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Exhibit 10.23
OPERATING AGREEMENT
COCORNA AND NARE ASSOCIATIONS
THIS AGREEMENT, entered into this 11th day of September, 1995, but
effective January 1, 1995, by and between OMIMEX DE COLOMBIA, LTD., hereinafter
designated and referred to as "Operator", and SABACOL, INC., hereinafter
referred to as "Non-Operator", collectively called the Parties,
WITNESSETH:
WHEREAS, the Parties to this agreement are owners of the Cocorna and Nare
Associations, Colombia, S.A. identified in Exhibit "A", and the Parties hereto
have reached an agreement to develop and operate these Fields,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
DEFINITIONS
As used in this agreement, the following words and terms shall have the
meanings here ascribed to them:
A. The term "oil and gas" shall mean oil, gas,
casinghead gas, gas condensate, and all other liquid or gaseous
hydrocarbons and other marketable substances produced therewith,
unless an intent to limit the inclusiveness of this term is
specifically stated.
B. The term "Contract Area" shall mean all lands and oil
and gas interests intended to be developed and operated for oil
and gas purposes under this agreement. Such lands and oil and
gas interests are described in Exhibit "A".
C. The term "drillsite" shall mean the site on which a
proposed well is to be located.
D. The terms "Drilling Party" and "Consenting Party" shall
mean a party who agrees to join in and pay its share of the cost
of any operation conducted under the provisions of this
agreement.
E. The terms "Non-Drilling Party" and "Non-Consenting
Party" shall mean a party who elects not to participate in a
proposed operation.
Unless the context otherwise clearly indicates, words used in the singular
include the plural, the plural include the singular, and the neuter gender
includes the masculine and the feminine.
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ARTICLE II
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
A. Exhibit "A" - Identification of the lands subject to
this agreement and the interests of the Parties.
B. Exhibit "B" - Accounting Procedure
C. Exhibit "C" - Insurance
ARTICLE III
INTEREST OF THE PARTIES
Unless changed by other provisions, all costs and liabilities incurred in
operations under this agreement shall be borne and paid, and all equipment and
materials acquired in operations on the Contract Area shall be owned, by the
Parties as their interests are set forth in Exhibit "A". In the same manner,
the Parties shall also own all production of oil and gas from the Contract Area.
Nothing contained in this Article III shall be deemed an assignment or
cross-assignment of interests covered hereby.
ARTICLE IV
OPERATOR
OMIMEX DE COLOMBIA, LTD., shall be Operator of the Contract Area, and shall
conduct and direct and have full control of all operations on the Contract Area
as permitted and required by, and within the limits of this agreement. It
shall conduct all operations in a good and workmanlike manner, but it shall
have no liability as Operator to the other party for losses sustained or
liabilities incurred, except such as may result from gross negligence or
willful misconduct.
Operator may resign at any time by written notice thereof to Non-Operator.
If Operator terminates its legal existence, no longer owns an interest in the
Contract Area, or is no longer capable of serving as Operator because Operator
is insolvent, bankrupt or is placed in receivership, Operator shall be deemed
to have resigned without any action by Non-Operator, except the selection of a
successor. Operator may be removed by Non-Operator by majority vote or if it
fails or refuses to carry out its duties hereunder. Such resignation or
removal shall not become effective until 7:00 A.M. on the first day of the
calendar month following the expiration of (90) days after giving of the notice
of resignation by Operator or action by the Non-Operator to remove Operator,
unless a successor Operator has been selected and assumes the duties of
Operator at an earlier date.
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Upon the resignation of Operator or removal by Non-Operator, a successor
Operator shall be selected by Parties owning an interest in the Contract Area
at the time such successor Operator is selected, excluding the ownership of the
retiring or removed Operator.
The number of employees used by the Operator in conducting operations
hereunder, their selection, and the hours of labor and the compensation for
services performed shall be determined by Operator, and all such employees
shall be the employees of Operator.
ARTICLE V
DRILLING AND DEVELOPMENT
A. OPERATIONS:
Should any party hereto desire to drill additional xxxxx on the Contract
Area or rework, deepen or plug back a dry hole or a well not currently producing
in paying quantities, the party desiring to perform such operation shall given
the other party written notice of the proposed operation and the estimated cost
of the operation. The party receiving such a notice shall have thirty (30) days
after receipt of the notice within which to notify the party wishing to do the
work whether they elect to participate in the cost of the proposed operation. If
a rig is on location the notice of a proposed rework, plug back or drill deeper
may be given by telephone and the response period shall be limited to
forty-eight (48) hours, exclusive of Saturday, Sunday and legal holidays.
Failure of a party receiving such notice to reply within the period fixed above
shall constitute an election by that party not to participate in the cost of the
proposed operation. Any notice or response given by telephone shall be promptly
confirmed in writing.
If all Parties elect to participate in such a proposed operation,
Operator shall, within ninety (90) days after expiration of the notice period
(or as promptly as possible after the expiration of the forty-eight (48) hour
period when a drilling rig is on location), actually commence the proposed
operation and complete it with due diligence at the risk and expense of all the
Parties hereto. Said commencement may be extended for thirty (30) days, upon
written notice to the other party, if in the Operator's sole opinion such
additional time is reasonably necessary to obtain permits, equipment or surface
rights. If not commenced within the time periods set forth above, then the
Operator shall resubmit to the other party its proposal as if no prior proposal
had been made.
If less than all Parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable notice period, shall
advise the Consenting Parties of the total interest approving such operation and
its recommendation as to whether the Consenting Parties should proceed with the
operation as proposed. If the decision is to proceed the entire cost and risk of
conducting such operations shall be borne by the Consenting Parties in their
adjusted proportions. Upon commencement of operations in accordance with the
provisions of this Article, each Non-Consenting Party shall be deemed to have
relinquished to Consenting Parties, and the Consenting Parties shall own and be
entitled to receive, in proportion to their respective interests, all such
Non-Consenting Party's interest in the well and share of production therefrom
until the proceed of the sale of such share, calculated at the well shall equal
the total of the following:
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a) 300% of each Non-Consenting Party's share of the cost
of any newly acquired surface equipment beyond the wellhead
connections (including, but not limited to, stock tanks,
separators, treaters, pumping equipment and piping), plus 100%
of each such Non-Consenting Party's share of the cost of
operation of the well commencing with first production and
continuing until each such Non-Consenting Party's relinquished
interest shall revert to it, it being agreed that each
Non-Consenting Party's share of such cost and equipment will be
that interest which would have been chargeable to such
Non-Consenting Party had it participated in the well from the
beginning of the operations; and
b) 300% of that portion of the cost and expenses of
drilling, reworking, deepening, plugging back, testing and
completing, and 300% of that portion of the cost of newly
acquired equipment in the well (to and including the wellhead
connections), which would have been chargeable to such
Non-Consenting Party if it had participated therein.
An election not to participate in the drilling or the deepening of a well
shall be deemed an election not to participate in any reworking or plugging
back operation proposed in such well, or portion thereof, to which the intital
Non-Consent election applied that is conducted at any time prior to full
recovery by the Consenting Parties of the Non-Consenting Parties recoupment
account. Any such work during the recoupment period shall be deemed part of
the cost of operation of said well and there shall be added to the sums to be
recouped by the Consenting Parties 300% of that portion of the costs of the
work.
Within sixty (60) days after the completion of any operation under this
Article, the Operator shall furnish each Non-Consenting Party with an inventory
of the equipment in and connected to the well, and an itemized statement of the
cost of the operation. Thereafter, at least semi-annually, the Operator shall
provide each Non-Consenting Party with a payout statement reflecting costs and
revenue attributable to the well from the time of the non-consent election to
the date of the statement.
If and when the Consenting Parties recover from a Non-Consenting Party's
relinquished interest the amounts provided for above, the relinquished
interests of such Non-Consenting Party shall automatically revert to it, and
from and after such reversion, such Non-Consenting Party shall own the same
interest in such well, the material and equipment in or pertaining thereto, and
the production thereform as such Non-Consenting Party would have been entitled
had it participated in the operation on said well.
B. TAKING OF PRODUCTION:
Each Party to this agreement shall be responsible for disposing of and
accounting for its proportionate share of the production in accordance with the
sales agreement(s) with Ecopetrol or any other purchaser as agreed to by the
Parties or as required by the appropriate government authority of the Republic
of Colombia.
C. ACCESS TO CONTRACT AREA AND INFORMATION:
Each party shall have access to the Contract Area at all reasonable
times, at its sole cost and risk
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to inspect or observe operations, and shall have access at reasonable times to
information pertaining to the development or operation thereof, including
Operator's books and records relating thereto. Operator, upon request, shall
furnish each of the other Parties with copies of all forms and reports filed
with governmental agencies, daily drilling reports, well logs, tank tables,
daily guage and run tickets and reports of stock on hand at the first of each
month, and shall make available samples of any cores or cuttings taken from any
well drilled on the Contract Area. The cost of gathering and furnishing
information to Non-Operator, other than that specified above, shall be charged
to the Non-Operator that requests the information.
D. ABANDONMENT OF XXXXX:
If a well has produced, excluding the interest of any Non-Consenting
Party, it shall not be plugged and abandoned without the consent of all
Parties. If all Parties consent to the plugging and abandonment, such action
shall be at the cost, risk and expense of all the Parties. Should Operator,
after diligent effort, be unable to contact any party, or should any party fail
to reply with-in forty-eight (48) hours after receipt of notice of the proposal
to plug and abandon such well, such party shall be deemed to have consented to
the proposed abandonment.
If a well has produced, excluding the interest of any Non-Consenting Party,
shall not be plugged and abandoned without the consent of all Parties. If all
Parties consent the plugging shall be at the cost, risk and expense of all the
Parties. If, within thirty (30) days, after receipt of the notice to plug and
abandon, any party elects not to consent to the plugging of the well, then said
party shall assume operation of the well and pay the Parties consenting to the
plugging and abandonment the estimated salvage value less the estimated cost to
plug and abandon the well. Each abandoning party shall assign, without
warranty, express or implied, of any kind or nature, all its interest in the
well. Thereafter the abandoning Parties shall have no further responsibility,
liability, or interest in the operation of or production from the well.
All xxxxx shall be plugged and abandoned in accordance with all
governmental rules and regulations.
ARTICLE VI
EXPENDITURES AND LIABILITIES OF PARTIES
A. LIABILITY OF PARTIES:
The liability of the Parties shall be several, not joint or collective. Each
party shall be responsible only for its obligations, and shall be liable only
for its proportionate share of the costs of developing and operating the
Contract Area. Accordingly, the liens granted among the Parties are given to
secure only the debts of each severally. It is not the intention of the
Parties to create, nor shall this agreement be construed as creating, a mining
or other partnership or association, or to render the Parties liable as
partners.
B. LIENS AND PAYMENT DEFAULTS:
Each Non-Operator grants to Operator, a lien on all of each Non-Operator's
right in the
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Contract Area, and a security interest in its share of oil and/or gas when
extracted and its interest in all equipment, to secure payment of its share of
expense, together with interest thereon at the rate shown in Exhibit "B".
Operator grants a like lien and security interest to the Non-Operators to secure
payment of Operator's proportionate share of expense.
C. PAYMENTS AND ACCOUNTING:
Except as otherwise specifically provided, Operator shall promptly pay
and discharge expenses incurred in the development and operation of the Contract
Area pursuant to this agreement and shall charge each of the Parties hereto with
their respective proportionate shares upon the expense basis provided in Exhibit
"B". Operator shall keep an accurate record of the joint account hereunder,
showing expenses and charges and credits made and received. Operator may request
advance payment of estimated expenses. If any party fails to pay its share of
said estimated expenses within the time specified, the amount due shall bear
interest as provided in Exhibit "B". Such request shall include a detail listing
of the expenses to be covered by the advance payment.
Exhibit "B" shall detail the accounting procedures for the Contract
Area.
D. LIMITATION OF EXPENDITURES:
Operator shall notify all Parties in writing and an AFE shall be
prepared before incurring any item of expense, which is equal to or exceeds US
$50,000.00. Such item of expense shall not be incurred unless a majority in
interest of the Parties signify their consent thereto in writing within 10 days
of the written notice.
E. INSURANCE:
Operator shall also carry or provide insurance for the benefit of the
joint account of the Parties as outlined in Exhibit "C", attached to and made a
part hereof. Operator shall require all contractors engaged in work on or for
the Contract Area to maintain statutorily required insurance and insurance equal
to that shown on Exhibit "C".
F. ANNUAL BUDGET MEETING:
Operator shall, with at least 30 days written notice, call an annual
meeting of the Parties for the purpose of approving an annual budget and capital
expenditures program.
ARTICLE VII
MAINTENANCE OF UNIFORM INTEREST
For the purpose of maintaining uniformity of ownership of the interests
covered by this agreement, no party shall sell, encumber, transfer or make other
disposition of its interest in the Contract Area and in the xxxxx, equipment and
production unless such disposition covers the entire undivided interest of the
party.
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ARTICLE VIII
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or suit
arising from operations hereunder if the expenditure does not exceed Twenty
Thousand Dollars (US $20,000.00) and if the payment is in complete settlement
of such claim or suit. If the amount required for settlement exceeds the above
amount, the Parties hereto shall assume and take over further handling of the
claim or suit, unless such authority is delegated to Operator. All costs and
expenses of handling, settling or otherwise discharging such claim or suit
shall be the joint expense of the Parties participating in the operation from
which the claim or suit arises. If a claim is made against any party or any
party is sued on account of any matter arising from operations hereunder over
which such individual has no control because of the rights given Operator by
this agreement, such party shall immediately notify all other Parties, and the
claim or suit shall be treated as any other claim or suit involving operations
hereunder.
ARTICLE IX
FORCE MAJEURE
If any party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this agreement, other than the obligation to
make money payments, that party shall give to all other Parties prompt written
notice of the force majeure with reasonably full particulars concerning it;
thereupon, the obligations of the party giving the notice, so far as they are
affected by the force majeure, shall be suspended during, but no longer than,
the continuance of the force majeure. The affected party shall use all
reasonable diligence to remove the force majeure situation as quickly as
practicable.
The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty by the party involved, contrary to its wishes; how all
such difficulties shall be handled shall be entirely within the discretion of
the party concerned.
The term "force majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of equipment,
and any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control of the party claiming
suspension.
ARTICLE X
NOTICES
All notices authorized or required between the Parties and required by any
of the provisions of this agreement, unless otherwise specifically provided,
shall be given in writing by mail or telegram, postage or charges prepaid, or by
telex or telecopier and addressed to the Parties to whom the notice
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is given at the addresses listed in Exhibit "A". The originating notice given
under any provision hereof shall be deemed given only when received by the
party to whom such notice is directed, and the time for such party to give any
notice in response thereto shall run from the date the originating notice is
received. The second or any responsive notice shall be deemed given when
deposited in the mail or with the telegraph company, with postage or charges
prepaid, or sent by telex or telecopier. Each party shall have the right to
change its address at any time, and from time to time, by giving written notice
thereof to all other Parties.
ARTICLE XI
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the Contract Area
for so long as any xxxxx are producing from the Contract Area. Upon
termination of this agreement the Parties shall remain responsible for the
proportionate share of any costs attributable to the final plugging and
abanonment of the xxxxx and the facilities associated therewith. It is agreed
however, that the termination of this agreement shall not relieve any party
from any liability which has accrued or attached prior to the date of such
termination.
ARTICLE XII
APPLICABLE LAW
This agreement, its meaning and interpretation and the relationship of the
Parties hereunder, shall be governed by the laws of the United States of
America and all matters arising therefrom shall be brought before and submitted
exclusively to the courts of United States.
ARTICLE XIII
MISCELLANOUS
A. US INTERNAL REVENUE CODE ELECTION
It is the express and specific intent of the Parties that a partnership
relationship not be created between them or among them and any other co-owner
of an interest in the Contract Area. In accordance with the applicable
provision of the US Internal Revenue Code of 1954 and regulations promulgated
pursuant and further thereto, the Parties do hereby elect not to be treated or
considered as partners and further elect that none of the provisions of
Sub-Chapter K of said Code shall be appicable with respect to the operation of
the Contract Area. The Parties expressly authorize Operator to file with the
proper authorities executed copies of this agreement, and such copies when
filed, shall be conclusive notice to said authorities of this election pursuant
to said Contract Area from all of the provisions of said Sub-Chapter K and said
regulations. Operator may in lieu of filing copies hereof, notify said
authorities of this election by separate instrument in proper form.
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B. HEADINGS:
The topic heading used herein are inserted for convenience only and
shall not be construed as having any substantive significance or meaning.
C. MODIFICATION:
There shall be no modification or amendment of this agreement except by
written instrument signed by all Parties.
D. ASSIGNMENT:
Except as otherwise provided herein, this agreement shall be binding
upon and inure to the benefit of the Parties, their respective successors and
assigns.
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement is executed as of the date first above
mentioned.
WITNESSED: OPERATOR:
[SIG.] OMIMEX DE COLOMBIA, LTD.
-----------------------------
[SIG.] [SIG.]
------------------------------ --------------------------
WITNESSED: NON-OPERATOR:
[SIG.] SABACOL, INC.
-----------------------------
[SIG.] [SIG.]
----------------------------- ---------------------------
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EXHIBIT "A"
Attached to and made a part of that certain Operating Agreement covering the
Xxxxxxxxx Field by and between OMIMEX DE COLOMBIA, LTD. and SABACOL, INC. dated
the 11th day of September, 1995, but effective December 30, l994.
CONTRACT AREA & INTERESTS OF THE PARTIES
CONTRACT AREA: XXXXXXXXX FIELD - -
LOCATED IN THE PUERTO BOYACA
MUNICIPALITY, STATE OF BOYACA,
REPUBLIC OF COLOMBIA, S.A. WHICH IS
PART OF THE PRIVATE PROPERTY
DENOMINATED "GUAGUAQUI-XXXXX", THE
LATTER REGISTERED UNDER NUMBER 7,
PAGES 58 THROUGH 66 OF BOOK 2 OF THE
LEGAL DEPARTMENT FILES OF THE
MINISTRY OF MINES AND ENERGY.
INTERESTS OF THE PARTIES:
PERCENT
-------
OMIMEX DE COLOMBIA, LTD. 75%
0000 Xxxxxx, Xxxxxxxxx Xxxxx Xxxxxxx 00 No. 93-82 Off. 303
Xxxx Xxxxx, Xxxxx 00000 Santafe De Bogota, Colombia
Phone: (000) 000-0000 Phone: 000-000-0000
Fax: (000) 000-0000 Fax: 000-000-0000
SABACOL, INC. 25%
00000 Xxx Xxxxxx Xxx. 109 No. 15 - 60 Off. 301
Xxxxxx, Xxxxxxxxxx 00000 Santafe De Bogota, Colombia
Phone: (000) 000-0000 Phone: 571 - 000-0000
Fax: (000) 000-0000 Fax: 571 - 000-0000
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EXHIBIT "B"
JOINT OPERATIONS ACCOUNTING PROCEDURE
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions Agreement shall prevail.
The purpose of this Accounting Procedure is to establish equitable
methods for determining charges and credits applicable to operations under the
Agreement. The Parties agree that if any of such methods prove unfair or
inequitable to Operator or NonOperator(s), the Parties will meet and in good
faith endeavor to agree on changes in methods deemed necessary to correct any
unfairness or inequity.
1- GENERAL PROVISIONS
1.1 Definitions
1.1.1. Agreement means the Joint Operating Agreement to
which this Accounting Procedure is attached.
1.1.2. Contract Area shall have the same definition as
contained in the Agreement.
1.1.3. Controllable Material shall mean material which the
Operator according to good oil field practice,
subjects to record control and inventory. A list of
types of such material shall be furnished to
Non-Operator(s) upon request.
1.1.4. Days shall in all cases mean calendar days.
1.1.5. Field Supervisors as used herein the term "Field
Supervisors" shall mean those employees whose primary
function in Joint Operations is the direct
supervision of other employees and/or contract labor
directly employed on the Joint Property in a field
operating capacity.
1.1.6. Joint Account shall be the set of accounts maintained
by the Operator to record all expenditures and other
transactions under the provisions of the Agreement.
1.1.7. Joint Operations shall mean all activities necessary
and proper under the provisions of the Agreement.
1.1.8. Joint Property shall mean the real and personal
property acquired and held for use in connection with
operations under the Agreement.
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1.1.9. Material shall mean personal property, including
supplies and use charge, acquired and held for use in
Joint Operations.
1.1.10 Non-Operator(s) shall mean the parties to the Agreement
other than the operator.
1.1.11 Operator shall have the same definition as contained in
the Agreement.
1.1.12. Party or Parties shall have the same definitions as
contained in the Agreement.
1.1.13. Technical Employees as used herein the term "Technical
Employees" shall mean those employees having special
and specific engineering, geological or other
professional skills, and whose primary function in
Joint operations is handling of specific operating
conditions and problems for the benefit of the Joint
Property.
1.1.14. Operating Committee as used herein shall mean such
committee as may be appointed by the parties consisting
of one representative of the Operator and one
representative of each Non-Operator.
1.2 Statements, Xxxxxxxx and Adjustments
1.2.1. Each Party to the Agreement is responsible for
preparing its own accounting, statistical and tax
reports to meet Contract Area and any other country or
corporate requirements, except that Operator shall be
responsible for preparation and filling of any United
States Partnership Income Tax Returns that may be
required. The parties may elect out of Subchapter K.
Operator is required to furnish Non-Operator(s)
statements and xxxxxxxx in such form as required to
facilitate discharging such responsibilities.
1.2.2. Operator shall xxxx Non-Operator(s) on or before the
last day of each month for their proportionate share of
expenditures for the preceding month. Such xxxxxxxx
shall be accompanied by statement of charges and
credits to the Joint Account summarized by appropriate
accounting classifications indicative of the nature
thereof, except that items of Controllable Material and
unusual charges and credits shall be detailed. Such
xxxxxxxx shall indicate the monetary origin (Colombian
Pesos or U.S. Dollars) of the charges and credits.
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1.2.3. Operator shall, upon request by Non-Operator(s),
furnish a description of such accounting
classifications.
1.2.4. In accordance with Colombian law, Operator shall
keep the Joint Account in Colombian pesos. The
operator will also maintain these accounts in U.S.
dollar equivalency or shall provide the applicable
exchange rate(s) monthly so that Non-Operator(s) may
convert these Colombian peso accounts to U.S. Dollars
each month. The parties shall agree as to the
procedure to be used in establishing the exchange
rate(s) to be used in making the conversion from
Colombian pesos to U.S. dollars or vice-versa.
Expenditures made in U.S. Dollars shall be separately
identified and reported to NonOperator(s) on a
monthly basis. Accounts maintained for recording
property, plant and equipment shall be maintained in
both Colombia pesos and U.S. dollars and such
accounts shall reflect the monetary origin (pesos or
dollars) of each item of property, plant and
equipment purchased for the Joint Account. In the
conversion of currencies and in accounting for
advances of different currencies as provided for in
Paragraph 1.3 of this Article, or any other currency
transactions affecting the Joint Operations, it is
the intent that none of the Parties shall experience
gain or loss at the expense of, or to the benefit of,
the other Parties.
1.2.5. Payment of the bills referred to in paragraph
1.2.2. of this article shall not prejudice the
rights of any Non-Operator(s) to protest or question
the correctness thereof; however, all bills and
statements rendered to Non-Operator(s) by Operator
during any calendar year shall conclusively be
presumed to be true and correct after twenty-four
(24) months following the end of any such calendar
year, unless within the said twenty-four month period
a Non-Operator takes written exception thereto and
makes claim on operator for adjustment. 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 Joint Property acquired for Joint Operations.
1.2.6. The accrual method of accounting shall be used for
the Joint Account.
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1.3 Advances and Payment
1.3.1. Non-Operator(s) shall advance by immediately available
funds to Operator within 15 days of notice by Operator
their share of estimated cash requirements for the
succeeding month's Operations in accordance with
Article VI of the Agreement. Such advance shall be
credited when the actual xxxxxxxx per 1.2.2. above are
issued.
1.3.2. Should the Operator be required to pay any large
(in excess of U.S. $50,000.00) sums of money on
behalf of the Joint operation, which were
unforeseen at the time of providing the Non-
Operator(s) with said monthly estimates of its
requirements, the Operator shall make a written
request of the Non-Operators(s) for special
advances covering the Non-Operators' share of such
payments. Non-Operator(s) shall make their
proportional special advances within fifteen (15)
days after receipt of such notice.
1.3.3. If Non-Operator(s) advances exceed their share of the
expenditures, the next succeeding cash advance
requirements, after such determination, shall be
reduced accordingly or deducted from the nextbilling,
whichever comes first. However, Non-Operator(s) may
request that excess advances be refunded. The
Operator shall make such refund within fifteen (15)
days after receipt of Non-Operator(s) request. Such
refund shall be made in the currency so advanced.
1.3.4. If Non-Operator(s) advances are less than their share
of actual expenditures, the deficiency shall, at
Operator's option, be added to subsequent cash
advance requirements or be paid by Non-Operator(s)
within thirty (30) days following receipt of
Operator(s) for such deficiency.
1.3.5. If Operator does not request Non-Operator(s) to
advance their share of estimated cash requirements,
Non-Operator(s) shall pay their share of actual
expenditures within thirty (30) days following
receipt of Operator's billing.
1.3.6. Payment of advances or xxxxxxxx shall be made on or
before the due date, and if not so paid the unpaid
balance shall be treated as provided under Article VI
of the Agreement.
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1.4 Audits
1.4.1. A Non-Operator, upon at least thirty (30) days written
notice to Operator and other Non-Operator(s) shall have
the right at its sole expense to audit the Joint
Account and related records for any calendar year or
portion thereof within the twenty-four (24) month
period following the end of such calendar year;
however, the conducting of an audit shall not extend
the time for the taking of written exception to and the
adjustment of accounts as provided for in Paragraph
1.2.5. of this Article. 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.
1.4.2. Subject to unanimous prior approval of the Parties, the
cost of any special audit or verification of the Joint
Account that is for the benefit of all Parties shall be
chargeable to the Joint Account.
1.4.3. Normal recurring internal audits of the Joint Account
made by the Operator to assess internal controls shall
be chargeable to the Joint Account and copies thereof
shall be furnished to Non-Operators upon request.
1.5 Interest
1.5.1 Should interest be accessed per the terms of the
Agreement, (1) the rate on non U. S. $ Cash Calls
shall be the Colombian Prime Rate as quoted by Banco
Ganadero plus 10% and (2) on U. S. $ Cash Calls Prime
as quoted by Bank One, Texas, N.A. plus 3%. Should
said rate(s) exceed the maximum rate allowed by law,
then the maximum lawful rate(s) shall apply.
2- CHARGEABLE COST AND EXPENDITURES
operator shall charge Joint Account for all costs necessary to conduct
Joint Operations in or with respect to the Contract Area. Such cost
shall include, but are not necessarily limited to:
2.1 Control, License or Permit Payments
2.1.1. All expenditures necessary to acquire and to maintain
rights to the Contract Area.
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2.2 Labor and Related Costs
2.2.1. Salaries. Salaries and wages of Operator's field
employees directly employed on the Joint Property in
the conduct of Joint Operations, salaries and wages
of Field Supervisors, and salaries and wages of
Technical Employees that perform work and services
directly relating to or for the benefit of the Joint
Property.
2.2.2. Salary Benefits. Operator's cost of holiday,
vacation, sickness and disability benefits and other
customary allowances paid to employees whose salaries
and wages are chargeable to the Joint Account under
Article 2.2.1 above. Such costs under this Article
2.2.2 may be charged on a "when and as paid basis" or
by "percentage assessment" on the amount of salaries
and wages chargeable to the Joint Account under
Article 2.2.1 above. If percentage assessment is
used, the rate shall be based on the Operator's cost
experience and adjusted at least annually to the
Operator's actual cost.
2.2.3. Assessments. Expenditures or contributions made
pursuant to assessments imposed by governmental
authority which are applicable to Operator's costs
chargeable to the Joint Account under Article 2.2.1
and 2.2.2 above.
2.2.4. Personal Related Expenses. Personal Expenses,
including but not limited to the following: travel
and other reasonable reimbursable expenses of
Operator's employees, hospital and medical expense,
schools for employees and their children, insurance
policies, and all other reasonable activities
applicable to the employee and family, of those
employees whose salaries and wages are chargeable to
the Joint Account under Article 2.2.1 above.
2.2.5. Employee Benefit Plans. Operator's current cost of
established plans for employees' group
life insurance, hospitalization, pension, retirement,
stock purchase, thrift, bonus, and other customary
benefit plans of a like nature provided under
Operator's usual practices, applicable to operator's
labor cost chargeable to the Joint Account under
Article 2.2.1 above shall be at Operator's actual
cost.
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2.3. Material
2.3.1. Material purchased or furnished by Operator for use in
Joint Operations as provided under Article 3 of this Accounting
Procedure.
2.4 Transportation and Employee Relocation Costs
2.4.1. Transportation of Material and other related costs such as
expediting crating, dock charges, inland and ocean freight,
customs duties and taxes and unloading at destination.
2.4.2. Transportation of employees as required in the conduct of Joint
Operations.
2.4.3. Relocation costs to the Contract Area vicinity or to other
locations in Colombia of employees permanently or temporarily
assigned to the Joint Operations. Such costs shall include
transportation of employees' families and their personal and
household effects and all other relocation costs in accordance
with Operator's usual practice. Relocation from Colombia shall
not be charged to the Joint Account.
2.5 Services
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2.5.1. Contract services, professional consultants, and other services
covered by Paragraph 2.8
2.5.2. Technical services for specific projects resulting in a
presentation or a written report, such as, but not limited to,
laboratory analysis, drafting, geophysical interpretation,
engineering, and related data processing, performed by the
Operator and its Affiliates for the direct benefit of the Joint
Operations, provided such costs shall not exceed those currently
prevailing if performed by outside technical service companies.
2.5.3 Use of equipment, services and facilities furnished by Operator
or Non-Operated(s) or their Affiliates provided such equipment,
services or facilities is of a quality and cost commensurate and
competitive with that offered by third parties in the general
vicinity of the Contract Area.
2.6 Damage and Losses to Joint Property
2.6.1 All costs or expenses necessary for the repair or replacement of
Joint Property resulting from
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damages or losses incurred by fire, flood, storm, theft,
accident, or any other cause. Operator shall furnish Non-
Operator(s) written notice of damages or losses in excess of
nominal value as soon as practicable. Any payment(s) by
insurance companies shall be deducted in determining the amount
due.
2.7 Insurance
2.7.1. Net premiums for insurance are required by the Parties of the
Agreement.
2.7.2. Actual expenditures in the settlement of all losses, claims,
damages, judgements, and other expenses for the benefit of the
Joint Operations as per the Agreement.
2.7.3. Credits for settlements received from the insurance policies and
others.
2.8 Legal Expense
2.8.1. All costs or expenses of litigation or legal services otherwise
necessary or expedient for the protection of the Joint Property,
including but not limited to attorney's fees, court costs, cost
of investigation or procuring evidence and amounts paid in
settlement or satisfaction of any such litigation of claims.
These services may be performed by the Operator's legal staff or
an outside firm as necessary. Operator shall not incur more than
Ten Thousand U.S. Dollar (US $10,000) in costs for legal services
in connection with any single suit, proceeding or matter without
first obtaining the prior approval of the other parties.
2.9 Duties and Taxes
2.9.1. All duties and taxes (except taxes based on income, net worth and
royalty based on production from the Contract Area and any other
taxes for which the Parties are liable severally but not Jointly),
fees and governmental assessment of every kind and nature in
relation with Joint Operations.
2.10 Offices, Camps and Miscellaneous Facilities
2.10.1. Cost of maintaining and operating any offices, suboffices, camps,
warehouses, housing and other facilities directly serving the
Joint operations shall be charged to the Joint Account. If such
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facilities serve operations in addition to the Joint Operations,
the costs shall be allocated to the properties served on an
equitable basis as may be approved by the Operating Committee
which approval shall not be unreasonably withheld.
2.11 Administrative Overhead
2.11.1. An administrative overhead covering services and related office
costs of personnel performing administrative, legal, accounting,
purchasing, treasury, tax, employee relations, computer services
and other functions for the benefit of the operations provided
they are not included elsewhere, shall be charged to the Joint
Account monthly.
2.11.2. The charge under the foregoing paragraph shall be for services
of all personnel and offices of Operator who are not directly
assigned to operations and shall be charged each month at the
rate of 12% on total expenditures attributable to Joint
Operations in the preceding month, except only 5% shall be
charged on expenditures for capital expenditure items.
2.11.3. Notwithstanding anything to the contrary which might be stated in
the Accounting Procedure, it is understood that no cost or
expenditure included under sections 2.2.1 through 2.10 shall be
included or duplicated in the administrative overhead rate
charged in this Article 2.11. Further, at any party's request,
the rates in 2.11.2 above shall be reviewed annually and adjusted
if determined to be inadequate or excessive.
2.12 Other Expenditures
2.12.1. Any other expenditures not covered or dealt with in the foregoing
provisions which are incurred by the Operator and its Affiliates
for the ordinary, necessary and proper conduct of the Joint
Operations.
3- MATERIALS
The cost of material, equipment and supplies purchased or furnished by the
Operator for use on the Joint Property shall be charged to the Joint
Account on the basis set forth below. So far as it is reasonably
practical and consistent with efficient and economical operation, only
such material shall be purchased for or transferred to the Joint Property
as may be required for immediate use, and the accumulation of surplus
stock shall be avoided.
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Operator shall give thirty (30) days written notice of intention
to take such inventories to allow Non-Operator(s) to be
represented when any inventory is taken. Failure of any
Non-Operator to be represented shall bind such Non-Operator
to accept the inventory taken by Operator.
3.3.2. Reconciliation of inventory with the Joint Account shall be made
and a list of overages and shortages as well as obsolete and
surplus materials shall be furnished to the Non-Operator(s).
Inventory adjustments shall be made to the Joint Account in
accordance with good accounting practices.
3.3.3. Whenever there is a sale or change of interest in the Joint
Property, a special inventory shall be taken by the Operator if
required by the seller and/or purchaser and the seller and/or
purchaser of such interest shall 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
inventories taken.
4- FIXED ASSETS
Inventories of Fixed Assets will be taken as determined by the Parties but
not less than every five (5) years. Operator shall give thirty (30) days
written notice of intention to take such inventories to allow
Non-Operator(s) to be represented when any inventory is taken. Failure of
any Non-Operator to be represented shall bind such Non-Operator to accept
the inventory taken by Operator.
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EXHIBIT "C"
Attached to and made a part of that certain Operating Agreement covering the
Xxxxxxxxx Field by and between OMIMEX DE COLOMBIA, LTD. and SABACOL INC. dated
the 11th day of September, 1995, but effective December 30, 1994.
INSURANCE
Operator shall, in the performance of its obligations hereunder, carry
statutorily required insurance and Public Liability Insurance in amounts of not
less than US $ 1,000,000.00 per occurance or accident with an aggregate limit
of not less than US $ 2,000,000.00. Operator shall likewise cause all
contractors to carry insurance in such amounts commensurate with those set
forth above.
