ASSIGNMENT AGREEMENT
This
Assignment Agreement is entered into this 30th day of
August,
2007, by and between:
PetroSouth
Energy Corporation – Sucursal Colombia, (hereinafter PetroSouth) the Colombian
branch office of a foreign corporation duly incorporated by Public Deed No.
00657 or 2007 of Notary 35 of Bogota, acting herein through its legal
representative Xx. Xxxxxx Xxxxxxxx Xxxxxx with C.C.79.785.924; and
Petroleum
Equipment International Ltda. – PEI Ltda. (hereinafter PEI) a
Colombian Company duly incorporated by Public Deed No. 4.533 or 1989 of Notary
25 of Bogota, acting herein through its legal representative Xx. Xxxx Xxxx
Xxxxxx with C.C.91.241.011.
WHEREAS
A
Contract for the Exploration and Exploitation of the Buenavista Sector was
entered into by Tecnicontrol S.A. and PEI (with a joint and several liability
by
reason of an “Union Temporal” agreement- Union Temporal Omega Energy) with the
Agencia Nacional de Hidrocarburos (the XXX) on November 8, 2004 (the Buenavista
Contract).
The
Buenavista Contract is actually in the Third Exploration Phase, and the actual
Parties thereto have committed to continue with the exploration obligations
under the Minimum Exploration Program at least through the year
2008.
Under
the
Buenavista contract the Bolivar -1 well was drilled with it a Discovery was
made
causing Contractor to apply for an Exploitation Area and the presentation of
a
Development Plan currently under consideration of the XXX.
Xxxxxxx
-1 well is currently producing 19.1° API crude at an average monthly rate of
approx. 3,725 Bbls, and production is currently being sol
domestically.
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Through
successive assigns and changes in ownership the Participating Interests in
the
Buenavista Contract, in front of the XXX, today appear to be distributed as
follows:
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Tecnicontrol
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50%
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Bohemia
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25%
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PEI
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25%
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Through
private agreements to be effective among the Parties, the Participating
Interests in the Buenavista Contract today appear to be:
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TC
Oil and Services, S.A. (TCOil)
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50%
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Quality
Services and Investments – QSI
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12.5%
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PEI
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37.5%
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On
April
20, 2007, TCOil and PEI (as Members of the UTOE) have entered into a Heads
of
Agreement with the officers of Xxxxxx Energy PTY, Ltd (hereinafter “Xxxxxx”), a
company of Australia, whereby these investors agree to certain financial and
operational obligations, (as described in the Annex 1 to this MoU) namely to
pay
in full the AFE’s for the drilling, completion and short tests of:
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(i)
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1
exploration well in the Bolivar structure (inside the Exploitation
Area)
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(ii)
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1
exploration well to satisfy the 4th
Phase of the
Minimum Exploration Program under the Buenavista
Contract.
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(iii)
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1
development well.
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On
June
7, 2007, PEI and PetroSouth entered into a Memorandum of Understanding (the
MoU), whereby PEI agreed to sell and assign 16% of its unencumbered
Participating Interests in the Buenavista Contract to PetroSouth, provided
PetroSouth had complied with its payment obligations thereunder. This
MoU was also executed by TCOil in its capacity as Operator for the Buenavista
Contract and as creditor and titleholder of encumbrances upon PEI’s
Participating Interest.
On
June
7, 2007, PetroSouth paid PEI as good and valuable consideration, the amount
of
Five hundred thousand US dollars (USD 500,000).
On
July
2nd, 2007,
PetroSouth paid PEI or its designated beneficiaries, as good and valuable
consideration, the amount established on the MoU; thus earning the right to
begin to receive sixteen percent (16%) of distributable production originated
in
the Bolivar -1 well accrued as July 1st, 2007,
and in any
other xxxxx within the Buenavista contract Area as of that date.
On
July
10, 2007, TCOil issued a certification indicating that “as of July 2nd, 2007,
PEI has
paid in full any and all liabilities for TC Oil “…and” as of that date there is
no hindrance, limitation, lien nor any other form of encumbrance on the 16%
Participating Interest that PEI is assigning to PetroSouth”.
The
same
TC Oil certification warrants that “Because of the assignment by PEI to
PetroSouth, the Participating Interests in the Buenavista Contract shall be
distributed as follows:
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TC
Oil
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50%
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PEI
LTDA
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21.5%
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Quality
Services and Investors S.A.
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12.5%
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PetroSouth
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16%
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PetroSouth
desires to acquire sixteen percent (16%) of the total Participating Interests
in
the Buenavista Contract, actually belonging to PEI, and to have full, clear
and
unencumbered title to such 16%, including 16% of any production, under any
public and private agreements.
NOW
THEREFORE, in consideration of the premises and of the payments, mutual
covenants and agreements set forth in the MoU and under this Assignment
Agreement and other good and valuable consideration, the receipt and sufficiency
of which is acknowledged hereby, the Parties hereto agree as
follows:
DEFINITIONS
AND INTERPRETATION
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1.1
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Definitions
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When
used in this Assignment Agreement,
the following terms and expressions shall have the following
meanings:
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(a)
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“Accounting
Procedure” means the procedure attached as exhibit “A” to the Joint
Operating Agreement;
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(b)
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“AFE”
means Authority for Expenditure to include all costs, surface and
down-hole related to the drilling, completion and short term tests
of a
given well; and “Drilling AFE” means for the purpose of this
Assignment Agreement, the Authorization for Expenditure regarding
only the
down hole costs including the drilling, completion and short term
tests
for a given well. This definition will apply to the obligations
under the “Heads of Agreement” entered into with the Xxxxxx
Energy.
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(c)
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“Agreed
Interest Rate” means the maximum interest rate allowable under Colombian
law (maxima tasa de interes
moratorio).
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(d)
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“Agreement”
means this Assignment Agreement.
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(f)
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“Applicable
Law” means, the Laws of Colombia.
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(e)
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“Assignment
Approval” means the consent by XXX required for the assignment of the
Earned Interest by PEI to
PetroSouth;
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(f)
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Xxxxxx
means Xxxxxx Energy PTY Ltd. a company of Australia, in the process
of
establishing its Colombian branch office which has agreed to perform
the
obligations and responsibilities described in Annex 1
hereto. Should Xxxxxx sell or assign or change its name or
change of control, when used in this Assignment Agreement or in the
JOA
the term shall be construed to apply to any successor, purchaser,
and
assignee or Xxxxxx.
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(g)
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“Business
Day” means any day on which banks are open to transact commercial business
generally in both Houston, Texas and bogota, D.C., Colombia, but
specifically excluding any Saturday, any Sunday or any other day
of the
week that is a legal or statutory holiday in either Houston, Texas
USA or
Bogota, D.C., Colombia;
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(h)
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“Claim”
means any claim, demand, lawsuit, proceeding, hearing, arbitration
or
governmental investigation;
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(i)
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“Contract”
or ‘Buenavista Contract” means the Contract executed on November 8, 2004,
Tecnicontrol S.A. and PEI, jointly as Union Temporal Omega Energy
with the
“Agencia Nacional de Hidrocarburos – XXX – “, for the Exploration and
Exploitation of Hydrocarbons for the Buenavista Sector, (hereinafter
the
Buenavista Contract) which is currently valid and
enforceable;
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(j)
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“Earned
Interest” means and undivided 16% Participating Interest calculated as of
the Earning Date
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(k)
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“Earning
Date” has the meaning given thereto in Section
2.1.
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(l)
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“Earning
Obligations” has the meaning given thereto in Section
2.1;
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(m)
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“Encumbrance”
means any lien, pledge, option to sale or purchase, or agreement
in favour
of a third party, guaranteeing payment obligations and impeding the
free
and clear transfer of the participation interests. In the
context of this Assignment Agreement and without prejudice to any
other
cases, Encumbrance shall mean the penalties and guarantees offered
by PEI
to TC Oil as collateral for its investment and as described in the
“Convention Unico de Pages, and any amendments thereto, or to any
“Fiduciaria” in regard to its share of
production.
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(n)
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“Joint
Property” means any of the facilities, property, equipment, materials and
other assets, rights and interests that would be “Joint Property” under
the Operating Agreement if the Operating Agreement were to have come
in to
effect and governed operations on the Contract Area from and after
the
date of this Agreement;
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(o)
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“Liabilities”
means all liabilities and obligations, under other Applicable Law,
under
contract or otherwise, whether contractual, statutory or otherwise,
whether absolute or contingent and whether based on fault, strict
liability or otherwise;
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(p)
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“Minimum
Exploration Program” has the meaning given thereto in the
Contract.
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(q)
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“Operating
Agreement or Joint Operation Agreement or JOA” means the joint operating
agreement to be entered into among the TCOil, PEI, Quality Services
and
Investors S.A. and PetroSouth and as a condition precedent for the
third
payment by PetroSouth. The Operating Agreement shall be based
on the AIPN (International Association of Petroleum Negotiators)
most
recent form;
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(r)
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“Participating
Interest” means an undivided beneficial and legal interest in and to the
Contract, the Contract Area and the Joint Property and which shall
be
expressed as a percentage of the total interests of all Parties
therein;
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(s)
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“Party”
means a party to this Assignment
Agreement;
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(t)
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“Phase”
means a phase of the exploration period as defined in the Contract
and,
when “Phase” is followed by a numeral, means the similarly numbered phase
under the Contract;
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(u)
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Quality
Services and Investors S.A., (QSI) a company of Colombia established
by
public deed number 1734 of 2003, from Notary 34 of
Bogota.
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(v)
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TC
Oil and Services S.A. (TC OIL), a company of Colombia established
by
public deed 2.492 or 2.004, from Notary 39 of
Bogota.
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All
definitions contained n the Buenavista Contract and in the JOA are adopted
and
incorporated into this Assignment Agreement by reference.
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2.
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Schedule
of Payments:
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2.1
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PetroSouth
has paid to PEI or to PEI designated beneficiaries and to PEI’s
satisfaction:
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(i)
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Five
hundered thousand dollars (SD 500,000) on June 7, 2007, upon the
signature
of the MoU.
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(ii)
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Nine
hundred fify thousand US dollars (USD 950,000) on July 2nd,
2007. (This payment had the 5% discount, because was paid
before July 10, 2007).
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2.2
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PetroSouth,
have to pay to PEI the next following
payments:
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(iii)
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One
million US Dollars (USD 1,000,000) on September 10,
2007.
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(iv)
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One
million US Dollars (USD 1,000,000) on the 31st
of May
2008.
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Upon
making these payments to PEI, PetroSouth shall have complied with its Earning
Obligations.
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3.
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Content/Scope
of the Payments by PetroSouth.
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3.1
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PEI
understands, agrees and accepts that the Payments made by PetroSouth
(irrespective of the destination of such Payments) constitute a full
complensation for the 16% Participating Interest, a compensation
for any
costs incurred to date (“sunk costs”) and a payment in advance of any and
all operational (capex and opex) and administrative costs of the
petroleum
operations related to the performance
of:
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(i) One
(1) exploration well required to comply with Phase 3 of the Minimum Exploration
Plan;
(ii) One
(1) exploration well scheduled to be drilled within the Exploitation Area,
designated as Bolivar 2 or Buenavista -1 and
(iii) the
exploration well required to comply with Phase 4 of the Minimum Exploration
Plan; the spudding date expected to be no later than 17th October
of 2008,
which implies payment by PetroSouth no later then 31st March of
2008.
Any
Operation other than the Operations described in this section 4.1, shall be
decided, and paid for according to the general rules and practices of the oil
industry as contained in the JOA to be entered into among all the Parties having
Participating Interests in the Buenavista contract.
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3.2
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Payments
by PetroSouth are considered sufficient and timely to cover PetroSouth’s
share in any and all administrative and operational costs and expenses
(capex and opex) related to the operations and activities described
in
4.1, (irrespective of the actual costs and irrespective of payments
received from other investors) and PEI shall instruct the Operator
to
refrain from requesting any further funding from PEI in regard to
the
activities and operations described in section
4.1.
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3.3
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Should
PetroSouth delay any of the payments described in 2.2 (i) or (ii)
hereinabove, PetroSouth agrees to pay the Agreed Interest Rate which
shall
accrue during no more than 30 days. Should delay continue after
this 30 day period and without prejudice to the Agreed Interest rate,
PetroSouth shall be considered in Default and section 7 of this Assignment
Agreement shall apply.
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4.
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Effective
of Earning Obligations.
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4.1
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On
the Day when PetroSouth has met its Earning Obligations, it shall
acquire
the right to 16% of Joint Property, including the right to receive
16% of
Distributable Production (total production minus royalties), originated
in
the Bolivar -1 well.
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4.2
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PetroSouth
shall be entitled to receive from Operator all the information
(operational, financial, commercial or otherwise) regarding the Buenavista
Contract.
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4.3
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PetroSouth
shall be entitled to receive in kind and dispose of 16% of the
Distributable Production originated in the Bolivar -1 well and any
other
well that becomes productive within the Buenavista Contract
Area. PEI shall release this portion of production from any
“fiducia” or any other form of Encumbrance, in such a way that PetroSouth
shall be free to sell its share of production independently, from
the
rest.
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4.4
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PEI
shall advise Xxxxxx of this Assignment Agreement and PetroSouth
requirement that any JOA should include PetroSouth as legal holder
of 16%
of Participating Interests in the Buena Vista
Contract.
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5.
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PEI’s
obligations in regard to PetroSouth’s
share.
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5.1
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In
the event Xxxxxx does not perform (by default or otherwise), and
the
remaining Parties -TCOIL, PEI, QSI and PetroSouth- become liable
for the
Operations described in 4.1, then PEI, in addition to paying its
own share
of all administrative and operational costs and expenses (opex and
capex)
under the appropriate AFEs, shall also make all payments that would
have
otherwise become payable by PetroSouth’s on account of its 16% share of
the Operations described in 4.1, for which it has already received
payment
in advance.
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5.2
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Should
XXX xxxxx or default in making any such payments, it shall be considered
in Default under section 8 of this Assignment
Agreement.
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5.3
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PEI
agrees to grant as collateral and guarantee for the performance of
its
obligation to PetroSouth under this Assignment Agreement. Such
guarantee shall consist namely in the establishment of and Encumbrance
or
PEI’s Participating Interests in any other E&P contract, preferably a
contract where production is originated or in the Talora Contract,
at
PetroSouth’s option, and to be finally determined in a “Guarantee
Agreement” to be executed no later than August 20, 2007. Should
PEI fail to execute the Guarantee, then it shall become obligated
to
reimburse PetroSouth for any and all money received from PetroSouth
to
that day plus the Agreed Interest Rate and no other obligations shall
be
due by PetroSouth under this Assignment Agreement and the
JOA. PetroSouth shall be entitled to initiate legal action
against PEI based on the MoU or based on this Assignment
Agreement. “PEI le reconoce pleno merito ejecutivo a este
documento y sin necesidad de protesto podra proceder al cobro
ejecutivo”.
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Such
Guarantee shall foresee that per every One hundred million pesos (ColPs 100MM)
of outstanding indebtedness towards the Buenavista Operations, PEI shall
automatically assign in favour of PetroSouth a one percentage point of its
participating interests in the chosen Contract. The Guarantee
Agreement shall describe in detail the conditions for such
assignment.
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6.
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Assignment
Agreement, Guarantee Agreement and
JOA
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6.1
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The
Parties agree to enter into this Assignment Agreement, a Guarantee
Agreement and a JOA no later than September, 10, 2007 and as condition
precedent for the payment of the third installment described in 4.1
hereinabove.
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6.2
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Upon
the execution of the Assignment Agreement, PEI shall begin and shall
cause
TCOil to begin the proceedings described in Clause 25 of the Buenavista
Contract and all parties agree to mutually cooperate in satisfying
the
requirements established by the XXX for the recognition of PetroSouth
as
assignee of 16% of the Participating
Interests.
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7.
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Default.
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7.1
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Not
whithstanding any other remedies described herein, if PEI incurs
in
Default hereunder, PEI shall be penalized with a default fee of 30%;
therefore, PEI will return all monies received from PetroSouth plus
a
thirty percent (30%) no later than 90 days following the day of
Default.
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7.2
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If
PetroSouth incurs in Default hereunder, PetroSouth shall be penalized
with
a default foee of 30%; therefore, PEI will return all monies received
from
PetroSouth minus a thirty percent (30%) no later than 90 days following
the day of Default.
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8.
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Governing
Law
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(a)
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This
Agreement shall in all respects be subject to and be interpreted
and
construed in accordance with the laws of
Colombia
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(b)
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The
parties hereto expressly waive the requirement of a court declaration
that
either one is in default when it has failed to perform its obligations
hereunder. Therefore, each party hereto hereby expressly
accepts that another party hereto may exercise its rights simply
by a
written notice forwarded in the event of a default
hereunder.
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9.
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Dispute
Resolution and Arbitration
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(a)
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Direct
Negotiation between the Parties
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Any
conflict or dispute arising between PEI and PetroSouth in regard
to this
Assignment Agreement and the subsequent agreements shall be first
submitted to the highest officer of the Parties in Dispute and they
shall
attempt a direct solution within eight (8) days following the advice
of
the controversy. Should the Parties in the dispute fail to
reach a direct agreement on the matter, section (b) below shall
apply.
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(b)
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Arbitration
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Any
dispute arising between PEI and PetroSouth which has been solved
directly
as set-forth above, shall be submitted to the decision of an Arbitration
Tribunal according to the Colombian law following the rules and procedures
of the Chamber of Commerce of Bogota. The tribunal shall be
formed by a single arbitrator or three arbitrators as the case maybe
under
Colombian law, all chosen by the mutual agreement of the
Parties. The arbitrators should be duly licensed Colombian
Lawyers with more then 15 years experience in the international oil
industry, and fully bilingual in the English and Spanish
languages. The venue shall be city of
Bogota.
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10.
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Taxes.
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PEI
and PetroSouth declare to be knowledgeable and agree to comply with
the
Colombian Tax system applicable to this Assignment Agreement and
the
subsequent agreements; therefore PEI accepts any withholdings on
account
of stamp tax and purchases that may be
applicable.
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11.
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Third
Party Beneficiary.
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This
Assignment Agreement and the subsequent agreements are also executed
by
TCOil and Quality Services S.A., to indicate its knowledge and acceptance
of the terms and conditions herein set-forth, and namely to recognize
that
by the payments made by PetroSouth it shall free any
encumbrance.
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12.
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Representations
and Warranties by PEI: 13.1 PEI hereby represents and warrants
that it has all the appropriate corporate authorities and power under
their by-laws to enter into this Agreement and any other agreements
that
may derive herefrom;
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12.1
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PEI
hereby represents and warrants that it has obtained from the other
parties
in and to the Buenavista Contract the appropriate authorities and
power
for the negotiation and execution of this Agreement and any other
agreements that may derive
herefrom;
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12.2
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PEI
hereby represents and warrants that by the execution and performance
of
this Agreement it is not in violation of any law nor any other contract
or
agreement, public nor private;
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12.3
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PEI
hereby represents and warrants that no other person nor entity, nor
public
nor private has any interest, right nor obligation in the Buenavista
contract and that such interests, rights and obligation are free
of any
limitation, lien, or restriction other than the ones arising from
the
Buenavista Contract or Colombian Law, and is assigning them free
of any
such lien or encumbrance to PetroSouth. In any case, PEI shall
be bound to the reparations under the Law. (“opligacion de
salir al saneamiento conforme a xx
xxx”)
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12.4
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PEI
hereby represents and warrants that the Buenavista Contract is valid
and
in good standing and that it shall continue to adopt all measures
and
conducting all actions as may be necessary for the Buenavista Contract
to
remain effective and enforceable.
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13
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Representations
and Warranties by PetroSouth:
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13.1
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PetroSouth
represents and warrants that it has all the appropriate corporate
authorizations according to its by-laws to enter into this Agreement
and
in any other agreements that may derive
herefrom;
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13.2
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PetroSouth
represents and warrants that by the execution and performance of
the
Agreement it is not in violation of any law now any other contract
or
agreement, public or private;
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13.3
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PetroSouth
represents and warrants that no other person or entity has any interests,
rights or obligations hereunder or in the contracts that may derive
herefrom.
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In
witness of the above, the Parties hereto execute this Assignment Agreement
on
the day first above written.
Signature
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By:
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PETROLEUM
EQUIPMENT INTERNATIONAL, LTDA.
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/s/
Xxxx Xxxx
Xxxxxx
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Xxxx
Xxxx Quiroz
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C.C.91.241.011
de Bogota
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By:
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PETROSOUTH
ENERGY CORPORATION – SUCURSAL
COLOMBIA
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/s/
Xxxxxx Xxxxxxxx
Xxxxxxx
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Xxxxxx
Xxxxxxxx Barrios
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C.C.79.795.924
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