CONCESSION AGREEMENT FOR PETROLEUM
EXPLORATION AND EXPLOITATION
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE EGYPTIAN GENERAL PETROLEUM CORPORATION
AND
DOVER INVESTMENTS LIMITED
IN
EAST WADI ARABA AREA
GULF OF SUEZ
A.R.E.
This Agreement made and entered on this day of , 2001, by and
between the ARAB REPUBLIC OF EGYPT (hereinafter referred to
variously as "A.R.E." or as the "GOVERNMENT"), the EGYPTIAN
GENERAL PETROLEUM CORPORATION, a legal entity created by Law No.
167 of 1958 as amended (hereinafter referred to variously as
"EGPC") and Dover Investments Limited , a company organized and
existing under the laws of Ontario,Canda (hereinafter referred
to variously as "DOVER" or as "CONTRACTOR").
WITNESSETH
WHEREAS, all minerals including petroleum, existing in mines and
quarries in A.R.E., including the territorial waters, and in the
seabed subject to its jurisdiction and extending beyond the
territorial waters, are the property of the State; and
WHEREAS, EGPC has applied for an exclusive concession for the
exploration and exploitation of petroleum in and throughout the
area referred to in Article II, and described in Annex "A" and
shown approximately on Annex "B", which are attached hereto and
made part hereof (hereinafter referred to as the "Area"); and
WHEREAS, DOVER agree to undertake its obligations provided
hereinafter as a CONTRACTOR with respect to the Exploration,
development and production of petroleum in EAST WADI ARABA Area;
and
WHEREAS, the GOVERNMENT desires hereby to grant such Concession;
and
WHEREAS, the Minister of Petroleum pursuant to the provisions of
Law No. 86 of 1956, may enter into a concession agreement with
EGPC, and with DOVER as a CONTRACTOR in the said Area.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
(a) "Exploration" shall include such geological,
geophysical, aerial and other surveys as may be contained in
the approved Work Programs and Budgets, and the drilling of
such shot holes, core holes, stratigraphic tests, holes for
the discovery of Petroleum or the appraisal of Petroleum
discoveries and other related holes and xxxxx, and the
purchase or acquisition of such supplies, materials,
services and equipment therefor, all as may be contained in
the approved Work Programs and Budgets. The verb "explore"
means the act of conducting Exploration.
(b) "Development" shall include, but not be limited to, all
the operations and activities pursuant to approved Work
Programs and Budgets under this Agreement with respect to:
(i) the drilling, plugging, deepening, side tracking,
re-drilling, completing, equipping of development xxxxx,
the changing of the status of a well, and
(ii) design, engineering, construction, installation,
servicing and maintenance of equipment, lines, systems
facilities, plants and related operations to produce and
operate said development xxxxx, taking, saving,
treating, handling, storing, transporting and delivering
petroleum, re-pressuring, recycling and other secondary
recovery projects, and
(iii) transportation, storage and any other work or
activities necessary or ancillary to the activities
specified in (i) and (ii).
(c) "Petroleum" means liquid crude oil of various
densities, asphalt, gas, casinghead gas and all other
hydrocarbon substances that may be found in, and produced,
or otherwise obtained and saved from the Area under this
Agreement, and all substances that may be extracted therefrom.
(d) "Liquid Crude Oil" or "Crude Oil" or "Oil" means any
hydrocarbon produced from the Area which is in a liquid
state at the wellhead or lease separators or which is
extracted from the gas or casinghead gas in a plant. Such
liquid state shall exist at sixty degrees Fahrenheit (60OF)
and atmospheric pressure of 14.65 PSIA. Such term includes
distillate and condensate.
(e) "Gas" means natural gas both associated and
non-associated, and all of its constituent elements produced
from any well in the Area (other than Liquid Crude Oil) and
all non-hydrocarbon substances therein. Said term shall
include residual gas, that Gas remaining after removal of LPG.
(f) "LPG" means liquefied petroleum gas, which is a
mixture principally of butane and propane liquefied by
pressure and temperature.
(g) A "Barrel" shall consist of forty-two (42) United
States gallons, liquid measure, corrected to a temperature
of sixty degrees Fahrenheit (60OF) at atmospheric pressure
of 14.65 PSIA.
(h) (1) "Commercial Oil Well" means the first well
on any geological feature which after testing for a
period of not more than thirty (30) consecutive days
where practical, but in any event in accordance with
sound and accepted industry production practices, and
verified by EGPC, is found to be capable of producing
at the average rate of not less than two thousand
(2000) Barrels of oil per day (BOPD). The date of
discovery of a "Commercial Oil Well" is the date on
which such well is tested and completed according to
the above.
(2) "Commercial Gas Well" means the first well on any
geological feature which after testing for a period of
not more than thirty (30) consecutive days where
practical, but in any event in accordance with sound
and accepted industry production practices and verified
by EGPC, is found to be capable of producing at the
average rate of not less than fifteen million
(15,000,000) standard cubic feet of Gas per day
(MMSCFD). The date of discovery of a "Commercial Gas
Well" is the date on which such well is tested and
completed according to the above.
(i) "A.R.E." means ARAB REPUBLIC OF EGYPT.
(j) "Effective Date" means the date on which the text of
this Agreement is signed by the GOVERNMENT, EGPC and
CONTRACTOR, after the relevant Law is issued.
(k)(1)"Year" means a period of twelve (12) months
according to the Gregorian Calendar.
(2) "Calendar Year" means a period of twelve (12) months
according to the Gregorian Calendar being 1st January to
31st December.
(l) "Financial Year" means the GOVERNMENT's financial year
according to the laws and regulations of the A.R.E.
(m) "Tax Year" means the period of twelve (12) months
according to the laws and regulations of the A.R.E.
(n) An "Affiliated Company" means a company:
(i) of which the share capital, conferring a majority of
votes at stockholders' meetings of such company, is owned
directly or indirectly by a party hereto; or
(ii) which is the owner directly or indirectly of
share capital conferring a majority of votes at
stockholders' meetings of a party hereto; or
(iii) of which the share capital conferring a majority
of votes at stockholder's meetings of such company and
the share capital conferring a majority of votes at
stockholders' meetings of a party hereto are owned
directly or indirectly by the same company.
(o) "Exploration Block" shall mean an area, the corner
points of which have to be coincident with 3 minutes by 3
minutes latitude and longitude divisions, according to the
International Grid System where possible or with the
existing boundaries of the Area covered by this Concession
Agreement as set out in Annex "A".
(p) "Development Block" shall mean an area, the corner
points of which have to be coincident with one (1) minute by
one (1) minute latitude and longitude divisions, according
to the International Grid System where possible or with the
existing boundaries of the Area covered by this Concession
Agreement as set out in Annex "A".
(q) "Development Lease(s)" shall mean the Development
Block or Blocks covering the geological structure capable of
production, the corner points of which have to be coincident
with one (1) minute by one (1) minute latitude and longitude
divisions according to the International Grid System where
possible or with the existing boundaries of the Area covered
by this Concession Agreement as set out in Annex "A".
(r) "Agreement" shall mean this Concession Agreement and
its Annexes.
(s) "Gas Sales Agreement" shall mean a written agreement
between EGPC and CONTRACTOR (as sellers) and EGPC (as
buyer), which contains the terms and conditions for Gas
sales from a Development Lease entered into pursuant to
Article VII (e).
(t) "Standard Cubic Foot" (SCF) is the amount of Gas
necessary to fill one (1) cubic foot of space at atmospheric
pressure of 14.65 PSIA at a base temperature of sixty
degrees Xxxxxxxxxx (00X F).
ARTICLE II
ANNEXES TO THE AGREEMENT
Annex "A" is a description of the area covered and affected by
this Agreement, hereinafter referred to as the "Area".
Annex "B" is a provisional illustrative map on the scale of
approximately 1 : 500,000 indicating the Area covered and
affected by this Agreement and described in Annex "A".
Annex "C" is the form of a Letter of Guaranty to be submitted by
DOVER INVESTMENT LIMITED to EGPC one (1) day before the time of
signature by the Minister of Petroleum of this Agreement,for
guaranteeing the execution of CONTRCATOR's minimum Exploration
obligations hereunder for the initial three (3) year Exploration
period by paying and/or transferring a quantity of crude oil
sufficient in value to cover the shortfall between the sum of
three million and five hundred thousand ( 3,500,000 )U.S.
Dollars and the amount of money spent by CONTRACTOR and approved
by EGPC . In case CONTRACTOR extends the initial Exploration
Period for Two (2) additional periods each of two (2) years
respectively,each in accordance with Article III (b) of the
Agreement, a similar Letter of Guaranty shall be issued and be
submitted by CONTRACTOR on the day the CONTRACTOR exercises its
option to extend. The first such letter of Guaranty shall be for
guaranteeing the payment and/or transfer of a quantity of crude
oil sufficient in value to cover the shortfall between the sum
of four million U.S. Dollars ($4,000,000) and the amount of
money spent by CONTRACTOR and approved by EGPC and the second
such Letter of Guaranty shall be guaranteeing the payment and/or
transfer of a quantity of crude oil sufficient in value to cover
the shortfall between the sum of four million and five hundred
thousand U.S.Dollars ($4,500,000) and the amount of money spent
by CONTRACTOR and approved by EGPC less in both instances any
excess expenditures of the preceding Exploration period
permitted for carry forward in accordance with Article IV (b)
third paragraph of this Agreement. Each of the three Letters of
Guaranty shall remain effective for six (6) months after the end
of the relevant Exploration period.
It is understood that, in the event DOVER INVESTMENTS LIMITED
assigns in whole or in part any of its rights, privileges,
duties and obligations pursuant to Article XXI hereof, this
letter of guarantee shall be reduced by such assigned share. The
assignee shall submit to EGPC a letter of guarantee in the form
requested by EGPC, covering its share.
Annex "D" is the form of a Charter of the Operating Company to
be formed as provided for in Article VI hereof.
Annex "E" is the Accounting Procedure.
Annex "F" is a current map of the National Gas Pipeline Grid
System established by the Government. The point of delivery for
gas shall be agreed upon by EGPC and CONTRACTOR under a Gas
Sales Agreement, which point of delivery shall be located at the
flange connecting the development lease pipeline to the nearest
point on the National Gas pipeline Grid System as depicted in
Annex "F" or as otherwise agreed by EGPC and CONTRACTOR .
Annexes "A", "B", "C", "D","E" and "F" to this Agreement are
hereby made part hereof, and they shall be considered as having
equal force and effect with the provisions of this Agreement.
ARTICLE III
GRANT OF RIGHTS AND TERM
The GOVERNMENT hereby grants EGPC and CONTRACTOR subject to the
terms, covenants and conditions set out in this Agreement, which
insofar as they are contrary to or inconsistent with any
provisions of Law No. 66 of 1953, as amended, shall have the
force of Law, an exclusive concession in and to the Area
described in Annexes "A" and "B".
(a) The GOVERNMENT shall own and be entitled, as
hereinafter provided to a royalty in cash or in kind of ten
percent (10%) of the total quantity of Petroleum produced
and saved from the Area during the development period
including renewal. Said royalty shall be borne and paid by
EGPC and shall not be the obligation of CONTRACTOR. The
payment of royalties by EGPC shall not be deemed to result
in income attributable to the CONTRACTOR.
(b) An initial Exploration period of three (3) years shall
start from the Effective Date. Two (2) successive extensions
to the initial Exploration period, each of two (2) years
respectively, shall be granted to CONTRACTOR at its option,
upon not less than thirty (30) days prior written notice to
EGPC, such notice to be given not later than the end of the
then current period, as may be extended pursuant to the
provisions of Article V (a), and subject only to its having
fulfilled its obligations hereunder for that period. This
Agreement shall be terminated if neither a Commercial Oil
Discovery nor a Commercial Gas Discovery is established by
the end of the seventh (7th) year of the Exploration period,
as may be extended pursuant to Article V (a). The election
by EGPC to undertake a sole risk venture under paragraph (c)
shall not extend the Exploration period nor affect the
termination of this Agreement as to CONTRACTOR.
(c) Commercial Discovery:
(i) A Commercial Discovery - whether of Oil or Gas -
may consist of one producing reservoir or a group of
producing reservoirs which is worthy of being developed
commercially. After discovery of a Commercial Oil or
Gas Well CONTRACTOR shall, unless otherwise agreed upon
with EGPC, undertake as part of its Exploration program
the appraisal of the discovery by drilling one or more
appraisal xxxxx, to determine whether such discovery is
worthy of being developed commercially, taking into
consideration the recoverable reserves, production,
pipeline and terminal facilities required, estimated
Petroleum prices, and all other relevant technical and
economic factors.
(ii) The provisions laid down herein postulate
the unity and indivisibility of the concepts of
Commercial Discovery and Development Lease. They
shall apply uniformly to Oil and Gas unless
otherwise specified.
(iii) CONTRACTOR shall give notice of a Commercial
Discovery to EGPC immediately after the discovery is
considered by CONTRACTOR to be worthy of commercial
development but in any event with respect to a Commercial
Oil Well not later than thirty (30) days following the
completion of the second appraisal well or twelve (12)
months following the date of the discovery of the
Commercial Oil Well, whichever is earlier or with respect
to a Commercial Gas Well not later than twenty four (24)
months following the date of the discovery of the
Commercial Gas Well (unless EGPC agrees that such period
may be extended) except that CONTRACTOR shall also have
the right to give such notice of Commercial Discovery
with respect to any reservoir or reservoirs even if the
well or xxxxx thereon are not "Commercial" within the
definition of "Commercial Well" if, in its opinion, a
reservoir or a group of reservoirs, considered
collectively, could be worthy of commercial development.
CONTRACTOR may also give a notice of a Commercial Oil
Discovery in the event it wishes to undertake a Gas
Recycling Project.
A notice of Commercial Gas Discovery shall contain all
detailed particulars of the discovery and especially the
area of Gas reserves, the estimated production potential
and profile and field life.
Within sixty (60) days following receipt of a notice of
a Commercial Oil or Gas Discovery, EGPC and CONTRACTOR
shall meet and review all appropriate data with a view to
mutually agreeing upon the existence of a Commercial
Discovery. The date of Commercial Discovery shall be the
date EGPC and CONTRACTOR jointly agree in writing that a
Commercial Discovery exists.
(iv) If Crude Oil is discovered but is not deemed by
CONTRACTOR to be a Commercial Oil Discovery under the above
provisions of this paragraph (c), EGPC shall one (1) month
after the expiration of the period specified above within
which CONTRACTOR can give notice of a Commercial Oil
Discovery, or thirteen (13) months after the completion of a
well not considered to be a "Commercial Oil Well", have the
right, following sixty (60) days notice in writing to
CONTRACTOR, at its sole cost, risk and expense, to develop,
produce and dispose of all Crude Oil from the geological
feature on which the well has been drilled. Said notice
shall state the specific area covering said geological
feature to be developed, the xxxxx to be drilled, the
production facilities to be installed and EGPC's estimated
cost thereof. Within thirty (30) days after receipt of said
notice CONTRACTOR may, in writing, elect to develop such
area as provided for in the case of Commercial Discovery
hereunder. In such event all terms of this Agreement shall
continue to apply to the specified area.
If CONTRACTOR elects not to develop such area, the specific
area covering said geological feature shall be set aside for
sole risk operations by EGPC, such area to be mutually
agreed upon by EGPC and CONTRACTOR on the basis of good
petroleum industry practice. EGPC shall be entitled to
perform or in the event Operating Company has come into
existence, to have Operating Company perform such operations
for the account of EGPC and at EGPC's sole cost, risk and
expense. When EGPC has recovered from the Crude Oil produced
from such specific area a quantity of Crude Oil equal in
value to three hundred percent (300%) of the cost it has
incurred in carrying out the sole risk operations,
CONTRACTOR shall have the option, only in the event there
has been a separate Commercial Oil Discovery, elsewhere
within the Area, to share in further development and
production of that specific area upon paying EGPC one
hundred percent (100%) of such costs incurred by EGPC.
Such one hundred percent (100%) payment shall not be
recovered by CONTRACTOR. Immediately following such payment
the specific area shall either (i) revert to the status of
an ordinary Development Lease under this Agreement and
thereafter shall be operated in accordance with the terms
hereof; or (ii) alternatively, in the event that at such
time EGPC or its Affiliated Company is conducting
Development operations in the area at its sole expense and
EGPC elects to continue operating, the area shall remain set
aside and CONTRACTOR shall only be entitled to its
production sharing percentages of the Crude Oil as specified
in Article VII (b). The sole risk Crude Oil shall be valued
in the manner provided in Article VII (c). In the event of
any termination of this Agreement under the provisions of
Article III (b), this Agreement shall, however, continue to
apply to EGPC's operation of any sole risk venture
hereunder, although such Agreement shall have been
terminated with respect to CONTRACTOR pursuant to the
provisions of Article III (b) .
(d) Conversion to a Development Lease:
(i) Following a Commercial Oil Discovery or a Commercial
Gas Discovery the extent of the whole area capable of
production to be covered by a Development Lease shall be
mutually agreed upon by EGPC and CONTRACTOR and be subject
to the approval of the Minister of Petroleum. Such area
shall be converted automatically into a Development Lease
without the issue of any additional legal instrument or
permission.
(ii) Following the conversion of an area to a
Development Lease based on a Commercial Gas Discovery (or
upon the discovery of Gas in a Development Lease granted
following a Commercial Oil Discovery), EGPC shall endeavor
with diligence to find adequate local markets capable of
absorbing the production of Gas and shall advise
CONTRACTOR of the potential outlets for such Gas, and the
expected annual schedule of demand. Thereafter, EGPC and
CONTRACTOR shall meet with a view to assessing whether the
outlets for such Gas and other relevant factors warrant
the development and production of the Gas and in case of
agreement the Gas thus made available shall be disposed of
to EGPC under a long-term Gas Sales Agreement in
accordance with and subject to the conditions set forth in
Article VII .
(iii) The Development period of each Development Lease
shall be as follows:
(aa) In respect of a Commercial Oil Discovery, twenty
(20) years from the date of such Commercial Discovery
plus the Optional Extension Period (as defined below)
provided that, in the event that, subsequent to the
conversion of a Commercial Oil Discovery into a
Development Lease, Gas is discovered in the same
Development Lease and is used or is capable of being
used locally or for export hereunder, the period of the
Development Lease shall be extended only with respect
to such Gas, LPG extracted from such Gas and Crude Oil
in the form of condensate produced with such Gas for
twenty (20) years from the date of first deliveries of
Gas locally or for export plus the Optional Extension
Period (as defined below) provided that the duration of
such Development Lease based on a Commercial Oil
Discovery may not be extended beyond thirty-five (35)
years from the date of such Commercial Oil Discovery,
unless otherwise agreed upon between EGPC and
CONTRACTOR and subject to the approval of the Minister
of Petroleum.
CONTRACTOR shall immediately notify EGPC of any Gas
Discovery but shall not be required to apply for a new
Development Lease in respect of such Gas.
(bb) In respect of a Commercial Gas Discovery, twenty
(20) years from the date of first deliveries of Gas
locally or for export plus the Optional Extension
Period (as defined below) provided that, if subsequent
to the conversion of a Commercial Gas Discovery into a
Development Lease, Crude Oil is discovered in the same
Development Lease, CONTRACTOR's share of such Crude Oil
from the Development Lease (except LPG extracted from
Gas or Crude Oil in the form of condensate produced
with Gas) and Gas associated with such Crude Oil shall
revert entirely to EGPC upon the lapse of twenty (20)
years from the date of such Crude Oil Discovery plus
the Optional Extension Period (as defined below).
Notwithstanding, anything to the contrary under this
Agreement, the duration of a Development Lease based on
a Commercial Gas Discovery shall in no case exceed
thirty-five (35) years from the date of such Commercial
Gas Discovery, unless otherwise agreed upon between
EGPC and CONTRACTOR and subject to the approval of the
Minister of Petroleum.
CONTRACTOR shall immediately notify EGPC of any Oil
Discovery but shall not be required to apply for a new
Development Lease in respect of such Crude Oil.
The "Optional Extension Period" shall mean a period of
five (5) years which may be elected by CONTRACTOR upon
six (6) months written notice to EGPC prior to the
expiry of the relevant twenty (20) year period.
(e) Development operations shall upon the issuance of a
Development Lease granted following a Commercial Oil
Discovery, be started promptly by Operating Company and be
conducted in accordance with good oil field practices and
accepted petroleum engineering principles, until the field
is considered to be fully developed, it being understood
that if associated gas is not utilized, EGPC and CONTRACTOR
shall negotiate in good faith on the best way to avoid
impairing the production in the interests of the parties.
In the event no Commercial Production of Oil in regular
shipments is established in any Development Block within
four (4) years from the date of the Commercial Oil
Discovery, such Development Block shall immediately be
relinquished, unless there is a Commercial Gas discovery on
the Development Lease. Each Development Block in a
Development Lease being partly within the radius of drainage
of any producing well in such Development Lease shall be
considered as participating in the Commercial Production
referred to above.
Development operations in respect of Gas and Crude Oil in
the form of condensate or LPG to be produced with or
extracted from such Gas shall, upon the signature of a Gas
Sales Agreement or commencement of a scheme to dispose of
the Gas, whether for export as referred to in Article VII or
otherwise, be started promptly by Operating Company and be
conducted in accordance with good gas field practices and
accepted petroleum engineering principles and the provisions
of such Agreement or scheme. In the event no Commercial
Production of Gas is established in accordance with such Gas
Sales Agreement or scheme, the Development Lease relating to
such Gas shall be relinquished, unless otherwise agreed upon
by EGPC.
If, upon application by CONTRACTOR it is recognized by EGPC
that Crude Oil or Gas is being drained from the Exploration
block under this Agreement into a Development Block on an
adjoining concession area held by CONTRACTOR, the Block
being drained shall be considered as participating in the
Commercial Production of the Development Block in question
and the Block being drained shall be converted into a
Development Lease with the ensuing allocation of costs and
production (calculated from the Effective Date or the date
such drainage occurs, whichever is later) between the two
Concession Areas. The allocation of such costs and
production under each Concession Agreement shall be in the
same portion that the recoverable reserves in the drained
geological structure underlying each Concession Area bears
to the total recoverable reserves of such structure
underlying both Concession Areas. The production allocated
to a concession area shall be priced according to the
concession agreement covering that concession area.
(f) CONTRACTOR shall bear and pay all the costs and
expenses required in carrying out all the operations under
this Agreement but such costs and expenses shall not include
any interest on investment. CONTRACTOR shall look only to
the Petroleum to which it is entitled under this Agreement
to recover such costs and expenses. Such costs and expenses
shall be recoverable as provided in Article VII. During the
term of this Agreement and its renewal, the total production
achieved in the conduct of such operations shall be divided
between EGPC and CONTRACTOR in accordance with the
provisions of Article VII.
(g) (1) Unless otherwise provided, CONTRACTOR shall be
subject to Egyptian income tax laws and shall comply with
the requirements of such laws with respect to the filing of
returns, the assessment of tax, and keeping and showing of
books and records.
(2) CONTRACTOR's annual income for Egyptian income tax
purposes under this Agreement shall be an amount
calculated as follows:
The total of the sums received by CONTRACTOR from the
sale or other disposition of all Petroleum acquired by
CONTRACTOR pursuant to Article VII (a) and Article VII (b);
Reduced by:
(i) The costs and expenses of CONTRACTOR;
(ii) The value as determined according to Article VII
(c), of EGPC's share of the Excess Cost Recovery
Petroleum repaid to EGPC in cash or in kind, if any,
Plus:
An amount equal to CONTRACTOR's Egyptian income taxes
grossed up in the manner shown in Article VI of Annex "E" .
or purposes of above tax deductions in any Tax Year,
Article VII (a) shall apply only in respect of
classification of costs and expenses and rates of
amortization, without regard to the percentage limitation
referred to in the first paragraph of Article VII (a) (1).
All costs and expenses of CONTRACTOR in conducting the
operations under this Agreement which are not controlled
by Article VII (a) as above qualified shall be deductible
in accordance with the provisions of the Egyptian Income
Tax Law.
(3) EGPC shall assume, pay and discharge, in the name and
on behalf of CONTRACTOR, CONTRACTOR's Egyptian income tax
out of EGPC's share of the Petroleum produced and saved and
not used in operations under Article VII. All taxes paid by
EGPC in the name and on behalf of CONTRACTOR shall be
considered income to CONTRACTOR.
(4) EGPC shall furnish to CONTRACTOR the proper official
receipts evidencing the payment of CONTRACTOR's Egyptian
income tax for each Tax Year within ninety (90) days
following the receipt by EGPC of CONTRACTOR's tax
declaration for the preceding Tax Year. Such receipts shall
be issued by the proper Tax Authorities and shall state the
amount and other particulars customary for such receipts.
(5) As used herein, Egyptian Income Tax shall be inclusive
of all income taxes payable in the A.R.E. (including tax on
tax) such as the tax on income from movable capital and the
tax on profits from commerce and industry and inclusive of
taxes based on income or profits including all dividends,
withholding with respect to shareholders and other taxes
imposed by the GOVERNMENT of A.R.E. on the distribution of
income or profits by CONTRACTOR.
(6) In calculating its A.R.E. income taxes, EGPC shall be
entitled to deduct all royalties paid by EGPC to the
GOVERNMENT and CONTRACTOR's Egyptian income taxes paid by
EGPC on CONTRACTOR's behalf.
ARTICLE IV
WORK PROGRAM AND EXPENDITURES
DURING EXPLORATION PERIOD
(a) CONTRACTOR shall commence Exploration operations
hereunder not later than six (6) months after the Effective
Date. Not later than the end of the Twelfth (12th ) month
after the Effective Date, CONTRACTOR shall start Exploratory
drilling operations in the Area during the initial
Exploration period with a commitment of drilling two (2)
well(s). EGPC shall make available for CONTRACTOR's use all
seismic, xxxxx and other Exploration data in EGPC's
possession with respect to the Area as EGPC is entitled to
so do.
(b) The initial Exploration period shall be three (3)
years. CONTRACTOR may extend this Exploration period for
two(2) successive extension periods each of two (2 ) years
respectively in accordance with Article III (b), each of
which upon at least thirty (30) days prior written notice to
EGPC, subject to its expenditure of its minimum Exploration
obligations and of its fulfillment of the drilling
obligations hereunder, for the then current period.
CONTRACTOR shall spend a minimum of three million and five
hundred thousand ($3,500,000) U.S. Dollars on Exploration
operations and activities related thereto during the initial
three (3) year Exploration period; provided that CONTRACTOR
shall drill two (2) well(s). For the first two (2) year
extension period that CONTRACTOR elects to extend beyond the
initial Exploration period, CONTRACTOR shall spend a minimum
of four million ($4,000,000 ) U.S. Dollars and for the
second two (2) year extension period that CONTRACTOR elects
to extend beyond the two ( 2 ) year first extension period,
CONTRACTOR shall also spend a minimum of four million and
five hundred thousand ($4,500,000) U.S. Dollars. During each
of the first and second extension periods that CONTRACTOR
elects to extend beyond the initial Exploration period,
CONTRACTOR shall drill two (2) well(s) .
Should CONTRACTOR spend more than the minimum amount
required to be expended or drill more xxxxx than the minimum
required to be drilled during the initial three (3) year
Exploration period, or during any period thereafter, the
excess may be subtracted from the minimum amount of money
required to be expended by CONTRACTOR or minimum number of
xxxxx required to be drilled during any succeeding
Exploration period(s) , as the case may be.
In case CONTRACTOR surrenders its Exploration rights under
this Agreement as set forth above before or at the end of
the three(3) years of the initial Exploration period, having
expended less than the total sum of three million and five
hundred thousand ($3,500,000) U.S. Dollars, on Exploration
or in the event at the end of the three (3) years,
CONTRACTOR has expended less than said sum in the Area, an
amount equal to the difference between the said three
million and five hundred thousand ($3,500,000) U.S. Dollars
and the amount actually spent on Exploration shall be paid
by CONTRACTOR to EGPC at the time of surrendering or within
six (6) months from the end of the three (3) year of the
initial Exploration period, as the case may be. Any
expenditure deficiency by CONTRACTOR at the end of any
additional period for the reasons above noted shall
similarly result in a payment by CONTRACTOR to EGPC of such
deficiency. Provided this Agreement is still in force as to
CONTRACTOR, CONTRACTOR shall be entitled to recover any such
payments as Exploration expenditure in the manner provided
for under Article VII in the event of Commercial Production.
Without prejudice to Article III (b), in case no Commercial
Oil Discovery is established or no notice of Commercial Gas
Discovery is given by the end of the seventh (7th) year, as
may be extended pursuant to Article V (a) or in case
CONTRACTOR surrenders the Area under this Agreement prior to
such time,
EGPC shall not bear any of the aforesaid expenses spent by
CONTRACTOR.
(c) At least four (4) months prior to the beginning of
each Financial Year or at such other times as may mutually
be agreed to by EGPC and CONTRACTOR, CONTRACTOR shall
prepare an Exploration Work Program and Budget for the Area
setting forth the Exploration operations which CONTRACTOR
proposes to carry out during the ensuing Year.
The Exploration Work Program and Budget shall be reviewed by
a joint committee to be established by EGPC and CONTRACTOR
after the Effective Date of this Agreement. This Committee,
hereinafter referred to as the "Exploration Advisory
Committee", shall consist of six (6) members, three (3) of
whom shall be appointed by EGPC and three (3) by CONTRACTOR.
The Chairman of the Exploration Advisory Committee shall be
designated by EGPC from among the members appointed by it.
The Exploration Advisory Committee shall review and give
such advice as it deems appropriate with respect to the
proposed Work Program and Budget. Following review by the
Exploration Advisory Committee, CONTRACTOR shall make such
revisions as CONTRACTOR deems appropriate and submit the
Exploration Work Program and Budget to EGPC for its approval.
Following such approval, it is further agreed that:
(i) CONTRACTOR shall not substantially revise or modify
said Work Program and Budget nor reduce the approved
budgeted expenditure without the approval of EGPC;
(ii) In the event of emergencies involving danger of
loss of lives or property, CONTRACTOR may expend such
additional unbudgeted amounts as may be required to
alleviate such danger. Such expenditure shall be
considered in all aspects as Exploration expenditure and
shall be recovered pursuant to the provisions of Article
VII hereof.
(d) CONTRACTOR shall advance all necessary funds for all
materials, equipment, supplies, personnel administration and
operations pursuant to the Exploration Work Program and
Budget and EGPC shall not be responsible to bear or repay
any of the aforesaid costs.
(e) CONTRACTOR shall be responsible for the preparation
and performance of the Exploration Work Program which shall
be implemented in a workmanlike manner and consistent with
good industry practices.
Except as is appropriate for the processing of data,
specialized laboratory engineering and development studies
thereon, to be made in specialized centers outside A.R.E.,
all geological and geophysical studies as well as any other
studies related to the performance of this Agreement, shall
be made in the A.R.E.
CONTRACTOR shall entrust the management of Exploration
operations in the A.R.E. to its technically competent
General Manager and Deputy General Manager. The names of
such Manager and Deputy General Manager shall, upon
appointment, be forthwith notified to the GOVERNMENT and to
EGPC. The General Manager and, in his absence, the Deputy
General Manager shall be entrusted by CONTRACTOR with
sufficient powers to carry out immediately all lawful
written directions given to them by the GOVERNMENT or its
representative under the terms of this Agreement. All lawful
regulations issued or hereafter to be issued which are
applicable hereunder and not in conflict with this Agreement
shall apply to CONTRACTOR.
(f) CONTRACTOR shall supply EGPC, within thirty (30) days
from the end of each calendar quarter, with a Statement of
Exploration activity showing costs incurred by CONTRACTOR
during such quarter. CONTRACTOR's records and necessary
supporting documents shall be available for inspection by
EGPC at any time during regular working hours for three (3)
months from the date of receiving each statement.
Within the three (3) months from the date of receiving such
Statement, EGPC shall advise CONTRACTOR in writing if it
considers:
(1) that the record of costs is not correct;
(2) that the costs of goods or services supplied are
not in line with the international market prices for
goods or services of similar quality supplied on
similar terms prevailing at the time such goods or
services were supplied, provided however, that
purchases made and services performed within the
A.R.E. shall be subject to Article XXVI;
(3) that the condition of the materials furnished by
CONTRACTOR does not tally with their prices; or
(4) that the costs incurred are not reasonably
required for operations.
CONTRACTOR shall confer with EGPC in connection with the
problem thus presented, and the parties shall attempt to
reach a settlement which is mutually satisfactory.
Any reimbursement due to EGPC out of the Cost Recovery Petroleum
as a result of reaching agreement or of an arbitral award shall
be promptly made in cash to EGPC, plus simple interest at LIBOR
plus two and half percent (2.5 %) per annum from the date on
which the disputed amount(s) would have been paid to EGPC
according to Article VII (a) (2) and Annex "E" of this Agreement
(i.e., the date of rendition of the relevant Cost Recovery
Statement) to the date of payment. The LIBOR rate applicable
shall be the average of the figure or figures published by the
Financial Times representing the mid-point of the rates (bid and
ask) applicable to one month U.S. Dollars deposits in the London
Interbank Eurocurrency Market on each fifteenth (15th) day of
each month occurring between the date on which the disputed
amount(s) would have been paid to EGPC and the date on which it
is settled.
If the LIBOR rate is available on any fifteenth (15th) day
but is not published in the Financial Times in respect of
such day for any reason, the LIBOR rate chosen shall be that
offered by Citibank N.A. to other leading banks in the
London Interbank Eurocurrency Market for one month U.S.
Dollar deposits.
If such fifteenth (15th) day is not a day on which LIBOR
rates are quoted in the London Interbank Eurocurrency
Market, the LIBOR rate to be used shall be that quoted on
the next following day on which such rates are quoted.
If within the time limit of the three (3) month period
provided for in this paragraph, EGPC has not advised
CONTRACTOR of its objection to any Statement, such Statement
shall be considered as approved.
(g) CONTRACTOR shall supply all funds necessary for its
operations in the A.R.E. under this Agreement in freely
convertible currency from abroad. CONTRACTOR shall have the
right to freely purchase Egyptian currency in the amounts
necessary for its operations in the A.R.E. from any bank or
entity authorized by the GOVERNMENT to conduct foreign
currency exchanges.
(h) EGPC is authorized to advance to CONTRACTOR the
Egyptian currency required for the operations under this
Agreement against receiving from CONTRACTOR an equivalent
amount of U.S. Dollars at the official A.R.E. rate of
exchange, such amount in U.S. Dollars shall be deposited in
an EGPC account abroad with a correspondent bank of the
National Bank of Egypt, Cairo. Withdrawals from said account
shall be used for financing EGPC's and its Affiliated
Companies' foreign currency requirements subject to the
approval of the Minister of Petroleum.
ARTICLE V
MANDATORY AND VOLUNTARY RELINQUISHMENTS
(a) MANDATORY:
At the end of the third (3rd) year after the Effective Date
hereof, CONTRACTOR shall relinquish to the GOVERNMENT a
total of twenty five percent ( 25%) of the original Area on
the Effective date not then converted to a Development Lease
or Lease(s). Such relinquishment shall be in a single unit
of whole Exploration Blocks not converted to Development
Leases so as to enable the relinquishment requirements to be
precisely fulfilled.
At the end of the fifth (5th) year after the Effective Date
hereof, CONTRACTOR shall relinquish to the GOVERNMENT an
additional twenty five percent ( 25% ) of the original Area
on the Effective date not then converted to a Development
Lease or Lease(s). Such relinquishment shall be in a single
unit of whole Exploration Blocks not converted to
Development Leases so as to enable the relinquishment
requirements to be precisely fulfilled.
Without prejudice to Articles III and XXIII and the last
three paragraphs of this Article V (a), at the end of the
seventh (7th) year of the Exploration period, CONTRACTOR
shall relinquish the remainder of the Area not then
converted to a Development Lease(s).
It is understood that at the time of any relinquishment the
areas to be converted into Development Leases and which are
submitted to the Minister of Petroleum for his approval
according to Article III (d) shall, subject to such
approval, be deemed converted to Development Leases.
CONTRACTOR shall not be required to relinquish any
Exploration Block or Blocks on which a Commercial Oil or Gas
Well is discovered before the period of time referred to in
Article III (c) given to CONTRACTOR to determine whether
such Well is a Commercial Discovery worthy of Development or
to relinquish an Exploration Block in respect of which a
notice of Commercial Gas Discovery has been given to EGPC
subject to EGPC's right to agree on the existence of a
Commercial Discovery pursuant to Article III (c), and
without prejudice to the requirements of Article III (e).
In the event at the end of the initial Exploration period or
either of the two successive extensions of the initial
Exploration period, a well is actually drilling or testing,
CONTRACTOR shall be allowed up to six (6) months to enable
it to discover a Commercial Oil or Gas Well or to establish
a Commercial Discovery, as the case may be. However, any
such extension of up to six (6) months shall reduce the
length of the next succeeding Exploration Period, as
applicable, by that amount.
(b) VOLUNTARY:
CONTRACTOR may, voluntarily, during any period relinquish
all or any part of the Area in whole Exploration Blocks or
parts of Exploration Blocks provided that at the time of
such voluntary relinquishment its Exploration obligations
under Article IV (b) have been satisfied for such period.
Any relinquishments hereunder shall be credited toward the
mandatory provisions of Article V (a) .
Following Commercial Discovery, EGPC and CONTRACTOR shall
mutually agree upon any area to be relinquished thereafter,
except for the relinquishment provided for above at the end
of the total Exploration period.
ARTICLE VI
OPERATIONS AFTER COMMERCIAL DISCOVERY
(a) On Commercial Discovery, EGPC and CONTRACTOR shall
form in the A.R.E. an operating company pursuant to Article
VI (b) and Annex (D) (hereinafter referred to as "Operating
Company") which company shall be named by mutual agreement
between EGPC and CONTRACTOR and such name shall be subject
to the approval of the Minister of Petroleum. Said company
shall be a private sector company. Operating Company shall
be subject to the laws and regulations in force in the
A.R.E. to the extent that such laws and regulations are not
inconsistent with the provisions of this Agreement or the
Charter of Operating Company.
However, Operating Company and CONTRACTOR shall, for the
purpose of this Agreement, be exempted from the following
laws and regulations as now or hereafter amended or
substituted:
- Law No. 48 of 1978, on the employee regulations of
public sector companies;
- Law No. 159 of 1981, promulgating the law on joint
stock companies, partnership limited by shares and
limited liability companies;
- Law No. 97 of 1983 promulgating the law concerning
public sector organizations and companies;
- Law No. 203 of 1991 promulgating the law on public
business sector companies; and
- Law No. 38 of 1994, organizing dealings in foreign
currencies.
(b) The Charter of Operating Company is hereto attached as
Annex "D". Within thirty (30) days after the date of
Commercial Oil Discovery or within thirty (30) days after
signature of a Gas Sales Agreement or commencement of a
scheme to dispose of Gas (unless otherwise agreed upon by
EGPC and CONTRACTOR), the Charter shall take effect and
Operating Company shall automatically come into existence
without any further procedures. The Exploration Advisory
Committee shall be dissolved forthwith upon the coming into
existence of the Operating Company.
(c) Ninety (90) days after the date Operating Company
comes into existence in accordance with paragraph (b) above,
it shall prepare a Work Program and Budget for further
Exploration and Development for the remainder of the year in
which the Commercial Discovery is made; and not later than
four (4) months before the end of the current Financial Year
(or such other date as may be agreed upon by EGPC and
CONTRACTOR) and four (4) months preceding the commencement
of each succeeding Financial Year thereafter (or such other
date as may be agreed upon by EGPC and CONTRACTOR),
Operating Company shall prepare an annual Production
Schedule, Work Program and Budget for further Exploration
and Development for the succeeding Financial Year. The
Production Schedule, Work Program and Budget shall be
submitted to the Board of Directors for approval.
(d) Not later than the twentieth (20th) day of each month,
Operating Company shall furnish to CONTRACTOR a written
estimate of its total cash requirements for expenditure for
the first half and the second half of the succeeding month
expressed in U.S. Dollars having regard to the approved
Budget. Such estimate shall take into consideration any cash
expected to be on hand at month end.
Payment for the appropriate period of such month shall be
made to the correspondent bank designated in paragraph (e)
below on the first (1st) day and fifteenth (15th) day
respectively, or the next following business day, if such
day is not a business day.
(e) Operating Company is authorized to keep at its own
disposal abroad in an account opened with a correspondent
bank of the National Bank of Egypt, Cairo, the foreign funds
advanced by CONTRACTOR. Withdrawals from said account shall
be used for payment for goods and services acquired abroad
and for transferring to a local bank in the A.R.E. the
required amount to meet the expenditures in Egyptian Pounds
for Operating Company in connection with its activities
under this Agreement.
Within sixty (60) days after the end of each Financial Year,
Operating Company shall submit to the appropriate exchange
control authorities in the A.R.E. a statement, duly
certified by a recognized firm of auditors, showing the
funds credited to that account, the disbursements made out
of that account and the balance outstanding at the end of
the Year.
(f) If and for as long during the period of production
operations there exists an excess capacity in facilities
which can not during the period of such excess be used by
the Operating Company, EGPC and CONTRACTOR will consult
together to find a mutually agreed formula whereby EGPC may
use the excess capacity if it so desires without any
unreasonable financial or unreasonable operational
disadvantage to the CONTRACTOR.
ARTICLE VII
RECOVERY OF COSTS AND EXPENSES AND
PRODUCTION SHARING
(a) (1) Cost Recovery Petroleum:
Subject to the auditing provisions under this
Agreement, CONTRACTOR shall recover quarterly all
costs, expenses and expenditures in respect of all the
Exploration, Development and related operations under
this Agreement to the extent and out of thirty percent
(30%) of all Petroleum produced and saved from all
Development Leases within the Area hereunder and not
used in Petroleum operations. Such Petroleum is
hereinafter referred to as "Cost Recovery Petroleum".
For the purpose of determining the classification of
all costs, expenses and expenditures for their
recovery, the following terms shall apply:
1. "Exploration Expenditures" shall mean all costs
and expenses for Exploration and the related portion
of indirect expenses and overheads.
2. "Development Expenditures" shall mean all costs
and expenses for Development (with the exception of
Operating Expenses) and the related portion of
indirect expenses and overheads.
3. "Operating Expenses" shall mean all costs,
expenses and expenditures made after initial
Commercial Production, which costs, expenses and
expenditures are not normally depreciable.
However, Operating Expenses shall include workover, repair and
maintenance of assets but shall not include any of the
following: sidetracking, redrilling and changing of the status
of a well, replacement of assets or part of an asset, additions,
improvements, renewals or major overhauling that extend the life
of the asset.
Exploration Expenditures, Development Expenditures and Operating
Expenses shall be recovered from Cost Recovery Petroleum in the
following manner:-
(i) Exploration Expenditures, including those accumulated
prior to the commencement of initial Commercial
Production, which for the purposes of this Agreement shall
mean the date on which the first regular shipment of Crude
Oil or the first deliveries of Gas are made, shall be
recoverable at the rate of twenty five percent (25%) per
annum starting either in the Tax Year in which such
expenditures are incurred and paid or the Tax Year in
which initial Commercial Production commences, whichever
is the later date.
(ii) Development Expenditures, including those
accumulated prior to the commencement of initial
Commercial Production which for the purposes of this
Agreement shall mean the date on which the first regular
shipment of Crude Oil or the first deliveries of Gas are
made, shall be recoverable at the rate of twenty five
percent (25 %) per annum starting either in the Tax Year
in which such expenditures are incurred and paid or the
Tax Year in which initial Commercial Production
commences, whichever is the later date.
(iii) Operating Expenses, incurred and paid after the
date of initial Commercial Production, which for the
purposes of this Agreement shall mean the date on which
the first regular shipment of Crude Oil or the first
deliveries of Gas are made, shall be recoverable either
in the Tax Year in which such costs and expenses are
incurred and paid or the Tax Year in which initial
Commercial Production occurs, whichever is the later date.
(iv) To the extent that, in a Tax Year, costs,
expenses or expenditures recoverable per paragraphs (i),
(ii) and (iii) preceding, exceed the value of all Cost
Recovery Petroleum for such Tax Year, the excess shall
be carried forward for recovery in the next succeeding
Tax Year(s) until fully recovered, but in no case after
the termination of this Agreement, as to CONTRACTOR.
(v) The recovery of costs and expenses, based upon
the rates referred to above, shall be allocated to
each quarter proportionately (one fourth to each
quarter). However, any recoverable costs and expenses
not recovered in one quarter as thus allocated, shall
be carried forward for recovery in the next quarter.
(2) Except as provided in Article VII (a) (3) and Article
VII (e) (1), CONTRACTOR shall each quarter be entitled to
take and own all Cost Recovery Petroleum, which shall be
taken and disposed of in the manner determined pursuant to
Article VII (e). To the extent that the value of all Cost
Recovery Petroleum [as determined in Article VII (c)] exceeds
the actual recoverable costs and expenditures, including any
carry forward under Article VII (a) (1) (iv), to be recovered
in that quarter, then the value of such Excess Cost Recovery
Petroleum shall be split between EGPC and CONTRACTOR in
accordance with the percentages specified in Article VII (b)
1 below and EGPC 's shares shall be paid by CONTRACTOR to
EGPC either (i) in cash in the manner set forth in Article IV
of the Accounting Procedure contained in Annex "E" or (ii) in
kind in accordance with Article VII(a) (3).
(3) Ninety (90) days prior to the commencement of each
Calendar Year EGPC shall be entitled to elect by notice in
writing to CONTRACTOR to require payment of up to one hundred
percent (100%) of EGPC's share of Excess Cost Recovery
Petroleum in kind. Such payment will be in Crude Oil from the
Area F.O.B. export terminal or other agreed delivery point
provided that the amount of Crude Oil taken by EGPC in kind
in a quarter shall not exceed the value of Cost Recovery
Crude Oil actually taken and separately disposed of by
CONTRACTOR from the Area during the previous quarter. If
EGPC's entitlement to receive payment of its share of Excess
Cost Recovery Petroleum in kind is limited by the foregoing
provision, the balance of such entitlement shall be paid in
cash.
(b) Production Sharing
(1) The remaining seventy percent (70%) of the
Petroleum shall be divided between EGPC and the
CONTRACTOR according to the following shares: Such
shares shall be taken and disposed of pursuant to
Article VII (e):
Crude Oil , Gas and LPG:
Crude Oil , Gas and EGPC SHARE CONTRACTOR SHARE
LPG produced and saved
under this Agreement
and not used in
Petroleum operations.
Barrels oil Equivalent
per day (BOEPD)
(quarterly average).
That portion or (Seventy (TWENTY FIVE
increment up to 25,000 Five percent) PERCENT)
BOEPD.
(75 %) (25 %)
That portion or (Eighty (Twenty percent)
increment exceeding percent)
25,000BOEPD
(80 %) (20%)
(2) After the end of each contractual year during the
term of any Gas Sales Agreement entered into pursuant to
Article VII (e), EGPC and CONTRACTOR (as sellers) shall
render to EGPC (as buyer) a statement for an amount of
Gas, if any, equal to the amount by which the quantity of
Gas of which EGPC (as buyer) has taken delivery falls
below seventy five percent (75%) of the Contract
quantities of Gas as established by the applicable Gas
Sales Agreement (the "Shortfall"), provided the Gas is
available. Within sixty (60) days of receipt of the
statement, EGPC (as buyer) shall pay EGPC and CONTRACTOR
(as sellers) for the amount of the Shortfall, if any. The
Shortfall shall be included in EGPC's and CONTRACTOR's
entitlement to Gas pursuant to Article VII (a) and
Article VII (b) in the fourth (4th) quarter of such
contractual year.
Quantities of Gas not taken but to be paid for shall be
recorded in a separate Take-or-Pay Account. Quantities of
Gas ("Make Up Gas") which are delivered in subsequent
years in excess of seventy five percent (75%) of the
contract quantities of Gas as established by the
applicable Gas Sales Agreement, shall be set against and
reduce quantities of Gas in the Take-or-Pay account to
the extent thereof and, to that extent, no payment shall
be due in respect of such Gas. Such Make Up Gas shall not
be included in CONTRACTOR's entitlement to Gas pursuant
to Article VII (a) and Article VII (b). CONTRACTOR shall
have no rights to such Make Up Gas.
The percentages set forth in Article VII (a) and this
Article VII (b) in respect of LPG produced from a plant
constructed and operated by or on behalf of EGPC and
CONTRACTOR shall apply to all LPG available for delivery.
(c) Valuation of Petroleum:
(1) Crude Oil:
(i) The Cost Recovery Crude Oil to which CONTRACTOR
is entitled hereunder shall be valued by EGPC and
CONTRACTOR at "Market Price" for each calendar quarter.
(ii) "Market Price" shall mean the weighted average
prices realized from sales by EGPC or CONTRACTOR
during the quarter, whichever is higher, provided
that the sales to be used in arriving at the weighted
average(s) shall be sales of comparable quantities on
comparable credit terms in freely convertible
currency from F.O.B. point of export sales to
non-affiliated companies at arm's length under all
Crude Oil sales contracts then in effect, but
excluding Crude Oil sales contracts involving barter
and,
(1) Sales, whether direct or indirect, through
brokers or otherwise, of EGPC or CONTRACTOR to
any Affiliated Company.
(2) Sales involving a quid pro quo other than
payment in a freely convertible currency or
motivated in whole or in part by considerations
other than the usual economic incentives for
commercial arm's length crude oil sales.
(iii) It is understood that in the case of C.I.F.
sales, appropriate deductions shall be made for
transport and insurance charges to calculate the
F.O.B. point of export price; and always taking into
account the appropriate adjustment for quality of
Crude Oil, freight advantage or disadvantage of port
of loading and other appropriate adjustments. Market
Price shall be determined separately for each Crude
Oil or Crude Oil mix, and for each port of loading.
(iv) If during any calendar quarter, there are no
such sales by EGPC and/or CONTRACTOR under the Crude
Oil sales contracts in effect, EGPC and CONTRACTOR
shall mutually agree upon the Market Price of the
barrel of Crude Oil to be used for such quarter, and
shall be guided by all relevant and available
evidence including current prices in freely
convertible currency of leading crude oils produced
by major oil producing countries (in the Arabian Gulf
or the Mediterranean Area), which are regularly sold
in the open market according to actual sales
contracts terms but excluding paper sales and sales
promises where no crude oil is delivered, to the
extent that such sales are effected under such terms
and conditions (excluding the price) not
significantly different from those under which the
crude oil to be valued, was sold, and always taking
into consideration appropriate adjustments for crude
oil quality, freight advantage or disadvantage of
port of loading and other appropriate adjustments, as
the case may be, for differences in gravity, sulphur,
and other factors generally recognized by sellers and
purchasers, as reflected in crude prices,
transportation ninety (90) days insurance premiums,
unusual fees borne by the seller, and for credit
terms in excess of sixty (60) days, and the cost of
loans or guarantees granted for the benefit of the
sellers at prevailing interest rates.
It is the intent of the Parties that the value of the
Cost Recovery Crude Oil shall reflect the prevailing
market price for such Crude Oil.
(v) If either EGPC or CONTRACTOR considers that the
Market Price as determined under sub-paragraph (ii)
above does not reflect the prevailing Market Price or
in the event EGPC and CONTRACTOR fail to agree on
Market Price for any Crude Oil produced under this
Agreement for any quarter within fifteen (15) days
after the end thereof, any party may elect at any
time thereafter to submit to a single arbitrator the
question, what single price per barrel, in the
arbitrator's judgment, best represents for the
pertinent quarter the Market Price for the Crude Oil
in question. The arbitrator shall make his
determination as soon as possible following the
quarter in question. His determination shall be final
and binding upon all the parties. The arbitrator
shall be selected in the manner described below.
In the event EGPC and CONTRACTOR fail to agree on the
arbitrator within thirty (30) days from the date any
party notifies the other that it has decided to
submit the determination of the Market Price to an
arbitrator, such arbitrator shall be chosen by the
appointing authority designated in accordance with
Article XXIV (e), or such other appointing authority
with access to such expertise as may be agreed to
between EGPC and CONTRACTOR, with regard to the
qualifications for arbitrators set forth below, upon
written application of one or both of EGPC and
CONTRACTOR. Copies of such application by one of them
shall be promptly sent to the other.
The arbitrator shall be as nearly as possible a
person with an established reputation in the
international petroleum industry as an expert in
pricing and marketing crude oil in international
commerce. The arbitrator shall not be a citizen of a
country which does not have diplomatic relations with
the A.R.E., and Canada. He may not be, at the time of
selection, employed by, or an arbitrator or
consultant on a continuing or frequent basis to, the
American Petroleum Institute, the Organization of the
Petroleum Exporting Countries or the Organization of
Arab Petroleum Exporting Countries, or a consultant
on a continuing basis to EGPC, CONTRACTOR or an
Affiliated Company of either, but past occasional
consultation with such companies, with other
petroleum companies, governmental agencies or
organizations shall not be a ground for
disqualification. He may not have been, at any time
during the two (2) years before selection, an
employee of any petroleum company or of any
governmental agency or organization.
Should a selected person decline or be unable to
serve as arbitrator or should the position of
arbitrator fall vacant prior to the decision called
for, another person shall be chosen in the same
manner provided in this paragraph. EGPC and
CONTRACTOR shall share equally the expenses of the
arbitrator.
The arbitrator shall make his determination in
accordance with the provisions of this paragraph,
based on the best evidence available to him. He will
review oil sales contracts as well as other sales
data and information but shall be free to evaluate
the extent to which any contracts, data or
information is substantiated or pertinent.
Representatives of EGPC and CONTRACTOR shall have the
right to consult with the arbitrator and furnish him
written materials provided the arbitrator may impose
reasonable limitations on this right. EGPC and
CONTRACTOR each shall cooperate with the arbitrator
to the fullest extent and each shall insure such
cooperation of its trading companies. The arbitrator
shall be provided access to crude oil sales contracts
and related data and information which EGPC and
CONTRACTOR or their trading companies are able to
make available and which in the judgment of the
arbitrator might aid the arbitrator in making a valid
determination.
(vi) Pending Market Price agreement by EGPC and
CONTRACTOR or determination by the arbitrator, as
applicable, the Market Price agreed for the quarter
preceding the quarter in question shall remain
temporarily in effect. In the event either EGPC or
CONTRACTOR should incur a loss by virtue of the
temporary continuation of the Market Price of the
previous quarter, it shall promptly be reimbursed
such loss by the other party plus simple interest at
the LIBOR plus two and one - half percent (2.5%) per
annum rate provided for in Article IV (f) from the
date on which the disputed amount(s) should have been
paid to the date of payment.
(2) Gas and LPG
(i) The Cost Recovery and Production Shares of Gas
subject to a Gas Sales Agreement between EGPC and
CONTRACTOR (as sellers) and EGPC (as buyer) entered
into pursuant to Article VII (e) shall be valued,
delivered to and purchased by EGPC at a price
determined monthly as agreed upon between EGPC &
Contractor at such time.
(ii) The Cost Recovery and Production Shares of LPG
produced from a plant constructed and operated by or on
behalf of EGPC and CONTRACTOR shall be separately valued
for Propane and Butane at the outlet of such LPG plant
according to the following formula (unless otherwise
agreed between EGPC and CONTRACTOR):
PLPG = 0.95 PR - (J X 0.85 X F )
6
42.96 X 10
Where
PLPG = LPG price (separately determined for Propane
and Butane) in U.S. Dollars per metric ton.
PR =The average over a period of a month of the
figures representing the mid-point between the high
and low prices in U.S. Dollars per metric ton quoted
in "Xxxxx'x LPGaswire" during such month for Propane
and Butane FOB Ex-Ref/Stor. West Mediterranean.
J = BTU's removed from the Gas stream by the LPG
plant per metric ton of LPG produced.
F = the same value as F under sub-paragraph (i) above.
In the event that Xxxxx'x LPGaswire is issued on
certain days during a month but not on others, the
value of PR shall be calculated using only those
issues which are published during such month. In the
event that the value of PR can not be determined
because Xxxxx'x LPGaswire is not published at all
during a month, EGPC and CONTRACTOR shall meet and
agree to the value of PR by reference to other
published sources. In the event that there are no
such other published sources or if the value of PR
cannot be determined pursuant to the foregoing for
any other reason EGPC and CONTRACTOR shall meet and
agree the value of PR by reference to the value of
LPG (Propane and Butane) delivered FOB from the
Mediterranean Area.
Such valuation of LPG is based upon delivery at the
delivery point specified in Article VII (e) (2) (iii).
(iii) The prices of Gas and LPG so calculated
shall apply during the same month.
(iv) The Cost Recovery and Production Shares of Gas
and LPG disposed of by EGPC and CONTRACTOR other than
to EGPC pursuant to Article VII (e) shall be valued
at their actual realized price.
(d) Forecasts:
Operating Company shall prepare (not less than ninety (90)
days prior to the beginning of each calendar semester
following first regular production) and furnish in writing
to CONTRACTOR and EGPC a forecast setting out a total
quantity of Petroleum that Operating Company estimates can
be produced, saved and transported hereunder during such
calendar semester in accordance with good oil and gas
industry practices.
Operating Company shall endeavor to produce each calendar
semester the forecast quantity. The Crude Oil shall be run
to storage tanks or offshore loading facilities
constructed, maintained and operated according to
Government Regulations, by Operating Company in which said
Crude Oil shall be metered or otherwise measured for
royalty, and other purposes required by this Agreement. Gas
shall be handled by Operating Company in accordance with
the provisions of Article VII (e) .
(e) Disposition of Petroleum:
(1) EGPC and CONTRACTOR shall have the right and the
obligation to separately take and freely export or
otherwise dispose of, currently all of the Crude Oil to
which each is entitled under Article VII (a) and Article
VII (b). Subject to payment of sums due to EGPC under
Article VII (a) (2) and Article IX, CONTRACTOR shall have
the right to remit and retain abroad all funds acquired by
it including the proceeds from the sale of its share of
Petroleum.
Notwithstanding anything to the contrary under this
Agreement priority shall be given to meet the requirements
of the A.R.E. market from CONTRACTOR's share under Article
VII (b) of the Crude Oil produced from the Area and EGPC
shall have the preferential right to purchase such Crude
Oil at a price to be determined pursuant to Article VII
(c). The amount of Crude Oil so purchased shall be a
portion of CONTRACTOR's share under Article VII (b). Such
amount shall be proportional to CONTRACTOR's share of the
total production of crude oil from the concession areas in
the A.R.E. that are also subject to EGPC's preferential
right to purchase. The payment for such purchased amount
shall be made by EGPC in U.S. Dollars or in any other
freely convertible currency remittable by CONTRACTOR abroad.
It is agreed upon that EGPC shall notify CONTRACTOR, at
least forty-five (45) days prior to the beginning of the
Calendar Semester, of the amount to be purchased during
such semester under this Article VII (e) (1).
(2) With respect to Gas and LPG produced from the Area:
(i) Priority shall be given to meet the requirements of
the local market as determined by EGPC.
(ii) In the event that EGPC is to be the buyer of Gas,
the disposition of Gas to the local markets as indicated
above shall be by virtue of long term Gas Sales
Agreements to be entered into between EGPC and CONTRACTOR
(as sellers) and EGPC (as buyer).
EGPC and CONTRACTOR (as sellers) shall have the
obligation to deliver Gas to the following point where
such Gas shall be metered for sales, royalty, and other
purposes required by this Agreement:
(a) In the event no LPG plant is constructed to
process such Gas, the delivery point shall be at the
flange connecting the Lease pipeline to the nearest
point on the National Gas Pipeline Grid System as
depicted in Annex "F" hereto, or as otherwise agreed
by EGPC and CONTRACTOR.
(b) In the event an LPG plant is constructed to
process such Gas, such Gas shall, for the purposes of
valuation and sales, be metered at the inlet to such
LPG Plant. However, notwithstanding the fact that the
metering shall take place at the LPG Plant inlet,
CONTRACTOR shall through the Operating Company build a
pipeline suitable for transport of the processed Gas
from the LPG Plant outlet to the nearest point on the
National Gas Pipeline Grid System as depicted in Annex
"F" hereto, or otherwise agreed by EGPC and
CONTRACTOR. Such pipeline shall be owned in accordance
with Article VIII (a) by EGPC, and its cost shall be
financed and recovered by CONTRACTOR as Development
Expenditures pursuant to Article VII.
(iii) EGPC and CONTRACTOR shall consult together to
determine whether to build an LPG plant for recovering
LPG from any Gas produced hereunder. In the event EGPC
and CONTRACTOR decide to build such a plant, the plant
shall, as is appropriate, be in the vicinity of the point
of delivery as determined in Article II and Article
VII(e)2(ii). The delivery of LPG for, royalty and other
purposes required by this Agreement shall be at the
outlet of the LPG plant. The costs of any such LPG plant
shall be recoverable in accordance with the provisions of
this Agreement unless the Minister of Petroleum agrees to
accelerated recovery.
(iv) EGPC (as buyer) shall have the option to elect,
by ninety (90) days prior written notice to EGPC and
CONTRACTOR (as sellers), whether payment for the Gas
which is subject to a Gas Sales Agreement between EGPC
and CONTRACTOR (as sellers) and EGPC (as buyer) and LPG
produced from a plant constructed and operated by or on
behalf of EGPC and CONTRACTOR, as valued in accordance
with Article VII (c), and to which CONTRACTOR is
entitled under the Cost Recovery and Production Sharing
provisions of Article VII, of this Agreement, shall be
made 1) in cash or 2) in kind.
Payments in cash shall be made by EGPC (as buyer) at
intervals provided for in the relevant Gas Sales
Agreement in U.S. Dollars, remittable by CONTRACTOR abroad.
Payments in kind shall be calculated by converting the
value of Gas and LPG to which CONTRACTOR is entitled
into equivalent barrels of Crude Oil to be taken
concurrently by CONTRACTOR from the Area, or to the
extent that such Crude Oil is insufficient, Crude Oil
from CONTRACTOR's other concession areas or such other
areas as may be agreed. Such Crude Oil shall be added to
the Crude Oil that CONTRACTOR is otherwise entitled to
lift under this Agreement. Such equivalent barrels shall
be calculated on the basis of the provisions of Article
VII (c) relating to the valuation of Cost Recovery Crude
Oil.
Provided that:
(aa) Payment of the value of Gas and LPG shall always
be made in cash in U.S. Dollars remittable by
CONTRACTOR abroad to the extent that there is
insufficient Crude Oil available for conversion as
provided for above;
(bb) Payment of the value of Gas and LPG shall always
be made in kind as provided for above to the extent
that payments in cash are not made by EGPC.
Payments to CONTRACTOR (whether in cash or kind), when
related to CONTRACTOR's Cost Recovery Petroleum, shall
be included in CONTRACTOR's Statement of Recovery of
Costs and of Cost Recovery Petroleum referred to in
Article IV of Annex "E" of this Agreement.
(v) Should EGPC (as buyer) fail to enter into a
long-term Gas Sales Agreement with EGPC and CONTRACTOR
(as sellers) within five (5) years (unless otherwise
agreed) from a notice of Commercial Gas Discovery
pursuant to Article III, EGPC and CONTRACTOR shall have
the right to take and freely dispose of the quantity of
Gas and LPG in respect of which the notice of
Commercial Discovery is given by exporting such Gas and
LPG.
(vi) The proceeds of sale of CONTRACTOR's share of Gas
and LPG disposed of pursuant to the above sub-paragraph
(v) may be freely remitted or retained abroad by
CONTRACTOR.
(vii) In the event EGPC and CONTRACTOR agree to accept
new Gas and LPG producers to join in an ongoing export
project, such producers shall have to contribute a fair
and equitable share of the investment made.
(viii)
(aa) Upon the expiration of the five (5) year period
referred to in Article VII (e) (2) (v), CONTRACTOR
shall have the obligation to exert its reasonable
efforts to find an export market for Gas reserves.
(bb) In the event at the end of the five (5) year
period referred to under Article VII (e) (2) (v),
CONTRACTOR and EGPC have not entered into a Gas Sales
Agreement, CONTRACTOR shall retain its rights to such
Gas reserves for a further period of up to seven (7)
years, subject to Article VII (e) (2) (viii) (cc),
during which period EGPC shall attempt to find a
market for Gas reserves.
(cc) In the event that CONTRACTOR is not exporting the
Gas and CONTRACTOR has not entered into a Gas Sales
Agreement pursuant to Article VII (e) (2) prior to the
expiry of twelve (12) years from CONTRACTOR's notice
of Commercial Gas Discovery, CONTRACTOR shall
surrender the Gas reserves in respect of which such
notice has been given. It being understood that
CONTRACTOR shall, at any time prior to the expiry of
such twelve (12) year period, surrender the Gas
reserves, if CONTRACTOR is not exporting the Gas and
CONTRACTOR does not accept an offer of a Gas Sales
Agreement from EGPC within six (6) months from the
date such offer is made provided that the Gas Sales
Agreement offered to CONTRACTOR shall take into
consideration the relevant technical and economic
factors to enable a commercial contract including :
- A sufficient delivery rate.
- Delivery pressure to enter the National Gas
Pipeline Grid System at the point of delivery.
- Delivered Gas quality specifications not more
stringent than those imposed or required for the
National Gas Pipeline Grid System.
- The Gas prices as specified in this Agreement .
(dd) In the event that CONTRACTOR has not entered
into a Gas Sales Agreement pursuant to Article VII
(e) (2)or otherwise found an acceptable scheme for
commercial disposal of such Gas , at the time of the
expiration of twelve (12) years from CONTRACTOR's
notice of Commercial Discovery of Gas or failing
agreement with EGPC on gas disposal at the expiration
of twelve (12) years , CONTRACTOR shall surrender to
EGPC such Development Lease (s) in which Gas
discovery is made.
(ix) CONTRACTOR shall not be obligated to surrender a
Development Lease based on a Commercial Gas Discovery,
if Crude Oil has been discovered in commercial
quantities in the same Development Lease.
(f) Operations:
If following the reversion to EGPC of any rights to Crude
Oil hereunder, CONTRACTOR retains rights to Gas in the same
Development Lease, or if, following surrender of rights to
Gas hereunder, CONTRACTOR retains rights to Crude Oil in
the same Development Lease, operations to explore for or
exploit the Petroleum, the rights to which have reverted or
been surrendered (Oil or Gas as the case may be) may only
be carried out by Operating Company which shall act on
behalf of EGPC alone, unless CONTRACTOR and EGPC agree
otherwise.
g) Tanker Scheduling:
At a reasonable time prior to the commencement of
Commercial Production EGPC and CONTRACTOR shall meet and
agree upon a procedure for scheduling tanker liftings from
the agreed upon point of export.
ARTICLE VIII
TITLE TO ASSETS
(a) EGPC shall become the owner of all CONTRACTOR acquired
and owned assets which assets were charged to Cost Recovery
by CONTRACTOR in connection with the operations carried out
by CONTRACTOR or Operating Company in accordance with the
following:
(1) Land shall become the property of EGPC as soon as it
is purchased.
(2) Title to fixed and movable assets shall be transferred
automatically and gradually from CONTRACTOR to EGPC as
they become subject to recovery in accordance with the
provisions of Article VII; however the full title to fixed
and movable assets shall be transferred automatically from
CONTRACTOR to EGPC when its total cost has been recovered
by CONTRACTOR in accordance with the provisions of Article
VII or at the time of termination of this Agreement with
respect to all assets chargeable to the operations whether
recovered or not, whichever first occurs.
The book value of the assets created during each calendar
quarter shall be communicated by CONTRACTOR to EGPC or by
Operating Company to EGPC and CONTRACTOR within thirty
(30) days of the end of each quarter.
(b) During the term of this Agreement and the renewal
period EGPC, CONTRACTOR and Operating Company are entitled
to the full use and enjoyment of all fixed and movable
assets referred to above in connection with operations
hereunder or under any other Petroleum concession agreement
entered into by the Parties. Proper accounting adjustment
shall be made. CONTRACTOR and EGPC shall not dispose of the
same except with agreement of the other.
(3) CONTRACTOR and Operating Company may freely import into the
A.R.E., use therein and freely export at the end of such use,
machinery and equipment which they either rent or lease in
accordance with good industry practices, including but not
limited to the lease of computer hardware and software.
ARTICLE IX
BONUSES
(a) CONTRACTOR shall pay to EGPC as a signature bonus the
sum of three hundred thousand ($300,000) U.S.Dollars on the
Effective Date.
(b) CONTRACTOR shall pay to EGPC the sum of two million
($2,000,000) U.S. Dollars as a production bonus when the
total average daily production from the Area first reaches
the rate of twenty five (25,000) Barrels per day for a
period of thirty (30) consecutive producing days. Payment
will be made within fifteen (15) days thereafter.
(c) CONTRACTOR shall also pay to EGPC the additional sum
of four million ($4,000,000) U.S. Dollars as a production
bonus when the total average daily production from the Area
first reaches the rate of fifty thousand (50,000) Barrels
per day for a period of thirty (30) consecutive producing
days. Payment will be made within fifteen (15) days
thereafter.
(d) All the above mentioned bonuses shall in no event be
recovered by CONTRACTOR.
(e) In the event that EGPC elects to develop any part of
the Area pursuant to the sole risk provisions of Article
III (c) (iv), production from such sole risk area shall be
considered for the purposes of this Article IX only if
CONTRACTOR exercises its option to share in such
production, and only from the initial date of sharing.
(f) Gas shall be taken into account for purposes of
determining the total average daily production from the Area
under Article IX (b-c) by converting daily Gas delivered into
equivalent barrels of daily Crude Oil production in
accordance with the following formula:
MSCF x H x 0.136 = equivalent barrels of Crude Oil
where
MSCF = one thousand Standard Cubic Feet of Gas.
H = the number of million British Thermal Units
(BTU's per MSCF).
ARTICLE X
OFFICE AND SERVICE OF NOTICES
CONTRACTOR shall maintain an office in A.R.E. at which notices
shall be validly served.
The General Manager and Deputy General Manager shall be
entrusted by CONTRACTOR with sufficient power to carry out
immediately all local written directions given to them by the
Government or its representatives under the terms of this
Agreement. All lawful regulations issued or hereafter to be
issued which are applicable hereunder and not in conflict with
this Agreement shall apply to the duties and activities of the
General Manager and Deputy General Manager.
All matters and notices shall be deemed to be validly served
which are delivered to the office of the General Manager or
which are sent to him by registered mail to CONTRACTOR's office
in the A.R.E.
All matters and notices shall be deemed to be validly served
which are delivered to the office of the Chairman of EGPC or
which are sent to him by registered mail at EGPC's main office
in Cairo.
ARTICLE XI
SAVING OF PETROLEUM AND PREVENTION OF LOSS
(a) Operating Company shall take all proper measures,
according to generally accepted methods in use in the oil
and gas industry to prevent loss or waste of Petroleum above
or under the ground in any form during drilling, producing,
gathering, and distributing or storage operations. The
GOVERNMENT has the right to prevent any operation on any
well that it might reasonably expect would result in loss or
damage to the well or the Oil or Gas field.
(b) Upon completion of the drilling of a productive well,
Operating Company shall inform the GOVERNMENT or its
representative of the time when the well will be tested and
the production rate ascertained.
(c) Except in instances where multiple producing
formations in the same well can only be produced
economically through a single tubing string, Petroleum shall
not be produced from multiple oil bearing zones through one
string of tubing at the same time, except with the prior
approval of the GOVERNMENT or its representative, which
shall not be unreasonably withheld.
(d) Operating Company shall record data regarding the
quantities of Petroleum and water produced monthly from each
Development Lease. Such data shall be sent to the GOVERNMENT
or its representative on the special forms provided for that
purpose within thirty (30) days after the data are obtained.
Daily or weekly statistics regarding the production from the
Area shall be available at all reasonable times for
examination by authorized representatives of the GOVERNMENT.
(e) Daily drilling records and the graphic logs of xxxxx
must show the quantity and type of cement and the amount of
any other materials used in the well for the purpose of
protecting Petroleum, gas bearing or fresh water strata.
(f) Any substantial change of mechanical conditions of the
well after its completion shall be subject to the approval
of the representative of the GOVERNMENT.
ARTICLE XII
CUSTOMS EXEMPTIONS
(a) EGPC, CONTRACTOR, and Operating Company shall be
permitted to import and shall be exempted from customs
duties, any taxes, levies or fees (including fees imposed by
Ministerial Decision No. 254 of 1993 issued by the Minister
of Finance, as now or hereafter amended or substituted) of
any nature (except where an actual service has been rendered
to CONTRACTOR by a competent authority), and from the
importation rules with respect to the importation of
machinery, equipment, appliances, materials, items, means of
transport and transportation (the exemption from taxes and
duties for cars shall only apply to cars to be used in
operations), electric appliances, air conditioners for
offices, field housing and facilities, electronic
appliances, computer hardware and software, as well as spare
parts required for any of the imported items, all subject to
a duly approved certificate issued by the responsible
representative nominated by EGPC for such purpose, which
states that the imported items are required for conducting
the operations pursuant to this Agreement . Such certificate
shall be final and binding and shall automatically result in
the importation and the exemption without any further
approval, delay or procedure.
(b) Machinery, equipment, appliances and means of
transport and transportation imported by EGPC's,
CONTRACTOR's and Operating Company's contractors and
sub-contractors temporarily engaged in any activity pursuant
to the operations which are the subject of this Agreement,
shall be cleared under the "Temporary Release System"
without payment of customs duties, any taxes, levies or fees
(including fees imposed by Ministerial Decision No. 254 of
1993 issued by the Minister of Finance, as now or hereafter
amended or substituted) of any nature (except where an
actual service has been rendered to CONTRACTOR by a
competent authority), upon presentation of a duly approved
certificate issued by an EGPC responsible representative
nominated by EGPC for such purpose which states, that the
imported items are required for conducting the operations
pursuant to this Agreement. Items (excluding cars not to be
used in operations) set out in Article XII (a) imported by
EGPC's, CONTRACTOR's and Operating Company's contractors and
sub-contractors for the aforesaid operations, in order to be
installed or used permanently or consumed shall meet the
conditions for exemption set forth in Article XII (a) after
being duly certified by an EGPC responsible representative
to be used for conducting operations pursuant to this
Agreement.
(c) The expatriate employees of CONTRACTOR, Operating
Company and their contractors and sub-contractors shall not
be entitled to any exemptions from customs duties and other
ancillary taxes and charges except within the limits of the
provisions of the laws and regulations applicable in the
A.R.E. However, personal household goods and furniture
(including one (1) car) for each expatriate employee of
CONTRACTOR and/or Operating company shall be cleared under
the "Temporary Release System" (without payment of any
customs duties and other ancillary taxes) upon presentation
of a letter to the appropriate customs authorities by
CONTRACTOR or Operating Company approved by an EGPC
responsible representative that the imported items are
imported for the sole use of the expatriate employee and his
family, and that such imported items shall be re-exported
outside the A.R.E. upon the repatriation of the concerned
expatriate employee.
(3) Items imported into the A.R.E. whether exempt or not
exempt from customs duties and other ancillary taxes and
charges hereunder, may be exported by the importing party at
any time after obtaining EGPC's approval, which approval
shall not be unreasonably withheld, without any export
duties, taxes or charges or any taxes or charges from which
such items have been already exempt, being applicable. Such
items may be sold within the A.R.E. after obtaining the
approval of EGPC which approval shall not be unreasonably
withheld. In this event, the purchaser of such items shall
pay all applicable customs duties and other ancillary taxes
and charges according to the condition and value of such
items and the tariff applicable on the date of sale, unless
such items have already been sold to an Affiliated Company
of CONTRACTOR, if any, or EGPC, having the same exemption,
or unless title to such items (excluding cars not used in
operations) has passed to EGPC.
In the event of any such sale under this paragraph (d), the
proceeds from such sale shall be divided in the following
manner:
CONTRACTOR shall be entitled to reimbursement of its
unrecovered cost, if any, in such items and the excess, if
any, shall be paid to EGPC.
(e) The exemption provided for in Article XII (a) shall not
apply to any imported items when items of the same or
substantially the same kind and quality are manufactured
locally meeting CONTRACTOR's and/or Operating Company's
specifications for quality and safety and are available for
timely purchase and delivery in the A.R.E. at a price not
higher than ten percent (10%) of the cost of the imported
item, before customs duties but after freight and insurance
costs if any have been added.
(f) CONTRACTOR, EGPC and their respective buyers shall have
the right to freely export the Petroleum produced from the
Area pursuant to this Agreement; no license shall be
required, and such petroleum shall be exempted from any
customs duties, any taxes, levies or any other imposts in
respect of the export of Petroleum hereunder.
ARTICLE XIII
BOOKS OF ACCOUNT : ACCOUNTING AND PAYMENTS
(a) EGPC, CONTRACTOR and Operating Company shall each
maintain at their business offices in the A.R.E. books of
account, in accordance with the Accounting Procedure in Annex
"E" and accepted accounting practices generally used in the
petroleum industry, and such other books and records as may
be necessary to show the work performed under this Agreement,
including the amount and value of all Petroleum produced and
saved hereunder. CONTRACTOR and Operating Company shall keep
their books of account and accounting records in United
States Dollars.
Operating Company shall furnish to the GOVERNMENT or its
representatives monthly returns showing the amount of
Petroleum produced and saved hereunder. Such returns shall be
prepared in the form required by the GOVERNMENT, or its
representative and shall be signed by the General Manager or
by the Deputy General Manager or a duly designated deputy and
delivered to the GOVERNMENT or its representative within
thirty (30) days after the end of the month covered in the
return.
(b) The aforesaid books of account and other books and
records referred to above shall be available at all
reasonable times for inspection by duly authorized
representatives of the GOVERNMENT.
(c) CONTRACTOR shall submit to EGPC a Profit and Loss
Statement of its Tax Year not later than four (4) months
after the commencement of the following Tax Year to show its
net profit or loss from the Petroleum operations under this
Agreement for such Tax Year.
CONTRACTOR shall at the same time submit a year-end Balance
Sheet for the same Tax Year to EGPC. The Balance Sheet and
financial statements shall be certified by an Egyptian
certified accounting firm.
ARTICLE XIV
RECORDS, REPORTS AND INSPECTION
(a) CONTRACTOR and/or Operating Company shall prepare and,
at all times while this Agreement is in force, maintain
accurate and current records of its operations in the Area.
CONTRACTOR and/or Operating Company shall furnish the
GOVERNMENT or its representative, in conformity with
applicable regulations or as the GOVERNMENT or its
representative may reasonably require information and data
concerning its operations under this Agreement. Operating
Company will perform the functions indicated in this Article
XIV in accordance with its role as specified in Article VI.
(b) CONTRACTOR and/or Operating Company shall save and keep
for a reasonable period of time a representative portion of
each sample of cores and cuttings taken from drilling xxxxx,
to be disposed of, or forwarded to the GOVERNMENT or its
representative in the manner directed by the GOVERNMENT. All
samples acquired by CONTRACTOR and/or Operating Company for
their own purposes shall be considered available for
inspection at any reasonable time by the GOVERNMENT or its
representatives.
(c) Unless otherwise agreed to by EGPC, in case of
exporting any rock samples outside A.R.E., samples equivalent
in size and quality shall, before such exportation, be
delivered to EGPC as representative of the GOVERNMENT.
(d) Originals of records can only be exported with the
permission of EGPC; provided, however, that magnetic tapes
and any other data which must be processed or analyzed
outside the A.R.E. may be exported if a monitor or a
comparable record, if available, is maintained in the A.R.E.
and provided that such exports shall be repatriated to A.R.E.
promptly following such processing or analysis on the
understanding that they belong to EGPC.
(e) During the period CONTRACTOR is conducting the
Exploration operations, EGPC's duly authorized
representatives or employees shall have the right to full and
complete access to the Area at all reasonable times with the
right to observe the operations being conducted and to
inspect all assets, records and data kept by CONTRACTOR.
EGPC's representative, in exercising its rights under the
preceding sentence of this paragraph (e), shall not interfere
with CONTRACTOR's operations. CONTRACTOR shall provide EGPC
with copies of any and all data (including, but not limited
to, geological and geophysical reports, logs and well
surveys) information and interpretation of such data, and
other information in CONTRACTOR's possession.
For the purpose of obtaining new offers, the GOVERNMENT
and/or EGPC may, after the seventh (7th) year of the
Exploration period or the date of termination of this
Agreement, whichever is the earlier, show any other party
uninterpreted basic geophysical and geological data (such
data to be not less than one (1) year old unless CONTRACTOR
agrees to a shorter period, which agreement shall not be
unreasonably withheld) with respect to the Area, provided
that the GOVERNMENT and/or EGPC may at any time show another
party such data directly obtained over or acquired from those
parts of the Area which CONTRACTOR has relinquished as long
as such data is at least one (1) year old.
ARTICLE XV
RESPONSIBILITY FOR DAMAGES
CONTRACTOR shall entirely and solely be responsible in law
toward third parties for any damage caused by CONTRACTOR's
Exploration operations and shall indemnify the GOVERNMENT and/or
EGPC against all damages for which they may be held liable on
account of any such operations.
ARTICLE XVI
PRIVILEGES OF GOVERNMENT REPRESENTATIVES
Duly authorized representatives of the GOVERNMENT shall have
access to the Area covered by this Agreement and to the
Operations conducted thereon. Such representatives may examine
the books, registers and records of EGPC, CONTRACTOR and
Operating Company and make a reasonable number of surveys,
drawings and tests for the purpose of enforcing this Agreement.
They shall, for this purpose, be entitled to make reasonable use
of the machinery and instruments of CONTRACTOR or Operating
Company on the condition that no danger or impediment to the
operations hereunder shall arise directly or indirectly from
such use. Such representatives shall be given reasonable
assistance by the agents and employees of CONTRACTOR or
Operating Company so that none of the activities shall endanger
or hinder the safety or efficiency of the operations. CONTRACTOR
or Operating Company shall offer such representatives all
privileges and facilities accorded to its own employees in the
field and shall provide them, free of charge, the use of
reasonable office space and of adequately furnished housing
while they are in the field for the purpose of facilitating the
objectives of this Article. Without prejudice to Article XIV (e)
any and all information obtained by the GOVERNMENT or its
representatives under this Article XVI shall be kept
confidential with respect to the Area.
ARTICLE XVII
EMPLOYMENT RIGHTS AND TRAINING OF
ARAB REPUBLIC OF EGYPT PERSONNEL
(a) It is the desire of EGPC and CONTRACTOR that operations
hereunder be conducted in a business-like and efficient manner.
(1) The expatriate administrative, professional and
technical personnel employed by CONTRACTOR or Operating
Company and the personnel of its contractors for the
conduct of the operations hereunder, shall be granted a
residence as provided for in Law No. 89 of 1960 as
amended and Ministerial Order No. 280 of 1981 as amended,
and CONTRACTOR agrees that all immigration, passport,
visa and employment regulations of the A.R.E., shall be
applicable to all alien employees of CONTRACTOR working
in the A.R.E.
(2) A minimum of twenty-five percent (25%) of the
combined salaries and wages of each of the expatriate
administrative, professional and technical personnel
employed by CONTRACTOR or Operating Company shall be paid
monthly in Egyptian Currency.
(b) CONTRACTOR and Operating Company shall each select its
employees and determine the number thereof, to be used for
operations hereunder.
(c) CONTRACTOR, shall after consultation with EGPC, prepare
and carry out specialized training programs for all its
A.R.E. employees engaged in operations hereunder with respect
to applicable aspects of the petroleum industry. CONTRACTOR
and Operating Company undertake to replace gradually their
non-executive expatriate staff by qualified nationals as they
are available.
(d) During any of the Exploration phases, CONTRACTOR shall
give mutually agreed numbers of EGPC employees an opportunity
to attend and participate in CONTRACTOR's and CONTRACTOR's
Affiliated Companies training programs relating to
Exploration and Development operations. In the event that the
total cost of such programs is less than fifty thousand
(50,000) United States Dollars in any Financial Year during
such period, CONTRACTOR shall pay EGPC the amount of the
shortfall within thirty (30) days following the end of such
Financial Year. However, EGPC shall have the right that said
amount (U.S.$50,000) allocated for training, be paid directly
to EGPC for such purpose.
ARTICLE XVIII
LAWS AND REGULATIONS
(a) CONTRACTOR and Operating Company shall be subject to
Law No. 66 of 1953 (excluding Article 37 thereof) as amended
by Law No. 86 of 1956 and the regulations issued for the
implementation thereof, including the regulations for the
safe and efficient performance of operations carried out for
the execution of this Agreement and for the conservation of
the petroleum resources of the A.R.E. provided that no
regulations, or modification or interpretation thereof, shall
be contrary to or inconsistent with the provisions of this
Agreement.
(b) CONTRACTOR and Operating Company shall be subject to the
provisions of the Law No. 4 of 1994 concerning the
environment and its executive regulation as may be amended ,
as well as any laws or regulations may be issued , concerning
the protection of the environment
(c) Except as provided in Article III (g) for Income Taxes,
EGPC, CONTRACTOR and Operating Company shall be exempted from
all taxes and duties, whether imposed by the GOVERNMENT or
municipalities including among others, Sales Tax, Value Added
Tax and Taxes on the Exploration, Development, extracting,
producing, exporting or transporting of Petroleum and LPG as
well as any and all withholding taxes that might otherwise be
imposed on dividends, interest, technical service fees,
patent and trademark royalties, and similar items. CONTRACTOR
shall also be exempted from any tax on the liquidation of
CONTRACTOR, or distributions of any income to the
shareholders of CONTRACTOR, and from any tax on capital.
(d) The rights and obligations of EGPC and CONTRACTOR
under, and for the effective term of this Agreement shall be
governed by and in accordance with the provisions of this
Agreement and can only be altered or amended by the written
mutual agreement of the said contracting parties.
(e) The contractors and sub-contractors of CONTRACTOR and
Operating Company shall be subject to the provisions of this
Agreement which affect them. Insofar as all regulations which
are duly issued by the GOVERNMENT apply from time to time and
are not in accord with the provisions of this Agreement, such
regulations shall not apply to CONTRACTOR, Operating Company
and their respective contractors and sub-contractors, as the
case may be.
(f) EGPC, CONTRACTOR, Operating Company and their
respective contractors and sub-contractors shall for the
purposes of this Agreement be exempted from all professional
stamp duties, imposts and levies imposed by syndical laws
with respect to their documents and activities hereunder.
(g) All the exemptions from the application of the A.R.E.
laws or regulations granted to EGPC, CONTRACTOR, the
Operating Company, their contractors and sub-contractors
under this Agreement shall include such laws and regulations
as presently in effect or hereafter amended or substituted.
ARTICLE XIX
STABILIZATION
In case of changes in existing legislation or regulations
applicable to the conduct of Exploration, Development and
production of Petroleum, which take place after the Effective
Date, and which significantly affect the economic interest of
this Agreement to the detriment of CONTRACTOR or which
imposes on CONTRACTOR an obligation to remit to the A.R.E.
the proceeds from sales of CONTRACTOR's Petroleum, CONTRACTOR
shall notify EGPC of the subject legislative or regulatory
measure. In such case, the Parties shall negotiate possible
modifications to this Agreement designed to restore the
economic balance thereof which existed on the Effective Date.
The Parties shall use their best efforts to agree on
amendments to this Agreement within ninety (90) days from
aforesaid notice.
These amendments to this Agreement shall not in any event
diminish or increase the rights and obligations of CONTRACTOR
as these were agreed on the Effective Date.
Falling agreement between the Parties during the period
referred to above in this Article XIX , the dispute may be
submitted to arbitration, as provided in Article XXIV of this
Agreement.
ARTICLE XX
RIGHT OF REQUISITION
(a) In case of national emergency due to war or imminent
expectation of war or internal causes, the GOVERNMENT may
requisition all or part of the production from the Area
obtained hereunder and require Operating Company to increase
such production to the utmost possible maximum. The
GOVERNMENT may also requisition the Oil and/or Gas field
itself and, if necessary, related facilities.
(b) In any such case, such requisition shall not be
effected except after inviting EGPC and CONTRACTOR or their
representative by registered letter, with acknowledgement of
receipt, to express their views with respect to such
requisition.
(c) The requisition of production shall be effected by
Ministerial Order. Any requisition of an Oil and/or Gas
field, or any related facilities shall be effectedby a
Presidential Decree duly notified to EGPC and CONTRACTOR.
(d) In the event of any requisition as provided above, the
GOVERNMENT shall indemnify in full EGPC and CONTRACTOR for
the period during which the requisition is maintained,
including:
(1) All damages which result from such requisition; and
(2) Full repayment each month for all Petroleum
extracted by the GOVERNMENT less the royalty share of
such production.
However, any damage resulting from enemy attack is not within
the meaning of this paragraph (d). Payment hereunder shall be
made to CONTRACTOR in U.S. Dollars remittable abroad. The price
paid to CONTRACTOR for Petroleum taken shall be calculated in
accordance with Article VII (c).
ARTICLE XXI
ASSIGNMENT
(a) Neither EGPC nor CONTRACTOR may assign to a person,
firm or corporation, in whole or in part, any of its
rights, privileges, duties or obligations under this
Agreement without the written consent of the GOVERNMENT.
(b) To enable consideration to be given to any request for
such consent, the following conditions must be fulfilled:
(1) The obligations of the assignor deriving from
this Agreement must have been duly fulfilled as of the
date such request is made.
(2) The instrument of assignment must include
provisions stating precisely that the assignee is bound
by all covenants contained in this Agreement and any
modifications or additions in writing that up to such
time may have been made. A draft of such instrument of
assignment shall be submitted to EGPC for review and
approval before being formally executed.
(c) Any assignment, sale, transfer or other such conveyance
made pursuant to the provisions of this Article XXI shall be
free of any transfer, capital gains taxes or related taxes,
charges or fees including without limitation, all Income Tax,
Sales Tax, Value Added Tax, Stamp Duty, or other Taxes or
similar payments.
(d) As long as the assignor shall hold any interest under
this Agreement, the assignor together with the assignee shall
be jointly and severally liable for all duties and
obligations of CONTRACTOR under this Agreement.
ARTICLE XXII
BREACH OF AGREEMENT AND POWER TO CANCEL
(a) The GOVERNMENT shall have the right to cancel this
Agreement by Order or Presidential Decree, with respect to
CONTRACTOR, in the following instances:
(1) If it knowingly has submitted any false statements to the
GOVERNMENT which were of a material consideration for the
execution of this Agreement;
(2) If it assigns any interest hereunder contrary to the
provisions of Article XXI;
(3) If it is adjudicated bankrupt by a court of competent
jurisdiction;
(4) If it does not comply with any final decision reached
as the result of court proceedings conducted under Article
XXIV(a);
(5) If it intentionally extracts any mineral other than
Petroleum not authorized by this Agreement or without the
authority of the GOVERNMENT, except such extractions as
may be unavoidable as the result of the operations
conducted hereunder in accordance with accepted petroleum
industry practice and which shall be notified to the
GOVERNMENT or its representative as soon as possible; and
(6) If it commits any material breach of this Agreement or
of the provisions of Law No. 66 of 1953, as amended by Law
No. 86 of 1956, which are not contradicted by the
provisions of this Agreement.
Such cancellation shall take place without prejudice to
any rights which may have accrued to the GOVERNMENT
against CONTRACTOR in accordance with the provisions of
this Agreement, and, in the event of such cancellation,
CONTRACTOR, shall have the right to remove from the Area
all its personal property.
(b) If the GOVERNMENT deems that one of the aforesaid
causes (other than a force majeure cause referred to in
Article XXIII) exists to cancel this Agreement, the
GOVERNMENT shall give CONTRACTOR ninety (90) days written
notice personally served on CONTRACTOR's General Manager in
the legally official manner and receipt of which is
acknowledged by him or by his legal agents, to remedy and
remove such cause; but if for any reason such service is
impossible due to unnotified change of address, publication
in the Official Journal of the GOVERNMENT of such notice
shall be considered as valid service upon CONTRACTOR. If at
the end of the said ninety (90) day notice period such cause
has not been remedied and removed, this Agreement may be
canceled forthwith by Order or Presidential Decree as
aforesaid; provided however, that if such cause, or the
failure to remedy or remove such cause, results from any act
or omission of one party, cancellation of this Agreement
shall be effective only against that party and not as against
any other party hereto.
ARTICLE XXIII
FORCE MAJEURE
(a) The non-performance or delay in performance by EGPC and
CONTRACTOR, or either of them of any obligation under this
Agreement shall be excused if, and to the extent that, such
non-performance or delay is caused by force majeure. The
period of any such non-performance or delay, together with
such period as may be necessary for the restoration of any
damage done during such delay, shall be added to the time
given in this Agreement for the performance of such
obligation and for the performance of any obligation
dependent thereon and consequently, to the term of this
Agreement, but only with respect to the block or blocks
affected.
(b) "Force Majeure" within the meaning of this Article XXIII,
shall be any order, regulation or direction of the
GOVERNMENT of the ARAB REPUBLIC OF EGYPT, whether
promulgated in the form of a law or otherwise or any act of
God, insurrection, riot, war, strike, and other labor
disturbance, fires, floods or any cause not due to the
fault or negligence of EGPC and CONTRACTOR or either of
them, whether or not similar to the foregoing, provided
that any such cause is beyond the reasonable control of
EGPC and CONTRACTOR, or either of them.
(c) Without prejudice to the above and except as may be
otherwise provided herein, the GOVERNMENT shall incur no
responsibility whatsoever to EGPC and CONTRACTOR, or either
of them for any damages, restrictions or loss arising in
consequence of such case of force majeure except a force
majeure caused by the order, regulations or direction of the
GOVERNMENT of the ARAB REPUBLIC OF EGYPT.
(d) If the force majeure event occurs during the initial
Exploration period or any extension thereof and continues in
effect for a period of six (6) months CONTRACTOR shall have
the option upon ninety (90) days prior written notice to EGPC
to terminate its obligations hereunder without further
liability of any kind.
ARTICLE XXIV
DISPUTES AND ARBITRATION
(a) Any dispute, controversy or claim arising out of or
relating to this Agreement or the breach, termination or
invalidity thereof, between the GOVERNMENT and the parties
shall be referred to the jurisdiction of the appropriate
A.R.E. Courts and shall be finally settled by such Courts.
(b) Any dispute, controversy or claim arising out of or
relating to this Agreement, or breach, termination or
invalidity thereof between EGPC and CONTRACTOR shall be
settled by arbitration in accordance with the Arbitration
Rules of the Cairo Regional Center for International
Commercial Arbitration (the Center) in effect on the date of
this Agreement. The award of the arbitrators shall be final
and binding on the parties.
(c) The number of arbitrators shall be three (3).
(d) Each party shall appoint one arbitrator. If, within
thirty (30) days after receipt of the claimant's notification
of the appointment of an arbitrator the respondent has not
notified the claimant in writing of the name of the
arbitrator he appoints, the claimant may request the Center
to appoint the second arbitrator.
(e) The two arbitrators thus appointed shall choose the
third arbitrator who will act as the presiding arbitrator of
the tribunal. If within thirty (30) days after the
appointment of the second arbitrator, the two arbitrators
have not agreed upon the choice of the presiding arbitrator,
then either party may request the Secretary General of the
Permanent Court of Arbitration at the Hague to designate the
appointing authority. Such appointing authority shall
appoint the presiding arbitrator in the same way as a sole
arbitrator would be appointed under Article 6.3 of the
UNCITRAL Arbitration Rules. Such presiding arbitrator shall
be a person of a nationality other than the A.R.E. or CANADA
and of a country which has diplomatic relations with A.R.E.,
and CANADA and who shall have no economic interest in the
Petroleum business of the signatories hereto.
(f) Unless otherwise agreed by the parties to the
arbitration, the arbitration, including the making of the
award, shall take place in Cairo, A.R.E.
(g) The decision of a majority of the arbitrators shall be
final and binding upon the Parties and the arbitral award
rendered shall be final and conclusive. Judgment on the
arbitral award rendered, may be entered in any court having
Jurisdiction or application may be made in such court for a
judicial acceptance of the award and for enforcement, as the
case may be.
(h) Egyptian Law shall apply to the dispute except that in
the event of any conflict between Egyptian Laws and this
Agreement the provisions of this Agreement (including the
arbitration provision) shall prevail. The arbitration shall
be conducted in both English and Arabic language.
(i) EGPC and CONTRACTOR agree that if, for whatever reason,
arbitration in accordance with the above procedure cannot
take place, or is likely to take place under circumstances
for CONTRACTOR which could prejudice CONTRACTOR's right to
fair arbitration, all disputes, controversies or claims
arising out of or relating to this Agreement or the breach,
termination or invalidity thereof shall be settled by ad hoc
arbitration in accordance with the UNCITRAL Rules in effect
on the Effective Date.
ARTICLE XXV
STATUS OF PARTIES
(a) The rights, duties, obligations and liabilities in
respect of EGPC and CONTRACTOR hereunder shall be several and
not joint or collective, it being understood that this
Agreement shall not be construed as constituting an
association or corporation or partnership.
(b) CONTRACTOR shall be subject to the laws of the place
where it is incorporated regarding its legal status or
creation, organization, charter and by-laws, shareholding,
and ownership.
CONTRACTOR's shares of capital which are entirely held
abroad shall not be negotiable in the A.R.E. and shall not be
offered for public subscription nor shall be subject to the
stamp tax on capital shares nor any tax or duty in the A.R.E.
CONTRACTOR shall be exempted from the application of Law No.
159 of 1981 as amended.
(c) All CONTRACTOR Members shall be jointly and severally
liable for the performance of the obligations of CONTRACTOR
under this Agreement.
ARTICLE XXVI
LOCAL CONTRACTORS AND
LOCALLY MANUFACTURED MATERIAL
CONTRACTOR or Operating Company, as the case may be, and their
contractors shall:
(a) Give priority to local contractors and
sub-contractors, including EGPC's Affiliated Companies as
long as their performance is comparable with international
performance and the prices of their services are not higher
than the prices of other contractors and sub-contractors by
more than ten percent (10%).
(b) Give preference to locally manufactured material,
equipment, machinery and consumables so long as their quality
and time of delivery are comparable to internationally
available material, equipment, machinery and consumables.
However, such material, equipment, machinery and consumables
may be imported for operations conducted hereunder if the
local price of such items at CONTRACTOR's or Operating
Company's operating base in A.R.E. is more than ten percent
(10%) higher than the price of such imported items before
customs duties, but after transportation and insurance costs
have been added.
ARTICLE XXVII
ARABIC TEXT
The Arabic version of this Agreement shall, before the courts
of A.R.E. be referred to in construing or interpreting this
Agreement; provided however, that in any arbitration pursuant
to Article XXIV herein above between EGPC and CONTRACTOR the
English and Arabic versions shall both be referred to as having
equal force in construing or interpreting the Agreement.
ARTICLE XXVIII
GENERAL
The headings or titles to each of the Articles to this Agreement
are solely for the convenience of the parties hereto and shall
not be used with respect to the interpretation of said Articles.
ARTICLE XXIX
APPROVAL OF THE GOVERNMENT
This Agreement shall not be binding upon any of the parties
hereto unless and until a law is issued by the competent
authorities of the A.R.E. authorizing the Minister of Petroleum
to sign this Agreement and giving this Agreement full force and
effect of law notwithstanding any countervailing Governmental
enactment, and the Agreement is signed by the GOVERNMENT, EGPC,
and CONTRACTOR.
DOVER INVESTMENTS LIMITED
BY: ---------------------------------------------
EGYPTIAN GENERAL PETROLEUM CORPORATION
BY: ---------------------------------------------
ARAB REPUBLIC OF EGYPT
BY: ----------------------------------------------
DATE : ------------------------------------
ANNEX "A"
CONCESSION AGREEMENT
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
EGYPTIAN GENERAL PETROLEUM CORPORATION.
AND
DOVER INVESTMENTS LIMITED
IN
EAST WADI ARABA AREA
GULF OF SUEZ
A.R.E.
BOUNDARY DESCRIPTION OF THE CONCESSION AREA
Annex "B" is a provisional illustrative map at an approximate
scale of -: ( 1 : 500,000 ) showing the Area covered and
affected by this Agreement.
- The Area measure approximately three hundred ninety
three square kilometers (393 km2) of surface Area. It is
composed of all or part of Exploration Blocks, the whole
Blocks are defined on a three (3) minutes latitude by three
(3) minutes longitude grid.
It is to be noted that the delineation lines of the
Area in Annex "B" are intended to be only
illustrative and provisional and may not show
accurately their true position in relation to
existing monuments and geographical features.
Coordinates of the corner points of the Area are given in the
following table which forms an integral part of Annex "A":-
BOUNDARY COORDINATES
OF
EAST WADI ARABA
GULF OF SUEZ
AREA
POINT LONGITIUDE LATITUDE REMARKS
No.
1 32 40' 30.00" 29 17' 00.00"
2 32 40' 30.00" 29 15' 00.00"
3 32 41' 30.00" 29 15' 00.00"
4 32 41' 30.00" 29 14' 00.00"
5 32 41' 00.00" 29 14' 00.00"
6 32 41' 00.00" 29 13' 00.00"
7 32 40' 00.00" 29 13' 00.00"
POINT LONGITIUDE LATITUDE REMARKS
No.
8 32 40' 00.00" 29 09' 00.00"
9 32 44' 30.00" 29 09' 00.00"
10 32 44' 30.00" 29 08' 00.00"
11 32 48' 00.00" 29 08' 00.00"
12 32 48' 00.00" 29 03' 00.00"
13 32 44' 00.00" 29 03' 00.00"
14 32 44' 00.00" Intersection of long.
32 44' 00.00"
with shore line
15 Intersection of Lat. 29 17' 00.00"
29 17' 00.00"
with shore line
ANNEX "B"
Map of Concession Agreement
ANNEX C
LETTER OF GUARANTY
EGYPTIAN GENERAL PETROLEUM CORPORATION
Gentlemen,
Reference is made to the Concession Agreement for Petroleum
Exploration and Exploitation in East Wadi Araba issued by law No
of 2001 by and between the Arab Republic of Egypt (A.R.E.) ,
The Egyptian General Petroleum Corporation (EGPC) and Dover
Investments Limited hereinafter referred to as CONTRACTOR .
Dover Investments Limited hereby undertakes that , if CONTRACTOR
spends during the initial Exploration period of three (3) years
of said Agreement less than the minimum amount specified for
such period three million and five hundred thousand (3,500,000 )
U.S. Dollars under the Agreement (the difference being hereunder
described as Shortfall ) EGPC shall notify Dover Investments
Limited in writing of the amount of the Shortfall . Within
fifteen (15) of receipt of said notice , Dover Investments
Limited shall pay and/ or transfer to EGPC a quantity of crude
oil sufficient in value to cover the Shortfall .
In case said crude oil shall be transferred , it will be
deducted from Dover Investments Limited share of crude oil
production from Ras El Ush development lease ,pursuant to the
terms of the Concession Agreement for Petroleum Exploration and
Exploitation by and between the Arab Republic of Egypt , EGPC
and Marathon Petroleum Egypt , LTD. (Now Dover Investments
Limited) issued by law No. 18 of 1992 ,as amended and said crude
oil shall be valued at the time of the transfer to EGPC in
accordance with the provisions of Article VII ( C ) of the
Concession Agreement in East Wadi Araba .
Dover Investments Limited may at any time between the date
hereof and the date on which this letter of Guarantee shall
expire submit a bank guarantee of the Shortfall in a form
satisfactory to EGPC , in which event the provisions of this
letter shall automatically lapse and be of no effect .
This Letter of Guarantee shall expire and become null and void
on the date six (6) months after the end of the initial
Exploration period of the Concession Agreement of East Wadi
Araba Area or on the date upon completion or performance of the
CONTRACTOR's obligations according to the provisions of this
Agreement .
DOVER INVESTMENTS LIMITED
-------------------------------------------
DATE ---------------------------
ANNEX "D"
CHARTER OF OPERATING COMPANY
ARTICLE I
A joint stock company having the nationality of the ARAB
REPUBLIC OF EGYPT shall be formed with the authorization of the
GOVERNMENT in accordance with the provisions of this Agreement
referred to below and of this Charter.
The Company shall be subject to all laws and regulations in
force in the A.R.E. to the extent that such laws and regulations
are not inconsistent with the provisions of this Charter and the
Agreement referred to below.
ARTICLE II
The name of the Operating Company shall be mutually agreed upon
between EGPC and CONTRACTOR on the date of the Commercial
Discovery and shall be subject to the approval of the Minister
of Petroleum.
ARTICLE III
The Head Office of Operating Company shall be in the A.R.E. in
Cairo.
ARTICLE IV
The object of Operating Company is to act as the agency through
which EGPC and CONTRACTOR, carry out and conduct the Development
operations required in accordance with the provisions of the
Agreement signed on the ------ day of --------------- by and
between the ARAB REPUBLIC OF EGYPT, THE EGYPTIAN GENERAL
PETROLEUM CORPORATION and CONTRACTOR covering Petroleum
operations in East Wadi Araba Area described therein.
Operating Company shall be the agency to carry out and conduct
Exploration operations after the date of Commercial Discovery
pursuant to Work Programs and Budgets approved in accordance
with the Agreement.
Operating Company shall keep account of all costs, expenses and
expenditures for such operations under the terms of the
Agreement and Annex "E" thereto.
Operating Company shall not engage in any business or undertake
any activity beyond the performance of said operations unless
otherwise agreed upon by EGPC and CONTRACTOR.
ARTICLE V
The authorized capital of Operating Company is twenty thousand
Egyptian Pounds divided into five thousand shares of common
stock with a value of four Egyptian Pounds per share having
equal voting rights, fully paid and non-assessable.
EGPC and CONTRACTOR shall each pay for, hold and own, throughout
the life of Operating Company, one half (1/2) of the capital
stock of Operating Company provided that only in the event that
either party should transfer or assign the whole or any
percentage of its ownership interest in the entirety of the
Agreement, may such transferring or assigning party transfer or
assign any of the capital stock of Operating Company and, in
that event, such transferring or assigning party (and its
successors and assignees) must transfer and assign a stock
interest in Operating Company equal to the transferred or
assigned whole or percentage of its ownership interest in the
entirety of the said Agreement.
ARTICLE VI
Operating Company shall not own any right, title, interest or
estate in or under the Agreement or any Development Lease
created thereunder or in any of the Petroleum produced from any
Exploration Block or Development Lease thereunder or in any of
the assets, equipment or other property obtained or used in
connection therewith, and shall not be obligated as a principal
for the financing or performance of any of the duties or
obligations of either EGPC or CONTRACTOR under the Agreement.
Operating Company shall not make any profit from any source
whatsoever.
ARTICLE VII
Operating Company shall be no more than an agent for EGPC and
CONTRACTOR. Whenever it is indicated herein that Operating
Company shall decide, take action or make a proposal and the
like, it is understood that such decision or judgment is the
result of the decision or judgment of EGPC, CONTRACTOR or EGPC
and CONTRACTOR, as may be required by the Agreement.
ARTICLE VIII
Operating Company shall have a Board of Directors consisting of
eight (8) members, four (4) of whom shall be designated by EGPC
and the other four (4) by CONTRACTOR. The Chairman shall be
designated by EGPC and shall also be a Managing Director.
CONTRACTOR shall designate the General Manager who shall also be
a Managing Director.
ARTICLE IX
Meetings of the Board of Directors shall be valid if a majority
of the Directors are present and any decision taken at such
meetings must have the affirmative vote of five (5) or more of
the Directors; provided, however, that any Director may be
represented and vote by proxy held by another Director.
ARTICLE X
General meetings of the Shareholders shall be valid if a
majority of the capital stock of Operating Company is
represented thereat. Any decision taken at such meetings must
have the affirmative vote of Shareholders owning or representing
a majority of the capital stock.
ARTICLE XI
The Board of Directors shall approve the regulations covering
the terms and conditions of employment of the personnel of
Operating Company employed directly by Operating Company and not
assigned thereto by CONTRACTOR and EGPC.
The Board shall, in due course, draw up the By-Laws of Operating
Company, and such By-Laws shall be effective upon being approved
by a General Meeting of the Shareholders, in accordance with the
provisions of Article X hereof.
ARTICLE XII
Operating Company shall come into existence within thirty (30)
days after the date of Commercial Oil Discovery or within thirty
(30) days after signature of a Gas Sales Agreement or
commencement of a scheme to dispose of Gas, as provided for in
the Agreement (unless otherwise agreed by EGPC and CONTRACTOR).
The duration of Operating Company shall be for a period equal to
the duration of the said Agreement, including any renewal thereof.
The Operating Company shall be wound up if the Agreement
referred to above is terminated for any reason as provided for
therein.
DOVER INVESTMENTS LIMITED
By : -----------------------------------------------
EGYPTIAN GENERAL PETROLEUM CORPORATION
By : ----------------------------------------------------
ANNEX "E"
ACCOUNTING PROCEDURE
ARTICLE I
GENERAL PROVISIONS
(a) Definitions:
The definitions contained in Article I of the Agreement shall
apply to this Accounting Procedure and have the same meanings.
(b) Statements of activity:
(1) CONTRACTOR shall, pursuant to Article IV of this
Agreement, and until the coming into existence of the
Operating Company - in accordance with Article VI of the
Agreement - render to EGPC within thirty (30) days of the
end of each calendar quarter a Statement of Exploration
Activity reflecting all charges and credits related to the
Exploration operations for that quarter summarized by
appropriate classifications indicative of the nature thereof.
(2) Following its coming into existence, Operating Company
shall render to EGPC and CONTRACTOR within fifteen (15) days
of the end of each calendar quarter a Statement of
Development and Exploration Activity reflecting all charges
and credits related to the Development and Exploration
operations for that quarter summarized by appropriate
classifications indicative of the nature thereof, except
that items of controllable material and unusual charges and
credits shall be detailed.
(c) Adjustments and Audits:
(1) Each quarterly Statement of Exploration Activity
pursuant to Article I (b) (1) of this Annex shall
conclusively be presumed to be true and correct after three
(3) months following the receipt of each Statement by EGPC
unless within the said three (3) months EGPC takes written
exception thereto pursuant to Article IV (f) of the
Agreement. During the said three (3) month period supporting
documents will be available for inspection by EGPC during
all working hours.
CONTRACTOR will have the same audit rights on Operating
Company Statements as EGPC under this sub-paragraph.
(2) All Statements of Development and Exploration Activity
for any calendar quarter pursuant to Article I (b) (2) of
this Annex, shall conclusively be presumed to be true and
correct three (3) months following the receipt of such
Statement, unless within the said three (3) months period
EGPC or CONTRACTOR takes written exception thereto. Pending
expiration of said three (3) months EGPC or CONTRACTOR or
both of them shall have the right to audit Operating Company
accounts, records and supporting documents for such quarter
in the same manner as provided in Article IV (f) of the
Agreement.
(d) Currency Exchange:
CONTRACTOR's books for Exploration and Operating Company's
books for Development and Exploration, if any, shall be kept
in the A.R.E. in U.S. Dollars. All U.S. Dollar expenditures
shall be charged in the amount expended. All Egyptian Pounds
expenditures shall be converted to U.S. Dollars at the
applicable rate of exchange issued by the Central Bank of
Egypt on the first day of the month in which expenditures
are recorded, and all other non-U.S. Dollar expenditures
shall be translated to U.S. Dollars at the buying rate of
exchange for such currency as quoted by National Westminster
Bank Limited, London at 10.30 a.m. G.M.T., on the first day
of the month in which expenditures are recorded. A record
shall be kept of the exchange rates used in translating
Egyptian Pounds or other non-U.S Dollar expenditures to U.S.
Dollars.
(e) Precedence of Documents:
In the event of any inconsistency or conflict between the
provisions of this Accounting Procedure and the provisions
of the Agreement treating the same subject differently, then
the provisions of the Agreement shall prevail.
(f) Revision of Accounting Procedure:
By mutual agreement between EGPC and CONTRACTOR, this
Accounting Procedure may be revised in writing from time to
time in the light of future arrangements.
(g) No Charge for Interest on Investment:
Interest on investment or any bank fees, charges or
commissions related to any bank guarantees shall not at any
time be charged as recoverable costs under the Agreement.
ARTICLE II
COSTS, EXPENSES AND EXPENDITURES
Subject to the provisions of the Agreement, CONTRACTOR shall
alone bear and, directly or through Operating Company, pay the
following costs and expenses, which costs and expenses shall be
classified and allocated to the activities according to sound
and generally accepted accounting principles and treated and
recovered in accordance with Article VII of this Agreement:
(a) Surface Rights:
All direct cost attributable to the acquisition, renewal or
relinquishment of surface rights acquired and maintained in
force for the Area.
(b) Labor and Related Costs:
(1) Salaries and Wages of CONTRACTOR's or Operating
Company's employees, as the case may be, directly engaged in
the various activities under the Agreement including
salaries and wages paid to geologists and other employees
who are temporarily assigned to and employed in such
activities. Such salaries and wages to be certified by a
certified public accounting firm.
Reasonable revisions of such salaries and wages shall be
effected to take into account changes in CONTRACTOR's
policies and amendments of laws applicable to salaries. For
the purpose of this Article II (b) and Article II (c),
salaries and wages shall mean the assessable amounts for
A.R.E. Income Taxes, including the salaries during vacations
and sick leaves, but excluding all the amounts of the other
items covered by the percentage fixed under (2) below.
(2) For expatriate employees permanently assigned to Egypt:
1. All allowances applicable to salaries and wages;
2. Cost of established plans; and
3. All travel and relocation costs of such
expatriate employees and their families to and
from the employee's country or point of origin at
the time of employment, at the time of
separation, or as a result of transfer from one
location to another and for vacation
(transportation costs for employees and their
families transferring from the A.R.E. to another
location other than their country of origin shall
not be charged to A.R.E. Operations).
Costs under this Article II (b) (2) shall be deemed to be equal
to seventy percent (70%) for expatriate personnel married and
accompanied by their spouses and fifty two percent (52%) for
expatriate personnel either single or not accompanied by their
spouses to Egypt. These percentages refer to basic salaries and
wages paid for such expatriate personnel including those paid
during vacations and sick leaves as established in CONTRACTOR's
international policies, chargeable under Article II (b) (1),
Article II (i), Article II (k) (1) and Article II (k)(3) of this
Annex.
However, salaries and wages during vacations, sick leaves and
disability are covered by the foregoing percentage. The
percentage outlined above shall be deemed to reflect
CONTRACTOR's actual costs as of the Effective Date with regard
to the following benefits, allowances and costs :-
1. Housing and Utilities Allowance.
2. Commodities and Services Allowance.
3. Special Rental Allowance .
4. Vacation Transportation Allowance.
5. Vacation Travel Expense Allowance.
6. Vacation Excess Baggage Allowance.
7. Education Allowances (Children of Expatriate Employees).
8. Hypothetical X.X.Xxx Offset (which results in a reduction
of the chargeable percentage).
9. Storage of Personal Effects.
10. Housing Refurbishment Expense.
11. Property Management Service Fees.
12. Recreation Allowance.
13. Retirement Plan.
14. Group Life Insurance.
15. Group Medical Insurance.
16. Sickness and Disability.
17. Vacation Plans Paid (excluding Allowable Vacation Travel
Expenses).
18. Savings Plan.
19. Educational Assistance.
20. Military Service Allowance.
21. F.I.C.A.
22. Xxxxxxx'x Compensation.
23. Federal and State Unemployment Insurance.
24. Personnel Transfer Expense.
25. National Insurance.
26. Any other Costs, Allowances and Benefits of a like
nature as established in CONTRACTOR's International Policies.
The percentages outlined above shall be reviewed at
intervals of three (3) years from the Effective Date and at
such time CONTRACTOR and EGPC will agree on new percentages
to be used under this paragraph.
Revisions of the percentages will take into consideration
variances in costs and changes in CONTRACTOR's international
policies which change or exclude any of the above allowances and
benefits.
The revised percentages will reflect as nearly as possible
CONTRACTOR's actual costs of all its established allowances and
benefits and of personnel transfers.
(3) For expatriate employees temporarily assigned to Egypt
all allowances, costs of established plans and all travel
relocation costs for such expatriates as paid in
accordance with CONTRACTOR's international policies. Such
costs shall not include any administrative overhead other
than what is mentioned in Article II (k) (2) of this Annex.
(4) Costs of expenditure or contributions made pursuant to
law or assessment imposed by Governmental authority which
are applicable to labor cost of salaries and wages as
provided under Article II (b) (1), Article II (b) (2),
Article II (i), Article II (k) (l) and Article II (k) (3)
of this Annex.
(c) Benefits, allowances and related costs of national
employees bonuses, overtime, customary allowances and
benefits on a basis similar to that prevailing for oil
companies operating in the A.R.E., all as chargeable under
Article II (b) (1), Article II (i), Article II (k) (1) and
Article II (k) (3) of this Annex. Severance pay will be
charged at a fixed rate applied to payrolls which will
equal an amount equivalent to the maximum liability for
severance payment as required under the A.R.E. Labor Law.
(d) Material
Material, equipment and supplies purchased or furnished as
such by CONTRACTOR or Operating Company.
(1) Purchases:
Material, equipment and supplies purchased shall be at the
price paid by CONTRACTOR or Operating Company plus any
related cost and after deduction of all discounts actually
received.
(2) Material Furnished by CONTRACTOR:
Material required for operations shall be purchased
directly whenever practicable, except that CONTRACTOR may
furnish such material from CONTRACTOR's or CONTRACTOR's
Affiliated Companies stocks outside the A.R.E. under the
following conditions:
1. New Material (Condition "A")
New Material transferred from CONTRACTOR's or
CONTRACTOR's Affiliated Companies warehouse or
other properties shall be priced at cost,
provided that the cost of material supplied is
not higher than international prices for material
of similar quality supplied on similar terms,
prevailing at the time such material was supplied.
2. Used Material (Conditions "B" and "C")
a) Material which is in sound and serviceable
condition and is suitable for reuse without
reconditioning shall be classed as Condition "B"
and priced at seventy - five percent (75%) of the
price of new material.
b) Material which cannot be classified as
Condition "B" but which is serviceable for
original function but substantially not suitable
for reconditioning, shall be classed as Condition
"C" and priced at fifty percent (50%) of the
price of new material.
c) Material which cannot be classified as
Condition "B" or Condition "C" shall be priced at
a value commensurate with its use.
d)Tanks, buildings and other equipment involving
erection costs shall be charged at applicable
percentage of knocked - down new price.
(3) Warranty of Materials Furnished by CONTRACTOR
CONTRACTOR does not warrant the material furnished beyond or
back of the dealer's or manufacturer's guaranty; and in case
of defective material, credit shall not be recorded until
adjustment has been received by CONTRACTOR from manufacturers
or their agents.
(e) Transportation and Employee Relocation Costs:
(1) Transportation of equipment, materials and supplies
necessary for the conduct of CONTRACTOR's or Operating
Company's activities.
(2) Business travel and transportation expenses to the
extent covered by established policies of CONTRACTOR or with
regard to expatriate and national employees, as incurred and
paid by, or for, employees in the conduct of CONTRACTOR's or
Operating Company's business.
(3) Employees transportation and relocation costs for
national employees to the extent covered by established
policies.
(f) Services:
(1) Outside services. The costs of contracts for
consultants, services and utilities procured from third
parties.
(2) Cost of services performed by EGPC or by CONTRACTOR,
or their Affiliated Companies in facilities inside or
outside the A.R.E. Regular, recurring, routine services,
such as interpreting magnetic tapes and/or other analyses,
shall be performed and charged by EGPC and/or CONTRACTOR or
their Affiliated Companies at an agreed contracted price.
Major projects involving engineering and design services
shall be performed by EGPC and/or CONTRACTOR or their
Affiliated Companies at a negotiated contract amount.
(3) Use of EGPC's, CONTRACTOR's or their Affiliated
Companies' wholly owned equipment shall be charged at a
rental rate commensurate with the cost of ownership and
operation, but not in excess of competitive rates currently
prevailing in the A.R.E.
(4) CONTRACTOR's and CONTRACTOR's Affiliated Companies'
rates shall not include any administrative or overhead
costs other than what is mentioned in Article II (k) (2).
(g) Damages and Losses:
All costs or expenses, necessary to replace or repair damages
or losses incurred by fire, flood, storm, theft, accident or
any other cause not controllable by CONTRACTOR or Operating
Company through the exercise of reasonable diligence.
CONTRACTOR or Operating Company shall furnish EGPC and
CONTRACTOR written notice of damages or losses incurred in
excess of ten thousand ($10,000) U.S. Dollars per occurrence,
as soon as practicable after report of the same has been
received by CONTRACTOR or Operating Company.
(h) Insurance and Claims:
The cost of any public liability, property damage and other
insurance against liabilities of CONTRACTOR, Operating
Company and/or the parties or any of them to their employees
and/or outsiders as may be required by the laws, rules and
regulations of the GOVERNMENT or as the parties may agree
upon. The proceeds of any such insurance or claim collected,
less the actual cost of making a claim, shall be credited
against operations.
If no insurance is carried for a particular risk, in
accordance with good international oil field practices, all
related actual expenditures incurred and paid by CONTRACTOR
or Operating Company in settlement of any and all losses,
claims, damages, judgments and any other expenses, including
legal services.
(i) Indirect Expenses:
Camp overhead and facilities such as shore base,
warehouses, water systems, road systems, salaries and
expenses of field supervisory personnel, field clerks,
assistants, and other general employees indirectly serving
the Area.
(j) Legal Expenses:
All costs and expenses of litigation, or legal services
otherwise necessary or expedient for the protection of the
Area, including attorney's fees and expenses as hereinafter
provided, together with all judgments obtained against the
parties or any of them on account of the operations under
the Agreement, and actual expenses incurred by any party or
parties hereto in securing evidence for the purpose of
defending against any action or claim prosecuted or urged
against the operations or the subject matter of the
Agreement. In the event actions or claims affecting the
interests hereunder shall be handled by the legal staff of
one or more of the parties hereto, a charge commensurate
with cost of providing and furnishing such services may be
made to operations.
(k) Administrative Overhead and General Expenses:
(1) While CONTRACTOR is conducting Exploration operations,
the cost of staffing and maintaining CONTRACTOR's head
office in the A.R.E. and/or other offices established in the
A.R.E. as appropriate other than field offices which will be
charged as provided in Article II (i), and excepting
salaries of employees of CONTRACTOR who are temporarily
assigned to and directly serving on the Area, which will be
charged as provided in Article II (b) of this Annex.
(2) CONTRACTOR's administrative overhead outside the
A.R.E. applicable to Exploration operations in the A.R.E.
shall be charged each month at the rate of five percent (5%)
of total Exploration expenditures, provided that no
administrative overhead of CONTRACTOR outside the A.R.E.
applicable to A.R.E. Exploration operations will be charged
for Exploration operations conducted by Operating Company.
No other direct charges as such for CONTRACTOR's
administrative overhead outside the A.R.E. will be applied
against the Exploration obligations. Examples of the type of
costs CONTRACTOR is incurring and charging hereunder due to
activities under this Agreement and covered by said
percentage are:
1. Executive - Time of executive officers.
2. Treasury - Financial and exchange problems.
3. Purchasing - Procuring materials, equipment and
supplies.
4. Exploration and Production-Directing, advising and
controlling the entire project.
5. Other departments such as legal, comptroller and
engineering which contribute time, knowledge and
experience to the operations.
The foregoing does not preclude charging for direct
service under Article II (f) (2) of this Annex.
(3) While Operating Company is conducting operations,
Operating Company's personnel engaged in general clerical
and office work, supervisors and officers whose time is
generally spent in the main office and not the field, and
all employees generally considered as general and
administrative and not charged to other types of expense
will be charged to operations. Such expenses shall be
allocated each month between Exploration and Development
operations according to sound and practicable accounting
methods.
(l) Taxes:
All taxes, duties or levies paid in the A.R.E. by
CONTRACTOR or Operating Company with respect to this
Agreement other than those covered by Article III (g) (1)
of the Agreement.
(m) Continuing CONTRACTOR Costs:
Costs of CONTRACTOR activities required under the Agreement
and incurred exclusively in the A.R.E. after Operating
Company is formed. No sales expenses incurred outside or
inside the A.R.E. may be recovered as a cost.
(n) Other Expenditures:
Any costs, expenses or expenditures, other than those which
are covered and dealt with by the foregoing provisions of
this Article II, incurred by CONTRACTOR or Operating
Company under approved Work Programs and Budgets.
ARTICLE III
INVENTORIES
(a) Periodic Inventories, Notice and Representation:
At reasonable intervals as agreed upon by EGPC and
CONTRACTOR inventories shall be taken by Operating Company
of the operations materials, which shall include all such
materials, physical assets and construction projects.
Written notice of intention to take inventory shall be given
by Operating Company to EGPC and CONTRACTOR at least thirty
(30) days before any inventory is to begin so that EGPC and
CONTRACTOR may be represented when any inventory is taken.
Failure of EGPC and/or CONTRACTOR to be represented at an
inventory shall bind them to accept the inventory taken by
Operating Company, who shall in that event furnish the party
not represented with a copy thereof.
(b) Reconciliation and Adjustment of Inventories:
Reconciliation of inventory shall be made by CONTRACTOR and
EGPC, and a list of overages and shortages shall be jointly
determined by Operating Company and CONTRACTOR and EGPC, and
the inventory adjusted by Operating Company.
ARTICLE IV
COST RECOVERY
(a) Statements of Recovery of Costs and of Cost Recovery
Petroleum: CONTRACTOR shall, pursuant to Article VII of the
Agreement, render to EGPC as promptly as practicable but not
later than fifteen (15) days after receipt from Operating
Company of the Statements for Development and Exploration
Activity for the calendar quarter a Statement for that
quarter showing:
1. Recoverable costs carried forward from the previous
quarter, if any.
2. Recoverable costs incurred and paid during the quarter.
3. Total recoverable costs for the quarter (1) + (2).
4. Value of Cost Recovery Petroleum taken and separately
disposed of by CONTRACTOR for the quarter.
5. Amount of costs recovered for the quarter.
6. Amount of recoverable costs carried into the
succeeding quarter, if any.
7. Excess, if any, of the value of Cost Recovery
Petroleum taken and separately disposed of by CONTRACTOR
over costs recovered for the quarter.
(b) Payments:
If such Statement shows an amount due EGPC, payment of that
amount shall be made in U.S. Dollars by CONTRACTOR with the
rendition of such Statement. If CONTRACTOR fails to make
any such payment to EGPC on the date when such payment is
due, then CONTRACTOR shall pay interest of two and one half
percent (2.5%) per annum higher than the London Interbank
Borrowing Offered Rate (LIBOR) for three (3) months U.S.
Dollars deposits prevailing on the date such interest is
calculated. Such interest payment shall not be recoverable.
(c) Settlement of Excess Cost Recovery Petroleum:
EGPC has the right to take its entitlement of Excess Cost
Recovery Petroleum under Article VII (a) (2) of the
Agreement in kind during the said quarter . A settlement
shall be required with the rendition of such Statements in
case CONTRACTOR has taken more than its own entitlement of
such Excess Cost Recovery Petroleum.
(d) Audit Right:
EGPC shall have a period of twelve (12) months from receipt
of any Statement under this Article IV in which to audit
and raise objection to any such Statement. EGPC and
CONTRACTOR shall agree on any required adjustments.
Supporting documents and accounts will be available to EGPC
during said twelve (12) month period.
ARTICLE V
CONTROL AND MAJOR ACCOUNTS
(a) Exploration Obligation Control Accounts:
CONTRACTOR will establish an Exploration Obligation Control
Account and an offsetting contra account to control therein
the total amount of Exploration expenditures reported on
Statements of activity prepared per Article I (b) (1) of
this Annex, less any reductions agreed to by EGPC and
CONTRACTOR following written exceptions taken by a
non-operator pursuant to Article I (c) (1) of this Annex, in
order to determine when minimum Exploration obligations have
been met.
(b) Cost Recovery Control Account:
CONTRACTOR will establish a Cost Recovery Control Account
and an off-setting contra account to control therein the
amount of cost remaining to be recovered, if any, the
amount of cost recovered and the value of Excess Cost
Recovery Petroleum, if any.
(c) Major Accounts:
For the purpose of classifying costs, expenses and
expenditures for Cost Recovery as well as for the purpose of
establishing when the minimum Exploration obligations have
been met, costs, expenses and expenditures shall be recorded
in major accounts including the following:
- Exploration Expenditures;
- Development Expenditures other than
Operating Expenses;
- Operating Expenses;
Necessary sub-accounts shall be used.
Revenue accounts shall be maintained by CONTRACTOR to the
extent necessary for the control of recovery of costs and
the treatment of Cost Recovery Petroleum.
ARTICLE VI
TAX IMPLEMENTATION PROVISIONS
It is understood that CONTRACTOR shall be subject to Egyptian
Income Tax Laws except as otherwise provided in the Agreement,
that any A.R.E. Income Taxes paid by EGPC on CONTRACTOR's behalf
constitute additional income to CONTRACTOR, and this additional
income is also subject to A.R.E. income tax, that is "grossed up".
CONTRACTOR's annual income, as determined in Article III (g) (2)
of this Agreement, less the amount equal to CONTRACTOR's
grossed-up Egyptian income tax liability, shall be CONTRACTOR's
"Provisional Income".
The "gross-up value" is an amount added to Provisional Income to
give "Taxable Income", such that the grossed-up value is
equivalent to the A.R.E. Income Taxes.
THEREFORE:
Taxable Income = Provisional Income plus Grossed-up Value
and
Grossed-up Value = A.R.E. Income Tax on Taxable Income.
If the "A.R.E. Income Tax rate", which means the effective
or composite tax rate due to the various A.R.E. taxes levied
on income or profits, is constant and not dependent on the
level of income, then:
Grossed-up Value = A.R.E. income tax rate TIMES
Taxable Income.
Combining the first and last equations above
Grossed-up Value= Provisional income X Tax Rate
1 - Tax Rate
where the tax rate is expressed as a decimal.
The above computations are illustrated by the following
numerical example. Assuming that the Provisional Income is
$10 and the A.R.E. Income Tax rate is forty percent (40%),
then the Grossed-up Value is equal to:
$ 10 X 0.4 = $ 6.67
1 - 0.4
Therefore:
Provisional income $10.00
Plus Grossed-up Value 6.67
Taxable Income $16.67
Less: A.R.E. Income Taxes at 40% 6.67
CONTRACTOR's Income after taxes $ 10.00
