BADAK III LNG SALES CONTRACT
SUPPLY AGREEMENT
THIS AGREEMENT, made and entered into in Jakarta the 19th day
of October, 1987, but effective as of the 19th day of March 1987,
by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA
("Pertamina"), on the one hand, and ROY M. HUFFINGTON, INC.
("Huffco"), HUFFINGTON CORPORATION, VIRGINIA INTERNATIONAL COMPANY,
VIRGINIA INDONESIA COMPANY, ULTRAMAR INDONESIA LIMITED, UNION
TEXAS
EAST KALIMANTAN LIMITED and UNIVERSE TANKSHIPS, INC. (herein
referred to collectively as "Contractors" and individually as
"Contractor"), on the other hand,
WITNESSETH
WHEREAS, Contractors individually own or control all of the
interest of "Contractors" in that certain Production Sharing
Contract, dated August 8, 1968, as amended, by and between PN
Pertambangan Minyak Nasional, predecessor of Pertamina as the Oil
and Gas State Enterprise of the Republic of Indonesia, on the one
hand, and Huffco and Virginia International Company (predecessors
in interest to Contractors) on the other (such contract as
heretofore and hereafter amended is herein referred to as the
"Production Sharing Contract" and the area covered thereby is
herein referred to as the "Huffco Contract Area"); and
WHEREAS, pursuant to the Production Sharing Contract, each of
Pertamina and Contractors is entitled to take and receive, sell and
freely export its respective share of the natural gas produced and
saved from the Huffco Contract Area (the percentage share of such
natural gas to which each of Pertamina and Contractors is entitled,
as determined under the Production Sharing Contract, is herein
referred to as the "Production Sharing Percentage" of such party);
and
WHEREAS, the reserves of natural gas in the Huffco Contract
Area exceed the reserves committed to be produced, supplied and
delivered by Pertamina and Contractors to meet a portion of
Pertamina's existing obligations under LNG sales contracts, LPG
sales contracts, and domestic gas sales contracts; and
WHEREAS, Pertamina, with assistance from Contractors, is
constructing one additional liquefaction train at the natural gas
liquefaction plant located at Bontang Bay, on the east coast of
Kalimantan, Indonesia (as so expanded, the "Bontang Plant") which
expansion will include construction of such additional port,
utility, plant and other facilities as may be required; and
WHEREAS, funds for the expansion of the liquefaction plant
will be provided to Pertamina through financing of the cost of such
expansion on terms mutually agreeable to Pertamina and Contractors
which provide for the repayment of funds provided pursuant to such
financing and the cost of such funds (repayment of funds and the
cost of such funds are hereinafter referred to as "Financing
Costs"); and
WHEREAS, Pertamina and Contractors are parties to the Bontang
LNG Processing Agreement dated as of July 1, 1983 (as from time to
time amended, the "Processing Agreement"), which provides for the
operation of the Bontang Plant and the payment of the costs of such
operation (such costs as determined in accordance with the
Processing Agreement are herein referred to as "Plant Operating
Costs"); and
WHEREAS, Pertamina and Contractors have agreed to use the
Bontang Plant in part for the liquefaction of the Huffco Contract
Gas (as hereinafter defined) and the Other Contract Gas (as
hereinafter defined); and
WHEREAS, it is contemplated that additional LNG resulting from
the increased capability of the Bontang Plant will be sold on the
basis of the highest price and most favorable terms available for
such LNG; and
WHEREAS, Pertamina, in collaboration with Contractors and its
production sharing contractors in the other contract areas in East
Kalimantan (herein referred to as the "Other Contract Areas") has
made arrangements for the sale and supply to Chinese Petroleum
Corporation ("Buyer"), pursuant to the Badak III LNG Sales Contract
dated March 19, 1987 (the "Badak III LNG Sales Contract"), of LNG
produced from natural gas supplied from the Huffco Contract Area
and the Other Contract Areas; and
WHEREAS, Pertamina, in collaboration with Contractors and the
production sharing contractors in the Other Contract Areas, has
made arrangements for the transportation of LNG sold pursuant to
the Badak III LNG Sales Contract in an LNG tanker chartered by
Pertamina and the payment of costs respecting such transportation
(herein referred to as "Transportation Costs"); and
WHEREAS, Pertamina and each Contractor desire to supply and
deliver natural gas from the Huffco Contract Area in support of the
performance by Pertamina of its obligations under the Badak III LNG
Sales Contract; and
WHEREAS, each Contractor desires to dispose of its Production
Sharing Percentage of the Huffco Contract Gas (as hereinafter
defined) in accordance with the terms of this Agreement,
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
This Agreement shall be effective as above first stated and
shall terminate on the date the Badak III LNG Sales Contract
terminates.
ARTICLE 2
2.1 The total quantity of net natural gas required to be
supplied and delivered out of recoverable reserves of natural gas
in East Kalimantan for liquefaction and sale as LNG under the Badak
III LNG Sales Contract is estimated to be 1.643 trillion standard
cubic feet ("t.s.c.f."): such quantity is herein referred to as the
"Badak III Base Net Gas Requirement". The Badak III Base Net Gas
Requirement is based on the "Fixed Quantities" of LNG which Buyer
is initially committed to purchase under the Badak III LNG Sales
Contract. In addition to such Fixed Quantities, further quantities
of LNG may be required under the Badak III LNG Sales Contract for
such purposes as cool-down cargoes, LNG which Buyer has an option
or obligation to purchase as additions or adjustments to Fixed
Quantities and "Additional LNG" which may be purchased from time to
time. The additional quantities of net natural gas, estimated not
to exceed 0.395 t.s.c.f., required to be supplied for liquefaction
and sale in respect of such further amounts of LNG is herein called
the "Badak III Additional Net Gas Requirement". "Fixed Quantities",
"Fixed Quantity Period" and "Additional LNG", as used above, shall
have the meanings defined in the Badak III LNG Sales Contract.
2.2 Pertamina and Contractors hereby commit and agree to
supply and deliver from recoverable reserves of natural gas in the
Huffco Contract Area sufficient natural gas (and LNG resulting from
the liquefaction thereof) to meet a portion of the Badak III Base
Net Gas Requirement and the Badak III Additional Net Gas
Requirement over the term of this Agreement consisting of 0.603
t.s.c.f., or 29.6004% thereof, subject to adjustment provided in
Section 2.4. Such quantities of net natural gas committed to be
supplied pursuant to this Agreement are herein referred to as the
"Huffco Contract Gas", and the above-stated percentage is herein
referred to as the "Producers' Percentage".
2.3 To meet the balance of the Badak III Base Net Gas
Requirement and the Badak III Additional Net Gas Requirement
constituting 1.435 t.s.c.f., subject to adjustment as provided in
Section 2.4, sufficient natural gas (and LNG resulting from the
liquefaction thereof) will be committed for supply and delivery by
Pertamina and its production sharing contractors from recoverable
reserves of natural gas in the Other Contract Areas by separate
supply agreements, similar hereto and compatible herewith, executed
and delivered concurrently herewith (such amounts are herein
collectively referred to as the "Other Contract Gas").
2.4 The amounts of net natural gas constituting the Huffco
Contract Gas and the Other Contract Gas are part of the estimates
of proved recoverable reserves of natural gas as certified by the
independent petroleum consultant firm of DeGolyer and MacNaughton
in written statements dated on or before April 10, 1986, based on
data available on January 31, 1986.
The figures for the Huffco Contract Gas, the Other Contract
Gas and the Producers' Percentage set forth in Sections 2.2 and 2.3
are based on data available as of the date of execution of this
Agreement. Such figures shall be adjusted to take into account
more accurate data in respect of the various supply sources with
regard to:
(a) field shrinkage;
(b) past and future flare and fuel use;
(c) CO2 and other inert content;
(d) plant condensate.
2.5 Upon completion of the adjustments provided for in
Section 2.4, but not later than the date of loading the initial
cargo of LNG for delivery under the Badak III LNG Sales Contract,
Pertamina and Contractors shall execute a memorandum supplemental
to this Agreement confirming the quantity of the Huffco Contract
Gas and the Other Contract Gas and the Producers' Percentage.
ARTICLE 3
The Huffco Contract Gas and the Other Contract Gas may be
produced from different fields at times and production rates which
may change from time to time during the term hereof so as to secure
the optimal ultimate recovery of natural gas. The supply of natural
gas from the Huffco Contract Area and the Other Contract Areas will
be coordinated among Pertamina, Huffco and the operators of the
Other Contract Areas so as to conserve and permit full utilization
of such natural gas. The sources of supply, producing rates,
quality of gas, metering and related matters shall be matters for
study by the East Kalimantan Gas Reserves Management Committee,
consisting of representatives from Pertamina, Huffco, Total
Indonesie and Unocal Indonesia, Ltd.
ARTICLE 4
4.1 Pertamina shall be responsible for the due and prompt
administration of the Badak III LNG Sales Contract for the benefit
of Pertamina and Contractors. All matters which affect the Badak
III LNG Sales Contract or the sale and delivery of LNG thereunder
will be administered by a representative to be appointed by
Pertamina and the representative appointed by Contractors under
Article 8. It is understood, however, that it will be necessary
from time to time for Pertamina, as seller, to take certain
administrative and operational actions without prior consultation
where immediate action is required. Contractors will be promptly
advised of such action.
4.2 Pertamina and Contractors agree to consult with each
other freely on all matters relating to the Badak III LNG Sales
Contract. Pertamina and Contractors shall confer and agree as to
any amendment to the Badak III LNG Sales Contract or to any
permitted action or election thereunder which constitutes a
material adjustment in the quantities of LNG to be sold and
delivered thereunder or change in the terms thereof. At the
request of any party hereto, a memorandum evidencing such agreement
shall be prepared as soon as feasible and signed by each party
hereto.
ARTICLE 5
5.1 Pertamina will cause the LNG resulting from the
liquefaction of the Huffco Contract Gas and the Other Contract Gas
to be transported by LNG tanker from the Bontang Plant and
delivered to Buyer at the "Delivery Point" as defined in the Badak
III LNG Sales Contract. Title to each Contractor's share of LNG
extracted from the Huffco Contract Gas shall pass to Pertamina eo
instante with the passage of title from Pertamina to Buyer.
5.2 At the time of delivery of each cargo of LNG to Buyer at
the Delivery Point, Pertamina will furnish Contractors with
appropriate documentation to evidence the quantity and quality
thereof, together with copies of the invoices to Buyer covering
such shipment. Pertamina will also furnish to Contractors a copy
of each invoice or billing delivered to Buyer on account of (a)
take-or-pay, (b) interest or (c) other payment obligation of Buyer
under the Badak III LNG Sales Contract, concurrently with its being
furnished to Buyer. Calculation of the "Contract Sales Price"
under the Badak III LNG Sales Contract, the amount of sales
invoices and other billings to Buyer, and any adjustments, shall
be reviewed and approved by Pertamina and Contractors prior to
presentation to Buyer.
ARTICLE 6
6.1 The amounts to be paid to each Contractor for its share
of the LNG resulting from the liquefaction of natural gas to be
supplied under this Agreement shall be its Production Sharing
Percentage of the Producers' Percentage of the sum of:
(a) all amounts to be paid by Buyer to Pertamina for LNG
sold and delivered under the Badak III LNG Sales Contract;
(b) all other amounts which Buyer shall become obligated
to pay pursuant to the Badak III LNG Sales Contract including,
without limitation, amounts payable:
(i) on account of LNG required to be taken but
which is not taken by Buyer;
(ii) pursuant to Paragraph 2 of the letter
between Pertamina and Buyer of even date
with the Badak III LNG Sales Contract for
deposit in the Disputed Force Majeure
Account under the Disputed Force Majeure
Account Agreement dated March 19, 1987
(herein referred to as the "Disputed Force
Majeure Account Agreement") which amounts
are subsequently distributable to Pertamina
pursuant to such letter and agreement; and
(iii) for interest accruing on overdue invoice
payments or pursuant to Paragraphs 2(b) and
(c) of the letter referred to in (ii)
above;
(c) amounts payable by insurers in respect of LNG
resulting from the liquefaction of the Huffco Contract Gas and the
Other Contract Gas; and
(d) interest earned on any of the amounts referred to in
this Section 6.1.
6.2 In order to arrange for the receipt by each Contractor of
the payments to which such Contractor is entitled under Section
6.1, Pertamina hereby assigns to each Contractor that Contractor's
Production Sharing Percentage of the Producers' Percentage of all
amounts referred to in Section 6.1.
6.3 Throughout the term of this Agreement, all payments
referred to in Section 6.1, except as otherwise provided in
paragraph 2 of the letter referred to in Section 6.1(b)(ii), shall
be paid in U.S. Dollars, directly to Continental Bank International
in New York City (or such other leading bank in the United States
as shall be selected by Pertamina and approved by Contractors)
pursuant to a Trustee and Paying Agent Agreement, the parties to
which shall be Pertamina, Contractors, the production sharing
contractors in the Other Contract Areas and the Trustee thereunder.
Pertamina shall instruct Chemical Bank (or any successor bank under
the Disputed Force Majeure Account Agreement) in writing to the
effect that all amounts distributable by such bank to Pertamina
pursuant to Section 5 of the Disputed Force Majeure Account
Agreement shall be paid by such bank to Continental Bank
International (or its "Successor") pursuant to the said Trustee and
Paying Agent Agreement. Cargo insurance policies covering LNG
transported for sale under the Badak III LNG Sales Contract shall
specify that all proceeds shall be paid to Continental Bank
International (or its "Successor") pursuant to said Trustee and
Paying Agent Agreement. The said Trustee and Paying Agent
Agreement shall provide that amounts received by the Trustee shall
be used for payment of Financing Costs, Transportation Costs, Plant
Operating Costs and other costs approved by Pertamina and
Contractors. Amounts received by the Trustee, to the extent that
they are not used for payment of the costs referred to in the
preceding sentence, shall, insofar as they are applicable to the
Huffco Contract Gas, be disbursed to Pertamina and each Contractor
in accordance with its Production Sharing Percentage at a bank or
banks of its choice.
6.4 (a) The right of Contractors to the payments provided
for in this Article 6 shall extend throughout the term of this
Agreement and shall not be affected by the production rates or
sources of natural gas supplied from the Huffco Contract Area or
the Other Contract Areas from time to time during the term hereof.
(b) If the quantities of net natural gas produced from
the Huffco Contract Area and delivered pursuant to this Agreement
exceed in the aggregate the quantity of the Huffco Contract Gas,
the Producers' Percentage (and the revenues to be paid to Pertamina
and Contractors hereunder) will not be increased, except in the
event of an occurrence contemplated in Section 6.4(d), and
Contractors, together with Pertamina, will be credited with and
have the right to receive revenue from future marketing
opportunities in respect of a quantity of net natural gas from
reserves in the Other Contract Areas equal to such excess
quantities.
(c) If the quantities of net natural gas produced from
the Huffco Contract Area and delivered pursuant to this Agreement
are in the aggregate less than the quantity of the Huffco Contract
Gas, the Producers' Percentage (and the revenues to be paid to
Pertamina and Contractors hereunder) will not be reduced, except in
the event of an occurrence contemplated in Section 6.4(d), and the
production sharing contractors in the Other Contract Areas,
together with Pertamina, will be credited with and have the right
to receive revenue from future marketing opportunities in respect
of a quantity of net natural gas from reserves in the Huffco
Contract Area equal to excess quantities delivered from sources
within the Other Contract Areas.
(d) If an insufficiency of deliverable reserves of
natural gas shall occur which precludes the delivery from
participating fields within the Huffco Contract Area or from
participating fields within either or both of the Other Contract
Areas of the aggregate amount of natural gas committed therefrom
pursuant to this Agreement or to one or both of the supply
agreements referred to in Section 2.3 over the term thereof, then
such insufficiency shall be delivered from participating fields
within the area(s) not experiencing an insufficiency of deliverable
reserves and the Producers' Percentage shall thereupon be adjusted
(together with a corresponding adjustment to the Huffco Contract
Gas) to reflect the revised share of the net natural gas in support
of Pertamina's obligations under the Badak III LNG Sales Contract
which will be supplied and delivered from the Huffco Contract Area
over the term hereof, such adjustment in the Producers' Percentage
to apply only to payments provided for in this Article 6 received
after the date thereof. The procedure for determining (a) an
insufficiency in deliverable reserves, (b) the allocation between
the Huffco Contract Area and one of Other Contract Areas of the
right to supply any deficiency in deliveries of the Other Contract
Gas or the allocation between the Other Contract Areas of the right
to supply any deficiency in deliveries of the Huffco Contract Gas,
and (c) the calculation of the future Producers' Percentage shall
be made in accordance with principles to be decided upon by
Pertamina.
ARTICLE 7
ALL DISPUTES ARISING IN CONNECTION WITH THIS AGREEMENT SHALL
BE FINALLY SETTLED BY ARBITRATION CONDUCTED IN THE ENGLISH
LANGUAGE IN PARIS, FRANCE, BY THREE ARBITRATORS UNDER THE RULES
OF
ARBITRATION OF THE INTERNATIONAL CHAMBER OF COMMERCE.
JUDGMENT
UPON THE AWARD RENDERED MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION, OR APPLICATION MAY BE MADE TO SUCH COURT FOR A
JURIDICAL ACCEPTANCE OF THE AWARD AND AN ORDER OF ENFORCEMENT,
AS
THE CASE MAY BE.
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES
OF AMERICA.
ARTICLE 8
Huffco is designated representative by Contractors for
performance on behalf of Contractors of their obligation under
Section 4.1 and for the giving of notices, responses or other
communications to and from Contractors under this Agreement.
Such representative may be changed by written notice to such
effect from Contractors to Pertamina.
ARTICLE 9
Any notices to the parties shall be in writing and sent by
mail or telex to the following addresses:
To Pertamina:
PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA
(PERTAMINA)
Jalan Medan Merdeka Timur 1 A
Jakarta, Indonesia
Attention: Head of BKKA
Cable: PERTAMINA, Jakarta, Indonesia
Telex: PERTAMINA, 44134 Jakarta
Telecopy: 5200834
To Contractors:
HUFFCO INDONESIA
6th Floor, Kuningan Plaza
South Tower
JL.H.R. Rasuna Said Kav. C11-14
P.O. Box 2828
Jakarta Selatan, Indonesia
Attention: President
Cable: Huffco
Telex: 79644421
Telecopy: 5200174 or 3800037
cc: Roy M. Huffington, Inc.
InterFirst Plaza
1100 Louisiana
P.O. Box 4455
Houston, Texas 77210
U.S.A.
Attention: President
Telex: 762-810
Telecopy: (713) 651-0104
A party may change its address by written notice to the other
parties.
ARTICLE 10
10.1 This Agreement shall not be amended or modified except
by written agreement signed by the parties hereto.
10.2 This Agreement shall inure to the benefit of, and be
binding upon, Pertamina and each Contractor, their respective
successors and assigns, provided that this Agreement shall be
assignable by a Contractor only if such Contractor concurrently
assigns to the same assignee an equal interest in the Production
Sharing Contract.
10.3 The parties to this Agreement shall be the only persons
or entities entitled to enforce the obligations hereunder of the
other parties hereto, and no persons or entities not parties to
this Agreement shall have the right to enforce any of the
obligations hereunder of any of the parties hereto.
IN WITNESS WHEREOF, Pertamina and Contractors have caused
their duly authorized representatives to execute this Agreement
on the day and year first written above, but effective as of
March 19, 1987.
PERUSAHAAN PERTAMBANGAN MINYAK CONTRACTORS:
DAN GAS BUMI NEGARA (PERTAMINA)
ROY M. HUFFINGTON, INC.
BY ___________/s/______________ BY ________/s/__________
HUFFINGTON CORPORATION
BY _________/s/_________
VIRGINIA INTERNATIONAL COMPANY
BY __________/s/_________
VIRGINIA INDONESIA COMPANY
BY ___________/s/_________
ULTRAMAR INDONESIA LIMITED
BY ___________/s/_________
UNION TEXAS EAST KALIMANTAN
LIMITED
BY ___________/s/__________
UNIVERSE TANKSHIPS, INC.
BY ___________/s/__________