Exhibit 10.33
FARM-IN AGREEMENT
BETWEEN
(1) CANARGO NORIO LIMITED
AND
(2) SAKNAVTOBI NORIO LTD
-------------------------------------------------------------------------------
COVERING: THE NORIO (BLOCK XI(C)) AND NORTH KUMISI
PRODUCTION SHARING AGREEMENT, GEORGIA
-------------------------------------------------------------------------------
1 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
AGREEMENT DATED 4TH SEPTEMBER 2003
between
(1) CANARGO NORIO LIMITED a company organised and existing under the laws of
Cyprus, (CanArgo, and its successors and assignees, if any, will be
referred to as the "CanArgo")
and
(2) SAKNAVTOBI NORIO LTD, a company wholly owned by the Joint Stock National
Oil Company Georgian Oil ("Georgian Oil"), a legal entity organised and
existing under the laws of Georgia pursuant to the Charter of Saknavtobi
Norio Limited and the Law on Oil and Gas (Saknavtobi Norio, and its
successors and assignees, if any, will be referred to as the "Saknavtobi
Norio")
CanArgo and Saknavtobi Norio together being referred to as the "Parties" and
"Party" shall be a reference to either of them.
WHEREAS
(A) CanArgo is party to a Production Sharing Agreement dated 12 December 2000
(the "PSA") with The State Agency for Regulation of Oil and Gas Resources
in Georgia and National Oil Company - Georgian Oil in relation to Norio
(Block XI(C)) and the North Kumisi Area in Georgia (the "Area");
(B) CanArgo is the sole Contractor (as defined in the PSA) under the PSA and
as at today's date is entitled to 100% of the Contractor's rights
thereunder;
(C) Georgian Oil in addition to its position as a representative of the State
in the PSA, desires to acquire a fifteen per centum (15%) interest in
CanArgo's rights and obligations under the PSA on the terms and on the
basis set forth herein;
(D) Saknavtobi Norio also desires to negotiate an option to increase its
interest in CanArgo's rights and obligations to fifty per centum (50%) of
CanArgo's rights and obligations under the terms of the PSA on the terms
and on the basis set forth herein
NOW THEREFORE, in consideration of the promises and the mutual covenants and
conditions herein contained, it is hereby agreed as follows:
1 DEFINITIONS
Words and terms used in this Agreement shall unless otherwise expressly
specified in this Agreement have the meanings attributed to them in the
PSA:
"Completion" means completion of the farm in pursuant to Clause 3;
"Contractor" has the meaning attributed thereto in the PSA;
2 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
"Contractor Percentage Interest" means the percentage interest of each of
CanArgo and Saknavtobi Norio (as the case may be) in the Contractor's
rights and obligations under the PSA;
"Deed of Assignment and Adherence" means the deed in the form annexed
hereto as Appendix 2;
"Option A" means the option granted to Saknavtobi Norio to increase its
Contractor Percentage Interest to 50% pursuant to Clause 6;
"PSA" is defined in Recital A to this Agreement and a copy of which is
annexed hereto as Appendix 1;
2 SCOPE OF CONTRACT
2.1 The purpose of this Agreement is to provide for the development of the
Area pursuant to the PSA and to allow for the participation of Saknavtobi
Norio as a Contractor party under the PSA on the terms and subject to the
conditions set out herein.
2.2 Following Completion, the respective Contractor Percentage Interest of
each of CanArgo and Saknavtobi Norio shall be as follows:-
(a) CanArgo - 85%
(b) Saknavtobi Norio - 15%
2.3 Following exercise of the Option A and completion thereunder the
respective Contractor Percentage Interest of each of CanArgo and
Saknavtobi Norio shall be as follows:-
(a) CanArgo - 50%
(b) Saknavtobi Norio - 50%.
3 COMPLETION
3.1 Completion of the assignment of a 15% Contractor Percentage Interest to
Saknavtobi Norio shall be conditional upon receipt of and each of CanArgo
and Saknavtobi Norio shall use their respective best efforts to obtain:-
(a) the consent of The State Agency for the assignment by CanArgo to
Saknavtobi Norio of a 15% Contractor Percentage Interest pursuant to
Article 26 of the PSA;
(b) a waiver from The State Agency of its pre-emption rights under
Article 26 of the PSA.
3.2 Within one (1) month of the satisfaction of the conditions specified in
Clause 3.1 Saknavtobi Norio shall commence payment to CanArgo of the sum
of US$2,000,000 (two million US dollars) to the Bank Account specified in
Clause 13. Payment will be effected in four (4) tranches in accordance
with the agreed financing schedule included in Appendix 3 or earlier due
to the acceleration of the work programme or as may be agreed by the
Parties.
3 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
3.3 CanArgo and Saknavtobi Norio shall execute the Deed of Assignment and
Adherence in respect of a 15% Contractor Percentage Interest in the PSA
on payment of US$2,000,000 (two million US dollars) by Saknavtobi Norio
to CanArgo. If the operator is unable to continue drilling operations for
technical reasons and CanArgo decides that operations should be
terminated and neither the Work has been completed nor US$2,000,000 has
been spent on the Work the total amount of the Contractors Percentage
Interest earned by Saknavtobi Norio will be calculated on basis of one
percent (1%) being equal to US$133,333 (one hundred and thirty three
thousand three hundred and thirty three US dollars) and CanArgo and
Saknavtobi Norio shall execute the Deed of Assignment and Adherence
according to this calculation.
3.4 As soon as practicable following the execution of the Deed of Assignment
and Adherence the Parties will negotiate and enter into a joint operating
agreement based on the current Association of International Petroleum
Negotiators Model International Joint Operating Agreement.
4 UTILISATION OF FUNDS
4.1 Saknavtobi Norio will finance the Work by providing funds in the total
amount of US$ 2,000,000 (two million US dollars). The transfer of funds
to CanArgo will be effected on the basis of the approved work programme,
budget and financing schedule annexed hereto as Appendix 3 (the "Work")
and the provisions of Clause 3.2 herein. The first tranche will comprise
US$585,000 (five hundred and eighty five thousand US dollars) and shall
be payable within one month on satisfaction of Clause 3.1 (a) and (b)
(hereinafter "Tranche 1");
4.2 Within one (1) month of receipt of Tranche 1 CanArgo shall commence work,
deepen and test Well MK 72 in the Area in accordance with the Work. The
purpose of the Work is the penetration and testing of the Middle Eocene
formations the assumed depth of which is 5,000 metres. The Parties shall
not be obliged to spend more than US$2,000,000 (two million US dollars)
in total in implementing the Work, however in case the actual depth is
deeper than assumed and results in more than US$2,000,000 (two million US
dollars) being required for drilling and testing and Saknavtobi Norio has
received an interim report on performed drilling work and expenses
incurred the Parties shall meet within one (1) month and make a joint
written decision on further technical activities (if any). Such written
decision shall form an Annex to this Agreement and shall provide the
basis for work costing over US$2,000,000 (two million US dollars) to be
performed and each of the Parties shall pay fifty per centum (50%) of any
agreed excess costs.
In case of failure to reach a joint decision on further technical
activities, each Party shall have the right within a further period of
one (1) month to independently fund at its sole risk further technical
operations in order to achieve the Work objective. The budget for any
additional technical activities shall not be less than $US500,000 (five
hundred thousand US dollars).
In the case of a positive result, the Party who proceeds with the sole
risk shall be entitled to recover the costs and expenses incurred in the
sole risk operation using the coefficient equal to three (3.0) from the
Contractor's share of Profit Oil or Natural Gas (valued in accordance
with Article 12 of the PSA) first produced from Well MK 72.
4.3 CanArgo shall be responsible for the implementation of the Work in
accordance with the provisions of the PSA.
4 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
4.4 In the event that the Work is completed for less than US$2,000,000 (two
million US dollars) any balance shall be refunded to Saknavtobi Norio.
4.5 Saknavtobi Norio shall have the right to audit all expenditure on the
Work for a period of 3 months from completion of the Work and the CanArgo
will provide all necessary documentation.
4.6 For the duration of the Work, Saknavtobi Norio shall be entitled to
nominate a well site representative to monitor the performance of the
Work. Any such representative will comply with such safety and other
requirements as CanArgo may specify from time to time.
5 RIGHTS UNDER THE PSA
5.1 The parties agree that GBOC Norio shall act as the Operator for the
implementation of the Work.
5.2 CanArgo shall provide Saknavtobi Norio with copies of all relevant data
and reports pertaining to the Work which it receives from the Operator.
5.3 Until such time as a Joint Operating Agreement ("JOA") has been concluded
between CanArgo and Saknavtobi, the Parties agree that any decision or
action of the Contractor under the PSA shall be taken by majority vote of
the relevant Contractor Percentage Interests and accordingly CanArgo will
be responsible for exercising all rights of the Contractor under the PSA.
Until such time as Saknavtobi Norio exercises its Option A, it shall only
have rights as an observer on the Coordination Committee and shall for
the avoidance of doubt have no right to participate on the Coordination
Committee established under the PSA.
5.4 Upon exercise of the Option A pursuant to Clause 6, the Parties agree
within a period of 45 (forty-five) days to establish a contractor
management committee ("CMC") which shall comprise a maximum of four (4)
members, two (2) from Saknavtobi Norio and two (2) from CanArgo. The CMC
shall agree on the matters to be discussed and the position to be adopted
by the Contractor with respect to the Coordination Committee. The
chairman of the CMC shall be designated by CanArgo and CanArgo shall
represent the Contractor Parties at the Coordination Committee. In the
event that Saknavtobi Norio is privatised or it sells all of its interest
to a non-state party, it or its successor shall be entitled to have 50%
of the total number of the Contractor's representatives in the
Coordination Committee. Further details of these arrangements shall be
included in the JOA to be agreed.
5.5 Following completion of the assignment of a Contractor Percentage
Interest to Saknavtobi Norio, Saknavtobi Norio will be considered a
Contractor Party under the PSA, enjoying all the rights and bearing all
the obligations of a Contractor Party with respect to the participating
interest it has acquired hereunder.
6 OPTION
6.1 For a period of six (6) months following:
(i) either the completion of the Work as defined in Clause 4.2 or
$2,000,000 being spent on the Work (whichever occurs first);
5 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
and
(ii) receipt by Saknavtobi Norio of a report on the results of the Works
prepared in accordance with international oilfield practice (the
"Report")
Saknavtobi Norio shall have the option to acquire from CanArgo a further
thirty five (35) per cent of Contractor Percentage Interest under the PSA
upon payment to CanArgo of US$6,500,000 (six million five hundred
thousand dollars). For the avoidance of doubt, if this Option A is
exercised Saknavtobi Norio would have a total Contractor Percentage
Interest of 50%. Any such transfer shall be in accordance with and
subject to the terms of the PSA.
6.2 To exercise the Option A Saknavtobi Norio shall be obliged to give
CanArgo written notice within six (6) months of:-
(i) being advised by CanArgo that either the Work has been completed or
that $2,000,000 has been spent on the Work;
and
(ii) receipt by Saknavtobi Norio of the Report
and shall be further obliged to complete the Option A (including payment
of US$6,500,000) within a further 30 days.
6.3 The payment of US$6,500,000 (six million five hundred thousand) by
Saknavtobi Norio to CanArgo will not be considered a direct investment in
the PSA and as such Saknavtobi Norio will not be entitled to recover this
amount in full from Cost Recovery Petroleum. For cost recovery purposes
Saknavtobi Norio will be deemed to have paid such pro rata share of the
costs as is equivalent to the Contractor Percentage Interest held by
Saknavtobi Norio from time to time.
6.4 On exercise of the Option A herein by Saknavtobi Norio, Georgian Oil's
Option described in Article 11.15 of the PSA shall lapse.
7 ALLOCATION OF PRODUCTION AND RECOVERY OF COSTS AND EXPENSES
7.1 Proportional recovery of Costs and Expenses will commence as soon as
proceeds from the sale of the Cost Recovery Petroleum are available to
and shall be available only from such sums as are actually received by
for the sale of the Cost Recovery Petroleum.
7.2 Crude Oil and Natural Gas shall be distributed between the Contractor
Parties and sold in accordance with the provisions of the PSA.
8 FORCE MAJEURE
8.1 For the purposes of this Agreement, "Force Majeure" shall mean a
circumstance which is irresistible or beyond the reasonable control of
the Party affected, any act of Georgia or any governmental or
administrative body therein, or any other hindrance of the affected
Party's performance not due to its fault or negligence.
6 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
8.2 If as a result of Force Majeure, either Party is rendered unable, wholly
or in part, to carry out its obligations under this Agreement, other than
the obligation to pay any amounts due, then the obligations of that
Party, so far as and to the extent that the obligations are affected by
such Force Majeure, shall be suspended during the continuance of any
inability so caused, but for no longer period.
9 ASSIGNMENTS AND TRANSFERS
9.1 Neither party may assign its rights or obligations hereunder without the
prior written consent of the other, not to be unreasonably withheld or
delayed. This provision shall not cover an assignment of rights and
obligations hereunder in favour of an affiliated company, as stipulated
in the PSA.
9.2 Save in the case of any assignment to an affiliated company, the Party
wishing to assign all or part of its rights and interests hereunder or in
any circumstances where there is deemed to be an assignment, the Party
wishing to make the assignment shall first give written notice to the
other Party specifying the proposed terms and conditions of the
assignment.
Following receipt of those terms and conditions, for a period of thirty
(30) days the other Party shall have the preferential right to match the
terms and conditions of the proposed assignment or deemed assignment.
This right may be exercised by any Party giving written notice of its
intention to match the relevant terms and conditions (the "Acceptance")
and thereafter the relevant Parties shall negotiate all necessary
documentation in good faith. If within a further period of ninety (90)
days from receipt of the Acceptance the relevant parties have not reached
final agreement the Party seeking to assign may within a further period
of thirty (30) days complete an assignment to a third party on the same
terms and conditions. For the avoidance of doubt any assignment to a
third party shall be subject to the assigning Party and the third party
complying with the provisions of this Clause and the PSA.
10 DISPUTE RESOLUTION
10.1 If any dispute or difference arises between the Parties in connection
with this Agreement then either Party may at any time give notice to the
other Party of its intention to refer such dispute or difference to
international arbitration in Stockholm, Sweden.
10.2 Notwithstanding Clause 11.1, if Saknavtobi Norio has exercised its Option
A under Clause 6, then any dispute or difference between the Parties in
connection with this Agreement shall be carried out in accordance with
the Joint Operating Agreement which shall contain the following options
for dispute resolution:-
if such a dispute or difference is of a technical matter it shall be
referred to a technical expert;
if such a dispute or difference is of a legal or commercial nature
such matter shall be referred to arbitration; or
in the event that the Parties are unable to reach agreement on a
Work Program and Budget (as defined in the PSA) a sole risk
provision will exist.
7 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
10.3 If Saknavtobi Norio has not exercised its Option A under Clause 6, then
any dispute or difference between the Parties in connection with this
Agreement shall be conducted by CanArgo.
11 GOVERNING LAW
11.1 This Agreement shall be governed by and construed in accordance with the
law of England.
11.2 The parties hereto submit to the non-exclusive jurisdiction of the
English courts as regards any claim, dispute or matter arising out of or
relating to this Agreement and its implementation or effect.
11.3 This Agreement hereby supersedes any and all other agreements, oral or
written, between the Parties and constitutes the entire agreement among
the Parties hereto in respect of the subject matter of this Agreement.
11.4 This Agreement may only be amended by an agreement in writing executed by
all the Parties.
12 REPRESENTATION AND WARRANTIES
12.1 All representations and warranties stipulated herein shall remain in
force for the duration of this Agreement. The Parties provide the
following representations and warranties as of the date hereof:
a. The Parties are entitled and have all necessary powers to make, to
sign, to exchange documents and to execute this Agreement. Signing,
transfer and execution of this Agreement have been properly approved
by all necessary corporate and other actions of the Parties. This
Agreement, after it is signed by both Parties, shall be binding for
the Parties, and can be enforced in relation to each Party according
to its terms and conditions;
b. Hereby the Parties warrant to each other that the corresponding
representatives of CanArgo and Saknavtobi Norio, which sign this
Agreement, possess all necessary authorities for conclusion of this
Agreement and creation of rights and responsibilities for both
Parties;
c. Hereby the Parties warrant to each other that during implementation
of the responsibilities undertaken they will act in good faith in
relation to each other;
d. CanArgo warrants that until expiration of the Option A granted to
Saknavtobi Norio under Clause 6 of this Agreement CanArgo will not
alienate, pledge or otherwise encumber CanArgo's participation
interest in the PSA.
12.2 In the event that either Party suffers actual loss as a result of any of
the foregoing representations and warranties given by the other proving
to be incorrect, the Party suffering the said actual loss shall be
entitled on demand to recover that loss from the other Party provided
that; in no circumstances shall either Party's liability hereunder exceed
8 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
US$2,000,000 (two million US dollars); any claim made for breach of
representation or warranty must be made within two years of the date
hereof.
13 NOTICES AND CONFIDENTIALITY
13.1 Except as otherwise specifically provided, all notices authorised or
required between the Parties by any of the provisions of this Agreement,
shall be in writing in English and delivered in person or by registered
mail or by courier service or by any electronic means of transmitting
written communications which provides confirmation of complete
transmission, and addressed to such Parties as designated below. The
addresses for service of notices on each of the parties is as follows:-
CANARGO:
CanArgo Norio Limited
XX Xxx 000
Xx Xxxxx Xxxx
Xxxxxxxx
XX0 0XX
Telephone x00 0000 000000
Facsimile x00 0000 000000
Bank Account Details
Correspondent Bank:
Bankers Trust Company
1 Bankers Trust Xxxxx
Xxxxxxx Xxxxxx
Xxx Xxxx XX 00000
A/C No: 00000000
SWIFT: XXXXXX00
For further credit of:
CanArgo Norio Limited USD Account
Account Number: 000-000000-000
HSBC Bank International Limited
XX Xxx 000
Xx Xxxxx Xxxx
Xxxxxxxx XX0 0XX
Channel Islands
SWIFT: MIDLJESH
SAKNAVTOBI NORIO LIMITED:
Address: 00 Xxxxxxx Xxx., Xxxxxxx
Telephone x000 00 000000
Facsimile x000 00 000000
9 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
14 TERMINATION AND BREACH
14.1 This Agreement shall terminate on execution of the JOA or 31st December
2005 whichever is the earlier.
14.2 Neither Party may terminate this Agreement unilaterally.
14.3 Termination shall be without prejudice to the prior rights of either
Party.
IN WITNESS WHEREOF this Agreement has been duly executed on behalf of each of
the parties on the day and year first before written
SIGNED by
on behalf of CANARGO NORIO LIMITED
...........................................
Name /s/Dr Xxxxx Xxxxxx.................
Position
Chairman...............................
SIGNED by
on behalf of SAKNAVTOBI NORIO LTD
...........................................
Name M Dniashvili.......................
Position
General Director.......................
10 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
Appendix 1
The PSA
11 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
Appendix 2
The Deed of Assignment and Adherence
12 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
Appendix 3
Work Programme and Budget
13 of 13
Farm-In Agreement between CanArgo Norio and Saknavtobi Norio
