AMENDED AND RESTATED
PRODUCTION SHARING CONTRACT
Between
PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA
(PERTAMINA)
And
ROY M. HUFFINGTON, INC.,
VIRGINIA INTERNATIONAL COMPANY,
VIRGINIA INDONESIA COMPANY,
ULTRAMAR INDONESIA LIMITED,
UNION TEXAS EAST KALIMANTAN LIMITED,
UNIVERSE GAS & OIL COMPANY, INC., and
HUFFINGTON CORPORATION
AMENDED AND RESTATED
PRODUCTION SHARING CONTRACT
between
PERTAMINA AND VICO, ET AL
(effective August 8, 1968-August 7, 1998)
CONTENTS
Section Page
I Scope and Definitions 2
II Term 4
III Exclusion of Areas 4
IV Work Program and Expenditures 5
V Rights and Obligations of the Parties 6
VI Recovery of Investment Credit and
Operating Costs and Handling of Production 11
VII Valuation of Crude Oil and Natural Gas 14
VIII Compensation and Production Bonuses 17
IX Payments and Currency 17
X Title to Equipment 18
XI Consultation and Arbitration 19
XII Employment and Training of Indonesian Personnel 19
XIII Termination 19
XIV Books and Accounts and Audits 19
XV Other Provisions 20
XVI Effectiveness 22
Exhibit "A": Map of Contract Area A-1
Exhibit "B": Description of Contract Area B-1
Exhibit "C": Accounting Procedure C-1
AMENDED AND RESTATED
PRODUCTION SHARING CONTRACT
THIS AMENDED AND RESTATED PRODUCTION SHARING CONTRACT (this
"Contract"), is made and entered into in Jakarta, Indonesia, on
this ..... day of ...................., 1990, by and between PERUSAHAAN
PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA, a State Enterprise,
established on the basis of Law No. 8/1971 ("Pertamina"), party of
the first part, and ROY M. HUFFINGTON, INC., a Delaware, USA
corporation ("Huffco"), VIRGINIA INTERNATIONAL COMPANY, a Delaware,
USA corporation ("Virginia"), VIRGINIA INDONESIA COMPANY, a Nevada,
USA corporation, ULTRAMAR INDONESIA LIMITED, a Bermuda corporation,
UNION TEXAS EAST KALIMANTAN LIMITED, a Bahamian corporation,
UNIVERSE GAS & OIL COMPANY, INC., a Liberian corporation, and
HUFFINGTON CORPORATION, a Delaware, USA corporation (all of which
are referred to herein collectively as "Contractors", and each
separately as "Contractor"), parties of the second part (Pertamina
and each Contractor being referred to herein either individually as
a "Party" or collectively as the "Parties");
WITNESSETH:
WHEREAS, P.N. Perusahaan Minyak Nasional ("Permina"),
predecessor to Pertamina, entered into a Production Sharing
Contract dated August 8, 1968 with Huffco and Virginia covering
certain lands in East Kalimantan and South Sumatra, Indonesia,
including the Contract Area, which Production Sharing Contract has
heretofore been amended by, inter alia, documents dated as of
January 1, 1978 and April 14, 1981 entered into by Pertamina and
Contractors, or their respective predecessors in interest (such
Production Sharing Contract, as so amended, being herein called the
"Original Production Sharing Contract"); and
WHEREAS, all of the interest of Huffco and Virginia in the
Original Production Sharing Contract is now held by Contractors;
and
WHEREAS, all lands described in and covered by the Original
Production Sharing Contract, other than the Contract Area, have
been relinquished from the effect thereof; and
WHEREAS, this Contract is due to expire at midnight on August
7, 1998, and contemporaneously herewith the Parties are entering
into a Production Sharing Contract (the "Renewed Production Sharing
Contract") covering the Contract Area, such Renewed Production
Sharing Contract to take effect immediately on the expiration of
this Contract; and
WHEREAS, all mineral oil and gas existing within the statutory
mining territory of the Republic of Indonesia are national riches
controlled by the State; and
WHEREAS, Pertamina has an exclusive "Authority to Mine" for
Petroleum in and throughout the area outlined on the map which is
Exhibit "A", which area is more particularly described in Exhibit
"B", each of which is attached hereto and made a part hereof,
which area is herein referred to as the "Contract Area"; and
WHEREAS, Pertamina wishes to promote the development of the
Contract Area, and Contractors desire to join and assist Pertamina
in accelerating the exploration and development of Petroleum which
has heretofore been discovered, together with the potential
resources within the Contract Area; and
WHEREAS, Contractors have the financial ability, technical
competence and skill necessary to carry out the Petroleum
Operations hereinafter described; and
WHEREAS, in accordance with Law No. 44 Prp/1960 and Law No.
8/1971, cooperative agreements in the form of a production sharing
contract may be entered into in the sector of oil and gas between
Pertamina and foreign capital investors;
WHEREAS, the Parties desire to amend the terms of the Original
Production Sharing Contract in certain respects and to incorporate
such amendments, as well as all prior amendments, into this
Contract, which will affirm and define the rights and obligations
of the Parties with respect to the exploration, development,
production and export of hydrocarbons from the Contract Area from
the Effective Date through the remainder of the term originally
stated therein (i.e., through August 7, 1998) and will, as of the
Effective Date, supersede and replace the Original Production
Sharing Contract;
NOW, THEREFORE, for and in consideration of the mutual
promises, covenants and conditions hereinafter contained, it is
hereby agreed as follows:
SECTION I
SCOPE AND DEFINITIONS
1.1 SCOPE
This Contract is a production sharing contract. In accordance
with the provisions herein contained, Pertamina shall have and be
responsible for the management of the operations contemplated
hereunder. Contractors shall be responsible to Pertamina for the
execution of such operations in accordance with the provisions of
this Contract and are hereby appointed and constituted the
exclusive companies to conduct Petroleum Operations. Contractors
shall provide all the financial and technical assistance required
for such operations. Contractors shall carry the risk of Operating
Costs required in carrying out operations and shall therefore have
an economic interest in the development of the Petroleum deposits
in the Contract Area. Such costs shall be included in Operating
Costs recoverable as provided in Section VI. Except as may
otherwise be provided in this Contract, in the Accounting Procedure
attached hereto or by written agreement of Pertamina, Contractors
will not incur interest expenses to finance their operations
hereunder. During the term of this Contract the total production
achieved in the conduct of such operations shall be divided in
accordance with the provisions of Section VI hereof.
1.2 DEFINITIONS
In the text of this Contract, the Words and Terms defined in
Article 1 of Law No. 44 Prp/1960 shall have the same meaning in
accordance with such definitions. In addition the following terms
shall be defined as set forth below:
Affiliated Company or Affiliate means, as to each Party to
this Contract, a company or other entity that controls or is
controlled by such Party or a company or other entity which
controls or is controlled by a company or other entity which
controls such Party, it being understood that control shall mean
ownership by one company or entity of at least fifty per cent (50%)
of (a) the voting stock, if the other company is a corporation
issuing stock, or (b) the controlling rights or interests, if the
other entity is not a corporation.
Barrel means a quantity or unit of oil, forty-two (42) United
States gallons at the temperature of sixty degrees (60o)
Fahrenheit.
Budget of Operating Costs means cost estimate of all items
included in the Work Program.
Calendar Year or Year means a period of twelve (12) months
commencing with January 1 and ending on the following December 31
according to the Gregorian Calendar.
Contract Area means the Area within the statutory mining
territory of Indonesia covered by the "Authority to Mine" which is
the subject of this Contract, which Contract Area is outlined and
described in Exhibits "A" and "B" attached hereto and made a part
hereof.
Contract Year means a period of twelve (12) consecutive months
according to the Gregorian Calendar counted from the Effective Date
of this Contract or from the anniversary of such Effective Date.
Crude Oil means crude mineral oil, asphalt, ozokerite and all
kinds of hydrocarbons and bitumens, both in solid and in liquid
form, in their natural state or obtained from Natural Gas by
condensation or extraction.
Effective Date means the date that both this Contract and the
Renewed Production Sharing Contract are approved by the Government
of the Republic of Indonesia in accordance with the provisions of
applicable law.
First Tranche Petroleum shall have the meaning set forth in
Section 6.3.1.
Force Majeure means delays or defaults in performance under
this Contract caused by circumstances beyond the control and
without the fault or negligence of Contractors and/or Pertamina
that may affect economically or otherwise the continuing of
operations under this Contract, including but not restricted to
acts of God or the public enemy, perils of navigation, fire, flood,
hostilities, war (declared or undeclared), blockade, labor
disturbances, strikes, riots, insurrections, civil commotion,
quarantine restrictions, epidemics, storms, earthquake or
accidents.
Foreign Exchange means currency other than that of the
Republic of Indonesia but acceptable to Pertamina and to the
Republic of Indonesia and to Contractors.
Investment Credit means the investment credit provided for in
Section 6.1.7 of this Contract.
Natural Gas means all gaseous hydrocarbons produced from
wells, including wet mineral gas, dry mineral gas, casinghead gas
and residue gas remaining after the extraction of liquid
hydrocarbons from wet gas.
Operating Costs means the expenditures made and obligations
incurred in carrying out Petroleum Operations hereunder determined
in accordance with the Accounting Procedure attached hereto and
made a part hereof as Exhibit "C".
Petroleum means mineral oil and gas, herein called Crude Oil
and Natural Gas, as defined in this Contract and in Law No. 44
Prp/1960.
Petroleum Operations means all exploration, development,
extraction, producing, transportation, marketing and other
operations authorized or contemplated under this Contract.
Work Program means a statement itemizing the Petroleum
Operations to be carried out in the Contract Area as set forth in
Section IV.
SECTION II
TERM
2.1.1 The term of this Contract shall be thirty (30)
years as from August 8, 1968, and as of the Effective Date this
Contract shall replace and supersede the Original Production
Sharing Contract.
2.1.2 On the date of execution hereof Pertamina and
Contractors have entered into the Renewed Production Sharing
Contract covering the Contract Area, less such portions thereof
which may be relinquished during the term of this Contract, during
the period August 8, 1998 through August 7, 2018.
SECTION III
EXCLUSION OF AREAS
3.1.1 Contractors, having fulfilled their obligations
under the Original Production Sharing Contract to relinquish
portions of the contract areas described therein, shall carry on
Petroleum Operations in the Contract Area as defined in this
Contract.
3.1.2 In addition to the relinquishments heretofore
made, it is agreed that the following additional surrenders of
portions of the Contract Area shall be made:
(a) By not later than the first anniversary of the
Effective Date Contractors shall surrender an
area equal to ten percent (10%) of the
Contract Area;
(b) By not later than the fourth anniversary of
the Effective Date Contractors shall surrender
an additional area equal to ten percent (10%)
of the Contract Area; and
(c) By not later than August 7, 1998 Contractors
shall surrender an additional area equal to
ten percent (10%) of the Contract Area;
provided, however, that the foregoing provisions shall not require
Contractors to surrender any portion of the Contract Area
corresponding to the surface area of any field in which Petroleum
has been discovered.
3.1.3 Upon thirty (30) days' written notice to Pertamina prior
to the end of any Calendar Year, Contractor shall have the right to
surrender any portion of the Contract Area, and such portion shall
then be credited against that portion of the Contract Area which
Contractors are next required to surrender under the provisions of
Section 3.1.2.
SECTION IV
WORK PROGRAM AND EXPENDITURES
4.1.1 Contractors, in conducting exploration operations under
the Original Production Sharing Contract, have complied with the
provisions respecting minimum expenditures set forth in Section 4.2
thereof. Further, Contractors have submitted and Pertamina has
approved Work Programs for each Calendar Year through 1990, and
such Work Programs through Calendar Year 1989 have been conducted
in accordance with the Original Production Sharing Contract.
4.1.2 At least three (3) months prior to the beginning of each
Calendar Year, or at such other times as otherwise mutually agreed
by the Parties, Contractors shall prepare and submit for approval
to Pertamina a Work Program and Budget of Operating Costs for the
Contract Area setting forth the Petroleum Operations which
Contractors propose to carry out during the ensuing Calendar Year.
4.1.3 Should Pertamina wish to propose a revision as to certain
specific features of said Work Program and Budget of Operating
Costs, it shall within thirty (30) days after receipt thereof so
notify Contractors specifying in reasonable details its reasons
therefor. Promptly thereafter, the Parties will meet and endeavor
to agree on the revisions proposed by Pertamina. In any event, any
portion of the Work Program as to which Pertamina has not proposed
a revision shall insofar as possible be carried out as prescribed
herein.
4.1.4 It is recognized by the Parties that the details of a
Work Program may require changes in the light of existing
circumstances, and nothing herein contained shall limit the right
of Contractors to make such changes, provided they do not change
the general objective of the Work Program nor increase the
expenditures in the approved Budget of Operating Costs.
4.1.5 It is further recognized that in the event of emergency
or extraordinary circumstances requiring immediate action, any
Party may take all actions it deems proper or advisable to protect
its interests and those of its respective employees, and any cost
so incurred shall be included in the Operating Costs.
4.1.6 Pertamina agrees that the approval of a proposed Work
Program and Budget of Operating Costs will not be unreasonably
withheld.
4.1.7 The amount to be spent by Contractors in conducting
further exploration operations, including delineation drilling,
pursuant to this Contract in each of the six (6) Calendar Years
commencing with Calendar Year 1990 shall be not less than the
amount set forth opposite each such Year as follows:
CALENDAR YEAR EXPLORATION EXPENDITURE
1990 US$ 19,000,000
1991 12,000,000
1992 6,000,000
1993 6,000,000
1994 6,000,000
1995 6,000,000
All Operating Costs incurred by Contractors from and after January
1, 1990 for exploration operations hereunder shall be credited
against the amounts referred to above. If during any Calendar Year
Contractors should spend less than the amount of money required to
be so expended, an amount equal to such under expenditure may, with
Pertamina's consent, be carried forward and added to the amount to
be expended in the following Calendar Year without prejudice to
Contractors' rights hereunder. If during any Calendar Year
Contractors should expend more than the amount of money required to
be so expended, the excess may be subtracted from the amount of
money to be so expended by Contractors during the succeeding
Calendar Year or Years.
SECTION V
RIGHTS AND OBLIGATIONS OF THE PARTIES
5.1.1 Subject to Sections 5.1.2(f), (g) and (h):
5.1.2 Contractors shall:
(a) Advance all necessary funds and purchase or lease all
material, equipment and supplies required to be purchased or
leased with Foreign Exchange pursuant to the Work Program.
(b) Furnish all technical aid, including foreign personnel,
required for the performance of the Work Program, payment
whereof requires Foreign Exchange.
(c) Furnish such other funds for the performance of the Work
Program that requires payment in Foreign Exchange including
payment to foreign third parties who perform services as a
contractor.
(d) Be responsible for the preparation and execution of the Work
Program, which shall be implemented in a workmanlike manner
and by appropriate scientific methods; and Contractors shall
take the necessary precautions for protection of navigation
and fishing and shall prevent extensive pollution of the sea
or rivers. It is also understood that the execution of the
Work Program shall be exercised so as not to conflict with
obligations imposed on the Government of Indonesia by
International Law.
(e) Retain control to all leased property paid for with Foreign
Exchange and brought into Indonesia and be entitled to freely
remove same therefrom.
(f) Each Contractor shall have the right to sell, assign,
transfer, convey or otherwise dispose of all its rights and
interests under this Contract to any Affiliated Company
without the prior written consent of Pertamina, provided that
Pertamina shall be notified in writing of the same beforehand
and further provided that any assignee to which such rights
and interests are assigned shall not hold more than one
Production Sharing Contract.
(g) Each Contractor shall have the right to sell, assign,
transfer, convey or otherwise dispose of any part of its
rights and interests under this Contract undividedly to
parties other than Affiliated Companies with the prior written
consent of Pertamina, which consent shall not be unreasonably
withheld.
(h) Each Contractor shall have the right to sell, assign,
transfer, convey or otherwise dispose of all of its rights and
interests under this Contract undividedly to parties other
than Affiliated Companies with the prior written consent of
Pertamina and the Government of the Republic of Indonesia,
which consent shall not be unreasonably withheld.
(i) Have the right of ingress to and egress from the Contract Area
and to and from facilities wherever located at all times.
(j) Have the right to use and have access to, and Pertamina shall
furnish, all geological, geophysical, drilling, well,
production and other information held by Pertamina or by any
other governmental agency or enterprise relating to the
Contract Area, including well location maps.
(k) Have the right to use and have access to, and Pertamina shall
make available so far as possible, all geological,
geophysical, drilling, well, production and other information
now or in the future held by it or by any other governmental
agency or enterprise relating to the areas adjacent to the
Contract Area.
(l) Submit to Pertamina copies of all such original geological,
geophysical, drilling, well, production and other data and
reports as may be compiled during the term hereof.
(m) Prepare and carry out plans and programs for industrial
training and education of Indonesians for all job
classifications with respect to operations contemplated
hereunder, as provided in Section XII hereof.
(n) Each Contractor shall have the right during the term hereof
to freely lift, dispose of and export its share of Petroleum
and retain abroad the proceeds obtained therefrom.
(o) Appoint an authorized representative for Indonesia with
respect to this Contract, who shall have an office in Jakarta.
(p) After commercial production commences, fulfill their
obligation towards the supply of the domestic market in
Indonesia. Contractors agree to sell and deliver to Pertamina
a portion of the share of the Crude Oil to which they are
entitled pursuant to Sections 6.1.3 and 6.3.1 calculated for
each Year as follows:
(i) multiply the total quantity of Crude Oil produced from
the Contract Area by a fraction, the numerator of which
is the total quantity of Crude Oil to be supplied and
the denominator of which is the entire Indonesian
production of Crude Oil of all petroleum companies;
(ii) compute twenty-five percent (25%) of the total
quantity of Crude Oil produced from the Contract
Area; and
(iii) multiply the lower quantity computed either under (i)
or (ii) by the resultant percentage of Contractors'
entitlement as applicable under Section 6.1.3 from
the Crude Oil remaining after deducting Operating
Costs.
The quantity of Crude Oil computed under (iii) shall be the
maximum quantity to be supplied by Contractors in any Year
pursuant to this paragraph, and deficiencies, if any, shall
not be carried forward to any subsequent Year; provided, that
if for any Year the recoverable Operating Costs exceed the
difference of total sales proceeds from Crude Oil produced and
saved hereunder minus First Tranche Petroleum under Section
6.3.1 and Investment Credit under Section 6.1.7, Contractors
shall be relieved from this supply obligation for such Year.
(q) The price at which such Crude Oil shall be delivered and sold
under Section 5.1.2(p) shall be 20 US cents per Barrel f.o.b.
point of export with respect to Crude Oil from fields
commencing production prior to February 23, 1989, and ten
percent (10%) of the price determined under Section 6.1.2 with
respect to Crude Oil from fields commencing production from
and after such date. Contractors shall not be obligated to
transport such Crude Oil beyond the point of export, but upon
request Contractors shall assist in arranging transportation
and such assistance shall be without cost or risk to
Contractors. Notwithstanding the foregoing, for a period of
five (5) consecutive years (meaning sixty (60) consecutive
months) starting the month of the first delivery of Crude Oil
produced and saved from each new field in the Contract Area,
the fee per Barrel for the quantity of Crude Oil supplied to
the domestic market from each such new field shall be equal
to the price determined in accordance with Section VI for
Crude Oil from such field taken for the recovery of Operating
Costs. The proceeds in excess of the aforesaid 20 US cents
per Barrel or ten percent (10%) of the price under Section
6.1.2, whichever is applicable, shall preferably be used to
assist financing of continued exploration efforts by
Contractors in the Contract Area or in other areas of the
Republic of Indonesia if such opportunity exists. In case no
such opportunity can be demonstrated to exist in accordance
with good oil field practice, Contractors shall be free to use
such proceeds at their own discretion.
(r) Give preference to such goods and services which are produced
in Indonesia or rendered by Indonesian nationals, provided
such goods and services are offered at equally advantageous
conditions with regard to quality, price, availability at the
time and in the quantities required.
(s) Each Contractor shall pay its Corporate Income Tax imposed by
the Government of the Republic of Indonesia pursuant to the
Corporation Tax Ordinance (1925), as amended, and to the
Interest, Dividends and Royalty Tax Law No. 12 (1959), as
amended, and Contractors shall comply with the laws and
regulations relating to the filing of returns, the payment of
tax and estimated taxes.
5.1.3 Pertamina shall:
(a) Have and be responsible for the management of the operations
contemplated hereunder; however, Pertamina shall assist and
consult with Contractors with a view to the fact that
Contractors are responsible for the Work Program.
(b) Except with respect to the obligation of each Contractor to
pay its Indonesian Corporate Income Tax and the Tax on
Interest, Dividends and Royalty as provided in Section
5.1.2(s), assume and discharge all other Indonesian taxes of
Contractors, including value added taxes, transfer taxes,
import and export duties on materials, equipment and supplies
brought into or taken out of Indonesia by Contractors, their
contractors or subcontractors, and exactions in respect of
property, capital, net worth, operations, remittances or
transactions including any tax or levy on or in connection
with operations performed hereunder by Contractors. Pertamina
shall not be obliged to pay the Indonesian Corporate Income
Tax or the tax on Interest, Dividends and Royalty of
Contractors, nor taxes on tobaccos, liquor and personnel
income tax, nor income tax or other taxes not listed above of
contractors and subcontractors. The obligations of Pertamina
hereunder shall be deemed to have been complied with by the
delivery to Contractors, within one hundred and twenty (120)
days after the end of each Calendar Year, of documentary proof
in accordance with the Indonesian fiscal laws that liability
for the above-mentioned taxes has been satisfied, except that
with respect to any of such liabilities which Contractors may
be obliged to pay directly, Pertamina shall reimburse
Contractors only out of its share of production hereunder
within sixty (60) days after receipt of invoice therefor.
Pertamina should be consulted prior to payment of such taxes
by Contractors or by any other party on Contractors' behalf.
(c) Otherwise assist and expedite Contractors' execution of the
Work Program by providing facilities, supplies and personnel,
including but not limited to supplying or otherwise making
available all necessary visas, work permits, transportation,
security protection and rights of way and easements as may be
requested by Contractors and made available from the resources
under Pertamina's control. In the event such facilities,
supplies or personnel are not readily available, then
Pertamina shall promptly secure the use of such facilities,
supplies and personnel from alternative sources. Expenses
thus incurred by Pertamina at Contractors' request shall be
reimbursed to Pertamina by Contractors and included in the
Operating Costs. Such reimbursements will be made in United
States Dollars computed at the rate of exchange extended by
the Indonesian Government to Petroleum companies at the time
of conversion. Contractors shall advance to Pertamina before
the beginning of each annual Work Program a minimum amount of
Seventy-five Thousand US Dollars (US $75,000) for the purpose
of enabling Pertamina to meet rupiah expenditures incurred
pursuant to this Section 5.1.3(c). If at any time during the
annual Work Program period the minimum amount advanced under
this Section 5.1.3(c) has been fully expended, separate
additional advance payments as may be necessary to provide for
rupiah expenses estimated to be incurred by Pertamina during
the balance of such annual Work Program period will be made.
If any amount advanced hereunder is not expended by Pertamina
by the end of an annual Work Program period, such unexpended
amount shall be credited against the minimum amount to be
advanced pursuant to this Section 5.1.3(c) for the succeeding
annual Work Program period.
(d) Ensure that at all times during the term hereof sufficient
rupiah funds shall be available to cover the rupiah
expenditures necessary for the execution of the Work Program.
(e) Have title to all original data resulting from Petroleum
Operations, including but not limited to geological,
geophysical, petrophysical, engineering, well logs and
completion, status reports and any other data as Contractors
may compile during the term hereof; provided, however, that
all such data shall not be disclosed to third parties without
informing Contractors and giving Contractors the opportunity
to discuss the disclosure of such data if Contractors so
desire, and further provided that Contractors may retain
copies of such data.
(f) To the extent that it does not interfere with Contractors'
performance of the Petroleum Operations, use the equipment
which becomes its property by virtue of this Contract solely
for the Petroleum Operations envisaged under this Contract;
and if Pertamina wishes to use such equipment for any
alternative purpose, then Pertamina shall first consult
Contractors.
SECTION VI
RECOVERY OF INVESTMENT CREDIT AND OPERATING
COSTS AND HANDLING OF PRODUCTION
6.1 CRUDE OIL
6.1.1 Contractors are authorized by Pertamina and obligated
to market all Crude Oil produced and saved from the Contract Area
subject to the provisions hereinafter set forth.
6.1.2 Contractors will recover all Operating Costs out of the
sales proceeds or other disposition of the required quantity of
Crude Oil equal in value to such Operating Costs which is produced
and saved hereunder and not used in Petroleum Operations. Except
as provided in Sections 7.1.1(d) and (e), Contractors shall be
entitled to take and receive and freely export such Crude Oil. For
purposes of determining the quantity of Crude Oil delivered to
Contractors required to recover said Operating Costs, the weighted
average price of all Crude Oil produced and sold from the Contract
Area during the Calendar Year will be used, excluding, however,
deliveries made pursuant to Section 5.1.2(p). If, in any Calendar
Year, the Operating Costs recoverable exceed the value of the Crude
Oil produced and saved hereunder and not used in Petroleum
Operations, then the unrecovered excess shall be recovered in
succeeding Years.
6.1.3 Of the Crude Oil remaining after deducting Operating
Costs:
(a) For Crude Oil production as a result of tertiary
recovery EOR projects, the Parties shall be entitled to
take and receive each Year, respectively, 54.5455% for
Pertamina and 45.4545% for Contractors. Tertiary
recovery EOR production represents a separate segment
from the others.
(b) For Crude Oil production from pre-Tertiary reservoir
rocks, the Parties shall be entitled to take and
receive each Year as follows:
(i) Pertamina 54.5455% and Contractors 45.4545%
for the segment of 0 to 50,000 Barrels daily
average of all of such pre-Tertiary production
of the Contract Area for the Year;
(ii) Pertamina 65.9091% and Contractors 34.0909%
for the segment of 50,001 Barrels to 150,000
Barrels daily average of all of such
pre-Tertiary production of the Contract Area
for the Year; and
(iii) Pertamina 77.2727% and Contractors 22.7273%
for the segment of 150,001 Barrels daily
average of all of such pre-Tertiary production
of the Contract Area for the Year and more.
Pre-Tertiary reservoir rocks mean petroleum reservoir
rocks deposited or formed in pre-Tertiary times.
(c) For Crude Oil production of the Contract Area other
than those under Sections 6.1.3(a) and (b) above, each
year Pertamina shall be entitled to take and receive
65.9091% and Contractors shall be entitled to take and
receive 34.0909%. Crude Oil under this Section
6.1.3(c) represents a separate segment from the others.
The deduction of Operating Costs before the entitlements are taken
by each respective Party as provided under this Section 6.1.3 shall
be subject to the following proration method: for each Year, the
recoverable Operating Costs shall be apportioned for deduction from
the production of each of the segments as hereinabove defined at
the same ratios as the production from each such segment over the
total production of such Year.
6.1.4 Title to Contractors' portion of Crude Oil under
Sections 6.1.3, 6.1.7 and 6.3.1, as well as to such portion of
Crude Oil exported and sold to recover Operating Costs and
Investment Credit, shall pass to Contractors at the point of export
or, in the case of Crude Oil delivered to Pertamina pursuant to
Section 5.1.2(p) or otherwise, at the point of delivery.
6.1.5 Contractors will use their best reasonable efforts to
market the Crude Oil to the extent markets are available. Each
Party shall be entitled to take and receive its respective portion
in kind.
6.1.6 If Pertamina elects to take any part of its portion of
Crude Oil in kind, it shall so advise Contractors in writing not
less than ninety (90) days prior to the commencement of each
semester of each Calendar Year specifying the quantity which it
elects to take in kind, such notice to be effective for the ensuing
semester of such Calendar Year (provided, however, that such
election shall not interfere with the proper performance of any
Crude Oil sales agreement for Petroleum produced within the
Contract Area which a Contractor has executed prior to the notice
of such election). Failure to give such notice shall be
conclusively deemed to evidence the election not to take in kind.
Any sale of Pertamina's portion of Crude Oil shall not be for a
term of more than one (1) year (meaning twelve (12) consecutive
months) without Pertamina's consent.
6.1.7 Contractors may recover an investment credit (the
"Investment Credit") amounting to twenty percent (20%) of the
capital investment costs directly required for developing Crude Oil
production facilities (as defined in Article II, paragraph 3(c) of
the Accounting Procedure attached hereto as Exhibit "C") of each
new field out of deduction from gross production before recovering
Operating Costs, commencing in the earliest production Year or
Years before tax deduction (to be paid in advance in such
production Year when taken). The Investment Credit may be applied
to new secondary recovery and tertiary recovery EOR projects but is
not applicable to "interim production schemes" or further
investments to enhance production and reservoir drainage in excess
of what was contemplated in the original project as approved by
Pertamina.
6.2 NATURAL GAS
6.2.1 Any Natural Gas produced from the Contract Area, to the
extent not used in Petroleum Operations hereunder, may be flared if
the processing and utilization thereof is not economical. Such
flaring shall be permitted to the extent that gas is not required
to effectuate the maximum economic recovery of Petroleum by
secondary recovery operations, including repressuring and
recycling.
6.2.2 Should Pertamina and Contractors consider that the
processing and utilization of Natural Gas is economical and choose
to participate in the processing and utilization thereof, in
addition to that used in secondary recovery operations, then the
construction and installation of facilities for such processing and
utilization shall be carried out pursuant to an approved Work
Program. It is hereby agreed that, while it is the intention of
Pertamina and Contractors to enter into further contractual
arrangements to implement the foregoing, all costs and revenues
derived from such processing, utilization and sale of Natural Gas
shall be treated on the basis provided in Section 6.2.3.
6.2.3 Natural Gas produced during each Year shall be divided
between Pertamina and Contractors in accordance with the following:
(a) Contractors will recover Operating Costs out of the
sales proceeds or other disposition of the required
quantity of Natural Gas equal in value to such
Operating Costs which is produced and saved hereunder
and not used in Petroleum Operations. Contractors
shall be entitled to take and receive and freely export
such Natural Gas. If, in any Calendar Year, the
Operating Costs exceed the value of the Natural Gas
produced and saved hereunder and not used in Petroleum
Operations, then the unrecovered excess shall be
recovered in succeeding Years.
(b) Of the Natural Gas and propane and butane fractions
extracted from Natural Gas but not spiked in Crude Oil
remaining after deducting Operating Costs associated
with Natural Gas operations as stipulated in Exhibit
"C", Pertamina shall be entitled to take and receive
20.4545% and Contractors shall be entitled to take and
receive 79.5455%.
6.2.4 In the event Contractors consider that the processing
and utilization of Natural Gas is not economical, then Pertamina
may choose to take and utilize such Natural Gas that would
otherwise be flared, all costs of taking and handling to be for the
sole account and risk of Pertamina.
6.3 FIRST TRANCHE PETROLEUM
6.3.1 Notwithstanding anything to the contrary elsewhere
contained in this Contract, the Parties shall be entitled to take
and receive in each Year twenty percent (20%) of all Petroleum
produced and saved in such Year ("First Tranche Petroleum") before
any allocation of Crude Oil or Natural Gas to Contractors for the
recovery of Investment Credit and Operating Costs as provided in
this Section VI. Such First Tranche Petroleum comprising Crude Oil
shall be shared between Pertamina and Contractors in accordance
with the sharing splits provided under Section 6.1.3, by
apportioning it, as applicable, to the respective production
segments as therein defined, at the same ratios as the production
from each segment over the total production of the Year. Such
First Tranche Petroleum comprising Natural Gas shall be shared
between Pertamina and Contractors in accordance with the sharing
split provided under Section 6.2.3(b).
SECTION VII
VALUATION OF CRUDE OIL AND NATURAL GAS
7.1.1 Crude Oil sold to third parties shall be valued as
follows:
(a) All Crude Oil taken by Contractors, including their
share and the share for the recovery of Operating
Costs, and sold to third parties shall be valued at the
net realized price f.o.b. Indonesia received by
Contractors for such Crude Oil.
(b) All of Pertamina's Crude Oil taken by Contractors and
sold to third parties shall be valued at the net
realized price f.o.b. Indonesia received by Contractors
for such Crude Oil.
(c) Pertamina shall be duly advised before the sales
referred to in Sections 7.1.1(a) and (b) are made.
(d) Subject to any existing Crude Oil sales agreement, if
a more favorable net realized price is available to
Pertamina for the Crude Oil referred to in Sections
7.1.1(a) and (b), except Contractors' share of Crude
Oil, then Pertamina shall so advise Contractors in
writing not less than ninety (90) days prior to the
commencement of the deliveries under Pertamina's
proposed sales contract. Forty-five (45) days prior to
the start of such deliveries, Contractors shall notify
Pertamina regarding Contractors' intention to meet the
more favorable net realized price in relation to the
quantity and period of delivery concerned in said
proposed sales contract. In the absence of such notice
Pertamina shall market said Crude Oil.
(e) Pertamina's marketing of such Crude Oil as referred to
in Section 7.1.1(d) shall continue until forty-five
(45) days after Pertamina's net realized price on said
Crude Oil becomes less favorable. Contractors'
obligation to market said Crude Oil shall not apply
until after Pertamina has given Contractors at least
forty-five (45) days advance notice of its desire to
discontinue such sales. As long as Pertamina is
marketing the Crude Oil referred to above, it shall
account to Contractors, on the basis of the more
favorable net realized price.
(f) Without prejudice to any of the provisions of Section
VI and Section VII, Contractors may at their option
transfer to Pertamina during any Calendar Year the
right to market any Crude Oil which is in excess of
Contractors' normal and contractual requirements,
provided that the price is not less than the net
realized price from the Contract Area. Pertamina's
request stating the quantity and expected loading date
must be submitted in writing at least thirty (30) days
prior to lifting said Crude Oil. Such lifting must not
interfere with Contractors' scheduled tanker movements.
Pertamina shall account to Contractors in respect of
any sale made by it hereunder.
(g) Pertamina shall have the option in any Year in which
the quantity of Petroleum to which it is entitled
pursuant to Sections 6.1.3, 6.2.3 and 6.3.1 hereof is
less than 50% of the total production, by ninety (90)
days' written notice in advance of that Year, to market
for the account of Contractors, at the price provided
for in Section VII hereof for the recovery of Operating
Costs, a quantity of Petroleum which together with
Pertamina's entitlement under Sections 6.1.3, 6.2.3 and
6.3.1 equals fifty percent (50%) of the total Petroleum
produced and saved from the Contract Area.
7.1.2 Crude Oil sold to other than third parties shall be
valued as follows:
(a) By using the weighted average per unit price received
by Contractors and Pertamina from sales to third
parties excluding, however, commissions and brokerages
paid in relation to such third party sales, during the
three (3) months preceding such sale, adjusted as
necessary for quality, grade and gravity; and
(b) If no such third party sales have been made during such
period of time, then on the basis used to value
Indonesian Crude Oil of similar quality, grade and
gravity and taking into consideration any special
circumstances with respect to sales of such Indonesian
Crude Oil.
7.1.3 Third party sales referred to in this Section VII shall
mean sales by Contractors to purchasers independent of Contractors,
that is purchasers with whom (at the time the sale is made)
Contractors have no contractual interest involving directly or
indirectly any joint interest.
7.1.4 Commissions or brokerages incurred in connection with
sales to third parties, if any, shall not exceed the customary and
prevailing rate.
7.1.5 Natural Gas sold to third parties shall be valued at
the net realized price received therefor. With respect to Natural
Gas delivered from the Contract Area in support of Pertamina's
obligations under sales contracts with third parties, the Parties
have agreed in the past, and may agree in the future, that the net
realized price for such Natural Gas shall constitute the amounts
paid by the buyers under such sales contracts, less deductions for
costs of the trades incurred outside of this Contract (e.g., costs
of construction, including financing, and operation of the plant in
which such Natural Gas is processed, transportation costs from such
plant or the Contract Area, as may be applicable, to the point of
delivery of such Natural Gas under the sales contracts and other
costs agreed to by Pertamina and Contractors).
7.1.6 During each given Calendar Year, the handling of
production (i.e., the implementation of the provisions of Section
VI hereof) and the proceeds thereof shall be provisionally dealt
with on the basis of the relevant Work Program and Budget of
Operating Costs based upon estimates of quantities of Petroleum to
be produced, of internal consumption in Indonesia, of marketing
possibilities, of prices and other sale conditions as well as of
any other relevant factor. Within thirty (30) days after the end
of such Calendar Year, adjustments and cash settlements between the
Parties shall be made on the basis of the actual quantities,
amounts and prices involved, in order to comply with the provisions
of this Contract.
7.1.7 In the event Petroleum Operations involve the
segregation of Crude Oils of different quality and/or grade and if
the Parties do not otherwise mutually agree:
(a) Any and all provisions of this Contract concerning
valuation of Crude Oil shall separately apply to each
segregated Crude Oil; and
(b) Each Crude Oil produced and segregated in a given Year
shall contribute to:
(i) The "required quantity" of Crude Oil to which
the Parties are entitled in such Year pursuant
to Section 6.3.1;
(ii) The "required quantity" utilized in such Year
for the recovery of Investment Credit pursuant
to Section 6.1.7;
(iii) The "required quantity" utilized in such Year
for the recovery of Operating Costs pursuant
to Section 6.1.2 hereof;
(iv) The "required quantity" of Crude Oil to which
the Parties are entitled in such Year pursuant
to Section 6.1.3 hereof; and
(v) The "required quantity" of Crude Oil which
Contractors agree to sell and deliver in such
Year for domestic consumption in Indonesia
pursuant to Section 5.1.2(p) hereof, out of
the share of Crude Oil to which it is entitled
pursuant to Sections 6.1.3 and 6.3.1;
with quantities, each of which shall bear to the
respective "required quantity" (referred to in (i)
through (v) above) the same proportion as the quantity
of such Crude Oil produced and segregated in such given
Year bears to the total quantity of Crude Oil produced
in such Year from the Contract Area.
SECTION VIII
COMPENSATION AND PRODUCTION BONUSES
8.1.1 As consideration for Pertamina to enter into this
Contract and the Renewed Production Sharing Contract Contractors
shall pay to Pertamina the following bonuses:
(a) A signature bonus of US $10,000,000 shall be due thirty
(30) days after the date of execution hereof by all
parties.
(b) A production bonus of US $5,000,000 shall be due thirty
(30) days following the end of the month in which
cumulative production of Crude Oil from the Contract
Area (or, in the case of production from unitized
areas, deemed by the applicable unit agreement to be
from the Contract Area) first exceeds 185,000,000
Barrels.
8.1.2 The bonuses provided for in Section 8.1.1 shall be
borne solely by Contractors and shall not be included in or
recoverable as Operating Costs. It is acknowledged that (a) the
amounts of such bonus payments have been determined based on the
tax laws specified in Section 5.1.2(s), and (b) for Indonesian tax
purposes each such bonus payment shall be deductible from
Contractors' taxable income in respect of the Calendar Year in
which payment is made.
SECTION IX
PAYMENTS AND CURRENCY
9.1.1 All payments which this Contract obligates Contractors
to make to Pertamina or the Government of the Republic of Indonesia
shall be made in United States Dollars at a bank to be designated
by each of them and agreed upon by Bank Indonesia or, at
Contractors' election, other currencies acceptable to them, except
that Contractors may make such payments in Indonesian Rupiahs to
the extent that such currency is realized as a result of the sale
of Crude Oil, Natural Gas or Petroleum products, if any.
9.1.2 All payments due to a Contractor shall be made in
United States Dollars, or, at Pertamina's election, other
currencies acceptable to such Contractor, at a bank to be
designated by such Contractor.
9.1.3 Any payments required to be made pursuant to this
Contract shall be made within thirty (30) days following the end of
the month in which the obligation to make such payments occurs.
SECTION X
TITLE TO EQUIPMENT
10.1.1 Equipment purchased by Contractors pursuant to the
Work Program shall become the property of Pertamina (in case of
import, when landed at the Indonesian port of import) and will be
used in Petroleum Operations hereunder.
10.1.2 The provisions of Section 10.1.1 shall not apply to
leased equipment belonging to third parties who perform services as
a contractor. Any such leased equipment belonging to foreign third
parties may be freely exported from Indonesia.
SECTION XI
CONSULTATION AND ARBITRATION
11.1.1 Periodically, Pertamina and Contractors shall meet to
discuss the conduct of the Petroleum Operations envisaged under
this Contract and will make every effort to settle amicably any
problem arising therefrom.
11.1.2 Disputes, if any, arising between Pertamina and
Contractors relating to this Contract or the interpretation and
performance of any of the clauses of this Contract, and which
cannot be settled amicably, shall be submitted to the decision of
arbitration. Pertamina on the one hand and Contractors on the
other hand shall each appoint one (1) arbitrator and so advise the
other Party, and these two (2) arbitrators will appoint a third.
If either Party fails to appoint an arbitrator within thirty (30)
days after receipt of a written request to do so, such arbitrator
shall, at the request of the other Party, if the Parties do not
otherwise agree, be appointed by the President of the International
Chamber of Commerce. If the first two (2) arbitrators appointed as
aforesaid fail to agree on a third within thirty (30) days
following the appointment of the second arbitrator, the third
arbitrator shall, if the Parties do not otherwise agree, be
appointed, at the request of either Party, by the President of the
International Chamber of Commerce. If an arbitrator fails or is
unable to act, his successor will be appointed in the same manner
as the arbitrator whom he succeeds.
11.1.3 The decision of a majority of the arbitrators shall
be final and binding upon the Parties.
11.1.4 In the event the arbitrators are unable to reach a
decision, the dispute shall be referred to Indonesian Court of Law
for settlement.
11.1.5 Any arbitration proceedings hereunder shall be held
at such place as the parties may agree, but absent agreement shall
be held at Geneva, Switzerland. Except as provided in this
Section, arbitration shall be conducted in accordance with the
rules of arbitration of the International Chamber of Commerce.
SECTION XII
EMPLOYMENT AND TRAINING OF INDONESIAN PERSONNEL
12.1.1 Contractors agree to employ qualified Indonesian
personnel in their operations and, after commercial production
commences, will undertake the schooling and training of Indonesian
personnel for labor and staff positions, including administrative
and executive management positions. At such time Contractors shall
also consider with Pertamina a program of assistance for training
Pertamina's personnel.
12.1.2 Costs and expenses of training Indonesian personnel
for employment by Contractors shall be included in Operating Costs.
Costs and expenses for a program of training for Pertamina's
personnel shall be borne on a basis to be agreed by Pertamina and
Contractors.
SECTION XIII
TERMINATION
13.1.1 At any time, if in the opinion of Contractors
circumstances do not warrant continuation of the Petroleum
Operations, Contractors may by giving written notice to such effect
to Pertamina and after consultation with Pertamina relinquish their
rights and be relieved of their obligations pursuant to this
Contract, except such rights and obligations as relate to the
period prior to such relinquishment.
13.1.2 Either Party shall be entitled to terminate this
Contract in its entirety by ninety (90) days' written notice if a
major breach of contract is committed by the other Party, provided
that conclusive evidence thereof is proved by arbitration or a
final court decision as stipulated in Section XI.
SECTION XIV
BOOKS AND ACCOUNTS AND AUDITS
14.1 BOOKS AND ACCOUNTS
14.1.1 Subject to the requirements of Section 5.1.2(s),
Pertamina shall be responsible for keeping complete books and
accounts with the assistance of Contractors reflecting all
Operating Costs as well as monies received from the sale of Crude
Oil and Natural Gas, consistent with modern petroleum industry
practices and proceedings as described in Exhibit "C" attached
hereto. Should there be any inconsistency between the provisions
of this Contract and the provisions of Exhibit "C", then the
provisions of Section 6.1.2 of this Contract shall prevail. Until
such time that commercial production commences, however, Pertamina
delegates to Contractors its obligations to keep books and
accounts.
14.2 AUDITS
14.2.1 Contractors shall have the right to inspect and audit
Pertamina's books and accounts relating to this Contract for any
Calendar Year within the one (1) year period following the end of
such Calendar Year. Any such audit will be satisfied within twelve
(12) months after its commencement. Any exception must be made in
writing within sixty (60) days following the end of such audit, and
failure to give such written exception within such time shall
establish the correctness of Pertamina's books and accounts.
14.2.2 Pertamina and the Government of the Republic of
Indonesia shall have the right to inspect and audit Contractors'
books and accounts relating to this Contract for any Calendar Year
covered by this Contract. Any such audit will be satisfied within
twelve (12) months after its commencement. Any exception must be
made in writing within sixty (60) days following the completion of
such audit. In addition, Pertamina and the Government of the
Republic of Indonesia may require Contractors to engage their
independent accountants to examine, in accordance with generally
accepted auditing standards, Contractors' books and accounts
relating to this Contract for any Calendar Year or perform such
auditing procedures as deemed appropriate by Pertamina. A copy of
the independent accountant's report of any exceptions shall be
forwarded to Pertamina within sixty (60) days following the
completion of such audit.
SECTION XV
OTHER PROVISIONS
15.1 NOTICES
15.1.1 Any notices required or given by either Party to the
other shall be deemed to have been delivered when a properly
acknowledged receipt has been obtained from the receiving Party.
All such notices shall be addressed as follows:
If to Pertamina:
PERUSAHAAN PERTAMBANGAN MINYAK
DAN GAS BUMI NEGARA
(PERTAMINA)
Jalan Merdeka Timur 1-A
Jakarta, Indonesia
If to Contractors:
ROY M. HUFFINGTON, INC.
Jl. H. Rasuna Said
Kuningan Plaza, P.O. Box 2828
Jakarta Selatan, Indonesia
The Parties may substitute or change such addresses on written
notice thereof.
15.2 LAWS AND REGULATIONS
15.2.1 The laws of the Republic of Indonesia shall apply to
this Contract.
15.2.2 No term or provision of this Contract shall prevent
or limit the Government of the Republic of Indonesia from
exercising its inalienable rights.
15.3 SUSPENSION OF OBLIGATION
15.3.1 Any failure or delay on the part of Pertamina or
Contractors, or any of them, in the performance of their
obligations or duties under this Contract shall be excused if and
to the extent attributable to Force Majeure.
15.3.2 If operations are delayed, curtailed or prevented by
such causes, then the time for carrying out the obligations thereby
affected, the term of this Contract and all rights and obligations
hereunder shall be extended for a period equal to the period thus
involved.
15.3.3 The Party whose ability to perform its obligations is
so affected shall notify the other Party thereof in writing,
stating the cause, and both Pertamina and Contractors shall do all
reasonably within their power to remove such cause; provided, that
nothing herein contained shall require Pertamina or Contractors, or
any of them, to accede to the demands of labor unions or their
respective employees which either, as the case may be, considers
unreasonable.
15.4 PROCESSING OF PRODUCTS
15.4.1 Contractors shall be willing to consider entering
into another contract or loan agreement for the processing of
products derived from the Petroleum Operations hereunder, on
mutually agreeable terms.
15.4.2 Within the framework of the preceding principle,
Contractors would agree on the conditions stated below to have
refined in Indonesia 28.57% of the share of Crude Oil to which they
are entitled pursuant to Sections 6.1.3 and 6.3.1, and should no
refining capacity be available therefor, to set up a corresponding
refining capacity for that purpose. The conditions above referred
to are that:
(a) Pertamina has first requested Contractors thereto;
(b) Contractors' share of Crude Oil pursuant to Sections
6.1.3 and 6.3.1 hereof be not less than 175,000 Barrels
per day; and
(c) If refining capacity has to be erected, that the
setting up and use of such refining capacity be
economical in the judgment of the Parties.
15.4.3 It is further agreed that Contractors may in lieu of
setting up such refining capacity, but subject to the same
conditions, make an equivalent investment in another project
related to the Petroleum or petrochemical industries.
15.4.4 Petroleum to be delivered to such facilities would be
sold by Contractors at the net realized prices f.o.b. Indonesia
received by Contractors established pursuant to Section VII hereof
or at another mutually agreed price.
SECTION XVI
EFFECTIVENESS
16.1.1 This Contract shall come into effect on the Effective
Date.
16.1.2 This Contract shall not be annulled, amended or
modified in any respect except by the mutual consent in writing of
the Parties.
IN WITNESS WHEREOF, PERTAMINA AND CONTRACTORS have executed
this Contract, in quadruplicate and in the English language, as of
the day and year first above written.
PERUSAHAAN PERTAMBANGAN ROY M. HUFFINGTON INC.
MINYAK DAN GAS BUMI NEGARA
(PERTAMINA)
By: By:
VIRGINIA INTERNATIONAL COMPANY VIRGINIA INDONESIA COMPANY
By: /s/ By: /s/
ULTRAMAR INDONESIA LIMITED UNION TEXAS EAST KALIMANTAN
LIMITED
By: /s/ By: /s/
UNIVERSE GAS & OIL COMPANY, INC. HUFFINGTON CORPORATION
By: By:
APPROVED by the Minister of Mines and Energy this day
of 1990, on behalf of the Government of the Republic
of Indonesia.
/s/
EXHIBIT "A"
[To be provided]
EXHIBIT "B"
Attached to and made an integral part of the Contract between
Perusahaan Pertambangan Minyak dan Gas Bumi Negara (Pertamina) and
Roy M. Huffington, Inc., Virginia International Company, Virginia
Indonesia Company, Ultramar Indonesia Limited, Union Texas East
Kalimantan Limited, Universe Gas & Oil Company, Inc. and Huffington
Corporation ("Contractors").
1. CONTRACT AREA
1.1 The "Contract Area", as defined in Section 1.2 of the
Contract to which this Exhibit "B" is attached, means the area
outlined on Exhibit "A" to such Contract, which area is more
particularly described as follows:
Using the Greenwich Coordinate system, starting at point
"A", located at the intersection of the coastline at
high tide and coincidental with the Equator, proceed
Southwest following the coastline at high tide to point
"B", located at the intersection of the coastline at
high tide and 01o30'00" South latitude;
Thence, due West in a direct line coincidental with
01o30'00" South latitude to point "C", located at
116o21'16" East longitude and 01o30'00" South latitude;
Thence, Northeasterly in a direct line to point "D",
located at 116o30'04" East longitude and 01o21'15" South
latitude;
Thence, due East in a direct line coincidental with
01o21'15" South latitude to point "E", located at
116o32'30" East longitude and 01o21'15" South latitude;
Thence, Northeasterly in a direct line to point "F",
located at 116o39'14" East longitude and 01o13'38" South
latitude;
Thence, Northeasterly in a direct line to point "G",
located at 116o48'53" East longitude and 00o54'05" South
latitude;
Thence, Northwesterly in a direct line to point "H",
located at 116o42'47" East longitude and 00o35'53" South
latitude;
Thence, Northeasterly in a direct line to point "I",
located at 116o45'44" East longitude and 00o30'00" South
latitude;
Thence, due East in a direct line coincident with
00o30'00" South latitude to point "J", located at
116o51'13" East longitude and 00o30'00" South latitude;
Thence, Southeasterly in a direct line to point "K",
located at 116o53'49" East longitude and 00o36'00" South
latitude;
Thence, due East in a direct line coincident with
00o36'00" South latitude to point "L", located at
117o03'37" East longitude and 00o36'00" South latitude;
Thence, Northeasterly in a direct line to point "M",
located at 117o04'42" East longitude and 00o30'51" South
latitude;
Thence, due East in a direct line coincident with
00o30'51" South latitude to point "N", located at
117o09'13" East longitude and 00o30'51" South latitude;
Thence, Northeasterly in a direct line to point "O",
located at 117o10'53" East longitude and 00o21'49" South
latitude;
Thence, Northeasterly in a direct line to point "P",
located at 117o17'00" East longitude and 00o04'20" South
latitude;
Thence, due East in a direct line coincident with
00o04'20" South latitude to point "Q", located at
117o20'00" East longitude and 00o04'20" South latitude;
Thence, due North in a direct line coincident with
117o20'00" East longitude to point "R", located at
117o20'00" East longitude and the equator;
Thence, due East in a direct line coincident with the
equator to point "A", the point of beginning.
1.2 It is understood and agreed that within the Contract Area
where Pertamina had, prior to August 8, 1968, drilled, discovered
and established Natural Gas or other Petroleum reserves in fields
operated by it, Contractors shall have no interest in any of the
then known productive zones in these fields, and the same shall not
be part of the Contract Area. Such fields, including the depths of
such known productive zones, are described in Section 2 of this
Exhibit "B". Conversely, where Pertamina outside such fields had
no producing or shut-in reserves as of August 8, 1968 and where
Contractors may discover Natural Gas or other Petroleum,
Contractors shall be entitled to their share of such production at
any and all depths.
1.3 It is the intention and desire of both Parties to this
Contract to have Contractors also drill deep tests on selected
producing structures, and, where Contractors establish production
in deeper zones than those that were productive as of August 8,
1968, Contractors shall share in this new production in accordance
with the terms of this Contract. However, prior to drilling deeper
tests on such known producing structures, where Pertamina and
Contractors shall jointly decide it is desirable, Pertamina and
Contractors shall determine the depth of the lowest producing zone
in the field, and any new production discovered in formations or
beds below such lowest zone shall be jointly shared by Pertamina
and Contractors in accordance with the terms of this Contract.
2. EXCLUDED AREAS
The shallow producing fields as of August 8, 1968 reserved by
Pertamina in Section 1.2 of this Exhibit "B" are described by the
longitudinal and latitudinal coordinates of the corners of their
respective boundaries, with the depths reserved expressed in feet,
below. Except as otherwise noted, the boundary lines of such
fields are straight lines running from point to point.
Field Point Longitude Latitude
1. Klandasan- A 116o43'24" 01o15'45"
Wailawi B 116o46'22" 01o15'45"
C 116o57'22" 01o10'25"
D 116o57'22" 01o14'15"
E 116o50'02" 01o16'25"
F 116o46'02" 01o16'25"
G 116o45'42" 01o21'10"
H 116o43'24" 01o21'10"
The boundaries of the Klandasan-Wailawi fields between points D and
E and between points F and G follow the coast line at high tide of
the island of Kalimantan. The depth reserved for the Klandasan-
Wailawi field is 1,772 feet.
2. Samboja/Jembatan A 117o01'32" 00o59'30"
Bengkok B 117o02'32" 00o59'55"
C 117o01'52" 01o00'40"
D 117o01'52" 01o03'35"
E 117o00'32" 01o03'35"
F 117o00'32" 01o00'15"
The depths reserved for the Samboja/Jembatan Bengkok field are,
with respect to the portion bounded by lines whose corners are
situated at points A, B, C and F (Jembatan Bengkok), 1,627 feet;
and, with respect to the portion bounded by lines whose corners are
situated at points F, C, D and E (Samboja), 5,611 feet.
3. Sanga-Sanga A 117o17'17" 00o26'55"
B 117o19'22" 00o26'55"
C 117o19'22" 00o32'20"
D 117o18'32" 00o33'55"
E 117o18'12" 00o34'40"
F 117o17'27" 00o36'05"
G 117o17'17" 00o36'30"
H 117o13'52" 00o43'10"
I 117o12'12" 00o42'25"
J 117o14'57" 00o36'55"
K 117o15'52" 00o34'55"
L 117o16'52" 00o32'55"
M 117o17'32" 00o31'35"
The depths reserved for the Sanga-Sanga field are, with respect to
the portion bounded by lines whose corners are situated at points
A, B, C and M (North Kutai Lama), 6,240 feet; with respect to the
portion bounded by lines whose corners are situated at points M, C,
D and L (South Kutai Lama), 3,770 feet; with respect to the portion
bounded by lines whose corners are situated at points L, D, E and
K (Anggana), 3,803; with respect to the portion bounded by lines
whose corners are situated at points K, E and F (Tanjung Una),
2,943 feet; with respect to the portion bounded by lines whose
corners are situated at points K, F, G and K (Muara), 4,003 feet;
and with respect to the portion bounded by lines whose corners are
situated at points J, G, H and I (Louise), 4,807 feet.
4. Sei Nangka A 117o06'17" 00o43'10"
B 117o08'57" 00o43'10"
C 117o05'47" 00o50'50"
D 117o03'07" 00o50'50"
The depth reserved for the Sei Nangka field is 1,503 feet.
5. Sambutan A 117o11'17" 00o30'10"
B 117o12'12" 00o30'10"
C 117o12'02" 00o32'20"
D 117o11'17" 00o32'20"
The depth reserved for the Sambutan field is 4,062 feet.
6. Binangat-Pelarang A 117o13'57" 00o24'50"
B 117o14'52" 00o24'50"
C 117o14'1.69" 00o27'0.4"
D 117o13'02" 00o29'25"
E 117o12'12" 00o29'25"
F 117o13'07" 00o27'0.4"
The depths reserved for the Binangat-Pelarang fields are, with
respect to the portion bounded by lines whose corners are situated
at points A, B, C and F (Binangat), 2,238 feet; and with respect to
the portion bounded by lines whose corners are situated at points
F, C, D and E, 2,159 feet.
7. Ulu Karang A 117o15'47" 00o22'15"
Mumus-Bivak B 117o16'42" 00o22'15"
C 117o16'28.47" 00o23'15.40"
D 117o15'52" 00o24'30"
E 117o14'57" 00o24'30"
F 117o15'27.54" 00o23'15.40"
The depths reserved for the Ulu Karang Mumus-Bivak fields are, with
respect to the portion bounded by lines whose corners are situated
at points A, B, C and F (Bivak), 1,962 feet; and with respect to
the portion bounded by lines whose corners are situated at points
F, C, D and E (Ulu Karang Mumus), 1,972 feet.
8. Semberah A 117o18'12" 00o16'05"
B 117o19'02" 00o16'05"
C 117o18'32" 00o17'25"
D 117o18'42" 00o17'25"
E 117o18'42" 00o18'25"
F 117o18'04" 00o18'25"
G 117o17'17" 00o20'35"
H 117o16'32" 00o20'35"
The depth reserved for the Semberah field is 3,973 feet.
3. SECONDARY RECOVERY OPERATIONS
3.1 Contractors will be willing to consider secondary
recovery operations in previously abandoned fields or essentially
depleted fields where Pertamina may consider it feasible and
desirable, and in such instances these areas shall be considered to
be part of the Contract Area.
EXHIBIT "C"
Attached to and made an integral part of the Contract between
Perusahaan Pertambangan Minyak dan Gas Bumi Negara ("Pertamina")
and Roy M. Huffington, Inc., Virginia International Company,
Virginia Indonesia Company, Ultramar Indonesia Limited, Union Texas
East Kalimantan Limited, Universe Gas & Oil Company, Inc. and
Huffington Corporation ("Contractors").
ACCOUNTING PROCEDURE
Article I
General Provision
1. Definitions
The accounting procedure herein provided for is to be followed
and observed in the performance of either Party's obligations under
the Contract to which this Exhibit "C" is attached. The
definitions and terms appearing in this Exhibit "C" shall have the
same meaning as those defined in said Contract.
2. Accounts and Statements
Pertamina's and Contractors', as the case may be, accounting
records and books will be kept in accordance with generally
accepted and recognized accounting systems, consistent with modern
petroleum industry practices and procedures. Books and reports
will be maintained and prepared in accordance with methods
established by Pertamina. The chart of accounts and related
account definitions will be prescribed by Pertamina. Reports will
be organized for the use of Pertamina in carrying out its
management responsibilities under this Contract.
Article II
Operating Costs
The Parties, as the case may be, shall maintain an "Operating
Costs Account" in which there shall be reflected all Operating
Costs in connection with Petroleum Operations carried out under
this Contract.
1. Definition
For any Year in which commercial production occurs, Operating
Costs consist of (a) current Year's non-capital costs, (b) current
Year's depreciation for capital costs, and (c) current Year's
allowed recovery of prior year's unrecovered Operating Costs.
2. Non-Capital Costs
Non-capital costs means those Operating Costs incurred that
relate to the current Year's operations. In addition to costs
relating only to current operations, the costs of surveys and the
intangible costs of drilling exploratory and development wells as
described in paragraphs (c), (d) and (e) below, will be classified
as non-capital costs. Non-capital costs include, but are not
limited to, the following:
(a) Operations - Labor, materials and services used in day to
day oil well operations, oil field production facilities
operations, secondary recovery operations, storage,
handling, transportation and delivery operations, gas
well operations, gas field production facilities
operations, gas transportation, and delivery operations,
gas processing auxiliaries and utilities, and other
operating activities, including repairs and maintenance.
(b) Office, Services and General Administration - General
services including technical and related services,
material services, transportation, rental of specialized
and heavy engineering equipment, site rentals and other
rentals of services and property, personnel expenses,
public relations, and other expenses abroad.
(c) Production Drilling - Labor, materials, supplies and
services used in drilling wells with the object of
penetrating a proven reservoir, including the drilling of
delineation wells as well as redrilling, deepening or
recompleting wells, and access roads leading directly to
wells.
(d) Exploratory Drilling - Labor, materials, supplies and
services used in the drilling of wells with the object of
finding unproven reservoirs of Crude Oil and Natural Gas,
and access roads leading directly to wells.
(e) Surveys - Labor, materials, supplies and services used in
aerial, geological, topographical, geophysical and
seismic surveys, and core hole drilling.
(f) Other Exploration Expenditures - Auxiliary or temporary
facilities having lives of one year or less used in
exploration and purchased geological and geophysical
information.
3. Capital Costs
Capital Costs means expenditures made for items which normally
have a useful life beyond the Year incurred. A reasonable annual
allowance for depreciation of capital costs, computed as described
in Article III, Section 1, will be allowed as a recoverable
Operating Cost for the current Year. Capital costs include
classification described herein but are not limited to the
following specifications:
(a) Construction Costs of Utilities and Auxiliaries - Work
shops, power and water facilities, warehouse and field
roads except the access roads mentioned in Paragraphs
2(c) and 2(d) above.
(b) Construction, Housing and Welfare - Housing, recreational
facilities and other tangible property incidental to
construction.
(c) Production Facilities - Offshore platforms (including the
costs of labor, fuel, hauling and supplies for both the
offsite fabrication and onsite installation of platforms,
and other construction costs in erecting platforms and
installing submarine pipelines), wellhead equipment,
subsurface lifting equipment, production tubing, sucker
rods, surface pumps, flow lines, gathering equipment,
delivery lines, storage facilities, oil jetties and
anchorages, treating plants and equipment, secondary
recovery systems, gas plants and steam systems.
(d) Movables - Surface and subsurface drilling and production
tools, equipment and instruments, barges, floating craft,
automotive equipment, aircraft, construction equipment,
furniture and office equipment and miscellaneous
equipment.
Article III
Accounting Methods To Be Used To
Calculate Recovery of Operating Costs
1. Depreciation
Depreciation for each asset will be calculated beginning the
Year in which it is placed into service, with a full Year's
depreciation allowed the initial Year. The method used to
calculate each Year's allowable recovery of capital costs is the
double declining balance depreciation method. A switchover to the
straight line method is allowed whenever it becomes advantageous to
the Contractors. The lives to be used by Group II contractors, as
defined in Subsection 2 of this Article, is as follows:
Construction utilities and auxiliaries 14 years
Construction housing and welfare 20 years
Production facilities 14 years
Movables:
Automobiles and pickups except buses 3 years
Trucks -light (less than 13,000 pounds
and tractor units 4 years
Trucks -heavy (more than 13,000 pounds)
and trailers 6 years
Buses 9 years
Aircraft 6 years
Railroad cars and locomotives 15 years
Vessels, barges, tugs and similar water
transportation equipment 18 years
Drilling and production tools, equipment
and instruments 14 years
Construction equipment 6 years
Furniture and office equipment 10 years
The lives to be used by Group I contractors, as defined in
Subsection 2 of this Article, are one-half (50%) of the lives
described above.
If a Contractor is reclassified into Group II, as described
in Subsection 2 of this Article, assets capitalized prior to the
Year of reclassification will continue to depreciate based upon
one-half (50%) of the lives described above. If a Contractor is
reclassified into Group I, as described in Subsection 2 of this
Article, the undepreciated balance of assets capitalized prior to
the Year of reclassification will be depreciated over the remaining
Group I lives. The undepreciated balance of assets taken out of
services will not be charged to Operating Costs but will continue
depreciating based upon the lives described above, except where
such assets have been subjected to unanticipated destruction, for
example, by fire or accident.
2. Group I/Group II Classification
Contractors shall be classified as either Group I or Group II
with respect to both Crude Oil and Natural Gas depending on the
ratio of the proven reserves to estimated yearly production of the
Contract Area as follows:
Group I In the case of proven reserves having seven or fewer
years of remaining production.
Group II In the case of proven reserves having more than
seven years of remaining production.
A separate calculation shall be made for Crude Oil and Natural
Gas and Contractors may be treated as a Group I Contractors for
Crude Oil and Group II Contractors for Natural Gas or vice versa.
Contractors shall be considered to be Group I Contractors for all
assets attributable to new oil fields commencing production in 1977
or later. If Contractors are initially classified as Group I, a
recalculation of the ratio of the proven reserves to estimated
yearly production will be performed when additional proven reserves
have been discovered. This recalculation may result in a
reclassification of Contractors into Group II. If Contractors are
initially classified as Group II, a reclassification to Group I
will result if the ratio of the remaining proven reserves to the
estimated production of the immediately succeeding Year is seven or
less.
3. Overhead Allocation
General and administrative costs, other than direct charges,
allocable to this operation should be determined by a detailed
study, and the method determined by such a study shall be applied
each Year consistently. The method selected must be approved by
Pertamina, and such approval can be reviewed periodically by
Pertamina and Contractors.
4. Interest Recovery
Interest at rates not exceeding prevailing commercial rates
may be allowed as a recoverable Operating Cost for financing of
capital investments whether such financing is obtained from
Affiliates or the parent companies of Contractors or from third
party Nonaffiliates. Details of financing plan and amounts must be
included in each Year's budget of Operating Costs and approved by
Pertamina. For purposes of interest recovery, all other financing
must be approved by Pertamina.
5. Allocation of Oil and Gas Costs
Operating Costs directly associated with the production of
Natural Gas will be directly chargeable against Natural Gas
revenues in determining entitlements under Section 6.2.3.
Operating Costs incurred for production of both Natural Gas and
Crude Oil will be allocated to Natural Gas and Crude Oil based on
the relative value of the products produced for the current Year.
Common support costs will be allocated on an equitable basis
agreed to by both Parties.
If after commencement of production the Natural Gas revenues
do not permit full recovery of Natural Gas costs, as outlined
above, then the excess costs shall be recovered from Crude Oil
revenues.
Likewise, if excess Crude Oil costs (Crude Oil costs less
Crude Oil revenues) exist, this excess can be recovered from
Natural Gas revenues. If production of either Natural Gas or Crude
Oil has commenced while the other has not, the allocable production
costs and common support costs will be allocated in an equitable
manner. Propane and Butane fractions extracted from Natural Gas
but not spiked in Crude Oil shall be deemed as Natural Gas for the
purpose of accounting.
6. Inventory Accounting
The costs of non-capital items purchased for inventory will
be recoverable at such time as the items have landed in Indonesia.
7. Order of Priority
(a) Recovery of Operating Costs in principle takes priority
over the Investment Credit allowance. However, the
Investment Credit to which Contractors become entitled
in any Year may only be recovered within that Year or
the next following Calendar Year and the above priority
rule may be disregarded if necessary to allow full
recovery of the Investment Credit in those two Years.
(b) Operating Costs recoverable out of Crude Oil Production
pursuant to Subsection 6.1.2 of the Contract shall be
recovered in the following order:
(i) Amortization of non-capital carryforward provided
for in Paragraph 2 of Article IV hereof.
(ii) Amortization of capital carryforward provided for
in Paragraph 4 of Article IV hereof.
(iii) Unrecovered prior Year non-capital costs.
(iv) Unrecovered prior Year depreciation of capital
assets.
(v) Current Year non-capital costs.
(VI) Current Year's depreciation for capital costs.
The interest allowance pursuant to Paragraph 4 of
Article III hereof with respect to current Year's
capital costs shall be computed as current Year's
non-capital costs.
(c) Operating Costs recoverable out of Natural Gas
Production shall be recovered in the same order of
priority as Crude Oil listed in (b) above, except that
the entire Natural Gas Production shall be available for
cost recovery without deduction of the Investment
Credit.
8. Insurance and Claims
Operating Costs shall include premiums paid for insurance
normally required to be carried for the operations relating to
Contractors' obligations conducted under the Contract, together
with all expenditures incurred and paid in settlement of any and
all losses, claims, damages, judgments and other expenses including
fees relating to Contractors' obligations under the Contract.
CONTENTS
Section Page
I Scope and Definitions 2
II Term 4
III Exclusion of Areas 5
IV Work Program and Expenditures 5
V Rights and Obligations of the Parties 7
VI Recovery of Investment Credit and
Operating Costs and Handling of Production 11
VII Valuation of Crude Oil and Natural Gas 15
VIII Compensation and Production Bonuses 18
IX Payments and Currency 18
X Title to Equipment 19
XI Consultation and Arbitration 19
XII Employment and Training of Indonesian Personnel 20
XIII Termination 20
XIV Books and Accounts and Audits 21
XV Other Provisions 22
XVI Effectiveness 23
Exhibit "A":Map of Contract Area A-1
Exhibit "B":Description of Contract Area B-1
Exhibit "C":Accounting Procedure C-1