Costs"). The Agreement
Operating Costs shall be paid on or prior to the due date each
month under the Joint Operating Agreement. If sufficient funds are
not available in the Special Fund during any month to pay all of
the Agreement Operating Costs for such month, such costs shall be
paid from the remaining balance of the Special Fund to the extent
funds are available. Such payments shall be made on behalf of each
of the Fund Parties in the proportion that the amount of such costs
payable by each Fund Party bears to the total of all such costs
payable by all the Fund Parties. Each Fund Party shall pay any
unpaid portion of its Agreement Operating Costs directly to the
Operator; Provided, UMIC shall not make such payments to the extent
funds are being paid on behalf of UMIC in accordance with Sections
3.2 and 3.3 and any such payments by the Purchaser on behalf of
UMIC shall be recorded in the Purchaser's Operating Costs Recovery
Account. A cost recovery account shall be established and
maintained for each Fund Party setting forth the cumulative amount
of Agreement Operating Costs each such party has paid directly to
the Operator and which are not paid out of the Special Fund (the
"Operating Costs Recovery Account"). In the event there are funds
remaining in the Special Fund after the payment of all the
Agreement Operating Costs for a month, each Fund Party shall
recover and be paid to the extent funds are available from the
Special Fund the sum of money in each such Fund Party's Operating
Costs Recovery Account. Such recovery and payment shall be in the
proportion that the sum of money in a Fund Party's Operating Costs
Recovery Account bears to the total sum of money in all Fund
Parties' Operating Costs Recovery Accounts. Upon any such recovery
by and payment to a Fund Party, such Fund Party's Operating Costs
Recovery Account shall be reduced by the amount of such recovery
and payment to such Fund Party.
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<PAGE> 19
(b) If during a month funds are available in the
Special Fund after all the payments under Section 5.1(a), the
second priority of payment out of the Special Fund shall be, in
accordance with Section 7.3, the payments due by the Purchaser
under the Proposed Acquisition Agreement, 20/70 of the payments due
by UMIC under the Proposed Acquisition Agreement which are
attributable to the Special Area and 30/97.5 of the payments due by
UMIC under the Prospect Acquisition Agreement which are
attributable to the Remaining Area (the "Prospect Acquisition
Payments"). If sufficient funds are not available in the Special
Fund during any month to make all the Prospect Acquisition Payments
due under the Prospect Acquisition Agreement for such month, such
payments shall be paid from the remaining balance of the Special
Fund to the extent funds are available. Such payments shall be made
on behalf of each of the Fund Parties in the proportion that the
amount of such payment due by each Fund Party bears to the total of
all such payments due by all Fund Parties. Each Fund Party shall
pay any unpaid portion of its Prospect Acquisition Payments due
under the Prospect Acquisition Agreement. A cost recovery account
shall be established and maintained for each Fund Party setting
forth the cumulative amount of the Prospect Acquisition Payments
made by such party under the Prospect Acquisition Agreement and
which are not paid out of the Special Fund (the "Prospect Cost
Recovery Account"). In the event there are funds remaining in the
Special Fund after all the Prospect Acquisition Payments have been
made under the Prospect Acquisition Agreement for the month, each
Fund Party shall recover and be paid to the extent funds are
available from the Special Fund the sum of money in each such
party's Prospect Cost Recovery Account. Such recovery and payment
shall be in the proportion that the sum of money in a Fund Party's
Prospect Cost Recovery Account bears to the total sum of money in
all the Fund Parties' Prospect Cost Recovery Accounts. Upon any such
recovery by and payment to a Fund Party, such Fund Party's Prospect
Cost Recovery Account shall be reduced by the amount of such
recovery and payment to such Fund Party.
(c) If during a month funds are available in the
Special Fund after the payments under Sections 5.1(a) and 5.1(b),
the third priority of payment out of the Special Fund shall be
payments to UMIC for the recovery by UMIC of one hundred sixty-six
thousand two hundred Dollars ($166,200.00) which is equal to sixty
percent (60%) of the two hundred seventy-seven thousand Dollars
($277,000.00) UMIC is entitled to recover in accordance with
Article 2.2.11(a)(i) of the Accounting Procedure to the Contract.
Each time UMIC recovers any such costs from the Special Fund, it
shall reduce the amount of costs to be recovered under this Section
5.1(c) by the costs recovered until the balance is zero.
(d) If during a month funds are available in the
Special Fund after all the payments therefrom under Sections 5.1(a),
5.1(b) and 5.1(c), the fourth priority of payment out of the
Special Fund shall be payments to the Purchaser for the recovery by
the Purchaser of the sum of three million four hundred thousand
Dollars ($3,400,000.00) paid in accordance with Sections 3.2 and
3.3. In the event all or a portion of the payments made by the
Purchaser under Sections 3.2 and 3.3 are classified as Operating
Costs, and the Purchaser recovers such portion of the money
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as Operating Costs under Section 5.1(a), the Purchaser shall not
recover such portion of the money under this Section 5.1(d).
(e) At such time as all the payments have been
made and costs recovered under this Section 5, the Cost Oil
proceeds and Profit Oil proceeds shall be paid in accordance with
the Contract and the Joint Operating Agreement. If there are any
funds remaining in the Special Fund after all payments have been
made under this Section 5.1, such funds shall be paid to UMIC and
the Purchaser. The amount of money to be paid to each of the Fund
Parties shall be determined by calculating the amount of the
remaining funds contributed to the Special Fund by each of the
Fund Parties. After such funds have been paid, the Special Fund
account shall be closed.
5.2 For the purposes of computing the entitlement of UMIC
to the recovery of Petroleum Costs, the sums of money paid by the Purchaser for
and on behalf of UMIC under this Agreement shall be deemed to have been paid by
UMIC.
5.3 The Purchaser shall have the right at its sole cost and
expense to audit the accounts of UMIC which relate to the Special Fund in order
to confirm that the Special Fund has been maintained and payments made in
accordance with this Agreement. An audit may be conducted not more than once
per calendar year, and an audit for a calendar year may be conducted at any
time within twenty-four (24) months following December 31 of a calendar year.
The Purchaser shall give UMIC not less than twenty (20) days' advance notice of
an audit, and the audit shall be conducted at reasonable times during regular
business hours. In the event an audit establishes that the Special Fund has not
been maintained in accordance with this Agreement, UMIC and the Purchaser shall
meet within ninety (90) days after the audit is completed and the audit report
is delivered to UMIC to determine the actions to be taken, if any, to resolve
the matters that have been questioned in the audit.
ARTICLE 6
Conditions Precedent for Closing
6.1 The obligation of the Purchaser to proceed with the
Closing is subject to the completion on or before the Closing to the reasonable
satisfaction of the Purchaser of the following conditions precedent, any one or
more of which may be waived in whole or in part by the Purchaser in writing.
(a) The Purchaser shall have received a
resolution of the Board of Directors of UMIC, satisfactory to
counsel for the Purchaser and certified by the Secretary or
Assistant Secretary of UMIC authorizing UMIC's execution, delivery
and performance of this Agreement.
(b) All the representations and warranties of
UMIC set forth in Section 8.1 shall be true and accurate in all
material respects on the date hereof and on the date of the Closing
with the same effect as though made at such date, and UMIC shall
have performed and complied in all material respects with all
agreements and
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covenants contained in this Agreement to be performed or complied
with by it at or prior to the Closing.
(c) The Government shall have given its written
consent to the Assignment or the Government shall not have given
its decision concerning the Assignment within sixty (60) days
following notification to the Government of the Assignment
accompanied by all the related information and the Assignment shall
be deemed to be approved by the Government in accordance with
Article 34.1 of the Contract, as the case may be.
(d) The parties to the Joint Operating Agreement
have been satisfied that the Purchaser is financially capable of
meeting its prospective obligations under the Joint Operating
Agreement.
6.2 The obligation of UMIC to proceed with the Closing is
subject to the completion on or before the Closing to the reasonable
satisfaction of UMIC of the following conditions precedent, any one or more of
which may be waived in whole or in part by UMIC in writing.
(a) UMIC shall have received a resolution of the
Board of Directors of the Purchaser, satisfactory to counsel of
UMIC and certified by the Secretary or Assistant Secretary of the
Purchaser authorizing the Purchaser's execution, delivery and
performance of this Agreement.
(b) All of the representations and warranties of
the Purchaser set forth in Section 8.2 shall be true and accurate
in all material respects on the date hereof and on the date of the
Closing with the same effect as though made at such date, and the
Purchaser shall have performed and complied in all material
respects with all agreements and covenants contained in this
Agreement to be performed or complied with by it at or prior to the
Closing.
(c) The Government shall have given its written
consent to the Assignment or the Government shall not have given
its decision concerning the Assignment within sixty (60) days
following notification to the Government of the Assignment
accompanied by all the related information and the Assignment shall
be deemed to be approved by the Government in accordance with
Article 34.1 of the Contract, as the case may be.
(d) To satisfy Article 12.2 of the Joint
Operating Agreement, the Purchaser shall have demonstrated to the
satisfaction of the parties to the Joint Operating Agreement its
financial capabilities to meet its prospective obligations under
the Joint Operating Agreement.
(e) The Purchaser shall have provided the
irrevocable bank guarantee as required under Section 3.8.
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(f) The Purchaser in accordance with Section 3.9
shall have provided to UMIC for delivery to the Government an
undertaking in the form of the undertaking marked as Appendix 3 and
attached to the Contract by its parent company guaranteeing the
proper performance of the obligations under the Contract.
ARTICLE 7
Prospect Acquisition Agreement
7.1 Under the Prospect Acquisition Agreement, United
Meridian International Corporation is obligated to make certain payments to
the Consultants in connection with the Contract. Upon the execution of the
Prospect Amendment by all the parties thereto, UMIC will assume all the rights
and obligations of United Meridian International Corporation under the Prospect
Acquisition Agreement, and the Purchaser will be assigned and conveyed a
portion of UMIC's rights and obligations in and under such Agreement and will
assume its proportionate share of said obligations as set forth in this Article
7.
7.2 The twenty-five thousand Dollars ($25,000.00) to be
paid to each of the Consultants within ten (10) days after the Effective Date
has been paid by UMIC. At the Closing, the Purchaser shall pay to UMIC a sum of
nine thousand one hundred sixty-seven Dollars ($9,167.00) which is equal to
18.334% of fifty thousand Dollars ($50,000.00) to reimburse UMIC for the
Purchaser's share of such payment. Payments made under this Section 7.2 shall
not be recovered from the Special Fund.
7.3 The twenty-five thousand Dollars ($25,000.00) to be
paid to each of the Consultants within ten (10) days after the first lifting or
delivery of Crude Oil or Natural Gas and all other payments to be made under
the Prospect Acquisition Agreement (except the payment under Section 7.2) shall
be borne as follows:
(a) In the event the first lifting or delivery
is in respect of production from only the Special Area or to the
extent a payment under Article V(e) of the Prospect Acquisition
Agreement is in respect of production from the Special Area, the
Purchaser shall pay a portion of said sum determined by dividing
the Special Area Participating Interest of the Purchaser by the
total of the Special Area Participating Interests excluding the
Special Area Participating Interest of Petroci and multiplying the
quotient by one hundred (100). The percentage obtained shall be the
portion of the payment to each Consultant the Purchaser shall pay
in accordance with the Prospect Acquisition Agreement; and
(b) In the event the first lifting or delivery
is in respect of production from only the Remaining Area or to the
extent a payment under Article V(e) of the Prospect Acquisition
Agreement is in respect of production from the Remaining Area, the
Purchaser shall pay a portion of said sum determined by dividing
the Initial Participating Interest of the Purchaser by the total of
the Initial Participating Interests excluding the Initial
Participating Interest held by Petroci and multiplying the quotient
by one hundred (100). The percentage obtained shall be the portion
of
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the payment to each Consultant the Purchaser shall pay in
accordance with the Prospect Acquisition Agreement
(c) In the event an exclusive exploitation
authorization has been issued under the Contract, the above
calculation shall be made using the Exploitation Participating
Interests of the parties excluding the Exploitation Participating
Interest of Petroci.
7.4 The Purchaser shall comply with the requirements of
Article VII(a) of the Prospect Acquisition Agreement concerning the Purchaser
becoming a party to said agreement and assuming its proportionate share of the
obligations thereunder by executing the Prospect Amendment.
7.5 The Parties have agreed that they will discuss with the
Consultants the possibility of making certain amendments to the Prospect
Acquisition Agreement. In the event the Parties fail to obtain the agreement of
the Consultants to one or more such amendments, neither Party shall be liable
to the other in any manner for such failure and such failure shall not affect
the obligations of the Parties under this Agreement.
ARTICLE 8
Representations and Warranties
8.1 UMIC represents and warrants to Purchaser as follows:
(a) UMIC is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware, U.S.A. and has all requisite corporate power and
authority to carry on its business as now conducted;
(b) All requisite corporate and other
authorizations for the execution, delivery, and performance by UMIC
of this Agreement and all documents contemplated hereunder to be
entered into by UMIC have been obtained, and no further corporate
or other action shall be necessary on the part of UMIC with respect
to the authorization of the execution, delivery, and performance of
this Agreement or any of such other documents. Upon the execution
and delivery by UMIC of this Agreement and of the other documents
contemplated hereunder, this Agreement and such other documents
will constitute legal, valid, and binding obligations, enforceable
against UMIC in accordance with their respective terms, except as
limited by laws affecting the enforceability of creditors' rights
generally and equitable principles. Neither the execution,
delivery, nor performance of this Agreement or any of the other
documents required hereunder to be executed, delivered, and
performed by UMIC shall result in a violation of any term or
provision of, or constitute a default or accelerate the performance
required under, any contract or agreement to which UMIC is a party
or by which UMIC or any of its properties is bound, or violate any
order, writ, injunction, or decree of any court, administrative
agency, or governmental body binding on UMIC.
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<PAGE> 24
(c) There are no arbitration proceedings,
administrative proceedings, investigations, or legal proceedings in
which UMIC is now engaged or which are threatened against UMIC or
any circumstance, financial or otherwise, which could (i) prevent
the consummation of the transactions contemplated hereby or
materially impair the ability of UMIC to fully perform its
obligations hereunder or (ii) have a material adverse effect on the
business or financial condition of UMIC.
(d) UMIC has not received any notice or other
communication from the Government to terminate the Contract or
otherwise indicate there has been a breach in respect thereof;
(e) To the best of its knowledge, no act or
omission of or affecting UMIC or affecting the Contract has
occurred which would entitle the Government to terminate the
Contract;
(f) Except for the provisions of the Contract,
the Joint Operating Agreement and contracts entered into under the
Joint Operating Agreement and the Prospect Acquisition Agreement,
the interests to be assigned and conveyed to the Purchaser will not
be subject to any adverse contractual obligations, or any
mortgages, pledges, liens, burdens or other encumbrances created by
UMIC and UMIC is not a party to any agreement to create the same;
(g) There are no outstanding lawsuits and there
has been no judgment or award given or made by any court, tribunal
or governmental agency which relates to or is connected with the
conduct of operations relating to the Contract and, to the best of
its knowledge, there are no outstanding claims which would affect
the Contract;
(h) No payments have been made or will be made
or other consideration given or will be given to obtain or retain
or both the Contract or the Joint Operating Agreement or any
assignments made under either such document in violation of the
laws of the United States;
(i) The Contract attached hereto as Exhibit A is
a true, complete and accurate copy of the French language executed
Contract, and except for any amendment thereto in accordance with
Section 4.15, said Contract has not been amended by UMIC;
(j) The Joint Operating Agreement attached
hereto and marked as Exhibit B is a true, complete and accurate
copy of the Joint Operating Agreement, and the Joint Operating
Agreement has not been amended by UMIC;
(k) UMIC has not received any notice or other
communication from a party to the Joint Operating Agreement
claiming any default thereunder or which would otherwise indicate
there has been a breach in respect thereof;
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(l) To the best of its knowledge, no act or
omission of UMIC affecting the Joint Operating Agreement has
occurred which would entitle a party thereto to claim a breach
thereunder;
(m) The Prospect Acquisition Agreement attached
hereto and marked as Exhibit E is a true, complete and accurate
copy of the Prospect Acquisition Agreement and the Prospect
Acquisition Agreement has not been amended by UMIC;
(n) UMIC has not received any notice or other
communication from a party to the Prospect Acquisition Agreement
claiming any default thereunder or which would otherwise indicate
there has been a breach in respect thereof; and
(o) To the best of its knowledge, no act or
omission of UMIC affecting the Prospect Acquisition Agreement has
occurred which would entitle a party thereto to claim a breach
thereunder.
8.2 The Purchaser represents and warrants to UMIC as
follows:
(a) The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of
the Cayman Islands and has all requisite corporate power and
authority to carry on its business as now conducted;
(b) All requisite corporate and other
authorizations for the execution, delivery, and performance by the
Purchaser of this Agreement and all documents contemplated
hereunder to be entered into by the Purchaser have been obtained,
and no further corporate or other action shall be necessary on the
part of the Purchaser with respect to the authorization of the
execution, delivery, and performance of this Agreement or any of
such other documents. Upon the execution and delivery by the
Purchaser of this Agreement and of the other documents contemplated
hereunder, this Agreement and such other documents will constitute
legal, valid, and binding obligations, enforceable against the
Purchaser in accordance with their respective terms, except as
limited by laws affecting the enforceability of creditors' rights
generally and equitable principles. Neither the execution,
delivery, nor performance of this Agreement or any of the other
documents required hereunder to be executed, delivered, and
performed by the Purchaser shall result in a violation of any term
or provision of, or constitute a default or accelerate the
performance required under, any contract or agreement to which the
Purchaser is a party or by which the Purchaser or any of its
properties is bound, or violate any order, writ, injunction, or
decree of any court, administrative agency, or governmental body
binding on the Purchaser;
(c) There are no arbitration proceedings,
administrative proceedings, investigations, or legal proceedings in
which the Purchaser is now engaged or which are threatened against
the Purchaser or any circumstance, financial or otherwise, which
could (i) prevent the consummation of the transactions contemplated
hereby or materially impair the ability of the Purchaser to fully
perform its obligations
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hereunder or (ii) have a material adverse effect on the business or
financial condition of the Purchaser;
(d) No payments have been made or will be made
or other consideration given or will be given in connection with
the Contract or the Joint Operating Agreement or any assignments
made thereunder in violation of the laws or regulations of the
United States;
(e) The Purchaser has the ability to meet all
of its obligations hereunder; and
(f) The Purchaser has not gone into liquidation,
made an assignment for the benefit of creditors, declared or been
declared bankrupt or insolvent by a competent court or had a
receiver appointed in respect of the whole or any part of its
assets and has no plans to do so.
8.3 Any material breach of the representations or
warranties set forth in this Agreement shall be considered a breach of this
Agreement. The representations and warranties set forth in this Agreement shall
terminate on the day after the Closing.
ARTICLE 9
Closing
9.1 The Closing of the purchase by the Purchaser and the
sale, assignment and conveyance by UMIC contemplated by this Agreement shall,
unless otherwise agreed to in writing by the Purchaser and UMIC, take place at
the offices of UMIC in Houston, Texas at 10:00 a.m. local time. The date of the
Closing shall be mutually agreed upon by UMIC and the Purchaser, but the
Closing shall occur within ten (10) days after all the conditions set forth in
Article 6.1 and Article 6.2 have been waived or satisfied.
9.2 At the Closing the following events shall occur, each
being a condition precedent to the others and each being deemed to have
occurred simultaneously with the others:
(a) UMIC shall execute and deliver to the
Purchaser:
(i) the Assignment,
(ii) the Assignment and First
Amendment executed by Petroci,
(iii) the Prospect Amendment executed
by United Meridian International Corporation, Frank T.
Barr, G. Willard Frank, and
(iv) the Foreign Corrupt Practices
Act Agreement.
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(b) UMIC shall deliver to the Purchaser the
written consent, if any, of the Government to the Assignment.
(c) The Purchaser shall execute and deliver to
UMIC:
(i) the Assignment,
(ii) the Assignment and First
Amendment,
(iii) the Prospect Amendment, and
(iv) the Foreign Corrupt Practices
Act Agreement.
(d) The Purchaser shall pay to UMIC the payment
due in respect of the Prospect Acquisition Agreement required under
Section 7.2.
(e) The Purchaser shall deliver the irrevocable
bank guarantee to UMIC, if required, in accordance with Section 3.8.
(f) The Purchaser shall provide to UMIC for
delivery to the Government a fully executed copy of the performance
guarantee required by Section 3.9.
ARTICLE 10
Force Majeure
No Party shall be liable for any failure to perform, or delay in
performing, any of its obligations hereunder, other than its obligations to pay
money, to the extent that such performance has been delayed, prevented or
otherwise hindered by an event of Force Majeure. For purpose of this Agreement,
"Force Majeure" shall include, but not be Limited to, hostilities, restraints
of rulers or people, revolution, civil commotion, strike, labor disturbances,
epidemic, accident, fire, lightning, flood, wind, storm, earthquake, explosion,
blowout, blockade or embargo, lack of or failure of transportation facilities
or any law, proclamation, regulation or ordinance, demand or requirement of any
government or any government agency having or claiming to have jurisdiction
over the Parties, or any act of God, or any other act of government, act or
omission of supplier or any other cause, whether of the same or different
nature, existing, that is beyond the control and without the fault or
negligence of the Party asserting benefit of this Article.
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ARTICLE 11
Governing Law, Arbitration and Liabilities
11.1 This Agreement and all agreements and instruments
contemplated by this Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, U.S.A. excluding any laws or choice of law
rules thereof which would require reference to the laws of any other
jurisdiction.
11.2 Notwithstanding anything to the contrary contained in
this Agreement, any dispute, controversy or claim arising between the Parties
out of or in connection with this Agreement, its validity or the breach
thereof, shall be referred to and finally settled by final and binding
arbitration in Houston, Texas, U.S.A., in accordance with the Commercial
Arbitration Rules of the American Arbitration Association in force on the
Agreement Date, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In order to have arbitration
as the sole and exclusive remedy, the Parties agree to exclude any rights of
application or appeal to the courts of any jurisdiction in connection with any
question of law arising in the course of arbitration or with respect to any
award made.
11.3 The arbitration shall be initiated by one Party ("First
Party") giving notice to the other Party ("Other Party") and to any regional
office of the American Arbitration Association ("AAA") that the First Party
elects to refer the matter to arbitration, and that the First Party has
appointed an arbitrator who shall be identified in such notice. The Other Party
shall notify the First Party and the AAA in writing within thirty (30) days
after its receipt of the First Party's notice, identifying the arbitrator the
Other Party has selected. If the Other Party fails to so notify the First Party
or to identify an arbitrator, the second arbitrator shall be appointed by the
AAA at the request of the First Party.
11.4 The two arbitrators so identified shall select a third
arbitrator within thirty (30) days after the second arbitrator has been
appointed; but if such arbitrators shall fail to appoint such third arbitrator
within such thirty (30) day period, then the third arbitrator shall be
appointed by the AAA at the request of either the First Party or the Other
Party.
11.5 The English language shall be used in the arbitral
proceedings.
11.6 Any money awards shall be made and shall be payable in
Dollars.
11.7 The Parties and arbitrators shall proceed diligently
and in good faith in order that the arbitral award shall be made as promptly as
possible. The absence or default of a Party to the arbitration shall not
prevent or hinder the arbitration procedure in any or all of its stages.
11.8 Pending the decision or award, the operations or
activities which give rise to the arbitration shall not be discontinued. If the
decision or award recognizes that the complaint was justified, provision may be
made in the decision or award for such reparation as the arbitrators consider
appropriate.
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11.9 The Parties agree that for matters submitted to
arbitration, the decision or award of the tribunal will be the sole and
exclusive remedy between them regarding any and all claims and counterclaims
presented to the tribunal.
11.10 The arbitrators shall determine the matters in dispute
in accordance with the laws of Texas, excluding any laws or choice of law rules
thereof which would require reference to the laws of any other jurisdiction.
11.11 Notwithstanding any other provisions of this Agreement
to the contrary, in no event shall any Party be liable to any other Party for
loss of prospective profits, or special, indirect or consequential damages, in
connection with this Agreement or with respect to any operations related
thereto. It is not intended that this Section 11.11 would exclude the Purchaser
from making a claim and recovering funds which it is owed from the Special
Fund.
ARTICLE 12
Notices
12.1 Any notice to be given hereunder shall be in writing
and may be delivered by hand, sent by certified or registered mail or
transmitted by facsimile to the relevant address set forth below, or such other
address as may be previously communicated by the relevant Party to the other
Party from time to time. Notices given under this Agreement shall be effective
on the date actually received by a Party.
12.2 The relevant addresses for all notices shall be as
follows:
<TABLE>
<S> <C>
UMIC: UMIC Cote d'Ivoire Corporation
1201 Louisiana, Suite 1400
Houston, Texas 77002-5603
Fax No.: (713) 653-5098
Attention: Manager, International Acquisitions
PURCHASER: G.N.R. (Cote d'Ivoire) Ltd.
5300 Memorial, Suite 800
Houston, Texas 77007
Telephone No.: (713) 880-5464
Fax No.: (713) 865-4386
Attn: Vice President - International Exploration
</TABLE>
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ARTICLE 13
Confidentiality
The Parties agree that all information and data acquired or
obtained by the Purchaser in respect of the Contract shall be considered
confidential and shall not be disclosed to any third party by the Purchaser
without the prior written consent of UMIC; provided, to the extent necessary to
conduct its business, the Purchaser may disclose such information and data to
its affiliated companies, its professional consultants, a bank or other
financial institution, or a bona fide prospective transferee, but only after
such parties have undertaken in writing to keep such data and information
confidential. The Parties agree that all terms set forth in this Agreement and
matters covered by this Agreement shall be considered confidential and shall
not be disclosed to any third party by a Party without the prior written
consent of the other Party; provided, to the extent necessary to conduct its
business, a Party may disclose such confidential terms and matters to its
affiliated companies, its professional consultants, a bank or other financial
institution or a bona fide prospective transferee but only after such parties
have undertaken in writing to keep such terms and matters confidential. No
public disclosure or press release concerning the existence of this Agreement
or of any of the terms thereof shall be made without the prior written consent
of both of the Parties, such consent not to be unreasonably withheld. UMIC may
disclose the terms and conditions of this Agreement to International Finance
Corporation during its negotiations with said group in respect of the Contract.
Nothing contained in this Article, however, shall be construed to require
either Party to obtain the approval of the other Party to disclose information
with respect to the matters covered by this Agreement to any governmental
authority or agency to the extent required by applicable law or by any
applicable rules, regulations or orders of any governmental authority or agency
having jurisdiction or necessary to comply with disclosure requirements of any
applicable securities laws.
ARTICLE 14
Termination
14.1 Anything herein to the contrary notwithstanding, this
Agreement may be terminated and abandoned as follows:
(a) By mutual written consent of the Parties at
any time on or prior to the Closing;
(b) By UMIC as a result of a default by the
Purchaser under Section 4.3;
(c) By the Purchaser if any of the conditions
specified in Section 6.1 have not been satisfied and shall not have
been waived by the Purchaser on or prior to September 1, 1993;
(d) By UMIC if any of the conditions specified
in Section 6.2 has not been satisfied and shall not have been
waived by UMIC on or prior to September 1, 1993;
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(e) By either Party if the Closing has not
occurred on or before September 1, 1993;
(f) By either Party if the Contract terminates;
(g) By either Party if the Purchaser elects to
withdraw from the Contract and the Joint Operating Agreement in
accordance with Section 3.7; or
(h) By either Party if the Purchaser elects to
withdraw from this Agreement in accordance with Section 4.15.
14.2 In the event this Agreement has not been terminated
under Section 14.1, it shall terminate after the Purchaser has recovered the
funds as provided in Section 5.1.
14.3 If a Party has instituted an arbitration under Article
11 or an arbitration is being conducted at the termination of this Agreement,
Article 11 shall survive such termination until such arbitration matter has
been finally concluded.
14.4 The right to audit as set forth in Sections 3.4 and 5.4
shall survive the termination of this Agreement for the period required to
conduct either such audit. Sections 4.9 through 4.14 and Section 15.11 shall
survive the termination of this Agreement until the terms thereof are included
in an amendment to the Joint Operating Agreement or until the Joint Operating
Agreement terminates, whichever is the first to occur. Section 4.8 shall
survive the termination of this Agreement for the period required to enforce
any indemnity thereunder.
14.5 In the event of any termination and abandonment as
provided in Section 14.1, notice shall be given to the other Party, and
thereupon this Agreement (including the exhibits hereto) shall terminate. If
this Agreement is terminated as the result of the failure by any Party to
perform or observe any of the covenants or agreements set forth herein to be
performed or observed by such Party, nothing contained herein shall be
construed to limit the legal or equitable remedies of the other Party,
including, without limitation, damages (excluding consequential damages) for
breach of contract or for the breach of any representation, warranty, covenant
or agreement contained herein.
ARTICLE 15
Miscellaneous
15.1 The captions and headings for the Articles and the
table of contents of this Agreement are made for convenience only and shall not
constitute a part of this Agreement for any purpose.
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15.2 None of the rights, requirements or provisions of this
Agreement shall be deemed to have been waived by a Party by reason of such
Party's failure to enforce any right or remedy granted it hereunder or to take
advantage of any default, and each Party shall at all times hereunder have the
right to require the strict compliance of the other Party to the provisions of
this Agreement.
15.3 In connection with the transactions contemplated
hereby, and except as expressly provided for elsewhere in this Agreement, UMIC
MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED,
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Except as and to the
extent set forth elsewhere in this Agreement, UMIC hereby disclaims all
liability and responsibility for any statement or information made or
communicated (orally or in writing) to the Purchaser including, but not limited
to any opinion, information or advice which may have been provided to the
Purchaser by any officer, stockholder, director, employee, agent, consultant or
representative of UMIC, or by any petroleum engineer or engineering firm
(including any estimates and appraisals of the extent and value of petroleum
reserves), or any other agent, consultant or representative. Without limiting
the generality of the foregoing, except as and to the extent set forth
elsewhere in this Agreement, UMIC makes no representations or warranties
whatsoever, express, implied or statutory, in connection with the transactions
contemplated by this Agreement and/or the matters set forth herein. The
Purchaser hereby acknowledges and affirms that it has made its own independent
investigation, analysis and evaluation of the Contract and the properties,
assets (including its own estimate and appraisal of the extent and value of
petroleum reserves), and prospects in respect thereof.
15.4 This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and permitted assigns.
The rights and obligations of the Purchaser under this Agreement may be
assigned only with the prior written consent of UMIC, which consent shall not
be unreasonably withheld.
15.5 Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibit or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
15.6 This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same instrument.
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<PAGE> 33
15.7 In the event there is a conflict between one or more of
the provisions of this Agreement and one or more of the provisions of the Joint
Operating Agreement, as between the Parties, the provisions of this Agreement
shall prevail.
15.8 Reference to the singular includes a reference to the
plural and vice versa, and reference to any gender includes a reference to all
other genders.
15.9 This Agreement represents the entire understanding of
the Parties, and supersedes and replaces all prior agreements, contracts,
arrangements and understandings between the Parties concerning the subject
matter hereof. There are no other terms, conditions, representations or
warranties, express or implied, written or oral, except as set forth herein. No
amendments, modifications or additions hereto shall be binding unless executed
in writing by the Purchaser and UMIC.
15.10 Each Party shall pay its own expenses, including
consultants', counsels' and public accountants' fees and expenses incurred in
any way in connection with this Agreement.
15.11 Article 5.14.2 of the Accounting Procedure to the Joint
Operating Agreement provides for an administrative overhead rate of four
percent (4%). In the event an exclusive exploitation authorization is granted
to the Contractor under the Contract, the administrative overhead rate
applicable under said Article 5.14.2 insofar and only insofar as charges
incurred under the exclusive exploitation authorization are concerned shall be
the following:
(a) Three percent (3%) of the total costs less
than three million Dollars ($3,000,000.00) incurred under Sections
5.1 through 5.13 of the Accounting Procedure to the Joint Operating
Agreement during a Calendar Year under the exclusive exploitation
authorization;
(b) Two and one-half percent (2.5%) in excess of
three million Dollars ($3,000,000.00) but less than six million
Dollars ($6,000,000.00) incurred under Sections 5.1 through 5.13 of
the Accounting Procedure to the Joint Operating Agreement during a
Calendar Year under the exclusive exploitation authorization;
-31-
<PAGE> 34
(c) One and one-half percent (1.5%) in excess of
six million Dollars ($6,000,000.00) incurred under Sections 5.1
through 5.13 of the Accounting Procedure to the Joint Operating
Agreement during a Calendar Year under the exclusive exploitation
authorization.
Except for each exclusive exploitation authorization, the administrative
overhead rate shall remain as set forth in the Joint Operating Agreement.
IN WITNESS WHEREOF, the duly authorized representatives of the
Parties hereto have executed this Agreement in duplicate originals on the day,
month and year first written above.
UMIC COTE D'IVOIRE CORPORATION
By: /s/ John B. Brock
----------------------------------
Name: John B. Brock
--------------------------------
Title: President
-------------------------------
G.N.R. (COTE D'IVOIRE) LTD.
By: /s/ Gerald R. Colley
----------------------------------
Name: Gerald R. Colley
--------------------------------
Title: Vice President
-------------------------------
-32-
<PAGE> 35
PSC
ENGLISH VERSION (Translation)
Production Sharing Contract
(French version signed 6/27/92)
Cote d'Ivoire, Block CI-11
(TRANSLATION)
REPUBLIC OF COTE D'IVOIRE
UNITY - DISCIPLINE - WORK
PETROLEUM
PRODUCTION SHARING CONTRACT
-----------
BLOCK CI-11
-----------
<PAGE> 36
2/.
TABLE OF C0NTENTS
<TABLE>
<CAPTION>
Article Page
------- ----
<S> <C> <C>
1 Definitions 6
2 Scope of the Contract 9
3 Duration of exploration periods and surrenders 10
4 Exploration work commitments 13
5 Establishment ahd approval of Annual Work
Programs and Budgets 16
6 Contractor's obligations in respect of the
exploration periods 17
7 Contractor's rights in respect of the
exploration periods 19
8 Activity reports during the exploration periods and
supervision of Petroleum Operations 21
9 Occupation of land 24
10 Use of facilities 25
11 Appraisal of a Petroleum discovery 26
12 Grant of an exclusive exploitation authorization in
respect of commercial discovery 30
13 Duration of the exploitation period 31
14 Exploitation obligation 33
15 Contractor's obligations and rights in respect of
exclusive exploitation authorizations 34
16 Recovery of Petroleum Costs and production sharing 36
17 Taxation 39
18 Sales price of Crude Oil 44
19 Bonuses 47
20 Ownership and abandonment of assets 48
21 Natural Gas 50
22 PETROCI participation 57
23 Foreign exchange control 61
24 Monetary unit used for book-keeping 62
25 Accounting methods and audits 63
26 Import and export 64
27 Disposal of production - Contribution to the
satisfaction of national needs - Transfer of
title to Petroleum and liftings 67
28 Protection of rights 69
29 Personnel and training 70
30 Activity reports in respect of exclusive exploitation
authorizations 72
31 Arbitration 73
32 Force Majeure 75
33 Joint and several obligations and guarantees 76
34 Rights of assignment 77
35 Applicable law and stability of conditions 78
36 Implementation of the Contract 79
37 Entry into Effect 81
</TABLE>
<PAGE> 37
3/.
<TABLE>
<CAPTION>
Appendix
<S> <C> <C>
1 Delimited Area/Special Area/Map 82
2 Accounting Procedure 84
3 Performance Guarantee 97
</TABLE>
<PAGE> 38
4/.
CONTRACT
BETWEEN
-- The Republic of Cote d'Ivoire, hereinafter referred to as "the
Government", represented by the President of the Republic, H.E. Felix
HOUPHOUET-BOIGHY,
ON THE ONE HAND
AND
-- UMIC Cote d'Ivoire Corporation, a company incorporated under the laws
of the State of Delaware, USA, having its registered office in Houston,
Texas, USA, hereinafter referred to as "UMIC", and represented by Mr. John B.
BROCK, its President; and
-- Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire, a
company incorporated under the laws of Cote d'Ivoire, having its
registered office in Abidjan, Cote d'Ivoire, hereinafter referred to
as "PETROCI", and represented by Mr. Moussa FANNY, its General Manager,
ON THE OTHER HAND,
<PAGE> 39
5/.
WHEREAS
-- the discovery and exploitation of Petroleum are important for the
interest and the economic development of the country and its people;
-- in accordance with the provisions of Article 2.1 of Law no. 70-489
of August 3, 1970 establishing the Petroleum Code, and of Article 1 of
Ordinance no. 75- 04 of January 3, 1975, ratified by Law no. 76-506 of
August 3, 1976, governing production sharing and service contracts relating
to Petroleum, the Government decides to undertake directly operations of
exploration for, exploitation, transportation, storage, processing and
marketing of Petroleum;
-- pursuant to Decree no. 77-848 of October 21, 1977, PETROCI is the
holder of the mining rights in respect of Petroleum exploration and
exploitation over the entirety of available areas in Cote d'Ivoire including
the Delimited Area defined hereinafter;
-- the Government, directly and through PETROCI, wishes to promote
the development of the Delimited Area, and the Contractor wishes to
cooperate with the Government by assisting it in the exploration for and
exploitation of the potential resources within the Delimited Area, and
thereby encouraging the economic growth of the country;
-- PETROCI, for the purposes of this Contract, on the one hand, places
at the disposition of the Government its mining rights in respect of the
Delimited Area and on the other hand, joins with UMIC to constitute the joint
venture which will act as Contractor; and
-- the Contractor represents that it has the financial resources, the
technical competence and the organizational capacity necessary to carry
out in the Delimited Area the Petroleum Operations specified hereinafter;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
<PAGE> 40
6/.
DEFINITIONS
The terms used in this Contract shall have the following meaning:
1.1. YEAR means a period of twelve (12) consecutive months according to
the Gregorian Calendar.
1.2. CALENDAR YEAR means a period of twelve (12) consecutive months
beginning on January first (1st) and ending on the following December
thirty-first (31st), according to the Gregorian Calendar.
1.3. FISCAL YEAR means a period of twelve (12) consecutive months
beginning on October first (1st) and ending on the following September
thirtieth (30th), according to the Gregorian Calendar.
1.4. BARREL means U.S. barrel, i.e. 42 U.S. gallons measured at a
temperature of 60 degrees F and under the atmospheric pressure
of 14.696 psia.
1.5. BUDGET means the itemized cost estimates of the Petroleum Operations
appearing in an Annual Work Program.
1.6. EFFECTIVE DATE means the day following the day of entry into effect
of a law relating to petroleum contracts by which law this Contract
shall produce its full effects.
1.7. CONTRACTOR means collectively or individually UMIC and PETROCI, the
contracting parties, as well as any entity to which any of them may
assign an interest pursuant to Articles 22, 34.1 and 34.2.
1.8. CONTRACT means this instrument and its appendices, which form an
integral part hereof, together with any extension, renewal,
replacement or modification hereto which may be mutually
agreed between the Parties.
1.9. PETROLEUM COSTS means all expenditures actually incurred and paid by
the Contractor for the performance of the Petroleum Operations under
this Contract, and determined in accordance with the Accounting
Procedure attached hereto as Appendix 2, including those expenditures
incurred and paid by the Contractor prior to the Effective Date, as
defined in Article 2.2.11 (a) of the Accounting Procedure.
1.10. DOLLAR means dollar of the United States of America.
1.11. NATURAL GAS means methane, ethane, propane, butane and dry or wet
gaseous hydrocarbons, whether or not associated with Crude Oil, as
well as all other gaseous products extracted in association with
Petroleum, such as nitrogen, hydrogen sulfide, carbon dioxide,
helium and water vapor.
<PAGE> 41
7/.
1.12 ASSOCIATED NATURAL GAS means Natural Gas which exists in a reservoir
in solution with Crude oil or, as a gas-cap in contact with Crude
Oil, and which is or could be produced in association with Crude Oil.
1.13. NON-ASSOCIATED NATURAL GAS means Natural Gas other than Associated
Natural Gas.
1.14. FIELD means a commercial accumulation of Petroleum in one or several
horizons, which has been duly appraised in accordance with the
provisions of Article 11.
1.15. PETROLEUM means Crude Oil and Natural Gas.
1.16. PETROLEUM OPERATIONS means all the Petroleum exploration, appraisal,
development, production, transportation, processing (excluding
refining), storage, export and marketing operations, and generally,
any other operations directly associated therewith, carried out
under this Contract.
1.17. PARTIES means the Government and the Contractor; and PARTY means
either the Government or the Contractor.
1.18. APPRAISAL PERIMETER means any part of the Delimited Area where one or
more Petroleum discoveries have been made, and in respect of which
the extent will be appraised and the Government has granted to the
Contractor an exclusive appraisal authorization in accordance
with the provisions of Article 11.3.
1.19. EXPLOITATION PERIMETER means any part of the Delimited Area in
respect of which the Government has granted to the Contractor an
exclusive exploitation authorization in accordance with the
provisions of Article 12.
1.20. CRUDE OIL means crude mineral oil, asphalt, ozokerite, and all kinds
of Petroleum and bitumen, either solid or liquid in their natural
condition or obtained from Natural Gas by condensation or extraction,
including condensates and Natural Gas liquids.
1.21. CUBIC FOOT means the quantity of Natural Gas contained in a
volume of one (1) cubic foot measured at a temperature of 60 degrees F
and under the atmospheric pressure of 14.696 psia.
1.22. DELIVERY POINT means the F.O.B. connecting point between the loading
facilities and the vessel then loading Crude oil produced under this
Contract in the Republic of Cote d'Ivoire, or any other transfer
point mutually agreed between the Parties.
1.23. TOTAL PRODUCTION OF CRUDE OIL means the total production of Crude Oil
obtained from the whole Delimited Area, less the quantities used for
the requirements of the Petroleum Operations and any unavoidable
losses.
<PAGE> 42
8/.
TOTAL PRODUCTION OF NATURAL GAS means the total production of Natural
Gas obtained from the whole Delimited Area, less the quantities used
for the requirements of the Petroleum Operations, any unavoidable
losses and, subject to the provisions of Article 21.2.3, the
quantities of Natural Gas which are flared.
TOTAL PRODUCTION means the Total Production of Crude Oil and the
Total Production of Natural Gas.
1.24. ANNUAL WORK PROGRAM means the document describing, item by item, the
Petroleum Operations to be carried out during a Calendar Year or
portion thereof, as the case may be, within the Delimited Area and in
each Exploitation Perimeter, if any, established in accordance with
the provisions of Articles 4 and 5.
1.25. DELIMITED AREA means the area described in Article 2.7 in respect of
which the Government, under this Contract, grants to the Contractor
an exclusive exploration right.
The areas surrendered by the Contractor in accordance with the
provisions of Articles 3.5 and 3.6 shall be deemed as no longer being
a part of the Delimited Area which shall thus be reduced
accordingly.
1.26. SPECIAL AREA means the area within the Delimited Area described in
Appendix 1.
1.27. SEMESTER means a period of six (6) consecutive months beginning on
the first day of January or July, during any Calendar Year.
1.28. AFFILIATED COMPANY means:
- a company or any other entity which directly or indirectly controls
or is controlled by any entity constituting the Contractor; or
- a company or any other entity which directly or indirectly controls
or is controlled by a company or entity which itself directly or
indirectly controls any entity constituting the Contractor.
The term "control" means the right to exercise, directly or
indirectly, more than fifty per cent (50%) of the voting rights
attributable to the shares of the controlled company or other entity
under ordinary circumstances in a general shareholders meeting.
1.29. THIRD PARTY means a company or any other entity, other than the
entities constituting the Contractor and other than any Affiliated
Company of such entities.
1.30. CALENDAR QUARTER means any period of three (3) consecutive months
beginning on the first day of January, April, July or October, during
any Calendar Year.
<PAGE> 43
9/.
ARTICLE 2
SCOPE OF THE CONTRACT
2.1. This Contract is a production sharing contract governed by the
provisions herein contained.
2.2. The Government authorizes the Contractor pursuant to the terms set
forth herein to carry out the useful and necessary Petroleum
Operations in the Delimited Area, on an exclusive basis, and (except
for seismic and drilling operations) in such other areas as may be
permitted pursuant to Article 7.2., it being understood that said
operations shall only relate to Petroleum.
2.3. The Contractor undertakes, for all the work necessary for carrying out
the Petroleum Operations provided for hereunder, to comply with good
international petroleum industry practice and to be subject to the
laws and regulations in force in Cote d'Ivoire unless otherwise
provided under this Contract.
2.4. The Contractor shall supply all financial and technical means
necessary for the proper performance of the Petroleum Operations.
2.5. The Contractor shall bear alone the financial risk associated with the
performance of the Petroleum Operations. The Petroleum Costs related
thereto shall be recoverable by the Contractor in accordance with the
provisions of Article 16.2.
2.6. During the term hereof, in the event of production, the Total
Production arising from the Petroleum Operations shall be shared
between the Parties according to the terms set forth in Articles
16.2 and 16.3.
2.7. On the Effective Date, the Delimited Area shall be the area as defined
in Appendix 1.
2.8. Upon the Effective Date, UMIC shall assume the position of operator
and shall conduct and carry out the Petroleum Operations under the
responsibility of the Contractor. Any change in the operator shall be
submitted for prior approval of the Government.
The operator, in the name and on behalf of the Contractor, shall
furnish the Government with all reports, information and data referred
to hereunder, including any agreement with respect to this Contract
binding on the entities constituting the Contractor and any
subsequent amendments to such agreements.
<PAGE> 44
10/.
ARTICLE 3
DURATION OF EXPLORATION PERIODS AND SURRENDERS
3.1. The exclusive exploration authorization is hereby granted to the
Contractor for a first period of eighteen (18) months from the
Effective Date in respect of the entire Delimited Area, extended, as
the case may be, in accordance with the provisions of Article 3.4.
3.2. If during the first exploration period set forth above the Contractor
has fulfilled the exploration work commitments defined in Article 4,
as noted by the Government, the exclusive exploration authorization
shall, at the Contractor's request, be renewed for a second
exploration period of two (2) Years from the date of the second
exploration perior, extended, as the case may be, in accordance with
the provisions of Article 3.4.
3.3. If, at the end of such second exploration period and provided that it
has fulfilled its work commitments as set forth above, the Contractor
so requests, a third exploration period shall be authorized for two
(2) Years from the date of expiration of the second exploration
period extended, as the case may be, in accordance with the
provisions of Article 3.4.
3.4. The applications referred to in Articles 3.2 and 3.3 shall be made at
least sixty (60) days prior to the expiration of the current
exploration period. If the expiration date of the current exploration
period should occur prior to the completion and testing of an
exploratory well which was spudded prior to such expiration date,
then, the current exploration period shall be extended by the period
required to complete the drilling and testing operations on such well
plus sixty (60) days, provided, however, that such extension shall not
exceed ninety (90) days. For information purposes, the Contractor
shall give the Government notice thereof within seven (7) days prior
to the normal expiration date of the current exploration period.
3.5. The Contractor shall have the obligation to surrender at least the
following areas:
(a) twenty-five per cent (25%) of the initial area of the
Delimited Area at the expiry of the first exploration period,
(b) twenty-five per cent (25%) of the initial area of the Delimited
Area at the expiry of the second exploration period.
Such surrenders shall be constituted of no more than two blocks of a
simple geometrical shape delimited by north-south, east-west lines or
by natural boundaries of the area concerned.
<PAGE> 45
11/.
For the purpose of computing the area to be surrendered, the area in
respect of any Exploitation Perimeter shall be deducted from the
initial area of the Delimited Area, prior to computing the twenty-five
per cent (25%) relinquishments.
The areas previously surrendered pursuant to the provisions of Article
3.6 shall be deducted from the areas to be surrendered.
Subject to its compliance with the above-mentioned requirements, the
Contractor shall have the right to determine the area to be
surrendered.
The Contractor undertakes to furnish the Government with a precise
description and a map showing the details of the surrendered areas and
those retained, together with a report specifying the work carried out
in the surrendered areas from the Effective Date and the results
obtained. The obligations provided by Article 8 of this Contract
shall be entirely fulfilled for any surrendered areas.
3.6. During any exploration period, the Contractor may, at any time,
notify the Government that it surrenders all or any part of the
Delimited Area and renounces the rights related thereto that were
granted to it by this Contract by giving sixty (60) days' notice to
the Government to that effect.
In the event of partial surrender, the provisions of Article 3.5
concerning the surrendered areas shall be applicable.
No surrender during or at the expiry of any exploration period shall
reduce the work commitments and the investment obligations set
forth in Article 4 for the current exploration period.
In the event of surrender, the Contractor shall have the exclusive
right to retain, for their respective terms, the areas in respect of
Appraisal Perimeters and Exploitation Perimeters which have been
granted or for which an application has been made if an Appraisal
Perimeter or Exploitation Perimeter is thereafter granted pursuant to
the provisions of this Contract, and to carry out the Petroleum
Operations therein.
3.7. At the expiry of the third exploration period set forth in Article
3.3, the Contractor shall surrender the whole remaining surface of the
Delimited Area except as to any Appraisal Perimeters or Exploitation
Perimeters which have then been granted or for which an application
has been made if an Appraisal Perimeter or Exploitation Perimeter is
thereafter granted pursuant to the provisions of this Contract.
3.8. If at the expiry of all the exploration periods the Contractor has not
obtained an exclusive appraisal authorization or an exclusive
exploitation authorization, this Contract shall terminate, except for
the provisional appraisal area which may exist under Article 11.2 and
except in the case provided for in Article 11.3.6.
<PAGE> 46
12/.
3.9. The expiry or termination of this Contract, whatever the reason
thereof, shall not relieve the Contractor of any obligations under
this Contract incurred prior to, or arising from, said expiry or
termination and which remain to be fulfilled.
<PAGE> 47
13/.
ARTICLE 4
EXPLORATION WORK COMMITMENTS
4.1. The Contractor, during the first exploration period defined in Article
3.1, shall carry out the following minimum work:
- one (1) exploratory well.
4.2. The Contractor, during the second exploration period defined in
Article 3.2, shall carry out the following minimum work:
- two (2) exploratory wells.
4.3. The Contractor, during the third exploration period defined in
Article 3.3 shall carry out the following minimum work:
- two (2) exploratory wells.
4.4. Each of the exploratory wells referred to above shall be drilled to a
minimum depth of three thousand three hundred (3300) meters, below sea
level, or one hundred fifty (150) meters into the Albian formation,
whichever is the lesser, or to a shallower depth if the continuation
of drilling performed in accordance with good international petroleum
industry practice is excluded for any of the following reasons:
(a) the basement is encountered at a lesser depth than the minimum
contractual depth;
(b) continuation of drilling presents an obvious danger due to the
existence of abnormal formation pressure;
(c) rock formations are encountered the hardness of which prevents, in
practice, the continuation of drilling by the use of appropriate
equipment;
(d) petroleum formations are encountered the crossing of which
requires, for their protection, the laying of casings preventing
the minimum contractual depth from being reached.
In the event that any of the above reasons occurs, the exploratory
well shall be deemed to have been drilled to the minimum
contractual depth.
Notwithstanding any provision in this Article to the contrary, the
Government and the Contractor may, at any time, agree to abandon the
drilling of a well at a lesser depth than the minimum contractual
depth, and in such case the well shall be deemed to have been
drilled to the minimum contractual depth.
Notwithstanding anything to the contrary in this Contract, for the
purposes of this Article 4, exploratory wells shall be all wells
drilled within the Delimited Area outside the boundary of any
Appraisal Perimeter or Exploitation Perimeter which is in effect on
the date the operations for the drilling of a well commence.
<PAGE> 48
14/.
4.5. In order to carry out the exploration work defined in Articles 4.1 to
4.3 in the best technical conditions in accordance with good
international petroleum industry practice, the Contractor undertakes
to spend the following minimum amounts determined with minimum
expenditure of four (4) million Dollars per well:
(a) our (4) million Dollars during the first exploration period
defined in Article 3.1.;
(b) eight (8) million Dollars during the second exploration period
defined in Article 3.2.;
(c) eight (8) million Dollars during the third exploration period
defined in Article 3.3.
Notwithstanding the foregoing, if during an exploration period the
Contractor has performed its work commitments for an amount less than
the amount specified above, it shall be deemed to have fulfilled its
investment obligations relating to that period. Conversely, the
Contractor shall perform the entirety of its work commitments set
forth above in respect of an exploration period even if it results
in exceeding the amount specified above for that period.
In the case where the Contractor drills in an exploration period, an
exploratory well which is in excess of the minimum number of
exploratory wells which is required to be drilled in such period,
such excess well or wells shall be carried forward into the next
succeeding exploration period or periods and shall be counted against
the minimum drilling requirements for such exploration period or
periods. In such case, the Contractor shall be deemed to have
fulfilled its investment obligations relating to such excess well.
Notwithstanding anything to the contrary in this Article 4, the
Contractor shall always be required to drill at least one (1)
exploratory well during each exploration period.
4.6. Upon the Effective Date, the Contractor shall provide an irrevocable
bank guarantee acceptable to the Government, guaranteeing its work
obligations for the first exploration period.
As the case may be, upon commencement of each additional exploration
period, the Contractor shall likewise provide a similar irrevocable
bank guarantee guaranteeing for that additional period the
Contractor's work obligations, as adjusted pursuant to the
provisions of the third paragraph of Article 4.5, subject to the
provisions of the last paragraph of the same Article.
After the completion of each exploratory well drilled by the
Contractor for the purpose of its work obligations, the guarantee
shall be reduced in order to cover the outstanding balance of work
obligations for the current exploration period. At such time as the
Contractor has performed all its work obligations for an exploration
period, a release of the applicable bank guarantee shall be
granted.
<PAGE> 49
15/.
4. 7. If at the expiry of any of the three (3) exploration periods defined
in Articles 3.1, 3.2 and 3.3, or upon the date of surrender of the
whole Delimited Area, or upon the date of termination of this
Contract, the Contractor has not fulfilled its work commitments set
forth in this Article, it shall pay as compensation to the Government,
within thirty (30) days after the date of expiry, surrender or
termination, the unspent balance of exploration work commitments
above-defined for the current exploration period. The Contractor's
obligations to pay under this Article 4.7 shall be satisfied by the
Government demanding and receiving payment of such balance under the
bank guarantee furnished under Article 4.6.
<PAGE> 50
16/.
ARTICLE 5
ESTABLISHMENT AND APPROVAL OF
ANNUAL WORK PROGRAMS AND BUDGETS
5.1. At least three (3) months before the beginning of each Calendar Year,
or for the first Year, within one (1) month from the Effective Date,
the Contractor shall prepare and submit for approval to the Government
an Annual Work Program together with the related Budget for the
entire Delimited Area, specifying the Petroleum Operations and the
costs thereof that the Contractor proposes to perform during that
Calendar Year or portion of a Calendar Year in the event an
exploration period will terminate prior to the end of such Calendar
Year. In the event of renewal of the exclusive exploration
authorization, the Contractor shall promptly submit an Annual Work
Program and the related Budget for the first Calendar Year or portion
thereof in respect of the following exploration period.
5.2. If the Government wishes to propose any revisions or modifications to
the Petroleum Operations specified in said Annual Work Program, it
shall, within thirty (30) days after receipt of that Program, so
notify the Contractor, presenting all justifications deemed useful.
In that event, the Government and the Contractor shall meet as soon as
possible to consider the proposed revisions or modifications and to
mutually establish the Annual Work Program and the related Budget in
its final form, in accordance with good international petroleum
industry practice. However, during the exploration period, the Annual
Work Program and the related Budget for exploration established by the
Contractor after the above-mentioned meeting shall be deemed to be
approved provided that they comply with the obligations set forth in
Article 4.
Each part of the Annual Work Program and Budget in respect of which
the Government has not proposed any revision or modification within
the period of thirty (30) days above-mentioned, shall be carried out
by the Contractor within the stated time.
Should the Government fail to notify the Contractor of its wish for
revision or modification within the period of thirty (30) days
above-mentioned, such Annual Work Program and the related Budget
submitted by the Contractor shall be deemed to be approved by the
Government.
5.3. It is agreed by the Government and the Contractor that knowledge
acquired as and when the work proceeds or certain events may justify
changes to the details of the Annual Work Program. In that event,
after notification to the Government, the Contractor may make such
changes provided that the basic objectives of said Annual Work
Program are not modified.
<PAGE> 51
17/.
ARTICLE 6
CONTRACTOR'S OBLIGATIONS IN RESPECT OF THE
EXPLORATION PERIODS
6.1. The Contractor shall provide all the necessary funds and purchase or
hire all the equipment, facilities and materials required to carry out
the Petroleum Operations.
6.2. The Contractor shall provide all technical assistance, including the
personnel required to carry out the Petroleum Operations.
6.3. The Contractor shall be responsible for the preparation and
performance of the Annual Work Programs which shall be carried out in
the most appropriate manner in observance of good international
petroleum industry practice.
6.4. The Contractor undertakes to take all the reasonable and practical
steps to:
(a) ensure the protection of water-bearing strata encountered during
its work;
(b) carry out the tests necessary for determining the value of any
significant Petroleum show encountered during drilling and the
exploitability of any possible Petroleum discoveries;
(c) avoid losses and discharges of Petroleum produced as well as
losses and discharges of mud or any other product used in the
Petroleum Operations.
6.5. All works and facilities erected by the Contractor hereunder shall,
according to their nature and to the circumstances, be built, placed,
signalled, marked, fitted and preserved so as to allow at any time and
in safety free passage to navigation within the Delimited Area, and
without prejudice to the foregoing, the Contractor shall, in order to
facilitate navigation, install the sound and optical devices approved
or required by the competent authorities and maintain them in a manner
satisfactory to said authorities.
6.6. In the exercise of its rights to build, carry out work and maintain
all facilities necessary for the purposes hereof, the Contractor shall
not disturb any existing graveyard or building used for religious
purposes, nor cause a nuisance to any government or public building,
except with the prior consent of the Government, and shall make good
the damage caused by it in that event.
6.7. In pursuance of the International Convention for the Prevention of
Pollution of the Sea by Oil signed in London on May 12, 1954 and the
amendments and implementing instruments thereof, the Contractor
undertakes, inter alia, to take all necessary precautions to
prevent marine pollution.
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In order to prevent pollution, the Government may adopt, in
consultation with the Contractor, any additional measure which it
may consider necessary to preserve the environment.
6.8. The Contractor and its subcontractors shall be obligated to give
preference to enterprises and goods from Cote d'Ivoire, if conditions
of price, quality, delivery time and terms of payment are equivalent.
The Contractor undertakes to issue a call for bids to Ivorian and
foreign candidates for any supply, construction or service contracts
the estimated value of which exceeds two hundred thousand (200,000)
Dollars during the exploration period and five hundred thousand
(500,000) Dollars during the exploitation period, it being
understood that the Contractor shall not improperly split said
contracts.
Copies of all the contracts related to the Petroleum Operations shall
be submitted to the Government upon signature thereof.
6.9. The Contractor undertakes to give preference, under equivalent
economic conditions, to the purchase of assets, except for assets that
are ordinarily leased, rented or otherwise contracted for in the
international petroleum industry, including, but not limited to,
drilling rigs, boats, barges and rental tools, necessary for the
Petroleum Operations rather than to the rental thereof or any
other kind of lease.
For that purpose, all the anticipated lease contracts having an
estimated value greater than five hundred thousand (500,000)
Dollars shall be specified by the Contractor in the Annual Work
Programs submitted.
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ARTICLE 7
CONTRACTOR'S RIGHTS IN RESPECT OF THE
EXPLORATION PERIODS
7.1. Without prejudice to the provisions hereof, the Contractor shall have
the right to carry out the Petroleum Operations within the Delimited
Area. Such right includes inter alia:
(a) full responsibility for, management of and control over all the
Petroleum Operations;
(b) authority to exercise any of the rights conferred hereby through
agents and independent contractors, and to pay accordingly all of
their expenses and costs in the place and in the currency chosen
by the Contractor, in accordance with the provisions of Article
23.
7.2. The Contractor shall have the right to clear the ground, dig,
perforate, drill, build, erect, place, supply, operate, manage and
maintain ditches, pools, wells, trenches, excavations, dams, canals,
water conduits, plants, tanks, basins, maritime and other storage
facilities, primary distillation units, first-extraction gasoline
separator units, sulphur plants, and other facilities for Petroleum
production, together with the pipelines, pumping stations, generator
units, power plants, high voltage lines, telephone, telegraph, radio
and other communication facilities, factories, warehouses, offices,
employees' housing, hospitals, premises, ports, docks, harbours,
dikes, jetties, dredges, sea walls, under-water piers and other
facilities, ships and vessels, vehicles, railways, roads, bridges,
ferries, airlines, airports and other transportation facilities,
garages, warehouses, workshops, foundries, repair shops and, all the
auxiliary services which are necessary for or useful to the Petroleum
Operations or in connection therewith; and all additional facilities
which are or may become necessary for or reasonably subsidiary to
the carrying out of the Petroleum Operations.
The location of such facilities may be selected by the Contractor at
the place or position chosen by it, subject to the Government's
approval, which shall not be withheld without valid reason, and
to the conditions of Articles 2.3 and 6.5 to 6.7.
7.3. The agents, employees and representatives of the Contractor or its
subcontractors may, for the purposes of the Petroleum Operations,
enter into or leave the Delimited Area and have free access to all the
facilities set up by the Contractor.
7.4. The Contractor shall have the right, subject to the payment of fees
of general application imposed in Cote d'Ivoire, to remove and use the
surface soil, mature timber, clay, sand, limestone, gypsum, stones and
other similar materials which may be necessary for the performance of
the Petroleum Operations.
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With the consent of the competent administrative services, the
Contractor may make reasonable use of such materials for the
performance of the Petroleum Operations, free of charge, when they are
located on land owned by the Government and placed in the vicinity of
the land where said Operations are taking place.
The Contractor may take or use the water necessary for the Petroleum
Operations at no charge, provided that existing irrigation or
navigation are not impaired and that land, houses or watering
places for livestock are not deprived of a reasonable quantity of
water.
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ARTICLE 8
ACTIVITY REPORTS DURING THE EXPLORATION PERIODS
AND SUPERVISION OF PETROLEUM OPERATIONS
8.1. The Government shall own and may freely use all the original data and
documents relating to the Petroleum Operations such as, but without
limitation, records, samples, geological, geophysical, petrophysical,
drilling and operating reports.
8.2. UMIC has conducted a project of re-evaluation and interpretation of
the seismic data pertaining to the Delimited Area at its sole cost and
expense. No later than thirty (30) days after the Effective Date, UMIC
shall give a written report to the Government and PETROCI containing
the results of said project.
8.3. The Contractor undertakes to furnish the Government with the
following periodic reports:
(a) daily reports on drilling operations;
(b) weekly reports on geophysical operations;
(c) within thirty (30) days after each Calendar Quarter, a report on
the Petroleum Operations carried out together with a detailed
statement on Petroleum Costs in respect of the preceding
Calendar Quarter;
(d) prior to the end of February of each Calendar Year, an annual
report on the Petroleum Operations carried out together with a
detailed statement on Petroleum Costs in respect of the
preceding Calendar Year.
8.4. In addition, the following reports or documents shall be furnished to
the Government as soon as practicable:
(a) a copy of all geological surveys and syntheses together with the
related maps;
(b) a copy of all geophysical surveys, measurement and interpretation
reports, maps, profiles, sections or other documents related
thereto, as well as, at the Government's request, the originals
of all recorded seismic magnetic tapes;
(c) a copy of the drilling location and completion reports for each
well (including any Petroleum indications) together with a
complete set of recorded logs;
(d) a copy of all production test reports together with any study
relating to the flow or production of a well;
(e) a copy of all reports relating to core analyses, and fluid
analyses;
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All maps, sections, profiles, logs and all other geological or
geophysical documents shall be supplied on an appropriate
transparent medium for subsequent reproduction.
A representative portion of the drilling cores and cuttings removed
from each well as well as samples of fluids produced during production
tests shall also be supplied to the Government within a reasonable
period.
As soon as practicable after the expiry or in the event of surrender
or termination of this Contract, the original documents and samples
relating to the Petroleum Operations, including on request the
magnetic tapes, shall be provided to the Government.
The Government through its duly designated representatives shall be
entitled to have access at any reasonable times to the Contractor's
files in Cote d'Ivoire relating to the Petroleum Operations, of which
at least one copy shall be kept in Cote d'Ivoire. Such Government
representatives shall have access to such Contractor's files relating
solely to the Petroleum Operations located outside Cote d'Ivoire
at reasonable times during regular business hours.
8.5. The Parties undertake to treat as confidential and not to disclose to
Third Parties all or part of any documents and samples relating to the
Petroleum Operations during all the exploration periods as defined in
Article 3, and in the event of a surrender of part of the Delimited
Area, until the date of such surrender as regards the documents and
samples relating solely to that surrendered area.
However, each entity constituting the Contractor and the Government
may give access to such data and information to Third Party
prospective assignees, lenders, consultants or contractors selected by
it to fulfill the objectives of such Third Party in connection with
the Petroleum Operations. Such Third Parties may have access to
documents and samples relating to the Petroleum Operations and
shall undertake to treat them confidentially.
If it so desires, the Government may decide to increase the period of
confidentiality specified in this Article 8.5.
8.6. The Contractor shall keep the Government informed of its activities
through the duly designated representative of the latter. In
particular, the Contractor shall notify to the Government as soon as
possible and in any event at least fifteen (15) days in advance all
projected Petroleum Operations, such as any geological surveys,
seismic surveys, commencement of drilling, installation of a platform,
and any other major operation.
In the event the Contractor decides to abandon a drilling, it shall
notify the Government thereof at least thirty-six (36) hours prior
to such abandonment.
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8. 7. One or several duly authorized representatives of the Government
shall have the right to observe the Petroleum Operations and, at
reasonable intervals, to inspect work, facilities, equipment,
materials, records and books relating to the Petroleum Operations, on
condition of not causing detrimental delay to the proper conduct of
said Petroleum Operations. Such representative shall have, inter
alia, the right to be present during the testing and the
abandonment of any well.
In order to permit the exercise of the above-mentioned rights, the
Contractor shall provide the Government's representatives with
reasonable assistance, as regards, inter alia, transportation and
accommodation. Transportation and accommodation expenses directly
related to observation and inspection shall be charged to the
Contractor and included in the Petroleum Costs.
8.8. The Contractor shall, as promptly as possible, inform the Government
of any discovery of mineral substances.
8.9. For the purposes of this Article, the Government's designated
representative shall be the "Directeur des Hydrocarbures" or any other
person appointed by him.
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ARTICLE 9
OCCUPATION OF LAND
9.1. The Government shall make available to the Contractor, at no cost and
only for the purposes of the Petroleum Operations, any land which it
owns and which is necessary for said Operations. The Contractor shall
have the right to build and maintain, above and below the ground, the
facilities necessary for the Petroleum Operations. The Contractor
shall not request the use of said lands unless there is a genuine
need thereof and shall refrain from claiming any land occupied by
buildings or property used by the Government.
The Contractor shall indemnify the Government for any damage caused to
the land by the construction, use and maintenance of its facilities
on such land.
The Government shall authorize the Contractor to build, use and
maintain telephone, telegraph and piping systems above and below the
ground and along the land not belonging to the Government, without
claiming any compensation, provided that the Contractor causes as
little damage as possible and pays to the land-owners, a reasonable
compensation mutually agreed upon.
9.2. The rights on land owned by private persons, which would be necessary
for the carrying out of the Petroleum Operations, shall be acquired by
direct agreement between the Contractor and the private person
concerned.
In the event of disagreement, the Contractor shall notify the
Government thereof, and the Government shall proceed to expropriate
such land for a public purpose, at the Contractor's expense. When
determining the value of those property rights, no consideration shall
be given to the Contractor's purpose for acquiring them and the
Government agrees that no law or procedure for said acquisition shall
have the effect of giving them an excessive value or a confiscation
value. Those rights acquired by the Government shall be registered in
its name, but the Contractor shall be entitled to benefit therefrom
for the purposes of the Petroleum Operations, at no cost, during the
entire term of this Contract. The Government guarantees that the
Contractor shall be protected in the use and occupation of such
land just as if it owns the property rights thereto.
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ARTICLE 10
USE OF FACILITIES
10.1. For the purposes of the Petroleum Operations, the Contractor shall
have the right to use, in accordance with the applicable laws, any
railroad, tramway, road, airport, landing strip, canal, river, bridge,
waterway and any telephone or telegraph network in Cote d'Ivoire
whether owned by the Government or by any private enterprise, subject
to the payment of fees then in effect or mutually agreed upon which
will not be in excess of the prices and tariffs charged to
Third Parties for similar services.
The Contractor shall also have the right to use for the purposes of
the Petroleum Operations any land, sea or air transportation means for
the transportation of its employees or equipment, subject to
compliance with the laws and regulations which generally govern the
use of such means of transportation.
10.2. The Government shall have the right to use in exceptional
circumstances any transportation and communication facility installed
by the Contractor, subject to a fair compensation mutually agreed upon
which shall not be in excess of the prices and tariffs charged to
Third Parties for similar services, provided that, in the Contractor's
opinion, such use by the Government does not hinder or cause
prejudice to the Petroleum Operations.
Under the same conditions, in the event of national necessity, inter
alia, national catastrophes, cataclysms, internal or external threats,
the Contractor shall make its facilities available to the Government
at the latter's request.
10.3. Nothing in this Contract shall limit the Government's right to build,
operate and maintain on, under and along the land made available, to
the Contractor for the purposes of the Petroleum Operations, roads,
railroads, airports, landing strips, canals, bridges, flood protection
works, police stations, military facilities, pipelines, useful
telephone and telegraph lines, provided that such right is not
exercised in a manner which restricts or hinder the Contractor's
rights hereunder, or the Petroleum Operations, or causes
prejudice thereto, except in the event of national necessity.
Under the same conditions, the Government may authorize persons to
build, operate and maintain facilities within the Delimited Area.
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ARTICLE 11
APPRAISAL OF A PETROLEUM DISCOVERY
11.1. In the event the Contractor discovers indications of Petroleum
which justify appraisal, it shall, as promptly as possible, notify
the Government thereof and submit to it, within thirty (30) days
after the date of the temporary plugging or abandonment of the
discovery well, a report including all information relating to said
discovery.
11.2. If the Contractor wishes to undertake appraisal work relating to
the above-mentioned potential Petroleum discovery, it shall submit
a request for an exclusive appraisal authorization to the
Government within six (6) months after the date of the notification
of said discovery along with the appraisal work program covering
the term of the exclusive appraisal authorization including the
cost estimates thereof together with a map setting forth the
boundary of the Appraisal Perimeter for review and approval of the
Government. Such six (6) month period may be extended by an
additional three (3) month period, upon request by the Contractor.
The provisions of Articles 5.2 and 5.3 shall be applicable, mutatis
mutandis, to said appraisal program as regards its approval and
performance, it being understood that the submitted program may not
be rejected or modified by the Government provided that it complies
with good international petroleum industry practice.
Notwithstanding anything to the contrary in this Contract, the
Contractor may give the notice under Article 11.1 or 11.2 during
the applicable notice period notwithstanding the expiration of an
exploration period during the applicable thirty (30) day or six (6)
month period as the case may be. The Government and the Contractor
shall agree on the provisional appraisal area which would remain in
effect so long as the Contractor may submit a request under Article
11.2.
11.3. If the Contractor meets the conditions referred to in Article 11.2
and on request to the Government, the latter shall grant to it an
exclusive appraisal authorization for a duration of two (2) Years
from the date of approval of the appraisal work program and the
related budget, in respect of the Appraisal Perimeter specified in
said program.
Except as otherwise provided by this Article, the Contractor shall,
during the term of said exclusive appraisal authorization, be
subject to the same regime as that applicable to the exclusive
exploration authorization.
11.3.1. The Contractor shall then diligently carry out the
appraisal work program for the discovery in question; in
particular it shall drill the appraisal wells and carry
out the production tests specified in said program.
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At the Contractor's request, made in writing at least
thirty (30) days prior to the expiry of the appraisal
period above-defined, the duration of said period may be
extended by a maximum of six (6) months, provided that
such extension is justified by the continuation of the
drilling and production tests specified in the
appraisal program.
11.3.2. Within three (3) months after the completion of appraisal
work, and not later than thirty (30) days prior to the
expiry of the appraisal period, the contractor shall
provide the Government with a detailed report giving all
the information relating to the discovery and the
appraisal thereof.
11.3.3. If, after having carried out the appraisal work, the
Contractor considers that the Field related to the
Petroleum discovery is commercial, it shall submit to the
Government, together with the previous report, an
application for an exclusive exploitation authorization
accompanied by a detailed development and production plan
for said Field, specifying inter alia:
(a) the planned delimitation of the Exploitation
Perimeter applied for by the Contractor, so that it
covers the area defined by the closure of the Field
concerned, together with all the technical
justifications with respect to the extent of said
Field;
(b) an estimate of the reserves in place, the proven
and probable recoverable reserves and the
corresponding annual production, together with a
study on the methods of recovery and the possible
commercial use of the products associated with Crude
Oil, such as any Associated Natural Gas;
(c) item by item, the description of equipment and work
necessary for production, such as the number of
development wells, the number of platforms,
pipelines, production, processing, storage and
loading facilities together with their
specifications;
(d) the estimated schedule for its implementation and
the projected date of production start-up;
(e) the estimates of investments and exploitation costs
together with an economic evaluation demonstrating
the commercial nature of the discovery in question.
11.3.4. The commercial nature of one or more Petroleum Fields
shall be determined by the Contractor, provided that it
shall, at the end of appraisal work, submit to the
Government the economic study
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referred to in Article 11.1.3 (e) demonstrating the
commercial nature of said Field or Fields.
A Field may be declared commercial by the Contractor if,
taking into account the provisions of this Contract and
the submitted development and production plan, the
projected income and expenses determined in accordance
with good international petroleum industry
practice confirm the commercial nature of said Field.
11.3.5. The Government and the Contractor shall meet within
thirty (30) days after the submission of the development
and production plan accompanied by the economic
evaluation for the purpose of evaluating the commercial
nature of any Field or Fields determined by the
Contractor to be commercial.
11.3.6. The development and production plan submitted by the
Contractor shall be subject to the approval of the
Government, such approval not to be withheld without
valid reason. Within ninety (90) days after the
submission of said plan, the Government may propose
revisions or modifications thereto by notifying the
Contractor thereof with all the useful justifications.
In that event, the Parties shall meet as soon as possible
in order to consider the proposed revisions or
modifications and establish by mutual agreement the plan
in its final form; the plan shall be deemed to be
approved by the Government upon the date of such
agreement.
Should the Government fail to notify the Contractor of
its wish for revision or modification within the
above-mentioned ninety (90) day period, the plan
submitted by the Contractor shall be deemed to be
approved by the Government at the expiry of said period.
During the above-mentioned ninety (90) day period, and
any additional time required by the above-mentioned
meetings between the Government and the Contractor, as
the case may be, the applicable provisions of Article 3.8
relating to the termination of the Contract shall be
deemed to be suspended until the decision of the
Government or agreement between the Government and the
Contractor, as the case may be, and shall not apply to
the Exploitation Perimeter proposed by the Contractor.
11.4. When the Contractor has not elected to undertake the appraisal
work under Article 11, the provisions of Article 3.8 shall be
applicable at the expiry of the exploration periods.
11.5. If for reasons not technically justified the Contractor, (i)
within nine (9) months after notification to the Government of a
Petroleum discovery, has not applied for an exclusive
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appraisal authorization or (ii) if, after having obtained such an
authorization, it has not commenced the appraisal work with respect
to said discovery within six (6) months after the grant of such
authorisation, or (iii) if the Contractor, within eighteen (18)
months after completion of the appraisal work, does not declare the
discovery to be commercial, the Government may request that the
Contractor surrender its rights in respect of the area deemed to
encompass said discovery without any compensation to the
Contractor.
If, within sixty (60) days after the Government's request, the
Contractor has not notified the Government in writing as to its
decision, it shall then surrender said area and will forfeit all
its rights on Petroleum which could be produced from said
discovery. Any area so surrendered shall be deducted from the
surfaces to be surrendered under Article 3.5.
11.6. Any quantity of Petroleum produced from a discovery before it is
declared commercial, not used for the requirements of the Petroleum
Operations or lost, shall be measured according to the provisions
of Article 15.9 and included in the Total Production for the
purposes of Articles 16, 17 and 21.
11.7. Notwithstanding anything to the contrary in this Article 11, in the
exceptional event the Contractor considers that it may directly
develop a Petroleum discovery without carrying out appraisal work,
it may submit an application for an exclusive exploitation
authorization accompanied by a detailed development and production
plan in accordance with the provisions of Article 11.3.3, provided
it can justify in such plan that it has gathered sufficient
information, in particular with respect to production tests,
proving that it is not necessary to carry out appraisal work.
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ARTICLE 12
GRANT OF AN EXCLUSIVE EXPLOITATION
AUTHORIZATION
IN RESPECT OF A COMMERCIAL DISCOVERY
12.1. A commercial Petroleum discovery shall entitle the Contractor to an
exclusive right, if it so requests pursuant to the conditions set
forth in Article 11.3.3., to obtain, in respect of the Field
concerned, an exclusive exploitation authorization covering the
related Exploitation Perimeter. Said authorization shall be
granted by the Government as soon as possible.
12.2. If the Contractor makes several commercial discoveries in the
Delimited Area, each such discovery shall, in accordance with the
provisions of Article 12.1, give rise to an exclusive exploitation
authorization with each corresponding to an Exploitation Perimeter.
The number of exclusive exploitation authorizations and related
Exploitation Perimeters within the Delimited Area shall not be
limited.
12.3. If in the course of work carried out after the grant of an
exclusive exploitation authorization, it appears that the area
defined by the closure of the Field concerned is larger than
originally estimated pursuant to Article 11.3.3, the Government
shall grant to the Contractor, as part of the exclusive
exploitation authorization already granted, an additional area so
that the entirety of said Field is thus included in the
Exploitation Perimeter, provided however, that the Contractor
supplies the Government, together with its application, with the
technical evidence of the extension so requested and that the
above-mentioned extension is an integral part of the Delimited Area
as defined at the time of said application.
12.4. Where a Field extends beyond the boundaries of the Delimited Area,
the Government may request the Contractor to exploit said Field in
association with the rightholder of the adjacent area under the
provisions of a mutually satisfactory unitization agreement.
Within six (6) months after the Government has made the above
request, the Contractor shall submit to it for its approval the
development and production plan of the Field concerned, prepared in
agreement with the rightholder of the adjacent area.
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ARTICLE 13
DURATION OF THE EXPLOITATION PERIOD
13.1. The duration of an exclusive exploitation authorization during
which the Contractor is authorized to carry out the exploitation of
a Field declared commercial shall be twenty-five (25) Years from
its date of issue.
If, upon the expiry of the exploitation period of twenty-five (25)
Years above-defined, commercial exploitation of a Field remains
possible the Government shall authorize the Contractor, at the
latter's justified request submitted at least twelve (12) months
prior to said expiry, to continue under this Contract the
exploitation of said Field during an additional period of no more
than ten (10) Years, provided that the Contractor has fulfilled all
its obligations under this Contract during the current exploitation
period.
If, upon the expiry of this additional exploitation period, the
commercial exploitation of said Field remains possible, the
Contractor may submit a request for the extension of the exclusive
exploitation authorization to the Government, at least twelve (12)
months prior to said expiry, for the Contractor to be authorized to
continue the exploitation of said Field under this Contract, during
an additional period to be agreed upon.
13.2. The Contractor may, at any time, fully or partially surrender an
Exploitation Perimeter under any exclusive exploitation
authorization by giving at least twelve (12) months' prior notice,
which may be reduced with the Government's consent. Such notice
shall be accompanied by the list of steps which the surrendering
Contractor shall take, in accordance with good international
petroleum industry practice, arising out of its surrender, and such
surrender shall only be effective upon completion of the required
abandonment work.
13.3. Stopping of development work or production of a Field declared
commercial, for a period of at least six (6) consecutive months,
without a declaration of Force Majeure under Article 32, decided by
the Contractor without the Government's consent, or abandonment of
the exploitation of a Field except in accordance with Article 13.2,
may give rise to the withdrawal of the exclusive exploitation
authorization in respect of such Field together with the
termination of this Contract as provided by Article 36.4.
13.4. Upon expiry, surrender or withdrawal of the last existing exclusive
exploitation authorization granted to the Contractor, this Contract
shall terminate.
13.5. The expiry or termination of this Contract, whatever the reason
thereof, shall not relieve the Contractor of any obligations
incurred prior to, or arising from, said expiry or termination and
which shall remain to be fulfilled, with respect to, inter alia,
the provisions of Article 20.
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13.6. In the event of any surrender by the Contractor of all or part of
an Exploitation Perimeter or withdrawal or expiry of an exclusive
exploitation authorization, if the Government considers that the
exploitation can be continued by another exploiter, the Government
shall have the right to have it exploited, without any compensation
for the Contractor. The Parties shall meet together with a view to
ensuring the continuity of exploitation.
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ARTICLE 14
EXPLOITATION OBLIGATION
14.1. For any Field in respect of which an exclusive exploitation
authorization has been granted, the Contractor undertakes to
perform, at its sole cost and its own financial risk, all the
Petroleum Operations useful and necessary for the exploitation of
said Field.
14.2. However, if the Contractor can provide geological, technical,
accounting or economic evidence, during either the development
period or the production period, that the exploitation of a Field
cannot be commercially profitable, notwithstanding that an
exclusive exploitation authorization has been granted in accordance
with the provisions of Article 12.1, the Government agrees not to
require the Contractor to continue the exploitation of such Field.
In that event, the Government, in its discretion, may withdraw the
exclusive exploitation authorization concerned from the Contractor
without any compensation for the latter, by giving sixty (60) days'
prior notice, and the provisions of Articles 13.6 and 20 shall,
inter alia, be applicable.
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ARTICLE 15
CONTRACTOR'S OBLIGATIONS AND RIGHTS
IN RESPECT OF EXCLUSIVE EXPLOITATION
AUTHORIZATIONS
15.1. The Contractor shall commence development work not later than six
(6) months after approval of the development and production plan
referred to in Article 11.3.6. and shall continue such work with
the maximum diligence.
15.2. The provisions of Articles 5, 6, 7, 8, 9 and 10 are also
applicable, mutatis mutandis, in respect of any exclusive
exploitation authorization.
15.3. The Contractor shall have the right to build, use, operate and
maintain all facilities which are necessary for the production,
processing, storage, transportation, export and sale of Petroleum
produced, pursuant to the conditions specified in this Contract.
The Contractor may determine the route and location of and
construct and operate any pipeline inside Cote d'Ivoire which is
necessary for the Petroleum Operations, provided that it shall
submit true plans to the Government for approval prior to the
commencement of work; any pipeline crossing or running alongside
roads or passageways (other than those used exclusively by the
Contractor) shall be built so as not to hinder the passage on those
roads or passageways.
The conditions of transportation, as well as the safety regulations
relating to those facilities, shall be subject to an agreement
between the Parties.
15.4. The Contractor may, to the extent and for the duration of the
excess capacity of a pipeline or processing, transportation or
storage facility built for the purposes of the Petroleum
Operations, be obligated to accept the flow of Petroleum coming
from exploitations other than those of the Contractor, provided
that such flow shall not cause prejudice to the Petroleum
Operations and the Contractor shall be compensated for any change
in the quality of its Crude Oil or Natural Gas produced by the
Contractor, and that a reasonable tariff covering a normal
remuneration for capital invested in respect of the construction of
the pipeline or facility concerned shall be paid by the user.
15.5. Upon the grant of an exclusive exploitation authorization, the
Contractor agrees to proceed diligently with the drilling of
development wells and to adopt a spacing pattern among them, in
accordance with good international petroleum industry practice, in
order to attain the maximum economic recovery of the Petroleum
contained in the Field in question.
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15.6. The Contractor shall, in the conduct of development and production
operations, comply with all good international petroleum industry
practice which in particular ensures the good conservation of
Fields and maximum economic recovery of Petroleum.
The Contractor shall, inter alia, carry out enhanced recovery
studies and use such recovery processes if they may lead to an
increase in Petroleum recovery rate under economic conditions
acceptable to the Contractor.
15.7. The Contractor shall provide the Government with all reports,
studies, measurement results, tests and documents which will enable
the Government to monitor the proper exploitation of each Field.
The Contractor shall, in particular, carry out the following
measures an each producing well:
(a) monthly testing of production and gas/oil ratio;
(b) half-yearly measurement of the Field reservoirs pressure.
15.8. The Contractor undertakes to produce every Calendar Year from each
Field quantities of Petroleum in accordance with the provisions of
Article 15.6.
The estimated annual production rates of each Field shall be
submitted by the Contractor together with the Annual Work Programs
referred to in Article 5 for the approval of the Government which
approval shall not be withheld provided that the Contractor gives
proper technical and economic grounds.
15.9. The Contractor shall measure, at a point mutually agreed between
the Parties, all Petroleum produced, after extraction of water and
sediments, excluding (i) Petroleum used for the requirements of
the Petroleum Operations and (ii) unavoidable losses, by using,
after approval by the Government, the measurement instruments and
procedures customarily used in the international petroleum
industry.
The authorized Government representatives shall have the right to
examine those measurements and inspect or cause to be inspected the
instruments or procedures used.
If the Contractor wishes to change said measurement instruments or
procedures, it shall obtain prior approval from the Government.
Where the instruments and procedures used have caused an
overstatement or understatement of measured quantities, the error
shall be deemed to have existed since the date of the last
calibration of the instruments, unless the contrary can be
justified, and the proper adjustment shall be made for the period
of existence of such error.
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ARTICLE 16
RECOVERY OF PETROLEUM COSTS
AND PRODUCTION SHARING
16.1. From the commencement of regular production of Crude Oil, the
Contractor shall market the production of Crude Oil obtained from
the Delimited Area, in accordance with the provisions hereinafter
set forth.
16.2. For the recovery of the Petroleum Costs, the Contractor may take
free of charge each Calendar Year a portion of the production in no
event greater than forty per cent (40%) of the Total Production of
Crude Oil from the Delimited Area, or only such lesser percentage
which would be necessary and sufficient to recover the Petroleum
Costs.
The value of the portion of Total Production of Crude Oil allocated
to the recovery of the Petroleum Costs by the Contractor, as
defined in the preceding paragraph, shall be calculated in
accordance with the provisions of Article 18.
If during a Calendar Year the Petroleum Costs not yet recovered by
the Contractor under the provisions of this Article 16.2 exceed the
equivalent in value of forty per cent (40%) of the Total Production
of Crude Oil from the Delimited Area, calculated as indicated
above, the balance of the Petroleum Costs which cannot be recovered
in that Calendar Year shall be carried forward in the following
Calendar Year or Years until full recovery of the Petroleum Costs
or until the end of this Contract.
16.3. The quantity of Crude Oil from the Delimited Area remaining during
each Calendar Year after the Contractor has taken from the Total
Production of Crude Oil the portion necessary for the recovery of
the Petroleum Costs under the provisions of Article 16.2,
hereinafter referred to as "Remaining Production", shall be shared
between the Government and the Contractor as follows:
The Remaining Production shall be shared according to the daily
Total Production of Crude Oil from the Delimited Area, depending on
the location of the wellheads:
(a) With respect to the wellheads located in water depths less
than two hundred (200) meters:
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Increments of daily Total Government's share Contractor's share
Production of Crude Oil of Remaining of Remaining
(in Barrels per day) Production Production
First 10,000 60 % 40 %
From 10,001 to 20,000 70 % 30 %
From 20,001 to 30,000 80 % 20 %
Over 30,000 90 % 10 %
For the purpose of this Article, the daily Total Production of
Crude Oil shall be the average rate of Total Production of Crude
Oil per day from such well heads during the Calendar Quarter in
question.
(b) With respect to the wellheads located in water depths two
hundred (200) meters or greater:
Increments of daily Total Government's share Contractor's share
Production of Crude Oil of Remaining of Remaining
Production Production
(in Barrels per day)
First 25,000 50 % 50 %
From 25,001 60 % 40 %
to 50,000
Over 50,000 70 % 30 %
For the purpose of this Article, the daily Total Production of
Crude Oil shall be the average rate of Total Production of Crude
Oil per day from such wellheads during the Calendar Quarter in
question.
For the purposes of illustration of the above method of
computation, if, during a given Calendar Quarter, the daily Total
Production of Crude Oil is assumed to be thirty five thousand
(35,000) Barrels per day from wellheads located in water depth
less than two hundred (200) meters, and if the Petroleum Costs
recovery is assumed to be thirty per cent (30%) of such Total
Production, that is ten thousand five hundred (10,500) Barrels
per day, the Remaining Production of Crude Oil, that is twenty
four thousand five hundred (24,500) Barrels per day, shall be
shared as indicated in the following table:
Total Cost recovery Remaining Government's Contractor's
Production of Production share of share of
Crude Oil Remaining Remaining
Production Production
(Barrels per (Barrels per (Barrels (Barrels (Barrels
day) day) per day) per day) per day)
First 10,000 3,000 7,000 4,200(60%) 2,800(40%)
Next 10,000 3,000 7,000 4,900(70%) 2,100(30%)
Next 10,000 3,000 7,000 5,600(80%) 1,400(20%)
Last 5,000 1,500 3,500 3,150(90%) 350(10%)
------ ------ ------ ----------- ----------
Total 35,000 10,500 24,500 17,850 6,650
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For the purposes of the tax legislation of the Republic of Cote
d'Ivoire, the quantity of Crude Oil that the Government will
receive during each Calendar Year pursuant to this Article 16.3
shall include the portion necessary to pay any tax(es) of the
Contractor in Cote d'Ivoire which will be assessed on its incomes.
The Government agrees to pay from this portion any income tax(es)
on behalf and in the name of the Contractor and to deliver to it
official receipts of such payments as provided for in Article 17.6.
For the determination of the value of said portion necessary for
the payment of income tax, the Government shall use the sale price
defined in Article 18.
16.4. The Government may receive its share of production defined in
Article 16.3 either in kind or in cash, it being understood that
the Government's share of production includes, inter alia, a
contribution to the State "Fonds d'Actions Petrolieres" which is
equal to fifteen per cent (15%) thereof, and the Contractor shall
not be required to make any additional contribution to such fund.
16.5. If the Government wishes to receive in kind all or part of its
share of production defined in Article 16.3, it shall so notify in
writing the Contractor at least ninety (90) days prior to the
beginning of a Semester specifying the precise quantity that it
wishes to receive in kind during said Semester.
For that purpose, the Contractor shall not enter into any sale
commitment in respect of the Government's share of production for a
term of more than six (6) months without the written consent of the
Government.
16.6. If the Government has not notified the Contractor of its decision
to receive its share of production in kind pursuant to Article
16.5, the Contractor shall market the Government's share of
production to be taken in cash for a Semester, lift said share
during such Semester and pay to the Government, in the thirty (30)
days following each lifting, an amount equal to the proceeds
received for the Government's share of production sold by the
Contractor, less any reasonable justified expenses incurred by the
Contractor in respect of such sales.
The Contractor shall endeavour to obtain, in its opinion, the best
available sales price and payment terms, using the most recent
Market Price as reference. The Contractor shall promptly advise
the Government of such price and payment terms which it may obtain.
The Government shall then promptly advise the Contractor if it
accepts such conditions or if it prefers to receive in kind its
share of production.
The Government may require payment, for sales of its share of
production sold by the Contractor, in the foreign currency in which
the sale has been made, provided such currency is freely
convertible, or otherwise in Dollars.
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ARTICLE 17
TAXATION
17.1. Except as otherwise provided for in this Contract, the Contractor
shall, in respect of its Petroleum Operations, be subject to the
laws generally applicable and the regulations in force in Cote
d'Ivoire concerning taxes which are or may be levied on income, or
determined in regard thereto, which taxes are acknowledged as
including that set forth in Law no. 70-489 of August 3, 1970, and
the Contractor shall file the tax returns which could be required
in such respect.
It is specifically acknowledged that the provisions of this Article
shall apply individually to any entity comprising the Contractor
under this Contract.
The Contractor shall keep separate accounts for each Fiscal Year in
respect of the Petroleum Operations, in accordance with the
regulations in force in Cote d'Ivoire, enabling in particular the
establishment of a profit and loss account as well as a balance
sheet showing both the result of said Petroleum Operations and the
asset and liability items allocated or related thereto.
17.2. For the purpose of Article 17.1, the Contractor shall, in respect
of its net profit arising from Petroleum Operations, be liable to
an industrial and commercial profits tax of general application
("impot sur les benefices industriels et commerciaux"), at current
applicable rate, as provided by the second paragraph of Article 1
of the General Tax Code ("Code General des Impots") at the
applicable rate of fifty percent (50%) as of the Effective Date, or
in accordance with any subsequent provisions.
In accordance with the provisions of the last paragraph of Article
16.3 and the penultimate paragraph of Article 21.3.1, the
Contractor shall not be liable to any payment to the Government
with respect to said tax. As regards the tax authorities of Cote
d'Ivoire, the share of Petroleum which the Contractor is entitled
to receive under the provisions of Articles 16.2, 16.3 and 21.3.1
is considered as representing the recovery of the Petroleum Costs
and the net profit obtained by the Contractor after payment of such
industrial and commercial profits tax.
17.3. For the purposes of determining the Contractor's taxable net profit
in respect of a Fiscal Year, the profit and loss account shall,
inter alia, be credited by the following:
(a) the Contractor's annual gross income recorded in its
accounting books, arising from the marketing of the quantity
of Petroleum to which it is entitled under Articles 16.2,
16.3 and 21.3.1.
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The Contractor shall endeavour to obtain a price from
the export of Crude Oil which will reflect as faithfully
as possible the prevailing international market prices at
the time of its establishment.
(b) all other income or proceeds related to the Petroleum
operations, including inter alia those arising from:
- the sale of related substances;
- processing, transportation or storage of products for Third
Parties in the facilities dedicated to the Petroleum
Operations;
- capital gains realized in connection with the assignment or
transfer of any items of Contractor's assets or the
assignment, in whole or in part, of rights and obligations
arising from this Contract. Nevertheless, an assignment (i)
which does not give rise to an actual payment in cash or in
kind by the assignee to the assignor, or to the take-over of
a liability already recorded by the assignor, or (ii) which
may not be considered as a financial profit whatsoever, shall
not entail a capital gain;
- exchange gains realized in connection with the Petroleum
Operations.
(c) the value of the share of Petroleum taken by the Government in
accordance with the last paragraph of Article 16.3 and the
penultimate paragraph of Article 21.3.1 for payment of the
income tax set forth in Article 17.1 for the Fiscal Year
concerned.
17.4. Such profit and loss account shall be debited with all charges
necessary for the purposes of the Petroleum Operations in respect
of the Fiscal Year concerned, for which the deduction is permitted
under the applicable laws of Cote d'Ivoire and the provisions of
this Contract.
In particular, in respect of a Fiscal Year the profit and loss
account shall, inter alia, be debited with the following items:
(a) In addition to the charges specifically set forth below in
this Article 17.4, all other Petroleum Costs, including the
costs of supplies, personnel and manpower expenses, costs of
services provided to the Contractor in respect of the
Petroleum Operations.
However:
- Costs of supplies, personnel and services furnished by
Affiliated Companies shall be deductible only to the extent
that they do not exceed those which would be normally charged
in arm's length transactions between independent buyer and
seller for identical or similar supplies or services.
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41/.
- Capital expenditures shall be depreciated from commencement
of a commercial exploitation in the Delimited Area. The
depreciation deductible in respect of the Fiscal Year
concerned shall be equal, to the extent of capital
expenditures remaining to be depreciated, to the difference,
if positive, between the amount of the Petroleum Costs
recovered for the Fiscal Year in question pursuant to Article
16.2 and the total of the other charges debited to the profit
and loss account in accordance with this Article 17.4.
(b) overhead costs relating to the Petroleum operations performed
under this Contract, including without limitation:
- Rentals for movable and immovable properties as well as
insurance premiums;
- A reasonable portion, in light of the services rendered to the
Petroleum Operations performed in Cote d'Ivoire, of wages and
salaries paid to managers and employees residing abroad, and
the administrative overhead costs of the central services of
the Contractor and its Affiliated Companies working for its
account, located abroad, and indirect costs incurred by
said central services abroad for their account. Overhead
costs paid abroad shall in no event be greater than the
limits specified in the Accounting Procedure.
(c) Interest and fees paid to creditors of the Contractor, for
their actual amount, subject to the limits specified in the
Accounting Procedure.
- Shareholders and Affiliated Companies shall not be
considered as "third parties" for the purposes of Article
58.8 (e) of the Petroleum Code and therefore the advances and
loans made by them outside Cote d'Ivoire shall not be
submitted to the approval of the Administration as
provided for in said Article, but shall be declared thereto
and, pursuant to the preceding paragraph, shall also be
subject to the limitations specified in the Accounting
Procedure.
(d) Losses of materials or assets resulting from destruction or
damages, assets which are renounced or abandoned during the
Fiscal Year, bad debts, indemnities paid to Third Parties as
compensation for damage.
(e) Reasonable and justified reserves made for clearly identified
future losses or liabilities which current events render
probable, it being understood that the reserves established
under Article 20.3, for abandonment costs shall not be a
deductible item under this Article 17.4(e).
<PAGE> 76
42/.
(f) Any other losses or charges directly related to the
Petroleum Operations, including exchange losses realized in
connection with the Petroleum Operations as well as bonuses
and amounts paid during the Fiscal Year pursuant to Article
19 and Article 29.2 respectively, excluding the amount of
direct tax on profits determined in accordance with the
provisions of this Article.
(g) The amount of non-offset losses relating to previous Fiscal
Years in accordance with the regulations of Cote d'Ivoire.
17.5 The Contractor's taxable net profit shall be equal to the
difference, if positive, between all the amounts credited and all
the amounts debited in the profit and loss account. If this amount
is negative, it shall constitute a loss.
17.6. Within three (3) months after the end of a Fiscal Year, each entity
constituting the Contractor shall submit to the competent tax
authorities its annual tax return together with financial
statements, as required by the applicable regulations.
The Government shall, after examination of said annual tax return
and acknowledgment of tax payment, furnish to the Contractor within
a reasonable period the tax receipts and all other documents
certifying that the Contractor has, for the Fiscal Year in
question, complied with all its tax obligations with respect to the
industrial and commercial profits tax as defined in this Article
17.
17.7. Except for the industrial and commercial profits tax defined in
this Article 17 and the bonuses provided for in Article 19, the
Contractor shall be exempt from all other national, regional and
communal levies, duties, taxes or contributions of any nature
whatsoever imposed on the Petroleum Operations and any revenues
related thereto or, more generally, on the Contractor's property,
activities or actions including its establishment and its operation
in performance hereunder.
In particular, the Contractor, its suppliers, subcontractors,
lenders and Affiliated Companies shall be exempt from the taxes on
turnover (value added taxes and taxes on services) which would be
payable in connection with sales and purchases made, work performed
for and services rendered or loans made to the Contractor under
this Contract.
The shareholders of the entities constituting the Contractor and
their Affiliated Companies shall also be exempt from all levies,
duties, taxes and contributions in respect of any sales or other
dispositions of the shares in the entities constituting the
Contractor or their Affiliated Companies and in respect of any
dividends received, debts, loans and related interest, purchases,
transportation of Petroleum for export, services rendered and, more
generally, regarding any revenues or activities in Cote d'Ivoire
directly related to the Petroleum Operations.
<PAGE> 77
43/.
Assignments of any kind between the entities constituting the
Contractor and their Affiliated Companies as well as any
assignment made in accordance with the provisions of Article 34
shall be exempt from any duties or taxes payable in such respect.
17.8. Notwithstanding the foregoing provisions, land taxes shall be
payable pursuant to the applicable laws on dwelling buildings and
the above-mentioned exemptions shall not apply to any duties, taxes
and fees of general application payable as compensation for
services rendered by public administrations, collectivities and
bodies of Cote d'Ivoire. However, such duties, taxes and fees
charged in such cases in respect of the Contractor and its
contractors, carriers and clients and its agents, shall be
reasonable in relation to the services rendered and shall
correspond to tariffs generally charged for the same services by
said public administrations, collectivities and bodies.
<PAGE> 78
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ARTICLE 18
SALES PRICE OF CRUDE OIL
18.1. For the purposes of this Contract, and in particular for the
purposes of Articles 16.2, 16.6, 22 and 27, the Crude Oil price
shall be the F.O.B. "Market Price" at the Delivery Point, expressed
in Dollars per Barrel and payable thirty (30) days after the date
of the bill of lading, as determined hereinafter for each Calendar
Quarter.
18.2. The Market Price applicable to liftings of Crude oil made during a
Calendar Quarter shall be calculated at the end of said Calendar
Quarter and shall be equal to the weighted average of the actual
prices obtained for Crude Oil from the Delimited Area during said
Calendar Quarter by the Contractor and by the Government from
independent purchasers, as adjusted to take into account the
differences in quality and gravity as well as in F.O.B. delivery
terms and payment conditions, provided that the quantities so sold
to independent purchasers during the Calendar Quarter concerned
represent at least thirty per cent (30%) of the total quantities of
Crude Oil from the Delimited Area sold during said Calendar
Quarter.
18.3. In the event such sales to independent purchasers are not made, or
do not represent thirty per cent (30%) of the total quantities of
Crude Oil from the Delimited Area sold during the Calendar Quarter
concerned, the Market Price shall be determined on the basis of the
prices used on the international market during said Calendar
Quarter between independent buyers and sellers for sales of Crude
Oils of quality similar to the Crude Oil from the Delimited Area
destined for the same markets as those in which the Ivorian Crude
Oil would normally be sold, as adjusted to take into account the
differences in quality, gravity, transportation as well as sales
and payment conditions.
The Parties shall select those reference Crude Oils at the
beginning of each Calendar Year.
18.4. The following transactions shall, inter alia, be excluded from the
calculation of the Market Price of Crude Oil:
(a) sales in which the buyer is an Affiliated Company of the
seller as well as sales between entities constituting the
Contractor;
(c) sales in the Ivorian domestic market under Article 27.1;
(d) sales including an exchange for other than payment in freely
convertible currencies and sales fully or partially made for
reasons other than the usual economic incentive involved in
Crude Oil sales on the international market (such as
exchange contracts, sales from government to government or
to government agencies).
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18.5. Within ten (10) days following the end of each Calendar Quarter,
the Parties shall advise each other of the prices obtained for
their share of production of Crude Oil from the Delimited Area sold
to independent purchasers during the Calendar Quarter in question,
indicating for each sale the identity of the purchaser, the
specifications of quality and gravity, the quantities sold and the
delivery and payment terms.
Within twenty (20) days following the end of each Calendar Quarter,
the Contractor shall determine in accordance with the provisions of
Article 18.2 or Article 18.3, as the case may be, the Market Price
applicable for the Calendar Quarter concerned, and shall notify the
Government in writing of that Market Price, indicating the method
of calculation and all data used in the calculation of that Market
Price.
Within thirty (30) days following receipt of the notice referred to
in the preceding paragraph, the Government shall verify the
conformity of the Market Price calculation and shall notify the
Contractor in writing of its acceptance or objections. Failing
notification from the Government within that thirty (30) day
period, the Market Price provided for in the Contractor's notice
referred to in the preceding paragraph shall be deemed to have been
accepted by the Government.
In the event the Government has given the Contractor written
objections to the Market Price, within the thirty (30) day period,
the Parties shall meet within fifteen (15) days following the
Government's notification to mutually agree on the Market Price.
If the Parties fail to agree on the Market Price applicable to a
given Calendar Quarter within seventy-five (75) days after the end
of that Calendar Quarter, the Government or the Contractor may
immediately submit to an expert, appointed in accordance with the
following paragraph, the determination of the Market Price
(including the determination of reference Crude Oils if the Parties
have not determined them). The expert shall determine the price
within thirty (30) days after his appointment and his conclusion
shall be final and binding on the Parties. The expert shall decide
in accordance with the provisions of this Article.
The expert shall be selected by agreement between the Parties or,
if no agreement is reached, by the International Center of
technical expertise of the International Chamber of Commerce in
accordance with its rules on technical expertise, at the request of
the most diligent Party. The expertise costs shall be charged to
the Contractor and included in the Petroleum Costs.
18.6. In the event it would be necessary to calculate on a provisional
basis during a Calendar Quarter the Crude Oil price applicable to
the liftings made during said Calendar Quarter, that price shall be
established as follows:
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(a) For any sale to independent buyers, the price applicable to
that sale shall be the price obtained for the Crude oil for
said sale, as adjusted to take into account the F.O.B.
delivery terms and the thirty (30) days payment terms.
(b) For any lifting other than those which are the subject of a
sale to independent buyers, the price Applicable to that
lifting shall be the Market Price determined for the
preceding Calendar Quarter or, if that Market Price has not
been determined, a price set by agreement between the
Parties or, failing agreement, the last known Market Price.
Once the Market Price for a Calendar Quarter has been
determined on a final basis, adjustments, if any, shall be
made by cash payments unless the Parties agree otherwise
within thirty (30) days after the date the Market
Price has been determined.
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ARTICLE 19
BONUSES
19.1. The Contractor shall pay to the competent department of the
"Direction Generale des Impots" of Cote d'Ivoire the following
bonuses on the dates and in accordance with the provisions
hereinafter specified:
(a) one (1) million Dollars when the Total Production of Crude
Oil from the Delimited Area first reaches the average rate
of ten thousand (10,000) Barrels per day during a period of
thirty (30) consecutive days.
(b) Three (3) million Dollars when the Total Production of
Crude Oil from the Delimited Area first reaches the
average rate of twenty thousand (20,000) Barrels per
day during a period of thirty (30) consecutive days.
(c) Five (5) million Dollars when the Total Production of Crude
Oil from the Delimited Area first reaches the average rate
of thirty thousand (30,000) Barrels per day during a period
of thirty (30) consecutive days.
(d) Ten (10) million Dollars when the Total Production of Crude
Oil from the Delimited Area first reaches the average rate
of fifty thousand (50,000) Barrels per day during a period
of thirty (30) consecutive days.
Each of the amounts referred to in (a), (b), (c) and (d) above
shall be paid within thirty (30) days following the expiry of the
above-mentioned reference period of thirty (30) days.
19.2. The payments referred to in Article 19. 1 shall not be recoverable
and, therefore, shall in no event be considered as Petroleum Costs,
but shall be considered for purposes of tax computation in
accordance with Article 17.4 (f).
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ARTICLE 20
OWNERSHIP AND ABANDONMENT OF ASSETS
20.1. Upon surrender in respect of all or part of the Delimited Area or
expiry or termination of this Contract, whatever the reason
therefor, or at the end of exploitation of a Field, the Contractor
shall transfer on an "as is, where is" basis at no cost to the
Government the ownership of assets, movables and immovables, used
for the requirements of the Petroleum Operations carried out in the
area so surrendered, whether located inside or outside the
Delimited Area, such as wells and their equipment, buildings,
warehouses, docks, lands, offices, plants, machinery and equipment,
bases, harbours, wharfs, dykes, jetties, buoys, platforms,
pipelines, roads, bridges, railroads and other facilities.
Such transfer of ownership shall be made free of any liens,
encumbrances or surety in respect of the assets transferred.
However, the Contractor may continue to use those assets beyond the
date referred to in the first paragraph of this Article 20.1., for
the requirements of its petroleum operations in Cote d'Ivoire
governed by other contracts, subject to the billing by the
Government of a reasonable rental tariff, which shall not exceed
the tariffs charged by Third Parties for similar assets; and,
further, the Contractor shall not be required to transfer title to
any asset which the Contractor is using or may require the use of
for Petroleum Operations in another part of the Delimited Area and
the Contractor shall continue to have access to and use of such
assets.
In addition, the provisions set forth in the first paragraph of
this Article 20.1 shall not apply to assets owned by Third Parties
and which are rented or otherwise contracted for by the Contractor.
20.2. If the Government decides not to accept, for all or part of the
assets, the transfer of ownership provided for in Article 20.1, it
may, not later than ninety (90) days following the date specified
in said Article, require the Contractor, in accordance with good
international petroleum industry practice, to perform abandonment
operations and to remove, at the cost of the Contractor, the
facilities relating to the surrendered area which the Government
decides not to accept.
20.3. Notwithstanding anything to the contrary in this Article 20, the
Contractor shall within three (3) Years prior to the anticipated
date of any expiry, termination or surrender of all or part of the
Delimited Area or abandonment of a Field, submit a plan of
abandonment of the area concerned. Such plan shall contain an
estimate of the costs for such abandonment, according to good
international petroleum practice, and the Government and the
Contractor shall meet to agree on such abandonment plan and
estimated abandonment
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49./
costs, as well as the account in which the amounts corresponding to
the abandonment costs shall be deposited. Such account shall be
established as an escrow account in a bank in Cote d'Ivoire
acceptable to the Government.
The Contractor may recover such costs over the estimated remaining
period of three (3) Years and include them as Petroleum Costs
recoverable under the provisions of Article 16.2. The money
received by the Contractor in respect of such abandonment costs
shall be maintained in the bank account referred to above and shall
be solely used to pay the costs of abandonment. In the event the
actual abandonment costs are less then the sum of money kept in
such bank account, the remaining funds shall be split in accordance
with Article 16.3 or Article 21.3.1, as the case may be. In the
event that the actual abandonment costs exceed the total amount of
the reserves established, the remaining abandonment costs shall be
paid exclusively by the Contractor.
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ARTICLE 21
NATURAL GAS
21.1. Non-Associated Natural Gas
21.1.1. In the event of a Non-Associated Natural Gas discovery
under Article 11.1, the Contractor shall engage in
discussions with the Government with a view to
determining whether said discovery is potentially
commercial.
21.1.2. If the Contractor, after the above-mentioned discussions,
considers that the appraisal of such Non-Associated
Natural Gas discovery is justified, it shall undertake the
appraisal work program for said discovery, in accordance
with the provisions of Article 11.
The Contractor shall have the right, for the purposes of
evaluating the commerciality of the Non-Associated Natural
Gas discovery, if it so requests at least thirty (30) days
prior to the expiry of the third exploration period set
forth in Article 3.3, to be granted an exclusive appraisal
authorization concerning the Appraisal Perimeter of
the above-mentioned discovery, for a term of four (4)
Years instead of the two (2) Years provided for in Article
11.3.
In addition, the Parties shall jointly evaluate the
possible outlets for the Natural Gas from the discovery in
question, both on the local market and for export,
together with the necessary means for its marketing, and
they shall consider the possibility of a joint marketing
of their shares of production in the event the Natural Gas
discovery would not otherwise be commercially
exploitable. For that purpose, a Consultative Committee
for Natural Gas shall be established by the Parties to
ensure the coordination of the upstream and downstream
components of the Natural Gas project and facilitate its
evaluation and implementation.
21.1.3. Following completion of appraisal work, in the event the
Parties should jointly decide that the exploitation of
that discovery is justified to supply the local market, or
in the event the Contractor should undertake to develop
and produce that Natural Gas for export, the Contractor
shall submit prior to the expiry of the exclusive
appraisal authorization an application for an exclusive
exploitation authorization which the Government shall
grant under the terms provided in Article 12.1.
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The Contractor shall then have the right and the
obligation to proceed with the development and production
of that Natural Gas in accordance with the approved
development and production plan referred to in Article
11.3.6., and the provisions of this Contract applicable
to Crude Oil, including Article 16.2., shall apply,
mutatis mutandis, to Natural Gas, except as otherwise
specifically provided under Article 21.3.
21.1.4. If the Contractor considers that the appraisal of the
Non-Associated Natural Gas discovery concerned is not
justified, the Contractor shall surrender its rights in
respect of the area encompassing said discovery upon
expiry of the exclusive exploration authorization.
If the Contractor, after completion of appraisal work,
considers that the Non-Associated Natural Gas discovery is
not commercial, the Contractor shall surrender its rights
on the area encompassing said discovery, either upon
expiry of the exclusive exploration authorization or upon
expiry of the exclusive appraisal authorization related
to the discovery if that one is later than the former,
unless the area has been included in an exclusive
exploitation authorization prior to said date.
In each case, the Contractor shall forfeit its rights on
all Petroleum which could be produced from said discovery,
and the Government may then carry out, or cause to be
carried out, all the appraisal, development, production,
processing, transportation and marketing work relating to
that discovery, without any compensation for the
Contractor, provided, however, that said work shall not
cause prejudice to the performance of the Petroleum
Operations by the Contractor.
21.2. Associated Natural Gas
21.2.1. In the event of a commercial discovery of Crude Oil, the
Contractor shall state in the report referred to in
Article 11.3.3. if it considers that the production of
Associated Natural Gas (after such Associated Natural Gas
has been processed to remove such Petroleum as may be
considered as Crude Oil for the purposes of Articles 16.2.
and 16.3.) is likely to exceed the quantities necessary
for the requirements of the Petroleum Operations
related to the production of Crude Oil (including
reinjection operations), and if it considers that such
excess is capable of being produced in commercial
quantities.
In the event the Contractor shall have informed the
Government of such an excess, the Parties shall
jointly evaluate the possible outlets for that excess
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of Associated Natural Gas, both on the local market and
for export (including the possibility of joint marketing
of their shares of production of that excess of Associated
Natural Gas in the event such excess would not otherwise
be commercially exploitable), together with the means
necessary for its marketing.
In the event the Parties should decide that the
development of the excess of Associated Natural Gas is
justified, or in the event the Contractor would wish to
develop and produce that excess for export, the Contractor
shall indicate in the development and production plan
referred to in Article 11.3.3. the additional facilities
necessary for the development and exploitation of that
excess and its estimate of the costs related thereto.
The Contractor shall then have the right to proceed with
the development and exploitation of that excess in
accordance with the development and production plan
approved by the Government under the terms provided by
Article 11.3.6, and the provisions of the Contract
applicable to Crude Oil, including Article 16.2., shall
apply, mutatis mutandis, to the excess of Associated
Natural Gas, except as otherwise specifically provided by
Article 21.3.
A similar procedure shall be applicable if the sale or
marketing of Associated Natural Gas is decided during
the exploitation of a Field.
21.2.2. In the event the Contractor should not consider the
exploitation of the excess of Associated Natural Gas as
justified and if the Government, at any time, would
wish to utilize that excess, the Government shall notify
the Contractor thereof, in which event:
(a) the Contractor shall make available to the
Government free of charge at the Crude Oil and
Natural Gas separation facilities all or part of
the excess Associated Natural Gas (after the
Contractor has been given an opportunity to remove
therefrom all Petroleum which may be considered as
Crude Oil for the purposes of Articles 16.2 and
16.3) that the Government wishes to lift;
(b) the Government shall be responsible for the
gathering, processing, compressing and transporting
of that excess from the above-mentioned separation
facilities, and shall bear any additional costs
related thereto;
(c) the construction of the facilities necessary for
the operations referred to in paragraph (b) above,
together with the lifting of that excess
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by the Government, shall be carried out in
accordance with good international petroleum
industry practice and in such a manner as not
to hinder the production, lifting and
transportation of Crude Oil by the Contractor.
21.2.3. Any excess of Associated Natural Gas which would not
be utilized under Articles 21.2.1. and 21.2.2 shall be
reinjected by the Contractor. However, it shall have the
right to flare said gas in accordance with good
international petroleum industry practice, provided that
the Contractor furnishes the Government with a report
demonstrating that said gas cannot be economically
utilized to improve the rate of recovery of Crude Oil by
means of reinjection pursuant to the provisions of Article
15.6, and that the Government approves said flaring, which
approval shall not be withheld without valid reason.
21.3. Provisions common to Associated and Non-Associated Gas
21.3.1. The quantity of Natural Gas from the Delimited Area
remaining during each Calendar Year after the Contractor
has taken from the Total Production of Natural Gas the
portion necessary for the recovery of the Petroleum Costs
under the provisions of Article 16.2, hereinafter referred
to as "Remaining Production", shall be shared between
the Government and the Contractor as follows:
The Remaining Production shall be shared according to the
daily Total Production of Natural Gas from the
Delimited Area, depending on the location of the
wellheads:
(a) With respect to the wellheads located in water
depths less than two hundred (200) meters:
Increments of daily Government's Contractor's
Total Production share of share of
of Natural Gas Remaining Remaining
Production Production
(in million Cubic Feet
per day)
First 75 60% 40%
more than 75
up to 150 70% 30%
Over 150 80% 20%
For the purpose of this Article, the daily Total
Production of Natural Gas shall be the average
rate of Total Production of Natural Gas per day
from such wellheads during the Calendar Quarter
in question.
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(b) With respect to the wellheads located in water
depths two hundred (200) meters or greater:
Increments of daily Government's Contractor's
Total Production of share of share of
Natural Gas Remaining Remaining
Production Production
(in million Cubic Feet
per day)
First 150 50% 50%
over 150 60% 40%
For the purpose of this Article, the daily Total
Production of Natural Gas shall be the average rate
of Total Production of Natural Gas per day from such
wellheads during the Calendar Quarter in question.
For purposes of illustration of the above method of computation, if
during a given Calendar Quarter, the daily Total Production of
Natural Gas is assumed to be one hundred sixty (160) million Cubic
Feet per day from wellheads located in water depth less than two
hundred (200) meters, and if the Petroleum Costs recovery is
assumed to be thirty per cent (30%) of such Total Production, that
is forty-eight (48) million Cubic Feet per day, the Remaining
Production of Natural Gas, that is one hundred twelve (112) million
Cubic Feet per day, shall be shared as provided in the following
table:
Total Production Cost Remaining Government's Contractor's
of Natural Gas Recovery Production share of share of
Remaining Remaining
Production Production
(million Cubic (million (million (million (million
Feet per day) Cubic Feet Cubic Feet Cubic Feet Cubic Feet
per day) per day) per day) per day)
First 75 22.5 52.5 31.5 (60%) 21 (40%)
next 75 22.5 52.5 36.75 (70%) 15.75 (30%)
last 10 3 7 5.6 (80%) 1.4 (20%)
--- ---- ---- ----------- -----------
Total 160 48 112 73.85 38.15
For the purposes of the tax legislation of the Republic of Cote
d'Ivoire, the quantity of Natural Gas that the Government will
receive during each Calendar Year pursuant to this Article 21.3.1
shall include the portion necessary to pay any tax(es) of the
Contractor in Cote d'Ivoire which will be assessed on its income.
The Government agrees to pay from this portion any income tax(es)
on behalf and in the name of the Contractor and to deliver to the
Contractor official receipts of such payments as provided for in
Article 17.6. For the determination of the value of said portion
necessary for the payment of income tax, the Government shall use
the sale price defined in Article 21.3.4.
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The Government may receive its share of production
above-defined either in kind or in cash, it being
understood that the Government's share of production
includes, inter alia, a contribution to the State
"Fonds d'Actions Petrolieres" which is equal to fifteen
per cent (15%) of such share, and the Contractor shall not
be required to make an additional contribution to such
fund.
21.3.2. In order to encourage the exploitation of Natural Gas, the
Government may grant to the Contractor specific benefits
when they are duly justified concerning, inter alia, the
recovery of the Petroleum Costs, production sharing,
bonuses and PETROCI participation, insofar as each such
element relates to the production of Natural Gas.
Those provisions shall be set forth in a special agreement,
in accordance with the provisions of Article 36.5.
21.3.3. The Contractor shall have the right to dispose of its
share of production of Natural Gas, in accordance with
provisions of this Contract. It shall also have the right
to proceed with the separation of liquids from all Natural
Gas produced, and to transport, store as well as
sell on the local market or for export its share of
liquid Petroleum so separated, which will be considered as
Crude Oil for the purpose of the sharing of production
between the Parties under Article 16.
21.3.4. For the purposes of this Contract, the Natural Gas price,
expressed in Dollars per million BTU, shall be equal to
the actual price determined in Natural Gas sales
agreements, such sales excluding specifically:
(a) sales in which the buyer is an Affiliated Company
of the seller as well as sales between the
entities constituting the Contractor; or
(b) sales being for other than payment in freely
convertible currencies and sales fully or
partially made for reasons other than the usual
economic incentives involved in Natural Gas sales.
For sales described in paragraphs (a) and (b) above, the
Natural Gas price shall be mutually agreed by the
Government and the Contractor, on the basis of the
prevailing price at that time of a fuel which could be
substituted for the Natural Gas.
21.3.5. For the purposes of Article 19.1, the quantities of
available Natural Gas, after deduction of the quantities
unavoidably lost and quantities used for the requirements
of the Petroleum Operations, reinjected or flared or
provided to the Government under Article 21.2.2, shall be
expressed in a number of Barrels of Crude oil by
converting Natural Gas to
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Crude Oil using a formula under which one hundred
sixty-five (165) cubic meters of Natural Gas as measured
at the temperature of 15 degrees C and at the atmospheric
pressure of 1.01325 bar are deemed to be equal to one (1)
Barrel of Crude Oil, unless otherwise agreed between the
Parties.
21.3.6. In the event the Contractor elects to remove all or a
portion of the liquid Petroleum from the Natural Gas by
such means as may be determined by the Contractor,
the Natural Gas shall be metered after the Contractor has
completed its operations to remove the liquid Petroleum
from the Natural Gas.
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ARTICLE 22
PETROCI PARTICIPATION
22.1. Considering the results of the exploratory wells B1-5X and B1-8x
drilled prior to the Effective Date, the Parties agree that, as of the
Effective Date, there shall be established within the Delimited Area a
Special Area (covered by the exclusive exploration authorization
granted under Article 3.1) which shall encompass the above described
wells, which Special Area is described in Appendix 1 of this Contract.
In consideration of the work previously undertaken in the Delimited
Area, PETROCI shall, from the Effective Date, be one of the
entities constituting the Contractor in order to participate in the
Petroleum Operations, with the following participating interests:
(a) In respect of the Special Area, PETROCI shall own a forty per
cent (40%) participating interest; and
(b) In respect of the Delimited Area except for the Special Area,
PETROCI shall own a ten per cent (10%) participating interest
(hereinafter referred to as the "Initial Participation"),
subject to the option of adding an Additional Participation
as hereinafter provided.
Except as otherwise provided in this Contract, PETROCI is subject to
the same obligations and enjoys the same rights as those of the
other entities constituting the Contractor, as a result of its
participation and in proportion to its applicable participating
interest in respect of each portion of the Delimited Area.
22.2. Pursuant to the policy for promoting the petroleum industry in Cote
d'Ivoire defined by the Government, PETROCI shall have the option to
increase, in respect of each Exploitation Perimeter which is created
(excluding, however, any portion of the Special Area) its Initial
Participation in accordance with the following provisions:
(a) The Total Participation of PETROCI (which shall be its
Initial Participation plus its Additional Participation) with
respect to an Exploitation Perimeter may reach a maximum of
twenty per cent (20%).
(b) Not later than four (4) months following the issue date of an
exclusive exploitation authorization, PETROCI shall notify in
writing the other entities constituting the Contractor of its
wish to exercise its option to increase its participation with
respect to the exclusive exploitation authorization and
Exploitation Perimeter concerned, specifying the percentage of
its additional participation (hereinafter referred to as the
"Additional Participation") for said exclusive exploitation
authorization and Exploitation Perimeter. Failing notification
within that four (4) month period,
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PETROCI's participation for that Perimeter shall remain equal
to its Initial Participation.
(c) The Additional Participation shall be effective in respect of
the Exploitation Perimeter concerned from the date of the
notice referred to in Article 22.2 (b) above.
(d) Upon receipt of the written notice from PETROCI, all the
entities constituting the Contractor other than PETROCI shall
assign to PETROCI, immediately and together, each in proportion
to its participating interests at that time, a percentage of
their participation in the exclusive exploitation authorization
and Exploitation Perimeter concerned, the total of which shall
be equal to the percentage of the Additional Participation of
PETROCI.
(e) As from the effective date of its Additional Participation, or,
failing notification by the notification deadline referred to
in Article 22.2 (b), each of these two dates being deemed to be
the Participation Commencement Date, the following shall occur:
(i) in respect of the exclusive exploitation authorization
concerned, PETROCI shall participate in the Petroleum
Costs related to the corresponding Exploitation
Perimeter in proportion to its Total Participation,
subject to the provisions of Article 22.2 (f);
(ii) if such authorization is the first exclusive
exploitation authorization under this Contract, PETROCI
shall reimburse, pursuant to Article 22.2 (g) and subject
to the provisions of Article 22.2 (f), to the other
entities constituting the Contractor its percentage of
Total Participation in the Petroleum Costs not yet
recovered, incurred from the Effective Date of this
Contract until the date of the Participation
Commencement Date;
(iii) for each subsequent exclusive exploitation
authorization, PETROCI shall reimburse, pursuant to
Article 22.2 (g) and subject to the provisions of
Article 22.2 (f), to the other entities constituting
the Contractor its percentage of Total Participation in
the Petroleum Costs with respect to the new exclusive
exploitation authorization not yet recovered, incurred
from the Participation Commencement Date relating to the
previous exclusive exploitation authorization until the
Participation Commencement Date in respect of the new
exclusive exploitation authorization.
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(f) Taking into account the previous work already undertaken in the
Delimited Area, PETROCI shall not be obligated during the
entire term of this Contract for either the financing or the
reimbursement of its Initial Participation share of the
Petroleum Costs relating exclusively to exploration
expenditures and to appraisal expenditures, those expenditures
being borne and recoverable by the other entities constituting
the Contractor in accordance with Article 16.2, each in
proportion to its participation.
(g) As provided for in Article 22.2. owed (e), PETROCI shall
reimburse the amounts owed resulting from its participation
to the other entities constituting the Contractor as follows,
at PETROCI's option:
(i) within six (6) months from the date of notice of the
increase of its participation, by payment in Dollars or
by payments in Crude Oil valued in accordance with the
provisions of Article 18; or
(ii) in kind by means of liftings by the Contractor (excluding
PETROCI) of a portion of the share of Petroleum to which
PETROCI is entitled under Articles 16.3 and 21.3, not
exceeding fifty per cent (50%) of said portion, the
value of that share being calculated in accordance with
the provisions of Article 18, until the value of those
liftings is equal to the outstanding balance increased
by interest as provided below. The outstanding balance
due on the date of expiry of the above-mentioned
period of six (6) months shall bear interest from that
date until the date of reimbursement, at the annual
LIBOR rate (London Interbank Offering Rate) for
six-(6)-month Dollar deposits as quoted by the National
Westminster Bank in London on the last business day
prior to the due date of payment plus one (1) percentage
point, with annual compounding.
22.3. (a) The joint venture between PETROCI and the Contractor must not
in any event either cancel or cause prejudice to the rights of
the other entities constituting the Contractor to refer to the
arbitration clause provided by Article 31, which is not
applicable to disputes between the Government and PETROCI but
only to disputes between the Government and the other entities
constituting the Contractor.
The Government shall notify the International Center for the
Settlement of Investment Disputes, within forty five (45) days
after the Effective Date, that it designates PETROCI as a
constituent subdivision under Article 25 of the ICSID
Convention and agrees to include a clause providing for
arbitration by said Center in the agreements to be concluded
between PETROCI and the other
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entities constituting the Contractor, and it shall notify the
other entities constituting the Contractor that it has
fulfilled such formality.
(b) PETROCI, on the one hand, and the other entities constituting
the Contractor, on the other hand, shall not be jointly and
severally liable for the obligations resulting from this
Contract as provided for in Article 34. PETROCI shall be
individually responsible to the Government for its obligations
under this Contract, and the other entities constituting the
Contractor shall not be responsible to the Government in
respect of the participation of PETROCI under this Contract.
(c) Any failure by PETROCI to perform any of its obligations shall
not be considered as a default of the other entities
constituting the Contractor and may not in any event be invoked
by the Government in order to terminate this Contract in
accordance with Article 36.4 or to refer to the procedure set
forth in Article 36.3.
(d) PETROCI may, at any time, assign only to a company of its
election controlled by the State all or part of the rights and
obligations resulting from the participation set forth in
this Article.
22.4. The terms of PETROCI participation together with the relations
between the entities constituting the Contractor shall be determined
in a joint operating agreement which shall enter into force upon the
Effective Date of this Contract.
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ARTICLE 23
FOREIGN EXCHANGE CONTROL
23.1. The Contractor shall be subject to the foreign exchange control
regulations of the Republic of Cote d'Ivoire, subject
to the provisions of this Article.
23.2. The Contractor shall have the right to retain abroad all the foreign
currencies arising from export sales of the Petroleum to which it is
entitled under this Contract, or from assignments, as well as equity,
loan proceeds and, more generally, all assets acquired abroad by it,
to pay suppliers, lenders and contractors abroad directly, and to
freely dispose of such foreign currencies or assets to the extent
that they may exceed its requirements for its operations in Cote
d'Ivoire.
23.3. No restriction shall be imposed on foreign borrowings or importation
by the Contractor of funds intended for the performance of the
Petroleum Operations.
23.4. The Contractor shall have the right to purchase currencies of Cote
d'Ivoire with foreign currencies, and freely exchange into foreign
currencies of its election and remit abroad any funds held by it in
Cote d'Ivoire in excess of its local requirements at exchange rates
which shall not be less favorable than those generally applicable to
any other buyer or seller of foreign currencies.
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ARTICLE 24
MONETARY UNIT USED FOR BOOK-KEEPING
24.1. The registers and accounting books relating to this Contract shall be
maintained in the French language and recorded in Dollars. Said
registers and accounting books shall be used to determine the
Petroleum Costs, gross income, exploitation costs, net profits and
for the purpose of the preparation of the Contractor's tax return;
they shall contain, inter alia, the Contractor's accounts showing the
sales of Petroleum under this Contract.
For information purposes, accounts and balance sheets shall also be
maintained in CFA Francs.
24.2. Whenever it is necessary to convert into Dollars expenses and income
expressed in another currency, the exchange rates used shall be equal
to the arithmetic average of the daily closing rates for the purchase
and sale of said currency during the month when the expenses were
paid and the income received; provided, in the event the Contractor
actually purchases or sells any currency for another currency, the
Contractor shall use the actual rate of exchange for the registers and
accounting books.
In the event of an official devaluation or revaluation during a given
month, two arithmetic averages shall be applied, the first one
calculated on the basis of the daily closing rates for purchase and
sale in respect of the period from the first day of the month until
the day of said devaluation or revaluation, inclusive, and the second,
on the basis of the daily closing rates for purchase and sale in
respect of the period from the day of said devaluation or revaluation,
exclusive, until the last day of the month concerned.
The exchange rates to be applied in order to carry out the evaluations
provided for in this Article shall be those quoted on the Paris
exchange market or, if said rates are not available, those quoted by
the Citibank N.A., New York.
24.3. The originals of the registers and accounting books referred to in
Article 24.1 shall be kept in Cote d'Ivoire.
The registers and accounting books shall be supported by detailed
documents with respect to receipts and Petroleum Costs.
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ARTICLE 25
ACCOUNTING METHODS AND AUDITS
25.1. The Contractor shall maintain its accounts to conform with the
regulations in force and with the provisions of the Accounting
Procedure set out in Appendix 2 attached hereto forming an integral
part of this Contract.
25.2. After giving the Contractor notice thereof in writing, the Government
shall have the right at its own cost to cause the registers and
accounting books relating to the Petroleum Operations to be
controlled, inspected and audited by its own agents or by experts of
its election, and shall have a period of four (4) Calendar Years
following the end of each Calendar Year to carry out those controls,
inspections or audits relating to said Calendar Year and to submit its
objections to the Contractor for any contradictions or errors found
during such controls, inspections or audits.
Should the Government fail to make any claim within the
above-mentioned period of four (4) Calendar Years, no further
objection or claim shall be made by the Ivorian administration for the
Calendar Year concerned.
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ARTICLE 26
IMPORT AND EXPORT
26.1. (a) The Contractor shall have the right to import into Cote
d'Ivoire, in its own name or on behalf of its agents,
contractors and subcontractors, all the technical equipment,
materials, machinery and tools, goods and supplies necessary
in the Contractor's opinion for the proper conduct and
achievements of the Petroleum Operations; that includes but is
not limited to, drilling, exploration, appraisal,
development, production, transportation, processing, storage,
export, sales and marketing equipment, pipelines, tanks,
geological and geophysical tools, boats, ships, launches,
drilling barges, ships and platforms, production platforms,
civil engineering and telecommunication equipment, power
plants and all related equipment, aircraft, automotive
equipment and other vehicles, instruments, tools, spare parts,
alloys and additives, camping equipment, protective clothing
and equipment, medical, surgical and sanitary equipment,
supplies and instruments necessary for the installation and
operation of hospitals and dispensaries, documentation
equipment, construction materials of all types, lumber, office
furniture and equipment, computers, printers, copy machines
and related supplies, automobiles, trucks, explosives,
chemicals, fuels, ship supplies, pharmaceutical products,
medicines.
(b) The Contractor shall have the right to import into Cote
d'Ivoire, in its own name or on behalf of its agents,
contractors and subcontractors, the furniture, clothing,
household appliances and all personal effects for all the
foreign employees and their families assigned to work in Cote
d'Ivoire for the Contractor or its agents, contractors or
subcontractors.
(c) However, the Contractor, its agents, contractors and
subcontractors undertake not to proceed with the imports
mentioned in Article 26.1 (a) insofar as such items are
available in Cote d'Ivoire under equivalent conditions
of quantity, quality, price, time of delivery and terms of
payment, unless specific requirements or technical emergencies
are presented by the Contractor.
(d) The Contractor, its agents, contractors and subcontractors
shall have the right to re-export from Cote d'Ivoire, free of
all duties, charges, fees, imposts and taxes of any kind and
at any time, all the items imported under Article 26.1
(a) and (b) which are no longer necessary for the Petroleum
Operations except the items which have become the property of
the State under the provisions of Article 20.
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26.2. All the technical material, materials, machinery and tools, goods and
supplies specified in or covered by Article 26.1 which the
Contractor, its agents, contractors and subcontractors, their foreign
employees and their families shall have the right to import in one or
more shipments to Cote d'Ivoire, shall be fully exempt of all duties
and taxes of any kind payable as a result of the importation including
the statistical tax ("entry duties and taxes").
As the case may be, the applicable administrative formalities shall be
those of the following regimes:
(a) Exceptional temporary admission regime ("regime de 1'admission
temporaire exceptionnelle") in full suspension of entry duties
and taxes for equipment, materials, machinery and tools, goods
and supplies mentioned in Article 26.1(a) necessary for the
proper conduct of the Petroleum Operations, for the entire
duration of their use in Cote d'Ivoire including the
continental shelf, it being understood that for the equipment,
materials, machinery and tools, and goods and supplies consumed
during the operations or left in place, the exceptional
temporary admission discharge shall be automatic by simple
quarterly declaration and without payment of duties and taxes.
In the event of a duly justified emergency, the equipment,
materials, tools and machinery, goods and supplies shall be
placed at the disposal of the users as soon as they arrive in
Cote d'Ivoire and the administrative regularization relating
to their admission shall be made later and as soon as
possible.
(b) Supply regime ("regime de l'avitaillement") for consumable
goods and foodstuffs, fuels and lubricants used at sea, in
particular on all ships, aircraft and platforms used for
petroleum exploration and exploitation.
(c) Exempt admission regime ("regime de l'admission en franchise")
according to the regulations in force, for furniture, clothing,
household appliances and personal effects.
26.3 Items other than those mentioned in Article 26.2 shall be subject to
the generally applicable regime.
26.4. The Contractor, its agents, contractors and subcontractors shall,
provided that they inform the Government in advance of their intent to
sell and subject to the provisions of Article 20, have the right to
sell in Cote d'Ivoire, all equipment, materials, machinery and
tools, goods and supplies which they have imported when they are
considered as surplus and no longer necessary for the Petroleum
Operations. In that event, the seller shall be responsible for paying
all duties and taxes applicable on the date of the transaction and for
fulfilling all the formalities prescribed by the regulations in force.
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The Government shall have a preferential right to purchase such
equipment, materials, machinery and tools, goods and supplies at
prices and conditions equivalent to those agreed by Third Parties.
That right shall be exercised within, period not to exceed the period
agreed by said Third Parties for the conclusion of the sale.
26.5. During the term of this Contract, the Contractor, its customers and
their carriers shall have the right to export freely at the export
point selected for that purpose, free of all export duties, charges,
fees, imposts and taxes and at any time, the portion of Petroleum to
which the Contractor it entitled in accordance with the provisions of
this contract after deduction of all deliveries made to the
Government.
26.6. All imports and exports carried out under this Contract shall be
subject to the formalities and documentation required by Customs, but
shall not give rise to any payment of entry duties and taxes, subject
to the provisions of Article 26.3 owing to the regime applicable to
the Contractor pursuant to the provisions of this Contract.
The Directeur des Hydrocarbures, on behalf of the Government shall
assist the Contractor with the appropriate customs authorities in the
Republic of Cote d'Ivoire in order to facilitate the application of
the provisions of this Article 2.6.
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ARTICLE 27
DISPOSAL OF PRODUCTION
CONTRIBUTION TO THE SATISFACTION OF NATIONAL NEEDS
TRANSFER OF TITLE TO PETROLEUM AND LIFTINGS
27.1. Each Calendar Year, up to a total of ten per cent (10%) of the share
of Crude Oil production to which the Contractor is entitled pursuant
to Articles 16.2 and 16.3, shall be sold to PETROCI by the Contractor
for the purpose of satisfying the needs of the domestic market of
Cote, d'Ivoire. Such contribution of the Contractor shall be in
proportion to its share of production, as defined in Articles 16.2
and 16.3, in the total Crude Oil production in Cote d'Ivoire.
The quantity of Crude Oil the Contractor shall be obligated to sell
to PETROCI shall be notified to it by PETROCI at least three (3)
months prior to the beginning of each Calendar Quarter.
27.2. The price of the Crude Oil sold to PETROCI under Article 27.1 for the
needs of the domestic market shall be equal to seventy-five per cent
(75%) of the Market Price defined in Article 18.
That Crude Oil price shall be payable to the Contractor in CFA Francs
two (2) months after receipt of the invoice unless otherwise agreed
between the Parties. In order to convert Dollars into CFA Francs,
PETROCI shall use the exchange rate determined according to the
procedure provided in Article 24.2.
27.3. The transfer of title to, and risks of, the share of Petroleum
production to which each Party is entitled shall occur at the Delivery
Point, or at any other transfer point agreed between the Parties.
The Contractor shall not be the owner of Petroleum before such point;
it shall, however, take out such insurance policies which are
reasonably available and. would be generally carried by a prudent
operator in the international petroleum industry, in order to cover
damages, losses or liabilities which may occur to such Petroleum
before the Delivery Point; provided the Contractor shall not be liable
for any lost production of Petroleum.
27.4. Each of the Parties shall have the right and obligation, subject to
the provisions of Articles 16.6, 21 and 27.1, to dispose of and lift
the share of Petroleum to which it is entitled under this Contract.
Such share shall be lifted on as regular a basis as possible. it being
understood that each of the Parties, within reasonable limits, shall
be authorized to lift more
<PAGE> 102
68/.
(overlift) or less (underlift) than its share of Petroleum produced
and unlifted by the lifting day, to the extent that such overlift or
underlift does not infringe on the rights of the other Party and is
compatible with the production rate and the storage capacity. In the
establishment of the sequence of liftings, priority shall be given to
the Party with the largest share of produced and unlifted quantity
of Petroleum at a given time. The Parties shall periodically meet to
establish a provisional lifting program on the basis of the
principles above-described and taking into account the wishes of the
Parties as regards the dates and quantities of their liftings,
provided that those wishes are compatible with said principles.
Prior to commencement of production in the Delimited Area, the
Parties shall execute a lifting agreement specifying the practical
procedures of implementation of this Article.
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ARTICLE 28
PROTECTION OF RIGHTS
28.1. The Contractor shall take all reasonable steps to fulfill its
obligations under this Contract. The Contractor shall be held liable
in conformity with the general law as regards any person for any loss
or damage, arising from or in relation to the Petroleum Operations,
which it, its employees, contractors, subcontractors or agents and
their employees may cause to the person, property or right of other
persons.
28.2. The Government shall take all reasonable steps to facilitate the
implementation by the Contractor of the objectives of this Contract,
and to protect the property and operations of the Contractor, its
employees and agents in the territory of Cote d'Ivoire.
28.3. At the duly justified request of the Contractor, the Government shall
prohibit the construction of dwelling or business buildings in the
vicinity of installations which the Contractor may declare dangerous
as a result of its operations. The Government shall take all
necessary precautions to prohibit anchoring in the vicinity of
submerged pipelines, and to prohibit any hindrance to the use of any
other installation necessary for the Petroleum operations whether on
land or offshore.
28.4. The Contractor shall take out and cause to be taken out by its
contractors and subcontractors, in respect of the Petroleum
Operations, all insurances of the type and for such amounts
customarily used in the international petroleum industry, including
third party liability insurance and insurances to cover damage to
property, facilities, equipment and materials, without prejudice to
such insurances which would be required under Ivorian legislation.
The Contractor shall provide the Government with the certificates
supporting the subscription of the insurances referred to above.
28.5. The Contractor shall indemnify, defend and hold harmless the
Government against all claims, losses or damages whatsoever caused
by, or resulting from, the Petroleum Operations; provided, that said
claims, losses or damages did not accrue, in whole or in part, by the
action of the Government.
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ARTICLE 29
PERSONNEL AND TRAINING
29.1. The Contractor must, for the performance of the Petroleum operations,
employ in priority Ivorian personnel in a minimum proportion of
seventy-five per cent (75%) of its total personnel.
Managers, technicians, engineers, accountants, geologists,
geophysicists, scientists, chemists, drillers, foremen, mechanics,
skilled workers, secretaries and, executive employees may be hired
outside Cote d'Ivoire if similarly qualified specialists cannot be
hired in the country or seconded from PETROCI.
Upon the granting of an exclusive exploitation authorization, a plan
for "Ivoranization" shall be submitted for the approval of the
Government.
29.2. Upon commencement of the Petroleum Operations, the Contractor shall
organize a training program for Ivorian nationals. Said program
shall concern, in association with the operator, all the Petroleum
Operations, including, but not limited to, the preliminary studies
for the lay-out and carrying out of works (such as geophysical
survey, drilling, production tests, development of a field) and
negotiation of contracts with possible subcontractors.
For that purpose, the Contractor, excluding PETROCI for the purposes
of this Article 29.2., shall devote a minimum annual training budget
of:
(a) one hundred thousand (100,000) Dollars during the exploration
period, until an exclusive exploitation authorization is
granted;
(b) one hundred fifty thousand (150,000) Dollars during the
exploitation period, as from when the first exclusive
exploitation authorization is granted.
Each annual training program shall be established by mutual agreement
between the Government and the Contractor.
The training expenses borne by the Contractor, excluding PETROCI,
shall be included in the recoverable Petroleum Costs, and it is
agreed that all such costs shall be recovered by the Contractor
excluding PETROCI.
29.3. The entry into Cote d'Ivoire of all the above-mentioned foreign
personnel and their immediate family shall be authorized and the
Government shall issue the documents necessary for that entry to all
members of the foreign personnel, such as entry visas, residence and
working permits and exit visas, in compliance with the immigration
regulations in force in Cote d'Ivoire.
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71/.
At the request of the Contractor, the Government shall facilitate any
immigration formalities with, the Immigration Bureau, at the points
of entry into and exit from Cote d'Ivoire, in respect of the
Contractor's employees, contractors, subcontractors and agents,
and-their families, all without undue delays.
29.4. All the employees required for the conduct of the Petroleum
operations shall be under the Contractor's authority or that of its
Affiliated Companies, contractors, subcontractors and agents, in
their capacity as employers. Their work, number of working hours,
salaries and any other matters relating to their employment
conditions shall be determined by the Contractor or its Affiliated
Companies, contractors, subcontractors and agents, in accordance with
social legislation applicable in Cote d'Ivoire. However, the
Contractor may freely select and assign its personnel, subject to the
provisions of Article 29.1.
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ARTICLE 30
ACTIVITY REPORTS IN RESPECT OF
EXCLUSIVE EXPLOITATION AUTHORIZATIONS
30.1. The provisions of Article 8 shall apply, mutatis mutandis, to any
exclusive exploitation authorizations. In addition, the following
periodic activity reports shall, inter alia, be furnished in
respect of each Field:
(a) daily production reports;
(b) monthly reports stating the quantities of Petroleum produced
and those sold during the previous month together with
information on such sales.
Unless the Contractor gives its written consent, the information
relating to a Field under exploitation, except statistical data about
activity, shall be considered as confidential by the Parties during
the term of this Contract.
30.2. The Contractor shall notify the Government forthwith of any material
damage whatsoever caused to the petroleum fields or facilities, and
shall take all necessary steps to terminate it and carry out the
necessary repairs.
30.3. From the date of granting an exclusive exploitation authorization,
the annual reports referred to in Article 8.3(d) shall also include
the following:
(a) information on all development and production operations
carried out during the previous Calendar Year, including the
quantities of Petroleum produced and those sold, if any;
(b) information on all transportation and sales operations
together with the location of the main facilities built
by the Contractor, if any,
(c) a statement specifying the number of employees and workers,
their qualification, their nationality and the total amount
of their salaries, together with a report on the medical care
and training provided to them.
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ARTICLE 31
ARBITRATION
31.1. In the event of any dispute between the Government and the entities
constituting the Contractor, other than PETROCI, concerning the
interpretation or application of any of the provisions of this
Contract, the Parties (other than PETROCI) shall endeavour to settle
such dispute amicably.
If within three (3) months from the date of notice of this dispute by
either Party to the other, the Parties have not reached settlement,
the dispute shall, at the request of either Party, be referred for
arbitration to the International Centre for Settlement of Investment
Disputes (hereinafter referred to as the "Centre") in accordance with
the Arbitration Rules in force on the Effective Date as specified by
the Convention on the Settlement of Investment Disputes between States
and Nationals of Other States, a convention signed and ratified by the
Government of the Republic of Cote d'Ivoire.
31.2. The tribunal shall be constituted by three (3) arbitrators, who shall
not have the same nationality as the Parties, as provided hereafter:
(a) Either Party which desires to initiate arbitration proceedings
shall address a request for arbitration to the
Secretary-General of the Centre. The arbitration shall be
initiated by one Party (hereinafter referred to as the "First
Party") who shall notify the other Party (hereinafter referred
to as the "Other Party") and the Secretary-General of the
Centre that it has elected to refer the matter to arbitration,
and that it has appointed an arbitrator who shall be
identified in such notice.
(b) The Other Party shall notify the First Party and the
Secretary-General of the Centre in writing, within thirty (30)
days after its receipt of the First Party's notice, of the
arbitrator the Other Party has selected. Failing such notice,
a second arbitrator shall be appointed by the Chairman of the
Administrative Council of the Centre (hereinafter referred to
as the "Chairman").
(c) The two arbitrators so chosen shall select a third arbitrator
within thirty (30) days after the second arbitrator has been
appointed; failing such appointment, the third arbitrator
shall be appointed by the Chairman at the request of either
the First Party or the Other Party.
31.3. The arbitration shall be held in Paris (France). The language used
during the procedure shall be the French language. The applicable
law shall be Ivorian law. Nevertheless, French law shall be used as
the procedural law for the conduct of the arbitration.
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The arbitral tribunal's award shall be final; it shall be binding on
the Parties and shall be immediately enforceable.
31.4. The expenses of the tribunal, the charges for the use of the
facilities of the Centre and any related costs determined by the
Secretary General in connection with arbitration shall be borne
equally by the Parties. Concerning the fees of the tribunal, each
Party shall pay the expenses of its own arbitrator and the expenses of
the third arbitrator shall be shared equally.
The performance by the Parties of their obligations under this
Contract shall not be suspended during the course of the arbitration.
31.5 The Government hereby irrevocably waives any claim to immunity in
regard to any proceedings to enforce any arbitral award rendered
pursuant to this Contract, including, inter alia, any immunity from
service of process, any immunity from jurisdiction and any immunity
from execution as to its property.
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ARTICLE 32
FORCE MAJEURE
32.1. No delay or default of a Party in performing any of the obligations
resulting from this Contract shall be considered as a breach of this
Contract if such delay or default is caused by a case of Force
Majeure.
If in the event of Force Majeure the performance of any of the
obligations under this Contract is delayed, that period of delay
extended by the period of time required to repair the damage caused
during such delay and to resume the Petroleum Operations shall be
added to the period provided by this Contract for the performance of
said obligation, and the existing exclusive exploration, appraisal or
exploitation authorizations shall be extended by that period as
regards the area concerned by Force Majeure.
32.2. Force Majeure means any event irresistible and beyond the control of a
Party, such as: earthquake, flood, explosion, accident, strike,
lockout, riot, delay in obtaining rights-of-way, insurrection, civil
disturbance, sabotage, act of war or condition attributable to war, or
any other cause beyond its control, similar to or different from those
already mentioned.
32.3. Where a Party considers it is prevented from performing any of its
obligations by the occurrence of a case of Force Majeure, it shall
forthwith notify the other Party thereof by specifying the grounds for
establishing Force Majeure and take, in consultation with the other
Party, all necessary and useful steps to ensure the normal resumption
of the performance of the concerned obligations upon termination of
the event constituting the case of Force Majeure.
Obligations other than those affected by the case of Force Majeure
shall continue to be performed in accordance with the provisions of
this Contract.
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ARTICLE 33
JOINT AND SEVERAL OBLIGATIONS AND GUARANTEES
33.1. All the clauses, conditions and provisions of this Contract shall be
binding on the Parties and their respective successors and assignees.
This Contract constitutes the only agreement between the Parties and
no previous communication, promise or agreement, whether oral or
written, between the Parties, related to the purpose of this Contract
may be asserted to amend the clauses hereof.
The Government certifies and guarantees that there is no other
applicable agreement in force with respect to the petroleum rights
within the Delimited Area, that it will perform its obligations in
fairness and good faith and that this Contract will not be cancelled,
amended or modified except by agreement between the Parties.
33.2. Except as otherwise provided in Article 22.3(b), where the Contractor
is constituted by several entities, the obligations and liabilities of
those entities under this Contract shall be joint and several;
provided that the entities constituting the Contractor shall not be
jointly liable for the profits tax as provided in Article 17.
33.3. If one of the entities constituting the Contractor is a subsidiary,
its parent company shall submit to the Government's approval an
undertaking guaranteeing the proper performance of the obligations
arising from this Contract, as provided in Appendix 3 attached hereto.
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ARTICLE 34
RIGHTS OF ASSIGNMENT
34.1. Subject to the written consent of the Government which shall not be
withheld without valid reason, except as otherwise provided in Article
22.3.(d), all or part of the rights and obligations arising from
this Contract may be assigned by any of the entities constituting the
Contractor to Third Parties whose technical and financial reputation
is well established. Such Third Party assignees shall thereafter be
jointly and severally liable with the other entities constituting the
Contractor for the obligations arising from this Contract.
The terms of any assignment shall be subject to the prior approval of
the Government.
If within sixty (60) days following notification to the Government of
a proposed assignment accompanied by all the related information and
the draft assignment deed, it has not given its decision, that
assignment shall be deemed to be approved by the Government.
From the date of approval of an assignment, the assignee shall be
bound by the terms and conditions of this Contract.
34.2. Except as provided in Article 22.3 (d), all or part of the joint and
several rights and obligations arising from this Contract may be
freely assigned at any time by any of the entities constituting the
Contractor to one or more Affiliated Companies or other entities
constituting the Contractor.
Said assignments shall be notified to the Government by the Contractor
prior to the effective date thereof and, as the case may be, the
provisions of Article 33.2 shall be applicable.
34.3. Assignments carried out in breach of the provisions of this Article
shall be null and void.
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ARTICLE 35
APPLICABLE LAW AND STABILITY OF CONDITIONS
35.1. The laws and regulations in force of the Republic of Cote d'Ivoire
shall apply at all times to the Contractor, to this Contract and to
the operations which are the purpose thereof except if they are (i)
inconsistent with provisions of this Contract or (ii) if the Contract
otherwise provides, in which cases the provisions of this Contract
shall prevail.
35.2. This Contract is executed between the Parties in accordance with the
laws and regulations in force at the date of its signing and on the
basis of the provisions of said laws and regulations, as regards,
inter alia, its economic, fiscal and financial provisions.
Consequently, should future laws or regulations modify the provisions
of the laws and regulations in force at the date of signing of this
Contract and should those modifications bring about a material change
in the respective economic situation of the Parties resulting from the
original provisions of said Contract, the Parties shall in good faith
seek an agreement with a view to modifying those provisions in order
to restore the economic balance of the Contract as intended at the
signing thereof.
In the event the Parties, in spite of their efforts, are unable to
reach an agreement, the provisions of Article 35 above may be applied.
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ARTICLE 36
IMPLEMENTATION OF THE CONTRACT
36.1. The Parties agree to cooperate in every possible manner to achieve the
objectives of this Contract.
The Government shall facilitate the Contractor's performance of its
activities by granting it any permits, licenses and access rights
necessary for the performance of the Petroleum Operations and by
making available to it any appropriate services and facilities, so
that the Parties can obtain the best benefit from a sincere
cooperation. However, the Contractor shall observe the applicable
procedures and formalities, and shall apply to the competent
departments of the administration.
36.2. Any notices or other communications under this Contract shall be
deemed to have been properly sent if they are addressed to an
authorized representative of the Party concerned at the location of
said Party's principal office in Cote d'Ivoire, with all costs paid,
by (i) registered mail, (ii) telex, (iii) facsimile transmission with
acknowledgement of receipt by the addressee, or (iv) by hand.
Notifications or other communications shall be deemed to have been
made on the date when the addressee shall receive them.
36.3. If the Government considers that the Contractor has committed a breach
in the performance of any of its obligations under this Contract, it
shall so notify the Contractor in writing and the Contractor shall
have sixty (60) days to remedy the breach or refer the matter to the
dispute settlement procedure provided in Article 31 of this Contract.
36.4 The breach of the Contractor as to the respect of the provisions of
this Contract may give rise to the termination thereof by the
Government, after notification to the Contractor in accordance with
the provisions of Article 36.3.; provided, however, that such
termination shall not be declared if the Contractor has begun to cure
the alleged breach, while advising the Government of the corrective
action taken, or the matter has been submitted to the dispute
settlement procedure in accordance with the terms of Article 31.
In the event of a bankruptcy leading to liquidation of one of the
entities constituting the Contractor, such entity shall immediately
lose its rights pursuant to this Contract and the remaining entities
constituting the Contractor shall assume such entity's participating
interest in accordance with the joint operating agreement as well as
its obligations under this Contract. In the event the entity in
liquidation is the operator, the Government may terminate this
Contract, if it is not satisfied with the technical and financial
capacities of the remaining entities.
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No termination shall relieve the Contractor from its obligations
incurred prior to, or arising from, that termination.
36.5. The terms and conditions of this Contract may be modified only in
writing and by mutual agreement between the Parties.
36.6. Unless otherwise specified in writing, the "Directeur des
Hydrocarbures" shall represent the Government under this Contract and
may grant, in the name and on behalf of the Government, any consent
which may be necessary or useful for the implementation of this
Contract.
36.7. Headings in this Contract are inserted for purposes of convenience and
reference and in no event shall define, restrict or describe the scope
or object of the Contract or of any of its clauses.
36.8. Appendices 1, 2, and 3 attached hereto shall form an integral part of
this Contract.
36.9. Any waiver of a Party concerning the performance of any obligation of
the other Party under this Contract shall be in writing and signed by
the representative of the Party waiving such performance, and no
waiver shall be implied if such Party fails to exercise any of its
rights to which it is entitled under this Contract.
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ARTICLE 37
ENTRY INTO EFFECT
This Contract shall enter into effect, after its signature by the Parties, on
its Effective Date.
IN WITNESS WHEREOF, the Parties have signed this Contract in six (6) copies.
ABIDJAN, this 27 JUNE 1992
FOR THE REPUBLIC OF COTE D'IVOIRE
The President of the Republic
H.E. Felix HOUPHOUET - BOIGNY
FOR PETROCI FOR UMIC Cote d'Ivoire
Corporation
The General Manager The President
Mr. Moussa FANNY Mr. John B. BROCK
<PAGE> 116
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APPENDIX 1
Attached to and made part of this Contract between the Republic of Cote
d'Ivoire and the Contractor.
DELIMITED AREA
On the Effective Date, the Delimited Area, designated as Block CI-11, is formed
by the area included inside the perimeter constituted by the points RR, N, P,
and R indicated on the map attached hereto.
The geographical coordinates of those points are the following, with reference
to the Greenwich meridian:
<TABLE>
<CAPTION>
Point Latitude Longitude
<S> <C> <C>
RR 5' 25' 00" N 4' 53' 00" W
N 5' 25' 00" N 4' 45' 00" w
P 4' 35' 00" N 4' 45' 00" W
R 4' 35' 00" N 4' 53' 00" W
</TABLE>
Those coordinates are only given for purposes of illustration and shall not be
considered as the boundaries of the national jurisdiction of Cote d'Ivoire.
The surface of the above-defined Delimited Area is deemed to be equal to about
1357 sq.km.
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SPECIAL AREA
On the Effective Date, the Special Area, included within the Delimited Area, is
formed by the area included inside the perimeter constituted by the points 1,
2, 3, and 4 indicated on the attached map.
The geographical coordinates of those points are the following with reference
to the Greenwich meridian:
<TABLE>
<CAPTION>
Point Latitude Longitude
<S> <C> <C>
1 5' 04' 00" N 4' 50' 00" W
2 5' 04' 00" N 4' 47' 00" W
3 5' O1' 00" N 4' 47' 00" W
4 5' 01' 00" N 4' 50' 00" W
</TABLE>
Those coordinates are only given for purposes of illustration and shall not be
considered as the boundaries of the national jurisdiction of Cote d'Ivoire.
The surface of the Special Area above-defined is deemed to be equal to about 31
sq. km.
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APPENDIX 2
Attached to and made part of this Contract between the Republic of Cote
d'Ivoire and the Contractor.
ACCOUNTING PROCEDURE
Article 1 - GENERAL PROVISIONS
1.1. Object
This Accounting Procedure shall be followed and observed in the
performance of the obligations under the Contract to which this
Appendix is attached.
1.2. Accounts and statements
The registers and accounting books of the Contractor shall be in
conformity with regulations, and maintained in accordance with the
general chart of accounts for business ("Plan Computable General des
Enterprises") in force in Cote d'Ivoire. However, the Contractor may
apply the accounting rules and procedures customarily used in the
petroleum industry, insofar as they are not contrary to the regulation
and the chart referred to above.
In accordance with the provisions of Article 24 of the Contract,
accounts, books and registers shall be maintained in the French
language and recorded in Dollars. These accounts shall be used, inter
alia, to determine the amount of Petroleum Costs, the recovery of said
Costs, the production sharing, as well as for the purposes of
Contractor's tax return. For information purposes, accounts and
balance sheets shall also be maintained in CFA Francs.
The Contractor shall record all operations connected with the
Petroleum Operations in accounts separate from those relating to any
other activities which it may carry out in the Republic of Cote
d'Ivoire.
All accounts, books, records and statements, together with documents
supporting expenses incurred, such as invoices and service contracts,
shall be kept in the Republic of Cote d'Ivoire in order to be provided
at the request of the competent authorities of Cote d'Ivoire.
1.3. Interpretation
Unless the provisions of this Accounting Procedure provide otherwise,
definitions of the terms used in this Appendix 2 shall be the same as
those of the same terms set forth in the Contract.
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In the event of any conflict between the provisions of this Accounting
Procedure and the Contract the latter shall prevail.
1.4. Modifications
The provisions of this Accounting Procedure may be modified by mutual
written agreement between the Parties.
The Parties agree that if any provision of the Accounting Procedure
becomes inequitable with respect to either Party, such provision shall
be modified in good faith by the Parties.
1.5 Definitions
The following terms used in this Accounting Procedure shall have the
following meaning:
(a) Development Expenditures means all of the costs and expenses
incurred and paid by the Contractor for the performance of
Petroleum Operations in respect of an Exploitation Perimeter
excluding Operating Expenses and Financial Costs.
(b) Appraisal Expenditures means all of the costs and expenses
incurred and paid by the Contractor for the performance of
Petroleum Operations in respect of an Appraisal Perimeter.
(c) Operating Expenses means all costs and expenses incurred and
paid by the Contractor to operate and maintain wells and
related equipment and facilities with respect to a Field from
the date of first production from such Field. Operating
Expenses shall also include all costs and expenses incurred
and paid by the Contractor to operate and maintain pipelines,
generators, warehouses, docks and other facilities that the
Contractor may have acquired, built or installed under the
provisions of Article 7.2 of the Contract for the carrying out
of Petroleum Operations.
(d) Exploration Expenditures means all of the costs and expenses
incurred and paid by the Contractor for the performance of
Petroleum Operations (including, inter alia, the costs and
expenses described in Article 2.2.11(a) of this Accounting
Procedure) excluding Appraisal Expenditures, Development
Expenditures, Operating Expenses, Financial Costs, Overhead
Costs in Cote d'Ivoire and Overhead Costs Abroad.
(e) Financial Costs means the interest and fees described in
Article 2.2.10 of this Accounting Procedure.
(f) Overhead Costs in Cote d'Ivoire means the costs and expenses
described in Article 2.2.2 of this Accounting Procedure.
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(g) Overhead Costs Abroad means the costs and expenses described
in Article 2.2.3 of this Accounting Procedure.
Article 2 - PETROLEUM COSTS
2.1. Petroleum Costs Account
The Contractor shall maintain a "Petroleum Costs Account" which shall
record in detail the expenses incurred by the Contractor relating to
the Petroleum Operations carried out under this Contract, and which
shall be recoverable in accordance with the provisions of Article 16.2
of the Contract.
This Petroleum Costs Account shall record all Petroleum Costs and
shall distinguish such costs, by Appraisal Perimeter or Exploitation
Perimeter if any, and for the remainder of the Delimited Area, the
following expenses:
(a) Exploration Expenditures;
(b) Appraisal Expenditures;
(c) Development Expenditures;
(d) Operating Expenses;
(e) Financial Costs;
(f) Overhead Costs in Cote d'Ivoire;
(g) Overhead Costs Abroad.
The Petroleum Costs Account shall enable, inter alia, the
identification at any time of:
(a) the total amount of Petroleum Costs;
(b) the total amount of Petroleum Costs recovered;
(c) the total amount credited to the Petroleum Costs Account
pursuant to Article 2.4. (b) below;
(d) the total amount of Petroleum Costs which remain to be
recovered.
For the purposes of Article 16.2 of the Contract, Petroleum Costs
shall be recovered in the following order of priority:
(a) Operating Expenses in respect of a Field incurred and paid
from the date of commencement of regular production;
(b) Financial Costs;
(c) other Petroleum Costs.
In addition, within each of the foregoing categories, the costs shall
be recovered in the sequence in which they had
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been incurred.
Notwithstanding any provision to the contrary in this Accounting
Procedure, the intent of the Parties is not to duplicate any item of
credit or debit of the accounts maintained under the Contract.
2.2. Items debited to the Petroleum Costs Account
The following expenses and costs shall be debited to the Petroleum
Costs Account:
2.2.1. Personnel expenses
All payments, made in respect of the salaries and wages of the
Contractor's employees directly assigned, in the Republic of
Cote d'Ivoire or abroad, whether temporarily or permanently,
to the Petroleum Operations carried out under this Contract to
the extent of the time actually devoted to such assignment,
including legal charges and employees' benefits and all
additional charges or expenses in accordance with the
individual or collective employment contracts or pursuant to
the Contractor's personnel policies.
2.2.2. Overhead Costs in Cote d'Ivoire
Wages and salaries of the Contractor's personnel engaged in
the Petroleum Operations in the Republic of Cote d'Ivoire,
whose work time is not directly allocated to the programs, as
well as costs of maintaining and operating in Cote d'Ivoire a
general and administrative office and sub-offices necessary
for the Petroleum Operations.
2.2.3. Overhead Costs Abroad
The Contractor shall add an amount as overhead paid abroad,
connected to the carrying out of the Petroleum Operations by
the Contractor and its Affiliated Companies, such amounts as
hereinafter calculated representing the estimated cost of
services rendered for the benefit of the said Petroleum
Operations:
(a) prior to the grant of an exclusive exploitation
authorization: four per cent (4%) of expenses charged
to the Petroleum Costs Account excluding overhead
costs for the year in question;
(b) from the grant of the first exclusive exploitation
authorization:
(i) three per cent (3%) of the amount below three
million (3,000,000) Dollars of expenses
charged to the Petroleum Cost Account
excluding overhead costs for the
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year in question;
(ii) two and one-half per cent (2.5%) of the
amount above three million (3,000,000)
Dollars and below six million (6,000,000)
Dollars of expenses charged to the Petroleum
Cost Account excluding overhead costs for the
year in question;
(iii) one and one-half per cent (1.5%) of the
amount above six million (6,000,000) Dollars
of expenses charged to the Petroleum Cost
Account excluding overhead costs for the year
in question.
In the event Overhead Costs Abroad for a given month are less than
five thousand (5,000) Dollars, a minimum charge of five thousand
(5,000) Dollars shall be made for such month.
2.2.4. Buildings
Construction, maintenance expenses and related costs, as well
as rents paid for all offices, houses, warehouses and
buildings of other types, including housing, training, medical
and recreational facilities for employees, and costs of
equipment, furniture, fittings and supplies necessary for the
operation of those buildings required for the performance of
the Petroleum Operations.
2.2.5. Materials, equipment and rentals
Costs of equipment, vehicles, materials, machinery, articles,
supplies and facilities purchased or provided for use in the
Petroleum Operations, as well as rentals or compensation paid
or incurred for the use of all equipment and facilities
necessary for the Petroleum Operations, including the
facilities exclusively owned by the Contractor.
2.2.6. Transportation
Transportation of employees, equipment, materials and
supplies, inside the Republic of Cote d'Ivoire as well as
between the Republic of Cote d'Ivoire and other countries,
necessary for the Petroleum Operations.
The transportation costs of employees shall include the moving
costs in respect of the employees and their families paid by
the Contractor in accordance with its policies.
2.2.7. Services
Costs for services rendered by subcontractors, consultants,
experts and public utilities as well as any costs related to
services rendered by the
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Government or any other authorities of the Republic of Cote
d'Ivoire.
Costs for services rendered by Affiliated Companies, provided
that such costs shall not exceed those normally charged by
independent companies for an identical or similar service.
2.2.8. Insurance and claims
Premiums paid for insurance customarily taken out for the
Petroleum Operations to be carried out by the Contractor under
the Contract as well as all expenses incurred and paid in
settlement of any losses, claims, damages and any other
expenses, including those for legal services not recovered by
the insured and all expenses arising from court judgments.
If, after Government's approval, no insurance is taken out,
any expenses paid by the Contractor in settlement of any
losses, claims, damages, court judgments and other expenses.
2.2.9. Professional expenses
All expenses of handling, investigation and settlement of
litigation or claims arising from the Petroleum Operations, or
those required to protect or recover assets acquired in
carrying out of the Petroleum Operations, including, inter
alia, costs of investigation or inquiry, court costs, and
amounts paid for the settlement or satisfaction of any such
litigation or claims; and expenses for accounting, legal, tax,
treasury and other professional services.
If such services are effected by the legal personnel of the
Contractor, a reasonable compensation shall be included in the
Petroleum Costs, which shall not exceed the cost for rendering
an identical or similar service normally charged by an
independent company.
2.2.10. Financial Costs
All interest and fees paid by the Contractor in respect of the
loans contracted from Third Parties and advances obtained from
Affiliated Companies subject to the limitations provided
hereafter. Those loans and advances shall be for the purpose
of the financing only of the Development Expenditures in
respect of a Field, and shall not exceed seventy-five per cent
(75%) of the total amount of those Development Expenditures.
Those loans and advances shall be submitted to the approval of
the Administration under the conditions provided by Article
58.8 (e) of the Petroleum Code, unless otherwise specifically
set forth in Article 17.4 (c) of the Contract.
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In the event such financing is provided by Affiliated
Companies, the allowable interest rates shall not exceed the
rates customarily used in the international financial markets
for loans of a similar nature.
2.2.11 Other expenses
(a) (i) Costs and expenses of the acquisition and
of the re-evaluation and interpretation study
of CI-11 3-D seismic data pertaining to the
Delimited Area referred to in Article 8.2
carried out by UMIC prior to the Effective
Date, within the limit of two hundred
seventy-seven thousand (277,000) Dollars.
(ii) Costs and expenses of the study titled
"Review of systems and budget costs for
extended well testing and production on well
B1-8X" carried out for PETROCI prior to the
Effective Date, which are deemed to be
approved by the Government at an amount of
seventy-four thousand (74,000) Dollars.
(b) Any other expenses incurred and paid by the
Contractor to assure the necessary and proper conduct
of the Petroleum Operations under the approved Annual
Work Programs and Budgets, other than the expenses
covered and dealt with by the foregoing provisions of
this Article and the expenses excluded from the
Petroleum Costs.
Such other expenses include, inter alia, exchange
losses actually realized by the Contractor in
connection with the Petroleum Operations.
2.3. Expenses not chargeable to the Petroleum Costs Account
The expenses which are not directly necessary for the performance of
the Petroleum Operations, and the expenses excluded by the provisions
of the Contract or this Accounting Procedure as well as by the
regulations in force in Cote d'Ivoire, are not chargeable to the
Petroleum Costs Account and shall therefore not be recoverable.
Such expenses shall include, notably:
(a) expenses relating to the period before the Effective Date,
except for the costs referred to in Article 2.2.11 (a) above;
(b) any expenses relating to the operations carried out beyond the
Delivery Point, such as transportation and marketing costs;
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(c) financial costs relating to the financing of exploration
Petroleum Operations, and those relating to the share of
financing of Development Expenditures in excess of
seventy-five per cent (75%) of the total amount of Development
Expenditures;
(d) bonuses defined in Article 19 of the Contract;
(e) exchange losses other than those specified in Article
2.2.11.
In addition, the charges set forth in Article 17.4 (d), (e) and (g) of
the Contract, although deductible from the net profit for the purpose
of the industrial and commercial tax, are not chargeable to the
Petroleum Costs Account, in consequence of the definition thereof.
2.4. Items credited to the Petroleum Costs Account
The following income and proceeds shall, inter alia, be credited to
the Petroleum Costs Account:
(a) income arising from the marketing of the quantity of Petroleum
to which the Contractor is entitled under Article 16.2 of the
Contract for the purpose of recovery of the Petroleum Costs;
(b) any other income or proceeds related to the Petroleum
Operations, specifically those arising from:
- sales of related substances;
- any services rendered to Third Parties using the
facilities dedicated to the Petroleum Operations,
including, processing, transportation and storage of
products for Third Parties in those facilities;
- transfer of any tangible elements of the Contractor's
assets;
- exchange gains actually realized by the Contractor in
connection with the Petroleum Operations.
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Article 3 - COST EVALUATION BASIS FOR SERVICES,
MATERIALS AND EQUIPMENT USED
IN THE PETROLEUM OPERATIONS
3.1. Technical services
A reasonable rate shall be charged for the technical services rendered
by the Contractor or its Affiliated Companies for the benefit of the
Petroleum Operations carried out under the Contract, such as gas,
water and core analyses and any other analyses and tests, provided
that such charges shall not exceed those normally charged by
independent technical service companies and laboratories for similar
services.
3.2. Purchase of materials and equipment
Materials and equipment purchased from Third Parties and necessary for
the Petroleum Operations carried out under the contract shall be
charged to the Petroleum Costs Account at "Net Cost" incurred by the
Contractor.
"Net Cost" shall include the purchase cost of such material or
equipment and such items as taxes, shipping agent fees,
transportation, loading and unloading costs, license fees, related to
the supply of materials and equipment, as well as transit losses not
recovered through insurance.
3.3. Use of equipment and facilities owned
exclusively by the Contractor
Equipment and facilities owned by the Contractor and used for the
Petroleum Operations shall be charged to the Petroleum Costs Account
at a rental rate which shall be sufficient to cover maintenance,
repairs, depreciation and services required for the performance of the
Petroleum Operations, provided such costs shall not exceed those
normally charged by Third Parties in the Republic of Cote d'Ivoire for
similar services.
3.4. Valuation of Material
All material transferred to Cote d'Ivoire from the Contractor's
warehouses, or from those of any entities constituting the Contractor
or their Affiliated Companies, shall be valued as follows:
(a) New material
New material (condition "A") means new material which has
never been used: one hundred per cent (100%) of the current
market price, which corresponds to the price normally charged
for similar supplies in arm's length transactions between
independent buyer and seller, delivered to Cote d'Ivoire.
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(b) Material in good condition
Used material in good condition (condition "B") means
material in good condition which is still usable for its
original purpose without repair: at a maximum of seventy-five
per cent (75%) of the price of new material.
(c) Other used material
Other used material (condition "C") means material still
usable for its original purpose, but only after repairs and
reconditioning: at a maximum of fifty per cent (50%) of the
Price of new material.
(d) Material in poor condition
Material in poor condition (condition "C") means material no
longer usable for its original purpose but still usable for
other purposes: at a maximum of twenty-five per cent (25%) of
the price of new material.
(e) Scrap material
Scrap material (condition "E") means material beyond usage and
repair: prevailing price of scrap material.
3.5. Materials and equipment transferred by the Contractor
Materials and equipment acquired by all the entities constituting the
Contractor shall be valued in accordance with the principles defined
in Article 3.4 above.
Materials and equipment acquired by any entity constituting the
Contractor or by Third Parties shall be valued at the received sale
price, which shall in no event be less than the price determined in
accordance with the principles defined in Article 3.4 above.
The corresponding amounts shall be credited to the Petroleum Costs
Account.
Article 4 - INVENTORIES
4.1. Frequency
The Contractor shall keep a permanent record in quantity and in value
of all normally controlled materials, used for the Petroleum
Operations and shall proceed at reasonable intervals with the physical
inventories as determined from time to time by the mutual agreement of
the Parties.
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4.2. Notice
A written notice of intention to take an inventory shall be sent by
the Contractor at least ninety (90) days prior to the commencement of
said inventory so that the Government and the entities constituting
the Contractor may be represented at their own expense during the
inventory operations.
4.3. Information
In the event the Government or any entity constituting the Contractor
shall not be represented at an inventory, such Party or Parties shall
be bound by the inventory taken by the Contractor, which shall furnish
to such Party or Parties a copy of said inventory.
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ARTICLE 5 - FINANCIAL AND ACCOUNTING STATEMENTS
The Contractor shall furnish the Government with all the reports, records and
statements provided by the provisions of the Contract and the applicable
regulations and, inter alia, the following financial and accounting statements:
5.1. STATEMENT OF EXPLORATION WORK OBLIGATIONS
Such annual statement shall be submitted not later than one (1)
month after the end of each Year beginning on the first day of each
exploration period or on the anniversary thereof, or upon the expiry
of such exploration period, if the latter occurs earlier.
It shall present the Exploration work and Expenditures carried out by
the Contractor to fulfil its obligations set forth in Article 4 of the
Contract, excluding specifically appraisal wells and related Appraisal
Expenditures as well as Development Expenditures, Operating Expenses,
Overhead Costs and bonuses.
5.2. STATEMENT OF RECOVERY OF PETROLEUM COSTS
A quarterly statement shall be submitted not later than one (1) month
after the end of each Calendar Quarter. It shall present the
following items of the Petroleum Costs Account:
(a) the amount of Petroleum Costs which remain to be recovered at
the beginning of the Calendar Quarter;
(b) the amount of Petroleum Costs in respect of that Calendar
Quarter and recoverable under the provisions of the Contract;
(c) the quantity and the value of the production of Petroleum
taken by the Contractor during the Calendar Quarter for the
purpose of recovery of the Petroleum Costs;
(d) the amount of income or proceeds credited for the purpose of
Article 2.4 (b) above during the Calendar Quarter;
(e) the amount of Petroleum Costs which remain to be recovered at
the end of the Calendar Quarter.
In addition, an annual statement of the recovery of Petroleum Costs
shall be submitted prior to the end of February of each Calendar Year.
5.3. STATEMENT OF PRODUCTION
After commencement of production, such monthly statement shall be
submitted not later than fifteen (15) days after the end of each
month.
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It shall present for each month the detailed production of each Field
and, inter alia, the quantities of Petroleum:
(a) stored at the beginning of the month;
(b) lifted during the month;
(c) lost and used for the requirements of the Petroleum
operations;
(d) stored at the end of the month.
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APPENDIX 3
Attached to and made part of this Contract between the Republic of Cote
d'Ivoire and the Contractor.
PERFORMANCE GUARANTEE
WHEREAS UMC Petroleum Corporation, a company incorporated under the laws of the
State of Delaware, USA, having its registered office in Houston, Texas, USA
(hereinafter referred to as "Guarantor"), is the sole shareholder of UMIC Cote
d'Ivoire Corporation, a company incorporated under the laws of the State of
Delaware, USA, having its registered office in Houston, Texas, USA (hereinafter
referred to as "UMIC"); and
WHEREAS UMIC and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire
have entered into a petroleum production sharing contract dated ...............
(hereinafter referred to as "Contract") with the Republic of Cote d'Ivoire
(hereinafter referred to as "Government") , relating to the Delimited Area
defined in Appendix 1 to said Contract; and
WHEREAS UMIC is liable for its portion of the obligations under the Contract
with respect to the Government;
NOW THEREFORE, the Guarantor agrees as follows:
The Guarantor hereby recognizes that it is fully aware of the legal and
contractual obligations assumed by UMIC under the Contract and guarantees that
it shall provide UMIC with all the technical and financial means and the
personnel and equipment necessary for the complete performance by UMIC of its
obligations under the Contract.
This Performance Guarantee shall take effect upon the Effective Date of the
Contract (as defined in the Contract) and shall remain in effect until the
complete extinction of the obligations of UMIC resulting from the Contract.
This Performance Guarantee shall not be affected by any amendments which may be
made to the provisions of the Contract.
No delay on the part of the Government in exercising of its rights resulting
from the Contract shall operate as a waiver to enforce them.
Any dispute between the Government and the Guarantor arising out of the
execution or interpretation of this Performance Guarantee shall be settled
according to the arbitration procedure in conformity with the provisions of
Article 31 of the Contract.
Executed this ___ day of _____________________ 1992.
UMC PETROLEUM COMPANY
_____________________________
By: John B. BROCK
Title: President
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JOA
English Version of
Joint Operating Agreement
signed on 6/27/92
COTE D'IVOIRE, Block CI-11
EXHIBIT B
REPUBLIC OF COTE D'IVOIRE
JOINT OPERATING AGREEMENT
(Block CI-11)
BETWEEN
SOCIETE NATIONALE D'OPERATIONS
PETROLIERES DE LA COTE D'IVOIRE
AND
UMIC COTE D'IVOIRE CORPORATION
<PAGE> 133
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purpose, Effective Date and Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Participating Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. Operating Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6. Annual Work Programs and Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. Petroci Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9. Disposition of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10. Abandonment of Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11. Surrender and Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12. Assignments and Transfers of Participating Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13. Relationship of Parties and Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
14. Confidential Information - Proprietary Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
15. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
16. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
17. Applicable Law and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
18. Allocation of Cost Recovery Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19. Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Exhibit A Accounting Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
<PAGE> 134
JOINT OPERATING AGREEMENT
This Agreement is made and entered into as of the 27th day of June,
1992, by and between SOCIETE NATIONALE D'OPERATIONS PETROLIERES DE LA COTE
D'IVOIRE, a company incorporated under the laws of the Republic of Cote
d'Ivoire, having its registered office in Abidjan, Cote d'Ivoire hereinafter
referred to as "Petroci", and represented for the purposes of signing this
Agreement by Moussa Fanny; and UMIC COTE D'IVOIRE CORPORATION, a company
incorporated under the laws of the State of Delaware, USA, having its offices in
Houston, Texas, USA, hereinafter referred to as "UMIC", and represented for the
purposes of signing this Agreement by John B. Brock, its President.
WHEREAS,
- Petroci and UMIC hold undivided Participating Interests in and to
the Contract concerning the Delimited Area; and
- The Parties wish to define their respective rights and obligations
in carrying out the duties of Contractor under the aforesaid
Production Sharing Contract and to define, among the entities
constituting Contractor, their respective rights, liabilities and
obligations under the said Production Sharing Contract;
NOW, THEREFORE, in consideration of the premises and mutual
covenants, understandings, agreements and obligations set out below and to be
performed, the Parties mutually agree as follows:
ARTICLE 1
DEFINITIONS
When the following words, terms or phrases are used in this Agreement, they
shall have the meanings ascribed to them below:
1.1 ACCOUNTING PROCEDURE means the Accounting Procedure attached hereto
and marked as Exhibit "A".
1.2 ADDITIONAL PARTICIPATING INTEREST has the meaning ascribed thereto
in Article 3.2.
1.3 AFE has the meaning ascribed therein in Article 4.4.4.
1.4 AFFILIATED COMPANY(IES) means:
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2/.
- a company or any other entity which directly or
indirectly controls or is controlled by an entity
constituting the Contractor; or
- a company or any other entity which directly or
indirectly controls or is controlled by a company or
entity which itself directly or indirectly controls an
entity constituting the Contractor.
The term "control" means the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights
attributable to the shares of the controlled company or other
entity under ordinary circumstances in a general shareholders
meeting.
1.5 AGREEMENT shall mean this Joint Operating Agreement and its
exhibits as well as any written modifications or changes thereto
which are signed by all the Parties.
1.6 ANNUAL WORK PROGRAM means the document describing, item by item,
the Petroleum Operations to be carried out during a Calendar Year
within or related to all or a portion of the Delimited Area or in
each Exploitation Perimeter, as the case may be.
1.7 APPRAISAL PERIMETER means any part of the Delimited Area where one
or more Petroleum discoveries have been made, and in respect of
which the Government has granted to the Contractor an exclusive
appraisal authorization in accordance with the provisions of
Article 11.3 of the Contract.
1.8 APPRAISAL WORK PROGRAM AND BUDGET has the meaning ascribed thereto
in Article 6.2.2.
1.9 ARTICLE means an Article in this Agreement or where the text so
states an article in the Contract.
1.10 ASSOCIATED NATURAL GAS means Natural Gas which exists in a
reservoir in solution with Crude Oil or, as gas-cap gas in contact
with Crude Oil, and which is or could be produced in association
with Crude Oil.
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3/.
1.11 BARREL means U.S. barrel, i.e., 42 U.S. gallons measured at a
temperature of 60 (degrees) F and under a pressure of 14.696
pounds per square inch absolute.
1.12 BUDGET means the itemized cost estimates of the Petroleum
Operations described in an Annual Work Program.
1.13 CALENDAR YEAR means a period of twelve (12) consecutive Months
beginning on January first (1st) and ending on the following
December thirty-first (31st), according to the Gregorian Calendar.
1.14 CONSENTING PARTY means a Party which elects to participate in a
Non-Consent Project.
1.15 CALENDAR QUARTER OR QUARTER means any three (3) Month period
commencing the first day of January, April, July or October, during
any Calendar Year.
1.16 CONTRACT means that certain Production Sharing Contract covering
Block CI-11 entered into, on the one hand, by the Republic of Cote
d'Ivoire, and on the other hand, by Petroci and UMIC, as
Contractor.
1.17 CONTRACTOR means both individually and collectively UMIC and
Petroci, as well as any entity to which either of such Parties may
assign in accordance with this Agreement and the Contract.
1.18 CONTRACT YEAR means a period of twelve (12) consecutive Months
beginning on the Effective Date or on the anniversary thereof.
1.19 COST OIL means that portion of the Total Production which is
allocated to the Parties pursuant to Article 16.2 of the Contract.
1.20 CRUDE OIL means crude mineral oil, asphalt, ozokerite, and all
kinds of Petroleum and bitumen, either solid or liquid in their
natural condition or obtained from Natural Gas by condensation or
extraction, including condensates and Natural Gas liquids.
1.21 DEFAULTING PARTY has the meaning ascribed thereto in Article 8.1.
1.22 DELIMITED AREA shall have the same meaning as set forth in Article
1.25 of the Contract.
1.23 DELIVERY POINT means the F.O.B. point connecting the loading
facilities to the vessel loading Crude Oil produced under the
Contract in the Republic of Cote d'Ivoire, or any other transfer
point mutually agreed in writing between the Parties.
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4/.
1.24 DEVELOPMENT AND PRODUCTION PLAN shall have the meaning ascribed
thereto in Article 6.3.
1.25 DEVELOPMENT WELL means a well drilled within the proved area of an
oil or gas reservoir to the depth of a stratigraphic horizon known
to be productive.
1.26 DOLLAR means dollar of the United States of America.
1.27 EFFECTIVE DATE shall mean the date on which this Agreement becomes
binding and enforceable between and among the Parties hereto, which
date shall be the Effective Date of the Contract.
1.28 ENTITLEMENT means a quantity of Petroleum to which a Party to this
Agreement has a right and obligation to take delivery pursuant to
the Contract and this Agreement and shall be derived from such
Party's Participating Interest in the Petroleum produced and saved
from the Delimited Area.
1.29 EXPLOITATION PERIMETER means any part of the Delimited Area in
respect of which the Government has granted to the Contractor an
exclusive exploitation authorization in accordance with the
provisions of Article 12 of the Contract.
1.30 FIELD means a commercial accumulation of Petroleum in one or
several horizons, which has been duly appraised in accordance with
the provisions of Article 11 of the Contract.
1.31 FORCE MAJEURE has the meaning ascribed thereto in Article 15.2.
1.32 GOVERNMENT means the Republic of Cote d'Ivoire excluding Petroci.
1.33 GROSS NEGLIGENCE means any act or failure to act (whether sole,
joint or concurrent) by a Senior Executive Management Employee
which is or was intended to cause, or which is or was in reckless
disregard of, or wanton indifference to, the personal safety or
property of another entity or person, but shall not include any
error of judgment or mistake made by such Senior Executive
Management Employee of the Operator in the exercise in good faith
of any function, authority or discretion conferred on the Operator
under this Agreement.
1.34 INITIAL PARTICIPATING INTEREST has the meaning ascribed thereto in
Article 3.1.2.
1.35 INITIAL PARTICIPATION DELIMITED AREA has the meaning ascribed
thereto in Article 3.1.2.
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1.36 JOINT ACCOUNT means the accounts maintained by the Operator in
accordance with the provisions of this Agreement.
1.37 JOINT OPERATIONS means those Petroleum Operations and activities
carried out by the Operator pursuant to this Agreement, the costs
of which are chargeable to all the Parties.
1.38 JOINT PROPERTY means, at any point in time, all wells,
facilities, equipment, materials, information and other assets
acquired or held for the Joint Operations.
1.39 MARKET PRICE has the meaning ascribed thereto in the Contract.
1.40 MONTH means a calendar month according to the Gregorian Calendar.
1.41 NATURAL GAS means methane, ethane, propane, butane and dry or wet
gaseous hydrocarbons, whether or not associated with Crude Oil, as
well as all gaseous products extracted in association with
Petroleum, such as, without limitation, nitrogen, hydrogen sulfide,
carbon dioxide, helium and water vapor.
1.42 NON-CONSENTING PARTY means a Party which elects to not participate
in a Non-Consent Project.
1.43 NON-CONSENT PROJECT means a Petroleum Operation conducted by less
than all the Parties in accordance with Article 6.1.4, 6.2.5 or
6.3.3, as the case may be.
1.44 NON-OPERATOR means the Party or Parties other than the Operator.
1.45 NON-WITHDRAWING PARTIES has the meaning ascribed thereto in Article
11.
1.46 OPERATOR means a Party to this Agreement designated as such in
accordance with Article 4, which as of the date of the signing of
this Agreement is UMIC.
1.47 OPERATING COMMITTEE means the committee of representatives of the
Parties formed in accordance with the provisions of Article 5.
1.48 PARTICIPATING INTEREST means that undivided working interest of
each of the Parties expressed as a percentage in and to the rights,
duties, obligations and liabilities and all properties and assets
related to Petroleum Operations which shall consist of the Special
Area Participating Interest, Initial Participating Interest and, if
created, each of the Exploitation Participating Interests. When
used in this
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Agreement, Participating Interest may refer to all three of such
interests or it may refer to one or more of such interests as the
context may require.
1.49 PARTY or PARTIES means the signatory Party or Parties of this
Agreement as well as their successors and permitted assigns under
Article 12.
1.50 PAYING PARTIES has the meaning ascribed thereto in Article 7.2.2.
1.51 PETROCI means Societe Nationale d'Operations Petrolieres de la Cote
d'Ivoire and its successors or assigns as permitted under the
Contract and this Agreement.
1.52 PETROLEUM means Crude Oil and Natural Gas.
1.53 PETROLEUM COSTS means all expenditures actually incurred and paid
by the Contractor for the purposes of the Petroleum Operations
under this Agreement and determined in accordance with the
Accounting Procedure.
1.54 PETROLEUM OPERATIONS means all the Petroleum exploration,
appraisal, development, production, transportation and marketing
operations, and more generally, any other operations directly
associated therewith, or carried out under this Agreement.
1.55 PHASE I means that period of time starting with the Effective Date
and ending eighteen (18) Months thereafter or as such Phase may be
extended in accordance with Article 3.4 of the Contract.
1.56 PHASE II means that period of time starting with the expiration of
Phase I and ending two (2) Years thereafter or as such Phase may be
extended in accordance with Article 3.4 of the Contract.
1.57 PHASE III means that period of time starting with the expiration of
Phase II and ending two (2) Years thereafter or as such Phase may
be extended in accordance with Article 3.4 of the Contract.
1.58 PRODUCTION PROGRAM AND BUDGET has the meaning ascribed thereto in
Article 6.7.1.
1.59 PROFIT OIL means the portion of the Total Production which is
allocated to Parties under the provisions of Article 16.3 of the
Contract.
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1.60 SENIOR EXECUTIVE MANAGEMENT EMPLOYEE shall mean any officer or
director of the Operator or the Operator's parent company and shall
include the Operator's resident manager in the Cote d'Ivoire who
directs all operations and activities of the Operator in the Cote
d'Ivoire, and shall include all employees or officers of the
Operator in the Cote d'Ivoire who report to or are supervised by
the said resident manager and who are responsible for or are in
charge of installations or facilities, onsite drilling, marine
operations, construction or production operations or any other
field operations.
1.61 SPECIAL AREA PARTICIPATING INTEREST has the meaning ascribed
thereto in Article 3.1.1.
1.62 SPECIAL AREA is the area described in Exhibit B attached hereto.
1.63 THIRD PARTY means a company, person or any other entity, other than
a Party and any Affiliated Company of a Party.
1.64 TOTAL EXPLOITATION PARTICIPATING INTEREST or EXPLOITATION
PARTICIPATING INTEREST has the meaning ascribed thereto in Article
3.2.
1.65 TOTAL PRODUCTION means the Total Production of Crude Oil and the
Total Production of Natural Gas obtained from the whole Delimited
Area. The Total Production of Crude Oil means the total production
of Crude Oil obtained from the Delimited Area less the quantities
of Crude Oil used for the requirements of the Petroleum Operations
and any unavoidable losses of Crude Oil. The Total Production of
Natural Gas means the total production of Natural Gas obtained from
the Delimited Area less the quantities of Natural Gas used for the
requirements of the Petroleum Operations, any unavoidable losses of
Natural Gas and, subject to the provisions of Article 21.2.3 of the
Contract, Natural Gas which is flared.
1.66 UMIC means UMIC Cote d'Ivoire Corporation and its successors or
assigns as permitted under this Agreement.
1.67 WITHDRAWING PARTY has the meaning ascribed thereto in Article 11.3.
1.68 YEAR means a period of twelve (12) consecutive Months according to
the Gregorian Calendar.
For the purposes of this Agreement, terms which are used but not
defined in this Agreement but which are defined in the Contract shall have the
meaning set forth in the Contract.
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ARTICLE 2
PURPOSE, EFFECTIVE DATE AND TERM
2.1 Purpose
The purpose of this Agreement is:
a) To define the respective rights, interests and
obligations of the Parties in and to the Delimited Area
and under the Contract; and
b) To determine the conditions under which the Joint
Operations will be undertaken and to agree on the
distribution of Petroleum produced from the Delimited
Area.
2.2 Effective Date
This Agreement shall become effective on the Effective Date.
2.3 Termination
Subject to the provisions of this Agreement, the term of this
Agreement shall continue in effect until such time as one (1) of
the Parties holds one hundred percent (100%) of the Participating
Interests or, the Contract terminates or expires, whichever shall
be the first to occur; provided, however, the provisions of
Article 4.6 and Article 17 shall survive the termination of this
Agreement should there be any outstanding Third Party litigation or
claims against the Parties hereto or should there by any unresolved
disputes between the Parties pending before an arbitration panel,
all existing at the time of the termination of this Agreement.
Article 14.1 shall survive the termination of this Agreement for
three (3) Years, and Article 8 shall survive the termination of
this Agreement so long as a Defaulting Party owes any debt to a
non-defaulting Party under Article 8.
ARTICLE 3
PARTICIPATING INTERESTS
3.1 Participating Interests
Article 22.2 of the Contract provides that the Parties will have
different Participating Interests covering portions of the
Delimited Area. Following are the Participating Interests of the
Parties:
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3.1.1 In respect of the Special Area, the Parties shall hold
the following Special Area Participating Interests:
UMIC sixty percent (60%)
Petroci forty percent (40%).
3.1.2 In respect of the Delimited Area excluding the Special
Area (referred to as the "Initial Participation
Delimited Area"), the Parties shall hold the following
Initial Participating Interests:
UMIC ninety percent (90%)
Petroci ten percent (10%).
3.1.3 In respect of each exclusive exploitation authorization
and its related Exploitation Perimeter within the
Initial Participation Delimited Area, Petroci shall
have a Total Exploitation Participating Interest
between ten percent (10%) and twenty percent (20%) and
UMIC shall hold the remaining Exploitation
Participating Interest.
3.2 Increase of Petroci's Participating Interest
Upon the granting of each exclusive exploitation authorization
within the Initial Participation Delimited Area, Petroci has an
option to increase its Initial Participating Interest in respect of
such exclusive exploitation authorization by a maximum of ten (10)
percentage points under Article 22.2 of the Contract which
increase shall be referred to as the Additional Participating
Interest. At such time as an exclusive exploitation authorization
is granted under the Contract, the Initial Participating Interest
of Petroci in respect thereof plus any Additional Participating
Interest which Petroci may elect to acquire shall thereafter be
referred to as the Total Exploitation Participating Interest. In
the event Petroci exercises its option to increase its Initial
Participating Interest in respect of any exclusive exploitation
authorization by giving the notice required under Article 22.2(b)
of the Contract, the Parties shall execute an amendment to this
Agreement setting forth the Total Exploitation Participating
Interest of Petroci. The Parties other than Petroci shall prepare
an assignment in accordance with Article 7.3 to assign the
Additional Participating Interest to Petroci. The Total
Exploitation Participating Interest of Petroci may be sometimes
referred to in this Agreement as the Exploitation Participating
Interest.
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3.3 Transfer of Participating Interests
If any Party intends to transfer to a Third Party all or any
portion of its Initial Participating Interest, Special
Participating Interest or Exploitation Participating Interest it
may do so to the extent permitted by this Agreement and the
Contract, provided such Party has obtained the prior written
consent of the Government in accordance with Article 34.1 of the
Contract. If a Party transfers all or any portion of its
Participating Interest pursuant to the provisions of this Agreement
and the Contract, the Parties shall enter into an amendment to
this Agreement revising the Participating Interests of the Parties
in accordance with such transfer.
3.4 Rights and Interests
Unless otherwise provided for in this Agreement, all rights and
interests in and under the Contract and in and to the Delimited
Area, as well as all Joint Property and any Petroleum produced and
saved from the Delimited Area shall, subject to the terms of the
Contract and this Agreement, be held and shared by the Parties in
accordance with their respective applicable Participating
Interests.
3.5 Obligations and Liabilities
Unless otherwise provided for in this Agreement, the obligations of
the Parties under the Contract and all liabilities and expenses
incurred by the Operator in carrying out Joint Operations shall be
charged to the Joint Account and all credits to the Joint Account
shall be shared by the Parties in accordance with their respective
Participating Interests which are applicable to the liability,
expense or credit which has arisen. Unless otherwise provided for
in this Agreement, all liabilities incurred by any Party in
connection with Joint Operations shall be borne by the Parties in
accordance with their respective applicable Participating
Interests. Each Party shall pay when due, in accordance with the
provisions of the Accounting Procedure, its applicable
Participating Interest share of Joint Account expenses, including
cash advances.
ARTICLE 4
OPERATOR
4.1 Designation of Operator
UMIC is hereby appointed Operator and agrees to act as an
independent contractor in performing the obligations and duties of
Operator in accordance with the terms and conditions of this
Agreement, which terms and conditions shall also apply to any
successor Operator.
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4.2 Operator
Subject to the terms and conditions of this Agreement, the Operator
shall have exclusive charge of and shall conduct all Joint
Operations and shall have the rights and obligations of the
Operator under the Contract. The Operator may employ independent
contractors and/or agents to carry out such Joint Operations.
4.3 Duties of Operator
In the conduct of Joint Operations, the Operator shall:
4.3.1 Perform Joint Operations in accordance with the
provisions of the Contract, this Agreement and the
instructions of the Operating Committee;
4.3.2 Conduct all Joint Operations in a diligent, safe and
efficient manner in accordance with good oil field
practices and conservation principles generally
followed by the international petroleum industry under
similar circumstances;
4.3.3 Subject to Article 4.7, neither gain a profit nor
suffer a loss as a result of being the Operator in its
conduct of Joint Operations;
4.3.4 Acquire all permits, consents, approvals and surface or
other rights that may be required for or in connection
with the conduct of Joint Operations;
4.3.5 Enter into drilling contracts, service contracts,
marine or aviation charter agreements and equipment
supply contracts on behalf of Contractor which are
necessary to carry out Joint Operations;
4.3.6 Have the exclusive right and obligation to represent
Contractor in all dealings with the Government
concerning matters arising under the Contract and Joint
Operations; provided, however, that Non-Operators, at
their sole expense, shall have the right to attend any
meetings between the Government and the Operator as
observers;
4.3.7 Permit the representatives of any of the Non-Operators
to have, at all reasonable times and at their own risk
and expense, reasonable access to the Joint Operations
with the right to observe all such Joint Operations and
to inspect all Joint Property and to conduct financial
audits as provided for in the Accounting Procedure;
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4.3.8 Maintain the Contract in full force and effect and
promptly pay and discharge all liabilities and expenses
incurred in connection with Joint Operations and use
its reasonable efforts to keep and maintain the Joint
Property free from all liens, charges and encumbrances
arising out of Joint Operations;
4.3.9 Establish and maintain an accounting system applicable
for all transactions provided for in this Agreement in
accordance with the provisions of the Contract and of
the Accounting Procedure;
4.3.10 Pay all the costs and expenses incurred for Joint
Operations for work performed by Third Party
contractors and sub-contractors when due and payable;
4.3.11 Pay to the Government, for the Joint Account, within
the periods and in the manner provided for under the
Contract as well as all applicable laws and
regulations, all payments, bonuses, fees, duties or
imposts pertaining to Joint Operations, but excluding
any taxes measured by the income and/or profits of the
Parties to this Agreement, it being understood and
agreed that subject to the obligation of the Government
to make payment under the Contract, each Party shall be
solely responsible for the payment of the tax on such
profits;
4.3.12 Procure, maintain and keep insurance policies and
coverage in accordance with the provisions of Articles
4.9 through 4.12;
4.3.13 Keep the Parties regularly informed as to the status
and results of the Joint Operations performed as well
as prepare and submit to the Operating Committee for
approval work programs and budgets as required under
Article 6 and the applicable provisions of the
Contract; and
4.3.14 Take all necessary and proper to maintain the Contract
and to protect life, health, the environment and
property in case of an emergency; provided, however,
that the Operator shall promptly notify the Parties of
the details of such emergency and measures, and,
provided further, that any costs and expenses so
incurred by the Operator in dealing with such emergency
shall be for the Joint Account.
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4.4 Expenditures in Excess of Budget
The Operator agrees to carry out the work provided for in each
Annual Work Program, Appraisal Work Program and Budget, Development
and Production Plan and Production Program and Budget approved by
the Operating Committee within the limits of the approved Budget
and shall not undertake any work or incur any expenditure which is
in excess of or not contained in such approved work program and
budget except in the following circumstances:
4.4.1 If it becomes necessary for the completion of an
approved Annual Work Program, Appraisal Work Program
and Budget, Development and Production Plan or
Production Program and Budget, the Operator is
authorized to spend additional amounts exceeding the
approved Budget within the limit of fifteen percent
(15%) of each Budget item or ten percent (10%) of the
overall approved Budget. The Operator shall inform the
Parties of such additional expenditures as soon as
possible.
4.4.2 Without prejudice to Article 4.3.14, in the course of a
Calendar Year the Operator will be authorized to commit
expenditures to perform work in the Delimited Area
which was not included in an approved Annual Work
Program and Budget, Appraisal Work Program and Budget,
Development and Production Plan or Production Program
and Budget, if such additional expenditures do not
exceed one hundred thousand Dollars ($100,000) and
provided such expenditures are not for work previously
rejected by the Operating Committee. Such additional
expenditures shall be immediately reported to the
Non-Operators and at such time as the Operating
Committee approves such expenditures by the Operator
the discretionary right of the Operator to expend
additional amounts over an approved Budget as
authorized under this Article 4.4.2 shall be adjusted
automatically to reflect the one hundred thousand
Dollars ($100,000) limit provided for herein.
4.4.3 In an emergency, the Operator is authorized to make any
expenditures or incur commitments for expenditures or
take other action it deems necessary for the protection
of lives, property and the environment. The Operator
shall report such expenditures to the Non-Operators as
soon as possible and all amounts so paid or incurred
shall be for the Joint Account.
4.4.4 Prior to incurring any commitment or expenditure, which
is estimated to be in excess of five hundred thousand
Dollars ($500,000), the Operator shall send to each
Non-
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Operator which is participating in such operation an
authorization for expenditure ("AFE") containing the
Operator's best estimate of the total funds required to
carry out the work, the estimated timing of the
expenditures and any other necessary supporting
information. Notwithstanding anything to the contrary
in this Agreement, the Operator shall not be obligated
to submit an AFE to the Non-Operators prior to
incurring a commitment or making any expenditures in
connection with the workover of a well or wells so long
as such workover is pursuant to an approved Annual Work
Program, Appraisal Work Program and Budget, Development
and Production Plan or Production Program and Budget.
4.4.5 Except as otherwise provided in Article 4.4.4, prior to
entering into any commitment or incurring any
expenditure under an approved Annual Work Program,
Appraisal Work Program and Budget, Development and
Production Plan or Production Program and Budget, the
Operator shall obtain the approval of an AFE by the
Parties with an Article 5.9.1 vote. In the event no
Party votes against an AFE within fifteen (15) days
after it is submitted to the Non-Operators, it shall be
deemed to be approved. Any Party voting against the
approval of an AFE shall demonstrate that such
disapproval is duly justified and shall state the
reasons for such negative vote.
4.4.6 The restrictions contained in this Article 4.4 shall be
without prejudice to the Operator's right to make
expenditures under Article 4.3.14, 4.6.2, 5.10 and
11.5.
4.5 Employees
Subject to the Contract and the provisions of this Agreement,
Operator shall determine the number of its employees, the selection
of such employees, the hours of work and the compensation to be
paid to all such employees in connection with the carrying out of
Joint Operations. Operator shall employ only such employees, agents
and contractors as it determines are reasonably necessary to
conduct Joint Operations.
4.6 Litigation
4.6.1 Operator shall promptly notify the Parties of any and
all claims, suits, actions or proceedings brought by
Third Parties against the Operator or any of the
Parties which arise out of, or in connection with, the
conduct of Joint Operations under this Agreement where
the total amount in dispute or the total amount of
damages together with any
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costs are estimated to exceed twenty-five thousand
Dollars ($25,000), or such other amount as may from
time to time be determined by the Operating Committee.
A Non-Operator shall promptly notify the other Parties
of any claim made against such Non-Operator by a Third
Party relating to or which may affect the Joint
Operations. Operator shall represent and defend the
respondent or defendant Parties in such suit, action or
proceeding or the Party(ies) against whom such claim is
brought.
4.6.2 Operator may, in its sole discretion, compromise or
settle any such claim, suit, action or proceeding for
an amount, exclusive of attorney's fees, not to exceed
seventy-five thousand Dollars ($75,000). Operator shall
obtain the approval and direction of the Operating
Committee on amounts in excess of seventy-five thousand
Dollars ($75,000). Each Non-Operator shall have the
right to be represented by its own counsel, at its own
expense, in the settlement, compromise or defense of
such claim, suit, action or proceedings. Any settlement
amounts paid, as well as amounts paid by the Operator
for reasonable attorney's fees in defense of such
claims, suits, actions or proceedings, and all amounts
paid resulting from adverse judgments, awards or
decrees, shall be for the Joint Account.
4.7 Indemnity of Operator
4.7.1 Except as set out in this Article 4.7, the Party
designated as Operator shall bear no cost, expense or
liability resulting from performing the duties and
functions of the Operator. Nothing in this Article 4.7,
or any other Article of this Agreement, shall be deemed
to relieve the Party designated as Operator from any
cost, expense or liability for its Participating
Interest share of Joint Operations.
4.7.2 The Parties to this Agreement shall be liable in
proportion to their respective Participating Interests
and shall defend and indemnify Operator and its
consultants, agents, employees, officers, directors and
shareholders (the "Indemnities") from any and all
costs, expenses (including reasonable attorney's fees)
and liabilities incident to claims, demands, or causes
of action of every kind or character, brought by or on
behalf of, any Third Party for damage to or loss of
property or the environment, or for injury to or
illness or death of any Third Party, which damage,
loss, injury, illness or death, arises out of, or is
incident to any
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act or failure to act by the Indemnities in the conduct
of, or in connection with Joint Operations, regardless
of the cause of such damage, loss, injury, illness or
death and EVEN THOUGH CAUSED IN WHOLE OR IN PART, BY A
PRE-EXISTING DEFECT, THE NEGLIGENCE (WHETHER SOLE, JOINT
OR CONCURRENT), GROSS NEGLIGENCE, STRICT LIABILITY OR
OTHER LEGAL FAULT OF OPERATOR OR ANY OF ITS AFFILIATED
COMPANIES; provided, however, if any Senior Executive
Management Employee engages in Gross Negligence that is
the proximate cause of such loss, damage, injury,
illness or death, then, the Operator shall bear only
actual costs and expenses incurred in such loss,
damage, injury, illness or death up to a maximum limit
of one million Dollars ($1,000,000), with all costs and
expenses in such case which exceed such maximum limit
being paid and borne by all Parties to this Agreement
in proportion to their respective Participating
Interest shares.
4.7.3 Notwithstanding the foregoing, under no circumstances
shall any Indemnitee (except as a Party to the extent
of its Participating Interest) bear any cost, expense
or liability for environmental, consequential, punitive
or any other similar indirect damages or losses,
including, but not limited to, those arising from
business interruption, reservoir or formation damage,
inability to produce Petroleum, loss of profits,
pollution control and environmental amelioration or
rehabilitation.
4.8 Reports
The Operator shall provide the Non-Operators pertinent operational
data including the following data and reports as they are currently
produced or compiled from the Joint Operations:
4.8.1 Copies of all electrical logs or surveys;
4.8.2 Daily drilling progress reports;
4.8.3 Copies of all drill stem tests, core analysis reports
and fluid analysis reports;
4.8.4 Copies of the plugging reports;
4.8.5 Copies of the final geological and geophysical maps and
reports;
4.8.6 Engineering studies, development schedules and annual
progress reports on development projects;
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4.8.7 Field and well performance reports, including
reservoir studies and reserve estimates;
4.8.8 Copies of all reports relating to Joint Operations
furnished by the Operator to the Government, except
magnetic seismic tapes which shall be stored by the
Operator and made available for inspection and/or
copying at the sole expense of the Non-Operator
requesting the same; and
4.8.9 Other reports as may be required by the Petroleum
Operations or as may be directed by the Operating
Committee.
Except as otherwise provided, the costs and expenses incurred by
the Operator in furnishing all such reports to the Non-Operators
shall be regarded as a Joint Account expense.
4.9 Insurance Required by Law
The Operator shall procure and maintain or cause to be procured and
maintained for the Joint Account, all insurance in the types and
amounts required by the Contract and the applicable laws, rules and
regulations of the Cote d'Ivoire and any other applicable laws,
rules and regulations.
4.10 Additional Insurance
The Operator shall obtain such further insurance, at competitive
rates, as the Operating Committee may from time to time require.
Any Party may elect not to participate in the additional insurance
required by the Operating Committee under this Article 4.10
provided such Party:
4.10.1 Gives prompt written notice to that effect to
Operator; and
4.10.2 Does nothing which may interfere with Operator's
negotiations for such insurance for the other Parties;
and
4.10.3 Obtains and maintains such insurance (in respect of
which an annual certificate of adequate coverage from a
reputable insurance broker shall be sufficient
evidence) or other evidence of financial responsibility
which fully covers its Participating Interest share of
the risks that would be covered under the insurance
required to be obtained under this Article 4.10 and
which the Operating Committee may determine to be
acceptable. No such determination of acceptability
shall in any way absolve
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a non-participating Party from its obligation to meet
each cash call including any cash call in respect of
damages and losses and/or the costs of remedying the
same in accordance with the terms of this Agreement. If
such non-participating Party has or obtains other
insurance, such other insurance shall contain a waiver
of subrogation in favor of all the other Parties to the
extent of their interests under this Agreement.
4.11 Cost of Insurance
The cost of insurance in which all the Parties are participating
shall be for the Joint Account and the cost of insurance for which
less than all the Parties are participating shall be charged to the
Parties participating in proportion to their respective
Participating Interests.
4.12 Obligations Concerning Insurance
Operator shall, in respect of all insurance purchased and obtained
for the Joint Account:
4.12.1 Promptly inform the Non-Operators when such insurance
is obtained and supply them with copies of the relevant
policies when the same are issued;
4.12.2 Arrange for the Parties, according to their respective
Participating Interests, to be named as co-insureds on
the relevant policies with waivers of subrogation in
favor of the Parties; and
4.12.3 Duly file all claims and take all necessary and proper
steps to collect any necessary proceeds and credit any
proceeds to the participating Parties in proportion to
their respective Participating Interests.
4.13 Insurance Carried by Contractors
The Operator shall use its reasonable efforts to require all
contractors and sub-contractors performing work in respect of Joint
Operations to obtain and maintain any and all insurance in the
types and amounts required by any applicable laws, rules and
regulations or any decision of the Operating Committee and shall
use reasonable efforts to require all such contractors and
sub-contractors to name the Parties as additional insureds on said
insurance policies or to obtain from their insurers waivers of all
rights of recourse against the Operator and Non-Operators.
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4.14 Resignation of Operator
The Operator may resign at any time by giving the other Parties at
least one-hundred eighty (180) days prior written notice, or such
shorter period as the Parties may unanimously agree.
4.15 Removal of Operator
4.15.1 If the Operator and its Affiliated Companies hold or
become the holder of a Participating Interest of less
than ten percent (10%), the Operator shall promptly
notify the Non-Operators thereof and request a vote on
such matter within seven (7) days under Article 5.13.
The Operating Committee shall determine within seven
(7) days after such notification whether a successor
Operator should be named pursuant to Article 4.18. The
same procedure shall apply if there is a direct or
indirect change of control of the Operator (other than
a transfer of control to an Affiliated Company of the
Operator). In the event of a change of control, the
Operator shall promptly notify the other Parties. For
the purposes of this Article 4.15.1, the term "control"
means the ownership directly or indirectly of more than
fifty percent (50%) of the voting rights attributable
to the shares of the company concerned.
4.15.2 The Operator shall be removed upon receipt of notice
from any Non-Operator if:
(a) An order is made by a court or an effective
resolution is passed for the dissolution,
liquidation or winding up of the Operator;
(b) The Operator dissolves, liquidates or
terminates its corporate existence;
(c) The Operator becomes insolvent, bankrupt, or
makes an assignment for the benefit of
creditors;
(d) A receiver is appointed for a substantial
part of the Operator's assets; or
(e) The Operator ceases or threatens to cease to
carry on its business or a major part
thereof.
4.16 Removal of Operator for Material Breach
The Operator may be removed by the decision of the Non-Operators
made in accordance with Article 4.17 if the Operator has committed
a material breach of this Agreement which Operator
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has failed to commence to rectify within seven (7) days after
receipt of a written notice from the Non-Operators detailing the
alleged breach. If the Operator commences to rectify a breach
within the seven (7) day period, it shall so inform the
Non-Operators of such action and the estimated time to complete the
work to remedy the breach.
4.17 Vote to Remove Operator
Any decision of the Non-Operators to give the Operator a notice of
a breach of this Agreement or to remove the Operator for a failure
to commence to rectify a breach within seven (7) days under Article
4.16, shall be made by an affirmative vote of all the Non-Operators
excluding any Non-Operator which is an Affiliated Company of the
Operator.
4.18 Election of Successor
When a change of the Operator occurs pursuant to the provisions of
Articles 4.14, 4.15 or 4.16:
4.18.1 The Operating Committee shall meet as soon as possible
to appoint a successor Operator from the Non-Operators;
provided, however, no Party may be appointed a
successor Operator against its will. The appointment of
a successor Operator shall require the unanimous vote
of the Parties excluding any Party which has been
removed as Operator under Articles 4.15, 4.16 or 4.17.
4.18.2 If the Operator disputes the commission of or the
failure to rectify a material breach of this Agreement
alleged pursuant to Article 4.16 and arbitration
proceedings are initiated pursuant to Article 17, no
successor Operator may be appointed pending the
conclusion or abandonment of such arbitration
proceeding.
4.18.3 If an Operator is removed or resigns, neither the
Operator nor any Affiliated Company of the Operator
shall have the right to vote for itself on the
appointment of a successor Operator, nor be considered
as a candidate for the successor Operator.
4.18.4 A resigning or removed Operator shall be reimbursed out
of the Joint Account for its reasonable expenses
directly related to the change of Operator, except in
the case of a removal under Article 4.16.
4.18.5 The Operating Committee shall arrange for the taking of
an independent inventory of all Joint Property and
Petroleum, and an audit of the books and records of
such
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resigning or removed Operator. Such inventory and audit
shall be completed, if possible, no later than the
effective date of the change of the Operator.
4.18.6 The resignation or removal of the Operator and its
replacement by the successor Operator shall not become
effective prior to approval from the Government
required by the Contract.
4.18.7 Upon the effective date of the resignation or removal,
the successor Operator shall succeed to all duties,
rights and authority prescribed for the Operator under
this Agreement. The former Operator shall transfer to
the successor Operator custody of all Joint Property
and Petroleum, books of account, all funds related to
the Joint Account, records and other documents
maintained by the former Operator pertaining to the
Delimited Area and to Joint Operations. The Operator
shall use its best efforts to transfer to the successor
Operator, effective as of the effective date of the
resignation or removal, its rights as Operator under
all contracts exclusively relating to Joint Operations
and the successor Operator shall assume all obligations
of the Operator thereunder. Pending such transfer, the
Operator shall hold the rights and interests under such
contracts from such effective date for the account and
benefit of the successor Operator and the Parties shall
indemnify and hold harmless from such effective date
the resigning or removed Operator from all obligations
under such contracts. Upon such delivery, the former
Operator shall be released and discharged from all
obligations and liabilities as Operator accruing after
such date. Notwithstanding anything in this Article
4.18.7 to the contrary, the former Operator shall not
be released from any liabilities accruing prior to the
effective date of resignation or removal so long as
claims for such liabilities are made within twenty-four
(24) Months after such effective date of resignation
or removal.
4.19 Bank Account
The Operator shall maintain a separate bank account into which it
shall deposit all funds received under this Agreement from the
Parties.
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ARTICLE 5
OPERATING COMMITTEE
5.1 Establishment of Operating Committee
To provide for the overall supervision and direction of Joint
Operations, there is established an Operating Committee composed of
a representative of each Party holding a Participating Interest.
Each Party shall appoint one (1) representative and one (1)
alternate representative to serve on the Operating Committee. Each
Party shall, as soon as possible after the date of the signing of
this Agreement, give notice in writing to the other Parties of the
name and address of its representative and alternate representative
to serve on the Operating Committee. Each Party shall have the
right to change its representative and alternate representative at
any time by giving prior written notice to such effect to the other
Parties.
5.2 Powers and Duties of Operating Committee
The Operating Committee shall have the power and duty to authorize
and supervise Joint Operations that are necessary or desirable to
fulfill the Contract and to properly explore and exploit the
Delimited Area in accordance with this Agreement.
5.3 Authority to Vote
The representative of a Party, or in his absence his alternate
representative, shall be authorized to represent and bind such
Party with respect to any matter which is within the powers of the
Operating Committee and is properly brought before the Operating
Committee. Each such representative shall have a vote equal to the
Special Area Participating Interest, the Initial Participating
Interest or an Exploitation Participating Interest, as the case may
be, of the Party such person represents. The Participating Interest
to be voted by the representatives shall be determined based upon
whether the matter being voted upon is applicable to the Special
Area, the Initial Participation Delimited Area or an exclusive
exploitation authorization and its Exploitation Perimeter. Each
alternate representative shall be entitled to attend all Operating
Committee meetings but shall have no vote at such meetings except
in the absence of the representative for whom he is the alternate.
In addition to the representative and alternate representative,
each Party may also bring to any Operating Committee meeting such
technical and other advisors as it may deem appropriate.
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5.4 Subcommittees
The Operating Committee may establish such subcommittees, including
technical subcommittees, as it may deem appropriate. The function
of each such subcommittee shall be in an advisory capacity unless
otherwise unanimously determined by the Parties.
5.5 Notice of Meeting
5.5.1 The Operating Committee shall meet-at least annually
for the purpose of determining Annual Work Programs
and Budgets. The Operator may at any time call a
meeting of the Operating Committee by giving written
notice to the Parties at least fifteen (15) days in
advance of such meeting.
5.5.2 Any two or more Non-Operators which are not Affiliated
Companies may request a meeting of the Operating
Committee upon written request to the Operator. Upon
receiving such request, Operator shall call such
meeting for a date not less than fifteen (15) days nor
more than twenty (20) days after receipt of the
request.
5.5.3 The notice periods set out above in this Article 5.5
may only be waived with the unanimous consent of all
the Parties.
5.6 Contents of Notice of Meeting
Each notice of a meeting of the Operating Committee shall contain
the date, time and location of the meeting as well as an agenda of
the matters and proposals to be considered or voted upon at such
meeting. A Party, by written notice to the other Parties given not
less than seven (7) days prior to a meeting, may add additional
matters to the agenda for such meeting. On the request of a Party,
and with the unanimous consent of all Parties, the Operating
Committee may consider at a meeting a proposal not contained in
such meeting's agenda.
5.7 Location of Meetings
All meetings of the Operating Committee and any subcommittee
created under Article 5.4 shall be held in Abidjan, the Republic of
Cote d'Ivoire, or elsewhere as may be decided by the unanimous
agreement of the Parties.
5.8 Operator's Duties for Meetings
The Operator shall act as chairman of all Operating Committee
meetings and keep the minutes thereof.
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5.9 Voting Requirements for Decisions
5.9.1 Except as otherwise expressly provided in this
Agreement, all decisions, approvals and other actions
of the Operating Committee on all matters coming before
it under this Agreement (including but not limited to
deciding to give a notice of an event of Force Majeure
under the Contract) shall be decided by the affirmative
vote of two or more Parties (which means if there are
only two (2) Parties It shall require the unanimous
vote of such Parties), which are not Affiliated
Companies, having collectively at least sixty percent
(60%) of the Initial Participating Interests, the
Special Area Participating Interests or the
Exploitation Participating Interests, as the case may
be. The Participating Interests to cast votes on a
matter shall be determined by whether the matter
relates to the Initial Participation Delimited Area,
the Special Area or any Exploitation Perimeter.
5.9.2 In respect of the minimum exploration work commitments
set forth in Articles 4.1, 4.2 and 4.3 of the Contract,
the Operating Committee shall determine the location
and the time at which each well is to be drilled during
the relevant Phase; provided, that if the Operating
Committee has not in respect of any such well made a
decision on the location thereof by a date which is one
(1) Year prior to the expiration date of the
applicable Phase during which such well is to be
drilled, the Operator shall promptly propose to the
Parties a location for such well. Unless within one (1)
Month after the date of such proposal the Operating
Committee agrees on another location (in which case the
location so agreed shall be the location at which the
well shall be drilled), the location proposed by the
Operator shall be deemed to be the agreed location and
the well shall be drilled at such location at the time
(if any) previously determined by the Operating
Committee or, if no time has been so determined by the
Operating Committee, at a time selected by the
Operator.
5.9.3 A meeting of the Operating Committee shall be held not
less than thirty (30) days prior to the latest date on
which the Contractor may request an extension of the
exclusive exploration authorization into Phase II and
Phase III under Article 3 of the Contract. At such
meeting each Party shall advise the other Parties
whether it intends to join in the request to extend the
exclusive exploration authorization. In the event a
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Party gives notice at such meeting that it does not
wish to proceed into the next Phase, such Party shall
be deemed to have elected to withdraw from this
Agreement and the Contract under Article 11.
5.9.4 The unanimous vote of all the Parties shall be required
to terminate the Contract or surrender any part of the
Delimited Area; provided, that if the Operating
Committee has not determined the size, shape and
location of any area required to be surrendered under
Article 3.5(a) or Article 3.5(b) of the Contract by a
date which is one (1) Month prior to the date such
surrender is to be made, the Operator shall propose to
the Operating Committee the size, shape and the
location of the area to be surrendered. Unless within
fifteen (15) days after the date of such proposal the
Operating Committee agrees on the size, shape and
location of another area of surrender (in which case
the area so agreed shall be the area that shall be
surrendered), the area proposed by the Operator shall
be deemed to be the area of surrender and the Operator
shall proceed to surrender such area.
5.9.5 Any Party not represented at a meeting of the Operating
Committee may vote on any matter on the agenda for such
meeting by either:
(a) Appointing a proxy in writing; or
(b) Giving notice of such vote to the Operator
prior to the submission of such matter for a
vote at such meeting.
5.9.6 Any Party failing to communicate its vote in a timely
manner shall be deemed to have voted against such
matter.
5.10 Minimum Exploration Work Commitments
Notwithstanding anything to the contrary which may be contained or
implied in this Article 5, in the event an Annual Work Program and
Budget fails to receive the applicable vote for approval, the
Parties shall meet within thirty (30) days after such vote to agree
on such Annual Work Program and Budget. Failing such agreement
within such thirty (30) days or failing an agreement as to an AFE
within fifteen (15) days pursuant to Article 4.4.5 and in order to
preserve the Contract, the Operator shall nonetheless be empowered
to carry out and conduct such part of such unapproved Annual Work
Program and Budget or AFE as will satisfy the current minimum
exploration
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work commitments set out in Article 4 of the Contract and the
costs, expenses and risks in carrying out such portion of the
Annual Work Program and Budget shall be for the Joint Account.
5.11 Recording of Votes
The Operator shall make a record of each proposal voted on and the
results of such voting at each Operating Committee meeting. Each
representative of a Party shall sign and be provided with a copy of
such voting record at the end of such meeting and it shall be
considered the final record of the decisions of the Operating
Committee at such meeting. The Operator shall promptly inform any
Party not attending such Operating Committee meeting of the voting
results on any proposals which came before the meeting.
5.12 Minutes
The Operator shall appoint a secretary for the Operating Committee
who shall provide each Party with a copy of the minutes of each
Operating Committee meeting within twenty (20) days after the end
of the meeting. Each Party shall notify the other Parties within
fifteen (15) days after receipt of such minutes of its approval or
disapproval of the minutes. A Party which fails to give notice
specifying its approval or disapproval of such minutes within said
fifteen (15) days shall be deemed to have approved such minutes.
The approval or disapproval of minutes as aforesaid shall not
affect the validity of decisions taken by the Operating Committee.
5.13 Action Without a Meeting
5.13.1 The Parties may vote on and determine by notice to the
Operator any proposal which is submitted to them by the
Operator by notice and which they could validly
determine at a meeting of the Operating Committee if
duly held for that purpose. Each Party shall cast its
vote within fourteen (14) days after the proposal is
received by it except that where the Parties are
requested to vote on and determine any proposal
relating to the deepening, plugging back or abandonment
of a well on which drilling equipment is then located
or where the matter presented for consideration by its
nature requires determination in less than fourteen
(14) days and such fact and lesser period are so stated
in the notice submitting the proposal, the Parties
shall cast their votes within such lesser period which
shall not be less than forty-eight (48) hours after
receipt of the proposal. Failure by a Party to cast its
vote within the relevant period shall be regarded as a
vote by that Party against the proposal.
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5.13.2 The Operator will give prompt notice of the result of
any such voting to the Parties and any decision so
taken shall be binding on the Parties.
5.14 Right to Terminate Operations
Once a Joint Operation for the drilling, deepening, testing,
sidetracking, plugging back, completing, recompleting or plugging
of a well has been approved and commenced, such operation shall not
be discontinued without the consent of the Operating Committee;
provided, however, such operation may be discontinued if:
(a) an impenetrable substance or other condition is
encountered in the hole which in the reasonable
judgment of the Operator causes the continuation of
such operation to be impractical; or
(b) other circumstances occur which in the reasonable
judgment of the Operator cause the continuation of the
operation to be unwarranted and after notice the
Operating Committee approves the termination of such
operation in accordance with Article 5.9.1.
On the occurrence of either (a) or (b) above, the Operator shall
promptly notify the Parties that such operation is being
discontinued pursuant to this Article 5.14, and any Party shall
have the right to propose to the Operating Committee an alternative
operation to carry out that portion of the Annual Work Program
which was not performed.
ARTICLE 6
ANNUAL WORK PROGRAMS AND BUDGETS
6.1 Annual Work Programs and Budgets for Phases I, II and III
6.1.1 During each Calendar Year that this Agreement is in
force, the Operator shall prepare and submit to the
Parties a separate Annual Work Program and Budget for
the Special Area, the Initial Participation Delimited
Area and each Exploitation Perimeter to the extent that
Petroleum Operations are to be conducted in respect of
any such area during the applicable Calendar Year;
Provided, that in respect of the first Calendar Year
that this Agreement is in force, the Operator shall
prepare and submit to the Parties as soon as possible
such separate Annual Work Program and Budget for the
remainder
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of such first Calendar Year in order that same may be
presented to the Government within one (1) Month after
the Effective Date. Each such Annual Work Program and
Budget shall contain the following information:
(a) The projects and other work to be
undertaken, including but not limited to the
timing, location and projected cost of any
wells to be drilled thereunder;
(b) The Operator's best estimate of applicable
overhead charges; and
(c) Such other information as the Operating
Committee may have required the Operator to
provide.
6.1.2 Each Annual Work Program and Budget referred to in
Article 6.1.1, except for the first Calendar Year,
shall be submitted not later than July 15 of each
Calendar Year. No later than September 15 of each
Calendar Year during the term of this Agreement, the
Operating Committee shall meet for the purpose of
reviewing and voting on each Annual Work Program and
Budget for the next succeeding Calendar Year. However,
in respect of the first Annual Work Program and Budget
in respect of Phase I, the Operating Committee shall
meet as soon as reasonably possible after the date of
submission of said Annual Work Program and Budget for
the purpose of acting upon same which meeting shall be
not later than fifteen (15) days after the Effective
Date. In the event the Calendar Year covered by an
Annual Work Program and Budget extends past the term of
a Phase, the Annual Work Program and Budget delivered
to the Government shall cover only the term of the
Phase. If the Parties elect to continue into the next
Phase, the Operator shall prepare and submit an Annual
Work Program and Budget covering the remainder of
the Calendar Year.
6.1.3 Each proposed Annual Work Program and Budget submitted
to the Operating Committee under Article 6.1.2 shall be
subject to consideration, revision and approval by the
Operating Committee. The Operating Committee shall
consider each such Annual Work Program and Budget and
shall make such revisions thereto as may be agreed upon
as soon as practicable, but in any event not later than
September 20 of each Calendar Year; Provided, in the
case of the first Annual Work Program and Budget for
Phase I, the Operating Committee shall consider and
make revisions thereto as soon as reasonably possible.
The
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Operator shall submit each approved Annual Work Program
and Budget to the Government in accordance with Article
5.1 of the Contract.
6.1.4 The consideration of each Annual Work Program and
Budget by the Operating Committee will include an
approval thereof by a vote of the Operating Committee.
However, notwithstanding that a Party may ultimately
vote for the approval or rejection of the entire Annual
Work Program and Budget, to the extent that any Annual
Work Program and Budget includes the drilling of a well
which is in excess of the minimum exploration work
commitments under the Contract in respect of the
Calendar Year covered by the Annual Work Program and
Budget, any Party shall have the right to object to
such well and have such objection recorded in the
minutes of such meeting. If the Operating Committee
approves an Annual Work Program and Budget for the
drilling of any well in excess of the minimum
exploration work commitments for such Calendar Year,
any Party which voted against such well shall have the
right by notice to the other Parties given not later
than seven (7) days after such approval by the
Operating Committee to elect to not participate in the
drilling of such well. If any such election is made by
a Party (hereinafter referred to as a "Non-Consenting
Party"), such well shall be deemed not to have been
approved by the Operating Committee and the current
Annual Work Program and Budget shall be amended
accordingly. The Parties which did not vote against
such well (hereinafter referred to as the "Consenting
Parties") shall then each have the right, but not the
obligation, to assume that proportion of the aggregate
Participating Interests of the Non-Consenting Parties
in the drilling of such well which the Participating
Interest of each such Consenting Party bears to the
total of the Participating Interests of all the
Consenting Parties or in such other proportion as the
Consenting Parties may agree. If the Consenting Parties
decline to assume all of the interest of the
Non-Consenting Parties, the drilling of such well shall
not be carried out. If the Consenting Parties assume
all of the Participating Interests of the
Non-Consenting Parties in the drilling of such well,
the drilling shall be commenced within one hundred
eighty (180) days following the expiry of such seven
(7) day period at the sole risk, cost and expense of
the Consenting Parties and the provisions of Article
6.5 shall apply to such drilling and such drilling
shall be deemed to be a Non-Consent Project. The well
shall then be included in the Annual Work Program and
Budget to be delivered to the Government.
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6.1.5 In the event the Non-Consent Project under Article
6.1.4 results in a discovery of indications of
Petroleum which justify appraisal and the Operating
Committee determines to send the Government written
notice of the discovery of indications of Petroleum in
accordance with Article 11.1 of the Contract, each
Non-Consenting Party shall forfeit all of its right,
title and interest in and under any exclusive appraisal
authorization granted in respect of such Petroleum
discovery, and such Non-Consenting Party shall not
have any rights to any Petroleum produced from the area
covered by such an authorization except for the right
to any Cost Oil therefrom in respect of Petroleum
Costs incurred by such Party. Each Non-Consenting Party
shall make such conveyances or transfers as may be
necessary to place the interest of the Non-Consenting
Party in and under such exclusive appraisal
authorization in the Consenting Parties in proportion
to the Participating Interests of the Consenting
Parties or such other proportion as the Consenting
Parties may agree in writing. In the event an exclusive
exploitation authorization is granted covering all or
any portion of an Appraisal Perimeter as a result of
the work conducted in connection therewith and in
respect of which a Non-Consenting Party has not been
permitted to participate under this Article 6.2.5, such
Non-Consenting Party shall not be permitted to
participate in such exclusive exploitation
authorization.
6.1.6 At any time the Operator may, by notice to the other
Parties, propose that an approved Annual Work Program
and Budget be amended. To the extent that an amendment
is approved by the Operating Committee, the approved
Annual Work Program and Budget shall be deemed amended
accordingly, provided always that any such amendment
shall not invalidate any authorized commitment or
expenditure made by the Operator prior thereto, and
that the Government is given notice of such amendment
pursuant to Article 5.3 of the Contract.
6.2 Appraisal Work Programs and Budgets
6.2.1 In the event the Operator believes there has been a
discovery of indications of Petroleum which justifies
appraisal work, the Operator shall notify the other
Parties in writing of such Petroleum discovery within
ten (10) days after the temporary plugging or
abandonment of the discovery well. The Operating
Committee shall determine whether to send the
Government written notice of the discovery of
indications of Petroleum pursuant to
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the provisions of Article 11.1 of the Contract. If the
Parties approve the sending of such notice of a
discovery of indications of Petroleum to the
Government, the Operator shall promptly after the vote
has been taken send such notice and submit the report
to the Government as required under Article 11.1 of the
Contract.
6.2.2 In the event the Operating Committee has decided to
notify the Government of a discovery of indications of
Petroleum under Article 6.2.1, the Operator shall
prepare and submit to the Parties an Appraisal Work
Program and Budget in respect of such Petroleum
discovery. The Appraisal Work Program and Budget shall
contain the following information:
(a) The wells to be drilled and any other
projects and work to be undertaken
thereunder;
(b) The Operator's best estimate of costs and
applicable overhead charges;
(c) Such other information as the Operating
Committee may have required the Operator to
provide; and
(d) A map setting forth the boundary of the
Appraisal Perimeter and a description of
same.
6.2.3 The Appraisal Work Program and Budget shall be
submitted to the Parties not later than sixty (60) days
after the Operating Committee has voted to send the
notification to the Government under Article 6.2.1. The
Appraisal Work Program and Budget will cover the two
(2) Year term of the exclusive appraisal authorization
to be requested or a four (4) Year term in the event of
Non-Associated Natural Gas under Article 21.1.2 of the
Contract. Within thirty (30) days after the Operator
has submitted the Appraisal Work Program and Budget,
the Operating Committee shall meet for the purpose of
reviewing and voting on such Appraisal Work Program and
Budget.
6.2.4 Any proposed Appraisal Work Program and Budget
submitted to the Operating Committee shall be subject
to consideration, revision and approval by the
Operating Committee. The Operating Committee shall
consider such Appraisal Work Program and Budget and
shall make such revisions thereto as may be agreed upon
as soon as practicable, but in any event not later than
thirty (30) days after the Operator has submitted the
Appraisal Work Program and Budget to the Operating
Committee.
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6.2.5 The consideration of each Appraisal Work Program and
Budget by the Operating Committee will include an
approval thereof by a vote of the Operating Committee.
However, to the extent that such Appraisal Work Program
and Budget includes any work in excess of the minimum
exploration work commitments under the Contract in
respect of the term of the exclusive appraisal
authorization, any Party shall have the right to object
to such work and have such objection recorded in the
minutes of such meeting. If the Operating Committee
approves the Appraisal Work Program and Budget for
such work in excess of the minimum exploration work
commitments for the term of the exclusive appraisal
authorization, any Party (hereinafter referred to as a
Non-Consenting Party) which voted against such work
shall have the right by notice to the other Parties
given not later than seven (7) days after such approval
by the Operating Committee to elect not to participate
in such work. If any such election is made by a
Non-Consenting Party, such work shall be deemed not to
have been approved by the Operating Committee and the
current Appraisal Work Program and Budget shall be
amended accordingly. The Parties which did not vote
against such work (hereinafter referred to as the
"Consenting Parties") shall then each have the right,
but not the obligation, to assume that proportion of
the aggregate Participating Interests of the
Non-Consenting Parties in respect of such work which
the Participating Interest of each such Consenting
Party bears to the total of the Participating Interests
of all the Consenting Parties or in such other
proportion as the Consenting Parties shall agree. If
the Consenting Parties decline to assume all of the
interest of the Non-Consenting Parties, such work shall
not be carried out. If the Consenting Parties assume
all of the Participating Interests of the Non-
Consenting Parties in respect of such work, the
drilling shall be commenced within nine (9) Months
following the expiry of such seven (7) day period at
the sole risk, cost and expense of the Consenting
Parties and the provisions of Article 6.5 shall apply
to such work and such work shall be deemed to be a
Non-Consent Project. Such work assumed by the
Consenting Parties shall be included in the Appraisal
Work Program and Budget, and the Operator shall submit
to the Government a request for an exclusive appraisal
authorization and the approved Appraisal Work Program
and Budget.
6.2.6 The Operator shall, as and when required by the
Operating Committee, review the approved Appraisal Work
Program and Budget and submit to the Parties a report
thereon.
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6.2.7 At any time the Operator may, by notice to the other
Parties, propose that an approved Appraisal Work
Program and Budget be amended. To the extent that an
amendment is approved by the Operating Committee, the
approved Appraisal Work Program and Budget shall be
deemed amended accordingly, provided that any such
amendment shall not invalidate any authorized
commitment or expenditure made by the Operator prior
thereto, and that such amendment complies with Article
11.2 of the Contract. A Consenting Party shall not have
any right to elect to be a Non-Consenting Party in
respect of an amendment to an Appraisal Work Program
and Budget.
6.2.8 In the event the Government advises the Operator that
it has rejected or wishes to modify the Appraisal Work
Program, the Operator shall call a meeting of the
Operating Committee to consider the desires of the
Government.
6.2.9 If the Operator is of the opinion that the term of the
exclusive appraisal authorization should be extended
under Article 11.3.1 of the Contract, the Operator
shall call a meeting of the Operating Committee not
less than sixty (60) days prior to the termination of
the exclusive appraisal authorization. If the Operating
Committee approves such extension, the Operator shall
submit a request in writing to the Government for an
extension of up to six (6) Months as specified by the
Operating Committee.
6.2.10 Nothing contained in this Article 6.2 shall be deemed
or construed to prevent the Operator from proposing a
Development and Production Plan under the provisions of
Article 6.3 without first proposing an Appraisal Work
Program and Budget.
6.2.11 In the event the appraisal work under an Appraisal Work
Program and Budget to which a Party is a Non-Consenting
Party results in the Operating Committee determining
that the Petroleum discovery is commercial and thus
constitutes a Field and a Development and Production
Plan is submitted to the Government, such
Non-Consenting Party shall forfeit all of its right,
title and interest in and under any exclusive
exploitation authorization granted in respect of such
Appraisal Work Program and Budget, and such
Non-Consenting Party shall not have any rights to any
Petroleum produced from any Exploitation Perimeter
granted in respect of such exclusive exploitation
authorization except for the right of a Non-Consenting
Party to receive Cost Oil therefrom in
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respect of Petroleum Costs incurred by such
Non-Consenting Party. Each such Non-Consenting Party
shall make such conveyances or transfers as may be
necessary to place the interest of the Non-Consenting
Party in and under such exclusive exploitation
authorization in the Consenting Parties in proportion
to the Participating Interests of such Consenting
Parties or in such other proportion as they may
mutually agree in writing.
6.3 Development and Production Plans
6.3.1 If the Operating Committee determines that the
Petroleum discovery is commercial and thus constitutes
a Field, the Operator shall, as soon as practicable
after such decision, submit to the Parties a proposed
Development and Production Plan showing:
(a) The projects and other work to be
undertaken;
(b) The planned delimitation of the Exploitation
Perimeter;
(c) The manner in which the development is to be
managed with details of the number of
employees and contract personnel required;
(d) An estimate of the date of commencement of
production, the annual rates of production,
and the reserves in place including
estimates of proven and probable;
(e) An economic study demonstrating the
commercial nature of the discovery; and
(f) Such other information as the Operating
Committee may have required such Operator to
provide.
6.3.2 The proposed Development and Production Plan shall be
subject to consideration, revision and approval by the
Operating Committee. The Operating Committee shall meet
to consider such Development and Production Plan as
soon as practicable and to make such revisions thereto
as may be agreed. Unless the Operating Committee
otherwise agrees, the Operating Committee shall approve
or reject the Development and Production Plan within
ninety (90) days after its submission by the Operator
to the Parties.
6.3.3 If a Development and Production Plan is approved by the
Operating Committee, each of the Parties shall have the
right to refuse to drill one or more Development Wells
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in the Development and Production Plan by giving notice
of such refusal to each of the Parties within ten (10)
days after the approval of such Plan. If a Party has
refused to participate in one or more Development Wells
in a Development and Production Plan (hereinafter
referred to as the "Non-Consenting Parties"), such Plan
shall be deemed not to have been approved. The Parties
which did not refuse to participate in the wells
(hereinafter referred to as the "Consenting Parties")
shall then each have the right, but not the obligation,
to assume the aggregate Participating Interests of the
Non-Consenting Parties on a well by well basis in the
proportion which the Participating Interest of each
such Consenting Party bears to the total of the
Participating Interests of all the Consenting Parties
or in such other proportion as the Consenting Parties
may agree in writing. If the Consenting Parties decline
to assume all of the interest of the Non-Consenting
Parties in all the wells in which a Consenting Party
refused to participate, the Development and Production
Plan shall not be carried out. If the Consenting
Parties assume all of the Participating Interests of
the Non-Consenting Parties, the wells in which the
Non-Consenting Parties refused to participate shall be
carried out as a Non-Consent Project at the sole risk,
cost and expense of the Consenting Parties and the
provisions of Article 6.5 shall apply to such
Non-Consent Project.
6.3.4 In the event the Government proposes revisions or
modifications to the Development and Production Plan in
accordance with Article 11.3.6 of the Contract, the
Contractor shall call a meeting of the Operating
Committee to consider, revise and approve the
Development and Production Plan as revised or modified
during meetings with the Government. If the Operating
Committee approves the Development and Production Plan,
each of the Parties shall have the opportunity to
determine whether to be a Non-Consenting Party in
respect of any new Development Well included therein
using the procedure set forth in Article 6.3.3.
6.3.5 The Operator shall, during each Calendar Year after the
approval of the Development and Production Plan, review
the approved Development and Production Plan and submit
to the Parties not later than the first day of August
of each Year a report thereon together with an update
of such Development and Production Plan dealing
separately with the next Calendar Year and the
remaining phases of
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the approved Development and Production Plan and
showing the matters listed under Article 6.3.1 except
for paragraph (e).
6.3.6 At any time the Operator may, by notice to all the
other Parties, propose that an approved Development and
Production Plan be amended. The Operating Committee
shall consider such proposal and, if the Operating
Committee so requires, the Operator shall prepare and
submit to the Parties a revised Development and
Production Plan incorporating any such amendment and
showing the matters listed under Article 6.3.1 except
for paragraph (e). To the extent that any such
amendment or revised Development and Production Plan is
approved by the Operating Committee, the approved
Development and Production Plan shall, subject to
obtaining any necessary consent of the Government, be
deemed amended accordingly provided always that any
such amendment shall not invalidate any authorized
commitment or expenditure made by the Operator prior
thereto. Each Party shall have the right under Article
6.3.3 to be a Non-Consenting Party in respect of any
Development Well included in the revised Development
and Production Plan which was not in the original Plan.
6.4 Minimum Exploration Work Commitments
During the preparation of the proposed Annual Work Programs and
Budgets, Appraisal Work Programs and Budgets or Development and
Production Plans contemplated in this Article 6, the Operator shall
consult with the Operating Committee regarding the contents thereof
and all such Annual Work Programs and Budgets shall, as a minimum,
reflect the required minimum exploration work commitments, or at
least that part of such minimum exploration work commitments
required to be carried out during the Calendar Year in question
under Articles 4.1 through 4.3 of the Contract.
6.5 General Provisions of Non-Consent Projects
6.5.1 Any Non-Consent Project shall be carried out at the
sole risk, cost and expense of the Consenting Parties
which have elected to participate in such project. The
risk and cost of a Non-Consent Project shall be borne
by each Consenting Party in the proportion provided in
Articles 6.1, 6.2 or 6.3, as the case may be.
6.5.2 A Consenting Party shall exercise all necessary
precautions to ensure that a Non-Consent Project does
not jeopardize, hinder or unreasonably interfere with
the Joint Operations provided that a Non-Consent
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Development and Production Plan shall have priority
over Joint Operations commenced subsequent to the
granting of the exclusive exploitation authorization in
respect of such Plan.
6.5.3 The Consenting Parties (i) shall indemnify and hold
harmless the Non-Consenting Parties against all
actions, claims, demands and proceedings whatsoever
brought by any Third Party (including without
limitation any employee of the Consenting Party)
arising out of or in connection with a Non-Consent
Project, (ii) shall insofar as it may be within the
control of such Consenting Parties keep the Contract
and the Delimited Area free from all liens, charges and
encumbrances which might arise by reason of the conduct
of the Non-Consent Project, and (iii) shall further
indemnify the Non-Consenting Parties against all
damages, costs, losses and expenses whatsoever directly
or indirectly caused to or incurred by them as a result
of anything done or omitted to be done in the course of
carrying out such Non-Consent Project, excepting only
damage inflicted to the subsurface including any
reservoir. The approval of a Non-Consenting Party to
the conduct of a Non-Consent Project (whether such
approval is required) shall not constitute a waiver of
these provisions.
6.5.4 A Consenting Party carrying out a Non-Consent Project
shall be entitled to use Joint Property for such Non-
Consent Project.
6.5.5 A Consenting Party shall be entitled to use for a Non-
Consent Project, any data and information which it owns
jointly with the Non-Consenting Parties. Data and
information obtained in respect of a Non-Consent
Project, except for a Development and Production Plan,
shall be made available to the Non-Consenting Parties
but shall remain the property of the Consenting
Parties. In the event that one or more of the
Non-Consenting Parties under a Development and
Production Plan discharges in full its liability to the
Consenting Party with respect to the recovery of the
premium provided for in Article 6.6, such data and
information shall become the Joint Property of the
Parties discharging such liability and the Consenting
Parties.
6.5.6 A Non-Consent Project will be carried out by the
Operator on behalf of the Consenting Parties under the
provisions of this Agreement; provided, that with the
exception of any Non-Consent Project involving the use
of Joint Property as provided under Article 6.5.4, if
the
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Operator is not participating in the Non-Consent
Project the Operator in its sole discretion may decline
to conduct such Non-Consent Project where in its
judgment conducting such Non-Consent Project would
conflict with its previously existing commitments. In
such event the Non-Consent Project will, subject to any
necessary consent of the Government, be carried out by
the Consenting Party appointed as Operator by the
Consenting Parties and, in respect of the conduct of
such Non-Consent Project, such Consenting Party shall,
unless the context otherwise requires, be deemed to be
the Operator for the purpose of this Agreement.
6.5.7 In connection with any Non-Consent Project:
(a) The Non-Consent Project will be carried out
under the overall supervision and control of
the Consenting Parties in lieu of the
Operating Committee;
(b) The Operator shall carry out the Non-Consent
Project on behalf of the Consenting Parties
at the cost and expense of such Consenting
Parties whether or not such Consenting
Parties include the Operator or any
Affiliated Company of the Operator;
(c) The computation of costs and expenses of the
Non-Consent Project incurred by the
Consenting Parties shall be made in
accordance with the principles set out in
the Accounting Procedure and the Contract;
(d) The Operator or the Consenting Parties
carrying out the Non-Consent Project shall
maintain separate books, records and
accounts for the Non-Consent Project which
shall be subject to the same right of
examination and audit by the Consenting
Parties as those relating to the Joint
Operations;
(e) The costs and expenses of the Non-Consent
Project shall not be reflected in the
statements and billings rendered by the
Operator for the Joint Operations; and
(f) If the operator is carrying out a
Non-Consent Project on behalf of Consenting
Parties, the Operator shall be entitled to
make cash calls on the Consenting Parties in
connection with the Non-Consent Project and
shall not use Joint Account funds or be
required to use its own funds for the
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purpose of paying the costs and expenses
of the Non-Consent Project; furthermore
Operator shall not be obliged to commence
or, having commenced, to continue the
Non-Consent Project unless and until the
relevant advances have been received from
the Consenting Parties.
6.6 Non-Consent Payments
6.6.1 In the event a Non-Consent Project involves the
drilling of a Development Well which results in a Well
capable of producing Petroleum, the Non-Consenting
Parties shall be deemed to have granted to the
Consenting Parties, and the Consenting Parties shall
accept in proportion to their Participating Interests,
the right to receive in kind the volume of Petroleum
hereinafter provided. The grant from the Non-Consenting
Parties to the Consenting Parties referred to above
shall be the right to own, take in kind and separately
dispose of that volume of Petroleum which the
Non-Consenting Parties would have received under
Articles 16.3 and 21.3.1 of the Contract to the extent
that such Petroleum is attributable to production from
the Development Well which is the Non-Consent Project
until the Consenting Parties have received Petroleum
equal in value to seven hundred percent (700%) of the
Petroleum Costs incurred in respect of the Development
Well in which the Non-Consenting Parties did not
participate under the Development and Production Plan
to the extent that such Petroleum Costs would have been
attributable to the Participating Interests of the
Non-Consenting Parties if they had participated in such
project.
6.6.2 The Consenting Parties shall recover the Petroleum
Costs actually incurred in such Non-Consent Project
under Article 16.2 of the Contract. The value of the
Petroleum referred to in Article 6.6.1 shall be the
proceeds received from the disposal of such Petroleum
to Third Parties. If the disposal is not to a Third
Party, the Crude Oil shall be valued at Market Price
determined in accordance with the Contract and the
price of Natural Gas shall be determined under Article
21.3.4 of the Contract. Once the Consenting Parties
have recovered the applicable premiums set out in this
Article 6.6, the Non-Consenting Parties shall
automatically be entitled to their respective
Participating Interest shares of Petroleum produced,
and the production operations shall thereafter be
conducted as a Joint Operation.
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6.7 Programs and Budgets
6.7.1 The Operator shall not later than July 15 in the
Calendar Year prior to the Calendar Year in which
production is to commence under the Contract and in
each subsequent Calendar Year, submit to the Parties a
proposed Production Program and Budget for the next
Calendar Year showing:
(a) The projects and other work to be undertaken;
(b) Details of the number of employees and
contract personnel required;
(c) An estimate of the date of commencement of
production (if appropriate) and the total
production by Calendar Quarter and the
maximum daily rate to be achieved in each
Calendar Quarter; and
(d) Such other information as the Operating
Committee may have required such Operator to
provide.
6.7.2 The proposed Production Program and Budget shall be
subject to consideration, revision and approval by the
Operating Committee. The Operating Committee shall
consider such Production Program and Budget as soon as
practicable, but in any event not later than
September 15 and make such revisions thereto as may be
agreed. Unless the Operating Committee otherwise
agrees, the Operating Committee shall approve a
Production Program and Budget not later than September
20 and such approval shall authorize the Operator to
proceed with such Production Program and Budget. Such
approved Production Program and Budget shall be
delivered to the Government no later than October 1 of
each Calendar Year.
6.7.3 At any time the Operator may, by notice to all other
Parties, propose that an approved Production Program
and Budget be amended. The Operating Committee shall
consider such proposal and, if the Operating Committee
so requires, the Operator shall prepare and submit to
the Parties a revised Production Program and Budget,
incorporating any such amendment and showing the
matters listed under Article 6.7.1. To the extent that
any such amendment or revised Production Program and
Budget is approved by the Operating Committee, the
approved Production Program and Budget shall, subject
to obtaining any necessary consent of the Government,
be
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deemed amended accordingly, provided that any such
amendment shall not invalidate any authorized
commitment or expenditure made by the Operator prior
thereto, and the Government is given notice of such
amendment pursuant to Article 5.3 of the Contract.
ARTICLE 7
PETROCI PARTICIPATION
7.1 Special Area
Article 22.1(a) of the Contract and Article 3.1.1 provide that
Petroci shall hold and own a Special Area Participating Interest of
forty percent (40%) in the Special Area. Notwithstanding anything
to the contrary set forth in this Agreement, commencing with the
Effective Date Petroci shall be responsible for, assume and pay
its proportionate share of all of the Petroleum Costs incurred
under this Agreement or the Contract in respect of such Special
Area Participating Interest.
7.2 Initial Participation Delimited Area
7.2.1 Article 22.1(b) of the Contract and Article 3.1.2
provide that Petroci shall hold and own an Initial
Participating Interest of ten percent (10%) in the
Initial Participation Delimited Area. In the event an
exclusive exploitation authorization is granted, the
Exploitation Perimeter of such exclusive exploitation
authorization shall be excluded from the Initial
Participation Delimited Area as of the date such
authorization is granted.
7.2.2 Pursuant to Article 22.2(f) of the Contract, Petroci
shall not be obligated or required to reimburse or
finance any of the Petroleum Costs incurred in respect
of the Initial Participating Interest held by Petroci;
provided, in the event an exclusive exploitation
authorization is granted, Petroci shall pay its share
of all the Petroleum Costs incurred after the effective
date of its Additional Participation under Article 22.2
of the Contract or failing notification from Petroci
four (4) Months after the issuance of the exclusive
exploitation authorization to the extent such Petroleum
Costs are incurred in respect of the Exploitation
Perimeter created with such exclusive exploitation
authorization. The Parties to this Agreement, excluding
Petroci (hereinafter referred to as the "Paying
Parties"), shall pay for and on behalf of Petroci all
of
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the Petroleum Costs incurred in respect of Petroci's
Initial Participating Interest. Each of the Paying
Parties shall pay a portion of such costs which is
equal to the ratio that such Paying Party's Initial
Participating Interest bears to the Initial
Participating Interests of all the Paying Parties. Each
of the Paying Parties shall pay its portion of each
cash call and all other payments due by Petroci under
this Agreement in respect of its Initial Participating
Interest in a timely manner in accordance with this
Agreement. The Operator shall notify each Paying Party
of all payments to be made on behalf of Petroci under
this Article 7.2.2.
7.3 Total Exploitation Participating Interest
7.3.1 Each time an exclusive exploitation authorization is
granted with its related Exploitation Perimeter outside
the Special Area, Petroci shall have an option to
increase its Initial Participating Interest in respect
of the exclusive exploitation authorization being
granted as provided in Article 22.2 of the Contract and
Article 3.2. As provided in Article 3.2, the
Participating Interest of Petroci in respect of the
exclusive exploitation authorization and its related
Exploitation Perimeter may be increased from the
original Initial Participating Interest of ten percent
(10%) up to but not in excess of twenty percent (20%).
7.3.2 In the event Petroci gives notice under Article 22.2(b)
of the Contract to add an Additional Participating
Interest, the Total Exploitation Participating Interest
of Petroci shall be effective as of the date of the
notice under Article 22.2(b) of the Contract. In
accordance with Article 3.2, the Parties shall
execute an amendment to this Agreement which shall set
forth the changes to the Participating Interests of the
Parties as a result of the Additional Participating
Interest acquired by Petroci. The amendment shall be
effective as of the date the exclusive exploitation
authorization is granted by the Government.
7.3.3 In order to transfer to Petroci any Additional
Participating Interest, the Parties, except for
Petroci, shall assign to Petroci a portion of their
Initial Participating Interests pursuant to Article
22.2(d) of the Contract. Each of the Parties, except
Petroci, shall assign a portion of its Initial
Participating Interest but insofar and only insofar as
the Initial
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Participating Interest to be assigned relates to the
exclusive exploitation authorization and its
Exploitation Perimeter which is the subject of the
transfer of the Additional Participating Interest. The
portion of its Initial Participating Interest to be
assigned by each Party obligated to make an assignment
shall be determined by dividing the Initial
Participating Interest of the assigning Party by
the Initial Participating Interests of all the
assigning Parties and multiplying the quotient thereof
times the Additional Participating Interest to be
assigned and multiplying by one hundred to determine
the percentage. The assignment shall be executed by the
assigning Parties and Petroci and shall be effective as
of the date of the granting of the exclusive
exploitation authorization.
7.3.4 Petroci shall be responsible for and pay all Petroleum
Costs relating to an exclusive exploitation
authorization in respect of its Total Exploitation
Participating Interest in accordance with Article
22.2(e) of the Contract.
7.3.5 It is understood that there shall be created a separate
Total Exploitation Participating Interest for each
exclusive exploitation authorization granted.
7.4 Payment of Petroleum Costs by Petroci
7.4.1 At such time as the first exclusive exploitation
authorization is granted under the Contract, Petroci
shall reimburse the other Parties all of Petroci's
Additional Participating Interest share of the
Petroleum Costs incurred and paid by such other Parties
from the Effective Date to the effective date of
Petroci's Additional Participation under Article 22.2
of the Contract or, failing notification from Petroci,
four (4) Months after the issuance of the exclusive
exploitation authorization, but which have not yet been
recovered by such Parties. In accordance with Article
22.2(g) of the Contract, Petroci shall reimburse the
above described Petroleum Costs using either of the
following methods:
(a) Within six (6) Months after Petroci gives
notice under Article 22.2(b) of the Contract
to increase its Initial Participating
Interest by the amount of the Additional
Participating Interest, Petroci may either
(i) pay in Dollars the total sum owed to the
other Parties in respect of the Additional
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Participating Interest transferred to
Petroci or (ii) transfer and deliver to such
Parties a volume of Crude Oil the cash
proceeds of which, after all costs and
expenses in respect of the transportation
and disposal of such Crude Oil are paid,
will equal the total sum of money owed by
Petroci to such Parties in respect of such
Additional Participating Interest; or
(b) Petroci may make payments to the other
Parties in respect of the Additional
Participating Interest transferred to
Petroci by transferring to such Parties
title to fifty percent (50%) of the Crude
Oil to which Petroci is entitled under
Article 16.3 of the Contract and fifty
percent (50%) of the Natural Gas to which
Petroci is entitled under Article 21.3.1 of
the Contract until the value of such Crude
Oil under Article 18 of the Contract and the
value of the Natural Gas under Article
21.3.4 of the Contract equals the total sum
of money owed by Petroci including interest
thereon as hereinafter provided. The
outstanding balance due by Petroci on the
expiry of the six (6) Month period referred
to in Article 7.4.1(a) shall bear interest
from such date until such sums including
interest thereon have been paid in full.
Interest shall be computed at a rate per
annum using the six (6) Month term LIBOR
rate (London Interbank Offering Rate) for
Dollar deposits as quoted by National
Westminster Bank in London on the first
business day prior to the due date of
payment plus one (1) percentage point with
annual compounding.
7.4.2 Each time that an exclusive exploitation authorization
is granted subsequent to the first one referred to in
Article 7.4.1, Petroci shall reimburse the other
Parties for Petroci's Additional Participating Interest
share of all the Petroleum Costs incurred and paid by
such Parties but not yet recovered by such Parties in
respect of the Exploitation Perimeter which was created
with the exclusive exploitation authorization to the
extent such costs were incurred after the date the last
Additional Participating Interest became effective and
the date on which the most recent Additional
Participating Interest will become effective under
Article 22.2 of the Contract. Petroci shall reimburse
the other Parties for such costs in the manner set
forth in Article 7.4.1.
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7.5 Training Budget
Article 29.2 of the Contract provides that Petroci shall not be
obligated to pay its proportionate part of the minimum annual
training budget obligation set forth in such Article. The Parties
other than Petroci shall make the expenditures under Article 29.2 of
the Contract in the proportion that the Initial Participating
Interest of each such Party bears to the total Initial
Participating Interests of such other Parties. Such other Parties
(excluding Petroci) shall have the right to share the Cost Oil in
respect of such minimum annual training budget expenditures in the
same proportion in which such funds were contributed.
ARTICLE 8
DEFAULTS
8.1 Default and Notice
Any Party that fails to pay when due its Participating Interest
share of Petroleum Costs including cash advances and interest
accrued pursuant to this Agreement shall be in default under this
Agreement. The Operator, or any Party in the case of a default by
the Operator, shall promptly give written notice of such default to
such Defaulting Party and to each of the non-defaulting Parties. The
amount not paid by the Defaulting Party shall bear interest from
the due date until paid in full. The Defaulting Party shall be
charged interest compounded monthly at the rate per annum equal to
the one (1) Month term LIBOR rate for Dollar deposits, as published
by The Wall Street Journal or if not so published in The Wall
Street Journal, then by the Financial Times of London, plus two
percentage points applicable on the first business day prior to the
due date of payment, and thereafter on the first business day prior
to said due date on each succeeding Month. If the aforesaid rate of
interest is contrary to any applicable usury law in the Cote
d'Ivoire or any other applicable usury law, then the rate of
interest to be charged such Defaulting Party shall be the maximum
rate permitted by such law.
8.2 Operating Committee Meetings, Voting and Data
After any default has continued for seven (7) days after the date
of written notice of default under Article 8.1, and for so long
thereafter as the Defaulting Party remains in default on any
payment due under this Agreement, the Defaulting Party shall not be
entitled to attend Operating Committee meetings or to vote on any
matter coming before the Operating Committee or the Parties during
the period such default continues. Unless
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otherwise agreed by the non-defaulting Parties, the voting interest
of each non-defaulting Party shall be in the proportion which its
Participating Interest bears to the total of the Participating
Interests of all non-defaulting Parties. Any matters requiring the
unanimous vote of the Parties shall be deemed to exclude the
Defaulting Party. After said seven (7) days, and while the
Defaulting Party remains in default, the Defaulting Party shall not
have access to any data or information relating to Joint
Operations. Notwithstanding the foregoing, the Defaulting Party
shall be deemed to have approved, and shall also be deemed to have
joined with the non-defaulting Parties, in taking any action to
maintain and preserve the Contract.
8.3 Allocation of Defaulted Accounts
8.3.1 At the time of giving notice of default as provided for
in Article 8.1 above or by separate written notice, the
Operator shall notify each non-defaulting Party as to
the sum of money it is to pay as its portion (such
portion being the proportion that each such
non-defaulting Party's Participating Interest bears to
the Participating Interests of all non-defaulting
Parties) of the amount in default. The Operator shall
make a separate computation to the extent of a default
in respect of the Special Area Participating Interests,
the Initial Participating Interests and each of the
Exploitation Participating Interests. If such default
continues, each non-defaulting party shall pay the
Operator, within seven (7) days after receipt of such
notice, its share of the amount which the Defaulting
Party failed to pay. If any non-defaulting Party fails
to pay its share of the amount in default as
hereinabove required, such non-defaulting Party shall
thereupon be in default and shall be a Defaulting Party
subject to the provisions of this Article 8. The
non-defaulting Parties which pay the amount owed by any
Defaulting Party shall be entitled to receive their
respective share of the principal and interest payable
by such Defaulting Party pursuant to Article 8.1.
8.3.2 The total of all amounts paid by the non-defaulting
Parties for the Defaulting Party, together with
interest accrued on such amounts, shall constitute a
debt due and owing by the Defaulting Party to the
non-defaulting Parties in proportion to such amounts
paid by the non-defaulting Parties.
8.3.3 A Defaulting Party may remedy its default by paying to
the Operator the total amount due, together with
interest as calculated in accordance with the
provisions of Article 8.1, at any time prior to the
transfer of its
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Participating Interest pursuant to the provisions of
Article 8.4. Upon receipt of such payment, the Operator
shall remit to each non-defaulting Party its
proportionate share of such amount.
8.3.4 The rights granted to each non-defaulting Party
pursuant to this Article 8 shall be in addition to, and
not in substitution for any other rights or remedies
which each non-defaulting Party may have at law or
equity or pursuant to the other provisions of this
Agreement.
8.4 Transfer of Interest
8.4.1 In the event the Defaulting Party fails to pay the
amount owed together with interest within thirty (30)
days after the date that the default notice under
Article 8.1 is sent, each non-defaulting Party shall
have the right exercisable within fifteen (15) days
after such thirty (30) days has expired to notify such
Defaulting Party that the non-defaulting Party elects
to take over and assume on a pro-rata basis such
Defaulting Party's Participating Interest. Such
exercise of right by the non-defaulting Party shall be
without prejudice to any other rights to recover from
the Defaulting Party the full amount owed including
interest. Should any of the non-defaulting Parties
elect to exercise its right of takeover under this
Article 8.4.1, the Defaulting Party shall be deemed to
have transferred and to have empowered the electing
non-defaulting Parties to execute on said Defaulting
Party's behalf any documents required to effect a
pro-rata transfer to the electing non-defaulting Parties
of said Defaulting Party's undivided right, title and
beneficial interest in and to the Delimited Area, the
Contract and this Agreement, and in all wells,
Petroleum therefrom and Joint Property. If requested by
the Operator, each Party shall, within sixty (60) days
after the Effective Date of this Agreement, execute a
power of attorney in favor of the other Parties to
effectuate the provisions of this Article 8.4.1 in a
form prescribed by the Operating Committee. The
Defaulting Party shall, without delay following any
request from the non-defaulting Parties, do any and all
acts required to be done by applicable law or
regulation in order to render such pro-rata transfer of
the Defaulting Party's Participating Interest legally
valid, and shall execute any and all documents and take
such other actions as may be necessary in order to
effect prompt and valid transfer of the above
Participating Interest, free and clear of all liens and
encumbrances.
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Any transfer under this Article 8.4 shall include the
Special Area Participating Interest, the Initial
Participating Interest and the Exploitation
Participating Interest of the Defaulting Party.
8.4.2 In the absence of an agreement among the non-defaulting
Parties to the contrary, any such transfer to the
non-defaulting Parties shall be in the proportion that
the non-defaulting Parties have paid the amounts due
from the Defaulting Party. On the date the
non-defaulting Parties notify the Government under
Article 12 as to the transfer of a Defaulting Party's
Participating Interest under this Article 8.4, the
Defaulting Party shall forthwith cease to be a Party to
this Agreement and to the Contract to the extent of the
Participating Interest transferred.
8.4.3 In the event the Defaulting Party disputes that it is
in default and has taken the matter to arbitration
pursuant to the provisions of Article 17.2 et. seq.,
prior to any election by a non-defaulting Party to
assume a pro-rata share of such Defaulting Party's
Participating Interest, the provisions of this Article
8.4 shall abate pending the outcome of an arbitration
award. During such arbitration proceedings the other
provisions of this Article 8 shall remain in full
force and effect.
8.5 Continuation of Interest
If after the time period during which a non-defaulting Party has
the right to elect to acquire the Participating Interest of a
Defaulting Party under the provisions of Article 8.4.1, one (1) or
more of the non-defaulting Parties elect not to acquire the
Defaulting Party's Participating Interest as provided for in
Article 8.4 and continue to bear the Defaulting Party's
Participating Interest share of liabilities and expenses, such
non-defaulting Parties shall accumulate all such liabilities and
expenses as a debt pursuant to this Article 8, but the Defaulting
Party shall continue to be a Party to this Agreement subject to the
provisions of Articles 8.2 and 8.7; Provided, any non-defaulting
Party may elect to withdraw from this Agreement under Article 11.3.
In the event a non-defaulting Party makes an election to withdraw,
such Party's right to recover the debt owed under this Article 8 by
the Defaulting Party to such non-defaulting Party shall continue in
effect notwithstanding such withdrawal. If the Operator disposes of
any Joint Property or any other credit or adjustment is made to the
Joint Account, or if Operator sells any of the Defaulting Party's
Participating Interest share of Petroleum, then, in respect of the
Defaulting Party's Participating Interest share of proceeds of such
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disposal, credit or adjustment or sale, the Operator shall be
entitled to retain and to set off the same against all amounts
together with interest accrued thereon which are due and owing from
the Defaulting Party. Any surplus remaining after such retaining
and set off procedure shall be paid promptly to the Defaulting
Party.
8.6 Sale of Petroleum
If a Party defaults after the commencement of commercial
production and has not remedied the default by the thirtieth (30th)
day as aforesaid, the Defaulting Party shall not during the
continuance of such default be entitled to its Participating
Interest share of Petroleum which shall vest in and be the property
of the non-defaulting Parties, and the Operator shall be authorized
to sell such Petroleum at the best price obtainable under the
circumstances and, after deducting all costs, charges and expenses
incurred by the Operator in connection with such sale, pay the
proceeds proportionately to the non-defaulting Parties which
proceeds shall be credited against all monies advanced pursuant to
Article 8.3, together with interest accrued thereon. Any surplus
remaining shall be paid to the Defaulting Party, and any deficiency
shall remain a debt due from the Defaulting Party to the
non-defaulting Parties. Notwithstanding any such sales by Operator,
the provisions of Article 8.4 shall continue to apply.
8.7 No Right of Set Off
Each Party acknowledges and accepts that a fundamental principle of
this Agreement is that, except as otherwise provided in respect of
Petroci, each Party shall pay its Participating Interest share of
all amounts due under this Agreement as and when required.
Accordingly, any Party which becomes a Defaulting Party undertakes
that, in respect of either any exercise by the non-defaulting
Parties of any rights under or the application of any of the
provisions of this Article, such Party shall not raise by way of
set off or invoke as a defense, whether in law or equity, or in any
arbitration proceeding, any failure to pay amounts due and owing
under this Agreement or any alleged or unliquidated claim that such
Party may have against Operator or any Non-Operator, whether such
claim arises under this Agreement or otherwise. Such Party further
undertakes not to raise by way of defense, whether in law or in
equity, or in any arbitration proceeding, that the nature or the
amount or the remedies granted to the non-defaulting Parties is
unreasonable or excessive.
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ARTICLE 9
DISPOSITION OF PRODUCTION
9.1 Right and Obligations to Take in Kind
Except as otherwise provided in this Agreement, each Party shall
have the right and obligation to take in kind and separately
dispose of its Participating Interest share of Total Production
pursuant to the Contract in such quantities and in accordance with
such procedures as may be set forth in the offtake agreement
referred to in Article 9.2 or in the special arrangements for
Natural Gas referred to in Article 9.3.
9.2 Offtake Agreement for Crude Oil
If Crude Oil is produced under the Contract, the Parties in good
faith, and not less than three (3) Months prior to first delivery
of Crude Oil, shall negotiate and conclude the terms of an
agreement to cover the offtake of Crude Oil produced under the
Contract. This offtake agreement shall, to the extent consistent
with the Contract, make provision for:
9.2.1 The Delivery Point, at which title and risk of loss to
Crude Oil shall pass to the Parties interested (or as
the Parties may otherwise agree);
9.2.2 Operator's regular periodic advice to the Parties of
estimates of Total Production of Crude Oil for
succeeding periods, Participating Interest shares and
grades of Crude Oil, for as far ahead as is necessary
for Operator and the Parties to plan offtake
arrangements. Such advice shall also cover for each
grade of Crude Oil production and deliveries for the
preceding period, inventory and overlifts and
underlifts;
9.2.3 Nomination by the Parties to Operator of acceptance of
their Participating Interest share of Total Production
of Crude Oil for the succeeding period. Such
nominations shall in any one period be for each Party's
entire Participating Interest share arising during that
period subject to operational tolerances and agreed
minimum economic cargo sizes or as the Parties may
otherwise agree;
9.2.4 Elimination of overlifts and underlifts;
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9.2.5 If offshore loading or a shore terminal for vessel
loading is involved, risks regarding acceptability of
tankers, demurrage and (if applicable) availability of
berths;
9.2.6 Distribution to the Parties of Entitlements to ensure,
to the extent Parties take delivery of their
Entitlements in proportion to the accrual of such
Entitlements, that each Party shall receive currently
Entitlements of grades, gravities and qualities of Crude
Oil similar to Crude Oil received by each other Party;
9.2.7 To the extent that distribution of Entitlements on such
basis is impracticable due to availability of
facilities and minimum cargo sizes, a method of making
periodic adjustments; and
9.2.8 The option and the right of the other Parties to sell
Total Production of Crude Oil which a Party fails to
nominate for acceptance pursuant to Article 9.2.3 or of
which a Party fails to take delivery, in accordance
with applicable agreed procedures, provided that such
failure either constitutes a breach of Operator's or
Parties' obligations under the terms of the Contract,
or is likely to result in the curtailment or shut-in of
production. Such sales shall be made only to the
limited extent necessary to avoid disruption in Joint
Operations. Operator shall give all Parties as much
notice as is practicable of such situation and that a
sale option has arisen. Any sale shall be of the
unnominated or undelivered Total Production of Crude
Oil, as the case may be, and for reasonable periods of
time as are consistent with the minimum needs of the
industry and in no event to exceed twelve (12) Months.
The right of sale shall be revocable at will subject to
any prior contractual commitments. Sales to Third
Parties shall be for the realized price f.o.b. the
Delivery Point. Sales to any of the Parties or their
Affiliated Companies shall be at current market value
f.o.b. the Delivery Point. The Party arranging the
sale shall pay to the Party whose Entitlement is
involved the above price after deduction of all costs,
including storage costs, incurred in respect of such
sale and a marketing fee of an agreed percentage of the
applicable price less deductions, reflecting actual
costs of disposal. Current market value shall be the
value of the Entitlement in international markets
(unless the Entitlement was required to be delivered
into the Government's domestic market, in which case it
shall be
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the value therein) between a willing buyer and a
willing seller and shall be agreed between the two
Parties concerned, or failing agreement, determined by
an expert to be appointed in accordance with procedures
set forth in the offtake agreement.
9.3 Separate Agreement for Natural Gas
The Parties recognize that if Natural Gas is discovered it may be
necessary for the Parties to enter into special arrangements for
the disposal of the Natural Gas, which are consistent with the
development plan and subject to the terms of the Contract.
ARTICLE 10
ABANDONMENT OF WELLS
10.1 Abandonment of Wells Drilled as Joint Operations
10.1.1 Any well which has been drilled as a Joint Operation
and which is to be plugged and abandoned shall not be
plugged and abandoned without notifying all Parties.
10.1.2 Should any such Party fail to reply within twenty-four
(24) hours after delivery of notice of the Operator's
proposal to plug and abandon such well, such Party
shall be deemed to have consented to the proposed
abandonment. If all the Parties consent to abandonment,
such well shall be plugged and abandoned in accordance
with applicable regulations and at the cost, risk and
expense of the Parties who participated in the cost of
drilling such well.
10.1.3 If all Parties do not agree to the abandonment of such
well, those wishing to continue operations shall assume
financial responsibility over the well and shall be
deemed to be Consenting Parties conducting the
operations pursuant to Article 6. In the case of a
producing well, the Consenting Parties shall be
entitled to continue producing only from the zone open
to production at the time they assumed responsibility
for the well.
10.1.4 Consenting Parties taking over a well as provided above
shall tender to each of the Non-Consenting Parties such
Non-Consenting Parties' Participating Interest share of
the value of the well's salvable material and
equipment, determined in accordance with the Accounting
Procedure, less the estimated cost of salvaging and the
estimated
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cost of plugging and abandoning as of the date the
Consenting Party assumed responsibility for the well;
Provided, however, that in the event the estimated
plugging and abandoning and the estimated cost of
salvaging are higher than the value of the well's
salvable material and equipment, each of the abandoning
Parties shall continue to be liable for its
Participating Interest share of the estimated excess
cost.
10.1.5 Each Non-Consenting Party shall be deemed to have
relinquished to the Consenting Parties in proportion to
their Participating Interests all of its interest in
the wellbore of a produced well and related equipment,
insofar and only insofar as such Participating Interest
covers the right to obtain production from that
wellbore in the zone then open to production.
10.1.6 Operator shall continue to operate a produced well for
the account of the Consenting Parties at the rates and
charges contemplated by this Agreement, plus any
additional cost and charges which may arise as the
result of the separate allocation of interest in such
well.
ARTICLE 11
SURRENDER AND WITHDRAWALS
11.1 Surrender
When the Parties are required under Article 3.5 of the Contract to
surrender any portion of the Delimited Area, Operator shall advise
the Operating Committee of such requirement at least one hundred
twenty (120) days in advance of the date of such surrender. Prior
to the end of such period, the Operating Committee shall
determine pursuant to Article 5, the size, location and shape of
the surrendered area, consistent with the requirements of the
Contract. The Parties shall execute any and all documents and take
such other actions as may be necessary to effect the surrender.
11.2 Restriction
No Party may withdraw from either the Contract or this Agreement
except in accordance with the following provisions of this Article
11 and only after satisfying the minimum exploration
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work commitments in respect of the current Phase under the Contract
and any other applicable obligations under the Contract including
any Annual Work Program and Budget in force.
11.3 Right
11.3.1 Any Party (hereinafter referred to as a "Withdrawing
Party") may, subject to Article 11.4, at any time
withdraw from the Contract and from this Agreement if
one or more of the other Parties are willing to accept
its entire Participating Interest; and in such event
the withdrawal shall be on such terms and conditions
as may be agreed between the Withdrawing Party and
those Parties accepting its Participating Interest and
further subject to obtaining any necessary approvals of
the Government.
11.3.2 Any Party may, subject to Articles 11.2 and 11.4, at
any time give notice to the other Parties that it
wishes to withdraw from the Contract and this
Agreement. If all the other Parties give such notice of
withdrawal, no assignment shall take place, and the
Parties shall be deemed to have decided to abandon
Joint Operations in the Delimited Area, and the
Contract shall be surrendered on the earliest possible
date. If less than all the other Parties give such
notice, the Withdrawing Parties shall withdraw from the
Contract and this Agreement on the earliest possible
date and shall assign their respective interests in the
Contract and under this Agreement to the
Non-Withdrawing Parties without any compensation
whatsoever subject to the rights of a Withdrawing Party
under Article 8.5.
11.3.3 No Party participating in an exclusive appraisal
authorization may withdraw prior to the completion of
the relevant works comprised in the Appraisal Work
Program and Budget. A Party participating in an
exclusive exploitation authorization may not withdraw
prior to the completion of the relevant works comprised
in the applicable Development and Production Plan
except under Article 11.3.1.
11.4 Conditions. With respect to withdrawal by a Party pursuant to
Article 11.3.1 or Article 11.3.2:
(a) A Withdrawing Party shall assign all of its interest in
the Contract and this Agreement to the Parties that do
not withdraw (referred to in this Agreement as "Non-
Withdrawing Parties"), which interest shall (unless
otherwise agreed by such Non-Withdrawing Parties) be
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allocated to them in the proportion in which their
respective Participating Interests prior to the
effective date of withdrawal (as hereinafter defined)
bears to the total of the same;
(b) A Withdrawing Party shall promptly join in such actions
as may be necessary or desirable to obtain any consent
of the Government in connection with, and shall execute
and deliver any and all documents necessary to effect,
any such assignment, and a withdrawal shall not be
effective and binding upon the Parties until the date
upon which the same shall have been done (the
"effective date of withdrawal");
(c) A Withdrawing Party shall promptly join in all actions
required by the other Parties for the maintenance of
the Contract, provided that its participation in such
actions shall not cause it to incur, after the date on
which notice of withdrawal is given, any financial
obligations except as provided in this Article 11;
(d) A Withdrawing Party shall pay all penalties which may
be prescribed by the Contract and all costs and
expenses incurred by the other Parties in connection
with such withdrawal;
(e) A Withdrawing Party shall not be allowed to withdraw
from the Contract and this Agreement if its said
interest is subject to any encumbrances other than
those set forth in the Contract, unless the other
Parties are willing to accept the assignment subject to
such additional encumbrances;
(f) Unless the Party or Parties acquiring its said interest
agree to accept the Withdrawing Party's liabilities and
obligations, a Withdrawing Party shall remain liable
and obligated for its Participating Interest share of
all expenditures accruing to the Joint Account in
respect of the current Phase under the Contract (but
not in excess of such minimum exploration work
commitments) and under any Annual Work Program and
Budget, Appraisal Work Program and Budget or
Development and Production Plan approved by the
Operating Committee prior to the date on which notice
of withdrawal is given, even if the operations
concerned are to be implemented thereafter, provided
always that this paragraph (f) shall not render a
Withdrawing Party liable for any amounts which such
Party would not have been obliged to pay had it not
withdrawn, and provided further that if such
Withdrawing Party votes to disapprove an Annual Work
Program and
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Budget, Appraisal Work Program and Budget or
Development and Production Plan and within thirty (30)
days thereafter gives notice of withdrawal, pursuant to
Article 11.3.2, to the other Parties, the Withdrawing
Party shall not be liable for any expenditure related
to such Annual Work Program and Budget, Appraisal Work
Program and Budget or Development and Production Plan
incurred or accruing after the date on which notice of
withdrawal is given, subject, however, to any
liability for its Participating Interest share of any
minimum exploration work commitment under the current
Phase under the Contract; and
(g) A Withdrawing Party shall remain liable and obligated
for its Participating Interest share of all net costs
and obligations that in any way relate to the
abandonment of Joint Operations or a Non-Consent
Project in which such Withdrawing Party participated if
abandonment occurs within five (5) Calendar Years after
the effective date of withdrawal, and, prior thereto,
such Withdrawing Party shall provide the other Parties
with such security therefor as is acceptable to all
other Parties.
11.5 Emergencies
Notwithstanding anything to the contrary which may be contained or
implied in this Article 11, a Withdrawing Party's withdrawal shall
not become effective if a well is out of control or a fire, blow
out or other environmental disaster or emergency occurs. Such
notification of withdrawal shall become effective, if at all, only
after the emergency has been contained and the Withdrawing Party
has paid, or has provided security satisfactory to the
Non-Withdrawing Party for the Withdrawing Party's Participating
Interest share of the costs of such emergency.
ARTICLE 12
ASSIGNMENTS AND TRANSFERS OF PARTICIPATING INTERESTS
12.1 Obligations
12.1.1 Subject to the requirements of the Contract, the
transfer of all or part of a Party's Participating
Interest to a Third Party shall be effective only if it
satisfies the terms and conditions of this Article 12.
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12.1.2 Except in the case of a Party transferring all of its
Participating Interest, no transfer or assignment to a
Third Party shall be made by any Party which results in
the transferor or the transferee holding a
Participating Interest of less than five percent (5%).
12.1.3 The transferring Party shall, notwithstanding the
transfer, be liable to the other Parties for any
obligations, financial or otherwise, which have vested,
matured or accrued under the provisions of the Contract
or this Agreement prior to such transfer. Such
obligations shall include, without limitation, any
proposed expenditure approved by the Operating
Committee, prior to the transferring Party notifying
the other Parties of its proposed transfer.
12.1.4 The Third Party assignee shall have no rights in and
under the Contract, the Delimited Area or this
Agreement unless and until it obtains the necessary
Government approval and expressly undertakes in writing
to perform the obligations of the transferor under the
Contract and this Agreement in respect of the
Participating Interest being transferred, and furnishes
its share of any guarantees required by the Contract.
12.2 Right to Assign
Each Party shall have the right, subject to the provisions of
Articles 12.1 and 12.3, to freely assign and transfer all or a
portion of its Participating Interest to an entity that has
demonstrated to the satisfaction of the other Parties its financial
capability to meet its prospective obligations hereunder.
12.3 Assignments by Petroci to Third Parties
Article 22.3(d) of the Contract provides that Petroci may assign
only to a company controlled by the Government.
12.4 Encumbrances
No provision contained in this Article 12 shall prevent a Party
from mortgaging, pledging or otherwise encumbering all or part of
its Participating Interest for the purpose of securing financing,
provided that (i) such Party shall remain liable for all
obligations relating to such interest and (ii) the encumbrance
shall be expressly subordinated to the rights of the other Parties
under this Agreement.
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12.5 Effective Date
No assignment under this Article 12 shall be effective or binding
upon the Parties until the date upon which the assignor or assignee
furnishes all Parties with:
(a) An executed or photostatic copy of an instrument
evidencing assignment, together with any necessary
consent of the Government; and
(b) A written instrument (in form and content satisfactory
to the Parties and duly executed by the assignee)
accepting and assuming all of the obligations under
this Agreement in respect of the assigned Participating
Interest.
12.6 Costs
All costs and expenses pertaining to any such assignment shall be
the responsibility of the assignor.
ARTICLE 13
RELATIONSHIP OF PARTIES AND TAX
13.1 Relationship of Parties
The rights, duties, obligations and liabilities of the Parties under
this Agreement shall be individual, not joint or collective. It is
not the intention of the Parties to create, nor shall this
Agreement be deemed or construed to create a mining or other
partnership, joint venture, association or trust, or as authorizing
any Party to act as an agent, servant or employee for any other
Party for any purpose whatsoever except as explicitly set forth in
this Agreement. In their relations with each other under this
Agreement, the Parties shall not be considered fiduciaries except
as expressly provided in this Agreement.
13.2 Tax
Each Party shall be responsible for reporting to the Government its
own tax measured by the income of the Party and the satisfaction of
such Party's share of all obligations under the Contract and under
this Agreement. Each Party shall protect, defend and indemnify each
other Party from any and all loss, cost or liability arising from a
failure or refusal to report such income, profits, losses or
taxes.
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ARTICLE 14
CONFIDENTIAL INFORMATION - PROPRIETARY TECHNOLOGY
14.1 Confidential Information
14.1.1 Subject to the provisions of this Article 14, the
Parties agree that all information and data acquired or
obtained by any Party in respect of Joint Operations
shall be considered confidential and shall be kept
confidential and not be disclosed during the term of
the Contract and for a period of five (5) Years after
expiration of this Agreement to any person or entity
not a Party to this Agreement, except:
(a) To an Affiliated Company, provided such
Affiliated Company maintains confidentiality
as provided in this Article 14;
(b) To a governmental agency or other entity
when required by the Contract;
(c) To the extent such data and information is
required to be furnished in compliance with
any applicable laws or regulations, or
pursuant to any legal proceedings or because
of any order of any court binding upon a
Party;
(d) Subject to Article 14.1.2, to potential
contractors, contractors, consultants and
attorneys employed by any Party where
disclosure of such data or information is
essential to such contractor's, consultant's
or attorney's work in connection with the
Contract or this Agreement;
(e) Subject to Article 14.1.2, to a bona fide
prospective transferee of a Party's
Participating Interest (including an entity
with whom a Party is conducting bona fide
negotiations directed toward a merger,
consolidation or the sale of a majority of
its or an Affiliated Company's shares);
(f) Subject to Article 14.1.2, to a bank or
other financial institution to the extent
appropriate to a Party arranging for funding
for its obligations under this Agreement;
(g) To the extent such data and information must
be disclosed pursuant to any rules or
requirements of any government or stock
exchange having
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jurisdiction over such Party, or its
Affiliated Companies; Provided, that if any
Party desires to disclose information in an
annual or periodic report to its or its
Affiliated Companies' shareholders and to
the public and such disclosure is not
required pursuant to any rules or
requirements of any government or stock
exchange, then such Party shall comply with
Article 19.1.1;
(h) To its respective employees for the purposes
of Joint Operations, subject to each Party
taking customary precautions to ensure such
data and information is kept confidential;
and
(i) Where any data or information which, through
no fault of a Party, becomes a part of the
public domain.
14.1.2 Disclosure pursuant to Article 14.1.1(d), (e) and (f)
shall not be made unless prior to such disclosure the
disclosing Party has obtained a written undertaking
from the recipient party to keep the data and
information strictly confidential and not to use or
disclose the data and information except for the
express purpose for which disclosure is to be made.
14.2 Continuing Obligations
Any Party ceasing to own a Participating Interest during the term
of this Agreement shall nonetheless remain bound by the obligations
of confidentiality and any disputes shall be resolved in accordance
with Article 17.
14.3 Proprietary Technology
Nothing in this Agreement shall require a Party to divulge
proprietary technology to the other Parties; Provided, that where
the cost of development of proprietary technology has been charged
to the Joint Account, such proprietary technology shall be
disclosed to all Parties bearing a portion of such cost and may be
used by such Party and its Affiliated Companies in other
operations.
14.4 Trades
Notwithstanding the foregoing provisions of this Article, the
Operator may make well trades and data trades for the benefit of
the Parties, with any data, the cost of which has been charged to
the Joint Account, so obtained to-be furnished to all
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Parties. In such event, Operator must enter into an undertaking
with any Third Party to such trade to keep such information
confidential.
ARTICLE 15
FORCE MAJEURE
15.1 Obligations
If as a result of an event of Force Majeure any Party is rendered
unable, wholly or in part, to carry out its obligations under this
Agreement, other than the obligation to pay any amounts due or to
furnish security, then the obligations of such Party, so far as and
to the extent that the obligations are affected by such event of
Force Majeure, shall be suspended during the continuance of any
inability so caused, but for no longer period. The Party claiming
Force Majeure shall notify the other Parties of the event of Force
Majeure within a reasonable time after the occurrence of the facts
relied on and shall keep all Parties informed of all significant
developments. Such notice shall give reasonably full particulars of
said Force Majeure, and also estimate the period of time which said
Party will probably require to remedy the Force Majeure. The
affected Party shall use all reasonable diligence to remove or
overcome the Force Majeure situation as quickly as possible in an
economic manner, but shall not be obligated to settle any labor
dispute except on terms acceptable to it and all such disputes
shall be handled within the sole discretion of the affected Party.
Any Party affected by an event of Force Majeure which gave notice
thereof under this Article 15.1 shall resume the performance of
such obligations as soon as reasonably possible after the removal
of the cause and shall so notify the other Parties.
15.2 Definition of Force Majeure
Force Majeure means any event irresistible and beyond the control
of a Party, such as earthquake, flood, explosion, accident, strike,
lockout, riot, delay in obtaining rights-of-way, insurrection,
civil disturbances, sabotages, acts of war or conditions
attributable to war, or any other cause beyond its control, similar
to or different from those already mentioned.
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ARTICLE 16
NOTICES
Except as otherwise specifically provided in this Agreement, all notices
authorized or required between the Parties by any of the provisions of this
Agreement, shall be in writing, in English and delivered in person or by
registered mail or by courier service or by any electronic means of
transmitting written communications which provides confirmation of complete
transmission, and addressed to such Parties as designated below. The
originating notice given under any provision of this Agreement shall be deemed
delivered only when received by the Party to whom such notice is directed, and
the time for such Party to deliver any notice in response to such originating
notice shall run from the date the originating notice is received. The second
or any responsive notice shall be deemed delivered when received. "Received"
for purposes of this Article with respect to written notice delivered pursuant
to this Agreement shall be actual delivery of the notice to the address of the
Party to be notified specified in accordance with this Article. Each Party
shall have the right to change its address at any time and/or designate that
copies of all such notices be directed to another person at another address, by
giving prior written notice thereof to all other Parties.
To: UMIC To: Petroci
UMIC Cote d'Ivoire Corporation Societe Nationale d'Operations
1201 Louisiana Petrolieres De La Cote d'Ivoire
Suite 1400 Imm. Les Heveas - 14 Bd. Carde
Houston, Texas, 77002-5603 B.P. V 194
U.S.A. Abidjan, Cote d'Ivoire
Attention: Vice President-Land Attention: Mr. Moussa Fanny
Telecopy: (1)(713)653-5098 Telecopy: (225) 216824
Telex: 22135
Answerback Code: PETRO CI
ARTICLE 17
APPLICABLE LAW AND ARBITRATION
17.1 Applicable Law
This Agreement shall be governed, construed and interpreted under
the laws of the Republic of Cote d'Ivoire.
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17.2 Arbitration
17.2.1 In the event of any dispute arising between the Parties
to this Agreement relating to or arising out of the
interpretation or carrying out of any of the provisions
of this Agreement, such relevant Parties agree to meet
and to use good faith efforts to attempt to resolve
such dispute without resort to the formal arbitration
procedures provided for in this Article.
17.2.2 If after a period of thirty (30) days, Petroci and
another Party are unable to resolve their dispute, then
notwithstanding anything to the contrary contained in
this Agreement, any such dispute, controversy or claim
arising between them out of or in connection with this
Agreement, or the breach, termination or validity
thereof, may be referred to and finally settled by
final and binding arbitration by three arbitrators in
Paris, France, in accordance with the Arbitration Rules
of the International Centre for Settlement of
Investment Disputes ("Arbitration Rules") as currently
in force, and judgment upon the award rendered by the
arbitrators may be entered in any court having
jurisdiction thereof.
17.2.3 Either Party which desires to initiate arbitration
proceedings under Article 17.2.2 shall address a
request for arbitration to the Secretary-General of the
International Centre for Settlement of Investment
Disputes ("Centre"). The arbitration shall be initiated
by one Party ("First Party") giving notice to the other
Party ("Other Party") and to the Secretary-General of
the Centre that the First Party elects to refer the
matter to arbitration, and the First Party has
appointed an arbitrator who shall be identified in such
notice. The Other Party shall notify the First Party
and the Secretary-General of the Centre in writing
within thirty (30) days after its receipt of the First
Party's notice, identifying the arbitrator the Other
Party has selected. If the Other Party fails to so
notify the First Party or to identify an arbitrator, a
second arbitrator shall be appointed by the Chairman of
the Administrative Council of the Centre ("Chairman").
17.2.4 The two arbitrators so identified pursuant to Article
17.2.3 shall select a third arbitrator within thirty
(30) days after the second arbitrator has been
appointed; but if such arbitrators shall fail to
appoint such third arbitrator within such thirty (30)
day
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period, then the third arbitrator shall be appointed by
the Chairman at the request of either the First Party
or the Other Party.
17.2.5 If after a period of thirty (30) days, the Parties to
this Agreement other than Petroci are unable to resolve
their dispute pursuant to Article 17.2.1, then any such
dispute, controversy or claim arising between them out
of or in connection with this Agreement, or the
breach, termination or validity thereof, may be
referred to and finally settled by final and binding
arbitration in Paris, France under the Rules of
Conciliation and Arbitration of the International
Chamber of Commerce ("Chamber") by three (3)
arbitrators appointed in accordance with said Rules.
17.2.6 The English language shall be used in arbitral
proceedings.
17.2.7 Any money awards shall be payable in Dollars; Provided,
that the arbitrators shall not be allowed to award any
consequential, punitive or other similar damages.
However, the award may include appropriate punitive
damages when a Party has engaged in delaying and
dilatory actions.
17.2.8 The expenses of the tribunal, the charges for the use
of the facilities of the Centre or the Chamber, as the
case may be, and any related costs determined by its
Secretary General in connection with arbitration
hereunder shall be borne equally by the Parties
participating in such arbitration. Concerning the fees
of the tribunal, each Party shall pay the expenses of
own arbitrator and the expenses of the third arbitrator
shall be shared equally.
17.2.9 The Parties and arbitrators shall proceed diligently
and in good faith in order that the arbitral award
shall be made as promptly as possible. The absence or
default of a Party to the arbitration shall not prevent
or hinder the arbitration procedure in any or all of
its stages.
17.2.10 Pending the decision or award, the operations or
activities which give rise to the arbitration shall not
be discontinued. If the decision or award recognized
that the complaint was justified, provision may be made
in the decision or award for such reparation as the
arbitrators consider appropriate.
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17.2.11 The Parties agree that the decision or award of the
tribunal will be the sole and exclusive remedy between
them regarding any and all claims, counterclaims,
issues or accounting presented to the tribunal and that
the award shall be made and promptly paid or performed,
free of any tax, deduction or offset. In order to have
arbitration as the sole and exclusive remedy, the
Parties agree to exclude any rights of application or
appeal to the courts of any jurisdiction in connection
with any question of law arising in the course of
arbitration or with respect to any award made.
17.2.12 The arbitrators shall determine the matters in dispute
by majority vote in writing and in accordance with the
laws of the Cote d'Ivoire, excluding any laws or choice
of law rules thereof which would require reference to
the laws of any other jurisdiction. The laws of France
shall be used as the procedural law to govern the
arbitration process.
17.2.13 The award shall include interest from the date of any
damages incurred for breach or other violation of this
Agreement, and from the date of the award until paid in
full, at a rate to be fixed by the arbitrators, but in
no event less than the London InterBank Offering Rate
per annum quoted for the corresponding period by Morgan
Guaranty Trust Company, London Branch, in the London
InterBank Market of United States dollars for
immediately available funds.
17.2.14 All notices by one Party to another Party in connection
with the arbitration under this Agreement shall be in
writing and shall be deemed to have been duly given or
made if delivered or mailed by registered air mail,
return receipt requested, or by telex or by telecopy,
to the addresses set out in Article 16.
17.2.15 The Government is obligated under Article 22.3(a) of
the Contract to notify the International Center for the
Settlement of Investment Disputes as set forth therein
that it has agreed that Petroci will be included as a
constituent subdivision of the Cote d'Ivoire designated
to the Center under Article 25 of the Convention. If
the Government fails to give the notification required
under Article 22.3 (a) of the Contract, then and until
such time as it has done so, the provisions of Article
17.2.5 shall apply rather than those of Articles
17.2.2, 17.2.3 and 17.2.4. Therefore, Petroci
irrevocably waives any claim to immunity on the part of
Petroci and any of its permitted assigns which are
wholly owned or controlled by the Government in regard
to any
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proceedings in connection with an arbitration or
arbitral award pursuant to this Agreement, including
without limitation, immunity from service of process,
immunity from pre- or post-judgment attachment,
immunity from jurisdiction of any court and immunity of
any of its property or assets from execution.
ARTICLE 18
ALLOCATION OF COST RECOVERY RIGHTS
18.1 Allocation of Total Production
18.1.1 Article 2.1 of the Accounting Procedure attached to the
Contract sets forth the sequence in which Petroleum
Costs are to be recovered for the purposes of Article
16.2 of the Contract. In order to determine the volume
of Petroleum under Article 16.2 which will be allocated
to each Party, the Operator shall determine the sum of
Petroleum Costs which each Party is entitled to recover
in respect of each element of Petroleum Costs set forth
in the sequence of recovery. The Operator shall make
such determination as soon as possible after the end of
each Month. If only one Party has Petroleum Costs to be
recovered in respect of the first element in the
sequence to be recovered, such Party shall be allocated
all of the Petroleum available under Article 16.2 of
the Contract until all such costs have been recovered.
If two or more Parties have Petroleum Costs to be
recovered in respect of the first element in the
sequence to be recovered, such Parties shall be
allocated the Petroleum available under Article 16.2 of
the Contract in the proportion that the sum of money to
be recovered by each Party bears to the total sum of
money to be recovered by all the Parties receiving such
Petroleum. It is recognized that the Parties may have
more than one Participating Interest applicable to the
recovery of Petroleum Costs. The Petroleum shall be
allocated between such different Participating
Interests in proportion to the sum of money to be
recovered by each such group of Participating
Interests. After all the costs have been recovered in
respect of the first element in the sequence, the same
procedure shall be used on each subsequent element;
provided, if funds are thereafter expended in respect
of a prior element, the procedure shall be repeated for
such element.
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18.1.2 Profit Oil shall be allocated to the Parties based upon
the Participating Interest of the Parties having an
interest in the Field producing such Petroleum, and if
there is more than one Field, the production shall be
allocated between the Fields in the proportion of the
production from each Field for such Month.
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.1 Public Announcements
19.1.1 Operator shall be responsible for the preparation and
release of all public announcements and statements
regarding this Agreement or the Joint Operations;
provided, that no public announcement or statement
shall be issued or made unless prior to its release all
the Parties have been furnished with a copy of such
statement or announcement and the written approval of
at least two (2) Parties has been obtained. Where a
public announcement or statement becomes necessary or
desirable because of danger to or loss of life, damage
to property or pollution as a result of activities
arising under this Agreement, Operator is authorized to
issue and make such announcement or statement without
prior approval of the Parties, but shall promptly
furnish all the Parties with a copy of such
announcement or statement.
19.1.2 If a Party wishes to issue or make any public
announcement or statement regarding this Agreement or
the Joint Operations, it shall not do so unless prior
to its release, such Party furnishes all the Parties
with a copy of such announcement or statement, and
obtains the approval of at least two (2) Parties;
provided, that notwithstanding any failure to obtain
such approval, no Party shall be prohibited from
issuing or making any such public announcement or
statement if it is necessary to do so in order to
comply with the applicable laws, rules or regulations
of any government, legal proceedings or stock exchange
having jurisdiction over such Party.
19.2 Successors and Assigns
Subject to the limitations on transfer contained in Article 17,
this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Parties.
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19.3 Waiver
No waiver by any Party of any one or more defaults by another Party
in the performance of this Agreement shall operate or be construed
as a waiver of any future default or defaults by the same Party,
whether of a like or of a different character. Except as expressly
provided in this Agreement no Party shall be deemed to have waived,
released or modified any of its rights under this Agreement unless
such Party has expressly stated, in writing, that it does waive,
release or modify such right.
19.4 Severance of Invalid Provisions
If and for so long as any provision of this Agreement shall be
deemed to be invalid for any reason whatsoever, such invalidity
shall not affect the validity or operation of any other provision
of this Agreement except only so far as shall be necessary to give
effect to the construction of such invalidity, and any such invalid
provision shall be deemed severed from this Agreement without
affecting the validity of the balance of this Agreement.
19.5 Modifications
Except as is provided in Article 19.4, there shall be no
modification of this Agreement except by written consent of all the
Parties.
19.6 Headings
The topical headings and sub-headings used in this Agreement are
for convenience only and shall not be construed as having any
substantive significance or as indicating that all of the
provisions of this Agreement relating to any topic are to be found
in any particular Article.
19.7 Singular and Plural
Reference to the singular includes a reference to the plural and
vice versa.
19.8 Gender
Reference to any gender includes a reference to all other genders.
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19.9 Counterpart Execution
This Agreement may be executed in any number of counterparts and
each such counterpart shall be deemed an original Agreement for all
purposes; Provided, no Party shall be bound by this Agreement unless
and until all Parties have executed a counterpart. For purposes
of assembling all counterparts into one document, Operator
is authorized to detach the signature page from one or more
counterparts and, after signature thereof by the respective Party,
attach each signed signature page to a counterpart.
19.10 Entirety
This Agreement comprises the full and complete agreement and
understanding between and among the Parties hereto with respect to
the subject matter hereof and supersedes and cancels all prior
agreements between the Parties whether written or oral, expressed
or implied.
IN WITNESS of their agreement each Party has caused its duly
authorized representative to sign this instrument on behalf of the Parties
hereto on the date indicated below such representative's signature.
SOCIETE NATIONALE UMIC COTE D'IVOIRE CORPORATION
D'OPERATIONS PETROLIERES
DE LA COTE D'IVOIRE
By: /s/ MOUSSA FANNY By: /s/ JOHN B. BROCK
MOUSSA FANNY JOHN B. BROCK
Title: Chairman/General Manager Title: President
Date: 27 June 1992 Date: 27 June 1992
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EXHIBIT A
ACCOUNTING PROCEDURE
Attached To Joint Operating
Agreement For Block CI-11
Table of Contents
Section 1: Object--Principles--Definitions
1.1 Object
1.2 Effective Date and Duration
1.3 General Principles
1.4 Definitions
Section 2: Budget--Accounts--Settlements
2.1 Budget
2.2 Statements, Billings, and Adjustments
Section 3: Advances and Payments
3.1 Cash Calls and Payment Requirements
Section 4: Verification of Accounts and Audits
4.1 Audit
4.2 Audit Report
Section 5: Direct Charges
5.1 Contract, License, or Permit Payments
5.2 Labor and Related Cost
5.3 Material
5.4 Transportation and Employee Relocation Costs
5.5 Services
5.6 Damages and Losses to Property
5.7 Insurance and Claims
5.8 Professional Expenses
5.9 Duties and Taxes
5.10 Indirect Expenses
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5.11 Ivorian Personnel Training Costs
5.12 Ecological and Environmental
5.13 Other Expenditures
5.14 Home Office Overhead
Section 6 Material
6.1 Acquisitions
6.2 Disposal
6.3 Inventories
Section 7: Costs and Expenses for Non-Consent Projects
Section 8: Settlement at Termination
<PAGE> 205
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Exhibit A
Accounting Procedure
Attached to and made a part of the Joint Operating Agreement between Petroci
and UMIC:
Section 1: Object--Principles--Definitions
1.1 Object
The purpose of the accounting procedures provided in
this Accounting Procedure is to establish equitable
methods for determining charges and credits applicable
to Joint Operations. The Operator shall neither gain
nor lose while acting as Operator. The Parties agree
that if any of such methods prove unfair or inequitable
to the Operator or Non-Operators, the Parties will meet
and in good faith endeavor to agree on changes in
methods deemed necessary to correct any unfairness or
inequity.
1.2 Effective Date and Duration
This Accounting Procedure shall become effective as of
the Effective Date and will remain in full force and
effect until the termination of this Agreement.
1.3 General Principles
1.3.1 The accounting for Joint Operations is
undertaken by the Operator according to the
methods, classifications, and accounting
procedures which are consistent with
generally acceptable accounting practices in
the petroleum industry.
1.3.1 The Operator will be responsible for the
fiscal obligations relating to the Joint
Operations save in respect of those taxes
which are the legal responsibility of the
Government and each of the Parties and for
which separate provisions are established in
this Agreement and the Contract.
1.3.3 All payments made by the Operator will be
allocated to the Joint Account at net cost
(i.e. without any profit or loss) in
accordance with the Operator's usual
accounting practices applied for
establishing the net cost.
<PAGE> 206
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1.3.4 In the event of any conflict between the
provisions of this Accounting Procedure and
the provisions of the main body of this
Agreement, the latter shall prevail.
1.4 Definitions
All the terms used in this Accounting Procedure and
defined in Article 1 of this Agreement shall have the
same meaning as defined in Article 1. In addition to
those definitions set forth in Article 1 of this
Agreement, the following terms when used in this
Accounting Procedure shall have the meanings ascribed
to them below:
1.4.1 "Material" shall mean Personal Property,
equipment, or supplies acquired for Joint
Operations.
1.4.2 "Personal Property" means any Joint Property
which is movable or not permanently affixed
to the ground or sea floor or which has been
so affixed but can be removed without
unreasonable damage to such property.
1.4.3 "Section" means a section in this Accounting
Procedure.
Section 2: Budget--Accounts--Settlement
2.1 Budget
The Budget for each Calendar Year shall be established
and maintained in accordance with Article 6 of this
Agreement.
2.2 Statements, Billings, and Adjustments
2.2.1 Each Party shall be responsible for
reporting to the Government its tax measured
by the income of such Party in accordance
with Article 17 of the Contract. All other
tax assessments and payments, if any, for
the benefit of the Joint Operations shall be
borne by the Parties in accordance with
their respective Participating Interests.
2.2.2 Subject to the provisions of Section 3.1,
Operator shall bill the Parties on or before
the 25th day of each Month for their
proportionate share of Petroleum Costs for
the preceding Month. Each
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billing shall be accompanied by statements
of all charges and credits to the Joint
Account as set forth below for the Month in
question.
2.2.3 Operator shall provide a statement of all
charges and credits to the Joint Account
summarized by appropriate classifications
indicative of the nature thereof together
with such other details as may be agreed
upon by the Parties.
2.2.4 Operator shall furnish a description of
such accounting classifications upon
request.
2.2.5 Amounts included in each billing shall be
expressed in U.S. Dollars and where
applicable, in CFA Francs. In the conversion
of currencies, in the accounting for
advances of different currencies as provided
for in Article 3 below, or in any other
currency transactions affecting the Joint
Operations, it is the intent that none of
the Parties shall experience an exchange
gain or loss at the expense of, or to the
benefit of, the other Parties. Where there
is no actual exchange of currency but it is
necessary to convert expenses or income
expressed in another currency into Dollars,
the exchange rates to be used shall be the
average of the daily closing rates for the
purchase and sale of that currency quoted by
Chase Manhattan Bank, N.A., New York, or if
no such quotes are available, as quoted by
Morgan Guaranty Trust Company of New York,
or if no such rates are available, the Paris
fixing rate quoted on the Paris exchange
market in the Month in which such expenses
were paid or income received. The Operator
shall furnish the Non-Operator(s) sufficient
current exchange data to enable the
Non-Operator(s) to translate the billings to
the currency of their corporate accounts.
2.2.6 Payment in respect of any Joint Account
billings shall not prejudice the right of
any of the Non-Operator(s) to protest or
question the correctness thereof; however,
all billings and statements rendered to the
Non-Operator(s) by the 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 (24)-Month period-the
Non-Operator(s) takes written exception
thereto and makes claim
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on the Operator for adjustment. No
adjustment favorable to the Operator shall
be made unless it is made within the same
prescribed period.
Notwithstanding the foregoing, if the
Parties have decided to terminate the
Contract and the Operator has disposed of
all Joint Property and submitted final
accounts to the Parties, all billings and
statements will be presumed true and correct
unless any Non-Operator takes written
exception within six (6) Months of the
submittal of such final accounts.
Section 3: Advances and Payments
3.1 Cash Calls and Payment Requirements
3.1.1 Where the Operator is contractually required
to make payments in Dollars or CFA Francs,
the Operator may request payments and
advances in either the currency expended or
Dollars. For all payments made by the
Operator in currencies other than Dollars or
CFA Francs, the Operator shall request
payment from the Non-Operators in Dollars.
It is the intent that none of the Parties
shall experience an exchange gain or loss at
the expense of, or to the benefit of, the
other Parties.
3.1.2 If the Operator so requests, each
Non-Operator shall advance to the Operator
its Participating Interest share of
estimated cash requirements for the Joint
Operations for the next succeeding Month.
Such estimates shall be based on the latest
information available to the Operator at the
time the request for the advance is made.
Any major variances from budgeted amounts
shall be explained by the Operator. The
Operator shall make a written request to the
Parties for advances at least twenty (20)
days prior to the first (1st) day of any
Month in which such advances are due. The
due date for such advances shall be set by
the Operator in the request notice but in no
event shall such due date be any earlier
than seven (7) days after the date of such
written cash advance request.
3.1.3 Should the Operator be required to pay
additional sums of money in respect of the
Joint operations, that were unforeseen at
the time of providing the
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Non-Operator with said Monthly estimates of
its requirements, the Operator may make a
supplemental written request for the
Non-Operator(s) share of such payments. Each
Non-Operator shall pay its Participating
Interest share of supplemental advances
within ten (10) days after receipt of such
notice.
3.1.4 If the Non-Operator(s) advances exceed their
Participating Interest share of expenditures,
the next succeeding cash advance
requirement, after such determination, shall
be reduced accordingly; however, a
Non-Operator may request that its
Participating Interest share of such excess
advances, if significant, be refunded. The
Operator shall make such refund within ten
(10) days after receipt of the
Non-Operator(s) request. Such refund shall
be made in the currency which was advanced
by the requesting Party.
3.1.5 If the cash calls are less than the actual
expenditures, the deficiency shall, at the
Operator's option, be added to subsequent
Monthly cash call requirements or be paid by
the Non-Operator(s) within ten (10) days
following receipt of the Operator's billing
to the Non-Operator(s) for such deficiency.
If the Operator does not request the
Non-Operator(s) to advance their
Participating Interest share of estimated
cash requirements, the Non-Operator(s) shall
pay their Participating Interest share of
expenditures within ten (10) days following
receipt of the Operator's billing.
3.1.6 Payments of cash advances or billings shall
be made on or before the due date, and if
not so paid, the provisions of Article 8 of
this Agreement shall be applied with respect
to the Party or Parties not making payment
on or before said due date.
Section 4: Verification of Accounts and Audits
4.1 Audit
A Non-Operator, upon at least sixty (60) days advance
written notice to the Operator and the other
Non-Operator(s), shall have the right at its sole
expense to audit the Joint Account and related records
of the
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Operator for any Calendar Year or portion thereof
within twenty-four (24) Months following the end of
such Calendar Year; Provided, however, the date for
conducting the audit will be mutually agreed upon by
the Operator and such Non-Operator. The Joint Account
and related records of the Operator shall be available
for audit in the Cote d'Ivoire, and the auditors of a
Non-Operator shall have access thereto at reasonable
times during regular business hours. In the event the
records in the Cote d'Ivoire are not sufficient, the
Party or Parties conducting the audit may audit at
reasonable times during regular business hours the
records of the Operator located outside the Cote
d'Ivoire which relate solely to the Petroleum
Operations. The conducting of an audit shall not extend
the time for the taking of written exception to, and
the adjustment of, accounts. 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 Operator; Provided, in the event only
one Non-Operator conducts an audit, the costs of such
audit shall be shared and paid by all the Non-Operators
in the ratio that the Participating Interest of each
Non-Operator bears to the total Participating Interests
of all Non-Operators. The audits provided for in this
Section 4.1 shall not be conducted more often than once
each Calendar Year without the prior written approval
of the Operator except in the case of the resignation
or removal of the Operator.
4.2 Audit Report
The Operator shall reply to each audit report in
writing as soon as practicable, and in any event, no
later than four (4) Months following receipt of the
report. In the event no agreement has been reached on
such claims within three (3) Months after receipt of
the Operator's reply, such claims may be resolved as
prescribed by Article 17 of this Agreement.
Section 5: Direct Charges
The Operator shall charge the Joint Account for all costs and
expenditures necessary to conduct the Joint Operations. Such costs
shall include, but will not necessarily be limited to, the
following categories:
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5.1 Contract, License, or Permit Payments
All expenditures necessary to acquire and to maintain rights to the
Delimited Area.
5.2 Labor and Related Costs
5.2.1 Actual salaries and wages of the Operator's or its
Affiliated Companies' employees, whether located in the
Cote d'Ivoire or elsewhere, directly engaged in
Petroleum Operations on a permanent or full term basis,
and a proportional share of salaries and wages of
personnel assigned to or engaged in Petroleum
Operations on a part-time or temporary basis, whether
located in the Cote d'Ivoire or elsewhere.
5.2.2 Costs of living expenses, housing allowances, holiday,
sick leave and vacation allowances, disability
allowances, and other customary allowances (in
accordance with the personnel policies and practices
which apply to the employees concerned) which are
applicable to salaries and wages of expatriate
employees chargeable under Sections 5.2.1 and 5.10.
Paid bonuses, overtime and other customary allowances
applicable to salaries and wages of national employees
chargeable under Sections 5.2.1 and 5.10.
5.2.3 Cost of expenditures and contributions made pursuant to
Ivorian law or any other legal authority or assessments
imposed by Cote d'Ivoire or any other legal authority
applicable to the cost of salaries and wages, as
provided under Sections 5.2.1, 5.2.2 and 5.10.
5.2.4 All costs actually incurred by Operator or its
Affiliated Companies of the established plans (in
accordance with the personnel policies and practices
which apply to the employees concerned) which are for
employees' group life assurance, hospitalization,
pension, retirement, stock purchase, thrift and other
benefits of a like nature which are applicable to labor
cost of salaries and wages of both expatriate employees
and employees who are nationals of Cote d'Ivoire, all
as chargeable under Sections 5.2.1 and 5.10. The thrift
plans referred to above are plans in which the employee
and employer contribute funds
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which will be distributed to the employees in
accordance with the provisions of the plan. Except
where other severance terms are applicable in
accordance with personnel policies and practices which
apply to the employees concerned, severance pay will be
charged at a fixed rate applied to payrolls which will
equal an amount equivalent to the maximum liability for
severance payments as required under Ivorian labor law.
Such costs may be charged on an actual basis, when and
as paid, or on a percentage basis on the amount of
salaries and wages chargeable under this Section 5.2.
If a percentage basis is used, the percentage rate
shall be subject to adjustment to reflect actual cost.
5.3 Material
Material purchased or furnished by the Operator for use in Joint
Operations which shall be charged as provided under Article 6 of
this Accounting Procedure.
5.4 Transportation and Employee Relocation Costs
5.4.1 Transportation costs of Material and other related
costs such as expediting, crating, dock charges, inland
and ocean freight, and unloading at destination.
5.4.2 Transportation costs of employees (including those
temporarily assigned) as required in the conduct of
Joint Operations.
5.4.3 Relocation costs of employees permanently or
temporarily assigned for a period in excess of six (6)
Months to the Joint Operations in the Cote d'Ivoire or
other designated locations. Such costs shall include
transportation of employees' families and their
personal and household effects to and from the Cote
d'Ivoire and all other relocation costs in accordance
with the personnel policies and practices which apply
to the employees concerned.
5.4.4 Transportation costs of Petroleum to the Delivery Point.
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5.5 Services
5.5.1 Contract services, professional consultants, and any
other services procured from Third Parties other than
services covered by Section 5.8.
5.5.2 Technical services, such as, but not limited to,
laboratory analysis, drafting, geophysical, and
geological interpretation, engineering and related data
processing, performed by the Operator or its
Affiliated Companies for the direct benefit of the
Joint Operations. Such regularly recurring and routine
services shall be performed and charged by the Operator
or its Affiliated Companies at actual cost including
direct support services costs which shall include, but
not be limited to, secretarial and clerical support and
company benefits.
5.5.3 Use of equipment and facilities furnished by Operator
or its Affiliated Companies at rates commensurate with
the cost of the ownership and operation thereof, but
such rates shall not exceed those currently prevailing
in the general vicinity of the Delimited Area. Use of
the Operator's drilling equipment and related services
shall be charged at rates no higher than the rates
charged at the time by other international or domestic
suppliers of such equipment or services for the
equivalent work and equipment. Whenever requested by
the Non-Operator(s), the Operator shall inform
Non-Operator(s) in advance of the rates it proposes to
charge. Rates shall be revised and adjusted from time
to time when found to be either excessive or
insufficient.
5.6 Damages and Losses to Property
Subject to Article 4.7 of this Agreement, all costs or expenses
necessary for the repair or replacement of property used in Joint
Operations resulting from damages or losses incurred by fire,
flood, storm, theft, accident, or any other cause. The Operator
shall furnish Non-Operator(s) written notice of damages or losses
in excess of fifty thousand Dollars ($50,000) each as soon as
practicable.
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5.7 Insurance and Claims
Premiums for insurance carried by the Operator as may be (i)
required for the Joint Operations, (ii) required by the Contract,
(iii) required by this Agreement, or (iv) required by any statutory
laws, regulations or local requirements together with all
expenditures incurred in the settlement of all losses, claims,
damages, judgments, and other expenses including legal services not
recovered from insurance carrier.
5.8 Professional Expenses
All costs or expenses of litigation or related services necessary
or expedient for the procuring, perfecting, retention and protection
of the Delimited Area and the Contract and of handling,
investigating, and settling actual or threatened litigation,
disputes or claims arising by reason of or in relation to the Joint
Operations, or necessary to protect or recover Material, property,
facilities, or assets used in Joint Operations, including but not
limited to, attorney fees, court costs, costs of investigation or
procuring evidence, and amounts paid in settlement or satisfaction
of any such litigation or claims; and expenses for accounting,
legal, tax, treasury and other professional services.
5.9 Duties and Taxes
Subject to this Agreement, all taxes (other than taxes measured by
the income of the Parties) and other governmental levies of every
nature assessed or levied upon or in connection with the Joint
Operations or Joint Property which have been paid by the Operator
for the benefit or on behalf of the Parties.
5.10 Indirect Expenses
The cost of establishing, maintaining, equipping, furnishing, and
operating in the Cote d'Ivoire any offices, sub-offices, camps,
shore bases, warehouses, housing, road systems, and salaries and
expenses of field supervisory personnel, field clerks, assistants
and other general employees indirectly serving the Joint Operations
shall be charged to the Joint Account. If such facilities serve
operations in addition to the Joint Operations, the costs shall be
allocated to the respective operations served on an equitable
basis.
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5.11 Ivorian Personnel Training Costs
All costs and expenses incurred for training and developing Ivorian
personnel in accordance with the provisions of the Contract.
5.12 Ecological and Environmental
Costs to provide or have available pollution containment and
removal equipment plus costs of actual control and cleanup of
Petroleum spills.
5.13 Other Expenditures
Any other expenditures not covered or dealt with in the foregoing
provisions which are incurred by Operator or its Affiliated
Companies and required for the conduct of the Joint Operations
shall be charged to the Joint Account.
5.14 Home Office Overhead
5.14.1 An administrative overhead covering services and
related office costs of personnel outside of the Cote
d'Ivoire performing administrative, management,
accounting, treasury, audit, tax, legal, purchasing,
employee relations, computer services, and other
functions for the benefit of the Joint Operations shall
be charged to the Joint Account monthly.
5.14.2 The above-mentioned administrative overhead for the
Joint Operations shall be calculated at four percent
(4%) based on the sum of the total costs incurred under
Sections 5.1 through Section 5.13 during a Calendar
Year and shall be charged Monthly by the Operator;
Provided, there shall be a minimum overhead charge of
five thousand Dollars ($5,000) per Month commencing
with the Effective Date.
5.14.3 The administrative overhead determined pursuant to this
Section 5.14 shall not be subject to audit, provided
that all other charges and credits under this Section 5
may be audited.
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Section 6: Material
Material purchased or furnished for use in Joint Operations as
follows:
6.1 Acquisitions
6.1.1 New Material purchased shall be charged at
the net cost incurred by the Operator. Net
cost shall include, but shall not be limited
to, taxes, purchasing and shipping agent
fees, transportation, loading and unloading
costs, and license fees which are related to
the supply of Materials as well as transit
losses not recovered through insurance.
6.1.2 All Material transferred from the Operator's
or its Affiliated Companies' warehouses
shall be valued as follows:
(a) New Material
New Material (condition "A")
means New Material which has
never been used: one hundred
percent (100%) of the current
market price, which corresponds
to the price normally charged
for similar supplies in arm's
length transactions between
Third Party independent buyer
and seller for delivery to Cote
d'Ivoire.
(b) Material in good condition
Material in good condition
(condition "B") means Material
in good condition which is still
usable for its original purpose
without repair: at a maximum of
seventy-five percent (75%) of
the price of new Material
determined under Section
6.1.2(a)
(c) Other used Material
Other used Material (condition
"C") means Material still usable
for its original purpose, but
only after repairs and
reconditioning: at a maximum of
fifty percent (50%) of the price
of new Material determined under
Section 6.1.2(a).
<PAGE> 217
84/.
(d) Material in poor condition
Material in poor condition (condition
"D") means Material no longer usable
for its original purpose but still
usable for other purposes: at a
maximum of twenty-five percent (25%)
of the price of new Material
determined under Section 6.1.2(a).
6.1.3 The Operator does not warrant the Material
charged to the Joint Account beyond the
manufacturer's or original supplier's
guarantee. In the case of any such Material
which is defective, a credit shall not pass
to the Joint Account until an adjustment has
been received by the Operator from the
manufacturer or supplier.
6.1.4 All leased or rented Materials shall be at
vendor's invoice price.
6.2 Disposals
6.2.1 The Operator shall be under no obligation to
purchase the interest of the Non-Operator(s)
in new or used surplus material.
6.2.2 Subject to the terms of the Contract, the
Operator shall have the right to dispose of
surplus materials but shall advise and
secure prior agreement of the
Non-Operator(s) of all proposed dispositions
of Materials valued in the aggregate at
thirty-five thousand Dollars ($35,000) or
more per Calendar Year.
6.2.3 Proceeds from all sales shall be credited to
the Joint Account at the net amount actually
collected.
6.3 Inventories
6.3.1 Periodic inventories shall be taken by the
Operator of all controllable Materials and
supplies. Inventories of the above-mentioned
stock shall be taken by the Operator at
intervals no greater than twelve (12)
Months. The Operator shall give thirty (30)
days written notice of intention to take
such inventories to allow each of the
Non-Operator(s) to be represented when any
inventory is taken. Failure of any of the
Non-
<PAGE> 218
85/.
Operator(s) to be represented shall bind
such Non-Operator to accept the inventory
taken by the Operator.
6.3.2 Reconciliation of inventory with the Joint
Account shall be made, and a list of
overages and shortages shall be furnished
to the Non-Operator(s); and inventory
adjustments shall be made to the Joint
Account if required by the Parties.
6.3.3 Whenever there is a change of a
Participating Interest, a special inventory
may be taken by the Operator provided the
assignor and assignee of such interest agree
to bear all of the expense thereof. In such
cases, both the assignor and the assignee
shall be entitled to be represented and will
be governed by the inventory so taken.
Section 7: Costs and Expenses for Non-Consent Projects
The provisions of this Accounting Procedure shall apply mutatis
mutandis to any Non-Consent Projects. There shall be charged to an
account for any Non-Consent Project (the "Non-Consent Account")
maintained by the Operator, or the Consenting Party acting as the
Operator, as the case may be, for each Non-Consent Project, all
costs and expenses incurred in relation to the Non-Consent Project.
Where costs and expenses relate exclusively to a Non-Consent
Project, they shall be charged in their entirety to the respective
Non-Consent Account. If costs and expenses relate to matters which
apply both to Joint Operations and one or more Non-Consent Projects
(such as administrative and service facilities, communication
equipment, transport facilities, drilling tools, camps, storage,
and warehousing facilities) such costs and expenses shall be
apportioned on an equitable basis as between the Joint Account
and each relevant Non-Consent Account.
Section 8: Settlement At Termination
Within six (6) Months after termination of the Contract (or such
longer period as is necessary to receive approvals of the
Government to discontinue Petroleum Operations), the Joint Account
shall be finally settled and balanced by whatever cash payments are
necessary between the Parties following presentation by the
Operator to all the Parties of a financial statement of costs and
credits in respect of the Joint Account, subject to any adjustment
required as the result of any audit performed in accordance with
Section 4.
<PAGE> 219
EXHIBIT C
Assignment
This Assignment (referred to hereinafter as this "Assignment"),
made and entered into this day of , 1993, by and between UMIC Cote
d'Ivoire Corporation, a corporation organized and existing under the laws of
the State of Delaware, U.S.A. (hereinafter referred to as the "Assignor") and
G.N.R. (Cote d'Ivoire) Ltd., a corporation organized and existing under the
laws of the Cayman Islands (hereinafter referred to as the "Assignee").
WITNESSETH:
WHEREAS, The Republic of Cote d'Ivoire, on the one hand, and UMIC
Cote d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la
Cote d'Ivoire, on the other hand, signed that certain Production Sharing
Contract dated 27 June 1992 but having an Effective Date of January 4, 1993
(hereinafter referred to as the "Contract"); and
WHEREAS, Assignor and Assignee entered into that certain
Acquisition Agreement (hereinafter referred to as the "Acquisition Agreement")
dated the day of May, 1993, providing the terms and conditions under which
Assignee is to acquire an interest from Assignor in and under the Contract; and
WHEREAS, Assignor and Assignee have agreed that all the conditions
precedent set forth in the Acquisition Agreement have been satisfied or waived.
NOW, THEREFORE, in consideration of the premises hereinabove and
the mutual covenants herein contained, the Assignor and the Assignee agree as
follows:
1. Assignor hereby assigns and conveys to Assignee (i) an
undivided ten percent (10%) interest in and under the Contract insofar and only
insofar as the Contract relates to the Special Area and (ii) an undivided
eighteen percent (18%) interest in and under the Contract insofar and only
insofar as the Contract relates to that portion of the Delimited Area not
covered by the Special Area, TO HAVE AND TO HOLD the interests assigned and
transferred hereunder unto the Assignee, its successors and assigns, FOREVER,
subject to the terms and conditions herein set forth. This Assignment is made
without warranty of title, either express or implied.
2. Assignee hereby expressly agrees to be bound by all the
terms, conditions and covenants contained in the Contract.
C-1
<PAGE> 220
3. This Assignment is made subject to the terms and
conditions of the Acquisition Agreement.
4. This Assignment may be executed in any number of
counterparts, which taken together shall constitute one and the same instrument
and each of which shall be considered an original for all purposes.
5. Terms used in this Assignment that are defined in the
Contract shall have the meanings set forth for such terms in the Contract.
6. After the written consent or deemed approval of the
Government is obtained in accordance with Article 34.1 of the Contract, this
Assignment shall be effective as of the date first set forth above.
IN WITNESS WHEREOF, this Assignment has been duly signed by the parties
hereto as of the date first above written.
UMIC COTE D'IVOIRE CORPORATION
By: ________________________________
G.N.R. (COTE D'IVOIRE) LTD.
By: ________________________________
C-2
<PAGE> 221
EXHIBIT D
Assignment and First Amendment to Joint Operating Agreement
This Assignment and First Amendment to Joint Operating Agreement
(hereinafter referred to as this "First Amendment"), made and entered into by
and among Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire, a
company incorporated under the laws of the Republic of Cote d'Ivoire
(hereinafter referred to as "Petroci"), UMIC Cote d'Ivoire Corporation, a
corporation incorporated under the laws of the State of Delaware, U.S.A.
(hereinafter referred to as "UMIC"), and G.N.R. (Cote d'Ivoire) Ltd., a
corporation incorporated under the laws of the Cayman Islands (hereinafter
referred to as "GNR").
WITNESSETH:
WHEREAS, the Republic of Cote d'Ivoire, on the one hand, and
Petroci and UMIC, on the other hand, entered into that certain Production
Sharing Contract dated 27 June 1992 but having an Effective Date of January 4,
1993, covering Block CI-11 (hereinafter referred to as the "Contract"); and
WHEREAS, UMIC and Petroci entered into that certain Joint Operating
Agreement dated the 27th day of June, 1992 (hereinafter referred to as the
"Joint Operating Agreement"); and
WHEREAS, GNR and UMIC entered into that certain Acquisition
Agreement dated the day of May, 1993 (hereinafter referred to as the "GNR
Agreement"), providing the terms and conditions under which GNR would be
assigned and conveyed certain interests under the Contract and Joint Operating
Agreement; and
WHEREAS, by that certain Assignment dated the day of , 1993,
UMIC assigned and conveyed to GNR an undivided ten percent (10%) interest in
and under the Contract insofar and only insofar as it relates to the Special
Area and an undivided eighteen percent (18%) interest in and under the Contract
insofar and only insofar as it relates to the Initial Participation Delimited
Area; and
WHEREAS, UMIC desires to assign and convey to GNR an undivided ten
percent (10%) Special Area Participating Interest and an undivided eighteen
percent (18%) Initial Participating Interest and GNR desires to accept such
assignments and conveyances; and
WHEREAS, the parties hereto desire to amend the Joint Operating
Agreement to recognize the assignments and conveyances by UMIC and the
acceptance by GNR of the interests described above in the Joint Operating
Agreement.
D-1
<PAGE> 222
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties hereto agree as follows:
1. Terms used in this First Amendment which are not
defined in this First Amendment but are defined in the Joint Operating
Agreement shall have the meanings set forth in the Joint Operating Agreement.
2. In accordance with Article 12.2 of the Joint Operating
Agreement, Petroci and UMIC agree that GNR has demonstrated to the satisfaction
of Petroci and UMIC that it has the financial capability to meet its
prospective obligations under the Joint Operating Agreement.
3. UMIC hereby sells, assigns and conveys to GNR and GNR
hereby accepts the following:
(a) An undivided ten percent (10%) Special Area
Participating Interest; and
(b) An undivided eighteen percent (18%) Initial
Participating Interest.
4. Article 3.1.1 of the Joint Operating Agreement shall be
amended to read as follows:
"In respect of the Special Area, the Parties shall hold the
following Special Area Participating Interests:
UMIC fifty percent (50%)
Petroci forty percent (40%)
GNR ten percent (10%)"
5. Article 3.1.2 of the Joint Operating Agreement shall be
amended to read as follows:
"In respect of the Initial Participation Delimited Area, the
Parties shall hold the following Initial Participating interests:
UMIC seventy-two percent (72%)
GNR eighteen percent (18%)
Petroci ten percent (10%)"
D-2
<PAGE> 223
6. Article 3.1.3 of the Joint Operating Agreement shall be
amended to read as follows:
"In respect of each exclusive exploration authorization and its
related Exploitation Perimeter within the Initial Participation
Delimited Area, Petroci shall have a Total Exploitation
Participating Interest between ten percent (10%) and twenty percent
(20%) and UMIC and GNR shall hold the remaining Exploitation
Participating Interests."
7. Article 16 of the Joint Operating Agreement shall be
amended by adding at the end thereof the following information for notices to
GNR:
"To GNR:
G.N.R. (Cote d'Ivoire) Ltd.
5300 Memorial, Suite 800
Houston, Texas 77007
U.S.A.
Attn: Vice President-International Exploration
Telecopy: (713) 865-4386"
8. In accordance with Article 12.1.4 of the Joint
Operating Agreement, GNR expressly agrees to perform the obligations under the
Contract and the Joint Operating Agreement in respect of its Special Area
Participating Interest and its Initial Participating Interest.
9. This First Amendment shall be effective on the date set
forth below.
10. Except as otherwise provided herein, the Joint
Operating Agreement shall remain in full force and effect as originally
written.
11. This First Amendment may be executed in any number of
counterparts, which taken together shall constitute one and the same instrument
and each of which shall be considered an original for all purposes.
D-3
<PAGE> 224
IN WITNESS WHEREOF, this Assignment and First Amendment to Joint
Operating Agreement has been duly signed by the parties hereto as of the _____
day of _______________ , 1993.
SOCIETE NATIONALE D'OPERATIONS
PETROLIERES DE LA COTE D'IVOIRE
By:____________________________
UMIC COTE D'IVOIRE CORPORATION
By:____________________________
G.N.R. (COTE D'IVOIRE) LTD.
By:____________________________
D-4
<PAGE> 225
EXHIBIT E
PROSPECT ACQUISITION AGREEMENT
(OFFSHORE BLOCK CI-11 -- REPUBLIC OF IVORY COAST)
BETWEEN
UNITED MERIDIAN INTERNATIONAL CORPORATION
AND
FRANK T. BARR
AND
G. WILLARD FRANK
December 20, 1991 Houston, Texas
<PAGE> 226
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
OBJECT OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SERVICES OF CONSULTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RIGHTS AND OBLIGATIONS OF UMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
COMPENSATION OF CONSULTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
VI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ASSIGNMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
VIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
IX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
EXHIBIT "A" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Description and Map of Prospect Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 227
PROSPECT ACQUISITION AGREEMENT
(OFFSHORE BLOCK CI-11 -- REPUBLIC OF IVORY COAST)
THIS AGREEMENT made and entered into this 20 day of December, 1991
by and between, on the one side, UNITED MERIDIAN INTERNATIONAL CORPORATION, a
corporation organized and existing under the laws of the State of Delaware
(hereinafter referred to as "UMIC") and, on the other side, FRANK T. BARR and
G. WILLARD FRANK, both individuals residing in Houston, Texas (hereinafter
sometimes referred to as "BARR" and "FRANK", respectively, or collectively as
"Consultants").
WITNESSETH
WHEREAS, UMIC is in the business of acquiring petroleum concessions
outside the United States and exploring for and producing oil and gas from said
concessions; and
WHEREAS, the Consultants are in the business of petroleum
consulting and have studied extensively the hydrocarbon potential of a certain
concession block (hereinafter referred to as the "Prospect Area") within the
territorial boundaries of the Republic of the Ivory Coast; and
WHEREAS, the Consultants have brought the Prospect Area to the
attention of UMIC and UMIC is desirous of purchasing seismic and other data
regarding the Prospect Area from the state-owned national oil company of the
Republic of the Ivory Coast (hereinafter referred to as "PETROCI") for the
purpose of conducting its own study to confirm the likelihood of the existence
of oil and gas reserves in commercial quantities on the Prospect Area; and
WHEREAS, the Consultants have had experience with negotiating a
Production Sharing Contract and Joint Operating Agreement (hereinafter referred
to as the "PSC" and "JOA", respectively) with PETROCI; and
WHEREAS, UMIC is desirous of conducting negotiations with PETROCI
concerning a PSC and JOA covering the Prospect Area while also conducting its
aforementioned technical study and would want the assistance of the Consultants
in negotiations with PETROCI concerning a PSC and JOA covering the Prospect
Area; and
WHEREAS, the Consultants are willing to give such assistance to
UMIC in attempting to obtain a PSC and JOA with PETROCI which will give UMIC
exclusive petroleum exploration and development rights in and to the Prospect
Area on terms and conditions mutually acceptable to UMIC and PETROCI;
1
<PAGE> 228
NOW THEREFORE, the Parties hereto do hereby mutually agree as
follows:
I.
DEFINITIONS
Wherever and whenever the following words, terms and phrases appear
in this Agreement, they shall have the following meanings:
(a) "Agreement" shall mean this Prospect Acquisition
Agreement and any written amendments thereto.
(b) "Contractor" shall mean one or more entities, excluding
PETROCI (as hereinbelow defined), who have either signed or acquired by
assignment, an interest in a Production Sharing Contract (as hereinbelow
defined) with the Government of the Republic of the Ivory Coast (as hereinbelow
defined) covering the Prospect Area (as hereinbelow defined) and who have
undertaken to carry out on a risk basis, exploration and development programs
under the provisions of said Production Sharing Contract ("PSC").
(c) "Contractor/Operator" shall mean that one company
appointed by all the entities comprising Contractor, including PETROCI,
pursuant to the provisions of a Joint Operating Agreement (as hereinbelow
defined), to carry out petroleum exploration and development operations under
the PSC on behalf of all of the entities comprising Contractor.
(d) "Contractor's Petroleum Proceeds" shall mean for a
particular calendar quarter, the gross proceeds from the sale of oil and gas
produced, saved, lifted and/or delivered by Contractor, (excluding PETROCI),
which is due Contractor (excluding PETROCI) under the PSC, minus income taxes,
if any, which may be due the Government and not paid from the Government's
share of petroleum under the PSC; the amount of said Contractor's Petroleum
Proceeds shall be determined under the applicable provisions of the PSC and
shall include repayment to the Contractor, (excluding PETROCI) of current
operating expenses and prior exploration and development expenditures as well
as reimbursement by PETROCI to Contractor of development expenditures, provided
that said reimbursement to Contractor by PETROCI takes the form of a portion of
the volume of oil and gas and is not a cash reimbursement.
(e) "Consultants" shall mean Frank T. Barr and G. Willard
Frank as well as their respective estates.
(f) "Effective Date" shall mean that date referred to in
the PSC where the PSC between Contractor and PETROCI has received
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<PAGE> 229
the final approval of the Government and becomes final and binding between
Contractor and PETROCI.
(g) "Government" shall mean the executive and legislative
branches of the Republic of the Ivory Coast as well as all ministries, agencies
or sub-agencies or instrumentalities thereof excluding PETROCI.
(h) "Joint Venture Partner(s)" shall mean that company or
companies, excluding PETROCI, who constitute Contractor under the PSC by reason
of it or their being signatory parties to the PSC or by reason of their having
taken subsequent duly approved working interest assignments in and to the PSC
and the Prospect Area.
(i) "JOA" shall mean that Joint Operating Agreement
initially between UMIC and PETROCI which will govern the conduct of petroleum
operations on the Prospect Area among the parties comprising Contractor.
(j) "Parties" shall mean the signatory parties to this
Agreement and any of their permitted assigns under Article VII below of this
Agreement.
(k) "Phase I" shall mean that period of time starting from
the date of the execution of this Agreement and continuing on until the earlier
of; UMIC giving the Consultants written notice of its inability to reach a
mutually satisfactory agreement with PETROCI concerning a PSC and a JOA
covering the Prospect Area, or upon the Effective Date, or June 30, 1992,
which ever first occurs.
(l) "Phase II" shall mean that period of time starting from
the Effective Date and continuing on until the earlier of; the termination of
the PSC in accordance with its applicable terms or until all the parties
comprising Contractor withdraw from the PSC and the Prospect Area in accordance
with the terms of the PSC.
(m) "PETROCI" shall mean the Societe Nationale d'Operations
Petrolieres de la Cote d'Ivoire, a wholly-owned company and instrumentality of
the Government who along with the Government will be a signatory party to any
PSC and JOA signed with UMIC.
(n) "PSC" shall mean that certain Production Sharing
Contract entered into among the Government, PETROCI and UMIC, giving PETROCI
and UMIC the exclusive right to conduct petroleum exploration and development
operations over the Prospect Area on terms and conditions mutually agreed upon
among the Government, PETROCI and UMI.
(o) "Prospect Area" shall mean that offshore area known as
"Block CI-11" which is within the territorial boundaries of the Republic of the
Ivory Coast, as the same is set forth, depicted and
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<PAGE> 230
contained in Exhibit "A", attached to and made a part of this Agreement.
(p) "UMIC" shall mean United Meridian International
Corporation and any of its permitted assigns under Article VII of this
Agreement.
II.
OBJECT OF AGREEMENT
The object of this Agreement between the Parties is for the
Consultants to advise and assist UMIC in negotiations with any Venture
Partners, along with PETROCI, to obtain sole and exclusive rights to explore
for and produce petroleum from the Prospect Area on terms and conditions
satisfactory to UMIC, the Government and PETROCI. In addition to rendering
advice concerning negotiations with the Government and PETROCI, the Consultants
also agree to render advice on an as requested basis, concerning geological and
technical matters pertaining to the Prospect Area.
III.
SERVICES OF CONSULTANTS
(a) During Phase I of this Agreement, the Consultants agree
to furnish, on an as requested basis, consulting advice to UMIC during
negotiations with the Government and PETROCI concerning a PSC and JOA covering
the Prospect Area as well as geological and other technical matters pertaining
to the Prospect Area.
(b) In performing any consulting services under this
Agreement, each Consultant shall do so as an independent contractor and not as
an employee or agent of UMIC. As such, each Consultant shall assume all risks
for any bodily injury incurred, including death, while carrying out such
services.
(c) Each of the Consultants in carrying out the performance
of their services under this Agreement, agrees to observe all of the laws of
the United States of America, including, but not limited to the Foreign Corrupt
Practices Act. A breach of the Foreign Corrupt Practices Act on the part of
either of the Consultants shall be considered a material breach of this
Agreement, giving UMIC and its Joint Venture Partners, if any, the rights to
rescind this Agreement as to both Consultants.
(d) The Consultants represent and warrant to UMIC that each
is free from any and all prior legal commitments or restraints of
4
<PAGE> 231
third parties which would prevent them from bringing to UMIC the opportunity
to acquire the rights to explore for and produce petroleum on the Prospect Area
or prevent them from carrying out consulting services to UMIC under this
Agreement. The Consultants specifically do not represent or warrant to UMIC the
accuracy of any of the geological or geophysical data or evaluations furnished
by them to UMIC regarding the Prospect Area nor do the Consultants represent or
warrant the presence of hydrocarbons on the Prospect Area in commercial
quantities.
IV.
RIGHTS AND OBLIGATIONS OF UMIC
(a) In consideration of the Consultants entering into this
Agreement, UMIC agrees to pay the Consultants the compensation set out in
Article V below in accordance with the terms and provisions thereof.
(b) In the event UMIC enters into a final and binding PSC
and JOA with the Government and PETROCI in the first instance and PETROCI in
the second instance, nothing herein contained or implied in this Agreement
shall be deemed or construed as creating any obligation on the part of UMIC or
any of its Joint Venture Partners to the Consultants, with respect to either
electing not to go forward with any exploration work phase, where permitted
under the PSC, or electing not to go forward with developing a discovery,
whether it is deemed commercial or not, or electing, where permitted to
withdraw entirely from the PSC and Prospect Area. In the further event that a
final and binding PSC and JOA is consummated among the Government, PETROCI and
UMIC with respect to the Prospect Area, such event shall not be deemed to
create on the part of the Consultants any interest in and to the PSC or
Prospect Area or to allow the Consultants any voting rights under a JOA.
Notwithstanding the foregoing, UMIC shall have an obligation to keep the
Consultants reasonably apprised and informed with respect to decisions or
operations which will have a material effect and impact on petroleum operations
or the PSC. In addition, UMIC agrees to negotiate in good faith with the
Government and PETROCI regarding terms and conditions of a PSC and JOA covering
the Prospect Area; provided, however, such requirement of good faith
negotiations shall in no case be deemed or construed as requiring UMIC to
conclude a PSC and JOA which in UMIC's sole judgement, is not in the best
interests of either UMIC or its potential Joint Venture Partners.
5
<PAGE> 232
V.
COMPENSATION OF CONSULTANTS
(a) Each Consultant who is requested to perform consulting
services pursuant to the provisions of Article III(a) above shall be paid at
the rate of Seventy-five U.S. dollars (U.S. $75.00) per hour or part thereof up
to a maximum of Six hundred U.S. Dollars (U.S. S600.00) per day (including
travel time) for time spent performing such requested work. Each Consultant who
performs such requested work shall at the end of each month submit to UMIC a
written invoice stating the hours and/or days worked in such month with an
adequate description of services performed. UMIC shall pay such invoice within
ten (10) days from the date of its receipt.
(b) UMIC shall also be responsible to pay the reasonable
travel expenses of any Consultant it requests to make a trip in connection with
the Prospect Area. Such travel expenses shall include round trip air fare,
hotel, meals and ground transportation. Any Consultant who makes such trip at
the request of UMIC shall submit a documented expense account to UMIC within
five (5) days from returning from such trip. Such expense account shall be paid
within ten (10) days from the date of its submission by UMIC.
(c) In the event that UMIC, the Government and PETROCI
enter into a mutually binding and final PSC covering the Prospect Area, UMIC
agrees to pay each of the Consultants the sum of Twenty-five Thousand U.S.
Dollars (U.S. $25,000.00) within ten (10) days from the date UMIC receives
final written notice from the appropriate Government authority that under the
law of the Republic of the Ivory Coast such PSC is binding and fully
enforceable among the Government, PETROCI and UMIC. Copies of such written
notice shall be promptly sent by UMIC to the Consultants when received.
(d) In the further event, petroleum is discovered by UMIC
and/or its Joint Venture Partners on the Prospect Area and oil or
gas is produced, lifted or delivered pursuant to either an appraisal
or a development plan approved by the Government and PETROCI, then
UMIC agrees to pay each Consultant the sum of Twenty-five Thousand
U.S. Dollars (U.S. $25,000.00) within ten (10) days from the date of
the first lifting or delivery, as the case may be, of such oil or
gas shipment. UMIC shall promptly notify each of the Consultants of
the date of the first oil or gas shipment.
(e) In addition to the lump sum payments due, if any, as
provided for in Articles V(c) and V(d) above, if there is a discovery on the
Prospect Area and petroleum is produced, saved, lifted and/or delivered from
the Prospect Area pursuant to an approved appraisal or development plan, then
in that event, UMIC agrees to pay each of the Consultants, on a quarterly basis
during Phase II of the Agreement, from the petroleum lifted and/or delivered
which comprises Contractor's Petroleum Proceeds an amount
6
<PAGE> 233
equal to one and five one hundredths percent (1.05%) of Contractor's Petroleum
Proceeds. Such quarterly payments based upon Contractor's Petroleum Proceeds
shall be paid to each Consultant on all volumes of petroleum lifted and/or
delivered in any one quarter within ten (10) days after the close of such
quarter. Such payments shall be made in U.S. funds deposited to the financial
institutions and bank account numbers designated by each of the Consultants
which may be changed from time to time by each respective Consultant upon prior
written notice to the Contractor/Operator.
(f) Ninety (90) days prior to the estimated start of the
production of petroleum from the Prospect Area pursuant to an approved
appraisal or development plan, and every six (6) months thereafter during
Phase II of this Agreement, the Contractor/Operator shall send to each of the
Consultants a written statement showing the estimated petroleum production to
be lifted and/or delivered from the Prospect Area for the next succeeding six
(6) months, the estimated price per unit of petroleum during such period, the
estimated amount of Contractor's Petroleum Proceeds, and the respective amounts
due each of the Consultants pursuant to the provisions of Article V(e) above.
Simultaneous with making the quarterly payments required under Article V(e)
above, the Contractor/Operator shall also send each Consultant quarterly
information but using the actual volumes of petroleum produced, lifted and/or
delivered together with the actual unit prices for which such petroleum was
sold. Within one-hundred and eighty (180) days from the end of each consecutive
four (4) quarters or year, and annually thereafter during Phase II of this
Agreement, the Contractor/Operator shall furnish each of the Consultants a
written statement containing information of the actual petroleum produced,
lifted and delivered from the Prospect Area, the actual prices for which such
petroleum was sold, and the actual amount Contractor's Petroleum Proceeds for
the year. Any adjustments resulting from differences between estimated and
actual volumes or prices, whether up or down, subtracting or adding, as the
case may be, shall be made by the Contractor/Operator to or from the next
quarterly payment by the Contractor/Operator. The Parties hereto severally, at
their own expense, have the right to audit the financial records of the
Contractor/Operator within two (2) years from the date of the issuance of such
annual statement. Any annual statement which is not audited and/or adjusted
within such two (2) year period shall be conclusively presumed to be correct.
(g) In the event that during the term of this Agreement,
the Government, either by law or through agreement with the Contractor, should
change the PSC so that all or part of Contractor's income tax (excluding the
income tax of PETROCI) is paid out of Contractor's share of the total production
of petroleum produced, lifted and/or delivered from the Prospect Area, then, in
that event, the Parties hereto agree to meet and discuss in good faith whether
an adjustment in the rates due the Consultants under Article V(e) needs to be
made. Any such adjustment so made shall reflect as near as possible
7
<PAGE> 234
the level of compensation due the Consultants under the present provisions of
Article V(e) above.
(h) Each of the Consultants shall be individually
responsible for the payment of any income taxes assessed against such
Consultant on any compensation earned or received by him under the provisions
of Article V of this Agreement by the taxing authorities of either the Republic
of the Ivory Coast and/or the United States or any other country having or
claiming tax jurisdiction over such Consultant and each of said Consultants
agrees to protect, indemnify and hold UMIC audits Joint Venture Partners, if
any, safe and harmless from and against any levies or assessments made by any
such country against UMIC or its Joint Venture Partners, if any, by reason of
alleged non payment of income taxes on the part of such Consultant. UMIC and/or
Contractor/Operator, as the case may be, shall have the right to withhold from
such payments due the Consultants under this Agreement a legally mandated
amount where required to by the law of the country assessing such tax or
asserting income tax jurisdiction. In the event that UMIC and/or Contractor
withholds and/or pays Ivory Coast income tax on Consultants behalf, UMIC and/or
Contractor will provide Consultants with corresponding tax receipts. If
Government withholds and/or pays Ivory Coast income tax on Consultants behalf,
UMIC and/or Contractor will use its best efforts to provide Consultants with
receipts and/or other documentation of all such tax payments; provided,
however, nothing herein contained or implied in this Article V(h) shall be
deemed or construed as placing any obligation or liability on UMIC and/or
Contractor to represent, support or assist in obtaining the eligibility of
either of the Consultants to be entitled to a foreign tax credit under the
Internal Revenue Code to be credited against their respective United States
income tax liabilities.
(i) UMIC's and/or Contractor/Operator's, as the case may
be, obligation to pay the Consultants the compensation provided for in Article
(V(e) above shall be subject to conditions of force majeure which may hinder,
delay or prevent such payment and which are outside the control of Contractor,
regardless of whether or not such conditions of force majeure are recognized
under the PSC.
VI.
TERM OF AGREEMENT
(a) This Agreement shall commence on the execution date
hereof and shall continue in full force and effect through Phase II unless
earlier terminated by reason of one or more of the following events:
(i) a written notice by UMIC to the Consultants made prior
to the end of Phase I, advising said Consultants that
UMIC
8
<PAGE> 235
is no longer interested in negotiating a PSC and JOA
with the Government and PETROCI concerning the Prospect
Area; or
(ii) the failure on the part of UMIC and PETROCI to reach
mutual agreement with respect to the terms and
conditions of a PSC and JOA covering the Prospect Area
by June 30, 1992, or some other later date mutually
agreed upon by UMIC and the Consultants; or
(iii) the failure on the part of UMIC to have received final
and binding approval as required under the laws of the
Republic of the Ivory Coast of a PSC covering the
Prospect Area by September 30, 1992, or some other
later date mutually agreed upon by UMIC and the
Consultants; or
(iv) the total withdrawal of all parties comprising
Contractor (excluding PETROCI) at the end of any
particular work commitment phase of the PSC or at any
other permitted time thereunder pursuant to the terms
of the PSC; or
(v) the expiration of the PSC in accordance with its own
terms.
(b) Upon the early termination of this Agreement pursuant
to one or more of the provisions of Articles VI(a)(i) through VI(a)(iii) above,
UMIC shall be relieved of any future payment or compensation obligations to the
Consultants under Article V above; provided, however, UMIC shall remain liable
for the payment of consulting fees and expenses owed to either of the
Consultants pursuant to the provisions of Articles V(a) and V(b) above on the
date of such early termination. In the event this Agreement is terminated early
pursuant to the provisions of Article VI(a)(iv) or VI(a)(v) above, UMIC and/or
Contractor/Operator, as the applicable case may be, shall be relieved of any
future payments or compensation obligations to the Consultants pursuant to the
provisions of Article V(e) above; provided, however, UMIC and/or
Contractor/Operator shall be liable for any unpaid accrued compensation which
may have been due the Consultants on the date of such termination.
VII.
ASSIGNMENTS
(a) The Parties hereto agree that UMIC shall have the right
to freely assign all or any part of its undivided interests in and to the PSC
and JOA covering the Prospect Area to third party oil companies who are, at the
time of such assignment, financially able
9
<PAGE> 236
and technically competent. Such assignments by UMIC and/or any Joint Venture
Partners shall be subject to the approval provisions set out in the PSC and
JOA. Such assignments shall also be accompanied by a separate written statement
signed by the prospective assignee which provides that upon approval of the
assignment by the required approval authorities, then such assignee shall
assume the status of a Joint Venture Partner and shall become a Party to this
Agreement assuming in accordance with its proportionate share, all the rights
and obligations of UMIC under this Agreement. In the event UMIC or any joint
Venture Partner should assign all of its rights, title and interest in and to
the Prospect Area to a third party who is financially capable and as a
condition of such assignment agrees in writing to become a Party to this
Agreement and the Government approves such assignment, then in that event, UMIC
or such Joint Venture Partner making such assignment, as the case may be, shall
be relieved of all future liability to the Consultants under this Agreement.
UMIC or any Joint Venture Partner proposing to make any assignment to a third
party oil company shall give the Consultants prior written notice of such
assignment.
(b) Because of the personal nature and required expertise
of the services to be rendered during Phase I of this Agreement, by the
Consultants, the Parties hereto agree that no assignments by either of the
Consultants of their rights and obligations under this Agreement during Phase I
hereof shall be made. During Phase II each of the Consultants may freely assign
his respective interests under this Agreement upon prior written notice to UMIC
or the Contractor/Operator, as the case may be. Any such assignments shall not
be made in interest transfer of less than one-eighth (1/8) of such Consultant's
(1.05%) interest under this Agreement.
(c) The death or permanent disability of a Consultant
during the term of this Agreement shall have no effect on such Consultants'
rights, if any, to the compensation due such Consultant under Articles V(c)
through V(e) above. In the event of permanent disability or the death of such
Consultant, the compensation due him, if any, under the provisions of Articles
V(c) through V(e) above shall be paid solely to his estate or trustee, and not
to any individual devisees, legatees or heirs or shall be paid to his court
appointed guardian, if any.
VIII.
NOTICES
(a) Wherever and whenever written notices are required or
are permitted to be sent under this Agreement from one Party to another Party,
such notices shall be deemed to have been sent when deposited in a sealed
envelope with the U.S. Postal Service, or when sent by
10
<PAGE> 237
facsimile, or delivered by hand, addressed to the Party at the following
locations:
<TABLE>
<S> <C>
TO UMIC: United Meridian International Corporation
1201 Louisiana, Suite 1400
Houston, Texas 77002-5603
Fax: (713) 653-5908
Attention: Mr. Coy Squyres, President
TO BARR: Mr. Frank T. Barr
13730 Queensbury
Houston, Texas 77079
TO FRANK: Mr. G. Willard Frank
6223 Holly Springs
Houston, Texas 77057
</TABLE>
(b) Any of the Parties hereto may from time to time change
it or their address to which written notice may be sent upon prior written
notices to the other Parties.
IX.
MISCELLANEOUS PROVISIONS
(a) This Agreement shall be governed and construed
according to the laws of the State of Texas.
(b) The captions and headings in this Agreement are used
for convenience only and shall not be deemed or construed to have any
substantive meaning.
(c) This Agreement shall not be amended or modified in any
manner except if done in writing signed by authorized representatives of the
Parties hereto.
(d) This Agreement shall comprise the full and complete
agreement and understanding of the Parties hereto with respect to the subject
matter hereof and shall cancel and supersede all prior agreements and
understandings between the Parties whether in writing or oral, expressed or
implied.
11
<PAGE> 238
IN WITNESS WHEREOF, the Parties have hereunto executed this
Agreement on the day, month and year first written above.
UNITED MERIDIAN INTERNATIONAL CORPORATION
By: /s/ COY H. SQUYRES
-------------------------------------
Coy H. Squyres
President
By: /s/ FRANK T. BARR
-------------------------------------
Frank T. Barr, Consultant
By: /s/ G. WILLARD FRANK
-------------------------------------
G. Willard Frank, Consultant
12
<PAGE> 239
EXHIBIT "A"
Description and Map of Prospect Area
13
<PAGE> 240
MAP OF THE SPECIAL AREA
[MAP]
<PAGE> 241
EXHIBIT F
Assignment and First Amendment to Prospect Acquisition Agreement
This Assignment and First Amendment to Prospect Acquisition Agreement
(hereinafter referred to as this "First Amendment") made and entered into by
and among United Meridian International Corporation, a corporation organized
and existing under the laws of the State of Delaware (hereinafter referred to
as "UMIC"); Frank T. Barr and G. Willard Frank, both individuals residing in
Houston, Texas (hereinafter jointly referred to as "Consultants"); UMIC Cote
d'Ivoire Corporation, a corporation organized and existing under the laws of
the State of Delaware (hereinafter referred to as "UMIC Cote d'Ivoire"); and
G.N.R. (Cote d'Ivoire) Ltd., a corporation organized and existing under the
laws of the Cayman Islands (hereinafter referred to as "GNR").
WITNESSETH:
WHEREAS, The Republic of Cote d'Ivoire, on the one hand, and UMIC
Cote d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la
Cote d'Ivoire, on the other hand, signed that certain Production Sharing
Contract dated 27 June 1992 but having an Effective Date of January 4, 1993
(hereinafter referred to as the "Contract"); and
WHEREAS, UMIC and Consultants entered into that certain Prospect
Acquisition Agreement dated the 20th day of December, 1991 (hereinafter
referred to as the "Prospect Agreement") in respect of offshore Block CI-11 in
the Republic of Cote d'Ivoire; and
WHEREAS, UMIC and UMIC Cote d'Ivoire have agreed that UMIC shall
assign all of its rights and obligations under the Prospect Agreement to UMIC
Cote d'Ivoire; and
WHEREAS, UMIC Cote d'Ivoire and GNR have entered into that certain
Acquisition Agreement dated the ____ day of May, 1993 (hereinafter referred to
as the "GNR Acquisition Agreement"), pursuant to which GNR is to acquire an
undivided eighteen percent (18%) interest in and under the Contract insofar
and only insofar as it covers the Remaining Area (which for the purposes of
this First Amendment shall mean the area covered by the Contract excluding the
Special Area) and an undivided ten percent (10%) interest in and under the
Contract insofar and only insofar as it covers the Special Area (which for the
purposes of this First Amendment shall have the meaning defined in the
Contract); and
F-1
<PAGE> 242
WHEREAS, in accordance with the terms and conditions of the GNR
Acquisition Agreement, UMIC Cote d'Ivoire has assigned and conveyed the above
described interests in the Contract to GNR; and
WHEREAS, the parties to this First Amendment desire to set forth
herein the terms and conditions of their agreements;
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth below, the parties hereto hereby agree as follows and make
the assignments hereinafter set forth:
1. Terms used in this First Amendment which are not
defined in this First Amendment but are defined in the Prospect Agreement shall
have the meanings set forth in the Prospect Agreement.
2. UMIC hereby assigns and conveys to UMIC Cote d'Ivoire
all of its right, title and interest under the Prospect Agreement and UMIC Cote
d'Ivoire hereby accepts such assignment and conveyance and agrees to perform
all of the obligations under the Prospect Agreement in respect of the interest
assigned and conveyed by UMIC. UMIC is hereby removed as a party to the
Prospect Agreement, and UMIC Cote d'Ivoire is substituted in the place thereof
for all purposes. UMIC is relieved as of the date hereof of all future
liability to the Consultants under the Prospect Agreement.
3. UMIC Cote d'Ivoire hereby assigns and conveys the
following interests in and under the Prospect Agreement to GNR and GNR accepts
such assignments and conveyances and agrees to assume and perform its
proportionate share of the obligations under the Prospect Agreement in respect
of the interests assigned and conveyed as hereinafter set forth:
a. Insofar and only insofar as the Prospect Agreement
relates to matters in respect of the Special Area, an
undivided 16.667% to GNR; and
b. Insofar and only insofar as the Prospect Agreement
relates to matters in respect of the Remaining Area, an
undivided twenty percent (20%) to GNR.
4. Article VIII(a) of the Prospect Agreement shall be
amended by inserting the name of UMIC Cote d'Ivoire in the place of the name of
UMIC for the purpose of notices thereunder and inserting the following for the
notice address of GNR:
F-2
<PAGE> 243
"To GNR:
G.N.R. (Cote d'Ivoire) Ltd.
5300 Memorial, Suite 800
Houston, Texas 77007
U.S.A.
Attn: Vice President-International Exploration
Telecopy: (713) 865-4386"
5. The assignments made herein are made without warranty of title,
either express or implied.
6. This First Amendment shall be effective on the date set
forth below.
7. Except as otherwise provided herein, the Prospect Agreement shall
remain in full force and effect as originally written.
8. This First Amendment may be executed in any number of counterparts,
which taken together shall constitute one and the same instrument and each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this First Amendment has been duly signed by the
parties hereto as of the _____ day of _______________, 1993.
UNITED MERIDIAN INTERNATIONAL
CORPORATION
By:__________________________________
_____________________________________
Frank T. Barr
_____________________________________
G. Willard Frank
UMIC COTE D'IVOIRE CORPORATION
By:__________________________________
G.N.R. (COTE D'IVOIRE) LTD.
By:__________________________________
F-3
<PAGE> 244
EXHIBIT G
Foreign Corrupt Practices Act Agreement
This Foreign Corrupt Practices Act Agreement (hereinafter referred
to as the "Agreement"), made and entered into this ____ day of _________ ,
1993, between UMIC Cote d'Ivoire Corporation, a corporation organized and
existing under the laws of the State of Delaware, U.S.A. (hereinafter
referred to as "UMIC"), and G.N.R. (Cote d'Ivoire) Ltd., a corporation
organized and existing under the laws of the Cayman Islands (hereinafter
referred to as "GNR").
WITNESSETH:
WHEREAS, that certain Production Sharing Contract was entered into
in the French language in Abidjan, Cote d'Ivoire on 27 June 1992 by and between
The Republic of Cote d'Ivoire on the one hand and UMIC Cote d'Ivoire
Corporation and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire
on the other hand covering Block CI-11 (hereinafter referred to as the
"Contract"); and
WHEREAS, that certain Joint Operating Agreement (Block CI-11) dated
27 June 1992 was entered into by and between UMIC and Societe Nationale
d'Operations Petrolieres de la Cote d'Ivoire covering operations in respect of
the Contract (hereinafter referred to as the "Joint Operating Agreement"); and
WHEREAS, GNR and UMIC entered into that certain Acquisition
Agreement dated the ____ day of May, 1993 (hereinafter referred to as the "GNR
Agreement"); and
WHEREAS, the GNR Agreement provides that the parties thereto will
enter into this Agreement in order to confirm to each other that none of the
parties to this Agreement will violate certain laws of the United States of
America.
NOW, THEREFORE, in consideration of the mutual covenants and
promises set forth below, the parties hereto hereby agree as follows:
ARTICLE I.
Purpose of Agreement
1.1 UMIC and GNR have entered into this Agreement in order
to agree that neither of the parties hereto shall violate the Foreign Corrupt
Practices Act of 1977 as amended by the Foreign Corrupt Practices Act Amendment
of 1988 (and as may be
G-1
<PAGE> 245
amended from time to time) in connection with the Contract, the Joint Operating
Agreement or the GNR Agreement (hereinafter referred to as the "Relevant
Agreements").
1.2 UMIC and GNR entered into the GNR Agreement based in
part upon the representations and warranties set forth in this Agreement.
ARTICLE II.
Representations and Warranties
2.1 Each party hereto and any of its officers and directors
executing this Agreement represent and warrant to the other party hereto that
neither it nor any officer, director or employee of it has made or will make,
or cause to be made, in connection with the performance of the Relevant
Agreements, any payments; loans or gifts or promises or offer of payments,
loans or gifts of any money or anything of value, directly or indirectly,
(a) to or for the use or benefit of any official
or employee of any government, or the agency or instrumentalities
of any such government;
(b) to any political party or official or
candidate thereof;
(c) to any other person in advance or as a
reimbursement if it knows or has reason to suspect that any part of
such payment, loan or gift will be directly or indirectly given or
paid by such other person, or will reimburse such other person for
payments, gifts or loans previously made, to any such governmental
official or political party or candidate or official thereof; or
(d) to any other person or entity;
the payment of which would violate the laws, decrees or regulations having the
force of law of the Republic of Cote d'Ivoire or the United States of America.
2.2 The parties hereto and all of the officers, directors
and employees of each such party shall answer in reasonable details any
questionnaire or other written or oral communications, to the extent same
pertains to compliance with the representations and warranties set forth in
this Article II from a party hereto or its outside auditors.
2.3 This Agreement has been duly authorized, executed and
delivered by each of the parties hereto and constitutes a valid and legally
binding Agreement of said parties under the laws of the State of Texas, and
neither the execution and delivery of nor the performance of the provisions of
this Agreement by each of the parties hereto will conflict with or result in a
breach of any law, or of any regulation, order, writ, injunction or decree of
any court or governmental authority of any country in which this Agreement is
to be performed which are in effect on the date hereof.
G-2
<PAGE> 246
2.4 This Agreement shall terminate two (2) years after the
Contract terminates.
IN WITNESS WHEREOF, this Agreement has been duly signed by the
parties hereto as of the day of ,1993.
UMIC COTE D'IVOIRE CORPORATION
By_________________________________
GNR (COTE G'IVOIRE) LTD.
By_________________________________
G-3
<PAGE> 1
Exhibit 10.41
Page 1 of 138
QARUN CONCESSION. EGYPT
FARMOUT AGREEMENT
BETWEEN
GNR (EGYPT) LTD.
AND
APACHE OIL EGYPT, INC. ("FARMOR")
<PAGE> 2
Exhibit 10.41
Page 2 of 138
INDEX
1. DEFINITIONS AND INTERPRETATIONS....................................... I
2. INTERESTS............................................................. 2
3. EARNING OF INTEREST................................................... 3
4. CONDITIONS............................................................ 4
5. FARMOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.................... 5
6. FARMEE'S COVENANTS, WARRANTIES AND REPRESENTATIONS.................... 6
7. CONTRACT AND JOA...................................................... 7
8. DEFAULT............................................................... 7
9. NOTICES............................................................... 7
10. GENERAL............................................................... 8
SCHEDULES
1. Joint Operating Agreement
2. Concession Agreement
3. Amendment to Concession Agreement
<PAGE> 3
Exhibit 10.41
Page 3 of 138
QARUN FARMOUT AGREEMENT
This Agreement is entered into this ______ day of _________________ 1994 between
GNR (EGYPT) LTD. a Cayman Islands corporation and a subsidiary of Global Natural
Resources Corporation having its principal office at 5300 Memorial, Suite 800,
Houston, Texas ("Farmee") and APACHE OIL EGYPT, INC., a Delaware corporation
having its principal offices at 2000 Post Oak Boulevard, Houston, Texas, U.S.A.
("Farmor").
WHEREAS:
A. Farmor and Phoenix Resources Company of Qarun are the Contractor parties
under the Contract and are parties to the JOA
B. Farmor wishes to assign and Farmee wishes to earn assignment of a 25%
undivided Participating Interest in the Contract from the Effective Date by
paying the sums and bearing the expenses specified herein.
C. In consideration of such assignments, Farmee has agreed to accept the
duties, rights and obligations specified herein.
In consideration of the foregoing recitals and the covenants and conditions set
forth in this Agreement, the Parties agree as follows:
1. DEFINITIONS AND INTERPRETATIONS
1.1 DEFINITIONS
In this Agreement, unless the contrary intention appears:
Words and phrases used herein which have capitalized first letters
shall have the same meanings as that given to those words and phrases
in the JOA unless otherwise defined in this Agreement;
"CONTRACT" means Concession Agreement relating to the Qarun Concession,
Egypt, executed May 17, 1993 and approved by ARE Law No. 113 of 1993,
made between the ARE, EGPC, Phoenix and Farmor, as amended on June 16,
1994, pursuant to ARE Law No. 35 of 1994. Copies of the Contract and
the Amendment are in Schedules A and B
1
<PAGE> 4
Exhibit 10.41
Page 4 of 138
hereto, respectively.
"EFFECTIVE DATE" means with effect from 00 hours Central Daylight time
on June 1 1994;
"FARMEE" means Global Natural Resources Corporation and/or its
subsidiary formed for the purpose of this farmout and where the context
requires, includes its successors and permitted assigns: "FARMOUT
INTEREST" means the right title and interest in:
(a) an undivided Participating Interest of 25% of the rights of the
Contractor under the Contract:
(b) all rights and entitlements in the Contract enjoyed by the
Contractor pursuant to the Contract to the extent of the
Participating Interest assigned; and
(c) the right, title and benefit of Farmor in the JOA to the extent
of the Participating Interest assigned:
"JOA" means the Joint Operating Agreement for the Contract a copy of
which is in Schedule C hereto dated as of January 1, 1993 as amended
from time to time;
"JOINT VENTURERS" means the entities mentioned in Recital A;
"PARTY" means a party to this Agreement.
"PHOENIX" means Phoenix Resources Company of Qarun.
1.2 INTERPRETATIONS
In this Agreement, unless the context otherwise requires:
(a) references to currency are to US Dollars:
(b) references to recitals, Clauses or Schedules are to recitals,
clauses or schedules of this Agreement;
(c) references to singular include the plural and vice versa;
(d) headings are for ease of reference only and do not affect the
2
<PAGE> 5
Exhibit 10.41
Page 5 of 138
meaning or construction of this Agreement; and
(e) references to agreements, deeds or other instruments (including
the Contract) include amendments or variations thereto made from
time to time.
2. INTERESTS
2.1 The present Participating Interests of the Joint Venturers are as
follows:
Farmor 50%
Phoenix 50%
2.2 Subject to the satisfaction of the conditions in Clause 4.1 and 4.2,
for the consideration expressed herein, Farmor hereby transfers to
Farmee the Farmout Interest with effect from the Effective Date. The
Participating Interests of the parties thereafter shall be as
follows:
Phoenix 50%
Farmor 25%
Farmee 25%
---
100%
3. EARNING OF INTEREST
3.1 In consideration of Farmor's agreement to transfer the Farmout
Interest, Farmee shall from the Effective Date pay or reimburse as
follows:
(a) bear and pay all the Farmor's Share of Joint Account Expenditures
relating to the site preparation for and drilling, re-drilling if
necessary, logging, coring, testing, completion through the
Christmas tree or abandonment of the first exploration well to be
drilled in the Contract Area, namely the El Sagha #1 well located
at Shotpoint 450 on Line 9402-HI57-05 ("Well Costs"), all in a
manner to satisfy the requirements of the Contract and of EGPC;
the amount paid pursuant to this subclause 3.1(a) shall not
exceed $750,000; and
(b) reimburse Farmor for part of the expenditures incurred by
Farmor in respect of the Contract Area prior to the Effective
Date, namely $884,609 (which does not include any sum for Well
Costs), within ten (10) days of receipt of invoice from Farmor;
and
(c) reimburse Farmor within ten (10) days os signature for the entire
amount of any
3
<PAGE> 6
Exhibit 10.41
Page 6 of 138
cash calls or invoices paid by Farmor to Phoenix in
respect of Well Costs as defined in Clause 3.1(a) above; and
(d) to the extent that after the Effective Date Farmor has paid its
pre-Farmout 50% share of Join Account Expenditures other than
Well Costs ("Non-Well Costs"), reimburse Farmor for half of such
Non-Well Costs so paid, within ten (10) days of signature; and
(e) pay Farmee's Farmout Interest share of Join Account Expenditures
in respect of the Farmout Interest.
If Phoenix doesn't agree to issue invoices or cash calls directly to
Farmee, Farmee shall provide funds to Farmor to meet ongoing Joint
Account Expenditures payable by Farmee pursuant to this Clause 3.1,
two (2) clear business days prior to the due date of any such cash
call or invoice.
3.2 Subject to Farmee currently performing its obligations as set out
in Clause 3.1 above, Farmor shall
(a) in respect of JOA decisions affecting Well Costs, vote Farmor's
Participating Interest pursuant to the JOA in accordance with the
wishes of Farmee whenever these wishes are communicated in
writing to Farmor in advance of the time for making each decision
under the JOA. Farmor's obligation to vote in accordance with the
wishes of Farmee shall cease on the earlier of (i) the time when
$3,000,000 has been spent on 100% of Well Costs or (ii) the time
when it is likely that a figure of $3,000,000 expenditure on Well
Costs will be reached during the operation as to which a JOA
decision is called for by Operator.
(b) pay to Farmee following the end of each quarter, out of Farmer's
share of Cost Recovery Petroleum but from no other source,
one--half (50%) of the value (in accordance with the Contract) of
such Cost Recovery Petroleum actually received by Farmor until
the amount so paid equals share of Well Costs actually paid by
Farmee pursuant to Clauses 3.1(a) and 3.1(c) of this Agreement.
Any taxes due because of the above payment by Farmor to Farmee
shall be borne by Farmee.
4. CONDITIONS
4.1 This Agreement is conditional upon the consent of Phoenix given in
writing pursuant to Section 14.2 of the JOA within 20 days from the
date hereof or such later date as the Parties may agree.
4
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Exhibit 10.41
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4.2 The assignment of the Participating interest hereunder is
conditional upon execution by Farmee, to the extent of the Farmout
Interest, of written instruments of assumption to comply with Article
14 of the JOA.
4.3 The assignment of the Farmout interest is subject to the approval
of EGPC and execution by Farmee of assignment documentation required
by the Contract. Until EGPC's approval is given ("Consent Date"),
Farmor shall be deemed to have held such separate interest being
assigned in trust for the benefit of Farmee from the Effective Date
until The Consent Date. However, if such approval has not been given
or is denied by 1 January 1995, Farmee shall have the option,
exercisable within 10 days thereafter, to terminate this Agreement
upon written notice to Farmor, If Farmee so terminates this Agreement,
then Farmee shall have no obligations hereunder except as set forth in
Clause 10.3 of this Agreement and Farmor shall reimburse Farmee for
all amounts paid by Farmee pursuant to this Agreement.
4.4 Farmor shall use its best efforts to obtain such consent and approval
as rapidly as practicable. Approval fees, if any, shall be paid by
Farmee.
4.5 Notwithstanding the provisions of Clauses 4.1, 4.2 and 4.3, it is the
intention of the Parties that Clauses 2.2 and 3.1 shall take effect
and bind the Parties on and from the Effective Date
5.. FARMOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1 Farmor represents and warrants to and for the benefit of Farmee
that:
(a) it has full power and authority to make this Agreement and to
perform and observe the terms and conditions hereof; this
Agreement has been duly executed by it and, to the best of its
knowledge, information and belief, having made all reasonable and
appropriate inquiries, is a legal, valid and binding agreement
enforceable against it in accordance with the terms hereof;
(b) it is not in liquidation nor has passed any resolution for winding
up, no receiver or receiver and manager has been appointed to all
or any part of its property or undertaking, no petition has been
presented for its winding up and no writ of execution has been
issued against it or any of its property;
(c) it is not in material breach of any agreement, (including, but not
by way of limitation, the JOA) to which it is a party affecting
the Farmout Interest and the making and performance of this
Agreement will not constitute a breach of any such agreement;
5
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Exhibit 10.41
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(d) the Contract is in good standing and in force and effect and, to
the best of its knowledge, no act, event or omission has occurred
which will result in the same being terminated or forfeited and it
is not in breach of any of the terms thereof;
(e) to the best of its knowledge, there are not any actions, suits or
other proceeding pending or threatened against Farmor in or by any
court or administrative or other tribunal which might call into
question the title of Farmor to the Farmout Interest transferred
by it pursuant to Clause 2.2 of this Agreement or its right to
complete the transfer thereof in accordance with this Agreement or
which might otherwise prejudice the rights and interests of Farmee
under this Agreement;
(f) the Farmout Interest is not subject to any encumbrance or third
party interest of any nature whatsoever, other than:
(1) as provided in the Contract and the JOA;
(2) as provided by the laws of the Arab Republic of Egypt in
force from time to time; and
(g) the JOA is in good standing and in full force and effect and, to
the best of its knowledge, no act, event or omission has occurred
which might result in it being terminated.
6. FARMEE'S COVENANTS. WARRANTIES AND REPRESENTATIONS
6.1 Farmee hereby covenants, represents and warrants to Farmor that:
(a) it has full power and authority to enter into and complete its
obligations under this Agreement;
(b) it agrees to enter into the written instruments of assumption
required by the JOA and any written assignment documents
reasonably required by the Contract or EGPC; and
(c) upon the Farmout Interest being earned by Farmee, Farmee shall
bear the Participating Interest of the Contract obligations
equivalent to the Farmout Interest acquired by Farmee in the
Contract.
6.2 Farmee acknowledges that:
(a) it has entered into this Agreement in reliance of its own
evaluation of the Contract
6
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Exhibit 10.41
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data and information and not upon any statement, condition or
representation made or alleged to have been made by Farmor, except
as set out in this Agreement. Farmee acknowledges that it has
examined the Contract (as amended) being the instrument
establishing the Farmor's title to the Farmout Interest;
(b) the Farmee will not be entitled to and the Farmor does not
purport, promise or agree to convey to the Farmee any better
right, title, estate or interest in or to the Contract than that
which the Farmor now has by virtue of the Contract.
7. CONTRACT AND JOA
7.1 Subject to the execution of written instruments of assumption as
referred to in Clause 6.1 (b), Farmee shall become a Party to the JOA
and be bound by the JOA with effect from the Effective Date. Subject
to execution of written documents of assignment as required by the
Contract, Farmee shall succeed to the rights of Contractor to the
extent of its Farmout Interest.
7.2 Without limiting the generality of Clause 7.1, the Farmee shall to the
extent of its 25% Participating Interest:
(a) be bound by the conditions and obligations which the Farmor
would otherwise be required to observe and perform under the
Contract and the JOA; and
(b) be entitled to all the rights and benefits which the Farmor
would otherwise have under or by virtue of the Contract and the
JOA.
7
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Exhibit 10.41
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8. DEFAULT
8.1 If Farmee fails to comply with the payment obligations provided for in
Clause 3.1(a) in accordance with the JOA or Clause 3.1(b) or (c) on
the due dates therein, and fails to rectify the default within a
further seven (7) days after written notice from Farmor, without
prejudice to the undertaking and obligation of Farmee to make the
payments due pursuant to this Agreement and without prejudice to any
rights and remedies of Farmor, than at the option of the Farmor, which
option shall be exercised within the further period of ten (10) days;
(a) the Farmout Interest shall be deemed to be reassigned to Farmor
without reimbursement of any costs or expenses incurred by
Farmee;
(b) actual and reasonable costs of the reassignment shall be borne
by Farmee;
(c) Farmee shall cease to be a Party to the JOA and to be part of
Contractor under the Contract, and shall perform all such acts to
revest in Farmor legal and equitable title to the Farmout Interest
subject only to burdens (if any) which affected it as of the
Effective Date; provided however that any Farmee payments in
default under the JOA shall continue to be due and owning to
Phoenix and/or Farmor as provided in the JOA;
(d) Farmee shall return to Farmor all notices, data, records and
information delivered pursuant to the JOA or the Confidentiality
Agreement entered into by Farmee and Farmor on January 27, 1994.
9. NOTICES
9.1 Except as otherwise specifically provided, all notices authorized or
required between the Parties by any of the provisions of this
Agreement, shall be in writing, in English and delivered in person or
by courier service or by any electronic means of transmitting written
communications which provides confirmation of receipt of complete
transmission, and addressed to such Parties as designed below. The
originating notice given under any provision of this Agreement shall
be deemed delivered only when received by the Party to whom such
notice is directed, and the time for such Party to deliver any notice
in response to such originating notice shall run from the date the
originating notice is received. The second or any responsive notice
shall be deemed delivered when received. "Received" for purposes of
this Clause with respect to written notice delivered pursuant to this
Agreement shall be actual delivery of the notice to the address of the
Party to be notified specified in accordance with this Clause.
8
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Exhibit 10.41
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If the time of receipt is not before 5:00 p.m. (local time in the
place of receipt) on a day during which business generally is
conducted in the place to which such communication is sent, it shall
be deemed to have been received at the commencement of business on the
next such day in that place.
Each Party shall have the right to change its address at any time
and/or designate that copies of all such notices be directed to
another person at another address, by giving written notice thereof to
all other Parties.
To Farmor:
APACHE OIL EGYPT, INC.
2000 Post Oak Boulevard
Houston, Texas 77056-4400
Facsimile:(713) 296-6450
Telephone:(713) 296-6000
Attention:Exploration Manager
To Farmee:
GNR (EGYPT) LTD.
c/o Global Natural Resources, Inc.
5300 Memorial, Suite 800
Houston, Texas 77007-8295
Facsimile:(713) 880-2106
Telephone (713) 880-5464
Attention:Gerald R. Colley
10. GENERAL
10.1 This Agreement may be executed in any number of counterparts and shall
become operative when a counterpart signed by one Party has been
delivered to each other Party, which delivery may occur by facsimile
transmission. All counterparts taken together shall be deemed to
constitute one and the same Agreement.
10.2 Each Party shall execute and do all acts and things as shall be
necessary or desirable in order to implement and give full effect to
the provisions, intentions and purposes of this Agreement and in
particular, to execute any assignment, transfer or other instrument
required to be executed under the provisions of the applicable laws
and regulations in order to vest in the Parties their respective
Participating Interests in the Contract.
9
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Exhibit 10.41
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10.3 Nothing herein contained shall be construed as creating a partnership,
trust (except the trust as set forth in Clause 4.3) or association.
The liability of the Parties shall be separate and proportional and
not joint. Each party shall be responsible only for its obligations
and its share of costs as provided herein. Each Party to this
Agreement who is subject to the internal revenue laws of the United
States of America agrees to elect to be excluded from the application
of sub-chapter K of Chapter 1, Subtitle A of the Internal Revenue Code
of 1986, as amended.
10.4 Farmee shall not have the right to assign its interest in this
Agreement without the consent of Farmor except to an Affiliate subject
to Section 14.1 of the JOA nor shall it have the right to withdraw
from this Agreement or the JOA except as provided in the JOA.
10.5 With the exception of the Confidentiality Agreement between Farmor and
Farmee dated January 27, 1994, this Agreement constitutes the entire
agreement of the Parties in respect to the subject matter hereof and
may be amended or varied only by further agreement in writing signed
by each of the Parties and express to be an amendment or variation to
this Agreement.
10.6 No waiver or any breach of this Agreement or any right, remedy, power,
authority, obligation or liability hereunder shall be effective unless
it is given in writing by the Party so waiving. No waiver shall be
deemed to be a waiver of a subsequent or other breach of this
Agreement, or of any right, remedy, power, authority, obligation or
liability in respect thereof.
10.7 If a provision of this Agreement shall be held illegal or
unenforceable by any court or administrative body having jurisdiction,
such determination shall not affect the remaining parts of this
Agreement which shall remain in force and effect as if the illegal or
unenforceable provision had not been included.
10.8 This Agreement shall inure to the benefit of, shall bind, and shall be
enforceable by, each Party and its respective successors and assigns.
10.9 Should there be any inconsistency between the provisions of this
Agreement and those of the JOA, then the provisions of this Agreement
shall prevail as between the Parties.
10.10 All disputes arising in connection with this Agreement and not
resolved amicably shall be finally settled under the Rules of
Conciliation and Arbitration of the International Chamber of Commerce
by one or more arbitrators appointed in accordance with the Rules.
Judgment upon the award rendered may be entered in any court having
jurisdiction or application may be made to such court for judicial
acceptance of the
10
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Exhibit 10.41
Page 13 of 138
award and an order of enforcement as the case may be. The place of
arbitration shall be Calgary, Alberta, Canada.
10.11 This Agreement shall be governed by and construed in accordance with
the laws for the time being of the State of Texas, U.S.A. (except for
any rule of law of Texas which would make the law of another
jurisdiction applicable) and the Parties hereby submit to the
jurisdiction of the courts of that State and all courts competent to
hear appeals therefrom.
11
<PAGE> 14
Exhibit 10.41
Page 14 of 138
IN WITNESS WHEREOF the Parties have executed this Agreement as of the date first
above written.
Executed by APACHE OIL EGYPT, INC.
By:
------------------------------
Its:
-----------------------------
Date:
----------------------------
Executed by GNR (EGYPT) LTD.
By:
------------------------------
Its:
-----------------------------
Date:
----------------------------
12
<PAGE> 15
Exhibit 10.41
Page 15 of 138
JOINT OPERATING AGREEMENT
QARUN CONCESSION
ARAB REPUBLIC OF EGYPT
ATTENTION: THE PROVISIONS OF THIS AGREEMENT ARE SUBJECT TO ARBITRATION UNDER
THE TEXAS GENERAL ARBITRATION ACT
<PAGE> 16
Exhibit 10.41
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Page
ARTICLE 1: DEFINITIONS................................................. 1
ARTICLE 2: EFFECTIVE DATE, DURATION AND TERMINATION.................... 4
2.1 Effective Date and Duration................................. 4
2.2 Operating Company........................................... 4
2.3 Termination................................................. 4
ARTICLE 3: PARTICIPATING INTERESTS OF THE PARTIES...................... 5
3.1 Participating Interests..................................... 5
3.2 Transfer of Participating Interest.......................... 5
ARTICLE 4: OPERATOR.................................................... 5
4.1 Initial Operator............................................ 5
4.2 Voluntary Resignation....................................... 5
4.3 Removal of Operator......................................... 5
4.4 Election of Successor....................................... 6
4.5 Transfer of Responsibilities................................ 7
ARTICLE 5: AUTHORITY AND DUTIES OF THE OPERATOR........................ 7
5.1 Rights...................................................... 7
5.2 Responsibility.............................................. 7
5.3 Liens and Encumbrances...................................... 8
5.4 Receipts.................................................... 8
5.5 Employees and Contractors................................... 8
5.6 Representation of the Parties............................... 9
5.7 Records..................................................... 9
5.8 Reports..................................................... 9
5.9 Consultation and Information................................ 9
5.10 Expenditures and Actions.................................... 10
5.11 Disposal and Abandonment.................................... 10
ARTICLE 6: RIGHTS OF THE PARTIES....................................... 10
6.1 Reservation of Rights....................................... 10
6.2 Inspection Rights........................................... 10
6.3 Access Rights............................................... 10
ARTICLE 7: INSURANCE AND LITIGATION.................................... 11
7.1 Insurance................................................... 11
7.2 Litigation.................................................. 12
ARTICLE 8: THE MANAGEMENT COMMITTEE.................................... 12
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Exhibit 10.41
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Page
8.1 Establishment and Powers.................................... 12
8.2 Representation.............................................. 12
8.3 Chairman.................................................... 13
8.4 Meetings.................................................... 13
8.5 Minutes..................................................... 13
8.6 Action Without a Meeting.................................... 14
8.7 Subcommittee................................................ 14
8.8 Voting Procedure............................................ 14
ARTICLE 9: EXPLORATION, DEVELOPMENT AND PRODUCTION
PROGRAMS AND BUDGETS........................................ 15
9.1 Programs and Budgets........................................ 15
9.2 Authorizations for Expenditure.............................. 16
9.3 Review and Amendments....................................... 16
9.4 Costs and Expenses.......................................... 17
ARTICLE 10: PURCHASE OF PETROLEUM....................................... 17
ARTICLE 11: DEFAULT IN PAYMENT.......................................... 18
11.1 Failure to Pay.............................................. 18
11.2 Remedy of Default........................................... 18
11.3 Continuation of Default..................................... 18
ARTICLE 12: SOLE RISK OPERATIONS........................................ 19
ARTICLE 13: SURRENDER AND WITHDRAWAL.................................... 21
13.1 Joint Decision to Surrender................................. 21
13.2 Restriction................................................. 21
13.3 Right ...................................................... 21
13.4 Conditions.................................................. 22
ARTICLE 14: ASSIGNMENT AND ENCUMBRANCE.................................. 23
14.1 Restriction................................................. 23
14.2 Effective Date.............................................. 23
14.3 Continuing Obligations...................................... 23
14.4 Consent..................................................... 23
14.5 Costs ...................................................... 23
14.6 Encumbrances................................................ 23
ARTICLE 15: CONFIDENTIALITY............................................. 24
15.1 Confidential Data and Information........................... 24
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Exhibit 10.41
Page 18 of 138
Page
ARTICLE 16: COVENANT, UNDERTAKING AND RELATIONSHIP...................... 25
16.1 Covenant and Undertaking.................................... 25
16.2 Relationship................................................ 25
ARTICLE 17: PUBLIC ANNOUNCEMENTS........................................ 25
17.1 Public Announcements by Operator............................ 25
17.2 Public Announcements by Parties............................. 26
ARTICLE 18: FORCE MAJEURE............................................... 26
ARTICLE 19: ARBITRATION................................................. 26
19.1 Texas Courts................................................ 26
19.2 Arbitration................................................. 26
ARTICLE 20: NOTICES..................................................... 27
ARTICLE 21: APPLICABLE LAW.............................................. 27
ARTICLE 22: HEADINGS, NUMBER AND GENDER................................. 28
ARTICLE 23: AMENDMENT................................................... 28
ARTICLE 24: EXHIBITS.................................................... 28
ARTICLE 25: WAIVER...................................................... 28
ARTICLE 26: CONFLICT WITH CONCESSION AGREEMENT.......................... 28
SCHEDULE A:
ARTICLE I ACCOUNTING PROCEDURE........................................ 30
1.1 Definitions................................................. 30
1.2 Supremacy of Agreement............................................ 30
1.3 Intent...................................................... 30
1.4 Accounting Records.......................................... 30
1.5 Statement and Reports....................................... 31
1.6 Advances.................................................... 31
1.7 Adjustments................................................. 31
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Exhibit 10.41
Page 19 of 138
Page
1.8 Joint Interest Audits....................................... 32
1.9 Modifications and Revisions................................. 32
ARTICLE II CHARGEABLE COSTS AND CREDITS TO THE JOINT ACCOUNT........... 33
2.1 General..................................................... 33
2.2 Labor Related Costs......................................... 33
2.3 Employee Benefits........................................... 34
2.4 Material.................................................... 34
2.5 Transportation.............................................. 34
2.6 Services and Facilities..................................... 34
2.7 Damages and Losses to Equipment............................. 35
2.8 Litigation Expenses......................................... 35
2.9 Taxes ...................................................... 35
2.10 Insurance Premiums.......................................... 35
2.11 Professional and Administrative Service Expenses............ 35
2.12 Scientific or Technical Services and Employees.............. 35
2.13 Supervision, Office and Field Expenses...................... 36
2.14 Parent Company Overhead..................................... 36
2.15 Credit to the Account....................................... 37
2.16 Costs Under Concession Agreement............................ 37
2.17 Miscellaneous............................................... 37
ARTICLE III BASIS OF CHARGES TO THE JOINT ACCOUNT FOR MATERIAL.......... 37
3.1 General..................................................... 37
3.2 Purchases................................................... 37
3.3 Materials Furnished......................................... 37
3.4 Warranty of Material........................................ 38
ARTICLE IV DISPOSAL OF SURPLUS MATERIAL................................ 38
4.1 Purchases and Disposals by Operator......................... 38
4.2 Purchases by Any Venturer or Sales to Non-Owner............. 38
4.3 Division in Kind............................................ 39
ARTICLE V BASIS OF PRICING SURPLUS MATERIAL TRANSFERRED FROM
THE JOINT ACCOUNT........................................... 39
5.1 General..................................................... 39
5.2 Price of New Material Defined............................... 39
5.3 New Material................................................ 39
5.4 Good Used Material.......................................... 39
5.5 Other Used Material......................................... 39
5.6 Bad Order Material.......................................... 39
5.7 Junk Material............................................... 39
<PAGE> 20
Exhibit 10.41
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Page
ARTICLE VI INVENTORIES OF MATERIAL..................................... 39
6.1 General..................................................... 39
6.2 Periodic Inventories........................................ 39
6.3 Change of Operator.......................................... 40
6.4 Special Inventories......................................... 40
6.5 Reconciliation.............................................. 40
<PAGE> 21
Exhibit 10.41
Page 21 of 138
JOINT OPERATING AGREEMENT
QARUN CONCESSION
ARAB REPUBLIC OF EGYPT
This Joint Operating Agreement is made and entered into as of the 1st day
of January, 1993, by and between PHOENIX RESOURCES COMPANY OF QARUN, a body
corporate organized and existing under the laws of the State of Delaware, United
States of America and APACHE OIL EGYPT, INC., a body corporate organized and
existing under the laws of the State of Delaware, United States of America.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the Particles hereby agree as follows:
ARTICLE 1: DEFINITIONS
For the purpose of this Agreement and whenever used herein the following
expressions shall have the meanings respectively set forth below:
Accounting Procedure means the accounting procedure attached hereto and marked
as Schedule A.
Advance means each payment of cash required to be made pursuant to a Cash Call.
Affiliate means a company or entity that directly or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with, a party to this Agreement. Control shall mean ownership of more than fifty
percent (50%) of the voting stock of such company.
Agreement means this Joint Operating Agreement and the Exhibits attached hereto
as same may be amended from time to time.
Appraisal Well(s) shall mean a well which is designed to be drilled to and
completed in a trapping unit within which an Exploration Well has theretofore
been completed and which is further designed to confirm whether or not an
earlier discovery resulting from the drilling, testing or completion of such
aforesaid Exploration Well is a Commercial Discovery.
Budget means the estimated expenditure necessary to carry out a Program.
Calendar Quarter shall mean each of the three month periods beginning on January
1, April 1, July 1 and October 1 of each Calendar Year, as the case may be.
1
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Exhibit 10.41
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Calendar Year means a period of one year beginning with January 1 and ending
December 31 of any year of a Gregorian calendar.
Cash Call means any request for payment of cash made, as provided in Article
9.4.2, by the Operator to the Parties in connection with the Joint Operations
or, where the context so requires, to the Sole Risk Party in connection with any
Sole Risk Project.
Chairman means the representative on the Management Committee designated as such
under Article 8.3.
Commercial Discovery shall have the same meaning as defined in Article III(c) of
the Concession Agreement.
Commercial Production means the projected level of production from an area in
quantities which, on the basis of quality, place and depth of location, the
required investment and prices in effect, economically support the development
and exploitation of the area in accordance with the provisions of the Concession
Agreement and this Agreement.
Commercial Well shall have the same meaning as defined in Article I(h)(1) and
(h)(2) of the Concession Agreement.
Concession Agreement means the Concession Agreement for Petroleum Exploration
and Exploitation to be made by and between the Arab Republic of Egypt, the
Egyptian General Petroleum Corporation (EGPC), Phoenix Resources Company of
Qarun and Apache Oil Egypt, Inc. for the areas designated as the Qarun Area.
Contract Area means the total area subject of the Concession Agreement from time
to time.
Contractor shall mean all those Parties, other than EGPC and the Government, who
are currently or will become parties to the Concession Agreement by way of an
approved assignment.
Cost Recovery Petroleum shall have the same meaning as set forth in Article
VII(a)(1) of the Concession Agreement.
Defaulting Party shall have the meaning set forth in Article 11.1.
Development shall have the same meaning set forth in Article I(a) of the
Concession Agreement.
EGPC shall mean the Egyptian General Petroleum Corporation.
Exploration shall have the same meaning set forth in Article I(b) of the
Concession Agreement.
Exploration Well(s) or Exploratory Well(s) shall mean the first well drilled on
any trapping unit by
2
<PAGE> 23
Exhibit 10.41
Page 23 of 138
any Party.
Financial Year means the Government's financial year according to the laws and
regulations of the Arab Republic of Egypt, which is currently a period of twelve
(12) months beginning with July 1 and ending June 30, according to the Gregorian
calendar.
Government means the government of the Arab Republic of Egypt.
Interest Rate means the London InterBank Offered Rate and shall be equal to the
average (plus two percentage points) of the rates offered by Morgan Guaranty
Trust Company, London Branch and Chemical Bank, London Branch, to prime banks in
the London interbank market at approximately 11:00 a.m. GMT for delivery two
banking days following such offer for deposits in United States dollars in an
amount equal to the amount to which such rate applies for a period of 90 days.
The Interest Rate shall be determined as of the first day of a calendar quarter
for the remainder of that calendar quarter and the applicable Interest Rate
shall be the London InterBank Offered Rate quoted two banking days before the
first day of the calendar quarter.
Wherever the Interest Rate is to be applied, it shall be compounded on a
quarterly basis, which compounding shall occur on the last day of each calendar
quarter. In no event shall the Interest Rate exceed the highest rate permitted
under applicable law. For the purpose of this definition the term "calendar
quarter" shall mean a period of three months commencing with the months of
January, April, July and October, respectively.
Joint Account means the set of accounts maintained by the Operator in accordance
with the provisions of the Concession Agreement, this Agreement and of the
Accounting Procedure in which the Operator shall record all charges,
expenditures and credits made by it or a Non-Operator in carrying out the Joint
Operations hereunder which are chargeable or creditable to the Parties as
provided herein.
Joint Operations means all operations conducted in accordance with this
Agreement by or on behalf of all the Parties.
Joint Petroleum means all Petroleum saved under the Joint Operations.
Joint Property means all property acquired or held for use in connection with
the Joint Operations.
Management Committee shall mean that committee comprising the representatives of
the Parties which is established pursuant to Article 8 of this Agreement.
Measuring Point means the point where pursuant to the Concession Agreement,
production of Petroleum is measured for the purposes of distribution to EGPC.
No Risk Party shall mean any Party that does not participate and does not bear
any risk, cost and
3
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Exhibit 10.41
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expense in a Sole Risk Operation which is conducted under the
provisions of Article 12 of this Agreement.
Non-Operator means any of the Parties other than the Operator.
Oil shall have the same meaning as given for Oil in the Concession Agreement.
Operating Company shall mean that Egyptian corporation formed under the
provisions of Article VI of the Concession Agreement.
Operator means the Party appointed to conduct operations as provided in Article
4 of this Agreement.
Participating Interest means for each of the Parties the undivided percentage
interest held from time to time by it under this Agreement in the Concession
Agreement.
Party or Parties means any signatory to this Agreement or amendment thereof.
Petroleum shall have the same meaning set forth in Article I(c) of the
Concession Agreement.
Profit Petroleum shall have the same meaning as the Petroleum available for
"Production Sharing" under Article VII(b) of the Concession Agreement.
Program means any plan, project or group of projects for the conduct of Joint
Operations as proposed and approved by the Management Committee in accordance
with Article VIII of this Agreement.
Sole Risk Development Well(s) shall mean a well drilled and paid for only by the
Sole Risk Party during Sole Risk Operations for development pursuant to the
provisions of Article 12.1.3 and 12.4.4 of this Agreement.
Sole Risk Party shall mean a Party on whose behalf and at whose risk, cost and
expense a Sole Risk Operation is conducted under the provisions of Article 12 of
this Agreement.
Willful Misconduct means, in relation to the Operator, an intentional and
conscious or reckless disregard of:
(a) any material provision of this Agreement; or
(b) any Program, except to the extent reasonably required to meet
emergency conditions, including, but not limited to, safeguarding of life,
property and Joint Operations; but shall not include any error of judgment
or mistake made by any director, employee, agent or contractor of the
Operator in the good-faith exercise of any function, authority or
discretion conferred upon the Operator.
4
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Exhibit 10.41
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Working Day means a day on which banks in the State of Texas normally are open
for business.
Those terms defined in the Concession Agreement and used in this Agreement shall
have the same meaning as given in the Concession Agreement.
ARTICLE 2: EFFECTIVE DATE, DURATION AND TERMINATION
2.1 Effective Date and Duration. This Agreement shall be deemed to have
commenced on January 1, 1993 and shall, except as provided herein, continue for
so long as the Concession Agreement remains in force and effect as to any of the
Contract Area and until all Joint Property has been disposed of and final
settlement has been made between the Parties, in accordance with their
respective rights and obligations hereunder.
2.2 Operating Company. The Parties hereto recognize that in the event a
Commercial Discovery is made by the parties hereto, an Operating Company with
joint EGPC and Contractor ownership will come into existence in accordance with
Article VI of the Concession Agreement. The parties hereto further recognize the
necessity for the Operator to maintain staff presence in Egypt after the
formation of the Operating Company for the purposes of conducting exploration
activities in the Contract Area not otherwise conducted by the Operating
Company, organizing the staffing of the Operating Company, representing
Contractors in the Operating Company and conducting other activities pertinent
to the Contract Area and to the administration of this Agreement.
2.3 Termination. Subject to the provisions of Article 15, this Agreement
shall be terminated by:
(a) consent of all the Parties, or
(b) the vesting in one Party of all the interests to which this
Agreement may be applicable, or
(c) the surrender by the Parties of the entire Contract Area, or
(d) the termination of the Concession Agreement by the Government.
Provided that notwithstanding the occurrence of any condition set forth in
(a), (b), (c) or (d) above, this Agreement shall continue in existence to the
extent required for disposition of Joint Property and final settlement among the
Parties. 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 3: PARTICIPATING INTERESTS OF THE PARTIES
3.1 Participating Interests. The Participating Interests of the Parties
hereunder are as follows:
50.0 percent.................................Apache Oil Egypt, Inc.
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50.0 percent.....................Phoenix Resources Company of Qarun
100.0 percent
Except as otherwise provided in the Concession Agreement or this
Agreement, all assets (regardless of the nature thereof) acquired for, in
connection with, or by reason of Joint Operations shall be owned jointly by the
Parties, regardless of in whose name acquired and/or held, in accordance with
their respective Participating Interests. All rights and obligations under the
Concession Agreement shall be shared by the Parties in accordance with their
respective Participating Interests, except as otherwise provided in this
Agreement.
3.2 Transfer of Participating Interest. In the event a Party shall transfer all
or a portion of its Participating Interest in accordance with the terms and
provisions of this Agreement and the Concession Agreement, the Parties shall
enter into an amendment to this Agreement revising the Participating Interests
of the Parties in accordance with such transfer.
ARTICLE 4: OPERATOR
4.1 Initial Operator.
4.1.1 Phoenix Resources Company of Qarun is hereby appointed Operator and agrees
to so act as the Operator under this Agreement.
4.1.2 Operator shall be entitled to appoint (subject to the terms of the
Concession Agreement) any Affiliate possessing the necessary financial
capability and technical expertise as Operator in lieu of itself without
invoking the provisions of Article 4.3.1 hereunder, provided that such Affiliate
shall do all such acts and execute all such documents as may be necessary to
ensure that the Affiliate shall be bound by the provisions of this Agreement
with respect to the duties of Operator.
4.2 Voluntary Resignation. Operator shall have the right to resign at the end of
any month by giving not less than one hundred eighty (180) days advance written
notice to the Parties, or such shorter period of notice as the Management
Committee may agree.
4.3 Removal of Operator.
4.3.1 The Operator may be removed by written notice of the unanimous agreement
of the Non-Operators, other than an Affiliate of the Operator, if:
(a) a petition is presented to, and agreed to be heard by, a court of
competent jurisdiction, or an order is made or an effective resolution is
passed for the dissolution, liquidation or winding up of the Operator; or
(b) the Operator becomes insolvent or makes an assignment for the
benefit of creditors or
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is deemed to be unable to pay its debts as the
same become due; or
(c) an Affiliate of Operator becomes insolvent or makes an assignment for
the benefit of creditors or is deemed to be unable to pay its debts as the
same become due and such insolvency, assignment or inability materially
interferes with the ability of the Operator to perform its obligations
hereunder; or
(d) a receiver is appointed or an encumbrances takes possession of the
whole or a material part of the assets or undertaking of the Operator;
or
(e) the Operator ceases or threatens to cease to carry on its business or
a major part thereof, or a distress, execution or other process is levied
or enforced or sued out upon or against any significant part of the
chattels or property of the Operator and is not discharged within thirty
(30) days; or
(f) Operator disposes of all or a portion of its Participating Interest,
other than to an Affiliate, resulting in Operator and its Affiliates
owning in the aggregate less than a twelve and one-half percent
Participating Interest; or
(g) Operator refuses or is unable to carry out its obligations under
this Agreement; or
(h) if Operator is proven culpable of gross negligence or willful
misconduct in the discharge of its obligations hereunder.
At such time as the Management Committee has selected a Party to assume
the position of Operator, the Chairman of the Management Committee shall
promptly advise the Operator of such successor.
4.3.2 The Operator shall have no claim against the Parties as a consequence of
the resignation or removal of the Operator, but such resignation or removal
shall be without prejudice to any rights, obligations or liabilities which
accrued during the period when the Party acted as Operator. If the Operator
resigns or is removed, it shall be entitled to charge to the Joint Account such
costs and expenses incurred in connection with the change of operatorship as may
be approved by the Management Committee (such approval not to be unreasonably
withheld).
4.4 Election of Successor. As soon as practicable after notice is duly given as
to the resignation of the Operator under Article 4.2 or the removal of the
Operator under Article 4.3, one of the Non-Operators shall, subject to its
acceptance of the position under the terms of this Agreement and subject to the
terms of the Concession Agreement and the Parties giving notice to the
Government of the resignation or removal of Operator, be selected by the
Management Committee to assume the position of the Operator upon the effective
date of the resignation or removal, provided that, in the case of a removal of
the Operator, if the Party that is the Operator or any Party that is an
Affiliate of the Operator either fails to vote or votes for itself or any of its
Affiliates as successor to the
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operatorship, those votes shall be ignored and the percentage figure set out in
Article 8.8.2 shall apply to the total votes available to the remaining Parties.
4.5 Transfer of Responsibilities.
4.5.1 Upon the effective date of such resignation or removal, the Operator shall
hand or deliver to, or relinquish custody in favor of, the Non-Operator selected
to succeed it as aforesaid or, if no such selection shall have been made, the
Non-Operator having the largest Participating Interest, all funds relating to
the Joint Account, all Joint Property and all books, records and inventories
relating to the Joint Operations other than those books, records and inventories
maintained by the Operator as the owner of a Participating Interest. The
Operator shall further use its best endeavors to transfer to the aforesaid
Non-Operator, effective as of the effective date of such resignation or removal,
its rights as the Operator under all contracts exclusively relating to the Joint
Operations and the aforesaid Non-Operator shall assume all obligations of the
Operator thereunder. Pending such transfer and in relation to all other
contracts relating to the Joint Operations (to the extent such so relate), the
Operator shall hold its rights and interests as the Operator from such effective
date for the account and to the order of the aforesaid Non-Operator and the
Parties shall, from such effective date, indemnify and hold harmless the
Operator from all obligations thereunder.
4.5.2 As soon as practicable after the effective date of such resignation or
removal, the Parties shall audit the Joint Account and conduct an inventory of
all Joint Property and all Joint Petroleum and such inventory shall be used in
the return of and the accounting for the said Joint Property and Joint Petroleum
by the Operator which has resigned or has been removed. All costs and expenses
incurred in connection with such audit and inventory shall be for the Joint
Account.
ARTICLE 5: AUTHORITY AND DUTIES OF THE OPERATOR
5.1 Rights.
5.1.1 Subject to this Agreement, the Operator has the right (which, except as
provided in Articles 4.1.2, shall not be capable of assignment either in whole
or in part) and is obligated to conduct the Joint Operations by itself, its
agents or its contractors under the overall supervision and control of the
Management Committee.
5.1.2 If the Operator does not conduct any of the Joint Operations itself, it
shall nonetheless remain responsible for such operations as the Operator and to
the extent provided under this Agreement.
5.2 Responsibility.
5.2.1 The responsibilities of the Operator shall include, but not be limited
to:
(i) the preparation of Programs, Budgets and AFEs pursuant to the
provisions of this Agreement;
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(ii) the implementation of such Programs and Budgets as shall have been
approved by the Management Committee;
(iii) the providing to each of the Parties of reports, data and
information concerning the Joint Operations pursuant to the provisions of
this Agreement;
(iv) the planning for and obtaining of all requisite services and
material;
(v) the direction and control of statistical and accounting services;
and
(vi) generally the carrying out of all technical and advisory services
required for the efficient performance of the Joint Operations.
5.2.2 The Operator shall use its reasonable efforts to conduct the Joint
Operations in a proper and workmanlike manner in accordance with methods and
practices customarily used in good and prudent oil and gas field practice and
with that degree of diligence and prudence reasonably and ordinarily exercised
by experienced operators engaged in a similar activity under similar
circumstances and conditions. The Operator shall further do or cause to be done,
with due diligence, all such acts and things within its control as may be
necessary to keep and maintain the Concession Agreement in force and effect and
shall conduct the Joint Operations in compliance with the requirements of the
Concession Agreement.
5.2.3 Notwithstanding the provisions of Article 5.2.2, the Operator or its
Affiliates shall not be liable to any of the Parties or their Affiliates for
damages unless such damages result from (i) the Willful Misconduct of Operator's
corporate officers or permanent, management employees having overall control and
supervision of operations under this Agreement, or (ii) its failure to obtain or
maintain any insurance which it is required to obtain and maintain under Article
7.1.1, unless the Operator has used all reasonable endeavors to obtain or
maintain any such insurance but has been unable to do so and has promptly
notified the Parties participating or proposing to participate therein.
Permanent, management employees having overall control and supervision shall
mean the person who has knowledge of overall Joint Operations sufficient to
prescribe adequate controls and safety measures for Joint Operations and direct
responsibility for the manner in which Joint Operations are conducted.
In no case (unless willful) shall the Operator or its Affiliates be liable
to the Parties for loss or spillage of Petroleum. In no case shall the Operator
or its Affiliates be liable to the Parties for any consequential loss or damage,
including, but not limited to, inability to produce Petroleum, lost production
or lost profits.
5.3 Liens and Encumbrances. The Operator shall, insofar as it may be reasonably
within its control, keep all Joint Property free from all liens, charges and
encumbrances which might arise by reason of the conduct of the Joint Operations.
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5.4 Receipts. All amounts received by the Operator for the benefit of the
Parties from Joint Operations hereunder shall be distributed or credited, as
soon as practicable after receipt, to the Parties in proportion to their
respective Participating Interests unless otherwise specifically provided
herein.
5.5 Employees and Contractors.
5.5.1 The number of employees of the Operator employed in connection with the
Joint Operations shall be determined by the Operator in accordance with standard
oil field practices, the Budget, the Concession Agreement and this Agreement.
Operator shall determine their selection, hours of work and remuneration.
5.5.2 In the case of all proposed contracts for seismic acquisition or
processing; and for any other contract for the Joint Operations where the cost
thereof will or is likely to exceed five hundred thousand U.S. dollars or such
other amount as may from time to time be determined by the Management Committee,
having regard (inter alia) to the nature of the Joint Operations, the Operator
shall, unless otherwise agreed by the Management Committee or except in the
circumstances referred to in Article 5.10.2:
(i) obtain competitive sealed bid tenders; and
(ii) after the expiration of the period allowed for tender, and the bids
have been opened, report a summary of the bids received to the
Non-Operators.
5.5.3 Without prejudice to the provisions of Article 5.5.2, it is expressly
acknowledged that if any Party (or any of its Affiliates) wishes to carry out
work or to provide services which are to be the subject of any contract which
falls within Article 5.5.2, the Management Committee may waive the requirements
of that Article if it is satisfied with the terms and conditions of the proposed
contract with such Party (or any of its Affiliates).
5.6 Representation of the Parties. The Operator shall represent the Parties
regarding all matters or dealings with the Government and all other governmental
authorities or third parties insofar as the same relate to the Joint Operations,
provided that there is reserved to each Party the unfettered right to deal with
the governmental authorities in respect of matters relating solely to its own
Participating Interest. Any Non-Operator meeting with the Government or any
other Governmental authority (except for minor incidental contacts and matters
unrelated to this Agreement), shall advise Operator of such meeting sufficient
time in advance for Operator to conveniently attend, it being the general intent
that the Operator shall, unless otherwise requested by the Government or such
other authority, be the spokesman in all matters relating to this Agreement.
5.7 Records. The Operator shall prepare and maintain proper books, records
and inventories of the Joint Operations, which shall be kept in compliance
with and subject to the Accounting Procedure and with due regard to the
requirements of the Concession Agreement.
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5.8 Reports. The Operator shall:
(i) promptly provide at joint expense each Party with daily drilling
reports and monthly production reports and such other reports as the
Management Committee may decide and, at the sole cost of the Party
requesting the same, such additional reports as such Party may reasonably
request; and
(ii) timely make all reports concerning the Joint Operations to the
appropriate Governmental authorities as required under the Concession
Agreement and applicable laws and, concurrently therewith, furnish copies
of all such reports to all Parties.
5.9 Consultation and Information.
5.9.1 The Operator shall freely consult with the Parties and keep them informed
of matters concerning the Joint Operations.
5.9.2 Without prejudice to the generality of Article 5.9.1, the Operator
shall:
(i) inform each Party of all geophysical and geological surveys, well
logging, coring, testing and such other Joint Operations as the Management
Committee may decide with such advance notice as is practicable in the
circumstances, so that each Party may, subject to Article 6.3, have one or
more representatives present on location during the conduct of such
operations; and
(ii) provide each Party at joint expense with copies of all seismic lines,
well logs, core data and upon request, with autopositive clear films of
base maps and sepia mylar films of seismic lines and well logs and with
copies of such engineering, geological, geophysical, geochemical reports,
Operator's final maps, field maps (if field work done), geological reports
and satellite imagery, technical and other data and information relating
to the Joint Operations as the Management Committee may decide and, at the
sole cost of the Party requesting same, such additional data and
information as such Party may reasonably request;
(iii) hold annual (or at any other time requested by any Party) meetings
of a technical committee (to consist of one representative appointed by
each Party) to review current and future operations under the Agreement.
5.10 Expenditures and Actions.
5.10.1 The Operator is authorized to make such expenditures, incur such
commitments for the expenditures and take such actions as may be authorized by
the Management Committee in accordance with Article 9 or as are authorized under
Article 5.10.2.
5.10.2 The Operator is authorized to make any expenditure or incur commitments
for expenditures
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or take any actions it deems necessary in the case of the safeguarding of lives
or property or the prevention of pollution or other environmental damage. The
Operator shall promptly notify all the Parties of any such circumstances and the
amount of expenditures and commitments for expenditures so made and incurred and
actions so taken.
5.11 Disposal and Abandonment.
5.11.1 If the Operator shall consider that any item of the Joint Property is no
longer needed or suitable for the Joint Operations, the Operator shall, subject
to the provisions of the Concession Agreement and Accounting Procedure, dispose
of the same.
5.11.2 If the Parties shall decide to abandon the Joint Operations, or any part
thereof, the Operator shall, subject to the Concession Agreement, dispose of as
much of the Joint Property as the Management Committee directs can economically
and reasonably be recovered or as may be required or permitted to be recovered
under the Concession Agreement or any other applicable law, and the net costs or
net proceeds therefrom shall be charged or credited to the Joint Account.
ARTICLE 6: RIGHTS OF THE PARTIES
6.1 Reservation of Rights. Except as otherwise provided in this Agreement, each
Party reserves all its rights under the Concession Agreement.
6.2 Inspection Rights. In addition to each Party's right to audit, each Party
shall have the right to have its authorized representatives inspect, at all
reasonable times during usual business hours, all books, records and inventories
of any kind or nature maintained by or on behalf of the Operator or its
Affiliates and relating to the Joint Operations other than those books, records
and inventories maintained by the Operator as the owner of a Participating
Interest, provided that such Party gives the Operator not less than fourteen
(14) days prior notice in writing of the date upon which it desires to make such
inspection and identifies the person or persons to conduct such inspection.
6.3 Access Rights.
6.3.1 Each Party shall have the right, consistent with a policy to be
established by the Management Committee, at all reasonable times and at its sole
risk and expense, of access for its authorized representatives to the Contract
Area and/or the Joint Operations, provided such Party gives the Operator
reasonable prior notice in writing of the date such access is required and
identifies the representative or representatives to whom such access is to be
granted. If a Party wishes access to be given to more than one representative at
a time, the Operator shall not be required to grant such access for the
additional representatives if, and to the extent that, the granting of such
access will interfere with the conduct of the Joint Operations.
ARTICLE 7: INSURANCE AND LITIGATION
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7.1 Insurance.
7.1.1 The Operator shall obtain and maintain, in respect of the Joint Operations
and the Joint Property, all insurance required under the laws of Egypt, the
Concession Agreement or any other applicable law and such other insurance as the
Management Committee may from time to time determine, provided that, in respect
of such other insurance, any Party may elect not to participate if such Party
gives notice to that effect to the Operator and does nothing that may interfere
with the Operator's negotiations for such insurance for the other parties;
provided, an election by a Party not to participate in one or more other
insurance policies shall be effective only after such Party has furnished the
Operator such evidence as the Operator may reasonably require to establish that
such Party has in full force and effect such insurance or evidence that other
financial responsibility is being maintained. However, no Party may elect not to
participate in the insurance maintained by Operator if such insurance is
required by the Concession Agreement unless the Party choosing to elect out of
such insurance has privately placed insurance that meets the requirements of the
Concession Agreement, EGPC and other appropriate government authorities.
Notwithstanding the foregoing, no Party shall have the option to not participate
in insurance coverage which EGPC requires the Operator to maintain. The cost of
insurance in which all the Parties are participating shall be for the Joint
Account, and the cost of insurance in which less than all the Parties are
participating shall be charged to such Parties individually. The Operator shall,
in respect of any insurance obtained in accordance with this Article 7.1.1:
(i) promptly inform the Parties participating therein when it is
taken out and supply them with copies of the relevant policies when the
same are issued;
(ii) arrange for the Parties participating therein, according to
their respective Participating Interests in such insurance, to be named as
co-insureds on the relevant policies with waivers of subrogation in favor
of the Parties; and
(iii) duly file all claims and take all necessary and proper steps
to collect any proceeds and, if all the Parties are participating therein,
credit them to the Joint Account or, if less than all the Parties are
participating therein, credit them to the participating Parties.
Subject to the terms of this Article 7.1.1, any of the Parties may obtain
such insurance as it deems advisable for its own account at its own expense.
7.1.2 The Operator shall take all reasonable steps to ensure that all
contractors (including subcontractors) performing work in respect of the Joint
Operations and the Joint Property obtain and maintain all insurance required
under the laws of Egypt, the Concession Agreement, or any other applicable law
and obtain from their insurers a waiver of subrogation in favor of the Parties.
7.1.3 Without regard to Article 7.1.1, if required by law or Government
requirement, Operator is authorized to purchase and maintain, with cost and
benefit for Joint Operations, a reasonable amount of insurance in Egypt for
damages to joint assets and liabilities arising from their use.
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7.2 Litigation.
7.2.1 The Operator shall promptly notify the Parties of any claim, litigation,
lien, demand or judgment relating to the Joint Operations where the total amount
in dispute and/or the total amount of damages, together with any costs, are
estimated to exceed ten thousand U.S. dollars, or such other amount as may from
time to time be determined by the Management Committee, and the Operator shall
have the authority to prosecute, defend or settle any claim, litigation, lien,
demand or judgment relating to the Joint Operations (other than as between the
Parties), provided that where the total amount in dispute and/or the total
amount of damages, together with any costs, are estimated to exceed fifty
thousand U.S. dollars, or such other amount as may from time to time be
determined by the Management Committee, the Operator shall have no authority
without the prior approval of the Management Committee. Notwithstanding the
requirements of this Article 7.2.1 immediate notification is required regardless
of estimated amount of damage in the case of spill or pollution.
7.2.2 Notwithstanding Article 7.2.1, each Party shall have the right to
participate in any such prosecution, defense or settlement at its sole cost and
expense. Each Party shall furnish promptly to each other Party copies of all
legal process and related documents served by or upon such Party and relating to
the Joint Operations.
ARTICLE 8: THE MANAGEMENT COMMITTEE
8.1 Establishment and Powers. For the purposes of directing Joint Operations
under this Agreement, there is hereby established a Management Committee, which
shall exercise overall supervision and control of all matters pertaining to the
Joint Operations.
Without limiting the generality of the foregoing, but subject as otherwise
provided in this Agreement, the powers and duties of the Management Committee
shall include:
(i) the consideration and determination of all matters relating to
general policies, procedures and methods of operation hereunder;
(ii) the approval of any public announcement or statement
regarding this Agreement or the Joint Operations;
(iii) the consideration, revision and approval or disapproval, of
all proposed Programs and Budgets prepared and submitted to it pursuant
to the provisions of this Agreement;
(iv) the determination of the timing and location of all wells
drilled under the Joint Operations and any change in the use or status
of a well;
(v) the determination of the positions which the Operator will
take regarding any matters or dealings with the Government or governmental
authorities or third parties insofar as the same relate to the Joint
Operations; and
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(vi) the consideration and, if so required, the determination of
any other matter relating to the Joint Operations which may be referred to
it by the Parties, or any of them (other than any proposal to amend this
Agreement), or which is otherwise designated under this Agreement for
reference to it.
8.2 Representation. The Management Committee shall consist of one representative
appointed by each of the Parties, provided always that more than one of the
Parties may appoint the same representative who shall represent them separately.
Each Party shall, as soon as possible after the date of this Agreement, give
notice to all the other Parties of the name of its representative and of an
alternate on the Management Committee. Such representative may be replaced, from
time to time, by like notice. Representative may bring to meetings of the
Management Committee such advisors as they consider necessary, but such advisors
shall not be entitled to vote at the said meetings. The representative of a
Party or, in the absence of the representative, his alternate, shall be deemed
authorized to represent and bind such Party with respect to any matter which is
within the powers of the Management Committee.
8.3 Chairman. The representative of the Party that is the Operator shall
be the Chairman of the Management Committee.
8.4 Meetings.
8.4.1 The Management Committee shall meet at least annually for the purpose of
determining Programs and Budgets in accordance with Article 9 hereof (and at
such other intervals as may be agreed by the Management Committee). The Operator
shall call such meetings and shall give at least twenty (20) days advance notice
of the time and date of each meeting, together with an agenda and all available
data and information relating to the matters to be considered at that meeting.
By notice to all other Parties, any Party can advise of additional matters that
such Party desires to be considered at the meeting, and provided such notice is
given at least ten (10) days before the date of the meeting, those matters will
be added to the agenda for the meeting.
8.4.2 The Management Committee shall hold a special meeting upon the request of
any of the Parties. Such request shall be made by notice to all the other
Parties and state the matters to be considered at that meeting. Upon receiving
such request, the Operator shall, without delay, call a special meeting for a
date not less than ten (10) nor more than twenty (20) days after receipt of the
request.
8.4.3 For any meeting of the Management Committee, the period of notice
stipulated above may be waived with the consent of all the Parties.
8.4.4 Any Party not represented at a meeting may vote on any matter on the
agenda for such meeting by either:
(i) appointing a proxy in writing; or
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(ii) giving notice of such vote to the Operator prior to the
submission of such matter for vote at such meeting.
8.4.5 All Management Committee meetings shall be held at the offices of the
Operator in Cairo, Egypt unless the Parties unanimously agree on another place
for specific meetings.
8.5 Minutes. The Chairman of the Management Committee shall appoint a secretary
for the Management Committee, who will prepare the minutes of each meeting and
provide each Party with a copy thereof as soon as possible but not more than
twenty-eight (28) days after the end of the meeting. Each Party shall notify all
the other Parties of its approval or disapproval of the minutes within fourteen
(14) days of receipt thereof. A Party who fails to do so will be deemed to have
approved the minutes. The approval or disapproval of minutes as aforesaid shall
not affect the validity of decisions taken by the Management Committee in the
meeting to which such minutes relate.
8.6 Action Without a Meeting.
8.6.1 If all Parties agree, the Parties may vote on and determine by notice to
the Operator any proposal that is submitted to them by the Operator by telephone
or telex, confirmed by letter or facsimile transmission sent by Operator not
later than three business days thereafter and which they could consider at a
meeting of the Management Committee if duly held for that purpose. If such
procedure is adopted, each Party shall cast its vote within ten business days
after the written proposal is received by it, except that when the Parties are
requested to vote on and determine any proposal relating to the deepening,
plugging back or abandonment of a well on which drilling equipment is then
located or when the matter presented for consideration by its nature requires
determination in less than ten business days, and such fact and lesser period
are so stated in the notice submitting the proposal, the Parties shall cast
their votes by telephone or telex (confirmed by letter sent by each Party not
later than three business days after casting its vote) within such lesser
period, which shall not be less than forty-eight (48) hours after receipt of the
proposal. Failure by a Party to cast its vote within the relevant period shall
be regarded as a vote by that Party against the proposal.
8.6.2 The Operator will give prompt notice of the results of any such voting to
the Parties, and any decision so taken shall be binding on the Parties.
8.7 Subcommittee. The Management Committee may establish such advisory
subcommittees as it considers desirable from time to time. Each subcommittee
established shall be given written terms of reference and shall be subject to
such procedures as the Management Committee may determine. The meetings of
subcommittees will, as far as possible, be arranged so that the minutes of such
meetings can be presented to the Parties in sufficient time for consideration
before the next following regular meeting of the Management Committee.
8.8 Voting Procedure.
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8.8.1 Each Party shall have a voting interest equal to its Participating
Interest.
8.8.2 Except as otherwise provided, decisions of the Management Committee shall
require the affirmative vote of representatives representing two or more
non-affiliated Parties holding total Participating Interests of not less than
66-2/3% and such decisions shall be binding on all the Parties as to any matter
included in the agenda of which the Parties have been notified, as herein
provided, as well as other matters which the representatives representing two or
more non-affiliated Parties holding total Participating Interests of not less
than 66-2/3% have agreed to consider at such meeting. Subject to the other terms
and provisions of this Agreement, Joint Operations which have been approved by
the Management Committee shall be conducted at the expense of the Parties as
elsewhere herein provided.
8.8.3 All the Parties shall be bound by each decision of the Management
Committee and each other decision of the Parties duly made in accordance with
the provisions of this Agreement.
8.8.4 In the event that a Party is subject to loss of voting rights pursuant to
Article 11, decisions of the Management Committee or Parties as aforesaid shall
be made by vote of those Parties entitled to vote, and the interest of the Party
that is subject to loss of voting rights shall be voted by the other Parties in
proportion to their Participating Interests.
8.8.5 If the Parties are unable to reach a decision under Article 8.8.3 with
respect to an obligatory commitment under the Concession Agreement, the
recommendation of the Operator with respect to such obligation shall be deemed
to be so approved.
ARTICLE 9: EXPLORATION, DEVELOPMENT AND
PRODUCTION PROGRAMS AND BUDGETS
9.1 Programs and Budgets.
9.1.1 The Operator shall, in each Financial Year, submit to the Parties, not
later than five months prior to the beginning of the Financial Year:
(i) a proposed Exploration, Development and production Program and
Budget for the next Financial Year, or
(ii) its reasons for not wishing to proceed with further
Exploration or Development in the Contract Area.
9.1.2 In the event of a Commercial Discovery, as defined in the Concession
Agreement, the Operator shall, if the Management Committee so decides and as
soon as practicable after such decision, submit to the Parties a proposed
Program and Budget for the development of such Commercial Discovery.
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9.1.3 Each proposed Exploration, Development and production Program and Budget
shall show:
(i) the projects and other work to be undertaken, including but
not limited to the timing, location and projected costs of each phase
thereof, including the wells to be drilled;
(ii) the information required under the provisions of the
Accounting Procedure;
(iii) details of all projected direct charges, including whenever
practicable, the number of employees and contract personnel required and
the hours and hourly rates therefor;
(iv) Operator's best estimate of applicable indirect overhead or
administrative charges; and
(v) such other information as the Management Committee may have
required the Operator to provide.
9.1.4 Each proposed Program and Budget shall be subject to consideration,
revision and approval by the Management Committee. The Management Committee
shall in each case consider the Program and Budget and make such revisions
thereto as may be agreed as soon as practicable, but in the case of a Program
and Budget for exploration not later than four months prior to the beginning of
the Financial Year. The Management Committee shall approve the Programs and
Budgets for each Financial Year which are sufficient to satisfy the work
obligations and minimum expenditures under the Concession Agreement unless the
Parties unanimously agree otherwise.
9.1.5 Subject to Article 9.1.4, the Management Committee shall approve each such
Program and Budget not later than thirty (30) days after submittal thereof by
Operator; and such approval shall, subject to Article 9.3, authorize and oblige
the Operator to conduct and carry out the projects and other work and operations
provided for in such Program and Budget.
Any proposed Budget and Program of Joint Operations which the Operator is
required to submit to EGPC pursuant to the provisions of the Concession
Agreement shall be submitted by the Operator to the Management Committee for its
consideration at least thirty (30) days prior to the date submission of same to
EGPC is required. At least fifteen (15) days prior to the date for submission,
the Management Committee shall approve a specific Program and Budget to be
submitted to EGPC. Should EGPC ultimately disapprove any portion of the Budget
as approved by the Management Committee, then to the extent funds have not
already been expended (or which must be expended to meet existing contractual
obligations) with reference to such disapproved portion, the approved Budget and
Program shall be deemed amended to delete such portion of the Budget not
approved by EGPC.
9.2 Authorization for Expenditure. Operator shall, not less than thirty (30)
days prior to the date of commencement of any seismic processing, reprocessing
or acquisition project, regardless of the expected cost, and any other project
included in an approved Program and Budget, the estimated cost of which is in
excess of five hundred thousand U.S. dollars, submit an authority for
expenditure ("AFE") to each Party participating in such project. Such AFE during
the exploratory phase will
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require participating parties approval according to Article 8; however, once a
discovery is made and the Joint Venture Company comes into existence, such AFE
shall be only for information. An AFE shall include the information set out in,
and be prepared in accordance with, the Accounting Procedure. Such AFE shall be
only for information and shall not require the approval of the Participating
Parties for the Operator to have authority to proceed with the project.
9.3 Review and Amendments.
9.3.1 At any time any Party may, by notice to the other Parties, propose that an
approved Program and Budget be amended, and the Management Committee shall
consider such proposal.
9.3.2 Upon receipt of such notice, the Operator shall prepare and submit to the
Parties a revised Program and Budget incorporating such amendment and showing
the matters listed under Article 9.1.3.
9.3.3 To the extent that any amendment under Article 9.3.1 or revised Program
and Budget under 9.3.2 is approved by the Management Committee, the approved
Program and Budget shall be deemed amended accordingly, provided always that
such amendment shall not invalidate any authorized commitment or expenditure
made by the Operator prior thereto, and shall give proper consideration to the
requirement of EGPC concurrence.
9.3.4 The Operator shall, as and when required by the Management Committee,
review an approved Program and Budget and submit to the Parties a report
thereon.
9.3.5 In the event that the Operator determines that the approved charges
projected for any Program and Budget are likely to be exceeded by more than 5%
or that the approved charges projected for any AFE, relating to such Programs,
are likely to be exceeded by more than 10% or one million U.S. dollars
(whichever is the lower), Operator shall immediately advise the other Parties
thereof of the reason for the over-expenditure and the amount by which the
Operator believes such projected charges will be exceeded. The Parties, at the
request of at least one of the Non-Operators, shall meet as soon as possible
thereafter to discuss the problem.
If the increases determined by the Operator do not exceed the agreed
relevant AFE by more than 10% or one million U.S. dollars (whichever is the
lower), or the agreed relevant overall Budget by more than 5%, then the Operator
shall have the right to bill the said increased sums without prior reference to
the Non-Operators or the prior approval of the Management Committee.
9.3.6 The Operator is authorized to make expenditures for operations in the area
not included in the Program and Budget, limited, however, to a total not
exceeding fifty thousand U.S. dollars; provided, however, that when such
expenditures have been subsequently approved by the Management Committee, such
amount shall be increased back to fifty thousand U.S. dollars, it being the
intention of the Party that the Operator shall have a fixed sum available for
expenditures without obtaining prior approval.
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9.4 Costs and Expenses.
9.4.1 Subject to compliance with the terms of the Concession Agreement, all
costs, expenses and liabilities incurred in accordance with this Agreement shall
be determined and settled in conformance with the Concession Agreement in the
manner provided for in this Agreement and in the Accounting Procedure and
Operator shall keep its records of costs and expenses in accordance with such
Accounting Procedure. In the event of conflict between this Agreement and the
said Accounting Procedure, the provisions of this Agreement shall control.
9.4.2 On or before the 20th day of each month, Operator may at its election
deliver to each Party a written request that such Party advance its
Participating Interest share of Budget funds which are required pursuant to this
Agreement for the subsequent month. Each such request for an Advance shall
specify the various currencies required, the total amount thereof, the names and
addresses of the banking institution or institutions where such currencies are
to be credited to Operator's account and the dates (which shall not be before
the first day of the next following month) such Advances are due to be credited
to Operator's account. Each Party shall furnish its respective share of Advances
in the required currency (or in the U.S. dollar equivalent as determined by
Operator) on or before the date requested by Operator.
9.4.3 In addition to monthly requests for Advances, Operator may from time to
time make special written requests to cover any unforeseen requirements for
which Operator is of the opinion that it will not have sufficient Joint Account
funds on hand to make such payments. In each such case, together with the
information furnished in its request for Advances under Article 9.4.2, Operator
shall specify the anticipated date or dates of payment of such special requests
for funds. Thereafter, the Parties shall provide the specified currencies in the
same manner as prescribed in the preceding paragraph on or before the date
requested by Operator.
9.4.4 Without prejudice to the audit rights of the Parties, Operator shall
account for all sums advanced and shall furnish to the Parties monthly
statements accurately reflecting such Advances, the commitments and expenditures
made and reporting all charges and credits to the Joint Account of the Parties
in accordance with the Accounting Procedure attached hereto. Statements covering
each calendar month shall be sent by Operator to the Parties not later than
thirty (30) days after the end of each month. Each Party shall pay to Operator
within fifteen (15) days after receipt of such statement the amount, if any,
shown thereon to be due from each Party.
9.4.5 Operator shall keep, in accordance with normal oil field practices, this
Agreement and the Concession Agreement, accurate and itemized accounts and
records of costs and expenditures arising out of operations under this Agreement
and, if so determined by the vote of the Management Committee specified in
Article 8.8.3, shall cause annual audits to be made of such accounts and records
at the joint expense of the Parties, by or under the direction of an independent
firm of certified public accountants selected by the Management Committee.
ARTICLE 10: PURCHASE OF PETROLEUM
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Subject to the provisions of Article 5.6 above, the Parties shall, prior
to the commencement of Commercial Production, jointly agree on detailed purchase
and lifting procedures covering nominations, payments and other matters as may
be necessary and appropriate. These agreements shall be structured so that each
Party has rights commensurate with its Participating Interest and without
preference for or against the Operator as such.
ARTICLE 11: DEFAULT IN PAYMENT
11.1 Failure to Pay. Any Party ("Defaulting Party") which fails to pay in full
its Participating Interest share of any Advance or invoice relating to the
Contract Area by the due date as provided in this Agreement shall be considered
to be in Default and:
(i) the Operator shall as soon as practicable notify by telex all the
Parties of such default;
(ii) each Party other than the Defaulting Party ("Non-Defaulting Party")
shall contribute, as hereinafter provided, a share of the amount in
default in the proportion that its Participating Interest bears to the
total of the Participating Interests of the Non-Defaulting Parties, and
pending receipt of such additional contributions, the Operator shall make
arrangements to meet any commitments falling due by borrowing the
necessary finance from outside sources or by making the necessary finance
available itself and all costs of any such finance shall be charged to the
Non-Defaulting Parties and finance made available by the Operator shall
bear interest calculated on a day-to-day basis at the Interest Rate;
(iii) within three (3) Working Days following the date of notification by
the Operator under (i) above, the Operator shall notify all the Parties of
the liability of each of the Non-Defaulting Parties to contribute to the
amount in default and shall make a further Cash Call accordingly to take
effect on the expiry of six (6) Working Days specified in (iv) below; and
(iv) if such default continues for more than six (6) Working Days after
the date of notification by the Operator under (i) above, each of the
Non-Defaulting Parties shall on the Working Day next following such sixth
Working Day, pay the amount notified under (iii) above, and thereafter
shall continue to pay, in addition to its Participating Interest share of
subsequent Advances, the same proportion of that part of all such
subsequent Advances attributable to the Defaulting Party until such time
as the Defaulting Party has remedied its default in full or until
forfeiture, as hereinafter provided, and failure by any Non-Defaulting
Party to make such payments shall likewise and with the same results
render that Party in default.
11.2 Remedy of Default. The Defaulting Party shall have the right to remedy the
default at any time prior to forfeiture, as hereinafter provided, by payment in
full to the Operator or, if the Non-Defaulting Parties have paid any amount
under Article 11.1(iv), to the Non-Defaulting Parties, in proportion to the
amounts so paid by them, of all amounts in respect of which the Defaulting Party
is in default, together with interest thereon calculated on a day-to-day basis
at the Interest Rate, from
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and including the due date for payment of such amounts until the actual date of
payment.
11.3 Continuation of Default.
11.3.1 If a default occurs and a Non-Defaulting Party furnishes a Defaulting
Party's share of costs, the Non-Defaulting Party shall have a first and prior
lien on the interests of the Defaulting Party in the Concession Agreement, this
Agreement, the Contract Area and the equipment thereon, and all proceeds
thereof, as security for the payment of any amount due by the Defaulting Party
to the Non-Defaulting Party. A Defaulting Party agrees to execute from time to
time, upon request by the Non-Defaulting Party furnishing funds on behalf of a
Defaulting Party, such instrument or instruments as may be necessary or
desirable to grant to such Non-Defaulting Party first priority over any third
party for the payment of amounts due to such Non-Defaulting Party and such other
instruments as may be necessary or desirable to establish the existence and the
amount of a default.
11.3.2 During the continuation of any default, the Defaulting Party shall not be
entitled to be represented at meetings of the Management Committee or any
subcommittee thereof, nor to vote thereat (so that the voting interest of each
Non-Defaulting Party shall be in the proportion which its Participating Interest
bears to the total of the Participating Interests of the Non-Defaulting Parties)
and shall have no further access to any data and information relating to the
Joint Operations. The Defaulting Party shall be bound by decisions of the
Management Committee made during the continuation of the default.
11.3.3 If a default continues for more than sixty (60) days from the date such
payment was due, then, without prejudice to any other rights of the
Non-Defaulting Parties, each of the Non-Defaulting Parties shall have the right
to have forfeited to it and to acquire, with effect from the date of the
default, subject to any necessary consent of the Government, as beneficial owner
and free of any liens, charges and encumbrances, by notice to the other Parties
given within thirty (30) days after such period of sixty (60) days, the interest
of the Defaulting Party in the Concession Agreement and in and under this
Agreement or, if more than one Non-Defaulting Party exercises such right, its
proportionate share of the interest of the Defaulting Party in the Concession
Agreement and in and under this Agreement, such share being the proportion in
which its Participating Interest bears to the total Participating Interests of
such Non-Defaulting Parties. The Defaulting Party shall promptly join in such
actions as may be necessary to obtain any necessary consent of the Government
and shall execute and deliver any and all documents necessary to effect any such
acquisition. If none of the Non-Defaulting Parties exercises such right, then,
without prejudice to any rights of the Non-Defaulting Parties, the Parties shall
be deemed to have decided to abandon the Joint Operations; and each Party,
including the Defaulting Party, shall pay its Participating Interest share of
the costs of abandoning the Joint Operations. The liabilities and obligations of
a Defaulting Party shall include all of the liabilities and obligations of a
withdrawing Party as set forth in Section 13.4.
11.3.4 The provisions of this Article 11 shall not relieve the Defaulting Party
of the obligation to pay any amounts owed under this Agreement nor shall such
provisions be the sole remedy of Operator and the Non-Defaulting Parties. The
provisions of this Article 11 shall be in addition to any other
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remedies which Operator and the Non-Defaulting Parties may have at law or in
equity.
ARTICLE 12: SOLE RISK OPERATIONS
12.1 Except as may be provided for in this Article, no well shall be drilled or
completed, no facilities with respect to the handling of production therefrom
shall be constructed, and no operations with respect thereto shall be conducted
in the Contract Area other than pursuant to the requirements set forth under the
provisions of Articles 8 and 9 above. Projects that may be the subject of Sole
Risk Operations under this Article 12 shall only be those involving:
12.1.1 The drilling of an Exploration or Appraisal Well, or the deepening of an
inactive Exploration or Appraisal Well beyond programmed depth.
12.1.2 The deepening, sidetracking and/or completion of an actively drilling
Exploratory or Appraisal Well.
12.1.3 The development of a Sole Risk discovery as described below.
12.2 If the Parties are unable to agree upon any Exploratory or Appraisal Wells
proposed under the provisions of Article 9 hereof for inclusion in the
Exploratory Program, or if the Management Committee should fail to approve the
proposed expenditure covering any Exploratory or Appraisal Well included in a
proposed Exploration Program and Budget, then the Party desiring to include or
retain such Exploratory or Appraisal Well in the Exploration Program and Budget,
at its sole risk, cost and expense, may do so pursuant to the provisions of
Article 8 hereof, and shall be hereinafter referred to as "Sole Risk Party."
Such Sole Risk Party may (subject to approval by EGPC) cause (and the No Risk
Party shall cooperate therewith) any such Exploratory or Appraisal Well to be
included or retained in the affected Exploration Program and Budget by agreeing
to bear all costs and risk thereof promptly and diligently, but it is understood
that Joint Operations shall take precedence and that no Sole Risk Operations
shall be undertaken or conducted where to do so would interfere with the conduct
of Joint Operations. The Operator will conduct all Sole Risk Operations unless
the Operator is a No Risk Party and the majority of the participating interest
in the Sole Risk Venture elects otherwise.
12.3 If the Management Committee by the required applicable vote on the drilling
of an Exploratory or Appraisal Well cannot agree upon (1) the deepening thereof
beyond programmed depth, (2) the sidetracking and/or completion thereof at
programmed depth, or (3) the sidetracking and/or completion at a plugged-back
depth (such operations as referred in Article 12.1.2 above), then the Party
desiring to conduct such operations as Sole Risk Operations may, with a
precedence of operations in the order stated above, cause (in the manner set
forth in Article 12.2 above) any such operations as Sole Risk Operations to be
included in the affected Exploration Program and Budget by agreeing to bear all
costs and risks thereof. When any Exploratory or Appraisal Well has been drilled
and tested as programmed, Operator shall notify the Party participating therein
by telex or facsimile giving its recommendation of the next ensuing operation
(which recommendation shall be
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to perform one of the three alternative operations mentioned above or to plug
and abandon) and shall suspend further operations on the well for the periods
specified below. Such Party may, by telex or facsimile to Operator sent within
48 hours (exclusive of Saturdays, Sundays and U.S. holidays) after such
Operator's notice was received, propose an alternative operation having higher
precedence. A failure to respond shall be considered a vote to adopt Operator's
recommendation. If an alternate proposal is timely made, then Operator shall
have 48 hours (exclusive of Saturdays, Sundays and U.S. holidays) after receipt
of such notice to facsimile or telex its response to such Party. A failure to
respond shall be considered a vote to adopt such alternate proposal. After the
period for notice aforesaid, Operator shall conduct the applicable operation for
the account of the Parties or the Sole Risk Party, as the case may be.
12.4 Should Sole Risk Operations result in the discovery of Petroleum, the
Parties shall have the following obligations and/or rights:
12.4.1 If Sole Risk Operations conducted under the provisions of Articles 12.1.1
or 12.1.2 result in a discovery of Petroleum which the Sole Risk Party believes
to require an Appraisal Well, then the Sole Risk Party shall propose such
Appraisal Well to the Management Committee. If such Appraisal Well is approved
unanimously by the Management Committee then all Parties shall fully participate
in such Appraisal Well, without any right to elect to not so participate, and
each No Risk Party shall immediately pay the Sole Risk Party a cash penalty
equal to 600% of the No Risk Party's share of all costs of drilling, testing,
completing and equipping the original Sole Risk Exploratory Well. Thereafter,
operations in respect of such discovery shall proceed as if no Sole Risk
Operations had been conducted. If, however, the Management Committee fails to
approve unanimously such Appraisal Well, then the Sole Risk Party may
nonetheless elect to drill such Appraisal Well at its Sole Risk.
12.4.2 If the Sole Risk Operations conducted under the provisions of Article
12.1.1 or 12.1.2 result in a discovery of Petroleum (which may or may not have
been followed by a Sole Risk Appraisal Well), which the Sole Risk Party believes
to be worthy of development, then the Sole Risk Party, with the assistance of
the Operator, shall propose a development plan to the Management Committee. If
such development plan is approved unanimously by the Management Committee, then
all Parties shall fully participate in such development plan, without any right
to elect to not so participate, and each No Risk Party shall immediately pay the
Sole Risk Party a cash penalty equal to 600% of the No Risk Party's share of all
costs of drilling, testing, completing and equipping of the original Sole Risk
Discovery Well, plus the costs of any subsequent Sole Risk Appraisal Well, if
any. If the Management Committee fails to approve unanimously such development
plan, then the Sole Risk Party may nonetheless elect to implement such
development plan at its Sole Risk, and the Sole Risk Party shall be entitled to
100% of the Contractors' share of profit petroleum under Article VII(b) of the
Concession Agreement.
12.5 Even if there is a Sole Risk Development Area, all operating costs, as
defined in the Concession Agreement, shall be paid on a Concession-wide basis in
proportion to the general working interests of the Parties and shall be cost
recovered on a current basis pro-rata from all cost
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recovery petroleum produced on the Concession. Recovery of amortized capital
costs shall be made from the remaining portion of cost recovery petroleum
produced from the Concession on a first spent, first recovered basis, regardless
of whether such costs were expended in Sole Risk operations. Upon payment of the
600% penalty described in Article 12.4.1 or 12.4.2, the No Risk Party shall be
come entitled to cost recover a pro rata share of the Sole Risk expenditures.
12.6 Sole Risk Operations shall include all costs of plugging and abandoning the
Exploratory or Appraisal Well. However, if Sole Risk Operations involve
deepening, plugging back, or completion of a currently drilling Exploratory or
Appraisal Well, as provided under Article 12.3 hereof, the net value of such
Joint Account property and equipment, as was on or in the well at the inception
of Sole Risk Operations, shall be for the Joint Account.
12.7 All Parties shall be required to participate in the drilling of any well
which is obligatory in the then current exploration period under the Concession
Agreement.
ARTICLE 13: SURRENDER AND WITHDRAWAL
13.1 Joint Decision to Surrender. Subject to the provisions of the
Concession Agreement, the Management Committee may agree at any time, by
unanimous vote, to surrender all or a portion of the Contract Area.
13.2 Restriction. No Party may withdraw from the Concession Agreement or this
Agreement except in accordance with the following provisions of this Article and
only after satisfying the minimum work commitment which has then accrued under
the Concession Agreement and any other applicable obligations under the
Concession Agreement.
13.3 Right.
13.3.1 Any Party may, subject to Article 13.4, at any time withdraw from the
Concession Agreement and from this Agreement if one or more other Parties are
willing to accept its entire Participating Interest; and in such event, the
withdrawal shall be on such terms and conditions as may be agreed between the
withdrawing Party and those Parties accepting its Participating Interest, and
further subject to obtaining any necessary approvals of EGPC and the Government.
13.3.2 Any Party may, subject to Articles 13.2, 13.31 and 13.4, at any time give
notice to the other Parties that it wishes to withdraw from the Concession
Agreement and this Agreement. Within thirty (30) days after receipt of such
notice, any other Party may similarly give notice that it wishes to withdraw
from the Concession Agreement and this Agreement. If all the other Parties give
such notice, no assignment shall take place, and the Parties shall be deemed to
have decided to abandon Joint Operations in the Contract Area, and the
Concession Agreement shall be surrendered on the earliest possible date. If less
than all the other Parties give such notice, the withdrawing Parties shall
withdraw from the Concession Agreement and this Agreement on the earliest
possible date and shall assign their respective interests in the Concession
Agreement and under this Agreement to the
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non-withdrawing Parties without any compensation whatsoever.
13.3.3 No Party participating in a Development Program may withdraw prior to the
completion of the relevant work comprised in such Development Program, except
under Article 13.3.1.
13.4 Conditions. With respect to withdrawal by a Party pursuant to Article
13.3.2:
(i) a withdrawing Party shall assign all of its said interest in the
Concession Agreement and this Agreement to such non-withdrawing Parties,
which interest shall (unless otherwise agreed by such non-withdrawing
Parties) be allocated to them in the proportion in which their respective
Participating Interests prior to the effective date of withdrawal (as
hereinafter defined) bears to the total of the same;
(ii) a withdrawing Party shall promptly join in such actions as may be
necessary or desirable to obtain any consent of the Government in
connection with, and shall execute and deliver any and all documents
necessary to effect, any such assignment, and a withdrawal shall not be
effective and binding upon the Parties until the date upon which the same
shall have been done (the "effective date of withdrawal");
(iii) a withdrawing Party shall promptly join in all actions required by
the other Parties for the maintenance of the Concession Agreement,
provided that its participation in such actions shall not cause it to
incur, after the date on which notice of withdrawal is given, any
financial obligations except as provided in this Article 13;
(iv) a withdrawing Party shall pay all penalties which may be prescribed
by the Concession Agreement and all costs and expenses incurred by the
other Parties in connection with such withdrawal;
(v) a withdrawing Party shall not be allowed to withdraw from the
Concession Agreement and this Agreement if its said interest is subject to
any encumbrances other than those set forth in the Concession Agreement,
unless the other Parties are willing to accept the assignment subject to
such additional encumbrances;
(vi) unless the Party or Parties acquiring its said interest agree to
accept the withdrawing Party's liabilities and obligations, a withdrawing
Party shall remain liable and obligated for its Participating Interest
share of all expenditures accruing to the Joint Account under any Program
and Budget approved by the Management Committee prior to the date on which
notice of withdrawal is given, even if the operations concerned are to be
implemented thereafter, provided always that this sub-Article (vi) shall
not render a withdrawing Party liable for any amounts which such Party
would not have been obliged to pay had it not withdrawn, nor for any
projects where commitment is made after the date of notice of withdrawal
(even if part of approved Budget) and provided further that if such
withdrawing Party votes to disapprove an annual Program and Budget and
within thirty (30) days
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thereafter gives notice of withdrawal, pursuant to Article 13.3.2, to the
other Parties, the withdrawing Party shall not be liable for any
expenditure related to such Program and Budget incurred or accruing after
the date on which notice of withdrawal is given; and
(vii) with respect to withdrawal from a development, a withdrawing Party
shall remain liable and obligated for its Participating Interest share of
all net costs and obligations that in any way relate to the abandonment of
Joint Operations or a Sole Risk Project in which such withdrawing Party
participated if abandonment occurs within five (5) calendar years after
the effective date of withdrawal and, prior thereto, such withdrawing
Party shall provide the other Parties with such security amounts therefor
as is acceptable to all such other Parties.
(viii) with respect to withdrawal during the exploratory phase, a
withdrawing Party shall remain liable and obligated for its Participating
Interest share of all net costs and obligations that in any way relate to
the abandonment of Joint Operations conducted before the withdrawal of the
withdrawing Party or a Sole Risk Project in which such withdrawing Party
participated.
ARTICLE 14: ASSIGNMENT AND ENCUMBRANCE
14.1 Restriction. No assignment or transfer of any interest under the Concession
Agreement or this Agreement shall be made by any Party otherwise than in respect
of an undivided Participating Interest in all or part of its interest in both
Concession Agreement and in and under this Agreement, in accordance with the
following provisions of this Article 14 or the provisions of Article 13.
Assignment to an unaffiliated third party shall be subject to approval of the
nonassigning parties, such approval not to be unreasonably withheld in the case
of a technically and financially competent assignee.
14.2 Effective Date. No assignment shall be effective or binding upon the
Parties until the date upon which the assignor or assignee furnishes all
Parties with:
(i) an executed or photostatic copy of an instrument evidencing such
assignment, together with any necessary consent of the Government, and
(ii) a written instrument (inform and content satisfactory to the Parties
and duly executed by the assignee) accepting and assuming all of the
obligations under this Agreement in respect of the assigned Participating
Interest.
14.3 Continuing Obligations. A Party so assigning all or part of its
Participating Interest shall remain liable to the other Parties for all
obligations attached to the Participating Interest assigned pursuant to this
Article 14 that are incurred prior to the effective date of such assignment or
as otherwise specifically provided in this Agreement.
14.4 Consent. The Parties shall promptly join in such reasonable actions as may
be necessary or
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desirable to obtain any consent of the Government in connection with, and shall
execute and deliver any and all documents reasonably necessary to effect, any
such assignment.
14.5 Costs. All costs and expenses pertaining to any such assignment shall
be the responsibility of the assignor.
14.6 Encumbrances. Nothing contained in this Article 14 shall prevent a Party
from mortgaging, pledging or otherwise encumbering all or part of its interest
in the Concession Agreement and in and under this Agreement for the purpose of
security relating to finance, provided that:
(i) such Party shall remain liable for all obligations relating to such
interest, and
(ii) the encumbrance shall be expressly subordinated to the rights of the
other Parties under this Agreement.
ARTICLE 15: CONFIDENTIALITY
15.1 Confidential Data and Information. All data and information relevant to the
Contract Area or this Agreement that is acquired or received by any Party hereto
after the effective date of this Agreement shall be held confidential during the
continuance of this Agreement and for a period of five (5) Calendar Years
thereafter, and shall not be divulged in any way to any third party, without the
prior written approval of all the Parties, provided that:
(i) any Party may, without such approval, disclose such data and
information:
(a) to any Affiliate or bona fide prospective assignee of such Party
upon obtaining a similar undertaking of confidentiality from such
Affiliate or proposed assignee;
(b) to any outside professional consultant, upon obtaining a similar
undertaking of confidentiality from such consultant, provided that
such Party shall promptly inform the other Parties of the name of such
consultant and the data and information disclosed to them;
(c) to any bank or financial institution from whom such Party is
seeking or obtaining finance, upon obtaining a similar undertaking of
confidentiality from such bank or institution;
(d) to any stock exchange in compliance with its rules and
regulations;
(e) to any Government agency lawfully requesting or requiring such
information;
(f) to any court of competent jurisdiction acting in pursuance of
its powers;
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(g) to the extent that the same has become generally available to
the public;
(h) to the extent that the same is already possessed by, or is
subsequently acquired by, the other Party from a third party;
(i) to the extent required by the Concession Agreement; and
(j) to parties' insurers.
(ii) the Operator may disclose such data and information to such program
persons as may be necessary in connection with the conduct of the Joint
Operations upon obtaining a similar undertaking of confidentiality from
such persons.
In the event any Party ceases to hold a Participating Interest, such Party
shall nevertheless remain bound by this Article 15.1.
ARTICLE 16: COVENANT, UNDERTAKING AND RELATIONSHIP
16.1 Covenant and Undertaking. Subject to the overriding responsibility of the
Operator under Article 5.2.2, each Party hereby covenants and undertakes with
each other Party that it will comply with all the applicable provisions and
requirements of laws of Egypt and the Concession Agreement and will do all such
acts and things within its control as may be necessary to keep and maintain the
Concession Agreement in force and effect.
16.2 Relationship.
16.2.1 Notwithstanding any statement in a letter of guaranty to the contrary,
the liabilities of the Parties hereunder shall be several and not joint or
collective. Each Party shall be responsible only for its individual obligations
hereunder. It is not the purpose or intention of this Agreement to create nor
shall the same be construed as creating, any mining partnership, commercial
partnership or other partnership.
For United States federal income tax purposes, each of the Parties hereto
who is subject to United States income tax laws ("U.S. Party") hereby elects to
be excluded from the application of all the provisions of Subchapter K, Chapter
1, Subtitle A, of the United States Internal Revenue Code of 1986, as permitted
and authorized by Section 761 of said Code and the regulations promulgated
thereunder. Should there be any requirement that each U.S. Party evidence this
election, each U.S. Party agrees to execute such documents and furnish such
other evidence as may be required by the United States Federal Internal Revenue
Service. If any future income tax law of the United States contains provisions
similar to those contained in Subchapter K, Chapter 1, Subtitle A, of the
Internal Revenue Code of 1986, under which an election similar to that provided
by Section 761 of said Subchapter K is permitted, each U.S. Party makes such
election or agrees to make such election as may be permitted by such laws. In
making this election, each U.S. Party affirms that the income
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derived by it from the operations under this Agreement can be adequately
determined without the computation of partnership taxable income. Nothing in
this Agreement shall be interpreted to render liable to U.S. taxation any Party
which, prior to entering into this Agreement, was not subject to U.S. taxation.
No Party shall be obligated to satisfy any other Party's Participating
Interest share of obligations under the Concession Agreement, the laws, decrees
or regulations of the State, or this Agreement and in the event a Party is
compelled under the Concession Agreement or the laws, decrees and regulations of
Egypt to do so, it shall be indemnified and held harmless by the Party not
satisfying its Participating Interest share of such obligations.
16.2.2 Subject to Article 5.2.3, each Party agrees to indemnify each other
Party, to the extent of its Participating Interest share, for any claim by or
liability to (including any costs and expenses necessarily incurred in respect
of such claim or liability) any person not being a Party hereto, arising from or
in connection with Joint Operations or under the provisions of the Guaranty
Agreement or Agreements made with EGPC.
ARTICLE 17: PUBLIC ANNOUNCEMENTS
17.1 Public Announcements by Operator. Subject to the Concession Agreement and
Article 17.2 of this Agreement, the Operator shall be responsible for the
preparation and release of all public announcements and statements regarding
this Agreement or the Joint Operations, provided always that no such public
announcement or statement shall be issued or made unless prior thereto all the
Parties have been furnished with a copy thereof and the approval of the
Management Committee has been obtained. Where a public announcement or statement
becomes necessary or desirable because of danger to or loss of life, damage to
property or of pollution arising under this Agreement or the Joint Operations,
Operator shall be authorized to issue and make such announcement or statement
without prior approval of the Management Committee, but shall promptly furnish
all the Parties with a copy thereof.
17.2 Public Announcements by Parties. Subject to the approval of the Government
and EGPC under the Concession Agreement, no Party shall issue or make any public
announcement or statement regarding this Agreement or the Joint Operations
unless prior thereto it furnishes all the Parties with a copy of such
announcement or statement and obtains the approval of the Management Committee,
provided that, notwithstanding any failure to obtain such approval, no Party or
any Affiliate of such Party shall be prohibited from issuing or making any such
public announcement or statement if it is necessary to do so in order to comply
with any applicable law or the regulations of a recognized stock exchange.
ARTICLE 18: FORCE MAJEURE
The obligations of each of the Parties hereunder, other than the
obligations to make payments of money, shall be suspended while such Party is
prevented or hindered from complying therewith
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by any cause beyond the reasonable control of such Party, provided that a lack
of funds shall be deemed not to be a cause beyond reasonable control. In such
event, such Party shall give notice of suspension as soon as reasonably possible
to the other Parties stating the date and extent of such suspension and the
cause thereof. Any of the Parties whose obligations have been suspended as
aforesaid shall resume the performance of such obligations as soon as reasonably
possible after the removal of the cause and shall so notify all the other
Parties.
ARTICLE 19: ARBITRATION
19.1 Texas Courts. As between themselves, each Party hereby (i) irrevocably
consents to submit its person to the jurisdiction of any court of competent
subject matter jurisdiction located in the County of Harris, State of Texas,
United States of America in connection with, and (ii) appoints the party
identified in the notice provisions of this Agreement or, if such party resides
or has its principal place of business outside the State of Texas, the Secretary
of State of Texas, Austin, Texas, as its agent for the purpose of accepting
service of process, in any action or proceeding between the Parties arising out
of the transactions evidenced by or surrounding this Agreement. Additionally,
each Party hereby (a) agrees that any action or proceeding so arising shall be
asserted or maintained in any court of competent subject matter jurisdiction
located in the State of Texas, United States of America or (if applicable) the
United States Supreme Court and (b) waives any right it may have, for
convenience or otherwise, to seek or obtain a transfer of any such action or
proceeding from such court in the State of Texas. Nothing in this summary shall
affect the right of a Party to serve process in any other manner permitted by
rule or law.
19.2 Arbitration. Any dispute, controversy or claim arising between the Parties
in connection with this Agreement, or the breach thereof, shall be referred to
and settled by a single arbitrator to be agreed upon by the Parties or, failing
agreement, to be selected, on the application of any Party, by the American
Arbitration Association. The arbitration shall be initiated by one Party ("First
Party") giving notice to the other Party ("Other Party") that the First Party
elects to refer the matter to arbitration. If the First Party and Other Party
cannot agree upon a single arbitrator within thirty (30) days after the notice
from the First Party, either Party may apply to the American Arbitration
Association to select an arbitrator. Any such arbitration shall take place in
Harris County, Texas, and unless otherwise mutually agreed, be conducted and
settled pursuant to the Commercial Arbitration Rules of the American Arbitration
Association. Any arbitrator selected shall be qualified by training and
experience to decide the questions submitted for dispute. A signed decision by
the arbitrator shall be issued not more than thirty (30) days following the
conclusion of the arbitration hearing. Such decision shall be binding upon the
Parties, and judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. To the extent the decision involves
construction of this Agreement, such construction shall thereafter be deemed a
part of the Agreement and shall be used as appropriate in future interpretations
thereof. The arbitrator shall assess the costs of the arbitration based on the
positions of the Parties, the evidence submitted and the decision rendered.
ARTICLE 20: NOTICES
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Any notice required to be given pursuant to this Agreement shall be in
writing and may be given by delivering the same by hand at, or by sending the
same by prepaid telex, telegram, facsimile or cable to, the relevant address et
out below or such other address as any Party may notify to the other Parties
from time to time. Any such notice given as aforesaid shall be deemed to have
been given or received at the time of delivery (if delivered by hand) or the
second Working Day next following the day of sending (if sent by telex, telegram
or facsimile). Without prejudice to the foregoing provisions of this Article, if
a Party to which a notice is given does not acknowledge the same by the end of
the third Working Day next following the day of delivery or sending, the Party
giving the notice shall communicate with the Party which has not so acknowledged
and, if necessary, redeliver or resend the notice.
If to: PHOENIX RESOURCES COMPANY OF QARUN
8 Tunis Street
New Maadi, Cairo, Egypt
Telephone:.............................20-2-352-0905
Telex: ...............................232206 (Answer Back - FENIX UN)
Facsimile:.............................011-202/352-8117
With copy to:
PHOENIX RESOURCES COMPANY OF QARUN
6525 N. Meridian Avenue
Suite 102
Oklahoma City, OK 73116-1491
Telephone:.............................405/728-5100
Telex: ...............................910/831-3326 (Answer Back - TEIOKC)
Facsimile:.............................405/728-5259
If to: APACHE OIL EGYPT, INC.
2000 Post Oak Boulevard
Houston, TX 77056-4400
Telephone:.............................713/296-6400
Telex: ...............................49616056 APCHEXPLOR UI
Facsimile:.............................713/296-6450
ARTICLE 21: APPLICABLE LAW
The construction, validity and performance of this Agreement shall be
governed by the laws of Texas, excluding any conflict of laws provisions
thereof, which would require reference to the laws
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of any other jurisdiction.
ARTICLE 22: HEADINGS, NUMBER AND GENDER
The headings of the Articles in this Agreement are inserted for
convenience of reference only and shall not affect the meaning, or if masculine
or neuter is used in this Agreement, the same shall be construed as meaning
similar, or feminine or body politic or corporate and vice versa where the
context so requires. Any reference in this Agreement to an Article shall be to
an Article in this Agreement unless the context provides otherwise.
ARTICLE 23: AMENDMENT
This Agreement shall be amended only by an instrument in writing executed
by all Parties.
ARTICLE 24: EXHIBITS
All exhibits attached hereto shall be incorporated by reference as if set
forth in full herein.
ARTICLE 25: WAIVER
All waivers of any right or obligation hereunder shall be in writing and
not deemed to be a waiver of any other right or obligation or future waiver of
the same right or obligation.
ARTICLE 26: CONFLICT WITH CONCESSION AGREEMENT
Should a conflict exist between any provision of the Concession Agreement
and any provision of this Agreement, the provision of the Concession Agreement
shall control and the appropriate provision of this Agreement shall be deemed
amended accordingly.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives, the day and year first above written.
PHOENIX RESOURCES COMPANY OF QARUN
By
--------------------------------------
George D. Lawrence Jr.
Chief Executive Officer
APACHE OIL EGYPT, INC.
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By
--------------------------------------
Carolyn E. Lucas
Vice President
STATE OF OKLAHOMA )
) SS:
COUNTY OF OKLAHOMA )
BEFORE ME, the undersigned authority, on this day personally appeared
GEORGE D. LAWRENCE JR., the Chief Executive Officer of PHOENIX RESOURCES COMPANY
OF QARUN, known to me to be the person whose name is subscribed to the foregoing
instrument, and swore to me that he executed the same for the purposes and
consideration therein expressed, in the capacity therein stated, and as the act
and deed of said PHOENIX RESOURCES COMPANY OF QARUN.
Given under my hand and seal of office this 29 day of June, 1993.
--------------------------------------
Notary Public
(NOTARY SEAL) My Commission Expires: June 23,1997
STATE OF TEXAS )
) SS:
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
CAROLYN E. LUCAS, the Vice President of APACHE OIL EGYPT, INC., known to me to
be the person whose name is subscribed to the foregoing instrument, and swore to
me that she executed the same for the purposes and consideration therein
expressed, in the capacity therein stated, and as the act and deed of said
APACHE OIL EGYPT, INC.
Given under my hand and seal of office this 30 day of June, 1993.
--------------------------------------
Notary Public
(NOTARY SEAL) My Commission Expires:----------------
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SCHEDULE A
ACCOUNTING PROCEDURE
ARTICLE I
GENERAL PROVISIONS
1.1 Definitions. Unless otherwise defined herein, all terms used in this
Accounting Procedure shall have the same meaning as applied in the main body of
the Joint Operating Agreement (the "Agreement") to which this is attached as
Schedule A. In addition to the terms defined in the Agreement, the following
terms shall have the meanings hereinafter set forth when used in this Accounting
Procedure:
1.1.1 "Base Currency" shall mean U.S. dollars.
1.1.2 "Controllable Material" shall mean material which Operator subjects to
record control and inventory.
1.1.3 "Equipment" means all property (including, but not limited to, well
equipment, pipelines, plants and other facilities, port facilities, storage
facilities) acquired for use in or related to Joint Operations.
1.1.4 "Local Currency" means the currency of Egypt.
1.1.5 "Technical Employees" shall mean those employees having special or
specific engineering, geological, geophysical or data processing skills.
1.2 Supremacy of the Agreement. In the event of any conflict between the
provisions of this Accounting Procedure and the provisions of the main body of
the Agreement, the provisions of the main body of the Agreement shall control.
1.3 Intent. It is the intent of this Accounting Procedure that there should be
no duplication of charges to the Joint Account and that no profit or loss should
be incurred by a Party as a result of performing the duties of Operator under
the Agreement.
1.4 Accounting Records.
1.4.1 Operator shall maintain on an accrual basis all accounts and records
necessary to account for the cash advances made by the Parties and to record the
charges and credits incurred by the Operator
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on behalf of the Parties in connection with Join Operations conducted pursuant
to the terms of the Agreement. "Accrual basis" as used herein means that costs
and expenses are regarded as applicable to the period in which they are
incurred, regardless of when paid. Each of the Parties is responsible for
maintaining its own accounting records to comply with all legal requirements and
to support all fiscal returns or any other accounting reports, if any, required
by governmental authority in regard to Joint Operations, except those returns
which it is the statutory obligation of Operator to prepare and submit on behalf
of the Parties.
1.4.2 The Joint Account shall be maintained in the Base Currency. Operator may,
to the extent Operator deems it necessary, maintain accounts in Local Currency
as an aid to Operator in its accounting duties.
1.4.3 All expenditures will be reported in the Base Currency. Other necessary
currencies will be purchased at banks of Operator's choice.
1.4.4 Operator shall establish and maintain production records necessary to
record accurately and in reasonable detail the volumes of all Petroleum
produced, saved or consumed.
1.4.5 Depreciation of Equipment will not be charged to the Joint Account, but
may be used as a component in the determination of a rate structure for rental
or usage of Equipment.
1.4.6 Any profit or loss resulting from conversion of currency relating to Joint
Operations shall be for the Joint Account.
1.4.7 Operator will not use Joint Account funds to make forward purchases of
currency, except as required by local law.
1.5 Statements and Reports.
1.5.1 Not later than thirty (30) days following the end of each month, Operator
will provide the Parties with statements reflecting all charges and credits to
the Joint Account. Such statements will be summarized by appropriate
classification indicative of the nature thereof, except that items of
Controllable Material and unusual charges and credits will be described in
detail. Monthly charges in warehouse stock values will be separately reflected.
1.5.2 Statements will reflect total Joint Account expenditures and each Party's
share thereof.
1.5.3 Operator shall provide additional reports to the Parties as follows:
(i) A current total statement of Cash Calls and expenditures, for the
billing month, with cumulative Cash Calls and expenditures from inception,
such statements to indicate balances at the end of the current Month and
amounts due to, or from, each Party. The statement will be supplied within
thirty (30) days following the end of the billing Month.
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(ii) Operating Budget control statements on a quarterly basis giving
details of expenditures by main cost heading and appropriate cost element
classification for the previous quarter and cumulative for the Calendar
Year.
(iii) As soon as possible after the end of each Month, Operator shall
provide each of the Parties with a summary of expenditures.
1.5.4 Operator shall prepare for the Parties all other statements as they may
reasonably require. Special statements provided by Operator for the benefit of
an individual Party shall be at the sole expense of that Party.
1.5.5 Operator shall use its reasonable efforts to see that all invoices,
financial statements, reports, billings and other documents provided to a Party
shall be complete and accurate.
1.6 Advances. Operator shall be entitled to request Advances from each Party to
meet the proportionate share of all expenditures for the Account, as provided
for in Article 9.4.2 of the Agreement.
1.7 Adjustments. Payment of Advances and acceptance of billings shall not
prejudice the right of any Party to protest or question the correctness thereof;
provided, however, all bills and statements rendered to the Parties during any
Calendar Year shall conclusively be presumed to be true and correct after
twenty-four (24) months following the end of such Calendar Year, unless within
the said period a Party takes a written exception thereto and makes claim on
Operator for adjustment. No adjustment favorable to Operator shall be made
unless it is made or claimed within the same prescribed period. The provisions
of this Article shall not prevent adjustments resulting from a physical
inventory of Equipment, as provided for in Article VI of this Accounting
Procedure, or from adjudicated claims involving a third party or from
adjustments required by a statutory authority of the Government.
1.8 Joint Interest Audits.
1.8.1 Any Party, upon giving at least thirty (30) days notice in writing to
Operator, shall have the right, at its own expense, to audit Operator's accounts
and records following the end of such Calendar Year; provided, however, that the
making of an audit shall not extend the time for the taking of written
exceptions to or the making of claims as provided for in Article 1.7 of this
Accounting Procedure, except in the event there is evidence of fraud or other
willful misconduct.
1.8.2 The Parties may audit the Joint Account and related records of Operator.
1.8.3 Operator shall produce the required information from Affiliates of
Operator to support charges from these Affiliates to the Joint Account.
1.8.4 Auditors shall provide a report of the audit taken to Operator within
sixty (60) days after
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completion of the audit. Operator will respond to the auditors report within
ninety (90) days of receipt of same.
1.8.5 Adjustments agreed between Operator and the Parties will be recorded in
the Joint Account within thirty (30) days after agreement is reached.
1.8.6 If Operator and the Parties are unable to reach final agreement on a
proposed audit adjustment, and either Operator or the Parties so desire, such
adjustment may be referred (at the cost of the Parties involved) to an
international recognized independent firm of public accountants selected by the
Parties.
The results or conclusions reached by such public accountants shall be
conclusive and binding on the Parties and Operator.
1.8.7 The Parties shall make every reasonable effort to conduct audits at a time
and in a manner which will result in a minimum of inconvenience to Operator and,
where more than one Party desires to conduct audits, such Parties shall make
every reasonable effort to conduct joint or simultaneous audits. Operator shall
not be obliged to bear any portion of any audit conducted pursuant to the terms
of this Article 1.8, except where Operator, pursuant to the terms of Article
1.8.6 above, has requested or joined in a request to refer an audit adjustment
to such independent firm of public accountants for resolution.
1.8.8 Operator shall make every reasonable effort to cooperate with the auditors
and provide them with reasonable facilities and assistance in performing each
audit, as long as such audit does not interfere with Joint Operations or other
operations of Operator. Auditors shall have the right to retain copies of
relevant audited material.
1.8.9 At no time shall the total number of auditors on a given audit exceed six
(6) without written approval of Operator.
1.9 Modification and Revisions. This Accounting Procedure may be revised or
amended from time to time upon unanimous agreement in writing of the Parties.
ARTICLE II
CHARGEABLE COSTS AND CREDITS TO THE JOINT ACCOUNT
2.1 General. Operator shall charge the Joint Account for all costs and
expenditures incorrect in connection with the conduct of Joint Operations in
accordance with the Agreement. Such costs shall include, but are not necessarily
limited to, the matters set forth in the following sections of this Article II.
2.2 Labor and Related Costs.
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2.2.1 Salaries and wages of employees or Operator and employees of its
Affiliates who are directly engaged in the conduct of Joint Operations whether
temporarily or permanently assigned and whether or not physically located in
Egypt. In the case of those personnel only a pro rata portion of whose time is
chargeable to the Joint Account, only that pro rata portion of applicable
salaries and wages calculated (and applicable to Qarun operations) will be
charged to the Joint Account.
2.2.2 Cost of holiday, vacation, sickness and disability benefits, social
security, education, military service, resident taxes, visas, permits and other
customary allowances paid to the personnel whose salaries and wages are
chargeable to the Joint Account under Article 2.2.1 above, except that in the
case of those personnel only a pro rata portion of whose salaries and wages are
chargeable to the Joint Account, not more than the same pro rata portion of the
benefits and all allowances herein provided for shall be charged to the Joint
Account. Costs under this Article 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 fair and reasonable based on Operator's cost experience in the
relevant period and adjusted to represent actual cost at the end of each
Calendar Year. If Operator changes his procedures from "when and as paid basis"
to "percentage assessment," or vice versa, Operator will promptly notify the
Parties of such a change.
2.2.3 Obligations imposed by governmental authority when actually paid by
Operator, which are applicable to cost of salaries and wages chargeable to the
Joint Account under Articles 2.2.1 and 2.2.2 above, except that in the case of
those personnel only a pro rata portion of whose salaries and wages are
chargeable to the Joint Account, not more than the same pro rata portion of such
expenditures herein provided for shall be charged to the Joint Account. Such
expenses shall include income taxes where and when they are paid by Operator for
the employee, in accordance with Operator's standard personnel policies.
2.2.4 Reasonable personal expenses of personnel whose salaries and wages are
chargeable to the Joint Account under Article 2.2.1 above and for which expenses
such personnel are reimbursed under Operator's standard personnel policies. Such
expenditures include, but are not limited to, housing costs, living allowances,
telephone expenses, rest and recuperation expenses and completion bonuses. In
the event such expenses are not wholly attributable to the Operations, the Joint
Account will be charged with only the applicable portion thereof, which shall be
determined on an equitable basis.
2.2.5 All transportation costs attributable to Joint Operations, when paid by
Operator, applicable to those employees, their families and personal effects,
whose salaries and wages are chargeable to the Joint Account except that, in the
case of those personnel only a pro rata portion of whose salaries and wages are
chargeable to the Joint Account, not more than the same pro rata portion of the
vacation and travel cost herein provided for shall be chargeable to the Joint
Account. Actual transportation expenses of personnel transferred on a temporary
or permanent basis from Joint Operations to country of origin will be charged to
the Joint Account. Transportation expenses of personnel transferred from
Operations to a country other than the country of origin will not be charged to
the Joint Account. Transportation costs as used in this Article shall mean the
cost of
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freight and passenger service, meals, hotels, insurance, visas, exit permits,
tax clearance and other expenditures related to vacation and transfer travel
(including families and personal effects) and authorized under Operator's
standard personnel policies. Operator shall ensure that all expenditures related
to transportation costs are equitably allocated to the activities which have
benefited from the personnel concerned.
2.3 Employee Benefits. Current cost of established plans for employees' group
life insurance, hospitalization, pension, retirement, stock purchase, thrift,
bonus and other benefit plans of a like nature, applicable to salaries and wages
chargeable to the Joint Account under Article 2.2.1 above. In the case of those
personnel only a pro rata portion of whose salaries and wages are chargeable to
the Joint Account, not more than the same pro rata portion of such benefits
herein provided for shall be charged to the Joint Account.
2.4 Material. Material purchased or furnished by Operator for use in Operations
shall be charged to the Joint Account as provided in Article III of this
Accounting Procedure. Only such material shall be purchased for or transferred
to the Joint Account as may be required, and the accumulation of surplus stocks
shall be avoided so far as is reasonably practical and consistent with efficient
and economical operations.
2.5 Transportation.
2.5.1 Transportation of material, other than as provided in Articles 3.2.1 and
3.2.2 of this Accounting Procedure, along with other related costs such as, but
not limited to, import duties, customs fees, unloading charges, dock fees and
inland, ocean and air freight charges.
2.5.2 Transportation of personnel, other than as provided in Article 2.2.5 of
this Accounting Procedure, as required in the course of conducting Joint
Operations.
2.6 Services and Facilities.
2.6.1 Subject to compliance with any applicable bidding requirements contained
in the Concession Agreement, the cost of contract services, professional
consultants, utilities and other services procured from outside sources other
than services as covered by Article 2.8 of this Accounting Procedure.
2.6.2 When such equipment is used in Joint Operations, Operator shall charge the
Joint Account for use of equipment and facilities under lease to Operator for
use in other Operations, and not leased for Joint Operations, at the cost of
leasing such equipment, including, but not limited to, such costs as operating
costs, mobilization, demobilization, insurance and taxes, if such costs are not
charged elsewhere to the Joint Account. Such charges shall not, however, exceed
commercial equipment and facilities in the area in which Operations are being
conducted.
2.6.3 Operator shall charge the Joint Account for use of equipment, office
furniture and facilities
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owned by Operator or its Affiliates or provided from other operations of
Operator at rates commensurate with cost of ownership and operation, if such
costs are not charged elsewhere to the Joint Account. Such charge shall not,
however, exceed commercial rates currently prevailing for available comparable
equipment and facilities in the area in which Operations are being conducted.
2.6.4 The Joint Account shall be credited for the rental of Equipment by any of
the Parties or their Affiliates at rental rates equivalent to the cost of
ownership and operation of such Equipment, provided such rates do not exceed
commercial rates currently prevailing for available comparable equipment, in the
area in which Joint Operations are conducted. In the case of occasional use by
third parties, rates will be subject to negotiation by Operator. Rental rates
for drilling rigs, and other major equipment used by either third parties or the
Parties and their Affiliates, shall be subject to further agreement between the
Parties. Revenue arising from the rental of Equipment as aforesaid shall be
credited to the Joint Account as provided for in Article 2.1.5 of this
Accounting Procedure. Priority usage of Equipment shall be given at all times to
Joint Operations.
2.6.5 Cost of ownership and operation as referred to in this Article 2.6 will
include, but not be limited to, labor, maintenance, repairs, other operating
expenses, insurance, taxes, depreciation and cost of investment on the
depreciated investment.
2.7 Damages and Losses to Equipment. All costs or expenses incurred for the
repair or replacement of Equipment made necessary because of damages or losses
incurred by fire, flood, storm, theft, accident or any other cause, or to
protect Equipment. Operator shall furnish the Parties written notice of damage
or losses incurred in excess of U.S. $10,000 as soon as practicable after a
report thereof has been received by Operator. If one or more Parties require
written notice of damages or losses of less than U.S. $10,000 for insurance
purposes, Operator will provide such information on request.
2.8 Litigation Expenses. All costs and expenses of handling, investigating and
settling or concluding actual or threatened litigation, claims or disputes
arising by reason of Joint Operations or necessary to protect or recover
Equipment including, but not limited to, lawyer's fees, court costs, cost of
investigation or procuring evidence and amounts paid in settlement or
satisfaction of such litigation, claims or disputes, provided such costs are not
recovered as provided for elsewhere in this Accounting Procedure.
2.9 Taxes. All taxes of every kind and nature (other than those on profits and
income) assessed or levied upon or in connection with the Joint Account, or
Operations, and which taxes have been paid by Operator for the benefit or on
behalf of the Parties. The Joint Account will be credited with monies received
in respect of recoverable taxes.
2.10 Insurance Premiums. Premiums paid for insurance, in accordance with
the terms of the Agreement.
2.11 Professional and Administration Services Expenses. The cost of professional
and
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administrative employees assigned by an Affiliate of Operator to the Operator
for the direct benefit of the Joint Account (not to exceed the number of
assigned employees set forth and approved in the annual Budget as necessary to
conduct Joint Operations), including, but not limited to, services provided by
the production and engineering, exploration, legal, financial, purchasing,
insurance and accounting divisions, other than those services covered by
Articles 2.12 and 2.13 of this Accounting Procedure which Operator may use in
lieu of having its own employees. The cost of such services shall be billed to
Operator by the Affiliate on a cost of service basis. Charges under this
paragraph shall be subject to review by the Parties upon request.
2.12 Scientific or Technical Services and Employees. The cost of scientific or
technical services and Technical Employees including, but not limited to,
laboratory analysis, drafting, special geophysical and geological
interpretations, engineering, reservoir studies, computer services and data
processing provided by Operator or its Affiliates for performance of services
for the benefit of Joint Operations, which cost shall be charged on a cost of
service basis. Charges therefor shall not exceed charges for comparable services
then currently provided by outside technical service organizations of comparable
qualifications. Charges under this Article shall be subject to review and audit
by the Parties upon request.
2.13 Supervision, Office and Field Expenses. Operator shall charge the Joint
Account with the cost and expense of establishing, constructing, maintaining and
operating offices, shore bases, warehouses, camps and/or other facilities used
in connection with Joint Operations. If such facilities serve operations in
addition to the Joint Operations, such costs, less any revenue therefrom, shall
be apportioned to all properties served on the same basis resulting in an
apportionment which shall be equitable to Joint Operations.
2.14 Parent Company Overhead.
2.14.1 Parent company overhead will be deemed to cover the actual cost (being
salaries, wages and labor burden, employee benefits, travel, hotel and other
normally reimbursable expenses paid by Operator's parent company in accordance
with its standard personnel policy in force in the relevant period, provision of
office accommodation and provision of services reasonably necessary for
operating and maintaining such staff offices) incurred for services rendered by
those functions of Operator's parent company, such as, but not limited to,
international production headquarters, international exploration headquarters,
treasury, payroll, taxation, insurance, legal, communications, controllers,
personnel, executive administrative management, research and development,
central engineering and process engineering which:
(i) could not, without unreasonable effort and/or expenditure or without
the release of confidential data proprietary to Operator's parent company,
be charged under any other section of this Accounting Procedure; and
(ii) are allocable to Joint Operations.
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It is understood, however, that services performed by the departments
listed above and other corporate departments which are directly referable to
Joint Operations shall be charged as direct costs in accordance with Article II
of this Accounting Procedure.
2.14.2 In respect of the costs of Operator's parent company overhead, as
described in Article 2.14.1 above, Operator shall charge monthly to the Joint
Account an amount equal to the total of the following:
(i) five percent (5%) of each Month's expenditures up to U.S.
$1,000,000 charged to the Joint Account, except as provided in Article
2.14.3 hereof;
(ii) two percent (2%) of each Month's expenditures in excess of U.S.
$1,000,000 up to U.S. $5,000,000 charged to the Joint Account, except as
provided in Article 2.14.3; and
(iii) one and one-half percent (1.5%) of each Month's expenditures in
excess of U.S. $5,000,000 up to U.S. $10,000,000 charged to the Joint
Account, except as provided in Article 2.14.3.
Annual rentals and bonus payments under the Concession Agreement, taxes
charged under Article 2.9 of this Accounting Procedure and any foreign exchange
adjustments shall not be included in monthly expenditures for purposes of
computing parent company overhead.
2.14.3 The rates under Article 2.14.2 above shall be reviewed by the Parties
upon request (but in any event not more frequently than once each Calendar Year)
and the Parties shall adjust such rates to assure that such rates are not
excessive and reasonably reflect actual costs allocable to Joint Operations.
2.15 Credit to the Account. Upon receipt, the proceeds from all tax rebates,
litigation awards, discounts (including cash, trade, volume or any other special
discounts) not previously taken, and revenue from lease or sale of Equipment
and, subject to the terms of the Agreement, insurance claims will be immediately
credited to the Joint Account.
2.16 Costs Under Concession Agreement. All costs and expenses in respect of the
acquisition and maintenance of rights under the Concession Agreement for Joint
Operations thereunder including, but not limited to, payments made to maintain
the Concession Agreement in good standing.
2.17 Miscellaneous. Any expenditures not covered by this Article II incurred by
Operator or its Affiliates which is necessary and proper to Joint Operations,
including, but not limited to, costs and expenses in respect of the Concession
Agreement, communications equipment and systems, ecological and environmental
matters, permits and licenses, abandonment and reclamation and research.
ARTICLE III
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BASIS OF CHARGES TO THE JOINT ACCOUNT FOR MATERIAL
3.1 General. Subject to the further provisions of this Article III, Operator
will procure all material and services for Joint Operations for the Joint
Account.
3.2 Purchases.
3.2.1 Material purchased and services procured which become part of the material
price shall be charged at the price paid by Operator, including delivery to
warehouse or site, after deduction of all discounts actually received. Operator
shall exercise best efforts to maximize its right to receive cash discounts.
3.2.2 In the case of imported materials and Equipment, the Joint Account shall
be charged at "landed cost" which includes net invoice price, customs fees,
duties, excise taxes and like items chargeable against the goods, handling costs
and transportation costs from entry port to warehouse and site, purchasing
(where not otherwise charged under other sections of this Accounting Procedure),
shipping and forwarding costs and fees.
3.3 Materials Furnished From Operator's Warehouse or Operator's other properties
not connected with the Joint Operations, shall be furnished at the lesser of
actual cost or the following:
3.3.1 New Material - (Condition "A"). At the fair market value (utilizing
appropriate vendor lists less applicable prevailing discounts) for new purchases
of similar material delivered to the Contract Area at the time of transfer
determined in accordance with Articles 3.2.1 and 3.2.2.
3.3.2 Used Material (Conditions "B" and "C").
(i) Material in sound and serviceable condition and suitable for re-use
without reconditioning, shall be classified under Condition "B" and priced
at seventy-five percent (75%) of the price of new material as calculated
under Article 3.3.1 above.
(ii) Material which is not suitable for its original function until after
reconditioning shall be furnished to the Joint Account under one of the
following two methods defined below:
(a) Classified as Condition "B" and priced at seventy-five percent
(75%) of the price of new material as calculated under Article 3.3.1
above. The cost of reconditioning shall be for the account of the
transferring Party.
(b) Classified as Condition "C" and priced at fifty percent (50%) of
the price of new material as calculated under Article 3.3.1 above.
The cost of reconditioning shall be charged to the receiving Party,
provided, however, that Condition "C" material plus the cost of
reconditioning does not exceed Condition "B" value as calculated
under Sub-Article 3.3.2(i) above.
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3.3.3 Used Material. Obsolete material, or material which cannot be classified
as Condition "B" or Condition "C" shall be priced at a value commensurate with
its use. Material no longer suitable for its original purpose but usable for
some other purpose, shall be priced on a basis comparable with that of items
normally used for such other purpose.
3.4 Warranty of Material. Operator does not warrant the material furnished from
any source. Defective materials furnished from Operator's owned warehouse or
from other properties not connected with Joint Operations will be credited
immediately to the Joint Account. Credit (if any) for defective materials from
any other source shall await adjustment from the suppliers, manufacturers or
their agents, and any unadjusted claims or portion thereof shall remain charged
to the Joint Account.
ARTICLE IV
DISPOSAL OF SURPLUS MATERIAL
4.1 Purchases and Disposals by Operator. Subject to the provisions of Article V
of this Accounting Procedure and to the provisions of the Concession Agreement,
Operator shall have the right, but not the obligation to purchase, and the right
to dispose of surplus material originally costing less than $100,000 in the
aggregate or $10,000 for each individual item without prior approval of the
Parties.
4.2 Purchases by Any Venturer or Sales to Non-Owner.
4.2.1 Material costing more than $100,000 in the aggregate or $10,000 for each
individual item shall be priced in accordance with Article V of this Accounting
Procedure and offered for sale on that basis to the Parties.
4.2.2 The Parties shall have thirty (30) days after being notified of such
surplus equipment as provided for in Article 4.2.1 above to offer to purchase
such material at the listed price. If two or more Parties desire the same
equipment, they shall have an additional fifteen (15) days during which to agree
to a division of the material between them. In the event they shall not agree
within the said fifteen (15) days, such material shall be offered for sale
pursuant to Article 4.2.3 below.
4.2.3 Material not purchased or disposed of as provided for in Articles 4.2.1
and 4.2.2 above shall be offered for sale by sealed bid on the open market. The
Parties shall also have an opportunity to bid on the material. If the highest
bid is not accepted, Operator shall promptly report the circumstances to the
Parties.
4.2.4 Material still not dispose of as provided for in Articles 4.2.1, 4.2.2 and
4.2.3 above may be disposed of by Operator by the most practical, economical
method as approved by the Parties.
4.3 Division in Kind. Division of material in kind, if made between the Parties
shall be in
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proportion to their Participating Interests. The Parties will
thereupon be charged individually with the value of the material received or
receivable in accordance with Article V of this Accounting Procedure. Proper
credits shall be made by Operator in the Joint Account.
ARTICLE V
BASIS OF PRICING SURPLUS MATERIAL TRANSFERRED FROM
THE JOINT ACCOUNT
5.1 General. Material purchased by Operator, offered for sale to the Parties, or
divided in kind, unless otherwise provided herein or agreed to between the
Parties, shall be priced on the basis of the following sections of this Article
V.
5.2 Price of New Material Defined. Price of new material as used in this Article
V shall be the average unit value as carried on Joint Account books, to include
those costs in Articles 3.2.1 and 3.2.2 of this Accounting Procedure.
5.3 New Material. New material (Condition "A") being new material procured for
Joint Operations or furnished from Operator's warehouse but never used, at one
hundred percent (100%) of the purchase price, if determinable; otherwise, at one
hundred percent (100%) of the price of new material.
5.4 Good Used Material. Good used material (Condition "B"), being used material
in sound and serviceable condition, suitable for re-use without reconditioning,
shall be priced at seventy-five percent (75%) of the price of new material.
5.5 Other Used Material. Used material (Condition "C"), being used material
which is not in sound and serviceable condition, but suitable for re-use after
reconditioning, at fifty percent (50%) of the purchase price, if determinable;
otherwise, at fifty percent (50%) of the price of new material. Cost of
reconditioning will not be borne by the Joint Account.
5.6 Bad-Order Material. Material (Condition "D"), no longer suitable for its
original purpose, but usable for some other purpose, shall be priced on a basis
comparable with that of items normally used for such other purpose.
5.7 Junk Material. Junk material (Condition "E"), being obsolete and scrap
material, at prevailing prices.
ARTICLE VI
INVENTORIES OF MATERIAL
6.1 General. Operator shall maintain asset records of material according to its
standard materials
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policies in force in the relevant period.
6.2 Periodic Inventories, Notice and Representation. At reasonable intervals,
inventories shall be taken by Operator of the Joint Account materials. Written
notice of intention to take inventory shall be given to the Parties by Operator
at least forty-five (45) days before any inventory is to begin, so that the
Parties may be represented when an inventory is taken. Failure of any of the
Parties to be represented at any inventory shall bind such Parties to accept the
inventory taken by Operator who shall, in any event, furnish the Parties with
copies thereof.
6.3 Change of Operator. An inventory shall be made whenever there is a
change of Operator.
6.4 Special Inventories. Special inventories may be taken whenever there is any
transfer of a Participating Interest. In such cases, both the transferor and the
transferee shall have the opportunity to be represented when the inventory is
taken and shall be governed by such inventory whether or not such representation
is provided. The cost of taking any such special inventory shall be for the sole
account of the transferor and/or transferee and shall not be charged to the
Joint Account. Each Party shall be entitled, at its own expense, to require
Operator to produce a special inventory of Equipment at any reasonable time,
provided such request shall not interfere with Joint Operations or other
operations of Operator which are supplied from the same source of supply as
Joint Operations.
6.5 Reconciliation and Adjustment of Inventories. Reconciliation of inventory
with charges to the Joint Account shall be made, and a list of overages and
shortages shall be jointly determined by Operator and the Parties. Inventory
adjustments shall be made by Operator in the Joint Account for overages and
shortages, and such adjustments shall be reported as unusual accounting entries,
but Operator shall be held accountable to the Parties only for shortages which
are the liability of Operator under the Agreement.
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Exhibit 10.41
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CONCESSION AGREEMENT FOR PETROLEUM
EXPLORATION AND EXPLOITATION
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE EGYPTIAN GENERAL PETROLEUM CORPORATION
AND
PHOENIX RESOURCES COMPANY OF QARUN
AND
APACHE OIL EGYPT, INC.
IN
THE QARUN AREA
WESTERN DESERT A.R.E.
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Exhibit 10.41
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INDEX
ARTICLE TITLE PAGE
I Definitions........................................
II Annexes to the Agreement............................
II Grant of Rights and Term............................
IV Work Program and Expenditures
during Exploration Period .........................
V Mandatory and Voluntary
Relinquishments....................................
VI Operations after Commercia..........................
VII Recovery of Costs and Expenses
and Production Sharing..............................
VIII Title to Assets.....................................
IX Bonuses.............................................
X Office and Service of Notice........................
XI Saving of Petroleum and
Prevention of Loss..................................
XII Customs Exemptions..................................
XIII Books of Account: Accounting
and Payments........................................
XIV Records, Reports and Inspection.....................
XV Responsibility for Damages..........................
XVI Privileges of Government
Representatives.....................................
XVII Employment Rights and Training
of Arab Republic of Egypt Personnel.................
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Exhibit 10.41
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XVIII Laws and Regulations................................
XIX Right of Requisition................................
XX Assignment..........................................
XXI Breach of Agreement and Power to Cancel.............
XXII Force Majeure.......................................
XXIII Disputes and Arbitration............................
XXIV Status of Parties...................................
XXV Local Contractors and Locally Manufactured Material.
XXVI Arabic Text.........................................
XXVII General.............................................
XXVIII Approval of the A.R.E. Government...................
<PAGE> 71
EXHIBIT 10.41
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ANNEXES TO THE AGREEMENT
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
------- ----- ----
<S> <C>
Annex "A" Boundary Description of Concession Area . . . . . . . . . . . . . . .
Annex "B" Illustrative Map showing Area covered . . . . . . . . . . . . . . . .
Annex "C" Charter of the Operating Company . . . . . . . . . . . . . . . . . . .
Annex "D" Accounting Procedure . . . . . . . . . . . . . . . . . . . . . . . . .
Annex "E" Map of the National gas pipeline grid system . . . . . . . . . . . . .
</TABLE>
<PAGE> 72
EXHIBIT 10.41
PAGE 72 OF 138
CONCESSION AGREEMENT FOR PETROLEUM
EXPLORATION AND EXPLOITATION
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE EGYPTIAN GENERAL PETROLEUM CORPORATION
AND
PHOENIX RESOURCES COMPANY OF QARUN
AND
APACHE OIL EGYPT, INC.
IN
THE QARUN AREA
WESTERN DESERT A.R.E.
THIS AGREEMENT made and entered on this ____ day of __________,1992, by and
between the ARAB REPUBLIC OF EGYPT (hereinafter referred to variously as
"A.R.E." or as the "GOVERNMENT), the EGYPTIAN GENERAL PETROLEUM CORPORATION, a
legal entity created by Law No. 167 of 1958 as amended (hereinafter referred as
"EGPC"), and PHOENIX RESOURCES COMPANY OF QARUN, a company organized and
existing under the laws of the State of Delaware, U.S.A. (hereinafter referred
to as "PHOENIX"); and APACHE OIL EGYPT, INC., a company organized and existing
under the laws of the State of Delaware, U.S.A. PHOENIX and APACHE being
hereinafter referred to collectively as "CONTRACTOR", and individually as
"CONTRACTOR MEMBER".
WITNESSETH
WHEREAS, all minerals including petroleum, existing in mines and
quarries in A.R.E., including the territorial waters, and in the seabed subject
to its jurisdiction and extending beyond the territorial waters, are the
property of the State; and
WHEREAS, EGPC has applied for an exclusive concession for the
exploration and exploitation of petroleum in and throughout the area referred
to in Article II, and described in Annex "A" and shown approximately on Annex
"B" which are attached hereto and made part hereof (hereinafter referred to as
the "Area"); and
WHEREAS, PHOENIX and APACHE agree to undertake their obligations
provided hereinafter as a CONTRACTOR with respect to the exploration,
development and production of
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EXHIBIT 10.41
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petroleum in said Area; and
WHEREAS, the GOVERNMENT desires hereby to grant such Concession; and
WHEREAS, the Minister of Petroleum and Mineral Resources pursuant to
the provisions of Law No. 86 of 1956, may enter into a concession agreement
with EGPC, and with PHOENIX and APACHE as a Contractor in the Area.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
(a) "EXPLORATION" shall include such geological, geophysical, aerial and
other surveys as may be contained in the approved Work Programs and
Budgets, and the drilling of such shot holes, core holes, stratigraphic
tests, holes for the discovery of Petroleum or the appraisal of Petroleum
discoveries and other related holes and wells, and the purchase or
acquisition of such supplies, materials, services and equipment therefor,
all as may be contained in the approved Work Programs and Budgets. The
verb "explore" means the act of conducting exploration.
(b) "DEVELOPMENT" shall include, but not be limited to, all the operations
and activities pursuant to approved Work Programs and Budgets under this
Agreement with respect to:
(1) The drilling, plugging, deepening, side tracking, redrilling,
completing and equipping of development wells, changing of the
status of a well; and
(2) Design, engineering, construction, installation, servicing and
maintenance of equipment, lines, systems facilities, plants and
related operations to produce and operate said development wells,
taking, saving, treating, extracting, separating, handling,
storing, transporting and delivering Petroleum, repressuring,
recycling and other secondary recovery projects; and
(3) Transportation, storage and any other work or activities necessary
or ancillary to the activities specified in (1) and (2).
(c) "PETROLEUM" means liquid crude oil of various densities, asphalt, gas,
casinghead gas and all other hydrocarbon substances that may be found in,
and produced, or otherwise obtained and saved from the Area under this
Agreement, and all substances that may be extracted therefrom.
(d) "LIQUID CRUDE OIL" OR "CRUDE OIL" OR "OIL" means any hydrocarbon produced
from the
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EXHIBIT 10.41
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Area which is in a liquid state at the wellhead or lease separators or
which is extracted from the gas or casinghead gas in a plant. Such
liquid state shall exist at 60 Degree F and atmospheric pressure. Such
term includes distillate and condensate.
(e) "GAS" is natural gas both associated and non-associated, and all of its
constituent elements produced from any well in the Area (other than
Liquid Crude Oil) and all non-hydrocarbon substances therein. Such term
shall include residual gas that Gas remaining after removal of "LPG
(f) "LPG" means liquified petroleum gas, which is a mixture of principally,
propane and butane liquefied by pressure/ temperature that have been
extracted from the Gas.
(g) A "BARREL" shall consist of forty-two (42) United States gallons, liquid
measure, corrected to a temperature of sixty degrees (60) Fahrenheit at
atmospheric pressure.
(h) (1) "COMMERCIAL OIL WELL" means the first well in any geological
feature which after testing for a period of not more than thirty
(30) consecutive days where practical, but in any event in
accordance with sound and accepted industry production practices,
and verified by EGPC, is found to be capable of producing at the
average rate of not less than two thousand (2000) Barrels of Oil
per day (BOPD). The date of discovery of a "Commercial Oil Well"
is the date on which such well is tested and completed according
to the above.
(h) (2) "COMMERCIAL GAS WELL" means the first well on any geological
feature which after testing for a period of not more than thirty
(30) consecutive days where practical, but in any event in
accordance with sound and accepted industry production practices
and verified by EGPC, is found to be capable of producing at the
average rate of not less than ten (10) million standard cubic feet
of gas per day (MMSCFD). The date of discovery of a "Commercial
Gas Well" is the date on which such well is tested and completed
according to the above.
(i) "A.R.E." means ARAB REPUBLIC OF EGYPT.
(j) "EFFECTIVE DATE" means the date on which the text of this Agreement is
signed by the GOVERNMENT, EGPC and CONTRACTOR, after the relevant Law is
issued.
(k)1 "YEAR" means any period of twelve (12) months according to the Gregorian
Calendar.
(k)2 "CALENDAR YEAR" means a period of twelve (12) months according to the
Gregorian Calendar being 1st January to 31st December.
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EXHIBIT 10.41
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(l) "FINANCIAL YEAR" means the GOVERNMENT's financial year according to the
laws and regulations of A.R.E.
(m) "TAX YEAR" means the period of twelve (12) months according to the laws
and regulations of the A.R.E.
(n) An "AFFILIATED COMPANY" means a company:
(1) The share capital, conferring a majority of votes at stockholders'
meetings of such company, of which is owned directly or indirectly
by a party hereto;
(2) Which is the owner directly or indirectly of share capital
conferring a majority of votes at stockholders' meetings of a
party hereto;
(3) Whose share capital conferring a majority of votes at
stockholders' meetings of such company and the share capital
conferring a majority of votes at stockholders' meetings of a
party hereto are owned directly or indirectly by the same company;
or
(4) Which directly or indirectly controls, is controlled by or is
under common control with a party hereto. For the purpose of this
definition, the word "Control" means the right to exercise more
than fifty percent (50%) of the voting rights at shareholders' or
partners' meetings.
(o) "EXPLORATION BLOCK" shall mean an area, the corner points of which have
to be coincident with three (3) minute by three (3) minute latitude and
longitude divisions, according to the International Grid System where
possible or with the existing boundaries of the Area covered by this
Concession Agreement as set out in Annex "A".
(p) "DEVELOPMENT BLOCK" shall mean an area, the corner points of which have
to be coincident with three (3) minute by three (3) minute latitude and
longitude divisions according to the International Grid System where
possible or with the existing boundaries of the Area covered by this
Concession Agreement as set out in Annex "A".
(q) "DEVELOPMENT LEASE(S)" shall mean the Development Block or Blocks
covering the geological structure capable of production, the corner
points of which have to be coincident with three (3) minute by three (3)
minute latitude and longitude divisions according to the International
Grid System where possible or with the existing boundaries of the Area
covered by this Concession Agreement as set out in Annex "A".
(r) "AGREEMENT" means this Concession Agreement and its Annexes.
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EXHIBIT 10.41
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(s) "GAS SALES AGREEMENT" shall mean a written agreement between EGPC and
CONTRACTORS as sellers (hereinafter referred to as Sellers) and E.G.P.C.
as buyer (hereinafter referred to as buyer), which contains the terms and
conditions for all Gas sales from a Development Lease.
ARTICLE II
ANNEXES TO THE AGREEMENT
ANNEX "A" is a description of the Area covered and affected by this
Agreement, hereinafter referred to as "The Area".
ANNEX "B" is a provisional illustrative map on the scale of 1:1,000,000
indicating the Area covered and affected by this Agreement and described in
Annex "A".
ANNEX "C" is the form of a Charter of the Operating Company to be formed
as provided for in Article VI hereof.
ANNEX "D" is the Accounting Procedure.
ANNEX "E" is a current map of the National Gas Pipeline Grid System
established by the Government. The point of delivery for Gas shall be agreed
upon by the parties under the Gas Sales Agreement, which point of delivery will
be located at the flange connecting the lease pipeline to the National Gas
Pipeline Grid System, as depicted in such annex, or as otherwise agreed.
ANNEXES "A", "B", "C", "D" AND "E" to this Agreement are hereby made part
hereof, and they shall be considered as having equal force and effect with the
provisions of this Agreement.
ARTICLE III
GRANT OF RIGHTS AND TERM
The GOVERNMENT hereby grants EGPC and CONTRACTOR subject to the terms,
covenants and conditions set out in this Agreement, which insofar as they are
contrary to or inconsistent with any provisions of Law No. 66 of 1953, as
amended, shall have the force of Law, an exclusive concession in and to the
Area described in Annexes "A" and "B".
(a) The GOVERNMENT shall own and be entitled, as hereinafter provided to a
royalty in cash or in kind of ten (10) percent of the total quantity of
Petroleum produced and saved from the Area during the development period
including renewal. Said royalty shall be borne and paid by
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EXHIBIT 10.41
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EGPC and shall not be the obligation of the CONTRACTOR. The payment of
royalties by EGPC shall not be deemed to result in income attributable to
the CONTRACTOR.
(b) An initial Exploration period of three (3) years shall start from the
Effective Date. Two (2) successive extensions to the initial Exploration
period of two (2) years each shall be granted to CONTRACTOR at its
option, upon not less than thirty (30) days' prior written notice to EGPC
and subject only to its having fulfilled its obligations hereunder for
the then current period. This Agreement shall be terminated if neither a
Commercial Oil Discovery nor a Commercial Gas Discovery is established by
the end of the seventh (7) year of the Exploration period. However, each
such period may be extended at CONTRACTOR's option for up to six (6)
months to enable the completion of drilling and testing of any well
actually drilling or testing at the end of each Exploration period. It
is understood and agreed upon that in case the initial or the second
Exploration period shall have been extended for a period of up to 6
months (or less) as above mentioned, then such extension period shall be
credited to the next succeeding period and consequently such extension
period shall be deducted from the next succeeding period. The election
by EGPC to undertake a sole risk venture under paragraph (c) immediately
hereafter shall not extend the exploration period nor affect the
termination of this Agreement as to CONTRACTOR.
(c) Commercial Discovery
(i) A Commercial Discovery, whether of Oil or Gas, may consist of one
producing reservoir or a group of producing reservoirs which is
worthy of being developed commercially. After discovery of a
Commercial Oil or Gas Well, CONTRACTOR shall, unless otherwise
agreed upon, undertake as part of its Exploration program the
appraisal of the discovery by drilling one or more appraisal
wells, to determine whether such discovery is worthy of being
developed commercially, taking into consideration the recoverable
reserves, production, pipeline and terminal facilities required,
estimated Petroleum prices, and all other relevant technical and
economic factors.
(ii) The provisions laid down herein postulate the unity and
indivisibility of the concepts of Commercial Discovery and
Development Lease. They shall apply uniformly to Oil and Gas
unless otherwise specified.
(iii) CONTRACTOR shall give notice of a Commercial Discovery to EGPC
immediately after the discovery is considered by CONTRACTOR to be
worthy of commercial development but in any event with respect to
a Commercial Oil Well not later than the completion of the second
exploration appraisal well, or twelve (12) months following the
date of the discovery of the Commercial Oil well (unless EGPC
agrees that such period may be extended), whichever is earlier,
or, with respect to a Commercial Gas Well, not later than
twenty-four (24) months following the date of the discovery of the
Commercial Gas Well
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EXHIBIT 10.41
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(unless EGPC agrees that such period may be extended), except that
CONTRACTOR shall also have the right to give such notice of Commercial
Discovery with respect to any reservoir or reservoirs even if the well or
wells thereon are not "Commercial" within the definition of "Commercial
Well" if, in its opinion, a reservoir or a group of reservoirs,
considered collectively, could be worthy of commercial development.
CONTRACTOR may also give notice of a Commercial Oil Discovery in the
event it wishes to undertake a Gas Recycling or similar Project. A
notice of Commercial Gas Discovery shall contain all detailed particulars
of the discovery and especially the area of gas reserves, the estimated
production potential and profile and field life. Following receipt of a
notice of a Commercial Oil or Gas Discovery, EGPC and CONTRACTOR shall
meet and review all appropriate data with a view to mutually agreeing
upon the existence of a Commercial Discovery. The date of Commercial
discovery shall be the date EGPC and CONTRACTOR agree that a Commercial
Discovery exists.
(iv) If Crude Oil is discovered but is not deemed by CONTRACTOR to be a
Commercial Oil Discovery under the above provisions of this paragraph (c),
EGPC shall one (1) month after the expiration of the period specified
above within which CONTRACTOR can give notice of Commercial Oil Discovery,
or thirteen (13) months after the completion of a well not considered to
be a "Commercial Oil Well" have the right, following sixty (60) days'
notice in writing to CONTRACTOR, at its sole cost, risk and expense, to
develop, produce and dispose of all Crude Oil from the geological feature
on which the well has been drilled. Said notice shall state the specific
area covering said geological feature to be developed, the wells to be
drilled, the production facilities to be installed and EGPC's estimated
cost thereof. Within thirty (30) days after receipt of said notice
CONTRACTOR may, in writing, elect to develop such area as provided for in
the case of Commercial Discovery hereunder. In such event, all terms of
this Agreement shall continue to apply to the specified area. If
CONTRACTOR elects not to develop such area, the specific area covering
said geological feature shall be set aside for sole risk operations by
EGPC, such area to be mutually agreed upon by EGPC and CONTRACTOR on the
basis of good petroleum industry practice. EGPC shall be entitled to
perform or in the event Operating Company has come into existence, to have
Operating Company perform such operations for the account of EGPC and at
EGPC's sole cost, risk and expense. When EGPC has recovered from the
Crude Oil produced from such specific area a quantity of Crude Oil equal
in value to three hundred (300) percent of the cost it has incurred in
carrying out the sole risk operations, CONTRACTOR shall have the option,
only in the event there has been a separate Commercial Oil Discovery
elsewhere within the area, to share in further development and production
of that specific area upon paying EGPC one hundred (100) percent of such
costs incurred by EGPC. Such one hundred (100) percent payment shall not
be recovered by CONTRACTOR. Immediately following such payment, the
specific area shall either (1) revert to the status of an ordinary
Development Lease under this Agreement and
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thereafter shall be operated in accordance with the terms hereof; or (2)
alternatively, in the event that at such time EGPC or its Affiliated
Company is conducting development operations in the area at its sole
expense and EGPC elects to continue operating, the area shall remain set
aside, and CONTRACTOR shall only be entitled to its production sharing
percentage of the Crude Oil as specified in Article VII(b) below. The
sole risk Crude Oil shall be valued in the manner provided in paragraph
(c) of Article VII. In the event of any termination of this Agreement
under the provisions of Article III(b) above, this Agreement shall,
however, continue to apply to EGPC's operation of any sole risk venture
hereunder although such Agreement shall have been terminated with respect
to CONTRACTOR pursuant to the provisions of Article III(b) above.
(d) Conversion to a Development Lease
(i) Following a Commercial Oil Discovery or a Commercial Gas
Discovery, the extent of the whole area capable of production to
be covered by a Development Lease shall be mutually agreed upon by
EGPC and CONTRACTOR and be subject to the approval of the Minister
of Petroleum and Mineral Resources. Such area shall be converted
automatically into a Development Lease without the issue of any
additional legal instrument or permission.
(ii) Following the conversion of an area to a Development Lease based
on a Commercial Gas Discovery (or upon the discovery of Gas in a
Development Lease granted following a Commercial Oil Discovery),
EGPC shall make efforts to find the adequate local markets capable
of absorbing the production of Gas and shall advise CONTRACTOR of
the potential outlets for such Gas, and the expected annual
schedule of demand. Thereafter, EGPC and CONTRACTOR shall meet
with a view to assessing whether the outlets for such Gas and
other relevant factors warrant the development and production of
the Gas and, in case of agreement, the Gas thus made available
shall be disposed of to EGPC under a long-term sales agreement in
accordance with and subject to the conditions set forth in Article
VII below.
(iii) The development period of each Development Lease shall be as
follows:
(aa) In respect of a Commercial Oil Discovery, twenty (20) years
from the date of such Commercial Discovery plus the Optional
Extension Period (as defined below) provided that, in the
event that subsequent to the conversion of a Commercial Oil
Discovery into a Development Lease, Gas is discovered in the
same Development Lease and is used or is capable of being
used locally or for export hereunder, the period of the
Development Lease shall be extended only with respect to
such Gas, LPG extracted from such Gas and Crude oil in the
form of condensate produced with such Gas for twenty (20)
years from the date of first deliveries of Gas locally
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or for export plus the Optional Extension Period (as defined
below) provided that the duration of such Development Lease
based on the Commercial Oil Discovery shall not be extended
beyond thirty-five (35) years from the date of the Commercial
Oil Discovery. Unless otherwise agreed upon between EGPC and
CONTRACTOR and subject to the approval of the Minister of
Petroleum and Mineral Resources, CONTRACTOR shall immediately
notify EGPC of any Gas discovery, but there shall be no
requirement to apply for a new Development Lease in respect
of such Gas.
(bb) In respect of a Commercial Gas Discovery, twenty (20) years
from the date of first deliveries of Gas locally or for
export plus the Optional Extension Period (as defined
below), provided that if subsequent to the conversion of a
Commercial Gas Discovery into a Development Lease, Crude Oil
is discovered in the same Development Lease, CONTRACTOR's
share of such Crude oil from the Development Lease (except
LPG extracted from Gas or Crude Oil in the form of
condensate produced with Gas) and Gas associated with such
Crude Oil shall revert entirely to EGPC upon the lapse of
twenty (20) years from the date of such Crude Oil discovery,
plus the Optional Extension Period (as defined below).
Notwithstanding anything to the contrary under this
agreement the duration of a Development Lease based on a
Commercial Gas Discovery shall not exceed thirty-five (35)
years from the date of Commercial Gas Discovery. CONTRACTOR
shall immediately notify EGPC of any Oil discovery, but
there shall be no requirement to apply for a new Development
Lease in respect of such Crude Oil. The "Optional Extension
Period" shall mean a period of five (5) years which may be
elected by CONTRACTOR upon six (6) months' written notice to
EGPC prior to the expiry of the relevant twenty (20) year
period.
(e) Development operations shall, upon the issuance of a Development Lease
granted following a Commercial Oil Discovery be started promptly by
Operating Company and be conducted in accordance with good oil field
practices and accepted petroleum engineering principles, until the field
is considered to be fully developed, it being understood that if
associated Gas is not utilized, EGPC and CONTRACTOR shall negotiate in
good faith on the best way to avoid impairing the production in the
economic interests of the parties. In the event no Commercial Production
of Oil in regular shipments is established in any Development Block within
three (3) years from the date of the Commercial Discovery, such
Development Block shall immediately be relinquished unless there is a
Commercial Gas Discovery on the Development Lease. However, such three
(3) year period may be extended by an additional period not exceeding one
(1) year, subject to approval of the Minister of Petroleum and Mineral
Resources. Each Development Block in a Development Lease being partly
within the radius of drainage of any producing well in such Development
Lease shall be considered as participating in the
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Commercial Production referred to above. Development operations in
respect of Gas and Crude Oil in the form of Condensate or LPG to be
produced with or extracted from such Gas shall, upon the signature of a
Gas Sales Agreement or commencement of a scheme to dispose of the Gas,
whether for export as referred to in Article VII below or otherwise, be
started promptly by Operating Company and be conducted in accordance with
good gas field practices and accepted petroleum engineering principles and
the provisions of such Gas Sales Agreement or scheme. In the event no
Commercial Production of Gas is established in accordance with such Gas
Sales Agreement or scheme, the Development Lease relating to such Gas
shall be relinquished, unless otherwise agreed upon by EGPC.
(f) CONTRACTOR shall bear and pay all the costs and expenses required in
carrying out all the operations under this Agreement but such costs and
expenses shall not include any interest on investment. CONTRACTOR shall
look only to the Petroleum to which it is entitled under this Agreement to
recover such costs and expenses. Such costs and expenses shall be
recoverable as provided in Article VII. During the term of this Agreement
and its renewal, the total production achieved in the conduct of such
operations shall be divided between EGPC and CONTRACTOR in accordance with
the provisions of Article VII.
(g) (1) CONTRACTOR shall be subject to Egyptian income tax laws and shall
comply with the requirements of such laws with respect to the filing
of returns, the assessment of tax, and the keeping and showing of
books and records.
(2) CONTRACTOR's annual income for Egyptian income tax purposes under
this Agreement shall be an amount calculated as follows:
The total of the sums received by CONTRACTOR from the sale or
other disposition of all Petroleum acquired by CONTRACTOR pursuant
to Article VII, paragraphs (a) and (b);
Reduced by:
(i ) the costs and expenses of CONTRACTOR;
(ii) the value, as determined according to paragraph (c) of Article VII
of EGPC's share of Excess Cost Recovery Petroleum repaid to EGPC in
cash or in kind, if any,
PLUS:
An amount equal to CONTRACTOR's Egyptian income taxes grossed up
in the manner shown in Annex D, Article VI.
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For purposes of above tax deductions in any Tax Year paragraph (a)
of Article VII shall apply only in respect of classification of
costs and expenses and rates of costs amortization, without regard
to the percentage limitation referred to in the first paragraph of
Article VII(a)(1). All costs and expenses of CONTRACTOR in
conducting the operations under this Agreement which are not
controlled by paragraph (a) of Article VII as above qualified shall
be deductible in accordance with the provisions of the Egyptian
Income Tax Law.
(3) EGPC shall assume, pay and discharge, in the name and on behalf of
the CONTRACTOR, CONTRACTOR's Egyptian Income Tax out of EGPC's
share of the Petroleum produced and saved and not used in
operations under Article VII. All taxes paid by EGPC in the name
and on behalf of CONTRACTOR shall be considered income to
CONTRACTOR as calculated in accordance with Annex "D", Article VI
of the attached Accounting Procedure.
(4) EGPC shall furnish to CONTRACTOR the proper official receipts
evidencing the payment of CONTRACTOR's Egyptian Income Tax for
each Tax Year, within ninety (90) days following the receipt by
EGPC of CONTRACTOR's tax declaration for the preceding Tax Year.
Such receipts shall be issued by the proper Tax Authorities and
shall state the amount and other particulars customary for such
receipts.
(5) As used herein, Egyptian Income Tax shall be inclusive of all
income taxes payable in the A.R.E. (including tax on tax) such as
the tax on income from movable capital and the tax on profits from
commerce and industry and inclusive of taxes based on income or
profits, including all dividends, withholding with respect to
shareholders, and other taxes imposed by the GOVERNMENT of the
A.R.E. on the distribution of income or profits by CONTRACTOR.
(6) In calculating its A.R.E. Income Taxes, EGPC shall be entitled to
deduct all royalties paid by EGPC to the GOVERNMENT and
CONTRACTOR's Egyptian income taxes paid by EGPC on CONTRACTOR's
behalf.
ARTICLE IV
WORK PROGRAM AND EXPENDITURES DURING
EXPLORATION PERIOD
(a) CONTRACTOR shall commence Exploration operations hereunder not later than
six (6) months after the Effective Date. Not later than the end of the
twenty-fourth (24th) month after the Effective Date, CONTRACTOR shall
start Exploration drilling in the Area, with a commitment of drilling one
(1) well during the initial Exploration period. EGPC shall make available
for
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CONTRACTOR's use all seismic, wells and other Exploration data in EGPC's
possession with respect to the Area.
(b) The initial Exploration period shall be three (3) years. CONTRACTOR may
continue Exploration activities by undertaking two (2) successive
additional periods of two (2) years each in accordance with Article III
(b), each of which upon at least a thirty (30) days' prior written notice
to EGPC, subject to CONTRACTOR's expenditure of its minimum Exploration
obligations and of its fulfillment of the drilling obligations hereunder
for the then current period. CONTRACTOR shall spend a minimum of two
million U.S. Dollars (U.S. $ 2,000,000) on Exploration operations and
activities related thereto during the initial three (3) year Exploration
period. During such initial period CONTRACTOR shall drill one (1) well.
For each of the two (2) successive additional exploration periods of two
(2) years each that CONTRACTOR elects to undertake beyond the initial
Exploration period, CONTRACTOR shall spend a minimum of four million U.S.
Dollars (U.S. $ 4,000,000) and drill two (2) wells. Should CONTRACTOR
spend more than the minimum amount required to be expended or drill more
wells than the minimum required to be drilled during the initial three (3)
year Exploration period, or during any period thereafter, the excess may
be subtracted from the minimum amount of money required to be expended by
CONTRACTOR or minimum number of wells required to be drilled during any
succeeding Exploration period or periods, as the case may be. In case
CONTRACTOR surrenders its Exploration rights under this Agreement as set
forth above before or at the end of the third (3rd) year of the initial
exploration period, or any extension thereof, having expended less than
the total sum of two million U.S. Dollars (U.S. $ 2,000,000) on
Exploration or in the event at the end of the third (3rd) year CONTRACTOR
has expended less than said sum in the Area, an amount equal to the
difference between the said two million U.S. Dollars (U.S. $ 2,000,000)
and the amount actually spent on Exploration activities shall be paid by
CONTRACTOR to EGPC at the time of surrendering or within three (3) months
from the end of the third (3rd) year of the initial Exploration period, as
the case may be. Any expenditure deficiency by CONTRACTOR at the end of
any additional period for the reasons above noted shall similarly result
in a payment by CONTRACTOR to EGPC of such deficiency. Provided this
Agreement is still in force as to CONTRACTOR, CONTRACTOR shall be entitled
to recover any such payments as Exploration expenditures in the manner
provided for under Article VII in the event of Commercial Production.
Without prejudice to Article III(b), in case no Commercial Oil Discovery
is established or no notice of Commercial Gas Discovery is given by the
end of the seventh (7th) year of the Exploration period or any extensions
thereof, or in case CONTRACTOR surrenders the Area under this Agreement
prior to such time, EGPC shall not bear any of the aforesaid expenses
incurred by CONTRACTOR.
(C) At least four (4) months prior to the beginning of each Financial Year or
at such other times as may mutually be agreed to by EGPC and CONTRACTOR,
CONTRACTOR shall prepare an Exploration Work Program and Budget for the
Area setting forth the Exploration operations which CONTRACTOR proposes
to carry out during the ensuing year. During each Exploration
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period, such Work Programs and Budgets taken together shall be at least
sufficient to satisfy CONTRACTOR's minimum expenditure obligations for the
period it covers, taking into account any credits for excess drilling or
expenditures by CONTRACTOR in prior Exploration periods. The Exploration
Work Program and Budget shall be reviewed by a joint committee to be
established by EGPC and CONTRACTOR after the Effective Date of this
Agreement. This Committee, hereinafter referred to as the "Exploration
Advisory Committee," shall consist of six (6) members, three (3) of whom
shall be appointed by EGPC and three (3) by CONTRACTOR. The Chairman of
the Exploration Advisory Committee shall be designated by EGPC from among
the members appointed by it. The Exploration Advisory Committee shall
review and give such advice as it deems appropriate with respect to the
proposed Work Program and Budget. Following review by the Exploration
advisory Committee, CONTRACTOR shall make such revisions as CONTRACTOR
deems appropriate and submit the Exploration Work Program and Budget to
EGPC for its approval. Following such approval, it is further agreed
that:
(1) CONTRACTOR shall not substantially revise or modify said Work
Program and Budget nor reduce the approved budgeted expenditure
without the approval of EGPC;
(2) In the event of emergencies involving danger of loss of lives or
property, CONTRACTOR may expend such additional non- budgeted amounts
as may be required to alleviate such danger. Such expenditure shall
be considered in all respects as an Exploration expenditure and shall
be recovered pursuant to the provisions of Article VII hereof.
(d) CONTRACTOR shall advance all necessary funds for all materials, equipment,
supplies, personnel administration and operations pursuant to the
Exploration Work Program and Budget and EGPC shall not be responsible to
bear or repay any of the aforesaid costs.
(e) CONTRACTOR shall be responsible for the preparation and performance of the
Exploration Work Program which shall be implemented in a workmanlike
manner and consistent with good industry practices. Except as is
appropriate for the processing of data, specialized laboratory,
engineering and development studies thereon, to be made in specialized
centers outside A.R.E., all geological and geophysical studies as well as
any other studies related to the performance of this Agreement, shall be
made in the A.R.E. CONTRACTOR shall entrust the management of Exploration
operations in the A.R.E. to its technically competent General Manager and
Deputy General Manager. The names of such Manager and Deputy General
Manager shall upon appointment, be forthwith notified to the GOVERNMENT
and to EGPC. The General Manager and, in his absence, the Deputy General
Manager shall be entrusted by CONTRACTOR with sufficient powers to carry
out immediately all lawful written directions given to them by the
GOVERNMENT or its representative under the terms of this Agreement. All
lawful regulations issued or hereafter to be issued which are applicable
hereunder and not in conflict with this Agreement shall apply to
CONTRACTOR.
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(f) CONTRACTOR shall supply EGPC, within thirty (30) days from the end of each
calendar quarter, with a Statement of Exploration Activity showing costs
incurred by CONTRACTOR during such quarter. CONTRACTOR's records and
necessary supporting documents shall be available for inspection by EGPC at
any time during regular working hours for three (3) months from the date of
receiving each Statement. Within the three (3) months from the date of
receiving such Statement, EGPC shall advise CONTRACTOR in writing if it
considers;
(1) that the record of costs is not correct;
(2) that the costs of goods or services supplied are not in line with
the international market prices for goods or services of similar
quality supplied on similar terms prevailing at the time such goods
or services were contracted for, provided, however, that purchases
made and services performed within A.R.E. shall be subject to
Article XXV;
(3) that the condition of the materials furnished by CONTRACTOR does not
tally with their prices; or
(4) that the costs incurred are not reasonably required for operations.
CONTRACTOR shall confer with EGPC in connection with the problem
thus presented, and the parties shall attempt to reach a settlement
which is mutually satisfactory. Any reimbursement due to EGPC out
of the Cost Recovery Petroleum, as a result of reaching agreement or
of an arbitral award shall be promptly made in cash to EGPC, plus
simple interest of LIBOR plus 2.5 percent per annum from the date on
which the disputed amount(s) would have been paid to EGPC according
to Article VII(a)(2) and Annex "D" (i.e., the date of rendition of
the relevant Cost Recovery Statement) of this agreement to the date
of payment. The LIBOR rate applicable shall be the average of the
figure or figures published by the Financial Times representing the
mid-point of the rates (bid and ask) applicable to one month U.S.
Dollar deposits in the London Interbank Eurocurrency Market on each
fifteenth (15th) day of each month occurring between the date on
which the disputed amount (s) would have been paid to EGPC and the
date on which it is settled. If the LIBOR rate is available on any
fifteenth (15th) day but is not published in the Financial Times in
respect of such day for any reason, the LIBOR rate chosen shall be
that offered by Citibank N.A. to other leading banks in the London
Interbank Eurocurrency Market for one-month U.S. Dollar deposits.
If such fifteenth (15th) day is not a day on which LIBOR rates are
quoted in the London Interbank Eurocurrency Market, the LIBOR rate
to be used shall be that quoted on the next following day on which
such rates are quoted. If within the time limit of the three (3)
month period provided for in this paragraph, EGPC has not advised
CONTRACTOR of its objection to any Statement, such Statement shall
be considered as approved.
(g) CONTRACTOR shall supply all funds necessary for its operations in A.R.E.
under this
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Agreement in freely convertible currency from abroad. CONTRACTOR shall
have the right to buy Egyptian currency whenever required and the
conversion shall be made at the local banks in the A.R.E. according to the
Official A.R.E. rate of exchange.
(h) EGPC is authorized to advance to CONTRACTOR the Egyptian currency required
for the operations under this Agreement against receiving from CONTRACTOR
an equivalent amount of U.S. Dollars at the official A.R.E. rate of
exchange, such Dollars to be deposited in an EGPC account abroad with a
correspondent bank of the National Bank of Egypt, Cairo. Withdrawals from
said account shall be used for financing EGPC's and its Affiliated
Companies' foreign currency requirements subject to the approval of the
Minister of Petroleum and Mineral Resources.
ARTICLE V
MANDATORY AND VOLUNTARY RELINQUISHMENTS
a) MANDATORY
At the end of the third (3rd) year after the Effective Date hereof,
CONTRACTOR shall relinquish to the GOVERNMENT a total of twenty-five (25)
percent of the original Area not then converted to a Development Lease or
Leases. Such relinquishment shall be in units of whole Exploration Blocks
or parts of Exploration Blocks not converted to Development Leases so as
to enable the relinquishment requirements to be precisely fulfilled. At
the end of the fifth (5th) year after the Effective Date hereof,
CONTRACTOR shall relinquish an additional twenty-five (25) percent of the
original Area not then converted to a Development Lease or Leases. Such
relinquishment shall be in units of whole Exploration Blocks or parts of
Exploration Blocks not converted to Development Leases so as to enable the
relinquishment requirements to be precisely fulfilled. Without prejudice
to Articles III and XXII or the last three paragraphs of this Article
V(a), at the end of the seventh (7th) year of the Exploration period,
CONTRACTOR shall relinquish the remainder of the original Area not then
converted to a Development Lease or Leases. It is understood that at the
time of any relinquishment the areas to be converted into Development
Leases and which are submitted to the Minister of Petroleum and Mineral
Resources for his approval, according to Article III(d) shall, subject to
such approval, be deemed to be converted to Development Leases.
CONTRACTOR shall not be required to relinquish any Exploration Block or
Blocks on which a Commercial Oil or Gas Well is discovered before the
period of time referred to in Article III(c) of this Agreement given to
CONTRACTOR to determine whether such Well is a Commercial Discovery worthy
of development. In the event at the end of any Exploration period a well
is actually drilling, or testing, CONTRACTOR shall be allowed up to a six
(6) month period to enable it to establish a Commercial Discovery.
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(b) VOLUNTARY
CONTRACTOR may, voluntarily, during any period relinquish all or any part
of the Area in Blocks provided that at the time of such voluntary
relinquishment its drilling obligations under Article IV(b) have been
satisfied for such period. Any relinquishments hereunder shall be
credited toward the mandatory provisions of Article (V)(a) above.
Following Commercial Discovery, EGPC and CONTRACTOR shall mutually agree
upon any area to be relinquished thereafter, except for the relinquishment
provided for above at the end of the total Exploration period.
ARTICLE VI
OPERATION AFTER COMMERCIAL DISCOVERY
(a) On Commercial Discovery, EGPC and CONTRACTOR shall form in the A.R.E. an
operating company which shall be named by mutual agreement between EGPC
and CONTRACTOR and such name shall be subject to the approval of the
Minister of Petroleum and Mineral Resources (hereinafter referred to as
"Operating Company"). Said company shall be a private sector company.
Operating Company shall be subject to the laws and regulations in force in
the A.R.E. to the extent that such laws and regulations are not
inconsistent with the provisions of this Agreement or the Charter of
Operating Company. However, Operating Company and CONTRACTOR shall, for
the purpose of this Agreement, be exempted from the following laws and
regulations as now or hereafter amended or substituted:
- Law No. 97 of 1976, organizing dealings in foreign currencies;
- Law No. 48 of 1978, on the staff regulation of public Companies;
- Law No. 159 of 1981, promulgating the law on joint stock companies,
partnership limited by share companies and limited liability
companies; and
- Law No. 97 of 1983 promulgating the law concerning public sector's
authorities and companies.
- Law No. 203 of 1991 on public business sector law.
(b) The Charter of Operating Company is hereto attached as Annex "C". Within
thirty (30) days after the date of a Commercial Oil Discovery or within
thirty (30) days after signature of a Gas Sales Agreement or commencement
of a scheme to dispose of Gas (unless otherwise agreed upon by EGPC and
CONTRACTOR), the Charter shall take effect and Operating Company shall
automatically come into existence without any further procedures. The
Exploration Advisory
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Committee shall be dissolved forthwith on the coming into existence of the
operating company.
(c) Ninety (90) days after the date Operating Company comes into existence in
accordance with paragraph (b) above, it shall prepare a Work Program and
Budget for further Exploration and Development for the remainder of the
Year in which the Commercial Discovery is made; and not later than four
(4) months before the end of the current Financial Year (or such other
date as may be agreed upon) and five (5) months preceding the commencement
of each succeeding Financial Year thereafter (or such other date as may be
agreed upon) Operating Company shall prepare an annual Production
Schedule, Work Program and Budget for further Exploration and Development
for the succeeding Financial Year. The Production Schedule, Work Program
and Budget shall be submitted to the Board of Directors for approval.
(d) Not later than the twentieth (20th) day of each month, operating Company
shall furnish to CONTRACTOR a written estimate of its total cash
requirements for expenditure for the first half and the second half of the
succeeding month expressed in U.S. Dollars having regard to the approved
Budget. Such estimate shall take into consideration any cash expected to
be on hand at month end. Payment for the appropriate period of such month
shall be made to the correspondent bank designated in paragraph (e) below
on the first (1st) day and fifteenth (15th) day respectively, or the next
following business day, if such day is not a business day.
(e) Operating Company is authorized to keep at its own disposal abroad in an
account opened with a correspondent bank of the National Bank of Egypt,
Cairo, the foreign funds advanced by CONTRACTOR. Withdrawals from said
account shall be used for payment for goods and services acquired abroad
and for transferring to a local bank in the A.R.E. the required amount to
meet expenditures in Egyptian Pounds for Operating Company in connection
with its activities under this Agreement. Within sixty (60) days after
the end of each Financial Year, Operating Company shall submit to the
appropriate exchange control authorities in the A.R.E. a statement, duly
certified by a recognized firm of auditors, showing the funds credited to
that account, the disbursements made out of that account and the balance
outstanding at the end of the Financial Year.
(f) If and for as long during the period of production operations there
exists any excess capacity in facilities which cannot during the period of
such excess be used by the Operating Company, EGPC and CONTRACTOR will
consult together to find a mutually agreed formula whereby EGPC may use
the excess capacity if it so desires without any unreasonable financial or
operational disadvantage to the CONTRACTOR.
ARTICLE VII
RECOVERY OF COSTS AND EXPENSES AND PRODUCTION SHARING
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(a) (1) Cost Recovery Petroleum
Subject to the auditing provisions under this Agreement, CONTRACTOR
shall recover all costs and expenses in respect of all the
Exploration, Development and related operations under this Agreement
to the extent and out of forty (40) percent quarterly of all
Petroleum produced and saved from all Development Leases within the
Area hereunder and not used in Petroleum operations. Such Petroleum
is hereinafter referred to as "Cost Recovery Petroleum." For all
Exploration, Development and production hereunder, such costs and
expenses shall be recovered from Cost Recovery Petroleum in the
following manner:
(i) Operating Expenses, incurred and paid after the date of
the initial Commercial Production, which, for the
purposes of this Agreement, shall mean the date on which
the first regular shipment of Crude Oil or the first
deliveries of Gas are made, shall be recoverable either
in the Tax Year in which such costs and expenses are
incurred and paid or the Tax Year in which initial
Commercial Production occurs, whichever is the later
date.
(ii) Exploration Expenditures including those accumulated
prior to the commencement of initial Commercial
Production , which for the purposes of this Agreement
shall mean the date on which the first regular shipment
of Crude Oil or the first deliveries of Gas are made,
shall be recoverable at the rate of twenty (20) percent
per annum starting either in the Tax Year in which such
expenditures are incurred and paid or the Tax Year in
which initial Commercial Production commences, whichever
is the later date.
(iii) Development Expenditures, including those accumulated
prior to the commencement of initial Commercial
Production, which, for the purposes of this Agreement,
shall mean the date on which the first regular shipment
of Crude Oil or the first deliveries of Gas are made,
shall be recoverable at the rate of twenty (20) percent
per annum starting in the Tax Year in which such
expenditures are incurred and paid or the Tax Year in
which initial Commercial Production commences, whichever
is the later date.
(iv) To the extent that, in a Tax Year, costs, expenses or
expenditures recoverable per paragraphs (i), (ii) and
(iii) preceding exceed the value of all Cost Recovery
Petroleum for such Tax Year, the excess shall be carried
forward for recovery in the next succeeding Tax Year or
Years until fully recovered, but in no case after the
termination of this Agreement, as to CONTRACTOR.
(v) For the purpose of determining the classification of all
costs, expenses and expenditures for their recovery, the
following terms shall apply:
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(1) "Exploration Expenditures" shall mean all costs
and expenses for Exploration and its related
portion of the overheads.
(2) "Development Expenditures" shall mean all costs
and expenses for Development with the exception
of Operating Expenses and its related portion of
the overheads.
(3) "Operating Expenses" shall mean all costs,
expenses and expenditures made after initial
Commercial Production, which costs, expenses and
expenditures are not normally depreciable.
However, Operating Expenses shall include
workover, repair and maintenance of assets, but
shall not include any of the following: side
tracking; re-drilling and changing of the status
of a well; replacement of assets or a part of an
asset; additions, improvements, renewals and
major overhauling that extend the life of the
asset.
(vi) It is understood and agreed upon that the
recovery of costs and expenses as based upon the
rates referred to above shall be allocated to
each quarter proportionately (one fourth to each
quarter). However, any recoverable costs and
expenses not recovered in one quarter, as thus
allocated, shall be carried forward for recovery
in the next quarter.
(2) Except as provided in sub-paragraph (a)(3) below of this
Article VII and VII(e)(1), CONTRACTOR shall each quarter be
entitled to and own all Cost Recovery Petroleum, which shall
be taken and freely exported or otherwise disposed of in the
manner determined pursuant to Article VII(e). To the extent
that the value of all Cost Recovery Petroleum (as determined
in sub-paragraph (c) below) exceeds the actual recoverable
costs and expenditures, including any carry forward under
paragraph (a)(1)(vi) above, to be recovered in that quarter,
(Excess Cost Recovery Petroleum) then the value of such Excess
Cost Recovery Petroleum shall be paid by Contractor to EGPC in
the manner set forth in Article IV of the Accounting Procedure
contained in Annex "D".
(3) Ninety (90) days prior to the commencement of each year EGPC
shall be entitled to elect by notice in writing to CONTRACTOR
to require repayment of up to one hundred (100) percent of
EGPC share in the Excess Cost Recovery Petroleum in kind.
Such repayment will be in Crude Oil from the Area F.O.B.
export terminal or other agreed delivery point provided that
the amount of Crude Oil taken by EGPC in kind in a quarter
shall not exceed the value of Cost Recovery Crude Oil
actually taken and separately disposed of by CONTRACTOR from
the Concession Area during previous quarter. If EGPC's
entitlement to receive repayment of Excess Cost
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Recovery Petroleum is limited by the foregoing provision, the
balance of such entitlement shall be paid in cash.
(b) Production Sharing:
(1) The remaining sixty percent (60%) of the Petroleum shall be
divided between EGPC and CONTRACTOR according to the following
shares: Such shares shall be taken and disposed of pursuant
to Article VII(e).
<TABLE>
<CAPTION>
(i) Crude Oil EGPC Share CONTRACTOR Share
% %
<S> <C> <C>
Crude Oil produced and saved
under this Agreement and not
used in Petroleum operations
Barrels per day (BOPD)
(quarterly average)
That portion or increment up Seventy Thirty
to 5,000 BOPD percent (70%) percent (30%)
That portion or increment Seventy-five Twenty-five
from 5,001 BOPD and up to percent (75%) percent (25%)
25,000 BOPD
That portion or increment from Seventy-eight Twenty-two
25,001 BOPD and up to percent (78%) percent (22%)
50,000 BOPD
That portion in excess of Eighty Twenty
50,000 BOPD percent (80%) percent (20%)
</TABLE>
(ii) Gas and LPG:
Gas and LPG produced and saved under this Agreement and
not used in Petroleum operations:
EGPC Share: Seventy-eight (78%)
CONTRACTOR Share: Twenty-two percent (22%)
(2) After the end of each contractual year during the term of any Gas Sales
Agreement entered into pursuant to Article VII(e), EGPC and CONTRACTOR (as
sellers) shall render to EGPC (as buyer) a statement for an amount of Gas,
if any, equal to the amount by which the quantity of Gas of which EGPC (as
buyer) has taken delivery falls below seventy-five (75) percent of the
contract quantities of Gas as established by the Applicable Gas Sales
Agreement (the "Shortfall"), provided
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the Gas is available. Within sixty (60) days of receipt of the statement,
EGPC (as buyer) shall pay EGPC and CONTRACTOR (as sellers) for the amount of
the Shortfall, if any. The Shortfall shall be included in EGPC's and
CONTRACTOR's entitlement to Gas pursuant to paragraphs (a) and (b) of this
Article in the fourth (4th) quarter of such contractual year. Quantities of
Gas not taken but to be paid for shall be recorded in a separate "Shortfall
account." Quantities of Gas ("make-up gas") which are delivered in
subsequent years in excess of seventy-five (75) percent of the Contract
quantities of Gas as established by the applicable gas sales agreement, shall
be set against and reduce quantities of Gas in the Shortfall account to the
extent thereof and, to that extent, no additional payment shall be due in
respect of such Gas. Such make-up gas shall not be included in CONTRACTOR's
entitlement to Gas pursuant to paragraphs (a) and (b) of this Article.
CONTRACTOR shall have no rights to such make-up gas. The percentages set
forth in Article VII(a) and this Article VII(b) in respect of LPG produced
from a Plant constructed and operated by or on behalf of EGPC and CONTRACTOR
shall apply to all LPG available for delivery.
(c) Valuation of Petroleum
(1) Crude Oil
(i) It is the intent of the Parties that the value of the Cost Recovery
Crude Oil shall reflect the prevailing market price for Crude Oil.
For the purpose of determining the prevailing market value of the
quantity of Cost Recovery Crude Oil to which CONTRACTOR is entitled
hereunder during each calendar quarter, the weighted average price
realized for comparable quantities on comparable credit terms in
freely convertible currency from F.O.B. point of export sales to
non-Affiliated Companies during any such quarter at arm's-length by
either EGPC or CONTRACTOR under all Crude Oil sales contracts then
currently in effect by either EGPC on the one hand or CONTRACTOR on
the other hand, but excluding Crude Oil spot sales not consistent with
prevailing market prices for similar Crude Oil and also excluding
crude oil sales contracts involving barter, whichever is higher, shall
be used. It is understood that in the case of C.I.F. sales,
appropriate deductions shall be made for transport and insurance
charges to calculate the F.O.B. point of export price; and always
taking into account the appropriate adjustment for quality of Crude
Oil, freight advantage or disadvantage of port of loading and other
appropriate adjustments. Nevertheless, if CONTRACTOR considers the
value of the Cost Recovery Crude Oil so determined not to reflect the
market conditions prevailing during the calendar quarter, CONTRACTOR
and EGPC shall meet and mutually agree upon the price.
(ii) If during any calendar quarter there are no such sales by EGPC or
CONTRACTOR under Crude Oil sales contracts then currently in effect,
EGPC and CONTRACTOR shall meet and mutually agree upon the price of
Crude Oil to be used in determining the value mentioned in subparagraph
(c)(1)(i) above. Pending such mutual agreement, the price used shall
be the
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last price determined pursuant to subparagraph (c)(1)(i) or under this
subparagraph (c)(1)(ii), whichever is later, and appropriate adjustments
will be made thereto after determination of a mutually agreed price by
EGPC and CONTRACTOR.
(2) Gas and LPG
(i) The Cost Recovery and Profit Shares of Gas subject to a Gas Sales
Agreement between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer)
entered into pursuant to Article VII(e) shall be valued, delivered to and
purchased by EGPC at a price determined according to the following
formula:
PG = 0.85 x F x H
-----------
39.69 x 10(6)
Where:
PG = the value of the Gas in U.S. Dollars per +thousand cubic feet (MCF).
F = a value in U.S. Dollars per metric ton of fuel oil calculated by
referring to "Platt's Oilgram Price Report" during a month under
the heading "European Bulk Cargoes F.O.B. Mediterranean Basis
Italy" and averaging (a) the sum of the mid- points of the
published low and high values for high sulphur fuel oil quoted
during such month divided by the number of days in such month for
which such values are quoted and (b) the sum of the mid-points of
the published low and high values for low sulphur fuel oil quoted
during such month divided by the number of days in such month for
which such values were quoted.
H = the number of British Thermal Units (BTUs) per thousand cubic feet
(MCF) of Gas. The Gas buyer and sellers shall agree on the
measurement location.
In the event that Platt's Oilgram Price Report is issued on certain days
during a month but not on others, the value of F shall be calculated using
only those issues which are published during such month. In the event that
the value of F cannot be determined because Platt's Oilgram Price Report is
not published at all during a month, the parties shall meet and agree the
value of F by reference to other published sources. In the event that
there are no such published sources or if the value of F cannot be
determined pursuant to the foregoing for any other reason, the parties
shall meet and agree a value of F by reference to the average value of low
and high-sulphur content fuel oil delivered F.O.B. from the Mediterranean
area.
Such valuation of Gas under the above formula providing for a fifteen
percent (15%) discount is based upon delivery at the delivery point
specified in Article VII(e) 2 (ii) below, and is to enable EGPC to finance
and maintain the portion or portions of the pipeline distribution system to
be
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EXHIBIT 10.41
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provided by EGPC.
(ii) The Cost Recovery and Profit Shares of LPG producing from a plant
constructed and operated by or on behalf of EGPC and CONTRACTOR shall
be separately valued for Propane and Butane at the outlet of such LPG
plant according to the following formula (unless otherwise agreed
between EGPC and CONTRACTOR):
PLPG =
0.95 PR - (J x 0.85 x F )
-----------
39.69 x 10(6)
Where:
PLPG = LPG price (separately determined for Propane and Butane) in
U. S. Dollars per metric ton of LPG produced.
PR = the average over a period of a month of the figures
representing the mid- point between the high and low price
in U.S. Dollars per metric ton quoted in "Platt's LPGaswire"
during such month for Propane and Butane F.O.B. Ex- Ref/Stor,
West Mediterranean.
J = BTUs removed from the Gas Stream by the LPG plant
per metric ton of LPG's produced. The Gas buyers and sellers
shall agree on the measurement location.
F = the same value as F under subparagraph (i) above.
In the event that Platt's LPGaswire is issued on certain days during a
month but not on others, the value of PR shall be calculated using
only those issues which are published during such month. In the event
that the value of PR cannot be determined because Platt's LPGaswire is
not published at all during a month, the parties shall meet and agree
to the value of PR by reference to other published sources. In the
event that there are no such other published sources or if the value
of PR cannot be determined pursuant to the foregoing for any other
reason, the parties shall meet and agree to the value of PR by
reference to the value of LPG (Propane and Butane) delivered F.O.B.
from the Mediterranean area. Such valuation of LPG is based upon
delivery at the delivery point specified in Article VII(e) (2)(iii)
below.
(iii) The Prices of Gas and LPG so calculated shall apply during the next
succeeding month.
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EXHIBIT 10.41
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(iv) The Cost Recovery and Profit shares of Gas and LPG disposed of by EGPC
and CONTRACTS CONTRACTOR other than to EGPC pursuant to Article VII(e)
shall be valued at their actual realized prices.
(d) Forecasts:
Operating Company shall prepare (not less than ninety (90) days prior to
the beginning of each calendar semester following regular production) and
furnish in writing to CONTRACTOR and EGPC a forecast setting out the total
quantity of Petroleum that Operating Company estimates can be produced,
saved and transported hereunder during such calendar semester in accordance
with good oil and gas industry practices. Operating Company shall endeavor
to produce each calendar semester the forecast quantity. The Crude Oil
shall be run to storage tanks or offshore loading facilities constructed,
maintained and operated according to Government regulations by Operating
Company in which said Crude Oil shall be metered or otherwise measured for
royalty and all other purposes required by this Agreement. Gas shall be
handled by Operating Company in accordance with the provisions of Article
VII(e) below.
(e) Disposition of Petroleum:
(1) EGPC and CONTRACTOR shall have the right and the obligation to
separately take and freely export or otherwise dispose of currently
all of the Crude Oil to which each is entitled under Article VII(a)
and (b). Subject to payment of sums due EGPC under Article VII(a)(2)
and IX, CONTRACTOR shall have the right to retain abroad all funds
acquired by it abroad including the proceeds from the sale of its
share of Petroleum exported. Notwithstanding anything to the contrary
under this Agreement, priority shall be given to meet the requirements
of the A.R.E. market from the Crude Oil produced from the Area, and
EGPC shall have the preferential right to purchase such Crude Oil at a
price to be determined pursuant to Article VII(c). The amount of
Crude Oil so purchased shall be a portion of CONTRACTOR's share of the
Crude Oil produced under this Agreement. Such amount shall be
proportional to CONTRACTOR's share of the total production of crude
oil from the concession areas in the A.R.E. that are also subject to
EGPC's preferential right to purchase. The payment for such purchased
amount shall be made by EGPC in U.S. Dollars or in any other freely
convertible currency remittable abroad. It is agreed upon that EGPC
shall notify CONTRACTOR, at least forty five (45) days prior to the
beginning of the calendar semester, of the amount to be purchased
during such semester under this Article VII(e)(1).
(2) With respect to Gas and LPG produced from the Area:
(i) Priority shall be given to meet the requirements of the local
market as determined by EGPC.
(ii) In the event that EGPC is to be the buyer of Gas, the
disposition of Gas, to the local market as indicated above
shall be by virtue of long term Gas Sales Agreements to be
entered into between EGPC and CONTRACTOR (as sellers) and EGPC
(as buyer). EGPC and CONTRACTOR (as sellers) shall have the
obligation to deliver Gas to the
24
<PAGE> 96
PAGE 96 OF 138
following point where such Gas shall be metered for sales,
royalty, and other purposes required by this Agreement:
(a) In the event no LPG Plant is constructed to process such
Gas, at the point of delivery to be agreed upon by the
parties under the Gas Sales Agreement, which point of
delivery will be the flange connecting the pipeline to
the National Gas Pipeline Grid System as depicted in
Annex "E".; or as otherwise agreed.
(b) In the event an LPG plant is constructed to process such
Gas, such Gas shall, for the purposes of valuation and
sales, be metered at the inlet to such LPG plant.
However, notwithstanding the fact that the metering
shall take place at the LPG plant inlet, EGPC and
CONTRACTOR (as sellers) shall through the Operating
Company build a pipeline suitable for transport of the
processed Gas from the LPG plant outlet to the point of
delivery to be agreed upon by the parties under the Gas
Sales Agreement, which point of delivery will be the
flange connecting the pipeline to the National Gas
Pipeline Grid System as depicted in Annex "E" hereto, or
as otherwise agreed. Such pipeline shall be owned in
accordance with Article VIII(a) by EGPC, and its cost
shall be financed and recovered by CONTRACTOR as
Development Expenditures pursuant to Article VII.
(iii) EGPC and CONTRACTOR shall consult together to determine
whether to build an LPG plant for recovering LPG from
any Gas produced hereunder. In the event EGPC and
CONTRACTOR decide to build such a plant the plant shall,
as appropriate, be in the vicinity of the National Gas
Pipeline Grid System. The point of delivery of LPG for
sales, royalty and other purposes required by this
Agreement shall be at the outlet of the LPG Plant. The
costs of any such LPG Plant shall be recoverable in
accordance with the provisions of this Agreement unless
the Minister of Petroleum and Mineral Resources agrees
to accelerated recovery.
(iv) EGPC (as buyer) shall have the option to elect, by
ninety (90) days prior written notice to EGPC and
CONTRACTOR (as sellers) whether payment for the Gas
which is subject to a Gas Sales Agreement between EGPC
and CONTRACTOR (as sellers) and EGPC (as buyer) and LPG
produced from a plant constructed and operated by or on
behalf of EGPC and CONTRACTOR, as valued in accordance
with Article VII(c), and to which CONTRACTOR is entitled
under the provisions of Cost Recovery and production
Sharing as stipulated in Article VII of this Agreement,
shall be made 1) in cash or 2) in kind. Payments in
cash shall be made by EGPC (as buyer) at intervals
provided for in the relevant Gas Sales Agreement in U.S.
Dollars remittable by CONTRACTOR abroad.
Payments in kind shall be calculated by converting the
value of Gas and LPG to
25
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EXHIBIT 10.41
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which CONTRACTOR is entitled into equivalent Barrels of Crude Oil to
betaken concurrently by CONTRACTOR from the Area, or to the extent
that such Crude Oil is insufficient, Crude Oil from CONTRACTORS' other
concession areas, or such other areas as may be agreed. Such Crude
Oil shall be added to the Crude Oil that CONTRACTOR is otherwise
entitled to lift under this Agreement. Such equivalent Barrels shall
be calculated on the basis of the provisions of the relevant
Concession Agreement relating to he valuation of Cost Recovery Crude
Oil.
Provided that:
aa) Payment of value of Gas and LPG shall always be made in cash in
U.S. Dollars remittable by CONTRACTOR abroad to the extent that
there is insufficient Crude Oil available for conversion as
provided for above;
bb) Payment of the value of Gas and LPG shall always be made in kind
as provided for above to the extent that payments in cash are not
made by EGPC.
Payments to CONTRACTOR (whether in cash or kind), when related to
CONTRACTOR's Cost Recovery Petroleum, shall be included in
CONTRACTOR's Statement of Recovery of Cost and of Cost Recovery
Petroleum referred to in Article IV of Annex "D" of this
Agreement.
(v) Should EGPC (as buyer) fail to enter into a long-term Gas Sales
Agreement with EGPC and CONTRACTOR (as sellers) within five (5) years
(unless otherwise agreed) from a notice of Commercial Gas Discovery
given pursuant to Article III, EGPC and CONTRACTOR (as sellers) shall
have the right to take and freely dispose of the quantity of Gas and
LPG in respect of which the notice of Commercial Discovery is given by
exporting such Gas and LPG.
(vi) The proceeds of sale of CONTRACTOR's share of Gas and LPG disposed of
pursuant to the above subparagraph (v) may be freely remitted or
retained abroad by CONTRACTOR.
(vii) In the event EGPC and CONTRACTOR agree to accept new Gas and LPG
producers to join in an ongoing export project, such producers shall
have to contribute a fair and equitable share of the investment made.
(viii) aa) Upon the expiration of the five (5) year period referred to in
Article VII(e)(2)(v) above, CONTRACTOR shall have the obligation
to exert his
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EXHIBIT 10.41
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reasonable efforts to find an export market for the Gas reserves.
bb) In the event at the end of the five (5) year period referred to
under Article VII(e)(2)(v) above, CONTRACTOR and EGPC have not
entered into a Gas Sales Agreement, CONTRACTOR shall retain its
rights to such Gas reserves for a further period up to seven (7)
years, subject to Article VII(e)(2)(viii)(cc), during which
period EGPC shall also attempt to find a market for the Gas
reserves.
cc) In the event that CONTRACTOR has not entered into a Gas Sales
Agreement pursuant to Article VII(e)(2) prior to the expiry of
twelve (12) years from CONTRACTOR's notice of Commercial Gas
Discovery, CONTRACTOR shall surrender the Gas reserves in respect
of which such notice has been given. It being understood that
CONTRACTOR shall, at any time prior to the expiry of such twelve
(12) year period, surrender the Gas reserves, if CONTRACTOR does
not accept an offer of a Gas Sales Agreement from EGPC within
six (6) months from the date such offer is made provided that
such Gas Sales Agreement offered to CONTRACTOR shall take into
consideration the relevant technical and economic factors to
enable a Commercial Contract, including:
- a sufficient delivery rate.
- delivery pressure to enter the National Gas Pipeline Grid
System at a mutually acceptable point of delivery.
- Delivered Gas quality specification not more stringent than
those imposed or required for the National Gas Pipeline Grid
System.
(ix) CONTRACTOR shall not be obliged to surrender a Development Lease
based on a Commercial Gas Discovery, if Crude Oil has been
discovered in commercial quantities in the same Development Lease.
(f) Operations
If following the reversion to EGPC of any rights to Crude Oil hereunder,
CONTRACTOR retains rights to Gas in the same Development Lease, or, if
following surrender of rights to Gas hereunder CONTRACTOR retains rights
to Crude Oil in the same Development Lease, operations to explore for or
exploit the Petroleum, the rights to which have reverted or been
surrendered (Oil or Gas as the case may be) may only be carried out by
Operating Company which shall act on behalf of EGPC alone, unless EGPC and
CONTRACTOR agrees otherwise.
(g) Tanker Scheduling
At a reasonable time prior to the commencement of Commercial Production,
EGPC and
27
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EXHIBIT 10.41
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CONTRACTOR shall meet and agree upon a procedure for scheduling tanker
liftings from the agreed upon point of export.
ARTICLE VIII
TITLE TO ASSETS
(a) EGPC shall become the owner of all assets acquired and owned by
CONTRACTOR in connection with the operations carried out by CONTRACTOR
or Operating Company in accordance with the following:
(1) Land shall become the property of EGPC as soon as it is
purchased.
(2) Title to fixed and movable assets shall be transferred
automatically and gradually from CONTRACTOR to EGPC as they
become subject to recovery in accordance with the provisions
of Article VII; however the full title to fixed and movable
assets shall be transferred automatically from CONTRACTOR to
EGPC when its total cost has been recovered by CONTRACTOR in
accordance with the provisions of Article VII or at the time
of termination of this Agreement with respect to all assets
chargeable to the operations whether recovered or not,
whichever first occurs.
The Book Value of the assets created during each calendar quarter
shall be communicated by CONTRACTOR to EGPC or by Operating Company to
EGPC and CONTRACTOR within thirty (30) days of the end of each
quarter.
(b) During the term of this Agreement and the renewal period, EGPC,
CONTRACTOR and Operating Company are entitled to the full use and
enjoyment of all fixed and movable assets referred to above in
connection with operations hereunder or under any other Petroleum
Concession entered into by the parties. Proper accounting adjustment
shall be made. CONTRACTOR and EGPC shall not dispose of the same
except with agreement of the other.
(c) CONTRACTOR and Operating Company may freely import into A.R.E., use
therein and freely export at the end of such use, machinery and
equipment which they either rent or lease in accordance with good
industry practices, including but not limited to the lease of computer
hardware and software
ARTICLE IX
BONUSES
(a) CONTRACTOR shall pay to EGPC as a Signature Bonus the sum of three
hundred thousand
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EXHIBIT 10.41
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U.S. Dollars (U.S. $ 300,000) on the Effective Date.
(b) CONTRACTOR shall pay to EGPC the sum of two million U.S. Dollars (U.S.
$ 2,000,000) as a Production Bonus when the total average daily
production from the Area first reaches the rate of fifty thousand
(50,000) Barrels of Crude Oil per day for a period of thirty (30)
consecutive producing days. Such payment will be made within fifteen
(15) days after CONTRACTOR has been notified by Operating Company of
such production levels.
(c) CONTRACTOR shall also pay to EGPC the additional sum of four million
U.S. Dollars (U.S. $ 4,000,000) as a Production Bonus when the total
average daily production from the Area first reaches the rate of one
hundred thousand (100,000) Barrels of Crude Oil per day for a period
of thirty (30) consecutive producing days. Payment will be made
within fifteen (15) days after CONTRACTOR has been notified by
Operating Company of such production levels.
(d) CONTRACTOR shall also pay to EGPC the additional sum of six million
U.S. Dollars (U.S. $ 6,000,000) as a Production Bonus when the total
average daily production from the Area first reaches the rate of one
hundred fifty thousand (150,000) Barrels of Crude Oil per day for a
period of thirty (30) consecutive producing days. Payment will be
made within fifteen (15) days after CONTRACTOR has been notified by
Operating Company of such production levels.
(e) All of the above-mentioned Bonuses shall in no event be recovered by
CONTRACTOR.
(f) In the event that EGPC elects to develop any part of the Area pursuant
to the sole risk provisions of Article III(c) hereinabove, production
from such sole risk area shall be considered for the purposes of this
Article IX only if CONTRACTOR exercises its option to share in such
production, and only from the initial date of sharing.
(g) Gas shall be taken into account for purposes of determining the total
average daily production from the Area under Article IX(b) - (d) by
converting daily Gas delivered into equivalent Barrels of daily Crude
Oil production in accordance with the following formula:
MCF x H x 0.136 = equivalent Barrels of Crude Oil
Where:
MCF = one thousand cubic feet of Gas
H = the number of Million British Thermal Units (BTUs) per
thousand cubic feet (MCF).
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ARTICLE X
OFFICE AND SERVICE OF NOTICE
CONTRACTOR shall maintain an office in A.R.E. at which notices shall
be validly served.
The General Manager and Deputy General Manager shall be entrusted by
CONTRACTOR with sufficient power to carry out immediately all local written
directions given to them by the GOVERNMENT or its representatives under the
terms of this Agreement. All lawful regulations issued or hereafter to be
issued which are applicable hereunder and not in conflict with this Agreement
shall apply to the duties and activities of the General Manager and Deputy
General Manager.
All matters and notices shall be deemed to be validly served which are
delivered to the office of the General Manager or which are sent to him by
registered mail to CONTRACTOR's office in A.R.E.
All matters and notices shall be deemed to be validly served which are
delivered to the office of the Chairman of EGPC or which are sent to him by
registered mail at EGPC's main office in Cairo.
ARTICLE XI
SAVING OF PETROLEUM AND PREVENTION OF LOSS
(a) Operating Company shall take all proper measures, according to
generally accepted methods in use in the oil and gas industry to
prevent loss or waste of Petroleum above or under the ground in any
form during drilling, producing, gathering, and distributing or storage
operations. The GOVERNMENT has the right to prevent any operation on
any well that it might reasonably expect would result in loss or damage
to the well or the Oil or Gas field.
(b) Upon completion of the drilling of a productive well, Operating Company
shall inform the GOVERNMENT or its representative of the time when the
well will be tested and the production rate ascertained.
(c) Except in instances where multiple producing formations in the same
well can only be produced economically through a single tubing string,
Petroleum shall not be produced from multiple oil carrying zones
through one string of tubing at the same time, except with the prior
approval of the GOVERNMENT or its representative.
(d) Operating Company shall record data regarding the quantities of
Petroleum and water produced monthly from each Development Lease. Such
data shall be sent to the GOVERNMENT or its representative on the
special forms provided for that purpose within thirty (30) days after
it is
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obtained. Daily or weekly statistics regarding the production from the
Area shall be available at all reasonable times for examination by
authorized representatives of the GOVERNMENT.
(e) Daily drilling records and the graphic logs of wells must show the
quantity and type of cement and the amount of any other materials used in
the well for the purpose of protecting Petroleum, gas bearing or fresh
water strata.
(f) Any substantial change of mechanical conditions of the well after its
completion shall be subject to the approval of the representative of the
GOVERNMENT.
ARTICLE XII
CUSTOMS EXEMPTIONS
(a) EGPC, CONTRACTOR and Operating Company shall be permitted to import and
shall be exempted from customs taxes and duties and other taxes, and from
the importation rules with respect to the importation of machinery,
equipment, appliances, materials, items, means of transport and
transportation (the exemption from taxes and duties shall not apply to
passenger cars), electric appliances, air conditioners for offices and oil
fields, electronic appliances, computer hardware and software, as well as
spare parts required for any of these items, all subject to a duly
approved certificate by an EGPC responsible representative nominated by
EGPC for such purpose, that the imported items are required for carrying
on the activities related to this Agreement. Such certificate shall be
final and binding and shall automatically result in the importation and
the exemption without any further approval or procedure.
b. Machinery, equipment, appliances and means of transport and transportation
imported by contractors and subcontractors temporarily engaged in an
activity related to the operations subject of this Agreement shall be
cleared under the "Temporary Release System" (without payment of any taxes
or customs duties), upon presentation of a duly approved certificate by an
EGPC responsible representative nominated by EGPC for such purpose, that
the imported items are required for carrying on an activity related to
this Agreement. Items (excluding motor vehicles) set out in paragraph (a)
of this Article imported by contractors and subcontractors for the
aforesaid activities, in order to be installed or used permanently or
consumed shall be subject to the exemption set forth in paragraph (a) of
this Article after being duly certified by an EGPC responsible
representative to be used for carrying on the activities related to this
Agreement.
(c) The employees of CONTRACTOR, Operating company and their contractors and
subcontractors shall not be entitled to any exemptions from customs duties
and other ancillary taxes and charges except within the limits of the
provisions of the laws and regulations applicable in the A.R.E.
31
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EXHIBIT 10.41
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(d) Items imported into A.R.E. whether exempt or not exempt from customs
duties and other ancillary taxes and charges hereunder, may be exported by
the importing party at any time after obtaining EGPC's approval without
any export taxes or charges or any taxes or charges from which such items
have been already exempt being applicable. Such items may be sold within
the A.R.E. after obtaining the approval of EGPC and the Customs
Department. In this case, the purchaser shall pay all applicable customs
duties and other ancillary taxes and charges according to the condition
and value of such items and the tariff applicable on the date of sale,
unless such items have already been sold to an Affiliated Company of EGPC,
having the same exemption or unless title to such items (excluding
passenger cars) have reverted to EGPC or the Customs Department.
In the event of any such sale under this paragraph (d) the proceeds from
such sales shall be divided in the following manner: CONTRACTOR shall be
entitled to reimbursement of its unrecovered cost, if any, in such items
and the excess, if any, shall be paid to EGPC.
(e) The exemption provided for in paragraph (a) of this article shall not
apply to any imported items when, in the opinion of EGPC, items of the
same, or substantially the same kind and quality are manufactured locally
and are available for timely purchase and delivery in the A.R.E. at a
price not higher than ten (10) percent more than the cost of the imported
item before customs duties but after transportation and insurance costs
have been added.
(f) CONTRACTOR, EGPC and their respective buyers shall be entitled to export
the Petroleum referred to in this Agreement, no license being required,
and each shall be exempted from any duties or taxes or any other imports
in respect of the export of Petroleum hereunder.
ARTICLE XIII
BOOKS OF ACCOUNT: ACCOUNTING AND PAYMENTS
(a) EGPC, CONTRACTOR and Operating Company shall each maintain at their
business offices in the A.R.E. books of account, in accordance with the
Accounting Procedure in Annex "D" and accepted accounting practices
generally used in the petroleum industry, and such other books and records
as may be necessary to show the work performed under this Agreement,
including the amount and value of all Petroleum produced and saved
hereunder. CONTRACTOR and Operating Company shall keep their books of
account and accounting records in United States Dollars. Operating
Company shall furnish to the GOVERNMENT or its representative monthly
returns showing the amount of Petroleum produced and saved hereunder.
Such returns shall be prepared in the form required by the GOVERNMENT, or
its representative and shall be signed by the General Manager or by the
Deputy General Manager or a duly designated deputy, and delivered to the
GOVERNMENT or its representative within thirty (30) days after the end of
the month covered in the return.
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EXHIBIT 10.41
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(b) The aforesaid books of account and other books and records referred to
above shall be available at all reasonable times for inspection by duly
authorized representatives of the GOVERNMENT.
(c) CONTRACTOR shall submit to EGPC a Profit and Loss Statement of its Tax
Year not later than four (4) months after the commencement of the
following Tax Year to show its net profit or loss from the Petroleum
operations under this Agreement for such Tax Year. CONTRACTOR shall at
the same time submit a year-end Balance Sheet for the same Tax Year to
EGPC. The Balance Sheet and financial statements shall be certified by an
Egyptian certified accounting firm.
ARTICLE XIV
RECORDS, REPORTS AND INSPECTION
(a) CONTRACTOR and/or Operating Company shall prepare and, at all times while
this Agreement is in force, maintain accurate and current records of its
operations in the Area hereunder. CONTRACTOR and/or Operating Company
shall furnish the GOVERNMENT or its representative, in conformity with
applicable regulations or as the GOVERNMENT or its representative may
reasonably require, information and data concerning its operations under
this Agreement. Operating Company will perform the functions indicated in
this Article XIV in accordance with its respective role as specified in
Article VI.
(b) CONTRACTOR and/or Operating Company shall save and keep for a reasonable
period of time a representative portion of each sample of cores and
cuttings taken from drilling wells, to be disposed of, or forwarded to the
GOVERNMENT or its representative in the manner directed by the GOVERNMENT.
All samples acquired by CONTRACTOR and/or Operating Company for its own
purposes shall be considered available for inspection at any reasonable
time by the GOVERNMENT or its representatives.
(c) Unless otherwise agreed to by EGPC, in case of exporting any rock samples
outside A.R.E., samples equivalent in size and quality shall, before such
exportation, be delivered to EGPC as representative of the GOVERNMENT.
(d) Originals of records can only be exported with the permission of EGPC;
provided, however, that magnetic tapes and any other data which must be
processed or analyzed outside the A.R.E. may be exported if a monitor or a
comparable record, if available, is maintained in A.R.E. and provided that
such exports shall be repatriated to A.R.E. immediately on the
understanding that they belong to EGPC.
(e) During the period CONTRACTOR is conducting the Exploration operations,
EGPC's duly authorized representatives or employees shall have the right
to full and complete access to the
33
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Area at all reasonable times with the right to observe the operations
being conducted and to inspect all assets, records and data kept by
CONTRACTOR. EGPC's representative, in exercising its rights under the
preceding sentence of this paragraph (e), shall not interfere with
CONTRACTOR's operations. CONTRACTOR shall provide EGPC with copies of any
and all data (including, but not limited to, geological and geophysical
reports, logs and well surveys) information and interpretation of such
data, and other information in CONTRACTOR's possession. For the purpose
of obtaining new offers, the GOVERNMENT and/or EGPC may show any other
party uninterpreted basic geophysical and geological data (such data to be
not less than one (1) year old unless CONTRACTOR agrees to a shorter
period, which agreement shall not be unreasonably withheld) with respect
to the Area.
ARTICLE XV
RESPONSIBILITY FOR DAMAGES
CONTRACTOR shall entirely and solely be responsible in law toward third parties
for any damage caused by CONTRACTOR's Exploration operations and shall
indemnify the GOVERNMENT and/or EGPC against all damages for which they may be
held liable on account of any such operations.
ARTICLE XVI
PRIVILEGES OF GOVERNMENT REPRESENTATIVES
Duly authorized representatives of the GOVERNMENT shall have access to the Area
covered by this Agreement and to the operations conducted thereon. Such
representatives may examine the books, registers and records of EGPC,
CONTRACTOR and Operating Company and make a reasonable number of surveys,
drawings and tests for the purpose of enforcing this Agreement. They shall,
for this purpose, be entitled to make reasonable use of the machinery and
instruments of CONTRACTOR or Operating Company on the condition that no danger
or impediment to the operations hereunder shall arise directly or indirectly
from such use. Such representative shall be given reasonable assistance by the
agents and employees of CONTRACTOR or Operating Company so that none of the
activities shall endanger or hinder the safety or efficiency of the operations.
CONTRACTOR or Operating Company shall offer such representatives all privileges
and facilities accorded to its own employees in the field and shall provide
them, free of charge, the use of reasonable office space and of adequately
furnished housing while they are in the field for the purpose of facilitating
the objectives of this Article. Without prejudice to Article XIV(e), any and
all information obtained by the GOVERNMENT or its representatives under this
Article XVI shall be kept confidential with respect to the Area.
ARTICLE XVII
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EMPLOYMENT RIGHTS AND TRAINING OF
ARAB REPUBLIC OF EGYPT PERSONNEL
(a) It is the desire of EGPC and CONTRACTOR that operations hereunder be
conducted in a business-like and efficient manner.
(1) The expatriate administrative, professional and technical personnel
employed by CONTRACTOR or Operating Company and the personnel of its
contractors for the conduct of the operations hereunder, shall be
granted a residence as provided for in Law No. 89 of 1960 as amended
and Ministerial Order No. 280 of 1981 as amended, and CONTRACTOR
agrees that all immigration, passport, visa and employment
regulations of the A.R.E. shall be applicable to all alien employees
of CONTRACTOR working in the A.R.E.
(2) A minimum of Twenty Five (25) percent of the combined salaries and
wages of each of the expatriate administrative, professional and
technical personnel employed by CONTRACTOR or Operating Company
shall be paid monthly in Egyptian Currency.
(b) CONTRACTOR and Operating Company shall each select its employees and
determine the number thereof, to be used for operations hereunder.
(c) CONTRACTOR shall, after consultation with EGPC, prepare and carry out
specialized training programs for all its A.R.E. employees engaged in
operations hereunder with respect to applicable aspects of the petroleum
industry. CONTRACTOR and Operating Company undertake to replace gradually
their non-executive expatriate staffs by qualified nationals as they are
available.
(d) During the period when CONTRACTOR is conducting Exploration, CONTRACTOR
shall give mutually agreed numbers of EGPC employees an opportunity to
attend and participate in CONTRACTOR's and CONTRACTOR's Affiliated
training programs relating to Exploration and Development operations. In
the event that the total cost of such programs is less than Fifty thousand
U.S. Dollars (U.S. $ 50,000) in any Financial Year during such period,
Contractor shall pay EGPC the amount of the shortfall within thirty (30)
days following the end of such Financial Year. However, EGPC shall have
the right that said sum ($50,000) allocated for training, be paid in full
directly to E.G.P.C.
ARTICLE XVIII
LAWS AND REGULATIONS
(a) CONTRACTOR and Operating Company shall be subject to Law No. 66 of 1953
(excluding Article 37 thereof) as amended by Law No. 86 of 1956 and the
regulations issued for the implementation thereof, including the
regulations for the safe and efficient performance of
35
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operations carried out for the execution of this Agreement and for the
conservation of the Petroleum resources of the A.R.E. provided that no
regulations, modification or interpretation thereof shall be contrary to
or inconsistent with the provisions of this Agreement.
(b) EGPC, CONTRACTOR and Operating Company shall be exempted from all taxes
and duties, including but not limited to any taxes or duties on the
exploration, development, extracting, producing, exporting or transporting
of petroleum hereunder or on the documents related to such activities
except as provided in Article III paragraph (g) for income taxes.
CONTRACTOR shall also be exempted from any tax on capital.
(c) The rights and obligations of EGPC and CONTRACTOR under, and for the
effective term of this Agreement, hall be governed by and in accordance
with the provisions of this Agreement and can only be altered or amended
by the mutual agreement of the said contracting parties.
(d) The contractors and subcontractors of CONTRACTOR and Operating Company
shall be subject to the provisions of this Agreement which affect them.
Insofar as all regulations which are duly issued by the GOVERNMENT apply
from time to time and are not in accord with the provisions of this
Agreement, such regulations shall not apply to the CONTRACTOR, Operating
Company and their respective contractors and sub-contractors, as the case
may be.
(e) EGPC, CONTRACTOR, Operating Company and their respective contractor and,
subcontractors, shall, for the purposes of this Agreement, be exempted
from all professional stamp duties imposed by syndical laws with respect
to their documents and activities hereunder.
ARTICLE XIX
RIGHT OF REQUISITION
(a) In case of national emergency due to war or imminent expectation of war or
internal causes, the GOVERNMENT may requisition all or part of the
production from the Area obtained hereunder and require Operating Company
to increase such production to the utmost possible maximum. The
GOVERNMENT may also requisition the Oil or Gas field itself and, if
necessary related facilities.
(b) In any such case, such requisition shall not be effected except after
inviting EGPC and CONTRACTOR or their representative by letter, with
acknowledgement of receipt, to express their views with respect to such
requisition.
(c) The requisition of production shall be effected by Ministerial Order. Any
requisition of an Oil or Gas field itself, or any related facilities shall
be effected by a Presidential Decree duly notified to EGPC and CONTRACTOR.
36
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(d) In the event of any requisition as provided above, the GOVERNMENT shall
indemnify in full EGPC and CONTRACTOR for the period during which the
requisition is maintained, including:
(1) All damages which result from such requisition; and
(2) Full repayment each month for all Petroleum extracted by the
GOVERNMENT less the royalty share of such production.
However, any damage resulting from enemy attack is not within the meaning
of this paragraph (d). Payment hereunder shall be made to CONTRACTOR in
U.S. Dollars remittable abroad. The price paid to CONTRACTOR for
Petroleum taken shall be calculated in accordance with Article VII
paragraph (c).
ARTICLE XX
ASSIGNMENT
(a) Neither EGPC Contractor nor CONTRACTOR member may assign to a person, firm
or corporation, in whole or in part, any of its rights privileges, duties
or obligations under this Agreement without the written consent of the
GOVERNMENT.
(b) To enable consideration to be given to any request for such consent, the
following conditions must be fulfilled:
(1) the obligations of the assignor derived from this Agreement must
have been duly fulfilled as of the date such request is made;
(2) the instrument of assignment must include provisions stating
precisely that the assignee is bound by all covenants contained in
this Agreement and any modifications or additions in writing that up
to such time may have been made. A draft of such instrument of
assignment shall be submitted to EGPC for review and approval before
being formally executed.
(c) Any assignment made pursuant to the provisions of this Article shall be
free of any transfer or related taxes, charges or fees.
(d) As long as the assignor shall hold any interest under this Agreement the
assignor, together with the assignee shall be jointly and severally liable
for all duties and obligations of CONTRACTOR under this Agreement.
ARTICLE XXI
BREACH OF AGREEMENT AND POWER TO CANCEL
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(a) The GOVERNMENT shall have the right to cancel this Agreement by Order or
Presidential Decree, with respect to CONTRACTOR, in the following
instances:
(1) If it knowingly has submitted any false statements to the GOVERNMENT
which were of a material consideration for the execution of this
Agreement;
(2) If it assigns any interest hereunder contrary to the provisions of
Article XX hereof;
(3) If it is adjudicated bankrupt by a court of competent jurisdiction;
(4) If it does not comply with any final decision reached as the result
of court proceedings conducted under Article XXIII paragraph (a)
hereunder;
(5) If it intentionally extracts any mineral other than Petroleum not
authorized by this Agreement or without the authority of the
GOVERNMENT, except such extractions as may be unavoidable as the
result of operations conducted hereunder in accordance with accepted
petroleum industry practice and which shall be notified to the
GOVERNMENT or its representative as soon as possible; and
(6) If it commits any material breach of this Agreement or of the
provisions of Law No. 66 of 1953, as amended by Law No. 86 of 1956,
which are not contradicted by the provisions of this Agreement.
Such cancellation shall take place without prejudice to any rights which
may have accrued to the GOVERNMENT against CONTRACTOR in accordance with
the provisions of this Agreement, and, in the event of such cancellation,
CONTRACTOR shall have the right to remove from the Area all its personal
property.
(b) If the GOVERNMENT deems that one of the aforesaid causes (other than a
force majeure cause referred to in Article XXII hereof) exists to cancel
this Agreement, the GOVERNMENT shall give CONTRACTOR ninety (90) days'
prior written notice personally served on CONTRACTOR's General Manager in
the legally official manner and receipt of which is acknowledged by him or
by his legal agents, to remedy and remove such cause; but if for any
reason such service is impossible due to unnotified change of address,
publication in the Official Journal of the GOVERNMENT of such notice shall
be considered as validly served upon CONTRACTOR. If at the end of the
said ninety (90) day notice period such cause has not been remedied and
removed, this Agreement may be cancelled forthwith by Order or
Presidential Decree as aforesaid; provided, however, that if such cause,
or the failure to remedy such cause results from any act or omission of
one party, cancellation of this Agreement shall be effective only against
that party and not as against any other party hereto.
38
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EXHIBIT 10.41
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ARTICLE XXII
FORCE MAJEURE
(a) The non-performance or delay in performance by EGPC and CONTRACTOR , or
either of them of any obligation under this Agreement shall be excused if,
and to the extent that, such non-performance or delay is caused by force
majeure. The period of any such non-performance or delay, together with
such period as may be necessary for the restoration of any damage done
during such delay, shall be added to the time given in this Agreement for
the performance of such obligation and for the performance of any
obligation dependent thereon and consequently, to the term of this
Agreement, but only with respect to the block or blocks affected.
(b) "Force Majeure", within the meaning of this Article XXII, shall be any
order, regulation or direction of the GOVERNMENT of the ARAB REPUBLIC OF
EGYPT, or the Government of the United States of America, with respect to
CONTRACTOR whether promulgated in the form of a law or otherwise or any
act of God, insurrection, riot, war, strike, and other labor disturbance,
fires, floods or any cause not due to the fault or negligence of EGPC and
CONTRACTOR or either of them, whether or not similar to the foregoing,
provided that any such cause is beyond the reasonable control of EGPC and
CONTRACTOR or either of them.
(c) Without prejudice to the above and except as may be otherwise provided
herein, the GOVERNMENT shall incur no responsibility whatsoever to EGPC
and CONTRACTOR or either of them, for any damages, restrictions or loss
arising in consequence of such case of Force Majeure except a Force
Majeure caused by the order, regulations or direction of the GOVERNMENT of
the ARAB REPUBLIC OF EGYPT.
(d) If the Force Majeure event occurs during the initial Exploration period or
any extension thereof and continues in effect for a period of six (6)
months, CONTRACTOR shall have the option upon ninety (90) days' prior
written notice to EGPC to terminate its obligations hereunder without
further liability of any kind.
ARTICLE XXIII
DISPUTES AND ARBITRATION
(a) Any dispute, controversy or claim arising out of or relating to this
Agreement or the breach, termination or invalidity thereof, between the
GOVERNMENT and the parties shall be referred to the jurisdiction of the
appropriate A.R.E. Courts and shall be finally settled by such Courts.
(b) Any dispute, controversy or claim arising out of or relating to this
Agreement, or breach, termination or invalidity thereof between CONTRACTOR
and EGPC shall be settled by
39
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EXHIBIT 10.41
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arbitration in accordance with the Arbitration Rules of the Regional
Center for Commercial Arbitration - Cairo (the Centre) in effect on the
date of this Agreement. The award of the arbitrators shall be final and
binding on the parties.
(c) The number of arbitrators shall be three (3).
(d) Each party shall appoint one (1) arbitrator. If, within thirty (30) days
after receipt of the claimant's notification of the appointment of an
arbitrator the respondent has not notified the claimant in writing of the
name of the arbitrator he appoints, the claimant may request the Centre to
appoint the second arbitrator.
(e) The two (2) arbitrators thus appointed shall choose the third arbitrator
who will act as the presiding arbitrator of the tribunal. If within
thirty (30) days after the appointment of the second arbitrator, the two
(2) arbitrators have not agreed upon the choice of the presiding
arbitrator, then either party may request the Secretary General of the
Permanent Court of Arbitration at the Hague to designate the appointing
authority. Such appointing authority shall appoint the presiding
arbitrator in the same way as a sole arbitrator would be appointed under
Article 6.3 of the UNCITRAL Arbitration Rules. Such presiding arbitrator
shall be a person of a nationality other than the A.R.E. or the United
States of America and of a country which has diplomatic relations with the
A.R.E. and the United States of America and who shall have no economic
interest in the oil and gas business of the signatories hereto.
(f) Unless otherwise agreed by the parties to the arbitration, the arbitration
including the making of the award, shall take place in Cairo, A.R.E.
(g) The Egyptian law shall apply to the dispute except that in the event of
any conflict between the Egyptian laws and this Agreement (including the
arbitration provisions), the provisions of this Agreement shall govern.
(h) If for whatever reason arbitration in accordance with the above procedure
cannot take place, then the parties agree that all disputes, controversies
or claims arising out of or relating to this Agreement or the breach,
termination or invalidity thereof shall be settled by arbitration in
accordance with the UNCITRAL Rules.
ARTICLE XXIV
STATUS OF PARTIES
(a) The rights, duties, obligations and liabilities in respect of EGPC and
CONTRACTOR hereunder shall be several and not joint or collective, it
being understood that this Agreement shall not be construed as
constituting an association or corporation or partnership.
40
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EXHIBIT 10.41
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(b) CONTRACTOR MEMBERS shall be subject to the laws of the place where it is
incorporated regarding its legal status or creation, organization, charter
and by-laws, shareholding and ownership. CONTRACTOR MEMBERS shares of
capital which are entirely held abroad shall not be negotiable in the
A.R.E. and shall not be offered for public subscription nor shall they be
subject to the stamp tax on capital shares nor any tax or duty in the
A.R.E. CONTRACTOR shall be exempted from the application of Law No. 159 of
1981 as amended.
(c) All parties comprising CONTRACTOR shall be jointly and severally liable
for the performance of the obligations of CONTRACTOR under this Agreement.
ARTICLE XXV
LOCAL CONTRACTORS AND LOCALLY MANUFACTURED MATERIAL
CONTRACTOR or Operating Company, as the case may be, and their contractors
shall:
(a) Give priority to local contractors and subcontractors including EGPC's
Affiliated Companies as long as their performance is comparable with
international performance and the prices of their services are not higher
than the prices of other contractors and subcontractors by more than ten
(10) percent.
(b) Give preference to locally manufactured material, equipment, machinery and
consumable so long as their quality and time of delivery are comparable to
internationally available materials, equipment, machinery and consumables.
However, such material, equipment, machinery and consumables may be
imported for operations conducted hereunder if the local price of such
items at CONTRACTOR's or Operating Company's operating base in A.R.E. is
more than ten (10) percent higher than the price of such imported items
before customs duties, but after transportation and insurance costs have
been added.
ARTICLE XXVI
ARABIC TEXT
The Arabic version of this Agreement shall, before the courts of A.R.E be
referred to in construing or interpreting this Agreement; provided, however,
that in any arbitration pursuant to Article XXIII hereinabove between EGPC and
CONTRACTOR the English and Arabic versions shall both be referred to as having
equal force in construing or interpreting the Agreement.
ARTICLE XXVII
GENERAL
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EXHIBIT 10.41
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Nothing in this Agreement shall be construed as constituting any relationship
to any Concession Agreement heretofore entered into by the parties hereto or
one of the parties hereto, and each of such Agreements shall be treated
separately and independently in all respects, including but not limited to
royalties, taxes and the computation of the net profits of EGPC and CONTRACTOR
respectively.
The headings or titles to each of the Articles to this Agreement are solely for
the convenience of the parties hereto and shall not be used with respect to the
interpretation or construction of said Articles.
ARTICLE XXVIII
APPROVAL OF THE A.R.E. GOVERNMENT
This Agreement shall not be binding upon any of the parties hereto unless and
until a law is issued by the competent authorities of the A.R.E. authorizing
the Minister of Petroleum and Mineral Resources to sign said Agreement and
giving this Agreement full force and effect of law notwithstanding any
countervailing governmental enactment, and the Agreement is signed by the
GOVERNMENT, EGPC and CONTRACTOR.
PHOENIX RESOURCES COMPANY
OF QARUN
By: __________________________
Title: _______________________
APACHE OIL EGYPT, INC.
By: __________________________
Title: _______________________
EGYPTIAN GENERAL PETROLEUM
CORPORATION
By: __________________________
Title: _______________________
ARAB REPUBLIC OF EGYPT
By: __________________________
Title: _______________________
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ANNEX "A"
CONCESSION AGREEMENT
BETWEEN
A.R.E. AND E.G.P.C.
AND
PHOENIX RESOURCES COMPANY OF QARUN
AND
APACHE OIL EGYPT, INC.
IN
THE QARUN AREA
WESTERN DESERT, A.R.E.
BOUNDARY DESCRIPTION OF CONCESSION AREA
Annex "B" is an illustrative map at an approximate scale of 1 : 1000,000
showing the Area covered and affected by this Agreement.
The Area measures approximately 7800 square kilometers. It is composed of
all or part of 321 Exploration Blocks defined on a 3' by 3' grid using Latitude
29 Deg. 48'N and Longitude 31 Deg. 18'E as reference lines and shown in Annex
"B".
It is to be noted that the delineation lines of the individual Exploration
Blocks in Annex "B" are intended to be only illustrative and provisional and
may not show accurately their true position in relation to existing monuments
and geographical features. The Area is bounded by a group of straight lines
except where the boundary runs along the Nile River in which case the boundary
shall run along the mean water line on such shores.
Coordinates of the corner points of the Area are given in the following
table which forms an integral part of Annex "A":
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QARUN
CONCESSION
<TABLE>
<CAPTION>
POINT LONGITUDE LATITUDE DUE
NO. EAST NORTH
----------- ------------ ------------ ----------------
<S> <C> <C> <C>
1 31_ 18' 00" 29_ 48' 00" West to point 2
2 31_ 06' 00" 29_ 48' 00" North to point 3
3 31_ 06' 00" 29_ 54' 00" West to point 4
4 31_ 00' 00" 29_ 54' 00" North to point 5
5 31_ 00' 00" 30_ 00' 00" West to point 6
6 30_ 48' 00" 30_ 00' 00" South to point 7
7 30_ 48' 00 29_ 48' 00" West to point 8
8 30_ 36' 00" 29_ 48' 00" North to point 9
9 30_ 36' 00" 30_ 00' 00" West to point 10
10 30_ 06' 00" 30_ 00' 00" South to point 11
11 30_ 06' 00" 29_ 48' 00" East to point 12
12 30_ 12' 00" 29_ 48' 00" South to point 13
13 30_ 12' 00" 29_ 24' 00" West to point 14
14 30_ 06' 00" 29_ 24' 00" South to point 15
15 30_ 06' 00" 29_ 03' 00" East to point 16
16 30_ 30' 00" 29_ 03' 00" North to point 17
17 30_ 30' 00" 29_ 18' 00" East to point 18
18 31_ 12' 25" 29_ 18' 00" North along water line
to point 1
</TABLE>
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EXHIBIT 10.41
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"SHOULD BE TYPED ON THE MAP"
ANNEX "B"
M A P
-----
Petroleum Concession Agreement
Between
Arab Republic of Egypt
and
Egyptian General Petroleum Corporation
and
Phoenix Resources Company of Qarun
and
Apache Oil Egypt, Inc.
In the QARUN Area
IN
WESTERN DESERT A.R.E.
Scale Reduced from 1 : 1,000,000
45
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EXHIBIT 10.41
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ANNEX "C"
CHARTER OF OPERATING COMPANY
ARTICLE I
A joint stock company having the nationality of the ARAB REPUBLIC OF EGYPT
shall be formed with the authorization of the GOVERNMENT in accordance with
the provisions of this Agreement referred to below and of this Charter.
The Operating Company shall be subject to all laws and regulations in
force in the A.R.E. to the extent that such laws and regulations are not
inconsistent with the provisions of this Charter and Agreement referred to
below.
ARTICLE II
The name of the Operating Company shall be mutually agreed upon between
EGPC and CONTRACTOR on the date of the Commercial Discovery and shall be
subject to the approval of the Minister of Petroleum and Mineral Resources.
ARTICLE III
The Head Office of Operating Company shall be in the A.R.E. in Cairo.
ARTICLE IV
The object of Operating Company is to act as the agency through which EGPC
and CONTRACTOR, carry out and conduct the Development operations required in
accordance with the provisions of the Agreement signed on the _____ day of
____________, by and between the ARAB REPUBLIC OF EGYPT, THE EGYPTIAN GENERAL
PETROLEUM CORPORATION and CONTRACTOR covering Petroleum operations in the Qarun
Area described therein.
Operating Company shall be the agency to carry out and conduct Exploration
operations after the date of Commercial Discovery pursuant to Work Programs and
Budgets approved in accordance with the Agreement.
Operating Company shall keep account of all costs, expenses and
expenditures for such operations under the terms of the Agreement and Annex "D"
thereto.
Operating Company shall not engage in any business or undertake any
activity beyond the performance of said operations unless otherwise agreed upon
by EGPC and CONTRACTOR.
ARTICLE V
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The authorized capital of Operating Company is twenty thousand Pounds
Egyptian divided into five thousand shares of common stock with a value of four
Pounds Egyptian per share having equal voting rights, fully paid and
non-assessable.
EGPC and CONTRACTOR shall each pay for, hold and own, throughout the life
of Operating Company referred to above, one half (1/2) of the capital stock of
Operating Company provided that only in the event that either party should
transfer or assign the whole or any percentage of its ownership interest in the
entirety of the Agreement, may such transferring or assigning party transfer or
assign any of the capital stock of Operating Company and, in that event, such
transferring or assigning party (and its successors and assigns) must transfer
and assign a stock interest in Operating Company equal to the transferred or
assigned whole or percentage of its ownership interest in the entirety of the
said Agreement.
ARTICLE VI
Operating Company shall not own any right, title, interest or estate in or
under the Agreement or any Development Lease created thereunder or in any of
the Petroleum produced from any Exploration Block or Development Lease area
thereunder or any of the assets, equipment or other property obtained or used
in connection therewith, and shall not be obligated as a principal for the
financing or performance of any of the duties or obligations of either EGPC or
CONTRACTOR under the Agreement. Operating Company shall not make any profit
from any source whatsoever.
ARTICLE VII
Operating Company shall be no more than an agent for EGPC and CONTRACTOR.
Whenever it is indicated herein that Operating Company shall decide, take
action or make a proposal and the like, it is understood that such decision or
judgment is the result of the decision or judgment of EGPC, CONTRACTOR or EGPC
and CONTRACTOR, as may be required by the Agreement.
ARTICLE VIII
Operating Company shall have a Board of Directors consisting of eight (8)
members, four (4) of whom shall be designated by EGPC and the other four (4) by
CONTRACTOR. The Chairman shall be designated by EGPC and shall also be a
Managing Director. CONTRACTOR shall designate the General Manager who shall
also be a Managing Director.
ARTICLE IX
Meetings of the Board of Directors shall be valid if a majority of the
Directors are present and any decision taken at such meetings must have the
affirmative vote of five (5) or more of the Directors; provided, however, that
any Director may be represented and vote by proxy held by another Director.
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ARTICLE X
General meetings of the Shareholders shall be valid if a majority of the
capital stock of Operating Company is represented thereat. Any decision taken
at such meetings must have the affirmative vote of Shareholders owning or
representing a majority of the capital stock.
ARTICLE XI
The Board of Directors shall approve the regulations covering the terms
and conditions of employment of the personnel of Operating Company employed
directly by Operating Company and not assigned thereto by CONTRACTOR and EGPC.
The Board shall, in due course, draw up the By-Laws of Operating Company,
and such By-Laws shall be effective upon being approved by a General Meeting of
the Shareholders, in accordance with the provisions of Article X hereof.
ARTICLE XII
Operating Company shall come into existence within thirty (30) days after
the date of Commercial Oil Discovery, or within thirty (30) days after
signature of a Gas Sales Agreement or commencement of a scheme to dispose of
Gas, as provided for in the Agreement.
The duration of Operating Company shall be for a period equal to the
duration of the said Agreement, including any renewal thereof.
Operating Company shall be wound up and liquidated if the Agreement
referred to above is terminated for any reason as provided for therein.
PHOENIX RESOURCES COMPANY OF QARUN
By: __________________________________
Title: _______________________________
APACHE OIL EGYPT, INC.
By: __________________________________
Title: _______________________________
EGYPTIAN GENERAL PETROLEUM CORPORATION
By: __________________________________
Title: _______________________________
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ANNEX "D"
ACCOUNTING PROCEDURE
ARTICLE I
GENERAL PROVISIONS
(a) Definitions
The definitions contained in Article I of the Concession Agreement shall
apply to this Accounting Procedure and have the same meanings save that the
term Agreement means the Concession Agreement of which this Annex is a part.
(b) Statements of Activity
(1) CONTRACTOR shall, pursuant to Article IV of the Agreement, and until
the coming into existence of the Operating Company in accordance
with Article VI of the Agreement, render to EGPC within thirty (30)
days of the end of each Calendar Quarter a Statement of Exploration
Activity reflecting all charges and credits related to the
Exploration operations for that Quarter summarized by appropriate
classifications indicative of the nature thereof.
(2) Following its coming into existence, Operating Company shall render
to EGPC and CONTRACTOR within fifteen (15) days of the end of each
Calendar Quarter a Statement of Development and Exploration Activity
reflecting all charges and credits related to the Development and
Exploration operations for the Quarter summarized by appropriate
classifications indicative of the nature thereof except that items
of controllable material and unusual charges and credits shall be
detailed.
(c) Adjustments and Audits
(1) Each Quarterly Statement of Exploration Activity pursuant to
paragraph (b)(1) above, shall conclusively be presumed to be true
and correct after three (3) months following the receipt of each
Statement by EGPC unless within the said three (3) months EGPC takes
written exception thereto pursuant to Article IV(f) of the
Agreement. During the said three (3) months period supporting
documents will be available for inspection by EGPC during all
working hours. CONTRACTOR will have the same audit rights on
Operating Company Statements as EGPC under this subparagraph.
(2) All Statements of Development and Exploration Activity for any
Calendar Quarter pursuant
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to paragraph (b)(2) above, shall conclusively be presumed to be true and
correct twelve (12) months following the end of such Calendar Quarter,
unless within the said twelve (12) months' period EGPC or CONTRACTOR takes
written exception thereto. Pending expiration of said twelve (12) months
EGPC or CONTRACTOR or both of them shall have the right to audit Operating
Company accounts, records and supporting documents for such Quarter in the
same manner as provided in Article IV(f) of the Agreement.
(d) Currency Exchange
CONTRACTOR's books for Exploration and Operating Company's books for
Development and Exploration, if any, shall be kept in the A.R.E. in U.S.
Dollars. All U.S. Dollar expenditures shall be charged in the amount
expended. All Egyptian Pounds expenditures shall be translated to U.S.
Dollars at the official buying rate of exchange issued by the Central Bank
of Egypt on the first day of the month in which expenditures are recorded,
and all other non-U.S. Dollar expenditures shall be translated to U.S.
Dollars at the buying rate of exchange for such currency as quoted by
National Westminster Bank Limited, London at 10.30 a.m. G.M.T., on the
first day of the month in which expenditures are recorded. A record shall
be kept of the exchange rates used in translating Egyptian Pounds or other
non-U.S. Dollars expenditures to U.S. Dollars.
(e) Precedence of Documents
In the event of any inconsistency or conflict between the provisions of
this Accounting Procedure and the provisions of the Agreement treating the
same subject differently, then the provisions of the Agreement shall
prevail.
(f) Revision of Accounting Procedure
By mutual agreement between EGPC and CONTRACTOR, this Accounting Procedure
may be revised from time to time in the light of future arrangements.
(g) No Charge for Interest on Investment
Interest on investment or any bank fees, charges or commissions related to
any bank guarantees shall not, at any time, be charged as recoverable
costs under the Agreement.
ARTICLE II
COSTS, EXPENSES AND EXPENDITURES
Subject to the provisions of the Agreement, CONTRACTOR shall alone bear and,
directly or through Operating Company, pay the following costs and expenses,
which costs and expenses shall be classified and be allocated to the activities
according to sound and generally accepted international accounting principles
and treated and recovered in accordance with Article VII of the
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Agreement:
(a) Surface Rights
All direct cost attributable to the acquisition, renewal or relinquishment
of surface rights acquired and maintained in force for the Area.
(b) Labour and Related Costs
(1) Salaries and wages of CONTRACTOR's or Operating Company's
employees, as the case may be, directly engaged in the various
activities under the Agreement including salaries and wages paid to
geologists and other employees who are temporarily assigned to and
employed in such activities. Such salaries and wages shall be
certified by a certified public accounting firm. Reasonable
revisions of such salaries and wages shall be effected to take into
account changes in CONTRACTOR's policies and amendments of Laws
applicable to salaries. For the purpose of this paragraph (b), and
paragraph (c), salaries and wages shall mean the assessable amounts
for A.R.E. Income Taxes, including the salaries during the vacations
and sick leaves, but excluding all the amounts of the other items
covered by the percentage fixed under (2) below.
(2) For expatriate employees permanently assigned to Egypt.
1 All allowances applicable to salaries and wages;
2 Cost of established plans; and
3 All travel and relocation costs of such expatriate employees and
their families to and from the employee's country or point of
origin at the time of employment, at the time of separation, or
as a result of transfer from one location to another and for
vacation (transportation costs for employees and their families
transferring from A.R.E. to another location other than their
country of origin shall not be charged to A.R.E. operations).
Costs under this sub-paragraph (b)(2) shall be deemed to be equal to
seventy two percent (72%) except for employees whose families have not
been transferred to A.R.E, in which case the percentage shall be fifty
seven (57) percent of salaries and wages paid for such expatriate
personnel including those paid during vacations and sick leaves as
established in CONTRACTOR's international policies, chargeable under
sub-paragraph (b)(1), sub-paragraph (b)(2), paragraph (i) and
sub-paragraphs (k)(1) and (k) (3) of this Article II. However, salaries
and wages during vacations, sick leaves and disability are covered by the
foregoing percentage. The percentage outlined above shall be deemed to
reflect CONTRACTOR's actual costs as of the Effective date with regard to
the following benefits, allowances and costs:
1. Housing and Utilities Allowance.
2. Commodities and services allowance.
3. Special Rental Allowance.
4. Vacation Transportation Allowance.
5. Vacation Travel Expense Allowance.
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6. Vacation Excess Baggage Allowance.
7. Education Allowances (Children of Expatriate Employees).
8. Hypothetical U.S. Tax Offset (which results in a reduction of
the chargeable percentage).
9. Storage of Personal Effects.
10. Housing refurbishment Expense.
11. Property Management Service Fees.
12. Recreation Allowance.
13. Retirement Plan.
14. Group Life Insurance.
15. Group Medical Insurance.
16. Sickness and Disability.
17. Vacation Plans Paid (excluding allowable vacation, travel
expenses).
18. Savings Plan.
19. Educational Assistance.
20. Military Service Allowance.
21. F.I.C.A.
22. Workman's Compensation
23. Federal and State Unemployment Insurance.
24. Personnel Transfer Expense.
25. Any other Costs, Allowances and Benefits of a like nature as
established in CONTRACTOR's International Policies.
26. National Insurance.
The percentage outlined above shall be reviewed at intervals of
three (3) years from the Effective Date and at such time CONTRACTOR
and EGPC will agree on new percentages to be used under this
paragraph. Revisions of the percentages will take into
consideration variances in costs and changes in CONTRACTOR's
international policies which change or exclude any of the above
allowances and benefits. The revised percentages will reflect as
nearly as possible CONTRACTOR's actual costs of all its established
allowances and benefits and of personnel transfers.
(3) For expatriate employees temporarily assigned to Egypt all
allowances, costs of established plans and all travel relocation
costs for such expatriates as paid in accordance with CONTRACTOR'S
international policies. Such costs shall not include any
administrative overhead other than what is mentioned in Article II,
subparagraph (b)(2).
(4) Costs of expenditure or contributions made pursuant to law or
assessment imposed by governmental authority which are applicable to
labor cost of salaries and wages as provided under subparagraphs
(b)(1) and (b)(2), paragraph (i) and subparagraphs (k)(1) and (k)(3)
of this Article II.
(c) Benefits, Allowances and related Costs of National Employees
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Bonuses, overtime, customary allowances and benefits on a basis similar to
that prevailing for Oil Companies operating in A.R.E., all as chargeable
under subparagraph (b)(1), subparagraph (b)(2), paragraph (i) and
subparagraphs (k)(1) and (k)(3) of this Article II. Severance pay will be
charged at a fixed rate applied to payrolls which will equal an amount
equivalent to the maximum liability of severance payment as required under
the A.R.E. Labour Law.
(d) Material
Material, equipment and supplies purchased or furnished as such by
CONTRACTOR or Operating Company.
(1) Purchases
Material, equipment and supplies purchased shall be at the price
paid by CONTRACTOR or Operating Company plus any related cost and
after deduction of all discounts actually received.
(2) Material Furnished by CONTRACTOR
Material required for operations shall be purchased directly whenever
practicable, except that CONTRACTOR may furnish such material from
CONTRACTOR's or CONTRACTOR's Affiliated stocks under the following
conditions:
1. New Material (Condition "A")
New Material transferred from CONTRACTOR or its Affiliated
Company's warehouse or other properties shall be priced at
cost, provided that the cost of material supplied is not higher
than international prices for material of similar quality
supplied on similar terms, prevailing at the time such material
was supplied.
2. Used Material (Conditions "B" and "C")
a) Material which is in sound and serviceable condition and
is suitable for re-use without reconditioning shall be
classed as Condition "B" and priced at seventy-five
percent (75%) of the price of new material.
b) Material which cannot be classified as Condition "B" but
which is serviceable for original function but
substantially not suitable for reconditioning, shall be
classed as Condition "C" and priced at fifty percent
(50%) of the price of new material.
c) Material which cannot be classified as Condition "B" or
Condition "C" shall be priced at a value commensurate
with its use.
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d) Tanks, buildings and other equipment involving erection
costs shall be charged at applicable percentage of
knocked-down new price.
(3) Warranty of Materials Furnished by CONTRACTOR
CONTRACTOR does not warrant the material furnished beyond the
dealer's or manufacturer's guaranty; and in case of defective
material, credit shall not be recorded until adjustment has been
received by CONTRACTOR from manufacturers or their agents.
(e) Transportation and Employee Relocation Costs
(1) Transportation of equipment, materials and supplies necessary for
the conduct of CONTRACTOR's or Operating Company's activities.
(2) Business Travel and Transportation expenses to the extent covered by
established policies of CONTRACTOR or with regard to Expatriates and
Nationals, as incurred and paid by, or for, employees in the conduct
of CONTRACTOR's or Operating Company's business.
(3) Employees transportation and relocation costs for National employees
to the extent covered by established policies.
(f) Services
(1) Outside services. The costs of contracts for consultants, services
and utilities procured from third parties.
(2) Cost of services performed by EGPC or by CONTRACTOR or their
Affiliated Companies in facilities inside or outside the A.R.E.
including regular, recurring, routine services, such as interpreting
magnetic tapes and/or other analyses, shall be performed and charged
by EGPC and/or CONTRACTOR or their Affiliated Companies at an agreed
contracted price. Major projects involving engineering and design
services shall be performed by EGPC and/or CONTRACTOR or their
Affiliated Companies at a negotiated contract amount.
(3) Use of EGPC's, CONTRACTOR's or their Affiliated Companies' wholly
owned equipment shall be charged at a rental rate commensurate with
the cost of ownership and operation, but not in excess of
competitive rates currently prevailing in the A.R.E.
(4) CONTRACTOR's and its Affiliated Companies' rates shall not include
any administrative or overhead costs other than what is mentioned in
Article II, subparagraph (k)(2) hereof.
(g) Damages and Losses
All costs or expenses, necessary to replace or repair damages or losses
incurred by fire, flood, storm, theft, accident or any other cause not
controllable by CONTRACTOR or Operating Company through the exercise of
reasonable diligence. CONTRACTOR or Operating Company
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shall furnish EGPC and CONTRACTOR written notice of damages or losses
incurred in excess of ten thousand U.S. Dollars (U.S. $ 10,000) per
occurrence, as soon as practicable after report of the same has been
received by CONTRACTOR or Operating Company.
(h) Insurance and Claims
The cost of any insurance carried in accordance with the laws, rules and
regulations of the GOVERNMENT, as well as any other insurance carried for
the protection of CONTRACTOR, Operating Company and/or the parties, or any
of them with respect to loss or damage of property, liabilities to
employees or third parties and any other insurance customary to the oil
and gas industry. The proceeds of any such insurance or claim collected,
less the actual cost of making a claim, shall be credited against
operations. Subject to good international oil industry practices, to the
extent that a loss is not covered by insurance, all related actual
expenditures incurred and paid by CONTRACTOR or Operating Company in
settlement of any and all losses, claims, damages, judgements and any
other expenses including legal services.
(i) Indirect Expenses
Camp overhead and facilities such as shore base, warehouses, water
systems, road systems, salaries and expenses of field supervisory
personnel, field clerks assistants, and other general employees indirectly
serving the Area.
(j) Legal Expenses
All costs and expenses of litigation, or legal services otherwise
necessary or expedient for the protection of the Area, including
attorney's fees and expenses as hereinafter provided, together with all
judgements obtained against the parties or any of them on account of the
operations under the Agreement, and actual expenses incurred by any party
or parties hereto in securing evidence for the purpose of defending
against any action or claim prosecuted or urged against the operations or
the subject matter of the Agreement. In the event actions or claims
affecting the interests hereunder shall be handled by the legal staff of
one or more of the parties hereto, a charge commensurate with the cost of
providing and furnishing such services may be made to operations.
(k) Administrative Overhead and General Expenses
(1) While CONTRACTOR is conducting Exploration activities, cost of
staffing and maintaining CONTRACTOR's head office in the A.R.E.
and/or other offices established in the A.R.E. as appropriate other
than field offices which will be charged as provided in Article II,
paragraph (i) above, and excepting salaries of employees of
CONTRACTOR who are temporarily assigned to and directly serving in
the Area, which will be charged as provided in Article II, paragraph
(b) above.
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(2) CONTRACTOR's administrative overhead outside the A.R.E. applicable to
the A.R.E. Exploration operation which will be charged each month at
the rate of five (5) percent of total Exploration expenditures while
CONTRACTOR is conducting Exploration activities. Administrative
overhead outside the A.R.E. will not be charged while Operating
Company is conducting Exploration activities. No other direct
charges as such for CONTRACTOR's administrative overhead outside the
A.R.E. will be applied against the Exploration obligation. Examples
of the type of costs CONTRACTOR is incurring and charging hereunder
due to activities under the Agreement and covered by said percentage
are:
1. Executive - Time of executive officers.
2. Treasury - Financial and exchange problems.
3. Purchasing - Procuring materials, equipment and supplies.
4. Exploration and Production - Directing, advising and
controlling the entire project.
5. Other departments such as legal, comptroller and engineering
which contribute time, knowledge and experience to the
operations.
The foregoing does not preclude charging for direct service under
subparagraph (f)(2) of this Article II.
(3) While Operating Company is conducting activities, Operating
Company's personnel engaged in general clerical and office work,
supervisors and officers whose time is generally spent in the main
office and not the field, and all employees generally considered as
general and administrative and not charged to other types of expense
will be charged to operations. Such expenses shall be allocated
each month between Exploration and Development operations according
to sound and practicable accounting methods.
(l) Taxes
All taxes, duties or levies paid in the A.R.E. by CONTRACTOR or Operating
Company with respect to this Agreement other than those covered by
paragraph (g) of article III of the Agreement.
(m) Continuing CONTRACTOR Costs
Costs of CONTRACTOR activities required under the Agreement and incurred
exclusively in the A.R.E. after Operating Company is formed including but
not limited to the maintenance of an office and technical personnel
employed therein. All such costs paid and allocated to Development and
Exploration Operations under this Agreement in accordance with sound and
accepted International Accounting Procedure shall be recoverable as an
Operating Expense. No sales expenses incurred outside or inside the
A.R.E. may be recovered as a cost.
(n) Other Expenditures
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Any costs, expenses or expenditures, other than those which are covered and
dealt with by the foregoing provisions of this Article II, incurred by
CONTRACTOR or Operating Company under approved Work Programs and Budgets.
ARTICLE III
INVENTORIES
(a) Periodic Inventories, Notice and Representation
At reasonable intervals as agreed upon by EGPC and CONTRACTOR inventories
shall be taken by Operating Company of the operations materials, which
shall include all such material, physical assets and construction
projects. Written notice of intention to take inventory shall be given by
Operating Company to EGPC and CONTRACTOR at least thirty (30) days before
any inventory is to begin so that EGPC and CONTRACTOR may be represented
when any inventory is taken. Failure of EGPC and/or CONTRACTOR to be
represented at an inventory shall bind them to accept the inventory taken
by Operating Company, who shall in that event furnish the party not
represented with a copy thereof.
(b) Reconciliation and Adjustment of Inventories
Reconciliation of inventory shall be made by CONTRACTOR and EGPC, and a
list of overages and shortages shall be jointly determined by Operating
Company and CONTRACTOR and EGPC, and the inventory adjusted by Operating
Company.
ARTICLE IV
COST RECOVERY
(a) Statements of Recovery of Costs and of Cost Recovery Petroleum
CONTRACTOR shall, pursuant to Article VII of the Agreement, render to EGPC
as promptly as practicable but not later than fifteen (15) days after
receipt from Operating Company of the Statements for Development and
Exploration Activity for the Calendar Quarter a Statement for that Quarter
showing:
(1) Recoverable costs carried forward from the previous Quarter, if any.
(2) Recoverable costs incurred and paid during the Quarter.
(3) Total recoverable costs for the Quarter (1) + (2).
(4) Value of Cost Recovery Petroleum taken and separately disposed of by
CONTRACTOR
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for the Quarter.
(5) Amount of costs recovered for the Quarter.
(6) Amount of recoverable costs carried into the succeeding Quarter, if
any.
(7) Excess, if any, of the value of Cost Recovery Petroleum taken and
separately disposed of by CONTRACTOR over costs recovered for the
Quarter.
(b) Payments
If such Statement shows an amount due EGPC, payment of that amount shall
be made in U.S. Dollars by CONTRACTOR with the rendition of such
Statement. If CONTRACTOR fails to make any such payment to EGPC on the
date when such payment is due, then CONTRACTOR shall pay an interest of
2.5% per annum higher than the London Interbank Borrowing offered Rate
(LIBOR) for three (3) months U.S. Dollars deposits prevailing on the date
such interest is calculated. Such interest shall not be recoverable.
(c) Settlement of Excess Cost Recovery Petroleum
EGPC has the right to take its entitlement of excess Cost Recovery
Petroleum under Article VII paragraph (a) of this Agreement, in kind
during the said Quarter, and a settlement shall be required with the
rendition of such Statements in case CONTRACTOR has taken more than its
own entitlement of such excess.
(d) Audit Right
EGPC shall have a period of twelve (12) months from receipt of any
Statement under this Article IV in which to audit and raise objection to
any such Statement. EGPC and CONTRACTOR shall agree on any required
adjustments. Supporting documents and accounts will be available to EGPC
during said twelve (12) months' period.
ARTICLE V
CONTROL AND MAJOR ACCOUNTS
(a) Exploration Obligation Control Accounts CONTRACTOR will establish an
Exploration Obligation Control Account and an offsetting contra account to
control therein the total amount of Exploration Expenditures reported on
Statements of Activity prepared per Article I(b)(1) hereof, less any
reductions agreed to by EGPC and CONTRACTOR following written exceptions
taken by a non-operator pursuant to Article I(c)(1) hereof, in order to
determine when minimum Exploration Obligations have been met.
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(b) Cost Recovery Control Account
CONTRACTOR will establish a Cost Recovery Control Account and an
offsetting contra account to control therein the amount of cost remaining
to be recovered, if any, the amount of cost recovery and the value of
Excess Cost Recovery Petroleum, if any.
(c) Major Accounts
For the purpose of classifying costs, expenses and expenditures for cost
recovery as well as for the purpose of establishing when the Exploration
Obligation has been met, costs, expenses and expenditure shall be recorded
major accounts including the following:
- Exploration Expenditures;
- Development Expenditures other than Operating Expenses; and
- Operating Expenses.
Necessary sub-accounts shall be used.
Revenue accounts shall be maintained by CONTRACTOR to the extent necessary
for the control of recovery of costs and the treatment of Cost Recovery
Petroleum.
ARTICLE VI
TAX IMPLEMENTATION PROVISIONS
It is understood that CONTRACTOR shall be subject to Egyptian Income Tax
Laws except as otherwise provided in the Agreement, that any A.R.E. income
taxes paid by EGPC on CONTRACTOR's behalf constitute additional income to
CONTRACTOR, and this additional income is also subject to A.R.E. income tax,
that is "grossed-up".
CONTRACTOR's annual income, as determined in Article III(g)(2), less the
amount equal to CONTRACTOR's grossed-up Egyptian income tax liability, shall be
CONTRACTOR's "Provisional Income".
The "gross-up value" is an amount added to Provisional Income to give
"Taxable Income," such that the gross-up value is equivalent to the A.R.E.
income taxes.
THEREFORE:
Taxable Income = Provisional Income PLUS Gross-Up Value
and
Gross-Up Value = A.R.E. Income Tax on Taxable Income.
If the "A.R.E. income tax rate," which means the effective or composite
tax rate due to the various A.R.E. taxes levied on income or profits, is
constant and not dependent on the level of
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income, then
Gross-up Value = A.R.E. income tax rate TIMES Taxable
Income.
Combining the first and last equations above,
Gross-Up Value = Provisional Income x Tax Rate
-----------------------------
1 - Tax Rate
Where the tax rate is expressed as a decimal.
The above computations are illustrated by the following numerical example.
Assuming that the Provisional Income is $ 10 and the A.R.E. income tax rate is
40 percent, then the Gross-Up Value is equal to:
$ 10 x 0.4 = $ 6.67
----------
1 - 0.4
THEREFORE:
Provisional Income $10.00
PLUS Gross-Up Value 6.67
_____
Taxable Income $16.67
LESS: A.R.E. Income Taxes
at 40% 6.67
CONTRACTOR's Income after _____
taxes $10.00
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ANNEX "E"
Map of the National gas pipeline grid system
_
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SCHEDULE 3
TO FARMOUT AGREEMENT
AGREEMENT
FOR AMENDING THE GAS PRICING
PROVISIONS
UNDER THE CONCESSION AGREEMENT
SIGNED BY VIRTUE OF LAW NO. 113 OF 1993
FOR PETROLEUM EXPLORATION AND
EXPLOITATION IN THE QARUN AREA
WESTERN DESERT
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE EGYPTIAN GENERAL PETROLEUM
CORPORATION
AND
PHOENIX RESOURCES COMPANY OF QARUN
AND
APACHE OIL EGYPT, INC.
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AGREEMENT
FOR AMENDING THE GAS PRICING
PROVISIONS
UNDER THE CONCESSION AGREEMENT
SIGNED BY VIRTUE OF LAW NO. 113 OF 1993
FOR PETROLEUM EXPLORATION AND
EXPLOITATION IN THE QARUN AREA
WESTERN DESERT
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE EGYPTIAN GENERAL PETROLEUM
CORPORATION
AND
PHOENIX RESOURCES COMPANY OF QARUN
AND
APACHE OIL EGYPT, INC.
This Agreement is made this ....... day of ...... 1993, by and between the Arab
Republic of Egypt (hereinafter referred to as "A.R.E.". or as the
GOVERNMENT"), THE EGYPTIAN GENERAL PETROLEUM CORPORATION, a legal entity
created by law No. 167 of 1958 as amended (hereinafter referred to as
"E.G.P.C.") and PHOENIX RESOURCES COMPANY OF QARUN, a company organized and
existing under the laws of the State of Delaware, U.S.A. and APACHE OIL EGYPT,
INC. a company organized and existing under the laws of the State of Delaware,
U.S.A., (both companies hereinafter referred to collectively as "CONTRACTOR").
WITNESSETH
WHEREAS, the Arab Republic of Egypt, the Egyptian General Petroleum Corporation
and Phoenix Resources Company of Qarun and Apache Oil Egypt, Inc. have entered
into a Concession Agreement signed by virtue of law No. 113 of 1993 for
Petroleum Exploration and Exploitation in the Qarun Area, Western Desert.
WHEREAS, Contractor has applied for an amendment of the natural gas and LPG
Pricing provisions under such Concession agreement; and
WHEREAS, the Board of Directors of E.G.P.C., has approved such amendment, and
agreed to take the legal procedures required therefor.
Now, therefore, the parties hereto agree as follows:
ARTICLE I
1
<PAGE> 135
EXHIBIT 10.41
PAGE 135 OF 138
Article VII (c) (2) of the Concession Agreement signed by virtue of Law No. 113
of 1993 for Petroleum Exploration and Exploitation in the Qarun Area, Western
Desert, shall be deleted in its entirety, and shall be replaced by the
following:
2- Gas and LPG
(i) The Cost Recovery and Profit Shares of Gas subject to a Gas Sales
Agreement between E.G.P.C. and CONTRACTOR (as sellers) and E.G.P.C.
(as buyer) entered into pursuant to Article VII (e) shall be
valued, delivered to and purchased by E.G.P.C. at a price
determined monthly according to the following formula:
PG = 0.85 x F x H
-----------------
42.96 x 10(6)
Where:
PG = the value of the Gas in U.S. Dollars per thousand cubic feet
(MCF).
F = a value in U.S. Dollars per metric ton of the Crude of Gulf
of Suez blend "FOB Ras Shukheir" calculated by referring to
"Platt's Oilgram Price Report" during a month under the
heading "Spot Crude Price Assessment for Suez Blend". This
value reflects the total averages of the published high and
low values for a barrel during such month divided by the
number of days in such month for which such values were
quoted. The value per metric ton shall be calculated on the
basis of a conversion factor to be agreed upon annually
between E.G.P.C. and CONTRACTOR.
H = the number of British Thermal Units (BTUs) per thousand
cubic feet (MCG) of Gas.
In the event that the value of F cannot be determined because
Platt's Oilgram Price Report is not published at all during a
month, the Parties shall meet and agree the value of F by reference
to other published sources. In the event that there are no such
published sources or if the value of F cannot be determined
pursuant to the foregoing for any other reason, the Parties shall
meet and agree a value of F.
Such evaluation of Gas under a formula providing for a fifteen 915)
percent discount is based upon delivery at the delivery point
specified in Article VII (e) 2 (ii) below, and is to enable
E.G.P.C. to finance and maintain the portions of the pipeline
distribution system to be provided by E.G.P.C.
(ii) The Cost Recovery and Profit Share of LPG produced from a plant
constructed and operated by or on behalf of E.G.P.C. and CONTRACTOR
shall be separately valued for Propane and Butane at the outlet of
such LPG plant according to the following formula unless otherwise
agreed between E.G.P.C. and CONTRACTOR):
2
<PAGE> 136
EXHIBIT 10.41
PAGE 136 OF 138
PLRG = 0.95 PR - (J x 0.85 x F )
---------------
42.96 x 10(6)
Where:
PLPG = LPG price (separately determined for Propane and Butane)
in U.S. Dollars per metric ton.
PR = the average over a period of a month of the figures
representing the mid-point between the high and low
prices in U.S. Dollars per metric ton quoted in
"Platt's LPGaswire" during such month for Propane and
Butane FOB Ex- Ref/Stor. West Mediterranean.
J = BUT's removed from the Gas Stream by the LPG plant per
metric ton of LPG produced.
F = the same value as F under sub-paragraph (i) above.
In the event that Platt's LPGaswire is issued on certain days
during a month but not on others, the value of PR shall be
calculated using only those issued which are published during such
month. In the event that the value of PR cannot be determined
because Platt's LPGaswire is not published at all during a month,
the Parties shall meet and agree the value of PR by reference to
other published sources. In the event that there are no other such
published sources or if the value of PR cannot be determined
pursuant to the foregoing for any other reason, the Parties shall
meet and agree the value of PR by reference to the value of LPG
(Propane and Butane) delivered FOB from the Mediterranean Area.
Such valuation of LPG is based upon delivery at the delivery point
specified in Article VII (e) (2) (III) below.
(iii) The Prices of Gas and LPG so calculated shall apply during the same
month.
(iv) The Cost Recovery and Profit Shares of Gas and LPG disposed of by
E.G.P.C. and CONTRACTOR other than to E.G.P.C. pursuant to Article
VII(e) shall be valued at their actual realized price.
3
<PAGE> 137
EXHIBIT 10.41
PAGE 137 OF 138
ARTICLE II
Except as amended by this Agreement, the Concession Agreement signed by virtue
of Law No. 113 of 1993, shall continue in full force and effect in accordance
with its terms.
PHOENIX RESOURCES COMPANY OF QARUN
BY: _______________________________________________
DATE:______________________________________________
APACHE OIL EGYPT, INC.
BY:________________________________________________
DATE:______________________________________________
EGYPTIAN GENERAL PETROLEUM CORPORATION
BY: _______________________________________________
DATE: _____________________________________________
ARAB REPUBLIC OF EGYPT
BY:________________________________________________
DATE: _____________________________________________
4
<PAGE> 1
Global Natural Resources Inc. Exhibit 11.1
Computation of Per Share Earnings Page 1 of 1
(In Thousands Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Primary:
Net income (loss): $ (8,253) $ 4,487 $ (2,846)
=========== =========== ===========
Weighted average common shares:
Outstanding 29,660,578 28,360,697 23,593,288
Assuming conversion of:
Stock options, net of treasury
shares (1) - - -
----------- ----------- -----------
Total: 29,660,578 28,360,697 23,593,288
=========== =========== ===========
Net income (loss) per share: $ (0.28) $ 0.16 $ (0.12)
=========== =========== ===========
Fully-diluted:
Net income (loss): $ (8,253) $ 4,487 $ (2,846)
=========== =========== ===========
Weighted average common shares:
Outstanding 29,660,578 28,360,697 23,593,288
Assuming conversion of:
Prudential's preferred stock into
common stock on
January 1, 1993 - 1,542,694 -
Stock options, net of treasury
shares (1) - - -
----------- ----------- -----------
Total: 29,660,578 29,903,391 23,593,288
=========== =========== ===========
Net income (loss) per share: $ (0.28) $ 0.15 $ (0.12)
=========== =========== ===========
</TABLE>
(1) The effect of the assumed exercise of stock options on the primary and
fully-diluted earnings per share calculations for the three year
periods ended December 31, 1994, is not significant.
<PAGE> 1
EXHIBIT 23.1
PAGE 1 OF 1
ACCOUNTANTS' CONSENT
The Board of Directors
Global Natural Resources Inc.:
We consent to the incorporation by reference in the Registration
Statements (No. 33-62106 on Form S-8 and No. 33-31537 on Form S-8) of our report
dated February 28, 1995, relating to the consolidated balance sheets of Global
Natural Resources Inc. and subsidiaries as of December 31, 1994 and 1993 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1994,
which report appears in December 31, 1994 annual report on Form 10-K of Global
Natural Resources Inc. Our report refers to changes in methods of accounting for
certain investments, natural gas revenues and income taxes.
KPMG Peat Marwick LLP
Houston, Texas
March 29, 1995
<PAGE> 1
EXHIBIT 23.2
PAGE 1 OF 1
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, Ryder Scott Company Petroleum
Engineers hereby consent to (i) the reference to our firm as experts and (ii)
the summarization of our report in the Form 10-K for the fiscal year ended
December 31, 1994 of Global Natural Resources Inc. (the "Company") as filed with
the Securities and Exchange Commission (the "Commission") which 10-K has been
incorporated by reference in the Company's Registration Statement on Form S-8
(Registration No. 33-62106) and the Company's Registration Statement on Form S-8
(Registration No. 33-31537).
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/s/ Joe P. Allen
Joe P. Allen, P.E.
Senior Vice President
Houston, Texas
March 15, 1995
<PAGE> 1
EXHIBIT 23.3
PAGE 1 OF 1
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
As independent petroleum engineers and geologists, Netherland, Sewell &
Associates, Inc. hereby consents to (i) the reference to our firm as experts and
(ii) the summarization of our report in the Form 10-K for the fiscal year ended
December 31, 1994 of Global Natural Resources Inc. (the "Company") as filed with
the Securities and Exchange Commission (the "Commission") which 10-K has been
incorporated by reference in the Company's Registration Statement on Form S-8
(Registration No. 33-62106) and the Company's Registration Statement on Form S-8
(Registration No. 33-31537).
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/Frederic D. Sewell
--------------------------
Frederic D. Sewell
President
Dallas, Texas
March 15, 1995
<PAGE> 1
EXHIBIT 24.1
PAGE 1 OF 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or
director or both, of Global Natural Resources Inc., a New Jersey corporation
(the "Company") does hereby constitute and appoint Robert F. Vagt and Eric Lynn
Hill their true and lawful attorneys and agents (each with authority to act
alone), with power and authority to sign for and on behalf of the undersigned
the name of the undersigned as officer or director or both, of the Company to
the Company's Annual Report to the Securities and Exchange Commission on Form
10-K for the fiscal year of the Company ending December 31, 1994 or to any
amendments thereto filed with the Securities and Exchange Commission, and to any
instrument or document filed as part of, as an exhibit to or in connection with
said Report or amendments; and the undersigned does hereby ratify and confirm as
his own act and deed all that said attorney and agent shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
7th day of March, 1995.
/s/ William L. Bennett
----------------------
WILLIAM L. BENNETT
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,678
<SECURITIES> 33,279
<RECEIVABLES> 9,023
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49,521
<PP&E> 139,671
<DEPRECIATION> 56,587
<TOTAL-ASSETS> 150,913
<CURRENT-LIABILITIES> 24,482
<BONDS> 17,467
<COMMON> 0
0
33,335
<OTHER-SE> 74,421
<TOTAL-LIABILITY-AND-EQUITY> 150,913
<SALES> 49,868
<TOTAL-REVENUES> 50,772
<CGS> 16,852
<TOTAL-COSTS> 53,900
<OTHER-EXPENSES> 478
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> (1,652)
<INCOME-TAX> 6,601
<INCOME-CONTINUING> (8,253)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,253)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
