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Exhibit 10(29)
AGREEMENT
NUMBER 1
DATED 20 MARCH 1998
ON JOINT INVESTMENT PRODUCTION ACTIVITY
FOR DEVELOPMENT AND FURTHER EXPLORATION OF BUGRUVATIVSK FIELD
WITHOUT CREATION OF A LEGAL ENTITY
KIEV
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The Joint Stock company Ukrnafta (hereinafter referred to as the Ukrnafta or
"First Participant"), represented by its Chairman of the Board - President Xx
Xxxxxxxx Xxxxx, acting based on the Charter, and Mr Grygorry Brazyna, acting
based on the Power of Attorney No. 97 issued on 18 March 1998, and
the Canadian Company "Lateral Vector Resources Inc." (hereinafter referred to
as "LVR" or "Second Participant"), represented by its President - Xx Xxxxx
Xxxxxxxx, acting based on the Charter, and
the Closed Joint Stock Company "IPEC" (hereinafter referred to as "IPEC"),
represented by its Founders, namely: President of Lateral Vector Resources
Inc. Xx Xxxxx Xxxxxxxx, acting based on the Charter, and President of
Northern Industrial Development Ltd Xx Xxxxx Xxxxx, acting based on the
Charter
which hereinafter referred to individually as a Participant and collectively as
the Participants, and which in accordance with the Laws of Ukraine "On
Property", "On Regime of Foreign Investment" have concluded this Agreement on
the following:
DEFINITION OF FUNDAMENTAL TERMS
Hydrocarbons - means crude oil, gas condensate, petroleum and natural gas.
Base Hydrocarbons - means a volume of Hydrocarbons' production, which is being
recovered on Bugruvativsk Field or can be recovered on this Field in the future
under condition of use of productive capacities created or gated in on the field
by Ukrnafta and technological processes, which are commercially introduced there
prior to the Effective Date. According to the Decree of the President of Ukraine
No 433/96 of 17 June 1996 "On measures for attraction of investment for
development oil fields with hard-producing and exhausted deposits" base volume
of hydrocarbons' production for Bugruvativsk Field was defined by Regulation of
the Cabinet of Ministers of Ukraine No 1223 of 6 November 1997 "On approval of
the list of oil fields with hard-producing and exhausted deposits". (Copies of
these documents attached as Exhibit 1 hereto).
Incremental Hydrocarbons - means a volume of Hydrocarbons recovered on
Bugruvativsk Field over Base Hydrocarbons at the expense of the Investments and
use of modern know-how as described in aggregate in all of the Joint Activity
Programs.
Calculated Hydrocarbons for Contributed Well - means part of the Base
Hydrocarbons are defined according to individual calculation prepared by the
Group of Experts.
Incremental Hydrocarbons for Contributed Well - means the total volume of the
Hydrocarbons produced at a particular well minus the Calculated Hydrocarbons for
Contributed Well at the expense of investment and using of modern technology.
Current Expenses - means expenses for Hydrocarbons recovery that according to
legislation of Ukraine when identifying the taxable income are deducted from
gross incomes from Joint Investment Production Activity.
Contribution - means any funds, tangible and intangible assets, which are
contributed to the Joint Investment Production Activity in accordance with
conditions of this Agreement and includes Labour Contributions.
Effective Date - means the date of registration of this Agreement by relevant
bodies of the Ministry of Foreign Economic Relations and Trade of Ukraine.
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Further exploration of Bugruvativsk Field - means complex of operations which
are carried out during commercial development of Bugruvativsk Field for
elaboration of its geological structure and Hydrocarbons reserves.
Obligations on Investment of Joint Investment Production Activity - means
Contribution that in accordance with Work Program and Agreed Budget is going to
be contributed by any Participant during current financial year.
Investments - means monetary funds, property, property rights and intangible
assets, working participation, providing services, etc, which are contributed by
the Participants to the Joint Investment Production Activity and will be used
for improvement or building of Investment Activity Sites during development of
Bugruvativsk Field in accordance with this Agreement.
Capital Exp(e)anses - means exp(e)anses for creation or acquisition of fixed
assets at the Bugruvativsk Field, which will be borne in accordance with this
Agreement and which are subject to depreciation according to procedure provided
by Ukrainian Law.
Management Committee - means the supreme authority which consists of managers
and authorized representatives of the Participants and is authorized to make the
decisions as of principal issues of Joint Investment Production Activity as it
is indicated in Article XVII.
Accumulative Contribution - means amount of Contributions from the beginning of
the Joint Investment Production Activity till any date.
Investment Activity Sites (Sites of Investment) - means existing on the
Bugruvativsk Field xxxxx and other tangible assets, on which according to this
Agreement will be carried out operations on providing of Incremental
Hydrocarbons production, and also the appropriate new sites, which will be
constructed at the field during Joint Investment Production Activity.
Operator - means the IPEC, represented by its Chairman of the Board, who carries
out management of Joint Investment Production Activity and organises running of
joint matters of the Participants. In future, the Operator can be changed in
accordance with an agreement of Participants.
High Risk Operation - means a high risk operation as described in Article IX.
Separate Balance Sheet - means separate balance sheet intended for accounting
the assets and liabilities connected to Joint Investment Production Activity,
including money resources, property etc. which are being united by the
Participants of this Agreement for carrying out Joint Investment Production
Activity and created in the process of such activity and also for accounting of
commercial operations on Joint Investment Production Activity and financial
results.
Separate Settlement Account - means separate settlement account in Ukrainian
currency opened with one of the Ukrainian banks for providing the Joint
Investment Production Activity.
Separate Account in Foreign Currency - means separate account in foreign
currency opened with one of the Ukrainian banks for providing the Joint
Investment Production Activity.
Initial Contribution - means property and intellectual values, which will be
initially (during 1998) contributed by Participants into the Separate Balance
Sheet for performance of Joint Investment Production Activity on development of
Bugruvativsk Field.
Joint Investment Production Activity Programs - means the programs of works for
each fiscal year based on the commercial production project of the Bugruvativsk
field which includes production and geophysics studying of xxxxx and layers,
complex of works for drilling of exploitation xxxxx, repair of
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xxxxx, construction and exploitation of accumulative objects, transport and
preparation of production (hydrocarbons) and production of Hydrocarbons.
Exploration of the Bugruvativsk field area - means complex of operations, which
will be carried out on the territory of Bugruvativsk oil field and on the
adjacent to it territories on the basis of the separate Licence for Exploration
which one can be obtained by one of the Participants based on a solution of
Management Committee.
Development of Bugruvativsk field - means complex of operations being carried
out in the period of commercial development of field pursuant to volumes
specified in development projects.
Joint Investment Production Activity - means investment and production activity
of the Participants based on the Joint Property, Labo(u)r Contribution and
co-operation among the Participants of this Agreement that envisages the
distribution of risks and results of this activity as described further in the
Joint Activity Programs. Joint Investment Production Activity is regulated by
this Agreement which has legal force, norms of Civil Code of Ukraine in respect
of joint activity, by the Law of Ukraine "On Investment Activity", the Law of
Ukraine "On Regime of Foreign Investment", the Law of Ukraine "On Taxation of
Enterprises Profit" and by other Ukrainian legal documents.
Joint Production (Joint Hydrocarbons) - means any Hydrocarbons produced using
xxxxx which are contributed to the Joint Investment Production Activity. The
volume of the Joint Production - the Joint Produced Hydrocarbons will be defined
by calculation based on the provisions of Article XI.
Joint Property - means monetary funds, assets, property rights and intangible
assets transferred to the joint property by the Participants and other monetary
funds, assets, property rights and intangible assets created or otherwise
obtained in a result of the Joint Investment Production Activity and are
reflected at the Separate Balance Sheet.
Labour Contribution - means free of charge services and operations for
improvement or construction of Investment Activity Sites and its free of charge
maintenance during process of its further exploitation. Evaluation of the Labour
Contribution will be carried out by mutual consent of all Participants.
Participants - means Ukrnafta, LVR and IPEC which have executed this Agreement
but later may include some other legal entities or persons that might join the
Agreement in accordance with a procedure stipulated in Article XIX.
Agreed Budget - means the document which estimates the expenses and costs to
carry out each Joint Activity Program. The Agreed Budget of joint activity
includes all financial sources, which are directed to acquisition property
resources for Joint Investment Production Activity, including Participants' own
monetary funds.
Fiscal Year - means calendar year, but for the first year of Joint Investment
Production Activity it means the period from the Effective Date until finishing
of calendar year.
Actual Participation - means the ratio of accumulative amounts of actual
Contributions of any of the Participants to the total amount of Contributions
over the period from the beginning of Joint Investment Production Activity.
Planned Participation - means the ratio of accumulative amount of actual
Contributions of the Participant for the period prior to the current fiscal
year, and its Obligations for the current fiscal year to the total amount of
Contributions and Obligations.
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Group of Experts - means a group of expert which will be crated in accordance
with terms defined in Clause 9.4 of Article 9 of this Agreement.
Contributed Well - means a well, its equipment associated with production and
which are used for Hydrocarbons production and constitute a part of Ukrnafta's
Contribution to the Joint Investment Production Activity.
Bugruvativsk Field - means the oil and gas field, located in Ukraine, Sumy
oblast, and geographical co-ordination of which are defined in Annex [ ] hereto.
ARTICLE I
General Provisions
1.1 This Agreement is executed for the purposes of:
- obtaining the profits by its Participants;
- providing with organisational economic conditions for joint investment
for development of the Bugruvativsk Field, achieving high economic
results while development of this field using up-to-date domestic and
foreign production techniques for intensifying its exploration and
production, increasing of volumes of oil and gas development, providing
for labo(u)r safety measures, protection of subterranean resources and
environmental protection.
1.2 The subject of this Agreement is:
- carrying out the Joint Investment Production Activity on creation,
reconstruction and modernisation of production facilities for future
exploitation of Bugruvativsk Field; introduction of updated technology
and equipment in the area of commercial-geophysical investigations of
xxxxx and formations, construction and completion of xxxxx, and their
workovers;
- conducting the joint production and economic activity in oil recovery
in the process of development of Bugruvativsk oil-field using the
Joint Property;
- distribution of profits received as a result of Joint Investment
Production Activity either in cash or in kind.
1.3 To the extent the Joint Investment Production Activity has been
authorized under this Agreement, the Participants unite their monetary,
material, labour resources, production, technical and economic
potentials with the purpose of fulfillment of the Joint Investment
Production Activity as described in this Agreement.
1.4 The Participants preserve their legal independence. The property
independence of the Participants is limited by using the property which
is the Joint Property.
1.5 All los(s)es and expenses which are arisen during Joint Investment
Production Activity shall be paid at the expense of the Joint Property.
In case the Joint Property is not enough for covering such los(s)es and
expenses, the Participants shall cover such loses and expenses pro rata
to their Plan(n)ed Participation.
1.6 All Participants are liable in proportion to their Plan(n)ed
Participation for obligation of one Participant which arise under
performance of Power of Attorney executed by all Participants.
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1.7 Risk of accidental loss or damage of Joint Property is borne by the
Participants proportionally to their Actual Contributions.
1.8 Risk of accidental loss of property used by the Participants for
fulfillment of operations connected with performance of this Agreement
but not contributed to Joint Property is borne by appropriate
Participant.
1.9 This Agreement shall be governed by Ukrainian law.
1.10 Termination of any paragraph of this Agreement because of its
contradiction to the new, or changes to the existing Ukrainian law does
not cause termination of the Agreement as a whole. Should such
contradictions arise the Participants agree to make changes and amend
the text of this Agreement to the extent necessary to preserve the
original intention of this Agreement.
1.11 This Agreement is concluded for the period of 20 (twenty) years subject
to provisions of Section 3.2 hereof and can be extended for unlimited
period of time if all Participants agree so.
1.12 The following process will be used as further described in this
Agreement:
(a) During the term of this Agreement, the Operator will define the
Sites of Investment from as per section 2.2 (the "Designated
Sites of Investment") and submit such information for approval of
the Participants. If the Participants cannot agree on the Sites
of Investment, they may designate the Sites of Investment as a
High Risk Operation;
(b) The Designated Sites of Investment will be valuated in
accordance with section 2.10;
(c) Once evaluated, the Operator shall prepare a Joint Investment
Production Activity Program and Agreed Budget for the Designated
Sites of Investment for review and approval by the Management
Committee;
(d) After approval of the Joint Investment Production Activity
Program and Agreed Budget by the Management Committee, the
Operator will request performance of contributions by
Participants as it is provided for in this Agreement, the Joint
Investment Production Activity Program and Agreed Budget;
(e) Once approved by the Management Committee the Operator shall
execute the Joint Activity Program in accordance with the Agreed
Budget;
(f) Any changes to the Joint Activity Program or Agreed Budget in
respect of necessity to perform operations which are not defined
in these documents shall be subject to the approval of by the
Management Committee if expenses for they performance exceed 10%
(ten per cent) of Agreed Budget;
(g) All Joint Production will be sold by the Operator with the
proceeds paid into the Separate Settlement Account. As
permitted by Ukrainian law, the Participants will have the
option of taking a part of the Joint Production equal to its
Actual Contribution in kind provided that an equal part of the
expenses of the Joint Investment Production Activity was paid
in full at the expense of their monetary funds, which are
transferred to the Joint Investment Production Activity for
the particular purpose.
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ARTICLE II
The Sites of Investments, Contributions and the Terms of their performance
and Correction
2.1 The Sites of Investment according to this Agreement are:
- existing xxxxx of the Bugruvativsk Field, on which repair-restoration
works, reworks, enhancements and other works, as well as the operation
of such xxxxx will be carried out;
- new xxxxx, which will be drilled and constructed on the Bugruvativsk
Field;
- existing gathering and injection systems and those which will be
constructed, and other infrastructure facilities of the Bugruvativsk
Field;
- sites of exploration and production of Hydrocarbons on adjacent areas
subject to obtaining appropriate licences.
2.2 The initial list (lists) of Investment Sites will be determined by a
mutual written agreement of all Participants and shall constitute an
integral part of this Agreement. This list (lists) can be further
amended and new Investment Sites added according to the decision of the
Participants.
2.3 During 1998 Ukrnafta will contribute to the Joint Property assets and
intellectual property in form of "know-how", with the agreed value for
the total amount of [ ] thousand hryvnias, which constitutes at the
official rate of National Bank of Ukraine as of property estimation date
(figures are conventional) 1040 thousand US dollars.
2.4 In 1998 LVR will contribute to the Joint Property the investments in the
monetary form and assets as its Initial Contribution for the total
amount of 760 thousand US dollars.
2.5 In 1998 IPEC will contribute monetary funds and its labour participation
for the total amount of [ ] thousand hryvnias, which constitutes at the
official rate of National Bank of Ukraine as of property estimation date
(figures are conventional) 200 thousand US dollars.
2.6 Beginning from 1999 the Contributions to the Joint Investment Production
Activity will be carried out according to annual Joint Activity Program
and Agreed Budget. The Participants agree that approved Joint Activity
Programs and Agreed Budgets for any Fiscal Year are the Supplements to
this Agreement.
In case of substantial change of exchange rate of the National Bank of
Ukraine and by mutual consent of all Participants, Ukrnafta and IPEC
hereby agree to perform additional contributions with a purpose to
maintain amount of their Contributions defined in US dollars.
2.7 The Participants hereby agree to make their initial Contributions to the
Joint Investment Production Activity and hold their Participations in
the Joint Property in the following proportions:
Ukrnafta 52%
LVR 38%
IPEC 10%
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2.8 If one of the Participants declares that it is unable to make a
Contribution described in this Agreement and the Joint Activity Program
and will not provide its Contribution in the amount required for full
performance of Joint Activity Program and other Participant is able to
cover the deficit then the Management Committee can make a decision to
change, for a certain period of time, the Participation for each
Participant in order to reflect the increased Participation of the
non-defaulting Participant and make the appropriate changes to the Joint
Activity Program and to the Agreed Budget. In that case Participants
agree to make appropriate amendments to this Agreement.
2.9 Any Contribution to the Joint Investment Production Activity must be
recorded as required by Ukrainian law.
2.10 In order to evaluate any Contributions of Ukrnafta in kind, a separate
commission will be created which will examine, evaluate and give the
estimate to the assets which are proposed to be Contributed by Ukrnafta.
The commission shall consist of three people: one nominated by LVR: one
nominated by Ukrnafta: and one independent expert agree to by the
Participants' nominee. If the Participants' nominees cannot agree on an
independent expert, then such independent expert shall be appointed by
the reference to the resolution of disputes provisions described in
Article XXI.
If Ukrnafta will decide to contribute Hydrocarbons in kind, than the
Group of Expert will value the contributed Hydrocarbons.
The Participants of the Joint Investment Production Activity hereby
agreed on the following principles of the evaluation of the assets which
is transferred by Ukrnafta to the Joint Activity. The evaluation of the
assets which is transferred to the Joint Investment Production Activity
will be based on a determination of possible value of the assets or its
construction at the present conditions and considering its wear and
tear, actual production capacity at the time when such evaluation are
carried out. It is agreed that, the fact that the assets contributed to
the Joint Investment Production Activity will be used for production of
Ukrnafta's Hydrocarbons as they are defined in Article XX, will be
considered when such evaluation will be carried out. Therefore, the
coefficient which equals to 0.5 will be used for determination of the
assets' value and such coefficient reflects the minimum expected
correlation of Base and Incremental Hydrocarbons which is equal to 1 to
1.
2.11 Cash and property transferred by the Participants to the Joint
Investment Production Activity and also those created, received or
obtained in the process of Joint Investment Production Activity and
contributed to the Joint Investment Production Activity constitute their
joint share property. The Participants have no right to be in charge of
their Actual Contribution in common property without consent of the rest
of the Participants.
ARTICLE III
Licences for Commercial Development of the Bugruvativsk Field and for
Exploration of its area
3.1 Ukrnafta hereby guarantee that its has exclusive right for development
and exploitation of the Bugruvativsk Field and before the Effective Date
will proof this fact by giving copies of appropriate documents to the
Ukrainian solicitors for LVR.
3.2 The Participants may by mutual agreement of all Participants request
Ukrnafta to obtain a License for Further Exploration of the Bugruvativsk
Field and adjacent territories. If such license is obtained it shall be
included in this Agreement and subject to its provisions. If the
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term of validity of any other new license obtained by Ukrnafta or any
other Participant in respect of the Bugruvativsk Field or adjacent areas
exceeds the validity term of this Agreement, then this Agreement shall
be automatically prolonged for the validity term of such new license(s).
3.3 Ukrnafta hereby agrees that during the term of this Agreement it will
not enter into any agreement with any other party relating to the
Bugruvativsk Field and adjacent areas, licenses for exploration and
production of which could be obtained in the future.
3.4 Ukrnafta hereby agrees to maintain all licenses referred to in Section
3.1 and 3.2 in good standing and to not take any actions or inactions to
jeopardise such licenses. If Ukrnafta receives a notice or is otherwise
aware that it is in default under such licenses, it will immediately
notify LVR and IPEC. Upon receipt of such notification LVR and IPEC may
take such steps and such actions as they may (but are not obliged to)
deem appropriate to resolve such default. Any amounts paid or costs
incurred by LVR in remedying such default shall be considered a
Contribution to the Joint Investment Production Activity.
3.5 Ukrnafta hereby understands and agrees that LVR and IPEC are held
harmless against any and all claims, expenditures, damages, losses and
other liabilities whatsoever in respect of the licenses resulting from
(1) Ukrnafta's prior activities or failures to act within the
Bugruvativsk Field; (2) any pre-existing conditions or (3) by virtue of
Ukrnafta remaining as the license holder.
ARTICLE IV
Arrangement of Works for Production of Hydrocarbons within the Bugruvativsk
Field
4.1 IPEC is recognised to be an Operator as it is traditionally understood
in international oil and gas business and shall on its own and with
contractors selected by the Operator perform operations on Hydrocarbons
production and conduct all organizational and practical activity on
operation of the Bugruvativsk Field as it relates to the Joint
Investment Production Activity. All such operations will be conducted at
the expense of the Joint Property in accordance with the Joint Activity
Programs and the Agreed Budget. The Operator can be changed in
accordance with an agreement among participants if (1) IPEC will
withdraw itself form the Participants of the Agreement or (2) the
Participants will decide to change an Operator.
4.2 Some separate operations connected with field development, new well
drilling, restoration works and stimulation of existing xxxxx will be
carried out by Ukrnafta, LVR and IPEC as its Labour Contribution and
also on the basis of separate agreements on provision of the contractor
services (service contracts) on its own or with participation of the
Ukrainian and foreign contractors, provided that such operations are
approved in the Joint Activity Programs and Agreed Budgets.
4.3 IPEC will take measures stipulated by the Joint Activity Program, for
technical re-equipment of Ukrainian enterprises involved as
subcontractors of agreements on giving services (service contracts).
4.4 For tax purposes economic relations among the Participants of the Joint
Investment Production Activity equal to the relations on the basis of
separate contracts such as contractor agreements and contracts on
providing services. The Participants must perform
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only those operations, works and services which are provided by the
Joint Investment Production Activity Program.
4.5 With the aim to ensure introduction of modern technologies of drilling
and finishing the xxxxx and intensification of Hydrocarbons production
the Participants will consider the issue of establishment of a separate
service company in the form of a joint-stock company.
ARTICLE V
The Rights of the Participants
5.1 The Participants have the following rights:
5.1.1 To participate in solving the issues of co-ordination and the management
of the Joint Investment Production Activity and the management of Joint
Production in accordance with this Agreement;
5.1.2 To obtain all available information concerning the Joint Investment
Production Activity free of charge. To have access to accounting and
financial documents, to all geological, technological and technical
documentation. All such information must be maintained in confidence as
per Article XX;
5.1.3 To receive a share of profits received as a result of the Joint
Investment Production Activity or a part of production produced in
accordance with this Agreement.
ARTICLE VI
Responsibilities of the Participants
6.1 The Participants are responsible for the following:
6.1.1 To observe the provisions of this Agreement and to perform the
Management Committee's decisions in respect of performance of the Joint
Investment Production Activity;
6.1.2 To perform their responsibilities under the Agreement including those
connected with property participation in Joint Investment Production
Activity in the amount, order and means provided by this Agreement and
approved by the Management Committee in the Joint Activity Programs;
6.1.3 Do not disclose any information or documents provided in connection with
the Joint Investment Production Activity to the Participants including
information regarding discussions and decisions of the Operator which
are confidential information and shall be maintained in confidence as
per Article XX;
6.1.4 To perform other obligations if it is provided by additions to this
Agreement or by the Joint Activity Programs;
6.2 In addition to general responsibilities provided in Section 6.1 above,
Ukrnafta shall be responsible for the following:
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6.2.1 In accordance with this Agreement, the Joint Activity Program and
additional agreements to transfer the xxxxx, assets and other property
to the Joint Investment Production Activity within the terms agreed in
the Joint Activity Program;
6.2.2 To use the License for Production of Hydrocarbons referred to in Section
3.1 at Bugruvativsk Field in the interests of Joint Investment
Production Activity, as well as to use any licenses obtained in the
future for the Bugruvativsk Field or adjacent areas in the interests of
the Joint Investment Production Activity;
6.2.3 To use the existing and xxxxx which are going to be constructed and
surface facilities on the Bugruvativsk Field in the interests of Joint
Investment Production Activity;
6.2.4 When authorized in the Joint Activity Program to service facilities of
the Joint Investment Production Activity by its personnel and to
implement some technological works on the basis of co-operation;
6.2.5 In the interests of Joint Investment Production Activity to make
efficient use of equipment handed over to it for use on terms of
separate agreements and intended for use when servicing the Joint
Investment Production Activity. To provide the Participants with
conditions for control over the use of equipment transferred by them for
utilization.
6.3 In addition to general responsibilities provided in Section 6.1
above, IPEC is responsible for the following:
6.3.1 to fulfil functions of Operator on development of the Bugruvativsk Field
as it relates to the Joint Investment Production Activity, including
accounting of the Joint Property and of Joint Investment Production
Activity's operations. All to be done in accordance with the Joint
Activity Program.
6.3.2 To act as a contractor (General contractor) in construction of xxxxx and
facilities in accordance with the Joint Activity Program.
6.3.3 To perform some separate operations connected with the Bugruvativsk
Field development, new well drilling, restoration works and stimulation
of existing xxxxx as Labo(u)r Contribution and also on the basis of
separate agreements on providing services (service contracts) on its own
or involving Ukrainian and foreign subcontractors. All to be done in
accordance with the Joint Activity Program.
6.3.4 To sign the contracts on behalf of other Participants including
contracts for the sale of Hydrocarbons produced as a result of Joint
Investment Production Activity;
6.4 In addition to general responsibilities provided in Section 6.1
above, LVR is responsible for the following:
6.4.1 To make measures, stipulated by the Joint Activity Program, for
technical re-equipment of Ukrainian enterprises involved as
subcontractors of agreements on giving services (service contracts).
6.4.2 To provide Ukrnafta with scientific technical information as of advanced
achievements in exploration, development of hydrocarbon fields, oil and
gas production. All such information shall be maintained in confidence
by Ukrnafta as per Article XX.
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6.4.3 To provide the participation of foreign specialists at the expense of
the Joint Property Account, including foreigners, in preparation of
Joint Activity Programs and Agreed Budgets.
6.4.4 To arrange the training of specialists abroad;
ARTICLE VII
Joint Activity Program and its Financing
7.1 All annual Joint Activity Programs will be prepared by the Operator for
review and approval by the Management Committee.
7.2 All annual Joint Activity Programs must be approved by the Management
Committee within 30 days of their submission to the Management Committee
by the Operator. All Annual Joint Activity Program must be approved by
the Management Committee 30 days prior to the beginning of each Fiscal
Year.
7.3 Repeated approval of each Joint Activity Program is carried out if
necessary if new circumstances connected with the Bugruvativsk Field
operation conditions arise and also if incomes from Hydrocarbons sale
and cash provided by the Participants is not sufficient for the
performance of works planned by the Joint Activity Program earlier.
7.4 If the Management Committee does not reach an agreement regarding
principle issues of the Joint Activity Program, then such Joint Activity
Program may be defined as a High Risk Operation as further described in
Article IX.
7.5 The Participants have no right to conduct operations on the Bugruvativsk
Field which were not provided by the Joint Activity Program and are not
defined as High Risk Operations.
7.6 Financial needs for operations provided by the Joint Activity Program
and the Agreed Budget may be covered at the expense of:
- financial contributions (investments) of the Participants transferred
to the Joint Property;
- monetary funds of the Participants used by them for purchasing or
creation of property in the form of equipment, transport facilities,
construction modules, other material resources as well as buildings,
constructions, transmission facilities that are contributed to Joint
Investment Production Activity and reflected at the Joint Property
Balance Sheet:
Financial needs for Hydrocarbons production (for current expenses) at
the initial period shall be covered at the expense of monetary funds as
described in each Joint Activity Program, which may include cash
contributed by the Participants to the Joint Property (deleted text in
this paragraph was not incorporated in Ukrainian text which was
submitted to Ukrnafta).
7.7 The Agreed Budget shall be prepared on the basis of expected expenses
for operations being executed by the Operator, market prices for
services and production of the contractors and suppliers (further
referred to as Settlement Prices), volumes of works and services, tax
rates, obligatory payments and the Joint Activity Programs.
7.8 The Agreed Budget of the Joint Investment Production Activity is
approved by the Management Committee for the next Fiscal Year 30 days
prior to its beginning and is subject to revision and repeated approval
in case if the Joint Activity Program changes and
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also in case if the Settlement Prices change. The Agreed Budget is
formed in accordance with the provisions of Clauses 2.6 and 2.7. At the
same time, if one of the Participants can not fully perform its
obligation that are required for full performance of Joint Activity
Program and other Participant is able to cover the deficit then the
Management Committee can define other Participation in Investment as it
provided for in Clause 2.8 of this Agreement.
The Participants hereby agree to create a Reserve fund in amount up to
20% (twenty per cent) of Agreed Budget as it may be required by the
Operator.
7.9 If during the first ten days of the month when the appropriate stage of
the Joint Investment Production Activity Program and Agreed Budget
begins, any of the Participants is unable to finance the expenses
provided by the Agreed Budget for current year it shall notify other
Participants about it in writing before the end twenty days of that
month. These Participants shall notify of their desire and possible time
of financing expenses uncovered by the Participant declared about it
within 30 days. If the other Participants agree to cover such expenses
then the process described in Section 2.8 shall apply. If the other
Participants will not completely cover the additional requirements as
per Section 7.11, then within the next 15 days the Participants come to
an agreement as of this issue or appoint special session of the
Management Committee that makes a decision about correction of the Joint
Activity Program and the Agreed Budget.
7.10 LVR will transfer monetary funds intended for the Joint Investment
Production Activity from its bank accounts at the foreign banks to a
Separate Account in Foreign Currency opened for performance of the
purposes of this Agreement. IPEC will open a Separate Settlement Account
in Ukrainian currency for performance of the Joint Investment Production
Activity.
7.11 The Operator will efficiently (not less than once in a ten-day-period)
inform the Participants about the operations with the accounts by
providing copies of lists of credit payment orders received from a bank.
7.12 The performance of the Joint Activity Program and the Agreed Budget and
use of the Joint Property by the Operator is controlled by the
Management Committee which analyses the results of activity for every
six months
ARTICLE VIII
Commercial Development Project of the Bugruvativsk Field
8.1 The Participants agreed that the commercial development project which is
valid at the moment of the Effective Date will be updated by the
Operator and approved in the appropriate order. The updated project of
commercial development of the Bugruvativsk Field may be used as the
basis for preparation of the Joint Activity Programs.
ARTICLE IX
High Risk Operations
9.1 Under this Agreement an Investment Activity Site may be designated as a
High Risk Operation ("HRO-IAS"), which means carrying out the projects
that are proceeding in spite
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of disagreement of one of the Participants. A Participant may designate
a High Risk Operation as follows:-
- the Participants (the "Initiating Participants") who wish to proceed
with the HRO-IAS may provide a written notice to the Participants (the
"Receiving Participants") who do not wish to proceed indicating that the
Initiating Participants wish to designate the HRO-IAS as a High Risk
Operation;
- The Receiving Participants will have 30 days from receipt of the written
notice to elect, in writing to the Initiating Participants, as follows:
(a) that they wish to participate, in which event the HRO-IAS will be
included within the Joint Investment Production Activity and the
remaining processes described in this Agreement shall apply; or
(b) not to participate, in which event the HRO-IAS will be designated
as a High Risk Operation of the Initiating Participant.
If the Receiving Participants do not respond within the 30 day time
period described above, they will be deemed to have elected not to
participate.
9.2 High Risk Operation may include:
- carrying out the additional seismic survey on the area where such
surveys have been conducted earlier;
- carrying out of 3-D seismic;
- drilling of additional exploratory xxxxx and also some production
xxxxx;
- other projects in which one Participant does not wish to be involved
in.
9.3 High Risk Operations will be conducted solely at the expense of the
Initiating Participants. In case of negative result of these High Risk
Operations the expenditures for their carrying out are not taken into
account in calculating the Actual Contribution of the Participants. In
case of positive result, the Initiating Participant will have a right to
use a result of HRO during the period of time which gives an opportunity
to reimburse the Initiating Participant's expenses with using the
coefficient equals to 2.0. After that period, the Initiating Participant
must contribute the result of HRO to the Joint Investment Production
Activity and value of such contribution will be equal 0.
9.4 If the Participants have different opinion in evaluation of results of
High Risk Operations stated in paragraph 9.3, then their dispute shall
be considered by the special expert group. The special expert group
shall consist of 3 (three) persons:
(i) one specialist of the Ukrainian Oil Research Institute
or High School;
(ii) one specialist from American Petroleum Institute (API) or
some other Oil Research Institute of one of the other
countries recognised all over the world;
(iii) one specialist appointed by the two specialists
nominated by Ukrnafta and LVR.
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The first expert will be appointed by Ukrnafta within the appropriate
group, the second expert will be selected by LVR within the appropriate
group and the two experts will agree upon the third expert. If those two
experts cannot agree upon the third expert the issue will be resolved in
accordance with the dispute resolution provisions in article XXI.
9.5 Once a Participant identifies it intends to proceed with a High Risk
Operation, the other Participants agree to allow access to the
Bugruvativsk Field, equipment or facilities necessary to proceed with
the High Risk Operations.
ARTICLE X
Base and Incremental Hydrocarbons
10.1 Definitions "Base Hydrocarbons" and "Incremental Hydrocarbons" are used
in order to determine the amounts of payments to the State budget
according to the provisions of the Decree of the President of Ukraine No
433/96 of 17 June 1996 "On Measures for Attraction of Investments for
Development of Oil Fields with Hard-Producing and Exhausted Deposits".
Base Hydrocarbons are deemed to be anticipated volumes of oil
development which are established by the Resolution of the Cabinet of
Ministers of Ukraine No 1223 of 6 November 1997 "On Approval of the List
of Oil Fields with Hard-Producing and Exhausted Deposits" with a purpose
of use of the established by law procedure concerning taxation of
Incremental Hydrocarbons.
10.2 Participants after the Effective Date will immediately carry out the
works in respect to determining the volumes of development of Calculated
Hydrocarbons for Contributed Xxxxx. Until transfer of all xxxxx to the
Joint Investment Production Activity, amount of Calculated Hydrocarbons
for Contributed Well will be used for determination of Incremental
Hydrocarbons. In this case, Incremental Hydrocarbons (means crude oil)
are defined as a deference between actual Hydrocarbons (means crude oil)
production produced from xxxxx contributed to the Joint Investment
Production Activity and appropriate amount of Calculated Hydrocarbons
for Contributed Well.
10.3 Taxes and other obligatory payments, which is stipulated only for Base
Hydrocarbons will be paid by Ukrnafta.
ARTICLE XI
Distribution of Hydrocarbons
11.1 Oil and Gas produced in the Bugruvativsk Field shall be divided into
Hydrocarbons of Ukrnafta and Joint Produced Hydrocarbons.
11.2 Hydrocarbons of Ukrnafta are deemed to be actual volumes of production
of oil and gas from the xxxxx not contributed to the Joint Investment
Production Activity and Calculated Hydrocarbons for Contributed Well,
contributed to the Joint Investment Production Activity. These
Hydrocarbons are property of Ukrnafta and are not the Product of the
Joint Production under this Agreement.
11.3 Calculated Hydrocarbons for Contributed Well in form of oil are defined
at the moment of transfer such xxxxx to the Joint Investment Production
Activity. Estimation of Calculated
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Hydrocarbons for Contributed Well will be made by the Group of Experts.
The Calculated Hydrocarbons of Contributed Xxxxx in form of casing-head
gas will be defined during process of exploitation of such xxxxx based
on the Calculated Hydrocarbons in form of oil and actual gas factors.
11.4 Joint Produced Hydrocarbons are deemed to be volume of oil and gas
produced at the Bugruvativsk Field using the Joint Property minus
Hydrocarbons of Ukrnafta.
11.5 In case when as a result of decrease of volumes of Hydrocarbons'
development of the xxxxx which are not contributed to the Joint
Investment Production Activity, the sum of Calculated Hydrocarbons for
Contributed Well which are contributed to the Joint Investment
Production Activity and actual development of Hydrocarbons of the xxxxx
which are not contributed to the Joint Activity are less than the
volumes of Base Hydrocarbons approved in respect to the entire
Bugruvativsk field, taxes and payments which are only specified for Base
Hydrocarbons shall be paid at the expense of Ukrnafta's profits received
from the distribution of the profit of the Joint Investment Production
Activity.
11.6 The Participants will prepare detailed procedure of (1) measure of
Hydrocarbons' volume produced at the Bugruvativsk field and (2)
Hydrocarbons division on Hydrocarbons of Ukrnafta and Hydrocarbons of
the Joint Production.
11.7 Profit from the sale of Hydrocarbons of the Joint Production or, in case
of execution of additional agreement Hydrocarbons itself, will be
distributed among the Participants.
ARTICLE XII
Accounting of Property, Operations on the Joint Investment Production
Activity, the Expenditures for its Fulfillment and Production Results
12.1 Accounting of the Joint Property will be performed by the Operator on
the Joint Activity Balance Sheet.
12.2 The expenses for carrying out exploration, drilling of production xxxxx,
major construction including purchasing the equipment, fulfillment of
research works and other expenses provided in the Joint Activity Program
will be paid at the expense of the Separate Settlement Account provided
such expense was authorized in the Agreed Budget.
If it is authorized in the Joint Activity Programs, the Participants at
the expense of their own (not united) funds can make capital expenses
that will be included to the value of capital funds that are transferred
to the Joint Balance Sheet.
All expenses and costs incurred by all Participants in carrying out
their obligations under the Joint Activity Program or this Agreement,
except expenses connected with performance of Contributions, shall be at
the expense of Joint Property and are the subject to the prior approval
by the Management Committee.
12.3 The Operator under a separate Operational Agreement, which is a
supplement to this Agreement will agree to perform all required
operations in accordance with the Joint Activity Programs and to only
incur expenses authorized in the Agreed Budget.
12.4 Ukrnafta and LVR will perform operations connected with development of
Bugruvativsk field in volumes provided by the Joint Activity Program
based on the conditions stipulated
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in Operation Agreement, which is mentioned in Clause 12.3, or they
(Ukrnafta and LVR) can be defined as a contract or in accordance with
separate agreements.
12.5 Quarterly, the profits of the Joint Investment Production Activity will
be calculated and paid out as follows:
(a) sales of the Joint Production and other income;
(i) less taxes, royalties, and other expenses to be charged
against the Joint Property pursuant to the provisions
of this Agreement;
(ii) less any amount approved by the Management Committee to be
reserved for the use in future operations, to create a
reserve for re-investments, or for any other purpose;
The remaining funds shall be paid on a quarterly basis to the
Participants in accordance with the provisions of Article XIV and the
requirements of Ukrainian law. The Participants may on request in
writing to the Operator, take a portion of the Joint Production in kind
equal to the Participant's Actual Contribution provided that the
Participant pays a corresponding part of the expenses charged to date to
the Joint Property. In such event the Participant may sell its part of
the Joint Production on either domestic or international markets.
12.6 Services which are provided by any of the Participants for performance
of the Joint Investment Production Activity must be approved by the
Joint Activity Program and payment is authorized in an Agreed Budget.
12.7 The Participants of the Joint Investment Production Activity have the
right of inspection of all accounting documents on the Joint Investment
Production Activity by means of audits conducted by independent auditing
institutions. Planned audits shall be carried out no less than once a
year and shall be paid by all Participants pro rata to their Plan(n)ed
Participation. Beyond-the-plan audits shall be paid by the initiators.
12.8 The accounting shall be maintained in accordance with the rules accepted
in Ukraine, and also with internationally accepted accounting rules.
12.9 Upon approval of the Management Committee assets of the Joint Property
may be sold and the proceeds of any such sale shall be credited to the
Separate Settlement Account.
Investment Production Activity to the total amount of the Cumulative
Contributions for the appropriate period of the Joint Investment
Production Activity.
14.3 the Accumulative Contributions of Ukrnafta are calculated at the end
of every quarter and included:
- Contributed Xxxxx and surface facilities constructed prior Effective
Date (as valued in accordance with this Agreement and contributed to the
Joint Investment Production Activity);
- monetary funds of Ukrnafta contributed to the Joint Investment
Production Activity;
- the expenses of Ukrnafta at its own or with involving of contractors for
conducting in accordance with the Joint Activity Program contractual
drilling, commercial construction and workover of xxxxx pursuant to
contractual prices, taking into account the cost of material resources
passed to contractors.
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- the non-material rights, including intellectual property rights.
All such items must be approved in a Joint Activity Program before defining them
as a Cumulative Contributions of Ukrnafta.
14.4 The Accumulative Contribution of LVR are calculated quarterly and
include:
- monetary funds of LVR contributed to the Joint Investment Productions
Activity;
- cost of material resources, transferred to the Joint Balance Sheet, or
in accordance with Joint Investment Production Activity Program to other
contractors or other participants;
- cost of services connected with drilling, construction and workover
rendered to the Joint Production by LVR as production co-operation
(Working Contributions) according to approved Joint Activity Programs.
ARTICLE XIII
Taxes and Payments to the State Budget
13.1 Taxes, obligatory payments to the State Budget as well as Value Added
Taxes ("VAT") and profit tax which are part of the Total Expenses are
being paid based on proceeds received from sale of the Joint Production
and shall be paid at the expense of the Joint Production Activity.
13.2 In case of production distribution in kind among the Participants they
will pay by themselves VAT, rent payments, deductions for geological
explorations and the payments for the use of mineral resources, taxes
for property and land and also the profit tax.
13.3 The Participants execute this Agreement on the basis of the financial
and other conditions (including tax rates, payments, etc.) which are in
force on the Effective Date as they may affect the Joint Investment
Production Activity. If in the future any law, decree or regulation
applicable to the Joint Investment Production Activity or pertaining to
the economic interests of the Participants are enacted in Ukraine that
adversely affect the original economic rights and benefits of the
Participants, the Participants agree to co-operate in good faith to
determine practical opportunities to reinstate the original economic
rights and benefits granted to the Participants according to Ukranian
law and by this Agreement on the Effective Date, and shall jointly
conduct negotiations with the appropriate State authorities in order to
retain and regain such economic rights and benefits.
ARTICLE XIV
Distribution of Profits
14.1 Profit from sales of Hydrocarbons produced on the Bugruvativsk Field is
quarterly or other way distributed between the Participants in
accordance with written agreement of Participants and with Ukranian law.
14.2 The Actual Contribution of any of the Participants is determined by
calculation, as the ratio of the cumulative Contributions of the
Participants for the whole period of the Joint
14.5 Cumulative Contribution for the IPEC are calculated quarterly and
include:
- the cost of material resources purchased at the expense of the
Operator and contributed to the Joint Investment Production Activity;
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- monetary funds contributed to the Joint Investment Production
Activity;
- the cost of services connected with drilling, construction and repairs
provided by IPEC to the Joint Investment Production Activity in
accordance with the order approved by the Joint Investment Production
Activity Program;
14.6 The Actual Participations of the Participants will be defined quarterly
on the basis of the amounts of the Cumulative Contributions of the
Participants.
14.7 For the purpose of Joint Investment Production Activity's profit
distribution, Participation of LVR will be corrected using coefficient
equals to 0.93.
14.8 The Accumulative Contributions, Actual Contribution of the Participants
and Corrected Participations are to be approved by the Management
Committee.
14.9 The profit from sale of Hydrocarbons of the Joint Production is
distributed among the Participants depending on their Corrected
Participations.
14.10 The above-mentioned proportions and distributions method for profits
distribution will also be used in case of distributing of production
between the Participants. In case of such distribution each Participant
can sell its part of the Joint Production at the domestic or
international markets.
ARTICLE XV
Sale of Joint Production
15.1 Sale of the Joint Production will be carried out by the Operator
following the instructions of the Management Committee at prices
established by the operator and purchasers.
15.2 The participants have the right to purchase the Joint Production from
the Operator provided that such operations must be performed under the
same terms and conditions as is established for the sale to third
parties.
ARTICLE XVI
The Order of Conducting the Joint Investment Production Activity
16.1 The Operator, properly authorized by the Participants, is entrusted to
conduct the Joint Investment Production Activity, to arrange and manage
the operations, to be representative before third parties. Efficient
management of the activity is carried out by the Operator.
16.2 The Rights and Obligations of the Operator are defined in a power of
Attorney for conducting the Joint Investment Production Activity which
is issued in accordance with Article 66 and 431 of the Civil Code of
Ukraine and signed by all Participants.
16.3 The Operator concludes the agreements to secure the Joint Investment
Production Activity, obtains civil rights and undertakes obligations
under the agreements on its behalf. The agreements concluded by the
Operator create rights and obligations for other Participants pursuant
to existing Powers of Attorney.
16.4 The procedure of products sale and payments is defined by this Agreement
and specific agreements with purchasers of products.
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16.5 The issues of the Joint Investment Production Activity which require
mutually agreed decisions are solved if necessary by calling of meetings
of the Management Committee according to the Management Committee's
working plan, on chairman's initiative or at any of Participants
request. Making decisions is also allowed by exchange of letters,
telegrams, faxes and other written notifications.
If newly-taken decisions of the Management Committee require changes to
the provisions of this Agreement, then these changes are documented in
the form of additional agreements to this Agreement and shall constitute
an integral part hereof.
No amendment or decision will be effective unless approved in writing by
all Participants.
16.6 The Operator shall conduct all operations in accordance with this
Agreement, the Joint Activity Programs and Agreed Budget.
16.7 Management, officers and controlling bodies of the Participants as
defined by their foundation or incorporation documents retain control
over financial and commercial activity of that Participant. The
Participants shall have the rights to study any documentation concerning
the Joint Investment Production Activity. If required, independent
audits can be performed upon written agreement of all Participants.
ARTICLE XVII
The Management Committee
17.1 The Management Committee carries out co-ordination of the Joint
Investment Production Activity's management by adoption of appropriate
decision.
Exclusive competence of the Management Committee includes the following:
- drafting of changes and amendments to this Agreement;
- approval of the Joint Activity Programs and Agreed Budgets and making
control over their performance;
- approval of contracts with contractors to fulfill well drilling
operations complex of geophysical surveys, formation fracturing
operations and/or other expensive works of a value of more than 500,000
(five hundred thousand) USD;
- approval of the Joint Investment Production Activity's termination.
17.2 The Participants shall appoint six representatives to participate in the
Management Committee, including three persons to be appointed by
Ukrnafta and three persons to be appointed by LVR. The Management
Committee decisions shall be taken by individual voting with all
decisions requiring the approval of 100% of the members on the
Management Committee. The Management Committee shall be competent when
members attending the meeting or their representatives holding notarized
proxies represent 100% of the members on the Management Committee. Each
Committee member shall have one vote.
17.3 Decision of the Management Committee is adopted by means of
individual voting.
When the Management Committee can not make a decision on operational
aspects of the Joint Investment Production Activity, such as choosing of
a contractor, co-ordination of
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operational contract or the contract for purchasing the equipment then
the matter shall be considered by expert group that is created and works
according to procedure stipulated in Section 9.4.
17.4 The Management Committee is the highest governing body of the Joint
Investment Production Activity. The Management Committee shall have full
autonomy and authority to make decisions and take actions consistent
with this Agreement and Ukranian law.
17.5 The Participants may attend or appoint representatives having notarized
proxies to act for them at the Management Committee Meeting.
17.6 The Participants intend for the first Chairman of the Management
Committee to be nominated by Ukrnafta and the first Deputy Chairman to
be nominated by LVR, with sole nomination thereafter to be rotated every
two years between Ukrnafta and LVR.
17.7 A meeting of the Management Committee may be convened by the Chairman or
Deputy Chairman by his or her sending a certified (return receipt
requested) letter, fax, telex or telegram to all of the members of the
Committee. The notification shall contain the date, place and agenda for
the proposed meeting of the Management Committee. The notification must
be received by all of the members of the Committee at least 45 days in
advance of the proposed date of the meeting of the Management Committee.
In case of emergency, by mutual written agreement of all, members of the
Committee notification of any meeting of the Management Committee may be
sent without complying with the foregoing period for advance notice or
by allowing for shorter notice.
17.8 The right to put questions for consideration of the Management Committee
shall belong to each Committee member and to the Operator.
17.9 The Management Committee shall be convened for meetings whenever
necessary, but not less than twice a year. The results of the Joint
Investment Production Activity for each annual Fiscal Year shall be
considered by the Management Committee not later than three months after
the end of the relevant Fiscal Year or other period as may be required
by Ukranian law.
17.10 Meeting of the Management Committee may take place in Ukraine or in any
country as may be agreed to by the members of the Committee.
17.11 The Committee members' reasonable expenses and the expenses of holding
the Management Committee meetings shall be charged and paid at the
expense of the Joint Investment Production Activity.
17.12 Day-to-day management of the Joint Investment Production Activity is
carried out by the Operator.
17.13 The Operator prepares the documents required by the Management Committee
for making the decisions on co-ordination of the Joint Investment
Production Activity.
17.14 The Management Committee shall appoint a Management Committee
Co-ordinator and Management Committee Financial Co-ordinator. The
Management Committee Co-ordinator shall be appointed on the nomination
of Ukrnafta and the Management Committee Financial Co-ordinator shall be
appointed on the nomination of LVR.
All agreements, and other financial documents on amount which exceeds 50,000
(fifty thousand) USD must be approved in written form by both the Management
Committee Co-ordinator and the Management Committee Financial Co-ordinator.
Written approval of the Management Committee
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Co-ordinator and the Management Committee Financial Co-ordinator are required
for all operations with the Separate Settlement Account on amount which exceeds
50,000 (fifty thousand) USD, including hard currency exchange which is on the
Separate Account in Foreign Currency.
ARTICLE XVIII
Rights Assignment and Succession
18.1 The Participants have no right to assign their rights and obligations
under this Agreement.
18.2 The joining of new Participants is not considered to be the assignment
of right irrespective of the terms of such joining.
18.3 In case of the Joint Investment Production Activity's termination of any
Participant due to its liquidation or re-organization, its rights and
liabilities under this Agreement shall pass to official successor,
provided that the right of the last to be legally confirmed.
ARTICLE XIX
Joining to the Agreement
19.1 Any legal entity or individual has the right to join this Agreement
provided that all the Participants shall agree to it in writing.
19.2 Any new Participant of this Agreement which will join this Agreement
according to the consent of all Participants, may acquire or receive
from any Participants part of their Participation in Joint Property and
it is requires appropriate consent.
19.3 Joining to this Agreement of new Participants will entail the signing of
additional agreement by all the Participants.
ARTICLE XX
Confidentiality of Information
20.1 Any information passed by one of the Participants to another one during
the validity term of this Agreement containing the data of carried out
operations, products, prices, negotiations and offers including the
terms of this Agreement, divulgence of which may inflict losses to any
Participant is treated as confidential and is not subject to divulgence
to any third parties excluding the cases foreseen by legislation
currently in force (both Ukranian and International).
20.2 Any other information offered by any of the Participants or their
suggestions and ideas should not be treated as secret or confidential
information excluding those cases when it is specially stipulated in
additional agreement executed by the Participants.
ARTICLE XXI
Mutual Responsibility of the Participants and Resolution of Disputes
21.1 Each Participant is financially responsible for non-fulfillment or
improper fulfillment of the terms to this Agreement and Supplements
hereto and in case of their breach must compensate other Participants
any direct damage arisen through its fault.
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21.2 Participants shall not be liable for non-performance or delay in
performance of any of the obligations if such non-performance or delay
of performance is caused by Force Majeure event. Force Majeure event
will mean any event or circumstance, which does not depend on the
Participant and is beyond the reasonable control of the Participant, who
announced Force Majeure event, which event prevents or delays such
Participant's performance hereunder, ability to meet a term hereunder.
Force Majeure event includes fire, explosions, epidemics, unavoidable
accidents, acts of war (declared or undeclared) or conditions arising
out of or attributable thereto, strikes, lockouts and other labour
disturbances, land disputes, delays in transportation, unavailability
of, inability to acquire or restrictions on the use of essential
technology, information, equipment, suppliers or personnel, floods,
storms, earthquakes and other natural disturbances, blockades,
embargoes, insurrections, rebellions, riots and other civil
disturbances, and changes in legislation, essential lowering of state
price on gas. The Participant, which is under such conditions, must
inform other Participant about the beginning such circumstances, the
term and the termination of their acting.
21.3 The Participants agreed to resolve all disagreements through amicable
negotiations.
21.4 If the Participants can not reach to an agreement by means of
negotiations within the period of 60 (sixty) days from the date of
notification by one of the Participants to other about the dispute,
disagreements will be appealed to the Arbitration Court under the
Stockholm Chamber of Commerce and Industry for final resolution of the
dispute. The Participants have agreed that the Arbitration shall be
consist with the UNCITRAL provisions. The place for the arbitration
shall be Stockholm, Sweden and the arbitration shall take place in
Ukranian and English.
21.5 The Arbitrage consists of three (3) arbitrators appointed as follows:
both complainant and respondent select one arbitrator each; these
arbitrators shall then select a third arbitrator. If within thirty (30)
days after notice of the initiation of the arbitration proceedings the
respondent fails to appoint an arbitrator, such arbitrator shall be
appointed by the Chairman of the Arbitration Court under the Stockholm
Chamber of Commerce and Industry. If two arbitrators fail to agree on
the third arbitrator within (60) days after the date of appointment of
the second arbitrator, such third arbitrator shall be appointed by the
Chairman of the Arbitration Court under the Stockholm Chamber of
Commerce and Industry from a list of three (3) arbitrators proposed by
the complainant.
ARTICLE XXII
Termination of the Activity Under the Present Agreement or its Cancellation
22.1 This Agreement expires upon termination of its validity term.
22.2 The Participants may terminate this Agreement on the basis of consent of
at least two Participants.
22.3 When validity term of this Agreement is finished, as well as when this
Agreement is terminated, if it is necessary, issue on Liquidation of
xxxxx, pipelines and other technical equipment will be considered.
Financing of Liquidation is carried out at the expense of monetary
funds' balance at the Separate Settlement Account and monetary funds of
the Participants, which will be finance liquidation works in proportion
to latest actual Joint Investment Production Activity profit's
distribution. If Liquidation of defined assets is unsuitable or
impossible because of technical, geophysics or other reasons, that
assets are transferred to the Liquidation Commission, which has all
authority in respect of disposal of assets, payments of the debts,
making settlements with the Participants. If the Liquidation Commission
would not dispose assets such as xxxxx, pipelines and other technical
equipment
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within six month, then Ukrnafta agrees to take such assets at its own
balance sheet after payment to Joint Activity amount which equal to ten
times multiplied profit received after sale of the Joint Production
during last quarter before issue on termination of the Joint Investment
Production Activity was raised. This amount will be distributed between
the Participants in proportion to their Actual Participation.
22.4 On expiration of the term of this Agreement or its cancellation, the
property, passed by the Participants to each other for use, is returned
to the owners.
22.5 Any party can withdraw itself from the Participants of this Agreement on
the basis of consent of at least two Participants.
22.6 In case if one of the Participants has the intention to terminate this
Agreement, it must notify other Participant about it no less than 3
(three) months prior such termination. Simultaneously, this Participant
will propose to other Participant to acquire its part in the Joint
Property. If such acquisition will take place then Participant which
sold it part in the Joint Property are defined as terminated its
participation in this Agreement. If it will not happen then Participant
are defined as terminated its participation in this Agreement after the
said period is finished and remaining Participants within three month
will make with that Participant settlement in respect of profit and the
Joint Property distribution. In this case, investments in monetary form
will be returned to the Participant which terminated this Agreement
taking into account actual wear (depreciation) of the Joint Property at
the moment of the Agreement's termination.
22.7 In case when after declaration of one of the Participants about
withdrawal the issue on termination will rise, consideration of such
issue shall have priority.
ARTICLE XXIII
Miscellaneous
23.1 On mutual agreement of the Participants this Agreement may be changed
and added including the involvement of other Participants to the Joint
Investment Production Activity.
23.2 The Participants guarantee that:
- they have full required authority for signing this Agreement;
- they will not undertake actions that may damage the goals and targets
of this Agreement.
This Agreement is signed in 6 copies in Ukranian and in 6 copies in English,
that is 2 copies for each Participant. All of them is considered to be original
and have equal legal force.
On behalf of Ukrnafta:
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On behalf of LVR:
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On behalf of IPEC:
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Supplemental Agreement
This Supplemental Agreement No 1 to the Agreement on Joint Investment Production
Activity for development and further exploration of the Bugruvativsk Field
without the creation of a legal entity of 20 March 1998 (hereinafter the
"Supplemental Agreement") is executed on 11 December 1998 in Kyiv, Ukraine
between:
the Joint Stock Company Ukrnafta (hereinafter referred to as "Ukrnafta"),
represented by its Chairman of the Board Xx X Xxxx, acting based on the Charter,
and Mr G Brazyna, acting based on the Power of Attorney No 97 issued on 18 March
1998.
the Canadian Company "Lateral Vector Recourses Inc" (hereinafter referred to as
"LVR"), represented by its President - Xx Xxxxx Xxxxxxxx, acting based on its
Charter, and
the Closed Joint Stock Company "IPEC" (hereinafter referred to as "IPEC"),
represented by the Chairman of its Board Xx Xxxxx Xxxxxxxx, acting on the basis
of the Charter and Xx Xxxxx Xxxxx, acting on the basis of the power of attorney
each of which is hereinafter sometimes referred to individually as a Party
and collectively as the Parties.
Whereas, the Parties executed the Agreement on Joint Investment Production
Activity for development and further exploration of the Bugruvativsk Field
without the creation of a legal entity No 1 of 20 March 1998 (the "Agreement");
and
Whereas the provisions of the Agreement provide for the Agreement to become
effective upon the registration within the Ministry of Foreign Economic Affairs
and Trade, and
Whereas the Agreement was registered on 23 November 1998, registration No
30291-1-3-61,
Now, therefore, the Parties hereby agreed to amend Sections 2.3, 2.4 and 2.5 of
the agreement as follows:
1. In Section 2.3 of the Agreement, replace the date "1998" with "the
period beginning on the Effective Date till 31 December 2000", so that
Section 2.3 shall be read as follows:
"During the period beginning on the Effective Date until 31 December
2000 Ukrnafta will contribute to the Joint Property assets and
intellectual property in form of "know-how" with the agreed value for
the total amount of [ ] thousand hryvnias, which constitutes at the
official rate of National Bank of Ukraine as of property estimation date
(figures are conventional) 1040 thousand US dollars".
2. In Section 2.4 of the Agreement, replace the words "In 1998" with
"During the period beginning on the Effective Date until 31 December
2000", so that Section 2.4 shall be read as follows:
"During the period beginning on the Effective Date until 31 December
2000 LVR will contribute to the Joint Property the investments in the
monetary form and assets as its Initial Contribution for the total
amount of 760 thousand US dollars".
3. In Section 2.5 of the Agreement, replace the words "In 1998" with
"During the period beginning on the Effective Date until 31 December
2000", so that Section 2.5 shall be read as follows:
1
27
"During the period beginning on the Effective Date until 31 December
2000 IPEC will contribute monetary funds and its labour participation
for the total amount of [ ] thousand hryvnias, which constitutes at the
official rate of National Bank of Ukraine as of property estimation date
(figures are conventional) 200 thousand US dollars".
4. All provisions of the Agreement shall apply to this Supplemental
Agreement except as may be expressly provided otherwise. In case of any
conflict between any provisions of this Supplemental Agreement with the
provisions of the Agreement, the provisions of this Supplemental
Agreement shall prevail.
5. This Supplemental Agreement shall be considered an integral part of the
Agreement and shall be governed by and interpreted and performed in
accordance with the provisions of the Agreement. In particular the
governing law, force majeure and other provisions of the Agreement shall
apply to this Supplemental Agreement, and any disputes hereunder shall
be resolved by arbitration as is provided for in the Agreement.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement in the
spaces provided below.
Joint Stock Company Ukrnafta
By
------------------------------------------------------
Name: D Egar
Title:
------------------------------------------------------
Name: G Brazyna
Title:
LVR
By
------------------------------------------------------
Name: Xxxxx Xxxxxxxx
Title: President
IPEC
By
------------------------------------------------------
Name: Xxxxx Xxxxxxxx
Title: Director
------------------------------------------------------
Name: Xxxxx Xxxxx
Title: Deputy Director
2
28
This Supplemental Agreement No 2 (hereinafter the "Supplemental Agreement") to
the Agreement No 1 on Joint Investment Production Activity for development and
further exploration of the Bugruvativsk Field without the creation of a legal
entity of 20 March 1998 is executed on 14 December 1999 in Kyiv, Ukraine,
between:
the Joint Stock Company Ukrnafta (hereinafter referred to as "Ukrnafta"),
represented by the Chairman of its Board Xx X Xxxx, acting based on the Charter,
the Canadian Company "Lateral Vector Recourses Inc" (hereinafter referred to as
"LVR"), represented by its President - Xx Xxxxx Xxxxxxxx, acting based on its
Charter, and
the Closed Joint Stock Company "IPEC" (hereinafter referred to as "IPEC"),
represented by the Chairman of its Board Xx Xxxxx Xxxxxxxx, acting on the basis
of its Charter
each of which is hereinafter sometimes referred to individually as a Party
and collectively as the Parties.
Whereas, the Parties executed the Agreement on Joint Investment Production
Activity for development and further exploration of the Bugruvativsk Field
without the creation of a legal entity No 1 of 20 March 1998 (the "Agreement");
Whereas IPEC has declared on its inability to fully make its Contribution
described in the Agreement and therefore has agreed to decrease its
Participation to 0.1 (one tenth) per cent and the other Parties agreed to accept
that subject to the terms hereof; and
Whereas, LVR agreed to cover the deficit created by the IPEC's inability to
invest and provided that LVR increases its Participation to 47.9 (forty seven
and nine tenth) per cent;
Now, therefore, the Parties hereby agreed to amend Sections 2.4, 2.5 and 2.7 of
the Agreement as follows:
1. In Section 2.4 of the Agreement, replace the figures "760" with
"958", so that Section 2.4 shall be read as follows:
"During the period beginning on the Effective Date until 31 December
2000 LVR will contribute to the Joint Property the investments in the
monetary form and assets as its Initial Contribution for the total
amount of 958 thousand US dollars".
2. In Section 2.5 of the Agreement, replace the words "200 thousand US
dollars" with "2 thousand US dollars", so that Section 2.5 shall be read
as follows:
"During the period beginning on the Effective Date until 31 December
2000 IPEC will contribute monetary funds and its labour participation
for the total amount of [ ] thousand hryvnias, which constitutes at the
official rate of National Bank of Ukraine as of property estimation date
(figures are conventional) 2 thousand US dollars".
3. The Section 2.7 of the Agreement shall be read as follows:
"The Participants hereby agree to make their initial Contributions to
the Joint Investment Production Activity and hold their Participations
in the Joint Property in the following proportions:
Ukrnafta 52%
LVR 47.9%
IPEC 0.1%
3
29
4. All provisions of the Agreement shall apply to this Supplemental
Agreement except as may be expressly provided otherwise. In case of any
conflict between any provisions of this Supplemental Agreement with the
provisions of the Agreement, the provisions of this Supplemental
Agreement shall prevail.
5. This Supplemental Agreement shall be considered an integral part of the
Agreement and shall be governed by and interpreted and performed in
accordance with the provisions of the Agreement. In particular the
governing law, force majeure and other provisions of the Agreement shall
apply to this Supplemental Agreement, and any disputes hereunder shall
be resolved by arbitration as is provided for in the Agreement.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement in the
spaces provided below.
Joint Stock Company Ukrnafta
By
------------------------------------------------------
Name: X Xxxx D.O.
Title: Chairman of the Board
LVR
By
------------------------------------------------------
Name: Xxxxx Xxxxxxxx
Title: President
IPEC
By
------------------------------------------------------
Name: Xxxxx Xxxxxxxx
Title: Chairman of the Board
4
