1
EXHIBIT 10(Y)
ASSOCIATION CONTRACTS TO EXPLORE AND PRODUCE
HYDROCARBON IN "DINDAL" AND "RIO SECO" SECTORS
ADDENDUM
LONG TERM PRODUCTION TESTS
AND PRE-COMMERCIAL DEVELOPMENT INVESTMENTS
IN THE GUADUAS FIELD
The contracting parties. On the one Part: EMPRESA COLOMBIANA DE PETROLEOS -
ECOPETROL, a State owned industrial and commercial company, organized under Law
165 of 1948, currently governed by Decree 62 of 1970, represented by XXXXXX
XXXXXX XXXXXXX, of legal age, identified with Colombian citizenship card No.
17.086.956 issued in Bogota, domiciled in Santa Fe de Bogota who states: 1. That
acting in his condition as ECOPETROL President he acts on behalf and
representation of that company, and 2. That he is duly empowered by the Company
bylaws and consistently with ECOPETROL Board of Directors approvals and
authorizations given at the meeting held September 20, 1999, to enter into this
agreement, and on the other Part, GHK COMPANY COLOMBIA, a company organized
under the laws of the State of Oklahoma, United States of America, with a branch
organized in Colombia, with its main domicile in Santa Fe de Bogota, under
public deed No. 118 dated January 21 1993, recorded at Notary Sixteen (16) of
the Santa Fe de Bogota circuit, represented by XXXXXXX XXXXXXX DAILY, of legal
age, identified with foreigner citizenship card No. AD-215746 issued in Santa Fe
de Bogota, Passport No. 000000000 issued in the United States of America,
domiciled in Santa Fe de Bogota, who states: 1. That acting in his condition as
the Legal Representative he acts on behalf and representation of GHK COMPANY
COLOMBIA, 2. That GHK COMPANY COLOMBIA in its condition as the operator of the
"DINDAL" AND "RIO SECO" SECTORS ASSOCIATION CONTRACTS TO EXPLORE AND PRODUCE
HYDROCARBON acts in its own name and on behalf of the companies that form the
ASSOCIATE, that is: SOCIEDAD INTERNACIONAL PETROLERA - SIPETROL, CIMARRONA
LIMITED LIABILITY COMPANY, SEVEN SEAS PETROLEUM COLOMBIA, GHK COMPANY COLOMBIA
(Operator), and PETROLINSON S.A, pursuant to the ample and sufficient power of
attorney granted for such purpose by the Operating Committee Meeting (OCM) on
August 19th , 1999, attached hereto and forming integral part hereof, and 3. He
is fully empowered to enter into this agreement as evidenced by the existence
and legal representation certificate issued by the Chamber of Commerce of Santa
Fe de Bogota.
Under the aforementioned conditions, ECOPETROL and the ASSOCIATE place on record
the agreement reached, previous the following whereas:
FIRST - On January 22 1993 ECOPETROL and the ASSOCIATE entered into the
association contract covering the "DINDAL" sector (hereinafter the DINDAL
CONTRACT), registered under public deed number 0270 dated February 9 1993,
recorded at Notary Sixteen (16) of the Santa Fe de Bogota circuit and approved
by the Ministry of Mines and Energy.
Pagina 1 de 8
2
SECOND - On June 23 1995 ECOPETROL and the ASSOCIATE entered in to the
association contract covering the "RIO SECO" sector (hereinafter the RIO SECO
CONTRACT), registered under public deed number 2050 of July 27 1995, recorded at
Notary Sixteen (16) of the Santa Fe de Bogota circuit and approved by the
Ministry of Mines and Energy.
THIRD - After the subsequent Contracts, Partial Interests, Rights and
Obligations Assignments and their respective registering, and excluding
ECOPETROL's percentage, the ASSOCIATE's participation in the DINDAL AND RIO SECO
contracts is the following:
Company %
SOCIEDAD INTERNACIONAL PETROLERA - SIPETROL 32.900
CIMARRONA LIMITED LIABILITY COMPANY 9.400
SEVEN SEAS PETROLEUM COLOMBIA 40.756
GHK COMPANY COLOMBIA (Operator) 10.944
PETROLINSON S.A 6.000
-------
TOTAL 100.00
FOURTH - Pursuant to ADDENDUM recorded under public deed No. 2051 at Notary 16
of the Santa Fe de Bogota, Circuit, dated July 27, 1995 the change of
obligations upon DINDAL CONTRACT areas relinquishment took place, remaining
contracted area is 26,154 Hectares and 8,500 square meters.
FIFTH - By drilling Escuela-1, El Segundo-1E, El Segundo-1N, El Segundo-1S, El
Segundo-2E and El Segundo-3E the ASSOCIATE satisfactory complied with First to
Sixth years under the DINDAL CONTRACT obligations. Additionally the ASSOCIATES
have acquired 254 Km of 2D seismic and 129 square Km of 3D seismic.
SIXTH - Pursuant to communication VOP-0464, dated November 1, 1995, ECOPETROL
upon ASSOCIATE's motivated request extended the Sixth DINDAL CONTRACT year
expiration term to September 23, 1999.
SEVENTH - By reprocessing the 2-D seismic program and drilling Tres Pasos-1E,
Tres Pasos-2E, Tres Pasos-4W and Tres Pasos-3E, the ASSOCIATE satisfactorily
complied with First to Fifth RIO SECO CONTRACT obligations, which Contract fifth
year expires August 19, 2000.
EIGHT - By drilling and testing aforementioned El Segundo and Tres Pasos xxxxx
under the DINDAL AND RIO SECO CONTRACTS, respectively, the Guaduas Field oil
structure (hereinafter the Guaduas Field) existence was proven as extending to
both CONTRACTS.
NINTH - Pursuant to DINDAL and RIO SECO ASSOCIATION CONTRACTS clause 9.8, if
upon the six (6) years Exploration Period expiration provided under Clause 5
Pagina 2 de 8
3
(section 5.2) the ASSOCIATE drilled one or several Exploration Xxxxx evidencing
a potential Commercial Field existence, ECOPETROL will, upon request from the
ASSOCIATE, extend the Exploration Period as long as necessary but not to exceed
one year, to provide the ASSOCIATES the opportunity to evidence a Commercial
Field existence; and that such is the case under the DINDAL CONTRACT and that
for such purpose the ASSOCIATE requested ECOPETROL the respective extension by
letter dated July 26, 1999.
TENTH - On the other hand, although Guaduas Field production information is
available, ECOPETROL and the ASSOCIATE are interested in continuing oil and gas
production during the exploration phase, under subject to Association Contract
conditions and herein agreed.
ELEVENTH - For the purpose as expressed in the previous numeral and having in
consideration that the ASSOCIATE is finishing the sixth year of the Exploration
Period, it is necessary to extend such period according with the provisions of
the DINDAL Contract and also, in consequence to suspend for the same period the
Relinquishment of Areas of the Contract.
TWELFTH - To provide the ASSOCIATE the opportunity to evidence Guaduas Field
commercial existence, the PARTIES recognizes the necessity of conducting
EXTENSIVE PRODUCTION TESTS including xxxxx under the DINDAL and RIO SECO
CONTRACTS, testing which would be conducted during the second half of 1999. Such
Extensive Production Tests will be conducted at the xxxxx, during the time, at
production levels and subject to the schedule contained in EXHIBIT 1, designated
EXTENSIVE PRODUCTION TESTS which forms an integral part hereof.
THIRTEENTH - The ASSOCIATE is planning to drill El Segundo-4E and in addition if
The ASSOCIATE considers it necessary, El Segundo-30; xxxxx with which is
expected to obtain the necessary additional information to quantify the actual
reserves accumulation and reliably and finally define the necessary
infrastructure required to develop the field.
FOURTEENTH - Simultaneously to the Extensive Production Testing with the purpose
of accelerating the processes which will secure the start of production of the
field, and once ECOPETROL has responded to the commerciality requested by the
ASSOCIATE, ECOPETROL and the ASSOCIATE have recognized the convenience to reach
an agreement in order to realize activities that will allow the acceleration of
different processes for the structuring of the project. All such activities will
be assumed by the ASSOCIATE without prejudice of ECOPETROL maintaining its
independence with respect to the definition of the Field Commerciality.
In such sense, to define the Commercial development of the Guaduas Field, the
PARTIES have agreed to enter into an ADDENDUM which contains the basic
principles to start DINDAL AND RIO SECO CONTRACTS area commercial development
prior to Commerciality Declaration, pursuant to ECOPETROL Board of Directors
approvals and authorizations issued at the meeting held September 7, 1999.
Pagina 3 de 8
4
FIFTEENTH - Consequently, it is advisable to extend the Exploration Period of
the DINDAL Association Contract and to postpone Areas Relinquishment of the same
Contract.
In virtue of the foregoing whereas ECOPETROL and the ASSOCIATE
AGREE:
FIRST - To define the reimbursement system applicable to El Segundo-30 well
investments that the ASSOCIATE plans to start drilling subject to the results of
El Segundo-4E, during the second half 1999, and taking into account that the
well would be an injector or gas disposal well, reimbursement will be as
follows: In the event that the El Segundo-30 is drilled before the date
ECOPETROL has responded to the Commerciality of the Guaduas Field, ECOPETROL
will validate such El Segundo-30 well as a gas injector development well,
provided that the well meets gas injector technical and location conditions
required to maintain reservoir pressure and/or produced gas disposal, and that
it is located within the Commercial Area defined. In other words, the well is
capable of accepting the required gas volumes to preserve reservoir conditions
and optimum mechanical condition. Likewise, its cost will be reimbursed with the
production of the exploration xxxxx once they have been reimbursed. The cost of
this well will be subject to the corresponding auditing process, before
ECOPETROL defines its participation in such costs.
SECOND - Independent investors have expressed an interest in financing,
constructing and operating the Guaduas to La Dorada Transportation System as an
independent project. The ASSOCIATE will request the investors to present the
PARTIES the terms and conditions of the structuring proposal of the Project,
including technical aspects, capacity, investments, costs, participation,
tariffs, etc.. ECOPETROL and the ASSOCIATE have the option to define the
transportation solution to evacuate the Guaduas Field production under the terms
and conditions established in the DINDAL and RIO SECO Contracts, or through the
execution of an independent Project. In this last case, the Parties have the
right but not the obligation to take an equity interest in the New Pipeline
Company subject to their separate due diligence and the negotiation of the
respective terms and conditions. The Parties agree to cooperate with the
investor and to use their best efforts to determine the benefit of participating
in the New Pipeline Company and their respective participation therein. As soon
as practical, but in no event later than Guaduas Field Commerciality decision by
ECOPETROL, ECOPETROL will notify the ASSOCIATE in writing its decision with
respect to its participation in the Pipeline Transportation System for such
field crude evacuation. In either event ECOPETROL undertakes to exclusively
dedicate its entire hydrocarbon production participation it is entitled to and
royalties to such Transportation System.
In the event ECOPETROL decides to take part in the Transportation System, it
will acknowledge the ASSOCIATE's pre-commercial investment amounts, equivalent
to its participation and in proportion to the pipeline capacity that will allow
the mobilization of the expected maximum production volumes that ECOPETROL
defines in the Development Plan evaluated under its Commerciality Study. In
other words, ECOPETROL does not
Pagina 4 de 8
5
assume risks associated to potential excess costs in the event of higher
dimensioning of the Transportation System.
On the other hand, in the event ECOPETROL decides not to take part in the
Transportation System, ECOPETROL will negotiate previous to the pipeline
construction, but in no event later than Guaduas Field Commerciality decision by
ECOPETROL, with the New Pipeline Company the transportation tariff according
with the rules and regulations of the Colombian Government.
With the purpose of determining reimbursements or ECOPETROL's participation in
the Transportation System investment value, both in the case of Commerciality
Declaration as well as in the Sole Risk option, the adjustment factor provided
in EXHIBIT 2 designated TRANSPORTATION SYSTEM INVESTMENT CALCULATION for the
different crude handling volumes described which forms an integral part hereof
will apply.
Should ECOPETROL decide not to accept the ASSOCIATE's request of commerciality
and grants the sole risk option, ECOPETROL will not reimburse in cash any
investments and expenses incurred related with the Pipeline Project, neither by
the ASSOCIATE nor by the New Pipeline Company.
The definitive investment amounts the ASSOCIATE incurs should be subject to the
respective audit process before ECOPETROL makes the disbursements they are
required to do, according with the terms of this ADDENDUM.
THIRD - For potential reimbursement of investment costs the ASSOCIATE incurs in
building Production Facilities, in the event ECOPETROL accepts Guaduas Field
commerciality, ECOPETROL will acknowledge and pay in cash its participation in
costs incurred, which costs should be directly connected to production
facilities dimensioning associated to maximum production volumes expected that
ECOPETROL defines under the Development Plan evaluated in the Commerciality
Study.
With the purpose of determining ECOPETROL's reimbursable amounts or
participation in the production facilities value, both in the case of
Commerciality Declaration as well as in the Sole Risk option, the different
crude volumes adjustment factor provided under EXHIBIT 3 designated PRODUCTION
FACILITIES INVESTMENT CALCULATION, which forms integral part hereof will apply.
Should ECOPETROL decide not to accept the ASSOCIATE's request of commerciality
and grants the sole risk option, ECOPETROL will not reimburse in cash any
investments and expenses incurred related with the Production Facilities.
The different amounts the ASSOCIATE incurs should be subject to the respective
audit process before ECOPETROL disburses its pro rata share of investment.
FOURTH - As soon as practical, but in no event later than Guaduas Field
Commerciality definition by ECOPETROL, the ASSOCIATE and ECOPETROL will define
the strategy to apply with respect to oil structure or reservoir unification,
which will contemplate the
Pagina 5 de 8
6
methodology applicable to total Guaduas Field production under each DINDAL and
RIO SECO CONTRACTS on the basis of initial Original Oil Equivalent In Place
volumes estimates for the contract areas. With the purpose of expediting Guaduas
Field production permit process before the Ministry of Mines and Energy and
without prejudice of ECOPETROL independently issuing a final decision on the
field commerciality, ECOPETROL be willing to provide the necessary support the
ASSOCIATES require to apply to the Ministry of Mines and Energy for a temporary
field early production permit from January 2000.
In the event Commerciality Application is accepted, all reimbursements would
equal percentages in connection with the proportion to be defined under the
Reservoir Unification Agreement the PARTIES agree upon for such purpose.
FIFTH - The PARTIES agree that the ASSOCIATE will conduct EXTENSIVE PRODUCTION
TESTS in the Guaduas Field as established in EXHIBIT 1 designated EXTENSIVE
PRODUCTION TESTS, which provisions form an integral part hereof.
The ASSOCIATE commits itself to conduct the EXTENSIVE PRODUCTION TESTS mentioned
before, to obtain a better understanding of the Reservoir, and the drilling of
El Segundo-4E exploration well to define the presence of a gas cap in the
Reservoir.
In the event ECOPETROL accepts field commerciality and if such well were
accepted as a commercial producer, ECOPETROL would reimburse with its production
the ASSOCIATE its respective portion as provided under the Association Contract.
In the event the well produces gas on test, the possibility to use it as a gas
injector well would be contemplated, for which purpose the aforementioned El
Segundo-30 reimbursement procedure defined in paragraph FIRST would apply.
SIXTH -Taking into consideration that such EXTENSIVE PRODUCTION TESTS require a
great economic and financial effort additional to the exploratory compromises
from the ASSOCIATE, who will continue assuming all such activities risks and
expenses during DINDAL AND RIO SECO CONTRACTS pre-commercial phase, without
ECOPETROL participation, the ASSOCIATE will have the right to dispose of the
entire produced volume after royalties from the xxxxx included in such extensive
tests, until full cost recovery has been achieved. From this point forward,
production share will be performed according to the terms established in the
DINDAL and RIO SECO CONTRACTS. In the event that the cost of the tests are not
fully recovered with the production obtained, the balance will be charged as an
additional direct exploration cost to the xxxxx in equal proportions for each
Contract, and will be reimbursed according with the terms established in the
Clause 14th of the aforementioned Contracts.
At the conclusion of the Extensive Production Test (EXHIBIT 1) and until
ECOPETROL has responded to the commerciality requested by the ASSOCIATE, all
Field production will be shared among all parties per the aforementioned terms.
Pagina 6 de 8
7
SEVENTH - The ASSOCIATE will submit its Guaduas Field Commerciality Application
to ECOPETROL after information from Guaduas Field Extensive Production Tests is
obtained.
EIGHTH - Regardless of agreements herein recorded in connection with Guaduas
Field, ECOPETROL will act independently to finally decide upon field
commerciality. Upon Extensive Production Tests completion and when the ASSOCIATE
submits the Commerciality Application, ECOPETROL will evaluate said application
subject to the terms of the Association Contracts, and will subsequently issue a
decision whether accepting or denying such request. If ECOPETROL denies the
Commerciality request, the ASSOCIATE will have the right to forthwith adopt the
Sole Risk modality immediately and in accordance to the Association Contract
terms. In view of the fact that Extensive Production Tests will provide the
necessary information to define field Commerciality, ECOPETROL will start its
early application evaluation and will make their best efforts to provide the
ASSOCIATE an answer on the Commerciality Application in approximately 6 weeks,
if possible, and in no event later than the ninety (90) days provided for in the
DINDAL and RIO SECO Association Contracts.
NINTH - In order to conduct the work and Extensive Production Tests herein
listed subject to DINDAL and RIO SECO CONTRACTS terms, and taking into account
that for the DINDAL CONTRACT in particular the sixth Exploration Period year
expires September 23, 1999, on the basis of the application in that sense the
ASSOCIATE submitted on July 26, 1999, the Exploration Period is hereby extended
until the date ECOPETROL responds to the commerciality requested by the
ASSOCIATE, to provide the ASSOCIATE the opportunity to evidence a Commercial
Field existence in virtue of aforementioned CONTRACT Clause 9.8. Additionally,
Ecopetrol agrees to grant the ASSOCIATE the option to a complementary extension
of the Exploration Period, up to September 23, 2000 and, within six (6) weeks of
submitting of its Commerciality request, the ASSOCIATE will advise ECOPETROL of
its commitment to execute exploration works during the complementary extension
period in a minimum amount of two million US dollars ($2,000,000.00 US), in
order to exercise this option.
ECOPETROL and the ASSOCIATE agree to work jointly to obtain authorizations in
order to start activities in the Forest Reserves actually existing in the Areas
of the above mentioned Contracts.
TENTH - DINDAL CONTRACT Clause 8 application in connection with areas
relinquishment pursuant to sections 8.1 provisions is hereby suspended until the
date ECOPETROL responds to the commerciality requested by the ASSOCIATE.
Additionally, ECOPETROL agrees to grant the ASSOCIATE the option to a
complementary extension for the relinquishments of areas until September 23,
2000, and within six (6) weeks of submitting of its Commerciality request, the
ASSOCIATE will advise ECOPETROL of its commitment to execute exploration works
mentioned in the above Clause NINTH during the complementary extension period in
order to exercise this option.
ELEVENTH - Regardless of ECOPETROL's decision on Commerciality Application and
not implying any type of participation commitment whichever decision is made,
technical,
Pagina 7 de 8
8
administrative procedures, purchases and contract processes during the
pre-commercial phase, for both the Production Facilities and the Transportation
System, will be managed subject to DINDAL and RIO SECO Association Contracts,
for which purpose and to determine compliance with such regulations, the AD-HOC
EXECUTIVE COMMITTEE will be constituted immediately upon signing of this
ADDENDUM which will create a committee formed by the parties representatives to
be designated DINDAL and RIO SECO ASSOCIATION CONTRACTS COORDINATION COMMITTEE.
TWELFTH - With exception of the modifications stated in this document, this
ADDENDUM does not in any way amend the DINDAL and RIO SECO CONTRACTS, which
Clauses will remain in full force and effects together with Clauses under this
Agreement.
In witness the Parties' representatives sign in Santa Fe de Bogota, on the
twenty second (22) day of the month of September, nineteen hundred and ninety
nine (1999).
EMPRESA COLOMBIANA DE PETROLEOS GHK COMPANY COLOMBIA
ECOPETROL
--------------------------- --------------------------
XXXXXX XXXXXX XXXXXXX XXXXXXX XXXXXXX DAILY
President President
Attachments: EXHIBITS 1, 2 and 3.
Pagina 8 de 8
