<PAGE> 1
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UNITED STATES
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 fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9019
UNION TEXAS PETROLEUM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 76-0040040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1330 POST OAK BOULEVARD, HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 623-6544
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $.05 par value New York Stock Exchange
Pacific Exchange, Inc.
8.25% Senior Notes due 1999 New York Stock Exchange
</TABLE>
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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filings pursuant to Item
405 of Regulation S-K (sec.229.405 under the Securities Exchange Act of 1934) 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 10-K. [X]
As of February 20, 1998, there were 85,161,652 shares of Union Texas
Petroleum Holdings, Inc. $.05 par value Common Stock issued and outstanding,
62,958,861 of which, having an aggregate market value of $1,231,632,718, were
held by non-affiliates of the registrant. For purposes of the above statement
only, all directors and executive officers of the registrant are assumed to be
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the registrant's 1998 Annual
Stockholders Meeting are incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 3
Overview.................................................... 3
Segment Data................................................ 5
Reserves.................................................... 6
Production.................................................. 7
Oil and Gas Prices and Production Costs..................... 7
Acreage..................................................... 8
Drilling Activities......................................... 8
Exploration and Production.................................. 10
U.K. North Sea.............................................. 10
Indonesia................................................... 12
Venezuela................................................... 17
Pakistan.................................................... 19
Alaska...................................................... 20
Other Activities............................................ 21
Petrochemicals.............................................. 23
Plant Operations............................................ 23
Storage and Transportation.................................. 23
Other Matters............................................... 24
Insurance................................................... 24
Employees................................................... 24
Risk Factors................................................ 24
Item 2. Properties.................................................. 28
Item 3. Legal Proceedings........................................... 28
Item 4. Submission of Matters to a Vote of Security Holders......... 28
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 29
Item 6. Selected Financial Data..................................... 30
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 30
Item 8. Financial Statements and Supplementary Data................. 37
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 66
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 67
Item 11. Executive Compensation...................................... 67
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 67
Item 13. Certain Relationships and Related Transactions.............. 68
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 68
</TABLE>
2
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PART I
ITEM 1. BUSINESS.
OVERVIEW
The Company, the successor to a corporation founded in 1896, is a
U.S.-based independent (non-integrated) oil and gas company with worldwide
operations. At December 31, 1997, the Company had proved oil and gas reserves of
459 million barrels of oil equivalent. In February 1998, the Company recorded an
additional 114 million barrels of proved reserves in connection with its
Venezuelan acquisition. All of the Company's oil and gas producing activities
are currently conducted outside of the United States in the United Kingdom (the
"U.K.") sector of the North Sea, Indonesia, Venezuela and Pakistan. The Company
also operates a U.S.-based petrochemical business.
The Company's principal current international activities began in the late
1960s with its participation in a joint venture in Indonesia and in two
consortia in the U.K. North Sea. In addition, the Company established Venezuela
as a significant core operated area with the 1998 acquisition of a 100% interest
in an operating service contract and a successful bid in 1997 for another
operating service contract. The Company is also currently engaged in exploration
and production activities in several other countries and development of an oil
field on Alaska's North Slope. International oil and gas properties accounted
for 93% of the Company's total proved reserves as of December 31, 1997. All of
the Company's net income attributable to its oil and gas operations in recent
periods has been generated by its international operations.
The Company's principal properties in the U.K. North Sea are interests in
the Alba, Piper, Claymore, Saltire, Chanter, Iona and Scapa oil fields, the Sean
gas fields and the Britannia gas and condensate field. The Company has a 15.5%
working interest in Block 16/26, which includes the Alba field that came on
stream in 1994 and is operated by Chevron U.K. Limited. As of December 31, 1997,
the Company had recorded approximately 34 million barrels of oil as proved
reserves for the Alba field, of which 23 million barrels of oil are classified
as proved undeveloped. The Company also has a 9.42% unit interest in the
Britannia gas field, a portion of which underlies the Alba field. The Britannia
field is operated by Britannia Operator Limited, a joint venture between Conoco
(U.K.) Limited and Chevron U.K. Limited. As of December 31, 1997, the Company
had recorded 54 million barrels of oil equivalent of proved undeveloped reserves
for the Britannia field. Production from the Britannia field is expected to
begin in August 1998. The Company owns a 20% working interest in the Piper,
Claymore, Saltire, Chanter, Iona and Scapa oil fields, which are operated by Elf
Exploration UK plc, and a 25% working interest in the North, South and East Sean
gas fields, which are operated by Shell U.K. Limited.
The Company's Indonesian activities consist primarily of its 37.81% working
interest in the East Kalimantan joint venture that produces natural gas and, to
a lesser extent, oil and condensate from several fields in Indonesia. The
Company holds its interests in this joint venture directly through a wholly
owned subsidiary and also indirectly through its 50% interest in Unimar Company
("Unimar"), which is a partnership with a subsidiary of LASMO plc, a U.K.
company. Unimar owns ENSTAR Corporation and its subsidiaries, including Virginia
Indonesia Company, the operator of the joint venture. The Company's interests in
Unimar are reported on its Consolidated Financial Statements as an equity
investment (the "Equity Partnership"). See Notes 5 and 19 of Notes to
Consolidated Financial Statements for additional information regarding the
Equity Partnership.
Natural gas produced by the East Kalimantan joint venture is converted into
liquefied natural gas ("LNG") at facilities owned by Pertamina, the Indonesian
national oil and gas company. Currently, LNG is principally sold to two groups
of Japanese industrial and utility customers, the national oil company of the
Republic of China, a consortium of buyers organized by Osaka Gas, and Korea Gas
Corporation, under long-term contracts originally signed in 1973, 1981, 1987,
1990 and 1991, respectively. In 1995, Pertamina extended its 1973 and 1981
long-term LNG sales contracts and signed agreements for two new long-term LNG
sales contracts. Payments for LNG under all LNG sales contracts are made in U.S.
dollars directly to a bank in the U.S. During 1997, 80% of the joint venture's
share of LNG was sold, and in 1998, 74% is expected to be sold, by Pertamina to
Japanese customers. To supply the additional quantities of LNG called for
3
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primarily by the 1973 contract extension, Pertamina completed construction of a
seventh processing train at the Bontang LNG facility in November 1997. Financing
of an eighth train was consummated in March 1997 and construction began in July
1997 primarily to support the new sales contracts. The Company is also
participating in exploration activities of the East Kalimantan joint venture, as
well as exploration activities independent of that joint venture in other parts
of Indonesia.
The Company's activities in Venezuela consist of its interest in two
operating service contracts covering the Desarrollo Zulia Occidental ("DZO")
unit and the Boqueron contract area. The Company's reserves in Venezuela
currently account for over 25% of the Company's worldwide reserves. In February
1998, the Company acquired all of the stock of Compania Occidental de
Hidrocarburos, Inc. ("Hidrocarburos"), a U.S. affiliate of Occidental Oil and
Gas Corporation ("Occidental"), for approximately $212 million, which included
approximately $14 million of working capital and certain closing adjustments
effective December 31, 1997. Occidental may receive contingent payments of up to
a maximum of $15 million annually for six years based primarily on the level of
oil prices. Hidrocarburos operates the DZO unit under its 100% interest in an
operating service contract with a subsidiary of the national oil company,
Petroleos de Venezuela S.A. ("PDVSA"). As of February 1998, the Company had
recorded for the DZO unit 114 million barrels of proved reserves, of which 56
million barrels are classified as proved undeveloped. In June 1997, the Company
and its co-venturer, Preussag Energie GmbH of Germany, were the successful
bidders for the Boqueron area service contract awarded under Venezuela's Third
Operating Agreement Round. The Company has a 66.67% interest in the Boqueron
operating service contract and expects to assume operatorship in May 1998. As of
December 31, 1997, the Company recorded 40 million barrels of proved reserves
for the Boqueron contract area.
Since 1977, the Company has operated through joint ventures oil and gas
exploration, development and production activities in the Badin area in
Pakistan. Oil production from the Badin area began in 1982, and gas production
began in 1989. The Company has working interests of either 30% or 25.5% in the
currently producing fields. The Company also has other concessions in Pakistan.
The Company and its co-venturers, ARCO Alaska, Inc. and Anadarko Petroleum
Corp., are developing the Alpine oil field in the Western Colville area on
Alaska's North Slope. ARCO is the operator of the field. The Company has a 22%
working interest in the Alpine field. As of December 31, 1997, proved
undeveloped reserves (net) for the field were 32 million barrels of oil.
Production from the Alpine field is expected to begin in the first part of 2000.
The Company pursues opportunities and participates worldwide in exploration
for oil and gas in both new venture areas and the Company's producing areas.
Current worldwide activity is in Alaska, Algeria, Bolivia, China, Egypt, Greece,
Ireland, Italy, Jordan, Kazakhstan/Caspian Sea, Papua New Guinea, Sicily,
Trinidad, Tunisia and Yemen and other areas in Latin America, Africa and the
Middle East, as well as the U.K., Indonesia, Venezuela and Pakistan.
In the United States, the Company operates the Geismar olefins plant in
which it owns a 41.67% interest. Located near Baton Rouge, Louisiana, the
Geismar plant, which currently has a 1.275 billion annual gross pounds capacity
(531 million net), processes gas liquids feedstocks to produce ethylene for sale
to several petrochemical manufacturers for the production of plastics used in
various consumer products. In 1997, the Company finished construction of a
thirteenth furnace and in the first quarter of 1998, commenced the upgrading of
nine of the plant's existing furnaces with completion expected in early 1999.
The Company is studying additional opportunities to expand and add value to its
petrochemical business.
In February 1998, the Board of Directors of the Company approved a $413
million capital expenditure budget for 1998, an increase of about 60% from the
$262 million spent in 1997. Approximately $284 million has been budgeted for oil
and gas development projects in Venezuela, the U.K. North Sea, Indonesia,
Pakistan and Alaska, including $79 million for Venezuela, $56 million for the
U.K. and $50 million for Alaska. The Company has budgeted approximately $82
million for exploration projects in the U.K. North Sea, Indonesia and Pakistan
and new venture exploration activities. Approximately $39 million has been
budgeted for the Company's U.S. petrochemical interests. The purchase costs of
the Venezuelan acquisitions and potential acquisitions are not included in
capital expenditures or the budgets.
4
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Unless the context otherwise requires, references herein to the Company are
not intended to imply exact corporate relationships and include Union Texas
Petroleum Holdings, Inc., its predecessors and its subsidiaries, including their
interests in certain joint ventures and partnerships. Union Texas Petroleum
Holdings, Inc. was organized under the laws of the State of Delaware in 1982.
The address and telephone number of the Company's principal executive offices
are 1330 Post Oak Blvd., Houston, Texas 77056, (713) 623-6544. As of February
20, 1998, the Company had approximately 1,300 full-time employees worldwide. For
a discussion of risks, uncertainties and assumptions affecting the Company's
business, see "-- Risk Factors" and Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations.
SEGMENT DATA
The table below summarizes the Company's revenues, net income and
identifiable assets by areas of activity for the past three years(a):
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Exploration and production:
Sales and operating revenues:
United Kingdom..................... $ 367 $ 406 $ 323
Indonesia.......................... 287 341 276
Pakistan........................... 66 66 51
Other International................ 1
------ ------ ------
Total......................... $ 720 $ 813 $ 651
====== ====== ======
Net income (loss):
United Kingdom..................... 68 85 46
Indonesia.......................... 106 121 95
Pakistan........................... 19 27 14
Other International................ (88) (33) (49)
United States (Alaska)............. (3) (8) (6)
------ ------ ------
Total......................... $ 102 $ 192 $ 100
====== ====== ======
Identifiable assets:
United Kingdom..................... 1,156 1,244 1,168
Indonesia.......................... 415 444 459
Venezuela.......................... 126
Pakistan........................... 67 60 46
Other International................ 43 15 9
United States (Alaska)............. 38 23 13
------ ------ ------
Total......................... $1,845 $1,786 $1,695
====== ====== ======
Petrochemicals:
Sales and operating revenues....... $ 188 $ 193 $ 200
Net income (b)..................... 20 15 38
Identifiable assets................ 134 116 111
</TABLE>
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(a) Net income (loss) and identifiable assets do not give effect to general and
administrative items. See Note 15 of Notes to Consolidated Financial
Statements for additional data.
(b) Includes assumed U.S. taxes at regular statutory tax rates. The Company,
however, was subject to the U.S. corporate alternative minimum tax during
the periods indicated.
As reflected in the preceding table, a significant portion of the Company's
income was generated from its overseas operations, particularly its
participation in the producing fields in the East Kalimantan area of Indonesia
and in the U.K. North Sea. All of the Company's oil and gas and petrochemical
activities are
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subject to a variety of risks. See "-- Risk Factors" and Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of Operations.
RESERVES
The following table sets forth information regarding the Company's
estimates of its proved net reserves as of December 31, 1997. The Company's
estimates of reserves filed with federal agencies, including the Securities and
Exchange Commission, agree with the information set forth below. See "-- Risk
Factors," Item 7 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations and Note 19 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
OIL (MBbls)(a)(b) GAS (MMcf)(b) OIL EQUIVALENTS (Mboe)(a)(b)
--------------------------------- ----------------------------------- ---------------------------------
DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ------- --------- ----------- --------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United Kingdom....... 40,835 35,820 76,655 124,843 247,349 372,192 62,360 78,466 140,826
Indonesia(c)......... 17,473 1,775 19,248 670,415 110,674 781,089 133,062 20,857 153,919
Venezuela(d)......... 40,000 40,000 40,000 40,000
Pakistan............. 4,206 1,640 5,846 75,107 44,787 119,894 17,155 9,362 26,517
Alaska............... 32,005 32,005 32,005 32,005
------- ------ ------- --------- ------- --------- ------- ------- -------
Total........ 102,514 71,240 173,754 870,365 402,810 1,273,175 252,577 140,690 393,267
------- ------ ------- --------- ------- --------- ------- ------- -------
Equity Partnership:
Indonesia(c)....... 7,316 749 8,065 284,535 47,134 331,669 56,374 8,875 65,249
------- ------ ------- --------- ------- --------- ------- ------- -------
Total........ 109,830 71,989 181,819 1,154,900 449,944 1,604,844 308,951 149,565 458,516
======= ====== ======= ========= ======= ========= ======= ======= =======
</TABLE>
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(a) For the purpose of calculating reserves, oil includes condensate, and for
the U.K., oil also includes natural gas liquids.
(b) Unless otherwise indicated in this Annual Report on Form 10-K, gas volumes
are stated at the legal pressure base of the area or country in which the
reserves are located and at 60 degrees Fahrenheit. As used herein, the term
"BTU" means British thermal unit, the term "TBtu" means trillion BTUs, the
term "MMBtu" means million BTUs, the term "Mcf" means thousand cubic feet,
the term "MMcf" means million cubic feet, the term "Bcf" means billion
cubic feet, the term "Tcf" means trillion cubic feet, the term "Bbl" means
barrel, the term "MBbls" means thousands of barrels, the term "MMBbls"
means millions of barrels, the term "boe" means barrel of oil equivalent,
the term "Mboe" means thousand barrels of oil equivalent and the term
"MMboe" means million barrels of oil equivalent. Gas is converted into a
barrel of oil equivalent based on 5.8 Mcf of gas to one barrel of oil. The
term "LNG" means liquefied natural gas and the term "LPG" means liquefied
petroleum gas.
(c) Information regarding Indonesian reserves relates to the Company's net
interest in a production sharing contract between the Indonesian joint
venture and Pertamina. The joint venture has no ownership interest in the
reserves but does have the right to share revenues and production and is
entitled to recover most field and other operating costs and capital
depreciation. The reserve estimates, which are based on year-end prices,
are subject to revision as product prices and costs fluctuate due to the
cost recovery feature under the production sharing contract. The impact on
reserves is inversely related to price changes and directly related to
changes in field operating and capital costs. In addition, reserve
estimates are subject to revision due to the effect that price fluctuations
generally have on estimates of recoverable reserves. Debt relating to the
LNG processing facilities owned by Pertamina is contractually required to
be serviced from proceeds of LNG sales prior to the distribution of such
proceeds primarily to the members of the joint venture, Pertamina and the
other production sharing contractors. The debt obligation is not the
obligation of the joint venture. Debt service relating to such facilities
is accounted for in the Company's reserve estimates as a cost of production
and operation. Such debt service is deducted in estimating future net
revenues to be distributed among Pertamina and the production sharing
contractors, including the joint venture and the Company's interest
therein. See "Exploration and Production -- Indonesia" below and Note 19 of
Notes to Consolidated Financial Statements.
(d) The reserves table, as well as the other tables in this Annual Report on
Form 10-K, does not include the reserves associated with the DZO unit,
which were recorded in February 1998. Information regarding all Venezuelan
reserves relates to the Company's net interest in an operating service
contract for the Boqueron area between the Company, the other contractor
and a subsidiary of PDVSA. The Government
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of Venezuela retains full ownership of all hydrocarbons. The Company will
receive a service fee for each barrel of crude oil produced at Boqueron,
which consists of the following two components: (i) a set fee for the
baseline production and (ii) a sliding incentive fee for the incremental
production, as well as cost recovery for field and other capital and
operating costs. See "Exploration and Production -- Venezuela" below and
Note 19 of Notes to Consolidated Financial Statements.
PRODUCTION
The following table sets forth the Company's average daily production of
oil, natural gas liquids and gas during 1997, 1996 and 1995:
<TABLE>
<CAPTION>
EQUITY
UNITED PARTNERSHIP
KINGDOM INDONESIA PAKISTAN INDONESIA
------- --------- -------- -----------
<S> <C> <C> <C> <C>
Oil (MBbls per day):
1997............................................. 43 6 7 2
1996............................................. 43 6 6 2
1995............................................. 40 6 5 2
Natural gas liquids (MBbls per day):
1997............................................. 1 2
1996............................................. 2 2
1995............................................. 2 1
Gas (MMcf per day):
1997............................................. 29 219(a) 37 72(a)
1996............................................. 46 258(a) 41 85(a)
1995............................................. 34 251(a) 45 83(a)
</TABLE>
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(a) Includes gas consumed in the operation of the Indonesian LNG plant.
OIL AND GAS PRICES AND PRODUCTION COSTS
The Company's average sales prices and production costs of oil, natural gas
liquids and gas for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
EQUITY
UNITED PARTNERSHIP
KINGDOM INDONESIA PAKISTAN INDONESIA
------- --------- -------- -----------
<S> <C> <C> <C> <C>
Average sales prices:
Per Bbl of oil
1997............................................. $17.28 $19.71 $17.09 $19.71
1996............................................. 19.60 19.49 17.75 19.49
1995............................................. 16.14 17.14 14.24 17.14
Per Bbl of natural gas liquids
1997............................................. 15.19 20.39
1996............................................. 14.47 18.04
1995............................................. 10.92 18.11
Per Mcf of gas
1997............................................. 2.92 3.24(a) 1.61 3.24(a)
1996............................................. 2.83 3.34(a) 1.61 3.34(a)
1995............................................. 2.78 2.90(a) 1.32 2.90(a)
Average production costs per boe(b):
1997............................................. 4.57 3.08(c) 2.15 2.87(c)
1996............................................. 4.31 3.22(c) 2.39 3.05(c)
1995............................................. 5.05 3.02(c) 3.55 2.72(c)
</TABLE>
(Footnotes on following page)
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(a) Includes natural gas sold to fertilizer plants and a refinery. The average
sales price for LNG for 1997, 1996 and 1995 was $3.45, $3.52 and $3.03 per
Mcf, respectively.
(b) Primarily includes expenditures for operating expenses.
(c) Includes plant processing costs and debt service on the Indonesian LNG
processing facilities.
ACREAGE
The following table summarizes the Company's developed and undeveloped
acreage at December 31, 1997, by geographic area. As used herein and in
"Drilling Activities" below, the term "gross" refers to acres or wells in which
the Company owns a working interest, and the term "net" refers to gross acres or
wells multiplied by the percentage of the working interest owned by the Company.
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
---------------- ------------------
AREA GROSS NET GROSS NET
---- ------ ---- ------- -------
(NUMBERS IN THOUSANDS)
<S> <C> <C> <C> <C>
United States (Alaska)............................ 396 119
United Kingdom.................................... 148 20 1,017 191
Indonesia......................................... 97 25 5,715 2,356
Venezuela......................................... 7 4
Pakistan.......................................... 32 9 5,519 3,349
Other International............................... 18,698 7,719
--- -- ------ ------
Total................................... 284 58 31,345 13,734
=== == ====== ======
Equity Partnership:
Indonesia....................................... 97(a) 11 1,046(a) 121
=== == ====== ======
</TABLE>
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(a) The Company also has a direct interest in such gross developed and
undeveloped acreage, which is included above in the Company's gross acreage
for Indonesia.
DRILLING ACTIVITIES
At December 31, 1997, the Company's total gross and net productive oil and
gas wells, including multiple completions, by geographic area, were as shown in
the table below. The gross number of oil and gas wells with multiple completions
was 250.
<TABLE>
<CAPTION>
OIL WELLS GAS WELLS
-------------- ---------------
AREA GROSS NET GROSS NET
---- ----- ----- ----- ------
<S> <C> <C> <C> <C>
United Kingdom...................................... 69 13.22 29 4.60
Indonesia........................................... 80 19.97 395 95.92
Venezuela........................................... 9 6.00
Pakistan............................................ 51 14.94 45 13.01
Other International.................................
--- ----- --- ------
Total..................................... 209 54.13 469 113.53
=== ===== === ======
Equity Partnership:
Indonesia......................................... 80(a) 8.78 395(a) 42.25
=== ===== === ======
</TABLE>
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(a) The Company also has a direct interest in such wells, which is included
above in the Company's gross wells for Indonesia.
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<PAGE> 9
The net productive and dry exploratory wells drilled during 1997, 1996 and
1995, by geographic area, were as follows:
<TABLE>
<CAPTION>
EXPLORATORY WELLS
---------------------------------------
PRODUCTIVE DRY
------------------ ------------------
AREA 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
United States (Alaska)...................... 1.41(a) .22
United Kingdom.............................. .23 .16 .73
Indonesia................................... .26 .44 .33
Pakistan.................................... .77 .56 1.42 1.72 1.12 1.63
Other International......................... 1.65 1.90
---- ---- ---- ---- ---- ----
Total............................. .77 1.97 1.42 3.86 1.94 4.59
==== ==== ==== ==== ==== ====
Equity Partnership:
Indonesia................................. .11
====
</TABLE>
- ---------------
(a) Includes net interest in four wells drilled prior to 1996, which were in
suspense pending determination of commerciality.
The net productive and dry development wells drilled during 1997, 1996 and
1995, by geographic area, were as follows:
<TABLE>
<CAPTION>
DEVELOPMENT WELLS
---------------------------------------
PRODUCTIVE DRY
------------------ ------------------
AREA 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
United Kingdom.............................. 1.42 .87 1.36 .20 .20 .20
Indonesia................................... 2.05 1.95 3.90
Pakistan.................................... 1.02 1.16 .86 .26 .86 .26
---- ---- ---- ---- ---- ----
Total............................. 4.49 3.98 6.12 .46 1.06 .46
==== ==== ==== ==== ==== ====
Equity Partnership:
Indonesia................................. .90 .86 1.72
==== ==== ====
</TABLE>
At December 31, 1997, wells in progress were as follows:
<TABLE>
<CAPTION>
EXPLORATORY DEVELOPMENT
------------- -------------
AREA GROSS NET GROSS NET
---- ----- ---- ----- ----
<S> <C> <C> <C> <C>
United States (Alaska)................................
United Kingdom........................................ 21 2.31
Indonesia............................................. 4 .85
Pakistan.............................................. 3 .77
Other International................................... 4 1.50
-- ---- -- ----
Total....................................... 7 2.27 25 3.16
== ==== == ====
Equity Partnership:
Indonesia........................................... 4(a) .37
== ====
</TABLE>
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(a) The Company also has a direct interest in such wells, which is included
above in the Company's gross wells for Indonesia.
At December 31, 1997, there were pressure maintenance programs in the U.K.
North Sea and in Pakistan.
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EXPLORATION AND PRODUCTION
U.K. North Sea
The Company's principal U.K. North Sea properties include interests in the
Alba, Piper, Claymore, Saltire, Chanter, Iona and Scapa oil fields, the Sean gas
fields and the Britannia gas and condensate field. The Company also owns a 20%
interest in the Flotta terminal and pipeline system located in the Orkney
Islands of northern Scotland, which currently handles approximately 10% of the
U.K.'s oil production.
Alba Field. In July 1995, the Company acquired a 15.5% working and revenue
interest in the central U.K. North Sea's Block 16/26, which includes the Alba
oil field. The Alba field has been developed using a fixed platform located in
the northern part of the field from which oil is pumped to a permanently moored
floating storage unit three miles away. Shuttle tankers then transport the oil.
At year-end, proved reserves (net) for the Alba field were 34 MMBbls of oil, of
which 23 MMBbls are classified as proved undeveloped. The Company anticipates
recording additional proved reserves based on the field's production history and
future development activity. The Alba field, which commenced production in
January 1994, is expected to produce for over 20 years and maintain its 1997
peak production level in 1998. Average daily production (net to the Company) for
1997 was 14 MBbls of oil. During 1998, the Company expects to spend $32 million
on field development, including the construction of a gas pipeline, upgrading of
certain facilities and drilling activities. Chevron U.K. Limited operates the
field. Production from the Alba field is subject to U.K. corporation tax and the
U.K. Petroleum Revenue Tax ("PRT"), but is not subject to U.K. royalty.
Britannia Field. The Company has a 9.42% unit interest in the undeveloped
Britannia natural gas and condensate field, a portion of which underlies the
Alba field, in the U.K. North Sea. As of December 31, 1997, the Company has
spent a total of $132 million on development, of which $41 million was spent in
1997 for platform fabrication and installation, and expects to spend
approximately $24 million in 1998. The Britannia field is operated by Britannia
Operator Limited, a joint venture between Conoco (U.K.) Limited and Chevron U.K.
Limited. Production from Britannia is expected to begin in August 1998 with a
production life of approximately 30 years. Long-term agreements have been
reached to sell a substantial portion of the gas production in the U.K. market
to: Kinetica Limited (a subsidiary of Powergen plc), Conoco (U.K.) Limited,
Mobil Gas Marketing (U.K.) Limited, National Power plc and Total Oil Marine plc.
The gas production will be processed at the SAGE terminal in St. Fergus in
northeastern Scotland, which has been expanded by the SAGE owners to accommodate
the Britannia production. In August 1997, the platform was installed in the
field. The gas and condensate export lines were successfully laid and tied-in
during the third quarter of 1997 and are expected to be fully operational in the
second quarter of 1998. Governmental approval for the habitation of the platform
was granted in December 1997. As of December 31, 1997, proved undeveloped
reserves (net) for the Britannia field were 54 MMboe. The Company anticipates
recording additional proved reserves based on the field's development results
and future production history. Production from the Britannia field will be
subject to the U.K. corporation tax, but will not be subject to U.K. royalty or
PRT.
Piper and Claymore Fields. In 1971, the Company joined a consortium of
companies, of which Elf Exploration UK plc is now the operator, to explore for
oil and gas in certain areas of the U.K. North Sea. The Company has a 20%
working interest (17.5% revenue interest after government royalty) in the Piper
and Claymore fields discovered in 1972 and 1974, respectively. Production from
Piper and Claymore originally began in late 1976 and late 1977, respectively.
After being shut down in July 1988, Claymore recommenced in 1989, and Piper
recommenced in 1993 from a new fixed platform ("Piper B"). Oil production from
the fields is transferred 135 miles via the joint venture's pipeline to the
Flotta terminal. The remaining proved reserves (net) as of December 31, 1997,
contained in the Piper and Claymore fields were 10 MMboe and 14 MMboe,
respectively. Average daily production of oil and liquids (net to the Company)
for 1997 from the Piper and Claymore fields was 9 MBbls and 7 MBbls,
respectively.
Piper Satellite Fields. The Company also has a 20% working and revenue
interest in the Saltire, Chanter and Iona fields, satellites to Piper. The
Saltire field was developed in 1993 with a fixed platform connected subsea to
the Piper B platform. The Chanter and Iona fields are subsea tiebacks to the
Piper B platform and the Saltire platform, respectively. Remaining proved
reserves (net) at December 31, 1997 for the three satellite fields are 4.5
MMboe.
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<PAGE> 11
Claymore Satellite Field. The Scapa field, in which the Company has a 20%
working and revenue interest, was discovered in 1975 and is produced using a
subsea production facility tied to the Claymore platform. Average daily
production (net to the Company) for 1997 was 4 MBbls of oil and liquids.
Remaining proved reserves (net) at December 31, 1997, for the Scapa field were 4
MMboe.
The Piper and Claymore fields are currently subject to PRT at a 50%
statutory rate, which is based on the net value of oil and gas produced from
each field and on pipeline tariffs. The U.K. tax structure has encouraged
development of fields in the North Sea by exempting all or part of their
production from PRT. These fields, such as the Saltire, Chanter, Iona and Scapa
fields, are referred to as edge oil fields because they generally have separate
field designations, incur little or no PRT, have no government royalty interest
burden and are generally developed as satellites from an existing platform. It
is anticipated that only small amounts of PRT, if any, will be paid on the
production from these fields. All production from any field receiving
development consent after March 16, 1993, such as the Britannia and Iona fields,
is exempt from PRT. Production exempted from PRT provides a greater contribution
to cash flow on a per-barrel basis. All production is subject to the U.K.
corporation tax, which is at the current rate of 31% (an effective rate of 25.5%
after benefits provided by the U.K./U.S. tax treaty). Under current U.S. tax
law, the PRT and U.K. corporation tax may be credited against U.S. taxes.
Sean Fields. The Company has a 25% working interest (24.375% revenue
interest after overriding royalty) in the North, South and East Sean gas fields
located in the southern portion of the U.K. North Sea and operated by Shell U.K.
Limited. The proved reserves (net) as of December 31, 1997 for the fields were
20 MMboe.
The Sean platforms, which currently serve the North, South and East Sean
fields, made their first deliveries in December 1986. Under the terms of a
long-term gas sales contract with British Gas Trading Limited (BGT), the Company
currently maintains each winter contract period the capability of delivering up
to 15 Bcf (net to the Company) from the North and South Sean fields. In recent
years, the average sales from these fields net to the Company has been 3.1 Bcf.
Inasmuch as there were higher sales during the 1996-1997 winter contract period
(10.5 Bcf net to the Company), and due to a mild winter, the Company expects
significantly lower than average sales for the 1997-1998 winter contract period.
This peak-shaving gas sales agreement also provides that currently proved gas
reserves from the North and South Sean fields are dedicated to the buyer. The
price under the gas sales agreement is based upon the volume of gas taken and
various U.K. price indices. The average price for 1997 was $3.19 per Mcf. During
the fall and winter months, the Company also earns a capacity charge, which is
independent of production levels, to ensure field deliverability of 600 MMcf
(gross) per day. The capacity charge for 1997 totaled $39 million (net to the
Company), and the revenue for the volume of gas taken on 38 days of production
was $18 million (net to the Company). Production from the North and South Sean
fields is subject to U.K. corporation tax and PRT, but is not subject to U.K.
royalty.
Discovered in 1994, the East Sean field is separated from the producing
reservoirs of the North and South Sean fields, and as a result, production from
the East Sean field is not dedicated to the peak-shaving contract with BGT.
During 1997, the Company's share of gas from the East Sean field was sold, on
the U.K.'s short term gas market, to a number of companies. Average daily
production (net to the Company) for 1997 was 8 MMcf per day. Production from the
East Sean Field is subject to U.K. corporation tax but is not subject to U.K.
royalty or PRT.
Customers. For 1997, the Company's U.K. operations had crude oil sales at
prevailing market prices to Texaco Limited equal to 12% of the Company's total
sales and operating revenues. Because of the market for Northwest European crude
oil, the Company believes that the loss of this customer would not have a
material adverse effect on the Company. See Note 13 of Notes to Consolidated
Financial Statements.
Other Information. During 1997, the Company sold its 4.19% equity interest
in the unitized Ross field to a subsidiary of Nippon Oil. The consortium of the
Piper and Claymore fields have instigated a cost-reduction program, which is
expected to save the Company in excess of $20 million net over the next decade.
11
<PAGE> 12
Production from the Company's interests in the U.K. fields totaled 18 MMboe
during 1997, a decrease of 7% from 1996. In 1998, the Company expects production
from these fields to slightly decrease from the 1997 production level with
additional production expected to be contributed from the Britannia field by the
fourth quarter of 1998. Payment to the Company with respect to oil production
from the Alba, Piper, Claymore, Saltire, Chanter, Iona and Scapa fields is made
in U.S. dollars, and payments for gas production, including under the Sean gas
sales agreements, are made in pounds sterling. There are no significant
restrictions on the repatriation of funds from the Company's U.K. subsidiary to
the U.S. Dividends paid to the Company by its U.K. subsidiary are subject to a
25% U.K. advance corporation tax. For dividends paid before April 6, 1999,
approximately 27.5% of this tax (or approximately 6.9% of the dividend paid) is
available for immediate refunding to the Company by the U.K. government. For
dividends paid after April 5, 1999, approximately 2.5% of this tax (or
approximately 0.2778% of the dividend paid) is available for immediate refunding
to the Company by the U.K. government. All of this tax (including the refunded
portion) may be credited against the U.K. corporation tax paid by the Company's
U.K. subsidiary.
See "-- Risk Factors" and Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Indonesia
The Company is engaged in oil and gas exploration, development and
production in Indonesia, primarily through a joint venture group it joined in
1969. Under a production sharing contract with Pertamina, the Indonesian
national oil company, which currently covers approximately 1.1 million acres,
the joint venture produces gas and, to a lesser extent, oil and condensate, in
the Sanga Sanga block in the East Kalimantan area. Substantially all of the
natural gas produced by the joint venture is supplied, pursuant to long-term
contracts with Pertamina, to a liquefaction plant owned by Pertamina at Bontang
Bay, approximately 35 miles from the production areas. At the Bontang plant, gas
is converted into LNG in parallel processing units ("trains") by reducing the
temperature of the gas to approximately minus 161 degrees Celsius. The Bontang
plant currently has seven trains in operation. Construction of a third dock and
LPG facilities began in February 1997 and is expected to be completed in 1999.
The financing of an eighth train, an additional LNG storage tank, an additional
natural gas pipeline and a debottlenecking project for the first six trains was
consummated in March 1997. Construction began in 1997 and is expected to be
completed by late 2000. After conversion, the LNG is pumped into specially
designed tankers (owned by third parties) and transported to purchasers in the
Pacific Rim, where it is returned to its original gaseous form and used for fuel
by electric utilities and industry. The Bontang plant also processes LPG.
Production Sharing Contract and Drilling. The joint venture's production
sharing contract with Pertamina grants the joint venture the right to share in
the production and revenues from the contract area, but not ownership rights in
the oil and gas reserves. The joint venture's contract area in East Kalimantan
includes substantial portions of two fields, Badak and Nilam, as well as several
other fields. The joint venture has relinquished 20% of the area covered by the
production sharing contract since 1990 when the contract was extended and is
required to relinquish the following additional amounts of the area covered by
the contract: 10% by August 7, 1998, 10% by December 31, 2000, 15% by December
31, 2002, and 15% by December 31, 2004. The joint venture, however, is not
obligated to relinquish any area from which oil or natural gas is produced.
The production sharing contract originally expired in 1998, but in 1990,
Pertamina and the joint venture amended the production sharing contract and
extended the joint venture's right to explore, develop and produce oil and gas
in the contract area until 2018 through a second production sharing contract,
containing terms and conditions generally similar to the amended production
sharing contract. References herein to the production sharing contract mean the
production sharing contract in effect for the applicable time period. The
production sharing contract entitles the joint venture participants to recover
most field and other operating costs, as well as capital depreciation, and to
receive, net of Indonesian taxes, 35% of the remaining gas production through
August 7, 1998, and 25% or 30%, depending upon the applicable LNG sales contract
and field supplying gas in support of such LNG sales contract, with some
exceptions, of such production for the remaining term of the contract. The
production sharing contract also entitles the joint venture participants to
12
<PAGE> 13
take their respective shares of oil and condensate production in kind, and after
recovering operating expenses and capital depreciation, to retain 15% of the
proceeds from sales of such production, net of Indonesian taxes. Proceeds from
the sale of oil and condensate (except for that sold pursuant to the joint
venture's domestic market obligation discussed below) are currently based on
official Indonesian crude oil prices and reflect world market prices.
The Company owns a 37.81% working interest in the joint venture (26.25%
directly and 11.56% through subsidiaries of Unimar, the Equity Partnership). The
Company's 11.56% indirect interest is subject to the right of holders of
Unimar's Indonesian Participating Units ("IPUs") to receive a percentage of
certain cash flow resulting from Unimar's interest in the joint venture until
September 25, 1999, at which time the IPUs will expire with no residual value to
the holder. In 1997, approximately one-fourth of the Company's interest in such
cash flow of Unimar was burdened by such payment obligation. Virginia Indonesia
Company, a participant in the joint venture and a subsidiary of Unimar, acts as
operator of the joint venture. The vote of participants holding 66 2/3% of the
total joint venture ownership interest is generally required for approval of
significant matters pertaining to the joint venture.
At December 31, 1997, proved reserves (net) attributable to the Company's
total interest in the joint venture were approximately 1.1 Tcf of gas and 27
MMBbls of oil and condensate. For a discussion of factors that impact Indonesian
reserve estimates, see "Reserves" above and Note 19 of Notes to Consolidated
Financial Statements. Substantially all of the joint venture's natural gas
production and reserves are committed to several long-term supply agreements
with Pertamina, which obligate the joint venture to supply certain minimum
quantities of natural gas. The Company believes that there are adequate reserves
in the joint venture's production sharing contract area to supply natural gas
under the joint venture's contractual commitments outstanding as of December 31,
1997. Pertamina continues to make progress in marketing additional LNG volumes.
The percentage of the natural gas supplied by the joint venture in support of
future LNG or LPG sales contracts, or renewals or extensions of existing
long-term sales contracts, is dependent primarily upon the uncommitted reserves
of natural gas that the joint venture has in its production sharing contract
area at the time that Pertamina establishes the allocation of the natural gas
supply for such sales contracts among the various contractor groups in the East
Kalimantan area, which participation percentage has decreased. See "Sales
Contracts" below.
In 1997 and 1996, nine and eight successful development wells,
respectively, were drilled in fields in East Kalimantan. During 1998, the
Company expects to spend approximately $42 million on development projects. In
addition, the joint venture plans to continue exploration efforts in 1998 by
seismic data acquisition and exploratory drilling. The joint venture also
continues to evaluate the East Kalimantan area to identify additional oil and
gas prospects. All of these expenditures will be cost recoverable pursuant to
the production sharing contract.
The joint venture participants are required collectively to sell
approximately 8.5% (7.2% after August 7, 1998) of the total oil and condensate
production from most existing fields in the contract area at $0.20 per barrel
for domestic Indonesian consumption. The domestic market obligation is
suspended, however, for the first 60 months of production from new fields in the
contract area, after which the price will be 10% of the realized Indonesian
export price. These obligations are factored into the Company's net reserves
estimates. Each participant's remaining oil and condensate production is
generally sold in world oil markets. In addition to the oil and condensate sold
for domestic use, the joint venture supplies gas for domestic consumption, and
the amount supplied for such purposes may increase or decrease in the future.
Profits from gas supplied for domestic consumption, which was sold at an average
price of $1.06 per Mcf in 1997, are less than from gas supplied for LNG. Gas
supplied for domestic consumption constituted less than 8% of the joint
venture's gas production during 1997.
Bontang Plant. At the Bontang plant, natural gas supplied by the joint
venture and other production sharing contractors is converted to LNG, and
shipped in LNG tankers ("cargoes"). These specially designed tankers vary in
size, and the term "cargo" as used herein means 125,000 cubic meters of LNG.
During 1997, the completion of the seventh train increased the production
capacity of the Bontang plant from 15.6 metric tons per annum to 18.5 metric
tons per annum. The Bontang plant currently has limited unused processing
13
<PAGE> 14
capacity. See "Sales Contracts" below for more information. The amount of
revenue that the Company receives as a result of the production of natural gas
in support of the sale of LNG by Pertamina is dependent upon the number of
cargoes shipped each year, the Company's ultimate participation in each cargo,
the price the buyers must pay for the LNG purchased and the costs to be deducted
from the proceeds of sales of LNG.
The Bontang plant is owned by Pertamina and operated on a
cost-reimbursement basis by a corporation owned in part by the joint venture.
The financing of the original two trains was repaid in 1990, and the financing
for the second two trains was repaid in 1993. Financing for construction of the
fifth train at the Bontang plant was provided principally from Japanese sources
through a funding arrangement under which debt service is paid to the lenders by
the Trustee (as defined below) from the proceeds of LNG sales, primarily under
the contract signed in 1987 with Chinese Petroleum Corporation ("CPC"), the
national oil company of the Republic of China (Taiwan). Final repayment is
scheduled in 2000. In 1991, Pertamina arranged $750 million under a similar
financing arrangement for the construction of the sixth train and associated
facilities at the Bontang plant. Construction began in 1991 and was completed in
late 1993 at a cost of approximately $700 million. Repayment began in 1994 from
proceeds of the Osaka contract (as defined below), and final repayment is
scheduled in 2004. In July 1995, a $969.5 million financing was completed for
the seventh train, third dock, LPG expansion and other support facilities. The
financing was provided from Japanese sources through arrangements similar to
those used to finance the Bontang plant's fifth and sixth trains. The
construction of the seventh train began in 1995 and was completed in November
1997. Repayment is scheduled to begin in December 1998 principally from the
proceeds of the short-term LNG sales contracts with CPC and Korea Gas
Corporation ("KGC") and starting in 2000, from the proceeds of the extension of
the 1973 contract, and final repayment is expected in 2008. In March 1997, a
$1,127 million financing was completed for the eighth train, an additional LNG
storage tank, an additional natural gas pipeline, a debottlenecking project for
the first six trains and other support facilities. The financing was primarily
provided by Taiwanese and Japanese sources through arrangements similar to those
used to finance the Bontang plant's fifth, sixth and seventh trains.
Construction of the eighth train began in July 1997 and is scheduled for
completion by 2000. Repayment of this financing is scheduled to begin in 2000
from the proceeds of the Badak V and Badak VI LNG sales contracts discussed
below. Financing of the fifth, sixth, seventh and eighth trains are nonrecourse
to both Pertamina and the joint venture.
Sales Contracts. The joint venture currently has gas supply agreements with
Pertamina that support the long-term and short-term LNG sales contracts and
obligate the joint venture to provide certain quantities of natural gas for
fulfillment of Pertamina's obligations pursuant to the LNG sales contracts. The
supply agreements terminate concurrently with the expirations of their
respective LNG sales contracts. The Company's right to receive revenues from the
sale of LNG and LPG under existing contracts as well as any future new contracts
or extensions or renewals of existing contracts is affected by the allocation of
the gas supply obligation in support of Pertamina's sales contracts among the
joint venture and the other production sharing contractors supplying gas to the
Bontang plant, which allocations vary among the sales contracts. This allocation
is set by Pertamina and is primarily based upon uncommitted reserves of natural
gas available at the time Pertamina makes the allocation. The allocation to the
Company's joint venture in such contracts has declined over time since the
initial 1973 sales contract allocation at 97.9%, when the joint venture was
virtually the only supplier to the Bontang plant, to the present when there are
two other major production sharing contractors supplying gas to the Bontang
plant and sharing in the allocation of volumes. In 1997 and 1996, 87 Bcf and 106
Bcf, respectively, net to the Company, were delivered to Pertamina under these
supply agreements. Gas production for the joint venture in Indonesia has peaked.
The joint venture's share, which also includes the Company's net interest, in
LNG volumes from the Bontang plant declined in 1997 by approximately 18% as
compared to 1996 primarily due to a reduction in deliveries under the initial
1973 contract in which the joint venture has a high allocation interest. A
further decline in the joint venture's participation percentage in LNG volumes
of 18% is expected in 1998 as compared to 1997 due to the reduction in
deliveries under the 1973 contract as well as the reduction in the sharing
percentages under the production sharing contract from 35% to 25% or 30%
starting in August 1998. The effect of such lower gas supplies will not have as
significant an impact on the Company's total annual cash flow. See Production
Sharing Contract and Drilling above and the table below for more information.
14
<PAGE> 15
LNG is currently sold by Pertamina to two groups of Japanese industrial and
utility customers and to CPC under long-term contracts signed in 1973, 1981 and
1987, respectively. Additionally, sales of LNG began in November 1994 under a
long-term contract signed in 1990 with a consortium of buyers organized by Osaka
Gas, a Japanese utility (the "Osaka contract"). LNG is also sold by Pertamina
under additional long-term contracts with KGC signed in 1983 and 1991 (the
"Korean Carryover" and "Korea II" contracts, respectively) and under the
long-term Mid-Cities Gas Companies ("MCGC") contract signed in 1992. Some of the
added capacity from the expansion of the LNG facilities during 1993 is also used
to supply LNG sold under short-term contracts to Japanese, Korean and Taiwanese
buyers. The sales price under the LNG sales contracts is tied to an average of
prices for exported Indonesian crude oil. In 1997, 80% of the joint venture's
share of LNG was sold by Pertamina to Japanese customers. The Company expects in
1998 such percentage to be 74%, with Korean and Taiwanese customers purchasing
the remainder at 16% and 10%, respectively. Due to the current Asian economic
crisis, the ability of certain LNG customers to take their contractual
quantities may be impaired and Pertamina and such customers could agree either
to reduce or defer some contracted quantities. Although the Company cannot
predict the impact of the current Asian economic crisis on such customers, the
Company currently expects that it will not have a material impact on the Company
in 1998.
In 1995, Pertamina finalized agreements to extend the LNG contracts
originally signed in 1973 and 1981 until 2010 and 2011, respectively. Pertamina
also signed agreements for two new long-term LNG sales contracts with CPC (Badak
VI) and KGC (Badak V), which provide for LNG sales from 1998 until 2017. To
support the supply of the additional quantities of LNG required primarily by the
1973 extended contract, the seventh train was completed in November 1997.
Construction of the eighth train and associated projects began in July 1997 and
is expected to be completed by 2000, primarily to support the supply of
quantities of LNG required by the new CPC and KGC long-term contracts.
The 1973 and 1981 contracts (including extensions thereof) and the CPC, CPC
(Badak VI), Osaka, Korean Carryover, Korea II, KGC (Badak V) and MCGC contracts
(collectively, the "long-term contracts") contain take-or-pay provisions that
generally require that the purchasers either take the contracted quantities or
pay for such quantities even if not taken. Prior to any extensions, the initial
term of each long-term contract is approximately 20 years. The other contracts
described in the table below are short-term contracts and generally have a term
of ten years or less. Of the remaining LNG sales volumes to be delivered after
December 31, 1997, under all of the contracts described in the table below, the
long-term contracts and the short-term contracts represent approximately 98% and
2%, respectively, of such deliveries.
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<PAGE> 16
The following table sets forth information regarding the Bontang LNG
plant's share of LNG sales contracts at December 31, 1997:
<TABLE>
<CAPTION>
JOINT
VENTURE'S
SHARE OF
REMAINING REMAINING
LNG LNG
SALES JOINT VENTURE SALES
CONTRACT VOLUMES PARTICIPATION VOLUMES
TERM (TBtu) %(a)(b) (TBtu)(c)
--------- --------- ------------- ---------
<S> <C> <C> <C> <C>
LONG-TERM:
1973....................................... 1977-1999 367 97.9/27.2 102
1973 Extension............................. 2000-2010 4,800 (d) (d)
1981....................................... 1983-2003 994 66.4/29.6 625
1981 Extension............................. 2003-2008 933 16.5 154
1981 Extension............................. 2008-2011 565 (e) (e)
CPC........................................ 1990-2009 1,059 29.6 314
CPC (Badak VI)............................. 1998-2017 1,762 21.6/16.5 294
Osaka (Badak IV)........................... 1994-2013 1,912 27.2 520
Korean Carryover........................... 1986-2006 130 50.0 65
Korea II................................... 1994-2014 783 27.2 213
KGC (Badak V).............................. 1998-2017 1,040 21.6/16.5 177
MCGC....................................... 1996-2015 336 27.2 92
SHORT-TERM:
Toho....................................... 1988-2000 12 29.6/27.2 3
KGC MOA.................................... 1995-1999 148 21.6 32
CPC MOA.................................... 1998-1999 46 21.6 10
KGC MOA.................................... 1996-1999 132 21.6 29
MOA (Aquarius)............................. 1997-1999 32 21.6 7
</TABLE>
- ---------------
(a) The joint venture's participation percentage is set by Pertamina based upon
uncommitted reserves of the various production sharing contractors
supplying gas to the Bontang plant. The participation percentages
determined by Pertamina apply to new contracts, or amendments or extensions
of contracts, entered into during certain time periods. During 1996,
Pertamina set the joint venture's participation percentage at 16.5%, based
upon the joint venture's uncommitted natural gas reserves certified as of
April 30, 1995, for the first five and one half years of the 1981
extension, 2000-2017 period of the CPC (Badak VI) and the KGC (Badak V)
long-term contracts. For other future sales contracts, including the
remaining term of the 1981 extension and the final year of the 1973
extension, the Company cannot predict the participation percentage of the
joint venture in such contracts, although absent the discovery of
significant additional gas reserves in the joint venture's contract area,
the participation percentage is expected to be less than 16.5%.
(b) Those contracts that show two joint venture participation percentages have
been amended or extended to provide for additional deliveries. The second
percentage indicates the portion of gas to be supplied under the amendment
or extension of such contract by the joint venture. The joint venture has a
97.9% and 27.2% interest in 3 and 364 remaining TBtus, respectively, of the
total 367 TBtus remaining to be sold under the 1973 contract; a 66.4% and
29.6% interest in 899 and 95 remaining TBtus, respectively, of the total
994 TBtus remaining to be sold under the 1981 contract; a 21.6% and 16.5%
interest in the 49 and 1,713 remaining TBtus, respectively, of the total
1,762 TBtus remaining to be sold under the CPC (Badak VI) contract; a 21.6%
and 16.5% interest in the 104 and 936 remaining TBtus, respectively, of the
total 1,040 TBtus remaining to be sold under the KGC (Badak V) contract;
and a 29.6% and 27.2% interest in the 0 and 12 remaining TBtus,
respectively, of the total 12 TBtus remaining to be sold under the Toho
contract.
(c) The joint venture's share of remaining LNG sales volumes represents volumes
available to the joint venture under the sales contracts for servicing its
share of plant operating and debt service costs, as
16
<PAGE> 17
applicable, for recovering exploration, development and production costs
and for profit sharing between the joint venture and Pertamina.
(d) The joint venture's participation in the 1973 extension is 21.6% for the
period 2000-2009. The joint venture's share of the contracted volumes for
such period is 943 TBtus. As discussed in footnote (a) above, the joint
venture's participation in the final year of the 1973 extension has not
been determined by Pertamina and is not expected before 1999.
(e) As discussed in footnote (a) above, the joint venture's participation in
the final three years of the 1981 extension has not been determined by
Pertamina and is not expected before 1999.
In general, the processing and operating costs of the Bontang plant are
charged to each LNG and LPG sales contract during each year based upon the ratio
of the sum of BTUs of LNG and LPG processed by the Bontang plant for each
contract to the total number of BTUs processed by the Bontang plant.
Under the 1973, extended 1973, extended 1981, Korean Carryover, MCGC, CPC,
certain KGC (Badak V) and CPC (Badak VI) long-term contracts and, in general,
the short-term contracts, LNG is sold on a delivered basis (i.e., title and risk
of loss do not pass until the LNG is unloaded at the customers' facilities).
Under the 1981, Osaka, Korea II and the remaining KGC (Badak V) contracts, LNG
is delivered F.O.B. (i.e., title and risk of loss pass upon loading at
Pertamina's port facility). Payments for LNG under all of the LNG sales
contracts are, or will be, made by the purchasers in U.S. dollars directly to a
bank in the U.S. that acts as trustee and paying agent (the "Trustee") with
respect to sales proceeds. Bontang plant processing fees, debt service with
respect to plant financings, transportation (as required) and other costs are
deducted from sales proceeds, and the balance is then distributed to Pertamina,
the members of the joint venture and the other production sharing contractors.
At December 31, 1997, the average LNG price under all contracts supplied
from the Bontang plant was $3.00 per MMBtu, or $3.37 per Mcf, as compared to
$3.62 per MMBtu, or $3.99 per Mcf at December 31, 1996. Prices under the
contracts are subject to monthly adjustments. As of December 31, 1997, January
27, 1998, and February 20, 1998, the average price for the group of crude oils
used to determine the price of LNG was $19.47, $17.50 and $14.75 per Bbl,
respectively. The Company is unable to predict the amount or timing of future
changes in the price of this group of crude oils. Every $1.00 change in the
average of the price of this group of crude oils results in approximately a
$0.17 per Mcf change in the price of LNG.
Pertamina also sells LPG produced at the LPG processing facilities at the
Bontang plant under seven contracts with Japanese purchasers, each of which is
for a ten-year term. In 1997, the Bontang plant delivered an aggregate of up to
1,000,000 metric tons of LPG (7.4 MMboe) per year to support these contracts.
The joint venture currently has 29.6%, 27.2% and 21.6% participations in the gas
processed at the Bontang plant to supply quantities of LPG to be sold under the
LPG contracts. Pertamina may from time to time sell quantities of LPG outside of
the seven LPG contracts, and to the extent that such sales are made, the joint
venture currently will have a 21.6% participation in the gas processed at the
Bontang plant to supply those additional sales. A significant portion of the LPG
sales proceeds from sales under the seven contracts is dedicated to the
repayment of financing of the LPG processing facilities at the Bontang plant.
See "-- Risk Factors" and Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Venezuela
In February 1998, the Company acquired a company which holds an operating
service contract covering 100% of the Desarrollo Zulia Occidental (DZO) unit in
Western Venezuela. In June 1997, the Company led a successful bid to obtain
another operating service contract for the Boqueron contract area in Eastern
Venezuela. With these two service contracts, Venezuela is established as a
significant new operated core area for the Company. Although the Government of
Venezuela retains full ownership of all hydrocarbons, the Company will serve as
a contractor to operate the fields on behalf of the affiliate of the national
oil company, PDVSA. An affiliate of PDVSA has an option to purchase up to a 10%
interest in the contracts for the DZO unit and Boqueron area. Under an operating
service agreement, the contractor is paid a fee based on a
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predetermined formula, which is invoiced quarterly based on barrels of crude oil
produced and receives its payments from the PDVSA affiliate. Invoice amounts and
payments are denominated in U.S. dollars. The Company's interest in the reserves
in Venezuela currently account for over 25% of the Company's total worldwide
reserve base. The Company plans to spend about $79 million in 1998 on
development activities in Venezuela.
DZO Unit
The Company acquired in February 1998 all of the stock of Compania
Occidental de Hidrocarburos, Inc. ("Hidrocarburos"), a U.S. affiliate of
Occidental Oil & Gas Corporation ("Occidental"), for approximately $212 million,
which includes $14 million in working capital and certain closing adjustments
effective as of December 31, 1997. Occidental may receive contingent payments of
up to a maximum of $15 million annually for six years based primarily on the
level of oil prices. Hidrocarburos operates as contractor of the DZO unit
located west of Lake Maracaibo in Western Venezuela under a 20-year operating
service contract with PDVSA Petroleo y Gas S.A. ("PDVSA PyG"), a subsidiary of
PDVSA and the successor to Maraven, S.A. The operating service contract was
awarded to Hidrocarburos during Venezuela's Second Round of Operating Agreements
in 1993 and commenced operations in 1994. Under the provisions of the contract,
the contractor invests capital and provides technology for reactivation of the
fields for which the contractor receives various fees per barrel delivered to
the custody transfer point. The fees received are operating, capital
reimbursement and interest on unrecovered capital costs which are in total
limited by a maximum total fee. The maximum total fee is indexed with a basket
of crude oil products and was approximately $7.50 per barrel in the latter half
of 1997. The Company cannot predict the extent that the future maximum total fee
will limit the operating, interest and capital fees received and recorded.
Additionally, an incremental incentive fee of several dollars per barrel, which
is also indexed to a basket of crude oil products but is not limited by the
maximum total fee, is payable when cumulative production from the DZO unit (from
inception of the 1993 contract) reaches 52 million barrels. Cumulative
production is expected to reach 52 million barrels during the second half of
1999. The contractor does not pay royalties related to the DZO unit. Operating
costs in early 1998 averaged about $2.90 per barrel. The 20-year operating
service contract expires in 2013 and may be extended with the approval of PDVSA
PyG. In 1998, the Company recorded for the DZO unit 114 million barrels of
proved reserves, of which 56 million barrels are classified as proved
undeveloped. The Company anticipates spending $400 to $450 million over the next
nine years for future development expenditures. The Company plans to increase
current production from 23,000 gross barrels a day up to 55,000 gross barrels
within five years.
Boqueron Contract Area
In June 1997, the Company led a successful bid for the Boqueron contract
area under Venezuela's Third Operating Agreement Round. The Company was named
the operator and is a contractor with a 66.67% interest in the contract area and
Preussag Energie GmbH of Germany, the other contractor and a co-venturer, has a
33.33% interest (collectively, the "Contractors"). The Company and Preussag
Energie paid $175 million for the rights to the service contract for the
Boqueron contract area. Under the 20-year contract, the Contractors will operate
and produce oil from Boqueron on behalf of PDVSA PyG, successor to Lagoven,
S.A., which currently serves as operator. The Company expects to assume
operatorship in May 1998, pending approval of its development plan which was
filed in January 1998. The Contractors are compensated a U.S. dollar service fee
to cover reimbursement of costs plus profit. There are two components of the
fee, which include (i) a set fee for baseline production and (ii) a fee for
incremental production. PDVSA PyG will pay the Contractors a set fee of $1.25
per barrel for operating the baseline production. In the Boqueron contract area,
the baseline production initial rate is estimated at 8,500 gross barrels per day
with a nominal annual decline rate of 10%. In terms of the incremental
production, the Contractors will be paid a sliding incentive fee based on field
profitability and will be allowed to recover field and other capital and
operating costs through the fee mechanism. The field profitability is based on
production at world market prices net of a 1/6 government royalty and field
costs. The Company recorded approximately 40 million net barrels in proved
reserves from the Boqueron contract area during 1997 with additional reserves
expected to be recorded in the future as the field is further developed. The
Contractors must invest at least $13 million over the next three years and
currently expect to spend between $300 million to $325 million in the area over
the next five years. With this
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additional development spending, the Company expects to increase current
production at the Boqueron contract area from 8,500 gross barrels of oil a day
to a rate of 50,000 to 60,000 gross barrels within three to five years.
Other Information. Income from the DZO unit and Boqueron contract area is
subject to Venezuelan income tax at 34%. In addition, each Venezuelan
municipality levies a tax on gross income at varying rates. Under the DZO unit
service contract, municipal tax is considered a capital expenditure subject to
reimbursement as part of the capital fee reimbursement. Under the Boqueron
contract area service contract, municipal tax in excess of 4% is reimbursed by
PDVSA PyG and municipal tax up to 4% is deductible for Venezuela income tax
purposes.
See "-- Risk Factors" and Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Pakistan
Badin Concessions
Since 1977, the Company has operated through joint ventures oil and gas
exploration, production and development activities in the Badin area of the
Sindh Province in southeastern Pakistan. The Company's activities are conducted
under three concession agreements.
1977 Concession. In April 1977, the Pakistan government granted exploration
rights in the Badin area to the Company and its co-venturers (the "1977
concession"). The Company is the operator of a joint venture that includes the
Oil and Gas Development Corporation, a Pakistan government-owned company. The
oil and gas reserves discovered under the 1977 concession continue to be
produced under leases granted by the Pakistan government. The terms of such
leases are 30 years from the date that they were first granted. The Company has
a 30% working interest (26.25% revenue interest) in the 1977 concession area.
1992 Concession. In 1992, the joint venture was granted a three-year
extension of the exploration license that it originally received in 1977 (the
"1992 concession"). The oil and gas reserves discovered under the 1992
concession are produced under 20-year leases granted or pending approval by the
Pakistan government. Production from the 1992 concession began during 1995. The
Company has a 25.5% working interest (22.3% revenue interest) in the 1992
concession area.
1995 Concession. The exploration license granted by the Pakistan government
in 1992 under the 1992 concession expired in January 1995 as to 1.6 million
acres in the Badin area not covered by leases granted or pending approval under
the 1977 concession and 1992 concession. In December 1994, the joint venture and
the Pakistan government signed a new petroleum concession agreement covering
such acreage (the "1995 concession"). The oil and gas reserves discovered under
the 1995 concession are produced under 20-year leases granted or pending
approval by the Pakistan government. Production from the 1995 concession began
during 1996. The Company has or will have a 25.5% working interest (22.3%
revenue interest), provided the Pakistan government elects to exercise its
option to increase its working interest in each such discovery to 25%. The
exploration license granted under the 1995 concession expired in January 1998 as
to all but 8,188 acres covered by leases granted or applied for under the 1995
concession and other areas subject to ongoing operations at the expiration of
the 1995 concession. The joint venture has reapplied for an exploration license
for the relinquished acreage.
The Pakistan government is contractually obligated under the 1977, 1992 and
1995 concession agreements to issue leases upon the determination of a
commercial discovery and the fulfillment by the joint venture of the conditions
of the concession agreements and the exploration license.
Proved reserves (net) at December 31, 1997, for the Company's interest in
the Badin concessions were 6 MMBbls of oil and 120 Bcf of gas. The joint venture
under these concessions produced approximately 45% of Pakistan's total domestic
oil output and 8% of the country's gas production in 1997. Average daily
production (net to the Company) during 1997 was 7 MBbls of oil and 37 MMcf of
gas as compared to 6.2 MBbls of oil and 41.4 MMcf of gas in 1996 with the
decline primarily due to lower gas demand and market
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constraints in Pakistan. The Company's share of the oil produced from the 1977
and 1992 concessions is sold for both Pakistan domestic use and for export. The
price received for oil sold domestically is tied to the average spot market
price of Middle Eastern crude oil. In 1997, the Company supplied 1.47 MMBbl of
oil (net to the Company) for export at prices based on competitive spot market
rates. The Company and its co-venturers sell natural gas produced from the 1977
concession area to Sui Southern Gas Company, Ltd. ("SSGC"), a Pakistan
government-owned entity. The contract expires in 2003 and provides that SSGC
must either take or pay for the contracted quantities of natural gas. Natural
gas produced from the 1992 concession area is also sold, and natural gas
produced from the 1995 concession is expected to be sold, to SSGC under a
contract with terms similar to the SSGC contract covering production from the
1977 concession.
During 1997, the Company drilled seven exploratory wells in the Badin
concessions, three of which were discoveries. During 1998, the Company plans to
drill up to nine exploration wells and up to eight development wells in the
Badin concessions.
Eastern Sindh Concessions
In April 1995, the Company signed a concession agreement with the Pakistan
government covering 1.8 million acres in the Eastern Sindh block in the Sindh
Province of southeastern Pakistan for which the Company was granted an
exploration license in December 1994. The concession agreement and the
exploration license provide the Company with the right to explore for oil and
gas for an initial period of three years, with an option for three extensions of
one year each, and upon a commercial discovery, the right to apply for a 20-year
lease with the Pakistan government. The Company is the operator and has a 70%
working interest in the concession and exploration license, which is subject to
reduction if the Pakistan government elects to participate upon discovery of
commercial production. In 1997, the initial exploration well was unsuccessful.
In December 1997, the Pakistan government granted a six-month extension to the
initial three-year term of the concession and exploration license in order for
the Company to complete the analysis on the well as well as an aeromagnetic
survey on the block. Additionally, in October 1997, the Company signed two
concession agreements with the Pakistan government covering approximately 1.2
million acres in the Khinsar block and 1 million acres in the Umer Kot block,
located along the eastern boundary and western boundary, respectively, of the
Eastern Sindh Concession in the Sindh province of Pakistan.
On November 12, 1997, five of the Company's employees were killed in an
attack by unknown assailants in Karachi, Pakistan. The Federal Bureau of
Investigation and the government of Pakistan are investigating the tragedy.
See "-- Risk Factors" and Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Alaska
The Company pursues development and exploration projects in Alaska. At
year-end 1997, the Company held acreage primarily in Western Colville, the Kenai
Peninsula and offshore northeast Alaska in the Beaufort Sea.
Western Colville. The Company and its co-venturers are developing the
Alpine oil field in the Western Colville area on Alaska's North Slope 34 miles
west of the Kuparuk River oil field. ARCO Alaska, Inc., the operator, Anadarko
Petroleum and the Company have a 56%, 22% and 22% working interest in Alpine,
respectively. Partner project approval was obtained in June 1997 and in February
1998 permits were issued by the U.S. Army Corps of Engineers allowing field
construction and development activities to proceed as planned. Production from
Alpine is scheduled to begin the first part of 2000 at an anticipated initial
rate of 40,000 barrels of oil per day gross, with peak production of 70,000
barrels per day gross in 2001. The field is expected to produce for about 25
years. Oil from Alpine will be moved to market through a new 34-mile pipeline
that is under construction and will connect Alpine to the Trans Alaska Pipeline
via the Kuparuk pipeline system. As of December 31, 1997, proved undeveloped
reserves (net) for the Alpine field were 32 MMBbls. The Company anticipates
recording additional proved reserves based on the field's development drilling
and future production performance. Development of the Alpine field is expected
to cost $650 million
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gross. The Company's estimated total share of development costs for its interest
in Alpine is $143 million from 1997 to 2002. As of December 31, 1997, the
Company has spent $9 million for initial development activities and expects to
spend approximately $50 million in 1998. The three companies were the high
bidders on 23 new leases covering 46,643 gross acres in the Colville area at the
lease sale held in November 1997 by the State of Alaska. Also in November 1997
at such lease sale, the Company was the high bidder on four new leases covering
approximately 13,104 gross acres located northeast in the Colville area. Three
exploration wells and two development wells are planned in the Colville area
during the winter season of 1998.
Kenai Peninsula. Effective November 1, 1993, the Company entered into an
exploration agreement with Cook Inlet Region, Inc. ("CIRI"), an Alaska Native
Regional Corporation. Under the agreement, the Company will bear 100% of the
exploration costs and may acquire leases on prospects identified, subject to
CIRI's option to participate in the leases and the exploration, drilling and
development of such prospects. As of February 1, 1998, the Company has
approximately 37,354 gross and 32,928 net acres under lease on the Kenai
Peninsula. The Company plans to drill one well in 1998 subject to gas marketing
arrangements which are currently under negotiation and are expected to be
finalized in the first part of 1998.
Kuvlum/Hammerhead. In January 1998, the Company, Chevron U.S.A., Inc. and
Shell Frontier Oil & Gas, Inc. signed an agreement that established Chevron as
operator of the Kuvlum and Hammerhead federal exploratory oil and gas units in
the Beaufort Sea offshore northern Alaska. The Company and Shell each will have
a 20% working interest in every lease in both units pending government approval.
The companies are working with the Minerals Management Service to pursue a
development plan that would include potential joint development for Eastern
Beaufort Sea and North Slope discoveries.
See "-- Risk Factors" and Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Other Activities
In addition to the activities described above, the Company conducts
evaluations as well as undertakes exploration activities worldwide to expand its
reserve base. The Company has budgeted a total of $82 million for exploration
activities during 1998, $23 million of which will be spent in the U.K.,
Indonesia and Pakistan and $59 million in new ventures, including primarily the
activities described below. The Company is also pursuing downstream
opportunities in Pakistan, Indonesia and Latin America, including LPG and
petrochemical projects.
China. In 1997, the Company acquired a 40% interest in a 2.27 million acre
exploration block, known as Contract Area 11/05, in Bohai Bay offshore the
People's Republic of China from a subsidiary of Phillips Petroleum Company,
which serves as operator and holds the remaining 60% interest. China National
Offshore Oil Corp. ("CNOOC") has the right to acquire up to 51% interest in any
proposed development. During 1997, the joint venture drilled two exploration
wells, which were oil discoveries. A third well drilled in early 1998 was
unsuccessful. During 1998, the joint venture plans to gather more seismic data
and drill a fourth well in late 1998 or 1999.
Algeria. In 1997, the Company acquired a 30% interest in two blocks in the
Ghadames Basin in Algeria from a subsidiary of Phillips Petroleum Company, which
serves as operator and holds the remaining 70% working interest. The Bordj
Messouda Blocks 406B and 209 comprise a total of 1.5 million acres and are
located in southeastern Algeria. The first exploration well drilled in 1997 was
unsuccessful and the joint venture plans to drill a second well in the first
half of 1998.
Tunisia. In October 1997, the Company announced that it acquired a 25%
working interest in an exploration venture in the Ghadames Basin in southwestern
Tunisia. The Company acquired its interest in the 1.44 million acre Borj El
Khadra block from a subsidiary of Phillips Petroleum Company, which serves as
operator and has a 25% interest in the block. LASMO Tunisia B.V. is also a
partner in the venture with a 50% working interest. In the event that a
discovery is developed, L'Enterprise Tunisienne d'Activites Petrolieres
("ETAP"), the Tunisian national oil company, has the right to participate for up
to a 50% working interest, thereby reducing each co-venturer's working interest
in half, assuming full participation by ETAP. About
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1,500 kilometers of 2-D seismic data have been acquired over the block, where
the venture plans to drill an exploration well in 1999. The joint venture plans
to participate in geological studies during 1998. The Borj El Khadra block is
adjacent to the Bordj Messouda block in Algeria.
The Company has an oil and gas exploration permit on the one-million-acre
Ramla block offshore southeast Tunisia in the Gulf of Gabes. The Company serves
as operator and bears 50% of the exploration costs. In the event of a commercial
discovery, the Tunisian national oil company has the right to participate for up
to a 50% working interest. The permit expires in January 1999. The initial
exploration well was non-commercial. A second well commenced drilling in early
1998.
The Company also has a 65% working interest in the onshore Jeffara
exploration permit, which covers 970,000 acres in the Medenine Region of
southeastern Tunisia. The Company's interest is subject to the Tunisian national
oil company's right to participate for up to a 50% working interest in the event
of a commercial discovery. The Jeffara exploration permit, which is operated by
the Company, has been extended through 1998. An exploration well drilled in 1997
was unsuccessful.
Bolivia. The Company has a 20% interest in the 1.6 million acre exploration
block operated by Maxus/YPF known as the Caipipendi block in the Southern
Foothills Belt. A deep exploratory well commenced drilling in 1997 and is
currently drilling. During 1998, the joint venture also plans to acquire seismic
data over the block and possibly drill another well.
Italy. The Company had interests in a total of 385,668 gross (137,313 net)
acres in the Southern Apennines oil play onshore southern Italy at the end of
1997. In 1996, the Company acquired interests in three onshore exploration
permits in the Basilicata Region covering approximately 100,630 gross (25,158
net) acres in this play. The Company holds a 50% working interest in each
permit. Triton Mediterranean Oil and Gas N.V. serves as operator. In 1995, the
Company acquired interests in three onshore exploration permits covering 216,000
gross acres in the same region. The Company serves as operator of and holds an
82% working interest in the Serra Corneta permit. The Company also holds a
33.33% working interest in the Tempa dei Mercanti permit, operated by Edison
Gas, and a 20% working interest in the Forenza permit, operated by LASMO
International Limited. Geological and seismic studies on the six permit areas
were conducted in 1996 and 1997 and will continue in 1998. In 1995 the Company
also acquired a 20% working interest in the onshore Baragiano permit, which
covers about 68,913 gross acres in the Basilicata Region, from Enterprise Oil
Exploration Ltd. ("Enterprise"). Enterprise serves as operator. The Baragiano
permit's first exploration well was unsuccessful.
Kazakhstan/Caspian Sea Area. In May 1997, the Company formed a joint
venture with Oman Oil Company Limited ("Oman Oil") to explore for, develop and
produce oil and gas in two blocks, A and E, covering four million acres onshore
Kazakhstan and offshore in the Kazakhstan sector of the Caspian Sea. The Company
will serve as operator of the new venture and owns a 75% interest. Oman Oil, a
state-owned project development company of Oman, retains a 25% interest. The
joint venture has preferential rights to select two offshore blocks in the
Kazakhstan sector of the Caspian Sea. During 1998, the joint venture plans to
study seismic data acquired during 1997 and start a preliminary evaluation of
the onshore area, as well as select offshore blocks in the next bid round
procedure. The Company is also pursuing opportunities onshore Azerbaijan.
U.K. and Ireland. In 1997, the Company was awarded a 25% working interest
in four offshore blocks (Tranche 36) covering 212,000 acres, in the U.K. Rockall
basin located about 125 miles northwest of Scotland. The joint venture, operated
by Texaco Britain Limited, was granted an exploration license for an initial
three-year period and a seismic acquisition program was conducted immediately
following license award. The Company was also awarded a 25% interest in four
full and two part blocks, comprising 245,000 acres, in the Irish Rockall basin
about 80 miles northwest of Ireland. This exploration license, operated by
Enterprise Oil plc, is for a 16-year period divided into four-year intervals.
The Company acquired seismic data in 1997, and the joint venture plans to
process and evaluate such data during 1998.
The Company has a 25% working and revenue interest in two full and one part
offshore blocks encompassing 163,000 acres in St. George's Channel offshore
Ireland operated by Marathon Oil Company
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("Marathon"). The Company also has a 15% working and revenue interest in eight
offshore blocks covering 400,000 acres in St. George's Channel offshore Western
England operated by Marathon. This acreage contains a small gas discovery.
Although initial exploration wells were unsuccessful, during 1998, the Company
plans to evaluate seismic data on these blocks.
The Company has a 15% working and revenue interest in five and one half
blocks covering 344,000 acres offshore southwest Ireland in the Porcupine basin
and a 30% working and revenue interest in 11 blocks offshore west Ireland that
cover 650,000 acres in the Slyne/Erris basins. Each joint venture, operated by
Statoil (U.K.) Ltd., was granted a license to explore for oil and natural gas
for a 15-year and 16-year period, subject to certain minimum work requirements
at three-year and four-year intervals, respectively. The licenses have been
extended for another interval and the joint ventures continue to conduct
additional geological and geophysical studies.
Other. In 1998, the Company plans to participate in several new exploration
venture areas, including up to two exploration wells in Yemen and seismic
studies in Egypt, onshore Greece, Jordan, onshore and offshore Papua New Guinea,
Sicily and offshore Trinidad. The Company is also pursuing opportunities in
additional new exploration ventures, including the Middle East, Central Asia,
Latin America and Africa.
See "-- Risk Factors" and Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations.
PETROCHEMICALS
Plant Operations. The Company's petrochemical business consists primarily
of the Company's 41.67% interest in the jointly owned Geismar olefins plant
located on the Mississippi River near Baton Rouge, Louisiana. The joint owners
are BASF Corporation with a 41.67% interest and GE Petrochemicals, Inc. with a
16.66% interest. The plant began operations in 1968. The Company operates the
plant, with production costs and plant production being shared by the three
joint owners according to their ownership interests. With completion of the
thirteenth furnace in December 1997 that increased capacity by about 26 million
gross pounds, the plant has the capacity to produce approximately 1.275 billion
gross pounds (531 million net) of ethylene and 92 million gross pounds (38
million net) of polymer-grade propylene annually. An upgrade of the nine
original furnaces began in the first quarter of 1998 and is expected to be
completed in February 1999. The total cost of the new furnace and upgrading
project is estimated to be approximately $27.8 million gross ($11.6 million net
to the Company).
In 1997, which included a two-week scheduled turnaround, and 1996, the
Company's net ethylene sales were 475 million pounds and 510 million pounds,
respectively, and its net propylene sales were 30 million pounds and 34 million
pounds, respectively. The Company sells its share of the ethylene and propylene
produced by the plant to a number of major customers for the manufacture of
plastics used in various consumer products. The sales price of ethylene averaged
$0.24 per pound in 1997 and $0.22 per pound in 1996. Sales of propylene, used in
the manufacture of various products such as building materials, clothing and
tires, averaged $0.18 per pound and $0.16 per pound in 1997 and 1996,
respectively.
During 1997, the average margin per pound of the Company's ethylene was
$0.09 per pound as compared to $0.06 per pound for 1996. The Company's ethylene
margin is primarily affected by the price received for the ethylene and the cost
of feedstock (natural gas liquids) and natural gas.
Storage and Transportation. In addition to the Geismar plant, the Company
owns and operates a 192-mile ethane feedstock pipeline system, which transports
feedstock to its olefins plant from several major suppliers, including the
Company's natural gas liquids fractionation plant and supporting 133-mile
pipeline system in Rayne, Louisiana. The Company plans to extend this system in
1998 to expand the Company's market capability for transporting ethane. The
Company is also committed to participate in a pipeline connection to a gas
liquids fractionator in Napoleonville, Louisiana, which has access to new
natural gas liquids (feedstocks) associated with new Gulf of Mexico gas
production. The Company also operates
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underground storage terminals and a 78-mile ethylene pipeline system, portions
of which are jointly owned, to serve the Geismar facility and several other
petrochemical plants primarily in the Baton Rouge area.
Capital expenditures for the petrochemical business were $29 million (net
to the Company) during 1997. The Company plans to spend $39 million (net to the
Company) in capital expenditures for the petrochemical business during 1998,
which include costs for the expansion and enhancement of its supply and
distribution system and preliminary engineering for a capacity upgrade for the
Geismar olefins plant, as well as other projects to enhance production, safety
and efficiency. The Company continues to study opportunities to expand and add
value to its petrochemicals business.
See "-- Risk Factors" and Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations.
OTHER MATTERS
Insurance. As is customary in the oil and gas and petrochemical industries,
the Company reviews its safety equipment and procedures and carries insurance
against some, but not all, risks of the business. See "Risk Factors." Losses and
liabilities would reduce revenues and increase costs to the Company to the
extent not covered by insurance. The oil and gas and petrochemical businesses
can be hazardous, involving unforeseen circumstances such as blowouts,
explosions or environmental damage. To address the hazards inherent in the oil
and gas and petrochemical businesses, the Company maintains a comprehensive
insurance program covering its worldwide interests. This insurance coverage
includes physical damage coverage, third party general liability insurance,
employers liability, as well as redrill, well control, environmental and
pollution and other coverage, although coverage for environmental and
pollution-related losses is subject to significant limitations. In addition, the
Company maintains business interruption insurance on its major international oil
and gas producing interests and on its petrochemical business. The scope, terms,
retentions, amount and cost of all such insurances vary depending upon various
market factors and other considerations.
Employees. As of February 20, 1998, the Company had approximately 1,300
employees. The Company believes that its relations with its employees are good.
RISK FACTORS
Forward-Looking Statements. All statements other than statements of
historical fact contained in this report, including statements in Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements. When used herein, the words "budget,"
"anticipate," "expects," "believes," "seeks," "goals," "plans," "strategy,"
"intends," or "projects" and similar expressions are intended to identify
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those projected by such forward-looking
statements and no assurance can be given that the expectations will prove
correct. In reliance upon the Private Securities Litigation Reform Act of 1995,
factors identified by the Company that could cause the Company's future results
to differ materially from the results discussed in such forward-looking
statements include the following risks described under "Risk Factors." All
forward-looking statements in this report are expressly qualified in their
entirety by the cautionary statements in this paragraph and shall be deemed in
the future to be modified in their entirety by the Company's public
pronouncements, including those contained in all future reports and other
documents filed by the Company with the Securities and Exchange Commission.
Volatility of Prices and Availability of Markets. The Company's revenues,
profitability and future rate of growth are highly dependent upon the prices of
and demand for oil and gas, which can be extremely volatile. The volatile energy
market makes it difficult to estimate future prices, service fees and sales
volumes of natural gas, crude oil and LNG, which are affected by a number of
factors beyond the control of the Company, including worldwide supplies of and
demand for oil and gas, changing international economic and political
conditions, such as the current Asian economic crisis, contract enforceability,
insolvency of other parties, domestic and foreign energy legislation, weather,
environmental conditions, regulations and events, and actions of major petroleum
producers including members of the Organization of Petroleum Exporting
Countries. If oil prices decline, the price or service fee for a significant
portion of the natural gas and oil
24
<PAGE> 25
produced from the Company's properties, including the sales price for LNG, will
also decline. The Company's Venezuelan revenues are based on a fee adjusted
quarterly by the percentage change of a basket of crude oil product prices
instead of absolute dollar changes, which impacts both any upward and downward
effects of changing prices on the Company's Venezuelan revenues and cash flows.
If the price of oil increases, there could be an increase in the cost to the
Company for drilling and related services with escalating equipment and labor
costs because of increased demand, as well as increase in revenues. The ethylene
business is cyclical and the Company cannot predict the duration of any trends
in the business. The Company's ethylene margins have averaged approximately
$0.09, $0.06 and $0.13 during 1997, 1996 and 1995, respectively. The marketing
and prices received by the Company for its ethylene petrochemical business are
affected by worldwide and U.S. demand for petrochemicals, inventory levels,
feedstock costs and availability, plant utilization rates, plant operations and
costs and competitive capacity expansion. The marketability of the Company's
natural gas, crude oil, LNG and ethylene production depends in part upon the
availability, proximity and capacity of gathering systems and processing
facilities. The Company's financial condition, operating results and liquidity
may be materially affected by any significant fluctuations in its sales prices.
The Company's ability to implement its business strategy and service its
long-term obligations and to generate funds for capital expenditures will be
similarly affected.
Business Risks. The Company's activities are subject to the risks normally
associated with oil and gas operations and petrochemical operations. The nature
of the oil and gas business involves a variety of risks usually associated with
exploration for, and development, production and transportation of, oil and gas,
including blowouts, cratering, oil spills, fires, geologic uncertainties and
adverse or seasonal weather conditions. Offshore operations are also subject to
marine perils and extensive governmental regulations, as well as interruption or
termination by governmental authorities based on environmental or other
considerations. The Company's operations, including its petrochemical
operations, are subject to certain additional risks, including the breakdown or
failure of equipment, downtime of production units due to turnarounds, the
performance of equipment at levels below those originally projected, and
explosions, fires, floods and other catastrophic events. In certain cases, the
Company is also at risk in regards to any interruptions in related facilities,
which are not under its control. For example, in Indonesia, the Bontang plant's
ability to manufacture and ship quantities of LNG is dependent upon the
continued operation of the Bontang plant without mechanical failure and without
the shutdown of any processing units in excess of scheduled maintenance periods.
The sale of LNG is also dependent upon the availability of shipping without
interruption and upon the continued operation or timely construction of the
buyers receiving terminals. The costs associated with transportation of certain
products, including LNG, such as repair and maintenance or replacement of LNG
tankers, are beyond the control of the Company. The occurrence of any of these
events could cause injury to life or property, interruptions in operations,
failure to produce oil or gas in commercial quantities, inability to fully
produce discovered reserves, loss of revenues and margins or increases in the
costs of operations.
Uncertainties in Reserve Estimation, Production Success and Reserve
Replacement. There are numerous uncertainties inherent in estimating quantities
of reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
producer. The reserve data set forth in this report represent only estimates.
Underground accumulations of oil and gas cannot be measured in an exact way. The
accuracy of any reserve estimate is a function of the quality and quantity of
available data and of engineering and geological interpretation and judgment. As
a result, estimates by different engineers often vary. In addition, results of
drilling, testing and production subsequent to the date of an estimate may
justify revision of such estimate. Accordingly, reserve estimates at a specific
point in time are often different from the quantities of oil and gas that are
ultimately recovered, which differences may be significant. Additionally, the
estimates of future net revenues from proved reserves of the Company and the
present value of future net revenues are based upon certain assumptions about
future production levels, prices, costs and Venezuelan service fees that may not
prove correct over time. The meaningfulness of such estimates is highly
dependent upon the assumptions upon which they were based.
In general, the Company's volume of production from oil and gas properties
declines with the passage of time. Except to the extent the Company conducts
successful exploration or development activities or acquires
25
<PAGE> 26
additional properties containing proved reserves, or both, the proved reserves
of the Company, and the revenues generated from production thereof (assuming no
price increases), will decline as reserves are produced. Drilling activities are
expensive and subject to numerous risks, including the risk that no commercially
viable oil or gas production will be obtained. The decision to purchase a
property interest or explore or develop a property will depend in part on
geophysical and geological analysis and engineering studies, the results of
which may be inconclusive or subject to varying interpretations. The cost of
drilling, completing and operating wells is often uncertain. Drilling may be
curtailed, delayed or canceled as a result of many factors, including
availability or high cost of rigs and labor due to increased demand, title
problems, project approvals by joint venture partners, weather conditions,
government regulations, shortages or delays in obtaining equipment, and
limitations in the transportation, storage or market for products. No assurance
can be given that wells will be able to sustain production rates commensurate
with the drill stem tests. Increases or decreases in prices of oil and gas and
in cost levels, along with the timing of development projects, will also affect
revenues generated by the Company and the present value of estimated future net
cash flows from its properties. Revenues generated from future activities of the
Company are highly dependent upon the level of success in finding, developing or
acquiring additional reserves.
For the Company's reserves in Indonesia, the reserve estimates, which are
based on year-end prices, for the Company's net interest in the production
sharing contract are subject to revision as product prices and costs fluctuate
due to the cost recovery feature under the contract. The impact on reserves is
inversely related to price changes and directly related to changes in field
operating and capital costs. In addition, reserves are subject to revision due
to the effect that price fluctuations generally have on estimates of recoverable
reserves. See Note 19 of Notes to Consolidated Financial Statements. The
Company's right to receive revenues under its future new sales contracts or
extensions of renewals of existing contracts is affected by the gas supply
obligation in support of such contracts among the joint venture and other
production sharing contractors. The allocation to the Company's joint venture in
such contracts has declined significantly over time. Because a substantial
portion of the joint venture's reserves of natural gas has been committed to
support existing LNG sales contracts, the Company expects that absent the
discovery of significant additional natural gas reserves in the joint venture's
contract area, the joint venture's participation in future new sales contracts
for LNG and LPG, or in extensions or renewals of existing long-term contracts,
will be less than its current participation in existing contracts.
Governmental Actions, Regulation and Taxation. Petroleum and petrochemical
operations are subject to various types of regulation throughout the world. The
Company believes that its operations and facilities are in general compliance
with existing regulations. Nevertheless, the risks of substantive costs and
liabilities are inherent in operations such as the Company's, and there can be
no assurance that significant costs and liabilities will not be incurred in the
future. Legislation affecting these businesses is under regular review for
amendment or expansion, frequently increasing the regulatory burden. For
example, statutes and regulations require permits for drilling operations,
drilling bonds and reports concerning operations. Also, numerous departments and
agencies are authorized by statute to issue and have issued rules and
regulations binding on the oil and gas industry, the petrochemicals industry and
individual members of these industries. Such rules and regulations pose
difficult and costly compliance and reporting requirements, some of which carry
substantial penalties for the failure to comply. Most of the foreign countries
in which the Company operates have statutes and regulations governing the
Company's operations, including the unitization or pooling of oil and gas
properties, rates of production from oil and gas wells and taxation of sales and
production. The regulatory burden on the oil and gas industry and the
petrochemical industry increases the costs of doing business and, consequently,
affects profitability.
The Company's international operations are subject to certain risks,
including expropriation of assets, joint and several liability with co-venturers
under government contracts, governmental reinterpretation of applicable laws and
contract terms, increases in or assessments of taxes and government royalties,
renegotiation of contracts with governments or customers, government approvals
of lease, permit or similar applications and of exploration and development
plans, political and economic instability, such as the current Asian economic
crisis, guerilla activity, acts of terrorism, disputes between governments,
payment delays, export and import restrictions, limits on allowable levels of
exploration and production and currency shortages,
26
<PAGE> 27
currency rate fluctuations, exchange losses and repatriation restrictions, as
well as changes in laws and policies governing operations of companies with
overseas operations, including more strict environmental regulation. In
addition, in the event of a dispute arising from foreign operations, the Company
may be subject to the exclusive jurisdiction of foreign courts or may not be
successful in subjecting foreign persons to the jurisdiction of courts in the
U.S. The Company may also be hindered or prevented from enforcing its rights
with respect to a governmental instrumentality because of the doctrine of
sovereign immunity. Foreign operations and investments may also be subject to
laws and policies of the U.S. affecting foreign commerce and trade, investment
and taxation, including but not limited to credibility of foreign taxes and the
imposition of economic sanctions, that could affect the conduct and
profitability of those operations.
Competition. The Company operates in a highly competitive environment. The
Company actively competes with major and independent energy companies for
exploration leases, licenses, concessions and acquisitions of desirable
properties as well as for the equipment and labor required to develop and
operate such properties and market the products produced. Likewise, the Company
competes with other large domestic producers of ethylene in product price,
product quality, product deliverability and production capacity. Many of these
competitors have greater financial and other resources, such as technical
capabilities and human resources, substantially greater than those of the
Company. In addition, some of the Company's competitors have greater experience,
especially in certain international areas where the Company is currently seeking
to acquire interests or expand production capacity.
Environmental. Various international, federal, state and local laws and
regulations, including the preparation of environmental assessments and impact
studies that can delay drilling activity as well as covering the discharge of
materials, or otherwise relating to the protection of the environment, and
private environmental organizations, affect the Company's operations and costs.
In particular, the Company's petrochemical wastes are subject to stringent
environmental regulations relating to, among other things, solid and hazardous
waste management and disposal, air emissions, waste water treatment and other
matters that may affect the environment. Environmental regulations may have an
increasing impact upon the Company's operations. The Company is committed to
managing its operations in a safe and environmentally responsible manner and
believes that its operations and facilities are in general compliance with
applicable environmental regulations. Environmental capital expenditures for
1997 were not material, nor are they expected to be material during 1998.
Nevertheless, the risks of substantial costs and liabilities are inherent in
operations such as the Company's. There can be no assurance that significant
costs and liabilities will not be incurred by the Company in the future.
The Company has, in the past, owned, leased or operated numerous properties
in the U.S. that have been used for the production of oil and gas for many years
and currently participates in exploration and development activities in Alaska.
Although the Company believes that its past operating and disposal practices
were standard in the industry at the time and were generally in compliance with
then-existing rules and regulations, certain wastes may have been disposed of or
released or contamination may have occurred on or under the properties owned,
leased or operated by the Company. State and federal laws applicable to oil and
gas wastes and properties have gradually become more strict. In addition, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
also known as the "superfund" law, and comparable state laws impose liability,
without regard to fault or the legality of the original conduct, on certain
classes of persons that have contributed to the release of a "hazardous
substance" into the environment. Under these laws, the Company could be required
with respect to past, existing and future properties, to remove or remediate
previously disposed of wastes or property contamination (including groundwater
contamination at onshore locations), to perform remedial plugging operations to
prevent future contamination or to clean up disposal sites where "hazardous
substances" from its operations have been taken.
The Company's foreign operations are similarly subject to foreign laws
covering environmental and worker safety matters. The Company's operations in
the U.K. are subject to the Prevention of Oil Pollution Act, the Environmental
Protection Act and related statutes and orders, as well as certain regulations
of the European Union. As a contractor in Venezuela, the Company submits capital
and operating budgets to the affiliate of PDVSA, which then obtains such permits
from the Ministry of Energy and Mines and Ministry of
27
<PAGE> 28
Environment, as required. The foreign laws, however, have not had, and are not
presently expected to have, a material adverse effect on the Company's financial
statements.
Hedging. The Company may enter into hedging contracts from time to time in
order to minimize the impact of adverse price fluctuations, including futures
contracts. To the extent the Company engages in such activities it may be
prevented from realizing the benefits of price increases above the levels of the
hedges. Risks related to hedging activities include the risk that counter
parties to hedge transactions will default on obligations to the Company. There
are also foreign exchange risks inherent in operations such as the Company's.
The Company's revenues are predominantly based upon the world market price for
crude oil, which is denominated in U.S. dollars. The functional currency for
translating the accounts of the Company's foreign subsidiaries is the U.S.
dollar, except for subsidiaries in the U.K. where the functional currency is
pounds sterling. Certain operating costs, taxes, capital costs and intercompany
transactions represent commitments settled in foreign currency. The Company
periodically enters into foreign exchange contracts as a hedge against
fluctuations in foreign currency rates. The operator of the Company's Indonesian
joint venture has entered into certain such contracts to hedge the Indonesian
Rupiah for purposes of its local payroll obligations, which are not a material
amount to the Company. The Company cannot predict with any certainty the results
of currency exchange rate fluctuations. See Item 7 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations.
ITEM 2. PROPERTIES.
For a description of the Company's properties, see Item 1 of Part I of this
Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries and related entities are named defendants
in numerous lawsuits and named parties in numerous governmental proceedings
arising in the ordinary course of business.
While the outcome of the contingencies, lawsuits or other proceedings
against the Company cannot be predicted with certainty, management expects that
such liability, to the extent not provided for through insurance or otherwise,
will not have a material adverse effect on the financial statements of the
Company. See Item 1 -- Business -- Risk Factors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to stockholders' vote during the fourth quarter
of the fiscal year ended December 31, 1997.
28
<PAGE> 29
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since September 24, 1987, the Company's common stock, $.05 par value (the
"Common Stock"), has been traded on the New York Stock Exchange and the Pacific
Exchange under the symbol "UTH." As of February 20, 1998, there were
approximately 85,161,652 shares of Common Stock outstanding held by
approximately 305 stockholders of record. Beginning with the second quarter of
1988, the Company has paid regular quarterly dividends on the Common Stock of
$.05 per share each quarter. See Item 7 -- Management's Discussion and Analysis
of Financial Condition and Results of Operations.
The following table shows the high and low sales prices of the Common Stock
from the New York Stock Exchange Composite Transactions Tape for 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------- -----------------------
QUARTER ENDED QUARTER ENDED
----------------------------------------------------- -----------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
High................. 23 7/8 21 3/8 24 9/16 24 1/2 20 1/4 20 1/4
Low.................. 17 15/16 17 1/4 19 7/8 20 17 5/8 18
<CAPTION>
1996
-----------------------
QUARTER ENDED
-----------------------
SEPT. 30 DEC. 31
-------- -------
<S> <C> <C>
High................. 21 3/4 23
Low.................. 18 5/8 20 5/8
</TABLE>
The last reported sale price of the Common Stock on the New York Stock
Exchange on February 20, 1998, was $19 9/16.
The Company has a Rights Agreement (the "Rights Agreement") designed to
help assure that all of the Company's stockholders receive fair and equal
treatment in the event of any proposed takeover of the Company. Under this
Rights Agreement, each outstanding share of the Company's Common Stock includes
one common stock purchase right ("Right") which becomes exercisable under
certain circumstances, including when beneficial ownership of the Company's
Common Stock by any person, or group, equals or exceeds 15% of the Company's
outstanding Common Stock (such person being an "Acquiring Person"). Certain
persons specified in the Rights Agreement who owned more than 15% or more of the
Common Stock at the adoption of the Rights Agreement as of September 12, 1997
are not considered Acquiring Persons. See Item 12 -- Security Ownership of
Certain Beneficial Owners and Management. When they become exercisable, each
Right entitles the registered holder to purchase from the Company one-half of
one share of Common Stock at a price of $90.00, per full share of Common Stock
subject to adjustment under certain circumstances. Upon the occurrence of
certain events specified in the Rights Agreement, each holder of a Right (other
than an Acquiring Person) will have the right, upon exercise of such Right, to
receive that number of shares of common stock of the Company (or the surviving
corporation) that, at the time of such transaction, would have a market value of
two times the purchase price of the Right. No Rights were exercisable under the
Rights Agreement at December 31, 1997. See Note 14 of Notes to Consolidated
Financial Statements.
29
<PAGE> 30
ITEM 6. SELECTED FINANCIAL DATA.
The financial data as of and for the years ended December 31, 1993 through
1997 were derived from the audited consolidated financial statements of the
Company and should be read in connection with the consolidated financial
statements and related notes included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues.............................................. $ 933,228 $ 1,036,449 $ 876,029 $ 769,595 $ 696,663
Costs and other deductions:
Product costs and operating expenses................ 314,330 341,057 299,133 299,586 301,276
Exploration expenses................................ 99,380 51,765 77,185 53,532 93,640
Depreciation, depletion and amortization............ 216,108 212,470 191,503 168,570 242,704
Selling, general and administrative expenses........ 26,696 26,945 26,098 24,525 23,780
Interest expense.................................... 7,412 25,173 28,783 11,399 6,369
Preferred dividends of a subsidiary................. 1,911
----------- ----------- ----------- ----------- -----------
Income before income taxes and cumulative effect of
change in accounting principle...................... 269,302 379,039 253,327 211,983 26,983
Income taxes (benefit)................................ 133,436 226,812 150,977 145,245 (3,686)
----------- ----------- ----------- ----------- -----------
Income before cumulative effect of change in
accounting principle................................ 135,866 152,227 102,350 66,738 30,669
Cumulative effect of change in accounting principle... (3,743)
----------- ----------- ----------- ----------- -----------
Net income............................................ $ 135,866 $ 152,227 $ 102,350 $ 66,738 $ 26,926
=========== =========== =========== =========== ===========
Basic earnings per share of common stock:
Income before cumulative effect of change in
accounting principle.............................. $ 1.60 $ 1.75 $ 1.17 $ .76 $ .35
Cumulative effect of change in accounting
principle......................................... (.04)
----------- ----------- ----------- ----------- -----------
Net income.......................................... $ 1.60 $ 1.75 $ 1.17 $ .76 $ .31
=========== =========== =========== =========== ===========
Weighted average shares outstanding................... 85,094,393 87,155,028 87,686,777 87,642,451 87,218,027
Diluted earnings per share of common stock:
Income before cumulative effect of change in
accounting principle.............................. $ 1.59 $ 1.74 $ 1.16 $ .76 $ .34
Cumulative effect of change in accounting
principle......................................... (.04)
----------- ----------- ----------- ----------- -----------
Net Income............................................ $ 1.59 $ 1.74 $ 1.16 $ .76 $ .30
=========== =========== =========== =========== ===========
Weighted average shares outstanding including
potential dilutive common shares.................... 85,558,631 87,561,714 88,098,090 87,936,598 88,332,689
Dividends per share of common stock................... $ .20 $ .20 $ .20 $ .20 $ .20
=========== =========== =========== =========== ===========
BALANCE SHEET DATA (AT END OF PERIOD):
Net working capital................................... $ (104,303) $ (77,297) $ (36,269) $ (44,439) $ (52,035)
Property, plant and equipment -- net.................. 1,746,661 1,632,423 1,551,198 1,286,278 1,088,884
Total assets.......................................... 2,021,556 1,942,004 1,836,818 1,544,634 1,338,741
Long-term debt........................................ 626,404 558,463 712,132 536,117 447,374
Common stock and other stockholders' equity........... 668,595 586,022 423,790 349,499 281,246
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
1997 Compared with 1996. Net income for the year ended December 31, 1997
was $136 million, or $1.60 per share as compared to net income of $152 million
or $1.75 per share for the year ended December 31, 1996. In 1997, the Company
recorded approximately $43 million of U.S. tax benefits and a one-time U.K.
deferred tax charge of $14 million, see Note 9 of Notes to Consolidated
Financial Statements. Excluding these items, net income for 1997 was $107
million or $1.26 per share. The 1997 earnings were negatively impacted by an
anticipated decline in Indonesian LNG volumes, lower U.K. and Pakistan crude oil
prices and higher exploration expenses partially offset by higher ethylene
margins and lower interest expense.
30
<PAGE> 31
Sales and operating revenues for 1997 were $909 million, down from $1,008
million in 1996. International revenues totaled $720 million as compared to $813
million in 1996. In the U.K., sales and operating revenues decreased by $40
million due to lower crude oil prices and lower gas volumes. In Indonesia, sales
decreased $53 million due to lower LNG sales volumes and prices. The Company's
participation share in LNG volumes delivered from its Indonesian operations
declined by approximately 18% in 1997 as LNG cargo deliveries under certain
sales contracts were replaced by ones in which the Company had a lower average
participation interest. In Pakistan, sales were essentially level with 1996 as
higher oil volumes offset lower oil prices.
In 1998, the Company's participation share in LNG volumes delivered from
its Indonesian operations is expected to decline by approximately 18% as certain
LNG sales contracts are replaced by ones in which the Company has a lower
average participation interest. Also, the decline includes a reduction in the
sharing percentages under the Company's production sharing contract beginning in
August 1998. The effect of such lower LNG deliveries will not have as
significant an impact on the Company's total annual cash flow. To a lesser
extent further declines are expected in 1999 while a slight increase is
anticipated in 2000 after the eighth train is completed.
Petrochemical revenues totaled $188 million in 1997 as compared to $193
million in the prior year, while operating profit was $32 million as compared to
$24 million in 1996. The increased operating profit was primarily due to higher
ethylene sales prices and lower feedstock costs, resulting in an average
ethylene margin of 9 cents per pound in 1997 as compared to 6 cents per pound in
1996.
Average prices received and volumes sold by the Company's major operations
during 1997 and 1996, respectively, were as follows:
<TABLE>
<CAPTION>
VOLUMES
PRICES (000S PER DAY)
---------------- --------------
1997 1996 1997 1996
------ ------ ----- -----
<S> <C> <C> <C> <C>
Crude oil (barrels):
U.K............................................ $17.28 $19.60 43 43
Pakistan....................................... 17.09 17.75 7 6
Indonesia...................................... 19.71 19.49 6 6
Indonesian LNG (Mcf)............................. 3.45 3.52 179 218
Pakistan natural gas (Mcf)....................... 1.61 1.61 37 41
U.K. natural gas (Mcf)........................... 2.92 2.83 28 46
U.S. ethylene (pounds)........................... .24 .22 1,301 1,392
</TABLE>
Exploration expenses increased by $48 million due to higher exploration
drilling and geological and geophysical ("G&G") expenditures. Product costs and
operating expenses decreased by $27 million, due to lower Indonesian operating
expenses and a charge in 1996 for the voluntary retirement program. Interest
expense decreased by $18 million primarily due to higher capitalized interest
related to the final phases of development of the Britannia field, which is
expected to commence production in August 1998.
1996 Compared with 1995. Net income for the year ended December 31, 1996
was $152 million, or $1.75 per share as compared to net income of $102 million,
or $1.17 per share for the year ended December 31, 1995. The 1996 earnings were
favorably impacted by higher worldwide oil prices, higher sales volumes in the
U.K., higher Indonesian LNG sales prices and volumes and lower exploration
expenses, partially offset by lower ethylene margins and the cost of a special,
one-time voluntary retirement program.
Sales and operating revenues for 1996 were $1,008 million, up from $852
million in 1995. International revenues totaled $813 million as compared to $651
million in 1995. In the U.K., sales and operating revenues increased by $83
million due to higher prices and increased sales volumes, which were primarily a
result of the July 1995 acquisition of an interest in the Alba field. In
Indonesia, sales increased $64 million due to higher LNG sales prices and
volumes and higher crude oil prices. In Pakistan, sales were $15 million above
1995 due to higher crude oil and gas prices, partially offset by lower gas
volumes.
31
<PAGE> 32
Petrochemical revenues totaled $193 million in 1996 as compared to $200
million in the prior year, while operating profit was $24 million as compared to
$62 million in 1995. The decreased operating profit was primarily due to lower
ethylene sales prices and increased feedstock costs, resulting in an average
ethylene margin of 6 cents per pound in 1996 vs. 13 cents per pound in 1995.
FINANCIAL CONDITION AND LIQUIDITY
General. In order to increase value for all the Company's stockholders, the
Company's long-term growth strategy is an active program focused on development
of core producing assets, participation in a diversified exploration program,
participation in enhanced production ventures and growth of its petrochemical
business. In 1997 the Company successfully bid to enter operations in Venezuela,
formed new exploration ventures in Kazakhstan/Caspian Sea, China and other
strategic areas and continued development of the U.K. and Alaska oil and gas
projects. At year-end 1997, estimated proved worldwide reserves grew to 459
MMboe from 443 MMboe at year-end 1996 and the Company replaced about 134% of its
worldwide production over the three year period 1995 through 1997. The Company's
oil and gas production costs per barrel of oil equivalent averaged $3.66 per
barrel in 1997, compared to $3.61, $3.95, $3.98 and $4.73 in 1996, 1995, 1994
and 1993, respectively. The Company replaced approximately 135% of its 1997
worldwide production.
In 1998 the Company is focused on pursuing both near-term and long-term
growth opportunities through an active program focused on development of
existing core producing assets, development and integration of Venezuela as a
new core producing asset, participation in a diversified exploration program,
participation in enhanced production ventures, portfolio management and growth
of its petrochemical business. An important key to growth for the Company is
adding new reserves to replace reserves that are depleted by production and that
are at normal decline in production rates as well as to offset the significant
lesser participation share of the gas volumes the Company has and will have to
support Indonesian LNG sales contracts. With the addition of the operating
service fee agreements in Venezuela and expectations from other properties, the
Company expects to increase its estimated annual production from 44.2 million
barrels of oil equivalent in 1997 to about 53 million barrels of oil equivalent
in 1998. The Company anticipates that by 2002 its annual worldwide production
will reach 90 million barrels of oil equivalent, which production growth will
benefit substantially from the successful development of the Venezuelan
operations, the Britannia field in the U.K. North Sea and the Alpine field in
Alaska's North Slope.
Achievement of growth through this program will require significant capital
investment as reflected in the capital expenditure budget for 1998, which
represents an increase of approximately 60% over the amount spent in 1997,
excluding acquisitions. The Company's capital expenditures for 1998 are
estimated to be $413 million, excluding capitalized interest, and reflect a
focus on development projects while maintaining a diversified exploration
program. Approximately $284 million of the 1998 capital budget is allocated for
oil and gas development projects. The major components of the 1998 development
budget are the Company's two new operations in Venezuela, increased development
activity in the Alpine project in Alaska's North Slope and completion of the
U.K. North Sea Britannia gas development project. The Company has budgeted
approximately $82 million for exploration projects, including participating in
20-25 exploration wells in strategic areas as well as at its producing ventures
in the U.K. North Sea, Indonesia and Pakistan. In addition to growth in its oil
and gas business, the Company is studying opportunities for expanding and adding
value to its Gulf Coast petrochemical business. The Company's growth strategy
will require implementing investment opportunities in a very competitive
industry environment. The Company will consider strategies to leverage or
increase value in its portfolio of properties, including selective farmouts as
well as opportunities with its mature assets.
The Company's business and strategy are impacted by prices the Company
receives for its crude oil, LNG, natural gas, ethylene and Venezuelan service
fees that are subject to many factors beyond the Company's control. At the end
of 1997 and in the beginning of 1998, worldwide oil prices have declined, with
the spot price for West Texas Intermediate averaging $16.65 per barrel in
January 1998. In the beginning of 1998, the operating service fee for the
Venezuelan DZO unit was approximately $5.00 per barrel and is adjusted quarterly
by the percentage change of a basket of crude oil prices instead of absolute
dollar changes. Although the Company cannot predict with any degree of certainty
the prices it will receive in 1998 and future
32
<PAGE> 33
years for its products and services, it estimates that a change of $1.00 in the
average price of crude oil and LNG impacts the Company's net income and cash
flow by approximately $22 million and $25 million, respectively. Also, the
Company estimates that a margin change of an average one cent per pound of
ethylene for an entire year at full capacity production would affect net income
and cash flow on an annualized basis for the petrochemical business of the
Company by approximately $5 million.
In developing its business plan for 1998, the Company has assumed that oil
prices will have a recovery from the January 1998 levels. In 1998 the Company
has budgeted for significant capital investment that will be funded with
increased borrowings under its credit facilities and contemplated issuance of
preferred and long-term debt securities as well as funds from operations.
Approximately 90% of the Company's oil and gas revenues are indexed to world
crude oil prices. With such assumptions for the business plan and increased
interest expense and higher capital spending, the Company anticipates a decline
in net income and cash flow in 1998. In the event that prices are materially
below those assumed in its business plan, the Company has a contingency program
that includes reductions in capital and operating expenses that would not
significantly impact current operations but defer certain exploration and
development plans. Any such deferrals could limit opportunities for new reserves
from exploration successes and delay anticipated production from certain
properties thus impacting net income and cash flows.
Cash flow. Net cash provided by operating activities was $272 million in
1997, a decrease of $112 million from the prior year. The decrease was primarily
the result of lower crude oil prices and a decline in LNG sales volumes. Net
cash required by investing activities was $318 million in 1997, an increase of
$177 million from 1996. The change was primarily related to the increase in
property, plant and equipment for the Boqueron acquisition. In 1997, net cash
provided by financing activities was $27 million compared to net cash required
in 1996 of $211 million. The change resulted from the use of excess cash flow to
pay down debt and 1997 borrowings to fund the Boqueron acquisition.
Capital resources. Capital expenditures for 1997 were $379 million,
excluding capitalized interest, an increase from the prior year's expenditures
of $186 million. This increase was primarily the result of the Company's
Boqueron acquisition and higher exploration drilling and G&G expenditures.
The Company acquired in February 1998 all of the stock of Compania
Occidental de Hidrocarburos, Inc ("Hidrocarburos"), a U.S. affiliate of
Occidental Oil & Gas Corporation ("Occidental"), for approximately $212 million,
which includes approximately $14 million in working capital and certain closing
adjustments effective as of December 31, 1997. The Company initially funded the
acquisition under bank facilities, including a new $130 million facility through
Hidrocarburos guaranteed by the Company. Occidental may receive contingent
payments of up to a maximum of $15 million annually for six years based
primarily on the level of oil prices. Hidrocarburos operates as contractor of
the DZO unit in Western Venezuela under a 20-year operating service contract
with a subsidiary of the national oil company, PDVSA. The contractor invests
capital and provides technology for reactivation of the fields for which the
contractor receives various fees per barrel delivered to the custody transfer
point. The fees received are operating, capital reimbursement and interest on
unrecovered capital costs which are in total limited by a maximum total fee. The
maximum total fee is indexed with a basket of crude oil products and was
approximately $7.50 per barrel in the latter half of 1997. The Company cannot
predict the extent that the future maximum total fee will limit the operating,
interest and capital fees received and recorded. Additionally, an incremental
incentive fee of several dollars per barrel, which is also indexed to a basket
of crude oil products but is not limited by the maximum total fee, is payable
when cumulative production from the DZO unit (from inception of the 1993
contract) reaches 52 million barrels. Cumulative production is expected to reach
52 million barrels during the second half of 1999. The contractor does not pay
royalties related to the DZO unit. Operating costs in early 1998 averaged about
$2.90 per barrel. In 1998, the Company recorded for the DZO unit 114 million
barrels of proved reserves of which 56 million barrels are classified as proved
undeveloped. The Company anticipates spending $400 to $450 million over the next
nine years for future DZO development expenditures. The Company plans to
increase current production from 23,000 gross barrels a day up to 55,000 gross
barrels within five years.
In June 1997, the Company led a successful bid for the Boqueron contract
area under Venezuela's Third Operating Agreement Round. The Company was named
the operator and is a contractor with a 66.67%
33
<PAGE> 34
interest in the operating service contract and Preussag Energie GmbH of Germany,
the other contractor and a co-venturer, has a 33.33% interest (collectively, the
"Contractors"). The Company and Preussag Energie paid $175 million for the
rights to the service contract for the Boqueron contract area. Under the 20-year
contract, the Contractors will produce oil from Boqueron on behalf of a
subsidiary of PDVSA, which currently serves as operator. The Company expects to
assume operatorship in May 1998, pending approval of its development plan. The
Contractors are compensated a U.S. dollar service fee to cover reimbursement of
costs plus profit. There are two components of the fee, which include (i) a set
fee for baseline production and (ii) a fee for incremental production. The PDVSA
subsidiary will pay the Contractors a set fee of $1.25 per barrel for operating
the baseline production. In the Boqueron contract area, the baseline production
initial rate is estimated at 8,500 gross barrels of oil a day with a nominal
annual decline rate of 10%. In terms of the incremental production, the
Contractors will be paid a sliding incentive fee based on field profitability
and will be allowed to recover field and other capital and operating costs
through the fee mechanism. The field profitability is based on production at
world market prices net of a 1/6 government royalty and field costs. The Company
recorded approximately 40 million net barrels in proved reserves from the
Boqueron contract area during 1997 with additional reserves expected to be
recorded in the future as the field is further developed. The Contractors must
invest at least $13 million over the next three years and currently expect to
spend between $300 million and $325 million in the area over the next five
years. With this additional development spending, the Company expects to
increase current production at the Boqueron contract area from 8,500 gross
barrels of oil a day to a rate of 50,000 to 60,000 gross barrels within three to
five years.
Financing Activities: For information on the Company's outstanding debt
agreements, see Note 7 of the Notes to Consolidated Financial Statements. The
Company had two unsecured credit facilities (the "Credit Facilities") at
December 31, 1997. One of the Credit Facilities is a $100 million revolver that
provides for conversion of amounts outstanding on March 10, 1998 to a one-year
term loan maturing March 9, 1999. The Company is in negotiations to replace the
$100 million Credit Facility. The other Credit Facility is a dual currency (U.S.
dollars and pounds sterling) $450 million revolver that reduces quarterly by $35
million beginning June 30, 2001, with a final maturity of March 31, 2002. At
December 31, 1997, no amounts were outstanding under the Credit Facilities. The
Credit Facilities contain restrictive covenants, including maintenance of
certain coverage ratios related to the incurrence of additional indebtedness and
limitations on asset sales and mergers or consolidations. The covenants also
require maintenance of stockholders' equity, as adjusted, at $350 million. Under
the terms of the Credit Facilities, the Company may pay dividends and make stock
repurchases provided that such level of minimum stockholders' equity is
maintained and the Company complies with certain other covenants in the Credit
Facilities. At December 31, 1997, the Company's adjusted stockholders' equity
was approximately $704 million.
The Company has uncommitted and unsecured lines of credit with several
banks in both U.S. dollars and pounds sterling. At December 31, 1997, $83
million was outstanding under these money market lines which bore interest at a
weighted average rate of 6.9% per annum. In February 1998 the Company's indirect
subsidiary, Hidrocarburos, entered into a $130 million committed term loan,
which matures on May 4, 1998, to initially fund a portion of the DZO
acquisition. The term loan is guaranteed by the Company, and supported by the
$450 million Credit Facility. The Company intends to refinance such term loan
with long-term financing. At February 20, 1998, $85 million, $130 million and
$121 million were outstanding under the Credit Facilities, term loan and the
uncommitted lines of credit, respectively. As of such date, the Company had
approximately $214 million of such available financing.
The Company's indirect subsidiary, Union Texas Britannia Limited ("UTBL"),
has a 150 million pounds sterling secured financing from a syndicate of banks.
The financing has a final maturity in September 2005. At December 31, 1997, 85
million pounds sterling ($141 million) was outstanding under UTBL's financing
which bore interest at a weighted average rate of 8.4% per annum.
The Company has outstanding $100 million principal amount of 8.25% Senior
Notes due 1999, $125 million principal amount of 8 3/8% Senior Notes due 2005
and $75 million principal amount of 8 1/2% Senior Notes due 2007 (collectively
the "Senior Notes"). In 1995 the Company issued $100 million aggregate principal
amount of medium term notes ("MTN") with terms of seven and twelve years and
interest rates varying from 6.51% to 6.81%. The Senior Notes and MTN are
referred to herein as the "Notes". The Notes
34
<PAGE> 35
represent general unsecured obligations of the Company and rank pari passu in
right of payment with the Company's obligations under its Credit Facilities, and
senior in right of payment to any future subordinated indebtedness of the
Company. Each of the Notes contain similar restrictive covenants. The Notes are
redeemable at any time, at the option of the Company, in whole or in part, at a
price equal to 100% of their principal amount plus accrued interest plus a
make-whole premium relating to the then-prevailing Treasury Yield and the
remaining life of the Notes.
In July 1997, the Company filed a shelf registration statement with the
SEC, covering the issuance of up to $500 million of several types of securities,
including debt securities, common stock, preferred stock and warrants to
purchase securities in any combination that the Company may elect to offer from
time to time on such terms as the Company deems appropriate. The Company
believes the shelf registration provides additional financing flexibility to
meet future funding requirements and to take advantage of potentially attractive
capital market conditions. The Company intends to use the net proceeds from any
offering for general corporate purposes, which may include the repayment of
outstanding indebtedness, working capital increases, capital expenditures and
acquisitions. No securities have yet been issued, although the Company is
contemplating an offering of preferred stock and long-term debt securities.
In 1994, the Company's Board of Directors authorized the repurchase of up
to 2,000,000 shares of the Company's stock, all of which were repurchased by the
end of 1996. In October, 1996, the Company's Board of Directors authorized the
repurchase of up to an additional 2,000,000 shares of the Company's common
stock, all of which were repurchased by March 31, 1997. The repurchased stock
will be used for general corporate purposes, including fulfilling employee
benefit program obligations. At December 31, 1997, 2,728,267 shares of common
stock were held, at cost, as treasury shares.
As of December 31, 1997, the Company's scheduled maturities of long-term
debt outstanding for the five-year period of 1998 through 2002 are approximately
$0 million, $123 million, $30 million, $33 million and $186 million,
respectively. The Company believes that it will have sufficient sources of funds
to satisfy these scheduled maturities. The Company may enter into interest rate
swap contracts from time to time. However, the Company did not enter into any
interest rate swap contracts during 1997.
Financial Condition. In each of the four quarters ended December 31, 1997,
the Company declared and paid a dividend of approximately $4.4 million on its
common stock. On January 21, 1998, the Company announced a dividend on its
common stock of $.05 per share to stockholders of record as of January 30, 1998,
which was paid on February 13, 1998.
Since the Company's U.S. corporate alternative minimum tax ("AMT")
liability has exceeded its otherwise determined regular U.S. federal income tax
liability, the Company has accumulated an AMT credit of approximately $24
million which may be applied against future regular federal tax liabilities. In
addition, the Company has approximately $117 million (pre-tax) of Net Operating
Loss ("NOL") carryforwards from its U.S. exploration and production operations
which could be applied against future U.S. federal taxable income. These NOLs
must be utilized prior to their expiration, which is between 2002 and 2006, see
Note 9 of Notes to Consolidated Financial Statements.
As a result of reserve engineering analysis and subsequent development
plans for the Company's reserves in the Alpine field in Alaska as well as
expectations for its U.S. petrochemical business, the Company now expects to
utilize the AMT credit and a portion of the NOL carryforwards. In 1997, the
Company adjusted its deferred tax valuation allowance and subsequently recorded
$43 million of net income, representing the $24 million AMT credit and $19
million (after-tax) of NOL carryforwards, see Note 9 of Notes to Consolidated
Financial Statements. Changes in the Company's actual or anticipated income
subject to U.S. taxes, changes in U.S. tax laws or changes in U.S. tax rates may
give rise to adjustments to the Company's deferred tax assets or liabilities,
including the valuation allowance, in the future.
As a result of its international operations, the Company monitors currency
rate fluctuations, including the impact of the recent activity in the Asian
market. Such fluctuations have not had a material impact on the Company's
operations. In 1997 and 1998, 80% and 74%, respectively, of the Indonesia
natural gas supplied by the Company's joint venture was, and is expected to be
sold, to Japanese industrial and utility customers, with
35
<PAGE> 36
the remainder sold to Korean and Taiwanese buyers. Although the Company cannot
predict the impact of the current Asian economic crisis on the buyers of LNG,
the Company expects currently that it will not have a material impact on the
Company in 1998. Payments for the Indonesian LNG under all of the sales
contracts are made in U.S. dollars directly to a bank in the U.S. that acts as
trustee and paying agent with respect to the sales proceeds. Likewise all
invoice and payments for the operating service fees in Venezuela will be made in
U.S. dollars.
The functional currency for translating the accounts of foreign
subsidiaries is the U.S. dollar, except for subsidiaries in the U.K. where the
functional currency is pounds sterling. The Company's revenues are predominantly
based upon the world market price for crude oil, which is denominated in U.S.
dollars. Certain operating costs, taxes, capital costs and intercompany
transactions represent commitments settled in foreign currencies. Exchange rate
fluctuations on transactions in currencies other than the functional currency
are recognized as gains and losses in current period income. The Company
periodically enters into foreign exchange contracts as a hedge against
fluctuations in foreign currency rates. These contracts are generally of a
short-term nature. At December 31, 1997, the Company had open contracts with a
net value of 7 million pounds sterling. However, there are foreign exchange
risks inherent in operations such as the Company's, and the Company cannot
predict with any certainty the results of currency exchange rate fluctuations.
The Company may enter into hedging contracts and other risk management
activities, such as swaps or fixed price contracts in order to minimize the
impact of adverse price fluctuations. Gains or losses on these activities are
recognized in sales revenues when the underlying exposed hedged production is
sold. As of December 31, 1997, the Company did not have any such contracts.
The year 2000 issue relates to computer programs being written with two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
instead of 2000. The Company is addressing the year 2000 issue through an
assessment of its operational field systems, information technology systems and
the year 2000 readiness of its significant partners, suppliers, vendors and
customers. This assessment includes among other matters a detailed analysis of
the Company's worldwide software and hardware applications and communications
with the companies who operate a significant portion of the Company's assets.
The Company is in the process of converting its software accounting system to a
new system, which is year 2000 compliant. The Company has targeted mid-1999 as
the completion date for its plan. While the Company expects to resolve its year
2000 issue substantially through the replacement and upgrades of software, there
can be no guarantee that the systems of other companies on which the Company
depends will be timely converted or that a failure to convert by another
company, or a conversion that is not compatible with the Company's systems,
would not have a material adverse effect on the Company. The Company does not
expect that the costs of addressing the year 2000 issue will have a material
impact on the Company's financial position or results of operations.
The foregoing discussion of the Company's financial condition and liquidity
includes in several instances forward-looking statements, which are based upon
management's good faith assumptions relating to the financial, market, operating
and other relevant environments that will exist and affect the Company's
business and operations in the future. No assurance can be made that the
assumptions upon which management based its forward-looking statements will
prove to be correct, or that the Company's business and operations will not be
affected in any substantial manner by other factors not currently foreseeable by
management or beyond the Company's control. All forward-looking statements
involve risks and uncertainty, including, but not limited to, the following:
volatility of crude oil, LNG, natural gas and ethylene prices, capital
expenditures, production variances from expectations, the need to develop and
replace reserves, risks in the development and integration of new assets,
environmental risks, drilling and operating risks, risks related to exploration
and development projects, uncertainties about estimates of reserves,
competition, government actions and regulations, foreign currencies and the
ability of the Company to implement its business strategy. For additional
discussion of such risks, uncertainties and assumptions, see Item
1. Business -- Risk Factors.
36
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 38
Consolidated Balance Sheet, December 31, 1997 and 1996...... 39
Consolidated Statement of Operations, Years Ended December
31, 1997, 1996 and 1995................................... 40
Consolidated Statement of Cash Flows, Years Ended December
31, 1997, 1996 and 1995................................... 41
Consolidated Statement of Stockholders' Equity, Years Ended
December 31, 1997, 1996 and
1995...................................................... 42
Notes to Consolidated Financial Statements.................. 43
</TABLE>
37
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Union Texas Petroleum Holdings, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Union
Texas Petroleum Holdings, Inc. and its subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
February 16, 1998
38
<PAGE> 39
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 24,324 $ 43,574
Accounts and notes receivable............................. 82,172 96,687
Inventories............................................... 38,318 39,721
Prepaid expenses and other current assets................. 30,539 23,560
---------- ----------
Total current assets.............................. 175,353 203,542
Equity investments.......................................... 90,488 93,262
Property, plant and equipment, at cost, less accumulated
depreciation, depletion and amortization*................. 1,746,661 1,632,423
Other assets................................................ 9,054 12,777
---------- ----------
Total assets...................................... $2,021,556 $1,942,004
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ $ 2,290
Accounts payable.......................................... 132,735 103,225
Taxes payable............................................. 94,366 126,813
Other current liabilities................................. 52,555 48,511
---------- ----------
Total current liabilities......................... 279,656 280,839
Long-term debt.............................................. 626,404 558,463
Deferred income taxes....................................... 321,879 391,534
Other liabilities........................................... 125,022 125,146
---------- ----------
Total liabilities................................. 1,352,961 1,355,982
---------- ----------
Stockholders' equity:
Common stock.............................................. 4,391 4,391
Paid in capital........................................... 18,645 18,863
Cumulative foreign exchange translation adjustment and
other.................................................. (34,954) (21,955)
Retained earnings......................................... 733,201 614,376
Common stock held in treasury, at cost, 2,728,267 shares
at December 31, 1997 and 1,490,322 shares at December
31, 1996............................................... (52,688) (29,653)
---------- ----------
Total stockholders' equity........................ 668,595 586,022
---------- ----------
Total liabilities and stockholders' equity........ $2,021,556 $1,942,004
========== ==========
</TABLE>
- ---------------
* The Company follows the successful efforts method of accounting for oil and
gas activities.
The accompanying notes are an integral part of this financial statement.
39
<PAGE> 40
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- ---------- --------
<S> <C> <C> <C>
REVENUES:
Sales and operating revenues.............................. $909,391 $1,008,476 $851,601
Interest income and other revenues........................ 3,224 1,836 3,557
Net income of equity investees............................ 20,613 26,137 20,871
-------- ---------- --------
933,228 1,036,449 876,029
COSTS AND OTHER DEDUCTIONS:
Product costs and operating expenses...................... 314,330 341,057 299,133
Exploration expenses...................................... 99,380 51,765 77,185
Depreciation, depletion and amortization.................. 216,108 212,470 191,503
Selling, general and administrative expenses.............. 26,696 26,945 26,098
Interest expense.......................................... 7,412 25,173 28,783
-------- ---------- --------
Income before income taxes.................................. 269,302 379,039 253,327
Provision for income taxes.................................. 133,436 226,812 150,977
-------- ---------- --------
Net income.................................................. $135,866 $ 152,227 $102,350
======== ========== ========
EARNINGS PER SHARE OF COMMON STOCK:
Basic earnings per share of common stock.................. $ 1.60 $ 1.75 $ 1.17
======== ========== ========
Diluted earnings per share of common stock................ $ 1.59 $ 1.74 $ 1.16
======== ========== ========
DIVIDENDS PER SHARE OF COMMON STOCK......................... $ .20 $ .20 $ .20
======== ========== ========
Weighted average number of shares outstanding (000s)........ 85,094 87,155 87,687
======== ========== ========
Weighted average number of shares outstanding including
potential dilutive common shares (000s)................... 85,559 87,561 88,098
======== ========== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
40
<PAGE> 41
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 135,866 $ 152,227 $ 102,350
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, depletion and
amortization..................... 216,108 212,470 191,503
Deferred income taxes.............. (63,540) (31,588) (19,576)
Net income of equity investees..... (20,613) (26,137) (20,871)
Other.............................. 3,377 2,981 3,581
--------- --------- ---------
Net cash provided by operating
activities before changes in
other assets and
liabilities................... 271,198 309,953 256,987
Decrease (increase) in accounts
and notes receivable.......... 13,642 (17,793) (22,667)
Decrease in inventories.......... 1,049 4,228 1,351
(Increase) decrease in prepaid
expenses and other assets..... (4,948) 10,569 (6,628)
Increase in accounts payable and
other liabilities............. 19,936 8,410 3,233
(Decrease) increase in income
taxes payable................. (29,006) 68,630 1,649
--------- --------- ---------
Net cash provided by operating
activities.................... 271,871 383,997 233,925
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment.......................... (341,297) (181,967) (412,039)
Cash provided by equity investees..... 23,387 41,351 26,900
Cash required by sale of businesses,
net................................ (809)
--------- --------- ---------
Net cash required by investing
activities......................... (317,910) (140,616) (385,948)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt...... 44,203 61,440 327,103
Payments to settle long-term debt..... (2,290) (2,292) (2,292)
Net payments under credit
facilities......................... (132,000) (193,503)
Net proceeds (payments) from money
market lines of credit ............ 27,893 (92,069) 43,151
Purchase of treasury stock............ (34,305) (32,360) (4,136)
Proceeds from issuance of treasury
stock.............................. 8,329 3,876 1,916
Dividends paid........................ (17,041) (17,471) (17,536)
--------- --------- ---------
Net cash provided (required) by
financing activities............... 26,789 (210,876) 154,703
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents................... (19,250) 32,505 2,680
Cash and cash equivalents at beginning
of year............................... 43,574 11,069 8,389
--------- --------- ---------
Cash and cash equivalents at end of
year.................................. $ 24,324 $ 43,574 $ 11,069
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest (net of amount
capitalized)..................... $ 5,457 $ 22,882 $ 29,765
Income taxes....................... 223,183 190,517 168,140
</TABLE>
The accompanying notes are an integral part of this financial statement.
41
<PAGE> 42
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
COMMON STOCK (SHARES)
Authorized....................................... 200,000,000 200,000,000 200,000,000
=========== =========== ===========
Issued:
Beginning of year............................. 87,829,283 87,829,283 87,829,283
Issuance of stock.............................
----------- ----------- -----------
Ending balance................................ 87,829,283 87,829,283 87,829,283
=========== =========== ===========
COMMON STOCK AT PAR VALUE ($.05 PER SHARE)
Beginning of year................................ $ 4,391 $ 4,391 $ 4,391
Issuance of stock................................
----------- ----------- -----------
Ending balance................................... $ 4,391 $ 4,391 $ 4,391
=========== =========== ===========
PAID IN CAPITAL
Beginning balance................................ $ 18,863 $ 19,405 $ 19,889
Issuance of stock................................
Reissuance of treasury stock..................... (218) (542) (484)
----------- ----------- -----------
Ending balance................................... $ 18,645 $ 18,863 $ 19,405
=========== =========== ===========
CUMULATIVE FOREIGN EXCHANGE TRANSLATION ADJUSTMENT
AND OTHER
Beginning balance................................ $ (21,955) $ (75,077) $ (65,476)
Translation adjustments.......................... (13,038) 53,044 (9,406)
Supplemental pension plan minimum liability...... 39 78 (195)
----------- ----------- -----------
Ending balance................................... $ (34,954) $ (21,955) $ (75,077)
=========== =========== ===========
RETAINED EARNINGS
Beginning balance................................ $ 614,376 $ 479,620 $ 394,806
Net income....................................... 135,866 152,227 102,350
Dividends on common stock........................ (17,041) (17,471) (17,536)
----------- ----------- -----------
Ending balance................................... $ 733,201 $ 614,376 $ 479,620
=========== =========== ===========
TREASURY STOCK, AT COST
Beginning balance................................ $ (29,653) $ (4,549) $ (4,111)
Purchases........................................ (34,305) (32,360) (4,136)
Issues........................................... 11,270 7,256 3,698
----------- ----------- -----------
Ending balance................................... $ (52,688) $ (29,653) $ (4,549)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
42
<PAGE> 43
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company is engaged in oil and gas exploration and production
principally overseas and petrochemical manufacturing in the United States.
International activities are conducted primarily in Indonesia, the United
Kingdom sector of the North Sea, Venezuela, Pakistan and other strategic areas.
Two limited partnerships (the "KKR Partnerships"), organized and controlled by
an affiliate of Kohlberg Kravis Roberts & Co. ("KKR"), own approximately 25.7%
of the Company's issued and outstanding common stock.
Principles of consolidation
The consolidated financial statements include the accounts of Union Texas
Petroleum Holdings, Inc. ("UTPH"), its wholly owned subsidiaries and
proportionate interests in the assets, liabilities and operations of
unincorporated joint ventures (referred to herein individually and collectively
as the "Company"). Investments in which the Company has between a 20% to 50%
ownership interest are accounted for using the equity method. All material
intercompany transactions are eliminated.
Use of estimates
The consolidated financial statements are prepared in conformity with
general accepted accounting principles, which require management to make certain
estimates and assumptions that affect the reported amounts of certain assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the related reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Management believes that the estimates are reasonable.
Inventories
Finished product inventories are valued at the lower of cost or market
using the first-in, first-out method ("FIFO"). Materials and supplies
inventories are valued at the lower of average cost or market. Effective January
1, 1996, the Company changed the method of accounting for valuing its
petrochemical product inventory from the last-in, first out ("LIFO") method to
the first-in, first out ("FIFO") method. The change did not have a material
effect on the results of operations for prior periods, nor is it anticipated
that it will have a material impact on future periods. The Company believes that
use of the FIFO method results in a better measurement of operating results and
better reflects the current value of inventory on the balance sheet.
Property, plant and equipment
Oil and gas exploration and production activities are accounted for
employing the successful efforts method. Under this method, costs of successful
exploratory wells, development wells and acreage are capitalized. Costs of
unsuccessful exploratory wells are expensed upon the determination that the well
does not justify commercial development. Other exploration costs including
geological and geophysical costs in exploration areas, delay rentals, production
costs and overhead are charged to expense as incurred.
Major renewals and improvements are capitalized, and the assets replaced
are retired. Maintenance and repairs are expensed as incurred.
Depreciation, depletion and amortization of the capitalized costs of
producing properties, both tangible and intangible, are provided for on the
units-of-production basis. Unit-of-production rates are based on estimated
proved oil and gas reserves. Annually, or whenever significant events or changes
in circumstances occur, oil and gas producing properties are reviewed to
determine whether it is probable that impairment of the capitalized cost of
specific producing asset groups has occurred. Amortization of undeveloped
acreage
43
<PAGE> 44
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
from date of acquisition is based upon such factors as lease term, estimated
evaluation period and prior experience. The Company reviews its leases and
related amortization rates periodically.
Estimated dismantlement, restoration and abandonment costs net of estimated
salvage value are taken into account in determining amortization and are
included in other long-term liabilities, which as of December 31, 1997 and 1996
were $68.6 million and $60.3 million, respectively, of such costs. Depreciable
assets other than oil and gas properties are depreciated using the straight-line
method based on estimated asset service lives from 5 to 31 years.
Foreign currency
The functional currency for translating the accounts of foreign
subsidiaries is the U.S. dollar, except for subsidiaries in the United Kingdom,
where the functional currency is the local currency. Translation adjustments of
this local currency, which represent unrealized increases and decreases in the
Company's net investment in foreign operations as the result of exchange rate
changes, are included in stockholders' equity as the cumulative foreign exchange
translation adjustment. Transaction gains and losses resulting from the effect
of exchange rate fluctuations on transactions in currencies other than the
functional currency are included in determining net income. Foreign exchange
losses included in the determination of net income for the years 1997, 1996, and
1995 were $416, $54 and $768, respectively.
Hedging Activities
The Company periodically enters into foreign exchange contracts as a hedge
against fluctuations in foreign currency rates. These contracts are generally of
a short-term nature. At December 31, 1997, the Company had open foreign exchange
contracts with a net value of 7 million pounds sterling. However, there are
foreign exchange risks inherent in operations such as the Company's, and the
Company cannot predict with any certainty the results of currency exchange rate
fluctuations. The Company may enter into hedging contracts and other risk
management activities, such as swaps or fixed price contracts, in order to
minimize the impact of adverse price fluctuation. Gains or losses on these
activities are recognized in sales revenues when the underlying exposed hedged
production is sold. As of December 31, 1997, the Company did not have any such
open contracts.
Accounting Pronouncements Recently Issued
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires that all items required to be
recognized under accounting standards as components of comprehensive income be
reported as a part of the basic financial statements. SFAS No. 131 establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997 but the
statement need not be applied to interim financial statements in the initial
year of application. The Company does not expect adoption of these new standards
to materially affect the Company's reporting practices.
Other
The fair value of financial instruments included in the Company's assets
and liabilities approximates carrying value. Cash equivalents are comprised of
highly liquid debt instruments purchased at a maturity of three months or less.
44
<PAGE> 45
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
NOTE 2 -- ACCOUNTS AND NOTES RECEIVABLE
At December 31, 1997 and 1996, accounts and notes receivable consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accounts receivable, trade.................................. $82,172 $96,687
</TABLE>
Most of the Company's worldwide business activity is with major marketing
companies, industrial users and joint venture partners. Those receivables
considered a significant credit risk are backed by letters of credit. Typically,
credit terms are of a short-term nature.
NOTE 3 -- INVENTORIES
At December 31, 1997 and 1996, inventories consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Products.................................................... $13,884 $15,804
Materials and supplies...................................... 24,434 23,917
------- -------
$38,318 $39,721
======= =======
</TABLE>
NOTE 4 -- PREPAID EXPENSES AND OTHER CURRENT ASSETS
At December 31, 1997 and 1996, prepaid expenses and other current assets
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Prepaid Insurance........................................... $15,027 $ 7,257
Prepaid Taxes............................................... 565 558
Deferred Charges............................................ 14,947 15,745
------- -------
$30,539 $23,560
======= =======
</TABLE>
NOTE 5 -- EQUITY INVESTMENTS
At December 31, 1997 and 1996, investments, accounted for using the equity
method, consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Unimar Company.............................................. $90,204 $93,262
Virginia Enterprises Inc. (VEI)............................. 284
------- -------
$90,488 $93,262
======= =======
</TABLE>
The Company has a 50% interest in Unimar Company ("Unimar"), a partnership
through which the Company has an additional 11.56% working interest in the
Indonesian joint venture, resulting in a total working interest for the Company
of 37.81%. The Company owns 50% of the stock of VEI, a corporation that focuses
on Indonesian business development opportunities.
45
<PAGE> 46
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
The Company's share of selected financial data for its equity investees are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net revenues....................................... $108,671 $126,326 $101,010
Gross profit....................................... 74,665 90,547 67,777
Equity net income.................................. $ 20,430(a) $ 25,707 $ 20,071
Other.............................................. 183 430 800
-------- -------- --------
Net income of equity investees..................... $ 20,613 $ 26,137 $ 20,871
======== ======== ========
</TABLE>
- ---------------
(a) Includes a net loss of $3,129 for VEI.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current assets.............................................. $ 13,782 $ 14,172
Total assets................................................ 183,760 191,738
Current liabilities......................................... 17,864 20,047
Partners' account........................................... 83,775 87,219
</TABLE>
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
At December 31, 1997 and 1996, property, plant and equipment consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land and land improvements................................ $ 13,800 $ 13,055
Oil and gas properties and equipment...................... 2,900,045 2,812,546
Plants and equipment...................................... 168,330 164,167
Other facilities.......................................... 15,272 12,082
Construction and wells in progress........................ 399,493 205,261
----------- -----------
3,496,940 3,207,111
Less -- accumulated depreciation, depletion and
amortization............................................ (1,750,279) (1,574,688)
----------- -----------
$ 1,746,661 $ 1,632,423
=========== ===========
</TABLE>
In June 1997, the Company led a successful bid for Venezuela's Boqueron
area under Venezuela's Third Operating Agreement Round. In the third quarter of
1997 the Company paid $117 million to the Venezuelan government for its share of
the bid. This payment was funded under the Company's Credit Facilities, lines of
credit and cash from operations. The Company was named the operator and has a
66.67% interest in the Boqueron operating service contract with a subsidiary of
PDVSA and will work with the Company's co-venturer, Preussag Energie GmbH of
Germany, who has a 33.33% interest, to further develop this currently-producing
field. An affiliate of PDVSA has the option to purchase up to a 10% interest in
the contract. In 1997 the Company increased property, plant and equipment for
the Boqueron operating service contract by $124 million.
In February 1998, the Company acquired all of the stock of Hidrocarburos, a
U.S. affiliate of Occidental, for approximately $212 million, which included
approximately $14 million in working capital and certain closing adjustments.
The Company initially funded the acquisition under bank facilities, including a
new $130 million facility through Hidrocarburos guaranteed by the Company.
Occidental may receive contingent payments of up to a maximum of $15 million
annually for six years based primarily on the level of oil prices. Hidrocarburos
operates the DZO unit located west of Lake Maracaibo in Western Venezuela under
a 20-year operating service contract with a subsidiary of PDVSA. An affiliate of
PDVSA has the option to purchase up to a 10% interest in the contract.
46
<PAGE> 47
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
NOTE 7 -- DEBT
At December 31, 1997 and 1996, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
8.25% Senior Notes due November 15, 1999.................... $100,000 $100,000
8 3/8% Senior Notes due 2005................................ 125,000 125,000
8 1/2% Senior Notes due 2007................................ 75,000 75,000
Medium Term Notes........................................... 100,000 100,000
Britannia financing......................................... 140,809 98,588
Subsidiary production loan.................................. 2,290
Money market lines of credit and other...................... 85,595 59,875
-------- --------
626,404 560,753
Less -- portion due within one year......................... (2,290)
======== ========
$626,404 $558,463
======== ========
</TABLE>
Credit Facilities
The Company had two unsecured credit facilities (the "Credit Facilities")
at December 31, 1997. One of the Credit Facilities is a $100 million revolver
that provides for conversion of amounts outstanding on March 10, 1998 to a
one-year term loan maturing March 9, 1999. The Company is in negotiations to
replace the $100 million Credit Facility. The other Credit Facility is a dual
currency (U.S. dollars and pounds sterling) $450 million revolver that reduces
quarterly by $35 million beginning June 30, 2001, with a final maturity of March
31, 2002. At December 31, 1997, no amounts were outstanding under the Credit
Facilities. The $450 million facility allows the Company to borrow up to $300
million in U.S. dollar loans at interest rates determined in a competitive bid
process. Loans under the $450 million facility may be made in both pounds
sterling and U.S. dollars at the option of the Company. Loans under the Credit
Facilities bear interest at floating market rates based on, at the Company's
option, the agent bank's base rate or LIBOR, plus applicable margins subject to
increase or decrease in certain events. The Credit Facilities contain
restrictive covenants, including maintenance of certain coverage ratios related
to the incurrence of additional indebtedness and limitations on asset sales and
mergers or consolidations. The covenants also require maintenance of
stockholders' equity, as adjusted, at $350 million. Under the terms of the
Credit Facilities, the Company may pay dividends and make stock repurchases
provided that such level of minimum stockholders' equity is maintained and the
Company complies with certain other covenants in the Credit Facilities. At
December 31, 1997, the Company's adjusted stockholders' equity was approximately
$704 million. The Credit Facilities provide the Company with the ability to
borrow on a long-term basis.
Term Loan
In February 1998 the Company's indirect subsidiary, Hidrocarburos, entered
into a $130 million committed term loan to initially fund a portion of the DZO
acquisition. The term loan is guaranteed by the Company and is supported by the
$450 million Credit Facility. The facility matures on May 4, 1998 and bears
interest at variable market rates.
Senior and Medium Notes
The Company has outstanding $100 million principal amount of 8.25% Senior
Notes due 1999, $125 million principal amount of 8 3/8% Senior Notes due 2005
and $75 million principal amount of 8 1/2% Senior Notes due 2007 (collectively
the "Senior Notes"). In 1995 the Company issued $100 million aggregate principal
amount of medium term notes ("MTN") with terms of seven and twelve years and
interest rates
47
<PAGE> 48
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
varying from 6.51% to 6.81%. The Senior Notes and MTN are referred to herein as
the "Notes". The Notes represent general unsecured obligations of the Company
and rank pari passu in right of payment with the Company's obligations under its
Credit Facilities, and senior in right of payment to any future subordinated
indebtedness of the Company. Each of the Notes contain similar restrictive
covenants. The Notes are redeemable at any time, at the option of the Company,
in whole or in part, at a price equal to 100% of their principal amount plus
accrued interest plus a make-whole premium relating to the then-prevailing
Treasury Yield and the remaining life of the Notes.
Britannia Financing
The Company's indirect subsidiary, Union Texas Britannia Limited ("UTBL"),
which is a wholly owned subsidiary of UTPL, has a 150 million pounds sterling
secured financing from a syndicate of banks. The financing is used to fund the
Company's share of the cost of developing the Britannia field to production
(including interest and other financing costs incurred prior to completion and
potential cost overruns), and any remaining availability after completion may,
subject to certain coverage ratios being met, be used for UTBL's general
corporate purposes. Except for certain support by UTPL related to any potential
cost overruns in excess of the facility amount (limited to 30 million pounds
sterling), insurance, tax benefits and administrative services, the lenders'
recourse will be limited to the Britannia field project assets and is
nonrecourse to the Company. The financing has a final maturity in September
2005. At December 31, 1997, 85 million pounds sterling ($141 million) was
outstanding under UTBL's financing which bore interest at a weighted average
rate of 8.4% per annum.
Subsidiary Production Loan
In 1997, Union Texas Pakistan, Inc., a wholly owned subsidiary of the
Company, repaid the remaining $2,290 balance of its non recourse loan.
Money Market Lines of Credit
The Company has uncommitted and unsecured lines of credit with several
banks in both U.S. dollars and pounds sterling. These money market borrowings,
which have a short-term maturity, have been classified as long term debt based
on the Company's intent and ability to refinance them on a long-term basis
through its Credit Facilities. At December 31, 1997, $83 million was outstanding
under these money market lines which bore interest at a weighted average rate of
6.9% per annum.
Interest capitalized for the years 1997, 1996, and 1995 was $40,664,
$26,017, and $23,081, respectively.
Scheduled maturities of long-term debt outstanding during the five years
1998 through 2002 are $0, $122,613, $30,184, $33,329 and $185,926, respectively.
NOTE 8 -- EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted the provisions of SFAS
No. 128, "Earnings Per Share", and restated previously reported earnings per
share in conformity with SFAS 128. The new standard specifies the computation,
presentation and disclosure requirements for earnings per share.
48
<PAGE> 49
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
A reconciliation of the numerators and denominators of the basic and
diluted EPS computations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
BASIC EPS COMPUTATION
Numerator, Net Income............................ $135,866 $152,227 $102,350
Denominator, Common Shares Outstanding (000's)... 85,094 87,155 87,687
-------- -------- --------
Basic EPS per share.............................. $ 1.60 $ 1.75 $ 1.17
======== ======== ========
DILUTED EPS COMPUTATION
Numerator, Net Income............................ $135,866 $152,227 $102,350
Denominator, Common Shares Outstanding (000's)... 85,094 87,155 87,687
Potential Common Shares:
Stock Options (000's)......................... 465 406 411
-------- -------- --------
Total (000's)................................. 85,559 87,561 88,098
-------- -------- --------
Diluted EPS Per Share............................ $ 1.59 $ 1.74 $ 1.16
======== ======== ========
</TABLE>
Weighted average stock options (000's) in 1997, 1996 and 1995 that were not
included in the computation of diluted shares since they had an anti-dilutive
effect were 446 options, 456 options and 436 options, respectively.
NOTE 9 -- INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
United States:
Federal(current)................................. $ 4,666 $ 2,393 $ 2,935
State (current).................................. 1,435 (2,014) 4,767
Federal (deferred)............................... (47,550)
-------- -------- --------
(41,449) 379 7,702
-------- -------- --------
Foreign:
Current.......................................... 190,875 258,021 162,851
Deferred......................................... (15,990) (31,588) (19,576)
-------- -------- --------
174,885 226,433 143,275
-------- -------- --------
$133,436 $226,812 $150,977
======== ======== ========
</TABLE>
A deferred tax liability or asset is recorded for future tax consequences
arising from differences between the financial accounting and tax basis of the
assets and liabilities of the Company. A valuation allowance with reserves
recorded as necessary for any tax benefit not expected to be realized, is
required of deferred tax assets. Deferred tax liabilities or assets are adjusted
for changes in income tax laws or rates when enacted. Deferred tax expense or
benefit is derived from changes in deferred tax liabilities or assets. A current
tax expense or benefit is recognized for the estimated taxes payable or
refundable on tax returns for the current year.
Under the U.S. corporate alternative minimum tax ("AMT"), the Company's
U.S. tax liability is the greater of its regular U.S. federal income tax or the
AMT. To the extent that the Company's AMT liability exceeds its otherwise
determined regular U.S. federal income tax liability, an AMT credit will be
generated and this credit may be applied against future regular federal tax
liabilities. Since the Company's AMT liability has exceeded its otherwise
determined regular U.S. federal income tax liability, the Company has
accumulated an AMT credit of approximately $24 million which may be applied
against future regular federal tax
49
<PAGE> 50
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
liabilities. In addition, the Company has approximately $117 million (pre-tax)
of Net Operating Loss ("NOL") carryforwards from its U.S. exploration and
production operations which could be applied against future U.S. federal taxable
income. These NOLs must be utilized prior to their expiration, which is between
2002 and 2006.
As a result of reserve engineering analysis and subsequent development
plans for the Company's reserves in the Alpine field in Alaska as well as
expectations for its U.S. petrochemical business, the Company now expects to
utilize the AMT credit and a portion of the NOL carryforwards. In 1997 the
Company adjusted its deferred tax valuation allowance and subsequently recorded
$43 million of net income, representing the $24 million AMT credit and $19
million (after-tax) of NOL carryforwards. Changes in the Company's actual or
anticipated income subject to U.S. taxes, changes in U.S. tax laws or changes in
U.S. tax rates may give rise to adjustments to the Company's deferred tax assets
or liabilities, including the valuation allowance, in the future.
In the third quarter of 1997, the British government enacted changes in the
U.K. corporate tax laws which affect the Company's U.K. operations. The ACT
credit on dividends paid by U.K. companies has been substantially reduced and
the U.K. corporate tax rate was lowered from 33% to 31%. The reduction in the
ACT credit will be effective for dividends paid on or after April 6, 1999 while
the lowering of the corporate tax rate was effective April 1, 1997. In the third
quarter of 1997, the Company recorded a one-time, non-cash charge to deferred
tax expense of approximately $14 million, primarily related to the reduction of
the ACT credit on future dividends.
The principal items accounting for the difference in taxes on income
computed at the United States statutory rate and as recorded are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Computed tax at 35% of pretax income............... $ 94,256 $132,664 $ 88,664
Taxes in excess of the U.S. tax rate on foreign
earnings......................................... 77,038 77,613 56,353
AMT................................................ 4,666 2,393 2,935
Domestic operating losses generating no tax
benefit.......................................... 3,591 16,156
NOL Benefit........................................ (19,100)
AMT credit carryforward............................ (28,450)
All other items, net............................... 1,435 (2,014) 3,025
-------- -------- --------
$133,436 $226,812 $150,977
======== ======== ========
</TABLE>
50
<PAGE> 51
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
Deferred tax liabilities (assets) are comprised of the effects of temporary
differences as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Gross deferred tax liabilities:
Property differences pertaining to depreciation and other
expenditures........................................... $439,539 $457,112
Gross deferred tax assets:
NOL carryforwards......................................... (41,059) (40,128)
AMT credit................................................ (28,450) (23,854)
U.K. Corporation Tax effect of deferred Petroleum Revenue
Tax.................................................... (26,726) (30,439)
Dismantlement and removal provision....................... (43,384) (35,139)
-------- --------
Total before valuation allowance.................. $299,920 $327,552
Less: valuation allowance................................... 21,959 63,982
-------- --------
Total -- net...................................... $321,879 $391,534
======== ========
</TABLE>
NOTE 10 -- PENSION BENEFITS
The Union Texas Petroleum Salaried Employees' Pension Plan (the "Pension
Plan") covers substantially all employees. Plan benefits are generally based on
years of service and an employee's compensation levels during the last years of
employment. The Company's funding policy is to contribute annually an amount at
least equal to the minimum funding requirement of the Employee Retirement Income
Security Act of 1974.
The Union Texas Petroleum Supplemental Retirement Plans ("Supplemental
Retirement Plans") cover certain employees whose pension benefits were affected
by changes in the Internal Revenue Code of 1986, as amended, and certain other
benefit limitations of the Internal Revenue Code. The supplemental plans are
unfunded.
51
<PAGE> 52
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
The Pension Plan has assets in excess of the projected benefit obligation.
The assets of this plan are held by trustees and are invested in common stock,
fixed rate and real estate investments. The following table sets forth the
plans' funded status at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
SUPPLEMENTAL
PENSION PLAN RETIREMENT PLANS
------------------- -----------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits........................... $117,666 $114,078 $ 4,917 $ 4,273
Nonvested benefits........................ 6,206 4,692 318 246
-------- -------- ------- -------
Total accumulated benefit
obligation...................... 123,872 118,770 5,235 4,519
Amounts related to projected pay
increases.............................. 10,516 9,584 2,999 2,254
-------- -------- ------- -------
Total projected benefit
obligation...................... 134,388 128,354 8,234 6,773
Net assets available for plan benefits held
by trustees............................... 154,395 136,623
-------- -------- ------- -------
Net assets over (under) projected benefit
obligation................................ 20,007 8,269 (8,234) (6,773)
Unrecognized net obligation at the date of
initial application of FAS 87 (1/1/86).... 931 1,241
Unrecognized prior service cost............. 2,504 2,670 512 917
Adjustment required to recognize minimum
liability................................. (1,130) (1,574)
Unrecognized net (gain) loss................ (19,725) (6,682) 3,617 2,911
-------- -------- ------- -------
Prepaid pension cost (pension
liability)............................. $ 3,717 $ 5,498 $(5,235) $(4,519)
======== ======== ======= =======
</TABLE>
Net periodic pension cost for 1997, 1996 and 1995 included the following
components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the period..... $ 2,824 $ 2,917 $ 2,310
Interest cost on projected benefit obligation...... 9,752 10,015 10,469
Return on plan assets.............................. (27,850) (19,113) (30,625)
Net amortization and deferral...................... 18,663 9,635 22,560
-------- -------- --------
Net periodic pension cost before effect of
settlement loss, curtailment loss and termination
benefits......................................... 3,389 3,454 4,714
Settlement loss (gain)............................. 458 (822)
Curtailment loss................................... 359
Termination benefits............................... 176 2,586
-------- -------- --------
Net periodic pension cost.......................... $ 4,023 $ 5,577 $ 4,714
======== ======== ========
</TABLE>
The 1996 settlement gain, curtailment loss and the termination benefits
resulted from a 1996 voluntary retirement program. In 1996, the Company offered
a voluntary retirement program for 77 of its 1,100 employees who met certain
criteria and were either nearing retirement eligibility or were already
eligible, providing such employees the special one-time opportunity to retire
with enhanced benefits. A total of 47 employees elected to participate in the
program.
The assumed average rate of return on plan assets was 8% in 1997, 1996 and
1995 for the plans. Measurement of the projected benefit obligation was based on
an assumed discount rate of 7% and 7% in 1997,
52
<PAGE> 53
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
7.25% and 7% in 1996 and 7.25% and 7% in 1995 for normal and lump sum eligible
participants, respectively, for the Pension and Supplemental Retirement Plans
and an assumed long-term rate of compensation increase of 5%, 5% and 4.5% for
the Pension and Supplemental Retirement Plans in 1997, 1996 and 1995,
respectively.
NOTE 11 -- OTHER POSTRETIREMENT BENEFITS
The Company currently provides postretirement benefits, principally health
care and life insurance benefits, for employees. Under the Company's current
policy, substantially all of the Company's employees may become eligible for
those benefits if they reach normal retirement age with ten years of service
while working for the Company. These benefits are unfunded.
The following table sets forth the plan's status at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees' benefits........................................ $ 32,500 $ 33,501
Other fully eligible participants' benefits............... 3,023 3,465
Other active plan participants' benefits.................. 6,444 6,405
-------- --------
Accumulated postretirement benefit obligation.......... (41,967) (43,371)
Unrecognized amounts:
Prior service cost........................................ (3,936) (7,831)
Net loss.................................................. 11,061 13,692
-------- --------
Accrued obligation.......................................... $(34,842) $(37,510)
======== ========
</TABLE>
Net postretirement benefit cost for 1997, 1996 and 1995 included the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned during the period........ $ 579 $ 603 $ 503
Interest cost on projected benefit obligation......... 2,894 2,901 3,117
Net amortization...................................... (3,276) (3,094) (3,136)
------- ------- -------
Net postretirement benefit cost....................... $ 197 $ 410 $ 484
======= ======= =======
</TABLE>
Measurement of the accumulated postretirement benefit obligation was based
on an assumed discount rate of 7% for 1997, 7.25% for 1996 and 7.25% for 1995.
For measurement purposes, a 10.5%, 11.25% and 12% annual rate of increase in the
per capita cost of covered health care benefits for those age 65 and older were
assumed for 1997, 1996 and 1995, respectively; the rate was assumed to decrease
linearly to 6% for 2003 and after. The health care cost trend rate assumption
has a significant effect on the amounts reported. Increasing the assumed health
care cost trend rates by 1% in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1997 and 1996, by $1,808
and $1,898, respectively. Additionally, it would increase the aggregate of the
service and interest cost components of net periodic postretirement benefit cost
for the years ended December 31, 1997, 1996 and 1995 by $192, $201 and $216,
respectively.
NOTE 12 -- STOCK OPTIONS
The Company has four stock-based compensation plans, which are described
below. The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its plans and adopted the footnote
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation expense has been recognized for its
fixed stock option plans other than options granted with attached stock
appreciation rights, which may, at the employees' option be settled in cash
53
<PAGE> 54
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
or the issuance of stock. Had compensation cost for the Company's stock based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro-
forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net income
As Reported........................... $135,866 $152,227 $102,350
Pro Forma............................. $132,550 $151,188 $102,350*
Basic earnings per share
As Reported........................... $ 1.60 $ 1.75 $ 1.17
Pro Forma............................. $ 1.56 $ 1.73 $ 1.17*
Diluted earnings per share
As Reported........................... $ 1.59 $ 1.74 $ 1.16
Pro Forma............................. $ 1.55 $ 1.73 $ 1.16*
</TABLE>
- ---------------
* No impact on 1995 net income or earnings per share since no stock options
granted after 1994 vested during 1995.
The Company has four fixed stock option plans. Under the terms of the 1994
Incentive Plan, the Company has authorized the issuance of options to employees
and certain members of the board of directors to purchase up to 4 million shares
of common stock. Options are exercisable for a maximum period of ten years at an
exercise price of not less than the fair market value of the underlying common
stock at the time of the grant. The options granted to employees vest at 25% per
annum. A total of 1,613,200 options were granted in October 1997, at $23.03125
per share to all U.S.-based employees. Certain officers have been granted
nonqualified options and incentive stock options with appreciation rights. At
December 31, 1997, options outstanding with respect to 1,381,100 shares of
common stock have appreciation rights attached. Following the adoption of the
1994 Incentive Plan during 1995, all further stock option grants will be made
under the 1994 Incentive Plan only. In 1997, 5,000 options at $18.4375, 17,000
options at $19.75 and 5,000 options at $20.6875 were granted to certain
directors and these options are 100% vested.
Under the terms of the 1992 Stock Option Plan, the Company authorized the
issuance of options to employees to purchase up to 4 million shares of common
stock. Options are exercisable for a maximum period of ten years at an exercise
price of not less than the fair market value of the underlying common stock at
the time of the grant. Options granted prior to 1994 vest at 20% per annum.
Options granted in 1994 vest at 25% per annum. At December 31, 1997, options
outstanding with respect to 547,800 shares of common stock have appreciation
rights attached.
Under the terms of the 1985 Stock Option Plan (the "1985 Plan"), the
Company authorized the issuance of options to officers and key employees to
purchase up to 4,466,667 shares of common stock. Options are exercisable for a
maximum period of ten years at an exercise price of not less than the fair
market value of the underlying common stock at the time of the grant. Certain
officers have been granted options with appreciation rights. All options granted
are fully vested. At December 31, 1997, options outstanding with respect to
221,273 shares of common stock have appreciation rights attached.
Under the terms of the 1987 Stock Option Plan, the Company authorized the
issuance of options to purchase up to 1,333,333 shares of common stock to
certain employees not covered under the 1985 Plan. Options are exercisable for a
maximum period of ten years at an exercise price of not less than the fair
market value of the underlying common stock at the time of the grant. All
options granted are fully vested.
54
<PAGE> 55
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995; dividend yield of 1.03%,
expected volatility of 25.45%, 25.32% and 25.32%, risk-free interest rates of
6.00%, 6.36% and 5.87%, and expected lives of 5.5, 6 and 6 years, respectively.
A summary of the status of the Company's four fixed stock option plans as
of December 31, 1997, 1996 and 1995 and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year......................... 5,088,617 $18.89 4,172,595 $18.08 3,535,396 $17.97
Granted........................ 1,613,200 23.03 1,252,300 21.06 896,200 18.06
Exercised...................... 485,389 17.09 260,628 16.17 164,274 14.97
Canceled....................... 80,655 20.01 75,650 19.34 94,727 19.25
---------- ---------- ----------
Outstanding at end of year..... 6,135,773 20.11 5,088,617 18.89 4,172,595 18.08
========== ========== ==========
Options Exercisable at
year-end..................... 2,878,446 2,319,023 1,787,941
Weighted-average fair value of
options granted during the
year......................... $ 7.46 $ 7.43 $ 6.06
</TABLE>
The following table summarizes information about the four fixed stock
option plans at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
- ----------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$12.25-16.125 455,428 1.9 years $14.29 455,428 $14.29
$18.0625-23.03125 5,680,345 7.9 20.58 2,423,018 19.31
--------- ---------
$12.25-23.03125 6,135,773 7.5 20.11 2,878,446 18.52
========= =========
</TABLE>
NOTE 13 -- MAJOR CUSTOMERS
During 1997, the Company's U.K. operations had sales to Texaco Limited, in
the amount of $105,705 or 12% of the Company's total sales and operating
revenues. During 1996, the Company's U.K. operations had sales to Elf Trading,
in the amount of $120,805 or 12%, of total sales and operating revenues. During
1995, the Company's U.K. operations had sales to B.P. Oil International Limited
and Elf Trading in the amount of $107,891 and $109,067, 13% and 13%,
respectively, of total sales and operating revenues.
NOTE 14 -- SHAREHOLDERS EQUITY
Preferred Stock
The Company is authorized to issue up to 15,000,000 shares of preferred
stock. The Board of Directors of the Company without further approval of the
shareholders, can authorize the issuance, at any time or from time to time, of
one or more series of preferred stock and determine the number of shares in each
series and the designations, powers, rights, preferences and any qualifications,
limitations and restrictions of each series. Among the specific matters which
may be determined, if any, by the Board of Directors are: dividend rights,
conversion or exchange rights, voting rights, rights and terms of redemption
(including sinking fund provisions) and rights upon liquidation or distribution
of the assets of the Company.
55
<PAGE> 56
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
Stockholder Rights Plan
In September 1997, the Company adopted a rights agreement (the "Rights
Agreement") whereby a dividend of one Common Stock Purchase Right (a "Right")
was paid for each outstanding share of the Company's Common Stock. The Rights
will be exercisable only if a person acquires beneficial ownership of 15 percent
or more of the Company's Common Stock (an "Acquiring Person"), or commences a
tender offer which would result in beneficial ownership of 15 percent or more of
such stock. When they become exercisable, each Right entitles the registered
holder to purchase from the Company one-half of one share of Common Stock at a
price of $90.00 per full share of Common Stock, subject to adjustment under
certain circumstances.
Upon the occurrence of certain events specified in the Rights Agreement,
each holder of a Right (other than an Acquiring Person) will have the right to
purchase, at the Right's then current exercise price, shares of the Company's
Common Stock having a value of twice the Right's exercise price. In addition,
if, after a person becomes an Acquiring Person, the Company is involved in a
merger or other business combination transactions with another person in which
the Company is not the surviving corporation, or under certain other
circumstances, each Right will entitle its holder to purchase, at the Right's
then current exercise price, shares of common stock of the other person having a
value of twice the Right's exercise price.
Unless redeemed by the Company earlier, the Rights will expire on September
30, 2007. The Company will generally be entitled to redeem the Rights in whole,
but not in part, at $0.001 per Right, subject to adjustment. No Rights were
exercisable under the Rights Agreement at December 31, 1997.
The terms of the Rights generally may be amended by the Company without the
approval of the holders of the Rights prior to the public announcement by the
Company or an Acquiring Person that a person has become an Acquiring Person.
Before such announcement, the terms may be amended only to (i) cure any
ambiguity; (ii) correct or supplement any provision which may be defective or
inconsistent with other provisions; or (iii) change or supplement the provisions
in any manner which the Company deems necessary or desirable, so long as such
change does not adversely affect the interest of the holders of the Rights.
56
<PAGE> 57
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
NOTE 15 -- SEGMENT FINANCIAL DATA
<TABLE>
<CAPTION>
EXPLORATION AND PRODUCTION
----------------------------------------------------------------
UNITED OTHER PETRO-
STATES UNITED INTER- CHEMICALS
(ALASKA) KINGDOM INDONESIA VENEZUELA PAKISTAN NATIONAL (a) OTHER(a) TOTAL
-------- ------- --------- --------- -------- -------- --------- -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997
Sales and operating revenues... $ 367 $287 $66 $188 $ 1 $ 909
====== ==== === ==== ==== ======
Operating profit (loss)........ $(3) $ 126 $192 $24 $(88) $ 32 $ (4) $ 279
Interest income................ 2 1 3
General and administrative
expenses..................... (27) (27)
Interest expense............... (1) (1) (5) (7)
Net Income (loss) of equity
investees.................... 24 (3) 21
--- ------ ---- --- ---- ---- ---- ------
Income (loss) before income
taxes........................ (3) 127 217 23 (88) 32 (39) 269
Income taxes (benefit)......... 59 111 4 12 (53) 133
--- ------ ---- --- ---- ---- ---- ------
Net income (loss).............. $(3) $ 68 $106 $19 $(88) $ 20 $ 14 $ 136
=== ====== ==== === ==== ==== ==== ======
Identifiable assets............ $38 $1,156 $415 $126 $67 $ 43 $134 $ 43 $2,022
Capital additions.............. 15 103 31 124 11 32 29 5 350
Depreciation, depletion and
amortization................. 1 150 38 11 7 7 2 216
1996
Sales and operating revenues... $ 406 $341 $66 $193 $ 2 $1,008
====== ==== === ==== ==== ======
Operating profit (loss)........ $(8) $ 163 $233 $39 $(33) $ 24 $(15) $ 403
Interest income................ 1 1 2
General and administrative
expenses..................... (27) (27)
Interest expense............... (4) (1) (20) (25)
Net income of equity
investee..................... 26 26
--- ------ ---- --- ---- ---- ---- ------
Income (loss) before income
taxes........................ (8) 160 260 38 (33) 24 (62) 379
Income taxes (benefit)......... 75 139 11 9 (7) 227
--- ------ ---- --- ---- ---- ---- ------
Net income (loss).............. $(8) $ 85 $121 $27 $(33) $ 15 $(55) $ 152
=== ====== ==== === ==== ==== ==== ======
Identifiable assets............ $23 $1,244 $444 $60 $ 15 $116 $ 40 $1,942
Capital additions.............. 11 119 23 15 7 8 3 186
Depreciation, depletion and
amortization................. 1 156 39 7 1 6 2 212
1995
Sales and operating revenues... $ 323 $276 $51 $ 1 $200 $ 1 $ 852
====== ==== === ==== ==== ==== ======
Operating profit (loss)........ $(6) $ 84 $178 $19 $(49) $ 62 $ (5) $ 283
Interest income................ 2 1 1 4
General and administrative
expenses..................... (26) (26)
Interest expense............... (6) (1) (22) (29)
Net income of equity
investee..................... 21 21
--- ------ ---- --- ---- ---- ---- ------
Income (loss) before income
taxes........................ (6) 80 200 18 (49) 62 (52) 253
Income taxes (benefit)......... 34 105 4 24 (16) 151
--- ------ ---- --- ---- ---- ---- ------
Net income (loss).............. $(6) $ 46 $ 95 $14 $(49) $ 38 $(36) $ 102
=== ====== ==== === ==== ==== ==== ======
Identifiable assets............ $13 $1,168 $459 $46 $ 9 $111 $ 31 $1,837
Capital additions.............. 6 353 30 10 2 7 1 409
Depreciation, depletion and
amortization................. 139 35 7 4 5 2 192
</TABLE>
- ---------------
(a) Petrochemical operations and Other represent United States activities.
NOTE 16 -- COMMITMENTS
The Company has entered into various commitments and operating agreements
related to the development of and production from certain proved oil and gas
properties. Also during the normal course of business, the Company has issued
various letters of credit, bank guarantees and performance bonds, which at
December 31, 1997, totaled $8 million. At December 31, 1997, the Company had
open foreign exchange contracts with a net value of 7 million pounds sterling.
These contracts hedge economic exposures, based on the Company's assessment of
its net exposure to changes in foreign currency rates. It is management's belief
57
<PAGE> 58
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
that such commitments and guarantees will be met without material adverse effect
on the Company's financial position.
The amounts of operating lease obligations due during the five years 1998
through 2002 are $8,283, $7,788, $5,705, $1,065 and $1,093, respectively.
Rental expense for the years 1997, 1996 and 1995 was $9,810, $8,783, and
$9,379, respectively.
NOTE 17 -- CONTINGENCIES
The Company and its subsidiaries and related companies are named defendants
in a number of lawsuits and named parties in numerous governmental proceedings
arising in the ordinary course of business.
While the outcome of such contingencies, lawsuits or other proceedings
against the Company cannot be predicted with certainty, management expects that
such liability, to the extent not provided for through insurance or otherwise,
will not have a material adverse effect on the financial statements of the
Company.
NOTE 18 -- SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
QUARTER ENDED QUARTER ENDED
---------------------------------------------------- ------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 YEAR MAR. 31 JUNE 30 SEPT. 30
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales and operating
revenues................. $282,021 $211,686 $182,843 $232,841 $909,391 $258,178 $223,192 $227,284
Gross profit............... 144,800 87,336 71,750 96,017 399,903 126,518 96,052 100,659
Net income (loss).......... 63,770 25,349 48,047 (1,300) 135,866 47,561 30,837 33,521
Per share of common stock:
Net earnings (basic)..... .74 .30 .57 (.02) 1.60 .54 .35 .39
Net earnings (diluted)... .74 .30 .56 (.02) 1.59 .54 .35 .38
Dividends................ .05 .05 .05 .05 .20 .05 .05 .05
Market price:
High..................... 23 7/8 21 3/8 24 9/16 24 1/2 24 9/16 20 1/4 20 1/4 21 3/4
Low...................... 17 15/16 17 1/4 19 7/8 20 17 1/4 17 5/8 18 18 5/8
<CAPTION>
1996
QUARTER ENDED
---------------------
DEC. 31 YEAR
-------- ----------
<S> <C> <C>
Net sales and operating
revenues................. $299,822 $1,008,476
Gross profit............... 144,915 468,144
Net income (loss).......... 40,308 152,227
Per share of common stock:
Net earnings (basic)..... .47 1.75
Net earnings (diluted)... .46 1.74
Dividends................ .05 .20
Market price:
High..................... 23 23
Low...................... 20 5/8 17 5/8
</TABLE>
Source of Market Prices: New York Stock Exchange Composite Transactions Tape
NOTE 19 -- SUPPLEMENTARY OIL AND GAS INFORMATION
Reserve estimation -- (Unaudited)
Oil and gas reserves cannot be measured exactly. Reserve estimates are
based on many factors related to reservoir performance which require evaluation
by the engineers interpreting the available data, as well as price, costs and
other economic factors. The reliability of these estimates at any point in time
depends on both the quality and quantity of the technical and economic data, the
production performance of the reservoirs as well as extensive engineering
judgement. Consequently, reserve estimates are subject to revision as additional
data becomes available during the producing life of a reservoir. When a
commercial reservoir is discovered, proved reserves are initially determined
based on only limited data from the first well or wells. Further drilling may
better define the extent of the reservoir and additional production performance,
well tests and engineering studies will likely improve the reliability of the
estimate.
Reserves are considered proved if economic producibility is supported by
either actual production or conclusive formation tests. Proved developed
reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Proved undeveloped reserves
are reserves that are expected to be recovered from new wells on undrilled
acreage or from existing wells where a relatively significant expenditure is
required to permit production. These estimates do not include reserves
58
<PAGE> 59
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
which may be found by extension of proved areas or reserves recoverable by
secondary or tertiary recovery methods unless these methods are in operation and
showing successful results.
In 1997 the Company led a successful bid for Venezuela's Boqueron area
under Venezuela's Third Operating Agreement Round, adding 40 million barrels of
oil to its proved reserves at year end 1997. Information regarding Venezuelan
reserves relates to the Company's net interest in an operating service contract
for the Boqueron area between the Company, the other contractor and a subsidiary
of the national oil company, PDVSA. The Government of Venezuela retains full
ownership of all hydrocarbons. The Company will receive a service fee for each
barrel of crude oil produced from the Boqueron area, which consists of the
following two components: (i) a set fee for the baseline production and (ii) a
sliding incentive fee for the incremental production, as well as cost recovery
for field and other capital and operating costs. The reserves table does not
include the proved reserves associated with the DZO unit, which were recorded in
February 1998.
In 1996, the Company and co-venturers ARCO Alaska, Inc. (operator) and
Anadarko Petroleum Corp. announced plans to develop the Alpine oil field in
Alaska. In 1996, the Company recorded 32 million net barrels in proved
undeveloped oil reserves from the Alpine field which is scheduled to begin
production in the first part of 2000.
In 1995, the Company purchased an interest in the Alba field in the U.K.
North Sea, adding at July 1, 1995, 45 million barrels of oil equivalent ("boe").
In 1994, the Company purchased an interest in the undeveloped Britannia
field in the U.K. North Sea, adding at year end 1994, 38 million boe to its
proved reserves.
Information presented for the Company's operations in Indonesia relates to
a production sharing contract between a joint venture group in which the Company
is a member and Pertamina. Debt service relating to the Indonesian facility
which liquefies natural gas supplied by the joint venture and other production
sharing contractors is accounted for by the Company as a cost of production and
operation. The debt obligation is non-recourse to the Company. Such debt service
is deducted in estimating future net revenues to be distributed among Pertamina
and the production sharing contractors including the joint venture and the
Company's interest therein. The joint venture has no ownership interest in the
oil and gas reserves but does have the right to share revenues and/or production
and is entitled to recover most field and other operating costs and capital
depreciation. Indonesian reserves associated with the Unimar partnership are
shown under the caption "Non-Consolidated Interests." The reserve estimates,
which are based on year-end prices, are subject to revision as product prices
and costs fluctuate due to the cost recovery feature under the production
sharing contract. The impact on reserves is inversely related to price changes
and directly related to changes in field operating and capital costs. In
addition, reserve estimates are subject to revision due to the effect that price
fluctuations generally have on estimates of recoverable reserves.
"Other International" represents an interest in Egypt, which was sold in
December 1996.
59
<PAGE> 60
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
The Company's net quantities of proved developed and undeveloped reserves
of oil and natural gas, by geographic areas and changes therein, were as
follows:
ESTIMATED QUANTITIES OF NET PROVED CRUDE OIL AND NATURAL GAS LIQUIDS RESERVES
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARIES
----------------------------------------------------------------------------------
UNITED
STATES UNITED OTHER
(ALASKA) KINGDOM INDONESIA VENEZUELA(a) PAKISTAN INTERNATIONAL TOTAL
-------- ------- --------- ------------ -------- ------------- -------
(THOUSANDS OF BARRELS)
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Net proved reserves
-- beginning of year.... 32,005 90,514 16,949 0 6,746 0 146,214
-- revisions of previous
estimates............. 2,117 4,412 1,510 8,039
-- extensions,
discoveries and other
additions............. 3 3
-- purchase of minerals
in place.............. 40,000 40,000
-- production........... (15,976) (2,113) (2,413) (20,502)
------ ------- ------ ------ ------ --- -------
Net proved reserves
-- end of year.......... 32,005 76,655 19,248 40,000 5,846 0 173,754
====== ======= ====== ====== ====== === =======
Net proved developed
reserves
-- beginning of year.... 51,265 12,071 0 4,839 0 68,175
-- end of year.......... 40,835 17,473 40,000 4,206 0 102,514
YEAR ENDED DECEMBER 31, 1996
Net proved reserves
-- beginning of year.... 105,714 18,942 4,383 19 129,058
-- revisions of previous
estimates............. (546) 42 3,589 (4) 3,081
-- extensions,
discoveries and other
additions............. 32,005 1,498 1,053 34,556
-- production........... (16,152) (2,035) (2,279) (15) (20,481)
------ ------- ------ ------ --- -------
Net proved reserves
-- end of year.......... 32,005 90,514 16,949 6,746 0 146,214
====== ======= ====== ====== === =======
Net proved developed
reserves
-- beginning of year.... 67,147 17,041 3,215 19 87,422
-- end of year.......... 51,265 12,071 4,839 0 68,175
YEAR ENDED DECEMBER 31, 1995
Net proved reserves
-- beginning of year.... 73,862 19,142 3,842 32 96,878
-- revisions of previous
estimates............. 1,995 1,894 1,275 9 5,173
-- extensions,
discoveries and other
additions............. 1,261 1,261
-- purchase of minerals
in place.............. 45,012 45,012
-- production........... (15,155) (2,094) (1,995) (22) (19,266)
------- ------ ------ --- -------
Net proved reserves
-- end of year.......... 105,714 18,942 4,383 19 129,058
======= ====== ====== === =======
Net proved developed
reserves
-- beginning of year.... 56,773 17,247 2,714 32 76,766
-- end of year.......... 67,147 17,041 3,215 19 87,422
<CAPTION>
NON-
CONSOLIDATED TOTAL
INTERESTS WORLDWIDE
------------ ---------
(THOUSANDS OF BARRELS)
<S> <C> <C>
YEAR ENDED DECEMBER 31, 19
Net proved reserves
-- beginning of year.... 6,986 153,200
-- revisions of previous
estimates............. 1,778 9,817
-- extensions,
discoveries and other
additions............. 3
-- purchase of minerals
in place.............. 40,000
-- production........... (699) (21,201)
----- -------
Net proved reserves
-- end of year.......... 8,065 181,819
===== =======
Net proved developed
reserves
-- beginning of year.... 4,944 73,119
-- end of year.......... 7,316 109,830
YEAR ENDED DECEMBER 31, 19
Net proved reserves
-- beginning of year.... 7,711 136,769
-- revisions of previous
estimates............. (52) 3,029
-- extensions,
discoveries and other
additions............. 34,556
-- production........... (673) (21,154)
----- -------
Net proved reserves
-- end of year.......... 6,986 153,200
===== =======
Net proved developed
reserves
-- beginning of year.... 6,926 94,348
-- end of year.......... 4,944 73,119
YEAR ENDED DECEMBER 31, 19
Net proved reserves
-- beginning of year.... 7,571 104,449
-- revisions of previous
estimates............. 832 6,005
-- extensions,
discoveries and other
additions............. 1,261
-- purchase of minerals
in place.............. 45,012
-- production........... (692) (19,958)
----- -------
Net proved reserves
-- end of year.......... 7,711 136,769
===== =======
Net proved developed
reserves
-- beginning of year.... 6,835 83,601
-- end of year.......... 6,926 94,348
</TABLE>
- ---------------
(a) The Company's Venezuelan reserves reflect the Company's net interest in an
operating service fee contract for the Boqueron area between the Company,
the other contractor and a subsidiary of PDVSA. The Company's February 1998
acquisition of an interest in the operating service contract for the DZO
unit with net proved reserves of 114 million barrels, is not included.
60
<PAGE> 61
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
ESTIMATED QUANTITIES OF NET PROVED NATURAL GAS RESERVES
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARIES
-------------------------------------------- NON-
UNITED CONSOLIDATED TOTAL
KINGDOM INDONESIA PAKISTAN TOTAL INTERESTS WORLDWIDE
------- --------- -------- --------- ------------ ---------
(MILLIONS OF CUBIC FEET)
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Net proved reserves
-- beginning of year....................... 363,472 846,744 120,027 1,330,243 351,506 1,681,749
-- revisions of previous estimates......... 19,361 16,433 12,228 48,022 7,334 55,356
-- extensions, discoveries and other
additions............................... 986 986 986
-- production.............................. (10,641) (82,088) (13,347) (106,076) (27,171) (133,247)
------- ------- ------- --------- ------- ---------
Net proved reserves
-- end of year............................. 372,192 781,089 119,894 1,273,175 331,669 1,604,844
======= ======= ======= ========= ======= =========
Net proved developed reserves
-- beginning of year....................... 126,963 718,721 57,019 902,703 297,841 1,200,544
-- end of year............................. 124,843 670,415 75,107 870,365 284,535 1,154,900
YEAR ENDED DECEMBER 31, 1996
Net proved reserves
-- beginning of year....................... 344,132 898,374 121,422 1,363,928 365,079 1,729,007
-- revisions of previous estimates......... 4,407 44,909 10,846 60,162 18,352 78,514
-- extensions, discoveries and other
additions............................... 31,791 2,904 34,695 34,695
-- production.............................. (16,858) (96,539)(a) (15,145) (128,542) (31,925)(a) (160,467)
------- ------- ------- --------- ------- ---------
Net proved reserves
-- end of year............................. 363,472 846,744(a) 120,027 1,330,243 351,506(a) 1,681,749
======= ======= ======= ========= ======= =========
Net proved developed reserves
-- beginning of year....................... 139,413 758,942 58,642 956,997 307,102 1,264,009
-- end of year............................. 126,963 718,721 57,019 902,703 297,841 1,200,544
YEAR ENDED DECEMBER 31, 1995
Net proved reserves
-- beginning of year....................... 319,621 972,796 97,895 1,390,312 385,834 1,776,146
-- revisions of previous estimates......... 37,079 19,270 24,976 81,325 10,228 91,553
-- extensions, discoveries and other
additions............................... 14,952 14,952 14,952
-- production.............................. (12,568) (93,692)(a) (16,401) (122,661) (30,983)(a) (153,644)
------- ------- ------- --------- ------- ---------
Net proved reserves
-- end of year............................. 344,132 898,374(a) 121,422 1,363,928 365,079(a) 1,729,007
======= ======= ======= ========= ======= =========
Net proved developed reserves
-- beginning of year....................... 149,301 812,933 51,883 1,014,117 320,502 1,334,619
-- end of year............................. 139,413 758,942 58,642 956,997 307,102 1,264,099
</TABLE>
- ---------------
(a) Includes gas consumed in the operation of the LNG plant, which was
approximately 9 Bcf and 3 Bcf, 12 Bcf and 4 Bcf and 11 Bcf and 4 Bcf
attributable to the Company and its Unimar partnership, respectively, for
1997, 1996 and 1995; and gas sold to fertilizer plants and a refinery.
61
<PAGE> 62
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
Costs incurred and results of operations
Costs incurred in oil and gas property acquisition, exploration and
development activities whether expensed or capitalized were as follows:
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARIES
------------------------------------------------------------------------
UNITED OTHER NON-
STATES UNITED INTER- CONSOLIDATED TOTAL
(ALASKA) KINGDOM INDONESIA VENEZUELA PAKISTAN NATIONAL TOTAL INTERESTS WORLDWIDE
-------- ------- --------- --------- -------- -------- ----- ------------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property acquisition
(proved and unproved)
1997................... $ 5(a) $121(e) $21 $147 $147
1996................... 2 3 5 5
1995................... 1 $275 2 278 278
Exploration
1997................... $ 2 $ 8 $ 8 $23 $69 $110 $ 2 $112
1996................... 13(a) 6 7 11 28 65 65
1995................... 10 10 8 11 46 85 85
Development
1997................... $10(b) $102(c) $30(d) $ 3 $10 $ 2 $157 $10 $167
1996................... 3 118(c) 24 12 157 8 165
1995................... 78(c) 31(d) 6 115 10 125
</TABLE>
- ---------------
(a) Includes $1 million for capitalized interest in 1997 and 1996,
respectively.
(b) Includes $2 million for capitalized interest.
(c) Includes $32 million, $25 million and $22 million for capitalized interest
in 1997, 1996 and 1995, respectively.
(d) Includes $1 million for capitalized interest in 1997 and 1995,
respectively.
(e) Includes $4 million for capitalized interest.
62
<PAGE> 63
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
The aggregate amount of capitalized costs (including construction in
progress) relating to oil and gas producing activities and the aggregate amount
of the related accumulated depreciation, depletion and amortization ("DD&A")
including accumulated valuation allowances at December 31, were as follows:
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARIES
----------------------------------------------------------------
UNITED OTHER NON- TOTAL
STATES UNITED INTER- CONSOLIDATED WORLD-
(ALASKA) KINGDOM INDONESIA VENEZUELA PAKISTAN NATIONAL TOTAL INTERESTS WIDE
-------- ------- --------- --------- -------- -------- ------ ------------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Proved and unproved properties
Gross capital
1997................... $41 $2,182 $771 $124 $105 $43 $3,266 $549 $3,815
1996................... 37 2,129 742 94 12 3,014 535 3,549
1995................... 26 1,832 718 79 15 2,670 525 3,195
Accumulated DD&A
(including valuation
allowances)
1997................... 5 1,080 472 65 9 1,631 382 2,013
1996................... 14 959 436 54 2 1,465 360 1,825
1995................... 13 733 396 48 10 1,200 336 1,536
Proved properties
Gross capital
1997................... 39 2,174 762 124 96 3,195 549 3,744
1996................... 21 2,118 733 88 2,960 535 3,495
1995................... 1,822 710 75 4 2,611 525 3,136
Accumulated DD&A
1997................... 3 1,075 465 63 1,606 382 1,988
1996................... 956 428 52 1,436 360 1,796
1995................... 731 389 46 4 1,170 336 1,506
</TABLE>
63
<PAGE> 64
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
The results of operations for the Company's oil and gas producing
activities for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARIES
------------------------------------------------------------
UNITED OTHER NON-
STATES UNITED INTER- CONSOLIDATED TOTAL
(ALASKA) KINGDOM INDONESIA PAKISTAN NATIONAL TOTAL INTERESTS WORLDWIDE
-------- ------- --------- -------- -------- ----- ------------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Net sales......................... $367 $287 $66 $720 $109 $829
---- ---- --- ---- ---- ----
Production costs.................. 82 50 10 142 13 155
Exploration expenses.............. $ 2 8 7 21 $ 61 99 1 100
DD&A.............................. 148 38 11 197 21 218
Other Costs....................... 20 20 20
Valuation allowances.............. 1 2 7 10 10
--- ---- ---- --- ---- ---- ---- ----
Total costs and expenses.... 3 240 95 42 88 468 35 503
--- ---- ---- --- ---- ---- ---- ----
(3) 127 192 24 (88) 252 74 326
Income tax expense(a)............. 58 112 5 175 50 225
--- ---- ---- --- ---- ---- ---- ----
Results of operations(b).......... $(3) $ 69 $ 80 $19 $(88) $ 77 $ 24 $101
=== ==== ==== === ==== ==== ==== ====
YEAR ENDED DECEMBER 31, 1996
Net sales......................... $406 $341 $66 $813 $126 $939
---- ---- --- ---- ---- ----
Production costs.................. 82 60 12 154 12 166
Exploration expenses.............. $ 7 5 7 8 $ 25 52 52
DD&A.............................. 154 39 6 199 24 223
Other Costs....................... 7 7 7
Valuation allowances.............. 2 2 1 5 5
--- ---- ---- --- ---- ---- ---- ----
Total costs and expenses.... 9 243 106 26 33 417 36 453
--- ---- ---- --- ---- ---- ---- ----
(9) 163 235 40 (33) 396 90 486
Income tax expense(a)............. 74 141 11 226 64 290
--- ---- ---- --- ---- ---- ---- ----
Results of operations(b).......... $(9) $ 89 $ 94 $29 $(33) $170 $ 26 $196
=== ==== ==== === ==== ==== ==== ====
YEAR ENDED DECEMBER 31, 1995
Net sales......................... $323 $276 $51 $ 1 $651 $101 $752
---- ---- --- ---- ---- ---- ----
Production costs.................. 88 55 17 160 12 172
Exploration expenses.............. $ 6 10 8 7 46 77 77
DD&A.............................. 138 35 7 180 21 201
Valuation allowances.............. 1 4 5 5
--- ---- ---- --- ---- ---- ---- ----
Total costs and expenses.... 6 237 98 31 50 422 33 455
--- ---- ---- --- ---- ---- ---- ----
(6) 86 178 20 (49) 229 68 297
Income tax expense(a)............. 34 105 5 144 47 191
--- ---- ---- --- ---- ---- ---- ----
Results of operations(b).......... $(6) $ 52 $ 73 $15 $(49) $ 85 $ 21 $106
=== ==== ==== === ==== ==== ==== ====
</TABLE>
- ---------------
(a) Computed using statutory rates adjusted for permanent differences, tax
credits and allowances that are reflected in the income tax expense for the
respective years.
(b) Excludes overhead and financing costs.
64
<PAGE> 65
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
Standardized measure of discounted future net cash flows -- (Unaudited)
The standardized measure of discounted future net cash flows and changes
therein relating to proved oil and gas reserves for 1997, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARIES
---------------------------------------------------------------
UNITED NON- TOTAL
STATES UNITED CONSOLIDATED WORLD-
(ALASKA) KINGDOM INDONESIA VENEZUELA PAKISTAN TOTAL INTERESTS WIDE
-------- ------- --------- --------- -------- ------- ------------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Future cash inflows.................. $ 420 $2,911 $ 2,754 $ 298 $305 $ 6,688 $1,213 $ 7,901
Future production and development
costs.............................. (230) (1,120) (1,030) (141) (86) (2,607) (469) (3,076)
Future income tax expense............ (52) (520) (815) (19) (65) (1,471) (358) (1,829)
------- ------- ------- ----- ---- ------- ------ -------
Future net cash flows(a)............. 138 1,271 909 138 154 2,610 386 2,996
10% discount for estimated timing of
cash flows......................... 91 569 410 73 43 1,186 181 1,367
------- ------- ------- ----- ---- ------- ------ -------
Standardized measure of discounted
future net cash flows.............. $ 47 $ 702 $ 499 $ 65 $111 $ 1,424 $ 205 $ 1,629
======= ======= ======= ===== ==== ======= ====== =======
DECEMBER 31, 1996
Future cash inflows.................. $ 658 $3,825 $ 3,260 $370 $ 8,113 $1,436 $ 9,549
Future production and development
costs.............................. (240) (1,258) (1,066) (86) (2,650) (493) (3,143)
Future income tax expense............ (142) (804) (1,067) (94) (2,107) (470) (2,577)
------- ------- ------- ---- ------- ------ -------
Future net cash flows(a)............. 276 1,763 1,127 190 3,356 473 3,829
10% discount for estimated timing of
cash flows......................... (182) (785) (505) (54) (1,526) (223) (1,749)
------- ------- ------- ---- ------- ------ -------
Standardized measure of discounted
future net cash flows.............. $ 94 $ 978 $ 622 $136 $ 1,830 $ 250 $ 2,080
======= ======= ======= ==== ======= ====== =======
DECEMBER 31, 1995
Future cash inflows.................. $3,437 $ 2,861 $232 $ 6,530 $1,260 $ 7,790
Future production and development
costs.............................. (1,291) (1,093) (93) (2,477) (507) (2,984)
Future income tax expense............ (656) (867) (36) (1,559) (382) (1,941)
------- ------- ---- ------- ------ -------
Future net cash flows(a)............. 1,490 901 103 2,494 371 2,865
10% discount for estimated timing of
cash flows......................... (661) (403) (30) (1,094) (177) (1,271)
------- ------- ---- ------- ------ -------
Standardized measure of discounted
future net cash flows.............. $ 829 $ 498 $ 73 $ 1,400 $ 194 $ 1,594
======= ======= ==== ======= ====== =======
</TABLE>
- ---------------
(a) Future net cash flows were computed using year-end prices and costs and
statutory tax rates adjusted for permanent differences, tax credits and
allowances.
65
<PAGE> 66
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
Changes in the standardized measure of discounted future net cash flows for
the consolidated subsidiaries were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Beginning of year........................................ $1,830 $1,400 $1,065
Sales and transfers of oil and gas produced, net of
production costs....................................... (545) (643) (513)
Net changes in prices, development and production
costs.................................................. (805) 673 324
Extensions, discoveries and improved recovery, less
related costs.......................................... 1 200 20
Purchase of minerals in place............................ 73 287
Development costs incurred during the period............. 109 129 92
Revisions of previous quantity estimates................. 61 133 83
Increase in present value due to passage of one year..... 306 233 185
Net change in income taxes............................... 394 (295) (143)
------ ------ ------
End of year.............................................. $1,424 $1,830 $1,400
====== ====== ======
</TABLE>
The standardized measure data includes estimates of oil and gas reserve
volumes and forecasts of future production rates over the reserve lives.
Estimates of future production expenditures, including taxes and future
development costs, are based on management's best estimate of such costs
assuming a continuation of current economic and operating conditions. No
provision is included for depletion, depreciation and amortization of property
acquisition costs or indirect costs. The sales prices used in the calculation
are the year-end prices of crude oil, including condensate and natural gas
liquids, and natural gas which as of December 31, 1997, 1996 and 1995 were
$15.35, $23.48 and $18.53 per barrel of U.K. crude oil (Flotta) and $3.00,
$3.62, and $2.85 per Mcf (at the plant inlet) of Indonesian LNG, respectively.
Because of the estimated nature of the data presented, changes in price and cost
levels, as well as the timing of future development costs, may have a
significant impact on such data and cause such data not to be representative of
production or cash flows the Company may realize in the future.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
66
<PAGE> 67
PART III
For the information called for by Items 10, 11 and 13, as well as
additional information for Item 12, reference is made to the Company's
definitive proxy statement for its 1998 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1997, and portions of which are incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In July 1985, two limited partnerships (the "KKR Partnerships"), which are
affiliated with Kohlberg Kravis Roberts & Co. ("KKR"), purchased approximately
50% of the then outstanding common stock of the Company from AlliedSignal Inc.
("Allied"). In September 1987, the Company sold 18,000,000 shares of its common
stock in concurrent public offerings in the United States and outside the United
States. In November 1992, Allied sold, in a secondary public offering, its
33,333,334 shares of common stock, which represented approximately 39% of the
Company's then issued and outstanding shares of common stock. In May 1995, the
KKR Partnerships sold, in a secondary public offering, 11,500,000 shares of
their 33,333,334 shares of common stock, which represented approximately 13% of
the Company's then issued and outstanding shares of common stock. Each of these
secondary offerings was registered by the Company under the Securities Act of
1933, as amended (the "Securities Act") pursuant to the Company's agreement with
the KKR Partnerships described below. The Company did not receive any proceeds
from the secondary public offerings.
KKR Associates is a limited partnership of which Henry R. Kravis, George R.
Roberts, Michael W. Michelson, James H. Greene, Jr. and Edward A. Gilhuly,
directors of the Company, are five of the eleven general partners and Messrs.
Kravis and Roberts are also the members of the Executive Committee of KKR
Associates. KKR Associates is the sole general partner of each of the KKR
Partnerships, and possesses 100% of the voting power and investment power to the
shares owned by the KKR Partnerships. The KKR Partnerships are Petroleum
Associates, L.P. ("Petroleum Associates"), which owns of record approximately
25% of the Company's outstanding shares and KKR Partners II, L.P., which owns of
record less than 1% of the Company's shares. As a result, the KKR Partnerships
and their general partners may be able to exercise substantial influence over
the Company, through their representation with five of the twelve directors on
the Company's Board of Directors and by reason of their significant voting power
with respect to the election of directors and actions submitted to a vote of
stockholders.
The limited partnership agreement pursuant to which Petroleum Associates
was organized expired on December 31, 1997 in accordance with the terms of the
limited partnership agreement. The terminated Petroleum Associates partnership
continues to be in existence for a winding-up period after such date. The
limited partnership agreement provides that, in connection with the dissolution
and winding up of Petroleum Associates, KKR Associates has the sole discretion
regarding the timing (which may be one or more years after the expiration of the
partnership agreement) and the manner of the disposition of the common stock of
the Company owned by Petroleum Associates, including public or private sales of
such common stock, the distribution of such common stock to the limited partners
of Petroleum Associates or a combination of the foregoing. If shares of the
Company's common stock are distributed to the limited partners of Petroleum
Associates, each limited partner will thereafter have sole discretion with
respect to its common stock. In addition, pursuant to the limited partnership
agreement, Petroleum Associates will distribute to KKR Associates for its own
account, concurrently with any sales of shares owned by Petroleum Associates,
cash and/or shares of common stock that together have a fair market value equal
to approximately 20% of the profits realized with respect to the shares sold and
distributed. The KKR Partnerships and certain transferees of their shares are,
under certain circumstances, exempt from the 15% threshold of an Acquiring
Person under the Company's Rights Agreement. See Item 5 -- Market for
Registrant's Common Equity and Related Stockholder Matters.
67
<PAGE> 68
The Company has agreed that, upon request of the KKR Partnerships, the
Company will register under the Securities Act and applicable state securities
laws the sale of the Company's common stock owned by the KKR Partnerships as to
which registration has been requested. The Company's obligation is subject to
certain limitations relating to a minimum amount required for registration, the
timing of a registration and other similar matters. The Company is obligated to
pay any registration expenses incidental to such registration, excluding
underwriters' commissions and discounts.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)1 FINANCIAL STATEMENTS.
The following financial statements and the Report of Independent
Accountants are filed as a part of this report on the pages indicated:
Report of Independent Accountants -- page 38.
Consolidated Balance Sheet -- December 31, 1997 and 1996 -- page 39.
Consolidated Statement of Operations -- For the years ended December
31, 1997, 1996 and 1995 -- page 40.
Consolidated Statement of Cash Flows -- For the years ended December
31, 1997, 1996 and 1995 -- page 41.
Consolidated Statement of Stockholders' Equity -- For the years ended
December 31, 1997, 1996 and 1995 -- page 42.
Selected Quarterly Financial Data for the two years ended December 31,
1997 -- page 58.
Selected Financial Data for the five years ended December 31,
1997 -- page 30.
(a)2 EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Restated Certificate of Incorporation of Union Texas
Petroleum Holdings, Inc., as amended on May 10, 1995
(Filed under the identical exhibit number to the
Company's Form 8-K dated May 18, 1995 (Commission File
No. 1-9019) and incorporated herein by reference)
3.2# -- Bylaws of Union Texas Petroleum Holdings, Inc. as amended
December 19, 1997
3.3 -- Specimen of Certificate evidencing the Common Stock with
Rights attached (Filed as Exhibit 3.2 of the Company's
Form 10-Q for quarter ended September 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
4.1 -- Indenture for 8.25% Senior Notes due November 15, 1999,
dated as of November 15, 1992, between Union Texas
Petroleum Holdings, Inc., the Subsidiaries named therein
and State Street Bank and Trust Company (including form
of note) (Filed as Exhibit 10.1 to the Company's Form
10-Q for quarter ended March 31, 1994 (Commission File
No. 1-9019) and incorporated herein by reference)
</TABLE>
68
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.2 -- Indenture dated as of March 15, 1995, among Union Texas
Petroleum Holdings, Inc., the Subsidiaries named therein
and The First National Bank of Chicago, as trustee (the
"1995 Indenture") (Filed as Exhibit 10.1 to the Company's
Form 10-Q for quarter ended March 31, 1995 (Commission
File No. 1-9019) and incorporated herein by reference)
4.3 -- Specimen Form of 8 3/8% Senior Note due March 15, 2005,
issued by Union Texas Petroleum Holdings, Inc. pursuant
to the 1995 Indenture (Filed as Exhibit 10.2 to the
Company's Form 10-Q for quarter ended March 31, 1995
(Commission File No. 1-9019) and incorporated herein by
reference)
4.4 -- Specimen Form of 8 1/2% Senior Note due April 15, 2007,
issued by Union Texas Petroleum Holdings, Inc. pursuant
to the 1995 Indenture (Filed as Exhibit 10.3 to the
Company's Form 10-Q for quarter ended March 31, 1995
(Commission File No. 1-9019) and incorporated herein by
reference)
4.5 -- Supplement dated November 7, 1995 to Indenture dated as
of November 15, 1992 for 8.25% Senior Notes due 1999,
between Union Texas Petroleum Holdings, Inc., the
Subsidiaries named therein and State Street Bank and
Trust Company (Filed as Exhibit 4.1 to the Company's Form
8-K dated November 17, 1995 (Commission File No. 1-9019)
and incorporated herein by reference)
4.6 -- Supplement dated November 7, 1995 to the 1995 Indenture
between Union Texas Petroleum Holdings, Inc., the
Subsidiaries named therein and The First National Bank of
Chicago (Filed as Exhibit 4.2 to the Company's Form 8-K
dated November 17, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
4.7 -- Form of Fixed Rate Medium-Term Note issued by the Company
pursuant to the 1995 Indenture (Filed as Exhibit 4.4 to
the Company's Registration Statement No. 33-64049 and
incorporated herein by reference). The Company agrees to
furnish to the Commission upon request a copy of each
instrument with respect to issues of such notes of the
Company, the authorized principal amount of which does
not exceed 10% of the consolidated assets of the Company
and its subsidiaries
4.8 -- Rights Agreement dated as of September 12, 1997 between
the Company and First Chicago Trust Company of New York,
as Rights Agent, which includes as Exhibit A the Form of
Right Certificate and as Exhibit B the Summary of Rights
to Purchase Common Stock (Filed as Exhibit 1 to the
Company's Form 8-A Registration Statement filed September
15, 1997 (Commission File No. 1-9019) and as Exhibit 4.1
to the Company's 10-Q for quarter ended September 30,
1997 (Commission File No. 1-9019) and incorporated herein
by reference)
10.1 -- Tax Agreement, dated as of June 27, 1985, among Allied
Corporation and Union Texas Petroleum Holdings, Inc.
(Filed as Exhibit 10.6 to the Company's Registration
Statement No. 33-00312 and incorporated herein by
reference)
10.2+ -- Form of Subscription Agreement between Union Texas
Petroleum Holdings, Inc. and certain employees (Filed as
Exhibit 10.8 to the Company's Registration Statement No.
33-00312 and incorporated herein by reference)
10.3+ -- Form of Tagalong Agreement between Union Texas Petroleum
Holdings, Inc. and certain employees (Filed as Exhibit
10.9 to the Company's Registration Statement No. 33-00312
and incorporated herein by reference)
10.4+ -- Amended and Restated Union Texas Petroleum Salaried
Employees' Pension Plan, effective as of January 1, 1994
(Filed under the identical exhibit number to the
Company's 1993 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
</TABLE>
69
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.5+ -- Union Texas Petroleum Holdings, Inc. 1985 Stock Option
Plan, as amended (Filed as Exhibit 10.10 to Post
Effective Amendment No. 2 to the Company's Registration
Statement No. 33-12800 and incorporated herein by
reference)
10.6+ -- Amended and Restated Union Texas Petroleum Savings Plan
for Salaried Employees, effective as of January 1, 1993
(Filed under the identical exhibit number to the
Company's 1993 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.7+ -- Amended and Restated Supplemental Non-Qualified Savings
Plan for Executive Employees of Union Texas Petroleum
Holdings, Inc. and its Subsidiaries, effective as of
January 1, 1993 (Filed under the identical exhibit number
to the Company's 1993 Form 10-K (Commission File No.
1-9019) and incorporated herein by reference)
10.8+ -- Form of employment letter with executive officers (Filed
as Exhibit 10.18 to the Company's Registration Statement
No. 33-00312 and incorporated herein by reference) and
Exhibit A (Filed as Exhibit 10.10 to the Company's 1992
Form 10-K (Commission File No. 1-9019) and incorporated
herein by reference)
10.9 -- Joint Venture Agreement, dated as of August 8, 1968,
among Roy M. Huffington, Inc., Virginia International
Company, Austral Petroleum Gas Corporation, Golden Eagle
Indonesia Limited and Union Texas Far East Corporation,
as amended (the "Joint Venture Agreement") (Filed as
Exhibit 6.6 to the Registration Statement No. 2-58834 of
Alaska Interstate Company and incorporated herein by
reference)
10.10 -- Supply Agreement, dated as of April 14, 1981, for Badak
LNG Expansion Project among Perusahaan Pertambangan
Minyak Dan Gas Bumi Negara ("Pertamina") and the parties
to the Joint Venture Agreement (Filed as Exhibit 10.14 to
the Company's 1992 Form 10-K (Commission File No. 1-9019)
and incorporated herein by reference)
10.11 -- Indenture, dated as of September 25, 1984, between Unimar
Company, as Issuer, and Irving Trust Company, as Trustee,
providing for 14,077,747 Indonesian Participating Units
(Filed as Exhibit 4 to the Form S-14 Registration
Statement No. 2-93037 of Unimar Company and incorporated
herein by reference)
10.12 -- Amended and Restated Agreement of General Partnership of
Unimar Company, dated as of September 11, 1990 (Filed as
Exhibit 3.1 to the Form 10-Q for quarter ended September
30, 1990 of Unimar Company (Commission File No. 1-8791)
and incorporated herein by reference)
10.13 -- License No. P054 concerning all or part of the following
blocks in the United Kingdom North Sea: 49/15 and 49/25
(Sean Field) (Filed as Exhibit 10.74 to the Company's
Registration Statement No. 33-00312 and incorporated
herein by reference)
10.14 -- License No. P220 concerning all or part of the following
blocks in the United Kingdom North Sea: 9/26, 14/19,
15/11, 15/15, 15/17 and 210/29 (Piper Field) (Filed as
Exhibit 10.75 to the Company's Registration Statement No.
33-00312 and incorporated herein by reference)
10.15 -- License No. P249 concerning part of the following block
in the United Kingdom North Sea: 14/19 (Claymore Field)
(Filed as Exhibit 10.76 to the Company's Registration
Statement No. 33-00312 and incorporated herein by
reference)
10.16 -- License No. P250 concerning all or part of the following
blocks in the United Kingdom North Sea: 9/26, 15/11,
15/15, 210/29, 15/17 and 14/19 (Scapa Field) (Filed as
Exhibit 10.77 to the Company's Registration Statement No.
33-00312 and incorporated herein by reference)
</TABLE>
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17 -- Restated United Kingdom Continental Shelf Operating
Agreement (Piper License), dated as of August 11, 1977,
among Occidental Petroleum (U.K.) Limited, Occidental of
Britain, Inc., Getty Oil (Britain) Limited, Allied
Chemical (Great Britain) Limited, Allied Chemical (North
Sea) Ltd., Thomson North Sea Limited and the British
National Oil Corporation (Filed as Exhibit No. 10.78 to
the Company's Registration Statement No. 33-00312 and
incorporated herein by reference)
10.18 -- Restated United Kingdom Continental Shelf Operating
Agreement (Claymore License), dated August 11, 1977,
among Occidental Petroleum (Caledonia) Limited,
Occidental of Scotland, Inc., Getty Oil (Britain)
Limited, Allied Chemical (Great Britain) Limited, Allied
Chemical (North Sea) Ltd., Thomson North Sea Limited and
the British National Oil Corporation (Filed as Exhibit
10.79 to the Company's Registration Statement No.
33-00312 and incorporated herein by reference)
10.19 -- United Kingdom Continental Shelf Joint Operating
Agreement for Blocks 49/15a and 49/25a (Sean Field),
dated July 3, 1984, among Shell U.K. Limited, Union Texas
Petroleum Limited, Britoil Public Limited Company and
Esso Exploration and Production U.K. Limited (Filed as
Exhibit 10.81 to the Company's Registration Statement No.
33-00312 and incorporated herein by reference)
10.20 -- Agreement for Sale and Purchase of Natural Gas from the
Sean North and Sean South Fields, dated November 7, 1984,
between Union Texas Petroleum Limited and British Gas
Corporation, including list of omitted schedules (Filed
as Exhibit 10.82 to the Company's Registration Statement
No. 33-00312 and incorporated herein by reference)
10.21 -- Badak III LNG Sales Contract, dated March 19, 1987,
between Pertamina, as Seller, and Chinese Petroleum
Corporation, as Buyer (Filed as Exhibit 10.28 to the
Company's 1992 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.22 -- Supplemental Indenture, dated as of October 31, 1986, to
the Indenture between Unimar Company and Irving Trust
Company (Exhibit 10.13 above) (Filed as Exhibit 10.114 to
the Company's Registration Statement No. 33-16267 and
incorporated herein by reference)
10.23 -- Amended and Restated Registration Rights Agreement, dated
September 30, 1987, among Union Texas Petroleum Holdings,
Inc. and Certain Holders of Certain Securities of Union
Texas Petroleum Holdings, Inc. (Filed as Exhibit 10.117
to Post Effective Amendment No. 1 to the Company's
Registration Statement No. 33-12800 and incorporated
herein by reference)
10.24+ -- Union Texas Petroleum Holdings, Inc. 1987 Stock Option
Plan and First Amendment to Union Texas Petroleum
Holdings, Inc. 1987 Stock Option Plan (Filed as Exhibit
4.4 to the Company's Registration Statement No. 33-21684
and incorporated herein by reference)
10.25 -- Badak III LNG Sales Contract Supply Agreement, dated
October 19, 1987, among Pertamina and the parties to the
Joint Venture Agreement (Filed as Exhibit 10.132 to Post
Effective Amendment No. 1 to the Company's Registration
Statement No. 33-12800 and incorporated herein by
reference)
</TABLE>
71
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.26 -- $316,000,000 Bontang III Loan Agreement, dated February
9, 1988, among the Trustee under the Bontang III Trustee
and Paying Agent Agreement, Train-E Finance Co., Ltd., as
Tranche A Lender and The Industrial Bank of Japan Trust
Company as Agent for the Tranche B Lenders and as Tranche
B Lender (Filed as Exhibit 10.83 to Post Effective
Amendment No. 2 to the Company's Registration Statement
No. 33-12800 and incorporated herein by reference)
10.27 -- Bontang III Producers Agreement, dated as of February 9,
1988, among Pertamina, Roy M. Huffington, Inc.,
Huffington Corporation, VICO, Virginia International
Company, Ultramar Indonesia Company Limited, Union Texas
East Kalimantan Limited, Universe Tankships, Inc., Total
Indonesie, Unocal Indonesia, Ltd., Indonesia Petroleum,
Ltd., in favor of Train-E Finance Co., Ltd., as Tranche A
Lender, The Industrial Bank of Japan Trust Company as
Agent for the Tranche B Lenders and as Tranche B Lender,
and the other Tranche B Lenders named therein (Filed as
Exhibit 10.84 to the Post Effective Amendment No. 2 to
the Company's Registration Statement No. 33-12800 and
incorporated herein by reference)
10.28 -- Bontang III Trustee and Paying Agent Agreement, dated
February 9, 1988, among Pertamina, Roy M. Huffington,
Inc., Huffington Corporation, Virginia International
Company, VICO, Ultramar Indonesia Limited, Union Texas
East Kalimantan Limited, Universe Tankships, Inc., Total
Indonesie, Unocal Indonesia, Ltd., Indonesia Petroleum,
Ltd. and the Trustee thereunder (Filed as Exhibit 10.42
to the Company's 1991 Form 10-K (Commission File No.
1-9019) and incorporated herein by reference)
10.29+ -- Third Amendment to Union Texas Petroleum Holdings, Inc.
1985 Stock Option Plan (Filed as Exhibit 10.95 to the
Company's Form 10-Q for quarter ended June 30, 1990
(Commission File No. 1-9019) and incorporated herein by
reference)
10.30+ -- Second Amendment to Union Texas Petroleum Holdings, Inc.
1987 Stock Option Plan (Filed as Exhibit 10.96 to the
Company's Form 10-Q for quarter ended June 30, 1990
(Commission File No. 1-9019) and incorporated herein by
reference)
10.31+ -- Union Texas Petroleum Supplemental Retirement Plan (Filed
as Exhibit 10.99 to the Company's Form 10-Q for quarter
ended June 30, 1990 (Commission File No. 1-9019) and
incorporated herein by reference)
10.32+ -- Amended and Restated Union Texas Petroleum Supplemental
Retirement Plan II, effective January 1, 1994 (Filed as
Exhibit 10.41 to the Company's 1993 Form 10-K (Commission
File No. 1-9019) and incorporated herein by reference)
10.33+ -- Union Texas Petroleum Supplemental Retirement Plans
Trust, as amended (Filed as Exhibit 10.101 to the
Company's Form 10-Q for quarter ended June 30, 1990
(Commission File No. 1-9019) and incorporated herein by
reference)
10.34 -- Amended and Restated Production Sharing Contract
effective August 8, 1968-August 7, 1998 among Pertamina,
Roy M. Huffington, Inc., VICO, Virginia International
Company, Ultramar Indonesia Limited, Union Texas East
Kalimantan Limited, Universe Gas & Oil Company, Inc. and
Huffington Corporation (Filed as Exhibit 10.102 to the
Company's Form 10-Q for quarter ended June 30, 1990
(Commission File No. 1-9019) and incorporated herein by
reference)
</TABLE>
72
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.35 -- Production Sharing Contract effective August 8,
1998-August 7, 2018 among Pertamina, Roy M. Huffington,
Inc., VICO, Virginia International Company, Ultramar
Indonesia Limited, Union Texas East Kalimantan Limited,
Universe Gas & Oil Company, Inc. and Huffington
Corporation (Filed as Exhibit 10.103 to the Company's
Form 10-Q for quarter ended June 30, 1990 (Commission
File No. 1-9019) and incorporated herein by reference)
10.36 -- Joint Operating Agreement for the Scapa Field, dated
December 23, 1985, among Occidental Petroleum (Caledonia)
Limited, Texaco Britain Limited, Union Texas Petroleum
Limited, Thomson North Sea Limited, Thomson Scottish
Petroleum Limited and the Oil and Pipelines Agency (Filed
as Exhibit 10.104 to the Company's Form 10-Q for quarter
ended June 30, 1990 (Commission File No. 1-9019) and
incorporated herein by reference)
10.37 -- Amended and Restated 1973 LNG Sales Contract, dated as of
the 1st day of January, 1990, by and between Pertamina,
as Seller, and Chubu Electric Power Co., Inc., The Kansai
Electric Power Co., Inc., Kyushu Electric Power Co.,
Inc., Nippon Steel Corporation, Osaka Gas Co., Ltd. and
Toho Gas Co., Ltd., as Buyers (Filed as Exhibit (10)-8 to
the 1993 Form 10-K of Unimar Company (Commission File No.
1-8791) and incorporated herein by reference)
10.38 -- Amended and Restated Bontang Processing Agreement, dated
February 9, 1988, among Pertamina and Roy M. Huffington,
Inc., Huffington Corporation, VICO, Virginia
International Company, Ultramar Indonesia Limited, Union
Texas East Kalimantan Limited, Universe Tankships, Inc.,
Total Indonesie, Unocal Indonesia, Ltd., Indonesia
Petroleum, Ltd. and P.T. Badak Natural Gas Liquefaction
Company (Filed as Exhibit (10)-39 to the 1988 Form 10-K
of Unimar Company (Commission File No. 1-8791) and
incorporated herein by reference)
10.39 -- Amended and Restated Debt Service Allocation Agreement,
dated February 9, 1988, among Pertamina and Roy M.
Huffington, Inc., VICO, Ultramar Indonesia Limited,
Virginia International Company, Union Texas East
Kalimantan Limited, Universe Tankships, Inc., Huffington
Corporation, Total Indonesie, Unocal Indonesia, Ltd. and
Indonesia Petroleum, Ltd. (Filed as Exhibit (10)-40 to
the 1988 Form 10-K of Unimar Company (Commission File No.
1-8791) and incorporated herein by reference)
10.40 -- Amendment No. 1 to Bontang III Producers Agreement, dated
as of May 31, 1988, among Pertamina, Roy M. Huffington,
Inc., Huffington Corporation, VICO, Virginia
International Company, Ultramar Indonesia Limited, Union
Texas East Kalimantan Limited, Universe Tankships, Inc.,
Total Indonesie, Unocal Indonesia, Ltd., Indonesia
Petroleum, Ltd. and Train-E Finance Co., Ltd., as Tranche
A Lender, and The Industrial Bank of Japan Trust Company
on behalf of the Tranche B Lender, (Filed as Exhibit
(10)-21 to the 1993 Form 10-K of Unimar Company
(Commission File No. 1-8791) and incorporated herein by
reference)
10.41 -- Badak IV LNG Sales Contract, dated October 23, 1990,
between Pertamina, as Seller, and Osaka Gas Co., Ltd.,
Tokyo Gas Co., Ltd. and Toho Gas Co., Ltd., as Buyer
(Filed as Exhibit (10)-65 to the 1990 Form 10-K of Unimar
Company (Commission File No. 1-8791) and incorporated
herein by reference)
10.42 -- Supply Agreement for Natural Gas to Badak IV LNG Sales
Contract, dated August 12, 1991, by and between
Pertamina, VICO, Opicoil Houston, Inc., Ultramar
Indonesia Limited, Union Texas East Kalimantan Limited,
Universe Gas & Oil Company, Inc. and Virginia
International Company (Filed as Exhibit 10.80 to the
Company's 1991 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
</TABLE>
73
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.43 -- LNG Sales and Purchase Contract (Korea II), dated May 7,
1991, between Pertamina, as Seller, and Korea Gas
Corporation, as Buyer (Filed as Exhibit (10)-1 to the
1990 Form 10-Q for quarter ended June 30, 1991 of Unimar
Company (Commission File No. 1-8791) and incorporated
herein by reference)
10.44 -- $750,000,000 Bontang IV Loan Agreement, dated as of
August 26, 1991, among the Trustee under the Bontang IV
Trustee and Paying Agent Agreement as Borrower, Chase
Manhattan Asia Limited and The Mitsubishi Bank, Limited
as Coordinators, the other banks and financial
institutions named therein as Arrangers, Co-Arrangers,
Lead Managers, Managers, Co-Managers and Lenders, The
Chase Manhattan Bank, N.A. and The Mitsubishi Bank,
Limited as Co-Agents and The Chase Manhattan Bank, N.A.
as Agent (Filed as Exhibit 10.1 to the Form 10-Q for
quarter ended September 30, 1991 of Unimar Company
(Commission File No. 1-8791) and incorporated herein by
reference)
10.45 -- Bontang IV Producers Agreement, dated as of August 26,
1991, by Pertamina, Virginia International Company,
Opicoil Houston, Inc., VICO, Ultramar Indonesia Limited,
Union Texas East Kalimantan Limited, Universe Gas & Oil
Company, Inc., Total Indonesie, Unocal Indonesia, Ltd.
and Indonesia Petroleum, Ltd. in favor of The Chase
Manhattan Bank, N.A., as Agent for the Lenders and as
Lender, and the other Lenders named therein (Filed as
Exhibit 10.2 to the Form 10-Q for quarter ended September
30, 1991 of Unimar Company (Commission File No. 1-8791)
and incorporated herein by reference)
10.46 -- Bontang IV Trustee and Paying Agent Agreement, dated as
of August 26, 1991, among Pertamina, Virginia
International Company, Opicoil Houston, Inc., VICO,
Ultramar Indonesia Limited, Union Texas East Kalimantan
Limited, Universe Gas & Oil Company, Inc., Total
Indonesie, Unocal Indonesia, Ltd., Indonesia Petroleum,
Ltd. and the Trustee thereunder (Filed as Exhibit 10.3 to
the Form 10-Q for quarter ended September 30, 1991 of
Unimar Company (Commission File No. 1-8791) and
incorporated herein by reference)
10.47 -- Consulting Agreement, dated as of November 18, 1992,
among Petroleum Associates, L.P., KKR Partners II, L.P.
and Union Texas Petroleum Holdings, Inc. (Filed as
Exhibit 10.81 to the Company's 1992 Form 10-K (Commission
File No. 1-9019) and incorporated herein by reference)
10.48+ -- Second Amendment to Union Texas Petroleum Supplemental
Retirement Plans Trust (Filed as Exhibit 10.82 to the
Company's 1992 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.49 -- Amendment No. 1 to Bontang III Trustee and Paying Agent
Agreement, dated as of December 11, 1992, among
Pertamina, VICO, Virginia International Company, Ultramar
Indonesia Limited, Union Texas East Kalimantan Limited,
Opicoil Houston, Inc., Universe Gas & Oil Company, Inc.,
Total Indonesie, Unocal Indonesia Ltd., Indonesia
Petroleum, Ltd. and the Bontang III Trustee (Filed as
Exhibit 10.83 to the Company's 1992 Form 10-K (Commission
File No. 1-9019) and incorporated herein by reference)
10.50+ -- First Amendment to Union Texas Petroleum Supplemental
Retirement Plan (Filed as Exhibit 10.85 to the Company's
1992 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.51+ -- Union Texas Petroleum Holdings, Inc. 1992 Stock Option
Plan (Filed as Exhibit 4.3 to the Company's Registration
Statement No. 33-64928 and incorporated herein by
reference)
</TABLE>
74
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.52 -- Arun and Bontang LPG Sales and Purchase Contract, dated
July 15, 1986, between Pertamina, as Seller, and
Mitsubishi Corporation, Cosmo Oil Co., Ltd., Nippon
Petroleum Gas Co., Ltd., Showa Shell Sekiyu K.K., Kyodo
Oil Co., Ltd., Idemitsu Kosan Co., Ltd. and Mitsui
Liquefied Gas Co., Ltd., as Buyers (Filed as Exhibit
(10)-60 to the 1991 Form 10-K of Unimar Company
(Commission File No. 1-8791) and incorporated herein by
reference)
10.53 -- Petroleum Concession Agreement, dated January 21, 1992,
between the President of the Islamic Republic of Pakistan
and Union Texas Pakistan, Inc., Occidental Petroleum
(Pakistan) Inc. and Oil & Gas Development Corporation
(Filed as Exhibit 10.87 to the Company's Form 10-Q for
quarter ended March 31, 1992 (Commission File No. 1-9019)
and incorporated herein by reference)
10.54 -- Amended and Restated Supply Agreement (In support of the
Amended and Restated 1973 LNG Sales Contract), dated
September 22, 1993, and effective December 3, 1973,
between Pertamina and VICO, LASMO Sanga Sanga Limited,
Opicoil Houston, Inc., Union Texas East Kalimantan
Limited, Universe Gas & Oil Company, Inc. and Virginia
International Company (Filed as Exhibit 10.75 to the
Company's 1993 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.55 -- Share Sale Agreement, dated October 18, 1994, among Union
Texas Petroleum Limited, Fina Petroleum Development
Limited and Fina Exploration Limited (the "Share Sale
Agreement") (Filed as Exhibit 2.1 to the Company's Form
8-K dated November 14, 1994 (Commission File No. 1-9019)
and incorporated herein by reference)
10.56 -- Guarantee, dated October 18, 1994, by Union Texas
International Corporation relating to the Share Sale
Agreement (Filed as Exhibit 2.3 to the Company's Form 8-K
dated November 14, 1994 (Commission File No. 1-9019) and
incorporated herein by reference)
10.57 -- Petroleum Concession Agreement, dated April 20, 1977,
between the President of Pakistan and Union Texas
Pakistan, Inc. (Filed as Exhibit 10.87 to the Company's
1994 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.58 -- Amendments to Arun and Bontang LPG Sales and Purchase
Contract, dated October 5, 1994, between Pertamina, as
Seller, and Mitsubishi Corporation, Cosmo Oil Co., Ltd.,
Nippon Petroleum Gas Co., Ltd., Showa Shell Sekiyu K.K.,
Japan Energy Corporation, Idemitsu Kosan Co., Ltd. and
Mitsui Oil & Gas Co., Ltd., as Buyers (Filed as Exhibit
10.88 to the Company's 1994 Form 10-K (Commission File
No. 1-9019) and incorporated herein by reference)
10.59 -- Amendment to the Amended and Restated 1973 LNG Sales
Contract, dated as of the 1st day of June 1992, by and
between Pertamina, as Seller, and Kyushu Electric Power
Co., Inc., Nippon Steel Corporation and Toho Gas Co.,
Ltd., as Buyers (Filed as Exhibit (10)-9 to the 1993 Form
10-K of Unimar Company (Commission File No. 1-8791) and
incorporated herein by reference)
10.60 -- Facility Agreement, dated May 26, 1995, among Union Texas
Britannia Limited, Chemical Bank, as Arranger,
NationsBank, N.A. Carolinas, as Facility Agent, National
Westminster Bank plc, as Funding Agent, and the
Co-Arrangers, Technical Agents, Account Bank and Banks
named therein (Filed as Exhibit 10.9 to the Company's
Form 10-Q for quarter ended June 30, 1995 (Commission
File No. 1-9019) and incorporated herein by reference)
</TABLE>
75
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.61 -- Sponsor Direct Agreement, dated May 26, 1995, among Union
Texas Petroleum Limited, Union Texas Britannia Limited
and NationsBank N.A. Carolinas, as Facility Agent (Filed
as Exhibit 10.10 to the Company's Form 10-Q for quarter
ended June 30, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
10.62 -- Sponsor Support Agreement, dated May 26, 1995, between
Union Texas Petroleum Limited and Union Texas Britannia
Limited (Filed as Exhibit 10.11 to the Company's Form
10-Q for quarter ended June 30, 1995 (Commission File No.
1-9019) and incorporated herein by reference)
10.63+ -- Union Texas Petroleum Holdings, Inc. 1994 Incentive Plan
(Filed as Exhibit 10.12 to the Company's Form 10-Q for
quarter ended June 30, 1995 (Commission File No. 1-9019)
and incorporated herein by reference)
10.64+ -- First Amendment to Union Texas Petroleum Holdings, Inc.
1992 Stock Option Plan (Filed as Exhibit 10.13 to the
Company's Form 10-Q for quarter ended June 30, 1995
(Commission File No. 1-9019) and incorporated herein by
reference)
10.65 -- Sale and Purchase Agreement dated May 31, 1995, between
Union Texas Petroleum Limited and Oryx U.K. Energy
Company (Filed as Exhibit 10.14 to the Company's Form
10-Q for quarter ended June 30, 1995 (Commission File No.
1-9019) and incorporated herein by reference)
10.66 -- Bontang V Loan Agreement, dated as of July 1, 1995, among
BankAmerica International, as Trustee under the Bontang V
Trustee and Paying Agent Agreement, as Borrower, Bontang
Train-G Project Finance Co., Ltd. ("Tranche A Lender"),
the Banks named therein as Tranche B Lenders, The
Long-Term Credit Bank of Japan, Limited, New York Branch
("Facility Agent"), The Fuji Bank, Limited
("Intercreditor Agent"), Credit Lyonnais ("Technical
Agent"), and Credit Lyonnais, The Fuji Bank, Limited and
The Long-Term Credit Bank of Japan, Limited
(collectively, the "Arrangers") (Filed as Exhibit 10.1 to
the Company's Form 10-Q for quarter ended September 30,
1995 (Commission File No. 1-9019) and incorporated herein
by reference)
10.67 -- Bontang V Producers Agreement, dated as of July 1, 1995,
by Pertamina, VICO, OPICOIL Houston, Inc., Virginia
International Company, LASMO Sanga Sanga Limited, Union
Texas East Kalimantan Limited, Universe Gas & Oil
Company, Inc., Total Indonesie, Unocal Indonesia Company
and Indonesia Petroleum, Ltd. (collectively, the
"Producers"), in favor of the Tranche A Lender, the Banks
named therein as Tranche B Lenders and the Facility
Agent, Intercreditor Agent and Technical Agent (Filed as
Exhibit 10.2 to the Company's Form 10-Q for quarter ended
September 30, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
10.68 -- Bontang V Trustee and Paying Agent Agreement, dated as of
July 1, 1995, among the Producers and BankAmerica
International, as Trustee and Paying Agent (Filed as
Exhibit 10.3 to the Company's Form 10-Q for quarter ended
September 30, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
10.69 -- Amendment No. 1 to Bontang III Loan Agreement, dated as
of July 1, 1995, among Continental Bank International, as
Trustee under the Bontang III Trustee and Paying Agent
Agreement, Train-E Finance Co., Ltd., as Tranche A
Lender, and The Industrial Bank of Japan Trust Company,
as Agent on behalf of the Majority Tranche B Lenders
(Filed as Exhibit 10.6 to the Company's Form 10-Q for
quarter ended September 30, 1995 (Commission File No.
1-9019) and incorporated herein by reference)
</TABLE>
76
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.70 -- Second Amended and Restated 1973 LNG Sales Contract,
dated as of August 3, 1995, between Pertamina, as Seller,
and Chubu Electric Power Co., Inc., The Kansai Electric
Power Co., Inc., Kyushu Electric Power Co., Inc., Nippon
Steel Corporation, Osaka Gas Co., Ltd. and Toho Gas Co.,
Ltd., as the Buyers, with related letter agreement, dated
August 3, 1995, between Seller and Buyers (Filed as
Exhibit 10.7 to the Company's Form 10-Q for quarter ended
September 30, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
10.71 -- Package V Supply Agreement for Natural Gas in Support of
the 1973 LNG Sales Contract Extension, dated June 16,
1995, effective October 6, 1994, between Pertamina and
VICO, LASMO Sanga Sanga Limited, OPICOIL Houston, Inc.,
Union Texas East Kalimantan Limited, Universe Gas and Oil
Company, Inc. and Virginia International Company (Filed
as Exhibit 10.8 to the Company's Form 10-Q for quarter
ended September 30, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
10.72+ -- First Amendment to Union Texas Petroleum Savings Plan for
Salaried Employees (Filed as Exhibit 10.9 to the
Company's Form 10-Q for quarter ended September 30, 1995
(Commission File No. 1-9019) and incorporated herein by
reference)
10.73+ -- Second Amendment to Union Texas Petroleum Savings Plan
for Salaried Employees (Filed as Exhibit 10.103 to the
Company's 1995 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.74 -- Second Amended and Restated 1981 Badak LNG Sales
Contract, dated as of August 3, 1995, between Pertamina,
as Seller, and Chubu Electric Power Co., Inc., The Kansai
Electric Power Co., Inc., Osaka Gas Co., Ltd. and Toho
Gas Co., Ltd., as Buyers, with related letter agreement,
dated August 3, 1995, between Seller and Buyers (Filed as
Exhibit 10.104 to the Company's 1995 Form 10-K
(Commission File No. 1-9019) and incorporated herein by
reference)
10.75 -- LNG Sales and Purchase Contract (Badak V), dated August
12, 1995, between Pertamina and Korea Gas Corporation
(Filed as Exhibit 10.105 to the Company's 1995 Form 10-K
(Commission File No. 1-9019) and incorporated herein by
reference)
10.76 -- LNG Sale and Purchase Contract (Badak VI), dated October
25, 1995, between Pertamina and Chinese Petroleum
Corporation (Filed as Exhibit 10.106 to the Company's
1995 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.77 -- Badin-II Revised Petroleum Concession Agreement, dated
January 22, 1995 between the President of the Islamic
Republic of Pakistan and Union Texas Pakistan, Inc.,
Occidental Petroleum (Pakistan), Inc., Oil and Gas
Development Corporation and the Federal Government of the
Islamic Republic of Pakistan (Filed as Exhibit 10.107 to
the Company's 1995 Form 10-K (Commission File No. 1-9019)
and incorporated herein by reference)
10.78+ -- Third Amendment to Union Texas Petroleum Savings Plan for
Salaried Employees (Filed as Exhibit 10.1 to the
Company's Form 10-Q for quarter ended June 30, 1996
(Commission File No. 1-9019) and incorporated herein by
reference)
</TABLE>
77
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.79 -- First Supply Agreement for Package V Excess Sales
(1998-1999 LNG Sales to Korea Gas Corporation under Badak
V), dated as of May 1, 1996, between Pertamina and
Virginia Indonesia Company, Lasmo Sanga Sanga Limited,
Opicoil Houston, Inc., Union Texas East Kalimantan
Limited, Universe Gas & Oil Company, Inc. and Virginia
International Company (Filed as Exhibit 10.2 to the
Company's Form 10-Q for quarter ended June 30, 1996
(Commission File No. 1-9019) and incorporated herein by
reference)
10.80 -- Package VI Supply Agreement for Natural Gas in Support of
2000-2017 LNG Sales to Korea Gas Corporation under Badak
V, dated as of May 1, 1996, between Pertamina and
Virginia Indonesia Company, Lasmo Sanga Sanga Limited,
Opicoil Houston, Inc., Union Texas East Kalimantan
Limited, Universe Gas & Oil Company, Inc. and Virginia
International Company (Filed as Exhibit 10.4 to the
Company's Form 10-Q for quarter ended June 30, 1996
(Commission File No. 1-9019) and incorporated herein by
reference)
10.81 -- Package VI Supply Agreement for Natural Gas in Support of
2000-2017 LNG Sales to Chinese Petroleum Corporation
under Badak VI, dated as of May 1, 1996, between
Pertamina and Virginia Indonesia Company, Lasmo Sanga
Sanga Limited, Opicoil Houston, Inc., Union Texas East
Kalimantan Limited, Universe Gas & Oil Company, Inc. and
Virginia International Company (Filed as Exhibit 10.5 to
the Company's Form 10-Q for quarter ended June 30, 1996
(Commission File No. 1-9019) and incorporated herein by
reference)
10.82 -- First Supply Agreement for Package VI Excess Sales
(2003-2008 LNG Sales under the Second Amended and
Restated 1981 Badak Sales Contract), dated as of May 1,
1996, between Pertamina and Virginia Indonesia Company,
Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union
Texas East Kalimantan Limited, Universe Gas & Oil
Company, Inc. and Virginia International Company (Filed
as Exhibit 10.6 to the Company's Form 10-Q for quarter
ended June 30, 1996 (Commission File No. 1-9019) and
incorporated herein by reference)
10.83+ -- First Amendment to Supplemental Non-Qualified Savings
Plan for Executive Employees (Filed as Exhibit 10.1 to
the Company's Form 10-Q for quarter ended September 30,
1996 (Commission File No. 1-9019) and incorporated herein
by reference)
10.84+ -- Second Amendment to the Salaried Employees' Pension Plan
(Filed as Exhibit 10.2 to the Company's Form 10-Q for
quarter ended September 30, 1996 (Commission File No.
1-9019) and incorporated herein by reference)
10.85 -- License No. P213 and Deed of License Assignment covering
United Kingdom North Sea Blocks 16/26 (Britannia and Alba
Fields) and 28/5a (Filed as Exhibit 10.105 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.86+ -- First Amendment to Union Texas Petroleum Holdings, Inc.
1994 Incentive Plan (Filed as Exhibit 10.107 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.87+ -- Second Amendment to Union Texas Petroleum Holdings, Inc.
1992 Stock Option Plan (Filed as Exhibit 10.108 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.88+ -- Third Amendment to Union Texas Petroleum Holdings, Inc.
1987 Stock Option Plan (Filed as Exhibit 10.109 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
</TABLE>
78
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.89+ -- Fourth Amendment to Union Texas Petroleum Holdings, Inc.
1985 Stock Option Plan (filed as Exhibit 10.110 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.90+ -- First Amendment to Union Texas Petroleum Supplemental
Retirement Plan II (filed as Exhibit 10.111 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.91 -- Second Amended and Restated Credit Agreement dated as of
March 29, 1996 among Union Texas Petroleum Holdings,
Inc., the Banks and Co-Agents listed therein and
NationsBank of Texas, N.A., as Agent (Filed as Exhibit
10.1 to the Company's Form 10-Q for quarter ended March
31, 1996 (Commission File No. 1-9019) and incorporated
herein by reference)
10.92 -- First Amendment Agreement dated as of March 11, 1997 to
the Second Amended and Restated Credit Agreement dated as
of March 29, 1996, among Union Texas Petroleum Holdings,
Inc., the Banks and Co-Agents listed therein and
NationsBank of Texas, N.A., as Agent (Filed as Exhibit
10.1 to the Company's Form 10-Q for quarter ended March
31, 1997 (Commission File No. 1-9019) and incorporated
herein by reference)
10.93 -- Credit Agreement dated as of March 11, 1997 among Union
Texas Petroleum Holdings, Inc., the Banks and Co-Agents
listed therein and NationsBank of Texas, N.A., as Agent
(Filed as Exhibit 10.2 to the Company's Form 10-Q for
quarter ended March 31, 1997 (Commission File No. 1-9019)
and incorporated herein by reference)
10.94 -- $1,127,000,000 Bontang VI Loan Agreement, dated as of
March 4, 1997, among Bank of America National Trust and
Savings Association, as Trustee under the Bontang VI
Trustee and Paying Agent Agreement, as Borrower, Bank of
Taiwan New York Agency as Lead Arranger, Bontang LNG
Train-H Investment Co., Ltd. as Co-Lead Arranger, The
Chase Manhattan Bank as Agent, Co-Agent and Co-Arranger,
and the Co-Agents, Co-Arrangers and Lenders named therein
(Filed as Exhibit 10.3 to the Company's Form 10-Q for
quarter ended March 31, 1997 (Commission File No. 1-9019)
and incorporated herein by reference)
10.95 -- Bontang VI Producers Agreement, dated as of March 4,
1997, by Pertamina, Total Indonesie, VICO, Union Texas
East Kalimantan Limited, Lasmo Sanga Sanga Limited,
Virginia International Company, Opicoil Houston, Inc.,
Universe Gas & Oil Company, Inc., Indonesia Petroleum,
Ltd., Unocal Indonesia Company (collectively, the
"Producers"), in favor of Bank of Taiwan New York Agency,
as Lead Arranger, Bontang LNG Train-H Investment Co.,
Ltd. as Co-Lead Arranger, The Chase Manhattan Bank as
Agent, Co-Agent and Co-Arranger, and the Co-Agents,
Co-Arrangers and Lenders named therein (Filed as Exhibit
10.4 to the Company's Form 10-Q for quarter ended March
31, 1997 (Commission File No. 1-9019) and incorporated
herein by reference)
10.96 -- Bontang VI Trustee and Paying Agent Agreement, dated as
of March 4, 1997, among the Producers and Bank of America
National Trust and Savings Association, as Trustee and
Paying Agent (Filed as Exhibit 10.5 to the Company's Form
10-Q for quarter ended March 31, 1997 (Commission File
No. 1-9019) and incorporated herein by reference)
10.97 -- Letter Agreement Amendment to Facility Agreement dated
May 26, 1995 between Union Texas Britannia Limited as
Borrower and The Chase Manhattan Bank as Arranger,
NationsBank, N.A. as Facility Agent and the Technical
Agents, Funding Agent, Account Bank and the other
financial institutions named therein (Filed as Exhibit
10.6 to the Company's Form 10-Q for quarter ended March
31, 1997 (Commission File No. 1-9019) and incorporated
herein by reference)
</TABLE>
79
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.98 -- Amendment No. 2 to Bontang III Loan Agreement, dated as
of March 4, 1997 among BankAmerica International, as
Trustee under the Bontang III Trustee and Paying Agent
Agreement, Train-E Finance Co., Ltd. as Tranche A Lender
and The Industrial Bank of Japan Trust Company, as agent
on behalf of the Majority Tranche B Lenders (Filed as
Exhibit 10.7 to the Company's Form 10-Q for quarter ended
March 31, 1997 (Commission File No. 1-9019) and
incorporated herein by reference)
10.99 -- Second Amendment to the Union Texas Petroleum Holdings,
Inc. 1994 Incentive Plan (Filed as Exhibit 10.2 to the
Company's Form 10-Q for quarter ended June 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
10.100 -- Third Amendment to Union Texas Petroleum Holdings, Inc.
1992 Stock Option Plan (Filed as Exhibit 10.3 to the
Company's Form 10-Q for quarter ended June 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
10.101 -- Fourth Amendment to Union Texas Petroleum Holdings, Inc.
1987 Stock Option Plan (Filed as Exhibit 10.4 to the
Company's Form 10-Q for quarter ended June 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
10.102 -- Fifth Amendment to Union Texas Petroleum Holdings, Inc.
1986 Stock Option Plan (Filed as Exhibit 10.5 to the
Company's Form 10-Q for quarter ended June 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
10.103 -- Third Amendment to Union Texas Petroleum Salaried
Employees' Pension Plan (Filed as Exhibit 10.1 to the
Company's Form 10-Q for quarter ended September 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
10.104 -- Stock Purchase Agreement dated as of January 27, 1998
between Occidental Oil and Gas Corporation, Union Texas
Venezuela Limited and Union Texas International
Corporation (Filed as Exhibit 2.1 to the Company's Form
8-K filed February 13, 1998 (Commission File No. 1-9019)
and incorporated herein by reference)
10.105+# -- Conformed Union Texas Petroleum Holdings, Inc. Executive
Severance Plan
10.106# -- Boqueron Operating Agreement dated July 29, 1997 between
Lagoven, S.A. and Union Texas Venezuela Limited and
Preussag Energie GmbH (portions have been omitted
pursuant to a request for confidential treatment under
the Securities Exchange Act of 1934)
10.107# -- DZO Operating Services Agreement dated November 19, 1993
between Compania Occidental de Hidrocarburos, Inc. and
Maraven, S.A., as amended by Addendum No. 1 dated
December 7, 1994 (portions have been omitted pursuant to
a request for confidential treatment under the Securities
Exchange Act of 1934)
10.108# -- Loan Agreement dated February 4, 1998 between Compania
Occidental de Hidrocarburos, Inc., as Borrower and
NationsBank of Texas, N.A. with Promissory Note attached
as Exhibit A and Guaranty Agreement dated as of February
4, 1998 between Union Texas Petroleum Holdings, Inc., as
Guarantor, and NationsBank of Texas, N.A., as Lender,
attached as Exhibit B
10.109+# -- Fourth Amendment to Union Texas Petroleum Salaried
Employees' Pension Plan
10.110+# -- Fourth Amendment to Union Texas Petroleum Savings Plan
for Salaried Employees
10.111+# -- Amended and Restated Union Texas Petroleum Deferred
Compensation Plan
</TABLE>
80
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.112# -- Addendum to Badak IV LNG Sales Contract Supply Agreement,
dated January 31, 1994, but effective as of October 23,
1990, by and between Pertamina, on the one hand, and
VICO, LASMO Sanga Sanga Limited, Opicoil Houston, Inc.,
Union Texas East Kalimantan Limited, Universe Gas & Oil
Company, Inc. and Virginia International Company
10.113# -- Memorandum of Agreement, dated September 30, 1994 by and
between Pertamina and Korea Gas Corporation
10.114# -- Package V Supply Agreement (1995-1999 LNG Sales to Korea
Gas Corporation), dated June 16, 1995, but effective as
of September 30, 1994, between Pertamina and VICO, LASMO
Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas
East Kalimantan Limited, Universe Gas & Oil Company, Inc.
and Virginia International Company
10.115# -- Memorandum of Agreement, effective as of December 6,
1994, between Pertamina and Chinese Petroleum Corporation
for sale and purchase of LNG during 1998 and 1999
10.116# -- Package V Supply Agreement (1998-1999 LNG Sales to
Chinese Petroleum Corporation), dated June 16, 1995, but
effective as of December 6, 1994, by and between
Pertamina and VICO, Lasmo Sanga Sanga Limited, Opicoil
Houston, Inc., Union Texas East Kalimantan Limited,
Universe Gas & Oil Company, Inc. and Virginia
International Company
10.117# -- Trust under the Union Texas Petroleum Deferred
Compensation Plan
10.118# -- Supplemental Memorandum, dated as of August 24, 1983, by
and between Pertamina and Roy M. Huffington, Inc.,
Virginia International Company, Ultramar Indonesia
Limited, Indonesian Superior Oil Company, Union Texas Far
East Corporation and Universe Tankships, Inc.
10.119# -- Seventh Supply Agreement for Excess Sales (Additional
Fixed Quantities Under Badak LNG Sales Contract as a
Result of Contract Amendment and Restatement) between
Pertamina and Virginia Indonesia Company, Opicoil
Houston, Inc., Ultramar Indonesia Limited, Union Texas
East Kalimantan Limited, Universe Gas & Oil Company, Inc.
and Virginia International Company, effective as of
January 1, 1990
21.1# -- List of Subsidiaries
23.1 -- Consent of Price Waterhouse LLP is included on page S-1
of this Annual Report on Form 10-K
24.1 -- Power of Attorney, pursuant to which amendments to this
Annual Report on Form 10-K may be filed, is included on
page 82 of this Annual Report on Form 10-K
27.1# -- Financial data schedule
</TABLE>
- ---------------
+ Executive Severance Plan or Arrangement pursuant to Item 601(b)(10)(iii)(A) of
Regulation S-K.
# Filed herewith.
(B) REPORTS ON FORM 8-K
The Company filed Current Reports on Form 8-K dated: (i) October 22, 1997
to attach a press release announcing the Company's third quarter earnings and
(ii) February 13, 1998 to report the Venezuelan acquisition of a 100% interest
in the operating services contract for the DZO unit, the drilling results of an
exploration well in China and to attach press releases reporting that five
employees were killed in Pakistan, the appointment of Ambassador Robert Barry to
the Company's Board of Directors, the Company's 1997 year-end and fourth quarter
results and the Company's 1998 capital spending budget.
81
<PAGE> 82
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.
UNION TEXAS PETROLEUM HOLDINGS, INC.
By: /s/ DONALD M. MCMULLAN
-------------------------------------
Donald M. McMullan
Vice President and Controller
Date: February 26, 1998
POWER OF ATTORNEY
We, the undersigned, directors and officers of Union Texas Petroleum
Holdings, Inc. (the "Company"), do hereby severally constitute and appoint John
L. Whitmire, Larry D. Kalmbach and Donald M. McMullan and each or any one of
them, our true and lawful attorneys and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, and to file the same with
all exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys and agents, and
each or any of them, full power and authority to do and perform each and every
act and thing requisite and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys and agents, and each of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN L. WHITMIRE Chairman of the Board and Chief February 26, 1998
- ----------------------------------------------------- Executive Officer (Principal
(John L. Whitmire) Executive Officer)
/s/ LARRY D. KALMBACH Vice President and Chief Financial February 26, 1998
- ----------------------------------------------------- Officer (Principal Financial
(Larry D. Kalmbach) Officer)
/s/ DONALD M. MCMULLAN Vice President and Controller February 26, 1998
- ----------------------------------------------------- (Principal Accounting Officer)
(Donald M. McMullan)
/s/ ROBERT L. BARRY Director February 26, 1998
- -----------------------------------------------------
(Robert L. Barry)
/s/ GLENN A. COX Director February 26, 1998
- -----------------------------------------------------
(Glenn A. Cox)
/s/ EDWARD A. GILHULY Director February 26, 1998
- -----------------------------------------------------
(Edward A. Gilhuly)
</TABLE>
82
<PAGE> 83
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES H. GREENE, JR. Director February 26, 1998
- -----------------------------------------------------
(James H. Greene, Jr.)
/s/ HENRY R. KRAVIS Director February 26, 1998
- -----------------------------------------------------
(Henry R. Kravis)
/s/ MICHAEL W. MICHELSON Director February 26, 1998
- -----------------------------------------------------
(Michael W. Michelson)
/s/ WYLIE B. PIEPER Director February 26, 1998
- -----------------------------------------------------
(Wylie B. Pieper)
/s/ STANLEY P. PORTER Director February 26, 1998
- -----------------------------------------------------
(Stanley P. Porter)
/s/ GEORGE R. ROBERTS Director February 26, 1998
- -----------------------------------------------------
(George R. Roberts)
/s/ RICHARD R. SHINN Director February 26, 1998
- -----------------------------------------------------
(Richard R. Shinn)
/s/ SELLERS STOUGH Director February 26, 1998
- -----------------------------------------------------
(Sellers Stough)
</TABLE>
83
<PAGE> 84
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of Union Texas Petroleum Holdings, Inc.'s Registration
Statements on Form S-8 (Nos. 33-26105, 33-44045, 33-13575, 33-21684, 33-59213,
33-64928, 333-30805, 333-30807 and 333-30811) and Form S-3 (No. 333-31039) of
our report dated February 16, 1998 appearing on page 38 of this Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
February 26, 1998
S-1
<PAGE> 85
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Restated Certificate of Incorporation of Union Texas
Petroleum Holdings, Inc., as amended on May 10, 1995
(Filed under the identical exhibit number to the
Company's Form 8-K dated May 18, 1995 (Commission File
No. 1-9019) and incorporated herein by reference)
3.2# -- Bylaws of Union Texas Petroleum Holdings, Inc. as amended
December 19, 1997
3.3 -- Specimen of Certificate evidencing the Common Stock with
Rights attached (Filed as Exhibit 3.2 of the Company's
Form 10-Q for quarter ended September 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
4.1 -- Indenture for 8.25% Senior Notes due November 15, 1999,
dated as of November 15, 1992, between Union Texas
Petroleum Holdings, Inc., the Subsidiaries named therein
and State Street Bank and Trust Company (including form
of note) (Filed as Exhibit 10.1 to the Company's Form
10-Q for quarter ended March 31, 1994 (Commission File
No. 1-9019) and incorporated herein by reference)
4.2 -- Indenture dated as of March 15, 1995, among Union Texas
Petroleum Holdings, Inc., the Subsidiaries named therein
and The First National Bank of Chicago, as trustee (the
"1995 Indenture") (Filed as Exhibit 10.1 to the Company's
Form 10-Q for quarter ended March 31, 1995 (Commission
File No. 1-9019) and incorporated herein by reference)
4.3 -- Specimen Form of 8 3/8% Senior Note due March 15, 2005,
issued by Union Texas Petroleum Holdings, Inc. pursuant
to the 1995 Indenture (Filed as Exhibit 10.2 to the
Company's Form 10-Q for quarter ended March 31, 1995
(Commission File No. 1-9019) and incorporated herein by
reference)
4.4 -- Specimen Form of 8 1/2% Senior Note due April 15, 2007,
issued by Union Texas Petroleum Holdings, Inc. pursuant
to the 1995 Indenture (Filed as Exhibit 10.3 to the
Company's Form 10-Q for quarter ended March 31, 1995
(Commission File No. 1-9019) and incorporated herein by
reference)
4.5 -- Supplement dated November 7, 1995 to Indenture dated as
of November 15, 1992 for 8.25% Senior Notes due 1999,
between Union Texas Petroleum Holdings, Inc., the
Subsidiaries named therein and State Street Bank and
Trust Company (Filed as Exhibit 4.1 to the Company's Form
8-K dated November 17, 1995 (Commission File No. 1-9019)
and incorporated herein by reference)
4.6 -- Supplement dated November 7, 1995 to the 1995 Indenture
between Union Texas Petroleum Holdings, Inc., the
Subsidiaries named therein and The First National Bank of
Chicago (Filed as Exhibit 4.2 to the Company's Form 8-K
dated November 17, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
4.7 -- Form of Fixed Rate Medium-Term Note issued by the Company
pursuant to the 1995 Indenture (Filed as Exhibit 4.4 to
the Company's Registration Statement No. 33-64049 and
incorporated herein by reference). The Company agrees to
furnish to the Commission upon request a copy of each
instrument with respect to issues of such notes of the
Company, the authorized principal amount of which does
not exceed 10% of the consolidated assets of the Company
and its subsidiaries
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.8 -- Rights Agreement dated as of September 12, 1997 between
the Company and First Chicago Trust Company of New York,
as Rights Agent, which includes as Exhibit A the Form of
Right Certificate and as Exhibit B the Summary of Rights
to Purchase Common Stock (Filed as Exhibit 1 to the
Company's Form 8-A Registration Statement filed September
15, 1997 (Commission File No. 1-9019) and as Exhibit 4.1
to the Company's 10-Q for quarter ended September 30,
1997 (Commission File No. 1-9019) and incorporated herein
by reference)
10.1 -- Tax Agreement, dated as of June 27, 1985, among Allied
Corporation and Union Texas Petroleum Holdings, Inc.
(Filed as Exhibit 10.6 to the Company's Registration
Statement No. 33-00312 and incorporated herein by
reference)
10.2+ -- Form of Subscription Agreement between Union Texas
Petroleum Holdings, Inc. and certain employees (Filed as
Exhibit 10.8 to the Company's Registration Statement No.
33-00312 and incorporated herein by reference)
10.3+ -- Form of Tagalong Agreement between Union Texas Petroleum
Holdings, Inc. and certain employees (Filed as Exhibit
10.9 to the Company's Registration Statement No. 33-00312
and incorporated herein by reference)
10.4+ -- Amended and Restated Union Texas Petroleum Salaried
Employees' Pension Plan, effective as of January 1, 1994
(Filed under the identical exhibit number to the
Company's 1993 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.5+ -- Union Texas Petroleum Holdings, Inc. 1985 Stock Option
Plan, as amended (Filed as Exhibit 10.10 to Post
Effective Amendment No. 2 to the Company's Registration
Statement No. 33-12800 and incorporated herein by
reference)
10.6+ -- Amended and Restated Union Texas Petroleum Savings Plan
for Salaried Employees, effective as of January 1, 1993
(Filed under the identical exhibit number to the
Company's 1993 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.7+ -- Amended and Restated Supplemental Non-Qualified Savings
Plan for Executive Employees of Union Texas Petroleum
Holdings, Inc. and its Subsidiaries, effective as of
January 1, 1993 (Filed under the identical exhibit number
to the Company's 1993 Form 10-K (Commission File No.
1-9019) and incorporated herein by reference)
10.8+ -- Form of employment letter with executive officers (Filed
as Exhibit 10.18 to the Company's Registration Statement
No. 33-00312 and incorporated herein by reference) and
Exhibit A (Filed as Exhibit 10.10 to the Company's 1992
Form 10-K (Commission File No. 1-9019) and incorporated
herein by reference)
10.9 -- Joint Venture Agreement, dated as of August 8, 1968,
among Roy M. Huffington, Inc., Virginia International
Company, Austral Petroleum Gas Corporation, Golden Eagle
Indonesia Limited and Union Texas Far East Corporation,
as amended (the "Joint Venture Agreement") (Filed as
Exhibit 6.6 to the Registration Statement No. 2-58834 of
Alaska Interstate Company and incorporated herein by
reference)
10.10 -- Supply Agreement, dated as of April 14, 1981, for Badak
LNG Expansion Project among Perusahaan Pertambangan
Minyak Dan Gas Bumi Negara ("Pertamina") and the parties
to the Joint Venture Agreement (Filed as Exhibit 10.14 to
the Company's 1992 Form 10-K (Commission File No. 1-9019)
and incorporated herein by reference)
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.11 -- Indenture, dated as of September 25, 1984, between Unimar
Company, as Issuer, and Irving Trust Company, as Trustee,
providing for 14,077,747 Indonesian Participating Units
(Filed as Exhibit 4 to the Form S-14 Registration
Statement No. 2-93037 of Unimar Company and incorporated
herein by reference)
10.12 -- Amended and Restated Agreement of General Partnership of
Unimar Company, dated as of September 11, 1990 (Filed as
Exhibit 3.1 to the Form 10-Q for quarter ended September
30, 1990 of Unimar Company (Commission File No. 1-8791)
and incorporated herein by reference)
10.13 -- License No. P054 concerning all or part of the following
blocks in the United Kingdom North Sea: 49/15 and 49/25
(Sean Field) (Filed as Exhibit 10.74 to the Company's
Registration Statement No. 33-00312 and incorporated
herein by reference)
10.14 -- License No. P220 concerning all or part of the following
blocks in the United Kingdom North Sea: 9/26, 14/19,
15/11, 15/15, 15/17 and 210/29 (Piper Field) (Filed as
Exhibit 10.75 to the Company's Registration Statement No.
33-00312 and incorporated herein by reference)
10.15 -- License No. P249 concerning part of the following block
in the United Kingdom North Sea: 14/19 (Claymore Field)
(Filed as Exhibit 10.76 to the Company's Registration
Statement No. 33-00312 and incorporated herein by
reference)
10.16 -- License No. P250 concerning all or part of the following
blocks in the United Kingdom North Sea: 9/26, 15/11,
15/15, 210/29, 15/17 and 14/19 (Scapa Field) (Filed as
Exhibit 10.77 to the Company's Registration Statement No.
33-00312 and incorporated herein by reference)
10.17 -- Restated United Kingdom Continental Shelf Operating
Agreement (Piper License), dated as of August 11, 1977,
among Occidental Petroleum (U.K.) Limited, Occidental of
Britain, Inc., Getty Oil (Britain) Limited, Allied
Chemical (Great Britain) Limited, Allied Chemical (North
Sea) Ltd., Thomson North Sea Limited and the British
National Oil Corporation (Filed as Exhibit No. 10.78 to
the Company's Registration Statement No. 33-00312 and
incorporated herein by reference)
10.18 -- Restated United Kingdom Continental Shelf Operating
Agreement (Claymore License), dated August 11, 1977,
among Occidental Petroleum (Caledonia) Limited,
Occidental of Scotland, Inc., Getty Oil (Britain)
Limited, Allied Chemical (Great Britain) Limited, Allied
Chemical (North Sea) Ltd., Thomson North Sea Limited and
the British National Oil Corporation (Filed as Exhibit
10.79 to the Company's Registration Statement No.
33-00312 and incorporated herein by reference)
10.19 -- United Kingdom Continental Shelf Joint Operating
Agreement for Blocks 49/15a and 49/25a (Sean Field),
dated July 3, 1984, among Shell U.K. Limited, Union Texas
Petroleum Limited, Britoil Public Limited Company and
Esso Exploration and Production U.K. Limited (Filed as
Exhibit 10.81 to the Company's Registration Statement No.
33-00312 and incorporated herein by reference)
10.20 -- Agreement for Sale and Purchase of Natural Gas from the
Sean North and Sean South Fields, dated November 7, 1984,
between Union Texas Petroleum Limited and British Gas
Corporation, including list of omitted schedules (Filed
as Exhibit 10.82 to the Company's Registration Statement
No. 33-00312 and incorporated herein by reference)
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.21 -- Badak III LNG Sales Contract, dated March 19, 1987,
between Pertamina, as Seller, and Chinese Petroleum
Corporation, as Buyer (Filed as Exhibit 10.28 to the
Company's 1992 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.22 -- Supplemental Indenture, dated as of October 31, 1986, to
the Indenture between Unimar Company and Irving Trust
Company (Exhibit 10.13 above) (Filed as Exhibit 10.114 to
the Company's Registration Statement No. 33-16267 and
incorporated herein by reference)
10.23 -- Amended and Restated Registration Rights Agreement, dated
September 30, 1987, among Union Texas Petroleum Holdings,
Inc. and Certain Holders of Certain Securities of Union
Texas Petroleum Holdings, Inc. (Filed as Exhibit 10.117
to Post Effective Amendment No. 1 to the Company's
Registration Statement No. 33-12800 and incorporated
herein by reference)
10.24+ -- Union Texas Petroleum Holdings, Inc. 1987 Stock Option
Plan and First Amendment to Union Texas Petroleum
Holdings, Inc. 1987 Stock Option Plan (Filed as Exhibit
4.4 to the Company's Registration Statement No. 33-21684
and incorporated herein by reference)
10.25 -- Badak III LNG Sales Contract Supply Agreement, dated
October 19, 1987, among Pertamina and the parties to the
Joint Venture Agreement (Filed as Exhibit 10.132 to Post
Effective Amendment No. 1 to the Company's Registration
Statement No. 33-12800 and incorporated herein by
reference)
10.26 -- $316,000,000 Bontang III Loan Agreement, dated February
9, 1988, among the Trustee under the Bontang III Trustee
and Paying Agent Agreement, Train-E Finance Co., Ltd., as
Tranche A Lender and The Industrial Bank of Japan Trust
Company as Agent for the Tranche B Lenders and as Tranche
B Lender (Filed as Exhibit 10.83 to Post Effective
Amendment No. 2 to the Company's Registration Statement
No. 33-12800 and incorporated herein by reference)
10.27 -- Bontang III Producers Agreement, dated as of February 9,
1988, among Pertamina, Roy M. Huffington, Inc.,
Huffington Corporation, VICO, Virginia International
Company, Ultramar Indonesia Company Limited, Union Texas
East Kalimantan Limited, Universe Tankships, Inc., Total
Indonesie, Unocal Indonesia, Ltd., Indonesia Petroleum,
Ltd., in favor of Train-E Finance Co., Ltd., as Tranche A
Lender, The Industrial Bank of Japan Trust Company as
Agent for the Tranche B Lenders and as Tranche B Lender,
and the other Tranche B Lenders named therein (Filed as
Exhibit 10.84 to the Post Effective Amendment No. 2 to
the Company's Registration Statement No. 33-12800 and
incorporated herein by reference)
10.28 -- Bontang III Trustee and Paying Agent Agreement, dated
February 9, 1988, among Pertamina, Roy M. Huffington,
Inc., Huffington Corporation, Virginia International
Company, VICO, Ultramar Indonesia Limited, Union Texas
East Kalimantan Limited, Universe Tankships, Inc., Total
Indonesie, Unocal Indonesia, Ltd., Indonesia Petroleum,
Ltd. and the Trustee thereunder (Filed as Exhibit 10.42
to the Company's 1991 Form 10-K (Commission File No.
1-9019) and incorporated herein by reference)
10.29+ -- Third Amendment to Union Texas Petroleum Holdings, Inc.
1985 Stock Option Plan (Filed as Exhibit 10.95 to the
Company's Form 10-Q for quarter ended June 30, 1990
(Commission File No. 1-9019) and incorporated herein by
reference)
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.30+ -- Second Amendment to Union Texas Petroleum Holdings, Inc.
1987 Stock Option Plan (Filed as Exhibit 10.96 to the
Company's Form 10-Q for quarter ended June 30, 1990
(Commission File No. 1-9019) and incorporated herein by
reference)
10.31+ -- Union Texas Petroleum Supplemental Retirement Plan (Filed
as Exhibit 10.99 to the Company's Form 10-Q for quarter
ended June 30, 1990 (Commission File No. 1-9019) and
incorporated herein by reference)
10.32+ -- Amended and Restated Union Texas Petroleum Supplemental
Retirement Plan II, effective January 1, 1994 (Filed as
Exhibit 10.41 to the Company's 1993 Form 10-K (Commission
File No. 1-9019) and incorporated herein by reference)
10.33+ -- Union Texas Petroleum Supplemental Retirement Plans
Trust, as amended (Filed as Exhibit 10.101 to the
Company's Form 10-Q for quarter ended June 30, 1990
(Commission File No. 1-9019) and incorporated herein by
reference)
10.34 -- Amended and Restated Production Sharing Contract
effective August 8, 1968-August 7, 1998 among Pertamina,
Roy M. Huffington, Inc., VICO, Virginia International
Company, Ultramar Indonesia Limited, Union Texas East
Kalimantan Limited, Universe Gas & Oil Company, Inc. and
Huffington Corporation (Filed as Exhibit 10.102 to the
Company's Form 10-Q for quarter ended June 30, 1990
(Commission File No. 1-9019) and incorporated herein by
reference)
10.35 -- Production Sharing Contract effective August 8,
1998-August 7, 2018 among Pertamina, Roy M. Huffington,
Inc., VICO, Virginia International Company, Ultramar
Indonesia Limited, Union Texas East Kalimantan Limited,
Universe Gas & Oil Company, Inc. and Huffington
Corporation (Filed as Exhibit 10.103 to the Company's
Form 10-Q for quarter ended June 30, 1990 (Commission
File No. 1-9019) and incorporated herein by reference)
10.36 -- Joint Operating Agreement for the Scapa Field, dated
December 23, 1985, among Occidental Petroleum (Caledonia)
Limited, Texaco Britain Limited, Union Texas Petroleum
Limited, Thomson North Sea Limited, Thomson Scottish
Petroleum Limited and the Oil and Pipelines Agency (Filed
as Exhibit 10.104 to the Company's Form 10-Q for quarter
ended June 30, 1990 (Commission File No. 1-9019) and
incorporated herein by reference)
10.37 -- Amended and Restated 1973 LNG Sales Contract, dated as of
the 1st day of January, 1990, by and between Pertamina,
as Seller, and Chubu Electric Power Co., Inc., The Kansai
Electric Power Co., Inc., Kyushu Electric Power Co.,
Inc., Nippon Steel Corporation, Osaka Gas Co., Ltd. and
Toho Gas Co., Ltd., as Buyers (Filed as Exhibit (10)-8 to
the 1993 Form 10-K of Unimar Company (Commission File No.
1-8791) and incorporated herein by reference)
10.38 -- Amended and Restated Bontang Processing Agreement, dated
February 9, 1988, among Pertamina and Roy M. Huffington,
Inc., Huffington Corporation, VICO, Virginia
International Company, Ultramar Indonesia Limited, Union
Texas East Kalimantan Limited, Universe Tankships, Inc.,
Total Indonesie, Unocal Indonesia, Ltd., Indonesia
Petroleum, Ltd. and P.T. Badak Natural Gas Liquefaction
Company (Filed as Exhibit (10)-39 to the 1988 Form 10-K
of Unimar Company (Commission File No. 1-8791) and
incorporated herein by reference)
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.39 -- Amended and Restated Debt Service Allocation Agreement,
dated February 9, 1988, among Pertamina and Roy M.
Huffington, Inc., VICO, Ultramar Indonesia Limited,
Virginia International Company, Union Texas East
Kalimantan Limited, Universe Tankships, Inc., Huffington
Corporation, Total Indonesie, Unocal Indonesia, Ltd. and
Indonesia Petroleum, Ltd. (Filed as Exhibit (10)-40 to
the 1988 Form 10-K of Unimar Company (Commission File No.
1-8791) and incorporated herein by reference)
10.40 -- Amendment No. 1 to Bontang III Producers Agreement, dated
as of May 31, 1988, among Pertamina, Roy M. Huffington,
Inc., Huffington Corporation, VICO, Virginia
International Company, Ultramar Indonesia Limited, Union
Texas East Kalimantan Limited, Universe Tankships, Inc.,
Total Indonesie, Unocal Indonesia, Ltd., Indonesia
Petroleum, Ltd. and Train-E Finance Co., Ltd., as Tranche
A Lender, and The Industrial Bank of Japan Trust Company
on behalf of the Tranche B Lender, (Filed as Exhibit
(10)-21 to the 1993 Form 10-K of Unimar Company
(Commission File No. 1-8791) and incorporated herein by
reference)
10.41 -- Badak IV LNG Sales Contract, dated October 23, 1990,
between Pertamina, as Seller, and Osaka Gas Co., Ltd.,
Tokyo Gas Co., Ltd. and Toho Gas Co., Ltd., as Buyer
(Filed as Exhibit (10)-65 to the 1990 Form 10-K of Unimar
Company (Commission File No. 1-8791) and incorporated
herein by reference)
10.42 -- Supply Agreement for Natural Gas to Badak IV LNG Sales
Contract, dated August 12, 1991, by and between
Pertamina, VICO, Opicoil Houston, Inc., Ultramar
Indonesia Limited, Union Texas East Kalimantan Limited,
Universe Gas & Oil Company, Inc. and Virginia
International Company (Filed as Exhibit 10.80 to the
Company's 1991 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.43 -- LNG Sales and Purchase Contract (Korea II), dated May 7,
1991, between Pertamina, as Seller, and Korea Gas
Corporation, as Buyer (Filed as Exhibit (10)-1 to the
1990 Form 10-Q for quarter ended June 30, 1991 of Unimar
Company (Commission File No. 1-8791) and incorporated
herein by reference)
10.44 -- $750,000,000 Bontang IV Loan Agreement, dated as of
August 26, 1991, among the Trustee under the Bontang IV
Trustee and Paying Agent Agreement as Borrower, Chase
Manhattan Asia Limited and The Mitsubishi Bank, Limited
as Coordinators, the other banks and financial
institutions named therein as Arrangers, Co-Arrangers,
Lead Managers, Managers, Co-Managers and Lenders, The
Chase Manhattan Bank, N.A. and The Mitsubishi Bank,
Limited as Co-Agents and The Chase Manhattan Bank, N.A.
as Agent (Filed as Exhibit 10.1 to the Form 10-Q for
quarter ended September 30, 1991 of Unimar Company
(Commission File No. 1-8791) and incorporated herein by
reference)
10.45 -- Bontang IV Producers Agreement, dated as of August 26,
1991, by Pertamina, Virginia International Company,
Opicoil Houston, Inc., VICO, Ultramar Indonesia Limited,
Union Texas East Kalimantan Limited, Universe Gas & Oil
Company, Inc., Total Indonesie, Unocal Indonesia, Ltd.
and Indonesia Petroleum, Ltd. in favor of The Chase
Manhattan Bank, N.A., as Agent for the Lenders and as
Lender, and the other Lenders named therein (Filed as
Exhibit 10.2 to the Form 10-Q for quarter ended September
30, 1991 of Unimar Company (Commission File No. 1-8791)
and incorporated herein by reference)
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.46 -- Bontang IV Trustee and Paying Agent Agreement, dated as
of August 26, 1991, among Pertamina, Virginia
International Company, Opicoil Houston, Inc., VICO,
Ultramar Indonesia Limited, Union Texas East Kalimantan
Limited, Universe Gas & Oil Company, Inc., Total
Indonesie, Unocal Indonesia, Ltd., Indonesia Petroleum,
Ltd. and the Trustee thereunder (Filed as Exhibit 10.3 to
the Form 10-Q for quarter ended September 30, 1991 of
Unimar Company (Commission File No. 1-8791) and
incorporated herein by reference)
10.47 -- Consulting Agreement, dated as of November 18, 1992,
among Petroleum Associates, L.P., KKR Partners II, L.P.
and Union Texas Petroleum Holdings, Inc. (Filed as
Exhibit 10.81 to the Company's 1992 Form 10-K (Commission
File No. 1-9019) and incorporated herein by reference)
10.48+ -- Second Amendment to Union Texas Petroleum Supplemental
Retirement Plans Trust (Filed as Exhibit 10.82 to the
Company's 1992 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.49 -- Amendment No. 1 to Bontang III Trustee and Paying Agent
Agreement, dated as of December 11, 1992, among
Pertamina, VICO, Virginia International Company, Ultramar
Indonesia Limited, Union Texas East Kalimantan Limited,
Opicoil Houston, Inc., Universe Gas & Oil Company, Inc.,
Total Indonesie, Unocal Indonesia Ltd., Indonesia
Petroleum, Ltd. and the Bontang III Trustee (Filed as
Exhibit 10.83 to the Company's 1992 Form 10-K (Commission
File No. 1-9019) and incorporated herein by reference)
10.50+ -- First Amendment to Union Texas Petroleum Supplemental
Retirement Plan (Filed as Exhibit 10.85 to the Company's
1992 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.51+ -- Union Texas Petroleum Holdings, Inc. 1992 Stock Option
Plan (Filed as Exhibit 4.3 to the Company's Registration
Statement No. 33-64928 and incorporated herein by
reference)
10.52 -- Arun and Bontang LPG Sales and Purchase Contract, dated
July 15, 1986, between Pertamina, as Seller, and
Mitsubishi Corporation, Cosmo Oil Co., Ltd., Nippon
Petroleum Gas Co., Ltd., Showa Shell Sekiyu K.K., Kyodo
Oil Co., Ltd., Idemitsu Kosan Co., Ltd. and Mitsui
Liquefied Gas Co., Ltd., as Buyers (Filed as Exhibit
(10)-60 to the 1991 Form 10-K of Unimar Company
(Commission File No. 1-8791) and incorporated herein by
reference)
10.53 -- Petroleum Concession Agreement, dated January 21, 1992,
between the President of the Islamic Republic of Pakistan
and Union Texas Pakistan, Inc., Occidental Petroleum
(Pakistan) Inc. and Oil & Gas Development Corporation
(Filed as Exhibit 10.87 to the Company's Form 10-Q for
quarter ended March 31, 1992 (Commission File No. 1-9019)
and incorporated herein by reference)
10.54 -- Amended and Restated Supply Agreement (In support of the
Amended and Restated 1973 LNG Sales Contract), dated
September 22, 1993, and effective December 3, 1973,
between Pertamina and VICO, LASMO Sanga Sanga Limited,
Opicoil Houston, Inc., Union Texas East Kalimantan
Limited, Universe Gas & Oil Company, Inc. and Virginia
International Company (Filed as Exhibit 10.75 to the
Company's 1993 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.55 -- Share Sale Agreement, dated October 18, 1994, among Union
Texas Petroleum Limited, Fina Petroleum Development
Limited and Fina Exploration Limited (the "Share Sale
Agreement") (Filed as Exhibit 2.1 to the Company's Form
8-K dated November 14, 1994 (Commission File No. 1-9019)
and incorporated herein by reference)
10.56 -- Guarantee, dated October 18, 1994, by Union Texas
International Corporation relating to the Share Sale
Agreement (Filed as Exhibit 2.3 to the Company's Form 8-K
dated November 14, 1994 (Commission File No. 1-9019) and
incorporated herein by reference)
10.57 -- Petroleum Concession Agreement, dated April 20, 1977,
between the President of Pakistan and Union Texas
Pakistan, Inc. (Filed as Exhibit 10.87 to the Company's
1994 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.58 -- Amendments to Arun and Bontang LPG Sales and Purchase
Contract, dated October 5, 1994, between Pertamina, as
Seller, and Mitsubishi Corporation, Cosmo Oil Co., Ltd.,
Nippon Petroleum Gas Co., Ltd., Showa Shell Sekiyu K.K.,
Japan Energy Corporation, Idemitsu Kosan Co., Ltd. and
Mitsui Oil & Gas Co., Ltd., as Buyers (Filed as Exhibit
10.88 to the Company's 1994 Form 10-K (Commission File
No. 1-9019) and incorporated herein by reference)
10.59 -- Amendment to the Amended and Restated 1973 LNG Sales
Contract, dated as of the 1st day of June 1992, by and
between Pertamina, as Seller, and Kyushu Electric Power
Co., Inc., Nippon Steel Corporation and Toho Gas Co.,
Ltd., as Buyers (Filed as Exhibit (10)-9 to the 1993 Form
10-K of Unimar Company (Commission File No. 1-8791) and
incorporated herein by reference)
10.60 -- Facility Agreement, dated May 26, 1995, among Union Texas
Britannia Limited, Chemical Bank, as Arranger,
NationsBank, N.A. Carolinas, as Facility Agent, National
Westminster Bank plc, as Funding Agent, and the
Co-Arrangers, Technical Agents, Account Bank and Banks
named therein (Filed as Exhibit 10.9 to the Company's
Form 10-Q for quarter ended June 30, 1995 (Commission
File No. 1-9019) and incorporated herein by reference)
10.61 -- Sponsor Direct Agreement, dated May 26, 1995, among Union
Texas Petroleum Limited, Union Texas Britannia Limited
and NationsBank N.A. Carolinas, as Facility Agent (Filed
as Exhibit 10.10 to the Company's Form 10-Q for quarter
ended June 30, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
10.62 -- Sponsor Support Agreement, dated May 26, 1995, between
Union Texas Petroleum Limited and Union Texas Britannia
Limited (Filed as Exhibit 10.11 to the Company's Form
10-Q for quarter ended June 30, 1995 (Commission File No.
1-9019) and incorporated herein by reference)
10.63+ -- Union Texas Petroleum Holdings, Inc. 1994 Incentive Plan
(Filed as Exhibit 10.12 to the Company's Form 10-Q for
quarter ended June 30, 1995 (Commission File No. 1-9019)
and incorporated herein by reference)
10.64+ -- First Amendment to Union Texas Petroleum Holdings, Inc.
1992 Stock Option Plan (Filed as Exhibit 10.13 to the
Company's Form 10-Q for quarter ended June 30, 1995
(Commission File No. 1-9019) and incorporated herein by
reference)
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.65 -- Sale and Purchase Agreement dated May 31, 1995, between
Union Texas Petroleum Limited and Oryx U.K. Energy
Company (Filed as Exhibit 10.14 to the Company's Form
10-Q for quarter ended June 30, 1995 (Commission File No.
1-9019) and incorporated herein by reference)
10.66 -- Bontang V Loan Agreement, dated as of July 1, 1995, among
BankAmerica International, as Trustee under the Bontang V
Trustee and Paying Agent Agreement, as Borrower, Bontang
Train-G Project Finance Co., Ltd. ("Tranche A Lender"),
the Banks named therein as Tranche B Lenders, The
Long-Term Credit Bank of Japan, Limited, New York Branch
("Facility Agent"), The Fuji Bank, Limited
("Intercreditor Agent"), Credit Lyonnais ("Technical
Agent"), and Credit Lyonnais, The Fuji Bank, Limited and
The Long-Term Credit Bank of Japan, Limited
(collectively, the "Arrangers") (Filed as Exhibit 10.1 to
the Company's Form 10-Q for quarter ended September 30,
1995 (Commission File No. 1-9019) and incorporated herein
by reference)
10.67 -- Bontang V Producers Agreement, dated as of July 1, 1995,
by Pertamina, VICO, OPICOIL Houston, Inc., Virginia
International Company, LASMO Sanga Sanga Limited, Union
Texas East Kalimantan Limited, Universe Gas & Oil
Company, Inc., Total Indonesie, Unocal Indonesia Company
and Indonesia Petroleum, Ltd. (collectively, the
"Producers"), in favor of the Tranche A Lender, the Banks
named therein as Tranche B Lenders and the Facility
Agent, Intercreditor Agent and Technical Agent (Filed as
Exhibit 10.2 to the Company's Form 10-Q for quarter ended
September 30, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
10.68 -- Bontang V Trustee and Paying Agent Agreement, dated as of
July 1, 1995, among the Producers and BankAmerica
International, as Trustee and Paying Agent (Filed as
Exhibit 10.3 to the Company's Form 10-Q for quarter ended
September 30, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
10.69 -- Amendment No. 1 to Bontang III Loan Agreement, dated as
of July 1, 1995, among Continental Bank International, as
Trustee under the Bontang III Trustee and Paying Agent
Agreement, Train-E Finance Co., Ltd., as Tranche A
Lender, and The Industrial Bank of Japan Trust Company,
as Agent on behalf of the Majority Tranche B Lenders
(Filed as Exhibit 10.6 to the Company's Form 10-Q for
quarter ended September 30, 1995 (Commission File No.
1-9019) and incorporated herein by reference)
10.70 -- Second Amended and Restated 1973 LNG Sales Contract,
dated as of August 3, 1995, between Pertamina, as Seller,
and Chubu Electric Power Co., Inc., The Kansai Electric
Power Co., Inc., Kyushu Electric Power Co., Inc., Nippon
Steel Corporation, Osaka Gas Co., Ltd. and Toho Gas Co.,
Ltd., as the Buyers, with related letter agreement, dated
August 3, 1995, between Seller and Buyers (Filed as
Exhibit 10.7 to the Company's Form 10-Q for quarter ended
September 30, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
10.71 -- Package V Supply Agreement for Natural Gas in Support of
the 1973 LNG Sales Contract Extension, dated June 16,
1995, effective October 6, 1994, between Pertamina and
VICO, LASMO Sanga Sanga Limited, OPICOIL Houston, Inc.,
Union Texas East Kalimantan Limited, Universe Gas and Oil
Company, Inc. and Virginia International Company (Filed
as Exhibit 10.8 to the Company's Form 10-Q for quarter
ended September 30, 1995 (Commission File No. 1-9019) and
incorporated herein by reference)
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.72+ -- First Amendment to Union Texas Petroleum Savings Plan for
Salaried Employees (Filed as Exhibit 10.9 to the
Company's Form 10-Q for quarter ended September 30, 1995
(Commission File No. 1-9019) and incorporated herein by
reference)
10.73+ -- Second Amendment to Union Texas Petroleum Savings Plan
for Salaried Employees (Filed as Exhibit 10.103 to the
Company's 1995 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.74 -- Second Amended and Restated 1981 Badak LNG Sales
Contract, dated as of August 3, 1995, between Pertamina,
as Seller, and Chubu Electric Power Co., Inc., The Kansai
Electric Power Co., Inc., Osaka Gas Co., Ltd. and Toho
Gas Co., Ltd., as Buyers, with related letter agreement,
dated August 3, 1995, between Seller and Buyers (Filed as
Exhibit 10.104 to the Company's 1995 Form 10-K
(Commission File No. 1-9019) and incorporated herein by
reference)
10.75 -- LNG Sales and Purchase Contract (Badak V), dated August
12, 1995, between Pertamina and Korea Gas Corporation
(Filed as Exhibit 10.105 to the Company's 1995 Form 10-K
(Commission File No. 1-9019) and incorporated herein by
reference)
10.76 -- LNG Sale and Purchase Contract (Badak VI), dated October
25, 1995, between Pertamina and Chinese Petroleum
Corporation (Filed as Exhibit 10.106 to the Company's
1995 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.77 -- Badin-II Revised Petroleum Concession Agreement, dated
January 22, 1995 between the President of the Islamic
Republic of Pakistan and Union Texas Pakistan, Inc.,
Occidental Petroleum (Pakistan), Inc., Oil and Gas
Development Corporation and the Federal Government of the
Islamic Republic of Pakistan (Filed as Exhibit 10.107 to
the Company's 1995 Form 10-K (Commission File No. 1-9019)
and incorporated herein by reference)
10.78+ -- Third Amendment to Union Texas Petroleum Savings Plan for
Salaried Employees (Filed as Exhibit 10.1 to the
Company's Form 10-Q for quarter ended June 30, 1996
(Commission File No. 1-9019) and incorporated herein by
reference)
10.79 -- First Supply Agreement for Package V Excess Sales
(1998-1999 LNG Sales to Korea Gas Corporation under Badak
V), dated as of May 1, 1996, between Pertamina and
Virginia Indonesia Company, Lasmo Sanga Sanga Limited,
Opicoil Houston, Inc., Union Texas East Kalimantan
Limited, Universe Gas & Oil Company, Inc. and Virginia
International Company (Filed as Exhibit 10.2 to the
Company's Form 10-Q for quarter ended June 30, 1996
(Commission File No. 1-9019) and incorporated herein by
reference)
10.80 -- Package VI Supply Agreement for Natural Gas in Support of
2000-2017 LNG Sales to Korea Gas Corporation under Badak
V, dated as of May 1, 1996, between Pertamina and
Virginia Indonesia Company, Lasmo Sanga Sanga Limited,
Opicoil Houston, Inc., Union Texas East Kalimantan
Limited, Universe Gas & Oil Company, Inc. and Virginia
International Company (Filed as Exhibit 10.4 to the
Company's Form 10-Q for quarter ended June 30, 1996
(Commission File No. 1-9019) and incorporated herein by
reference)
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.81 -- Package VI Supply Agreement for Natural Gas in Support of
2000-2017 LNG Sales to Chinese Petroleum Corporation
under Badak VI, dated as of May 1, 1996, between
Pertamina and Virginia Indonesia Company, Lasmo Sanga
Sanga Limited, Opicoil Houston, Inc., Union Texas East
Kalimantan Limited, Universe Gas & Oil Company, Inc. and
Virginia International Company (Filed as Exhibit 10.5 to
the Company's Form 10-Q for quarter ended June 30, 1996
(Commission File No. 1-9019) and incorporated herein by
reference)
10.82 -- First Supply Agreement for Package VI Excess Sales
(2003-2008 LNG Sales under the Second Amended and
Restated 1981 Badak Sales Contract), dated as of May 1,
1996, between Pertamina and Virginia Indonesia Company,
Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union
Texas East Kalimantan Limited, Universe Gas & Oil
Company, Inc. and Virginia International Company (Filed
as Exhibit 10.6 to the Company's Form 10-Q for quarter
ended June 30, 1996 (Commission File No. 1-9019) and
incorporated herein by reference)
10.83+ -- First Amendment to Supplemental Non-Qualified Savings
Plan for Executive Employees (Filed as Exhibit 10.1 to
the Company's Form 10-Q for quarter ended September 30,
1996 (Commission File No. 1-9019) and incorporated herein
by reference)
10.84+ -- Second Amendment to the Salaried Employees' Pension Plan
(Filed as Exhibit 10.2 to the Company's Form 10-Q for
quarter ended September 30, 1996 (Commission File No.
1-9019) and incorporated herein by reference)
10.85 -- License No. P213 and Deed of License Assignment covering
United Kingdom North Sea Blocks 16/26 (Britannia and Alba
Fields) and 28/5a (Filed as Exhibit 10.105 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.86+ -- First Amendment to Union Texas Petroleum Holdings, Inc.
1994 Incentive Plan (Filed as Exhibit 10.107 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.87+ -- Second Amendment to Union Texas Petroleum Holdings, Inc.
1992 Stock Option Plan (Filed as Exhibit 10.108 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.88+ -- Third Amendment to Union Texas Petroleum Holdings, Inc.
1987 Stock Option Plan (Filed as Exhibit 10.109 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.89+ -- Fourth Amendment to Union Texas Petroleum Holdings, Inc.
1985 Stock Option Plan (filed as Exhibit 10.110 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.90+ -- First Amendment to Union Texas Petroleum Supplemental
Retirement Plan II (filed as Exhibit 10.111 to the
Company's 1996 Form 10-K (Commission File No. 1-9019) and
incorporated herein by reference)
10.91 -- Second Amended and Restated Credit Agreement dated as of
March 29, 1996 among Union Texas Petroleum Holdings,
Inc., the Banks and Co-Agents listed therein and
NationsBank of Texas, N.A., as Agent (Filed as Exhibit
10.1 to the Company's Form 10-Q for quarter ended March
31, 1996 (Commission File No. 1-9019) and incorporated
herein by reference)
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.92 -- First Amendment Agreement dated as of March 11, 1997 to
the Second Amended and Restated Credit Agreement dated as
of March 29, 1996, among Union Texas Petroleum Holdings,
Inc., the Banks and Co-Agents listed therein and
NationsBank of Texas, N.A., as Agent (Filed as Exhibit
10.1 to the Company's Form 10-Q for quarter ended March
31, 1997 (Commission File No. 1-9019) and incorporated
herein by reference)
10.93 -- Credit Agreement dated as of March 11, 1997 among Union
Texas Petroleum Holdings, Inc., the Banks and Co-Agents
listed therein and NationsBank of Texas, N.A., as Agent
(Filed as Exhibit 10.2 to the Company's Form 10-Q for
quarter ended March 31, 1997 (Commission File No. 1-9019)
and incorporated herein by reference)
10.94 -- $1,127,000,000 Bontang VI Loan Agreement, dated as of
March 4, 1997, among Bank of America National Trust and
Savings Association, as Trustee under the Bontang VI
Trustee and Paying Agent Agreement, as Borrower, Bank of
Taiwan New York Agency as Lead Arranger, Bontang LNG
Train-H Investment Co., Ltd. as Co-Lead Arranger, The
Chase Manhattan Bank as Agent, Co-Agent and Co-Arranger,
and the Co-Agents, Co-Arrangers and Lenders named therein
(Filed as Exhibit 10.3 to the Company's Form 10-Q for
quarter ended March 31, 1997 (Commission File No. 1-9019)
and incorporated herein by reference)
10.95 -- Bontang VI Producers Agreement, dated as of March 4,
1997, by Pertamina, Total Indonesie, VICO, Union Texas
East Kalimantan Limited, Lasmo Sanga Sanga Limited,
Virginia International Company, Opicoil Houston, Inc.,
Universe Gas & Oil Company, Inc., Indonesia Petroleum,
Ltd., Unocal Indonesia Company (collectively, the
"Producers"), in favor of Bank of Taiwan New York Agency,
as Lead Arranger, Bontang LNG Train-H Investment Co.,
Ltd. as Co-Lead Arranger, The Chase Manhattan Bank as
Agent, Co-Agent and Co-Arranger, and the Co-Agents,
Co-Arrangers and Lenders named therein (Filed as Exhibit
10.4 to the Company's Form 10-Q for quarter ended March
31, 1997 (Commission File No. 1-9019) and incorporated
herein by reference)
10.96 -- Bontang VI Trustee and Paying Agent Agreement, dated as
of March 4, 1997, among the Producers and Bank of America
National Trust and Savings Association, as Trustee and
Paying Agent (Filed as Exhibit 10.5 to the Company's Form
10-Q for quarter ended March 31, 1997 (Commission File
No. 1-9019) and incorporated herein by reference)
10.97 -- Letter Agreement Amendment to Facility Agreement dated
May 26, 1995 between Union Texas Britannia Limited as
Borrower and The Chase Manhattan Bank as Arranger,
NationsBank, N.A. as Facility Agent and the Technical
Agents, Funding Agent, Account Bank and the other
financial institutions named therein (Filed as Exhibit
10.6 to the Company's Form 10-Q for quarter ended March
31, 1997 (Commission File No. 1-9019) and incorporated
herein by reference)
10.98 -- Amendment No. 2 to Bontang III Loan Agreement, dated as
of March 4, 1997 among BankAmerica International, as
Trustee under the Bontang III Trustee and Paying Agent
Agreement, Train-E Finance Co., Ltd. as Tranche A Lender
and The Industrial Bank of Japan Trust Company, as agent
on behalf of the Majority Tranche B Lenders (Filed as
Exhibit 10.7 to the Company's Form 10-Q for quarter ended
March 31, 1997 (Commission File No. 1-9019) and
incorporated herein by reference)
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.99 -- Second Amendment to the Union Texas Petroleum Holdings,
Inc. 1994 Incentive Plan (Filed as Exhibit 10.2 to the
Company's Form 10-Q for quarter ended June 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
10.100 -- Third Amendment to Union Texas Petroleum Holdings, Inc.
1992 Stock Option Plan (Filed as Exhibit 10.3 to the
Company's Form 10-Q for quarter ended June 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
10.101 -- Fourth Amendment to Union Texas Petroleum Holdings, Inc.
1987 Stock Option Plan (Filed as Exhibit 10.4 to the
Company's Form 10-Q for quarter ended June 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
10.102 -- Fifth Amendment to Union Texas Petroleum Holdings, Inc.
1986 Stock Option Plan (Filed as Exhibit 10.5 to the
Company's Form 10-Q for quarter ended June 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
10.103 -- Third Amendment to Union Texas Petroleum Salaried
Employees' Pension Plan (Filed as Exhibit 10.1 to the
Company's Form 10-Q for quarter ended September 30, 1997
(Commission File No. 1-9019) and incorporated herein by
reference)
10.104 -- Stock Purchase Agreement dated as of January 27, 1998
between Occidental Oil and Gas Corporation, Union Texas
Venezuela Limited and Union Texas International
Corporation (Filed as Exhibit 2.1 to the Company's Form
8-K filed February 13, 1998 (Commission File No. 1-9019)
and incorporated herein by reference)
10.105+# -- Conformed Union Texas Petroleum Holdings, Inc. Executive
Severance Plan
10.106# -- Boqueron Operating Agreement dated July 29, 1997 between
Lagoven, S.A. and Union Texas Venezuela Limited and
Preussag Energie GmbH (portions have been omitted
pursuant to a request for confidential treatment under
the Securities Exchange Act of 1934)
10.107# -- DZO Operating Services Agreement dated November 19, 1993
between Compania Occidental de Hidrocarburos, Inc. and
Maraven, S.A., as amended by Addendum No. 1 dated
December 7, 1994 (portions have been omitted pursuant to
a request for confidential treatment under the Securities
Exchange Act of 1934)
10.108# -- Loan Agreement dated February 4, 1998 between Compania
Occidental de Hidrocarburos, Inc., as Borrower and
NationsBank of Texas, N.A. with Promissory Note attached
as Exhibit A and Guaranty Agreement dated as of February
4, 1998 between Union Texas Petroleum Holdings, Inc., as
Guarantor, and NationsBank of Texas, N.A., as Lender,
attached as Exhibit B
10.109+# -- Fourth Amendment to Union Texas Petroleum Salaried
Employees' Pension Plan
10.110+# -- Fourth Amendment to Union Texas Petroleum Savings Plan
for Salaried Employees
10.111+# -- Amended and Restated Union Texas Petroleum Deferred
Compensation Plan
10.112# -- Addendum to Badak IV LNG Sales Contract Supply Agreement,
dated January 31, 1994, but effective as of October 23,
1990, by and between Pertamina, on the one hand, and
VICO, LASMO Sanga Sanga Limited, Opicoil Houston, Inc.,
Union Texas East Kalimantan Limited, Universe Gas & Oil
Company, Inc. and Virginia International Company
10.113# -- Memorandum of Agreement, dated September 30, 1994 by and
between Pertamina and Korea Gas Corporation
</TABLE>
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.114# -- Package V Supply Agreement (1995-1999 LNG Sales to Korea
Gas Corporation), dated June 16, 1995, but effective as
of September 30, 1994, between Pertamina and VICO, LASMO
Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas
East Kalimantan Limited, Universe Gas & Oil Company, Inc.
and Virginia International Company
10.115# -- Memorandum of Agreement, effective as of December 6,
1994, between Pertamina and Chinese Petroleum Corporation
for sale and purchase of LNG during 1998 and 1999
10.116# -- Package V Supply Agreement (1998-1999 LNG Sales to
Chinese Petroleum Corporation), dated June 16, 1995, but
effective as of December 6, 1994, by and between
Pertamina and VICO, Lasmo Sanga Sanga Limited, Opicoil
Houston, Inc., Union Texas East Kalimantan Limited,
Universe Gas & Oil Company, Inc. and Virginia
International Company
10.117# -- Trust under the Union Texas Petroleum Deferred
Compensation Plan
10.118# -- Supplemental Memorandum, dated as of August 24, 1983, by
and between Pertamina and Roy M. Huffington, Inc.,
Virginia International Company, Ultramar Indonesia
Limited, Indonesian Superior Oil Company, Union Texas Far
East Corporation and Universe Tankships, Inc.
10.119# -- Seventh Supply Agreement for Excess Sales (Additional
Fixed Quantities Under Badak LNG Sales Contract as a
Result of Contract Amendment and Restatement) between
Pertamina and Virginia Indonesia Company, Opicoil
Houston, Inc., Ultramar Indonesia Limited, Union Texas
East Kalimantan Limited, Universe Gas & Oil Company, Inc.
and Virginia International Company, effective as of
January 1, 1990
21.1# -- List of Subsidiaries
23.1 -- Consent of Price Waterhouse LLP is included on page S-1
of this Annual Report on Form 10-K
24.1 -- Power of Attorney, pursuant to which amendments to this
Annual Report on Form 10-K may be filed, is included on
page 82 of this Annual Report on Form 10-K
27.1# -- Financial data schedule
</TABLE>
- ---------------
+ Executive Severance Plan or Arrangement pursuant to Item 601(b)(10)(iii)(A) of
Regulation S-K.
# Filed herewith.
<PAGE> 1
BYLAWS
OF
UNION TEXAS PETROLEUM HOLDINGS, INC.
as of December 19, 1997
<PAGE> 2
BYLAWS
OF
UNION TEXAS PETROLEUM HOLDINGS, INC.
ARTICLE I
OFFICES
SECTION 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
SECTION 2. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election
of directors shall be held in the City of HOUSTON, State of TEXAS, at such
place as may be fixed from time to time by the board of directors and stated in
the notice of the meeting. Meetings of the stockholders for any other purpose
may be held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
SECTION 2. Annual meetings of stockholders shall be held on
the third Tuesday of May if not a legal holiday, and if a legal holiday, then
on the next secular day following, at 3:00 p.m., or at such other date and time
as shall be designated by the board of directors and stated in the notice of
the meeting, at which they shall elect by a plurality vote a board of
directors, and transact such other business as may properly be brought before
the meeting.
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<PAGE> 3
SECTION 3. Subject to the provisions of Article IV, written
notice of the annual meeting stating the place, date and hour of the meeting
shall be given to each stockholder entitled to vote thereat at least ten days
before the date of the meeting.
SECTION 4. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the Chairman or by the Chief
Executive Officer and shall be called by the Chairman, Chief Executive Officer,
or Secretary at the request in writing by any two directors. Such request
shall state the purpose or purposes of the proposed meeting.
SECTION 5. Written notice of a special meeting of
stockholders stating the time, place and purpose or purposes thereof shall be
given to each stockholder entitled to vote thereat at least ten days and not
more than sixty (60) days before the date fixed for the meeting.
SECTION 6. The Chairman, at any meeting of stockholders,
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussion
as seem to the Chairman in order. The date and time of the opening and closing
of the polls for each matter upon which the stockholders will vote at the
meeting shall be announced at the meeting.
SECTION 7. The holders of at least a majority of the shares
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of stockholders
for the transaction of business, except as otherwise provided by law or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the Chairman or the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting unless the adjournment is for
more than thirty
3
<PAGE> 4
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, until a quorum shall be present or represented. A holder of
a share shall be treated as being present at a meeting if the holder of such
share is (i) present in person at the meeting or (ii) represented at the
meeting by a valid proxy, whether the instrument granting such proxy is marked
as casting a vote or abstaining, is left blank or does not empower such proxy
to vote with respect to some or all matters to be voted upon at the meeting.
SECTION 8. If a quorum exists, action on a matter (other than
the election of directors) shall be approved if the votes cast in favor of the
matter exceed the votes cast opposing the matter. In determining the number of
votes cast, shares abstaining from voting or not voted on a matter will not be
treated as votes cast. The provisions of this paragraph will govern with
respect to all votes of stockholders except as otherwise provided for in these
Bylaws or in the certificate of incorporation or by some specific statutory
provision superseding the provisions contained in these Bylaws or the
certificate of incorporation.
SECTION 9. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person on or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three years from its date, unless the proxy provides
for a longer period.
SECTION 10. Notice of Stockholder Business and Nominations
A. Annual Meetings of Stockholders.
(1) Nominations of persons for election to the board of
directors and the proposal of business to be considered by the stockholders may
be made at an annual meeting of stockholders (a) pursuant to the Corporation's
notice of meeting, (b) by or at the direction of the board of directors or (c)
by any stockholder of the Corporation who was a stockholder of record at the
time of giving
4
<PAGE> 5
of notice provided for in this Section 10, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section
10.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A)(1) of this Section 10, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the
annual meeting is more than thirty (30) days before or more than sixty (60)
days after such anniversary date, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the ninetieth (90th)
day prior to such annual meeting and not later than the close of business on
the later of the sixtieth (60th) day prior to such annual meeting or the close
of business on the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the Corporation.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); (b) as to any other business that the stockholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business
5
<PAGE> 6
of such stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation that are owned beneficially and held of record by
such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Section 10 to the contrary, in the event that the
number of directors to be elected to the board of directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased board of
directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at
least seventy (70) days prior to such annual meeting), a stockholder's notice
required by this Section 10 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
B. Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting
of stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
board of directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the board of directors or (b) provided that the board
of directors has determined that
6
<PAGE> 7
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 10. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the board of directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Section 10 shall be
delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the ninetieth (90th) day prior to such special
meeting and not later than the close of business on the later of the sixtieth
(60th) day prior to such special meeting or the tenth (10th) day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the board of directors to be elected at
such meeting.
C. General.
(1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 10 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 10. Except as otherwise provided by
law or these Bylaws, the Chairman shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 10 and, if any proposed nomination or business is not in
compliance herewith to declare that such defective proposal or nomination shall
be disregarded.
7
<PAGE> 8
(2) For purposes of this Section 10, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or in
a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 10, a stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 10 shall be deemed to affect
any rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
SECTION 11. In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the board of directors, and which date shall not be more than 10
days after the date upon which the resolution fixing the record date is adopted
by the board of directors. Any stockholder of record seeking to have the
stockholders authorize or take corporate action by written consent shall, by
written notice to the Secretary, request the board of directors to fix a record
date. The board of directors shall promptly, but in all events within 10 days
of the date on which such a request is received, adopt a resolution fixing the
record date. If no record date has been fixed by the board of directors within
10 days of the date on which such a request is received, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required
by applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
8
<PAGE> 9
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or any officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the board of directors and prior action by the
board of directors is required by applicable law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
board of directors adopts the resolution taking such prior action.
ARTICLE III
DIRECTORS
SECTION 1. The number of directors which shall constitute the
whole board shall be twelve, except as otherwise provided by the certificate of
incorporation. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article or as otherwise
provided by the certificate of incorporation, and each director elected shall
hold office until his successor is elected and qualifies, except as otherwise
provided by the certificate of incorporation; provided, however, that unless
otherwise restricted by the certificate of incorporation or these Bylaws, any
director of the entire board of directors may be removed either with or without
cause, at any meeting of stockholders by vote of a majority of the stock
present and entitled to vote thereat. Directors need not be stockholders.
SECTION 2. Except as otherwise provided by the certificate of
incorporation, by law or by resolution of the board of directors, vacancies and
newly created directorships resulting from any increase in the authorized
number of directors shall be filled only by a majority of the directors then in
office, though less than a quorum, and not by the stockholders and the
directors so chosen
9
<PAGE> 10
shall hold office until the next annual election and until their successors are
duly elected and shall qualify, unless sooner displaced.
SECTION 3. The business of the Corporation shall be managed
under the direction of its board of directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The board of directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
SECTION 5. The first meeting of each newly elected board of
directors shall be held as soon as practicable after the annual meeting of
stockholders and no notice of such meeting to the newly elected directors shall
be necessary in order legally to constitute the meeting, provided a quorum
shall be present.
SECTION 6. Regular meetings of the board of directors may be
held without notice at such time and at such place as shall from time to time
be determined by resolution of the board of directors.
SECTION 7. Special meetings of the board may be held at any
time upon the call of the Chairman of the Board or the Chief Executive Officer
or by any director at such place, on such date, and at such time as he or she
shall fix. Notice of the place, date and time of each such special meeting
shall be given each director by whom it is not waived by mailing written notice
not less than five (5) days before the meeting or by telegraphing or telexing
or by facsimile transmission or by oral notice of the same not less than
twenty-four hours before such meeting. Oral notice shall be
10
<PAGE> 11
confirmed in writing. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
SECTION 8. Except as may be otherwise specifically provided
by statute or by the certificate of incorporation, at all meetings of the board
six directors shall constitute a quorum for the transaction of business and the
approval of six of the directors present at any meeting shall be required for
action. Any director not present for approval of any action shall not be
counted for purposes of determining whether a quorum is present with respect to
such matter, regardless of whether such director is present for approval of any
other matter. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 9. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the board of directors may be taken without a meeting if all
members of the board consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the board.
RESIGNATIONS
SECTION 10. Any director or officer of the Corporation may
resign at any time by giving written notice to the Chairman of the Board, the
Chief Executive Officer or the Vice President-Secretary of the Corporation.
Such resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
11
<PAGE> 12
ARTICLE IV
NOTICES
SECTION 1. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the books of the Corporation. Notice by mail
shall be deemed to be given at the time when the same shall be mailed. Notice
to directors may also be given orally or by telegram, telecopy, telex or other
reasonable form of communication.
SECTION 2. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. The officers of the Corporation shall be chosen by
the board of directors and shall be a chairman of the board (if elected), a
chief executive officer, a vice president, a secretary, a controller and a
treasurer. The board of directors may also choose additional vice presidents,
and one or more assistant secretaries and assistant treasurers or other
officers as deemed necessary. Two or more offices may be held by the same
person.
SECTION 2. The board of directors at its first meeting after
each annual meeting of stockholders may choose a chairman of the board from
among the directors, and shall choose a chief executive officer, one or more
vice presidents, a vice president-secretary and a treasurer, none of whom need
to be a member of the board.
12
<PAGE> 13
SECTION 3. The board of directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
SECTION 4. The salaries of all officers and agents of the
Corporation may be fixed by the board of directors.
SECTION 5. The officers of the Corporation shall hold office
until their successors are chosen and qualify. Any officer elected or
appointed by the board of directors may be removed at any time, either with or
without cause, by the action of the board of directors. Any vacancy occurring
in any office of the Corporation by death, resignation, removal or otherwise
shall be filled by the action of the board of directors.
CHAIRMAN OF THE BOARD
SECTION 6. The Chairman of the Board, if one shall be elected
and if present, shall preside at all meetings of the board and of the
stockholders. He shall have, to the extent designated by and under the control
of the board, general supervision and direction of the business and affairs of
the Corporation. He shall at all times see that all resolutions or
determinations of the board are carried into effect. He shall perform the
duties incident to the office of the Chairman of the Board and all such other
duties as are specified in these Bylaws or as shall be assigned to him from
time to time by the board.
CHIEF EXECUTIVE OFFICER
SECTION 7. The Chief Executive Officer shall perform such
duties as from time to time shall be assigned to him by the board. He shall
also be the chief operating officer of the Corporation and shall, in
conjunction with any such duties of the Chairman, if any, generally supervise
and direct the business and affairs of the Corporation. He may execute bonds,
mortgages
13
<PAGE> 14
and other contracts requiring a seal, under the seal of the Corporation, and
any and all other contracts or obligations of the Corporation.
THE VICE PRESIDENTS
SECTION 8. The Vice Presidents in the order of their
seniority, unless otherwise determined by the board of directors, shall, in the
absence or disability of the Chief Executive Officer, perform the duties and
exercise the powers of the Chief Executive Officer. They shall perform such
other duties and have such other powers as the board of directors may from time
to time prescribe. They may execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, and any and all other
contracts or obligations of the Corporation.
THE SECRETARY AND ASSISTANT SECRETARIES
SECTION 9. The Secretary or other person acting in that
capacity shall attend all meetings of the board of directors and all meetings
of the stockholders and record all the proceedings of the meetings of the
Corporation and of the board of directors in a book to be kept for that purpose
and shall perform like duties for the standing committees when required. He
shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the board of directors, and shall perform such other
duties as may be prescribed by the board of directors, the Chairman of the
Board (if any), or the Chief Executive Officer, under whose supervision he
shall be. He shall keep in safe custody the seal of the Corporation, affix the
same to any instrument requiring it and, when so affixed, such instrument may
be attested by his signature or by the signature of the Treasurer or an
assistant secretary.
SECTION 10. The Assistant Secretaries in the order of their
seniority, unless otherwise determined by the board of directors, shall, in the
absence or disability of the Secretary, perform the
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duties and exercise the powers of the Secretary. They shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
THE TREASURER, THE CONTROLLER AND ASSISTANT TREASURERS
SECTION 11. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the board of
directors.
SECTION 12. He shall disburse the funds of the Corporation to
be ordered by the board of directors, taking proper orders for such
disbursements, and shall render to the Chairman of the Board, if any, the
President and the board of directors, at its regular meetings, or when the
board of directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the Corporation.
SECTION 13. If required by the board of directors, he shall
give the Corporation a bond (which shall be renewed every six years) in such
sum and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the Corporation.
SECTION 14. The Controller and the Assistant Treasurers in
the order of their seniority, unless otherwise determined by the board of
directors, shall, in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer. They shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
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<PAGE> 16
ARTICLE VI
INDEMNIFICATION
SECTION 1.(a) The Corporation shall indemnify, in the manner
and to the full extent authorized by law (as now in effect or later amended),
any person who was or is a witness in or a party to, or who is threatened to be
made a party to, any action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason, in whole or in part, of the fact
that such person or such person's spouse is or was a director or officer of the
Corporation or any predecessor of the Corporation or serves or served in any
other corporation or enterprise as director, officer, employee or agent at the
request of the Corporation or any predecessor of the Corporation.
(b) Without limitation of subsection (a) above, the
Corporation shall indemnify any person who was or is a witness, a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation or any predecessor
of the Corporation) by reason of the fact that such person is or was, at any
time prior to or during which this Article VI is in effect, a director or
officer of the Corporation or any predecessor of the Corporation, or is or was,
at any time prior to or during which this Article VI is in effect, serving at
the request of the Corporation or any predecessor of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan against reasonable
expenses (including attorneys' fees), judgments, fines, penalties, amounts paid
in settlement and other liabilities actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation or any predecessor of the Corporation,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was
16
<PAGE> 17
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that such person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation or any predecessor of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(c) Without limitation of subsection (a) above, the
Corporation shall indemnify any person who was or is a witness, a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation or any predecessor of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was, at any time prior to or during which this Article VI is in
effect, a director or officer of the Corporation or any predecessor of the
Corporation, or is or was, at any time prior to or during which this Article VI
is in effect, serving at the request of the Corporation or any predecessor of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
reasonable expenses (including attorneys' fees) and amounts paid in settlement,
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to the amounts paid in settlement, the
settlement is determined to be in the best interests of the Corporation;
provided that no indemnification shall be made under this subsection (c) in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery, or other court of appropriate jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all the
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circumstances of the case, such person is fairly and reasonably entitled to
indemnity of such expenses which the Delaware Court of Chancery, or other court
of appropriate jurisdiction, shall deem proper.
(d) Any indemnification under subsections (b) or (c) of this
Section 1 (unless ordered by the Delaware Court of Chancery or other court of
appropriate jurisdiction) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of such person
is proper in the circumstances because he has met the applicable standard of
conduct set forth in subsections (b) and (c) of this Section 1. Such
determination shall be made (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum; or
(2) if there are no such directors, or, if such directors so direct, by
independent legal counsel, selected by the board of directors; or (3) by the
stockholders. In the event a determination is made under this subsection (d)
that the director or officer has met the applicable standard of conduct as to
some matters but not as to others, amounts to be indemnified may be reasonably
prorated.
(e) In addition to and without limitation of subsections (b)
or (c) of this Section 1, expenses incurred by a person or spouse of a person
who is or was a director or officer of the Corporation or any predecessor of
the Corporation, in appearing at, participating in or defending any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, shall be paid by the Corporation at reasonable
intervals in advance of the final disposition of such action, suit or
proceeding; provided, however, that if the Delaware General Corporation Law
requires, an advancement of expenses incurred by a person in his capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person) shall be made only upon receipt of an undertaking by
or on behalf of such person to repay such
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amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized by this Article VI.
(f) If a claim under this Article VI is not paid in full by
the Corporation within ninety (90) days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its board of
directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its board of directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
(g) It is the intention of the Corporation to indemnify the
persons referred to in this Article VI to the fullest extent permitted by law
(as now in effect or later amended) and with respect to any action, suit or
proceeding arising from events which occur at any time prior to or during which
this Article VI is in effect. The indemnification and advancement of expenses
provided by this
19
<PAGE> 20
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be or become entitled
under any law, the certificate of incorporation, agreement, vote of
stockholders or disinterested directors or otherwise, or under any policy or
policies of insurance purchased and maintained by the Corporation on behalf of
any such person, both as to action in his official capacity (if any) and as to
action in another capacity while holding such office, and shall inure to the
benefit of his heirs, legal representatives and assigns. The provisions of
this Article VI are contract rights which (i) are for the benefit of, and may
be enforced by, the persons entitled thereto the same as if set forth in their
entirety in a written instrument duly executed and delivered by the Corporation
and each such person and (ii) constitute a continuing offer to all present and
future directors or officers of the Corporation. The Corporation, by its
adoption of these Bylaws, (i) acknowledges and agrees that each present and
future director or officer of the Corporation has relied upon and will continue
to rely upon the provisions of this Article VI in becoming, and serving as, a
director or officer of the Corporation or, if requested by the Corporation, a
director, officer, employee, agent, trustee or the like of another corporation
or other enterprise, (ii) waives reliance upon, and all notices of acceptance
of, such provisions by such directors or officers and (iii) acknowledges and
agrees that no person entitled to indemnification hereunder shall be prejudiced
in his right to enforce the provisions of this Article VI in accordance with
their terms by any act or failure to act on the part of the Corporation. No
amendment, modification or repeal of this Article VI or any provisions hereof
shall in any manner terminate, reduce or impair the right of any person
entitled to indemnification hereunder to be indemnified or advanced expenses by
the Corporation, nor the obligation of the Corporation to indemnify or advance
expenses to any such person under and in accordance with the provisions of this
Article VI as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters
20
<PAGE> 21
occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claim may arise or be asserted. The provisions
of this Article VI shall be binding upon the Corporation and its successors and
assigns and shall inure to the benefit of each person entitled to
indemnification hereunder and his or her heirs, legal representatives and
assigns.
(h) The indemnification provided by this Article VI shall be
subject to all valid and applicable laws, and, in the event this Article VI or
any of the provisions hereof or the indemnification contemplated hereby are
found to be inconsistent with or contrary to any such valid laws, the latter
shall be deemed to control, and this Article VI shall be regarded as modified
so that this Article and the indemnification provided for herein shall be valid
and enforceable to the greatest extent permitted by applicable laws, and, as so
modified, this Article VI shall continue in full force and effect.
ARTICLE VII
CERTIFICATES OF STOCK
SECTION 1. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by (or bearing such a facsimile
signature) or in the name of the Corporation, by the Chairman, Chief Executive
Officer or the Vice President, the Treasurer, or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number
of shares owned by him in the Corporation.
LOST CERTIFICATES
SECTION 2. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue
of a new certificate or
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certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or give the Corporation a bond in such
sum as it may direct as indemnity against any claims that may be made against
the Corporation with respect to the certificate alleged to have been lost or
destroyed.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the
Corporation, if any, may be declared by the board of directors at any regular
or special meeting, pursuant to law. Dividends may be paid in cash, in
property or in shares of the capital stock, subject to the provisions of the
certificate of incorporation.
SECTION 2. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest
of the Corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
CHECKS
SECTION 3. The persons from time to time holding the position
of Chairman of the Board (if any), Chief Executive Officer, Vice President,
Vice President-Secretary, Treasurer or Controller, of the Corporation, acting
by written instrument signed by any two of them are hereby authorized: (1) to
open or close any bank account of the Corporation; (2) to designate the use of
any
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<PAGE> 23
such account; (3) to grant authority to any person or combination of persons to
sign checks, by manual or facsimile signature, or issue instructions for
withdrawal of funds from any account maintained by the Corporation; (4) to
revoke the authority of any person or persons to sign checks or to issue
instructions; (5) to establish a maximum amount as to which any person or
combination of persons shall be authorized to sign checks or issue
instructions; and (6) to take all such further actions, and to execute and
deliver all such further instruments and documents, in the name and on behalf
of the Corporation, as in their judgment shall be necessary, proper or
advisable.
FISCAL YEAR
SECTION 4. The fiscal year of the Corporation shall be fixed
by resolution of the board of directors.
SEAL
SECTION 5. The corporate seal shall have inscribed thereon
the name of the Corporation and words "Corporate Seal, Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE IX
AMENDMENTS
SECTION 1. These Bylaws may be altered, amended or repealed
or new bylaws may be adopted by the stockholders or by the board of directors.
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<PAGE> 1
CONFORMED
WORKING COPY OF
UNION TEXAS PETROLEUM HOLDINGS, INC.
EXECUTIVE SEVERANCE PLAN
AS AMENDED THROUGH NINTH AMENDMENT
EFFECTIVE SEPTEMBER 5, 1997
<PAGE> 2
Article I -- Purpose
This Plan has been created to provide severance benefits to the
designated officers and key employees of UTP in the event of the
termination of their employment in conjunction with a Change of
Control.
Article II -- Definitions
2.01 Allied - means Allied Corporation, a New York corporation.
2.02 Annual Incentive Compensation - means the lesser of (i) the last
average percentage incentive compensation award for employees in the
same salary grade, or (ii) the Participant's average percentage
incentive compensation award in the last three incentive periods prior
to the date of the event giving rise to salary and benefit
continuation pursuant to Article IV of the Plan (or such lesser period
as the Participant may have been employed prior to such date) times
(iii) Base Salary. In determining such average percentages, annual
incentive compensation awards by Allied or its subsidiaries shall be
considered with respect to any period prior to the transaction
described in the second paragraph of Section 2.04 hereof.
Notwithstanding the foregoing, Annual Incentive Compensation with
respect to a Participant to whom salary and benefit continuation is
applicable following a Change of Control other than the transaction
described in the second paragraph of Section 2.04 hereof shall mean
the greater of (i) the Participant's target percentage incentive
compensation award in effect immediately prior to such Change of
Control, or (ii) the Participant's target percentage incentive
compensation award in effect immediately prior to the date of the
event giving rise to such salary and benefit continuation times (iii)
Base Salary; provided, however, that if a Change of Control occurs
after September 5, 1997, then solely for purposes of determining the
amount of any payment of Annual Incentive Compensation with respect to
any such Participant that is to be made in accordance with this Plan
in January of the year following the Change of Control, Annual
Incentive Compensation shall not be less than the incentive
compensation award that would be applicable to such Participant for
the year in which a Change of Control occurs with such award being
determined at the time of the Change of Control and based upon the
levels of objectives achieved by the Company at the time of the Change
of Control.
2.03 Base Salary - means the annual salary of a Participant on the
Effective Date of the Plan or such higher annual amount that may
result from approved salary increases (without giving effect to salary
decreases, if any) following the Effective Date but prior to the date
of the event giving rise to salary and benefit continuation pursuant
to Article IV of the Plan.
2.04 Change of Control - means the sale of the majority of the stock or
business assets of UTP; or one or more of the principal subsidiaries
of UTP.
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<PAGE> 3
Specifically, Change of Control shall also include the closing of the
transaction described in that Stock Acquisition Agreement dated April
19, 1985, pursuant to which Petroleum Associates, L.P., a limited
partnership of which Kohlberg Kravis Roberts & Co. or its affiliate is
a general partner, directly or indirectly acquires an equity interest
in UTP.
Change of Control shall also include a change of ownership not
described in the immediately preceding paragraph of this Section 2.04
that results in a significant reorganization of UTP within ninety (90)
days of the change of ownership. Further, the Change of Control
described in this paragraph shall be deemed to have occurred only for
those Participants whose employment is not continued as a direct
result of the reorganization.
2.05 Code - means the Internal Revenue Code of 1986, as amended from time
to time.
2.06 Effective Date - means March 1, 1985.
2.07 Gross Cause - means fraud, misappropriation of company property or
intentional misconduct damaging to such property or business of UTP,
or the commission of a crime.
2.08 Participant - means an employee of UTP listed in Appendix A, and any
other officer or key employee of UTP who has been designated as a
Participant in the Plan by action of the Board of Directors of UTP.
2.09 Plan - means the Union Texas Petroleum Holdings, Inc. Executive
Severance Plan.
2.10 Plan Administrator - means the individual or committee designated by
the Board of Directors of UTP to administer the terms and conditions
of the Plan.
2.11 Plan Sponsor - means UTP. In the event of a Change of Control, any
successor to UTP (or a principal subsidiary) shall become a Plan
Sponsor.
2.12 Protected Period - means each of any of the following periods:
(i) the period ending March 31, 1999; and
(ii) the period beginning with the date of any Change of Control
that occurs after March 31, 1991 and ending twenty-four (24)
months after the date of such Change of Control."
2.13 UTP - means Union Texas Petroleum Holdings, Inc. Its principal
subsidiaries are Union Texas Petroleum Corporation, Union Texas
Products Corporation, and Union Texas Properties Corporation. Texgas
Corporation is not a principal subsidiary.
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<PAGE> 4
Article III -- Participation
Employees listed in Appendix A shall be Participants in the Plan.
Prior to a Change of Control, any other employee who is either an
officer of UTP, is in salary grade 17 and above, or reports directly
to the Chairman of the Board and Chief Executive Officer of UTP may be
designated as a Participant in the Plan by the Board of Directors of
UTP. The benefits provided under the Plan are limited solely to
Participants.
Article IV -- Benefits
4.01 Eligibility for Salary and Benefit Continuation
In the event of a Change of Control, salary and benefit continuation
shall be provided to Participants who have not voluntarily terminated
their employment prior to, coincident with or following such Change of
Control, if:
A) A Participant is not offered continued employment by UTP or a
successor coincident with the Change of Control; or
B) A Participant accepting or continuing employment with UTP or a
successor following a Change of Control is terminated, other
than for Gross Cause, within the Protected Period. For
purposes of this paragraph B, if at any time during the
Protected Period a Participant is offered continued employment
(1) at less than one hundred percent (100%) of Base Salary and
comparable target incentive opportunity (comparable to that
applicable to him immediately prior to such offer of continued
employment), other than any such offer that is made pursuant
to a program of compensation reduction that is generally and
similarly applicable to substantially all of the management
employees of UTP and that is made due to material financial
hardship of UTP, as reasonably determined by the Board of
Directors of UTP, or (2) at a location which is in excess of
thirty (30) miles from the Participant's current work site,
and such Participant refuses such offer of continued
employment or relocation, such Participant shall be deemed to
have been terminated (involuntarily), other than for Gross
Cause.
Notwithstanding the foregoing, in the event of the sale of any
facility, line of business or subsidiary of UTP or its subsidiaries or
spinoff of a subsidiary of UTP or its subsidiaries at any time
(whether before or after a Change of Control and without regard to
whether such sale or spinoff does nor does not constitute a Change of
Control), a Participant who receives a Comparable Offer of Employment
(as hereinafter defined) with the purchaser (or its affiliates) of
such facility, line of business or subsidiary or with such spinoff
subsidiary or who accepts employment (without regard to the terms of
such employment) with the purchaser (or its affiliates) of such
facility, line of business or subsidiary or with such spinoff
subsidiary in connection with the sale or spinoff shall not be
considered to have been
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<PAGE> 5
involuntarily terminated, and salary and benefit continuation shall
not be provided to such Participant. A "Comparable Offer of
Employment" is an offer of employment which provides for (1) at least
100% of Base Salary, (2) comparable target incentive opportunity
(comparable to that applicable to the Participant immediately prior to
such offer of employment), (3) a work site location not in excess of
thirty miles from the Participant's current work site, and (4)
protection under a severance program of the purchaser or spinoff
subsidiary to the effect that if a Participant is involuntarily
terminated other than for gross cause within twelve months after the
date of sale or spinoff, such Participant shall be entitled to salary
and incentive compensation continuation in the amounts and for the
length of time to which such Participant would have been entitled
under this Plan if he had been involuntarily terminated, other than
for Gross Cause, on the day before the sale or spinoff. In the event
of the sale of any facility, line of business or subsidiary of UTP or
its subsidiaries or spinoff of a subsidiary of UTP or its subsidiaries
at any time (whether before or after a Change of Control and without
regard to whether such sale or spinoff does or does not constitute a
Change of Control), a Participant who is employed by UTP or its
subsidiaries or successor at the closing of the sale or spinoff, who
does not accept employment with the purchaser (or its affiliates) of
such facility, line of business or subsidiary or with such spinoff
subsidiary in connection with the sale or spinoff, and who
subsequently accepts employment (without regard to the terms of such
employment) with such purchaser (or its affiliates) or spinoff
subsidiary within six months after the closing of the sale or spinoff
shall not be eligible to receive any salary and benefit continuation
from and after the date such Participant begins employment with such
purchaser or its affiliates or such spinoff subsidiary (whether or not
such Participant had previously become entitled to salary and benefit
continuation pursuant to the Plan on or after such closing). If such
Participant has become entitled to and been paid a lump sum payment
for salary continuation pursuant to the Plan, such Participant shall
be obligated to repay to UTP or its successor a portion of such lump
sum payment equal to the amount of the lump sum payment multiplied by
a fraction, the numerator of which is the remaining months left in the
salary continuation period for which the lump sum payment was made and
the denominator of which is the total number of months in the salary
continuation period for which the lump sum payment was made.
4.02 Salary and Benefit Continuation
A) Salary Continuation - A Participant shall receive Base Salary,
paid monthly, and an Annual Incentive Compensation, paid
annually, for a period not less than twenty-four (24) nor
greater than thirty-six (36) months, as specified in Appendix
A or by the Board of Directors of UTP at the time the officer
or key employee is designated as a Participant; provided,
however, in the event of a Change of Control that occurs after
September 5, 1997, a Participant shall receive Base Salary,
paid monthly, and an Annual Incentive Compensation, paid
annually, for a period of thirty-six (36) months. In this
connection, Annual Incentive Compensation shall be paid during
each January that occurs after a Participant's termination and
before the end of the period of Salary Continuation, and a
final payment with respect to such Annual Incentive
Compensation shall be made in the January next following the
end of the period of Salary Continuation, which final payment
shall be a fraction of the Annual
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<PAGE> 6
Incentive Compensation, the numerator of which is the number
of months between the beginning of the calendar year in which
ends the period of Salary Continuation and the end of the
period of Salary Continuation and the denominator of which is
twelve.
B) Benefit Continuation - For the period of Salary Continuation,
UTP or its successor will continue the Participant's basic
life and medical insurance (including qualified dependents),
at the active employee coverage level and prevailing employee
contribution rate, if any. Provided, however, that such level
of continued benefits shall not exceed the level of benefits
in effect on the date of the event giving rise to such Benefit
Continuation, and that such continued insurance coverage will
cease on the date similar coverage is provided the Participant
by a subsequent employer.
C) Pension Service Continuation - Under the terms of the
qualified pension plan covering Participant, the months of
Salary Continuation for such Participant shall be recognized
or if not permissible under such qualified pension plan
comparable service shall be recognized under a non-qualified
plan covering Participant.
D) Savings Plan Match - In the event of a Change of Control that
occurs after September 5, 1997, a participant shall receive an
amount equal to 24% of his Base Salary paid in a lump sum
within thirty days following the termination of employment
that entitles a Participant to benefits under the Plan.
E) Outplacement Services - A Participant who becomes entitled to
benefits under the Plan shall be entitled to receive Executive
Outplacement Services in accordance with the Company's past
practice for such outplacement services.
F) Tax Gross-Up - If it shall be determined that any payment to
or for the benefit of a Participant pursuant to Sections
4.02(A) - (E) of the Plan or under any other plan or program
of the Company (collectively, the "payments") would be subject
to the excise tax imposed by Section 4999 of the Code (or any
successor provision) or any interest or penalties are incurred
by a Participant with respect to such excise tax (such excise
tax together with any such interest and penalties, the "Excise
Tax"), such Participant shall receive an additional lump such
cash payment (a "Gross-Up Payment") such that after payment by
the Participant of all taxes (including any interest or
penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, Participant will retain an
amount of the Gross-Up Payment equal to the Excise Tax on the
payments.
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4.03 Benefit Limitations - Except as provided in other plans, the amount of
any similar benefits under other severance plans sponsored by UTP for
which the Participant may be eligible shall be offset and reduced by
the amount provided the Participant under this Plan regardless of
whether the payments under this Plan are made at a later date than
payments under a similar plan would have been made. Payments under
this Plan shall not continue past the month in which the Participant
attains age sixty-five (65).
4.04 Termination of Employment - Nothing contained in this Plan prohibits
or restricts in any way the right of UTP or any Participant to
terminate or refuse employment at any time for any reason whatsoever,
with or without cause.
4.05 Special Provisions for a Change of Control After July 25, 1991 - In
the event of a Change of Control that occurs after July 25, 1991, the
following special provisions shall be applicable (and, specifically,
the second sentence of Section 4.01(B) shall thereupon become
inoperative and inapplicable). References in this section to a Change
of Control shall mean a Change of Control that occurs after July 25,
1991 but shall not include the sale of a principal subsidiary of UTP
unless the sale of such principal subsidiary constitutes the sale of a
majority of the business assets of UTP.
A) A Participant who terminates employment after a Change of
Control and during the Protected Period for Good Reason as
hereinafter defined shall be deemed to be involuntarily
terminated, other than for Gross Cause. "Good Reason" means
one or more of the following:
(1) a material change in the Participant's duties,
authority or responsibilities as they existed
immediately preceding a Change of Control;
(2) any Significant Reduction in Base Salary of the
Participant from that applicable immediately prior to
the Change of Control;
(3) any Significant Reduction in annual incentive
compensation for the Participant from that applicable
immediately prior to the Change of Control;
(4) any Significant Reduction in benefit coverage for the
Participant from that applicable under UTP's medical
plan for active employees immediately prior to the
Change of Control or any Significant Increase in
premiums to be paid by the Participant for such
benefits from those applicable immediately prior to
the Change of Control;
(5) any Significant Reduction in the rate of UTP's
contribution to the Union Texas Petroleum Savings
Plan for Salaried Employees or benefit accruals under
the Union Texas Petroleum Salaried Employees' Pension
Plan from those applicable immediately prior to the
Change of Control;
-6-
<PAGE> 8
(6) any Significant Reduction in the benefit coverage
available to the Participant under the UTP long-term
disability plan or the UTP life insurance benefits
from those applicable immediately prior to the Change
of Control or any Significant Increase in premiums to
be paid by the Participant for such benefits from
those applicable immediately prior to the Change of
Control;
(7) any geographic relocation of the Participant's work
site location to a new location in excess of thirty
miles from the location of the Participant's work
site location immediately prior to the Change of
Control;
(8) any action by UTP or its subsidiaries that under
applicable law constitutes constructive discharge.
Notwithstanding the foregoing, during the ninety day period
beginning on the date of the Change of Control, a Participant
may not terminate employment for Good Reason based solely on a
circumstance described in (A)(1) above; however, a Participant
may terminate employment for Good Reason after such ninety day
period and during the Protected Period based (solely or
otherwise) on a circumstance described in (A)(1) above that
occurred during such ninety day period. For purposes of this
section, the term "Significant Reduction" shall mean a
reduction or series of reductions with respect to the same
form of benefit or remuneration which are greater than 10% or
which do not affect all persons covered by the plan or program
in question. For purposes of this section, the term
"Significant Increase" shall mean an increase or a series of
increases in the Participant's percentage of total premiums
for a benefit which are greater than 10% or which do not
affect all persons covered by the plan or program in question.
B) The benefits which are determined to be payable to a
Participant pursuant to Section 4.02(A) on or after a Change
of Control shall be paid in a lump sum within thirty days
following the later of the Change of Control or a termination
of employment that entitles a Participant to benefits under
this Plan. If a termination of employment which entitles a
Participant to receive benefits under this Plan occurred prior
to a Change of Control, the remaining benefits payable to a
Participant pursuant to Section 4.02(A) shall be commuted and
paid in a lump sum at the Change of Control. It is
specifically provided that any lump sum payment described in
this Section 4.05(B) shall equal the total payments to be made
or remaining to be made to a Participant pursuant to Section
4.02(A) without any reduction for the acceleration of such
payments. If a Participant becomes entitled to a lump sum
payment pursuant to this Section, such Participant shall
continue to be entitled to benefit continuation provided for
by Section 4.02(B) for the period that salary continuation
would have been paid pursuant to Section 4.02(A) if such lump
sum payment had not been made.
-7-
<PAGE> 9
Article V - Administration
5.01 Plan Administrator - The Board of Directors of UTP shall name a Plan
Administrator. Such Plan Administrator shall serve at the convenience
of the Board of Directors and shall serve without compensation. The
Plan Administrator shall keep such records as necessary for the proper
administration of the Plan and shall report to the Board of Directors
at such time or times as the Board of Directors shall designate.
5.02 Benefit Determination - The Plan Administrator shall determine the
amount and timing of any benefit paid under the Plan. The Plan
Administrator shall rely on the records of UTP in determining any
Participant's eligibility for and amount of benefit under the Plan.
In the event that the Plan Administrator's reliance on the records of
UTP causes a benefit to be over or under paid, the Plan Administrator
shall adjust future payments to be increased or decreased as required.
If such future payments are insufficient to recover any overpayment to
a Participant, the Plan Administrator shall withhold any payments then
due a Participant and take any action deemed appropriate to recover
the balance of the overpayment. In the event of the death of a
Participant while payments to such Participant continue, the balance
of payments will be made to the Participant's spouse or in the absence
of a spouse, to the estate of the Participant.
5.03 Benefit Appeals - The Plan Administrator shall establish an appeals
procedure as defined by U. S. Department of Labor regulations. Such
procedures will provide that the Participant has sixty (60) days upon
receipt of any benefits or denial of benefits to file an appeal with
the Plan Administrator. The Plan Administrator must respond within
sixty (60) days of receiving the appeal, in writing specifically
identifying those Plan provisions on which the benefit denial was
based and indicating what information the Participant must supply in
order to perfect a claim for benefits.
5.04 Indemnification - If litigation shall be brought to enforce or
interpret any provision of the Plan, UTP shall pay and indemnify the
Participant against, to the fullest extent permitted by law, the
Participant's reasonable attorney's fees and other disbursements
incurred in such litigation (regardless of the outcome thereof). This
Section 5.04 shall be applicable only from and after a Change of
Control other than the transaction described in the second paragraph
of Section 2.04 hereof.
Article VI - Amendment and Termination
6.01 Plan Amendments - The Board of Directors of UTP reserves the right to
amend the Plan from time to time. However, no amendment shall reduce
any benefit being paid or then payable to a Participant.
-8-
<PAGE> 10
In the event of a Change of Control, during the Protected Period no
amendment to the Plan may be made if such amendment would reduce the
benefits provided by the Plan or alter in any manner the rights of the
Participants.
6.02 Plan Termination - The Board of Directors of UTP reserves the right to
terminate the Plan. However, no Plan termination shall be permitted
within one hundred eighty (180) days preceding a Change of Control or
during the Protected Period.
Such termination shall not adversely affect the rights of Participants
already receiving benefits under the Plan at the time of Plan
termination.
-9-
<PAGE> 11
APPENDIX A
TO
EXECUTIVE SEVERANCE PLAN
AS OF FEBRUARY 4, 1998
Whitmire, J. L. - Chairman and Chief Executive Officer (36 months)
Krips, W. M. - Senior Vice President (36 months)
Peabody, A. W. - Senior Vice President (36 months)
Crain, Jr., A. R. - Vice President and General Counsel (24 months)
Cunningham, R. A. - Regional Vice President (24 months)
Kalmbach, L. D. - Vice President and Chief Financial Officer (24 months)
Knight, J. E. - Regional Vice President (24 months)
Markowitz, M. N. - Vice President and Treasurer (24 months)
McMullan, D. M. - Vice President and Controller (24 months)
Pierce, R. W. - Vice President Exploration (24 months)
Wilson, III, N. W. - Regional Vice President (24 months)
Zimmerman, J. M. - Vice President Investor Relations (24 months)
Cox, C. L. - Director Corporate Communications (24 months)
Dimick, M. C. - Director Human Resources (24 months)
Frazier, R. J. - General Manager Petrochemical Field Operations (24 months)
Hoffman, A. G. - President Union Texas Pakistan (24 months)
Kennedy, J. E. - Managing Director UTPL (24 months)
Latch, C. W. - General Manager Union Texas Venezuela (24 months)
C. del Solar - President Union Texas Zulia, Inc. (24 months)
Change-In-Control
In the event of a change-in-control after September 5, 1997, the above named
participants shall be eligible for 36 months of salary continuation.
-10-
<PAGE> 1
BOQUERON AREA
[TRANSLATION]
OPERATING AGREEMENT
Dated July 29, 1997
between
LAGOVEN, S.A.
and
UNION TEXAS VENEZUELA LIMITED
and
PREUSSAG ENERGIE GMBH
BOQUERON
LEGEND
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
<PAGE> 2
BOQUERON AREA
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Clause I Definitions 2
Clause II Object 10
Clause III Effectiveness; Guarantees; EPIC; Factor de Valorizacion 10
Clause IV Operating Services; Minimum Work Obligation 13
Clause V Affiliate Approval Requirements 15
Clause VI Development Plan 17
Clause VII Annual Work Programs and Budgets; AFEs 19
Clause VIII Activities Outside Field Boundaries 22
Clause IX Amendments to Development Plans 25
Clause X The Operator 27
Clause XI Conduct of Operating Services 30
Clause XII Title to and Use of Fixed Assets 38
Clause XIII Hydrocarbon Reservoirs Extending Outside the Area 42
Clause XIV Production Curtailment 43
Clause XV Title to and Transfer of Hydrocarbons; Royalties; 44
Transportation and Handling
Clause XVI Gas Disposition and Handling 46
Clause XVII Payment and Reimbursement 48
Clause XVIII Statements and Invoices 49
Clause XIX Terms and Termination; Extensions 50
Clause XX Default and Early Termination 52
Clause XXI Abandonment; Inactive Wells 54
Clause XXII Environmental Matters 58
Clause XXIII Governing Law; Arbitration; Expert Opinion 60
Clause XXIV Technology; Ownership of Information and Data; Access to 62
Facilities
Clause XXV Confidentiality 63
Clause XXVI Force Majeure 64
Clause XXVII Assignment; Change in Control 65
Clause XXVIII Notices 66
Clause XXIX Miscellaneous 68
Annex A Description of Area
Annex B Description of Initial Field
Annex C Accounting Procedures
Annex D Form of Contractor Guarantee
Annex E Development Plan Guidelines
Annex F Initial Contractor Participations
Annex G Form of Operator Accession Agreement
Annex H Delivery of Hydrocarbons
Annex I Baseline Production
Annex J Form of Operator Guarantee
Annex K Model Joint Operating Terms for EPIC
</TABLE>
<PAGE> 3
BOQUERON AREA
Annex L Price Formula
Annex M Form of Guarantee for Minimum Work Obligation
Annex M-2 Form of Financial Undertaking for Minimum Work Obligation
Annex N Available Assets
Annex O Form of Letter of Credit for Minimum Work Obligation
<PAGE> 4
BOQUERON AREA
OPERATING AGREEMENT
Operating Agreement dated July 29th, 1997, between LAGOVEN, S.A., a sociedad
anonima organized on the date of December 18, 1975 before the First Mercantile
Registry of the Judicial District for the Federal District and the State of
Miranda, Republic of Venezuela, under Number 56, Book 116-A (together with its
successors and assigns, the "Affiliate"), represented by JULIUS TRINKUNAS;
acting in this act as President of the company and UNION TEXAS VENEZUELA
LIMITED, an international business company organized on the date of January 10,
1996 in the Commonwealth of the Bahamas, represented in this act by NEWTON W.
WILSON, III acting in his capacity as President, and PREUSSAG ENERGIE GmbH, a
limited liability company organized on the date of January 1, 1993 in Germany,
represented in this act by RUDOLPH BERENDS, acting in his capacity as attorney
in fact (together with their respective successors and assigns, the
"Contractors"):
RECITALS
A. All Hydrocarbons existing within the territory of Venezuela are a national
resource owned and controlled by the Republic of Venezuela.
B. The Affiliate has the exclusive right to carry on all operations with
respect to the Hydrocarbons in the Area (as defined herein).
C. The Affiliate wishes to promote the development of the Area, and the
Contractors wish to render services within the Area.
D. The Contractors have the financial capacity, technical ability and
professional expertise necessary to perform the Operating Services
described herein.
E. The Contractors have agreed to perform for the Affiliate, but at the risk
and cost of the Contractors, those rehabilitation, reactivation,
development, production, exploration and other activities as are required
to achieve the continuous commercial development of the Hydrocarbons
located in the Area, as further specifically set forth herein and as to be
set forth in the Development Plans and Annual Work Programs and Budgets
approved by the Affiliate.
F. The Parties have agreed that the payment to the Contractors for the
services rendered hereunder shall only include such payment as is
established in Clause XVII (and the direct reimbursement of certain
specified expenses as provided elsewhere in this Agreement), and that the
Contractors shall not have any title to the Hydrocarbons located or
produced in the Area.
G. The Parties have agreed that the rights of the Contractors derived herefrom
do not include any right to the economic benefits resulting from the sale
or disposal by the Affiliate of the Hydrocarbons extracted for the Area,
but only those economic
<PAGE> 5
BOQUERON AREA
interests as may be granted to the Contractors hereunder in their
capacities as contractors, for the Operating Services described herein.
NOW, THEREFORE, the Parties hereby agree on the following terms and conditions
to govern their Agreement:
I
DEFINITIONS
The following terms shall have the following meanings for purposes of this
Agreement:
"Accounting Procedures" shall mean the accounting procedures attached hereto as
Annex C, as amended or supplemented from time to time in accordance with this
Agreement.
"Accumulation" shall mean any group of Hydrocarbon-bearing reservoirs,
formations or deposits that would ordinarily be considered a single field in
accordance with International Oil Industry Standards; provided that, unless
otherwise agreed by the Affiliate in its discretion, no Hydrocarbon-bearing
reservoirs, formations or deposits lying at depths below the lower horizon of
the Field Boundary of the Initial Field will be deemed to constitute an
"Accumulation" with the Initial Field.
"AFE" shall mean an authorization for expenditures meeting the requirements of
the Uniform Reporting System.
"Affiliate" shall have the meaning set forth in the first paragraph of this
Agreement.
"Agreement" shall mean this Operating Agreement, including all schedules,
exhibits and annexes hereto, as amended or supplemented from time to time.
"Annual Work Program and Budget" shall mean, for any Calendar Year, a work
program and budget prepared and submitted by the Contractors to the Affiliate
and approved by the Affiliate in accordance with Clause 7.3, as amended or
supplemented from time to time in accordance with this Agreement.
"Area" shall mean the "Area" specified in Annex A hereto, as reduced through
the partial termination of this Agreement pursuant to Clause 19.2.
"Associated Entity" shall mean, with respect to any Person, any other Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person, whether through ownership of voting securities or
otherwise. For this purpose, and without limiting the foregoing, (i) any
Person that owns more than 50% of the outstanding voting securities (or
equivalent ownership interests) of another Person shall be deemed to control
such Person, and (ii) any Person that owns at least 30% of the outstanding
voting securities (or equivalent
2
<PAGE> 6
BOQUERON AREA
ownership interests) of another Person that is acting as Operator pursuant to
Clause X and has executed a guarantee with respect to such Operator in the form
of Annex J shall be deemed to control such Operator in its capacity as Operator
(but not in its capacity as Contractor if such Person is also a Contractor).
Notwithstanding the foregoing, no sovereign, government, ministry, governmental
agency (other than a commercial entity acting in a commercial capacity) or
political subdivision of any sovereign shall be considered as Associated Entity
of any Party.
"Associated Gas" shall mean Natural Gas produced from a Field other than a Free
Gas Discovery. Any volume of Natural Gas that is supplied by the Affiliate from
outside the Area (including any Natural Gas previously delivered to the
Affiliate by the Contractors), injected into a well for purposes of gas lift
and subsequently recovered will not be considered to have been produced from
the Field concerned.
"Barrel" or "barrel" shall mean a quantity consisting of 42 United States
gallons, corrected to a temperature of 60 degrees Fahrenheit under one
atmosphere of pressure.
"Baseline Gas" shall have the meaning set forth in Clause 16.2.
"Baseline Production" shall mean, for any Quarter, a volume of Production of
Liquid Hydrocarbons in such Quarter, determined as follows:
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
3
<PAGE> 7
BOQUERON AREA
"Baseline Production Decline Factor" shall mean the fraction, expressed as a
decimal, of the annual decline in Baseline Production as stated in Annex I.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day on
which commercial banks in Caracas are authorized or required to close by law,
decree, regulation or resolution or by decision of the Consejo Bancario
Nacional of Venezuela or any successor entity.
"Calendar Year" shall have the meaning set forth in the Accounting Procedures.
"Capital Expenditures" shall have the meaning set forth in the Accounting
Procedures.
"Chargeable Expenditures" shall have the meaning set forth in the Accounting
Procedures.
"Connected" shall mean, with respect to two or more Hydrocarbon-bearing
structures, formations or deposits, that such structures, formations or
deposits have been reasonably demonstrated (i) by geologic and engineering
interpretations to be geologically continuous in the Hydrocarbon-bearing
section, (ii) by appropriate technical means to be in pressure communication
with one another in the Hydrocarbon phase, or (iii) to constitute an
Accumulation.
"Contractors" shall have the meaning set forth in the first paragraph of this
Agreement, and shall also include EPIC upon the execution by EPIC of a
counterpart of this Agreement pursuant to Clause 3.3.
"Contractor Well" shall mean any well that the Contractors have either drilled
or used in the Area for any purpose during the term of this Agreement. Any
production or injection well that is used for commercial production in the Area
as of the Takeover Date will be conclusively considered a "Contractor Well".
"Delivery Point" shall mean the point or points at which Production is to be
delivered by the Contractors to the Affiliate, as specified in Annex H hereto,
or as otherwise specified from time to time in accordance with Clause 15.3.
"Delivery Point Capacity" shall mean, for any time period and Delivery Point,
and for Hydrocarbons of any type and quality, the maximum volume of Production
of Hydrocarbons of such type and quality that the Contractors are authorized
to deliver at such Delivery Point, as specified in Annex H, as modified from
time to time in accordance with Clause 15.3.
"Development Plan" shall mean, with respect to any Field, such plan as the
Contractors submit to the Affiliate and that the Affiliate approves pursuant
to Clause 6.3 or 8.5, in each case meeting the requirements set forth in Annex
E hereto (to the extent applicable to such Field) and the requirements of Clause
6.2, and in each case as amended from time to time in accordance with this
Agreement.
"Dry" shall mean, as applied to any Natural Gas, such Natural Gas after the
extraction of propane, butane and similar liquids that may be removed by
extraction.
4
<PAGE> 8
BOQUERON AREA
"Effective Date" shall mean the date of execution of this Agreement by the
Other Contractors and the Affiliate.
"Environmental Claim and Cleanup Liability" shall mean: (a) any liabilities,
costs or expenses arising from or relating to any claim by a Venezuelan
governmental authority or other third party pursuant to Environmental Law for
personal injury, property damage, or damage to natural resources or the
environment (whether based on negligent acts or omissions, statutory liability,
or strict liability without fault or otherwise), in connection with the Area or
the activities or operations conducted therein; (b) any liabilities, costs or
expenses arising from or relating to any investigation, study, remediation or
abatement of any Release, to the extent required by Environmental Law, in
connection with the Area or the activities or operations conducted therein; or
(c) any fines or penalties assessed for non-compliance with Environmental Law
in connection with the Area or the activities or operations conducted therein.
"Environmental Law" shall mean any Law or Decision relating to: (a)
conservation, improvement, protection, pollution, contamination or remediation
of the environment; (b) any Release, including, without limitation,
investigation and cleanup of such Release or threatened Release; and (c) the
storage, treatment, disposal, recycling or transportation of any Hazardous
Substance.
"EPIC" shall mean Exploracion y Produccion EPIC, S.A., an entidad de inversion
colectiva de capital de riesgo to be organized under the laws of the Republic
of Venezuela and sponsored by an Associated Entity of PDVSA for purposes of
giving Venezuelan citizens and other investors an opportunity to invest in the
Venezuelan hydrocarbon sector and related projects, and shall also mean another
sociedad anonima organized under the laws of the Republic of Venezuela by an
Associated Entity of PDVSA and designated in writing by PDVSA as acting on
behalf and in place of Exploracion y Produccion EPIC, S.A. until completion of
the latter's organization and the transfer to it of any Participation held by
such other sociedad anonima.
"Event of Force Majeure" shall have the meaning set forth in Clause 26.2.
"Exploration Activity" shall mean such activity as one or more of the
Contractors propose to the Affiliate and the Affiliate approves pursuant to
Clause 8.2, for the conduct, at the sole risk of such Contractors, of
exploration and/or appraisal activities in the Area outside the Field
Boundaries of the then-existing Fields, as amended from time to time in
accordance with this Agreement.
"Exploration Expenditures" shall have the meaning set forth in the Accounting
Procedures.
"Export Point" shall have the meaning set forth in Clause 15.3.
"Factor de Valorizacion" shall mean the payment to be made by the Contractors
pursuant to Clause 3.4.
5
<PAGE> 9
BOQUERON AREA
"Field" shall mean each of (i) the Initial Field and (ii) any
Hydrocarbon-bearing formation, or group of Hydrocarbon-bearing formations,
described as a Field by the Contractors in a Development Plan submitted to and
approved by the Affiliate pursuant to Clauses 8.4 and 8.5.
"Field Boundary" shall mean, (i) with respect to the Initial Field, the
boundaries of such Initial Field set forth in Annex B, as modified from time to
time in accordance with Clauses 8.8 or 8.9, and (ii) with respect to any other
Field, the boundary (or boundaries, in the case of a Field comprising more than
one formation) described as the Field Boundary in the related Development Plan
submitted in accordance with Clause 8.4, which shall include each area in which
such Field is located, and the upper and lower geological horizons of such
Field, and which may include an area, or an upper or lower geological horizon,
to which the Contractors can reasonably demonstrate such Field may extend, as
modified from time to time in accordance with Clauses 8.8 or 8.9.
"Final Well Report" shall mean, with respect to any exploration or appraisal
well, a report prepared in accordance with Clause 8.3.
"Free Gas Discovery" shall mean a discovery of Hydrocarbons outside the Field
Boundaries of existing Fields, that consist of Natural Gas and related
condensates that are primarily in the gas phase at reservoir conditions, where
the sale or other commercial disposal of the Natural Gas is likely to be
necessary in order to achieve commercial production of such Hydrocarbons.
"Hazardous Substance" shall mean any pollutant, contaminant, constituent,
chemical, mixture, raw material, intermediate product, finished product or
by-product, Hydrocarbon or any fraction thereof, asbestos or
asbestos-containing-material, polychlorinated biphenyls, or industrial, solid,
toxic, radioactive, infectious, disease-causing or hazardous substance,
material, waste or agent, including, without limitation, all substances,
materials or wastes which are identified or regulated under any Environmental
Law.
"Hydrocarbons" shall mean Liquid Hydrocarbons and Natural Gas.
"Incremental Gas" shall have the meaning set forth in Clause 16.2.
"Incremental Production" shall mean, for any Quarter, all Production in excess
of Baseline Production for such Quarter, other than any Production of
Associated Gas.
"Initial Baseline Production" shall mean, a volume of Production of Liquid
Hydrocarbons in the first Quarter of the Operation Period, determined as
provided in Clause 11.8.
"Initial Field" shall mean the Hydrocarbon-bearing formation or group of
Hydrocarbon-bearing formations described as the "Initial Field" in Annex B
hereto.
"International Oil Industry Standards" shall mean such practices and procedures
employed generally in the petroleum industry throughout the world by prudent
and diligent operators under conditions and circumstances similar to those
experienced in connection with the relevant aspect or aspects of the Operating
Services.
6
<PAGE> 10
BOQUERON AREA
"Law or Decision" shall mean any applicable law, statute, ordinance, code,
rule, regulation, order, writ, injunction, decree, demand, judgment, ruling,
decision, determination, award, standard, permit, or variance of any Venezuelan
governmental authority, or any binding agreement with any Venezuelan
governmental authority.
"LIBOR" shall mean, as of any date of determination, the three-month London
Interbank Offered Rate, determined at 11:00 a.m., London time, on the first day
of the calendar quarter in which the date of determination occurs (or, if the
first day of such calendar quarter is not a London Banking Day, the immediately
preceding London Banking Day), as such rate appears on Telerate Page 3750, or
any successor page thereto. If Telerate Page 3750 or any successor page ceases
to publish the three-month London Interbank Offered Rate, the Parties shall
designate an alternative mechanism consistent with Eurodollar market practice
for determining such rate. For purposes of this definition, a "London Banking
Day" is a day on which dealings in deposits in U.S. dollars are transacted on
the London interbank market.
"Liquid Hydrocarbons" shall mean crude mineral oil, regardless of gravity, which
is produced at the wellhead in a liquid state at ambient conditions of
temperature and atmospheric pressure, or which is obtained from Natural Gas by
natural condensation.
"Maximum Economic Rate" shall mean, with respect to any Field, the maximum
rate of production at which such Field may be produced over the life of the
Field in order to obtain the maximum final economic recovery from the relevant
reserves, reflecting sound engineering and economic principles in accordance
with International Oil Industry Standards.
"Minimum Work Obligation" shall have the meaning set forth in Clause 4.3.
"Natural Gas" shall mean Wet gas, Dry gas, all other gaseous hydrocarbons and
all substances contained therein, which are produced from oil or gas wells,
excluding Liquid Hydrocarbons that condense naturally upstream of the Delivery
Point.
"Net Hydrocarbon Value" shall have the meaning set forth in the Accounting
Procedures.
"Operating Expenditures" shall have the meaning set forth in the Accounting
Procedures.
"Operating Services" shall have the meaning set forth in Clause 4.1.
"Operation Period" shall mean the 20-year period (or shorter period as may be
contemplated by the Development Plan for the relevant Field, as amended from
time to time) commencing on the Takeover Date with respect to the Initial Field
and the date of approval of the relevant Development Plan by the Affiliate with
respect to any other Field, as such period may be extended or reduced pursuant
to Clauses XIX or XX.
"Operator" shall mean UNION TEXAS VENEZUELA LIMITED, a Corporation organized
under the laws of the Commonwealth of the Bahamas, and any replacement or
additional Operator appointed pursuant to Clause X.
"Operator Guarantor" shall have the meaning set forth in Clause 10.1.
7
<PAGE> 11
BOQUERON AREA
"Other Contractors" shall mean all Contractors other than EPIC.
"Parties" shall mean the Affiliate, the Contractors, and, after their accession
to this Agreement, the Operator and EPIC.
"Participation" shall mean, with respect to any Field or Exploration Activity
and any Contractor, the percentage participation interest of such Contractor in
the rights and obligations of all the Contractors in relation to such Field, as
set forth initially in the relevant Development Plan, or Exploration Activity,
and as modified from time to time in accordance with Clause 3.3 or Clause XXVII.
The initial Participations of the Contractors in the Initial Field are set forth
in Annex F hereto, and the initial Participations of the Contractors in any
other Field shall be set forth in the relevant Development Plan.
"PDVSA" shall mean Petroleos de Venezuela, S.A., a sociedad anonima organized
under the laws of the Republic of Venezuela, and any successor in interest
thereto.
"Person" shall mean any individual, corporation, sociedad mercantil,
association, joint venture, partnership, trust, limited liability company,
joint-stock company, unincorporated organization or government, or any agency or
political subdivision thereof.
"Post-Takeover Date Environmental Claim and Cleanup Liability" shall mean any
Environmental Claim and Cleanup Liability other than the Pre-Takeover Date
Environmental Claim and Cleanup Liability, that is related to or results from
any activities or operations of the Contractors or Operator under this Agreement
(including the continued use after the Takeover Date of wells and other
facilities, installations and equipment existing in the Area and made available
to the Contractors as of the Takeover Date).
"Pre-Takeover Date Environmental Claim and Cleanup Liability" shall mean
Environmental Claim and Cleanup Liability to the extent arising from or relating
to acts, omissions, conditions or circumstances occurring or existing prior to
the Takeover Date; provided that, except as specifically provided in Clause
22.5, Pre-Takeover Date Environmental Claim and Cleanup Liability shall not
include any costs or expenses needed to cause the continuing use of any
facilities, installations, equipment or other assets, that are in use on or
prior to the Takeover Date and that are thereafter used by the Contractors in
connection with the Operating Services, to comply with applicable Environmental
Law governing continuing Releases or the ongoing storage, treatment, disposal,
recycling or transportation of any Hazardous Substance.
"Price Formula" shall mean the formula used to determine the value of any
Production, as set forth in Annex L hereto.
"Production" shall mean the Hydrocarbon production obtained from the
exploitation of the Fields.
"Quarter" shall have the meaning set forth in the Accounting Procedures.
8
<PAGE> 12
BOQUERON AREA
"Receipt Point" shall mean the point or points at which gas, electricity and
water are to be delivered by the Affiliate to the Contractors pursuant to Clause
11.2, as specified in Annex H hereto, or as may otherwise be agreed by the
Affiliation and the Contractors.
"Release" shall mean any spill, discharge, leak, emission, injection, escape,
dumping, leaching, dispersal, emanation, migration or release of any Hazardous
Substance into the environment, including, without limitation, the abandonment
or discard of barrels, containers, tanks or other receptacles containing or
previously containing any Hazardous Substance.
"Royalty" shall mean, with respect to any Production and any time period, the
deemed amount determined in the manner provided in the Accounting Procedures,
reflecting the exploitation tax payable in respect of such Production during
such time period.
"Service Fee" shall mean the payment made to the Contractors (i) in
reimbursement of advances made by the Contractors for the acquisition of goods
and services on behalf of the Affiliate and (ii) in compensation for the
Contractors' services hereunder, all as described in Clause XVII and the
Accounting Procedures.
"Standard Cubic Foot" or "standard cubic foot" or "SCF" shall mean the quantity
of gas occupying a United States cubic foot at 60 degrees Fahrenheit and one
atmosphere of pressure.
"Takeover Date" shall mean the date on which the Operator assumes control and
responsibility for all activities within the Area that are subject to this
Agreement, determined as provided in Clause 11.8.
"Transfer" shall mean any sale, assignment, delegation, transfer or other
disposition by any means (including by way of pledge or other similar
encumbrance) of all or any part of a Party's rights or obligations under this
Agreement; provided that "Transfer" shall not include a pledge of a Contractor's
rights to receive the Service Fee or other payments hereunder that (i) is made
as part of a bona fide financing transaction to enable a Contractor to perform
the Operating Services hereunder and (ii) does not purport to delegate to the
pledgee or any other Person any of the Contractor's other rights or obligations
hereunder, or give such pledgee or other Person any right to attach, seize or
execute on the Contractor's Participation or to transfer or convey all or any
part of such Participation to any third party.
"Transportation and Handling" shall mean the physical transportation of
Hydrocarbons from the wellhead or other point of extraction to the relevant
Delivery Point, including processing, separation, storage and other activities
reasonably necessary for such physical transportation and the transfer of such
Hydrocarbons to the Affiliate at such Delivery Point.
"Uniform Reporting System" shall have the meaning set forth in the Accounting
Procedures.
"Wet" shall mean, as applied to any Natural Gas, such Natural Gas before the
extraction of propane, butane and similar liquids that may be removed by
extraction.
"Bs" or "Bolivars" shall mean the lawful currency of the Republic of Venezuela.
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"$" or "Dollars" shall mean the lawful currency of the United States of
America.
II
OBJECT
2.1 This Agreement has as its object the rehabilitation and reactivation of
certain Hydrocarbon reservoirs within the Area, the ongoing development and
exploitation of such Hydrocarbon reservoirs, including the handling of any
Production from such reservoirs, the Transportation and Handling of such
Production to the relevant Delivery Points, the Delivery of such Production
to the Affiliate at the Delivery Points, Exploration Activities and the
other activities included in the Operating Services, in each case subject
to the terms and conditions set forth herein.
2.2 The Parties recognize that the development, exploitation, and
Transportation and Handling of, and the exploration for, Hydrocarbons
constitute reserved activities within the meaning of the Organic Law
Reserving to the State the Industry and Commerce of Hydrocarbons (LOREICH),
and that accordingly the Contractors shall conduct the Operating Services
hereunder not for their own account, but only for the account of the
Affiliate, subject to the terms and conditions set forth herein.
Hydrocarbons produced within the Area in accordance with this Agreement
shall constitute the exclusive property of the Affiliate, and the economic
rights of the Contractors under this Agreement shall be limited to the
right to receive in cash the Service Fees payable hereunder from time to
time (plus the direct reimbursement of other amounts in certain specified
circumstances).
III
EFFECTIVENESS; GUARANTEES; EPIC; FACTOR DE VALORIZACION
3.1 This Agreement, and all obligations of the Parties hereto, shall come into
effect on the Effective Date.
3.2 Concurrently with the execution of this Agreement, UNION TEXAS PETROLEUM
HOLDINGS, INC. has provided to the Affiliate a guarantee of the respective
obligations hereunder of such Contractor as is its Associated Entity, in
the form set forth in Annex D hereto.
3.3 (a) The Affiliate shall promptly notify EPIC of the approval of a
Development Plan for the Initial Field pursuant to Clause VI, at the same
time that it notifies the Other Contractors. At any time following the
Effective Date until the date which is 60 calendar days following the date
on which the Affiliate gives EPIC such notice, EPIC may elect to become a
Party to this Agreement by delivering an executed counterpart of this
Agreement to the Affiliate.
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At the same time, EPIC shall give notice of such election to the Other
Contractors and to the Operator, if there is an Operator at such time. Upon
delivery of an executed counterpart of this Agreement to the Affiliate (and
regardless of whether the Other Contractors and the Operator have yet received
notice),
(i) EPIC shall immediately become a Contractor under this Agreement on the
terms, and subject to the conditions, set forth herein and in Annex K,
without any further action by any other Party;
(ii) EPIC shall have the same rights and obligations under this Agreement
as the Other Contractors, except that (1) EPIC shall have no liability
to pay, or to reimburse any Other Contractor for payment of, the
Factor de Valorizacion provided in Clause 3, 4, and (2) EPIC shall
not be required to provide the Affiliate with a letter of credit or
guarantee pursuant to Clause 4.4;
(iii) EPIC will have a Participation of 10% in the Initial Field and in
other rights under this Agreement, subject to modification or Transfer
as provided herein; and
(iv) in consideration of the assumption by EPIC of its obligations under
this Agreement and Annex K, the respective Participations of each of
the Other Contractors will be automatically reduced by 10% without
any further action or formality of any kind; provided that the Other
Contractors may, by notice to the Affiliate and EPIC given within 30
days of EPIC's becoming a Party hereto, specify a different allocation
in the reduction of their respective Participations and provided
further that the Operator or its Associated Entity must in any event
maintain a Participation of at least 27%. No approval of such
reductions by the Affiliate pursuant to Clause XXVII will be required.
If requested, each Other Contractor will execute any and all documents
and do any and all acts that may be necessary, useful or required by
applicable law or regulation in order to complete such reduction.
(b) Beginning promptly after the Effective Date and continuing throughout the
entire option period provided in Clause 3.3(a), the Operator and the Other
Contractors shall immediately provide EPIC with copies (or, in the case of oral
communications, descriptions) of all documents, communications, reports,
notices and other information that are provided to, or received from, the
Affiliate, any Other Contractor or any ministry or agency of the Venezuelan
government in connection with the Agreement, including without limitation the
following:
(i) preliminary and final versions of any Development Plan, Annual
Work Program and Budget, AFE, Final Well Report or Exploration
Activity, and of any significant amendments thereto; and
(ii) any significant proposal, commentary, disagreement, dispute,
approval, response or other communications with regard to any of such
documents.
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In addition, the Operator and Other Contractors shall afford EPIC reasonable
access to such additional information and documents as EPIC may reasonably
request with respect to the Agreement and the provision of the Operating
Services; provided that neither the Operator nor any Other Contractor will be
required to divulge proprietary technology to EPIC.
Such information provided to EPIC shall be subject to the confidentiality
provisions of Clause XXV. Prior to receiving any such information, EPIC shall
confirm in writing to each of the Other Contractors and to the Affiliate its
agreement to be bound by the provisions of Clause XXV (even if it does not
ultimately exercise the option to become a Party hereto) and to return all such
information in the event that it does not exercise such option.
(c) (i) Within 60 calendar days of an election by EPIC to become a Party to
this Agreement pursuant to Clause 3.3(a), the Operator and Other
Contractor(s) shall notify EPIC whether they intend to invite EPIC to
become a party to any joint operating or similar agreement already
existing between some or all of them or to enter into a new joint
operating or similar agreement with some or all of them, in each case
relating to rights and obligations of the Operator and/or Contractors, or
the provision of Operating Services, under the Agreement. The Operator and
Other Contractors shall have no obligation to invite EPIC to become a
party to any such joint operating or similar agreement, and EPIC shall
have no obligation to become a party if so invited. A decision during such
60-day period not to invite EPIC to become a party to an existing
agreement or to enter into a new agreement shall not preclude either such
an invitation to EPIC in the future or the negotiation of other types of
arrangements with EPIC.
(ii) Unless EPIC and the Other Contractors otherwise agree in writing, the
provisions of Annex K shall govern EPIC's relations with the Operator and
the Other Contractor(s) with respect to the matters covered therein and
shall be a binding and enforceable agreement between them and EPIC.
(iii) Unless EPIC and the Other Contractors otherwise agree in writing,
EPIC shall have the rights and obligations provided in Annex K as of the
date that EPIC becomes a Party to this Agreement pursuant to Clause 3.3(a),
including without limitation the obligation to reimburse to the Other
Contractors its pro rata share of the expenses of the Operator and the
Other Contractors (other than the Factor de Valorizacion) in respect of the
Operating Services, between the Effective Date and the date on which EPIC
becomes a party.
(d) The rights and obligations of EPIC under this Clause 3.3 will be legally
enforceable by EPIC and the Other Contractors as of the Effective Date,
regardless of whether EPIC ultimately elects to become a Party to the Agreement
under Clause 3.3(a). If EPIC does not become a Party to the Agreement, all such
rights and obligations will terminate at the
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end of the option period provided in Clause 3.3(a), except for EPIC's
obligations under the confidentiality provisions of Clause XXV which will
continue as provided therein.
3.4 No later than five (5) Business Days after the Effective Date, the Other
Contractors shall pay to the Affiliate in U.S. dollars the Factor de
Valorizacion in the amount of $174,783,787, by wire transfer of immediately
available funds to an account specified in writing by the Affiliate. The
Factor de Valorizacion shall not be considered a Chargeable Expenditure of
the Contractors for purposes of determining the Service Fee for any Quarter.
3.5 Each Contractor and Operator hereby represents and warrants that all of the
technical, financial, legal, ownership and other information that it or its
Associated Entity has provided to PDVSA in connection with qualification to
participate in the bidding process that led to the award of this Agreement
was and is true and correct in all material respects when submitted, as of
the bidding and as of the date hereof, except as specifically disclosed in
writing to PDVSA and the Affiliate prior to the bidding. Any material
inaccuracy in such information will constitute a material breach of this
Agreement under Clause 20.2, which will give the Affiliate the right to
terminate this Agreement with respect to the Contractor concerned and any
other Contractor that is aware or whose Associated Entity is aware of such
material inaccuracy. The cure period provided in Clause 20.2 will not apply
to such termination.
IV
OPERATING SERVICES: MINIMUM WORK OBLIGATION
4.1 On the terms and subject to the conditions set forth in this Agreement, the
Contractors undertake to provide the following services (the "Operating
Services") for the Affiliate;
(i) the rehabilitation, reactivation and enhancement of the Initial
Field, in accordance with the relevant Development Plan;
(ii) the uninterrupted delivery of the Baseline Production to the
Affiliate;
(iii) Exploration Activities with respect to other parts of the Area in
accordance with Clause VIII, and the development and exploitation
of any resulting Fields, in accordance with the relevant Development
Plans;
(iv) the Transportation and Handling of Production from the Fields to
the applicable Delivery Points, in accordance with the relevant
Development Plans;
(v) the delivery of such Production to the Affiliate at such Delivery
Points in accordance with Clause 15.4; and
(vi) any other service to be performed by the Contractors in the Area
for the Affiliate as set forth in this Agreement.
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4.2 It is the understanding of the Parties that:
(i) all activities involved in the provision of the Operating
Services shall be carried out by the Contractors for the account
of the Affiliate;
(ii) all costs incurred in the provision of the Operating Services
shall be funded directly by the Contractors, and not by the
Affiliate;
(iii) such costs shall be recoverable by the Contractors only from and
to the extent of the Service Fee, and shall not be recoverable if
the Service Fee is insufficient to permit such recovery (except
for the direct reimbursement of certain expenses in certain
specified circumstances);
(iv) the Service Fee shall be the sole remuneration payable to the
Contractors for the provision of the Operating Services, and no
other payment or compensation of any kind will be due or payable
to the Contractors, either during the term of this Agreement or
following its termination, regardless of whether the Service Fee
is adequate to cover their costs and expenses in providing the
Operating Services (except for the direct reimbursement of
certain expenses in certain specified circumstances); and
(v) all right, title and interest to any Production obtained by the
Contractors shall belong exclusively to the Affiliate.
4.3 Within a period of 3 years beginning on the Takeover Date, the Contractors
shall be obligated to expend in the provision of the Operating Services
with respect to the Initial Field an amount of Chargeable Expenditures at
least equal to $13,000,000 (the "Minimum Work Obligation"). Any
modification to the Minimum Work Obligation requires the prior approval of
the Affiliate, which the Affiliate may grant or deny in its discretion.
If the Agreement terminates for any reason or the time period specified in
the preceding paragraph ends, in either case without the completion of the
Minimum Work Obligation in full, then the Contractors shall pay the
Affiliate the unexpended balance of the Minimum Work Obligation in Dollars
in cash within 30 days of such termination or the end of such period, as
compensation for such non-completion.
4.4 Concurrently with the execution of this Agreement, the Contractors, at
their own cost and expense, have provided the Affiliate with one or more
irrevocable stand-by letters of credit from financial institutions
acceptable to the Affiliate in the form of Annex O hereto, or guarantees
acceptable to the Affiliate in the form of Annex M or M-2 hereto, in an
aggregate amount equivalent to * . In the event that any such
letter of credit would expire prior to the end of the period specified for
the completion of the Minimum Work Obligation in the first sentence of
Clause 4.3, the Contractor(s) that provided such letter of credit shall
replace it with another irrevocable stand-by letter of credit in the form
of Annex O that provides for a drawing period ending on the last day of
such period. If the Affiliate draws any letter of credit delivered pursuant
to this Clause because it would otherwise expire prior to completion of the
Minimum Work Obligation, the Affiliate shall: (a) return all drawn funds to
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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the Contractor(s) concerned upon receipt of a replacement letter of credit
in like amount meeting the requirements of the first sentence of this
Clause and paragraph (iii)(b) of Exhibit 3 of Annex O; (b) return such
funds to the Contractor(s) concerned as and when the Contractor(s) would
be entitled to the reduction of a letter of credit as provided under this
Clause; or (c) be entitled to retain any balance of such funds as provided
in the last sentence of this Clause. Under no circumstances shall the
Affiliate owe any interest with respect to any such funds. The value of
any such letter of credit or guarantee shall be reduced at the request of
the Contractors every 3 months, commencing 3 months after the Takeover
Date, by the amount of funds spent by the Contractors on the Operating
Services in respect of the Initial Field prior to the date of reduction
(or a pro rata share of such amount, based on the Participation in the
Initial Field of the Contractor that provided the letter of credit or
guarantee, if more than one letter of credit or guarantee is provided by
the Contractors), upon certification by the Affiliate that such amount has
been properly charged in accordance with the Accounting Procedures. Only
funds expended on activities relating to the Initial Field (as allocated
in accordance with Clause 17.3 and the Accounting Procedures) shall count
toward such reduction. In addition, the value of any such letter of credit
or guarantee shall be reduced by 10% at the request of the Contractors if
EPIC becomes a Party to this Agreement pursuant to Clause 3.3. Any such
letter of credit, guarantee or financial undertaking shall be terminated
upon certification by the Affiliate that the required amounts have been
expended. Absent disagreement regarding expenditures, the Affiliate agrees
to make such certification within thirty (30) days following the
presentation by the Contractors of documentary evidence reflecting or
showing such expenses. Failure by the Contractors to fulfill the Minimum
Work Obligation as specified in Clause 4.3 shall entitle the Affiliate to
demand payment of the amount of such guarantees and letters of credit, as
compensation for such failure.
V
AFFILIATE APPROVAL REQUIREMENTS
5.1 The activities to be conducted by the Contractors as part of the Operating
Services hereunder shall be undertaken for the account of the Affiliate.
Accordingly, in order to ensure that the Operating Services are consistent
with the objectives of this Agreement, the rights of the Contractors to
perform the Operating Services shall be subject to the approval by the
Affiliate of the matters specified in Clause 5.2.
5.2 The following matters shall be required to be presented to the Affiliate
for approval:
(i) the Development Plan for the Initial Field, as provided in Clause
6.1, and any amendment thereto, as provided in Clause 9.1;
(ii) each Annual Work Program and Budget, as provided in Clause 7.1, and
any amendment thereto required to be approved pursuant to Clause 7.7;
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(iii) each Exploration Activity, as provided in Clause 8.1, and any
further Exploration Activity, as provided in Clause 8.3;
(iv) the Development Plan for each additional Field, as provided in
Clause 8.4, and any amendment thereto, as provided in Clause 9.1;
(v) any AFE exceeding the thresholds set forth in Clause 7.6(ii), and
any amendment thereto required to be approved pursuant to Clause
7.7;
(vi) any proposed modification of the Minimum Work Obligation, as
provided in Clause 4.3;
(vii) any proposed extension of an Operation Period, as provided in
Clause 19.3;
(viii) any proposed agreement with respect to a Field extending beyond
the Area, as provided in Clause XIII;
(ix) any proposal for the designation of a replacement, additional or
interim Operator, as provided in Clause X;
(x) the execution, modification or termination of any contract or
other arrangement for the purchase, sale, leasing or other
acquisition, disposition or administration of goods or services
in connection with the Operating Services, from the Operator
(acting as a supplier of goods or services and not in its
capacity as Operator), any Contractor or any of their respective
Associated Entities, involving aggregate expenditures in excess
of * , or its equivalent in any other currency;
(xi) the proposal for the designation of the external independent
auditors to review the Contractors statements and invoices in
accordance with Clause 18.3;
(xii) any proposal by the Contractors to designate an additional
Delivery Point or to modify the Delivery Point Capacity of any
Delivery Point, as provided in Clause 15.3;
(xiii) any proposal by the Contractors to calculate the Service Fee for
two or more Fields on a combined basis, or otherwise to include
costs not allocable to a Field in accordance with the Accounting
Procedures to be included in the calculation of the Service Fee
for such Field, as provided in Clause 17.3;
(xiv) any proposed Transfer by or change in control of any of the
Contractors, as provided in Clause XXVII;
(xv) any proposed modification of an existing Field Boundary as
provided in Clauses 8.8 or 8.9;
(xvi) any proposed disposition or use of certain assets as provided in
Clauses 12.3 or 12.4; and
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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(xvii) any other matter specifically requiring the approval of the
Affiliate in accordance with this Agreement.
5.3 With respect to any matter requiring the approval of the Affiliate pursuant
to this Agreement, such approval may not be unreasonably withheld, except
where it is specified that the decision is within the Affiliate's
discretion. Except as otherwise provided herein, the Affiliate must make a
decision with respect to any matter submitted for its approval within 60
days following submission, except an Annual Work Program and Budget for
which the Affiliate may take 90 days (30 days in the case of the first
Annual Work Program and Budget submitted after approval of the Development
Plan for the Initial Field). In the event the Affiliate does not make a
decision regarding a matter submitted for its approval within the time
specified, the relevant matter will be deemed approved. If the Affiliate
denies its approval as to any matter, it will provide an explanation to the
Contractors stating the reasons for such denial. In the event the
Affiliate's approval is denied, the Contractors may, to the extent
permitted by the relevant provisions of this Agreement, revise their
proposal to take into account the Affiliate's comments and submit their
revised proposal for approval, which will be subject to the same standards
and time periods (counted from the date of resubmission) as are applicable
to the initial submission.
5.4 So long as the Contractors conduct their activities in accordance with this
Agreement, obtain the approval of the Affiliate with respect to the matters
set forth in Clause 5.2 and comply with the terms of the relevant
Development Plans, Annual Work Programs and Budgets and other decisions
made by the Affiliate pursuant to Clause 5.2, the Contractors shall be
authorized to conduct the Operating Services in the manner they deem to be
most appropriate.
VI
DEVELOPMENT PLAN
6.1 No later than 6 months following the Effective Date, the Contractors must
submit to the Affiliate for approval a proposed Development Plan
contemplating the rehabilitation, reactivation and/or enhancement of the
Initial Field. No physical operations within the Area may be conducted by
the Contractors pursuant to this Agreement prior to the approval of the
Development Plan, except as provided in Clause 11.8 or as otherwise
approved by the Affiliate. The Affiliate will provide reasonable
cooperation to the Contractors in the performance of those activities that
are necessary or convenient to the Contractors in connection with the
preparation of the Development Plan for submission to the Affiliate.
6.2 The Development Plan proposed for the Initial Field must be prepared in
accordance with the guidelines set forth in Annex E hereto (to the extent
applicable to the Initial Field) and in any event must include:
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(i) the proposed rehabilitation, reactivation or enhancement
scheme for the Initial Field, including a general description
of the expected activities for the relevant Operation Period
and a discussion of alternative schemes that were considered;
(ii) an estimate of proved, probable and possible reserves in the
Initial Field (in each case, determined on a life-of-field
basis, without regard to the duration of the Operation
Period);
(iii) an estimate of the production profile of the Hydrocarbons that
the Contractors expect to deliver to the Affiliate in each
year during the Operation Period for the proved and proved
plus probable reserves cases, and an explanation of how the
production profile in the proved reserve case achieves the
Maximum Economic Rate of Production (unless Production is
constrained by Delivery Point Capacity);
(iv) projected Capital and Operating expenditures for the Operation
Period for the proved and proved plus probable reserves cases
(in constant dollars and without adjustment for expected
inflation), prepared in accordance with the Uniform Reporting
System;
(v) an estimate of the Service Fees that the Contractors expect to
be payable by the Affiliate during each year of the Operation
Period for each reserves case;
(vi) the designation of any additional Delivery Point(s) that the
Contractors propose to use in accordance with Clause 15.3 and
a full description of the Transportation and Handling
infrastructure that will be used to transport Hydrocarbons to
such Delivery Point(s);
(vii) an environmental contingency plan in accordance with Clause
22.1;
(viii) a plan for the periodic inspection of all inactive wells in
the Initial Field at least twice per year and, unless
otherwise agreed by the Affiliate in its discretion, a plan
for the periodic surveillance of subsidence in and around the
Area that may be affected by Production; and
(ix) a plan for the transfer of Operations in accordance with
Clause 11.8.
6.3 The Affiliate will approve a proposed Development Plan for the Initial
Field if:
(i) it complies with the provisions of Clause 6.2, contemplates
a budget that meets the Minimum Work Obligation, and provides
for the delivery at each Delivery Point only of Production
that is within the Delivery Point Capacity of such Delivery
Point and that satisfies the quality standards for such
Delivery Point as specified in Annex H or otherwise
determined in accordance with Clause 15.3;
(ii) provides for the uninterrupted delivery of the Baseline
Production at the Delivery Point(s);
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(iii) the production profile in the proved reserve case calls for
Production at the lesser of (x) the Maximum Economic Rate for the
Initial Field, and (y) the aggregate of the Delivery Point
Capacities of the different Delivery Points to which the
Development Plan contemplates delivery of Hydrocarbons; and
(iv) such proposed Development Plan is consistent with International
Oil Industry Standards.
The Affiliate may approve a Development Plan that does not meet one or more
of the standards set forth above in its discretion.
6.4 If the Affiliate rejects a proposed Development Plan for failure to comply
with the standards set forth in either Clause 6.3(iii) or (iv), the
Operator may, at any time up to 30 days after the date of rejection,
request that the question of whether the Development Plan complies with
such provisions be referred to an independent expert in accordance with
Clause 23.3. The decision of the independent expert as to the proposed
Development Plan will be final and binding.
6.5 If a proposed Development Plan is rejected by the Affiliate (and, if there
is a review by an independent expert, such independent expert confirms such
rejection), then the Contractors may, at their option:
(i) submit a revised Development Plan; or
(ii) relinquish their rights under this Agreement, in which case this
Agreement will terminate.
VII
ANNUAL WORK PROGRAMS AND BUDGETS; AFEs
7.1 No later than 30 days after the approval of a Development Plan for a
Field, the Contractors shall submit for approval to the Affiliate a
proposed Annual Work Program and Budget for the remainder of the then
current calendar year. In each year thereafter, the Contractors shall
submit for approval to the Affiliate a proposed Annual Work Program and
Budget for the immediately following calendar year, no later than the date
notified by the Affiliate to the Contractors at least 90 days in advance of
the due date for the following year's proposed Annual Work Program and
Budget. Each Annual Work Program and Budget shall contain, at a minimum,
the following information with respect to each Field in the Area:
(i) a detailed description of the work that the Contractors expect
to undertake in the implementation of the Development Plan during
such year;
(ii) the volume of Hydrocarbons that the Contractors expect to
deliver to the Affiliate during such year, broken down on a
monthly basis;
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(iii) a budget for such year meeting the requirements of the Uniform
Reporting System; and
(iv) an estimate of the total amount of Service Fees that the
Contractors expect to be payable by the Affiliate in such year in
respect of such Field, as well as a breakdown of such fees in
respect of each Quarter in such year.
7.2 Together with the proposed Annual Work Program and Budget, the Contractors
will provide to the Affiliate an update to the Development Plan, reflecting
modifications arising from the Annual Work Program and Budget for such year
and for prior years, taken as a whole, as well as a reserves statement
prepared in accordance with the Uniform Reporting System. Such update will
not constitute an amendment to the Development Plan; a Development Plan may
only be amended in accordance with Clause IX.
7.3 The Affiliate will approve any proposed Annual Work Program and Budget
submitted in accordance with Clause 7.1 if:
(i) the Production projected for the relevant year is no more than
20% below the Production for the relevant year projected in the
Development Plan for the proved reserves case;
(ii) the Operating Expenditures per barrel of Liquid Hydrocarbons
reflected in such Annual Work Program and Budget are not more
than 20% above the Operating Expenditures per barrel of Liquid
Hydrocarbons projected for the relevant year in the Development
Plan for the proved reserves case (as adjusted for inflation in
accordance with the Accounting Procedures);
(iii) the Capital Expenditures reflected in such Annual Work Program
and Budget are not more than 20% above the Capital Expenditures
projected for the relevant year in the Development Plan for the
proved reserve case (as adjusted for inflation in accordance with
the Accounting Procedures); and
(iv) the proposed work plan is consistent with the International Oil
Industry Standards.
The Affiliate may approve a proposed Annual Work Program and Budget that
does not meet these standards at its discretion.
7.4 If the Affiliate rejects a proposed Annual Work Program and Budget for
failure of the work plan to comply with the standards set forth in Clause
7.3(iv), the Operator may, at any time up to 30 days after the date of
rejection, request that the question of whether such work plan complies
with such standards be referred to an independent expert in accordance with
Clause 23.3. The decision of the independent expert will be final and
binding with respect to such question.
7.5 In the event the Affiliate does not approve all or any part of the budget
portion of any proposed Annual Work Program and Budget:
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(i) the Contractors may carry out those activities as to which a
work plan and budget has been approved pending approval of
the remainder;
(ii) the Contractors may continue to fulfill any commitment
entered into in accordance with an AFE that was previously
approved by the Affiliate, up to the maximum amount
authorized in such AFE;
(iii) the Contractors may continue operations contemplated in the
Development Plan under an interim operating budget that does
not exceed the operating budget for the prior year by more
than 5% overall or 10% as to any line item (in each case as
adjusted for inflation in accordance with the Accounting
Procedures); and
(iv) the Contractors may undertake activities necessary in an
emergency situation for the preservation of life, health,
safety, the environment or the integrity of the Field (in
which case the Contractors shall as promptly as practicable
report the relevant activities to the Affiliate and prepare a
revised budget reflecting the emergency expenditures in
accordance with the Accounting Procedures).
7.6 (i) Prior to incurring any commitment or expenditure that is
estimated to be in excess of * , the Contractors shall
send to the Affiliate an AFE, containing their best estimate
of the total funds required to carry out the relevant work,
the amount of direct expense estimated to be incurred by the
Contractors, the estimated timing of expenditures, and any
other necessary supportive information. Notwithstanding the
foregoing, the Contractors shall not be obliged to furnish an
AFE to the Affiliate with respect to any general and
administrative costs that are listed as separate line items
in an approved Annual Work Program and Budget. All such AFEs,
except as provided in Clause 7.6(ii), shall be for
informational purposes only and, provided the work and funds
to be expended therefor are authorized in the relevant Annual
Work Program and Budget, the Contractors shall not be
required to obtain approval for such AFEs.
(ii) For any AFE in excess of * , prior to expending any
funds or incurring any commitments for work, the Contractors
shall obtain the approval of the Affiliate. The Affiliate
will approve an AFE if the total costs for the relevant
commitment or expenditure are no more than 10% above the
amount set forth in the relevant Annual Work Plan and Budget,
as adjusted for inflation as provided in the Accounting
Procedures. The Affiliate may approve an AFE that does not
meet this standard in its discretion.
(iii) The requirements of Clause 7.6(i), but not Clause 7.6(ii),
shall apply to Exploration Expenditures in connection with
approved Exploration Activities under Clause VIII.
7.7 (a) The Contractors shall be entitled to incur without further
approval of the Affiliate an overexpenditure for any line item in the
budget portion of an approved Annual Work Program and Budget up to ten
percent (10%) of the authorized amount for such line item, so long as
the cumulative total of all overexpenditures for a calendar year does
not exceed five percent (5%)of the total amount set forth in such
Annual Work Program and Budget. Approval of a modified budget
reflecting proposed overexpenditures above either of these thresholds
shall be
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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BOQUERON AREA
granted if the standards set forth in Clauses 7.3(ii) and 7.3(iii) are
met, and otherwise may be granted or denied by the Affiliate in its
discretion. In addition, at such time as the Contractors forecast that
the cumulative expenditures authorized in any AFE will be exceeded by
more than 10%, the Contractors shall furnish a supplemental AFE for
the estimated overexpenditures to the Affiliate; in the case of an AFE
requiring Affiliate approval under Clause 7.6(ii), such supplemental
AFE shall be subject to approval which shall be granted or denied
in accordance with the same standards as were applicable to the
original AFE.
(b) In addition, the Contractors may undertake activities necessary in
an emergency situation for the preservation of life, health, safety,
the environment or the integrity of a Field (in which case the
Contractors shall as promptly as practicable report the relevant
activities to the Affiliate and prepare a revised budget reflecting
the emergency expenditures in accordance with the Accounting
Procedures).
VIII
ACTIVITIES OUTSIDE FIELD BOUNDARIES
8.1 Following the approval of the Development Plan for the Initial Field,
the Contractors may from time to time propose to the Affiliate for
approval Exploration Activities they wish to conduct in any part of
the Area that is not within the Field Boundaries of existing Fields.
No such Exploration Activities may be commenced by the Contractors
outside such Field Boundaries before approval by the Affiliate in
accordance with this Clause.
8.2 Any Exploration Activity submitted pursuant to Clause 8.1 will be
approved by the Affiliate if it is consistent with International Oil
Industry Standards. If the Affiliate rejects a proposed Exploration
Activity, the Contractors may, at any time up to 30 days after the
date of rejection, request that the question of whether the proposed
Exploration Activity complies with such standard be referred to an
independent expert in accordance with Clause 23.3. The decision of the
independent expert will be final and binding.
8.3 (a) No later than sixty (60) days after the completion of an
Exploration Activity consisting of the drilling and testing of an
exploration, appraisal or delineation well in the Area, the
Contractors shall submit to the Affiliate a Final Well Report. The
Final Well Report shall set forth in detail such information as the
Contractors have been able to obtain regarding the nature of any
Hydrocarbon-bearing structures or formations penetrated during the
drilling of such well and such other information as may be required by
applicable Venezuelan Laws and Decisions. Such Final Well Report will
also set forth a recommendation for any further Exploration
Activities, drilling or otherwise, that the Contractors consider the
results warrant. If the Contractors propose to conduct any such
further Exploration Activities, they shall so indicate in the Final
Well Report or in a request for approval of further Exploration
Activities. Unless the Affiliate notifies the Operator within 30 days
of receipt of the Final Well Report or such request that it is denying
approval of such further Exploration Activities, the Affiliate will be
deemed to have approved such further Exploration Activities. Approval
of any further
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BOQUERON AREA
Exploration Activities (whether resulting from a Final Well Report or
otherwise) shall be granted or denied, and shall be subject to independent
expert review, on the same basis as the original Exploration Activities.
(b) In the event that the Contractors wish to conduct a well test, they
shall submit to the Affiliate for approval a plan for such well test,
indicating the proposed duration of the test, the expected Production of
the well, the proposed Delivery Point for such Production and all other
relevant information relating to the test. Such test shall not exceed 90
days and shall be conducted in accordance with all applicable Laws and
Decisions. The Affiliate's approval or rejection of such plan shall be
subject to independent expert review on the same basis as other Exploration
Activities. Subject to the limitations and requirements set forth in Clause
XV, the Affiliate will accept the test Production from such well, and the
Contractors may at their option either (i) add such test Production to the
Production from any single existing Field for purposes of calculating the
Net Hydrocarbon Value for such Field for the Quarter or Quarters in which
such test Production is delivered, or (ii) hold the total Net Hydrocarbon
Value attributable to such test Production for subsequent inclusion
(without inflation adjustment) in the Service Fee calculation for the first
Quarter of the Operation Period for a new Field that includes the well that
produced the test Production. No expenses associated with the test may be
charged to such existing Field or any other existing Field; such expenses
may only be recovered to the extent that they constitute Exploration
Expenditures that are chargeable to a new Field in accordance with Article
5.4.5 of the Accounting Procedures.
8.4 The Contractors shall be entitled at any time to submit a proposed
Development Plan to the Affiliate contemplating the development of one or
more Hydrocarbon-bearing structures, formations or deposits located outside
the Field Boundaries of existing Fields. Any such proposed Development Plan
must be prepared in accordance with the guidelines for the preparation of a
Development Plan for the Initial Field set forth in Clause 6.2 and Annex E
(except that relevant information must be provided with respect to the
proposed Field; rather than the Initial Field). In addition, any such
Development Plan must set forth the Field Boundary for the proposed Field
and the Participation of each Contractor (with the Participation of the
Operator or its Associated Entity meeting the requirements of Clause 10.3).
The Contractors may not undertake any development or exploitation
activities with respect to the proposed Field until the relevant
Development Plan is approved.
If any part of such Hydrocarbon-bearing structures, formations or deposits
that the Contractors propose to develop (or any part of any
Hydrocarbon-bearing structure, formation or deposit that is Connected
thereto) extends beyond the boundary of the Area, the Contractors shall
comply with the provisions of Clause XIII before submitting a Development
Plan, unless the Connection with such part of a Hydrocarbon-bearing
structure, formation or deposit extending beyond the Area boundary results
exclusively from the existence of an Accumulation.
8.5 In deciding whether to approve any Development Plan submitted in accordance
with Clause 8.4, the Affiliate will observe the same standards for approval
as are set forth in Clause 6.3 with respect to the Development Plan for the
Initial Field, except that:
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<PAGE> 27
BOQUERON AREA
(i) the Affiliate will disregard whether the budget contained in such
Development Plan would meet the Minimum Work Obligation and whether
the Development Plan provides for delivery of the Baseline Production;
and
(ii) the Affiliate will be obliged to approve any proposed Development Plan
only if the proposed Field Boundary (A) is limited to the
Hydrocarbon-bearing formations, structures or deposits that the
Contractors propose to develop, (B) includes all Connected
Hydrocarbon-bearing structures, formations or deposits (other than
any part of a Hydrocarbon-bearing structure, formation or deposit that
extends beyond the boundary of the Area if the Connection to such part
results exclusively from the existence of an Accumulation), and (C) is
entirely within the Area.
The Affiliate may approve a Development Plan that does not meet one or more
of the standards set forth above in its discretion.
8.6 If the Affiliate rejects a proposed Development Plan submitted pursuant to
Clause 8.5, the Operator may request independent expert review on the same
basis as provided for the Development Plan for the Initial Field in Clause
6.4. In addition, the Operator may request independent expert review, on
the same basis and subject to the same timing requirements, if the
Development Plan is rejected for failure to designate the Field Boundary in
accordance with the standards set forth in Clause 8.5(ii).
8.7 In the event that a Development Plan submitted pursuant to Clause 8.4 is
approved by the Affiliate, the relevant Hydrocarbon-bearing structures,
formations or deposits shall be considered a Field, which shall be subject
to the same Annual Work Program and Budget approval process as is provided
in Clause VII for the Initial Field.
8.8 In the event that any Exploration Activity provides evidence that a
Hydrocarbon-bearing structure, formation or deposit outside the Field
Boundaries of the existing Fields in Connected to one or more of such
Fields, the Contractors shall submit an amendment to the existing
Development Plan for the relevant Field or Fields in accordance with Clause
9.1, including a description of a modified Field Boundary that takes into
account the Connected structure(s), formation(s) or deposit(s). The
Affiliate shall approve such amendment if it meets the standards set forth
in Clause 8.5(ii) and Clause 9.3.
If any part of such Hydrocarbon-bearing structure, formation or deposit (or
any part of any Hydrocarbon-bearing structure, formation or deposit that is
Connected thereto) extends beyond the boundary of the Area, the Contractors
shall comply with the provisions of Clause XIII before submitting an
amendment to the Development Plan, unless the Connection with such part of
a Hydrocarbon-bearing structure, formation or deposit extending beyond the
Area boundary results exclusively from the existence of an Accumulation.
8.9 The Contractors may at any time propose to the Affiliate the combination
into a single Field of two or more existing Fields that are not Connected
or of an existing Field and a Hydrocarbon-bearing formation outside the
Field Boundary of such existing Field that are not Connected. The
Affiliate may approve or reject such proposal in its discretion.
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BOQUERON AREA
IX
AMENDMENTS TO DEVELOPMENT PLANS
9.1 The Contractors must submit an amendment to a Development Plan to the
Affiliate for approval if it is expected that:
(i) the next Annual Work Program and Budget will contemplate
Production more than 20% below the level set forth for the
relevant year in the Development Plan for the proved reserve
case;
(ii) the next Annual Work Program and Budget will contemplate Capital
Expenditures more than 20% above the Capital Expenditures
projected for the relevant year in the Development Plan for the
proved reserve case (as adjusted for inflation in accordance with
the Accounting Procedures);
(iii) the next Annual Work Program and Budget will contemplate
Operating Expenditures per barrel of Liquid Hydrocarbons more
than 20% above the amount set forth in the Development Plan for
the proved reserve case (as adjusted for inflation in accordance
with the Accounting Procedures);
(iv) cumulative Production during the Operation Period will be more
than 20% below the Production volume set forth in the Development
Plan for the proved reserve case;
(v) average Operating Expenditures per barrel of Liquid Hydrocarbons
during the Operation Period will be more than 20% above the
amount set forth in the Development Plan for the proved reserve
case (as adjusted for inflation in accordance with the Accounting
Procedures);
(vi) total Capital Expenditures during the Operation Period will be
more than 20% above the amount set forth in the Development Plan
for the proved reserve case (as adjusted for inflation in
accordance with the Accounting Procedures);
(vii) conditions change such that (A) the Maximum Economic Rate
determined in light of such new conditions varies by more than
20% from the Maximum Economic Rate reflected in the Development
Plan currently in effect, and (B) such new Maximum Economic Rate
is less than aggregate Delivery Point Capacity; or
(viii) an approved Exploration Activity provides evidence that a
Hydrocarbon-bearing structure, formation or deposit outside the
Field Boundaries of the Field that is subject to such Development
Plan is Connected to such Field as provided in Clause 8.8.
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BOQUERON AREA
The Contractors may at their option submit amendment to the Development
Plan to the Affiliate for reasons other than those set forth above.
9.2 If at any time the Affiliate believes that the Contractors are required to
submit an amendment to a Development Plan to the Affiliate, the Affiliate
may notify the Contractors of such belief. The contractors shall submit an
amendment to the Development Plan to the Affiliate, or notify the
Affiliate that they believe no such amendment is required, within 60 days
after the Contractors receive such notice from the Affiliate. If the
contractors notify the Affiliate that they believe no such amendment is
required, the Affiliate may at any time up to 30 days after it receives the
notice from the Contractors request the appointment of an independent
expert in accordance with Clause 23.3 to determine whether an amendment is
required. The decision of the independent expert will be final and binding.
9.3 In the case of any amended Development Plan presented for approval, the
Affiliate will approve such an amended Development Plan if it meets the
standards for approval of an original Development Plan (except the standard
relating to the Minimum Work Obligation, to the extent that the Minimum
Work Obligation has previously been satisfied, and the standard relating
to delivery of the Baseline Production for any Field other than the
Initial Field). In addition, any amendment required by Clause 8.8 must
meet the standards of that Clause. If the Affiliate denies its approval of
such an amendment, the denial shall be subject to independent expert
review in accordance with the same standards and procedures set forth in
Clause 6.4. Until the amendment to the Development Plan is approved, the
Contractors must, to the extent possible, continue Operating Services in
accordance with the Development Plan without giving effect to the
amendment, except as otherwise agreed by the Affiliate.
9.4 If an amended Development Plan is rejected by the Affiliate (and, if there
is review by an independent expert, such independent expert confirms such
rejection), then the Contractors may, at their option;
(i) continue operations based on the Development Plan without giving
effect to the amendment, unless amendment was required under Clause
9.1;
(ii) submit a revised amendment to the Development Plan; or
(iii) relinquish their rights under this Agreement with respect to the
relevant Field in accordance with the requirements of Clause 20.4.
If the Contractors do not submit a revised amendment to the Development
Plan or notify the Affiliate of their intention to continue operations
based on the original Development Plan within 90 days after the date of
rejection by the Affiliate (or within 90 days of the date of the
independent expert's determination), then the Contractors will be deemed
to have relinquished their rights under this Agreement with respect to the
relevant Field in accordance with the requirements of Clause 20.4.
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BOQUERON AREA
X
THE OPERATOR
10.1 (a) The Contractors hereby designate the Operator to carry out and execute
all activities involved in the provision of the Operating Services on
behalf of all of the Contractors, in accordance with this Agreement and
the relevant Development Plans, Annual Work Programs and Budgets and
Exploration Activities. The Operator shall be responsible for the full and
timely performance of all obligations of the Contractors under this
Agreement with respect to any Field or Exploration Activity for which it
is Operator, except the obligations set forth in Clauses XXV and XXVII.
This Clause shall not relieve any Contractor from any of its obligations
under this Agreement
(b) No later than 60 days after the execution of this Agreement, the
Operator shall sign an accession agreement in the form of Annex G hereto,
and upon such signature the Operator shall become a Party to this
Agreement with no further action on the part of any other Party.
Concurrently with the signature of the accession agreement, the Operator
shall deliver to the Affiliate a guarantee from UNION TEXAS PETROLEUM
HOLDINGS, INC. (the "Operator Guarantor") of the obligations of the
Operator hereunder in the form attached hereto as Annex J. Except as
otherwise approved by the Affiliate, no physical operations may be
conducted by the Contractors hereunder prior to the signature of such
accession agreement and the delivery to the Affiliate of such guarantee.
10.2 Following the first anniversary of the Effective Date, the Contractors may
nominate a Person other than the original Operator to act as Operator with
respect to any Field, or to implement any Exploration Activity; provided
that such Person can demonstrate adequate experience, qualifications and
financial capacity. The Person so nominated must be a Contractor or an
Associated Entity of a Contractor. Such nomination is subject to approval
by the Affiliate pursuant to Clause 5.2. Upon such approval, the execution
by such other Person of an accession agreement substantially in the form of
Annex G and, if required by the Affiliate, the execution by an Associated
Entity of such other Person of a guarantee in the form of Annex J, such
other Person shall be appointed as Operator for the applicable Field or
Exploration Activity, and the original Operator shall cease to be the
Operator with respect thereto. The Person appointed as Operator shall, with
respect to such Field or Exploration Activity, perform all of the
obligations and undertake all of the responsibilities of the Operator set
forth in this Agreement.
10.3 The Operator or an Associated Entity of the Operator shall at all times
maintain a Participation of at least 30% in the Initial Field and in each
other Field (or Exploration Activity) as to which it acts as Operator (or
27%, if EPIC takes a 10% Participation in such Field or Exploration
Activity). The Contractors shall make and maintain at all times such
arrangements among themselves for such transfers of Participations as may
be necessary to ensure compliance with this minimum Participation
requirement in the event
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BOQUERON AREA
that the Operator is removed or resigns or in the event that a separate
Operator is appointed for any Field (or Exploration Activity).
No voting securities of an Operator whose obligations under the Agreement
are guaranteed by another Person as a condition of its acting as Operator
may be owned, held or pledged, directly or indirectly, by or to any Person
other than a Contractor or the Associated Entity of a Contractor, without
the prior approval of the Affiliate in its discretion. For this purpose,
"voting securities" shall include all shares or equivalent interests
having a right to vote with respect to the management of the Person
concerned, together with any options, warrants, securities, instruments,
indebtedness or other rights that are at any time exercisable for or
convertible or exchangeable into such shares or equivalent interests and
any proxy or power to vote any such shares or equivalent interests.
10.4 The Operator with respect to any Field may resign as Operator at any time
by so notifying the other Parties at least ninety (90) days prior to the
effective date of such resignation, except that no such resignation shall
become effective except as set forth in Clause 10.8(a), and no such
resignation may become effective before the first anniversary of the
Effective Date.
10.5 The Operator with respect to any Field shall be removed as Operator upon
receipt of notice from any other Party if:
(a) An order is made by a court or an effective resolution is passed for
the reorganization under any bankruptcy law, dissolution, liquidation,
or winding up of the Operator or Operator Guarantor, which order shall
not have been vacated, discharged, stayed or bonded pending appeal
within sixty (60) days from the entry thereof;
(b) The Operator or such Operator Guarantor dissolves, liquidates or
terminates its existence;
(c) The Operator or such Operator Guarantor 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 those of such Operator Guarantor; or
(e) The Operator or such Operator Guarantor commences a voluntary
receivership, bankruptcy, insolvency, dissolution, liquidation,
reorganization or similar proceeding.
10.6 The Operator with respect to any Field may be removed by the Affiliate if
the Operator has committed a material breach of this Agreement and has
failed to cure that breach within ninety (90) days of receipt of a notice
from the Affiliate detailing the alleged breach.
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BOQUERON AREA
10.7 Following the resignation or removal of an Operator pursuant to Clause
10.4, 10.5 or 10.6, the Contractors shall meet as soon as possible to
nominate a replacement Operator that meets the requirements of Clauses
10.2 and 10.3, and shall present such nomination to the Affiliate for
approval. Notwithstanding the foregoing, in the event the Operator
disputes commission of or failure to rectify a material breach alleged
pursuant to Clause 10.6 and proceedings are initiated pursuant to
Clause 23.2, no permanent replacement Operator may be appointed
pending the conclusion or abandonment of such proceedings but the
Contractors may, with the approval of the Affiliate as provided in
Clause 10.2, designate one of the Contractors (or its Associated
Entity) as interim Operator pending the conclusion of such
proceedings. The Affiliate shall have no liability to the original
Operator in the event that it is replaced in accordance with the
preceding sentence.
10.8 (a) No resignation of an Operator may become effective, nor may
any replacement Operator begin providing Operating Services
following the resignation or removal of the previous Operator,
until such time as the replacement Operator has been nominated
by the Contractors and approved by the Affiliate. Upon such
approval, the execution by the successor Operator of an
accession agreement substantially in the form of Annex G and,
if required by the Affiliate, the execution by an Associated
Entity of such successor Operator of a guarantee in the form
of Annex J, the successor Operator shall succeed to all
duties, rights and authority prescribed for the Operator, and
the former Operator shall transfer to the replacement Operator
custody of all property used in the provision of the Operating
Services, books of account, records and other documents
maintained by the Operator pertaining to the Area and to the
Operating Services.
(b) Upon delivery of the above-described property and data by the
former Operator, whether in the event of resignation or
removal, the former Operator shall be released and discharged
from all obligations and liabilities as Operator arising or
accruing after such date, but shall not be released from
obligations and liabilities arising or accruing prior to such
date or for any acts, occurrences or circumstances taking
place or existing prior to such date.
(c) The Contractors acknowledge that the Affiliate may, as a
condition to granting approval of the appointment of a new
Operator for the entire Area or for any Field or Exploration
Activity, require, among other things, that the new Operator
and the original Operator agree to reasonable measures to
coordinate reporting and other administrative matters relating
to this Agreement, and that an audit or inventory be conducted
as of approximately the time operations are transferred to the
new Operator. The costs of such audit or inventory shall be
paid by the Contractors and included in the calculation of the
Service Fee, except that in the event of removal of the
Operator pursuant to Clause 10.6, such costs shall be paid by
the outgoing Operator or the Contractors and shall not be
included in the calculation of the Service Fee.
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BOQUERON AREA
XI
CONDUCT OF OPERATING SERVICES
11.1 (a) All operations and activities relating to the provision of the
Operating Services shall be carried out by the Operator on behalf of the
Contractors in accordance with:
(i) The Laws and Decisions of competent bodies of the Republic of
Venezuela;
(ii) The specific requirements of this Agreement, the Development
Plans, the Annual Work Programs and Budgets, Exploration Activities
and the decisions of the Affiliate made pursuant to Clause 5.2;
(iii) The collective bargaining agreements of the Affiliate relating
to the oil industry, to the extent applicable; and
(iv) International Oil Industry Standards.
(b) The Contractors shall apply for all permits required by Venezuelan Law
and Decisions in order to permit the Contractors to provide the Operating
Services. The Affiliate will cooperate with the Contractors in obtaining
and maintaining such permits in force and will take all reasonable steps
that may be requested by the Contractors to cause the issuance of such
permits, including making application in its own name where application in
the name of the Contractors or Operator is not possible. The Contractors
may at their option, by notice to the Affiliate, suspend any Operation
Period if:
(i) operations in all or any portion of the Area or the relevant Field
are substantially impeded for a period of at least sixty (60) days
due to the absence of a permit required under Venezuelan Law and
Decisions for such operations; and
(ii) the Contractors have taken and are continuing to take
reasonable measures to obtain such permit in accordance with
relevant Law and Decisions (including without limitation submitting
all documents and information to relevant governmental authorities
that are reasonably capable of submission at the relevant time).
During the suspension, all operations in the Area or the relevant Field
must be discontinued, except that activities necessary or useful to obtain
the relevant permit may continue. Any such suspension will be lifted
either (i) at the option of the Contractors or (ii) if the Contractors
fail to continue to take reasonable measures to obtain the relevant
permit, at the Affiliate's option. The relevant time period will
recommence upon the lifting of the suspension. Time lapsed during the
suspension will not count against the relevant time period.
11.2 (a) The Affiliate shall allow the Operator to use free of charge in
activities relating to the Operating Services all of its rights to the
use of land, rights of way and rights of passage, water rights, and other
rights of any nature whatsoever relating to the Area and upstream of the
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<PAGE> 34
BOQUERON AREA
Delivery Point (other than rights to fixed assets, which are subject to
Clause XII), until the termination of this Agreement with respect to
the Area in accordance with Clause XIX or Clause XX. The Operator shall
be entitled to use such rights solely in connection with activities
relating to the Operating Services, and may not use them for any other
purpose or transfer or otherwise dispose of such rights in any manner
without the prior consent of the Affiliate. Such rights in respect of
activities relating to the Operating Services are granted to the
Operator with respect to the Area on an exclusive basis, subject to
Clause 11.3. However, in no event will the exercise of such rights by
the operator imply any assignment of title on the part of the
Affiliate, nor will it deprive the Affiliate of the use of such rights
for purposes unrelated to the activities contemplated in this Agreement
in a manner that will not materially interfere with such activities.
The Affiliate shall provide reasonable assistance to the Operator upon
request in securing such rights to facilitate the orderly provision of
the Operating Services.
(b) In order to permit the Contractors to continue the Baseline
Production, the Affiliate shall be obligated to supply to the
Contractors:
(i) Natural Gas at the appropriate Receipt Point, in the volumes
and at the pressure used by the Affiliate as of the Takeover Date
for purposes of gas lift in connection with the Baseline
Production (provided that the Contractors will be required to
return to the Affiliate at the relevant Delivery Point at least
95% of the volume of Natural Gas so provided);
(ii) electric power at the appropriate Receipt Point in the
amounts used by the Affiliate as of the Takeover Date in
connection with the Baseline Production; and
(iii) water at the appropriate Receipt Point in the volumes and at
the pressure used by the Affiliate as of the Takeover Date for
purposes of water injection in connection with the Baseline
Production;
in each case, (1) at prices that shall be no higher than the
Affiliate's standard tariff for the service concerned or, if the
Affiliate has no standard tariff, a reasonable price to be negotiated
between the Affiliate and the Contractors, and (2) subject to
reductions in such supply to the extent that such supply is no longer
necessary to maintain the Baseline Production. In each case, usage as
of the Takeover Date shall be average usage as measured during the
transition period pursuant to Clause 11.8.
11.3 In the event that any activities proposed by the Operator or the
Affiliate in the Area or in any areas adjacent to the Area (unrelated
to the Operating Services, in the case of proposed activities of the
Affiliate in the Area) conflict with or may conflict with any existing
or proposed activities of the other, the Operator and the Affiliate
shall attempt to develop a plan to allow both parties to conduct their
activities without interference with one another; provided that, in the
absence of agreement on such a plan, the following priorities will
apply;
(i) existing activities and activities of the Contractors included in
an approved Annual Work Plan and Budget will have priority over
proposed activities; and
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BOQUERON AREA
(ii) otherwise, the Affiliate's proposed activities will have priority.
In any event, the Affiliate will give the Operator at least 90 days
notice of any planned activities that may conflict with activities of the
Operator in the Area. In no event may the Affiliate's activities in the
Area, taken as a whole, be so extensive as to interfere with the
Contractor's practical ability to conduct the activities contemplated by
this Agreement (including, without limitation, the Contractors' right to
conduct Exploration Activities).
11.4 An object of this Agreement is for the Contractors to conduct their
activities in the most cost effective manner, to the extent consistent
with the work objectives and standards that the Contractors are to meet.
The Contractors will be required to provide reports to the Affiliate
with respect to costs incurred in connection with operations under this
Agreement, in accordance with the Uniform Reporting System. The Affiliate
will review the reports with a view to comparing the cost efficiency of
contractors conducting activities in different areas that are subject to
similar operating service agreements. If the Affiliate determines that
the Contractors are incurring Chargeable Expenditures that are
significantly above the level of other contractors for similar
activities, the Affiliate may require that the Contractors meet with the
Affiliate to explain the level of their Chargeable Expenditures and
present a plan for cost reductions.
11.5 All contracts entered into by the Operator in connection with the
provision of the Operating Services shall be consistent with the
contracting policies adopted under this Agreement. All contracts or other
arrangements for the furnishing of goods or services by, or the provision
of goods or services to, the Operator, a Contractor or any Associated
Entity of the Operator or a Contractor shall be on terms that would be no
less favorable to the Operator or such Contractor than the terms that
could reasonably be obtained in respect of a similar contract or
arrangement from third parties, unaffiliated with the Operator or any
Contractor, that regularly provide such goods and services on
international markets or in Venezuela.
11.6 The Operator will be required to contract for any required goods or
services in such a manner as to ensure that it obtains the most
advantageous cost in keeping with the objectives of this Agreement, and
to take into account both quality as well as delivery time for such goods
or services. To the extent efficient, practicable and likely to result
in the most advantageous contracting terms, contracts shall be awarded
on the basis of competitive bids. In cases where there is a supply of
both Venezuelan as well as non-Venezuelan goods or services (including
goods or services available from the Affiliate), the participation of
such Venezuelan goods or services in the bidding or contracting process
must be assured, and when such Venezuelan goods or services are
equivalent in cost, quality and delivery time to the non-Venezuelan goods
or services, the Operator will acquire such Venezuelan goods or
services. In any event, in order to guarantee the optimal quality of the
goods or services acquired, any non-Venezuelan supplier of goods or
services must comply with the same requirements as are imposed on any
Venezuelan supplier of goods or services. For the purposes of this
clause, Venezuelan goods or services will be understood to mean those
goods or services supplied by offices or plants that provide such goods
or services in Venezuela.
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11.7 (a) The Operator and the Contractors shall be responsible for
engaging employees, subcontractors, agents and other
representatives in the course of the Operating Services, and
shall be responsible for all injuries (or death) of their
employees and those of such subcontractors, agents and other
representatives and for all loss or damage to the property of
such employees, subcontractors, agents and other representatives.
The Operator and the Contractors shall be exclusively responsible
for the performance of the obligations assumed in respect of
employees performing the Operating Services by virtue of the
Organic Labor Law, the Social Security Law, the INCE Law, the
regulations adopted under any such law, the provisions of any
collective bargaining or other labor agreements generally
applicable to the oil industry in Venezuela, and any other law,
regulation or other norm relating to the relations between
employers and employees. Neither the Operator nor the Contractors
will have any obligation to engage any current employees of the
Affiliate or of its Associated Entities, subcontractors or
agents.
(b) In the event that the Operator experiences strikes or other labor
disputes with its employees, the Operator shall keep the
Affiliate informed as to the results of the Operator's efforts to
resolve such disputes. If the Affiliate informs the Operator that
any such labor dispute has resulted, or creates a significant
risk of resulting, in collective action being taken by the
Affiliate's employees in support of the Operator's employees,
then the Operator shall consult with the Affiliate with a view to
protecting adequately the interests of both the Operator and the
Affiliate, subject to the Operator's obligations to conduct
operations hereunder in accordance with the standards set forth
in Clause 11.1.
11.8 (a) No later than 15 days following the Effective Date, the Operator
(or, if the Operator has not yet signed the Agreement pursuant to Clause
10.1, one of the Contractors) shall submit to the Affiliate:
(i) a description and timetable of the activities that the
Contractors propose to conduct in the Area in order to prepare
the Development Plan for the Initial Field and the environmental
audit required by Clause 22.3, which activities may include
visual inspection and testing of surface facilities that do not
unreasonably interfere with normal operations, but may not
include any drilling, seismic or other subsurface activities; and
(ii) an interim budget indicating the Chargeable Expenditures that the
Contractors expect to incur during the period between the
Effective Date and the Takeover Date, which interim budget shall
be revised from time to time to reflect any significant
additional Chargeable Expenditures that the Contractors expect to
incur.
Except as provided above or as otherwise approved by the Affiliate, the
Operator may not commence physical operations in the Area until the
Affiliate has approved the Development Plan and the first Annual Work
Program and Budget for the Initial Field.
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(b) In addition to the matters required by Clause 6.2, the
Development Plan for the Initial Field shall include a plan for the
transfer of operations from the Affiliate to the Operator, describing
inter alia:
(i) all significant transition arrangements;
(ii) the operations to be conducted in common on a trial basis by
both the Operator and the Affiliate, and the duration of such
operations in common, (which operations in common may commence
prior to approval of the Development Plan, if the Affiliate
agrees);
(iii) plans for the sharing of facilities and the coordination of
activities with the Affiliate, to the extent then known, in
accordance with Clauses 11.9 and 12.3; and
(iv) the proposed Takeover Date.
(c) The "Initial Baseline Production" for the first Quarter of the
Operation Period will be determined as follows:
"Initial Baseline Production" will be equal to the arithmetic mean of
the actual volumes of Production of all of the wells in the Initial
Field for the three months in the immediately preceding Quarter, as
reported in the official monthly Production reports submitted by the
Affiliate to the Venezuelan Ministry of Energy and Mines, and then
reduced by the Baseline Production Decline Factor for one Quarter in
the manner provided in the definition of "Baseline Production"
(assuming that AP, for this purpose equals such mean of the actual
Production of such wells). All volumes of Production shall be measured
in a manner consistent with past practice and corrected to a water
content of 0.1% in the case of Liquid Hydrocarbons containing more
than 0.1% water. Except as provided in the following paragraph, the
volumes of Production reported on such official reports for the three
months in such immediately preceding Quarter will be conclusive and
binding in determining Initial Baseline Production. In addition, under
no circumstances, will the amount of the Baseline Production Decline
Factor be subject to review, discussion or modification.
In the event that major maintenance to facilities results in a
significant curtailment or reduction of the Production of any wells in
the Initial Field during any month in such immediately preceding
Quarter, then for purposes of determining the total, average
Production of the Initial Field in such Quarter, the average
Production of such wells during such Quarter shall be determined as
follows:
(i) if the curtailment or reduction affects Production from such
wells in only one month in such Quarter, then the average
Production from such wells shall be based on the actual
Production from such wells in the two unaffected months as
reported in such official monthly reports, extrapolating to
account for the affected month on the basis of the two
unaffected months; and
(ii) if the curtailment or reduction affects Production from such
wells in more than one month in such Quarter, then the
average Production from such wells shall be based
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on the actual Production of such wells during the most recent
three-month period that is not affected by such maintenance,
as reported in such official monthly reports, and adjusted by
the Baseline Production Decline Factor through such
immediately preceding Quarter.
For information purposes only, the Affiliate will provide the
Contractors with such official monthly Production reports for all
wells in the Initial Field, for the three months preceding the
Effective Date and for each month thereafter as it becomes available
until the Takeover Date. The Affiliate shall also provide the
Contractors with a description of its Production measurement, testing
and allocation procedures for the Initial Field. The Contractors may
observe the Affiliate in the conduct of measurements of the Production
of such wells.
(d) Expenses incurred by the Contractors after the Effective Date
and prior to the Takeover Date will be recoverable as part of the
Service Fee for the Initial Field to the extent that they (i)
constitute Chargeable Expenditures allocable to the Initial Field in
accordance with the Accounting Procedures; (ii) are included in the
interim budget submitted in accordance with Clause 11.8(a), as amended
from time to time, and (iii) are included in the Development Plan and
initial Annual Work Program and Budget as subsequently approved.
11.9 The Operator shall coordinate its activities in providing the
Operating Services with the activities conducted by the Affiliate in
and around the Area. In particular:
(a) The Operator shall ensure that its automation and information
systems are capable of interfacing with those of the Affiliate;
(b) The Contractors and the Operator shall endeavor to enter into
agreements or arrangements with the Affiliate and its
Associated Entities or other parties to reduce the costs of the
Operating Services or to optimize operations relating to the
Operating Services by joining with such other parties in the
construction, funding, operation and/or use of assets and
facilities relating to the Operating Services; and
(c) The Operator shall endeavor to utilize equipment in connection
with the Operating Services that is consistent with the norms
and standards of the Affiliate, to the extent consistent
with the Operator's obligations under this Agreement (including
without limitation the Operator's obligations under Clause
11.4).
The Affiliate shall provide the Operator with such information as the
Operator may reasonably request to permit the Operator to comply with
its obligations under this Clause 11.9.
11.10 (a) (i) Prior to commencing any Operating Services and for so
long as any Operating Services are conducted, the Contractors
and the Operator will be required to provide the Affiliate
with satisfactory evidence:
(1)(A) that they have obtained and are maintaining
in force all-risk construction, property and casualty, third
party liability, well control and other insurance policies from
reputable insurance companies with regard to the Operating
Services, in each case covering such risks and in such amounts
as the
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Affiliate notifies to the Contractors that it would have obtained in the
ordinary course of business had it decided to perform the Operating
Services directly, and (B) that they have adequate financial capacity to
cover any risks that are subject to deductibles under such insurance
policies, that they propose to self-insure; or
(2) that they have the financial capacity to self-insure any such
risks for which they do not obtain insurance.
Subject to the following paragraph, the cost of any premiums in respect
of such insurance policies (including premiums paid to captive insurance
companies and a customary and reasonable charge in respect of any self-
insurance) may be included in the calculation of the Service Fee pursuant
to the Accounting Procedures. The Contractors and Operator may obtain
additional insurance of types or in excess amounts beyond the
requirements of this Clause, but the premiums in respect of such
additional insurance may not be included in the calculation of the
Service Fee pursuant to the Accounting Procedures.
(ii) The Affiliate may, but shall not be obligated to, offer to obtain or
continue some or all of such insurance policies from a reputable insurance
company or companies on behalf of the Contractors and to cause the
Contractors and the Operator to be listed as co-insured parties on any
such insurance policy (with a waiver by the insurer of any right of
subrogation in respect of the co-insured). The Affiliate may charge the
Contractors and the Operator a premium for any such insurance, which
premium may then be included in the calculation of the Service Fee. The
Contractors and the Operator shall not be required to accept the
Affiliate's offer to obtain or continue any such insurance and may obtain
the necessary insurance elsewhere; provided that, in this case, the
amount of the premiums with respect to such insurance that may be included
in the calculation of the Service Fee may not exceed the premium offered
by the Affiliate for such insurance and the Contractor or Operator
concerned shall offer to cause the Affiliate to be listed as a co-insured
party on such alternative insurance policy (with a waiver by the insurer
of any right of subrogation in respect of the co-insured).
(iii) Prior to approval of the Development Plan for the Initial Field,
the Affiliate shall provide the Contractors with a schedule showing (1)
the types and amounts of insurance that will be required under this
Clause 11.10(a),(2) the extent to which the Affiliate is offering to
obtain some or all of such insurance on behalf of the Contractors
(including a description of any deductibles and policy limits), and (3)
the premiums, if any, that the Affiliate proposes to charge for any such
insurance that it obtains on behalf of the Contractors and Operator. The
Affiliate may in its discretion and from time to time amend such schedule
and the scope or cost of such insurance coverage, upon 30 days prior
written notice.
(b) In the event that the Operator obtains insurance proceeds following its
submission of a claim under any of the insurance policies of the
Affiliate referred to in Clause
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BOQUERON AREA
11.10(a)(ii) where it is listed as a co-insured, the Operator shall
either (i) apply any such proceeds to remedy the loss or damage in
respect of which the insurance claim was paid, and promptly pay over any
remaining balance in respect of such proceeds to the Affiliate, or (ii)
notify the Affiliate that it does not intend to remedy such loss or
damage and promptly pay over the entirety of such proceeds to the
Affiliate. The Operator shall make the determination as to whether to
apply any insurance proceeds to remedy the relevant loss or damage in
accordance with International Oil Industry Standards.
(c) In the event the Affiliate obtains insurance proceeds relating to losses
sustained in connection with the Operating Services following its
submission of a claim under any of the insurance policies of the
Affiliate referred to in Clause 11.10(a)(ii), the Affiliate shall notify
the Operator to such effect, and within 90 days of the Operator's receipt
of such notice, the Operator may notify the Affiliate that the Operator
intends to remedy the loss or damage in respect of which such payment was
made. Promptly following receipt of such notice from the Operator, the
Affiliate shall pay over to the Operator the amount of such payment for
application to such remediation. In the event that the amount paid to the
Operator exceeds the amount necessary to effect such remediation, the
Operator shall pay over any remaining balance to the Affiliate.
(d) The Contractors shall be responsible for remedying any loss or damage to
the facilities, properties, equipment and other assets of the Affiliate
(other than normal wear and tear in the ordinary course) that result from
activities conducted pursuant to this Agreement. The Contractors shall
make up any amount necessary for such remediation that is not fully
covered by the cash proceeds from any insurance policies carried pursuant
to Clause 11.10(a), including by reason of deductibles or maximum damage
awards, and shall apply such amount to remedy the relevant loss or damage
or shall pay such amount to the Affiliate on the same basis as insurance
proceeds received by the Operator are to be applied pursuant to Clause
11.10(b). Unless such loss or damage results from the gross negligence or
willful misconduct of the Operator or a Contractor, the amounts spent by
the Contractors in remediation shall be Chargeable Expenditures.
The Affiliate shall be responsible for remedying any loss or damage to
the facilities, properties, equipment and other assets of the Operator or
Contractors that result from the separate activities of the Affiliate
conducted in the Area during the term of this Agreement.
(e) The Contractors shall indemnify the Affiliate, its Associated Entities
and the officers, directors, employees, agents and consultants of the
Affiliate and its Associated Entities, from, and hold each of them
harmless against, any and all costs, expenses (including without
limitation reasonable legal costs, expenses and attorneys' fees) and
liabilities that arise from or are incident to claims, demands or causes
of action of every kind and character brought by or on behalf of (1) any
Person for damage to or loss of property or the environment, for injury
to, illness
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BOQUERON AREA
or death of any Person (including without limitation any
employee of the Contractor or the Affiliate), or for infringement
of an patent, copyright or similar rights, in each case to the
extent such costs, expenses and liabilities arise from or are
based upon activities conducted pursuant to this Agreement, or
(2) any employee of the Operator, any Contractor or any of their
respective subcontractors or agents for compensation in respect of
work or activities relating to performance of the Operating
Services (except where the Affiliate or its Associated Entity is
the subcontractor that employs such employee). Without prejudice
to the right to indemnity hereunder, the Contractors will have the
right to assume the defense of any such claim, demand or cause of
action for which indemnity is sought, and the Affiliate shall not
settle any such claim, demand or cause of action without the
consent of the Operator.
(f) The Affiliate shall indemnify the Contractors, the Operator, their
respective Associated Entities and the respective officers,
directors, employees, agents and consultants of the Contractors,
the Operators and their Associated Entities, from, and hold each
of them harmless against, any and all costs, expenses (including
without limitation reasonable legal costs, expenses and attorneys'
fees) and liabilities that arise from or are incident to claims,
demands or causes of action of every kind and character brought by
or on behalf of any Person for damage to or loss of property or
the environment, for injury to, illness or death of any Person
(including without limitation any employee of a Contractor, the
Operator or the Affiliate), or for infringement of any patent,
copyright or similar rights, in each case to the extent such
costs, expenses and liabilities arise from or are based upon
activities conducted by the Affiliate in the Area after the
Takeover Date. Without prejudice to the right to indemnity
hereunder, the Affiliate will have the right to assume the defense
of any such claim, demand or cause of action for which indemnity
is sought, and the Contractors of Operator shall not settle any
such claim, demand or cause of action without the consent of the
Affiliate.
XII
TITLE TO AND USE OF FIXED ASSETS
12.1 The Affiliate shall have exclusive title to (or, in the case of capital
leases, shall be the named lessee of) all facilities, properties,
equipment and other assets used by the Contractors to perform Operating
Services hereunder, except for:
(i) immovable assets that are located inside or outside the Area whose
costs of construction or acquisition are not included as
Chargeable Expenditures in the calculation of the Service Fee;
(ii) assets that are leased by the Contractors for use in connection
with the Operating Services under leases that would not
constitute capital leases under international accounting
standards;
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(iii) information, technology and data of the type referred to in
Clause XXIV, title to which shall be governed by Clause XXIV;
(iv) movable assets introduced into the Area by the Contractors on a
temporary basis to be used for a specific purpose; and
(v) other assets that, for reasons of economy or practical
convenience, the Affiliate may agree with the Operator shall be
owned by the Contractors.
The Contractors shall not purchase or construct any real estate for the
account of the Affiliate as provided above, without giving the Affiliate
at least 60 days prior notice and discussing with the Affiliate the
availability and relative cost of opportunities to rent the necessary real
estate. If (a) such real estate is available for rental, (b) the Affiliate
indicates that it would prefer rental to purchase and (c) there is no
significant cost savings associated with purchase, the Contractors shall
rent and not purchase such real estate.
12.2 All assets constructed or acquired by the Contractors in respect of which
title is to vest in the Affiliate shall be deemed to have been constructed
or acquired by the Contractors in the name and for the account of the
Affiliate. The payment by the Contractors of the construction or
acquisition costs of such assets shall be considered a non-recourse
advance from the Contractors to the Affiliate, which shall be repaid
solely through the payment by the Affiliate to the Contractors of the
Service Fee, and which shall be amortized based on the principles
specified in Article VI of the Accounting Procedures.
12.3 (a) Subject to the following sentence, the Operator shall have the
exclusive right to use all assets constructed or acquired by the
Contractors for the account of the Affiliate pursuant to Clause 12.2 free
of charge for purposes relating to the provision of the Operating
Services. If, in light of the relevant Development Plan, any such assets
are expected to have significant capacity for an extended period of time
that will not be used for the provision of the Operating Services and can
be made available to the Affiliate without unreasonable interference with
the Operating Services, the Operator shall, if requested, make such unused
capacity available to the Affiliate free of charge except for payment of a
fair and reasonable fee for operating and maintaining the asset concerned.
If the Operator later wishes to use some or all of such previously unused
capacity for the provision of Operating Services, it shall so notify the
Affiliate and the Affiliate shall relinquish the capacity concerned no
later than six months following the receipt of such notice.
(b) Subject to Clause XXI, the Contractors shall have the right to use
free of charge, in connection with the Operating Services, all existing
wells in the Area, the flow lines between such wells and gathering
stations and all electricity lines, gas lines and water lines between the
appropriate Receipt Point and such wells. In addition, Annex N lists
certain other fixed assets in the Area or outside the Area that are
appropriate for the Transportation and Handling of Hydrocarbons from the
Area to the Delivery Point, that were constructed or acquired by the
Affiliate prior to the Effective Date for use in connection with the
discovery, appraisal or exploitation of the Initial Field or any other
Hydrocarbon-bearing structure in the Area that is known to the Affiliate
as of the
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BOQUERON AREA
Effective Date. The Operator shall have the right to use the assets
listed thereon free of charge. The Operator shall operate all assets
listed on Annex N. If the Operator wishes to use any assets other than
as described above, it must obtain the Affiliate's consent and agree
with the Affiliate on the terms on which the Operator may obtain the
right to use such assets. The Affiliate may decline to grant such
consent in its discretion.
The Contractors shall have no obligation to use any such wells or flow
lines or the assets listed on Annex N; provided that, except as
specifically provided in Clause 22.5, the non-use of any such assets
shall in no way affect or reduce the Initial Baseline Production or
the Baseline Production and any replacement of such assets shall be
subject to the requirements of Clause 11.4 and of Article IV of the
Accounting Procedures that all Chargeable Expenditures hereunder be
both reasonable and necessary.
Except as may otherwise be specifically agreed between the Contractors
and the Affiliate, all such wells, flow lines, assets listed on Annex
N and any other facilities, installations, equipment, materials or
other assets that the Affiliate may from time to time make available
to the Contractors are offered and used "as is, where is", and neither
the Affiliate nor any of its Associated Entities makes any
representation or warranty, express or implied, as to the condition of
any such assets, their suitability or fitness for their current use or
any other use, or their compliance with applicable Law or Decisions,
or shall have any liability resulting from their use in connection
with the Operating Services.
Without limiting the generality of the preceding paragraph, the
Affiliate agrees that, between the Effective Date and the Takeover
Date, the Affiliate will operate the Area only in the ordinary course,
will not materially change the nature or extent of its activities in
the Area or dispose of or remove any material quantity of assets
covered by this Clause 12.3(b), will substantially maintain and
continue regular, scheduled programs of maintenance with respect to
such assets, and in general will use reasonable efforts to preserve
the existing activities and assets in the Area; provided that nothing
in this paragraph shall require the Affiliate to repair or replace any
well, flow line or other asset that may be damaged or lost, regardless
of the cause of such damage or loss.
(c) Neither the Operator nor the Contractors shall have the right to
use any assets described in this Clause 12.3 for any purpose other
than for use directly in connection with the Operating Services.
12.4 The Operator shall safeguard and maintain in good condition, subject
to normal wear and tear, all assets that the Operator uses in
accordance with Clause 12.3. The Operator shall not sell, lease or
otherwise dispose of any asset that the Operator uses in accordance
with Clause 12.3 without the prior approval of the Affiliate, which
approval shall be in the Affiliate's discretion.
12.5 Upon the termination of the Operation Period in respect of any Field,
all assets used with respect to such Field that the Operator uses in
accordance with Clause 12.3 shall be transferred to the control of the
Affiliate, except that:
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(i) assets and facilities that are to be removed pursuant to Clause
21.1 shall either be transferred to the control of the Affiliate
following removal or disposed of as scrap, as requested by the
Affiliate; and
(ii) assets used with respect to a Field that are not necessary for
the continuation of Production at such Field and that can be
moved and used at another Field may, with the Affiliate's
approval under Clause 12.4, be moved to such other Field, in
which case (1) the transferee Field shall pay a fair and
reasonable purchase price or fee to the Affiliate for such
assets, and (2) such assets shall be transferred to the control
of the Affiliate or removed, as applicable, at the end of the
Operation Period for such other Field.
12.6 All revenues of whatever nature received in cash or in kind from the
use, sale or other disposal of any assets owned by the Affiliate
pursuant to this Clause XII or in connection with the provision of
Operating Services (net of the reasonable expenses incurred directly
in connection with generating such revenues, such as fees or similar
expenses) shall be for the account of the Affiliate and, if received
by any Contractor, shall be paid to the Affiliate promptly upon
receipt, including without limitation:
(i) revenues from the sale, lease, licensing or other use of such
assets or products of such assets, including without limitation
pipeline facilities, storage facilities, loading and unloading
facilities, surplus housing or office space or other
infrastructure relating to the Operating Services;
(ii) the sale, lease or other disposal of materials or other
property (whether immovable or movable) originally acquired or
leased for use in connection with the provision of the Operating
Services but no longer so used;
(iii) the provision of services to third parties by the Operator or
any Party using such assets;
(iv) the sale or other disposal of scrap or waste created as a result
of the provision of the Operating Services;
(v) any interest or other charges received as a result of the
deferred or late payment of any of the foregoing; and
(vi) any other revenue generated as proceeds of assets or property,
the costs of which are included in the calculation of the
Service Fee in accordance with the Accounting Procedures.
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XIII
HYDROCARBON RESERVOIRS EXTENDING OUTSIDE THE AREA
13.1 (a) In the event that any part of a Hydrocarbon-bearing structure,
formation or deposit for which the Contractors propose to submit a new
Development Plan pursuant to Clause 8.4 or an amendment to an existing
Development Plan pursuant to Clause 8.8 (or any part of any
Hydrocarbon-bearing structure, formation or deposit that is Connected
thereto) extends beyond the boundary of the Area, the Contractors
shall so notify the Affiliate (unless the Connection with such part
of a Hydrocarbon-bearing structure, formation or deposit extending
beyond the Area boundary results exclusively from the existence of an
Accumulation). Thereafter, the Affiliate, assisted by the
Contractors, shall use reasonable efforts to negotiate in good faith
an agreement for a single development program for such
Hydrocarbon-bearing structures, formations or deposits with any Person
or Persons that have rights to the additional area to which they
extend, that will enable the Contractors to provide Operating Services
in accordance with this Agreement with respect to those parts of such
Hydrocarbon-bearing structures, formations or deposits lying inside
the Area.
(b) If the Affiliate owns the Hydrocarbon rights to the area outside
the Area that includes such Hydrocarbon-bearing structures,
formations or deposits, the Affiliate shall propose such a single
development program in good faith or extend the Area to include the
entirety of such Hydrocarbon-bearing structures, formations or
deposits. The Affiliate shall be under no obligation to extend
the Area, and the Contractors shall have no right to require the
Affiliate to do so. If the area outside the Area that includes such
Hydrocarbon-bearing structures, formations or deposits is operated by
a service contractor on behalf of the Affiliate, or if the
Hydrocarbon rights to such area are owned by an Associated Entity of
the Affiliate, the Affiliate shall endeavor to procure that such
service contractor or Associated Entity, as the case may be, accepts
such a single development program in good faith.
(c) Any such single development program shall provide for the optimum
economic development or evaluation of the applicable
Hydrocarbon-bearing structures, formations or deposits, without regard
to the geographical areas in which they are located, and will enable
the Contractors to provide the Operating Services as provided in this
Agreement.
13.2 (a) The Contractors must allow the Affiliate at least two years from
the date of the notice provided in Clause 13.1 to reach agreement on a
single development program (or to extend the boundary of the Area) as
provided in Clause 13.1, before submitting a new Development Plan
pursuant to Clause 8.4 or an amendment to an existing Development Plan
pursuant to Clauses 8.8 and 9.1.
(b) Upon the earlier of (i) the entry into such an agreement by the
Affiliate, the Contractors and any relevant other Person(s) (or
extension of the Area by the Affiliate) and (ii) the expiry of such
two-year period, the Contractors will be entitled to submit a
Development Plan pursuant to Clause 8.4 or obligated to submit an
amendment to an existing Development Plan pursuant to Clauses 8.8 and
9.1, that in each case satisfies the
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BOQUERON AREA
requirements of the Agreement (except as such requirements may be modified
with the consent of the Affiliate as a result of any agreement on a single
development program).
The Affiliate shall observe the same standards for approval of such
Development Plan or amendment as are set forth respectively in Clause 8.5
or Clauses 8.8 and 9.3, except that the Affiliate will be obliged to
approve any proposed Development Plan or amendment if:
(i) the proposed Field Boundary includes only those parts of
Connected Hydrocarbon-bearing structures, formations or deposits
that are located entirely inside the Area (taking into account
any modifications of the Area boundary);
(ii) the Maximum Economic Rate for the proposed Field is determined
based only on those parts of Connected Hydrocarbon-bearing
structures, formations or deposits that are located entirely
inside the Area (taking into account any modifications of the
Area boundary); and
(iii) the production profile in the proved reserve case calls for
Production at the lowest of (x) the Maximum Economic Rate for the
proposed Field, (y) the aggregate of the Delivery Point
Capacities of the different Delivery Points to which the
Development Plan or amendment contemplates delivery of
Hydrocarbons, and (z) the production levels contemplated by the
agreed single development program, if any.
In particular, if the two-year negotiation period provided above has
expired without an agreement on a single development program (or extension
of the Area), the Affiliate may not reject a proposed Development Plan or
amendment to an existing Development Plan based on the absence of such an
agreement.
(c) The period provided in Clause 19.2 will be extended by the shorter of
(i) two years and (ii) the length of time following the notification
provided in Clause 13.1 that is actually required to negotiate an
agreement on a single development program (or extension of the Area), with
respect to those parts of the Area that contain Hydrocarbon-bearing
structures, formations or deposits that are covered by this Clause XIII.
XIV
PRODUCTION CURTAILMENT
14.1 The Contractors may be required to curtail Production as a result of
government measures adopted in implementation of Venezuela's international
treaty commitments. Where such curtailments are required, the percentage
curtailment applicable to Production under this Agreement shall not exceed
the percentage level of production curtailment required of oil companies
operating in Venezuela taken as a whole, including PDVSA's Associated
Entities, determined in each case on the basis of available production
capacity. For this purpose, "available production capacity" means capacity
for the production of Hydrocarbons of the
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types that are subject to the relevant treaty commitment, to the
extent such capacity is currently in production at the relevant time,
or as to which production may reasonably be commenced within three (3)
months from the relevant time. The available production capacity with
respect to a Field for any relevant period shall be based on the
planned capacity set forth in the related Development Plan, and shall
be revised in subsequent periods based on planned capacity for such
periods. Any curtailment in capacity shall be applied pro rata to the
Baseline Production and the Incremental Production at the relevant
time. Where the Contractors are unable to recoup the resulting loss by
increasing the rate of Production to the extent necessary to recoup
such loss, the Contractors shall be entitled to receive an extension
of the Operation Period, sufficient in duration to allow it to produce
the same volume it failed to produce as a result of such curtailment.
XV
TITLE TO AND TRANSFER OF HYDROCARBONS;
ROYALTIES; TRANSPORTATION AND HANDLING
15.1 The Affiliate shall hold the exclusive right, title and interest to any
Hydrocarbons produced by the Contractors pursuant to this Agreement.
15.2 The Contractors shall be authorized to produce Hydrocarbons for the
account of the Affiliate in volumes equivalent to those specified in
the production profiles included in the Development Plans approved by
the Affiliate (subject in each case to the tolerances specified in
Annex H hereto, as they may be amended from time to time).
15.3 (a) The Contractors may at any time request an increase in the
Delivery Point Capacity of any Delivery Point, or the designation of
an additional Delivery Point and an associated Delivery Point Capacity
(and quality specifications), and in connection with any such request
may offer to construct or acquire for the Affiliate facilities for the
Transportation and Handling of the increased volumes by the Affiliate.
The Contractors shall provide a description of any such proposed
facilities (including in such description a proposed construction or
acquisition timetable) together with the submission of the request by
the Contractors for the increase in Delivery Point Capacity or
designation of a Delivery Point. Such request may be made in the
original Development Plan for any Field, an amendment to a Development
Plan or otherwise.
(b) If the request involves the use of any facilities or
infrastructure of the Affiliate (or its Associated Entities) upstream
of the exit flange on a transfer hose from which the Hydrocarbons
concerned can be loaded on a tanker and exported from Venezuela (an
"Export Point"), the Affiliate may approve or reject any such request
in its discretion. If the request (i) does not involve use of any such
infrastructure or facilities, (ii) provides for all infrastructure and
facilities needed for the Transportation and Handling to the Export
Point of Hydrocarbons meeting the minimum quality standards specified
below (or as otherwise agreed by the Affiliate in its discretion) and
(iii) is part of a Development Plan or an amendment thereto, such
request shall be subject to the general approval and review criteria
applicable to Development Plans
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and amendments to Development Plans under Clauses VI and IX
respectively. A Delivery Point at the Export Point will have unlimited
Delivery Point Capacity.
The minimum quality standards for Liquid Hydrocarbons delivered at an
Export Point shall be (1) an API gravity of at least 22 degrees, (2)
water content (determined by means of distillation) of no more than
0.5% for Liquid Hydrocarbons with an API gravity greater than 22
degrees and no more than 1.0% for Liquid Hydrocarbons with an API
gravity less than or equal to 22 degrees, and (3) the other quality
standards stated in Annex H.
(c) If the Affiliate approves any such request other than in the
context of a Development Plan or amendment thereto and the request is
accompanied by a proposal to construct or acquire additional
facilities, the Contractors shall be obligated to construct or acquire
such facilities for the Affiliate within the time periods described in
the request (as such time periods may be extended with the approval of
the Affiliate).
15.4 (a) The Contractors shall be required to deliver all Production to
the Affiliate at the relevant Delivery Point or Points. If the
Contractors experience operating problems or otherwise foresee that
the volume of Production delivered in a given month will be
significantly less than the volume provided in the relevant
Development Plan and Annual Work Program and Budget, the Contractors
shall give the Affiliate prompt notice of the nature of the problem,
the extent and duration of the expected volume shortfall, and the
measures being undertaken to remedy the problem and shall keep the
Affiliate informed as to the evolution of the problem.
(b) The Affiliate shall be required to accept from the Contractors at
each Delivery Point all Hydrocarbons in the volumes that the
Contractors are authorized to deliver at such Delivery Point, subject
to limitations due to reasonable and customary maintenance and repairs
or to operating problems with respect to the facilities concerned.
Prior to finalization of a proposed Annual Work Program and Budget in
accordance with Clause VII, the Affiliate shall notify the Contractors
of the proposed timing and duration of proposed routine maintenance
and repairs to assets and facilities, that could affect the
Affiliate's ability to accept delivery of Production at the relevant
Delivery Point, during the period covered by such Annual Work Program
and Budget. The Contractors shall make due allowance for such
maintenance and repairs in the Annual Work Program and Budget. In the
event of a need for unscheduled maintenance or repairs or of
unforeseen operating problems, the Affiliate shall give the
Contractors prompt notice of the nature of the problem, the extent and
duration of any expected curtailment of capacity, and the measures
being undertaken to remedy the problem and shall keep the Contractors
informed as to the evolution of the problem. In any event, the
Affiliate shall use its reasonable best efforts to minimize the
duration and scope of any curtailment of capacity due to maintenance
and repairs or to operating problems. In the event of a partial
curtailment of capacity, the curtailment shall be applied pro rata to
all users of the facilities concerned, including the Affiliate and
PDVSA's other Associated Entities, based on the available production
capacity of each, determined as provided in Clause 14.1. Any
curtailment in capacity shall be applied pro rata to the Baseline
Production and the Incremental Production. Where the Contractors are
unable to recoup the resulting loss by increasing the rate of
Production to the extent necessary to recoup such loss, the
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BOQUERON AREA
Contractors shall be entitled to receive an extension of the Operation
Period, sufficient in duration to allow it to produce the same volume
it failed to produce as a result of such curtailment.
15.5 All exploitation tax (royalty) payable pursuant to applicable
Venezuelan law in respect of Production that the Contractor is
authorized to realize hereunder shall be paid by the Affiliate.
15.6 In addition to the monthly production projections set forth in the
Annual Work Program and Budget for each year, the Contractors must
schedule delivery of Production to the Affiliate in accordance with a
notification and delivery procedure to be established in
accordance with the Uniform Reporting System.
15.7 The Contractors' duties will include the Transportation and Handling,
or arranging for the Transportation and Handling, of all Hydrocarbons
that are to be delivered to the Affiliate, from the wellhead or other
point of extraction to the relevant Delivery Point. Costs associated
with the Transportation and Handling of all volumes delivered under
this Agreement at a Delivery Point, whether in respect of construction
of new facilities or the use of existing facilities, will be included
in the calculation of the Service Fee, as provided in the Accounting
Procedures.
15.8 In the event that a fiscalization point or other inspection point is
required to be designated prior to the relevant Delivery Point in
accordance with relevant Venezuelan laws and regulations or the
requirements of the Ministry of Energy and Mines, such designation and
any measurement or inspection at such fiscalization point or other
inspection point shall not be deemed to constitute delivery of the
relevant Hydrocarbons by the Contractor to the Affiliate or acceptance
of such Hydrocarbons or the quality of such Hydrocarbons by the
Affiliate. Such delivery and acceptance, and transfer of risk of loss,
shall occur only at the relevant Delivery Point.
XVI
GAS DISPOSITION AND HANDLING
16.1 In the event that the Contractors make a Free Gas Discovery, they will
have the exclusive right for a period of 36 months following such Free
Gas Discovery to negotiate an alternative arrangement with the
Affiliate for the exploitation of such Free Gas Discovery. If a Free
Gas Discovery is made less than 36 months prior to the last date on
which this Agreement may terminate with respect to the areas in which
the Free Gas Discovery is located, this Agreement will be extended
with respect to such Free Gas Discovery until the expiration of 36
months after the Free Gas Discovery is made.
16.2 Unless otherwise agreed, Associated Gas shall be used and disposed of
in accordance with the following principles:
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(i) The Contractors shall be obligated to deliver to the Affiliate, and
the Affiliate shall be obligated to accept, at the relevant Delivery
Point, the volume of Associated Gas that is related to the Baseline
Production ("Baseline Gas"), as determined on the basis of the gas to
oil ratio for all Production from the Initial Field at the time
concerned; provided that, if the Affiliate is using Baseline Gas in
connection with Production from the Initial Field as of the Takeover
Date, the Contractors will have the right to use such volume of
Baseline Gas as is necessary to continue the Baseline Production. All
Baseline Gas delivered to the Affiliate shall be delivered Wet at the
Delivery Point.
If the Affiliate does not wish to accept the Baseline Gas and the
return of any Natural Gas provided by the Affiliate for gas lift, the
Affiliate shall pay for whatever facilities or other expenses are
necessary to dispose of all such Baseline Gas and Natural Gas in
accordance with Venezuelan Law and Decisions. Any expenses that may be
incurred by the Contractors and reimbursed by the Affiliate in this
regard shall be the object of a separate agreement between the
Contractors and the Affiliate and shall not be included in the
calculation of the Service Fee. The Affiliate shall continue to accept
the Baseline Gas until such facilities are available.
(ii) The Contractors shall have the right to use all Associated Gas other
than Baseline Gas ("Incremental Gas") in connection with performing
the Operating Services hereunder. If requested by the Affiliate, the
Contractors shall be obligated to deliver to the Affiliate at the
relevant Delivery Point any Incremental Gas that they do not use in
connection with the Operating Services. All Incremental Gas delivered
to the Affiliate shall be delivered Wet at the Delivery Point.
(iii) The Contractors shall pay the Affiliate for any Production of Natural
Gas (including Baseline Gas and Incremental Gas) that is either used
by the Contractors for any purpose other than reinjection or gas lift
or disposed of in a manner requiring the payment of royalty under
Venezuelan law, at the official price as of the time of use for
Natural Gas for industrial uses, of the quality and in the location
concerned, as determined in accordance with applicable Venezuelan
regulations as published most recently in the Gaceta Oficial. The
cost of such Natural Gas shall be a Chargeable Expenditure that may be
included in the calculation of the Service Fee.
(iv) The Affiliate may require that any volumes of Wet Baseline Gas or Wet
Incremental Gas that the Contractors are planning to use for
reinjection or gas lift in connection with the Operating Services
pursuant to Clauses 16.2(i) or 16.2(ii) instead be delivered to the
Affiliate at the relevant Delivery Point in exchange for the same
volume of Dry Natural Gas delivered by the Affiliate to the
Contractors either at the Receipt Point or at another mutually agreed
location inside or outside the Area. There shall be no charge to the
Contractors for the mere delivery of such Dry Natural Gas; the
Affiliate may separately charge a reasonable fee for any compression
of such Dry Natural Gas to a pressure higher than that at which the
Wet Natural Gas is delivered to the Affiliate. Any royalty,
exploitation tax or luxury and wholesale taxes due purely as a result
or such exchange of Wet Natural Gas for Dry Natural Gas shall be paid
by the Affiliate.
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(v) Unless otherwise agreed by the Affiliate, the Affiliate shall
not be obligated to accept any Associated Gas that does not
satisfy the quality standards specified in Annex H. The
Contractors shall have no obligation to treat Associated Gas
in order to meet such standards. The Contractors shall dispose
of any Associated Gas not used in providing the Operating
Services or delivered to the Affiliate, in accordance with
Venezuelan laws and regulations.
XVII
PAYMENT AND REIMBURSEMENT
17.1 In (i) reimbursement of advances made by the Contractors for the
acquisition of goods and services on behalf of the Affiliate and (ii)
compensation for the provision of the Operating Services hereunder,
the Affiliate shall pay to the Contractors a cash fee in U.S. dollars
(the "Service Fee"), determined in the manner set forth in Article V of
the Accounting Procedures. The Service Fee will be calculated and paid
Quarterly on the basis of statements and invoices presented by the
Contractors pursuant to Clause XVIII.
17.2. (a) In addition to the two components of the Service Fee described in
Clause 17.1, the Affiliate will pay to the Contractors the luxury and
wholesale taxes (or any other similar Venezuelan value added or sales
taxes) that the Contractors are required by Venezuelan law to collect
in relation to the portion of the Service Fee representing
compensation for the Operating Services (as determined in accordance
with Article VI of the Accounting Procedures). Such luxury and
wholesale taxes will be calculated and paid in Bolivars.
(b) The payment of luxury and wholesale taxes described in the
preceding paragraph will be in addition to the reimbursement pursuant
to Article 1.6.2 of the Accounting Procedures of luxury and wholesale
taxes that are paid by the Contractors on goods and services acquired
by the Contractors from third parties for the account of the
Affiliate.
17.3 As more fully set forth in Article 5.4 of the Accounting Procedures
and except as otherwise agreed by the Affiliate in its discretion, the
Service Fee shall be calculated and paid separately by the Affiliate
with respect to each Field, and only costs incurred within the Field
Boundary of any such Field or that are otherwise allocable to such
Field will be taken into account in determining the Service Fee in
respect of such Field. Except as otherwise agreed by the Affiliate,
any allocation of costs must be made in accordance with the mechanisms
established pursuant to the Accounting Procedures, as well as with
the following rules:
(i) No costs incurred by the Contractors in Exploration Activities
performed outside the Field Boundaries of any Fields existing
as such at the time of such activities may be included in the
calculation of the Contractors' costs for such Fields.
(ii) Costs incurred by the Contractors in Exploration Activities
will be included in the Service Fee calculations in accordance
with Article 5.4.5 of the Accounting
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Procedures only with respect to a Field as to which a
Development Plan is approved following the incurrence of such
costs, except as otherwise approved by the Affiliate in its
discretion. Upon the approval of such a Development Plan, all
Well Expenditures incurred within the Field Boundary of the
relevant Field, and all other Exploration Expenditures incurred
since the date of approval of the most recent prior Development
Plan, will be included in the Service Fee calculation for such
Field, as provided in the Accounting Procedures.
(iii) Costs that are associated with more than one Field, or with a
Field and activities outside the Field Boundaries of the Fields,
must be allocated in the manner set forth in the Accounting
Procedures.
17.4 For purposes of calculating the Service Fee, the volume of all Liquid
Hydrocarbons will be measured at the relevant Delivery Point(s)
corrected to a water content of 0.1% in the case of Liquid
Hydrocarbons having a water content greater than 0.1%, and the volume
of all Natural Gas corrected to a content of impurities of no more than
0.3%.
All Incremental Production will be valued on the basis of the Price
Formula. For purposes of applying the Price Formula to Liquid
Hydrocarbons, the API gravity of all Production delivered at all
Delivery Points in a Quarter will be deemed to be the average API
gravity of all such Production weighted to take into account the
actual volumes of Liquid Hydrocarbons having different API gravities
delivered in such Quarter.
Except as otherwise agreed by the Affiliate and the Contractors, the
valuation of all Hydrocarbons made available at a Delivery Point in
any Quarter shall be based on the average price determined in
accordance with the Price Formula for each calendar day in such
Quarter, without weighting based on the volume of Hydrocarbons
delivered on any such day. There will be no payment for Associated Gas
delivered to the Affiliate.
17.5 All payments of Service Fees and related luxury and wholesale or
similar Venezuelan taxes on the compensation component thereof shall
be made to accounts either inside or outside Venezuela to be
designated by the Operator. The Affiliate shall be deemed to have
fulfilled its obligations to pay the Service Fees and such taxes by
payment to the Operator, and the Affiliate shall not be responsible
for any failure by the Operator properly to divide any such payment
among the Contractors. The sole recourse of the Contractors for any
such failure shall be against the Operator.
XVIII
STATEMENTS AND INVOICES
18.1 The Service Fee will be payable on a quarterly basis, against
presentation by the Contractors of statements and invoices for the
relevant Quarter, based on the volume of Production delivered to the
Affiliate at the Delivery Point(s) in such Quarter. Payment will be
made by the Affiliate
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no more than 45 days following the receipt of each invoice. In the
event that the Affiliate disputes all or any portion of an invoice and
notifies the Contractor of the dispute within such 45-day period, the
Affiliate shall pay the undisputed portion within such 45-day period
and shall pay the balance upon resolution of the dispute. Any amount
paid by the Affiliate after such 45-day period (including amounts
subject to a dispute) shall bear interest from the last day of such
45-day period to the date of payment at a rate adjusted each day equal
to LIBOR for such day, plus 5% per annum. If the Affiliate notifies
the Contractor of the dispute after payment, the Contractor shall
refund any overpayment upon the resolution of the dispute. Any amount
required to be refunded by the Contractor shall bear interest at the
same rate, from the date of overpayment by the Affiliate to the date
of the refund.
18.2 The luxury and wholesale taxes (or other similar Venezuelan value
added or sales taxes) payable pursuant to Clause 17.2(a) shall be
reflected separately in the invoices provided by the Contractors to
the Affiliate.
18.3 Following the end of each Calendar Year, the statements and invoices
for such Calendar Year will be reviewed by a firm of independent
auditors designated by the Contractors and approved by the Affiliate,
and, unless disputed by the Contractors, any adjustments found by such
auditors will be reflected in the statement or invoice immediately
following the delivery of the report of the auditors. Additional
audits may be required by the Affiliate in accordance with the
Accounting Procedures.
18.4 Payment of any invoice by the Affiliate shall not constitute a
waiver of the Affiliate's right to object to all or part of such
invoice. Such an objection may be raised by the Affiliate until the
period for additional audits set forth in the Accounting Procedures
expires and the resolution of any items found during the course of
such audit or otherwise protested by the Affiliate during such period.
18.5 Invoice formats are specified in the Uniform Reporting System. All
books used for purposes of calculating the Service Fee payable to the
Contractors will be maintained in Dollars.
XIX
TERM AND TERMINATION; EXTENSIONS
19.1 The term of this Agreement shall begin on the Effective Date and
terminate as to each Field at the end of the Operation Period for such
Field and as to areas outside a Field Boundary at the end of the
period provided in Clause 19.2, subject in each case to early
termination or extension as provided herein.
19.2 This Agreement will terminate after 5 years as to any part of the Area
that is outside the Field Boundaries of the Fields existing at the end
of such period, subject to possible extension pursuant to Clauses
13.2 or 16.1.
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19.3 The term of the Agreement or of the Operation Period for any Field may
be extended with the approval of the Affiliate, upon request made by
the Contractors at least six months prior to the date on which the
Operation Period would otherwise expire. The Affiliate may grant or
deny such request in its discretion. In the event that any matter is
undergoing independent expert review in accordance with Clause 23.3
at the time the Agreement otherwise would have terminated with
respect to any Field (or proposed Field), this Agreement will be
extended with respect to such Field (or proposed Field) pending the
conclusion of the independent expert review.
19.4 At least 24 months prior to the termination of this Agreement with
respect to any Field or area (or, in the case of early termination
pursuant to Clause XX, as soon as practicable after the Contractors
become aware of termination), the Contractors shall submit to the
Affiliate a transition plan including at a minimum:
a) a description of the assets that are used in connection
with such Field or area and owned by the Affiliate
pursuant to Clause 12.1;
b) a description or any material assets that are used in
connection with such Field or area and are not owned by
the Affiliate, including the identity of the owner of such
assets and the terms on which such assets are currently
used and might continue to be available after termination;
c) a description of any material contracts, leases or other
arrangements with third parties for the provision of goods
or services in connection with such Field and an
indication whether such contracts, leases or other
arrangements might be assigned or transferred to the
Affiliate upon termination;
d) a description of the technology and other information
subject to Clause XXIV, and of the proposed treatment of
such technology and other information upon termination;
e) the report required by Clause 21.1 regarding the status
of wells and related assets in the Field; and
f) a plan for the transfer of operations back to the
Affiliate upon termination.
Such transition plan shall be amended from time to time to reflect any
material changes or developments in the information or plans provided
therein. Upon the termination of this Agreement with respect to any
area or Field, all assets, contracts, leases and rights that were used
with respect to any area or Field and are owned by the Affiliate
shall be delivered to the Affiliate, free and clear from any liens or
encumbrances.
19.5 Upon the termination of this Agreement, all rights and obligations of
the Parties hereunder shall terminate, except for the following rights
and obligations, which shall survive such termination:
(a) Claims of a Party against another Party for damages arising
out of acts or omissions of the other Party relating to such
other Party's obligations under this Agreement;
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(b) The provisions of Clause XXV, which shall remain in effect for
five (5) years following such termination; and
(c) The provisions of Clauses XXI and XXII until all remaining
obligations of the Contractors thereunder have been performed
in full.
Upon termination of this Agreement, no further payment, compensation
or consideration of any kind will be due or payable by the Affiliate
to the Contractors (except for any Service Fee in respect of
Hydrocarbons delivered to the Affiliate prior to the date of
termination or any expenses that are specifically made subject to
reimbursement hereunder), regardless of whether the Service Fee paid
during the term of this Agreement has been adequate to reimburse their
costs and expenses or compensate their services in providing the
Operating Services.
XX
DEFAULT AND EARLY TERMINATION
This Agreement may be terminated early by the Affiliate, and the
Contractors may withdraw from and terminate this Agreement, on the
terms and subject to the conditions set forth in this Clause XX.
20.1 In the event that the Contractors fail to submit a Development Plan
for the Initial Field to the Affiliate for approval within the period
specified in Clause 6.1, or that a Development Plan for the Initial
Field is not approved within 12 months after the initial submission
of a Development Plan pursuant to Clause 6.1, the Affiliate will be
entitled to terminate this Agreement by notice in writing to the
Contractors.
20.2 In the event that any Contractor breaches its obligations under this
Agreement in any material respect, and such breach is not cured
within ninety (90) days after the Affiliate provides notice to the
Contractors of such breach, the Affiliate shall have the right to
terminate this Agreement as to the breaching Contractor or all
Contractors in its discretion; provided that, if such breach is
reasonably capable of being cured and the Contractors begin to pursue
a cure within such ninety (90) day period, no termination may be
effected so long as the Contractors continue diligently to pursue such
cure. Notwithstanding the foregoing, a breach by a Contractor of its
obligations under Clause XXV or XXVII shall give rise to a termination
right on the part of the Affiliate only with respect to the affected
Contractor. Upon a termination with respect to a defaulting
Contractor, such Contractor's Participations in each Field and
Exploration Activity shall be automatically transferred to the
non-defaulting Contractors, on a pro rata basis, in accordance with
the respective Participations of the non-defaulting Contractors in
each such Field or Exploration Activity.
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20.3 In the event that any of the following events occurs with respect to
any Contractor or any Person that guarantees such Contractor's
obligations pursuant to Clause 3.2:
(a) An order is made by a court or an effective resolution is
passed for the reorganization under any bankruptcy law,
dissolution, liquidation, or winding up or such Contractor or
guarantor, which order shall not have been vacated,
discharged, stayed or bonded pending appeal within sixty (60)
days from the entry thereof,
(b) Such Contractor or any such guarantor dissolves, liquidates
or terminates its existence;
(c) Such Contractor or any such guarantor becomes insolvent,
bankrupt or makes an assignment for the benefit of creditors;
(d) A receiver is appointed for a substantial part of such
Contractor's assets or those of any such guarantor; or
(e) Such Contractor or any such guarantor commences a voluntary
receivership, bankruptcy, insolvency, dissolution,
liquidation, reorganization or similar proceeding,
such Contractor shall have one hundred and twenty (120) days from the
occurrence of such event to (i) transfer all of its rights and
interests under this Agreement to such Person as the Affiliate may
approve in accordance with Clause 27.1, or (ii) provide to the
Affiliate a guarantee or such Contractor's obligations hereunder in
form and substance, and from a guarantor, acceptable to the Affiliate.
In the event that such Contractor does not effect such a transfer or
provide such a guarantee within such time period, the Affiliate may
terminate such Contractor's rights and interests under
this Agreement. Upon such termination, the defaulting Contractor's
Participation in each Field or Exploration Activity shall be
automatically transferred to the non-defaulting Contractors, on a pro
rata basis, in accordance with the respective Participations of the
non-defaulting Contractors in each Field.
20.4 Any Contractor may at any time following the satisfaction of the
Minimum Work Obligation give notice to the Affiliate and the other
Contractors that it wishes to withdraw from this Agreement, either
entirely or only as to a particular Field or Exploration Activity.
Within thirty (30) days of receipt of such notice, any of the other
Contractors may similarly give notice that it wishes to withdraw from
this Agreement, either entirely or as to such Field or Exploration
Activity. If all such other Contractors give such notice, this
Agreement shall be terminated either in its entirety or as to the
particular Field(s) or Exploration Activity concerned, effective at
the expiration of such 30-day period, and the Contractors shall
abandon all relevant operations pursuant to Clause XXI. If less than
all of the other Contractors give such notice, the withdrawing
Contractors shall withdraw from this Agreement, either entirely or
only as to the particular Field or Exploration Activity concerned, on
the earliest practicable date and shall assign their respective
Participations to the non-withdrawing Contractors, on the basis of
their respective Participations. With respect to this Clause 20.4:
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(i) A withdrawing Contractor shall not be allowed to withdraw
from this Agreement if its interest hereunder or any
Participation is subject to any liens, charges or
encumbrances, unless the remaining Parties are willing to
accept the assignment subject to such liens, charges or
encumbrances;
(ii) A withdrawing Contractor shall remain liable and obligated
for its pro-rata share of all obligations incurred prior to
the date of withdrawal, even if the applicable operations are
to be implemented after the date of withdrawal, and for any
acts, occurrences or circumstances taking place or existing
prior to its withdrawal;
(iii) The withdrawal of the Operator or its Associated Entity may
only become effective upon the appointment of a replacement
Operator meeting the requirements of Clause X; and
(iv) The withdrawing Contractor shall remain liable for its
pro-rata share of the cost of abandonment in accordance with
Clause XXI and of any Post-Takeover Date Environmental Claim
and Cleanup Liability in accordance with Clause XXII.
XXI
ABANDONMENT; INACTIVE WELLS
21.1 During the term of this Agreement, whenever any Contractor Well ceases
to be capable of commercial production or to be useful for exploration
or appraisal in the Area and there is no reasonable likelihood that
such Contractor Well will again be capable of commercial production or
useful for exploration or appraisal, the Contractors shall cause the
Operator to plug such Contractor Well and remove from the relevant
property as promptly as practicable any related facilities, equipment
and other assets that the Contractors have used in providing the
Operating Services, unless the Affiliate otherwise agrees. If the
Operator proposes to plug any Contractor Well and remove any related
facilities, equipment and other assets, the Operator shall prepare and
deliver to the Affiliate, no later than 30 days prior to the proposed
commencement of the relevant operations, a report as to the
abandonment of such Contractor Well, including the costs of such
abandonment. In the event that the Affiliate disputes whether such
Contractor Well is capable of commercial production or useful for
further exploration or appraisal, the Operator shall not plug such
Contractor Well or remove such facilities, equipment and other assets,
pending the resolution of the dispute. The Affiliate shall have the
right to require a review of any such report by an independent expert
appointed pursuant to Clause 23.3, and the determination by the expert
as to whether the standards for abandonment of such Contractor Well are
satisfied shall be final and binding.
Similarly, if the Affiliate believes that a Contractor Well has ceased
to be capable of commercial production or to be useful for exploration
or appraisal in the Area, it may give notice to the Operator to this
effect, and the Operator shall respond within 30 days of such notice
either agreeing to plug and abandon such Contractor Well or stating
the reasons that lead it to believe that there is a reasonable
likelihood that such Contractor Well will again be capable of
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commercial production or useful for exploration or appraisal. If the
Affiliate does not accept such reasons, it shall have the right to
require a review by an independent expert appointed pursuant to Clause
23.3, and the determination by the expert as to whether the standards
for abandonment of such Contractor Well are satisfied shall be final
and binding. If the independent expert upholds the Affiliate's
position, the Contractors shall promptly plug and abandon the
Contractor Well(s) concerned.
At least twenty-four (24) months prior to the end of the Operation
Period with respect to each Field (or, in the case of an early
termination of this Agreement pursuant to Clause XX, as soon as
practicable after the Contractors become aware of such termination),
the Contractors shall cause the Operator to prepare and deliver to the
Affiliate a report listing the Contractor Wells in the Field(s)
concerned that the Contractors are not planning to plug and abandon,
the Contractor Wells that the Contractors are planning to plug and
abandon, and the assets that the Contractors propose to remove, as well
as a plan for the orderly transfer of operations to the Affiliate.
21.2 Plugging of wells and removal of equipment, facilities and other
assets shall be undertaken by the Contractors in accordance with
applicable Venezuelan laws and regulations and, to the extent
consistent therewith, in accordance with International Oil Industry
Standards.
21.3 In the event that the Operator delivers to the Affiliate a report
indicating that it plans to plug and abandon any well (including an
exploratory or appraisal well outside an existing Field Boundary), the
Affiliate may, within 30 days after receipt of such report (48 hours
if a rig is standing by, unless the Affiliate agrees within such 48
hours to assume the stand-by costs of such rig until either it gives
notice to the Contractors or such 30 days expire), notify the Operator
that the Affiliate will assume responsibility for such well. In such
event:
(i) the Operator shall not plug and abandon such well, and the
Affiliate shall assume responsibility for such well;
(ii) neither the Operator nor any of the Contractors shall have any
liability for any costs, expenses or damages arising out of or
based upon the improper use or plugging and abandoning of such
well, and the Affiliate shall indemnify the Operator and the
Contractors from, and hold each of them harmless against, any
costs, expenses (including without limitation reasonable legal
costs, expenses and attorneys' fees), damages and liabilities
incident to claims, demands or causes of action of every kind
and character brought by or on behalf of any Person, for damage
to or loss of property or the environment, or for injury to,
illness or death of any Person, in each case to the extent such
costs, expenses, damages and liabilities arise from or are
based upon the improper use or plugging and abandoning of such
well by the Affiliate; and
(iii) the Affiliate may plug and abandon such well or retain such
well for possible future use for production or otherwise,
except that the Affiliate may not during the Operation Period
(or during the term of this Agreement with respect to the
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relevant portion of the Area, in the case of a well drilled
outside the Field Boundary of a Field) use such well to drill
to a target zone within the Area;
provided that, in the case of an exploratory or appraisal well as to
which the inclusion of the related Well Expenditures in the
calculation or the Service Fee for a potential new Field is uncertain,
the Affiliate will have the option to assume responsibility for such
well as provided above only if, within 30 days following receipt of
the report indicating the Operator's intention to plug and abandon
such well, it agrees with the Operator on appropriate compensation for
such well in the event that such Well Expenditures are in fact never
included in the calculation or the Service Fee; provided that, if a
rig is standing by, the Affiliate will have only 48 hours to reach
such agreement, unless it undertakes within such 48 hours to assume
the stand-by costs of such rig until either it reaches such agreement
with the Contractors or such 30 days expire).
21.4 The Contractors shall have the following rights and obligations with
respect to any inactive well in the Area that was not abandoned prior
to the Takeover Date:
(a) At any time until the later of (1) the Takeover Date and (2) 6
months following the Effective Date, the Contractors shall have the
right to enter, reactivate and use any such inactive well free of
charge, subject to compliance with the following procedures:
(i) before first entering the well, the Contractors must receive
approval from the Affiliate of a plan for an integrity test to
determine the mechanical condition and environmental and
safety considerations relating to such well and any related
facilities;
(ii) upon approval by the Affiliate of such integrity test, the
Contractors may conduct the integrity test and, if one is
conducted, shall promptly report the results to the Affiliate,
stating (1) whether they choose to exercise the right to
reactivate such well for production or otherwise at that time,
(2) whether they have discovered any conditions presenting a
material risk to health and safety or to the condition of the
environment, and (3) an estimate of the costs of correcting
any such conditions if the Contractors were to undertake
remedial actions;
(iii) if, upon the completion of the integrity test, the Contractors
choose not to exercise the right to use such well, the
Contractors shall have no further rights or obligation with
respect to such well except as provided in Clause 21.4(b)
below; and
(iv) if, upon the completion of the integrity test, the Contractors
choose to exercise the right to use such well, such well shall
thereafter be a Contractor Well, the Contractors shall
thereafter assume all responsibility for such well, and the
Affiliate shall have no liability for any costs, expenses or
damages arising out of or based upon the improper drilling or
use of such well (whether prior to or after the date such well
is taken over by the Contractors).
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Any inactive well as to which the Contractors do not exercise the option
provided by this Clause 21.4(a) within the time period provided above may
thereafter be used by the Contractors only with the approval of the
Affiliate, and subject to such terms as the Affiliate may decide, in its
discretion.
(b)(1) The Contractors shall in any event inspect all inactive wells in
accordance with (i) the procedures and schedule set forth in the relevant
Development Plan in the case of inactive wells inside the Field covered by
such Development Plan and (ii) procedures and a schedule requested by the
Affiliate in the case of inactive wells outside any Field (which schedule
shall provide for inspection no more frequently than every 6 months). The
Contractors shall report to the Affiliate any conditions presenting a
material risk to health and safety or to the condition of the environment,
indicating the likely cause of such conditions and an estimate of the costs
of correcting any such conditions if the Contractors were to undertake
remedial actions. The reasonable costs of inspecting such inactive wells
shall be separately reimbursed by the Affiliate outside the Service Fee.
(2) If such conditions result in whole or in part from the Operator's
actions in the Area (e.g., the repressurization of a reservoir), the
Contractors shall cause the Operator to promptly undertake appropriate
measures including, if necessary, plugging and abandoning the well(s)
concerned. The cost of such measures shall be Chargeable Expenditures (to
the extent they otherwise qualify as such) for the Field that caused such
condition.
(3) If such conditions do not result in whole or in part from the
Operator's actions in the Area, the Affiliate shall promptly notify the
Contractors as to whether the Affiliate wishes to take measures to correct
such conditions, or whether the Contractors should do so. If the Affiliate
states that it wishes to take such measures, it shall promptly do so at its
own cost and expense. If the Affiliate states that the Contractors should
take such measures, the Contractors shall do so, and the Affiliate shall
promptly reimburse the Contractors outside the Service Fee for all
reasonable costs and expenses incurred by the Contractors in the course of
taking such measures.
(4) If there is a disagreement as to either the cause of any such
conditions or the need to take corrective measures, the Affiliate or the
Operator may refer the matter to an independent expert pursuant to Clause
23.3, whose decision as to the cause of such conditions or the need to take
such measures, as the case may be, shall be final and binding.
(c) Except as specifically provided in this Clause 21.4, the Contractors
shall have no liability or obligation with respect to any such inactive
wells.
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XXII
ENVIRONMENTAL MATTERS
22.1 The Contractors shall establish, or cause the Operator to establish,
an environmental protection program in connection with all operations
undertaken in connection with the Operating Services with a view to
ensuring that all such operations are conducted in accordance with
Environmental Law. Each Development Plan and plan for an Exploration
Activity shall contain such an environmental program for the
applicable activities, including:
(i) emergency and contingency plans to attend to any crude oil
spills or other Releases;
(ii) a plan for protecting the environment, specifying the steps to
be taken for handling Releases and Hazardous Substances;
(iii) a plan for training all personnel who will be involved in
implementing such environmental program; and
(iv) a program for preventing injuries and/or industrial diseases.
22.2 (a) The Contractors and Operator shall have no liability for any
Pre-Takeover Date Environmental Claim and Cleanup Liability, and the
Affiliate shall indemnify and hold harmless the Contractors and the
Operator against any Pre-Takeover Date Environmental Claim and Cleanup
Liability. In the event that the Contractors or Operator are
threatened with, or believe they may be liable for, any Pre-Takeover
Date Environmental Claim and Cleanup Liability, they shall promptly
notify the Affiliate and follow the Affiliate's instructions with
respect to such Pre-Takeover Date Environmental Claim and Cleanup
Liability. The Affiliate will promptly reimburse the Contractors and
Operator for any Pre-Takeover Date Environmental Claim and Cleanup
Liability that they may suffer or incur.
(b) Neither the Affiliate nor any of its Associated Entities shall
have any liability for any Post-Takeover Date Environmental Claim and
Cleanup Liability, and the Contractors and Operator shall indemnify
and hold harmless the Affiliate and its Associated Entities against
any Post-Takeover Date Environmental Claim and Cleanup Liability. In
the event that the Affiliate or its Associated Entities are threatened
with, or believe they may be liable for, any Post-Takeover Date
Environmental Claim and Cleanup Liability, they shall promptly notify
the Operator and follow the Operator's instructions with respect to
such Post-Takeover Date Environmental Claim and Cleanup Liability. The
Contractors will promptly reimburse the Affiliate or its Associated
Entities for any Post-Takeover Date Environmental Claim and Cleanup
Liability that they may suffer or incur.
(c) The Affiliate makes no representation or warranty, express or
implied, with respect to environmental conditions in the Area or the
compliance of conditions in the Area or operations as currently
conducted with Environmental Law and, except as specifically provided
in this Clause XXII, shall have no liability to the Contractors, the
Operator or any of their respective
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subcontractors, officers, directors, employees or agents with respect
to or arising out of any such environmental conditions or
non-compliance.
22.3 Following the Effective Date, the Contractors shall prepare or cause
to be prepared an environmental audit in conformity with Environmental
Law, in order to assess the environmental conditions existing in the
Initial Field and the rest of the Area. Such audit shall not
constitute conclusive evidence of the environmental problems or
conditions existing as of the Takeover Date and shall not preclude the
Contractors from demonstrating that a subsequent Environmental Claim
and Cleanup Liability constitutes a Pre-Takeover Date Environmental
Claim and Cleanup Liability.
Prior to commencing such audit, the Contractors shall present for the
Affiliate's approval a plan for such audit indicating:
i) the scope and content of such audit; and
ii) any Person or Persons, other than the Operator, that will
conduct the audit on behalf of the Contractors and the method
of selection of such Persons.
Such audit shall be completed, and the results reported to the
Affiliate, no later than six months following the Effective Date.
22.4 At the end of the Operation Period with respect to each Field (and
upon termination of the Agreement with respect to other areas), the
Contractors shall prepare or cause to be prepared an environmental
audit on a basis substantially consistent with the audit prepared
pursuant to Clause 22.3, except to the extent that Environmental Law
or relevant industry practices change. Such audit shall be prepared
during the last twelve months of the Operation Period (or term of the
Agreement) and shall be delivered on or prior to the last day of the
Operation Period (or term of the Agreement), unless the Operation
Period (or Agreement) is terminated early pursuant to Clause XX, in
which case the audit shall be prepared as soon as possible after the
fact of such early termination becomes known by the Contractors, and
shall be delivered to the Affiliate as soon as practicable after
completion. Such audit shall not constitute conclusive evidence of the
environmental problems or conditions existing as of such termination
and shall not preclude the Affiliate from demonstrating that an
Environmental Claim and Cleanup Liability constitutes a Post-Takeover
Date Environmental Claim and Cleanup Liability.
22.5 In the event that the Contractors are at any time required to cease or
curtail Baseline Production as a result of a condition, circumstance
or production practice which exists as of the Takeover Date and which
at such time violates Environmental Law, the Baseline Production for
the Hydrocarbons concerned will immediately and permanently be
reduced by the amount of such curtailment, unless (i) the Affiliate
agrees within 30 days of such cessation or curtailment to pay for any
measures or facilities that are needed so that the original Baseline
Production will be in compliance with the relevant laws and
regulations, and (ii) throughout the period of such curtailment, the
Affiliate calculates and pays the portion or the Service Fee related
to Baseline Production as if the Baseline Production were being
produced in full. In this case, for purposes of Article 5.2.3 of the
Accounting Procedures, the Baseline Production will be deemed to have
been delivered in full. The expenses of implementing such measures or
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constructing such facilities will be paid or reimbursed directly by
the Affiliate and will not be included in the calculation of the
Service Fee. The Contractors' actual knowledge of any such condition,
circumstance or production practice prior to the Takeover Date shall
not operate as a waiver of the Contractors' rights, or otherwise
affect the Affiliate's obligations, under this Clause 22.5.
XXIII
GOVERNING LAW; ARBITRATION; EXPERT OPINION
23.1 This Agreement shall be governed by and construed in accordance with
the laws of the Republic of Venezuela.
23.2 (a) Any dispute arising out of or concerning this Agreement shall
be settled exclusively and finally by arbitration. The
arbitration shall be conducted and finally settled by three
(3) arbitrators in accordance with the Rules of Conciliation
and Arbitration of the International Chamber of Commerce (the
"ICC Rules"), or such other rules as may be agreed by all of
the Parties involved. If the Affiliate is a party to the
relevant dispute, the Affiliate shall select an arbitrator and
the other party or parties thereto shall collectively select
an arbitrator in accordance with the ICC Rules. If the
Affiliate is not a party to the relevant dispute, and there
are only two such parties, each such party shall select an
arbitrator in accordance with the ICC Rules. In either such
case, the arbitrators so nominated shall then agree within
thirty (30) days on a third arbitrator to serve as Chairman.
If the Affiliate is not a party to the relevant dispute, and
there are more than two such parties, then all three
arbitrators, including the Chairman, shall be selected by the
International Court of Arbitration of the International
Chamber of Commerce in accordance with the ICC Rules, as if
all parties had failed to nominate arbitrators. All
arbitration proceedings under this Agreement shall be
conducted in New York City (United States of America). Any
decision or award of the arbitral tribunal (or the arbitrator)
shall be final and binding upon the Parties. Judgment for
execution of any award rendered by the arbitral tribunal (or
the arbitrator) may be entered by any court of competent
jurisdiction without review of the merits of such award. To
the extent permitted by law, any rights to appeal from or to
cause a review of any such award by any court or tribunal are
hereby waived by the Parties.
(b) To the extent that the Affiliate has or hereafter may acquire
any immunity from jurisdiction of any court or from attachment
in aid of execution of any other legal process (other than
pre-judgment attachment) in any action or proceeding conducted
pursuant to this Clause 23.2 (including any proceeding for the
enforcement of an arbitral judgment) with respect to itself or
its assets, the Affiliate hereby irrevocably agrees not to
invoke such immunity as a defense, and irrevocably waives such
immunity.
23.3 (a) Whenever a matter is required to be determined by an expert
pursuant to any provision of this Agreement, the expert shall
be a reputable individual possessing expert knowledge
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and experience for the determination of the matter in question and
shall be independent of the Parties. The expert shall be appointed
by agreement between the parties to the dispute or, in a default
of such agreement, within thirty (30) days after a Party has
requested the appointment of an expert by the International Center
of Expertise of the International Chamber of Commerce at Paris.
Such expert shall determine the matter in question within sixty
(60) days after his appointment on the basis of terms of reference
agreed between the parties to the dispute or otherwise as the
expert may himself determine as an expert and not as arbitrator,
and such determination shall be final and binding on the Parties
hereto, except as otherwise provided herein. All costs of such
expert shall be borne 50% by the Affiliate and 50% by the
Contractors.
(b) Any time period during which a matter is undergoing expert review
(beginning with the giving of notice regarding such review) shall
not count against the time period for approval by the Affiliate of
the issue in respect of which such matter was submitted for expert
review.
(c) In the event that the Affiliate rejects for the third time any
proposed Development Plan, Annual Work Program and Budget,
Exploration Activity or amendment to a Development Plan (as such
proposed Development Plan, Annual Work Program and Budget,
Exploration Activity or amendment may have been modified or
amended by the Contractors following the determination of an
expert pursuant to this Clause), the Contractors thereafter shall
not be entitled to submit to expert determination any matter in
respect of such Affiliate's third rejection, and the Affiliate's
rejection shall be final and binding.
23.4 The approval or disapproval of any matter by the Affiliate shall not
supersede any applicable Venezuelan law or regulation or exempt any
Party from being subject to any such law or regulation, nor shall it
otherwise serve to modify the Party's remaining obligations under this
Agreement.
23.5 Without limiting the generality of Clause 23.1, the Parties hereby
acknowledge the applicability of Article 1160 of the Venezuelan Civil
Code to this Agreement, and that accordingly all obligations hereunder
shall be performed in good faith, and in accordance with equity, custom
and law. The Parties also acknowledge the applicability of any
international treaties relating to the mutual protection of foreign
investment to which both Venezuela and any country of which a
Contractor, an Operator or a guarantor thereof is a national may now be
or hereafter become parties.
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XXIV
TECHNOLOGY; OWNERSHIP OF INFORMATION AND DATA; ACCESS TO FACILITIES
24.1 To the fullest extent permitted by applicable law or agreements, the
Contractors agree to make available on reasonable terms their most
appropriate technical expertise and technology for use in the
provision of the Operating Services, including such technology as can
best improve the economic yield or performance of the Hydrocarbon
reservoirs developed and operated by the Contractors and the Operator
under this Agreement.
24.2 The Contractors shall also endeavor to ensure that such Venezuelan
personnel as are employed or assigned to managerial or technical
positions within the Contractors or the Operator receive training in
the use of such advanced technology as the Contractors or the Operator
employ in the provision of the Operating Services. Such training may
also be made available to employees of the Affiliate or any of its
Associated Entities, subject to such agreed terms and conditions as
may best serve the mutual interests of the Parties.
24.3 Any technology specifically developed by the Contractors or the
Operator in the course of their activities under this Agreement shall
be owned by both the Contractors and the Affiliate, and may be used by
any of them or their Associated Entities in their own operations
without the consent of the other and without making any payment to the
other. All geological, geophysical and other data, as well as all
other information developed in the course of the activities
contemplated by this Agreement (other than technology specifically
developed by the Contractors) will be owned by the Affiliate, but may
be used free of charge by the Contractors or the Operator in connection
with the Operating Services during the term of this Agreement.
24.4 The Affiliate shall have prompt and full access to all data, records
and information used or produced by or for the Contractors or the
Operator in connection with the Operating Services, regardless of
whether such data, records and information would otherwise be
considered proprietary or confidential, and shall have the right to
inspect or cause to be inspected any and all facilities used in the
Operating Services during regular business hours in a manner that will
not materially interfere with the provision of the Operating Services.
The Affiliate shall not be entitled to use, or to permit its
representatives or any other Person to use, any proprietary
information of any Contractor, the Operator or any of their respective
Associated Entities that is inspected pursuant to this Clause 24.4,
without the prior written consent of such Contractor, the Operator or
such Associated Entity.
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XXV
CONFIDENTIALITY
25.1 All data, records and information referred to in Clause 24.3 and 24.4,
and any other information exchanged between any Parties or between the
Operator and any Party in connection with this Agreement,
("Confidential Information") shall be treated as confidential by the
party receiving such information (the "Receiving Party"), and shall
not be disclosed by it to any third party unless the party that
provided such information, data or materials (the "Disclosing Party")
has given its prior consent to such disclosure.
25.2 Each Receiving Party may disclose such Confidential Information to any
of its officers, directors, employees, Associated Entities, agents,
subcontractors and advisors who (i) has a need to know the same in
connection with carrying out the Operating Services and (ii) has been
advised of, and agrees to comply with, the restrictions upon such
Confidential Information set forth in this Agreement as if it were a
Receiving Party.
25.3 Notwithstanding the foregoing, the Receiving Party may disclose
Confidential Information to a third party without the Disclosing
Party's prior written consent to the extent such information:
(i) is already known to the Receiving Party as of the date of
disclosure other than as a result of a breach of this Clause
XXV;
(ii) is already in possession of the public or becomes available to
the public other than through the act or omission of the
Receiving Party;
(iii) is developed independently by the Receiving Party without the
use of any Confidential Information;
(iv) is acquired independently from a third party, which is under
no legal obligation known to the Receiving Party prohibiting
such disclosure; or
(v) is required to be disclosed pursuant to any applicable law,
decree, regulation, rule or order of any competent authority.
In the event that any Receiving Party is required by applicable law,
decree, regulation, rule or order of any competent authority to
disclose any Confidential Information supplied to it by any Disclosing
Party, the Receiving Party shall promptly notify in writing the
Disclosing Party, so that the Disclosing Party may seek an appropriate
protective order and/or waive the Receiving Party's compliance with
the confidentiality requirement. In the event that such protective
order or other remedy is not obtained, then the Receiving Party shall
furnish only that portion of such Confidential Information that is
legally required to be disclosed.
25.4 Notwithstanding the foregoing, any Contractor may disclose
Confidential Information to any Person with whom such Contractor
enters into bona fide negotiations for the Transfer of an
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interest hereunder, or for the financing or insuring of any activities
hereunder, or to their respective advisors, so long as (i) the
Confidential Information is limited to such information as the
potential transferee, financier, insurer or any such advisor, requires
for purposes of evaluating the proposed transaction, and (ii) the
potential transferee, financier, insurer or advisor, agrees in writing
to abide by confidentiality restrictions identical to those set forth
in this Clause XXV.
25.5 All press releases, advertisements and other announcements or
publications by the Operator, any Contractor or any of their
Associated Entities involving information relating to this Agreement
or the Operating Services must be approved by the Affiliate prior to
distribution or dissemination, except to the extent such announcements
relate to emergency situations and are reasonably necessary for the
protection of the environment or health or safety.
XXVI
FORCE MAJEURE
26.1 Failure of a Party to fulfill any obligation incurred under this
Agreement shall be excused and shall not be considered a default
hereunder during the time and to the extent that such noncompliance is
caused by an Event of Force Majeure, except that if the Event of Force
Majeure is an act of the Venezuelan State that is not of general
applicability, such Event of Force Majeure shall not preclude an
action for damages against the Affiliate for the non-performance of
the relevant obligation.
26.2 For the purposes of this Agreement, an "Event of Force Majeure" shall
mean any event or circumstance, other than lack of finances, beyond
the reasonable control of and unforeseeable by the Party obligated to
perform the relevant obligation, or which, if foreseeable, could not
be avoided in whole or in part by the exercise of due diligence,
including but not limited to strikes, boycotts, stoppages, lockouts
and other labor or employment difficulties, fires, earthquakes,
tremor, landslides, avalanches, floods, hurricanes, tornadoes, storms,
other natural phenomena or calamities, explosions, epidemics, wars
(declared or undeclared), hostilities, guerrilla activities, terrorist
acts, riots, insurrections, civil disturbance, acts of sabotage,
blockades, embargoes, or acts of state or any governmental body.
26.3 If any Party cannot comply with any obligation stipulated herein
because of an Event of Force Majeure, such Party shall notify the
other Parties in writing as promptly as possible giving the reason for
non-compliance, particulars of the Event of Force Majeure and the
obligation or condition affected. Except as provided in Clause 26.1,
any obligation of a Party shall be temporarily suspended during the
period in which such Party is unable to perform by reason of an Event
of Force Majeure, but only to the extent of such inability to perform.
The obligations of the Parties to perform as provided by this
Agreement through facilities not affected by the Event of Force
Majeure shall continue. The Party affected by the Event of Force
Majeure shall promptly notify the other Parties as soon as such event
has been removed and no longer
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prevents it from complying with its obligation, and shall thereafter
resume compliance with the Agreement.
26.4 The Party which has given notice of an Event of Force Majeure shall
endeavor to mitigate the effects of such Event of Force Majeure on the
performance of its obligations. Where an Event of Force Majeure
continues for more than sixty (60) days, the Parties shall meet to
review the situation and its implications for operations and to
discuss the appropriate course of action in the circumstances.
26.5 If an Event of Force Majeure occurs that substantially impedes
development or exploitation activities, the relevant Operation Period
will be extended by an amount of time equal to the period during which
such event is in effect. In each case, such extension will be only
with respect to any affected Field. If the Operation Period is
extended pursuant to this Clause 26.5, the Affiliate shall not be
entitled to draw on any letter of credit or guarantee delivered by a
Contractor pursuant to Clause 4.4 until the end of the period set
forth in Clause 4.3, plus a time period equal to the duration of any
extension, but only if such Contractor provides a replacement of or
amendment to such letter of credit or guarantee, in form and substance
satisfactory to the Affiliate, ensuring that the Affiliate's rights at
the end of such period will be the same as the rights it would have
enjoyed at the end of the original period had no such extension
occurred.
XXVII
ASSIGNMENT; CHANGE IN CONTROL
27.1 No Contractor may effect a Transfer without the prior consent of the
Affiliate. Such consent may be granted or withheld at the Affiliate's
discretion (i) before the Minimum Work Obligation is satisfied in
full, and (ii) if the proposed Transfer would result in a Person
holding a Participation of less than 9% in any Field. In addition, no
Transfer can be made that would result in non-compliance with Clause
10.3. At least 30 days prior to any proposed Transfer, the Contractor
shall provide notice to the Affiliate of the Transfer, including the
name of the proposed transferee and the Participations in each Field
to be transferred. Notwithstanding the foregoing, (i) any Contractor
whose obligations are guaranteed pursuant to Clause 3.2 may effect a
Transfer to any Associated Entity of the guarantor, upon confirmation
by the guarantor in form and substance satisfactory to the Affiliate
that the applicable guarantee remains in effect as to the obligations
of the transferee, and (ii) any other Contractor may effect a Transfer
to any Associated Entity of such Contractor, upon execution by the
Contractor of a guarantee substantially in the form of Annex D hereto
with respect to the obligations of such Associated Entity.
27.2 For purposes of Clause 27.1, if any Contractor's obligations are
guaranteed pursuant to Clause 3.2, any proposed transaction that, if
consummated, would result in the guarantor ceasing to be an
Associated Entity of such Contractor shall be considered a Transfer,
subject to the Affiliate's right of consent pursuant to Clause 27.1
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27.3 The Affiliate may not effect a Transfer without the prior consent of
the Contractors. Notwithstanding the foregoing, no consent shall be
required for the Transfer by the Affiliate in whole or in part of its
rights or obligations hereunder to PDVSA or any Associated Entity of
PDVSA.
27.4 Upon the consummation of any Transfer by a Contractor, the transferee
shall be considered for all purposes a Contractor, with the
Participation in each Field specified in the notice delivered to the
Affiliate pursuant to Clause 27.1. Upon the consummation of any
Transfer by the Affiliate, the transferee shall be considered the
"Affiliate" for all purposes hereunder.
27.5 Any purported Transfer by a Contractor or by the Affiliate that does
not comply with this Clause XXVII shall be null and void and shall
vest no rights in the purported transferee.
27.6 Nothing in this Clause XXVII shall prohibit the Operator from
subcontracting all or any portion of the activities involved in the
Operating Services in compliance with the terms of this Agreement. The
Operator shall be fully responsible for the performance of its
obligations hereunder, notwithstanding any such subcontracting
arrangement (although the Operator may agree with any subcontractor on
indemnity arrangements satisfactory to the Operator and such
subcontractor).
XXVIII
NOTICES
28.1 All notices, demands, instructions, waivers, consents or other
communications to be provided pursuant to this Agreement shall be in
writing in Spanish, shall be effective upon receipt, and shall be sent
by personal delivery, courier, facsimile or telex, to the following
addresses:
(i) If to the Contractors, to:
UNION TEXAS VENEZUELA LIMITED
1330 Post Oak Blvd
Houston, Texas 77056
Attn.: Newton W. Wilson, III, President
Telephone: (713) 968-2808
Facsimile: (713) 968-2815
66
<PAGE> 70
BOQUERON AREA
PREUSSAG ENERGIE GmbH
Waldstrasse 39
D49809 Lingen
Germany
Attn: Heinz-Georg Feuerborn, General Counsel
Telephone: 49-591-612-202
Facsimile: 49-591-6127-000
(ii) If to the Affiliate, to:
LAGOVEN, S.A.
Edificio Lagoven
Av. Leonardo Da Vinci, Los Chaguaramos
Caracas 1010-A, Venezuela
Production Department, Piso 8
Attn: Roland Glaenztlin
Telephone: 58-2-606-4585 / 58-2-606-5502
Facsimile: 58-2-606-4426 / 58-2-606-3371
The addresses and telex and facsimile numbers for notices given
pursuant to this Agreement may be changed by means of a notice given
to all Parties at least fifteen (15) Business Days prior to the
effective date of such change.
67
<PAGE> 71
BOQUERON AREA
XXIX
MISCELLANEOUS
29.1 To be binding, any amendment of this Agreement must be effected by an
instrument in writing signed by all of the Parties. No further
formalities by the Parties shall be required to amend this Agreement.
29.2 Rights hereunder may not be waived, except pursuant to a writing
signed by the Party against which enforcement of the waiver is sought.
29.3 Notwithstanding anything to the contrary contained in this Agreement,
in no event shall any Party be liable to any other Party for any
consequential damages or lost profits that such other Party may
suffer. The Parties acknowledge that this Clause is intended only to
limit their liability to each other for consequential loss or damage,
and shall not be construed so as to limit their liability to third
parties or their right to seek indemnification for third party claims
in accordance with any other Clause.
29.4 Nothing contained herein is intended to create, or shall be deemed or
construed as creating, any legal entity between the Parties. No Party
shall have the authority or right, or hold itself out as having the
authority or right, to assume, create or undertake any obligation of
any kind whatsoever, express or implied, on behalf of or in the name
of any other Party, except as expressly provided herein. Except to the
extent that the Contractors are to acquire goods and services from
third parties for the account of the Affiliate on a non-recourse basis
as provided herein, no provision in this Agreement shall constitute
the Contractors or the Operator, or any of their employees,
subcontractors, agents or representatives, an employee, contractor,
agent or representative of the Affiliate. The Contractors and the
Operator shall be independent contractors and shall be responsible for
and have control over the performance of the Operating Services
hereunder, subject to the standards set forth in this Agreement. Any
provision herein giving the Affiliate the right to direct the
Contractors or the Operator as to any details of the performance of
the Operating Services shall not be construed to limit or release the
obligations of the Contractors or the Operator hereunder.
29.5 The obligations of the Contractors and the Operator hereunder shall be
several and not joint, except that the Operator shall be jointly and
severally liable for the obligations of the Contractors as provided in
Clause 10.1.
29.6 This Agreement my be executed in one or more counterparts, each of
which shall be considered an original.
29.7 This Agreement is being executed in the Spanish language, and an
English language version is being acknowledged as an official
translation. The Spanish version shall constitute the only binding
version, and the English translation is being acknowledged as a matter
of reference only.
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<PAGE> 72
BOQUERON AREA
SIGNATURES
In Caracas, Venezuela, on the 29 day of the month of July, 1997.
ACKNOWLEDGED AS OFFICIAL TRANSLATION
LAGOVEN S.A
By:
/s/ JULIUS TRINKUNAS
---------------------------
Name: Julius Trinkunas [SEAL]
Title: President
UNION TEXAS VENEZUELA LIMITED
By: /s/ NEWTON W. WILSON, III
---------------------------
Name: Newton W. Wilson, III
Title: President
PREUSSAG ENERGIE GmbH
By: /s/ RUDOLPH BERENDS
---------------------------
Name: Rudolph Berends
Title: Attorney in Fact
69
<PAGE> 73
ANNEX A
DESCRIPTION OF AREA
BOQUERON AREA
1. LOCATION
The Area is comprised of sixty square kilometers (60 km(2)) and is located
four kilometers (4 km) northeast of the city of Maturin, in the Boqueron
field.
2. MAP
[See attached map.]
3. STRATIGRAPHIC REFERENCE COLUMN
The following stratigraphic column shall be the official reference for
Annexes A and B.
AGE FORMATION MEMBER
--- --------- ------
MIOCENE CARAPITA
OLIGOCENE NARICUAL NARICUAL SUPERIOR
NARICUAL MEDIO
NARICUAL INFERIOR
AREO
CRETACEOUS LOS JABILLOS
4. AREA BOUNDARY
Horizontally the Area boundary is represented by a polygon of four (4)
vertices, the geographic coordinates of which are indicated in the map
included herein.
Vertically the Area comprises the entire stratigraphic column, without
limit of depth.
A-1
<PAGE> 74
ANNEX B
DESCRIPTION OF INITIAL FIELD
BOQUERON AREA
1. MAP
[See attached map.]
2. FIELD BOUNDARY Of THE INITIAL FIELD
Aerially the Field Boundary of the Initial Field is comprised of a
polygon of eight (8) vertices, the geographic coordinates of which are
indicated in the map included herein.
Vertically the Field Boundary of the Initial Field is comprised of the
base of the Carapita Formation of the Miocene Age and the top of the Areo
Formation of the Oligocene Age.
B-1
<PAGE> 75
ANNEX C
[Translation]
ACCOUNTING PROCEDURES
<PAGE> 76
ACCOUNTING PROCEDURES
I. GENERAL CONDITIONS
1.1 Purposes
The purposes of these Accounting Procedures are to establish the
accounting procedures that will allow the maintenance of all the
necessary records to reflect in a consistent manner the costs of
exploiting Hydrocarbons in the Area, to facilitate the payment of
Service Fees and to permit the Parties to comply with their other
obligations and responsibilities under the Agreement.
1.2 Definitions(1)
Capitalized terms defined in the Agreement (as defined below), when
used in these Accounting Procedures, have the respective meanings
assigned to such terms in the Agreement. The following definitions are
in addition to and supplement those set forth in the Agreement.
"Agreement" means the Operating Agreement of which these
Accounting Procedures form a part.
"Bolivar Exchange Rate" means, as of any date of determination
in any calendar month, the average of the daily closing
exchange rates for each day in such calendar month on which
the relevant rate is fixed, for the purchase of Bolivars with
Dollars, determined for each such day in accordance with
Venezuelan laws and regulations for use in a transaction of
the type being recorded or booked. If at any time there is
more than one legal rate for purchase of Bolivars with Dollars
with respect to the relevant type of transaction, the rate to
be used shall be the rate that most nearly reflects the free
market rate for such conversion. In the event that there is a
dispute as to which rate satisfies such requirement, pending
the resolution of the dispute, the Bolivar Exchange Rate for
any such day shall be equal to the rate at which the Operator
actually purchased Bolivars with Dollars, in its most recent
bona fide arms' length transaction of at least $10,000, from
Persons other than the Operator, a Contractor or an Associated
Entity of the Operator or a Contractor.
"Calendar Year" means the period of time from and including
January 1 in any year through and including December 31 in the
same year.
- ---------------------------
(1) Definitions in this English translation are presented in alphabetical order
in English for ease of reference. Accordingly, the order of these
definitions does not match the order in the definitive Spanish version.
<PAGE> 77
"Capital Expenditures" means those Chargeable Expenditures or
proposed Chargeable Expenditures that are or would be
classified as capital expenses (including capitalized lease
expenses) in accordance with PDVSA Accounting Principles.
"Cash Method" means that method of accounting in which all
revenue and expenditure items are recorded as of the date on
which cash or other consideration is actually paid or received
by the relevant party.
"Chargeable Expenditures" means expenditures that are eligible
for inclusion in the calculation of the Service Fee in
accordance with Article IV of these Accounting Procedures.
Chargeable Expenditures will not include any Financing
Charges.
"CPI" means the Consumer Price Index for All Urban Consumers
(CPI-U), United States City Average (base period 1982-1984 =
100), as published by the United States Bureau of Labor
Statistics. In the event that such index is no longer
published or is no longer representative of the changes in
consumer prices in the United States, the Parties shall select
an alternative index that most accurately reflects changes in
consumer prices in the United States. In the absence of
agreement, either Party may require that the determination be
made by an independent expert appointed pursuant to Clause
23.3 of the Agreement.
"Expenditure Reductions" means any reduction in, or refund or
reimbursement of, any Chargeable Expenditures that are
received by the Operator or any Contractor after such
Chargeable Expenditures have been included in the calculation
of the Service Fee, including, without limitation, (i) any
refunds, discounts (other than discounts deducted from the
original purchase price), rebates; damages or other amounts
received following the purchase or leasing of goods or
services, (ii) any amounts received as damages from, or in
settlement of, a legal proceeding (including an arbitration
proceeding), and (iii) any insurance proceeds in respect of
loss or damage.
"Exploration Expenditures" means all Chargeable Expenditures
made or proposed to be made in connection with an approved
Exploration Activity, Exploration Expenditures will not be
included in the calculation of the Service Fee for any Field,
except as provided in Clause 17.3 of the Agreement and Article
5.4 of these Accounting Procedures.
"Financing Charges" means all interest, fees and other
financing expenses for indebtedness (including all obligations
for borrowed money, all obligations evidenced by bonds, notes,
debentures or similar instruments, all letters of credit or
banker's acceptances, all delinquent tax liabilities, and all
obligations for the deferred purchase price of goods or
services, including any lease accounted for as a capitalized
lease, in all cases determined on the basis of international
accounting standards), If (i) the documentation for any such
indebtedness does not clearly
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<PAGE> 78
state an interest and financing component or the Affiliate
does not believe that the interest and financing component
stated in such documentation reflects a bona fide, arms'
length and reasonable interest and financing component and
(ii) the Affiliate and the Contractors are unable to agree on
an appropriate interest and financing component, the Affiliate
may at any time prior to the end of the period that may be
covered by an additional audit under Article 3.2 of these
Accounting Procedures, request that the question of an
appropriate interest and financing component be decided by an
independent expert in accordance with Clause 23.3. of the
Agreement. The decision of the independent expert will be
final and binding.
"Net Hydrocarbon Value" means, with respect to any Field, for
any Quarter, the value of the Incremental Production from such
field that is delivered in such Quarter at the applicable
Delivery Point(s) (after taking into account any reduction
pursuant to Article 5.2.3 of these Accounting Procedures),
based on the Price Formula, net of (i) Royalties in respect of
such Incremental Production (and in respect of any Production
of Liquid Hydrocarbons that is not delivered at a Delivery
Point and is used, disposed of or lost in a manner that
subjects such Production to exploitation tax (royalty) under
Venezuelan laws and regulations), and (ii) the percentage
specified in Schedule A to these Accounting Procedures of the
gross value of such Incremental Production based on the Price
Formula, in respect of the administrative costs incurred by
the Affiliate.
"Operating Expenditures" means those Chargeable Expenditures
or proposed Chargeable Expenditures that are or would be
classified as current expenses in accordance with PDVSA
Accounting Principles.
"PDVSA Accounting Principles" means the body of generally
accepted accounting principles used by PDVSA in the
preparation of its audited financial statements in Venezuela,
applied on a consistent basis, as such principles may be
amended from time to time. Promptly following the Effective
Date, the Affiliate shall provide the Contractors with
information regarding the PDVSA Accounting Principles
currently in effect and will thereafter consult with the
Contractors as requested regarding the proper classification
of Chargeable Expenditures for purposes of the Development
Plan and the first Annual Work Program and Budget for the
Initial Field. Any amendments to the PDVSA Accounting
Principles will be notified to the Contractors in a timely
manner. If a subsequent amendment of PDVSA Accounting
Principles would affect the classification of Chargeable
Expenditures as Operating Expenditures or Capital Expenditures
as reflected in the Development Plan, such classification
shall be revised (without need for amendment pursuant to
Clause IX of the Agreement) so that the classification of
Chargeable Expenditures therein remains consistent with the
classification of Chargeable Expenditures in the current and
future Annual Work Programs and Budgets.
3
<PAGE> 79
"Quarter" means a period extending from January 1 to March 31,
April 1 to June 30, July 1 to September 30 or October 1 to
December 31 in any Calendar Year.
"Uniform Reporting System" shall have the meaning set forth in
Article 2.1.
"Well Expenditures" means all Chargeable Expenditures directly
associated with the drilling, deepening, completion,
recompletion, plugging back, reworking, sidetracking, testing,
suspension or abandonment of a well, including, without
limitation, site preparation, drilling charges, rental or
acquisition of drilling equipment, materials used in the
course of such activities and activities directly relating
thereto, logging costs, testing costs, plugging costs and
personnel costs in respect of the foregoing activities.
1.3 Currency
1.3.1 Dollar Books
All transactions relating to activities conducted in relation to
the Agreement shall be recorded in Dollars in the books of account
and other records maintained by the Operator.
1.3.2 Transactions in Dollars
The Service Fee paid by the Affiliate, Chargeable Expenditures
made by the Operator in Dollars and Expenditure Reductions
received by the Operator in Dollars shall be recorded at their
actual amounts as of the date of the relevant transaction (as
determined pursuant to Article 1.4.3).
1.3.3 Transactions in Currencies Other Than Dollars
Chargeable Expenditures made by the Operator in Bolivars and
Expenditure Reductions received by the Operator in Bolivars shall
be translated into Dollars on the basis of the Bolivar Exchange
Rate as of the date of the relevant transaction. The Dollar amount
resulting from such determination shall be recorded in the books
of the Operator as if the transaction had been originally effected
in Dollars.
Chargeable Expenditures incurred by the Operator in a currency
other than Bolivars or Dollars shall be translated into Dollars
and recorded in the books of the Operator as if such Chargeable
Expenditures had been originally effected in Dollars, on the basis
of either:
(i) if Dollars were actually used by the Operator to purchase
such other currency specifically for the relevant
transaction from a Person other than the Operator, a
Contractor or an Associated Entity of the Operator or a
Contractor, the rate at which such purchase was effected
(or, if there was
4
<PAGE> 80
more than one such purchase, the average purchase rate,
weighted by the respective Dollar amounts of such
purchases); or
(ii) in all other cases, the rate at which the Operator
actually purchased such other currency with Dollars in its
most recent bona fide arms' length transaction of at least
$10,000 from Persons other than the Operator, a Contractor
or an Associated Entity of the Operator or a Contractor,
or if no such purchase has been made within 30 days prior
to the relevant transaction, the rate published in the
"Cross Currency Rate" table (or any successor table) in
the London edition of the Financial Times most recently
prior to the date of the transaction.
1.4 Accounting Records
1.4.1 The Operator shall open and maintain such separately
identifiable accounting records as may be necessary to record
in a full and proper manner the Service Fee paid by the
Affiliate, all Chargeable Expenditures incurred by the
Operator, all Expenditure Reductions, and all other amounts
necessary to permit compliance with these Accounting Procedures
and the Agreement. For purposes of these Accounting Procedures,
Expenditure Reductions received by a Party other than the
Operator shall be considered to be received by the Operator on
the date of receipt by such Party (and shall be remitted to the
Affiliate by such Party immediately upon receipt).
1.4.2 All accounts WILL show clearly any luxury and wholesale taxes
(or similar Venezuelan sales or value added taxes) paid or
collected by the Operator for the account of the Affiliate that
are reimbursable to the Contractors pursuant to Article 1.6 of
these Accounting Procedures.
1.4.3 All Service Fees, Chargeable Expenditures and Expenditure
Reductions shall be recorded in the Operator's accounting books
and records in accordance with the Cash Method. The Operator's
books and records shall be maintained in accordance with the
Cash Method for all purposes hereunder, except that any
Chargeable Expenditures that are prepaid so that they are
incurred in cash in a Quarter prior to that in which they are
due shall be deemed to have been incurred in the Quarter in
which they are due.
1.4.4 The Operator shall maintain its books and records separately
for each Field and for all Exploration Expenditures, and
otherwise in order to permit the Operator to make all
calculations arid to prepare all reports required to be made or
prepared hereunder.
1.5 Inflation
1.5.1 Except for purposes of the determination of "Deflated Pre-Tax
Cash Flow" and "Inflated Pre-Tax Cash Flow" in Article 5.2, and
except as provided in Article 1.5.2, amounts recorded in the
books and records of the Operator shall not be
5
<PAGE> 81
adjusted for inflation and shall remain in the Operator's books
and records on the basis of historical amounts.
1.5.2 For purposes of determining whether the cost thresholds set
forth in Sections 7.3, 7.6(ii) and 9.1 of the Agreement are
exceeded, Chargeable Expenditures incurred, and projections
made as to Chargeable Expenditures, in a Quarter other than the
Quarter in which the relevant determination is being made shall
be adjusted for inflation on the basis of the respective values
of the CPI most recently published as of the first day of the
respective Quarters for which the determination is being made,
so as to make such determinations on the basis of constant
Dollars.
1.5.3 In order to improve the comparability of financial information,
the Contractors shall, to the extent reasonably practical,
present Development Plans and Annual Work Programs and Budgets
in constant Dollars.
1.6 Advances to Affiliate; Venezuelan Luxury and Wholesale Taxes
1.6.1 All assets and services that are purchased or leased by the
Contractors from third parties in connection with the Operating
Services (including any assets or services purchased or leased
from an Associated Entity of any Contractor acting as a
supplier) shall be deemed to have been acquired for the account
of the Affiliate and funded through non-recourse advances from
the Contractors to the Affiliate, as described more fully in
Article VI.
1.6.2 Accordingly, all Venezuelan luxury and wholesale taxes (or
similar Venezuelan value added or sales taxes) that are due in
connection with the purchase, sale, leasing or other
acquisition of any such assets or services relating to the
provision of Operating Services shall be deemed to have been
incurred and paid for the account of the Affiliate, and shall
be reimbursed to the Contractors by the Affiliate in Bolivars
monthly, against presentation of written requests for
reimbursement in the form specified in the Uniform Reporting
System. Such reimbursement shall be made within 30 days
following the receipt of the request for reimbursement.
1.6.3 No Venezuelan taxes that are subject to reimbursement pursuant
to Article 1.6.2 may be included in the Chargeable Expenditures
submitted to the Affiliate for inclusion in the calculation of
the Service Fee, and all Chargeable Expenditures must be
charged net of such taxes.
II. REPORTS
2.1 Uniform Reporting System
The "Uniform Reporting System" shall consist of tile various reports,
plans, notices, budgets, AFEs, statements, invoices and other documents
that will be used for the collection and presentation of technical,
financial and other information whose communication or exchange is
contemplated by the Agreement, these Accounting Procedures or
applicable Venezuelan Laws and Decisions. The Affiliate shall establish
the
6
<PAGE> 82
the Uniform Reporting System no later than 30 days following the
Effective Date, after consultation with the Contractors (and the
Operator, if it has executed the Agreement), taking into account that
an important objective of the Uniform Reporting System is uniformity of
reporting under the Agreement and the other operating services
agreements entered into in connection with the bidding round pursuant
to which this Agreement has been executed. The frequency and detail of
reporting under the Uniform Reporting System shall be consistent with
the Affiliate's normal business practices (which may change over time),
the requirements of applicable Venezuelan Laws and Decisions and the
provisions of the Agreement. The Uniform Reporting System may be
modified from time to time by the Affiliate, following review and
comment by the Contractors and the Operator, The Contractors and
Operator will be required to comply in all material respects with the
Uniform Reporting System.
2.2 Monthly Reports
Subject to the requirements of the Uniform Reporting System, the
Operator shall provide monthly reports to the Affiliate no later than
the 10th day of the immediately following month (or, in the case of
the last month of any Quarter, the earlier of the 5th day of the
immediately following month or the day on which the relevant invoice is
delivered to the Affiliate), The monthly report shall include all
relevant information separately for each Field and for Exploration
Expenditures, as well as aggregate information for all Fields.
2.2.1 Chargeable Expenditures. Each monthly report shall specify the
aggregate amount of Chargeable Expenditures incurred by the
Operator in the relevant month, separately indicating the
budget items and AFEs (or groupings of budget items and AFEs)
to which the Expenditures relate and the amount of luxury and
wholesale taxes (or other similar Venezuelan sales or value
added taxes) paid by the Operator and reimbursable to the
Contractors pursuant Article 1.6 of these Accounting
Procedures.
2.2.2 Production. Each monthly report shall specify the volume of
Production delivered to the Affiliate at each Delivery Point
in the relevant month pursuant to Clause 15.4 of the
Agreement.
2.2.3 Expenditure Reduction. Each monthly report shall specify the
aggregate amount of any Expenditure Reductions in the relevant
month, separately indicating the types of such Expenditure
Reductions.
2.2.4 Service Fee. The monthly report for any month other than the
last month of any Quarter shall include an estimate of the
Service Fee that the Operator expects will be payable in
respect of the Quarter during which such month occurs, based on
actual activities conducted through the end of such month and
the Operator's expectations as to activities to be conducted
during the remainder of such Quarter, The monthly report for
the last month for any Quarter shall include a copy of the
invoice showing the Service Fee payable for such Quarter (or,
if such invoice has
7
<PAGE> 83
not yet been finalized, shall include a statement as to the
amount of the Service Fee expected to be payable for such
Quarter).
2.2.5 Other Information. The monthly report shall include such other
information as is specified in these Accounting Procedures or
the Uniform Reporting System or as may be reasonably requested
by the Affiliate.
2.3 Annual Reports
Subject to the requirements of the Uniform Reporting System, the
Operator shall provide an annual report to the Affiliate, setting forth
the information required to be contained in the relevant monthly
reports on an aggregate basis for the relevant year. An annual report
relating to activities conducted by the Operator in any Calendar Year
shall be provided to the Affiliate no later than February 15 of the
immediately following Calendar Year. If the audit of such annual report
is not yet complete by such date, a preliminary, unaudited annual
report may be provided, provided that the audited annual report must
be provided no later than March 31.
III. AUDITS
3.1 Annual Audit
In accordance with Clause 18.3 of the Agreement, an annual audit will
be performed by a firm of independent auditors designated by the
Contractors and approved by the Affiliate. A report of such external
auditors shall accompany each audited annual report provided by the
Operator pursuant to Article 2.3 of these Accounting Procedures, and
shall confirm the calculation of the amounts specified therein, or
shall note any exceptions of such external auditors with respect to the
amounts specified therein.
3.2 Additional Audit
The Affiliate may require that one additional audit be performed in any
year. Such additional audit shall be performed by a firm of independent
auditors of recognized international standing with expertise in
Venezuelan accounting principles appointed by the Affiliate or by duly
qualified auditors that are employees of the Affiliate or an Associated
Entity of the Affiliate. Such additional audit may cover any or all
annual reports, monthly reports or invoices prepared in the then
current Calendar Year and the two preceding Calendar Years. Any annual
report, monthly report or invoice not eligible for coverage in such an
additional audit in accordance with the preceding sentence shall be
deemed final and binding, except to the extent of any exceptions
previously noted in an annual audit or additional audit or any items
previously protested by a Party, which in either case have not yet been
resolved. The Affiliate shall give at least 30 days' notice to the
Operator of its intention to conduct such an additional audit.
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<PAGE> 84
3.3 Resolution Of Exceptions
In the event that an audit performed pursuant to Article 3.1 or 3.2
indicates any exceptions, or in the event that the Affiliate protests
any item contained in an annual report, monthly report or invoice that
is the subject of an audit conducted pursuant to Article 3.1 or 3.2,
the Affiliate and the Operator shall attempt to reconcile the exception
or the protested item. In the event that they are not able to achieve
such a reconciliation within 180 days of the date of the audit report
or the date of the protest, as the case may be, the matter shall be
resolved by arbitration in accordance with Clause XXIII of the
Agreement. The resolution of any such item shall include a mechanism
for adjusting the resolved item (either by adjustment to a subsequent
invoice or by payment from one party to the other party). Pending the
resolution of any such item, the original position shall be maintained
without adjustment.
3.4 Audit Expenses
Expenses of any audit or confirmation provided pursuant to Article 3.1
shall be paid by the Operator and shall be Chargeable Expenditures.
Expenses of any audit conducted pursuant to Article 3.2 shall be paid
by the Affiliate, except that they shall be payable by the Operator
(and shall not be included as Chargeable Expenditures) if, as part of
the resolution of any exception or protest based on such audit, the
aggregate amount of the Service Fee payable by the Affiliate is reduced
by at least $250,000 below the aggregate amount set forth in the annual
reports, monthly reports and/or invoices being examined.
3.5 Conduct Of Audits
Audits shall be conducted in a manner so as to minimize disruptions to
the Operator's activities. The Operator shall cooperate with the
auditors, including providing access to all relevant facilities during
regular business hours and appropriate assistance to the auditors.
3.6 Cost Plus Contracts
The Operator shall endeavor to obtain audit rights for all contracts of
a "cost-plus" nature entered into in connection with the Operating
Services.
IV. CHARGEABLE EXPENDITURES
Subject to the limitations set forth in these Accounting Procedures and
the Agreement, the Operator may include in the calculation of the
Service Fee the items of expenditure listed in this Article IV insofar
as they are (i) paid on or after the Effective Date, and (ii) are
reasonable and necessary for the conduct of the operations conducted in
accordance with the Agreement (it being understood that items of
expenditure falling under more than one heading set forth in this
Article IV may be charged only once).
Subject to the limitations provided in this Article IV, in Article 5.4
and elsewhere in these Accounting Procedures and the Agreement,
expenses incurred in the preparation of the
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<PAGE> 85
Development Plan for a Field prior to the approval of such Development
Plan may subsequently be included as Chargeable Expenditures in the
calculation of the Service Fee for such Field.
Expenses relating to more than one Field or related to a Field and to
other activities of the Operator or Contractors shall be allocated as
provided in Article 5.4.
4.1 Personnel Costs
Actual costs of salary and related benefits of all personnel who work
on the Operating Services directly for the Operator (including, without
limitation, as a result of reasonable secondment from a Contractor or
an Associated Entity of the Operator or a Contractor to the extent that
such secondment is identified in an approved Annual Work Program and
Budget) shall be chargeable, in accordance with the customary personnel
policies of the Operator or the Contractor, as the case may be (or of
any group of Associated Entities that includes the Operator or the
Contractor). In the event that the Operator or Contractor (or their
respective groups of Associated Entities) has no such policies, the
Operator shall propose personnel policies to the Affiliate for
approval, and personnel costs shall only be chargeable to the extent
incurred in accordance with such approved policies. Costs of personnel
that work an both the Operating Services and other operations shall be
allocated on the basis of the proportion of time spent in the relevant
activities.
4.2 Administrative Overhead Costs
4.2.1 The Operator shall be entitled to charge in each Calendar Year
an amount in respect of administrative overhead equal to 1% of
the Chargeable Expenditures charged pursuant to Article 1.4.3
for such Calendar Year (other than Chargeable Expenditures
calculated pursuant to this Article 4.2). The Operator shall be
entitled to charge the Affiliate for administrative overhead
Quarterly, on the basis of the other Chargeable Expenditures
incurred in the relevant Quarter.
4.2.2 Administrative overhead charges shall be allocated among
Fields, and as Exploration Expenditures, in proportion to the
respective amounts of other Chargeable Expenditures allocated
to such Fields or as Exploration Expenditures.
4.3 Expenses Incurred by Personnel
All direct expenses reasonably and necessarily incurred by personnel
who work under the direct control of the Operator on the Operating
Services shall be chargeable, including reasonable travel,
accommodations and communications expenses for personnel working
directly for the Operator away from their permanent residence in
connection with such Operating Services, and reasonable relocation
expenses for such personnel and their immediate families. All expenses
charged pursuant to this Article 4.3 shall be in accordance with the
customary personnel policies established by the Operator (or any group
of Associated Entities that includes the Operator), except as otherwise
provided by the Agreement. Relocation expenses at the termination of a
period of work on the Operating Services will be charged on the basis
of the lower of the cost of a return to
10
<PAGE> 86
point of origin or actual, and shall be apportioned between the
departure location and the receiving location on an equitable basis, in
accordance with the customary personnel policies described above.
4.4 Transport
4.4.1 The cost of transport to move personnel and material reasonably
and necessarily incurred by the Operator in connection with the
Operating Services shall be chargeable, whether such
transportation is provided directly by the Operator or by a
third party under a contract awarded by the Operator.
4.4.2 The cost of Transportation and Handling of Hydrocarbons
produced from any Field to the relevant Delivery Point or
Delivery Points shall be chargeable, and shall include:
(a) tariffs paid for the use of Transportation and
Handling facilities (other than facilities constructed
or acquired by the Operator for the account of the
Affiliate as part of the Operating Services); and
(b) costs associated with the construction, acquisition
and operation of any Transportation and Handling
facilities by the Operator for the account of the
Affiliate as part of the Operating Services.
4.5 Material
4.5.1 Costs of material, equipment or other personal property
("Material") purchased or leased by the Operator for use in
connection with the Operating Services shall be chargeable,
including Material purchased or transferred from warehouse
stock. Material purchased or leased for use in the Operating
Services shall be charged at cost, which shall mean net invoice
price (after deducting all trade and cash discounts actually
received that are deductible from the relevant price when paid)
together with any transport costs, forwarding and documentation
fees, insurance on transportation, packing costs, duties,
license fees, taxes (other than Venezuelan luxury and wholesale
taxes) and like items chargeable in respect of such goods.
Material transferred from warehouse stock of the Operator or
its Associated Entities shall be chargeable in accordance with
policies to be adopted by the Operator and approved by the
Affiliate, and shall not be chargeable in the absence of the
adoption and approval of such policies.
4.5.2 So far as is consistent with efficient and economical operation
and provision for emergencies, only such Material shall be
purchased or leased as may be required for immediate use, and
the accumulation of surplus stocks shall be avoided.
4.6 Services
The cost of services and facilities provided to the Operator for the
Operating Services by subcontractors, consultants, Associated Entities
or other Persons with whom contracts are
11
<PAGE> 87
concluded by the Operator in accordance with the contracting policies
established in accordance with Clause XI of the Agreement shall be
chargeable.
4.7 Litigation and Legal Services
All costs and expenses of litigation, arbitration and other legal
services necessary or expedient in connection with the Operating
Services (including reasonable attorneys' fees) shall be chargeable,
including amounts paid in settlement of claims and amounts paid
pursuant to Clause 11.10 of the Agreement, other than costs and
expenses incurred (i) in relation to claims made by one or more Parties
against one or more other Parties in relation to the Agreement or the
transactions contemplated therein, or (ii) as a result of or arising
from the gross negligence or willful misconduct of the Operator or any
Contractor.
4.8 Auditing Services
All fees and expenses payable or reimbursable to the independent
auditors that perform the annual audit specified in Article 3.1 of
these Accounting Procedures shall be chargeable.
4.9 Taxes
All taxes, duties and other governmental levies of every kind and
nature assessed or levied upon or in connection with the Operating
Services that have been paid by the Operator or the Contractors shall
be chargeable, other than (i) corporate income taxes, (ii) luxury and
wholesale or similar Venezuelan taxes that are eligible to be
reimbursed to the Contractors pursuant to Article 1.6 of these
Accounting Procedures, and (iii) as provided in the next sentence.
Municipal and State taxes payable by the Contractors shall only be
Chargeable Expenditures to the extent that (i) they are calculated
based on the portion of the Service Fee corresponding to the
Contractors' compensation as determined in accordance with Article VI
of these Accounting Procedures, (ii) they are levied at a rate greater
than 4%, and (iii) the Contractors take such measures as the Affiliate
may reasonably request to challenge the imposition of such taxes over
4% as excessive (such taxes in excess of 4% being chargeable as paid so
long as the Contractors continue to take such measures). The cost of
measures taken at the request of the Affiliate to challenge such taxes
will constitute litigation expenses under Article 4.7. Subject to the
above conditions, if such Contractors' compensation is subject to
Municipal and State taxes in more than one taxing jurisdiction and the
aggregate of the Municipal and State taxes in all such jurisdictions
exceeds 4% of total compensation, the excess shall be Chargeable
Expenditures; provided that, for purposes of calculating such
Chargeable Expenditures, such total compensation will be deemed to have
been subject to such tax only once (and not subject to double taxation
by two or more such jurisdictions).
4.10 Damages and Losses
All costs and expenses necessary for the repair or replacement of
property acquired by the Operator for the account of the Affiliate with
Chargeable Expenditures, or for loss of life or injury, due to fire,
flood, storm, theft, accident or any other cause, or for remedying any
environmental condition in the Area in accordance with Clause XXII
of the Agreement, or
12
<PAGE> 88
in respect of any facilities used in connection with the Operating
Services, shall be chargeable, other than (i) costs or expenses
incurred as a result of or arising from the gross negligence or willful
misconduct of the Operator or any Contractor, and (ii) any such costs
and expenses, to the extent of any amounts recovered under any
insurance policy and applied to the repair or replacement of the
relevant property or the compensation of the relevant Persons in
accordance with Clause 11.10 of the Agreement.
4.11 Insurance
Insurance premiums shall be chargeable to the extent provided in Clause
11.10(a) of the Agreement.
4.12 Real Property
Payments made for the purchase or acquisition of real property used in
connection with the Operating Services, including the acquisition or
extension of rights-of-way and similar property rights, shall be
chargeable. Costs relating to real property used in both the Operating
Services and other operations shall be allocated in an equitable manner
in accordance with formulas or guidelines to be proposed by the
Contractor and approved by the Affiliate, and shall not be chargeable
in the absence of the adoption and approval of such policies.
4.13 Royalties and License Fees
Royalties and license fees payable in respect of any technological
processes or other intellectual property licensed for use in connection
with the Operating Services shall be chargeable.
4.14 Miscellaneous Expenditures
Any cost or expense incurred by the Operator that is not covered in
Articles 4.1 to 4.13 of these Accounting Procedures and that is
reasonable and necessary for the provision of the Operating Services
shall be chargeable, so long as such cost or expense (or the relevant
type of cost or expenses) is approved by the Affiliate. Expenses
specifically included in an Annual Work Plan and Budget will be deemed
to have been approved.
V. SERVICE FEE CALCULATION AND FINANCIAL MATTERS
5.1 General
The Service Fee will be payable on a quarterly basis, beginning with
the Quarter in which the Operation Period for the Field concerned
begins, against presentation of invoices, in accordance with Clauses
XVII and XVIII of the Agreement. A single Service Fee will be
calculated for each Quarter for each Field in accordance with the
provisions set forth in this Article V. The Contractors may submit the
invoice for any Quarter to the Affiliate at any time following the
conclusion of such Quarter, and the Affiliate shall pay the applicable
Service Fee to the Contractors at the time set forth in Clause 18.1 of
the
13
<PAGE> 89
Agreement. The Affiliate shall pay the Service Fee for all of the
Contractors to a single Dollar account inside or outside Venezuela
designated in writing by the Operator. The Operator shall be
responsible for allocating each such payment among the Contractors. The
Affiliate shall be fully discharged from its obligations in respect of
the Service Fee by making payment to the account specified pursuant to
this Article 5.1, and shall have no responsibility in the event that
the Operator fails to allocate any such payment properly.
5.2 Service Fee Formula
5.2.1 The Service Fee for any Field for any Quarter (q) shall be calculated
in accordance with the following formula:
*
* Confidential portions on pages 14, 15, 16 and 17 have been omitted pursuant to
a request for confidential treatment and filed separately with the Commission.
14
<PAGE> 90
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
15
<PAGE> 91
*
5.2.2 For purposes of determining the Service Fee for any Quarter in which
MIRR(q) becomes positive after having been negative in the immediately
preceding Quarter, the Quarter in respect of which the calculation is
being made shall be divided into two periods. One such period shall be
of sufficient duration so that MIRR(q) as of the end of such period
shall be zero, and the other such period shall reflect the remainder
of the Operating Services conducted during such Quarter. A separate
Service Fee shall be calculated for each such period (as if each were a
Quarter), and the Service Fee for such Quarter shall be equal to the
sum of the Service Fees calculated for such periods.
5.2.3 For purposes of calculating the Service Fee, in the event that the
Production from the Initial Field for any Quarter is less than the
Baseline Production (or, during the first 12 months after the Takeover
Date, more than 10% below the Baseline Production for such Quarter),
the shortfall (which, in such first 12 months, shall be the excess of
the shortfall over 10%) shall be applied in the following Quarter (and,
if necessary, in subsequent Quarters) to reduce the Incremental
Production and to increase the Baseline Production until the entire
shortfall has been so applied. This Article 5.2.3 shall not apply to
the extent that a shortfall in Baseline Production results from a
reduction or curtailment of Production pursuant to Clauses 11.1(b),
XIV, 15.4(b), 22.5 or XXVI of the Agreement or as a result of
extraordinary maintenance to surface facilities.
5.3 Baseline Production
The portion of the Service Fee consisting of a payment for Baseline
Production for any Quarter ("A(q)" in the formula set forth in Article
5.2) shall be calculated for each Quarter in accordance with the
following formula:
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
16
<PAGE> 92
*
The payment for Baseline Production shall only be made in respect of
the Initial Field. No other Field has Baseline Production.
5.4 Ringfencing and Allocation
5.4.1 Except as otherwise approved by the Affiliate, the Service Fee shall be
calculated separately for each Field. Production and Chargeable
Expenditures allocable to one Field in accordance with this Article 5.4
shall not be included in the calculation of the Service Fee for any
other Field.
5.4.2 All Chargeable Expenditures and Production shall be allocated among
Fields in accordance with the procedures set forth in this Article 5.4.
5.4.3 Chargeable Expenditures that relate exclusively to Operating Services
within, or in respect of, the interior of the Field Boundary of a
single Field shall be allocated in full to such Field.
5.4.4 Chargeable Expenditures associated with the Transportation and
Handling of Production from the wellhead or other point of extraction
to the relevant Delivery Point shall be allocated in full to the Field
from which such Production is realized. To the extent that such
Production is blended with other Hydrocarbons prior to its delivery at
the Delivery Point, such Chargeable Expenditures shall be allocated to
the relevant Fields in the manner set forth in Article 5.4.6.
5.4.5 (a) Exploration Expenditures shall not be included in the calculation
of the Service Fee for any Field, except as follows:
(i) Well Expenditures for wells with a target zone within the Field
Boundary of a subsequently established Field (or, in the case of
wells with multiple target zones, a portion of such Well
Expenditures, calculated in the manner set forth in paragraph (b)
below) shall be included in the calculation of the Service Fee for
such Field, as of the first Quarter following the approval of the
applicable Development Plan by the Affiliate; provided that such
wells are completed as producing wells or injection wells for such
Field in accordance with International Oil Industry
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
17
<PAGE> 93
Standards and are included as such in the applicable Development
Plan for such Field; and
(ii) Exploration Expenditures other than Well Expenditures shall be
included in the calculation of the Service Fee for the Field, if
any, for which the immediately following Development Plan is
approved by the Affiliate, except that no Exploration Expenditures
shall under any circumstances be included in the calculation of
the Service Fee for the Initial Field (unless the Exploration
Activities concerned lead to the discovery of a Hydrocarbon
formation outside the Initial Field that is found to be Connected
with the Initial Field and subsequently included within amended
Field Boundaries for the Initial Field pursuant to Clause 8.8 of
the Agreement).
(b) In the event that any well is drilled with multiple target zones
in the Area, except as otherwise approved by the Affiliate, the related
Well Expenditures shall be allocated among such target zones such that
(x) Well Expenditures incurred in connection with reaching the first
target zone in the Area and any completion or recompletion in respect
of such target zone shall be allocated in full to such target zone, and
(y) Well Expenditures incurred in connection with drilling from any
target zone to any other target zone, and any completion or
recompletion in respect of the latter target zone, shall be allocated
in full to the latter target zone.
5.4.6 In the event that:
(a) The Operator incurs or proposes to incur Chargeable Expenditures
relating to more than one Field; or
(b) Production from a Field is combined with other Hydrocarbons
(whether or not constituting Production hereunder) prior to its
delivery at an applicable Delivery Point,
such Chargeable Expenditures or Production (and the Chargeable
Expenditures associated with Transportation and Handling of such
Production) shall be allocated by the Operator on the basis of formulas
or guidelines approved by the Affiliate and included in the relevant
Development Plans or Annual Work Programs and Budgets, based on such
equitable mechanisms as are customary in similar circumstances in the
international oil industry or as may be approved by the Affiliate. If
the Operator believes that any decision by the Affiliate to withhold
its approval of any such mechanism is not consistent with the foregoing
standard, the Operator may at any time until the expiration of 30 days
following the date of rejection require that the final determination be
made by an independent expert appointed in accordance with Clause 23.3
of the Agreement. The decision of the expert shall be final and
binding.
5.5 Royalties
The Royalties that are to be deducted from the value of the Incremental
Production from a Field in calculating Net Hydrocarbon Value for any
Quarter shall be equal to the product
18
<PAGE> 94
of (i) the applicable Royalty Rate, (ii) the volume of the Incremental
Production in any Quarter for which the Royalty is to be deducted
pursuant to these Accounting Procedures, and (iii) the wellhead value
of such Production, all determined in accordance with Venezuelan law.
The Royalty Rate shall be the rate at which the exploitation tax is
actually assessed by the Ministry of Energy and Mines in accordance
with applicable Venezuelan laws and regulations. As of the date of the
Effective Date, the Royalty Rate is *.
5.6 Abandonment Costs
Chargeable Expenditures incurred in the last five years of the
Operation Period for any Field (without regard to any extension of the
Operation Period, unless such extension is granted before the relevant
Chargeable Expenditures are incurred) and associated with plugging and
abandoning wells or removing facilities in accordance with Clause XXI
or with the final environmental audit and any Post-Takeover Date
Environmental Claim and Cleanup Liability in accordance with Clause
XXII of the Agreement ("Abandonment Costs") shall be included in the
calculation of the Service Fee in the manner set forth in this Article
5.6 in the circumstances described in this Article 5.6.
(i) Whenever CF(q) (as determined in accordance with Article 5.2) for
the Quarter in which Abandonment Costs are incurred is negative,
an amount (the "Shortfall Amount") equal to the lesser of (i) the
total amount of such Abandonment Costs, and (ii) the absolute
value of CF(q) for such Quarter shall be calculated.
(ii) The Operator may charge and include the Shortfall Amount in the
succeeding Quarter as if the Shortfall Amount were a Chargeable
Expenditure incurred in such succeeding Quarter. If after
applying the Shortfall Amount in such manner, CF(q) for such
succeeding Quarter is negative, then the excess portion of the
Shortfall Amount shall be calculated and applied to the
calculation of the Service Fee for the next succeeding Quarter,
as if the excess Shortfall Amount so applied were a Chargeable
Expenditure incurred in such Quarter. This process shall continue
until a Quarter is reached in respect of which CF(q), determined
after applying any remaining Shortfall Amount, is positive.
(iii) Periodically, the Operator shall make an assessment as to whether
the aggregate of CF(q) for all remaining Quarters in the
Operation Period will be greater than the total of all remaining
Shortfall Amounts, based on forecast Production and Chargeable
Expenditures in the Development Plan and the Price Formula. If
so, then no further calculations shall be made. If not, then the
Operator shall calculate an amount equal to the excess of the
Shortfall Amount over the sum of the projected CF(q) amounts for
all such remaining Quarters (such excess, the "Carryback
Amount"). As of the end of each Quarter remaining in the
Operation Period, the Operator shall periodically reassess any
Carryback Amount that has not yet been recovered as provided
below and shall, if necessary, adjust the remaining Carryback
Amount accordingly.
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
19
<PAGE> 95
(iv) The Operator shall redetermine the Service Fee (without
recalculation of MIRR(q) for the immediately preceding Quarter as
if the Carryback Amount had been a Chargeable Expenditure
incurred in such prior Quarter.
(v) If after applying the Carryback Amount in such manner, CF(q) for
such preceding Quarter is negative, then the excess portion of
the Carryback Amount shall be calculated and applied to the
recalculation of the Service Fee for the next preceding Quarter,
as if the excess Carryback Amount so applied were a Chargeable
Expenditure incurred in such Quarter. This process shall continue
until a Quarter is reached in respect of which CF(q), determined
after applying any remaining Carryback Amount, is positive.
(vi) The Operator shall determine, for each Quarter in respect of
which the Service Fee is recalculated as provided above, the
difference between (x) the Service Fee as so recalculated, and
(y) the Service Fee originally charged for such Quarter.
(vii) The sum of the differences determined pursuant to clause (vi)
shall be chargeable to the Affiliate as an addition to the
Service Fee for the Quarter in which the Abandonment Costs are
incurred or for a subsequent Quarter as determined by the
Operator, and shall be reflected separately on the relevant
invoice.
VI. AMORTIZATION OF ADVANCES AND ALLOCATION OF THE SERVICE FEE
6.1 General
All goods and services that are purchased or leased by the Contractors
from third parties in connection with the Operating Services (including
any goods or services purchased or leased from an Associated Entity of
any Contractor acting as a supplier) shall be deemed to have been
acquired for the account of the Affiliate and funded through
non-recourse advances from the Contractors to the Affiliate. Such
advances shall be repayable to the Contractors only to the extent that
a portion of the Service Fee is applied to amortize such advances in
accordance with this Article VI. Any such advances that are not so
amortized at the time of termination of the Agreement with respect to
any Field, and any such advances in respect of Exploration Expenditures
that are not allocated to a Field prior to the termination of this
Agreement, shall be deemed canceled at the time of such termination.
No interest shall be separately calculated or paid with respect to any
such advances. Financing charges associated with such advances shall be
deemed to be included and entirely paid as part of the portion of the
Service Fee representing the Contractors' compensation for the
Operating Services.
For purposes of calculating the amount of any Municipal and State taxes
that may be Chargeable Expenditures pursuant to Article 4.9, the
Contractors shall include as revenues subject to such taxes only that
part of the Service Fee that corresponds to the Contractors'
compensation for the Operating Services and not the portion
corresponding to the reimbursement of such advances made by the
Contractors to the Affiliate.
20
<PAGE> 96
6.2 Principles of Amortization
Advances made by the Contractors to the Affiliate as provided in
Article 6.1 shall be amortized on the basis of PDVSA Accounting
Principles in effect from time to time, which currently provide as
follows:
(i) advances in respect of items that would be treated as expenses
in the Quarter in which they are incurred for Venezuelan tax
purposes shall be amortized in the year in which they are
incurred;
(ii) advances in respect of fixed assets and capitalized expenses
upstream of the first tank farm shall be amortized on a unit of
production basis according to the proved developed reserves for
the Field concerned (or the Fields concerned, if such advances
are in respect of Chargeable Expenditures allocated to more than
one Field), on the basis of the reserves estimates and production
profiles specified in the relevant Development Plan; and
(iii) advances in respect of fixed assets and capitalized expenses at
the first tank farm or downstream of the first tank farm shall be
amortized using the straight-line method, based on the useful
life of such assets;
in each case, to the extent the Service Fee is sufficient for such
purpose or otherwise in subsequent Quarters until the Service Fee for
such subsequent Quarters is sufficient for such purpose (amortizing in
each Quarter the advances with the shortest remaining amortization
period first).
6.3 Allocation of the Service Fee
The Service Fee for any Field and for any Quarter shall be allocated
first to the reimbursement of advances calculated as provided above and
then to compensation of the Contractors for providing the Operating
Services hereunder. For each Quarter, the Operator shall provide the
Affiliate with a separate statement for the reimbursement amount and an
invoice for the compensation amount, in each case in the forms provided
in the URS. If the Service Fee is insufficient to cover all
reimbursements deemed due in a Quarter as provided in Article 6.2, then
the shortfall will be carried over to the next Quarter and the
Contractors will not receive any compensation component of the Service
Fee for such Quarter.
6.4 No Effect on Service Fee Calculation or Payment
The rate of amortization of advances pursuant to this Article VI shall
not affect in any manner whatsoever the calculation of the Service Fee
for any Field or the total amount payable as the Service Fee by the
Affiliate in respect of any Field and any Quarter.
21
<PAGE> 97
SCHEDULE A
<TABLE>
<CAPTION>
Area Percentage
---- ----------
<S> <C>
Acema *
Ambrosio *
Bachaquero S. 0. *
Boqueron *
B2X-68/79 *
B2X-70/80 *
Cabimas *
Caracoles *
Casma-Anaco *
Cretacico Sur *
Dacion *
Intercampo N. *
Kaki *
La Concepcion *
La Vela Costa Afuera *
LL-652 *
Mata *
Maulpa *
Mene Grande *
Onado *
</TABLE>
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
<PAGE> 98
<ST,2,,0>Expenses<TA>0.20<et>%
SCHEDULE B
<TABLE>
<CAPTION>
Quarter T(q) Quarter T(q)
(q) (q)
------------------------ ------------------------
<S> <C> <C> <C>
1 * 42 *
2 * 43 *
3 * 44 *
4 * 45 *
5 * 46 *
6 * 47 *
7 * 48 *
8 * 49 *
9 * 50 *
10 * 51 *
11 * 52 *
12 * 53 *
13 * 54 *
14 * 55 *
15 * 56 *
16 * 57 *
17 * 58 *
18 * 59 *
19 * 60 *
20 * 61 *
21 * 62 *
22 * 63 *
23 * 64 *
24 * 65 *
25 * 66 *
26 * 67 *
27 * 68 *
28 * 69 *
29 * 70 *
30 * 71 *
31 * 72 *
32 * 73 *
33 * 74 *
34 * 75 *
35 * 76 *
36 * 77 *
37 * 78 *
38 * 79 *
39 * 80 *
40 *
41 *
</TABLE>
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
<PAGE> 99
ANNEX D
(Translation]
[FORM OF CONTRACTOR GUARANTEE]
GUARANTEE OF PROPER PERFORMANCE
Reference is made to the Operating Agreement (the "Agreement") of even date
herewith among _____________. (together with its successors and assigns, the
"Affiliate") a sociedad anonima organized under the laws of the Republic of
Venezuela, _________________ (the "Guaranteed Entity") a ________________
organized under the laws of __________________, and ________________, a
_________________ organized under the laws of ___________________.
With regard to the obligations assumed by the Guaranteed Entity under the
Agreement or that may be imposed upon the Guaranteed Entity under or in
connection with the Agreement, ____________________ (the "Guarantor"), a
________________ organized under the laws of __________________, an Associated
Entity of the Guaranteed Entity, agrees as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
2. The Guarantor hereby expressly represents and warrants to the Affiliate
that: (i) it is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, (ii) it has all requisite
corporate power and authority to execute, deliver and perform this
Guarantee, (iii) the execution, delivery and performance of this Guarantee
have been duly authorized by all necessary corporate action, (iv) this
Guarantee constitutes the legal, valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its terms,
(v) no governmental approvals are required in connection with the
execution, delivery and performance of this Guarantee, except as have been
obtained and are in force, and (vi) the execution, delivery and performance
of this Guarantee by the Guarantor will not violate any provision of any
existing law or regulation to which the Guarantor is subject or any
provision of the Guarantor's constitutive documents or of any material
agreements to which it may be a party.
3. The Guarantor hereby unconditionally and irrevocably guarantees to the
Affiliate, as a primary obligor, the due and punctual performance of all of
the obligations of the Guaranteed Entity under or in connection with the
Agreement. If the Guaranteed Entity fails to perform any such obligation in
the manner and at the time required, the Guarantor shall perform or procure
the performance of such obligation upon demand by the Affiliate.
- --------------------
(1) Add or delete spaces as appropriate to reflect the number of Contractors.
<PAGE> 100
4. This Guarantee is irrevocable and unconditional and shall remain in full
force and effect until all obligations of the Guaranteed Entity under or in
connection with the Agreement are fully and irrevocably satisfied and
discharged, notwithstanding (a) any amendment or termination of the
Agreement, (b) any extension of time or other indulgence or concession
granted by the Affiliate, or (c) any delay or failure by the Affiliate in
pursuing any remedies available against the Guaranteed Entity.
Notwithstanding the foregoing, this Guarantee shall terminate with respect
to liabilities arising from improper abandonment of wells or facilities in
any area outside a Field or in any Field on the fifth anniversary of the
termination of the Agreement with respect to such area or Field.
5. The provisions contained in Article 547 of the Commercial Code of Venezuela
will be fully applicable to this Guarantee. Accordingly, the Affiliate
shall have no obligation to pursue any remedy or take any action against or
in respect of the Guaranteed Entity prior to enforcing its rights under
this Guarantee directly against the Guarantor. In addition, the Guarantor
may not claim that the Affiliate could have avoided or mitigated, in any
manner or through any action, the damages resulting from a default of the
Guaranteed Entity under the Agreement or resort to any other guarantee held
at any time in its favor, before proceeding against the Guarantor in
connection with its obligations under this Guarantee. The Guarantor's
obligations under this Guarantee shall be independent and absolute, and the
Guarantor shall have no right of setoff or counterclaim with respect to any
other claims it may have against the Affiliate or any other Person.
6. All of the obligations of the Guarantor set forth herein shall bind the
Guarantor and its successors. The Guarantor may not assign or delegate its
duties or obligations hereunder without the prior written consent of the
Affiliate, and any purported assignment or delegation without such consent
shall be null and void. The Guarantor confirms that this Guarantee shall
remain in effect with respect to any assignee of the Guaranteed Entity
under the Agreement that is an Associated Entity of the Guaranteed Entity.
Upon any such assignment the assignee shall be considered the Guaranteed
Entity for all purposes hereunder to the extent of the assigned
obligations. The Guarantor additionally confirms that any assignee of the
Affiliate under the Agreement permitted in accordance with Clause 27.3 of
the Agreement may exercise all rights and remedies of the Affiliate under
this Guarantee. No other person or entity shall be a beneficiary of this
Guarantee or have or acquire any rights by reason of this Guarantee.
7. This Guarantee shall be governed by and construed in accordance with the
laws of the Republic of Venezuela.
8. Any failure or delay by the Affiliate to exercise any right, in whole or in
part, hereunder shall not be construed as a waiver of the right to exercise
the same or any other right.
9. No amendment or modification of this Guarantee shall be effective unless in
writing and signed by the Guarantor and the Affiliate.
10. Any dispute concerning the legal interpretation or construction of this
Guarantee shall be settled exclusively and finally by arbitration conducted
in accordance with the Rules of the
2
<PAGE> 101
International Chamber of Commerce ("ICC"). The Affiliate shall select an
arbitrator and the Guarantor shall select an arbitrator in accordance with
the ICC Rules. The arbitrators so nominated shall then agree within 30 days
on a third arbitrator to serve as Chairman. The arbitration shall be
conducted in New York City (United States of America). Notwithstanding the
foregoing, in the event that a dispute involves both the Guarantor and the
Guaranteed Entity, arbitration shall be conducted in accordance with Clause
23.2 of the Agreement, as a single proceeding, and Guarantor and the
Guaranteed Entity shall jointly have the rights of the Guaranteed Entity
under such Clause 23.2.
11. The Guarantor shall pay upon demand and presentation of invoices all
reasonable and actual costs and expenses incurred by the Affiliate in
connection with the successful enforcement of this Guarantee, including,
without limitation, reasonable fees and expenses of counsel.
12. All notices, demands, instructions, waivers or other communications to be
provided pursuant to this Guarantee. and any consents contemplated in this
Guarantee, shall be in writing in Spanish or English, shall be effective
upon receipt, and shall be sent by personal delivery, courier, first class
mail, facsimile or telex, to the following addresses:
i) If to the Guarantor, to:
ii) If to the Affiliate, to:
The addresses and telex and facsimile numbers of either party for notices
given pursuant to this Guarantee may be changed by means of a written
notice given to the other party at least 15 Business Days prior to the
effective date of such change.
13. This Guarantee is being executed in both the Spanish language and the
English language. The Spanish version shall constitute the binding version,
and the English version is being executed as a matter of reference only.
14. This Guarantee may be executed in any number of counterparts, each of which
shall be deemed to be an original.
3
<PAGE> 102
This Guarantee has been duly executed by the Guarantor and the Affiliate by
their respective officers thereunto duly authorized as of the ___ day of
______________,1997.
NAME OF GUARANTOR)
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ACKNOWLEDGED AND ACCEPTED:
[NAME OF AFFILIATE]
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
4
<PAGE> 103
ANNEX E
(Translation]
DEVELOPMENT PLAN GUIDELINES
This Annex sets forth the topics required to be covered in a Development
Plan submitted to the Affiliate for approval, to the extent applicable to the
relevant Field. While this Annex describes the general requirements of the
Development Plan and incorporates those set forth in Clauses 6.2 and 8.4 of the
Agreement, there is no detailed prescription of the format or the level of
detail to be presented, other than coverage of the key topics identified herein.
Additional information may be presented in a Development Plan to the extent
appropriate to the relevant activities.
1. Description of Field.
(a) Description of the Field to be developed.
(b) Field Boundaries of the Field to be developed.
(c) Description of the Hydrocarbon-bearing formations to constitute the
Field.
2. Reserves and Production.
(a) An estimate of proved, probable and possible reserves in the Field for
each reservoir (in each case, determined on a life-of-field basis,
without regard to the duration of the Operation Period), separated by
Liquid Hydrocarbons (separately for crude oil, condensate and natural
gas liquids) and Natural Gas.
(b) An estimate of the production profile for each reservoir of the
Hydrocarbons that the Contractors expect to deliver to the Affiliate in
each year during the Operation Period for the proved and proved plus
probable reserves cases (separately indicating the amount of projected
Incremental Production), and an explanation of how the production
profile in the proved reserve case achieves the Maximum Economic Rate
of Production (unless Production is constrained by the Delivery Point
Capacity)
3. Description of Proposed Activities.
(a) Description of the proposed rehabilitation, reactivation, enhancement
or development scheme, as applicable, including the following:
<PAGE> 104
(i) General description of expected activities for the relevant
Operation Period.
(ii) Description of planned facilities, both inside and outside of
Field Boundaries.
(iii) Description of drive mechanism and reservoir management policy.
(iv) The designation of additional Delivery Points that the
Contractors plan to use in accordance with Clause 15.3 of the
Agreement and Hydrocarbon Transportation and Handling
arrangements, including routing to Delivery Points, type of
Transportation and Handling facilities and expected use of
Affiliate or third party facilities.
(v) Expected arrangements for abandonment of facilities to be
utilized in the course of the work program.
(b) Plan for the periodic inspection of all inactive wells in the Initial
Field at least twice per year and, unless otherwise agreed by the
Affiliate in its discretion, a plan for the periodic surveillance of
subsidence in around the Area that may be affected by Production.
(c) Principal contingent features of proposed activities, and likely
additional activities to be undertaken depending on results of
specified initial activities.
(d) Alterative approaches considered and reasons for choice of approach
selected.
(e) Schedule of activities, including expected schedule for construction or
acquisition of major facilities and timetable for achieving commercial
production rates (for Fields not currently in production) and Maximum
Economic Rate (or Delivery Point Capacity).
(f) Plan for the transfer of operations in accordance with Clause 11.8 of
the Agreement.
4. Budget and Economics.
(Note: All financial information should be expressed in constant dollars,
with no adjustment for inflation.)
(a) Projected & capital and operating expenditures for the Operation Period
for proved and proved plus probable reserves cases, prepared in
accordance with the Uniform Reporting System, including (for the
Initial Field) confirmation that the Minimum Work Obligation will be
met.
(b) Sharing and allocation arrangements, including:
2
<PAGE> 105
(i) Arrangements for Fields extending outside the Area, adopted or
expected to be adopted pursuant to Clause XIII of the Agreement.
(ii) Any arrangements for sharing of facilities or other costs, or for
commingling and reallocation of Production, whether in respect of
other Fields or otherwise, and guidelines for effecting
allocations under Article 5.4 of the Accounting Procedures.
(c) Contractor Participations in Field.
(d) Expected Field returns and discounted cash flow analysis, in each case
based on assumptions to be set forth in the Development Plan (including
such reasonable assumptions as may be required by the Affiliate by
notice to the Operator from time to time).
(e) An estimate of the Service Fees that the Contractors expect to be
payable by the Affiliate during each year of the Operation Period for
each reserves case.
(f) Expected duration of pre-operative phase, if any.
5. Safety and Environmental Considerations.
(a) Description of environmental program and contingency plans to be
established pursuant to Clause 22.1 of the Agreement.
(b) Description of program for protection of safety of personnel and other
safety related programs.
6. Additional Information for Amendments and Updates.
(a) Reasons for proposed amendment or update.
(b) Discussion of activities conducted since original Development Plan or
previous amendment or update, as the case may be.
(c) Revised presentation of all information described in clauses 1 through
4 above (or, to the extent appropriate, only such information as is
being amended or updated).
3
<PAGE> 106
BOQUERON AREA
ANNEX F
Initial Contractor Participations
<TABLE>
<S> <C>
Union Texas Venezuela Ltd. 66.67%
Preussag Energie GmbH 33.33%
</TABLE>
<PAGE> 107
ANNEX G
[Translation]
FORM OF OPERATOR ACCESSION AGREEMENT
(Date]
[Affiliate]
[Address]
[Contractor 1]
[Contractor 2]
c/o [Contractor 1]
[Address]
Re: Accession to Operating, Agreement
Ladies and Gentlemen:
We address you on this opportunity in order to refer to the Operating
Agreement (the "Agreement"), dated ____________ 1997, between [Affiliate],
[Contractor I] and [Contractor 2].
[Name of Operator) (the "0perator") agrees to perform fully all of the
obligations and responsibilities attributed to it under the Agreement, to the
extent and in the manner in which they are set forth.
In addition, the Operator acknowledges all the rights to which it has
become entitled under the Agreement, which it hereby assumes and may fully
exercise.
This accession agreement shall be governed by, and construed in accordance
with, the laws of the Republic of Venezuela.
Very truly yours,
[NAME OF OPERATOR]
By:
------------------------------
Name:
Title:
- --------------------
(1) Add or delete as appropriate to reflect the number of Contractors.
<PAGE> 108
ANNEX H
DELIVERY OF HYDROCARBONS
BOQUERON AREA
1. DELIVERY POINT OF LIQUID HYDROCARBONS
La Toscana manifold inlet (gross production).
2. QUALITY OF LIQUID HYDROCARBONS AT THE DELIVERY POINT
Liquid Hydrocarbons must meet the following conditions:
Gravity: > 22 degrees API
-
Sand content: < 0.05%
-
Sulfur: < 1.5% in weight
-
Wax, paraffins and asphaltines: Contractors must prevent precipitation
upstream of Delivery Point and cooperate
with the Affiliate for such prevention
downstream of Delivery Point.
3. DELIVERY POINT CAPACITY OF LIQUID HYDROCARBONS
20 MBD gross (with a maximum of 1% of water content).
4. DELIVERY POINT OF ASSOCIATED GAS
La Toscana manifold inlet.
5. QUALITY OF DELIVERED ASSOCIATED GAS
Delivered Associated Gas must meet the following conditions:
C0(2) Content: < 5% molar
-
Water Content: < 7 Pounds/MSCF
-
H(2)S Content: < 15 ppmv
-
BOQUERON AREA H-1
<PAGE> 109
ANNEX I
BASELINE PRODUCTION
BOQUERON AREA
Baseline Production
Decline Factor: 0.10 annually
Deemed Cost
of Baseline Production: 1.25 $/NB
BOQUERON AREA I-1
<PAGE> 110
ANNEX J
[Translation]
[FORM OF OPERATOR GUARANTEE]
GUARANTEE OF PROPER PERFORMANCE
-------------------------------
Reference is made to the Operating Agreement dated ____________ among
____________ (together with its successors and assigns, the "Affiliate"), a
sociedad anonima organized under the laws of the Republic of Venezuela;
___________________, a ____________________ organized under the laws of
____________________; and _________________, a __________________ organized
under the laws of _________________; (1) and to which __________________ (the
"Operator"), a __________________ organized under the laws of ______________,
has become a party pursuant to an Accession Agreement of even date herewith.
With regard to the obligations assumed by the Operator under the Operating
Agreement, or that may be imposed upon the Operator under or in connection with
the Operating Agreement, ___________________ (the "Guarantor"), a
_______________ organized under the laws of __________________, an Associated
Entity of the Operator, agrees as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Operating Agreement.
2. The Guarantor hereby expressly represents and warrants to the Affiliate
that, (i) it is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, (ii) it has all
requisite corporate power and authority to execute, deliver and perform
this Guarantee, (iii) the execution, delivery and performance of this
Guarantee have been duly authorized by all necessary corporate action, (iv)
this Guarantee constitutes the legal, valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its terms,
(v) no governmental approvals are required in connection with the
execution, delivery and performance of this Guarantee, except as have been
obtained and are in force, and (vi) the execution, delivery and performance
of this Guarantee by the Guarantor will not violate any provision of any
existing law or regulation to which the Guarantor is subject or any
provision of the Guarantor's constitutive documents or of any material
agreements to which it may be a party.
3. The Guarantor hereby unconditionally and irrevocably guarantees to the
Affiliate, as a primary obligor, the due and punctual performance of all
of the obligations of the Operator under or in connection with the
Operating Agreement. If the Operator fails to perform any such obligation
in the manner and at the time required, the Guarantor shall perform or
procure the performance of such obligation upon demand by the Affiliate.
- ----------------------
(1) Add or delete spaces as appropriate to reflect the number of Contractors.
<PAGE> 111
4. This Guarantee is irrevocable and unconditional and shall remain in full
force and effect until all obligations of the Operator under or in
connection with the Operating Agreement are fully and irrevocably satisfied
and discharged, notwithstanding (a) any amendment or termination of the
Operating Agreement, (b) any extension of time or other indulgence or
concession granted by the Affiliate, or (c) any delay or failure by the
Affiliate in pursuing any remedies available against the Operator.
Notwithstanding the foregoing, this Guarantee shall terminate with respect
to liabilities arising from improper abandonment of wells or facilities in
any area outside a Field or in any Field on the fifth anniversary of the
termination of the Operating Agreement with respect to such area or Field.
5. The provisions contained in Article 547 of the Commercial Code of Venezuela
will be fully applicable to this Guarantee. Accordingly, the Affiliate
shall have no obligation to pursue any remedy or take any action against or
in respect of the Operator prior to enforcing its rights under this
Guarantee directly against the Guarantor. In addition, the Guarantor may
not claim that the Affiliate could have avoided or mitigated, in any manner
or through any action, the damages resulting from a default of the Operator
under the Operating Agreement or resort to any other guarantee held at any
time in its favor, before proceeding against the Guarantor in connection
with its obligations under this Guarantee. The Guarantor's obligations
under this Guarantee shall be independent and absolute, and the Guarantor
shall have no right of set-off or counterclaim with respect to any other
claims it may have against the Affiliate or any other Person,
6. All of the obligations of the Guarantor set forth herein shall bind the
Guarantor and its successors. The Guarantor may not assign or delegate its
duties or obligations hereunder without the prior written consent of the
Affiliate, and any purported assignment or delegation without such consent
shall be null and void. The Guarantor confirms that this Guarantee shall
remain in effect with respect to any assignee of the Operator under the
Operating Agreement that is an Associated Entity of the Operator. Upon any
such assignment the assignee shall be considered the Operator for all
purposes hereunder to the extent of the assigned obligations. The Guarantor
additionally confirms that any assignee of the Affiliate under the
Operating Agreement permitted in accordance with Clause 27.3 of the
Operating Agreement may exercise all rights and remedies of the Affiliate
under this Guarantee. No other person or entity shall be a beneficiary of
this Guarantee or have or acquire any rights by reason of this Guarantee.
7. This Guarantee shall be governed by and construed in accordance with the
laws of the Republic of Venezuela.
8. Any failure or delay by the Affiliate to exercise any right, in whole or in
part, hereunder shall not be construed as a waiver of the right to exercise
the same or any other right.
9. No amendment or modification of this Guarantee shall be effective unless in
writing and signed by the Affiliate and the Guarantor.
10. Any dispute concerning the legal interpretation or construction of this
Guarantee shall be settled exclusively and finally by arbitration conducted
in accordance with the Rules of the
2
<PAGE> 112
International Chamber of Commerce ("ICC"). The Affiliate shall select an
arbitrator and the Guarantor shall select an arbitrator in accordance with
the ICC Rules. The arbitrators so nominated shall then agree within 30 days
on a third arbitrator to serve as Chairman. The arbitration shall be
conducted in New York City (United States of America). Notwithstanding the
foregoing, in the event that a dispute involves both the Guarantor and the
Operator, arbitration shall be conducted in accordance with Clause 23.2 of
the Operating Agreement, and the Guarantor and the Operator shall jointly
have the rights of the Operator under such Clause 23.2.
11. The Guarantor shall pay upon demand and presentation of invoices all
reasonable and actual costs and expenses incurred by the Affiliate in
connection with the successful enforcement of this Guarantee, including,
without limitation, reasonable fees and expenses of counsel.
12. All notices, demands, instructions, waivers or other communications to be
provided pursuant to this Guarantee, and any consents contemplated in this
Guarantee, shall be in writing in Spanish or English, shall be effective
upon receipt, and shall be sent by personal delivery, courier, first class
mail, facsimile or telex, to the following addresses:
i) If to the Guarantor, to:
ii) If to the Affiliate, to:
The addresses and telex and facsimile numbers of either party for notices
given pursuant to this Guarantee may be changed by means of a written
notice given to the other party at least 15 Business Days prior to the
effective date of such change.
13. This Guarantee is being executed in both the Spanish language and the
English language. The Spanish version shall constitute the binding version,
and the English version is being executed as a matter of reference only.
14. This Guarantee may be executed in any number of counterparts, each of which
shall be deemed to be an original.
3
<PAGE> 113
This Guarantee has been duly executed by the Guarantor and the Affiliate by
their respective officers thereunto duly authorized as of the ___ day of
_______________, 1997.
[NAME OF GUARANTOR]
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ACKNOWLEDGED AND ACCEPTED:
[NAME OF AFFILIATE]
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
4
<PAGE> 114
ANNEX K
[TRANSLATION]
MODEL JOINT OPERATING TERMS FOR EPIC
I
DEFINITIONS(1)
Capitalized terms defined in the Agreement (as defined below) or the
Accounting Procedures (as defined in the Agreement) have the respective
meanings assigned to such terms therein. The following definitions are in
addition to and supplement those set forth in the Agreement and the
Accounting Procedures.
"Agreement" shall mean the Operating Agreement to which these Model Terms
are an Annex.
"Advances" shall mean each payment of cash made or required to be made
pursuant to a valid Cash Call.
"Cash Call" shall mean any request for payment made by the Operator in
accordance with Article IV of these Model Terms.
"Contractor Agreement" shall mean any agreement or contract, whether oral
or written, among some or all of the Other Contractors or between the Other
Contractors and the Operator (in its capacity as such) with respect to
their respective rights or obligations under the Agreement, as such
agreement or contract may be amended or supplemented from time to time.
"Joint Bank Account" shall have the meaning set forth in Article 4.1.
"Management Committee" shall have the meaning set forth in Article 6.1.
"Model Terms" shall mean these Model Joint Operating Terms for EPIC, as
they may be amended or supplemented from time to time.
- ----------------------
(1) Definitions in this English translation are presented in alphabetical order
in English for ease of reference. Accordingly, the order of these
definitions does not match the order in the definitive Spanish version.
<PAGE> 115
"Permitted Expenditures" shall mean:
(i) Chargeable Expenditures;
(ii) other expenditures that (a) relate to and are necessary for the
provision of Operating Services or other activities under the
Agreement, (b) are also paid by the Other Contractor(s), and (c)
are of a kind and in amounts that are customarily charged to
contractors under international joint operating agreements; and
(iii) other expenditures that EPIC agrees to pay.
II
SCOPE
Absent express written agreement to the contrary by EPIC, these Model Terms
shall govern relations between EPIC and the Operator and EPIC and the Other
Contractors and shall create a binding contractual relationship,
enforceable against each of them in accordance with its terms.
Except as the Other Contractors and/or the Operator may agree, these Model
Terms will not affect any Contractor Agreement or any other aspect of
relations between or among the Other Contractors and/or the Operator.
III
NON-DISCRIMINATION
As a general matter, in all matters relating to the Agreement and the
Contractors' rights and obligations thereunder, the Operator and the Other
Contractors shall not discriminate against EPIC, shall afford EPIC the same
rights, access to information and other benefits as are enjoyed by Other
Contractors under any Contractor Agreement or otherwise (taking into
account the level of EPIC's Participation) and shall treat EPIC no less
favorably than any Other Contractor with the same Participation is or would
be treated by the Operator and/or Other Contractors under a Contractor
Agreement or otherwise; provided that, unless it expressly agrees to the
contrary in writing, EPIC shall at all times be entitled to the minimum
rights, benefits and treatment provided in these Model Terms.
IV
BANK ACCOUNTS; CASH CALLS; DEFAULT
4.1 (a) If it has not already done so, the Operator shall establish and
maintain one or more bank accounts (the "Joint Bank Accounts") in Dollars
(and in Bolivars, if there are Cash
2
<PAGE> 116
Calls in Bolivars), into which Advances and the Service Fee will be
deposited and from which Permitted Expenditures will be paid by or
reimbursed to the Operator. Payments of the Service Fee shall be held in a
Joint Bank Account in Dollars and distributions of net amounts to EPIC
shall be made in Dollars.
(b) The Operator shall distribute cash from a Joint Bank Account to EPIC in
proportion to EPIC's Participation in the Field (or, in the case of any
reimbursement of unused Advances, Exploration Activity) concerned, at the
same time as it distributes any cash from such Joint Bank Account to any
Other Contractor (including the Operator itself in its capacity as a
Contractor).
(c) The Joint Bank Accounts shall be managed and Cash Calls made with a
goal of minimizing the amount of idle cash in the Joint Bank Accounts, to
the extent consistent with the needs of the Operator to perform the
Operating Services contemplated in the Agreement.
4.2 The Operator shall make Cash Calls to EPIC in accordance with the
procedures set forth herein to provide for the orderly funding by EPIC of
its Participation in Permitted Expenditures. Cash Calls may be made by the
Operator to fund any Permitted Expenditures. Cash Calls in respect of each
Field or Exploration Activity may be made to EPIC in proportion to its
respective Participation in the Field or Exploration Activity concerned
only at the same time and in the same manner that Cash Calls with respect
to the Permitted Expenditures concerned are made to all Other Contractors
having a Participation in such Field or Exploration Activity. In addition,
all Cash Calls to EPIC will be subject to the following conditions:
(i) No later than fourteen calendar days prior to the beginning of
each calendar month, the Operator shall furnish EPIC with a notice of
(a) the Cash Call(s) being made for such calendar month and (b) an
estimate of the Cash Calls that will be made for the three following
calendar months. The amount requested in the Cash Call notice for any
month shall be the Operator's estimate of the amount and currencies
that will be payable in such calendar month in respect of the relevant
Permitted Expenditures, taking into account cash already on hand and
net of any Service Fee that the Operator expects to receive in such
calendar month (to the extent that the Operator nets the Service Fee
with respect to the Other Contractors), plus a reserve for
contingencies in amounts consistent with normal industry practice.
Each Cash Call notice sent to EPIC shall specify the amount applicable
to each Field and to each Exploration Activity relevant to EPIC. Each
Cash Call notice shall identify the budget items or AFE's (or main
groupings of budget items or AFE'S) for which the funds are required
and the amounts attributable to each such budget item or AFE (or
grouping thereof).
(ii) Cash Call(s) made in such notice for the coming calendar month
shall be paid by EPIC no later than the first Business Day of such
calendar month or such later Business Day as may be specified in the
notice. Where Cash Calls are for
3
<PAGE> 117
more than $1.0 million (or the equivalent in another currency), EPIC
will have the right to pay the Cash Calls in two or more installments
during the course of the month in implementation of the principle
stated in Article 4.1(c); provided that the timing of payment is
consistent with the Operator's needs for funding.
(iii) With respect to any Cash Calls made to the Other Contractors
(or in the case of a single Other Contractor, any Permitted
Expenditures actually made by such Other Contractor) prior to the date
of execution and delivery of the Agreement by EPIC, EPIC shall pay the
Operator its Participation in such Cash Calls (or such Permitted
Expenditures) on the first Business Day that is or follows the latest
of: (a) 30 calendar days following the date EPIC executes and delivers
the Agreement, (b) five Business Days following receipt of an
appropriate Cash Call notice from the Operator, and (c) the date on
which such Cash Call is to be paid by the Other Contractors.
Where the Other Contractors have paid a Cash Call (or a single Other
Contractor has made a Permitted Expenditure) prior to the date on
which EPIC pays its Participation in such Cash Call (or Permitted
Expenditure), EPIC shall also pay interest on the amount of such
Participation from and including the date of payment by the Other
Contractor(s) to but excluding the date of payment by EPIC, at a rate
for each day equal to *.
(iv) Cash Calls to EPIC may be made only in Bolivars or Dollars. Each
Cash Call shall specify, in respect of each Advance, the currency
required and the Joint Bank Account to which payment is to be made.
Payments of all Cash Calls shall be made to such Joint Bank Account,
in funds available for withdrawal by the Operator on the date on which
the payments are due. Whenever a Cash Call is made in Bolivars or
Dollars for a funding need in another currency, the Operator shall
purchase the appropriate amount of the required currency with Bolivars
or Dollars, as the case may be, in an arms' length transaction from a
bank of international reputation.
4.3 In the event that amounts are payable in respect of Permitted
Expenditures for which a Cash Call may be made by the Operator, and
there is not sufficient cash on hand Advanced by the relevant
Contractors to meet such Permitted Expenditures, the Operator shall
give notice to each of EPIC and the relevant Other Contractors
requesting that it fund its Participation in a special Cash Call. If
EPIC elects not to provide such funding or does not respond in a
timely manner, the Operator may advance EPIC's Participation in such
amounts, if the Operator could; if necessary, simultaneously advance
the respective Participations of the relevant Other Contractors.
Amounts so advanced on behalf of EPIC shall be included in the Cash
Call to EPIC for the next month (or for the following month, if the
latest date for the notification of a Cash Call for the next month has
passed before the date of such advance). The Operator shall receive
interest on each such advance from and including the date of the
advance, to but excluding the date of reimbursement, at a rate for
each day in such period equal to the lower of (i) the lowest rate
charged any Other
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
4
<PAGE> 118
Contractor with respect to advances made at the same time and (ii)
LIBOR for such day. The related Cash Call shall include an amount
sufficient to pay such interest.
4.4 (a) All Cash Calls made by the Operator shall be paid by EPIC,
regardless of whether it disputes the correctness of such Cash Calls.
If the Operator makes an improper Cash Call in bad faith or repeatedly
makes improper Cash Calls, such error or errors shall constitute a
breach by the Operator of its obligations under these Model Terms,
Payment of any Advance will not prejudice EPIC's right to protest or
question the correctness of the related Cash Call.
(b) EPIC shall have the right to require that one audit of Permitted
Expenditures, Cash Calls, Advances, Joint Bank Accounts and related
matters be performed in any Calendar Year, at its own expense, by a
firm of independent auditors of recognized international standing with
expertise in Venezuelan accounting principles. Such audit may cover
any or all such matters relating to the current Calendar Year or the
two preceding Calendar Years. EPIC shall give at least 30 days' notice
to the Operator of its intention to conduct such an audit. Audits
shall be conducted in a manner so as to minimize disruptions to the
Operator's activities. The Operator shall cooperate with the auditors,
including providing access to all relevant facilities during regular
business hours and providing appropriate assistance to the auditors.
Notwithstanding the previous paragraph, if the items as to which EPIC
requests an audit have already been audited once as part of the annual
audit required by Clause 18.3 of the Agreement and Article 3.1 of the
Accounting Procedures and a second time as part of an additional audit
requested either by the Affiliate pursuant to Article 3.2 of the
Accounting Procedures or by one or more Other Contractors pursuant to
a Contractor Agreement or otherwise, EPIC will not have the right to
require a third audit.
4.5 (a) If EPIC fails to pay any Cash Call when due, the Operator or any
Other Contractor may give EPIC a notice of default. EPIC will have
five Business Days from the giving of such notice in which to make up
the Cash Call without penalty. If it fails to make up the Cash Call
within such five Business Days, (i) EPIC will lose the right to
receive distributions of the Service Fee and the Operator will be
entitled to apply any Service Fees payable to EPIC to the amount of
the unpaid Cash Calls, and (ii) the net amount of such unpaid Cash
Calls (after application of the Service Fee) will subsequently bear
interest, at a rate for each day equal to *, from and including the
date such amount was originally due to but excluding the earlier of
(1) the date of payment of such amount, (2) the date of transfer of
EPIC's Participation as provided in Article 4.5(b), and (3) the date
of withdrawal by EPIC with respect to the Field concerned pursuant to
Clause 20.4 of the Agreement. If any portion of a Cash Call remains
unpaid 30 calendar days after such notice of default, EPIC will lose
the right to vote on any Management Committee (but will not lose its
right to receive information pursuant to Article V). Upon payment in
full of all unpaid Cash Calls and interest thereon, EPIC's rights to
receive the Service Fee and to vote will be immediately reinstated.
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
5
<PAGE> 119
(b) At any time that the amount of such missed Cash Call plus interest
thereon remains unpaid following 120 calendar days after the end of
the five-Business Day period referred to in the previous paragraph,
the Operator shall have the right, but not the obligation, to give
notice to EPIC requiring EPIC to transfer its Participation in the
Field(s) or Exploration Activity to which the missed Cash Call relates
to the Other Contractors in such proportions as the Operator shall
indicate in the notice, without payment of any compensation or
consideration of any kind to EPIC. To this end, upon receipt of such
notice, EPIC shall be deemed to have transferred all of its right,
title and beneficial interest in and under the Agreement to such Other
Contractors and to have empowered the Operator to execute on EPIC's
behalf any documents required to effect such transfer. If requested,
EPIC will execute a power of attorney in this regard and will do any
and all acts required by applicable law or regulation in order to
complete such transfer. In the event that any necessary governmental
or other approvals are not timely obtained, EPIC shall hold its
Participation concerned in trust for the Other Contractors designated
in the Operator's notice of transfer. Upon the effectiveness of the
transfer of EPIC's Participation as provided above, EPIC will cease to
be a Contractor under the Agreement with respect to the Field or
Exploration Activity concerned,
For purposes of Clause XXVII of the Agreement, the Affiliate will be
deemed to have approved the Transfers provided above in advance and no
further approval by the Affiliate will be required.
(c) Transfer of EPIC's Participation in the Field(s) or Exploration
Activity concerned pursuant to Article 4.5(b) will not relieve EPIC of
the obligation to pay the Operator the amount of the missed Cash Call
together with interest thereon or of liability for any other
obligations, financial or otherwise, that have vested, matured or
accrued under the Agreement prior to such transfer.
4.6 Unless it otherwise agrees, EPIC shall have no liability in respect
of late or missed Cash Calls to Other Contractors.
V
ACCESS TO INFORMATION
5.1 Subject to Article 7.2(c)(2), the Operator and the Other Contractors
shall promptly provide EPIC with copies of all documents,
communications, reports, notices and other information that are
provided to,or received from, the Affiliate, any Other Contractor or
any ministry or agency of the Venezuelan government in connection with
the Agreement, including without limitation the following:
(i) preliminary and final versions of any Development Plan,
Annual Work Program and Budget, AFE, proposal for an Exploration
Activity or Final Well Report, and of any significant amendments
thereto; and
6
<PAGE> 120
(ii) any significant commentary disagreement, dispute, approval,
response or other communications with regard to any of such
documents;
provided that magnetic tapes may be stored by the Operator and made
available for inspection and/or copying at the expense of EPIC.
5.2 In addition, to the extent not already included under Article 5.1, the
Operator shall promptly provide EPIC with copies of
(i) all data and reports that are produced or compiled under the
Uniform Reporting System;
(ii) all monthly and annual reports produced pursuant to Article
II of the Accounting Procedures;
(iii) all audits and related information done or produced
pursuant to Article III of the Accounting Procedures; and
(iv) such additional information as EPIC may reasonably request,
provided that it pays the costs of preparation of such additional
information.
5.3 In general, the Operator shall afford EPIC access at all reasonable times
to all facilities and installations used in connection with the Operating
Services and to other data, information and documents acquired or produced
in the conduct of the Operating Services and permit EPIC to make copies
thereof at its own expense.
5.4 Notwithstanding the other provisions of this Article V, neither the
Operator nor any Other Contractor shall be required to divulge proprietary
technology to EPIC; provided that where the cost of development of
proprietary technology has been included as a Permitted Expenditure to
which EPIC has contributed, such proprietary technology shall be disclosed
to EPIC and may be used by EPIC in other operations.
VI
PARTICIPATION IN COMMITTEES
6.1 EPIC shall have the right to nominate one representative and one alternate
representative to each operating committee, technical committee or similar
body (each a "Management Committee") that is composed of representatives of
the Contractors and has powers and duties with regard to authorizing and
supervising Operating Services and other activities relating to the
Agreement. EPIC shall have the right to change its representative and
alternate at any time by giving notice to such effect to the Operator and
the Other Contractors. EPIC shall be entitled to receive all notices and
information (including, without limitation, proposed authorizations for
expenditure) and to participate in meetings
7
<PAGE> 121
on the same basis as the Other Contractors, and to a vote on each
Management Committee equal to its Participation from time to time.
6.2 If an operating committee and a technical committee have not already been
formed pursuant to a Contractor Agreement or otherwise, the Other
Contractor(s), the Operator and EPIC shall create an operating committee
and technical committee, which shall each meet at least twice per year and
shall have such powers and duties and operate according to such procedures
as are customary in the international oil industry. The Operator shall
provide EPIC with such notices, information and proposed authorizations for
expenditure as are customary in the international oil industry.
6.3 If the requirements of Articles 6.1 or 6.2 are satisfied, decisions of the
Management Committee concerned shall be conclusive and binding on EPIC to
the extent that such decisions are also conclusive and binding on all Other
Contractors; provided that (i) EPIC shall have no liability with respect to
any activity or matter as to which it gives notice nonconsent under
Articles 7.2(a), 7.3(a) or 7.4, and (ii) a Management Committee may not
amend the Agreement or these Model Terms or modify EPIC's rights thereunder
or hereunder without EPIC's written consent.
VII
PARTICIPATION IN FIELD DEVELOPMENTS; EXPLORATION
ACTIVITIES AND CERTAIN OTHER ACTIVITIES
7.1 Subject to its right to withdraw pursuant to Clause 20.4 of the Agreement
and its right to transfer its Participation in a Field pursuant to Clause
XXVII of the Agreement, EPIC shall be liable for its share of all
Chargeable Expenditures relating to the Initial Field and for all other
Permitted Expenditures reasonably related to such Field, and shall be
entitled to its share of the Service Fee with respect to such Initial
Field, for the entire Operation Period of such Initial Field. It shall
otherwise have no right to withhold consent or otherwise to opt out of
Operating Services performed with respect to the Initial Field.
7.2 (a) Subject to Article 7.2(c), EPIC shall have the right to participate in
any Exploration Activity that is proposed to the Affiliate pursuant to
Clause VIII of the Agreement. The Operator shall promptly give EPIC notice
of any such proposal. At any time within the 10 calendar days following
such notice (or within 48 hours if the proposed Exploration Activity
involves use of a drilling rig that is standing by) EPIC may notify the
Operator that it does not wish to participate in such Exploration Activity.
Absent such notification of non-consent, EPIC will be deemed to have
approved such Exploration Activity and will be liable for its Participation
in all Permitted Expenditures in connection with such Exploration Activity,
(b) In the event that EPIC notifies the Operator that it does not wish to
participate in such an Exploration Activity, it will have no liability for
any Permitted Expenditures or any
8
<PAGE> 122
other liabilities incurred in connection with such Exploration Activity.
Thereafter, each of the Other Contractors participating in such Exploration
Activity will indemnify EPIC from, and hold it harmless against, any costs,
expenses (including without limitation reasonable legal costs, expenses and
attorneys' fees) and liabilities incident to claims, demands or causes of
action of every kind and character brought by or on behalf of any Person,
for damage to or loss of property or the environment, or for injury to,
illness or death of any Person, in each case to the extent such costs,
expenses and liabilities arise from or are related to such Exploration
Activity,
(c) In the event that EPIC elects not to participate in an Exploration
Activity as provided above, it will be deemed to have conclusively
relinquished to the Other Contractors (1) all rights to participate in such
Exploration Activity and in any additional exploration, appraisal or
drilling activity that results directly therefrom, (2) all rights under
these Model Terms to receive data or information relating to or resulting
from such Exploration Activity or additional activities, and (3) all rights
under the Agreement to have a Participation in the development of any
Hydrocarbons discovered or appraised as a result of such Exploration
Activity or additional activities,
(d) Notwithstanding the provisions of Article 7.2(c), if any non-consenting
Other Contractor has the option under a Contractor Agreement or otherwise
to reinstate any of the rights described in Article 7.2(c), EPIC shall have
the same option on the same terms and subject to the same conditions as
such Other Contractor.
(e) Further notwithstanding the provisions of Article 7.2(c), if an
Exploration Activity in which EPIC does not participate leads either (1) to
the development of a new Field whose development also results from
Exploration Activities in which EPIC does participate or (2) to the
extension of an existing Field in which EPIC has a Participation, EPIC
shall have the option to have a Participation in the development of such
new Field equal to its Participation in the Exploration Activities in which
it did participate or to maintain its Participation in the existing Field.
Such option shall be exercisable by giving notice to the Operator at any
time during the 30 calendar days following the approval by the Affiliate of
a Development Plan for such new Field or an amendment of the Development
Plan for the existing Field.
If EPIC gives such notice, it will be required to pay the Operator the full
amount of its Participation in each Cash Call for Exploration Expenditures
and other Permitted Expenditures related to the Exploration Activities in
which EPIC did not participate, that was addressed to the Other Contractors
prior to the date of such notice and has not already been paid by EPIC.
The amount of each such Cash Call shall be paid to the Operator on the
first Business Day that is or follows the latest of: (a) 30 calendar days
following the date of such notice, (b) five Business Days following receipt
of an appropriate Cash Call notice from the Operator, and (c) the date on
which any such Cash Call is to be paid by the Other Contractors.
9
<PAGE> 123
If Other Contractors have paid such a Cash Call prior to the date on which
EPIC pays its Participation in such Cash Call, EPIC shall also pay interest
on the amount of such Participation from and including the date of payment
by the Other Contractors to but excluding the date of payment by EPIC, at a
rate for each day equal to LIBOR plus 1%.
7.3 (a) Subject to Article 7.2(c), EPIC shall have a Participation in any
development proposed pursuant to Clause 8.4 of the Agreement, that
corresponds to its Participation in the Exploration Activities that lead to
such development, unless it notifies the Affiliate and the Operator at any
time prior to approval of the related Development Plan by the Affiliate
that it does not wish to participate in such development. Absent such
notification, and subject to its right to withdraw pursuant to Clause 20.4
of the Agreement and its right to transfer its Participation in a Field
pursuant to Clause XXVII of the Agreement, EPIC shall be liable for its
share of all Chargeable Expenditures, and be entitled to its share of the
Service Fee, with respect to the Field concerned for the entire Operation
Period of such Field. It shall Otherwise have no right to withhold consent
or otherwise to opt out of Operating Services performed with respect to
such Field.
(b) In the event that EPIC notifies the Operator that it does not wish to
participate in such Development Plan, it will have no liability for any
Chargeable Expenditures or any other liabilities incurred in connection
with such Development Plan or such Field after the giving of such notice.
Thereafter, each of the Other Contractors participating in such Development
Plan will indemnify EPIC from, and hold it harmless against, any costs,
expenses (including without limitation reasonable legal costs, expenses and
attorneys' fees) and liabilities incident to claims, demands or causes of
action of every kind and character brought by or on behalf of any Person,
for damage to or loss of property or the environment, or for injury to,
illness or death of any Person, in each case to the extent such costs,
expenses and liabilities arise from or are related to such Development Plan
or the conduct of any activities with respect to such Field.
7.4 EPIC shall have the right to participate on the same terms and conditions
as any Other Contractors (including the right to receive its pro rata share
of any revenues realized in addition to the Service Fee), with a
Participation equal to the largest Participation it then has with respect
to a Field under the Agreement, in:
(i) any infrastructure projects proposed pursuant to Clause 15.3 of
the Agreement;
(ii) any Natural Gas development negotiated pursuant to Clause XVI of
the Agreement; and
(iii) any acquisition, construction or operation of any other
facilities, installations or other assets which are to be used partly
in connection with the Operating Services and partly in connection
with other operations or to provide services to third parties.
10
<PAGE> 124
VIII
TRANSFER OF PARTICIPATIONS
8.1 Absent express written agreement to the contrary with one or more Other
Contractors, EPIC will not be subject to, or have the benefit of, any
restrictions on Transfers of Participations existing with respect to some
or all of the Other Contractors under any Contractor Agreement (such as
rights of first refusal, rights of first negotiation, "piggyback" rights,
and other similar rights).
8.2 In any event, EPIC will be subject to the provisions of Clause XXVII of the
Agreement, except as specifically provided to the contrary in Clause 3.3 of
the Agreement.
IX
MISCELLANEOUS
9.1 These Model Terms shall be governed by and construed in accordance with the
laws of the Republic of Venezuela. Disputes between EPIC and the Operator
or any Other Contractor shall be resolved as provided in Clause 23.2 of the
Agreement.
9.2 All notices, demands, instructions, waivers, consents or other
communications to be provided pursuant to these Model Terms shall be given
as provided in Clause XXVII of the Agreement,
9.3 To be binding, any amendment of these Model Terms must be effected by an
instrument in writing signed by EPIC, the Operator and the Other
Contractors. No further formalities shall be required to amend these Model
Terms.
9.4 Rights hereunder may not be waived, except pursuant to a writing signed by
the Party against which enforcement of the waiver is sought.
9.5 Notwithstanding anything to the contrary contained in these Model Terms, in
no event shall any Party be liable to any other Party for any consequential
damages or lost profits that such other Party might suffer. The Parties
acknowledge that this provision is intended only to limit their liability
to each other for consequential loss or damage and lost profits, and shall
not be construed to so as to limit their liability to third parties or
their right to seek indemnification for third party claims in accordance
with any other Clause.
The Operator and each Other Contractor shall indemnify EPIC from, and hold
it harmless against, any loss, damage, cost or expense (including without
limitation reasonable legal costs, expenses and attorneys' fees) incurred
as a result of or arising from the gross negligence or willful misconduct
respectively of the Operator or such Other Contractor in connection with
activities relating to the Agreement,
11
<PAGE> 125
EPIC shall indemnify the Operator and each Other Contractor from, and hold
it harmless against, any loss, damage, cost or expense (including without
limitation reasonable legal costs, expenses and attorneys' fees) incurred
as a result of or arising from the gross negligence or willful misconduct
of EPIC in connection with activities relating to the Agreement.
In the event that EPIC pays, or is held liable for, any cost, loss, damage
or expense (other than EPIC's own costs of litigation) arising out of or in
relation to any of the Operating Services or any other activity under the
Agreement (including, without limitation, as a result of settlement of
third party claims), that is in excess of EPIC's Participation in the
Operating Services or activity giving rise to such cost, loss, damage or
expense, each Other Contractor that pays, or is held liable for, a part of
the total cost, loss, damage or expense that is less than its Participation
in such Operating Services or activity shall promptly upon notice from EPIC
pay to EPIC the amount of the shortfall. Similarly, EPIC shall be liable
for contribution to some or all of the Other Contractors if it pays, or is
held liable for, less than its Participation in any such cost, loss, damage
or expense.
9.6 Nothing contained in these Model Terms or in the Agreement is intended to
create, or shall be deemed or construed as creating, any legal entity
between the Parties. No Party shall have the authority or right, or hold
itself out as having the authority or right, to assume, create or undertake
any obligation of any kind whatsoever, express or implied, on behalf of or
in the name of any other Party, except as expressly provided herein.
12
<PAGE> 126
ANNEX L
[TRANSLATION]
PRICE FORMULA
For purpose of Clause 17.4 of the Agreement, the value of Hydrocarbons
other than Associated Gas for each calendar day in any given Quarter will be
determined in accordance with the appropriate formula set forth below.
The average price for purposes of Clause 17.4 will be the arithmetic mean
of the prices for each calendar day in the Quarter, except Saturdays, Sundays,
and legal holidays in the place where price quotation referred to below is
taken, carried to three decimal places with fractions of 0.0005 or more being
rounded up. If a quotation used in the applicable formula is unavailable for
any particular day, the most recent available quotation will be used.
A. Liquid Hydrocarbons
1. For Liquid Hydrocarbons having an API gravity of 28 degrees or greater,
*
2. For Liquid Hydrocarbons having an API gravity of 22 degrees to 27.9 degrees,
*
3. For Liquid Hydrocarbons having an API gravity of 15 degrees to 21.9 degrees,
*
4. For Liquid Hydrocarbons having an API gravity of 10 degrees to 14.9 degrees,
*
* Confidential portions of this page and pages 2, 3, 4, 5 and Exhibit 1 on
this Annex L have been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
<PAGE> 127
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
2
<PAGE> 128
In the event that Platt's Oilgram Price Report at any time ceases to be
published or is otherwise unavailable, the Affiliate and the Contractors shall
agree on an alternative source of price information for the index crudes
concerned. If any such index is unavailable from any source or if the
composition of such index changes so that it is no longer substantially
equivalent to the index as of the Effective Date, the Affiliate and the
Contractors shall agree on a new index or indexes, and on corresponding
modifications of the appropriate Price Formula as set forth above, so that such
new index(es) and modified Price Formula yield substantially the same
historical results as the initial index(es) and Price Formula.
If the Affiliate and the Contractors are unable to agree on either (i)
whether one of the circumstances described in the preceding paragraph has
occurred, or (ii) the appropriate solution to such circumstance, within 60 days
following notification by one side to the other that agreement on such a matter
is required, either the Affiliate or the Contractors will have the right to
refer such matter to an independent expert for decision pursuant to Clause 23.3
of the Agreement. The decision of the independent expert will be final and
binding. Unless otherwise agreed by the Parties, the independent expert's
decision will be strictly limited to the matters described in the preceding
paragraph and no other issue relating to the Price Formula may be submitted for
independent expert review.
B. Natural Gas (except Associated Gas)
1. For Natural Gas from Cretacico Sur,
*
2. For Natural Gas from La Concepcion,
*
3. For Natural Gas from La Vela Costa Afuera,
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
3
<PAGE> 129
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
<PAGE> 130
*
In the event that an official price for Natural Gas or high sulfur fuel
oil is no longer established for the relevant Venezuelan market pursuant to
government regulation, then for purposes of determining P(001) or FOP, as the
case may be, for the above formulae, the Affiliate and the Contractors shall
agree on an index or other source of price information that most accurately
indicates the actual, average daily selling price for Natural Gas or high
sulfur fuel oil, as the case may be, for industrial uses, that is charged by
the Affiliate or other major suppliers on the open market in the relevant
location, under term contracts.
If the Affiliate and the Contractors are unable to agree on either (i)
whether one of the circumstances described in the preceding paragraph has
occurred, or (ii) the appropriate solution to such circumstance, within 60 days
following notification by one side to the other that agreement on such a matter
is required, either the Affiliate or the Contractors will have the right to
refer such matter to an independent expert for decision pursuant to Clause 23.3
of the Agreement. The decision of the independent expert will be final and
binding. Unless otherwise agreed by the Parties, the independent expert's
decision will be strictly limited to the matters described in the preceding
paragraph and no other issue relating to the Price Formula may be submitted for
independent expert review.
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
5
<PAGE> 131
Exhibit 1
VALUES OF K(LCH) FOR PURPOSES OF THE PRICE FORMULAS
<TABLE>
<CAPTION>
- ------------------------------------------------
K(LCH) IN $/BARREL FOR
AREAS INITIAL DELIVERY POINTS
- ------------------------------------------------
<S> <C>
Acema *
- ------------------------------------------------
Ambrosio *
- ------------------------------------------------
Bachaquero S. O. *
- ------------------------------------------------
Boqueron *
- ------------------------------------------------
B2X-68/79 *
- ------------------------------------------------
B2X-70/80 *
- ------------------------------------------------
Cabimas *
- ------------------------------------------------
Caracoles *
- ------------------------------------------------
Casma-Anaco *
- ------------------------------------------------
Cretacico Sur *
- ------------------------------------------------
Dacion *
- ------------------------------------------------
Intercampo N. *
- ------------------------------------------------
Kaki *
- ------------------------------------------------
La Concepcion *
- ------------------------------------------------
La Vela Costa Afuera *
- ------------------------------------------------
LL-652 *
- ------------------------------------------------
Mata *
- ------------------------------------------------
Maulpa *
- ------------------------------------------------
Mene Grande *
- ------------------------------------------------
Onado *
- ------------------------------------------------
</TABLE>
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
<PAGE> 132
ANNEX M
[Translation]
[FORM OF GUARANTEE FOR MINIMUM WORK OBLIGATION](1)
Reference is made to the Operating Agreement (the "Agreement") of even
date herewith among [name of Affiliate] (together with its successors and
assigns, the "Affiliate"), a sociedad anonima organized under the laws of the
Republic of Venezuela, ____________________ (the "Guaranteed Entity"), a
___________________ organized under the laws of ____________________ and
___________________ a ____________________ organized under the laws of
___________________, and ____________________, a ____________________ organized
under the laws of ____________________.
____________________ (the "Guarantor"), a ___________________ organized
under the laws of ____________________, and an Associated Entity of the
Guaranteed Entity, hereby agrees as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
2. The Guarantor hereby expressly represents and warrants to the
Affiliate that:(i) it is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, (ii) it
has all requisite corporate power and authority to execute, deliver
and perform this Guarantee, (iii) the execution, delivery and
performance of this Guarantee have been duly authorized by all
necessary corporate action, (iv) this Guarantee constitutes the legal,
valid and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with its terms, (v) no governmental
approvals are required in connection with the execution, delivery and
performance of this Guarantee, except as have been obtained and are in
force, and (vi) the execution, delivery and performance of this
Guarantee by the Guarantor will not violate any provision of any
existing law or regulation to which the Guarantor is subject or any
provision of the Guarantor's constitutive documents or of any material
agreements to which it may be a party.
3. The Guarantor hereby unconditionally and irrevocably guarantees to the
Affiliate, as primary debtor and obligor, the payment of the
Guaranteed Amount (as defined below) if the Minimum Work Obligation is
not completed by the earlier of (i) the date of termination of the
Agreement and (ii) the date that is [ ](2) years following the
Takeover Date (in either case, the
- -------------
(1) This Guarantee may be provided in lieu of the letter of credit by
bidders whose direct or indirect parent companies qualified in
Category "A" or "B" in the Third Operating Agreement Round.
(2) Insert the number of years specified in the Final Tender Protocol for
the completion of the Minimum Work Obligation.
<PAGE> 133
"Completion Date"). The "Guaranteed Amount" shall initially be equal
to U.S.$ _______.(3) The Guaranteed Amount shall be reduced no
earlier than three months after the date of this Guarantee, and no
more frequently than every three months thereafter, by the amount
specified in a certificate duly executed by the Affiliate in the form
attached hereto as Exhibit 1. The Guaranteed Amount shall be reduced
to zero upon the execution by the Affiliate of a Certificate in the
form attached hereto as Exhibit 2.
4. In the event that the Minimum Work Obligation is not completed by the
Completion Date, no later than three Business Days after written
demand by the Affiliate, the Guarantor shall pay the Guaranteed Amount
as of the Completion Date, in U.S. dollars, by wire transfer of
immediately available funds to the account specified by the Affiliate.
In the event that the Guarantor disputes any such demand, the
Guarantor shall nonetheless pay the amount demanded, and, in the event
that the dispute is resolved in the Guarantor's favor, the Affiliate
shall repay the excess amount paid by the Guarantor, together with
interest at a reasonable rate to be determined by mutual agreement by
the Affiliate and the Guarantor or, if such agreement is not reached
by the time an arbitral tribunal appointed pursuant to Clause 12 of
this Guarantee makes an award, to be determined by the arbitral
tribunal.
5. This Guarantee shall expire and shall be of no further force or effect
if no demand for payment is made hereunder pursuant to Clause 4 within
six months following the Completion Date, except that this Guarantee
shall be reinstated and be in full force and effect if, and to the
extent that, the Guaranteed Entity makes any payment to the Affiliate
in respect of an amount guaranteed hereunder and such payment, or any
portion thereof, is required to be returned to the Guaranteed Entity
in accordance with any applicable bankruptcy, insolvency or similar
law.
6. This Guarantee is irrevocable and unconditional and shall remain in
full force and effect to the extent of the Guaranteed Amount at any
given time, notwithstanding (a) any amendment or termination of the
Agreement, (b) any extension of time or other concession granted by
the Affiliate, or (c) any delay or failure by the Affiliate in
pursuing any actions or remedies available against the Guarantor
hereunder (except as provided in Clause 5) or against the Guaranteed
Entity for failure to complete the Minimum Work Obligation or
otherwise.
7. The provisions contained in Article 547 of the Commercial Code of
Venezuela will be fully applicable to this Guarantee. Accordingly, the
Affiliate shall have no obligation to pursue any remedy or take any
action against or in respect of the Guaranteed Entity prior to
enforcing its rights under this Guarantee directly against the
Guarantor. In addition, the Guarantor may not claim that the Affiliate
could have avoided or mitigated, in any manner or through any action,
- --------------
(3) The amount to be included will be equal to the product of the
Guaranteed Entity's Participation, and the value of the Minimum Work
Obligation set forth in Section 4.4 of the Agreement. The value of the
Minimum Work Obligation for each Area is set forth in the Final Tender
Protocol.
2
<PAGE> 134
the damages resulting from the Guaranteed Entity's failure to complete
the Minimum Work Obligation, or resort to any other guarantee held at
any time in its favor, before proceeding against the Guarantor in
connection with its obligations under this Guarantee. The Guarantor's
obligations under this Guarantee shall be independent and absolute,
and the Guarantor shall have no right of set-off or counterclaim with
respect to any other claims it may have against the Affiliate or any
other Person.
8. All of the obligations of the Guarantor set forth herein shall bind
the Guarantor and its successors and permitted assigns. The Guarantor
may not assign or delegate its duties or obligations hereunder without
the prior written consent of the Affiliate, and any purported
assignment or delegation without such consent shall be null and void.
The Guarantor confirms that this Guarantee shall remain in effect with
respect to any assignee of the Guaranteed Entity under the Agreement
that is an Associated Entity of the Guaranteed Entity, and upon any
such assignment the assignee shall be considered the Guaranteed Entity
for all purposes hereunder to the extent of the assigned obligations.
The Guarantor additionally confirms that any permitted assignee of all
of the Affiliate's rights and obligations under Clause 27.3 of the
Agreement may exercise all rights and remedies of the Affiliate under
this Guarantee. No other person or entity shall be a beneficiary of
this Guarantee or have or acquire any rights by reason of this
Guarantee.
9. This Guarantee shall be governed by and construed in accordance with
the laws of the Republic of Venezuela.
10. Any failure or delay by the Affiliate to exercise any right, in whole
or in part, hereunder shall not be construed as a waiver of the right
to exercise the same or any other right.
11. No amendment or modification of this Guarantee shall be effective
unless in writing and signed by the Guarantor and the Affiliate.
12. Any dispute concerning the legal interpretation or construction of
this Guarantee shall be settled exclusively and finally by
arbitration. The arbitration shall be conducted in accordance with the
Rules of the International Chamber of Commerce ("ICC"). The Affiliate
shall select an arbitrator and the Guarantor shall select an
arbitrator in accordance with the ICC Rules. The arbitrators so
nominated shall then agree within 30 days on a third arbitrator to
serve as Chairman. The arbitration shall be conducted in New York City
(United States of America). Notwithstanding the foregoing, in the
event that a dispute involves both the Guarantor and the Guaranteed
Entity, arbitration shall be conducted in accordance with Clause 23.2
of the Agreement, as a single proceeding, and the Guarantor and the
Guaranteed Entity shall jointly have the rights of the Guaranteed
Entity under such Clause 23.2.
13. The Guarantor shall pay upon demand and presentation of invoices all
reasonable and actual costs and expenses (including, without
limitation, reasonable fees and expenses of counsel) incurred by the
Affiliate in connection with the successful enforcement of this
Guarantee.
3
<PAGE> 135
14. All notices, demands, instructions, waivers or other communications to
be provided pursuant to this Guarantee, and any consents contemplated
in this Guarantee, shall be in writing in Spanish or English, shall be
effective upon receipt, and shall be sent by personal delivery,
courier, first class mail, facsimile or telex, to the following
addresses:
i) If to the Guarantor, to:
ii) If to the Affiliate, to:
[Affiliate name]
[Affiliate address]
The addresses and telex and facsimile numbers for notices given
pursuant to this Guarantee may be changed by means of a written notice
given by the Affiliate or the Guarantor, as applicable, to the other
at least 15 Business Days prior to the effective date of such change.
15. This Guarantee is being executed in both the Spanish language and the
English language. The Spanish version shall constitute the binding
version, and the English version is being executed as a matter of
reference only.
16. This Guarantee may be executed in any number of counterparts, each of
which shall be deemed to be an original.
This Guarantee has been duly executed by the Guarantor and the Affiliate by
their respective officers thereunto duly authorized as of the ___ day of ___,
1997.
[NAME OF GUARANTOR]
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
ACKNOWLEDGED AND ACCEPTED:
[NAME OF AFFILIATE]
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
4
<PAGE> 136
EXHIBIT 1
[FORM OF AFFILIATE CERTIFICATE REDUCING GUARANTEED AMOUNT]
Reference is made to the Guarantee (the "Guarantee"), dated as of _____,
1997, issued by __________, a __________, organized under the laws of _________,
relating to the Operating Agreement (the "Agreement"), dated as of _____, 1997,
among [name of Affiliate] ("the Affiliate") a sociedad anonima organized under
the laws of the Republic of Venezuela, __________, a __________ organized under
the laws of ______, and ________, a ____________ organized under the laws of
_________. Capitalized terms used herein and not defined have the respective
meanings set forth in the Guarantee or, to the extent not defined therein, in
the Agreement.
The undersigned, being duly authorized to execute this certificate on
behalf of the Affiliate, hereby certifies that:
(i) The amount in U.S. dollars specified in (a) below is either (1)
the share allocable to the Guaranteed Entity of the amount that
has been spent by the Contractors on the Minimum Work Obligation
through the date of this certificate, or (2) a 10% reduction in
the existing Guaranteed Amount due to Exploracion y Produccion
EPIC, S.A. becoming a Party to the Agreement; and
(ii) The Guaranteed Amount is to be reduced to the amount specified
in (b) below, effective upon the execution of this certificate.
(a) Share or Dollar Amount Spent on $_______________
Minimum Work Obligation or Reduction due
to EPIC
(b) Remaining Guaranteed Amount $_______________
This certificate has been duly executed by the undersigned as of the ___
day of ________ , 199__.
[NAME OF AFFILIATE]
By:
-------------------------
Name:
Title:
5
<PAGE> 137
EXHIBIT 2
[FORM OF AFFILIATE CERTIFICATE AS TO COMPLETION]
Reference is made to the Guarantee (the "Guarantee"), dated as of
__________, 1997, issued by __________, a __________, organized under the laws
of _________, relating to the Operating Agreement (the "Agreement"), dated as
of_________, 1997, among [name of Affiliate] ("the Affiliate"), a sociedad
anonima organized under the laws of the Republic of Venezuela, _________, a
___________ organized under the laws of __________, and ____________, a
__________ organized under the laws of __________. Capitalized terms used herein
and not defined have the respective meanings set forth in the Guarantee or, to
the extent not defined therein, in the Agreement.
The undersigned, being duly authorized to execute this certificate on
behalf of the Affiliate, hereby certifies that:
(i) The Minimum Work Obligation has been completed by the
Contractors; and
(ii) The Guaranteed Amount is to be reduced to zero, effective upon
the execution of this certificate.
This certificate has been duly executed by the undersigned as
of the __________ day of 199__.
[NAME OF AFFILIATE]
By:
-------------------------
Name:
Title:
6
<PAGE> 138
ANNEX M-2
[Translation]
[FORM OF FINANCIAL UNDERTAKING FOR MINIMUM WORK OBLIGATION]
Reference is made to the Operating Agreement (the "Agreement") of even
date herewith among [name of Affiliate] (together with its successors and
assigns, the "Affiliate"), a sociedad anonima organized under the laws of the
Republic of Venezuela, __________ (the "Undertaking Contractor"), a __________
organized under the laws of __________, and __________, a __________ organized
under the laws of __________.
With respect to the obligations assumed by the Undertaking Contractor
under the Agreement, the Undertaking Contractor hereby agrees as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
2. The Undertaking Contractor hereby unconditionally and irrevocably
undertakes the payment of the Face Amount (as defined below) to the
Affiliate if the Minimum Work Obligation is not completed by the earlier of
(i) the date of termination of the Agreement and (ii) the date that is
[ ](2) years following the Takeover Date (in either case, the "Completion
Date"). The "Face Amount" shall initially be equal to U.S. $_______(3). The
Face Amount shall be reduced no earlier than three months after the date of
this Financial Undertaking, and no more frequently than every three months
thereafter, by the amount specified in a certificate duly executed by the
Affiliate in the form attached hereto as Exhibit 1. The Face Amount shall be
reduced to zero upon the execution by the Affiliate of a Certificate in the
form attached hereto as Exhibit 2.
- ------------------
(1) This Financial Undertaking may be provided in lieu of the letter of credit
by pre-qualified companies who qualified financially under Categories "A" or
"B" in the Third Operating Agreement Round and who will be signing the
Operating Agreement directly (and not through an Associated Entity or
Jointly Held Company).
(2) Insert period for completion of the Minimum Work Obligation from the Final
Tender Protocol.
(3) The amount to be included will be equal to the product of the Undertaking
Contractor's Participation, and the value of the Minimum Work Obligation set
forth in Section 4.4 of the Agreement. The value of the Minimum Work
Obligation for each Area is set forth in the Final Tender Protocol.
<PAGE> 139
3. In the event that the Minimum Work Obligation is not completed by the
Completion Date, no later than three Business Days after written demand
by the Affiliate, the Undertaking Contractor shall pay the Face Amount
as of the Completion Date, in U.S. dollars, by wire transfer of
immediately available funds to the account specified by the Affiliate.
In the event that the Undertaking Contractor disputes any such demand,
it shall nonetheless pay the amount demanded, and, in the event that
the dispute is resolved in the Undertaking Contractor's favor, the
Affiliate shall repay the excess amount paid by the Undertaking
Contractor, together with interest at a reasonable rate to be
determined by mutual agreement by the Affiliate and the Undertaking
Contractor or, if such agreement is not reached by the time an arbitral
tribunal appointed pursuant to Clause 11 of this Financial Undertaking
makes an award, to be determined by the arbitral tribunal.
4. This Financial Undertaking shall expire and shall be of no further
force or effect if no demand for payment is made hereunder pursuant to
Clause 3 within six months following the Completion Date.
5. The Financial Undertaking is irrevocable and unconditional and shall
remain in full force and effect to the extent of the Face Amount at any
given time, notwithstanding (a) any amendment or termination of the
Agreement, (b) any extension of time or other concession granted by the
Affiliate, or (c) any delay or failure by the Affiliate in pursuing any
actions or remedies available against the Undertaking Contractor
hereunder (except as provided in Clause 4) or under the Agreement for
failure to complete the Minimum Work Obligation or otherwise.
6. The Undertaking Contractor may not claim that the Affiliate could have
avoided or mitigated, in any manner or through any action, the damages
resulting from the Undertaking Contractor's failure to complete the
Minimum Work Obligation, or resort to any guarantee held at any time in
its favor, before proceeding against the Undertaking Contractor in
connection with its obligations under this Financial Undertaking. The
Undertaking Contractor's obligations under this Financial Undertaking
shall be independent and absolute, and the Undertaking Contractor shall
have no right of set-off or counterclaim with respect to any other
claims it may have against the Affiliate or any other Person.
7. All of the obligations of the Undertaking Contractor set forth herein
shall bind the Undertaking Contractor and its successors and permitted
assigns. The Undertaking Contractor may not assign or delegate its
duties or obligations hereunder without the prior written consent of
the Affiliate, and any purported assignment or delegation without such
consent shall be null and void. The Undertaking Contractor agrees that
in the event of any assignment under the Agreement to an Associated
Entity of the Undertaking Contractor, it shall replace this Financial
Undertaking with a guarantee in the form of Annex M-1 to the
Agreement. The Undertaking Contractor additionally confirms that any
permitted assignee of all of the Affiliate's rights and obligations
under Clause 27.3 of the Agreement may exercise all rights and remedies
of the Affiliate under this Financial Undertaking. No other person or
entity shall be a beneficiary of this Financial Undertaking or have or
acquire any rights by reason of this Financial Undertaking.
2
<PAGE> 140
8. The Financial Undertaking shall be governed by and construed in
accordance with the laws of the Republic of Venezuela.
9. Any failure or delay by the Affiliate to exercise any right, in whole
or in part, hereunder shall not be construed as a waiver of the right
to exercise the same or any other right.
10. No amendment or modification of this Financial Undertaking shall be
effective unless in writing and signed by the Undertaking Contractor
and the Affiliate.
11. Any dispute concerning the legal interpretation or construction of this
Financial Undertaking shall be settled exclusively and finally by
arbitration. The arbitration shall be conducted in accordance with the
ICC Rules. The Affiliate shall select an arbitrator and the Undertaking
Contractor shall select an arbitrator in accordance with the ICC Rules.
The arbitrators so nominated shall then agree within 30 days on a third
arbitrator to serve as Chairman. The arbitration shall be conducted in
New York City (United States of America).
12. The Undertaking Contractor shall pay upon demand and presentation of
invoices all reasonable and actual costs and expenses (including,
without limitation, reasonable fees and expenses of counsel) incurred
by the Affiliate in connection with the successful enforcement of this
Financial Undertaking.
13. All notices, demands, instructions, waivers or other communications to
be provided pursuant to this Financial Undertaking, and any consents
contemplated in this Financial Undertaking, shall be in writing in
Spanish or English, shall be effective upon receipt, and shall be sent
by personal delivery, courier, first class mail, facsimile or telex, to
the following addresses:
i) If to the Undertaking Contractor, to:
ii) If to the Affiliate, to:
[Affiliate name]
[Affiliate address]
The addresses and telex and facsimile numbers for notices given
pursuant to this Financial Undertaking may be changed by means of a
written notice given by the Affiliate or the Undertaking Contractor,
as applicable, to the other at least 15 Business Days prior to the
effective date of such change.
14. This Financial Undertaking is being executed in both the Spanish
language and the English language. The Spanish version shall constitute
the binding version, and the English version is being executed as a
matter of reference only.
15. This Financial Undertaking may be executed in any number of
counterparts, each of which shall be deemed to be an original.
3
<PAGE> 141
This Financial Undertaking has been duly executed by the Undertaking
Contractor and the Affiliate by their respective officers thereunto
duly authorized as of the ___ day __________________,of 1997.
[NAME OF UNDERTAKING CONTRACTOR]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
ACKNOWLEDGED AND ACCEPTED:
[NAME OF AFFILIATE]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
4
<PAGE> 142
EXHIBIT 1
[FORM OF AFFILIATE CERTIFICATE REDUCING FACE AMOUNT]
Reference is made to the Financial Undertaking (the "Financial
Undertaking"), dated as of ________________, 1997, issued by _______________,
a ______________, organized under the laws of ________________, relating to the
Operating Agreement (the "Agreement"), dated as of __________________, 1997,
among [name of Affiliate] ("the Affiliate"), a sociedad anonima organized under
the laws of the Republic of Venezuela, __________________, a __________________
organized under the laws of ___________________, and ___________________, a
________________ organized under the laws of ________________. Capitalized terms
used herein and not defined have the respective meanings set forth in the
Financial Undertaking or, to the extent not defined therein, in the Agreement.
The undersigned, being duly authorized to execute this certificate on
behalf of the Affiliate, hereby certifies that:
(i) The amount in U.S. dollars specified in (a) below is either
(1) the share allocable to the Undertaking Contractor of the
amount that has been spent by the Contractors on the Minimum
Work Obligation through the date of this certificate, or (2) a
10% reduction in the existing Face Amount due to Exploracion
y Produccion EPIC, S.A. becoming a Party to the Agreement; and
(ii) The Face Amount is to be reduced to the amount specified in
(b) below, effective upon the execution of this certificate.
(a) Share of Dollar Amount Spent on $ _______________
Minimum Work Obligation or Reduction due
to EPIC
(b) Remaining Face Amount $ _______________
This certificate has been duly executed by the undersigned as
of the ___ day of _______________ 199__.
[NAME OF AFFILIATE]
By:
--------------------------
Name:
Title:
5
<PAGE> 143
EXHIBIT 2
[FORM OF AFFILIATE CERTIFICATE AS TO COMPLETION]
Reference is made to the Financial Undertaking (the "Financial
Undertaking"), dated as of _________________, 1997, issued by ________________
a __________________, organized under the laws of _______________, relating to
the Operating Agreement (the "Agreement"), dated as of __________________, 1997,
among [name of Affiliate] ("the Affiliate"), a sociedad anonima organized under
the laws of the Republic of Venezuela, _________________, a ________________
organized under the laws of __________________, and ___________________, a
___________________ organized under the laws of ________________. Capitalized
terms used herein and not defined have the respective meanings set forth in the
Financial Undertaking or, to the extent not defined therein, in the Agreement.
The undersigned, being duly authorized to execute this certificate
on behalf of the Affiliate, hereby certifies that:
(i) The Minimum Work Obligation has been completed by the
Contractors; and
(ii) The Face Amount is to be reduced to zero, effective upon the
execution of this certificate.
This certificate has been duly executed by the undersigned as
of the ____ day of ______________, 199__.
[NAME OF AFFILIATE]
By:
--------------------------
Name:
Title:
6
<PAGE> 144
ANNEX N
AVAILABLE ASSETS
BOQUERON AREA
ASSETS TO BE OPERATED BY THE OPERATOR
1. BOQ-1 I flow station.
2. La Toscana manifold inlet.
N-1
<PAGE> 145
ANNEX 0
[Translation]
[FORM OF LETTER OF CREDIT FOR MINIMUM WORK OBLIGATION)
IRREVOCABLE STAND-BY LETTER OF CREDIT
Issued by [Name of Bank]
Date:___________
No.:____________
[Name of Affiliate]
[Affiliate Address)
Dear Sirs:
1. [Name of Bank], a __________ organized under the laws of _________
(the "Issuer"), hereby establishes in favor of (name of Affiliate] (the
"Affiliate"), a sociedad anonima organized under the laws of the Republic of
Venezuela, its Irrevocable Standby Letter of Credit No. ______________ (this
"Letter of Credit"), whereby the Issuer authorizes the Affiliate to draw
hereunder, in a single drawing, the Face Amount of this Letter of Credit as of
the date of drawing (determined in the manner set forth in Clause 3 of this
Letter of Credit) by presentation of a Draft and a Drawing Certificate (each as
defined below) at the Issuer's office specified in Clause 5 of this Letter of
Credit, during the Drawing Period (as defined below).
2. This Letter of Credit is being established in accordance with the
Operating Agreement (the "Agreement "), dated ______, 1997, between the
Affiliate, [Contractor #1], a ____________ organized under the laws of
__________, and [Contractor #2], a _____________ organized under the laws of
__________.(1) Capitalized terms used herein (including in the Exhibits hereto)
and not defined have the respective meanings set forth in the Agreement.
3. The Face Amount of this Letter of Credit shall initially be U.S.
$__________. The Face Amount shall be reduced upon presentation by the Affiliate
to the Issuer of a certificate
- ---------------
(1) Add or delete spaces as appropriate to reflect the number of Contractors.
<PAGE> 146
(a "Reduction Certificate"), in the form set forth in Exhibit 1 hereto,
specifying a new, lower Face Amount. A Reduction Certificate may be presented to
the Issuer, and the Face Amount may be reduced, no more frequently than once
every three months, beginning three months after the date of this Letter of
Credit.
4. The Face Amount of this Letter of Credit may be drawn by the
Affiliate in the manner specified in Clause 5 of this Letter of Credit on any
Banking Day during the period (the "Drawing Period") beginning at 9:00 a.m., New
York City time, on __________, 19 ____,(2) and ending at 5:00 p.m., New York
City time, on __________, ____.(3) A "Banking Day" is any day other than a
Saturday, a Sunday or day on which commercial banks in New York City are
authorized or required by law, regulation or executive order to close.
5. A drawing may be made hereunder only by the presentation by the
Affiliate to the Issuer of a sight draft of the Affiliate drawn on the Issuer in
the form attached hereto as Exhibit 2 (a "Draft"), and a certificate executed by
the Affiliate in the form attached hereto as Exhibit 3 (a "Drawing
Certificate"). Presentation of a Draft and Drawing Certificate must be made at
the Issuer's office in New York City located at __________, or at such other
address in New York City as the Issuer may designate to the Affiliate by notice
given in accordance with Clause 10 of this Letter of Credit.
6. Upon the presentation by the Affiliate to the Issuer during the
Drawing Period of the Draft and Drawing Certificate at the office of the Issuer
designated pursuant to such Clause 5, the Issuer shall pay the Face Amount as of
the date of presentation, by wire transfer of immediately available funds to the
Affiliate's account with a financial institution in New York City designated in
the Drawing Certificate. If presentation is duly made at or prior to 11:00 a.m.,
New York City time, on any Banking Day, payment shall be made by the Issuer at
or prior to 5:00 p.m., New York City time, on the same Banking Day. If
presentation is duly made after 11:00 a.m., New York City time, on any Banking
Day, payment shall be made by the Issuer at or prior to 1:00 p.m., New York City
time, on the immediately following Banking Day.
7. This Letter of Credit shall expire upon the earliest of (i)
_______,(4) (ii) the reduction of the Face Amount of this Letter of Credit to
zero, (iii) the date on which the Affiliate presents to the Issuer a certificate
executed by the Affiliate in the form attached hereto as Exhibit 4 (a
"Completion Certificate"), and (iv) the indefeasible payment by the Issuer to
the Affiliate in the manner set forth in Clause 6 of this Letter of Credit of
the Face Amount upon a drawing properly made hereunder. Notwithstanding the
foregoing, any drawing properly made
- --------------
(2) Insert the date of the Effective Date.
(3) Insert the date that is six months after the last day of the period set
forth in Clause 4.3 of the Agreement.
(4) Insert the date of the expiration of the Drawing Period.
2
<PAGE> 147
hereunder prior to the expiration of this Letter of Credit shall be honored by
the Issuer. Notwithstanding anything contained in Article 17 of the Uniform
Customs (defined below) or herein, in the event that the Issuer's office
designated in Clause 5 of this Letter of Credit is closed on the date set forth
in (i) of this Clause 7, the expiration date of this Letter of Credit and the
Drawing Period shall be extended to the next Banking Day on which such office is
open.
8. This Letter of Credit may only be drawn by, and other rights
hereunder may only be exercised by, the Affiliate, unless and until the Issuer
receives a certificate in the form attached hereto as Exhibit 5 (a "Transfer
Certificate") from the Affiliate designating a Person that is an assignee of
the rights and obligations of the Affiliate under Clause 27.3 of the Agreement.
Upon the delivery of a Transfer Certificate by the Affiliate to the Issuer, the
assignee named in the Transfer Certificate (and only such assignee) shall be
considered "the Affiliate" for all purposes hereunder (including for purposes of
this Clause 8). This Letter of Credit is a "transferable credit" within the
meaning of Article 48(a) of the Uniform Customs, and may be transferred in
accordance with this Clause 8, notwithstanding anything to the contrary
contained in Article 48(g) of the Uniform Customs.
9. This Letter of Credit is subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500 (the "Uniform Customs"). As to matters not covered by the
Uniform Customs, this Letter of Credit shall be governed by, and construed in
accordance with, the laws of the State of New York, including without limitation
Article 5 of the Uniform Commercial Code as in effect in the State of New York.
10. All notices, demands, instructions, waivers or other communications
to be provided pursuant to this Letter of Credit shall be in writing in English,
shall be effective upon receipt, and shall be sent by personal delivery,
courier, first class mail, facsimile or telex, to the following addresses:
i) If to the Issuer, to:
3
<PAGE> 148
ii) If to the Affiliate, to:
[Affiliate name]
[Affiliate address]
The addresses and telex and facsimile numbers for notices given pursuant to this
Letter of Credit may be changed by the Issuer or the Affiliate by means of a
written notice given to the other at least 15 Banking Days prior to the
effective date of such change.
11. This Letter of Credit sets forth in full the Issuer's undertaking,
and such undertaking shall not in any way be modified or amended by reference to
any document, instrument or agreement referred to herein, except the Draft, the
Drawing Certificate, any Transfer Certificate, any Completion Certificate and
any Reduction Certificate.
Very truly yours,
[NAME OF BANK]
By:
----------------------------
Name:
Title:
4
<PAGE> 149
EXHIBIT 1
(FORM OF REDUCTION CERTIFICATE)
Reference is made to the Irrevocable Standby Letter of
Credit (the "Letter of Credit"), No. dated , issued by
in favor of the Affiliate. Capitalized terms used herein and not
defined have the respective meanings set forth or incorporated by reference in
the Letter of Credit.
The undersigned, being duly authorized to execute this
certificate on behalf of the Affiliate, hereby certifies that:
(i) The amount in U.S. dollars specified in (a) below is either
(1) the share allocable to the Face Amount of the Letter of
Credit of the amount that has been spent by the Contractors on
the Minimum Work Obligation through the date of this
certificate, or (2) a 10% reduction in the existing Face
Amount of the Letter of Credit due to Exploracion y Produccion
EPIC, S.A. becoming a Party to the Agreement; and
(ii) The Face Amount of the Letter of Credit is to be reduced to an
amount equal to the Remaining Face Agreement specified in (b)
below, effective as of the date of this certificate set forth
below.
(a) Share of Dollar Amount Spent on $_______________
Minimum Work Obligation or Reduction
due to EPIC
(b) Remaining Face Amount $________________
This certificate has been duly executed by the undersigned as of the
__________ day of________, 199_.
[NAME OF AFFILIATE]
By:
------------------------
Name:
Title:
5
<PAGE> 150
EXHIBIT 2
[FORM OF DRAFT]
Letter of Credit No._______
[New York, New York]
[Date of Draft]
At sight
PAY TO THE ORDER OF [NAME OF Affiliate](1) the sum of U.S. $__________
(_______________ U.S. Dollars), FOR VALUE RECEIVED. DRAWN UNDER [NAME
OF ISSUER] IRREVOCABLE STANDBY LETTER OF CREDIT NO. .
[NAME OF AFFILIATE](1)
By:
---------------------------
Name:
Title:
To: [Name of Issuer].
[Address of Issuer]
- ----------------
(1) If the Letter of Credit is assigned pursuant to Clause 8 of the Letter of
Credit, substitute the name of the assignee.
<PAGE> 151
EXHIBIT 3
[FORM OF DRAWING CERTIFICATE]
Reference is made to the Irrevocable Standby Letter of Credit
(the "Letter of Credit"), No. ____________ dated _____________, issued by
________ in favor of [name of Affiliate]. Capitalized terms used herein and not
defined have the respective meanings set forth or incorporated by reference in
the Letter of Credit.
The undersigned, being duly authorized to execute this
certificate on behalf of the Affiliate, hereby certifies that:
(i) the Agreement has terminated without completion of the Minimum
Work Obligation;
(ii) the period specified for the completion of the Minimum Work
Obligation under Clause 4.3 of the Agreement has expired
without completion of the Minimum Work Obligation; or
(iii) the Minimum Work Obligation has not been completed by the
Contractors as of 15 days prior to [date](5) (the "Renewal
Date") and the Letter of Credit has not been either:
(a) amended to extend the last day of the Drawing Period to
the last day of the period specified for the completion of the
Minimum Work Obligation in the first sentence of Clause 4.3 of
the Agreement (or, if such date is not known, a date at least
two years following the Renewal Date); or
(b) replaced by a new irrevocable stand-by letter of credit
that is (i) issue by [ ](6) or another bank or financial
institution having a branch in New York City, the long-term
unsecured senior debt obligations of which are rated at least
"A" by Standard & Poor's Ratings Group or by Moody's Investors
Services, Inc., (ii) payable at a branch of such bank or
financial institution in New York City, (iii) in the form of
the Letter of Credit (except for relevant dates), (iv)
provides for a Drawing Period that ends on the last day of the
period specified for the completion of the Minimum Work
Obligation in the first sentence of Clause 4.3 of the
Agreement (or, if such date is not known, a date at least two
years following the Renewal Date), and (v) in an amount equal
to the Face Amount of the Letter of Credit as of the Renewal
Date.
- ---------------
(5)Insert the last day of the Drawing Period set forth in Clause 4 of the
Letter of Credit.
(6)Insert name of the Issuer of the Letter of Credit.
7
<PAGE> 152
Payment of the current Face Amount of the Letter of Credit is to be
made by the Issuer to the following account:
[insert details for account in New York City]
This certificate has been duly executed by the undersigned as of the
_____ day of _________ 199__.
[NAME OF AFFILIATE]
By:
------------------------------
Name:
Title:
8
<PAGE> 153
EXHIBIT 4
[FORM OF COMPLETION CERTIFICATE]
Reference is made to the Irrevocable Standby Letter of Credit (the
"Letter of Credit") No. ________, dated ________, issued by in favor of [name of
Affiliate]. Capitalized terms used herein and not defined have the respective
meanings set forth or incorporated by reference in the Letter of Credit.
The undersigned, being duly authorized to execute this certificate on
behalf of the Affiliate, hereby certifies that:
(i) The Minimum Work Obligation has been completed by the
Contractors or the Letter of Credit has been replaced by an
irrevocable stand-by letter of credit as described in
paragraph (iii) (b) of the Drawing Certificate; and
(ii) The Letter of Credit shall expire as of the date of this
Certificate.
This certificate has been duly executed by the undersigned as
of the day of________ 199__.
[NAME OF AFFILIATE]
By:
--------------------------
Name:
Title:
9
<PAGE> 154
EXHIBIT 5
[FORM OF TRANSFER CERTIFICATE]
Reference is made to the Irrevocable Standby Letter of Credit (the
"Letter of Credit"), No. _________, dated ________, issued by ____________ in
favor of [name of Affiliate]. Capitalized terms used herein and not defined have
the respective meanings set forth or incorporated by reference in the Letter of
Credit.
The undersigned, being duly authorized to execute this certificate on
behalf of the Affiliate, hereby certifies that:
(i) The Affiliate has transferred its rights and
obligations under the Agreement to __________ (the
"Transferee"), a ________ organized under the laws of
__________; and
(ii) The Affiliate has transferred all of its rights
(including without limitation the rights described in
Article 48(d) of the Uniform Customs) under the
Letter of Credit to the Transferee.
All notices, demands, instructions, waivers or other communications to
be provided to the Transferee pursuant to Clause 10 of the Letter of Credit
shall be sent to the following address:
[insert notice address]
This certificate has been duly executed by the undersigned as of the
________ day of_______, 199__.
[NAME OF AFFILIATE]
By:
----------------------
Name:
Title:
10
<PAGE> 155
[MAP]
<PAGE> 156
[MAP]
<PAGE> 1
OPERATING SERVICES AGREEMENT
THIS AGREEMENT has been entered into and signed on the nineteenth (19th)
day of November, 1993, by and between MARAVEN S.A., hereinafter called "THE
AFFILIATE," represented herein by its President, Eduardo Lopez Quevedo,
duly authorized by the Articles of Incorporation - Bylaws of THE AFFILIATE,
and COMPANIA OCCIDENTAL HIDROCARBUROS, INC., hereinafter called "THE
CONTRACTOR," a corporation incorporated and existing under the laws of
California, represented herein by its President, Joseph F. Snape, duly
authorized by Board Resolutions of THE CONTRACTOR dated November 4, 1993.
1. GENERAL PROVISIONS
1.1 All the Hydrocarbons existing within the territory of Venezuela
are a national resource owned and controlled by the State.
1.2 THE AFFILIATE has the exclusive right to carry on exploitation
operations of the Hydrocarbons in all the area described in
Appendix "A" and outlined in the Appendix "B", both annexed
hereto, hereinafter called "Agreement Area."
1.3 THE AFFILIATE wishes to promote the development of the Agreement
Area, and THE CONTRACTOR wishes to render services within such
area.
LEGEND
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
<PAGE> 2
1.4 THE CONTRACTOR has the financial capacity, technical ability and
professional expertise necessary to perform the Operating
Services described hereunder.
1.5 THE CONTRACTOR shall perform for THE AFFILIATE, but at the risk
and cost of THE CONTRACTOR, those rehabilitation, development,
production and other activities as are required to achieve the
continuous commercial development of the Hydrocarbons which are
present in the Agreement Area, as further specifically set forth
hereunder and in the Work Program approved by THE AFFILIATE.
It being understood that:
a) The compensation of THE CONTRACTOR for the services hereunder
shall only consist of such compensation established in Clause 8
and shall not include any title to the Hydrocarbons found or
produced in the Agreement Area.
b) The rights of THE CONTRACTOR arising from this Agreement do not
include any right to the economic benefits resulting from the
sale or disposal by THE AFFILIATE of the Hydrocarbons extracted
from the Agreement Area, but only to those economic interests, as
may be granted hereunder as a contractor, for the operational
activities thereof.
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c) The Agreement is entered into with THE CONTRACTOR by reason of
its particular conditions, therefore, it is considered to be a
contract intuito personae. As a result, THE CONTRACTOR may not
merge, associate or modify either the organizational structure or
its share participation without notifying THE AFFILIATE in
writing at least three (3) months in advance to any of the
above-mentioned situations and must provide THE AFFILIATE with
any documents required thereby. THE CONTRACTOR will be informed
by THE AFFILIATE if THE AFFILIATE considers that the occurrence
of any of the above circumstances is not convenient to its
interests concerning this Agreement, and if THE CONTRACTOR
insists in carrying out the decision thereof notwithstanding the
objection from THE AFFILIATE, THE AFFILIATE may terminate this
Agreement and THE CONTRACTOR will have no right to file any
claim.
2. DEFINITIONS
The words and terms as used herein shall have the following meanings,
irrespective of their being used in the singular or plural:
2.1 Agreement: Means the Spanish version of this "Operating Services
Agreement," together with Appendices "A", "B", "C", "D", "E" and
"F", which are
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incorporated hereto. The English version of the Agreement and its
Appendices is used only as a reference and has no effect
whatsoever.
2.2 Agreement Area: Means the Area within the territory of Venezuela
object of this Agreement, as described and outlined in Appendices
"A" and "B".
2.3 Agreement Year: Means a period of twelve (12) months starting on
January 1st and ending the following December 31, according to
the Gregorian Calendar. For the first year of the Agreement, the
Agreement Year means the period commencing the Effective Date of
the Agreement until December 31 of the following Gregorian
Calendar year.
2.4 Effective Date: Means the day this Agreement is signed.
2.5 Associated Company: Means, with respect to a Party to this
Agreement, a company or other entity controlling or being
controlled by the Party; or a company controlling a company or
other entity controlling or being controlled by such Party, it
being understood that control means the ownership by a company or
entity of at least fifty percent (50%) of: (a) the voting shares,
if the company is a stock company; or (b) the controlling rights
or interests,
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if the other entity is not a stock company. Those companies or
entities directly or indirectly controlled by a company or entity
controlling one of the Parties shall also be considered an
Associated Company.
2.6 Starting Date of Operations: Means the date Appendix "F"
(Operations Starting Certificate) is subscribed by THE CONTRACTOR
and THE AFFILIATE. The Starting Date of Operations may not be
later than four (4) months after the Effective Date.
2.7 Day: Means a calendar day.
2.8 Force Majeure: Means any event beyond the control of, and which
is not a direct consequence of gross negligence or willful
misconduct by the affected Party, including, but not limited to,
Acts of God or of third parties; compliance with any request,
ruling, order or decree of governmental authorities,
substantially impeding the performance of the work as provided
hereunder; war, rebellion, sabotage or riots; public insurrection
or disorder; floods or volcanic eruptions, tidal waves,
earthquakes, lightning, fires, explosions or other disasters;
strikes or any other act agreed by the workers; or other similar
occurrences beyond the control of the affected Party and that may
not be avoided or
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prevented by such Party exercising due diligence. Nonetheless,
Force Majeure shall not include occurrences such as:
a) Late delivery of construction equipment or materials to be
supplied by THE CONTRACTOR, resulting from a congestion at a
plant of the manufacturer or any other place; a market
oversold condition, inefficiencies or similar occurrences,
or
b) Late performance by THE CONTRACTOR or its subcontractors
resulting from a shortage of supervisors, workforce,
inefficiencies or similar events and a shortage of services,
or
c) The lack of payment of monetary amounts or the congestion
or lack of transportation or storage capacity.
The foregoing, except when said late delivery or late
performance, described in paragraphs a) and b), or congestion or
lack of capacity described in paragraph c), arise from Force
Majeure [an event other than those described in paragraphs a), b)
and c) above] which is beyond the control of affected Party, as
well as the subcontractors, and an
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acceptable alternative source of services, equipment or materials
is not available.
2.9 Production: Means the Hydrocarbons produced and regularly
transferred to THE AFFILIATE at the Transfer Points and under
the terms indicated in Appendix "A", as it may be modified from
time to time by written agreement of the Parties ("Appendix
"A"), on a regular basis, according to the Work Program approved
by THE AFFILIATE, and that THE AFFILIATE is operationally
capable of receiving. The reception of Hydrocarbons produced
under the specifications of Appendix "A" shall only be refused
in the event of Force Majeure.
2.10 Audit of Environmental Situation: Means the determination of
preexisting environmental conditions at the Starting Date of
Operations.
2.11 Production Date: Means the date when the Crude Oil Production
begins, or, subject to Clause 7.7, the Natural Gas, which date,
for the purposes of this Agreement, coincides with the Starting
Date of Operations.
2.12 Crude Oil: Means the oil or any other hydrocarbon in a liquid
state at environmental conditions, including the liquid
hydrocarbons extracted from natural gas.
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2.13 Natural Gas: Means any gaseous hydrocarbon produced, including,
without limitation, non-associated gas and wet gas, dry gas,
casinghead gas and residual gas remaining after liquid
hydrocarbons extraction from wet gas.
2.14 Hydrocarbons: Means both Crude Oil and Natural Gas.
2.15 Barrel: Means an amount or volumetric unit of Crude Oil of
forty-two (42) United States gallons at a temperature of sixty
degrees (60 degrees) Fahrenheit.
2.16 Quarter: Means the period of three (3) months starting either on
January 1, April 1, July 1 or October 1 of any Agreement Year.
2.17 Current Quarter: Means the pertinent Quarter for purposes of
invoicing and indexing adjustments as provided in Clause 18
hereunder.
2.18 Previous Quarter: Means the Quarter preceding the current
Quarter.
2.19 Crude Oil Transfer Points: Means the point of transfer to THE
AFFILIATE of the risk, safeguard and custody of the Crude Oil
produced in the Agreement Area, as defined in Appendix "A".
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<PAGE> 9
2.20 Gas Transfer Points: Means the point of transfer to THE AFFILIATE
of the risk, safeguard and custody of the Natural Gas produced in
the Agreement Area, as defined in Appendix "A".
2.21 Operating Services: Means all drilling, geological studies and
geophysical surveys, rehabilitation, development, extraction,
production, treatment, hauling, maintenance and other operations
authorized or contemplated hereunder.
2.22 Work Program: Means an annual statement detailing the Operating
Services to be performed in the Agreement Area, as approved by
THE AFFILIATE from time to time, including the corresponding
Budget.
2.23 Minimum Work Program: Means the statement detailing the minimum
commitment of Operating Services to be performed at the Agreement
Area during the first three (3) Agreement Years, including the
corresponding Budget, as established in Appendix "C".
2.24 Budget: Means the estimate of all Capital and Non-Capital Costs
included in the Work Program for the period concerned.
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2.25 Capital and Non-Capital costs:
Capital Costs: Means those expenditures incurred for the
performance of the Operating Services established as such
according to Clause 18 hereunder, Accounting Procedures, provided
they are included in the approved Budget as Capital Costs, or
have been approved in writing by THE AFFILIATE.
Non-Capital Costs: Means those expenditures incurred for the
performance of the Operating Services, established as such
according to Clause 18 hereunder, provided that any such Non-
Capital Costs have been incurred after the Production Date and
are included in the approved Budget or have been approved in
writing by THE AFFILIATE.
2.26 Norms and Regulations: Any law, regulation and other provisions
applicable to the activities to be performed by THE CONTRACTOR
hereunder, including such normal operating practices of THE
AFFILIATE, as have been notified to THE CONTRACTOR.
2.27 Party: Means THE CONTRACTOR or THE AFFILIATE, as the case may be.
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2.28 Applicable Law: Means all the laws of the Republic of Venezuela
which will rule the interpretation, validity and compliance of
this Agreement.
3. DURATION OF AGREEMENT
3.1 This Agreement shall be in effect for twenty (20) Agreement
Years, as from the Effective Date. In the event there is no
Production during the first three (3) Agreement Years, the
Agreement shall fully automatically cease, except as otherwise
provided herein.
3.2 THE CONTRACTOR may request, in writing, the extension of the
Agreement. Such request must be reasoned and submitted at least
six (6) months in advance to the maturity of the term set forth
in paragraph 3.1. THE AFFILIATE may grant or reject, in a
reasonable manner, the extension, as well as put conditions to
it.
3.3 In the event there is no Production at the end of the first three
(3) Agreement Years, but THE AFFILIATE and THE CONTRACTOR, after
having considered all the pertinent operating and financial data,
are of the opinion that Production may be achieved, the period of
three (3) years described in paragraph 3.1 may be extended as
agreed upon by the Parties in writing.
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4. AUTOMATIC TERMINATION
In the event that Production is interrupted at any moment after the
first three (3) Agreement Years, for a period of six (6) consecutive
months, except by reason of Force Majeure, the Agreement shall be
automatically terminated, unless otherwise agreed upon by THE
AFFILIATE and THE CONTRACTOR.
5. WORK PROGRAM AND DISBURSEMENTS
5.1 During the first thirty-six (36) months of the Agreement counted
from the Starting Date of Operations, THE CONTRACTOR shall
perform the Minimum Work Program set forth in Appendix "C".
The total amount to be spent by THE CONTRACTOR to perform the
operations during the referred first thirty-six (36) months, as
provided hereunder, shall not, in the aggregate, be less than the
amount specified below for each one of the three (3) periods of
twelve (12) months:
First twelve (12) months: U.S. *
Second twelve (12) months: U.S. *
Third twelve (12) months: U.S. *
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
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To guarantee the Minimum Work Program, THE CONTRACTOR shall
submit an irrevocable "Stand-By" Letter of Credit, in favor of
THE AFFILIATE and issued or confirmed by a first-class bank
previously approved by THE AFFILIATE. The Stand-By Letter of
Credit must he based on the form established in Appendix "D".
The amount of the Stand-By Letter of Credit will be reduced at
the end of each Quarter following the Starting Date of
Operations, pursuant to its terms. For this purpose, THE
CONTRACTOR will report to THE AFFILIATE, within fifteen (15) Days
from the end of each Quarter, the works performed and the amounts
expended, with supporting documentation, in the performance of
the Agreement. THE AFFILIATE, after checking the amounts and
supporting documentation provided by THE CONTRACTOR, will order
the corresponding bank to reduce the Letter of Credit by the
amount actually expended, within fifteen (15) Days from receipt
of said information. At THE AFFILIATE's request, THE CONTRACTOR
must submit any additional supporting documentation, including,
without limitation, any pertinent invoice, contract and document.
THE AFFILIATE shall have the right to object to the amount
reported by THE CONTRACTOR and the reduction of the Stand-By
Letter of Credit by the objected amounts will be suspended until
the objections are duly clarified by the Parties, without
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prejudice of the reduction by THE AFFILIATE of the amounts not
objected. Reductions made in accordance with this clause 5.1 will
not be considered as a waiver by THE AFFILIATE of the right to
submit an objection or claim in the future or to execute the
outstanding balance of the Stand-By Letter of Credit with respect
to works or amounts that further checking demonstrates should not
have given rise to reduction already made, or of any other right
that THE AFFILIATE may have with respect to said amounts.
Default by THE CONTRACTOR of the Minimum Work Program and/or the
above minimum expenditure commitments as provided herein shall
give THE AFFILIATE the right, without prejudice to any other
available right or remedy, to immediately execute the
above-mentioned Letter of Credit for an amount representing the
defaulted minimum guaranteed work commitment of THE CONTRACTOR.
The amounts executed as provided herein shall, in no case, be
reimbursed to THE CONTRACTOR, nor reduced, offset nor otherwise
reduced for any reason whatsoever, including, without limitation,
the receipt of any benefits by THE AFFILIATE, the mitigation of
whatever damage caused by the default of the Minimum Work Program
or the real or possible existence of any claim against third
parties or THE AFFILIATE.
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5.2 In the event that THE CONTRACTOR is unable to comply with the
Minimum Work Program, THE AFFILIATE must be immediately informed
in writing of the reasons causing the non-compliance, and, in
such event, THE CONTRACTOR may be allowed by THE AFFILIATE to
perform the defaulted portion of the Minimum Work Program, or
make the pertinent disbursements during the following year.
Should such situation arise at the end of the third Agreement
Year, THE CONTRACTOR shall be able to obtain an extension of the
"Stand-By" Letter of Credit for the additional term granted to
finish the performance of the defaulted portion and for the
amount corresponding to the defaulted commitment of the Minimum
Work Program. THE AFFILIATE reserves the right to approve or
refuse the request from THE CONTRACTOR to perform the unfinished
portion of the Minimum Work Program during the following year,
within a lapse of time considered to be convenient, without
having to justify its decision.
In the event that, during any Agreement Year following the first
thirty-six (36) months, THE CONTRACTOR shall have performed less
than the agreed Work Program, such unfinished portion, with due
justification and with the written consent from THE AFFILIATE,
may be carried forward to the Work Program for the following
Agreement Year without affecting the rights of THE CONTRACTOR
hereunder. Likewise,
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should THE CONTRACTOR, with prior authorization by THE AFFILIATE,
carry out more of the Work Program agreed on, said additional
portion shall be deducted, with due justification and with the
written consent of THE AFFILIATE, from the Work Program for the
following Year of the Agreement, without affecting the rights of
THE CONTRACTOR under this Agreement.
5.3 At lease three (3) months in advance to the beginning of each
Agreement Year, or as otherwise agreed upon by the Parties, THE
CONTRACTOR shall prepare and submit for approval by THE AFFILIATE
a Work Program for the Agreement Area, setting forth the proposed
Operating Services to be carried out by THE CONTRACTOR during the
following Agreement Year, the estimated cost thereof, the
estimated production to be obtained and the estimated
Hydrocarbons reserves. The Parties hereby agree that the Work
Program for the first Agreement Year shall be prepared and
submitted for THE AFFILIATE's approval within seventy-five (75)
Days following the Effective Date, except as otherwise agreed by
the Parties. THE AFFILIATE may grant or reject, for reasonable
cause, the aforementioned approval of the Work Program, within
the term established in Clause 5.4.
5.4 In the event THE AFFILIATE shall wish to propose a revision of
specific aspects of a Work Program, THE
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CONTRACTOR shall be notified thereby during the forty-five (45)
Days following the reception of the Work Program, specifying in
detail the reasons for such modification. As soon as possible,
the Parties shall meet in order to reach an agreement over the
revisions proposed by THE AFFILIATE. However, any portion of the
Work Program which THE AFFILIATE does not propose to revise
shall be performed as established in the Work Program. In the
event no revision is requested by THE AFFILIATE during the
mentioned period of forty-five (45) Days, the Work Program shall
be deemed approved as submitted by THE CONTRACTOR.
5.5 It is understood that the details of a Work Program may require
changes in view of the prevailing circumstances, and nothing
herein shall limit the right of THE CONTRACTOR to perform such
changes, provided that the general scope of the Work Program is
not modified by such changes and that they are approved in
writing by THE AFFILIATE.
5.6 In the event of emergencies or other special circumstances
requiring immediate action, including, among others, fires,
explosions, blow-outs and oil spills, leaks of toxic and/or
dangerous substances (such as gas, chlorine and ammonia), THE
AFFILIATE must be immediately informed by THE CONTRACTOR, who
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must take the appropriate actions to control the situation or
protect the facilities, people and property. Such actions must be
timely notified to THE AFFILIATE, for purposes of pertinent
coordination.
Any justified expense incurred by THE CONTRACTOR in relation with
such actions, without prejudice to the provisions of Clause 10.17
hereof, shall be included in the Capital Costs.
To meet the situations described above, THE CONTRACTOR must
submit to THE AFFILIATE, within the sixty (60) days following the
Effective Date, the emergency and contingency plans to attend to
any Crude Oil spills.
Notwithstanding the foregoing, and without prejudice to the
obligations of THE CONTRACTOR hereunder, should THE AFFILIATE not
be satisfied with the actions taken by THE CONTRACTOR, or should
he consider it convenient to the interests thereof, THE AFFILIATE
may inform THE CONTRACTOR of a direct intervention and may take
any such action as may be considered advisable, and, in such
event, any expenses incurred by THE AFFILIATE to that purpose
shall be reimbursed by THE CONTRACTOR within the thirty (30) days
following the receipt of the
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corresponding invoice and, without prejudice to the provisions of
Clause 10.17 herein, shall be included within the Capital Costs
of THE CONTRACTOR.
5.7 Nothing in Clause 5 hereof shall be interpreted as allowing THE
CONTRACTOR to make disbursements for less than the minimum
amounts guaranteed, or to perform less than the Minimum Work
Program, as provided in Clause 5.1 hereof (and as detailed in the
Minimum Work Program in Appendix "C"), during the first
thirty-six (36) months of this Agreement, unless a revision to
that purpose is specifically approved in writing by THE
AFFILIATE.
5.8 Without prejudice to the provisions of Clause 5.7, unless it is
specifically otherwise allowed or justified hereunder, the lack
of performance of twenty percent (20%) or more of the Work
Program for any Agreement Year during the term thereof shall be
considered a material breach of the obligations of THE CONTRACTOR
hereunder and shall entitle THE AFFILIATE to immediately
terminate this Agreement without prejudice to any other right or
remedy available to THE AFFILIATE, including, but not limited to,
the right to execute the guarantees given by THE CONTRACTOR.
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6. RIGHTS AND OBLIGATIONS OF THE CONTRACTOR
Other than the provisions hereunder, THE CONTRACTOR shall:
6.1 At its sole expense, finance all the Operating Services without
recourse to THE AFFILIATE, except as otherwise specifically
provided in Clause 8 hereof.
6.2 Prepare and implement the annual Work Program in accordance with
the Norms and Regulations and any other applicable guideline or
instruction and the oil industry practices, including any such
regulations concerning safety, health, labor and environmental
matters applied to the Venezuelan oil industry which are notified
to THE CONTRACTOR. To such purpose, THE CONTRACTOR shall submit
to THE AFFILIATE for approval, sixty (60) Days after the
Effective Date, the following documents:
a) The Program for preventing injuries and/or industrial
diseases.
b) The Plan for protecting the environment, specifying the
steps to be taken for handling atmospheric emissions, solid
residues, toxic waste, or other polluting agents and for
preventing pollution of soil and effluents.
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c) Contingency plan as indicated in Clause 5.6.
d) Emergency plan as indicated in Clause 5.6.
6.3 Unless as otherwise agreed upon by THE AFFILIATE, THE CONTRACTOR
shall be responsible, during the term of this Agreement, for the
maintenance, subject to normal wear and tear, of the facilities
that it has put into service; and, at the appropriate time, but
not later than the termination of this Agreement, for the
abandonment of wells and for the cleaning and dismantlement of
facilities that it has put into service. Such maintenance,
abandonment, cleaning and dismantlement will be performed in
accordance with Norms and Regulations.
6.4 Perform, together with THE AFFILIATE, an Audit of Environmental
Situation, in the Agreement Area, within a period not exceeding
four (4) months from the Effective Date.
The cost of the audit shall be paid by the Parties in equal
parts. Such audit shall be performed by a juridical person
designated by mutual agreement between the Parties, in writing
and in accordance with the Venezuelan legislation governing the
matter. This expenditure will be a Non-Capital Cost for THE
CONTRACTOR.
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THE CONTRACTOR shall not be liable for the preexisting
environmental conditions. In the event the Ministry of the
Environment and Renewable Natural Resources and/or the Ministry
of Energy and Mines were to order the correction or recovery of
the environment in the Agreement Area because of preexisting
conditions, the execution of such activities will correspond to
THE AFFILIATE.
Prior to the Starting Date of Operations, THE CONTRACTOR shall
perform an Environmental Impact Study as provided in the
Environmental Organic Law, and the cost thereof shall be included
as a Capital Cost in accordance with Clauses 18.5 and 18.11.
6.5 Submit on time to THE AFFILIATE copies of all the geological,
geophysical, drilling, well, production and any such data and
reports as THE CONTRACTOR may obtain and compile during the term
hereof and from time to time. THE CONTRACTOR shall provide on a
routine and timely basis any such reports as are necessary for
THE AFFILIATE to comply with the statutory and internal reporting
requirements thereof, according to the formats provided by THE
AFFILIATE, including, but not limited to, reports of the
estimated Hydrocarbons remaining reserves and the Production at
year end.
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6.6 Cooperate with and support THE AFFILIATE in obtaining any such
third parties' permits and/or right of ways and/or servitude as
are necessary for THE CONTRACTOR to reach or move inside the
Agreement Area in order to perform the Operating Services
provided hereunder. In order to obtain such permits, THE
AFFILIATE shall be notified by THE CONTRACTOR, in writing, at
least two (2) months in advance, of the precise indication of the
zones affected by the Operating Services within the Agreement
Area, as provided in the Work Program. At the end of each
calendar month, an invoice shall be presented by THE AFFILIATE to
THE CONTRACTOR expressing:
a) any payment made by THE AFFILIATE concerning such permits
and rights, in accordance with the rates THE AFFILIATE has
to such purpose, together with the corresponding supporting
vouchers.
b) administration, organization and men-hours expenditures and
costs incurred by THE AFFILIATE to obtain such permits and
rights.
Such amounts shall be reimbursed to THE AFFILIATE by THE
CONTRACTOR within the forty-five (45) Days following the
presentation thereof and shall be charged to the Capital Costs of
THE CONTRACTOR.
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6.7 Give preference to goods and services produced in Venezuela or
rendered by Venezuelans, provided they are offered under similar
quality, price and availability conditions, when and in the
amounts required.
6.8 Pay any such taxes, contributions and duties as are required by
the Venezuelan Laws and Ordinances. THE CONTRACTOR shall comply
with the requirements of the law, specifically those concerning
the filing of returns, determination and withholding of taxes,
and maintenance and exhibition of books and records.
6.9 Promptly respond to and pay the amounts owed, according to
Clause 10 hereunder, and obtain and keep any such insurance
policies as are required by said Clause 10.
6.10 Subject to the terms and provisions hereunder, it shall:
a) perform any such activities as are reasonably required to
accomplish the purpose of this Agreement, according to
Clause 1.5 and as detailed in the Work Program.
b) custody and maintain any Hydrocarbons produced in the
Agreement Area up to the corresponding
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Transfer Points, as well as any other property, plant and
equipment of THE AFFILIATE inside or outside the Agreement
Area, which is under THE CONTRACTOR's guard and custody for
the performance of the Operating Services, in a good and
orderly condition, subject to normal wear and tear.
6.11 Promptly after termination of this Agreement, deliver all those
documents with data and reports, in original if they are
available to THE CONTRACTOR, which have not been previously
delivered to THE AFFILIATE.
6.12 Comply with and cause its subcontractors to comply with:
a) all the laws, regulations and any other applicable
provisions in the Republic of Venezuela.
b) all the norms set forth by THE AFFILIATE concerning its
contractors, including, without limitation, safety,
technical, operational, environmental and labor regulations,
including specifically the Labor Collective Contract as
interpreted by THE AFFILIATE, that is in force and
applicable to the Venezuelan oil industry,
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as notified to THE CONTRACTOR, during the term of this
Agreement.
6.13 While performing the Operating Services, it shall take the
necessary steps for the conservation and safety of life,
property, crops, vegetation, fishing and fisheries, navigation,
protection of the environment, prevention of pollution,
disposition of effluent waters, including sea pollution, and the
personnel safety and health, taking all reasonably necessary
precautions to minimize damages to the environment.
6.14 Keep confidential and take all reasonable measures to make sure
that its employees, Associated Companies, and subcontractors and
its employees do not disclose to third parties, without the
previous written consent from THE AFFILIATE, any information
produced and/or obtained by THE CONTRACTOR in relation to the
Operating Services and/or the Agreement Area, except when the
information must be disclosed:
a) To governmental authorities acting within the scope of their
competence, which will be timely notified to THE AFFILIATE.
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b) In relation with requirements of stock exchanges where THE
CONTRACTOR's or its Associated Companies' share or
instruments are quoted.
c) To Associated Companies, professional consultants, banks, or
financial entities which reasonably require said
information, provided these entities agree in writing to
maintain such information strictly confidential.
6.15 Obtain the authorization from THE AFFILIATE prior to publishing
any information or publicity which is not in the public domain
concerning the Operating Services and/or the Agreement Area. THE
CONTRACTOR shall also demand from the subcontractors thereof to
comply with this requisite.
6.16 Make sure that all Hydrocarbons production transferred to THE
AFFILIATE is of the quality specified in Appendix "A" and in the
adequate volumes for reception in the facilities of THE
AFFILIATE. It is understood that, during a test period of six (6)
months counted from the Production Date, THE AFFILIATE shall
receive the Crude Oil not meeting the quality specifications
established in Appendix "A", and the treatment-related costs
incurred therefor shall be charged to THE CONTRACTOR and imputed
against future credits. These costs shall not be
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recovered by THE CONTRACTOR. The Natural Gas not meeting the
quality specifications established in Appendix "A", subject to
Clause 7.7, may be received by THE AFFILIATE under the same above
conditions concerning Crude Oil.
6.17 Retain control of every leased property and equipment and shall
have the right to freely remove such property from the Agreement
Area, except for those goods which, due to their fixed and
permanent nature, become the property of THE AFFILIATE, without
prejudice to THE CONTRACTOR's rights to continue using them for
the Operating Services.
6.18 Have equal rights as THE AFFILIATE to enter and exit the
Agreement Area at any time, to and from the facilities inside,
without interfering with the activities which THE AFFILIATE may
be performing within the Agreement Area at the Effective Date.
6.19 Have the right to use, and have access to, and THE AFFILIATE
shall always make available, provided it is physically and
legally possible, every geological, geophysical, drilling, well,
production, and other information which THE AFFILIATE may now or
in the future have concerning the Agreement Area, and provided
that it is relevant and necessary to perform the obligations
hereunder. THE CONTRACTOR shall keep
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confidential and take every reasonable step to make sure that its
employees, Associated Companies, and subcontractors and their
employees do not disclose to third parties, without prior written
consent from THE AFFILIATE, any information directly or
indirectly received by THE AFFILIATE hereunder.
6.20 Be entitled to receive operating and capital fees on the basis of
Production, as provided in Clause 8, during the term of the
Agreement.
7. RIGHTS AND OBLIGATIONS OF THE AFFILIATE
In addition to the other provisions of this Agreement, THE AFFILIATE
shall:
7.1 Have title to all the Hydrocarbons produced and be responsible
for the payment of the taxes and impositions related to the
Production.
7.2 Retain title to all original data and information resulting from
the Operating Services, including, but not limited to,
geological, geophysical, petrophysical, engineering, well logs
and well completion reports and any other data compiled by THE
CONTRACTOR during the term of this Agreement.
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<PAGE> 30
7.3 As much as possible, cooperate with THE CONTRACTOR in order to
facilitate the performance of this Agreement.
7.4 Notwithstanding the obligations of THE CONTRACTOR hereunder, be
entitled to inspect the activities of THE CONTRACTOR hereunder
any time, and request all the information and reports it may
consider appropriate.
7.5 During the term of this Agreement, allow the use of the equipment
and materials that, by virtue of this Agreement, shall become its
property, only for the Operating Services hereunder, and, in the
event THE AFFILIATE shall wish to use such equipment for any
other purpose, it may do it to the extent that it does not
interfere with THE CONTRACTOR in the performance of the Operating
Services, and after consulting first with it. Furthermore, THE
AFFILIATE shall have the right to access the Agreement Area to
perform operations related to Hydrocarbons to the extent they do
not interfere with the operations and Work Programs of THE
CONTRACTOR.
7.6 Unless Force Majeure circumstances are involved, take the guard
and custody of all the Crude Oil production meeting the terms
established hereunder, when THE
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<PAGE> 31
CONTRACTOR makes it available at the Hydrocarbons Transfer Point,
on or after the Production Date.
7.7 Provided that THE AFFILIATE shall have agreed to receive specific
volumes of Natural Gas, take the immediate custody of the volumes
agreed when THE CONTRACTOR makes them available at the Gas
Transfer Point. Unless otherwise agreed upon, THE AFFILIATE shall
not be obliged to accept the custody of any amount of Natural Gas
during the term of this Agreement.
The Parties have agreed to the contrary of the provisions herein
in the terms and conditions established in Appendix "A".
7.8 Promptly pay to THE CONTRACTOR every applicable fee as set forth
in Clause 8 and further in Clause 18.
7.9 Exercise due diligence to negotiate and complete those agreements
with third parties, land and real estate owners inside the
Agreement Area as are necessary to obtain the right of entry or
other reasonable rights required by THE CONTRACTOR to perform the
Operating Services hereunder. Any right granted by third parties
to THE AFFILIATE shall be extended to THE CONTRACTOR during the
term of this Agreement. Any payment made by THE AFFILIATE
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<PAGE> 32
concerning such permits and rights shall be reimbursed to THE
AFFILIATE by THE CONTRACTOR within the forty-five (45) days
following the submission of the supporting vouchers of such
costs, which costs will be recovered by THE CONTRACTOR as Capital
Costs.
7.10 Maintain as confidential and take all reasonable measures to
ensure that its employees and Associated Companies do not reveal
to third parties, without the prior written consent of THE
CONTRACTOR, information on know-how and technical, financial, or
other information which is proprietary of THE CONTRACTOR or its
subcontractors.
7.11 Coordinate with THE CONTRACTOR, to the extent possible, the
publication of information or publicity not in the public domain
relating to the Operating Services, provided that THE AFFILIATE
has control over these actions.
8. COMPENSATION OF THE CONTRACTOR
8.1 THE CONTRACTOR shall be compensated every Quarter on the basis of
the volume of Hydrocarbons transferred to THE AFFILIATE at the
Transfer Points, from and including the Production Date, as set
forth in Clause 18.
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<PAGE> 33
8.2 The fees for services Of THE CONTRACTOR, including the recovery
of operating costs, will be paid as Operating Fees on the basis
of the volume of Hydrocarbons transferred to THE AFFILIATE, as
set forth in Clause 18.
8.3 The Capital Costs (and Non-Capital Costs incurred prior to the
Production Date that are included in the Capital Costs) may be
recovered as Capital Fees on the basis of the volume of
Hydrocarbons transferred to THE AFFILIATE, as set forth in Clause
18.
8.4 The Incentives for Production Increases will be paid as
established in Subclause 18.17.
8.5 The Parties understand that THE AFFILIATE and THE CONTRACTOR are
subject to the Law on the Value Added Tax ("IVA") and to the
regulations thereunder, as they may be amended from time to
time, in relation with the services to be rendered and the
compensation and reimbursement to be paid, under this Agreement.
In accordance with the regime in force, THE AFFILIATE will pay
THE CONTRACTOR, in Bolivars, the IVA amounts that THE CONTRACTOR
must pay to the Government in relation to the services rendered
and corresponding compensation under this Agreement. THE
AFFILIATE shall pay this amount to THE CONTRACTOR within the
terms established by Law for the payment of IVA by
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<PAGE> 34
THE CONTRACTOR to the Government, through deposits in an amount
and bank designated by THE CONTRACTOR, unless otherwise agreed.
The amount of IVA to be paid by THE AFFILIATE to THE CONTRACTOR
in independent from and in addition to the compensation and the
reimbursements due for payment to THE CONTRACTOR in accordance
with Clauses 8.1 through 8.4 and Clause 18 of this Agreement.
9. PAYMENTS
9.1 Except as otherwise specifically provided hereunder, all payments
due to THE CONTRACTOR shall be made exclusively in Dollars of the
United States, or, as decided by the Parties, in any other
currency acceptable to THE CONTRACTOR, at a foreign bank to be
agreed upon by the Parties, unless otherwise agreed.
Any Capital Cost and any Non-Capital Costs prior to the
Production Date incurred in Bolivars shall be paid in Dollars
reconciled at the average exchange rate for the sale of that
currency, established by the Banco Central de Venezuela on the
date such Costs were incurred. Whenever these costs shall have
been incurred in any currency other than Bolivars and Dollars,
they shall be converted to Dollars at the exchange rate
prevailing for the sale of this currency established by the Chase
Manhattan Bank, New
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<PAGE> 35
York, Hew York, at 11:00 a.m. on the date the costs were
incurred.
9.2 Every payment required as established hereunder shall be made on
or before the end of the second calendar month following the
Quarter object of the specific invoice.
To such purpose, an updated invoice and two (2) copies reflecting
the Capital Costs and Operating Fees, supported with statements
of account, shall be submitted by THE CONTRACTOR to THE AFFILIATE
within the first fifteen (15) Days following the end of the
corresponding Quarter. THE CONTRACTOR must submit any additional
documentary support as is required by THE AFFILIATE, including,
without limitation, any pertinent invoice, contract and record.
THE AFFILIATE shall be entitled to object to such invoice,
indicating the reasons for its objection, and, in the event an
objection were made within twenty-one (21) days from the receipt
of the invoice by THE AFFILIATE, the payment of any disputed
amount shall be delayed until the objection is duly settled by
the Parties.
The payment of an invoice by THE AFFILIATE shall not be
considered a waiver by THE AFFILIATE of the right to submit a
future objection or claim, or of any
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<PAGE> 36
other right THE AFFILIATE may have concerning such payment. It is
understood that the disputed amounts shall not accrue any
interest whatsoever.
10. LIABILITIES, INDEMNITIES AND INSURANCE
10.1 THE CONTRACTOR shall be liable for all injuries (including death)
of its employees and/or those of its subcontractors, servants,
agents and/or representatives thereof; and/or for the loss or
damage to the properties of THE CONTRACTOR and/or its
subcontractors and/or the properties of its employees, servants,
agents and/or representatives and/or the properties of the
employees, servants, agents and/or representatives of its
subcontractors, unless it demonstrates that the harm or loss or
damage is due to a non-imputable cause.
10.2 Subject to the provision of Clause 10.20 of this Agreement, THE
CONTRACTOR shall be liable for every loss and/or damage to the
facilities, materials and equipment, whether they are inside the
Agreement Area or otherwise, of THE AFFILIATE, provided that
they are under the guard and custody of THE CONTRACTOR as set
forth hereunder, resulting from the performance by THE CONTRACTOR
and/or its subcontractors of any activity hereunder.
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<PAGE> 37
10.3 THE CONTRACTOR shall be liable for any loss and/or damage to the
properties Of THE AFFILIATE (other than those of THE AFFILIATE
referred to in Clause 10.2) resulting from the willful misconduct
or grossly negligent acts or omissions of THE CONTRACTOR and/or
its subcontractors, and/or Associated Companies.
10.4 THE CONTRACTOR shall be liable for:
a) Every loss and/or damage to the properties of third parties
and/or every injury (including death) to any person, which
occurs on the occasion or as a result of the performance of
this Agreement.
b) Every damage to natural resources, except Crude Oil,
Natural Gas, and other minerals in situ, before their
extraction to the surface (but not excepting those damages
caused by willful misconduct or gross negligence) and every
damage to the environment, including, but not limited to,
damage or destruction of marine resources, wildlife, timber
resources, estuaries, streams or bodies of water, oceans,
land or air or any other damage which occur on the occasion
or as a result of the performance of this Agreement.
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<PAGE> 38
In case of loss of Hydrocarbons for reasons imputable to THE
CONTRACTOR or its subcontractors (that is, excluding losses
caused by Force Majeure or imputable to third parties), THE
CONTRACTOR shall be responsible vis-a-vis THE AFFILIATE for
the market value of the Hydrocarbons actually lost
(excluding recovered Hydrocarbons), minus THE CONTRACTOR's
compensation established in Clause 8 that THE AFFILIATE
would have paid to THE CONTRACTOR should those Hydrocarbons
have been delivered to it at the corresponding Transfer
Point. THE CONTRACTOR shall pay the corresponding amounts
within thirty (30) Days from the presentation of an invoice
by THE AFFILIATE.
c) Any fine or sanction that is imposed on the occasion or as a
result of the performance of this Agreement, without
prejudice to the right to submit administrative or judicial
claims provided by law.
The liability of THE CONTRACTOR, referred to in paragraphs
a) and b) of this Subclause, is without prejudice to its
right to demonstrate the intervention of a non-imputable
cause.
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<PAGE> 39
10.5 THE CONTRACTOR shall hold harmless and indemnify THE AFFILIATE
from and against any action, cause of action, damages, claims and
suits whatsoever, whether at law or in equity, sentences,
including costs and legal fees that may be rendered against THE
AFFILIATE, arising from any incident referred to in Clauses 10.1,
10.2, 10.3 and 10.4 hereof, based on the terms and subject to the
exceptions established therein.
10.6 THE CONTRACTOR shall hold harmless and indemnify THE AFFILIATE
from and against any loss, damage and expenses, including
attorney fees arising from any claim for infringement of a
patent, copyright or other existing similar rights or to be
granted, with respect to or arising out of the activities carried
out by THE CONTRACTOR or its subcontractors hereunder, the
manufacturing, incorporation or use of any material or equipment
and/or any technique used in such activities.
10.7 THE CONTRACTOR shall indemnify, defend and hold harmless against
any lien and claim over the property of THE AFFILIATE and the
materials, equipment or structures, or the premises on which they
are located, provided these liens and claims are not imputable to
THE AFFILIATE and they arise from or in connection with the
activities developed by THE
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<PAGE> 40
CONTRACTOR or its subcontractors hereunder, including, but not
limited to, workers, materials and other services to be rendered
by THE CONTRACTOR or its subcontractors or suppliers hereunder.
10.8 THE CONTRACTOR shall defend and indemnify THE AFFILIATE against
any claim, action, loss or damage that may affect THE AFFILIATE
resulting from the failure of THE CONTRACTOR to comply with the
obligations hereunder.
10.9 THE AFFILIATE shall include THE CONTRACTOR as co-insured in the
following corporate policies: All Risk Construction, Properties
(fire, explosion, lightning, earthquake, Comprehensive Civil
Liability and Control of Wells) and will include the insurers'
waiver to its right to surrogate itself, in relation to the
co-insured.
THE CONTRACTOR shall reimburse THE AFFILIATE for any additional
cost to the insurance premiums due to the above, and such costs
shall be recovered as a Capital Cost, as defined in Clause 18
herein.
10.10 THE AFFILIATE shall defend and indemnify THE CONTRACTOR against
any loss or damage to the properties of THE AFFILIATE covered by
the corporate insurance policies of THE AFFILIATE, without
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<PAGE> 41
prejudice to the provisions of Clauses 10.2 and 10.3 above.
10.11 THE AFFILIATE shall defend and indemnify THE CONTRACTOR against
any loss or damage resulting from any action taken by THE
AFFILIATE with its own resources under the circumstances and as
provided in Clause 5.6 of this Agreement,
10.12 THE CONTRACTOR may carry, under terms and with insurance
companies satisfactory to THE AFFILIATE, the following insurance
policies during the term of this Agreement:
a) All Risk Construction.
b) Properties.
c) Insurance on Wells Control, including:
- Cost of Control (including the cost of control of
underground blowout)
- Redrilling Expenses
- Extraordinary Redrilling Expenses
- Expenses for Making Well Safe
- Expenses for Preparing and Conditioning
- Deliberate Well Firing
- Clean-up, Containment and Pollution
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<PAGE> 42
The amounts to be covered under the insurance policies shall be
equal to the applicable deductibles under the policies referred
to in Clauses 10.9 and 10.10 hereunder and in accordance with the
variations they suffer from time to time. Furthermore, it may
carry insurance for the excess if it considers it convenient.
THE CONTRACTOR may take out, additionally, other insurance
policies which it considers convenient in relation with the
Operating Services. The premiums of said policies will be
considered as Capital Costs if they are approved as part of the
Budget included in the corresponding Work Program.
10.13 THE CONTRACTOR shall further carry and maintain the following
insurance policies under terms and with insurance companies
satisfactory to THE AFFILIATE during the term of this Agreement:
a) Motor Vehicles Liability Insurance covering motor vehicles
owned, leased or used by THE CONTRACTOR, in accordance with
Venezuelan legislation.
b) Workers' Compensation and Employer's Liability Insurance
covering the obligations of THE CONTRACTOR with respect to its
personnel.
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<PAGE> 43
c) Any other insurance policy as THE AFFILIATE may require from
time to time according to its corporate policies or the nature
and location of the Operating Services.
d) Third Party Liability Insurance, including death or injury to
persons and accidents and/or damages to the property,
including properties of THE AFFILIATE.
The amounts to be covered by the insurance policies shall be
determined as part of the annual Budget included in the
corresponding Work Program approved by THE AFFILIATE.
10.14 The insurance policies carried and maintained by THE CONTRACTOR
referred to in Clauses 10.12 and 10.13 shall name THE AFFILIATE
and Petroleos de Venezuela, S.A. as co-insured and include a
waiver of the rights of the insurer to subrogation in relation to
the co-insured.
THE CONTRACTOR shall provide THE AFFILIATE with certificates or
other documentary evidence showing that such insurance is
maintained as required hereunder and that the premiums thereof
have been duly paid.
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<PAGE> 44
10.15 Except as otherwise expressly provided in this Clause 10, the
obligations of THE CONTRACTOR hereunder shall not be restricted,
limited nor altered by any provision, stipulation or arrangement
with respect to the insurance policies, deductible or limitation
of insurance coverage, nor by any approval of the insurance
policies by THE AFFILIATE.
10.16 THE CONTRACTOR shall obtain and furnish a guaranty issued by a
bank or insurance company satisfactory to THE AFFILIATE, to
guaranty the proper performance by THE CONTRACTOR of all the
legal obligations towards employees. Such guaranty shall be in
accordance with the format to be furnished by THE AFFILIATE and
cover the amount to be determined by THE AFFILIATE prior to the
Starting Date of Operations and shall be in force, through annual
renewals, as from the Starting Date of Operations until fourteen
(14) months after the termination of this Agreement.
10.17 Except as otherwise provided in the second paragraph of Clause
10.9 and the insurance premiums as determined in the annual
Budget approved by THE AFFILIATE, any cost, expense or debt that
may arise according to this Clause 10 may not be recovered by THE
CONTRACTOR as part of the Capital Cost.
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<PAGE> 45
10.18 Neither Party shall be liable before the other for indirect
damages or lost profits resulting from the breach of their
respective obligations hereunder.
10.19 For the purposes set forth in Clauses 10.9, 10.10, 10.12, 10.13,
and 10.20, the deductibles and maximum coverage amounts in force
as of the Effective Date of the Agreement are specified
hereafter:
<TABLE>
<CAPTION>
DEDUCTIBLES MAXIMUM COVERAGE
(U.S.$) AMOUNT (U.S.$)
----------- ----------------
<S> <C> <C>
Properties *
- - Fire and other *
- - Earthquake *
- - Sabotage and Terrorism *
- - Removal of Debris *
- - Extinction Expenses *
- - Clean Expenses *
Third Party Comprehensive
Liability * *
Control of Wells * *
Construction Risk
- - Construction per
Contract * *
- - Third Party Liability * *
- - Other Adjacent
Properties * *
- - Transportation * *
</TABLE>
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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<PAGE> 46
The above amounts are subject to modification. THE AFFILIATE will
notify THE CONTRACTOR, in writing, the modifications to such
amounts.
10.20 THE CONTRACTOR and/or its subcontractors and/or Associated
Companies shall be responsible for losses and damages, up to the
[amount of] the deductible of THE AFFILIATE's corporate insurance
policies. THE CONTRACTOR and/or its subcontractors and/or
Associated Companies may exonerate themselves of responsibility
for payment of losses or damages that exceed the coverage of such
policies, provided they demonstrate they acted diligently. Any
other losses or damages not covered by the policies mentioned in
this clause will be indemnified in accordance with applicable
law.
10.21 The provisions of this Clause 10 concern the relationship between
the Parties, and they have been agreed without prejudice to the
rights and obligations of each Party with respect to third
parties.
11. PROPERTY
11.1 THE AFFILIATE shall obtain exclusive title to every operating
facility, goods and/or equipment which is a Capital Cost used by
THE CONTRACTOR to perform the
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<PAGE> 47
activities hereunder, except any such real property located
outside the Agreement Area, or movables located either inside or
outside the Agreement Area, provided that THE AFFILIATE shall
have specifically authorized THE CONTRACTOR or its
subcontractors to retain title to such property, for reasons of
economy or practical convenience.
Notwithstanding the above, THE CONTRACTOR and its subcontractors
thereof shall retain title to any movables introduced in the
Agreement Area by THE CONTRACTOR to be temporarily used or for a
specific temporary purpose.
11.2 THE CONTRACTOR shall include in the Work Programs and shall
submit to the approval of THE AFFILIATE the leasing plans of the
movables and real property which qualify as Capital Costs and
are required for the performance of the activities hereunder, as
well as the justification thereof. THE AFFILIATE reserves the
right to approve or disapprove such request.
11.3 The ownership of any technology and/or know-how, whether
patented or not, as THE CONTRACTOR may specifically develop
during the performance of the Operating Services shall be common
to THE AFFILIATE and THE CONTRACTOR. Notwithstanding such
common ownership, both THE AFFILIATE and THE CONTRACTOR and
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<PAGE> 48
their Associated Companies shall have the right to use such
technology in their own operations at no cost to them. All the
information concerning the technology and/or know-how shall be
delivered to THE AFFILIATE by THE CONTRACTOR.
Any disclosure of such technology or know-how to a third party
other than the Associated Companies of THE AFFILIATE and THE
CONTRACTOR, whether for a consideration or not, shall be subject
to THE CONTRACTOR and THE AFFILIATE entering into a previous
written agreement for such purpose.
12. ARBITRATION
12.1 Any dispute or controversy related to this Agreement that the
Parties cannot settle shall be finally resolved through
arbitration in the City of Caracas, Venezuela.
12.2 The arbitration board shall be conformed by three (3)
arbitrators. Each Party will appoint one (1) arbitrator, who
will jointly appoint the third arbitrator within thirty (30)
Days from the appointment of the second arbitrator. The
arbitration shall be awarded pursuant to the Applicable Law, but
the process shall be governed by
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<PAGE> 49
the Rules of the International Chamber of Commerce ("ICC") in
force on the Effective Date.
12.3 The provisions of this Clause 12 will survive the termination of
this Agreement.
13. EMPLOYMENT AND TRAINING OF PERSONNEL
13.1 THE CONTRACTOR shall obtain, hire, pay and maintain all the
supervisory and administrative personnel, all the skilled and
non-skilled labor, including any personnel hired abroad, as is
necessary to perform the Operating Services. THE CONTRACTOR
shall only hire persons who are physically and mentally fit and
technically competent. As soon as the personnel is hired, THE
CONTRACTOR shall be responsible for the transportation thereof
from the point of origin to the locations of the Operating
Services in Venezuela. THE CONTRACTOR shall further be
responsible for the return transportation of such personnel to
the points of origin. THE CONTRACTOR shall pay all the expenses
related to such personnel, including, but not limited to, any
expense incurred in obtaining the passport, visa and solvency;
hiring expenses; transportation costs and travel expenses. THE
AFFILIATE shall not be responsible for providing housing, goods
or services for the performance of the Operating
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<PAGE> 50
Services to THE CONTRACTOR, its contractors or its
subcontractors.
13.2 THE CONTRACTOR agrees to hire qualified personnel for its
operations, and, once Production begins, it shall undertake the
training of Venezuelan personnel required to fill in labor and
staff positions, including administrative and management
executive positions.
13.3 Costs and expenses incurred in the training of personnel outside
the regular scope of operations shall be included in Capital
Costs, provided that the adequate provisions shall have been
made in the Work Program.
13.4 THE CONTRACTOR is bound to protect, defend and indemnify THE
AFFILIATE against any claim, demand, damage, obligation, cost
and expenses whatsoever resulting or derived from the labor or
work contracts of THE CONTRACTOR, or from any applicable law,
decree or regulation, pertinent or related to such employment,
or the breach of such contracts, laws, decrees or regulations.
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<PAGE> 51
14. ACCELERATED TERMINATION
If at any time after completing the Minimum Work Program for the first
thirty-six (36) months of the Agreement THE CONTRACTOR were to find
evidence of no Crude Oil in the Agreement Area, or that the potential
Crude Oil bearing formations as exist or as are likely to be found are not
capable of commercial production because of the possible investment or
necessary expenses required to undertake such exploitation, THE CONTRACTOR
may request THE AFFILIATE, in writing, to approve the accelerated
termination of this Agreement within sixty (60) Days following the date of
such request.
All the data and information as THE CONTRACTOR may produce to support its
claim that the Agreement Area is not susceptible to Production must be
attached to the request.
Furthermore, THE CONTRACTOR shall promptly provide any additional data and
information as may be required by THE AFFILIATE to better support the
claim of THE CONTRACTOR.
Any refusal by THE AFFILIATE to approve the termination of the Agreement
under these conditions may not be unreasonable.
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<PAGE> 52
15. ACCOUNTING AND AUDITS
15.1 All the books and records of THE CONTRACTOR pertinent to the
operations hereunder shall be kept on a calendar-year basis, abide
by the Applicable Law and be available to be audited by THE
AFFILIATE, subject to prior ten (10) Day advance notice.
THE CONTRACTOR must further comply with any reasonable special
instructions or requirements concerning the operations hereunder
as are indicated by THE AFFILIATE with relation to the books and
records thereof and the invoicing processes, budget and
preparation of financial statements.
15.2 Any time during the term of this Agreement, subject to prior ten
(10) Day advance notice, THE AFFILIATE shall have the right to
inspect and audit all the books and accounting of THE CONTRACTOR,
with respect to any Agreement Year, within five (5) years
following the end of such Agreement Year, whether directly or
through independent accountants specifically engaged for that
purpose. THE CONTRACTOR shall include in every subcontract
entered into with respect to this Agreement provisions granting
THE AFFILIATE the same auditing rights as are granted hereunder.
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<PAGE> 53
THE CONTRACTOR shall keep and have available to THE AFFILIATE all
the books, records and papers and shall cause its subcontractors
to keep any such records, papers and books as are related to all
the activities hereunder, so that THE AFFILIATE may exercise the
rights granted hereinabove.
16. ASSIGNMENT
16.1 Neither Party shall have the right to assign or delegate their
rights or obligations hereunder without previous consent in
writing from the other Party, except that:
a) Either Party may execute such assignment or delegation to an
Associated Company, provided that the assignor or delegating
Party shall remain responsible for the proper and correct
performance of its obligations hereunder.
b) THE CONTRACTOR may subcontract any part of its operations or
activities hereunder, provided that the subcontracts shall be
subject to reasonable market conditions and shall be awarded to
subcontractors who are technically and financially reliable.
THE CONTRACTOR shall further be responsible for the performance
of
- 53 -
<PAGE> 54
such subcontractors as if the activities were performed by THE
CONTRACTOR itself.
16.2 Unless otherwise agreed upon by the Parties, any subcontract
referring to Capital Costs that in the aggregate exceeds the
amount of * of the United States
(U.S.$ * ) or an equivalent amount in any other currency
shall be subject to a previous written consent by THE AFFILIATE.
16.3 Except when duly justified for economic and technical reasons, THE
CONTRACTOR shall award all subcontracts referred to in Clause
18.8 on the basis of a competitive process of selection. To such
purpose, THE AFFILIATE and THE CONTRACTOR shall establish within
three (3) months following the Effective Date the documents
containing the subcontracting, operating, accounting and
invoicing procedures that are necessary for the adequate
performance of this Agreement.
17. OTHER PROVISIONS
17.1 Every notice required or given by either Party to the other shall
be deemed to have been received when delivered in writing at the
address of the addressee.
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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<PAGE> 55
Any such notices shall be address to:
THE CONTRACTOR THE AFFILIATE
COMPANIA OCCIDENTAL DE MARAVEN, S.A.
HIDROCARBUROS, INC. Av. La Estancia
Av. Francisco de Miranda Edif. Maraven
Edif. EASO, Mezzanina-Ofic. A Chuao, CARACAS 1060
Chacaito, CARACAS, 1050 Venezuela
Venezuela Attn.: Gerente de
Attn.: Gerente General Exploracion
y Produccion
Either Party may substitute or change the address upon written
notice to the other Party.
17.2 Considering the characteristics and nature of the Operating
Services to be performed hereunder, the provisions set forth in
Decree No. 1821 dated August 30, 1991, shall not apply to this
Agreement. Therefore, every term and condition established herein
shall be considered to be special contracting condition for the
purposes of the above-mentioned Decree No. 1821.
17.3 Without prejudice to the obligations of THE CONTRACTOR provided in
Clause 10 herein, any fault or delay by either Party in the
fulfillment of their obligations or duties hereunder shall be
excused only to the extent attributable to Force Majeure.
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<PAGE> 56
17.4 In the event the operations were delayed, restricted or prevented
by reason of Force Majeure, the term of this Agreement and every
right and obligation hereunder shall be extended for a period of
time equal to the period affected by the Force Majeure, up to a
maximum of five (5) years.
17.5 The Party whose ability to comply with its obligations is so
affected shall notify the other Party in writing, indicating the
cause, and both Parties shall exercise their reasonable endeavors
to cease or mitigate the effects of such cause, as the case may
be.
17.6 Except as otherwise provided hereunder, the agreements and pacts
established in Clauses 6.3, 6.8, 6.9, 6.11, 6.14, the
confidentiality obligations set forth in Clause 6.19 and any such
agreements and pacts as are provided in Clauses 10.1, 10.2, 10.3,
10.4, 10.5, 10.6, 10.7, 10.8, 10.16, 11.3 and 15.2 shall survive
the termination of this Agreement in relation with information
received or events which occurred during the term thereof, until
they are completely satisfied as provided therein.
17.7 No provision in this Agreement shall constitute THE CONTRACTOR, or
any of its employees, sub-contractors, or agents, an agent,
representative or employee of
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<PAGE> 57
THE AFFILIATE. THE CONTRACTOR shall be an independent contractor
and shall be responsible for and have the control over the details
and means for performing the Work Program. Any provision herein
granting THE AFFILIATE the right to direct THE CONTRACTOR as to
the details of the performance of the work or to exercise a
control mechanism over THE CONTRACTOR shall not be construed to
reduce or release the obligations of THE CONTRACTOR hereunder.
THE CONTRACTOR is an autonomous company, and its personnel is
hired for its exclusive account. As the employer, THE CONTRACTOR
is solely responsible for the performance of the obligations
assumed towards its personnel by virtue of the Labor Organic Law
and the regulations thereof, the Social Security Law and the
regulations thereof, the INCE Law and the regulations thereof and
any other law, regulation, decree, resolution or order passed by
the competent authority, and by virtue of the individual or
collective contracts entered into with its personnel. Should THE
AFFILIATE be forced to pay an amount of money for any concept, by
virtue of a claim filed by any worker of THE CONTRACTOR before the
judicial authorities or labor administrative authorities or other,
or by professional associations, unions or by third parties,
whether Venezuelan or foreigner against THE CONTRACTOR and/or THE
AFFILIATE, THE
- 57 -
<PAGE> 58
CONTRACTOR shall immediately reimburse THE AFFILIATE every such
payment. THE AFFILIATE is authorized by THE CONTRACTOR to deduct
such amount from any amount as may be owed by THE CONTRACTOR to
THE AFFILIATE.
It is agreed by the Parties that THE CONTRACTOR shall be
responsible for settling, under acceptable terms and at its own
discretion, any strike or act planned by the workers of the
CONTRACTOR, provided that such situation shall not affect THE
AFFILIATE or the Venezuelan Oil Industry, and, in such event, THE
AFFILIATE and THE CONTRACTOR shall jointly seek solutions to
remedy the situation as soon as possible.
17.8 It is the intention of the Parties that common reservoirs that may
exist in the Agreement Area and other adjacent areas be the
subject of unified extraction agreements. The Parties will
dedicate their efforts to achieve such agreements.
18. ACCOUNTING PROCEDURES
18.1 The following provisions set forth to implement the payment of
fees between THE CONTRACTOR and THE AFFILIATE are solely and only
for the purpose of calculating the fees of THE CONTRACTOR. Both
THE AFFILIATE and THE CONTRACTOR shall be responsible for
- 58 -
<PAGE> 59
the Venezuelan taxes pursuant to the Venezuelan tax laws in force,
and nothing in this Clause 18 shall be construed in any way to be
contrary to such laws and regulations.
18.2 Definitions: The provisions of this Clause 18 shall be followed
and observed in the compliance of the obligations of each Party
hereunder. The definition and terms in this Clause 18 shall have
the meanings herein indicated.
18.3 Accounting and Records: The records and accounting books of THE
CONTRACTOR shall be kept according to accounting systems generally
accepted and recognized, consistent with the current practices and
procedures of the oil industry (PDVSA and its Affiliates) and
according to the Venezuelan practice.
In the event of any inconsistency or doubt between the accounting
systems and practices generally accepted and the current
procedures of the oil industry, the Parties must solve them by
mutual agreement taking into consideration the Accounting Norms
and Procedures from PDVSA which have been notified to THE
CONTRACTOR. THE CONTRACTOR shall organize and prepare reports for
the use of THE AFFILIATE in the performance of its
responsibilities hereunder.
- 59 -
<PAGE> 60
18.4 Non-Capital Costs: Non-Capital Costs are those reasonable and
necessary expenses actually incurred by THE CONTRACTOR, related to
the current year operations, provided that they are included as
Non-Capital Costs in the pertinent Budget.
The Non-Capital Costs include, but are not limited to, the
following:
a) Labor, materials and services used in daily oil operations,
including field facilities operations, secondary and tertiary
recovery and other enhanced recovery operations, storage,
handling, hauling and processing operations, measurement, and
other operational activities, including surface and
subsurface equipment repair and maintenance.
b) Office, services and general administration of main and
field offices in Venezuela, general services, including
technical and related services, tangible services, hauling,
lease of special or heavy equipment, personnel expenses,
public relations and any other expenses incurred abroad which
do not qualify as a Capital Cost in accordance with this
Agreement.
- 60 -
<PAGE> 61
c) Auxiliary or temporary facilities having less than one (1)
year of [useful] life.
d) Every technical or managerial cost other than those
specifically covered in Clause 18.5.
18.5 Capital Costs: Capital Costs are those reasonable and necessary
disbursements actually made by THE CONTRACTOR for items that
normally have a useful life beyond the year they are incurred,
provided they are included in the pertinent Budget as Capital
Costs and, further provided, in the case of equipment and/or
facilities, that they already be located in the Agreement Area.
The Capital Costs include, but are not limited to, the
classification described herein:
a) Drilling of wells: all tangible and intangible costs for
drilling of wells, including drilling of test, delineation,
[and] injection wells, as well as the initial construction of
access roads leading to the wells.
b) Rehabilitation of wells: All the tangible and intangible costs
for the rehabilitation of wells, including redrilling or
recompletion of wells, initial installation of artificial
- 61 -
<PAGE> 62
lifting equipment, changes of producing intervals, initial
gravel packing, stimulations and fractures. Every other
rehabilitation shall be considered a Non-Capital Cost.
c) Construction of Service [facilities]: Workshops, energy and
water facilities, warehouses and field roads. Cost of oil
piers and anchorages, treatment plants and equipment, systems
of secondary and/or enhanced recovery, gas plants and steam
systems.
d) Production facilities, including the costs for fuel, hauling
and supplies for construction outside the Agreement Area and
installation in the Agreement Area, and other construction
costs incurred for the erection of platforms and installation
of piping, wellhead equipment, subsurface lifting equipment,
production tubing, sucker rods, surface pumps, flow lines,
gathering equipment, delivery lines and storage facilities,
excluding costs relating to the personnel that will be in
charge of operating such facilities.
e) Equipment: Drilling and surface and subsurface production
tools, equipment and instruments, bares, floating equipment,
automotive equipment,
- 62 -
<PAGE> 63
aircraft, construction equipment, furniture and office
equipment, and miscellaneous equipment.
f) Personnel, materials and services used in aerial, geological,
topographical, geophysical and seismic surveys; core drilling
and other non-routine surveys related to production
maintenance.
g) Certain annual costs, including insurance costs, import duties
related to capital items, any national, state, local or
municipal taxes, other than Venezuelan Income Tax and taxes
which provide tax credits against Venezuelan Income Tax,
certificate of occupancy and rights of way, land or real
property rentals and the costs of any geological or geophysical
information acquired, independent technical studies and
independent reserve estimates reports and training of
Venezuelan labor and professional staff outside the normal
scope of operations.
h) Labor, materials and services associated with Capital
projects, and reasonable amount of spare parts and material
inventory associated with Capital projects.
- 63 -
<PAGE> 64
18.6 Overhead Allocation: No general overhead costs incurred outside
Venezuela shall be included as Capital or Non-Capital Costs. Only
those costs qualifying as Capital Costs and covered by specific
agreements approved by THE AFFILIATE shall be recovered as
Capital Costs.
18.7 Unrecovered Capital Costs and Interests: The Unrecovered Capital
Costs are that portion of the total Capital Costs spent up to
the end of the previous Quarter that, complying with the
conditions established hereunder, have not yet been recovered as
Capital Fees.
The total Unrecovered Capital Costs as of the end of the preceding
Quarter may accrue interest at *
rate corresponding to five (5) working days previous to the
beginning date of the considered Quarter or the previous Friday,
if such date happens to be either a Saturday, Sunday or a holiday
in the United States of America. The referenced rate shall be the
average of the rates provided at 11:00 a.m. (New York time) by the
following banks, Chase Manhattan Bank, Bankers Trust and Bank of
Tokyo. Such interest (hereinafter called "Interest Rate") shall
be paid as provided in Clause 18.12.
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
- 64 -
<PAGE> 65
18.8 Except where inconvenient from the economic and practical point
of view, any agreement with third parties for the acquisition of
capital goods, technical or other services to be considered as
Capital Costs or as Non-Capital Costs prior to the Production Date
shall be awarded on the basis of competitive tenders, always
trying to assure costs not exceeding the prevailing market levels.
In the event that the services or leased equipment were supplied
by Associated Companies of THE CONTRACTOR, only such costs as are
the lower of,
a) the net cost of services rendered or equipment leased for the
Associated Companies of THE CONTRACTOR which provided them; and
b) the standard commercial fee charged by third parties for
supplying such goods and services
will be recognized.
18.9 After establishing the Production Date, THE CONTRACTOR shall
recover all the costs and fees every quarter as set forth in the
terms and conditions herein and as further specified, on the
basis of the volume of Hydrocarbons transferred to THE AFFILIATE
- 65 -
<PAGE> 66
at the Points of Transference, measured in accordance with the
norms ruling the matter.
18.10 All the Costs of THE CONTRACTOR other than Capital and [other
than] Non-Capital Costs prior to the Production Date, including
but not limited to operating costs and fees for the services of
THE CONTRACTOR, may only be recovered through the Operating Fees
("OPFee").
The OPFee shall be calculated according to the Crude Oil
Production delivered to THE AFFILIATE.
If the volume of Crude Oil Production delivered to THE AFFILIATE
is * the OPFee is equal to * .
If the volume of Crude Oil Production delivered to THE AFFILIATE
is * , the OPFee shall be calculated according to
the following formula:
*
If the volume of Crude Oil Production delivered to THE AFFILIATE
is * , the OPFee shall be calculated according to the
following formula:
*
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
- 66 -
<PAGE> 67
WHERE:
*
*
*
*
*
*
*
The OPFee shall be subject to adjustments after the Quarter that
includes the Effective Date hereof as follows:
As of the Quarter following the one that includes the Effective
Date hereof, the "$/Barrel OPFee" of THE CONTRACTOR shall be
adjusted for inflation every Quarter, so that the OPFee shall
reflect an adjusted value every succeeding Quarter.
The inflation adjusted $/Barrel OPFee formula shall be determined
according to the following formula:
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
- 67 -
<PAGE> 68
*
*
*
*
*
*
- ----------------
(*) The inflation index applicable in determining the OPFee adjusted
for any Quarter after the first Quarter subsequent to the Effective Date
hereof shall be the "Special Index-Energy" (unadjusted) of the "Consumer
Price Index" for all "Urban Consumers" (CPI-U), United States City Average
(based period 1982-1984 = 100) of the "Summary Data from the Consumer Price
Index News Release" as published every month by the "United States
Department of Labor Statistics, Washington, D.C. 20212."
Should the inflation index, as indicated every month in the "News Release"
described above suffer corrections at any time after its publication and
utilization for OPFee adjustments, a suitable reconciliation to the invoices
of the following Quarter shall be applied.
Should the index of the base period (1982-1984 = 100) be revised, it must be
clear that the intent of this indexing provision is to adjust the OPFee in
proportion to the average price level in the Previous Quarter to the Quarter
being invoiced, by using the information of the three (3) months of the
Current Quarter and that of the three (3) months of the Previous Quarter.
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
- 68 -
<PAGE> 69
The procedures hereinabove described shall be applied subsequent
to the Effective Date hereof.
18.11 Capital Costs (and Non-Capital Costs prior to the Production Date,
that by definition are Capital Costs), shall be recovered as
Capital Fees (CFee). It being understood that Capital Fees (CFee)
[are the] cumulative recovery of Capital Costs accounted for up to
the end of the Quarter being invoiced, calculated by the straight-
line method over ten (10) years. It is understood that, under no
circumstances, the compensation formula herein established will
give rise to a double recovery of any Capital Cost.
The Capital Costs incurred after the tenth (10th) Year of the
Agreement shall be recovered by the straight-line method, during
the remainder of the time the Agreement is in force, provided
that the Maximum Total Fee ("MTF") so permits.
The recovery of the CFee for Capital and Non-Capital Costs prior
to the Production Date shall be calculated as of the Production
Date.
18.12 The interest referred to in Clause 18.7 may be charged and
recovered as part of Capital Costs and
- 69 -
<PAGE> 70
Non-Capital Costs in the aggregate of Unrecovered Capital Costs,
as follows:
*
*
*
*
No interests on the Capital Costs prior to the Production Date
shall be accrued nor paid. Even though the interests shall be
treated as part of the Capital Costs in the recovery process, no
interests shall be accrued by such interests.
18.13 The total compensation to be received by THE CONTRACTOR in any
Quarter, as set forth in Clauses 18.10, 18.11 and 18.12 shall not
exceed the amount of $/bbl equal to the Maximum Total Fee (MTF)
adjusted as established below.
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
- 70 -
<PAGE> 71
The initial Maximum Total Fee (MTF) payable by THE AFFILIATE in
any Quarter shall be * US$/Bbl adjusted according to the
following paragraphs:
The Maximum Total Fee (MTF) payable by THE AFFILIATE in any
Quarter shall be subject to indexation so that the adjusted value
shall be reflected by the MTF for the subsequent Quarters. Such
indexation adjustment shall be based on the variation upwards or
downwards in the Price of a Basket of Products ("PCP") applicable
to light, medium or heavy crudes, as corresponding in accordance
with the gravity of the Hydrocarbons delivered to THE AFFILIATE,
according to the price formulas stated below:
LIGHT CRUDE is the one the gravity of which is higher or equal to
30 degrees API,
MEDIUM CRUDE is the one the gravity of which ranges between 21.9
degrees and 29.9 degrees API,
HEAVY CRUDE is the one the gravity of which is lower than 21.9
degrees API.
The PCP for LIGHT CRUDES shall be calculated according to the
following formula:
*
* Confidential portion has been omitted pursuant to a request
for confidential treatment and filed separately with the
Commission.
- 71 -
<PAGE> 72
The PCP for MEDIUM CRUDES shall be calculated according to the
following formula:
*
The PPB for HEAVY CRUDES shall be calculated according to the
following formula:
*
*
Should any of the components of the basket of products not be
published on a routine basis, or should an anomalous quotation
appear, the Parties shall meet to agree upon a revised Basket of
Products in order to determine the indexation of the Maximum Total
Fee.
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
- 72 -
<PAGE> 73
The initial Maximum Total Fee (MTF) as specified above shall
be adjusted according to the formula stated below, so that, to
adjust the MTF, the first Current Quarter shall be the first
Quarter of 1993 and the first Previous Quarter shall be the fourth
Quarter of 1992, so that each succeeding Quarter reflects the
adjusted level:
*
WHERE:
*
*
*
*
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
- 73 -
<PAGE> 74
18.14 Any unrecovered Capital Fee (CFee) because of limitations of the
Maximum Total Fee (MTF) in any Quarter, may be carried forward for
a later recovery during the term of this Agreement; provided that
this is allowed by the adjusted Maximum Total Fee (MTF).
Any unrecovered Operations Fee because of limitations of the
Maximum Total Fee (MTF) in any Quarter, may be carried forward for
a later recovery during the term of this Agreement, provided that
this is allowed by the adjusted Maximum Total Fee. These
Operating Fees carried forward shall not accrue interests nor
shall they be subject to an inflation indexing adjustment.
In any Quarter, THE CONTRACTOR shall first recover the current
Operating Fees and the previous unrecovered Operating Fees,
followed by any current interest and the previous unrecovered
interests, and finally, the current Capital Fees and the previous
unrecovered Capital Fees to the extent allowed by the prevailing
Maximum Total Fee (MTF).
18.15 Natural Gas Transferences: If no alternate agreement between THE
CONTRACTOR and THE AFFILIATE has been reached, one (1) barrel of
Crude Oil for each 39,600 standard cubic feet of Natural Gas,
measured at 14.7 lpc and 60 degrees F delivered to THE AFFILIATE,
as set forth
- 74 -
<PAGE> 75
in Clause 7.7 hereof shall be credited to THE CONTRACTOR as
delivered to THE AFFILIATE.
18.16 Inspection Points: In the event an inspection were necessary to
meet the requirements and regulations on Hydrocarbons production
in the area as established by the Ministry of Energy and Mines, at
one or more points inside or near the Agreement Area, such
inspection shall constitute no transference of Hydrocarbons nor
indicate acceptance of the custody by THE AFFILIATE. This custody
will be accepted only at the Crude Oil and/or Natural Gas
Transference Points and under the terms hereunder.
18.17 Incentive for Production Increment: THE AFFILIATE agrees to pay to
THE CONTRACTOR * Dollars of the United States of America per
barrel (US$*/Bl), for each barrel of Hydrocarbons produced and
delivered to THE AFFILIATE, above the level established by THE
AFFILIATE, which hereinafter shall be considered accumulated
production. This incentive is additional to the Operating Fee and
Capital Fee and independent from the Maximum Total Fee (MTF), and
shall be payable as set forth in Clause 9.2.
Said incentive shall be subject to indexing following the same
procedure established for the Maximum Total Fee ("MTF"), according
to Subclause 18.13 above.
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
- 75 -
<PAGE> 76
<TABLE>
<CAPTION>
ACCUMULATED PRODUCTION INCENTIVE
(MMBls) (US$/Bl)
<S> <C>
52.0 *
</TABLE>
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
19. TERM AND APPLICABLE LAW
19.1 This Agreement shall be in force as of the Effective Date.
19.2 This Agreement shall be construed and governed by the Laws of the
Republic of Venezuela, which are defined in Clause 2.29 as the
Applicable Law.
19.3 This Agreement shall not be amended nor modified in any way except
by mutual agreement in writing of the Parties.
19.4 In witness whereof, the Parties have signed two (2) identical
copies of this Agreement, in the City of Caracas, on the
nineteenth (19th) day of the month of November, 1993.
By THE AFFILIATE By THE CONTRACTOR
(Signed) (Signed)
- -------------------------- --------------------------
Eduardo Lopez Quevedo Joseph F. Snape
President President
- 76 -
<PAGE> 77
APPENDIX "A"
DESCRIPTION OF AGREEMENT AREA
AREA
The area of the agreement is located in the State of Zulia, comprises 391,973.51
hectares and is included within the area which corners are defined by U.T.M.
coordinates as indicated in the map included as Appendix "B".
TRANSFER POINTS AND CONDITIONS OF TRANSFER
<TABLE>
<CAPTION>
TRANSFER POINT CONDITION
-------------- ---------
<S> <C>
Crude oil
Alpuf Flow Station for the Stabilized crude with less
Alturitas, San Julian, San than 0.5% BS&W 23-30 degrees API.
Jose, Machiques, Totumos,
and Alpuf fields.
Garcia Urdaneta Plant for Stabilized crude with less
the Garcia Urdaneta field. than 0.5% BS&W 23-30 degrees API.
Natural Gas
Alpuf Flow Station for the Less than 20 ppm of H(2)S.
Alturitas, San Julian, San
Jose, Machiques, Totumos,
and Alpuf fields.
Garcia Urdaneta Plant for Less than 20 ppm of H(2)S.
the Garcia Urdaneta field.
The Affiliate accepts to
receive all the available
treated Natural Gas.
</TABLE>
A - 1
<PAGE> 78
OPERATORSHIP CONDITIONS
The Contractor will be responsible for the construction, operation and
maintenance of all necessary production, separation, measurement, treating,
storage, dehydration, and disposal facilities in order to transport the crude to
the transfer points.
While the construction of the Alpuf Flow Station is in progress (6 months
maximum), the Parties will agree, in writing, the dehydration costs in Punta de
Palmas and other basic services which Maraven will charge the Contractor.
A - 2
<PAGE> 79
APPENDIX "B"
MAP OF AGREEMENT AREA
B - 1
<PAGE> 80
APPENDIX "C"
MINIMUM WORK PROGRAM AGREED UPON
<TABLE>
<CAPTION>
ACTIVITIES 1st YEAR 2nd YEAR 3rd YEAR TOTAL
- ---------- -------- -------- -------- -----
<S> <C> <C> <C> <C>
* * * *
* * * * *
* * * * *
* * * * *
* * *
*
* * *
* * *
* *
* *
* * *
* * *
* * *
* * *
* *
* * * * *
* * * *
</TABLE>
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
C - 1
<PAGE> 81
Service to wells consists of hydraulic pump/ESP change outs. Rehabilitation to
Wells consists of asphaltene/restimulation jobs. Technical advising includes
VSD/ESP consultants. All others will be inhouse staff.
<TABLE>
<CAPTION>
MM $
--------------------------------------------------------------
ACTIVITIES 1st YEAR 2nd YEAR 3rd YEAR TOTAL
- ---------- -------- -------- -------- -----
<S> <C> <C> <C> <C>
CAPITAL
* * * * *
* * * * *
* * * * *
* * * * *
*
*
*
* * * * *
* * * * *
*
*
* * *
</TABLE>
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
C - 2
<PAGE> 82
<TABLE>
<CAPTION>
MM $
--------------------------------------------------------------
ACTIVITIES 1st YEAR 2nd YEAR 3rd YEAR TOTAL
- ---------- -------- -------- -------- -----
CAPITAL (cont.)
- ---------------
<S> <C> <C> <C> <C>
* * * * *
* * * * *
Subtotal * * * *
EXPENDITURES
- ------------
* * * * *
* * * * *
* * * * *
* * * * *
* * * * *
* * * * *
* * * * *
* * * * *
* * * * *
-------- -------- -------- ------
Subtotal * * * *
-------- -------- -------- ------
TOTAL * * * *
</TABLE>
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
C - 3
<PAGE> 83
APPENDIX "D"
FORM OF THE IRREVOCABLE GUARANTY FOR THE
GUARANTEED PORTION OF THE WORK PROGRAM
FOR THE FIRST THIRTY-SIX (36) MONTHS
FROM: BANK
TO: THE AFFILIATE
We hereby establish our irrevocable "Stand-By" Letter of Credit No. ________ in
favor of Maraven S.A. ("THE AFFILIATE"), for the account of (Name and address
of THE CONTRACTOR) up to a total amount of U.S.$_____________ to secure the
satisfactory performance of the Minimum Work Program obligations of (Name of THE
CONTRACTOR), as provided in the Operating Services Agreement for (Area Name)
entered into by (THE CONTRACTOR) and (THE AFFILIATE) on (Date of Execution).
TERMS
I. This "Stand-By" Letter of Credit is available for payment at sight by us,
against submission of a tested telex advising bank, stating that the
advising bank has received a certificate or tested telex from THE AFFILIATE
stating:
QUOTE
(1) We demand payment for U.S.$(to be indicated by THE AFFILIATE) since
(Name of THE CONTRACTOR) has defaulted its obligations within the
Minimum Work Program, as provided in the Operating Services Agreement
for (Area Name) entered into between (THE CONTRACTOR) and ourselves on
(date of execution).
(2) The amount demanded hereby represents the overdue obligations of THE
CONTRACTOR, according to the aforementioned Agreement.
UNQUOTE
II. The amount under this "Stand-By" Letter of Credit shall be reduced in such
amounts as are to be indicated by (THE AFFILIATE) at the end of each
calendar quarter from the date on which this "Stand-By" Letter of Credit
becomes effective, in accordance with paragraph "C", "Other Conditions,"
below, provided that we (Bank) receive a telex from (THE AFFILIATE),
stating:
QUOTE
We hereby authorize (Bank) to reduce the amount under your "Stand-By"
Letter of Credit No. __________ in an amount equal to U.S.$ (to be
indicated by THE AFFILIATE), that represents the portion of the
obligations already performed by (THE
D - 1
<PAGE> 84
CONTRACTOR), of the Minimum Work Program, as set forth in the Operating
Services Agreement entered into between (THE CONTRACTOR) and ourselves on
(Date of Execution). It is understood that the above-mentioned "Stand-By"
Letter of Credit shall be in force for the remaining balance of U.S.$(to be
inserted).
UNQUOTE
OTHER CONDITIONS
A. We (Bank) are bound by this "Stand-By" Letter of Credit to pay in an
irrevocable and absolute manner to THE AFFILIATE upon submission of the
document mentioned under Condition 1 above.
B. All Bank fees related to this Letter of Credit are for the account of (THE
CONTRACTOR).
C. This Letter of Credit shall be in force for a period of thirty-seven (37)
months as of the Starting Date of Operations, but not later than
________________, ___________, as notified to us through a tested telex by
the advising bank, in which the advising bank states that it has received
from THE AFFILIATE a certificate or tested telex containing the Starting
Date of Operations or a statement indicating that the operations will not
start on the proposed Starting Date of Operations for reasons imputable to
THE CONTRACTOR, in accordance with the form of Annex I.
D. We shall make the payment under the "Stand-By" Letter of Credit in Dollars
of the United States of America upon submission of the document required
and without requesting any evidence or condition concerning the accuracy of
the statements made in such document, and irrespective of whether (THE
CONTRACTOR) has previously filed a bankruptcy, reorganization or delay
procedure.
E. This Credit is subject to the uniform rules and practices for documentary
credits (revision 1983) of the International Chamber of Commerce,
Publication 400, except with respect to Article 19 of such rules.
Thereupon, in the event our activities were interrupted by the reasons
established in said article, we (Bank) are bound to pay on the first
banking day following the interruption of such causes the amount to be
indicated by THE AFFILIATE via telex, as mentioned in Condition 1 above, up
to an amount not to exceed the one indicated in this "Stand-By" Letter of
Credit, if the term of this "Stand-By" Letter of Credit shall have expired
during the interruption of our activities.
F. References to the Operating Services Agreement or to its terms or
conditions are made herein only for identification purposes and such
document is not incorporated to this "Stand-By" Letter of Credit.
D - 2
<PAGE> 85
G. This tested telex is the operative instrument of credit and shall not be
further confirmed by mail.
D - 3
<PAGE> 86
APPENDIX "D"
ANNEX I
STARTING OPERATIONS CERTIFICATE
I, _________________, the bearer of Identity Card No. ________________, acting
on behalf of Maraven S.A., hereby confirm that the Letter of Credit No. _______
issued in our favor for the account of Compania Occidental de Hidrocarburos,
Inc., will become effective on ____________, 199__, because [the Starting
Date of Operations took place on ______________, 199___ (or) the works did not
commence on the proposed Starting Date of Operations for reasons imputable to
THE CONTRACTOR].
In witness whereof, the undersigned subscribed this certificate or authorizes
this tested telex on _________, 199___.
By:
-----------------------------
Maraven S.A.
D - 4
<PAGE> 87
APPENDIX "F"
STARTING OPERATIONS CERTIFICATE
I, ________________, the bearer of Identity Card No. _______________, acting on
behalf of (THE AFFILIATE), party of the first part; and ___________________,
acting an behalf of THE CONTRACTOR, party of the second part, in his capacity as
_______________, hereby confirm, as provided in Clause 2.6 of the Operating
Services Agreement for the Unit ______, entered into between the PARTIES, that
the Operating Services corresponding to the mentioned AGREEMENT will start at
_____ on the _____ day of the month of ____________________ 199____.
In witness whereof, the undersigned subscribed this CERTIFICATE on the _______
day of the month of __________________, 199__.
By THE AFFILIATE By THE CONTRACTOR
- -------------------------------- ---------------------------------
F-1
<PAGE> 88
The undersigned, MARIA ISABEL MARTINEZ GARCIA, Bearer of Venezuelan Identity
Card No. 5.062.225, a Certified Public Interpreter for the English Language of
the Republic of Venezuela, as evidenced by and Official License issued unto her
and published in Official Gazette No. 32686 of March 16th 1983 and registered
at the Main Bureau of Public Registry of Federal District under No. 495, Folio
286, of Protocol 2, Volume 2 on February 24th, 1983 hereby certify that the
attached original document written in Spanish has been submitted to her for
translation and the following is a true English version thereof.
ADDENDUM No. 1
TO THE OPERATING SERVICES AGREEMENT FOR UNIT D.Z.O.
This Addendum No. 1 to the Operation of Services Agreement for Unit DZO
(hereinafter referred to as the "Addendum") has been held and undersigned on
December seventh (7th) 1994 by MARAVEN, S.A.(hereinafter referred to as "THE
SUBSIDIARY"), on one part, represented by its President Mr. Emilio Abouhamad,
duly authorized as per Bylaws of THE SUBSIDIARY and COMPANIA OCCIDENTAL DE
HIDROCARBUROS, INC. on the other (hereinafter referred to as "THE CONTRACTOR"),
corporation organized and existing under the laws of California, USA,
represented by its President and General Manager, Mr. Carlos del Solar, duly
authorized as per power of attorney registered before the
Legend
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
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<PAGE> 89
First Mercantile Registry Office of the Judicial Circumscription of Federal
District and State of Miranda, on May 12, 1994, under No. 58, Volume 3-C PRO:
1. GENERAL PROVISIONS.
1.1. THE SUBSIDIARY AND THE CONTRACTOR undersigned an Operation of
Services Agreement on November 19, 1993 (hereinafter referred to as "THE
AGREEMENT"), under which THE CONTRACTOR operates, under the terms and
conditions therein agreed, the unit DZO (hereinafter referred to as THE UNIT).
1.2. The terms defined on Clause 2 of the Agreement that shall be
used on this Addendum and that are not defined herein, shall have the same
meaning assigned by them on the Agreement. On Article two (2) of this
Addendum, the term "Production of Crude Oil" shall be used with the term
"Production" on Sub clause 2.9 of the Agreement, but referred only to Crude Oil
and not to Natural Gas.
1.3. In compliance with Sub clause 19.3 of the Agreement, the
Parties have decided to undersign this Addendum in order to reflect certain
explanations and amendments to the Agreement consistent with the mutual
intention of the Parties and a more efficient operation of the Unit.
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2. TRANSFERENCE POINT AND CRUDE OIL TRANSPORTATION
2.1 Unless the parties agree the contrary, The Transference Point
of Crude Oil to all fields, with the exception of Garcia Urdaneta, shall be
relocated to Matapalo and the Transference Point of Natural Gas for all fields
shall be relocated to Los Claros. Therefore, THE CONTRACTOR shall be
responsible for any additional expansion, as well as of the operation,
maintenance and repairs of the facilities required for the transportation on
Hidrocarbons in the Agreement Area to the Transference Points.
2.2 In the same manner THE CONTRACTOR agrees to be responsible
for:
i) the construction of a pumping station in Matapalo, in
order to allow the delivery to THE SUBSIDIARY'S crude transportation system,
The Production of Crude Oil in excess to the present capacity of twenty six
thousand barrels per day.
ii) The expansion of the capacity of the transportation
system for the Production of Crude Oil between the Matapalo Station and
Platform PE-2-9, in the event the production exceeds the Transportation
capacity of 40 thousand barrels per day, which is estimated to have that
transportation system, once THE CONTRACTOR builds the pumping station referred
to on the preceding 2.2.(i). The obligation of THE SUBSIDIARY of receiving
the Production of Crude Oil, in excess of 40 thousand barrels per day, shall be
subject to the construction and
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<PAGE> 91
adequate conditions of operations by THE CONTRACTOR, of the referred expansion
to the transportation system between Matapalo Station and Platform PE-2-9.
2.3 The payments incurred by THE CONTRACTOR in fulfillment of the
additional obligations assumed in 2.1 and 2.2 herein shall qualify as Capital
Costs, subject to the conditions stated on Clause 18.5 of the Agreement.
2.4 It is expressly understood that the operation, maintenance and
repair of the transportation system between Matapalo and Platform PE-2-9
referred to in 2.2 (ii) herein shall be of the sole responsibility of THE
SUBSIDIARY, once THE CONTRACTOR constructs it and places it in adequate
operating conditions.
2.5 It is expressly understood that the transportation system THE
CONTRACTOR agrees to expand herein indicated shall be for the exclusive use of
the Production of Unit DZO during the term of the Agreement.
3. REMUNERATION PARAMETERS
3.1 Taking into account the Effective Date and Operations Starting
Date under the Agreement, the Parties agree that the initial Maximum Total Fee
(MTF) of US $*/Barrel (* of the United States of America per
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
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<PAGE> 92
barrel) set forth on sub clause 18.13 of the Agreement, shall be adjusted in
accordance with the formula contained on the same clause, therefore during the
First Trimester in course shall be the First Trimester of 1994 and the previous
First Trimester shall be the fourth Trimester of 1993. For the effect of
adjustment for the Incentive in Production Increase of US $*/Barrel (* of the
United States of America per Barrel) set forth on Sub clause 18.17 of the
Agreement, the first Trimester in course shall continue being the first
Trimester of 1993 and the previous first Trimester shall continue being the
fourth Trimester of 1992. The change made to the Agreement herein was agreed
between the Parties due to commercial and extraordinary causes. The Parties
agree that the reference dates for the Incentive in Production Increase
aforementioned, shall not be the object of any modification in the future.
3.2 The provisions set forth on 3.1 herein shall be effective as
of Effective Date of the Agreement. The remuneration adjustments to THE
CONTRACTOR that shall take place in compliance with this Addendum, shall be
made within thirty (30) days upon reception of the invoice corresponding to the
fourth (4) Trimester of 1994.
4. SECONDARY RECOVERING PROJECT.
4.1 THE CONTRACTOR is bound to execute a secondary recovery
project at Marcelina Oil Field, similar to the secondary case referred to in
the August
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
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<PAGE> 93
1993 offer rendered to THE SUBSIDIARY, as long as the parties determine that
such project is feasible from the technical and economical point of view for
both Parties. During the two (2) years following the execution of this
Addendum THE CONTRACTOR agrees to carry out feasibility studies necessary in
order to make a decision on whether or not to proceed with the referred project
on secondary recovery. In the event such study has been made and the decision
of not to proceed with the referred project on secondary recovery, THE
SUBSIDIARY may request THE CONTRACTOR, when so deemed convenient, that the
above mentioned feasibility studies be updated, updating them and taking the
respective decision, in a term no longer than six (6) months as from the date
the requirement is made in writing to THE SUBSIDIARY. In the event it is
required, the magnitude of the secondary recovery project shall depend on the
performance of Marcelina oil field and of the results of the pilot project of
water injection that THE CONTRACTOR shall carry out as of the first semester
1995. The above mentioned secondary recovery project shall be considered
feasible from the economical point of view for THE CONTRACTOR only if the
internal return rate for THE CONTRACTOR is equal or higher to * per cent
* calculated based on an economic analysis with constant oil prices and
costs not subject to inflation, and at a Product Price Budget equal to the
average of the three (3) Trimesters previous to the date in which the decision
is taken. In the event the Parties do not reach an agreement in relation to
the technical feasibility of the secondary recovery project the decision shall
be referred to an independent oil
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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<PAGE> 94
consulting firm, chosen by mutual consent of the parties. In such case the
professional fees regarding such advise shall be shared by both parties.
4.2. The non fulfillment of the obligations herein set forth on
numeral four (4) from the part of THE CONTRACTOR shall be considered as a
substantial non fulfillment of its obligations, as set forth on Clause 5.8.
of the Agreement.
5. OTHER PROVISIONS
5.1 The parties agree to modify, according to the present
Addendum, the gravity minimum requirement contained on Attachment "A" of the
Agreement in order to allow the delivery of Crude Oil within a range of 22
degrees to 30 degrees API, with the objective of not limiting the production
and development of Marcelina Oil Field.
5.2. The additional activities referred to in this Addendum are
obligatory for THE CONTRACTOR, which shall provide additional amounts that may
result necessary for its execution. Without prejudice of such obligation, the
amount of the minimum installment referred to in Clauses 5.1 and 5.7 of the
Agreement, shall continue to be US $ * .oo.
5.3. The parties agree to modify, according to the present
Addendum, Sub Clause 6.6 of the Agreement, which shall be drafted as follows:
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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"THE CONTRACTOR shall conduct and negotiate on behalf of THE SUBSIDIARY, with
its cooperation and support, the obtantion of any permit and/or right of pass,
and/or right of way to third parties needed so that THE CONTRACTOR reaches the
Agreement Area, or on the premises in order to carry out Operation Services set
forth on the Agreement. THE CONTRACTOR shall inform THE SUBSIDIARY in writing,
with at least two (2) months of Operation among the Agreement Area in
compliance with the Labor Program. Subject to the conditions herein set forth,
only the payments made by THE CONTRACTOR to third parties regarding such
permits and rights, duly sustained with their respective vouchers, shall be
recovered by THE CONTRACTOR as Capital Cost.
All payments made by THE CONTRACTOR to third parties as set forth on Sub Clause
6.6, shall be made previous authorization of THE SUBSIDIARY in writing. THE
SUBSIDIARY, shall communicate in writing and in each case, its approval or
objections within the following fifteen (15) working days upon reception of the
approval request from THE CONTRACTOR. Should THE CONTRACTOR does not receive
written communication from THE SUBSIDIARY, during the above mentioned fifteen
(15) working days term, it shall be understood that such payments have been
authorized.
With the exception of a case of negligence from any of the Parties, any delay
in the Operations Services caused by the delay in the obtation of the terms and
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<PAGE> 96
rights referred to in this sub clause, shall not be considered chargeable to
any of the Parties".
5.4 The parties agree to modify according to the present Addendum,
sub clause 7.9 of the Agreement, which shall be drafted as follows:
"THE SUBSIDIARY shall cooperate with THE CONTRACTOR and shall support the same,
in order to negotiate and complete those agreements with third parties, land
owners and real estate owners among the Area of the Agreement, required in
order to enter the area or other reasonable rights required by THE CONTRACTOR
in order to carry on with the Operation Services herein. Such rights granted
by third parties to THE SUBSIDIARY, shall be extended to THE CONTRACTOR for the
duration of this Agreement. Any other reimbursement or administration costs,
organization and man hour incurred by THE SUBSIDIARY in relation to the
referred support or for the obtainment of the aforementioned rights, shall be
on THE CONTRACTORS account, which shall reimburse them to THE SUBSIDIARY within
the next forty five (45) days upon presentation of vouchers referring those
costs, which in turn shall be recovered by THE CONTRACTOR as Capital Costs".
5.5 The parties agree to clarify, in accordance with the last
paragraph of Sub clause 18.14 of the Agreement, that the interest referred to
on Sub clauses
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<PAGE> 97
18.7 and 18.12 of the Agreement shall be totally charged to and recovered
during each following trimester, as long as the Maximum Total Fee (MTF) so
permits it.
5.6 The parties agree, according to the present Addendum, to
clarify Sub clause 18.10 of the Agreement, which shall be drafted as per terms
set forth on Attachment "A" herein, which is part of the same.
5.7 With the exception of clarifications and amendments to the
Agreement herein made, the Parties ratify and confirm the other terms of the
Agreement.
5.8 This Addendum shall not amend or modified in any aspect, with
the exception of mutual written consent between the Parties.
In witness thereof the Parties have signed two copies of the same tenor and
sole effect, in the city of Caracas, on December seven (7) 1994.
By THE SUBSIDIARY By THE CONTRACTOR
(Signed illegible) By: (Signed illegible) By: Carlos del Solar
Emilio Abouhamad - President President and General Manager
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<PAGE> 98
ATTACHMENT A
OF ADDENDUM No. 1
TO
OPERATION SERVICES AGREEMENT FOR UNIT D.Z.O.
In accordance with what is set forth on Article 5.6 of the Addendum, THE
SUBSIDIARY and THE CONTRACTOR agree to clarify the terms contained on clause
18.10, which shall be drafted as follows:
"18.10 All cost of THE CONTRACTOR, different to Capital Costs and Non
Capitalized Costs previous to the Production Date, included with no limitation,
operations costs and THE CONTRACTOR'S services fees, may be recovered only
through Operations Fee (OPFee).
OPFee shall be subject to adjustments after the Trimester which includes the
Effective Date of this Agreement as follows:
As of the following Trimester of that which includes the Effective Date of the
Agreement the "US$/Barrel OPFee of THE CONTRACTOR shall be adjusted on a
trimester basis due to inflation, in which manner the OPFee in each Following
Trimester reflects the adjusted value.
The formula US$/Barrel OPFee adjusted due to inflation shall be determined in
accordance with the following formula:
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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<PAGE> 99
*
The procedures above described shall be applied subsequently to the Effective
date of this Agreement.
The above resulting amount of OPFee (N) shall be applied to the three following
formulas.
The OPFee shall be calculated according to the Crude Oil Production delivered
to THE SUBSIDIARY.
Formula 1: Should the Crude Oil Production volume delivered to THE
SUBSIDIARY is * .
Formula 2: Should the Crude Oil Production volume delivered to THE
SUBSIDIARY is * , the OPFee shall be calculated
as per the following formula:
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
12
<PAGE> 100
Formula 3: Should the Crude Oil Production Volume delivered to THE
SUBSIDIARY is higher than Po, the OPFee shall be calculated as
per the following formula:
*
*
(*) The applicable inflation index in order to determine OPFee (N) adjusted to
any Trimester after the Trimester containing the Effective Date of this
Agreement shall be the Special Index Energy (unadjusted) from the Consumer
Price Index for all Urban Consumers (CPI-U), United States City Average (base
period 1982 - 1984 = 100) from the Summary Data from the
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
13
<PAGE> 101
Consumer Price Index News Release as published monthly by the United States
Department of Labor Statistics, Washington DC 20212.
Should the Inflation Index, as indicated monthly in News Release above
described suffers corrections at any time after its publication and use for the
adjustments of OPFee (N), the acceptable reconciliation shall be applied in the
following Trimester.
Should the index for the base period (1982 - 1984 = 100) is revised it must be
clear that the intention of this indention provision is made in order to adjust
in proportion the OPFee (N) to the average of price level of IV Trimester 93 in
the Trimester invoiced using the information of three months of the Trimesters
in course and the Information of the three months of the IV Trimester 93":
The foregoing is a faithful translation of the attached document written in
Spanish, which I have made upon request of the interested, not prejudging about
content or form, in Marcaibo, State of Zulia, Republic of Venezuela on November
10th 1997.
/s/ MARIA ISABEL MARTINEZ GARCIA
Maria Isabel Martinez Garcia
Certified Translator for the English Language
14
<PAGE> 1
<TABLE>
<CAPTION>
[NATIONSBANK LOGO] Note# Acct# PROMISSORY NOTE
NationsBank of Texas, N.A. (Single Maturity)
=========================================================================================
<S> <C> <C>
Name and Address of Lender (Including County) Officer Date
NationsBank of Texas, N.A. Paul A. Squires February 4, 1998
700 Louisiana -------------------------------------
Houston, Texas 77002 Maturity Date Amount of Note
May 4, 1998 $130,000,000.00
-------------------------------------
[ ] 1. Fixed Rate of %, or
Annual Rate [ ] 2. Lender's Business Base Rate plus %, or
of Interest (AR): [ ] 3. Lenders Prime Rate plus %, or
(Check and [X] 4. See Below*
Complete one)
---------------------------------------------------------------------
AR Computed Using
360/360 Days per Year
---------------------------------------------------------------------
</TABLE>
Terms used in this Note shall have the meanings indicated herein and in the
boxes above. On demand, or if prior demand is not made then on Maturity Date,
Maker promises to pay to the order of Lender at Lender's address shown above
the Amount of Note plus interest on unpaid Amount of Note from Date at the AR
over the elapsed term of Note provided that the amount of interest payable
shall not exceed the maximum amount Lender lawfully may charge on this Note. If
the AR is stated in terms of Lender's Business Base Rate, Lender's Prime Rate,
or such other variable Rate described under the * below, the AR shall change
with each change in such named Rate as of the date of any such change without
notice. "Lender's Business Base Rate" shall mean the Business Base Rate charged
by Lender as announced or published by Lender from time to time. "Lender's
Prime Rate" shall mean the Prime Interest Rate charged by Lender as announced
or published by Lender from time to time. The two rates may not be related and
either may not be the lowest interest rate charged by Lender. Unpaid and past
due Amount of Note and interest shall bear interest at the highest rate Lender
lawfully may charge on this Note. Interest paid or agreed to be paid shall not
exceed the maximum amount permissible under applicable law and, in any
contingency whatsoever, if Lender shall receive anything of value deemed
interest under applicable law which would exceed the maximum amount of interest
permissible under applicable law, the excessive interest shall be applied to
the reduction of the unpaid Amount of Note or refunded to Maker.
Each Maker, guarantor, surety and endorser waives demand, presentment, notice of
dishonor, protest, notice of intent to accelerate, notice of acceleration and
diligence in collecting sums due hereunder; agrees to application of any debt of
Lender to the payment hereof; agrees that extensions and renewals without limit
as to number, acceptance of any number of partial payments, releases of any
party liable hereon, and releases or substitutions of collateral, before or
after maturity, shall not release or discharge his obligation under this Note;
and agrees to pay in addition to all other sums due hereunder reasonable
attorney's fees if this Note is placed in the hands of an attorney for
collection or if it is collected through probate, bankruptcy, or other judicial
proceeding, plus all court costs and other collection expenses incurred by
Lender. As used herein, where appropriate, the masculine gender includes the
feminine and neuter and the singular number includes the plural. All payments
hereunder shall be made in lawful tender of the United States of America. This
Note is executed in the county and state stated above.
*In accordance with the Letter Agreement between Borrower and Lender dated
February 4, 1998.
Compania Occidental de Hidrocarburos, Inc.
By: LUIS H. DERROTA
----------------------------------------
Title: Vice President & Assistant Secretary
-------------------------------------
Compania Occidental de Hidrocarburos, Inc.
-------------------------------------------
(Maker)
[Compania Occidental de Hidrocarburos,Inc.]
<PAGE> 2
CONFIDENTIAL
February 4, 1998
Compania Occidental de Hidrocarburos, Inc.
c/o Union Texas Petroleum Holdings, Inc.
1330 Post Oak Blvd.
P.O. Box 2120
Houston, Texas 77252-2120
Re: $130,000,000 Loan
Gentlemen:
NationsBank of Texas, N.A. ("NationsBank") has been requested to make a loan in
the amount of $130,000,000 to Compania Occidental de Hidrocarburos, Inc., a
corporation organized under the laws of California ("Borrower") in a single
advance on the date hereof. NationsBank has agreed to make the Loan upon the
following terms and conditions:
1. The Loan shall be evidenced by a Promissory Note in the form of Exhibit A
attached hereto (the "Note").
2. The Loan shall mature and, together with accrued interest, be payable in
full on May 4, 1998. The Loan shall bear interest at the Borrower's
election at (i) a rate equal to the rate (computed on the basis of a year
of 360 days for the actual number of days elapsed, including the first day
but excluding the last day) determined by NationsBank at which deposits are
offered by NationsBank in the London Interbank Eurodollar Market two
business days prior to the date of the Loan for a one-month period in an
amount substantially equal to the Loan plus 50 basis points (the "LIBOR
Rate") or (ii) for terms of 7 days or less a fixed rate of interest
mutually agreed to between the Borrower and NationsBank. If a fixed rate
is not agreed to between the Borrower and NationsBank as provided for above
and any existing interest period has lapsed, the Loan shall bear interest
at a one-month LIBOR Rate (including the 50 basis point margin) set two
business days prior to the end of such expiring one-month period.
3. The Loan shall not be subject to optional prepayment by Borrower.
<PAGE> 3
Compania Occidental de Hidrocarburos, Inc.
February 4, 1998
Page 2
4. It shall be an Event of Default under this letter agreement and the Note in
the event Borrower fails to pay the principal of or accrued interest on the
Loan when due or upon the occurrence of an Event of Default as defined in
that certain Second Amended and Restated Credit Agreement dated as of March
29, 1996 (as heretofore amended or modified, the "Credit Agreement") among
the Guarantor, the lenders party thereto, NationsBank, as Agent, and Bank
of America National Trust and Savings Association and Union Bank of
Switzerland, Houston Agency, as Co-Agents.
5. Borrower hereby represents and warrants to NationsBank as follows
i. The Borrower is a corporation duly organized, validly
existing, and in good standing under the laws of the State of California.
The Borrower is duly qualified and authorized to do business and is in good
standing in California.
ii. The Borrower has all corporate power, permits and other
authorizations required to own and operate its properties and to carry on
its business as now conducted by it.
iii. The execution and delivery of this Agreement and the Note,
the consummation of the transactions and the execution and delivery of the
instruments contemplated hereby, and the fulfillment of the terms and
compliance with the provisions hereof and thereof will not result in any
violation or breach of any provisions of, or constitute a default under,
the Borrower's Certificate of Incorporation or bylaws.
6. As a condition precedent to NationsBank agreeing to make the Loan to
Borrower, Union Texas Petroleum Holdings, Inc. shall agree to guaranty the
Loan and shall cause its duly authorized representatives to execute a
Guaranty Agreement in substantially the form of Exhibit B attached hereto
to NationsBank, together with such authorizing resolutions and certificates
of incumbency and specimen signatures of the signing officers as
NationsBank may reasonably request.
7. THE WRITTEN LOAN AGREEMENT AND THE NOTE REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR
<PAGE> 4
Compania Occidental de Hidrocarburos, Inc.
February 4, 1998
Page 3
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Very truly yours,
NATIONSBANK OF TEXAS, N.A.
By: /s/ PAUL SQUIRES
------------------------------------
Title: Senior Vice President
--------------------------
<PAGE> 5
Compania Occidental de Hidrocarburos, Inc.
February 4, 1998
Page 4
ACCEPTED AND AGREED TO:
COMPANIA OCCIDENTAL DE HIDROCARBUROS, INC.
By: /s/ LUIS H. DERROTA
-------------------------------
Title: Vice President and
----------------------
Assistant Secretary
----------------------
<PAGE> 6
Exhibit B
GUARANTY AGREEMENT
GUARANTY dated as of February 4, 1998 ("Agreement") between Union Texas
Petroleum Holdings, Inc. (the "Guarantor") and NationsBank of Texas, N.A. (the
"Lender").
WITNESSETH:
WHEREAS, pursuant to a letter agreement dated as of February 4, 1998 (the
"Letter Agreement") between Compania Occidental de Hidrocarburos, Inc. (the
"Company") and the Lender, the Company is entitled, subject to certain
conditions, to borrow up to $130,000,000;
WHEREAS, as a condition to borrowing under the Letter Agreement and the
Note referred to therein (the "Note"), the Guarantor is required to execute and
deliver this Agreement whereby the Guarantor shall guarantee the payment when
due of the principal of and interest on the loan evidenced by the Note and all
other amounts payable at any time by the Company or the Guarantor under the
Letter Agreement, the Note or this Agreement (collectively, the "Interim
Financing Documents") including, without limitation, interest which accrues
during a proceeding which occurs under the U.S. Bankruptcy Code or which would
otherwise accrue on such amount under the terms of the Letter Agreement and the
Note, but for a proceeding under the U.S. Bankruptcy Code (such principal,
interest and other amounts being herein called the "Guaranteed Amount");
WHEREAS, in consideration of such financial and other support as the
Company may in the future provide, to the Guarantor and in order to induce the
Lender to enter into the Letter Agreement and to make the loan contemplated
thereby, the Guarantor is willing to guarantee the Guaranteed Amounts;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. Terms defined in the Letter Agreement and not
otherwise defined herein are used as therein defined.
<PAGE> 7
ARTICLE II
GUARANTEES
SECTION 2.01. The Guaranty. The Guarantor hereby unconditionally and
irrevocably guarantees to the Lender the full and punctual payment of all
present and future Guaranteed Amounts as and when the same shall become due and
payable, whether at maturity, by declaration or otherwise, according to the
terms thereof. In case of failure by the Company punctually to pay any
Guaranteed Amount, the Guarantor agrees upon demand by the Lender, to make
payment thereof to the Lender at the place and in the manner specified in the
Letter Agreement.
SECTION 2.02. Guaranty Unconditional. The obligations of the Guarantor
under this Article II shall be unconditional and absolute and, without limiting
the generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(a) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of the Company under any Interim Financing
Document or any Guaranteed Amount;
(b) any modification or amendment of or supplement to (i) this
Agreement insofar as the same does not purport to modify the rights or
obligations of the Guarantor hereunder or (ii) any other Interim Financing
Document;
(c) any change in the corporate existence, structure or ownership of
the Company or the Guarantor, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting the Company or the Guarantor or their
respective assets;
(d) the existence of any claim, set-off or other rights which the
Guarantor may have at any time against the Company, the Lender or any other
person or entity, whether or not arising in connection with any Interim
Financing Document or any Guaranteed Amount, provided that nothing herein shall
prevent the assertion of any such claim by separate suit or compulsory
counterclaim;
(e) any invalidity or unenforceability relating to or against the
Company or the Guarantor for any reason of any Interim Financing Document or
any Guaranteed Amount, or any provision of applicable law or regulation
purporting to prohibit the payment by the Company or the Guarantor of any
Guaranteed Amount; or
(f) any other act or omission to act or delay of any kind by the
Company or the Guarantor, the Lender or any other person or entity or any other
circumstances whatsoever that
-2-
<PAGE> 8
might, but for the provisions of this paragraph, constitute a legal or equitable
discharge of the obligations of the Guarantor under this Article II.
SECTION 2.03. Discharge Reinstatement in Certain Circumstances. The
Guarantor's obligations under this Article II shall remain in full force and
effect until all of the Guaranteed Amounts shall have been paid in full. If at
any time any payment of or any amount payable by the Company or the Guarantor in
respect of any Guaranteed Amount is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of such Person or
otherwise, the Guarantor's obligations under this Article II with respect to
such payment shall be reinstated at such time as thought such payment had become
due but had not been made at such time.
SECTION 2.04. Waiver. The Guarantor irrevocably waives acceptance hereof,
presentment, demand, protest and any notice not provided for herein, as well as
any requirement that at any time any action be taken by any person or entity
against the Company or the Guarantor or any other person or entity. The
Guarantor hereby irrevocably waives each and every right to which it may be
entitled by virtue of the suretyship laws of the State of Texas, including,
without limitation, any and all rights it may have pursuant to Rule 31 or Rule
32, Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice
and Remedies Code and Chapter 34 of the Texas Business and Commerce Code.
SECTION 2.05. Subrogation and Contribution. The Guarantor irrevocably
waives any and all rights to which it may be entitled, by operation of law or
otherwise, upon making any payment hereunder (i) to be subrogated to the rights
of the payee against the Company with respect to such payment or otherwise to be
reimbursed, indemnified or exonerated by the Company in respect thereof or (ii)
to receive any payment, in the nature of contribution or for any other reason,
from any other person with respect to such payment, in each case until such time
as all of the Guaranteed Amounts shall have been paid in full.
SECTION 2.06. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by the Company in respect of any Guaranteed Amount
is stayed upon the insolvency, bankruptcy or reorganization of such entity, all
such amounts otherwise subject to acceleration under the terms of the Interim
Financing Documents or any other agreement or instrument evidencing such
Guaranteed Amount shall nonetheless be payable by the Guarantor hereunder
forthwith on demand by the Lender.
SECTION 2.07. Existing Credit Agreement. Guarantor will maintain borrowing
availability under that certain Second Amended and Restated Credit Agreement
dated as of March 29, 1996 (as heretofore amended or modified, the "Credit
Agreement") among the Guarantor, the lenders party thereto, NationsBank, as
agent, Bank of America National Trust and Savings and Union Bank of
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<PAGE> 9
Switzerland, Houston Agency, as Co-Agents in an amount not less than the
principal balance of the Guaranteed Amount.
SECTION 2.08. Representations and Warranties. The Guarantor represents and
warrants that as of the date hereof, and after giving effect to this Agreement
and the contingent obligations evidenced hereby (i) it is and will be solvent,
and has and will have assets which, fairly valued, exceed its obligations,
liabilities and debts, and has and will have property and assets sufficient to
satisfy and repay its obligations, liabilities and debts when the same become
due and (ii) the representations and warranties set forth in the Credit
Agreement are true on the date hereof as if made on the date hereof.
ARTICLE III
MISCELLANEOUS
SECTION 3.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy, telex, facsimile
transmission or similar writing) and (i) in the case of the Guarantor, shall be
given to the Guarantor at Union Texas Petroleum Holdings, Inc., 1330 Post Oak
Boulevard, Houston, Texas 77056 (telex number: 762255) and (ii) in the case of
the Company or the Lender, at its address specified in the Letter Agreement or
in any case at such other address or telex number as such party may hereafter
specify for the purpose by notice to the Lender and the Company. Each such
notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answer is received, (ii) if given by mail, 72 hours
after such communication is deposited in the mails with first class postage
prepaid, addressed as aforesaid or (iii) if given by any other means, when
delivered at the address specified in this Section.
SECTION 3.02. No Waiver; Exercise of Remedies. No failure or delay by the
Lender in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 3.03. Amendments and Waivers. Any provision of this Agreement may
be amended or waived, and the Guarantor may be released from any of its
obligations hereunder, if and only if, such amendment, waiver or release is in
writing and is signed by the Lender.
SECTION 3.04. Texas Law. This Agreement shall be construed in accordance
with and governed by the law of the state of Texas.
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<PAGE> 10
SECTION 3.05. CONSENT TO JURISDICTION. THE GUARANTOR HEREBY IRREVOCABLY
CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS
AND OF ANY FEDERAL COURT LOCATED IN SUCH STATE OVER EACH OF THEM IN CONNECTION
WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY INTERIM
FINANCING DOCUMENT AND, TO THE FULLEST EXTENT PERMITTED BY LAW, FURTHER AGREES
(AND SHALL NOT CONTEST) THAT THE PROPER VENUE FOR FILING AND MAINTAINING ANY
SUCH ACTION OR PROCEEDING SHALL BE IN THE STATE OF TEXAS. IN ANY SUCH ACTION OR
PROCEEDING, THE GUARANTOR WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR
OTHER PROCESS OR NOTICE AND AGREES THAT SERVICE BY FIRST CLASS MAIL, RETURN
RECEIPT REQUESTED, TO THE GUARANTOR AT ITS ADDRESS FOR NOTICES HEREUNDER, OR
ANY OTHER FORM OF SERVICE PROVIDED FOR IN THE TEXAS CIVIL PRACTICE LAW AND RULES
THEN IN EFFECT SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE UPON THE GUARANTOR.
SECTION 3.06. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 3.07. WAIVER OF SOVEREIGN IMMUNITY. TO THE EXTENT THAT THE
GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH
RESPECT TO ITSELF OR ITS PROPERTY, THE GUARANTOR HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT IT MAY LEGALLY DO SO, SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT AND, WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, AGREES, TO THE FULLEST EXTENT IT MAY LEGALLY DO SO, THAT THE WAIVERS
SET FORTH IN THIS SECTION 3.07 SHALL HAVE THE FULLEST SCOPE PERMITTED UNDER THE
FOREIGN SOVEREIGN IMMUNITIES ACT OF 1976 OF THE UNITED STATES AND ARE INTENDED
TO BE IRREVOCABLE FOR PURPOSES OF SUCH ACT.
SECTION 3.08. Successors and Assigns. All of the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Guarantor may not
assign or transfer any of its rights or obligations under this Agreement.
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<PAGE> 11
SECTION 3.09 Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, and all of which taken
together shall constitute a single instrument, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the date first
above written.
GUARANTOR:
UNION TEXAS PETROLEUM HOLDINGS, INC.
By: /s/ M. N. Markowitz
----------------------------
Title: Vice President and
Treasurer
----------------------
LENDER:
NATIONSBANK OF TEXAS, N.A.
By: /s/ PAUL SQUIRES
----------------------------
TITLE: Senior Vice President
----------------------
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<PAGE> 1
FOURTH AMENDMENT TO
UNION TEXAS PETROLEUM
SALARIED EMPLOYEES' PENSION PLAN
WHEREAS, Union Texas Petroleum Holdings, Inc. (the "Company") and
other Employing Companies have heretofore adopted and maintain the Union Texas
Petroleum Salaried Employees' Pension Plan as amended and restated effective
January 1, 1994 (the "Plan") for the benefit of their eligible employees; and
WHEREAS, Union Texas Venezuela, Limited has agreed to purchase all of
the stock of Compania Occidental de Hidrocarburos, Inc. from Occidental Oil and
Gas Corporation (the "Stock Purchase"); and
WHEREAS, upon consummation of the Stock Purchase the Company or
subsidiaries of the Company will offer employment to certain individuals
currently employed by Occidental Oil and Gas Corporation or its affiliates
other than Compania Occidental de Hidrocarburos, Inc.; and
WHEREAS, the Company desires to amend the Plan in certain respects as
to the benefits of individuals who transfer employment from Occidental Oil and
Gas Corporation or its affiliates other than Compania Occidental de
Hidrocarburos, Inc. to the Company or one of its subsidiaries in connection
with the Stock Purchase (the "Occidental Transferred Employees");
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Effective as of the closing date of the Stock Purchase, the Plan is
hereby amended to provide that the Occidental Transferred Employees who
transfer employment to the Company or one of its subsidiaries at the closing
date of the Stock Purchase or within 60 days after such closing date and who
are eligible to participate in the Plan shall be credited for vesting purposes
under the Plan with all service such employees were credited with by Occidental
Oil and Gas Corporation, provided, however, that such Occidental Transferred
Employees shall not be credited with Accrual Service under the Plan (whether
pursuant to Section 4.01(b) of the Plan or otherwise) for such vesting service.
2. The terms used in this document with initial capitalization shall
have the same meaning as are ascribed to such terms under the Plan, except as
otherwise specifically indicated herein.
3. As amended hereby, the Plan is specifically ratified and
reaffirmed.
UNION TEXAS PETROLEUM HOLDINGS, INC.
By: /s/ JOHN L. WHITMIRE
------------------------------------
John L. Whitmire
Chairman and Chief Executive Officer
<PAGE> 1
FOURTH AMENDMENT TO
UNION TEXAS PETROLEUM SAVINGS
PLAN FOR SALARIED EMPLOYEES
WHEREAS, Union Texas Petroleum Holdings, Inc. (the "Company") and
other Employing Companies have heretofore adopted and maintain the Union Texas
Petroleum Savings Plan for Salaried Employees as amended and restated effective
January 1, 1993 (the "Plan") for the benefit of their eligible employees; and
WHEREAS, Union Texas Venezuela, Limited has agreed to purchase all of
the stock of Compania Occidental de Hidrocarburos, Inc. from Occidental Oil and
Gas Corporation (the "Stock Purchase"); and
WHEREAS, upon consummation of the Stock Purchase the Company or
subsidiaries of the Company will offer employment to certain individuals
currently employed by Occidental Oil and Gas Corporation or its affiliates
other than Compania Occidental De Hidrocarburos, Inc.; and
WHEREAS, the Company desires to amend the Plan in certain respects as
to the benefits of individuals who transfer employment from Occidental Oil and
Gas Corporation or its affiliates other than Compania Occidental de
Hidrocarburos, Inc. to the Company or one of its subsidiaries in connection
with the Stock Purchase (the "Occidental Transferred Employees");
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Effective as of the closing date of the Stock Purchase, the Plan is
hereby amended to provide that the Occidental Transferred Employees who
transfer employment to the Company or one of its subsidiaries at the closing
date of the Stock Purchase or within 60 days after such closing date and who
are eligible to participate in the Plan shall be credited for vesting purposes
under the Plan with all service such employees were credited with by Occidental
Oil and Gas Corporation.
2. The terms used in this document with initial capitalization shall
have the same meaning as are ascribed to such terms under the Plan, except as
otherwise specifically indicated herein.
3. As amended hereby, the Plan is specifically ratified and
reaffirmed.
UNION TEXAS PETROLEUM HOLDINGS, INC.
By: /s/ JOHN L. WHITMIRE
------------------------------------
John L. Whitmire
Chairman and Chief Executive Officer
<PAGE> 1
UNION TEXAS PETROLEUM
DEFERRED COMPENSATION PLAN
As Amended and Restated
Effective February 4, 1998
<PAGE> 2
UNION TEXAS PETROLEUM
DEFERRED COMPENSATION PLAN
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Section 1 Definitions ............................................................................ 2
Section 2 Administration ......................................................................... 5
Section 3 Participants ........................................................................... 6
Section 4 Deferrals .............................................................................. 6
Section 5 General Provisions ..................................................................... 12
</TABLE>
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<PAGE> 3
UNION TEXAS PETROLEUM
DEFERRED COMPENSATION PLAN
PREAMBLE
WHEREAS, to assist the ability of Union Texas Petroleum
Holdings, Inc. (the "Company") to attract and retain exceptional key employees
and individuals to serve on its Board of Directors, the Company has heretofore
adopted on May 9, 1997 the Union Texas Deferred Compensation Plan (the "Plan")
which permits those persons the ability to defer compensation on an elective
basis;
WHEREAS, the Company desires to align more closely the
interests of those eligible individuals electing to the defer compensation with
the interests of the stockholders of the Company by permitting certain
deferrals to be in the form of restricted shares of common stock of the Company
or in phantom shares of common stock of the Company; and
WHEREAS, the Company desires to amend the Plan in several
respects as provided herein;
NOW, THEREFORE, the Plan is hereby amended and restated in
its entirety as follows, effective February 4, 1998; provided, however, this
amendment and restatement shall not operate or be construed to adversely affect
or change any Participant elections previously made under the Plan.
<PAGE> 4
SECTION 1
DEFINITIONS
For purposes of the Plan, the following terms shall have the
meanings indicated:
1.1 Account means a ledger account established for a Participant.
1.2 Affiliate means (i) an entity that, directly or through one or
more intermediaries, is controlled by the Company and (ii) any entity in which
the Company has a significant equity interest, as determined by the Committee.
1.3 Annual Incentive Compensation means the annual incentive bonus
payable to a Participant with respect to any year, to the extent such bonus is
otherwise earned.
1.4 Base Compensation means the Participant's base salary payable
for the applicable year or the remainder of the applicable year, as the case
may be, exclusive of all other items of compensation.
1.5 Beneficiary means the person(s) designated by a Participant,
on a form provided by and filed with the Company's Human Resources Department,
to receive payment by the Employer pursuant to the Plan in the event of his or
her death. A Participant may change his or her beneficiary designation at any
time. If no designated Beneficiary survives the Participant, the Beneficiary
shall be the Participant's surviving spouse or, if none, his or her estate.
1.6 Board means the Board of Directors of the Company.
1.7 Cause means the Employee's engaging in fraud, misappropriation
of property of the Employer or willful misconduct damaging to such property or
business of the Employer or a Director removed with cause at a meeting of the
stockholders pursuant to the Bylaws of the Employer.
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<PAGE> 5
1.8 Change in Control means a Change in Control as defined in
Section 8 of the Company's 1994 Incentive Plan, as amended from time to time.
1.9 Common Stock means the common stock, par value $.05 per share,
of the Company.
1.10 Committee means the Organization and Compensation Committee of
the Board or, when it is necessary or desirable, the Section 16 Committee, as
defined in the Company's 1994 Incentive Plan, as amended from time to time.
1.11 Designated Payment Date means the date on which all or part of
an Account is to be paid to a Participant (or Beneficiary) pursuant to the
Participant's deferral election.
1.12 Director means a member of the Board who is not also an
employee of the Employer or an Affiliate.
1.13 Director Fees means the Director's annual retainer for such
year and any meeting fees for each regular and special meeting and any
committee meeting attended by the Director during the applicable year.
1.14 Employee means an employee of the Employer, including any
Officer, in salary grade 15 of the Company (or its equivalent) or above.
1.15 Employer means the Company and its Affiliates; provided,
however, as used with respect to any specified Participant, it shall mean the
employing entity of such Participant.
1.16 Executive means an Employee, including any Officer, in salary
grade 17 of the Company (or its equivalent) or above.
1.17 Fair Market Value means, if the shares of Common Stock are
traded on a national stock exchange, the fair market value of a share of Common
Stock on the particular date shall be equal to the average of the reported high
and low sales prices of the share of Common Stock on such
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<PAGE> 6
exchange on that date, or if no prices are reported on that date, on the last
preceding date on which such prices of the shares are so reported. If the
shares of Common Stock are publicly traded but are not traded on a national
stock exchange at the time a determination of its fair market value is required
to be made hereunder, its fair market value shall be deemed to be equal to the
average between the closing bid and asked price of the share on the most recent
date the shares were publicly traded. In the event the shares are not publicly
traded at the time a determination of its fair market value is required to be
made hereunder, the determination of fair market value shall be made in good
faith by the Committee.
1.18 Interest Account means a subaccount of an Account that is
credited with interest periodically at such times and rates as may be
established from time to time by the Committee (or its designee) in its sole
discretion.
1.19 Investment Account means the Phantom Stock Account, Mutual
Fund Account and Interest Account, as applicable.
1.20 Mutual Fund Account means a subaccount of an Account that is
credited with phantom units in one or more of the mutual funds listed on
Attachment A hereto.
1.21 Officer means an Employee who is an officer of the Company who
is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended.
1.22 Participant means each Employee and Director who participates
in the Plan.
1.23 Permanent Disability means (i) with respect to an Employee of
the Employer of any Affiliate, becoming permanently disabled under the
standards of the Employer's or Affiliate's disability program as determined by
the Committee or (ii) with respect to a Director, the inability to perform the
duties and services as a director of the Company by reason of a medically
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<PAGE> 7
determinable physical or mental impairment supported by medical evidence which
in the opinion of the Committee can be expected to result in death or which can
be expected to last for a continuous period of not less than 12 months.
1.24 Phantom Stock means a notional share of Common Stock.
1.25 Phantom Stock Account means a subaccount of an Account that is
credited with shares of Phantom Stock.
1.26 Plan means the Union Texas Petroleum Deferred Compensation
Plan as amended from time to time.
1.27 Restricted Stock means a share of Common Stock that is subject
to restrictions on transfer and a substantial risk of forfeiture for purposes
of Section 83 of the Internal Revenue Code, as amended; provided, however,
shares of Restricted Stock may be surrendered to the Employer as provided in
Section 5.3 of the Plan.
1.28 Termination means an Employee's termination of employment with
the Company and its Affiliates or a Director's ceasing to be a member of the
Board, whichever is applicable.
SECTION 2
ADMINISTRATION
2.1 Committee. The Plan shall be administered by the Committee.
The Committee shall have the complete authority and power to interpret the
Plan, prescribe, amend and rescind rules relating to its administration,
determine a Participant's (or Beneficiary's) right to a payment and the amount
of such payment, and to take all other actions necessary or desirable for the
administration of the Plan. The Committee may delegate the ministerial duties
under the Plan to other parties who may or may not be employees of the Company.
All actions and decisions of the Committee shall
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<PAGE> 8
be final and binding upon all Participants and Beneficiaries. No member of the
Committee shall vote on any matter that pertains solely to himself or herself.
Notwithstanding the foregoing, the Section 16 Committee shall
have full power and authority to take any of the actions described above and
any other action necessary or desirable to ensure compliance with the
requirements of, and to provide the exemption of transactions under the Plan
pursuant to, Section 16 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
SECTION 3
PARTICIPANTS
3.1 Participants. Each Officer, Employee and Director shall be
eligible to participate in the Plan as provided herein; provided, however,
notwithstanding the foregoing, the Committee may specify that one or more
Employees shall be ineligible to participate in the Plan or in a specified
feature of the Plan if the Committee determines, in its sole discretion, that
participation by such designated Employee(s) may cause the Plan to cease to be
a "top-hat" plan for purposes of Employee Retirement Income Security Act of
1974, as amended.
SECTION 4
DEFERRALS
4.1 Base Compensation Deferrals. Before the beginning of any
future calendar quarter of any year (or, with respect to an Executive who first
becomes eligible to participate during a year, on or before the date on which
the Executive becomes eligible to begin participating), each Executive may
elect to have a designated percentage (in increments of 10%, but not exceeding
50%)
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<PAGE> 9
of his or her Base Compensation for that year (or, his or her Base Compensation
for the remainder of such year, as the case may be) deferred in an Account
under the Plan; provided, however, in no event shall a Participant's deferral
election be given effect with respect to any pay period to the extent it would
reduce the amount of base salary that is to be paid to the Participant to less
than the amount of such Participant's voluntary payroll deductions (other than
deferrals under any other nonqualified deferred compensation plan of the
Employer) for that pay period, including, but not limited to, premiums for
insurance coverages, flexible spending account amounts, employee qualified plan
contributions, government savings bonds, charitable contributions, payments on
loans, and bank account deposits, and applicable taxes required to be withheld
by the Company. The Participant's election shall be made on a form approved by
the Company, which shall govern the amount deferred, the timing of the payment
of the Account, and the investment of the Account during such deferral period
pending its payment by the Employer. A Participant's deferral election
hereunder (i) may be revoked or changed only as of the beginning of a future
calendar quarter and (ii) shall apply only with respect to the Base
Compensation earned during that specified calendar year or partial year, as the
case may be.
4.2 Annual Incentive Compensation Deferrals. Before October 1 of
any year, each Employee for that year may elect to have all or a designated
percentage (in increments of 25%) of his or her Annual Incentive Compensation
that may become earned with respect to that year deferred in an Account under
the Plan until a future date or dates as specified by the Participant. The
Participant's election shall be irrevocable and shall be made on a form
prescribed by the Company, which shall govern the amount deferred, the timing
of the payment of the Account, and the investment of the Account during such
deferral period pending its payment by the Employer. A
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<PAGE> 10
Participant's deferral election hereunder shall apply only to the Annual
Incentive Compensation earned, if any, with respect to the specified calendar
year.
4.3 Restricted Stock Deferrals. An Officer or Director may elect
to have all or a portion (in increments of 25%) of his or her Annual Incentive
Compensation or Director's Fees that may become earned or be payable, as the
case may be, with respect to a year paid in the form of shares of Restricted
Stock having a Fair Market Value (disregarding the restrictions) equal to the
amount of cash compensation that would otherwise be earned or payable. Such
deferral election with respect to any year must be made (i) with respect to an
Officer, October 1, and (ii) with respect to a Director, January 1 of the year.
The shares of Restricted Stock shall vest (i.e., the restrictions thereon shall
lapse) at the rate of 25% per year on each January 1 following the date the
Restricted Stock is issued to the Participant, unless the Participant, in the
deferral election, elects for the restrictions on the Restricted Stock to lapse
on or beginning on a specified January 1 that is no earlier than the fourth
January 1 following the date the Restricted Stock is credited to the
Participant. In the event of such an election, the Participant may also specify
a different "lapse" rate for the restrictions on the Restricted Stock, provided
it is in increments of 5%. The deferral election shall be irrevocable and shall
be made on a form provided by the Company, which shall govern the amount
deferred and the timing of the lapse of the restrictions. All dividends and
other distributions made with respect to shares of Restricted Stock during the
restricted period shall be fully vested and paid currently to the Participant.
A Participant shall be entitled to vote his or her shares of Restricted Stock.
Upon a Participant's Termination due to death or Permanent Disability or an
involuntary Termination other than for Cause, the restrictions shall
automatically lapse on all of the Participant's shares of Restricted Stock.
Upon a Termination for any other reason, a Participant's shares of
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<PAGE> 11
Restricted Stock shall be automatically forfeited, unless and to the extent the
Committee, in its sole discretion, elects to waive such forfeiture.
4.4 Director Fees Deferrals. Before January 1 of any year (or,
with respect to an individual who first becomes a Director during a year,
within 30 days of the date on which he or she becomes a Director), each
Director may elect to have all or a portion (in increments of 25%) of his or
her Director Fees for that year (or, if applicable, the remainder of the year)
deferred in an Account under the Plan. The election shall be irrevocable and
shall be made on a form prescribed by the Company, which shall govern the
amount deferred, the timing of the payment of the Account, and the investment
of the Account during such deferral period pending its payment by the Company.
A Participant's deferral election hereunder shall apply only to Director Fees
earned during that year or partial year, as the case may be. If a Director has
not made a deferral election with respect to a year, the Director Fees payable
to the Director for that year shall be paid in accordance with the Company's
normal practices.
4.5 Accounts. The Company shall establish one or more Accounts for
each Participant who has elected to defer compensation under the Plan, other
than in the form of shares of Restricted Stock, for the purpose of reflecting
the Employer's obligation to pay the compensation deferred by such Participant,
as adjusted for any investment gains or losses of such Account(s) under the
Plan.
4.6 Investment of Accounts. A Participant may direct that all or a
specified percentage (in increments of 5%) of his or her Account established
for any year be "invested" (i.e., credited on an Employer ledger account) in
one or more of the Investment Accounts. If the Account is directed by the
Participant to be invested in more than one of the Investment Accounts, the
Employer shall establish separate subaccounts under the Participant's Account,
which shall be credited (i) with
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<PAGE> 12
respect to deferrals in Phantom Stock, whole and fractional shares of Phantom
Stock as of the dates of the deferrals, and with phantom dividends with respect
to the credited shares of Phantom Stock, which shall be credited as being
reinvested in additional shares of Phantom Stock on the applicable date, (ii)
with respect to deferrals in the Mutual Fund Account, with whole and fractional
phantom units in such mutual fund(s) as of the dates of the deferrals and with
phantom distributions on such units, which shall be credited as being
reinvested in additional phantom units in such mutual fund(s), and (iii) with
respect to deferrals in the Interest Account, with interest at the rate
provided by the Interest Account.
4.7 Changes in Investment Elections. Except as provided below, a
Participant may direct that all or a specified percentage (in increments of 5%)
of any of his or her Account(s) be reinvested in one or more of the other
Investment Accounts in accordance with Plan procedures as established from time
to time by the Committee (or its designee). This election shall be in such form
as the Company shall establish from time to time. However, the foregoing shall
not operate or be construed from permitting a Participant to irrevocably waive
(in such manner as may be approved by the Company) the ability to direct that
his or her Phantom Stock Account be reinvested in one or more of the other
Investment Accounts under the Plan.
4.8 Payment of Accounts. Upon a Participant's Designated Payment
Date, the Employer shall pay to the Participant (or to his or her Beneficiary
in case of the Participant's death) an amount in cash equal to the balance (or
applicable designated portion thereof) then credited to the Participant's
affected Account(s), except that any payment with respect to shares of Phantom
Stock shall be made, to the extent practical, in shares of Common Stock with
any balance paid in cash. The forms of payment permitted to be designated by a
Participant under the Plan are as follows:
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<PAGE> 13
(a) a lump sum payment; or
(b) consecutive annual installments over a period not to exceed 15
years, with the amount of each installment being equal to a fraction,
the numerator of which is one and the denominator of which is the
number of installments remaining to be paid, including the installment
then being paid.
4.9 Committee Acceleration of Payments. Notwithstanding a
Participant's deferral election to the contrary, the Committee, in its sole
discretion, may accelerate the payment of all or part of the balance of a
Participant's Account(s) upon its determination that the Participant has
incurred a "severe financial hardship" resulting from a sudden and unexpected
illness or accident of such person or of a dependent, a loss of such person's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of such person.
The Committee, in making its determination of severe financial hardship may
consider such factors and require such information as it deems appropriate,
but, in any case, payment may not be made to the extent that such hardship is
or may be relieved (i) through reimbursement or compensation by insurance or
otherwise or (ii) by liquidation of such person's assets, to the extent
liquidation of such assets will not itself cause severe financial hardship.
4.10 Acceleration of Payments Upon a Change in Control.
Notwithstanding anything in the Plan to the contrary, effective upon a Change
in Control (i) all restrictions on shares of Restricted Stock shall
automatically lapse and (ii) the Employer shall pay the Participants the then
balance of his or her Account(s) in a lump sum in cash; provided, however,
notwithstanding the foregoing, if it is intended by the Board or the Committee
that the transaction constituting the Change in Control be accounted for as a
"pooling of interests" and the cashout of the Phantom Stock
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<PAGE> 14
Accounts would otherwise preclude such accounting treatment, such Phantom Stock
Accounts shall be paid in shares of Common Stock immediately prior to such
Change in Control, with any fractional Phantom Stock paid in cash.
SECTION 5
GENERAL PROVISIONS
5.1 Unfunded Obligation. The amounts to be paid to Participants
pursuant to this Plan are unfunded obligations of the Employer. The Employer is
not required to segregate any monies from its general funds, to create any
trusts, or to make any special deposits with respect to this obligation. Title
to and beneficial ownership of any investments, including trust investments,
which the Employer may make to fulfill this obligation shall at all times
remain in the Employer. Any investments and the creation or maintenance of any
trust or notional accounts shall not create or constitute a trust or a
fiduciary relationship between the Committee or the Employer and a Participant,
or otherwise create any vested or beneficial interest in any Participant or his
or her Beneficiary or his or her creditors in any assets of the Employer
whatsoever. The Participants (and Beneficiaries) shall have no claim against
the Employer for any changes in the value of any Accounts and shall be general
unsecured creditors of the Employer with respect to any payment due under this
Plan.
5.2 Incapacity of Participant or Beneficiary. If the Committee
finds that any Participant or Beneficiary to whom a payment is payable under
the Plan is unable to care for his or her affairs because of illness or
accident or is under a legal disability, any payment due (unless a prior claim
therefore shall have been made by a duly appointed legal representative) at the
discretion of the Committee, may be paid to the spouse, child, parent or
brother or sister of such Participant or
-12-
<PAGE> 15
Beneficiary or to any person whom the Committee has determined has incurred
expense for such Participant or Beneficiary. Any such payment shall be a
complete discharge of the obligations of the Company under the provisions of
the Plan.
5.3 Nonassignment. The right of a Participant or Beneficiary to
the payment of any amounts under the Plan may not be assigned, transferred,
pledged or encumbered in any manner nor shall such right or other interests be
subject to attachment, garnishment, execution or other legal process.
Notwithstanding the foregoing however, a Participant may surrender shares of
Restricted Stock under this Plan to exercise a stock-based award under another
stock plan of the Company provided that such other award is paid in shares of
Common Stock that, to the extent of the shares of Restricted Stock surrendered,
are subject to the same substantial risks of forfeiture as such surrendered
shares.
5.4 No Right to Continued Employment. Nothing in the Plan shall be
construed to confer upon any Participant any right to continued employment with
the Employer or any Affiliate, nor interfere in any way with the right of the
Employer or any Affiliate to terminate the employment of such Participant at
any time without assigning any reason therefor.
5.5 Withholding Taxes. Appropriate taxes shall be withheld from
the Participant's compensation with respect to all deferrals made under, and
from all payments made pursuant to, the Plan.
5.6 Termination and Amendment. The Board or Committee may from
time to time amend, suspend or terminate the Plan, in whole or in part, without
the consent of any Participant and if the Plan is suspended or terminated, the
Board or Committee may reinstate any or all of its provisions. However, no
amendment, suspension or termination of the Plan may impair the right of
-13-
<PAGE> 16
a Participant or his or her Beneficiary to receive the benefit accrued
hereunder prior to the effective date of such amendment, suspension or
termination.
5.7 Compliance with Securities Laws. It is the intention of the
Company that, so long as any of the Company's equity securities are registered
pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as
amended, this Plan shall be operated in compliance with Section 16(b) thereof
and, if any Plan provision or transaction is found not to comply with Section
16(b), that provision or transaction, as the case may be, shall be deemed null
and void ab initio. Notwithstanding anything in the Plan to the contrary, the
Committee, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
Participants who are officers and directors subject to Section 16(b) without so
restricting, limiting or conditioning the Plan with respect to other
Participants.
5.8 Adjustments. In the event that the Committee determines that
any dividend or other distribution (whether in the form of cash, shares of
Common Stock, other securities, or other property), recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of shares of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase shares of Common Stock or other securities of the Company, or other
similar corporate transaction or event affects the shares of Common Stock such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and type of
shares of Common Stock (or other securities or property) with respect
-14-
<PAGE> 17
to which deferrals may be made and (ii) the number and type of shares of Common
Stock (or other securities or property) subject to outstanding deferrals.
5.9 Sources of Shares. Any shares of Common Stock delivered
pursuant to this Plan shall consist solely of treasury shares or shares
purchased on the open market.
5.10 Share Certificates. All certificates for shares of Restricted
Stock or Common Stock delivered under the Plan shall be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations, and other requirements of the SEC,
any stock exchange upon which such shares or other securities are then listed,
and any applicable federal or state laws. In addition, the Committee may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions, and any such restrictions as are imposed by the
Plan, including, with respect to Restricted Stock, the restrictions on
transferability and vesting. Unless otherwise approved by the Committee,
certificates representing shares of Restricted Stock will be held in escrow by
the Company until such time as such restrictions have expired or the shares
have been forfeited.
5.11 Applicable Law. Except to the extent preempted by applicable
federal law, the Plan shall be construed and governed in accordance with the
laws of the State of Texas.
UNION TEXAS PETROLEUM
HOLDINGS, INC.
By: /s/ JOHN L. WHITMIRE
--------------------------------------
John L. Whitmire
Chairman and Chief Executive Officer
-15-
<PAGE> 1
ADDENDUM TO
BADAK IV LNG SALES CONTRACT
SUPPLY AGREEMENT
THIS ADDENDUM, made and entered into in Jakarta the 31st day of
January, 1994, but effective as of the 23rd day of October, 1990, by and
between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA ("PERTAMINA"), on
the one hand, and VIRGINIA INDONESIA COMPANY ("VICO"), LASMO SANGA SANGA
LIMITED, OPICOIL HOUSTON, INC., UNION TEXAS EAST KALIMANTAN LIMITED, UNIVERSE
GAS & OIL COMPANY, INC., AND VIRGINIA INTERNATIONAL COMPANY (herein referred to
collectively as "Contractors" and individually as "Contractor"), on the other
hand,
WITNESSETH:
WHEREAS, PERTAMINA and Contractors are parties to the Badak IV LNG
Sales Contract Supply Agreement, made and entered into the 12th day of August,
1991, but effective as of the 23rd day of October, 1990 (the "Supply
Agreement") (unless otherwise stated, any terms defined in the Supply Agreement
shall have the same meanings when used herein); and
WHEREAS, under the Supply Agreement PERTAMINA and Contractors have
committed to supply and deliver from proved recoverable reserves of natural gas
in specific fields within the VICO Contract Area sufficient natural gas (and
LNG resulting from the liquefaction thereof) to meet a portion of the Badak IV
Base Net Gas Requirement and the Badak IV Additional Net Gas Requirement over
the term of the Supply Agreement; and
WHEREAS, the initial figures for the VICO Contract Gas, the Other
Contract Gas and the Producers' Percentage set forth in the Supply Agreement
were established by PERTAMINA to be used only on a provisional basis until such
time as DeGolyer and MacNaughton certified such reserves, following which the
identity of the participating fields was to be documented and the quantities in
each field which comprise the VICO Contract Gas and the Other Contract Gas and
the Producers' Percentage were to be adjusted and documented in a supplemental
memorandum (the "Supplemental Memorandum") in accordance with the Memorandum of
Understanding Re: Supply Agreements and Package IV Sales dated August 12, 1991;
and
WHEREAS, upon completion of such adjustments, but not later than the
date of loading the initial cargo of LNG for delivery under the Badak IV LNG
Sales Contract, PERTAMINA and Contractors agreed to execute an addendum to the
Supply Agreement confirming the VICO participating fields, the quantities in
each field which comprise the VICO Contract Gas and the Other Contract Gas, and
the Producers' Percentage; and
WHEREAS, such adjustments have been completed and agreed to by
PERTAMINA, Contractors and the production sharing contractors in the Other
Contract Areas and the Supplemental Memorandum has been entered into of even
date herewith.
<PAGE> 2
NOW, THEREFORE, the parties agree as follows:
1. The Producers' Percentage is 27.2064%.
2. The VICO Contract Gas is 0.650570 t.s.c.f.
3. The VICO participating fields and the quantities in each
field comprising the VICO Contract Gas are as follows:
<TABLE>
<CAPTION>
Participating Field Quantity of Gas (t.s.c.f.)
------------------- --------------------------
<S> <C>
Badak 0.159137
Nilam 0.257704
Mutiara 0.092838
Semberah 0.136132
Pamaguan 0.004759
</TABLE>
4. Subject to the foregoing, the undersigned parties hereby
ratify and confirm the Supply Agreement.
5. By separate addenda similar hereto and compatible herewith,
executed and delivered at the same time as this Addendum,
PERTAMINA and the production sharing contractors in the Other
Contract Areas shall confirm the quantity of the Other
Contract Gas.
IN WITNESS WHEREOF, PERTAMINA and Contractors have caused their duly authorized
representatives to execute this Addendum as of the day and year first written
above.
PERUSAHAAN PERTAMBANGAN CONTRACTORS:
MINYAK DAN GAS BUMI
NEGARA (PERTAMINA) VIRGINIA INDONESIA COMPANY
By /s/ F. ABDA'OE By /s/ CHARLES REIMER
------------------------- -------------------------
LASMO SANGA SANGA LIMITED
By /s/ [ILLEGIBLE]
-------------------------
2
<PAGE> 3
OPICOIL HOUSTON, INC.
By /s/ CHING YUNG CHUNG
-----------------------------
Executive Vice President
UNION TEXAS EAST KALIMANTAN
LIMITED
By /s/ A.W. PEABODY, JR.
-----------------------------
UNIVERSE GAS & OIL COMPANY, INC.
By /s/ HIDESUKE NAMJO
-----------------------------
General Manager
VIRGINIA INTERNATIONAL COMPANY
By /s/ [ILLEGIBLE]
-----------------------------
3
<PAGE> 1
MEMORANDUM OF AGREEMENT
BETWEEN
PERTAMINA AND KOREA GAS CORPORATION
FOR
PURCHASE AND SALE OF LNG
DURING 1995 - 1999
<PAGE> 2
MEMORANDUM OF AGREEMENT
FOR
PURCHASE AND SALE OF LNG DURING 1995-1999
This Memorandum of Agreement ("Agreement") dated September 30, 1994 is made by
and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA ("PERTAMINA")
("Seller") and Korea Gas Corporation ("KGC") ("Buyer"), for the sale and
purchase of certain quantities of LNG as described below. Seller and Buyer are
collectively referred to herein as the "Parties".
WHEREAS, Seller and Buyer are parties to an Amended and Restated LNG Sales and
Purchase Contract, effective as of January 1, 1991 ("Arun III Contract") which
is in full force and effect and which is unaffected by this Agreement; and
WHEREAS, Seller and Buyer are parties to the LNG Sales and Purchase Contract
(Korea II), effective as of May 7, 1991 ("Korea II Contract") which is in full
force and effect and which is unaffected by this Agreement ; and
WHEREAS, Seller desires to sell and Buyer desires to purchase certain
quantities of LNG during the period 1995 to 1999.
NOW THEREFORE, in consideration of the mutual promises contained herein, the
Parties agree as follows :
-1-
<PAGE> 3
ARTICLE I - TERM
The term of this Agreement shall commence on January 1, 1995 and shall
terminate on December 31, 1999.
ARTICLE II - FIXED QUANTITIES
During each calendar year specified below ("Fixed Quantity Period"), Seller
shall sell and deliver to Buyer and Buyer shall purchase, receive and pay for,
at the applicable Contract Sales Price, the quantity of LNG specified for such
Fixed Quantity Period (each such quantity being called a "Fixed Quantity") as
follows :
<TABLE>
<CAPTION>
Fixed Quantity Fixed Quantities (Number of Cargoes)
-------------- ------------------------------------
Period Ex-Ship F.O.B. Total
------ ------- ------ -----
<S> <C> <C> <C>
1995 7 6 13
1996 23 3 26
1997 20 3 23
1998 15 4 19
1999 - 27 27
</TABLE>
One Ex-Ship cargo is equivalent to 2,900 Billion BTU's.
One F.O.B. cargo is equivalent to 2,940 Billion BTU's.
ARTICLE III - TRANSPORTATION
(a) Seller shall be responsible for providing transportation for the
Ex-Ship Fixed Quantities specified in Article II above, on an Ex-Ship
basis.
-2-
<PAGE> 4
(b) Buyer shall be responsible for providing transportation for the F.O.B.
Fixed Quantities specified in Article II above, on an F.O.B. basis.
(c) In providing transportation hereunder, the Parties shall use LNG
Tankers which are compatible with the Loading Port and the Receiving
Facility and which have the required port clearances, authorizations
and approvals. The Parties shall use their respective best efforts to
obtain such clearances, authorizations and approvals.
ARTICLE IV - CONTRACT SALES PRICE
(a) Ex-Ship Fixed Quantities
The Contract Sales Price for the Ex-Ship Fixed Quantities shall be the
sum of an LNG related portion ("LNG Related Portion") and a transport
related portion ("Transport Related Portion").
The LNG Related Portion shall be 0.159 REP, where REP is the
arithmetic average of the realized export prices, in U.S. Dollars per
barrel, F.O.B. Indonesia, of all field classifications of Indonesian
crude oils (including condensate) then being sold and exported, except
premiums and except such prices for spot sales.
The Transport Related Portion shall be U.S.$0.62/MMBTU as at January
1, 1994, escalating 2.5% per annum thereafter.
(b) F.O.B. Fixed Quantities
The Contract Sales Price for the F.O.B. Fixed Quantities shall be
equal to the LNG Related Portion for the Ex-Ship Quantities referred
to in (a) above, multiplied by a boil-off adjustment factor of 0.9865.
-3-
<PAGE> 5
ARTICLE V - SOURCES OF SUPPLY
The Natural Gas to be processed into LNG and sold and delivered hereunder is to
be produced from the areas in East Kalimantan covered by production sharing
contracts between PERTAMINA and its relevant suppliers, and loaded at
PERTAMINA's facility at Bontang, East Kalimantan.
ARTICLE VI - GENERAL TERMS AND CONDITIONS
(a) Ex-Ship Fixed Quantities
All of the terms and conditions of the Arun III Contract shall apply
to the Ex-Ship Fixed Quantities and shall be incorporated in this
Agreement (mutatis mutandis) except for terms which are specifically
excluded below, or which conflict with the terms herein. Capitalized
terms used herein in connection with the Ex-Ship Fixed Quantities
shall have the same meaning as set forth in the Arun III Contract
unless otherwise specifically defined herein.
The following Articles of the Arun III Contract are hereby expressly
excluded from this Agreement :
7.1 Fixed Quantity (save that each of the calendar years
1995-1999 shall be referred to as a "Fixed Quantity Period"
and the quantity of LNG set out for delivery hereunder in
each such calendar year shall be referred to as the "Fixed
Quantity" for such Fixed Quantity Period);
7.3 Buyer's Obligation to Take-or-Pay;
7.4 Allocation of Deliveries of Fixed Quantities Between Buyer and
Other Purchasers;
7.6 Make-Up LNG;
7.7 Allocation for Make-Good LNG, Make-Up LNG and Restoration
Quantities; and
7.8 Priority Order.
-4-
<PAGE> 6
(b) F.O.B. Fixed Quantities
All of the terms and conditions of the Korea II Contract shall apply
to the F.O.B. Fixed Quantities and shall be incorporated in this
Agreement (mutatis mutandis) except for terms which are specifically
excluded below, or which conflict with the terms herein. Capitalized
terms used herein in connection with the F.O.B. Fixed Quantities shall
have the same meaning as set forth in the Korea II Contract unless
otherwise specifically defined herein.
The following Articles of the Korea II Contract are hereby expressly
excluded from this Agreement :
7.1 Fixed Quantity (save that each of the calendar years
1995-1999 shall be referred to as a "Fixed Quantity Period"
and the quantity of LNG set out for delivery hereunder in
each such calendar year shall be referred to as the "Fixed
Quantity" for such Fixed Quantity Period);
7.3 Buyer's Obligation to Take-or-Pay;
7.4 Allocation of Deliveries of Fixed Quantities Between Buyer and
Other Purchasers;
7.5 Make-Up LNG;
7.7 Allocation for Make-Up LNG and Restoration Quantities; and
7.8 Priority Order.
-5-
<PAGE> 7
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed and signed by its duly authorized officer as of this 30th day of
September, 1994.
SELLER : BUYERS :
PERUSAHAAN PERTAMBANGAN MINYAK KOREA GAS CORPORATION
DAN GAS BUMI NEGARA (PERTAMINA)
/s/ F. ABDA'OE /s/ PARK CHUNG-BOO
- ------------------------- --------------------------
By: F. Abda'oe By: Park, Chung-Boo
Title: President Director Title: President
& C.E.O. & C.E.O.
-6-
<PAGE> 1
PACKAGE V SUPPLY AGREEMENT
(1995-1999 LNG SALES TO KOREA GAS CORPORATION)
between
PERTAMINA
and
VIRGINIA INDONESIA COMPANY
LASMO SANGA SANGA LIMITED
OPICOIL HOUSTON, INC.
UNION TEXAS EAST KALIMANTAN LIMITED
UNIVERSE GAS & OIL COMPANY, INC.
and
VIRGINIA INTERNATIONAL COMPANY
Dated: June 16, 1995
Effective: September 30, 1994
<PAGE> 2
PACKAGE V SUPPLY AGREEMENT
(1995-1999 LNG SALES TO KOREA GAS CORPORATION)
THIS SUPPLY AGREEMENT, made and entered into in Jakarta on June 16,
1995, by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA
("PERTAMINA"), on the one hand, and VIRGINIA INDONESIA COMPANY ("VICO"), LASMO
SANGA SANGA LIMITED, OPICOIL HOUSTON, INC., UNION TEXAS EAST KALIMANTAN
LIMITED, UNIVERSE GAS & OIL COMPANY, INC., and VIRGINIA INTERNATIONAL COMPANY
(herein referred to collectively as "Contractors" and individually as
"Contractor"), on the other hand,
WITNESSETH:
A. WHEREAS, Contractors individually own or control all of the
interest of "Contractors" in that certain Amended and Restated Production
Sharing Contract, dated April 23, 1990, but effective as of August 8, 1968
(such contract as hereafter amended is herein referred to as the "Amended and
Restated Production Sharing Contract") and that certain Production Sharing
Contract dated April 23, 1990, but effective as of August 8, 1998 (such
contract as hereafter amended is herein referred to as the "Renewed Production
Sharing Contract"). The Amended and Restated Production Sharing Contract and
the Renewed Production Sharing Contract are herein referred to collectively as
the "Production Sharing Contracts" and the area covered thereby is herein
referred to as the "VICO Contract Area"; and
B. WHEREAS, pursuant to the Production Sharing Contracts, each of
PERTAMINA and Contractors is entitled to take and receive, sell and freely
export its respective share of the Natural Gas produced and saved from the VICO
Contract Area (the percentage share of such Natural Gas to which each of
PERTAMINA and Contractors is entitled, as determined under the Production
Sharing Contracts, is herein referred to as the "Production Sharing Percentage"
of such party); and
<PAGE> 3
C. WHEREAS, the reserves of Natural Gas in the VICO Contract Area
exceed the reserves of Natural Gas committed to be produced, supplied and
delivered by PERTAMINA and Contractors to meet a portion of PERTAMINA's
existing obligations under LNG sales contracts, LPG sales contracts, and
domestic gas sales contracts; and
D. WHEREAS, PERTAMINA, with assistance from Contractors, has
constructed and expanded and is further expanding the Natural Gas liquefaction
and related facilities located at Bontang Bay, on the east coast of Kalimantan,
Indonesia (herein referred to as the "Bontang Plant"); and
E. WHEREAS, funds for the expansion of the liquefaction plant will be
provided to PERTAMINA through financing of the cost of such expansion on terms,
mutually agreeable to PERTAMINA and Contractors, which provide for the
repayment of funds provided pursuant to such financing and the cost of such
funds (repayment of funds and the cost of such funds are hereinafter referred
to as "Financing Costs"); and
F. WHEREAS, PERTAMINA and Contractors are parties to the Amended and
Restated Bontang Processing Agreement dated as of February 9, 1988 (as from
time to time amended, the "Processing Agreement"), which provides for the
operation of the Bontang Plant and the payment of the costs of such operation
(such costs as determined in accordance with the Processing Agreement are
herein referred to as "Plant Operating Costs"); and
G. WHEREAS, PERTAMINA and Contractors have agreed to use the Bontang
Plant in part for the liquefaction of the VICO Contract Gas (as defined in
Section 2.2 hereof) and the Other Contract Gas (as defined in Section 2.3
hereof); and
H. WHEREAS, PERTAMINA, in collaboration with Contractors and its
production sharing contractors in other contract areas in East Kalimantan
(herein referred to as the "Other Contract Areas"), has entered into a
Memorandum of Agreement dated September 30, 1994, ("MOA", and unless otherwise
so stated, any terms defined in the MOA shall have the same
- 2 -
<PAGE> 4
meanings when used herein) with Korea Gas Corporation ("Buyer") pursuant to
which PERTAMINA is obligated to sell to Buyer certain quantities of LNG on an
ex-ship basis and certain quantities of LNG on an FOB basis; and
I. WHEREAS, the MOA provides that the Natural Gas to be processed into
LNG and sold by PERTAMINA under the MOA is to be produced from the areas in
East Kalimantan covered by production sharing contracts between PERTAMINA and
its suppliers, which consists of the VICO Contract Area and the Other Contract
Areas; and
J. WHEREAS, arrangements for the transportation of the ex-ship
quantities pursuant to the MOA and for the payment of costs respecting such
transportation will be made on terms mutually agreeable to PERTAMINA and
Contractors (herein referred to as "Transportation Costs"); and
K. WHEREAS, PERTAMINA and each Contractor desire to supply and deliver
Natural Gas from the VICO Contract Area in support of the performance by
PERTAMINA of an agreed portion of its obligations under the MOA; and
L. WHEREAS, each Contractor desires to dispose of its Production
Sharing Percentage of the VICO Contract Gas (as herein defined) in accordance
with the terms of this Supply Agreement,
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
EFFECTIVE DATE AND DURATION
This Supply Agreement shall be effective as of September 30, 1994, and
shall terminate on the date when all rights and obligations of Contractors
hereunder have been satisfied.
- 3 -
<PAGE> 5
ARTICLE 2
SUPPLY COMMITMENT AND QUANTITY
2.1 Net Gas Requirement. The total quantity of net Natural Gas
required to be supplied and delivered out of proved recoverable reserves of
Natural Gas in East Kalimantan for liquefaction and sale as LNG under the MOA
is estimated to be .3243 trillion standard cubic feet ("t.s.c.f."). Such
quantity is herein referred to as the "MOA Net Gas Requirement". The MOA Net
Gas Requirement is based on the Fixed Quantities which Buyer has committed to
purchase pursuant to the terms of the MOA.
2.2 VICO Contract Gas. PERTAMINA and Contractors hereby commit and
agree to supply and deliver from proved economically recoverable reserves of
Natural Gas in specific fields within the VICO Contract Area sufficient Natural
Gas (and LNG resulting from the liquefaction thereof) to meet a portion of the
MOA Net Gas Requirement over the term of this Supply Agreement consisting of
0.0700 t.s.c.f., or 21.5956% thereof. Such quantities of net Natural Gas
committed to be supplied pursuant to this Supply Agreement are herein referred
to as the "VICO Contract Gas", and the above-stated percentage is herein
referred to as the "Producers' Percentage". The specific fields from which the
VICO Contract Gas will be committed are identified in the supplemental
memorandum entered into among PERTAMINA, Contractors and the production sharing
contractors in the Other Contract Areas pursuant to the Memorandum of
Understanding Re: Supply Agreements and Package V Sales dated October 5, 1994
(the "Package V Supplemental Memorandum"). The VICO participating fields and
the quantities in each field comprising the VICO Contract Gas are as follows:
<TABLE>
<CAPTION>
Participating Fields Quantity of Gas (t.s.c.f.)
-------------------- --------------------------
<S> <C>
Badak 0.0232
Lampake 0.0020
Mutiara 0.0093
Nilam 0.0245
Pamaguan 0.0003
Semberah 0.0107
</TABLE>
- 4 -
<PAGE> 6
The quantities committed from each field are subject to revision from time to
time, as the reserves from the fields may be updated and as additional data,
from deliverability studies and otherwise, become available.
2.3 Other Contract Gas. To meet the balance of the MOA Net Gas
Requirement, constituting 0.2543 t.s.c.f., or 78.4044% thereof, sufficient
Natural Gas (and LNG resulting from the liquefaction thereof) will be committed
for supply and delivery by PERTAMINA and its production sharing contractors
from proved economically recoverable reserves of Natural Gas in the Other
Contract Areas by separate supply agreements, similar hereto and compatible
herewith, executed and delivered concurrently herewith (such amounts are herein
collectively referred to as the "Other Contract Gas"). The specific fields from
which the Other Contract Gas will be committed are also identified in the
Package V Supplemental Memorandum.
2.4 DeGolyer and MacNaughton Certification. The amounts of net Natural
Gas constituting the VICO Contract Gas and the Other Contract Gas are part of
the estimates of proved recoverable reserves of Natural Gas as certified by the
independent consultant firm of DeGolyer and MacNaughton in written statements
based on data available on May 31, 1994.
The quantities for the VICO Contract Gas and the Other Contract Gas
set forth in Sections 2.2 and 2.3 hereof and the Producers' Percentage were
established by PERTAMINA at a meeting on May 29, 1995 of the East Kalimantan
Gas Reserves Management Committee.
ARTICLE 3
COORDINATION OF GAS SUPPLY
The VICO Contract Gas and the Other Contract Gas may be produced from
participating fields at times and production rates which may change from time
to time during the term hereof so
- 5 -
<PAGE> 7
as to secure the optimal ultimate recovery of Natural Gas. The supply of
Natural Gas from the VICO Contract Area and the Other Contract Areas will be
coordinated by PERTAMINA so as to conserve and permit full utilization of such
Natural Gas. The sources of supply, producing rates, quality of gas, metering
and related matters shall be matters for study by the East Kalimantan Gas
Reserves Management Committee, consisting of representatives from PERTAMINA,
VICO, TOTAL Indonesie and Unocal Indonesia Company.
ARTICLE 4
ADMINISTRATION, INSURANCE AND CONSULTATION
4.1 MOA. PERTAMINA shall be responsible for the due and prompt
administration of the MOA for the benefit of PERTAMINA and Contractors. All
matters which affect the MOA or the sale, transportation and delivery of LNG
thereunder will be administered by a representative to be appointed by
PERTAMINA and the representative appointed by Contractors under Article 9
hereof. It is understood, however, that it will be necessary from time to time
for PERTAMINA, as seller under the MOA, to take certain administrative and
operational actions without prior consultation where immediate action is
required. Contractors will be promptly advised of any such action.
4.2 Insurance. PERTAMINA shall ensure that the interests of it and
each Contractor in respect of each ex-ship cargo of LNG transported by
PERTAMINA from the Bontang Plant to Buyer shall be adequately insured pursuant
to arrangements mutually agreed to by PERTAMINA and each Contractor. PERTAMINA
and each Contractor shall be entitled to receive its Production Sharing
Percentage of the Producers' Percentage of any proceeds paid under a marine
insurance policy covering an ex-ship cargo of LNG being transported from the
Bontang Plant. Such proceeds shall be remitted by the insurer directly to the
bank designated as Trustee pursuant to Article 6 hereof.
- 6 -
<PAGE> 8
4.3 Consultation. PERTAMINA and Contractors agree to consult with each
other freely on all matters relating to the MOA. PERTAMINA and Contractors
shall confer and agree as to any amendment to the MOA or to any permitted
action or election thereunder which constitutes a material adjustment in the
quantities of LNG to be sold and delivered thereunder or a change in the terms
thereof. At the request of any party hereto, a memorandum evidencing any such
agreement shall be prepared as soon as feasible and signed by each party
hereto.
ARTICLE 5
TITLE, DELIVERY AND INVOICING
5.1 Title. PERTAMINA will cause the LNG resulting from the
liquefaction of the VICO Contract Gas and the Other Contract Gas to be
delivered to Buyer at the "Delivery Point" as that term is defined in the MOA.
Title to each Contractor's share of the LNG resulting from the liquefaction of
the VICO Contract Gas shall pass to PERTAMINA at the same time as the passage
of title from PERTAMINA to Buyer pursuant to the MOA.
5.2 Delivery and Invoicing. At the time of delivery of each cargo of
LNG to Buyer at the relevant "Delivery Point", PERTAMINA will furnish
Contractors with appropriate documentation to evidence the quantity and quality
of LNG delivered, together with copies of the invoices to Buyer in respect of
the sale of LNG in question. PERTAMINA will also furnish Contractors with a
copy of each invoice or billing delivered to Buyer on account of interest or
other payment obligation of Buyer pursuant to the MOA concurrently with its
being furnished to Buyer. Calculation of the Contract Sales Price as provided
for in the MOA, the amount of sales invoices and other billings to Buyer, and
any adjustments, shall be reviewed and approved by PERTAMINA and Contractors
prior to presentation to Buyer.
- 7 -
<PAGE> 9
ARTICLE 6
ENTITLEMENT AND PAYMENT
6.1 Contractor Entitlement. The amounts to be paid to each Contractor
for its share of the LNG resulting from the liquefaction of Natural Gas to be
supplied under this Supply Agreement shall be its Production Sharing Percentage
of the Producers' Percentage of the sum of:
(a) all amounts to be paid by Buyer to PERTAMINA for LNG sold and
delivered under the MOA;
(b) all other amounts which Buyer shall become obligated to pay
pursuant to the MOA with regard to deliveries of LNG thereunder including, but
not limited to, any interest accruing on overdue invoice payments;
(c) amounts payable by insurers in respect of LNG resulting from the
liquefaction of the VICO Contract Gas and the Other Contract Gas; and
(d) interest earned on any of the amounts referred to in this Section
6.1.
6.2 PERTAMINA Assignment of Contractor Percentage Share. In order to
arrange for the receipt by each Contractor of the payments to which such
Contractor is entitled under Section 6.1 hereof, PERTAMINA hereby assigns to
each Contractor that Contractor's Production Sharing Percentage of the
Producers' Percentage of all amounts referred to in Section 6.1 hereof.
6.3 Method of Payment. Throughout the term of this Supply Agreement,
all those payments referred to in Section 6.1 hereof shall be paid in U.S.
Dollars, directly to BankAmerica International in New York City (or such other
leading bank in the United States as shall be selected by PERTAMINA and approved
by Contractors) pursuant to a Trustee and Paying Agent Agreement, the parties to
which shall be PERTAMINA, Contractors, the production sharing contractors in the
Other Contract Areas and the Trustee thereunder. Amounts so received by the
Trustee shall be used for payment of (i) Financing Costs; (ii) an agreed portion
of Plant
- 8 -
<PAGE> 10
Operating Costs; (iii) Transportation Costs in respect of the ex-ship cargoes;
and (iv) other costs approved by PERTAMINA and Contractors. Amounts received by
the Trustee, to the extent that they are not used for payment of the costs
referred to in the preceding sentence, shall, insofar as they are applicable to
the VICO Contract Gas, be disbursed to PERTAMINA and each Contractor in
accordance with its Production Sharing Percentage at a bank or banks of its
choice.
6.4 Contractors' Right to Payment. The right of Contractors to the
payments provided for in this Article 6 shall extend throughout the term of
this Supply Agreement and shall not be affected by the production rates or
sources of Natural Gas supplied from the VICO Contract Gas or the Other
Contract Gas from time to time during the term hereof.
ARTICLE 7
DELIVERABILITY
7.1 Oversupply of VICO Contract Gas. If the quantities of net Natural
Gas produced from the participating fields within the VICO Contract Area and
delivered pursuant to this Supply Agreement exceed in the aggregate the
quantity of the VICO Contract Gas, the Producers' Percentage (and the
percentage of the revenues to be paid to PERTAMINA and Contractors hereunder)
will not be increased, and Contractors, together with PERTAMINA, will be
credited with and have the right to receive revenue from future marketing
opportunities in respect of a quantity of net Natural Gas from reserves in the
Other Contract Areas equal to such excess quantities.
7.2 Shortfall of VICO Contract Gas. If the quantities of net Natural
Gas produced from the participating fields within the VICO Contract Area and
delivered pursuant to this Supply Agreement are in the aggregate less than the
quantity of the VICO Contract Gas, the Producers' Percentage (and the
percentage of the revenues to be paid to PERTAMINA and Contractors hereunder)
will not be reduced, and the production sharing contractors in the Other
Contract Areas
- 9 -
<PAGE> 11
and any new contract area, together with PERTAMINA, will be credited with and
have the right to receive revenue from future marketing opportunities in
respect of a quantity of net Natural Gas from reserves in the VICO Contract
Area equal to excess quantities delivered from sources within the Gas Supply
Area.
ARTICLE 8
ARBITRATION AND GOVERNING LAW
8.1 Arbitration. All disputes arising in connection with this Supply
Agreement shall be finally settled by arbitration conducted in the English
language in Paris, France, by three arbitrators under the Rules of Arbitration
of the International Chamber of Commerce. Judgment upon the award rendered may
be entered in any court having jurisdiction, or application may be made to such
court for a juridical acceptance of the award and an order of enforcement, as
the case may be.
8.2 Governing Law. This Supply Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York, United States
of America.
ARTICLE 9
CONTRACTORS' REPRESENTATIVE
VICO is designated representative by Contractors for performance on
behalf of Contractors of their obligation under Section 4.1 hereof and for the
giving of notices, responses or other communications to and from Contractors
under this Supply Agreement. Such representative may be changed by written
notice to such effect from Contractors to PERTAMINA.
- 10 -
<PAGE> 12
ARTICLE 10
NOTICES
Any notices to the parties shall be in writing and sent by mail,
cable, telex or facsimile to the following addresses:
To PERTAMINA:
PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA
(PERTAMINA)
Jalan Medan Merdeka Timur 1 A
Jakarta, Indonesia
Attention: Head of BPPKA
Cable: PERTAMINA, Jakarta, Indonesia
Telex: PERTAMINA, 44134 Jakarta
Facsimile: 3846932
To Contractors:
VIRGINIA INDONESIA COMPANY (VICO)
6th Floor, Kuningan Plaza
South Tower
Jl. H.R. Rasuna Said Kav. C11-14
P.O. Box 2828
Jakarta Selatan, Indonesia
Attention: President - VICO Indonesia
Cable: VICO
Telex: 62458 or 62468
Facsimile: 523-6100
- 11 -
<PAGE> 13
cc: VIRGINIA INDONESIA COMPANY
One Houston Center
1221 McKinney
Suite 700
P.O. Box 1551
Houston, Texas 77251-1551
U.S.A.
Attention: Chairman
Telex: 166-100
Facsimile: (713) 754-6698
A party may change its address by written notice to the other parties.
ARTICLE 11
MISCELLANEOUS
11.1 Amendment. This Supply Agreement shall not be amended or modified
except by written agreement signed by the parties hereto.
11.2 Successors and Assigns. This Supply Agreement shall inure to the
benefit of, and be binding upon, PERTAMINA and each Contractor, their
respective successors and assigns, provided that this Supply Agreement shall be
assignable by a Contractor only if such Contractor concurrently assigns to the
same assignee an equal interest in the Production Sharing Contracts.
11.3 Exclusivity. The parties to this Supply Agreement shall be the
only persons or entities entitled to enforce the obligations hereunder of the
other parties hereto, and no persons or entities not parties to this Supply
Agreement shall have the right to enforce any of the obligations hereunder of
any of the parties hereto.
- 12 -
<PAGE> 14
11.4 Headings and Subheadings. The Article headings and subheadings
used herein are for convenience of reference only.
IN WITNESS WHEREOF, PERTAMINA and Contractors have caused their duly
authorized representatives to execute this Supply Agreement as of the day and
year first written above.
PERUSAHAAN PERTAMBANGAN MINYAK CONTRACTORS:
DAN GAS BUMI NEGARA (PERTAMINA)
VIRGINIA INDONESIA COMPANY
BY /s/ [ILLEGIBLE] BY /s/ [ILLEGIBLE]
----------------------------- -----------------------------
LASMO SANGA SANGA LIMITED
BY /s/ [ILLEGIBLE]
-----------------------------
OPICOIL HOUSTON, INC.
BY /s/ [ILLEGIBLE]
-----------------------------
UNION TEXAS EAST KALIMANTAN
LIMITED
BY /s/ J.E. KNIGHT
-----------------------------
Vice President
UNIVERSE GAS & OIL COMPANY, INC.
BY /s/ [ILLEGIBLE]
-----------------------------
VIRGINIA INTERNATIONAL COMPANY
BY /s/ [ILLEGIBLE]
-----------------------------
- 13 -
<PAGE> 1
MEMORANDUM OF AGREEMENT
between
PERTAMINA
and
CHINESE PETROLEUM CORPORATION
for
SALE AND PURCHASE OF LNG
during 1998 and 1999
Effective as of December 6, 1994
<PAGE> 2
This Memorandum of Agreement ("Agreement"), dated and effective as of December
6, 1994, is made by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI
NEGARA ("PERTAMINA") and CHINESE PETROLEUM CORPORATION ("CPC"), for the sale
and purchase of certain quantities of LNG as described below. PERTAMINA and CPC
are collectively referred to herein as the "Parties".
WHEREAS, PERTAMINA and CPC are parties to the Badak III LNG Sales Contract, and
certain Side Letters and a Disputed Force Majeure Account Agreement, all dated
and effective as of March 19, l987 (collectively, the "Badak III LNG Sales
Contract") which are in full force and effect and which are unaffected by this
Agreement; and
WHEREAS, PERTAMINA desires to sell and CPC desires to purchase quantities of
LNG in addition to the quantities to be purchased under the terms of the Badak
III LNG Sales Contract.
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
Parties agree as follow:
ARTICLE I - TERM
This Agreement shall be effective as of the date first above written. The term
shall commence on January 1, 1998 and terminate on December 31, l999.
ARTICLE II - QUANTITY
(a) During the term of this Agreement, PERTAMINA shall sell and deliver to CPC
into its Receiving Facility at the Unloading Port and CPC shall purchase,
receive and pay for approximately 46,400 billion BTU's of LNG equivalent to
sixteen (16) cargo lots. Approximately
1
<PAGE> 3
8,700 billion BTU's of LNG, equivalent to three (3) cargo lots, shall be
delivered and taken during calendar year 1998 and approximately 37,700 billion
BTU's of LNG, equivalent to thirteen (13) cargo lots, shall be delivered and
taken during calendar year 1999.
(b) The Parties shall take all necessary actions to provide, as far as
reasonably possible, for even offtakes and deliveries of LNG under the terms of
this Agreement giving due consideration to the schedule of deliveries under the
terms of the Badak III LNG Sales Contract and other long term obligations of
PERTAMINA.
ARTICLE III - PRICE
The Contract Sales Price for the LNG delivered under this Agreement, expressed
in U.S. Dollars per million British Thermal Units (U.S.$/MMBTU), shall be the
sum of an LNG related component ("LNG Related Component") and a transportation
related component ("Transportation Related Component").
The LNG Related Component shall be 0.159 REP, where REP is the arithmetic
average of the realized export prices, in U.S. Dollars per barrel, F.O.B.
Indonesia, of all field classifications of Indonesian crude oils (including
condensate) then being sold and exported, except premium and except such prices
for spot sales.
The Transportation Related Component shall be U.S.$0.58/MMBTU as at January 1,
1994 escalated at 2.5% per annum thereafter; provided that if a cargo of LNG
sold and purchased hereunder is transported on an LNG tanker other than the
Dedicated Vessel or the Dwiputra, and if PERTAMINA's cost for such LNG tanker
is lower than the Transportation Related Component, then the parties will
consult with a view to agreeing on an appropriate adjustment of the
Transportation Related Component to apply to such cargo.
2
<PAGE> 4
ARTICLE IV - TRANSPORTATION
LNG sold and purchased hereunder may be transported on the Dedicated Vessel, or
on the Dwiputra, or on any other LNG tanker PERTAMINA decides to use, subject
to such LNG tanker being compatible with the Receiving Facility and having the
required port clearance authorizations and approvals from the R.O.C. and any
other relevant authorities. The Parties shall use their respective best efforts
to obtain such authorizations and approvals for such LNG tankers.
ARTICLE V - SOURCE OF SUPPLY
The Natural Gas to be processed into LNG and sold and delivered hereunder is to
be produced from the areas in East Kalimantan covered by production sharing
contracts between PERTAMINA and its relevant suppliers, and loaded at
PERTAMINA's facility at Bontang, East Kalimantan.
ARTICLE VI - GENERAL TERMS AND CONDITIONS
(a) All of the terms and conditions of the Badak III LNG Sales Contract ,
except for Article 7 thereof, shall apply, mutatis mutandis, to and be
incorporated in this Agreement. Any Implementation Procedure agreed between
PERTAMINA and CPC in relation to the Badak III LNG Sales Contract shall also
apply, mutatis mutandis, to the sale and purchase of LNG pursuant to this
Agreement.
(b) In the event of any conflict between the applicable terms and conditions of
the Badak III LNG Sales Contract and the terms and conditions of this
Agreement, the terms and conditions of this Agreement shall prevail.
3
<PAGE> 5
(c) Capitalized terms used herein shall have the same meaning as set forth in
the Badak III LNG Sales Contract unless otherwise specifically defined herein.
IN WITNESS WHEREOF, PERTAMINA and CPC have caused this Agreement to be entered
into by their respective duly authorized representatives as of the date first
above written.
PERUSAHAAN PERTAMBANGAN CHINESE PETROLEUM CORPORATION
MINYAK DAN GAS BUMI NEGARA (CPC)
(PERTAMINA)
/s/ F. ABDA'OE /s/ T.Y. CHANG
- ------------------------------------ ----------------------------------
By : F. Abda'oe By : T.Y. Chang
Title : President Director & C.E.O. Title : Chairman of the Board
4
<PAGE> 1
PACKAGE V SUPPLY AGREEMENT
(1998-1999 LNG SALES TO CHINESE PETROLEUM CORPORATION)
between
PERTAMINA
and
VIRGINIA INDONESIA COMPANY
LASMO SANGA SANGA LIMITED
OPICOIL HOUSTON, INC.
UNION TEXAS EAST KALIMANTAN LIMITED
UNIVERSE GAS & OIL COMPANY, INC.
and
VIRGINIA INTERNATIONAL COMPANY
Dated: June 16, 1995
Effective: December 6, 1994
<PAGE> 2
PACKAGE V SUPPLY AGREEMENT
(1998-1999 LNG SALES TO CHINESE PETROLEUM CORPORATION)
THIS SUPPLY AGREEMENT, made and entered into in Jakarta on June 16,
1995, by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA
("PERTAMINA"), on the one hand, and VIRGINIA INDONESIA COMPANY ("VICO"), LASMO
SANGA SANGA LIMITED, OPICOIL HOUSTON, INC., UNION TEXAS EAST KALIMANTAN
LIMITED, UNIVERSE GAS & OIL COMPANY, INC., and VIRGINIA INTERNATIONAL COMPANY
(herein referred to collectively as "Contractors" and individually as
"Contractor"), on the other hand,
WITNESSETH:
A. WHEREAS, Contractors individually own or control all of the
interest of "Contractors" in that certain Amended and Restated Production
Sharing Contract, dated April 23, 1990, but effective as of August 8, 1968
(such contract as hereafter amended is herein referred to as the "Amended and
Restated Production Sharing Contract") and that certain Production Sharing
Contract dated April 23, 1990, but effective as of August 8, 1998 (such
contract as hereafter amended is herein referred to as the "Renewed Production
Sharing Contract"). The Amended and Restated Production Sharing Contract and
the Renewed Production Sharing Contract are herein referred to collectively as
the "Production Sharing Contracts" and the area covered thereby is herein
referred to as the "VICO Contract Area"; and
B. WHEREAS, pursuant to the Production Sharing Contracts, each of
PERTAMINA and Contractors is entitled to take and receive, sell and freely
export its respective share of the Natural Gas produced and saved from the VICO
Contract Area (the percentage share of such Natural Gas to which each of
PERTAMINA and Contractors is entitled, as determined under the Production
Sharing Contracts, is herein referred to as the "Production Sharing Percentage"
of such party); and
<PAGE> 3
C. WHEREAS, the reserves of Natural Gas in the VICO Contract Area
exceed the reserves of Natural Gas committed to be produced, supplied and
delivered by PERTAMINA and Contractors to meet a portion of PERTAMINA's
existing obligations under LNG sales contracts, LPG sales contracts, and
domestic gas sales contracts; and
D. WHEREAS, PERTAMINA, with assistance from Contractors, has
constructed and expanded and is further expanding the Natural Gas liquefaction
and related facilities located at Bontang Bay, on the east coast of Kalimantan,
Indonesia (herein referred to as the "Bontang Plant"); and
E. WHEREAS, funds for the expansion of the liquefaction plant will be
provided to PERTAMINA through financing of the cost of such expansion on terms,
mutually agreeable to PERTAMINA and Contractors, which provide for the
repayment of funds provided pursuant to such financing and the cost of such
funds (repayment of funds and the cost of such funds are hereinafter referred
to as "Financing Costs"); and
F. WHEREAS, PERTAMINA and Contractors are parties to the Amended and
Restated Bontang Processing Agreement dated as of February 9, 1988 (as from
time to time amended, the "Processing Agreement"), which provides for the
operation of the Bontang Plant and the payment of the costs of such operation
(such costs as determined in accordance with the Processing Agreement are
herein referred to as "Plant Operating Costs"); and
G. WHEREAS, PERTAMINA and Contractors have agreed to use the Bontang
Plant in part for the liquefaction of the VICO Contract Gas (as defined in
Section 2.2 hereof) and the Other Contract Gas (as defined in Section 2.3
hereof); and
H. WHEREAS, PERTAMINA, in collaboration with Contractors and its
production sharing contractors in other contract areas in East Kalimantan
(herein referred to as the "Other Contract Areas"), has entered into a
Memorandum of Agreement dated December 6, 1994 ("MOA", and unless otherwise so
stated, any terms defined in the MOA shall have the same meanings when
- 2 -
<PAGE> 4
used herein) with Chinese Petroleum Corporation ("Buyer") pursuant to which
PERTAMINA is obligated to sell to Buyer certain quantities of LNG on an ex ship
basis; and
I. WHEREAS, the MOA provides that the Natural Gas to be processed into
LNG and sold by PERTAMINA under the MOA is to be produced from the areas in
East Kalimantan covered by production sharing contracts between PERTAMINA and
its suppliers, which consists of the VICO Contract Area and the Other Contract
Areas; and
J. WHEREAS, arrangements for the transportation of the ex ship
quantities pursuant to the MOA and for the payment of costs respecting such
transportation will be made on terms mutually agreeable to PERTAMINA and
Contractors (herein referred to as "Transportation Costs"); and
K. WHEREAS, PERTAMINA and each Contractor desire to supply and deliver
Natural Gas from the VICO Contract Area in support of the performance by
PERTAMINA of an agreed portion of its obligations under the MOA; and
L. WHEREAS, each Contractor desires to dispose of its Production
Sharing Percentage of the VICO Contract Gas (as herein defined) in accordance
with the terms of this Supply Agreement,
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
EFFECTIVE DATE AND DURATION
This Supply Agreement shall be effective as of December 6, 1994, and
shall terminate on the date when all rights and obligations of Contractors
hereunder have been satisfied.
- 3 -
<PAGE> 5
ARTICLE 2
SUPPLY COMMITMENT AND QUANTITY
2.1 Net Gas Requirement. The total quantity of net Natural Gas
required to be supplied and delivered out of proved recoverable reserves of
Natural Gas in East Kalimantan for liquefaction and sale as LNG under the MOA
is estimated to be 0.0482 trillion standard cubic feet ("t.s.c.f."). Such
quantity is herein referred to as the "MOA Net Gas Requirement". The MOA Net
Gas Requirement is based on the Fixed Quantities which Buyer has committed to
purchase pursuant to the terms of the MOA.
2.2 VICO Contract Gas. PERTAMINA and Contractors hereby commit and
agree to supply and deliver from proved economically recoverable reserves of
Natural Gas in specific fields within the VICO Contract Area sufficient Natural
Gas (and LNG resulting from the liquefaction thereof) to meet a portion of the
MOA Net Gas Requirement over the term of this Supply Agreement consisting of
0.0104 t.s.c.f., or 21.5956% thereof. Such quantities of net Natural Gas
committed to be supplied pursuant to this Supply Agreement are herein referred
to as the "VICO Contract Gas", and the above-stated percentage is herein
referred to as the "Producers' Percentage". The specific fields from which the
VICO Contract Gas will be committed are identified in the supplemental
memorandum entered into among PERTAMINA, Contractors and the production sharing
contractors in the Other Contract Areas pursuant to the Memorandum of
Understanding Re: Supply Agreements and Package V Sales dated October 5, 1994
(the "Package V Supplemental Memorandum"). The VICO participating fields and
the quantities in each field comprising the VICO Contract Gas are as follows:
<TABLE>
<CAPTION>
Participating Fields Quantity of Gas (t.s.c.f.)
-------------------- --------------------------
<S> <C>
Badak 0.0034
Lampake 0.0003
Mutiara 0.0014
Nilam 0.0036
Pamaguan 0.0000
Semberah 0.0016
</TABLE>
- 4 -
<PAGE> 6
The quantities committed from each field are subject to revision from time to
time, as the reserves from the fields may be updated and as additional data,
from deliverability studies and otherwise, become available.
2.3 Other Contract Gas. To meet the balance of the MOA Net Gas
Requirement, constituting 0.0378 t.s.c.f., or 78.4044% thereof, sufficient
Natural Gas (and LNG resulting from the liquefaction thereof) will be committed
for supply and delivery by PERTAMINA and its production sharing contractors
from proved economically recoverable reserves of Natural Gas in the Other
Contract Areas by separate supply agreements, similar hereto and compatible
herewith, executed and delivered concurrently herewith (such amounts are herein
collectively referred to as the "Other Contract Gas"). The specific fields from
which the Other Contract Gas will be committed are also identified in the
Package V Supplemental Memorandum.
2.4 DeGolyer and MacNaughton Certification. The amounts of net Natural
Gas constituting the VICO Contract Gas and the Other Contract Gas are part of
the estimates of proved recoverable reserves of Natural Gas as certified by the
independent consultant firm of DeGolyer and MacNaughton in written statements
based on data available on May 31, 1994.
The quantities for the VICO Contract Gas and the Other Contract Gas
set forth in Sections 2.2 and 2.3 hereof and the Producers' Percentage were
established by PERTAMINA at a meeting on May 29, 1995 of the East Kalimantan
Gas Reserves Management Committee.
ARTICLE 3
COORDINATION OF GAS SUPPLY
The VICO Contract Gas and the Other Contract Gas may be produced from
participating fields at times and production rates which may change from time
to time during the term hereof so as to secure the optimal ultimate recovery of
Natural Gas. The supply of Natural Gas from the VICO
- 5 -
<PAGE> 7
Contract Area and the Other Contract Areas will be coordinated by PERTAMINA so
as to conserve and permit full utilization of such Natural Gas. The sources of
supply, producing rates, quality of gas, metering and related matters shall be
matters for study by the East Kalimantan Gas Reserves Management Committee,
consisting of representatives from PERTAMINA, VICO, TOTAL Indonesie and Unocal
Indonesia Company.
ARTICLE 4
ADMINISTRATION, INSURANCE AND CONSULTATION
4.1 MOA. PERTAMINA shall be responsible for the due and prompt
administration of the MOA for the benefit of PERTAMINA and Contractors. All
matters which affect the MOA or the sale, transportation and delivery of LNG
thereunder will be administered by a representative to be appointed by
PERTAMINA and the representative appointed by Contractors under Article 9
hereof. It is understood, however, that it will be necessary from time to time
for PERTAMINA, as seller under the MOA, to take certain administrative and
operational actions without prior consultation where immediate action is
required. Contractors will be promptly advised of any such action.
4.2 Insurance. PERTAMINA shall ensure that the interests of it and
each Contractor in respect of each cargo of LNG transported by PERTAMINA from
the Bontang Plant to Buyer shall be adequately insured pursuant to arrangements
mutually agreed to by PERTAMINA and each Contractor. PERTAMINA and each
Contractor shall be entitled to receive its Production Sharing Percentage of
the Producers' Percentage of any proceeds paid under a marine insurance policy
covering a cargo of LNG being transported from the Bontang Plant. Such proceeds
shall be remitted by the insurer directly to the bank designated as Trustee
pursuant to Article 6 hereof.
4.3 Consultation. PERTAMINA and Contractors agree to consult with each
other freely on all matters relating to the MOA. PERTAMINA and Contractors
shall confer and agree as to any amendment to the MOA or to any permitted
action or election thereunder which constitutes
- 6 -
<PAGE> 8
a material adjustment in the quantities of LNG to be sold and delivered
thereunder or a change in the terms thereof. At the request of any party
hereto, a memorandum evidencing any such agreement shall be prepared as soon as
feasible and signed by each party hereto.
ARTICLE 5
TITLE, DELIVERY AND INVOICING
5.1 Title. PERTAMINA will cause the LNG resulting from the
liquefaction of the VICO Contract Gas and the Other Contract Gas to be
delivered to Buyer at the "Delivery Point" as that term is defined in the MOA.
Title to each Contractor's share of the LNG resulting from the liquefaction of
the VICO Contract Gas shall pass to PERTAMINA at the same time as the passage
of title from PERTAMINA to Buyer pursuant to the MOA.
5.2 Delivery and Invoicing. At the time of delivery of each cargo of
LNG to Buyer at the relevant "Delivery Point", PERTAMINA will furnish
Contractors with appropriate documentation to evidence the quantity and quality
of LNG delivered, together with copies of the invoices to Buyer in respect of
the sale of LNG in question. PERTAMINA will also furnish Contractors with a
copy of each invoice or billing delivered to Buyer on account of interest or
other payment obligation of Buyer pursuant to the MOA concurrently with its
being furnished to Buyer. Calculation of the Contract Sales Price as provided
for in the MOA, the amount of sales invoices and other billings to Buyer, and
any adjustments, shall be reviewed and approved by PERTAMINA and Contractors
prior to presentation to Buyer.
- 7 -
<PAGE> 9
ARTICLE 6
ENTITLEMENT AND PAYMENT
6.1 Contractor Entitlement. The amounts to be paid to each Contractor
for its share of the LNG resulting from the liquefaction of Natural Gas to be
supplied under this Supply Agreement shall be its Production Sharing Percentage
of the Producers' Percentage of the sum of:
(a) all amounts to be paid by Buyer to PERTAMINA for LNG sold and
delivered under the MOA;
(b) all other amounts which Buyer shall become obligated to pay
pursuant to the MOA with regard to deliveries of LNG thereunder including, but
not limited to any interest accruing on overdue invoice payments;
(c) amounts payable by insurers in respect of LNG resulting from the
liquefaction of the VICO Contract Gas and the Other Contract Gas; and
(d) interest earned on any of the amounts referred to in this Section
6.1.
6.2 PERTAMINA Assignment of Contractor Percentage Share. In order to
arrange for the receipt by each Contractor of the payments to which such
Contractor is entitled under Section 6.1 hereof, PERTAMINA hereby assigns to
each Contractor that Contractor's Production Sharing Percentage of the
Producers' Percentage of all amounts referred to in Section 6.1 hereof.
6.3 Method of Payment. Throughout the term of this Supply Agreement,
all those payments referred to in Section 6.1 hereof shall be paid in U.S.
Dollars, directly to BankAmerica International in New York City (or such other
leading bank in the United States as shall be selected by PERTAMINA and
approved by Contractors) pursuant to a Trustee and Paying Agent Agreement, the
parties to which shall be PERTAMINA, Contractors, the production sharing
contractors in the Other Contract Areas and the Trustee thereunder. Amounts so
received by the Trustee shall be used for payment of (i) Financing Costs; (ii)
an agreed portion of Plant Operating Costs; (iii)
- 8 -
<PAGE> 10
Transportation Costs; and (iv) other costs approved by PERTAMINA and
Contractors. Amounts received by the Trustee, to the extent that they are not
used for payment of the costs referred to in the preceding sentence, shall,
insofar as they are applicable to the VICO Contract Gas, be disbursed to
PERTAMINA and each Contractor in accordance with its Production Sharing
Percentage at a bank or banks of its choice.
6.4 Contractors' Right to Payment. The right of Contractors to the
payments provided for in this Article 6 shall extend throughout the term of
this Supply Agreement and shall not be affected by the production rates or
sources of Natural Gas supplied from the VICO Contract Gas or the Other
Contract Gas from time to time during the term hereof.
ARTICLE 7
DELIVERABILITY
7.1 Oversupply of VICO Contract Gas. If the quantities of net Natural
Gas produced from the participating fields within the VICO Contract Area and
delivered pursuant to this Supply Agreement exceed in the aggregate the
quantity of the VICO Contract Gas, the Producers' Percentage (and the
percentage of the revenues to be paid to PERTAMINA and Contractors hereunder)
will not be increased, and Contractors, together with PERTAMINA, will be
credited with and have the right to receive revenue from future marketing
opportunities in respect of a quantity of net Natural Gas from reserves in the
Other Contract Areas equal to such excess quantities.
7.2 Shortfall of VICO Contract Gas. If the quantities of net Natural
Gas produced from the participating fields within the VICO Contract Area and
delivered pursuant to this Supply Agreement are in the aggregate less than the
quantity of the VICO Contract Gas, the Producers' Percentage (and the
percentage of the revenues to be paid to PERTAMINA and Contractors hereunder)
will not be reduced, and the production sharing contractors in the Other
Contract Areas and any new contract area, together with PERTAMINA, will be
credited with and have the right to receive revenue from future marketing
opportunities in respect of a quantity of net Natural Gas from
- 9 -
<PAGE> 11
reserves in the VICO Contract Area equal to excess quantities delivered from
sources within the Gas Supply Area.
ARTICLE 8
ARBITRATION AND GOVERNING LAW
8.1 Arbitration. All disputes arising in connection with this Supply
Agreement shall be finally settled by arbitration conducted in the English
language in Paris, France, by three arbitrators under the Rules of Arbitration
of the International Chamber of Commerce. Judgment upon the award rendered may
be entered in any court having jurisdiction, or application may be made to such
court for a juridical acceptance of the award and an order of enforcement, as
the case may be.
8.2 Governing Law. This Supply Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York, United States
of America.
ARTICLE 9
CONTRACTORS' REPRESENTATIVE
VICO is designated representative by Contractors for performance on
behalf of Contractors of their obligation under Section 4.1 hereof and for the
giving of notices, responses or other communications to and from Contractors
under this Supply Agreement. Such representative may be changed by written
notice to such effect from Contractors to PERTAMINA.
- 10 -
<PAGE> 12
ARTICLE 10
NOTICES
Any notices to the parties shall be in writing and sent by mail,
cable, telex or facsimile to the following addresses:
To PERTAMINA:
PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA
(PERTAMINA)
Jalan Medan Merdeka Timur 1 A
Jakarta, Indonesia
Attention: Head of BPPKA
Cable: PERTAMINA, Jakarta, Indonesia
Telex: PERTAMINA, 44134 Jakarta
Facsimile: 3846932
To Contractors:
VIRGINIA INDONESIA COMPANY (VICO)
6th Floor, Kuningan Plaza
South Tower
Jl. H.R. Rasuna Said Kav. C11-14
P.O. Box 2828
Jakarta Selatan, Indonesia
Attention: President - VICO Indonesia
Cable: VICO
Telex: 62458 or 62468
Facsimile: 523-6100
- 11 -
<PAGE> 13
cc: VIRGINIA INDONESIA COMPANY
One Houston Center
1221 McKinney
Suite 700
P.O. Box 1551
Houston, Texas 77251-1551
U.S.A.
Attention: Chairman
Telex: 166-100
Facsimile: (713) 754-6698
A party may change its address by written notice to the other parties.
ARTICLE 11
MISCELLANEOUS
11.1 Amendment. This Supply Agreement shall not be amended or modified
except by written agreement signed by the parties hereto.
11.2 Successors and Assigns. This Supply Agreement shall inure to the
benefit of, and be binding upon, PERTAMINA and each Contractor, their
respective successors and assigns, provided that this Supply Agreement shall be
assignable by a Contractor only if such Contractor concurrently assigns to the
same assignee an equal interest in the Production Sharing Contracts.
11.3 Exclusivity. The parties to this Supply Agreement shall be the
only persons or entities entitled to enforce the obligations hereunder of the
other parties hereto, and no persons or entities not parties to this Supply
Agreement shall have the right to enforce any of the obligations hereunder of
any of the parties hereto.
11.4 Headings and Subheadings. The Article headings and subheadings
used herein are for convenience of reference only.
- 12 -
<PAGE> 14
IN WITNESS WHEREOF, PERTAMINA and Contractors have caused their duly
authorized representatives to execute this Supply Agreement as of the day and
year first written above.
PERUSAHAAN PERTAMBANGAN MINYAK CONTRACTORS:
DAN GAS BUMI NEGARA (PERTAMINA)
VIRGINIA INDONESIA COMPANY
BY /s/ [ILLEGIBLE] BY /s/ [ILLEGIBLE]
----------------------------- ------------------------------
LASMO SANGA SANGA LIMITED
BY /s/ [ILLEGIBLE]
------------------------------
OPICOIL HOUSTON, INC.
BY /s/ [ILLEGIBLE]
------------------------------
UNION TEXAS EAST KALIMANTAN
LIMITED
BY /s/ J.E. KNIGHT
------------------------------
Vice President
UNIVERSE GAS & OIL COMPANY, INC.
BY /s/ [ILLEGIBLE]
------------------------------
VIRGINIA INTERNATIONAL COMPANY
BY /s/ [ILLEGIBLE]
------------------------------
- 13 -
<PAGE> 1
TRUST UNDER
THE UNION TEXAS PETROLEUM DEFERRED COMPENSATION PLAN
This AGREEMENT, made this 1st day of October, 1997, by and between UNION
TEXAS PETROLEUM HOLDINGS, INC., a Delaware corporation (the "Company"), and
VANGUARD FIDUCIARY TRUST COMPANY, a trust company incorporated under Chapter 10
of the Pennsylvania Banking Code ("Trustee").
WITNESSETH:
WHEREAS, the Company has adopted the UNION TEXAS PETROLEUM DEFERRED
COMPENSATION PLAN (the "Plan");
WHEREAS, the Company has incurred or expects to incur liability under the
terms of such Plan with respect to the individuals participating in such Plan;
WHEREAS, the Company wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of Company's creditors in the event of Company's
Insolvency, as herein defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended;
<PAGE> 2
WHEREAS, it is the intention of Company to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows;
SECTION 1. Establishment of Trust.
(a) The Company shall from time to time deposit amounts with Trustee in
trust which shall become the principal of the Trust to be held, administered
and disposed of by Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively
for the uses and purposes of Plan participants and general creditors as herein
set forth. Plan participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust.
Any rights created under the Plan and this Trust Agreement shall be mere
unsecured contractual rights of Plan participants and their beneficiaries
against Company. Any assets held by the Trust will be subject to the claims of
Company's general creditors under federal and state law in the event of
insolvency, as defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or from time to time,
make additional deposits of cash or other property in trust with Trustee to
augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Plan participant or
beneficiary shall have any right to compel such additional deposits.
2
<PAGE> 3
SECTION 2. Payments to Plan Participants and Their Beneficiaries
(a) Company shall deliver to Trustee a schedule (the "Payment Schedule")
that indicates the amounts payable in respect of each Plan participant (and his
or her beneficiaries), that provides a formula or other instructions acceptable
to Trustee for determining the amounts so payable, the form in which such
amount is to be paid (as provided for or available under the Plan), and the
time of commencement for payment of such amounts. Except as otherwise provided
herein, Trustee shall make payments to the Plan participants and their
beneficiaries in accordance with such Payment Schedule. The Trustee shall make
provision for the reporting and withholding of any federal, state or local
taxes that may be required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plan and shall pay amounts withheld to
the appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by Company.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by Company or such party as it
shall designate under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.
(c) Company may make payment of benefits directly to Plan participants or
their beneficiaries as they become due under the terms of the Plan. Company
shall notify Trustee of its decision to make payment of benefits directly prior
to the time amounts are payable to participants or their beneficiaries. In
addition, if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of the
Plan, Company shall make the balance of each such payment as it falls due.
Trustee shall notify Company where principal and earnings are not sufficient.
SECTION 3. Trustee Responsibility Regarding Payments to Trust Beneficiary When
Company is Insolvent
(a) Trustee shall cease payment of benefits to Plan participants and their
beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to
pay its debts as they become due, or (ii) Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
3
<PAGE> 4
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of
Company shall have the duty to inform Trustee in writing of Company's
Insolvency. If a person claiming to be a creditor of Company alleges in writing
to Trustee that Company has become Insolvent, Trustee shall determine whether
Company is Insolvent and, pending such determination, Trustee shall discontinue
payment of benefits to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person claiming to be a
creditor alleging that Company is Insolvent, Trustee shall have no duty to
inquire whether Company is Insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be furnished to Trustee and that
provides Trustee with a reasonable basis for making a determination concerning
Company's solvency.
(3) If at any time Trustee has determined that Company is
Insolvent, the Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of Plan participants or their beneficiaries to pursue their
rights as general creditors of Company with respect to benefits due under the
Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or beneficiaries in accordance with Section 2 of this Trust
Agreement only after Trustee has determined that Company is not Insolvent (or
is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to subsection 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate
4
<PAGE> 5
amount of any payments made to Plan participants or their beneficiaries by
Company in lieu of the payments provided for hereunder during any such period
of discontinuance.
SECTION 4. Payments to Company.
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, Company shall have no right or power to direct Trustee to return
to Company or to divert to others any of the Trust assets before all payments
of benefits have been made to Plan participants and their beneficiaries
pursuant to the terms of the Plan.
SECTION 5. Investment Authority.
(a) Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by the Company. All rights associated with assets
of the Trust shall be exercised by Trustee or the person designated by Trustee,
and shall in no event be exercisable by the Company, except that voting rights
with respect to Trust assets will be exercised by the Company, and except that
dividend rights with respect to Trust assets will rest with the Company. Company
shall have the right at anytime, and from time to time in its sole discretion,
to substitute assets of equal fair market value for any asset held by the Trust.
This right is exercisable by the Company in a non-fiduciary capacity without the
approval or consent of any person in a fiduciary capacity.
(b) The Trust shall be invested by the Trustee among any of the regulated
investment companies maintained by the Vanguard Group, Inc. which have been
previously designated as investment fund alternatives by the Company (the
"Investment Funds"). The Company shall notify the Trustee in writing of the
selection of the Investment Funds and any changes thereto. The Trustee shall
invest in the Trust in accordance with the written directions of the Company or
to the extent that such directions are not received for all or a portion of the
Trust, in the Trustee's discretion among any of the Investment Funds. The
Trustee shall have no liability or responsibility for acting without question on
the written direction of the Company, or for the exercise of investment
discretion in the absence of written direction from the Company, unless such
actions are contrary to the express provisions of this Trust Agreement. The
Company will indemnify the Trustee for liability to any party resulting from the
Trustee acting without question on the written direction of the Company, and for
liability to any party resulting from the exercise
5
<PAGE> 6
of investment discretion in the absence of written investment direction from the
Company as to all or a portion of the Trust, unless such actions are contrary to
the express provisions of this Trust Agreement, such direction or are the result
of the Trustee's negligence or willful misconduct.
SECTION 6. Disposition of Income.
During the term of the Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7. Accounting by Trustee.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between
Company and Trustee. Within one hundred and twenty (120) days following the
close of each calendar year and within one hundred and twenty (120) days after
the removal or resignation of Trustee, Trustee shall deliver to Company a
written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
SECTION 8. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims, provided, however, that Trustee shall incur
no liability to any person for any action taken pursuant to a direction, request
or approval given by Company which is contemplated by, and in conformity with,
the terms of the Plan or this Trust and is given in writing by Company. In the
event of a dispute between Company and a party, Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
6
<PAGE> 7
(b) If Trustee undertakes or defends any litigation against the Company
arising in connection with this Trust, Company agrees to indemnify Trustee
against Trustee's costs, expenses and liabilities (including, without
limitation, attorney's fees and expenses) relating thereto and to be primarily
liable for such payments. If Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, Trustee may obtain payment from the
Trust except claims brought against the Company as a direct result of the
Trustee's negligence, willful misconduct, lack of good faith or breach of its
duties under this Agreement.
(c) Trustee may consult with legal counsel (who may also be counsel
for Company generally) with respect to any of its duties or obligations
hereunder.
(d) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the
Trust, Trustee shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from conversion of the policy
to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
(g) Unless resulting from the Trustee's negligence, willful misconduct,
lack of good faith, or breach of its duties under this Agreement, the Company
shall indemnify and save harmless the Trustee from, against, for and in respect
of any and all damages, losses, obligations, liabilities, liens, deficiencies,
costs and expenses, including without limitation, reasonable attorney's fees
incident to any suit, action, investigation, claim or proceedings suffered,
sustained, incurred or required to be paid by the Trustee in
7
<PAGE> 8
connection with the Plan or this Agreement. If Company does not pay such costs,
expenses and liabilities for which it is liable hereunder in a reasonably timely
manner, Trustee may obtain payment from the Trust.
SECTION 9. Compensation and Expenses of Trustee.
Company shall pay all administrative and Trustee's fees and expenses within
a reasonable period of time following the notice of such fees and expenses
provided to the Company. If not so paid, the fees and expenses shall be paid
from the Trust.
SECTION 10. Resignation and Removal of Trustee.
(a) Trustee may resign at any time by written notice to Company, which
shall be effective thirty (30) days after receipt of such notice unless Company
and Trustee agree otherwise.
(b) Trustee may be removed by Company on thirty (30) days notice or upon
shorter notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor Trustee.
The transfer shall be completed within ninety (90) days after receipt of notice
of resignation, removal or transfer, unless Company extends the time limit.
(d) If Trustee resigns or is removed, a successor shall be appointed, in
accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this section. If no such appointment has
been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
SECTION 11. Appointment of Successor.
(a) If trustee resigns or is removed in accordance with Section 10(a) or
(b) hereof, Company may appoint any third party, such as a bank trust department
or other party that may be granted corporate
8
<PAGE> 9
trustee powers under state law, as a successor to replace Trustee upon
resignation or removal. The appointment shall be effective when accepted in
writing by the new trustee, who shall have all of the rights and powers of the
former Trustee, including ownership rights in the Trust assets. The former
Trustee shall execute any instrument necessary or reasonably requested by
Company or the successor trustee to evidence the transfer.
(b) The successor trustee need not examine the records and acts of any
prior trustee and may retain or dispose of existing Trust assets, subject to
Section 7 and 8 hereof. The successor trustee shall not be responsible for and
Company shall indemnify and defend the successor trustee from any claim or
liability resulting from any action or inaction of any prior trustee or from
any other past event or any condition existing at the time it becomes successor
trustee.
SECTION 12. Amendment or Termination
(a) This Trust Agreement may be amended by a written instrument executed
by Trustee and Company. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Plan or make the Trust revocable after it has
become irrevocable in accordance with Section 1(b) hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan. Upon termination of the Trust any assets remaining in
the Trust shall be returned to Company.
(c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan, Company may terminate
this Trust prior to the time all benefit payments under the Plan have been
made. All assets in the Trust at termination shall be returned to Company.
SECTION 13. Miscellaneous
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
9
<PAGE> 10
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
SECTION 14. Effective Date.
The effective date of this Trust Agreement shall be October 1, 1997.
IN WITNESS WHEREOF, this instrument has been executed as of the day and
year first above written.
ATTEST: UNION TEXAS PETROLEUM HOLDINGS, INC.
/s/ AMY J. WATKINS By: /s/ M.N. MARKOWITZ
- ------------------------------------- ---------------------------------
Title: V. P. and Treasurer
ATTEST: VANGUARD FIDUCIARY TRUST COMPANY
/s/ TAMMY HILLWORTH By: /s/ [ILLEGIBLE]
- ------------------------------------- ---------------------------------
Managing Director
10
<PAGE> 1
SUPPLEMENTAL MEMORANDUM
THIS SUPPLEMENTAL MEMORANDUM, dated as of August 24, 1983, by and
between Perusahaan Pertambangan Minyak Dan Gas Bumi Negara ("Pertamina"), on
the one hand, and Roy M. Huffington, Inc., Virginia International Company,
Ultramar Indonesia Limited (formerly Golden Eagle Indonesia Limited),
Indonesian Superior Oil Company (successor in interest to The Superior Oil
Company), Union Texas Far East Corporation and Universe Tankships, Inc. (herein
referred to collectively as "Contractors") on the other. Pertamina and
Contractors do hereby agree as follows:
ARTICLE 1
Definitions
1.1 As used herein, the following terms shall have the meanings
indicated below:
A. "Certified Reserves" shall mean those certain estimated
reserves of natural gas, certified by DeGolyer and MacNaughton in written
statements, dated on or before November 15, 1979, from which reserves the
Huffco Contract Gas, the Mahakam Contract Gas and the Attaka Contract Gas are
to be taken.
B. "Expansion Supply Agreement" shall mean that certain
Supply Agreement for Badak LNG Expansion Project, made and entered into as of
April 14, 1981, by and between Pertamina and Contractors (or, as to Indonesian
Superior Oil Company, its predecessor in interest).
C. "Memorandum of Understanding" shall mean that certain
Memorandum of Understanding, made and entered into as of April 14, 1981,
concurrently with the Expansion Supply Agreement by and between Pertamina,
Contractors (or, as to Indonesian Superior Oil Company, its predecessor in
interest), et al.
1
<PAGE> 2
1.2 All terms used herein which are defined in the Expansion Supply
Agreement.
ARTICLE 2
Purpose of Supplemental Memorandum
2.1 This Supplemental Memorandum is made pursuant to the provisions
of Sections 3.4 and 3.6 of the Expansion Supply Agreement and its purposes are
as follows:
A. To reflect the adjustments to the Certified Reserves
contemplated and provided for in Section 3.4 of the Expansion Supply Agreement
and in the Memorandum of Understanding. These adjustments have been completed.
B. To confirm the respective amounts of the Attaka Contract
Gas, the Huffco Contract Gas and the Mahakam Contract Gas after (a) the
adjustments referred to in subparagraph A next above, and (b) execution of the
Nilam Unit Agreement by Contractors and Total Indonesie, et al., the final
redetermination of "Participating Interests" thereunder, and the approval of
such Unit Agreement and Participating Interests by Pertamina. The Nilam Unit
Agreement has been executed, such Participating Interest have been finally
redetermined and each has been approved by Pertamina.
2
<PAGE> 3
ARTICLE 3
Amount of Attaka Contract Gas, Huffco
Contract Gas and Mahakam Contract Gas, as Adjusted
3.1 The Badak LNG Sales Contract Gas Requirement and the amounts of
Certified Reserves, after adjustments as contemplated and provided for in
Section 3.4 of the Expansion Supply Agreement and in the Memorandum of
Understanding are as set forth in the table attached hereto as Exhibit A and
hereby made a part hereof. This Supplemental Memorandum shall confirm the
agreement of Pertamina and the Contractors to such adjustments.
3.2 The respective amounts of the Attaka Contract Gas, the Huffco
Contract Gas and the Mahakam Contract Gas, after such adjustments and
application of the Nilam unit Agreement to that part of the Huffco Contract Gas
and the Mahakam Contract Gas located in the Nilam Field are as follows:
<TABLE>
<S> <C> <C> <C>
Attaka Contract Gas 0.1515 TSCF 4.3828%
Huffco Contract Gas 2.2960 TSCF 66.4310%
Mahakam Contract Gas 1.0088 TSCF 29.1862%
------ --------
Badak LNG Sales Contract
Gas Requirement 3.4563 TSCF 100.000%
</TABLE>
IN WITNESS WHEREOF, Pertamina and the Contractors have caused this
Supplemental Memorandum to be executed by their duly authorized representatives
effective as of this date first set forth above.
PERUSAHAAN PERTAMBANGAN MINYAK
DAN GAS BUMI NEGARA (PERTAMINA)
BY /s/
---------------------------------------------
ROY M. HUFFINGTON, INC.
BY /s/
---------------------------------------------
VIRGINIA INTERNATIONAL COMPANY
3
<PAGE> 4
BY /s/
---------------------------------------------
ULTRAMAR INDONESIA LIMITED
BY /s/
---------------------------------------------
INDONESIAN SUPERIOR OIL COMPANY
BY /s/
---------------------------------------------
UNION TEXAS FAR EAST CORPORATION
BY /s/
---------------------------------------------
UNIVERSE TANKSHIPS, INC.
BY /s/
---------------------------------------------
4
<PAGE> 5
EXHIBIT A
ATTACHMENT TO
ADDENDUM TO MEMORANDUM OF UNDERSTANDING APRIL 14, 1981
- ------------------------------
<TABLE>
<CAPTION>
REVENUE ALLOCATION CALCULATION
DATE 23 AUGUST 1983
(IN TSCF)
<S> <C> <C> <C> <C>
(1) FIELD BADAK NILAM HDL+MKB ATTAKA TOTAL
(2) TYPE OF GAS SOLUTION SOLUTION SOLUTION SOLUTION
GAS CAP NON ASS GAS CAP GAS CAP
NON ASS. NON ASS
(3) D&M RESERVES NOVEMBER 1979 5,179000 2,201000 1,332000 0.438000 9,150000
(4) WELLHEAD GAS FOR TRAIN A.B 3,726400 0.0 0.0 0.0 3,726400
(5) GAS AVAILABLE 1,452600 2,201000 1,332000 0.438000 5,423599
(6) SHRINKAGE IN THE FIELD (%) 1,990000 1,430000 0.0 0.0
0.028907 0.031474 0.0 0.0 0.060380
(7) ACTUAL F/F BEFORE LEX (TO 1/12/1982) 0.0 0.006500 0.369900 0.096600 0.473000
(8) FUTURE F/F TO LEX 0.007400 0.009900 0.009800 0.004000 0.031100
(9) NET GAS TO LEX 1.416292 2.153125 0.952300 0.337400 4.859116
(10) SHRINKAGE IN LEX (%) 0.0 0.0 1.901000 10.842000
0.0 0.0 0.018103 0.036581 0.054684
(11) ACTUAL F/F AFTER LEX (TO 1/12/1982) 0.0 0.0 0.0 0.105700 0.105700
(12) FUTURE F/F AFTER LEX 0.0 0.0 0.031300 0.013100 0.044400
(13) AVAILABLE FOR TRAIN C.D & KFP-1 1.416292 2.153125 0.902897 0.182019 4.654331
(14) CO2 + INERT (%) 3.005000 6.020006 8.637000 2.850000
0.042560 0.129618 0.077983 0.005188 0.255348
(15) C4 PLUS (%) 2.590000 1.355000 1.305000 0.040000
0.036682 0.029175 0.011783 0.000073 0.077712
(16) NET GAS AVAILABLE 1.337050 1.994331 0.813131 0.176759 4.321270
(17) NET GAS ALLOCABLE TO TRAIN C+D & KFP-1 1.221352 1.821756 0.813131 0.176759 4.032996
30.283966 45.171280 20.161942 4.382812
(18) NET GAS ALLOCABLE TO TRAIN C+D 1.046703 1.561254 0.696857 0.151483 3.456296
(19) NET GAS ALLOCABLE TO KFP-1 0.174648 0.260503 0.116274 0.025276 0.576700
(20) GROSS GAS ALLOCABLE TO TRAIN C+D 1.108737 1.685563 0.773707 0.155891 3.7244077
(21) GROSS GAS ALLOCABLE TO KFP-1 0.184998 0.281244 0.129118 0.026028 0.621380
(22) EXCESS 0.122557 0.186317 -0.000000 -0.000000 0.300874
</TABLE>
JAKARTA AUGUST 24, 1983.
5
<PAGE> 6
PERCENTAGE OF CONTRACT GAS
<TABLE>
<CAPTION>
1. ATTAKA CONTRACT GAS
-------------------
<S> <C> <C> <C>
1.1 ATTAKA 100% X 4.3828% = 4.3828%
-------
4.3828%
2. HUFFCO CONTRACT GAS
-------------------
2.1 BADAK 97.90% X 30.2840% = 29.6480%
2.2 NILAM 81.43% X 45.1713% = 36.7830%
--------
66.4310%
3. MAHAKAM CONTRACT GAS
--------------------
3.1 HANDIL/BEKAPAI 100% X 20.1619% = 20.1619%
3.2 BADAK 2.10% X 30.2840% = 0.6360%
3.3 NILAM 18.57% X 45.1713% = 8.3883%
-------
29.1862%
--------
TOTAL 100.00%
</TABLE>
JAKARTA, AUGUST 24, 1983
6
<PAGE> 7
CONTRACT GAS
(IN TSCF)
<TABLE>
<S> <C> <C> <C>
1. ATTAKA CONTRACT GAS :
-------------------
4.3828% X 3.4563 : 0.1515
2. HUFFCO CONTRACT GAS :
-------------------
66.4310% X 3.4563 : 2.2960
3. MAHAKAM CONTRACT GAS :
--------------------
29.1862% X 3.4563 : 1.0088
------
3.4563
</TABLE>
7
<PAGE> 1
SEVENTH
SUPPLY AGREEMENT
For
EXCESS SALES
(ADDITIONAL FIXED QUANTITIES UNDER
BADAK LNG SALES CONTRACT AS A RESULT OF
CONTRACT AMENDMENT AND RESTATEMENT)
BETWEEN
PERTAMINA
And
VIRGINIA INDONESIA COMPANY
OPICOIL HOUSTON, INC.
ULTRAMAR INDONESIA LIMITED
UNION TEXAS EAST KALIMANTAN LIMITED
UNIVERSE GAS & OIL COMPANY, INC.
And
VIRGINIA INTERNATIONAL COMPANY
Effective As Of January 1, 1990
<PAGE> 2
SEVENTH SUPPLY AGREEMENT
FOR EXCESS SALES
(ADDITIONAL FIXED QUANTITIES
UNDER BADAK LNG SALES CONTRACT AS A RESULT
OF CONTRACT AMENDMENT AND RESTATEMENT)
THIS AGREEMENT, made and entered into in Jakarta on the 28th day of
September, 1992, but effective as of the 1st day of January, 1990, by and
between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA ("PERTAMINA"), on
the one hand, and VIRGINIA INDONESIA COMPANY ("VICO"), OPICOIL HOUSTON, INC.,
ULTRAMAR INDONESIA LIMITED, UNION TEXAS EAST KALIMANTAN LIMITED, UNIVERSE GAS &
OIL COMPANY, INC., and VIRGINIA INTERNATIONAL COMPANY (herein referred to
collectively as "Contractors" and individually as "Contractor"), on the other
hand,
WITNESSETH:
WHEREAS, Contractors individually own or control all of the interest
of "Contractors" in that certain Amended and Restated Production Sharing
Contract, dated April 23, 1990, but effective as of August 8, 1968 (such
contract as hereafter amended is herein referred to as the "Amended and
Restated Production Sharing Contract") and that certain Production Sharing
Contract dated April 23, 1990, but effective as of August 8, 1998 (such
contract as hereafter amended is herein referred to as the "Renewed Production
Sharing Contract". The Amended and Restated Production Sharing Contract and
the Renewed Production Sharing Contract are herein referred to collectively as
the "Production Sharing Contracts" and the area covered thereby is herein
referred to as the "VICO Contract Area"); and
-1-
<PAGE> 3
WHEREAS, pursuant to the Production Sharing Contracts, each of
PERTAMINA and Contractors is entitled to take and receive, sell and freely
export its respective share of the natural gas produced and saved from the VICO
Contract Area (the percentage share of such natural gas to which each of
PERTAMINA and Contractors is entitled, as determined under the Production
Sharing Contracts, is herein referred to as the "Production Sharing Percentage"
of such party); and
WHEREAS, the reserves of natural gas in the VICO Contract Area exceed
the reserves committed to be produced, supplied and delivered by PERTAMINA and
Contractors to meet a portion of PERTAMINA's existing obligations under LNG
sales contracts, LPG sales contracts and domestic gas sales contracts; and
WHEREAS, PERTAMINA and Contractors are parties to the Amended and
Restated Bontang Processing Agreement dated as of February 9, 1988 (as from
time to time amended, the "Processing Agreement") which provides for the
operation of the natural gas liquefaction and related facilities located at
Bontang Bay, on the east coast of Kalimantan, Indonesia (herein referred to as
the "Bontang Plant") and the payment of the costs of such operation (such costs
as determined in accordance with the Processing Agreement are herein referred
to as "Plant Operating Costs"); and
-2-
<PAGE> 4
WHEREAS, PERTAMINA and Contractors have agreed to use the Bontang
Plant in part for the liquefaction of the VICO Contract Gas (as hereinafter
defined) and the Other Contract Gas (as hereinafter defined); and
WHEREAS, PERTAMINA, in collaboration with Contractors and its
production sharing contractors in other contract areas in East Kalimantan
(herein referred to as the "Other Contract Areas"), has entered into that
certain Badak LNG Sales Contract originally dated as of April 14, 1981, with
Chubu Electric Power Co., Inc., The Kansai Electric Power Co., Inc., Osaka Gas
Co., Ltd. and Toho Gas Co., Ltd. (herein referred to collectively as "Buyers"
and individually as a "Buyer"), and in support of the performance by PERTAMINA
of its obligations thereunder PERTAMINA and Contractors entered into a supply
agreement dated as of April 14, 1981 (herein referred to as the "Original
Supply Agreement"); and
WHEREAS, pursuant to a Memorandum of Agreement dated as of September
7, 1989, PERTAMINA and Buyers agreed to make certain changes to the price,
take-or-pay provisions and annual Fixed Quantities under the said Badak LNG
Sales Contract, and to give effect thereto PERTAMINA and Buyers have executed
an amendment and restatement of the said Badak LNG Sales Contract as of January
1, 1990 (such contract as so amended and restated being herein referred to as
the "1981 Sales Contract"), as a result of which the original annual Fixed
Quantities thereunder (the "Original Quantities") have been increased by the
following additional amounts of LNG (expressed in billions of BTU's) for each
year as stated in the second column in the table below (such quantities being
herein referred to as the "Additional Quantities") and accordingly
-3-
<PAGE> 5
the total increased Fixed Quantities under the 1981 Sales Contract for each
year comprises Additional Quantities and Original Quantities in the following
percentages stated in the third and fourth columns respectively in the table
below:
<TABLE>
<CAPTION>
Year Additional Additional Original
Quantities Quantities Quantities
(BBTU) (%) (%)
<S> <C> <C> <C>
1990 5,820 3.2915 96.7085
1991 8,730 4.8573 95.1427
1992 11,640 6.3732 93.6268
1993 14,550 7.8416 92.1584
1994-2002 17,460 9.2646 90.7354
2003 3,934 9.2648 90.7352
</TABLE>
(For the purposes of applying the further provisions hereof in any year the
percentage shown in the third column above in respect of such year is herein
referred to as the "Additional Quantities Percentage" and the percentage shown
in the fourth column above in respect of such year is herein referred to as the
"Original Quantities Percentage"); and
WHEREAS, PERTAMINA and each Contractor desire to supply and deliver
natural gas from the VICO Contract Area in support of the performance by
PERTAMINA of an agreed portion of its obligations to supply the Additional
Quantities; and
WHEREAS, each Contractor desires to dispose of its Production Sharing
Percentage of the VICO Contract Gas (as hereinafter defined) in accordance with
the terms of this Agreement,
-4-
<PAGE> 6
NOW, THEREFORE, the parties agree as follows:
-5-
<PAGE> 7
ARTICLE 1
This Agreement shall be effective as of January 1, 1990, and shall
terminate on the date that the 1981 Sales Contract terminates.
ARTICLE 2
2.1 The total quantity of net natural gas required to be supplied
and delivered out of recoverable reserves of natural gas in East Kalimantan for
liquefaction and sale as Additional Quantities is estimated to be 0.210
trillion standard cubic feet ("t.s.c.f.") (such quantity being herein referred
to as the "Additional Quantities Net Gas Requirement").
2.2 PERTAMINA and Contractors hereby commit and agree to supply
and deliver from recoverable reserves of natural gas in the VICO Contract Area
sufficient natural gas (and LNG resulting from the liquefaction thereof) to
meet a portion of the Additional Quantities Net Gas Requirement over the term
of this Agreement consisting of 0.062 t.s.c.f., or 29.6004% thereof. Such
quantity of net natural gas committed to be supplied pursuant to this Agreement
is herein referred to as the "VICO Contract Gas", and the above-stated
percentage is herein referred to as the "Producers' Percentage".
2.3 To meet the balance of the Additional Quantities Net Gas
Requirement, constituting 0.148 t.s.c.f., sufficient natural gas (and LNG
resulting from the liquefaction thereof) will be
-6-
<PAGE> 8
committed for supply and delivery by PERTAMINA and its production sharing
contractors from recoverable reserves of natural gas in the Other Contract
Areas by separate supply agreements, similar hereto and compatible herewith,
executed and delivered concurrently herewith (such amount being herein
collectively referred to as the "Other Contract Gas").
2.4 The amounts of net natural gas constituting the VICO Contract
Gas and the Other Contract Gas are part of the estimates of proved recoverable
reserves of natural gas as certified by the independent petroleum consultant
firm of DeGolyer and MacNaughton in written statements dated on or before April
10, 1986, based on data available on January 31, 1986.
ARTICLE 3
The VICO Contract Gas and the Other Contract Gas may be produced from
different fields at times and production rates which may change from time to
time during the term hereof so as to secure the optimal ultimate recovery of
natural gas. The supply of natural gas from the VICO Contract Area and the
Other Contract Areas will be coordinated among PERTAMINA, VICO and the
operators of the Other Contract Areas so as to conserve and permit full
utilization of such natural gas.
The sources of supply, producing rates, quality of gas, metering and
related matters shall be matters for study by the East Kalimantan Gas Reserves
Management Committee, consisting of representatives from PERTAMINA, VICO, Total
Indonesie and Unocal Indonesia, Ltd.
-7-
<PAGE> 9
ARTICLE 4
4.1 PERTAMINA shall be responsible for the due and prompt
administration of the 1981 Sales Contract for the benefit of PERTAMINA and
Contractors. All matters which affect the 1981 Sales Contract or the sale and
delivery of LNG thereunder will be administered by a representative to be
appointed by PERTAMINA and the representative appointed by Contractors under
Article 8. It is understood, however, where immediate action is required, it
may be necessary from time to time for PERTAMINA, as seller under the 1981
Sales Contract, to take certain administrative and operational actions without
prior consultation. Contractors will be promptly advised of any such action.
4.2 PERTAMINA and Contractors agree to consult with each other
freely on all matters relating to the 1981 Sales Contract. PERTAMINA and
Contractors shall confer and agree as to any amendment to the 1981 Sales
Contract and as to any permitted action or election thereunder which
constitutes a material adjustment in the quantities of LNG to be sold and
delivered thereunder or a change in the terms thereof. At the request of any
party hereto, a memorandum evidencing any such agreement shall be prepared as
soon as feasible and signed by each party hereto.
ARTICLE 5
5.1 PERTAMINA will cause the LNG resulting from the liquefaction
of the VICO
-8-
<PAGE> 10
Contract Gas and the Other Contract Gas to be delivered to Buyers at the
"Delivery Point" as defined in the 1981 Sales Contract. Title to each
Contractor's share of LNG extracted from the VICO Contract Gas shall pass to
PERTAMINA eo instante with the passage of title from PERTAMINA to each Buyer.
5.2 At the time of delivery of Additional Quantities to a Buyer at
the Delivery Point, PERTAMINA will furnish Contractors with appropriate
documentation to evidence the quantity and quality thereof, together with
copies of the invoices to such Buyer covering such shipment. PERTAMINA will
also furnish to Contractors a copy of each invoice or billing delivered to a
Buyer on account of other payment obligations of such Buyer under the 1981
Sales Contract concurrently with its being furnished to such Buyer.
Calculation of the "Contract Sales Price" under the 1981 Sales Contract, the
amount of sales invoices and other billings and any adjustments, shall be
reviewed and approved by PERTAMINA and Contractors prior to presentation to
Buyer.
ARTICLE 6
6.1 Subject to Section 6.6, a portion of each obligation
("Contract Obligation") due from a Buyer pursuant to the 1981 Sales Contract in
respect of quantities of LNG sold and delivered or in respect of quantities of
LNG required to be taken but which are not taken shall be deemed to constitute
an amount payable in respect of Additional Quantities (each such portion is
herein referred to as an "Additional Quantities Payment"). The Additional
Quantities Payment
-9-
<PAGE> 11
shall be calculated as the quantity of LNG (expressed in millions of BTU's)
upon which the relevant invoice is based (herein called the "Invoiced
Quantity") multiplied by the Additional Quantities Percentage multiplied by the
Contract Sales Price under the 1981 Sales Contract (as that term is defined
therein) in effect as of the date the relevant Contract Obligation accrued.
The Additional Quantities Payment shall be determined disregarding any
assignment by a Buyer of any of its rights or obligations under the 1981 Sales
Contract and shall not be reduced by any agreed invoice credit or set-off
(other than one in respect of a debt or obligation first arising on or after
January 1, 1990 applicable to the Additional Quantities) which reduces any
payment from a Buyer in respect of the relevant Contract Obligation. Subject
to the words in parentheses in the preceding sentence, if the net amount
actually received from such Buyer is less than the amount of such Contract
Obligation, such net amount received shall be first applied and deemed paid as
to the Additional Quantities Payment up to the whole amount thereof; and if
such net amount received is less than the Additional Quantities Payment, the
next following payment or payments received from any source in respect of the
1981 Sales Contract shall be first applied and deemed paid as to the shortfall
in the Additional Quantities Payment.
6.2 The amounts to be paid to each Contractor in respect of the
LNG resulting from the liquefaction of natural gas to be supplied under this
Agreement shall be:
(a) its Production Sharing Percentage of the Producers' Percentage
of each Transfer Amount (as hereinafter defined), together
with any interest accruing thereon, and
-10-
<PAGE> 12
(b) its Production Sharing Percentage of the Producers' Percentage
under the Original Supply Agreement of each Retained Amount
(as hereinafter defined), together with any interest accruing
thereon.
6.3 In order to arrange for the receipt by each Contractor of the
payments to which such Contractor is entitled under Section 6.2, PERTAMINA
hereby assigns to each Contractor its share as stated in Section 6.2 of each
Additional Quantities Payment, together with any interest accruing thereon.
6.4 Throughout the term of this Agreement, all monies paid in
respect of Additional Quantities Payments shall be paid in U.S. Dollars
directly to Continental Bank International in New York City (or such other
leading bank in the United States as shall be selected by PERTAMINA and
approved by Contractors) pursuant to that certain Bontang II Trustee and Paying
Agent Agreement, amended and restated as of July 15, 1991, as the same may be
further amended from time to time, among PERTAMINA, Contractors, the production
sharing contractors in the Other Contract Areas and the Trustee thereunder (the
trust thereby constituted being herein called the "Bontang II Trust"). The
said Trustee shall be required to segregate amounts received in respect of
Additional Quantities Payments from other amounts received from Buyers pursuant
to the 1981 Sales Contract.
Amounts so received in the Bontang II Trust shall be used for payment
of (i) an agreed portion of Plant Operating Costs, and (ii) other costs
approved by PERTAMINA and Contractors.
-11-
<PAGE> 13
Amounts so received in the Bontang II Trust, to the extent that they
are not used for the payments referred to in the preceding sentence, shall be
applied in accordance with Section 6.5.
6.5 Subject to Section 6.6, of each Additional Quantities Payment:
(a) there shall be retained in the Bontang II Trust an amount
(herein referred to as the "Retained Amount") calculated as
the Invoiced Quantity multiplied by the Original Quantities
Percentage multiplied by:
U.S.$0.04 during the calendar year 1990
U.S.$0.06 during the calendar year 1991
U.S.$0.08 during the calendar year 1992
U.S.$0.10 during the calendar year 1993
U.S.$0.12 from and after January 1, 1994.
In calculating the Retained Amount no deduction shall be made
in respect of Plant Operating Costs or other costs authorized
for payment out of the Bontang II Trust pursuant to Section
6.4.
(b) the balance after such retention (herein referred to as the
"Transfer Amount") shall be paid, after deducting the
Additional Quantities Percentage of any Plant Operating Costs
or other costs authorized for payment out of the Bontang II
Trust pursuant to Section 6.4, to Continental Bank
International in New York City
-12-
<PAGE> 14
pursuant to that certain Bontang Excess Sales Trustee and
Paying Agent Agreement, amended and restated as of February 9,
1988, as the same may be further amended from time to time,
among PERTAMINA, Contractors, the production sharing
contractors in the Other Contract Areas and the Trustee
thereunder (the trust thereby constituted being herein called
the "Excess Sales Trust").
If in accordance with the last sentence of Section 6.1 more than one
payment is received in respect of an Additional Quantities Payment (because of
a shortfall in the amount received in respect of the relevant Contract
Obligation), the amount of each such payment received, insofar as it is to be
applied to the Additional Quantities Payment, shall be divided in the
proportions that the Transfer Amount and the Retained Amount respectively bear
to the relevant Additional Quantities Payment, with the Transfer Amount portion
being paid to the Excess Sales Trust (after deduction of costs as prescribed in
paragraph (b) above), and the Retained Amount portion being retained in the
Bontang II Trust.
Payments in respect of interest on an Additional Quantities Payment
shall be allocated on a pro-rata basis between funds retained in the Bontang II
Trust and funds paid to the Excess Sales Trust pursuant to this Section 6.5
(the proportionate relationship to be that between the Retained Amount and
Transfer Amount, determined as of the date that the original Contract
Obligation on which interest is accruing was incurred).
-13-
<PAGE> 15
Amounts so retained in the Bontang II Trust or paid to the Excess
Sales Trust, shall, insofar as they are applicable to the VICO Contract Gas
(i.e., the net realized price for the VICO Contract Gas), be disbursed to
PERTAMINA and each Contractor in accordance with its Production Sharing
Percentage at a bank or banks of its choice.
PERTAMINA and Contractors will each give such instructions,
authorizations and approvals, and take such other action (including amendment
of the above-mentioned Badak Expansion Trustee and Paying Agent Agreement) as
may be required to cause the payments contemplated by this Section 6.5 to be
made.
6.6 If in or in respect of any year (the "Original Year") pursuant
to the 1981 Sales Contract a Buyer incurred an obligation to pay for quantities
of LNG not taken, exercised an Allowance, or was unable to take quantities of
LNG due to the occurrence or continuation of an event of Force Majeure, then
for the purposes of determining:
(a) the Additional Quantities Payment, and the amounts to be paid
to the Excess Sales Trust and retained in the Bontang II Trust
pursuant to Section 6.5, in respect of any consequent Contract
Obligation of such Buyer in respect of:
(i) a Quantity Deficiency, and/or
(ii) any consequent purchase by such Buyer of Make-Up LNG,
Make-Good LNG or Restoration Quantities, and
-14-
<PAGE> 16
(b) the quantities of natural gas supplied by PERTAMINA and
Contractors under this Supply Agreement in respect of any
purchase referred to in paragraph (a)(ii) above,
the Additional Quantities Percentage and the Original Quantities Percentage
shall be those applicable to the Original Year but the Contract Sales Price
shall be that in effect when the relevant Additional Quantities Payment is
invoiced (expressions defined in the 1981 Sales Contract shall have the same
meanings when used in this Section 6.6).
6.7 (a) The right of Contractors to the payments provided for
in this Article 6 shall extend throughout the term of this Agreement and shall
not be affected by the production rates or sources of natural gas supplied from
the VICO Contract Area or the Other Contract Areas from time to time during the
term hereof.
(b) If the quantities of net natural gas produced from
the VICO Contract Area and delivered pursuant to this Agreement exceed in the
aggregate the quantity of the VICO Contract Gas, the Producers' Percentage (and
the revenues to be paid to PERTAMINA and Contractors hereunder) will not be
increased, except in the event of an occurrence contemplated in Section 6.7(d),
and Contractors, together with PERTAMINA, will be credited with and have the
right to receive revenue from future marketing opportunities in respect of a
quantity of net natural gas from reserves in the Other Contract Areas equal to
such excess quantities.
(c) If the quantities of net natural gas produced from
the VICO Contract Area
-15-
<PAGE> 17
and delivered pursuant to this Agreement are in the aggregate less than the
quantity of the VICO Contract Gas, the Producers' Percentage (and the revenues
to be paid to PERTAMINA and Contractors hereunder) will not be reduced, except
in the event of an occurrence contemplated in Section 6.7(d), and the
production sharing contractors in the Other Contract Areas, together with
PERTAMINA, will be credited with and have the right to receive revenue from
future marketing opportunities in respect of a quantity of net natural gas from
reserves in the VICO Contract Area equal to excess quantities delivered from
sources within the Other Contract Areas.
(d) If an insufficiency of deliverable reserves of
natural gas shall occur which precludes the delivery from participating fields
within the VICO Contract Area or from participating fields within either or
both of the Other Contract Areas of the aggregate amount of natural gas
committed therefrom pursuant to this Agreement or to one or both of the supply
agreements referred to in Section 2.3 over the term thereof, then such
insufficiency shall be delivered from participating fields within the area(s)
not experiencing an insufficiency of deliverable reserves and the Producers'
Percentage shall thereupon be adjusted (together with a corresponding
adjustment to the VICO Contract Gas) to reflect the revised share of the net
natural gas in support of PERTAMINA's obligations in respect of the Additional
Quantities which will be supplied and delivered from the VICO Contract Area
over the term hereof, such adjustment in the Producers' Percentage to apply
only to payments provided for in this Article 6 received after the date
thereof. The procedure for determining (a) an insufficiency in deliverable
reserves, (b) the allocation between the VICO Contract Area and one of the
Other Contract Areas of the right to supply any deficiency in deliveries of the
Other Contract Gas or the allocation between
-16-
<PAGE> 18
the Other Contract Areas of the right to supply any deficiency in deliveries of
the VICO Contract Gas, and (c) the calculation of the future Producers'
Percentage shall be made in accordance with principles to be decided upon by
PERTAMINA.
ARTICLE 7
All disputes arising in connection with this Agreement shall be
finally settled by arbitration conducted in the English language in Paris,
France, by three arbitrators under the Rules of Arbitration of the
International Chamber of Commerce. Judgment upon the award rendered may be
entered in any court having jurisdiction, or application may be made to such
court for a juridical acceptance of the award and an order of enforcement, as
the case may be.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York, United States of America.
ARTICLE 8
VICO is designated representative by Contractors for performance on
behalf of Contractors of their obligation under Section 4.1 and for the giving
of notices, responses or other communications to and from Contractors under
this Agreement. Such representative may be changed by written notice to such
effect from Contractors to PERTAMINA.
-17-
<PAGE> 19
ARTICLE 9
Any notices to the parties shall be in writing and sent by mail or
telex to the following addresses:
TO PERTAMINA:
PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA
(PERTAMINA)
Jalan Medan Merdeka Timur 1 A
Jakarta, Indonesia
Attention: Head of BPPKA
Cable: PERTAMINA, Jakarta, Indonesia
Telex: PERTAMINA, 44134 Jakarta
Telecopy: 343882
TO CONTRACTORS:
VIRGINIA INDONESIA COMPANY (VICO)
6th Floor, Kuningan Plaza South Tower
JL. H.R. Rasuna Said Kav. C11-14
P.O. Box 2828
Jakarta Selatan, Indonesia
Attention: President - VICO Indonesia Division
Cable: VICO
Telex: 79644421
Telecopy: 5200174 or 3800037
cc: VIRGINIA INDONESIA COMPANY
One Houston Center
1221 McKinney
Suite 624
P.O. Box 1551
Houston, Texas 77251-1551
U.S.A.
Attention: Chairman
Telex: 166-100
Telecopy: (713) 754-6698
-18-
<PAGE> 20
A party may change its address by written notice to the other parties.
ARTICLE 10
10.1 This Agreement shall not be amended or modified except by
written agreement signed by the parties hereto.
10.2 This Agreement shall inure to the benefit of, and be binding
upon, PERTAMINA and each Contractor, their respective successors and assigns,
provided that this Agreement shall be assignable by a Contractor only if such
Contractor concurrently assigns to the same assignee an equal interest in the
Production Sharing Contract.
10.3 The parties to this Agreement shall be the only persons or
entities entitled to enforce the obligations hereunder of the other parties
hereto, and no persons or entities not parties to this Agreement shall have the
right to enforce any of the obligations hereunder of any of the parties hereto.
-19-
<PAGE> 21
IN WITNESS WHEREOF, PERTAMINA and Contractors have caused their duly
authorized representatives to execute this Agreement as of the day and year
first above written but effective as of January 1, 1990.
PERUSAHAAN PERTAMBANGAN VIRGINIA INDONESIA COMPANY
MINYAK DAN GAS BUMI NEGARA
(PERTAMINA)
By /s/ By /s/
------------------------- -------------------------
OPICOIL HOUSTON, INC.
By /s/
-------------------------
ULTRAMAR INDONESIA
LIMITED
By /s/
-------------------------
UNION TEXAS EAST
KALIMANTAN LIMITED
By /s/
-------------------------
UNIVERSE GAS & OIL
COMPANY, INC.
By /s/
-------------------------
VIRGINIA INTERNATIONAL
COMPANY
By /s/
-------------------------
-20-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Except as otherwise noted, Union Texas Petroleum Holdings, Inc. (the "Company")
holds, either directly or indirectly, all or substantially all of the voting
stock of the following corporations. Except as otherwise noted, all of the
corporations are incorporated in the state of Delaware.
ENSTAR Corporation (1)
ENSTAR Indonesia, Inc. (1)
ENSTAR Petroleum, Ltd. (1)(2)
Four Oaks Insurance, Ltd. (3)
Purchasing Services Inc. (1)
Unicon Producing Company (4)
Unimar Company (5)
Union Texas A&E-1, Inc.
Union Texas A&E-2, Inc.
Union Texas A&E-3, Inc.
Union Texas A&E-4, Inc.
Union Texas A&E-5, Inc.
Union Texas Acadia Corporation
Union Texas Adriatic, Inc.
Union Texas Alaska, L.L.C. (6)
Union Texas Albion, Inc.
Union Texas Algeria Limited (7)
Union Texas (Argentina) Ltd.
Union Texas Asia Corporation
Union Texas Azerbaijan Limited (7)
Union Texas Azerbaijan Services Limited (7)
Union Texas Bangladesh, Inc.
Union Texas Barakan, Inc.
Union Texas Bohai Limited (7)
Union Texas Brasil, Inc.
Union Texas Britannia Limited (8)
Union Texas Carthage, Inc.
Union Texas Central Asia Limited (7)
Union Texas Congolais Limited (7)
Union Texas de Bolivia Limited (7)
Union Texas de Ecuador Limited (7)
Union Texas Development Corporation
Union Texas do Brasil Limited (7)
Union Texas East Kalimantan Limited (7)
Union Texas Energy Development Limited (8)
Union Texas Espana, Inc.
Union Texas Finance, Inc.
Union Texas Gas Limited (8)
Union Texas Hellas, Inc.
Union Texas I Corporation
Union Texas International Corporation
-1-
<PAGE> 2
A&E-2, Ltd. (9)
A&E-3, Ltd. (9)
A&E-4, Ltd. (9)
A&E-5, Ltd. (9)
Union Texas Jordan Limited (7)
Union Texas (Kai) Limited (7)
Union Texas Lok Batan Limited (7)
Union Texas Petroleum Energy Corporation
Union Texas MA-1, Inc.
Union Texas MA-2, Inc.
Union Texas MA-3, Inc.
Union Texas MA-4, Inc.
Union Texas MA-5, Inc.
Union Texas MA-2, Ltd. (9)
Union Texas MA-3, Ltd. (9)
Union Texas MA-4, Ltd. (9)
Union Texas MA-5, Ltd. (9)
Union Texas Maghreb, Inc.
Union Texas Methane, Inc.
Union Texas Metropole, S.A. (10)
Union Texas Offshore Alpha-1, Inc.
Union Texas Offshore Alpha-2, Inc.
Union Texas Offshore Alpha-3, Inc.
Union Texas Offshore Alpha-4, Inc.
Union Texas Offshore Alpha-5, Inc.
Union Texas Offshore Alpha-2, Ltd. (9)
Union Texas Offshore Alpha-3, Ltd. (9)
Union Texas Offshore Alpha-4, Ltd. (9)
Union Texas Offshore Alpha-5, Ltd. (9)
Union Texas Offshore Beta-1, Inc.
Union Texas Offshore Beta-2, Inc.
Union Texas Offshore Beta-3, Inc.
Union Texas Offshore Beta-4, Inc.
Union Texas Offshore Beta-5, Inc.
Union Texas Offshore Beta-2, Ltd. (9)
Union Texas Offshore Beta-3, Ltd. (9)
Union Texas Offshore Beta-4, Ltd. (9)
Union Texas Offshore Beta-5, Ltd. (9)
Union Texas Offshore Corporation
Union Texas PNG, Inc.
Union Texas Pakistan, Inc.
Union Texas Pakistan Power Limited (7)
Union Texas Petrochemicals Corporation
Union Texas Petrochemicals Pipeline, Inc.
Union Texas Petroleum Limited (8)
Union Texas Petroleum Services Corporation
Union Texas Power Development Limited (7)
-2-
<PAGE> 3
Union Texas Qobustan Limited (7)
Union Texas Qobustan Operations Limited (7)
Union Texas (Rebi) Limited (7)
Union Texas South Atlantic, Inc.
Union Texas (South East Asia) Inc.
Union Texas South Pacific, Inc.
Union Texas (Tanimbar) Limited (7)
Union Texas Tomori, Inc.
Union Texas Trading Corporation
Union Texas Trans-Caucasus, Inc.
Union Texas (Transnational) Limited (7)
Union Texas Transportation Limited (8)
Union Texas Trinidad Limited (7)
Union Texas Tunisia, Inc.
Union Texas Venezuela Limited (7)
Union Texas Yemen Limited (7)
Union Texas Zulia, Inc. (11)
Unistar, Inc.
VICO 7.5, Inc. (1)
Virginia Indonesia Company (1)
Virginia Services, Ltd. (1)
VICO Services, Inc. (1)
VICO Enterprises, Inc.
VICO Enterprises International B.V. (12)
Virginia International Company (1)
- ---------------
(1) Direct or indirect subsidiary of Unimar Company.
(2) Incorporated under the laws of Alberta, Canada.
(3) Incorporated under the laws of Bermuda.
(4) A Texas general partnership between a subsidiary of the Company and
Continental Can Europe, Inc.
(5) A Texas general partnership between a subsidiary of the Company and a
subsidiary of LASMO plc, a U.K. company.
(6) Delaware Limited Liability Company.
(7) Incorporated under the laws of The Bahamas.
(8) Incorporated under the laws of the United Kingdom.
(9) Incorporated under the Laws of the Cayman Islands.
(10) Incorporated under the laws of France.
(11) Incorporated under the laws of the State of California.
(12) Incorporated under the laws of The Netherlands.
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SEC FORM 10-K FOR THE PERIOD ENDING DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 24,324
<SECURITIES> 0
<RECEIVABLES> 82,172
<ALLOWANCES> 0
<INVENTORY> 38,318
<CURRENT-ASSETS> 175,353
<PP&E> 3,496,940
<DEPRECIATION> 1,750,279
<TOTAL-ASSETS> 2,021,556
<CURRENT-LIABILITIES> 279,656
<BONDS> 626,404
0
0
<COMMON> 4,391
<OTHER-SE> 664,204
<TOTAL-LIABILITY-AND-EQUITY> 2,021,556
<SALES> 909,391
<TOTAL-REVENUES> 933,228
<CGS> 314,330
<TOTAL-COSTS> 557,134
<OTHER-EXPENSES> 99,380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,412
<INCOME-PRETAX> 269,302
<INCOME-TAX> 133,436
<INCOME-CONTINUING> 135,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,866
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.59
</TABLE>
