EXHIBIT 10.16
INDEPENDENT ENERGY (UK) LIMITED (1)
-and-
VULCAN ENERGY LIMITED (2)
___________________________________
Buy-in Agreement relating to the
UK LANDWARD EXPLORATION LICENCES
OF INDEPENDENT ENERGY UK LIMITED
___________________________________
LICENCE BUY-IN AGREEMENT
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THIS BUY-IN AGREEMENT is made the ( ) day of ( ) 1999
BETWEEN
(1) INDEPENDENT ENERGY UK LIMITED whose registered office is at 00 Xxxxxxxxx
Xxxxxx, Xxxxxx XX0X 0XX (hereinafter called the "Seller"); and
(2) VULCAN ENERGY LIMITED whose registered office is at 0 Xxxxxxxx Xxxx,
Xxxxxxx, XX0 0XX (hereinafter called the "Buyer");
The Seller and the Buyer being hereinafter collectively referred to as the
"Parties".
WHEREAS:-
(A) The Seller and Altwood Petroleum Limited ("Altwood") are together the
beneficial owners of the entire undivided interest in United Kingdom
Landward Exploration Licences as described in Schedule 1 hereto ("the
Licence Areas").
(B) The Seller holds a ninety six percent (96%) interest in the carve-out
areas contained within the Licence Areas, the former being the subject of
this Agreement ("the Buy-in Areas") and are detailed by National Grid
References in Schedule 2 hereto.
(C) The Buyer accepted a half interest in the original offer of participation
in the 1998 Exploration Programme of Independent Energy UK Limited, as
offered by Xx Xxxx X Xxxxxx. That offered for sale for the capped sum of
four million five hundred thousand pounds Sterling (Pounds)4.5 million) a
Working Interest of forty five percent (45%) and a Participating (Paying)
interest of forty nine percent (49%), to be conveyed out of the interest of
the Seller in the seven petroleum prospects covered by the carve-out areas
detailed in Schedule 2 hereto, and an option to farmin or buy-in to the ten
exploration leads covered by the carve-out areas detailed in Schedule 4
hereto, all such carve-out areas contained within the UK Landward Licence
holdings of Independent Energy UK Limited.
(D) Subject to the terms and conditions of this Agreement the Buyer desires to
pay towards the cost of the Farmin Works, two million two hundred and fifty
thousand pounds Sterling (Pounds)2.25 million) to earn a twenty two and a
half percent (22.5%) Working Interest and a twenty four and a half percent
(24.5%) Participating (Paying) Interest over the Buy-in Areas, and an
option over the Option Areas.
(E) Subject to the terms and conditions of the Farmin Agreement (Schedule 10
hereto), the Farmee has agreed to pay on behalf of itself and the Farmor
(the Seller of this Agreement), one hundred percent (100%) of the costs of
the Farmin Works (less (Pounds)2.25 million) to earn a thirty two percent
(32%) interest over the Farmin Areas. In this way the Farmin Works will be
executed no matter what the actual cost may be, and the Buyer's capped
investment will assist in achieving the objectives of the 1998 Exploration
Programme.
(F) By a Deed of Cross Indemnity of even date in the form attached hereto as
Schedule 9 the Parties have given certain undertakings with respect to the
fulfilment of their obligations as Licensees in so far as such obligations
affect the Buy-in Areas.
(G) The Secretary's confirmation that he has no objection in principle to the
arrangements contemplated by this Agreement has been sought and this
Agreement shall be subject to such confirmation.
NOW THEREFORE, in consideration of the mutual covenants and undertakings herein
expressed the Parties agree as follows:-
1. DEFINITIONS AND INTERPRETATIONS
1.1 "Abandon" - or any derivative of the word "Abandon" means:
(a) properly plugging and abandoning a Well in
compliance with all applicable Regulations;
(b) site restoration of the Wellsite to the
satisfaction of the terms of the planning
consent, and of any governmental body having
jurisdiction with respect thereto and to the
reasonable satisfaction of the owner or
occupier of the surface, and ;
(c) furnishing satisfactory evidence of compliance
with the foregoing requirements;
"Abandonment Costs" - means all costs and expenses incurred in or
incidental to Abandon a Well and restore a
Wellsite;
"Affiliate" - means, with respect to a Party, a person,
corporation, company or other legal entity or
partnership which controls, is controlled by
or is under common control with that party and, for
the purposes of this definition, "control" means
the direct or indirect ownership of, or other
ability to direct, more than 50% of the voting
rights in a corporation, company or other legal
entity or partnership;
"Area" - means either or both a Farmin Area or an Option
Area as the context requires ;
"Business Day" - means any day on which banks in London, England
are open to transact commercial business
generally, excluding any Saturday, Sunday or bank
holidays in England and Wales;
"Buy-in Areas" - are the seven (7) carve-out areas from the
Seller's Licence Areas to be purchased by the Buyer
as set out in Clause 2 and 3 hereof;
"Capping and - means to install production casing or liner,
Suspension" and to shut-in the Well and suspend operations in
accordance with good oilfield practice, and to
secure the wellhead in a lockable cage and a
security fenced area with lockable gate, and the
site enclosed by stock proof fencing;
"Capping Costs" - means all costs and expenses incurred in or
incidental to the Capping and Suspending of a Well
or Wellsite;
"Complete" - or any derivative of the word "Complete" means the
acquisition and installation of all tubing, all
subsurface equipment necessary to conduct
production testing and production, including pump
and sufficient tankage, if initially required, to
production test the Well, and all other equipment,
all procedures and all material necessary for the
permanent preparation of a Well for the taking of
production up to and including the outlet valve on
the wellhead;
"Completion Costs" - means all costs and expenses incurred in or
incidental to the Completion of a Well;
"Condensate" - means a mixture of mainly pentanes and heavier
hydrocarbons that may be contaminated with sulphur
compounds, that is recovered or is recoverable at a
Well from an underground reservoir and that may be
gaseous in its virgin reservoir state but is liquid
at the conditions under which its volume is
measured or estimated;
"Contract Depth" - means the lesser of:
a) the depth sufficient to evaluate to the
reasonable satisfaction of Farmor all zones
comprised in each of the respective Farmin
Areas, down to and including the geological
formations set forth in Schedule 2 hereto, and;
b) the depths given in Schedule 2 hereto;
"Contract Operator" - is to be initially the Farmee acting on behalf of
the Farmor to carry out the Farmin Works, this
relationship being further detailed in Clause 12.1
of the Farmout Agreement;
"Crude Oil" - means a mixture mainly of pentanes and heavier
hydrocarbons that may be contaminated with sulphur
compounds, that is recovered or is recoverable from
a Well that is liquid at the conditions under which
its volume is measured or estimated and includes
all other hydrocarbon mixtures so recovered or
recoverable except raw gas and Condensate:
"Drill" - or any derivative of the word "Drill" means the
drilling, coring, logging and flow testing of a
well to explore for and produce Petroleum;
"Drilling Costs" - means all costs and expenses incurred in or
incidental to the Drilling of a Well and, in the
case of a Well that is not Capped for the
subsequent taking of production, includes the cost
of Abandoning the Well;
"Effective Date" - means the date hereof:-
"Equip" - or any derivative of the word "Equip" means the
installation of equipment required to
produce Petroleum from a Well including, without
limitation, a pump or other artificial lift
equipment, the installation of flowlines on the
Wellsite and production tankage serving such Well,
where necessary a heater, dehydrator, separator
compression facilities or other facility for the
initial treatment of the Petroleum produced from
such Well, in order to treat or prepare such
production for transport to market, but excluding
costs incurred beyond the point of entry into a
gathering system, plant or other common facility;
"Equipping Costs" - means all costs and expenses incurred in or
incidental to the Equipping of a Well;
"Farmee and Farmor" - are parties to the Farmout Agreement, with the
Farmor being Independent Energy UK Limited, and the
Farmee being Archean Energy (U.K.) Limited and ISO
(U.K.) Limited;
"Farmin Account" - is the joint bank account holding monies to be used
for the conduct of the Farmin Works;
"Farmout Agreement" - is the agreement under which Independent Energy UK
Limited has arranged to farmout a percentage
interest in the Buy-in Areas and the Seismic Option
Areas, and is included herein as Schedule 10;
"Farmin Areas" - are the seven (7) carve-out areas from the Farmin
Licences, Farmin Percentage interests in which are
to be earned by the Farmee by drilling the Xxxxxx
Xxxxx. Such areas are detailed by the National Grid
References in Schedule 2, and are the same as the
Buy-in Areas;
"Farmin Licences" - means the UK Landward Petroleum Licences containing
the Farmin Areas, as set forth in Schedule 1
hereto;
"Farmin Percentage" - has the meaning attributed to it in Clause 4.1 of
the Farmout Agreement and Clause 4.3 herein;
"Farmin Procedure" - means the procedure set forth in Schedule 12 of the
Farmout Agreement;
"Farmin Period" - is the period of time from the effective date of
the Farmout Agreement until the fulfilment of the
Farmin Works in accordance with that Agreement;
"Farmin Well" - is any one of the seven (7) xxxxx to be drilled by
the Farmee upon the Farmin Areas and constituting
part of the Farmin Works;
"Farmin Works" - means all work performed by the Farmee in the
Drilling to Contract Depth, Capping and Suspension
or Abandoning, as the case may be, of a Farmin Well
on each of the seven Farmin Areas, including
shooting and the processing of at least 150
kilometres of seismic data over the Option Areas ;
"Farmin Works - are the costs, liabilities and expenses of
Costs" executing the Farmin Works. Such costs to be
inclusive but not restricted to the costs of
seismic permitting, access, damages, the seismic
survey contract, the drilling site construction and
access, the drilling contractor, waste disposal,
drilling supplies and fuel, all well evaluation
surveys, wireline and drill stem testing, casing,
cementing, Capping and Suspension or Abandonment ;
"Finishing Date" - is the date upon which any one of the Xxxxxx Xxxxx
has been Capped and Suspended or Abandoned in
accordance with this Agreement and to the
satisfaction of the HSE/DTI;
"GAAP" - means generally accepted accounting principles for
the United Kingdom;
"Gross Proceeds" - means the total amount payable by the purchaser of
Petroleum at the Gross Sales Price;
"Gross Revenue" - means the difference between Gross Proceeds and the
transportation costs incurred or allocated in
connection with the applicable Petroleum produced
from a Well from the well site to the point of
sale, treatment costs to render Crude Oil and
Condensate saleable and, if sales of Crude Oil and
Condensate are not made at the outlet of the on-
site tankage for the particular Well, the
transportation of such Crude Oil and Condensate to
the point of sale, and for Natural Gas, the actual
costs payable to third parties to gather, compress,
treat, process and transport such Natural Gas up to
the point of sale or, if such gathering,
compressing, treatment, processing or
transportation facilities owned by the Farmee are
used to gather, compress, treat, process or
transport such Natural Gas, a reasonable fee,
comprised of both operating and return on capital
components, for the use of such facilities ;
"Gross Revenue - has the meaning attributed to it in Clause
Interest" 4.4;
"Gross Sales Price" - is the price obtained for the sale of Petroleum
produced from the Areas at the point of sale, to a
non-Affiliated Company, or else as an arms length
transaction at a price which shall never be less
than the Market Price, as agreed by the Joint
Venture and Gross Revenue Interest Parties or
subject to determination by a third party expert
acceptable to the Seller and the Buyer, but such
price not to be less than the fair market value;
"HSE/DTI" - are to two governmental organisations responsible
for granting operational consents and having
control over petroleum reservoir matters (the
Health and Safety Executive's Offshore Safety
Division, and the Department of Trade and
Industry's Oil and Gas Division);
"Joint Operating - is an agreement controlling the conduct
Agreement" (JOA) of the Joint Venture and joint operations on the
Areas, the principle of which are given in Schedule
7 hereto;
"Joint Venture" - means a venture in which the Farmee, Seller, Buyer
and Altwood shall jointly participate in further
activities upon any Petroleum discoveries made with
respect to the Areas;
"Joint Venture - a bank account holding all monies of the
Account" Joint Venture;
"Letter Agreement" - is the letter of the 27th August 1998, from
Independent Energy to DIG, signed by Mr W E Xxxxx
for the Farmor, and countersigned by Xx Xxxx Xxxxxx
for the Farmee;
"LIBOR" - means the rate announced from time to time as the
London Inter-Bank Offering Rate by the main branch
of the Licence Operator's principal bank in London,
England;
"Licence" - means either or both a Farmout Licence or Option
Licence as the context requires;
"Licence Areas" - the areas subject to the UK Landward petroleum
licences held by the Farmor and Altwood at the
effective date of this Agreement, as set forth in
Schedule 1 hereto;
"Licence Operator" - is the licensee approved by the Department of Trade
& Industry (DTI) to operate the Licence Areas,
subject to change under the rules of the JOA and
with the approval of the DTI.
"Market Price" - means the price at which Petroleum is sold or
deemed to have been sold which is not unreasonable,
having regard to all market conditions applicable
to similar kinds, quantities and quality of
Petroleum in arm's length transactions at the time
of the sale or deemed sale of such Petroleum;
"Natural Gas" - means Petroleum other than Crude Oil and
Condensate;
"Operate" - or any derivative of the word "Operate" means to
carry out functions and duties of the operator
pursuant to the Joint Operating Agreement, together
with duties imposed by this Agreement;
"Operating Costs" - means all direct and indirect costs and expenses
incurred in or incidental to Operating a Well,
exclusive of Drilling Costs, Completion Costs and
Equipping Costs pursuant to this Agreement and the
JOA;
"Option Areas" - mean the ten (10) Areas covered by the option
rights of the Farmee and Buyer, such Areas being
detailed in Schedule 4 hereto;
"Option Licences" - means the UK Landward Petroleum Licences of the
Seller containing the Option Areas as set forth in
Schedule 4;
"Option Well" - means a Well drilled by the Farmee on an Option
Area;
"Option Work - means all work performed by the Farmee in
Programme" the Drilling, Capping and Suspension or Abandoning,
as the case may be, on all Option Xxxxx on any of
the Option Areas;
"Option Work - means the costs and expenses of executing
Programme Costs" the Option Work Programme";
"Party" - means a Party to this Agreement and "Parties" means
any two or more of them;
"Paying Interest" - means, for each operation, a Party's proportionate
share (expressed as a percentage) of all the costs
and expenses incurred or payable in respect to the
applicable operation, as set forth in the table of
Clause 4.3 hereto;
"Payout" - means:
a) in respect to the Farmin Works, that the Buyer
has received out of its share of the Gross
Revenue from the Xxxxxx Xxxxx, all of its share
of the Farmin Works Costs, the Gross Revenue
Interest payments and Operating Costs incurred
in respect of all Xxxxxx Xxxxx up to that time,
which recovery by Buyer shall be limited to two
million two hundred and fifty thousand pounds
Sterling (Pounds)2.25 million);
b) in respect to the Option Work Programme, that
the Buyer and Farmee have received out of their
respective share of the Gross Revenue from the
Option Xxxxx, the Option Work
Programme Costs, the Gross Revenue Interest
payments and Operating Costs incurred by Buyer
or Farmee, as the case may be, in respect of
such Option Work Programme up to that time;
"Payout Date" - the date of the full Payout from the Gross Revenue
from one or more Petroleum discoveries made within
the Farmin Areas, or the Option Areas, as the case
may be.
"Permitted - means:
Encumbrances"
a) liens for taxes, assessments or governmental
charges which are not due or delinquent;
b) liens incurred or created in the ordinary
course of business as security in favour of any
other person who is conducting the development
or operation of the property to which such
liens relate for the Party's share of the costs
and expenses of such development or operation
which are not due or delinquent;
c) mechanics', builders' or materialmen's liens in
respect of services rendered or goods supplied
for which payment is not due ;
d) easements, rights of way, servitude's or other
similar rights in land (including, without
limitation, rights of way and servitude's for
railways, sewers, drains, gas and oil
pipelines, gas and water mains, and electric
light, power, telephone, telegraph and cable
television conduits, poles, wires and cables);
e) the right reserved or vested in any
municipality or governmental or other public
authority by terms of any lease, licence,
franchise, grant or permit or by any statutory
provision, to terminate any such lease,
licence, franchise, grant or permit or to
require annual or other
periodic payments as a condition of the
continuance thereof;
f) governmental requirements of general
application, including, without limitation,
those respecting production rates or other
operational matters;
g) the encumbrances specifically described in
Schedules 1, 2 and 4, and;
h) the terms and conditions of the Licences;
"Petroleum" - shall have the meaning of the 1934 Petroleum
(Production) Act ;
"Regulations" - means all statutes, laws, rules, orders,
regulations or directives in effect from time to
time and made by any governmental authority having
jurisdiction over the Parties, the Licenses, the
surface rights, and the operations to be conducted
thereon;
"Replacement Farmin - has the meaning attributed to it in Clause
Well" 7.6;
"Secretary" - means the Secretary of State for Trade and Industry
of the United Kingdom;
"Seismic Option - are the areas to be further evaluated by
Areas" the seismic survey work and/or other work, and to
be the subject of further drilling at the Option of
the Buyer and Farmee, as set out in Clause 7.1(i)
hereof;
"Spud" - means that a drilling rig of adequate capacity to
drill the Farmin Well or Option Well to Contract
Depth, as the case may be, is rigged upon the well
site and a drilling bit has penetrated the surface;
"Substitute Farmin - has the meaning attributed to it in Clause
Well" 6.2;
"Well" - means the well or xxxxx Drilled or to be Drilled by
Farmee pursuant to the provisions of this
Agreement, and;
"Working Interest" - means a Party's interest, expressed as a
percentage, in the Licences, Areas and the
Petroleum produced from the applicable Xxxxx .
1.2 Interpretations
a) References to documents in the form of those contained in Schedules 5,
6 and 8 shall be construed as references to such documents subject to
such amendments as may be requested by the Secretary and as are
approved by the Parties, such approval not to be unreasonably withheld.
b) Except as the context otherwise requires, references in this Agreement
to Clauses, sub-Clauses, Recitals or Schedules are to clauses or sub-
clauses of or recitals or the Schedules to this Agreement.
c) The headings in this Agreement are for convenience only and shall not
affect the construction, interpretation or validity of this Agreement.
d) Reference to the singular includes a reference to the plural and vice
versa.
1.3 The following Schedules are attached to and made part of this Agreement:
Schedule 1 UK Landward Area Licence Interests of Independent Energy UK
Limited
Schedule 2 Carve-out Areas for the Farmin Areas
Schedule 3 Xxxxxx Xxxxx - The Well Depths and Bottom Hole Geological
Formations
Schedule 4 Carve-out Areas for the Exploration Leads of the Seismic
Option Areas
Schedule 5 Deed of Assignment of the Licence
Schedule 6 Assignment of Percentage Interest
Schedule 7 Principles of Joint Operating Agreement
Schedule 8 Accounting Procedure
Schedule 9 Deed of Cross Indemnity
Schedule 10 Farmout Agreement
Schedule 11 Seller's Existing and Planned Production Projects
1.4 Precedence
(a) If a term or provision contained in the Body of this Agreement
conflicts with a term or provision contained in any Schedule, the term
or provision in the Body of this Agreement shall prevail .
(b) If a term or provision contained in the Licences conflicts with a term
or provision of this Agreement, the term provision in the Licenses
shall prevail.
1.5 No Partnership
Nothing herein contained shall be construed as creating a partnership or
association or any similar kind or as imposing upon any Party any
partnership duty, obligation or liability to any other Party.
1.6 Currency
All reference to monetary amounts in this Agreement shall be in the lawful
currency of England and Wales unless specified otherwise.
1.7 Computation Time
Except where expressly provided otherwise herein, the reference in this
Agreement to a period of time from a specific day to a later specific or
defined day shall not count the day on which such period commenced and
shall include up to 4;00pm on the day on which such period ends, provided
that, if any such period would otherwise end on a day which is not a
Business Day, then such period shall be extended to 4:00pm on the first
Business Day after the day on which such period would have otherwise ended.
1.8 Reference to Time
Except where expressly provided otherwise herein, all references to any
time of day shall refer to local time in LONDON, ENGLAND.
2 BUYER'S OBLIGATIONS
In consideration of the Assignment by the Seller to the Buyer on the terms
and subject to the conditions of this Agreement of a 22.5% Working Interest
and a 24.5% Participating Interest in respect of the Buy-in Areas, together
with options for the Buyer's further Buy-in to a 22.5% Working Interest and
a 24.5% Participating Interest in respect of the Option Areas, and in
consideration of the general obligations of the Seller undertaken to the
Buyer in this Agreement, the Buyer hereby agrees to pay to the Seller the
sum of (Pounds)2.25 million, being the total amount of the Buyer's
contribution to the costs of the Farmin Works and the Seller hereby
undertakes to the Buyer to apply the sum of (Pounds)2.25 million paid to it
in accordance with this sub-clause 2.1 towards the costs of the Farmin
Works.
2.2 If the Secretary's consent and approval to this Agreement, or the Farmout
Agreement not be obtained then such payment shall be refunded by the Seller
to the Buyer.
3 ASSIGNMENT OF BUY-IN PERCENTAGE
3.1 The Seller undertakes to use its reasonable endeavours to procure the
consent and approval of the Secretary to this Agreement, the Farmout
Agreement, and to the Deeds of Assignment of the Licence, for each of the
Farmout Licences, and the Assignment of Percentage Interest, as set out in
Clause 2 and Clause 4.3, for each of the Farmout Areas. Should such consent
and approval of the Secretary not be obtained within 60 days of the
execution of this Agreement, then
a) the payment under Clause 2 shall be refunded by the Seller to the Buyer
within a further seven Business Days; and
b) this Agreement shall terminate and the Buyer be entitled to treat this
Agreement as rescinded.
3.2 Such assignments by the Seller to the Buyer shall be substantially in the
form set out in Schedule 5 and 6 hereto, subject only to any amendments
required by the Secretary.
4 GROSS REVENUE INTERESTS AND PAYOUT
4.1 In the event that any Petroleum should be discovered and produced from the
Buy-in Areas on long term test or under a field development plan, the Buyer
shall until Payout of its (Pounds)2.25 million portion of the Farmin Works
Costs receive fifty percent (50%) of the Gross Revenue thereof.
4.2 The Seller and/or Altwood shall, at their option, continue to hold the
Gross Revenue Interests until the Payout Date, or until the end of the
production of petroleum from the Buy-in Areas.
4.3 The Seller and Altwood shall with respect to any Buy-in Area have the
option to continue on the basis of their Gross Revenue Interests or to
convert such Gross Revenue Interests to the Paying and Working Interests,
as shown in the table below: -
PARTY PERCENTAGE INTERESTS
--------------------------------------------------------------------------------
BEFORE PAYOUT AFTER PAYOUT
--------------------------------------------------------------------------------
Paying WORKING GROSS PAYING WORKING
REVENUE
--------------------------------------------------------------------------------
Farmee 100.0 50.0* - 32.0 32.0
(less (Pounds)2.25M)
--------------------------------------------------------------------------------
Buyer (Pounds)2.25M 50.0* - 24.5 22.5
--------------------------------------------------------------------------------
IE 0.0 0.0 13.0 43.5 41.5
--------------------------------------------------------------------------------
AP 0.0 0.0 2.0 0.0 4.0
--------------------------------------------------------------------------------
TOTALS 100.0 100.0 15.0 100.0 100.0
--------------------------------------------------------------------------------
* Subject to one half of the 15% GRI.
4.4 The Gross Revenue Interests to be paid by the Buyer to the Seller and
Altwood shall be six and a half (6.5) percent and one (1) percent
respectively. Such payments shall be subject only to the deduction from the
Gross Proceeds thereof of the transportation costs of the Petroleum or
other substances produced.
4.5 The Seller and Altwood shall be able to exercise such option to convert to
a Working Interest with respect to each and any discovery made on the Buy-
in Areas. Such independent options to be exercisable at any time from the
date of the decision, pursuant to the relevant Joint Operating Agreement to
appraise and/or develop any discovery arising from the execution of the
Farmin Works until the Payout Date. Irrespective of the point in time upon
which such option decision is taken, in no circumstances shall the method
of payments to the Seller and Altwood by the Buyer vary from that of Gross
Revenue Interest until the Payout Date. If the Payout Date precedes the
date of the decision to appraise and/or develop any of the Petroleum
discoveries, then the date on which the said option may be exercised shall
be on or before the date of such decision.
4.6 Election by the Seller and/or Altwood to convert to Paying and Working
Interests at the Payout Date, shall cause the Seller to refund to the
Buyer, within 30 days after the date of election, the proportionate part of
its capital expenditure to provide facilities for Petroleum production
as though the Seller and/or Altwood had elected to convert to a Working
Interest at the time of the agreement to appraise and/or develop that
Petroleum discovery. Such refund shall not in any way affect the Buyer's
Payout of the Farmin Works Costs as provided under Clause 4.1.
5 JOINT OPERATING AGREEMENT
5.1 After the Finishing Date of each Well of the Farmin Works the Parties
shall, together with the Farmee and Altwood, be subject to and execute a
Joint Operating Agreement in customary form providing, inter alia, for the
principles set out in Schedule 7 to provide for the conduct of joint
operations in respect of the relevant Buy-in Area.
5.2 In the event of a conflict between the provisions of this Agreement and the
Joint Operating Agreement the provisions of this Agreement shall prevail.
6 FARMEE'S OBLIGATIONS AND REFUNDING OF PAYMENT TO BUYER
6.1 The Farmee has undertaken to the Seller and Altwood and the Buyer, that as
set forth in Clause 2.1 of the Farmout Agreement, the Farmee shall conduct
the Farmin Works, and with the benefit of all funds deposited in the Farmin
Account, bear and hold harmless and indemnify the Seller and the Buyer
against one hundred percent (100%) of the Farmin Works Costs.
6.2 If necessary, because of mechanical problems or bad hole conditions of
whatever kind with the Drilling, other than impenetrable geological
formations, the Farmee shall undertake the re-Spudding and re-Drilling of
any such Xxxxxx Xxxxx ( "Substitute Farmin Well"); and
6.3 In the event that the Farmee partly or completely fails to carry out its
obligations under the Farmout Agreement, for whatever reason, then the
Farmee shall forfeit any rights to any monies remaining in the Farmin
Account, and the Farmor shall have a further ninety (90) day period in
which to elect to take up such interest and obligation of the Farmee in any
un-Drilled Farmin Areas, or to return any funds remaining in the Farmin
Account to the Buyer.
6.4 The Seller shall be obligated to refund to the Buyer an amount equal to all
or the proportionate amount of the funds remaining in the Farmin Account,
having been deposited therein under Clause 2, in the event that the default
takes place by the Farmee, and its parent company as
guarantor, as under Clause 19 of the Farmout Agreement. Such refund to be
made by the Seller to the Buyer within ninety days of the Farmor's notice
to the Farmee of the termination of the Farmee's interest in one or more of
the Buy-in Areas.
6.5 The Seller shall be obligated to refund to the Buyer the proportionate
amount of the funds deposited in the Farmin Account under Clause 2, if
following the Finishing Date of each Farmin Well, and after having used all
reasonable endeavours, the Farmor shall have failed to obtain the consent
and approval of the Secretary as required hereunder. The proportionate
amount to be refunded shall be equal to the amount of the Farmin Works
Costs incurred with respect to any such Farmin Well.
6.6 Despite the provisions of Clause 6.4 the Seller may as an alternative to
making a refund to the Buyer, opt to remedy the default of the Farmee and
complete the Farmin Works.
6.7 The rights granted to the Buyer in this Clause 6 shall be in addition to,
and not in substitution for, any other right or remedy which the Buyer may
have hereunder or in the Farmout Agreement, and specifically, the existence
or the exercise of those rights shall not deprive the Buyer either wholly
or partially of any other right or remedy at law or in equity.
7 SEISMIC OPTION AND FURTHER OPTIONS
7.1 The Buyer to be given by the Seller the following option rights and offers
of participation:-
(i) the option to Buy-in to one or more of a further 10 Option Areas under the
same Buy-in percentage terms to those of the Buy-in Areas hereunder; and
(ii) the continuing option to earn into further areas located within the
remainder of the Seller's current Licence Areas, with the exception of the
Seller's existing producing and planned production projects, in and under
the Licences, as set out in Schedule 11. Such option shall be exercised
upon the same Buy-in percentage terms.provided in Clauses 4.1 and 4.3.
Such continuing option rights may be exercised by the Buyer until the 31st
December 2000. All Option Xxxxx that the Buyer subsequently elects to
drill hereunder and under Clause 7.1(ii) shall be spudded before 31st
December 2001, unless otherwise agreed by the Seller, such agreement not to
be unreasonably withheld, or as may be delayed by the Regulations. The
Farmee or Buyer shall notbe required to drill any of the Option Areas of
Clause 7.1(I) to exercise its rights under this Clause 7.1(ii).
7.2 In the event that the Seller should offer any farmin or buy-in opportunity
involving its current or future production projects on lands not included
in this Agreement, then the Buyer together with the Farmee shall be given
the initial but non-exclusive opportunity to evaluate and accept the same.
7.3 The Farmee, and the Buyer, would have the right to participate together in
the Option Areas after giving written notice to the Seller, on the same
terms as set forth in this Agreement and the Farmout Agreement. For the
avoidance of doubt such funding shall be on the part of the Buyer the
provision of no more than 50 percent of the deemed cost of the Option Work
Programme to acquire an after Payout 22.5 percent Working Interest and a
24.5 percent Paying Interest in the applicable Option Areas; and on the
part of the Farmee the provision of the remainder of the required funding
to finish the Option Well programme to earn an after Payout 32 percent
Working Interest and Paying Interest in the applicable Option Areas. The
deemed cost of the Option Well programme to be agreed by the Farmee and
Seller. If the Farmee and Seller are unable to agree, the deemed cost
shall be determined by an independent drilling engineering consultant whose
fee would be charged to the Joint Venture Account.
7.4 In the event that the Buyer or Farmee opts not to participate in one or
more of the Option Areas by notice in writing to the Seller, then either of
such Parties would have the right to proceed alone by:-
a) the Farmee funding the full actual cost of the applicable Option Xxxxx
to earn an after Payout 56.5 percent Paying Interest and a 54.5 percent
Working Interest in the applicable Option Areas.
b) the Buyer funding the full deemed cost of the applicable Option Xxxxx
to earn an after Payout 47 percent Paying Interest and a 45 percent
Working Interest in the applicable Option Areas, provided that the
Farmor agrees to bear the risk of any actual costs in excess of the
deemed full cost of such Option Xxxxx.
7.5 The Seller, using the seismic data acquired under the Farmin Works,
together other previous seismic and well data, shall interpret the same and
make a proposal to the Farmee and the Buyer of those Option Areas worthy of
Drilling by Farmin and Buyer funding. The Farmor would subsequently make a
further proposal or proposals concerning Drilling under the further option
rights of the Farmee and Buyer as under Clause 7.1 (ii). Any other such
seismic reprocessing and interpretational work carried out by the Farmee on
its own behalf, or jointly with the Buyer, shall be for its own account,
and such work, its results and conclusions shall be supplied to the Farmor
as soon as it shall be available to the Farmee or Buyer.
7.6 In the event that it is agreed by the Farmor that extenuating circumstances
such as the failure to obtain planning consent even upon appeal or from an
alternate surface site make the drilling of any of the seven Xxxxxx Xxxxx
impossible, a Replacement Farmin Well may be proposed by the Farmee and or
the Buyer for the approval of the Farmor. Such replacement well to be
selected from amongst the ten (10) exploration leads or from any other
exploration leads or prospects identified on the Farmor's licence areas as
indicated in Clauses 7.1 and 7.2.
7.7 If the Farmee's obligation to conduct the Farmin Works or Option Work
Programme are suspended in accordance with the terms of the Farmout
Agreement, such period of suspension shall give an equal period of
extension of the final Option Well Spud date given in Clause 7.1(ii)
herein, provided that such extension period shall be no longer than twelve
(12) months.
8 OPERATORSHIP
8.1 It has been agreed in the Farmout Agreement that the Farmin Works, with the
exception of those activities detailed in Clause 12.2 therein, shall be
operated by the Farmee on behalf of the Buy-in Party and the Farnor, in
accordance with the Farmin Procedure of Schedule 12 of the Farmout
Agreement. Such performance by the Farmee shall be as a Contract Operator
on behalf of the Farmor, the Licence Operator. Thje Farmee shall obtain and
maintain in full force and effect throughout the Farmin Period the
appropriate insurance cover for the operation of the Farmin Works, to be
paid for out of the Farmin Account. Such Insurance to include without
limitation, third party liability and pollution clean-up insurance,
automobile liability, comprehensive general liability, aircraft liability
and well control insurance, as further detailed in Schedule 12 of the
Farmout Agreement.
8.2 During the Farmin Period, the Farmor shall continue to operate on behalf of
and with the approval of the Farmee, all geological, geophysical and lands
aspects of the Farmin Works including:-
a) wellsite geological control and reporting;
b) preparation of the after well report books;
c) geological/geophysical evaluation of the well results of the Farmin
Works and the consequences for further activities. This and items a)
and b) above to be for the Joint Venture Account;
d) preparation for and the supervision of the 150 kms of technically
suitable seismic survey work. In this the Farmor shall solicit
contractor's bids and select the contractor with the approval of the
Farmee acting reasonably, so that all possible cost savings may be made
consistent with obtaining seismic data of acceptable quality as
appropriate to the seismic acquisition problems of each survey area.
Such costs to be for the Farmin Account; and
e) lands/legal work in the securing of the planning consents and site
lease agreements with landowners, for the seven Xxxxxx Xxxxx. Such
activities to be for the sole cost and expense of the Seller, and to
include the site lease costs to the Finishing Date of each Farmin Well.
Thereafter such costs shall be for the Joint Venture Account .
8.3 The Farmee shall continue to carry out the function of Contractor Operator
for any drilling activities on the Areas covering any Petroleum discovery
resulting from the Farmin Works. In addition, the Farmee shall be Contract
Operator for any Crude Oil production operations on such Areas.
8.4 The Seller shall be the Operator for any Natural Gas and Condensate
production operations on the Areas.
9 TECHNICAL DATA
Proprietary rights to technical data acquired in the performance of the
Farmin Works including seismic data would be held pro-rata to the after
Payout Working Interest percentages shown in the table set out in Clause
4.3 above. However, the Buyer and its bona fide representatives would have
the right to review all such data relative to the Areas.
10 ORDER OF EXECUTION OF THE FARMIN WORKS
10.1 The 150 km of 2D seismic programme shall be of suitable technical
specification for the requirements of each Option Area and shall commence
as soon as practicable following:
(a) the execution of this Agreement and the Farmout Agreement;
(b) the deposit by the Farmee of the second payment of nine hundred and
twenty five thousand pounds Sterling (Pounds)925,000) into the Farmin
Account, as required by the Farmout Agreement.
10.2 The Xxxxxx Xxxxx drilling programme shall, unless otherwise agreed with
the Farmor, be conducted by the Farmee as a continuous drilling programme.
The Xxxxxx Xxxxx drilling programme is based upon the Farmee using one (1)
drilling rig and shall commence with the three Weald Basin xxxxx, and then
progress from Fenwick in the East Midlands to the drilling of the three
Lancashire Plain Prospects as the last of the Xxxxxx Xxxxx. The Farmee may
elect to use more than one (1) drilling rig thereby increasing the pace
and changing the order of the drilling programme, as long as the Mythop
and Plumpton prospects on the Lancashire Plain are the last of the Xxxxxx
Xxxxx to be Drilled.
10.3 The Spudding of the first of the Xxxxxx Xxxxx shall be within ninety (90)
days of the Effective Date of the Farmin Agreement, unless otherwise
agreed by the Farmor .
11 SELLER'S REPRESENTATION AND WARRANTIES
The Seller represents and warrants to the Buyer that, as at the date
hereof:-
(i) the Licences are valid and subsisting and in full force and effect;
(ii) subject to the provisions of the Licences, the Operating Agreement and
this Agreement or to any matters arising by operation of law, the
Licences are not subject to any lien, charge or other subsisting
encumbrance;
(iii) all Licence work programmes have been fulfilled in a timely fashion,
or the consent of the Department of Trade & Industry has been obtained
for any delay in such fulfilment, and the Licences are not subject to
cancellation, reduction, relinquishment or termination within the next
12 months, other than EXL 269, and EXL 288, which undergo the
mandatory fifty (50) percent relinquishment at the end of their first
term as Petroleum Exploration and Development Licences.
(iv) any royalty payments (or delivery of petroleum in lieu of royalties)
and licence rentals which it is required to make to the Secretary have
been made ;
(v) all returns required in respect of the Licence to be made to the
Secretary have been made; and
(vi) it is not involved in, or aware of any threat of, any proceedings,
claims or arbitration or other matter which could lead the Licences
being revoked;
(vii) it has all requisite corporate powers to execute this Agreement and to
perform its obligations hereunder and such execution and performance
has been duly authorised by all appropriate corporate action and will
not constitute a breach of any arrangement or agreement such as the
conditions and obligations of the Licences containing the Areas, to
which it is a party;
(viii) it has obtained all relevant rights from owners or occupiers of land
to Drill upon the Wellsites, with the current exceptions of the
Plumpton, Lingfield and Preesall Wellsites still under ongoing
negotiations with the landowners;
(ix) it has obtained all relevant local authority planning consents to
permit the conduct of the conduct of the Farmin Works as provided
herein;
(x) it has obtained all relevant approvals from environmental control
authorities to permit the conduct of the Farmin Works, and that to the
best of its knowledge and belief there is no administrative action or
procedure pending or planned to revoke or modify the same. The Farmor
is not aware of any material environmental damage or non-compliance
with environmental laws or regulations related to the Areas;
(xi) it has good and marketable title to the Licences and the site leases
in respect of the Areas, except the site leases for the Lingfield and
Preesall Well sites for which it will make reasonable efforts to
obtain.
(xii) it shall not require the Buyer to undertake any further expenditure
than the payment under Clause 2 in respect of activities under the
Areas.
12 Buyers Representations and Warranties
The Buyer represents and warranties that, as at the date hereof, it has all
requisite corporate powers to execute this Agreement and to perform its
obligations hereunder and such execution and performance has been duly
authorised by all appropriate corporate action and will not constitute a
breach of any arrangement or agreement to which it is a party.
13 CONFIDENTIALITY AND ANNOUNCEMENTS
13.1 Confidentiality Requirement
Each Party entitled to information obtained hereunder or under the Farmout
Agreement may use such information for its sole benefit. Such Parties
shall take such measures with respect to operations and internal security
as appropriate in the circumstances to keep confidential from and prevent
disclosure to third persons all such information, except information which
the Parties have expressly agreed among themselves to release the
information disclosed by a Party:
(a) when and to the extent required by the Regulations and securities laws
applicable to such Party, provided that such Party shall invoke any
confidentiality protection permitted by such Regulations and
securities laws;
(b) to an Affiliate, provided that, such Party shall be deemed to have
required such Affiliate to maintain the confidential status of the
disclosed information and that such affiliate shall be deemed to have
accepted such obligation and that such Party shall be liable for any
loss suffered by the other Parties, or any of them, because of the
failure of such affiliate to maintain such information confidential;
(c) to a third person to which such Party has been permitted to assign a
portion of its interest hereunder, provided that a binding covenant is
obtained from such third person prior to disclosure which provides
that none of such information shall be disclosed by it to any other
third person; and
(d) to the legal, technical, financial or other professional consultants
of such Party which require such information to provide their services
to such Party or to a bank or other financial institution from which
such Party is attempting to obtain financing, provided that a binding
covenant is obtained from such consultant or financier, as the case
may be, prior to such disclosure, which provides, inter alia, that
none of such information shall be disclosed by it to any other third
person or used for the purposes other than advising such Party or
providing financing to such Party, as the case may be.
The confidentiality and non-disclosure obligations in this Clause 13.1
shall not extend to information to the extent it is in the public domain,
provided that, specific items of information shall not be considered to be
in the public domain merely because such items are embraced by more general
information in the public domain.
13.2 Confidentiality Requirement To Continue
Any Party which otherwise ceases to be bound by the provisions of this
Agreement shall remain bound by the provisions of this Clause with respect
to information obtained hereunder or under this Agreement or under the
Farmout Agreement until and to the extent that such information is in the
public domain.
13.3 Announcements
This Agreement shall remain confidential and no Party shall make any public
announcement or statement with respect thereto without the consent of the
other Party other than as may be required by law or the Regulations or the
rules of any recognised Stock Exchange on which their respective shares are
listed or to relevant government departments.
14 ASSIGNMENT
14.1 Except as provided in Clause 14.2 below, the respective rights and duties
of the Buyer hereunder shall not be assigned without the prior written
consent of the Seller, and the Seller shall have a pre-emption right over
any such sale or assignment.
14.2 Should the Buyer desire or elect to sell or assign all or any part of its
interests under this Agreement or its rights and interests in the Licence
or Licence areas, Buyer shall promptly give written notice to Seller, with
full information concerning its proposed sale or assignment, which notice
shall include the name and address of the prospective purchaser or assignee
(who must be ready, willing and able to purchase), the purchase price and
all other terms of the offer. The seller shall then have an optional prior
right for a period of thirty (30) days after receipt of the notice, to
purchase on the same terms and conditions the interest which Buyer proposes
to sell; provided, however, Seller shall have no preferential right to
purchase in those cases where Buyer wishes to mortgage all or part of its
interests or create lien rights on all or part of its interests, or to
dispose of all or part of its interests by merger, reorganisation,
consolidation or to sell all or substantially all of its assets or to
dispose of all or part of its interest to a subsidiary, Affiliate or parent
company or to a subsidiary of a parent company, or to any company or entity
in which Buyer owns a minimum of a 25% economic interest. Any such sale or
assignment shall be subject to the provisions of this agreement.
14.3 The provisions of this Agreement shall enure for the benefit of and be
binding on the successors in title and permitted assignees of the Parties.
15 FORCE MAJEURE
15.1 Definition of Force Majeure
In this Clause 15 "Force Majeure" means an occurrence beyond the reasonable
control of the Party claiming suspension of an obligation hereunder, and
includes, without limiting the generality of the foregoing, an act of God,
war, revolution, insurrection, blockade, riot, strike, a lockout or other
industrial disturbance, fire, lightning, unusually severe weather, storms,
floods, explosion, accident, shortage of labour or materials or government
restraint, action, delay or inaction.
15.2 Suspension of Obligations Due to Force Majeure
If any Party is prevented by Force Majeure from fulfilling any obligation
hereunder, the obligation so affected shall be suspended to the extent that
the Party is prevented from performing such obligation for so long as the
Force Majeure prevents the performance of such obligation and for such time
thereafter as that Party may reasonably require to commence to fulfil such
obligation. A Party prevented from fulfilling any obligation by Force
Majeure shall promptly give the other Parties notice of the Force Majeure
and the affected obligations, including reasonably full particulars
thereof.
15.3 Obligation to Remedy
The Party claiming suspension for an obligation by reason of Force Majeure
shall promptly use all reasonable efforts to remedy the cause and effect of
the applicable Force Majeure and such Party shall promptly give the other
Parties notice when the force Majeure ceases to prevent the performance of
the applicable obligation. The term of settlement of any strike, lockout
or other industrial disturbance shall be wholly in the discretion of that
Party, and that Party shall not be required to accede to the demands of its
opponents in any strike, lockout or industrial disturbance solely to remedy
promptly the event of Force Majeure.
15.4 No Exception for Lack of Finances
Notwithstanding anything else in this Clause 15, lack of finances shall not
be considered an event of Force Majeure, nor shall any Force
Majeure suspend any obligation for the payment of money due hereunder.
15.5 Surface Access Difficulties
Notwithstanding any provision to the contrary contained herein, to the
extent that surface conditions do not enable the Farmee to have access to
the Farm-in Areas within the time period specified for the commencement
and/or completion of an operation thereon, the Farmee shall give notice of
same to the Farmor. If the Farmor consents, with such consent not
unreasonably withheld, that operation may be postponed until such time as
surface conditions permit access to the location of such operation, at
which time the Farmee shall move the requisite equipment thereto in a
timely manner.
16 MISCELLANEOUS
16.1 Relationship between the Parties
This Agreement is not intended nor shall be deemed to constitute a
partnership or association or any kind between the Parties.
16.2 Further Acts and Documents
Each Party undertakes to do or procure to be done all such acts (including
the execution of any appropriate documents) as may be necessary to
consummate the transactions contemplated hereby or fully to give effect to
the intent and purpose of this Agreement.
16.3 Notices
Any notice pursuant to this Agreement shall be given in accordance with the
following provisions:
Notice to the Seller shall be given to:
Independent Energy UK Limited
Second Xxxxx Xxxx Xxxxx
Xxxx Xxxxxx
Xxxxxxxxxx
Xxxxxxxxx
XX0 0XX
Xxxxxx Xxxxxxx
Attention : Mr W E Xxxxx
Telephone : 00000 000000
Facsimile : 01628 671976
Notice to the Buyer shall be given to:
Vulcan Energy Limited
c/o Vulcan Ventures Inc
Suite 550
110 - 110th Avenue N.W.
Bellevue
Xxxxxxxxxx
00000
XXX
Attention : Xx Xxxxxxx X Xxxxx
Telephone : + 000 000 0000
Facsimile : + 000 000 0000
16.4 Liability to Stamp Duty
It is agreed that in the event that any stamp duty becomes chargeable on
this Agreement or any implementation documentation executed pursuant to and
in performance of this Agreement it shall be dealt with in accordance with
the Stamp Duty Agreement of even date herewith.
16.5 Costs and Expenses
Each Party shall bear its own legal costs and expenses in connection with
the preparation and execution of this Agreement.
16.6 Entirety of Agreement and Prior Agreements
This Agreement and the instruments referred to herein constitute the entire
agreement and understanding of the Parties in relation to the matters
contained herein and supersedes any and all prior negotiations, proposals,
statements of intent, correspondence and representations made by either or
both of the Parties with respect thereto.
16.7 Amendment and Agreement
This agreement may only be altered, varied or amended by a written
instrument executed by the Parties.
17 GOVERNING LAW
This Agreement is governed by and shall be construed in accordance with the
Law of England and Wales and each of the Parties hereby irrevocably submit
to the exclusive jurisdiction of the High Court of England and Wales.
18 ARBITRATION
Any dispute or difference arising out of or in connection with this
Agreement, including any question regarding its existence, validity or
termination shall be referred to final and binding arbitration before a
single arbitrator under the provisions of the London Court of International
Arbitration, and may be confirmed and enforced by the High Court of England
and Wales.
19 EFFECTIVE DATE
This Agreement shall take effect on the Effective Date.
IN WITNESS whereof this Agreement has been signed for and on behalf of the
Parties
_______________________
SIGNED for and on behalf of
INDEPENDENT ENERGY UK LIMITED
_________________________
SIGNED for and on behalf of
VULCAN ENERGY LIMITED
