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
Effective as of the 8th day of August 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 10
VII Valuation of Crude Oil 14
VIII Compensation and Production Bonuses 17
IX Payments and Currency 17
X Title to Equipment 18
XI Consultation and Arbitration 18
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
TABLE OF CONTENTS
SCOPE AND DEFINITIONS - 2 -
TERM - 5 -
EXCLUSION OF AREAS - 5 -
WORK PROGRAM AND EXPENDITURES - 6 -
RIGHTS AND OBLIGATIONS OF THE PARTIES - 6 -
RECOVERY OF INVESTMENT CREDIT AND OPERATING
COSTS AND HANDLING OF PRODUCTION - 11 -
VALUATION OF CRUDE OIL AND NATURAL GAS - 15 -
COMPENSATION AND PRODUCTION BONUSES - 18 -
PAYMENTS AND CURRENCY - 19 -
TITLE TO EQUIPMENT - 19 -
CONSULTATION AND ARBITRATION - 20 -
EMPLOYMENT AND TRAINING OF INDONESIAN PERSONNEL - 20 -
TERMINATION - 21 -
BOOKS AND ACCOUNTS AND AUDITS - 21 -
OTHER PROVISIONS - 22 -
EFFECTIVENESS - 24 -
PRODUCTION SHARING CONTRACT
THIS PRODUCTION SHARING CONTRACT (this "Contract"), is made
and entered into in Jakarta, Indonesia, on this day of
, 1990, to become effective as of August 8, 1998, 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
been amended and restated in its entirety by an Amended and
Restated Production Sharing Contract dated as of the date of
execution of this Contract between Pertamina and Contractors (such
Production Sharing Contract, as so amended and restated, being
herein called the "Predecessor Production Sharing Contract"); and
WHEREAS, all of the interest of Huffco and Virginia in the
Predecessor Production Sharing Contract is now held by Contractors;
and
WHEREAS, the Predecessor Production Sharing Contract will
expire by its terms at midnight on August 7, 1998, and Pertamina
and Contractors desire to enter into this Contract to provide for
the continued exploration and development of the Contract Area from
and after such date; 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 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;
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.
Badak Unit means the unit area defined in the Badak Gas Unit
Joint Operating Agreement dated as of January 1, 1976 between
Contractors, or their respective predecessors in interest, and the
Total Group, including the depth limitation specified therein,
which agreement was approved on behalf of the Republic of Indonesia
by letter No. 220/D.J./Migas/77 dated 26 December 1977 from the
Director General for Oil and Natural Gas of the Department of Mines
and by Pertamina by letter No. 25/DR/DU/1978 dated 12 January 1978.
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 August 8, 1998, which date is recognized
to be later than the date of approval of this Contract 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.
Nilam Unit means the unit area defined in the Nilam Unit
Agreement dated as of January 1, 1980 between Contractors, or their
respective predecessors in interest, and the Total Group, including
the depth limitation specified therein, which agreement was
approved on behalf of the Republic of Indonesia by letter No.
2231/DM/Migas/1982 dated 31 December 1982 from the Director General
for Oil and Natural Gas of the Department of Mines and Energy and
by Pertamina by letter No. 9534/D0421/82-S1 dated 2 August 1982.
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.
Total Group means Total Indonesie and Indonesia Petroleum,
Ltd., or its predecessor in interest.
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 twenty (20) years
as from August 8, 1998.
SECTION III
EXCLUSION OF AREAS
3.1.1 Pursuant to the terms of the Predecessor Production
Sharing Contract, Contractors are obligated to relinquish portions
of the Contract Area comprising thirty percent (30%) of its area
prior to the Effective Date. Contractors shall carry on Petroleum
Operations hereunder on the unrelinquished portion of the Contract
Area.
3.1.2 In addition to the relinquishments of portions of
the Contract Area provided for in the Predecessor Production
Sharing Contract, the Parties agree that the following additional
surrenders of portions of the Contract Area shall be made:
(a) By not later than December 31, 2000 Contractors shall
surrender an area equal to ten percent (10%) of the
Contract Area;
(b) By not later than December 31, 2002 Contractors shall
surrender an additional area equal to fifteen percent
(15%) of the Contract Area; and
(c) By not later than December 31, 2004 Contractors shall
surrender an additional area equal to fifteen percent
(15%) 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 shall carry out Petroleum Operations
under this Contract from and after the Effective Date.
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.
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 to the Government of the
Republic of Indonesia the Income Tax including
final tax on profits after tax deduction imposed on
it pursuant to the Indonesian Income Tax Law and
its implementing regulations. Contractors shall
comply with the requirements of the law in
particular with respect to filing of returns,
assessments of tax and keeping and showing of books
and records.
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 Income Tax
including final tax on profits after tax deduction
as provided in Section 5.1.2(s), assume and
discharge other Indonesian taxes of Contractors,
including value added taxes, transfer taxes, sales
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 Income Tax including
final tax on profits after tax deduction, 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, 61.5385% for Pertamina and 38.4615%
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 61.5385% and Contractors 38.4615% 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 71.1538% and Contractors 28.8462% 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 80.7692% and Contractors 19.2308 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 subparagraphs (a) and (b) above,
each year Pertamina shall be entitled to take and
receive 71.1538% and Contractors shall be entitled
to take and receive 28.8462%. Crude Oil under this
subparagraph (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 seventeen percent (17%) 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 all costs and revenues derived
from such processing, utilization and sale of Natural Gas shall be
treated on a basis equivalent to that provided for herein
concerning Petroleum Operations and disposition of Crude Oil,
except of the Natural Gas and propane and butane fractions
extracted from Natural Gas but not spiked in Crude Oil after
deducting Operating Costs associated with Natural Gas operations as
stipulated in Exhibit "C", the following shall apply:
(a) With respect to Natural Gas produced and saved from the
Badak Unit and the Nilam Unit which is attributable to
this Contract and sold under (i) the LNG Sales Contract
dated December 3, 1973 between Pertamina and certain
buyers in Japan (including LNG delivered under such LNG
Sales Contract in accordance with the Supply Agreement
for Korean Carry-Over Quantities dated December 30, 1987
between Pertamina and Contractors), (ii) the Badak LNG
Sales Contract dated April 14, 1981 between Pertamina and
certain buyers in Japan, (iii) seven (7) contracts for
the sale of LPG, each dated July 15, 1986 and entitled
Arun and Bontang LPG Sales and Purchase Contract, between
Pertamina and certain buyers in Japan, and (iv) any
renewal or extension of any of such contracts, Pertamina
shall be entitled to take and receive 51.9231% and
Contractors shall be entitled to take and receive
48.0769%. If any Natural Gas is supplied from other
fields in the Contract Area and sold under any of the
above-mentioned sales contracts in place of proved
reserves of Natural Gas from the Badak Unit and Nilam
Unit, to the extent such proved reserves were certified
and used in the determination of participation by
Contractors in support of Pertamina's obligations under
such sales contracts, such substitute Natural Gas will
also be shared as provided in this Section 6.2.2(a).
This production represents a separate segment from that
specified in subparagraph (b) below.
(b) With respect to all other Natural Gas produced and saved
from the Contract Area, including Natural Gas produced
and saved from the Badak Unit and the Nilam Unit which is
attributable to this Contract and sold under LNG sales
contracts other than those specified in the preceding
paragraph, Pertamina shall be entitled to take and
receive 42.3077% and Contractors shall be entitled to
take and receive 57.6923%. This production represents a
separate segment from that specified in subparagraph (a)
above.
The deduction of Operating Costs before the entitlements are taken
by each respective Party as provided under this Section 6.2.2 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. In connection with the foregoing,
production of Natural Gas delivered under supply agreements between
Pertamina and Contractors shall be allocated among the fields from
which such Natural Gas is produced (and, as to the Badak Unit and
Nilam Unit, between Natural Gas dealt with under subparagraphs (a)
and (b) above) in the ratio in which volumes of such Natural Gas
are deemed delivered under such supply agreements in such Year.
6.2.3 In the event, however, that 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, and such
First Tranche Petroleum comprising Natural Gas shall be shared
between Pertamina and Contractors in accordance with the sharing
splits provided under Section 6.2.2. Such First Tranche Petroleum
shall be apportioned to the respective production segments defined
in Sections 6.1.3 and 6.2.2 in the same ratios as production from
each such segment (or, in the case of Natural Gas delivered under
supply agreements, deemed production under each such segment) over
total production for the Year.
6.4 UNRECOVERED COSTS UNDER PREDECESSOR PRODUCTION SHARING
CONTRACT
6.4.1 It is agreed that the undepreciated balance as of
the Effective Date of each asset placed in service under the
Predecessor Production Sharing Contract shall be carried forward
and depreciated under the terms of this Contract, and that any
Operating Costs or Investment Credit recoverable under the terms of
the Predecessor Production Sharing Contract and remaining
unrecovered as of the Effective Date shall be carried forward and
recovered under the terms of this Contract.
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 Investment
Credit and 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 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 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 The consideration for Pertamina to enter into this
Contract is provided for in Section 8.1.1 of the Predecessor
Production Sharing Contract.
8.1.2 The Predecessor Production Sharing Contract contains
in Section 8.1.1(b) a provision pursuant to which Contractors shall
pay to Pertamina a certain bonus contingent on the occurrence of a
specified level of cumulative production of Crude Oil from the
Contract Area. If such bonus has not been paid by the Effective
Date, then Contractors agree to pay to Pertamina, in lieu of such
bonus specified in the Predecessor Production Sharing Contract, a
production bonus of US $5,000,000, which 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. If such
bonus specified in the Predecessor Production Sharing Contract
shall have been paid prior to the Effective Date, then Contractors
shall have no obligation under this Contract to pay such bonus.
8.1.3 The above-described bonus shall be borne solely by
Contractors and shall not be included in or recoverable as
Operating Costs. It is acknowledged that (a) the amount of such
bonus payment has been determined based on the tax law specified in
Section 5.1.2(s), and (b) for Indonesian tax purposes 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 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 Contractor 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 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, including the
agreement of the Parties to submit to arbitration hereunder, 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.
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: /s/ By: /s/
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: /s/ By: /s/
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 supplied]
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 describedin 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 Provisions
1. Definitions
The accounting procedure herein provided for is to be followed
and observed in the performance of each 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. Account 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
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 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) 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 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 and services used
in the drilling of wells with the object of finding
unproven reservoirs of oil and gas, and access roads
leading directly to wells.
(e) Surveys - Labor, materials 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 mean 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 Utilities and Auxiliaries - Work shops,
power and water facilities, warehouses, 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. Costs of 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 will be calculated beginning the Year in which
the asset 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 declining balance
depreciation method. Calculation of each such Year's allowable
recovery of Capital Costs should be based on the individual asset's
Capital Cost at the beginning of such Year multiplied by the
depreciation factor as follows, for:
- Group 1 = 50%
- Group 2 = 25%
- Group 3 = 10%
For the Groups of capital assets for any Crude Oil project or
for Natural Gas projects having reserves of seven (7) years or
less, apply useful lives as follows:
Group 1
Automobiles 1.5 years
Trucks-light (less than 13,000 pounds) and
tractor units 2.0 years
Trucks-heavy (more than 13,000 pounds) 3.0 years
Buses 4.5 years
Aircraft 3.0 years
Construction equipment 3.0 years
Furniture and office equipment 5.0 years
Group 2
Construction utilities and auxiliaries 5.0 years
Construction housing and welfare 10.0 years
Production facilities 5.0 years
Railroad cars and locomotives 7.5 years
Vessels, barges, tugs and similar water
transportation equipment 9.0 years
Drilling and production tools, equipment and
instruments 5.0 years
For the Groups of capital assets for Natural Gas projects having
reserves of more than 7 years, apply useful lives as follows:
Group 1
Automobiles 3.0 years
Trucks-light (less than 13,000 pounds) and
tractor units 4.0 years
Trucks-heavy (more than 13,000 pounds) and
trailers 6.0 years
Group 2
Aircraft 6.0 years
Vessels, barges, tugs and similar water
transportation equipment 18.0 years
Drilling and production tools, equipment and
instruments 8.0 years
Construction equipment 6.0 years
Furniture and office equipment 10.0 years
Group 3
Construction utilities and auxiliaries 8.0 years
Construction housing and welfare 20.0 years
Production facilities 8.0 years
Railroad cars and locomotives 15.0 years
Balance of unrecovered Capital Costs is eligible for full
depreciation at the end of the individual asset's useful life. The
undepreciated balance of assets taken out of service will not be
charged to Operating Cost 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. 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 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 the Contractors.
3. Interest Recovery
Interest on loans obtained by a Party from Affiliates or
parent companies or from third party non-affiliates at rates not
exceeding prevailing commercial rates for capital investments in
Petroleum Operations may be recoverable as Operating Costs.
Details of any financing plan and amounts must be included in each
Year's Budget of Operating Costs for the prior approval of
Pertamina. All other financing must also be approved by Pertamina.
4. Natural 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 6.2.2.
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) exists, 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.
5. Inventory Accounting
The costs of non-capital items purchased for inventory will be
recoverable at such time the items have landed in Indonesia.
6. Insurance and Claims
Operating Costs shall include premiums paid for insurance
normally required to be carried for the Petroleum 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' obligation under the
Contract.
CONTENTS
Section Page
I Scope and Definitions 2
II Term 5
III Exclusion of Areas 5
IV Work Program and Expenditures 6
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 15
VIII Compensation and Production Bonuses 18
IX Payments and Currency 19
X Title to Equipment 19
XI Consultation and Arbitration 20
XII Employment and Training of Indonesian Personnel 20
XIII Termination 21
XIV Books and Accounts and Audits 21
XV Other Provisions 22
XVI Effectiveness 24
Exhibit "A":Map of Contract Area A-1
Exhibit "B":Description of Contract Area B-1
Exhibit "C":Accounting Procedure C-1