Exhibit 2(4)
MEMORANDUM OF AGREEMENT
This Memorandum of Agreement is made this 16 day of May, 1995 by and between
Xxxxxxx Management Services Pty, Ltd. A.C.N. 005 506 123, a company duly
incorporated according to law in Australia ("Xxxxxxx"), and Fountain Oil
Incorporated, a corporation organised under the laws of the State of Delaware,
U.S.A. or its designated affiliate ("Fountain"). In the event of Fountain's
designated affiliate becoming party to the Agreement, Fountain Oil Incorporated
will guarantee the performance and obligations of such party in relation to this
Agreement.
RECITALS
Xxxxxxx and Ukrnafta have signed a Joint Protocol dated 0xx Xxxxx, 0000 (xxx
"Protocol"), which approved the Xxxxxxx study and the proposed ecologically safe
technology for a project (the "Boryslaw Project") to develop the Northern
Stynawske, Melnychanske, Stynawske, and Semenyhiwske oil fields in the Boryslaw
region of Western Ukraine. The Protocol sets out a timetable for the Boryslaw
Project and expresses an intent by Ukrnafta and Xxxxxxx to form a joint venture
company (the "Joint Venture") to develop and operate the Boryslaw Project as
envisaged in the Study prepared for Xxxxxxx as described in Attachment I,
identified as Xxxxxxx, Xxxxx & Associates E016 October 1994.
Xxxxxxx desires to transfer to Fountain, on the terms and conditions and for the
considerations set forth herein, all of its rights under the Protocol including
all rights to form and participate in the Joint Venture with Ukrnafta.
AGREEMENT
Now, Therefore, Xxxxxxx and Fountain agree as follows:
1. Obligation of Xxxxxxx. Xxxxxxx hereby transfers to Fountain all of its
rights with respect to the Boryslaw Project, whether arising under the
Protocol or otherwise. Xxxxxxx agrees to execute such instruments of
transfer and other documents as Fountain may reasonably request in order to
effectuate the transfer and enable Fountain to enjoy the benefits of such
rights.
Xxxxxxx shall Provide Fountain with such assistance in negotiations and in
Fountain's dealings with Ukrnafta or otherwise with respect to the Boryslaw
Project as Fountain may reasonable request. Xxxxxxx'x assistance in this
regard shall be paid for by Fountain in accordance with Xxxxxxx'x standard
terms of business as set out in Attachment II. Xxxxxxx'x efforts with
respect to the Boryslaw Project shall be devoted exclusively to the
advancement of Fountain's interests.
2. Consideration. As reimbursement of project costs incurred by Xxxxxxx to
date and in consideration of the transfer and the performance of Xxxxxxx'x
other obligations under
Section 1. Fountain shall deliver consideration at the times and upon the
occurrence of events as hereinafter set forth:
2.1 Cash Consideration for reimbursement of past project costs.
A. Upon the signing of the Agreement, Fountain shall pay Xxxxxxx
or its nominee Two Hundred Fifty Thousand Dollars
(USD250,000).
B. Upon the signing of a Protocol between Fountain and the Lviv
Regional Authorities approving the relationship of Xxxxxxx and
Fountain, Fountain shall pay to Xxxxxxx or its nominee Two
Hundred Fifty Thousand Dollars (US$250,000).
C. Upon the signing of the Joint Venture Agreement between
Ukrnafta and Fountain to develop and operate the Boryslaw
Project, Fountain shall pay to Xxxxxxx or its nominee Five
Hundred Thousand Dollars (US$500,000).
D. Upon final payment under C above, all data owned by Xxxxxxx in
connection with the Boryslaw Project shall belong to Fountain.
2.2 Stock Consideration
A. Upon the signing of the joint venture agreement referred to in
Section 2.1C, Fountain shall issue and deliver to Xxxxxxx or
its nominee One Hundred Seventy-Five Thousand (175,000) shares
of the Common Stock of Fountain. Xxxxxxx irrevocably instructs
Fountain to deliver 50,000 of such shares to Xx. X.X.
Dobrotwir or his nominee.
B. Upon the first four xxxxx in the Boryslaw Project
satisfactorily meeting or exceeding the flow rates described
in Attachment I hereto, Fountain shall issue and deliver to
Xxxxxxx or its nominee Three Hundred Seventy-Five Thousand
(350,000) shares of the Common Stock of Fountain.
C. The shares of Fountain Common Stock to be issued in accordance
with this section will be issued pursuant to one or more
exemptions from the registration requirements of the
Securities Act of 1933, as amended, ("the Securities Act"). So
long as the transactions satisfy the requirements thereof,
such shares shall be issued pursuant to Regulation S
("Regulation S") promulgated under the Securities Act or such
other exemption that better conforms to the intention of the
parties. Xxxxxxx and Fountain agree to cooperate in order to
satisfy the requirements of Regulation S, or such other
exemption, if possible, and to execute such certificates,
agreements and other instruments as may be necessary or
appropriate to confirm the applicability of Regulation S or to
satisfy the requirments of other available exemptions. It is
the intention of the parties hereto that such shares to be
issued under the applicable exemption that would provide
Xxxxxxx or its nominee with securities that would be freely
tradable in the United States securities markets at the
earliest possible date which the parties presently believe
would be Regulation 'S'.
2.3 Performance Consideration. On a quarterly basis utilising
cumulative calculations, Fountain shall pay to Xxxxxxx or its
nominee an amount which, together with all other amounts so paid
pursuant to this Section 2.3, equals tow and one-half percent (2
1/2%) of the Net Cash Flow (as hereinafter
defined) to Fountain up to Fifty Million Dollars ($50,000,000).
For purposes hereof, Net Cash Flow is the amount by which (a) the
value of all distributions to Fountain by the Joint Venture net
of any applicable taxation exceed (b) the sum of all
contributions by Fountain to the Joint Venture and all amounts
expended by Fountain in pursuit or furtherance of the Joint
Venture including interest paid on loans obtained by the Joint
Venture and amounts expended as contemplated in paragraphs 2.1
and 2.2 of this Agreement. For purposes hereof, all property
shall be valued at its fair market value at the time of transfer,
and no distinction shall be made between debt and equity. For the
purpose of calculating the contributions referred to in (b), any
allocation of overhead costs by Fountain must be reasonable.
3. Expenses. Following the execution of this Agreement, Fountain shall become
responsible for the expense of pursuing the Joint Venture and the
fulfilment of the Protocol with effect from 9th May, 1995. Fountain shall
reimburse Xxxxxxx for such expenses in connection therewith as Xxxxxxx
incurs with the prior consent of Fountain.
4. Compliance with Law. Xxxxxxx represents to and agrees with Fountain that
in its dealings regarding the Joint Venture and the Boryslaw Project
Xxxxxxx, directly or indirectly, will not offer, give, promise to give or
authorise the giving of anything of value to any officer or employee of or
other person acting in an official capacity for any government or
department, agency or instrumentality thereof, any political party or
official of a political party, or any candidate for political office for
the purpose of influencing any act or decision of any such person, party,
government or governmental instrumentality in order to obtain any business
relating to the Boryslaw Project.
5. Authority. Following the execution of this Agreement, Fountain may in its
unfettered discretion make any decision regarding its involvement in or
with the Joint Venture and the Boryslaw Project as it may deem appropriate,
provided such decisions shall not alter Xxxxxxx'x rights and entitlements
as set out in this Agreement.
6. Disputes. All disputes arising in connection with this Agreement shall be
settled in accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three arbitrators appointed in
accordance with said Rules. Arbitration shall be held in Copenhagen,
Denmark. The language used in this arbitration proceedings shall be
English.
7. Assignment. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, successors and assigns.
8. Confidentiality. Except as may be required by applicable law or as they
may otherwise mutuall agree, Fountain and Xxxxxxx shall keep confidential
the terms of this Agreement and all other matters relating to negotiation
and existence of this Agreement, provided that each party may disclose
relevant information to its accountants, lawyers and other professional
advisors so long as each such professional agrees to maintain such
information in confidence. To the extent any disclosure becomes legally
required, the party required to disclose shall promptly notify the other
party prior to disclosure and shall negotiate in good faith to reach
agreement with the notified party on the form and substance of any such
disclosure.
In Witness Whereof, the Undersigned have executed this Memorandum of
Agreement this ___ day of May, 1995.
XXXXXXX MANAGEMENT SERVICES PTY. LTD.
/s/Xxxx Xxxxxx By /s/N.G. Dobrotwir
------------------------ --------------------------
Xxxx Xxxxxx
FOUNTAIN OIL INCORPORATED
/s/Xxxx Dobrotwir /s/Xxxx X. Trulsvik
-----------------------------
[LETTERHEAD OF XXXXXXX MANAGEMENT SERVICES PTY LTD. APPEARS HERE]
TRANSFER OF RIGHTS AND AGREEMENT RELATED TO
OIL & GAS BUSINESS IN UKRAINE
Xxxxxxx Management Sevices Pty Ltd transfers all its rights and agreements,
including agreement per 16 May with Fountain Oil Incorporated, to Xxxxxxx
Petroleum Developments Inc., concerning the developmental rights in Ukraine.
By copy of this letter, Fountain Oil Incorporated is requested to acknowledge
and approve this transfer.
XXXXXXX MANAGEMENT SERVICES PTY LTD
/s/N.G. Dobrotwir 16 May 1995
------------------------------------ -----------
N.G. Dobrotwir, President
Approved and Accepted by
FOUNTAIN OIL INCORPORATED
/s/Xxxxxxx Xxxxxx 16 May 1995
------------------------------------ -----------
Xxxxxxx Xxxxxx, Chief Executive Officer
/s/Xxxxxx Xxxxxx
MEMORANDUM OF CLARIFICATION
TO
MEMORNDUM OF AGREEMENT
BETWEEN
XXXXXXX MANAGEMENT SERVICES PTY, LTD
AND
FOUNTAIN OIL INCORPORATED
Reference is made to a Memorandum of Agreement ("Agreement") dated May 16, 1995
between Xxxxxxx Management Services Pty, Ltd ("Xxxxxxx") and Fountain Oil
Incorporated ("Fountain").
For the purpose of clarifying the reference to "flow rates" for the first four
new xxxxx described in Section 2.2 (Stock Consideration) of the Agreement, it is
mutually agreed by Xxxxxxx and Fountain that the referenced flow rates shall be
75m3/day (450 BOPD) of incremental production, as specified on Table 10, pages
80-81 of the October, 1994 study entitled "Strategic Assessment of the Scope to
Redevelop the Boryslaw Oilfields", prepared by Xxxxxxx, Xxxxx & Associates, and
which pages are attached hereto and made a part hereof.
Fountain Oil Incorporated Xxxxxxx Management Services Pty, Ltd
By: /s/Xxxx X. Trulsvik By /s/N.G. Dobrotwir
--------------------------- -------------------------
Title: President & CEO Title: President
Date: December 23, 1997 Date: 30/12/97
XXXXXXX, XXXXX & ASSOCIATES
Production Profiles
For the purpose of predicting future performance, the results of the decline
curve analysis have been used as a base production profile. Incremental
production has been estimated for the various stages of the development outlined
previously. It is recognised that not all workovers will be successful. Table
10 outlines the number of jobs, success rates and the estimated time to complete
used for this study and also an assessment of the initial incremental production
rates and subsequent decline rates for each operation. The values represent
assumed averages for successful work and are based on current knowledge of the
'C' reservoir performance characteristics and experience.
The costs used in this study, for workovers and hydraulic fracturing, are
summarized in Table 11, These assume that work will be conducted utilizing
western technology and equipment. The estimated costs were U.S.$300 K for a
full workover and U.S.$350 K for a hydraulic fracture.
For the initial data gathering, i.e., Stage 2, it has been assumed that
Ukrainian sourced equipment will be utilized. A cost estimate of U.S.$2,500 per
well was established in discussion with FMS for both shut-in and producing
xxxxx.
Estimated turnkey drilling rates are shown in Table 12. These rates are only
for drilling the well and include no allowance for completion, logging or
testing. On the basis of these rates and comparison with drilling costs in
similar geological environments, a cost per well of U.S.$ 3 million has been
used for both injectors and producers. This compares to an estimated cost of
approximately U.S.$285K (see Appendix IV) for a 4,000 m well with Ukrainian
rigs. Although significantly cheaper, these xxxxx would take an estimated 15 to
26 months to drill. Compared with this, the benefit of using western equipment
would be the more rapid drilling and better well performance. It is not known
at present whether any Ukrainian rigs would have the capability to drill
deviated or high angle xxxxx.
An outline timing for the various stages in the redevelopment is contained in
Figure 29. The capital risk is minimised by limiting the overlap periods of
each stage to a minimum.
XXXXXXX, XXXXX & ASSOCIATES
Table: 10
Checked: /s/initials
Approved: /s/initials
Date: October, 1994
SUMMARY OF OPERATIONAL ASSUMPTIONS
Hydraulic
Operation De-bottlenecking Workover Fracturing New Xxxxx
---------------------------------------------------------------------------
Attempted 18 8 14
Successful 12 6 10
Time to complete
(months per job) 1 'days' 6
Initial Incremental
Production m3/d
(bopd) 16 (100) 24 (150) 48 (300) 76 (450)
Decline Rate % p.a.
1st Year 30 25 25
Thereafer % p.a. 15 15 15
