MINING USUFRUCT CONTRACT
EXECUTED ON OCTOBER 3, 1997
IN WARSAW
BETWEEN
THE MINISTER OF ENVIRONMENTAL PROTECTION,
NATURAL RESOURCES AND FORESTRY OF THE REPUBLIC OF POLAND
AS THE CONCESSION GRANTER
AND
POL-TEX METHANE,
LIMITED LIABILITY COMPANY
WITH FOREIGN INTEREST
SEATED IN XXXXXXXXXX XXXXX, XXXXXXX 0
AS THE MINING CONTRACTOR
USUFRUCT AGREEMENT
entered into this 3rd day of October, 1997, in Warsaw between the STATE TREASURY
represented by the MINISTER OF ENVIRONMENTAL PROTECTION, NATURAL RESOURCES AND
FORESTRY OF THE REPUBLIC OF POLAND, Mr. Xxxxxxxxx Xxxxxxxxxxx, in his capacity
as Joint Concession Authority acting through Xx. Xxxxxxxxx Xxxxxxxx, Secretary
of State (herein the "Concession Authority")
and
Pol-Tex Methane Sp. z o.o., a Polish limited liability company with foreign
interest, with seat in Jastrzebie Zdroj at xx. Xxxxxxx 0,
represented by:
1) Mr. Xxxxxxx Xxxxxxxxx Andraczke
2) Mr. Xxxxxxxxx Piechula
(hereinafter the "Contractor")
Pol-Tex Methane Sp. z o.o., a Polish limited liability company with foreign
interest states:
1) its capital is 18.221.855 Polish Zlotys
2) there are three members of the Management Board
Xx. Xxxxxxxx Rauball - President
Mr. Xxxxxxx Andraczke - Secretary
Xx. Xxxxxxx X. Xxxxxx - Member
3) Contractor is registered in the Commercial Register kept by the District
Court in Katowice under number RHB.
WITNESSETH:
1) WHEREAS, the ownership and control of all Coalbed Methane existing in its
natural state within the territory of the Republic of Poland (including the
territorial waters thereof), (herein "Poland") belongs to the State
Treasury of the Republic of Poland which empowered the Minister to grant
concessions to explore, develop and produce mineral resources, and
Contractor desires to engage in such activities by virtue of this Contract
and the Joint Concession for which it has applied or will apply;
2) WHEREAS, Contractor affirms that it has the experience, the financial and
technical ability and resources and the professional expertise to
efficiently carry out the Coalbed Methane Operations hereinafter defined;
and these facts are known to the Minister;
3) WHEREAS, it is known that Contractor fulfills conditions to have the
concession granted to explore, develop, and produce Methane (herein Joint
Concession)
parties agree as follows:
CHAPTER 1
GRANT AND ESTABLISHMENT OF USUFRUCT
AND JOINT CONCESSION
Article 1
Concession Authority hereby establishes in favor of the Contractor an exclusive
mining usufruct for the exploration and exploitation of CBM in the Mining
Usufruct Area as defined in Appendix 1 to this agreement.
Article 2
This Contract is the agreement which shall govern the relations among the
Parties for the purposes of the CBM Operations conducted hereunder, and
respective rights and obligations of each Party relating thereto.
Article 3
1. Contractor shall use all reasonable endeavors to submit a completed
application for the Joint Concession to the Minister within sixty (60) days
of signature of this Contract.
2. Contractor and the Minister shall thereafter cooperate fully and use all
reasonable endeavors to have the Joint Concession issued to Contractor
within sixty (60) days following submission of Contractor's application
therefor.
CHAPTER 2
TERM AND PHASES OF THE CONTRACT
Article 4
This Contract shall become effective as of the date first set forth above and
shall continue for 25 years or until the earliest to occur of the following:
1) expiration of the concession
2) first date on which, other than as a result of Force Majeure production
shall have been unjustifiably suspended for a period of six (6) consecutive
months;
3) the end of the Second Exploration Phase if no Commercial Discovery has been
made during the Exploration Phase
4) sixty (60) days written notice by Minister or Contractor of their intent to
terminate this Contract; or
5) the mutual agreement of the Parties.
Article 5
The term of this Contract shall be divided into three phases:
1) The "First Exploration Phase" which shall commence on the Joint Concession
Effective Date and shall continue for a period of twenty-four (24) months;
2) the "Second Exploration Phase" which shall commence upon the termination or
expiration of the First Exploration Phase and shall continue for a period
of twenty-four (24) months; and
3) The "Exploitation Phase" which shall commence upon termination or
expiration of the Second Exploration Phase and shall continue throughout
the term of this Contract and during which the Exploitation Operations will
take place.
Article 6
The election to continue this Contract into the Second Exploration Phase and/or
the Exploitation Phase, as the case may be, shall be at Contractor's sole
election; provided that, Contractor is in compliance with the terms of this
Contract and the Joint Concession and has satisfied all work, expenditure and
other material obligations pertaining to the relevant preceding phase.
Article 7
Notice of election to enter into the Second Exploration Phase and/or the
Exploitation Phase must be made in writing to the Minister within thirty (30)
calendar days before the end of the relevant preceding phase.
Article 8
If Contractor will submit reasonable request, Minister can extend the First or
Second Exploration Phase for time necessary to conduct additional exploration
for Methane. The written request from Contractor should be submitted to the
Minister within thirty (30) calendar days before event justifying additional
exploration efforts.
Article 9
In the event an Exploration Well is being drilled, logged, tested or plugged or
if Exploration Operations are being conducted or if an evaluation report or
Geological Documentation is being prepared on the date when the First
Exploration Phase or Second Exploration Phase would otherwise expire, such Phase
shall, upon written request from Contractor to the Minister within thirty (30)
calendar days after the end of such Phase, be extended as needed in order to
enable Contractor to complete the drilling, logging, testing and/or plugging of
such well, to assess the results thereof and to determine whether said results
confirm a commercial Discovery.
Article 10
If the Contractor declares a Discovery has the potential to be a Commercial
Discovery, but that the current infrastructure and/or market conditions prohibit
the immediate development of such Discovery, then the Second Exploration Phase
shall, upon written request from Contractor to the Minister within thirty (30)
calendar days after the end of the Second Exploration Phase, be extended for an
additional five (5) years to enable Contractor to develop the infrastructure
and/or to enable a change in market conditions necessary to allow the commercial
development of the Discovery in question.
Article 11
If this agreement expired and if CBM is still being produced from a Development
Area within the Mining Usufruct Area, the Contractor may apply for a new
concession covering the said Development Area.
Article 12
Upon the termination of this Contract or the Joint Concession, Minister will
define the scope of works that Contractor shall do to remove the impact of the
development on environment.
CHAPTER 3
Article 13
If and when any Discovery is made within the Mining Usufruct Area, Contractor
shall promptly report such Discovery to the Minister.
Article 14
As soon as practicable after a Discovery and, in any event, not more than six
months thereafter, Contractor shall submit a report to the Minister for his
consideration indicating whether or not such Discovery merits further
exploration. The report shall be prepared in the form of an appendix to the
geological work plan. In the event no Discovery is made, no such appendix shall
be required however the Contractor shall notify the Minister in such event. If
Contractor determines that the Discovery merits further exploration, the report
shall include an exploration program which shall include the drilling of one or
more Exploration xxxxx to determine whether such Discovery constitutes a
Commercial Discovery. Positive results of Exploration Phase create the base for
Minister to extend the Second Exploration Phase for the period not longer than
three (3) years.
Article 15
No later than six (6) months following expiration of the Second Exploration
Phase, Contractor shall submit the Geological Documentation to the Minister for
the handing down of the "separate decision" on the detailed conditions of
Methane exploitation.
CHAPTER 4
OWNERSHIP OF CBM AND DATA AND CONDFIDENTIALITY
Article 16
During the term of this Contract, all CBM produced from the Mining Usufruct Area
shall be owned by the Contractor and Contractor shall have the right to freely
dispose of all CBM produced hereunder. Ownership of all such CBM shall pass to
Contractor at the wellhead.
Article 17
1. Contractor will have access, free of cost other than reasonable costs of
reproduction and handling, to all CBM related geological, geophysical,
geochemical, drilling, engineering, well logs and other data owned by the
Minister.
2. The Minister shall use his good offices in obtaining and providing to
Contractor such information and data as may be reasonably required by
Contractor for planning and executing projects incidental to CBM Operations
under this Contract, including data acquired by or available to the
Minister in relation to the Mining Usufruct Area.
Article 18
Ownership of all original geological, geophysical, geochemical, drilling,
engineering, logging, production and other data, samples, cuttings, cores,
tapes, maps, reports, and other materials or information obtained from time to
time as a result of CBM Operations or prepared in fulfillment of the obligations
of the Mining Law (hereinafter the "Operations Information") shall vest in the
Contractor.
Article 19
1. All Operations Information including all information and data concerning
the Mining Usufruct Area and CBM Operations hereunder which is not in the
public domain shall be kept confidential by the Parties and not disclosed
to any Third Party except as with the prior written consent of all Parties.
2. Disclosing Information to Third Party without consent of all Parties can
cause that the Party will be entitled to receive value consideration as
defined by law.
Article 20
Contractor shall be entitled to transfer its rights to all or any part of such
data to any Third Party, subject to the prior written permission of the
Minister.
Article 21
In the event the Contractor is required by the provisions of the Mining Law, to
make available any of the materials and information to the State geologic
administration authorities solely on a need to known and free-of-charge basis it
shall do so solely in the event it is used for their internal use and subject to
the recipient entering into confidentiality obligations.
Article 22
Upon termination of this Contract, Contractor shall deliver all geological,
geophysical, geochemical, drilling, engineering, logging, production and other
data, samples, cuttings, cores, tapes, maps, interpretations, reports, and other
materials or information obtained by Contractor as a result of CBM Operations to
the Minister; provided that, Contractor will be entitled to retain copies of
data and representative samples for its internal use and subject to recipient to
keep confidentiality obligations for the period of one year.
CHAPTER 5
MINING AREAS AND RELINQUISHMENT
Article 23
The Contractor may at any time relinquish all or any part of the Mining Usufruct
Area, under condition that will complete the plan of agreed works and perform
the duties connection with environmental protection.
Article 24
Contractor shall give notice in writing to the Minister of any relinquished
areas, including a map showing said areas with the geographic location and the
coordinates of the connecting points of the boundary lines.
CHAPTER 6
WORK OBLIGATIONS
Article 25
The Contractor shall have no further work obligations other than those set forth
in the Joint Concession which shall provide exclusively that:
1) The tests will be done to define reserves, permeability and economic
feasibility of production.
2) Contractor shall commence CBM Operations not later than six (6) months from
the Joint Concession Effective Date.
3) During the First Exploration Phase (24 months), Contractor shall, at
Contractor's discretion, drill a total of 3 xxxxx (boreholes or coreholes),
maximum to the bottom of Gruszowskie series in eastern part or bottom of
the lowest seam of Brzezne series (Pietrzkowickie) in Western part.
Contractor will perform all geophysical and other tests to define the
conditions for future production.
4) During the Second Exploration Phase, Contractor shall drill 7 Exploration
Xxxxx in the Mining Usufruct Area; and will perform all necessary tests.
In the event Contractor has carried out work in excess of the minimum work
obligations, as defined in pt. 2, during the First Exploration Phase, the excess
work shall be set off against the work obligations corresponding to the work
obligations for the Second Exploration Phase.
Article 26
In the event the Minister requests Contractor to perform certain additional
studies or works as may be reasonably required, then the costs engendered
thereby shall be determined by the Parties and Contractor should be compensated
accordingly to the separate agreement.
CHAPTER 7
CONSULTATION
Article 27
After the Joint Concession Effective Date, the Contractor shall advise and
consult with the Minister as frequently as necessary to provide oversight of its
CBM Operations, the carrying out of the matters related to this Contract and
ensuring effective communication and cooperation among the Parties, without
prejudice to the rights and obligations of Contractor for the day-to-day
management of CBM Operations or to Contractor's other rights and obligations
hereunder. Contractor is obligated to submit the report after completion of
each phase.
Article 28
Such consultation shall be in the form as deemed appropriate by the Parties.
The Parties shall meet at least once a Year.
Article 29
Contractor shall notify the Minister of all significant CBM Operations
scheduled, such as geological and geophysical surveys and the initiation of
drilling. Contractor shall also notify the Minister of the date on which
Contractor anticipates reaching the total depth of each well being drilled.
Article 30
Contractor shall provide to the Minister for its sole use and subject to the
confidentiality obligations, data and information collected and complied with
respect to the CBM Operations in the Mining Usufruct Area, as follows:
(a) one set of geological reports, studies or interpretations and the maps,
sections and other documents related thereto;
(b) one set of all geophysical recordings, measurements and reports, with all
maps, profiles, sections, interpretations, studies and other documents
relating thereto, and copies of recordings (tapes or otherwise and all
supporting date);
(c) one set of initial, daily and final well reports and composite logs
representing the lithology and other parameters relating to each well
drilled;
(d) a representative portion of all cores, samples, fluids and other materials
taken from outcrops and xxxxx; and
(e) one set of fluid measurements, analyses and other results in final form
produced by or for the Contractor in connection with CBM Operations.
Article 31
Contractor shall make an annual report to the Minister describing the activities
carried out by the Contractor during the preceding Contract Year. Contractor
shall make such other reports to the Minister in such form, detail and at such
time as the Minister may require; provided, however, that in any event, the
Minister's requests for such reports shall not interfere unreasonably with the
Contractor's ability to carry out CBM Operations efficiently or necessitate any
undue expense.
CHAPTER 8
ROYALTY
Article 32
1) Contractor shall pay a Royalty.
2) Royalty is paid on quarterly basis on the decision of the Minister, based
on information provided by contractor.
3) The rules for paying the royalty and the way how the royalty should be paid
is defined by regulations of the Council of Ministers based on Mining Law.
CHAPTER 9
MINING USUFRUCT FEES
Article 33
Parties to this agreement decide, that the usufruct fee is the function of the
area of usufruct and that the area will be used to conduct the works to explore
and develop CBM.
Article 34
Contractor will pay to the Minister the Usufruct Fee in two installments:
1) Contractor shall pay to the Minister, within sixty (60) days of the Joint
Concession Effective Date, the Polish Zloty equivalent of 25.000 U.S.
Dollars converted to Polish Zloty at the exchange rate in effect on the
Joint Concession's Effective Date.
2) Amount defined as the function of recoverable reserves, from 0.02 to 0.10%
of the value of recoverable reserves, within thirty (30) days from the
start of the exploitation Phase.
Article 35
Within sixty (60) days after the commencement date of the Exploitation Phase,
Contractor shall pay the Polish Zloty equivalent of 25,000 U.S. Dollars (USD) as
the "Concession Fee pursuant to Article 85 of the Mining Law calculated
accordingly to Article 34. This amount will be paid in the following
proportion:
60% for local authorities
40% for National Environmental Fund
CHAPTER 10
MEASUREMENT OF CBM
Article 36
All CBM produced, saved and not used in CBM Operations shall be measured at the
Delivery Point decided by the Parties to this agreement for delivery of CBM to
third party.
Article 37
1) Contractor shall measure all CBM produced and saved hereunder. Contractor
shall keep complete and accurate records of all CBM produced and measured
and the Minister's representatives shall have access to such measurements.
The Minister shall have the right to examine and test such measurements,
measurement equipment, charts and other measurement or test equipment or
data.
2) All measurements shall for all purposes in this Contract be adjusted to
standard conditions of pressure and temperature, that is, a pressure of 861
kg per square meter (or 14.7 pounds per square inch) and a temperature of
15.5 degrees Celsius (60 degrees Fahrenheit).
CHAPTER 11
PROTECTION OF THE ENVIRONMENT
Article 38
The Contractor is obligated to cover all expenses connected with land
reclamation, removal of mining damages, storage of polluting materials
particularly salt waters, protection against negative impact of development
works on environment and repair any damages resulting from such circumstances.
Article 39
In the event of a release of CBM or other material on land, or in fresh water,
or if the Contractor's operations result in any other form of pollution or
otherwise cause harm to environment, the Contractor shall promptly take all
reasonable measures to repair any damage resulting from such circumstances.
CHAPTER 12
EMPLOYMENT AND TRAINING
Article 40
1) Contractor shall be free to employ and engage personnel; provided, however,
that, in recruiting employee candidates, Contractor shall give preference
to Polish nationals who are qualified by education, training, and
experience.
2) Contractor shall provide training for Polish citizens employed in the CBM
Operations until the expiry or termination of this Contract.
3) Contractor agrees to spend the Polish Zloty equivalent of 15,000 U.S.
Dollars (USD) per year throughout the period of validity of this Contract
for training Polish citizens, calculated accordingly to Article 34.
CHAPTER 13
FORCE MAJEURE
Article 41
Performance under this Contract by Contractor shall be excused in the event such
performance is delayed or prevented by Force Majeure occurring after the
Effective Date of this Contract and which could not be foreseen or prevented by
any reasonable action of the Contractor.
Article 42
Force Majeure shall be considered to include such events beyond the reasonable
control of the Contractor which have not been brought about at its insistence
and include, but are not limited to war, insurrection, riot, civil disorder,
embargo, blockade, explosion, fire, lightning, earthquake or other adverse
weather conditions, strikes or any other event of a similar nature.
Article 43
Upon the happening of an event of Force Majeure, the Contractor shall
immediately inform the Minister. Such notification shall contain an indication
of the nature of the event of Force Majeure claimed and insofar as possible, an
evaluation of the likely duration of the event of Force Majeure and its impact
upon the obligations of the Contractor. The Minister will extend the Joint
Concession for a period equal to the period of delay caused by the Force Majeure
occurrence plus such period of time as is necessary to reestablish operations.
Article 44
If the impairment of operations described above should continue for an
uninterrupted period of time exceeding two (2) Calendar Years, Contractor shall
have the right to elect to terminate this Contract and Contractor shall be
discharged from all further obligations under this Contract.
CHAPTER 14
TERMINATION OF CONTRACT
Article 45
On termination of this Contract, all xxxxx drilled by Contractor under this
Contract are to be plugged and abandoned in a manner consistent with
regulations.
Article 46
Termination of this Contract shall take place without prejudice to any right or
obligation which may have accrued to the Minister or to the Contractor under the
Contract prior to such termination.
CHAPTER 15
CONTRACT ADJUSTMENT
In the event that:
1) an Administrative act causes a change to the laws of Poland, and such
change increases the obligation of the Contractor from that existing at the
Effective Date, and such change shall include an obligation to pay any tax,
imposition, royalty, duty or other charge or to provide any service or
carry out any activity or to obtain further approvals concessions or
authorizations of any nature; restrict, divest or limits any rights or
benefits accruing to Contractor;
2) the matters specifically provided for in this Contract have led to an
increase in expenditure or in greater or more extensive obligations on the
Contractor including work obligations;
3) environmental damage costs are incurred by the Contractor as a result of
events occurring prior to the Effective Date, including those arising out
of or in any way whatsoever connected with any operations or activities in
the Mining Usufruct Area;
then Contractor may, at any time thereafter, notify the Minister of such event
and submit one or more certificates as to the costs engendered thereby,
including the costs of material, labor, legal fees and professional and advisory
fees, the extent of the delay incurred or likely to be incurred, the amount of
any penalties or fees incurred by the Contractor and the above environmental
damage costs, accompanied by reasonable evidence in respect thereof. Within
fifteen (15) days of receipt of such notice, the Minister and Contractor shall
meet to negotiate in good faith and agree upon the modifications which are
required to be made to the terms of this Contract in order to lessen or
eliminate obligations of them and to restore the Contractor's rights and
benefits to a level equal to what they would have been had such change or event
not occurred, or such cost not have been incurred, or upon such other remedy as
they agree may be appropriate. In the event the Parties are unable to agree
within one hundred twenty (120) days after the Contractor's notice to the
Minister upon the modifications which are needed to the Contract or upon such
other remedy as may be required, then the Contractor may either terminate this
Contract or refer the matter to the Arbitration Court at Polish National Chamber
of Commerce in Warsaw.
CHAPTER 16
DISPUTE RESOLUTION
Article 48
Any dispute arising out of, or relating to this Contract which cannot be settled
amicably before the passing of sixty (60) days from the giving of notice of one
Party regarding such dispute, shall be settled by before the Arbitration Court
of the Polish National Chamber of Commerce in Warsaw, Poland.
Article 49
In the event of the commencement of dispute settlement procedures, the Parties
shall continue their performance of this Contract and they do not have right to
suspend the agreement until the matters are settled.
CHAPTER 17
NOTICES
Article 50
Communications to be given, submitted or made hereunder by any Party to another
shall be in writing and delivered to the address of the other Party or Parties.
Article 51
Communication between Parties will be conducted in Polish language.
CHAPTER 18
FINAL MATTERS
Article 52
The existing law and regulations should be applied to the matters not regulated
by this agreement.
Article 53
This agreement was prepared in 3 identical copies, in Polish and English,
however for interpretation of the agreement Polish version will be used.
Article 54
This agreement becomes effective on the date of its execution.
Warsaw, October 3, 1997
For the Minister: For Contractor:
/s/ Xxxxxxxxx Xxxxxxxx /s/ Xxxxxxx Andraczke
Xxxxxxxxx Xxxxxxxx Xxxxxxx Andraczke
/s/ Xxxxxxxxx Piechula
Xxxxxxxxx Piechula
