Exhibit 10.4
OIL PAYMENT AND NET EARNINGS INTEREST AGREEMENT
THIS AGREEMENT made and entered into this 30th day of August,
1976 by and between XXXXXXX MINES LIMITED, a corporation organized pursuant to
the laws of the Province of Ontario (hereinafter referred to as "Xxxxxxx"), of
the first part, and OCEANIC EXPLORATION COMPANY, a corporation organized
pursuant to the laws of the State of Delaware, and OCEANIC EXPLORATION CO. OF
GREECE, a corporation organized pursuant to the laws of the State of Colorado
(such latter two corporations hereinafter individually and collectively referred
to as "Oceanic"), of the second part.
RECITALS
A. Pursuant to the Memorandum of Agreement of June 30, 1976
between Xxxxxxx and Oceanic, as amended, (such agreement and all amendments
thereto collectively referred to as the "Agreement"), Xxxxxxx has agreed to
acquire all of the interests of Oceanic in and to that certain Exploration and
Development Agreement of June 14, 1975 by and between the Greek State and
Oceanic Exploration Co. of Greece, et al., (the "Exploration and Development
Agreement") and in the areas subject thereto.
B. The Agreement further provides that Xxxxxxx will make
certain payments to Oceanic, referred to as the "Oil Payment" or "First Oil
Payment" and as the "15% Net Earnings Interest," and that under certain
circumstances Oceanic may make certain payments to Xxxxxxx, referred to as the
"Second Oil Payment." Xxxxxxx and Oceanic hereby desire to define the terms and
conditions upon which such payments shall be made to Oceanic and to Xxxxxxx.
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NOW, THEREFORE, in consideration of the Agreement and of the
premises, Xxxxxxx and Oceanic agree as follows:
1. XXXXXXX TO OCEANIC OIL PAYMENT. Subject to the further
provisions of this agreement, Xxxxxxx hereby agrees to pay Oceanic an amount
in United States funds which will result in a net payment of $10,000,000 United
States Funds, after the proportionate amount of Greek income tax paid by the
Contractor (as defined in the Exploration and Development Agreement)
attributable thereto is withheld (which amount before withholding of Greek
income tax is hereinafter referred to as the "Oil Payment") shall be payable by
Xxxxxxx to Oceanic only in connection with the production of oil, gas and
hydrocarbons pursuant to the Exploration and Development Agreement, if any, and
only upon the following terms:
(a) there shall be determined in respect of each calendar
year, from and including the year 1977, the amount which represents
68.75% of the aggregate amount credited to the Contractor's Profit and
Loss Statement in respect of such year in accordance with the
provisions of Article 15.2(b) of the Exploration and Development
Agreement after deducting from such aggregate amount only the amount
payable in respect of such year to the Greek State as the Greek
State's Percentage Participation Share in accordance with the
provisions of Article 14.5 of the Exploration and Development
Agreement (the expressions used in this clause (a) to have the same
meanings as in the Exploration and Development Agreement);
(b) there shall then be determined the amount which is 15%
of the amount determined under clause (a) above; and
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(c) the amount determined under clause (b) above shall be
the portion of the Oil Payment payable to Oceanic for that calendar
year; Xxxxxxx shall withhold from each portion of the Oil Payment
payable to Oceanic the proportionate amount of Greek income tax paid
by Xxxxxxx attributable to that portion of the Oil Payment payable to
Oceanic and shall promptly, after receipt by Xxxxxxx, deliver to
Oceanic certified copies of receipts issued by the Greek Revenue
authorities for the payment of such income taxes; such delivery shall
constitute a full accounting by and acquittance of Xxxxxxx for such
withheld amounts. The foregoing payments shall continue until the Oil
Payment has been paid in full, at which time it will automatically
terminate.
If any Acquiring Party (as defined in Article 14.1 of the
Participation and Exploration Agreement dated as of March 21, 1970 entered into
between Oceanic and others and relating to exploration and development in the
Sea of Thrace) should at any time acquire a Permit within the Area of Interest
(as defined in such Participation and Exploration Agreement) then any amount of
production from such Permit which would be credited to Xxxxxxx'x share of the
Contractor's Profit and Loss Statement calculated mutatis mutandis as set out in
Paragraph 1 (a) above shall form part of the amount on which the Oil Payment in
the amount of 15% is to be calculated, but the provisions of this Paragraph
shall not increase the total amount of the Oil Payment.
2. OCEANIC TO XXXXXXX OIL PAYMENT. Pursuant to the Agreement,
Xxxxxxx has loaned to Oceanic the sum of Ten Million United States Dollars
($10,000,000 U.S.) (the "Loan"). In accordance with Paragraph 16 of the
Agreement, at any time within 30 days
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after commercial production has commenced from any Development Area, Xxxxxxx
may, by notice in writing, demand payment of the Loan. For purposes of this
Paragraph, commercial production shall be deemed to have commenced on the date
that Xxxxxxx has received written notice from the Operator that commercial
production has commenced from any Development Area (as the term Development Area
is established in the Exploration and Development Agreement). The Operator for
such purpose shall be the corporation acting as such and appointed by the
Contractors, as defined in the Exploration and Development Agreement, or their
assignees. The term commercial production for the purpose of such notice shall
be defined as sustained uninterrupted production from a Development Area for a
period of 30 days. If the Loan, together with accrued interest, is not paid
within 30 days after such demand, then the Loan shall thereupon be converted
into an oil payment payable to Xxxxxxx by Oceanic in an amount double the
aggregate of the principal amount of the Loan outstanding and the interest
accrued thereon to the end of the last mentioned period of 30 days. Such oil
payment due Xxxxxxx (hereinafter called the "Second Oil Payment") shall be paid
by (1) first applying the amount of the Oil Payment (net of Greek tax) payable
by Xxxxxxx to Oceanic until the full amount provided for as the net amount of
the Oil Payment has been satisfied and (2) then applying the amount (net of
Greek tax) Oceanic would receive as Oceanic's Net Earnings Interest as described
in paragraph 3 except that in the event that the loan is converted into the
Second Oil Payment the amount to which Oceanic is entitled as its Net Earnings
Interest (net of Greek tax) shall, from the time that the full amount provided
for as the net amount of the Oil Payment has been satisfied until the full
amount of the Second Oil Payment is satisfied, be calculated as follows:
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(a) there shall be determined in respect of each calendar year
the amount which represents 68.75% of the aggregate amount
credited to the Contractor's Profit and Loss Statement in respect
of such year in accordance with the provisions of Article 15.2(b)
of the Exploration and Development Agreement after deducting from
such aggregate amount only the amount payable in respect of such
year to the Greek State as the Greek State's Percentage
Participation Share determined in accordance with the provisions
of Article 14.5 of the Exploration and Development Agreement but
excluding earnings in respect of which the final portion of the
Oil Payment is payable (the expressions used in this clause (a)
to have the same meanings as in the Exploration and Development
Agreement);
(b) there shall then be determined the amount that is 15% of the
amount determined under clause (a) above, and;
(c) the amount determined under clause (b) above shall be the
amount payable to Oceanic for that calendar year; Xxxxxxx shall
withhold from each portion of the amount payable to Oceanic the
proportionate amount of Greek income tax paid by the Contractor
(as defined in the Exploration and Development Agreement)
attributable to that portion of the amount payable to Oceanic and
shall promptly, after receipt by Xxxxxxx, deliver to Oceanic
certified copies of receipts issued by the Greek Revenue
authorities for the payment of such income tax; such delivery
shall
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constitute a full accounting by and acquittance of Xxxxxxx for
such withheld amounts.
The amount of the Net Earnings Interest (net of Greek tax) to which Oceanic is
entitled pursuant to this paragraph shall be applied against the amount of the
Second Oil Payment until the Second Oil Payment is fully satisfied. Upon the
Second Oil Payment being fully satisfied, the calculation of the entitlement of
Oceanic to a Net Earnings Interest as set out in this paragraph shall cease to
apply and the calculation of Oceanic's entitlement as set out in paragraph 3
hereof shall commence to apply at that time.
3. NET EARNINGS INTEREST. Xxxxxxx hereby grants to
Oceanic a 15% net earnings interest (the "Net Earnings Interest") which shall be
payable by Xxxxxxx to Oceanic as long as there is production under the
Exploration and Development Agreement but (a) only in connection with its
production of oil, gas and hydrocarbons pursuant to the Exploration and
Development Agreement, if any (except as otherwise provided below in this
Paragraph 3); (b) only upon completion of all payments pursuant to the First Oil
Payment and Second Oil Payment, if any; and (c) only upon the following terms:
(a) there shall be determined in respect of each
calendar year, from and including the year in respect of which
the final portion of the First Oil Payment, or Second Oil
Payment, if any, is payable, the amount of the Contractor's
retained net share for such year from each Development area under
the Exploration and Development Agreement, after deduction of
Petroleum Costs recovered under the Exploration and Development
Agreement and the Greek State's Percentage Participation
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Share, but before deducting Greek income tax, but excluding
earnings in respect of which the final portion of the First Oil
Payment or Second Oil Payment, if applicable, is payable (the
expressions used in this clause (a) to have the same meanings
as in the Exploration and Development Agreement).
(b) there shall then be determined the amount which is
15% of the amount determined under clause (a) above; and
(c) the amount determined under clause (b) above shall
be the Net Earnings Interest payable to Oceanic; Xxxxxxx shall
withhold from each payment to Oceanic of its Net Earnings
Interest the proportionate amount of Greek taxes paid by the
Contractor attributable to the net earnings payable to Oceanic
and shall promptly after receipt by Xxxxxxx, deliver to Oceanic
certified copies of receipts issued by the Greek Revenue
authorities for the payment of such income taxes; such delivery
shall constitute a full accounting by and acquittance of Xxxxxxx
for such withheld amounts.
If any Acquiring Party (as defined in Article 14.1 of the
Participation and Exploration Agreement dated as of March 21, 1970 entered into
between Oceanic and others and relating to exploration and development in the
Sea of Thrace) should at any time acquire a Permit within the Area of Interest
(as defined in such Participation and Exploration Agreement) then the Net
Earnings Interest shall apply to the Permit so acquired if Xxxxxxx (or any
subsidiary or affiliate of Xxxxxxx) acquires an interest in any such Permit
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pursuant to such Participation and Exploration Agreement; provided that Oceanic
shall have paid to Xxxxxxx, within 30 days after demand therefor by Xxxxxxx to
Oceanic, 15% of the cash cost of acquisition of such Permit from the Greek
State. If no such payment is made by Oceanic to Xxxxxxx any right of Oceanic to
each Net Earnings Interest with respect to production pursuant to such Permit
shall be forever extinguished. If Xxxxxxx does not wish to acquire an interest
in any such Permit acquired by any other party under the said Participation and
Exploration Agreement then Xxxxxxx shall, to the fullest extent possible, offer
to assign to Oceanic without payment of any consideration therefor such rights
as pursuant to the said Participation and Exploration Agreement, Xxxxxxx may
properly assign to Oceanic in respect of such Permit, in which event the Net
Earnings Interest shall not apply to such Permit. If within 30 days after the
making of such offer Oceanic requests in writing such assignment by or on behalf
of Xxxxxxx, Xxxxxxx will cause such assignment to be made without warranty.
If any non-consent well (as defined in the said Participation and
Exploration Agreement) is drilled and Xxxxxxx does not participate therein, then
the Net Earnings Interest shall not apply to such non-consent well or to any
area forfeited by Xxxxxxx by reason of its failure to participate in the
drilling of such non-consent well if prior to the commencement of the drilling
thereof Xxxxxxx has offered to assign to Oceanic without payment of any
consideration therefor such rights as, pursuant to the said Participation and
Exploration Agreement, Xxxxxxx may properly assign to Oceanic in respect of such
non-consent well. Upon written request there for by Oceanic within 30 days
after the making of such offer, Xxxxxxx promptly will assign such rights to
Oceanic.
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4. ESTIMATED PAYMENTS; METHOD OF PAYMENT. From and
including the year 1977 Xxxxxxx shall make monthly payments to Oceanic in
respect of the Oil Payment and the Net Earnings Interest, as applicable, such
monthly payments to be made on the basis of estimates by Xxxxxxx as to the
amounts payable with respect to the year in which such payments are made and
adjustment to be made as soon as possible after the end of each such year so
that the full amount payable in respect of such year shall have been paid. In
like manner Oceanic will make monthly estimated payments to Xxxxxxx and year end
reconciliations and adjustments with respect to the Second Oil Payment, if any.
Such payments shall be made in United States currency to accounts
designated by Oceanic and Xxxxxxx, respectively by notice as hereinafter
provided. However, if currency export restrictions or other regulation or
requirement of the Greek State prevent Xxxxxxx from exporting from its Greek
account United States funds realized by Xxxxxxx from such operations which it
seeks to utilize to make such payments Xxxxxxx may so notify Oceanic and may
suspend any such payments to Oceanic. Xxxxxxx'x payments to Oceanic will be
resumed only upon Oceanic's designation of an account in Greece to which such
payments may be made by Xxxxxxx, or upon the termination of such restrictions or
requirements by the Greek State.
5. RECORDS, INSPECTION. Xxxxxxx will from time to time make
available to Oceanic at Xxxxxxx'x office in Calgary, Alberta, copies of all
drilling, production and related information and of all financial information
relating to the operations under the Exploration and Development Agreement. The
examination thereof shall be conducted by Oceanic at its own expense in ordinary
business hours and so as not to inconvenience Xxxxxxx. If any copies of any
such material are prepared for Oceanic at its request, the cost thereof shall be
borne by
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Oceanic. Xxxxxxx will not, however, be required to make available to Oceanic
any information which it is not permitted to make available under the terms of
the Exploration and Development Agreement.
6. XXXXXXX XXXX ON OIL PAYMENT AND NET EARNINGS INTEREST.
Xxxxxxx is hereby granted a first and prior lien on the Oil Payment and on the
Net Earnings Interest and on all payments due Oceanic thereunder to secure
repayment of the Loan, and to secure payment of any additional amounts due
Xxxxxxx in connection with the Loan in accordance with its terms. It is further
agreed that any payment required to be made to Fundamental Oil Company or to or
in respect of any action brought by any shareholder or creditor of Fundamental
Oil Company shall be at the entire cost and expense of Oceanic, and Xxxxxxx
shall be entitled to deduct from any payment required to be made to Oceanic
pursuant to the Oil Payment or the Net Earnings Interest the full amount of any
cost, charge or expense which it may incur in connection with the foregoing or
in connection with any other matter arising under or pursuant to the Agreement.
7. NATURE OF THE OIL PAYMENT AND NET EARNINGS INTEREST. It is
agreed that the Oil Payment and the Net Earnings Interest grant to Oceanic only
the contingent contractual right to receive from Xxxxxxx certain payments in the
circumstances described herein. It is not the intent of the parties that such
interests grant to Oceanic, and this agreement shall not be deemed or construed
to grant to Oceanic: (a) any right, title or interest in or to any of the
personal property, fixtures or equipment owned or operated by Xxxxxxx or any
other party to the Exploration and Development Agreement; (b) any right, title
or interest in or to the Exploration and Development Agreement or any licenses,
permits or
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agreements issued or entered into pursuant or related thereto; or (c) any right,
title or interest in or to any oil, gas or hydrocarbons, whether in place or
produced, or products thereof. It is agreed that such interests are merely
private contractual obligations between Oceanic and Xxxxxxx and accordingly,
this agreement will not be filed with the Greek State for approval or
recognition.
8. ASSIGNMENTS; INUREMENT. This agreement shall be binding on
the successors and assigns of the parties hereto. Oceanic's rights pursuant to
the Oil Payment and the Net Earnings Interest may be transferred, assigned,
pledged, mortgaged or hypothecated only upon delivered to Xxxxxxx of a copy of
the instruments pursuant to which such transfer, assignment, pledge, mortgage or
hypothecation is to be effected and upon delivery to Xxxxxxx of an agreement
executed by Oceanic and by the transferee, assignee, pledgee, or mortgagee in
form satisfactory to Xxxxxxx, providing:
(i) that the interest of the transferee, assignee,
pledgee or mortgagee is subject to Xxxxxxx'x prior lien and security
rights and to all terms of this agreement;
(ii) confirming the amount of all prior payments
pursuant to the Oil Payment, if any; and
(iii) if Oceanic has reserved or retained any interest,
designating a single bank account for deposit by Xxxxxxx of all
payments due pursuant to such interests, and indemnifying Xxxxxxx from
any liability or responsibility For apportioning any such payments
between Oceanic and the transferee, assignee, pledgee or mortgagee.
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9. NOTICES. Notices provided for herein shall be in
writing communicated by registered Canadian or United States air mail, or by
telex, charges or postage prepaid, to the current addresses of the parties or to
such other address as either party may designate by notice to the other as above
from time to time. Notice by mail shall be effective three days after mailing.
Notice by telex shall be effective upon the date of transmission and receipt.
10. GOVERNING LAW. The validity, performance and
enforcement of this agreement shall be governed by the law of the Province of
Ontario.
11. ENTIRE AGREEMENT. This agreement sets forth the entire
agreement and understanding between Xxxxxxx and Oceanic with respect to the Oil
Payments and the Net Earnings Interest, and it supersedes and is controlling
over the Agreement with respect thereto.
Executed this 30th day of August, 1976.
XXXXXXX MINES LIMITED
By /s/
---------------------------
By /s/
---------------------------
OCEANIC EXPLORATION COMPANY
By /s/
---------------------------
President
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ATTEST:
/s/
------------------------
OCEANIC EXPLORATION CO. OF GREECE
By /s/
---------------------------------
President
ATTEST:
/s/
-----------------------
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