SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): June 11, 1997
EuroGas, Inc.
(Exact Name of Registrant as Specified in its Charter)
Utah 33-1381-D 87-0427676
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification No.)
942 East 7145 South, #101A, Midvale, Utah 84047
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (801) 255-0862
N/A
(Former name, former address, and formal fiscal year, if changed since
last report)
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS
The Company hereby amends its report on Form 8-K dated June 11, 1997, to
read in its entirety as set forth below.
On June 11, 1997, EuroGas, Inc. (the "Company"), acquired all of the issued
and outstanding stock of OMV (Jakutien) Exploration GmbH ("OMVJ") from OMV Inc.,
Austria's largest industrial concern, in exchange for $6,107,908 (U.S.), an
option to acquire up to 2,000,000 shares of the Company's common stock, a 5%
interest in OMVJ's net profits from identified preliminary oil and gas licenses,
and 1% of gross production of the TAKT Joint Venture outside such licenses.
OMVJ's primary asset is a 50% interest in the joint venture (known as
"TAKT") with Sakhaneftegas, the national oil and gas company of the Sakha
Republic. TAKT was formed to appraise, explore, and develop, and, when
appropriate, export oil and gas reserves in two large areas of interest
located in Yakutia (officially known as the Sakha Republic and often
referred to as "Jakutien" in German and "Yakutia" or "Yakut" in English).
Yakutia has the largest land area of the members of the Russian Federation
and is located in the far eastern portion of what was formerly the Soviet
Union. TAKT has negotiated a detailed agreement with the Sakha Republic
and the Russian Federation for the exploration, production, and development
of hydrocarbons located in the areas of interest. This agreement is
subject to execution and approval by the legislative bodies of the Sakha
Republic and the Russian Federation, which approval is currently being sought.
Yakutia is thinly populated (just over 1,000,000 people) and covers
approximately 3,100,000 square kilometers which the United States Geological
Service has rated as extremely rich in natural resources. There has been
limited commercial exploitation of hydrocarbons in Yakutia and current
production is generally limited to providing fuel for heat and energy to local
urban and industrial complexes, partly because of the general remoteness of the
area and the poor transportation network currently in existence. Since 1991,
the Yakutian government has put in place an economic and legal system which is
designed to encourage foreign investment and the export of hydrocarbons. The
Company's interest in acquiring OMVJ is based in large part on the Company's
belief that TAKT is well-positioned to participate in the perceived
international gas export project which has been envisioned pursuant to
feasibility studies conducted by Korean, Chinese, and Japanese consortiums.
TAKT currently holds two exploration blocks located near the city Lensk,
which cover approximately 21,300 square kilometers (approximately 8,225 square
miles) located in the southeast of the East Siberian platform or East Siberian
Basin. TAKT also holds first right refusal on adjoining exploration blocks.
TAKT has been conducting activities within the two blocks for the past six
years, employing modern seismic and exploration techniques with encouraging
results. The exploration for and, if justified, the production of,
hydrocarbons in Yakutia is made more difficult by the climatic conditions,
the general remoteness of the area, and the lack of infrastructure. The
area is subject to extreme arctic conditions and does not have any
facilities for transporting hydrocarbons to existing markets. The Company's
ability to exploit any potential benefit from this project will rely in part
on the activities of other independent entities in constructing the
necessary infrastructure and establishing markets for hydrocarbons.
Under the terms of the proposed Exploration and Production Sharing
Contract, the exploration phase, which is expected to last for another three to
five years, is estimated to cost in its entirety approximately $28,000,000
(U.S.) of which OMVJ's share would be $14,000,000 (U.S.). Under the proposed
agreement, TAKT has also agreed with the Yakutian government to spend 2.5% of
its budget in the exploration phase for environmental and social concern
obligations and another 2.0% of the development stage expenditures, but in no
event will these collective commitments exceed $30,000,000 (U.S.). Such
expenses are recoverable against royalties and profits payable. The production
carries with it an 8% royalty and a 40% net profits interest payable to the
Yakutian and Russian Federation governments.
OMVJ and Sakhaneftegas each appoint two members to the board of directors
of TAKT with OMVJ having the right to nominate the chairman who holds the tie-
breaking vote. Unanimous votes are required for any amendments of the joint
venture itself, the admission of new partners, any buying or selling of shares,
reappointment or dismissal of the director general and certain other specified
actions.
EuroGas has selected Wolfgang Rauball to act as the Managing Director of
OMVJ and Wolfgang Rauball and another person to be selected by EuroGas are to be
nominated as directors of TAKT with Wolfgang Rauball to hold the position of
Chairman of the Board.
ITEM 7. FINANCIAL STATEMENT AND EXHIBITS
The Company hereby amends and supplements its report on Form 8-K
dated June 11, 1997, by filing financial statements in connection with its
acquisition of OMV (Jakutien) Exploration Gesellschaft m.b.H. ("OMVJ"), a
development stage enterprise.
The following financial statements are included as part of this report:
Pro Forma Financial Statements:
Pro Forma Unaudited Condensed Consolidated Statements of Operations of
EuroGas, Inc., and OMVJ (Jakutien) Exploration Gesellschaft m.b.H.
for the year ended December 31, 1996, and the six months ended
June 30, 1997.
Notes to Pro Forma Unaudited Condensed Consolidated Statements of
Operations.
Consolidated Financial Statements:
The index to the financial statements of OMV (Jakutien) Exploration
Gesellschaft m.b.H. is located on page F-1.
EXHIBITS
The Company also amends and supplements the Exhibit List for its report
on Form 8-K dated June 11, 1997, by filing the English translation of the
material contractual documents relating to the acquisition of OMVJ. The
original documents are in German and Russian.
<TABLE>
<CAPTION>
SEC
Exhibit Reference
Number Number Title of Document Location
- -------- --------- ---------------------------------------------------------- -----------
<S> <C> <C> <C>
1 2 English translation of Transfer Agreement between This Filing
EuroGas and OMV Inc. for the Acquisition of OMV (Yakut)
Exploration GmbH dated June 11, 1997
2 3 English translation of Articles of Organization of This Filing
OMV (Yakut) Exploration GmbH dated March 7, 1991
3 10 English translation of Articles of Association of the TAKT This Filing
Joint Venture dated June 7, 1991, as amended April 4, 1993
4 10 English translation of Proposed Exploration and Production This Filing
Sharing Contract for Hydrocarbons between The Republic
of Sakha (Yakutia) and the Russian Federation and the
TAKT Joint Venture
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Issuer has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
EUROGAS, INC.
Date: August 26, 1997 By /s/ Hank Blankenstein
Hank Blankenstein, Vice-President
EUROGAS, INC. AND SUBSIDIARIES
(AN EXPLORATION ENTERPRISE IN THE DEVELOPMENT STAGE)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
On June 11, 1997, Eurogas, Inc. (the "Company") acquired all
of the issued and outstanding capital stock of OMV (Jakutien)
Exploration Gesellschaft m.b.H. ("OMVJ") in exchange for
$6,107,908, a stock option for 2,000,000 shares of common stock of
the Company, a 5% interest in the net profits from preliminary oil
and gas licenses under the terms of a negotiated but unsigned
production sharing agreement of OMVJ's 50% owned joint venture,
TAKT, in the Republic of Sakha, Russia, and 1% of the gross
production of the TAKT Joint Venture if it begins production from
the properties under the preliminary licenses but not within the
context of a production sharing agreement.
Prior to the agreement of acquisition, the Company granted the
stock option to the seller, OMV Group, for 2,000,000 shares of
common stock exercisable at $4.00 per share until April 1, 1998,
$5.00 per share until March 31, 1999, and $6.00 per share through
March 31, 2000, when it will expire if not exercised. The stock
option was treated as a non-refundable deposit towards obtaining an
interest in properites which was completed by the acquisition of
OMVJ. The amount of the deposit was approximately $1,150,000 based
upon the fair value of the stock option on the date the parties
agreed that it would be granted.
The acquisition has been accounted for by the purchase method
of accounting. The purchase price has been allocated to the net
assets acquired based upon their fair value, and was primarily
allocated to the unproved oil and gas properties, as reflected in
the condensed consolidated balance sheet of Eurogas, Inc. and
Subsidiaries at June 30, 1997 in its Form 10-Q as of that date.
The accompanying pro forma condensed consolidated statements
of operations present the consolidated results of operations of the
Company assuming the acquisition of OMVJ had occurred on January 1,
1996. Pro forma adjustments have been included therein to conform
the accounting policies of OMVJ so as to be consistent with those
of the Company. The amounts presented for Eurogas are the
historical consolidated results of operations of Eurogas, Inc. and
Subsidiaries and were derived from the Company's interim financial
statements for the six months ended June 30, 1997, and from its
annual financial statements for the year ended December 31, 1996.
The amounts presented for OMVJ are the historical consolidated
results of operations of OMVJ and were derived from OMVJ's
financial statements presented elsewhere herein. The accompanying
pro forma statements of operations should be read in conjunction
with those historical financial statements.
Had the acquisition actually occurred on January 1, 1996, the
Company and OMVJ would likely have been managed differently from
historical operations and the actual results of operations would
likely have differed from the amounts presented in these pro forma
statements. In addition, the pro forma results of operation
presented in the accompany financial statements are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1997.
<PAGE>
EUROGAS, INC. AND SUBSIDIARIES
(AN EXPLORATION ENTERPRISE IN THE DEVELOPMENT STAGE)
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
EUROGAS OMVJ ADJUSTMENTS RESULTS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
Revenues $ -- $ 2,438 $ -- $ 2,438
Operating Expenses
Exploration costs -- 252,130 (B) (252,130) --
Depreciation and valuation allowance 42,536 -- -- 42,536
General and administrative 3,058,889 128,312 -- 3,187,201
----------- ----------- ---------- -----------
Total Operating Expenses 3,101,425 380,442 (252,130) 3,229,737
----------- ----------- ---------- -----------
Other Income (Expenses)
Interest Income 12,250 3,475 -- 15,725
Interest expense (520,508) (2,450) -- (522,958)
Exchange gains (losses), net 47,157 5,131 -- 52,288
----------- ----------- ---------- -----------
Net Other Income (Expenses) (461,101) 6,156 -- (454,945)
----------- ----------- ---------- -----------
Loss Before Income Taxes (3,562,526) (371,848) 252,130 (3,682,244)
Provision for (Benefit from)
income taxes -- (1,918) -- (1,918)
----------- ----------- ---------- -----------
Net Loss (3,562,526) (369,930) 252,130 (3,680,326)
Dividends Applicable to Preferred
Shares 174,136 -- (A) 400,000 574,136
----------- ----------- ---------- -----------
Net Loss Applicable to Common Shares $(3,736,662) $ (369,930) $ (147,870) $(4,254,462)
=========== =========== ========== ===========
Loss Per Common Share $ (0.07) $ (0.09)
=========== ===========
Number of Common Shares Used in Per
share Calculation 49,892,495 (A) 44,444 49,936,939
=========== ========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1996
Revenues $ -- $ 5,810 $ -- $ 5,810
----------- ----------- ---------- -----------
Operating Expenses
Impairment of mineral interests -- 286,336 (B) $ (286,336) --
Exploration costs -- 507,299 (B) (507,299) --
Depreciation and valuation
allowance 132,459 -- -- 132,459
General and administrative 4,739,380 467,726 -- 5,207,106
----------- ----------- --------- -----------
Total Operating Expenses 4,871,839 1,261,361 (793,635) 5,339,565
----------- ----------- --------- -----------
Other Income (Expenses)
Interest Income 18,588 7,769 -- 26,357
Interest expense (1,057,039) (4,670) -- (1,061,709)
Exchange gains (losses), net (401,141) 19,191 -- (381,950)
Other income 48,840 -- -- 48,840
----------- ----------- --------- -----------
Net Other Income (Expenses) (1,390,752) 22,290 -- (1,368,462)
----------- ----------- --------- -----------
Loss Before Income Taxes (6,262,591) (1,233,261) 793,635 (6,702,217)
Provision for (Benefit from) income
taxes -- 6,252 -- 6,252
----------- ----------- --------- -----------
Net Loss (6,262,591) (1,239,513) 793,635 (6,708,469)
Dividends Applicable to Preferred
Shares 150,592 -- (A) 900,000 1,050,592
----------- ----------- --------- -----------
Net Loss Applicable to Common Shares $(6,413,183) $(1,239,513) $(106,365) $(7,759,061)
=========== =========== ========= ===========
Loss Per Common Share $ (0.16) $ (0.19)
=========== ===========
Number of Common Shares Used in Per
Share Calculation 41,059,000 (A) 50,000 41,109,000
=========== ========= ===========
</TABLE>
[FN]
See the accompanying notes to pro forma condensed consolidated statements
of operations.
EUROGAS, INC. AND SUBSIDIARIES
(AN EXPLORATION ENTERPRISE IN THE DEVELOPMENT STAGE)
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
A--On May 30, 1997, the Company issued 15,000 shares of 1997 Series A
Convertible Preferred Stock for aggregate gross proceeds of $15,000,000,
or $1,000 per preferred share. The Company paid commissions of
$1,500,000 and issued 50,000 shares of common stock as a commission in
connection with the preferred stock offering. The preferred stock
requires a dividend of 6%, or $60 per preferred share, per annum.
Inasmuch as a portion of the proceeds from the preferred stock offering
were used to acquire OMVJ, the dividends applicable to preferred
shares have been adjusted to reflect the dividends on the preferred
stock as though it had been issued on January 1, 1996. In addition,
an adjustment has been made to increase the number of common shares
used in the per share calculation to reflect the 50,000 shares of
common stock issued in connection with the preferred stock offering
as though it had been outstanding from January 1, 1996.
B--OMVJ has historically used the successful efforts method of accounting
for operations relating to its oil and gas properties. That method
requires that exploration costs be charged to operations when incurred
and impairments of unproved mineral interests be charged to
operations when recognized. The Company uses the full cost method of
accounting for its oil and gas operations. To modify the OMVJ
statements of operations to the full cost method so as to be
consistent with the Company, pro forma adjustments have been made to
capitalize previously expensed exploration costs and to reverse the
impairment of the mineral interests.
The impairments of the mineral interests were recognized because of
the lack of a commercial pipeline in the vicinity of TAKT's oil and
gas properties (TAKT is a 50% owned joint venture in the Republic of
Sakha, Russia). Since the acquisition of OMVJ by the Company, Japan
has indicated that it is considering building such a pipeline.
Accordingly, impairment of the oil and gas properties does not now
appear necessary.
OMV (JAKUTIEN) EXPLORATION GESELLSCHAFT M.B.H.
(AN EXPLORATION ENTERPRISE IN THE DEVELOPMENT STAGE)
TABLE OF CONTENTS
PAGE
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets-June 10, 1997 (Unaudited)
and December 31, 1996 F-3
Consolidated Statements of Operations for the Period
from January 1, 1997 through June 10, 1997 (Unaudited),
for the Year Ended December 31, 1996, and for the
Cumulative Periods from March 7, 1991 (Date of
Inception)through June 10, 1997 (Unaudited) and
through December 31, 1996 F-4
Consolidated Statements of Shareholder's Equity for
the Period from March 7, 1991 (Date of Inception)
through December 31, 1995, for the Year Ended
December 31, 1996, and for the Period from January
1, 1997 through June 10, 1997 (Unaudited) F-5
Consolidated Statements of Cash Flows for the
Period from January 1, 1997 through June 10, 1997
(Unaudited), for the Year Ended December 31, 1996,
and for the Cumulative Periods from March 7, 1991
Date of Inception)through June 10, 1997 (Unaudited)
and through December 31, 1996 F-6
Notes to Consolidated Financial Statements F-7
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
MEMBER OF AICPA DIVISION OF FIRMS Fax (801) 532-7944
MEMBER OF SECPS 345 East 300 South, Suite 200
MEMBER OF SUMMIT INTERNATIONAL ASSOCIATES Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Eurogas, Inc.
We have audited the accompanying consolidated balance sheet of OMV
(Jakutien) Exploration Gesellschaft m.b.H. (an Austrian limited
liability corporation) and Subsidiary (collectively, an exploration
enterprise in the development stage referred to herein as "the
Company") as of December 31, 1996, and the related consolidated
statements of operations, shareholder's equity, and cash flows for
the year ended December 31, 1996, and for the cumulative period
from March 7, 1991 (date of inception) through December 31, 1996.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of OMV (Jakutien) Exploration Gesellschaft m.b.H. and
Subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended, and for
the cumulative period from March 7, 1991 (date of inception)
through December 31, 1996 in conformity with accounting principles
generally accepted in the United States.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern. The
Company has experienced losses since inception as a result of its
exploration activities and from general and administrative expenses
relating to its development stage activities. As discussed in Note
1 to the consolidated financial statements, the Company's
activities have been limited to acquisition of oil and gas
properties and exploration with no identified proven reserves nor
any appreciable production of oil or gas to date. In addition, the
future of the Company is dependent on obtaining additional
financing and obtaining and complying with license agreements.
These factors raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial
statements do not include any adjustments which might result from
the outcome of these uncertainties.
HANSEN, BARNETT & MAXWELL
/s/ Hansen, Barnett & Maxwell
Salt Lake City, Utah
August 15, 1997
OMV (JAKUTIEN) EXPLORATION GESELLSCHAFT M.B.H.
(AN EXPLORATION ENTERPRISE IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 10, DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 14,017 $ 13,406
Other receivables 1,951 2,032
Other current assets 168 173
----------- -----------
TOTAL CURRENT ASSETS 16,136 15,611
----------- -----------
OIL AND GAS PROPERTY AND EQUIPMENT,
SUCCESSFUL EFFORTS METHOD
Mineral interests in unproved properties 1,204,000 1,204,000
Equipment 6,000 6,000
Less: Accumulated valuation allowance (496,893) (496,893)
----------- -----------
NET PROPERTY AND EQUIPMENT 713,107 713,107
----------- -----------
TOTAL ASSETS $ 729,243 $ 728,718
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accrued liabilities $ 28,317 $ 17,466
----------- -----------
SHAREHOLDER'S EQUITY
Capital shares - $92.34 par value; 500
shares authorized; 500 shares issued
and outstanding 46,168 46,168
Additional paid-in capital 6,645,188 6,288,229
Cumulative foreign currency translation
adjustment (15,174) (17,819)
Deficit accumulated during the development
stage (5,975,256) (5,605,326)
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 700,926 711,252
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 729,243 $ 728,718
=========== ===========
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
OMV (JAKUTIEN) EXPLORATION GESELLSCHAFT M.B.H.
(AN EXPLORATION ENTERPRISE IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Cumulative Periods
For the Period For The From March 7, 1991 (Date of
From January 1, Year Ended Inception) Through
1997 Through December June 10, December
June 10, 1997 31, 1996 1997 31, 1996
-------------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES $ 2,438 $ 5,810 $ 218,146 $ 215,708
----------- ----------- ----------- -----------
OPERATING EXPENSES
Production costs - - 101,559 101,559
Impairment of mineral interests
in unproved properties - 286,336 496,893 496,893
Exploration costs 252,130 507,299 3,783,429 3,531,299
General and administrative 128,312 467,726 1,766,352 1,638,040
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 380,442 1,261,361 6,148,233 5,767,791
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest income 3,475 7,769 4,796 11,321
Interest expense (2,450) (4,670) (11,666) (9,216)
Exchange gains (losses), net 5,131 19,191 (16,980) (22,111)
----------- ----------- ----------- -----------
NET OTHER INCOME (EXPENSES) 6,156 22,290 (13,850) (20,006)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (371,848) (1,233,261) (5,943,937) (5,572,089)
PROVISION FOR (BENEFIT FROM)
INCOME TAXES (1,918) 6,252 31,319 33,237
----------- ----------- ----------- -----------
NET LOSS $ (369,930) $(1,239,513) $(5,975,256) $(5,605,326)
=========== =========== =========== ===========
NET LOSS PER CAPITAL SHARE $ (740) $ (2,479) $ (11,951) $ (11,211)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF CAPITAL
SHARES USED IN PER SHARE CALCULATION 500 500 500 500
=========== =========== =========== ===========
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
OMV (JAKUTIEN) EXPLORATION GESELLSCHAFT M.B.H.
(AN EXPLORATION ENTERPRISE IN THE DEVELOPMENT STAGE)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Cumulative Deficit
Foreign Accumulated
Additional Currency During The Total
Capital Shares Paid-In Translation Development Shareholder's
Shares Amount Capital Adjustment Stage Equity
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 7,
1991 (Date of
Inception) - $ - $ - $ - $ - $ -
Cash contributed as
capital, March 7,
1991, $92.34 per
share 500 46,168 - - - 46,168
Cash contributed as
capital, March 7,
1991 through December
31, 1991 - - 806,400 - - 806,400
Cash contributed as
capital 1992 - - 806,400 - - 806,400
Cash contributed as
capital 1993 - - 806,400 - - 806,400
Cash contributed as
capital 1994 - - 806,400 - - 806,400
Cash contributed as
capital 1995 - - 806,400 - - 806,400
Cumulative foreign
currency translation
adjustment - - - (143,536) - (143,536)
Cumulative loss from the
period from March 7, 1991
through December 31, 1995 - - - - (4,365,813) (4,365,813)
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1995 500 46,168 4,032,000 (143,536) (4,365,813) (431,181)
Cash contributed as
capital 1996 - - 2,256,229 - - 2,256,229
Foreign currency
translation adjustment - - - 125,717 - 125,717
Net loss for the year
ended December 31, 1996 - - - - (1,239,513) (1,239,513)
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1996 500 46,168 6,288,229 (17,819) (5,605,326) 711,252
Cash contributed as
capital from January
1, 1997 through June
10, 1997 (Unaudited) - - 356,959 - - 356,959
Foreign currency translation
adjustment (Unaudited) - - - 2,645 - 2,645
Net loss for the period
from January 1, 1997
through June 10, 1997
(Unaudited) - - - - (369,930) (369,930)
---------- ---------- ---------- --------- ----------- ----------
Balance June 10, 1997
(Unuadited) 500 $ 46,168 $6,645,188 $ (15,174) $(5,975,256) $ 700,926
========== ========== ========== ========= =========== ==========
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
OMV (JAKUTIEN) EXPLORATION GESELLSCHAFT M.B.H.
(AN EXPLORATION ENTERPRISE IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Cumulative Periods
For The Period For The From March 7, 1991 (Date
From January 1, Year Ended of Inception) Through
1997 Through December June 10, December
June 10, 1997 31, 1996 1997 31, 1996
-------------- ------------ ----------- ----------
(Unuadited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (369,940) $(1,243,232) $(5,902,821) $(5,532,881)
Adjustments to reconcile net loss
to cash provided by operating
activities:
Impairment of mineral interests
in properties - 286,336 496,893 496,893
Exchange (loss) gain 3,169 129,880 (6,323) (9,492)
Changes in certain operating
assets and liabilities:
Receivables 80 10,128 (1,481) (1,561)
Accrued liabilities 10,851 14,369 26,065 15,214
Other 6 9,372 13,234 13,228
----------- ----------- ----------- -----------
Net Cash Used In Operating Activities (355,834) (793,147) (5,374,433) (5,018,599)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of mineral interests
in properties - (35,723) (1,119,375) (1,119,375)
Purchases of property and equipment - - 15,578 15,578
Loans to Joint Venture partner - - (69,884) (69,884)
Proceeds from loan repayment - 69,884 69,884 69,884
----------- ----------- ----------- -----------
Net Cash Used In Investing Activities - 34,161 (1,103,797) (1,103,797)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt -
related parties 20,959 74,073 1,605,188 1,584,229
Proceeds from capital contributions 336,000 672,000 5,062,852 4,726,852
----------- ----------- ----------- -----------
Net Cash Provided By Financing
Activities 356,959 746,073 6,668,040 6,311,081
----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (514) 1,210 (175,793) (175,279)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 611 (11,703) 14,017 13,406
CASH AND EQUIVALENTS AT BEGINNING
OF PERIOD 13,406 25,109 - -
----------- ----------- ----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 14,017 $ 13,406 $ 14,017 $ 13,406
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 2,450 $ 4,670 $ 11,666 $ 9,216
Cash paid for income taxes $ 2,615 $ 6,252 $ 35,852 $ 33,237
SUPPLEMENTAL NON-CASH INVESTING
AND FINANCING ACTIVITIES:
During 1996 and 1997 the Company converted $1,584,299 and $20,959
(unaudited) respectively in loans from its parent company to equity.
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
OMV (JAKUTIEN) EXPLORATION GESELLSCHAFT M.B.H.
(AN EXPLORATION ENTERPRISE IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 10, 1997 AND TO THE PERIOD
FROM JANUARY 1, 1997 THROUGH JUNE 10, 1997 IS UNAUDITED)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION-OMV (Jakutien) Exploration Gesellschaft m.b.H., (the
Company) was formed on March 7, 1991, in Vienna as a limited liability
corporation under Austrian law. The Company was a wholly-owned
subsidiary of OMV Group, an Austrian industrial concern. On June
10, 1997, the Company was sold to Eurogas, Inc. The principal purposes
of the Company are exploration, production, acquisition, transportation,
and distribution of petroleum and natural gas, particularly in the Sakha
Republic, Russia. On June 7, 1991, the Company entered into a joint
venture agreement with Lenaneftegasgeologya (now Sakhaneftegas, the
national oil and gas company of the Sakha Republic), thereby
establishing TAKT as a Russian Joint Venture Company with the two
venturers each owning 50%.
The joint venture agreement required capitalization of the joint
venture of $2,000,000 (the Company's portion was $1,000,000).
The Company's activities to date have been primarily related to
this joint venture. TAKT holds gas exploration interests located
in the Sakha Republic. TAKT was formed to appraise, explore, and
if justified, develop and export oil and gas reserves that may be
discovered on the areas subject to the Joint Venture. TAKT
currently holds two large exploration blocks located near the
city of Lensk. TAKT also holds the right of first refusal to
acquire all hydro-carbon mineral interests in the Sakha Republic
except for those interests already claimed. The award of the
petroleum licenses for exploration in the two subject blocks had
been approved by government authorities and only require final
signature. Also, a production sharing agreement has been prepared
but not signed. These agreements must be consummated in the near
future for the Joint Venture to continue. The agreements contain
significant requirements, stipulations and commitments as further
discussed in Note 2.
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated
financial statements include accounts of the Company and the
Company's pro rata share of the assets, liabilities, revenues,
and expenses of its 50% interest in the TAKT joint venture.
Intercompany accounts and transactions have been eliminated in
consolidation.
BUSINESS CONDITION--The accompanying consolidated financial
statements have been prepared in conformity with accounting
principles generally accepted in the United States, which
contemplates continuation of the Company as a going concern.
However, at December 31, 1996 and June 10, 1997, the Company had
accumulated deficits of $5,605,326 and $5,975,256, respectively.
As a development stage enterprise, the Company's activities
have been limited to exploration activities with no identified
proven reserves nor any production of gas to date. Realization
of the amounts included in gas properties is dependent on the
Company identifying and developing sufficient quantities of
proven and probable reserves of oil and gas and bringing
produced oil and gas to market. A significant market for oil
and gas does not exist in the Sakha Republic. A major pipeline
would have to be constructed to carry the production to a
major population. If exploration activities prove to be
unsuccessful or there is not a market for the Company's
production, all or a portion of the mineral interests in
unproved properties will be charged to operations. These
factors raise substantial doubt about the ability of the
Company to continue as a going concern.
In order to continue, the Company will need to obtain additional
financing sufficient to meet the short and long term obligations
of the Company and to fund the exploration and development of the
reserves of oil and gas, if any, on blocks subject to the Joint
Venture agreement. Management plans to obtain these funds from
cash reserves of its new parent Eurogas, Inc. and or through
equity or debt financing. The financial statements do not include
any adjustments relating to the recoverability and classification
of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable
to continue in existence.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting princples
requires management to make estimates and assumptions which
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could
differ from those estimates. Items particularly susceptible
to changes in the near term are mineral interests in unproved
oil and gas properties.
EXPLORATION STAGE ACTIVITIES - Since its formation, the
Company's oil and gas activities have consisted of the
acquisition of unproved and undeveloped mineral interests and
exploratory drilling. At June 10, 1997, the Company has not
identified any proven reserves associated with its mineral
interests in oil and gas properties and is therefore
considered to be in the exploration stage for purposes
of its oil and gas operations. However, it is considered
a development stage enterprise for financial reporting
purposes.
MINERAL INTERESTS IN PROPERTIES - The successful efforts
method of accounting is used to account for mineral interests
in properties. Under this method all costs incidental to the
acquisition and development of gas properties are capitalized.
These costs include costs of drilling and equipping well, as
well as directly related overhead costs. Costs of unproved
properties are assessed periodically and any resulting provision
for impairment which is required is charged to operations. All
capitalized costs of oil and gas properties, including the
estimated future costs to develop proved reserves, if found,
will be amortized using the units-of-production method.
FINANCIAL INSTRUMENTS-The Company considers all highly-liquid
debt instruments purchased with maturities of three months or
less to be cash equivalents. The amounts reported as cash and
cash equivalents and accrued liabilities are considered to be
reasonable approximations of their fair values. The fair value
estimates presented herein were based on market information
available to management at the time of the preparation of the
financial statements.
The Company had cash in Russian banks in the amount of $13,406 at
December 31, 1996 and $14,108 at June 10, 1997, for which the
Company would incur costs if the cash were to be transferred out
of Russia.
Loss Per Capital Share-Loss per capital share is calculated
using the weighted average number of capital shares outstanding
during each period.
Foreign Currency Translation-Foreign currency exchange gains and
losses have been reflected in the results of operations. Due to
the highly inflationary Russian economy in which the TAKT Joint
Venture operates, its financial statements were prepared using
U.S. dollars as the functional currency. The Company's financial
statements have been prepared using Austrian Shillings as the
functional currency. The Company's balance sheets were
translated into U.S. dollars at the period end rates of exchange
and the statements of operations were translated at the weighted
average exchange rates during each reporting period. The effects
of translating the Company's financial statements into U.S.
dollars were recorded as a separate component of shareholder's
equity.
NOTE 2--RUSSIAN JOINT VENTURE
On June 7, 1991, the Company entered into a joint venture
agreement with the national oil and gas company of the Sakha
Republic. The statutory charter fund was $2 million US
($1,000,000 from each venturer). The Company has satisfied this
obligation by funding the drilling of a well in the amount of
$840,000 and cash calls of $26,161 in 1993 and $133,839 in 1994.
A production sharing agreement (the "PSA") is desirable for
income tax purposes and with the PSA, the necessary licenses will
be issued by the government. The terms of the PSA and licenses
have been agreed to in principle by both the Government and the
Joint Venture, but are not signed. The Joint Venture is
reasonably confident that the Government will execute the PSA and
will issue the licenses covering the properties related to the
Joint Venture.
After the PSA is signed an additional commitment of $28,000,000
(50% from each venturer) will commence and needs to paid over a
five year period. Other significant terms of the proposed
agreements are: a fund for social concerns in the amount of 2.5%
of the costs of exploration and 2% of development costs up to a
maximum of $30,000,000, a royalty of 8% (which is cost
recoverable), cost recovery up to 90% of hydrocarbons (net of
royalty), profit split of 60% to the Company and 40% to the
government, profit tax rate of 24% fixed, a VAT tax of 20%
(which is cost recoverable), exemption from all customs duties, a
five year commitment to exploration from the date of the PSA with
an optional additional five year period, a two year period for
preparation of the development plan and a twenty year production
period. To June 10, 1997, the activities of the Joint Venture
have been to process, evaluate and interpret existing data,
mapping and drilling one well.
NOTE 3--MINERAL INTERESTS IN UNPROVED PROPERTIES
The Company has gas properties located in the Sakha Republic. To
date, one well has been drilled by the TAKT Joint Venture on that
property. The cost of the well was approximately $2,408,000
($1,204,000 cost to the Company). Upon testing the well natural
gas was found in commercial quantities, but due to lack of a
commercial pipeline to carry production to market, the property
was not considered proved. A determination has not been made
regarding the extent of any potential oil and gas reserves with
respect to the properties. However, management has evaluated
the unproved properties, and at December 31, 1995 and 1996,
a determination was made to recognize partial impairment of
those properties. Accordingly, the carrying amount of the
properties, including the well, was reduced by recognizing
impairment in the amount of $210,557 in 1995 and $286,336 in
1996. No impairment was deemed necessary during 1997.
No appreciable production has been obtained from the property,
except for amounts realized during the period the well was being
tested. Consequently, amortization of the cost of the properties
has not been provided beyond the impairment recognized. If and
when proved reserves are determined to exist in commercial
quantities and an available market comes into existence through
the establishment of a commercial pipeline, amortization of
capitalized costs will be recognized under the units-of-
production method.
Costs, both capitalized and expensed, incurred for mineral
interests in gas properties consist of the following:
For the Period
For the Period For The From March 7,
From January 1, Year Ended 1991 Through
1997 Through December December
June 10, 1997 31, 1996 31, 1995
-------------- ------------ --------------
(Unaudited)
Exploration costs $ 252,130 $ 507,299 $3,024,000
Development costs - - 1,204,000
--------- --------- ----------
Total $ 252,130 $ 507,299 $4,228,000
========= ========= ==========
NOTE 4--RELATED PARTY TRANSACTIONS
OMV (Jakutien) Exploration Gesellschaft m.b.H. (the "Company")
has operated as a wholly-owned subsidiary of OMV Group, and as
such, the Company has not maintained its own treasury function
apart from its parent. Accordingly, all of the cash flows
presented in the accompanying financial statements were the
results of allocations from the parent corporation, except for
those which were paid or received by the TAKT Joint Venture and
that were not eliminated in consolidation. Substantially all of
the costs and expenses reflected in the accompanying financial
statements resulted from amounts charged by OMV Group for its
services and from its allocation of indirect exploration costs
and general and administrative expenses to the Company. These
costs and expenses were allocated to the Company at their cost
to OMV Group, without intercompany profit.
NOTE 5--INCOME TAXES
The provision for (benefit from) income taxes results entirely
from domestic (Austrian) and foreign (Russian) current amounts as
there are no deferred income taxes from temporary differences or
carry forwards. All net operating losses available to offset
future taxes on income have been used by the Company's parent and
the benefit therefrom was not allocated to the Company. The
current amounts relate substantially to minimum taxes due in each
jurisdiction because the Company has incurred losses in each
period since inception.
File no. 12.797 Released on 17 June 1997 and recorded
under B.R.P. 382061
Finance Office for Fees and Transportation
Taxes in Vienna
SECOND COPY
AFFIDAVIT
Before me, Dr. Christian Kleemann, Notary Public in Vienna with office in the
Inner City of Vienna at 1010 Vienna, Riemergasse 1, the following appeared at
1210 Vienna, Gerasdorferstrasse 151, to which address I had gone in response to
a request:
1. Dr. Dipl. Ing. Mag. [Master of Engineering] Helmut Langanger, 1210 Vienna,
Gerasdorferstrasse 151, who is personally known to me including his birth
date, and presented to me a notarized Power of Attorney dated Vienna, 10
June 997, which document is attached as Appendix ./1, which confirms his
authority to represent OMV Inc., 1090 Vienna, Otto-Wagner-Platz 5; and
2.a) Dr. Reinhard Rauball, born 25 (twenty-five) December 1946 (one thousand
nine hundred forty six), attorney, Herdecke, Wittbraucker Waldweg 17 A,
Germany, as Chair of the Board of Directors, and
b) Mr. Paul Hinterthur, born 15 (fifteen) July 1937 (one thousand nine hundred
thirty seven), businessman, D-20149 Hamburg, Gisestrasse 119, as Director
and President
of EuroGas, Inc., with headquarters at 942 East 7145 South, Suite 101-A,
Midvale, Utah 84047, and acting on its behalf--
whose identities and birth dates were proven to me through presentation of:
for 2.a) German personal identity card no. 5654266538, issued 19 July 1996
in Herdecke;
for 2.b) German EU passport no. 2459006062, issued by the Berlin State
Census Bureau on 9 July 1993--
and having been by me duly sworn did submit the following:
TRANSFER AGREEMENT
Section 1
Legal Status
The transferring partner, OMV Inc. (OMV) is owner of its shares of the OMV
(Yakut) Exploration Gesellschaft m.b.H. (company) based in Vienna, which has a
total cash paid nominal capital investment of S 500,000 (five hundred thousand
shillings) and shares of the capital stock of the company equal to 100 (one
hundred) percentage points.
Section 2
Transfer Clause
The transferring partner herewith transfers his share of the company as
described under Section 1 to the transferee, EuroGas Inc. (hereafter EuroGas),
and the latter declares its agreement with acceptance of the transferred
business shares under the conditions set forth in this transfer agreement.
Section 3
Transaction Price
(1) The transaction price for the transfer under Section 2 totals S 72,408,000
(seventy two million four hundred eight thousand shillings). Of this
amount S 71,090,047.39 (seventy one million ninety thousand forty seven
point thirty nine shillings) is to be paid by EuroGas using a bank check,
and OMV confirms receipt of this bank check with its signature on this
agreement. The remainder, S 1,317,953 (one million three hundred seventeen
thousand nine hundred fifty three shillings) will be paid by EuroGas within
7 (seven) days after the signing of this agreement, payment to be made to
OMV's account at the Bank of Austria AG, Vienna, bank no. 20151, account
no. 696 736 008.
(2) In addition to the transaction price under paragraph (1), EuroGas agrees to
make the following payments to OMV:
(i) If the TAKT Joint Venture, in which the company holds a fifty percent
share, begins production of hydrocarbons within the context of a
production sharing agreement for blocks 1 and 2 in the Yakut Republic
(the identification of the blocks being based upon licenses nos. 502
and 503 awarded to the TAKT Joint Venture by the Geological Committee
of the Yakut Republic), then EuroGas will pay OMV, during the
production period, an amount equal to 5% (five percent) of the after-
tax value of the oil or gas yield which belongs to the TAKT Joint
Venture under the provisions of the production sharing agreement.
(ii) If the TAKT Joint Venture beings production of hydrocarbons within the
context of licenses awarded by Yakut and Russian authorities for
blocks 1 and 2, but not within the context of a production sharing
agreement, then EuroGas will pay OMV, during the production period, an
amount equal to one percent of the gross production of the TAKT Joint
Venture.
(iii)Payment by EuroGas under paragraph (2) for a given quarter will
be made within 30 (thirty) days following the end of the quarter.
Payment will be made in each case in US dollars to a bank account
designated by OMV.
(iv) The value of hydrocarbons under paragraph (2)(i) will be determined in
accordance with provisions of the production sharing agreement
applicable to the determination of taxes on profits. The value of
hydrocarbons under paragraph (2)(ii) will be determined in accordance
with statutory provisions governing payment of income taxes.
(v) EuroGas agrees to be responsible for permitting OMV to examine
business records of the TAKT Joint Venture once each calendar year to
verify the accuracy and completeness of payments under paragraphs
(2)(i) and (ii).
(vi) EuroGas agrees that it will bind any successor in interest which
assumes EuroGas' rights in the company in whole or in part, or which
assumes in whole or in part any company partnership rights in the TAKT
Joint Venture, to the duties set forth under paragraph (2).
Section 4
Effective Date
The rights and duties relating to the transferred business share shall be
transferred to EuroGas effective on the date this transfer agreement is signed.
Section 5
Assurances
(1) OMV warrants that the statements made in Section 1, "Legal Status," are
correct, that OMV can deal freely with the transferred business shares, and
that these business shares are not encumbered by rights belonging to third
parties.
(2) OMV also warrants that the company controls 50% (fifty percent) of the
business shares of the TAKT Joint Venture, a partnership based in Yakut,
Russian Federation, and particularly that the agreement relating to the
organization and activities of a joint venture which was entered into on 7
June 1991 between the company and PGO Lenaneftegasgeologija and the
amendment and the second amendment to that agreement are legally valid.
OMV declares that the related documentation has been submitted to EuroGas.
(3) OMV warrants that, to the best of its knowledge, licenses numbers GD 502
and 503 for blocks 1 and 2, which were issued by the Geological Committee
of the Yakut Republic on 11 January 1993 are valid, provided that the TAKT
Joint Venture submits a request by 1 August 1997 to the Geological
Committee of the Yakut Republic to convert the existing Yakut licenses to
Russian and Yakut licenses.
(4) OMV warrants that the balance which is to be determined with effective date
of 10 June 1997 and transferred to EuroGas within 7 (seven) days was
complete and formally and materially prepared in accordance with the
principal of balance continuity, with the care of a proper and
conscientious businessman and according to the principles of proper
accounting and in accordance with the requirements of the law regarding
preparation of accounts, and that all necessary measures were addressed to
present an accurate picture of the financial status of the company.
(5) OMV warrants that at the time that this transfer agreement becomes
effective, no obligations exist between the company and OMV or any business
connected to OMV.
(6) EuroGas declares that it thoroughly understands the legal and economic
conditions of the company and the TAKT Joint Venture.
(7) OMV does not give any warranty which extends beyond the scope of this
Section 5.
Section 6
Severance Clause
Should any provision of this agreement be or become void, that will not void the
remainder of the agreement. The parties agree that they will replace the
invalid provision with a provision that corresponds to the economic purpose of
the invalid provision. Gaps in the agreement are to be filled in accordance
with the economic purpose of the agreement.
Section 7
Dispute Resolution
Disputes arising under this agreement, including disputes concerning its
validity, interpretation, or termination, shall be exclusively and finally
settled by a single arbitrator under the arbitration and mediation rules of the
International Arbitration Court of the Austrian Chamber of Commerce in Vienna
(Viennese rules). The venue of the arbitration proceedings is Vienna.
Section 8
Special General Meeting
Immediately after the signing of this transfer agreement, EuroGas will call a
special general meeting of the company in which, among other things, the
following resolutions will be adopted:
(i) Section 1 paragraph 1 of the corporation agreement will be amended to
remove reference to "OMV" as a part of the business.
(ii) Section 4 of the corporation agreement will be changed to include the
new company owner.
(iii)The resignation of the sole general manager will be acknowledged.
Mr. Dipl. Ing. Mag. Helmut Langanger will be relieved of
responsibility for the current fiscal year up to and including the
date of his resignation.
Section 9
Expense Clause
Fees and costs of preparing this transfer agreement, stock market sales taxes,
and costs relating to recordation in the business register, shall be borne by
EuroGas.
Section 10
Copy Clause
Copies of this affidavit can be issued in any desired quantity to the parties,
their legal successors, and to the company itself, in each case at the expense
of the party seeking to obtain the copies.
**********
This affidavit was received, read to the persons present, acknowledged as
representing their will or, in the case of Dipl, Ing. Mag. Helmut LANGANGER as
representing the will of his grantor, approved in whole and immediately signed
by them and by me. The power of attorney, appendix ./1, was not read.
Vienna, on the eleventh of June one thousand nine hundred ninety seven.
EuroGas, Inc.
(signatures)
This copy intended for EuroGas Inc. corresponds with the original, held in my
files under file no. 12.797 and consisting of four pages stamped with a total of
three hundred sixty shillings, in both working and numbers.
Vienna, on seventeen June on thousand nine hundred ninety seven.
(signed) Christian Kleemann, Notary Public
Appendix ./1 to GZ 12.797
OMV Incorporated
SPECIAL POWER OF ATTORNEY
under which the undersigned OMV Incorporated of 1090 Vienna, Otto-Wagner-Platz
5, authorizes and empowers
Mr. Director Dipl. Ing. Mag. Helmut Langanger
Agent
to sign the transfer agreement in its name with EuroGas Inc. regarding the
business shares in OMV (Yakut) Exploration Gesellschaft m.b.H.
As in ./1
Vienna, 10 June 1997
OMV Inc.
(signed)
BRZ: 2870/1997/S.
I confirm the authenticity of the signatures of Mr. Mag. Burkhard GUTH, born 7
(seven) August 1943 (one thousand nine hundred forty three) and Mag. Dr. Robert
DENK, born 15 (fifteen) October 1946 (one thousand nine hundred forty six) as
general agents of OMV Inc. of 1090 Vienna, Otto Wagner-Platz 5.
In accordance with Section 89 a, Notarial Code, I simultaneously confirm, after
having today examined the business registry of the Trade Court in Vienna at FN
93363 z, that the above noted persons were authorized to jointly represent OMV
Inc. in the above-noted roles on 10 (ten ) June 1997 (one thousand nine hundred
ninety seven) and today.
Vienna, the eleventh of June one thousand nine hundred ninety seven.
(signed) Christian Kleemann, Notary Public
Vienna Finance Department for Fees and Transportation Taxes
Capital Transportation Taxes Section
Received 12 MARCH 1991 (5)
Z1. ..Beil.
Item no.: 7478 First Copy
Notary Acknowledgment
[Notary seal and tax stamp]
The following men who are personally known to me appeared before me, Dr.
Christian Kleemann, Notary Public in Vienna, at my office in the Inner City at
1010 Vienna, Riemergasse 1:
1.) Dr. Arno Dettlinger, legal counsel for OMV Incorporated, 1090 Vienna, Otto-
Wagner-Platz 5, and submitted the notarized special power of attorney dated
Vienna, 1 March 1991 and attached as Attachment ./1 to this notarization
which special power confirms his right to represent OMV Incorporated, 1090
Vienna, Otto-Wagner-Platz 5.
2.) Dr. Wolfgang Baumann, born 2 (second) March 1958 (one thousand nine hundred
fifty eight), business attorney, ibid.,
and did before me establish and submit for acknowledgment the following:
Corporation Agreement
concerning the establishment of a limited liability corporation under RGB1.58,
enacted 6 March 1906, in its current form, which in accordance with the
representations of the Parties and after discussion of the material and legal
status was acknowledged by me as follows:
Section 1.
Name and Domicile
(1) The corporation name is:
OMV (Yakut)
Exploration GmbH
(2) The corporation is based in Vienna.
Section 2.
Objective of the Undertaking
The purpose of the undertaking is:
a) Exploration, production, acquisition, transportation, and distribution of
petroleum and natural gas, particularly in Yakut.
b) Engaging in business of every kind appropriate to furthering the stated
corporation objectives (with the exception of banking activities).
c) Participation in other undertakings of the stated nature.
Section 3.
Duration of the Corporation and Fiscal Year
(1) The duration of the corporation is not limited to a specific period of
time.
(2) The corporation's fiscal year coincides with the calendar year. The first
fiscal year commences on the date that the corporation is recorded in the
Handelsregister [Trade Registry] and ends on 31 (thirty-one) December of
the year of recording.
Section 4.
Capital Stock and Capital Investment
(1) The capital stock of the corporation equals oS500,000
(five hundred thousand Austrian shillings)
The capital investment shares of the shareholders in this
capital stock are as follows:
a) OMV Incorporated oS499,000
(four hundred ninety nine thousand Austrian shillings)
b) Dr. Wolfgang Baumann oS 1,000
(one thousand Austrian shillings)
(2) The capital investment is to be immediately paid in full by the
shareholders.
Section 5.
Executive Bodies
The executive bodies of the corporation are:
a) The general meeting (the corporation meeting)
b) The managing director
General meeting
(1) The general meeting is held at the corporation headquarters. With the
approval of all shareholders, however, the general meeting can be held at
another location within the country.
(2) A general meeting may be called by the managing director or by a
shareholder by means of a registered letter sent at least 14 (fourteen)
days prior to the date of the meeting, which letter shall include the
agenda. The date of mailing and the date of the meeting do not count in
the computation of the number of days required for the notice. The form of
the notice and the notice period do not apply if all shareholders appear
and agree to waive compliance with the formal requirements.
(3) The regular general meeting is to be called each year during the first six
months of the fiscal year. An extraordinary general meeting may be called
at any time when it appears to be necessary in the interests of the
corporation.
(4) Instead of adopting motions during a general meeting, written or teletyped
voting is permissible if no shareholder objects and the law does not
require notarization. The administration shall fix an appropriate period
for voting. The administration is to immediately notify shareholders when
motions are adopted by written (teletype) means, and is to enter the
adopted motion in a protocol book.
(5) A protocol concerning motions adopted during a general meeting must also be
prepared and signed by the meeting chair when the law does not require
notarization; if no one chairs the meeting, the protocol must be signed by
all present. Written decisions under Section (4) replace the protocol.
Motions adopted during the general meeting are to be entered into a
protocol book by the managing directors.
(6) Each S 1,000 (one thousand Schillings) paid to capital entitles the payer
to one vote. Each shareholder has at least one vote.
(7) Decisions of the general meeting are by a simply majority of votes cast in
person or by proxy, unless the corporation agreement or law requires
otherwise. Approval of the following motions, however, requires a three-
fourths majority of votes cast in person or by proxy:
a) Establishing the annual budget of the corporation;
b) Changing the corporation agreement, increasing or decreasing capital,
changing the form of the company, mergers, acquisition;
c) Dissolution and liquidation of the corporation, disposing of
corporation assets;
d) Legal transactions and actions involving the expenditure of more than
S 1,000,000 (one million Schillings) over an approved annual budget.
Section 7.
Managing Directors
(1) The corporation may have one, two, or several managing directors. The
corporation is represented, in cases where only one managing director has
been appointed by that person acting independently; if two or more managing
directors have been appointed, then by two managing directors acting in
concert or by one managing director acting in accordance with a general
agent.
(2) Representation by two general agents is permissible within the limitations
of Section 49 HGB ["Handelsgesetzbuch" = Commercial Code.]
(3) The managing directors are responsible for deciding the affairs of the
corporation which are not specifically reserved to the actions of a general
meeting by the GmbH Act [GmbH = Gesellschaft mit beschrankter Haftung =
limited liability company] or the corporation agreement (Section 34 GmbH
Act).
(4) The managing directors and any designated agents are bound in their
internal operations ["Innenverhaltnis"; innen = internal, "verhaltnis" =
relationship, condition, situation, etc.] by the general or specific
instructions given them by the shareholders or by resolution of the
shareholders.
(5) In their internal operations, the managing directors must act in unison.
If the administration is not able to come to unity, then each managing
director has the right to seek a decision from the shareholders.
(6) Prior to closing one of the following legal transactions, giving one of the
following declarations, or undertaking one of the following actions, the
administration in its internal operations must first seek approval from the
shareholders:
a) Acquisition, disposal, or encumbrance of real property, buildings, or
rights relating to things;
b) Purchase, sale, and encumbrance of interests in other companies;
c) Entering into, altering, or severing business relationships with third
parties;
d) Taking out loans or lines of credit;
e) Assuming the role of a surety, guarantor, or similar position having
potential liability;
f) Guaranteeing loans or other credits;
g) Entering into or making substantive changes in employment contracts;
h) Establishing or closing branch offices;
i) Granting or recalling agency and powers of attorney;
j) The annual budget;
k) Legal transactions and activities which go beyond the parameters of
normal business activities this is always the case if the legal
transaction or activity involves an expenditure of more than S
1,000,000 (one million Schillings) beyond that contained in an
authorized budget.
The shareholders may also withhold their approval for other business
activities thereby affecting internal operations.
Section 8.
Transfer and Encumbrance of Business Shares
Splitting business shares, transferring business shares, and transferring rights
to business shares to shareholders or third parties or encumbering business
shares with rights of other shareholders or rights of third parties requires a
written but otherwise formless resolution of all shareholders.
Section 9.
Financial Statement
During the first 5 (five) months of the fiscal year, the administration shall
prepare a financial year report and profit and loss statement for the previous
fiscal year and, if the general meeting appointed an auditor, shall forward the
completed audit report together with the usual clarifications and a report about
business operations and the status of the corporation to the shareholders.
Section 10.
Invalid Provisions in the Agreement
Should any provision in this agreement be or become invalid, the validity of the
remaining portions shall not be affected thereby. The shareholders agree to
replace the invalid provisions with a valid provision which is legally and
economically as close as possible to the failed provision.
Section 11.
Organization Costs
Costs relating to the organization of the corporation will be borne by the
corporation up to oS 50,000 (fifty thousand Austrian Schillings). They are to
be listed as expense items in the first annual financial report.
Section 12.
Foreign Exchange Affidavit
Dr. Wolfgang Baumann hereby states under oath that he is a foreign exchange
citizen under Section 1 of the Austrian Foreign Exchange Act. It is noted that
OMV Inc. is a foreign exchange citizen under the same section by virtue of the
location of its headquarters in Vienna.
Section 13.
Announcements
Corporation announcements shall be made by registered mail to the shareholders
at the address last known to the corporation.
Section 14.
Copies
Each of the parties to this agreement may unilaterally obtain as many copies of
this notarized document as desired at the requester's cost.
The foregoing was received, read in its entirety to the parties present,
accordingly acknowledged as expressing their own will or that of those for whom
they were authorized to act, and immediately signed in my presence. The
attached power of attorney, Attachment 1, was not read.
Vienna, on the seventh of March, one thousand nine hundred ninety one.
Dr. Arno Dettlinger, by his own hand
Dr. Wolfgang Baumann, born 3-2-1958, by his own hand
Dr. Christian Kleemann, Notary Public, by his own hand
ARTICLES OF ASSOCIATION
of the Joint Venture
TAKT
Paragraph Paragraph Title Page
1 Name and registered office 1
2 Object of the Joint Venture 2
3 Procedure 4
4 Legal principles 7
5 Participants 9
6 Principles of the economic activities of the Joint Venture 10
7 Business year 12
8 Articles of Association Fund 13
9 Financing 15
10 Disposal of shares 16
11 Inclusion of further participants 17
12 Branches 18
13 Reserve fund and further funds 19
14 Liability of the Joint Venture 20
15 Profit distribution and loss cover 21
16 Depreciation 22
17 Accounting and reporting 23
18 Chief Accountant 24
19 Annual Accounts 25
20 Auditing of the financial and economic activities 26
21 Organs of the Joint Venture 27
22 Managing Board 28
23 Board of Directors 32
24 Powers of the Managing Director of the First Deputy
Managing Director 36
25 Directors and Personnel 38
26 Cancellation and termination of the Joint Venture 39
27 Arbitration Court and applicable law 41
28 Amendments and addenda to the Articles of Association 42
29 Language of the Articles of Association 43
30 Validity Clause 44
31 Adjustment of the Articles of Association 45
32 Integral components of the Articles of Association 46
33 Signing of the Articles of Association 47
Paragraph 1
Name and Registered Office
of the Joint Venture
1.1. The name of the Joint Venture of the contractual participant shall be:
TAKT
1.2. The Registered Office of the company shall be at:
677005 Yakutsk
ul. Chalturina, 4/1
Yakut-Sacha Socialist Soviet Republic
USSR
Paragraph 2
Object of the Joint Venture
2.1. The participants do hereby form a Soviet-Austrian Joint Venture on the
basis of the contract governing the formation and activities of a Joint
Venture.
The object of this Joint Venture shall be
- especially thc completion of exploration works for the development of
hydrocarbons deposits in the area of the Yakut-Sacha Socialist Soviet
Republic on a risk basis, the development extraction and processing of
hydrocarbons, their transportation and sale both in the USSR and
abroad,
- likewise extraction, processing, transportation and sale of other
natural earth resources,
- the erection and operation of industrial and transportation systems as
well as the construction of communal dwellings, design, calculation,
erection and installation works as well as the commissioning and
erection especially of plant and equipment for the extraction and
processing of hydrocarbons,
- the exploitation of the timber of the Yakut-Sacha Socialist Soviet
Republic, the provision of timber, the production of sawn and other
timber products as well as the sale of these products both in the USSR
and abroad,
- the rendering of services for the economic and social development of
the collectives of the Soviet participant and the areas intended for
carrying on the activities.
- the organisation and completion of research and development works in
the area of the development, extraction and processing of raw
materials in the form of hydrocarbons and other natural earth
resources necessary for the fulfillment especially of the production
programme and the plans of the Joint Venture,
- the undertaking of publicity measures for the products produced and
services offered by the Joint Venture,
- the taking of measures in the field of marketing and the procurement
of foreign trade policy services in connection with exports and
imports,
- as well as other forms of activities not excluded by the legislation
of the USSR.
2.2. The Joint Venture is formed with the intention of making profits.
2.3. The Joint Venture shall conclude and undertake independently the export and
import transactions necessary for the setting up and operation of its
exploration, development, extraction, processing and transportation systems
and plants as well as for the sale of the hydrocarbons and its production
and take any other measures necessary for the object of the Joint Venture
as well as undertaking on its own the legal transactions necessary for its
activities.
2.4. The Joint Venture shall be entitled to exploit the deposits found and
developed by it and sell the hydrocarbons and products gained therefrom on
the market of the USSR or the world market at prices fused by it and
competitive on the world market. The jointly extracted natural earth
resources shall include amongst other things noble gases (i.e. Helium),
sulphur, carbon dioxide, nitrogen, lithium and strontium.
2.5. In order to achieve an economically meaningfu1 and most comprehensive
possible utilisation of the deposits found by it, the Joint Venture shall
also be entitled to sell the other natural resources also extracted from
these deposits when extracting hydrocarbons on the market of the USSR or on
the world market at prices determined by it and competitive on the world
market.
2.6. The Joint Venture shall be entitled, to sell consumer goods to the
personnel employed in the Joint Venture, the family members of the
personnel as well as to natives of the Yakut-Sacha Socialist Soviet
Republic and render services thereto free of charge.
Paragraph 3
Procedure
3.1. The Joint Venture shall materialise its object in the following three
phases:
1. Exploration:
The Joint Venture shall in the first instance undertake exploration
works in the two spatial sections, the position and extension of which
can be seen from the survey map attached to these Articles of
Association in Appendix 1 and the corresponding apportionment deed of
the State Organs empowered to do this, relating to these sections.
Section 1 covers the main part of the Kempendjaksker basin and the
adjacent areas of the Chebydinsk uplift and the Suntarsk saddle and
has the form of a rectangle with a surface area of 14,400 square
kilometres (map in Appendix 2).
Section 2 extends over the area of the Nepsk-Botuobinsk uplift and the
Predpatomsk basin in the form of a pentagon with a surface area of
6,900 square kilometres (map in Appendix 3).
In section 1 the Joint Venture has to fulfill above all the following
tasks in the first phase:
- Processing of the seismic data - 850 km;
- Valuation of the seismic information;
- Simulation and preparation of the geochemical and facies maps;
- Drilling of a test bore with breakdown of the subsalinary
reservoir.
In section 2 the Joint Venture must in the first phase catty out the
following tasks:
a) Verchenmurbaisk Area:
- processing of the seismic data - 820 km;
- valuation of the seismic information;
- technical and economic valuation of the area;
- in the event of proof of the economic nature of an
extraction- drilling works in a scope to be appropriately
stipulated.
b) Otradninsk area:
- Processing of the seismic data - 420 km;
- Valuation of the seismic information;
- Drilling of one or two test bores (including the bores
already being drilled).
The fulfillment of these tasks of the Exploration phase will probably
extend over a period of three to five years.
After conclusion of the aforementioned and where necessary any
additional works and after ensuring the economic nature of any
extraction taking into account the making of reasonable profits in
freely convertible currency, the details of the activities of the
Joint Venture shall be stipulated in the following phases by the
contractual participants.
2. When the economic nature of an extraction has been ensured the Joint
Venture shall within a further five years make preparations and take
measures for an economic extraction of the hydrocarbons found.
Further participants will where necessary also be taken up for this
purpose.
3. Extraction and sale of production:
This phase of economic extraction shall extend from the date of the
commercial commencement of extraction over the period of time
necessary for an exploitation of the deposits found in Sections 1 and
2.
3.2. In the event of economic extraction the Joint Venture may a1so take over
the processing, transportation and sale of its production and in so doing
if necessary also make use of the help of third parties.
3.3. In the event of the agreement of the participants and the receipt of the
approvals and licenses necessary for this the Managing Board may also
decide to extend the exploration, development and extraction to areas other
than those marked in Appendix 2 and 3. In this case the regulations of
this paragraph shall be applied appropriately as regards the procedure to
be followed.
Paragraph 4
Legal principles
4.1. The Joint Venture of the contractual participants shall have the legal form
of a Joint Venture in accordance with Decree No. 49 of the Council of
Ministers7 of the USSR of 13.01.1987, Decree No. 1074 of the ZK of the KPSU
and of the Council of Ministers of the USSR of 17.09.1987,theDecree of the
Council of Ministers of the USSR No. 1405 of 02.12.1988, the Decree of the
Council of Ministers of the USSR No. 203 of 07.03.1989 as well as the
regulation documents of the Russian Federalist Soviet Republic and the
Yakut-Sacha Socialist Soviet Republic leading directly to these Decrees of
the USSR.
4.2. The Joint Venture shall have the rights of a legal entity governed by
Soviet Law on the date of its registration at the Ministry for Finances of
the RFSFR.
4.3. The formation and activities of the Joint Venture shall be undertaken on
the basis of this contract and the appendices attached to it, especially
the Articles of Association of the Joint Venture (Appendix 4), whereby the
Articles of Association are an integral component of this contract. If any
conditions of the contract differ from the Rules of the Articles of
Association, then the conditions of this contract shall take precedence
over the rules of the Articles of Association.
4.4. The utilisation of the land and soil, the water, the forests, the natural
earth resources and other resources claimed for its activities, especially
in sections 1 and 2 sketched out in Paragraph 3 for the exploration and
extraction of hydrocarbons shall be effected on the basis of the
applicable deed of allocation issued by the competent Council of the
Peoples Deputies of the Yakut-Sacha Socialist Soviet Republic under
corresponding license for exploration and extraction as well as the
approvals and licenses of the USSR, thc RSFSR and the Yakut-Sacha
Socialist Soviet Republic for the exporting of hydrocarbons agreed with
the Ministry for Geology of the USSR and approved by the State Committee
of the RSFSR for Geology and Utilisation of energy fields and mineral oil
reserves, for the duration of the economic extraction and for the purpose
of the exclusive exploration, development, extraction, processing,
transportation and sale of hydrocarbons from the aforementioned sections.
These documents shall be attached after they have been issued to the
documents relating to the formation and activities of the Joint Venture.
4.5. The Joint Venture shall have a seal with its name and a logo, which will be
determined by the Managing Board.
4.6 The official languages of the Joint Venture shall be Russian and German.
Managing Board and Board of Directors documents shall be drafted in both
languages.
Paragraph 5
Participants
The participants of the Joint Venture are:
1. PGO LENANEFTEGASGEOLOGIJA
Lena-Geologie-und Produktionsvereinigung
fuer Erdoel-und Erdgasexploration
Yakutsk-20, 67781 GSP,
ul. Chalturina, 4/1
Yakutsk-Sacha Socialist Soviet Republic,
Union of Socialist Soviet Republics
2. OEMV (JAKUTIEN) Exploration Gesellschaft m.b.H.
A-1090 Vienna
Otto Wagner-Platz 5
Austria
Paragraph 6
Principles of the economic activities
of the Joint Venture
6.1. The economic activities of the Joint Venture shall be effected completely
on the basis of independent economic accounting, its own financial
liability and - after completion of the exploration and development
financed by the participants on a risk basis - on the generation of its
funds in Soviet Roubles and freely convertible currency in accordance with
its own operating and financing plans.
6.2. The operating and financing plans shall be prepared in advance in each case
by the 30th of each September for the following business year by the Board
of Directors, unless otherwise laid down by the Managing Board. The plans
must be approved by the Managing Board. In the Joint Venture budget plan
arising from these plans the receipts and expenditure to be expected shall
be listed separately for Soviet Roubles and freely convertible currency.
6.3. The Joint Venture shall itself bear the costs incurred for the exploration,
development, extractions, processing, transportation and sale of the
hydrocarbons. The credit lines and loans taken up for the financing of the
aforementioned activities shall be repaid from the proceeds occurring as a
result of its economic and financial activities.
6.4. The Joint Venture shall have the right, within the framework of carrying
out its tasks, to place orders with third parties, to use the
infrastructure which exists in the USSR and especially in the Yakut-Sacha
Socialist Soviet Republic and take part in the development of this
infrastructure especially through the setting up of medical projects and
various telecommunications systems.
6.5. The Joint Venture and the third parties instructed by it shall be entitled,
to import independently and where necessary export the machines and
equipment, materials, auxiliary items of equipment, food and other items
intended for the personal use of the personnel carrying out this work
necessary for the activities of the Joint Venture, including medical
equipment, drugs, consumer goods, te1ecommunications technology and the
like.
6.6. The Joint Venture shall be entitled within the framework of the licenses
issued to it by the Ministry for Foreign Trade Relations of the USSR as
well as any other competent State Committees, Ministries and authorities,
to import the goods it requires for materialising the object of the Joint
Venture and to export the raw materials and products it extracts.
6.7. Any proceeds from its economic activities, in whatever currency, shall
accrue solely to the Joint Venture, which will set up and conduct in the
USSR its own accounts for Soviet Roubles and freely convertible currency.
The Joint Venture shall be entitled where necessary within the framework of
what is permissible in accordance with Soviet legislation also to set up
and conduct accounts outside the USSR.
6.8. Thc Joint Venture shall ensure within the framework of its legal
obligations and what is economically tolerable:
- a complete geological survey and a rational and comprehensive
utilisation of the natural earth resources and the protection of
these;
- the carrying out of the works connected with the utilisation of the
natural earth resources which will be harmless to the employees of the
Joint Venture and local populations;
- the protection of air, earth, forests, waterways and other
environmental and natural features as well as buildings and structural
facilities against the possible harmful effects of the works connected
with the utilisation of the natural earth resources;
- the protection of natural parts, natural, historical and artistic
monuments against the possible damaging effects of the works connected
with the utilisation of the natural earth resources;
- the restoration of the plots of land used to a condition suitable for
further economic utilisation.
Paragraph 7
Business year
7.1. The business year of the Joint Venture shall be the calendar year.
Paragraph 8
Fund in accordance with the Articles of Association
8.1. The Articles of Association Fund of the Joint Venture shall total
US $20,000,000.00
(in words: two million United States Dollars)
8.2. The Articles of Association Fund shall be formed by the contractual
participants by cash payments in the form of inpayments to the current
account of the Joint Venture to be set up for Roubles and freely
convertible currency as follows:
1. Austrian Participant:
Cash inpayment totalling US $1,000,000.00:
2. Soviet Participant:
Cash payment totalling US $1,000,000.00:
payable in Soviet Roubles, converted at the official commercial rate
of exchange of the State Bank of the USSR and on the date of making
the payment.
Total value of the inpayments US $2,000,000.00.
8.3. The participants shall have the following shares in the Joint Venture in
accordance with the inpayments into the Articles of Association Fund:
Austrian Participant: 50 % of the shares
Soviet Participant: 50% of the shares
8.4. The cash payment shall become due thirty days after receiving the approvals
and licenses necessary for the activities of the Joint Venture in
accordance with Paragraph 4.4 of these Articles of Association.
8.5. The fund may be increased with the agreement of the participants in
response to a unanimous decision of the Managing Board of the Joint
Venture. The drawing right shal1 accrue to the participants according to
their shares. The drawing right is to be exercised within a deadline to be
set by the Managing Board, which must not be less than thirty days nor
exceed 180 days. A drawing right not exercised within this deadline shall
be offered by the Joint Venture to the other participant. If the latter
accepts the offer, then the shares in the Joint Venture shall change in
accordance with the new shares in the Articles of Association Fund. If the
latter does not accept the offer within the deadline set in the offer, then
the drawing right shall decay.
8.6. There is no obligation to put up any further capital.
Paragraph 9
Financing
9.1. In addition to the payments of the contractual participants into the
Articles of Association Fund the participants do hereby guarantee the
Joint Venture fixed agreed private loans for the first phase (exploration)
of its activities totalling
US $28,000,000.00
(in words: twenty eight million United States Dollars),
whereby each participant shall be responsible in accordance with the credit
and loan agreements (Appendices 4 and 5) attached to these Articles of
Association for
US $14,000,000.00
respectively, which in the case of the Soviet participant shall be paid in
Soviet Roubles, converted at the official commercial rate of exchange of
the State Bank of the USSR on the date of the remittance.
9.2. Expenditure above and beyond this amount may only tee effected by agreement
between the participants. For this purpose the Joint Venture may take up
in the necessary scope credit lines in Soviet Roubles and in freely
convertible currency.
9.3. Any investment and operating costs incurred at regular investment and
operating costs for exploration, development, extraction, processing,
transportation and sale shall be covered in the event of economic strikes
by the proceeds from the economic activities of the Joint Venture.
9.4. The amount set in the agreement between the participants (Appendix 6) the
transfer of the rights for the borehole already sunk by the Soviet
participant shall be offset with the private loan mentioned in Point 9.1 of
this paragraph of the Soviet participant.
Paragraph 10
Disposal of shares
10.1. Any disposal of shares in the Joint Venture or of parts of shares,
that is to say any transfer, abrogation, encumbering or change in content
of these shares, shall only be permitted in the event of the agreement of
the participants with a unanimous vote of the Managing Board.
10.2. A participant may only refuse his agreement for projectively justified
reasons.
10.3. In the event of the transfer of a share (sale, donation, contribution,
exchange) in the Joint Venture or a part of such a share by either of the
participants, the other participant shall have as right of preemption.
10.4. The selling participant must notify the content of the agreement
conclude with the buying new participant immediately in writing to the
party having right of preemption. The right of preemption may only be
exercised up to the expiry of a period sixty days from receipt of this
notice by written declaration to the disposing party.
Paragraph 11
Inclusion of further participants
11.1. The contractual participants do hereby agree, where necessary to
include further participants in the Joint Venture, in order to ensure the
materialisation of the aims and the object of the Joint Venture,
especially the financing of phases 2 and 3.
11.2. The contractual participants in so doing do hereby also agree, that
such participants must be selected and included from the point of view of
the optimum materialisation of the aims and object of the Joint Venture.
The decision on the inclusion of further participants in the Joint Venture
shall be taken amicably by the contractual participants. A unanimous
resolution of the Managing Board shall also be necessary.
Paragraph 12
Branches
12.1. The Joint Venture shall be entitled to set up branches and appoint
representatives as well as subsidiaries inside and outside the USSR.
12.2. The decision concerning the setting up of branches, subsidiaries and
the appointment of representatives shall be taken by the Managing Board.
Paragraph 13
Reserve fund and further funds
13.1. The Joint Venture shall form a reserve fund in the amount specified by
Soviet legislation from the gross profit remaining after deduction of any
expenses and the amounts written off for depreciation of its assets.
13.2. The Managing Board of the Joint Venture shall decide on the formation
of any further funds such as:
- a fund for the promotion of science and technology,
- a development fund in the event of the expansion of the commercial
activities of the Joint Venture,
- a fund for the repayment of long-term credit lines and their interest
amounts,
- a premium fund to pay for special services,
- a continuation fund for the training and further education of the
employees of the Joint Venture,
- a fund for social and cultural measures and for the building of
dwellings.
13.3. What portion of the gross profit is to be allocated annually to what
fund shall be decided by the Managing Board. The Board of Directors of
the Joint Venture shall decide on the withdrawals from the individual
funds with the exception of withdrawals from the Reserve Fund in
accordance with appropriate resolutions of the Managing Board within
the framework of its relevant jurisdiction and powers.
Paragraph 14
Liability of the Joint Venture
14.1. The Joint Venture shall be liable with all of its assets for its
commitments.
14.2. The Soviet State and the participants of the Joint Venture shall not
be liable for commitments of the Joint Venture, and the Joint Venture
shall not be liable for commitments of the Soviet State or its
participants.
Paragraph 15
Profit distribution and loss cover
15.1. The profit or loss of the Joint Venture shall be determined by the
Managing Board for each business year.
15.2. The profit which may be distributed shall the Balance Sheet profit
less the contributions to the Reserve Fund and any other apportionments to
further funds of the Joint Venture decided upon by the Managing Board in
accordance with paragraph 13, point 13.3 of these Articles of Association,
as well as less the payments of any tax commitments.
15.3. The profit available for distribution shall be distributed between the
Austrian and the Soviet participants in proportion to their shares in the
Articles of Association fund of the Joint Venture.
15.4. The profit share of the Austrian participant in the proceeds of the
Joint Venture in freely convertible currency shall be calculated fully in
freely convertible currency. In the event of the distribution of this
profit share the credit in freely convertible currency available in
accounts of the Joint Venture shall in the first place be used to satisfy
the profit payment claim of the Austrian participant.
15.5. In the event of a loss the Managing Board shall decide on whether and
how the loss is to be settled after listening to the Board of Directors.
In so doing it must be assumed that losses, arising from exploration and
development works, shall be covered first from the proceeds of extraction.
However as long as exploration and development works remain unsuccessful,
cumulative losses shall be earned forward to new account without any time
limit.
15.6. Losses not arising from the works mentioned in the foregoing paragraph
shall be covered from the Reserve Fund of the Joint Venture.
Paragraph 16
Amounts written off
16.1. The amount of the depreciation rates for the assets and property
rights of the Joint Venture shall be established annually by the Managing
Board in accordance with the financial needs of the Joint Venture.
Paragraph 17
Accountancy and reporting
17.1. The Joint Venture shall trade on the basis of complete economic
accounting and cost coverage as well as by internal and external financing
and shall carry on its activities in accordance with the annual plans
confirmed by the Managing Board of the Joint Venture.
17.2. The Joint Venture shall for this purpose conduct an operational,
bookkeeping and statistical system of accounting and form of invoicing as
specified for Joint Ventures in the USSR. It will conduct its accounting
system on the principle of double-entry bookkeeping.
If for the purposes of the accounting system freely convertible currency
is to be converted into Soviet Roubles, this must be effected at the
commercial rate of exchange of the State Bank of the USSR applicable
on the date of the remittance.
17.3. Additionally the Joint Venture shall conduct its bookkeeping and
accounting for submission to the financial authorities competent for the
participants in accordance with the conditions of proper bookkeeping and
drafting of Balance Sheets in accordance with the Accounting Law of 1990
of the Republic of Austria (BGB1. No. 475 of 31.07.1990) in the currency
applicable version in German and in United States Dollars.
Paragraph 18
Chief Accountant
18.1. The Chief Accountant of the Joint Venture shall be appointed by the
Board of Directors. The prior consent of the Managing Board must be
obtained for that appointment.
Paragraph 19
Annual Accounts
19.1. At the latest three months after the end of the business year the
Balance Sheets together with Profit and Loss Accounts of the Joint Venture
for the business year which has elapsed must be drawn up by the Board of
Directors in accordance with Paragraph 17, points 17.2 and 17.3.
19.2. With regard to the profit made, the Board of Directors must submit a
proposal for its utilisation to the Managing Board within the same time
limit.
Paragraph 20
Auditing of the financial and economic activities
20.1. Bookkeeping, invoicing and Annual Accounts shall be audited at the
expense of the Joint Venture by an independent auditing company, to be
selected by the Managing Board and which will have unrestricted access to
all the ledgers and other records and vouchers of the Joint Venture.
Paragraph 21
Organs of the Joint Venture
21.1. The organs of the Joint Venture are:
- a Managing Board,
- the Board of Directors.
21.2. Their composition and relevant powers and jurisdictions are set out
and regulated in the following paragraphs.
Paragraph 22
Managing Board
22.1. The top organ of the Joint Venture shall be the Managing Board. It
will determine especially the basic outlines of the commercial activities
of the Joint Venture in accordance with these Articles of Association as
well as its integral component and will be responsible for any specially
highlighted tasks, above and beyond the course of day to day business
activities.
The course of day to day business activities shall however be the task of
the Board of Directors.
22.2. The Managing Board shall consist of four people. Of these both
participants shall in each case appoint two people. The Chairman of the
Managing Board shall be a representative of the Austrian, and the Deputy
Chairman shall be a representative of the Soviet participant.
Additionally both participants shall in each case appoint a replacement
member.
22.3. The members of the Board shall be appointed for a period of four
years. The appointment may be revoked prematurely at the discretion of
that participant of the Joint Venture which has appointed a Managing Board
member.
The appointment several times of a member of the Board for in each case a
further period of office shall be allowed. The participants shall inform
each other and the Board of Directors of the joint company in writing of
the appointment or revocation of a member of the Managing Board. The
appointment or dismissal shall become effective on the thirtieth day after
receipt of the notice.
22.4. If necessary in response to a proposal from the Managing Board the
Participants of the Joint Venture may appoint additional Managing Board
members. In this case to safeguard the share ratios in the Articles of
Association Fund the appointment may be made in accordance with the shares
subscribed by the participants.
22.5. The Managing Board meeting shall be convened in writing by the
Chairman of the Managing Board or - in his absence - by his deputy.
22.6. The notice must state the date, place and agenda of the Managing Board
meeting.
The participants and the Joint Venture must have received the notice at
least 45 days before the date set for the meeting.
22.7. In the event of being prevented from personally attending a Managing
Board meeting, a Managing Board member may have himself represented with a
deciding vote at the meeting on the basis of a Power of Attorney issued in
writing thereby, by another Managing Board member, a replacement member or
by a third parry who is not a member of the Managing Board.
22.8. Managing Board meetings shall be convened as required, but at least
twice a year. The annual results shall be discussed by the Managing Board
no later than three months after the end of the relevant business year.
22.9. The participants, each Managing Board member, the Managing Director
and the First Deputy Managing Director of the Joint Venture may demand the
convening of a meeting by written application stating reasons. The
participant may also convene the Managing Board meeting themselves subject
to the convening notice, if there is no reply to their request to convene
a meeting within thirty days.
22.10.The right to submit questions for decision to the Managing Board shall
be held by the participants of the Joint Venture, the Managing Board
members, the Managing Director and the First Deputy Managing Director.
22.11.Minutes of the Managing Board meeting shall be prepared. The Chairman
of the Managing Board shall submit the corresponding minutes thirty days
after the meeting for the members of the Managing Board who attended the
meeting for signature.
22.12.The Managing Board shall be able to take resolutions, inform the
Managing Board members who are personally present at the meeting or if
they are properly represented in accordance with point 22.7. If the
meeting is unable to take resolutions, then a fresh meeting must be
convened within six weeks, which shall in every case be able to take
resolutions on the same agenda.
22.13.The Managing Board shall take its resolutions basically with a simple
majority of the votes of the Managing Board members attending. If the
votes are equal, then the Chairman of the Managing Board shal1 have the
casting vote. Managing Board members properly represented in accordance
with point 22.7 shall be deemed to be attending.
22.14.The decision on the following important and fundamental questions of
commercial policy and the general commercial activities of the Joint
Venture shall however require unanimity:
1) Amendments to the Articles of Association of the Joint Venture;
2) Stipulation of the fundamental aims of the activities of the Joint
Venture;
3) The inclusion of further participants;
4) Disposal of shares in accordance with Paragraph 10 of these Articles
of Association.
5) The making of investments not included in the plans;
6) The granting of securities for third parties, especially the
acceptance of warranties, guarantees and similar promises;
7) The protection and utilisation of industrial protection rights of the
Joint Venture;
8) The conclusion, amendment and cancellation of know-how, license and
fundamental cooperation agreements;
9) The buying and selling of property;
10) The setting up and formation of funds additional to those listed in
Paragraph 12;
11) The entering into service agreements with a duration of more than
three years;
12) The appointment and dismissal of the Managing Director and his Deputy
proposed by the Soviet participant;
13) Liquidation of the Joint Venture, the appointment of a Liquidation
Committee and confirmation of the 1iquidation Balance Sheet.
22.15.Decisions on the following matters shall come especially within the
jurisdiction of the Managing Board:
1) Confirmation of the Annual Balance Sheet and Annual Report of the
Board of Directors of the Joint Venture;
2) Distribution of the profit of the Joint Venture;
3) Preparation of the method of covering losses;
4) Resolutions concerning the taking up of credit lines;
5) Confirmation of the programmes of the foreign trade activities of the
Joint Venture as well as reports on their implementation;
6) Confirmation of the production and finance plans as well as reports on
their implementation;
7) Stipulation of the funds of the Joint Venture. Determination of their
scope, sources, from which they are formed, and the way in which they
are used;
8) Formation of the organs of the Joint Venture, determination of their
powers as well as the termination of their activities;
9) The setting up of branches and appointment of representatives as well
as determination of their activities;
10) Stipulation of the rules of the internal Working Order,
11) Stipulation and amendment of the job plan;
12) Stipulation of the qualifications and number of Austrian technical
people as well as the contractual conditions for their activities in
the Joint Venture;
13) Confirmation of the training plan and measures for the training of the
personnel of the Joint Venture;
14) The appointment and dismissal of the Deputy of the Managing Director
to be proposed by the Austrian participant.
22.16.Resolutions of the Managing Board may also be taken in writing. If
all the Board members agree to this form of resolution, then a Managing
Board meeting need not be convened.
22.17.The activities of the Managing Board shall be effected basically on an
honorary basis, however the expenditure for travel and accommodation of
the Joint Venture incurred by the Managing Board members through taking
part in Managing Board meetings shall be repaid thereto. In addition the
participants shall pay the remuneration of their Managing Board members
themselves and for their own account.
22.18.The Order of Business to be drafted by the Managing Board shall
regulate anything else.
Paragraph 23
Board of Directors
23.1. The Board of Directors shall manage the day to day activities of the
Joint Venture.
It shall report to the Managing Board of the Joint Venture, implement the
instructions and resolutions of the latter and shall be liable to the
Board for complying with and executing the said instructions and
resolutions.
23.2. The Board of Directors shall consist of the Managing Director and the
First Deputy Managing Director, who will be appointed and dismissed by the
Managing Board of the Joint Venture. The Managing Director shall be
appointed in response to a proposal from the Soviet participant, and the
First Deputy Managing Director in response to a proposal from the Austrian
participant.
23.3. The Managing Director and First Deputy Managing Director shall be
appointed for a period of three years. Their appointment may be revoked
by a resolution of the Managing Board or in response to a proposal from
the Soviet participant concerning the Managing Director or a proposal of
the Austrian participant concerning the First Deputy Managing Director.
On revocation of the appointment the employment relationship of the
affected parry with the Joint Venture is to be cancelled immediately.
An appointment several times in each case for a further period of office
shall be allowed.
23.4. If necessary the Board of Directors may be supplemented by resolution
of the Managing Board by the appointment of further Deputy Managing
Directors as well as being reduced by dismissal thereof.
23.5. Two members of the Board of Directors appointed by different
participants shall be entitled to represent the Joint Venture outwardly.
They shall in each case have only jointly unrestricted powers to act and
sign, provided this is not expressly restricted in this contract or in the
Articles of Association of the Joint Venture.
23.6. The Managing Director and First Deputy Managing Director shall take
part in meetings of the Management Board with a consultative vote.
23.7. The activities of the Board of Directors shall be effected in
accordance with the conditions of this contract and the Articles of
Association of the Joint Venture in accordance with the principle of
unanimity. If there is no unanimity, each member of thc Board of
Directors shall be entitled, to approach the Managing Board to bring
about a binding decision.
23.8. Applications to the Managing Board are to be made basically by the
Board of Directors as an organ. If it is impossible for its members to
reach agreement, then each member of the Board of Directors shall make
applications independently.
23.9. The Board of Directors must obtain the prior written consent of the
Managing Board for the following transactions:
1) The acquisition, sale or encumbering of plots of land or rights equal
to plots of land;
2) The erection of production plants at new locations;
3) The acquisition of third party companies or participation therein;
4) The granting of credit outside the usual commercial operations;
5) The appointment of special proxies or authorised agents;
6) The acceptance of warranties and guarantees (with the exception of the
acceptance of guarantees in normal goods traffic);
7) The taking up of long-term bank credit lines or loans;
8) Entering into commitments on bills of exchange;
9) The making of investments and placing of orders with an initial or
production value of more than US $500,000.00 or a corresponding value
in Soviet Roubles, converted at the official commercial rate of
exchange of the State Bank of the USSR;
10) The conducting of active proceedings with a value at dispute of more
than US $50,000.00;
11) The conclusion of agreements, which as regards their financial effects
are of special significance to the future development of the Joint
Venture, especially if such agreements are to bind the Joint Venture
for longer than two years;
12) Obligations as regards basic rates of remuneration, social security
contributions and pensions.
23.10.The Managing Board may give its consent to certain transactions in
advance as well as amending limits of amounts for the transactions
mentioned under point 17.9.
23.11.The commercial activities of the Joint Venture shall take place in
accordance with the Directives and at prices, proposed by the Board of
Directors and which must be approved by the Managing Board when confirming
the finance plan.
23.12.The placing of orders with third parties must be effected subject to
the prerequisite of financial and technical competitiveness (price,
technical execution, delivery times and the like) so that the participants
of the Joint Venture will receive the order in preference on equal offer
conditions. If offers of the Soviet participant and the Austrian
participant are equa1, then the Soviet participant shall be given
preference. In the Business Order of the Board of Directors conditions
must be included concerning the methods of tender competitions and the
allocation of orders.
23.13.The Board of Directors shall be liable to the Managing Board in
respect of the following items,
1) The execution of the resolutions of the Managing Board and the
provision of reports relating thereto;
2) The drafting of Annual investment and finance plans;
3) The provision at the latest 45 days after the end of each month of a
monthly Profit and Loss Account, a list of the sums of the bills
receivable for goods and services as well as a list of the cash flow
and the positions of the Bank accounts including the current stage of
the obligations of the Joint Venture, to be produced and forwarded
directly to the participants;
4) to draft reports on those transactions, which may be of considerable
significance to the profitability or liquidity of the Joint Venture in
good enough time so that the Board can comment on them;
5) to submit no later than three months after the end of the business
year the Annual Accounts, the Profit and Loss Account and the
situation report and report on the profitability of the Joint Venture,
especially the profitability of the ordinary capital;
6) at the request of the Board to report at any time on basic or
fundamental matters of the Joint Venture.
23.14.The activities of the Board of Directors shall also be regulated by
the Order of Business to be drafted by it and approved by the Managing
Board.
Paragraph 24
Powers of the Managing Director
and the First Deputy Managing Director
24.1. The Managing Director of the Joint Venture shall within the framework
of the powers accruing to him in accordance with this contract and the
Articles of Association of the Joint Venture fu1fill the following
functions:
The Managing Director
1) shall manage the activities of the Joint Venture in accordance with
the programmes of the Joint Venture;
2) dispose of the assets of the Joint Venture including its cash funds
within the framework laid down in Paragraph 17, Point 17.9;
3) submit to the Managing Board of the Joint Venture the drafts of the
programmes and plans as well as the reports on the implementation of
these programmes and plans for confirmation; no later than three
months after the end of the business year he will submit the Annual
Balance Sheet, and Annual Report and the Report on the implementation
of the Finance Plan;
4) shall act without Power of Attorney in the name of the Joint Venture,
represent it with respect to authorities, companies and organisations
both in the USSR and abroad;
5) undertake transactions of any kind and legal transactions, provided
that this contract does not contain any restrictions, he shall issue
Powers of Attorney and in agreement with the First Deputy Managing
Director open current and other accounts of the Joint Venture at
Banks;
6) shall be liable for the drafting of the rules of the internal Working
Order, submit them to the Managing Board of the Joint Venture for
confirmation and ensure that these rules are complied with;
7) in accordance with the precepts of the Order of Business of the Board
of Directors he will determine the structural breakdown of the Joint
Venture and the job plans of the employees of the Joint Venture;
8) shall decide and issue instructions concerning operational matters
relating to the internal activities of the Joint Venture;
9) prepare proposals concerning the plans and measures for the training
of the personnel of the Joint Venture and submit them to the Managing
Board for confirmation;
10) prepare any further necessary materials and proposals, which must be
submitted to the Managing Board of the Joint Venture for examination,
and shall ensure the implementation of the decisions taken by the
Managing Board.
24.2. Decisions, the financial consequences of which go above US $10,000.00
shall require the agreement of the Managing Director and the First Deputy
Managing Director to be effective.
In addition any documents to be submitted to the Managing Board for
decision, as well as the hiring and firing of personnel shall require
agreement.
24.3. The First Deputy Managing Director shall take over the tasks and
powers of the Managing Director in the event of his illness or absence.
Moreover his powers shall be regulated in the Order of Business of the
Board of Directors.
24.4. The Managing Director and First Deputy Managing Director shall
regularly inform each other comprehensively of the progress of the
economic activities of the Joint Venture, but at least once a week.
24.5. The specific division of labour and method of operation of the Board
of Directors shall be laid down in the Order of Business to be approved by
the Managing Board. Regardless of the total liability of the Board of
Directors the competence and liability of the Directors for their business
area shall bc clear from this Order of Business.
Paragraph 25
Directors and Personnel
25.1. The personnel of the Joint Venture shall consist largely of Soviet
citizens, but also of foreign citizens, for which the Austrian Participant
shall have a right of proposal.
25.2. Questions of the conditions for the appointment and dismissal of
employees, wages and salaries and additional material incentives, the
working hours and holidays, industrial protection and social support of
the employees shall be regulated by the Joint Venture by way of deviation
from any other valid labour legislation of thc USSR and the RSFSR
independently by its Managing Board.
25.3. The Directors and personnel of the Joint Venture and its branches or
representatives shall therefore receive in response to a decision of the
Managing Board remunerations and Social Security payments, which shall not
be less than those for comparable activities in the company, which has the
right of proposal for the Director or employee.
25.4. Moreover the obligations and rights of the foreign Directors and
foreign personnel shall be governed by the agreements concluded
individually therewith. The technical requirements and qualifications of
the individual employees shall in each case by stipulated separately by
the Joint Venture.
25.5. Without the consent of the Managing Board only service agreements with
a duration of at most three years may be concluded by the Board of
Directors with Soviet and foreign employees of the Joint Venture.
25.6. The Board of Directors of the Joint Venture is obliged, to conclude
collective agreement with the union organisation which is to be formed
within the Joint Venture. Before commencement of negotiations with the
collective detail framework conditions for the collective agreement must
be submitted by the Board of Directors to the Managing Board for approval.
If the framework conditions are exceeded this will again require approval
by the Managing Board.
25.7. Each employee of the Joint Venture shall be entitled to also approach
individual Managing Board members, if he feels that his rights have been
violated.
Paragraph 26
Cancellation and termination of the Joint Venture
26.1. The Joint Venture is formed for an unspecified duration.
It will end on the expiry of the commercial extraction and completion of
the processing, transport and sale of hydrocarbons in accordance with
Paragraph 3 of these Articles of Association.
26.2. In the event of cancellation by a participant the Joint Venture shall
not be ended. If the cancellation becomes legally effective, then the
rights and obligations arising out of the credit and loan agreement
between the Joint Venture and the cancelling participant shall become
ineffective. The other participant shall in this case be entitled to take
over the share of the cancelling participant.
26.3. The cancelling participant shall receive his share of the assets at
the value, to be determined appropriately in the event of the liquidation
of the Joint Venture. The conditions stipulated in this paragraph for
this case shall be applied similarly.
An auditing of the established value by an international auditing company
shall in this case only be undertaken in response to a request from the
participant, who will also pay the costs of the audit.
26.4. Cancellation by a participant may be effected at the earliest after
complete granting of the loan by the said participant as mentioned in
Paragraph 9, Point 9.1 of these Articles of Association.
26.5. In the event of the official establishment of the inability to pay of
a participant by competent organs, involving the winding up of the said
participant, or if a participant voluntarily causes the loss of his legal
status, then the rights and obligations of this participant shall be
treated by the Joint Venture as if he had cancelled.
26.6. The Joint Venture shall be prematurely terminated:
- if the Managing Board of the Joint Venture takes an appropriate
unanimous resolution;
- in those cases, in which the regulation documents applicable to the
Joint Venture (paragraph 4 of the contract relating to the formation
and activities of the Joint Venture) provide for his liquidation.
26.7. The participants do hereby agree that the exploration on a risk basis will
mean initially a fairly long loss period which will therefore not lead to
premature winding up of the Joint Venture.
26.8. In the event of the termination of the Joint Venture the Managing
Board shall appoint a liquidation committee, which will consist of three
people.
the liquidation committee shall issue a liquidation balance sheet, which
will be submitted to the Managing Board for approval. The valuation of
the assets shall be effected by the liquidation committee in accordance
with the recommendations for the procedure of Auditors when valuing whole
companies of the U.E.C. committee for technical matters and research (KFF)
from the year 1980.
The liquidation balance sheet shall require an audit by an international
auditing company for its acceptance.
26.9. The residual assets shall after payment of the debts and redemption of
the commitments of the Joint Venture be paid out in accordance with the
approved liquidation balance sheet to the participants in proportion to
their shares in the Articles of Association Fund. Freely available and
transferable currency of the Joint Venture shall first be used for
payments to the Austrian participant.
If there is no freely available and transferable currency in the scope
necessary to satisfy the Austrian participant, the Joint Venture must
acquire freely convertible and transferable currency for the remaining
share of the Austrian participant.
26.10.On liquidation of the Joint Venture or on the departure of a
participant from the Joint Venture the outpayment of the relevant shares
in the Joint Venture between the participants shall be effected in the
form of cash or goods at the residual value of the share on the date
of liquidation or departure determined in accordance with this paragraph.
At the time of liquidation before any outpayment of shares the
commitments of each participant must be settled in respect to the other
participant and third parties.
Paragraph 27
Court of Arbitration and
Applicable Law
27.1. Any differences of opinion between the contractual participants, which
cannot be settled amicably, shall be settled subject to the exclusion of
the ordinary Courts by a Court of Arbitration of the Zurich Chamber of
Trade to the exclusion of Swiss Collision Law ruling in accordance with
material Swiss Law and binding on the participants, unless other legal
principles are applicable in accordance with Paragraph 4 of the contract
concerning the formation and activities of the Joint Venture.
27.2. The Court of Arbitration shall proceed in accordance with the
applicable conciliation and Arbitration Decree of the Zurich Chamber of
Trade and shall consist of the normal three Arbitrators. One each may be
appointed by each contractual participant. The proceedings of the Court
of Arbitration shall be conducted in German.
27.3. The decision of the Court of Arbitration shall be final.
Paragraph 28
Amendments and addenda
to the Articles of Association
28.1. Any amendments and addenda to these Articles of Association must be in
writing in Russian and German and may only be included with the agreement
of the representatives of the contractual participants given Powers of
Attorney for this purpose.
Paragraph 29
Language of the Articles of Association
29.1. The Russian and German versions of these Articles of Association shall
be equally binding.
29.2. In the event of problems of interpretation caused by translation each
contractual participant shall appoint an independent expert instructed to
prepare a proposal to solve thc problems satisfying the financial aims and
object of the Joint Venture.
Paragraph 30
Validity clause
30.1. Should individual paragraphs of these Articles of Association or parts
thereof be ineffective or become ineffective, this shall not affect the
effectiveness of the other paragraphs and the whole Articles of
Association.
30.2. The contractual participant shall in such a case be obliged, to
replace the ineffective paragraph or its ineffective parts with a
paragraph or parts thereof, which come the closest to the economic
and financial sense of the ineffective paragraph or parts thereof.
Paragraph 31
Adjustment of the Articles of Association
31.1. In the event of relevant regulation documents of the USSR, the RSFSR
or the Yakut-Sacha Socialist Soviet Republic becoming effective,
especially with regard to Company, Corporation or Trade Law including
Balance Sheet Law, the law of ownership of the land, the natural earth
resources and movable items, or other areas affecting the activities
of the Joint Venture, the contractual participants shall be entitled,
to adapt the conditions of these Articles of Association to the sense
and purpose of these regulation documents.
31.2. The adaptation of these Articles of Association or individual
conditions thereof requested in writing with reasons by a contractual
participant may only be refused by the other contractual participant for
objectively justified reasons.
Paragraph 32
Integral components of the Articles of Association
32.1. The following items shall form integral components of these Articles
of Association and the business principle for the formation and activities
of the Joint Venture:
1. Survey map of the exploration areas;
2. Survey map for section 1;
3. Survey map for section 2;
4. Credit and loan agreement between PGO LENANEFTEGASGEOLOGIJA and the
Joint Venture;
5. Credit and loan agreement between OEMV (JAKUTIEN) Exploration
Gesellschaft m.b.H. and the Joint Venture;
6. Agreement between OEMV (JAKUTIEN) Exploration Gesellschaft m.b.H. and
PGO LENANEFTEGASGEOLOGIJA;
7. Service agreement between PGO LENANEFTEGASGEOLOGIJA and the Joint
Venture;
8. Service agreement between OEMV (JAKUTIEN) Exploration Gesellschaft
m.b.H. and the Joint Venture.
Paragraph 33
Signing of the Articles of Association
33.1. These Articles of Association were signed
on 7th June 1991 in Vienna
in four copies in Russian and in German, the two language versions being
equally binding.
33.2. These Articles of Association become effective the moment they are
signed.
In the name and on the instructions of
PGO LENANEFTEGASGEOLOGIJA
(signature)
Selenski, V.V.
(Signature)
Jachenko, V.M.
In the name and on the instructions of the Company
OEMV (JAKUTIEN) Exploration Gesellschaft m.b.H.
(Signature)
Helmut Langanger
Amendment of the
CONTRACT
relating to the formation and activities
of the Joint VentureTAKT
between
The State Committee of the Republic of Sacha for
Privatisation, Antimonopoly Policy and
Support for Enterprise
67022 Yakutsk
Ulica Kirova No. 11
Republic of Sacha (Yakut)
Russian Federation
- hereinafter called the "Yakut Participant" -
represented by
Mr. R. Burnashov
and
the OEMV (JAKUTIEN) Exploration Gesellschaft m.b.H.
A-1090 Vienna
Otto-Wagner-Platz 5
Austria
a legal entity governed by Austrian Law,
- hereinafter called the "Austrian Participant" -,
represented by the
Director,Dipl. Ing. Helmut Langanger
PREAMBLE
PGO Lenaneftegasgeologia and OEMV (JAKUTIEN) Exploration Gesellschaft m.b.H.
signed the incorporation documents for thc TAKT Joint Venture on 7th June 1991;
The TAKT joint venture was registered with effect from 18th June 1991 in the
Soviet City of Yakutsk and on 18th August 1991 at the Ministry of Finance of the
Russian Federation;
In consideration of Decree No. 477 of 23.9.1991 of the Council of Ministers of
the Republic of Sacha the Managing Board of TAKT decided on 2nd October 1991 to
include GosKomnedra, of the Republic of Sacha (Yakut) as a further member of
TAKT;
By decision of the Council of Ministers of the Republic of Sacha of 23rd
September 1991 GosKomnedra Republic Sacha (Yakut) was liquidated.
The legal successor of GosKomnedra Republic Sacha (Yakut) is the Ministry for
the Energy and Fuel Industry of the Republic of Sacha;
By decision of the Council of Ministers of the Republic of Sacha of 19.1.1992,
No. 27, the raw materials industry of the Republic of Sacha was freshly
organized.
The Government of the Republic of Sacha (Yakut) stipulated the changing of the
founders of TAKT on the Yakut side on 29.5.92 in Decree No. 346/8.
The Managing Board of TAKT agreed on 29th September 1992 to the departure of
Lenaneftegasgeologia and of GosKomnedra from TAKT and the inclusion of the
Ministry for the energy and fuel industry as well as Jakutburneftegas as a new
participant in TAKT.
By decree of 14th October 1992 No. 848-r the Government of the Republic of Sacha
transferred all the shares of the State Administration organs in Joint Ventures
to the State Committee of the Republic of Sacha for Privatisation, Antimonopoly
Policy and Support for Enterprise.
The Managing Board of TAKT on 22nd February 1993 agreed to the transfer of the
shares in the TAKT joint venture from the Ministry for the Energy and Fuel
Industry and from Jakutburneftegas to the State Committee of the Republic of
Sacha for Privatisation, Antimonopoly Policy and Support for Enterprise.
Article 1
The Yakut member and the Austrian member do hereby agree, that on the basis of
thc contract relating to the formation and activities of a joint venture
including any appendices mentioned there of 7th June 1991 (Annex 1) as well as
the addenda and amendments in accordance with subsequent Article 2 the Yakut
participant is freshly included as a participant in the TAKT Joint Venture. The
Yakut participant takes over the rights and obligations under the aforementioned
contract as they have so far existed for the Yakut Russian participant.
Article 2
2.1. The contract relating to the formation and activities of the TAKT Joint
Venture is hereby amended as follows:
a) Preamble
The first paragraph is amended as follows:
"The State Committee of the Republic of Sacha for Privatisation,
Antimonopoly Policy and Support for Enterprise, which in accordance with
the decree of the Government of the Republic of Sacha of 14th October 1992
No. 848-r has to take over all the shares in joint ventures from the State
Administration organs."
b) Paragraph 7 point 2 is amended as follows:
"The funds as laid down in the Articles of Association shall be formed as
follows by the parties to the contract by cash inpayments in the form of
inpayments to the current accounts to be formed of the joint venture for
Roubles and for freely convertible currency or by non-cash capital
contributions, to be approved by the Managing Board:
1. Austrian Participant
Cash inpayment or
Non-cash capital contribution
Totalling US $1,000,000
2. Yakut participant
Cash inpayment or
Non-cash capital contribution
Totalling US $1,000,000
payable in US$ or Russian Roubles, converted at the officially
published rate of exchange of the State Bank of the Russian Federation
on the date of inpayment or provision of the non-cash capital
contribution.
Total value of the inpayments US $2,000,000."
c) Paragraph 7 point 4 is amended as follows:
"The cash inpayments or non-cash capital contributions shall become due for
payment at the latest thirty days after receipt of all the necessary
approvals for the licenses in accordance with Paragraph 4.4 and the
exploration and production splitting contract."
d) Paragraph 8 point 1 is amended as follows:
"In addition to the inpayments of the parties to the contract to the funds
in accordance with the Articles of Association the participants do hereby
grant to the Joint Venture for the first phase (Exploration) of his
activities fixed agreed private loans totalling
US $28,000,000
(in words: Twenty eight million US Dollars),
whereby each participant shall be responsible in accordance with the credit
and loan agreements attached to this contract (Appendices 5 and 6) for
US $14,000,000.
(in words: Fourteen million US Dollars), payable in US$ or Russian
Roubles, converted at the officially published rate of exchange of the
State Bank of the Russian Federation on the date of inpayment or provision
of the non-cash capital contribution."
e) Paragraph 8 Point 4 is deleted and not replaced.
f) Paragraph 28 Point 1, 1st paragraph is amended as follows:
"-It will make available to the Joint Venture free of charge all
geological, geophysical and other technical data relating to the sections
mentioned in Appendices 2 and 3 of this contract, which are in the
possession of companies, which are subordinate to the Yakut participant
directly or indirectly."
g) Paragraph 31. Point 5 is supplemented at the end with a new subparagraph
"The rights and obligations of the two participants arising out of
Paragraph 31 Point 5 also apply equally to companies, which are subordinate
to one of the two participants, directly or indirectly."
h) Paragraph 43 Point 1 Figure 5 and Figure 8 are amended as follows:
"Credit and loan agreement between the State Committee of the Republic of
Sacha for Privatisation, Antimonopoly Policy and Support for Enterprise and
the Joint Venture".
Figure 8 is deleted and not replaced.
2.2. The Articles of Association of the joint venture TAKT are amended as
follows:
a) Paragraph 5 point 1 is amended as follows:
"State Committee of the Republic of Sacha for Privatisation, Antimonopoly
Policy and Support for Enterprise"
b) Paragraph 8 Point 2 is amended as follows:
"1) The funds in accordance with the Articles of Association shall be
formed as set out hereinafter by the parties to the contract by cash
inpayments in the form of inpayments to the current accounts of the
joint venture to be set up for Roubles and for freely convertible
currency or by non-cash capital contributions, to be approved by the
Managing Board:
1. Austrian participant:
Cash inpayment or non-cash
capital contribution
totalling US $1,000,000
2. Yakut participant:
Cash inpayment or non-cash
capital contribution
totalling US $1,000,000
payable in US$ or Russian Roubles, converted at
the officially published rate of exchange of the State Bank of the
Russian Federation on the date of inpayment or non-cash capital
contribution.
Total value of the inpayments US $2,000,000.
c) Paragraph 8 Point 4 is amended as follows:
"The cash inpayments or non-cash capital contributions shall become due at
the latest thirty days after receipt of all the necessary approvals for the
licenses in accordance with Paragraph 4.4 and the exploration and
production splitting contract."
d) Paragraph 9 point 1 is amended as follows:
"In addition to the inpayments of the parties to the contract into the
funds in accordance with Articles of Association the participants do
guarantee to the joint venture for the first phase (exploration) of its
activities fixed agreed private loans totalling
US $28,000,000.
(in words: Twenty eight million US Dollars),
each participant being responsible in accordance with the credit and loan
agreements (Appendices 4 and 5) attached to this contract for
US $14,000,000.
(in words: Fourteen million US Dollars),
payable in US$ or Russian Roubles, converted at the officially published
rate of exchange of the State Bank of the Russian Federation on the date of
inpayment or the non-cash capital contribution."
e) Paragraph 9 point 4 is deleted and not replaced.
f) Paragraph 32 point 1 Figure 4 and Figure 7 are amended as follows:
Figure 4
"Credit and loan agreement between the State Committee of the Republic of
Sacha for Privatisation, Antimonopoly Policy and Support for Enterprise and
the Joint Venture"
Figure 7 is deleted and not replaced.
2.3 The State Committee of the Republic of Sacha for Privatisation,
Antimonopoly Policy and Support for Environment will enter with the TAKT
joint venture into a credit and loan agreement in accordance with Appendix
2. The credit and loan agreement shall be included as an integral
component and commercial principle of the contract governing the formation
and activities of the Joint Venture as Paragraph 43.1 Point 5 and as
Paragraph 32.1 Point 4 of the Articles of Association.
Article 3
All other paragraphs and appendices of the Contract relating to the formation
and activities of the joint venture as well as the Articles of Association
remain in force unchanged.
In the name and on the instructions of (Stamp and signature
THE STATE COMMITTEE OF THE REPUBLIC dated 21.04.93 of the
OF SACHA FOR State Committee of
PRIVATISATION, ANTIMONOPOLY POLICY AND Sacha)
SUPPORT FOR ENTERPRISE
(Signature of Helmut Langanger)
In the name and on the instructions of
OEMV (JAKUTIEN) Exploration Gesellschaft m.b.H.
Last part - Contract
Exploration
and
Production-Sharing
Contract
for hydrocarbons
between
Republic of Sacha (Yakut)
and
Russian Federation
on the one hand
and
The Sacha - Austrian Joint Venture
TAKT
on the other
TABLE OF CONTENTS
Preamble
Article 1 Definitions
Article 2 Object of the contract
Article 3 Contractual area
Article 4 Duration
Article 5 Surrender of areas
Article 6 Minimum work obligation
Article 7 Discovery, estimating, commercial discovery
Article 8 Apportionment of hydrocarbons extracted, recovery of costs,
production sharing
Article 9 Evaluation of hydrocarbons
Article 10 Marketing of natural gas
Article 11 Accounting and cost apportionment
Article 12 Rights and obligations of TAKT
Article 13 Provision of goods and services
Article 14 Rights of the representatives of the Government
Article 15 Joint extraction from a deposit
Article 16 Taxes and levies
Article 17 Internal demand
Article 18 Promotion of natural gas projects
Article 19 Currency and Bank Accounts
Article 20 Ownership of assets
Article 21 Liability and insurance
Article 22 Transfer of shares
Article 23 Secrecy and confidentiality
Article 24 Notifications
Article 25 Arbitration
Article 26 Language of the contract
Article 27 Force majeure
Article 28 Validity clause
Article 29 Bonus
Article 30 Miscellaneous
Article 31 Amendments and addenda to the contract
Article 32 Government
Article 33 Entry into force
Preamble
TAKT was formed on 7th June 1991 by PGO Lenaneftegasgeologija and OEMV
(JAKUTIEN) Exploration Gesellschaft m.b.H. and on l8th August 1991 was
registered by the Ministry of Finance of the RSFSR, in order to make a
fundamental contribution to the development of Yakut in the field of developing
hydrocarbons.
By a decision of the Managing Board of TAKT on 10th September 1998 the Nationale
Erdoel - und Erdgasgesellschaft Sachaneftegas was included as a new founder on
the Yakut side.
Confident of the conclusion of this contract TAKT has already sunk and attested
a borehole to a final depth of 2928 m in the contractual area, reprocessed
seismic data and has interpreted 2090 km of unreprocessable seismic data.
On 21st February 1992 the law concerning natural earth resources of the Russian
Federation was published, and mentioned the conclusion of exploration and
production sharing agreements.
On 22nd December 1992 the law of natural earth resources of the Republic of
Sacha (Yakut) became effective.
On 24.12.1993 a Decree relating to matters of production sharing agreements for
the utilisation of the natural earth resources, No. 2285 was published by
President Yeltsin.
The geological companies of the Republic of Sacha (Yakut) have collected and
evaluated extensive geological and geophysical data in the areas.
By disposition of the Government of the Republic of Sacha (Yakut) of 25th
January 1994 the Ministry of Industry of the Republic of Sacha (Yakut) was
empowered, to sign this contract as representative of the said Government.
On the basis of the common aim of the parties, to utilise the hydrocarbons in
the Republic of Sacha (Yakut) efficiently and on a profit-making basis, the
parties have reached agreement as follows:
Article 1
Definitions
Activities: this means all the activities, which are the object of
this contract.
Export point: means any point at which the crude oil will be handed
over to TAKT FOB Export port.
The export port will be agreed between the parties
hereto.
Contractual area: means Section 1 and Section 2, shown on the map in
Appendix 1.
Extraction area: means any part of the contractual area, marked and
indicated as such by TAKT and will also include all the
reserves of hydrocarbons of a commercial discovery.
After conclusion of the activities in accordance with
Art. 7.1 the extraction area may be extended by TAKT,
if the results of these activities indicate a greater
extension of hydrocarbons.
Strike (discovery): means the discovery of hydrocarbons regardless of the
quantity.
Hydrocarbons deposit: means the hydrocarbons in accordance with Article 8
Point 7.
Entry into force of the
contract: means that date on which the last approval was issued
for the validity of the contract in accordance with
Article 33.
Calendar year: means a year that begins on 1st January and ends on 31st
December.
Hydrocarbons: means crude oil of various degrees of density, asphalt,
natural gas, condensate and any other substances
containing hydrocarbons, found in the contractual area
and which can be extracted, as well as any substances,
which can be obtained therefrom, including sulphur,
helium, carbon dioxide and other hydrocarbons.
Costs: means all those costs, incurred in connection with
exploration, estimating, development and extraction,
regardless of whether these are investment costs or
operating costs, storage costs, marketing and export
costs, loan costs for outside financing, royalties,
the legally specified VAT, personnel costs including
legal levies and voluntary additional payments,
interest amounts in accordance with Art. 8 point
5 and 6, bonus in accordance with Article 29,
amounts, used for apportionment to funds set up by
TAKT as well as any further costs, listed in the
offsetting agreement. Costs also covers costs for
projects for the economic and social development
of Yakut, incurred by TAKT.
Hydrocarbons costs: means the hydrocarbons in accordance with Article 8,
point 4.
Commercial extraction: means any date, from which TATK on the basis of
delivery agreements conveys crude oil or natural
gas out of the extraction area. The date shall be
stipulated individually for each commercial discovery.
Extraction for test purposes shall not be considered
as commercial extraction.
Commercial discovery: means a discovery or strike in the contractual area,
which in the opinion of TAKT has the potential, to be
developed and extracted in the future on a financially
viable basis.
Party or parties: means the Government or TAKT or both together as well
as their legal successors.
Production period: means the period from the commencement of commercial
extraction, lasting 20 years, if not extended in
accordance with Article 4.
Government: means the Government of the Republic of Sacha (Yakut)
("RS") as the legitimate representative of RF and the
Government of the Russian Federation ("RF") as the
legitimate representative of the RF.
Royalty: means the extraction interest of 8 % of the available
hydrocarbons, which will be made available to the
Government of TAKT at the handing over point or will
be paid in cash.
Standard cubic metre or
SKM: means the quantity of gas, which is necessary, to fl1 a
container of 1 cubic metre at the atmospheric pressure
of 101.325 kPA and at a temperature of 0 degrees
Celsius.
Hand over point: means the point at which hydrocarbons are handed over to
the customer in accordance with delivery agreements and
measured.
Offsetting contract: means the document, attached hereto as Appendix 2 and
which contains detailed rules and regulations concerning
cost accounting.
Contract: means this exploration and product sharing contract
including Appendices 1, 2, 3, 4, 5 and 6.
Article 2
Object of the contract
2.1 The object of this contract is any activities for the exploration,
development, extraction including processing, storage, marketing,
transportation and exporting of hydrocarbons in the contractual area as
well as any auxiliary activities, connected therewith.
2.2. The Government grants TAKT thc exclusive right, during the period of
validity of the contract and in the contractual area to undertake
activities and to freely export the hydrocarbons in accordance with the
conditions of this contract. The Government does hereby guarantee that the
licences, which are necessary to carry on the activities and which are not
attached to th1s contract as Appendix 4, will be issued immediately by the
Government or its administrative sub-units. Any costs for the issue of
such additional licences shall be covered with the portion of the
Government in accordance with Article 8.7. If licences have not been
issued within one month after an application has been made by TAKT, then
the period of validity of the contract shall be extended accordingly.
2.3 The licences, necessary in accordance with Yakut and Russian legislation
for the utilisation of the natural earth resources, have been agreed
between TAKT and the Government and are attached to this contract as
Appendix 4.
Article 3
Contractual area
3.1 The Government does hereby guarantee that Appendix 1, may be used
exclusively by TAKT for the duration of the contract. If for this purpose
the cooperation of administrative departments of the RS is necessary, then
allocation shall be effected by the Government and these departments
jointly.
3.2. TAKT undertakes, to make available the following amounts to the
administrative departments of RS for projects for social development
purposes:
Exploration phase(s): 2.5% of the costs of TAKT for searching
and surveying.
Development phase: Up to 2% of the costs of TAKT for the development
of petroleum or natural gas deposits.
TAKT shall not make available more than US$ 30 million for such projects.
TAKT and the administrative department shall decide jointly on the projects
to be promoted.
3.3 If in the opinion of TAKT an extraction area extends beyond the contractual
area, then this area shall become part of the contractual area, if it has
not been given to another company. In this case the Government undertakes
to grant licences to TAKT, on the same conditions as apply to the original
contractual area.
3.4 If the partners agree, additional areas may also be included as part of the
contractual area.
3.5 The Government undertakes, to grant to TAKT all the rights which are
necessary for the construction of pipelines and transportation of
hydrocarbons, if such pipelines go beyond the contractual area.
3.6 If on the territory of the Republic of Sacha (Yakut) TAKT receives further
licences for searching and extraction of hydrocarbons, then TAKT may
offset the costs of each other licence with the costs of this contract.
Article 4
Duration
4.1 The first exploration period shall last five years from the entry into
force of the contract. TAKT is entitled, to extend the first exploration
period by a further, second exploration period of 5 years, if tax has
fulfilled its obligations completely from the first exploration period.
TAKT must inform the Government at the latest 3 months before commencement
of the first exploration period, if TAKT wishes to move into the second
exploration period.
4.2 If at the latest at the end of the second exploration period an extraction
area has not been designated by TAKT, the contract shall be deemed to be
terminated.
4.3 The first and/or second exploration periods shall be automatically
extended, if on the date of the end of the relevant exploration period a
borehole has in fact just be sunk. The extension shall be valid for a
period of three months, after the final depth has been reached in
accordance with the drilling plan. This extension shall not apply to the
sinking of the borehole(s) in accordance with Arts. 6.1 and 6.2.
4.4 Concerning any extraction area the contract shall remain valid for 20 years
from the commencement of commercial extraction. If in the opinion of TAKT
after the expiry of the 20 year period commercial extraction shall be
guaranteed, then TAKT shall be entitled, to extend this contract. The
freshly negotiated conditions, may not be worse than the conditions
applicable until that point in time.
TAKT shall have at least 12 months before the expiry of the production
period to notify the Government, that it is going to exercise the right to
extend the production period by as many years as the extension totals and
whether it wishes, on the basis of financial features, to freshly negotiate
parts of the contract.
If TAKT wishes a fresh negotiation, the parties shall make the greatest
efforts, before the commencement of the extension of the production period,
to come to an agreement.
4.5. If before commencement of commercial extraction the parties conclude a
natural gas delivery contract, the period of validity of which is longer
than 20 years, then the production period shall automatically last as long
and the possibility of an extension shall only arise after that.
Article 5
Relinquishment of areas
5.1 If TAKT does not go into the second exploration phase, then it must
relinquish all areas with the exception of the extraction areas on the
expiry of the first exploration period.
5.2 After the expiry of the second exploration period, TAKT must relinquish all
those parts, which it has not designated as extraction areas.
5.3 During the exploration period TAKT may voluntarily give up parts of the
contractual area, but without however being released from the obligations
of the minimum work obligation.
The relinquishment of areas in accordance with this Article 5.3 shall
become legally effective 30 days after the receipt by the Government of an
appropriate notification.
5.4 At the end of the relevant exploration period TAKT will retain areas, which
are in Section 1 and/or Section 2, to the Government, which in the opinion
of TAKT are no longer worth exploration.
5.5 In accordance with standard practice throughout thc world in the petroleum
and natural gas industry as well as in accordance with the rules, which in
the RS apply to the area of environmenta1 protection and protection of the
natural earth resources, TAKT will restore the areas, which it has to hand
back in accordance with this Article 5 and on which it has carried out
survey and extraction activities.
Article 6
Minimum work obligation
6.1 During the first exploration period TAKT must fulfill at least the
following work obligation:
6.1.1 In Section 1 TAKT shall especially carry out the following tasks:
-- Processing of seismic data - 850 km;
-- Evaluation of seismic information
-- Simulation and drawing up of the geological and facies maps
-- The sinking of a test bore with breakdown and information
concerning the subsalinary deposits.
6.1.2 In Section 2 TAKT shall carry out especially the following tasks:
a) Verchnemurbaysk Area:
-- Processing of seismic data - 820 km
-- Evaluation of seismic information
-- Technical and economic evaluation of the area on the basis of
the seismic interpretations;
-- On proof of the financial viability on extraction in the
opinion of TAKT -- drilling work to the extent to be
stipulated by TAKT.
b) Otradrunsk area:
-- Processing of seismic data - 420 km
-- Evaluation of seismic information
-- Sinking of two test holes, whereby borehole 314-2 will be
included.
6.3 During the second exploration phase TAKT must fulfill a minimum work
obligation stipulated by TAKT.
6.4 The minimum work obligation for the first or second exploration period
shall be deemed fulfilled, if the works have been completed in accordance
with Art. 6.1 or Art. 6.2. Should TAKT not have fulfilled the minimum
work obligation in accordance with Art. 6.1 or 6.2, then TAKT shall pay to
the Government the differential amount between the amount actually expended
for the activities and the sum of US$ 30 million.
(Art. 6.1) or US$ 15 million (Art. 6.2).
After fulfillment of the relative minimum work obligation TAKT may cancel
the contract without further claims on the part of the Government.
If the works in the first exploration period exceed the scope laid down in
Article 6 Point 1 or an amount was expended which exceeds US$ 30,000,000,
then the works and amounts of money shall be charged to the minimum work
obligations of the second exploration period.
6.4 The Government recognises that, even before the entry into force of this
contract, TAKT has carried out the following geologica1 and geophysical
works and drillings, which as a result shall be recognised as partial
fulfillment of the work obligation in accordance with Art. 6.1:
-- sinking of borehole 314-2 and test investigation in Section 2,
Otradinsk area (final depth 2928 m)
-- reprocessing of 865 km seismic data and probably a further 100 km
-- Interpretation of 2090 km of unreprocessable seismic data.
For these works costs have been accumulated in accordance with the Table in
Appendix3. These costs may be recovered as hydrocarbons costs in
accordance with Article 8.
In addition any costs of TAKT shall be recognised as recoverable, which can
be properly proven by means of vouchers and documentation and are connected
with the works in accordance with Article 6 Point 4 as well as costs for
additional works before and after the signing of this contract.
6.5 If a drilling in accordance with Article 6.1.1 or 6.1.2 does not reach the
planned drilling target for technical reasons, then the drilling obligation
shall be considered as fulfilled, if in the opinion of TAKT every technical
possible and economically sensible efforts have been made, to reach the
drilling target.
Article 7
Discovery, estimating,
commercial discovery
7.1 Within 60 days after TAKT has made a discovery, the Government is to be
informed. After the Government has been informed TAKT may declare a
commercial discovery and designate an extraction area.
In this case TAKT shall have the possibility of carrying out studies, and
if necessary and economically justified, of effecting additional drillings
for more precise determination of all the fundamental parameters of the
deposit discovered. These activities may, but need not be carried out
during the first and second exploration period. If carried out during the
two exploration periods, the costs shall be charged to the relevant task
obligations in accordance with Article 6 Point 3.
If TAKT has not carried out the aforementioned activities in an extraction
area by the end of the second exploration period, then TAKT shall have a
further period of five years or shall be entitled to cancel the contract.
7.2 After the termination of the activities in accordance with Art. 7.1 TAKT
must within two years submit a development project to the Government, in
accordance with the International Standard of the oil industry taking into
account local features or the contract shaft be considered as canceled.
TAKT shaft be entitled, to carry out the development project including
amendments and addenda made by TAKT with the aim of commercial extraction.
The date for the commencement of the development project shall be
stipulated by TAKT based on the conclusion of delivery agreements for the
hydrocarbons to be extracted at world market prices, in convertible
currency and financially tolerable conditions or in accordance with the
existence of detailed rules and regulations in accordance with Article 17
Points 1 and 2.
Article 8
Allocation of extraction
Recovery of costs
Production sharing
8.1 TAKT must make available any cash amounts, necessary for the completion of
the activities, and may only recover its accumulated costs from the
hydrocarbons costs. TAKT shall be entitled to freely use extracted
hydrocarbons to the extent required for the carrying out of the activities.
8.2. The extracted hydrocarbons which are not needed for carrying out the
activities ("available hydrocarbons") shall be measured at the transfer
point and shall be split up at the transfer point in accordance with
the following conditions.
8.3. 8% of the available hydrocarbons shall be made available to the Government
at the transfer point as royalty or shall be paid in cash. Royalties are
recoverable within the framework of the hydrocarbons costs.
8.4. TAKT shall be entitled to recover its accumulated costs from up to 90 ./0
of the available hydrocarbons after deduction of the royalties
("hydrocarbons costs"). The type and method of recovery of the costs
for individual cost types shall be established by TAKT.
8.5. The costs incurred through carrying out the activities up to the beginning
of commercial extraction, financed from own funds or loans not bearing
interest, shall bear interest half-yearly. The applicable interest rate
shall be the 6 month Libor for US$.
The costs for each half-year shall be totaled up at the end of the half-
year and shall bear interest at the interest rate applicable on the first
day of the half-year. The interest amounts determined for each half year
shall be added to the costs for the next half-year.
8.6. If the costs accumulated before and after commencement of commercial
extraction cannot be recovered within one year, then costs not recovered
shall be carried forward to the next year, and indeed for as long as
necessary until all costs have been recovered.
All costs not recovered in one year shall bear interest for the prior year
and the interest amounts do determined shall be added to the costs for the
next year. Loans taken up from Banks shall be excepted from bearing
interest.
8.7. Those quantities of available hydrocarbons, which are not used as
hydrocarbons costs ("hydrocarbons deposit"), shall be split up as follows
between TAKT and the Government:
Portion of the Government: 40%
Portion of TAKT: 60%
The total portion so determined for TAKT of hydrocarbons recovery shall be
taxed at a rate of 24%. Regardless of any change in laws, the tax rate
shall be maintained during the whole period of validity of the contract.
8.8. During a current calendar year the costs and proceeds shall be estimated on
the basis of assumptions by TAKT, which will also form the basis for the
splitting of the hydrocarbons.
Within three months after the expiry of each calendar year TAKT will
forward to the Government annual accounts, which will contain the actual
results of the year which has expired. Differences between the provisional
splitting of hydrocarbons during a current calendar year and the result of
the annual accounts must be equalised within the following calendar year.
8.9. Regulations concerning the shipment of hydrocarbons are to be agreed
between the parties hereto before commercial extraction.
Article 9
Evaluation of hydrocarbons
for hydrocarbons costs, hydrocarbons recovery and tax assessment
9.1. Natural gas shall be valued at the average of the price, which was achieved
by the Government and TAKT at the transfer point in accordance with a
natural gas delivery contract during the previous quarter.
9.2. Crude oil shall be valued at the average of the export price, which was
achieved by TAKT during the previous quarter. Export price means the price
FOB export point, as would be achieved between non-bound companies and on
the basis of the triple comparison in freely convertible currency.
Deductions on account of sales or trading discounts shall be restricted by
TAKT to the internationally customary extent.
9.3. If TAKT sells crude oil to a bound company, then the average price of the
past quarter shall be determined on the basis of the quotations published
in Platt's for crude oil of comparable quality and destination.
9.4. The aforementioned rules shall be adjusted within the framework of the
annual cost recovery account to the average price actually applicable to a
quarter.
Article 10
Marketing of natural gas
10.1. The Government and TAKT may jointly export natural gas and for this
purpose conclude a natural gas delivery contract with one or several
buyers.
10.2. If for the financial viability of a natural gas export contract the
quantities of TAKT should not be adequate, then the Government TAKT will
make the greatest possible efforts to achieve the joint sale of natural
gas.
Article 11
Accounting, and costing
11.1. TAKT must keep its commercial ledgers in accordance with the
specifications of the offsetting contract, the principles
internationally recognised in the oil industry and the internal TAKT
accounting regulation. To determine the value of hydrocarbons costs
and hydrocarbons recovery, TAKT will use only the US$ as the currency.
11.2. Within 90 days from the end of a calendar year TAKT must forward to
the Government a list of the costs accumulated in connection with the
activities.
11.3. After recording commercial extraction TAKT must additionally forward a
report to the Government concerning the quantity of the extracted
hydrocarbons for the drafting of the costs.
11.4. The Government shall be entitled at its own expense to check the
annual cost accounting including the relevant documentation of TAKT
regularly for purposes of correctness. If the Government does not check
the cost accounting within 12 months from 31st December of any year in
which the costs have been incurred, then the costs shall be deemed to
have been accepted and the Government shall not be able to make any
later objections to the costs contained in the cost accounting documents.
The costs contained in the cost accounting system shall be deemed as the
basis of the cost recovery in accordance with Article 8.
11.5. If the Government has undertaken a check in accordance with Article 11.4,
the Government must make available to TAKT in writing the results of the
check within 6 months from the end of the said check.
The Government may only make the following objections:
-- the figures of the cost accounting are not correct;
-- the costs for acquired goods and services criteria are not in
accordance with Article 13.4;
-- Payments for goods and services are not in accordance with the
relevant contracts of the suppliers;
-- the quality of the goods, taking into account the market situation,
is not in accordance with the price paid.
11.6. If the Government and TAKT cannot agree on the test results, then if
necessary the international centre of experts of the International
Chamber of Trade, Paris, may be called in, in accordance with the
procedure relating to the expert report required by the Chamber.
Article 12
Rights and obligations of TAKT
12.1. At the latest 30 days after the entry into force of this contract TAKT
must appoint a representative as the correspondent (interlocutor) for the
Government.
12.2. In accordance with the applicable legal situation, during the period
of validity of this contract, representatives of TAKT as well as other
persons appointed by TAKT shall at any time have free access to the
contractual area.
12.3. Without further approval all the machines and plants necessary for the
completion of the activities may be brought into the contractual area and
set up and operated there, provided the machines and plants, are in
accordance with the international standard.
12.4. TAKT must bear all costs connected with the activities and may only
recover these costs from the hydrocarbons costs.
12.5. TAKT shall be entitled, to use public facilities, such as roads, on
conditions which do not discriminate against TAKT compared with third
parties. Subject to the widest possible protection of nature, TAKT shall
be entitled to build roads and other traffic routes in the contractual
area, if necessary for the activities. In response to queries from the
Government TAKT shall generally permit the utilisation of these roads and
traffic routes, provided this does not restrict TAKT in its activities
and does not give rise to any additional financial burden.
12.6. For purposes of the activities in the contractual area TAKT may make use
of the raw materials which exist there, such as sand, rocks, water and
timber, in the necessary scope and on conditions which do not
discriminate against TAKT, compare with third parties,
12.7. If necessary for the activities, TAKT shall be entitled to sink water
wells.
12.8. Taking into account local features TAKT must carry out its activities in
accordance with the conditions of this contract as well as the
internationally recognised standards governing the petroleum and natural
gas industry.
The activities shall be carried out efficiently, safely and so as to save
costs with the aim of achieving the best financial and economic
exploitation of the deposits.
12.9. When carrying out the activities TAKT must ensure that it avoids to the
greatest extent possible:
-- the loss of hydrocarbons above and below the surface of the earth
-- damage to rock formations which carry hydrocarbons
-- the unintended penetration of water into rock formations carrying
hydrocarbons
-- environmental pollution and damage.
TAKT shall accept no liability for damage to the environment in the
contractual area, which occurred before this contract became effective.
The activities of TAKT in the field of environmental protection are
listed in Appendix 5.
12.10. TAKT must inform the Government half-yearly of the activities and
forward reports to it in accordance with the regulations of the
Government relating to statistical reports.
12.11. Within 6 months from expiry of the first or second exploration phase
TAKT will submit a geological report to the Government.
12.12. Within 6 months from the end of the contract TAKT will forward to the
Government drilling cores and other technical data, which have come into
the possession of TAKT during the period of validity of the contract.
Article 13
Provision of goods and services
13.1. TAKT must make available itself or through subcontractors, who would
be selected by TAKT, all the materials, machines, plants and other
equipment as well as services for the activities.
13.2. The number and remuneration of the employees, involved in the
activities, shall be determined solely by TAKT, whereby the remuneration
must not be less than the legally stipulated minimum.
13.3. TAKT shall make every effort to ensure that the majority of the
employees are citizens of the RF and that these employees are allowed
further education specific to their trade or profession in accordance
with the directives laid down by TAKT.
13.4. For orders to subcontractors, which go above an amount of US$ 500,000
TAKT shall be obliged to instigate a tender competition. TAKT must place
the order with the company, which in the opinion of TAKT as regards
price, quality, delivery time and technical skills best satisfies the
requirements of TAKT. In the event of equality of bids or tenders,
Russian and Yakut companies must be given preference.
Article 14
Rights of the representatives of the Government
14.1. Representatives of the Government shall by prior agreement with TAKT
be entitled to access at any time to the contractual area and may examine
all documents on the spot, inspect items of equipment as well as
generally observe the activities.
14.2. The access of the representatives of the Government shall be at their
own risk and expense.
They shall not have any right to intervene directly in the activities
or give instructions concerning the activities, provided the activities
are not in conflict with this contract and are in accordance with the
laws. In response to prior notice in good time of a visit of the
representatives of the Government, they will be offered the same
accommodation and subsistence possibilities as the employees of TAKT.
The number of visitors as well as their stay time shall be
agreed between the Government and TAKT.
14.3. The Government shall grant TAKT the greatest possible support in
obtaining visas, work permits and any other approvals necessary for
Yakut, Russian and foreign employees as well as employees of
subcontractors.
Article 15
Joint extraction from a deposit
15.1. If an extraction area extends beyond the borders of the contractual
area and this adjacent area has been placed with another company
within the framework of a licence agreement, the Government, if the
companies affected do not reach agreement within a reasonable deadline,
may request in writing, that this extraction area be developed
uniformly and that a joint development project be submitted.
15.2. If this development project is not submitted within a year following
a written request from the Government and the Government does not grant
any extension of this deadline, then the Government may request that an
internationally known consultancy company prepare this development
project.
As regards the costs of the consultancy company the companies affected
must reach an appropriate agreement. If no agreement is reached, the
costs shall be borne in the ratio of the hydrocarbons reserves of the
relevant company to the hydrocarbons reserves of the whole development
project.
15.3. All measures for the preparation and execution of the development
project shall require a contractual settlement between the companies
affected.
Article 16
Taxes and levies
16.1. TAKT is obliged to pay taxes on hydrocarbons VAT recoveries and the
legally specified up to a maximum rate of 20 % in accordance with the
conditions of this contract and royalties in the form of hydrocarbons
to be delivered in accordance with Article 8 Point 3 to the Government
or in cash, valued in accordance with Article 9.
Within the framework of the development project in accordance with
Article 7 Point 2 TAKT and the Government shall reach agreement as to
whether the taxes and levies are to be paid in cash or in hydrocarbons.
In consideration thereof the Government does hereby guarantee that TAKT
shall be exempt from all other taxes, levies and fees (i.e. fees for the
transfer of the land (lease agreement)), of any kind whatsoever, during
the period of validity of this contract. The share of the Government in
hydrocarbons recoveries in accordance with Article 8 Point 7 shall cover,
in addition to other expenditure, also the expenditure described in this
paragraph.
This exemption from tax shall only apply to activities connected with
this contract.
16.2. The Government does hereby guarantee that TAKT and its employees in
the RS and RF shall not pay any import and export duties, or any other
levies of any kind whatsoever, for goods, including goods required daily,
involved directly and indirectly with the activities. This guarantee
also applies to subcontractors appointed by TAKT.
16.3. The Government does hereby guarantee and shall not be subject to the
regulations to compulsory purchase for foreign exchange either when
importing or exporting capital.
16.4. Taxes and levies shall be paid within 30 days after the termination of
each quarter on the basis of the provisional prices and quantities.
Within 90 days from the end of a calendar year the taxes and levies
shall be established on the basis of exact prices and quantities for
the preceding calendar year.
Credits in favour of the Government or TAKT shall be settled with the
first payment of the current calendar year.
16.5. The aforementioned guarantees apply both to the currently existing and
also any future legal situation.
Article 17
International demand
17.1. Should natural gas be needed to settle internal demand, then TAKT
shall conclude a natural gas delivery contract with the Government,
which will provide for the payment of TAKT in convertible currency at
an agreed price.
Taking into account Article 10 the Government and TAKT must reach an
agreement on the quantities, which are to be available to satisfy
internal demand.
17.2. In the event of the commercial extraction of crude oil and condensate
TAKT shall sell to the Government that part of the available crude oil
and condensate, accruing to it in accordance with Art. 8 Points 4 and 7.
As purchase price the Government does hereby undertake to make available
to TAKT the same quantity of crude oil and condensate taking into
account quality differences at the point of export. Detailed
regulations are to be agreed between the parties on conclusion of the
activities in accordance with Art. 7 Point 1.
There need not be any exchange, if the Government pays for the crude oil
and condensate in convertible currency at world market prices.
The world market price or the quantity of crude oil and condensate made
available at the point of export shall be reduced by an amount or a
quantity, which will be stipulated between the Government and TAKT and
take into account transport costs.
Article 18
Promotion of natural gas projects
In accordance with the development of the natural gas potential of the RS and in
view of the activities of TAKT, working as the first Yakut-Austrian Joint
Venture searching for hydrocarbons in the RS, the Government will make the
greatest possible efforts, to allow TAKT the earliest possible connection to the
pipelines for the exporting of natural gas and produce all the necessary
documents and take all the necessary resolutions to have a positive effect on
natural gas extraction by TAKT.
Article 19
Currency and Bank accounts
19.1. To calculate costs and income and to calculate the expenditure
obligation in accordance with Artic1e 6 TAKT will use US Dollars
as the currency.
19.2. To calculate expenditure in Roubles generally the rate of exchange at
which TAKT can obtain Roubles against Dollars shall apply.
19.3. To calculate income in Roubles the same rate of exchange at which TAKT
can obtain US Dollars against Roubles shall apply.
19.4. The Government guarantees TAKT the right at any time to free payments
in convertible currency from and to the RS and RF.
19.5. TAKT shall be entitled to set up and open accounts abroad at any time
for freely convertible currency and freely dispose of the cash deposited
there, without the cash having first to be transferred to the RS or RF.
19.6. TAKT shall be entitled, taking into account the applicable double
taxation agreements, to make dividend payments to its foreign
participants, as well as fulfilling loan and other monetary obligations,
without deductions of any kind whatsoever from accounts in the RS and RF
or from accounts abroad.
Article 20
Ownership of assets
20.1. All assets, which TAKT acquires and the purchasing costs of which are
recoverable as hydrocarbons costs, shall transfer into the ownership
of the Government on the date on which the costs for these have been
recovered.
20.2. During the period in which these assets are used for the activities,
TAKT shall have an unrestricted and free right of utilisation
20.3. On termination of the contract TAKT shall in no way be liable for the
condition of the assets.
20.4. Article 20.1 does not apply to assets leased by TAKT or provided by
subcontractors.
Article 21
Liability and insurance
21.1. In accordance with the applicable legal situation ~e assets procured
by TAKT for the activities shall be insured with insurance companies
of the RS or RF.
21.2. The conclusion of other insurance policies such as risk insurance,
operating interruption and third party liability insurance policies
as well as the usual international insurance policies for exploration
and extraction activities shall be at the discretion of TAKT.
21.3. TAKT shall be liable to the Government only for those direct damages,
caused by gross negligence or deliberately by executives of TAKT.
Liability for consequential damages, of any kind, is excluded.
21.4. TAKT undertakes, to release the Government from the claims of third
parties, the damages of which have been caused by TAKT or its
representatives, insofar as these actions were not taken in accordance
with this contract. TAKT cannot however be made liable if TAKT has no
possibility of exercising direct control in accordance with the standard
practices of the international petroleum and natural gas industry.
21.5. The Government does hereby undertake to release and exempt TAKT from
the claims of third parties, damages to which have been caused by
actions of the Government or its representatives.
Article 22
Transfer of shares
22.1. Without the prior consent of the Government TAKT shall not be entitled
to transfer right and obligations under this contract either partly or
wholly to third parties.
22.2. The consent of the Government may only be refused for important
reasons, concerning the financial and social situation or for reasons of
national security.
22.3. Within 45 days after written notification by TAKT the Government must
state in writing whether any of the reasons in accordance with Article
22.2. prevail. If TAKT receives no comments, then the transfer shall be
considered as approved by expiry of the 45 day deadline. The Government
undertakes to sign the agreements to be amended as a result of the
transfer.
22.4. On the basis of proceeds from the transfer of rights and obligations
under this contract TAKT need not pay any taxes or fees.
22.5. For the legal effectiveness of the transfers of rights of obligations
under this contract the consent of the Government will be adequate. An
approval in accordance with Article 32 is not necessary.
Article 23
Data and confidentiality of data
23.1. During the period of validity of this contract TAKT must preserve
technical documents as well as a selection of drilling cores and other
rock samples for a reasonable period of time and at the request of the
Government make them available or allow them to be inspected by the
Government, whereby the activities of TAKT must not be prejudicially
affected by this.
23.2. TAKT shall be entitled at any time to use or evaluate parts of the
rock samples as well as other technical documents inside and outside
the RF and RS.
23.3. These rock samples and technical documents may only be passed on by
the Government and TAKT to executive, subcontractors, consultancy
companies or bound companies. It must however be guaranteed, that
these rock samples and technical documents shall be treated
confidentially, and not passed on to third parties. TAKT may also
pass on these rock samples and technical documents to companies, which
are interested in a transfer of rights and obligations from TAKT under
this contract.
The prerequisite for the onward transmission is in connection with the
activities.
23.4. The obligation to maintain secrecy and confidentiality shall end on
the expiry of this contract.
23.5. All data and information relating to the contractual area, in the
possession of the Government, authorities subordinate to it or in the
possession of companies, controlled by the Government, shall be made
available within 60 days after the entry into force of this contract to
TAKT in the form of copies.
Article 24
Notices
24.1. All notifications and notices, to be forwarded in accordance with this
contract or in connection with it, must be in writing and sent to the
following addresses and shall be considered as received.
a) in the case of personal hand over on being handed over, whereby the
addressee must confirm receipt;
b) in the case of a registered letter on its arrival;
c) in the event of a telex, when the telex sent bears a correct reply
endorsement of the addressee in each case at the beginning and at
the end, on the day after it is sent.
24.2. The Government and TAKT do hereby undertake to notify in advance in
good time any change in these addresses.
24.3. Notifications and notices may be made both in Russian, English or in
German.
The recipient must always ensure translation.
Article 25
Applicable law and Arbitration
25.1. The contract shall be subject to the law of tile Republic of Sacha
(Yakut) and the Russian Federation.
25.2. Any disputes arising out of this contract, which cannot be settled
amicably, shall be settled by a Court of Arbitration in accordance
with the rules of UNCITRAL (Community of the United Nations for
International Trading Law). The Court of Arbitration shall consist
of 3 members.
25.3. The Court of Arbitration must conduct its proceedings in Zurich,
Switzerland.
25.4. The Government waives the right to plead State immunity and does
hereby subject itself to the Court of Arbitration and its decision
as well as the execution of the Arbitration decision.
Article 26
Language of the contract
26.1. The Russian and German version of this contract are both equally
binding.
26.2. In the event of interpretation problems caused by translation an
independent expert is to be appointed by the parties hereto and shall be
responsible for preparing a proposal to solve the problem satisfying the
financial and economic aims and the object of the Joint Venture.
Article 27
Force Majeure
27.1. TAKT shall be released from liability for the complete or partial non-
fulfillment or incorrect fulfillment of its obligations under this
contract, if these disturbances are caused by events, which are outside
the control of TAKT.
27.2. On the occurrence of the aforementioned events TAKT must immediately
inform the Government thereof in writing, but no later than fourteen
days after the occurrence thereof. The notice must give details of
the nature of the events and - if possible - an estimate of the effects
on the fulfillment of the obligations under this contract by TAKT as
well as the probab1e date for the fulfillment of these obligations.
27.3. In the event of averting or on the termination of aforementioned
events TAKT must inform the Government thereof in writing at once,
but no later than after seven days. The notice must state a time,
when the obligations under this contract shall probably be fulfilled.
27.4. On the occurrence of the aforementioned events fulfillment of the
relevant obligations under this contract by TAKT shall be postponed
by the time of the circumstances. Should these circumstances last
longer than twelve months, then TAKT and the Government shall meet
to determine the further procedure.
27.5 In accordance with Article 25 a decision shal1 be taken by the Court
of Arbitration mentioned therein concerning disputes arising due to
circumstances of force majeure.
Article 28
Validity clause
28.1. Should individual articles of this contract or parts thereof be or
become ineffective, this shall not affect the effectiveness of the other
articles and the total contract.
28.2. The parties shall in such a case be obliged to replace the ineffective
article or its ineffective parts by an article that comes closest to the
financial purpose of the ineffective article.
Article 29
Bonus
TAKT undertakes to pay a bonus totaling US$ 840,000 on the entry into force of
the contract to the Government. The Government recognises that TAKT has
fulfilled this obligation on paying the same amount to Lenaneftegasgeologia as
partial remuneration for the drilling of well 314-2 and there shall therefore be
no further payments for this reason to the Government.
Article 30
Miscellaneous
30.1. This contract consists of a main part, Appendix 1, Appendix 2,
Appendix 3, Appendix 4, Appendix 5 and Appendix 6, which represent
integral components of this contract.
30.2. In the event of conflicts between the main part and the appendices,
the conditions of the main part shall be given precedence.
30.3. In the event of a conflict between the licences in accordance with
Appendix 4 and the conditions of the main part of the contract, the
conditions of the main part shall be given precedence.
30.4. The rights and obligations of the parties under this contract shall
transfer to their legal successors.
30.5. The Government does hereby guarantee that on signing this contract
only those further licences for the utilisation of the contractual area
exist as listed in Appendix 6. Should there be problems in the
simultaneous utilisation of the contractual area between TAKT and other
licensees, the Government shall resolve this dispute also in view of the
overriding significance of the search for and extraction of hydrocarbons
for the development of the Republic of Sacha.
Licences, given by the Government after the signing of this contract,
shall contain a condition, providing for the preferential utilisation of
the contractual area by TAKT.
Under no circumstances however may licences be given, which have as their
object the searching for and extraction of hydrocarbons.
Article 31
Amendments and addenda to the contract.
Any amendments and addenda to this contract must be in writing and in Russian
and German and may only be undertaken by agreement between the representatives
of the parties empowered for this purpose.
Article 32
Government
32.1. The Government of the RS, represented by its competent organs and the
Government of the RF, represented by its competent organs, do hereby
guarantee the rights and entitlements granted to TAKT in this contract.
The Government will hand down all the necessary documents and appoint
and instruct the subordinate authorities in such a way that in its
activities TAKT shall be able to enjoy these rights and entitlements.
The rights, obligations and guarantees of the Government shall transfer
to their relevant legal successors.
32.2. The Government shall within 30 days from the entry into force of this
contract appoint a representative, who will be empowered to receive any
notices in accordance with this contract. Notices from TAKT to this
representative shall be considered as properly sent.
Regardless of the effectiveness of the serving of notices, the
Government shall immediately notify TAKT of the receipt of such notices.
32.3. If the Government appoints a representative as a replacement for the
representative in accordance with Article 32.2. above, TAKT must be
notified of this. The appointment shall become legally effective 10 days
after receipt by TAKT of an appropriate notice.
Article 33
Entry into force
This contract shall become effective after being signed by the parties and after
approval of the contract by the legislating bodies of the Republic of Sacha and
the RF. The approvals must be published.
In the name and on the instructions of
The Republic of Sacha (Yakut)
In the name and on the instructions of
Russian Federation
In the name and on the instructions of
TAKT
Appendix No. 1
Map and coordinates of the sections
Two maps with Russian place names
APPENDIX No. 2
Offsetting Agreement
GENERAL CONDITIONS
1. Purpose
The purpose of this offsetting agreement is to stipulate the principles of cost
recovery and the cost recovery account in connection therewith, as well as the
rules connected therewith for the costs, as Appendix 2 of the contract.
All costs from the activities of TAKT, whether costs of exploration, the
valuation and development of a discovery, or in addition costs of maintaining
the current operation, as well as costs for processing and selling hydrocarbons
and activities of TAKT connected therewith, are to be put into the KRR (cost
recovery accounting system) and may be recovered from hydrocarbons costs.
2. Definitions
The terms used in this offsetting agreement have the same significance as in the
case of the definitions of the contract, unless additional definitions are given
hereinafter.
Cost recovery: the method by which the costs incurred by TAKT are deducted from
the proceeds of the hydrocarbons sold by TAKT.
Cost recovery account: in short, KRR. Account into which all the costs are put
for purposes of cost recovery.
Roubles: The currency or its successor currency currently applicable in the
sovereign territory of the Government.
Participant: The owners of the shares of the TAKT Articles of Association Fund.
US-Dollars: The currency of the United States of America (USA), abbreviated to:
USD or US$ - as well as its successor currency.
3. Currency and payments
The unit of currency in which the KRR is to be conducted, is the USD. The USD
is also the currency on the basis of which cost recovery is effected, whereby
however TAKT shall be entitled at any time to choose a currency other than the
USD.
- -- Roubles and other currencies.
To pay its expenditure and obligations in the RS and RF TAKT shall use the
Rouble as currency. If payment in a currency other than the Rouble becomes
necessary inside and outside the area of the Government and is permitted, TAKT
may also pay in this other currency.
- -- Rate of exchange
-- For conversion of Roubles to USD and USD to Roubles the rate of
exchange stipulated in Article 19.2 and 19.3 of the contract (i.e. on
the date of signing of the contract the rate of exchange of the
"MOSCOW INTERBANK CURRENCY EXCHANGE").
-- To convert expenditure in Roubles but also income in Roubles of TAKT
into USD - for purposes of cost recovery accounting - TAKT shall take
an average of the Rouble rate of exchange, in accordance with Art 19.2
or 19.3 of the contract, over the current month, and adjust Rouble
transactions in this month, with the rate of exchange calculated in
this way, into USD in the KRR. If only a few Rouble transactions are
to be allocated to the current month TAKT may also use the daily rate.
-- In transactions in all other currencies the rate of exchange in the
KRR is to be used which corresponds to the daily rate at which thc
basic transaction became payable for TAKT. With a multiplicity of such
transactions TAKT may also form an average rate over the current
month, and at this rate put transactions into the KRR in other
currencies, related to the relevant month.
4. Financing
TAKT shall be entitled to independently select the type and source of financing
of its commercial activities, inside and outside the area of the Government
COST RECOVERY ACCOUNT
Cost items of the KRR are all those TAKT costs incurred by TAKT in connection
with the activities. The costs and proceeds of TAKT incurred for other reasons
are not the object of tile cost recovery and the KRR, and in addition shall not
be the object of any split of hydrocarbons recovery between the Government and
TAKT.
Insofar as possible and if they exist, invoices are to be used as the TAKT
vouchers for costs incurred.
1. Cost items
The following are considered as costs in the sense of the cost items of the KRR:
1.1. Materials and items of equipment
All equipment in connection with the materials and items of equipment purchased
by TAKT to complete its activities.
1.2. Labour and personnel costs
1.2.1. Personnel costs of the employees of TAKT including taxes and any
additional levies allocated to personnel to paid by companies. The earmarked
wage portions which go above the legally stipulated minimum wage portion, will
not be paid, in accordance with Article 16.1 of the contract and shall therefore
not go into the KKR either.
1.2.2. Costs for labour services of third parties
1.3. Services
1.3.1. Costs for services acquired by TAKT from third parties.
1.3.2. Costs for services purchased from participants by TAKT within the
framework of service agreements.
1.4. Administration costs
All costs, connected with the administration of TAKT (i.e.: telephone fees,
postal charges, . . . . .).
1.5. Joint costs
1.5.1. Joint costs are costs incurred directly by the participants of TAKT in
connection with the following general services (i.e.: general management,
general consultancy and monitoring of thc total project, legal auditing,
financing and engineering services) and which are not regulated by the
corresponding service agreements.
1.5.2. The following shall be offset to TAKT by the participants of TAKT for
joint costs annually:
1.5.2.1. 10 % of the total costs of TAKT per annum for the first 30 million USD
in expenditure per annum. 8 % if this expenditure is between 30 and 50 million
USD. 5 % if the expenditure is between 50 and 100 million USD, and 3 % in the
case of annual costs over 100 million USD.
1.5.2.2. The participants of TAKT in total shall put per annum 1,400,000 USD in
the exploration phase and development phase, before commercial exploitation and
2,000,000 USD thereafter as a minimum of the joint costs in the KRR, if the
remuneration determined above in 1.5.2.1. for joint costs of the participants
exceeds the amounts listed here in USD in 1.5.2.2.
1.6. Leases, rights, bonus payments and patents.
Any leases, lease costs, bonus payments as well as payments in connection with
the acquisition and utilisation of all types of rights and patents.
1.7. Incidents (damages etc.)
Costs in connection with any types of incidents such as loss, theft, accident,
catastrophes, force majeure etc.
1.8. Insurance policies, premiums
All types of premiums and insurance policies incurred as costs by TAKT.
1.9. Legal costs and costs for approvals
Costs incurred by TAKT for legal advice, lawyers, Court proceedings, payments
imposed on TAKT by Courts etc., including costs in connection with arbitration
proceedings, as well as costs connected with the placing or acquisition of all
types of licences and approvals.
1.10. Costs for ecological expenditure.
Costs for ecological and environmental protection- related expenditure of TAKT.
TAKT can independently stipulate the scope of its ecological and environmental
protection-related expenditure and outlays.
1.11. Social Security, research and development costs
1.11.1. Costs for research financed by TAKT
1.11.2. Costs for training and further education, as well as any Social
Security payments for the employees of TAKT.
1.11.3. Costs of social, cultural and economic promotion and infrastructure
measures in favour of third parties financed by TAKT, especially however local
and regional units of the Government.
1. 11.4. Costs for social expenditure in general, as well as costs in
accordance with Art. 3.2. of the contract.
1.12. Capital costs
1.12.1. Costs of outside capital: Outside capital interest amounts, premiums,
fees, continuous expenditure and other costs of outside capital, whereby the
period of validity of the obligation entered into by TAKT with respect to the
outside capital provider (i.e. short, medium and long-term credit lines) is
insignificant. Outside capital costs may be recovered by TAKT regardless of the
periods of validity of the obligations entered into by TAKT.
1.12.2. Costs of company's own capital that is to say the interest on the funds
made available by the participants of TAKT, shall be stipulated by the rule in
accordance with Article 8.5 and Article S.6 of the contract. These own capital
costs, in accordance with Art. 8.5 and Art. 8.6 of the contract, shall be put
into the KRR as costs.
1.13. Strikes, lockouts, confiscation and non-fulfillment
Costs incurred by TAKT through strikes and lockouts, non-fulfillment by business
partners, as well as Government emergency measures, as well as costs also
incurred by TAKT in connection with the confiscation of property of TAKT such as
goods, plant, hydrocarbons, etc.
1.14. Costs of erection, maintenance and operation
Costs of erection, maintenance and operation of any items of equipment to carry
out the activities of TAKT -- including buildings and other structures, as well
as hydrocarbons stores and extraction equipment, such as tax, pipelines, the
procurement of any infrastructure for the development of a discovery of
hydrocarbons, the procurement of any infrastructure for the transportation of
hydrocarbons, and including any costs in connection with the processing of
hydrocarbons.
1.15. Taxes, royalties, customs duties, other levies
All taxes, royalties, customs duties and any other levies to the Government, if
not already dea1t with in Art. 8.3 of the contract, are to be put into the KRR
as costs.
1.16. Miscellaneous costs
Miscellaneous costs such as costs in connection with Bank accounts of TAKT as
well as money remittances, costs in connection with money exchange (especially
the changing of Roubles into USD and USD into Roubles), other shipping costs,
costs for repairs and maintenance works, costs of organising meetings and
conferences, travel costs, removal costs of communications equipment, computer
costs, energy and power costs, freight and storage costs, transport costs
including costs of the transportation of hydrocarbons by pipelines, liquefaction
costs of gas, costs of medical care for employees of TAKT, payment of damages,
miscellaneous tests costs, as well as any kinds of remunerations and premiums.
1.17. Initial project costs
All the costs kept in the ledgers of TAKT incurred before the signing of this
contract, may be put into the KRR of TAKT as costs after signing, in accordance
with Appendix 3 of the contract.
1.18. Other costs
Any other costs not explicitly listed in this section but incurred by TAKT in
connection with its activities.
2. Proceeds
2.1. Proceeds from the sale of hydrocarbons.
In accordance with Art. 8.4 of the contract TAKT shall recover its costs from
the proceeds from the sale of disposable hydrocarbons.
2.2. Other sales proceeds
Proceeds from the sale of goods and services purchased by TAKT, which TAKT
bought for the completion of the activities are to be deducted from the costs
listed in the KRR, provided and only insofar as they were first put into the KRR
as costs. For this purpose proceeds are to be valued at the price achieved on
the date of sale.
2.3. Proceeds from insurance policies and other premiums
Proceeds for the TAKT from insurance payments and similar payments, as well as
miscellaneous premiums, lease charges and rents - provided these proceeds are
based on the activities of TAKT -- are to be put into thc KRR as proceeds.
3. Establishment of the KRR
3.1. The KRR shall be considered as audited and confined in all points, with
the exception of the points objected to by me Government within the twelve month
deadline. Only in these points shall the KRR be considered as not confined. Up
to the final decision concerning a cost item objected to, this item shall be
considered as properly put into the KRR. If there is no final decision
concerning a cost item within two years after the putting of this item into the
KRR, this cost item shall ~n any case be properly put into the KRR after the
expiry of this two years.
3.2. If in connection with an audit or examination, areas of a participant of
TAKT are affected then the Government -- represented by the body appointed to
audit the KRR by the Council of Ministers of the RS -- may request of this
participant, the confirmation of the Auditor of the partners concerning the
proper nature of this cost item must be submitted to it. For the purpose of
examining an item of the KRR of course the Government may not directly audit the
documents of a participant. The audit is in any case to be conducted so that
completion of the activities of TAKT is not prejudiced. In the event of a
conflict the completion of the activities of TAKT shall take precedence over the
interests of an audit. In each case however TAKT must make all reasonable
efforts to cooperate to the fullest with the Government in carrying out an
audit.
4. Cost types and time schedule of the recoverable costs
The drawing up of the cost types and the time schedule of recovery shall come
solely within the liability of TAKT, and must be broken down by TAKT into the
following cost types:
A. Extraction Costs
B. Development Costs
C. Exploration costs
From the hydrocarbons costs first A, then B and finally C shall be covered.
Re. A
Extraction costs are all those costs incurred through commercial extraction and
any other costs, which cannot be counted as development cost8 and exploration
costs.
Re. B
Development costs are all those costs, incurred by TAKT from the date of
termination of the activities in accordance with Art. 7.1 of the contract for
the development of the discovery.
Re. C
Exploration costs are all those costs to be put in the KRR, incurred by TAKT
from the entry into force of this contract up to termination of the activities
in accordance with Art. 7.1 of the contract, whereby initial project costs are
also included.
The annual costs and proceeds of TAKT shall be collated in a list of costs and
proceeds at least every 6 months. At the end of the year annua1 accounts shall
be drawn up.
APPENDIX No. 3
Initial costs
TAKT already made payments before this contract entered into force. These
payments mentioned in Article 6 Point 4 and in addition all the costs of TAKT,
for which proper vouchers and records can be provided and which are connected
with the works in accordance with Article 6 Point 4, are hereby recognised as
recoverable.
INITIAL COSTS in total: USD2,313,942*)
*) This figure (the total up to 31/12/93) is not final and shall be calculated
again up to the date of entry into force of the contract.
APPENDIX No. 4
New licences for the TAKT activities
APPENDIX No. 5
Environmental protection
Table of contents
1. Assessment of the condition of the environment and the effects of the
activities of the Sacha-Austrian Joint Venture TAKT on these taking into
account the environmental protection measures intended by
TAKT
1.1. Nature of the environment in the sections intended for the carrying out of
the geological exploration and extraction works
1.2. Social and economic data of the sections and areas involved
1.3. Effect of the searching, exploration and extraction activities on
environment and nature
2. Environmental protection measures
2.1. Environmental protection measures when planning petroleum and natural gas
drillings
2.2. Environmental protection measures when carrying out the preparation works
for the drillings
and wells
2.3 Measures to protect the environment and the natural earth resources when
sinking wells
2.4. Prevention of environmental protection during the borehole tests and
extraction
2.5. Fulfillment of the measures to satisfy the recommendations of the mining
Supervisory Body of the RS (Y) and Point 2 of certificate No. 184 of the
authority for ecological certificates of the RS (Y)
3. The completion of liquidation and recultivation works in the sections with
wells to be decommissioned
4. Obligations of TAKT in the field of environmental
protection
5. Summary
1. Assessment of the condition of the environment and the effects of the
activities of the Sacha-Austrian Joint Venture TAKT on these taking into
account the environmental protection measures intended by TAKT.
1.1. Nature of the environment in the sections intended for the carrying out
of the geological exploration and extraction work.
Section No. 1 intended for the activities of TAKT, which belongs to the
Kempenjay basin and occupies an area of 14,400 square kilometres, is
located from a geomorphological point of view in the Western part of the
Central Yakut plane.
Section No. 2, which occupies a surface area of 6,900 m2 and is in the
transitional area between the Nepsk-Botuobinsk uplift and the Patomsk
basin, is located in the area of the Lena plateau.
Both section 1 and section 2 are characterized by extensive permafrost
rock and are both in the geocryological Lena-Wilyuj area.
Climatic conditions.
The occurrence of powerful high pressure areas in Winter and low pressure
areas in Summer is crucial to the condition of the atmosphere over West
Yakut. The climate of the area is therefore markedly continental with
long and cold Winters, relieved by short but relatively hot Summers.
With the monthly increase in temperatures the absolute humidity and
quantity of precipitations increase. Annually 74-80 % of precipitations
evaporate, the rest run away or seep into the sediments of the humus layer.
Pattern of the land.
The pattern of the land of both sections is a flat or slightly hilly
surface broken up by a system of shallow valleys. The relief arose mainly
through surface erosion.
The valleys are in general wide and form moors, the slopes are flat and
asymmetrical and change imperceptibly into watersheds.
Poor surface drainage leads to serious marshiness, to the formation of
lake and marsh deposits on the watersheds as well as on the slopes and
bottoms of the water runs. The patterns of relief have arisen through
temporary water runs, on the slopes of the river valleys gaps, troughs
and cones of scree or debris have developed.
Networks of rivers and hydrogeological conditions.
The network of rivers in Section No. 1 belong to the basin of the
Wiljuj river and its tributaries: Botomoyu, Chongar, Tonguyu and
Byrakan, and the one in Section No. 2 to the basin of the left hand bank
of the Lena with its tributary Nyuya and the rivers flowing into this,
namely Orto-Sala, Ulachan-Murbajy, Chotogo and Otschuguy-Murbajy.
The river valleys alternately exhibit narrows and expansions. The depth to
which the rivers cut in with average waterflow is 60 to 120 m, that of the
shallower tributaries 20 to 50 m. At the mouths of the rivers of average
depth the valleys have a canyon-type appearance and on the upper reaches
represent weakly carved marshy, trough-shaped gaps with wandering river
bed.
On 215 to 220 days the rivers are frozen up; the ice begins in the first
half of October and ends in May.
River deposits form terraces, river and stream meadows. The massiveness
of the flood sediments is 1.5 to 2.0,m, that of the first terrace located
over the meadow 2 to 4 m.
Lake and marsh formations are relatively extensive in the area and can be
found on the basins and thermokarst craters in the river valleys, on the
watersheds and on the upper regions of streams.
Most lakes have a low depth (up to 2-3 m).
The hydrogeological features of the land of both sections were determined
by the fact of them belonging to the Yakut artesian basin with continuous
permafrost rock with a solidity of 200 to 400 m.
Underground saltwater occurs in depths from 300 to 320. This is
mineralised water with a sodium chloride composition, which is under
great pressure.
The water occurring above the frost area is relatively extensive, but
occurs in small quantities and only briefly during the year as a fluid
phase.
A small amount of water and the relatively low reserves mean it is
impossible to use it for temporary water supply.
Geocryological conditions.
Both sections belong to the extensive area of permafrost rock, which
forms the upper part of the cryolith zone up to a depth of 200 to 400 m.
The profile section beneath consists up to a depth of 500 to 900 m of
rock cooled to below 0 degrees C, containing salt water and lyes.
In total the extent of the frost layer and the total cryolith zone
decreases from North to South to the Lena valley.
The annual time-dependent depth, to which the rock thaws, fluctuates
greatly in the area: with the dry sand and fine sand deposits it is
2.5 to 3.0 m, in the case of the loam and peat deposits 0.7 to 1.0 m.
In the area of the outcrops of the diabase residues it increases to 4-5 m.
Cryonegic processes and formations.
Cryogenic developments exist and occur in the relevant areas in the form
of solifluction, thermokarst, occurrences of frost and surface grooves
caused by frost.
Solifluction processes usually occur on slopes, which have an inclination
of over 2 to 3 degrees and the composition of which contains fine
sand-loamy permafrost rock containing ice. This process is particularly
active on concave, relatively humid slopes with increased drainage.
The formation of grooves by frost on the surface gives a slightly
undulating land pattern.
The rising up of the land caused by the redistribution of moisture during
freezing is the most extensive phenomenon.
The types of thermokarts depend on the occurrence and conditions and
storage of the underground ice in the mountain rock. When these sediments
thaw thermokarst basins occur, which can be split up as follows:
Meadows, river terraces located above them, watersheds with the formation
of peat, wide valleys on the upper regions of streams.
Vegetation in the development areas.
The vegetation of these areas belongs to the type of vegetation of the
Taiga subzone. The prevailing types of tree are larch and pine. For all
forest types, apart from the pine forest, there is a dense undergrowth of
birch trees, alders, and aspens. The bushes mainly consist of wild
rosemary, marsh bilberry and dwarf birch. Thc meadow vegetation is
fairly extensive and mainly occurs in the river valleys and on the lakes
in the form of sedge.
Within the two sections of TAKT the following geobotanical associations
occur: pine, larch-pine-bush-moss-lichen-forest. The floor cover
consists of lichen and green mosses.
1.2. Social and economic data of the relevant sections and areas.
The areas for the activities of TAKT are practically undeveloped from an
economic point of view. There are social-economic data available for
large areas, which concern the petroleum and geological division of the
areas, especially for the West-Wiljujsk (Section No. 1) and Predpatomsk
(Section 2) petroleum and natural gas area.
Section No. 1 - West-Wil3uisk petroleum and natural gas area.
This area is in the basin of the middle reach of the river Wiljuj.
The West-Wiljujsk petroleum and natura1 gas area extends over four
administration districts of the Republic and embraces the Eastern part
of the Suntarsk, the South Eastern part of the Njurbinsk, the Southern
half of the Verchnewiljujsk and a smaller area in the South of the
Wiljujsk area.
The main river Wiljuj runs 25 to 60 km in the North West of Section
No. 1. The section contains the biggest tributaries of Kempendyay,
Botomoyu, Tonguyu and Byrakan. In addition there are the smaller
tributaries, lakes and marshes. Only the river Wiljuj is navigable.
The most important settlements are Njurba, Ustje and Tojoku.
All the settlements along the Wiljuj from Ojusut to Njurba are
connected to the power supply network of the Wiljujsk power station.
Typical of thc region is the felling of timber to heat the numerous
settlements. Timber felling totals about 45,000 to 50,000 cubic metres
per annum.
The only raw materials extraction company in the district is the
Kempendjaysk salt works with a capacity of 2000 tonnes per annum.
Brown coal and rock salt take first position as regards natural earth
resources.
Most freight goods are transported via the Lena and Wiljuj rivers
(the Lena is navigable 150 days, the Wiljuj for 130 days). The freight
goods collected in the Wiljuj ports are mainly transported onwards in
Winter by lorry to the relevant sites of utilisation. The "Winter roads"
are navigable from the end of December to the middle of April.
Helicopters are used for the transportation of urgent freight and to
carry crews.
Section No. 2 - Predpatomsk petroleum and natural gas area.
This petroleum and natural gas area occupies a narrow, but fairly lengthy
strip along the Baikal-Patomsk highland in the basin of the upper region
of the Lena and belongs to the marginal basin of the same name. Section
No. 2 is located in the North of the central part of this petroleum and
natural gas area.
The central part of the petroleum and natural gas area covers
administratively the South Eastern part of the district of Lensk, the
North Western part of the Olegminsk and a small area of the Southern part
of the Sutarsk area.
The river Lena Bows through the petroleum and natural gas area (60 km from
section No. 2). Parallel to the Lena its left hand tributary Njuja runs
in the central part of the petroleum and natural gas area. Straight
through section No. 2 flow the left hand Njuja tributaries Chotogo,
Orto-Sala and Otschchuguj-Murbajy.
The most important settlements are the City of Lensk and the towns of
Witim and Peleduj. On the Lena and the Njuja there are about 20 small
towns and settlements. The number of inhabitants is about 50,000, 10,000
of which being agricultural population.
Most freight goods are processed in the river harbour of Lensk.
The Lensk-Mirnij motorway, which is navigable throughout the year, passes
through the central section of the area.
The delivery of freight goods for the geological survey team is effected
via provisional motorways, which are only navigable in the Winter.
Freight traffic is mostly done through local and internal airlines of the
Republic. There are flight connections, between Lensk and Novosibirsk or
Irkutsk as well as between Mirnyj and Moscow.
The high voltage line 220 runs from the settlement of Chernysheskiy
(Wiljujsk power station) to the City of Lensk along the motorway.
Two natural gas, one salt and hydrobromine and construction materials
deposits have been found.
Medical and cultural facilities as well as education possibilities only
exist in the district centres of Lensk, Sutar and Verchnevilyuysk.
1.3. Effect of the searching, exploration and promotion activities on the
environment and nature.
The greatest damage to the environment and nature, occurring during
drilling activities, is the damage to the humus layer.
The latter is caused by the following works:
-- Construction of roads, power and water lines
-- Transportation of drilling equipment, materials and people on
defective and specially paved roads
-- Planning of locations for the setting up of drilling rigs and camps
-- The erection of drilling sludge and petroleum tanks.
A further important damaging factor is contamination by the fluids used
and which occur during drilling activities and tests:
-- Borehole flushing and cement sludges
-- Flushing and drilling waste
-- Products occurring during testing and extraction (oil, gases, system
water)
-- Combustion products when operating combustion engines and boiler
systems
-- Weighting material, flushing and cementation additives
-- Cutting and lubricating fluids
-- Domestic refuse and effluents
-- Rainwater
The degree of environmental pollution by effluents and other fluids and
solid waste, occurring during drilling activities, is understood to be
the amount exceeding the permissible hazardous substance concentrations
(HK) in the individual media.
The harmful substances maximum concentration is the maximum concentration,
which with the relevant substance does not exercise any direct or
indirect effect on the health condition of people or does not
prejudicially affect the hygiene conditions for the use of water. The
contaminating effect of the drilling solutions depends on the toxicity of
the ingredients and components, which are split up into the following
areas: Toxic, health toxic, total health and the like.
The values for some substances and chemicals, which are valued according
to the amount of the maximum concentrations in the individual media, are
given in Table 1.
Maximum harmful substance concentration values for the chemical substances in
the water used during drilling activities.
Table No. 1
Name of substance Area HKg* (mg/l) HKfg*(mg/l) Class of
harmfulness
Aluminium sulphate Health-toxic 2.8 2
Bariumsulphate Health-toxic
Calcium chloride Health-toxic
Sodium hydroxide Health-toxic
Sodium carbonate Health-toxic
Sodium choride Health-toxic
Sulphate ion Health-toxic
Chloride Organoleptic
Chrome-ion (C13 +) Organoleptic
Chrome-ion (Cr 6 +) "
Polyphosphate (-PO4) "
Sodium phosphate
(- PO 4) Total-health
Sodium solicate (-03) Health-toxic
Carboxymetahylcellulose Health-toxic
Condensed sulphite
alcohol Lye Health-toxic
Polyacrylamide "
Polyacrylnitrile-
Hydrolsate Health-toxic
Polyoxyethlyene
M= 2-3 million Total-health
Polyoxyethlene
M= 5 million Total-health
Chromligniosulphanate Total-health
Carbon alkali reagent Health-toxic
Flotation agent T-66,
T-80 (floxanalcohol) Health-toxic
Foam remover, coagulator
Sulphanol NP-1 Organoleptic
(foam)
Health-toxic
Sulphanol NP-3 Organoleptic
(foam)
Health-toxic
Olein acid Total-health
Oxethylalkimphenol
OP-7 Organoleptic
(foam)
Oxethylalkimphenol
OP-10 Organoleptic
(foam)
Other petroleum Organoleptic
(foam)
Suspended particles Total-health
pH value
Minerals
in the dry residue
of which:
chloride
sulphate
*) HKG - hydrocarbons in the water of effluents
HKFG - HK in the water of fishing waters
Classes of harmfulness:
Class 1 - extremely harmful
Class 2 - very harmfu
Class 3 - harmful
Class 4 - moderately harmful
The quality of the drilling effluent will be valued on the basis of the
following main criteria: density, clarity, colour alkali content, proportions
of chlorine-ion (Cl -) and sulphate-ion (SO4 2 - ), general mineralisation, pH
value, content of petroleum products, suspended particles and surface-active
substances.
Pollution of the areas caused by toxic gaseous products, as arise during the
operation of combustion engines, boiler systems and during borehole tests.
The permissible maximum values for harmful substance concentrations in air are
given in Table 2.
Hydrocarbons values for chemical substances, which occur during drilling, when
operating combustion engines, boiler systems and during borehole tests, in the
air.
Table 2
Description of substance Max 1-off Daily MAK Brief Class of
concentrat. average (mg/dm3) permiss. harmless
(mg/dm3) concern. value
(mg/dm3)
Benzine (petroleum
benzine converted to
hydrocarbons)
Gas condensate
Nitrogen dioxide
Carbon dioxide
Sulphuric acid
anhydride
Sulphur anhydrite
Hydrogen sulphide
Soot
Asbestos
Potassium chloride
Copper sulphate
Sodium chloride
Sodium hydroxide
Sodium carbonate
Cement dust:
Potassium borate
Carbide, oxide
For classes of harmfulness see Table 1.
2. Environmental protection measures
On the occasion of all the environmental measures taken by the Joint Venture
during its activities in both sections (both during exploration activities
by TAECT, as also during the operation of the developed deposits), the
following conditions shall be fulfilled:
-- Article 4 of tile law relating to the protection of nature in the
Republic of Sacha (Yakut), which defines the ecological status of the
Republic as an easily vulnerable, delicate region with limited
ecological capacity, where "preference is given to clean technologies
which create little or no waste and where projects which overtax the
capacity of the natural areas are forbidden".
-- Expert report No. 184 of the State Ecology Committee of the Ministry
for the Protection of Nature of the Republic of Sacha (Yakut) of
29th July 1993, in which it is recommended that account be taken a
all phases of planning, exploration, erection and operation of the
negative experience with regard to the effects on the environment
during development and extraction of deposits in West Siberia
(Russian Federation).
Since the working programme of TAKT in the first phase provides for an
exploration period of many years, this paragraph deals in great detail
with the measures to protect nature during this period of drilling
activities by TAKT to search for oil and gas.
In the event of the search and exploration works being successful,
allowing commencement of exploitation of the discoveries, projects will
be developed for the economic development of such discoveries, the
sinking of extraction wells, the building of transport roads and the
provision and removal of pipelines, whereby these projects, will make
clear the assessment of the effects on the environment and the
environment protection measures by means of specific technical tests
on specially demarcated areas of land within the sections made
available as part of the "environmental protection" tasks.
These projects shall be submitted to the competent bodies of the
Republic of Sacha (Yakut) for harmonisation and approval, and they
will also be subjected to an ecological report.
2.1. Environmental protection measures during the planning of oil and gas
drillings
The pieces of land for the drilling rigs, the accommodation for the
drilling crews, installation and removal of pipelines as well as roads
and helicopter landing places will be selected on the basis of the site
investigations taking into account the merest technical effects on the
environment, whereby the drilling projects must be approved by the
competent environmental protection centres of the Republic.
Drilling works within bank protection areas may only be carried out if
there exists a special permit from the authorities competent for the
protection of nature and water resources.
When planning preparation works for the drilling (erection of access roads,
including the construction of bridges over waterways, ravines (gorges) and
other obstacles, work in connection with the transportation of the drilling
rig and the main construction units of the drilling equipment, planning of
the site) factors causing pollution of the soil, water and air must be
avoided.
When planning for the construction of the drilling rig and the works for
sinking and liquidation (preservation) of drilling shall take into account
the following criteria:
-- Use of new progressive and environmental-friendly technologies when
carrying out search and exploration drillings, which have been
developed by foreign participants of the TAKT Joint Venture, of the
Austrian company OEMV.
-- The drawing up and preparation of extensive measures to protect the
surface and formation water (also the groundwater), of the soil and
the air against contamination by chemicals contained in drilling
flushing fluids and cement sludges, flushing waste, consumed
drilling Hushing fluids, s1udge, mineralised water and other toxic
products occurring during borehole tests.
-- Work to determine the permissible maximum concentration (HK) for
a new chemical substance, the use of which is planned when sinking
wells.
-- Solutions for the recultivation of the destroyed areas of land and
soil and their punctual handing over to the permanent user.
2.2. Environmental protection measures when undertaking the preparation works
for drilling.
When stipulating the drilling locations on the site a location is to be
selected, which has natural drainage of the surface water. If there are no
locations with natural drainage, then the drilling location shall be
protected by the erection of embankments, moats, permafrost strips and
artificial drainage systems against flooding. The following measures shall
be taken when preparing the drilling location on the site:
-- extensive avoidance of site sections with seriously frozen land,
where the ice portion totals 40 % of the total volume of the
permafrost land;
-- preservation of the moss and peat cover adjoining existing ravines
and slopes to prevent the occurrence of thermo-erosion;
-- spreading and banking with non-swelling material (sand, sand-gravel
mixtures), when the layout of the drilling location on slopes of
seriously frozen soil with an inclination of over 10 degrees cannot
be avoided;
-- Planning of the drilling location in Autumn or Winter and only on the
condition that the depth of the frost soil is 20 to 30 cm, whereby the
fertile humus layer is to be preserved.
The delivery of materials and equipment to the drillings can only be
effected overland after the freezing of the streams, lakes and rivers.
When setting up the well site the pipelines will be laid above ground and
will be thermally insulated. In the area of drilling locations, drilling
rigs, fuel and lubricating oil stores walls of impermeable 80il shall be
erected.
To store the petroleum products and collect the old oil and flushing fluids
tanks will be installed on the drilling site. The installation of the
drilling rig, the installation of the drilling equipment and the erection
of sedimentation systems shall be effected in accordance with the
applicable and general health regulations.
The established drilling site will be surrounded by a moat, which will
prevent the penetration of draining rain and thawing water into the site.
At the bottom part of the site slope a ditch and collection tanks shall
be installed, which will collect all of the water draining from the
drilling site.
The rain and thawing water draining into the ditch and tanks must be
used for technical purposes.
2.3. Measures to protect the environment and the natural earth resources when
sinking wells.
The progressive technology for deep drilling developed by the OEMV gives
a whole set of technical solutions, intended to prevent environmental
damage and open gas and oil eruptions and to avoid contamination of
surface and groundwater.
On the basis of the experience of the drilling operations of the
Republic of Sacha (Yakut) and the OEMV, a Joint Venture will take
measures to protect the environment and the natural earth resources
during drilling activities.
Where there are loose rock layers and formations which carry water,
which can be used as drinking and medical water sources, special measures
will be taken.
When sinking the wells every measure will be taken, to prevent harming
the environment, especially:
-- Use of environment-friendly materials;
-- If this is not possible, use of other media complying with every
precautionary measure;
-- Safe transport and storage of all materials to be used and which
accrue;
-- The insertion of materials only in very deep layers of the earth;
-- The most modern sinking technology, preventing layers having any
effect on each other and penetration into the ground and
underground water.
The waste occurring when sinking wells or boreholes shall be deposited by
agreement with the competent authorities at the working site.
Modern technology will be used for the sealing devices on the borehole.
To prevent oil and gas leaks and escapes during drilling and development
works, all the conditions of the Mining Supervisory Authority
(Gosgortechnadsor) applicable to such works shall be fulfilled.
2.4. Prevention of environmental pollution during borehole tests and extraction
Thanks to the most modern casing (tubbing) schemes TAKT guarantees a high
quality when sinking wells, amongst other things through an improvement of
the quality of the cementation process with me extensive use of casing
packers, centering baskets, scrapers and gas-tight threaded connections
for the casing pipes as well as the use of the most modern technologies
when dri11ing the extraction column in the area of the productive layers.
The borehole tests are effected after completion of the preparation
measures, including the installation of a E-cross and torching devices
with remote ignition and complete combustion, the erection of measuring
sections for dynamic inflow measurements as well as the installation of
metal containers for the storage of the oil the condensate and the
flushing fluid stock with guaranteed installation and measuring devices.
Before carrying out the tests thc devices above ground (aggregates and
lifting devices), the probe head equipment, the pipes for taking away the
layer fluid and natural gas as well as the containers for the flushing
fluid and the petroleum are installed and mounted in accordance with the
existing plan and the technical regulations and fire protection standards.
In the event of escapes and other oil leaks on the surface of the earth
the contaminated areas of the land are treated with absorbing materia1
(peat, sawn timber, sand). The absorption medium is removed from the
soil with the oil and used as a fuel or is taken away completely.
During the economic exploitation of the deposits enclosed and sealed
collection and conveying systems shall be used, which will prevent
contamination of the environment with the product of the drilling.
Projects for the setting up of the deposits will include the erection
of systems for the cleaning and reutilisation or removal of effluents.
2.5. Fulfillment of the measures to implement the recommendations of the State
Atomic Supervisory body of the RS (J) of 21.07.1993 and of Point 2 of
Expert Report No. 184 of the Ecology Committee of the RS (J) of 29.07.1993
2.5.1. In accordance with the recommendations of the State Atomic Supervisory
body of the RS (J) TAKT ensures during drilling activities in section
No. 2 regular observations to establish any occurrence of artificial
radionuclides in groundwater and water near the surface as well as the
possibility of determining the content of radionuclides in the extracted
products in the works for the development and extraction of hydrocarbons.
2.5.2. The possibi1ity will also be given for the extraction of underground and
surface water samples in section No. 1, in order to establish any
content of strontium-90 and Caesium-137.
3. Liquidation and recultivation works in the sections with wells to be shut
down
3.1. When carrying out liquidation works at the borehole safe insulation of the
oil and gas layers of layers carrying water shall be guaranteed and a
migration of fluids and gases when the permafrost soil thaws.
3.2. After dismantling of the drilling rig, the drilling tower equipment and
the provision and removal of pipes the earth contaminated by petroleum and
chemicals shall if necessary be removed.
3.3. At places where the surface of the soil is extremely compacted, loosening
shall be effected.
3.4. Walls shall be leveled and the location shall be leveled off subject to
preservation of the natural relief.
3.5. The works to restore the land shall be carried out continuously until
final conclusion. If the works cannot be carried out at once due to the
weather conditions, the deadline for this may be extended, but this must
not exceed one year from the date of termination of the works on the well.
3.6. If after recultivation the land is to be used for agricultural purposes,
works must be undertaken to produce a condition suitable for agricultural
use in accordance with the deadlines laid down in the regulation
concerning the apportionment of the land.
3.7. Reafforestation measures on the recultivated land and soil shall be
effected at the expense of TAKT by the permanent land user, to whom the
land will be returned.
3.8. The handing over of the recultivated land shall be effected by a committee
of the administration district, in which this land is located. This will
be recorded in documents.
3.9. On accepting the recultivated land, the committee will examine the quality
of the recultivation and whether the works carried out satisfy the approved
project.
4. Obligations of TAKT in the field of environmental protection
Within the framework of its environmental protection activities TAKT shall
guarantee the following:
4.1. Training of the personnel of the Joint Venture in the area of
environmental protection, the use of the most modern environmental
protection technologies during exploration and extraction of gas and oil.
4.2. Strict monitoring as to whether the ecological conditions of the project
for the installation of wells as well as the installation and development
of the deposits are being fulfilled by the personnel.
4.3. Regular monitoring of the condition of the soil, the flora and fauna as
well as the waterways in the areas to be developed, whereby if necessary
amendments of the technological solutions selected to protect the
environment and nature shall be effected.
5. Summary
The Joint Venture TAKT is of the view that the statements contained in this
section document ~e fact, that the Joint Venture in its activities in the
areas made available to it in Yakut can reduce the negative effects on the
environment to a minimum and guarantee ecological safety for the areas to
be developed by the use of modem, practically waste-free drilling
technology.
APPENDIX No. 6
Licences of other companies concerning
commercial activities in
the contractual area
