EXHIBIT 10.2
ALADDIN MIDDLE EAST LTD.
ERSAN PETROL SANAYII A.S.
AVENUE ENERGY INC.
JOINT OPERATING AGREEMENT
LICENSE AR/AME - EPS 3462
GAZIANTEP, S.E. ANATOLIA
REPUBLIC OF TURKEY
TABLE OF CONTENTS
JOINT OPERATING AGREEMENT
ARTICLE PAGE
1. Definitions and Interpretations........................... 2
2. Scope of Understanding and Duration....................... 9
3. Interest of the Parties...................................10
4. Operator..................................................14
5. Authorities and Duties of Operator........................17
6. Rights of the Parties.....................................25
7. Insurance and litigation..................................26
8. The Operating Committee...................................29
9. Exploration Programs and Budgets..........................34
10. Appraisal Programs and Budgets............................36
11. Development Programs and Budgets.........................38
12. Production Programs and Budgets...........................42
13. Sole Risk Projects........................................43
14. Accounting................................................56
15. Default...................................................56
16. Disposal of Petroleum.....................................60
17. Confidentiality...........................................61
18. Public Announcements......................................63
19. Outgoings.................................................63
20. Covenant, Undertaking and Relationship....................64
21. Assignment and Encumbrances...............................66
22. Withdrawal................................................68
23. Force Majeure.............................................71
24. Applicable law and Arbitration............................71
25. Notices...................................................72
26. Miscellaneous.............................................74
Signing Page............................................................75
Schedule 1 - Accounting Procedure
JOINT OPERATING AGREEMENT
THIS AGREEMENT is made the 20th day of December 2002
BETWEEN:
ALADDIN MIDDLE EAST LTD, a corporation organized and existing under the laws of
the State of Delaware in the U.S.A., having offices in the city of Ankara and in
the city of Wichita, Kansas, (hereinafter referred to as "AME");
AND
ERSAN PETROL SANAYII A.S., a corporation existing under the laws of the Republic
of Turkey, having its head office in the city of Ankara ("ERSAN");
AND
AVENUE ENERGY INC., a corporation organized and existing under the laws of the
State of Delaware in the U.S.A., having offices at Xxxxxxx Oaks, CA, USA at
00000 Xxxxxxx Xxxx., 0xx Xx. Xxxxxxx Xxxx, XX, XXX and in Australia at 00-00
Xxxx Xxxx, Xxxxxxx, Xxxxxxxxx, Xxxxxxxxx (hereinafter referred to as "AVENUE").
RECITALS
A. The Parties are the holders of License AR/AME - EPS 3462 in the
Gaziantep Petroleum District of South East Anatolia, Republic of
Turkey, AVENUE having acquired its 45% Percentage Interest in the
License under a Farmin and Participation Agreement dated 14 November
2002 between the Parties and certain other parties.
B. The Parties desire to provide for the exploration, development,
production and operation of the License Area and to define their
respective rights and obligations in respect thereof.
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements and obligations herein contained and to be performed, IT IS AGREED by
and between the Parties AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATIONS
In this Agreement:
"ACCOUNTING PROCEDURE" means the Accounting Procedure set out in Schedule 1
hereto;
"ADVANCE" means each payment of cash required to be made pursuant to a Cash
Call,
"AFE" means authorisation for expenditure;
"AFFILIATE" means, with respect to any Person, any other Person that (a) owns or
controls the first Person, (b) is owned or controlled by the first Person, or
(c) is under common ownership or control with the first Person, where 'own'
means a direct or indirect ownership of more than 50% of the equity interests or
rights to distributions on account of equity of the Person and 'control' means
the direct or indirect power to direct the management or policies of the Person,
whether through the ownership of voting securities, by contract, or otherwise;
notwithstanding the foregoing, each member of SGC is deemed to be an Affiliate
of each other member of SGC for the purposes of this Agreement;
"APPRAISAL WELL" means a well drilled to determine or further evaluate the
extent size or nature of a hydrocarbon accumulation in a geological formation
contained in a trap, structure or closure in which a Discovery has been made by
a previous Exploration Well drilled (whether within or outside the License Area)
on such trap, structure or closure;
"BASE RATE" means the prime rate of interest for Dollars in effect at the Bank
of America, or, if no such rate is available for Bank America, such other major
US clearing bank with offices in New York, NY as the Parties (other than any
Defaulting Party and its Affiliates) may select, at 10:00 a.m. New York, NY,
time on the day in question: in respect of Non-Working Days the rate set for the
immediately preceding Working Day will apply;
"BUDGET" means any budget in respect of a Program;
"CAPITAL EXPENDITURE" means costs and expenditures incurred in but not limited
to the following operations: the drilling of all xxxxx (including testing, if
applicable, plugging and abandoning), development feasibility studies, the
design, construction, installation, acquisition, replacement or final
abandonment of any permanent facilities, permanent additions to Joint Property
and administrative costs directly attributed to such functions;
"CARRIED INTEREST" has the meaning specified in Article 3.2;
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"CASH CALL" means any request to the parties for the payment of cash made by
Operator in accordance with the provisions of the Accounting Procedure in
connection with the Joint Operations or, where the context so requires, to the
Sole Risk Party in connection with any Sole Risk Project;
"COMMUNICATION" has the meaning specified in Article 25.1;
"CONVERSION RATE" means the conversion rate as published in the Wall Street
Journal for the two currencies in question on the relevant date or, if no such
rates are quoted on that date, on the immediately preceding Working Day on which
such rates were quoted;
"DEFAULTING PARTY" has the meaning specified in Article 15.1;
"DEVELOPMENT WELL" means a well which is drilled for the purpose of producing
from and depleting a known Petroleum bearing reservoir or for the purpose of
injecting gas or liquid substances into that reservoir to enhance the recovery
of Petroleum from that reservoir;
"DISCOVERY" means any discovery of reserves of Petroleum which are tested and
produced in the well encountering the same, or if not so tested, are determined
by Operating Committee to be capable of being produced;
"DOLLARS" or "$" means dollars of the United States of America;
"ERSAN ROYALTY INTEREST" means the right of ERSAN to a 2.5% overriding royalty
interest in Petroleum produced from the Licence Area;
"EXPLORATION WELL" means any well other than an Appraisal Well or a Development
Well;
"FARMIN AND PARTICIPATION AGREEMENT" means the agreement referred to in Recital
A of this Agreement;
"GOVERNMENT" means the Government of the Republic of Turkey, from time to time,
or any relevant agency, division or representative thereof;
"JOINT ACCOUNT" means the account established and maintained by Operator to
record all Advances, expenditures and receipts in the conduct of the Joint
Operations;
"JOINT OPERATIONS" means all operations relating to the License Area approved,
or deemed to be approved, by the Operating Committee and conducted in accordance
with this Agreement and in the case of operations under a development Program
and Budget means all operations in which all Parties are obliged to participate;
"JOINT PETROLEUM" means all Petroleum produced under the Joint Operations;
"JOINT PROPERTY" means all property, of whatever nature, acquired or held for
use in connection with the Joint Operations, but excluding Joint Petroleum and
the License;
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"LICENSE" means each of:
(a) License AR/AME - EPS 3462 in the Gaziantep Petroleum District of South
East Anatolia, Republic of Turkey;
(b) (unless the context otherwise requires) any petroleum lease granted
under the Petroleum Law to the Parties in relation to all or part of
the License Area;
(c) any other exploration license or petroleum lease granted under the
Petroleum Law which the Parties from time to time agree expressly and
in writing to bring within the scope of this Agreement,
as any such license or lease may be extended, modified or replaced from time to
time;
"LICENSE AREA" means the area for the time being covered by the License;
"MATERIAL" means personal property, equipment or supplies;
"MONTH" means a calendar month;
"NATURAL GAS" means hydrocarbons which at atmospheric conditions of temperature
and pressure are in a gaseous phase;
"NET PRE-TAX REVENUE" means sales receipts (net of withholdings and deductions
at source and excluding VAT (if any), but before income or corporate tax
calculated and chargeable by reference to individual Parties), less:
(a) royalties and similar payments made or due to the Government or under
the ERSAN Royalty Interest in respect of such sales or related
production; and
(b) operating costs incurred by the Operator and/or the relevant Parties
(or any of them) in connection with the production of those receipts
(including production and transportation charges, commissions,
salaries, fees and expenses chargeable to the Joint Account);
"NGLS" means any hydrocarbon found in Natural Gas which may be extracted or
isolated as liquefied Petroleum;
"NON-DEFAULTING PARTY" has the meaning specified in Article 15.1;
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"NON-OPERATOR" means a Party other than Operator;
"NON-SOLE RISK PARTIES" has the meaning specified in Article 13.2.5;
"OPERATING COMMITTEE" means the committee established pursuant to Article 8;
"OPERATOR" means the Party from time to time acting as such pursuant to Article
4;
"OUTGOING OPERATOR" has the meaning specified in Article 4.3;
"PARTY" or "PARTIES" means any party or parties to this Agreement and their
respective successors and permitted assigns;
"PERCENTAGE INTEREST" means, for each of the Parties, the undivided percentage
interest held from time to time by it pursuant to this Agreement in the License,
the Joint Property and the Joint Petroleum, as provided in Article 3.1 or, where
the context so requires, in any Sole Risk Development;
"PERSON" includes any individual, corporation, company, partnership (general or
limited), business trust, or other governmental or non-governmental entity or
association;
"PETROLEUM" has the meaning assigned to it under the Petroleum Law;
"PETROLEUM LAW" means Petroleum Law Xx. 0000 xx xxx Xxxxxxxx xx Xxxxxx, as
amended from time to time (including by Laws No. 6558, 6987, 1702, 2217 and
2208) and the Petroleum Regulations promulgated thereafter under Government
Decree 89/14111 published with the Official Gazette on 17 July 1989 issue no.
20224, as amended from time to time;
"PROGRAM" means any program of operations;
"QUARTER" means a period of three Months ending on 31st March, 3rd June, 30th
September, or 31st December in any Year;
"SGC" means the Xxxxx Group Consortium, consisting of AME, ERSAN,
Transmediterranean Oil Company Ltd and Guney Yildizi Petrol Uretim Sondaj
Muteahhitlik ve Ticaret A.S.;
"SOLE RISK DEVELOPMENT" has the meaning specified in Article 13.1;
"SOLE RISK DRILLING" has the meaning specified in Article 13.1;
"SOLE RISK PARTY" has the meaning specified in Article 13.2.3;
"SOLE RISK PROJECT" has the meaning specified in Article 13.1;
"SUB-AREA" means, at any given time, any part of the License Area determined as
such by the Operating Committee pursuant to Article 13.2.9, being delineated by
surface area but applying only to
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that interpreted closure of any geological structure or stratigraphic trap in
which a reservoir or reservoirs of Petroleum exist, and which is subject to
development by less than all Parties pursuant to the terms of this Agreement;
"SUNK COSTS" means the contributions made by a Party on or after 14 November
2002 and in accordance with this Agreement, the Farmin and Participation
Agreement or any other Joint Operating Agreement entered into pursuant to the
Farmin and Participation Agreement (including, but not limited to, contributions
made on behalf of the holder(s) of the Carried Interest) towards the cost and
expenses incurred in relation to joint operations on any Exploration Licence or
Production Lease in which AVENUE or its Affiliate holds an interest (or has an
interest held on its behalf by AME) acquired pursuant to the Farmin and
Participation Agreement, and includes (without limiting the generality of the
foregoing):
(a) any payment of or in respect of Withholding Tax payable in relation to
any such cost or expenses or the contribution of a Party thereto;
(b) in relation to AVENUE or its Affiliate:
(i) the full amounts paid pursuant to clauses 3, 4 and 9.3(c) of
the Farmin and Participation Agreement;
(ii) all stamp tax paid by it under or in respect of the Farmin and
Participation Agreement or the transaction contemplated
therein;
(iii) all fees, costs or expenses paid under any representation and
consulting agreement with Xx X.Xxxxx relating to the
activities contemplated in the Farmin and Participation
Agreement; and
(iv) all fees and expenses paid to the legal advisers to AVENUE and
IT Technology Inc in relation to the negotiation, preparation
and execution of the Farmin and Participation Agreement and
the consummation and closing of the transactions provided for
therein; and
(c) in relation to AME and ERSAN, its contributions to the cost and
expenses of joint operations incurred in relation to the drilling and
other operations and works carried out in relation to either the
Tosun-1 Well or the Karakilise-1 Well (both as defined in the Farmin
and Participation Agreement) or both, on the basis that, unless
otherwise agreed by the Parties and solely for the purposes of clause
9.3 of the Farmin and Participation Agreement, Article 3.2.5 of this
Agreement, and the corresponding provisions of any other applicable
joint operating agreement between AME or its Affiliate and Avenue or
its Affiliate of the other part (and whether or not other Persons are
parties to such agreement), the amount of such contributions shall be
deemed in the aggregate to equal one hundred and fifty percent (150%)
of the amount of the Sunk Costs claimed and recoverable by AVENUE or
its Affiliate in relation to those operations and works;
"WILFUL MISCONDUCT" means in relation to Operator an intentional and conscious
or reckless disregard of:
(a) any provision or requirement of this Agreement or, in so far as
applicable to the Joint Operations, of applicable law or regulations;
or
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(b) any Program, not justifiable by any special circumstances,
by any director, officer, supervisory or management employee, agent or
contractor or sub-contractor of Operator or its Affiliates, but shall not
include any error in judgement or mistake made by any such person in the
exercise, in good faith, of any function, authority or discretion conferred upon
Operator;
"WITHHOLDING TAX" means the withholding from the petroleum exploration and
production revenues in accordance with Council of Ministers Decree No. 93/5147
published in the Turkish Official Gazette No. 21805(R) dated 30 December 1993,
as may be amended, and any other withholding that may be applicable to this
Agreement, the activities and payments hereunder or the Parties;
"WORKING DAY" means any day (other than a Saturday or Sunday) on which banks in
Ankara, Turkey and New York, NY are generally open for business;
"YEAR" means a calendar year under the Gregorian calendar;
Reference to any statute, statutory provision or statutory instrument includes a
reference to that statute, statutory provision or statutory instrument as may
from time to time be amended, extended or re-enacted;
Reference to any gender includes a reference to all other genders;
Unless the context otherwise requires reference to any Article is to an article
of this Agreement and reference to any Paragraph is to a paragraph of the
accounting Procedure;
Reference to the singular includes a reference to the plural and vice versa;
The headings are used for convenience only and shall not affect the construction
or validity of this Agreement.
2. SCOPE OF UNDERSTANDING AND DURATION
2.1 Scope
2.1.1 The scope of this Agreement shall extend to the exploration for and the
production of Petroleum under the License and the joint marketing and
joint sales of Petroleum so produced, including the manner in which
abandonment obligations (whether arising under the License or by law)
shall be met and shall include the treatment, storage and
transportation of Petroleum within the License Area.
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2.1.2 Notwithstanding the foregoing, this Agreement shall not extend to any
joint financing arrangements.
2.2. Understanding
This Agreement represents the entire Agreement and understanding
between the Parties as to the subject matter hereof. There are no
verbal understandings, agreements, representations or warranties which
are not expressly set forth herein. Notwithstanding the foregoing, the
provisions of the Farmin and Participation Agreement remain in full
force and effect.
2.3 Commencement and Duration
This Agreement shall commence on the date first mentioned above and
shall, without prejudice to Article 17, continue for so long as the
License remains in force and until all Joint Property has been disposed
of and final settlement has been made between the Parties in accordance
with their respective rights and obligations hereunder.
3. INTEREST OF THE PARTIES
3.1 Percentage Interests
Subject to Article 3.2 and to the other terms and conditions of this
Agreement, the License, all Joint Property and all Joint Petroleum
shall be owned by the Parties, and the Net Pre-tax Revenue derived from
the Joint Operations (including the sale of Joint Petroleum by Operator
on behalf of the Parties) shall accrue and be allocated to the Parties,
and all costs and obligations incurred in the proper conduct of the
Joint Operations shall be borne by the Parties, in proportion to their
respective Percentage Interests, which at the date hereof are as
follows:
AME 32.50%
XXXXX 00.00%
XXXXXX 00 %
------
Total 100 %
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3.2 Carried Interest
3.2.1 Notwithstanding anything to the contrary in this Agreement, an
aggregate 10% Percentage Interest (held initially as to 50% by AME and
as to the other 50% by ERSAN) shall be classified as a 'Carried
Interest' and shall carry the rights and obligations set out in this
Article 3.2.
3.2.2 The Carried Interest (or part thereof) held by a Party forms part of
the Percentage Interest of that Party and, accordingly, except as
expressly provided in this Article 3.2, references in the other
provisions of this Agreement to the Percentage Interest of a Party
include the Carried Interest (or part thereof) of that Party.
3.2.3 The Carried Interest of a Party may be transferred or otherwise dealt
with in accordance with this Agreement as a Percentage Interest,
provided that any transfer of a Percentage Interest by a Party holding
the Carried Interest (or part thereof) shall clearly identify the
extent (if any) to which the Percentage Interest so transferred
comprises the Carried Interest (or part thereof) of that Party.
3.2.4 Notwithstanding Article 3.1, the share of any costs or expenses which
the holder of the Carried Interest (or part thereof) is or, but for
this Article 3.2.4 would be, required under the terms of Article 3.1 to
contribute by virtue of the Carried Interest (or part thereof) held by
it (being, in the aggregate, 10% of the total costs and expenses the
subject of Article 3.1) shall be the responsibility of and advanced by
the Parties (in each case by virtue of the Percentage Interests held by
them which do not comprise all or part of the Carried Interest) in the
following proportions:
AME 25 %
ERSAN 25 %
AVENUE 50 %
----
Total 100%
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To facilitate this arrangement, all Cash Calls relating to the Joint
Operations shall include as a separate line item the amount payable by
each Party under this Article 3.2.4 in relation to the Carried
Interest, and the Operator shall maintain, separately in relation to
each Party, and make available to each Party upon request, a record of
all amounts advanced by each Party under this Article 3.2.4, the
Parties in respect of whom such amounts were advanced, and all payments
received by each Party under Article 3.2.5 in respect of amounts so
advanced. For the avoidance of doubt:
(i) a Party shall not be responsible under this Article 3.2.4 for
the obligations of another Party in respect of tax, royalties
(Government or otherwise) or abandonment costs and provision;
and
(ii) the effect of this Article 3.2.4 (by way of example) is that a
Party whose entire Percentage Interest is comprised of the
Carried Interest or part thereof shall have no obligation
under Article 3.1 or this Article 3.2.4 to contribute to the
costs the subject of Article 3.1.
3.2.5 Notwithstanding Article 3.1, if the Joint Operations result in the
making of a Discovery and the production for sale of Joint Petroleum,
then at any time when the cumulative amount received by a Party,
pursuant to clause 5.5(d)(i) or clause 9.3(d)(i) or (ii) of the Farmin
and Participation Agreement, this Article 3.2.5 or the equivalent
provisions of any other Joint Operating Agreement entered into pursuant
to the Farmin and Participation Agreement, by way of recovery of Sunk
Costs is less than ten percent (10%) of the cumulative amount of Sunk
Costs incurred by that Party (disregarding any such recovery), fifty
percent (50%) of the Net Pre-tax Revenue that would, but for this
Article 3.2.5, accrue to the holder of the Carried Interest (or part
thereof) under Article 3.1 by virtue of its holding of the Carried
Interest (or part thereof) (being, for the avoidance of doubt, an
aggregate 5% of the total amount of Net Pre-tax Revenue) shall instead
accrue to the benefit of and be paid to that Party by way of a partial
recovery (to the extent of 10%) of such Sunk Costs; provided that if at
any one time payments
10
are due under this Article 3.2.5 to more than one Party, the said
percentage of such Net Pre-tax Revenue shall be allocated amongst those
Parties in proportion to their respective Percentage Interests
(disregarding any part thereof comprising the Carried Interest or part
thereof). For the avoidance of doubt, while the preceding sentence is
in operation, the holder of the Carried Interest (or part thereof)
shall continue to be entitled to receive the remaining fifty percent
(50%) of the said Net Pre-tax Revenue.
3.2.6 For the purposes of Article 3.2.5, the application of Net Pre-tax
Revenue against Sunk Costs shall be made in US$, with any receipts and
operating costs used to calculate such Net Pre-Tax Revenue and any such
Sunk Costs denominated other than in US$ being notionally converted
into US$ at the Conversion Rate applicable on the Business Day next
following the date the same are received or, as applicable, incurred
(or, if the Conversion Rate is not quoted on the relevant Business Day,
on the nearest earlier date upon which a Conversion Rate is so
available).
3.2.7 If the holder of the Carried Interest (or part thereof), in its
capacity as such, (the "CARRIED INTEREST HOLDER") notifies the other
Parties that is wishes to participate in a Sole Risk Project (whether
as an original Sole Risk Party or otherwise), the Parties shall meet
and use reasonable efforts to agree terms acceptable to all of the
Parties which provide for the manner and basis upon which the Carried
Interest Holder may so participate, such terms to provide for (inter
alia) (i) the funding of the share of the costs and liabilities
(actual, contingent and prospective) associated with such Sole Risk
Project which are attributable to the Carried Interest or the
Percentage Interest of any Party who is not participating in the Sole
Risk Project (which Party or Parties, for the avoidance of doubt, shall
not be obligated under Article 3 or otherwise to contribute to such
costs, either in respect of its own Percentage Interest or in respect
of the Carried Interest), (ii) insurance, (iii) the amount of any
payments to be made by the Carried Interest Holder to the Sole Risk
Parties pursuant to Articles 13.4.1 (where the Carried Interest Holder
would be participating other than as an original Sole Risk Party), and
(iv) the recovery of any payments made by a Sole Risk Party in respect
of the costs associated with such Sole Risk Project which are
attributable to the Carried Interest. Unless and until such terms are
agreed by all of the Parties, the holder of a Carried Interest (or part
thereof) shall not, by virtue of that Carried Interest or part thereof,
be entitled to initiate a Sole Risk Project or, unless
11
otherwise agreed by the all of the other Sole Risk Parties in that Sole
Risk Project, to participate in any Sole Risk Project, and Article
3.2.4 shall not apply to the funding of a Sole Risk Project in which
the holder of a Carried Interest is so allowed to participate. Except
as otherwise agreed by the Sole Risk Parties in a Sole Risk Project,
the Carried Interest shall be disregarded for the purposes of
determining the respective rights and obligations of the Parties under
or arising out of Article 13 in relation to that Sole Risk Project.
3.2.8 For the purposes of Articles 8, 9, 10, 11, 12 and 13, any Party which
for the time being holds a Percentage Interest which comprises, in part
but not in whole, the Carried Interest or part thereof shall be treated
as two distinct Parties in respect of a portion of its Percentage
Interest corresponding with the Carried Interest or part thereof held
by it, of the one part, and the balance of its Percentage Interest, of
the other part. Accordingly, such a party may appoint a separate
representative to the Operating Committee and vote separately (or have
its representative vote separately) in respect of each such interest.
3.3 Withholding tax
Notwithstanding anything to the contrary in this Agreement, any
Withholding Tax incurred in relation to the costs and expenses charged
to the Joint Account, or the payments by the Parties (or any of them)
in relation thereto, shall ultimately be borne as to 50% percent by
AVENUE and as to the remainder by the other Parties, as between them in
the same proportions as their respective obligations to fund costs
pursuant to Article 3.1 and 3.2.4 (i.e. so that a Party whose entire
Percentage Interest is comprised of the Carried Interest or part
thereof shall have no obligation under this Article 3.3 to bear or
contribute to Withholding Tax).
4. THE OPERATOR
4.1 Designation
AME is hereby designated and agrees to act as Operator under and
subject to the terms of this Agreement.
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4.2 Resignation and Removal
4.2.1 Operator shall have the right to resign at the end of any Month, by
giving not less than two hundred and seventy (270) days' notice to the
Parties, or such shorter period of notice as the Operating Committee
may direct.
4.2.2 Operator may be removed:
(i) at the end of any Month, if the Operating Committee so decides
and gives not less than ninety days' written notice to
Operator; or
(ii) by notice from any Non-Operator (other than a Non-Operator
which is an Affiliate of the Operator) if Operator:
(a) ceases or threatens to cease to carry on business or
a major part thereof;
(b) makes an assignment for the benefit of creditors,
admits its inability to pay its debts as they become
due, or such fact is determined in a judicial
proceeding, files or has filed against it a petition
in bankruptcy or other similar insolvency proceeding
or is adjudicated a bankrupt or insolvent;
(c) files a petition seeking for itself any
reorganisation, arrangement, composition,
readjustment, liquidation, dissolution or other
similar arrangement under any present or future
statute, law or regulation; or
(d) consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of it or of all or
any substantial part of its assets or properties, or
if it or the holders of its common stock take any
action contemplating its dissolution or liquidation;
or
(iii) forthwith upon the Operating Committee so determining and
giving written notice to Operator, if:
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(a) the aggregate of the Percentage Interests of Operator
and any Affiliate of Operator is less than fifteen
percent (15%); or
(b) the Operating Committee determines and notifies
Operator that there has been an event of negligence
or Wilful Misconduct or a material breach of this
Agreement or the License by Operator and Operator
fails within twenty eight (28) days after receipt of
such notice (or such longer period as may be
specified in the said notice) to remedy such breach
to the reasonable satisfaction of the other Parties
or, if such breach is not capable of remedy, to
otherwise restore as nearly as practicable the other
Parties to the position they would have been in had
the relevant event or breach not occurred.
4.2.3 Subject to the following, Operator shall have no claim against any
Party as a result of the resignation or removal of Operator, provided
always that any resignation or removal of Operator shall be without
prejudice to any rights, obligations or liabilities which accrued
during the period when Operator served in that capacity. If Operator
resigns before the completion of all working obligations set out in the
License or arising under the Petroleum Law in respect of the License,
Operator shall not be entitled to any costs or expenses incurred in
connection with the change of operatorship, but if Operator resigns
thereafter or is removed it shall be entitled to charge the Joint
Account any costs or expenses incurred by it as a result of the change
of operatorship as may be approved by the Operating Committee (such
approval not to be unreasonably withheld).
4.3 Election of Successor Operator
As soon as practicable after notice is duly given as to the resignation
or removal of Operator (hereinafter referred to as "OUTGOING OPERATOR")
under Article 4.2, one of the Non-Operators shall, subject to its
acceptance of the position under the terms of this Agreement and
subject to any necessary approval of the Government, be selected by the
Operating Committee to assume the position of Operator upon the
effective date of the resignation or removal of the Outgoing Operator,
provided that if the Outgoing Operator or any Party which is an
Affiliate of the Outgoing Operator either fails to vote or votes for
itself or any of its Affiliates as successor to the operatorship, those
votes shall be disregarded and the percentage figure set out in Article
8.4.5 shall apply to the total votes available to the remaining
Parties.
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4.4 Transfer of Responsibilities
4.4.1 Upon the effective date of the resignation or removal of the Outgoing
Operator, the Outgoing Operator shall hand over or deliver to, or
relinquish custody in favor of, the Non-Operator selected to succeed it
as Operator, or if no such selection has yet been made, then to the
Non-Operator having the largest Percentage Interest (or, in the event
that more than one Non-Operator shall equally hold the largest
Percentage Interest, the nominee of the Outgoing Operator among such
Non-Operators, all funds relating to the Joint Account, all Joint
Property, all Joint Petroleum and all books, records and inventories
relating to the Joint Operations other than those books, records and
inventories maintained by the Outgoing Operator in its capacity as the
owner of a Percentage Interest. The Outgoing Operator shall use its
best efforts to transfer to the aforesaid Non-Operator, effective as of
the effective date of such resignation or removal, its rights as
Operator under all contracts exclusively relating to the Joint
Operations and the aforesaid Non-Operator shall assume all obligations
of Operator thereunder (other than obligations arising or relating to
any period or time prior to such effective date). Pending such transfer
and in relation to all other contracts relating to the Joint Operations
(to the extent they so relate), the Outgoing Operator shall hold its
rights and interests as Operator from such effective date for the
account and to the order of the aforesaid Non-Operator and the Parties
shall, from such effective date, indemnify and hold harmless the
Outgoing Operator from all obligations thereunder except and to the
extent that the same devolve upon the Party which is the Outgoing
Operator in its capacity as the holder of a Percentage Interest or
arise from any default, negligence or Wilful Misconduct of the Outgoing
Operator in its capacity as Operator occurring prior to the effective
date of its resignation or removal as Operator.
4.4.2 As soon as practicable after the date on which the Outgoing Operator is
required to transfer its responsibilities as provided in Article 4.4.1,
the Parties shall audit the Joint Account and conduct an inventory of
all Joint Property and all Joint Petroleum and such inventory shall be
used in the return of and the accounting for the said Joint Property
and Joint Petroleum by the Outgoing Operator for the purposes of the
transfer of responsibilities under this Article 4. All costs and
expenses incurred in connection with such audit and inventory shall be
for the Joint Account.
15
5. AUTHORITIES AND DUTIES OF OPERATOR
5.1 Right
5.1.1 Subject to this Agreement, Operator has the right and the obligation to
conduct Joint Operations by itself, or through its agents or its
contractors, subject to the overall supervision and control of the
Operating Committee. Such right shall not be assigned without the
written consent of the Non-Operators and any necessary consent of the
Government, provided that the Non-Operators shall not withhold their
consent in the case of an assignment to an Affiliate of Operator which
has demonstrated to the satisfaction of the Non-Operators its financial
and technical capability to perform the functions of Operator hereunder
and which enters into a written instrument accepting and assuming all
of the obligations of Operator under this Agreement.
5.1.2 If Operator conducts any or all of the Joint Operations through its
agents, contractors or Affiliates, Operator shall nevertheless remain
responsible to the Parties for such operations as Operator, as and to
the extent provided in this Agreement.
5.2 Responsibility
5.2.1 Subject to the term and conditions of this Agreement and to the overall
supervision and control of the Operating Committee, the
responsibilities of Operator shall include, but not be limited to:
(i) the preparation of Programs, Budgets and AFEs pursuant to the
provisions of this Agreement,
(ii) the implementation of such Programs and Budgets as shall,
together with the relevant AFEs, have been approved by the
Operating Committee;
(iii) providing each of the Parties with reports, data and
information concerning the Joint Operations;
16
(iv) the planning for and obtaining of all requisite services and
material;
(v) the supervision, direction and control of statistical and
accounting services; and
(vi) providing all technical and advisory services required for the
efficient performance of Joint Operations.
5.2.2 Operator shall conduct the Joint Operations in a prudent and
workmanlike manner in accordance with methods and practices customarily
used in prudent oil and gas field practice and with that degree of
diligence and prudence reasonably and ordinarily exercised by
experienced operators engaged in similar activities under similar
circumstances.
5.2.3 Subject to Article 5.8 (ii) Operator shall cause to be done, with due
diligence, all such acts and things within its control as may be
necessary to keep and maintain the License in full force and effect and
shall conduct Joint Operations in compliance with the requirements of
the License, the Petroleum Law and any other applicable law.
5.2.4 Subject only to the overall limit on the number of man-days included in
an approved Program and Budget, the number of employees of Operator
employed in connection with the Joint Operations shall be determined by
Operator. Operator shall also determine their selection, hours of work
and remuneration.
5.3 Liens and Encumbrances
Operator shall, insofar as it may be within its reasonable control,
keep all Joint Property free from all liens, charges, encumbrances, and
adverse claims.
5.4 Representation of the Parties
Subject to any determination by the Operating Committee, Operator shall
represent the Parties regarding any matters or dealing with the
Government, any other governmental authorities or
17
third parties insofar as the same relate to the Joint Operations,
provided always that there is reserved to each Party unfettered right
to deal with the Government, any other governmental authorities or
third parties with respect to matters relating to its own Percentage
Interest. Operator shall, in any event, give prior notice to the
Parties of any representations which it proposes to make as Operator to
the Government or any other governmental authorities or third parties
which may reasonably be expected to have a material effect upon the
interests of the Parties hereunder or under the License. Operator shall
also give notice to all Parties of the results of any such
representations made in accordance with this Article 5.4.
5.5 Records
Operator shall prepare and maintain proper books of account, records
and inventories of the Joint Operations which shall be kept in
compliance with the Accounting Procedure attached hereto and with due
regard to the requirements of the Petroleum Law and the License.
5.6 Reports
Operator shall promptly provide each Party with the following reports:
(a) daily drilling and workover and Monthly production reports of
Joint Petroleum;
(b) such other reports as the Operating Committee may decide; and
(c) at the sole cost of the Party requesting the same, such
additional reports as such Party may reasonably request.
Operator shall also timely make all reports concerning the Joint
Operations to the appropriate governmental authorities as required
under the Petroleum Law and the License and, concurrently therewith,
furnish copies of all such reports to the Parties. Reports not of a
routine nature shall be reviewed by the Operating Committee before
submission unless the Operating Committee agree that such review is not
required.
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5.7 Consultation and Information
5.7.1 Operator shall consult freely with the Parties and keep them informed
of matters concerning the Joint Operations. Without prejudice to the
generality of the foregoing, Operator shall:
(i) inform each Party of all logging, coring, testing and, in
addition, such other information concerning the Joint
Operations as the Operating Committee may decide, with such
advance notice as is practicable in the circumstances, so that
each Party may, subject to Article 6.3, have a representative
present on location during the conduct of such operations; and
(ii) provide each Party with copies of all well logs and core
analyses and sample fluids for pre-production assay tests and
such engineering, geological, geophysical and technical data
and such further data and information relating to the Joint
Operations as the Operating Committee may decide and, at the
sole cost of the Party requesting the same, provide such Party
with such additional data and information as such Party may
reasonably request.
5.8 Emergencies
Operator is authorised to make any expenditure or incur commitments for
the expenditures or take any actions it deems necessary in the case of
emergency (but not otherwise):
(i) for the safeguarding of lives or property or the prevention of
pollution; or
(ii) in order to keep the License in good standing and/or avoid
breaches of the Petroleum Law, provided that the Operator may
not, by virtue of this paragraph (ii), spud or drill any well
or take any other action which this Agreement provides is to
be decided upon by the Operating Committee or the Parties (or
any combination of them).
19
Operator shall promptly notify all the Parties of any such
circumstances, the amount of expenditures and commitments for
expenditures so made and incurred, the actions so taken in accordance
with this Article 5.8 and the results thereof.
5.9 Disposal and Abandonment
5.9.1 Operator shall, subject to the Accounting Procedure, dispose of any
item of Joint Property which Operator determines is no longer needed or
suitable for Joint Operations provided that any such disposal shall be
with the prior written approval of the Operating Committee and subject
to such terms and conditions as would be arrived at pursuant to arms
length negotiations.
5.9.2 If the Parties decide to abandon the Joint Operations, or any part
thereof, Operator shall, subject to the Accounting Procedure, recover
and endeavour to dispose of as much of the Joint Property as the
Operating Committee determines can economically and reasonably be
recovered, or as may be required to be recovered under the License, the
Petroleum Law or any other applicable law, and the net costs or net
proceeds therefrom shall be charged or credited to the Joint Account.
5.10 Contractors
5.10.1 In the case of any proposed contract for the Joint Operations (other
than the Tosun Drilling Contract, as defined in the Farmin and
Participation Agreement, or any other contract to the extent it relates
to workover operations), Operator shall, unless otherwise decided by
Parties having in the aggregate between them Percentage Interests
exceeding seventy percent (70%) and except in the circumstances
referred to in Article 5.8 and in respect of contracts of insurance
placed pursuant to the provisions of Article 7.1.1, comply with the
following provisions:
(i) In respect of each such contract subject to an exploration,
appraisal, production or development Program and Budget and
involving an expenditure likely to exceed $100,000, Operator
shall (jointly with AVENUE, in the event the Operator or its
20
Affiliate intends to bid for the relevant contract and AVENUE
notifies the Operator that it desires to join with the
Operator in relation to the matters set out below):
(a) obtain competitive sealed bid tenders and consult
fully with the Non-Operators over the tendering
process and the preparation of a list of the persons
to be invited to tender (including any
sub-contractors), such consultations to take place on
a timely enough basis to allow the Non-Operators to
make recommendations as to amendments to the list;
(b) after the expiration of the period allowed for
tender, and the bids have been opened, supply to the
Non-Operators a summary of all bids received and any
rebids, amendments to bids and subsequent
negotiations. Operator shall notify its
recommendation to the Non-Operators and any
Non-Operator may within ten (10) Working Days after
receipt of such notification (or, in exceptional
circumstances where the matter requires approval in
less than ten (10) Working Days, such shorter period,
being not less than 48 hours, as Operator may specify
in such notification) request a meeting of the
Operating Committee to approve Operator's
recommendation. If no such request is made within
such ten (10) Working Day period (or such shorter
period as aforesaid) Operator may forthwith proceed
to implement its recommendation;
(c) apply the above provisions to any revision to a
contract where such revision will either alone or
cumulatively exceed $100,000;
(d) at the specific written request of a Non-Operator,
supply such Non-Operator with a conformed copy of any
contract entered into in accordance with the
procedure in this Article 5.10.1.
(ii) In respect of each such contract subject to an exploration,
appraisal, production or development Program and Budget and
involving an expenditure which is not likely to exceed
$100,000, Operator shall be free to negotiate and award the
contract without
21
competitive bidding if within an approved AFE (where such AFE
is required) or if covered by an approved Budget for
production operating costs, provided that no such contract
shall be placed with a Party or an Affiliate of a Party
without the prior approval of the Operating Committee.
The Operating Committee may from time to time direct that amounts
smaller or greater than those set out in paragraphs (i) and (ii) of
this Articles 5.10.1 shall thenceforth apply.
5.10.2 In the case of any proposed contract for the Joint Operations, Operator
shall, unless otherwise agreed by the Operating Committee, use its
reasonable endeavours to ensure that:
(i) any such contract can be freely assigned to any Non-Operator
in the event of any change of Operator;
(ii) in all contracts with contractors, Operator will be entitled
to recover on behalf of all the Parties the full amount of:
(a) any loss, damage, injury or expense suffered or
incurred by them as a result of any tort or breach of
such contract on the part of the contractor concerned
or any sub-contractor of that contractor; or
(b) any right of indemnity contained therein;
subject to the defenses, limitations, indemnities or
exclusions of liability in favour of the said contractor in
such contracts or available to the said contractor in
connection with such contract; and
(iii) in all contracts with contractors, such contractors shall
agree to make or bring all actions, claims or demands of
whatsoever nature arising out of or in connection with such
contracts on or against Operator and, without prejudice to any
right which Operator may
22
have to join any Non-Operator as party to any such action,
such contractors shall agree that no such action, claim or
demand is made or brought against any Non-Operator.
5.10.3 Operator or any of its Affiliates or any of the Parties or any of their
Affiliates may supply material, services and facilities for Joint
Operations and such supply shall not be subject to the terms of
Articles 5.10.1 and 5.10.2 provided that one of the following
conditions for such supply has been met:
(i) the terms, conditions and rates of such supply have been
approved by the Operating Committee; or
(ii) such supply is in respect of a contract placed in the
circumstances referred to in Article 5.8.
Reports not of a routine nature shall be reviewed by the Operating
Committee before submission unless the Operating Committee agree that
such review is not required.
5.11.3 Abandonment Agreement
Without prejudice to Article 5.11.2, not less than three years prior to
the expected date for abandonment of any production or other
substantial facilities, the Parties shall agree to the terms of an
abandonment agreement which shall comply with any relevant provisions
of the Petroleum Law and any regulations issued pursuant thereto and
ensures that appropriate provision will be made for the cost of
abandonment of those facilities and any related liabilities. Unless
otherwise agreed abandonment liabilities shall be shared by the Parties
(including the holder of the Carried Interest) in proportion to
Percentage Interests. In the event of a Party defaulting under the
abandonment agreement, then the Party in question shall be in default
under this Agreement and deemed to be a Defaulting Party under Article
15 hereof.
6. RIGHTS OF THE PARTIES
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6.1 Reservation of Rights
Except as otherwise provided in this Agreement, each Party reserves all
its rights under the License.
6.2 Inspection Rights
Each Party shall have the right to inspect, at all reasonable times
during usual business hours, all books, records and inventories of any
kind or nature maintained by or on behalf of Operator and relating to
the Joint Operations (other than those books, records and inventories
maintained by the Party acting as Operator in its capacity as the owner
of a Percentage Interest), provided that such Party gives Operator
reasonable prior notice of the date upon which it desires to make such
inspection and identifies the person or persons who will conduct the
inspection.
6.3 Access rights
Each Non-Operator shall have the right, at all reasonable times and at
its sole risk and expense, of access to the License Area and/or the
Joint Operations, provided such Non-Operator gives Operator reasonable
notice of the date such access is required and identifies the
representative or representatives to whom such access is to be granted.
7. INSURANCE AND LITIGATION
7.1 Insurance
7.1.1 (i) Operator shall obtain and maintain, with respect to the
Joint Operations and the Joint Property, all insurance
required under the Petroleum Law, the License or any other
applicable law. Without limitation to the foregoing, AME shall
obtain and maintain:
(a) workers' compensation insurance with limits of
US$75,000 for the death or injury to any one person
and US$225,000 for each accident;
24
(b) all risk insurance (including in relation to property
and equipment damage, pollution, contamination and
other environmental risks) with a limit of
US$1,500,000 per occurrence; and
(c) third party/public liability insurance with a limit
of US$150,000 per occurrence,
in each case with a reputable and creditworthy insurer and on
terms that are commercially reasonable and customary for such
risks in the same or similar circumstances.
(ii) Operator shall also obtain such other insurance as the
Operating Committee may from time to time determine or the
Parties may from time to time agree (including in the Farmin
and Participation Agreement. With respect to such other
insurance, any Party may elect not to participate, if such
Party:
(a) gives written notice to that effect to Operator; and
(b) does nothing which may interfere with Operator's
negotiations for such insurance for the other
Parties; and
(c) obtains and maintains its own insurance with respect
to its Percentage Interest share of all the risks
covered by such other insurance. Such Party shall
provide Operator with evidence of such other
insurance (in respect of which a certificate of
adequate coverage from a reputable insurance broker
shall be sufficient evidence) or other evidence of
financial responsibility as the other Parties may
determine to be acceptable (provided however, that no
such determination of acceptability shall in any way
absolve a non-participating Party from its obligation
to meet each Cash Call, including any Cash Call in
respect to damages and losses and/or the costs of
remedying the same in accordance with the terms of
this Agreement; and provided further that if such
Party obtains other insurance, such insurance shall
contain a waiver of subrogation in favour of all the
other Parties in respect of their interests
hereunder).
(iii) The cost of insurance in which all the Parties are
participating shall be for the Joint Account and the cost of
insurance in which less than all the Parties are participating
shall be charged to the Parties so participating in proportion
to their respective Percentage
25
Interests. Operator shall, with respect to all insurance
obtained by it pursuant to this Article 7.1.1:
(a) inform the Parties at least ten (10) Working Days
before the inception or renewal dates of the
applicable insurance contract or contracts of the
salient terms and conditions (including premia)
quoted by the insurers to Operator;
(b) promptly inform the Parties participating therein
when such insurance is taken out and supply them with
copies of the relevant policies when the same are
issued;
(c) arrange for the Parties participating therein,
according to their respective Percentage Interests,
to be named as co-insureds on the relevant policies
with waivers of subrogation in favour of the Parties;
and
(d) duly file and notify the Parties of all claims and
take all necessary and proper steps to collect any
proceeds and, if all the Parties are participating
therein, credit them to the Joint Account, or, if
less than all the Parties are participating therein,
credit them to the participating Parties in
proportion to their respective Percentage Interests.
Subject to the foregoing, any of the Parties may obtain such insurance
as it deems advisable for its own account and at its own expense,
provided that each such policy contains a waiver of subrogation in
favour of the other Parties.
7.1.2 Each of the Parties shall, in addition to any insurance required under
Article 7.1.1, obtain and maintain, with respect to its Percentage
Interest share of any liability to third parties which may arise in
connection with the Joint Operations, such insurance, or demonstrate
such other evidence of its financial responsibility, as may from time
to time be determined by the Operating Committee. Each of the Parties
shall, as and when required by any other Party, produce to the
Operating Committee such evidence as it may reasonably require to
establish that such insurance or other evidence of financial
responsibility is being maintained. Such insurance shall in so far as
it relates to Joint Operations contain a waiver of subrogation by the
insurers in favour of the Parties.
7.1.3 Operator shall take all reasonable steps to ensure that all contractors
(including subcontractors) performing work in respect to the Joint
Operations obtain and maintain all insurance required under the
License, the Petroleum Law, any other applicable law and such other
insurance as
26
Operator or the Operating Committee deems appropriate. Operator shall,
with respect to all insurance obtained by such contractors
(sub-contractors), take all reasonable steps to arrange for such
contractors (including sub-contractors) to obtain from their insurers a
waiver of subrogation in favour of the Parties in respect of their
interests hereunder.
7.1.4 Operator shall promptly notify the Parties of any accident or incident
causing damage to Joint Property or arising out of the conduct of the
Joint Operations which could in its opinion reasonably be expected to
give rise to a claim for damages by a third party for a sum in excess
of One Hundred Thousand Dollars ($100,000). Operator shall provide the
Parties' insurers all reasonable assistance in connection with their
investigation of all claims.
7.2 Litigation
7.2.1 Operator shall promptly notify the Parties of any litigation, lien,
demand, adverse claim or judgement relating to the Joint Operations or
Joint Property where the total amount of damages together with
associated costs are estimated to exceed of One Hundred Thousand
Dollars ($100,000) or such other amount as may, from time to time, be
determined by the Operating Committee. Operator shall have the
authority to prosecute, defend or settle any litigation, lien, demand,
adverse claim or judgement relating to the Joint Operations or Joint
Property (other than as between the Parties), except where the total
amount in dispute and/or the total amount of damages together with
associated costs are estimated by Operator to exceed of One Hundred
Thousand Dollars ($100,000), or such other amount as may from time to
time be determined by the Operating Committee, in which event Operator
shall have no authority without the prior approval of the Operating
Committee, other than the authority necessary to enable Operator to
prevent judgement being awarded against it in default of appearance or
defence.
7.2.2 Notwithstanding Article 7.2.1, each Party shall have the right to
participate in any such prosecution, defence or settlement at its own
cost and expense provided always that no Party may settle its
Percentage Interest share of any claim without first satisfying the
Operating Committee that it can do so without prejudicing the interests
of the Joint Operations.
27
7.2.3 Subject to Article 7.2.1, any claim, litigation, demand, adverse claim,
judgement or other proceedings relating to Joint Operations or Joint
Property made against any Party to this Agreement shall be promptly
transmitted to all the other Parties by the Party against whom the same
may be made, and the Party to the proceedings shall thereafter
regularly consult with the other Parties and take account of their
reasonable views with regard to the proper conduct of the same.
7.2.4 Provided that a Party complies in all respects with the provisions of
Article 7.2.3 and except as otherwise provided in this Agreement, that
Party shall be entitled to charge to the relevant Joint Account any
loss, damage and expense reasonably and properly incurred by such Party
with respect to the proceedings in question.
8. THE OPERATING COMMITTEE
8.1 Establishment and Powers
There is hereby established an Operating Committee which shall exercise
general supervision and control over all matters pertaining to the
Joint Operations. Without limiting the generality of the foregoing, but
subject as otherwise provided in this Agreement, the powers and duties
of the Operating Committee shall include:
(i) the consideration and determination of all matters relating to
general policies, procedures and methods of operation
hereunder;
(ii) subject to Article 18 the approval of any public announcement
or statement regarding this Agreement or the Joint Operations;
(iii) the consideration, revision and approval or disapproval of all
proposed Programs and Budgets and AFE's prepared and submitted
to it pursuant to the provisions of this Agreement;
(iv) the determination of the timing and location of all xxxxx
drilled under the Joint
28
Operations (including the deepening, completing, sidetracking,
plugging back, reworking or abandonment thereof) and any
change in the use or status of a well;
(v) the consideration and determination of extensions or renewals
of the License and the area required to be surrendered in
accordance with the Petroleum Law or the License including the
voluntary surrender of the License or any part thereof;
(vi) removal of Operator in accordance with Article 4.2.2 hereof
and the election of a successor Operator;
(vii) the consideration and determination of contributions to and
from third parties for the drilling of xxxxx and the purchase,
sale or exchange of information from, to or with third
parties;
(viii) the determination of any field to be included in a development
Program for a Discovery and the making of any related
application for the issue of a petroleum lease to be issued
under the Petroleum Law in respect of the License Area (or any
part of it);
(ix) the consideration and, if so required, the determination of
any other matter relating to the Joint Operations which may be
referred to it by the Parties or any of them (other than any
proposal to amend this Agreement) or which is otherwise
designated under this Agreement for reference to it.
8.2 Representation
The Operating Committee shall consist of representatives appointed by
each of the Parties, provided always that more than one of the Parties
may appoint the same representative who shall represent them
separately. Each Party shall, as soon as possible after the date of
this Agreement, give notice to all the other Parties of the name of its
representative and of an alternate on the Operating Committee. Such
representative or alternate representative may be replaced from time to
time, by like notice. Representatives may bring to meetings of the
Operating Committee such
29
advisers as they consider necessary. The representative of a Party or,
in the absence of the representative, his alternate, shall be deemed
authorised to represent and bind such Party with respect to any matter
which is within the powers of the Operating Committee.
All decisions of the Operating Committee shall be adopted by a vote of
the representatives of the Parties in which the vote of each
representative shall be weighted by the Percentage Interest in the
License of the Party or Parties he represents. By way of example, the
vote of a representative of a Party with a 10% interest in then License
shall be worth 10% of the total votes of representatives of all the
Parties.
8.3 Chairman
The representative of the Party which is Operator shall be the chairman
of the Operating Committee unless otherwise agreed by the Operating
Committee.
8.4 Meetings and Voting
8.4.1 The Operating Committee shall hold meetings every Quarter (or at such
other regular intervals as may be agreed by the Operating Committee).
All meetings of the Operating Committee shall be held at AME's offices
in Ankara or in such other places as the Parties may from time to time
agree. Alternatively, meetings may be conducted by telephone conference
call. Operator shall call such meetings and shall give at least fifteen
(15) days notice of the time, date and place of each meeting, together
with an agenda and a proposed resolution therefor. However, Operator
shall use its reasonable best efforts to give at least thirty (30)
days' notice for meetings which deal with operations and/or xxxxx
drilled under the Joint Operations. When calling a meeting, Operator
shall as soon as is reasonably practicable thereafter, supply the
Parties with copies of relevant data and information available to it
relating to the matters on the agenda for such meeting. By notice to
Operator, any Party can request that additional matters be placed on
the agenda, and provided such notice is given at least seven (7) days
before the date of the meeting, those matters will be placed on the
agenda and considered by the Operating Committee. The representatives
of all Parties may agree to consider a matter not on the agenda for
such meeting.
30
8.4.2 The Operating Committee shall hold a special meeting upon the request
of any Party. Such request shall be made by written notice to all the
other Parties and shall state the matters to be considered at that
meeting. Upon receiving such request, Operator shall, without delay,
call a special meeting for a date not less than seven (7) nor more than
ten (10) days after receipt of the request, or such other date as may
be agreed by all the Parties.
8.4.3 For any meeting of the Operating Committee, the notice period set forth
above may be waived with the consent of all the Parties.
8.4.4 Any Party not represented at a meeting may vote on any matter on the
agenda for such meeting by either:
(i) appointing a proxy in writing; or
(ii) giving written notice of such vote to Operator prior to the
submission of such matter for vote at such meeting.
8.4.5 Except as otherwise expressly provided in this Agreement, all
decisions, approvals and other actions of the Operating Committee on
all proposals coming before it under this Agreement shall be decided by
the affirmative vote of Parties owing in the aggregate Percentage
Interests equating to more than seventy percent (70%) of the aggregate
Percentage Interests of all Parties entitled to vote. An abstention or
refrain from voting shall be considered a negative vote, except as
otherwise specifically provided in this Agreement in cases where
failure to reply is deemed approval or an affirmative vote. Each Party
is entitled to vote in proportion to the respective Percentage Interest
held by it at the time the vote is taken.
8.5 Minutes
8.5.1 For each meeting, the Operating Committee (failing which Operator)
shall appoint a secretary for the Operating Committee who shall prepare
the minutes of each meeting.
31
8.5.2 The secretary shall make a record of each proposal voted on and the
results of such voting at each Operating Committee meeting. Each
representative shall sign and be provided a copy of such record at the
end of the meeting and it shall be considered the final record of the
decisions of the Operating Committee.
8.5.3 The secretary shall provide each Party with a copy of the "minutes" of
the Operating Committee meeting within fifteen (15) days after the end
of the meeting. Each Party shall have fifteen (15) days after receipt
of such "minutes" to give notice of its objections to the "minutes" to
the secretary. A failure to give notice specifying objections to such
"minutes" within the said fifteen (15) days period shall be deemed to
be approval of such "minutes". In any event, the votes recorded under
Article 8.5.2 shall take precedence over the "minutes" described above.
8.6 Action Without A Meeting
8.6.1 The Parties may vote on and determine, by notice to Operator, any
proposal which is submitted to them by Operator by notice and which
they could validly determine at a meeting of the Operating Committee if
duly held for that purpose. Each Party shall cast its vote within
fourteen (14) days after the proposal is received by it, except that
where the Parties are requested to vote on and determine any proposal
relating to the deepening, plugging back, testing or abandonment of a
well on which drilling equipment is then located or where the matter
presented for consideration by its nature requires determination in
less than fourteen (14) days and such fact and lesser period are so
stated in the notice submitting the proposal, the Parties shall cast
their votes within such lesser period which shall be not less than
twenty-four (24) hours after receipt of the notice. Failure by a Party
to cast its vote within such period shall be regarded as a vote by that
Party against the proposal.
8.6.2 Operator shall give prompt notice of the results of any such voting to
the Parties and any decision so made shall constitute an effective
decision of the Operating Committee and shall be binding on the
parties.
32
8.7 License Provisions
The Operating Committee shall determine the location and the time at
which all working obligations required by the Licenses or the Petroleum
Law shall be performed, unless and to the extent relief from such
obligation is sought and obtained from the Government.
9. EXPLORATION PROGRAM AND BUDGETS
9.1 Initial Program and Budget
9.1.1 The initial exploration Program shall be the program of work to be
undertaken by AME as drilling contractor under the terms of the Turnkey
Contract dated on or about 14 November 2002 between AME, in its
capacity as Drilling Contractor, and Operator, on behalf of the Parties
(the "TURNKEY CONTRACT").
9.1.2 The Budget for the initial exploration Program shall be the
expenditures provided for in clause 4.1 of the Turnkey Contract.
9.1.3 In relation to the Turnkey Contract:
(i) Operator shall not, without the prior approval of the
Operating Committee, authorise or permit the commencement of
work under the Turnkey Contract other than work to be
performed on a turnkey basis as provided in clause 4.1 of the
Turnkey Contract;
(ii) as between the Parties, AVENUE's contribution to the amounts
payable under the Turnkey Contract shall be limited to the
sums paid or payable under clause 3.2(a) and, if applicable,
3.2(b) and 3.3 of the Farmin and Participation Agreement; and
(iii) provided AVENUE makes the payments referred to in
sub-paragraph (ii) above when due in accordance with the
Farmin and Participation Agreement, Operator shall not direct
a stoppage of work as contemplated by clause 6.1 of the
Turnkey Contract, and
33
shall defend, indemnify and hold harmless AVENUE from and
against any and all liabilities arising and amounts payable
under clause 6.3 of the Turnkey Contract.
9.1.4 Article 9.3 shall not apply to commitments for expenditures falling
within clause 4.1 of the Turnkey Contract.
9.2 Annual Program and Budget
9.2.1 Not later than the 1st of September in 2003 and each Year thereafter,
Operator shall submit to the Parties a proposed exploration Program and
Budget for the next Year showing:
(i) the projects and other work to be undertaken;
(ii) the information required under the Accounting Procedure;
(iii) details of the estimated number of man-days for direct labour
for employees and contract personnel required; and
(iv) such other information as the Operating Committee, or any
Party or Parties having Percentage Interests of not less than
35% in the aggregate, may require Operator to provide.
9.2.2 The proposed exploration Program and Budget shall be subject to
consideration, revision and approval by the Operating Committee. The
Operating Committee shall consider such Program and Budget and make
such revisions thereto as may be agreed as soon as practicable but in
no event later than 1st of November. Not later than 1st of November,
the Operating Committee shall approve an exploration Program and Budget
and such approval shall, subject to Articles 9.3 and 9.4, authorise and
obligate Operator to carry out and implement the Program and Budget.
9.3 Authorisation for Expenditure
Before entering into any commitment incurring any expenditure under an
approved exploration Program and Budget, Operator shall, except as
provided in Articles 5.8 and 9.1.4, submit an AFE to the Parties for
the program. The AFE shall include the information set out in, and be
prepared
34
in accordance with the provisions of, the Accounting Procedure.
Provided that the AFE is within the limits of and is in accordance with
the Budget, the Operating Committee shall be deemed to have approved
the AFE unless, within twenty (20) days of its submission to the
Parties, a Party or Parties having individually or in aggregate a
Percentage Interest of at least thirty percent (30%) give(s) notice to
Operator that they require such AFE to be formally approved by the
Operating Committee. To the extent that the Operating Committee
approves or is deemed to approve an AFE, Operator shall be authorised
and obligated, in accordance with the provisions of the Accounting
Procedure, but subject to Article 9.4, to implement and carry out such
commitment or expenditure.
9.4 Amendment
At any time, any Party may, by notice to all the other Parties, propose
that an approved exploration Program and Budget and/or an approved AFE
be amended. To the extent that an amendment is approved by the
Operating Committee, the approved Program and Budget and/or AFE shall
be deemed amended accordingly, provided always that any such amendment
shall not invalidate any authorised commitment or expenditure made by
Operator prior thereto, and promptly following such amendment Operator
shall provide each Party with a copy of the amended AFE and/or Program
and Budget, as the case may be.
10. APPRAISAL PROGRAMS AND BUDGETS
10.1 Joint Program and Budget
10.1.1 In the event of a Discovery, Operator shall, if the Operating Committee
so decides and as soon as practicable thereafter, submit to the Parties
a proposed appraisal Program and Budget for such Discovery showing:
(i) the xxxxx to be drilled and other projects and work to be
undertaken;
(ii) the information required under the provisions of the
Accounting Procedures;
35
(iii) details of the estimated number of man-days for direct labour
for employees and contract personnel required, and
(iv) such other information as the Operating Committee may require
Operator to provide.
10.1.2 The proposed appraisal Program and Budget shall be subject to
consideration, revision, and approval by the Operating Committee. The
Operating Committee shall, as soon as practicable, consider such
appraisal Program and Budget and make such revisions thereto as may be
agreed. If the Operating Committee approves and appraisal program and
Budget, such approval shall, subject to Articles 10.2 and 10.3,
authorise and obligate Operator to carry out and implement the
appraisal Program.
10.2 Authorisation for Expenditure
Before entering into any commitment incurring any expenditure under an
approved appraisal Program and Budget, Operator shall, except as
provided in Article 5.8, submit an AFE to the Parties for the Program.
The AFE shall include the information set out in, and be prepared in
accordance with the provisions of the Accounting Procedure. Provided
that the AFE is within the limits of and is in accordance with the
Budget, the Operating Committee shall be deemed to have approved the
AFE unless, within twenty (20) days of its submission to the Parties, a
Party or Parties having individually or in the aggregate a Percentage
Interest of at least thirty percent (30%) give(s) notice to Operator
that they require such AFE to be formally approved by the Operating
Committee. To the extent that the Operating Committee approves or is
deemed to approve an AFE, Operator shall be authorised and obligated,
in accordance with the provisions of the Accounting Procedure, but
subject to Article 10.3, to proceed with such commitment or
expenditure.
10.3 Review and Amendment
10.3.1 Operator shall, as and when required by the Operating Committee, review
the approved appraisal Program and Budget and submit to the other
Parties a report thereon.
36
10.3.2 At any time any Party may, by notice to the other Parties, propose that
an approved appraisal Program and Budget and/or an approved AFE be
amended. The Operating Committee shall consider such proposal and, if
the Operating Committee so require, Operator shall prepare and submit
to the Parties a revised appraisal Program and Budget incorporating any
such amendment and showing the matters listed under Article 10.1.1 and
the information required under the provisions of the Accounting
Procedure. To the extent that any such amendment or revised appraisal
Program and Budget is approved by the Operating Committee, the approved
appraisal Program and Budget and/or AFE shall be deemed amended
accordingly, provided always that any such amendment shall not
invalidate any authorised commitment or expenditure made by Operator
prior thereto. Promptly following such amendment, Operator shall
provide each Party with a copy of the amended AFE and/or Program and
Budget, as the case may be.
11. DEVELOPMENT PROGRAMS AND BUDGETS
11.1 Joint Program and Budget
11.1.1 Operator shall, if the Operating Committee so decides and as soon as
practicable after such decision, submit to the Parties a proposed
development Program and Budget for any Discovery and/or Development
and/or work-over program, showing:
(i) the projects and other work to be undertaken;
(ii) the information required under the Accounting Procedure;
(iii) the manner in which the development is to be managed with
details of the estimated number of man-days for direct labour
for employees and contract personnel required;
(iv) an estimate of the date of commencement production and of the
annual rates production; and
(v) such other information as the Operating Committee may require
Operator to provide.
37
11.1.2 The proposed development Program and Budget shall be subject to
consideration, revision and approval by the Operating Committee. The
Operating Committee shall meet to consider such development Program and
Budget as soon as practicable and to make such revisions thereto as may
be agreed. Unless the Operating Committee otherwise agrees, the
Operating Committee shall approve or reject the development Program and
Budget as soon as possible but in any event within ninety (90) days of
its submission by Operator to the Parties provided that, within the
said period of ninety (90) days (or such other period as the Operating
Committee may have agreed) any Party wishing to carry out further work
or studies in connection with the development of the Discovery may, by
notice to the other Parties, require that the said period be extended
up to a maximum total period of:
(i) in the case of the carrying out of further appraisal drilling
of the Discovery, one hundred and eighty (180) days; and
(ii) in all other cases, one hundred and twenty (120) days;
and in such event the said period shall be so extended. A Party
proposing to carry out further appraisal drilling of the Discovery
shall in its said notice to the other Parties inform them of its
intention and:
(a) Operator shall carry out such drilling at the risk, cost and
expense of such Party and the provisions of Articles 13.2.4,
13.3.5, 13.3.6 (other than the first sentence) and 13.2.10
shall apply as if such Party was a Sole Risk Party and such
drilling was Sole Risk Drilling under that Article;
(b) such Party shall not be entitled to any reimbursement from the
other Parties of the costs and expenses thereof, unless as a
result of such drilling none of the Parties proceeds with
development of the Discovery substantially on the basis of the
proposed development Program and Budget, in which event each
of the other Parties shall pay to such Party, within
twenty-eight (28) days of the decision not to proceed with the
38
development, an amount equal to the amount it would have
contributed to the Joint Account had such drilling been
carried out as part of the Joint Operations; such amount shall
be paid in cash in the currency or currencies in which the
contributions for such costs and expenses would have been made
to the Joint Account; and
(c) all data and information obtained from such drilling shall
promptly be made available to and be owned jointly by all the
Parties.
11.1.3 (a) If a development Program and Budget is approved by the
Operating Committee, each of the Parties shall decide within
ninety (90) days of such approval, or such longer period as
the Operating Committee may agree, whether to participate in
respect of its Percentage Interest share in the development of
the Discovery and shall inform the other Parties of its
decision by notice to them. If all the Parties decide to
participate in the development of the Discovery Operator shall
prepare from the said development Program and Budget and on
behalf of the Parties a petroleum lease application for
submission to the Government in accordance with the License
and the Petroleum Law. Any such application shall require the
approval of the Operating Committee prior to its submission as
aforesaid.
(b) If fewer than all the Parties participate in the development
of the Discovery the provisions of Articles 13.5.6 to 13.5.9
inclusive, shall apply:
11.1.4 This Article 11.1.4 shall apply if, in connection with or as a
condition to the grant or coming into effect of any Government approval
required for a development Program (whether by way of the grant of a
petroleum lease under the Petroleum Law or in another form), the
Program and Budget approved by the Operating Committee under Article
11.1.2 and submitted to the Government for approval has been or is
required to be amended. (For the avoidance of doubt "amended" in the
previous sentence includes any change in the date of commencement of
the development or in the proposed depths, or in the objective horizon,
or in the number of xxxxx required under the lease.) In such
circumstances any of the Parties may by notice to the other Parties
given within twenty-eight (28) days following the said authorisation,
elect not to
39
proceed with the development. If no Party is entitled to give such
notice, or being entitled, no Party gives such notice, the approved
development Program and Budget (with any amendments as aforesaid) shall
be adopted for the development, the Parties shall be obliged to
participate in carrying it out and Operator shall, subject to Articles
11.2 and 11.3, be authorised and obliged to proceed in accordance with
it.
11.2 Authorisation for Expenditure
Except as provided in Article 5.8, Operator shall submit an AFE to the
Parties, before entering into any capital commitment or incurring any
Capital Expenditure in excess of $100,000 with respect to an approved
development Program and Budget. To the extent that the AFE is approved
or deemed to be approved by the Parties, Operator shall be authorised
and obligated, subject to Article 11.3, to proceed with such commitment
or expenditure. In cases where no AFE is required the approval of the
development Program and Budget shall constitute the necessary authority
to Operator to proceed with such commitment or expenditure.
11.3 Review and Amendment
11.3.1 Operator shall, in each Year, review the approved development Program
and budget and submit to the Parties not later than 1st of September a
report thereon, together with an update of such development Program and
Budget dealing separately with the next Year and the remaining phases
of the approved development program and showing the matters listed
under Article 11.1.1.
11.3.2 At any time, any Party may, by notice to all the other Parties, propose
that an approved development Program and Budget and/or an approved AFE
be amended. The Operating Committee shall consider such proposal and,
if the Operating Committee so requires, Operator shall prepare and
submit to the Parties a revised development Program and Budget
incorporating any such amendment and showing the matters listed under
Article 11.1.1. To the extent that any such amendment or revised
development Program and Budget is approved or in the case of an AFE
deemed to be approved by the Operating Committee, the approved
development Program
40
and Budget and/or AFE shall, subject to obtaining any necessary consent
of the Government, be deemed amended accordingly provided always that
any such amendment shall not invalidate any authorised commitment or
expenditure made by Operator prior thereto. Where any development
Program and Budget and/or AFE is amended Operator will supply the
Parties with a copy of the revised Program and Budget and/or AFE.
12. PRODUCTION PROGRAMS AND BUDGETS
12.1 Annual Program and Budget
12.1.1 Operator shall not later than 1st September in the Year prior to the
commencement of production and in each subsequent Year, submit to the
Parties a proposed production Program and Budget for the next Year
showing:
(i) the projects and other work to be undertaken;
(ii) the information necessary to satisfy the Accounting Procedure;
(iii) an estimate of the date of commencement of production (if
appropriate) and of the total production by Quarters and the
maximum daily rate to be achieved in each Quarter;
(iv) for the four (4) Years following the "next Year" referred to
above Operator's best estimate of the matters referred to in
(i) and (iii) above; and
(v) such other information as the Operating Committee may have
required Operator to provide.
12.1.2 The proposed production Program and Budget shall be subject to
consideration, revision and approval by the Operating Committee
provided that decisions of the Operating Committee in respect of any
change to the production profile shall always be made in consideration
of conditions imposed by, inter alia, the maximum economic rate of
production consistent with good oilfield and reservoir engineering
practices, the capacity of any field, pipeline and terminal facilities
available for use, the number of xxxxx drilled or to be drilled, the
development Program approved by the Government and any regulatory
control imposed by the Government. The Operating Committee shall
consider such production Program and Budget and make such revisions
thereto as may be agreed as soon as practicable but in any event not
41
later than 1st December. Such approval shall, subject to Articles 12.2
and 12.3 authorise and oblige Operator to carry out and implement the
development Program.
12.2 Authorisation for Expenditure
12.2.1 Except as otherwise provided herein, Operator shall, before entering
into any capital commitment or incurring any Capital Expenditure in
excess of one hundred thousand dollars ($100,000) under an approved
production Program and Budget, submit to the Parties an AFE therefor.
To the extent that the AFE is approved by the Parties, Operator shall
be authorised and obliged, subject to Article 12.3, to proceed with
such commitment or expenditure. In cases where no AFE is required the
approval of the production Program and Budget shall constitute the
necessary authority to Operator to proceed with such commitment or
expenditure.
12.2.2 Operator shall not be obliged to submit an AFE to the Parties before
making commitments or incurring expenditure in connection with the
workover of a well where such workover is pursuant to an approved
Production Budget.
12.3 Amendment
At any time any Party may, by notice to all the other Parties, propose
that a production Program and Budget approved in accordance with
Article 12.1.2 and/or an approved AFE be amended. To the extent that an
amendment is approved or in the case of an AFE deemed to be approved by
the Operating Committee, the approved production Program and Budget
and/or AFE shall be deemed amended accordingly provided that any such
amendment shall not invalidate any authorised commitment or expenditure
made by Operator prior thereto.
13. SOLE RISK PROJECTS
13.1 Preliminary
42
Any Party may undertake sole risk drilling ("SOLE RISK DRILLING") or
sole risk development ("SOLE RISK DEVELOPMENT") (either being a "SOLE
RISK PROJECT") subject to the following provisions of this Article.
Save as provided in this Article, no operations under the License may
be conducted other than by Joint Operations.
13.2 General Provisions
13.2.1 No Sole Risk Project may be carried out if it is substantially similar
to, or conflicts with, all or part of any Program approved by the
Operating Committee and currently in effect at the commencement of the
Sole Risk Project.
13.2.2 The following types, and only the following types, of Sole Risk Project
may be proposed:
(i) subject to Article 13.3, Sole Risk Drilling consisting of:
(a) the drilling of an Exploration Well or the testing,
deepening or side-tracking of a suspended well,
neither of such xxxxx being inside the closure of any
geological structure or stratigraphic trap in which a
Discovery has been made; or
(b) the drilling of an Exploration Well or the testing,
deepening or side-tracking of a suspended well,
inside the closure of any geological structure or
stratigraphic trap on which a well has been drilled
in which a Discovery has been made and which well is
drilled, deepened or sidetracked to a different
stratigraphic level from that in which such Discovery
was made and which is not completed in the horizon in
which such Discovery was made, provided always that
the approval of the Operating Committee shall be
required before any such testing, deepening or
side-tracking is carried out; or
(c) the deepening, sidetracking or testing of an
Exploration or Appraisal Well which is in the course
of being drilled as part of the Joint Operations and
which does not form part of a development Program,
provided always that, unless the Operating Committee
otherwise agrees, any test programs agreed by the
Operating Committee must have been carried out, the
Parties informed of the results and a decision of the
Operating Committee taken to abandon the well before
any such deepening, sidetracking or testing is
carried out; or
(d) the drilling of an Appraisal Well inside, or the
carrying out of geophysical work with respect to, the
closure of any geological structure or stratigraphic
trap in which a Discovery has been made; and
43
(ii) Sole Risk Development consisting of the development of a
Discovery.
13.2.3 Any Sole Risk Project shall be carried out at the sole risk, cost and
expense of the Party or Parties electing to join such project as
hereinafter provided ("SOLE RISK PARTY OR PARTIES"). If a Sole Risk
Project is undertaken by more than one Sole Risk Party, the risk and
cost thereof shall be borne each Sole Risk Party in the proportion that
its Percentage Interest bears to the sum of the Percentage Interests of
the Sole Risk Parties or in such other proportions as the Sole Risk
Parties may agree.
13.2.4 A Sole Risk Party shall exercise all necessary precautions to ensure
that a Sole Risk Project does not jeopardise, hinder or unreasonably
interfere with the Joint Operations. Sole Risk Development shall have
priority over Joint Operations commenced subsequent to the
authorisation of such Sole Risk Development by the Government.
13.2.5 A Sole Risk Party shall indemnify and hold harmless the other Parties
("NON-SOLE RISK PARTIES") from and against all actions, claims, demands
and proceedings whatsoever, brought by any third party (including
without limitation any employee of the Sole Risk party) arising out of
or in connection with the Sole Risk Project, shall keep the License
free from all liens, charges, encumbrances and adverse claims which
might arise by reason of the conduct of the Sole Risk Project and shall
indemnify the Non-Sole Risk Parties against all damages, costs, losses
and expenses whatsoever directly or indirectly caused to or incurred by
them as a result of anything done or omitted to be done in the course
of carrying out such Sole Risk Project, excepting only damage inflicted
to the sub-surface including any reservoir. The approval of a Non-Sole
Risk Party to the conduct of a Sole Risk Project (whether or not such
approval is required) shall not constitute a waiver of these
provisions.
13.2.6 a Sole Risk Party carrying out Sole Risk Drilling shall be entitled to
use Joint Property for such Sole Drilling unless the Operating
Committee otherwise decides.
13.2.7 A sole Risk Party shall be entitled to use for a Sole Risk Project any
data and information which it owns jointly with the Non-Sole Risk
Parties. Data and information obtained in respect of the
44
Sole Risk Drilling shall be made available to all Parties but shall
remain the property of the Sole Risk Party, until and in the event that
the Non-Sole Risk Party discharges in full its liability to the Sole
Risk Party under Article 13.4 (in the case of Sole Risk Drilling other
than Sole Risk testing under Article 13.2.2(i)(c)), and the following
provisions of this Article in the case of Sole Risk testing, when such
data and information shall become the joint property of the Non-Sole
Risk Party discharging such liability and the Sole Risk Party.
Data and information obtained in respect of Sole Risk testing under
Article 13.2.2.(i)(c) shall become the joint property of the Non-Sole
Risk Party and the Sole Risk Party upon payment by the Non-Sole Risk
Party of an amount equal to 250 per cent of its Percentage Interest
share of the costs of the Sole Risk testing.
13.2.8 Subject to any necessary consent of the Government, a Sole Risk Project
will be carried out by Operator on behalf of the Sole Risk Party under
the provisions of this Agreement provided always that:
(i) if Operator is not participating in a Sole Risk Development
and such Sole Risk Development does not involve the use of
Joint Property as provided under Article 13.2.6, Operator
shall only carry out the Sole Risk Development with the
consent of all Parties;
(ii) if such consent of all Parties is not given the Sole Risk
Development, subject to any necessary consent of the
Government, will be carried out by the Sole Risk Party or such
one of their number appointed by them if there is more than
one Sole Risk Party, and such Sole Risk Party, unless the
context otherwise requires, shall be deemed to be Operator in
respect of the independent application of this Agreement as
provided in Article 13.2.9.
13.2.9 Sole Risk Development will, in respect of that part of the License Area
to which it relates (such area being determined by the Operating
Committee), be regarded as creating a Sub-Area and this Agreement shall
so far as possible apply independently in the manner of a separate
contract to
45
such Sub-Area and apply mutatis mutandis to the interests of the
Parties which participate in such Sole Risk Development provided always
that:
(i) the Non-Sole Risk Parties shall have a right of access to the
Sub-Area; and
(ii) there shall be no separate right of assignment or withdrawal
and accordingly Articles 21 and 22 shall not apply
independently to such separate contract.
13.2.10 In connection with any Sole Risk Project:
(i) the Sole Risk Project will be carried out under the overall
supervision and control of a committee consisting of the Sole
Risk Parties in lieu of the Operating Committee; provided
always that in the case of Sole Risk Drilling such committee
shall require, and each Sole Risk Party shall maintain, in
respect of the Sole Risk Drilling operations, such levels of
insurance cover or financial responsibility as shall apply
pursuant to Article 7 (including any applicable requirement of
the Operating Committee) in respect of Joint Operations;
(ii) the computation of costs and expenses of the Sole Risk Project
incurred by the Sole Risk Parties shall be made in accordance
with the principles set out in the Accounting Procedure;
(iii) Operator or the Sole Risk Parties carrying out the Sole Risk
Project shall maintain separate books, records and accounts
(including bank accounts) for the Sole Risk Project which
shall be subject to the same right of examination and audit by
the Sole Risk Parties and, so long as they are entitled to
elect to participate in the Sole Risk Project, the Non-Sole
Risk Parties as those relating to the Joint Operations;
(iv) the costs and expenses of the Sole Risk Project shall not be
reflected in the statements and xxxxxxxx rendered by Operator
for the Joint Operations;
46
(v) if Operator is carrying out a Sole Risk Project on behalf of a
Sole Risk Party, Operator shall be entitled to make Cash Calls
on the Sole Risk Party in connection with the Sole Risk
Project and shall not use Joint Account funds or be required
to use its own funds for the purpose of paying the costs and
expenses of the Sole Risk Project; furthermore Operator shall
not be obliged to commence or, having commenced, to continue
the Sole Risk Project unless and until the relevant Advances
have been received from the Sole Risk Party; and
(vi) for the avoidance of doubt it is declared that in the
application of Article 7.1 in respect of a Sole Risk Project
all Non-Sole Risk Parties shall be regarded as third parties.
13.3 Sole Risk Drilling
13.3.1 No Sole Risk Drilling under Article 13.2.2(i)(a) or (b) may be proposed
unless:
(i) such drilling was proposed to the Operating Committee at the
time of the consideration of the current exploration Program
but was not included in such Program; or
(ii) having been included in the current exploration Program the
Operating Committee has, where an AFE is required, voted
against or failed to vote in favour of such AFE (or the
relevant part thereof) relating to such drilling without
twenty-eight (28) days of submission of such AFE to the
Parties provided that a decision by the Operating Committee to
change the timing of such drilling within the Year to which
the current exploration Program relates shall not be a vote
against the AFE for the purpose of this Article 13.3.1(ii); or
(iii) such drilling was proposed to the Operating Committee in
reasonably sufficient detail by way of amendment to the
current exploration Program and the Operating Committee has
voted against or failed to vote in favour of such drilling
within sixty (60) days of submission of such amendment to the
Parties.
47
13.3.2 No Sole Risk Drilling under Article 13.2.2(i)(d) may be proposed
unless:
(i) the Operating Committee has voted against or failed to vote in
favour of a proposal to instruct Operator to prepare an
appraisal Program in respect of the interpreted closure of any
geological structure or stratigraphic trap on which a wall has
been drilled in which Petroleum has been found to be present
or, having so instructed Operator, has voted against or failed
to vote in favour of such a Program within sixty (60) days of
its submission to the Parties; or
(ii) the Operating Committee has abandoned or completed its
appraisal Program of the interpreted closure of any geological
structure or stratigraphic trap on which a well has been
drilled in which Petroleum has been found to be present and
the Operating Committee has voted against or failed to vote in
favour of a proposal to instruct Operator to prepare a
development Program in respect thereof and no Party has given
notice under Article 13.5.1 that it intends to prepare such a
development Program.
13.3.3 Subject to Articles 13.3.1 and 13.3.2 if a Party wishes to propose Sole
Risk Drilling under Article 13.2.2(i)(a), (b) or (d) it shall give
notice to the other Parties setting out:
(i) the proposed location of such drilling; and
(ii) all other relevant information including, but not limited to,
the date on which it proposed that operations should be
started, such date being more than sixty (60) days but not
more than one hundred and eighty (180) days from the date of
the notice.
Each of the Parties receiving such a notice shall respond to it, by
notice to the other Parties, within twenty-eight (28) days thereof,
electing whether or not to participate. Any Party failing to respond
within the said twenty-eight (28) days shall be deemed to have elected
not to participate.
48
13.3.4 If a Party wishes to propose Sole Risk Drilling under Article
13.2.2(i)(c), such Party shall give as much notice as possible to the
other Parties stating whether it wishes to use Joint Property for such
Sole Risk Drilling (and, if so, what items thereof) and setting out
such relevant information as is necessary in order to allow the other
Parties to consider the proposal and elect whether or not to
participate within the period hereinafter specified. Each of the
Parties receiving such a notice shall respond to it, by notice to the
other Parties, within forty-eight (48) hours thereof (or within such
longer period as may be specified in the notice), electing whether or
not to participate. Any Party failing to respond within the said period
shall be deemed to have elected not to participate.
13.3.5 If the Percentage Interests of the Parties electing to participate
together with the Percentage Interest of the Party proposing the Sole
Risk Drilling exceed the percentage provided under Article 8.4.5, the
operations shall be carried out, in accordance with the said notice, by
Operator as part of the Joint Operations as if determined by the
Operating Committee and, if appropriate, the current relevant Program
shall be deemed amended accordingly and Operator shall promptly notify
the Parties of the consequential amendments to the current relevant
Budget.
13.3.6 If the Percentage Interests of the Parties electing to participate
together with the Percentage Interests of the Party proposing the Sole
Risk Drilling do not exceed the percentage provided under Article
8.4.5, such Party together with any other Parties which have elected to
participate may, subject to the provisos to Article 13.2.2(i)(b) or (c)
in the case of Sole Risk Drilling thereunder, within twenty-eight (28)
days following the expiration of the notice if given under Article
13.3.3 or within 48 hours following the expiration of the notice if
given under Article 13.3.4, require Operator (subject to Article
13.2.8) to undertake the Sole Risk Drilling. In the case of a notice
given under Article 13.3.3, the Sole Risk Drilling may not be commenced
later than one hundred and eighty (180) days following such notice and,
in the case of a notice given under Article 13.3.4, the Sole Risk
Drilling shall be commenced as soon as it is possible to do so without
interference to the Joint Operations on that well (and additional costs
resulting from delays occasioned by the giving and receiving of noticed
being for the account of the Sole Risk Party).
49
13.3.7 Where Sole Risk Drilling consisting of testing is proposed by a Party
and any of the other Parties objects to such testing on the grounds of
safety or the possibility of damage to the reservoir, no such testing
shall be carried out unless otherwise decided by the Operating
Committee.
13.4 Sole Risk Payments
13.4.1 If Sole Risk Drilling carried out under Article 13.2.2(i)(a), (b) or
(c) (other than Sole Risk testing under Article 13.2.2(i)(c)) has
resulted in a particularly Discovery, or Sole Risk Drilling has been
carried out under Article 13.2.2(i)(d) in respect of a particular
Discovery, and (in either such case) any Party which was a Non-Sole
Risk Party in all or part of such Sole Risk Drilling wishes to
participate in appraisal drilling, geophysical work or a development
Program relating to that Discovery, then in respect of any such Sole
Risk Drilling:
(i) in which such Party was a Non-Sole Risk Party; and
(ii) to the cost and expense of which such Party has not previously
contributed pursuant to the provisions of this Article 13.4,
such Party shall pay to the Sole Risk Party (if more than one Party, in
proportion to their respective Percentage Interests or in such other
proportion as they may have agreed under Article 13.2.3) an amount
equal to the amount it would have contributed to the Joint Account had
such Sole Risk Drilling been carried out as part of the Joint
Operations (which amount shall include, for the avoidance of doubt, the
costs incurred in connection with any necessary plugging back) together
with interest calculated on a day to day basis at a rate of two percent
per annum (2%) above Base Rate from the date upon which the
contribution would have been paid had such Sole Risk drilling been
carried out as part of Joint Operations until the date of payment under
this Article 13.4.1. Such amount shall be paid, in cash in the currency
or currencies in which the contributions for the costs and expenses
would have been made to the Joint Account, before the commencement of
the appraisal drilling, geophysical work or development Program in
question.
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13.4.2 Upon the Government (by the granting to a petroleum lease under the
Petroleum Law, or otherwise) authorising the development of a Discovery
in respect of which Sole Risk Drilling has been carried out, any Party
which participates in such development and was required to make one or
more payments under the provisions of Article 13.4.1 to one or more
Sole Risk Parties in respect of that Discovery shall in addition be
liable to pay to each such Sole Risk Party as is also participating in
the development an amount in US dollars in respect of each Sole Risk
Drilling operation in which it did not participate equal to ten (10)
times the amount paid to that Sole Risk Party in respect of such Sole
Risk Drilling operation pursuant to Article 13.4.1 (any payment made
pursuant to Article 13.4.1 in a currency other than US dollars being
translated to US dollars at the Conversion Rate on the date of payment
by the Non-Sole Risk Party).
13.4.3 Any liability which is calculated under Article 13.4.2 shall be
satisfied by the Non-Sole Risk Party paying to the Sole Risk Party (if
more than one Non-Sole Risk Party, in proportion to the liability of
each such Party) amounts equal to the amounts of the Percentage
Interest share of the Sole Risk Party of the Advances paid or payable
under the relevant approved development Program and Budget until the
liability of the Non-Sole Risk Party has been extinguished and such
amounts shall be paid in US dollars to the Sole Risk Party:
(i) within thirty five (35) days of the date of the Government's
authorisation in the case of Advances paid prior to such date,
and for the purpose of calculating the amount payable under
this sub-paragraph any Advance paid in a currency other than
US dollars shall be translated to US dollars at the Conversion
Rate on the date of the said authorisation; and
(ii) not less than two (2) Working Days before the due dates for
payment of the Advances in the case of Advances to be paid
subsequent to the date of the said authorisation, and for the
purpose of calculating the amounts payable under this
sub-paragraph any Advance to be paid in a currency other than
US dollars shall be translated to US dollars at the Conversion
Rate on the fourth (4th) Working Day before the due date for
payment thereof.
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13.4.4 Notwithstanding any of the foregoing provisions of this Article 13.4
the Non-Sole Risk Party on becoming a Sole Risk Party shall assume and
maintain responsibility for all royalty and operating costs
attributable to its Percentage Interest share in the development.
13.4.5 If a Sole Risk Project has been carried out under Article 13.2.2(ii)
and any Party which did not participate in all or part of such Sole
Risk Project wishes to become an owner of any data and information thus
acquired, then such Party shall pay to the Sole Risk Party (if more
than one Party, in proportion to their respective Percentage Interests
or in such other proportion as they may have agreed pursuant to Article
13.2.3) an amount equal to the amount it would have contributed to the
Joint Account together with interest calculated on a day to day basis
at a rate of two percent per annum (2%) above Base Rate from the date
upon which the contribution would have been paid had such Sole Risk
Project been carried out as part of the Joint Operations until the date
of payment under Article 13.4.1. Such amount shall be paid, in cash in
the currency or currencies in which the contributions for the costs and
expenses would have been made to the Joint Account.
13.5 Sole Risk Development
13.5.1 In the event that a proposal is made to the Operating Committee that a
development Program and Budget should be prepared for a particular
Discovery, pursuant to Article 11.1.1, and such proposal is rejected
then, provided that any appraisal Program approved by the Operating
Committee and relating to that Discovery has been completed (but
excluding any appraisal work included in an appraisal Program if an AFE
therefor has been submitted to the Parties as required under Article
11.2 and which the Operating Committee has voted against or failed to
vote in favour of the same within twenty-eight (28) days after
submission), any Party may give notice to the other Parties that it
intends to prepare a development Program and Budget for that Discovery.
Such Party, together with such of the other Parties as within
twenty-eight (28) days of such notice give counter-notice of their wish
to participate therein, shall be entitled to proceed with the
preparation thereof and to submit the same for approval by the
Operating Committee in accordance with Article 11.1.2.
52
13.5.2 If a development Program and Budget, prepared in accordance with
Article 13.5.1 or a revised form thereof, is approved by the Operating
Committee in accordance with Article 11.1.2, then the Party or Parties
which prepared the development Program and Budget shall be entitled to
charge all reasonable costs incurred in the preparation thereof to the
Joint Account together with interest calculated on a day to day basis
at the rate of three (3) per cent above Base Rate from time to time
from the date on which the costs were incurred to the date of
repayment.
13.5.3 In the event that, following the submission to the Operating Committee
of a proposed development Program and Budget for a particular Discovery
in accordance with Article 11.1.2, the Operating Committee does not
approve such development Program and Budget within the period therein
provided, then any Party may serve notice on the other Parties of its
intention to develop the Discovery at sole risk. Such notice shall be
accompanied by details of its proposed development Program and Budget.
Within ninety (90) days of such notice the other Parties may given
counter-notice that they wish to participate in the development.
If all the other Parties elect to participate the Parties shall proceed
with the development in accordance with such development Program and
Budget and the provisions of Article 11.1.4 shall apply.
13.5.4 If the development of a Discovery is carried out in accordance with the
provisions of Article 13.5.3, then the Parties which prepared the
development Program and Budget shall be entitled to charge all
reasonable costs incurred in the preparation thereof to the Joint
Account relating to that Discovery together with interest thereon
calculated on a day to day basis at the rate of five (5) per cent per
annum above Base Rate from time to time from the date on which the
costs were incurred to the date of repayment.
13.5.5 In the event that, following approval by the Operating Committee of a
development Program and Budget pursuant to Article 11.1.2 or following
any notice served under Article 13.5.3 less than all the Parties, or in
the case of Article 13.5.3 less than all the Non-Sole Risk Parties,
elect to participate in the development of a Discovery within the
periods therein respectively provided, those Parties which elected to
participate, or in the case of Article 13.5.3 the Sole Risk Party and
53
those Non-Sole Risk Parties which elected to participate, shall be
entitled to proceed with the development of the Discovery at sole risk
in accordance with the relevant development Program and Budget provided
that if, in connection with or as a condition to the grant or coming
into effect of any Government approval (whether by way of the grant of
a petroleum lease under the Petroleum Law or in another form ) required
in relation to that development Program and Budget, such development
Program and Budget has been or is required to be amended (which shall
for the avoidance of doubt including any change in the date of
commencement of the development or in the proposed depth, or in the
objective horizon, or in the number of xxxxx required) then the Parties
participating in the development shall as soon as practicable following
such authorisation given notice to the other Parties of such amendments
and within twenty-eight (28) days of such notice:
(i) any of the Parties participating in the development of the
Discovery may, by notice to all the other Parties, elect not
to proceed with the development; and/or
(ii) any of the Parties not participating in the development of the
Discovery may, by notice to all the other Parties, elect to do
so.
Those Parties which, at the expiry of the said period of twenty-eight
(28) days, are participating in the development shall be obliged to
carry it out.
13.5.6 In the event that any of the Parties elects not to proceed with the
development under Article 11.1.4 the other Parties shall be entitled to
proceed with the development in accordance with the approved
development Program and Budget (as amended) and, if they do so proceed,
shall be obligated to carry out the development.
13.5.7 In the event that less than all the Parties participate in the
development of a Discovery in respect of which no Sole Risk Drilling
has been carried out then, unless the Parties participating in such
development unanimously agree otherwise, the Percentage Interest of
each Party in such development shall be in proportion to its Percentage
Interest in the License.
13.5.8 In the event that less than all the Parties participate in the
development of a Discovery in respect
54
of which Sole Risk Drilling has been carried out then, unless the
Parties participating in such development unanimously agree otherwise:
(i) if the Party which participated in the first such Sole Risk
Drilling (for the purposes of this Article 13.5.8 "Original
Sole Risk Party") or if more than one Original Sole Risk
Party, all the Original Sole Risk Parties participate in the
development, then the Percentage Interest of any Party which
was not an Original Sole Risk Party in such development shall
equal its Percentage Interest, and the remaining Percentage
Interest in the development shall be held by the Original Sole
Risk Party (if more than one, in proportion to their
Percentage Interests in the License or in such other
proportion as they may have agreed under Article 13.2.3); or
(ii) if less than all the Original Sole Risk Parties participate in
the development, then the calculation under (i) above shall
first be performed as though all the Original Sole Risk
Parties were participating. The Percentage Interests in such
development of those Original Sole Risk Parties who do not
participate shall then be allocated to all the participating
Parties, in proportion to the Percentage Interests obtained in
such preliminary calculation.
13.5.9 Any Party which does not participate in the development of a Discovery
shall have no further rights in such development.
14. ACCOUNTING
The Accounting Procedure is hereby made part of this Agreement. In the
event of any conflict between this Agreement and the Accounting
Procedure, this Agreement shall prevail. The Accounting Procedure is an
inseparable part of this Agreement.
15. DEFAULT
15.1 Failure to Pay
55
If any Party ("DEFAULTING PARTY") fails to pay its full share of any
advance by the due date in accordance with the Accounting Procedure:
(i) Operator shall, as soon as practicable, notify by telex or fax
all the Parties of such default;
(ii) with the exception of the Defaulting Party, each Party
("NON-DEFAULTING PARTY") shall contribute, as hereinafter
provided, a share of the amount in default in the proportion
that its Percentage Interest bears to the total of the
Percentage Interests of the Non-Defaulting Parties and pending
receipt of such additional contributions Operator shall make
arrangements to meet any commitments falling due by borrowing
the necessary funds from outside sources or by making the
necessary funds available itself. All costs of any such
financing shall be charged to the Non-Defaulting Parties;
financing made available by Operator shall bear interest
calculated on a day-to-day basis at a rate equal to two (2)
percent per annum above Base Rate:
(iii) within three (3) Working Days following the notification by
Operator under (i) above, Operator shall notify all the
Parties of the liability of each of the Non-Defaulting Parties
to contribute to the amount in default and shall make a
further Cash Call accordingly to take effect on the expiration
of six (6) Working Days specifies in (iv) below; and
(iv) if such default continues for more than six (6) Working Days
after the date of notification by Operator, each of the
Non-Defaulting Parties shall, on the Working Day next
following such sixth Working Day, pay the amount notified
under (iii) above, and thereafter shall continue to pay, in
addition to its share of subsequent Advances, the same
proportion of that part of all such subsequent Advances
attributed to the Defaulting Party, until such time as the
Defaulting Party has remedied its default in full or until
forfeiture, as hereinafter provided. Failure by any Party to
make such payments shall likewise and with the same results
render that Party in default.
15.2 Remedy of Default
The Defaulting Party shall have the right to remedy the Default at any
time prior to forfeiture, as hereinafter provided, by payment in full
to Operator or, if the Non-Defaulting Parties have paid any amounts
under Article 15.1, the Non-Defaulting Parties, in proportion to the
amounts so paid to them, of all amounts in respect of which the
Defaulting Party is in Default, which shall include any cost of
financing or interest chargeable to the Non-Defaulting Parties pursuant
to Article 15.1 (ii), together with interest thereon calculated on a
day-to-day basis at a rate equal to three (3) percent per annum above
Base Rate from time to time from and including the due date for payment
of such amounts until the actual date of payment.
56
15.3 Continuation of Default
15.3.1 If any Default continues for more than six (6) Working Days after the
date of notification by Operator under Article 15.1(i) then, for so
long as the Default so continues, the Defaulting Party shall not be
entitled to its share of Petroleum which shall instead be owned by the
Non-Defaulting Parties in the proportions in which their respective
Percentage Interests bear to the total of the Percentage Interests of
the Non-Defaulting Parties.
15.3.2 During the continuation of any Default, the Defaulting Party shall not
be entitled to be represented at meetings of the Operating Committee or
to vote thereat (so that the voting interest of each Party other than
the Defaulting Party shall be in the proportion which its Percentage
Interest bears to the total Percentage Interests of such Parties). If
the Default subsists for six months and the Defaulting Party continues
to hold a Percentage Interest, then from the end of that six month
period, while the Default subsists, the Defaulting Party shall have no
further access to any data and information relating to the Joint
Operations. The Defaulting Party shall be bound by decisions of the
Operating Committee made during the continuation of the Default.
15.3.3 (i) In the event that the Default continues for more than
thirty (30) days after the date of notification by Operator
under Article 15.1(i), then each of the Non-Defaulting Parties
shall have the right to have forfeited to it and to acquire,
by notice to the other Parties given within fifteen (15) days
after such period of thirty (30) days, the interest of the
Defaulting Party in the License and in and under this
Agreement or, if more than one Non-Defaulting Party exercises
such right, its proportionate share of the interest of the
Defaulting Party in the License and in and under this
Agreement, such share being the proportion in which its
Percentage Interest bears to the total Percentage Interests of
such Non-Defaulting Parties.
(ii) If none of the Non-Defaulting Parties exercises its right as
is mentioned in Article 15.3.3 (i) then, without prejudice to
any rights of the Non-Defaulting Parties, the Parties shall be
deemed to have decided to abandon the Joint Operations and
(subject to any abandonment agreement entered into pursuant to
Article 5.11.3) each Party, including
57
the Defaulting Party, shall pay its Percentage Interest share
of the costs of abandoning the Joint Operations.
15.3.4 With respect to Article 15.3.3, any such forfeiture and acquisition of
the interest of the Defaulting Party in the License and in and under
this Agreement shall be:
(i) subject to any necessary consent of the Government;
(ii) without prejudice to any other rights of each Party other than
the Defaulting Party;
(iii) so forfeited and acquired as beneficial owner or owners free
of any charges and encumbrances (other than rent and royalty
under the License or under the ERSAN Royalty Interest) but
subject to all obligations under this Agreement and the
License insofar as the interest assigned is concerned;
(iv) subject to the Defaulting Party remaining liable and obligated
for its Percentage Interest share of all net costs and
obligations that in any way relate to the abandonment of the
Joint Operations, except to the extent they result from Joint
Operations carried out after the date of forfeiture; and
(v) effective as of the date of Default;
and the Defaulting Party shall promptly join in such actions as may be
necessary or desirable to obtain any necessary consent of the
Government and shall execute and deliver any and all documents
necessary to effect any such forfeiture and acquisition and all costs
and expenses pertaining to any such forfeiture and acquisition shall be
the responsibility of the Defaulting Party.
15.4 In the event that either:
(a) less than all of the Non-Defaulting Parties acquire the
interest of the Defaulting Party in the License and in and
under this Agreement by forfeiture and acquisition in terms of
Article 15.3.3; or
(b) Non-Defaulting Parties acquire such interest otherwise than in
proportion to their respective Percentage Interests,
58
then not later than the hundredth (100) day after the date of default
the Non-Defaulting Parties shall make such cash adjustments between
themselves as may be required to ensure that all amounts paid by them
under Article 15.1(iv) and interest payable thereon under Article
15.1(ii) are borne and the amounts (if any) recouped from the
Defaulting Party are recouped by the Non-Defaulting Parties in
proportion to the Percentage Interests of the Non-Defaulting Parties
subsequent to forfeiture and acquisition in terms of Article 15.3.3. In
the event that the Defaulting Party's Percentage Interest share of
Petroleum shall have accrued to the Non-Defaulting Parties in terms of
Article 15.3.1, such cash adjustments shall take into account the value
of the Joint Petroleum share derived by Non-Defaulting Parties from the
Defaulting Party's interest in terms of Article 15.3.1. in respect of
the period from the date of default to the date of such adjustment.
16. DISPOSAL OF PETROLEUM
16.1 Right and Obligation
Subject to the provisions hereinafter contained and subject to the
Petroleum Law, in respect of the development of any Discovery:
(i) as an alternative to receiving under Article 3.1 a share of
Net Pre-Tax Revenue derived from the sale of Joint Petroleum
by Operator on behalf of the Parties, each Party (excluding,
at any time when Article 3.2.5 applies, the holder of the
Carried Interest or part thereof, to the extent of the Carried
Interest or part thereof held by it) shall have the right to
take in kind and separately dispose of its Percentage Interest
share of the total quantities of Joint Petroleum available
under this Agreement. but excluding the Operator's reasonable
estimate of the amount of such Joint Petroleum unavoidably
lost in the course of Joint Operations or used by Operator in
the conduct of the Joint Operations, and less a quantity of
such Joint Petroleum equivalent to that required to satisfy
any Government royalty and the obligations of the Parties in
relation to the ERSAN Royalty Interest; and
(ii) Operator, if so required from time to time by a Party, shall
arrange for the lifting, marketing, sale and dispose of Joint
Petroleum.
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16.2 NGLs and Natural Gas
The Parties recognise that, in the event of the production of NGLs or
Natural Gas, it may or will be or become desirable for them to enter
into special arrangements for the disposal of the same and they agree
that, in such event and upon the request of any of them, their
respective representatives shall meet together as necessary to consider
their entry into such arrangements and that, if and to the extent that
any such arrangements are agreed, they will adopt and undertake the
same. Until such time as the Parties have entered into special
arrangements for the disposal of NGLs or Natural Gas, all operations
with regard to the production of NGLs or Natural Gas shall be governed
by the terms and conditions of this Agreement.
17. CONFIDENTIALITY
17.1 Confidential Data and Information
Each Party shall, and shall cause its Affiliates to, keep confidential
all of the terms of this Agreement and all written and/or
electronically stored data and information acquired or received by that
Party under this Agreement throughout the term of this Agreement and
for a period of two (2) years thereafter; provided, however, that this
obligation of confidentiality shall not apply to any disclosure of
information:
(i) that is in or enters the public domain without a breach of a
duty of confidentiality by the disclosing Person or was
obtained from a third party having no confidentiality
restriction to the Parties;
(ii) the disclosure of which is required of the disclosing Party or
its Affiliate by law, regulation, legal process, or order of
any court or governmental body having jurisdiction (including
applicable State and Federal securities laws, rules and
regulations in the USA) or pursuant to the regulations of any
securities exchange upon which any of the Parties or its
Affiliate is (or is to be) listed or its securities are (or
are to be) traded;
60
(iii) to any Affiliate or bona fide potential assignee of such
Party, and to the employees, agents, consultants, bankers,
financial and professional advisers of that Party, its
Affiliate or any such bona fide potential assignee, provided
that (a) they have a reasonable need to know the information
and (b) they are instructed and agree in writing to maintain
this information confidential;
(iv) by AVENUE or its Affiliates or any Person referred to in
paragraph (iii) above to whom Avenue has disclosed the same,
to investors or targeted potential investors in AVENUE or any
Affiliate of AVENUE in connection with a capital raising or
the listing of equities.
In the event of any Party ceasing to hold a Percentage Interest, such
Party shall nevertheless remain bound by this Article 17.1.
17.2 Trading Rights
Operator may, with the prior written approval of all Parties and on
such terms and conditions as they may determine, exchange any such data
and information for other similar data and information and Operator
shall promptly provide all the Parties with a conformed, copy of the
agreement regulating such exchange and all such other data and
information. Notwithstanding the foregoing provisions of this Article
17, if any Party is also the owner or part owner of such other data and
information or otherwise has a right of access to the same, it shall
not be entitled to prevent an exchange which has been approved by the
other Parties. In the event that the aforesaid proviso is invoked
against a Party which is already owner or part owner of the other data
and information then:
(i) that Party shall be entitled to request Operator to use all
reasonable endeavours to arrange within ninety (90) days of
the exchange approved by all the other Parties, a separate
exchange with the third party selected by the Party concerned
subject to Operating Committee approval of the third party for
such purpose (which approval shall not be unreasonably
withheld); and
61
(ii) upon receiving a request under sub-paragraph (i) above,
Operator shall use all reasonable endeavours to comply with
such requests and shall divulge to the Parties, subject to the
terms of the said separate exchange, all data and information
received pursuant thereto.
17.3 Sole Risk Data
Notwithstanding Article 17.1 and 17.2 a Sole Risk Party may in its sole
discretion exchange any data and information relating exclusively to a
Sole Risk Project (and which are not Joint Property) for other similar
data and information provided that in the event that one or more
Non-Sole Risk Parties discharges in full its liability to the Sole Risk
Party under Article 13.4 or (where the data and information exchanged
is in respect of Sole Risk testing under Article 13.2.2(i)(c)) Article
13.3.7 such other data and information shall be disclosed to the
Parties discharging such liability provided that in making such
disclosure the Sole Risk Party would not be in breach of the terms of
the exchange. The Sole Risk Party shall however use all reasonable
endeavours to ensure that the data can be disclosed upon the Non-Sole
Risk Parties discharging their liability as aforesaid.
18. PUBLIC ANNOUNCEMENTS
18.1 Subject to Article 18.2, Operator shall be responsible for the
preparation and release of all public announcements and statements
regarding this Agreement or the Joint Operations, provided always
(except in the case of an emergency pertaining to operations under this
Agreement) that no such public announcement or statement shall be
issued or made unless prior thereto all the Parties have been furnished
with a copy thereof and the approval of the Operating Committee has
been obtained.
18.2 No Party shall issue or make any public announcement or statement
regarding this Agreement or the Joint Operations unless prior thereto
it furnished all the Parties with a copy of such announcement or
statement and obtains the approval of the Operating Committee provided
that, notwithstanding any failure to obtain such approval, no Party or
any Affiliate of such Party shall be prohibited from issuing or making
any such public announcement or statement if it is necessary to do so
in order to comply with any applicable law, the regulations of a
recognized
62
stock exchange or the requirements of the Securities and Exchange
Commission of the United States of America.
19. OUTGOINGS
19.1 Payments to Government
The Parties shall be liable for the payment of their respective
Percentage Interest shares of all sums which may be properly payable
under the Petroleum Law and the License, provided that to the extent
permitted by the Petroleum Law and the License, Operator shall pay all
such sums (including royalties) from the Joint Account.
19.2 ERSAN Royalty Interest
Operator shall pay to ERSAN from the revenue derived from the sale of
Joint Petroleum all sums due and owing to ERSAN in respect of that sale
of Joint Petroleum in respect of the ERSAN Royalty Interest.
20. COVENANT, UNDERTAKING AND RELATIONSHIP
20.1 Covenant and Undertaking
20.1.1 Without prejudice to the overriding responsibility of Operator under
Article 5.2.2, each Party hereby covenants and undertakes with each
other Party that it will comply with all the applicable provisions and
requirements of the Petroleum Law and the License and will do all such
acts and things within its control as may be necessary to keep and
maintain the License in full force and effect.
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20.1.2 Each Party hereby covenants and undertakes with each other Party as
follows:
(i) neither it nor any of its Affiliates nor any of their
officers, directors, employees, agents, shareholders or
representatives (including a consultant) shall make, or cause
to be made, in connection with the Licence, the Joint
Operations, this Agreement or the transactions contemplated by
this Agreement, payments, loans or gifts or promises or offer
of payments, loans or gifts of any money or anything of value,
directly or indirectly:
(a) to or for the use or benefit of any official or
employee of any government or agency or
instrumentality thereof (including without limitation
any enterprise owned or controlled by such
government), or any Person acting in an official
capacity for or on behalf of any government,
department, agency or instrumentality;
(b) to or for the use or benefit of any political party
or official or candidate thereof, or any official or
employee of a public international organization, or
any person acting in an official capacity for or on
behalf of any political party or public international
organization;
(c) in violation of any applicable law; or
(d) to any other Person either as an advance or as a
reimbursement if it knows that any part of such
payment, loan or gift will be directly or indirectly
given or paid by such other Person to an official,
party, party official or candidate referred to in
sub-paragraph (a) or (b) above, or will reimburse
such other Person for payments, gifts, or loans
previously made, to any such official, party, party
official or candidate;
(ii) the receipt by it of the consideration which may be obtained
hereunder or of any funds or interests under Licence does not
violate the laws, decrees and regulations of the Republic of
Turkey;
(iii) it shall answer and shall cause each of its officers,
directors, employees and attorneys-in-fact, and its Affiliates
and their respective officers, directors, employees and
attorneys-in-fact, to answer, and shall exert reasonable
commercial efforts to cause its and their
64
consultants to answer, in reasonable detail, any questionnaire
or other written or oral communications, or any request for
information from AVENUE or its outside auditors, relating to
the covenants and undertakings set forth in paragraphs (i) and
(ii) above; and
(iv) to provide, on or before the 30th day after notice from AVENUE
so requesting, AVENUE with certification to the effect that it
has not, and its Affiliates and their personnel have not, made
or sought any payments, directly or indirectly, in violation
of paragraph (i) or (ii) above.
20.2 Relationship
20.2.1 The liability of the Parties hereunder shall be several and not joint
or collective and each Party shall be responsible only for its
individual obligations hereunder. It is expressly agreed that it is not
the purpose or intention of this Agreement to create, nor shall the
same be construed as creating, any mining partnership, commercial
partnership or other partnership.
20.2.2 Each Party, to the extent of its Percentage Interest share, agrees to
indemnify each other Party, for any claim by or liability to (including
any costs and expenses necessarily incurred in respect of such claim or
liability) any person not being a Party, arising from or in connection
with the Joint Operations.
2.2.3 Nothing in Article 20.2.2 shall require a Party to indemnify a Party in
respect of claims against or liabilities of that Party arising from its
acts, defaults or omissions as Operator or in any capacity (including
as contractor of or service or equipment supplier to the Joint
Operations) other than as the holder of a Participating Interest.
21. ASSIGNMENT AND ENCUMBRANCES
21.1 Restriction
65
No assignment or transfer of any interest under the License or this
Agreement shall be made by any Party otherwise than in respect of an
undivided interest in all or part of its interest in the License and in
and under this Agreement (so that any such assignment shall include all
or a corresponding part of any interest of such Party in a Sole Risk
Project) in accordance with the following provisions of this Article or
the provisions of Article 22. In the case of an assignment or transfer
of party only of such an interest, that part must equate to a
Percentage Interest of not less than 5%.
21.2 Right
21.2.1 Each of the Parties may, subject to any necessary consent and approval
of the Government and to the provisions hereinafter contained, at any
time upon written notice to the other Parties (accompanied by written
confirmation from the Party proposing to assign that the assignment is
not being made with the intention that the assignee should thereafter
cease to be an Affiliate of such Party) assign all or part of its said
interest to an Affiliate of such Party if either:
(i) the Affiliate has demonstrated to the satisfaction of the
other Parties its financial capability to meet its prospective
obligations hereunder; or
(ii) the assigning Party has agreed to remain jointly and severally
liable with the Affiliate for the performance of the assigned
obligations.
21.2.2 Each of the Parties may at any time assign all or part of its said
interest other than as provided in Article 21.2.1 if and only if:
(i) any necessary consent and approval of the Government to such
assignment shall have been obtained; and
(ii) the remaining, non-assigning Parties shall have consented to
such assignment in writing (which consent may only be withheld
on the grounds of lack of financial responsibility and
capability of the proposed assignee to discharge the
obligations under this Agreement as they relate to the
interest to be assigned).
66
21.3 Effective Date
No such assignment shall be effective or binding upon the Parties until
the date upon which the assignor or assignee furnishes all the Parties
with:
(i) an executed or photostatic copy of an instrument evidencing
such assignment, together with any necessary consent and
approval of the Government; and
(ii) a written instrument (in form and content satisfactory to the
Parties and duly executed by the assignee) under which the
assignee accepts and assumes all of the obligations under this
Agreement, and complying with the requirements of any
abandonment agreement entered into pursuant to Article 5,
insofar as the interest assigned is concerned.
21.4 Continuing Obligations
A Party so assigning all or part of its said interest shall remain
liable to the other Parties for all obligations attaching to the
interest assigned pursuant to this Article 21 which are incurred prior
to the effective date of such assignment and such obligations shall in
addition become the obligations of the assignee.
21.4.1 The Parties shall promptly join in such reasonable actions as may be
necessary or desirable to obtain any consent and approval of the
Government in connection with, and shall execute and deliver any and
all documents reasonably necessary to effect, any such assignment.
21.5 Costs
All costs and expenses pertaining to any such assignment shall be the
responsibility of the assignor.
21.6 Encumbrance
Nothing contained in this Article 21 shall prevent a Party from
mortgaging, pledging or otherwise encumbering all or part of its
interest in the License and in and under this Agreement for the purpose
of security relating to finance provided that:
67
(i) such Party shall remain liable for all obligations relating to such
interest; and
(ii) the encumbrance shall be subject to any necessary approval of the
Government and be expressly subordinated to the rights of the other
Parties under this Agreement.
22. WITHDRAWAL
22.1 Restriction
No Party may withdraw from the License or this Agreement otherwise than
in accordance with the following provisions of this Article.
22.2 Right
22.2.1 Any Party may, subject to Article 22.3, at any time give notice to the
other Parties that it wishes to withdraw from the License and this
Agreement. Within thirty (30) days of receipt of such notice, any of
the other Parties may similarly give notice that it wishes to withdraw
form the License and this Agreement. If all the other Parties give such
notice no assignment shall take place, the Parties shall be deemed to
have decided to abandon the Joint Operations and the License shall be
surrendered on the earliest possible date. If less than all the other
Parties give such notice, the withdrawing Parties shall withdraw from
the License and this Agreement on the earliest possible date and shall
assign their respective interests in the License and in and under this
Agreement to one or more of the non-withdrawing Parties in accordance
with Article 22.3 without any compensation whatsoever, provided that if
such an assignment has not been completed within ninety (90) days of
the notice, all of the Parties shall be deemed to have decided to
abandon the Joint Operations and the License shall be surrendered on
the earliest possible date.
22.2.2 If, by the final date permitted under the Petroleum Law for the
commencement or completion of drilling in respect of the License (and
after taking account of relevant remedy periods normally afforded to
licensees by the Government prior to forfeiture of license interests),
no well has been spudded or, as applicable, completed as part of the
Joint Operations but Sole Risk Drilling has commenced or, as
applicable, been completed so as to prevent forfeit of the License,
each of the Parties which is not by that time a participant in relation
to such Sole
68
Risk Drilling shall be deemed to have given notice under Article 22.2.1
of its intention to withdraw from the License and this Agreement.
22.3 Conditions
With respect to Article 22.2:
(i) a withdrawing Party shall assign all of its interest to such
non-withdrawing Parties as wish or are obliged to accept it,
which shall (unless otherwise agreed by such non-withdrawing
Parties) be allocated to them in the proportion in which their
respective Percentage Interests prior to the effective date of
withdrawal (as hereinafter defined) bears to the total of the
same;
(ii) a withdrawing Party shall promptly join in such actions as may
be necessary or desirable to obtain any consent of the
Government in connection with, and shall execute and deliver
any and all documents necessary to effect, any such
assignment. A withdrawal shall not be effective and binding
upon the Parties until the date upon which the same shall have
been done ("the effective date of withdrawal", provided that
if no such consent is required "the effective date of
withdrawal" shall be the date of expiry of the period of
thirty (30) days referred to in Article 22.2.1);
(iii) a withdrawing Party shall promptly join in all actions
required by the other Parties for the maintenance of the
License provided that its participation in such actions shall
not cause it to incur, after the date on which notice of
withdrawal is given, any financial obligations except as
provided in this Article 22;
(iv) a withdrawing Party shall pay all fines and penalties which
may be prescribed by the Government and all reasonable and
documented costs and expenses incurred by the other Parties in
connection with such withdrawal;
(v) a withdrawing Party shall not be allowed to withdraw from the
License and this Agreement if its interest is subject to any
liens, charges or encumbrances (other than (a) rents and
royalties due under the License or the Petroleum Law (b) the
ERSAN Royalty Interest (as defined in the Farmin Agreement
referred to in Recital A to this Agreement) and (c) a lien,
charge or encumbrance granted in favour of all of the other
parties and securing the performance of obligations under this
Agreement), unless the other Parties are willing to accept the
assignment subject to such additional liens, charges or
encumbrances;
(vi) unless the Party or Parties acquiring its interest agree to
accept the withdrawing Party's liabilities and obligations, a
withdrawing Party shall remain liable and obligated for its
Percentage Interest share of all expenditure accruing to the
Joint Account under any Program and Budget approved by the
Operating Committee and
69
authorized by AFE prior to the date on which notice of
withdrawal is given, even if the operations concerned are to
be implemented thereafter, provided always that this
sub-paragraph (vi) shall not render a withdrawing Party liable
for any amounts which such Party would not have been obliged
to pay had it not withdrawn; and
(vii) a withdrawing Party shall remain liable and obligated for its
share of all costs and obligations that in any way relate to
the abandonment of Joint Operations or a Sole Risk Project in
which such withdrawing Party participated in accordance with
any abandonment agreement entered into pursuant to Article 5
or with the provisions of this Agreement if abandonment
operations commence within three (3) years after the effective
date of withdrawal.
23. FORCE MAJEURE
23.1 The obligations of each of the Parties hereunder, other than the
obligations to make payment of money, shall be suspended during the
period and to the extent that such Party is prevented or hindered from
complying therewith by "Force Majeure" (as hereinafter defined). In
such event, such Party shall give notice of suspension as soon as
reasonably possible to the other Parties stating the date and extent of
such suspension and the cause thereof. Any of the Parties whose
obligations have been suspended as aforesaid shall resume the
performance of such obligations as soon as reasonably possible after
the removal of the cause and shall so notify all the other Parties.
23.2.1 In this Article 23 "Force Majeure" means any cause beyond the
reasonable control of a Party provided that a lack of funds shall not
constitute "Force Majeure".
24 APPLICABLE LAW AND ARBITRATION
24.1 This Agreement shall be governed by and construed in accordance with
laws of the State of California, USA, excluding any provisions thereof
which would require the application of the laws of any other
jurisdiction.
24.2 Arbitration
24.2.1 All disputes arising out of or in connection with this Agreement,
including any question regarding its existence, validity or
termination, shall be referred to and finally resolved under the
70
rules of the London Court of International Arbitration, which rules are
deemed to be incorporated by reference to this Article.
24.2.2. The number of arbitrators shall be one (or three if the Parties
mutually so agree).
24.2.3 The seat or place of the arbitration shall be California, USA.
24.2.4 The language to be used in the arbitral proceedings shall be English.
24.2.5 The arbitrators' award may include compensatory damages against either
Party, but under no circumstances shall the arbitrators be authorized
to nor shall they award punitive damages or multiple damages against
any Party.
24.2.6 The Parties hereby exclude any right of application or appeal to any
court, to the extent that they may validly so agree, and in particular
in connection with any question of law arising during the course of the
arbitration or out of the arbitration panel.
25. NOTICES
25.1 Manner of service
Any notice or other communication (a "COMMUNICATION") which any Party
may desire to give or deliver in connection with this Agreement shall
be in writing and shall be delivered by hand or sent by fax to the
addressee at its address or fax number and marked for the attention of
the person set out in clause 11.3. Any such notice sent by fax shall be
confirmed in hard copy form by post or by hand, provided that this
shall not prevent the notice from having been effectively delivered
upon receipt by the addressee of the relevant fax.
25.2 Time of notice
A Communication shall be deemed to have been given and received:
71
(i) if delivered by hand, at the time of delivery; or
(ii) if sent by fax, on acknowledgment of the addressee's facsimile
receiving equipment (where such acknowledgment occurs before
1700 hours on the day of acknowledgment and such day is a
Working Day in the place of the addressee's address given
below) or (in any other case) on the Working Day following the
day of such acknowledgement.
25.3 Addresses
The current addresses, fax numbers and, where applicable, contact names
of the Parties for the purposes of Communications are as follows:
AME and ERSAN:
c/- ALADDIN MIDDLE EAST LTD
Attn: Xx Xxxxx Xxxxx
Sogutozu Caddesi No:23
Balgat-Ankara*
00000 Xxxxxx
Tel: x00.000.0000000 or 000 0000
Fax:x00.000.0000000 or 287 5768
AVENUE:
Attn: Xx Xxxxxxxx Xxxxxx
00000 Xxxxxxx Xxxx.,
0xx Xx. Xxxxxxx Xxxx,
XX, XXX and
Tel: x000 000 0000
Fax:x000 000 0000
72
Copied to:
Attn: Xx Xxxxxxxx Xxxxxx
00-00 Xxxx Xxxx,
Xxxxxxx,
Xxxxxxxxx,
Xxxxxxxxx,.
Tel: x000 0000 0000
Fax:x000 0000 0000
And to:
Xx Xxxx Poll
00 Xxxxxx Xxxx,
Xxxxxxxx, XX 0000
Xxxxxxxxx
Tel: x00 0 0000 0000
Fax: + 00 0 0000 0000
A Party may change its address, fax number or contact name for the
purpose of Communications by serving notice on the other Parties in
accordance with this Article.
26. MISCELLANEOUS
26.1 This Agreement shall be prepared in the English language and no
translation into any other language shall be utilized in its
interpretation. During the implementation of this Agreement the English
language shall be used as working language. Without prejudice to the
foregoing, the Parties shall arrange for the preparation of a Turkish
translation of this Agreement solely for the purpose of submission to
the Government.
73
26.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
26.3 All schedules referred to herein and attached hereto, including the
Accounting Procedure, are by this reference incorporated herein as an
integral part of this Agreement.
26.4 This Agreement shall be binding upon and ensure to the benefit of the
Parties hereto and their successors and permitted assigns.
74
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives as of the day and year first written
above.
ALADDIN MIDDLE EAST LTD.
By: /s/ Oyman Xxxxx
Xx Xxxxx Xxxxx
Executive Vice-President and
General Manager
ERSAN PETROL SANAYII A.S.
By: /s/ Oyman Xxxxx
Xx Xxxxx Xxxxx
Executive Vice-President and
General Manager
AVENUE ENERGY INC.
By: /s/ Xxxxxxxx Xxxxxx
Xx. Xxxxxxxx Xxxxxx
President
75
SCHEDULE 1
TO JOINT OPERATING AGREEMENT
BETWEEN
ALADDIN MIDDLE EAST LTD
ERSAN PETROL SANAYII A.S.
AND
AVENUE ENERGY INC.
ACCOUNTING PROCEDURE
TABLE OF CONTENTS
SCHEDULE 1 TO JOINT OPERATING AGREEMENT
SECTION PAGE
SECTION I GENERAL PROVISIONS..................................................1
1.1 Purpose.........................................................1
1.2 Conflict........................................................1
1.3 Definitions.....................................................1
1.4 Joint Account Records and Currency Exchange.....................1
1.5 Statements and Billings.........................................2
1.6 Bank Accounts...................................................4
1.7 Payments and Advances...........................................4
1.8 Adjustments.....................................................6
1.9 Audits..........................................................7
1.10 Allocations.....................................................8
SECTION II DIRECT CHARGES.....................................................8
2.1 Licenses, Permits, Etc..........................................8
2.2 Salaries, Wages and Related Costs...............................8
2.3 Employee Relocation Costs......................................11
2.4 Offices, Camps, and Miscellaneous Facilities...................11
2.5 Material.......................................................11
2.6 Exclusively Owned Equipment and
Facilities of Operator and Affiliates..........................12
2.7 Services.......................................................12
2.8 Insurance......................................................12
2.9 Damages and Losses to Property.................................12
2.10 Litigation and Legal Expenses..................................13
2.11 Taxes and Duties...............................................13
2.12 Other Expenditures.............................................13
SECTION III INDIRECT CHARGES.................................................14
3.1 Purpose........................................................14
3.2 Amount.........................................................14
3.3 Exclusions.....................................................14
3.4 Indirect Charge for Projects...................................15
3.5 Changes........................................................15
SECTION IV ACQUISITION OF MATERIAL...........................................15
4.1 Acquisitions...................................................15
4.2 Materials Furnished by Operator................................15
4.3 Premium Prices.................................................16
4.4 Warranty of Material Furnished by Operator.....................16
SECTION V DISPOSAL OF MATERIALS..............................................17
5.1 Disposal.......................................................17
5.2 Material purchased by a Party or Affiliate.....................17
5.3 Division In Kind...............................................17
5.4 Sales to Third Parties.........................................17
SECTION VI INVENTORIES.......................................................18
6.1 Periodic Inventories - Notice and Representation...............18
6.2 Special Inventories............................................18
SECTION VII BUDGETING AND AFES...............................................18
7.1 Budget Preparation.............................................18
7.2. Procedure for Budget Approval..................................20
7.3 Budget Approval and AFE Approval...............................20
7.4. Sub-Division of Budgets for Approval by AFE and for Control....20
7.5. Authorisation for Expenditure..................................21
SECTION VIII OVERRIDING PROVISIONS...........................................22
8.1 General........................................................22
8.2 Farmin and Participation Agreement.............................22
8.3 Pre-Agreement costs............................................22
SECTION I
---------
GENERAL PROVISIONS
------------------
1.1 PURPOSE.
1.1.1 The purpose of this Accounting Procedure is to establish
equitable methods for determining charges and credits
applicable to operations under the Agreement which reflect the
costs of Joint Operations to the end that no Party shall gain
or lose in relation to other Parties.
It is intended that approval of a Program and Budget and AFE's
as provided in the Agreement shall constitute approval of the
rates and allocation methods used therein to currently charge
the Joint Account, but subject to verification by audit at a
later date as provided in the Accounting Procedure.
1.1.2 The Parties agree, however, that if the methods prove unfair
or inequitable to Operator or Non-Operators, the Parties shall
meet and in good faith endeavor to agree on changes in methods
deemed necessary to correct any unfairness or inequity.
1.2 CONFLICT . In the event of a conflict between the provisions of this
Accounting Procedure and the provisions of the Agreement or of the
Farmin and Participation Agreement, the provisions of the Agreement or,
as the case may be, of the Farmin and Participation Agreement shall, to
the extent of the conflict, prevail.
1.3 DEFINITIONS. The definitions contained in Article 1 of the Agreement
shall apply to this Accounting Procedure and have the same meanings
when used herein. Certain terms used herein are defined as follows:
"THE AGREEMENT" shall mean the main body (Articles 1 to 26) of the
Joint Operating Agreement to which this Accounting Procedure is a
schedule.
"COUNTRY OF OPERATIONS" shall mean Republic of Turkey.
"MATERIAL" shall mean personal property (including, but not limited to,
equipment and supplies) acquired and held for use in Joint Operations.
1.4 JOINT ACCOUNT RECORDS AND CURRENCY EXCHANGE.
1.4.1 Operator shall at all times maintain and keep true and correct
records of the production and disposition of all Petroleum and
Natural Gas, and of all costs and expenditures under the
Agreement, as well as other data
1
necessary or proper for the settlement of accounts between the
Parties in connection with their rights and obligations under
the Agreement and to enable Parties to comply with their
respective applicable income tax and other laws.
1.4.2 Operator shall maintain accounting records pertaining to Joint
Operations in accordance with generally accepted accounting
practices used in the international petroleum industry and any
applicable statutory obligations of the Country of Operations
as well as the provisions of the License and the Agreement.
1.4.3 Joint Account records shall be maintained by Operator in the
English language and in United States of America ("U.S.")
currency and in such other language and currency as may be
required by the laws of the Country of Operations. Conversions
of currency shall be recorded at the rate actually experienced
in that conversion. Currency translations for expenditures and
receipts shall be recorded at the arithmetic average of the
buying and selling rates at the close of business on the last
Working Day of the preceding Month as published by the Central
Bank of Turkey, or if not published by the Central Bank of
Turkey, then by the clearing bank with whom the Parties
commingled Dollar denominated funds are maintained.
1.4.4 Any currency exchange gain or losses shall be credited or
charged to the Joint Account, except as otherwise specified in
this Accounting Procedure.
1.4.5 This Accounting Procedure shall apply, mutatis mutandis, to
Exclusive Operations in the same manner that it applies to
Joint Operations; provided, however, that the charges and
credits applicable to Consenting Parties shall be
distinguished by an Exclusive Operation Account. For the
purpose of determining and calculating the remuneration of the
Consenting Parties, including the premiums for Exclusive
Operations, the costs and expenditures shall be expressed in
U.S. currency (irrespective of the currency in which the
expenditure was incurred).
1.4.6 The accrual basis for accounting shall be used in preparing
accounts concerning the Joint Operations.
2
1.5 STATEMENTS AND BILLINGS.
1.5.1 Unless otherwise agreed by the Parties, Operator shall submit
Monthly to each Party, on or before the 10th Day of each
Month, statements of the costs and expenditures incurred
during the prior Month, indicating by appropriate
classification the nature thereof, the corresponding budget
category, and the portion of such costs charged to each of the
Parties.
These statements, as a minimum, shall contain the following
information:
- advances of funds setting forth the currencies
received from each Party
- the share of each Party in total expenditures
- the current account balance of each Party
- summary of costs, credits, and expenditures on a
current Month, Year-to-date, and inception-to-date
basis or other periodic basis, as agreed by Parties
- details of unusual charges and credits in excess of
U.S. dollars five thousand (U.S.$5,000.00).
1.5.2 Operator shall, upon request, furnish a description of the
accounting classifications used by it.
1.5.3 Amounts included in the statements and billings shall be
expressed in U.S. currency and reconciled to the currencies
advanced.
1.5.4 Each Party shall be responsible for preparing its own
accounting and tax reports to meet the requirements of the
Country of Operations and of all other countries to which it
may be subject. Without limiting the foregoing, each Party
acknowledges that it will keep its records and accounts in
accordance with Turkish Accounting Procedures and Fiscal
Procedure Law as published in the Turkish Official Gazette on
10.01.1961 Law Number 213. Operator, to the extent that the
information is reasonably available from the Joint Account
records, shall provide Non-Operators in a timely manner with
the necessary statements to facilitate the discharge of such
responsibility.
3
1.6 BANK ACCOUNTS.
1.6.1 Operator shall open and maintain a single set of bank accounts
for the Joint Operations. Should there be a change in Operator
under the Agreement (other than pursuant to a transfer to an
Affiliate), then separate bank accounts shall thereafter be
maintained by the successor Operator. To the extent permitted
by applicable law and regulations, Operator will utilise
interest bearing accounts when possible so temporary short
term cash balances held pending disbursement can earn
interest.
1.6.2 The bank accounts shall be denominated in Dollars and Turkish
Lira and any other foreign currency that Operator deems
necessary.
1.6.3 Operator shall notify the Parties of the name of the bank and
the account numbers on opening of each account.
1.6.4 The accounts shall be established in the Republic of Turkey
and/or any other country the Operating Committee may deem
appropriate.
1.6.5 Operator may not commingle in any of the accounts its own
funds.
1.7 PAYMENTS AND ADVANCES.
1.7.1 Not less than ten (10) days prior to the beginning of each
Month, Operator shall furnish the Parties with a Cash Call,
requesting an Advance or Advances for such Month and showing
estimated Cash Calls for the two (2) Months immediately
following that Month. The amount requested in a Cash Call
shall be Operator's estimate of the amount required from the
Parties to enable Operator to defray the net cash payments,
being cash payments less cash receipts as adjusted for cash on
hand, due in the relevant Month under obligations properly
incurred by Operator in connection with the Joint Operations
and in accordance with the Agreement.
1.7.2 Each Cash Call shall be made in writing and delivered to all
Non-Operators not less than fifteen (15) Days before the
payment due date and shall be accompanied by a statement
indicating the Budget and, where applicable, AFEs for which
the funds are required and the amounts attributed to each
major budget heading for which the funds are required,
analysed by Budget and, where applicable, AFE. The due date
for payment of such Advances shall be set by Operator but
shall be no sooner than the first Day of the Month for which
the Advances are required. All Advances shall be made
4
without bank charges. Any charges related to receipt of
Advances from a Non-Operator shall be borne by that
Non-Operator.
1.7.3 Each Non-Operator shall wire transfer its share of the full
amount of each such cash call to Operator on or before the due
date, in the currencies requested, and to a bank account
established under Section 1.6 designated by Operator and
denominated in the relevant currency. If currency provided by
a Non Operator is other than as requested, the entire cost of
converting to the requested currency shall be charged to that
Non-Operator.
1.7.4 Notwithstanding the provisions of Section 1.7.2, should
Operator be required to pay any sums of money for the Joint
Operations which were unforeseen at the time of providing the
Non-Operators with said estimates of its requirements and
which have been authorised by the Parties in an approved
Budget and, if applicable, an AFE, or are incurred pursuant to
and in accordance with Article 5.8 of the Agreement, Operator
may make a written request of the Non-Operators for special
advances covering the Non-Operators' share of such payments.
Each such Non-Operator shall make its proportional special
advances within ten (10) Days after receipt of such notice.
1.7.5 If a Non-Operator's advances exceed its share of cash
expenditures, the next succeeding cash advance requirements,
after such determination, shall be reduced accordingly. A
Non-Operator may request that its excess advances be refunded.
Operator shall make such refund within ten (10) Days after
receipt of the Non-Operator's request provided that the amount
is in excess of the requesting Non-Operator's share of the
cash advance requirements for the succeeding Month.
1.7.6 If Non-Operator's advances are less than its share of cash
expenditures, the deficiency shall, at Operator's option, be
added to subsequent cash advance requirements or be paid by
Non-Operator within ten (10) Days following the receipt of
Operator's billing to Non-Operator for such deficiency.
1.7.7 If, under the provisions of the Agreement, Operator is
required to segregate funds received from the Parties, any
interest received on such funds shall be applied against the
next succeeding cash call or, if directed by the Operating
Committee, distributed quarterly. The interest thus received
shall be allocated to the Parties on an equitable basis taking
into
5
consideration date of funding by each Party to the accounts in
proportion to the total funding into the account. A Monthly
statement summarizing receipts, disbursements, transfers to
each joint bank account and beginning and ending balances
thereof shall be provided by Operator to the Parties. Any
interest received by Operator from interest-bearing accounts
containing commingled funds received from the Parties shall be
credited to the Parties in accordance with the allocation
procedure as set forth above.
1.7.8 Subject to governmental regulation, Operator shall have the
right, at any time and from time to time, to convert the funds
advanced or any part thereof to other currencies to the extent
that such currencies are then required for operations. The
cost of any such conversion shall be charged to the Joint
Account.
1.7.9 Operator shall endeavor to maintain funds held for the Joint
Account in bank accounts at a level consistent with that
required for the prudent conduct of Joint Operations.
1.7.10 If under the Agreement, Operator is required to segregate
funds received from or for the Joint Account, the provisions
under this Section 1.7 for payments and Advances by
Non-Operators shall apply also to Operator.
1.8 ADJUSTMENTS. Payments of any advances or xxxxxxxx shall not prejudice
the right of any Non-Operator to protest or question the correctness
thereof; provided, however, all bills and statements rendered to
Non-Operators by Operator during any Year shall conclusively be
presumed to be true and correct after twenty-four (24) Months following
the end of such Year, unless within the said twenty-four (24) Month
period a Non-Operator takes written exception thereto and makes claim
on Operator for adjustment. Failure on the part of a Non-Operator to
make claim on Operator for adjustment within such period shall
establish the correctness thereof and preclude the filing of exceptions
thereto or making claims for adjustment thereon. No adjustment
favorable to Operator shall be made unless it is made within the same
prescribed period. The provisions of this paragraph shall not prevent
adjustments resulting from a physical inventory of the Property as
provided for in Section VI. Operator shall be allowed to make
adjustments to the Joint Account after such twenty-four (24) Month
period if these adjustments result from audit exceptions outside of
this Agreement, third party claims, or Government requirements. Any
such adjustments shall be subject to audit within the time period
specified in Section 1.9.1.
6
1.9 AUDITS.
1.9.1 A Non-Operator, upon at least sixty (60) Days advance notice
in writing to Operator and all other Non-Operators, shall have
the right to audit the Joint Accounts and records of Operator
relating to the accounting hereunder for any Year within the
twenty-four (24) Month period following the end of such Year.
The cost of each such audit shall be borne by Non-Operators
conducting the audit. It is provided, however, that
Non-Operators must take written exception to and make claim
upon the Operator for all discrepancies disclosed by said
audit within said twenty-four (24) Month period. Where there
are two or more Non-Operators, the Non-Operators shall make
every reasonable effort to conduct joint or simultaneous
audits in a manner which will result in a minimum of
inconvenience to the Operator. Operator and Non-Operators
shall make every effort to resolve any claim resulting from an
audit within a reasonable period of time.
1.9.2 In connection with any audit under Section 1.9.1, a
Non-Operator may audit the records of an Affiliate of Operator
relating to that Affiliate's charges. The provisions of this
Accounting Procedure shall apply mutatis mutandis to such
audit. Operator shall procure its relevant Affiliates
facilitat6e any such audit.
1.9.3 At the conclusion of each audit, each Party shall endeavour to
settle outstanding matters with Operator and shall circulate a
written report concerning unresolved items to all the Parties
within two (2) Months of the conclusion of each audit. The
report shall include all claims arising from such audit
together with comments pertinent to the operation of the
accounts and records. Operator shall reply to the report in
writing as soon as possible and in any event not later than
two (2) Months following receipt of the report. Should the
Parties (or any of them) consider that the report or reply
requires further investigation of any item therein, such
Parties shall have the right to conduct further investigation
in relation to such matter notwithstanding that the said
period of twenty-four (24) Months may have expired. Such
further investigation shall be commenced within ninety (90)
days and be concluded within one hundred and twenty (120) days
of the receipt of such report or reply.
1.9.4 All adjustments resulting from an audit agreed between
Operator and the Parties conducting the audit shall be
rectified promptly in the Joint Account
7
by Operator and reported to the other Parties. If any dispute
shall arise in connection with an audit, it shall be referred
to the Operating Committee. If Operator and such Parties are
unable to reach final agreement on a proposed audit adjustment
and the amount in dispute is in excess of $20,000, and either
Operator or such Parties so desire, such adjustment may be
referred by the Operating Committee to an internationally
recognised independent firm of public accountants selected by
such other Parties and approved by Operator, such approval not
to be unreasonably withheld. The decision of such firm of
public accountants shall be final and binding upon the
Parties.
1.9.5 Any information obtained by a Non-Operator under the
provisions of this Section 1.9 which does not relate directly
to the Joint Operations shall be kept confidential and shall
not be disclosed to any party, except as would otherwise be
permitted by Article 17 of the Agreement.
1.9.6 In the event that the Operator is required by law to employ a
public accounting firm to audit the Joint Account and records
of Operator relating to the accounting hereunder, the cost
thereof shall be a charge against the Joint Account, and a
copy of the audit shall be furnished to each Party.
1.10 ALLOCATIONS. If it becomes necessary to allocate any costs or
expenditures to or between Joint Operations and any other operations,
such allocation shall be made on an equitable basis. Upon request,
Operator shall furnish a description of its allocation procedures
pertaining to these costs and expenditures.
SECTION II
----------
DIRECT CHARGES
--------------
Subject to the Agreement, Operator shall charge the Joint Account with all costs
and expenditures incurred after the date of the Agreement in connection with
Joint Operations. Charges for services normally provided by an operator which
are provided by Operator's Affiliates shall reflect the cost to the Affiliate,
excluding profit, for performing such services, except as otherwise provided in
Section 2.6.
The costs and expenditures shall be recorded as required for the settlement of
accounts between the Parties hereto in connection with the rights and
obligations under this Agreement and for purposes of complying with the tax laws
of the Country of Operations and of such other
8
countries to which any of the Parties may be subject. Without in any way
limiting the generality of the foregoing, chargeable costs and expenditures
shall include:
2.1 LICENSES, PERMITS, ETC. All costs, if any, attributable to the
acquisition, maintenance, renewal or relinquishment of licenses,
permits, contractual and/or surface rights acquired for Joint
Operations, when paid by Operator in accordance with the provisions of
the Agreement provided that no such amount shall be charged to the
Joint Account where payment of that amount, or of an amount in lieu
thereof, is provided for in clause 6.5 of the Farmin and Participation
Agreement.
2.2 SALARIES, WAGES AND RELATED COSTS.
2.2.1 Costs related to the employees of Operator and its Affiliates
in the Country of Operations directly engaged in Joint
Operations whether temporarily or permanently assigned, as
more particularly set out below. For the avoidance of doubt,
costs related to any such employees shall not be charged to
the Joint Account to the extent they relate to activities of
the Operator or its Affiliates carried out other than in
pursuance of the duties of the Operator under the Agreement
(e.g. where the Operator or its Affiliate are acting as
contractor for the Parties in relation to drilling
operations).
2.2.2 Salaries and wages, including everything constituting the
employees' total compensation. To the extent not included in
salaries and wages, the Joint Account shall also be charged
with the cost to Operator of holiday, vacation, sickness,
disability benefits, living and housing allowances, travel
time, bonuses, and other customary allowances applicable to
the salaries and wages chargeable hereunder, as well as costs
to Operator for employee benefits, including but not limited
to employee group life insurance, group medical insurance,
hospitalization, retirement, and other benefit plans of a like
nature applicable to labor costs of Operator. Operator's
employees participating in Country of Operations benefit plans
may be charged at a percentage rate to reflect payments or
accruals made by Operator applicable to such employees. Such
accruals for Country of Operations benefit plans shall not be
paid by Non-Operators, unless otherwise approved by the
Operating Committee, until the same are due and payable to the
employee, upon withdrawal of a Party pursuant to the
Agreement, or upon termination of the Agreement, whichever
occurs first.
9
2.2.3 Expenditures or contributions made pursuant to assessments
imposed by governmental authority for payments with respect
thereto or on account of such employees.
2.2.4 Salaries and wages charged in accordance with Operator's usual
practice, when and as paid or accrued, or on a basis of the
Operator's average cost per employee for each job category;
and the rates to be charged shall be reviewed at least
annually. In determining the average cost per employee for
each job category, expatriate and national employee salaries
and wages shall be calculated separately. During a given
period of time it is understood that some costs for salaries
and wages may be charged on an actual basis while the
remaining costs for salaries and wages are charged at a rate
based upon the above described average cost.
2.2.5 Reasonable expenses (including related travel costs) of those
employees whose salaries and wages are chargeable to the Joint
Account under Section 2.2.1 of this Section II and for which
expenses the employees are reimbursed under the usual practice
of Operator.
2.2.6 All personnel who are not engaged exclusively on the Joint
Operations and are under the direct control of Operator or its
Affiliates will maintain time sheets for the purpose of
charging salary and related benefits to the Joint Account.
Time sheets will record time worked on the Joint Operations
and all other operations whether such personnel are engaged
full time or part time on the Joint Operations and will show
the time worked on the various projects and other
classifications of cost to enable personnel costs to be shown
separately for budget and cost control purposes.
Indirect time such as annual holidays, public holidays,
sickness, staff training, general supervisory duties, general
administration, and other like items shall be allocated both
to Joint Operations and to other operations in the same ratio
as direct time writing.
2.2.7 The amount to be charged to the Joint Account for each
employee referred to in Section 2.2.1 shall be the proportion
of Operator's or any of its Affiliates' actual cost of
salaries and related benefits for each such person that the
time worked by such person on the Joint Operations including
indirect time allocation bears to the total time worked by
such person as shown on the time sheets, provided that
payments in respect of retirement
10
and severance and other like items shall be allocated
equitably to the Joint Operations and other operations of
Operator and its Affiliates which have benefited from the
services of the staff involved.
2.3 EMPLOYEE RELOCATION COSTS.
2.3.1 Except as provided in Section 2.3.3, Operator's cost of
employees' relocation to or from the License Area vicinity or
location where the employees will reside or work, whether
permanently or temporarily assigned to the Joint Operations.
If such employee works on other activities in addition to
Joint Operations, such relocation costs shall be allocated on
an equitable basis.
2.3.2 Such relocation costs shall include transportation of
employees, families, personal and household effects of the
employee and family, transit expenses, and all other related
costs in accordance with Operator's usual practice.
2.3.3 Relocation costs from the vicinity of the License Area to
another location classified as a foreign location by Operator
shall not be chargeable to the Joint Account unless such
foreign location is the point of origin of the employee.
2.4 OFFICES, CAMPS, AND MISCELLANEOUS FACILITIES. Cost of maintaining any
offices, sub-offices, camps, warehouses, housing, and other facilities
of the Operator and/or Affiliates directly serving the Joint
Operations. If such facilities serve operations in addition to the
Joint Operations the costs shall be allocated to the properties served
on an equitable basis.
2.5. MATERIAL. Cost, net of discounts taken by Operator, of Material
purchased or furnished by Operator as specified in Section IV of this
Accounting Procedure. So far as it is reasonably practical and
consistent with efficient and economical operation, only such Material
shall be purchased for, and the cost thereof charged to, the Joint
Account as may be required for immediate use.
2.6 EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF OPERATOR AND AFFILIATES.
Charges for exclusively owned equipment, facilities, and utilities of
Operator and its Affiliates at rates not to exceed the average
commercial rates of non-affiliated third parties then prevailing for
like equipment, facilities, and utilities for use in the area where the
same are used hereunder. On request, Operator shall furnish
11
Non-Operators a list of rates and the basis of application. Such rates
shall be revised from time to time if found to be either excessive or
insufficient, but not more than once every six months.
Drilling tools and other equipment lost in the hole or damaged beyond
repair may be charged at replacement cost less depreciation plus
transportation costs to deliver like equipment to the location where
used.
2.7 SERVICES. The cost of services provided by third parties including
Affiliates of Operator. Such charges for services by Operator's
Affiliates shall not exceed those currently prevailing if performed by
non-affiliated third parties, considering quality and availability of
services.
2.8 INSURANCE. Premiums paid for insurance required by law or the Agreement
to be carried for the benefit of the Joint Operations.
2.9 DAMAGES AND LOSSES TO PROPERTY.
2.9.1 All costs or expenditures necessary to replace or repair
damages or losses incurred by fire, flood, storm, theft,
accident, or any other cause. Operator shall furnish
Non-Operators written notice of damages or losses incurred in
excess of twenty thousand U.S. dollars (U.S. $20,000.00) as
soon as practical after report of the same has been received
by Operator. All losses in excess of five thousand U.S.
dollars (U.S. $5,000.00) shall be listed separately in the
monthly statement of costs and expenditures.
2.9.2 Credits for settlements received from insurance carried for
the benefit of Joint Operations and from others for losses or
damages to Joint Property or Materials. Each Party shall be
credited with its Participating Interest share thereof except
where such receipts are derived from insurance purchased by
Operator for less than all Parties in which event such
proceeds shall be credited to those Parties for whom the
insurance was purchased in the proportion of their respective
contributions toward the insurance coverage.
2.9.3 Expenditures incurred in the settlement of all losses, claims,
damages, judgments, and other expenses for the account of
Joint Operations.
2.10 LITIGATION AND LEGAL EXPENSES. The costs and expenses of litigation and
legal services necessary for the protection of the Joint Operations
under this Agreement as follows:
2.10.1 Legal services necessary or expedient for the protection of
the Joint Operations, and all costs and expenses of
litigation, arbitration or other alternative dispute
resolution procedure, including reasonable attorneys'
12
fees and expenses, together with all judgments obtained
against the Parties or any of them arising from the Joint
Operations.
2.10.2 If the Parties shall so agree, actions or claims affecting the
Joint Operations may be handled by the legal staff of one or
any of the Parties; and a charge commensurate with the
reasonable costs of providing and furnishing such services
rendered may be made by the Party providing such service to
Operator for the Joint Account, but no such charges shall be
made until approved by the Parties.
2.11 TAXES AND DUTIES. All taxes, duties, assessments and governmental
charges, of every kind and nature, assessed or levied upon or in
connection with the Joint Operations, other than any that are measured
by or based upon the revenues, income and net worth of a Party.
If Operator or an Affiliate is subject to income or withholding tax as
a result of services performed at cost for the operations under the
Agreement, its charges for such services may be increased by the amount
of such taxes incurred (grossed up).
2.12 OTHER EXPENDITURES. Any other costs and expenditures incurred by
Operator for the necessary and proper conduct of the Joint Operations
in accordance with approved Programs and Budgets and not covered in
this Section II or in Section III.
SECTION III
-----------
INDIRECT CHARGES
----------------
3.1 PURPOSE. Operator shall charge the Joint Account monthly for the cost
of indirect services and related office costs of Operator and its
Affiliates not otherwise provided for in this Accounting Procedure.
These costs are such that it is not practical to identify or associate
them with specific projects but are for services which provide Operator
with needed and necessary resources which Operator requires and provide
a real benefit to Joint Operations. No cost or expenditure included
under Section II shall be included or duplicated under this Section
III.
3.2 AMOUNT. The charge for the period beginning with the Year through the
end of the period covered by Operator's invoice ("Year-to-Date") under
Section 3.1 above shall be a percentage of the Year-to-Date
expenditures, calculated on the following scale (U.S. Dollars):
13
Annual Expenditures
$0 to $1,000,000 of expenditures = 5 %
Next $1,500,000 of expenditures = 3 %
Next $3,500,000 of expenditures = 2 %
Excess above $6,000,000 of expenditures = 1%
A minimum amount of U.S.$2,500 shall be assessed each month.
Notwithstanding the foregoing, the indirect rates and related
calculation method for development operations and for production
operations shall be agreed upon by the Parties prior to the submission
of the first annual Budget for those phases of operations.
3.3 EXCLUSIONS. The expenditures used to calculate the monthly indirect
charge shall not include expenditures incurred or relating to a period
or time prior to the date of the Agreement, the indirect charge,
rentals on surface rights acquired and maintained for the Joint
Account, any payments under the Farmin and Participation Agreement or
in respect of the works and operations referred to in clauses 3 to 6
(both inclusive) of that agreement, guarantee deposits, pipeline
tariffs, concession acquisition costs, bonuses paid in accordance with
the License, royalties and taxes paid under the License, expenditures
associated with major construction projects for which a separate
indirect charge is established hereunder, payments to third parties in
settlement of claims, and other similar items.
Credits arising from any government subsidy payments, disposition of
Material, and receipts from third parties for settlement of claims
shall not be deducted from total expenditures in determining such
indirect charge.
3.4 INDIRECT CHARGE FOR PROJECTS. As to major construction projects (such
as, but not limited to, pipelines, gas reprocessing and processing
plants, and final loading and terminalling facilities) when the
estimated cost of each project amounts to more than one hundred
thousand dollars (U.S. $100,000.00) a separate indirect charge for such
project shall be set by the Operating Committee at the time of approval
of the project.
3.5 CHANGES. The indirect charges provided for in this Section III may be
amended periodically by mutual agreement between the Parties if, in
practice, these charges are found to be insufficient or excessive.
14
SECTION IV
----------
ACQUISITION OF MATERIAL
-----------------------
4.1 ACQUISITIONS. Materials purchased for the Joint Account shall be
charged at net cost paid by the Operator. The price of Materials
purchased shall include, but shall not be limited to export broker's
fees, insurance, transportation charges, loading and unloading fees,
import duties, license fees, and demurrage (retention charges)
associated with the procurement of Materials, the purchasing fee
provided for in Section 2.5.1, and applicable taxes, less all discounts
taken.
4.2 MATERIALS FURNISHED BY OPERATOR. Materials required for operations
shall be purchased for direct charge to the Joint Account whenever
practicable, except the Operator may furnish such Materials from its
stock under the following conditions:
4.2.1 NEW MATERIALS (CONDITION "1"). New Materials transferred from
the warehouse or other properties of Operator shall be priced
at net cost determined in accordance with Section 4.1 above,
as if Operator had purchased such new Material just prior to
its transfer.
Such net costs shall in no event exceed the then current market price.
4.2.2 USED MATERIALS (CONDITIONS "2" AND "3").
4.2.2.1 Material which is in sound and serviceable condition
and suitable for use without repair or reconditioning
shall be classed as Condition "2" and priced at
seventy-five percent (75%) of its original issue
price.
4.2.2.2 Materials not meeting the requirements of Section
4.2.2.1 above, but which can be made suitable for use
after being repaired or reconditioned, shall be
classed as Condition "3" and priced at fifty percent
(50%) of its original issue price. The cost of
reconditioning shall also be charged to the Joint
Account provided the Condition "3" price, plus cost
of reconditioning, does not exceed the Condition "2"
price; and provided that Material so classified meet
the requirements for Condition "2" Material upon
being repaired or reconditioned.
4.2.2.3 Material which cannot be classified as Condition "2"
or Condition "3", shall be priced at a value
commensurate with its use.
15
4.2.2.4 Tanks, derricks, buildings, and other items of
Material involving erection costs, if transferred in
knocked-down condition, shall be graded as to
condition as provided in this Section 4.2.2 of
Section IV, and priced on the basis of knocked-down
price of like new Material.
4.2.2.5 Material including drill pipe, casing and tubing,
which is no longer useable for its original purpose
but is useable for some other purpose, shall be
graded as to condition as provided in this Section
4.2.2 of Section IV. Such Material shall be priced on
the basis of the current price of items normally used
for such other purpose if sold to third parties.
4.3 PREMIUM PRICES. Whenever Material is not readily obtainable at prices
specified in Sections 4.1 and 4.2 of this Section IV because of
national emergencies, strikes or other unusual causes over which
Operator has no control, Operator may charge the Joint Account for the
required Material at Operator's actual cost incurred procuring such
Material, in making it suitable for use, and moving it to the License
Area.
4.4 WARRANTY OF MATERIAL FURNISHED BY OPERATOR. Operator does not warrant
the Material furnished. In case of defective Material, credit shall not
be passed to the Joint Account until adjustment has been received by
Operator from the manufacturers or their agents.
16
SECTION V
---------
DISPOSAL OF MATERIALS
---------------------
5.1 DISPOSAL. Operator shall be under no obligation to purchase the
interest of Non-Operators in new or used surplus Materials. Operator
shall have the right to dispose of Materials but shall advise and
secure prior agreement of the Operating Committee of any proposed
disposition of Materials having an original cost to the Joint Account
either individually or in the aggregate of twenty-five thousand U.S.
Dollars (U.S. $25,000.00) or more. When Joint Operations are relieved
of Material charged to the Joint Account, Operator shall advise each
Non-Operator of the original cost of such Material to the Joint Account
so that the Parties may eliminate such costs from their asset records.
Credits for Material sold by Operator shall be made to the Joint
Account in the month in which payment is received for the Material. Any
Material sold or disposed of under this Section shall be on an "as is,
where is" basis without guarantees or warranties of any kind or nature.
Costs and expenditures incurred by Operator in the disposition of
Materials shall be charged to the Joint Account.
5.2 MATERIAL PURCHASED BY A PARTY OR AFFILIATE. Material purchased from the
Joint Property by a Party or an Affiliate thereof shall be credited by
Operator to the Joint Account, with new Material valued in the same
manner as new Material under Section 4.2.1 and used Material valued in
the same manner as used Material under Section 4.2.2, unless otherwise
agreed by the Operating Committee.
5.3 DIVISION IN KIND. Division of Material in kind, if made between the
Parties, shall be in proportion to their respective interests in such
Material. Each Party will thereupon be charged individually with the
value (determined in accordance with the procedure set forth in Section
5.2) of the Material received or receivable by it.
5.4 SALES TO THIRD PARTIES. Material purchased from the Joint Property by
third parties shall be credited by Operator to the Joint Account at the
net amount collected by Operator from the buyer. If the sales price is
less than that determined in accordance with the procedure set forth in
Section 5.2, then approval by the Operating Committee shall be required
prior to the sale. Any claims by the buyer for defective materials or
otherwise shall be charged back to the Joint Account if and when paid
by Operator.
17
SECTION VI
----------
INVENTORIES
-----------
6.1 PERIODIC INVENTORIES - NOTICE AND REPRESENTATION. At reasonable
intervals, but at least annually, inventories shall be taken by
Operator of all Material on which detailed accounting records are
normally maintained. The expense of conducting periodic inventories
shall be charged to the Joint Account. Operator shall give
Non-Operators written notice at least thirty Days (30) in advance of
its intention to take inventory, and Non-Operators, at their sole cost
and expense, shall each be entitled to have a representative present.
The failure of any Non-Operator to be represented at such inventory
shall bind such Non-Operator to accept the inventory taken by Operator,
who shall in that event furnish each Non-Operator with a reconciliation
of overages and shortages. Inventory adjustments to the Joint Account
shall be made for overages and shortages. Any adjustment equivalent to
twenty thousand U.S. Dollars (U.S.$20,000.00) or more shall be brought
to the attention of the Operating Committee.
6.2 SPECIAL INVENTORIES. Whenever there is a sale or change of interest in
the Agreement, a special inventory may be taken by the Operator
provided the seller and/or purchaser of such interest agrees to bear
all of the expense thereof. In such cases, both the seller and the
purchaser shall be entitled to be represented and shall be governed by
the inventory so taken.
SECTION VII
-----------
BUDGETING AND AFES
------------------
7.1 BUDGET PREPARATION.
7.1.1 EXPLORATION AND APPRAISAL BUDGETS. Each exploration and each
appraisal Budget required under Articles 9 and 10 of the
Agreement shall include:
(i) an estimate in Dollars of the total cost of the
relevant Program and a sub-division of such total
into each main classification and sub-classification
of cost. The estimates for each such classification
and sub-classification of cost shall be based on an
Accrual Basis for each of the Quarters of the
relevant Year or Years;
(ii) a schedule of estimated Joint Property warehouse
stock movement;
(iii) the amount of any escalation allowance;
(iv) the amount of any contingency allowance;
18
(v) a statement indicating which budget items, if any,
are contingent upon the outcome of other budget items
such as the testing of Exploration Xxxxx and related
salaries and overheads;
(vi) an estimate of the timing and value of each AFE and
commitment (being contracts or other orders placed or
goods purchased) to be made under the Budget;
(vii) an estimate of the total number of man months.
7.1.2 DEVELOPMENT BUDGETS. Each development Budget required under Article 11
of the Agreement shall include:
(i) an estimate on an annual basis in Dollars of the
total cost of the development and a sub-division of
such total into each main classification and
sub-classification of cost. The estimate for each
such classification and sub-classification of cost
shall be phased on an Accrual Basis and shall be
shown by Quarter;
(ii) the items detailed in paragraphs (ii) to (v)
inclusive of Section 7.1.1;
(iii) an estimate of the timing and value of the AFEs and
commitments to be made under the Budget identifying
the total commitments under each main classification
of cost in each Quarter of the first Year and the
subsequent Year. Operator shall endeavour to provide
the timing and estimated commitment for currencies
other than Dollars (with the exchange rate used)
where such commitment is known;
(iv) an estimate of the total number of man months.
7.1.3 PRODUCTION BUDGETS. Each production Budget required under Article 12 of
the Agreement shall be divided into the following sections:
(i) Capital Expenditure
(ii) operating expenditure
(iii) extraordinary expenditure.
Each production Budget shall include the items detailed in
paragraphs (i) to (vi) inclusive of this Section 7.1.1, and an
estimate of the cost to complete projects commencing in the
respective Budget year.
19
7.2. PROCEDURE FOR BUDGET APPROVAL. The procedure for approval of
exploration, appraisal, development and production Budgets is provided
in Articles 9, 10, 11 and 12 of the Agreement.
7.3 BUDGET APPROVAL AND AFE APPROVAL. Approval of Budgets for exploration,
appraisal, development and production provides Operator with general
approval of the proposals but does not, subject to Article 5.8 of the
Agreement, permit Operator to enter into commitments or incur any
expenditures for any item included in the said Budgets for which an AFE
is required in accordance with the provisions of the Agreement until
such AFE is approved by the Operating Committee or deemed to be
approved as hereinafter provided.
7.4. SUB-DIVISION OF BUDGETS FOR APPROVAL BY AFE AND FOR CONTROL.
7.4.1 Exploration, appraisal, development and production Budgets
shall be divided into separately numbered classifications and
sub-classifications of cost to provide a breakdown of the
project into work elements in sufficient detail to allow
adequate cost allocation and control. Where individual items
of expenditure are attributable to more than one such
classification or sub-classification such items shall be
apportioned on an equitable basis.
7.4.2 Notwithstanding the above to the extent that such AFE's are
required in accordance with the Agreement AFE's for xxxxx
included in an exploration or an appraisal Budget shall be
issued on a dry hole basis. Estimated testing costs will be
provided with such AFE's for information and if testing is
required approval will be sought in a telex detailing the
testing program. Where an AFE is required this will be
followed as soon as possible with a formal AFE for testing.
7.4.3 Operator may not, without the prior approval of the Operating
Committee, transfer sums over US$100,000 between Budget
classifications or sub-classifications after Budgets have been
approved.
7.5. AUTHORISATION FOR EXPENDITURE.
7.5.1 Operator shall request approval of an AFE in accordance with
Articles 9, 10, 11 or 12 of the Agreement at a time when the
main details of the relevant commitment or expenditure can be
ascertained but consistent with giving the Non-Operators
twenty-eight (28) days advance notice of the date by which
approval is required.
20
If any Non-Operator shall not after fourteen (14) days from
the submission of the AFE have given notice to Operator that
it approves and votes in favour of the AFE or that it requires
such AFE to be formally approved at a meeting of the Operating
Committee Operator shall forthwith telex such Non-Operator
reminding it of the date by which approval of the AFE is
required. An AFE within an approved Program and Budget shall
be deemed to be approved by the Operating Committee unless
within 28 days of its submission to the Non-Operators any
Non-Operator gives notice to Operator that it requires such
AFE to be formally approved at a meeting of the Operating
Committee.
In circumstances beyond its control Operator may reduce the
period of twenty-eight (28) days advance notice to such period
as may be reasonable. Operator will inform the Non-Operators
of such shorter period and the reason therefore when it
submits the AFE.
7.5.2 The AFE will describe the project, state the justification for
the items of expenditure, give the estimate of the items of
expenditure necessary to complete the project, and give the
estimated phasings of such expenditures. Necessary further
details to support the estimated cost of the project will be
included as attachments to the extent reasonably required by
the Non-Operators.
Any Party which has voted in favour of an AFE shall sign an
AFE Form indicating its authorisation thereof. After approval
Operator shall promptly notify the Parties indicating the
identity of those Parties whose authorisation have formed part
of such approval.
Operator shall notify the Parties of a deemed approval of an
AFE as soon as such has become effective.
7.5.3 Approval, or where permitted deemed approval, of an AFE
constitutes authority for Operator to enter into any
commitment or incur any expenditure properly made in relation
to any approved AFE, provided that the whether or not payments
in respect of such commitments and expenditure will result in
the final cost of such commitments and expenditure exceeding
the estimated cost of such AFE, provided that if at any time
it becomes apparent that:
21
(i) commitments yet to be made will or are likely to
cause the estimated cost to be exceeded; or
(ii) expenditure to be incurred under commitments already
made will cause the estimated cost to be exceeded by
more than 10% or twenty thousand Dollars ($20,000)
(whichever is the lower),
Operator shall immediately notify the Parties and shall
without delay prepare a revised AFE giving the reasons for the
increased cost, and shall request approval of the revised AFE
and shall not enter into any new commitment in relation to
such AFE until the revised AFE has been approved, or where
permitted deemed to be approved.
SECTION VIII
------------
OVERRIDING PROVISIONS
---------------------
8.1 GENERAL. Sections 8.2 and 8.3 apply notwithstanding any provision of
this Accounting Procedure to the contrary.
8.2 FARMIN AND PARTICIPATION AGREEMENT. No amount shall be payable by
AVENUE under the Agreement or this Accounting Procedure for or in
connection with the works and operations the subject of clauses 3.2 and
3.4 of the Farmin and Participation Agreement.
8.3 PRE-AGREEMENT COSTS. No amount shall be payable by AVENUE under the
Agreement or this Accounting Procedure in relation to costs,
expenditures or liabilities incurred or relating to a period or time
prior to the date of the Agreement, all of which shall be borne by AME
and ERSAN, as between them equally or in such other proportions as they
may agree.
* * * * * * * * * * * * * * * * * *
22
