MEMORANDUM OF UNDERSTANDING BETWEEN ECOPETROL AND
THE ASSOCIATED PARTY (AMOCO, HONDO AND OPON)
IN THE "OPON" CONTRACT ASSOCIATION.
This Memorandum of Understanding is made between: For one party,
EMPRESA COLOMBIANA DE PETROLEOS - ECOPETROL (hereafter ECOPETROL)
an industrial and commercial enterprise of the State created by
law 165 in 1948 and presently controlled by statutes approved by
means of Decree 1209 of June 15, 1994 with principal office in
Santafe de Bogota, represented by JUAN MARIA RENDON GUTIERREZ,
adult, identified by citizenship card number 17,125,100 issued in
Santafe de Bogota, residing in said city, who in his position as
President acts in name and representation of said Enterprise,
duly authorized by the Board of Directors of the same, as stated
in Act number 2107 of July 11, 1995. For the other party
(hereafter "THE ASSOCIATES") AMOCO COLOMBIA PETROLEUM COMPANY
(hereafter AMOCO) a corporation established in accordance with
the laws of Delaware, with a branch office established in
Colombia, as set forth in public deed number 1,953 of March 19,
1991, executed before Notary No. 5 of Santafe de Bogota D.C.,
represented by GREGORY P. WILLIAMS, adult, identified by tourist
card No. 260,005 issued in Santafe de Bogota, residing in said
city; HONDO MAGDALENA OIL & GAS LIMITED (hereafter HONDO) an
association established in accordance with the laws of Jersey -
Channel Islands, with a branch office established in Colombia as
set forth in public deed number 944 of December 3, 1990 before
Notary No. 45 of Santafe de Bogota, D.C., represented by JOHN
JOSEPH HOEY, adult, identified by United States passport No.
150151531, residing in Santafe de Bogota and OPON DEVELOPMENT
COMPANY (hereafter OPON DEVELOPMENT), a company established in
conformity with the laws of Colorado, United States of America,
with a branch office established in the Republic of Colombia, as
set forth in public deed number 3,022 of August 21, 1987 before
Notary No. 11 of Santafe de Bogota, represented by Sergio Rueda
Ferreira, adult, identified by citizenship card number 2,031,832
issued in Santafe de Bogota, residing in the same city.
The Associates form a party of the OPON Association Contract
("the Association Contract"), dated the 15th of July, 1987, with
the modifications agreed upon in relation to the area of the
contract known as OPON, with the discovery of natural gas known
as the OPON Field.
In conformance with the Association Contract, ECOPETROL and the
Associates have the right to take and separately dispose of their
proportionate shares of the total volume of hydrocarbons that may
be produced in the OPON field.
In accordance with the Association Contract, Ecopetrol has the
right to participate in the production of the OPON Association,
pursuant to Clause 9 of the Association Contract, once the
commerciality of the OPON Field is declared.
This Memorandum of Understanding contains the basic principles
for the utilization of the OPON gas arising from the project of
early production in this field, which will be the subject of a
detailed agreement between the parties.
Now, by virtue of the previous considerations, it is agreed:
A. The Associates assume the following obligations:
1. Complete engineering and design work on pipeline,
processing facilities at El Centro and well site
facilities.
2. Complete environment assessment on pipeline corridor
and wellsite facilities and secure environmental
permits.
3. Complete right of way acquisition.
4. Prepare and receive quotes for all construction work.
5. Order miscellaneous material required to produce and
deliver gas to Barrancabermeja.
B. Ecopetrol is obligated to:
1. Purchase 40 MMcfd of natural gas from the Opon
Association on a take-or-pay basis for a term of 15
years to the extent that gas is available. In
addition, Ecopetrol will purchase an additional 40
MMcfd of natural gas from the Opon Association on a
take-or-pay basis for a term of 3 years to the extent
that gas is available. Ecopetrol shall have the right
to make up volumes of gas paid for but not taken from
any gas volumes in excess of the contracted volumes
that may be transported from the Opon field to
Barrancabermeja.
Ecopetrol may at its option jointly market with
Associates up to 40 MMcfd to mutually acceptable third
party end-users subject to being acceptable in
accordance with the CREG Regulations. Ecopetrol's
obligation to purchase 80 MMcfd during the first 3
years may be reduced by an amount equal to the take-or-
pay volumes delivered to such third party end-users.
Ecopetrol's take-or-pay obligation to the Opon
Association shall in no event be less than 40 MMcfd for
15 years.
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2. Ecopetrol and the Associates will jointly market to
third parties all natural gas from the Opon Association
Contract Area in excess of the volumes mentioned in
Paragraph 1 subject to being acceptable in accordance
with the CREG Regulations.
3. Ecopetrol will guarantee gas volumes up to a maximum of
40 MMcfd jointly marketed by Ecopetrol and the
Associates to third party end-users to the extent that
the Associates cannot deliver such volumes and
Ecopetrol has the volumes available during the first 3
years. Sales made by Ecopetrol and Associates to third
party end-users shall take priority over sales to
Ecopetrol's refinery at Barrancabermeja.
4. The price to be paid for natural gas pursuant to the
volumes mentioned in Paragraph 1 shall be as follows:
(i) in accordance to the formula in Exhibit A, plus
the tariffs in number 5, part B, of this
memorandum;
(ii) for the volume of gas paid for but not taken by
Ecopetrol, the formula outlined in Exhibit A, plus
the tariffs pursuant to number 5, part B, of this
memorandum, that would have been received by the
Associates.
However, all parties agree that the pricing will be
subject to the maximum gas price permitted under the
CREG Regulations.
5. The tariffs to be charged to Ecopetrol and/or third
parties for natural gas and hydrocarbon liquid
transportation from the Opon Field to the refinery at
Barrancabermeja will be calculated to be sufficient for
the Associates to cover funding cost and provide a
thirteen and two tenths percent (13.2%) rate of return
after Colombian taxes on pipeline investments
(currently estimated to be $56.5 million US) pursuant
to Exhibit B. The tariffs pursuant to this Paragraph
will be adjusted based on actual pipeline investments,
actual operating costs, and actual throughput.
6. The tariff to be paid to Ecopetrol by the Associates
will for gas processing be sufficient for Ecopetrol to
cover funding costs and provide a thirteen and two
tenths percent (13.2%) rate of return after Colombian
taxes on the El Centro gas processing plant investments
required to handle incremental production from the Opon
Field (currently estimated to be $18.2 million US)
pursuant to Exhibit C.
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7. Ecopetrol and Associates will negotiate in good faith
and if mutually acceptable terms are reached execute a
gas sales contract as soon possible.
8. Associates and Ecopetrol shall have the right to lift
and sell domestically or internationally their
respective shares of natural gas liquids and condensate
produced from the wells and/or processed at El Centro
and/or other facilities. However, it is the intention
of the Parties to sell from the Opon Field the
condensate and natural gas liquids produced at the gas
processing facility at El Centro to Ecopetrol. The
Parties agree to negotiate a mutually acceptable sales
contract for the condensate and natural gas liquids as
soon as possible.
9. Associates agree to pay all costs incurred prior to
July 1, 1995, up to a maximum of 10% of the pipeline
costs (currently estimated to be $56.5 million US).
Ecopetrol's share of these costs will be reimbursed
from the production from the wells pursuant to the
Association Contract. Once the field is declared
commercial, all costs incurred after July 1, 1995 for
the pipeline costs will be paid in cash by Ecopetrol
and Associates in the proportions contemplated pursuant
to the Association Contract.
Wellhead and facilities costs for the Opon #3 and #4
wells will be reimbursed twenty percent (20%) in kind
and eighty percent (80%) in cash once such costs are
incurred and commerciality is declared.
10. In the event Opon #4 results are not geologically
satisfactory to the Associates and as a result
Ecopetrol and the Associates decide not to proceed with
the pipeline, then Ecopetrol shall reimburse Associates
100% of the pipe costs and 50% of associated expenses
which estimate of costs and associated expenses is
attached as Exhibit D. In that event, Ecopetrol shall
have ownership of the pipe.
In the event Opon #4 results are not geologically
satisfactory to the Associates, and Ecopetrol
constructs the pipeline and one or more of the
Associates do not participate, the Associates that do
not participate agree to negotiate in good faith a
tariff arrangement for the transportation and
processing of natural gas and the transportation of
hydrocarbon liquids. Such tariff shall be sufficient
for Ecopetrol to cover its investment on behalf of the
non-participating Associates and provide a thirteen and
two tenths percent (13.2%) rate of return after
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Colombian taxes on such investment. In the event Amoco
does not participate, then Ecopetrol shall reimburse
Amoco 100% of the pipe cost and 100% of associated
expenses which estimate of costs and associated
expenses is attached as Exhibit D. In that event,
Ecopetrol shall have ownership of the pipe.
In the event the Opon #4 is not successful for
mechanical reasons and the La Paz formation is not
reached, the Associates agree to drill a replacement
well for Opon #4 pursuant to the Association Contract
and in that event, the Associates and Ecopetrol agree
to proceed with the installation of a pipeline as
defined herein.
11. If Associates are required to pay any new or increased
taxes, duties, fees, or other charges related to
natural gas sales and/or transportation to any entity
of Colombia that adversely effect Associates after the
effective date of the Gas Sales Contract, then
Ecopetrol shall reimburse associates for any such
payments made by Associates.
12. Ecopetrol shall be bound by the terms of this
Memorandum of Understanding whether or not Ecopetrol
agrees the OPON Field is commercial pursuant to Clause
9.1 of the Association Contract.
13. The terms agreed upon in numbers 1, 2, 3, 4, 7, 8, 10
(second paragraph) and 11 of part B are totally
independent of the obligations originally assumed in
the OPON Association Contract.
The parties agree to cooperate and use due diligence in
completing the project so that gas can be delivered to
Barrancabermeja as early as possible in 1996.
This Memorandum of Understanding has been executed in Santafe de
Bogota, on the 26th day of July, 1995.
/s/ Gregory P. Williams
AMOCO COLOMBIA PETROLEUM COMPANY
/s/ John J. Hoey
HONDO MAGDALENA OIL & GAS LIMITED
/s/ Sergio Rueda F.
OPON DEVELOPMENT COMPANY
/s/ Juan Maria Rendon
EMPRESA COLOMBIANA DE PETROLEOS
ECOPETROL
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EXHIBIT A
FORMULA FOR FIXING THE PRICE OF GAS ON A MMBTU EQUIVALENT BASIS
The liquidation of the price of natural gas will be made in
accordance with the following formula:
P1 = Po x (FO1/FOo), where P1 is the price in dollars per
million BTU (US$/MBTU) to be fixed for the semester; Po is the
price (US$/MBTU) in effect during the previous semester; FO1 is
the average computed of the export price of fuel oil of ECOPETROL
(FOB Cartagena) during the semester immediately previous to the
one for which the price will be established; FOo is the average
computed of the price of fuel oil (FOB Cartagena) during the same
semester of the year previous to the one for which the price will
be established. The value of Po, for the first semester of 1995,
was US$1.03/MBTU. The value of FO1, for the first semester of
1995, was US$14.68/barrel. The value of FOo for the second
semester of 1994, was $12.87/barrel. The price will be
readjusted each semester on the first day of the months of
January and July of each year. After the lst of July, 1995, the
calculation will be made using two decimal numbers and the result
will be rounded off in such a way that the cents of a dollar will
be rounded to the nearest when the thousandths are equal to or
more than 5 and will be left same (equal) when the thousandths
are less than 5.
The payment will be made in United States of America dollars up
to a maximum of seventy-five (75%) percent of the price of
unassociated natural gas that is processed and produced in
Colombia.
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